Computation and Allocation of Difference ScheduleParent Non- Entire

Share Controlling ValueShare

Purchase price and implied value $585,000 195,000 780,000 *Less: Book value of equity acquired 450,000 150,000 600,000

Difference (IV&BV) 135,000 45,000 180,000Equipment ($705,000 – $525,000) (135,000) (45,000) (180,000)

Balance - 0 - - 0 - - 0 -

Part A Equipment 180,000 Difference between Implied and Book Value 180,000

Depreciation Expense ($180,000/10) 18,000 Accumulated Depreciation 18,000

Part B Allocated to Equipment = 180000 ÷10/15  =  270,000Allocated to Accumulated Depreciation = 270,000 * 5/15= 90,000  

Equipment           270,000 Accumulated Depreciation  90,000 Difference (IV&BV)              180,000 

 Depreciation Expense ($180,000/10) 18,000 

Accumulated Depreciation               18,000  

Part B Computation and Allocation of Difference Schedule

Parent Non- Entire

Share Controlling Value

Share

Purchase price and implied value $525,000 131,250 656,250 *

Less: Book value of equity acquired 480,000 120,000 600,000

Difference between implied and book value 45,000 11,250 56,250

Inventory (16,000) (4,000) (20,000)

Marketable Securities (20,000) (5,000) (25,000)

Plant and Equipment (24,000) (6,000) (30,000)

Balance (excess of FV over implied value) (15,000) (3,750) (18,750)

Gain 15,000

Increase Noncontrolling interest to fair value of assets 3,750

Total allocated bargain 18,750

Balance -0- -0- -0-

Exercise 5-3 Part A Investment in Saddler Corporation 525,000

Cash 525,000

Computation and Allocation of Difference Schedule

Parent Non- Entire

Share Controlling Value

Share

Purchase price and implied value $260,000 65,000 325,000 *

Less: Book value of equity acquired 270,000 67,500 337,500

Difference between implied and book value (10,000) (2,500) (12,500)

Inventory (4,000) (1,000) (5,000)

Current Assets (4,000) (1,000) (5,000)

Equipment (net) (40,000) (10,000) (50,000)

Balance (excess of FV over implied value) (58,000) (14,500) (72,500)

Gain 58,000

Increase Noncontrolling interest to fair value of assets 14,500

Total allocated bargain 72,500

Balance -0- -0- -0-

Part B(1) Common Stock 207,000

Beginning Retained Earnings- 130,500 Difference (IV&BV)

12,500 Investment in Salem Company

260,000 Noncontrolling interest

65,000

(2) Difference (IV&BV) 12,500 Inventory 5,000 Current Assets 5,000 Equipment (net) 50,000

Gain on acquisition 58,000 Noncontrolling interest 14,500

Computation and Allocation of Difference Schedule

Parent Non- Entire

Share Controlling Value

Share

Purchase price and implied value $2,000,000 500,000 2,500,000 *

Less: Book value of equity acquired 1,760,000440,000 2,200,000

Difference between (IV&BV) 240,000 60,000 300,000

Land ($100,000 – $ 80,000) (16,000) (4,000) (20,000)

Premium on Bonds Payablea 31,941 7,985 39,926

Balance 255,941 63,985 319,926

Goodwill (255,941) (63,985) (319,926)

Balance -0- -0- -0-

aPresent Value on 1/1/2010 of 10% Bonds PayableDiscounted at 8% over 5 periodsPrincipal ($500,000 * 0.68058) $340,290 Interest ($50,000 * 3.99271) 199,636 Fair value of bond $539,926 Face value of bond 500,000Bond premium 39,926

Land 20,000Goodwill 319,926

Unamortized Premium on Bonds Payable 39,926 Difference between (IV&BV) 300,000

Unamortized Premium on Bonds Payable 6,806

Interest Expense ($50,000 – ($539,926 * 0.08)) 6,806

a Effective Interest (($539,926 * 0.08) $(43,194)Nominal Interest (0.10 * $500,000) 50,000 Difference $6806

Exercise 5-10

Part A Computation and Allocation of Difference Schedule

Parent Non- EntireShare Controlling Value

SharePurchase price and implied value $3,500,000 388,889 3,888,889 *Less: Book value of equity acquired 3,150,000 350,000 3,500,000Difference between (IV&BV) 350,000 38,889 388,889Land ($200,000 - $ 120,000) (72,000) (8,000) (80,000)Premium on Bonds Payablea 56,867 6,319 63,186Balance 334,867 37,208 372,075Goodwill (334,867) (37,208) (372,075)Balance -0- -0- -0-

a Present Value on 1/2/2007 of 9% Bonds PayableDiscounted at 6% for 5 periodsPrincipal ($500,000 *0.74726) $373,630 Interest ($45,000 * 4.21236) 189,556 Fair value of bond $563,186 Face value of bond 500,000Premium on bond payable 63,186

Land 80,000 Goodwill 372,075

Unamortized Premium on Bonds Payable 63,186Difference between(IV&BV) 388,889

Unamortized Premium on Bonds Payable 11,209 Interest Expense 11,209a

a Effective Interest (0.06 *$563,186) $(33,791)Nominal Interest (0.09 * $500,000) 45,000 Difference 11,209

Exercise 5-11

Computation and Allocation of Difference ScheduleParent Non- EntireShare Controlling Value

SharePurchase price and implied value $2,276,000 569,000 2,845,000 *Less: Book value of equity acquired 2,000,000 500,000 2,500,000Difference (IV&BV) 276,000 69,000 345,000Inventory (36,000) (9,000) (45,000)Equipment (40,000) (10,000) (50,000)Balance 200,000 50,000 250,000Goodwill (200,000) (50,000) (250,000)Balance -0- -0- -0-

Part 1 – Cost Method

2010 (1) Dividend Income 16,000

Dividends Declared (0.80 ×$20,000) 16,000 To eliminate intercompany dividends

2) Beginning Retained Earnings 700,000 Capital Stock 1,800,000 Difference between Implied and Book Value 345,000

Investment in Sand Company 2,276,000Noncontrolling interest 569,000

(3) Cost of Goods Sold (Beginning Inventory) 45,000 Equipment (net) 50,000 Goodwill 250,000

Difference between (IV&BV) 345,000

(4) Depreciation Expense ($50,000/8) 6,250 Equipment (net) 6,250

2011(1) Investment in Sand Company ($80,000 ×0.80) 64,000

Beginning Retained Earnings 64,000To establish reciprocity/convert to equity method as of 1/1/2008

(2) Dividend Income ($30,000 * 0.80) 24,000 Dividends Declared 24,000

To eliminate intercompany dividends

(3) Beginning Retained Earnings ($700,000 + $100,000 – $20,000) 780,000 Capital Stock 1,800,000 Difference between Implied and Book Value 345,000

Investment in Sand Company ($2,276,000 + $64,000) 2,340,000NCI ($569,000 + 16000) 585,000

(4) Beginning Retained Earnings-Piper Company 36,000 Noncontrolling Interest 9,000Equipment (net) 50,000 Goodwill 250,000

Difference between Implied and Book Value 345,000

(5) Beginning Retained Earnings-Piper Company 5,000Noncontrolling Interest 1,250Depreciation Expense ($50,000/8) 6,250 Equipment (net) 12,500

2012(1) Investment in Sand Company ($200,000 *0.80) 160,000

Beginning Retained Earnings-Piper Company 160,000To establish reciprocity/convert to equity method as of 1/1/2009

(2) Dividend Income ($15,000 * 0.80) 12,000 Dividends Declared 12,000

To eliminate intercompany dividends

(3) Beginning Retained Earnings($780,000 + $150,000 – $30,000) 900,000 Common Stock- Sand Company 1,800,000 Difference between Implied and Book Value 345,000 Investment ($2,276,000 + $160,000) 2,436,000 NCI ($569,000 + ($900,000 – $700,000) x 0.20) 609,000To eliminate investment account and create noncontrolling interest account

(4) Beginning Retained Earnings-Piper Company 36,000Noncontrolling Interest 9,000Equipment (net) 50,000 Goodwill 250,000

Difference between (IV&BV) 345,000

(5) Beginning Retained Earnings-Piper Company 10,000Noncontrolling Interest 2,500Depreciation Expense ($50,000/8) 6,250

Equipment (net) 18,750

Computation and Allocation of Difference ScheduleParent Non- Entire

Share Controlling ValueShare

Purchase price and implied value $3,750,000 416,667 4,166,667 *Less: Book value of equity acquired 3,600,000 400,000 4,000,000Difference between (IV&BV) 150,000 16,667 166,667Inventory (90,000) (10,000) (100,000)Land (360,000) (40,000) (400,000)Balance (excess of FV over implied value) (300,000) (33,333) (333,333)Gain 300,000Increase NCI to fair value of assets 33,333Total allocated bargain 333,333Balance -0- -0- -0-

(1) Investment in Saxton Corporation 225,000 Beginning Retained Earnings-Palm Inc. 225,000

To establish reciprocity/convert to equity (0.90 *($1,250,000 – $1,000,000))

(2) Beginning Retained Earnings-Saxton Co.1/1/2012 1,250,000 Capital Stock- Saxton Co. 3,000,000 Difference between Implied and Book Value 166,667

Investment ($3,750,000 + $225,000) 3,975,000Noncontrolling Interest 441,667

To eliminate the investment amount and create noncontrolling interest account (3) Beginning Retained Earnings-Palm Inc. 90,000

Noncontrolling Interest 10,000Land 400,000

Difference between (IV&BV) 166,667 Gain on Acquisition 300,000Noncontrolling Interest 33,333

To allocate and depreciate the difference between implied and book value