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Using the data in the Option 2 Spreadsheet(linked at the bottom of the page), perform the accounting requiredfor the acquisition of Little, Inc. by Big, Inc. This is an 80%acquisition, where the book value of the assets acquired is lessthan the acquisition price. Within the worksheet, you are to:

1. Select an accounting method (either cost or equity) andexplain why you selected this method

2. Perform the required journal entries

3. Complete the consolidation worksheet

4. Prepare the consolidated balance sheet in good form

Big CompanyBalance Sheet Which accountingmethod is most appropriate for representing an investment of thistype? Prepare Elimination Entriesfor Stock Acquisition
Assets, Liabilities & Equities Book Value Account DR CR
Cash $2,100,000
AR $10,000
Inventory $200,000
Land $40,000
PP&E $400,000
Accumulated Depreciation -$150,000
Patent $0
Total Assets $2,600,000 Prepare thejournal entries for a 80% Asset Acquisition (using Big CompanyCash)
AP $100,000
Common Stock ($10 par) $450,000 Account DR CR
Additional Paid In Capital $600,000
Retained Earnings $1,450,000
Total Liabilities &Equity $2,600,000 Prepare thejournal entries for a 80% Acquisition by issuing 10,000 shares ofBig Company Stock Big Company Balance Sheet (Consolidated)
Little Company BalanceSheet Assets, Liabilities & Equities
Assets, Liabilities & Equities Book Value Account DR CR Cash
Cash $35,000 Investment in Little AR
AR $10,000 Common Stock Inventory
Inventory $65,000 Additional Paid In Capital Land
Land $40,000 Allocation of Excess Schedule PP&E (net)
PP&E $400,000 Accumulated Depreciation
Accumulated Depreciation -$150,000 Goodwill
Patent $0 Patent
Total Assets $400,000 Total Assets
AP $100,000 AP
Common Stock $100,000 Common Stock ($10 par)
Additional Paid In Capital $50,000 Additional Paid In Capital
Retained Earnings $150,000 Retained Earnings
Total Liabilities &Equity $400,000 NCI
Total Liabilities & Equity
Assumethat all noncash assets have a Fair Value that is 10% greater thanBook Value

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Lelia Lubowitz
Lelia LubowitzLv2
29 Sep 2019

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This is a question from the Advanced Accounting (9780077632588)book. Chapter 2, number 32.

On December 31, 2014, Pacifica, Inc., acquired 100 percent ofthe voting stock of Seguros Company. Pacifica will maintainSerguros as a wholly owned subsidiary with its own legal andaccounting identity. The consideration trasferred to the owner ofSeguros included 50,000 newly issued Pacifica common shares ($20market value, $5 par value) and an agreement to pay an additional$130,000 cash if Seguros meets certain project completion goals byDecember 31, 2015. Pacifica estimates a 50 percent probability thatSeguros will be successful in meeting these goals and uses a 4percent discout rate to represent the time value of money.Immediately prior to the acquisition, the following data for bothfirms were available:

Pacifica // Seguros Book Value // Seguros Fair Value

revenues........................................$(1,200,000)

expenses...................................... 875,000

net income......................... $(325,000)

retained earnings 1/1/14.............. $(950,000)

net income................................... (325,000)

dividends declared...................... 90,000

retained earnings 12/31/14.................. $(1,185,000)

cash............................................ $110,000 //$85,000 // $85,000

receivables and inventory........................ 750,000 //190,000 // 180,000

property, plant, & equipment.................. 1,400,000 //450,000 // 600,000

trademarks............................................. 300,000// 160,000 // 200,000

total assets.................................. $2,560,000 //$885,000//

liabilities...............................................$(500,000) // (180,000) // (180,000)

commom stock................................... ($400,000) //(200,000)

additional paid in capital..................... (475,000) //(70,000)

retained earnings............................... (1,185,000) //(435,000)

total liabilities and equities.......... $(2,560,000) //$(885,000)

In addition, Pacifica assessed a research and developmentproject under way at Seguros to have a fair value of $100,000.Athough not yet recorded on its books, Pacifica paid legal fees of$15,000 in connection with the acquisition and $9,000 in stockissue costs.

Prepare the following:

a. Pacifica's entries to account for the considerationtransferred to the former owners of Seguros, the direct combinationcosts, and the stock issue and registration costs. (use a 0961538present value factor where applicable.)

b. A postacquisition colun of accounts for Pacifica.

c. A worksheet to produce a consolidated balance sheet as ofDecember 31,2014.

On January 1, 2014, McIIroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $372,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $220,000. Also, the acquisition date fair value of the 40 percent noncontrolling interest was $248,000. The subsidiary held patents (with a 10 year remaining life) that were undervalued within the company's accounting records by $70,000, and an unrecorded customer list (15 year remaining life) assessed at a $45,000 fair value. Any remaining excess acquistion date fair value was assigned to goodwill. Since acquistion, McIIroy has applied the equity method to its investment in Stinson account and no goodwill impairment has occurred. At year end, there are no intra-entity payables or receivables. Intra-entity inventory sales between the two companies have been made as follows:

Year Cost to McIIroy Transfer price to Stinson Ending Balance (at transfer price)

2014 $120,000 $150,000 $50,000

2015 $112,000 $160,000 $40,000

The individual financial statements for these two companies as of December 31, 2015 and the year then ended follow:

McIIroy, Inc. Stinson, Inc.

Sales $(700,000) $(335,000)

COGs 460,000 205,000

Operating expenses 188,000 70,000

Equity earnings in Stinson (28000) 0

Net income $(80,000) $(60,000)

Retained earnings 1/1/15 $(695,000) $(280,000)

Net income(above) (80,000) (60,000)

Dividends declared 45,000 15,000

Retained earnings 12-31-15 $(730,000) $(325,000)

Cash & receivables $248,000 $148,000

Inventory 233,000 129,000

Investment in Stinson 411,000 0

Buildings (net) 308,000 202,000

Equipment (net) 220,000 86,000

Patents (net) 0 20,000

Total assets $1,420,000 $585,000

Liabilities $(390,000) $(160,000)

Common Stock (300,000) (100,000)

Retained earnings 12-31-15 (730,000) (325,000)

Total liabilities & equities $(1,420,000) $(585,000)

a. Show how McIIroy determined the $411,000 investment in Stinson account balance. Assume that McIIroy defers 100 percent of downstream intra-entity profits against its share of Stinson's income (amounts to be deducted should be indicated with a minus sign.)

Consideration transferred _______________________________

Increase in Stinson's retained earnings 1/1/14 to 1/1/15______________________________

Excess fair value amortization _________________________________

2014 ending inventory profit deferral_____________________________

McIIroy's equity in earnings of Stinson for 2015_____________________

Stinson 2015 dividends declared to McIIroy________________________

Investment account balance 12/31/15_____________________________

b. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of Dec. 31, 2015.

Accounts McIIroy Stinson Debit Credit Non Controlling Interest Consolidation total

Sales $(700,000) $(335,000)

COGs 460,000 205,000

Operating exps 188,000 70,000

Equity in earnings of Stinson (28,000) 0

Seperate co. net income (80,000) (60,000)

Cons. net income

To NCI

To parent

Retained earnings 1/1 $(695,000) $(280,000)

Net income (80,000) (60,000)

Dividends declared 45,000 15,000

Retained earnings 12/31 (730,000) (325,000)

Cash & Rec's $248,000 $148,000

Inventory 233,000 129,000

Investment in Stinson 411,000 0

Bldgs (net) 308,000 202,000

Equip(net) 220,000 86,000

Patents(net) 0 20,000

Customer list

Goodwill

Total Assets $1,420,000 $585,000

Liabilities (390,000) (160,000)

Common Stock 300,000 100,000

NCI 1/1

NCI 12/31

Retained earnings 12/31 (730,000) (325,000)

Total Liabilities & equity $(1,420,000) $(585,000)

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