Adam Company acquired 90% of the outstanding common stock of
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Saul Company on June 30, 2011 for $425,700. On that date, the fair value of
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the non-controlling interest was $47,300.
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On the acquisition date, Saul Company
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had retained earnings in the amount of $60,000, and the fair value of its
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recorded assets and liabilities was equal to their book value. The excess of
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cost over the fair value of the recorded net assets was attributed to
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an unrecorded manufacturing formula held by Saul Company, which
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had an expected remaining useful life of five years from June 30, 2011.
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On December 31, 2011, Adam company sold equipment (with an
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original cost of $200,000 and accumulated depreciation of $50,000)
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to Saul Company for $175,000. This equipment has since been
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depreciated at an annual rate of 20% of the purchase price.
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During 2012, Saul Company sold land to Adam Company at a
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profit of $30,000. Adam still holds the land acquired from Saul.
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The inventory of Adam Company on December 31, 2012 included goods
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purchased from Saul Company on which Saul recognized a profit
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of $7,500.
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During 2013, Saul Company sold goods to Adam Company for
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$375,000, of which $60,000 was unpaid at December 31, 2013. The
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December 31, 2013 inventory of Paul Company included goods acquired
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from Saul Company on which Saul recognized a profit of $10,500.
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During 2013 Adam Company sold goods to Saul Company for $600,000
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at a markup on sales of 20%. At December 31, 2013, 30% of these goods
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remain unsold by Saul Company. Saul Companystill owes Adam
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Company $180,000 for these inventory purchases.
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On January 1, 2013 Saul Company reports $600,000 in bonds outstanding with
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a book value of $564,000. Adam purchases half of these bonds on the open
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market for $291,000. Attribute the income effects of this transaction to the parent company.
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Required: Carefully Follow and label each step.
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1. Prepare the acquisition analysis as of acquisition date. Compute the
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unamortized differential as of 1/1/2013.
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2. Analyze each intercompany transaction. Label as either upstream
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downstream.
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3. Calculate Net income to the controlling interest for the year 2013
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4. Verify the calculation of the balance in the acccount equity in sub
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earnings and record the parent company entries with respect to its investment during 2013
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5. Prepare all elimination entries for 2013.
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6. Complete the consolidating spreadsheet for the year ended 2013.
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