On April 1, Year 1, Company P purchased 85% of S Company for total consideration of $357,000, which included $30,000 of contingent consideration as measured according to GAAP at fair value. Each company has a December 31 year-end. The complete equity method is used to account for the investment in S. The income statements, balance sheets, and the statements of cash flows for relevant time periods are reported below along with consolidated numbers. On the acquisition date, land on Company S’s books is undervalued by $40,000. Any remaining excess of purchase price over fair value of net assets is attributed to goodwill. At the end of Year 1, Company S declared, but did not pay, a $30,000 dividend. The contingent consideration had increased in fair value to $36,600 as of December 31, Year 1. The financial statements are presented below. Required: 1. Prepare the computation and allocation of difference between implied and book value acquired schedule on the date of acquisition. 2. Prepare the consolidated work paper for year 1. 3. Examine the consolidated statement of cash flows prepared using the indirect format. Determine how the following amounts were computed and indicate the direction of the change in the account and the effect of the change on cash from operations. a. Controlling interest in income, $148,620 b. Cash paid for acquisitions, $320,400 c. The change in accounts receivable, $15,300 d. The change in inventory, ($15,600) e. The change in accounts and notes payable, $61,500 View Solution:
On April 1 Year 1 Company P purchased 85 of