Task:
1. Alpha Corporation purchased 70% of Beta Company on January 1, 2015, for $98,000. On that date, the non controlling interest had a fair value of $42,000 and Beta reported common stock outstanding of $100,000 and retained earnings of $20,000. The differential is partially comprised of $5,000 related to excess value of buildings and equipment. These assets have a remaining useful life of five years. During 2015 Beta had income of $40,000 and paid dividends of $10,000. Alpha uses the equity method in accounting for itsownership of Beta. On December 31, 2016 the trial balances of the companies are as follows:
Income statement
Alpha
Corporation Beta Company
Sales 200,000 120,000
Cost of goods sold -99,800 -61,000
Depreciation expense -25,000 -17,400
Interest expense -6,000 -14,000
Income from subsidary 16,620
Consolidated net income 85,820 27,600
Statement of retained earnings
Beginning balance 228,560 50,000
Net income 85,820 27,600
Less dividends declared -40,000 -10,000
Ending balance 274,380 67,600
Balance sheet
Cash & accounts receivable 81,400 39,200
Inventory 60,000 55,000
Investment in Beta 124,370
Land 40,000 30,000
Buildings & equipment 504,000 362,000
Accumulated depreciation -168,000 -77,400
Total assets 641,770 408,800
Accounts payable 86,190 41,200
Bonds payable 80,000 200,000
Bond premium 1,200
Common stock 200,000 100,000
Retained earnings 274,380 67,600
Total liabilities & equity 641,770 408,800
Beta sold inventory costing $45,000 to Alpha for $75,000 in 2015. Alpha held $9,000 in inventory at the end of 2015. Beta sold inventory costing $77,000 to Alpha in 2016 for $140,000 Alpha held $10,000 in inventory at the end of 2016. On 1/1/2015 Alpha sold equipment with a book value of $10,000 to Beta for $14,000. The equipment orginally cost Alpha $18,000. The equipment has a remaining life of 5 years at 1/1/2015.
1. Prepare an allocation of acquisition value at the time of acquisition to determine any excess value.
2. Record the equity entries made by Alpha for 2015 and 2016.
3. Prepare the analysis and entries required for the worksheet in 2015 and 2016.
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