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Homework answers / question archive / Presented below are selected amounts from the separate unconsolidated financial statements of Poe Corp
Presented below are selected amounts from the separate unconsolidated financial statements of Poe Corp. and its 90%-owned subsidiary, Shaw Co., at December 31,2002.
Additional information as follow:Poe Shaw $710,000 490,000 21,000 $530,000 370,000 Selected income statement amounts Sales Cost of goods sold Gain on sale of equipment Earnings from investment in subsidiary Interest expense Depreciation 63,000 16,000 20,000 25,000 Selected balance sheet amounts Cash Inventories Equipment Accumulated depreciation Investment in Shaw Investment in Shaw bonds Discount on bonds Bonds payable Common stock Additional paid-in capital Retained earnings $ 50,000 229,000 440,000 (200,000) 191,000 100,000 (9,000) $ 15,000 150,000 360,000 (120,000) (100,000) (250,000) (404,000) (200,000) (10,000) (40,000) (140,000) Selected statement of retained earnings amounts Beginning balance, December 31, 20X1 Net income Dividends paid $272,000 212,000 80,000 $100,000 70,000 30,000
Additional information:
• On January 2, 20X2, Poe, Inc. purchased 90% of Shaw Co.’s 100,000 outstanding common stock for cash of $155,000. On that date the fair value of the noncontrolling interest was $1.70 per share. On that date, Shaw’s stockholders’ equity equaled $150,000 and the fair values of Shaw’s identifiable assets and liabilities equalled their carrying amounts. Poe has accounted for the purchase as an acquisition.
Calculate the amounts that will appear on Poe’s consolidated financial statement on December 31,
20X2.
1. Cash (0.5 mark)
2. Goodwill (0.5 mark)
3. Equipment (0.5 mark)
4. Common stock (0.5 mark)
5. Investment in Shaw (0.5 mark)
6. Dividends (0.5 mark)
7. Bonds payable (0.5 mark)
8. Non-controlling interest (0.5 mark)
Q2: Differentiate between stock acquisition and assets acquisition? (1 mark)
0Calculation of the amounts that will appear on Poe’s consolidated financial statement on December 31, 20X2.
1)Cash
| Particulars | Amount |
| Cash balance as on 31.12.02 as per Poe Balance sheet (A) | 50000 |
| Cash balance as on 31.12.02 as per Shaw Balance sheet (B) | 15000 |
| Total Cash balance(A+B) | 65000 |
2)Goodwill
| Particulars | Amount |
| Cost of investment in Shaw | 155000 |
| Add: Non Controlling Interest @ Fair value (10% of 10000 * 1.75) | 1750 |
| Less: Identifiable Net asset of Subsidiary (Note-1) | 150000 |
| Goodwill | 6750 |
Note
1. Identifiable Net Asset of Subsidiary
Share Capital of Shaw Ltd +Retained Earning as on 31.12.01+Additional Paid in Capital
=10000+40000+100000=150000
2.Additional Paid in Capital is included assuming there is no addition in the said amount in current year.
3. Equipment
| Particulars | Amount |
| Gross value of equipment as per Poe Balance sheet | 440000 |
| Add: Gross value of equipment as per Shaw Balance sheet | 360000 |
| Less: Accumulated Depreciation as per poe Balance sheet | 200000 |
| Less :Accumulated Depreciation as per Shaw Balance sheet | 120000 |
| Net Figure for consolidated financial Statement | 480000 |
4. Common Stock
Common Stock will be Common Stock of Poe as on 31.12.02 i.e. $100000.
5. Investment in Shaw is the amount paid to acquire Shaw's 90% share i.e $155000. However, if fair value is available then Investment in Subsidiary shall be shown at fair value i.e $191000.
6.Dividends
In the Consolidated Financial Statement the net effect of dividend received by Poe Ltd from Shaw ltd will be nil as dividend income of $27000($30000*90%) will be shown as dividend income in Statement of Profit and Loss and same will be reduced from the retained earning of parent while consolidating subsidiary and parent. hence giving total effect of $0.
However, Dividend paid by Poe Ltd to its Shareholder of $80000 shall be reduced from retained earning will calculating retained earning for the year end.
7. Bond Payable
Bond payable shall be $100000 i.e. ($200000-$100000).
8. Non Controlling Interest
| Particulars | Amount |
| Non Controlling Interest As per Fair Value (10000*1.75) | 1750 |
| Add: Post Acquisition Profit (70000*10%) | 7000 |
| Less: Dividend Paid (30000*10%) | 3000 |
| Total Non Controlling Interest | 3750 |
2. Difference between Stock acquisition and Asset Acquisition
An Asset transaction is actually the sum of the sales of each of the individual assets and an assumption of agreed-upon liabilities.
Whereas when the transaction is structured as a stock acquisition,the acquisition results in a transfer of the ownership of the business entity itself, but the entity continues to own the same assets and have the same liabilities.
In an asset sale, the seller remains as the legal owner of the entity, while the buyer purchases individual assets of the company,
