Difference between Implied and Book Value 180,000 Computation and Allocation of Difference Schedule Parent Non- Entire Share Controlling Value Share Purchase price and implied value $585,000 195,000 780,000 * Less: Book value of equity acquired 450,000 150,000 600,000 Difference (IV&BV) 135,000 45,000 180,000 Equipment ($705,000 – $525,000) (135,000) (45,000) (180,000) Balance - 0 - - 0 - - 0 - Part A Equipment 180,000 Difference between Implied and Book Value 180,000   Depreciation Expense ($180,000/10) 18,000 Accumulated Depreciation 18,000

Part B   Allocated to Equipment = 180000 ÷10/15 = 270,000 Allocated to Accumulated Depreciation = 270,000 * 5/15= 90,000 Equipment 270,000 Accumulated Depreciation 90,000 Difference (IV&BV) 180,000 Depreciation Expense ($180,000/10) 18,000 Accumulated Depreciation 18,000

Part A Investment in Saddler Corporation 525,000 Cash 525,000 Exercise 5-3   Part A Investment in Saddler Corporation 525,000 Cash 525,000 Part B Computation and Allocation of Difference Schedule Parent Non- Entire Share Controlling Value Share Purchase price and implied value $525,000 131,250 656,250 * Less: Book value of equity acquired 480,000 120,000 600,000 Difference between implied and book value 45,000 11,250 56,250 Inventory (16,000) (4,000) (20,000) Marketable Securities (20,000) (5,000) (25,000) Plant and Equipment (24,000) (6,000) (30,000) Balance (excess of FV over implied value) (15,000) (3,750) (18,750) Gain 15,000 Increase Noncontrolling interest to fair value of assets 3,750 Total allocated bargain 18,750 Balance -0- -0- -0-

Computation and Allocation of Difference Schedule Parent Non- Entire Share Controlling Value Share Purchase price and implied value $260,000 65,000 325,000 * Less: Book value of equity acquired 270,000 67,500 337,500 Difference between implied and book value (10,000) (2,500) (12,500) Inventory (4,000) (1,000) (5,000) Current Assets (4,000) (1,000) (5,000) Equipment (net) (40,000) (10,000) (50,000) Balance (excess of FV over implied value) (58,000) (14,500) (72,500) Gain 58,000 Increase Noncontrolling interest to fair value of assets 14,500 Total allocated bargain 72,500 Balance -0- -0- -0-

Part B (1) Common Stock 207,000 Beginning Retained Earnings- 130,500 Difference (IV&BV) 12,500 Investment in Salem Company 260,000 Noncontrolling interest 65,000 (2) Difference (IV&BV) 12,500 Inventory 5,000 Current Assets 5,000 Equipment (net) 50,000 Gain on acquisition 58,000 Noncontrolling interest 14,500

aPresent Value on 1/1/2010 of 10% Bonds Payable Computation and Allocation of Difference Schedule Parent Non- Entire Share Controlling Value Share Purchase price and implied value $2,000,000 500,000 2,500,000 * Less: Book value of equity acquired 1,760,000 440,000 2,200,000 Difference between (IV&BV) 240,000 60,000 300,000 Land ($100,000 – $ 80,000) (16,000) (4,000) (20,000) Premium on Bonds Payablea 31,941 7,985 39,926 Balance 255,941 63,985 319,926 Goodwill (255,941) (63,985) (319,926) Balance -0- -0- -0- aPresent Value on 1/1/2010 of 10% Bonds Payable Discounted at 8% over 5 periods Principal ($500,000 * 0.68058) $340,290 Interest ($50,000 * 3.99271) 199,636 Fair value of bond $539,926 Face value of bond 500,000 Bond premium 39,926

Unamortized Premium on Bonds Payable 39,926 Land 20,000 Goodwill 319,926 Unamortized Premium on Bonds Payable 39,926 Difference between (IV&BV) 300,000   Unamortized Premium on Bonds Payable 6,806 Interest Expense ($50,000 – ($539,926 * 0.08)) 6,806 a Effective Interest (($539,926 * 0.08) $(43,194) Nominal Interest (0.10 * $500,000) 50,000 Difference $6806

Exercise 5-10

a Present Value on 1/2/2007 of 9% Bonds Payable Part A   Computation and Allocation of Difference Schedule Parent Non- Entire Share Controlling Value Share Purchase price and implied value $3,500,000 388,889 3,888,889 * Less: Book value of equity acquired 3,150,000 350,000 3,500,000 Difference between (IV&BV) 350,000 38,889 388,889 Land ($200,000 - $ 120,000) (72,000) (8,000) (80,000) Premium on Bonds Payablea 56,867 6,319 63,186 Balance 334,867 37,208 372,075 Goodwill (334,867) (37,208) (372,075) Balance -0- -0- -0- a Present Value on 1/2/2007 of 9% Bonds Payable Discounted at 6% for 5 periods Principal ($500,000 *0.74726) $373,630 Interest ($45,000 * 4.21236) 189,556 Fair value of bond $563,186 Face value of bond 500,000 Premium on bond payable 63,186

Land 80,000 Goodwill 372,075 Unamortized Premium on Bonds Payable 63,186 Difference between(IV&BV) 388,889   Unamortized Premium on Bonds Payable 11,209 Interest Expense 11,209a a Effective Interest (0.06 *$563,186) $(33,791) Nominal Interest (0.09 * $500,000) 45,000 Difference 11,209

Exercise 5-11

Dividends Declared (0.80 ×$20,000) 16,000 Part 1 – Cost Method Computation and Allocation of Difference Schedule Parent Non- Entire Share Controlling Value Share Purchase price and implied value $2,276,000 569,000 2,845,000 * Less: Book value of equity acquired 2,000,000 500,000 2,500,000 Difference (IV&BV) 276,000 69,000 345,000 Inventory (36,000) (9,000) (45,000) Equipment (40,000) (10,000) (50,000) Balance 200,000 50,000 250,000 Goodwill (200,000) (50,000) (250,000) Balance -0- -0- -0- 2010   (1) Dividend Income 16,000 Dividends Declared (0.80 ×$20,000) 16,000 To eliminate intercompany dividends

2) Beginning Retained Earnings 700,000 Capital Stock 1,800,000 Difference between Implied and Book Value 345,000 Investment in Sand Company 2,276,000 Noncontrolling interest 569,000   (3) Cost of Goods Sold (Beginning Inventory) 45,000 Equipment (net) 50,000 Goodwill 250,000 Difference between (IV&BV) 345,000   (4) Depreciation Expense ($50,000/8) 6,250 Equipment (net) 6,250

2011 (1) Investment in Sand Company ($80,000 ×0.80) 64,000 Beginning Retained Earnings 64,000 To establish reciprocity/convert to equity method as of 1/1/2008   (2) Dividend Income ($30,000 * 0.80) 24,000 Dividends Declared 24,000 To eliminate intercompany dividends (3) Beginning Retained Earnings ($700,000 + $100,000 – $20,000) 780,000 Capital Stock 1,800,000 Difference between Implied and Book Value 345,000 Investment in Sand Company ($2,276,000 + $64,000) 2,340,000 NCI ($569,000 + 16000) 585,000

(4) Beginning Retained Earnings-Piper Company 36,000 Noncontrolling Interest 9,000 Equipment (net) 50,000 Goodwill 250,000 Difference between Implied and Book Value 345,000   (5) Beginning Retained Earnings-Piper Company 5,000 Noncontrolling Interest 1,250 Depreciation Expense ($50,000/8) 6,250 Equipment (net) 12,500

2012 (1) Investment in Sand Company ($200,000 *0.80) 160,000 Beginning Retained Earnings-Piper Company 160,000 To establish reciprocity/convert to equity method as of 1/1/2009   (2) Dividend Income ($15,000 * 0.80) 12,000 Dividends Declared 12,000 To eliminate intercompany dividends (3) Beginning Retained Earnings($780,000 + $150,000 – $30,000) 900,000 Common Stock- Sand Company 1,800,000 Difference between Implied and Book Value 345,000 Investment ($2,276,000 + $160,000) 2,436,000 NCI ($569,000 + ($900,000 – $700,000) x 0.20) 609,000 To eliminate investment account and create noncontrolling interest account

(4) Beginning Retained Earnings-Piper Company 36,000 Noncontrolling Interest 9,000 Equipment (net) 50,000 Goodwill 250,000 Difference between (IV&BV) 345,000   (5) Beginning Retained Earnings-Piper Company 10,000 Noncontrolling Interest 2,500 Depreciation Expense ($50,000/8) 6,250 Equipment (net) 18,750

(1) Investment in Saxton Corporation 225,000 Computation and Allocation of Difference Schedule Parent Non- Entire Share Controlling Value Share Purchase price and implied value $3,750,000 416,667 4,166,667 * Less: Book value of equity acquired 3,600,000 400,000 4,000,000 Difference between (IV&BV) 150,000 16,667 166,667 Inventory (90,000) (10,000) (100,000) Land (360,000) (40,000) (400,000) Balance (excess of FV over implied value) (300,000) (33,333) (333,333) Gain 300,000 Increase NCI to fair value of assets 33,333 Total allocated bargain 333,333 Balance -0- -0- -0- (1) Investment in Saxton Corporation 225,000 Beginning Retained Earnings-Palm Inc. 225,000 To establish reciprocity/convert to equity (0.90 *($1,250,000 – $1,000,000))

(2) Beginning Retained Earnings-Saxton Co.1/1/2012 1,250,000 Capital Stock- Saxton Co. 3,000,000 Difference between Implied and Book Value 166,667 Investment ($3,750,000 + $225,000) 3,975,000 Noncontrolling Interest 441,667 To eliminate the investment amount and create noncontrolling interest account   (3) Beginning Retained Earnings-Palm Inc. 90,000 Noncontrolling Interest 10,000 Land 400,000 Difference between (IV&BV) 166,667 Gain on Acquisition 300,000 Noncontrolling Interest 33,333 To allocate and depreciate the difference between implied and book value