Adam Company acquired 70% of the outstanding common stock ofSaul Company on June 30, 2011 for $331,100.

Adam Company acquired 70% of the outstanding common stock ofSaul Company on June 30, 2011 for $331,100. On that date, the fair value ofthe non-controlling interest was $141,900.On the acquisition date, Saul Companyhad retained earnings in the amount of $60,000, and the fair value of itsrecorded assets and liabilities was equal to their book value. The excess ofcost over the fair value of the recorded net assets was attributed toan unrecorded manufacturing formula held by Saul Company, whichhad an expected remaining useful life of five years from June 30, 2011.On December 31, 2011, Adam company sold equipment (with anoriginal cost of $200,000 and accumulated depreciation of $50,000)to Saul Company for $175,000. This equipment has since beendepreciated at an annual rate of 20% of the purchase price.During 2012, Saul Company sold land to Adam Company at aprofit of $30,000. Adam still holds the land acquired from Saul.The inventory of Adam Company on December 31, 2012 included goodspurchased from Saul Company on which Saul recognized a profitof $7,500.During 2013, Saul Company sold goods to Adam Company for$375,000, of which $60,000 was unpaid at December 31, 2013. TheDecember 31, 2013 inventory of Paul Company included goods acquiredfrom Saul Company on which Saul recognized a profit of $10,500.During 2013 Adam Company sold goods to Saul Company for $600,000at a markup on sales of 20%. At December 31, 2013, 30% of these goodsremain unsold by Saul Company. Saul Company still owes AdamCompany $100,000 for these inventory purchases.On January 1, 2013 Saul Company reports $600,000 in bonds outstanding witha book value of $564,000. Adam purchases half of these bonds on the openmarket for $291,000. Attribute the income effects of this transaction to the parent company.Required: Carefully Follow and label each step.1. Prepare the acquisition analysis as of acquisition date. Compute theunamortized differential as of 1/1/2013.2. Analyze each intercompany transaction. Label as either upstreamdownstream.3. Calculate Net income to the controlling interest for the year 20134. Verify the calculation of the balance in the acccount equity in subearnings and record the parent company entries with respect to its investment during 20135. Prepare all elimination entries for 2013.6. Complete the consolidating spreadsheet for the year ended 2013.totalPoints101520202015100TemplateINCOME STATEMENTFYE 12/31/13SalesEquity in sub earningsInterest income-bondsTotal revenuesP CO.S CO.2,555,50026,63033,0002,615,1301,120,000Cost of goods soldExpensesloss from bond extinguishmentInterest expense-bondsTotal expensesTotal net incomeLess income to NCINet income to controlling interest1,730,000654,500690,500251,0002,384,500230,63072,0001,013,500106,500230,630106,500Retained Earnings 1/1819,670211,500Net income230,630106,500Dividends declared100,00060,000Retained Earnings 12/31950,300258,000119,500342,000362,00040,500150,000362,300825,000(207,000)708,000125,000201,00013,0001,120,000RETAINED EARNINGSSTATEMENTBALANCE SHEETCashAccounts receivableInventoryOther current assetsLandInvestment in SProperty and equipmentAccumulated depreciationMFG formulaInvestment in S bondsTotal assets294,0002,288,300241,000(53,000)1,235,000ELIMINATIONSDR.CR.TemplateAccounts payableOther liabilitiesBonds payableDiscount on bonds payableCommon stockPaid in capitalRetained earningsNoncontrolling interest in subTotal liabilities and equity295,00043,0001,000,0000950,30032,00019,000600,000(24,000)300,00050,000258,0002,288,30011,235,0001001TemplateCONS.TOT.3,675,50026,63033,0003,735,1302,420,500905,500072,0003,398,000337,1300337,1301,031,170337,130160,0001,208,300827,500467,000563,00053,500150,000362,3001,066,000(260,000)0294,0003,523,300Template327,00062,000600,000(24,000)1,300,00050,0001,208,30003,523,3001Answer Sheet: Must use cell references from Spreadsheet TAB1. What is the unamortized differentialat January 1, 2013?2. What amount of the intercompany Equipment gain or loss that must be confirmed in 2Enter as a positive value if gain or a negative value if loss.3. What is the amount of the parent company intercompany inventory profit thatmust be unconfirmed in 2013? Enter as a positive value.4. What is the amount of the subsidiary intercompany inventory profit that is confirmed in5. What is the amount of the subsidiary intercompany inventory profit that is unconfirmed2013? Enter as a positive value.6. What is the gain or loss on the extinguishment of the bond? Enter as a positive valueif a gain and as as negative value if a loss.7. What is the NonControlling Interest Claim on the Subsidiary’s Net Income?Enter as a positive amount.8. What is the Net Income Attributed to the Controlling Interest?9. What are consolidated total assets in the Consolidated Balance Sheet?10. What is the NonControlling Interest Claim on the Subsidiary’s Equity at 12/31/13as presented in the Consolidated Balance Sheet?11. What is the adjustment to the land account in the elimination entries?Enter as a positive amount.12. What is the total elimination for intercompany sales in 2013? Included bothupstream and downstream sales.13. What is the total intercompany receivable and payables eliminated?14. What is the amortization of the differential in 2013?Enter HereWARNING! INSERTING OR CHANGING ANY FORMAT Othis sheet will impact your grade!!!HANGING ANY FORMAT ONPrepare the consolidated balance sheet only as of 12/31/13. show all elimination entries and supporting calthis will be graded separatelynation entries and supporting calculationsamort @ 13-

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