Advance financial accounting-Financial Projections project

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Practice

On January 1, 2020, Paloma Corporation exchanged $1,710,000 cash for 90 percent of the outstanding voting stock of San Marco Company. The consideration transferred by Paloma provided a reasonable basis for assessing the total January 1, 2020, fair value of San Marco Company. At the acquisition date, San Marco reported the following owners’ equity amounts in its balance sheet:
Common stock $ 400,000
Additional paid-in capital 60,000
Retained earnings 265,000
In determining its acquisition offer, Paloma noted that the values for San Marco’s recorded assets and liabilities approximated their fair values. Paloma also observed that San Marco had developed internally a customer base with an assessed fair value of $800,000 that was not reflected on San Marco’s books. Paloma expected both cost and revenue synergies from the combination.
1. Prepare an excess fair-value allocation and amortization schedule and goodwill allocation schedule:
2. Use the following separate financials for the year ended December 31, 2021 to prepare consolidated totals:
Paloma San Marco DR CR NCI Consolidated Totals Entry S
Revenues (1,843,000) (675,000) (2,518,000)
Cost of goods sold 1,100,000 322,000 1,422,000
Depreciation expense 125,000 120,000 245,000
Amortization expense 275,000 11,000 - 0 286,000
Interest expense 27,500 7,000 34,500
Equity in income of San Marco (121,500) - 0 - 0 (121,500) Entry A1
Net income (437,000) (215,000)
Consolidated net income (652,000)
Noncontrolling interest in CNI - 0
Controlling interest net income (652,000) Entry A2
Retained earnings, 1/1 (2,625,000) (395,000) - 0 (3,020,000)
Net income (437,000) (215,000) (652,000)
Dividends declared 350,000 25,000 - 0 375,000 Entry I
Retained earnings, 12/31 (2,712,000) (585,000) (3,297,000)
Entry D
Current assets 1,204,000 430,000 1,634,000
Investment in San Marco 1,854,000 - 0 - 0 - 0 1,854,000
Buildings and equipment 931,000 863,000 1,794,000 Entry E
Copyrights 950,000 107,000 1,057,000
Goodwill - 0 - 0 - 0 - 0
Customer base - 0 - 0 - 0 - 0 - 0
Total assets 4,939,000 1,400,000 6,339,000 NCI - Net Income
Accounts payable (485,000) (200,000) (685,000)
Notes payable (542,000) (155,000) (697,000)
Common stock (900,000) (400,000) - 0 (1,300,000) -0
Additional paid-in capital (300,000) (60,000) - 0 (360,000)
Noncontrolling interest - 0 - 0 NCI - Equity
Retained earnings, 12/31 (2,712,000) (585,000) (3,297,000)
Total liabilities and equities (4,939,000) (1,400,000) - 0 - 0 (6,339,000)
- 0 - 0 - 0 - 0
-0

Solution

On January 1, 2020, Paloma Corporation exchanged $1,710,000 cash for 90 percent of the outstanding voting stock of San Marco Company. The consideration transferred by Paloma provided a reasonable basis for assessing the total January 1, 2020, fair value of San Marco Company. At the acquisition date, San Marco reported the following owners’ equity amounts in its balance sheet:
Common stock $ 400,000
Additional paid-in capital 60,000
Retained earnings 265,000
In determining its acquisition offer, Paloma noted that the values for San Marco’s recorded assets and liabilities approximated their fair values. Paloma also observed that San Marco had developed internally a customer base with an assessed fair value of $800,000 that was not reflected on San Marco’s books. Paloma expected both cost and revenue synergies from the combination.
1. Prepare an excess fair-value allocation and amortization schedule and goodwill allocation schedule:
Fair value of San Marco Company 1,900,000 Goodwill allocated to Parent 337,500
Book value of San Marco Company 725,000 Goodwill allocated to NCI 37,500
Excess fair value 1,175,000 Useful Life Annual Amort Exp
Customer base (10-year remaining life) 800,000 10 80,000
Goodwill 375,000 0 - 0
80,000
2. Use the following separate financials for the year ended December 31, 2021 to prepare consolidated totals:
Paloma San Marco DR CR NCI Consolidated Totals Entry S
Revenues (1,843,000) (675,000) (2,518,000) Common stock 400,000
Cost of goods sold 1,100,000 322,000 1,422,000 Additional paid-in capital 60,000
Depreciation expense 125,000 120,000 245,000 Retained earnings 395,000
Amortization expense 275,000 11,000 80,000 366,000 Investment in San Marco 769,500
Interest expense 27,500 7,000 34,500 NCI 85,500
Equity in income of San Marco (121,500) - 0 121,500 - 0 Entry A1
Net income (437,000) (215,000) Customer base 720,000
Consolidated net income (450,500) Investment in San Marco 648,000
Noncontrolling interest in CNI (13,500) NCI 72,000
Controlling interest net income (437,000) Entry A2
Goodwill 375,000
Retained earnings, 1/1 (2,625,000) (395,000) 395,000 (2,625,000) Investment in San Marco 337,500
Net income (437,000) (215,000) (437,000) NCI 37,500
Dividends declared 350,000 25,000 (22,500) (2,500) 350,000 Entry I
Retained earnings, 12/31 (2,712,000) (585,000) (2,712,000) Equity in income of San Marco 121,500
Investment in San Marco 121,500
Entry D
Current assets 1,204,000 430,000 1,634,000 Investment in San Marco 22,500
Investment in San Marco 1,854,000 - 0 22,500 (1,876,500) - 0 Dividends declared 22,500
Buildings and equipment 931,000 863,000 1,794,000 Entry E
Copyrights 950,000 107,000 1,057,000 Amortization expense 80,000
Goodwill - 0 - 0 375,000 375,000 Customer base 80,000
Customer base - 0 - 0 720,000 (80,000) 640,000
Total assets 4,939,000 1,400,000 5,500,000 NCI - Net Income
Accounts payable (485,000) (200,000) (685,000) Sub's NI x 10% (21,500)
Notes payable (542,000) (155,000) (697,000) Excess amortization x 10% 8,000
Common stock (900,000) (400,000) 400,000 (900,000) (13,500)
Additional paid-in capital (300,000) (60,000) 60,000 (300,000)
Noncontrolling interest (195,000) (206,000) NCI - Equity
Retained earnings, 12/31 (2,712,000) (585,000) (2,712,000) BOY Balance (195,000)
Total liabilities and equities (4,939,000) (1,400,000) 2,174,000 (2,174,000) (5,500,000) Sub's NI x 10% (21,500)
- 0 - 0 - 0 - 0 Excess amortization x 10% 8,000
Sub's dividends x 10% 2,500
(206,000)