Page 584 - Accounting Principles (A Business Perspective)

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Exercise F Given the facts in the previous exercise, how much would be recorded as goodwill in each of the
following instances? The same amount was paid, but the parent company acquired a—
a. 90 per cent interest.

b. 70 per cent interest.
c. 55 per cent interest.
Exercise G Heidi Corporation acquired, for cash, 80 per cent of the outstanding voting common stock of
Sumpter Company. After the close of business on the date of acquisition, Sumpter Company's stockholders' equity
consisted of common stock, USD 5,880,000, and retained earnings, USD 2,184,000. The cost of the investment
exceeded the book value by USD 302,400 and was attributable to above-average earnings prospects. Prepare (a) the
entry to record the investment in Sumpter Company and (b) the elimination entry on the work sheet used to

prepare consolidated financial statements as of the date of acquisition.
Exercise H On 2009 January 1, Company J acquired 85 per cent of the outstanding voting common stock of
Company K. On that date, Company K's stockholders' equity consisted of:
Stockholders' equity:
Paid-in capital:
Common stock, $90 par; 30,000 shares authorized, issued, and $2,700,000
outstanding
Retained earnings 675,000
Total stockholders' equity $3,375,000
Compute the difference between cost and book value in each of the following cases:
a. Company J pays USD 2,868,750 cash for its interest in Company K.
b. Company J pays USD 3,375,000 cash for its interest in Company K.
c. Company J pays USD 2,610,000 cash for its interest in Company K.
Exercise I The 2010 January 1, stockholders' equity section of Saye Company's balance sheet follows:
Stockholders' equity:
Paid-in capital:
Common stock, $144 par; authorized, 200,000 $21,600,000
shares; issued, and outstanding, 150,000 shares
Paid-in capital in excess of par value 3,600,000
Total paid-in capital $25,200,000
Retained earnings 2,160,000
Total stockholders' equity $27,360,000
Ninety per cent of Saye Company's outstanding voting common stock was acquired by Tim Company on 2011
January 1, for USD 24,048,000. Compute (a) the book value of the investment, (b) the difference between cost and
book value, and (c) the minority interest.
Exercise J Company S purchased 90 per cent of Company T's outstanding voting common stock on 2010
January 2. The investment is accounted for under the equity method. Company S paid USD 2,790,000 for its

proportionate equity of USD 2,430,000. The difference was due to undervalued land owned by Company T.
Company T earned USD 324,000 during 2010 and paid cash dividends of USD 108,000.
a. Compute the balance in the investment account on 2010 December 31.
b. Compute the amount of the minority interest on (1) 2010 January 2, and (2) 2010 December 31.
Problems
Problem A Paris Company acquired on 2010 July 15, 400 shares of Rome Company USD 720 par value capital
stock at USD 698.40 per share plus a broker's commission of USD 1,728. On 2010 August 1, Paris Company

received a cash dividend of USD 8.64 per share. On 2010 November 3, it sold 200 of these shares at USD 756 per

Accounting Principles: A Business Perspective 585 A Global Text