Exam 5: Appendix A: Step Purchases

Correct Answer

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11ea84f2_a83d_1a67_9a63_ad1682003966_TB3071_00 Building Fair value increment Amortization per year: Fair value increment \( =\$ 1,200,000 / 30=\$ 40,000 \) annually. a. \(\begin{array}{|l|l|} \hline \text {Goodwill as calculated } & \$300,000\\ \hline \end{array}\) b. \(\begin{array}{|l|l|l|} \hline\text { NCI's } 30 \% \text { value of Bottle based on purchase } & & \\ \text { price-January } 1,20 \times 7 & & \$ 1,200,000 \\ \hline \text { Add: Increase in retained earnings Jan 1, 20X7, } & & \\ \text { to Jan } 1,20 \times 9 & \$ 320,000 & \\ \hline(\$ 1,820,000-\$ 1,500,000) & \\ \hline \text { FVA Amortizations-20X7-20X9 } & & \\ \hline \text { Building }(\$ 40,000 \times 3) & \underline{(120,000)} & \\ \hline & \underline{\$ 200,000} & \\ \hline \text { NCI's portion of adiusted earnings at } 30 \% & & 60,000 \\ \hline \text { NCI balance updated and adjusted to Jan. 1, } \\ 20 \times 9&& 1,260,000 \\ \hline\text { Less value of } 20 \% \text { of Bottle transferred to Water } \\ {[\$ 1,260,000 \times(20 \% / 30 \%)]}& & (840,000) \\ \hline \text { Value of } 10 \% \mathrm{NCI} \text { as of Jan. } 1,20 \times 9 && 420,00 \\ \hline \text { Add: Increase in retained earnings Jan 1, 20X9, } \\ \text { to Dec 31, 20X10 } & & \\ \hline(\$ 2,200,000-\$ 1,820,000) & 380,000 & \\ \hline \text { Amortizations }-20 \times 9-20 \times 10 & & \\ \hline \text { Building } 540,000 \times 2 & (80,000) & \\ \hline & \$ 300,000 & \\ \hline \text { NCI's portion of adjusted earnings at } 10 \% & & 30,000 \\ \hline \text { NCI balance, Dec. } 31,20 \times 9 & & \$ 450,000 \\ \hline \end{array}\) Adjustment to equity: \(\begin{array}{lr} \text { Fair value of consideration transferred by Water, January 1, 20X9 } & \$ 950,000 \\ \text { Change in NCI from } 30 \% \text { to } 10 \% \text { as above } &\underline{ (840,000) }\\ \text { Negative adjustment to equity } &\underline{ \underline{ \$ 110,000}} \end{array}\)