The trial balances of charles Company and its subsidiary, Letho, Inc., are as follows on December 31, 2013:
Charles Lehto
Current Assets...................................................... 590,000 130,000
Depreciable Fixed Assets.................................... 1,805,000 440,000
Accumulated Depreciation.................................... (405,000) (70,000)
Investment in Lehto, Inc........................................ 400,000
Liabilities .............................................................. (900,000) (225,000)
Common stock ($1 par) ....................................... (200,000)
Common Stock ($5 Par)........................................ (50,000)
Paid in Capital in Excess of par............................. (1,040,000) (15,000)
Retained Earnings, January 1, 2013...................... (230,0000 (170,000)
Revenues............................................................... (460,000) (210,000)
Expenses................................................................ 450,000 170,000
Dividends Declared................................................... 10,000
Totals.............................................................. 0 0
On January 1, 2011 Charles Company exchanges 20,000 shares of its common stock, with a fair value of $20 per share, for all the outstanding stock of Lehto, Inc. Fixed assets with 10-year life understated by 50,000. Any excess of cost over book value is attributed to goodwill. The stockholders' equity of Lehto, Inc., on purchase date is as follows:
Common stock ($5 par)....................................... $ 50,000
Paid-in capital in excess of par............................ 15,000
Retained earnings................................................. 135,000
Total equity..................................................... $200,000
1) prepare a determination and distribution of excess schule for investment. (A value analysis schedule is not needed.)
2) prepare the 2013 consolidated statements, includeing the income statement, retained earnings statement, and balance sheet
| Problem 3-4 Charles Company and Subsidiary Lehto, Inc. |
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Company Implied Fair Value |
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Parent Price (100%) |
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NCI Value (0%) |
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| Fair value of subsidiary |
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Common Stock |
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Paid-In Capital in excess of par |
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Retained Earnings |
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Total Equity |
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Interest acquired |
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100% |
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Book Value |
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Excess of fair value over book value |
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| Adjustment of identifiable accounts: |
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Adjustment |
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Worksheet Key |
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Life |
Amortization per year |
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Fixed Assets |
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debit D1 |
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10 |
$ 5,000 |
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Goodwill |
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debit D2 |
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Total |
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Charles Company and Subsidiary Lehto, Inc. |
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Consolidated Income Statement |
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For Year Ended December 31, 2013 |
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Revenue |
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Expenses |
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Consolidated net income |
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$ 45,000 |
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Charles Company and Subsidiary Lehto, Inc. |
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Retained Earnings Statement |
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For Year Ended December 31, 2013 |
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Retained Earnings, Charles Company, January 01, 2013 |
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Add consolidated net income |
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$ 45,000 |
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Less dividends declared |
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Balance, December 31, 2013 |
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$ 300,000 |
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Charles Company and Subsidiary Lehto, Inc. |
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Consolidated Balance Sheet |
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For Year Ended December 31, 2013 |
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Assets |
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Current assets |
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Depreciable fixed assets |
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Less Accumulated Depreciation |
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Goodwill |
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Total assets |
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Liabilities and Stockholders' Equity |
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Liabilities |
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Stockholders' Equity: |
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Common Stock |
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Paid-in Capital in excess of par |
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Retained earnings |
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Total liabilities and stockholders' equity |
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