Use the following information for Problems 4-3 and 4-4

| June 13, 2016

Question
Use the following information for Problems 4-3 and 4-4:

On January 1, 20X1, Panther Corporation acquired 70% of the common stock of Spider

Corporation for $350,000. On this date, Spider had the following balance sheet:

Spider Corporation

Balance Sheet

January 1, 20X1

Assets Liabilities and Equity

Accounts receivable . . . . . . . . . $ 60,000 Accounts payable . . . . . . . . . . . $ 40,000

Inventory . . . . . . . . . . . . . . . . . . 40,000 Bonds payable . . . . . . . . . . . . . 100,000

Land. . . . . . . . . . . . . . . . . . . . . . 60,000 Common stock, $1 par . . . . . . . 10,000

Buildings . . . . . . . . . . . . . . . . . . 200,000 Paid-in capital in excess of par . 90,000

Accumulated depreciation . . . . (50,000) Retained earnings . . . . . . . . . . . 112,000

Equipment . . . . . . . . . . . . . . . . . 72,000

Accumulated depreciation . . . . (30,000)

Total assets. . . . . . . . . . . . . . . $352,000 Total liabilities and equity . . . $352,000

Buildings, which have a 20-year life, are understated by $150,000. Equipment, which
has a 5-year life, is understated by $58,000. Any remaining excess is considered to be
goodwill. Panther uses the simple equity method to account for its investment in Spider.
Panther and Spider had the following trial balances on December 31, 20X2:

Panther Corporation Spider Corporation
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,000 132,000
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000 45,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 56,000
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 60,000
Investment in Spider. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378,000
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 200,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (220,000) (65,000)
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 72,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (90,000) (46,000)
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60,000) (102,000)
Bonds Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100,000)
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100,000) (10,000)
Paid-In Capital in Excess of Par . . . . . . . . . . . . . . . . . . . . . . . . . . . . (800,000) (90,000)
Retained Earnings, January 1, 20X2. . . . . . . . . . . . . . . . . . . . . . . . (325,000) (142,000)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (800,000) (350,000)
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000 208,500
Depreciation Expense—Buildings. . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 7,500

Depreciation Expense—Equipment. . . . . . . . . . . . . . . . . . . . . . . . . 15,000 8,000

Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000 98,000
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Subsidiary Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,000)
Dividends Declared. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 10,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0

Problem 4-3 (LO 2) 70%, equity, beginning and ending inventory, subsidiary
seller. Refer to the preceding facts for Panther’s acquisition of Spider common stock. On Jan-
uary 1, 20X2, Panther held merchandise acquired from Spider for $8,000. This beginning
inventory had an applicable gross profit of 25%. During 20X2, Spider sold $30,000 worth of
merchandise to Panther. Panther held $6,000 of this merchandise at December 31, 20X2. This
ending inventory had an applicable gross profit of 30%. Panther owed Spider $6,000 on
December 31 as a result of these intercompany sales.

1. Prepare a zone analysis and a determination and distribution of excess schedule for the
investment in Spider.
2. Complete a consolidated worksheet for Panther Corporation and its subsidiary Spider Cor-
poration as of December 31, 20X2. Prepare supporting amortization and income distribu-
tion schedules.

Complete Problem 4-3 using the Problems_Templates4

Prob 4-3 D&D

A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75

B

C

D

E

F

G

H

Book
Value

Market
Value

Life

Problem 4-3
Intercompany merchandise sales – BI & EI, Sub Seller
Common Information
Ownership interest
Price paid (including direct acquisition costs)
Year of consolidation (1 = year of purchase)

70.00%
350,000
2

Acquired company’s balance sheet before purchase
Book
Value

Market
Value

Life

Priority assets:

Total priority assets

Total liabilities

0

Stockholders’ equity:
Common stock
Paid-in capital in excess of par
Retained earnings
Total equity

0

Mkt value of net assets

0

Nonpriority assets:

Total nonpriority assets
Existing goodwill
Total assets

Intercompany Merchandise Information:
Parent
Sales

Parent
%

Subsidiary
Sales

Subsidiary
%

Current year sales
Unpaid account balance, year end
Beginning inventory
Ending inventory

Zone Analysis

Group
Total

Priority accounts
Nonpriority accounts

Ownership
Portion
0
0

Cumulative
Total
0
0

0
0

Price Analysis
Price =
Assign to priority accounts
Assign to nonpriority accounts
Goodwill
Extraordinary gain

350,000
0

full value

Allocation Tables
Nonpriority Accounts

Total
Goodwill
Extraordinary gain

Market

Percent

Available

Assign

Total adjustments

Adjust

70.00%
Amortization

Page 1

Determination and Distribution of Excess Schedule
Price paid for investment:
Less book value interest acquired:
Common stock
Paid-in capital in excess of par
Retained earnings
Total equity
Interest acquired
Excess of cost over book value (debit)
Adjustments:

Book

Prob 4-3 Schedules

A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34

B

C

D

E

F

G

Annual
Amount

Current
Year

Prior
Years

Total

Key

Problem 4-3
Amortization Schedules
Year of consolidation
Account adjustments
To be amortized

2
Life

Total amortizations
Intercompany Inventory Profit Deferral
Parent
Amount
Beginning
Ending

Income distribution schedules:
Subsidiary:
Internally generated net income

Parent
%

DR

Parent
Profit

Sub
Amount

CR

Total
NCI share
Controlling share
Parent
Internally generated net income
Controlling share of subsidiary

Amortizations
Total

Page 2

Sub
%

Sub
Profit

Prob 4-3 Worksheet

A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51

B

C

D

E

F

G

H

I

J

K

Consol
Net Inc.

NCI

Control.
R.E.

Consol.
Bal. Sht.

Problem 4-3 (concluded)
Year of consolidation

Cash
Accounts receivable
Inventory
Land
Investment in Spider

Buildings
Accumulated depreciation – bldgs.
Equipment
Accumulated depreciation – equip.
Goodwill
Accounts payable
Bond payable

2
Trial Balance
Panther
Spider
116,000
132,000
90,000
45,000
120,000
56,000
100,000
60,000
378,000

800,000
(220,000)
150,000
(90,000)
(60,000)

Common stock – Spider
Paid-in capital in excess of par – Spider
Retained earnings – Spider

Eliminations
Dr

Cr

200,000
(65,000)
72,000
(46,000)
(102,000)
(100,000)

(10,000)
(90,000)
(142,000)

Common stock – Panther
Paid-in capital in excess of par – Panther
Retained earnings – Panther

(100,000)
(800,000)
(325,000)

Sales
Cost of goods sold

(800,000)
450,000

(350,000)
208,500

30,000
15,000
140,000

7,500
8,000
98,000
8,000

Depr. expense – building
Depr. expense – equipment
Other expenses
Interest expense
Subsidiary income
Dividends declared – Spider
Dividends declared – Panther
Totals
Consolidated net income
NCI share
Controlling share
NCI
Controlling retained earnings
Totals

(14,000)
10,000
20,000

Eliminations and Adjustments:

Page 3

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