Elaine Aurelia

2101652486

Problem 8-1
Sarko Company had 300,000 shares of $10 par value commen stock outstanding at all times and retained earning bala
Retained Earnings
January 1, 2013 $260,000
January 1, 2014 $540,000
January 1, 2015 $630,000
January 1, 2016 $820,000
Pelzer Company acquired Sarko Company stock through open-market purchases as follows :
Date % Acquired Shares Cost
1/1/2013 10% 30000 $365,000
1/1/2014 25% 75000 $960,000
1/1/2015 45% 135000 $1,890,000
80%
Sarko Company declared no dividens during this period. The fair values of Sarko Company's asset and liabilities wer
to their book values throughout this period (2013 through 2015). Pelzer Company uses the cost method.

Required :
A. Prepare a schedule to compare investment cost with the book value of equity acquired.
Computation Allocation Schedule
Parent NCI TOTAL
80% 20% 100%
Purchase Price:
1/1/13 purchases (30,000 x $14) 420,000
1/1/14 purchases (75,000 x $14) 1,050,000
1/1/15 purchases (135,000 x $14) 1,890,000
Purchase Price and implied value 3,360,000 840,000 4,200,000
Less : Book value of equity acquired
Common Stock 2,400,000 600,000 3,000,000
Retained Earnings 504,000 126,000 630,000
Difference 456,000 114,000 570,000
Goodwill (456,000) (114,000) (570,000)
Balance 0 0 0

B. Prepare elimination entries for the preparation of a consolidated statements workpaper on December 31, 2015

Common stock 3,000,000

Retained Earning 630,000
Difference 570,000
Investment in Sarko company 3,360,000
 NCI 840,000

Goodwill 570,000
Difference 570,000

Investment in Sarko Company 59,500

Retained Earning 1/1 - P Company 59,500

Change in Retained Earnings, 1/1/13 $ 37,000 (630,000-5400,00)*10%

Change in Retained Earnings, 1/1/14 $ 22,500 (630,000-540,000)*25%
$ 59,500
nd retained earning balances as indicated here :

Cost/Share
$12.17
$12.80
$14.00

sset and liabilities were approximately equal

t method.

December 31, 2015