Advanced Accounting
Assessment 1
Spring 2014
On January 10, 2010, Porter Company purchased an 80% interest in the capital stock of Salem Company for $850,000. At that time, Salem Company had capital stock of $550,000 and retained earnings of $80,000. The noncontrolling interest in the acquisition was deemed to be worth $212,500.
Differences between the fair value and the book value of the identifiable assets of Salem Company were as follows: | Fair Value in Excess of Book Value | Equipment | $130,000 | Land | 65,000 | Inventory | 40,000 |
The book values of all other assets and liabilities of Salem Company were equal to their fair values on January 1, 2010. The equipment, which was carrying $100,000 worth of accumulated depreciation, had a remaining life of five years on January 1, 2010. The inventory was sold in 2010.
Salem Company’s net income and dividends declared in 2010 and 2011 were as follows: * Year 2010 Net Income of $100,000; Dividends declared of $25,000 * Year 2011 Net Income of $110,000; Dividends declared of $35,000
Prepare a consolidated worksheet for the year ended December 31, 2012. Although no goodwill impairment was reflected at the end of 2010 or 2011, the goodwill impairment test conducted at December 31, 2012 revealed implied goodwill from Salem to be only $150,000. This impairment was been recorded in the books of the parent under the equity method.

December 31, 2012 Consolidation Worksheet Income Statement | Parent | Sub | Debit | Credit | Total | Sales | $1,100,000 | $450,000 | | | | Income from subsidiary | 77,200 | | | | | | | | | | | Cost of goods sold | (900,000) | (200,000) | | | | Depreciation expense | (40,000) | (30,000) | | | | Other expenses | (60,000) | (50,000) | | | | Consolidated net income | $177,200 | $170,000 | | | | | | | | | | | | | | | |