P4-18 Incomplete Data with Purchase Differential

a. The amount reported is equal to Kasper's retained earnings balance of $567,000.

b. 70 percent = 1.00 - [$96,000 / ($150,000 + $170,000)]

c. $140,000 = $100,000 + [$328,000 - ($200,000 + $100,000)] / .70

d.  Computation of fair value of Timmin's net assets:

Cash / $ 60,000
Inventory (computed above) / 140,000
Land (given) / 80,000
Buildings and Equipment (given) / 220,000
Fair value of total assets / $500,000
Accounts Payable / (40,000)
Fair value of net assets held by Timmin / $460,000

e. Computation of purchase price:

Proportionate share of book value of Timmin
Company's net assets ($320,000 x .70) / $224,000
Differential assigned to inventory / 28,000
Differential assigned to land / 17,000
Differential assigned to buildings and equipment / 38,000
Amount Paid by Kasper / $307,000

NOTE: The fair value increment assigned to land and buildings and equipment is not equal to 70 percent of the excess of fair value over book value. The amounts assigned must be computed as follows:

Land / Buildings
and Equipment
Consolidated balance reported / $167,000 / $588,000
Balance reported by Kasper / (100,000) / (400,000)
Amount assigned to Timmin / $ 67,000 / $188,000
Book value reported by Timmin / (50,000) / (150,000)
Differential included in consolidated
balance sheet / $ 17,000 / $ 38,000
Computation of negative goodwill
Fair value of net assets held by Timmin / $460,000
Ownership purchased by Kasper / x .70
Kasper's share of fair value of Timmin's
net assets / $322,000
Amount paid by Kasper / (307,000)
Negative goodwill / $ 15,000
Assignment of negative goodwill
Land / Buildings
and Equipment
Fair value of assets / $80,000 / $220,000
Balance reported by Timmin / (50,000) / (150,000)
Fair value increment / $30,000 / $ 70,000
Kasper's proportionate share / x .70 / x .70
Kasper's share of fair value / $21,000 / $ 49,000
Reduction for negative goodwill:
$15,000 x ($80,000 / $300,000) / (4,000)
$15,000 x ($220,000 / $300,000) / (11,000)
Fair value increment assigned / $17,000 / $ 38,000
f. / Eliminating entries:
E(1) / Common Stock – Timmin Co. / 150,000
Retained Earnings / 170,000
Differential / 83,000
Investment in Timmin Co. Stock / 307,000
Noncontrolling Interest / 96,000
E(2) / Inventory / 28,000
Land / 17,000
Buildings and Equipment (net) / 38,000
Differential / 83,000