On October 2, 2021, AA Corporation acquired 85 percent of BB Company’s outstanding common stock.

In excha
to the selling stockholders of BB. At that date, the fair value of the noncontrolling interest was $360,000. The tw
combination, the book values and fair values of the companies’ assets and liabilities were as follows:

AA
BV FV AA
Cash $ 24,000 $ 12,000 $ 66,500
Receivables $ 82,000 $ 78,000 $ 112,000
Allowance for Bad Debts $ -4,000 $ -4,000
Inventory $ 100,000 $ 178,000 $ 100,000
Land $ 65,000 $ 250,000 $ -
Buildings & Equipment $ 960,000 $ 875,000 $ 960,000
Accumulated Depreciation $ -512,000 $ -512,000
Investment in BB $ 1,087,750
Patent
AA Assets $ 715,000 $ 1,393,000 $ 1,810,250

Current Payables $ 42,000 $ 42,000 $ 42,000

Bonds Payable $ 150,000 $ 160,000 $ 1,170,000
Common Stock $ 300,000 $ 300,000
Additional Paid-in Capital $ 120,000 $ 120,000
Retained Earnings $ 103,000 $ 178,250
AA Liabilities & Equity $ 715,000 $ 1,810,250

AA
Sales $ 800,000 $ 830,000

Income from BB $ 127,250

COGS $ -320,000 $ -337,000
Depreciation Expense $ -135,000 $ -135,000
Other Expense $ -255,000 $ -255,000
$ 90,000 $ 230,250

Retained Earnings $ 103,000

Increase in Net Income $ 140,250
Dividends $ -65,000
Retained Earnings Adjusted $ 178,250

At the date of combination, BB owed AA $7,000 plus accrued interest of $600 on a short- term note. Both compan
There is following month transaction are as follow:
October 5 BB purchase inventory from Flames Inc. for $ 17,000 to fulfill AA needs.
October 8 AA purchase that item for $ 30,000
October 20 Max sells the only land to Dex for $65,000
October 31 Below is the income statement for Maxx dan Dex
 
 

October 31 Dex paid dividen for $ 70.000 and Max paid dividen for $ 65.000

Required
1. Record the business combination on the books of AA Corporation!
October 20 Max sells the only land to Dex for $65,000
October 31 Below is the income statement for Maxx dan Dex
 
 

October 31 Dex paid dividen for $ 70.000 and Max paid dividen for $ 65.000

Required
1. Record the business combination on the books of AA Corporation!
2. Present in general journal form all elimination entries needed in a worksheet to prepare a consolidated balance
3. Prepare and complete a consolidated balance sheet worksheet as of October 2, 2021, immediately following th
4. Present a consolidated balance sheet for AA and its subsidiary as of October 2, 2021.
utstanding common stock. In exchange for BB’s stock, AA issued bonds payable with a par value of $1,000,000 and fair value of $1,020,
olling interest was $360,000. The two companies continued to operate as separate entities subsequent to the combination. Immediatel
abilities were as follows:

BB
BV FV BB
$ 9,000 $ 9,000 $ -126,000
$ 32,000 $ 30,000 $ 32,000
$ -2,000 $ -2,000
$ 68,000 $ 72,000 $ 98,000
$ 52,000 $ 80,000 $ 117,000
$ 650,000 $ 550,000 $ 650,000
$ -215,000 $ -215,000

$ 594,000 $ 741,000 $ 554,000

$ 29,000 $ 29,000 $ 59,000

$ 100,000 $ 100,000 $ 100,000
$ 185,000 $ 185,000
$ 130,000 $ 130,000
$ 150,000 $ 80,000
$ 594,000 $ 554,000

BB
$ 650,000

$ -190,000
$ -110,000
$ -165,000
$ 185,000

$ 150,000

$ -70,000
$ 80,000

n a short- term note. Both companies have properly recorded these amounts.

needs.
 to prepare a consolidated balance sheet immediately following the business combination on October 2, 2021.
2, 2021, immediately following the business combination.
2, 2021.
e of $1,000,000 and fair value of $1,020,000 directly
sequent to the combination. Immediately prior to the AA

10/2/2021 Investment in BB
Bonds Payable

10/5/2021 Inventory
Cash

10/8/2021 Receivables
Sales

10/8/2021 COGS
Inventory

10/20/2021 Cash
Land

10/31/2021 Investment in BB
Income from BB

10/31/2021 Cash
Investment in BB

10/31/2021 Dividend
Cash

10/31/2021 Income from BB

Investment in BB
BB

10/8/2021 Inventory
Current Payables

10/20/2021 Land
Cash

10/31/2021 Dividend
Cash
October 2, 2021.
$ 1,020,000
$ 1,020,000

$ 17,000
$ 17,000

$ 30,000
$ 30,000

$ 17,000
$ 17,000

$ 65,000
$ 65,000

$ 157,250
$ 157,250

$ 59,500
$ 59,500

$ 65,000
$ 65,000

$ 30,000
$ 30,000

$ 30,000
$ 30,000

$ 65,000
$ 65,000

$ 70,000
$ 70,000
AA Parent
BB Subsidiary

Implied Value $ 1,200,000

Book Value $ 465,000
Excess over Book Value $ 735,000

Implied Value $ 1,200,000

Fair Value $ 652,000
Excess over Fair Value $ 548,000

Fair Value of NCI $ 360,000

Elimination Entries
Accounts Payable $ 7,600
Accounts Receivable $ 7,600

COGS 30000
Inventory 30000

Income from BB $ 127,250

Dividends $ 59,500
Investment in BB $ 67,750

NCI Share $ 27,750

Dividends $ 10,500
NCI $ 17,250

Capital Stock $ 185,000

Additional Paid in Capital $ 130,000
Retained Earnings $ 150,000
Inventory $ 4,000
Land $ 28,000
Buildings and Equipments $ 115,000
Patent $ 40,000
Goodwill $ 728,000
Investment in BB $ 1,020,000
NCI $ 360,000
$ 1,380,000 $ 1,380,000
 85% 15% 85%
Income from BB NCI Share Investment in BB
$ 157,250 $ 27,750 $ 157,250
$ -30,000 $ -59,500
$ -30,000
$ 127,250 $ 27,750 $ 67,750

Statement of P/L
AA BB
Sales 830000 650000
Income from BB 127250
COGS -337000 -190000
Depreciation Expense -135000 -110000
Other Expense -255000 -165000
NCI
Net Income 230250 185000

Statement of CIE
Retained Earnings, Beginning 103000 150000
Add: Increase in Net Income 140250
Less: Dividends -65000 -70000
Retained Earnings, Ending 178250 80000

Statement of FP

Cash 66500 -126000

Receivables 112000 32000
Allowance for Bad Debts -4000 -2000
Inventory 100000 98000
Land 0 117000
Buildings & Equipment 960000 650000
Accumulated Depreciation -512000 -215000
Investment in BB 1087750
Patent
Goodwill
AA Assets 1810250 554000

Current Payables 42000 59000

Bonds Payable 1170000 100000
Common Stock 300000 185000
Additional Paid-in Capital 120000 130000
Retained Earnings 178250 80000
NCI
AA Liabilities & Equity 1810250 554000
 15%
NCI
$ 27,750
$ -10,500

$ 17,250

Dr Cr Consolidation
1480000
$ 127,250 0
30000 -557000
-245000
-420000
$ 27,750 -27750
230250

$ 150,000 103000
140250
$ 70,000 -65000
178250

-59500
$ 7,600 136400
-6000
$ 4,000 30000 172000
$ 28,000 145000
$ 115,000 1725000
-727000
$ 1,087,750 0
$ 40,000 40000
$ 728,000 728000
2153900 $ 185,000

$ 7,600 $ 93,400
$ 1,270,000
$ 185,000 $ 300,000
$ 130,000 $ 120,000
$ 178,250
$ 377,250 $ 377,250
1572600 1572600 $ 2,338,900