Consolidation Information

On 12/31 Duhawk, Inc. acquires 100% of Norse, Inc for $10,000,000 in cash. In
$500,000 to the CEO of Norse, Inc if she achieves certain earnings goals. Duhaw
related to this transaction. Internal administrative costs related to the transactio
register and issue securites related to this combination.

The book value of Norse, Inc.'s net assets on the date of combination is $7,500,0
Norse are undervalued by $750,000; and that customer contracts held by Norse

Duhawk believes that there is a 50% chance that the CEO will meet her earning
Assume the Present Value of the contingent performance liability is $200,000. N
Norse, Inc will remain as a separate corporation after this transaction.

$10,000,000 in cash. In addition, after five years Duhawk will pay a bonus of
n earnings goals. Duhawk pays $50,000 in professional fees for services
s related to the transaction are $20,000. Duhawk also pays $5,000 to

f combination is $7,500,000. Duhawk believes that patents owned by

contracts held by Norse have a fair value of $1,000,000.

EO will meet her earnings goals. (50% x 500,000 = 250,000)

e liability is $200,000. Norse, Inc.

is transaction.

Step 1 - Determine the allocation of the acquisition date fair value

Fair Value (Cash + Performance)

Book Value of Norse, Inc.
Excess of Fair Value over Book Value
Allocation to specific accounts
Patents
Customer Contracts
Goodwill
Journal Entries on 12/31
1

Investment
Cash
Contingent liability

Professional Services Expense

Accounts Payable

Administrative Expenses
Cash

Additional Paid-In Capital

Cash

10,200,000
7,500,000
2,700,000

750,000
1,000,000
1,750,000
950,000

10,200,000

Records Investment
10,000,000
200,000

50,000
50,000
20,000
20,000

Prepare First two

columns of
worksheet

Duhawk
Income Statement
Revenues
Expenses
Net Income

100,000,000
85,000,000
15,000,000

Statement of Retained Earnings

Retained Earnings 1/1
Net Income (above)
Dividends Paid
Retained Earnings 12/31

20,000,000
15,000,000
(1,000,000)
34,000,000

Balance Sheet
Current Assets
Investment in Norse, Inc.
Computers and Equipment
Patents
Total Assets

60,000,000
10,200,000
5,000,000
1,000,000
76,200,000

Bonds Payable
Contingent liability
Common Stock
Additional Paid-in Capital
Retained Earnings 12/31 (above)
Total liabilities and Capital

7,000,000
200,000
25,000,000
10,000,000
34,000,000
76,200,000

Norse

7,000,000
0
1,000,000
500,000
8,500,000
1,000,000
0
5,000,000
500,000
2,000,000
8,500,000

Eliminate
subsidiary
equity accounts

Duhawk
Income Statement
Revenues
Expenses
Net Income

100,000,000
85,000,000
15,000,000

Statement of Retained Earnings

Retained Earnings 1/1
Net Income (above)
Dividends Paid
Retained Earnings 12/31

20,000,000
15,000,000
(1,000,000)
34,000,000

Balance Sheet
Current Assets
Investment in Norse, Inc.
Computers and Equipment
Patents
Total Assets

60,000,000
10,200,000
5,000,000
1,000,000
76,200,000

Bonds Payable
Contingent liabilty
Common Stock
Additional Paid-in Capital
Retained Earnings 12/31 (above)
Total liabilities and Capital

7,000,000
200,000
25,000,000
10,000,000
34,000,000
76,200,000

Norse

Consolidation Adjustments
Dr
Cr

7,000,000
0
1,000,000
500,000
8,500,000
1,000,000
0
5,000,000 (A)
500,000
2,000,000
8,500,000

7,500,000 (A)

5,000,000
500,000
2,000,000

Make Fair
Value
adjustments

Duhawk
Income Statement
Revenues
Expenses
Net Income

100,000,000
85,000,000
15,000,000

Statement of Retained Earnings

Retained Earnings 1/1
Net Income (above)
Dividends Paid
Retained Earnings 12/31

20,000,000
15,000,000
(1,000,000)
34,000,000

Balance Sheet
Current Assets
Investment in Norse, Inc.
Computers and Equipment
Patents
Customer Contracts
Goodwill
Total Assets

60,000,000
10,200,000
5,000,000
800,000
0
0
76,000,000

Bonds Payable
Contingent Liability
Common Stock
Additional Paid-in Capital
Retained Earnings 12/31 (above)
Total liabilities and Capital

7,000,000
0
25,000,000
10,000,000
34,000,000
76,000,000

Norse

7,000,000
0
1,000,000
500,000 (A)
0
0
8,500,000

Consolidation Adjustments
Dr
Cr

10,200,000
750,000
1,000,000
950,000

1,000,000
0
5,000,000
500,000
2,000,000
8,500,000
2,700,000

Add to get
Consolidated
Totals

Duhawk
Income Statement
Revenues
Expenses
Net Income

100,000,000
85,000,000
15,000,000

Statement of Retained Earnings

Retained Earnings 1/1
Net Income (above)
Dividends Paid
Retained Earnings 12/31

20,000,000
15,000,000
(1,000,000)
34,000,000

Balance Sheet
Current Assets
Investment in Norse, Inc.
Computers and Equipment
Patents
Customer Contracts
Goodwill
Total Assets

60,000,000
10,200,000
5,000,000
1,000,000
0
0
76,200,000

Bonds Payable
Contingent Liability
Common Stock
Additional Paid-in Capital
Retained Earnings 12/31 (above)
Total liabilities and Capital

7,000,000
200,000
25,000,000
10,000,000
34,000,000
76,200,000

Norse

Consolidation Adjustments
Dr
Cr

Consolidated
Totals
100,000,000
85,000,000
15,000,000

20,000,000
15,000,000
(1,000,000)
34,000,000

7,000,000
0
1,000,000
500,000
0
0
8,500,000
1,000,000
0
5,000,000
500,000
2,000,000
8,500,000

750,000
1,000,000
950,000

67,000,000
0
6,000,000
2,250,000
1,000,000
950,000
77,200,000
8,000,000
200,000

5,000,000
500,000
2,000,000

-77,200,000