Kasus Chapter 2

Kasus 1
Jaco Corp acquired a 70 percent interest in Genko Corp on April 1, 2011, when it purchased 14,000 of Jojo’s 20,000
outstanding shares in the open market at $13 per share. Additional costs of acquiring the shares consisted of
$10,000 legal and consulting fees.
Genko Corporation’s balance sheets on January 1 and April 1, 2011, are summarized as follows (in thousands):
January 1 (per books) April 1 (per books) April 1 (fair values)
Cash $ 40 $ 45 $ 45
Inventories 35 60 50
Other current assets 25 20 20
Land 30 30 50
Equipment—net 100 95 135
Total assets $230 $250 $300

Accounts payable $ 45 $ 40 $ 40
Other liabilities 15 20 20
Capital stock, $5 par 100 100
Retained earnings January 1 70 70
Current earnings 20
Total liabilities and equity $230 $250

A D D I T I O N A L INFORMATION
1. The overvalued inventory items were sold in September 2011.
2. The undervalued items of equipment had a remaining useful life of four years on April 1, 2011.
3. Genko’s net income for 2011 was $80,000 ($60,000 from April to December 31, 2011).
4. On December 1, 2011, Genko declared dividends of $2 per share, payable on January 10, 2012.
5. Any unidentified assets of Genko are not amortized.

REQUIRED
1. Prepare a schedule showing how the difference between John’s investment cost and book value acquired should
be allocated to identifiable and/or unidentifiable assets.
2. Calculate Jaco’s investment income from Genko for 2011.
3. Determine the correct balance of Jaco’s Investment in Genko account at December 31, 2011.

Kasus 2.
Baker Corporation paid $1,680,000 for a 30 percent interest in Caparzo Corporation’s outstanding voting stock on January 1,
2011. The book values and fair values of Caparzo’s assets and liabilities on January 1, along with amortization data, are as follows
(in thousands):
Book Value Fair Value
Cash $ 400 $ 400
Accounts receivable—net 700 700
Inventories (sold in 2011) 1,000 1,200
Other current assets 200 200
Land 900 1,700
Buildings—net (10-year remaining life) 1,500 2,000
Equipment—net (7-year remaining life) 1,200 500
Total assets $5,900 $6,700

Accounts payable $ 800 $ 800

Other current liabilities 200 200
Bonds payable (due January 1, 2016) 1,000 1,100
Capital stock, $10 par 3,000
Retained earnings 900
Total equities $5,900

Caparzo Corporation reported net income of $1,200,000 for 2011 and paid dividends of $600,000.
REQUIRED
1. Prepare a schedule to allocate the investment fair values/book value differentials relating to Baker’s investment in Caparzo
2. Calculate Baker’s income from Caparzo for 2011.
3. Determine the balance of Baker’s Investment in Caparzo account at December 31, 2011.
Answer:

Kasus 1
1. Schedule to allocate excess cost over book value
Investment cost (14,000 shares x $13) $182,000
Book value acquired $190,000 x 70% 133,000
Excess cost over book value $ 49,000
Note: $10,000 direct costs must be expensed

Excess allocated
Interest
Fair Value — Book Value x Acquired = Allocation
Inventories $ 50,000 $60,000 70% $ (7,000)
Land 50,000 30,000 70% 14,000
Equipment — net 135,000 95,000 70% 28,000
Remainder to goodwill 14,000
Excess cost over book value $ 49,000

2. Investment income from Genko

Share of Jojo’s reported income $60,000 x 70% $ 42,000
Add: Overvalued inventory items 7,000
Less: Depreciation on undervalued equipment
($28,000/4 years) x 3/4 year (5,250)
Investment income from Genko $ 43,750

3. Investment in Genko account at December 31, 2011

Investment cost $182,000
Add: Income from Genko 43,750
Less: Dividends received (14,000 shares x $2) (28,000)
Investment in Genko balance December 31 $197,750

Check
Underlying equity at December 31, 2011 ($210,000 x 70%)* $147,000
Add: Unamortized excess of cost over book value
Land 14,000
Equipment 22,750
Goodwill 14,000
Investment balance $197,750

* $100,000 (C/S) + $70,000 (R/E) + $80,000 (current earnings) -$40,000 (Dividends) = $210,000

Kasus 2
1 Schedule to allocate fair value — book value differentials
Investment cost January 1 $1,680,000
Book value acquired ($3,900,000 net assets x 30%) 1,170,000
Excess cost over book value $ 510,000

Allocation of excess
Fair Value X Percent
Book Value Acquired Allocation
Inventories $200,000 30% $ 60,000
Land 800,000 30% 240,000
Buildings — net 500,000 30% 150,000
Equipment — net (700,000) 30% (210,000)
Bonds payable (100,000) 30% (30,000)
Assigned to identifiable net assets 210,000
Remainder to goodwill 300,000
Excess cost over book value $ 510,000
2 Income from Caparzo for 2011
Equity in income ($1,200,000 x 30%) $ 360,000
Less: Amortization of differentials
Inventories (sold in 2011) (60,000)
Buildings — net ($150,000/10 years) (15,000)
Equipment — net ($210,000/7 years) 30,000
Bonds payable ($30,000/5 years) 6,000
Income from Caparzo $ 321,000

3 Investment in Caparzo balance December 31, 2011

Investment cost $1,680,000
Add: Income from Caparzo 321,000
Less: Dividends ($600,000 x 30%) (180,000)
Investment in Caparzo December 31 $1,821,000

Check:
Underlying equity ($4,500,000 X 30%) $1,350,000
Unamortized excess:
Land 240,000
Buildings — net ($150,000 - $15,000) 135,000
Equipment — net ($210,000 - $30,000) (180,000)
Bonds payable ($30,000 - $6,000) (24,000)
Goodwill 300,000
Investment in Caparzo account $1,821,000