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ACC 405
Module 3 Project
Practice Problems and Solutions
Southern New Hampshire University
, 2
Module 3 Project
Practice Problem and Solution
On January 1, 2019, Perry Company purchased 8,000 shares of Soho Company's common stock for
$120,000. Immediately after the stock acquisition, the statements of financial position of Perry and Soho
appeared as follows:
Perry Soho
Assets
Cash $ 39,000 $ 19,000
Accounts receivable 53,000 31,000
Inventory 42,000 25,000
Investment in Soho Company 120,000
Plant assets 160,000 110,500
Accumulated depreciation—plant
assets (52,000) (19,500)
Total $362,000 $166,000
Liabilities and Owners' Equity
Current liabilities $ 18,500 $ 26,000
Mortgage notes payable 40,000
Common stock, $10 par value 120,000 100,000
Other contributed capital 135,000 16,500
Retained earnings 48,500 23,500
Total $362,000 $166,000
Required:
Calculate the percentage of Soho acquired by Perry Company. Prepare a schedule to compute the
difference between book value of equity and the value implied by the purchase price. Any difference
between the book value of equity and the value implied by the purchase price relates to subsidiary plant
assets.
Prepare a consolidated balance sheet workpaper as of January 1, 2019.
Suppose instead that Perry acquired the 8,000 shares for $20 per share including a $5 per share control
premium. Prepare a computation and allocation of difference schedule.
Answer
Part A $100,000 Soho Total Par/$10 Par per share = 10,000 shares of Soho issued
8,000 shares acquired/10,000 total shares = 80%
Implied Value of Soho (100%) = $120,000/80% = $150,000.
Implied Value of Noncontrolling share = $150,000 x 20% = $30,000.
ACC 405
Module 3 Project
Practice Problems and Solutions
Southern New Hampshire University
, 2
Module 3 Project
Practice Problem and Solution
On January 1, 2019, Perry Company purchased 8,000 shares of Soho Company's common stock for
$120,000. Immediately after the stock acquisition, the statements of financial position of Perry and Soho
appeared as follows:
Perry Soho
Assets
Cash $ 39,000 $ 19,000
Accounts receivable 53,000 31,000
Inventory 42,000 25,000
Investment in Soho Company 120,000
Plant assets 160,000 110,500
Accumulated depreciation—plant
assets (52,000) (19,500)
Total $362,000 $166,000
Liabilities and Owners' Equity
Current liabilities $ 18,500 $ 26,000
Mortgage notes payable 40,000
Common stock, $10 par value 120,000 100,000
Other contributed capital 135,000 16,500
Retained earnings 48,500 23,500
Total $362,000 $166,000
Required:
Calculate the percentage of Soho acquired by Perry Company. Prepare a schedule to compute the
difference between book value of equity and the value implied by the purchase price. Any difference
between the book value of equity and the value implied by the purchase price relates to subsidiary plant
assets.
Prepare a consolidated balance sheet workpaper as of January 1, 2019.
Suppose instead that Perry acquired the 8,000 shares for $20 per share including a $5 per share control
premium. Prepare a computation and allocation of difference schedule.
Answer
Part A $100,000 Soho Total Par/$10 Par per share = 10,000 shares of Soho issued
8,000 shares acquired/10,000 total shares = 80%
Implied Value of Soho (100%) = $120,000/80% = $150,000.
Implied Value of Noncontrolling share = $150,000 x 20% = $30,000.
