a. Common Stock 160,000 Other Contributed Capital 92,000 Retained Earnings 43,000 Difference between implied and book value 56,000

(351,000/100% - (160,000+92,000+43,000) Investment in Saltez 351,000

Property, Plant, and Equipment 56,000 Difference between implied and book value 56,000 b. Common Stock 190,000

Other Contributed Capital 75,000 Difference between implied and book value 21,778

(232,000/0.9-[190,000+75,000-29,000]) Retained Earnings 29,000

Investment in Saltez 232,000Noncontrolling Interest 25,778

Property, Plant, and Equipment 21,778 Difference between implied and book value 21,778

c. Common Stock 180,000 Other Contributed Capital 40,000 Retained Earnings 4,000 Investment in Saltez 159,000 Gain on Purchase of Business – Prancer ** 13,800

Noncontrolling Interest (.2) ($198,750) + $3,450* 43,200 ** The ordinary gain to Prancer is $159,000 – (.80)($216,000) = $13,800* Noncontrolling interest reflects the noncontrolling share of implied value (.20 x $198,750, or $39,750), plus the NCI portion of the bargain (.20 x $17,250) NOTE: We know this is a bargain acquisition in part c because the investment cost of $159,000 implies a total value of $198,750. Since this value is less than the book value of equity of $216,000 [$180,000+$40,000-$4,000], the difference is a bargain of $17,250. This bargain is allocated between the parent (this portion is reflected as a gain) and the NCI.

Part A Investment in Sun Company 192,000 Cash 192,000

Part B PRUNCE COMPANY AND SUBSIDIARYConsolidated Balance SheetJanuary 2, 2008

AssetsCash ($260,000 + $64,000 – $192,000) $132,000 Accounts Receivable 165,000 Inventory 171,000 Plant and Equipment (net) 484,000 Land ($63,000 + $32,000 + $28,333*) 123,333

Total Assets $1,075,333

Liabilities and Stockholders’ EquityAccounts Payable $151,000 Mortgage Payable 111,000

Total Liabilities 262,000

Noncontrolling Interest ($192,000/0.9 0.1) $21,333Common Stock 400,000 Other Contributed Capital 208,000Retained Earnings 184,000

Total Stockholders’ Equity 813,333 Total Liabilities and Stockholders’ Equity $1,075,333

* [$192,000/0.9 – ($70,000 + $20,000 + $95,000)] = $28,333

Exercise 3-6

Part A $37,412 NCI = 15% NCI$249,412 Implied Value*

Common Stock-Shipley 90,000 Other Contributed Capital-Shipley 90,000 Retained Earnings-Shipley 56,000 Land $249,412 - $236,000 13,412

Investment in Shipley Company 212,000 Noncontrolling Interest 37,412

* Implied Value = Parent’s value $212,000 + NCI $37,412 = $249,412

Cash $ 15,900

Accounts Receivable 22,000

Inventory 34,600

Plant and Equipment 147,000

Land ($220,412 - $13,412 - $120,000) 87,000

Total Assets $ 306,500

Accounts Payable $ 70,500

Common Stock 90,000

Other Contributed Capital 90,000

Retained Earnings 56,000

Total Equities $ 306,500

SHIPLEY COMPANYBalance SheetDecember 31, 2007

Part B

Problem 3-7

(Part A) (Part B)

Cash ($700,000 – $594,000 + $ 111,000) $ 217,000 $ 811,000

Accounts Receivable (net) 1,122,000 1,122,000

Inventory 604,000 604,000

Property and Equipment (net) 2,395,000 2,395,000

Land 214,000 214,000

Total Assets $4,552,000 $5,146,000

Accounts Payable $ 454,000 $ 454,000

Notes Payable 649,000 649,000

Long-term Debt 440,000 440,000

Noncontrolling Interest ($500,000 + $80,000 + $80,000) 0.10) 66,000 66,000

Common Stock (Part B, 1800000+(11880×20) 1,800,000 2,037,600

Other Contributed Capital (Part B, $543,000 + [($50 – $20) 11,880] 543,000 899,400

Retained Earnings 600,000 600,000

Total Equities $4,552,000 $5,146,000