3 PARLOR CORPORATION

Parlor Corporaiton acquired SEVENTY (70%)PERCENT of the outstanding Ordinary shares of Setting Corporation on Jan 1, ---
for P 178,000 cash. Immediately after this acquisition the balance sheet information for the two companies was:

PARLOR SETTING
BOOK VALUES BOOK VALUE FAIR VALUE
Cash 32,000 20,000 20,000
Receivables - net 80,000 30,000 30,000
Inventories 70,000 30,000 50,000
Land 100,000 50,000 60,000
Buildings-net 110,000 70,000 90,000
Equipment-net 80,000 40,000 30,000
INVESTMENT IN SETTING 178,000 - -
Total assets 650,000 240,000 280,000

Accounts payable 90,000 80,000 80,000

Other liabilities 10,000 50,000 40,000
Ordinary share P 10 par 500,000 100,000
Retained earnings 50,000 10,000
Total liabilities & equity 650,000 240,000

REQUIRED: Prepare a CONSOLIDATED BALANCE SHEET for PARLOR and its subsidiary RIGHT after combination.

1 WORKING PAPER
ELIMINATIONS CONSOLIDA-
ACCOUNTS PARLOR SETTING
DEBIT CREDIT TED B/S
Cash 32,000 20,000
Receivables - net 80,000 30,000
Inventories 70,000 30,000
Land 100,000 50,000
Buildings-net 110,000 70,000
Equipment-net 80,000 40,000
Investment in Setting 178,000

Total assets 650,000 240,000

Accounts payable 90,000 80,000

Other liabilities 10,000 50,000
Ordinary share P 10 par 500,000 100,000
Retained earnings 50,000 10,000

Total liabilities & equity 650,000 240,000

SOLUTION: 70% 30%
A COMPUTATION OF COST/BOOK VALUE DIFFERENTIAL 100% AMOUNT PARENT MINORITY
Acquisition cost 178,000 178,000
Less: Book value acquired 110,000 77,000 77,000 33,000

DIFFERENCE (due to) 101,000

Increase in inventory 20,000 (14,000) 6,000
Increase in land 10,000 (7,000) 3,000
Increase in building 20,000 (14,000) 6,000
Decrease in equipment (10,000) 7,000 (3,000)
Decrease in other liabilities 10,000 (7,000) 3,000

GOODWILL/SHARE OF MINORITY 66,000 15,000

B ELIMINATION ENTRIES: RIGHT AFTER COMBINATION/ACQUISITION DEBIT CREDIT

1 Share capital - Setting 100,000
Investment in setting 77,000
Minority interest 33,000

2 Inventory 20,000
Land 10,000
Building 20,000
Goodwill 66,000
Other liabilities 10,000
Equipment 10,000
Investment in setting 101,000
Minority interest 15,000
126,000 126,000

C WORKING PAPER
ELIMINATIONS CONSOLI
PARLOR SETTING DEBIT CREDIT BS
Cash 32,000 20,000 52,000
Receivables - net 80,000 30,000 110,000
Inventories 70,000 30,000 2 20,000 120,000
Land 100,000 50,000 2 10,000 160,000
Buildings-net 110,000 70,000 2 20,000 200,000
Equipment-net 80,000 40,000 2 10,000 110,000
INVESTMENT IN SETTING 178,000 1 77,000 0
2 101,000
GOODWILL 2 66,000 66,000

Total assets 650,000 240,000 818,000

Accounts payable 90,000 80,000 170,000

Other liabilities 10,000 50,000 2 10,000 50,000
Ordinary share P 10 par 500,000 100,000 1 100,000 500,000
Retained earnings 50,000 10,000 1 10,000 50,000
MINORITY INTEREST 1 33,000
2 15,000 48,000

Total liabilities & equity 650,000 240,000 236,000 236,000 818,000