Consolidated Balance Sheet, Date of Acquisition: U.S. GAAP and IFRS
Assume that Microsoft Corporation acquired 90 percent of the outstanding common stock of Powerline Technologies for $1,500,000 cash plus 100,000 shares of Microsoft's $5 par value common stock having a market value of $40 per share.
Immediately prior to the acquisition, the trial balances of the two companies were as follows:
Dr (Cr)MicrosoftPowerlineCurrent assets$ 5,000,000$ 1,000,000Plant and equipment, net17,500,0003,500,000Current liabilities(2,500,000)(750,000)Long-term liabilities(10,000,000)(1,500,000)Common stock(1,500,000)(50,000)Additional paid-in capital(2,800,000)(725,000)Retained earnings(5,500,000)(1,500,000)Accumulated other comprehensive (income) loss(200,000)25,000$ 0$ 0
A review of the fair values of Powerline's assets indicates that current assets are overvalued by $250,000, plant and equipment is overvalued by $3,000,000, and previously unrecorded brand names have a fair value of $1,500,000. The fair value of the noncontrolling interest is $900,000.
a. Calculate total goodwill and its allocation to the controlling and noncontrolling interests, following U.S. GAAP.
Enter all answers in thousands. Example $19,000,000 equals $19,000 in thousands.
Total goodwill
Microsoft's goodwill
Goodwill to noncontrolling interest
b. Prepare a working paper to consolidate the balance sheets of Microsoft and Powerline at the date of acquisition, following U.S. GAAP.
Instructions:
Enter all answers in thousands. Example $7,000,000 equals $7,000 in thousands.
Remember to use negative signs with your credit balance answers in the Dr (Cr) columns.
Consolidation Working PaperAccounts Taken From BooksEliminations(in thousands)Microsoft
Dr (Cr)Powerline
Dr (Cr)DebitCreditConsolidated Balances
Dr (Cr)Current assets
(R)
Property, plant and equipment, net
(R)
Investment in Powerline
--
(E)
(R)--Brand names----(R)
Goodwill----(R)
Current liabilities
Long-term liabilities
Common stock, par value
(E)
Additional paid-in capital
(E)
Retained earnings
(E)
Accumulated othercomprehensive (income) loss
(E)
Noncontrolling interest----
(E)
(R)Total
c. Assume Microsoft uses IFRS and the alternative valuation method for noncontrolling interests. Calculate total goodwill and repeat part b following IFRS.
Total goodwill $Answer 50
(in thousands).
Instructions:
Enter all answers in thousands. Example $7,000,000 equals $7,000 in thousands.
Remember to use negative signs with your credit balance answers in the Dr (Cr) columns.
Consolidation Working PaperAccounts Taken From BooksEliminations(in thousands)Microsoft
Dr (Cr)Powerline
Dr (Cr)DebitCreditConsolidated Balances
Dr (Cr)Current assets
(R)
Fixed assets, net
(R)
Investment in Powerline
--
(E)
(R)--Brand names----(R)
Goodwill----(R)
Current liabilities
Long-term liabilities
Common stock, par value
(E)
Additional paid-in capital
(E)
Retained earnings
(E)
Accumulated othercomp. income (loss)
(E)
Noncontrolling interest----(R)
(E)
Total
