18 Aug Question: On January 1, 2016, Cayce Corporation Acquired 100 Percent Of Simbel Company For Consideration Transferred With A Fair Value Of $141,300. Cayce Is A U.S.-based Company Headquartered In Buffalo, New York, And Simbel Is In Cairo, Egypt. Cayce Accounts For Its Investment In Simbel Under The Initial Value Method. Any Excess Of Fair Value Of Consideration …
On January 1, 2016, Cayce Corporation acquired 100 percent of Simbel Company for consideration transferred with a fair value of $141,300. Cayce is a U.S.-based company headquartered in Buffalo, New York, and Simbel is in Cairo, Egypt. Cayce accounts for its investment in Simbel under the initial value method. Any excess of fair value of consideration transferred over book value is attributable to undervalued land on Simbel’s books. Simbel had no retained earnings at the date of acquisition. Following are the 2017 financial statements for the two operations. Information for Cayce and for Simbel is in U.S. dollars ($) and Egyptian pounds (£E), respectively.
| Cayce Corporation |
Simbel Company |
||||||
| Sales | $ | 228,800 | £E | 882,900 | |||
| Cost of goods sold | (108,200 | ) | (463,300 | ) | |||
| Salary expense | (22,600 | ) | (81,200 | ) | |||
| Rent expense | (8,800 | ) | (49,600 | ) | |||
| Other expenses | (26,400 | ) | (64,400 | ) | |||
| Dividend income—from Simbel | 18,700 | 0 | |||||
| Gain on sale of building, 10/1/17 | 0 | 48,000 | |||||
| Net income | $ | 81,500 | £E | 272,400 | |||
| Retained earnings, 1/1/17 | $ | 336,000 | £E | 147,400 | |||
| Net income | 81,500 | 272,400 | |||||
| Dividends | (42,000 | ) | (68,000 | ) | |||
| Retained earnings, 12/31/17 | $ | 375,500 | £E | 351,800 | |||
| Cash and receivables | $ | 112,600 | £E | 165,800 | |||
| Inventory | 99,800 | 336,600 | |||||
| Prepaid expenses | 30,000 | 0 | |||||
| Investment in Simbel (initial value) | 141,300 | 0 | |||||
| Property, plant & equipment (net) | 455,600 | 473,000 | |||||
| Total assets | $ | 839,300 | £E | 975,400 | |||
| Accounts payable | $ | 68,000 | £E | 59,400 | |||
| Notes payable—due in 2020 | 162,200 | 145,400 | |||||
| Common stock | 138,000 | 258,000 | |||||
| Additional paid-in capital | 95,600 | 160,800 | |||||
| Retained earnings, 12/31/17 | 375,500 | 351,800 | |||||
| Total liabilities and equities | $ | 839,300 | £E | 975,400 | |||
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