BNAC 466
Goodwill recognized in a business combination must be allocated among a firm's identified reporting units. If the fair value of a particular reporting unit with recognized goodwill falls below its carrying amount, which of the following is true?
A goodwill impairment loss is recognized for the excess of a reporting unit's carrying amount over its fair value, not to exceed the carrying amount of goodwill.
What is a statutory merger?
A business combination in which only one company continues to exist as a legal entity.
What is a basic premise of the acquisition method regarding accounting for a noncontrolling interest?
A subsidiary is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership.
When negotiating a business acquisition, buyers sometimes agree to pay extra amounts to sellers in the future if performance metrics are achieved over specified time horizons. How should buyers account for such contingent consideration in recording an acquisition?
The fair value of the contingent consideration is included in the overall fair value of the consideration transferred, and a liability or additional owners' equity is recognized.
Top Company holds 90 percent of Bottom Company's common stock. In the current year, Top reports sales of $800,000 and cost of goods sold of $600,000. For this same period, Bottom has sales of $300,000 and cost of goods sold of $180,000. During the current year, Top sold merchandise to Bottom for $100,000. The subsidiary still possesses 40 percent of this inventory at the current year-end. Top had established the transfer price based on its normal gross profit rate. What are the consolidated sales and cost of goods sold?
$1,000,000 and $690,000.
Top Company holds 90 percent of Bottom Company's common stock. In the current year, Top reports sales of $800,000 and cost of goods sold of $600,000. For this same period, Bottom has sales of $300,000 and cost of goods sold of $180,000. During the current year, Bottom sold merchandise to Top for $100,000. The parent still possesses 40 percent of this inventory at the current year-end. Bottom had established the transfer price based on its normal gross profit rate. What are the consolidated sales and cost of goods sold?
$1,000,000 and $696,000.
The separate condensed balance sheets of Patrick Corporation and its wholly owned subsidiary, Sean Corporation, are as follows: BALANCE SHEETSDecember 31, 2017 Patrick Sean Cash$80,000 $60,000 Accounts receivable (net) 140,000 25,000 Inventories 90,000 50,000 Plant and equipment (net) 625,000 280,000 Investment in Sean 460,000 - Total assets$1,395,000 $415,000 Accounts payable 160,000 95,000 Long-term debt 110,000 30,000 Common stock ($10 par) 340,000 50,000 Additional paid-in capital 10,000 Retained earnings 785,000 230,000 Total liabilities and shareholders' equity$1,395,000 $415,000 Additional Information: On December 31, 2017, Patrick acquired 100 percent of Sean's voting stock in exchange for $460,000. At the acquisition date, the fair values of Sean's assets and liabilities equaled their carrying amounts, respectively, except that the fair value of certain items in Sean's inventory were $25,000 more than their carrying amounts. In the December 31, 2017, consolidated balance sheet of Patrick and its subsidiary, what amount of total stockholders' equity should be reported?
$1,125,000
The separate condensed balance sheets of Patrick Corporation and its wholly owned subsidiary, Sean Corporation, are as follows: BALANCE SHEETSDecember 31, 2017 Patrick Sean Cash$80,000 $60,000 Accounts receivable (net) 140,000 25,000 Inventories 90,000 50,000 Plant and equipment (net) 625,000 280,000 Investment in Sean 460,000 - Total assets$1,395,000 $415,000 Accounts payable 160,000 95,000 Long-term debt 110,000 30,000 Common stock ($10 par) 340,000 50,000 Additional paid-in capital 10,000 Retained earnings 785,000 230,000 Total liabilities and shareholders' equity$1,395,000 $415,000 Additional Information: On December 31, 2017, Patrick acquired 100 percent of Sean's voting stock in exchange for $460,000. At the acquisition date, the fair values of Sean's assets and liabilities equaled their carrying amounts, respectively, except that the fair value of certain items in Sean's inventory were $25,000 more than their carrying amounts. In the December 31, 2017, consolidated balance sheet of Patrick and its subsidiary, what amount of total assets should be reported?
$1,520,000
On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: Park Strand Current assets$70,000 $20,000 Noncurrent assets 90,000 40,000 Total assets$160,000 $60,000 Current liabilities$30,000 $10,000 Long-term debt 50,000 Stockholders' equity 80,000 50,000 Total liabilities and equities$160,000 $60,000 On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considered proportionate to Strand's total fair value. The $60,000 debt is payable in 10 equal annual principal payments, plus interest, beginning December 31. The excess fair value of the investment over the underlying book value of the acquired net assets is allocated to inventory (60 percent) and to goodwill (40 percent). On a consolidated balance sheet as of January 2, what should be the amount for noncurrent liabilities?
$104,000
On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: Park Strand Current assets$70,000 $20,000 Noncurrent assets 90,000 40,000 Total assets$160,000 $60,000 Current liabilities$30,000 $10,000 Long-term debt 50,000 Stockholders' equity 80,000 50,000 Total liabilities and equities$160,000 $60,000 On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considered proportionate to Strand's total fair value. The $60,000 debt is payable in 10 equal annual principal payments, plus interest, beginning December 31. The excess fair value of the investment over the underlying book value of the acquired net assets is allocated to inventory (60 percent) and to goodwill (40 percent). On a consolidated balance sheet as of January 2, what should be the amount for current assets?
$105,000
On June 1, Cline Co. paid $800,000 cash for all of the issued and outstanding common stock of Renn Corp. The carrying amounts for Renn's assets and liabilities on June 1 follow: Cash$150,000 Accounts receivable 180,000 Capitalized software costs 320,000 Goodwill 100,000 Liabilities (130,000) Net assets$620,000 On June 1, Renn's accounts receivable had a fair value of $140,000. Additionally, Renn's in-process research and development was estimated to have a fair value of $200,000. All other items were stated at their fair values. On Cline's June 1 consolidated balance sheet, how much is reported for goodwill?
$120,000
On January 1, Jarel acquired 80 percent of the outstanding voting stock of Suarez for $260,000 cash consideration. The remaining 20 percent of Suarez had an acquisition-date fair value of $65,000. On January 1, Suarez possessed equipment (five-year remaining life) that was undervalued on its books by $25,000. Suarez also had developed several secret formulas that Jarel assessed at $50,000. These formulas, although not recorded on Suarez's financial records, were estimated to have a 20-year future life. As of December 31, the financial statements appeared as follows: Jarel Suarez Revenues$(300,000) $(200,000) Cost of goods sold 140,000 80,000 Expenses 20,000 10,000 Net income$(140,000) $(110,000) Retained earnings, 1/1$(300,000) $(150,000) Net income (140,000) (110,000) Dividends declared 0 0 Retained earnings, 12/31$(440,000) $(260,000) Cash and receivables$210,000 $90,000 Inventory 150,000 110,000 Investment in Suarez 260,000 0 Equipment (net) 440,000 300,000 Total assets$1,060,000 $500,000 Liabilities$(420,000) $(140,000) Common stock (200,000) (100,000) Retained earnings, 12/31 (440,000) (260,000) Total liabilities and equities$(1,060,000) $(500,000) Included in the above statements, Jarel sold inventory costing $80,000 to Suarez for $100,000. Of these goods, Suarez still owns 60 percent on December 31. What is the total of consolidated cost of goods sold?
$132,000
On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: Park Strand Current assets$70,000 $20,000 Noncurrent assets 90,000 40,000 Total assets$160,000 $60,000 Current liabilities$30,000 $10,000 Long-term debt 50,000 Stockholders' equity 80,000 50,000 Total liabilities and equities$160,000 $60,000 On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considered proportionate to Strand's total fair value. The $60,000 debt is payable in 10 equal annual principal payments, plus interest, beginning December 31. The excess fair value of the investment over the underlying book value of the acquired net assets is allocated to inventory (60 percent) and to goodwill (40 percent). On a consolidated balance sheet as of January 2, what should be the amount for noncurrent assets?
$140,000
On July 1, TruData Company issues 10,000 shares of its common stock with a $5 par value and a $40 fair value in exchange for all of Webstat Company's outstanding voting shares. Webstat's precombination book and fair values are shown below along with book values for TruData's accounts. TruData Webstat Webstat Book Values Book Values Fair ValuesRevenues (1/1 to 7/1) $(250,000) $(130,000) Expenses (1/1 to 7/1) 170,000 80,000 Retained earnings, 1/1 (130,000) (150,000) Cash and receivables 140,000 60,000 $60,000 Inventory 190,000 145,000 175,000 Patented technology (net) 230,000 180,000 200,000 Land 400,000 200,000 225,000 Buildings and equipment (net) 100,000 75,000 75,000 Liabilities (540,000) (360,000) (350,000) Common stock (300,000) (70,000) Additional paid-in capital (10,000) (30,000) On its acquisition-date consolidated balance sheet, what amount should TruData report as goodwill?
$15,000
Prior to being united in a business combination, Atkins, Inc., and Waterson Corporation had the following stockholders' equity figures: Atkins Waterson Common stock ($1 par value)$180,000 $45,000 Additional paid-in capital 90,000 20,000 Retained earnings 300,000 110,000 Atkins issues 51,000 new shares of its common stock valued at $3 per share for all of the outstanding stock of Waterson. Immediately afterward, what are consolidated Additional Paid-In Capital and Retained Earnings, respectively?
$192,000 & $300,000
On January 1, 2016, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona Inc. for $600,000 cash. At January 1, 2016, Sedona's net assets had a total carrying amount of $420,000. Equipment (eight-year remaining life) was undervalued on Sedona's financial records by $80,000. Any remaining excess fair over book value was attributed to a customer list developed by Sedona (four-year remaining life), but not recorded on its books. Phoenix applies the equity method to account for its investment in Sedona. Each year since the acquisition, Sedona has declared a $20,000 dividend. Sedona recorded net income of $70,000 in 2016 and $80,000 in 2017. Selected account balances from the two companies' individual records were as follows: PhoenixSedona2018 Revenues$498,000 $285,000 2018 Expenses 350,000 195,000 2018 Income from Sedona 55,000 Retained earnings 12/31/18 250,000 175,000 What is consolidated net income for Phoenix and Sedona for 2018?
$203,000
On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc. for $540,000 cash. The acquisition-date fair value of the noncontrolling interest was $60,000. At January 1, 2016, Star's net assets had a total carrying amount of $420,000. Equipment (eight-year remaining life) was undervalued on Star's financial records by $80,000. Any remaining excess fair value over book value was attributed to a customer list developed by Star (four-year remaining life), but not recorded on its books. Star recorded net income of $70,000 in 2016 and $80,000 in 2017. Each year since the acquisition, Star has declared a $20,000 dividend. At January 1, 2018, Pride's retained earnings show a $250,000 balance. Selected account balances for the two companies from their separate operations were as follows: PrideStar 2018 Revenues$498,000 $285,000 2018 Expenses 350,000 195,000 What is consolidated net income for 2018?
$203,000
On January 1, Jarel acquired 80 percent of the outstanding voting stock of Suarez for $260,000 cash consideration. The remaining 20 percent of Suarez had an acquisition-date fair value of $65,000. On January 1, Suarez possessed equipment (five-year remaining life) that was undervalued on its books by $25,000. Suarez also had developed several secret formulas that Jarel assessed at $50,000. These formulas, although not recorded on Suarez's financial records, were estimated to have a 20-year future life. As of December 31, the financial statements appeared as follows: Jarel Suarez Revenues$(300,000) $(200,000) Cost of goods sold 140,000 80,000 Expenses 20,000 10,000 Net income$(140,000) $(110,000) Retained earnings, 1/1$(300,000) $(150,000) Net income (140,000) (110,000) Dividends declared 0 0 Retained earnings, 12/31$(440,000) $(260,000) Cash and receivables$210,000 $90,000 Inventory 150,000 110,000 Investment in Suarez 260,000 0 Equipment (net) 440,000 300,000 Total assets$1,060,000 $500,000 Liabilities$(420,000) $(140,000) Common stock (200,000) (100,000) Retained earnings, 12/31 (440,000) (260,000) Total liabilities and equities$(1,060,000) $(500,000) Included in the above statements, Jarel sold inventory costing $80,000 to Suarez for $100,000. Of these goods, Suarez still owns 60 percent on December 31. What is the consolidated total for inventory at December 31?
$248,000
On January 1, 2016, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona Inc. for $600,000 cash. At January 1, 2016, Sedona's net assets had a total carrying amount of $420,000. Equipment (eight-year remaining life) was undervalued on Sedona's financial records by $80,000. Any remaining excess fair over book value was attributed to a customer list developed by Sedona (four-year remaining life), but not recorded on its books. Phoenix applies the equity method to account for its investment in Sedona. Each year since the acquisition, Sedona has declared a $20,000 dividend. Sedona recorded net income of $70,000 in 2016 and $80,000 in 2017. Selected account balances from the two companies' individual records were as follows: PhoenixSedona2018 Revenues$498,000 $285,000 2018 Expenses 350,000 195,000 2018 Income from Sedona 55,000 Retained earnings 12/31/18 250,000 175,000 On its December 31, 2018, consolidated balance sheet, what amount should Phoenix report for Sedona's customer list?
$25,000
In computing the noncontrolling interest's share of consolidated net income, how should the subsidiary's net income be adjusted for intra-entity transfers?
The subsidiary's reported net income is adjusted for the impact of upstream transfers prior to computing the noncontrolling interest's allocation.
On January 1, 2016, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona Inc. for $600,000 cash. At January 1, 2016, Sedona's net assets had a total carrying amount of $420,000. Equipment (eight-year remaining life) was undervalued on Sedona's financial records by $80,000. Any remaining excess fair over book value was attributed to a customer list developed by Sedona (four-year remaining life), but not recorded on its books. Phoenix applies the equity method to account for its investment in Sedona. Each year since the acquisition, Sedona has declared a $20,000 dividend. Sedona recorded net income of $70,000 in 2016 and $80,000 in 2017. Selected account balances from the two companies' individual records were as follows: PhoenixSedona2018 Revenues$498,000 $285,000 2018 Expenses 350,000 195,000 2018 Income from Sedona 55,000 Retained earnings 12/31/18 250,000 175,000 What is Phoenix's consolidated retained earnings balance at December 31, 2018?
$250,000
On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc. for $540,000 cash. The acquisition-date fair value of the noncontrolling interest was $60,000. At January 1, 2016, Star's net assets had a total carrying amount of $420,000. Equipment (eight-year remaining life) was undervalued on Star's financial records by $80,000. Any remaining excess fair value over book value was attributed to a customer list developed by Star (four-year remaining life), but not recorded on its books. Star recorded net income of $70,000 in 2016 and $80,000 in 2017. Each year since the acquisition, Star has declared a $20,000 dividend. At January 1, 2018, Pride's retained earnings show a $250,000 balance. Selected account balances for the two companies from their separate operations were as follows: PrideStar 2018 Revenues$498,000 $285,000 2018 Expenses 350,000 195,000 Assuming that Pride, in its internal records, accounts for its investment in Star using the equity method, what amount of retained earnings would Pride report on its January 1, 2018 consolidated balance sheet?
$250,000
James Corporation owns 80 percent of Carl Corporation's common stock. During October, Carl sold merchandise to James for $250,000. At December 31, 40 percent of this merchandise remains in James's inventory. Gross profit percentages were 20 percent for James and 30 percent for Carl. The amount of intra-entity gross profit in inventory at December 31 that should be eliminated in the consolidation process is
$30,000
West Company acquired 60 percent of Solar Company for $300,000 when Solar's book value was $400,000. The newly comprised 40 percent noncontrolling interest had an assessed fair value of $200,000. Also at the acquisition date, Solar had a trademark (with a 10-year remaining life) that was undervalued in the financial records by $60,000. Also, patented technology (with a 5-year remaining life) was undervalued by $40,000. Two years later, the following figures are reported by these two companies (stockholders' equity accounts have been omitted): West Company Book Value Solar Company Book Value Solar Company Fair Value Current assets$620,000 $300,000 $320,000 Trademarks 260,000 200,000 280,000 Patented technology 410,000 150,000 150,000 Liabilities (390,000) (120,000) (120,000) Revenues (900,000) (400,000) Expenses 500,000 300,000 Investment income Not given Note: Parentheses indicate a credit balance. Assuming Solar Company has declared no dividends, what are the noncontrolling interest's share of the subsidiary's income and the ending balance of the noncontrolling interest in the subsidiary?
$34,400 and $240,800.
On January 1, 2017, Grand Haven, Inc., reports net assets of $760,000 although equipment (with a four-year remaining life) having a book value of $440,000 is worth $500,000 and an unrecorded patent is valued at $45,000. Van Buren Corporation pays $692,000 on that date to acquire an 80 percent equity ownership in Grand Haven. If the patent has a remaining life of nine years, at what amount should the patent be reported on Van Buren's consolidated balance sheet at December 31, 2018?
$35,000
On July 1, TruData Company issues 10,000 shares of its common stock with a $5 par value and a $40 fair value in exchange for all of Webstat Company's outstanding voting shares. Webstat's precombination book and fair values are shown below along with book values for TruData's accounts. TruData Webstat Webstat Book Values Book Values Fair ValuesRevenues (1/1 to 7/1) $(250,000) $(130,000) Expenses (1/1 to 7/1) 170,000 80,000 Retained earnings, 1/1 (130,000) (150,000) Cash and receivables 140,000 60,000 $60,000 Inventory 190,000 145,000 175,000 Patented technology (net) 230,000 180,000 200,000 Land 400,000 200,000 225,000 Buildings and equipment (net) 100,000 75,000 75,000 Liabilities (540,000) (360,000) (350,000) Common stock (300,000) (70,000) Additional paid-in capital (10,000) (30,000) On its acquisition-date consolidated balance sheet, what amount should TruData report as common stock?
$350,000
On January 1, 2017, Chamberlain Corporation pays $388,000 for a 60 percent ownership in Neville. Annual excess fair-value amortization of $15,000 results from the acquisition. On December 31, 2018, Neville reports revenues of $400,000 and expenses of $300,000 and Chamberlain reports revenues of $700,000 and expenses of $400,000. The parent figures contain no income from the subsidiary. What is consolidated net income attributable to Chamberlain Corporation?
$351,000
On January 1, Jarel acquired 80 percent of the outstanding voting stock of Suarez for $260,000 cash consideration. The remaining 20 percent of Suarez had an acquisition-date fair value of $65,000. On January 1, Suarez possessed equipment (five-year remaining life) that was undervalued on its books by $25,000. Suarez also had developed several secret formulas that Jarel assessed at $50,000. These formulas, although not recorded on Suarez's financial records, were estimated to have a 20-year future life. As of December 31, the financial statements appeared as follows: Jarel Suarez Revenues$(300,000) $(200,000) Cost of goods sold 140,000 80,000 Expenses 20,000 10,000 Net income$(140,000) $(110,000) Retained earnings, 1/1$(300,000) $(150,000) Net income (140,000) (110,000) Dividends declared 0 0 Retained earnings, 12/31$(440,000) $(260,000) Cash and receivables$210,000 $90,000 Inventory 150,000 110,000 Investment in Suarez 260,000 0 Equipment (net) 440,000 300,000 Total assets$1,060,000 $500,000 Liabilities$(420,000) $(140,000) Common stock (200,000) (100,000) Retained earnings, 12/31 (440,000) (260,000) Total liabilities and equities$(1,060,000) $(500,000) Included in the above statements, Jarel sold inventory costing $80,000 to Suarez for $100,000. Of these goods, Suarez still owns 60 percent on December 31. What is the total of consolidated expenses?
$37,500
Jordan, Inc., holds 75 percent of the outstanding stock of Paxson Corporation. Paxson currently owes Jordan $400,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of this debt should be eliminated?
$400,000
On January 1, Jarel acquired 80 percent of the outstanding voting stock of Suarez for $260,000 cash consideration. The remaining 20 percent of Suarez had an acquisition-date fair value of $65,000. On January 1, Suarez possessed equipment (five-year remaining life) that was undervalued on its books by $25,000. Suarez also had developed several secret formulas that Jarel assessed at $50,000. These formulas, although not recorded on Suarez's financial records, were estimated to have a 20-year future life. As of December 31, the financial statements appeared as follows: Jarel Suarez Revenues$(300,000) $(200,000) Cost of goods sold 140,000 80,000 Expenses 20,000 10,000 Net income$(140,000) $(110,000) Retained earnings, 1/1$(300,000) $(150,000) Net income (140,000) (110,000) Dividends declared 0 0 Retained earnings, 12/31$(440,000) $(260,000) Cash and receivables$210,000 $90,000 Inventory 150,000 110,000 Investment in Suarez 260,000 0 Equipment (net) 440,000 300,000 Total assets$1,060,000 $500,000 Liabilities$(420,000) $(140,000) Common stock (200,000) (100,000) Retained earnings, 12/31 (440,000) (260,000) Total liabilities and equities$(1,060,000) $(500,000) Included in the above statements, Jarel sold inventory costing $80,000 to Suarez for $100,000. Of these goods, Suarez still owns 60 percent on December 31. What is the total of consolidated revenues?
$400,000
On July 1, TruData Company issues 10,000 shares of its common stock with a $5 par value and a $40 fair value in exchange for all of Webstat Company's outstanding voting shares. Webstat's precombination book and fair values are shown below along with book values for TruData's accounts. TruData Webstat Webstat Book Values Book Values Fair ValuesRevenues (1/1 to 7/1) $(250,000) $(130,000) Expenses (1/1 to 7/1) 170,000 80,000 Retained earnings, 1/1 (130,000) (150,000) Cash and receivables 140,000 60,000 $60,000 Inventory 190,000 145,000 175,000 Patented technology (net) 230,000 180,000 200,000 Land 400,000 200,000 225,000 Buildings and equipment (net) 100,000 75,000 75,000 Liabilities (540,000) (360,000) (350,000) Common stock (300,000) (70,000) Additional paid-in capital (10,000) (30,000) On its acquisition-date consolidated balance sheet, what amount should TruData report as patented technology (net)?
$430,000
On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: Park Strand Current assets$70,000 $20,000 Noncurrent assets 90,000 40,000 Total assets$160,000 $60,000 Current liabilities$30,000 $10,000 Long-term debt 50,000 Stockholders' equity 80,000 50,000 Total liabilities and equities$160,000 $60,000 On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considered proportionate to Strand's total fair value. The $60,000 debt is payable in 10 equal annual principal payments, plus interest, beginning December 31. The excess fair value of the investment over the underlying book value of the acquired net assets is allocated to inventory (60 percent) and to goodwill (40 percent). On a consolidated balance sheet as of January 2, what should be the amount for current liabilities?
$46,000
On May 1, Donovan Company reported the following account balances: Current assets$90,000 Buildings & equipment (net) 220,000 Total assets$310,000 Liabilities$60,000 Common stock 150,000 Retained earnings 100,000 Total liabilities and equities$310,000 On May 1, Beasley paid $400,000 in stock (fair value) for all of the assets and liabilities of Donovan, which will cease to exist as a separate entity. In connection with the merger, Beasley incurred $15,000 in accounts payable for legal and accounting fees. Beasley also agreed to pay $75,000 to the former owners of Donovan contingent on meeting certain revenue goals during the following year. Beasley estimated the present value of its probability adjusted expected payment for the contingency at $20,000. In determining its offer, Beasley noted the following: Donovan holds a building with a fair value $30,000 more than its book value. Donovan has developed unpatented technology appraised at $25,000, although is it not recorded in its financial records. Donovan has a research and development activity in process with an appraised fair value of $45,000. The project has not yet reached technological feasibility. Book values for Donovan's current assets and liabilities approximate fair values.
$480,000
West Company acquired 60 percent of Solar Company for $300,000 when Solar's book value was $400,000. The newly comprised 40 percent noncontrolling interest had an assessed fair value of $200,000. Also at the acquisition date, Solar had a trademark (with a 10-year remaining life) that was undervalued in the financial records by $60,000. Also, patented technology (with a 5-year remaining life) was undervalued by $40,000. Two years later, the following figures are reported by these two companies (stockholders' equity accounts have been omitted): West Company Book Value Solar Company Book Value Solar Company Fair Value Current assets$620,000 $300,000 $320,000 Trademarks 260,000 200,000 280,000 Patented technology 410,000 150,000 150,000 Liabilities (390,000) (120,000) (120,000) Revenues (900,000) (400,000) Expenses 500,000 300,000 Investment income Not given Note: Parentheses indicate a credit balance. What is the consolidated net income before allocation to the controlling and noncontrolling interests?
$486,000
West Company acquired 60 percent of Solar Company for $300,000 when Solar's book value was $400,000. The newly comprised 40 percent noncontrolling interest had an assessed fair value of $200,000. Also at the acquisition date, Solar had a trademark (with a 10-year remaining life) that was undervalued in the financial records by $60,000. Also, patented technology (with a 5-year remaining life) was undervalued by $40,000. Two years later, the following figures are reported by these two companies (stockholders' equity accounts have been omitted): West Company Book Value Solar Company Book Value Solar Company Fair Value Current assets$620,000 $300,000 $320,000 Trademarks 260,000 200,000 280,000 Patented technology 410,000 150,000 150,000 Liabilities (390,000) (120,000) (120,000) Revenues (900,000) (400,000) Expenses 500,000 300,000 Investment income Not given Note: Parentheses indicate a credit balance. What is the consolidated trademarks balance?
$508,000
Mittelstaedt Inc., buys 60 percent of the outstanding stock of Sherry, Inc. Sherry owns a piece of land that cost $212,000 but had a fair value of $549,000 at the acquisition date. What value should be attributed to this land in a consolidated balance sheet at the date of takeover?
$549,000
Paar Corporation bought 100 percent of Kimmel, Inc., on January 1, 2015. On that date, Paar's equipment (10-year remaining life) has a book value of $420,000 but a fair value of $520,000. Kimmel has equipment (10-year remaining life) with a book value of $272,000 but a fair value of $400,000. Paar uses the equity method to record its investment in Kimmel. On December 31, 2017, Paar has equipment with a book value of $294,000 but a fair value of $445,200. Kimmel has equipment with a book value of $190,400 but a fair value of $357,000. What is the consolidated balance for the Equipment account as of December 31, 2017?
$574,000
Parkette, Inc., acquired a 60 percent interest in Skybox Company several years ago. During 2017, Skybox sold inventory costing $160,000 to Parkette for $200,000. A total of 18 percent of this inventory was not sold to outsiders until 2018. During 2018, Skybox sold inventory costing $297,500 to Parkette for $350,000. A total of 30 percent of this inventory was not sold to outsiders until 2019. In 2018, Parkette reported cost of goods sold of $607,500 while Skybox reported $450,000. What is the consolidated cost of goods sold in 2018?
$716,050.
Angela, Inc., holds a 90 percent interest in Corby Company. During 2017, Corby sold inventory costing $77,000 to Angela for $110,000. Of this inventory, $40,000 worth was not sold to outsiders until 2018. During 2018, Corby sold inventory costing $72,000 to Angela for $120,000. A total of $50,000 of this inventory was not sold to outsiders until 2019. In 2018, Angela reported separate net income of $150,000 while Corby's net income was $90,000 after excess amortizations. What is the noncontrolling interest in the 2018 income of the subsidiary?
$8,200
On January 1, Jarel acquired 80 percent of the outstanding voting stock of Suarez for $260,000 cash consideration. The remaining 20 percent of Suarez had an acquisition-date fair value of $65,000. On January 1, Suarez possessed equipment (five-year remaining life) that was undervalued on its books by $25,000. Suarez also had developed several secret formulas that Jarel assessed at $50,000. These formulas, although not recorded on Suarez's financial records, were estimated to have a 20-year future life. As of December 31, the financial statements appeared as follows: Jarel Suarez Revenues$(300,000) $(200,000) Cost of goods sold 140,000 80,000 Expenses 20,000 10,000 Net income$(140,000) $(110,000) Retained earnings, 1/1$(300,000) $(150,000) Net income (140,000) (110,000) Dividends declared 0 0 Retained earnings, 12/31$(440,000) $(260,000) Cash and receivables$210,000 $90,000 Inventory 150,000 110,000 Investment in Suarez 260,000 0 Equipment (net) 440,000 300,000 Total assets$1,060,000 $500,000 Liabilities$(420,000) $(140,000) Common stock (200,000) (100,000) Retained earnings, 12/31 (440,000) (260,000) Total liabilities and equities$(1,060,000) $(500,000) Included in the above statements, Jarel sold inventory costing $80,000 to Suarez for $100,000. Of these goods, Suarez still owns 60 percent on December 31. What is the consolidated total of noncontrolling interest appearing on the balance sheet?
$85,500
On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: Park Strand Current assets$70,000 $20,000 Noncurrent assets 90,000 40,000 Total assets$160,000 $60,000 Current liabilities$30,000 $10,000 Long-term debt 50,000 Stockholders' equity 80,000 50,000 Total liabilities and equities$160,000 $60,000 On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considered proportionate to Strand's total fair value. The $60,000 debt is payable in 10 equal annual principal payments, plus interest, beginning December 31. The excess fair value of the investment over the underlying book value of the acquired net assets is allocated to inventory (60 percent) and to goodwill (40 percent). On a consolidated balance sheet as of January 2, what should be the amount for stockholders' equity?
$95,000
On May 1, Donovan Company reported the following account balances: Current assets$90,000 Buildings & equipment (net) 220,000 Total assets$310,000 Liabilities$60,000 Common stock 150,000 Retained earnings 100,000 Total liabilities and equities$310,000 On May 1, Beasley paid $400,000 in stock (fair value) for all of the assets and liabilities of Donovan, which will cease to exist as a separate entity. In connection with the merger, Beasley incurred $15,000 in accounts payable for legal and accounting fees. Beasley also agreed to pay $75,000 to the former owners of Donovan contingent on meeting certain revenue goals during the following year. Beasley estimated the present value of its probability adjusted expected payment for the contingency at $20,000. In determining its offer, Beasley noted the following: Donovan holds a building with a fair value $30,000 more than its book value. Donovan has developed unpatented technology appraised at $25,000, although is it not recorded in its financial records. Donovan has a research and development activity in process with an appraised fair value of $45,000. The project has not yet reached technological feasibility. Book values for Donovan's current assets and liabilities approximate fair values.What should Beasley record as total liabilities incurred or assumed in connection with the Donovan merger?
$95,000
An acquired entity has a long-term operating lease for an office building used for central management. The terms of the lease are very favorable relative to current market rates. However, the lease prohibits subleasing or any other transfer of rights. In its financial statements, the acquiring firm should report the value assigned to the lease contract as
An intangible asset under the contractual-legal criterion.
What is the appropriate accounting treatment for the value assigned to in-process research and development acquired in a business combination?
Capitalize as an asset.
When should a consolidated entity recognize a goodwill impairment loss?
If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying amounts.
Which of the following is the best theoretical justification for consolidated financial statements?
In form the companies are separate; in substance they are one entity.
The noncontrolling interest represents an outside ownership in a subsidiary that is not attributable to the parent company. Where in the consolidated balance sheet is this outside ownership interest recognized?
In the owners' equity section.
If no legal, regulatory, contractual, competitive, economic, or other factors limit the life of an intangible asset, the asset's assigned value is allocated to expense over which of the following?
Indefinitely (no amortization) with an annual impairment review until its life becomes finite.
Which of the following does not represent a primary motivation for business combinations?
Larger firms are less likely to fail.
A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the equity method. Why might the company have made this decision?
Operating results appearing on the parent's financial records reflect consolidated totals.
FASB ASC 805, Business Combinations, provides principles for allocating the fair value of an acquired business. When the collective fair values of the separately identified assets acquired and liabilities assumed exceed the fair value of the consideration transferred, the difference should be:
Recognized as an ordinary gain from a bargain purchase.
According to the acquisition method of accounting for business combinations, costs paid to attorneys and accountants for services in arranging a merger should be
Recorded as an expense in the period the merger takes place.
Dosmann, Inc., bought all outstanding shares of Lizzi Corporation on January 1, 2016, for $700,000 in cash. This portion of the consideration transferred results in a fair-value allocation of $35,000 to equipment and goodwill of $88,000. At the acquisition date, Dosmann also agrees to pay Lizzi's previous owners an additional $110,000 on January 1, 2018, if Lizzi earns a 10 percent return on the fair value of its assets in 2016 and 2017. Lizzi's profits exceed this threshold in both years. Which of the following is true?
The fair value of the expected contingent payment increases goodwill at the acquisition date.
An acquired firm's financial records sometimes show goodwill from previous business combinations. How does a parent company account for the preexisting goodwill of its newly acquired subsidiary?
The parent ignores preexisting subsidiary goodwill and allocates the subsidiary's fair value among the separately identifiable assets acquired and liabilities assumed.
Kaplan Corporation acquired Star, Inc., on January 1, 2017, by issuing 13,000 shares of common stock with a $10 per share par value and a $23 market value. This transaction resulted in recognizing $62,000 of goodwill. Kaplan also agreed to compensate Star's former owners for any difference if Kaplan's stock is worth less than $23 on January 1, 2018. On January 1, 2018, Kaplan issues an additional 3,000 shares to Star's former owners to honor the contingent consideration agreement. Which of the following is true?
The parent's additional paid-in capital from the contingent equity recorded at the acquisition date is reclassified as a regular common stock issue on January 1, 2018.
When does gain recognition accompany a business combination?
When a bargain purchase occurs.
What is the primary reason we defer financial statement recognition of gross profits on intra-entity sales for goods that remain within the consolidated entity at year-end?
When intra-entity sales remain in ending inventory, control of the goods has not changed.