Advanced Accounting Exam 2
On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts on January 1, 2012: (Chart) Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year. The 2012 total amortization of allocations is calculated to be
$(1,000). Explanation: Building = FV $268,000 - BV $240,000 = $28,000/20 yrs = $1,400 Equipment = FV $516,000 - BV $540,000 = ($24,000)/10 yrs = ($2,400) ($2,400) + $1,400 = ($1,000)
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities: chart If Watkins pays $450,000 in cash for Glen, what acquisition-date fair value allocation, net of amortization, should be attributed to the subsidiary's Equipment in consolidation at December 31, 2014?
$(3,500.) Fair Value Differential at Acquisition [$5,000] + Amortization ([$5000]/10 × 3) = [$3,500]
Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2012. Janex's reported earnings for 2012 totaled $432,000, and it paid $120,000 in dividends during the year. The amortization of allocations related to the investment was $24,000. Cashen's net income, not including the investment, was $3,180,000, and it paid dividends of $900,000. On the consolidated financial statements for 2012, what amount should have been shown for Equity in Subsidiary Earnings?
$-0- $0; (Income is eliminated from the investment account)
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities: chart If Watkins pays $450,000 in cash for Glen, at what amount would Glen's Inventory acquired be represented in a December 31, 2012 consolidated balance sheet?
$0.
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; chart Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the amount of Hurley's equipment that would be reported in a December 31, 2013, consolidated balance sheet.
$1,000. FV $1,250 - Excess Amortization ($250/2) $125 × 2 = $1,000
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted. chart Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment. Compute the December 31, 2015, consolidated buildings.
$1,007,500. $750,000 + $280,000 - $30,000 = $1,000,000 + Amortization ($1,500 × 5) = $1,007,500
On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts on January 1, 2012: (Chart) Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year. What is the balance in Cale's investment in subsidiary account at the end of 2012?
$1,099,000. Explanation: $1,020,000 + ($126,000 + $1,000) - $48,000 = $1,099,000
Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2012, at an amount in excess of Kenneth's fair value. On that date, Kenneth has equipment with a book value of $90,000 and a fair value of $120,000 (10-year remaining life). Goehler has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life). On December 31, 2013, Goehler has equipment with a book value of $975,000 but a fair value of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair value of $125,000. If Goehler applies the equity method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2013?
$1,104,000
Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2012, at an amount in excess of Kenneth's fair value. On that date, Kenneth has equipment with a book value of $90,000 and a fair value of $120,000 (10-year remaining life). Goehler has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life). On December 31, 2013, Goehler has equipment with a book value of $975,000 but a fair value of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair value of $125,000. If Goehler applies the initial value method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2013?
$1,104,000
Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2012, at an amount in excess of Kenneth's fair value. On that date, Kenneth has equipment with a book value of $90,000 and a fair value of $120,000 (10-year remaining life). Goehler has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life). On December 31, 2013, Goehler has equipment with a book value of $975,000 but a fair value of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair value of $125,000. If Goehler applies the partial equity method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2013?
$1,104,000.
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; chart Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the amount of Hurley's equipment that would be reported in a December 31, 2012, consolidated balance sheet.
$1,125. FV $1,250 - Excess Amortization ($250/2) $125 = $1,125
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; chart Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the amount of Hurley's buildings that would be reported in a December 31, 2012, consolidated balance sheet.
$1,260. FV $1,200 + Excess Amortization ($300/5) $60 = $1,260
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; chart Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the amount of Hurley's land that would be reported in a December 31, 2013, consolidated balance sheet.
$1,300.
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; chart Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the amount of Hurley's buildings that would be reported in a December 31, 2013, consolidated balance sheet.
$1,320. FV $1,200 + Excess Amortization ($300/5) $60 × 2 = $1,320
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted. chart Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment. Compute the December 31, 2015, consolidated revenues.
$1,400,000. $900,000 + $500,000 = $1,400,000
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted. chart Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment. Compute the December 31, 2015 consolidated retained earnings.
$1,645,375
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; chart Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the amount of Hurley's long-term liabilities that would be reported in a December 31, 2012, consolidated balance sheet.
$1,725. FV $1,700 + Excess Amortization ($100/4) $25 = $1,725
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; chart Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the amount of Hurley's long-term liabilities that would be reported in a December 31, 2013, consolidated balance sheet.
$1,750. FV $1,700 + Excess Amortization ($100/4) $25 × 2 = $1,750
Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2013 and paid dividends of $100. Assume the initial value method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?
$100 increase. 2013 Dividends = $100 Increase
When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000 and a fair value of $100,000. What amount should have been reported for the land in a consolidated balance sheet at the acquisition date?
$100,000. $100,000 FV of Land at Acquisition
Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair value of Float's net assets was $1,850,000, and the book value was $1,500,000. The non-controlling interest shares of Float Corp. are not actively traded. What amount of goodwill should be attributed to Perch at the date of acquisition?
$120,000. (Purchase Price for 80%) $1,600,000 - (FV $1,850,000 × .80 = $1,480,000) = $120,000
On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts on January 1, 2012: (Chart) Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year. At the end of 2012, the consolidation entry to eliminate Cale's accrual of Kaltop's earnings would include a credit to Investment in Kaltop Co. for
$127,000. Explanation: $126,000 + $1,000 = $127,000
On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts on January 1, 2012: (Chart) Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year. In Cale's accounting records, what amount would appear on December 31, 2012 for equity in subsidiary earnings?
$127,000. Explanation: $126,000 + $1,000 = $127,000
Red Co. acquired 100% of Green, Inc. on January 1, 2012. On that date, Green had inventory with a book value of $42,000 and a fair value of $52,000. This inventory had not yet been sold at December 31, 2012. Also, on the date of acquisition, Green had a building with a book value of $200,000 and a fair value of $390,000. Green had equipment with a book value of $350,000 and a fair value of $280,000. The building had a 10-year remaining useful life and the equipment had a 5-year remaining useful life. How much total expense will be in the consolidated financial statements for the year ended December 31, 2012 related to the acquisition allocations of Green?
$15,000. Inventory Adjustment $10,000 + Building Adjustment ($190,000/10) $19,000 + Equipment Adjustment ([$70,000]/5) [$14,000] = $15,000
Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair value of Float's net assets was $1,850,000, and the book value was $1,500,000. The non-controlling interest shares of Float Corp. are not actively traded. What is the total amount of goodwill recognized at the date of acquisition?
$150,000. FV $1,850,000 - FV of Stock at Purchase Price for 100% ($1,600,000/.80) $2,000,000 = ($150,000) Goodwill
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; chart Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute goodwill, if any, at January 1, 2012.
$150. Identified BVs $2,950 - Identified FVs $3,100 = $150 Excess Unidentified (Goodwill)
On January 1, 2012, Franel Co. acquired all of the common stock of Hurlem Corp. For 2012, Hurlem earned net income of $360,000 and paid dividends of $190,000. Amortization of the patent allocation that was included in the acquisition was $6,000. How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the initial value method of internal recordkeeping?
$164,000. Initial Value Method = $0 Recognized from Sub Income (only dividend income) Equity Method = $360,000 - $6,000 - $190,000 = $164,000 Sub Income Added in Consolidation $164,000 - $0 = $164,000
Hoyt Corporation agreed to the following terms in order to acquire the net assets of Brown Company on January 1, 2013: (1.) To issue 400 shares of common stock ($10 par) with a fair value of $45 per share. (2.) To assume Brown's liabilities which have a fair value of $1,500. On the date of acquisition, the consideration transferred for Hoyt's acquisition of Brown would be
$19,500. Common Stock (400 shares × $45) $18,000 + Liabilities Assumed $1,500 = $19,500
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted. chart Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment. Compute the equity in Vega's income to be included in Green's consolidated income statement for 2015.
$190,375.
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; chart Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the amount of total expenses reported in an income statement for the year ended December 31, 2012, in order to recognize acquisition-date allocations of fair value and book value differences,
$190.
When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000 and a fair value of $100,000. What is the amount of excess land allocation attributed to the controlling interest at the acquisition date?
$22,500. FV - BV ($30,000) × .75 = $22,500
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities: chart If Watkins pays $400,000 in cash for Glen, what amount would be represented as the subsidiary's Building in a consolidation at December 31, 2014, assuming the book value of the building at that date is still $200,000?
$285,000 Fair Value at Acquisition ($300,000) - Amortization [($100,000/20) × 3] = $285,000
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities: chart If Watkins pays $450,000 in cash for Glen, what amount would be represented as the subsidiary's Building in a consolidation at December 31, 2014, assuming the book value of the building at that date is still $200,000?
$285,000. Fair Value at Acquisition ($300,000) - Amortization [($100,000/20) × 3] = $285,000
Jansen Inc. acquired all of the outstanding common stock of Merriam Co. on January 1, 2012, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Jansen reported net income of $70,000 in 2012 and $50,000 in 2013 and paid $22,000 in dividends each year. Merriam reported net income of $40,000 in 2012 and $47,000 in 2013 and paid $10,000 in dividends each year. What is the Investment in Merriam Co. balance on Jansen's books as of December 31, 2013, if the equity method has been applied?
$286,000. Explanation: $257,000 + $40,000 + $47,000 - $10,000 - $19,000 - $10,000 - $19,000 = $286,000
Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2012 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2013 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142. When recording consideration transferred for the acquisition of Rhine on January 1, 2012, Harrison will record a contingent performance obligation in the amount of:
$3,142.00 Weighted Fair Value of Contingency = $3,142
Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2012 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2013 if Gataux generates cash flows from operations of $26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux will generate at least $26,500 next year, and uses an interest rate of 4% to incorporate the time value of money. The fair value of $12,000 at 4%, using a probability weighted approach, is $3,461. When recording consideration transferred for the acquisition of Gataux on January 1, 2012, Beatty will record a contingent performance obligation in the amount of:
$3,461.00 Weighted Fair Value of Contingency = $3,461
Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2012. Janex's reported earnings for 2012 totaled $432,000, and it paid $120,000 in dividends during the year. The amortization of allocations related to the investment was $24,000. Cashen's net income, not including the investment, was $3,180,000, and it paid dividends of $900,000. What is the amount of consolidated net income for the year 2012?
$3,588,000. Parent Income $3,180,000 + Sub Income $432,000 - Amortization Allocations $24,000 = Consolidated Net Income $3,588,000
Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair value of Float's net assets was $1,850,000, and the book value was $1,500,000. The non-controlling interest shares of Float Corp. are not actively traded. What amount of goodwill should be attributed to the non-controlling interest at the date of acquisition?
$30,000. $150,000 Goodwill × .20 = $30,000 to Non-Controlling Interest
When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000 and a fair value of $100,000. What is the total amount of excess land allocation at the acquisition date?
$30,000. FV $100,000 - BV $70,000 = $30,000
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities: chart If Watkins pays $300,000 in cash for Glen, at what amount would the subsidiary's Building be represented in a January 2, 2012 consolidation?
$300,000. Fair Value at Acquisition = $300,000
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted. chart Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment. Compute the December 31, 2015, consolidated trademark.
$34,375. $50,000 - Amortization ($3,125 × 5) = $34,375
Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2013 and paid dividends of $100. Assume the equity method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?
$380 increase. 2013 Income $400 - Amortization $20 = $380 Increase
Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2013 and paid dividends of $100. Assume the partial equity method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?
$400 increase. 2013 Income = $400 Increase
Prince Company acquires Duchess, Inc. on January 1, 2011. The consideration transferred exceeds the fair value of Duchess' net assets. On that date, Prince has a building with a book value of $1,200,000 and a fair value of $1,500,000. Duchess has a building with a book value of $400,000 and fair value of $500,000. If push-down accounting is not used, what amounts in the Building account appear on Duchess' separate balance sheet and on the consolidated balance sheet immediately after acquisition?
$400,000 and $1,700,000. Book Value ($400,000) & Parent BV + Sub FV ($1,700,000)
Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2012 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2013 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142. What will Harrison record as its Investment in Rhine on January 1, 2012?
$403,142 Cash Payment $400,000 + Weighted Fair Value of Contingency $3,142 = $403,142
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities: chart If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in net income and pays $20,000 in dividends during 2012, what amount would be reflected in consolidated net income for 2012 as a result of the acquisition?
$45,500 regardless of the internal accounting method used. Sub Income $50,000 - Amortizations ([$5,000]/10) - ($100,000/20) = $45,500
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted. chart Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment. Compute the December 31, 2015, consolidated common stock.
$450,000. $450,000 (Parent Only)
Velway Corp. acquired Joker Inc. on January 1, 2012. The parent paid more than the fair value of the subsidiary's net assets. On that date, Velway had equipment with a book value of $500,000 and a fair value of $640,000. Joker had equipment with a book value of $400,000 and a fair value of $470,000. Joker decided to use push-down accounting. Immediately after the acquisition, what Equipment amount would appear on Joker's separate balance sheet and on Velway's consolidated balance sheet, respectively?
$470,000 and $970,000 Explanation: FV of EQ = $470,000 for Joker B/S; Consolidated B/S = BV of Parent EQ $500,000 + FV of Sub EQ $470,000 = $970,000
Parrett Corp. acquired one hundred percent of Jones Inc. on January 1, 2011, at a price in excess of the subsidiary's fair value. On that date, Parrett's equipment (ten-year life) had a book value of $360,000 but a fair value of $480,000. Jones had equipment (ten-year life) with a book value of $240,000 and a fair value of $350,000. Parrett used the partial equity method to record its investment in Jones. On December 31, 2013, Parrett had equipment with a book value of $250,000 and a fair value of $400,000. Jones had equipment with a book value of $170,000 and a fair value of $320,000. What is the consolidated balance for the Equipment account as of December 31, 2013?
$497,000. Explanation Excess of Sub's FV = $110,000 + Parent's BV $250,000 + Sub's BV $170,000 - Excess Amortization ($11,000 × 3yrs) = $497,000
Prince Company acquires Duchess, Inc. on January 1, 2011. The consideration transferred exceeds the fair value of Duchess' net assets. On that date, Prince has a building with a book value of $1,200,000 and a fair value of $1,500,000. Duchess has a building with a book value of $400,000 and fair value of $500,000. If push-down accounting is used, what amounts in the Building account appear in Duchess' separate balance sheet and in the consolidated balance sheet immediately after acquisition?
$500,000 and $1,700,000 Fair Value ($500,000) & Parent BV + Sub FV ($1,700,000)
Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2012 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2013 if Gataux generates cash flows from operations of $26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux will generate at least $26,500 next year, and uses an interest rate of 4% to incorporate the time value of money. The fair value of $12,000 at 4%, using a probability weighted approach, is $3,461. What will Beatty record as its Investment in Gataux on January 1, 2012?
$503,461 Cash Payment $500,000 + Weighted Fair Value of Contingency $3,461 = $503,461
On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts on January 1, 2012: (Chart) Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year. If Cale Corp. had net income of $444,000 in 2012, exclusive of the investment, what is the amount of consolidated net income?
$571,000. Explanation: $444,000 + ($126,000 + $1,000) = $571,000
On January 1, 2012, Franel Co. acquired all of the common stock of Hurlem Corp. For 2012, Hurlem earned net income of $360,000 and paid dividends of $190,000. Amortization of the patent allocation that was included in the acquisition was $6,000. How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the partial equity method of internal recordkeeping?
$6,000. Equity Method = $360,000 - $6,000 - $190,000 = $164,000 Added in Consolidation - Partial Equity Method = $360,000 - $190,000 = $170,000 Added in Consolidation $170,000 - $164,000 = $6,000
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted. chart Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment. Compute the December 31, 2015, consolidated land.
$670,000. $450,000 + $220,000 = $670,000
When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000 and a fair value of $100,000. What is the amount of excess land allocation attributed to the non-controlling interest at the acquisition date?
$7,500. FV - BV ($30,000) × .25 = $7,500
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; chart Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the consideration transferred in excess of book value acquired at January 1, 2012.
$700. Acquisition Price $3,800 - Total Equity at Acquisition $3,100 = $700
Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2011, for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years. Tysk earned reported net income of $180,000 in 2011 and $216,000 in 2012. Dividends of $70,000 were paid in each of these two years. Selected account balances as of December 31, 2013, for the two companies follow. Chart If the equity method had been applied, what would be the Investment in Tysk Corp. account balance within the records of Jans at the end of 2013?
$744,000. Initial Investment $372,000 2011 Entries: $180,000 - $70,000 - $18,000 = $92,000 2012 Entries: $216,000 - $70,000 - $18,000 = $128,000 2013 Entries: $240,000 - $70,000 - $18,000 = $152,000 $372,000 + $92,000 + $128,000 + $152,000 = $744,000
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted. chart Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment. Compute the December 31, 2015, consolidated additional paid-in capital.
$75,000. $75,000 (Parent Only)
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities: chart If Watkins pays $450,000 in cash for Glen, what amount would be represented as the subsidiary's Equipment in a consolidation at December 31, 2014, assuming the book value of the equipment at that date is still $80,000?
$76,500. Fair Value at Acquisition ($75,000) + Amortization [($5,000/10) × 3] = $76,500
Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2011, for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years. Tysk earned reported net income of $180,000 in 2011 and $216,000 in 2012. Dividends of $70,000 were paid in each of these two years. Selected account balances as of December 31, 2013, for the two companies follow. Chart If the partial equity method had been applied, what was 2013 consolidated net income?
$822,000. Parent $1,080,000 - $480,000 = $600,000; Sub $840,000 - $600,000 = $240,000 $600,000 + $240,000 = $840,000 - ($46,000/10) - ($67,000/5) = $822,000
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted. chart Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment. Compute the December 31, 2015, consolidated equipment.
$840,000. $300,000 + $580,000 = $880,000 - Amortization ($8,000 × 5) = $840,000
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted. chart Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment. Compute the book value of Vega at January 1, 2011.
$857,500. Common Stock Fair Value $997,500 - Fair Value Asset Adjustment (Land $40,000 - Building $30,000 + Equipment $80,000 + Unrecorded Trademark $50,000) $140,000 = $857,500
Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2012. Janex's reported earnings for 2012 totaled $432,000, and it paid $120,000 in dividends during the year. The amortization of allocations related to the investment was $24,000. Cashen's net income, not including the investment, was $3,180,000, and it paid dividends of $900,000. On the consolidated financial statements for 2012, what amount should have been shown for consolidated dividends?
$900,000. $900,000 Parent's Dividends Only
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; chart Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the amount of Hurley's inventory that would be reported in a January 1, 2012, consolidated balance sheet.
$900. Fair Value at Acquisition = $900
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted. chart Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment. Compute the December 31, 2015, consolidated total expenses.
$909,625. COGS ($360,000 + $200,000) + Depreciation ($140,000 + $40,000) + Other Exp ($100,000 + $60,000) + Excess FV Amortization (Blg [$1,500] + Equip $8,000 + Trademark $3,125) = $909,625
When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000 and a fair value of $100,000. What amount should have been reported for the land in a consolidated balance sheet, assuming the investment was obtained prior to the date the purchase method of accounting for new business combinations was discontinued?
$92,500. BV $70,000 + FV Controlling Differential ($30,000 × .75) = $92,500
When a company applies the partial equity method in accounting for its investment in a subsidiary and the subsidiary's equipment has a fair value greater than its book value, what consolidation worksheet entry is made in a year subsequent to the initial acquisition of the subsidiary? Chart
A above Retained earnings -investment in subsidiary
When a company applies the initial value method in accounting for its investment in a subsidiary and the subsidiary reports income less than dividends paid, what entry would be made for a consolidation worksheet? Chart
A above retained earnings -investment in subsidiary
When is a goodwill impairment loss recognized?
After only definitive quantitative assessments of the fair value of goodwill is completed.
Factors that should be considered in determining the useful life of an intangible asset include
All of these choices are used in determining the useful life of an intangible asset. factors include: -Legal, regulatory, or contractual provisions -The residual value of the asset -The entity's expected use of the intangible asset -The effects of obsolescence, competition, and technological change
Under the partial equity method of accounting for an investment,
Amortization of the excess of fair value allocations over book value is ignored in regard to the investment account.
When a company applies the initial method in accounting for its investment in a subsidiary and the subsidiary reports income in excess of dividends paid, what entry would be made for a consolidation worksheet? Chart
B above investment in subsidiary -retained earnings
Which of the following will result in the recognition of an impairment loss on goodwill?
Both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values.
Which of the following is false regarding contingent consideration in business combinations?
Contingent consideration is recorded because of its substantial probability of eventual payment.
Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2012 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2013 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142. Assuming Rhine generates cash flow from operations of $27,200 in 2012, how will Harrison record the $16,500 payment of cash on April 15, 2013 in satisfaction of its contingent obligation?
Debit Contingent performance obligation $3,142, debit Loss from revaluation of contingent performance obligation $13,358, and Credit Cash $16,500
Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2012 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2013 if Gataux generates cash flows from operations of $26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux will generate at least $26,500 next year, and uses an interest rate of 4% to incorporate the time value of money. The fair value of $12,000 at 4%, using a probability weighted approach, is $3,461. Assuming Gataux generates cash flow from operations of $27,200 in 2012, how will Beatty record the $12,000 payment of cash on April 1, 2013 in satisfaction of its contingent obligation?
Debit Contingent performance obligation $3,461, debit Loss from revaluation of contingent performance obligation $8,539, and Credit Cash $12,000.
When a company applies the partial equity method in accounting for its investment in a subsidiary and initial value, book values, and fair values of net assets acquired are all equal, what consolidation worksheet entry would be made? Chart
E above no entry necessary
Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2013 and paid dividends of $100. Assume the partial equity method is used. In the years following acquisition, what additional worksheet entry must be made for consolidation purposes that is not required for the equity method? chart
Entry A. retained earnings 20 -investment in fiore 20
Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2013 and paid dividends of $100. Assume the initial value method is used. In the year subsequent to acquisition, what additional worksheet entry must be made for consolidation purposes that is not required for the equity method? chart
Entry C. investment in fiore 280 -retained earnings 280
According to the FASB ASC regarding the testing procedures for Goodwill Impairment, the proper procedure for conducting impairment testing is:
Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by qualitative assessment of the possibility of impairment of the unit fair value relative to the book value, and then quantitative assessments as to how much impairment, if any, occurred for asset write-down.
According to GAAP regarding amortization of goodwill and other intangible assets, which of the following statements is true?
Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment.
When is a goodwill impairment loss recognized?
If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values.
Under the equity method of accounting for an investment
Income reported by the subsidiary increases the investment account
Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination?
Investment in Subsidiary
Racer Corp. acquired all of the common stock of Tangiers Co. in 2011. Tangiers maintained its incorporation. Which of Racer's account balances would vary between the equity method and the initial value method?
Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings.
One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the initial value method in accounting for the combination. What is one reason the acquiring company might have made this decision?
It is relatively easy to apply.
How is the fair value allocation of an intangible asset allocated to expense when the asset has no legal, regulatory, contractual, competitive, economic, or other factors that limit its life
No amortization, but annually reviewed for impairment and adjusted accordingly
When consolidating a subsidiary under the equity method, which of the following statements is true with regard to the subsidiary subsequent to the year of acquisition?
Only net assets that had excess fair value over book value when acquired by the parent must be amortized over their useful lives.
One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the equity method in accounting for the combination. What is one reason the acquiring company might have made this decision?
Operating results on the parent's financial records reflect consolidated totals
Consolidated net income using the equity method for an acquisition combination is computed as follows:
Parent's revenues less expenses for its own operations plus the equity from subsidiary's income recorded by parent.
Which of the following statements is false regarding push-down accounting?
Push-down accounting must be applied for all business combinations under a pooling of interests.
All of the following are acceptable methods to account for a majority-owned investment in subsidiary except
The fair-value method.
Under the initial value method, when accounting for an investment in a subsidiary
The investment account remains at initial value
When consolidating a subsidiary under the equity method, which of the following statements is true?
The value of any goodwill should be tested annually for impairment in value.
How does the partial equity method differ from the equity method?
Under the partial equity method, the balance in the investment account is not decreased by amortization on allocations made in the acquisition of the subsidiary.
Push-down accounting is concerned with the
impact of the purchase on the subsidiary's financial statements.
Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?
initial value, equity, or partial equity.
Under the partial equity method, the parent recognizes income when
it is earned by the subsidiary.
1. For business combinations involving less than 100 percent ownership, the acquirer recognizes and measures all of the following at the acquisition date except:
liabilities assumed, at book value.
Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment?
the balance in the investment account on the parent's books.
