Bus Comp Review 2 - jsksks PDF

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Ch 4 Quiz #1 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 Current assets $ 620,000 Trademarks 260,000 Patented 410,000 technology Liabilities (390,000) Revenues (900,000) Expenses 500,000 Investment Not given income

Solar Company Book Value $ 300,000 200,000

Solar Company Fair Value $ 320,000 280,000

150,000

150,000

(120,000) (400,000) 300,000

(120,000)

Note: Parentheses indicate a credit balance.

What is the consolidated net income before allocation to the controlling and noncontrolling interests? $486,000 Explanation

Combined revenues $1,300,000 Combined expenses (800,000) Trademark amortization (6,000) Patented technology amortization (8,000) Consolidated net income $ 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 Current assets $ 620,000 Trademarks 260,000 Patented 410,000 technology Liabilities (390,000) Revenues (900,000) Expenses 500,000 Investment Not given income

Solar Company Book Value $ 300,000 200,000

Solar Company Fair Value $ 320,000 280,000

150,000

150,000

(120,000) (400,000) 300,000

(120,000)

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 Explanation

Subsidiary net income ($100,000 − $14,000 excess amortizations) Noncontrolling interest percentage Noncontrolling interest in consolidated net income

$ 86,000 40% $ 34,400

Fair value of noncontrolling interest at acquisition $200,000 date 40% change in previous year Solar book value ($430,000 − $400,000) × 40% 12,000 40% of excess fair value amortization—year one (5,600) NCI share of current year consolidated net income 34,400 (above) Noncontrolling interest at end of year $240,800

Alternative noncontrolling interest year 2 solution:

Solar and NCI valuations: Current assets Trademarks Patented technology Liabilities Solar book value at end of year 2 Solar book value at acquisition date Increase in book value (2 years) NCI percentage NCI share of book value increase NCI share of excess fair value amortization (2 years) Increase in NCI since acquisition Fair value of noncontrolling interest at acquisition date Noncontrolling interest at end of year 2

$ 300,000 200,000 150,000 (120,000) $ 530,000 (400,000) $ 130,000 40% 52,000 (11,200) 40,800 200,000 $ 240,800

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 Current assets $ 620,000 Trademarks 260,000 Patented 410,000 technology Liabilities (390,000) Revenues (900,000) Expenses 500,000 Investment Not given income

Solar Company Book Value $ 300,000 200,000

Solar Company Fair Value $ 320,000 280,000

150,000

150,000

(120,000) (400,000) 300,000

(120,000)

Note: Parentheses indicate a credit balance.

What is the consolidated trademarks balance? Explanation

$508,000

West trademark balance $260,000 Solar trademark balance 200,000 Acquisition-date fair value allocation 60,000 Excess fair value amortization for two years (12,000) Consolidated trademarks $508,000

On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows:

Park Current assets $ 70,000 Noncurrent assets 90,000 Total assets $160,000 Current liabilities $ 30,000 Long-term debt 50,000 Stockholders' equity 80,000 Total liabilities and equities$160,000

Strand $20,000 40,000 $60,000 $10,000 50,000 $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 Explanation

Acquisition-date fair value ($60,000 ÷ 80%) Strand's book value Fair value in excess of book value Excess assigned to inventory (60%) $15,000 Excess assigned to goodwill (40%) $10,000 Park current assets Strand current assets Excess inventory fair value

$ 75,000 (50,000) $ 25,000

$ 70,000 20,000 15,000

Consolidated current assets

$105,000

On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows:

Park $ 70,000 90,000 $160,000

Strand $20,000 40,000 $60,000

Current liabilities $ 30,000 Long-term debt 50,000 Stockholders' equity 80,000 Total liabilities and equities$160,000

$10,000

Current assets Noncurrent assets Total assets

50,000 $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 Explanation

Park noncurrent assets

$ 90,000

Strand noncurrent assets

40,000

Excess fair value to goodwill

10,000

Consolidated noncurrent assets

$140,000

On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows:

Park Current assets $ 70,000 Noncurrent assets 90,000 Total assets $160,000 Current liabilities $ 30,000 Long-term debt 50,000 Stockholders' equity 80,000 Total liabilities and equities$160,000

Strand $20,000 40,000 $60,000 $10,000 50,000 $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 Explanation

Add the two book values and include 10% (the $6,000 current portion) of the loan taken out by Park to acquire Strand.

On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows:

Park Current assets $ 70,000 Noncurrent assets 90,000 Total assets $160,000 Current liabilities $ 30,000 Long-term debt 50,000 Stockholders' equity 80,000 Total liabilities and equities$160,000

Strand $20,000 40,000 $60,000 $10,000 50,000 $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 Explanation

Add the two book values and include 90% (the $54,000 noncurrent portion) of the loan taken out by Park to acquire Strand.

On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows:

Park Current assets $ 70,000 Noncurrent assets 90,000 Total assets $160,000 Current liabilities $ 30,000 Long-term debt 50,000 Stockholders' equity 80,000 Total liabilities and equities$160,000

Strand $20,000 40,000 $60,000 $10,000 50,000 $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 Explanation

Park stockholders' equity

$80,000

Noncontrolling interest at fair value (20% × $75,000) 15,000 Total stockholders' equity

$95,000

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 amount should have been reported for the land in a consolidated balance sheet at the acquisition date? $30,000 Explanation

FV $100,000 – BV $70,000 = $30,000.

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 total amount of excess land allocation at the acquisition date? $100,000 Explanation

$100,000 FV of Land at Acquisition.

CH 4 Quiz 2 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

Explanation

FV – BV ($30,000) × .75 = $22,500.

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 noncontrolling interest at the acquisition date? $7,500

MacHeath Inc. bought 60% of the outstanding common stock of Nomes Inc. in an acquisition that resulted in the recognition of goodwill. Nomes owned a piece of land that cost $250,000 but was worth $600,000 at the date of acquisition. What value would be attributed to this land in a consolidated balance sheet at the date of acquisition? $600,000

Explanation FV of the Land $600,000

Kordel Inc. acquired 75% of the outstanding common stock of Raxston Corp. Raxston currently owes Kordel $500,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of Raxston’s liability should be eliminated? $500,000

Explanation

BV & FV of the Existing Receivable $500,000

Keefe, Inc., a calendar-year corporation, acquires 70% of George Company on September 1, 2019, and an additional 10% on January 1, 2020. Total annual amortization of $6,000 relates to the first acquisition. George reports the following figures for 2020: Revenues Expenses Retained earnings, 1/1/20 Dividends paid Common stock

$ 500,000 400,000 300,000 50,000 200,000

Without regard for this investment, Keefe independently earns $300,000 in net income during 2020. All net income is earned evenly throughout the year. What is the controlling interest in consolidated net income for 2020? $375,200

Explanation

Keefe owns 80% of George for the entire year of 2020. Keefe’s share of consolidated net income: 100,000 sub income – 6,000 amortization = 94,000 × .80= 75,200 from Sub + 300,000 internally generated

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan’s total acquisitiondate fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Buildings (10-year life) Equipment (4-year life) Land

Fair Value

$10,000

$ 8,000

14,000 5,000

18,000 12,000

Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. $26,000

Explanation

$234,000 / .90 = $260,000 × .10 = $26,000

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan’s total acquisitiondate fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Buildings (10-year life) Equipment (4-year life) Land

Fair Value

$10,000

$ 8,000

14,000 5,000

18,000 12,000

Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. In consolidation at January 1, 2019, what adjustment is necessary for Hogan's Buildings account?

$2,000 DECREASE

Explanation

FV $8,000 – BV $10,000 = Reduction

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan’s total acquisitiondate fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Buildings (10-year life) Equipment (4-year life) Land

Fair Value

$10,000

$ 8,000

14,000 5,000

18,000 12,000

Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.

In consolidation at December 31, 2019, what adjustment is necessary for Hogan's Buildings account? $1,800 DECREASE

Explanation

Reduction – 2019 Excess Amortization of = Reduction

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan’s total acquisitiondate fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Buildings (10-year life) Equipment (4-year life) Land

Fair Value

$10,000

$ 8,000

14,000 5,000

18,000 12,000

Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. In consolidation at December 31, 2020, what adjustment is necessary for Hogan's Buildings account? $1,600 DECREASE

Explanation

2019 BV – 2020 Excess Amortization of = Reduction

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan’s total acquisitiondate fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Buildings (10-year life) Equipment (4-year life) Land

Fair Value

$10,000

$ 8,000

14,000 5,000

18,000 12,000

Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. In consolidation at January 1, 2019, what adjustment is necessary for Hogan's Equipment account? $4,000 INCREASE

ExplanationFV

$18,000 – BV $14,000 = Increase $4,000

CH 4 Homework

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

Explanation

At the date control is obtained, the parent consolidates subsidiary assets at fair value ($549,000 in this case) regardless of the parent’s percentage ownership.

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

Explanation

In consolidating the subsidiary's figures, all intra-entity balances must be eliminated in their entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the parent nonetheless controls it.

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

Explanation

An asset acquired in a business combination is initially valued at 100% acquisition-date fair value and subsequently amortized its useful life

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 o...