Exam 3: Consolidations - Subsequent to the Date of Acquisition

Carnes Co. decided to use the partial equity method to account for its investment in Domino Corp. An unamortized trademark associated with the acquisition was $30,000, and Carnes decided to amortize the trademark over ten years. For 2021, Carnes' Equity in Subsidiary Earnings was $78,000.Required:What balance would have been in the Equity in Subsidiary Earnings account if Carnes had used the equity method?

Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2020. At that date, Glen owns only three assets and has no liabilities: If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in net income and pays $20,000 in dividends during 2020, what amount representing Glen would be reflected in consolidated net income for the year ended December 31, 2020?

On January 1, 2020, Barber Corp. paid $1,160,000 to acquire Thompson Co. Thompson maintained separate incorporation. Barber used the equity method to account for the investment. The following information is available for Thompson's assets, liabilities, and stockholders' equity accounts on January 1, 2020: Thompson earned net income for 2020 of $134,000 and paid dividends of $51,000 during the year.The 2020 total excess amortization of fair-value allocations is calculated to be

Dutch Co. has loaned $90,000 to its subsidiary, Hans Corp., which retains separate incorporation. How would this loan be treated on a consolidated balance sheet?

How is the goodwill impairment process simplified for private companies?

Kaye Company acquired 100% of Fiore Company on January 1, 2021. Kaye paid $1,000 excess consideration over book value, which is being amortized at $20 per year. There was no goodwill in the combination. Fiore reported net income of $400 in 2021 and paid dividends of $100.Assume the partial equity method is applied. How much equity income will Kaye report on its internal accounting records as a result of Fiore's operations?

Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2020. At that date, Glen owns only three assets and has no liabilities: 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, 2022, assuming the book value of the equipment at that date is still $80,000?

Private companies, with respect to goodwill:

Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2020 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2021 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, 2020?

Which of the following is not an example of an intangible asset?

Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2020 for $80,000, consisting of $20,000 in cash and 6,000 shares of stock. A contingent payment of $12,000 in cash will be paid on April 1, 2021 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. A contingent payment of $20,000, payable in stock, will be paid to the former owners of Gataux on April 1, 2021 if the market value of Beatty stock drops below $10 per share. Beatty estimates there is a 15% probability that its share price will not exceed that threshold. Using the same interest rate and probability-weighted approach, Beatty calculates the market value of the stock contingency to be $2,884.Using the acquisition method, how will Beatty record the stock contingency?

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2023. Several of Green's accounts have been omitted. Green acquired 100% of Vega on January 1, 2019, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2019, 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, 2023, consolidated revenues.

Which of the following is not a factor to be considered when determining the useful life of an intangible asset?

Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January 1, 2020. Annual amortization of $22,000 resulted from this transaction. On the date of the acquisition, Fesler reported retained earnings of $520,000 while Pickett reported a $240,000 balance for retained earnings. Fesler reported net income of $100,000 in 2020 and $68,000 in 2021, and paid dividends of $25,000 in dividends each year. Pickett reported net income of $24,000 in 2020 and $36,000 in 2021, and paid dividends of $10,000 in dividends each year.If the parent's net income reflected use of the initial value method, what were the consolidated retained earnings on December 31, 2021?

When is a goodwill impairment loss recognized?

Scott Co. paid $2,800,000 to acquire all of the common stock of Dawn Corp. on January 1, 2020. Dawn's reported earnings for 2020 totaled $512,000, and it paid $160,000 in dividends during the year. The amortization of allocations related to the investment was $28,000. Scott's net income, not including the investment, was $3,310,000, and it paid dividends of $950,000.On the consolidated financial statements for 2020, what amount should have been shown for consolidated dividends?

Jackson Company acquires 100% of the stock of Clark Corporation on January 1, 2020, for $4,100 cash. As of that date Clark has the following trial balance: Net income and dividends reported by Clark for 2020 and 2021 follow: The fair value of Clark's net assets that differ from their book values are listed below: Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life.Compute the amount of Clark's inventory that would be reported in a January 1, 2020, consolidated balance sheet.

Avery Company acquires Billings Company in a combination accounted for as an acquisition and adopts the equity method to account for Investment in Billings. At the end of four years, the Investment in Billings account on Avery's books is $198,984. What items constitute this balance?

Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2020. At that date, Glen owns only three assets and has no liabilities: 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, 2022, assuming the book value of the building at that date is still $200,000?

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2023. Several of Green's accounts have been omitted. Green acquired 100% of Vega on January 1, 2019, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2019, 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, 2023, consolidated equipment.