Exam 4: Consolidated Financial Statements Subsequent to Acquisition

Use the following information to answer bellow Questions: Park Corporation acquired the voting stock of Sequoia Company on January 1, 2020 for $25 million in cash and stock. At the date of acquisition, Sequoia's book value totaled $3 million, consisting of $1.6 million in capital stock, $1.8 million in retained earnings, and $400,000 in accumulated other comprehensive losses. Sequoia's reported net assets at the date of acquisition were carried at amounts approximating fair value, except its inventory was overvalued by $500,000 (sold in 2020), its plant assets (10-year life, straight-line) were overvalued by $3,500,000, and its long-term debt (premium amortized over 10 years, straight-line) is undervalued by $100,000. Sequoia also had previously unreported identifiable intangibles (5-year life, straight-line) valued at $5,000,000. It is now December 31, 2020. Sequoia reports net income of $1,200,000 and other comprehensive income of $50,000 for 2020 and declares and pays dividends of $200,000. None of the revaluations are impaired in 2020. Park uses the complete equity method to account for its investment. -What is the December 31, 2020 balance for Investment in Sequoia, reported on Park's books?

Use the following information to answer Questions bellow. Potash Corporation acquired the voting stock of Safestyle Company on January 1, 2019 for $50 million. Safestyle's book value at the time was $10 million, consisting of $2 million of capital stock and $8 million of retained earnings. The $40 million difference between fair and book value was attributed to goodwill. It is now December 31, 2020, the end of the accounting year and two years after the acquisition. Safestyle's January 1, 2020 retained earnings balance is $11 million, and it reports net income of $1.8 million for 2020. Safestyle declares no dividends and has no other comprehensive income. Goodwill from the acquisition was impaired by $1 million in 2019 and $500,000 in 2020. Potash uses the complete equity method to report its investment in Safestyle on its own books. -On the December 31, 2020 consolidation working paper, eliminating entry (R) credits the Investment in Safestyle account by:

The complete equity method, used to facilitate consolidation in subsequent years, differs from the equity method used for external reporting in all the following ways except:

A wholly-owned subsidiary reports income of $2 million and an other comprehensive loss of $100,000. The subsidiary's revalued net assets consist of indefinite life identifiable intangible assets. Impairment testing for the year reveals $250,000 in impairment on these intangibles. The subsidiary did not declare any dividends. Eliminating entry (C) reduces Investment in Subsidiary by:

A wholly-owned subsidiary reports income of $600,000 and an other comprehensive loss of $50,000. The subsidiary's revalued net assets consist of indefinite life identifiable intangible assets, which are not impaired this year. The subsidiary declared dividends of $200,000 during the year. Eliminating entry (C) reduces Investment in Subsidiary by:

Which statement below is most likely to be false concerning the qualitative assessment for identifiable intangibles impairment?

General Mills, a U.S. company, reports $6,700 million in goodwill, allocated to the following reporting units (in millions): U.S. Retail \ 5,000 International 150 Bakeries and Food Service 1,550 Total At the end of 2020, General Mills determines that it is more likely than not that goodwill is impaired for all three reporting units. It collects the following information (in millions): Reporting unit Fair Value Book Value U.S. Retail \ 45,000 \ 46,000 International 3,000 3,125 Bakeries and Food Service 10,000 9,500 Required Calculate the total goodwill impairment loss for 2020, following U.S. GAAP.

Identifiable intangible assets with a fair value of $80 million and a 4-year life were recognized in an acquisition occurring on June 30, 2019. The intangible assets were not impaired in fiscal 2020. It is now June 30, 2021, the end of the parent's fiscal year. Impairment testing reveals that total expected undiscounted future cash inflows for the intangible assets are $42, and total expected discounted future cash inflows are $30. What is the impairment loss for the intangible assets for fiscal 2021, following U.S. GAAP?

Panel Corporation acquired the voting stock of Shutter Company on January 1, 2019 for $20,000 in cash and stock. Shutter's equity at the date of acquisition consisted of $1,000 in capital stock, a retained deficit of $400, and accumulated other comprehensive income of $20. Shutter's net assets were reported at amounts approximating fair value, but Panel's accountants identified the following unreported intangibles: Fair Value Skilled workforce \ 1,500 Internet domain name 500 Customer relationships (not contractual) 1,000 Customer order backlog 400 Any previously unreported intangibles meeting the criteria for capitalization as identifiable intangibles are straight-line amortized over five years. There is no goodwill impairment in the first three years following acquisition. Shutter reported net income of $300 and declared no dividends in 2021. Its shareholders' equity at December 31, 2020 consists of $1,000 in capital stock, retained earnings of $300, and accumulated other comprehensive income of $45. Panel uses the cost method to report its investment in Shutter on its own books. Required a. Calculate goodwill arising from this acquisition. b. Prepare the consolidation working paper eliminating entries (A), (E), (R), and (O) for 2021, in journal form.

Princeton Corporation acquired the voting stock of Sheridan Company on January 1, 2019 for $50,000 in cash. Sheridan's book value at the date of acquisition was $10,000. Sheridan's net assets were reported at amounts approximating fair value. However, it had previously unreported identifiable intangibles (5-year life, straight-line), valued at $15,000. During 2019, Sheridan reported net income of $3,500 and declared and paid dividends of $200. During 2020, Sheridan reported net income of $4,000 and declared and paid dividends of $200. Goodwill from this acquisition was not impaired in 2019 but was impaired by $300 in 2020. Princeton uses the complete equity method to report its investment in Sheridan on its own books. Required a. Calculate equity in net income of Sheridan, reported on Princeton's books, for 2019 and 2020. b. Calculate the December 31, 2019 and December 31, 2020 balance for Investment in Sheridan, reported on Princeton's books.

Playlink Corporation acquired the voting stock of Squaredeal Company on January 1, 2019 for $10,000 in cash. Squaredeal's book value was $3,700 at the date of acquisition, comprised of the following accounts: Dr () Capital stock \ (2,500) Retained earnings, beginning (1,300) Accumulated other comprehensive loss 100 Total The \ 6,300 excess of acquisition cost over book value was allocated as follows: It is now December 31, 2021, three years since the acquisition. Playlink uses the complete equity method to account for its Investment in Squaredeal on its own books. Squaredeal's trial balance at December 31, 2021 is as follows: Dr (Cr) Cash, receivables. \ 600 Inventory. 1,400 Plant \& equipment, net . 8,400 Liabilities. \{1,425\} Capital stock. \{2,500\} Retained earnings, beginning . \{5,000\} Accumulated other comprehensive income, beg. ... \{150\} Dividends. 200 Sales revenue. \{15,000\} Cost of goods sold. 12,000 Operating expenses. 1,500 Other comprehensive income. \{25\} Total \ 0 Required a. Calculate 2021 equity in net income of Squaredeal, appearing in Playlink's December 31, 2021 trial balance. b. Prepare a schedule calculating Playlink's December 31, 2021 Investment in Squaredeal balance. c. Prepare the eliminating entries necessary to consolidate the trial balances of Playlink and Squaredeal at December 31, 2021.

Which statement is true concerning U.S. GAAP for the qualitative evaluation of goodwill?

When consolidating the accounts of a parent and subsidiary in subsequent years, eliminating entry (R) recognizes revaluations of the subsidiary's assets and liabilities:

A parent acquires its subsidiary on January 1, 2019, at a cost that exceeds the subsidiary's book value by $10,000. The subsidiary's assets and liabilities are reported at amounts approximating book value, and there are no previously unreported assets or liabilities. Goodwill from the acquisition is impaired by $300 in 2019 and $100 in 2020. The subsidiary reports net income of $4,500 in 2019 and $3,200 in 2020. The subsidiary has no other comprehensive income and declares no dividends during 2019 or 2020. On the consolidation working paper at December 31, 2020, eliminating entry (A) includes a debit to the investment in subsidiary account in the amount of:

Prism Corporation acquires the voting stock of Streetspace Inc. on January 1, 2020, for $100,000 in cash. Streetspace's book value at the date of acquisition was: All of Streetspace's recorded assets and liabilities are carried at fair value, but it has previously unrecorded customer-related intangible assets valued at $28,000 that are capitalizable under the requirements of ASC Topic 805. These intangibles have an estimated life of 5 years, straight-line. It is determined through impairment testing that acquired goodwill is impaired by $500 in 2020, and is unimpaired in 2021 and 2022. Customer-related intangible assets are not impaired during the three years following acquisition. Streetspace reports net income, other comprehensive income, and declared and paid dividends as follows for 2020, 2021, and 2022: Prism uses the complete equity method to account for its investment in Streetspace on its own books. Required a. Calculate the amount Prism reports for 2022 as equity in net income of Streetspace on its own books. b. Present, in journal entry form, the four eliminating entries needed to consolidate the trial balances of Prism and Streetspace at December 31, 2022. Revaluation write-offs are adjustments to operating expenses.

Assume a U.S. company decides to quantitatively test its goodwill for impairment. A division's book value exceeds its fair value by $5 million, and its goodwill has a book value of $6 million. The division's goodwill impairment loss is

How does the complete equity method, used to facilitate consolidation in subsequent years, differ from the equity method used for external reporting?

Which statement is false concerning IFRS for intangibles?

The major justification for adding a qualitative test to the U.S. GAAP impairment test for intangibles is that it:

A wholly-owned subsidiary reports income of $5 million, other comprehensive income of $100,000, and dividends of $1 million. There are no revaluation write-offs. Eliminating entry (C) reduces Investment in Subsidiary by: