Exam 4: Consolidated Financial Statements Subsequent to Acquisition

A company follows IFRS and chooses to report certain generic intangible assets at fair value. On January 1, 2020, it acquires software for €300,000. Estimated life is 3 years, straight-line. On December 31, 2020, the intangible has a fair value of €330,000. How is this change in value reported on the 2020 financial statements?

On January 1, 2020, Panadrone Inc. acquired all of the stock of Skyline Telecom for $85,000 in cash. At the date of acquisition, Skyline's shareholders' equity accounts were as follows: Both companies have a December 31 year-end. At the date of acquisition, Skyline reported net assets had book values approximating fair value. However, it had previously unreported indefinite life identifiable intangibles valued at $15,000, meeting ASC Topic 805 requirements for capitalization. Impairment losses in 2020 for identifiable intangibles were $600. Goodwill from this acquisition was not impaired in 2020. Skyline reported net income of $900 in 2020, and paid no dividends. Panadrome uses the complete equity method to report its investment in Skyline on its own books. Required a. Calculate the original amount of goodwill for this acquisition. b. Calculate equity in net income of Skyline, reported on Panadrone's books in 2020. c. Prepare eliminating entries (C), (E), (R) and (O), required to consolidate Panadrone's trial balance accounts with those of Skyline on December 31, 2020.

Pacific Corporation acquired all of the voting stock of Seagate Inc. at an acquisition cost of $500 million on January 1, 2020. Seagate's book value at the date of acquisition was $90 million, consisting of $10 million in capital stock, $85 million in retained earnings, and $5 million in treasury stock. Seagate's identifiable net assets were revalued as follows: During 2020, Seagate reported net income of $6,000,000 and declared and paid dividends of $1,000,000. Seagate does not report any other comprehensive income. The brand names were impaired by $200,000. Pacific reports its investment in Seagate on its own books using the complete equity method. Required a. Calculate equity in net income for 2020, reported on Pacific's books. b. Prepare eliminating entries (C), (E), (R) and (O), to consolidate the trial balances of Pacific and Seagate at December 31, 2020. Assume all revaluation write-offs are reported as adjustments to operating expenses.

Which of the following previously unreported intangible assets is most likely to be classified as an indefinite life identifiable intangible asset at the date of acqquisition?

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 2020 equity in net income of Sequoia, reported on Park's books?

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. -Park's beginning balance of accumulated other comprehensive income is $175,000, and it reports $250,000 in other comprehensive income for 2020 on its own books. The balance for accumulated other comprehensive income on the December 31, 2020 consolidated balance sheet is:

A merger on January 1, 2021 generates goodwill of $50,000,000, which is properly allocated to three divisions of the organization. At the end of 2021, the following information is available: Division 1 Division 2 Division 3 January 1, 2021 balance of goodwill \ 30,000,000 \ 15,000,000 \ 5,000,000 Fair value of division 65,000,000 44,000,000 15,000,000 Book value of division 70,000,000 43,000,000 17,000,000 Due to a downturn in the economy in 2021, it is more likely than not that goodwill is impaired in all three divisions. What is the amount of goodwill impairment loss for 2021, following U.S. GAAP?

Primera Company acquired Stargaze Corporation on January 1, 2020, at a cost of $32,000. Stargaze consists of three reporting units, Uno, Dos, and Tres. Relevant data for the acquisition is as follows: Uno Dos Tres Fair value of identifiable tangible and intangible assets \ 25,000 \ 11,000 \ 14,000 Fair value of liabilities 15,000 9,000 6,000 Fair value of reporting unit 20,000 6,000 10,000 On December 31, 2020, the following amounts were estimated: Uno Dos Tres Book value of unit \ 21,500 \ 4,500 \ 10,000 Fair value of unit 22,000 3,500 8,000 Required a. Determine the total goodwill and its allocation to reporting units at January 1, 2020. b. Calculate the goodwill impairment loss for 2020, if any. Assume that it is more likely than not that goodwill is impaired in all three reporting units.

A division's goodwill is not impaired, per IFRS, if:

Use the following information to answer bellow Questions: A parent company acquires a subsidiary on January 1, 2017. The subsidiary's bonds payable (five-year remaining life) are undervalued by $5,000 at the date of acquisition. Straight-line amortize the premium/discount, and directly adjust bonds payable for premium/discount amortization. -On the consolidation working paper prepared at December 31, 2020 (four years later), eliminating entry (O) includes:

A parent company acquires a subsidiary on January 1, 2018. The subsidiary's equipment (five-year remaining life, straight-line) is undervalued by $30 million at the date of acquisition. On the consolidation working paper prepared at December 31, 2021 (four years later), by how much does eliminating entry (R) increase the equipment account?

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 (O) debits goodwill impairment loss by:

An acquisition requires revaluation of a subsidiary's date-of-acquisition inventory from a book value of $5 million to fair value of $3 million. The subsidiary uses LIFO and inventory purchases exceed sales in every year following acquisition. Which statement is true concerning the consolidation eliminating entries for this revaluation?

Use the following information to answer Questions. A parent acquires the voting stock of a subsidiary on January 1, 2019. Required revaluations of the subsidiary's net assets are: •Previously unreported identifiable intangibles valued at $3 million, with a remaining life of 10 years, straight-line •Goodwill It is now December 31, 2021, three years after the acquisition. The goodwill is unimpaired during this period. The parent reports its investment in the subsidiary using the cost method. The subsidiary reports the following net income, other comprehensive income, and dividends in the three years since the acquisition: Net Income Other Comprehen sive Income (Loss) Dividends 2019 \ 600,000 \ 100 \ 100,000 2020 700,000 120 100,000 2021 750,000 \{50\} 150,000 -Eliminating entry (C) includes a debit of $150,000 to:

Which statement is true regarding a comparison of the U.S. GAAP versus the IFRS impairment test for identifiable intangibles?

Use the following information to answer bellow Questions: On January 1, 2018, Pearson Company acquired all of Sundisk Company's voting stock for $20,000 in cash. Sundisk's total shareholders' equity at January 1, 2018 was $5,000. Some of Sundisk's assets and liabilities at the date of acquisition had fair values that were different from reported values, as follows: Book Value Fair Value Plant assets, net (10 years, straight-line) \ 15,000 \ 10,000 Identifiable intangibles (indefinite life) 0 9,000 It is now December 31, 2020 (3 years later). Impairment of recognized identifiable intangibles totals $400 for 2018 and 2019, and there is no impairment in 2020. There is no goodwill impairment as of the beginning of 2020, but goodwill impairment for 2020 is $1,200. Pearson uses the complete equity method to account for its investment. December 31, 2020 trial balances for Pearson and Sundisk follow: Pearson Sund isk Dr () Dr () Current assets \ 5,000 \ 2,500 Plant assets, net 28,700 22,000 Identifiable intangibles - - Investment in Sundisk 28,400 - Goodwill - - Liabilities \{20,300\} \{11,000\} Capital stock \{15,000\} \{2,000\} Retained earnings, beginning \{25,000\} \{10,000\} Sales revenue \{25,000\} \{14,000\} Equity in net income of Sundisk \{800\} - Cost of goods sold 20,000 9,000 Operating expenses 4,000 3,500 \0 \0 The following questions relate to consolidation eliminating entries for 2020. -Eliminating entry (R) debits goodwill in the amount of:

Portobello Company bought all of Strata Company's voting stock on January 1, 2020 for $20,000. Fair value information on Strata's assets and liabilities at the date of acquisition is as follows: •Plant and equipment is overvalued by $5,000. P&E has a 10-year remaining life, straight-line. •Previously unreported identifiable intangibles, meeting the criteria for capitalization, are valued at $7,000. These intangibles have indefinite lives, but testing reveals impairment of $800 in 2020. •Goodwill reported for this acquisition is not impaired in 2020. Portobello uses the complete equity method to account for its investment in Strata on its own books. Trial balances for both companies at December 31, 2020 are in the consolidation working paper below. Required a. Calculate the initial goodwill recognized for this acquisition. b. Calculate equity in net income, reported on Portobello's books, for 2020. c. Fill in the working paper to consolidate the trial balances of the two companies at December 31, 2020. d. Prepare, in good form, the 2020 consolidated statement of income and comprehensive income and the consolidated balance sheet at December 31, 2020.

Portsdown Company bought all of Speedwell Company's voting stock on January 1, 2020 for $125,000. Fair value information on Speedwell's assets and liabilities at the date of acquisition is as follows: •Inventories are overvalued by $5,000. Speedwell uses FIFO to report its inventories, and acquisition-date inventories were sold in 2020. •Property and equipment is overvalued by $20,000. P&E has a 10-year remaining life, straight-line. •Liabilities are understated by $500. Assume a 5-year remaining life, and straight-line amortization of any premium/discount. •Previously unreported identifiable intangibles are valued at $35,000. These intangibles have indefinite lives, but testing reveals impairment of $3,000 in 2020. •Goodwill reported for this acquisition is not impaired in 2020. Portsdown uses the complete equity method to account for its investment in Speedwell on its own books. Trial balances for both companies at December 31, 2020 are in the consolidation working paper that follows. Portsdown Dr (Cr) Speedwell () Dr Consol Dr (Cr) Current assets \ 15,000 \ 10,000 Property and equipment, net 90,000 60,000 Identifiable intangibles - - Investment in Speedwell 131,790 - Goodwill - - Liabilities (156,600) (28,635) Capital stock (40,000) (15,000) Retained earnings, Jan. 1 (29,000) (23,500) Accumulated OCl, Jan, 1 (1,000) (175) Sales revenue (84,000) (50,000) Equity in NI of Speedwell (6,750) - Equity in of Speedwell (40) Cost of goods sold 55,000 35,000 Operating expenses 25,000 12,000 Interest expense 750 350 Other comprehensive income (150) (40) Total \0 \0 Required a. Fill in the working paper as necessary to consolidate the trial balances of the two companies. b. Compute the following consolidated balances: (1) 2020 net income (2) December 31, 2020 retained earnings (3) 2020 comprehensive income (4) December 31, 2020 accumulated other comprehensive income

At the date of acquisition, a subsidiary's assets and liabilities are reported at amounts approximating fair value, except it has previously unreported identifiable intangibles of $25 million (5-year life, straight-line), and its plant assets are overvalued by $40 million (10-year life, straight-line). Revaluation write-offs are reported as adjustments to operating expenses. Eliminating entry (O) at the end of the second year following acquisition:

Use the following information to answer bellow Questions: A parent company acquires a subsidiary on January 1, 2017. The subsidiary's bonds payable (five-year remaining life) are undervalued by $5,000 at the date of acquisition. Straight-line amortize the premium/discount, and directly adjust bonds payable for premium/discount amortization. -On the consolidation working paper prepared at December 31, 2018 (two years later), eliminating entry (R) includes: