Exam 4: Consolidated Financial Statements Subsequent to Acquisition

At the end of 2021, you are evaluating the goodwill of TeliaSonera, a company headquartered in Sweden, which uses IFRS. The amount of goodwill originally allocated to cash generating units, and goodwill impairment recognized through 2020 (in millions of Swedish krona, or SEK) are: Total Impairment Cash Generating Unit Original Goodwill Through 2020 Mobility services Finland SEK 20,000 SEK Mobility services Norway 25,000 7,000 Broadband services Finland 10,000 2,000 Eurasia Azerbaijan 5,000 0 Eurasia Uzbekistan 2,500 500 Total SEK 62,500 SEK 9,500 Information on the CGUS as of 31 December 2021 (in millions of SEK): Cash Generating Unit 31 Dec. 2021 Fair Value of CGU 31 Dec. 2021 Book Value of CGU Mobility services Finland SEK 100,000 SEK 110,000 Mobility services Norway 60,000 40,000 Broadband seryices Finland 16,000 12,000 Eurasia Azerbaijan 30,000 38,000 Eurasia Uzbekistan 20,000 21,000 Required (all amounts are in millions of SEK) a. What is TeliaSonera's total goodwill impairment loss for 2021, following IFRS? b. TeliaSonera wants to know what its goodwill impairment loss would be for 2021, if it followed U.S. GAAP. Below is reporting unit information.

Consolidation eliminating entries (C), (E), (R), and (O) fully eliminate the parent's Investment in Subsidiary account at what stage?

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. -Eliminating entry (R) debits goodwill in the amount of:

Use the following information to answer bellow Questions: A subsidiary is acquired on January 1, 2019 for $10,000. The subsidiary's book value at the date of acquisition was $2,000. Following is revaluation information for the subsidiary's identifiable net assets at the date of acquisition: Fair Value - Book Value \cline 2-3 Inventories \ (200\} FIFO, sold in 2019 Identifiable int angibles 5,000 Straight-line, 5 years Long term debt 300 Straight-line, 2 years Goodwill recognized in the acquisition was unimpaired in 2019 but became fully impaired during 2020. The subsidiary did not declare any dividends during this period and reported no other comprehensive income. The subsidiary reported net income as follows: Year Net Income 2019 \ 1,500 2020 5,000 2021 2,000 The parent uses the complete equity method to report its investment on its own books. -Equity in net income for 2021, reported on the parent's books, is:

An IFRS company reports $11,600 in goodwill and tests it for impairment at the end of the year. The following information is collected: CGU1 CGU 2 CGU 3 CGU 3 CGU 4 Book value of g0odwill \ 5,000 \ 300 \ 100 \ 2,200 \ 4,000 Fair value of division 60,000 8,000 2,000 5,000 20,000 Book value of division 62,000 8,500 1,000 2,000 22,000 What is the amount of goodwill impairment loss for the year, following IFRS?

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 (O) debits operating expenses for a total of:

A company follows IFRS and chooses to report certain intangible assets at fair value. On January 1, 2019, it acquires software for €500,000. Estimated life is 5 years, straight-line. On December 31, 2019, the intangible has a fair value of €440,000. On December 31, 2020, its fair value is €390,000. How is this information reported on the 2020 financial statements?

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. -Eliminating entry (E) credits Investment in Sequoia by:

A parent acquired all of the stock of a subsidiary. The subsidiary had originally issued long-term debt when the market rate of interest was 3%. The market rate of interest for the debt at the date of acquisition was 5%. How does the change in market interest rate affect the consolidated financial statements?

Identifiable intangible assets with a fair value of $90 million and a 6-year life were recognized in an acquisition occurring at the beginning of 2018. The intangible assets were not impaired in 2018 or 2019. It is now the end of 2020, three years since acquisition. 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 2020, following U.S. GAAP?

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 (A) on the 2018 consolidation working paper includes:

Which statement is true concerning IFRS goodwill impairment reporting?

Identifiable intangible assets with a fair value of $100 million and a 5-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 $65, and total expected discounted future cash inflows are $35. What is the impairment loss for the intangible assets for fiscal 2021, following IFRS?

If the parent company uses the complete equity method when accounting for its wholly-owned subsidiary on its own books, consolidated net income equals

Pointer Company acquired the voting common stock of Setter Industries on January 1, 2017 for $35,000. The $30,000 excess of acquisition cost over Setter's book value was allocated as follows: Inventories \ (2,500) FIFO (sold in 2017) Plant \& equipment (5,000) 10 years, straight-line Internet domain name 6,000 3 years, straight-line Customer order backlog 1,000 2 years, straight-line 30,500 Cumulative impairment, 2017-2019 =\ 200 2020 impairment =\ 150 Goodwill Total excess of acquisition cost over book value \ 30,000 Setter's book value on January 1, 2017 was: Capital stock \ 500 Retained earnings 4,550 Accumulated other comprehensive income 150 Treasury stock (200) Total \ Setter reported 2020 net income of $5,000 and other comprehensive income of $80. Its retained earnings balance on December 31, 2019 is $9,200, and its December 31, 2019 balance for accumulated other comprehensive income is $200. On its own books, Pointer accounts for its investment in Setter using the complete equity method. Required a. Calculate equity in net income of Setter for 2020, reported on Pointer's books. b. Prepare the journal entry or entries Pointer makes on its own books in 2020 to account for its investment in Setter. c. Calculate the balance for Investment in Setter at December 31, 2020, reported on Pointer's books.

A wholly-owned subsidiary's plant assets have a book value of $40 million and a fair value of $35 million at the date of acquisition. The plant assets have a remaining life at the date of acquisition of 10 years, straight-line. It is now three years since the acquisition. Assume an accumulated depreciation account is not used, i.e. all adjustments are made directly to the net plant assets account. Consolidation eliminating entry (R) at the end of the current year has what effect on the net plant assets account?

If the parent company uses the complete equity method when accounting for its wholly-owned subsidiary on its own books:

Consolidated retained earnings at the end of the year equals:

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 (C) credits Investment in Sundisk in the amount of:

Pyroplex Corporation acquires the voting stock of Systembox Co. on January 1, 2015 at an acquisition cost of $15,300. Systembox's trial balance at the date of acquisition is as follows, along with fair value information for its identifiable net assets: Goodwill connected with this acquisition is $6,000. As of January 1, 2015, the revaluations have the following estimated lives (all straight-line): Pyroplex uses the complete equity method to account for its investment in Systembox on its own books. The December 31, 2020 trial balances for Pyroplex and Systembox (six years after acquisition) appear in the consolidation working paper provided. Required a. Fill in the consolidation working paper as necessary to consolidate the trial balances of Pyroplex and Systembox at December 31, 2020. b. Present the 2020 consolidated income statement and the December 31, 2020 consolidated balance sheet, in good form.