Exam 4: Consolidated Financial Statements and Outside Ownership

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2014 2015 2016 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the PARTIAL EQUITY method is applied. Compute the non-controlling interest in the net income of Demers at December 31, 2016.

On January 1, 2014, Jannison Inc. acquired 90% of Techron Co. by paying $477,000 cash. There is no active trading market for Techron stock. Techron Co. reported a Common Stock account balance of $140,000 and Retained Earnings of $280,000 at that date. The fair value of Techron Co. was appraised at $530,000. The total annual amortization was $11,000 as a result of this transaction. The subsidiary earned $98,000 in 2014 and $126,000 in 2015 with dividend payments of $42,000 each year. Without regard for this investment, Jannison had income of $308,000 in 2014 and $364,000 in 2015. Use the economic unit concept to account for this acquisition. Prepare a proper presentation of consolidated net income for 2015.

When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, which of the following statements is true in the presentation of consolidated financial statements?

On January 1, 2014, Jannison Inc. acquired 90% of Techron Co. by paying $477,000 cash. There is no active trading market for Techron stock. Techron Co. reported a Common Stock account balance of $140,000 and Retained Earnings of $280,000 at that date. The fair value of Techron Co. was appraised at $530,000. The total annual amortization was $11,000 as a result of this transaction. The subsidiary earned $98,000 in 2014 and $126,000 in 2015 with dividend payments of $42,000 each year. Without regard for this investment, Jannison had income of $308,000 in 2014 and $364,000 in 2015. Use the economic unit concept to account for this acquisition. Prepare a proper presentation of consolidated net income for 2014.

On January 1, 2014, Palk Corp. and Spraz Corp. had condensed balance sheets as follows: Palk Corp. Spraz Corp. Current assets \ 99,000 \ 28,000 Noncurrent assets \ 125,000 \ 56,000 Total assets \ 224,000 \ 84,000 Current liabilities S 42,000 \ 14,000 Long-term debt \ 70,000 \ - Stockholders' equity \ 112,000 \7 0,000 Total liabilities and stockholders' equity \ 224,000 \ 84,000 On January 2, 2014, Palk borrowed the entire $84,000 it needed to acquire 80% of the outstanding common shares of Spraz. The loan was to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2014. The excess consideration transferred over the underlying book value of the acquired net assets was allocated 60% to inventory and 40% to goodwill. What are the total consolidated current liabilities at January 2, 2014?

On January 1, 2014, Glenville Co. acquired an 80% interest in Acron Corp. for $500,000. There is no active trading market for Acron's stock. The fair value of Acron's net assets was $600,000 and Glenville accounts for its interest using the acquisition method. Determine the amount of goodwill to be recognized in this acquisition.

McGuire Company acquired 90 percent of Hogan Company on January 1, 2014, for $234,000 cash. This amount is reflective of Hogan's total 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 Fair Value Buildings (10-year life) \ 10,000 \ 8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 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, 2014, what adjustment is necessary for Hogan's Patent account?

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2014 2015 2016 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the EQUITY METHOD is applied. Compute the non-controlling interest in the net income of Demers at December 31, 2016.

Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 2014. During 2014, Harbor had revenues of $2,500,000 and expenses of $2,000,000. The amortization of excess cost allocations totaled $60,000 in 2014. What is the effect of including Harbor in consolidated net income for 2014?

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2014 2015 2016 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the EQUITY METHOD is applied. Compute Pell's income from Demers for the year ended December 31, 2015.

Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2014. For 2014, Kailey reported revenues of $810,000 and expenses of $630,000, all reflected evenly throughout the year. The annual amount of amortization related to this acquisition was $15,000. What is the amount of the non-controlling interest's share of Kailey's income for 2014?

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2014 2015 2016 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the EQUITY METHOD is applied. Compute Pell's income from Demers for the year ended December 31, 2014.

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2014 2015 2016 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the PARTIAL EQUITY method is applied. How much does Pell record as income from Demers for the year ended December 31, 2016?

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2014 2015 2016 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the INITIAL VALUE is applied. How much does Pell record as Income from Demers for the year ended December 31, 2014?

In a step acquisition, which of the following statements is false?

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, assuming the investment was obtained prior to the date the purchase method of accounting for new business combinations was discontinued?

Keefe Inc, a calendar-year corporation, acquires 70% of George Company on September 1, 2014, and an additional 10% on January 1, 2015. Total annual amortization of $6,000 relates to the first acquisition. George reports the following figures for 2015: Revenues \ 500,000 Expenses 400,000 Retained earnings, 1/1/15 300,000 Dividends paid 50,000 Common stock 200,000 Without regard for this investment, Keefe independently earns $300,000 in net income during 2015. All net income is earned evenly throughout the year. What is the controlling interest in consolidated net income for 2015?

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 this debt should be eliminated?

How is a non-controlling interest in the net income of an entity reported in the income statement?