Exam 3: Consolidations-Subsequent to the Date of Acquisition

Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities: $\begin{array}{|l|r|r|}\hline & \text { Book } & \text { Fair } \\\hline & \text { Value } & \text { Value } \\\hline \text { Inventory (FIFO method) } & \mathbf{\$} 40,000 & \mathbf{\$} 50,000 \\\hline \text { Equipment (10-year life) } & 80,000 & 75,000 \\\hline \text { Building (20-year life) } & 200,000 & 300,000 \\\hline\end{array}$ 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, 2014, assuming the book value of the building at that date is still $200,000?

Push-down accounting is concerned with the

When is a goodwill impairment loss recognized?

Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2011, for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years. Tysk earned reported net income of $180,000 in 2011 and $216,000 in 2012. Dividends of $70,000 were paid in each of these two years. Selected account balances as of December 31, 2013, for the two companies follow. Jans Tysk Revenues \ 1,080,000 \ 840,000 Expenses 480,000 600,000 Investment income Not given 0 Retained earnings, 1/1/13 840,000 600,000 Dividends paid 132,000 70,000 If the partial equity method had been applied, what was 2013 consolidated net income?

Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2013 and paid dividends of $100. Assume the equity method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?

Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; Debit Credit Cash \ 500 Accounts receivable 600 Inventory 800 Buildings (net) (5 year life) 1,500 Equipment (net) (2 year life) 1,000 Land 900 Accounts payable \ 400 Long -term liabilities (due 12/31/15) 1,800 Common stock 1,000 Additional paid -in capital 600 Retained earnings 1,500 Total \5 ,300 \5 ,300 $\text { Net income and dividends reported by Hurley for } 2012 \text { and } 2013 \text { follow }$ Net income \ 120 Dividends 30 40 $\text { The fair value of Hurley's net assets that differ from their book values }$$\text { are listed below: }$ Fair Value Inventory \ 900 Buildings 1,200 Equipment 1,250 Land 1,300 Long -term liabilities 1,700 Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute goodwill, if any, at January 1, 2012.

Why is push-down accounting a popular internal reporting technique?

Under the equity method of accounting for an investment,

Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; Debit Credit Cash \ 500 Accounts receivable 600 Inventory 800 Buildings (net) (5 year life) 1,500 Equipment (net) (2 year life) 1,000 Land 900 Accounts payable \ 400 Long -term liabilities (due 12/31/15) 1,800 Common stock 1,000 Additional paid -in capital 600 Retained earnings 1,500 Total \5 ,300 \5 ,300 $\text { Net income and dividends reported by Hurley for } 2012 \text { and } 2013 \text { follow }$ Net income \ 120 Dividends 30 40 $\text { The fair value of Hurley's net assets that differ from their book values }$$\text { are listed below: }$ Fair Value Inventory \ 900 Buildings 1,200 Equipment 1,250 Land 1,300 Long -term liabilities 1,700 Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the amount of Hurley's long-term liabilities that would be reported in a December 31, 2012, consolidated balance sheet.

Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; Debit Credit Cash \ 500 Accounts receivable 600 Inventory 800 Buildings (net) (5 year life) 1,500 Equipment (net) (2 year life) 1,000 Land 900 Accounts payable \ 400 Long -term liabilities (due 12/31/15) 1,800 Common stock 1,000 Additional paid -in capital 600 Retained earnings 1,500 Total \5 ,300 \5 ,300 $\text { Net income and dividends reported by Hurley for } 2012 \text { and } 2013 \text { follow }$ Net income \ 120 Dividends 30 40 $\text { The fair value of Hurley's net assets that differ from their book values }$$\text { are listed below: }$ Fair Value Inventory \ 900 Buildings 1,200 Equipment 1,250 Land 1,300 Long -term liabilities 1,700 Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the amount of Hurley's equipment that would be reported in a December 31, 2013, consolidated balance sheet.

What is the basic objective of all consolidations?

Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2011, for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years. Tysk earned reported net income of $180,000 in 2011 and $216,000 in 2012. Dividends of $70,000 were paid in each of these two years. Selected account balances as of December 31, 2013, for the two companies follow. Jans Tysk Revenues \ 1,080,000 \ 840,000 Expenses 480,000 600,000 Investment income Not given 0 Retained earnings, 1/1/13 840,000 600,000 Dividends paid 132,000 70,000 If the equity method had been applied, what would be the Investment in Tysk Corp. account balance within the records of Jans at the end of 2013?

Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; Debit Credit Cash \ 500 Accounts receivable 600 Inventory 800 Buildings (net) (5 year life) 1,500 Equipment (net) (2 year life) 1,000 Land 900 Accounts payable \ 400 Long -term liabilities (due 12/31/15) 1,800 Common stock 1,000 Additional paid -in capital 600 Retained earnings 1,500 Total \5 ,300 \5 ,300 $\text { Net income and dividends reported by Hurley for } 2012 \text { and } 2013 \text { follow }$ Net income \ 120 Dividends 30 40 $\text { The fair value of Hurley's net assets that differ from their book values }$$\text { are listed below: }$ Fair Value Inventory \ 900 Buildings 1,200 Equipment 1,250 Land 1,300 Long -term liabilities 1,700 Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the amount of Hurley's buildings that would be reported in a December 31, 2013, consolidated balance sheet.

Hanson Co. acquired all of the common stock of Roberts Inc. on January 1, 2012, transferring consideration in an amount slightly more than the fair value of Roberts' net assets. At that time, Roberts had buildings with a twenty-year useful life, a book value of $600,000, and a fair value of $696,000. On December 31, 2013, Roberts had buildings with a book value of $570,000 and a fair value of $648,000. On that date, Hanson had buildings with a book value of $1,878,000 and a fair value of $2,160,000. Required: What amount should be shown for buildings on the consolidated balance sheet dated December 31, 2013?

Pritchett Company recently acquired three businesses, recognizing goodwill in each acquisition. Destin has allocated its acquired goodwill to its three reporting units: Apple, Banana, and Carrot. Pritchett provides the following information in performing the 2013 annual review for impairment: Which of Pritchett's reporting units require both steps to test for goodwill impairment?

Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; Debit Credit Cash \ 500 Accounts receivable 600 Inventory 800 Buildings (net) (5 year life) 1,500 Equipment (net) (2 year life) 1,000 Land 900 Accounts payable \ 400 Long -term liabilities (due 12/31/15) 1,800 Common stock 1,000 Additional paid -in capital 600 Retained earnings 1,500 Total \5 ,300 \5 ,300 $\text { Net income and dividends reported by Hurley for } 2012 \text { and } 2013 \text { follow }$ Net income \ 120 Dividends 30 40 $\text { The fair value of Hurley's net assets that differ from their book values }$$\text { are listed below: }$ Fair Value Inventory \ 900 Buildings 1,200 Equipment 1,250 Land 1,300 Long -term liabilities 1,700 Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the consideration transferred in excess of book value acquired at January 1, 2012.

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted. Green Vega Revenues \ 900,000 \ 500,000 Cost of goods sold 360,000 200,000 Depreciation expense 140,000 40,000 Other expenses 100,000 60,000 Equity in Vega's income ? Retained earnings, 1/1/15 1,350,000 1,200,000 Dividends 195,000 80,000 Current assets 300,000 1,380,000 Land 450,000 180,000 Building (net) 750,000 280,000 Equipment (net) 300,000 500,000 Liabilities 600,000 620,000 Common stock 450,000 80,000 Additional paid-in capital 75,000 320,000 Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, 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 equity in Vega's income to be included in Green's consolidated income statement for 2015.

Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2012, at an amount in excess of Kenneth's fair value. On that date, Kenneth has equipment with a book value of $90,000 and a fair value of $120,000 (10-year remaining life). Goehler has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life). On December 31, 2013, Goehler has equipment with a book value of $975,000 but a fair value of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair value of $125,000. If Goehler applies the partial equity method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2013?

On January 1, 2012, Franel Co. acquired all of the common stock of Hurlem Corp. For 2012, Hurlem earned net income of $360,000 and paid dividends of $190,000. Amortization of the patent allocation that was included in the acquisition was $6,000. How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the partial equity method of internal recordkeeping?

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?