Exam 3: Consolidations-Subsequent to the Date of Acquisition

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 December 31, 2015, consolidated trademark.

Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January 1, 2012. Annual amortization of $22,000 resulted from this transaction. On the date of the acquisition, Fesler reported retained earnings of $520,000 while Pickett reported a $240,000 balance for retained earnings. Fesler reported net income of $100,000 in 2012 and $68,000 in 2013, and paid dividends of $25,000 in dividends each year. Pickett reported net income of $24,000 in 2012 and $36,000 in 2013, and paid dividends of $10,000 in dividends each year. Assume that Fesler's reported net income includes Equity in Subsidiary Income. If the parent's net income reflected use of the partial equity method, what were the consolidated retained earnings on December 31, 2013?

Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2012 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2013 if Gataux generates cash flows from operations of $26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux will generate at least $26,500 next year, and uses an interest rate of 4% to incorporate the time value of money. The fair value of $12,000 at 4%, using a probability weighted approach, is $3,461. What will Beatty record as its Investment in Gataux on January 1, 2012?

Which of the following will result in the recognition of an impairment loss on goodwill?

Consolidated net income using the equity method for an acquisition combination is computed as follows:

Hoyt Corporation agreed to the following terms in order to acquire the net assets of Brown Company on January 1, 2013: (1) To issue 400 shares of common stock ($10 par) with a fair value of $45 per share. (2) To assume Brown's liabilities which have a fair value of $1,500. On the date of acquisition, the consideration transferred for Hoyt's acquisition of Brown would be

Dutch Co. has loaned $90,000 to its subsidiary, Hans Corp., which retains separate incorporation. How would this loan be treated on a consolidated balance sheet?

Velway Corp. acquired Joker Inc. on January 1, 2012. The parent paid more than the fair value of the subsidiary's net assets. On that date, Velway had equipment with a book value of $500,000 and a fair value of $640,000. Joker had equipment with a book value of $400,000 and a fair value of $470,000. Joker decided to use push-down accounting. Immediately after the acquisition, what Equipment amount would appear on Joker's separate balance sheet and on Velway's consolidated balance sheet, respectively?

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 initial value method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2013?

Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment?

Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2012 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2013 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142. When recording consideration transferred for the acquisition of Rhine on January 1, 2012, Harrison will record a contingent performance obligation in the amount of:

According to the FASB ASC regarding the testing procedures for Goodwill Impairment, the proper procedure for conducting impairment testing is:

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 initial value method of internal recordkeeping?

On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts on January 1, 2012: Book Fair Value Value Current assets \ 120,000 \ 120,000 Land 72,000 192,000 Building (twenty year life) 240,000 268,000 Equipment (ten year life) 540,000 516,000 Current liabilities 24,000 24,000 Long -term liabilities 120,000 120,000 Common stock 228,000 Additional paid -in capital 384,000 Retained earnings 216,000 Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year. What is the balance in Cale's investment in subsidiary account at the end of 2012?

Under the partial equity method, the parent recognizes income when

What advantages might push-down accounting offer for internal reporting?

Red Co. acquired 100% of Green, Inc. on January 1, 2012. On that date, Green had inventory with a book value of $42,000 and a fair value of $52,000. This inventory had not yet been sold at December 31, 2012. Also, on the date of acquisition, Green had a building with a book value of $200,000 and a fair value of $390,000. Green had equipment with a book value of $350,000 and a fair value of $280,000. The building had a 10-year remaining useful life and the equipment had a 5-year remaining useful life. How much total expense will be in the consolidated financial statements for the year ended December 31, 2012 related to the acquisition allocations of Green?

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?

When a company applies the initial method in accounting for its investment in a subsidiary and the subsidiary reports income in excess of dividends paid, what entry would be made for a consolidation worksheet? A. Retained earnings Investment in subsidiary B. Investment in subsidiary Retained earnings C. Investment in subsidiary Equity in subsidiary's income D. Equity in subsidiary's income Investment in subsidiary E. Additional paid-in capital Retained earnings