Exam 4: Consolidated Financial Statements and Outside Ownership

Keefe,Inc. ,a calendar-year corporation,acquires 70% of George Company on September 1,2019,and an additional 10% on January 1,2020.Total annual amortization of $6,000 relates to the first acquisition.George reports the following figures for 2020: Revenues \ 500,000 Expenses 400,000 Retained earnings, 1/1/20 300,000 Dividends paid 50,000 Common stock 200,000 Without regard for this investment,Keefe independently earns $300,000 in net income during 2020. All net income is earned evenly throughout the year. What is the controlling interest in consolidated net income for 2020?

REFERENCE: 04-10 Pell Company acquires 80% of Demers Company for $500,000 on January 1,2019.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: Assume the partial equity method is applied. 2019 2020 2021 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 -Compute the noncontrolling interest in the net income of Demers at December 31,2019.

Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing common stock?

REFERENCE: 04-03 Femur Co.acquired 70% of the voting common stock of Harbor Corp.on January 1,2019.During 2019,Harbor had revenues of $2,500,000 and expenses of $2,000,000.The amortization of fair value allocations totaled $60,000 in 2019.Not including its investment in Harbor,Femur Co.had its own revenues of $4,500,000 and expenses of $3,000,000 for the year 2019. -The noncontrolling interest's share of the earnings of Harbor Corp.for 2019 is calculated to be

REFERENCE: 04-07 McGuire Company acquired 90 percent of Hogan Company on January 1,2019,for $234,000 cash.This amount is reflective of Hogan's total acquisition-date 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 1,2019,what adjustment is necessary for Hogan's Buildings account?

REFERENCE: 04-05 Royce Co.acquired 60% of Park Co.for $420,000 on December 31,2019 when Park's book value was $560,000.The Royce stock was not actively traded.On the date of acquisition,Park had equipment (with a ten-year life)that was undervalued in the financial records by $140,000.One year later,the two companies provided the selected amounts shown below.Additionally,no dividends have been paid. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Rovce Co. } \quad \text { Park Co }$ Book Book Fair Value Value Value Current assets \ 868,000 \4 20,000 \4 48,000 Equipment 364,000 280,000 400,000 Buildings 574,000 210,000 210,000 Liabilities (546,000) (168,000) (168,000) Revenues (1,260,000) (560,000) Expenses 700,000 420,000 Investment income Not Given -What is the noncontrolling interest's share of the subsidiary's net income for the year ended December 31,2020 and what is the ending balance of the noncontrolling interest in the subsidiary at December 31,2020?

REFERENCE: 04-10 Pell Company acquires 80% of Demers Company for $500,000 on January 1,2019.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: Assume the partial equity method is applied. 2019 2020 2021 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 -Compute the noncontrolling interest in the net income of Demers at December 31,2021.

REFERENCE: 04-14 On January 1,2019,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 2019 and $126,000 in 2020 with dividend payments of $42,000 each year.Without regard for this investment,Jannison had income of $308,000 in 2019 and $364,000 in 2020. -What is the noncontrolling interest balance as of December 31,2020?

MacHeath Inc.bought 60% of the outstanding common stock of Nomes Inc.in an acquisition that resulted in the recognition of goodwill.Nomes owned a piece of land that cost $250,000 but was worth $600,000 at the date of acquisition.What value would be attributed to this land in a consolidated balance sheet at the date of acquisition?

REFERENCE: 04-04 Denber Co.acquired 60% of the common stock of Kailey Corp.on September 1,2019.For 2019,Kailey reported revenues of $810,000 and expenses of $630,000,not including its investment in Denber,and all reflected evenly throughout the year.The annual amount of amortization related to this acquisition was $15,000. -In consolidation,the total amount of expenses related to Kailey,and to Denber's acquisition of Kailey,for 2019 is determined to be

For business combinations involving less than 100 percent ownership,the acquirer recognizes and measures all of the following at the acquisition date except:

REFERENCE: 04-13 On January 1,2019,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 value assigned to the noncontrolling interest as of the date of the acquisition.

REFERENCE: 04-08 Pell Company acquires 80% of Demers Company for $500,000 on January 1,2019.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: 2019 2020 2021 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the equity method is applied. -Compute the noncontrolling interest in Demers at December 31,2021.

All of the following statements regarding the sale of subsidiary shares are true except which of the following?

Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition method for accounting for business combinations?

REFERENCE: 04-08 Pell Company acquires 80% of Demers Company for $500,000 on January 1,2019.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: 2019 2020 2021 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 31,2019.

REFERENCE: 04-04 Denber Co.acquired 60% of the common stock of Kailey Corp.on September 1,2019.For 2019,Kailey reported revenues of $810,000 and expenses of $630,000,not including its investment in Denber,and all reflected evenly throughout the year.The annual amount of amortization related to this acquisition was $15,000. -What is the effect of including Kailey in consolidated net income for 2019?

REFERENCE: 04-08 Pell Company acquires 80% of Demers Company for $500,000 on January 1,2019.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: 2019 2020 2021 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the equity method is applied. -Compute the noncontrolling interest in the net income of Demers at December 31,2019.

REFERENCE: 04-02 Perch Co.acquired 80% of the common stock of Float Corp.for $1,600,000.The fair value of Float's net assets was $1,850,000,and the book value was $1,500,000.The noncontrolling interest shares of Float Corp.are not actively traded. -What is the dollar amount of Float Corp.'s net assets that would be represented in a consolidated balance sheet prepared at the date of acquisition?

REFERENCE: 04-05 Royce Co.acquired 60% of Park Co.for $420,000 on December 31,2019 when Park's book value was $560,000.The Royce stock was not actively traded.On the date of acquisition,Park had equipment (with a ten-year life)that was undervalued in the financial records by $140,000.One year later,the two companies provided the selected amounts shown below.Additionally,no dividends have been paid. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Rovce Co. } \quad \text { Park Co }$ Book Book Fair Value Value Value Current assets \ 868,000 \4 20,000 \4 48,000 Equipment 364,000 280,000 400,000 Buildings 574,000 210,000 210,000 Liabilities (546,000) (168,000) (168,000) Revenues (1,260,000) (560,000) Expenses 700,000 420,000 Investment income Not Given -What amount of consolidated net income for 2020 is attributable to Royce's controlling interest?