Exam 4: Consolidated Financial Statements and Outside Ownership

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 total amount of goodwill recognized at the date of 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 Pell's income from Demers for the year ended December 31,2021.

REFERENCE: 04-09 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 initial value method is applied. -How much does Pell record as Income from Demers for the year ended December 31,2019?

REFERENCE: 04-01 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 at the acquisition date?

REFERENCE: 04-06 On January 1,2019,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 \8 4,000 Current liabilities 42,000 \ 14,000 Long-term debt 70,000 \ - Stockholders' equity \ 112,000 \ 70,000 Total liabilities and stockholders' equity \ 224,000 \ 84,000 On January 2,2019,Palk borrowed the entire $84,000 it needed to acquire 80% of the outstanding common shares of Spraz.Shares of Spraz are not actively traded on the market.The loan was to be paid in ten equal annual principal payments,plus interest,beginning December 31,2019.The excess consideration transferred over the underlying book value of the acquired net assets was allocated 60% to inventory and 40% to goodwill. -What is consolidated stockholders' equity at January 2,2019?

REFERENCE: 04-09 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 initial value method is applied. -Compute the noncontrolling interest in the net income of Demers at December 31,2019.

How is a noncontrolling interest in the net income of an entity reported in the income statement?

REFERENCE: 04-09 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 initial value method is applied. -Compute Pell's investment in Demers at December 31,2020.

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 amount of goodwill should be attributed to Perch at the date of 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 Pell's investment account balance in Demers at December 31,2020.

REFERENCE: 04-11 Parsons Company acquired 90% of Roxy Company several years ago for which the consideration transferred included an amount paid for goodwill of $200,000 at that date.During 2020 an analysis of the fair value of Roxy's assets determined an impairment of goodwill in the amount of $50,000. -At what amount would consolidated goodwill be reported for 2020?

What is pre-acquisition income?

Jax Company used the acquisition method when it acquired its investment in Saxton Company.Jax now sells some of its shares of Saxton such that neither control nor significant influence exists.Which of the following statements is true?

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 31,2020.

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 Land account?

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 amount of the noncontrolling interest's share of Kailey's income for 2019?

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 December 31,2019,what adjustment is necessary for Hogan's Equipment account?

In comparing U.S.GAAP and International Financial Reporting Standards (IFRS)with regard to a basis for measurement of a noncontrolling interest,which of the following is true?

Tosco Co.paid $540,000 for 80% of the stock of Martz Co.when the book value of Martz's net assets was $600,000.For all of Martz's assets and liabilities,book value and fair value were approximately equal.There was no active market for the shares of Martz Co. Required: Using the acquisition method,what amount of goodwill should appear in a consolidated balance sheet prepared immediately after the combination?

When a subsidiary is acquired sometime after the first day of the fiscal year,which of the following statements is true?