Exam 4: Consolidated Financial Statements and Outside Ownership

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 is the amount of excess land allocation attributed to the noncontrolling interest at the acquisition date?

REFERENCE: 04-15 On January 1,2020,John Doe Enterprises (JDE)acquired a 55% interest in Bubba Manufacturing,Inc.(BMI).JDE paid for the transaction with $3 million cash and 500,000 shares of JDE common stock (par value $1.00 per share).At the time of the acquisition,BMI's book value was $16,970,000. On January 1,JDE stock had a market value of $14.90 per share and there was no control premium in this transaction.Any consideration transferred over book value is assigned to goodwill.BMI had the following balances on January 1,2020. Book Fair Value Value Land \ 1,700,000 \ 2,550,000 Buildings (seven-year remaining life) 2,700,000 3,400,000 Equipment (five-vear remaining life) 3,700,000 3,300,000 For internal reporting purposes,JDE employed the equity method to account for this investment. -The following account balances are for the year ending December 31,2020 for both companies. Required: Prepare a consolidation worksheet for this business combination.Assume goodwill has been reviewed and there is no goodwill impairment.

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 of the subsidiary with respect to the presentation of consolidated financial statement information?

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 Kailey's net income to the controlling interest for 2019?

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 consolidated balance of the Equipment account at December 31,2020?

Beta Corp.owns less than one hundred percent of the voting common stock of Shedds Co.Under what conditions will Beta be required to prepare consolidated financial statements?

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 31,2020.

Pennant Corp.owns 70% of the common stock of Scarvens Co.Scarvens' revenues for 2020 totaled $200,000. Required: What amount of Scarvens' revenues would be included in the consolidated revenues under the acquisition method of accounting for business combinations?

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 31,2020,what net adjustment is necessary for Hogan's Patent account?

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 amount represents consolidated current assets at January 2,2019?

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 -How much does Pell record as income from Demers for the year ended December 31,2020?

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 31,2019.

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 is the total amount of excess land allocation at the acquisition date?

Why is it important to know if the parent paid a premium to acquire control of a subsidiary?

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 Equipment account?

McLaughlin,Inc.acquires 70 percent of Ellis Corporation on September 1,2019,and an additional 10 percent on November 1,2020.Annual amortization of $12,000 relates to the first acquisition.Ellis reports the following figures for 2020: Revenues \ 500,000 Expenses 350,000 Retained earnings, 1/1/20 3,500,000 Dividends paid 40,000 Common stock 400,000 Without regard for this investment,McLaughlin earns $480,000 in net income ($840,000 revenues less $360,000 expenses;incurred evenly through the year)during 2020. Required: Prepare a schedule of consolidated net income and apportionment to noncontrolling and controlling interests for 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 is the dollar amount of noncontrolling interest that should appear in a consolidated balance sheet prepared at the date of acquisition?

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 31,2021?

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 Demers at December 31,2021.

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 net adjustment is necessary for Hogan's Patent account?