Exam 4: Consolidated Financial Statements and Outside Ownership

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 adjustment is necessary for Hogan's Buildings account?

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. -What amount would Femur Co.report as consolidated net income for 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 -Compute Pell's investment in Demers at 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 -How much does Pell record as 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. -Compute Pell's investment 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 31,2020,what adjustment is necessary for Hogan's Equipment account?

Kordel Inc.acquired 75% of the outstanding common stock of Raxston Corp.Raxston currently owes Kordel $500,000 for inventory acquired over the past few months.In preparing consolidated financial statements,what amount of Raxston's liability should be eliminated?

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 31,2020.

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 Pell's investment in Demers at December 31,2019.

When a parent uses the partial equity method throughout the year to account for its 80% investment in an acquired subsidiary,which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet?

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 31,2020.

When a parent uses the initial value method throughout the year to account for its 80% investment in an acquired subsidiary,which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet?

Select True (T)or False (F)for each of the following statements: _____ 1.A parent will recognize a gain or loss if it sells a portion of its investment in a subsidiary and maintains control after the sale. _____ 2.A parent sells a portion of its investment in a subsidiary and no longer maintains control.This sale of shares represents a remeasurement event for the investee. _____ 3.International financial reporting standards (IFRS)allow an option to value the noncontrolling interest with goodwill or to value the noncontrolling interest without goodwill. _____ 4.Consolidated net income represents the combined net income of the parent and subsidiary after subtracting the noncontrolling interest in the net income of the subsidiary. _____ 5.The total acquisition-date fair value of an acquired firm is the sum of the fair value of the controlling interest and the fair value of the noncontrolling interest. _____ 6.When control of a subsidiary is acquired on a date other than the first day of a fiscal year,excess amortization expenses are pro-rated to include only the post-acquisition period. _____ 7.For a mid-year acquisition following an equity method investment of the same company,the consolidated income statement will report consolidated revenues and expenses for the entire year. _____ 8.In a step acquisition where the parent previously held a noncontrolling interest in the acquired firm,the parent remeasures the prior interest to fair value. _____ 9.When a parent has control over a subsidiary with less than 100 percent ownership,and thereafter increases its ownership,the parent remeasures the prior interest to fair value.

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 Patent account?

Where should a noncontrolling interest appear on a consolidated balance sheet?

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 the noncontrolling interest 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. -Compute the noncontrolling interest in the net income of Demers at December 31,2021.

How would you determine the amount of goodwill to be recognized at date of acquisition when there is a noncontrolling interest present?

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 are the total consolidated current liabilities 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 Demers at December 31,2021.