Exam 4: Consolidated Financial Statements and Outside Ownership

In measuring the noncontrolling interest immediately following the date of acquisition,which of the following would not be indicative of the value attributed to the noncontrolling interest?

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 amount of goodwill to be recognized in this acquisition.

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. -Prepare a proper presentation of consolidated net income and its allocation 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 Pell's Investment in Demers account balance at December 31,2019.

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 the noncontrolling interest in Demers at December 31,2019.

In a step acquisition,which of the following statements is false?

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 31,2019?

On January 1,2020,Elva Corp.paid $750,000 for 80% of Fenton Co.when the book value of Fenton's net assets was $800,000.Fenton owned a building with a fair value of $150,000 and a book value of $120,000. Required: At what amount would the building appear on a consolidated balance sheet prepared immediately after the combination,under the acquisition method of accounting for business combinations?

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 of consolidated net income for 2019 should be allocated to Femur's controlling interest in Harbor?

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. -The acquisition value attributable to the noncontrolling interest at January 1,2019 is:

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

Which of the following methods is not used to value a noncontrolling interest under circumstances where a control premium is applied to determine the appropriate value for such interest?

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 31,2019.

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 Buildings account?

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 31,2021.