Exam 3: Consolidations - Subsequent to the Date of Acquisition

REFERENCE: Ref.03_07 Following are selected accounts for Green Corporation and Vega Company as of December 31,2010.Several of Green's accounts have been omitted. Green obtained 100% of Vega on January 1,2006,by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share.On January 1,2006,Vega's land was undervalued by $40,000,its buildings were overvalued by $30,000,and equipment was undervalued by $80,000.The buildings have a 20-year life and the equipment has a 10-year life.$50,000 was attributed to an unrecorded trademark with a 16-year remaining life.There was no goodwill associated with this investment. -One company acquires another company in a combination accounted for as an acquisition.The acquiring company decides to apply the initial value method in accounting for the combination.What is one reason the acquiring company might have made this decision?

Parrett Corp.bought one hundred percent of Jones Inc.on January 1,2009,at a price in excess of the subsidiary's fair value.On that date,Parrett's equipment (ten-year life)had a book value of $360,000 but a fair value of $480,000.Jones had equipment (ten-year life)with a book value of $240,000 and a fair value of $350,000.Parrett used the partial equity method to record its investment in Jones.On December 31,2011,Parrett had equipment with a book value of $250,000 and a fair value of $400,000.Jones had equipment with a book value of $170,000 and a fair value of $320,000.What is the consolidated balance for the Equipment account as of December 31,2011?

REFERENCE: Ref.03_17 On 4/1/09,Sey Mold Corporation acquired 100% of DotDot.Com for $2,000,000 cash.On the date of acquisition,DotDot's net book value was $900,000.DotDot's assets included land that was undervalued by $300,000,a building that was undervalued by $400,000,and equipment that was overvalued by $50,000.The building had a remaining useful life of 8 years and the equipment had a remaining useful life of 4 years.Any excess fair value over consideration transferred is allocated to an undervalued patent and is amortized over 5 years. -Determine the amortization expense related to the combination at the year-end date of 12/31/13.

What is the basic objective of all consolidations?

REFERENCE: Ref.03_03 Cashen Co.paid $2,400,000 to acquire all of the common stock of Janex Corp.on January 1,2009.Janex's reported earnings for 2009 totaled $432,000,and it paid $120,000 in dividends during the year.The amortization of allocations related to the investment was $24,000.Cashen's net income,not including the investment,was $3,180,000,and it paid dividends of $900,000. -What is the amount of consolidated net income?

REFERENCE: Ref.03_07 Following are selected accounts for Green Corporation and Vega Company as of December 31,2010.Several of Green's accounts have been omitted. Green obtained 100% of Vega on January 1,2006,by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share.On January 1,2006,Vega's land was undervalued by $40,000,its buildings were overvalued by $30,000,and equipment was undervalued by $80,000.The buildings have a 20-year life and the equipment has a 10-year life.$50,000 was attributed to an unrecorded trademark with a 16-year remaining life.There was no goodwill associated with this investment. -Compute the December 31,2010,consolidated additional paid-in capital.

Red Co.acquired 100% of Green,Inc.on October 1,2009.On January 1,Green had inventory with a book value of $42,000 and a fair value of $52,000.This inventory had not yet been sold at December 31,2009.Green had a building with a book value of $200,000 and a fair value of $390,000.Green had equipment with a book value of $350,000 and a fair value of $280,000.The building had a 10-year remaining useful life and the equipment had a 5-year remaining useful life.How much amortization expense will be on the consolidated financial statements for the year ended on December 31,2009 related to the acquisition of Green?

REFERENCE: Ref.03_05 Perry Company obtains 100% of the stock of Hurley Corporation on January 1,2009,for $3,800 cash.As of that date Hurley has the following trial balance; SHAPE \* MERGEFORMAT Any excess of consideration transferred over fair value is considered goodwill with an indefinite life.FIFO inventory valuation method is used. -Compute the amount of Hurley's land that would be reported on a December 31,2009,consolidated balance sheet.

REFERENCE: Ref.03_03 Cashen Co.paid $2,400,000 to acquire all of the common stock of Janex Corp.on January 1,2009.Janex's reported earnings for 2009 totaled $432,000,and it paid $120,000 in dividends during the year.The amortization of allocations related to the investment was $24,000.Cashen's net income,not including the investment,was $3,180,000,and it paid dividends of $900,000. -On the consolidated financial statements,what amount should have been shown for consolidated dividends?

Under the initial value method,when accounting for an investment in a subsidiary,

REFERENCE: Ref.03_05 Perry Company obtains 100% of the stock of Hurley Corporation on January 1,2009,for $3,800 cash.As of that date Hurley has the following trial balance; SHAPE \* MERGEFORMAT Any excess of consideration transferred over fair value is considered goodwill with an indefinite life.FIFO inventory valuation method is used. -Compute the amount of Hurley's buildings that would be reported on a December 31,2009,consolidated balance sheet.

REFERENCE: Ref.03_04 Jans Inc.acquired all of the outstanding common stock of Tysk Corp.on January 1,2009,for $372,000.Equipment with a ten-year life was undervalued on Tysk's financial records by $46,000.Tysk also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years. Tysk earned reported net income of $180,000 in 2009 and $216,000 in 2010.Dividends of $70,000 were paid in each of these two years.Selected account balances as of December 31,20011,for the two companies follow. -If the equity method had been applied,what would be the Investment in Tysk Corp.account balance within the records of Jans at the end of 20011?

REFERENCE: Ref.03_06 Kaye Company acquired 100% of Fiore Company on January 1,2009.Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year.Fiore reported net income of $400 in 2009 and paid dividends of $100. -Assume the equity method is applied.How much will Kaye's income increase or decrease as a result of Fiore's operations?

REFERENCE: Ref.03_05 Perry Company obtains 100% of the stock of Hurley Corporation on January 1,2009,for $3,800 cash.As of that date Hurley has the following trial balance; SHAPE \* MERGEFORMAT Any excess of consideration transferred over fair value is considered goodwill with an indefinite life.FIFO inventory valuation method is used. -Compute the amount of Hurley's equipment that would be reported on a December 31,2009,consolidated balance sheet.

Why is push-down accounting a popular internal reporting technique?

In accounting for an acquisition using the pooling of interests method,which of the following statements is true?

REFERENCE: Ref.03_09 Harrison,Inc.acquires 100% of the voting stock of Rhine Company on January 1,2009 for $400,000 cash.A contingent payment of $16,500 will be paid on April 15,2010 if Rhine generates cash flows from operations of $27,000 or more in the next year.Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year,and uses an interest rate of 5% to incorporate the time value of money.The fair value of $16,500 at 5%,using a probability weighted approach,is $3,142. -Assuming Rhine generates cash flow from operations of $27,200 in 2009,how will Harrison record the $16,500 payment of cash on April 15,2010 according to SFAS 141(R)?

Which one of the following accounts would not appear on the consolidated financial statements at the end of the first fiscal period of the combination?

REFERENCE: Ref.03_01 On January 1,2009,Cale Corp.paid $1,020,000 to acquire Kaltop Co.Kaltop maintained separate incorporation.Cale used the equity method to account for the investment.The following information is available for Kaltop's assets,liabilities,and stockholders' equity accounts: SHAPE \* MERGEFORMAT Kaltop earned net income for 2009 of $126,000 and paid dividends of $48,000 during the year. -What is the balance in Cale's investment in subsidiary account at the end of 2009?

REFERENCE: Ref.03_09 Harrison,Inc.acquires 100% of the voting stock of Rhine Company on January 1,2009 for $400,000 cash.A contingent payment of $16,500 will be paid on April 15,2010 if Rhine generates cash flows from operations of $27,000 or more in the next year.Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year,and uses an interest rate of 5% to incorporate the time value of money.The fair value of $16,500 at 5%,using a probability weighted approach,is $3,142. -Under SFAS 141(R),what will Harrison record as the acquisition price on January 1,2009?