Exam 3: Consolidations - Subsequent to the Date of Acquisition

REFERENCE: Ref.03_13 Fesler Inc.acquired all of the outstanding common stock of Pickett Company on January 1,2009.Annual amortization of $22,000 resulted from this transaction.On the date of the takeover,Fesler reported retained earnings of $520,000 while Pickett reported a $240,000 balance.Fesler reported net income of $100,000 in 2009 and $68,000 in 20010,and paid dividends of $25,000 in dividends each year.Pickett reported net income of $24,000 in 2009 and $36,000 in 2010,and paid dividends of $10,000 in dividends each year. Assume that Fesler's reported net income includes Equity in Subsidiary Income. -If the parent's net income reflected use of the equity method,what were the consolidated retained earnings on December 31,2010?

REFERENCE: Ref.03_10 Beatty,Inc.acquires 100% of the voting stock of Gataux Company on January 1,2009 for $500,000 cash.A contingent payment of $12,000 will be paid on April 1,2010 if Gataux generates cash flows from operations of $26,500 or more in the next year.Harrison estimates that there is a 30% probability that Rhine will generate at least $26,500 next year,and uses an interest rate of 4% to incorporate the time value of money.The fair value of $12,000 at 4%,using a probability weighted approach,is $3,461. -Assuming Gataux generates cash flow from operations of $27,200 in 2009,how will Beatty record the $12,000 payment of cash on April 1,2010 according to SFAS 141(R)?

REFERENCE: Ref.03_13 Fesler Inc.acquired all of the outstanding common stock of Pickett Company on January 1,2009.Annual amortization of $22,000 resulted from this transaction.On the date of the takeover,Fesler reported retained earnings of $520,000 while Pickett reported a $240,000 balance.Fesler reported net income of $100,000 in 2009 and $68,000 in 20010,and paid dividends of $25,000 in dividends each year.Pickett reported net income of $24,000 in 2009 and $36,000 in 2010,and paid dividends of $10,000 in dividends each year. Assume that Fesler's reported net income includes Equity in Subsidiary Income. -If the parent's net income reflected use of the initial value method,what were the consolidated retained earnings on December 31,2010?

REFERENCE: Ref.03_12 Watkins,Inc.acquires all of the outstanding stock of Glen Corporation on January 1,2009.At that date,Glen owns only three assets and has no liabilities: -If Watkins pays $300,000 in cash for Glen,at what amount would the subsidiary's Building be represented in a January 2,2009 consolidation?

Under the equity method of accounting for an investment,

REFERENCE: Ref.03_02 On January 1,2009,Franel Co.acquired all of the common stock of Hurlem Corp.For 2009,Hurlem earned net income of $360,000 and paid dividends of $190,000.Amortization of the patent allocation that was included in the acquisition was $6,000. -How much difference would there have been in Franel's income with regard to the effect of the investment,between using the equity method or using the initial value method of internal recordkeeping?

REFERENCE: Ref.03_08 Goehler,Inc.acquires all of the voting stock of Kenneth,Inc.on January 4,2009,at a price in excess of Kenneth's fair value.On that date,Kenneth has equipment with a book value of $90,000 and a fair value of $120,000 (10-year remaining life).Goehler has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life).On December 31,2010,Goehler has equipment with a book value of $975,000 but a fair value of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair value of $125,000. -If Goehler applies the partial equity method in accounting for Kenneth,what is the consolidated balance for the Equipment account as of December 31,2010?

Carnes Co.decided to use the partial equity method to account for its investment in Domino Corp.An unamortized trademark associated with the acquisition was $30,000,and Carnes decided to amortize the trademark over ten years.For 2009,Carnes' Equity in Subsidiary Earnings was $78,000. Required: What balance would have been in the Equity in Subsidiary Earnings account if Carnes had used equity accounting?

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 common stock.

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 long-term liabilities that would be reported on a December 31,2010,consolidated balance sheet.

REFERENCE: Ref.03_14 Jaynes Inc.obtained all of Aaron Co.'s common stock on January 1,2009,by issuing 11,000 shares of $1 par value common stock.Jaynes' shares had a $17 per share fair value.On that date,Aaron reported a net book value of $120,000.However,its equipment (with a five-year remaining life)was undervalued by $6,000 in the company's accounting records.Any excess of consideration transferred over fair value of assets and liabilities is assigned to an unrecorded patent to be amortized over ten years. SHAPE \* MERGEFORMAT -If this combination is viewed as an acquisition,what was consolidated net income for the year ended December 31,2010?

Jansen Inc.acquired all of the outstanding common stock of Merriam Co.on January 1,2009,for $257,000.Annual amortization of $19,000 resulted from this acquisition.Jansen reported net income of $70,000 in 2009 and $50,000 in 2010 and paid $22,000 in dividends each year.Merriam reported net income of $40,000 in 2009 and $47,000 in 2010 and paid $10,000 in dividends each year.What is the Investment in Merriam Co.balance on Jansen's books as of December 31,2010,if the equity method has been applied?

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 31,2010,consolidated balance sheet.

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 goodwill,if any,at January 1,2009.

Velway Corp.acquired Joker Inc.on January 1,2009.The parent paid more than the fair value of the subsidiary's net assets.On that date,Velway had equipment with a book value of $500,000 and a fair value of $640,000.Joker had equipment with a book value of $400,000 and a fair value of $470,000.Joker decided to use push-down accounting.Immediately after the acquisition,what Equipment amount would appear on Joker's separate balance sheet and on Velway's consolidated balance sheet,respectively?

What is the partial equity method? How does it differ from the equity method? What are its advantages and disadvantages compared to the equity method?

REFERENCE: Ref.03_12 Watkins,Inc.acquires all of the outstanding stock of Glen Corporation on January 1,2009.At that date,Glen owns only three assets and has no liabilities: -If Watkins pays $450,000 in cash for Glen,what amount would be represented as the subsidiary's Building in a consolidation at December 31,2011,assuming the book value at that date is still $200,000?

Consolidated net income using the equity method under a n acquisition combination is computed as follows:

REFERENCE: Ref.03_11 Prince Company acquires Duchess,Inc.on January 1,2009.The consideration transferred exceeds the fair value of Duchess' net assets.On that date,Prince has a building with a book value of $1,200,000 and a fair value of $1,500,000.Duchess has a building with a book value of $400,000 and fair value of $500,000. -If push-down accounting is used,what amounts in the Building account appear on Duchess' separate balance sheet and on the consolidated balance sheet immediately after acquisition?

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 inventory that would be reported on a January 1,2009,consolidated balance sheet.