Exam 3: Consolidations - Subsequent to the Date of Acquisition

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 12/31/09.

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. -At the end of 2009,the consolidation entry to eliminate Cale's accrual of Kaltop's earnings would include a credit to Investment in Kaltop Co.for

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 balance would Jaynes' Investment in Aaron Co.account have shown on December 31,2010,when the equity method was applied?

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 partial equity method is used.In the years following acquisition,what additional worksheet entry must be made for consolidation purposes that is not required for the equity method? I am not able to accept changes below.The balloons won't go away!

When a company applies the partial equity method in accounting for its investment in a subsidiary and the subsidiary's equipment has a fair value greater than its book value,what consolidation worksheet entry is made in a year subsequent to the initial acquisition of the subsidiary?

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 equity method in accounting for the combination.What is one reason the acquiring company might have made this decision?

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 partial equity method has been applied,what was 2011 consolidated net income?

Avery Company acquires Billings Company in a combination accounted for as an acquisition and adopts the equity method to account for Investment in Billings.At the end of four years,the Investment in Billings account on Avery's books is $198,984.What items constitute this balance?

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 partial equity 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 issued common stock valued at $410,000 for Glen,rather than paying cash,in a pooling of interests on June 15,1999,at what amount would the subsidiary's Equipment be represented in a December 31,2009,consolidation,assuming no acquisitions or disposals of buildings or equipment?

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 equity in Vega's income reported by Green for 2010.

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. -How is the fair value allocation of an intangible asset allocated to expense when the asset has no legal,regulatory,contractual,competitive,economic,or other factors that limit its life?

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 $400,000 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?

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 31,2009,consolidated balance sheet.

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 revenues.

When consolidating a subsidiary under the equity method,which of the following statements is true subsequent to the year of acquisition?

How does the partial equity method differ from the equity method?

What accounting method requires a subsidiary to record acquisition fair value allocations and the amortization of allocations in its accounting records?

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 trademark.

REFERENCE: Ref.03_15 Utah Inc.obtained all of the outstanding common stock of Trimmer Corp.on January 1,2009.At that date,Trimmer owned only three assets and had no liabilities: SHAPE \* MERGEFORMAT -On January 1,2009,Rand Corp.issued shares of its common stock for all of the outstanding common stock of Spaulding Inc.This combination was accounted for as a purchase.Spaulding's book value was only $140,000 at the time,but Rand issued 12,000 shares having a par value of $1 per share and a fair value of $20 per share.Rand was willing to convey these shares because it felt that buildings (ten-year life)were undervalued on Spaulding's records by $60,000 while equipment (five-year life)was undervalued by $25,000.Any excess cost over fair value is assigned to goodwill. Following are the individual financial records for these two companies for the year ended December 31,2009. Required: Prepare a consolidation worksheet for this business combination.