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. -Compute the December 31,2010,consolidated 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 December 31,2010 consolidated retained earnings.

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. -In Cale's accounting records,what amount would appear on December 31,2009 for equity in subsidiary earnings?

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 land.

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 31,2010,consolidated balance sheet.

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 not 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_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. -Hoyt Corporation agreed to the following terms in order to acquire the net assets of Brown Company on January 1,2009: (1) )To issue 400 shares of common stock ($10 par)with a fair value of $45 per share. (2) )To assume Brown's liabilities which have a fair value of $1,500. On the date of acquisition,the consideration transferred for Hoyt's acquisition of Brown would be

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 initial value method is applied.How much will Kaye's income increase or decrease as a result of Fiore's operations?

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. -When is a goodwill impairment loss recognized?

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 allocation should be assigned to the subsidiary's Equipment in preparing for consolidation at December 31,2011,assuming the book value at that date is still $80,000?

What advantages might push-down accounting offer for internal reporting?

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 equipment as of December 31,2010?

All of the following are acceptable methods to account for a majority owned investment in subsidiary except

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 applied.How much will Kaye's income increase or decrease as a result of Fiore's operations?

From which methods can a parent choose for its internal recordkeeping related to the operations of a subsidiary?

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 -If Utah paid $264,000 in cash for Trimmer,and the original transaction occurred on January 1,2008 under SFAS 141,what allocation should have been assigned to the subsidiary's Building account and its Equipment account in a December 31,2010 consolidation? The fair value of net assets is $288,000.

On January 1,2009,Jumper Co.acquired all of the common stock of Cable Corp.for $540,000.Annual amortization associated with the purchase amounted to $1,800.During 2009,Cable earned net income of $54,000 and paid dividends of $24,000.Cable's net income and dividends for 2010 were $86,000 and $24,000,respectively. Required: Assuming that Jumper decided to use the partial equity method,prepare a schedule to show the balance in the investment account at the end of 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. -If Goehler applies the initial value method in accounting for Kenneth,what is the consolidated balance for the Equipment account as of December 31,2010?

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. -If Cale Corp.had net income of $444,000,exclusive of the investment,what is the amount of consolidated net income?

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 initial value method is used.In the years subsequent to acquisition,what additional worksheet entry must be made for consolidation purposes that is not required for the equity method?