Exam 3: Consolidations - Subsequent to the Date of Acquisition

Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. 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 Equipment in a consolidation at December 31, 2014, assuming the book value of the equipment at that date is still $80,000?

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?

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?

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted. Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, 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, 2015, consolidated equipment.

Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. 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, 2012 consolidation?

Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2012. Janex's reported earnings for 2012 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 for 2012, what amount should have been shown for Equity in Subsidiary Earnings?

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

On 4/1/11, 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 12/31/15.

Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the amount of Hurley's buildings that would be reported in a December 31, 2012, consolidated balance sheet.

Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2013 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?

Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used. Compute the amount of Hurley's equipment that would be reported in a December 31, 2012, consolidated balance sheet.

Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2012 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2013 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 2012, how will Harrison record the $16,500 payment of cash on April 15, 2013 in satisfaction of its contingent obligation?

Jansen Inc. acquired all of the outstanding common stock of Merriam Co. on January 1, 2012, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Jansen reported net income of $70,000 in 2012 and $50,000 in 2013 and paid $22,000 in dividends each year. Merriam reported net income of $40,000 in 2012 and $47,000 in 2013 and paid $10,000 in dividends each year. What is the Investment in Merriam Co. balance on Jansen's books as of December 31, 2013, if the equity method has been applied?

For each of the following situations, select the best answer that applies to consolidating financial information subsequent to the acquisition date: (A) Initial value method. (B) Partial equity method. (C) Equity method. (D) Initial value method and partial equity method but not equity method. (E) Partial equity method and equity method but not initial value method. (F) Initial value method, partial equity method, and equity method. _____1. Method(s) available to the parent for internal record-keeping. _____2. Easiest internal record-keeping method to apply. _____3. Income of the subsidiary is recorded by the parent when earned. _____4. Designed to create a parallel between the parent's investment accounts and changes in the underlying equity of the acquired company. _____5. For years subsequent to acquisition, requires the *C entry. _____6. Uses the cash basis for income recognition. _____7. Investment account remains at initially recorded amount. _____8. Dividends received by the parent from the subsidiary reduce the parent's investment account. _____9. Often referred to in accounting as a single-line consolidation. _____10. Increases the investment account for subsidiary earnings, but does not decrease the subsidiary account for equity adjustments such as amortizations.

On January 1, 2012, Franel Co. acquired all of the common stock of Hurlem Corp. For 2012, 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 partial equity method of internal recordkeeping?

Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2012 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2013 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. What will Harrison record as its Investment in Rhine on January 1, 2012?

Push-down accounting is concerned with the

For an acquisition when the subsidiary maintains its incorporation, under the partial equity method, what adjustments are made to the balance of the investment account?

Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities: If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in net income and pays $20,000 in dividends during 2012, what amount would be reflected in consolidated net income for 2012 as a result of the acquisition?

Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2012 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2013 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. When recording consideration transferred for the acquisition of Rhine on January 1, 2012, Harrison will record a contingent performance obligation in the amount of: