Exam 3: Consolidations - Subsequent to the Date of Acquisition

When a company applies the initial value method in accounting for its investment in a subsidiary and the subsidiary reports income less than dividends paid, what entry would be made for a consolidation worksheet?

On January 1, 2011, Rand Corp. issued shares of its common stock to acquire all of the outstanding common stock of Spaulding Inc. 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 consideration transferred over fair value of identified net assets acquired is assigned to goodwill. Following are the individual financial records for these two companies for the year ended December 31, 2014. Required: Prepare a consolidation worksheet for this business combination.

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?

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, 2013, consolidated balance sheet.

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 consolidation at the year-end date of 12/31/19.

Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2012 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2013 if Gataux generates cash flows from operations of $26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux 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. When recording consideration transferred for the acquisition of Gataux on January 1, 2012, Beatty will record a contingent performance obligation in the amount of:

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 long-term liabilities that would be reported in a December 31, 2012, consolidated balance sheet.

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 acquisition-date fair value allocation, net of amortization, should be attributed to the subsidiary's Equipment in consolidation at December 31, 2014?

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 initial value method of internal recordkeeping?

According to the FASB ASC regarding the testing procedures for Goodwill Impairment, the proper procedure for conducting impairment testing is:

Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January 1, 2012. Annual amortization of $22,000 resulted from this transaction. On the date of the acquisition, Fesler reported retained earnings of $520,000 while Pickett reported a $240,000 balance for retained earnings. Fesler reported net income of $100,000 in 2012 and $68,000 in 2013, and paid dividends of $25,000 in dividends each year. Pickett reported net income of $24,000 in 2012 and $36,000 in 2013, 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, 2013?

Which of the following will result in the recognition of an impairment loss on goodwill?

On January 1, 2012, 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 2012, Cable earned net income of $54,000 and paid dividends of $24,000. Cable's net income and dividends for 2013 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 2013.

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 book value of Vega at January 1, 2011.

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 goodwill, if any, at January 1, 2012.

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 buildings.

Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2012, at an amount 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, 2013, 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, 2013?

Red Co. acquired 100% of Green, Inc. on January 1, 2012. On that date, 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, 2012. Also, on the date of acquisition, 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 total expense will be in the consolidated financial statements for the year ended December 31, 2012 related to the acquisition allocations of Green?

Hoyt Corporation agreed to the following terms in order to acquire the net assets of Brown Company on January 1, 2013: (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

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, at what amount would Glen's Inventory acquired be represented in a December 31, 2012 consolidated balance sheet?