Exam 4: Consolidated Financial Statements and Outside Ownership

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2010 2011 2012 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the equity method is applied. -Compute Pell's income from Demers for the year ended December 31,2010.

McGuire company acquired 90 percent of Hogan Company on January 1, 2010, for $234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) \ 10,000 \ 8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. -In consolidation at December 31,2010,what adjustment is necessary for Hogan's Land account?

Where should a noncontrolling interest appear on a consolidated balance sheet?

Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2010 when Park's book value was $560,000. The Royce stock was not actively traded. On the date of acquisition, Park had equipment (with a ten-year life) that was undervalued in the financial records by $140,000. One year later, the following selected figures were reported by the two companies. Additionally, no dividends have been paid. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\underline{\text { Royce Co. }} \quad\quad\quad \underline{\text { Park Co. }}$ Book Book Fair Current assets \ 868,000 \ 420,000 \ 448,000 Equipment 364,000 280,000 400,000 Buildings 574,000 210,000 210,000 Liabilities (546,000) (168,000) (168,000) Revenues (1,260,000) (560,000) Expenses 700,000 420,000 Investment income Not Given -What is the consolidated balance of the Equipment account at December 31,2011?

Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2010 when Park's book value was $560,000. The Royce stock was not actively traded. On the date of acquisition, Park had equipment (with a ten-year life) that was undervalued in the financial records by $140,000. One year later, the following selected figures were reported by the two companies. Additionally, no dividends have been paid. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\underline{\text { Royce Co. }} \quad\quad\quad \underline{\text { Park Co. }}$ Book Book Fair Current assets \ 868,000 \ 420,000 \ 448,000 Equipment 364,000 280,000 400,000 Buildings 574,000 210,000 210,000 Liabilities (546,000) (168,000) (168,000) Revenues (1,260,000) (560,000) Expenses 700,000 420,000 Investment income Not Given -What is consolidated net income for 2011 attributable to Royce's controlling interest?

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2010 2011 2012 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the equity method is applied. -Compute the noncontrolling interest in Demers at December 31,2012.

Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2010. For 2010, Kailey reported revenues of $810,000 and expenses of $630,000, all reflected evenly throughout the year. The annual amount of amortization related to this acquisition was $15,000. -What is the amount of the noncontrolling interest's share of Denber's income for 2010?

On January 1,2011,Elva Corp.paid $750,000 for 80% of Fenton Co.when the book value of Fenton's net assets was $800,000.Fenton owned a building with a fair value of $150,000 and a book value of $120,000. Required: At what amount would the building appear on a consolidated balance sheet prepared immediately after the combination,under the acquisition method of accounting for business combinations?

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2010 2011 2012 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the equity method is applied. -Compute Pell's investment in Demers at December 31,2011.

McGuire company acquired 90 percent of Hogan Company on January 1, 2010, for $234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) \ 10,000 \ 8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. -In consolidation at December 31,2010,what adjustment is necessary for Hogan's Equipment account?

Select True (T)or False (F)for each of the following statements: _____ 1.A parent will recognize a gain or loss if it sells a portion of its investment in a subsidiary and maintains control after the sale. _____ 2.A parent sells a portion of its investment in a subsidiary and no longer maintains control.This sale of shares represents a remeasuremenet event for the investee. _____ 3.International financial reporting standards (IFRS)allow an option to value the noncontrolling interest with goodwill or to value the noncontrolling interest without goodwill. _____ 4.Consolidated net income represents the combined net income of the parent and subsidiary after subtracting the noncontrolling interest in the net income of the subsidiary. _____ 5.The total acquisition-date fair value of an acquired firm is the sum of the fair value of the controlling interest and the fair value of the noncontrolling interest. _____ 6.When control of a subsidiary is acquired on a date other than the first day of a fiscal year,excess amortization expenses are pro-rated to include only the post-acquisition period. _____ 7.For a mid-year acquisition following an equity method investment of the same company,the consolidated income statement will report consolidated revenues and expenses for the entire year. _____ 8.In a step acquisition where the parent previously held a noncontrolling interest in the acquired firm,the parent remeasures the prior interest to fair value. _____ 9.When a parent has control over a subsidiary with less than 100 percent ownership,and thereafter increases its ownership,the parent remeasures the prior interest to fair value.

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2010 2011 2012 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the equity method is applied. -Compute the noncontrolling interest in Demers at December 31,2010.

Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2010. For 2010, Kailey reported revenues of $810,000 and expenses of $630,000, all reflected evenly throughout the year. The annual amount of amortization related to this acquisition was $15,000. -What is the amount of net income to the controlling interest for 2010?

When a parent uses the acquisition method for business combinations and sells shares of its subsidiary,which of the following statements is false?

When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000 and a fair value of $100,000. -What is the amount of excess land allocation attributed to the controlling interest at the acquisition date?

In a step acquisition,which of the following statements is false?

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2010 2011 2012 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the partial equity method is applied. -How much does Pell record as income from Demers for the year ended December 31,2012?

McGuire company acquired 90 percent of Hogan Company on January 1, 2010, for $234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) \ 10,000 \ 8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. -In consolidation at December 31,2011,what adjustment is necessary for Hogan's Equipment account?

On January 1,2009,Vacker Co.acquired 70% of Carper Inc.by paying $650,000.This included a $20,000 control premium.Carper reported common stock on that date of $420,000 with retained earnings of $252,000.A building was undervalued in the company's financial records by $28,000.This building had a ten-year remaining life.Copyrights of $80,000 were to be recognized and amortized over 20 years. Carper earned income and paid cash dividends as follows: Net Dividends 2009 \ 105,000 \5 4,600 2010 134,400 \ 4,400 2011 154,000 61,600 On December 31,2011,Vacker owed $30,800 to Carper.There have been no changes in Carper's common stock account since the acquisition. Required: If the equity method had been applied by Vacker for this acquisition,what were the consolidation entries needed as of December 31,2011?

When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000 and a fair value of $100,000. -What is the total amount of excess land allocation at the acquisition date?