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 the noncontrolling interest in Demers at December 31,2011.

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 initial value method is applied. -Compute the noncontrolling interest in the net income of Demers at December 31,2011.

Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair value of Float's net assets was $1,850,000, and the book value was $1,500,000. The noncontrolling interest shares of Float Corp. are not actively traded. -What amount of goodwill should be attributed to Perch at the date of acquisition?

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 the net income of Demers at December 31,2012.

Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing common stock?

How does a parent company account for the sale of a portion of an investment in a subsidiary?

When a parent uses the equity method throughout the year to account for its investment in an acquired subsidiary,which of the following statements is false before making adjustments on the consolidated worksheet?

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 Buildings account?

How is a noncontrolling interest in the net income of an entity reported in the income statement?

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 January 1,2010,what adjustment is necessary for Hogan's Buildings account?

How would you determine the amount of goodwill to be recognized at date of acquisition when there is a noncontrolling interest present?

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 31,2012.

Pennant Corp.owns 70% of the common stock of Scarvens Co.Scarvens' revenues for 2011 totaled $200,000. Required: What amount of Scarvens' revenues would be included in the consolidated revenues under the acquisition method of accounting for business combinations?

Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair value of Float's net assets was $1,850,000, and the book value was $1,500,000. The noncontrolling interest shares of Float Corp. are not actively traded. -What amount of goodwill should be attributed to the noncontrolling interest at the date of acquisition?

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 31,2010?

Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair value of Float's net assets was $1,850,000, and the book value was $1,500,000. The noncontrolling interest shares of Float Corp. are not actively traded. -What is the total amount of goodwill recognized at the date of acquisition?

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 initial value method is applied. -Compute the noncontrolling interest in Demers at December 31,2011.

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 31,2010.

Caldwell Inc. acquired 65% of Club Corp. for $2,600,000. Club owned a building and equipment with ten-year useful lives. The book value of these assets was $830,000, and the fair value was $950,000. For Club's other assets and liabilities, book value was equal to fair value. The total fair value of Club's net assets was $3,500,000. -Determine the amount of the noncontrolling interest as of the date of the acquisition.

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 net adjustment is necessary for Hogan's Patent account?