Exam 4: Consolidated Financial Statements and Outside Ownership

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. -Using the acquisition method,determine the amount of goodwill associated with Caldwell's purchase of Club.

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 noncontrolling interest's share of the subsidiary's net income for the year ended December 31,2011 and what is the ending balance of the noncontrolling interest in the subsidiary at December 31,2011?

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

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. -How much does Pell record as Income from Demers for the year ended 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. -How much does Pell record as Income from Demers for the year ended December 31,2010?

On January 1, 2008, prior to the effective date for use of the acquisition method, Cranston Inc. reported net assets of $1,064,000, although equipment (with a four-year life) with a book value of $616,000 was worth $700,000. Peak Corp. paid $969,000 on that date for an 80% ownership interest in Cranston. Cranston's stock is not actively traded. Peak still owns its 80% interest in 2011. -What is the consolidated goodwill balance on January 1,2011,assuming the purchase method of accounting for business combinations is used?

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. -Kailey in consolidated net income for 2010?

Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 2010. During 2010, Harbor had revenues of $2,500,000 and expenses of $2,000,000. The amortization of excess cost allocations totaled $60,000 in 2010. -What is the effect of including Harbor in consolidated net income for 2010?

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 31,2012.

In measuring noncontrolling interest at the date of acquisition,which of the following would not be indicative of the value attributed to the noncontrolling interest?

On January 1, 2010, Palk Corp. and Spraz Corp. had condensed balance sheets as follows: Palk Corp. Spraz Corp. Current assets \ 99,000 28,000 Noncurrent assets \ 125,000 56,000 Total assets \ 224,000 84,000 Current liabilities 42,000 \ 14,000 Long-term debt 70,000 \ - Stockholders' equity \ 112,000 \ 70,000 Total liabilities and stockholders' equity \ 224,000 \ 84,000 On January 2, 2010, Palk borrowed the entire $84,000 it needed to acquire 80% of the outstanding common shares of Spraz. The loan was to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2010. The excess consideration transferred over the underlying book value of the acquired net assets was allocated 60% to inventory and 40% to goodwill. -What is consolidated noncurrent assets at January 2,2010?

Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 2010. During 2010, Harbor had revenues of $2,500,000 and expenses of $2,000,000. The amortization of excess cost allocations totaled $60,000 in 2010. -The noncontrolling interest's share of the earnings of Harbor Corp.is calculated to be

Parsons Company acquired 90% of Roxy Company several years ago and recorded goodwill of $200,000 at that date. During 2013 an analysis of the fair value of Roxy's assets determined an impairment of goodwill in the amount of $50,000. -At what amount would consolidated goodwill be reported for 2013?

Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition method for 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 is the dollar amount of noncontrolling interest that should appear in a consolidated balance sheet prepared at the date of acquisition?

MacHeath Inc.bought 60% of the outstanding common stock of Nomes Inc.in an acquisition business combination that resulted in the recognition of goodwill.Nomes owned a piece of land that cost $250,000 but was worth $600,000 at the date of acquisition.What value would be attributed to this land in a consolidated balance sheet at the date of acquisition?

For business combinations involving less than 100 percent ownership,the acquirer recognizes and measures all of the following at the acquisition date except: