Exam 3: Consolidations-Subsequent to the Date of Acquisition

Parrett Corp.acquired one hundred percent of Jones Inc.on January 1,2009,at a price in excess of the subsidiary's fair value.On that date,Parrett's equipment (ten-year life)had a book value of $360,000 but a fair value of $480,000.Jones had equipment (ten-year life)with a book value of $240,000 and a fair value of $350,000.Parrett used the partial equity method to record its investment in Jones.On December 31,2011,Parrett had equipment with a book value of $250,000 and a fair value of $400,000.Jones had equipment with a book value of $170,000 and a fair value of $320,000.What is the consolidated balance for the Equipment account as of December 31,2011?

Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, 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, 2011, 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 partial equity method in accounting for Kenneth,what is the consolidated balance for the Equipment account as of December 31,2011?

Matthews Co.acquired all of the common stock of Jackson Co.on January 1,2010.As of that date,Jackson had the following trial balance: During 2010,Jackson reported net income of $96,000 while paying dividends of $12,000.During 2011,Jackson reported net income of $132,000 while paying dividends of $36,000. Assume that Matthews Co.acquired the common stock of Jackson Co.for $588,000 in cash.As of January 1,2010,Jackson's land had a fair value of $102,000,its buildings were valued at $188,000,and its equipment was appraised at $216,000.Any excess of consideration transferred over fair value of assets and liabilities acquired is due to an unamortized patent to be amortized over 10 years. Matthews decided to use the equity method for this investment. Required: (A. )Prepare consolidation worksheet entries for December 31,2010. (B. )Prepare consolidation worksheet entries for December 31,2011. Accounts payable Accounts receivable Additional paid-in capital Buildings-net (20-year life) Cash and short-term investments Common stock Equipment-net (8-year life) Inventory Land Long-term liabilities (mature 12/31/12) Retained earnings, 1/1/10 Supplies Totals \ 50,000 140.000 70,000 240,000 110.000 90,000 \ 60,000 60,000 300,000 180,000 120,000

Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance; Debit Credit Cash \ 500 Accounts receivable 600 Inventory 800 Buildings (net) (5 year life) 1,500 Equipment (net) (2 year life) 1,000 Land 900 Accounts Payable \ 400 Long-term liabilities (due 12/31/13) 1,800 Common stock 1,000 Additional paid-in capital 600 Retained earnings 1,500 Total \ 5,300 \ 5.300 $\text { Net income and dividends reported by Hurley for } 2010 \text { and } 2011 \text { follow: }$ 2010 2011 Net income \ 100 \ 120 Dividends 30 40 The fair value of Hurley's net assets that differ from their book values are listed below Fair Value Inventory \ 900 Buildings 1,200 Equipment 1,250 Land 1,300 Long-term liabilities 1,700 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 31,2011,consolidated balance sheet.

On 4/1/09, 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 12/31/13.

Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen owns only three assets and has no liabilities: Book Fair Value Value Inventory (FIFO method) \ 40,000 \ 50,000 Equipment (10-year life) 80,000 75,000 Building (20-year life) 200,000 300,000 -If Watkins pays $450,000 in cash for Glen,at what amount would Glen's Inventory acquired be represented in a December 31,2010 consolidated balance sheet?

Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, 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, 2011, 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 31,2011?

Why is push-down accounting a popular internal reporting technique?

Under the equity method of accounting for an investment,

How much goodwill impairment should Pritchett report for 2011? Goodwill Impairment Test-Step 2 (Apple and Carrot only)

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted. Revenues Green Vega Cost of goods sold \ 900,000 \ 500,000 Depreciation expense 360,000 200,000 Other expenses 140,000 40,000 Equity in Vega's income 100,000 60,000 Retained earnings, 1/1/13 ? Dividends 1,350,000 1,200,000 Current assets 195,000 80,000 Land 300,000 1,380,000 Building (net) 450,000 180,000 Equipment (net) 750,000 280,000 Liabilities 300,000 500,000 Common stock 600,000 620,000 Additional paid-in capital 450,000 80,000 75,000 320,000 Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2009, 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 31,2013 consolidated retained earnings.

What advantages might push-down accounting offer for internal reporting?

On January 1,2010,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 2010,Cable earned net income of $54,000 and paid dividends of $24,000.Cable's net income and dividends for 2011 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 2011.

Under the initial value method,when accounting for an investment in a subsidiary,

Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 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. -What will Beatty record as its Investment in Gataux on January 1,2010?

Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen owns only three assets and has no liabilities: Book Fair Value Value Inventory (FIFO method) \ 40,000 \ 50,000 Equipment (10-year life) 80,000 75,000 Building (20-year life) 200,000 300,000 -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 31,2012?

An acquisition transaction results in $90,000 of goodwill.Several years later a worksheet is being produced to consolidate the two companies.Describe in words at what amount goodwill will be reported at this date.

On 4/1/09, 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 12/31/09.

Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2009, for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years. Tysk earned reported net income of $180,000 in 2009 and $216,000 in 2010. Dividends of $70,000 were paid in each of these two years. Selected account balances as of December 31, 2011, for the two companies follow. Jans Tysk Revenues \ 1,080,000 \ 840,000 Expenses 480,000 600,000 Investment income Not given 0 Retained earnings, 1/1/11 840,000 600,000 Dividends paid 132,000 70,000 -If the equity method had been applied,what would be the Investment in Tysk Corp.account balance within the records of Jans at the end of 2011?

Racer Corp.acquired all of the common stock of Tangiers Co.in 2009.Tangiers maintained its incorporation.Which of Racer's account balances would vary between the equity method and the initial value method?