Exam 3: Consolidations-Subsequent to the Date of Acquisition

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 land.

Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January 1, 2010. 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 2010 and $68,000 in 2011, and paid dividends of $25,000 in dividends each year. Pickett reported net income of $24,000 in 2010 and $36,000 in 2011, 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 initial value method,what were the consolidated retained earnings on December 31,2011?

Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2010. Janex's reported earnings for 2010 totaled $432,000, and it paid $120,000 in dividends during the year. The amortization of allocations related to the investment was $24,000. Cashen's net income, not including the investment, was $3,180,000, and it paid dividends of $900,000. -On the consolidated financial statements for 2010,what amount should have been shown for consolidated dividends?

When consolidating a subsidiary under the equity method,which of the following statements is true?

Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2011 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142. -What will Harrison record as its Investment in Rhine on January 1,2010?

Jaynes Inc.acquired all of Aaron Co.'s common stock on January 1,2010,by issuing 11,000 shares of $1 par value common stock.Jaynes' shares had a $17 per share fair value.On that date,Aaron reported a net book value of $120,000.However,its equipment (with a five-year remaining life)was undervalued by $6,000 in the company's accounting records.Any excess of consideration transferred over fair value of assets and liabilities is assigned to an unrecorded patent to be amortized over ten years. $\text {The following figures came from the individual accounting records of these two companies of December 31, 2010}$ Jaynes Inc. Aaron Co. Revenues \ 720,000 \ 276,000 Expenses 528,000 144,000 Investment income Not given - Dividends paid 100,000 60,000 The following figures came from the individual accounting records of these two companies of December 31,2011 Jaynes Inc. Aaron Co. Revenues \ 840,000 \ 336,000 Expenses 552,000 180,000 Investment income Not given - Dividends paid 110,000 50,000 Equipment 600,000 360,000 Retained earnings, 12/31/11 balance 960,000 216,000 -What was consolidated net income for the year ended December 31,2011?

Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January 1, 2010. 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 2010 and $68,000 in 2011, and paid dividends of $25,000 in dividends each year. Pickett reported net income of $24,000 in 2010 and $36,000 in 2011, 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 31,2011?

For an acquisition when the subsidiary retains its incorporation,which method of internal recordkeeping is the easiest for the parent to use?

On January 1,2009,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 31,2012. Required: Prepare a consolidation worksheet for this business combination. Rand Spaulding Corp. Inc. Revenues \ 372,000 \ 108,000 Expenses (264,000) (72,000 Equity in subsidiary earnings 0 Net income \ 133,000 \ 36,000 Retained earnings, January 1,2012 \ 765,000 \ 102,000 Net income (above) 133,000 36,000 Dividends paid Retained earnings, December 31, 2012 Current assets \ 150,000 \ 22,000 Investment in Spaulding Inc. 242,000 0 Buildings (net) 525,000 85,000 Equipment (net) 389,250 Total assets \ 1,306,250 \ 236,000 Liabilities \ 82,250 \ 50,000 Common stock 360,000 72,000 Additional paid-in capital 50,000 0 Retained earnings, December 31,2012 814,000 114,000 (above) Total liabilities and stockholders' equity \1 ,306,250 \2 36,000

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 buildings.

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 book value of Vega at January 1,2009.

Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2011 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142. -Assuming Rhine generates cash flow from operations of $27,200 in 2010,how will Harrison record the $16,500 payment of cash on April 15,2011 in satisfaction of its contingent obligation?

All of the following are acceptable methods to account for a majority-owned investment in subsidiary except

Consolidated net income using the equity method for an acquisition combination is computed as follows:

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 common stock.

How is the fair value allocation of an intangible asset allocated to expense when the asset has no legal,regulatory,contractual,competitive,economic,or other factors that limit its life?

Pritchett Company recently acquired three businesses,recognizing goodwill in each acquisition.Pritchett has allocated its acquired goodwill to its three reporting units: Apple,Banana,and Carrot.Pritchett provides the following information in performing the 2011 annual review for impairment: Valuation of Carrying Fair Reporting Unit Value Value (including Goodwill) Apple Tangible assets \ 300,000 \ 320,000 \5 10,000 Trademark 20,000 10,000 Licenses 85,000 90,000 Liabilities (20,000) (20,000) Goodwill 130,000 ? Banana Tangible assets \ 250,000 \ 400,000 \ 450,000 Trademark 25,000 50,000 Licenses 18,000 18,000 Goodwill 140,000 ? Carrot Tangible assets \ 120,000 \ 120,000 \ 215,000 Unpatented technology 0 50,000 Customer list 35,000 45,000 Goodwill 75,000 ? -Which of Pritchett's reporting units require both steps to test for goodwill impairment?

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. -Assuming Gataux generates cash flow from operations of $27,200 in 2010,how will Beatty record the $12,000 payment of cash on April 1,2011 in satisfaction of its contingent obligation?

Factors that should be considered in determining the useful life of an intangible asset include

When consolidating a subsidiary under the equity method,which of the following statements is true with regard to the subsidiary subsequent to the year of acquisition?