Exam 3: Consolidations-Subsequent to the Date of Acquisition

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 consideration transferred in excess of book value acquired at January 1,2010.

How does the partial equity method differ from the equity method?

Which of the following will result in the recognition of an impairment loss on goodwill?

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 equipment that would be reported in a December 31,2011,consolidated balance sheet.

Red Co.acquired 100% of Green,Inc.on January 1,2010.On that date,Green had inventory with a book value of $42,000 and a fair value of $52,000.This inventory had not yet been sold at December 31,2010.Also,on the date of acquisition,Green had a building with a book value of $200,000 and a fair value of $390,000.Green had equipment with a book value of $350,000 and a fair value of $280,000.The building had a 10-year remaining useful life and the equipment had a 5-year remaining useful life.How much total expense will be in the consolidated financial statements for the year ended December 31,2010 related to the acquisition allocations of Green?

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 equipment.

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 equipment that would be reported in a December 31,2010,consolidated balance sheet.

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 equipment as of December 31,2011?

Prince Company acquires Duchess, Inc. on January 1, 2009. The consideration transferred exceeds the fair value of Duchess' net assets. On that date, Prince has a building with a book value of $1,200,000 and a fair value of $1,500,000. Duchess has a building with a book value of $400,000 and fair value of $500,000. -If push-down accounting is used,what amounts in the Building account appear in Duchess' separate balance sheet and in the consolidated balance sheet immediately after acquisition?

What accounting method requires a subsidiary to record acquisition fair value allocations and the amortization of allocations in its internal accounting records?

A) Retained earnings $\quad$$\quad$ Investment in subsidiary B) Investment in subsidiary $\quad$$\quad$ Retained earnings C) Investment in subsidiary $\quad$$\quad$ Equity in subsidiary's income D) Investment in subsidiary $\quad$$\quad$ Additional paid-in capital E) No entry is necessary. -When a company applies the partial equity method in accounting for its investment in a subsidiary and initial value,book values,and fair values of net assets acquired are all equal,what consolidation worksheet entry would be made?

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. -What is the amount of consolidated net income for the year 2010?

One company acquires another company in a combination accounted for as an acquisition.The acquiring company decides to apply the equity method in accounting for the combination.What is one reason the acquiring company might have made this decision?

Jansen Inc.acquired all of the outstanding common stock of Merriam Co.on January 1,2010,for $257,000.Annual amortization of $19,000 resulted from this acquisition.Jansen reported net income of $70,000 in 2010 and $50,000 in 2011 and paid $22,000 in dividends each year.Merriam reported net income of $40,000 in 2010 and $47,000 in 2011 and paid $10,000 in dividends each year.What is the Investment in Merriam Co.balance on Jansen's books as of December 31,2011,if the equity method has been applied?

Which of the following is false regarding contingent consideration in business combinations?

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 additional paid-in capital.

On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts: Book Fair Value Value Current assets \ 120,000 \ 120,000 Land 72,000 192,000 Building (twenty year life) 240,000 268,000 Equipment (ten year life) 540,000 516,000 Current liabilities 24,000 24,000 Long-term liabilities 120,000 120,000 Common stock 228,000 Additional paid-in capital 384,000 Retained earnings 216,000 Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year. -What is the balance in Cale's investment in subsidiary account at the end of 2010?

Carnes Co.decided to use the partial equity method to account for its investment in Domino Corp.An unamortized trademark associated with the acquisition was $30,000,and Carnes decided to amortize the trademark over ten years.For 2011,Carnes' Equity in Subsidiary Earnings was $78,000. Required: What balance would have been in the Equity in Subsidiary Earnings account if Carnes had used equity accounting?

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 partial equity method,what were the consolidated retained earnings on December 31,2011?