Exam 4: Consolidated Financial Statements and Outside Ownership

One company buys a controlling interest in another company on April 1. How should the preacquisition subsidiary revenues and expenses be handled in the consolidated balances for the year of acquisition?

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?

Where may a noncontrolling interest be presented in a consolidated balance sheet?

On January 1, 2011, John Doe Enterprises (JDE) acquired a 55% interest in Bubba Manufacturing, Inc. (BMI). JDE paid for the transaction with $3 million cash and 500,000 shares of JDE common stock (par value $1.00 per share). At the time of the acquisition, BMI's book value was $16,970,000. On January 1, JDE stock had a market value of $14.90 per share and there was no control premium in this transaction. Any consideration transferred over book value is assigned to goodwill. BMI had the following balances on January 1, 2011. Book Fair Value Value Land \ 1,700,000 \ 2,550,000 Buildings (seven-year remaining life) 2,700,000 3,400,000 Equipment (five-year remaining life) 3,700,000 3,300,000 For internal reporting purposes, JDE employed the equity method to account for this investment. -The following account balances are for the year ending December 31, 2011 for both companies. Required: Prepare a consolidation worksheet for this business combination. Assume goodwill has been reviewed and there is no goodwill impairment.

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, 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. 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?

When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false?

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. 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. -Compute the noncontrolling interest in Demers at December 31, 2011.

What is preacquisition income?

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. -Kordel Inc. acquired 75% of the outstanding common stock of Raxston Corp. Raxston currently owes Kordel $500,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of this debt should be eliminated?

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 equity method is applied. -Compute the noncontrolling interest in the net income of Demers at December 31, 2012.

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.

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

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 Pell's investment in Demers at December 31, 2012.

Keefe, Inc., a calendar-year corporation, acquires 70% of George Company on September 1, 2010, and an additional 10% on April 1, 2011. Total annual amortization of $6,000 relates to the first acquisition. George reports the following figures for 2011: Revenues \ 500,000 Expenses 400,000 Retained earnings, 1/1/11 300,000 Dividends paid 50,000 Common stock 200,000 Without regard for this investment, Keefe independently earns $300,000 in net income during 2011. All net income is earned evenly throughout the year. What is the controlling interest in consolidated net income for 2011?

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. -In consolidation, the total amount of expenses related to Kailey, and to Denber's acquisition of Kailey, for 2010 is determined to be

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. -What is the amount of net income to the controlling interest for 2010?

Where should a noncontrolling interest appear on a consolidated balance sheet?