Exam 3: Consolidations-Subsequent to the Date of Acquisition

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.

Figure: 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; 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 long-term liabilities that would be reported in a December 31, 2011, consolidated balance sheet.

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

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?

Figure: 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 partial equity method had been applied, what was 2011 consolidated net income?

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

Dutch Co. has loaned $90,000 to its subsidiary, Hans Corp., which retains separate incorporation. How would this loan be treated on a 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. -What balance would Jaynes' Investment in Aaron Co. account have shown on December 31, 2010, when the equity method was applied for this acquisition?

Figure: 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; 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.

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

Figure: 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 consolidation at the year-end date of 12/31/19.

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

Figure: 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?

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.

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.

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. -When recording consideration transferred for the acquisition of Gataux on January 1, 2010, Beatty will record a contingent performance obligation in the amount of:

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

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

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?

Figure: 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; 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 goodwill, if any, at January 1, 2010.