Exam 3: Consolidations-Subsequent to the Date of Acquisition

Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2011 and paid dividends of $100. -Assume the equity method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?

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 Equity in Subsidiary Earnings?

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?

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?

Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination?

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 equity method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2011?

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 combination at the year-end date of 12/31/09.

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 not used, what amounts in the Building account appear on Duchess' separate balance sheet and on the consolidated balance sheet immediately after acquisition?

Utah Inc. acquired all of the outstanding common stock of Trimmer Corp. on January 1, 2009. At that date, Trimmer owned only three assets and had no liabilities: Book Fair Value Value Inventory \ 36,000 \ 48,000 Equipment (5-year life) 84,000 60,000 Building (10-year life) 120,000 180,000 -If Utah paid $300,000 in cash for Trimmer, what allocation should have been assigned to the subsidiary's Building account and its Equipment account in a December 31, 2011 consolidation?

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?

Figure: 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 Value Fair 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. -In Cale's accounting records, what amount would appear on December 31, 2010 for equity in subsidiary earnings?

Under the partial equity method, the parent recognizes income when

Paperless Co. acquired Sheetless Co. and in effecting this business combination, there was a cash-flow performance contingency to be paid in cash, and a market-price performance contingency to be paid in additional shares of stock. In what accounts and in what section(s) of a consolidated balance sheet are these contingent consideration items shown?

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 statements is false regarding push-down accounting?

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

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

Figure: 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 Value Fair 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?

Figure: Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted. Green Vega Revenues \ 900,000 \ 500,000 Cost of goods sold 360,000 200,000 Depreciation expense 140,000 40,000 Other expenses 100,000 60,000 Equity in Vega's income ? Retained earnings, 1/1/13 1,350,000 1,200,000 Dividends 195,000 80,000 Current assets 300,000 1,380,000 Land 450,000 180,000 Building (net) 750,000 280,000 Equipment (net) 300,000 500,000 Liabilities 600,000 620,000 Common stock 450,000 80,000 Additional paid-in capital 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 trademark.

What is the partial equity method? How does it differ from the equity method? What are its advantages and disadvantages compared to the equity method?