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Exam 3: Consolidations - Subsequent to the Date of Acquisition

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Question 61

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Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen owns only three assets and has no liabilities: If Watkins pays $450,000 in cash for Glen, what acquisition-date fair value allocation, net of amortization, should be attributed to the subsidiary's Equipment in consolidation at December 31, 2012?

A) $(5,000.)
B) $80,000.
C) $75,000.
D) $73,500.
E) $(3,500.)

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Question 62

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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.

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By 2019, all of the fair value...

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Question 63

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According to GAAP regarding amortization of goodwill and other intangible assets, which of the following statements is true?

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: Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year. If Cale Corp. had net income of $444,000 in 2010, exclusive of the investment, what is the amount of consolidated net income?

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted. 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 total expenses.

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted. 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 equity in Vega's income to be included in Green's consolidated income statement for 2013.

On January 1, 2010, Franel Co. acquired all of the common stock of Hurlem Corp. For 2010, Hurlem earned net income of $360,000 and paid dividends of $190,000. Amortization of the patent allocation that was included in the acquisition was $6,000. How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the initial value method of internal recordkeeping?

Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment?

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.

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, 2010, consolidated balance sheet.

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 a company applies the partial equity method in accounting for its investment in a subsidiary and the subsidiary's equipment has a fair value greater than its book value, what consolidation worksheet entry is made in a year subsequent to the initial acquisition of the subsidiary?

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 the equity method?

For each of the following situations, select the best answer that applies to consolidating financial information subsequent to the acquisition date: (A) Initial value method. (B) Partial equity method. (C) Equity method. (D) Initial value method and partial equity method but not equity method. (E) Partial equity method and equity method but not initial value method. (F) Initial value method, partial equity method, and equity method. _____1. Method(s) available to the parent for internal record-keeping. _____2. Easiest internal record-keeping method to apply. _____3. Income of the subsidiary is recorded by the parent when earned. _____4. Designed to create a parallel between the parent's investment accounts and changes in the underlying equity of the acquired company. _____5. For years subsequent to acquisition, requires the *C entry. _____6. Uses the cash basis for income recognition. _____7. Investment account remains at initially recorded amount. _____8. Dividends received by the parent from the subsidiary reduce the parent's investment account. _____9. Often referred to in accounting as a single-line consolidation. _____10. Increases the investment account for subsidiary earnings, but does not decrease the subsidiary account for equity adjustments such as amortizations.

Under the equity method of accounting for an investment,

Push-down accounting is concerned with the

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?

Velway Corp. acquired Joker Inc. on January 1, 2010. The parent paid more than the fair value of the subsidiary's net assets. On that date, Velway had equipment with a book value of $500,000 and a fair value of $640,000. Joker had equipment with a book value of $400,000 and a fair value of $470,000. Joker decided to use push-down accounting. Immediately after the acquisition, what Equipment amount would appear on Joker's separate balance sheet and on Velway's consolidated balance sheet, respectively?

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?

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.