ACC 4100 Chapter Notes - Chapter ch 4: Equity Method, Income Statement
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On January 1, 2016,Aspen Company acquired 80 percent of Birch Companyâs voting stockfor $288,000. Birch reported a $300,000 book value, and the fairvalue of the noncontrolling interest was $72,000 on that date.Then, on January 1, 2017, Birch acquired 80 percent of CedarCompany for $104,000 when Cedar had a $100,000 book value and the20 percent noncontrolling interest was valued at $26,000. In eachacquisition, the subsidiaryâs excess acquisition-date fair overbook value was assigned to a trade name with a 30-year remaininglife.
These companies report the following financial information.Investment income figures are not included.
2016 | 2017 | 2018 | |
Sales: | |||
Aspen Company | $415,000 | $545,000 | $688,000 |
Birch Company | 200,000 | 280,000 | 400,000 |
Cedar Company | Not available | 160,000 | 210,000 |
Expenses: | |||
Aspen Company | $310,000 | $420,000 | $510,000 |
Birch Company | 160,000 | 220,000 | 335,000 |
Cedar Company | Not available | 150,000 | 180,000 |
Dividends declared: | |||
Aspen Company | $ ?20,000 | $?40,000 | $?50,000 |
Birch Company | 10,000 | 20,000 | 20,000 |
Cedar Company | Not available | 2,000 | 10,000 |
Assume that each ofthe following questions is independent:
If allcompanies use the equity method for internal reporting purposes,what is the December 31, 2017, balance in Aspenâs Investment inBirch Company account?
What is theconsolidated net income for this business combination for2018?
What is thenet income attributable to the noncontrolling interest in2018?
Assume thatBirch made intra-entity inventory transfers to Aspen that haveresulted in the following intra-entity gross profits in inventoryat the end of each year:
Date | Amount |
12/31/16 | ?$10,000 |
12/31/17 | ?16,000 |
12/31/18 | ?25,000 |
What is theaccrual-based net income of Birch in 2017 and 2018,respectively?
Parson Company acquired an 80 percent interest in Syber Companyon January 1, 2017. Any portion of Syber's business fair value inexcess of its corresponding book value was assigned to trademarks.This intangible asset has subsequently undergone annualamortization based on a 15-year life. Over the past two years,regular intra-entity inventory sales transpired between the twocompanies. No payment has yet been made on the latest transfer. Alldividends are paid in the same period as declared.
The individual financial statements for the two companies aswell as consolidated totals for 2018 follow:
Parson Company | Syber Company | Consolidated Totals | |||||||||
Sales | $ | (900,000 | ) | $ | (700,000 | ) | $ | (1,460,000 | ) | ||
Cost of goods sold | 550,000 | 450,000 | 870,000 | ||||||||
Operating expenses | 120,000 | 130,000 | 253,000 | ||||||||
Income of Syber | (89,800 | ) | 0 | 0 | |||||||
Separate company net income | $ | (319,800 | ) | $ | (120,000 | ) | |||||
Consolidated net income | $ | (337,000 | ) | ||||||||
Net income attributable tononcontrolling interest | 17,200 | ||||||||||
Net income attributable toParson Company | $ | (319,800 | ) | ||||||||
Retained earnings, 1/1/18 | $ | (626,600 | ) | $ | (310,000 | ) | $ | (626,600 | ) | ||
Net income (above) | (319,800 | ) | (120,000 | ) | (319,800 | ) | |||||
Dividends declared | 80,000 | 40,000 | 80,000 | ||||||||
Retained earnings, 12/31/18 | $ | (866,400 | ) | $ | (390,000 | ) | $ | (866,400 | ) | ||
Cash and receivables | $ | 398,000 | $ | 90,000 | $ | 464,000 | |||||
Inventory | 200,000 | 180,000 | 365,500 | ||||||||
Investment in Syber Company | 398,400 | 0 | 0 | ||||||||
Land, buildings, andequipment | 400,000 | 290,000 | 690,000 | ||||||||
Trademarks | 0 | 0 | 32,500 | ||||||||
Total assets | $ | 1,396,400 | $ | 560,000 | $ | 1,552,000 | |||||
Liabilities | $ | (320,000 | ) | $ | (80,000 | ) | $ | (378,900 | ) | ||
Common stock | (170,000 | ) | (90,000 | ) | (170,000 | ) | |||||
Additional paid-in capital | (40,000 | ) | 0 | (40,000 | ) | ||||||
Noncontrolling interest inSyber | 0 | 0 | (96,700 | ) | |||||||
Retained earnings (above) | (866,400 | ) | (390,000 | ) | (866,400 | ) | |||||
Total liabilities andequities | $ | (1,396,400 | ) | $ | (560,000 | ) | $ | (1,552,000 | ) | ||
What method does Parson use to account for its investment inSyber?
What is the balance of the intra-entity inventory gross profitdeferred at the end of the current period?
What amount was originally allocated to the trademarks?
What is the amount of the current year intra-entity inventorysales?
Were the intra-entity inventory sales made upstream ordownstream?
What is the balance of the intra-entity liability at the end ofthe current year?
What amount of intra-entity gross profit was deferred from thepreceding period and recognized in the current period?
What was the ending Noncontrolling Interest in Syber Companycomputed?
With a tax rate of 40 percent, what income tax journal entry isrecorded if the companies prepare a consolidated tax return?
With a tax rate of 40 percent, what income tax journal entry isrecorded if these two companies prepare separate tax returns?
On January 1, 2012, Aspen Company acquired 80 percent of BirchCompanyâs outstanding voting stock for $386,000. Birch reported a$347,500 book value and the fair value of the noncontrollinginterest was $96,500 on that date. Also, on January 1, 2013, Birchacquired 80 percent of Cedar Company for $160,000 when Cedar had a$173,000 book value and the 20 percent noncontrolling interest wasvalued at $40,000. In each acquisition, the subsidiaryâs excessacquisition-date fair over book value was assigned to a trade namewith a 30-year life.
These companies report the following financial information.Investment income figures are not included.
2012 | 2013 | 2014 | ||||
Sales: | ||||||
Aspen Company | $ 462,500 | $ | 625,000 | $ | 900,000 | |
Birch Company | 227,250 | 390,750 | 594,400 | |||
Cedar Company | Not available | 212,600 | 222,200 | |||
Expenses: | ||||||
Aspen Company | $ 375,000 | $ | 530,000 | $ | 547,500 | |
Birch Company | 164,000 | 309,000 | 505,000 | |||
Cedar Company | Not available | 194,000 | 183,000 | |||
Dividends declared: | ||||||
Aspen Company | $ 18,000 | $ | 30,000 | $ | 40,000 | |
Birch Company | 8,000 | 20,000 | 20,000 | |||
Cedar Company | Not available | 4,000 | 12,000 |
Assume that each of the following questions is independent: |
a. | If all companiesuse the equity method for internal reporting purposes, what is theDecember 31, 2013, balance in Aspen's Investment in Birch Companyaccount? |
Investment in Birch____________
b. | What is theconsolidated net income for this business combination for2014? |
Consolidated net income_____________ |
c. | What is the netincome attributable to the noncontrolling interest in 2014? |
Noncontrolling interests share of the consolidated netincome__________
d. | Assume thatBirch made intra-entity inventory transfers to Aspen that haveresulted in the following unrealized gross profits at the end ofeach year: |
Date | Amount |
12/31/12 | $18,400 |
12/31/13 | 21,300 |
12/31/14 | 33,400 |
What is the realized income of Birch in 2013 and 2014,respectively? |
Realized income 2013 2014
_______ ________