On January 1, 2019, Aspen Company acquired 80 percent of Birch Company's voting stock for $392,000. Birch reported a $355,000 book value, and the fair value of the noncontrolling interest was $98,000 on that date. Then, on January 1, 2020, Birch acquired 80 percent of Cedar Company for $228,000 when Cedar had a $204,000 book value and the 20 percent noncontrolling interest was valued at $57,000. In each acquisition, the subsidiary's excess acquisition-date fair over book value was assigned to a trade name with a 30-year remaining life. These companies report the following financial information. Investment income figures are not included. 201920202021Sales: Aspen Company$500,000$750,000$825,000Birch Company 251,500 343,250 627,900Cedar CompanyNot available 164,900 246,800Expenses: Aspen Company$465,000$567,500$632,500Birch Company 199,000 282,000 555,000Cedar CompanyNot available 152,000 205,000Dividends declared: Aspen Company$10,000$30,000$40,000Birch Company 15,000 20,000 20,000Cedar CompanyNot available 4,000 12,000 Assume that each of the following questions is independent: If all companies use the equity method for internal reporting purposes, what is the December 31, 2020, balance in Aspen's Investment in Birch Company account?What is the consolidated net income for this business combination for 2021?What is the net income attributable to the noncontrolling interest in 2021?Assume that Birch made intra-entity inventory transfers to Aspen that have resulted in the following intra-entity gross profits in inventory at the end of each year: DateAmount12/31/19$11,50012/31/2021,70012/31/2128,800 What is the accrual-based net income of Birch in 2020 and 2021, respectively? **Understanding Intra-Entity Transactions and Accrual-Based Net Income Calculation**In this exercise, we analyze Birch's intra-entity inventory transfers to Aspen, resulting in specific gross profits in inventory by year-end. The table below outlines these figures by date:| Date | Amount ||------------|---------|| 12/31/19 | $11,500 || 12/31/20 | $21,700 || 12/31/21 | $28,800 |**Task:**Determine Birch's accrual-based net income for 2020 and 2021.**Explanation:**Accrual-based accounting recognizes income when it is earned and expenses when they are incurred, regardless of when cash transactions occur. Here, gross profits from intra-entity inventory must be adjusted to calculate accurate net income for each year.The diagram below allows for data entry to compute the accrual-based net income for 2020 and 2021, respectively:| | 2020 | 2021 ||--------------------|-----------|-----------|| Accrual-based net income | [Input Box] | [Input Box] |Students are expected to analyze the ending inventory profits and apply the necessary adjustments to compute accurate net income figures using the accrual basis method. **Equity Method Accounting for Investments: A Case Study**In this exercise, we explore the application of the equity method for internal reporting purposes, specifically examining the scenario of Aspen's Investments in Birch Company. The exercise prompts users to determine critical financial figures related to the investment and overall business combination outcomes.**Questions:**a. **Investment in Birch at December 31, 2020**: If all companies use the equity method for internal reporting purposes, what is the balance in Aspen's Investment in Birch Company account as of December 31, 2020?b. **Consolidated Net Income for 2021**: What is the consolidated net income for this business combination for the year 2021?c. **Net Income Attributable to Noncontrolling Interest in 2021**: What is the net income attributable to the noncontrolling interest for the year 2021?**Data Table:**| Category | Amount ||------------------------------------------------------------|---------|| a. Investment in Birch at December 31, 2020 | || b. Consolidated net income | || c. Noncontrolling interests' share of the consolidated net income | |This exercise encourages a comprehensive understanding of equity method accounting, specifically focusing on how investment balances, consolidated net income, and noncontrolling interest shares are reported and calculated in financial statements. Users are expected to analyze and apply their knowledge practically to fill in the amounts based on provided data and assumptions.

Accrued income is cash that has been procured however still can't seem to be gotten. Common assets…

On January 1, 2019, Aspen Company acquired 80 percent of Birch Company's voting stock for $392,000. Birch reported a $355,000 book value, and the fair value of the noncontrolling interest was $98,000 on that date. Then, on January 1, 2020, Birch acquired 80 percent of Cedar Company for $228,000 when Cedar had a $204,000 book value and the 20 percent noncontrolling interest was valued at $57,000. In each acquisition, the subsidiary's excess acquisition-date fair over book value was assigned to a trade name with a 30-year remaining life. These companies report the following financial information. Investment income figures are not included. 2019 2020 2021 Sales: Aspen Company $ 500,000 $ 750,000 $ 825,000 Birch Company 251,500 343,250 627,900 Cedar Company Not available 164,900 246,800 Expenses: Aspen Company $ 465,000 $ 567,500 $ 632,500 Birch Company 199,000 282,000 555,000 Cedar Company Not available 152,000 205,000 Dividends declared: Aspen Company $ 10,000 $ 30,000 $ 40,000 Birch Company 15,000 20,000 20,000 Cedar Company Not available 4,000 12,000 Assume that each of the following questions is independent: If all companies use the equity method for internal reporting purposes, what is the December 31, 2020, balance in Aspen's Investment in Birch Company account? What is the consolidated net income for this business combination for 2021? What is the net income attributable to the noncontrolling interest in 2021? Assume that Birch made intra-entity inventory transfers to Aspen that have resulted in the following intra-entity gross profits in inventory at the end of each year: Date Amount 12/31/19 $11,500 12/31/20 21,700 12/31/21 28,800 What is the accrual-based net income of Birch in 2020 and 2021, respectively?

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...