On January 1, 2019, Aspen Company acquired 80 percent of Birch Company's voting stock for $500,000. Birch reported a $490,000 book value, and the fair value of the noncontrolling interest was $125,000 on that date. Then, on January 1, 2020, Birch acquired 80 percent of Cedar Company for $224,000 when Cedar had a $253,000 book value and the 20 percent noncontrolling interest was valued at $56,000. 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 Birch Company 269,500 Not available $ 637,500 $ 650,000 $732,500 356,750 193,300 588,300 295,200 Cedar Company Expenses: Aspen Company Birch Company $ 402,500 $ 645,000 $577,500 286,000 182,000 215,000 510,000 260,000 Cedar Company Dividends declared: Not available Aspen Company Birch Company Cedar Company 5,000 Not available $ 20,000 $ 35,000 $ 45,000 20,000 3,000 20,000 8,000 Assume that each of the following questions is independent: a. 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? b. What is the consolidated net income for this business combination for 2021? c. What is the net income attributable to the noncontrolling interest in 2021? d. 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 $13,000 12/31/20 12/31/21 23,300 30,200 What is the accrual-based net income of Birch in 2020 and 2021, respectively?
On January 1, 2019, Aspen Company acquired 80 percent of Birch Company's voting stock for $500,000. Birch reported a $490,000 book value, and the fair value of the noncontrolling interest was $125,000 on that date. Then, on January 1, 2020, Birch acquired 80 percent of Cedar Company for $224,000 when Cedar had a $253,000 book value and the 20 percent noncontrolling interest was valued at $56,000. 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 Birch Company 269,500 Not available $ 637,500 $ 650,000 $732,500 356,750 193,300 588,300 295,200 Cedar Company Expenses: Aspen Company Birch Company $ 402,500 $ 645,000 $577,500 286,000 182,000 215,000 510,000 260,000 Cedar Company Dividends declared: Not available Aspen Company Birch Company Cedar Company 5,000 Not available $ 20,000 $ 35,000 $ 45,000 20,000 3,000 20,000 8,000 Assume that each of the following questions is independent: a. 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? b. What is the consolidated net income for this business combination for 2021? c. What is the net income attributable to the noncontrolling interest in 2021? d. 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 $13,000 12/31/20 12/31/21 23,300 30,200 What is the accrual-based net income of Birch in 2020 and 2021, respectively?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2019, Aspen Company acquired 80 percent of Birch Company's voting stock for $500,000. Birch
reported a $490,000 book value, and the fair value of the noncontrolling interest was $125,000 on that date. Then,
on January 1, 2020, Birch acquired 80 percent of Cedar Company for $224,000 when Cedar had a $253,000 book
value and the 20 percent noncontrolling interest was valued at $56,000. 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
Birch Company
$ 637,500 $ 650,000 $732,500
356,750
193,300
588,300
295,200
269,500
Cedar Company
Not available
Expenses:
Aspen Company
Birch Company
Cedar Company
$ 402,500 $ 645,000 $ 577,500
286,000
182,000
215,000
510,000
260,000
Not available
Dividends declared:
Aspen Company
Birch Company
Cedar Company
$20,000 $ 35,000 $ 45,000
20,000
3,000
5,000
20,000
8,000
Not available
Assume that each of the following questions is independent:
a. 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?
b. What is the consolidated net income for this business combination for 2021?
c. What is the net income attributable to the noncontrolling interest in 2021?
d. 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 $13,000
23,300
30,200
12/31/20
12/31/21
What is the accrual-based net income of Birch in 2020 and 2021, respectively?
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