Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Chapter 3, Problem 11P
To determine
Introduction: The parent company must report consolidated net income after an acquisition. Determination of consolidated net income involves the first combination of separately recorded revenues and expenses of related companies, then adjustments are made to reflect amortization excess of consideration transferred to
The consolidated
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On January 1, 2019, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona Inc. for $668,000 cash. At January 1, 2019, Sedona’s net assets had a total carrying amount of $467,600. Equipment (eight-year remaining life) was undervalued on Sedona’s financial records by $90,400. Any remaining excess fair over book value was attributed to a customer list developed by Sedona (four-year remaining life), but not recorded on its books. Phoenix applies the equity method to account for its investment in Sedona. Each year since the acquisition, Sedona has declared a $17,500 dividend. Sedona recorded net income of $93,500 in 2019 and $110,600 in 2020.
Selected account balances from the two companies’ individual records were as follows:
Phoenix
Sedona
2021 Revenues
$
578,000
$
362,000
2021 Expenses
375,000
270,000
2021 Income from Sedona
53,200
Retained earnings 12/31/21
317,200
215,600
On its December 31, 2021,…
On January 1, 2019, Pride Corporation purchased 90 percent of the outstanding voting
shares of Star, Inc., for $657,000 cash. The acquisition-date fair value of the
noncontrolling interest was $73,000. At January 1, 2019, Star's net assets had a total
carrying amount of $512,000. Equipment (eight-year remaining life) was undervalued on
Star's financial records by $49,600. Any remaining excess fair value over book value was
attributed to a customer list developed by Star (four-year remaining life), but not
recorded on its books. Star recorded net income of $43,400 in 2019 and $49,600 in
2020. Each year since the acquisition, Star has declared a $12,400 dividend. At January
1, 2021, Pride's retained earnings show a $155,000 balance.
Selected account balances for the two companies from their separate operations were
as follows:
Pride
2021 Revenues $ 308,800
2021 Expenses 217,000
What is consolidated net income for 2021?
Multiple Choice
$147,600.
O $119,900.
$99,300.
Star
$ 176,700
120,900…
On April 30, 2019, Winona Company purchased for cash 18,000 of the 60,000 voting shares of Chico Company for P650,000. The amount exceeded the underlying equity acquired in the net assets of Chico Company by P150,000. The excess is attributable to undervaluation of Chico Company’s land and equipment by P250,000 and P100,000, respectively. On April 30, 2019, the equipment had a remaining useful life of 5 years. The remaining excess was attributable to goodwill. During the year 2019, Chico Company reported profit of P600,000, of which P120,000 was earned during January through April. Chico Company declared and distributed a dividend of P4.00 per share on June 30, 2019. Market price of Chico Company shares on December 31, 2019, is P40 per share. How much goodwill to be recorded by Chico?
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- Adams Corporation acquired 90 percent of the outstanding voting shares of Barstow, Inc., on December 31, 2019. Adams paid a total of $603,000 in cash for these shares. The 10 percent noncontrolling interest shares traded on a daily basis at fair value of $67,000 both before and after Adams's acquisition. On December 31, 2019, Barstow had the following account balances: Current assets Land Buildings (10-year remaining life) Equipment (5-year remaining life) Patents (10-year remaining life) Notes payable (due in years) Common stock Retained earnings, 12/31/19 Debits Current assets Land Buildings. Equipment Investment in Barstow, Inc. Cost of goods sold Depreciation expense December 31, 2021, adjusted trial balances for the two companies follow: Adams Corporation Interest expense Dividends declared Total debits Credits Notes payable Common stock Retained earnings, 1/1/21 Revenues Investment income Total credits Book Value $ 160,000 120,000 220,000 160,000 $ 0 (200,000) (180,000) (280,000)…arrow_forwardBassett Inc. acquired all of the outstanding common stock of Brinkman Corp. on January 1, 2019, for $422,000. Equipment with a ten-year life was undervalued on Brinkman's financial records by $48,000. Brinkman also owned an unrecorded customer list with an assessed fair value of $71,000 and an estimated remaining life of five years. Brinkman earned reported net income of $185,000 in 2019 and $226,000 in 2020. Dividends of $75,000 were paid in each of these two years. Selected account balances as of December 31, 2021, for the two companies follow. Revenues Expenses Investment income Retained earnings, 1/1/21 Dividends paid Multiple Choice $806,000. $811,000. If the equity method had been applied, what would be the Investment in Brinkman Corp. account balance within the records of Bassett at the end of 2021? $863,000. $920,000. Bassett $1,120,000 $1,036,000. 500,000 Not given 850,000 132,000 Brinkman $860,000 600,000 Ø 650,000 80,000arrow_forwardiarrow_forward
- On January 1, 2019, Field Company acquired 40% of North Company by purchasing 10,000 shares for $180,000 and obtained significant influence. On the date of acquisition, Field calculated that its share of the excess of the fair value over the book value of North’s depreciable assets was $15,000 and that the purchased goodwill was $12,000. At the end of 2019, North reported net income of $45,000 and paid dividends of $0.60 per share. Field depreciates its depreciable assets over a 12-year remaining life. Required: 1. Prepare all the journal entries of Field to record the preceding information for 2019. 2. Next Level What is the conceptual justification for the use of the equity method? {Chart of Accounts} {General Journal} The conceptual justification for the use of the equity method is: a. It recognizes that fair value is not an appropriate valuation method for the investment because the investor could influence the amount of income it recognizes. b. It recognizes…arrow_forwardOn January 2, 2019, Upo Co. purchased 75% of the outstanding shares of Napa Co. resulting to a goodwill of P60,000. On that date, the non-cash assets of Napa Co. whose book values did not equal their book values were accounts receivable which was overstated by P4,500 and equipment with a remaining 5 year life on the purchase date which was understated by P50,000. For the year 2010, Upo and Napa reported net income of P350,000 and P200,000 each respectively. Upo’s beginning inventory included merchandise purchased from Napa Company amounting to P39,000 which was sold to them by Napa at a 30% markup, 80% of these goods were sold during the year. Napa, on the other hand, included inventory items which they purchased from Upo Co. amounting to 18,000. These goods were sold by Upo at a 25% markup. 90% of these goods were sold by Napa for the year.What is the Noncontrolling interest's share in the Net income of the subsidiary?arrow_forwardOn January 2, 2019, Upo Co. purchased 75% of the outstanding shares of Napa Co. resulting to a goodwill of P60,000. On that date, the non-cash assets of Napa Co. whose book values did not equal their book values were accounts receivable which was overstated by P4,500 and equipment with a remaining 5 year life on the purchase date which was understated by P50,000. For the year 2010, Upo and Napa reported net income of P350,000 and P200,000 each respectively. Upo’s beginning inventory included merchandise purchased from Napa Company amounting to P39,000 which was sold to them by Napa at a 30% markup, 80% of these goods were sold during the year. Napa, on the other hand, included inventory items which they purchased from Upo Co. amounting to 18,000. These goods were sold by Upo at a 25% markup. 90% of these goods were sold by Napa for the year.Compute for the total realized gross profit (from upstream and downstream sales)arrow_forward
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