Chapter 3, Problem 13P

Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,162,000 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,070,000 including retained earnings of $1,570,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,162,000 Mathias stockholders' equity 2,070,000 Excess fair over book value $ 4,092,000 to unpatented technology (8-year remaining life) $ 912,000 to patents (10-year remaining life) 2,640,000 to increase long-term debt (undervalued, 5-year remaining life) (170,000 ) 3,382,000 Goodwill $ 710,000 Postacquisition, Allison employs the equity method to account for its investment in…

On August 15, 2019, Orion Co. purchased 100,000 ordinary shares of Hercules Co. at P25 per share. Costs directly attributable to the purchase of the shares amounted to P100,000. At the end of the year, Hercules's shares had a fair value of P28 per share. At the end of 2020, Hercules's shares had a fair value of P27 per share. On August 15, 2021, Orion sold all of its shares in Hercules Co. at P29 per share, the fair value of Hercules's shares on this date. Prepare the journal entries in the books of Orion given the following independent assumptions: 1. SEPARATE JOURNAL ENTRIES for shares classified as Financial Asset at Fair Value through Profit or Loss (P/L) & Fair Value through Other Comprehensive Income (OCI

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2020, for $652,000 in cash. Annual excess amortization of $13,700 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $498,000, and Rambis reported a $232,000 balance. Herbert reported internal net income of $44,750 in 2020 and $58,350 in 2021 and declared $10,000 in dividends each year. Rambis reported net income of $23,300 in 2020 and $36,900 in 2021 and declared $5,000 in dividends each year.   a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary. If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2021?  What would be the amount of consolidated retained earnings on December 31, 2021, if the parent had applied either the initial value or partial equity method for internal accounting purposes? Equity method, initial value method and partial…

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2020, for $617,000 in cash. Annual excess amortization of $13,500 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $430,000, and Rambis reported a $228,000 balance. Herbert reported internal net income of $63,750 in 2020 and $75,850 in 2021 and declared $10,000 in dividends each year. Rambis reported net income of $22,600 in 2020 and $34,700 in 2021 and declared $5,000 in dividends each year.   a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary. If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2021?  What would be the amount of consolidated retained earnings on December 31, 2021, if the parent had applied either the initial value or partial equity method for internal accounting purposes? b. Under each of the following situations, what is…

Herbert, Inc., acquired all of Rambis Company's outstanding stock on January 1, 2020, for $589,000 in cash. Annual excess amortization of $16,700 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $473,000, and Rambis reported a $240,000 balance. Herbert reported internal net income of $46,500 in 2020 and $58,500 in 2021 and declared $10,000 in dividends each year. Rambis reported net income of $27,400 in 2020 and $39,400 in 2021 and declared $5,000 in dividends each year. a. Assume that Herbert's internal net income figures above do not include any income from the subsidiary. • If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2021? • What would be the amount of consolidated retained earnings on December 31, 2021, if the parent had applied either the initial value or partial equity method for internal accounting purposes? b. Under each of the following situations, what is…

On January 3, 2019, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc., in exchange for $6,815,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,527,500 including retained earnings of $1,727,500.   Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had fair values that differed from their values on Sea Cliff’s books as follows:   Asset Book Value Fair Value RemainingUseful Life Patented technology $ 152,500 $ 2,427,500 7 years Computer software $ 67,500 $ 1,867,500 12 years   Sea Cliff’s remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff…

Frappe Company is acquiring Frappuccino Corporation on January 1, 2020. The cumulative earnings of Frappuccino from 2015 to 2019 amounted to P7,200,000. On January 1, 2020, the assets and liabilities of Frappuccino at appraised values are P10,350,000 and P6,650,000, respectively. The normal return in Frappuccino 's industry is 20%. Goodwill is computed by capitalizing at 25% average earnings in excess of normal return based on appraised value of net assets.   What is the amount paid by Frappe in the acquisition of Frappuccino Corporation?

On January 3, 2019, Martin Company purchased for $500,000 cash a 10% interest in Renner Corp. The fair value of Martin's investment in Renner securities is as follows: December 31, 2019, $560,000, and December 31, 2020, $515,000. On January 2, 2021, Martin purchased an additional 30% of Renner's stock for $1,545,000 cash. During 2019, 2020, and 2021, the following occurred.   Renner Net Income Dividends Paid by Renner to Martin 2019 $350,000 $15,000 2020   450,000   20,000 2021   550,000   70,000 Instructions On the books of Martin Company, prepare all journal entries in 2019, 2020, and 2021 that relate to its investment in Renner Corp., reflecting the data above and a change from the fair value method to the equity method.

On May 1, 2021, Jazzie Co. agreed to sell the assets of its Mister Division to Shawna Inc. for $80 million. The sale was completed on December 31, 2021.  Jazzie’s year ends on December 31st.  The following additional facts pertain to the transaction: The Mister Division qualifies as a component of an entity as defined by GAAP. Mister's net assets totaled $48 million on Jazzie's books at the time of the sale. Mister incurred a pre-tax operating loss of $10 million in 2021. Jazzie’s income tax rate is 40%.   Suppose that the Mister Division's assets had not been sold by December 31, 2021, but were considered held for sale. Assume that the fair value of these assets at December 31 was $40 million. In their 2021 income statement, Jazzie Co. would report for discontinued operations: Group of answer choices a $6 million after tax loss. a $10 million after tax loss. a $10.8 million after tax loss. an $18 million after tax loss.