Chapter 3, Problem 3P

On June 30, 2021, Plaster, Inc., paid $988,000 for 80 percent of Stucco Company's outstanding stock. Plaster assessed the acquisition-date fair value of the 20 percent noncontrolling interest at $247,000. At acquisition date, Stucco reported the following book values for its assets and liabilities: Cash Accounts receivable Inventory Land Buildings Equipment Accounts payable (Parentheses indicate credit balances.) On June 30, Plaster allocated the excess acquisition-date fair value over book value to Stucco's assets as follows: $ 64,500 136,900 Equipment (3-year remaining life) Database (10-year remaining life) Cash Accounts receivable (net) Inventory Land Buildings (net) Equipment (net) Database 219, 200 70,400 189,400 324,300 (37,700) At the end of 2021, the following comparative (2020 and 2021) balance sheets and consolidated income statement were available: Plaster, Inc. December 31, 2020 Total assets Accounts payable Long-term liabilities Common stock Noncontrolling interest…

Following are selected account balances from Peregrine Company and Sprano Corporation as of December 31, 2021:        On January 1, 2021, Peregrine acquired all of Sprano’s outstanding stock for $680,000 fair value in cash and common stock. At the date of acquisition, copyrights (with a 6-year remaining life) were undervalued by $120,000 (i.e., market value was higher than book value). Peregrine applies the equity method to maintain the Investment in Sprano account. For the year ending December 31, 2021 determined the total Equity Income in Sprano reported in Peregrine’s book.

On January 4, 2021, Jonathan Company purchased 75% interest in Monica Corporation for P300,000. Monica’s recorded assets and liabilities as of acquisition are P400,000 and P120,000, respectively. Net asset of Monica is fairly valued except for inventory which is over-valued by P20,000 and machinery (5-year useful life) which is under-valued by P40,000. NCI is measured at fair value. For the year 2021, Jonathan reported net income of P150,000 and paid dividend of P80,000 while Monica reported net income of P40,000 and paid dividend of P20,000. The parent elects the “equity method” in accounting for its investment in subsidiary. The working paper elimination entry for 2021 will include:   a. Debit to dividend income, P15,000. b. Credit share in profit of the subsidiary, P30,000. c. Debit goodwill, P100,000 d. Credit depreciation expense, P8,000

On 1 July 2019, Brad Ltd acquired all assets and liabilities of Pitt Ltd. In exchange for these assets and liabilities, Brad Ltd issued 100,000 shares that at date of issue had a fair value of $5.20 per share. Costs of issuing these shares amounted to $1,000. Legal cost associated with the acquisition of Pitt Ltd amounted to $1,200.The assets and liabilities of Pitt Ltd at 1 July 2019 were as follows:Carrying Amount ($) Fair Value ($)AssetsCash 2,000 2,000Accounts receivable 10,000 10,000Inventory 64,000 68,000Equipment 320,000 232,000Accumulated depn - Equipment (96,000) -Patents 280,000 280,000LiabilitiesAccounts payable (16,000) (16,000)Debentures (64,000) (64,000)Required:a) Prepare the acquisition analysis at 1 July 2019 for the acquisition of Pitt Ltd by Brad Ltd.b) Prepare the journal entries in the records of Brad Ltd at 1 July 2019.

On July 1, 2020, Blue George Company purchased 25% interest of Pink Conrad for P150,000. Blue George incurred transaction cost equal to 5% on the transaction price. On October 1, 2020, Pink Conrad declared dividends of P80,000. At the end of 2020, Pink Conrad reported net income of P200,000. On January 1, 2021, the fair values of Pink Conrad's net assets were as follows:Current Assets - P100,000;Equipment - P150,000;Patent – P120,000;Land - P50,000;Buildings - P300,000; andLiabilities - P80,000. On January 1, 2021, Blue George Company purchased 50% interest of the Pink Conrad Company by issuing 100,000 shares of its P1 par value stock when the fair value of the stock was P6.20. Pink Conrad paid for the legal fees of P10,000 and securities SEC registration of P20,000 which was reimbursed by Blue George. The Patent of Pink Conrad refers to the technology purchased by Pink Conrad from Blue George years ago. Blue George had an outstanding unearned revenue related to the Patent amounting to…

On July 1, 2020, Blue George Company purchased 25% interest of Pink Conrad for P150,000. Blue George incurred transaction cost equal to 5% on the transaction price. On October 1, 2020, Pink Conrad declared dividends of P80,000. At the end of 2020, Pink Conrad reported net income of P200,000. On January 1, 2021, the fair values of Pink Conrad's net assets were as follows:Current Assets - P100,000;Equipment - P150,000;Patent – P120,000;Land - P50,000;Buildings - P300,000; andLiabilities - P80,000. On January 1, 2021, Blue George Company purchased 50% interest of the Pink Conrad Company by issuing 100,000 shares of its P1 par value stock when the fair value of the stock was P6.20. Pink Conrad paid for the legal fees of P10,000 and securities SEC registration of P20,000 which was reimbursed by Blue George. The Patent of Pink Conrad refers to the technology purchased by Pink Conrad from Blue George years ago. Blue George had an outstanding unearned revenue related to the Patent amounting to…

On June 30, 2020, Cape Company purchased 25% of the outstanding ordinary shares of Bit Co. at a total cost of P2,100,000.  The book value of Bit Co.’s net assets on acquisition date was P7,200,000.  For the following reasons, Cape was willing to pay more than book value for Bit Co. stock:   Bit Co. has depreciable assets with a current fair value of P180,000 more than their book value. These assets have a remaining useful life of 10 years. Bit co. owns a tract of land with a current fair value of P900,000 more than its carrying amount. All other identifiable tangible and intangible assets of Bit Co. have current fair values that are equal to their carrying amounts. Bit reported net income of P1,620,000, earned evenly during the current year ended December 31, 2020.  Also in the current year, it declared and paid cash dividends of P315,000 to its ordinary shareholders.    Market value of Bit Co.’s ordinary shares at December 31, 2020 is P9 million.  Cape Company’s financial year-end…

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 January 1, 2019, Field Company acquired 40% of North Company by purchasing 8,000 shares for $144,000 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 $50,000 and paid dividends of $0.80 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?