Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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On January 1, 2020, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,274,000 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $1,540,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $270,000. On January 1, 2021, Palka acquired an additional 25 percent common stock equity interest in Sellinger Company for $512,500 in cash. On its internal records, Palka uses the equity method to account for its shares of Sellinger.
During the two years following the acquisition, Sellinger reported the following net income and dividends:
2020
2021
Net income
$
505,000
$
626,000
Dividends declared
170,000
200,000
Show Palka’s journal entry to record its January 1, 2021, acquisition of an additional…
On January 1, 2020, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,141,000 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $1,380,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $240,000. On January 1, 2021, Palka acquired an additional 25 percent common stock equity interest in Sellinger Company for $415,000 in cash. On its internal records, Palka uses the equity method to account for its shares of Sellinger.
During the two years following the acquisition, Sellinger reported the following net income and dividends:
2020
2021
Net income
$340,000
$440,000
Dividends declared
150,000
180,000
Show Palka’s journal entry to record its January 1, 2021, acquisition of an additional 25…
On January 1, 2020, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,222,900 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $1,470,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $267,000. On January 1, 2021, Palka acquired an additional 25 percent common stock equity interest in Sellinger Company for $467,500 in cash. On its internal records, Palka uses the equity method to account for its shares of Sellinger.
During the two years following the acquisition, Sellinger reported the following net income and dividends:
2020
2021
Net income
$
477,500
$
592,500
Dividends declared
150,000
190,000
Show Palka’s journal entry to record its January 1, 2021, acquisition of an additional 25…
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- On January 1, 2020, Erika Company (Erika) purchased 62% interest in Finn Limited (Finn) for $8,290,000, at which time Finn had retained earnings of $5,430,000 and share capital of $550,000. On the date of acquisition, the fair value of the assets and liabilities of Finn was equal to their book value, except for an intangible asset, which had a fair value of $1,120,000 and a book value of $960,000. The intangible asset would be useful for another 8 years. On January 1, 2021, Erika sold the equipment to Finn for $1,425,000. The equipment was purchase by Erika for $2,300,000 on January 1, 2016. At that time, the equipment was estimated to have a total of 10-year life with no salvage value. The estimate for the total useful life and the salvage value remained unchanged at the date of transfer. Finn reported net income of $455,000 in 2021. And Erika reported net income of $1,510,000 in 2021. Neither company declared dividends in 2021. The amount of consolidated net income attributable to…arrow_forwardOn January 1, 2023, French Company acquired 60 percent of K-Tech Company for $342,000 when K-Tech's book value was $442,000. The fair value of the newly comprised 40 percent noncontrolling interest was assessed at $228,000. At the acquisition date, K-Tech's trademark (10-year remaining life) was undervalued in its financial records by $80,000. Also, patented technology (5- year remaining life) was undervalued by $48,000. In 2023, K-Tech reports $8,000 net income and declares no dividends. At the end of 2024, the two companies report the following figures (stockholders' equity accounts have been omitted): Items Current assets Trademarks Patented technology Liabilities French Company Carrying Amounts $ 644,000 284,000 434,000 (414,000) K-Tech Company Carrying Amounts $ 324,000 224,000 174,000 K-Tech Company Fair Values $ 344,000 304,000 222,000 (144,000) Revenues Expenses Investment income (144,000) (924,000) (424,000) 476,000 324,000 Not given 0 Note: Parentheses indicate a credit…arrow_forwardOn January 3, 2021, Matteson Corporation acquired 40 percent of the outstanding common stock of O’Toole Company for $1,377,000. This acquisition gave Matteson the ability to exercise significant influence over the investee. The book value of the acquired shares was $909,000. Any excess cost over the underlying book value was assigned to a copyright that was undervalued on its balance sheet. This copyright has a remaining useful life of 10 years. For the year ended December 31, 2021, O’Toole reported net income of $261,000 and declared cash dividends of $50,000. On December 31, 2021, what should Matteson report as its investment in O’Toole under the equity methodarrow_forward
- Mighty Company purchased a 60 percent interest in Lowly Company on January 1, 2017, for $420,000 in cash. Lowly’s book value at that date was reported as $600,000 and the fair value of the noncontrolling interest was assessed at $280,000. Any excess acquisition-date fair value over Lowly’s book value is assigned to trademarks to be amortized over 20 years. Subsequently, on January 1, 2018, Lowly acquired a 20 percent interest in Mighty. The price of $240,000 was equivalent to 20 percent of Mighty’s book and fair value.Neither company has paid dividends since these acquisitions occurred. On January 1, 2018, Lowly’s book value was $800,000, a figure that rises to $840,000 (common stock of $300,000 and retained earnings of $540,000) by year-end. Mighty’s book value was $1.7 million at the beginning of 2018 and $1.8 million (common stock of $1 million and retained earnings of $800,000) at December 31, 2018. No intra-entity transactions have occurred and no additional stock has been sold.…arrow_forwardMighty Company purchased a 60 percent interest in Lowly Company on January 1, 2017, for $567,600 in cash. Lowly's book value at that date was reported as $760,000 and the fair value of the noncontrolling interest was assessed at $378,400. Any excess acquisition-date fair value over Lowly's book value is assigned to trademarks to be amortized over 20 years. Subsequently, on January 1, 2018, Lowly acquired a 20 percent interest in Mighty. The price of $440,000 was equivalent to 20 percent of Mighty's book and fair value. Neither company has paid dividends since these acquisitions occurred. On January 1, 2018, Lowly's book value was $992,000, a figure that rises to $1,054,500 (common stock of $300,000 and retained earnings of $754,500) by year-end. Mighty's book value was $2.20 million at the beginning of 2018 and $2.30 million (common stock of $1 million and retained earnings of $1,300,000) at December 31, 2018. No intra-entity transactions have occurred and no additional stock has been…arrow_forwardMighty Company purchased a 60 percent interest in Lowly Company on January 1, 2017, for $558,900 in cash. Lowly's book value at that date was reported as $817,500 and the fair value of the noncontrolling interest was assessed at $372,600. Any excess acquisition-date fair value over Lowly's book value is assigned to trademarks to be amortized over 20 years. Subsequently, on January 1, 2018, Lowly acquired a 20 percent interest in Mighty. The price of $362,000 was equivalent to 20 percent of Mighty's book and fair value. Neither company has paid dividends since these acquisitions occurred. On January 1, 2018, Lowly's book value was $1,060,500, a figure that rises to $1,105,750 (common stock of $300,000 and retained earnings of $805,750) by year-end. Mighty's book value was $1.81 million at the beginning of 2018 and $1.91 million (common stock of $1 million and retained earnings of $910,000) at December 31, 2018. No intra-entity transactions have occurred and no additional stock has been…arrow_forward
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