Promise Enterprises acquired 80 percent of Brown Corporationâs voting common stock on January 1, 20X3, for $376,000. At that date, the fair value of the noncontrolling interest of Brown Corporation was $94,000. Immediately after Promise acquired its ownership, Brown purchased 70 percent of Tann Companyâs stock for $185,500. The fair value of the noncontrolling interest of Tann Company was $79,500 at that date. During 20X3, Promise reported operating income of $270,000 and paid dividends of $90,000. Brown reported operating income of $160,000 and paid dividends of $50,000. Tann reported net income of $60,000 and paid dividends of $10,000. At January 1, 20X3, the stockholdersâ equity sections of the balance sheets of the companies were as follows:
Promise
Enterprises Brown
Corporation Tann
Company Common Stock $ 230,000 $ 210,000 $ 140,000 Additional Paid-In Capital 160,000 70,000 80,000 Retained Earnings 380,000 190,000 45,000 Total Stockholdersâ Equity $ 770,000 $ 470,000 $ 265,000
Required: a. Prepare the journal entries recorded by Brown for its investment in Tann during 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
b. Prepare the journal entries recorded by Promise for its investment in Brown during 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
c. Prepare the consolidation entries related to Brownâs investment in Tann and Promiseâs investment in Brown that are needed in preparing consolidated financial statements for Promise and its subsidiaries at December 31, 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
References
eBook & Resources
| Promise Enterprises acquired 80 percent of Brown Corporationâs voting common stock on January 1, 20X3, for $376,000. At that date, the fair value of the noncontrolling interest of Brown Corporation was $94,000. Immediately after Promise acquired its ownership, Brown purchased 70 percent of Tann Companyâs stock for $185,500. The fair value of the noncontrolling interest of Tann Company was $79,500 at that date. During 20X3, Promise reported operating income of $270,000 and paid dividends of $90,000. Brown reported operating income of $160,000 and paid dividends of $50,000. Tann reported net income of $60,000 and paid dividends of $10,000. At January 1, 20X3, the stockholdersâ equity sections of the balance sheets of the companies were as follows: |
| Promise Enterprises | Brown Corporation | Tann Company | ||||||||||
| Common Stock | $ | 230,000 | $ | 210,000 | $ | 140,000 | ||||||
| Additional Paid-In Capital | 160,000 | 70,000 | 80,000 | |||||||||
| Retained Earnings | 380,000 | 190,000 | 45,000 | |||||||||
| Total Stockholdersâ Equity | $ | 770,000 | $ | 470,000 | $ | 265,000 | ||||||
| Required: | |
| a. | Prepare the journal entries recorded by Brown for its investment in Tann during 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
| b. | Prepare the journal entries recorded by Promise for its investment in Brown during 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
| c. | Prepare the consolidation entries related to Brownâs investment in Tann and Promiseâs investment in Brown that are needed in preparing consolidated financial statements for Promise and its subsidiaries at December 31, 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
References
eBook & Resources
Related questions
On January 1, 2016,Aspen Company acquired 80 percent of Birch Companyâs voting stockfor $288,000. Birch reported a $300,000 book value, and the fairvalue of the noncontrolling interest was $72,000 on that date.Then, on January 1, 2017, Birch acquired 80 percent of CedarCompany for $104,000 when Cedar had a $100,000 book value and the20 percent noncontrolling interest was valued at $26,000. In eachacquisition, the subsidiaryâs excess acquisition-date fair overbook value was assigned to a trade name with a 30-year remaininglife.
These companies report the following financial information.Investment income figures are not included.
2016 | 2017 | 2018 | |
Sales: | |||
Aspen Company | $415,000 | $545,000 | $688,000 |
Birch Company | 200,000 | 280,000 | 400,000 |
Cedar Company | Not available | 160,000 | 210,000 |
Expenses: | |||
Aspen Company | $310,000 | $420,000 | $510,000 |
Birch Company | 160,000 | 220,000 | 335,000 |
Cedar Company | Not available | 150,000 | 180,000 |
Dividends declared: | |||
Aspen Company | $ ?20,000 | $?40,000 | $?50,000 |
Birch Company | 10,000 | 20,000 | 20,000 |
Cedar Company | Not available | 2,000 | 10,000 |
Assume that each ofthe following questions is independent:
If allcompanies use the equity method for internal reporting purposes,what is the December 31, 2017, balance in Aspenâs Investment inBirch Company account?
What is theconsolidated net income for this business combination for2018?
What is thenet income attributable to the noncontrolling interest in2018?
Assume thatBirch made intra-entity inventory transfers to Aspen that haveresulted in the following intra-entity gross profits in inventoryat the end of each year:
Date | Amount |
12/31/16 | ?$10,000 |
12/31/17 | ?16,000 |
12/31/18 | ?25,000 |
What is theaccrual-based net income of Birch in 2017 and 2018,respectively?
