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28 Oct 2018

AFS4-3

Various Acquisitions

During 2005, eBay acquired 100% of four different companies asfollows (assume all companies havea December 31 year-end). Netincome amounts are stated in thousands of dollars; assume that thenet

income is earned uniformly throughout the year 2005.

2005 Annual

Company Acquired on Net Income

Rent.com February 1, 2005 $12,000

International classified websites April 1, 2005 5,000

Shopping.com September 1, 2005 20,000

Skype October 14, 2005 120,000

Required:

A. How much of the income earned by each of these companies willbe recorded in consolidated

net income in the year of acquisition?

B. In addition to reported earnings for the year of acquisition,GAAP requires certain pro forma

earnings disclosures for the consolidated entity. What amount ofearnings from each of these acquisitions would be included inproforma earnings disclosures?

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29 Oct 2018

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On January 1, 2012, Aspen Company acquired 80 percent of BirchCompanyâs outstanding voting stock for $500,000. Birch reported a$490,000 book value and the fair value of the noncontrollinginterest was $125,000 on that date. Also, on January 1, 2013, Birchacquired 80 percent of Cedar Company for $224,000 when Cedar had a$253,000 book value and the 20 percent noncontrolling interest wasvalued at $56,000. In each acquisition, the subsidiaryâs excessacquisition-date fair over book value was assigned to a trade namewith a 30-year life. These companies report the following financialinformation. Investment income figures are not included.

	2012		2013		2014
Sales:
Aspen Company		$ 637,500	$	650,000	$	732,500
Birch Company		269,500		356,750		588,300
Cedar Company		Not available		193,300		295,200
Expenses:
Aspen Company		$ 402,500	$	645,000	$	577,500
Birch Company		215,000		286,000		510,000
Cedar Company		Not available		182,000		260,000
Dividends declared:
Aspen Company		$ 20,000	$	35,000	$	45,000
Birch Company		5,000		20,000		20,000
Cedar Company		Not available		3,000		8,000

Assume that eachof the following questions is independent:

If all companies use the equity method for internal reportingpurposes, what is the December 31, 2013, balance in Aspen'sInvestment in Birch Company account?

Investment in birch:

What is the consolidated net income for this businesscombination for 2014?

Consolidation net income:

What is the net income attributable to the noncontrollinginterest in 2014?

Noncontrolling interests' share of the consolidated netincome:

Assume that Birch made intra-entity inventory transfers to Aspenthat have resulted in the following unrealized gross profits at theend of each year:

Date	Amount
12/31/12	$13,000
12/31/13	23,300
12/31/14	30,200

What is the realized income of Birch in 2013 and 2014,respectively?

Realized income 2013:

Realized income 2014:

On January 1, 2014, McIIroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $372,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $220,000. Also, the acquisition date fair value of the 40 percent noncontrolling interest was $248,000. The subsidiary held patents (with a 10 year remaining life) that were undervalued within the company's accounting records by $70,000, and an unrecorded customer list (15 year remaining life) assessed at a $45,000 fair value. Any remaining excess acquistion date fair value was assigned to goodwill. Since acquistion, McIIroy has applied the equity method to its investment in Stinson account and no goodwill impairment has occurred. At year end, there are no intra-entity payables or receivables. Intra-entity inventory sales between the two companies have been made as follows:

Year Cost to McIIroy Transfer price to Stinson Ending Balance (at transfer price)

2014 $120,000 $150,000 $50,000

2015 $112,000 $160,000 $40,000

The individual financial statements for these two companies as of December 31, 2015 and the year then ended follow:

McIIroy, Inc. Stinson, Inc.

Sales $(700,000) $(335,000)

COGs 460,000 205,000

Operating expenses 188,000 70,000

Equity earnings in Stinson (28000) 0

Net income $(80,000) $(60,000)

Retained earnings 1/1/15 $(695,000) $(280,000)

Net income(above) (80,000) (60,000)

Dividends declared 45,000 15,000

Retained earnings 12-31-15 $(730,000) $(325,000)

Cash & receivables $248,000 $148,000

Inventory 233,000 129,000

Investment in Stinson 411,000 0

Buildings (net) 308,000 202,000

Equipment (net) 220,000 86,000

Patents (net) 0 20,000

Total assets $1,420,000 $585,000

Liabilities $(390,000) $(160,000)

Common Stock (300,000) (100,000)

Retained earnings 12-31-15 (730,000) (325,000)

Total liabilities & equities $(1,420,000) $(585,000)

a. Show how McIIroy determined the $411,000 investment in Stinson account balance. Assume that McIIroy defers 100 percent of downstream intra-entity profits against its share of Stinson's income (amounts to be deducted should be indicated with a minus sign.)

Consideration transferred _______________________________

Increase in Stinson's retained earnings 1/1/14 to 1/1/15______________________________

Excess fair value amortization _________________________________

2014 ending inventory profit deferral_____________________________

McIIroy's equity in earnings of Stinson for 2015_____________________

Stinson 2015 dividends declared to McIIroy________________________

Investment account balance 12/31/15_____________________________

b. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of Dec. 31, 2015.

Accounts McIIroy Stinson Debit Credit Non Controlling Interest Consolidation total

Sales $(700,000) $(335,000)

COGs 460,000 205,000

Operating exps 188,000 70,000

Equity in earnings of Stinson (28,000) 0

Seperate co. net income (80,000) (60,000)

Cons. net income

To NCI

To parent

Retained earnings 1/1 $(695,000) $(280,000)

Net income (80,000) (60,000)

Dividends declared 45,000 15,000

Retained earnings 12/31 (730,000) (325,000)

Cash & Rec's $248,000 $148,000

Inventory 233,000 129,000

Investment in Stinson 411,000 0

Bldgs (net) 308,000 202,000

Equip(net) 220,000 86,000

Patents(net) 0 20,000

Customer list

Goodwill

Total Assets $1,420,000 $585,000

Liabilities (390,000) (160,000)

Common Stock 300,000 100,000

NCI 1/1

NCI 12/31

Retained earnings 12/31 (730,000) (325,000)

Total Liabilities & equity $(1,420,000) $(585,000)

mauvelouse384

Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2014, for $408,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraftâs identifiable assets and liabilities at a collective net fair value of $535,000 and the fair value of the 20 percent noncontrolling interest was $102,000. No excess fair value over book value amortization accompanied the acquisition.

The following selected account balances are from the individual financial records of these two companies as of December 31, 2015:

	Protrade		Seacraft
Sales	$	650,000	$	370,000
Cost of goods sold		295,000		202,000
Operating expenses		151,000		106,000
Retained earnings, 1/1/15		750,000		190,000
Inventory		347,000		111,000
Buildings (net)		359,000		158,000
Investment income		Not given		0

Each of the following problems is an independent situation:

Assume that Protrade sells Seacraft inventory at a markup equal to 60 percent of cost. Intra-entity transfers were $91,000 in 2014 and $111,000 in 2015. Of this inventory, Seacraft retained and then sold $29,000 of the 2014 transfers in 2015 and held $43,000 of the 2015 transfers until 2016.
Determine balances for the following items that would appear on consolidated financial
statements for 2015:

cost of goods sold:

Inventory:

Net income attributable to noncontrolling interest:

Assume that Seacraft sells inventory to Protrade at a markup equal to 60 percent of cost. Intra-entity transfers were $51,000 in 2014 and $81,000 in 2015. Of this inventory, $22,000 of the 2014 transfers were retained and then sold by Protrade in 2015, whereas $36,000 of the 2015 transfers were held until 2016.
Determine balances for the following items that would appear on consolidated financial statements for 2015:

Cost of goods sold:

Inventory:

Net income attributable to noncontrolling interest:

Protrade sells Seacraft a building on January 1, 2014, for $82,000, although its book value was only $51,000 on this date. The building had a five-year remaining life and was to be depreciated using the straight-line method with no salvage value.

Determine balances for the following items that would appear on consolidated financial statements for 2015:

Buildings:

Operating expenses:

Net income attributable to noncontrolling interest: