On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstan
ID: 2409842 • Letter: O
Question
On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for $504,000. Birch reported a $510,000 book value and the fair value of the noncontrolling interest was $126,000 on that date. Also, on January 1, 2013, Birch acquired 80 percent of Cedar Company for $160,000 when Cedar had a $164,000 book value and the 20 percent noncontrolling interest was valued at $40,000. In each acquisition, the subsidiary’s excess acquisition-date fair over book value was assigned to a trade name with a 30-year life. These companies report the following financial information. Investment income figures are not included. 2012 2013 2014 Sales: Aspen Company $ 515,000 $ 595,000 $ 740,000 Birch Company 285,000 398,750 631,000 Cedar Company Not available 249,800 258,800 Expenses: Aspen Company $ 397,500 $ 442,500 $ 530,000 Birch Company 237,000 315,000 557,500 Cedar Company Not available 233,000 216,000 Dividends declared: Aspen Company $ 20,000 $ 45,000 $ 55,000 Birch Company 10,000 15,000 15,000 Cedar Company Not available 2,000 6,000 a If all companies use the equity method for internal reporting purposes, what is the December 31, 2013, balance in Aspen's Investment in Birch Company account b What is the consolidated net income for this business combination for 2014? c What is the net income attributable to the noncontrolling interest in 2014? d Assume that Birch made intra-entity inventory transfers to Aspen that have resulted in the following unrealized gross profits at the end of each year: Date Amount 12/31/12 $11,100 12/31/13 20,700 12/31/14 28,400 What is the realized income of Birch in 2013 and 2014, respectively?
Explanation / Answer
1)
??Aspen - Consideration transferred
504,000
??Noncontrolling interest FV
126,000
??Birch's business FV
630,000
BV
-510,000
??Excess to trade name
120,000
??Life (in years)
30 years
Amortization annually
4,000
??
??Cedar (by Birch) Consideration transferred
160,000
??Noncontrolling interest FV
40,000
??Cedar’s business FV
200,000
BV
-164,000
??Excess to trade name
36,000
??Life (in years)
30 years
Amortization annually
1,200
??Investment in Birch
504,000
??Birch's reported net income-2012
48,000
??Amortization expense
-4,000
??Accrual-based net income
44,000
??Birch’s percentage ownership
80
??Equity accrual Yr -2012
35,200
??Dividends received Yr-2012
-8,000
?Net income -?Birch's reported Yr -2013
83,750
??Amortization expense
-4,000
??Net income from Cedar [80% * ($16,800 -?$1,200)]
12,480
??Accrual-based net income
92,230
??Birch’s % ownership
80%
??Equity accrual Yr-2013
73,784
??Dividends received from Birch Yr-2013
-12,000
??Investment in Birch 31st Dec
592,984
2)
Sales - Consolidated
1,629,800
Expenses - Consolidated
-1,303,500
Amortization expense total
-5,200
??Consolidated net income for 2014
321,100
?
3)
NCI in consolidated NI-??Cedar’s
??Revenues minus expenses
42,800
??Excess amortization
-1,200
??Income - Accrual-based
41,600
??Noncontrolling interest percentage
20%
NCI in consolidated NI-??Cedar’s
8,320 ??
NCI in consolidated NI- Birch’s
??Revenues minus expenses
73,500
??Excess amortization
-4,000
??Equity in Cedar income [(42,800 -1,200) * 80%]
33,280
??Realized income Yr-2014 Birch
102,780
??Ownership - Outside
20%
20,556???
??Total NCI share of 2014 consolidated net income
28,876???
?
4)
Year- 2013 Realized NI of Birch (prior to accounting for unrealized gross profit)
92,230
??Year- 2012 Transfer-GP recognized in Yr-2013
11,100
??Year- 2013 Transfer-GP to be recognized in Yr-2014
-20,700
??Year- 2013 Realized NI - ?Birch
82,630
??Year- 2014 Realized NI of Birch (prior to accounting?for unrealized gross profit)
102,780
??Year- 2013 Transfer-GP recognized in Yr-2014
20,700
??Year- 2014 Transfer-GP to be recognized in Yr-2015
-28,400
??Year- 2014 Birch-Realized NI
95,080?
??Aspen - Consideration transferred
504,000
??Noncontrolling interest FV
126,000
??Birch's business FV
630,000
BV
-510,000
??Excess to trade name
120,000
??Life (in years)
30 years
Amortization annually
4,000
??
??Cedar (by Birch) Consideration transferred
160,000
??Noncontrolling interest FV
40,000
??Cedar’s business FV
200,000
BV
-164,000
??Excess to trade name
36,000
??Life (in years)
30 years
Amortization annually
1,200
??Investment in Birch
504,000
??Birch's reported net income-2012
48,000
??Amortization expense
-4,000
??Accrual-based net income
44,000
??Birch’s percentage ownership
80
??Equity accrual Yr -2012
35,200
??Dividends received Yr-2012
-8,000
?Net income -?Birch's reported Yr -2013
83,750
??Amortization expense
-4,000
??Net income from Cedar [80% * ($16,800 -?$1,200)]
12,480
??Accrual-based net income
92,230
??Birch’s % ownership
80%
??Equity accrual Yr-2013
73,784
??Dividends received from Birch Yr-2013
-12,000
??Investment in Birch 31st Dec
592,984
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