On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstan
ID: 2552605 • Letter: O
Question
On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for $452,000. Birch reported a $505,000 book value and the fair value of the noncontrolling interest was $113,000 on that date. Also, on January 1, 2013, Birch acquired 80 percent of Cedar Company for $112,000 when Cedar had a $104,000 book value and the 20 percent noncontrolling interest was valued at $28,000. 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.
What is the realized income of Birch in 2013 and 2014, respectively?
On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for $452,000. Birch reported a $505,000 book value and the fair value of the noncontrolling interest was $113,000 on that date. Also, on January 1, 2013, Birch acquired 80 percent of Cedar Company for $112,000 when Cedar had a $104,000 book value and the 20 percent noncontrolling interest was valued at $28,000. In each acquisition, the subsidiary’s excess acquisition-date fair over book value was assigned to a trade name with a 30-year life.
Explanation / Answer
a) Consideration transferred (by Aspen) $452,000 Noncontrolling interest fair value $113,000 Birch’s business fair value $565,000 Book value -$505,000 Trade name $60,000 Life 30 years Annual amortization = $60000/30 $2,000 Consideration transferred for Cedar (by Birch) $112,000 Noncontrolling interest fair value $28,000 Cedar’s business fair value $140,000 Book value -$104,000 Excess to trade name $36,000 Life 30 years Annual amortization = 36000/30 $1,200 Investment in Birch $452,000 Birch's reported income-2012 ($294500 - $241000) $53,500 Amortization expense -$2,000 Accrual-based income $51,500 Aspen’s percentage ownership 80.00% Equity accrual-2012 $41,200 Dividends received 2012 (-10000 x 80%) -$8,000 Birch's reported income-2013 ($368000-$305000) $63,000 Amortization expense -$2,000 Income from Cedar [80% x ($247,100 - $236,000)-$1200] $7,920 Accrual-based income $68,920 Aspen’s percentage ownership 80.00% Equity accrual-2013 $55,136 Dividends received from Birch 2013 (18000 x 80%) -$14,400 Investment in Birch 12-31-13 $525,936 b) Consolidated sales(total for the companies) $1,753,000 Consolidated expenses (total for the companies) -$1,248,500 Total amortization expense (see a.) -$3,200 Consolidated net income for 2014 $501,300 c) Cedar’s NCI in consolidated net income Revenues less expenses $42,400 Excess amortization -$1,200 Accrual-based income $41,200 Noncontrolling interest percentage x20% Cedar’s NCI in consolidated net income $8,240 Birch's NCI in consolidated Net income Revenues less expenses $84,600 Excess amortization -$2,000 Equity in Cedar income [(42,400 – 1,200) × 80%] $32,960 Realized2014 income of Birch $115,560 Noncontrolling interest percentage x20% Birch’s NCI in consolidated net income $23,112 Total NCIshare of 2014 consolidated net income $31,352 d) 2013 Realized income of Birch (prior to accounting for unrealized gross profit) (see a) $68,920 2012 Transfer-gross profit recognized in 2013 $19,700 2013 Transfer-gross profit to be recognized in 2014 -$20,300 2013 Realized income - Birch $68,320 2014 Realized income of Birch (prior to accounting for unrealized gross profit) (part c) $115,560 2013 Transfer-gross profit recognized in 2014 20300 2014 Transfer-gross profit to be recognized in 2015 -25600 2014 Realized income—Birch $110,260
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