On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $364,000. Birch reported a $320,000 book value and the fair value of the noncontrolling interest was $91,000 on that date. Then, on January 1, 2017, Birch acquired 80 percent of Cedar Company for $108,000 when Cedar had a $108,000 book value and the 20 percent noncontrolling interest was valued at $27,000. In each acquisition, the subsidiary's excess acquisition-date fair over book value was assigned to a trade name with a 30-year remaining life.
These companies report the following financial information. Investment income figures are not included.
Homework Answers
| a) | |||
| Consideration transferred (by Aspen) | $364,000 | ||
| Noncontrolling interest fair value | $91,000 | ||
| Birch’s business fair value | $455,000 | ||
| Book value | -$320,000 | ||
| Trade name | $135,000 | ||
| Life | 30 | years | |
| Annual amortization = $135,000/30 | $4,500 | ||
| Consideration transferred for Cedar (by Birch) | $108,000 | ||
| Noncontrolling interest fair value | $27,000 | ||
| Cedar’s business fair value | $135,000 | ||
| Book value | -$108,000 | ||
| Excess to trade name | $27,000 | ||
| Life | 30 | years | |
| Annual amortization = 27000/30 | $900 | ||
| Investment in Birch | $364,000 | ||
| Birch's reported income-2016 ($211,500 - $167,000) | $44,500 | ||
| Amortization expense | -$4,500 | ||
| Accrual-based income | $40,000 | ||
| Aspen’s percentage ownership | 80.00% | ||
| Equity accrual-2016 | $32,000 | ||
| Dividends received 2016 (-8000 x 80%) | -$6,400 | ||
| Birch's reported income-2017 (386000 - 315000) | $71,000 | ||
| Amortization expense | -$4,500 | ||
| Income from Cedar [80% x (263,700 -244,000 - 900] | $15,040 | ||
| Accrual-based income | $81,540 | ||
| Aspen’s percentage ownership | 80.00% | ||
| Equity accrual-2013 | $65,232 | ||
| Dividends received from Birch 2017 (18000 x 80%) | -$14,400 | ||
| Investment in Birch 12-31-17 | $440,432 | ||
| b) | |||
| Consolidated sales(total for the companies) | $1,754,800 | ||
| Consolidated expenses (total for the companies) | -$1,395,000 | ||
| Total amortization expense (see a.) | -$5,400 | ||
| Consolidated net income for 2018 | $354,400 | ||
| c) | |||
| Cedar’s NCI in consolidated net income | |||
| Revenues less expenses (240,000 - 210,000) | $30,000 | ||
| Excess amortization | -$900 | ||
| Accrual-based income | $29,100 | ||
| Noncontrolling interest percentage | x20% | ||
| Cedar’s NCI in consolidated net income | $5,820 | ||
| Birch's NCI in consolidated Net income | |||
| Revenues less expenses (622,300 - $550,000) | $72,300 | ||
| Excess amortization | -$4,500 | ||
| Equity in Cedar income [(30,000 – 900) × 80%] | $23,280 | ||
| Realized2014 income of Birch | $91,080 | ||
| Noncontrolling interest percentage | x20% | ||
| Birch’s NCI in consolidated net income | $18,216 | ||
| Total NCIshare of 2018 consolidated net income | $24,036 | ||
| d) | |||
| 2017 Realized income of Birch (prior to accounting for unrealized gross profit) (see a) | $81,540 | ||
| 2016 Transfer-gross profit recognized in 2017 | $13,500 | ||
| 2017 Transfer-gross profit to be recognized in 2018 | -$16,200 | ||
| 2017 Realized income - Birch | $78,840 | ||
| 2018 Realized income of Birch (prior to accounting for unrealized gross profit) (part c) | $91,080 | ||
| 2017 Transfer-gross profit recognized in 2018 | 16200 | ||
| 2018 Transfer-gross profit to be recognized in 2019 | -30400 | ||
| 2018 Realized income—Birch | $76,880 |
Add Answer to:
On January 1, 2016, Aspen Company acquired 80 percent of Birch
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