Question

LO 42,496 27. Parker, Inc., acquires 70 percent of Sawyer Company for $420,000. The remaining 30 percent of Sawyer's outstanding shares continue to trade at a collective value of $174,000. On the acquisition dato, Sawyer has the following accounts: Book Fair Value Value Current assets $210,000 $210,000 Land 170,000 180,000 Buildings 300,000 330,000 Liabilities (280,000) (280,000) The buildings have a 10-year remaining life. In addition, Sawyer holds a patent worth $140,000 that has a five-year remaining life but is not recorded on its financial records. At the end of the year, the two companies report the following balances: Parker Sawyer Revenues ${900.000) 5(600,000) Expenses 600,000 400.000 a Assume that the acquisition took place on January 1. What figures would appear in a consolidated income statement for this year? b. Assume that the acquisition took place on April 1. Sawyer's revenues and expenses occurred uniformly throughout the year. What amounts would appear in a consolidated income statement for this year?

unsure if i completed correctly

Answer 1

SOLUTION: a. $594,000 Acquisition-date total fair value Book value of net assets...... Fair value in excess of book value Excess fair value assigned to (400,000) $194,000 Annual Excess Life Amortizations Patent 140,000 5 years $28,000 Land 10,000 30,000 10 years 3,000 Buildings Goodwill 14,000 Total -0- $31,000

Consolidated figures following January 1 acquisition date: Combined revenues Combined expenses. Consolidated net income... NCI in Sawyer's income ([200,000 – 31,000] 30%).. Controlling interest in consolidated net income $1,500,000 (1,031,000) 469,000 (50,700) $418,300 $1,350,000 (923,250) b. Consolidated figures following April 1 acquisition date: Combined revenues (1).. Combined expenses (2).. Consolidated net income Noncontrolling interest in subsidiary income (3)... Controlling interest in consolidated net income $426,750 (38,025) $388,725 1. $900,000 Parker revenues plus $450,000 of post-acquisition Sawyer revenues 2. $600,000 Parker expenses plus $300,000 of post-acquisition Sawyer expenses plus $23,250 amortization expenses for 9 months 3. ($200,000 – 31,000) adjusted subsidiary income < 30% * 34 year