Nascent, Inc., acquires 60 percent of Sea-Breeze Corporation for $414,000 cash on January 1, 2009. The remaining 40 percent of the Sea-Breeze shares traded near a total value of $276,000 both before and after the acquisition date. On January 1, 2009, Sea-Breeze had the following assets and liabilities:
| Book Value | Fair Value |
Current assets | $150,000 | $150,000 |
Land | 200,000 | 200,000 |
Buildings (net) (6-year life) | 300,000 | 360,000 |
Equipment (net) (4-year life) | 300,000 | 280,000 |
Patent (10-year life) | –0– | 100,000 |
Liabilities | (400,000) | (400,000) |
The companies’ financial statements for the year ending December 31, 2012, follow:
| Nascent | Sea-Breeze |
Revenues | $ (600,000) | $ (300,000) |
Operating expenses | 410,000 | 210,000 |
Investment income | (42,000) | –0– |
Net income | $ (232,000) | $ (90,000) |
Retained earnings, 1/1/12 | $ (700,000) | $ (300,000) |
Net income | (232,000) | (90,000) |
Dividends paid | 92,000 | 70,000 |
Retained earnings, 12/31/12 | $ (840,000) | $ (320,000) |
Current assets | $ 330,000 | $ 100,000 |
Land | 220,000 | 200,000 |
Buildings (net) | 700,000 | 200,000 |
Equipment (net) | 400,000 | 500,000 |
Investment in Sea-Breeze | 414,000 | -0- |
Total assets | $ 2,064,000 | $ 1,000,000 |
Liabilities | $ (500,000) | $ (200,000) |
Common stock | (724,000) | (480,000) |
Retained earnings, 12/31/12 | (840,000) | (320,000) |
Total liabilities and equities | $(2,064,000) | $(1,000,000) |
Answer the following questions:
a. How can the accountant determine that the parent has applied the initial value method?
b. What is the annual excess amortization initially recognized in connection with this acquisition?
c. If the parent had applied the equity method, what investment income would the parent have recorded in 2012?
d. What is the parent’s portion of consolidated retained earnings as of January 1, 2012?
e. What is consolidated net income for 2012 and what amounts are attributable to the controlling and noncontrolling interests?
f. Within consolidated statements at January 1, 2009, what balance is included for the subsidiary’s Buildings account?
g. What is the consolidated Buildings reported balance as of December 31, 2012?
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