On January 1, 2011, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for $288,000. Birch reported a $300,000 book value and the fair value of the noncontrolling interest was $72,000 on that date. Also, on January 1, 2012, Birch acquired 80 percent of Cedar Company for $104,000 when Cedar had a $100,000 book value and the 20 percent noncontrolling interest was valued at $26,000. 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.
| 2011 | 2012 | 2013 |
Sales: |
|
|
|
Aspen Company
| $415,000 | $545,000 | $688,000 |
Birch Company | 200,000 | 280,000 | 400,000 |
Cedar Company | Not available | 160,000 | 210,000 |
Expenses: |
|
|
|
Aspen Company
| $310,000 | $420,000 | $510,000 |
Birch Company
| 160,000 | 220,000 | 335,000 |
Cedar Company | Not available | 150,000 | 180,000 |
Dividends paid: |
|
|
|
Aspen Company | $ 20,000 | $ 40,000 | $ 50,000 |
Birch Company | 10,000 | 20,000 | 20,000 |
Cedar Company | Not available
| 2,000 | 10,000 |
Assume that each of the following questions is independent:
a. If all companies use the equity method for internal reporting purposes, what is the December 31,2012, balance in Aspen’s Investment in Birch Company account?
b. What is the consolidated net income for this business combination for 2013?
c. What is the noncontrolling interests’ share of the consolidated net income in 2013?
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 |
12/31/11 | $10,000 |
12/31/12 | 16,000 |
12/31/13 | 25,000 |
What is the realized income of Birch in 2012 and 2013, respectively?
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