acct450 ch3

Topics: Balance sheet, Generally Accepted Accounting Principles, Asset Pages: 230 (8784 words) Published: April 17, 2015
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Willkom Corporation bought 100 percent of Szabo, Inc., on January 1, 2011. On that date, Willkom’s equipment (10-year life) has a book value of $472,500 but a fair value of $629,500. Szabo has equipment (10-year life) with a book value of $283,000 but a fair value of $440,000. Willkom uses the equity method to record its investment in Szabo. On December 31, 2013, Willkom has equipment with a book value of $330,750 but a fair value of $530,250. Szabo has equipment with a book value of $198,100 but a fair value of $409,100. What is the consolidated balance for the Equipment account as of December 31, 2013?

rev: 10_01_2012

$685,850.

$528,850.

$939,350.

$638,750.

  Willkom’s equipment book value—12/31/13
$330,750  
  Szabo’s equipment book value—12/31/13
198,100  
  Original purchase price allocation to Szabo's equipment
 
  ($440,000 – $283,000)
157,000  
  Amortization of allocation
 
      ($157,000 ÷ 10 years for 3 years)
(47,100)  
 

  Consolidated equipment
$638,750  
 

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On January 1, 2011, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona, Inc. for $862,900 cash. At January 1, 2011, Sedona’s net assets had a total carrying amount of $622,500. Equipment (eight-year remaining life) was undervalued on Sedona’s financial records by $107,200. Any remaining excess fair over book value was attributed to a customer list developed by Sedona (four-year remaining life), but not recorded on its books. Phoenix applies the equity method to account for its investment in Sedona. Each year since the acquisition, Sedona has paid a $30,000 dividend. Sedona recorded income of $84,000 in 2011 and $102,500 in 2012.      Selected account balances from the two companies’ individual records were as follows:

 
  Phoenix
 Sedona
  2013 Revenues
$558,000  
$328,000  
  2013 Expenses
368,000  
255,000  
  2013 Income from Sedona
26,300  
 
  Retained earnings 12/31/13
316,000  
164,500  

What is consolidated net income for Phoenix and Sedona for 2013?

rev: 10_01_2012

$251,300


$216,300

$241,300

$190,000

 
 
 
  Phoenix revenues
$
558,000  
  Phoenix expenses
 
368,000  
 

  Net income before Sedona effect
 
190,000  
  Equity income from Sedona
 
26,300  
 

  Consolidated net income
$
216,300  
 

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Treadway Corporation acquires Hooker, Inc. The parent pays more for it than the fair value of the subsidiary’s net assets. On the acquisition date, Treadway has equipment with a book value of $479,000 and a fair value of $656,000. Hooker has equipment with a book value of $354,500 and a fair value of $426,000. Hooker is going to use push-down accounting. Immediately after the acquisition, what amounts in the Equipment account appear on Hooker’s separate balance sheet and on the consolidated balance sheet?

rev: 10_01_2012

$426,000 and $1,082,000.

$354,500 and $1,010,500.

$354,500 and $833,500.

$426,000 and $905,000.

The $71,500 excess acquisition-date fair value allocation to equipment is "pushed-down" to the subsidiary and increases its balance to $426,000. The consolidated balance is $905,000 ($479,000 plus $426,000)

4.

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2012, for $622,000 in cash. Annual excess amortization of $11,300 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $465,000, and Rambis reported a $211,000 balance. Herbert reported internal income of $43,500 in 2012 and $56,900 in 2013 and paid $10,000 in dividends each year. Rambis reported net income of $22,100 in 2012 and $35,500 in 2013 and paid $5,000 in dividends each year.

Assume that Herbert’s internal income figures above do not include any income from the subsidiary.

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