FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $480,000. Birch reported a $495,000 book value and the fair value of the noncontrolling interest was $120,000 on that date. Then, on January 1, 2017, Birch acquired 80 percent of Cedar Company for $168,000 when Cedar had a $165,000 book value and the 20 percent noncontrolling interest was valued at $42,000. 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.
| 2016 | 2017 | 2018 | ||||
| Sales: | ||||||
| Aspen Company | $ | 472,500 | $ | 645,000 | $ | 850,000 |
| Birch Company | 262,250 | 337,500 | 607,300 | |||
| Cedar Company | Not available | 233,800 | 251,600 | |||
| Expenses: | ||||||
| Aspen Company | $ | 397,500 | $ | 642,500 | $ | 690,000 |
| Birch Company | 205,000 | 267,000 | 520,000 | |||
| Cedar Company | Not available | 219,000 | 219,000 | |||
| Dividends declared: | ||||||
| Aspen Company | $ | 20,000 | $ | 35,000 | $ | 45,000 |
| Birch Company | 15,000 | 15,000 | 15,000 | |||
| Cedar Company | Not available | 3,000 | 8,000 | |||
Assume that each of the following questions is independent:
-
If all companies use the equity method for internal reporting purposes, what is the December 31, 2017, balance in Aspen's Investment in Birch Company account?
-
What is the consolidated net income for this business combination for 2018?
-
What is the net income attributable to the noncontrolling interest in 2018?
-
Assume that Birch made intra-entity inventory transfers to Aspen that have resulted in the following intra-entity gross profits in inventory at the end of each year:
| Date | Amount |
| 12/31/16 | $15,500 |
| 12/31/17 | 16,700 |
| 12/31/18 | 33,600 |
What is the accrual-based net income of Birch in 2017 and 2018, respectively?
Requirement D only
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A business combination is a transaction in which a buyer takes over control of another company (the acquiree). Business mergers and acquisitions are a useful approach for companies to expand their size rather than develop organically (internally).
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