Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Chapter 3, Problem 11P
To determine
Introduction: The parent company must report consolidated net income after an acquisition. Determination of consolidated net income involves the first combination of separately recorded revenues and expenses of related companies, then adjustments are made to reflect amortization excess of consideration transferred to
The consolidated
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On January 1, 2019, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona Inc. for $668,000 cash. At January 1, 2019, Sedona’s net assets had a total carrying amount of $467,600. Equipment (eight-year remaining life) was undervalued on Sedona’s financial records by $90,400. 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 declared a $17,500 dividend. Sedona recorded net income of $93,500 in 2019 and $110,600 in 2020.
Selected account balances from the two companies’ individual records were as follows:
Phoenix
Sedona
2021 Revenues
$
578,000
$
362,000
2021 Expenses
375,000
270,000
2021 Income from Sedona
53,200
Retained earnings 12/31/21
317,200
215,600
On its December 31, 2021,…
Adams Corporation acquired 90 percent of the outstanding voting shares of Barstow, Inc., on December 31, 2019. Adams paid a total
of $603,000 in cash for these shares. The 10 percent noncontrolling interest shares traded on a daily basis at fair value of $67,000
both before and after Adams's acquisition. On December 31, 2019, Barstow had the following account balances:
Current assets
Land
Buildings (10-year remaining life)
Equipment (5-year remaining life)
Patents (10-year remaining life)
Notes payable (due in years)
Common stock
Retained earnings, 12/31/19
Debits
Current assets
Land
Buildings.
Equipment
Investment in Barstow, Inc.
Cost of goods sold
Depreciation expense
December 31, 2021, adjusted trial balances for the two companies follow:
Adams
Corporation
Interest expense
Dividends declared
Total debits
Credits
Notes payable
Common stock
Retained earnings, 1/1/21
Revenues
Investment income
Total credits
Book Value
$ 160,000
120,000
220,000
160,000
$
0
(200,000)
(180,000)
(280,000)…
Bassett Inc. acquired all of the outstanding common stock of Brinkman Corp. on January 1, 2019, for $422,000.
Equipment with a ten-year life was undervalued on Brinkman's financial records by $48,000. Brinkman also owned an
unrecorded customer list with an assessed fair value of $71,000 and an estimated remaining life of five years.
Brinkman earned reported net income of $185,000 in 2019 and $226,000 in 2020. Dividends of $75,000 were paid in
each of these two years. Selected account balances as of December 31, 2021, for the two companies follow.
Revenues
Expenses
Investment income
Retained earnings, 1/1/21
Dividends paid
Multiple Choice
$806,000.
$811,000.
If the equity method had been applied, what would be the Investment in Brinkman Corp. account balance within the
records of Bassett at the end of 2021?
$863,000.
$920,000.
Bassett
$1,120,000
$1,036,000.
500,000
Not given
850,000
132,000
Brinkman
$860,000
600,000
Ø
650,000
80,000
Chapter 3 Solutions
Advanced Accounting
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