Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Question
Chapter 3, Problem 12P
To determine
Introduction: A 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 amount P should report for S’s customer list on its December 31, 2021, 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,…
On April 30, 2019, Winona Company purchased for cash 18,000 of the 60,000 voting shares of Chico Company for P650,000. The amount exceeded the underlying equity acquired in the net assets of Chico Company by P150,000. The excess is attributable to undervaluation of Chico Company’s land and equipment by P250,000 and P100,000, respectively. On April 30, 2019, the equipment had a remaining useful life of 5 years. The remaining excess was attributable to goodwill. During the year 2019, Chico Company reported profit of P600,000, of which P120,000 was earned during January through April. Chico Company declared and distributed a dividend of P4.00 per share on June 30, 2019. Market price of Chico Company shares on December 31, 2019, is P40 per share. How much goodwill to be recorded by Chico?
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)…
Chapter 3 Solutions
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