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 non-controlling 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 non-controlling 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.

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 non-controlling 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?

Transcribed Image Text:

2011 2012 2013 Sales: $545,000 280,000 160,000 $688,000 400,000 210,000 Cedar Company .. . . . . . _ . . . . . . . . Not available Expenses: $420,000 220,000 150,000 510,000 335,000 180,000 Dividends paid 2 $ 40,000 20,000 50,000 20,000 10,000 10,000 2,000