Question
On January 1, 2012, Aspen Company acquired 80 percent of Birch Companys outstanding voting stock for $396,000. Birch reported a $420,000 book value and the
On January 1, 2012, Aspen Company acquired 80 percent of Birch Companys outstanding voting stock for $396,000. Birch reported a $420,000 book value and the fair value of the noncontrolling interest was $99,000 on that date. Also, on January 1, 2013, Birch acquired 80 percent of Cedar Company for $188,000 when Cedar had a $181,000 book value and the 20 percent noncontrolling interest was valued at $47,000. In each acquisition, the subsidiarys 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. |
| 2012 | 2013 | 2014 | ||||
| Sales: | ||||||
| Aspen Company | $ 560,000 | $ | 790,000 | $ | 847,500 | |
| Birch Company | 219,750 | 299,250 | 582,000 | |||
| Cedar Company | Not available | 188,500 | 290,800 | |||
| Expenses: | ||||||
| Aspen Company | $ 525,000 | $ | 470,000 | $ | 657,500 | |
| Birch Company | 162,000 | 239,000 | 502,500 | |||
| Cedar Company | Not available | 177,000 | 241,000 | |||
| Dividends declared: | ||||||
| Aspen Company | $ 15,000 | $ | 35,000 | $ | 45,000 | |
| Birch Company | 15,000 | 18,000 | 18,000 | |||
| Cedar Company | Not available | 3,000 | 8,000 | |||
| 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, 2013, balance in Aspen's Investment in Birch Company account? |
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| b. | What is the consolidated net income for this business combination for 2014? |
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| c. | What is the net income attributable to the noncontrolling interest in 2014? |
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| 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 |
| 12/31/12 | $19,600 |
| 12/31/13 | 19,400 |
| 12/31/14 | 29,400 |
| What is the realized income of Birch in 2013 and 2014, respectively? |
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Financial Reporting and Analysis
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon
6th edition
9780077632182, 78025672, 77632184, 978-0078025679
