Question
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $524,000. Birch reported a $520,000 book value and the fair
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $524,000. Birch reported a $520,000 book value and the fair value of the noncontrolling interest was $131,000 on that date. Then, on January 1, 2017, Birch acquired 80 percent of Cedar Company for $120,000 when Cedar had a $105,000 book value and the 20 percent noncontrolling interest was valued at $30,000. 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 | $ | 567,500 | $ | 640,000 | $ | 910,000 |
Birch Company | 269,250 | 324,750 | 565,200 | |||
Cedar Company | Not available | 206,100 | 264,400 | |||
Expenses: | ||||||
Aspen Company | $ | 502,500 | $ | 590,000 | $ | 682,500 |
Birch Company | 228,000 | 250,000 | 487,500 | |||
Cedar Company | Not available | 189,000 | 226,000 | |||
Dividends declared: | ||||||
Aspen Company | $ | 20,000 | $ | 40,000 | $ | 50,000 |
Birch Company | 5,000 | 20,000 | 20,000 | |||
Cedar Company | Not available | 2,000 | 10,000 | |||
Assume that each of the following questions is independent:
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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?
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What is the consolidated net income for this business combination for 2018?
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What is the net income attributable to the noncontrolling interest in 2018?
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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 | $11,500 |
12/31/17 | 24,200 |
12/31/18 | 33,200 |
What is the accrual-based net income of Birch in 2017 and 2018, respectively?
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