Question
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $352,000. Birch reported a $380,000 book value and the fair
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $352,000. Birch reported a $380,000 book value and the fair value of the noncontrolling interest was $88,000 on that date. Then, on January 1, 2017, Birch acquired 80 percent of Cedar Company for $128,000 when Cedar had a $106,000 book value and the 20 percent noncontrolling interest was valued at $32,000. 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 | $ | 512,500 | $ | 557,500 | $ | 827,500 |
Birch Company |
| 239,000 |
| 360,750 |
| 523,200 |
Cedar Company | Not available |
| 235,200 |
| 310,200 | |
Expenses: |
|
|
|
|
|
|
Aspen Company | $ | 400,000 | $ | 437,500 | $ | 522,500 |
Birch Company |
| 177,000 |
| 286,000 |
| 435,000 |
Cedar Company | Not available |
| 216,000 |
| 267,000 | |
Dividends declared: |
|
|
|
|
|
|
Aspen Company | $ | 18,000 | $ | 45,000 | $ | 55,000 |
Birch Company |
| 8,000 |
| 20,000 |
| 20,000 |
Cedar Company | Not available |
| 2,000 |
| 6,000 | |
Assume that each of the following questions is independent:
- 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?
- What is the consolidated net income for this business combination for 2018?
- What is the net income attributable to the noncontrolling interest in 2018?
- 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 | $13,800 |
12/31/17 | 19,100 |
12/31/18 | 29,100 |
What is the accrual-based net income of Birch in 2017 and 2018, respectively?
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