Question
On January 1, 2019, Aspen Company acquired 80 percent of Birch Company's voting stock for $482,000. Birch reported a $542,500 book value, and the fair
On January 1, 2019, Aspen Company acquired 80 percent of Birch Company's voting stock for $482,000. Birch reported a $542,500 book value, and the fair value of the noncontrolling interest was $120,500 on that date. Then, on January 1, 2020, Birch acquired 80 percent of Cedar Company for $144,000 when Cedar had a $150,000 book value and the 20 percent noncontrolling interest was valued at $36,000. 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.
2019 | 2020 | 2021 | ||||
Sales: | ||||||
Aspen Company | $ | 595,000 | $ | 767,500 | $ | 907,500 |
Birch Company | 285,250 | 290,250 | 551,800 | |||
Cedar Company | Not available | 172,500 | 276,200 | |||
Expenses: | ||||||
Aspen Company | $ | 475,000 | $ | 452,500 | $ | 547,500 |
Birch Company | 230,000 | 230,000 | 482,500 | |||
Cedar Company | Not available | 157,000 | 228,000 | |||
Dividends declared: | ||||||
Aspen Company | $ | 20,000 | $ | 30,000 | $ | 40,000 |
Birch Company | 15,000 | 18,000 | 18,000 | |||
Cedar Company | Not available | 4,000 | 12,000 | |||
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, 2020, balance in Aspen's Investment in Birch Company account?
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What is the consolidated net income for this business combination for 2021?
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What is the net income attributable to the noncontrolling interest in 2021?
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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 |
12/31/19 | $16,000 |
12/31/20 | 23,200 |
12/31/21 | 25,600 |
What is the accrual-based net income of Birch in 2020 and 2021, respectively?
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