On January 1, Year 4, Place Inc. acquired an 80 percent interest in Setting Co. for $800,000 cash. At that time, Setting's assets and liabilities had carrying amounts equal to fair values, except for the following: Inventory Planet and equipment Bonds payable Undervalued by $75,000 Undervalued by $50,000 Overvalued by $40,000 Turns over 6 times a year Remaining useful life: 10 years Maturity date: December 31, Year 8 The premium/discount on bonds payable is amortized on a straight-line basis. At January 1, Year 4, Setting had 100,000 common shares outstanding with a carrying amount of $550,000 and retained earnings of $50,000. The abbreviated financial statements of Place and Setting on December 31, Year 6, are as follows: STATEMENTS OF FINANCIAL POSITION Place Setting Plant and equipment (net) $1,250,000 $1,555,000 Investment in Setting 800,000 Current assets 950,000 800,000 $3,000,000 $2,355,000 Common shares $1,000,000 $ 550,000 Retained earnings 1,500,000 725,000 10% bonds payable 800,000 Current liabilities 500,000 280,000 $3,000,000 $2,355,000 COMBINED INCOME AND RETAINED EARNINGS STATEMENTS Place Setting Sales $2,500,000 $900,000 Cost of goods sold 1,200,000 330,000 Expenses 400,000 220,000 1,600,000 550,000 Net operating income 900,000 350,000 Dividends received from Setting 100,000 Profit 1,000,000 350,000 Retained earnings, Jan. 1, Year 6 800,000 500,000 1,800,000 850,000 Dividends declared and paid 300,000 125,000 Retained earnings, Dec. 31, Year 6 $1,500,000 $725,000 How many years' worth of acquisition differential (fair value increment) amortizations must be used to calculate consolidated retained earnings at January 1, Year 6, from Place's cost-basis accounting records? Multiple Choice 3 On January 1, Year 4, Place Inc. acquired an 80 percent interest in Setting Co. for $800,000 cash. At that time, Setting's assets and liabilities had carrying amounts equal to fair values, except for the following: Inventory Planet and equipment Bonds payable Undervalued by $75,000 Undervalued by $50,000 Overvalued by $40,000 Turns over 6 times a year Remaining useful life: 10 years Maturity date: December 31, Year 8 The premium/discount on bonds payable is amortized on a straight-line basis. At January 1, Year 4, Setting had 100,000 common shares outstanding with a carrying amount of $550,000 and retained earnings of $50,000. The abbreviated financial statements of Place and Setting on December 31, Year 6, are as follows: STATEMENTS OF FINANCIAL POSITION Place Setting Plant and equipment (net) $1,250,000 $1,555,000 Investment in Setting 800,000 Current assets 950,000 800,000 $3,000,000 $2,355,000 Common shares $1,000,000 $ 550,000 Retained earnings 1,500,000 725,000 10% bonds payable 800,000 Current liabilities 500,000 280,000 $3,000,000 $2,355,000 COMBINED INCOME AND RETAINED EARNINGS STATEMENTS Place Setting Sales $2,500,000 $900,000 Cost of goods sold 1,200,000 330,000 Expenses 400,000 220,000 1,600,000 550,000 Net operating income 900,000 350,000 Dividends received from Setting 100,000 Profit 1,000,000 350,000 Retained earnings, Jan. 1, Year 6 800,000 500,000 1,800,000 850,000 Dividends declared and paid 300,000 125,000 Retained earnings, Dec. 31, Year 6 $1,500,000 $725,000 How many years' worth of acquisition differential (fair value increment) amortizations must be used to calculate consolidated retained earnings at January 1, Year 6, from Place's cost-basis accounting records? Multiple Choice 3
