Acadia Corporation created Skinny Company as a wholly owned subsidiary by transferring assets and accounts payable to Skinny in exchange for its common stock. Skinny recorded the following entry when it received the assets and accounts payable:
Accounts Receivable 20,000
Accounts Payable 17,000
Accumulated Depreciation- Buidlings 31,000
Accumulated Depreciation – Equipment 15,000
Common Stock 50,000
Additional Paid in Capital 77,0000
a. What was Acadia’s book value of the total assets (not net assets) transferred to Skinny Company?
b. What amount did Acadia report as its investment in Skinny after the transfer?
c. What number of shares of $10 par value stock did Skinny issue to Acadia?
d. What impact did the transfer of assets and accounts payable have on the amount reported by Acadia as total assets?
e. What impact did the transfer of assets and accounts payable have on the amount that Acadia and the consolidated entity reported as shares outstanding?
Apple Company paid $205,000 to acquire the net assets of Pop Company on April 1, 2014. The balance sheet data for the two companies and fair value information for Pop immediately before the business combination are as follows:
Apple Company Pop Company
Balance Sheet Items Book Value Book Value Fair Value
Cash & Receivables $380,000 $55,000 $55,000
Inventory 100,000 35,000 45,000
Land 150,000 35,000 50,000
Building & Equipment 280,000 310,000 150,000
Less: Acc. Depreciation (90,00) (200,000)
$820,000 $235,000 $300,000
Current Liabilities $185,000 $178,000 $178,000
Capital Stock 300,000 40,000
$20, Par Value 400,000
$5 , Par Value 15,000
Retained Earnings 235,000 42,000
Total Liabilities & Equities $820,000 $235,000
a. Give the journal entry (ies) that need to be recorded by Apple when it acquires Pop’s net assets.
b. Prepare a balance sheet for Apple immediately following the acquisition.
c. Give the journal entry (ies) that will be recorded by Apple if it acquires all of Pop’s common stock (instead of Pop’s net assets) for $205,000.
Universal acquired 60 percent ownership of Omnicare Company on January 1, 2014, for $193,000. At that date, the fair value of the noncontrolling interest was $63,250. The trial balance for the two companies on December 31, 2013, included the following amounts:
Universal Corporation Omnicare Company
Item Debit Credit Debit Credit
Cash $58,000 $45,000
Accounts Receivable 70,000 65,000
Inventory 260,000 120,000
Land 100,000 40,000
Buildings & Equipment 520,000 170,000
Investment in Granite 222,000
Cost of Goods Sold 520,000 270,000
Depreciation Expense 45,000 35,000
Other Expenses 95,000 95,000
Dividends Declared 70,000 40,000
Accumulated Deprec. $195,000 $105,000
Accounts Payable 110,000 55,000
Mortgages Payable 240,000 70,000
Common Stock 320,000 70,000
Retained Earnings 310,000 120,000
Sales 720,000 460,000
Income from Subsidiary 65,000
$1,960,000 $1,960,000 $880,000 $880,000
1. On January 1, 2013, Omnicare reported net assets with a book value of $170,000 and a fair value of $211,250.
2. Omnicare depreciable assets have an estimated economic life of 10 years on the date of the combination. The difference between fair value and book value of Omnicare’s net assets is related entirely to buildings and equipment.
3. Universal used the equity method in accounting for its investments in Omnicare.
4. Detailed analysis of receivables and payables showed that Omnicare owed Universal $20,000 on December 31, 2013.
a. Give all journal entries recorded by Universal with regard to its investments in Omnicare during 2013.
b. Give all elimination entries needed to prepare a full set of consolidated financial statements for 2013.
Kellogg’s Corporation purchased shares of Swingline Corporation in the following sequence:
Date No. of Shares Purchased Amount Paid
January 1, 2013 2,000 shares $35,000
January 1, 2014 500 shares 25,000
January 1, 2015 3,000 shares 90,000
The book value of Swingline’s net assets at January 1, 2013 was $220,000. Each year since Kellogg’s first purchased shares, Swingline has reported net income of $90,000 and paid dividends of $40,000. The amount paid in excess of the book value of Swingline’s net assets was attributed to the increase in the value of identifiable intangible assets with a remaining life of five years at the date the shares of Swingline were purchased. Swingline has had 15,000 shares of voting common stock outstanding throughout the four-year period.
Give the journal entries recorded on Kellogg Corporation’s books in 2015 related to its investment in Swingline Corporation.
Heinz Company purchased 19 percent of the outstanding share of Johnston Company for $50,000 on January 1, 2013. The following results are reported for Johnston Company:
2013 2014 2015
Net Income $60,000 $55,000 $80,000
Dividends Paid 35,000 50,000 40,000
Fair Value of Shares held by Grant
January 1 90,000 109,000 106,000
December 31 109,000 106,000 117,000
Determine the amount reported by Heinz as income from its investments in Johnston for each year and the balance in Heinz’s investment in Johnston at the end of each year assuming that Heinz uses the following methods in accounting for its investments in Johnston:
a. Cost method
b. Equity method
c. Fair Value method
Bands Corporation owns 35 percent of the common stock of Nortel Company, which it purchased at underlying book value on January 1, 2013. Bands reported a balance of $265,000 for its investment in Nortel Company on January 1, 2013, and $296,800 at December 31, 2013. During 2013, Bands and Nortel Company reported operating income of $360,000 and $80,000 respectively. Nortel received dividends from investments in marketable equity securities in the amount of $9,000 during 2013. It also reported an increase of $28,000 in the market value of its portfolio of trading securities and an increase in the value of its portfolio of securities classified as available-for-sale. Nortel paid dividends of $40,000 in 2013. Ignore income taxes in determining your solution.
a. Assuming that Bands uses the equity method in accounting for its investment in Nortel, compute the amount of income from Nortel recorded by Bands in 2013.
b. Compute the amount reported by Nortek as other comprehensive income for 2013.
c. If all of Nortel’s other comprehensive income arose solely from its investment in available for sale securities purchased on March 10, 2013, for 150,000, what was the market value of those securities at December 31, 2013?
On December 31, 2013, Tinkerbell Corporation and Brittany Company entered into a business combination in which Tinkerbell acquired all of Brittany’s common stock for $955,000. At the date of combination, Brittany had common stock outstanding with a par value of $120,000, additional paid in capital of $420,000, and retained earnings of $195,000. The fair values and book values of all Brittany’s assets and liabilities were equal at the date of combination, except for the following:
Book Value Fair Value
Inventory $70,000 $75,000
Land 95,000 180,000
Buildings 420,000 520,000
Equipment 520,000 590,000
The buildings had a remaining life of 15 years, and the equipment was expected to last another 5 years. In accounting for the business combination, Tinkerbell decided to us push-down accounting on Brittany’s books. During 2014, Brittany earned net income of $108,000 and paid a dividend of $70,000. All of the inventory on hand at the end of 2013 was sold during 2014. During 2015, Brittany earned net income of $110,000 and paid a dividend of $70,000.
a. Record the acquisition of Brittany’s stock on Tinkerbell’s books on December 31, 2013.
b. Record any entries that would be made on December 31, 2013, on Brittany’s books related to the business combination if push-down accounting is employed.
c. Present all elimination entries that would appear in the worksheet to prepare a consolidated balance sheet immediately after the combination.
d. Present all entries that Tinkerbell would record during 2014 related to its investment in Brittany if Tinkerybell uses the equity method of accounting for its investments.
e. Present all elimination entries that would appear in the worksheet to prepare a full set of consolidated financial statements for the year 2014.
f. Present all elimination entries that would appear in the worksheet to prepare a full set of consolidated financial statements for the year 2015.
Santa Co. acquired all of Elf Corp’s. voting shares on January 1, 2013, for $300,000. Santa’s balance sheet immediately after the combination contained the following balances:
January 1, 2013
Cash & Receivables $140,000 Accounts Payable 95,000
Inventory 130,000 Notes Payable 320,000
Land 90,000 Taxes Payable 70,000
Buildings & Equipment (net) 370,000 Common Stock 420,000
Investment in Decibel Stock 300,000 Retained Earnings 125,000
Total Assets $1,030,000 Total Liabilities & S/H Equity $1,030,000
Elfl’s balance sheet at acquisition contained the following balances:
January 1, 2013
Cash & Receivables $60,000 Accounts Payable $130,000
Inventory 200,000 Notes Payable 270,000
Land Additional Paid-in-Capital 220,000
Buildings & Equipment (net) 370,000 Common Stock 120,000
Goodwill 50,000 Retained Earnings (60,000)
Total Assets $680,000 Total Liabilities & S/H Equity $680,000
On the date of combination, the inventory held by Elf had a fair value of $190,000, and its buildings and recording equipment had a fair value of
$395,000. Goodwill reported by Elf resulted from a purchase of Reindeer Enterprises in 2012. Reindeer was liquidated and its assets and liabilities were brought onto Elf’s books.
Compute the balances to be reported in the consolidated balance sheet immediately after the acquisition for:
b. Buildings & Equipment (net).
c. Investment in Decibel Stock.
e. Common Stock.
f. Retained Earnings.
Yodel Corporation acquired 90 percent of Devil Dog Company’s common stock on December 31, 2013, at underlying book value. The book values and fair values of Devil Dog’s assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 10 percent of the total book value of Devil Dog. Devil Dog provided the following trial balance data at December 31, 2013:
Accounts Receivable 85,000
Buildings & Equipment (net) 230,000
Cost of Goods Sold 125,000
Depreciation Expense 44,000
Other Operating Expenses 51,000
Dividends Declared 35,000
Accounts Payable $83,000
Notes Payable 170,000
Common Stock 110,000
Retained Earnings 150,000
Total $728,000 $728,000
a. How much did Yodel pay to purchase its shares of Devil Dog?
b. If consolidated financial statements are prepared at December 31, 2013, what amount will be assigned to the noncontrolling interest in the consolidated balance sheet?
c. If Yodel reported income of $163,000 from its separate operations for 2013, what amount of consolidated net income will be reported for 2013?
d. If Yodel had purchased its ownership of Devil Dog on January 1, 2013, at underlying book value and Yodel reported income of $163,000 from its separate operations for 2013, what amount of consolidated net income would be reported for 2013?
Leno recently attempted to expand by acquiring ownership in Fallon Company. The following ownership structure was reported on December 31, 2014:
Company Investee Percentage of Ownership Held
Leno Corp Fallon Company 60%
Fallon Company SNL Corporation 5%
SNL Corporation Letterman Company 50%
Fallon Company Daly Company 30%
The following income from operations (excluding investment income) and dividend payments were reported by the companies during 2013:
Company Operating Income Dividends Paid
Leno Corp $100,000 $80,000
Fallon Company 40,000 30,000
SNL Corporation 60,000 50,000
Letterman Company 120,000 100,000
Daly Company 80,000 60,000
Compute the amount reported as consolidated net income from 2014.