Prepare an investment analysis at date of acquisition adams

Question

Use the following information for problems 1-4.   

On January 1, 2012, Adams acquires 100% of Baker in a transaction accounted for using the acquisition method. Adams will use equity accounting for its investment in Baker. Baker will remain a wholly owned subsidiary of Adams. The following is information about this acquisition.

To pay for this purchase, Adams issues 20,000 shares of common stock with a $5 par and $20 market value.  Legal and accounting costs were $50,000.  Stock issuance costs were $20,000.  If Baker has net income of $50,000 in 2012, Adams will pay an additional $100,000.  At acquisition date there is a 40% probability of this occurring.

The book value of net assets acquired of Baker was $200,000 at acquisition date. Adams was willing to pay in excess of book value to acquire Baker because Baker had a building  (10 year life) with a book value of $300,000 and a fair value of $340,000. 

Baker has $40,000 in net income in 2012 and pays a dividend of $30,000. Adams has $100,000 of net income in 2012 and pays a dividend of $70,000.

1.  Prepare an investment analysis at date of acquisition, including the following:

Calculate the amount debited to the investment

Calculate the premium over book value

Determine the amount of goodwill or if it is a bargain purchase.

How much is the excess depreciation that will be reflected as consolidation entry E in 2012 ?

1. How much are consolidated dividends in 2012 ?

1. At December 31, 2014 assume Adams has Buildings with a book value of $500,000 and fair value of $600,000 and Baker has Buildings with a book value of $400,000 and a fair value of $450,000.

 What is the CONSOLIDATED total for buildings at that date ?

Prepare journal entry "A" that will show up on the consolidated worksheet as of December 31, 2014.

1.  How much is consolidated Equity Income in 2012.

1. Harding owns 70% of Hoover.  Harding pays $80,000 in dividends and Hoover pays $30,000 in dividends.

How much is consolidated dividends

Prepare consolidation worksheet entry "D"

How much is noncontrolling interest in dividends

1. Fred owns 25% of Eaton and at January 1, 2013 has a balance in its Investment account of $40,000.  In 2013 Eaton reports a net loss of $200,000. 

What is balance of Fred's Investment in Eaton at December 31, 2013

How much will Eaton need to earn in 2014 before Fred can return to using the equity method

1. Regency owns 5% of Marriott. On October 1, 2012 Regency acquires an additional 25% of Marriott bringing its ownership percentage up to 30%. From January 1 - September 30, 2012 Marriott earns $100,000.  From October 1, December 31 2012 Marriott earns $40,000.  What is the total income reported by Regency in 2012.

1. Roberts owns 40% of Simpson.  On April 1, 2012 Roberts reduces its ownership of Simpson to 10%. From January 1-March 31 Simpson earns $80,000 and pays dividends of $30,000.  From April 1- December 31 Simpson earns $300,000 and pays dividends of $100,000. What is the total income reported by Roberts in 2012

1. On January 1, 2012 Hand acquires 40% ownership of Foot.  At acquisition date, Foot had equipment with a book value of $100,000 and a fair value of $160,000.  The remaining useful life is 4 years. What is the amount of amortization (debit to equity earnings) that will be recognized in 2012 ?

1. Pez owns 30% of Rollo. In 2012, Pez sells inventory costing $100,000 to Rollo for $150,000.  At December 31, 2012 $60,000 of this inventory was still held by Rollo and is sold in 2013.  In 2013, Pez sells inventory costing $200,000 to Rollo for $250,000. At December 31, 2013 $60,000 of this inventory is still held by Rollo. In 2013, Rollo reports net income of $80,000.

How much equity income is reported by Pez in 2013 ?

1. Harry owns 25% of David.  On January 1, 2012 Harry's investment account has a balance of $500,000. On that date, Harry sells 30% of its investment for $200,000.

What is the balance in the investment account after sale

What is the gain or loss on sale recorded by Harry. 

1. On January 1, 2012 Roberts purchases 100% of Smith for $800,000 cash. At acquisition date, Roberts had  book value of net assets of $600,000 and Smith had a book value of net assets of $700,000.  Roberts owned a building with a book value of $200,000 and a fair value of $300,000 and Smith owned a building with a book value of $100,000 and a fair value of $300,000.  How much is consolidated goodwill or if it is a bargain purchase, how much is the bargain amount.

1. Stevens owns 60% of David. In 2012, Stevens has net income of  $80,000 and David has net income of $60,000. There is also $4,000 of annual excess amortization associated with David's acquisition date equipment plus David had a $3,000 gain on an intercompany sale of land to Stevens. Finally, Stevens had a $5,000 gain on an intercompany sale of land to David. How much is the noncontrolling interest in subsidiary net income.

1. Davis owns 70% of Free. In 2012, Davis reports sales of $200,000 which includes third party sales of $160,000 and intercompany sales of $40,000. Cost of goods sold for Davis are $80,000. Free reports sales of $150,000 of which $50,000 are intercompany. How much are consolidated sales.

1. Gulko owns 60% of Larsen. In 2012 Gulko reports Sales of $4,000,000, which includes 3^rd party sales of $3,500,000 and intercompany sales of $500,000. Larsen reports intercompany sales of $200,000 and total sales of $700,000.  How much is Consolidated Sales.

1. a.  Fast owns 100% of Slow and had recorded $700,000 of goodwill from acquiring Slow many years ago. It is now 3 years later and the fair value of Slow is $1,300,000 and the book value of Slow inclusive of goodwill is $1,100,000. The implied value of goodwill is $650,000 and the book value of goodwill continues to be $700,000.  What is the amount of goodwill impairment, if any.

B.  Assume same facts as part a. except that the fair value of Slow is $900,000 instead of $1,300,000. What is the amount of goodwill impairment, if any.

1. Hand owns 90% of Finger. In 2008, Hand purchased Land from third parties for $500,000.  On January 1, 2012 Hand sells Land to Finger for $800,000. Finger holds the Land until December 31, 2015 and sells it for $2,000,000.
2. How much is consolidated gain on sale of Land for the year ended December 31, 2012
3. How much is consolidated Land at December 31, 2012
4. How much is consolidated gain on sale of Land at December 31, 2015
5. At December 31, 2015 how much is debited to Retained Earnings as part of the necessary worksheet entry at that date

1. Parent buys building (useful life 10 years) for $3,000,000 on January 1, 2012.  On that same date, parent sells building to 80% owned subsidiary for $4,000,000. Subsidiary will use the same 10 year depreciable life.
2. How much depreciation expense will the subsidiary record in 2012.
3. How much is consolidated depreciation expense in 2012.
4. How much is the worksheet entry to eliminate excess depreciation in 2012.

1. In 2012, parent reports Cost of Goods Sold of $4,000,000.  Its 90% owned subsidiary reports Cost of Goods Sold of $1,000,000 in 2012.  During 2011 the subsidiary had $60,000 of unrealized gains on intercompany sales to its parent. In 2012, the subsidiary had sold $200,000 of goods to its parent and had $30,000 of unrealized gains. How much is consolidated cost of goods sold in 2012.

1. Same facts as problem 19. Assume in 2012 the subsidiary had net income of $150,000.  What is the noncontrolling interest in subsidiary net income in 2012.

1. Adams owns 80% of Williams and the carrying value of the investment on January 1, 2012 is $600,000. On that date Adams sells half of its shares for $250,000. What journal entry is recorded at that date.

1. Same facts as #21 except that Adams sells 20% of its investment for $150,000, reducing its ownership to 60%. What journal entry is recorded by Williams at that date.

1. Harry purchases 80% of David by paying $50 a share for 40,000 of David. The remaining 10,000 shares of David are held by minority shareholders and are worth $40 per share both before and after the acquisition. Assume that 100% of the FVNAA of David at date of acquisition is $2,200,000.
2. Calculate goodwill
3. How much goodwill is allocated to the controlling interest and how much to the noncontrolling interest

1. Felix pays $1,000,000 to acquire 80% of Unger.  Assume there is no control premium. At acquisition date the FVNAA of Unger is $1,100,000. Calculate any goodwill or consolidated gain on bargain purchase that is to be recorded in consolidation

1. On January 1, 2010 parent lends its 60% owned subsidiary $2,000,000 at 10% annual interest.
2. How much interest income is recorded by the parent in 2010
3. How much interest expense is recorded by the subsidiary in 2010
4. How much is consolidated interest income
5. How much is consolidated interest expense
6. How much is consolidated loan receivable
7. How much is consolidated loan payable.

1. Willis owns 60% of Yonex.  On January 1, 2011 Yonex has bonds payable outstanding of $6,000,000 and a bond discount account with a debit balance of $500,000.  On that date Willis purchases all the outstanding bonds for a price of $5,600,000.  How much is the gain or loss on the in substance defeasance (early "retirement") of the bonds?