Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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On January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc. in exchange for $6,000,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,500,000 including retained earnings of $1,700,000.
Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had fair values that differed from their values on Sea Cliff’s books as follows:
Asset
Book Value
Fair Value
RemainingUseful Life
Patented technology
$
140,000
$
2,240,000
7 years
Computer software
60,000
1,260,000
12 years
Sea Cliff’s remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff…
On January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc. in exchange for $6,000,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,500,000 including retained earnings of $1,700,000.
Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had fair values that differed from their values on Sea Cliff’s books as follows:
Asset
Book Value
Fair Value
RemainingUseful Life
Patented technology
$
140,000
$
2,240,000
7 years
Computer software
60,000
1,260,000
12 years
Sea Cliff’s remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff…
On January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc. in exchange for $6,000,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,500,000 including retained earnings of $1,700,000.
Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had fair values that differed from their values on Sea Cliff’s books as follows:
Asset
Book Value
Fair Value
RemainingUseful Life
Patented technology
$
140,000
$
2,240,000
7 years
Computer software
60,000
1,260,000
12 years
Sea Cliff’s remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff…
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- Francisco Inc. acquired 100 percent of the voting shares of Beltran Company on January 1, 2017. In exchange, Francisco paid $450,000 in cash and issued 104,000 shares of its own $1 par value common stock. On this date, Francisco’s stock had a fair value of $12 per share. The combination is a statutory merger with Beltran subsequently dissolved as a legal corporation. Beltran’s assets and liabilities are assigned to a new reporting unit.The following reports the fair values for the Beltran reporting unit for January 1, 2017, and December 31, 2018, along with their respective book values on December 31, 2018.a. Prepare Francisco’s journal entry to record the assets acquired and the liabilities assumed in the Beltran merger on January 1, 2017.b. On December 31, 2018, Francisco opts to forgo any goodwill impairment qualitative assessment and estimates that the total fair value of the entire Beltran reporting unit is $1,425,000. What amount of goodwill impairment, if any, should Francisco…arrow_forwardAkron, Inc., owns all outstanding stock of Toledo Corporation. Amortization expense of $15,000 per year for patented technology resulted from the original acquisition. For 2018, the companies had the following account balances:Intra-entity sales of $320,000 occurred during 2017 and again in 2018. This merchandise cost $240,000 each year. Of the total transfers, $70,000 was still held on December 31, 2017, with $50,000 unsold on December 31, 2018.a. For consolidation purposes, does the direction of the transfers (upstream or downstream) affect the balances to be reported here?b. Prepare a consolidated income statement for the year ending December 31, 2018.arrow_forwardOn July 1, 2018, Alpha Co. acquired most of the outstanding voting stocks of Roger Co. for cash. The incomplete working paper elimination entries on that date for the consolidated statement of financial position of Alpha Co. and its subsidiary are shown below: Common stock - Roger 1,500,000 Share premium - Roger 937,500 Investment in Roger 1,584,375 Non-controlling Interest 853,125 Inventories 62,500 Equipment 312,500 Patent 61,250 Investment in Roger ? Non-controlling Interest ? Goodwill ? Investment in Roger 185187.5 Non-controlling Interest ? Included in the purchase price is a control premium of P68,750. Compute for the amount of goodwill to be reported in the consolidated statement of financial position on July 1, 2018 assuming non-controlling interest is…arrow_forward
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- Nascent, Inc., acquires 60 percent of Sea-Breeze Corporation for $414,000 cash on January 1, 2015. The remaining 40 percent of the Sea-Breeze shares traded near a total value of $276,000 both before and after the acquisition date. On January 1, 2015, Sea-Breeze had the following assets and liabilities:The companies’ financial statements for the year ending December 31, 2018, follow:Answer the following questions:a. How can the accountant determine that the parent has applied the initial value method?b. What is the annual excess amortization initially recognized in connection with this acquisition?c. If the parent had applied the equity method, what investment income would the parent have recorded in 2018?d. What amount should the parent report as retained earnings in its January 1, 2018, consolidated balance sheet?e. What is consolidated net income for 2018 and what amounts are attributable to the controlling and noncontrolling interests?f. Within consolidated statements at January 1,…arrow_forwardOn January 1, 2016, Telconnect acquires 70 percent of Bandmor for $490,000 cash. The remaining 30 percent of Bandmor’s shares continued to trade at a total value of $210,000. The new subsidiary reported common stock of $300,000 on that date, with retained earnings of $180,000. A patent was undervalued in the company’s financial records by $30,000. This patent had a five-year remaining life. Goodwill of $190,000 was recognized and allocated proportionately to the controlling and noncontrolling interests. Bandmor earns net income and declares cash dividends as follows:On December 31, 2018, Telconnect owes $22,000 to Bandmor.a. If Telconnect has applied the equity method, what consolidation entries are needed as of December 31, 2018?b. If Telconnect has applied the initial value method, what Entry *C is needed for a 2018 consolidation?c. If Telconnect has applied the partial equity method, what Entry *C is needed for a 2018 consolidation?d. What noncontrolling interest balances will…arrow_forwardOn January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $428,000. Birch reported a $445,000 book value and the fair value of the noncontrolling interest was $107,000 on that date. Then, on January 1, 2017, Birch acquired 80 percent of Cedar Company for $176,000 when Cedar had a $193,000 book value and the 20 percent noncontrolling interest was valued at $44,000. 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 $ 572,500 $ 625,000 $ 767,500 Birch Company 255,750 363,250 582,600 Cedar Company Not available 231,900 267,000 Expenses: Aspen Company $ 390,000 $ 607,500 $ 722,500 Birch Company 193,000 289,000 517,500 Cedar Company Not available 217,000…arrow_forward
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