Chapter 3 Cost method HW

On July 1, 2013 an investor paid $6,000,000 for 100% of the voting common stock of an investee. The transaction qualifies as a business combination. At that time, investee had the following summarized balance sheet information:

On July 1, 2013, the fair value of the plant and equipment was $1,200,000 more than its carrying amount. The acquisition-date fair values approximated their recorded book values for all of the remaining individual net assets of the investee. Related to this transaction, what amount of goodwill, must the investor report in its post-acquisition consolidated balance sheet on July 1, 2013?

400000

4400000+1200000= 5600000

so 6000000-5600000 = 400000

Assume that you are charged with assigning fair values related to a $1,600,000 acquisition. You assemble the following information relating to the acquiree's assets and liabilities:

How much Goodwill will you record in this acquisition?

190000

910000-700000= 210000+500000 = 710000 difference

700000+710000 = 1410000

1600000-1410000 = 190000

Assume that you are charged with assigning fair values related to a $1,520,000 acquisition. You determine that the fair value of the net identifiable tangible assets is $740,000. You also conclude that the purchase included a Customer List with a fair value at $136,000. 

a. How much Goodwill will you record in this acquisition? 

b. Continuing from part (a), now also assume that the purchase and sale agreement requires the payment of an additional $370,000 if the subsidiary achieves a certain level of earnings. You estimate the fair value of that contingent earnings clause in the agreement to be $88,000. How does this additional information affect your computation of Goodwill?  

The amount of Goodwill recorded is $

c. This part of the exercise is independent of parts (a) and (b). Assume that the purchase price is $1,520,000 and that fair value of the net identifiable tangible assets is $740,000. You also conclude that the purchase included a Customer List that you value at $256,000 and a Patent valued at $760,000. How much Goodwill will you record in this acquisition?

The amount of Goodwill recorded is: $

a. 644000

1520000 - 740000 - 136000

b. 732000

644000 + 88000

c 0

740000+256000+760000 = 1756000 > 1520000 so we paid less than what its worth so this is a bargain purchase. 0 of goodwill is recorded and the 236000 gain on bargain purchase is reported in earnings instead

Assume the equity method Equity Investment account relating to a subsidiary has a reported balance of $2,510,000, including $240,000 of Goodwill. The fair value of the subsidiary is $2,250,000. The fair value of the subsidiary's individually identifiable net assets is $2,150,000. The subsidiary has only one reporting unit, which is the same as the overall entity.

For this fact set, determine whether Goodwill is impaired and, if so, the amount of impairment.
Enter the impairment amount below. If goodwill in not impaired, enter zero

Prepare the required journal entry if you determine Goodwill is impaired.

a. 240000

2510000-2250000 = 260000

260000 is greater than 240000; The impairment loss cannot exceed the total amount of goodwill allocated to the reporting unit.

b. DR equity Income from Subsidiary 240000

CR Equity Investment 240000

Assume the equity method Equity Investment account relating to a subsidiary has a reported balance of $4,130,000, including $210,000 of Goodwill. The fair value of the subsidiary is $3,850,000. The fair value of the subsidiary’s individually identifiable net assets is $3,500,000. The subsidiary has only one reporting unit, which is the same as the overall entity. 

For this fact set, determine whether Goodwilll is impaired and, if so, the amount of impairment.
Enter the impairment amount below. If Goodwill is not impaired, enter zero.

Prepare the required journal entry if you determine Goodwill is impaired.
If Goodwill is not impaired, select "No entry" as your answers under Description and leave the Debit and Credit answers blank (zero).

How would your answer above change if all of the information is the same, except the fair value for the subsidiary is $3,934,000?
If Goodwill is not impaired, select "No entry" as your answers under Description and leave the Debit and Credit answers blank (zero).

a. 210000

4130000 - 3850000 = 280000 vs 210000 goodwill

b. DR equity income from the sub 210000

CR Equity Investment 210000

c. DR Equity income from sub 1960000

CR Equity Investment 196000

Assume a parent company acquired a subsidiary on January 1, 2018, for $1,200,000. The purchase price was $650,000 in excess of the subsidiary’s $550,000 book value of Stockholders’ Equity on the acquisition date. Of this excess purchase price, $250,000 was assigned to Property, plant and equipment with a remaining economic useful life of 10 years, and $400,000 was assigned to Goodwill. On the acquisition date, the subsidiary reported retained earnings equal to $280,000. The parent uses the cost method of pre-consolidation Equity investment bookkeeping. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, are as follows:

At what amount will the following accounts appear on the consolidated financial statements?

a. Sales

b. investment income

c. operating expenses

d. inventories

e. equity investment

f. PPE
g. Goodwill

h. common stock

I. Retained earnings

6200000

0

1925000 (1500000 + 400000 + 25000)

210000

0

4100000 (3900000+250000 -(25000×2))

400000

500000

2170000 $1,840,000 + ($660,000 ‒ $280,000) – (2 x $25,000) = $2,170,000

Assume a parent company acquired a subsidiary on January 1, 2017, for $1,150,000. The purchase price was $800,000 in excess of the subsidiary’s $350,000 book value of Stockholders’ Equity on the acquisition date. Of this excess purchase price, $550,000 was assigned to Property, plant and equipment with a remaining economic useful life of 10 years, and $250,000 was assigned to Goodwill. On the acquisition date, the subsidiary reported retained earnings equal to $80,000. The parent uses Investment cost method of pre-consolidation Equity investment bookkeeping. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, are as follows:
At what amount will the following accounts appear in the consolidated financial statements for the year ended December 31, 2019?

a. Sales

b. investment income

c. operating expenses

d. inventories

e. equity investment

f. PPE
g. Goodwill

h. common stock

I. Retained earnings

3380000

0

925000

2940000

0

5385000

250000

500000

2145000

Assume that the parent company acquires its subsidiary on January 1, 2016, by exchanging 31,500 shares of its $1 par value Common Stock, with a market value on the acquisition date of $46 per share, for all of the outstanding voting shares of the acquiree. You have been charged with preparing the consolidation of these two companies at the end of the first year. 

On the acquisition date, all of the subsidiary’s assets and liabilities had fair values equaling their book values. The parent uses the cost method of pre-consolidation Equity investment bookkeeping. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2016.

a. Prepare the journal entry to record the acquisition of the subsidiary.

b. Prepare the consolidation entries for the year ended December 31, 2016.

c. Prepare the consolidated spreadsheet for the year ended December 31, 2016.

a. DR Eq inv 1449000

CR CS 31500

CR APIC 1417500

b. no adj entry because the purchase price exactly equaled the book value of the subsidiary's net assets, and all assets and liabilities were already recorded at their fair values

[C] DR inv income 39690

CR Dividends 39690

[E] DR common stock 126000

DR APIC 346500

DR Retained earnings 976500

CR Equity investment 1449000

c.