Perry Company purchased 100% of Starling Company on 1/1/20X1. At the date of acquisition, the following...

Perry Company purchased 100% of Starling Company on 1/1/20X1. At the date of acquisition, the following differences existed:

Starling had a 20-year loan for $500,000. The fair value of the loan was $540,000.

Starling had an unrecorded Patent with an estimated remaining life of 5 years. The fair value of the patent was $800,000.

Any other differences between book value and fair value were attributable o goodwill.

At 12/31/20X4, Starling still had the loan and patent that existed at the date of acquisition. The following balances are on the separate company's records (4 years have passed). Both accounts are normal balances.

Perry. Starling. Mathematical Total

Patents. 150,000. -0- 150,000

Loans payable 350,000. 580,000. 930,000

In the year ended 12/31/20X4, Starling reports net income of $820,000 on its separate income statement.

1. On its separate income statement, what will Perry report as equity in income of Starling for the year ended 12/31/20X4?

2. What will be the balance in the Patents account on the consolidated balance sheet at 12/31/20X4?

3. What will be the balance in the Loans payable account on the consolidated balance sheet at 12/31/20X4?

Solutions

Expert Solution

	Perry has acquired 100% share of Starling and has reported $820000 for the year ended 31/12/2004.

1	Perry will report $820000 as equity in income in it's separate income statements
2 & 3	Balance of patent & Loans payable in consolidated balance sheet :


	Normal balances as on 31/12/2004	Explanation	Perry	Starling	Total
	Patents (150000+160000)	1	310000	0	310000
	Loans Payable (350000+32000)	2	382000	580000	962000

	Explanation 1
	patent has been recorded in the books of perry at $800000 with estimated life of 5 years, now the value after 4 years would be

	Fair Value (a)	800000
	Estimated life (b)	5
	Value after 4 years (a/b)	160000	*

	* This has been added in the consolidated value of patent

	Explanation 2
	Fair Value of loan as on 01/01/2001	540000
	Already booked	500000
	Difference	40000
	( to be paid in 20 installments)

	Value after 4 years	32000

ekkarill92 answered 2 months ago

Next > < Previous

Related Solutions

On April 1, 20X1, Abe Company purchased $50,000 of Greer Corp’s 12% bonds at 100 plus...

On April 1, 20X1, Abe Company purchased $50,000 of Greer Corp’s 12% bonds at 100 plus accrued interest. On June 30, 20X1, Abe Co. received its first semiannual interest. On February 28, 20X3, Abe decided to sell half his bonds to Cao Inc. at 99 plus accrued interest. Prepare the journal entries for the following transactions: The purchase of the bonds The receipt of all interest The sale of the bonds to Cao Inc.

Parent corp purchased 100% of Subsidiary's common stock on January 1, 20x1, for $390,000. On that...

Parent corp purchased 100% of Subsidiary's common stock on January 1, 20x1, for $390,000. On that date, Subsidiary reported net assets with a historical cost of $300,000 and a fair value of $340,000. The fair value difference was due to the increased value of equipment with a remaining life of 10 years. During 20X1 and 20X2 Subsidiary reported net income of $62,000 and $50,000 and paid dividends of $18,000 and $14,000 respectively. a. Prepare Parent’s journal entry to record income...

Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2017, for $3,800...

Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2017, for $3,800 cash. As of that date Hurley has the following trial balance: Debit Credit Cash $ 500 Accounts receivable 600 Inventory 800 Buildings (net) (5 year life) 1,500 Equipment (net) (2 year life) 1,000 Land 900 Accounts payable $ 400 Long-term liabilities (due 12/31/20) 1,800 Common stock 1,000 Additional paid-in capital 600 Retained earnings 1,500 Total $ 5,300 $ 5,300 Net income and dividends reported...

14. Cleaverland purchased 100% of Omaha on January 1, 2019 for $650,000. On that date,...

14. Cleaverland purchased 100% of Omaha on January 1, 2019 for $650,000. On that date, Omaha's stockholders' equity was $650,000, and the recognized book values of Ottowa’s individual net assets approximated their fair values. Omaha had net incomes of $150,000 and $190,000 for 2019 and 2020, respectively. The subsidiary paid dividends amounting to $30,000 in both years. Cleaverland uses the equity method to account for its pre-consolidation investment in Omaha. What was the balance in Equity Investment at December...

Jasmine Company purchased equipment on January 1, 20x1. This is the only equipment that Jasmine company...

Jasmine Company purchased equipment on January 1, 20x1. This is the only equipment that Jasmine company owns. The following information relates to this equipment: Initial cost $320,000 Estimated residual value $19,000 Expected useful life 8 years Estimated hours of useful life 22,000 hours Depreciation method Straight-line Hours operated during 20x1 2,400 hours Hours operated during 20x2 2,000 hours Jasmine Company would report $ of depreciation expense in its December 31, 20x1 income statement and $ of depreciation expense in its...

On January 1, 20X1, Prange Company acquired 100% of the common stock of Seaman Company for...

On January 1, 20X1, Prange Company acquired 100% of the common stock of Seaman Company for $600,000. On this date Seaman had total owners' equity of $400,000. Any excess of cost over book value is attributable to a patent, which is to be amortized over 10 years. During 20X1 and 20X2, Prange has appropriately accounted for its investment in Seaman using the simple equity method. On January 1, 20X2, Prange held merchandise acquired from Seaman for $30,000. During 20X2, Seaman...

create a journal DATE TRANSACTIONS 20X1 Sept. 2 Purchased ski boots for $6,100 plus a freight...

create a journal DATE TRANSACTIONS 20X1 Sept. 2 Purchased ski boots for $6,100 plus a freight charge of $260 from Colorado Ski Shop, Invoice 6672, terms n/30. 3 Purchased skis for $11,700 from Alaska Supply Company, Invoice 5916; terms 2/10, n/30. 7 Received Credit Memorandum 165 for $950 from Colorado Ski Shop for return of damaged ski boots; the boots were originally purchased September 2 on Invoice 6672. 11 Purchased ski jackets for $4,500 from Cold Mountain Clothing Company, Invoice...

Potato acquired 100% of Salad for $200. At acquisition date Salad had equity of $170, comprised...

Potato acquired 100% of Salad for $200. At acquisition date Salad had equity of $170, comprised as follows: Capital 100 Asset revaluation reserve 20 Retained earnings 50 Equity 170 The book value of net assets was considered to be close to fair value, except for the following: Cost Carrying amount Fair value Land 40 40 50 Equipment 100 50 60 140 90 110 The tax rate is 30%. What is the amount of the business combination reserve (also known as...

1. How does a parent company account for its investments in subsidiaries past the acquisition date...

1. How does a parent company account for its investments in subsidiaries past the acquisition date (in subsequent years) on its own books ? What are some of the additional documents an accountant will have to prepare in addition to the consolidated balance sheet subsequent to an acquisition?

1. XYZ Company is a startup company, and it has purchased inventory as follows: Date Quantity...

1. XYZ Company is a startup company, and it has purchased inventory as follows: Date Quantity Price 2/1/16 1000 1.05 3/1/16 500 1.10 5/1/16 800 1.00 6/1/16 1500 .90 7/1/16 2500 1.02 8/1/16 750 1.15 Assume you have sold 2,250 units in 2016. Given that fact, how much would inventory be valued on the balance sheet under the following methods and how much Cost of Goods Sold would be recognized as well? a. LIFO Method b. FIFO Method c. Average...

Subjects