Question
In: Accounting
On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding voting shares of Star,...
On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc. for $622,000 cash. The acquisition-date fair value of the noncontrolling interest was $69,000. At January 1, 2016, Star’s net assets had a total carrying amount of $483,000. Equipment (eight-year remaining life) was undervalued on Star’s financial records by $52,000. Any remaining excess fair value over book value was attributed to a customer list developed by Star (four-year remaining life), but not recorded on its books. Star recorded net income of $45,500 in 2016 and $52,000 in 2017. Each year since the acquisition, Star has declared a $13,000 dividend. At January 1, 2018, Pride’s retained earnings show a $162,500 balance.
Selected account balances for the two companies from their separate operations were as follows:
| Pride | Star | |||||
| 2018 Revenues | $ | 323,800 | $ | 185,400 | ||
| 2018 Expenses | 227,800 | 126,900 | ||||
1) What is consolidated net income for 2018?
Multiple choice:
-
$123,000.
-
$109,000.
-
$125,900.
-
$154,500.
2. Assuming that Pride, in its internal records, accounts for its investment in Star using the equity method, what amount of retained earnings would Pride report on its January 1, 2018 consolidated balance sheet?
Multiple Choice
-
$273,000.
-
$162,500.
-
$414,000.
-
$186,400.
Solutions
Expert Solution
(a) option c = $103,000
| Consolidated Net income | ||
| Consideration transferred by Pride | $ 6,22,000 | |
| Noncontrolling interest fair value | $ 69,000 | |
| Star acquisition-date fair value | $ 6,91,000 | |
| (Star book value) | $ -4,83,000 | |
| Excess fair over book value | $ 2,08,000 | |
| Amortization | ||
| to equipment (8 year remaining life) $ 52000 | $ 6,500 | |
| to customer list (4 year remaining life) 128,000 | $ 39,000 | |
| $ 45,500 | ||
| Combined revenues | $ 5,09,200 | |
| Combined expenses | $ 3,54,700 | |
| Excess fair value amortization | $ 45,500 | $ 4,00,200 |
| Consolidated net income |
$ 1,09,000 |
|
(b)Option b = $162,000
Under Equity Method,Consolidated retained earnings = Parent's retained earnings.
At January 1, 2018, Pride’s retained earnings show a $162,500 balance.
so,amount of retained earnings would Pride report on its January 1, 2018 consolidated balance sheet = $162,000
ekkarill92 answered 3 months agoRelated Solutions
On January 1, Year 1, Present Inc. purchased 80 percent of the outstanding voting shares of...
On January 1, Year 1, Present Inc. purchased 80 percent of the
outstanding voting shares of Sunrise Co. for $3,000,000. On that
date, Sunrise’s shareholders’ equity consisted of retained earnings
of $1,500,000 and common shares of $1,000,000. Sunrise’s
identifiable assets and liabilities had fair values that were equal
to their carrying values on January 1, Year 1.
Account balances for selected accounts for the Year 5 financial
statements were as follows:
Present
Sunrise
Property, plant, and equipment (net)
$
2,100,000...
On January 1, 2017, Paloma Corporation exchanged $1,710,000 cash for 90 percent of the outstanding voting...
On January 1, 2017, Paloma Corporation exchanged $1,710,000 cash
for 90 percent of the outstanding voting stock of San Marco
Company. The consideration transferred by Paloma provided a
reasonable basis for assessing the total January 1, 2017, fair
value of San Marco Company. At the acquisition date, San Marco
reported the following owners’ equity amounts in its balance
sheet:
Common stock $400,000
Additional paid-in
capital
60,000
Retained
earnings
265,000
In determining its acquisition offer, Paloma noted that the
values for...
Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $495,000...
Pitino acquired 90 percent of Brey's outstanding shares on
January 1, 2016, in exchange for $495,000 in cash. The subsidiary's
stockholders' equity accounts totaled $479,000 and the
noncontrolling interest had a fair value of $55,000 on that day.
However, a building (with a ten-year remaining life) in Brey's
accounting records was undervalued by $47,000. Pitino assigned the
rest of the excess fair value over book value to Brey's patented
technology (six-year remaining life).
Brey reported net income from its own...
Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $486,000...
Pitino acquired 90 percent of Brey's outstanding shares on
January 1, 2016, in exchange for $486,000 in cash. The subsidiary's
stockholders' equity accounts totaled $470,000 and the
noncontrolling interest had a fair value of $54,000 on that day.
However, a building (with a ten-year remaining life) in Brey's
accounting records was undervalued by $45,000. Pitino assigned the
rest of the excess fair value over book value to Brey's patented
technology (four-year remaining life).
Brey reported net income from its own...
Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $495,000...
Pitino acquired 90 percent of Brey's outstanding shares on
January 1, 2016, in exchange for $495,000 in cash. The subsidiary's
stockholders' equity accounts totaled $479,000 and the
noncontrolling interest had a fair value of $55,000 on that day.
However, a building (with a ten-year remaining life) in Brey's
accounting records was undervalued by $47,000. Pitino assigned the
rest of the excess fair value over book value to Brey's patented
technology (six-year remaining life).
Brey reported net income from its own...
Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $540,000...
Pitino acquired 90 percent of Brey's outstanding shares on
January 1, 2016, in exchange for $540,000 in cash. The subsidiary's
stockholders' equity accounts totaled $524,000 and the
noncontrolling interest had a fair value of $60,000 on that day.
However, a building (with a ten-year remaining life) in Brey's
accounting records was undervalued by $32,000. Pitino assigned the
rest of the excess fair value over book value to Brey's patented
technology (four-year remaining life).
Brey reported net income from its own...
Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $342,000...
Pitino acquired 90 percent of Brey's outstanding shares on
January 1, 2016, in exchange for $342,000 in cash. The subsidiary's
stockholders' equity accounts totaled $326,000 and the
noncontrolling interest had a fair value of $38,000 on that day.
However, a building (with a nine-year remaining life) in Brey's
accounting records was undervalued by $18,000. Pitino assigned the
rest of the excess fair value over book value to Brey's patented
technology (six-year remaining life).
Brey reported net income from its own...
Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $405,000...
Pitino acquired 90
percent of Brey's outstanding shares on January 1, 2016, in
exchange for $405,000 in cash. The subsidiary's stockholders'
equity accounts totaled $389,000 and the noncontrolling interest
had a fair value of $45,000 on that day. However, a building (with
a nine-year remaining life) in Brey's accounting records was
undervalued by $27,000. Pitino assigned the rest of the excess fair
value over book value to Brey's patented technology (four-year
remaining life).
Brey reported net
income from its own...
On January 1, 2016, Plymouth Corporation acquired 80 percent of the outstanding voting stock of Sander...
On January 1, 2016, Plymouth Corporation acquired 80 percent of
the outstanding voting stock of Sander Company in exchange for
$1,200,000 cash. At that time, although Sander’s book value was
$925,000, Plymouth assessed Sander’s total business fair value at
$1,500,000. Since that time, Sander has neither issued nor
reacquired any shares of its own stock.
The book values of Sander's individual assets and liabilities
approximated their acquisition-date fair values except for the
patent account, which was undervalued by $350,000. The...
On January 1, 2016, Plymouth Corporation acquired 80 percent of the outstanding voting stock of Sander...
On January 1, 2016, Plymouth Corporation acquired 80 percent of
the outstanding voting stock of Sander Company in exchange for
$1,200,000 cash. At that time, although Sander’s book value was
$925,000, Plymouth assessed Sander’s total business fair value at
$1,500,000. Since that time, Sander has neither issued nor
reacquired any shares of its own stock.
The book values of Sander's individual assets and liabilities
approximated their acquisition-date fair values except for the
patent account, which was undervalued by $350,000. The...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Case Study: Personal Beliefs in the Workplace Don Shakow was a prominent professional who worked in...
- 1: Competency framework usage is the modern best practice in management. What is meant by competency...
- A 19.34 g mixture of sugar (C12H22O11) and table salt (NaCl) is dissolved in 231 g...
- Young and Company claims that its pressurized diving bell will, on average, maintain its integrity to...
- 1) Alternative compiled code sequence using instructions in classes A, B, C. What is the average...
- An asset is purchased on January 1 for $48,700. It is expected to have a useful...
- Do we have any online or offline tool to convert c and cpp programs into MIPS...
ADVERTISEMENT