Question

On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $460,000. Birch reported a $470,000 book value and the fair value of the noncontrolling interest was $115,000 on that date. Then, on January 1, 2017, Birch acquired 80 percent of Cedar Company for $164,000 when Cedar had a $124,000 book value and the 20 percent noncontrolling interest was valued at $41,000. 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	$	545,000	$	630,000	$	717,500
Birch Company		268,750		290,750		603,600
Cedar Company	Not available			192,900		275,600
Expenses:
Aspen Company	$	382,500	$	565,000	$	627,500
Birch Company		211,000		222,000		525,000
Cedar Company	Not available			181,000		245,000
Dividends declared:
Aspen Company	$	20,000	$	45,000	$	55,000
Birch Company		10,000		20,000		20,000
Cedar Company	Not available			2,000		6,000

Assume that each of the following questions is independent:

1. If all companies use the equity method for internal reporting purposes, what is the December 31, 2017, balance in Aspen's Investment in Birch Company account?

2. What is the consolidated net income for this business combination for 2018?

3. What is the net income attributable to the noncontrolling interest in 2018?

4. Assume that Birch made intra-entity inventory transfers to Aspen that have resulted in the following intra-entity gross profits in inventory at the end of each year:

Date	Amount
12/31/16	$11,500
12/31/17	16,400
12/31/18	32,900

What is the accrual-based net income of Birch in 2017 and 2018, respectively?

Answer 1

Ans a

Ans b

Ans c

Ans d

Realized Income Yr 2017
Brich ( as calcukated above)		72,610
2016 - Transfer- gross Profit
recognised in Yr 2017		11,500
2017 - Transfer- gross Profit
recognised in Yr 2018		-16,400
2017 - Realised Income
Birch		67,710
Realized Income Yr 2018
Brich ( as calcukated above)		97,420
2017 - Transfer- gross Profit
recognised in 2018		16,400
2018 - Transfer- gross Profit		-32,900
recognised in 2019
2018 - Realised Income
Birch		80,920

On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for

$460000 Consideration Transferred (By aSpen) Non controling Interest (NCI_ Brich Fiar value of Business Less - Book Value a per Question Trade Name=A Remaining Life= years=B Annual Amortized (A/B) Consideration Transferred fro Cedarf Brich) Non controling Interest (NCI) Cedar Fiar value of Business Less - Book Value a per Question Trade Name=A Remaining Life= years=B Annual Amortized (A/B) Investment in Brich Brich reported Income-a ($268750-$211000)= Year 2016 Amortization expenses b Income accured a+b) Aspen share 80% Accrual base = Equity 80%*$54250 Dividend received 80%*10000( Yr 2016) Brich reported Income-a ($290750-$222000) = Year 2017 Amortization expenses b Income from Cedarc 80%*(192900-181000-2700) Income accured a+b+c) Aspen share 80% Accrual base = Equity 80%*$72610 Dividend received 80%*20000( yr 2017) Final Investment - By Britch = Year 2017 | Amnt $ Amnt $ 4,60,000 1,15,000 5,75,000 4,70,000 1,05,000 30 3,500 1,64,000 41,000 2,05,000 1,24,000 81,000 30 2,700 | 4,60,000 57750 -3,500 54,250 43,400 -8,000 68750 -3,500 7360 72,610 58,088 - 16,000 5,37,488

Consolidated Net Income - Year 2018 Sales Amnt $ Amnt $ Aspen 7,17,500 Birch 6,03,600 Cedar 2,75,600 Total sales 15,96,700 Expenses Aspen 6,27,500 Birch 5,25,000 Cedar 2,45,000 Total Expenses 13,97,500 Total amortized cost $3500+$2700 -6,200 Consolidated Income 1,93,000 ( year 2018)

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