Question

In: Accounting

On January 1, 2016, Acorn company acquired an 80% interest in Bengal company’s voting stock for...

On January 1, 2016, Acorn company acquired an 80% interest in Bengal company’s voting stock for $288,000. On that date Bengal had a $300,000 book value and the fair value of the non-controlling interest was $72,000. On January 1, 2017, Bengal acquired 80% of Canaris Company for $104,000 when Canaris had a $100,000 book value and the value of the non-controlling interest was $26,000. In each acquisition, the excess of fair value over book value was assigned to Tradename with a 30-year useful life. These companies reported the following financial information for the years 2016-2018:

Sales:

2016

2017

2018

Acorn

$415,000

$545,000

$688,000

Bengal

$200,000

$280,000

$400,000

Canaris

NA

$160,000

$210,000

Expenses:

Acorn

$310,000

$420,000

$510,000

Bengal

$160,000

$220,000

$335,000

Canaris

NA

$150,000

$180,000

Dividends:

Acorn

$20,000

$40,000

$50,000

Bengal

$10,000

$20,000

$20,000

Canaris

NA

$2,000

$10,000

Note: Assume that all companies use the equity method of accounting. Note: The solution to part II will include the amortization amounts calculated in Part I.

Required:

  1. Calculate the annual amortization pertaining to Bengal and Canaris

b. Calculate the value of Acorn’s investment in Bengal at 12/31/2017.

Solutions

Expert Solution

a.) Annual Amortization
Bengal
Purchase Consideration        288,000
Add: Non-controlling Interest           72,000
Less: Net asset        300,000
Tradename           60,000
Annual Amortization to Bengal             2,000 (60,000 / 30 )
Canaris
Purchase Consideration        104,000
Add: Non-controlling Interest           26,000
Less: Net asset        100,000
Tradename           30,000
Annual Amortization to Canaris             1,000 (30,000 / 30 )
b.) Value of Acorn’s investment in Bengal at 12/31/2017.
Purchase cost        288,000
Add: Share of Income of 2016           32,000
(200,000 - 160,000 ) x 80%
Less: Annual Amortization             2,000
Less: Share of Dividend of 2016             8,000
(10,000 x 80% )
Add: Share of Income of 2017           48,000
(280,000 - 220,000 ) x 80%
Less: Annual Amortization             2,000
Less: Share of Dividend of 2017           16,000
(20,000 x 80% )
Investment at 12/31/2017       340,000

ekkarill92 answered 1 year ago
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