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:
- 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 | ||||
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