Question

On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for $504,000. Birch reported a $510,000 book value and the fair value of the noncontrolling interest was $126,000 on that date. Also, on January 1, 2013, Birch acquired 80 percent of Cedar Company for $160,000 when Cedar had a $164,000 book value and the 20 percent noncontrolling interest was valued at $40,000. In each acquisition, the subsidiary’s excess acquisition-date fair over book value was assigned to a trade name with a 30-year life. These companies report the following financial information. Investment income figures are not included. 2012 2013 2014   Sales:      Aspen Company $ 515,000    $ 595,000    $ 740,000         Birch Company 285,000    398,750    631,000         Cedar Company Not available    249,800    258,800      Expenses:      Aspen Company $ 397,500    $ 442,500    $ 530,000         Birch Company 237,000    315,000    557,500         Cedar Company Not available    233,000    216,000      Dividends declared:      Aspen Company $ 20,000    $ 45,000    $ 55,000         Birch Company 10,000    15,000    15,000         Cedar Company Not available    2,000    6,000    a If all companies use the equity method for internal reporting purposes, what is the December 31, 2013, balance in Aspen's Investment in Birch Company account b What is the consolidated net income for this business combination for 2014? c What is the net income attributable to the noncontrolling interest in 2014? d Assume that Birch made intra-entity inventory transfers to Aspen that have resulted in the following unrealized gross profits at the end of each year: Date Amount   12/31/12 $11,100      12/31/13 20,700      12/31/14 28,400    What is the realized income of Birch in 2013 and 2014, respectively?

Answer 1

1)

??Aspen - Consideration transferred	504,000
??Noncontrolling interest FV	126,000
??Birch's business FV	630,000
BV	-510,000
??Excess to trade name	120,000
??Life (in years)	30 years
Amortization annually	4,000
??
??Cedar (by Birch) Consideration transferred	160,000
??Noncontrolling interest FV	40,000
??Cedar’s business FV	200,000
BV	-164,000
??Excess to trade name	36,000
??Life (in years)	30 years
Amortization annually	1,200
??Investment in Birch		504,000
??Birch's reported net income-2012	48,000
??Amortization expense	-4,000
??Accrual-based net income	44,000
??Birch’s percentage ownership	80
??Equity accrual Yr -2012		35,200
??Dividends received Yr-2012		-8,000
?Net income -?Birch's reported Yr -2013	83,750
??Amortization expense	-4,000
??Net income from Cedar [80% * ($16,800 -?$1,200)]	12,480
??Accrual-based net income	92,230
??Birch’s % ownership	80%
??Equity accrual Yr-2013		73,784
??Dividends received from Birch Yr-2013		-12,000
??Investment in Birch 31st Dec		592,984

2)

Sales - Consolidated	1,629,800
Expenses - Consolidated	-1,303,500
Amortization expense total	-5,200
??Consolidated net income for 2014	321,100

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3)

NCI in consolidated NI-??Cedar’s
??Revenues minus expenses	42,800
??Excess amortization	-1,200
??Income - Accrual-based	41,600
??Noncontrolling interest percentage	20%
NCI in consolidated NI-??Cedar’s		8,320 ??
NCI in consolidated NI- Birch’s
??Revenues minus expenses	73,500
??Excess amortization	-4,000
??Equity in Cedar income [(42,800 -1,200) * 80%]	33,280
??Realized income Yr-2014 Birch	102,780
??Ownership - Outside	20%	20,556???
??Total NCI share of 2014 consolidated net income		28,876???

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4)

Year- 2013 Realized NI of Birch (prior to accounting for unrealized gross profit)	92,230
??Year- 2012 Transfer-GP recognized in Yr-2013	11,100
??Year- 2013 Transfer-GP to be recognized in Yr-2014	-20,700
??Year- 2013 Realized NI - ?Birch	82,630
??Year- 2014 Realized NI of Birch (prior to accounting?for unrealized gross profit)	102,780
??Year- 2013 Transfer-GP recognized in Yr-2014	20,700
??Year- 2014 Transfer-GP to be recognized in Yr-2015	-28,400
??Year- 2014 Birch-Realized NI	95,080?