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.

Sales	2012	2013	2014
Aspen Co	515000	595000	740000
Birch Co	285000	398750	631000
Cedar Co	N/A	249800	258800
Expenses
Aspen Co	297500	442500	530000
Birch Co	237000	315000	557500
Cedar Co	N/A	233000	216000
Dividends declared
Aspen Co	20000	45000	55000
Birch Co	10000	15000	15000
Cedar Co	N/A	2000	6000

Assume that each of the following questions is independent:

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? ?Investment in Birch ?????

b.

What is the consolidated net income for this business combination for 2014?

Consolidated net income ?????? c. What is the net income attributable to the noncontrolling interest in 2014? NCI share of consolidated net income ?????? 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 11100 12/31/13 20700 12/31/14 28400 What is the realized income of Birch in 2013 and 2014, respectively? Realized income ????? Need help on all answers. Just could not figure it out on my own, used older problem for steps but some place along the process my answers got off and nothing was correct

Answer 1

1
Consideration transferred by aspen	504000
Non controling interest fair value	126000
Birch bussiness fair value	630000
Book value	-510000
Trade name	120000
Life	30
Annual amortization	4000
Consideration transferred by Cedar (By Birch)	160000
Non controling interest fair value	40000
Cedar's bussiness fair value	200000
Book value	-164000
Excess to Trade name	36000
Life	30
Annual amortization	1200
Investment in brich		504000
Birch's reported net income- 2012 ($285000-$237000)	48000
Amortiz ation expense	-4000
Accrual- based net income	44000
Birch’s percentage ownership	0.80
Equity accrual- 2012		35200
Dividen ds received 2012		-8000
Birch's reported net income- 2013 ($398750-$315000)	83750
Amortiz ation expense	-4000
Net income from Cedar [80% × ($16800 – $1200)	12480
Accrual- based net income	92230
Birch’s percentage ownership	0.8
Equity accrual– 2013		73784
Dividen ds received from Birch 2013		(12,000)
Investm ent in Birch 12- 31-13		592984

B. What is the consolidated net income for this business combination for 2014.
Consolidated sales (total for the companies)	1629800
Consolidated expenses (total for the companies)	-1303500
Total amortization expense (4,000 + 1200 )	-5200
Consolidated net income for 2014	321100

C. Noncontrolling interest in income of Cedar
Revenues less expenses	$42,800
Excess amortization	-1200
Accrual-based income	41600
Noncontrolling interest percentage	20%
Noncontrolling interest in income of Cedar	8320	8320
Noncontrolling interest in income of Birch
Revenues less expenses	73500
Excess amortization	-4000
Equity income accruing from Cedar Company
(80% of 41600 accrual based income of cedar)	33280
Accrual-based income	102780
Noncontrolling interest percentage	20%
Noncontrolling interest in income of Cedar		$20,556
Total of NCI		$28,876

d
Accrual based income of 2013(as per a)	92230
Add: 2012 unrealised gross profit	11100
Less: 2013 unrealised gross profit	-20700
2013 - realised income	82360
Accrual based income of 2014(as per c)	102780
Add: 2013 unrealised gross profit	20700
Less: 2014 unrealised gross profit	-28400
2014 - realised income	95080