In: Accounting
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,039,000 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,040,000 including retained earnings of $1,540,000.
At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary:
| Consideration transferred | $ | 6,039,000 | |||||
| Mathias stockholders' equity | 2,040,000 | ||||||
| Excess fair over book value | $ | 3,999,000 | |||||
| to unpatented technology (8-year remaining life) | $ | 864,000 | |||||
| to patents (10-year remaining life) | 2,580,000 | ||||||
| to increase long-term debt (undervalued, 5-year remaining life) | (140,000 | ) | 3,304,000 | ||||
| Goodwill | $ | 695,000 | |||||
Postacquisition, Allison employs the equity method to account for its investment in Mathias. During the two years following the business combination, Mathias reports the following income and dividends:
| Income | Dividends | |||
| 2020 | $ | 465,000 | $ | 25,000 |
| 2021 | 930,000 | 50,000 | ||
No asset impairments have occurred since the acquisition date.
Individual financial statements for each company as of December 31, 2021, follow. Parentheses indicate credit balances. Dividends declared were paid in the same period.
| Allison | Mathias | ||||||
| Income Statement | |||||||
| Sales | $ | (6,560,000 | ) | $ | (3,940,000 | ) | |
| Cost of goods sold | 4,612,000 | 2,526,000 | |||||
| Depreciation expense | 915,000 | 301,000 | |||||
| Amortization expense | 450,000 | 115,000 | |||||
| Interest expense | 71,000 | 68,000 | |||||
| Equity earnings in Mathias | (592,000 | ) | 0 | ||||
| Net income | $ | (1,104,000 | ) | $ | (930,000 | ) | |
| Statement of Retained Earnings | |||||||
| Retained earnings 1/1 | $ | (5,420,000 | ) | $ | (1,980,000 | ) | |
| Net income (above) | (1,104,000 | ) | (930,000 | ) | |||
| Dividends declared | 560,000 | 50,000 | |||||
| Retained earnings 12/31 | $ | (5,964,000 | ) | $ | (2,860,000 | ) | |
| Balance Sheet | |||||||
| Cash | $ | 87,000 | $ | 155,000 | |||
| Accounts receivable | 990,000 | 245,000 | |||||
| Inventory | 1,780,000 | 825,000 | |||||
| Investment in Mathias | 6,683,000 | 0 | |||||
| Equipment (net) | 3,780,000 | 2,080,000 | |||||
| Patents | 115,000 | 0 | |||||
| Unpatented technology | 2,165,000 | 1,490,000 | |||||
| Goodwill | 453,000 | 0 | |||||
| Total assets | $ | 16,053,000 | $ | 4,795,000 | |||
| Accounts payable | $ | (889,000 | ) | $ | (235,000 | ) | |
| Long-term debt | (1,000,000 | ) | (1,200,000 | ) | |||
| Common stock | (8,200,000 | ) | (500,000 | ) | |||
| Retained earnings 12/31 | (5,964,000 | ) | (2,860,000 | ) | |||
| Total liabilities and equity | $ | (16,053,000 | ) | $ | (4,795,000 | ) | |
Required:
Determine the fair value in excess of book value for Allison's acquisition date investment in Mathias.
Prepare a worksheet to determine the consolidated values to be reported on Allison’s financial statements.
In: Accounting
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,387,500 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,125,000 including retained earnings of $1,625,000.
At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary:
| Consideration transferred | $ | 6,387,500 | |||||
| Mathias stockholders' equity | 2,125,000 | ||||||
| Excess fair over book value | $ | 4,262,500 | |||||
| to unpatented technology (8-year remaining life) | $ | 1,000,000 | |||||
| to patents (10-year remaining life) | 2,750,000 | ||||||
| to increase long-term debt (undervalued, 5-year remaining life) | (225,000 | ) | 3,525,000 | ||||
| Goodwill | $ | 737,500 | |||||
Postacquisition, Allison employs the equity method to account for its investment in Mathias. During the two years following the business combination, Mathias reports the following income and dividends:
| Income | Dividends | |||
| 2020 | $ | 433,125 | $ | 25,000 |
| 2021 | 866,250 | 50,000 | ||
No asset impairments have occurred since the acquisition date.
Individual financial statements for each company as of December 31, 2021, follow. Parentheses indicate credit balances. Dividends declared were paid in the same period.
| Allison | Mathias | ||||||
| Income Statement | |||||||
| Sales | $ | (6,900,000 | ) | $ | (4,025,000 | ) | |
| Cost of goods sold | 4,850,000 | 2,581,250 | |||||
| Depreciation expense | 1,000,000 | 352,000 | |||||
| Amortization expense | 492,500 | 140,500 | |||||
| Interest expense | 105,000 | 85,000 | |||||
| Equity earnings in Mathias | (511,250 | ) | 0 | ||||
| Net income | $ | (963,750 | ) | $ | (866,250 | ) | |
| Statement of Retained Earnings | |||||||
| Retained earnings 1/1 | $ | (5,590,000 | ) | $ | (2,033,125 | ) | |
| Net income (above) | (963,750 | ) | (866,250 | ) | |||
| Dividends declared | 560,000 | 50,000 | |||||
| Retained earnings 12/31 | $ | (5,993,750 | ) | $ | (2,849,375 | ) | |
| Balance Sheet | |||||||
| Cash | $ | 112,500 | $ | 180,500 | |||
| Accounts receivable | 1,075,000 | 287,500 | |||||
| Inventory | 1,950,000 | 910,000 | |||||
| Investment in Mathias | 6,901,875 | 0 | |||||
| Equipment (net) | 3,950,000 | 2,139,500 | |||||
| Patents | 157,500 | 0 | |||||
| Unpatented technology | 2,250,000 | 1,575,000 | |||||
| Goodwill | 512,500 | 0 | |||||
| Total assets | $ | 16,909,375 | $ | 5,092,500 | |||
| Accounts payable | $ | (1,715,625 | ) | $ | (543,125 | ) | |
| Long-term debt | (1,000,000 | ) | (1,200,000 | ) | |||
| Common stock | (8,200,000 | ) | (500,000 | ) | |||
| Retained earnings 12/31 | (5,993,750 | ) | (2,849,375 | ) | |||
| Total liabilities and equity | $ | (16,909,375 | ) | $ | (5,092,500 | ) | |
Required:
Determine the fair value in excess of book value for Allison's acquisition date investment in Mathias.
Prepare a worksheet to determine the consolidated values to be reported on Allison’s financial statements.
In: Accounting
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,387,500 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,125,000 including retained earnings of $1,625,000.
At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary:
| Consideration transferred | $ | 6,387,500 | |||||
| Mathias stockholders' equity | 2,125,000 | ||||||
| Excess fair over book value | $ | 4,262,500 | |||||
| to unpatented technology (8-year remaining life) | $ | 1,000,000 | |||||
| to patents (10-year remaining life) | 2,750,000 | ||||||
| to increase long-term debt (undervalued, 5-year remaining life) | (225,000 | ) | 3,525,000 | ||||
| Goodwill | $ | 737,500 | |||||
Postacquisition, Allison employs the equity method to account for its investment in Mathias. During the two years following the business combination, Mathias reports the following income and dividends:
| Income | Dividends | |||
| 2020 | $ | 433,125 | $ | 25,000 |
| 2021 | 866,250 | 50,000 | ||
No asset impairments have occurred since the acquisition date.
Individual financial statements for each company as of December 31, 2021, follow. Parentheses indicate credit balances. Dividends declared were paid in the same period.
| Allison | Mathias | ||||||
| Income Statement | |||||||
| Sales | $ | (6,900,000 | ) | $ | (4,025,000 | ) | |
| Cost of goods sold | 4,850,000 | 2,581,250 | |||||
| Depreciation expense | 1,000,000 | 352,000 | |||||
| Amortization expense | 492,500 | 140,500 | |||||
| Interest expense | 105,000 | 85,000 | |||||
| Equity earnings in Mathias | (511,250 | ) | 0 | ||||
| Net income | $ | (963,750 | ) | $ | (866,250 | ) | |
| Statement of Retained Earnings | |||||||
| Retained earnings 1/1 | $ | (5,590,000 | ) | $ | (2,033,125 | ) | |
| Net income (above) | (963,750 | ) | (866,250 | ) | |||
| Dividends declared | 560,000 | 50,000 | |||||
| Retained earnings 12/31 | $ | (5,993,750 | ) | $ | (2,849,375 | ) | |
| Balance Sheet | |||||||
| Cash | $ | 112,500 | $ | 180,500 | |||
| Accounts receivable | 1,075,000 | 287,500 | |||||
| Inventory | 1,950,000 | 910,000 | |||||
| Investment in Mathias | 6,901,875 | 0 | |||||
| Equipment (net) | 3,950,000 | 2,139,500 | |||||
| Patents | 157,500 | 0 | |||||
| Unpatented technology | 2,250,000 | 1,575,000 | |||||
| Goodwill | 512,500 | 0 | |||||
| Total assets | $ | 16,909,375 | $ | 5,092,500 | |||
| Accounts payable | $ | (1,715,625 | ) | $ | (543,125 | ) | |
| Long-term debt | (1,000,000 | ) | (1,200,000 | ) | |||
| Common stock | (8,200,000 | ) | (500,000 | ) | |||
| Retained earnings 12/31 | (5,993,750 | ) | (2,849,375 | ) | |||
| Total liabilities and equity | $ | (16,909,375 | ) | $ | (5,092,500 | ) | |
Required:
Determine the fair value in excess of book value for Allison's acquisition date investment in Mathias.
Prepare a worksheet to determine the consolidated values to be reported on Allison’s financial statements.
In: Accounting
Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2020, for $196,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2021, Milani purchased an additional 30 percent of Seida for $647,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $2,050,000 in total. Seida’s January 1, 2021, book value equaled $1,900,000, although land was undervalued by $131,000. Any additional excess fair value over Seida's book value was attributable to a trademark with an eight-year remaining life. During 2021, Seida reported income of $342,000 and declared and paid dividends of $102,000.
- Record acquisition of Seida stock.
- Record the 40% income earned during period by Seida.
- Record 2021 amortization for trademark excess fair value.
- Record dividend declaration from Seida.
- Record collection of dividend from investee.
In: Accounting
On January 1, 2020, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,600,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $910,000, retained earnings of $460,000, and a noncontrolling interest fair value of $400,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.
During the next two years, Smashing reported the following:
| Net Income | Dividends Declared | Inventory Purchases from Corgan | |||||||
| 2020 | $ | 360,000 | $ | 56,000 | $ | 310,000 | |||
| 2021 | 340,000 | 66,000 | 330,00 | ||||||
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 50 percent of the current year purchases remain in Smashing's inventory.
Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2021.
|
Prepare the worksheet adjustments for the December 31, 2021, consolidation of Corgan and Smashing. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
| No | Transaction | Accounts | Debit | Credit |
|---|---|---|---|---|
| 1 | 1 | Investment in Smashing | ||
| Cost of goods sold | ||||
| 2 | 2 | Common stock - Smashing | ||
| Retained earnings - Smashing | ||||
| Investment in Smashing | ||||
| Noncontrolling interest | ||||
| 3 | 3 | Covenants | ||
| Investment in Smashing | ||||
| Noncontrolling interest | ||||
| 4 | 4 | Equity in earnings of Smashing | ||
| Investment in Smashing | ||||
| 5 | 5 | Investment in Smashing | ||
| Dividends declared | ||||
| 6 | 6 | Amortization expense | ||
| Covenants | ||||
| 7 | 7 | Sales | ||
| Cost of goods sold | ||||
| 8 | 8 | Cost of goods sold | ||
| Inventory |
In: Accounting
Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2020, for $617,000 in cash. Annual excess amortization of $13,500 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $430,000, and Rambis reported a $228,000 balance. Herbert reported internal net income of $63,750 in 2020 and $75,850 in 2021 and declared $10,000 in dividends each year. Rambis reported net income of $22,600 in 2020 and $34,700 in 2021 and declared $5,000 in dividends each year.
a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary.
b. Under each of the following situations, what is the Investment in Rambis account balance on Herbert’s books on January 1, 2021?
c. Under each of the following situations, what is Entry *C on a 2021 consolidation worksheet?
In: Accounting
On January 1, 2020, QuickPort Company acquired 90 percent of the outstanding voting stock of NetSpeed, Inc., for $1,152,000 in cash and stock options. At the acquisition date, NetSpeed had common stock of $1,210,000 and Retained Earnings of $60,500. The acquisition-date fair value of the 10 percent noncontrolling interest was $128,000. QuickPort attributed the $9,500 excess of NetSpeed's fair value over book value to a database with a five-year remaining life.
During the next two years, NetSpeed reported the following:
| Net Income | Dividends Declared | |||||
| 2020 | $ | 13,300 | $ | 1,900 | ||
| 2021 | 19,000 | 1,900 | ||||
On July 1, 2020, QuickPort sold communication equipment to NetSpeed for $15,500. The equipment originally cost $18,200 and had accumulated depreciation of $4,200 and an estimated remaining life of three years at the date of the intra-entity transfer.
In: Accounting
On December 31, 2020, Cheyenne Company acquired a computer from Plato Corporation by issuing a $609,000 zero-interest-bearing note, payable in full on December 31, 2024. Cheyenne Company’s credit rating permits it to borrow funds from its several lines of credit at 12%. The computer is expected to have a 5-year life and a $63,000 salvage value.
Prepare the journal entry for the purchase on December 31, 2020. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization (use effective-interest method) on December 31, 2021. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
|
Schedule of Note Discount Amortization |
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|
|
Debit, Interest Expense Credit, |
Carrying Amount |
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| 12/31/20 | $ | $ | |||
| 12/31/21 | |||||
| 12/31/22 | |||||
| 12/31/23 | |||||
| 12/31/24 | |||||
Prepare any necessary adjusting entries relative to depreciation and amortization on December 31, 2022. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
In: Accounting
Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2020, for $186,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2021, Milani purchased an additional 30 percent of Seida for $615,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $2,050,000 in total. Seida’s January 1, 2021, book value equaled $1,900,000, although land was undervalued by $134,000. Any additional excess fair value over Seida's book value was attributable to a trademark with an eight-year remaining life. During 2021, Seida reported income of $319,000 and declared and paid dividends of $116,000.
Prepare the 2021 journal entries for Milani related to its investment in Seida.
1. Record acquisition of Seida stock.
2. Record the 40% income earned during period by Seida.
3. Record 2021 amortization for trademark excess fair value.
4. Record dividend declaration from Seida.
5. Record collection of dividend from investee.
In: Accounting