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In: Accounting
On January 1, 2020, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,435,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $920,000, retained earnings of $470,000, and a noncontrolling interest fair value of $615,000. 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 | $ | 370,000 | $ | 57,000 | $ | 320,000 | |||
| 2021 | 350,000 | 67,000 | 340,000 | ||||||
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 30 percent of the current year purchases remain in Smashing's inventory.
In: Accounting
On January 1, 2020, QuickPort Company acquired 90 percent of the outstanding voting stock of NetSpeed, Inc., for $1,161,000 in cash and stock options. At the acquisition date, NetSpeed had common stock of $1,220,000 and Retained Earnings of $61,000. The acquisition-date fair value of the 10 percent noncontrolling interest was $129,000. QuickPort attributed the $9,000 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 | $ | 12,600 | $ | 1,800 | ||
| 2021 | 18,000 | 1,800 | ||||
On July 1, 2020, QuickPort sold communication equipment to NetSpeed for $15,000. The equipment originally cost $18,500 and had accumulated depreciation of $5,300 and an estimated remaining life of three years at the date of the intra-entity transfer.
In: Accounting
On January 1, 2020, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc., for $3,800,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities.
The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow:
| Carrying Amount | Fair Value | |||||
| Cash and receivables | $ | 165,000 | $ | 165,000 | ||
| Computing equipment | 5,495,000 | 6,580,000 | ||||
| Patented technology | 155,000 | 4,110,000 | ||||
| Trademark | 205,000 | 2,110,000 | ||||
| Liabilities | (240,000 | ) | (240,000 | ) | ||
Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a five-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost.
During the next two years, Sauk Trail reported the following net income and dividends:
| Net Income | Dividends Declared | |||||
| 2020 | $ | 1,910,000 | $ | 205,000 | ||
| 2021 | 2,095,000 | 215,000 | ||||
How much of Ridge Road’s $3,800,000 payment for Sauk Trail is attributable to goodwill?
What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021?
What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021?
In: Accounting
On January 1, 2020, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $910,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $770,000, retained earnings of $320,000, and a noncontrolling interest fair value of $390,000. 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 | $ | 220,000 | $ | 42,000 | $ | 170,000 | |||
| 2021 | 200,000 | 52,000 | 190,000 | ||||||
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 30 percent of the current year purchases remain in Smashing's inventory.
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.
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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
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 January 1, 2020, Ridge Road Company acquired 20 percent of the voting shares of Sauk Trail, Inc., for $3,100,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities.
The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow:
| Carrying Amount | Fair Value | |||||
| Cash and receivables | $ | 130,000 | $ | 130,000 | ||
| Computing equipment | 5,180,000 | 6,020,000 | ||||
| Patented technology | 120,000 | 4,040,000 | ||||
| Trademark | 170,000 | 2,040,000 | ||||
| Liabilities | (205,000 | ) | (205,000 | ) | ||
Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a four-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost.
During the next two years, Sauk Trail reported the following net income and dividends:
| Net Income | Dividends Declared | |||||
| 2020 | $ | 1,840,000 | $ | 170,000 | ||
| 2021 | 2,025,000 | 180,000 | ||||
How much of Ridge Road’s $3,100,000 payment for Sauk Trail is attributable to goodwill?
What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021?
What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021?
In: Accounting
On January 1, 2020, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc., for $4,000,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 175,000 $ 175,000 Computing equipment 5,585,000 6,740,000 Patented technology 165,000 4,130,000 Trademark 215,000 2,130,000 Liabilities (250,000 ) (250,000 ) Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a five-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: Net Income Dividends Declared 2020 $ 1,930,000 $ 215,000 2021 2,115,000 225,000 How much of Ridge Road’s $4,000,000 payment for Sauk Trail is attributable to goodwill? What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021? On January 1, 2020, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc., for $4,000,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 175,000 $ 175,000 Computing equipment 5,585,000 6,740,000 Patented technology 165,000 4,130,000 Trademark 215,000 2,130,000 Liabilities (250,000 ) (250,000 ) Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a five-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: Net Income Dividends Declared 2020 $ 1,930,000 $ 215,000 2021 2,115,000 225,000 How much of Ridge Road’s $4,000,000 payment for Sauk Trail is attributable to goodwill? What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021? On January 1, 2020, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc., for $4,000,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 175,000 $ 175,000 Computing equipment 5,585,000 6,740,000 Patented technology 165,000 4,130,000 Trademark 215,000 2,130,000 Liabilities (250,000 ) (250,000 ) Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a five-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: Net Income Dividends Declared 2020 $ 1,930,000 $ 215,000 2021 2,115,000 225,000 How much of Ridge Road’s $4,000,000 payment for Sauk Trail is attributable to goodwill? What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021? On January 1, 2020, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc., for $4,000,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 175,000 $ 175,000 Computing equipment 5,585,000 6,740,000 Patented technology 165,000 4,130,000 Trademark 215,000 2,130,000 Liabilities (250,000 ) (250,000 ) Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a five-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: Net Income Dividends Declared 2020 $ 1,930,000 $ 215,000 2021 2,115,000 225,000 How much of Ridge Road’s $4,000,000 payment for Sauk Trail is attributable to goodwill? What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021? On January 1, 2020, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc., for $4,000,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 175,000 $ 175,000 Computing equipment 5,585,000 6,740,000 Patented technology 165,000 4,130,000 Trademark 215,000 2,130,000 Liabilities (250,000 ) (250,000 ) Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a five-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: Net Income Dividends Declared 2020 $ 1,930,000 $ 215,000 2021 2,115,000 225,000 How much of Ridge Road’s $4,000,000 payment for Sauk Trail is attributable to goodwill? What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021? On January 1, 2020, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc., for $4,000,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 175,000 $ 175,000 Computing equipment 5,585,000 6,740,000 Patented technology 165,000 4,130,000 Trademark 215,000 2,130,000 Liabilities (250,000 ) (250,000 ) Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a five-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: Net Income Dividends Declared 2020 $ 1,930,000 $ 215,000 2021 2,115,000 225,000 How much of Ridge Road’s $4,000,000 payment for Sauk Trail is attributable to goodwill? What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021?
In: Accounting
Alfonso Inc. acquired 100 percent of the voting shares of BelAire Company on January 1, 2020. In exchange, Alfonso paid $459,500 in cash and issued 100,000 shares of its own $1 par value common stock. On this date, Alfonso’s stock had a fair value of $15 per share. The combination is a statutory merger with BelAire subsequently dissolved as a legal corporation. BelAire’s assets and liabilities are assigned to a new reporting unit.
The following shows fair values for the BelAire reporting unit for January 1, 2020 along with respective carrying amounts on December 31, 2021.
| BelAire Reporting Unit |
Fair Values 1/1/20 |
Carrying Amounts 12/31/21 |
||||
| Cash | $ | 101,000 | $ | 52,000 | ||
| Receivables | 212,250 | 247,000 | ||||
| Inventory | 230,000 | 262,000 | ||||
| Patents | 436,000 | 512,000 | ||||
| Customer relationships | 650,750 | 608,000 | ||||
| Equipment (net) | 403,500 | 302,000 | ||||
| Goodwill | ? | 568,000 | ||||
| Accounts payable | (113,500 | ) | (201,000 | ) | ||
| Long-term liabilities | (528,500 | ) | (470,000 | ) | ||
Note: Parentheses indicate a credit balance.
Prepare Alfonso’s journal entry to record the assets acquired and the liabilities assumed in the BelAire merger on January 1, 2020. Note: Enter cash paid and cash received as two separate amounts.
On December 31, 2021, Alfonso opts to forgo any goodwill impairment qualitative assessment and estimates that the total fair value of the entire BelAire reporting unit is $1,740,000. What amount of goodwill impairment, if any, should Alfonso recognize on its 2021 income statement?
In: Accounting