94. From which methods can a parent choose for its internal recordkeeping
related to the operations of a subsidiary?
95. What accounting method requires a subsidiary to record acquisition fair
value allocations and the amortization of allocations in its internal accounting
records?
96. What is the partial equity method? How does it differ from the equity
method? What are its advantages and disadvantages compared to the equity
method?
97. What advantages might push-down accounting offer for internal reporting?
98. What is the basic objective of all consolidations?
99. Yules Co. acquired Noel Co. in an acquisition transaction. Yules decided to
use the partial equity method to account for the investment. The current balance
in the investment account is $416,000. Describe in words how this balance was
derived.
100. Paperless Co. acquired Sheetless Co. and in effecting this business
combination, there was a cash-flow performance contingency to be paid in cash,
and a market-price performance contingency to be paid in additional shares of
stock. In what accounts and in what section(s) of a consolidated balance sheet
are these contingent consideration items shown?
101. Avery Company acquires Billings Company in a combination accounted for
as an acquisition and adopts the equity method to account for Investment in
Billings. At the end of four years, the Investment in Billings account on Avery’s
books is $198,984. What items constitute this balance?
Since the equity method has been applied by Avery, the $198,984 is composed of
four items:
102. Dutch Co. has loaned $90,000 to its subsidiary, Hans Corp., which retains
separate incorporation. How would this loan be treated on a consolidated balance
sheet?
103. An acquisition transaction results in $90,000 of goodwill. Several years
later a worksheet is being produced to consolidate the two companies. Describe
in words at what amount goodwill will be reported at this date.
104. Why is push-down accounting a popular internal reporting technique?
105. On January 1, 2010, Jumper Co. acquired all of the common stock of Cable
Corp. for $540,000. Annual amortization associated with the purchase amounted
to $1,800. During 2010, Cable earned net income of $54,000 and paid dividends of
$24,000. Cable’s net income and dividends for 2011 were $86,000 and $24,000,
respectively.
Required:
Assuming that Jumper decided to use the partial equity method, prepare a
schedule to show the balance in the investment account at the end of 2011.
106. Hanson Co. acquired all of the common stock of Roberts Inc. on January 1,
2010, transferring consideration in an amount slightly more than the fair value of
Roberts’ net assets. At that time, Roberts had buildings with a twenty-year useful
life, a book value of $600,000, and a fair value of $696,000. On December 31,
2011, Roberts had buildings with a book value of $570,000 and a fair value of
$648,000. On that date, Hanson had buildings with a book value of $1,878,000
and a fair value of $2,160,000.
Required:
What amount should be shown for buildings on the consolidated balance sheet
dated December 31, 2011?
107. Carnes Co. decided to use the partial equity method to account for its
investment in Domino Corp. An unamortized trademark associated with the
acquisition was $30,000, and Carnes decided to amortize the trademark over ten
years. For 2011, Carnes’ Equity in Subsidiary Earnings was $78,000.
Required:
What balance would have been in the
Equity in Subsidiary Earnings
account if
Carnes had used
the equity method
?
108. Fesler Inc. acquired all of the outstanding common stock of Pickett
Company on January 1, 2010. Annual amortization of $22,000 resulted from this
transaction. On the date of the acquisition, Fesler reported retained earnings of
$520,000 while Pickett reported a $240,000 balance for retained earnings. Fesler
reported net income of $100,000 in 2010 and $68,000 in 2011, and paid dividends
of $25,000 in dividends each year. Pickett reported net income of $24,000 in 2010
and $36,000 in 2011, and paid dividends of $10,000 in dividends each year.
Assume that Fesler’s reported net income includes Equity in Subsidiary Income.
If the parent’s net income reflected use of the equity method, what were the
consolidated retained earnings on December 31, 2011?
109. Fesler Inc. acquired all of the outstanding common stock of Pickett
Company on January 1, 2010. Annual amortization of $22,000 resulted from this
transaction. On the date of the acquisition, Fesler reported retained earnings of
$520,000 while Pickett reported a $240,000 balance for retained earnings. Fesler
reported net income of $100,000 in 2010 and $68,000 in 2011, and paid dividends
of $25,000 in dividends each year. Pickett reported net income of $24,000 in 2010
and $36,000 in 2011, and paid dividends of $10,000 in dividends each year.
Assume that Fesler’s reported net income includes Equity in Subsidiary Income.
If the parent’s net income reflected use of the partial equity method, what were
the consolidated retained earnings on December 31, 2011?
110. Fesler Inc. acquired all of the outstanding common stock of Pickett
Company on January 1, 2010. Annual amortization of $22,000 resulted from this
transaction. On the date of the acquisition, Fesler reported retained earnings of
$520,000 while Pickett reported a $240,000 balance for retained earnings. Fesler
reported net income of $100,000 in 2010 and $68,000 in 2011, and paid dividends
of $25,000 in dividends each year. Pickett reported net income of $24,000 in 2010
and $36,000 in 2011, and paid dividends of $10,000 in dividends each year.
Assume that Fesler’s reported net income includes Equity in Subsidiary Income.
If the parent’s net income reflected use of the initial value method, what were the
consolidated retained earnings on December 31, 2011?
111. Jaynes Inc. acquired all of Aaron Co.’s common stock on January 1, 2010,
by issuing 11,000 shares of $1 par value common stock. Jaynes’ shares had a $17
per share fair value. On that date, Aaron reported a net book value of $120,000.
However, its equipment (with a five-year remaining life) was undervalued by
$6,000 in the company’s accounting records. Any excess of consideration
transferred over fair value of assets and liabilities is assigned to an unrecorded
patent to be amortized over ten years.