1, 4, 8, 11, & 38

1. Bailey, Inc., buys 60 percent of the outstanding stock of Luebs, Inc., in an acquisition that resulted in the recognition of goodwill. Luebs owns a piece of land that cost $200,000 but was worth $500,000 at the acquisition date. What value should be attributed to this land in a consolidated balance sheet at the date of takeover? a. $120,000. b. $300,000. c. $380,000.

d. $500,000.

4. On January 1, 2009, Turner, Inc., reports net assets of $480,000 although a building (with a 10year life) having a book value of $260,000 is now worth $300,000. Plaster Corporation pays $540,000 on that date for a 90 percent ownership in Turner. On December 31, 2011, Turner reports a Building account of $182,000 and Plaster reports a Building account of $510,000. What is the consolidated balance of the Building account?

a. $720,000. b. $724,000. c. $780,000. d. $810,000.

$510,000 300,000 - 90,000 $720,000 (300,000/10)

Payment for 90% ownership Building worth (fair value) Amortization of 3 years Consolidated Buildings

8. James Company acquired 85 percent of Mark-Right Company on April 1. On its December 31, consolidated income statement, how should James account for Mark-Right's revenues and expenses that occurred before April 1. a. Include 100 percent of Mark-Right's revenues and expenses and deduct the preacquisition portion as noncontrolling interest in net income.

b. Exclude 100 percent of the preacquisition revenues and 100 percent of the preacquisition expenses from their respective consolidated totals. c. Exclude 15 percent of the preacquisition revenues and 15 percent of the preacquisition expenses from consolidated expenses. d. Deduct 15 percent of the net combined revenues and expenses relating to the preacquisition period from consolidated net income.

11. On April 1, Pujols, Inc., exchanges $430,000 fair-value consideration for 70 percent of the outstanding stock of Ramirez Corporation. The remaining 30 percent of the outstanding shares continued to trade at a collective fair value of $165,000. Ramirez' identifiable assets and liabilities each had book values that equaled their fair values on April 1 for a net total of $500,000. During the remainder of the year, Ramirez generates revenues of $600,000 and expenses of $360,000 and paid no dividends. On a December 31 consolidated balance sheet, what amount should be reported as noncontrolling interest?

a. $219,000. b. $237,000. c. $234,000. d. $250,500.

165,000

Fair Value of 30% non-controlling interest on April 1 Revenue Expenses 600,000 360,000 x .30 = 72,000 Non-controlling December 31

237,000

38. Bon Air, Inc., acquired 70 percent (2,800 shares) of the outstanding voting stock of Creedmoor Corporation on January 1, 2006, for $250,000 cash. Creedmoor's net assets on that date totaled $230,000, but this balance included three accounts having fair values that differed from their book values:

As of December 31, 2009, the two companies report the following balances:

Prepare a worksheet to consolidate these two companies as of December 31, 2009. Because Bon Air acquired Creedmoor before the effective date of SFAS 141R, the purchase method is appropriate.
1) 2) 3) Land (BV) 30,000 (FV) 40,000 Equipment (14 year life) (BV) 50,000 (FV) 118,000 Liabilities (10 year life) (BV) -70,000 (FV) -50,000 Because Bon

As of December 31, the two companies reported the following balance: Prepare a worksheet to consolidate these two companies as of December 31, 2009. appropriate. Purchase Price Allocation and Excess Amortizations Purchase price ($230,000 70%) $250,000 161,000 $89,000 $7,000 47,600 14,000 14 yrs. $3,400 1,400 10 yrs. Annual Excess Life Amortizations Air acquired Creedmoor before the effective date of SFAS 141R, the purchase method is

Book value acquired Price in excess of book value Allocation based on fair value Land Equipment ($10,000 70%) ($68,000 70%) 68,600

Liabilities

($20,000 70%)

Goodwill Total

$20,400 $4,800

indefinite

-0-

The parent uses the equity method: Investment income of $44,200 = $49,000 (70% $70,000) less $4,800 amortization expense. Bon Air Revenues Operating expenses Investment income Net income Retained earnings, 1/1/09 Net income Dividends paid Retained earnings, 12/31/09 Current assets Investment in Creedmoor (I) 44,200 (A)74,600 Land Buildings (net) Equipment (net) Goodwill -0-0(A)20,400 Total assets Liabilities (221,600) Common stock Additional paid-in capital Noncontrolling interest 1/1/09 Noncontrolling interest 12/31/09 Retained earnings, 12/31/09 Total liabilities and equities (1,238,600) (50,000) (S)90,000 108,000 (40,000) -0(90,000) (108,000) (320,000) (410,000) (801,000) 430,600 430,600 (S) 40,000 (58,000) (50,000) (58,000) 241,000 50,000 40,000 (A) 7,000 298,000 489,000 3,400 239,200 289,000 165,200 20,400 1,089,000 (180,000) 410,000 (50,000) (A) 1,238,600 9,800 (E) 1,400 200,000 -0(760,000) Creedmoor Adjustments & Eliminations (694,800) 630,000 (44,200) (109,000) (260,000) 68,000 NCI Consolidated (944,800) (E) 4,800 -021,000 (109,000) (760,000) (109,000) (D) 7,000 3,000 (801,000) 192,000 (S)210,000 68,000 814,800

(250,000) 180,000 -0-

(I) 44,200 (21,000)

Noncontrolling int(E)erest in Creedmoor income

(70,000)

(S)260,000 (70,000) 10,000 (320,000)

(109,000)

(801,000) 72,000 321,800 -0-

120,000 (D) 7,000

(A)37,400

(801,000)

(1,089,000)