Question: On January 1, 2016, Halstead, Inc., purchased
On January 1, 2016, Halstead, Inc., purchased 75,000 shares of Sedgwick Company common stock for $1,480,000, giving Halstead 25 percent ownership and the ability to apply significant influence over Sedgwick. Any excess of cost over book value acquired was attributed solely to goodwill.
Sedgwick reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout these years. Dividends are declared and paid in the same period.
On July 1, 2018, Halstead sells 12,000 shares of this investment for $25 per share, thus reducing its interest from 25 to 21 percent, but maintaining its significant influence.
Determine the amounts that would appear on Halstead’s 2018 income statement relating to its ownership and partial sale of its investment in Sedgwick’s common stock.
Transcribed Image Text:
Annual Cash Dividends Not Income (paid quarterly) 2016 $340,000 $120,000 2017 480,000 600,000 140,000 160,000 2018
> Nascent, Inc., acquires 60 percent of Sea-Breeze Corporation for $414,000 cash on January 1, 2015. The remaining 40 percent of the Sea-Breeze shares traded near a total value of $276,000 both before and after the acquisition date. On January 1, 2015, Sea
> Following are several account balances taken from the records of Karson and Reilly as of December 31, 2018. A few asset accounts have been omitted here. All revenues, expenses, and dividend declarations occurred evenly throughout the year. An
> Miller Company acquired an 80 percent interest in Taylor Company on January 1, 2016. Miller paid $664,000 in cash to the owners of Taylor to acquire these shares. In addition, the remaining 20 percent of Taylor shares continued to trade at a total value
> On January 1, 2016, Telconnect acquires 70 percent of Bandmor for $490,000 cash. The remaining 30 percent of Bandmor’s shares continued to trade at a total value of $210,000. The new subsidiary reported common stock of $300,000 on that
> Posada Company acquired 7,000 of the 10,000 outstanding shares of Sabathia Company on January 1, 2016, for $840,000. The subsidiary’s total fair value was assessed at $1,200,000 although its book value on that date was $1,130,000. The $70,000 fair value
> On January 1, 2018, Morey, Inc., exchanged $178,000 for 25 percent of Amsterdam Corporation. Morey appropriately applied the equity method to this investment. At January 1, the book values of Amsterdam’s assets and liabilities approximated their fair val
> On January 1, 2017, Holland Corporation paid $8 per share to a group of Zeeland Corporation shareholders to acquire 60,000 shares of Zeeland’s outstanding voting stock, representing a 60 percent ownership interest. The remaining 40,000
> Several years ago, Jenkins Company acquired a controlling interest in Lambert Company. Lambert recently borrowed $100,000 from Jenkins. In consolidating the financial records of these two companies, how will this debt be handled?
> On January 1, 2016, Parflex Corporation exchanged $344,000 cash for 90 percent of Eagle Corporation’s outstanding voting stock. Eagle’s acquisition date balance sheet follows: On January 1, 2016, Parflex prepared the
> Plaza, Inc., acquires 80 percent of the outstanding common stock of Stanford Corporation on January 1, 2018, in exchange for $900,000 cash. At the acquisition date, Stanford’s total fair value, including the noncontrolling interest, was
> On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $36,000. Calvin Co. has one recorded asset, a specialized production machine with a book value of $10,000 and no liabilities. The fair value of the machine is $50,000
> Parker, Inc., acquires 70 percent of Sawyer Company for $420,000. The remaining 30 percent of Sawyer’s outstanding shares continue to trade at a collective value of $174,000. On the acquisition date, Sawyer has the following accounts:
> On January 1, 2017, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,141,000 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger ha
> On January 1, Patterson Corporation acquired 80 percent of the 100,000 outstanding voting shares of Soriano, Inc., in exchange for $31.25 per share cash. The remaining 20 percent of Soriano’s shares continued to trade for $30 both befor
> On January 1, 2018, Johnsonville Enterprises, Inc., acquired 80 percent of Stayer Company’s outstanding common shares in exchange for $3,000,000 cash. The price paid for the 80 percent ownership interest was proportionately representative of the fair val
> On January 1, 2017, Harrison, Inc., acquired 90 percent of Starr Company in exchange for $1,125,000 fair-value consideration. The total fair value of Starr Company was assessed at $1,200,000. Harrison computed annual excess fair-value amortization of $8,
> Allen Company acquired 100 percent of Bradford Company’s voting stock on January 1, 2014, by issuing 10,000 shares of its $10 par value common stock (having a fair value of $14 per share). As of that date, Bradford had stockholders&acir
> On January 1, 2017, Pinnacle Corporation exchanged $3,200,000 cash for 100 percent of the outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following balance sheet: Pinnacle prepared the following fair-value allocat
> When a parent company applies the initial value method or the partial equity method to an investment, a worksheet adjustment must be made to the parent’s beginning Retained Earnings account (Entry *C) in every period after the year of acquisition. What i
> On January 1, 2017, Prestige Corporation acquired 100 percent of the voting stock of Stylene Corporation in exchange for $2,030,000 in cash and securities. On the acquisition date, Stylene had the following balance sheet: At the acquisition date, the bo
> On January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc., in exchange for $6,000,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting sy
> Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017, in exchange for $5,875,000 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends.
> Foxx Corporation acquired all of Greenburg Company’s outstanding stock on January 1, 2016, for $600,000 cash. Greenburg’s accounting records showed net assets on that date of $470,000, although equipment with a 10-year
> Adams, Inc., acquires Clay Corporation on January 1, 2017, in exchange for $510,000 cash. Immediately after the acquisition, the two companies have the following account balances. Clay’s equipment (with a five-year remaining life) is ac
> Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that date, Abernethy has the following trial balance: During 2017, Abernethy reported net income of $80,000 while declaring and paying dividends
> Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that date, Abernethy has the following trial balance: During 2017, Abernethy reported net income of $80,000 while declaring and paying dividends
> Destin Company recently acquired several businesses and recognized goodwill in each acquisition. Destin has allocated the resulting goodwill to its three reporting units: Sand Dollar, Salty Dog, and Baytowne. Destin opts to skip the qualitative assessmen
> Francisco Inc. acquired 100 percent of the voting shares of Beltran Company on January 1, 2017. In exchange, Francisco paid $450,000 in cash and issued 104,000 shares of its own $1 par value common stock. On this date, Francisco’s stock
> Angela Corporation (a private company) acquired all of the outstanding voting stock of Eddy Tech, Inc., on January 1, 2018, in exchange for $9,000,000 in cash. At the acquisition date, Eddy Tech’s stockholders’ equity
> When a parent company uses the equity method to account for investment in a subsidiary, the amortization expense entry recorded during the year is eliminated on a consolidation worksheet as a component of Entry I. What is the necessity of removing this a
> Briefly discuss the cost savings that may result from a private company electing to amortize goodwill as opposed to annual impairment testing.
> On June 30, 2018, Streeter Company reported the following account balances On June 30, 2018, Princeton Company paid $310,800 cash for all assets and liabilities of Streeter, which will cease to exist as a separate entity. In connection with the acquisit
> Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $495,000 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spiderâ
> On January 1, 2018 Casey Corporation exchanged $3,300,000 cash for 100 percent of the outstanding voting stock of Kennedy Corporation. Casey plans to maintain Kennedy as a wholly owned subsidiary with separate legal status and accounting information syst
> On June 30, 2017, Wisconsin, Inc., issued $300,000 in debt and 15,000 new shares of its $10 par value stock to Badger Company owners in exchange for all of the outstanding shares of that company. Wisconsin shares had a fair value of $40 per share. Prior
> On May 1, Soriano Co. reported the following account balances along with their estimated fair values: On that day, Zambrano paid cash to acquire all of the assets and liabilities of Soriano, which will cease to exist as a separate entity. To facilitate
> On January 1, NewTune Company exchanges 15,000 shares of its common stock for all of the outstanding shares of On-the-Go, Inc. Each of NewTune’s shares has a $4 par value and a $50 fair value. The fair value of the stock exchanged in th
> On January 1, 2017, Stream Company acquired 30 percent of the outstanding voting shares of Q-Video, Inc., for $770,000. Q-Video manufactures specialty cables for computer monitors. On that date, Q-Video reported assets and liabilities with book values of
> On January 1, 2017, Fisher Corporation purchased 40 percent (80,000 shares) of the common stock of Bowden, Inc., for $982,000 in cash and began to use the equity method for the investment. The price paid represented a $60,000 payment in excess of the boo
> On July 1, 2016, Killearn Company acquired 88,000 of the outstanding shares of Shaun Company for $13 per share. This acquisition gave Killearn a 25 percent ownership of Shaun and allowed Killearn to significantly influence the investee’s decisions. As o
> What is a control premium and how does it affect consolidated financial statements?
> On January 1, 2018, Pine Company owns 40 percent (40,000 shares) of Seacrest, Inc., which it purchased several years ago for $182,000. Since the date of acquisition, the equity method has been properly applied, and the carrying amount of the investment a
> Harper, Inc. acquires 40 percent of the outstanding voting stock of Kinman Company on January 1, 2017, for $210,000 in cash. The book value of Kinman’s net assets on that date was $400,000, although one of the company’s buildings, with a $60,000 carrying
> Belden, Inc. acquires 30 percent of the outstanding voting shares of Sheffield, Inc. on January 1, 2017, for $312,000, which gives Belden the ability to significantly influence Sheffield. Sheffield has a net book value of $800,000 at January 1, 2017. She
> On December 31, 2016, Akron, Inc. purchased 5 Percent of Zip Company’s common shares on the open market in exchange for $16,000. On December 31, 2017, Akron, Inc., acquires an additional 25 percent of Zip Company’s out
> Matthew, Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee’s operations and decision making. On January 1, 2018, the balance in the Investment in Lindman account is $335,000. Amor
> Several years ago, Einstein, Inc., bought 40 percent of the outstanding voting stock of Brooks Company. The equity method is appropriately applied. On August 1 of the current year, Einstein sold a portion of these shares. a. How does Einstein compute th
> Following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2018: On January 1, 2018, Penske acquired all of Stanza’s outstanding stock for $680,000 fair value in cash and common stock. Penske
> Echo, Inc., purchased 10 percent of ProForm Corporation on January 1, 2017, for $345,000 and accounted for the investment using the fair-value method. Echo acquires an additional 15 percent of ProForm on January 1, 2018, for $580,000. The equity method o
> BuyCo, Inc. holds 25 percent of the outstanding shares of Marqueen Company and appropriately applies the equity method of accounting. Excess cost amortization (related to a patent) associated with this investment amounts to $10,000 per year. For 2017, Ma
> Maguire Company obtains 100 percent control over Williams Company. Several years after the takeover, consolidated financial statements are being produced. For each of the following accounts, briefly describe the values that should be included in consolid
> Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that date, Abernethy has the following trial balance: During 2017, Abernethy reported net income of $80,000 while declaring and paying dividends
> Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2017, for $190,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2018, Milani purchased an additional 30 percent of Seida for $600,000 which
> Alomar Co., a consolidated enterprise, conducted an impairment review for each of its reporting units. In its qualitative assessment, one particular reporting unit, Sellers, emerged as a candidate for possible goodwill impairment. Sellers has recognized
> On January 1, 2017, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $200,000 and liabilities of $75,000. A patent held by Holister having a $5,000 book value was a
> Haynes, Inc., obtained 100 percent of Turner Company’s common stock on January 1, 2017, by issuing 9,000 shares of $10 par value common stock. Haynes’s shares had a $15 per share fair value. On that date, Turner report
> Consolidated financial reporting is appropriate when one entity has a controlling financial interest in another entity. The usual condition for a controlling financial interest is ownership of a majority voting interest. But in some circumstances, contro
> On August 27, 2015, Celgene Corporation acquired all of the outstanding stock of Receptos, Inc., in exchange for $7.6 billion in cash. Referring to Celgene’s 2015 financial statements and its July 14, 2015, press release announcing the acquisition, answe
> In February 2015, Arctic Cat, Inc., acquired the assets and liabilities of MotorFist, LLC, a privately owned company based in Idaho Falls, Idaho, in exchange for $9.118 million in cash and contingent consideration. Referring to Arctic Cat’s 2015 annual 1
> Jonas Tech Corporation recently acquired Innovation Plus Company. The combined firm consists of three related businesses that will serve as reporting units. In connection with the acquisition, Jonas requests your help with the following asset valuation a
> Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2017, for $574,000 in cash. Annual excess amortization of $12,000 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $400,000,
> Since 1995, Starbucks Corporation had owned a 39.5 percent equity interest in Starbucks Coffee Japan, Ltd. ("Starbucks Japan"). Its joint venture partner, Sazaby League of Japan also owned a 39.5 percent equity interest in Starbucks Japan. The remaining
> Costco Wholesale Corporation owns and operates membership warehouses in the United States, Canada, United Kingdom, Mexico, Japan, Australia, and Spain. Costco also engages in retail operations through majority owned subsidiaries in Korea and Taiwan. The
> Wolf Pack Transport Co. has a 25 percent equity investment in Maggie Valley Depot (MVD), Inc., which owns and operates a warehousing facility used for the collection and redistribution of various consumer goods. Wolf Pack paid $1,685,000 for its 25 perce
> In 2015 Microsoft Corporation reported a $5.1 billion charge for the impairment of goodwill and a $2.2 billion charge for the impairment of intangible assets in one of its reporting units (segments) in its 10-K annual report. Referring to Microsoft’s 201
> NaviNow Company agrees to pay $20 million in cash to the four former owners of TrafficEye for all of its assets and liabilities. These four owners of TrafficEye developed and patented a technology for realtime monitoring of traffic patterns on the nation
> A vice president for operations at Poncho Platforms asks for your help on a financial reporting issue concerning goodwill. Two years ago, the company suffered a goodwill impairment loss for its Chip Integration reporting unit. Since that time, however, t
> On October 18, 2017, Armstrong Auto Corporation ("Armstrong") announced its plan to acquire 80 percent of the outstanding 500,000 shares of Bardeen Electric Corporation’s ("Bardeen") common stock in a business combination following regulatory approval. A
> Access The Coca-Cola Company’s SEC 10-K filing at www.coca-cola.com and address the following: 1. What companies does Coca-Cola describe as significant equity method investments? How do these investments help Coca-Cola? 2. What criteria does Coca-Cola us
> The FASB ASC paragraph 810-10-45-16 states: “The noncontrolling interest shall be reported in the consolidated statement of financial position within equity, separately from the parent’s equity. That amount shall be clearly identified and labeled, for ex
> One company acquired another in a transaction in which $100,000 of the acquisition price is assigned to goodwill. Several years later, a worksheet is being produced to consolidate these two companies. How is the reported value of the goodwill determined
> How is the noncontrolling interest in a subsidiary company calculated as of the end of a reporting period?
> Tree, Inc., has held a 10 percent interest in the stock of Limb Company for several years. Because of the level of ownership, this investment has been accounted for using the fair-value method. At the beginning of the current year, Tree acquires an addit
> December 31 consolidated financial statements are being prepared for Allsports Company and its new subsidiary acquired on July 1 of the current year. Should Allsports adjust its consolidated balances for the preacquisition subsidiary revenues and expense
> Where should the noncontrolling interest’s claims be reported in a set of consolidated financial statements?
> When a parent company uses the equity method to account for an investment in a subsidiary, why do both the parent’s Net Income and Retained Earnings account balances agree with the consolidated totals?
> Atwater Company acquires 80 percent of the outstanding voting stock of Belwood Company. On that date, Belwood possesses a building with a $160,000 book value but a $220,000 fair value. At what value would this building be consolidated?
> To obtain all of the stock of Molly, Inc., Harrison Corporation issued its own common stock. Harrison had to pay $98,000 to lawyers, accountants, and a stock brokerage firm in connection with services rendered during the creation of this business combina
> Sloane, Inc., issues 25,000 shares of its own common stock in exchange for all of the outstanding shares of Benjamin Company. Benjamin will remain a separately incorporated operation. How does Sloane record the issuance of these shares?
> What does the term noncontrolling interest mean?
> 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 re
> On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc., for $540,000 cash. The acquisition-date fair value of the noncontrolling interest was $60,000. At January 1, 2016, Star’s net ass
> In question (8), how would Duke account for the remainder of its investment subsequent to the sale of this partial interest?
> On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc., for $540,000 cash. The acquisition-date fair value of the noncontrolling interest was $60,000. At January 1, 2016, Star’s net ass
> On January 1, 2017, Chamberlain Corporation pays $388,000 for a 60 percent ownership in Neville. Annual excess fair-value amortization of $15,000 results from the acquisition. On December 31, 2018, Neville reports revenues of $400,000 and expenses of $30
> The noncontrolling interest represents an outside ownership in a subsidiary that is not attributable to the parent company. Where in the consolidated balance sheet is this outside ownership interest recognized? a. In the liability section. b. In a mezz
> On January 1, 2017, Grand Haven, Inc., reports net assets of $760,000 although equipment (with a four-year remaining life) having a book value of $440,000 is worth $500,000 and an unrecorded patent is valued at $45,000. Van Buren Corporation pays $692,00
> Jordan, Inc., holds 75 percent of the outstanding stock of Paxson Corporation. Paxson currently owes Jordan $400,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of this debt should be elimi
> In January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considere
> In January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considere
> Mittelstaedt, Inc., buys 60 percent of the outstanding stock of Sherry, Inc. Sherry owns a piece of land that cost $212,000 but had a fair value of $549,000 at the acquisition date. What value should be attributed to this land in a consolidated balance s
> In January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considere
> In January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considere
> When should a parent consider recognizing an impairment loss for goodwill associated with a subsidiary? How should the loss be reported in the financial statements?
> In January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considere
> West Company acquired 60 percent of Solar Company for $300,000 when Solar’s book value was $400,000. The newly comprised 40 percent noncontrolling interest had an assessed fair value of $200,000. Also at the acquisition date, Solar had
> West Company acquired 60 percent of Solar Company for $300,000 when Solar’s book value was $400,000. The newly comprised 40 percent noncontrolling interest had an assessed fair value of $200,000. Also at the acquisition date, Solar had
> West Company acquired 60 percent of Solar Company for $300,000 when Solar’s book value was $400,000. The newly comprised 40 percent noncontrolling interest had an assessed fair value of $200,000. Also at the acquisition date, Solar had
> McKinley, Inc., owns 100 percent of Jackson Company’s 45,000 voting shares. On June 30, McKinley’s internal accounting records show a $192,000 equity method adjusted balance for its investment in Jackson. McKinley sells 15,000 of its Jackson shares on th
> 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’s
