On January 1 2012 Aspen Company acquired 80 percent of Birch

On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for $504,000. Birch reported a $510,000 book value and the fair value of the noncontrolling interest was $126,000 on that date. Also, on January 1, 2013, Birch acquired 80 percent of Cedar Company for $160,000 when Cedar had a $164,000 book value and the 20 percent noncontrolling interest was valued at $40,000. In each acquisition, the subsidiary’s excess acquisition-date fair over book value was assigned to a trade name with a 30-year life. These companies report the following financial information. Investment income figures are not included. 2012 2013 2014   Sales:      Aspen Company $ 515,000    $ 595,000    $ 740,000         Birch Company 285,000    398,750    631,000         Cedar Company Not available    249,800    258,800      Expenses:      Aspen Company $ 397,500    $ 442,500    $ 530,000         Birch Company 237,000    315,000    557,500         Cedar Company Not available    233,000    216,000      Dividends declared:      Aspen Company $ 20,000    $ 45,000    $ 55,000         Birch Company 10,000    15,000    15,000         Cedar Company Not available    2,000    6,000    a If all companies use the equity method for internal reporting purposes, what is the December 31, 2013, balance in Aspen\'s Investment in Birch Company account b What is the consolidated net income for this business combination for 2014? c What is the net income attributable to the noncontrolling interest in 2014? d Assume that Birch made intra-entity inventory transfers to Aspen that have resulted in the following unrealized gross profits at the end of each year: Date Amount   12/31/12 $11,100      12/31/13 20,700      12/31/14 28,400    What is the realized income of Birch in 2013 and 2014, respectively?

Solution

1)

??Aspen - Consideration transferred

504,000

??Noncontrolling interest FV

126,000

??Birch\'s business FV

630,000

BV

-510,000

??Excess to trade name

120,000

??Life (in years)

30 years

Amortization annually

4,000

??

??Cedar (by Birch) Consideration transferred

160,000

??Noncontrolling interest FV

40,000

??Cedar’s business FV

200,000

BV

-164,000

??Excess to trade name

36,000

??Life (in years)

30 years

Amortization annually

1,200

??Investment in Birch

504,000

??Birch\'s reported net income-2012

48,000

??Amortization expense

-4,000

??Accrual-based net income

44,000

??Birch’s percentage ownership

80

??Equity accrual Yr -2012

35,200

??Dividends received Yr-2012

-8,000

?Net income -?Birch\'s reported Yr -2013

83,750

??Amortization expense

-4,000

??Net income from Cedar [80% * ($16,800 -?$1,200)]

12,480

??Accrual-based net income

92,230

??Birch’s % ownership

80%

??Equity accrual Yr-2013

73,784

??Dividends received from Birch Yr-2013

-12,000

??Investment in Birch 31st Dec

592,984

2)

Sales - Consolidated

1,629,800

Expenses - Consolidated

-1,303,500

Amortization expense total

-5,200

??Consolidated net income for 2014

321,100

?

3)

NCI in consolidated NI-??Cedar’s

??Revenues minus expenses

42,800

??Excess amortization

-1,200

??Income - Accrual-based

41,600

??Noncontrolling interest percentage

20%

NCI in consolidated NI-??Cedar’s

8,320 ??

NCI in consolidated NI- Birch’s

??Revenues minus expenses

73,500

??Excess amortization

-4,000

??Equity in Cedar income [(42,800 -1,200) * 80%]

33,280

??Realized income Yr-2014 Birch

102,780

??Ownership - Outside

20%

20,556???

??Total NCI share of 2014 consolidated net income

28,876???

?

4)

Year- 2013 Realized NI of Birch (prior to accounting for unrealized gross profit)

92,230

??Year- 2012 Transfer-GP recognized in Yr-2013

11,100

??Year- 2013 Transfer-GP to be recognized in Yr-2014

-20,700

??Year- 2013 Realized NI - ?Birch

82,630

??Year- 2014 Realized NI of Birch (prior to accounting?for unrealized gross profit)

102,780

??Year- 2013 Transfer-GP recognized in Yr-2014

20,700

??Year- 2014 Transfer-GP to be recognized in Yr-2015

-28,400

??Year- 2014 Birch-Realized NI

95,080?

??Aspen - Consideration transferred	504,000
??Noncontrolling interest FV	126,000
??Birch\'s business FV	630,000
BV	-510,000
??Excess to trade name	120,000
??Life (in years)	30 years
Amortization annually	4,000
??
??Cedar (by Birch) Consideration transferred	160,000
??Noncontrolling interest FV	40,000
??Cedar’s business FV	200,000
BV	-164,000
??Excess to trade name	36,000
??Life (in years)	30 years
Amortization annually	1,200
??Investment in Birch		504,000
??Birch\'s reported net income-2012	48,000
??Amortization expense	-4,000
??Accrual-based net income	44,000
??Birch’s percentage ownership	80
??Equity accrual Yr -2012		35,200
??Dividends received Yr-2012		-8,000
?Net income -?Birch\'s reported Yr -2013	83,750
??Amortization expense	-4,000
??Net income from Cedar [80% * ($16,800 -?$1,200)]	12,480
??Accrual-based net income	92,230
??Birch’s % ownership	80%
??Equity accrual Yr-2013		73,784
??Dividends received from Birch Yr-2013		-12,000
??Investment in Birch 31st Dec		592,984