Questions -
Q1) Kordel Inc. acquired 75% of the outstanding common stock of Raxston Corp. Raxston currently owes Kordel $500,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of this debt should be eliminated?
Q2) McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, for $234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following:
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Book Value
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Fair Value
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Buildings (10 - year life)
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$10,000
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$8,000
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Equipment (4 - year life)
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14,000
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18,000
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Land
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5,000
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12,000
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Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.
In consolidation at January 1, 2010, what adjustment is necessary for Hogan's Land account?
Q3) Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired.
Demers earns income and pays dividends as follows: (Assume the equity method is applied).
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2010
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2011
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2012
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Net Income
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$100,000
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$120,000
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$130,000
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Dividends
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40,000
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50,000
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60,000
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Compute Pell's income from Demers for the year ended December 31, 2012.
Assume the initial value method is applied. Compute Pell's investment in Demers at December 31, 2012
Assume the partial equity method is applied. Compute Pell's investment in Demers at December 31, 2010.
Assume the partial equity method is applied. Compute the non-controlling interest in Demers at December 31, 2010.