Parker, Inc., acquires 70 percent of Sawyer Company for $420,000. The remaining
ID: 2462433 • Letter: P
Question
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: Book Value Fair Value Current assets $ 210,000 $ 210,000 Land 170,000 180,000 Buildings 300,000 330,000 Liabilities (280,000 ) (280,000 ) The buildings have a 10-year life. In addition, Sawyer holds a patent worth $140,000 that has a five-year life but is not recorded on its financial records.
At the end of the year, the two companies report the following balances: Parker Sawyer Revenues $ (900,000 ) $ (600,000 ) Expenses 600,000 400,000
a. Assume that the acquisition took place on January 1. What figures would appear in a consolidated income statement for this year?
1. combined revenues 2. combined expenses 3.consolidated net income 4. NCI in Sawyers income 5. controlling interest in consolidated income
b. Assume that the acquisition took place on April 1. Sawyer’s revenues and expenses occurred uniformly throughout the year. What amounts would appear in a consolidated income statement for this year?
1. combined revenues 2. combined expenses 3.consolidated net income 4. NCI in Sawyers income 5. controlling interest in consolidated income
Explanation / Answer
Answer:a
Consolidated figures following January 1 acquisition date:
Answer:b Consolidated figures following April 1 acquisition date:
(1) $900,000 Parker revenues plus $450,000 of post-acquisition Sawyer revenues
(2) $600,000 Parker expenses plus $300,000 of post-acquisition Sawyer expenses plus $23,250 amortization expenses for 9 months
(3) ($200,000 – 31,000) adjusted subsidiary income × 30% × ¾ year
Acquisition-date total fair value 594000 Book value of net assets 400000 Fair value in excess of book value 194000