4.3 – Consolidation at End of First Year

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4.3 – Consolidation at End of First Year

Peak Entertainment acquired its 100-percent-owned subsidiary Saddlestone Inc. on January 1, 2011. In preparing to consolidate Peak and Saddlestone at December 31, 2011, you assemble the following information:

                Value of stock given up to acquire Saddlestone: $10,000,000.

                Direct merger costs: $250,000.

Saddlestone’s stockholder’s equity at acquisition: $7,200,000.

Fair value of earnings contingency agreement to be paid in cash: $300,000.

Fair value of previously unrecorded identifiable intangibles (5 year life): $2,000,000

Goodwill and identifiable intangibles are not impaired in 2011.

Saddlestone’s net income in 2011: $3,000,000.

Saddlestone’s dividends paid in 2011: $1,000,000.

Required

a.)      Prepare the 2011 journal entries made by Peak to record the acquisition and calculate and record the equity method income accrual, using the complete equity method.

b.)     Prepare the consolidation eliminating entries made at December 31, 2011.

Father-son-grandson business combination

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In a father-son-grandson business combination, which of the following is true?
 a) The father company always must have its realized income computed first.
b) The computation of a company's realized income has not effect on the realized income of other companies within a business combination
c) A father-son-grandson configuration does not require consolidation unless one company owns shares in all of the other companies
d) All companies solely in subsidiary positions must have their realized income computed first withing the consolidation process. 

Consolidated Financial Statements - Income Taxes - Cremmins, Inc.

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Cremmins, Inc. owns 60 percent of Anderson.  During the current year, Anderson reported net income of $200,000 but paid a total cash dividend of only $40,000.  What deferred income tax liability must be recognized in the consolidated balance sheet?  Assume the tax rate is 30 percent.
 a) $5,760
b) $9,600
c) $12,840
d) $28,800 

Consolidated Financial statements/non-controlling interest consolidation of income

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In computing the non-controlling interest's share of consolidated net income, how should the subsidiary's income be adjusted from intercompany transfers? 

a) the subsidiary's reported income is adjusted for the impact of upstream transfers prior to computing the noncontrolling interest's allocation. 
b) the subsidiary's reported income is adjusted for the impact of all transfers prior to computing the noncontrolling interest's allocation.