On January 1, 2012, Pinnacle Corporation exchanged $3,200,000 cash for 100 percent of the outstanding voting stock
Question:
On January 1, 2012, 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 allocation:
Fair value of Strata (consideration transferred) . . . . . . . . . . . . $3,200,000
Carrying amount acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,600,000
Excess fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
to buildings (undervalued) . . . . . . . . . . . . . . . . . 300,000
to licensing agreements (overvalued) . . . . . . . . . (100,000)....... 200,000
to goodwill (indefinite life) . . . . . . . . . . . . . . . . . . . . . . . . . . ...$ 400,000
At the acquisition date, Strata's buildings had a 10-year remaining life and its licensing agreements were due to expire in 5 years. At December 31, 2013, Strata's accounts payable included an $85,000 current liability owed to Pinnacle. Strata Corporation continues its separate legal existence as a wholly owned subsidiary of Pinnacle with independent accounting records. Pinnacle employs the initial value method in its internal accounting for its investment in Strata.
The separate financial statements for the two companies for the year ending December 31, 2013, follow. Credit balances are indicated by parentheses.
a. Prepare a worksheet to consolidate the financial information for these two companies.
b. Compute the following amounts that would appear on Pinnacle's 2013 separate (nonconsolidated) financial records if Pinnacle's investment accounting was based on the equity method.
1. Subsidiary income
2. Retained earnings 1/1/13
3. Investment in Strata
c. What effect does the parent's internal investment accounting method have on its consolidated financial statements?
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of... Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Step by Step Answer:
Fundamentals of Advanced Accounting
ISBN: 978-0077667061
5th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik