Nascent, Inc., acquires 60 percent of Sea-Breeze Corporation for $414,000 cash on January 1, 2010. The remaining 40 percent of the Sea-Breeze shares traded near a total value of $276,000 both before and after the acquisition date. On January 1, 2010, Sea-Breeze had the following assets and liabilities:
_____________________________________Book Value___________ Fair Value
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . $150,000 ....................$150,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 .....................200,000
Buildings (net) (6-year life) . . . . . . . . . . . . . . . . 300,000 .....................360,000
Equipment (net) (4-year life) . . . . . . . . . . . . . . . 300,000 .....................280,000
Patent (10-year life) . . . . . . . . . . . . . . . . . . . . . . . . . .-0- .....................100,000
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (400,000) ..................(400,000)
The companies' financial statements for the year ending December 31, 2013, follow:

Answer the following questions:
a. How can the accountant determine that the parent has applied the initial value method?
b. What is the annual excess amortization initially recognized in connection with this acquisition?
c. If the parent had applied the equity method, what investment income would the parent have recorded in 2013?
d. What is the parent's portion of consolidated retained earnings as of January 1, 2013?
e. What is consolidated net income for 2013 and what amounts are attributable to the controlling and noncontrolling interests?
f. Within consolidated statements at January 1, 2010, what balance is included for the subsidiary's Buildings account?
g. What is the consolidated Buildings reported balance as of December 31, 2013?

Transcribed Image Text:

Nascent Sea-Breeze Revenues Operating expenses Investment income $ (600,000) (300,000) 210,000 410,000 (42,000) Net income Retained earnings, 1/1/13 Net income Dividends paid 5 (232000 (90,000) $ (700,000) (300,000) (90,000) 10,04) 5 (840,000) (320,000) $ 330,000 100,000 200,000 (232,000) Retained earnings, 12/31/13 Current assets Land Buildings (net) Equipment (net) Investment in Sea-Breeze 220,000200,000 700,000 500,000 414,000 Total assets Liabilities Common stock Retained earnings, 12/31/13 52,064,000 $1,000,000 $ (500,000) (200,000) (840,000) (320,000) 512,064,000) $(1000,000) Total liabilities and equities