Problem 2 On January, 2019, Top Company acquired 80 percent of Bottom Company for $594,000 in...

 

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Problem 2 On January, 2019, Top Company acquired 80 percent of Bottom Company for $594,000 in cash. Bottom's total book value on that date was $610,000, and the fair value of the noncontrolling interest was $148,500. The newly acquired subsidiary possessed a trademark (10-year remaining life) that, although unrecorded on Bottom's accounting records, had a fair value of $75,000. Any remaining excess acquisition-date fair value was attributed to goodwill. Top decided to acquire Bottom so that the subsidiary could furnish component parts for the parent's production process. During the ensuing years, Bottom sold inventory to Top as follows: Year 2019 2020 2021 Cost to Bottom Company $100,000 100,000 120,000 Sales Cost of goods sold Operating expenses Gain on sale of land Equity in earnings of Bottom Co Net income How Any transferred merchandise that Top retained at year end was always put into production during the following period. ************** The following separate financial statements are for Top and Bottom as of December 31, 2021. Top has applied the equity method to account for this investment. Retained earnings, 1/1/21 Net income.... Dividends declared Retained earnings, 12/31/21 Cash and accounts receivable. Inventory..... Investment in Bottom Co... Land Equipment Accumulated depreciation. Total assets Transfer Price $140,000 150,000 160,000 m Liabilities......... Common stock Retained earnings, 12/31/21 Total liabilities and equities wwwwwwwww ******** Mone Gross Profit Rate 28.6% 33.3 25.0 *************** memor ma wwww men manman masmanan matem ************ ****** CH .. Transferred Inventory Still Held at End of Year (at transfer price) $20,000 30,000 68,000 Top Company $ (900,000) 598,000 210,000 (28,000) (60,000) $ (180,000) $ (620,000) (180,000) 55,000 S (745,000) 348,000 430,400 737,600 $2,060,000 454,000 270,000 (180,000) (715,000) (600,000) (745,000) $(2,060,000) Bottom Company $ (500,000) 300,000 80,000 -0- -o- $ (120,000) $ (430,000) (120,000) 50,000 $ (500,000) 410,000 190,000 -0- 280,000 190,000 (50,000) $1,020,000 (120,000) (400,000) (500,000) $(1,020,000) Required a. By how much did Bottom's book value increase during the period from January 1, 2019, through December 31, 2020? b. During the initial years after the takeover, what annual amortization expense was recognized in connection with the acquisition-date excess of fair value over book value? C. What amount of intra-entity gross profit exists within the parent's inventory figures at the beginning and at the end of 2021? d. The parent reports Income of Bottom Company of $84,400 for 2021. How was this figure calculated? Prepare the December 31, 2021, worksheet entries required by the transfers of inventory. e. Problem 2 On January, 2019, Top Company acquired 80 percent of Bottom Company for $594,000 in cash. Bottom's total book value on that date was $610,000, and the fair value of the noncontrolling interest was $148,500. The newly acquired subsidiary possessed a trademark (10-year remaining life) that, although unrecorded on Bottom's accounting records, had a fair value of $75,000. Any remaining excess acquisition-date fair value was attributed to goodwill. Top decided to acquire Bottom so that the subsidiary could furnish component parts for the parent's production process. During the ensuing years, Bottom sold inventory to Top as follows: Year 2019 2020 2021 Cost to Bottom Company $100,000 100,000 120,000 Sales Cost of goods sold Operating expenses Gain on sale of land Equity in earnings of Bottom Co Net income How Any transferred merchandise that Top retained at year end was always put into production during the following period. ************** The following separate financial statements are for Top and Bottom as of December 31, 2021. Top has applied the equity method to account for this investment. Retained earnings, 1/1/21 Net income.... Dividends declared Retained earnings, 12/31/21 Cash and accounts receivable. Inventory..... Investment in Bottom Co... Land Equipment Accumulated depreciation. Total assets Transfer Price $140,000 150,000 160,000 m Liabilities......... Common stock Retained earnings, 12/31/21 Total liabilities and equities wwwwwwwww ******** Mone Gross Profit Rate 28.6% 33.3 25.0 *************** memor ma wwww men manman masmanan matem ************ ****** CH .. Transferred Inventory Still Held at End of Year (at transfer price) $20,000 30,000 68,000 Top Company $ (900,000) 598,000 210,000 (28,000) (60,000) $ (180,000) $ (620,000) (180,000) 55,000 S (745,000) 348,000 430,400 737,600 $2,060,000 454,000 270,000 (180,000) (715,000) (600,000) (745,000) $(2,060,000) Bottom Company $ (500,000) 300,000 80,000 -0- -o- $ (120,000) $ (430,000) (120,000) 50,000 $ (500,000) 410,000 190,000 -0- 280,000 190,000 (50,000) $1,020,000 (120,000) (400,000) (500,000) $(1,020,000) Required a. By how much did Bottom's book value increase during the period from January 1, 2019, through December 31, 2020? b. During the initial years after the takeover, what annual amortization expense was recognized in connection with the acquisition-date excess of fair value over book value? C. What amount of intra-entity gross profit exists within the parent's inventory figures at the beginning and at the end of 2021? d. The parent reports Income of Bottom Company of $84,400 for 2021. How was this figure calculated? Prepare the December 31, 2021, worksheet entries required by the transfers of inventory. e.

Answer rating: 100% (QA)

a 2060000 1890000 170000 Bottoms book value increased by 170000 during the period from January 1 2019 through December 31 2020 This is because Top Com... View the full answer