02_Fischer10e_SM_Ch02_final

02_Fischer10e_SM_Ch02_final - CHAPTER 2 UNDERSTANDING THE...

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CHAPTER 2 UNDERSTANDING THE ISSUES 1. (a) Johnson has a passive level of owner- ship and in future periods will record di- vidend income of only 10% of Bickler’s declared dividends. Johnson will also have to adjust the investment to market value at the end of each period. (b) Johnson has an influential level of own- ership and in future periods will record investment income of 30% of Bickler’s net income. Any dividends declared by Bickler will reduce the investment ac- count, but will not affect the investment income amount. (c) Johnson has a controlling level of own- ership and in future periods will add 100% of Bickler’s net income to its own net income. Bickler’s nominal account balances will be added to Johnson’s nominal accounts. Any dividends de- clared by Bickler will not affect John- son’s income. (d) Johnson has a controlling level of own- ership and in future periods will add 100% of Bickler’s net income to its own net income. All (100%) of Bickler’s nominal account balances will be ad- ded to Johnson’s nominal account bal- ances. This will result in consolidated net income, followed by a distribution to the noncontrolling interest equal to 20% of Bickler’s income. Any dividends de- clared by Bickler will not affect John- son’s income. 2. The elimination process serves to make the consolidated financial statements appear as though the parent had purchased the net assets of the subsidiary. The invest- ment account and the subsidiary equity ac- counts are eliminated and replaced by the subsidiary’s net assets. 3. (a) Company Parent NCI Implied Price Value Value Analysis Schedule Fair Value (100%) (0%) Company fair value. ...................................... $900,000 $900,000 N/A Fair value of net assets excluding goodwill. . 600,000 600,000 Goodwill. ........................................................ $300,000 $300,000 Net Assets—marked up $200,000 ($600,000 fair value – $400,000 book value) Goodwill—$300,000 ($900,000 – $600,000) (b) Company Parent NCI Implied Price Value Value Analysis Schedule Fair Value (80%) (20%) Company fair value. ...................................... $900,000 $720,000 $180,000 Fair value of net assets excluding goodwill. . 600,000 480,000 120,000 Goodwill. ........................................................ $300,000 $240,000 $ 60,000 Net Assets—marked up $200,000 ($600,000 fair value – $400,000 book value) Goodwill—$300,000 ($900,000 – $600,000) The NCI would be valued at $180,000 (20% of the implied company value) to allow the full re- cognition of fair values. 33
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4. (a) Company Parent NCI Implied Price Value Value Analysis Schedule Fair Value (100%) (0%) Company fair value. ...................................... $1,000,000 $1,000,000 N/A Fair value of net assets excluding goodwill. . 850,000 850,000 Goodwill. ........................................................ $ 150,000 $ 150,000
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This note was uploaded on 02/05/2010 for the course ACC 476 taught by Professor Hildy during the Spring '07 term at Lane.

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02_Fischer10e_SM_Ch02_final - CHAPTER 2 UNDERSTANDING THE...

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