Nascent, Inc., acquires 60 percent of Sea-Breeze Corporation for $414,000 cash o

Question

Nascent, Inc., acquires 60 percent of Sea-Breeze Corporation for $414,000 cash on January 1, 2015. 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, 2015 Sea-Breeze had the following assets and liabilities: Current assets Land Buildings (net) (6-year remaining life) Equipment (net) (4-year remaining life) Patent (10-year remaining life) Liabilities Book Value 150,000 200,000 300,000 300,000 Fair Value 150,000 200,000 360,000 280,000 100,000 400,000) (400,000) The companies' financial statements for the year ending December 31, 2018, follow: Nascent (600,000)300,000) Sea-Breeze 210,000 $ (232,000) (90,000) (700,000(300,000) 70,000 Revenues Operating expenses Investment income 410,000 (42,000 Net income Retained earnings, 1/1/18 Net income Dividends declared (232,000) 92,000 (90,000) Retained earnings, 12/31/18 Current assets Land Buildings (net) Equipment (net) Investment in Sea-Breeze $ (840,000) (320,000) $ 330,000 220,000 700,000 400,000 414,000 2,064,000 $ 100,000 200,000 200,000 500,000 1,000,000 Total assets Liabilities Common stock Retained earnings, $ (500,000 (200,000) (480,000) (724,000) 840,000 12/31/18 320,000 Total liabilities and equities (2,064,000) 1,000,000)

Explanation / Answer

PART B

Consideration transferred in acquisition........ $414,000

      Noncontrolling interest fair value...............     276,000

      Sea-Breeze fair value 1/1/18 ........................ $690,000

      Sea-Breeze book value 1/1/18   550,000

      Excess fair value over book value                $140,000                                         

      Excess fair assignments:

            Buildings 60,000/6 $10,000

            Equipment (20,000) /4 (5,000)

            Patent 100,000 /10     10,000

            Total   $15,000

PART C

60%*(subsidiary's income - excess fair value amortization)

60%*(90000-15000) = 45000

Investment Income = 45000

PART D

Increase in book value during prior years
($780,000 – $550,000) $230,000

      Less excess amortization (45,000)

      Net increase in book value $185,000

      Ownership 60%

      Increase required in parent's retained earnings, 1/1/18 $111,000

      Parent's retained earnings, 1/1/18 as reported    700,000

Parent’s share of consolidated retained earnings, 1/1/18 $811,000

PART E

Consolidated net income and allocation

Revenues (add book values)                                                          $900,000

Expenses (add book values and excess amortization)            (635,000)

Consolidated net Income                                                                 $265,000

Noncontrolling interest in consolidated net income

            ($90,000 – 15,000) × 40%   30,000

Controlling interest in consolidated net income                       $235,000

PART F Consolidated buildings 1/1/18

Book value $300,000

Acquisition-date fair-value allocation    60,000

Consolidation figure $360,000

PART G Consolidated buildings, 12/31/18:

            Parent's book value $700,000

            Subsidiary's book value 200,000

            Original allocation 60,000

            Amortization ($10,000 × 4 years) (40,000)

            Consolidated balance $920,000

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