Solved: On January 1 2011 Aspen Company acquired 80

percent of

On January 1, 2011, Aspen Company acquired 80 percent of Birch Company's outstanding

voting stock for $288,000. Birch reported a $300,000 book value and the fair value of the non-
controlling interest was $72,000 on that date. Also, on January 1, 2012, Birch acquired 80
percent of Cedar Company for $104,000 when Cedar had a $100,000 book value and the 20
percent non-controlling interest was valued at $26,000. In each acquisition, the subsidiary's
excess acquisition-date fair over book value was assigned to a trade name with a 30-year life.
These companies report the following financial information. Investment income figures are not
included.

Assume that each of the following questions is independent:

a. If all companies use the equity method for internal reporting purposes, what is the

December 31, 2012, balance in Aspen's Investment in Birch Company account?

b. What is the consolidated net income for this business combination for 2013?

c. What is the non-controlling interests' share of the consolidated net income in 2013?

d. Assume that Birch made intra-entity inventory transfers to Aspen that have resulted in the
following unrealized gross profits at the end of each year:

Date ................................. Amount

12/31/11 ........................... $10,000

12/31/12 ............................. 16,000

12/31/13 ............................. 25,000

What is the realized income of Birch in 2012 and 2013, respectively?

On January 1 2011 Aspen Company acquired 80 percent of

ANSWER

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