Reference no: EM13920411
F., Inc. and H. Inc. formed a business combination on 1/1/2012, when Fred acquired a 60% interest in H's common stock for $312,000 in cash. The book value of H's assets and liabilities on that day totaled $300,000 and the fair value of the non-controlling interest was $208,000. Patients being held by H(with a 12-year remaining life) were undervalued by $90,000 within the company's financial records and a customer list(10-year life) worth $130,000 was also recognized as part of the acquisition date fair value. Intra-entity inventory transfers occur regularly. Merchandise carried over from one year to the next is always sold in the subsequent period.
Year - 2012
Cost to H=80000, Transfer to F=100000, Ending Balance=20000
2013
Cost to H=100000, Transfer to F=125000, Ending Balance=40000
2014
Cost to H=90000, Transfer to F=120000, Ending Balance=30000
F had not paid for half of the 2014 inventory transfers by year-end. On 1/1/2013, F sold $15,000 in land to H for $22,000. H is still holding this land. On 1/1/2014, H acquired $20,000(face value) of F's bonds on the open market. The bonds had an 8 percent cash interest rate. On the date of repurchase, the liability was shown within F's records at $21,386, indicating an effective yield of 6%. H's acquisition price was $18,732 based on an effective interest rate of 10%. H indicated earning a net income of $25000 on its 2014 financial statements. The subsidiary also reported a beginning retained earnings balance of $300,000, dividends of $4,000, and common stock of $100,000. H has not issued any additional common stock since its takeover. The parent company has applied the equity method to record its investment in H.
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