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Deck 3: Consolidated Statements: Subsequent to Acquisition
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Question
Scenario 3-1
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:
Refer to Scenario 3-1. Using the cost method, which of the following amounts are correct?
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:
Refer to Scenario 3-1. Using the cost method, which of the following amounts are correct?
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Question
Scenario 3-1
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:
Refer to Scenario 3-1. Using the sophisticated (full) equity method, which of the following amounts are correct?
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:
Refer to Scenario 3-1. Using the sophisticated (full) equity method, which of the following amounts are correct?
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Scenario 3-3
Balance sheet information for Pawnee Company and its 90%-owned subsidiary, Sioux Corporation, at December 31, 20X1, is summarized as follows:
Pawnee acquired its interest in Sioux for cash at book value several years ago when Sioux's assets and liabilities were equal to their fair values.
Refer to Scenario 3-3. The consolidated balance sheet of Pawnee and Sioux at December 31, 20X1 will show
A) Investment in Sioux, $558,000.
B) Capital stock, $800,000.
C) Retained earnings, $1,078,000.
D) Noncontrolling interest, $65,000.
Balance sheet information for Pawnee Company and its 90%-owned subsidiary, Sioux Corporation, at December 31, 20X1, is summarized as follows:
Pawnee acquired its interest in Sioux for cash at book value several years ago when Sioux's assets and liabilities were equal to their fair values.Refer to Scenario 3-3. The consolidated balance sheet of Pawnee and Sioux at December 31, 20X1 will show
A) Investment in Sioux, $558,000.
B) Capital stock, $800,000.
C) Retained earnings, $1,078,000.
D) Noncontrolling interest, $65,000.
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Scenario 3-1
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:
Refer to Scenario 3-1. Using the simple equity method, which of the following amounts are correct?
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:
Refer to Scenario 3-1. Using the simple equity method, which of the following amounts are correct?
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Scenario 3-2
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for $469,000. On that date the book value of the net assets of Set totaled $500,000. Based on the appraisal done at the time of the purchase, all assets and liabilities had book values equal to their fair values except as follows:
The remaining excess of cost over book value was allocated to a patent with a 10-year useful life.
During 20X1 Promo reported net income of $200,000 and Set had net income of $100,000.
Refer to Scenario 3-2. What is consolidated net income if Promo recognizes income from Set using the sophisticated equity method?
A) $42,000
B) $70,000
C) $200,000
D) $270,000
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for $469,000. On that date the book value of the net assets of Set totaled $500,000. Based on the appraisal done at the time of the purchase, all assets and liabilities had book values equal to their fair values except as follows:
The remaining excess of cost over book value was allocated to a patent with a 10-year useful life.During 20X1 Promo reported net income of $200,000 and Set had net income of $100,000.
Refer to Scenario 3-2. What is consolidated net income if Promo recognizes income from Set using the sophisticated equity method?
A) $42,000
B) $70,000
C) $200,000
D) $270,000
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Question
Patti Corp. has several subsidiaries (Aeta, Beta, and Gaeta) that are included in its consolidated financial statements. In its 12/31/X1 separate balance sheet, Patti had the following intercompany balances before eliminations: 
In its 12/31/X1 consolidated balance sheet, what amount should Patti report as intercompany receivables?
A) $166,000
B) $51,000
C) $26,000
D) $0
In its 12/31/X1 consolidated balance sheet, what amount should Patti report as intercompany receivables?A) $166,000
B) $51,000
C) $26,000
D) $0
Question
Scenario 3-3
Balance sheet information for Pawnee Company and its 90%-owned subsidiary, Sioux Corporation, at December 31, 20X1, is summarized as follows:
Pawnee acquired its interest in Sioux for cash at book value several years ago when Sioux's assets and liabilities were equal to their fair values.
Refer to Scenario 3-3. Consolidated total assets of Pawnee and Sioux, at December 31, 20X1, will be ____.
A) $1,785,000
B) $1,850,000
C) $2,343,000
D) $2,408,000
Balance sheet information for Pawnee Company and its 90%-owned subsidiary, Sioux Corporation, at December 31, 20X1, is summarized as follows:
Pawnee acquired its interest in Sioux for cash at book value several years ago when Sioux's assets and liabilities were equal to their fair values.Refer to Scenario 3-3. Consolidated total assets of Pawnee and Sioux, at December 31, 20X1, will be ____.
A) $1,785,000
B) $1,850,000
C) $2,343,000
D) $2,408,000
Question
Scenario 3-2
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for $469,000. On that date the book value of the net assets of Set totaled $500,000. Based on the appraisal done at the time of the purchase, all assets and liabilities had book values equal to their fair values except as follows:
The remaining excess of cost over book value was allocated to a patent with a 10-year useful life.
During 20X1 Promo reported net income of $200,000 and Set had net income of $100,000.
Refer to Scenario 3-2. What income from subsidiary did Promo include in its net income if Promo uses the simple equity method?
A) $33,000
B) $42,000
C) $70,000
D) $100,000
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for $469,000. On that date the book value of the net assets of Set totaled $500,000. Based on the appraisal done at the time of the purchase, all assets and liabilities had book values equal to their fair values except as follows:
The remaining excess of cost over book value was allocated to a patent with a 10-year useful life.During 20X1 Promo reported net income of $200,000 and Set had net income of $100,000.
Refer to Scenario 3-2. What income from subsidiary did Promo include in its net income if Promo uses the simple equity method?
A) $33,000
B) $42,000
C) $70,000
D) $100,000
Question
If the investment in subsidiary account is increased or decreased by the amount determined by the following calculation: 
the investment account is being converted from
A) cost to simple equity.
B) cost to sophisticated equity.
C) simple equity to sophisticated equity.
D) simple equity to cost.
the investment account is being converted fromA) cost to simple equity.
B) cost to sophisticated equity.
C) simple equity to sophisticated equity.
D) simple equity to cost.
Question
Scenario 3-2
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for $469,000. On that date the book value of the net assets of Set totaled $500,000. Based on the appraisal done at the time of the purchase, all assets and liabilities had book values equal to their fair values except as follows:
The remaining excess of cost over book value was allocated to a patent with a 10-year useful life.
During 20X1 Promo reported net income of $200,000 and Set had net income of $100,000.
Refer to Scenario 3-2. What income from subsidiary did Promo include in its net income if Promo uses the sophisticated equity method?
A) $33,000
B) $49,000
C) $70,000
D) $100,000
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for $469,000. On that date the book value of the net assets of Set totaled $500,000. Based on the appraisal done at the time of the purchase, all assets and liabilities had book values equal to their fair values except as follows:
The remaining excess of cost over book value was allocated to a patent with a 10-year useful life.During 20X1 Promo reported net income of $200,000 and Set had net income of $100,000.
Refer to Scenario 3-2. What income from subsidiary did Promo include in its net income if Promo uses the sophisticated equity method?
A) $33,000
B) $49,000
C) $70,000
D) $100,000
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PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Refer to Scenario 3-4.
Prepare all necessary elimination entries for the consolidating worksheet of December 31, 20X1. Assume Parent uses the simple equity method of accounting for its investment in Subsidiary.
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.Refer to Scenario 3-4.
Prepare all necessary elimination entries for the consolidating worksheet of December 31, 20X1. Assume Parent uses the simple equity method of accounting for its investment in Subsidiary.
Question
Dickinson Corporation is considering the acquisition of Williston Company through the acquisition of Williston's common stock. Dickinson Corporation will issue 15,000 shares of its $5 par common stock, with a fair value of $30 per share, in exchange for all 10,000 outstanding shares of Williston Company's voting common stock. The acquisition meets the criteria for a tax-free exchange as to the seller. Because of this, Dickinson Corporation will be limited for future tax returns to the book value of the depreciable assets. Dickinson Corporation falls into the 30% tax bracket. The appraisal of the assets of Williston Company shows that the inventory has a fair value of $120,000, and the depreciable fixed assets have a fair value of $250,000 and a 10-year life. Any remaining excess is attributed to goodwill. Williston Company has the following balance sheet just before the acquisition:
Required:
a.
Prepare a value analysis and a determination and distribution of excess schedule.
b.
Prepare the elimination entries that would be made on the consolidated worksheet on the date of acquisition.
Required: a.
Prepare a value analysis and a determination and distribution of excess schedule.
b.
Prepare the elimination entries that would be made on the consolidated worksheet on the date of acquisition.
Question
PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Refer to Scenario 3-4.
Prepare Parent's 20X1 and 20X2 journal entries (after the purchase has been recorded) to record the transactions related to its investment in Subsidiary under the sophisticated equity method.
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.Refer to Scenario 3-4.
Prepare Parent's 20X1 and 20X2 journal entries (after the purchase has been recorded) to record the transactions related to its investment in Subsidiary under the sophisticated equity method.
Question
PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Refer to Scenario 3-4 and Worksheet 3-1.
Required:
a. Complete the consolidating worksheet for December 31, 20X2.
b. Prepare supportive Income Distribution Schedules for Subsidiary and Parent.
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.Refer to Scenario 3-4 and Worksheet 3-1.
Required:
a. Complete the consolidating worksheet for December 31, 20X2.
b. Prepare supportive Income Distribution Schedules for Subsidiary and Parent.
Question
PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
-Refer to Scenario 3-4.
Prepare the necessary date alignment entries for the consolidating worksheet for December 31, 20X1 and December 31, 20X2 assuming that Parent records its investment in Subsidiary using
a. the cost method
b. the simple equity method
If date alignment entries are not required, give rationale.
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.-Refer to Scenario 3-4.
Prepare the necessary date alignment entries for the consolidating worksheet for December 31, 20X1 and December 31, 20X2 assuming that Parent records its investment in Subsidiary using
a. the cost method
b. the simple equity method
If date alignment entries are not required, give rationale.
Question
The Paris Company purchased an 80% interest in Seine, Inc. for $600,000 on July 1, 20X1, when Seine had the following balance sheet:
The inventory is understated by $20,000 and is sold in the third quarter of 20X1. The building has a fair value of $320,000 and a 10-year remaining life. The equipment has a fair value of $120,000 and a remaining life of 5 years. Any remaining excess is attributed to goodwill.
From July 1 through December 31, 20X1, Seine had net income of $100,000 and paid $10,000 in dividends.
Assume that Paris uses the cost method to record its investment in Seine.
Required:
a.
Prepare a determination and distribution of excess schedule as of July 1, 20X1.
b.
Prepare the eliminations and adjustments that would be made on the December 31, 20X1, consolidated worksheet to eliminate the investment in Seine. Distribute and amortize any excess.
The inventory is understated by $20,000 and is sold in the third quarter of 20X1. The building has a fair value of $320,000 and a 10-year remaining life. The equipment has a fair value of $120,000 and a remaining life of 5 years. Any remaining excess is attributed to goodwill.From July 1 through December 31, 20X1, Seine had net income of $100,000 and paid $10,000 in dividends.
Assume that Paris uses the cost method to record its investment in Seine.
Required:
a.
Prepare a determination and distribution of excess schedule as of July 1, 20X1.
b.
Prepare the eliminations and adjustments that would be made on the December 31, 20X1, consolidated worksheet to eliminate the investment in Seine. Distribute and amortize any excess.
Question
PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Refer to Scenario 3-4.
Required:
a. Prepare a value analysis schedule
b. Prepare a determination and distribution of excess schedule
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.Refer to Scenario 3-4.
Required:
a. Prepare a value analysis schedule
b. Prepare a determination and distribution of excess schedule
Question
PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Refer to Scenario 3-4.
Prepare Parent's 20X1 and 20X2 journal entries (after the purchase has been recorded) to record the transactions related to its investment in Subsidiary under the
a.
cost method
b.
simple equity method
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.Refer to Scenario 3-4.
Prepare Parent's 20X1 and 20X2 journal entries (after the purchase has been recorded) to record the transactions related to its investment in Subsidiary under the
a.
cost method
b.
simple equity method
Question
The determination and distribution schedule for the consolidation of Petoskey (80% interest) and Sable reads in part:
Prepare the elimination entries to distribute and amortize the excess purchase cost on
a. 1/1/X1, the date of acquisition
b. 12/31/X1, the end of the first year following the acquisition
c. 12/31/X3, the end of the third year following the acquisition.
Prepare the elimination entries to distribute and amortize the excess purchase cost on a. 1/1/X1, the date of acquisition
b. 12/31/X1, the end of the first year following the acquisition
c. 12/31/X3, the end of the third year following the acquisition.
Question
PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Refer to Scenario 3-4.
Prepare all necessary elimination entries for the consolidating worksheet of December 31, 20X2. Assume Parent uses the simple equity method of accounting for its investment in Subsidiary.
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.Refer to Scenario 3-4.
Prepare all necessary elimination entries for the consolidating worksheet of December 31, 20X2. Assume Parent uses the simple equity method of accounting for its investment in Subsidiary.
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Deck 3: Consolidated Statements: Subsequent to Acquisition
1
Scenario 3-1
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:
Refer to Scenario 3-1. Using the cost method, which of the following amounts are correct?
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:
Refer to Scenario 3-1. Using the cost method, which of the following amounts are correct?
A
2
Pahl Corporation owns a 60% interest in Sauer Corporation, acquired at book value equal to fair value at the beginning of 20X1. On December 20, 20X1 Sauer declares dividends of $80,000, and the dividends remain unpaid at year end. Pahl has not recorded the dividends receivable at December 31. A consolidated working paper entry is necessary to
A) Enter the $80,000 dividends receivable in the consolidated balance sheet.
B) Enter $48,000 dividends receivable in the consolidated balance sheet.
C) Reduce the dividend payable account to $32,000 in the consolidated balance sheet.
D) Eliminate the dividend payable account in the consolidated balance sheet.
A) Enter the $80,000 dividends receivable in the consolidated balance sheet.
B) Enter $48,000 dividends receivable in the consolidated balance sheet.
C) Reduce the dividend payable account to $32,000 in the consolidated balance sheet.
D) Eliminate the dividend payable account in the consolidated balance sheet.
C
3
Scenario 3-1
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:
Refer to Scenario 3-1. Using the sophisticated (full) equity method, which of the following amounts are correct?
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:
Refer to Scenario 3-1. Using the sophisticated (full) equity method, which of the following amounts are correct?
B
4
Alpha purchased an 80% interest in Beta on June 30, 20X1. Both Alpha's and Beta's reporting periods end December 31. Which of the following represents the controlling interest in consolidated net income for 20X1?
A) 100% of Alpha's July 1-December 31 income plus 80% of Beta's July 1-December 31 income
B) 100% of Alpha's July 1-December 31 income plus 100% of Beta's July 1-December 31 income
C) 100% of Alpha's January 1-December 31 income plus 80% of Beta's July 1-December 31 income
D) 100% of Alpha's January 1-December 31 income plus 80% of Beta's January 1-December 31 income
A) 100% of Alpha's July 1-December 31 income plus 80% of Beta's July 1-December 31 income
B) 100% of Alpha's July 1-December 31 income plus 100% of Beta's July 1-December 31 income
C) 100% of Alpha's January 1-December 31 income plus 80% of Beta's July 1-December 31 income
D) 100% of Alpha's January 1-December 31 income plus 80% of Beta's January 1-December 31 income
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5
On January 1, 20X1, Piston, Inc. acquired Spur Corp. While recording the acquisition, Piston established a deferred tax liability. It is most likely that this account was created because
A) the transaction was a tax-free exchange to Piston.
B) Piston had not paid all of the income taxes due the government when acquiring Spur.
C) the transaction was a tax-free exchange to Spur.
D) Spur had not paid all of the income taxes due the government prior to the acquisition by Piston.
A) the transaction was a tax-free exchange to Piston.
B) Piston had not paid all of the income taxes due the government when acquiring Spur.
C) the transaction was a tax-free exchange to Spur.
D) Spur had not paid all of the income taxes due the government prior to the acquisition by Piston.
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6
In a mid-year purchase when the subsidiary's books are not closed until the end of the year, the purchased income account contains the parent's share of the
A) subsidiary's income earned for the entire year.
B) subsidiary's income earned from the beginning of the year to the date of acquisition.
C) subsidiary's income earned from the date of acquisition to the end of the year.
D) Consolidated Net Income.
A) subsidiary's income earned for the entire year.
B) subsidiary's income earned from the beginning of the year to the date of acquisition.
C) subsidiary's income earned from the date of acquisition to the end of the year.
D) Consolidated Net Income.
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7
Scenario 3-3
Balance sheet information for Pawnee Company and its 90%-owned subsidiary, Sioux Corporation, at December 31, 20X1, is summarized as follows:
Pawnee acquired its interest in Sioux for cash at book value several years ago when Sioux's assets and liabilities were equal to their fair values.
Refer to Scenario 3-3. The consolidated balance sheet of Pawnee and Sioux at December 31, 20X1 will show
A) Investment in Sioux, $558,000.
B) Capital stock, $800,000.
C) Retained earnings, $1,078,000.
D) Noncontrolling interest, $65,000.
Balance sheet information for Pawnee Company and its 90%-owned subsidiary, Sioux Corporation, at December 31, 20X1, is summarized as follows:
Pawnee acquired its interest in Sioux for cash at book value several years ago when Sioux's assets and liabilities were equal to their fair values.Refer to Scenario 3-3. The consolidated balance sheet of Pawnee and Sioux at December 31, 20X1 will show
A) Investment in Sioux, $558,000.
B) Capital stock, $800,000.
C) Retained earnings, $1,078,000.
D) Noncontrolling interest, $65,000.
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8
How is the portion of consolidated earnings to be assigned to noncontrolling interest in consolidated financial statements determined?
A) The net income of the parent is subtracted from the subsidiary's net income to determine the noncontrolling interest.
B) The subsidiary's net income is extended to the noncontrolling interest.
C) The amount of the subsidiary's earnings is multiplied by the noncontrolling's percentage ownership and is adjusted for the excess cost amortization applicable to the NCI.
D) The amount of consolidated earnings determined on the consolidated working papers is multiplied by the noncontrolling interest percentage at the balance-sheet date.
A) The net income of the parent is subtracted from the subsidiary's net income to determine the noncontrolling interest.
B) The subsidiary's net income is extended to the noncontrolling interest.
C) The amount of the subsidiary's earnings is multiplied by the noncontrolling's percentage ownership and is adjusted for the excess cost amortization applicable to the NCI.
D) The amount of consolidated earnings determined on the consolidated working papers is multiplied by the noncontrolling interest percentage at the balance-sheet date.
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9
On January 1, 20X1, Rabb Corp. purchased 80% of Sunny Corp.'s $10 par common stock for $975,000. On this date, the carrying amount of Sunny's net assets was $1,000,000. The fair values of Sunny's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net), which were $100,000 in excess of the carrying amount. In the January 1, 20X1, consolidated balance sheet, goodwill should be reported at ____.
A) $0
B) $75,750
C) $95,000
D) $118,750
A) $0
B) $75,750
C) $95,000
D) $118,750
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10
Scenario 3-1
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:
Refer to Scenario 3-1. Using the simple equity method, which of the following amounts are correct?
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:
Refer to Scenario 3-1. Using the simple equity method, which of the following amounts are correct?
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11
On January 1, 20X1, Payne Corp. purchased 70% of Shayne Corp.'s $10 par common stock for $900,000. On this date, the carrying amount of Shayne's net assets was $1,000,000. The fair values of Shayne's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net), which were $200,000 in excess of the carrying amount. For the year ended December 31, 20X1, Shayne had net income of $150,000 and paid cash dividends totaling $90,000. Excess attributable to plant assets is amortized over 10 years. In the December 31, 20X1, consolidated balance sheet, noncontrolling interest should be reported at ____.
A) $282,714
B) $300,500
C) $397,714
D) $345,500
A) $282,714
B) $300,500
C) $397,714
D) $345,500
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12
Scenario 3-2
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for $469,000. On that date the book value of the net assets of Set totaled $500,000. Based on the appraisal done at the time of the purchase, all assets and liabilities had book values equal to their fair values except as follows:
The remaining excess of cost over book value was allocated to a patent with a 10-year useful life.
During 20X1 Promo reported net income of $200,000 and Set had net income of $100,000.
Refer to Scenario 3-2. What is consolidated net income if Promo recognizes income from Set using the sophisticated equity method?
A) $42,000
B) $70,000
C) $200,000
D) $270,000
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for $469,000. On that date the book value of the net assets of Set totaled $500,000. Based on the appraisal done at the time of the purchase, all assets and liabilities had book values equal to their fair values except as follows:
The remaining excess of cost over book value was allocated to a patent with a 10-year useful life.During 20X1 Promo reported net income of $200,000 and Set had net income of $100,000.
Refer to Scenario 3-2. What is consolidated net income if Promo recognizes income from Set using the sophisticated equity method?
A) $42,000
B) $70,000
C) $200,000
D) $270,000
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13
What is the effect if an unconsolidated subsidiary is accounted for by the equity method but consolidated statements are being prepared for the parent company and other subsidiaries?
A) All of the unconsolidated subsidiary's accounts will be included individually in the consolidated statements.
B) The consolidated retained earnings will not reflect the earnings of the unconsolidated subsidiary.
C) The consolidated retained earnings will be the same as if the subsidiary had been included in the consolidation.
D) Dividend revenue from the unconsolidated subsidiary will be reflected in consolidated net income.
A) All of the unconsolidated subsidiary's accounts will be included individually in the consolidated statements.
B) The consolidated retained earnings will not reflect the earnings of the unconsolidated subsidiary.
C) The consolidated retained earnings will be the same as if the subsidiary had been included in the consolidation.
D) Dividend revenue from the unconsolidated subsidiary will be reflected in consolidated net income.
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14
Patti Corp. has several subsidiaries (Aeta, Beta, and Gaeta) that are included in its consolidated financial statements. In its 12/31/X1 separate balance sheet, Patti had the following intercompany balances before eliminations: In its 12/31/X1 consolidated balance sheet, what amount should Patti report as intercompany receivables?
A) $166,000
B) $51,000
C) $26,000
D) $0
In its 12/31/X1 consolidated balance sheet, what amount should Patti report as intercompany receivables?A) $166,000
B) $51,000
C) $26,000
D) $0
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15
Scenario 3-3
Balance sheet information for Pawnee Company and its 90%-owned subsidiary, Sioux Corporation, at December 31, 20X1, is summarized as follows:
Pawnee acquired its interest in Sioux for cash at book value several years ago when Sioux's assets and liabilities were equal to their fair values.
Refer to Scenario 3-3. Consolidated total assets of Pawnee and Sioux, at December 31, 20X1, will be ____.
A) $1,785,000
B) $1,850,000
C) $2,343,000
D) $2,408,000
Balance sheet information for Pawnee Company and its 90%-owned subsidiary, Sioux Corporation, at December 31, 20X1, is summarized as follows:
Pawnee acquired its interest in Sioux for cash at book value several years ago when Sioux's assets and liabilities were equal to their fair values.Refer to Scenario 3-3. Consolidated total assets of Pawnee and Sioux, at December 31, 20X1, will be ____.
A) $1,785,000
B) $1,850,000
C) $2,343,000
D) $2,408,000
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16
Scenario 3-2
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for $469,000. On that date the book value of the net assets of Set totaled $500,000. Based on the appraisal done at the time of the purchase, all assets and liabilities had book values equal to their fair values except as follows:
The remaining excess of cost over book value was allocated to a patent with a 10-year useful life.
During 20X1 Promo reported net income of $200,000 and Set had net income of $100,000.
Refer to Scenario 3-2. What income from subsidiary did Promo include in its net income if Promo uses the simple equity method?
A) $33,000
B) $42,000
C) $70,000
D) $100,000
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for $469,000. On that date the book value of the net assets of Set totaled $500,000. Based on the appraisal done at the time of the purchase, all assets and liabilities had book values equal to their fair values except as follows:
The remaining excess of cost over book value was allocated to a patent with a 10-year useful life.During 20X1 Promo reported net income of $200,000 and Set had net income of $100,000.
Refer to Scenario 3-2. What income from subsidiary did Promo include in its net income if Promo uses the simple equity method?
A) $33,000
B) $42,000
C) $70,000
D) $100,000
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17
If the investment in subsidiary account is increased or decreased by the amount determined by the following calculation: the investment account is being converted from
A) cost to simple equity.
B) cost to sophisticated equity.
C) simple equity to sophisticated equity.
D) simple equity to cost.
the investment account is being converted fromA) cost to simple equity.
B) cost to sophisticated equity.
C) simple equity to sophisticated equity.
D) simple equity to cost.
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18
Scenario 3-2
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for $469,000. On that date the book value of the net assets of Set totaled $500,000. Based on the appraisal done at the time of the purchase, all assets and liabilities had book values equal to their fair values except as follows:
The remaining excess of cost over book value was allocated to a patent with a 10-year useful life.
During 20X1 Promo reported net income of $200,000 and Set had net income of $100,000.
Refer to Scenario 3-2. What income from subsidiary did Promo include in its net income if Promo uses the sophisticated equity method?
A) $33,000
B) $49,000
C) $70,000
D) $100,000
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for $469,000. On that date the book value of the net assets of Set totaled $500,000. Based on the appraisal done at the time of the purchase, all assets and liabilities had book values equal to their fair values except as follows:
The remaining excess of cost over book value was allocated to a patent with a 10-year useful life.During 20X1 Promo reported net income of $200,000 and Set had net income of $100,000.
Refer to Scenario 3-2. What income from subsidiary did Promo include in its net income if Promo uses the sophisticated equity method?
A) $33,000
B) $49,000
C) $70,000
D) $100,000
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19
In consolidated financial statements, it is expected that:
A) Dividends declared equals the sum of the total parent company's declared dividends and the total subsidiary's declared dividends.
B) Retained Earnings equals the sum of the controlling interest's separate retained earnings and the noncontrolling interest's separate retained earnings.
C) Common Stock equals the sum of the parent company's outstanding shares and the subsidiary's outstanding shares.
D) Net Income equals the sum of the income distributed to the controlling interest and the income distributed to the noncontrolling interest.
A) Dividends declared equals the sum of the total parent company's declared dividends and the total subsidiary's declared dividends.
B) Retained Earnings equals the sum of the controlling interest's separate retained earnings and the noncontrolling interest's separate retained earnings.
C) Common Stock equals the sum of the parent company's outstanding shares and the subsidiary's outstanding shares.
D) Net Income equals the sum of the income distributed to the controlling interest and the income distributed to the noncontrolling interest.
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20
Which of the following statements applying to the use of the equity method versus the cost method is true?
A) The equity method is required when one firm owns 20% or more of the common stock of another firm.
B) If no dividends were paid by the subsidiary, the investment account would have the same balance under both methods.
C) The method used has no significance to consolidated statements.
D) An advantage of the equity method is that no amortization of excess adjustments needs to be made on the consolidated worksheet.
A) The equity method is required when one firm owns 20% or more of the common stock of another firm.
B) If no dividends were paid by the subsidiary, the investment account would have the same balance under both methods.
C) The method used has no significance to consolidated statements.
D) An advantage of the equity method is that no amortization of excess adjustments needs to be made on the consolidated worksheet.
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21
PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Refer to Scenario 3-4.
Prepare all necessary elimination entries for the consolidating worksheet of December 31, 20X1. Assume Parent uses the simple equity method of accounting for its investment in Subsidiary.
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.Refer to Scenario 3-4.
Prepare all necessary elimination entries for the consolidating worksheet of December 31, 20X1. Assume Parent uses the simple equity method of accounting for its investment in Subsidiary.
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22
Dickinson Corporation is considering the acquisition of Williston Company through the acquisition of Williston's common stock. Dickinson Corporation will issue 15,000 shares of its $5 par common stock, with a fair value of $30 per share, in exchange for all 10,000 outstanding shares of Williston Company's voting common stock. The acquisition meets the criteria for a tax-free exchange as to the seller. Because of this, Dickinson Corporation will be limited for future tax returns to the book value of the depreciable assets. Dickinson Corporation falls into the 30% tax bracket. The appraisal of the assets of Williston Company shows that the inventory has a fair value of $120,000, and the depreciable fixed assets have a fair value of $250,000 and a 10-year life. Any remaining excess is attributed to goodwill. Williston Company has the following balance sheet just before the acquisition:
Required:
a.
Prepare a value analysis and a determination and distribution of excess schedule.
b.
Prepare the elimination entries that would be made on the consolidated worksheet on the date of acquisition.
Required: a.
Prepare a value analysis and a determination and distribution of excess schedule.
b.
Prepare the elimination entries that would be made on the consolidated worksheet on the date of acquisition.
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23
PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Refer to Scenario 3-4.
Prepare Parent's 20X1 and 20X2 journal entries (after the purchase has been recorded) to record the transactions related to its investment in Subsidiary under the sophisticated equity method.
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.Refer to Scenario 3-4.
Prepare Parent's 20X1 and 20X2 journal entries (after the purchase has been recorded) to record the transactions related to its investment in Subsidiary under the sophisticated equity method.
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24
PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Refer to Scenario 3-4 and Worksheet 3-1.
Required:
a. Complete the consolidating worksheet for December 31, 20X2.
b. Prepare supportive Income Distribution Schedules for Subsidiary and Parent.
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.Refer to Scenario 3-4 and Worksheet 3-1.
Required:
a. Complete the consolidating worksheet for December 31, 20X2.
b. Prepare supportive Income Distribution Schedules for Subsidiary and Parent.
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25
PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
-Refer to Scenario 3-4.
Prepare the necessary date alignment entries for the consolidating worksheet for December 31, 20X1 and December 31, 20X2 assuming that Parent records its investment in Subsidiary using
a. the cost method
b. the simple equity method
If date alignment entries are not required, give rationale.
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.-Refer to Scenario 3-4.
Prepare the necessary date alignment entries for the consolidating worksheet for December 31, 20X1 and December 31, 20X2 assuming that Parent records its investment in Subsidiary using
a. the cost method
b. the simple equity method
If date alignment entries are not required, give rationale.
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26
The Paris Company purchased an 80% interest in Seine, Inc. for $600,000 on July 1, 20X1, when Seine had the following balance sheet:
The inventory is understated by $20,000 and is sold in the third quarter of 20X1. The building has a fair value of $320,000 and a 10-year remaining life. The equipment has a fair value of $120,000 and a remaining life of 5 years. Any remaining excess is attributed to goodwill.
From July 1 through December 31, 20X1, Seine had net income of $100,000 and paid $10,000 in dividends.
Assume that Paris uses the cost method to record its investment in Seine.
Required:
a.
Prepare a determination and distribution of excess schedule as of July 1, 20X1.
b.
Prepare the eliminations and adjustments that would be made on the December 31, 20X1, consolidated worksheet to eliminate the investment in Seine. Distribute and amortize any excess.
The inventory is understated by $20,000 and is sold in the third quarter of 20X1. The building has a fair value of $320,000 and a 10-year remaining life. The equipment has a fair value of $120,000 and a remaining life of 5 years. Any remaining excess is attributed to goodwill.From July 1 through December 31, 20X1, Seine had net income of $100,000 and paid $10,000 in dividends.
Assume that Paris uses the cost method to record its investment in Seine.
Required:
a.
Prepare a determination and distribution of excess schedule as of July 1, 20X1.
b.
Prepare the eliminations and adjustments that would be made on the December 31, 20X1, consolidated worksheet to eliminate the investment in Seine. Distribute and amortize any excess.
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27
PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Refer to Scenario 3-4.
Required:
a. Prepare a value analysis schedule
b. Prepare a determination and distribution of excess schedule
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.Refer to Scenario 3-4.
Required:
a. Prepare a value analysis schedule
b. Prepare a determination and distribution of excess schedule
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28
PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Refer to Scenario 3-4.
Prepare Parent's 20X1 and 20X2 journal entries (after the purchase has been recorded) to record the transactions related to its investment in Subsidiary under the
a.
cost method
b.
simple equity method
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.Refer to Scenario 3-4.
Prepare Parent's 20X1 and 20X2 journal entries (after the purchase has been recorded) to record the transactions related to its investment in Subsidiary under the
a.
cost method
b.
simple equity method
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29
The determination and distribution schedule for the consolidation of Petoskey (80% interest) and Sable reads in part:
Prepare the elimination entries to distribute and amortize the excess purchase cost on
a. 1/1/X1, the date of acquisition
b. 12/31/X1, the end of the first year following the acquisition
c. 12/31/X3, the end of the third year following the acquisition.
Prepare the elimination entries to distribute and amortize the excess purchase cost on a. 1/1/X1, the date of acquisition
b. 12/31/X1, the end of the first year following the acquisition
c. 12/31/X3, the end of the third year following the acquisition.
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30
PROBLEM
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.
Refer to Scenario 3-4.
Prepare all necessary elimination entries for the consolidating worksheet of December 31, 20X2. Assume Parent uses the simple equity method of accounting for its investment in Subsidiary.
Scenario 3-4
On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
On January 1, 20X1, the only tangible assets of Subsidiary that were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is goodwill.Refer to Scenario 3-4.
Prepare all necessary elimination entries for the consolidating worksheet of December 31, 20X2. Assume Parent uses the simple equity method of accounting for its investment in Subsidiary.
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