Question

In: Accounting

Problem 6-26 (Algo) (LO 6-2) On January 1, 2021, Access IT Company exchanged $920,000 for 40...

Problem 6-26 (Algo) (LO 6-2)

On January 1, 2021, Access IT Company exchanged $920,000 for 40 percent of the outstanding voting stock of Net Connect. Especially attractive to Access IT was a research project underway at Net Connect that would enhance both the speed and quantity of client-accessible data. Although not recorded in Net Connect's financial records, the fair value of the research project was considered to be $1,880,000.

In contractual agreements with the sole owner of the remaining 60 percent of Net Connect, Access IT was granted (1) various decision-making rights over Net Connect's operating decisions and (2) special service purchase provisions at below-market rates. As a result of these contractual agreements, Access IT established itself as the primary beneficiary of Net Connect. Immediately after the purchase, Access IT and Net Connect presented the following balance sheets:

(Note: Parentheses indicate credit balances.)

Access IT Net Connect
Cash $ 53,000 $ 33,000
Investment in Net Connect 920,000
Capitalized software 973,000 148,000
Computer equipment 1,058,000 48,000
Communications equipment 908,000 328,000
Patent 183,000
Total assets $ 3,912,000 $ 740,000
Long-term debt $ (933,000 ) $ (608,000 )
Common stock-Access IT (2,580,000 )
Common stock-Net Connect (33,000 )
Retained earnings (399,000 ) (99,000 )
Total liabilities and equity $ (3,912,000 ) $ (740,000 )

Each of the above amounts represents a fair value at January 1, 2021. The fair value of the 60 percent of Net Connect shares not owned by Access IT was estimated at $1,380,000.

Prepare an acquisition-date consolidation worksheet for Access IT and its variable interest entity. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Input all amounts as positive values.)

Prepare an acquisition-date consolidation worksheet for Access IT and its variable interest entity. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Input all amounts as positive values.)

Solutions

Expert Solution

.


Related Solutions

On January 1, 2018, Access IT Company exchanged $850,000 for 40 percent of the outstanding voting...
On January 1, 2018, Access IT Company exchanged $850,000 for 40 percent of the outstanding voting stock of Net Connect. Especially attractive to Access IT was a research project underway at Net Connect that would enhance both the speed and quantity of client-accessible data. Although not recorded in Net Connect's financial records, the fair value of the research project was considered to be $1,810,000. In contractual agreements with the sole owner of the remaining 60 percent of Net Connect, Access...
On January 1, 2018, Access IT Company exchanged $910,000 for 40 percent of the outstanding voting...
On January 1, 2018, Access IT Company exchanged $910,000 for 40 percent of the outstanding voting stock of Net Connect. Especially attractive to Access IT was a research project underway at Net Connect that would enhance both the speed and quantity of client-accessible data. Although not recorded in Net Connect's financial records, the fair value of the research project was considered to be $1,870,000. In contractual agreements with the sole owner of the remaining 60 percent of Net Connect, Access...
On January 1, 2018, Access IT Company exchanged $1,080,000 for 45 percent of the outstanding voting...
On January 1, 2018, Access IT Company exchanged $1,080,000 for 45 percent of the outstanding voting stock of Net Connect. Especially attractive to Access IT was a research project underway at Net Connect that would enhance both the speed and quantity of client-accessible data. Although not recorded in Net Connect's financial records, the fair value of the research project was considered to be $2,040,000. In contractual agreements with the sole owner of the remaining 55 percent of Net Connect, Access...
Problem A-1 (Algo) Derivatives; interest rate swap [LOA–2] On January 1, 2021, Labtech Circuits borrowed $250,000...
Problem A-1 (Algo) Derivatives; interest rate swap [LOA–2] On January 1, 2021, Labtech Circuits borrowed $250,000 from First Bank by issuing a three-year, 6% note, payable on December 31, 2023. Labtech wanted to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. Therefore, Labtech entered into a three-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value hedge. The agreement called for the company...
On January 1, 2021, the Apex Company exchanged some shares of common stock it had been...
On January 1, 2021, the Apex Company exchanged some shares of common stock it had been holding as an investment for a note receivable. The note principal plus interest is due on January 1, 2022. The 2021 income statement reported $4,620 in interest revenue from this note and a $7,500 gain on sale of investment in stock. The stock’s book value was $31,000. The company’s fiscal year ends on December 31. Required: 1. What is the note’s effective interest rate?...
Problem 15-40 (Algo) Evaluate Profit Impact of Alternative Transfer Decisions (LO 15-2, 3) Amazon Beverages produces...
Problem 15-40 (Algo) Evaluate Profit Impact of Alternative Transfer Decisions (LO 15-2, 3) Amazon Beverages produces and bottles a line of soft drinks using exotic fruits from Latin America and Asia. The manufacturing process entails mixing and adding juices and coloring ingredients at the bottling plant, which is a part of Mixing Division. The finished product is packaged in a company-produced glass bottle and packed in cases of 24 bottles each. Because the appearance of the bottle heavily influences sales...
Problem 6-19 (Algo) Variable Costing Income Statement; Reconciliation [LO,6-1, LO6-2, LO6-3] During Heaton Company’s first two...
Problem 6-19 (Algo) Variable Costing Income Statement; Reconciliation [LO,6-1, LO6-2, LO6-3] During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $63 per unit) $ 1,134,000 $ 1,764,000 Cost of goods sold (@ $27 per unit) 486,000 756,000 Gross margin 648,000 1,008,000 Selling and administrative expenses* 304,000 334,000 Net operating income $ 344,000 $ 674,000 * $3 per unit variable; $250,000 fixed each year. The company’s $27...
Problem 12-10 (Algo) Investment securities and equity method investments compared [LO12-6, 12-7] On January 4, 2021,...
Problem 12-10 (Algo) Investment securities and equity method investments compared [LO12-6, 12-7] On January 4, 2021, Runyan Bakery paid $328 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan received dividends of $2.50 per share on December 15, 2021, and Lavery reported net income of $170 million for the year ended December 31,...
Problem 12-10 (Algo) Investment securities and equity method investments compared [LO12-6, 12-7] On January 4, 2021,...
Problem 12-10 (Algo) Investment securities and equity method investments compared [LO12-6, 12-7] On January 4, 2021, Runyan Bakery paid $328 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan received dividends of $2.50 per share on December 15, 2021, and Lavery reported net income of $170 million for the year ended December 31,...
Exercise A-2 (Algo) Derivatives; interest rate swap; fixed rate debt [LOA–2] On January 1, 2021, LLB...
Exercise A-2 (Algo) Derivatives; interest rate swap; fixed rate debt [LOA–2] On January 1, 2021, LLB Industries borrowed $320,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly. LLB entered into a two-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value hedge. Its intent was to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. The agreement called for...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT