Topic: Equity method investments

LO 2

Delta Corporation acquired 25% of the voting stock of Davidson Company in 2019. There were no basis differences. It is now 2020. Davidson reported 2020 net income of $5,000,000, other comprehensive income of $100,000, and declared and paid cash dividends of $1,500,000. Delta’s ending inventory contains $1,020,000 purchased from Davidson, and its beginning inventory contains $750,000 purchased from Davidson. Davidson sells inventory to Delta at a markup of 20% on cost. Delta uses the equity method to account for its investment in Davidson.

Required

a. Calculate equity in net income of Davidson, reported on Delta’s 2020 income statement.

b. Prepare Delta’s 2020 journal entry or entries related to its investment in Davidson.

c. What is the net effect of the investment in Davidson on Delta’s 2020 net income and on Delta’s 2020 comprehensive income

On January 2, 2020, Dove, Inc. acquired a 25% interest in the outstanding voting ordinary shares of Cabot Enterprises for a cost of P900,000. This investment provides Dove with the ability to exercise significant influence over Cabot and classified the investment as investment in associates. The acquisition cost of the investment is in excess of the book value by P140,000; the excess is attributable to goodwill which is to be amortized over 20 year. During 2020, Cabot Enterprises reported net income of P312,000 and paid total cash dividends of P220,000. At December 31, 2020, the balance account Investment in Associates in Cabot should have a carrying value of?

On January 1st 2020, B Ccompany Acquired 12,500 of the 50,000 shares (25%) of the common stock of C company for $30 per share. Per C company's annual report for the year ending 12/31/2020 they reported a net income of $210,000 and declared/paid total cash dividends of $100,000. C Company's stock price had a fair value of $31 per share on December 31, 2020.

After considering the impact of the above information, complete the table below assuming significant influence and no significant influence.

A sample of 36 MBA students at a certain university produces a mean age of 26.5 years with a standard deviation of 10.24 years. Which of the following is the 90% confidence interval for the mean age of all MBA students at this university based on this sample.

The accompanying table shows the annual​ salaries, in thousands of​ dollars, earned by a sample of individuals who graduated with MBAs in the years 2012 and 2013. Perform a hypothesis test using α equals= 0.05 to determine if the median salary for 2012 MBA graduates is lower than 2013 MBA graduates.

Salaries​ (in thousands of​ dollars) for 2012 MBA graduates

Salaries​ (in thousands of​ dollars) for 2013 MBA graduates

Identify the test statistic.

___ ​(Round to two decimal places as​ needed.)

Calculate the​ p-value.

​p-value equals=____ (Round to three decimal places as​ needed.)

In a effort to better predict the demand for courses offered by a certain MBA program, it was hypothesized that students' academic backgrounds affect their choice of MBA major, thus, their course selection. A random sample of last year's MBA students was selected. The results are shown below. (A) State the null hypothesis and alternative hypothesis. (B) USING EXCEL Can we infer that undergraduate degree affects MBA students' course preferences?

In an article in the Journal of Advertising, Weinberger and Spotts compare the use of humor in television ads in the United States and in the United Kingdom. Suppose that independent random samples of television ads are taken in the two countries. A random sample of 400 television ads in the United Kingdom reveals that 140 use humor, while a random sample of 500 television ads in the United States reveals that 128 use humor.

(a) Set up the null and alternative hypotheses needed to determine whether the proportion of ads using humor in the United Kingdom differs from the proportion of ads using humor in the United States.

(b) Test the hypotheses you set up in part a by using critical values and by setting α equal to .10, .05, .01, and .001. How much evidence is there that the proportions of U.K. and U.S. ads using humor are different? (Round the proportion values to 3 decimal places. Round your answer to 2 decimal places.)

(c) Set up the hypotheses needed to attempt to establish that the difference between the proportions of U.K. and U.S. ads using humor is more than .05 (five percentage points). Test these hypotheses by using a p-value and by setting α equal to .10, .05, .01, and .001. How much evidence is there that the difference between the proportions exceeds .05? (Round the proportion values to 3 decimal places. Round your z value to 2 decimal places and p-value to 4 decimal places.)

(d) Calculate a 95 percent confidence interval for the difference between the proportion of U.K. ads using humor and the proportion of U.S. ads using humor. Interpret this interval. Can we be 95 percent confident that the proportion of U.K. ads using humor is greater than the proportion of U.S. ads using humor? (Round the proportion values to 3 decimal places. Round your answers to 4 decimal places.)

In an article in the Journal of Advertising, Weinberger and Spotts compare the use of humor in television ads in the United States and in the United Kingdom. Suppose that independent random samples of television ads are taken in the two countries. A random sample of 400 television ads in the United Kingdom reveals that 143 use humor, while a random sample of 500 television ads in the United States reveals that 126 use humor.

(a) Set up the null and alternative hypotheses needed to determine whether the proportion of ads using humor in the United Kingdom differs from the proportion of ads using humor in the United States.

(b) Test the hypotheses you set up in part a by using critical values and by setting α equal to .10, .05, .01, and .001. How much evidence is there that the proportions of U.K. and U.S. ads using humor are different? (Round the proportion values to 3 decimal places. Round your answer to 2 decimal places.)

(c) Set up the hypotheses needed to attempt to establish that the difference between the proportions of U.K. and U.S. ads using humor is more than .05 (five percentage points). Test these hypotheses by using a p-value and by setting α equal to .10, .05, .01, and .001. How much evidence is there that the difference between the proportions exceeds .05? (Round the proportion values to 3 decimal places. Round your z value to 2 decimal places and p-value to 4 decimal places.) (d) Calculate a 95 percent confidence interval for the difference between the proportion of U.K. ads using humor and the proportion of U.S. ads using humor. Interpret this interval. Can we be 95 percent confident that the proportion of U.K. ads using humor is greater than the proportion of U.S. ads using humor? (Round the proportion values to 3 decimal places. Round your answers to 4 decimal places.)

Describe growth stages in a company/startup.

Business Combination

On 1 July 2020, Tall Ltd acquired all of the assets and liabilities of Blacks Ltd. In exchange for these assets and liabilities, Tall Ltd issued 100 000 shares that at date of issue had a fair value of $6.30 per share. Costs of issuing these shares amounted to $1000. Legal costs associated with the acquisition of Blacks Ltd amounted to $4200.

The asset and liabilities of Blacks Ltd at 1 July 2020 were as follows:

                                                                                               Carrying amount                               Fair value

Assets

             Cash                                                                                              $1 000                                      $1 000

             Accounts receivable                                                               10 000                                      10 000

             Inventory                                                                                    64 000                                      68 000

             Equipment                                                                               320 000                                    232 000

             Accumulated depreciation – equipment                    (96 000)                                              —

             Patents                                                                                      240 000                                    280 000

Liabilities

             Accounts payable                                                                 (16 000)                                   (16 000)

             Debentures                                                                            (64 000)                                   (64 000)

The accountant for Tall Ltd, Mr Spencer, knows that AASB 3 has to be applied in accounting for business combinations. However, he is confused as to how to account for the goodwill, what recognition criteria is applied to assets and liabilities acquired in the business combination, and how the varying dates such as the date of exchange and acquisition date will affect the accounting for the business combination.

Provide Mr Spencer with advice on the issues that are confusing him.

Required

1. Explain how to account for goodwill.                                                                                         

2. Discuss the importance of identifying the acquisition date                                                                   

3. What recognition criteria is applied to assets and liabilities acquired in the businesscombination. Explain.                                                                                                         

4. Prepare the acquisition analysis at 1 July 2020 for the acquisition of Blacks Ltd by Tall Ltd.                                                                                                                                                                         

5. Prepare the journal entries in the records of Tall Ltd at 1 July 2020.