In: Accounting
In January 1, 2015, Springfield Company acquired an 80% interest in Lincoln Company for a purchase price that was $350,000 over the book value of Lincoln’s Stockholders’ Equity on the acquisition date. Spring uses the equity method to account for its investment in Lincoln. Springfield assigned the acquisition-date AAP as follows:
|
AAP Items |
Initial Fair Value |
Useful Life (years) |
|
Patent |
200,000 |
10 |
|
Goodwill |
150,000 |
Indefinite |
|
$350,000 |
Lincoln sells inventory to Springfield (upstream) which includes that inventory in products that it (Springfield), ultimately, sells to customers outside of the controlled group. You have compiled the following data as of 2020 and 2021:
|
2020 |
2021 |
|
|
Transfer price for inventory sale |
$ 305,500 |
$ 356,500 |
|
Cost of goods sold |
(269,500) |
(316,500) |
|
Gross profit |
$ 36,000 |
$ 40,000 |
|
% inventory remaining |
25% |
35% |
|
Gross profit deferred |
$ 9,000 |
$ 14,000 |
|
EOY Receivable/Payable |
$ 55,000 |
$ 65,000 |
The inventory not remaining at the end of the year has been sold outside of the controlled group.
Springfield and Lincoln report the following financial statements at December 31, 2021:
|
Income Statement |
||
|
Springfield |
Lincoln |
|
|
Sales |
$ 5,660,000 |
$ 1,160,000 |
|
Cost of goods sold |
(3,830,000) |
(687,500) |
|
Gross Profit |
1,830,000 |
472,500 |
|
Income (loss) from subsidiary |
185,600 |
|
|
Operating expenses |
(1,045,200) |
(215,500) |
|
Net income |
$ 970,400 |
$ 257,000 |
|
Statement of Retained Earnings |
||
|
Springfield |
Lincoln |
|
|
BOY Retained Earnings |
$6,464,800 |
$2,385,000 |
|
Net income |
970,400 |
257,000 |
|
Dividends |
(105,400) |
(25,000) |
|
EOY Retained Earnings |
$7,329,800 |
$2,617,000 |
|
Balance Sheet |
||
|
Springfield |
Lincoln |
|
|
Assets: |
||
|
Cash |
$ 978,400 |
$ 474,200 |
|
Accounts receivable |
1,142,300 |
702,700 |
|
Inventory |
1,515,400 |
622,900 |
|
Equity Investment |
2,571,200 |
|
|
PPE, net |
5,934,800 |
1,802,300 |
|
$12,142,100 |
$3,602,100 |
|
|
Liabilities and Stockholders’ Equity: |
||
|
Current Liabilities |
$ 689,700 |
$ 204,600 |
|
Long-term Liabilities |
2,054,000 |
379,500 |
|
Common Stock |
853,600 |
92,100 |
|
APIC |
1,215,000 |
308,900 |
|
Retained Earnings |
7,329,800 |
2,617,000 |
|
$12,142,100 |
$3,602,100 |
|
Required:
a. Compute the EOY non-controlling interest equity balance.
b. Prepare the consolidation spreadsheet on the acquisition date.
In: Accounting
On July 1, 2016, Killearn Company acquired 88,000 of the outstanding shares of Shaun Company for $13 per share. This acquisition gave Killearn a 25 percent ownership of Shaun and allowed Killearn to significantly influence the investee’s decisions.
As of July 1, 2016, the investee had assets with a book value of $3 million and liabilities of $74,400. At the time, Shaun held equipment appraised at $364,000 above book value; it was considered to have a seven-year remaining life with no salvage value. Shaun also held a copyright with a five-year remaining life on its books that was undervalued by $972,000. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Killearn applies the equity method for its investment in Shaun.
Shaun’s policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Shaun’s income, earned evenly throughout each year, was $598,000 in 2016, $639,600 in 2017, and $692,400 in 2018.
In addition, Killearn sold inventory costing $91,200 to Shaun for $152,000 during 2017. Shaun resold $92,000 of this inventory during 2017 and the remaining $60,000 during 2018.
Determine the equity income to be recognized by Killearn during each of these years.
Compute Killearn’s investment in Shaun Company’s balance as of December 31, 2018.
In: Accounting
P Company acquired the assets and assumed the liabilities of S Company on January 1, 2018, for $510,000 when S Company's balance sheet was as follows:
|
S COMPANY |
||
|
Cash |
$ 96,000 |
|
|
Receivables |
55,200 |
|
|
Inventory |
110,400 |
|
|
Land |
169,200 |
|
|
Plant and equipment (net) |
466,800 |
|
|
Total |
$897,600 |
|
|
Accounts payable |
$ 44,400 |
|
|
Bonds payable, 10%, due 12/31/2023, Par |
480,000 |
|
|
Common stock, $2 par value |
120,000 |
|
|
Retained earnings |
253,200 |
|
|
Total |
$897,600 |
|
Fair values of S Company's assets and liabilities were equal to their book values except for the following:
Prepare the journal entry on P Company's books to record the acquisition of the assets and assumption of the liabilities of S Company.
In: Accounting
On July 1, 2016, Killearn Company acquired 84,000 of the outstanding shares of Shaun Company for $20 per share. This acquisition gave Killearn a 25 percent ownership of Shaun and allowed Killearn to significantly influence the investee's decisions.
As of July 1, 2016, the investee had assets with a book value of $5 million and liabilities of $266,400. At the time, Shaun held equipment appraised at $476,000 above book value; it was considered to have a seven-year remaining life with no salvage value. Shaun also held a copyright with a five-year remaining life on its books that was undervalued by $1,212,000. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Killearn applies the equity method for its investment in Shaun.
Shaun's policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Shaun's income, earned evenly throughout each year, was $645,000 in 2016, $679,800 in 2017, and $723,000 in 2018.
In addition, Killearn sold inventory costing $139,200 to Shaun for $232,000 during 2017. Shaun resold $101,500 of this inventory during 2017 and the remaining $130,500 during 2018.
1.Determine the equity income to be recognized by Killearn during each of these years.
2.Compute Killearn's investment in Shaun Company's balance as of December 31, 2018.
In: Accounting
The Nathan Company acquired all of the outstanding stock of Caleb Company on January 1, 2014 for P267,800 cash. Caleb had a book value of only P182,000 on that date. However, equipment (having an eight-year life) is undervalued by P52,000 on Caleb’s financial records. A building with a 20-year life was overvalued by P13,000. Subsequent to the acquisition, Caleb reported the following:
|
Net Income |
Dividends Paid |
|
|
2014 |
P 65,000 |
P 13,000 |
|
2015 |
78,000 |
52,000 |
|
2016 |
39,000 |
26,000 |
In accounting for this investment, Nathan has used the cost method. Selected accounts taken from the financial records of these two companies as of December 31, 2016, are as follows:
|
Nathan Company |
Caleb Company |
|
|
Revenues – Operating |
P403,000 |
P135,200 |
|
Expenses |
257,400 |
96,200 |
|
Equipment (net) |
416,000 |
65,000 |
|
Building (net) |
286,000 |
88,400 |
|
Ordinary share |
377,000 |
65,000 |
|
Accumulated profits |
533,000 |
208,000 |
Required:
Determine the following account balances as of December 31, 2016.
In: Accounting
On January 1, 20X1, Prange Company acquired 100% of the common stock of Seaman Company for $600,000. On this date Seaman had total owners' equity of $400,000. Any excess of cost over book value is attributable to a patent, which is to be amortized over 10 years. During 20X1 and 20X2, Prange has appropriately accounted for its investment in Seaman using the simple equity method. On January 1, 20X2, Prange held merchandise acquired from Seaman for $30,000. During 20X2, Seaman sold merchandise to Prange for $100,000, of which $20,000 is held by Prange on December 31, 20X2. Seaman's gross profit on all sales is 40%. On December 31, 20X2, Prange still owes Seaman $20,000 for merchandise acquired in December. Required: Complete the worksheet similar to Figure 4-1 (following) for consolidated financial statements for the year ended December 31, 20X2. Prepare your worksheet in Excel. Following is a template in Figure 4-1 that will guide you in setting up your worksheet in Excel.
In: Accounting
In: Accounting
On July 1, 2016, Killearn Company acquired 120,000 of the outstanding shares of Shaun Company for $15 per share. This acquisition gave Killearn a 20 percent ownership of Shaun and allowed Killearn to significantly influence the investee's decisions.
As of July 1, 2016, the investee had assets with a book value of $7 million and liabilities of $148,000. At the time, Shaun held equipment appraised at $581,000 above book value; it was considered to have a seven-year remaining life with no salvage value. Shaun also held a copyright with a five-year remaining life on its books that was undervalued by $1,235,000. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Killearn applies the equity method for its investment in Shaun.
Shaun's policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Shaun's income, earned evenly throughout each year, was $566,000 in 2016, $593,400 in 2017, and $643,600 in 2018.
In addition, Killearn sold inventory costing $114,600 to Shaun for $191,000 during 2017. Shaun resold $123,500 of this inventory during 2017 and the remaining $67,500 during 2018.
Determine the equity income to be recognized by Killearn during each of these years.
Compute Killearn's investment in Shaun Company's balance as of December 31, 2018.
A. Equity Income 2016 __________
B. Equity Income 2017 __________
C. Equity Income 2018 __________
D. Investment in Sahun __________
In: Accounting
14. The Anderson Company acquired 100,000 shares of the Beck Company on January 1, 2016, at $25 per share. Beck’s stock price on December 31, 2016, was $35 per share. During 2016, Beck declared and paid dividends of $1.50 per share and had earnings of $2.50 per share. Anderson Company accounted for its investment in Beck Company shares as subsequently measured at fair value through OCI. What was the net effect of investment in Beck Company shares on Anderson’s income statement for 2016?
Answer is c, why
In: Accounting