1. On January 1, 2020, Pantop Corporation acquired 85% of the outstanding common stock of Sunny Company for $527,000. There was no control premium.

The following information about Sunny Company on January 1, 2020 was available:

Pantop uses the complete equity method to account for its investment in Sunny. During 2020, Sunny had a net income of $80,000. The remaining useful life of the building was five years with no salvage value. Sunny uses straight line depreciation. Sunny’s cost of goods sold (FIFO) was $70,000 in 2020. On December 23, 2020, Sunny declared and paid $48,000 cash dividend to its shareholders. Goodwill was unimpaired as of December 31, 2020.

(i)  Prepare journal entries for Pantop to record under the complete equity method of accounting the operating results of Sunny in 2020.

(ii) Prepare the working paper eliminating entries C, E, R, O and N (in journal entry format) for Pantop Corporation and subsidiary for the year ended December 31, 2020.

The LIFO inventory cost flow assumption is not permitted under international financial reporting standards. The primary reason for the disallowance of LIFO appears to be that international standards have a strong balance sheet measurement focus and efforts have been made to eliminate accounting methods that do not support this approach. During inflationary times LIFO assigns to inventory the costs of the oldest items acquired by the company, thus causing balance sheet values to become outdated as the company grows.

Approximately 30% of U.S. companies currently utilize LIFO. Think about what the implication would be for these companies if the LIFO cost flow assumption were no longer available as a reporting alternative under U.S. GAAP. Do you think U.S. GAAP should follow IFRS and disallow LIFO? Why or why not? You may search additional sites to help form an opinion. One site that may be of interest is savelifo.org. (1-2 Paragraphs)

CASE STUDY IKEA
The first few years of the twenty-first century were difficult for IKEA, the U$31 billion global furniture powerhouse based in Sweden. The Euro’s strength dampened financial results, as did an economic downturn in Central Europe. The company faced increasing competition from hypermarkets, “do-it-yourself” retailers such as Walmart, and supermarkets that were expanding into home furnishings. Looking to the future, CEO Anders Dahlvig is stressing three areas for improvement: product assortment, customer service, and product availability. With stores in 38 countries, the company’s success reflects founder Ingvar Kamprad’s “social ambition” of selling a wide range of stylish, functional home furnishings at prices so low that the majority of people can afford to buy them. The store exteriors are painted bright blue and yellow: Sweden’s national colours. Shoppers view furniture on the main floor in scores of realistic settings arranged throughout the cavernous showrooms. At IKEA, shopping is a self-service activity; after browsing and writing down the names of desired items, shoppers can pick up their furniture on the lower level. There they find “flat packs” containing the furniture in kit form; one of the cornerstones of IKEA’s strategy is having customers take their purchases home in their own vehicles and assemble the furniture themselves. The lower level of a typical IKEA store also contains a restaurant, a grocery store called the Swede Shop, a supervised play area for children, and a baby care room. IKEA’s unconventional approach to the furniture business has enabled it to rack up impressive growth in an industry in which overall sales have been flat. Sourcing furniture from a network of more than 1,600 suppliers in 55 countries helps the company maintain its low-cost, high-quality position. During the 1990s, IKEA expanded into Central and Eastern Europe. Because consumers in those regions have relatively low purchasing power, the stores offer a smaller selection of goods; some furniture is designed specifically for the cramped living styles typical in former Soviet bloc countries. Throughout Europe, IKEA benefits from the perception that Sweden is the source of high-quality products and efficient service. Currently, Germany and the United Kingdom are IKEA’s top two markets. The United Kingdom represents the fastest-growing market in Europe. Although Britons initially viewed the company’s less-is-more approach as cold and “too Scandinavian,” they were eventually won over. IKEA currently has 18 stores in the United Kingdom and plans call for opening more in the next decade. As Allan Young, creative director of London’s St. Luke’s advertising agency, noted, “IKEA is anti-conventional. It does what it shouldn’t do. That’s the overall theme for all IKEA advertisements: liberation from tradition.” In 2005, IKEA opened two stores near Tokyo; more stores are on the way as the company expands in Asia. IKEA’s first attempt to develop the Japanese market in the mid-1970s resulted in failure. Why? As Tommy Kullberg, former chief executive of IKEA Japan, explained, “In 1974, the Japanese market from a retail point of view was closed. Also, from the Japanese point of view, I do not think they were ready for IKEA, with our way of doing things, with flat packages and asking the consumers to put things together and so on.” However, demographic and economic trends are much different today. After years of recession, consumers are seeking alternatives to paying high prices for quality goods. Also, IKEA’s core customer segment—post–baby boomers in their 30s—grew nearly 10 percent between 2000 and 2010. In Japan, IKEA offers home delivery and an assembly service option. Industry observers predict that North America will eventually rise to the number one position in terms of IKEA’s worldwide sales. The company opened its first U.S. store in Philadelphia in 1985; as of 2010, IKEA operated stores in 48 stores in North America. Plans call for opening at least several more U.S. stores each year through 2015. Goran Carstedt, former president of IKEA North America, described his target market by noting, “Our customers understand our philosophy, which calls for each of us to do a little in order to save a lot. They value our low prices. And almost all of them say they will come back again.” As one industry observer noted, “IKEA is on the way to becoming the Walmart Stores of the home-furnishing industry. If you’re in this business, you’d better take a look.” (Keegan & Green, 2014)

QUESTION >>

1. The process of global market segmentation begins with the choice of one or more variables to use as a basis for grouping customers. Companies such as IKEA should attempt to identify consumers in different countries who share similar needs and desires. By performing market segmentation, marketers can generate the insights needed to devise the most effective approach. Assess the variables that global marketers can use to segment global markets and give an example of each.

a shareholder derivative suit was filed in the Delaware Courts alleging that the Facebook Board of Directors violated their duties to their shareholders by pay- ing its nonexecutive directors 43% more than "peers," despite its net income and revenues being 66% and 49% lower, respectively, than its peers. The peers named in the suit included Adobe, Amazon, Cisco, eBay, EMC, LinkedIn, Netflix, Qualcomm, SAP AG, The Walt Disney Company, VMware, and Yahoo!, Inc. The suit noted that in 2013, the Facebook Board paid its nonexec- utive members an average $461,000 per director, 43%, or $140,000 higher than the average per director compen- sation in Facebook's Peer Group. It further noted that the Board is free to grant its board members an unlimited amount of stock as part of their annual compensation under a 2012 equity incentive plan, with the only limit a $2.5 million share limit per director in a single year (worth approximately $145 million at the time of filing). The Facebook Board at the time consisted of eight individuals, six of whom were "outside" (i.e., nonem- ployee) directors including Lead Independent Director Donald Graham, and Directors Peter Thiel, Marc Andreessen, Reed Hastings, Erskine Boles and Desmond-Hellman. Inside directors included founder and CEO/Chairman Mark Zuckerberg and COO Sheryl Sandberg. The lawsuit alleged that all of the Directors approved the compensation and all of the nonexecutive directors received the compensation. The lawsuit claimed breach of fiduciary duty, waste of corporate assets, and "unjust enrichment." The issue of director compensation accelerated in late 2014, when Jan Koum, cofounder and CEO, joined the board and received a salary of $1, but stock awards worth over $1.9 billion, representing a sign-on award of $25 million restricted stock units when Facebook acquired WhatsApp. However, Face- book CEO Mark Zuckerberg allegedly approved the stock grants in a written affidavit, rather than at a stock- holder meeting—and with 60% of the voting power, he had the ability to approve whatever he wanted. The question remains as to whether Mark Zuckerberg failed to comply with Delaware corporate law, where the com- pany is incorporated, in circumventing shareholders by signing off on directors' stock grants instead of present- ing it at a shareholders' meeting.

Question:

1. Institutional Shareholder Services, a proxy advisory firm, has noted that there is “too much work and too much time” required of directors; could this justify higher director pay?

On June 30, Year 7, Apple Company, which prepares monthly financial statements, acquired from Bee Company for 500,000 yen a machine with life of 5 yrs and no residual value. To pay Bee Company, Apple Company borrowed 500,000 yen from Soy Bank (in China) on a 12%, 60 day note. Apple Company acquired a 510,000 yen draft to York Bank (in the U.S.) on August 29, Year 7 to pay the maturity value of the note to Soy Bank. Relevant exchange rates for the yen were as follows:

Buying rate Selling Rate

June 30, Yr 7................$0.0081 $0.0084

July 31, Yr 7.................$0.0080 $0.0082

August 29, Yr 7............$0.0082 $0.0085

REQUIRED: Prepare journal entries (including explanations for Apple Company on June 30, July 31 and August 29, Yr 7 including interest accrual and depreciation of the machine. use 30 day months for July and August interest.

On 1/1/20, Polka Company acquired 80% of Jazz Company for $900,000. Jazz's retained earnings and capital stock accounts had balances of $500,000 each. An appraisal of Jazz's assets revealed that equipment was undervalued by $40,000. The equipment has a 5-year life and is being depreciated using the straight-line method. During 2020, Jazz reported $200,000 of net income. Assume that you are consolidating the balance sheets of Polka and Jazz on 12/31/20. Prepare the worksheet consolidation entries.

Parnell Company acquired construction equipment on January 1, 2017, at a cost of $75,200. The equipment was expected to have a useful life of five years and a residual value of $11,000 and is being depreciated on a straight-line basis. On January 1, 2018, the equipment was appraised and determined to have a fair value of $70,600, a salvage value of $11,000, and a remaining useful life of four years. In measuring property, plant, and equipment subsequent to acquisition under IFRS, Parnell would opt to use the revaluation model in IAS 16.

Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes.

Required:

1. Prepare journal entries for this equipment for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.

2. Prepare the entry(ies) that Parnell would make on the December 31, 2018 conversion worksheet to convert U.S. GAAP balances to IFRS.

Parnell Company acquired construction equipment on January 1, 2017, at a cost of $71,700. The equipment was expected to have a useful life of five years and a residual value of $10,000 and is being depreciated on a straight-line basis. On January 1, 2018, the equipment was appraised and determined to have a fair value of $67,700, a salvage value of $10,000, and a remaining useful life of four years. In measuring property, plant, and equipment subsequent to acquisition under IFRS, Parnell would opt to use the revaluation model in IAS 16. Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes. Required: Prepare journal entries for this equipment for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS. Prepare the entry(ies) that Parnell would make on the December 31, 2018 conversion worksheet to convert U.S. GAAP balances to IFRS.

Hirsch Company acquired equipment at the beginning of 2017 at a cost of $124,300. The equipment has a five-year life with no expected salvage value and is depreciated on a straight-line basis. At December 31, 2017, Hirsch compiled the following information related to this equipment:                    Expected future cash flows from use of the equipment    $    106,400       Present value of expected future cash flows from use of the equipment        90,700       Fair value (selling price less costs to dispose)        86,350           Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes.     Required:      Prepare journal entries for this equipment for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.      Prepare the entry(ies) that Hirsch would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS. Ignore the possibility of any additional impairment at the end of 2018.

A major Fortune 500 company (nonregulated) acquired a small company for $1B three years ago. When the parent company purchased this organization, it paid a 50% premium (of the then stock price) and recorded about 35% of the purchase price as goodwill. The amount of goodwill remains a significant asset on the company’s books and records.

The subsidiary company is about to announce in a press release that, because of competitive pressures in the market place, it needs to reduce its current year forecasted sales and net income by 30% and 40& respectively. The company’s executives believe this decrease will continue in future years. The CEO of the company asked you to prepare a paper explaining to the board of directors and executive management what type of complications this would have on the company’s books and records.

1. What promulgated accounting literature should the company follow? Explain your rationale.