On January 1, 2020, Ridge Road Company acquired 20 percent of the voting shares of Sauk Trail, Inc., for $3,100,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities.

The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow:

Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a four-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost.

During the next two years, Sauk Trail reported the following net income and dividends:

1. How much of Ridge Road’s $3,100,000 payment for Sauk Trail is attributable to goodwill?

2. What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021?

3. What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021?

JLB Enterprises acquired 15% of REB Corporation on January 1, 2020, for $63,000 when the book value of REB’s net assets was $360,000. During 2020, REB reported net income of $90,000 and paid dividends of $30,000. On January 1, 2021, JLB purchased an additional 25% of REB for $240,000. Any excess of cost over book value was attributable to goodwill (No amortization). On that same date, JLB changed to the equity method. During 2021, REB reported net income of $120,000 and paid dividends of $45,000.  

a. What investment income did JLB record from REB in 2020?

b. What investment income did JLB record from REB in 2021?

c. What journal entry was made on Jan 1 2021 as switch equity method?

d. What was the balance in Equity Investment at December 31, 2021? (Hint: use the amount paid for 25% of REB from JLB to calculate the implied fair value of the original 15% of the investment)

On January 1, 2020, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc., for $4,000,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 175,000 $ 175,000 Computing equipment 5,585,000 6,740,000 Patented technology 165,000 4,130,000 Trademark 215,000 2,130,000 Liabilities (250,000 ) (250,000 ) Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a five-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: Net Income Dividends Declared 2020 $ 1,930,000 $ 215,000 2021 2,115,000 225,000 How much of Ridge Road’s $4,000,000 payment for Sauk Trail is attributable to goodwill? What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021? On January 1, 2020, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc., for $4,000,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 175,000 $ 175,000 Computing equipment 5,585,000 6,740,000 Patented technology 165,000 4,130,000 Trademark 215,000 2,130,000 Liabilities (250,000 ) (250,000 ) Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a five-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: Net Income Dividends Declared 2020 $ 1,930,000 $ 215,000 2021 2,115,000 225,000 How much of Ridge Road’s $4,000,000 payment for Sauk Trail is attributable to goodwill? What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021? On January 1, 2020, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc., for $4,000,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 175,000 $ 175,000 Computing equipment 5,585,000 6,740,000 Patented technology 165,000 4,130,000 Trademark 215,000 2,130,000 Liabilities (250,000 ) (250,000 ) Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a five-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: Net Income Dividends Declared 2020 $ 1,930,000 $ 215,000 2021 2,115,000 225,000 How much of Ridge Road’s $4,000,000 payment for Sauk Trail is attributable to goodwill? What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021? On January 1, 2020, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc., for $4,000,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 175,000 $ 175,000 Computing equipment 5,585,000 6,740,000 Patented technology 165,000 4,130,000 Trademark 215,000 2,130,000 Liabilities (250,000 ) (250,000 ) Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a five-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: Net Income Dividends Declared 2020 $ 1,930,000 $ 215,000 2021 2,115,000 225,000 How much of Ridge Road’s $4,000,000 payment for Sauk Trail is attributable to goodwill? What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021? On January 1, 2020, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc., for $4,000,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 175,000 $ 175,000 Computing equipment 5,585,000 6,740,000 Patented technology 165,000 4,130,000 Trademark 215,000 2,130,000 Liabilities (250,000 ) (250,000 ) Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a five-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: Net Income Dividends Declared 2020 $ 1,930,000 $ 215,000 2021 2,115,000 225,000 How much of Ridge Road’s $4,000,000 payment for Sauk Trail is attributable to goodwill? What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021? On January 1, 2020, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc., for $4,000,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 175,000 $ 175,000 Computing equipment 5,585,000 6,740,000 Patented technology 165,000 4,130,000 Trademark 215,000 2,130,000 Liabilities (250,000 ) (250,000 ) Also, as of January 1, 2020, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a five-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: Net Income Dividends Declared 2020 $ 1,930,000 $ 215,000 2021 2,115,000 225,000 How much of Ridge Road’s $4,000,000 payment for Sauk Trail is attributable to goodwill? What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2020 and 2021? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021?

On December 31, 2020, Sage Company acquired a computer from Plato Corporation by issuing a $650,000 zero-interest-bearing note, payable in full on December 31, 2024. Sage Company’s credit rating permits it to borrow funds from its several lines of credit at 12%. The computer is expected to have a 5-year life and a $76,000 salvage value.

1.

Prepare the journal entry for the purchase on December 31, 2020. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

2.

Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization (use effective-interest method) on December 31, 2021. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

3. Prepare any necessary adjusting entries relative to depreciation and amortization on December 31, 2022. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

PLEASE PROVIDE STEPS AND EXPLANATION WITH ANSWERS. THANK YOU!

Alfonso Inc. acquired 100 percent of the voting shares of BelAire Company on January 1, 2020. In exchange, Alfonso paid $459,500 in cash and issued 100,000 shares of its own $1 par value common stock. On this date, Alfonso’s stock had a fair value of $15 per share. The combination is a statutory merger with BelAire subsequently dissolved as a legal corporation. BelAire’s assets and liabilities are assigned to a new reporting unit.

The following shows fair values for the BelAire reporting unit for January 1, 2020 along with respective carrying amounts on December 31, 2021.

Note: Parentheses indicate a credit balance.

1. Prepare Alfonso’s journal entry to record the assets acquired and the liabilities assumed in the BelAire merger on January 1, 2020. Note: Enter cash paid and cash received as two separate amounts.

2. On December 31, 2021, Alfonso opts to forgo any goodwill impairment qualitative assessment and estimates that the total fair value of the entire BelAire reporting unit is $1,740,000. What amount of goodwill impairment, if any, should Alfonso recognize on its 2021 income statement?

Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $5,957,000 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,020,000 including retained earnings of $1,520,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 5,957,000 Mathias stockholders' equity 2,020,000 Excess fair over book value $ 3,937,000 to unpatented technology (8-year remaining life) $ 832,000 to patents (10-year remaining life) 2,540,000 to increase long-term debt (undervalued, 5-year remaining life) (120,000 ) 3,252,000 Goodwill $ 685,000 Postacquisition, Allison employs the equity method to account for its investment in Mathias. During the two years following the business combination, Mathias reports the following income and dividends: Income Dividends 2020 $ 472,500 $ 25,000 2021 945,000 50,000 No asset impairments have occurred since the acquisition date. Individual financial statements for each company as of December 31, 2021, follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. Allison Mathias Income Statement Sales $ (6,480,000 ) $ (3,920,000 ) Cost of goods sold 4,556,000 2,513,000 Depreciation expense 895,000 289,000 Amortization expense 440,000 109,000 Interest expense 63,000 64,000 Equity earnings in Mathias (611,000 ) 0 Net income $ (1,137,000 ) $ (945,000 ) Statement of Retained Earnings Retained earnings 1/1 $ (5,380,000 ) $ (1,967,500 ) Net income (above) (1,137,000 ) (945,000 ) Dividends declared 560,000 50,000 Retained earnings 12/31 $ (5,957,000 ) $ (2,862,500 ) Balance Sheet Cash $ 81,000 $ 149,000 Accounts receivable 970,000 235,000 Inventory 1,740,000 805,000 Investment in Mathias 6,631,500 0 Equipment (net) 3,740,000 2,066,000 Patents 105,000 0 Unpatented technology 2,145,000 1,470,000 Goodwill 439,000 0 Total assets $ 15,851,500 $ 4,725,000 Accounts payable $ (694,500 ) $ (162,500 ) Long-term debt (1,000,000 ) (1,200,000 ) Common stock (8,200,000 ) (500,000 ) Retained earnings 12/31 (5,957,000 ) (2,862,500 ) Total liabilities and equity $ (15,851,500 ) $ (4,725,000 ) Required: Determine the fair value in excess of book value for Allison's acquisition date investment in Mathias. Prepare a worksheet to determine the consolidated values to be reported on Allison’s financial statements.

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2020, for $188,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2021, Milani purchased an additional 30 percent of Seida for $639,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $1,950,000 in total. Seida’s January 1, 2021, book value equaled $1,800,000, although land was undervalued by $132,000. Any additional excess fair value over Seida's book value was attributable to a trademark with an eight-year remaining life. During 2021, Seida reported income of $314,000 and declared and paid dividends of $106,000.

Prepare the 2021 journal entries for Milani related to its investment in Seida.

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2020, for $631,000 in cash. Annual excess amortization of $14,100 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $415,000, and Rambis reported a $258,000 balance. Herbert reported an internal net income of $45,750 in 2020 and $58,450 in 2021 and declared $10,000 in dividends each year. Rambis reported a net income of $23,500 in 2020 and $36,200 in 2021 and declared $5,000 in dividends each year. a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary. If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2021? What would be the amount of consolidated retained earnings on December 31, 2021, if the parent had applied either the initial value or partial equity method for internal accounting purposes? b. Under each of the following situations, what is the Investment in the Rambis account balance on Herbert’s books on January 1, 2021? The parent uses the equity method. The parent uses the partial equity method. The parent uses the initial value method. c. Under each of the following situations, what is Entry *C on a 2021 consolidation worksheet? The parent uses the equity method. The parent uses the partial equity method. The parent uses the initial value method. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary. If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2021? What would be the amount of consolidated retained earnings on December 31, 2021, if the parent had applied either the initial value or partial equity method for internal accounting purposes? A) Consolidated retained earnings (equity method) =? Consolidated retained earnings (initial value method) =? Consolidated retained earnings (partial equity method) =? B) Investment Equity method =? Partial equity method =? Initial value method =? C) Prepare 3 journal entries

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2020, for $600,000 in cash. Annual excess amortization of $13,900 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $445,000, and Rambis reported a $251,000 balance. Herbert reported an internal net income of $42,000 in 2020 and $56,100 in 2021 and declared $10,000 in dividends each year. Rambis reported a net income of $24,200 in 2020 and $38,300 in 2021 and declared $5,000 in dividends each year.

a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary.

• If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2021?
• What would be the amount of consolidated retained earnings on December 31, 2021, if the parent had applied either the initial value or partial equity method for internal accounting purposes?

b. Under each of the following situations, what is the Investment in Rambis account balance on Herbert’s books on January 1, 2021?

• The parent uses the equity method.
• The parent uses the partial equity method.
• The parent uses the initial value method.

c. Under each of the following situations, what is Entry *C on a 2021 consolidation worksheet?

• The parent uses the equity method.
• The parent uses the partial equity method.
• The parent uses the initial value method.

1.On January 1, 2020, KJ Inc. acquired an equipment for P2,400,000 with residual value of P400,000 and useful life of 8 years. On December 31, 2023, due to hyperinflation, KJ Inc. tested for impairment the equipment. As of this date, the fair value of the equipment is P1,500,000 and the related disposal cost is P300,000 while the value in use of the equipment is P1,350,000. On December 31, 2024, the fair value of the equipment is P1,700,000 and the related disposal cost is P400,000 while the value in use of the equipment is P1,500,000. Using the same data, what is the gain on reversal of impairment loss to be recognized in year 2024? *

P387,500

P187,500

P37,500

P50,000

2.On January 1, 2020, KJ Inc. acquired an equipment for P2,400,000 with residual value of P400,000 and useful life of 8 years. On December 31, 2023, due to hyperinflation, KJ Inc. tested for impairment the equipment. As of this date, the fair value of the equipment is P1,500,000 and the related disposal cost is P300,000 while the value in use of the equipment is P1,350,000. On December 31, 2024, the fair value of the equipment is P1,700,000 and the related disposal cost is P400,000 while the value in use of the equipment is P1,500,000. What is the carrying amount to be presented on the equipment as of December 31, 2024? *

P1,112,500

P1,150,000

P1,500,000

P1,300,000

3.KJ Company had a machinery costing P3,000,000 when purchased on January 2, 2015. Estimated useful life of the asset was for 20 years with no salvage value at the end of its useful life. KJ uses the straight line method of Depreciation. On January 2, 2020, KJ is evaluating the machinery for possible impairment. The machinery has a remaining useful life of 5 years and is expected to generate cash inflows of P500,000 per year. KJ has determined that the rate implicit in current market transaction for similar asset is 10%. Available information as of January 2, 2020 also showed that the appropriate market price for the same asset is P1,950,000. Estimated cost of disposal, P150,000.What amount of Impairment loss, if any, is to be recognized? *

300,000

450,000

355,000

0

4.On January 1, 2015, KJ Company purchased a new building at a cost of P3,000,000. Depreciation was computed on the straight line basis at 4% per year. On January 1, 2020, the building was revalued at a fair value of P4,000,000. To record the revaluation the following journal entry was made: Dr. Building 1,000,000 Cr. Retained Earnings 1,000,000 Correcting entry will include which of the following? *

Credit Retained Earnings at 600,000

Credit Revaluation Surplus of P1,000,000

Debit Building of P2,000,000

Credit Accumulated Depreciation of 400,000

5.On January 1, 2015, KJ Company purchased a new building at a cost of P3,000,000. Depreciation was computed on the straight line basis at 4% per year. On January 1, 2020, the building was revalued at a fair value of P4,000,000. To record the revaluation the following journal entry was made: Dr. Building 1,000,000 Cr. Retained Earnings 1,000,000 What is the Accumulated Depreciation on Replacement Cost on January 1, 2020? *

400,000

600,000

1,000,000

1,600,000

6.KJ Company determined that, due to the obsolescence, equipment with an original cost of P180,000 and accumulated depreciation at January 1, 2020 of P84,000 had suffered permanent impairment, and as a result should have a fair value of only P60,000 as of the beginning of the year. Additionally, the remaining useful life of the equipment was reduced from eight years to three years. In its December 31, 2020 Income statement, how much should be reflected as Depreciation? *

104,000

20,000

140,000

120,000