n January 1, 2020, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,155,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $840,000, retained earnings of $390,000, and a noncontrolling interest fair value of $495,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.
During the next two years, Smashing reported the following:
Net Income Dividends Declared. Inventory Purchases from Corgan
| 2020 | $ | 290,000 | $ | 49,000 | $ | 240,000 | |||
| 2021 | 270,000 | 59,000 | 260,000 | ||||||
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 40 percent of the current year purchases remain in Smashing's inventory.
In: Accounting
Equity Method and Eliminating Entries, First Year
On January 1, 2020, Playtel Inc. acquired all of the stock of San Jose Cable for $250 million in cash. At the date of acquisition, Playtel’s shareholders’ equity accounts were as follows (in thousands):
| Common stock, $1 par | $5,000 |
| Additional paid-in capital | 25,000 |
| Retained deficit | (1,000) |
| Treasury stock | (800) |
| Total | $28,200 |
Both companies have a December 31 year-end. At the date of acquisition, San Jose’s reported net assets had book values approximating fair value. However, it had previously unreported indefinite-life identifiable intangibles valued at $50 million, meeting ASC Topic 805 requirements for capitalization. Impairment losses in 2020 for identifiable intangibles were $1 million. Goodwill from this acquisition was not impaired in 2020. San Jose reported net income of $4 million in 2020, and paid no dividends. Playtel uses the complete equity method to report its investment in San Jose on its own books.
Required
a. Calculate the original amount of goodwill for this acquisiton.
$Answer (in thousands)
b. Calculate equity in net income of San Jose, reported on Playtel’s books in 2020.
$Answer (in thousands)
c. Prepare eliminating entries (C), (E), (R) and (O), required to consolidate Playtel’s trial balance accounts with those of San Jose on December 31, 2020.
Enter numerical answers in thousands.
| Ref. | Description | Debit | Credit | |
|---|---|---|---|---|
| (C) | AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseRetained deficit | Answer | Answer | |
| AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseRetained deficit | Answer | Answer | ||
| (E) | Common stock, $1 par | Answer | Answer | |
| AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseRetained deficit | Answer | Answer | ||
|
AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseRetained deficit |
Answer | Answer | ||
|
Treasury stock |
Answer | Answer | ||
|
Investment in San Jose |
Answer | Answer | ||
| (R) | Identifiable intangibles | Answer | Answer | |
| AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseRetained deficit | Answer | Answer | ||
|
AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseRetained deficit |
Answer | Answer | ||
| (O) | AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseRetained deficit | Answer | Answer | |
|
AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseRetained deficit |
Answer | Answer | ||
In: Accounting
During the year ended 30 June 2020, Starhub Ltd acquired the following investments in shares issued by other companies:
|
M3 Ltd |
$480 000 (42% of issued capital) |
|
Republic Ltd |
$680 000 (35% of issued capital) |
Starhub Ltd is unsure how to account for these investments and asked you for some professional advice.
Specifically, Starhub Ltd is concerned that it may need to prepare consolidated financial statements under AASB 10. The company provided the following information about the two investee companies:
M3 Ltd
The remaining shares in M3 Ltd are owned by:
o two sisters who hold 10% of shares respectively and
o a diverse group of investors who each hold a small parcel of
shares.
Historically, only a small number of the shareholders attend the general meetings or question the actions of the directors.
Starhub Ltd has nominated three new directors and expects that they will be appointed at the next annual general meeting. The current board of directors has five members, out of which three are retiring at the next annual general meeting.
Republic Ltd
The remaining shares in Republic Ltd are owned by:
o M3 Ltd which owns 20% of the shares,
o Pontes Ltd which owns 20% of the shares and
o a diverse group of investors who each own a small parcel of
shares.
The shareholders take a keen interest in the running of the company and attend all meetings.
Two of the other shareholders, including M3 Ltd, already have representatives on the board of directors who have indicated their intention of nominating for re-election.
QUESTION:
Advise Starhub Ltd as to whether, under AASB 10, it controls M3 Ltd and/or Republic Ltd. Support your conclusion.
In: Accounting
On January 1, 2020, Stream Company acquired 30 percent of the outstanding voting shares of Q-Video, Inc., for $758,000. Q-Video manufactures specialty cables for computer monitors. On that date, Q-Video reported assets and liabilities with book values of $1.8 million and $750,000, respectively. A customer list compiled by Q-Video had an appraised value of $268,000, although it was not recorded on its books. The expected remaining life of the customer list was eight years with straight-line amortization deemed appropriate. Any remaining excess cost was not identifiable with any particular asset and thus was considered goodwill.
Q-Video generated net income of $288,000 in 2020 and a net loss of $136,000 in 2021. In each of these two years, Q-Video declared and paid a cash dividend of $10,000 to its stockholders.
During 2020, Q-Video sold inventory that had an original cost of $94,080 to Stream for $168,000. Of this balance, $84,000 was resold to outsiders during 2020, and the remainder was sold during 2021. In 2021, Q-Video sold inventory to Stream for $184,000. This inventory had cost only $138,000. Stream resold $92,000 of the inventory during 2021 and the rest during 2022.
For 2020 and then for 2021, compute the amount that Stream should report as income from its investment in Q-Video in its external financial statements under the equity method. (Enter your answers in whole dollars and not in millions. Do not round intermediate calculations.)
In: Accounting
On January 1, 2020, Canyon Creek Company acquired Smoltz Corporation by issuing 50,000 shares of its $1 par common stock with a market value of $12 per share. A building on Smoltz’s books was undervalued by $50,000, resulting in annual amortization of $5,000. Also, there was an unrecorded patent valued at $80,000, resulting in annual amortization of $8,000. The separate 2020 financial statements for Canyon Creek and Smuckerman are presented below.
|
Canyon Creek Co. |
Smuckerman Corp. |
|
|
Sales revenue |
$850,000 |
$380,000 |
|
Cost of goods sold |
-505,000 |
-234,000 |
|
Gross profit |
345,000 |
146,000 |
|
Operating expenses |
-300,600 |
-26,500 |
|
Equity income |
106,500 |
_ |
|
Net Income |
$150,900 |
$119,500 |
|
Retained Earnings, 1/1/20 |
$800,000 |
$305,600 |
|
Net income |
150,900 |
119,500 |
|
Dividends |
-45,000 |
-25,000 |
|
Retained Earnings, 12/31/20 |
$905,900 |
$400,100 |
|
Cash and receivables |
$250,000 |
$158,000 |
|
Inventory |
350,000 |
42,600 |
|
Equity investment |
681,500 |
|
|
Property, plant & equipment (Net) |
1,165,100 |
474,100 |
|
Total Assets |
$2,446,600 |
$674,700 |
|
Accounts payable |
$426,000 |
$45,000 |
|
Accrued liabilities |
54,700 |
28,000 |
|
Notes payable |
0 |
125,000 |
|
Common stock |
75,000 |
46,600 |
|
Additional paid-in capital |
985,000 |
30,000 |
|
Retained Earnings, 12/31/20 |
905,900 |
400,100 |
|
Total Liabilities and Equities |
$2,446,600 |
$674,700 |
Required: Prepare Consolidated Spreadsheet
In: Accounting
OPEN SKY
Mr. Jean-C. Lapierre and Mr. Jim Peterson, respectively Minister of Transport and Minister
for International Trade, announced today that the governments of 410 Part Four Businesses
and markets Canada and the United States have reached a transport agreement said to be
"open-air", which widens the scope of the agreement from 1995 and has promising
benefits. So, Canadian passenger and air cargo carriers will have better access to the large
American market, from where they may reach destinations in other countries; the pricing
rules will be relaxed for carriers Canadian and American; Canadian airports will have more
freedom to adopt measures to attract American carriers and offer better prices to
consumers.
"Certainly further liberalization of the Canada-US air transportation relationship will allow
the airlines of both countries to better meet the needs of travelers and freight forwarders,"
said Mr. Lapierre, "I am confident that "This agreement will help create new markets and
new services, lower prices and stimulate competition."
For Peterson, "the movement of people, goods and between Canada and the United States
plays a role crucial to the smooth running of our daily activities [...] The flexibility adopted
here, which goes far beyond eyes of 1995, will improve the functioning of NAFTA and
make North America more competitive. "
Transports Canada, 11 novembre 2005
a. Prior to the entry into force of the open skies agreement, Air Canada was the only
Canadian carrier that operated flights to the United States. What interests did the
company serve: its own or those of society?
b. Describe how price discrimination evolved in the air travel market after the
adoption of the open skies agreement and the entry of airlines offering discount
flights.
c. Explain what consequences the evolution of price discrimination - question (b} -
has had on the price and quantity of air travel.
In: Economics
You have just been appointed to be a U.S. Foreign Service Officer (FSO), employed by the United States Agency for International Development (USAID). Your first assignment is working overseas in an embassy where you may give out millions of dollars in foreign aid loans to an important nation.
This nation has two types of loans from the United States government.
Type I loans for $2,000,000,000 and Type II loans for $34,000,000,000. Type I loans are listed by country in congressional reports, while
Type II loans are buried in one line with other country's repayments and defaults. If the U.S. Congress is clearly informed of a loan default, it will not give out any new loans to that country.
The U.S. Ambassador knows that this country is going to default on all loans to the United States government. However, if the country makes a small payment of $1,000,000 on the Type I loan, the U.S. Congressional report will appear as if the country is in good financial condition. This will make him look good.
You have been instructed by the Ambassador to set up an appointment with the Minister of Finance. During the meeting, you are told to tell the Minister to make the $1,000,000 payment on schedule for the Type I loan. If the nation does make the payment the U.S. Embassy will request another $30,000,000,000 appropriation from the U.S. Congress, which the Ambassador knows he can receive.
The Ambassador believes he will be appointed the next U.S. Secretary of State if this plan is accomplished.
Questions:
What should you do to maintain the LOSS RESERVE?
What are the ethical issues involved here regarding non-payment of loan?
What are the financial issues involved here and how does this related to loan defaulter or fraudulent?
What would you do with this information if you were in charge?
Do you really want this Ambassador as the U.S. Secretary of State?
In: Finance
Case study
You have just been appointed to be a U.S. Foreign Service Officer (FSO), employed by the United States Agency for International Development (USAID). Your first assignment is working overseas in an embassy where you may give out millions of dollars in foreign aid loans to an important nation.
This nation has two types of loans from the United States government.
Type I loans for $2,000,000,000 and Type II loans for $34,000,000,000. Type I loans are listed by country in congressional reports, while
Type II loans are buried in one line with other country's repayments and defaults. If the U.S. Congress is clearly informed of a loan default, it will not give out any new loans to that country.
The U.S. Ambassador knows that this country is going to default on all loans to the United States government. However, if the country makes a small payment of $1,000,000 on the Type I loan, the U.S. Congressional report will appear as if the country is in good financial condition. This will make him look good.
You have been instructed by the Ambassador to set up an appointment with the Minister of Finance. During the meeting, you are told to tell the Minister to make the $1,000,000 payment on schedule for the Type I loan. If the nation does make the payment the U.S. Embassy will request another $30,000,000,000 appropriation from the U.S. Congress, which the Ambassador knows he can receive.
The Ambassador believes he will be appointed the next U.S. Secretary of State if this plan is accomplished.
Questions:
What should you do to maintain the LOSS RESERVE?
What are the ethical issues involved here regarding non-payment of loan?
What are the financial issues involved here and how does this related to loan defaulter or fraudulent?
What would you do with this information if you were in charge?
Do you really want this Ambassador as the U.S. Secretary of State?
In: Finance
Consider the data below of inches of rainfall per month for three different regions in the Northwestern United States: Plains Mountains Forest
Plains Mountains Forest
March 14.8 12.6 11.0
April 21.4 13.0 9.7
May 17.1 18.1 16.5
June 18.9 15.7 18.1
July 17.3 11.3 13.0
August 16.5 14.0 15.4
September 16.9 16.7 14.2
Using SPSS, perform a two-sample t-test to test the hypothesis that there is not the same amount of rainfall in both the Mountains and the Forest regions in the Northwestern United States with a significance level of 0.02. You do not need to test Normality first. In the output, the first test in the table (Levene’s Test for Equality of Variances), concerns whether the variances of the populations are equal (the null hypothesis) or not (the alternative hypothesis); we are assuming unequal variances in this course, so use the second row. If parts of your table do not export, you can copy and paste it to preserve the test statistic and significance from SPSS, or transcribe both of them (and include what does export from the SPSS output). You should include the hypotheses of your test, what the P-value is from the output, and your conclusion about the hypotheses. What are the degrees of freedom of your test statistic (using the formula from the book)? Then, using SPSS, perform an ANOVA test for the hypothesis that there is not the same amount of rainfall in every region in the Northwestern United States with a significance level of 0.03. You should include the hypotheses of your test, what the P-value is from the output, and your conclusion about the hypotheses. What are the two degrees of freedom of your test statistic? Please attach your Word file and, in a written analysis, give your answers and explain your conclusions by Sunday, July 26th at midnight Eastern Time
In: Statistics and Probability
You have just been appointed to be a U.S. Foreign Service Officer (FSO), employed by the United States Agency for International Development (USAID). Your first assignment is working overseas in an embassy where you may give out millions of dollars in foreign aid loans to an important nation.
This nation has two types of loans from the United States government.
Type I loans for $2,000,000,000 and Type II loans for $34,000,000,000. Type I loans are listed by country in congressional reports, while
Type II loans are buried in one line with other country's repayments and defaults. If the U.S. Congress is clearly informed of a loan default, it will not give out any new loans to that country.
The U.S. Ambassador knows that this country is going to default on all loans to the United States government. However, if the country makes a small payment of $1,000,000 on the Type I loan, the U.S. Congressional report will appear as if the country is in good financial condition. This will make him look good.
You have been instructed by the Ambassador to set up an appointment with the Minister of Finance. During the meeting, you are told to tell the Minister to make the $1,000,000 payment on schedule for the Type I loan. If the nation does make the payment the U.S. Embassy will request another $30,000,000,000 appropriation from the U.S. Congress, which the Ambassador knows he can receive.
The Ambassador believes he will be appointed the next U.S. Secretary of State if this plan is accomplished.
Questions:
What should you do to maintain the LOSS RESERVE?
What are the ethical issues involved here regarding non-payment of loan?
What are the financial issues involved here and how does this related to loan defaulter or fraudulent?
What would you do with this information if you were in charge?
Do you really want this Ambassador as the U.S. Secretary of State?
In: Accounting