On January 1, 2016, Acorn company acquired an 80% interest in Bengal company’s voting stock for $288,000. On that date Bengal had a $300,000 book value and the fair value of the non-controlling interest was $72,000. On January 1, 2017, Bengal acquired 80% of Canaris Company for $104,000 when Canaris had a $100,000 book value and the value of the non-controlling interest was $26,000. In each acquisition, the excess of fair value over book value was assigned to Tradename with a 30-year useful life. These companies reported the following financial information for the years 2016-2018:

Note: Assume that all companies use the equity method of accounting. Note: The solution to part II will include the amortization amounts calculated in Part I.

Required:

1. Calculate the annual amortization pertaining to Bengal and Canaris

b. Calculate the value of Acorn’s investment in Bengal at 12/31/2017.

On January 1, 2017, Ridge Road Company acquired 30 percent of the voting shares of Sauk Trail, Inc., for $4,700,000 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, 2017, carrying amounts and corresponding fair values for Sauk Trail's assets and liabilities follow:

Also as of January 1, 2017, Sauk Trail's computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a three-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:

How much of Ridge Road's $4,700,000 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 2017 and 2018?

What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2017 and 2018?

White Company acquired a new machine (five-year property) on November 10, 2017, at a cost of $600,000, and immediately placed it in service. No other assets were placed in service that year. White did not make the election to expense assets under IRC § 179. White did take 50% additional first-year depreciation. Determine the total cost recovery deductions White may take with respect to this property in calculating taxable income for the calendar 2018 taxable year assuming White has taxable income of $800,000, without regard to these deductions.

a.         $114,000

b.         $310,710

c.         $342,870

d.         $385,296

e.         $390,868

On December 31, Pacifica, Inc., acquired 100 percent of the voting stock of Seguros Company. Pacifica will maintain Seguros as a wholly owned subsidiary with its own legal and accounting identity. The consideration transferred to the owner of Seguros included 50,000 newly issued Pacifica common shares ($20 market value, $5 par value) and an agreement to pay an additional $130,000 cash if Seguros meets certain project completion goals by December 31 of the following year. Pacifica estimates a 50 percent probability that Seguros will be successful in meeting these goals and uses a 4 percent discount rate to represent the time value of money.

Immediately prior to the acquisition, the following data for both firms were available:

On January 1, 2019 Roberts Corporation acquired 100% of the outstanding voting stock of Williams Company in exchange for $726,000 cash. At that time, although Williams book value was $560,000, Roberts assessed Williams total business fair value at $726,000.

The book values of Williams individual assets and liabilities approximated their acquisition-date fair values except for the equipment account which was undervalued by $100,000. The undervalued equipment had a 5-year remaining life at the acquisition date. Any remaining excess fair value was attributed to goodwill.

Separate financial statements for both companies on December 31, 2019 are shown below:

Required:

1. Assuming that Roberts accounts for its investment in Williams using the equity method, prepare the general journal entries (i.e. "real entries") for the year ending December 31, 2019. When posted to t-accounts, these entries should allow you to "prove" both the investment in Williams and the Equity in Income of Williams (i.e. investment income) balances of $786,000 and $120,000, respectively, as shown on the statements above.

2. Next, prepare all of the necessary eliminating entries (i.e. "worksheet entries") needed at December 31, 2019 and prepare the necessary worksheet to consolidate the two companies as of December 31, 2019. Your worksheet should include the amounts which would be reported on the income statement and statement of retained earnings as well as the balance sheet.

3. Finally, assume that Williams earns net income of $180,000 and paid dividends of $50,000 during the following year (i.e. 2020). Repeat requirements 1 and 2 above for the year ending December 31, 2020. You are not required to prepare the worksheet for 2020.

Albuquerque, Inc., acquired 18,000 shares of Marmon Company several years ago for $750,000. At the acquisition date, Marmon reported a book value of $820,000, and Albuquerque assessed the fair value of the noncontrolling interest at $250,000. Any excess of acquisition-date fair value over book value was assigned to broadcast licenses with indefinite lives. Since the acquisition date and until this point, Marmon has issued no additional shares. No impairment has been recognized for the broadcast licenses.

At the present time, Marmon reports $930,000 as total stockholders’ equity, which is broken down as follows:

Common stock ($10 par value) $ 240,000

Additional paid-in capital 380,000

Retained earnings 310,000

Total $ 930,000

View the following as independent situations: a. & b. Marmon sells 6,000 and 3,000 shares of previously unissued common stock to the public for $56 and $27 per share. Albuquerque purchased none of this stock.

1. What journal entry should Albuquerque make to recognize the impact of this stock transaction? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round your intermediate calculations.)

The Suede Company acquired a $2 million face value bond that has an 8% coupon rate​ (pays interest annually on December​ 31) on January​ 1, 2017. The bond matures on December 31, 2022. On January​ 1, 2017​, the market yield for bonds of equivalent risk and maturity was 6%

Required

Perez Manufacturing Company (PMC) was started when it acquired $92,000 by issuing common stock. During the first year of operations, the company incurred specifically identifiable product costs (materials, labor, and overhead) amounting to $57,200. PMC also incurred $70,400 of engineering design and planning costs. There was a debate regarding how the design and planning costs should be classified. Advocates of Option 1 believe that the costs should be classified as general, selling, and administrative costs. Advocates of Option 2 believe it is more appropriate to classify the design and planning costs as product costs. During the year, PMC made 4,400 units of product and sold 3,600 units at a price of $39.00 each. All transactions were cash transactions.

Required

1. a-1. Prepare a GAAP-based income statement and balance sheet under option 1.

2. a-2. Prepare a GAAP-based income statement and balance sheet under option 2.

3. b. Identify the option that results in financial statements that are more likely to leave a favorable impression on investors and creditors.

4. c. Assume that PMC provides an incentive bonus to the company president equal to 12 percent of net income. Compute the amount of the bonus under each of the two options. Identify the option that provides the president with the higher bonus.

5. d. Assume a 40 percent income tax rate. Determine the amount of income tax expense under each of the two options. Identify the option that minimizes the amount of the company’s income tax expense.

Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January 1, 2017. Annual amortization of $22,000 resulted from this transaction. On the date of the acquisition, Fesler reported retained earnings of $520,000 while Pickett reported a $240,000 balance for retained earnings. Fesler reported net income of $100,000 in 2017 and $68,000 in 2018, and paid dividends of $25,000 in dividends each year. Pickett reported net income of $24,000 in 2017 and $36,000 in 2018, and paid dividends of $10,000 in dividends each year.

If the parent’s net income reflected use of the initial value method, what were the consolidated retained earnings on December 31, 2018?