Equity Method Accounting, Subsequent Years

PL Communications acquired all of the stock of SJ Telecom on January 1, 2019. It is now December 31, 2021, three years later. PL Communications uses the complete equity method to report its investment in SJ Telecom on its own books. Both companies have December 31 year-ends. The following information is available:

• PL Communications paid $400 million to acquire SJ Telecom.

• At the date of acquisition, the book values of all of SJ Telecom’s reported assets and liabilities approximated fair value. Previously unreported limited-lived identifiable intangibles with a fair value of $20 million were recognized. These intangibles had an estimated life of 5 years, straight-line. There have been no impairment losses.

• Total goodwill impairment losses for 2019 and 2020 were $1 million. There is no goodwill impairment for 2021.

• The change in SJ Telecom’s retained earnings from January 1, 2019, to December 31, 2020, was $12 million.

• In 2021, SJ Telecom reported net income of $6,500,000 and declared and paid dividends of $1,500,000.

• SJ Telecom does not report any other comprehensive income.

Required

Enter both answers in millions (using decimal places, if applicable).

a. Calculate equity in net income for 2021, reported on the books of PL Communications.

$_____ million

b. Calculate the December 31, 2021 balance in Investment in SJ Telecom, reported on the books of PL Communications.

$_____ million

Riverbed Company is presently testing a number of new agricultural seed planters that it has recently developed. To stimulate interest, it has decided to grant to five of its largest customers the unconditional right of return to these products if not fully satisfied. The right of return extends for 4 months. Riverbed estimates returns of 15%. Riverbed sells these planters on account for $1,550,000 (cost $697,500) on January 2, 2020. Customers are required to pay the full amount due by March 15, 2020.

(a)

Prepare the journal entry for Riverbed at January 2, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

(b)

Assume that one customer returns planters on March 1, 2020, due to unsatisfactory performance. Prepare the journal entry to record this transaction, assuming this customer purchased $97,000 of planters from Riverbed and also record the entry required to pay the full amount due by March 15, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

(c)

Assume Riverbed prepares financial statements quarterly. Prepare the necessary entries (if any) to adjust Riverbed’s financial results for the above transactions on March 31, 2020, assuming remaining expected returns of $135,500. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

PLEASE READ ALL OF THESE INSTRUCTIONS BEFORE BEGINNING THIS ASSIGNMENT. For this assignment, you need to analyze the information below from BOTH the management AND the employee perspective. This information pertains to a labor union in a simulated/made up/not real firm in Glen Ellyn. The first part of your information relates to Management – the second part relates to the Labor Union employees. I have provided you with information from the last union negotiations at the plant in 2016. It is now time to begin preparing for negotiations for 2020 and beyond. The third part of this assignment is your analyzing what you have gained from this assignment.

Your assignment needs to include the following information:

• Part One:
  • Considerations for Management as they begin to prepare for negotiations
  • Beginning offer to the plant workers - This means if you were management for this firm, what would your initial/first offer be to the labor union employees in each of the categories below.
• Part Two:
  • Considerations for Labor Union employees as they begin to prepare for negotiations
  • Beginning offer to management - This means if you were the employees in the union, what would your initial/first offer be to the management of the firm in each of the categories below.
• Part Three:
  • Analysis of what you have gained from this assignment and insights you now have into labor union negotiations. Understand that negotiations go on and on sometimes for years. But each set of contract negotiations has to begin somewhere - and this is what I'm having you look at in this assignment. First offers don't include what you really want - it's your starting point.

Format this assignment using the section headings noted as you see below with “Management” and the “CPFac Workers Labor Union”. Be very clear about the information required above.

Management –

Put yourself in the role of President and Owner of Cooper Plastics Corp. located in Glen Ellyn, Illinois. Cooper manufactures plastic cups, plates, silverware, bowls, etc.

There is a union, CPFacWorkers, representing the 95 factory workers at Cooper Plastics.

It is time for the management team at Cooper to once again negotiate with the CPFacWorkers.

Your negotiations document needs to include the following for BOTH Management and the Union - you must include these categories for both offers:

• Length of the next contract in years - Labor contracts are frequently 2-4 years in length
• Base pay
• Annual pay increases for each year of your labor contract
• Shift pay differential
• Overtime pay
• Number of workers per shift
• Benefits percentage of salaries
• Annual paid sick days
• Annual paid holidays
• Total increased costs - calculate how much your increases are going to cost you - you need to provide me a total of costs and how you arrived at that number
• Source of money for increased costs - where is the money coming from for these increased costs - this is obviously an assumption based on the information you have

Data from Current Contract, which expires in September 2020:

• Contract began in March 2016
• CPFacWorkers conceded to 20 layoffs when negotiating the 2016-2020 contract
• Remaining workers agreed to a 10% pay cut to help the company continue to recover from the recent US recession
• Sick days were reduced from 10 to 6
• Holidays reduced from 10 to 6
• Shift differential pay (The dates show you the increases/decreases throughout the contract)

/hour

• 7am-3pm shift – 50 workers - $1,040,000
• 3pm-11pm shift – 30 workers - $624,000
• 11pm-7am shift – 15 workers - $312,000
• Managers – 10 @$30K, 2 @ $40K, 1@$50K, Pres/Owner $75K
• Overtime – time and a half; 2017-2019 no OT has been worked

Sales:                                                              Profits:

• 2016 $4,000,000                                          2016 $1,040,000
• 2017 $5,250,000                                          2016 $2,392,000
• 2018 $6,000,000                                          2018 $3,300,000
• 2019 $6,200,000 2019 $3,400,000

CPFacWorkers Labor Union –

Now, put yourself in the role of the negotiating team representing the CPFacWorkers labor union at Cooper Plastics in Glen Ellyn, Illinois. Cooper manufactures plastic cups, plates, silverware, bowls, etc. There are a total of 95 factory workers in the bargaining unit of your union.

It is time to negotiate with the Cooper Plastics management team.

Your negotiations document needs to include the following - you must include these categories in both offers:

• Length of contract in years
• Base pay
• Annual increases
• Shift pay differential
• Overtime pay
• Number of workers per shift
• Benefits percentage of salaries
• Annual paid sick days
• Annual paid holidays
• Total increased costs
• Source of money for increased costs

Data from Current Contract, which expired in September 2020:

• Contract began in March 2016
• CPFacWorkers conceded to 20 layoffs when negotiating the 2016-2020 contract
• Remaining workers agreed to a 10% pay cut to help the company recover from the recent US recession
• Sick days were reduced from 10 to 6
• Holidays reduced from 10 to 6
• Shift differential pay:
  • 3pm-11pm   $0.50 3/15-3/16 $.25 3/17-3/19
  • 11pm-7am    $1.00 3/15-3/16 $.35 3/17-3/19
• Benefits are 28% of salaries

Current Salaries based on 2080 hours per year, base pay $10/hour

• 7am-3pm shift – 50 workers - $1,040,000
• 3pm-11pm shift – 30 workers - $624,000
• 11pm-7am shift – 15 workers - $312,000
• Managers – 10 @$30K, 2 @ $40K, 1@$50K, Pres/Owner $75K
• Overtime – time and a half; 2017-2019 no OT has been worked

Sales:                                                              Profits:

• 2016 $4,000,000                                          2016 $1,040,000
• 2017 $5,250,000                                          2017 $2,392,000
• 2018 $6,000,000                                          2018 $3,300,000
• 2019 $6,200,000 2019 $3,400,000

Other Considerations:

• The United States appears to have come out of its 2008-2010 recession, though there are those who are beginning to say it will return in 2020 as recent stock market fluctuations may confirm.
• Cooper has new products scheduled to be coming out in mid-2020 which may help stimulate growth in the firm’s revenues and profitability.
• Management at Cooper does all hiring, scheduling, firing, and promotions.
• It has become increasingly difficult to get employees to work the 3-11pm and 11pm-7am shifts. Absenteeism is high on these shifts and productivity on both of these shifts are lower than on the 7am-3pm shift.

When complete, click on the assignment name link to submit the assignment for grading.

1. Common shares are issued in exchange for a noncash asset. Under IFRS, the noncash asset should be recorded at:

1. The average cost of the common shares in the common shares account
2. The fair market value of the shares
3. The fair market value of the asset acquired
4. The fair market value of the asset acquired or the fair market value of the common shares if the fair market value of the asset cannot be reliably determined

2. What is the cumulative effect of the declaration and payment of a cash dividend on a company’s financial statements?

1. To decrease total liabilities and shareholders’ equity
2. To increase total expenses and total liabilities
3. To increase total assets and shareholders’ equity
4. To decrease total assets and shareholder’s equity

3. What is the journal entry to record the issuance of 1,000,000 common shares for $8 each and 250,000, $2.50 preferred shares for $50 each?

1. Cash                                                                8,875,000

                 Common Shares                                                                   8,000,000

                 Preferred Shares                                                                      875,000

2. Cash                                                                  8,625,000

                 Common Shares                                                                   8,000,000

                 Preferred Shares                                                                      625,000

3. Cash                                                                  8,000,000

                 Common Shares                                                                   8,000,000

4. Common Shares                                             8,000,000

Preferred Shares                                                875,000

                 Cash                                                                                       8,875,000

4. The liability for a cash dividend is recorded on which of the following dates?

1. Date of record
2. Date of payment
3. Year-end date
4. Date of declaration

5. On January 1^st, 2019, Hanson Corporation has 15,000, $2.60 cumulative preferred shares and 20,000 common shares. Hanson did not pay any dividends during the previous year ended December 31^st, 2018. The company pays $45,000 of dividends during 2019. Which of the following amounts represents the amount of dividends that the preferred shareholders would receive in 2019?

1. $45,000
2. $39,000
3. $15,000
4. $6,000

6. Which of the following best describes the authorized shares of a corporation?

1. They must be recorded in a formal accounting entry
2. They have an effect on both assets and shareholders’ equity
3. Authorized share capital is required to be shown on a corporation’s financial statements under both ASPE and IFRS
4. They are indicated in a corporation’s articles of incorporation

7. What is total shareholders’ equity based on the following account balances?

Common Shares                           $450,000

$2.25 Preferred Shares                    90,000

Retained Earnings                           190,000

Dividends Payable                             10,000                         

1. $740,000
2. $730,000
3. $720,000
4. $640,000

8. Which of the following would result in a credit to retained earnings?

1. Loss for the period
2. Dividend declaration
3. Dividend payment
4. Profit for the period

9. Based on the following information, calculate return on equity ( round to two decimal places ).

Number of Issued Common Shares                     #30,000

Number of Issued Preferred Shares                    #100,000

Profit for the year                                                   $76,000

Average Shareholders’ Equity for the year        $262,300

1. 2.02
2. 0.29
3. 0.50
4. 3.45

10. Turpin Ltd. reported retained earnings of $725,000 on its March 31, 2019 balance sheet.

It reported a profit of $260,000 for the year ended March 31, 2020. Its retained earnings at March 31, 2020 was $865,000. Which of the following amounts represents the dividends declared by Turpin during the year ended March 31, 2020? ( assume no other effects on retained earnings during the year )

1. $120,000
2. $400,000
3. $465,000
4. $985,000

Vera Ernst is a licensed dentist. During the first month of the operation of her business, the following events and transactions occurred.

Prepare a trial balance on April 30, 2020.

Blossom Inc. had sales of $2,300,000 for the first quarter of 2020. In making the sales, the company incurred the following costs and expenses.

Prepare a CVP income statement for the quarter ended March 31, 2020.

Concord Corporation, a publicly-traded company, agreed to loan money to another company. On July 1, 2020, the company received a five-year promissory note with a face value of $505,000, paying interest at a face rate of 5% on July 1 each year. The note was issued to yield an effective interest rate of 6%. Concord used the effective interest method of amortization for discounts or premiums, and the company’s year-end is September 30.

1. Use 1. PV.1 Tables, 2. a financial calculator, or 3. Excel functions to arrive at the amount to record the note receivable.

2. Prepare a schedule of note premium / discount amortization schedule

3. Prepare the journal entries to record the issue of the note on July 1, 2020, and any required accrual entries at the company’s year-end on September 30, 2020. Finally, prepare the journal entry to record the first cash collection received on July 1, 2021 for Concord Corporation.

Chiefs Construction Company has contracted to build an office building. The construction is scheduled to begin on January 1, 2020, and the estimated time of completion is July 1, 2023. The building cost is estimated to be $20,000,000 and will be billed at $24,000,000. The following data relate to the construction period:

1) Compute the estimated gross profit for 2020, 2021, 2022, and 2023 assuming that the percentage-of-completion method is used.

2) Prepare the necessary journal entries for Chiefs Company for the years 2022 and 2023 under percentage-of-completion method.

3) Prepare the necessary journal entries for Chiefs Company for the years 2022 and 2023 under completed contract method.