Month of April

Calculate the closing balance as of April 30th.

On January 1, 2019, the Pebbles Company acquired a Bam-Bam Business bond investment with a principal of $ 100,000 for $ 90,000. Pebbles classified the investment as Held to Maturity. The bonds mature in 5 years and pay interest annually at 10%. Pebbles uses the indirect method to prepare the Statement of Cash Flows.
Assuming that, in 2019, Pebbles forgot to amortize the investment discount on Bam-Bam Bonds, what is the impact of this error on net income and on net operating cash flow of 2019 if it is not discovered timely and not taken into account when preparing the financial statements?
 
Net Income
Net Cash Flow from
Operational Activities

Select one:
to. Overrated None
b. Underrated None
c. Underestimated Underestimated
d. Underestimated Underestimated

PROBLEM

1

XYZ

Company

acquired as a long

-

term investment $440 million of 8% bonds,

on July 1,

2018

, and

management has the positive intent and

ability to hold the bonds until maturity

(three years, until

June 30

, 2021)

. The market interest rate

was 5% for bonds of similar risk and maturity.

XYZ

paid

$500 million for the bonds;

it

will receive interest semiannually on June 30 and December 31

.

a)

Prepare the journal entry to record

XYZ

’

s

investmen

t in the bonds on July 1, 2018

.

b)

Prepare the journal entries by

XYZ

to record interest on December 31,

2018.

c)

At what amount w

ill

XYZ

report its investment in the December 31,

2018

, balance sheet?

d)

Suppose KP’s bond rating agency upgraded the risk rating of the bonds, and

XYZ

Com

pany

decided to sell the investment

on January

1

, 2019

, for $520 million. Prepare the journal entry

to record the sale.

PROBLEM

2

ABC

Company buys and sells debt securities expecting to earn profits on short

-

term differences in

pri

ce. The company’s fiscal year ends on December 31. The following selected transactions relating

to

ABC

’

s

trading account

s

occurred during December

2017

and the first week of

2018.

2017

Dec.

12

Purchased 50 Simco bonds at par for $175,000

28

Received interest of $1,000 from the Simco bonds

31

Record

ed adjusting ent

ries relating to Simco bonds;

market price was $4,000 per bond

2018

Jan

.

02

Sold the

Simco bonds

for $197,500

a)

Prepare the appropriate journal entry for

each

transaction.

Cascade Company was started on January 1, Year 1, when it acquired $160,000 cash from the owners. During Year 1, the company earned cash revenues of $90,400 and incurred cash expenses of $62,500. The company also paid cash distributions of $7,000. Required Prepare a Year 1 income statement, capital statement (statement of changes in equity), balance sheet, and statement of cash flows under each of the following assumptions. (Consider each assumption separately.)

c. Cascade is a corporation. It issued 11,000 shares of $9 par common stock for $160,000 cash to start the business.

Complete this question by entering your answers in the tabs below.

• Inc Stmt
• Stmt of Changes
• Bal Sheet
• Cash Flows

On January 1, 2018, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $295,000 in long-term liabilities and 20,000 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Marshall paid $23,500 to accountants, lawyers, and brokers for assistance in the acquisition and another $8,500 in connection with stock issuance costs.

Prior to these transactions, the balance sheets for the two companies were as follows:

Note: Parentheses indicate a credit balance.

In Marshall’s appraisal of Tucker, it deemed three accounts to be undervalued on the subsidiary’s books: Inventory by $8,350, Land by $16,000, and Buildings by $30,200. Marshall plans to maintain Tucker’s separate legal identity and to operate Tucker as a wholly owned subsidiary.

Determine the amounts that Marshall Company would report in its postacquisition balance sheet. In preparing the postacquisition balance sheet, any required adjustments to income accounts from the acquisition should be closed to Marshall’s retained earnings. Other accounts will also need to be added or adjusted to reflect the journal entries Marshall prepared in recording the acquisition.

To verify the answers found in part (a), prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2018.

Melody Lane Music Company was started by John Ross early in 2018. Initial capital was acquired by issuing shares of common stock to various investors and by obtaining a bank loan. The company operates a retail store that sells records, tapes, and compact discs. Business was so good during the first year of operations that John is considering opening a second store on the other side of town. The funds necessary for expansion will come from a new bank loan. In order to approve the loan, the bank requires financial statements.

John asks for your help in preparing the balance sheet and presents you with the following information for the year ending December 31, 2018:

Cash receipts consisted of the following:
  

Cash disbursements were as follows:
  

The bank loan was made on March 31, 2018. A note was signed requiring payment of interest and principal on March 31, 2019. The interest rate is 10%.

The equipment and furniture were purchased on January 3, 2018, and have an estimated useful life of 5 years with no anticipated salvage value. Depreciation per year is $6,000.

Inventories on hand at the end of the year cost $110,000.

Amounts owed at December 31, 2018, were as follows:
  

Rent on the store building is $3,000 per month. On December 1, 2018, four months' rent was paid in advance.

Net income for the year was $86,000. Assume that the company is not subject to federal, state, or local income tax.

Three hundred thousand shares of no par common stock are authorized, of which 30,000 shares were issued and are outstanding.

Required:
Prepare a balance sheet at December 31, 2018.

Consolidation several years subsequent to date of acquisition—Equity method
Assume that a parent company acquired a subsidiary on January 1, 2014. The purchase price was $765,000 in excess of the subsidiary’s book value of Stockholders’ Equity on the acquisition date, and that excess was assigned to the following [A] assets:

The [A] assets with definite useful lives have been depreciated or amortized as part of the parent’s preconsolidation equity method accounting. The Goodwill asset has been tested annually for impairment, and has not been found to be impaired. The financial statements of the parent and its subsidiary for the year ended December 31, 2016, are as follows:

a. Compute the Equity Investment balance as of January 1, 2016.

$Answer

b. Show the computation to yield the $149,150 equity income reported by the parent for the year ended December 31, 2016.

Do not use negative signs with your answers.

c. Show the computation to yield the $1,630,550 Equity Investment account balance reported by the parent at December 31, 2016.

Do not use negative signs with your answers.

d. Prepare the consolidation entries for the year ended December 31, 2016.

e. Prepare the consolidated spreadsheet for the year ended December 31, 2016.

Use negative signs with answers in the Consolidated column for Cost of goods sold, Operating expenses and Dividends.

Jordan Manufacturing Company was started on January 1, Year 1, when it acquired $87,000 cash by issuing common stock. Jordan immediately purchased office furniture and manufacturing equipment costing $8,400 and $27,500, respectively. The office furniture had an eight-year useful life and a zero salvage value. The manufacturing equipment had a $3,500 salvage value and an expected useful life of three years. The company paid $11,400 for salaries of administrative personnel and $15,600 for wages to production personnel. Finally, the company paid $15,110 for raw materials that were used to make inventory. All inventory was started and completed during the year. Jordan completed production on 4,900 units of product and sold 3,940 units at a price of $15 each in Year 1. (Assume that all transactions are cash transactions and that product costs are computed in accordance with GAAP.)

Required

1. Determine the total product cost and the average cost per unit of the inventory produced in Year 1. (Round "Average cost per unit" to 2 decimal places.)

2. Determine the amount of cost of goods sold that would appear on the Year 1 income statement. (Do not round intermediate calculations.)

3. Determine the amount of the ending inventory balance that would appear on the December 31, Year 1, balance sheet. (Do not round intermediate calculations.)

4. Determine the amount of net income that would appear on the Year 1 income statement. (Round your answer to the nearest dollar amount.)

5. Determine the amount of retained earnings that would appear on the December 31, Year 1, balance sheet. (Round your answer to the nearest dollar amount.)

6. Determine the amount of total assets that would appear on the December 31, Year 1, balance sheet. (Round your answer to the nearest dollar amount.)

On January 1, 2017, Ridge Road Company acquired 30 percent of the voting shares of Sauk Trail, Inc., for $4,500,000 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:

1. How much of Ridge Road's $4,500,000 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 2017 and 2018?

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

Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2014, for $612,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft’s identifiable assets and liabilities at a collective net fair value of $765,000 and the fair value of the 20 percent noncontrolling interest was $153,000. No excess fair value over book value amortization accompanied the acquisition.

The following selected account balances are from the individual financial records of these two companies as of December 31, 2015:

Each of the following problems is an independent situation:

a.Assume that Protrade sells Seacraft inventory at a markup equal to 60 percent of cost. Intra-entity transfers were $114,000 in 2014 and $134,000 in 2015. Of this inventory, Seacraft retained and then sold $52,000 of the 2014 transfers in 2015 and held $66,000 of the 2015 transfers until 2016.

Determine balances for the following items that would appear on consolidated financial statements for 2015:

Cost of Goods Sold

Inventory

Net Income Attributable to Noncontrolling Interest

b.Assume that Seacraft sells inventory to Protrade at a markup equal to 60 percent of cost. Intra-entity transfers were $74,000 in 2014 and $104,000 in 2015. Of this inventory, $45,000 of the 2014 transfers were retained and then sold by Protrade in 2015, whereas $59,000 of the 2015 transfers were held until 2016.

Determine balances for the following items that would appear on consolidated financial statements for 2015:

Cost of Goods Sold

Inventory

Net Income Attributable to Noncontrolling Interest

c.Protrade sells Seacraft a building on January 1, 2014, for $128,000, although its book value was only $74,000 on this date. The building had a 5-year remaining life and was to be depreciated using the straight-line method with no salvage value.

Determine balances for the following items that would appear on consolidated financial statements for 2015:

Buildings (net)

Operating Expenses

Net Income Attributable to Noncontrolling Interest