Upper Division of Lower Company acquired an asset with a cost of $560,000 and a four-year life. The cash flows from the asset, considering the effects of inflation, were scheduled as follows.

The cost of the asset is expected to increase at a rate of 20 percent per year, compounded each year. Performance measures are based on beginning-of-year gross book values for the investment base. Ignore taxes.

Required:

a. What is the ROI for each year of the asset's life, using a historical cost approach?

b. What is the ROI for each year of the asset's life if both the investment base and depreciation are determined by the current cost of the asset at the start of each year?

Assume that a parent company acquired 80% of a subsidiary on January 1, 2014. The purchase price was $175,000 in excess of the subsidiary’s book value of Stockholders’ Equity on the acquisition date, and that excess was assigned entirely to an unrecorded Patent owned by the subsidiary. The assumed economic useful life of the patent is 10 years.

Assume that subsidiary sells inventory to the parent. The parent, ultimately, sells the inventory to customers outside of the consolidated group. You have complied the following data for the years ending 2015 and 2016 related with intra-entity inventory sales.

                Inventory Sales                 Gross Profit Remaining in Unsold Inventory

2016           $ 103,300                                   $29,441

2015           $ 87,900                                     $19,137

The inventory not remaining at the end of the year has been sold to unaffiliated entities outside of the consolidated group. The unsold part will be sold to unaffiliated entities in the following year. The parent company applies equity method for this investment.

Subsidiary reports $216,930 as net income on its income statement for the year of 2016.

1. Show the computation to yield the pre-consolidation balance for Equity income in subsidiary (appeared under parent company’s income statement) during 2016.
2. If the intra-entity sales changes from upstream to downstream, then how would the balance change for Equity income in subsidiary during 2016.
3. Show the consolidation adjustment entries related to intra-entity inventory sales.

On January 23, 16,000 shares of Tolle Company are acquired at a price of $24 per share plus a $160 brokerage commission. On April 12, a $0.40-per-share dividend was received on the Tolle Company stock. On June 10, 6,400 shares of the Tolle Company stock were sold for $32 per share less a $100 brokerage commission. Prepare the journal entries for the original purchase, the dividend, and the sale under the cost method. Refer to the Chart of Accounts for exact wording of account titles. When required, round your answers to the nearest dollar. CHART OF ACCOUNTS General Ledger ASSETS 110 Cash 111 Petty Cash 120 Accounts Receivable 121 Allowance for Doubtful Accounts 131 Notes Receivable 132 Interest Receivable 141 Merchandise Inventory 145 Office Supplies 161 Investments-Tolle Company Stock 165 Valuation Allowance for Trading Investments 166 Valuation Allowance for Available-for-Sale Investments 181 Land 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 221 Notes Payable 231 Interest Payable 241 Salaries Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Treasury Stock 332 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 350 Unrealized Gain (Loss) on Available-for-Sale Investments 351 Cash Dividends 352 Stock Dividends 390 Income Summary REVENUE 410 Sales 611 Interest Revenue 612 Dividend Revenue 621 Income of Tolle Company 631 Gain on Sale of Investments 641 Unrealized Gain on Trading Investments EXPENSES 511 Cost of Merchandise Sold 512 Bad Debt Expense 516 Cash Short and Over 520 Salaries Expense 531 Advertising Expense 534 Selling Expenses 535 Rent Expense 537 Office Supplies Expense 562 Depreciation Expense-Office Equipment 590 Miscellaneous Expense 710 Interest Expense 721 Loss of Tolle Company 731 Loss on Sale of Investments 741 Unrealized Loss on Trading Investments Prepare the journal entries for the original purchase, the dividend, and the sale under the cost method. Refer to the Chart of Accounts for exact wording of account titles. When required, round your answers to the nearest dollar.

Upper Division of Lower Company acquired an asset with a cost of $550,000 and a four-year life. The cash flows from the asset, considering the effects of inflation, were scheduled as follows:

The cost of the asset is expected to increase at a rate of 10 percent per year, compounded each year. Performance measures are based on beginning-of-year gross book values for the investment base. Ignore taxes.

Year Cash Flow

1 $200,000

2 $245,000

3 $280,000

4 $305,000

Required:

a. What is the ROI for each year of the asset's life, using a historical cost approach? (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).)

ROI

Year

1    _____ %

2   _____ %

3   _____ %

4   _____ %

b. What is the ROI for each year of the asset's life if both the investment base and depreciation are determined by the current cost of the asset at the start of each year? (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).)

ROI

Year   

1    _____ %

2   _____ %

3   _____ %

4   _____ %

Upper Division of Lower Company acquired an asset with a cost of $580,000 and a four-year life. The cash flows from the asset, considering the effects of inflation, were scheduled as follows:

The cost of the asset is expected to increase at a rate of 20 percent per year, compounded each year. Performance measures are based on beginning-of-year gross book values for the investment base. Ignore taxes. Required: a. What is the ROI for each year of the asset's life, using a historical cost approach? (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).)

b. What is the ROI for each year of the asset's life if both the investment base and depreciation are determined by the current cost of the asset at the start of each year? (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).)

Assume that on January 1, 2009, a parent company acquired a 90% interest in a subsidiary's voting common stock. On the date of acquisition, the fair value of the subsidiary's net assets equaled their reported book values. On January 1, 2011, the subsidiary purchased a building for $486,000. The building has a useful life of 10 years and is depreciated on a straight-line basis with no salvage value. On January 1, 2013, the subsidiary sold the building to the parent for $420,000. The parent estimated that the building had an 8 year remaining useful life and no salvage value. The parent also uses the straight-line method of amortization. The parent's "stand-alone" income (i.e., net income before recording any adjustments related to pre-consolidation investment accounting) is $500,000. The subsidiary's recorded net income is $115,000.

Intercompany sale of depreciable assets
Consolidated net income attributable to the controlling interest:

$578,930

Please show your calculation.

On September 12, 3,800 shares of Aspen Company are acquired at a price of $43.00 per share plus a $190 brokerage commission. On October 15, a $1.10-per-share dividend was received on the Aspen Company stock. On November 10, 1,520.00 shares of the Aspen Company stock were sold for $36 per share less a $76 brokerage commission. When required, round final answers to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank. Prepare the journal entries for the original purchase, the dividend, and the sale under the cost method.

Sept. 12

Oct. 15

Nov. 10

1. A large pharmaceutical company recently acquired the exclusive rights of a drug, which is the only legally available drug that treats a chronic medical condition, and was produced by a number of small pharmaceutical companies prior to the acquisition.
   1. Please use the demand and supply graph to explain how this acquisition may change the price and quantity of this drug.
   2. Please explain how this acquisition might affect consumer’s surplus and producer’s surplus.
   3. Will your answers (in a and b) change if the demand elasticity is inelastic vs. elastic? Why or why not, please explain.   

Monty Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years'-digits method, and (3) the double-declining-balance method.

What is the cost of the asset being depreciated?

What amount, if any, was used in the depreciation calculations for the salvage value for this asset?

Which method will produce the highest charge to income in Year 1?

Which method will produce the highest charge to income in Year 4?

Which method will produce the highest book value for the asset at the end of Year 3?

If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset?