On January 1, 2016, Monica Company acquired 80 percent of Young Company’s outstanding common stock for $728,000. The fair value of the noncontrolling interest at the acquisition date was $182,000. Young reported stockholders’ equity accounts on that date as follows:

In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $70,000. Any remaining excess acquisition-date fair value was allocated to a franchise agreement to be amortized over 10 years.

During the subsequent years, Young sold Monica inventory at a 30 percent gross profit rate. Monica consistently resold this merchandise in the year of acquisition or in the period immediately following. Transfers for the three years after this business combination was created amounted to the following:

In addition, Monica sold Young several pieces of fully depreciated equipment on January 1, 2017, for $38,000. The equipment had originally cost Monica $54,000. Young plans to depreciate these assets over a 5-year period.

In 2018, Young earns a net income of $160,000 and declares and pays $35,000 in cash dividends. These figures increase the subsidiary's Retained Earnings to a $760,000 balance at the end of 2018.

Monica employs the equity method of accounting. Hence, it reports $119,760 investment income for 2018 with an Investment account balance of $921,200. Under these circumstances, prepare the worksheet entries required for the consolidation of Monica Company and Young Company.

Parent Company acquired 25% of Son Inc. on January 1, 20X5 for $420,000. Son reported earning of $82,000 and declared dividends of $4,000 during 20X5, Parent determined the fair value of its shares in Son to be $450,000 at December 31, 20X5.

Based on the preceding information prepare the journal entries for 20X5 Parent will make to account for its investment in Son, if Parent uses the cost method of accounting for this investment.

Based on the preceding information prepare the journal entries for 20X5 Parent will make to account for its investment in Son, if Parent uses the equity method of accounting for this investment.

Based on the preceding information prepare the journal entries for 20X5 Parent will make to account for its investment in Son, if Parent uses the fair value method of accounting for this investment.

Consolidation several years subsequent to date of acquisition—Equity method
Assume a parent company acquired a subsidiary on January 1, 2017. The purchase price was $820,000 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, 2019, are as follows:

a. Compute the Equity Investment balance as of January 1, 2019.

$Answer

b. Show the computation to yield the $120,000 equity income reported by the parent for the year ended December 31, 2019.

Do not use negative signs with your answers.

c. Show the computation to yield the $1,800,000 Equity Investment account balance reported by the parent at December 31, 2019.

Do not use negative signs with your answers.

d. Prepare the consolidation entries for the year ended December 31, 2019.

e. Prepare the consolidated spreadsheet for the year ended December 31, 2019.

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

*This was the problem as is given to me :(

On January 1, 2016, Monica Company acquired 70 percent of Young Company’s outstanding common stock for $700,000. The fair value of the noncontrolling interest at the acquisition date was $300,000. Young reported stockholders’ equity accounts on that date as follows:

In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $40,000. Any remaining excess acquisition-date fair value was allocated to a franchise agreement to be amortized over 10 years.

During the subsequent years, Young sold Monica inventory at a 30 percent gross profit rate. Monica consistently resold this merchandise in the year of acquisition or in the period immediately following. Transfers for the three years after this business combination was created amounted to the following:

In addition, Monica sold Young several pieces of fully depreciated equipment on January 1, 2017, for $47,000. The equipment had originally cost Monica $72,000. Young plans to depreciate these assets over a 5-year period.

In 2018, Young earns a net income of $250,000 and declares and pays $80,000 in cash dividends. These figures increase the subsidiary's Retained Earnings to a $850,000 balance at the end of 2018.

Monica employs the equity method of accounting. Hence, it reports $160,740 investment income for 2018 with an Investment account balance of $829,510. Under these circumstances, prepare the worksheet entries required for the consolidation of Monica Company and Young Company.

Diversified Products, Inc., has recently acquired a small publishing company that offers three books for sale—a cookbook, a travel guide, and a handy speller. Each book sells for $13. The publishing company’s most recent monthly income statement is shown below.

The following additional information is available:

1. Only printing costs and sales commissions are variable; all other costs are fixed. The printing costs (which include materials, labor, and variable overhead) are traceable to the three product lines as shown in the income statement above. Sales commissions are 10% of sales.

2. The same equipment is used to produce all three books, so the equipment depreciation cost has been allocated equally among the three product lines. An analysis of the company’s activities indicates that the equipment is used 30% of the time to produce cookbooks, 50% of the time to produce travel guides, and 20% of the time to produce handy spellers.

3. The warehouse is used to store finished units of product, so the rental cost has been allocated to the product lines on the basis of sales dollars. The warehouse rental cost is $3 per square foot per year. The warehouse contains 50,400 square feet of space, of which 7,800 square feet is used by the cookbook line, 24,600 square feet by the travel guide line, and 18,000 square feet by the handy speller line.

4. The general sales cost above includes the salary of the sales manager and other sales costs not traceable to any specific product line. This cost has been allocated to the product lines on the basis of sales dollars.

5. The general administration cost and depreciation of office facilities both relate to administration of the company as a whole. These costs have been allocated equally to the three product lines.

6. All other costs are traceable to the three product lines in the amounts shown on the income statement above.

The management of Diversified Products, Inc., is anxious to improve the publishing company’s 6% return on sales.

Required:

1. Prepare a new contribution format segmented income statement for the month. Adjust allocations of equipment depreciation and of warehouse rent as indicated by the additional information provided.

2. Based on the segmented income statements given in the problem, management plans to eliminate the cookbook because it is not returning a profit, and to focus all available resources on promoting the travel guide. However, based on the new contribution format segmented income statement that you prepared:

a. Do you agree with management's plan to eliminate the cookbook?

b-1. Compute the contribution margin ratio for each product.

b-2. Based on the statement you have prepared, do you agree with the decision to focus all available resources on promoting the travel guide?

1. Perry Corporation acquired land, buildings, and equipment from a bankrupt company at a lump-sum price of $825,000. At the time of acquisition Perry paid $30,000 to have the assets appraised. The appraisal disclosed the following values:

What cost should be assigned to the land, buildings, and equipment, respectively?

2. Davis Company purchased a new piece of equipment on July 1, 2017 at a cost of $2,400,000. The equipment has an estimated useful life of 5 years and an estimated salvage value of $200,000. The current year end is 12/31/18. Davis records depreciation to the nearest month.

A)What is straight-line depreciation for 2018?

B)What is sum-of-the-years'-digits depreciation for 2018?

C)What is double-declining-balance depreciation for 2018?

D)If Davis expensed the total cost of the equipment at 7/1/17, what was the effect on 2017 and 2018 income before taxes, assuming Davis uses straight-line depreciation?

E)If, at the end of 2019, Davis Company decides the equipment still has five more years of life beyond 12/31/19, with a salvage value of $200,000, what is straight-line depreciation for 2019? (Assume straight-line used in all years.)

3. Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/18 for $900,000. On 12/31/18 such machines have a selling price and fair value of $1,035,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method.

Brown Corporation has a machine (Machine B) that it acquired on 1/1/18 for $1215,000. On 12/31/18 such machines have a selling price and fair value of $900,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method.

On 12/31/18 Brown gave Machine B plus $135,000 cash to Sawyer in return for
Machine A.

A)Assume that both Sawyer and Brown are new machine dealers and that the machines are still new. Also assume that the exchange lacks commercial substance. At what amount will Machine A be recorded on Brown’s books?

B)Given the assumptions in 10 above, at what amount will Machine B be recorded on Sawyer's books?

C)Assume that instead of dealers, both Sawyer and Brown are machine manufacturers and use the machines in production. Assume the exchange lacks commercial substance. At what amount will Brown record Machine A?

D)Given the assumption in 12 above, at what amount will Sawyer record Machine B?

E)Given the assumption in 12 above except that the fair values of Machines A and B are $840,000 and $1,125,000, respectively, at what amount will Brown record Machine A?

F)Return to the original problem. Assume that Sawyer is a dealer selling new machines and that Brown is a manufacturer. Assume that the exchange has commercial substance. For this transaction, at what amount will Sawyer record the truck?

G)Given the assumptions in 15 above, at what amount will Brown record Machine A?

H)Given the assumptions in 15 above except that the selling prices and fair market values of A and B are $1,260,000 and $1,125,000, respectively, at what amount will Brown record Machine A?

Prime Company holds 60 percent of Suspect Company’s stock, acquired on January 1, 20X2, for $150,000. On the date of acquisition, Suspect reported retained earnings of $58,000 and $130,000 of common stock outstanding, and the fair value of the noncontrolling interest was $100,000. Prime uses the fully adjusted equity method in accounting for its investment in Suspect.

Trial balance data for the two companies on December 31, 20X7, are as follows:

Additional Information

1. At the date of combination, the book values and fair values of Suspect’s separately identifiable assets and liabilities were equal. The full amount of the increased value of the entity was attributed to goodwill. At December 31, 20X6, the management of Prime reviewed the amount attributed to goodwill as a result of its purchase of Suspect stock and recognized an impairment loss of $15,000. No further impairment occurred in 20X7.
2. On January 1, 20X5, Suspect sold land for $17,000 that had cost $6,500 to Prime.
3. On January 1, 20X6, Prime sold to Suspect equipment that it had purchased for $67,200 on January 1, 20X1. The equipment has a total 12-year economic life and was sold to Suspect for $51,800. Both companies use straight-line depreciation.
4. Intercompany receivables and payables total $6,000 on December 31, 20X7.

Required:
a. Prepare a reconciliation between the balance in Prime’s Investment in Suspect Co. account reported on December 31, 20X7, and Suspect’s book value. (Enter the proportion of stock held as a fraction (i.e., 0.75), not in percent.)
  

Pepper Company acquired 90 percent of Salt Company's stock at underlying book value on January 1, 20X8. At that date, the fair value of the non-controlling interest was equal to 10 percent of the book value of Salt Company. Salt Co. sold equipment to Pepper Co. for a $360,000 on December 31, 20X8. Salt Co. had originally purchased the equipment for $400,000 on January 1, 20x5, with a useful life of 10 years and no salvage value. At the time of the purchase, Pepper Co. estimated that the equipment still had the same remaining useful life. Both companies use straight-line depreciation. Pepper sold land costing $90,000 to Salt Company on June 28, 20X9, for $122,000.

a)Prepare Pepper’s journal entries related to inter-company sale at December 31, 20X9.

b)Prepare the consolidation entries that related to inter-company sale of land at December 31, 20X9.

c) Prepare the consolidation entries that related to inter-company sale of equipment at December 31, 20X9.

Allen Company acquired 100 percent of Bradford Company’s voting stock on January 1, 2014, by issuing 10,000 shares of its $10 par value common stock (having a fair value of $15 per share). As of that date, Bradford had stockholders’ equity totaling $106,800. Land shown on Bradford’s accounting records was undervalued by $13,200. Equipment (with a five-year remaining life) was undervalued by $9,600. A secret formula developed by Bradford was appraised at $20,400 with an estimated life of 20 years. Following are the separate financial statements for the two companies for the year ending December 31, 2018. There were no intra-entity payables on that date. Credit balances are indicated by parentheses. Allen Company Bradford Company Revenues $ (542,000 ) $ (220,000 ) Cost of goods sold 179,000 82,000 Depreciation expense 135,000 60,300 Subsidiary earnings (74,760 ) 0 Net income $ (302,760 ) $ (77,700 ) Retained earnings, 1/1/18 $ (792,000 ) $ (124,200 ) Net income (above) (302,760 ) (77,700 ) Dividends declared 175,500 40,000 Retained earnings ,12/31/18 $ (919,260 ) $ (161,900 ) Current assets $ 300,000 $ 88,000 Investment in Bradford 255,400 0 Company Land 490,000 72,000 Buildings and equipment (net) 744,000 164,000 Total assets $ 1,789,400 $ 324,000 Current liabilities $ (180,140 ) $ (97,100 ) Common stock (600,000 ) (60,000 ) Additional paid-in capital (90,000 ) (5,000 ) Retained earnings, 12/31/18 (919,260 ) (161,900 ) Total liabilities and equity $ (1,789,400 ) $ (324,000 ) a-1. Complete the table to show the allocation of the fair value in excess of book value. a-2. What balance will Allen show in its Subsidiary Earnings account? b. Complete the worksheet by consolidating the financial information for these two companies.

Allen Company acquired 100 percent of Bradford Company’s voting stock on January 1, 2014, by issuing 10,000 shares of its $10 par value common stock (having a fair value of $15 per share). As of that date, Bradford had stockholders’ equity totaling $106,800. Land shown on Bradford’s accounting records was undervalued by $13,200. Equipment (with a five-year remaining life) was undervalued by $9,600. A secret formula developed by Bradford was appraised at $20,400 with an estimated life of 20 years. Following are the separate financial statements for the two companies for the year ending December 31, 2018. There were no intra-entity payables on that date. Credit balances are indicated by parentheses. Allen Company Bradford Company Revenues $ (542,000 ) $ (220,000 ) Cost of goods sold 179,000 82,000 Depreciation expense 135,000 60,300 Subsidiary earnings (74,760 ) 0 Net income $ (302,760 ) $ (77,700 ) Retained earnings, 1/1/18 $ (792,000 ) $ (124,200 ) Net income (above) (302,760 ) (77,700 ) Dividends declared 175,500 40,000 Retained earnings ,12/31/18 $ (919,260 ) $ (161,900 ) Current assets $ 300,000 $ 88,000 Investment in Bradford 255,400 0 Company Land 490,000 72,000 Buildings and equipment (net) 744,000 164,000 Total assets $ 1,789,400 $ 324,000 Current liabilities $ (180,140 ) $ (97,100 ) Common stock (600,000 ) (60,000 ) Additional paid-in capital (90,000 ) (5,000 ) Retained earnings, 12/31/18 (919,260 ) (161,900 ) Total liabilities and equity $ (1,789,400 ) $ (324,000 ) a-1. Complete the table to show the allocation of the fair value in excess of book value. a-2. What balance will Allen show in its Subsidiary Earnings account? b. Complete the worksheet by consolidating the financial information for these two companies.