Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2017, for $440,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft's identifiable assets and liabilities at a collective net fair value of $615,000 and the fair value of the 20 percent noncontrolling interest was $110,000. 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, 2018:
| Protrade | Seacraft | |||||
| Sales | $ | 730,000 | $ | 450,000 | ||
| Cost of goods sold | 335,000 | 242,000 | ||||
| Operating expenses | 159,000 | 114,000 | ||||
| Retained earnings, 1/1/18 | 830,000 | 270,000 | ||||
| Inventory | 355,000 | 119,000 | ||||
| Buildings (net) | 367,000 | 166,000 | ||||
| Investment income | Not given | 0 | ||||
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 $99,000 in
2017 and $119,000 in 2018. Of this inventory, Seacraft retained and
then sold $37,000 of the 2017 transfers in 2018 and held $51,000 of
the 2018 transfers until 2019.
Determine balances for the following items that would appear on
consolidated financial statements for 2018:
b. Assume that Seacraft sells inventory to Protrade at a markup
equal to 60 percent of cost. Intra-entity transfers were $59,000 in
2017 and $89,000 in 2018. Of this inventory, $30,000 of the 2017
transfers were retained and then sold by Protrade in 2018, whereas
$44,000 of the 2018 transfers were held until 2019.
Determine balances for the following items that would appear on
consolidated financial statements for 2018:
c. Protrade sells Seacraft a building on January 1, 2017, for $98,000, although its book value was only $59,000 on this date. The building had a five-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 2018:
a.Cost of goods sold: ?
Inventory: ?
Net income attributable to noncontrolling interest: ?
b.Cost of goods sold: ?
Inventory: ?
Net income attributable to noncontrolling interest: ?
c.Buildings (net): ?
Operating expenses: ?
Net income attributable to noncontrolling interest: ?
In: Accounting
On January 1, 2017, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,080,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $780,000, retained earnings of $330,000, and a noncontrolling interest fair value of $270,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.
During the next two years, Smashing reported the following:
| Net Income | Dividends Declared | Inventory Purchases from Corgan | |||||||
| 2017 | $ | 230,000 | $ | 43,000 | $ | 180,000 | |||
| 2018 | 210,000 | 53,000 | 200,000 | ||||||
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2017 and 2018, 40 percent of the current year purchases remain in Smashing's inventory.
Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2018.
Prepare the worksheet adjustments for the December 31, 2018, consolidation of Corgan and Smashing.
In: Accounting
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:
|
Sales: |
2016 |
2017 |
2018 |
|
Acorn |
$415,000 |
$545,000 |
$688,000 |
|
Bengal |
$200,000 |
$280,000 |
$400,000 |
|
Canaris |
NA |
$160,000 |
$210,000 |
|
Expenses: |
|||
|
Acorn |
$310,000 |
$420,000 |
$510,000 |
|
Bengal |
$160,000 |
$220,000 |
$335,000 |
|
Canaris |
NA |
$150,000 |
$180,000 |
|
Dividends: |
|||
|
Acorn |
$20,000 |
$40,000 |
$50,000 |
|
Bengal |
$10,000 |
$20,000 |
$20,000 |
|
Canaris |
NA |
$2,000 |
$10,000 |
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:
b. Calculate the value of Acorn’s investment in Bengal at 12/31/2017.
In: Accounting
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:
| Carrying Amount | Fair Value | |||||
| Cash and receivables | $ | 210,000 | $ | 210,000 | ||
| Computing equipment | 5,900,000 | 7,300,000 | ||||
| Patented technology | 200,000 | 4,200,000 | ||||
| Trademark | 250,000 | 2,200,000 | ||||
| Liabilities | (285,000 | ) | (285,000 | ) | ||
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:
| Net Income | Dividends Declared | |||||
| 2017 | $ | 2,000,000 | $ | 250,000 | ||
| 2018 | 2,185,000 | 260,000 | ||||
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?
In: Accounting
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
In: Accounting
In: Accounting
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:
| Seguros Company outstanding voting shares | ||||
| acquired by Pacifica Inc. | 100% | |||
| Pacifica Company's $5 par common stock issued | ||||
| for acquisition - number of shares | 50,000 | |||
| Market value of Pacifica stock at acquisition date | $ 20 | |||
| Cash paid by Pacifica when Seguros meets certain goals | $ 130,000 | |||
| Fair value of Seguros R & D project | $ 100,000 | |||
| Probability that Seguros will meet goals | 50% | |||
| Discount rate used to represent time value of money | 4% | |||
| Legal fees paid by Pacifica in connection with acquisition | $ 15,000 | |||
| Stock issuance costs paid by Pacifica | $ 9,000 | |||
| Seguros Company | ||||
| Book | Fair | |||
| Pacifica, Inc. | Values | Values | ||
| Revenues | $ (1,200,000) | |||
| Expenses | 875,000 | |||
| Net income | $ (325,000) | |||
| Retained earnings, 1/1 | $ (950,000) | |||
| Net income | (325,000) | |||
| Dividends paid | 90,000 | |||
| Retained earnings, 12/31 | $ (1,185,000) | |||
| Cash | $ 110,000 | $ 85,000 | $ 85,000 | |
| Receivables and inventory | 750,000 | 190,000 | 180,000 | |
| Property, plant, and equipment | 1,400,000 | 450,000 | 600,000 | |
| Trademarks | 300,000 | 160,000 | 200,000 | |
| Total assets | $ 2,560,000 | $ 885,000 | ||
| Liabilities | $ (500,000) | $ (180,000) | $ (180,000) | |
| Common stock | (400,000) | (200,000) | ||
| Additional paid-in capital | (475,000) | (70,000) | ||
| Retained earnings | (1,185,000) | (435,000) | ||
| Total liabilities and equities | $ (2,560,000) | $ (885,000) | ||
In: Accounting
|
On December 31, 2014, 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 62,110 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, 2015. 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: |
| Pacifica | Seguros Book Values | Seguros Fair Values | ||||||||
| Revenues | $ | (1,490,000 | ) | |||||||
| Expenses | 1,043,000 | |||||||||
| Net income | $ | (447,000 | ) | |||||||
| Retained earnings, 1/1/14 | $ | (1,040,000 | ) | |||||||
| Net income | (447,000 | ) | ||||||||
| Dividends declared | 132,000 | |||||||||
| Retained earnings, 12/31/14 | $ | (1,355,000 | ) | |||||||
| Cash | $ | 114,000 | $ | 113,000 | $ | 113,000 | ||||
| Receivables and inventory | 479,000 | 149,000 | 136,000 | |||||||
| Property, plant, and equipment | 1,830,000 | 478,000 | 646,500 | |||||||
| Trademarks | 361,000 | 225,000 | 278,200 | |||||||
| Total assets | $ | 2,784,000 | $ | 965,000 | ||||||
| Liabilities | $ | (554,000 | ) | $ | (186,000 | ) | $ | (186,000 | ) | |
| Common stock | (400,000 | ) | (200,000 | ) | ||||||
| Additional paid-in capital | (475,000 | ) | (70,000 | ) | ||||||
| Retained earnings | (1,355,000 | ) | (509,000 | ) | ||||||
| Total liabilities and equities | $ | (2,784,000 | ) | $ | (965,000 | ) | ||||
Note: Parentheses indicate a credit balance.
|
In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of $193,000. Although not yet recorded on its books, Pacifica paid legal fees of $21,400 in connection with the acquisition and $11,100 in stock issue costs. |
| a. |
Prepare Pacifica’s entries to account for the consideration transferred to the former owners of Seguros, the direct combination costs, and the stock issue and registration costs. (Use a 0.961538 present value factor where applicable.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
Record the acquisition of Seguros Company.
Record the legal fees related to the combination.
Record the payment of stock issuance costs.
|
In: Accounting
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:
| Roberts | Williams | |
| Revenues | (800,000) | (500,000) |
| Cost of Goods Sold | 500,000 | 300,000 |
| Depreciation Expense | 100,000 | 60,000 |
| Equity in Income of Williams | (120,000) | 0 |
| Net Income: | (320,000) | (140,000) |
| Retained Earnings 1/1/19 | (1,085,000) | (320,000) |
|
Net Income (above) |
(320,000) | (140,000) |
| Dividends paid | 115,000 | 60,000 |
| Retained Earnings 12/31/19: | (1,290,000) | (400,000) |
| Cash | 234,000 | 125,000 |
| Accounts Receivable | 365,000 | 172,000 |
| Inventory | 375,000 | 225,000 |
| Investment in Williams Stock | 786,000 | 0 |
| Land | 180,000 | 200,000 |
| Buildings and Equipment (net) | 580,000 | 283,000 |
| Total Assets: | 2,520,000 | 1,005,000 |
| Accounts Payable | (110,000) | (65,000) |
| Notes Payable | (310,000) | (300,000) |
| Common Stock | (610,000) | (150,000) |
| Additional Paid-in Capital | (200,000) | (90,000) |
| Retained Earnings, 12/31/19 | (1,290,000) | (400,000) |
| Total Liabilities and Stockholder's Equity | 2,520,000 | 1,005,000 |
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.
In: Accounting
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.)
In: Accounting