On December 18, 2017, Stephanie Corporation acquired 100 percent of a Swiss company for 4.0 million Swiss francs (CHF), which is indicative of book and fair value. At the acquisition date, the exchange rate was $1.00 = CHF 1. On December 18, 2017, the book and fair values of the subsidiary’s assets and liabilities were:
| Cash | CHF | 824,000 | |
| Inventory | 1,324,000 | ||
| Property, plant & equipment | 4,000,000 | ||
| Notes payable | (2,148,000 | ) | |
Stephanie prepares consolidated financial statements on December 31, 2017. By that date, the Swiss franc has appreciated to $1.10 = CHF 1. Because of the year-end holidays, no transactions took place prior to consolidation.
Determine the translation adjustment to be reported on Stephanie’s December 31, 2017, consolidated balance sheet, assuming that the Swiss franc is the Swiss subsidiary’s functional currency. What is the economic relevance of this translation adjustment?
Determine the remeasurement gain or loss to be reported in Stephanie’s 2017 consolidated net income, assuming that the U.S. dollar is the functional currency. What is the economic relevance of this remeasurement gain or loss?
In: Accounting
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 $785,000 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:
| [A] Asset |
Original Amount |
Original Useful Life |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Property, plant and equipment (PPE), net | $140,000 | 16 | years | |||||||||
| Patent | 245,000 | 7 | years | |||||||||
| License | 105,000 | 10 | years | |||||||||
| Goodwill | 295,000 | Indefinite | ||||||||||
| $785,000 | ||||||||||||
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:
| Parent | Subsidiary | Parent | Subsidiary | |||
|---|---|---|---|---|---|---|
| Income statement | Balance sheet | |||||
| Sales | $4,802,000 | $1,338,300 | Assets | |||
| Cost of goods sold | (3,457,300) | (784,700) | Cash | $719,600 | $337,400 | |
| Gross profit | 1,344,700 | 553,600 | Accounts receivable | 1,229,200 | 303,800 | |
| Equity income | 159,150 | - | Inventory | 1,624,000 | 389,900 | |
| Operating expenses | (720,300) | (340,200) | Equity investment | 1,650,550 | - | |
| Net income | $783,550 | $213,400 | Property, plant & equipment | 2,923,200 | 721,000 | |
| Statement of retained earnings | $8,146,550 | $1,752,100 | ||||
| BOY retained earnings | 1,694,700 | 676,200 | Liabilities and stockholders' equity | |||
| Net income | 783,550 | 213,400 | Accounts payable | $702,800 | $124,600 | |
| Dividends | (394,000) | (58,000) | Accrued liabilities | 835,800 | 163,100 | |
| Ending retained earnings | $2,084,250 | $831,600 | Long-term liabilities | 2,100,000 | 436,100 | |
| Common stock | 527,100 | 87,500 | ||||
| APIC | 1,896,600 | 109,200 | ||||
| Retained earnings | 2,084,250 | 831,600 | ||||
| $8,146,550 |
$1,752,100 |
a. Compute the Equity Investment balance as of January 1, 2016.
$Answer
b. Show the computation to yield the $159,150 equity income reported by the parent for the year ended December 31, 2016.
Do not use negative signs with your answers.
| Subsidiary net income | $Answer | |
| Less: Amortization | Answer | |
| Less: Depreciation | Answer | Answer |
| $Answer |
c. Show the computation to yield the $1,650,550 Equity Investment
account balance reported by the parent at December 31, 2016.
Do not use negative signs with your answers.
| Equity investment at 1/1/16 | $Answer | |
| Plus: AnswerDividendsEquity incomeEquity investmentGoodwillOperating expensesPPE, netRetained earnings | Answer | |
| Less: AnswerDividendsEquity incomeEquity investmentGoodwillOperating expensesPPE, netRetained earnings | Answer | Answer |
| Equity investment at 12/31/16 | $Answer |
In: Accounting
Anxiety Company acquired three items of machinery. ▪ On January 1,2017,the entity purchased a machine for P500,000 down and four monthly installments of P1,250,000.The cash price of the machine was P4,700,000. ▪ On December 31,2017,the entity purchased a machine in exchange for a noninterest bearing note requiring ten payments of P500,000. ▪ The first payment was made on December 31,2018, and the others are due annually on December 31. ▪ The prevailing rate of interest for this type of note at date of issuance was 12%. ▪ The present value of an ordinary annuity of 1 at 12% is 5.33 for nine periods and 5.65 for ten periods.▪ On December 31,2017,the entity acquired used machinery by issuing the seller a two-ear, noninterest- bearing note for P3,000,000.In recent borrowing, the entity has paid a 12% interest for this type of note. ▪ The present value of 1 at 12% for 2 years is.80 and the present value of an ordinary annuity of 1 at 12% for 2 years is 1.69. Required: Prepare journal entries for 2017,2018 and 2019.
In: Accounting
On December 18, 2017, Stephanie Corporation acquired 100 percent of a Swiss company for 4.0 million Swiss francs (CHF), which is indicative of book and fair value. At the acquisition date, the exchange rate was $1.00 = CHF 1. On December 18, 2017, the book and fair values of the subsidiary’s assets and liabilities were:
| Cash | CHF | 811,000 | |
| Inventory | 1,311,000 | ||
| Property, plant & equipment | 4,011,000 | ||
| Notes payable | (2,122,000 | ) | |
Stephanie prepares consolidated financial statements on December 31, 2017. By that date, the Swiss franc has appreciated to $1.10 = CHF 1. Because of the year-end holidays, no transactions took place prior to consolidation.
Determine the translation adjustment to be reported on Stephanie’s December 31, 2017, consolidated balance sheet, assuming that the Swiss franc is the Swiss subsidiary’s functional currency. What is the economic relevance of this translation adjustment?
Determine the remeasurement gain or loss to be reported in Stephanie’s 2017 consolidated net income, assuming that the U.S. dollar is the functional currency. What is the economic relevance of this remeasurement gain or loss?
a.Translation adjustment positive: ?
b.Remeasurement loss: ?
In: Accounting
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