Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2014, for $448,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft’s identifiable assets and liabilities at a collective net fair value of $635,000 and the fair value of the 20 percent noncontrolling interest was $112,000. 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:
| Protrade | Seacraft | |
| Sales | 750,000 | 470,000 |
| Cost of goods sold | 345,000 | 252,000 |
| Operating expenses | 161,000 | 116,000 |
| Retained earnings 1/1/15 | 850,000 | 290,000 |
| Inventory | 357,000 | 121,000 |
| Buildings (net) | 369,000 | 168,000 |
| 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 $101,000 in 2014 and $121,000 in 2015. Of this inventory, Seacraft retained and then sold $39,000 of the 2014 transfers in 2015 and held $53,000 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 $61,000 in 2014 and $91,000 in 2015. Of this inventory, $32,000 of the 2014 transfers were retained and then sold by Protrade in 2015, whereas $46,000 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 $102,000, although its book value was only $61,000 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 2015:
| Cost of goods sold | |
| Inventory | |
| 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 $1,560,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $900,000, retained earnings of $450,000, and a noncontrolling interest fair value of $390,000. 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 | $ | 350,000 | $ | 55,000 | $ | 300,000 | |||
| 2018 | 330,000 | 65,000 | 320,000 | ||||||
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.
B.
Prepare entry *G
Prepare entry S
Prepare entry A
Prepare entry I
Prepare entry D
Prepare entry E
Prepare entry TI
Prepare entry G
In: Accounting
Mill Corporation acquired 100 percent ownership of Roller Company on January 1, 20X8, for $125,000. At that date, the fair value of Roller’s buildings and equipment was $19,000 more than the book value. Buildings and equipment are depreciated on a 5-year basis. Although goodwill is not amortized, Mill’s management concluded at December 31, 20X8, that goodwill involved in its acquisition of Roller shares had been impaired and the correct carrying value was $2,600.
| Trial balance data for Mill and Roller on December 31, 20X8, are as follows: |
| Mill Corporation | Roller Company | |||||||||||||||
| Item | Debit | Credit | Debit | Credit | ||||||||||||
| Cash | $ | 28,500 | $ | 30,000 | ||||||||||||
| Accounts Receivable | 78,000 | 21,000 | ||||||||||||||
| Inventory | 98,000 | 34,000 | ||||||||||||||
| Land | 48,000 | 24,000 | ||||||||||||||
| Buildings & Equipment | 357,000 | 151,000 | ||||||||||||||
| Investment in Roller Co. Stock | 125,500 | |||||||||||||||
| Cost of Goods Sold | 132,000 | 117,000 | ||||||||||||||
| Wage Expense | 34,000 | 18,000 | ||||||||||||||
| Depreciation Expense | 21,000 | 6,000 | ||||||||||||||
| Interest Expense | 8,000 | 5,000 | ||||||||||||||
| Other Expenses | 9,500 | 6,000 | ||||||||||||||
| Dividends Declared | 34,000 | 21,300 | ||||||||||||||
| Accumulated Depreciation | $ | 132,000 | $ | 21,000 | ||||||||||||
| Accounts Payable | 34,000 | 10,000 | ||||||||||||||
| Wages Payable | 11,000 | 8,000 | ||||||||||||||
| Notes Payable | 131,000 | 113,300 | ||||||||||||||
| Common Stock | 195,000 | 59,000 | ||||||||||||||
| Retained Earnings | 186,700 | 39,000 | ||||||||||||||
| Sales | 262,000 | 183,000 | ||||||||||||||
| Income from Subsidiary | 21,800 | |||||||||||||||
| $ | 973,500 | $ | 973,500 | $ | 433,300 | $ | 433,300 | |||||||||
| Required: |
| a. |
Prepare the following consolidating entries needed to prepare a three-part consolidation worksheet as of December 31, 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
In: Accounting
|
On January 1, 2014, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,600,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $910,000, retained earnings of $460,000, and a noncontrolling interest fair value of $400,000. Corgan attributed the excess of fair value over Smashing’s book value to various covenants with a 20-year 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 | Inventory Purchases from Corgan | |||||||
| 2014 | $ | 360,000 | $ | 56,000 | $ | 310,000 | |||
| 2015 | 340,000 | 66,000 | 330,000 | ||||||
|
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2014 and 2015, 50 percent of the current year purchases remain in Smashing’s inventory. |
| a. |
Compute the equity method balance in Corgan’s Investment in Smashing, Inc., account as of December 31, 2015. |
| b. |
Prepare the worksheet adjustments for the December 31, 2015, consolidation of Corgan and Smashing. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
In: Accounting
Month of April
| Date | |
| April-01 | Acquired $55000 to establish the company of which $33000 was received from an initial investment through the issue of common stock to themselves and $22000 from a bank loan by signing a note. The entire note is due in 5 years and has 7 per cent annual interest rate. Interest is payable in cash on March 31 of each year. |
| April-01 | Paid $4200 (represents 3 months) in advance rent for a one-year lease on kitchen space. |
| April-01 | Paid $35000 to purchase a refrigerator. The refrigerator is expected to have a useful life of 5 years and a salvage value of $5000 at the end of 5 years. |
| April-06 | Purchased supplies for $500 for cash. |
| April-09 | Received $700 cash as an advance payment from a client to be served in May. |
| April-10 | Recorded sale to customers. Cash receipts were $700 and invoices for sales on account were $1500. |
| April-15 | Paid $1460 cash for employee semi-monthly salaries. |
| April-16 | Collected $400 from accounts receivable. |
| April-23 | Received monthly utility bills amounting to $340. The bills are to be paid in May. |
| April-25 | Paid advertising expense for advertisements run during April, $260. |
| April-30 | Recorded services to customers . Cash receipts were $1300 and invoices for services on account were $1800. |
| April-30 | Paid $1460 cash for employer salaries |
Counted the supplies inventory on hand $55.
Required: -
a. Record the transactions for the month of April in a general journal.
b. Open general ledger accounts using the T-accounts provided and post the general journal entries to the ledger.
c. Record and post the appropriate adjusting entries.
d. Prepare an adjusted trial balance.
e. Prepare an income statement, statement of retained earnings, and a balance sheet for April.
In: Accounting
Month of April
| Date | |
| April-01 | Acquired $55000 to establish the company of which $33000 was received from an initial investment through the issue of common stock to themselves and $22000 from a bank loan by signing a note. The entire note is due in 5 years and has 7 per cent annual interest rate. Interest is payable in cash on March 31 of each year. |
| April-01 | Paid $4200 (represents 3 months) in advance rent for a one-year lease on kitchen space. |
| April-01 | Paid $35000 to purchase a refrigerator. The refrigerator is expected to have a useful life of 5 years and a salvage value of $5000 at the end of 5 years. |
| April-06 | Purchased supplies for $500 for cash. |
| April-09 | Received $700 cash as an advance payment from a client to be served in May. |
| April-10 | Recorded sale to customers. Cash receipts were $700 and invoices for sales on account were $1500. |
| April-15 | Paid $1460 cash for employee semi-monthly salaries. |
| April-16 | Collected $400 from accounts receivable. |
| April-23 | Received monthly utility bills amounting to $340. The bills are to be paid in May. |
| April-25 | Paid advertising expense for advertisements run during April, $260. |
| April-30 | Recorded services to customers . Cash receipts were $1300 and invoices for services on account were $1800. |
| April-30 | Paid $1460 cash for employer salaries |
Calculate the closing balance as of April 30th.
In: Accounting
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.
In: Accounting
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:
| Marshall Company Book Value |
Tucker Company Book Value |
||||||
| Cash | $ | 87,000 | $ | 24,800 | |||
| Receivables | 314,000 | 147,000 | |||||
| Inventory | 393,000 | 171,000 | |||||
| Land | 230,000 | 268,000 | |||||
| Buildings (net) | 480,000 | 221,000 | |||||
| Equipment (net) | 190,000 | 63,000 | |||||
| Accounts payable | (214,000 | ) | (46,500 | ) | |||
| Long-term liabilities | (526,000 | ) | (295,000 | ) | |||
| Common stock—$1 par value | (110,000 | ) | |||||
| Common stock—$20 par value | (120,000 | ) | |||||
| Additional paid-in capital | (360,000 | ) | 0 | ||||
| Retained earnings, 1/1/18 | (484,000 | ) | (433,300 | ) | |||
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.
In: Accounting
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:
| From customers | $ | 438,000 | |
| From issue of common stock | 150,000 | ||
| From bank loan | 120,000 | ||
Cash disbursements were as follows:
| Purchase of inventory | $ | 310,000 | |
| Rent | 45,000 | ||
| Salaries | 40,000 | ||
| Utilities | 15,000 | ||
| Insurance | 13,000 | ||
| Purchase of equipment and furniture | 30,000 | ||
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:
| To suppliers of inventory | $ | 30,000 | |
| To the utility company | 3,000 | ||
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.
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 $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:
| [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 | 275,000 | Indefinite | ||||||||||
| $765,000 | ||||||||||||
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 | $1,328,300 | Assets | |||
| Cost of goods sold | (3,457,300) | (784,700) | Cash | $719,600 | $337,400 | |
| Gross profit | 1,344,700 | 543,600 | Accounts receivable | 1,229,200 | 303,800 | |
| Equity income | 149,150 | - | Inventory | 1,624,000 | 389,900 | |
| Operating expenses | (720,300) | (340,200) | Equity investment | 1,630,550 | - | |
| Net income | $773,550 | $203,400 | Property, plant & equipment | 2,923,200 | 721,000 | |
| Statement of retained earnings | $8,126,550 | $1,752,100 | ||||
| BOY retained earnings | 1,694,700 | 676,200 | Liabilities and stockholders' equity | |||
| Net income | 773,550 | 203,400 | Accounts payable | $702,800 | $124,600 | |
| Dividends | (384,000) | (48,000) | 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 | 1,876,600 | 109,200 | ||||
| Retained earnings | 2,084,250 | 831,600 | ||||
| $8,126,550 | $1,752,100 |
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.
| Subsidiary net income | $Answer | |
| Less: Amortization | Answer | |
| Less: Depreciation | Answer | Answer |
| $Answer |
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.
| 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 |
d. Prepare the consolidation entries for the year ended December
31, 2016.
| Consolidation Journal | |||
|---|---|---|---|
| Description | Debit | Credit | |
| [C] | AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer |
| AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer | |
| Equity investment | Answer | Answer | |
| [E] | Common Stock | Answer | Answer |
| APIC | Answer | Answer | |
| AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer | |
| AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer | |
| [A] | PPE, net | Answer | Answer |
| Patent | Answer | Answer | |
| Licenses | Answer | Answer | |
| AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer | |
| AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer | |
| [D] | AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer |
| AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer | |
| Patent | Answer | Answer | |
| Licenses | Answer | Answer | |
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.
| Consolidation Worksheet | ||||||||
|---|---|---|---|---|---|---|---|---|
| Parent | Subsidiary | Debit | Credit | Consolidated | ||||
| Income statement | ||||||||
| Sales | $4,802,000 | $1,328,300 | $Answer | |||||
| Cost of goods sold | (3,457,300) | (784,700) | Answer | |||||
| Gross profit | 1,344,700 | 543,600 | Answer | |||||
| Equity income | 149,150 | - | [C] | Answer | Answer | |||
| Operating expenses | (720,300) | (340,200) | [D] | Answer | Answer | |||
| Net income | $773,550 | $203,400 | $Answer | |||||
| Statement of retained earnings | ||||||||
| BOY retained earnings | $1,694,700 | $676,200 | [E] | Answer | $Answer | |||
| Net income | 773,550 | 203,400 | Answer | |||||
| Dividends | (384,000) | (48,000) | Answer | [C] | Answer | |||
| Ending retained earnings | $2,084,250 | $831,600 | $Answer | |||||
| Balance sheet | ||||||||
| Assets | ||||||||
| Cash | $719,600 | $337,400 | $Answer | |||||
| Accounts receivable | 1,229,200 | 303,800 | Answer | |||||
| Inventory | 1,624,000 | 389,900 | Answer | |||||
| Equity investment | 1,630,550 | - | Answer | [C] | Answer | |||
| Answer | [E] | |||||||
| Answer | [A] | |||||||
| PPE, net | 2,923,200 | 721,000 | [A] | Answer | Answer | [D] | Answer | |
| Patent | [A] | Answer | Answer | [D] | Answer | |||
| Licenses | [A] | Answer | Answer | [D] | Answer | |||
| Goodwill | - | - | [A] | Answer | Answer | |||
| $8,126,550 | $1,752,100 | $Answer | ||||||
| Liabilities and equity | ||||||||
| Accounts payable | $702,800 | $124,600 | $Answer | |||||
| Accrued liabilities | 835,800 | 163,100 | Answer | |||||
| Long-term liabilities | 2,100,000 | 436,100 | Answer | |||||
| Common stock | 527,100 | 87,500 | [E] | $Answer | Answer | |||
| APIC | 1,876,600 | 109,200 | [E] | $Answer | Answer | |||
| Retained earnings | 2,084,250 | 831,600 | - | - | Answer | |||
| $8,126,550 | $1,752,100 | $Answer | $Answer | $Answer | ||||
In: Accounting