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 58,430 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:

In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of $137,000. Although not yet recorded on its books, Pacifica paid legal fees of $20,400 in connection with the acquisition and $10,200 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.)

b.&c. Present a worksheet showing the postacquisition column of accounts for Pacifica and the consolidated balance sheet as of the acquisition date.

(For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Round your answers to the nearest whole dollar.)

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:

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.

1. 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?

2. 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?

On January 1, 2017, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,190,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $850,000, retained earnings of $400,000, and a noncontrolling interest fair value of $510,000. 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:

Solomon Manufacturing Company was started on January 1, 2018, when it acquired $80,000 cash by issuing common stock. Solomon immediately purchased office furniture and manufacturing equipment costing $9,100 and $33,100, respectively. The office furniture had an eight-year useful life and a zero salvage value. The manufacturing equipment had a $3,500 salvage value and an expected useful life of four years. The company paid $11,300 for salaries of administrative personnel and $15,600 for wages to production personnel. Finally, the company paid $13,000 for raw materials that were used to make inventory. All inventory was started and completed during the year. Solomon completed production on 4,800 units of product and sold 3,880 units at a price of $15 each in 2018. (Assume that all transactions are cash transactions and that product costs are computed in accordance with GAAP.)

Required

1. Determine the total product cost and the average cost per unit of the inventory produced in 2018. (Round "Average cost per unit" to 2 decimal places.)

2. Determine the amount of cost of goods sold that would appear on the 2018 income statement. (Do not round intermediate calculations.)

3. Determine the amount of the ending inventory balance that would appear on the December 31, 2018, balance sheet. (Do not round intermediate calculations.)

4. Determine the amount of net income that would appear on the 2018 income statement. (Round your answer to the nearest dollar amount.)

5. Determine the amount of retained earnings that would appear on the December 31, 2018, balance sheet. (Round your answer to the nearest dollar amount.)

6. Determine the amount of total assets that would appear on the December 31, 2018, balance sheet. (Round your answer to the nearest dollar amount.)

On January 1, 2021, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $310,000 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 $24,000 to accountants, lawyers, and brokers for assistance in the acquisition and another $9,000 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 $ 75,000 $ 38,800 Receivables 354,000 90,000 Inventory 380,000 229,000 Land 246,000 253,000 Buildings (net) 476,000 274,000 Equipment (net) 174,000 50,400 Accounts payable (241,000 ) (41,400 ) Long-term liabilities (480,000 ) (310,000 ) Common stock—$1 par value (110,000 ) Common stock—$20 par value (120,000 ) Additional paid-in capital (360,000 ) 0 Retained earnings, 1/1/21 (514,000 ) (463,800 ) 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 $9,000, Land by $25,800, and Buildings by $32,200. 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, 2021.

Badbug makes Viral Memes which sell for $1,000 each.   The production process is fairly simple and involves tweaking components purchased from various suppliers.  Since each Viral Meme only takes one hour to assemble, there is essentially no work-in-process inventory.  

Badbug has the capacity to make 2,000 Viral Memes per year.

Costs for the Viral Meme components are:

Each meme should take one hour of direct labor to tweak.  Direct labor wages are $150 per hour.

Other manufacturing costs on a monthly basis are:

Inventory balances are as follows (Badbug uses the FIFO inventory cost flow assumption):

During 2020 (the entire year) Badbug expects to sell 1,000 viral memes.  

• What is the budgeted cost of Viral Memes manufactured for 2020?

• What is the budgeted cost of Primary GIFs purchased for 2020?

• What is the budgeted cost of Secondary GIFs purchased for 2020?

• What is the budgeted cost of JPEGs purchased for 2020?

• What is budgeted dollar value of ending Viral Meme inventory?

• What is the budgeted dollar value of ending Primary GIF inventory?

• What is the budgeted dollar value of ending Secondary GIF inventory?

• What is the budgeted dollar value of ending JPEG inventory?

• How much income does Badbug expect to make if they sell 1,000 Viral Memes in 2020 and have budgeted Selling & Administrative expenses of $600,000 (assume no income taxes)?

• How much income does Badbug expect to make if they sell 900 Viral Memes in 2020 (production is adjusted appropriately)?  Remember – individual cost-to-make will change with changes in volume.  That will change ending inventory value.

• How much income does Badbug expect to make if they sell 1,100 Viral Memes in 2020 (production is adjusted appropriately)?

• How much income does Badbug expect to make if they sell 2,000 Viral Memes in 2020 (production is adjusted appropriately)?

Sherrod, Inc., reported pretax accounting income of $68 million for 2018. The following information relates to differences between pretax accounting income and taxable income:

Income from installment sales of properties included in pretax accounting income in 2018 exceeded that reported for tax purposes by $6 million. The installment receivable account at year-end had a balance of $8 million (representing portions of 2017 and 2018 installment sales), expected to be collected equally in 2019 and 2020.
Sherrod was assessed a penalty of $4 million by the Environmental Protection Agency for violation of a federal law in 2018. The fine is to be paid in equal amounts in 2018 and 2019.
Sherrod rents its operating facilities but owns one asset acquired in 2017 at a cost of $56 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

Income Statement Tax Return Difference
2017 $ 14 $ 18 $ (4 )
2018 14 22 (8 )
2019 14 8 6
2020 14 8 6
$ 56 $ 56 $ 0

Warranty expense of $5 million is reported in 2018. For tax purposes, the expense is deducted when costs are incurred, $4 million in 2018. At December 31, 2018, the warranty liability was $4 million (after adjusting entries). The balance was $3 million at the end of 2017.
In 2018, Sherrod accrued an expense and related liability for estimated paid future absences of $14 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($8 million in 2019; $6 million in 2020).
During 2017, accounting income included an estimated loss of $2 million from having accrued a loss contingency. The loss is paid in 2018 at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2018, were $2.0 million and $2.4 million, respectively. The enacted tax rate is 40% each year.

Required:
1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry.
2. What is the 2018 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2018 balance sheet.

Sherrod, Inc., reported pretax accounting income of $60 million for 2018. The following information relates to differences between pretax accounting income and taxable income:

1. Income from installment sales of properties included in pretax accounting income in 2018 exceeded that reported for tax purposes by $5 million. The installment receivable account at year-end had a balance of $6 million (representing portions of 2017 and 2018 installment sales), expected to be collected equally in 2019 and 2020.
2. Sherrod was assessed a penalty of $3 million by the Environmental Protection Agency for violation of a federal law in 2018. The fine is to be paid in equal amounts in 2018 and 2019.
3. Sherrod rents its operating facilities but owns one asset acquired in 2017 at a cost of $40 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

4. Warranty expense of $4 million is reported in 2018. For tax purposes, the expense is deducted when costs are incurred, $3 million in 2018. At December 31, 2018, the warranty liability was $3 million (after adjusting entries). The balance was $2 million at the end of 2017.
5. In 2018, Sherrod accrued an expense and related liability for estimated paid future absences of $5 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($3 million in 2019; $2 million in 2020).
6. During 2017, accounting income included an estimated loss of $4 million from having accrued a loss contingency. The loss is paid in 2018 at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2018, were $2.4 million and $1.6 million, respectively. The enacted tax rate is 40% each year.

Required:
1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry.
2. What is the 2018 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2018 balance sheet.

Problem 16-7 Multiple differences; calculate taxable income; balance sheet classification [LO16-4, 16-6, 16-8] Sherrod, Inc., reported pretax accounting income of $74 million for 2018. The following information relates to differences between pretax accounting income and taxable income: Income from installment sales of properties included in pretax accounting income in 2018 exceeded that reported for tax purposes by $7 million. The installment receivable account at year-end had a balance of $8 million (representing portions of 2017 and 2018 installment sales), expected to be collected equally in 2019 and 2020. Sherrod was assessed a penalty of $3 million by the Environmental Protection Agency for violation of a federal law in 2018. The fine is to be paid in equal amounts in 2018 and 2019. Sherrod rents its operating facilities but owns one asset acquired in 2017 at a cost of $68 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions): Income Statement Tax Return Difference 2017 $ 17 $ 22 $ (5 ) 2018 17 29 (12 ) 2019 17 10 7 2020 17 7 10 $ 68 $ 68 $ 0 Warranty expense of $3 million is reported in 2018. For tax purposes, the expense is deducted when costs are incurred, $2 million in 2018. At December 31, 2018, the warranty liability was $2 million (after adjusting entries). The balance was $1 million at the end of 2017. In 2018, Sherrod accrued an expense and related liability for estimated paid future absences of $14 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($8 million in 2019; $6 million in 2020). During 2017, accounting income included an estimated loss of $2 million from having accrued a loss contingency. The loss is paid in 2018 at which time it is tax deductible. Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2018, were $1.2 million and $2.4 million, respectively. The enacted tax rate is 40% each year. Required: 1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry. 2. What is the 2018 net income? 3. Show how any deferred tax amounts should be classified and reported in the 2018 balance sheet.

Sherrod, Inc., reported pretax accounting income of $60 million for 2018. The following information relates to differences between pretax accounting income and taxable income:

1. Income from installment sales of properties included in pretax accounting income in 2018 exceeded that reported for tax purposes by $5 million. The installment receivable account at year-end had a balance of $6 million (representing portions of 2017 and 2018 installment sales), expected to be collected equally in 2019 and 2020.
2. Sherrod was assessed a penalty of $3 million by the Environmental Protection Agency for violation of a federal law in 2018. The fine is to be paid in equal amounts in 2018 and 2019.
3. Sherrod rents its operating facilities but owns one asset acquired in 2017 at a cost of $40 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

4. Warranty expense of $4 million is reported in 2018. For tax purposes, the expense is deducted when costs are incurred, $3 million in 2018. At December 31, 2018, the warranty liability was $3 million (after adjusting entries). The balance was $2 million at the end of 2017.
5. In 2018, Sherrod accrued an expense and related liability for estimated paid future absences of $5 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($3 million in 2019; $2 million in 2020).
6. During 2017, accounting income included an estimated loss of $4 million from having accrued a loss contingency. The loss is paid in 2018 at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2018, were $2.4 million and $1.6 million, respectively. The enacted tax rate is 40% each year.

Required:
1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry.
2. What is the 2018 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2018 balance sheet.