Assume the following sales took place during 2020 for a variety of individual capital assets for Ron (all normal capital assets with gains subject to 0%, 15%, or 20% tax rates).

(I also want to make sure the characters of gain/loss and numbers are correct)

Second enter the information to the Form 8949

Column a: description of property, column b: date acquired, column c: date sold, column d: sales proceeds, column e: cost, column f: codes from instruction, column g:amount of adjustment, column h: gain or loss

Percy Footwear acquired all the voting stock of Simali Inc. at the beginning of 2016. The acquisition cost was $400,000, and Simali’s book value at that time consisted of $25,000 in capital stock and $75,000 in retained earnings. Revaluation information for Simali’s identifiable net assets is as follows:

• Plant assets with a 20-year remaining life, straight-line, were overvalued by $80,000
• Inventory (sold in 2016) was overvalued by $20,000
• Previously unrecorded indefinite life developed technology was valued at $150,000; impairment to the beginning of 2020 was $10,000, and there is no impairment for 2020.
• Goodwill was not impaired as of the beginning of 2020; impairment in 2020 was $25,000.

It is now the end of 2020 (five years after the acquisition). Simali’s retained earnings at the beginning of 2020 is $125,000, and it reports net income of $45,000 for 2020. It declares no dividends. Percy uses the complete equity method to report its investment in Simali on its own books. Simali sells merchandise to Percy on a regular basis, at a markup of 20 percent on cost. Total sales made to Percy in 2020 were $200,000. Percy’s beginning inventory balance has $12,000 in merchandise purchased from Simali. Percy’s ending inventory balance has $18,000 in merchandise purchased from Simali.

Required

a.         Calculate equity in net income for 2020, reported on Percy’s books.

b.         Calculate the December 31, 2020 balance for investment in Simali, reported on Percy’s books.

c.          Calculate the original balance for goodwill, reported for this acquisition.

Waterway Company is a manufacturer of smart phones. Its controller resigned in October 2020. An inexperienced assistant accountant has prepared the following income statement for the month of October 2020.

Prior to October 2020, the company had been profitable every month. The company’s president is concerned about the accuracy of the income statement. As her friend, you have been asked to review the income statement and make necessary corrections. After examining other manufacturing cost data, you have acquired additional information as follows.

1. Inventory balances at the beginning and end of October were:

2. Only 75% of the utilities expense and 60% of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities.

Prepare a schedule of cost of goods manufactured for October 2020.

Prepare a correct income statement for October 2020.

On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $334,800. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $197,900. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $223,200. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $86,200 and an unrecorded customer list (15-year remaining life) assessed at a $62,400 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, McIlroy has applied the equity method to its Investment in Stinson account and no goodwill impairment has occurred. At year-end, there are no intra-entity payables or receivables.

Intra-entity inventory sales between the two companies have been made as follows:

The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow:

(Note: Parentheses indicate a credit balance.)

1. Show how McIlroy determined the $393,654 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income.

2. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2021.

On January 1, 2020, Peppard Inc. acquired all of the stock of Smith Telecom for $85,000 in cash. At the date of acquisition, Smith's shareholders' equity accounts were as follows:

Common Stock, $1 par: $1,000

APIC: $14,000

Retained Earnings: ($3,000)

Treasury Stock: ($200)

Total: $11,800

Both companies have a December 31 year end. At the date of acquisition, Smith reported net assets had book values approximating fair value. However, it had previously unreported indefinite life identifiable intangibles valued at $15,000, meeting ASC Topic 805 requirements for capitalization. Impairment losses in 2020 for identifiable intangibles were $600. Goodwill from this acquisition was not impaired in 2020. Smith reported net income of $900 in 2020, and paid no dividends. Peppard uses the complete equity method to report its investment in Smith on its own books.

Additional information:

The amount of Goodwill that resulted from this acquisition is $58,200.

The equity in net income reported on Peppard's books in 2020 is $300.

Required:

Prepare eliminating entries (C), (E), (R), and (O), required to consolidate Peppard's trial balance accounts with those of Smith on December 21, 2020.

Parent acquired Subsidiary on January 1, 2020 at a price $450,000 in excess of book value. Of that excess, $350,000 was allocated to an unrecorded patent with a 10-year life, with the remainder to goodwill. The parent uses the equity method to account for its investment in its subsidiary.

In 2021, Subsidiary sold to Parent land having a book value of $90,000 for a total price of $244,000.

Financial statements of the two companies for the year ended December 31, 2022 are presented below.

Required:

a.   Prepare a schedule showing the computation of Income (loss) from subsidiary on the Parent's pre-consolidation books for 2022.

b.   Prepare a schedule showing the computation of Equity Investment on the Parent's pre-consolidation books at December 31, 2022.

c. Prepare the consolidation entries for 2022.

On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $391,800. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $231,600. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $261,200. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $85,600 and an unrecorded customer list (15-year remaining life) assessed at a $61,800 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, McIlroy has applied the equity method to its Investment in Stinson account and no goodwill impairment has occurred. At year-end, there are no intra-entity payables or receivables.

Intra-entity inventory sales between the two companies have been made as follows:

The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow:

(Note: Parentheses indicate a credit balance.)

1. Show how McIlroy determined the $430,314 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income.

2. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2021.

On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $384,600. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $227,300. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $256,400. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $77,800 and an unrecorded customer list (15-year remaining life) assessed at a $53,700 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, McIlroy has applied the equity method to its Investment in Stinson account and no goodwill impairment has occurred. At year-end, there are no intra-entity payables or receivables.

Intra-entity inventory sales between the two companies have been made as follows:

The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow:

(Note: Parentheses indicate a credit balance.)

1. Show how McIlroy determined the $423,463 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income.

2. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2021.

Williams-Santana Inc. is a manufacturer of high-tech industrial parts that was started in 2009 by two talented engineers with little business training. In 2021, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries were prepared.

1. A five-year casualty insurance policy was purchased at the beginning of 2019 for $33,000. The full amount was debited to insurance expense at the time.
2. Effective January 1, 2021, the company changed the salvage value used in calculating depreciation for its office building. The building cost $604,000 on December 29, 2010, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $120,000. Declining real estate values in the area indicate that the salvage value will be no more than $30,000.
3. On December 31, 2020, merchandise inventory was overstated by $23,000 due to a mistake in the physical inventory count using the periodic inventory system.
4. The company changed inventory cost methods to FIFO from LIFO at the end of 2021 for both financial statement and income tax purposes. The change will cause a $940,000 increase in the beginning inventory at January 1, 2022.
5. At the end of 2020, the company failed to accrue $15,100 of sales commissions earned by employees during 2020. The expense was recorded when the commissions were paid in early 2021.
6. At the beginning of 2019, the company purchased a machine at a cost of $680,000. Its useful life was estimated to be 10 years with no salvage value. The machine has been depreciated by the double-declining balance method. Its book value on December 31, 2020, was $435,200. On January 1, 2021, the company changed to the straight-line method.
7. Warranty expense is determined each year as 1% of sales. Actual payment experience of recent years indicates that 0.70% is a better indication of the actual cost. Management effects the change in 2021. Credit sales for 2021 are $3,600,000; in 2020 they were $3,300,000.

Required:
For each situation:
1. Identify whether it represents an accounting change or an error. If an accounting change, identify the type of change. For accounting errors, choose "Not applicable".
2. Prepare any journal entry necessary as a direct result of the change or error correction, as well as any adjusting entry for 2021 related to the situation described. (Ignore tax effects.)

Williams-Santana Inc. is a manufacturer of high-tech industrial parts that was started in 2009 by two talented engineers with little business training. In 2021, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries were prepared.

1. A five-year casualty insurance policy was purchased at the beginning of 2019 for $31,000. The full amount was debited to insurance expense at the time.
2. Effective January 1, 2021, the company changed the salvage value used in calculating depreciation for its office building. The building cost $568,000 on December 29, 2010, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $100,000. Declining real estate values in the area indicate that the salvage value will be no more than $25,000.
3. On December 31, 2020, merchandise inventory was overstated by $21,000 due to a mistake in the physical inventory count using the periodic inventory system.
4. The company changed inventory cost methods to FIFO from LIFO at the end of 2021 for both financial statement and income tax purposes. The change will cause a $920,000 increase in the beginning inventory at January 1, 2022.
5. At the end of 2020, the company failed to accrue $14,700 of sales commissions earned by employees during 2020. The expense was recorded when the commissions were paid in early 2021.
6. At the beginning of 2019, the company purchased a machine at a cost of $640,000. Its useful life was estimated to be 10 years with no salvage value. The machine has been depreciated by the double-declining balance method. Its book value on December 31, 2020, was $409,600. On January 1, 2021, the company changed to the straight-line method.
7. Warranty expense is determined each year as 1% of sales. Actual payment experience of recent years indicates that 0.75% is a better indication of the actual cost. Management effects the change in 2021. Credit sales for 2021 are $3,200,000; in 2020 they were $2,900,000.

Required:
For each situation:
1. Identify whether it represents an accounting change or an error. If an accounting change, identify the type of change. For accounting errors, choose "Not applicable".
2. Prepare any journal entry necessary as a direct result of the change or error correction, as well as any adjusting entry for 2021 related to the situation described. (Ignore tax effects.)