Peanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Snoopy Company. Snoopy Company reported shares outstanding of $350,000 and retained earnings of $100,000. During 20X8, Snoopy Company reported net income of $60,000 and paid dividends of $3,000. In 20X9, Snoopy Company reported net income of $90,000 and paid dividends of $15,000. The following transactions occurred between Peanut Company and Snoopy Company in 20X8 and 20X9: Snoopy Co. sold equipment to Peanut Co. for a $42,000 gain on December 31, 20X8. Snoopy Co. had originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31, 20X8. At the time of the purchase, Peanut Co. estimated that the equipment still had a seven-year remaining useful life. Peanut sold land costing $90,000 to Snoopy Company on June 28, 20X9, for $110,000. Give all consolidating entries needed to prepare a consolidation worksheet for 20X9 assuming that Peanut Co. uses the cost method to account for its investment in Snoopy Company.
In: Accounting
On January 1, 2016, Monica Company acquired 70 percent of Young Company’s outstanding common stock for $658,000. The fair value of the noncontrolling interest at the acquisition date was $282,000. Young reported stockholders’ equity accounts on that date as follows:
| Common stock—$10 par value | $ | 300,000 | |
| Additional paid-in capital | 40,000 | ||
| Retained earnings | 460,000 | ||
In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $40,000. Any remaining excess acquisition-date fair value was allocated to a franchise agreement to be amortized over 10 years.
During the subsequent years, Young sold Monica inventory at a 30 percent gross profit rate. Monica consistently resold this merchandise in the year of acquisition or in the period immediately following. Transfers for the three years after this business combination was created amounted to the following:
| Year | Transfer Price | Inventory Remaining at Year-End (at transfer price) |
|||||||
| 2016 | $ | 70,000 | $ | 15,000 | |||||
| 2017 | 90,000 | 17,000 | |||||||
| 2018 | 100,000 | 23,000 | |||||||
In addition, Monica sold Young several pieces of fully depreciated equipment on January 1, 2017, for $41,000. The equipment had originally cost Monica $60,000. Young plans to depreciate these assets over a 5-year period.
In 2018, Young earns a net income of $190,000 and declares and pays $50,000 in cash dividends. These figures increase the subsidiary's Retained Earnings to a $790,000 balance at the end of 2018.
Monica employs the equity method of accounting. Hence, it reports $127,340 investment income for 2018 with an Investment account balance of $821,770. Under these circumstances, prepare the worksheet entries required for the consolidation of Monica Company and Young Company. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
In: Accounting
Miller Company acquired an 80 percent interest in Taylor Company on January 1, 2016. Miller paid $896,000 in cash to the owners of Taylor to acquire these shares. In addition, the remaining 20 percent of Taylor shares continued to trade at a total value of $224,000 both before and after Miller’s acquisition. On January 1, 2016, Taylor reported a book value of $626,000 (Common Stock = $313,000; Additional Paid-In Capital = $93,900; Retained Earnings = $219,100). Several of Taylor’s buildings that had a remaining life of 20 years were undervalued by a total of $83,400. During the next three years, Taylor reports income and declares dividends as follows: Year Net Income Dividends 2016 $ 73,100 $ 10,500 2017 94,500 15,800 2018 105,300 21,100 Determine the appropriate answers for each of the following questions: What amount of excess depreciation expense should be recognized in the consolidated financial statements for the initial years following this acquisition? If a consolidated balance sheet is prepared as of January 1, 2016, what amount of goodwill should be recognized? If a consolidation worksheet is prepared as of January 1, 2016, what Entry S and Entry A should be included? On the separate financial records of the parent company, what amount of investment income would be reported for 2016 under each of the following accounting methods? The equity method. The partial equity method. The initial value method. On the parent company’s separate financial records, what would be the December 31, 2018, balance for the Investment in Taylor Company account under each of the following accounting methods? The equity method. The partial equity method. The initial value method. As of December 31, 2017, Miller’s Buildings account on its separate records has a balance of $844,000 and Taylor has a similar account with a $316,500 balance. What is the consolidated balance for the Buildings account? What is the balance of consolidated goodwill as of December 31, 2018? Assume that the parent company has been applying the equity method to this investment. On December 31, 2018, the separate financial statements for the two companies present the following information: Miller Company Taylor Company Common stock $ 527,500 $ 313,000 Additional paid-in capital 295,400 93,900 Retained earnings, 12/31/18 654,100 444,600 What will be the consolidated balance of each of these accounts? On the separate financial records of the parent company, what amount of investment income would be reported for 2016 under each of the following accounting methods? e. On the parent company’s separate financial records, what would be the December 31, 2018, balance for the Investment in Taylor Company account under each of the following accounting methods? Show less d. Investment Income e. Investment Balance The equity method The partial equity method The initial value method f. As of December 31, 2017, Miller’s Buildings account on its separate records has a balance of $844,000 and Taylor has a similar account with a $316,500 balance. What is the consolidated balance for the Buildings account? g. What is the balance of consolidated goodwill as of December 31, 2018? f. Consolidated balance g. Consolidated balance Assume that the parent company has been applying the equity method to this investment. On December 31, 2018, the separate financial statements for the two companies present the following information: Miller Company Taylor Company Common stock $ 527,500 $ 313,000 Additional paid-in capital 295,400 93,900 Retained earnings, 12/31/18 654,100 444,600 What will be the consolidated balance of each of these accounts?
Show less Common stock Additional paid-in capital Retained earnings, 12/31/18
In: Accounting
On January 1, 2016, Monica Company acquired 70 percent of Young Company’s outstanding common stock for $700,000. The fair value of the noncontrolling interest at the acquisition date was $300,000. Young reported stockholders’ equity accounts on that date as follows:
| Common stock—$10 par value | $ | 100,000 | |
| Additional paid-in capital | 100,000 | ||
| Retained earnings | 520,000 | ||
In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $40,000. Any remaining excess acquisition-date fair value was allocated to a franchise agreement to be amortized over 10 years.
During the subsequent years, Young sold Monica inventory at a 30 percent gross profit rate. Monica consistently resold this merchandise in the year of acquisition or in the period immediately following. Transfers for the three years after this business combination was created amounted to the following:
| Year | Transfer Price |
Inventory Remaining at Year-End (at transfer price) |
|||||||
| 2016 | $ | 60,000 | $ | 21,000 | |||||
| 2017 | 80,000 | 23,000 | |||||||
| 2018 | 90,000 | 29,000 | |||||||
In addition, Monica sold Young several pieces of fully depreciated equipment on January 1, 2017, for $47,000. The equipment had originally cost Monica $72,000. Young plans to depreciate these assets over a 5-year period.
In 2018, Young earns a net income of $250,000 and declares and pays $80,000 in cash dividends. These figures increase the subsidiary's Retained Earnings to a $850,000 balance at the end of 2018.
Monica employs the equity method of accounting. Hence, it reports $160,740 investment income for 2018 with an Investment account balance of $829,510. Under these circumstances, prepare the worksheet entries required for the consolidation of Monica Company and Young Company. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
In: Accounting
On January 1, 2016, Monica Company acquired 70 percent of Young Company’s outstanding common stock for $665,000. The fair value of the noncontrolling interest at the acquisition date was $285,000.
Young reported stockholders’ equity accounts on that date as follows:
| Common stock—$10 par value | $ | 300,000 | |
| Additional paid-in capital | 90,000 | ||
| Retained earnings | 410,000 | ||
In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $50,000. Any remaining excess acquisition-date fair value was allocated to a franchise agreement to be amortized over 10 years.
During the subsequent years, Young sold Monica inventory at a 30 percent gross profit rate. Monica consistently resold this merchandise in the year of acquisition or in the period immediately following. Transfers for the three years after this business combination was created amounted to the following:
| Year | Transfer Price |
Inventory Remaining at Year-End (at transfer price) |
||||||
| 2016 | $ | 60,000 | $ | 10,000 | ||||
| 2017 | 80,000 | 12,000 | ||||||
| 2018 | 90,000 | 18,000 | ||||||
In addition, Monica sold Young several pieces of fully depreciated equipment on January 1, 2017, for $36,000. The equipment had originally cost Monica $50,000. Young plans to depreciate these assets over a six-year period.
In 2018, Young earns a net income of $160,000 and declares and pays $50,000 in cash dividends. These figures increase the subsidiary's Retained Earnings to a $740,000 balance at the end of 2018. During this same year, Monica reported dividend income of $35,000 and an investment account containing the initial value balance of $665,000. No changes in Young's common stock accounts have occurred since Monica's acquisition.
Prepare the 2018 consolidation worksheet entries for Monica and Young.
Compute the net income attributable to the noncontrolling interest for 2018.
In: Accounting
Alcorn Service Company was formed on January 1, 2018.
Events Affecting the 2018 Accounting Period
Acquired $20,000 cash from the issue of common stock.
Purchased $800 of supplies on account.
Purchased land that cost $14,000 cash.
Paid $800 cash to settle accounts payable created in Event 2.
Recognized revenue on account of $10,500.
Paid $3,800 cash for other operating expenses.
Collected $7,000 cash from accounts receivable.
Information for 2018 Adjusting Entries
Recognized accrued salaries of $3,600 on December 31, 2018.
Had $100 of supplies on hand at the end of the accounting period.
Events Affecting the 2019 Accounting Period
Acquired $15,000 cash from the issue of common stock.
Paid $3,600 cash to settle the salaries payable obligation.
Paid $9,000 cash in advance to lease office space.
Sold the land that cost $14,000 for $14,000 cash.
Received $6,000 cash in advance for services to be performed in the future.
Purchased $2,400 of supplies on account during the year.
Provided services on account of $24,500.
Collected $12,600 cash from accounts receivable.
Paid a cash dividend of $2,000 to the stockholders.
Paid other operating expenses of $2,850.
Information for 2019 Adjusting Entries
The advance payment for rental of the office space (see Event 3) was made on March 1 for a one-year term.
The cash advance for services to be provided in the future was collected on October 1 (see Event 5). The one-year contract started on October 1.
Had $300 of supplies remaining on hand at the end of the period.
Recognized accrued salaries of $4,800 at the end of the accounting period.
Recognized $500 of accrued interest revenue.
b-1. Prepare an income statement for 2018 and 2019.
b-2. Prepare the statement of changes in stockholders’ equity for 2018 and 2019.
b-3. Prepare the balance sheet for 2018 and 2019.
b-4. Prepare the statement of cash flows for 2018 and 2019, using the vertical statements model
In: Accounting
|
On January 1, 2013, Plano Company acquired 8 percent (25,600 shares) of the outstanding voting shares of the Sumter Company for $460,800, an amount equal to Sumter’s underlying book and fair value. Sumter declares and pays a cash dividend to its stockholders each year of $160,000 on September 15. Sumter reported net income of $389,000 in 2013, $461,200 in 2014, $510,000 in 2015, and $485,600 in 2016. Each income figure can be assumed to have been earned evenly throughout its respective year. In addition, the fair value of these 25,600 shares was indeterminate, and therefore the investment account remained at cost. |
|
On January 1, 2015, Plano purchased an additional 32 percent (102,400 shares) of Sumter for $2,156,150 in cash and began to use the equity method. This price represented a $60,750 payment in excess of the book value of Sumter’s underlying net assets. Plano was willing to make this extra payment because of a recently developed patent held by Sumter with a 15-year remaining life. All other assets were considered appropriately valued on Sumter’s books. |
|
On July 1, 2016, Plano sold 10 percent (32,000 shares) of Sumter’s outstanding shares for $992,000 in cash. Although it sold this interest, Plano maintained the ability to significantly influence Sumter’s decision-making process. Assume that Plano uses a weighted average costing system. |
|
Prepare the journal entries for Plano for the years of 2013 through 2016. |
In: Accounting
Sue is a customer account representative for ABC Company. She
recently acquired several new accounts when a previous
representative, Dan, took an early retirement. Sue reviewed each of
Dan’s accounts to help familiarize herself with his clients and
under- stand how she can better serve each one’s individual needs.
As she was reviewing the client list, she found a major customer
she had never heard of before. Surprised that she had not yet done
business with the company, she called it to introduce herself as
the new representative. When Sue placed the call, she found that
the reported number had been disconnected. Thinking that the
customer may have done business with ABC in the past and have moved
on, she reviewed the account transactions and found that the most
recent transaction had taken place the week prior. During her
review, she also noticed the latest transaction was for an
unusually large amount for ABC. As Sue pursued her curiosity, she
went to other employees to find out more about the company. In her
questioning, she found that none of the employees had ever heard of
the customer. Once she had run out of other avenues, Sue decided to
contact the controller to find out if he could provide any
additional information. When Sue opened the company directory, she
was amazed when she recognized his home address: it was
the same address as the mystery customer!
1. What are some of the possible scenarios for why the addresses
match?
2. What other symptoms would be present in each of the scenarios
you identified in part (1)?
3. What are the implications of the address match if the company is
private? If the company was pub- licly traded?
4. Assuming the company was preparing for an IPO, who should Sue
contact, and what should she say? 5. If Sue believes these revenues
are fictitious, what
should her next course of action be?
In: Accounting
Pizza Corporation acquired 80 percent ownership of Slice
Products Company on January 1, 20X1, for $152,000. On that date,
the fair value of the noncontrolling interest was $38,000, and
Slice reported retained earnings of $43,000 and had $99,000 of
common stock outstanding. Pizza has used the equity method in
accounting for its investment in Slice.
Trial balance data for the two companies on December 31, 20X5, are
as follows:
| Pizza Corporation |
Slice Products Company |
||||||||||||
| Item | Debit | Credit | Debit | Credit | |||||||||
| Cash & Receivables | $ | 84,000 | $ | 84,000 | |||||||||
| Inventory | 274,000 | 92,000 | |||||||||||
| Land | 81,000 | 81,000 | |||||||||||
| Buildings & Equipment | 505,000 | 164,000 | |||||||||||
| Investment in Slice Products Company | 188,320 | ||||||||||||
| Cost of Goods Sold | 116,000 | 43,000 | |||||||||||
| Depreciation Expense | 21,000 | 11,000 | |||||||||||
| Inventory Losses | 11,000 | 6,000 | |||||||||||
| Dividends Declared | 45,000 | 23,600 | |||||||||||
| Accumulated Depreciation | $ | 191,000 | $ | 77,000 | |||||||||
| Accounts Payable | 42,000 | 15,000 | |||||||||||
| Notes Payable | 262,560 | 117,600 | |||||||||||
| Common Stock | 286,000 | 99,000 | |||||||||||
| Retained Earnings | 300,000 | 89,000 | |||||||||||
| Sales | 210,000 | 107,000 | |||||||||||
| Income from Slice Products Company | 33,760 | ||||||||||||
| $ | 1,325,320 | $ | 1,325,320 | $ | 504,600 | $ | 504,600 | ||||||
Additional Information
Required:
a. Prepare all journal entries that Pizza recorded during 20X5
related to its investment in Slice. (If no entry is
required for a transaction/event, select "No journal entry
required" in the first account field.)
b. Prepare all consolidation entries needed to prepare consolidated
statements for 20X5. (If no entry is required for a
transaction/event, select "No journal entry required" in the first
account field.)
c. Prepare a three-part worksheet as of December 31, 20X5. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting 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.)
In: Accounting
On January 1, 2021, Waddington Company acquired Middleton Co. by issuing 55,000 shares of its common Stock with a market value of $20 per share. A building on sub’s books was undervalued by $100,000, resulting in annual amortization of $10,000. Also, there was an unrecorded customer list valued at $150,000, resulting in annual amortization of $15,000; as well as a 10-year franchise agreement valued at $125,000. The separate 2021 financial statements for Waddington and Middleton follow.
|
Waddington |
Middleton |
|
|
Sales revenue |
$3,600,000 |
$ 975,000 |
|
Cost of goods sold |
(2,520,000) |
(585,000) |
|
Gross profit |
1,080,000 |
390,000 |
|
Operating expenses |
(684,000) |
(253,500) |
|
Equity income |
99,000 |
_ |
|
Net Income |
$ 495,000 |
$ 136,500 |
|
Retained Earnings, 1/1/21 |
$1,830,500 |
$ 503,750 |
|
Net income |
495,000 |
136,500 |
|
Dividends |
(32,040) |
(20,475) |
|
Retained Earnings, 12/31/21 |
$2,293,460 |
$ 619,775 |
|
Cash and receivables |
$ 772,275 |
$ 477,425 |
|
Inventory |
698,400 |
290,550 |
|
Equity investment |
1,178,525 |
|
|
Property, plant & equipment (Net) |
3,719,520 |
537,550 |
|
Total Assets |
$6,368,720 |
$1,305,525 |
|
Accounts payable |
$ 263,520 |
$ 92,950 |
|
Accrued liabilities |
313,200 |
121,550 |
|
Notes payable |
1,250,000 |
325,000 |
|
Common stock |
407,000 |
65,000 |
|
Additional paid-in capital |
1,824,040 |
81,250 |
|
Retained Earnings, 12/31/11 |
2,293,400 |
619,775 |
|
Total Liabilities and Equities |
$6,368,720 |
$1,305,525 |
Prepare FV allocation schedule
b. Prepare all necessary consolidation entries for 2021 consolidated financial statements.
Now assume that at year-end a goodwill impairment test is conducted before the consolidated statements are issued. The estimated fair value of the subsidiary is $1,100,000. The fair value of the identifiable net assets is $1,050,000. Prepare any journal entries resulting from the test.
In: Accounting