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:

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:

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.)

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:

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:

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.

Alcorn Service Company was formed on January 1, 2018.

Events Affecting the 2018 Accounting Period

1. Acquired $20,000 cash from the issue of common stock.

2. Purchased $800 of supplies on account.

3. Purchased land that cost $14,000 cash.

4. Paid $800 cash to settle accounts payable created in Event 2.

5. Recognized revenue on account of $10,500.

6. Paid $3,800 cash for other operating expenses.

7. Collected $7,000 cash from accounts receivable.

Information for 2018 Adjusting Entries

8. Recognized accrued salaries of $3,600 on December 31, 2018.

9. Had $100 of supplies on hand at the end of the accounting period.

Events Affecting the 2019 Accounting Period

1. Acquired $15,000 cash from the issue of common stock.

2. Paid $3,600 cash to settle the salaries payable obligation.

3. Paid $9,000 cash in advance to lease office space.

4. Sold the land that cost $14,000 for $14,000 cash.

5. Received $6,000 cash in advance for services to be performed in the future.

6. Purchased $2,400 of supplies on account during the year.

7. Provided services on account of $24,500.

8. Collected $12,600 cash from accounts receivable.

9. Paid a cash dividend of $2,000 to the stockholders.

10. Paid other operating expenses of $2,850.

Information for 2019 Adjusting Entries

11. The advance payment for rental of the office space (see Event 3) was made on March 1 for a one-year term.

12. 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.

13. Had $300 of supplies remaining on hand at the end of the period.

14. Recognized accrued salaries of $4,800 at the end of the accounting period.

15. Recognized $500 of accrued interest revenue.

1. b-1. Prepare an income statement for 2018 and 2019.

2. b-2. Prepare the statement of changes in stockholders’ equity for 2018 and 2019.

3. b-3. Prepare the balance sheet for 2018 and 2019.

4. b-4. Prepare the statement of cash flows for 2018 and 2019, using the vertical statements model

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?

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:
  

Additional Information

1. On the date of combination, the fair value of Slice's depreciable assets was $48,000 more than book value. The accumulated depreciation on these assets was $10,000 on the acquisition date. The differential assigned to depreciable assets should be written off over the following 10-year period.
2. There was $13,000 of intercorporate receivables and payables at the end of 20X5.

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.)

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.

1. Prepare FV allocation schedule

b. Prepare all necessary consolidation entries for 2021 consolidated financial statements.

3. 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.

Question 10

Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. At that date, Salt reported common stock outstanding of $1,050,000 and retained earnings of $840,000; the fair value of the noncontrolling interest was equal to 20 percent of the book value of Salt Company. Salt Co. sold equipment to Pepper Co. for a $720,000 on December 31, 2018. Salt Co. had originally purchased the equipment for $800,000 on January 1, 2015, with a useful life of 10 years and no salvage value. At the time of the purchase, Pepper Co. estimated that the equipment still had the same remaining useful life. Both companies use straight-line depreciation.
Pepper sold land costing $132,000 to Salt Company on June 28, 2019, for $178,000.

a) Prepare Pepper’s journal entries related to intercompany sale of land and equipment for 2019.

b) Prepare the consolidation entries that related to intercompany sale of land  for 2019.

c) Prepare the consolidation entries that related to intercompany sale of equipment for 2019.

Rebecca Company acquired an equipment on a 10-year non‑cancelable lease on January 1, 20X1. There were annual lease payments of $100 at the end of each of the ten years. The market interest rate was 10% compounded annually. Assume that the lease year coincides with the fiscal year. Present value of $1 annuity (n=10, i=10%) = 6.1446. Note that the useful life of the equipment is 12 years.

1. According to GAAP, is the above lease a capital or an operating lease? Why?
2. Irrespective of your answer to part 1, assume that the lease is a capital lease. Show the entries that the company will make at the inception of the lease and during the first two years of the lease term. (Use straight-line amortization method)

Beta Company acquired 100 percent of the voting common shares of Standard Video Corporation, its bitter rival, by issuing bonds with a par value and fair value of $150,000. Immediately prior to the acquisition, Beta reported total assets of $500,000, liabilities of $280,000, and stockholders' equity of $220,000. At that date, Standard Video reported total assets of $400,000, liabilities of $250,000, and stockholders' equity of $150,000. Included in Standard's liabilities was an account payable to Beta in the amount of $20,000, which Beta included in its accounts receivable.

12.

Required information

Based on the preceding information, what amount of total assets did Beta report in its balance sheet immediately after the acquisition?

$500,000

$650,000

$750,000

$900,000

13.

Required information

Based on the preceding information, what amount of total assets was reported in the consolidated balance sheet immediately after acquisition?

$650,000

$880,000

$920,000

$750,000

14.

Required information

Based on the preceding information, what amount of total liabilities was reported in the consolidated balance sheet immediately after acquisition?

$500,000

$530,000

$280,000

$660,000

15.

Required information

Based on the preceding information, what amount of stockholders' equity was reported in the consolidated balance sheet immediately after acquisition?

$220,000

$150,000

$370,000

$350,000