On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for $504,000. Birch reported a $510,000 book value and the fair value of the noncontrolling interest was $126,000 on that date. Also, on January 1, 2013, Birch acquired 80 percent of Cedar Company for $160,000 when Cedar had a $164,000 book value and the 20 percent noncontrolling interest was valued at $40,000. In each acquisition, the subsidiary’s excess acquisition-date fair over book value was assigned to a trade name with a 30-year life. These companies report the following financial information. Investment income figures are not included.

On January 1, 2016, Monica Company acquired 80 percent of Young Company’s outstanding common stock for $728,000. The fair value of the noncontrolling interest at the acquisition date was $182,000. 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 $70,000. 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 $38,000. The equipment had originally cost Monica $54,000. Young plans to depreciate these assets over a 5-year period.

In 2018, Young earns a net income of $160,000 and declares and pays $35,000 in cash dividends. These figures increase the subsidiary's Retained Earnings to a $760,000 balance at the end of 2018.

Monica employs the equity method of accounting. Hence, it reports $119,760 investment income for 2018 with an Investment account balance of $921,200. 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.)

1. Prepare Entry *G to recognize upstream intra-entity inventory gross profit deferred from the previous year.

2. Prepare Entry *TA to return the equipment accounts to beginning book value based on historical cost.

3. Prepare Entry *C to adjust the parent retained earnings for the subsidiary's increase in book value.

4. Prepare Entry S to eliminate the stockholders' equity accounts of the subsidiary and recognize the noncontrolling interest.

5. Prepare Entry A to recognize the amount paid within acquisition price for buildings and the franchise agreement.

6. Prepare Entry I to eliminate the intra-entity income accrual.

7. Prepare Entry D to eliminate the intra-entity dividend transfers.

8. Prepare Entry E to remove the intra-entity inventory transfers made during the current year.

9. Prepare Entry TI to defer the intra-entity gross profit on the 2018 intra-entity inventory transfers.

10. Prepare Entry G to defer the intra-entity gross profit on the 2018 intra-entity inventory transfers.

11. Prepare Entry ED to remove the current year depreciation on the transferred item since its historical cost has been fully depreciated.

On January 1, 20X8, Transport Corporation acquired 75 percent interest in Steamship Company for $300,000. Steamship is a Norwegian company. The local currency is the Norwegian kroner (NKr). The acquisition resulted in an excess of cost-over-book value of $25,000 due solely to a patent having a remaining life of 5 years. Transport uses the fully adjusted equity method to account for its investment. Steamship's December 31, 20X8, trial balance has been translated into U.S. dollars, requiring a translation adjustment debit of $8,000. Steamship's net income translated into U.S. dollars is $35,000. It declared and paid an NKr 20,000 dividend on June 1, 20X8. Relevant exchange rates are as follows:

Assume the kroner is the functional currency.

1. Based on the preceding information, in the journal entry to record the receipt of dividend from Steamship,

A. Investment in Steamship Company will be credited for $3,450.
B. Cash will be debited for $3,300.
C. Investment in Steamship Company will be credited for $4,000.
D. Cash will be debited for $3,600.

2. Based on the preceding information, in the journal entry to record parent's share of subsidiary's translation adjustment:

A. Other Comprehensive Income — Translation Adjustment will be debited for $8,000.
B. Other Comprehensive Income — Translation Adjustment will be credited for $6,000.
C. Investment in Steamship Company will be credited for $6,000.
D. Investment in Steamship Company will be debited for $8,000.

3. Based on the preceding information, what amount of translation adjustment is required for increase in differential?

A. $3,000
B. $5,500
C. $4,500
D. $5,000

4. Based on the preceding information, in the journal entry to record the amortization of the patent for 20X8 on the parent's books, Investment in Steamship Company will be debited for:

A. $5,000
B. $5,500
C. $4,500
D. $3,000

Please provide calculations! Thank you!

Diversified Products, Inc., has recently acquired a small publishing company that offers three books for sale—a cookbook, a travel guide, and a handy speller. Each book sells for $11. The publishing company’s most recent monthly income statement is shown below.

The following additional information is available:

1. Only printing costs and sales commissions are variable; all other costs are fixed. The printing costs (which include materials, labor, and variable overhead) are traceable to the three product lines as shown in the income statement above. Sales commissions are 10% of sales.

2. The same equipment is used to produce all three books, so the equipment depreciation cost has been allocated equally among the three product lines. An analysis of the company’s activities indicates that the equipment is used 40% of the time to produce cookbooks, 40% of the time to produce travel guides, and 20% of the time to produce handy spellers.

3. The warehouse is used to store finished units of product, so the rental cost has been allocated to the product lines on the basis of sales dollars. The warehouse rental cost is $3 per square foot per year. The warehouse contains 56,000 square feet of space, of which 10,200 square feet is used by the cookbook line, 27,000 square feet by the travel guide line, and 18,800 square feet by the handy speller line.

4. The general sales cost above includes the salary of the sales manager and other sales costs not traceable to any specific product line. This cost has been allocated to the product lines on the basis of sales dollars.

5. The general administration cost and depreciation of office facilities both relate to administration of the company as a whole. These costs have been allocated equally to the three product lines.

6. All other costs are traceable to the three product lines in the amounts shown on the income statement above.

The management of Diversified Products, Inc., is anxious to improve the publishing company’s 6% return on sales.

Required:

1. Prepare a new contribution format segmented income statement for the month. Adjust allocations of equipment depreciation and of warehouse rent as indicated by the additional information provided.

On January 1, 2016, Monica Company acquired 70 percent of Young Company’s outstanding common stock for $784,000. The fair value of the noncontrolling interest at the acquisition date was $336,000. 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 $59,000. The equipment had originally cost Monica $96,000. Young plans to depreciate these assets over a 5-year period.

In 2018, Young earns a net income of $210,000 and declares and pays $70,000 in cash dividends. These figures increase the subsidiary's Retained Earnings to a $970,000 balance at the end of 2018.

Monica employs the equity method of accounting. Hence, it reports $133,740 investment income for 2018 with an Investment account balance of $899,590. 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.)

Pizza Corporation acquired 80 percent ownership of Slice Products Company on January 1, 20X1, for $151,000. On that date, the fair value of the noncontrolling interest was $37,750, and Slice reported retained earnings of $49,000 and had $92,000 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 $47,750 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 $12,000 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.)

1. Record Pizza Corporation.'s 80% share of Slice Wood Company's 20X5 income.

2. Record Pizza Corporation's 80% share of Slice Company's 20X5 dividend.

3. Record the amortization of the excess acquisition price.

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.)

1. Record basic consolidation entry.

2. Record the amortized excess value reclassification entry.

3. Record the excess value (differential) reclassification entry.

4.  Record the entry to eliminate the intercompany accounts.

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.)

Burke & Company, Inc., a calendar year C-corp that issues audited financial statements, acquired a major piece of production equipment this year at a total cost of $5,200,000. For financial statement purposes, the production equipment will have a salvage value of $200,000, and will depreciate on a straight-line basis over a 10 year life. On Burke & Company’s tax return, the asset will have no salvage value and will be depreciated using MACRS accelerated depreciation rates over 7 years. Assume no election is made to claim §179 or additional first year depreciation and that the applicable tax depreciation rate for 7 year assets in the first year of use is 0.1429. Further assume there are no other book tax differences in the current or any prior year.

a) Will the tax adjustment account on Burke & Company’s financial statement be a Deferred Tax Asset or Deferent Tax Liability?

b) Assuming the applicable federal tax rate is 21%, calculate the Deferred Tax Asset or Deferred Tax Liability balance as of the last day of the year?

On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $504,000. Birch reported a $510,000 book value and the fair value of the noncontrolling interest was $126,000 on that date. Then, on January 1, 2017, Birch acquired 80 percent of Cedar Company for $160,000 when Cedar had a $164,000 book value and the 20 percent noncontrolling interest was valued at $40,000. In each acquisition, the subsidiary's excess acquisition-date fair over book value was assigned to a trade name with a 30-year remaining life.

These companies report the following financial information. Investment income figures are not included.   

Assume that each of the following questions is independent:

A.If all companies use the equity method for internal reporting purposes, what is the December 31, 2017, balance in Aspen's Investment in Birch Company account?

B.What is the consolidated net income for this business combination for 2018?

C.What is the net income attributable to the noncontrolling interest in 2018?

D.Assume that Birch made intra-entity inventory transfers to Aspen that have resulted in the following intra-entity gross profits in inventory at the end of each year:

What is the accrual-based net income of Birch in 2017 and 2018, respectively?

P2. On January 1, 20X4, Plimsol Company acquired 100 percent of Shipping Corporation's voting shares, at underlying book value. Plimsol accounts for its investment in Shipping at cost. Shipping's retained earnings was $75,000 on the date of acquisition. On December 31, 20X4, the trial balance data for the two companies are as follows:

Required:

1. what amount of net income will be reported in the consolidated financial statements prepared on December 31, 20X4?

2.what amount of total assets will be reported in the consolidated balance sheet prepared on December 31, 20X4?

3. what amount of retained earnings will be reported in the consolidated balance sheet prepared on December 31, 20X4?

4. what amount of total liabilities will be reported in the consolidated balance sheet prepared on December 31, 20X4?

5. what amount of total stockholders' equity will be reported in the consolidated balance sheet prepared on December 31, 20X4?