Q#9

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.

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?

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?

Please show your calculations, thanks.

Prime Corporation acquired 100 percent ownership of Steak Products Company on January 1, 20X1, for $250,000. On that date, Steak reported retained earnings of $70,000 and had $110,000 of common stock outstanding. Prime has used the equity-method in accounting for its investment in Steak.

The trial balances for the two companies on December 31, 20X5, appear below.

Additional Information:

1. On the date of combination (five years ago), the fair value of Steak’s depreciable assets was $70,000 more than the book value. Accumulated depreciation at that date was $10,000. The differential assigned to depreciable assets should be written off over the following 10-year period.
2. There was $20,000 of intercorporate receivables and payables at the end of 20X5.

Prepare all journal entries that Prime recorded during 20X5 related to its investment in Steak.

1A.Record Prime Corp's share of Steak Products' 20X5 income.

2B. Record Prime Corp's share of Steak Products' 20X5 dividend.

3C. Record the amortization of the excess acquisition price.

Prime Company holds 80 percent of Suspect Company’s stock, acquired on January 1, 20X2, for $182,000. On the acquisition date, the fair value of the noncontrolling interest was $45,500. Suspect reported retained earnings of $50,000 and had $100,000 of common stock outstanding. Prime uses the fully adjusted equity method in accounting for its investment in Suspect.

Trial balance data for the two companies on December 31, 20X6, are as follows:

Additional Information

1. At the date of combination, the book values and fair values of all separately identifiable assets and liabilities of Suspect were the same. At December 31, 20X6, the management of Prime reviewed the amount attributed to goodwill as a result of its purchase of Suspect stock and concluded an impairment loss of $20,475 should be recognized in 20X6 and shared proportionately between the controlling and noncontrolling shareholders.
2. On January 1, 20X5, Suspect sold land that had cost $8,000 to Prime for $18,000.
3. On January 1, 20X6, Prime sold to Suspect equipment that it had purchased for $82,500 on January 1, 20X1. The equipment has a total economic life of 15 years and was sold to Suspect for $71,000. Both companies use straight-line depreciation.
4. There was $4,000 of intercompany receivables and payables on December 31, 20X6.

Required:
a. Give all consolidation entries needed to prepare a consolidation worksheet for 20X6. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. Prepare a three-part worksheet for 20X6. (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.)

c. Prepare a consolidated balance sheet, income statement, and retained earnings statement for 20X6. (Be sure to list the assets and liabilities in order of their liquidity. Amount to be deducted should be indicated by a minus sign.)
  

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.

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

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, 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.

Parent Company acquired 25% of Son Inc. on January 1, 20X5 for $420,000. Son reported earning of $82,000 and declared dividends of $4,000 during 20X5, Parent determined the fair value of its shares in Son to be $450,000 at December 31, 20X5.

Based on the preceding information prepare the journal entries for 20X5 Parent will make to account for its investment in Son, if Parent uses the cost method of accounting for this investment.

Based on the preceding information prepare the journal entries for 20X5 Parent will make to account for its investment in Son, if Parent uses the equity method of accounting for this investment.

Based on the preceding information prepare the journal entries for 20X5 Parent will make to account for its investment in Son, if Parent uses the fair value method of accounting for this investment.

Consolidation several years subsequent to date of acquisition—Equity method
Assume a parent company acquired a subsidiary on January 1, 2017. The purchase price was $820,000 in excess of the subsidiary’s book value of Stockholders’ Equity on the acquisition date, and that excess was assigned to the following [A] assets:

The [A] assets with definite useful lives have been depreciated or amortized as part of the parent’s preconsolidation equity method accounting. The Goodwill asset has been tested annually for impairment, and has not been found to be impaired. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, are as follows:

a. Compute the Equity Investment balance as of January 1, 2019.

$Answer

b. Show the computation to yield the $120,000 equity income reported by the parent for the year ended December 31, 2019.

Do not use negative signs with your answers.

c. Show the computation to yield the $1,800,000 Equity Investment account balance reported by the parent at December 31, 2019.

Do not use negative signs with your answers.

d. Prepare the consolidation entries for the year ended December 31, 2019.

e. Prepare the consolidated spreadsheet for the year ended December 31, 2019.

Use negative signs with answers in the Consolidated column for Cost of goods sold, Operating expenses and Dividends.

*This was the problem as is given to me :(

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.

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 $13. 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 30% of the time to produce cookbooks, 50% 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 50,400 square feet of space, of which 7,800 square feet is used by the cookbook line, 24,600 square feet by the travel guide line, and 18,000 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.

2. Based on the segmented income statements given in the problem, management plans to eliminate the cookbook because it is not returning a profit, and to focus all available resources on promoting the travel guide. However, based on the new contribution format segmented income statement that you prepared:

a. Do you agree with management's plan to eliminate the cookbook?

b-1. Compute the contribution margin ratio for each product.

b-2. Based on the statement you have prepared, do you agree with the decision to focus all available resources on promoting the travel guide?