Question

Complete the requirements of Problem 7-6 using the business activities listed below:
Part I
a. An annual installment of $100,000 due on long-term debt is paid on its due date.
b. Equipment originally costing $12,000 with $7,000 of accumulated depreciation is sold for $4,000 cash.
c. Obsolete inventory costing $75,000 is written down to zero.
d. Treasury stock costing $30,000 is sold for $28,000 cash.
e. A plant is acquired by issuing a $300,000 mortgage payable due in equal installments over six years.
f. The company's 30%-owned unconsolidated subsidiary earns $100,000 and pays dividends of $20,000. The company recorded its 30% share of these items using the equity method.
g. A product is sold for $40,000, to be paid with $10,000 down plus $10,000 each year for three years. Interest at 10% of the outstanding balance is due. Consider only the effect at the time of sale (the company's operating cycle is less than one year).
h. The company uses a periodic inventory method. Certain inventory is mistakenly valued at $1,000-it should have been valued at $10,000. Show the effect of correcting the error.
i. Cash of $400,000 is used to acquire 100% of ZXY Manufacturing Company. At date of acquisition, ZXY has current assets of $300,000 (including $40,000 in cash); plant and equipment of $670,000; current liabilities of $160,000; and long-term debt of $410,000.
j. A provision for bad debt expense of $60,000 is made (calculated as a percentage of sales for the period).
Part II
a. Cash of $120,000 is invested in a 30%-owned company.
b. A 30%-owned subsidiary earns $25,000 (in total) and pays no dividends.
c. A 30%-owned subsidiary earns $30,000 (in total) and pays dividends of $10,000 (in total).
d. Equipment with an original cost of $15,000 and accumulated depreciation of $12,000 is sold for $4,000 cash.
e. The company borrows $60,000 from its banks on November 30 payable on June 30 of next year.
f. Convertible bonds with a face value of $9,000 are converted into 1,000 shares of common stock with a par value of $2 per share.
g. Treasury stock with a cost of $4,000 is sold for $6,000 cash.
h. Common stock (par value $2) with a fair market value of $100,000 plus $100,000 cash are given to acquire 100 percent of ZXY Mfg. Co. At date of acquisition ZXY had current assets of $120,000 (including $40,000 cash); plant and equipment of $180,000; current liabilities of $60,000; and long-term debt of $40,000.
(1) Identify the effect on the parent's statement.
(2) Identify the effect on the consolidated statement.
i. The minority's share of income is $4,000.
j. Inventory with a cost of $80,000 is written down to its market value of $30,000.
k. Accounts receivable for $1,200 are written off. The company uses an allowance for doubtful accounts.
l. A noncancelable lease of equipment for 10 years with a present value of $120,000 is capitalized.
m. A 15% stock dividend is declared. The 60,000 shares of common stock issued to cover the dividend have a par value of $2 per share and a fair market value of $3 per share.
n. A provision of $27,000 for uncollectible accounts is made (calculated as a percentage of sales for the period).



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  • CreatedJanuary 22, 2015
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