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fundamentals of advanced accounting

Advanced Accounting 9th Edition Joe Ben Hoyle, Timothy S. Doupnik, Thomas F. Schaefer, Oe Ben Hoyle - Solutions

On January 1, 2008, Stream Company acquired 30 percent of the outstanding voting shares of Q-Video, Inc., for $770,000. Q-Video manufactures specialty cables for computer monitors. On that date,
On January 1, 2007, Plano Company acquired 8 percent (16,000 shares) of the outstanding voting shares ofthe Sumter Company for $ 192.000, an amount equal to Sumter’s underlying book and fair value.
On July 1, 2007, Gibson Company acquired 75,000 of the outstanding shares of Miller Company for $12 per share. This acquisition gave Gibson a 35 percent ownership of Miller and allowed Gibson to
Penston Company owns 40 percent (40,000 shares) of Scranton, Inc., which it purchased several years ago for $ 182,000. Since the date of acquisition, the equity method has been properly applied, and
Hobson acquires 40 percent of the outstanding voting stock of Stokes Company on January 1,2008, for $210,000 in cash. The book value of Stokes’s net assets on that date was $400,000, although one
Smith purchased 5 percent of Barker’s outstanding stock on October 1, 2007, for S7,475 and ac¬ quired an additional 10 percent of Barker for $14,900 on July 1, 2008. Both ofthese purchases were
Anderson acquires 10 percent of the outstanding voting shares of Barringer on January 1,2007, for $92,000 and categorizes the investment as an available-for-sale security. An additional 20 percent of
On January 1, 2008, Ace acquires 15 percent of Zach’s outstanding common stock for $52,000 and classifies the investment as an available-for-sale security. On January 1, 2009, Ace buys an addi¬
Russell owns 30 percent of the outstanding stock of Thacker and has the ability to significantly influence the investee’s operations and decision making. On January 1, 2009, the balance in the
Parrot Corporation holds a 42 percent ownership of Sunrise, Inc. The equity method is being applied. No goodwill or other allocation occurred in the purchase of this investment. During 2008, the two
Collins, Inc., purchased 10 percent of Merton Corporation on January 1, 2008, for $345,000 and classified the investment as an available-for-sale security. Collins acquires an additional 15 percent
On January 1, 2007, Monroe, Inc., purchased 10,000 shares of Brown Company for $250,000, giv¬ ing Monroe 10 percent ownership of Brown. On January 1,2008, Monroe purchased an additional 20,000
Hager holds 30 percent of the outstanding shares of Jenkins and appropriately applies the equity method of accounting. Excess cost amortization (related to a patent) associated with this investment
Tiberand, Inc., sold $150,000 in inventory to Schilling Company during 2008 for $225,000. Schilling resold $105,000 of this merchandise in 2008 with the remainder to be disposed of during 2009.
Waters, Inc., acquired 10 percent of Denton Corporation on January 1, 2008, for $210,000 although Denton’s book value on that date was $1,700,000. Denton held land that was undervalued by$100,000
On January 1, 2009, Ruark Corporation acquired a 40 percent interest in Batson, Inc., for $210,000. On that date, Batson’s balance sheet disclosed net assets of $360,000. During 2009, Batson
On January 1, 2008, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corporation. This investee had assets with a book value of $200,000 and liabilities of $75,000. A patent held by
On January 3, 2009, Haskins Corporation acquired 40 percent of the outstanding common stock of Clem Company for $990,000. This acquisition gave Haskins the ability to exercise significant in¬
Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2008, for $530,000. The equity method of accounting is to be used. Steinbart’s net assets on that date were $1.2 million. Any excess
Perez, Inc., applies the equity method for its 25 percent investment in Senior, Inc. During 2009, Perez sold goods with a 40 percent gross profit to Senior. Senior sold all of these goods in 2009.
Goldman Company reports net income of $ 140,000 each year and pays an annual cash dividend of $50,000. The company holds net assets of $1,200,000 on January 1, 2008. On that date, Wallace purchases
In January 2008, Wilkinson, Inc., acquired 20 percent of the outstanding common stock of Bremm, Inc., for $700,000. This investment gave Wilkinson the ability to exercise significant influence over
Sisk Company has owned 10 percent of Maust, Inc., for the past several years. This ownership did not allow Sisk to have significant influence over Maust. Recently, Sisk acquired an additional 30
Which ofthe following does not indicate an investor company’s ability to significantly influence an investee?a. Material intercompany transactions.b. The investor owns 30 percent of the investee
When an investor uses the equity method to account for investments in common stock, cash divi¬ dends received by the investor from the investee should be recorded asa. A deduction from the
How are intercompany transfers reported in an investee’s separate financial statements if the investor is using the equity method?
How is the unrealized gross profit on intercompany sales calculated? What effect does an unrealized gross profit have on the recording of an investment if the equity method is applied?
What is the FASB's fair-value option in accounting for equity investments? What incentives will firms have to use the fair-value option instead of the equity method?
What financial reporting incentives could exist for managers to maintain a firm's equity investments at 50 percent of an investee's voting stock or less?
At what point should profits be recog¬ nized on inventory that is transferred between related parties?
In recognizing income from investments on the accrual basis, how is the cost of the investment matched against the revenue from the investment?
One corporation buys equity shares of another company. What methods are available to account for this investment and the income it generates? When is each method appropriate?
Why do corporations invest in other corporations?
n Januarv 1» Prine, Inc., acquired 100 percent of Lydia Company’s common stock for a fair value of $120,000,000 in cash and stock. Lydia’s assets and liabilities equaled their fair values except
On January 1,2009, Picante Corporation acquired 100 percent of the outstanding voting stock of Salsa Corporation for $1,765,000 cash. On the acquisition date, Salsa had the following balance
Tyler Company acquired all of Jasmine Company’s outstanding stock on January 1, 2009, for $206,000 in cash. Jasmine had a book value of only $140,000 on that date. However, equipment (having an
Palm Company acquired 100 percent of Storm Company’s voting stock on January 1, 2009, by issu¬ ing 10,000 shares of its $10 par value common stock (having a fair value of $14 per share). As ofthat
Branson paid $465,000 cash for all of the outstanding common stock of Wolfpack, Inc., on January 1,2009. On that date, the subsidiary had a book value of $340,000 (common stock of $200,000 and
On January 1, 2009, Peterson Corporation exchanged $ 1,090,000 fair-value consideration for all of the outstanding voting stock of Santiago, Inc. At the acquisition date, Santiago had a book value
Following are selected accounts for Mergaronite Company and Hill, Inc., as of December 31, 2013. Several ot Mergaronite s accounts have been omitted. Credit balances are indicated by
Giant acquired all of Small’s common stock on January 1, 2009. Over the next few years, Giant applied the equity method to the recording of this investment. At the date of the original acquisition,
Following are separate financial statements of Michael Company and Aaron Company as of December 31,2013 (credit balances indicated by parentheses). Michael acquired all ofAaron’s out¬ standing
Patrick Corporation acquired 100% of O’Brien Company’s outstanding common stock on January 1, for $550,000 in cash. O’Brien reported net assets of $350,000 at that time. Some of O’Brien’s
Foxx Corporation acquired all of Greenburg Company’s outstanding stock on January 1, 2009, for $600,000 cash. Greenburg had net assets on that date of $470,000, although equipment with a 10-year
Following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2010:Penske Stanza LO1 Revenues.. . $(700,000) $(400,000)Cost of goods sold.. 250,000 100,000
Jefferson, Inc., acquires Hamilton Corporation on January 1, 2009, in exchange for $510,000 cash. Immediately after the acquisition, the two companies have the following account balances. Hamil¬
Assume that Chapman Company acquired Abemethy’s common stock by paying $520,000 in cash. All ofAbernethy accounts are estimated to have a value approximately equal to present book values. Chapman
Assume that Chapman Company acquired Abemethy’s common stock for $500,000 in cash. Assume that the equipment and long-term liabilities had fair values of $220,000 and $120,000, respectively, on
Assume that Chapman Company acquired Abemethy’s common stock for $490,000 in cash. As of January 1, 2009, Abernethy’s land had a fair value of $90,000, its buildings were valued at $ 160,000, and
Destin Company recently acquired several businesses and recognized goodwill in each acquisition. In accordance with SEAS 142, Destin has allocated the resulting goodwill to its three reporting units:
Acme Co., a consolidated enterprise, conducted an impairment review for each ofits reporting units. One particular reporting unit, Martel, emerged as a candidate for possible goodwill impairment.
Francisco Inc. acquired 100 percent ofthe outstanding voting shares ofBeltran Company on January 1, 2009. To obtain these shares, Francisco payed $450,000 in cash and issued 104,000 shares of its own
Haynes, Inc., obtained 100 percent ofTurner Company’s common stock on January 1, 2009, by issu¬ ing 9,000 shares of $ 10 par value common stock. Haynes’s shares had a $ 15 per share fair value.
Herbert, Inc,, acquired all ofRambis Company’s outstanding stock on January 1, 2009, for $574,000 in cash. Annual excess amortization of $12,000 results from this transaction. On the date of the
Treadway Corporation acquires Hooker, Inc., on January 1, 2010. The parent pays more for it than the fair value ofthe subsidiary’s net assets. On that date, Treadway has equipment with a book value
What is push-down accounting? LO1a. A requirement that a subsidiary must use the same accounting principles as a parent company.b. Inventory transfers made from a parent company to a subsidiary.c. A
Lauren Corporation acquired Sarah, Ine., on January 1, 2009, by issuing 13,000 shares of common stock with a $10 per share par value and a $23 market value. This transaction resulted in recording
Dosmann, Inc., bought all outstanding shares of Lizzi Corporation on January 1,2009, for $700,000 in cash. This portion of the consideration transferred results in a fair-value allocation of $35,000
According to SFAS 142, “Goodwill and Other Intangible Assets,” if no legal, regulatory, contractual, competitive, economic, or other factors limit the life ofan intangible asset, the asset’s
According to SFAS 142, “Goodwill and Other Intangible Assets,” goodwill must be allocated among a firm s identified reporting units. If the fair value of a particular reporting unit with
How would the answer to problem (4) have been affected if the parent had applied the initial value method rather than the partial equity method? LO1a. No effect: The method the parent uses is for
Willkom Corporation bought 100 percent of Szabo, Inc., on January 1, 2009, at a price in excess ot the subsidiary s fair value. On that date, Willkom’s equipment (10-year life) has a book value of
When should a consolidated entity recognize a goodwill impairment loss? LO1a. If both the market value of a reporting unit and its associated implied goodwill fall below their respective carrying
A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the equity
A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the initial value
Why has push-down accounting gained popularity' for internal reporting purposes? LO1
How are the individual financial records of both the parent and the subsidiary affected when push¬ down accounting is being applied? LO1
When is the use of push-down accounting required, and what is the rationale for its application? LO1
Remo Company acquires Albane Corporation on January 1,2009. As part ofthe agreement, the par¬ ent states that an additional $ 100,000 payment to the former owners ofAlbane could be required in 2010,
When should a parent consider recognizing an impairment loss for goodwill associated with a sub¬ sidiary? How should the loss be reported in the financial statements? LO1
One company acquired another in transaction in which $100,000 of the acquisition price is assigned to goodwill. Several years later, a worksheet is being produced to consolidate these two companies.
Benns adopts the equity method for its 100 percent investment in Waters. At the end of six years, Benns reports an investment in Waters of $920,000. What figures constitute this balance? LO1
Several years ago, Jenkins Company acquired a controlling interest in Lambert Company. Lambert recently borrowed $100,000 from Jenkins. In consolidating the financial records of these two com¬
When a parent company is applying the initial value method or the partial equity method to an invest¬ ment, an adjustment must be made to the parent’s beginning Retained Earnings account (Entry
When a parent company uses the equity method to account for investment in a subsidiary, the amor¬ tization expense entry recorded during the year is eliminated on a consolidation worksheet as a
When a parent company uses the equity method to account for an investment in a subsidiary, why do both the parent’s Net Income and Retained Earnings Account balances agree with the consolidated
Maguire Company obtains 100 percent control over Williams Company in 2009. Several years after the takeover, consolidated financial statements are being produced. For each of the following accounts,
CCES Corporation acquires a controlling interest in Schmaling, Inc. CCES may utilize any one of three methods to internally account for this investment. Describe each ofthese methods, and indicate
Should a subsidiary company report on its financial statements the fair-value allocations and later amortization that result from the parent's recognition of its acquisition-date fair values? LO1
If the acquisition-date subsidiary valua¬ tion is based on a future event, what effect does this contingency have on the consolidation process? LO1
How are amortizations of acquisition- date fair-value allocations recognized within consolidated financial statements? LO1
How do firms determine when and whether goodwill is impaired? How are goodwill impairment losses recognized in consolidated financial statements? LO1
Why did the FASB decide that goodwill amortization should not be allowed and that instead goodwill should be periodically tested for impairment? LO1
Why do intercompany balances exist within the financial records of the sepa¬ rate companies? How are these recipro¬ cals eliminated on a consolidation worksheet? LO1
What impact does the parent's method of accounting for a subsidiary have on subsequent consolidations? LO1
How does a parent company account for a subsidiary organization in the years that follow the creation of a busi¬ ness combination? LO1
On January 1,2009, Parkway, Inc., issued securities with a total fair value of$450,000 for 100 percent of Skyline Corporation’s outstanding ownership shares. Skyline has long supplied inventory to
The individual financial statements for Gibson Company and Keller Company for the year ending December 31, 2010, follow. Gibson acquired a 60 percent interest in Keller on January 1, 2009, in
Assume the same basic information as presented in problem 33 except that Monica employs the equity method of accounting. Hence, it reports $102,740 investment income for 2011 with an Investment
On January 1, 2009, Monica Company acquired 70 percent ofYoung Company’s outstanding com¬ mon stock for $665,000. The fair value of the noncontrolling interest at the acquisition date was
On January 1, 2009, Plymouth Corporation acquired 80 percent of the outstanding voting stock of Sander Company in exchange for $1,200,000 cash. At that time, although Sander’s book value was
The individual financial statements for these two companies as of December 31, 2010, and the year then ended follow: LO8 Woods, Inc.Scott, Inc.Sales.. $ (700,000)$(335,000)Cost of goodssold.. 460,000
Woods, Inc., and Scott, Inc., formed a business combination on January 1, 2009, when Woods acquired a 60 percent interest in Scott’s common stock for $372,000. Scott’s book value on that day was
Following are financial statements for Moore Company and Kirby Company for 2010:Sales. LO8 Moore$Kirby rp;nn nnn\Cost of goods sold .\OUU,UUU/400,000 Operating and interest expense. 100,000 160,000
Compute the balances in problem 28 again, assuming that all intercompany transfers were made from Broadway to Benson. LO8
Benson acquired 70 percent of Broadway on June 30, 2009. Based on Broadway’s acquisition-date fair value, an intangible of $300,000 was recognized and is being amortized at the rate of $10,000 per
Pitino acquired 90 percent of Brey’s outstanding shares on January 1, 2009, in exchange for $342,000 in cash. The subsidiary’s stockholders’ equity accounts totaled $326,000 and the noncon¬
On January 1, 2011, Sledge had common stock of $120,000 and retained earnings of $260,000. During that year, Sledge reported sales of $130,000, cost of goods sold of $70,000, and operating expenses
Anchovy acquired 90 percent ofYelton on January 1, 2009. Of Yelton’s total acquisition-date fair value, $60,000 was allocated to undervalued equipment (with a 10-year life) and $80,000 was
On January 1, 2009, Slaughter sold equipment to Bennett (a wholly owned subsidiary) for $ 120,000 in cash. The equipment had originally cost $100,000 but had a book value of only $70,000 when

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