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modern advanced accounting
Advanced Accounting 13th Global Edition Joseph H. Anthony, Bruce Bettinghaus, Floyd A. Beams, Kenneth Smith - Solutions
P9-2 Prepare journal entries, computations, and a financial position summary (unrealized profits)A summary of the assets and equities of Pot Corporation and its 80 percent–owned subsidiary, Sea Corporation, at December 31, 2016, is given as follows (in thousands):Pot Sea Assets $3,200 $1,400
P9-1 Indirect Holdings—Income Allocation Schedule The affiliation structure of Polly Ltd. and its subsidiaries is as follows:70%50%80%30%10%Jolly Sally Wally Polly The incomes and dividends of the affiliates in 2014 are as follows (in thousands):Polly Sally Jolly Wally Separate income $450 $250
2. Compute controlling and noncontrolling interest shares of consolidated net income if the conventional approach is used for Sat’s investment in Pug. Also determine the amount of Pug’s income from Sat and the balance in Pug’s Investment in Sat account at December 31, 2016.Indirect and Mutual
1. Determine the balance of Pug’s Investment in Sat account on December 31, 2016, if the treasury stock approach is used for Sat’s investment in Pug.
E 9-13 Computations (treasury stock and conventional)Pug Corporation acquired a 70 percent interest in Sat Corporation for $238,000 on January 2, 2015, when Sat’s equity consisted of $200,000 capital stock and $50,000 retained earnings. The excess is due to a patent amortized over a 10-year
2. If the conventional approach is used, Pet’s income on a consolidated basis is denoted P = $100,000 + $0.9S and Sod’s income on a consolidated basis is denoted S = $60,000 + 0.15P. Given these equations, the controlling share of consolidated net income is equal to:a P b 0.85P c P 0.1S d P
1. If the treasury stock approach is used, Pet’s income and controlling share of consolidated net income for 2016 will be computed:a $100,000 (90% • $60,000)b $100,000 (90% • $67,500)c $100,000 (90% • $67,500) (90% • $30,000)d ($100,000 $60,000) (10% • $67,500)
Pet Corporation owns 90 percent of Sod Corporation’s common stock and Sod owns 15 percent of Pet, both acquired at fair value equal to book value. Separate incomes and dividends of the affiliates for 2016 are as follows:Separate Incomes Dividends Pet Corporation $100,000 $50,000 Sod Corporation
4. Son’s noncontrolling interest share of consolidated income is:a $34,316 b $25,500 c $45,755 d $30,675 E 9-12 Mutually held parent stock
3. Tin’s noncontrolling interest share of consolidated income is:a 0.15(230,000)b 230,000 0.25A c 0.15(230,000) 0.25A d 0.15C
2. The equation, in a set of simultaneous equations, that computes B is:a B • 170,000 0.15C 0.75A b B • 170,000 0.15C c B • 0.2(170,000) 0.15(230,000)d B • 0.2(170,000) 0.15C
1. The equation, in a set of simultaneous equations, that computes A is:a A • 0.75(190,000 0.8B 0.7C)b A • 190,000 0.8B 0.7C c A • 0.75(190,000) 0.8(170,000) 0.7(230,000)d A • 0.75(190,000) 0.8B 0.7C
The following notations relate to the following questions:A = Pin’s consolidated income - its separate income plus its share of the consolidated incomes of Son and Tin B = Son’s consolidated income - its separate income plus its share of the consolidated income of Tin C = Tin’s consolidated
E 9-11[Based on AICPA] Mutually held parent-company stock Pin, Inc., owns 80 percent of the capital stock of Son Company and 70 percent of the capital stock of Tin, Inc. Son owns 15 percent of the capital stock of Tin. Tin owns 25 percent of the capital stock of Pin. These ownership
E 9-10 Prepare computations (subsidiary stock mutually held, no unrealized profits)Intercompany investment percentages and 2016 earnings for three affiliates are as follows:Percentage Interest in Sad Percentage Interest in Two Separate Earnings Pad Corporation 70% — $400,000 Sad Corporation —
E 9-9 Calculate consolidated net income (conventional method, no complications)Pan Corporation owns an 80 percent interest in Sol Company and Sol owns a 30 percent interest in Pan, both acquired at a fair value equal to book value. Separate incomes (not including investment income) of the two
E 9-8 Calculating net income, noncontrolling interest share, and controlling interest share with unrealized profits The affiliation structure for Parang Corporation and Subsidiaries is as follows:Parang 80%Sangkur Keris 60%The investments were acquired at fair value equal to book value in 2016.
E 9-7 Calculation of controlling share, noncontrolling share, and effect on investment The affiliation structure for a group of interrelated companies is diagrammed as follows:60%70%70%90% 60%Hachi Company Nana Company Ichi Company San Company Roku Company Kyu Company The investments were acquired
E 9-6 Calculate controlling interest share and noncontrolling interest share of consolidated net income Pet Company owns 90 percent of the stock of Man Corporation and 70 percent of the stock of Nun Company. Man owns 70 percent of the stock of Oak Corporation and 10 percent of the stock of Nun
E 9-5 Prepare income allocation schedule Pal Corporation owns 80 percent each of the voting common stock of Sal and Tea Corporations. Sal owns 60 percent of the voting common stock of Won Corporation and 10 percent of the voting stock of Tea. Tea owns 70 percent of the voting stock of Val and 10
E 9-4 Determine equation to compute income from subsidiary, controlling share, and noncontrolling interest share The affiliation structure of Putra Corporation and its subsidiaries is as follows:Putra 80%60%20%Sora Touma Separate incomes of Putra, Sora, and Touma Corporations are A, B, and C,
E 9-3 Mutual holdings—Treasury stock approach and conventional approach Penn AG acquired an 80 percent interest in Sinn AG on January 1, 2013, for $250,000, when Sinn’s common stock was at $200,000 and retained earnings at $80,000. Sinn AG, in turn, purchased a 10 percent interest in Penn AG
E 9-2 Income allocation schedule Magadha Corporation owns a 75 percent interest in Shiva Corporation and a 90 percent interest in Bhima Corporation.Bhima, in turn, owns a 25 percent interest in Shiva. Separate income and loss data for the three affiliates for 2016 are as follows:Magadha $1,200,000
E 9-1 Calculation of indirect holdings ownership Pandu Tbk acquired a 90 percent interest in Sunda Tbk on January 1, 2012, when the book value of its net assets was the same as fair value. On January 1, 2013, Sunda Tbk acquired a 60 percent interest in Dewa Tbk, when the book value of its net
15. If companies in an affiliation structure account for investments on an equity basis, how can noncontrolling interests be determined without the use of simultaneous equations?
14. How do consolidation procedures for mutual holdings involving the father-son-grandson type of affiliation structure differ from those for mutually held parent stock?
13. P’s separate earnings are $100,000, and S’s separate earnings are $40,000. P owns an 80 percent interest in S, and S owns a 10 percent interest in P. What is the controlling share of consolidated net income?
12. Describe the concept of a constructive retirement of parent stock. Should the parent adjust its equity accounts when its stock is constructively retired?
11. Under the treasury stock approach, a mutually held subsidiary accounts for its investment in the parent on a cost basis. Are dividends received by the subsidiary from the parent included in investment income of the parent under the equity method?
10. Are the treasury stock and conventional approaches equally applicable to all mutual holdings? Explain.
9. How does a treasury stock differ from the conventional approach for mutual holdings? Which type of accounts in particular show these differences?
8. If a parent owns 80 percent of the voting stock of a subsidiary, and the subsidiary in turn owns 20 percent of the stock of the parent, what kind of affiliation structure is involved? Explain.
7. P owns 80 percent of S1, and S1 owns 70 percent of S2. Separate incomes of P, S1, and S2 are $20,000,$10,000, and $5,000, respectively, for 2016. During 2016, S1 sold land to P at a gain of $1,000. Compute S1’s income on an equity basis. Discuss why you did or did not adjust S1’s investment
6. In using the schedule approach for allocating income of subsidiaries to controlling and noncontrolling stockholders in an indirect holding affiliation structure, why is it necessary to begin with the lowest subsidiary in the affiliation tier?
5. Pat Corporation owns 80 percent of the stock of Sam Corporation, and Sam owns 70 percent of the stock of Stan Corporation. Separate earnings of Pat, Sam, and Stan are $200,000, $160,000, and $100,000, respectively. Compute controlling and noncontrolling interest shares of consolidated net income
4. Parent Company owns 70 percent of the voting stock of Subsidiary A, and Subsidiary A owns 70 percent of the stock of Subsidiary B. Is the inside ownership of Subsidiary B more than 50 percent? Should Subsidiary B be included in the consolidated statements? Explain.
3. Distinguish between indirect holding affiliation structures and mutual holding affiliation structures.
2. What are the types of indirect holding ownership structures? Explain with examples.
1. Differentiate between direct and indirect holdings. Are there any differences between the accounting methods used for these two?
Company S is an 80%-owned subsidiary of Company P. Company S needed to borrow$500,000 on January 1, 20X1. The best interest rate it could secure was 10% annual. Company P has a better credit rating and decided to borrow the funds needed from a bank at 8%annual and then loaned the money to Company S
Company S is a 70%-owned subsidiary of Company P. Company S is building a ship to be used by Company P. The ship was 40% completed in 20X1 and 100% completed in 20X2.The actual and budgeted profit on the ship was $100,000. Company S uses the percentageof-completion method for its long-term
On January 1, 20X1, Company P sold a machine to its 70%-owned subsidiary, Company S, for $60,000. The book value of the machine was $40,000. The machine was depreciated straight-line, over 5 years. On December 31, 20X3, Company S sold the machine to a nonaffiliated firm for $35,000. On the
Subsidiary Company S is 80% owned by Company P. Company S sold a machine with a book value of $100,000 to Company P for $150,000. The asset has a 5-year life and is depreciated under the straight-line method. The president of Company S thinks it has scored a$50,000 immediate profit for the
Company S is 80% owned by Company P. Near the end of 20X1, Company S sold merchandise with a cost of $4,000 to Company P for $6,000. Company P sold the merchandise to a nonaffiliated firm in 20X2 for $10,000. How much total profit should be recorded on the consolidated income statements in 20X1 and
During 20X1, Company P sold $40,000 of goods to subsidiary Company S at a profit of$10,000. One-fourth of the goods remain unsold at year-end. What specific procedures are needed on the consolidated worksheet to deal with these issues?AppendixLO1
During 20X1, Company P sold $40,000 of goods to subsidiary Company S at a profit of$10,000. One-fourth of the goods remain unsold at year-end. If there were no adjustments made on the consolidated worksheet, what would be incorrect on the consolidated income statement and balance sheet?AppendixLO1
(Appendix) Apply intercompany profit eliminations on a vertical worksheet.AppendixLO1
Discuss the complications intercompany profits create for the use of the sophisticated equity method.AppendixLO1
Eliminate intercompany loans and notes.AppendixLO1
Demonstrate an understanding of the profit deferral issues for intercompany sales of assets under long-term construction contracts.AppendixLO1
Defer profits on intercompany sales of long-term assets and realize the profits over the period of use and/or at the time of sale to a firm outside the consolidated group.AppendixLO1
Defer intercompany profits on merchandise sales when appropriate and eliminate the double counting of sales between affiliates.AppendixLO1
Explain why transactions between members of a consolidated firm should not be reflected in the consolidated financial statements.AppendixLO1
PR 4-2 Firms adopting the direct method to prepare the statement of cash flows often include a reconciliation of net income to net cash flows from operating activities.Is this required, and, if so, how should it be presented?
PR 4-1 In preparing a consolidated statement of cash flows, is a firm required to disclose cash flow per share?
P4-20(Appendix B) Consolidated financial statements (cost method)Pop Company paid $88,000 for an 80% interest in Son Company on January 5, 2016, when Son’s capital stock was $60,000 and its retained earnings $40,000. Trial balances for the companies at December 31, 2016, are as follows (in
P4-19 Prepare consolidated statement of cash flows using either the direct or indirect method Comparative consolidated financial statements for Pam Corporation and its 80 percent–owned subsidiary at and for the years ended December 31 are summarized as follows:PAM CORPORATION AND SUBSIDIARY
P4-18[Based on AICPA] Prepare consolidated statement of cash flows The consolidated workpaper balances of Pop, Inc., and its subsidiary, Son Corporation, as of December 31 are as follows (in thousands):2016 2015 Net Change Increase (Decrease)Assets Cash $ 313 $ 195 $118 Marketable equity securities
P4-17 Prepare consolidated statement of cash flows using the direct method or indirect method Comparative consolidated financial statements for Pam Corporation and its 90 percent–owned subsidiary, Sun Corporation, at and for the years ended December 31 are as follows:PAM CORPORATION AND
P4-16 Prepare cash flows from operating activities section (direct method)The accountant for Pop Corporation collected the following information that he thought might be useful in the preparation of the company’s consolidated statement of cash flows (in thousands):Cash paid for purchase of
P4-15[Appendix A] Trial balance workpapers and financial statements in year of acquisition Pam Corporation owns 90 percent of the voting stock of Sun Corporation and 25 percent of the voting stock of Ell Corporation.The 90 percent interest in Sun was acquired for $36,000 cash on January 1, 2016,
P4-14[Appendix A] Investment account analysis and trial balance workpapers Pop Company paid $198,000 for a 90 percent interest in Son on January 5, 2016, when Son’s capital stock was $120,000 and its retained earnings $40,000. Trial balances for the companies at December 31, 2019, are as follows
P4-13[Appendix A] Workpapers for two successive years (equity method misapplied in second year)Comparative adjusted trial balances for Pam Corporation and Sun Corporation are given here. Pam Corporation acquired an 80 percent interest in Sun Corporation on January 1, 2016, for $80,000 cash. Except
4. Financial statements for Pop and Son Corporations for 2017 follow (in thousands):Pop Son Statements of Income and Retained Earnings for the Year Ended December 31 Sales $ 900 $300 Income from Son 38 —Cost of sales (600) (150)Operating expenses (190) (90)Net Income 148 60 Add: Retained earnings
3. A $10,000 dividend was declared by Son on December 30, 2017, but was not recorded by Pop.
2. Son mailed its check for $20,000 to Pop on December 30, 2017, in settlement of the advance.
1. Pop’s account receivable includes $5,000 owed by Son.
P4-12 Workpapers (two years after acquisition, fair value/book differentials, adjustments)Pop Corporation acquired an 80 percent interest in Son Corporation for $240,000 on January 1, 2016, when Son’s stockholders’ equity consisted of $200,000 capital stock and $25,000 retained earnings. The
3. Half of Sun’s 2020 dividends will be paid in January 2021.REQuIRED: Prepare workpapers to consolidate the balance sheets only of Pam and Sun Corporations at December 31, 2020.
2. Pam advanced $25,000 to Sun during 2018. This advance is still outstanding.
1. The accounts payable of Sun at December 31, 2020, include $5,000 owed to Pam.
P4-11 Balance sheet (four years after acquisition, fair value/book value differentials)Pam Corporation paid $170,000 for an 80 percent interest in Sun Corporation on December 31, 2016, when Sun’s stockholders’ equity consisted of $100,000 capital stock and $50,000 retained earnings.A summary of
P4-10 Workpapers (year of acquisition, fair value/book value differentials, intercompany balances)Pop Corporation acquired 80 percent of Son Corporation’s common stock on January 1, 2016, for$420,000 cash. The stockholders’ equity of Son at this time consisted of $300,000 capital stock
P4-9 Workpapers (year of acquisition, excess recorded for inventory, equipment and patents, intercompany transactions)Pam Corporation acquired 80 percent of Sun Corporation’s common stock on January 1, 2016, for$840,000 cash. The stockholders’ equity of Sun at this time consisted of $600,000
3. Son Company owes Pop $5,000 on account, and Pop owes Son $5,000 on a note payable.R E Q u I R E D :Prepare consolidation workpapers for Pop Corporation and Subsidiary for the year ended December 31, 2017.
2. Son Company’s land was undervalued when Pop acquired its interest, and accordingly, $20,000 of the fair value/book value differential was assigned to land. Any remaining differential is goodwill.
1. Pop Corporation acquired 13,500 shares of Son Company stock for $15 per share on January 1, 2016, when Son’s stockholders’ equity consisted of $150,000 capital stock and $15,000 retained earnings.
P4-8 Workpapers (excess due to undervalued land and goodwill)Separate-company financial statements for Pop Corporation and its subsidiary, Son Company, at and for the year ended December 31, 2017, are summarized as follows (in thousands):Pop Son Combined Income and Retained Earnings Statement for
P4-7 Workpapers (year of acquisition, excess recorded for inventory, building equipment, and goodwill, intercompany balances)Pam Corporation acquired a 70 percent interest in Sun Corporation’s outstanding voting common stock on January 1, 2016, for $490,000 cash. The stockholders’ equity of Sun
P4-6 Workpapers (determine ownership interest, year after acquisition, excess assigned to land and patents)Separate company financial statements for Pop Corporation and its subsidiary, Son Company, at and for the year ended December 31, 2017, are summarized as follows (in thousands):Pop Son
P4-5 Excess identifiable to net assets Nick NV acquired a 90 percent interest in Kim NV on January 1, 2014, by paying $9,000,000 cash. At the time, Kim NV’s net assets were $9,000,000. It was also learned that some of Kim NV’s net assets’book values were different from their fair values.
P4-4 Consolidation workpapers from separate financial statements Pop Corporation acquired a 75 percent interest in Son Corporation on January 1, 2016, for $720,000 in cash. Financial statements of Pop and Son Corporations for 2016 are as follows (in thousands):Pop Son Combined Income and Retained
P4-3 Workpapers in year of acquisition (goodwill and intercompany transactions)Pam Corporation acquired a 75 percent interest in Sun Corporation on January 1, 2016. Financial statements of Pam and Sun Corporations for the year 2016 are as follows (in thousands):Pam Sun Combined Income and Retained
P4-2 Workpaper in year of acquisition Liam AB acquired an 80 percent ownership in Theo AB on January 1, 2014, for $10mn, when Theo AB’s stockholders’ equity consisted of $2,000,000 capital stock and $8,000,000 retained earnings.Theo AB’s assets and liabilities were at book value equal to the
P4-1 Calculations five years after acquisition Pam Corporation purchased 75 percent of the outstanding voting stock of Sun Corporation for $4,800,000 on January 1, 2016. Sun’s stockholders’ equity on this date consisted of the following (in thousands):Capital stock, $10 par $2,000 Additional
5. Compute consolidated net income for Pop Corporation and subsidiary for 2019.p R O B L E M S
4. Determine the balance of Pop’s Investment in Son account at December 31, 2019, under the equity method.
3. Prepare the journal entries, other than closing entries, on Pop’s books to account for its investment in Son for 2019 under the equity method.
2. Determine the balance of Pop’s Investment in Son account at December 31, 2019, under the cost method.
E 4-8(APPENDIX B) Journal entries and computations (cost and equity methods)Son Corporation’s outstanding capital stock (and paid in capital) has been $200,000 since the company was organized in 2016. Son’s retained earnings account since 2016 is summarized as follows:RETAINED EARNINGS
E 4-7 Prepare cash flows from operating activities section Information regarding the cash flow activities of Pierre Corporation is given below (in thousands):Cash paid to suppliers $225 Cash paid to employees 90 Cash paid for operating expenses 45 Cash paid for noncontrolling interest dividends 10
E 4-6 Prepare cash flow from operating activities section]Information regarding the cash flow activities of Mahdi Corporation is given below:Consolidated net income $500,000 Depreciation on buildings 100,000 Depreciation on equipment 80,000 Increase in accounts receivable 25,000 Increase in
4. In computing cash flows from operating activities under the direct method, the following item is an addition:a Sales b Noncontrolling interest share c Cash received from customers d Depreciation expense 5. Dividends paid as presented in a consolidated cash flow statement are:a Parent dividends b
3. In computing cash flows from operating activities under the indirect method, the following item is an addition to the controlling share of consolidated net income:a Noncontrolling interest dividends b Noncontrolling interest share c Income from equity investees in excess of dividends received d
2. In computing cash flows from operating activities under the direct method, the following item is an addition:a Cash dividends from equity investees b Collection of principal on a loan made to a subsidiary c Noncontrolling interest dividends d Noncontrolling interest share
E 4-5 General questions on statement of cash flows 1. In preparing a statement of cash flows, the cost of acquiring a subsidiary is reported:a As an operating activity under the direct method b As an operating activity under the indirect method c As an investing activity d As a financing activity
4. Calculate noncontrolling interest balance at December 31, 2014.
3. Calculate the balance of the Investment in Sanun Ltd. account at December 31, 2014.
2. Calculate income from Sanun Ltd. for 2014.
1. Calculate the goodwill that should be reported in the consolidated balance sheet.
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