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modern advanced accounting

Advanced Accounting 13th Global Edition Joseph H. Anthony, Bruce Bettinghaus, Floyd A. Beams, Kenneth Smith - Solutions

4. What is a characteristic of an option?a Gives the holder the right but not the obligation to buy or sell b Negotiated with a counterparty c Covers a stream of future payments d Must be settled daily
3. What is a characteristic of a futures contract?a Gives the holder the right but not the obligation to buy or sell b Negotiated with a counterparty c Covers a stream of future payments d Must be settled daily
2. What is a characteristic of a swap?a Traded on an exchange b Only interest rates can be the underlying c Covers a stream of future payments d Must be settled daily
E 12-1 1. What is a characteristic of a forward contract?a Traded on an exchange b Negotiated with a counterparty c Covers a stream of future payments d Must be settled daily
13. A U.S. corporation imported merchandise from a British company for £1,000 when the spot rate was $1.45.It issued financial statements when the current rate was $1.47, and it paid for the merchandise when the spot rate was $1.46. What amount of exchange gain or loss will be included in the U.S.
12. When are exchange gains and losses reflected in a business’s financial statements?
11. Criticize the following statement: “Exchange losses arise from foreign import activities, and exchange gains arise from foreign export activities.”
10. How are assets and liabilities denominated in foreign currency measured and recorded at the transaction date? At the balance sheet date?
9. Assume that a U.S. corporation imports electronic equipment from Japan in a transaction denominated in U.S. dollars. Is this transaction a foreign currency transaction? A foreign transaction? Explain the difference between these two concepts and their application here.
8. What is a spot rate with respect to foreign currency transactions? Could a spot rate ever be a historical rate?Could a spot rate ever be a fixed exchange rate? Discuss.
7. What is the difference between official and floating foreign exchange rates? Does the United States have floating exchange rates?
6. Assume that one euro can be exchanged for 1.20 U.S. dollars. What is the exchange rate if the exchange rate is quoted directly? Indirectly?
5. Distinguish between measurement and denomination in a particular currency.434 CHAPTER 12
4. What does “Net Settlement” mean?
3. In a local transaction at an international courier agency in Singapore, an invoice shows two exchange rates:a transaction exchange rate of $0.78 and a tax exchange rate of $0.80. What are these, and how do they differ?
2. What are the basic types of hedge transactions? How do they differ from each other?
1. What are the common characteristics of derivatives? How is a derivative useful?
P 11-11 Workpaper for proportionate consolidation (joint venture)Pop Corporation owns a 40 percent interest in Son Company, a joint venture that is organized as an undivided interest. In its separate financial statements, Pop accounts for Son under the equity method, but for reporting purposes, the
P 11-10 Consolidation workpaper one year after acquisition under push-down accounting (both 90%- and 100%-ownership assumptions)Use the information and assumptions from Problem P 11-9 for this problem. The accompanying financial statements are for Pam and Sun Corporations, one year after the
P 11-9 Journal entries and comparative balance sheets at acquisition for push-down Pam Corporation paid $180,000 cash for a 90 percent interest in Sun Corporation on January 1, 2017, when Sun’s stockholders’ equity consisted of $100,000 capital stock and $20,000 retained earnings. Sun
P 11-8 Journal entries and calculations for push-down accounting Pop Corporation paid $3,000,000 for an 80 percent interest in Son Corporation on January 1, 2016, when the book values and fair values of Son’s assets and liabilities were as follows (in thousands):Book Value Fair Value Cash $ 300 $
P 11-7 Journal entry to record push-down, subsidiary balance sheet, and investment income Pam Corporation paid $960,000 cash for a 100 percent interest in Sun Corporation on January 1, 2017, when Sun’s stockholders’ equity consisted of $400,000 capital stock and $160,000 retained
10. Beginning with the $200,000 balance in P Company’s retained earnings at the end of the current year, prepare a schedule in which you derive the $217,000 balance of consolidated retained earnings at the end of the current year.
9. Show how the total noncontrolling interest on the balance sheet ($117,000) was determined.
8. Show how the $8,700 noncontrolling interest share in total consolidated net income was determined.
7. What is the explanation for the difference between the consolidated cost of goods sold and the combined cost of goods sold of the two affiliated companies? Prepare a schedule reconciling combined and consolidated cost of goods sold, showing the amount of intercompany profit in the beginning and
6. Are there any intercompany debts other than the intercompany bondholdings? Identify any such debts, and state which company is the debtor and which is the creditor in each case. Explain your reasoning.
4. What is the nature of the nonrecurring loss appearing on the consolidated income statement? Reproduce the consolidating entry from which this figure originated and explain.5. What is the amount of intercompany sales during the current year by P Company to S Company?
3. When P acquired its interest in S Company, the assets and liabilities of S Company were recorded at their fair values. The $30,000 patents represent unamortized patents at the end of the current year. The unrecorded patents were $50,000 under entity theory, and the amortization is over a 10-year
2. If S Company’s common stock has a stated value of $100 per share, how many shares does P Company own? How did you determine this?
P 11-6[Based on AICPA] Separate and consolidated financial statements—entity theory The individual and consolidated balance sheets and income statements of P and S Companies for the current year are presented in the accompanying table. The entity theory is used.ADDITIONAL INFORMATION 1. P Company
1. Pop Corporation paid $256,000 for its 80 percent interest in Son on January 1, 2016, when Son had capital stock of $200,000 and retained earnings of $20,000.2. At December 31, 2017, Pop’s inventory included items on which Son had recorded gross profit of $40,000.REQuIRED: Prepare a
P 11-4 Comparative consolidated statements under alternative theories On January 1, 2016, Achmad Corporation acquires a 90 percent interest in Sanur Corporation for$990,000 in cash, when the book value of Sanur’s net assets equals fair value, and Sanur’s equity consists of $500,000 common stock
2. Assume that Pop Corporation uses entity theory for preparing consolidated financial statements for 2017.Determine the following amounts:a. Pop Corporation’s income from Son for 2017b. Goodwill that will appear in the consolidated balance sheet at December 31, 2017c. Total consolidated income
P 11-3 Computations (parent-company and entity theories)Pop Corporation paid $1,190,000 cash for 70 percent of the outstanding voting stock of Son Corporation on January 2, 2017, when Son Corporation’s stockholders’ equity consisted of $1,000,000 of $10 par common stock and $500,000 retained
P 11-2 Consolidated balance sheet and income statement under entity theory Pus Inc. was recently offered a big government project. However, since it lacked the funds and personnel required to handle the project, Pus’s management decided to create a joint venture with Tod Unincorporated, using a
P 11-1 Consolidated balance sheets (parent-company and entity theories)Pom Ltd. acquired a 90 percent interest in Sung Ltd. for $270,000 in January 1, 2014. Sung’s comparative balance sheet immediately before the acquisition is as follows:Pom Sung Book Value Fair Value Book Value Fair Value Cash
E 11-13 Determining the primary beneficiary in a VIE Pop Corporation and Son Company participate in a business classified as a VIE. Under terms of their contractual arrangement, Pop and Son share equally in expected residual returns of the VIE. However, expected losses are allocated 70 percent to
E 11-12 VIE reporting and disclosure requirements In 2016, Pop, Sun, Tin, and Van Corporations created Liber, a VIE, with a 25 percent interest from each; Pop is eligible as its primary beneficiary. During 2017, Liber reported net income of $1,000,000 and declared $300,000 dividends.REQuIRED 1. How
E 11-11 Accounting for a VIE beyond the initial measurement date Qin Corporation owns a 20 percent interest in a VIE, which it acquired in 2016, and acts as its primary beneficiary. During 2017, the VIE earned $600,000 of net income, which included a $50,000 fee paid by Qin Corporation. Determine
E 11-10 Corporate joint venture investment income Mill Pte. Ltd. is a venture corporation that consists of investor-venturers with 40 percent, 25 percent, 20 percent, and 15 percent interest, who jointly control and manage the corporation. Mill reports total stockholders’ equity of $9,000,000 on
E 11-9 Journal entries for push-down accounting On January 1, 2016, Pam Corporation acquired a 90 percent interest in Sun Corporation for $1,260,000. The book values and fair values of Sun’s assets and equities on this date are as follows (in thousands):Book Value Fair Value Cash $ 100 $ 100
E 11-8 Push-down capitals under parent-company and entity theories Pow Inc. acquired an 80 percent interest in Wow Inc. for $280,000 in cash on January 1, 2014. At the time, Wow had overvalued inventory of $20,000, overvalued account receivables of $50,000, and overvalued plant assets of
E 11-7 Computations under parent-company and entity theories (downstream and upstream sale)Bhima Corporation is an 80 percent-owned subsidiary of Krishna Corporation. During 2016, Bhima sold land that cost$50,000 to Krishna for $60,000. On at December 31, 2016, Bhima’s ending balance of inventory
E 11-6 Computations under parent-company, entity, and traditional theories (mid-year acquisition)Penang Corporation acquires an 80 percent interest in Minang Corporation for $2,400,000 on April 1, 2016, when the book value of Minang’s net assets equals fair value. Minang’s equity on April 1,
E 11-5 Consolidated net income and goodwill under entity and parent-company theories Ping Ltd. and its affiliate’s consolidated financial statement reported a goodwill of $40,000 under the entity theory at December 31, 2014, after it acquired an 80 percent interest in Singh Ltd. for $280,000.
E 11-4 Computations (parent-company and entity theories)Balance sheet information of Pop and Son Corporations at December 31, 2015, is summarized as follows (in thousands):Pop Book Value Son Book Value Son Fair Value Current assets $ 520 $ 50 $ 90 Plant assets—net 480 250 360$1,000 $300 $450
5. What is the purchase price of the investment under traditional theory?a $1,350,000 b $1,500,000 c $1,650,000 d None of the above
4. What is the purchase price of the investment under entity theory?a $1,650,000 b $1,495,000 c $1,485,000 d None of the above
3. Under entity theory, the noncontrollling interest share is:a $13,000 b $10,000 c $12,600 d None of the above Use the following information to answer the questions that follow:Doulo Corporation acquires a 90 percent interest in Dalu Corporation on January 1, 2016, when Dalu’s equity consists of
2. Under parent-company theory, the amount of unrealized profit to be eliminated is:a $20,000 b $18,000 c $2,000 d None of the above
1. Under equity theory, the noncontrolling interest at acquisition is:a $130,000 b $126,000 c $140,000 d None of the above
E 11-3 Parent-company and entity theories Use the information below to answer the questions that follow:Pablo Corporation purchases a 90 percent interest in Song Corporation for $1,260,000 on January 1, 2016, when the book value of Song’s net assets equals fair value at $1,300,000. The excess is
5. Far, Get, and Hog Corporations own 60 percent, 25 percent, and 15 percent, respectively, of the common stock of Pod Corporation, a joint venture that they organized for wholesaling fruits. Which of the corporations should report their joint venture interests under the equity method?a Far, Get,
4. Investors account for investments in corporate joint ventures under the equity method if their individual ownership percentages are at least:a 10 percent b 20 percent c 50 percent d None of the above
3. An investor in a corporate joint venture would be least likely to:a Be active in the management of the venture b Have an ability to exercise significant influence c Consent to each significant venture decision d Hold title to a pro rata share of joint venture assets
2. Corporate joint ventures should be accounted for by the equity method, provided that the joint venturer:a Cannot exercise significant influence over the joint venture b Can participate in the overall management of the venture c Owns more than 50 percent of the joint venture d All of the above
E 11-2 Joint ventures 1. A joint venture would not be organized as a(an):a Corporation b Proprietorship c Partnership d Undivided interest
4. The most consistent statement of assets in consolidated financial statements would result from applying:a Traditional theory b Parent-company theory c Entity theory d None of the above
3. When the fair values of an acquired subsidiary’s assets and liabilities are recorded in the subsidiary’s accounts(push-down accounting), the subsidiary’s retained earnings will be:a Adjusted for the difference between the push-down capital and goodwill from the acquisition b Credited for
2. Consolidated financial statement amounts and classifications should be identical under the entity and parentcompany theories of consolidation if:a All subsidiaries are acquired at book value b Only 100 percent–owned subsidiaries are consolidated c There are no intercompany transactions d All
1. The classification of noncontrolling interest share as an expense and noncontrolling interest as a liability is preferred under:a Parent-company theory b Entity theory c Traditional theory d None of the above Consolidation Theories, Push-Down Accounting, and Corporate Joint Ventures 409
E 11-1 Parent-company and entity theories
8. What accounting and reporting methods are used by investor-venturers in accounting for their joint venture investments?E x E R c I S E S
7. What is a joint venture and how are joint ventures organized?
6. To what extent does push-down accounting facilitate the consolidation process?
5. If income from a subsidiary is measured under the equity method and the statements are consolidated under entity theory, will consolidated net income equal parent net income?
4. Cite the conditions under which consolidated net income under parent-company theory would equal income to controlling stockholders under entity theory.
3. Assume that Pop Corporation acquires 60 percent of the voting common stock of Son Corporation for$6,000,000 and that a consolidated balance sheet is prepared immediately after the acquisition. Would total consolidated assets be equal to their fair values if the parent-company theory were
2. How is goodwill calculated under the parent-company and entity theories? Do they arrive at different results?
1. Compare the parent-company and entity theories of consolidated financial statements.
(Appendix B) In a prior year, Mucho Company acquired Small Company in exchange for its common stock. Small had identifiable net assets with book and fair values of $500,000 and$800,000, respectively. Mucho issued $1,000,000 of common stock for Small Company. The acquisition occurred on October 1,
What are the accounting ramifications of each of the two following situations involving the payment of contingent consideration in a purchase?a. P Company issued 100,000 shares of its $50 fair value common stock as payment to buy S Company on January 1, 20X1. P agreed to issue 10,000 additional
Pablo Company incurred the following expenses to consummate the purchase of a subsidiary:a. $30,000 paid to a legal firm to structure and record the transaction.b. $35,000 preacquisition audit of subsidiary company accounts prior to purchase to determine purchase price.c. $10,000 paid to American
Pallos Company is purchasing the net assets of Shrilly Company. The book and fair values of Shrilly’s accounts are as follows:Accounts Book Fair Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000 $120,000 Land . . . . . . . . . . . . . . . . . . . . .
Puncho Company is acquiring Semos Company in exchange for common stock valued at$900,000. Semos’ identifiable net assets have book and fair values of $400,000 and $800,000, respectively. Compare accounting for the purchase (including assignment of the price paid) by Puncho with accounting for the
Panther Company is about to acquire a 100% interest in Snake Company. Snake has identifiable net assets with book and fair values of $300,000 and $500,000, respectively. Panther will issue common stock as payment with a fair value of $750,000. When and how would the fair value of the net assets and
Major Corporation is acquiring Abrams Company by issuing its common stock in a tax-free exchange. Major is issuing common stock with a fair value of $850,000 for net identifiable assets with book and fair values of $400,000 and $600,000, respectively. What values will Major assign to the
Abrams Company is a sole proprietorship. The book value of its identifiable net assets is$400,000, and the fair value of the same net assets is $600,000. It is agreed that the business is worth $850,000. What advantage might there be for the seller if the company were exchanged for the common stock
Identify each of the following business combinations as being vertical, horizontal, or conglomerate:a. An inboard marine engine company is acquired by an outboard engine manufacturer.b. A cosmetics manufacturer purchases a drug store chain.c. A medical clinic purchases an apartment
(Appendix B) Record a pooling of interests acquisition, including the transfer of equity to the surviving company.AppendixLO1
(Appendix B) Explain the formerly used criteria that a business combination must meet to qualify as a pooling of interests.AppendixLO1
(Appendix A) Estimate the value of goodwill.AppendixLO1
Be aware of transition rules for the use of pooling of interests and the procedures for existing goodwill.AppendixLO1
Explain the special issues that may arise in a purchase, and show how to account for them.AppendixLO1
Use zone analysis to account for purchases made at a price below the fair value of the company’s net assets.AppendixLO1
Account for acquired assets and liabilities subsequent to a purchase, and apply impairment testing to goodwill.AppendixLO1
Account for assets and liabilities included in a business combination that involves goodwill.AppendixLO1
Allocate the purchase cost to the assets and liabilities of the acquired company.AppendixLO1
Demonstrate an understanding of the major difference between purchase and pooling of interests accounting.AppendixLO1
Differentiate between a purchase of assets and the purchase of a controlling interest of a company in terms of accounting procedures.AppendixLO1
Describe the major economic advantages of business combinations.AppendixLO1
PR 5-2 Does noncontrolling interest represent a liability or an equity in the consolidated balance sheet?
PR 5-1 Should the consolidated financial statements include the subsidiary’s retained earnings at the acquisition date?
P 5-9 Consolidated workpaper (noncontrolling interest, upstream sales, intercompany receivables/payables)Pop Corporation purchased a 90 percent interest in Son Corporation on December 31, 2016, for$5,400,000 cash, when Son had capital stock of $4,000,000 and retained earnings of $1,000,000. All
P 5-8 Consolidated workpapers (downstream sales)Pop Corporation acquired 100 percent of Son Corporation’s outstanding voting common stock on January 1, 2016, for $660,000 cash. Son’s stockholders’ equity on this date consisted of $300,000 capital stock and $300,000 retained earnings. The
P 5-7 Consolidation workpapers (upstream sales, noncontrolling interest)Pam Corporation purchased a 90 percent interest in Sun Corporation on December 31, 2015, for$2,700,000 cash, when Sun had capital stock of $2,000,000 and retained earnings of $500,000. All Sun’s assets and liabilities were
P 5-6 Upstream and downstream sales, 90 percent owned Justin Bhd is a 90 percent-owned company of Epik Bhd and was acquired in 2011, when the book value of Justin Bhd’s net identifiable assets were equal to fair value. Information regarding inventory transactions between Justin Bhd and Epik Bhd
P 5-5 Upstream inventory sale, 100 percent owned On February 20, 2012, Angel AG acquired all common stock of Mark AG. The book value of Mark AG’s net assets was equal to fair value at the acquisition date. Mark AG regularly sold inventories to Angel AG with a 10 percent mark-up. In 2014, $200,000
5. Pop uses the equity method of accounting for its investment in Son.REQuIRED 1. Prepare a schedule showing Pop’s income from Son for the years 2016, 2017, and 2018.2. Compute Pop’s net income for the years 2016, 2017, and 2018.3. Prepare a schedule of consolidated net income for Pop

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