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modern advanced accounting

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

4. There were no unrealized profits in the December 31, 2018, inventories of either company.
3. Pop’s inventory at December 31, 2017, included items acquired from Son on which Son made a profit of $1,200,000. Total sales by Son to Pop during 2017 were $4,800,000.
2. Pop sold inventory items to Son during 2016 at a gross profit to Pop of $2,400,000. Half the merchandise remained in Son’s inventory at December 31, 2016. Total sales by Pop to Son in 2016 were$6,000,000. The remaining merchandise was sold by Son in 2017.
1. Son was a 75 percent–owned subsidiary of Pop Corporation throughout the 2016–2018 period. Pop’s separate income (excludes income from Son) was $21,600,000, $20,400,000, and $24,000,000 in 2016, 2017, and 2018, respectively. Pop acquired its interest in Son at its underlying book value,
P 5-4 Computations (upstream and downstream sales)Comparative income statements of Son Corporation for the calendar years 2016, 2017, and 2018 are as follows (in thousands):2016 2017 2018 Sales $48,000 $51,000 $57,000 Cost of sales 25,200 26,400 30,000 Gross profit 22,800 24,600 27,000 Operating
P 5-3 Computations (parent buys from one subsidiary and sells to the other)Pam Company owns controlling interests in Sun and Toy Corporations, having acquired an 80 percent interest in Sun in 2016, and a 90 percent interest in Toy on January 1, 2017. Pam’s investments in Sun and Toy were at book
P 5-2 Computations (upstream sales)Pop Corporation acquired a 90 percent interest in Son Corporation at book value on January 1, 2016.Intercompany purchases and sales and inventory data for 2016, 2017, and 2018, are as follows:Sales by Son to Pop Intercompany Profit in Pop’s Inventory at December
P 5-1 Consolidated income and retained earnings (upstream sales, noncontrolling interest)Pam Corporation acquired its 90 percent interest in Sun Corporation at its book value of $3,600,000 on January 1, 2016, when Sun had capital stock of $3,000,000 and retained earnings of $1,000,000.The December
E 5-12 Consolidated income statement (intercompany sales correction)The consolidated income statement of Pop and Son for 2016 was as follows (in thousands):Sales $5,520 Cost of sales (3,680)Operating expenses (640)Income to 20 percent noncontrolling interest in Son (160)Consolidated net income $
3. On the books of Pam Corporation, the investment account is properly reflected on December 31, 2016, at:a $3,240 b $3,264 c $3,276 d Not enough information is given.
2. Noncontrolling interest on December 31, 2016, is:a $2,200 b $2,184 c $2,176 d $2,140
1. Under the equity method, Pam reports investment income from Sun for 2016 of:a $120 b $96 c $80 d $104 loss
E 5-11 Upstream sales On January 1, 2009, Pam Corporation acquired 60 percent of the voting common shares of Sun Corporation at an excess of fair value over book value of $1,000,000. This excess was attributed to plant assets with a remaining useful life of five years. For the year ended December
E 5-10 Consolidated income statement (upstream sales)Pop Corporation purchased an 80 percent interest in Son Corporation for $1,200,000 on January 1, 2017, at which time Son’s stockholders’ equity consisted of $1,000,000 common stock and $400,000 retained earnings. The excess fair value over
E 5-9 Compute noncontrolling interest and consolidated cost of sales (upstream sales)Income statement information for 2016 for Pam Corporation and its 60 percent–owned subsidiary, Sun Corporation, is as follows:Pam Sun Sales $900 $350 Cost of sales 400 250 Gross profit 500 100 Operating expenses
E 5-8 Downstream sale of inventory Wikan Tbk acquired 80 percent ownership of Budi Tbk several years ago at book value. During 2014, Wikan Tbk sold merchandise to Budi Tbk for $1,000,000 at a gross profit of 20 percent. Budi Tbk sold 90 percent of this merchandise to outside parties. At the end of
2. What is the cost of sales that should appear on the consolidated income statement?
1. What is the amount of sales that should appear on the consolidated income statement?
E 5-7 Downstream sale of inventory Xuma SA was a subsidiary of Fabian SA. Fabian SA had a policy to sell its merchandise at a mark-up of 10 percent. The beginning balance of Xuma’s inventory in 2014, which was sold in the current year, was $220,000. Half of this beginning inventory included
3. Sun Corporation, a 75 percent–owned subsidiary of Pam Corporation, sells inventory items to its parent at 125 percent of cost. Inventories of the two affiliates for 2016 are as follows:Pam Sun Beginning inventory $400,000 $250,000 Ending inventory 500,000 200,000 Pam’s beginning and ending
2. Pop acquired a 60 percent interest in Son on January 1, 2016, for $360,000, when Son’s net assets had a book value and fair value of $600,000. During 2016, Pop sold inventory items that cost $600,000 to Son for $800,000, and Son’s inventory at December 31, 2016, included one-fourth of this
E 5-6 Upstream and downstream sales 1. Pam Corporation owns 70 percent of Sun Company’s common stock, acquired January 1, 2017. Patents from the investment are being amortized at a rate of $20,000 per year. Sun regularly sells merchandise to Pam at 150 percent of Sun’s cost. Pam’s December
3. Consolidated cost of goods sold of Pam Corporation and Subsidiary for 2017 was:a $1,024 b $1,045 c $1,052.8 d $1,056
2. The unrealized profits in the year-end 2016 and 2017 inventories were:a $100 and $125, respectively b $80 and $100, respectively c $20 and $25, respectively d $16 and $20, respectively
1. Consolidated sales of Pam Corporation and Subsidiary for 2017 were:a $1,800 b $1,425 c $1,400 d $1,240
E 5-5 Upstream sales Pam Corporation owns an 80 percent interest in Sun Corporation acquired several years ago. Sun regularly sells merchandise to Pam at 125 percent of Sun’s cost. Gross profit data of Pam and Sun for 2017 are as follows:Pam Sun Sales $1,000 $800 Cost of goods sold 800 640 Gross
E 5-4 Upstream sales Pop Corporation owns an 80 percent interest in Son Corporation and at December 31, 2016, Pop’s investment in Son on an equity basis was equal to 80 percent of Son’s stockholders’ equity. During 2017, Son sells merchandise to Pop for$200,000, at a gross profit to Son of
3. In a consolidated income statement for Pam Corporation and Subsidiary for the year 2017, consolidated cost of sales should be:a $1,372 b $1,360 c $1,272 d $1,248
2. In a consolidated income statement for Pam Corporation and Subsidiary for the year 2017, consolidated sales should be:a $2,900 b $2,800 c $2,725 d $2,700
Pam Corporation owns 75 percent of the voting common stock of Sun Corporation, acquired at book value during 2016. Selected information from the accounts of Pam and Sun for 2017 are as follows:Pam Sun Sales $1,800 $1,000 Cost of sales 980 380 During 2017 Pam sold merchandise to Sun for $100, at a
1. The separate incomes of Pop Corporation and Son Corporation, a 100 percent–owned subsidiary of Pop, for 2017 are $2,000 and $1,000, respectively. Pop sells all of its output to Son at 150 percent of Pop’s cost of production.During 2016 and 2017, Pop’s sales to Son were $9,000 and $7,000,
What amount should Pam report as cost of sales in its 2016 consolidated income statement?a $2,250 b $2,040 c $1,500 d $1,290 E 5-3 Downstream sales
3. Pam Corporation owns 80 percent of Sun’s common stock. During 2016, Pam sold Sun $750 of inventory on the same terms as sales made to third parties. Sun sold 100 percent of the inventory purchased from Pam in 2016. The following information pertains to Sun’s and Pam’s sales for 2016:Pam
Before eliminating entries, Car had consolidated current assets of $960. What amount should Car report in its December 31, 2016, consolidated balance sheet for current assets?a $960 b $951 c $924 d $303
2. Car Company had the following transactions with affiliated parties during 2016.■ Sales of $180 to Den, with $60 gross profit. Den had $45 of this inventory on hand at year-end. Car owns a 15 percent interest in Den and does not exert significant influence.■ Purchases of raw materials
E 5-2[Based on AICPA] General problems 1. Pop, Inc., owns 80 percent of Son, Inc. During 2016, Pop sold goods with a 40 percent gross profit to Son. Son sold all of these goods in 2016. For 2016 consolidated financial statements, how should the summation of Pop and Son income statement items be
8. Sun Corporation is a 90 percent–owned subsidiary of Pam Corporation, acquired on January 1, 2016, at a price equal to book value and fair value. Pam accounts for its investment in Sun using the equity method of accounting.The only intercompany transactions between the two affiliates in 2016
7. Pop Corporation regularly sells inventory items to its subsidiary, Son Corporation. If unrealized profits in Son’s 2016 year-end inventory exceed the unrealized profits in its 2017 year-end inventory:a Combined cost of sales will be greater than consolidated cost of sales in 2016 b Combined
6. Sun Corporation regularly sells inventory items to its parent, Pam Corporation. In preparing the consolidated income statement, which of the following items would not be affected by the direction (upstream or downstream) of these intercompany sales?a Consolidated gross profit b Noncontrolling
5. Pop Corporation sells an inventory item to its subsidiary, Son Company, to be used as a plant asset by Son. The workpaper entry to eliminate intercompany profits in the year of sale will not include:a A debit to sales b A credit to cost of sales c A credit to inventories d A credit to plant
4. Sun Corporation, a 90 percent–owned subsidiary of Pam Corporation, buys half of its raw materials from Pam. The transfer price is exactly the same price as Sun pays to buy identical raw materials from outside suppliers and the same price as Pam sells the materials to unrelated customers. In
3. Pop Corporation sells inventory items for $500,000 to Son Corporation, its 80 percent–owned subsidiary. The consolidated workpaper entry to eliminate the effect of this intercompany sale will include a debit to sales for:a $500,000 b $400,000 c The amount remaining in Son’s ending inventory
2. The direction of intercompany sales (upstream or downstream) does not affect consolidation workpaper procedures when the intercompany sales between affiliates are made:a At fair value b Above market value c At book value d To a 100 percent–owned subsidiary
1. Intercompany profit elimination entries in consolidation workpapers are prepared in order to:a Nullify the effect of intercompany transactions on consolidated statements b Defer intercompany profit until realized c Allocate unrealized profits between controlling and noncontrolling interests d
14. Consolidation workpaper procedures are usually based on the assumption that any unrealized profit in the beginning inventory of one year is realized through sales in the following year. If the related merchandise is not sold in the succeeding period, would the assumption result in an incorrect
13. Describe the computation of noncontrolling interest share in a year in which there is unrealized inventory profit from upstream sales in both the beginning and ending inventories of the parent.
12. Unrealized profit in the ending inventory is eliminated in consolidation workpapers by increasing cost of sales and decreasing the inventory account. How is unrealized profit in the beginning inventory reflected in the consolidation workpapers?
11. Is the effect of unrealized profit on consolidated cost of goods sold influenced by (a) the existence of a noncontrolling interest and (b) the direction of intercompany sales?
10. How is the combined cost of goods sold affected by unrealized profit in (a) the beginning inventory of the subsidiary and (b) the ending inventory of the subsidiary?
9. How does a parent adjust its investment income for unrealized profit on sales it makes to its subsidiaries (a)in the year of the sale and (b) in the year in which the subsidiaries sell the related merchandise to outsiders?
8. Under what circumstances would the direction of intercompany inventory transactions not affect the allocation of unrealized profit?
7. Would failure to eliminate unrealized profit in inventories at December 31, 2016, have any effect on consolidated net income in 2017? 2018?
6. Explain the designations upstream sales and downstream sales. Of what significance are these designations in computing parent and consolidated net income?
5. What effect does the elimination of intercompany accounts receivable and accounts payable have on consolidated working capital?
4. What effect does the elimination of intercompany sales and cost of goods sold have on consolidated net income?
3. When should the unrealized profit or loss from inventory be realized in intercompany sales transactions?
2. In eliminating unrealized profit on intercompany sales of inventory items, should gross profit or net profit be eliminated?
1. Why are intercompany transactions between a parent and its subsidiary eliminated in preparing a consolidated financial statement?
PR 7-2 A firm issues mandatorily redeemable preferred stock. Should this be classified as debt or equity in the consolidated financial statements?
PR 7-1 How should a company determine the fair value of long-term debt?
P7-6 Parent Purchases Subsidiary Bonds On December 31, 2013, Ken AO acquired 80 percent of Nuro AO for $8,000,000 when the total shareholders equity of Nuro AO was $10,000,000. Below is the trial balance information of both companies for the year ended December 31, 2014:Debits Ken AO Nuro AO Cash $
P7-5[Based on AICPA] Computations (constructive retirement of subsidiary bonds)Selected amounts from the separate unconsolidated financial statements of Pam Corporation and its 90 percent–owned subsidiary, Sun Company, at December 31, 2016, are as follows (in thousands).Pam Sun Selected Income
P7-4 Computations of separate and consolidated statements given Pop Corporation acquired an 80 percent interest in Son Corporation on January 1, 2016, for $640,000, at which time Son had capital stock of $400,000 outstanding and retained earnings of $200,000. The price paid reflected a $200,000
P7-3 Subsidiary purchases parent bonds The separate trial balance for Thanos SA and Merry SA, its 90 percent-owned subsidiary, for the year ended 2014 is as follows:Debits Thanos SA Merry SA Cash $700 $600 Accounts receivable 1,000 400 Interest receivable 0 25 Inventory 1,100 700 Land 1,900 800
P7-2 Four-year income schedule (several intercompany transactions)Intercompany transactions between Pop Corporation and Son Corporation, its 80 percent–owned subsidiary, from January 2016, when Pop acquired its controlling interest, to December 31, 2019, are summarized as follows:2016 Pop sold
P7-1 Journal entries (constructive retirement of subsidiary’s bonds)Penang Corporation owns an 80 percent interest in Minang Corporation. On October 1, 2016, Minang issued $100,000 par, 10 percent 3-year bonds with an unamortized discount of $20,000. On October 2, 2016, Penang purchased 50
E 7-13 Computations and entries (constructive gain on purchase of parent bonds)Pop Corporation acquired an 80 percent interest in Son Corporation at book value equal to fair value on January 1, 2017, at which time Son’s capital stock and retained earnings were $200,000 and $80,000, respectively.
E 7-12 Computations and entries (parent purchases subsidiary bonds)Pop Corporation, which owns an 80 percent interest in Son Corporation, purchases $100,000 of Son’s 8 percent bonds at 106 on July 2, 2016. The bonds pay interest on January 1 and July 1 and mature on July 1, 2019. Pop uses the
E 7-11 Consolidated income statement (constructive retirement of all subsidiary bonds)Comparative income statements for Pam Corporation and its 80 percent–owned subsidiary, Sun Corporation, for the year ended December 31, 2017, are summarized as follows:Pam Sun Sales $1,200,000 $600,000 Income
E 7-10 Parent purchases subsidiary bonds issued on par Lana DD was the parent company of Noa DD, acquired in 2011. Lana DD owned 90 percent interest in Noa DD. On January 1, 2013, Noa DD issued $800,000 par of 5 percent, 5-year bonds at par to the public. On January 1, 2014, Lana DD purchased 20%
2. Disregard 1 above and assume that Pam purchases $1,000,000 par of Sun’s bonds for $1,030,000 on January 2, 2017, and that semiannual interest on the bonds is paid on July 1 and January 1. Determine the amounts at which the following items will appear in the consolidated financial statements of
E 7-9 Different assumptions for purchase of parent’s bonds and subsidiary’s bonds The balance sheets of Pam and Sun Corporations, an 80 percent–owned subsidiary of Pam, at December 31, 2016, are as follows (in thousands):Pam Sun Assets Cash $ 2,440 $2,500 Accounts receivable—net 3,000 300
E 7-8 Midyear purchase of subsidiary’s bonds Sanur Corporation is a 90 percent subsidiary of Pare Corporation. On January 1, 2016, Sanur issued $1,000,000 par, 10 percent 5-year bonds with an unamortized premium of $50,000. On July 1, 2016, Pare Corporation purchased $400,000 par of the
3. Consolidated bonds payable at December 31, 2016, should be reported at:a $2,072,000 b $2,000,000 c $1,657,600 d $1,600,000
2. The portion of the constructive gain or loss on Sun bonds that remains unrecognized on the separate books of Pam and Sun at December 31, 2016, is:a $24,000 b $21,600 c $21,000 d $18,400
1. The gain or loss on the constructive retirement of $400,000 of Sun bonds on January 2, 2016, is reported in the consolidated income statement in the amount of:a $27,000 b $23,000 c $21,000 d $14,000
Pam acquired 80 percent of Sun’s capital stock for $3,320,000 on January 1, 2014, when Sun’s capital stock was$4,000,000 and Sun’s retained earnings was $150,000.On January 2, 2016, Pam acquired $400,000 par of Sun’s 10 percent bonds in the market for $391,000, on which date the unamortized
E 7-7 Parent purchases subsidiary bonds Comparative balance sheets of Pam and Sun Corporations at December 31, 2016, follow:Pam Sun Assets Accounts receivable—net $ 2,048,600 $ 600,000 Interest receivable 20,000 —Inventories 6,000,000 1,000,000 Other current assets 197,000 400,000 Plant
E 7-6 Parent purchases subsidiary bonds Albert NL was a 90 percent subsidiary of Josh NL, acquired when the book value of Albert NL net assets was equal to its fair value. On January 1, 2014, Albert NL has 10 percent $2,000,000 par bonds with unamortized premium of$200,000. The bonds will mature in
E 7-5 Consolidated income statement (purchase of parent’s bonds)Comparative income statements for Laode Corporation and its 80 percent-owned subsidiary, Ucok Corporation, for 2017 are summarized as follows (in thousands):Laode Ucok Sales $2,000 $800 Income from Ucok 282.4 —Bond interest income
E 7-4 Subsidiary purchases parent bonds On January 1, 2014, Petr SA purchased half of Lenka SA’s outstanding 10 percent bond for $550,000 cash. Petr SA was the 80 percent-owned subsidiary of Lenka SA with no book value/fair value difference. At that time, the outstanding bonds had a par value of
5. Consolidated net income for 2016 will be affected by the intercompany bond transactions as follows:a Decreased by the constructive loss of $20,000 b Increased by the elimination of interest income of $34,000 c Increased by the elimination of interest expense of $39,000 d None of the above
4. Interest income on Westminster bonds appears in the consolidated income for 2017 at:a $34,000 b $39,000 c $30,000 d None of the above
3. Interest expense on Westminster bonds appears in the consolidated income for 2017 at:a $34,000 b $39,000 c $30,000 d None of the above
2. The amount that Abbey Corporation should record as a piecemeal recognition of constructive gain or loss at December 31, 2017, is:a $5,000 b $4,500 c $5,500 d None of the above
E 7-3 Constructive gain/loss on purchase of subsidiary bonds Abbey Corporation owns 90 percent of the voting common stock of Westminster Corporation. At December 31, 2016, Westminster has $900,000 par of 8 percent bonds outstanding with an unamortized discount of $30,000. The bonds pay interest on
2. Interest income that should appear in the 2016 consolidated income statement for Pang’s bond issue is:a $14,000 b $10,400 c $10,000 d None of the above
E 7-2 General problems Pang Corporation owns 80 percent interest in Sunda Corporation. On January 1, 2016, Sunda purchased $100,000 par of Pang’s $1,000,000 outstanding bonds for $98,000 in the bond market. Pang’s bonds have a 10 percent interest rate, paid on January 1 and July 1, and mature
4. Straight-line interest amortization of bond premiums and discounts is used as an expedient in this book.However, the effective interest rate method is generally required under GAAP. When using the effective interest rate method:a The amount of the piecemeal recognition of a constructive gain or
3. Constructive gains and losses on bonds payable:a Arise when one company purchases the bonds of an affiliate or lends money directly to the affiliate to repurchase its own bonds b Are realized gains and losses from the viewpoint of the issuer affiliate c Are always assigned to the parent because
2. When bonds are purchased in the market by an affiliate, the book value of the intercompany bond liability is:a The par value of the bonds less unamortized issuance costs and less unamortized discount or plus unamortized premium.b The par value of the bonds less issuance costs, less unamortized
1. Which of the following is not a characteristic of a constructive retirement of bonds from an intercompany bond transaction?a Bonds are retired for consolidated statement purposes only.b The reciprocal intercompany bond investment and liability amounts are eliminated in the consolidation
11. If a parent reports interest expense of $4,300 with respect to bonds held intercompany and the subsidiary reports interest income of $4,500 for the same bonds: (a) Was there a constructive gain or loss on the bonds?(b) Is the gain or loss attributed to the parent or the subsidiary? And (c) what
10. How will the elimination of interest expense and interest income from intercompany bond transactions affect the controlling share of the consolidated net income?
9. How is the amount of piecemeal recognition of constructive gain or loss determined in the intercompany bonds transaction?
Construct the consolidation workpaper entries necessary to eliminate reciprocal balances (a) assuming that the parent acquired its intercompany bond investment at the beginning of the current year, and (b) assuming that the parent acquired its intercompany bond investment two years prior to the
8. The following information related to intercompany bond holdings was taken from the adjusted trial balances of a parent and its 90 percent–owned subsidiary four years before the bond issue matured:Parent Subsidiary Investment in S bonds, $50,000 par $49,000 Interest receivable 2,500 Interest
7. If a subsidiary purchases parent bonds at a price in excess of recorded book value, is the gain or loss attributed to the parent or the subsidiary? Explain.
6. Describe the process by which constructive gains on intercompany bonds are realized and recognized on the books of the affiliates. Does recognition of a constructive gain in consolidated financial statements precede or succeed recognition on the books of affiliates?
5. Compare a constructive gain on intercompany bonds with an unrealized gain on the intercompany sale of land.

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