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modern advanced accounting

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

7. On January 1, Pop purchased 10 percent of Son Company’s common stock. Pop purchased additional shares, bringing its ownership up to 40 percent of Son’s common stock outstanding, on August 1. During October, Son declared and paid a cash dividend on all of its outstanding common stock. How
8. On January 2, Pam Company purchased a 30 percent interest in Sun Company for $250,000. On this date, the book value of Sun’s stockholders’ equity was $500,000. The carrying amounts of Sun’s identifiable net assets approximated fair values, except for land, whose fair value exceeded its
E2-3 Journal entries for investment under cost method On March 2, Klaus AG acquired 500 of Max AG’s 10,000 outstanding shares with a par value of $10 for $10,000 in cash. Klaus AG didn’t have any significant influence on Max AG in this transaction. On April 1, Max AG declared and paid dividends
E2-4 Calculate income for a midyear investment Sultan Corporation pays $500,000 for a 20 percent interest in Chula Corporation on July 1, 2016, when Chula’s capital stock is valued at $700,000, its retained earnings at $500,000, and the book value of Chula’s net assets equals fair value.
E2-5 Excess of investment over book value On January 1, Henry PLC purchased 5,000 out of 20,000 of Atah PLC’s outstanding common stock for $29,000,000.Atah PLC shareholders’ equity for the period was $100,000,000 at that date. The information regarding the difference between the book value and
E2-6 Journal entry to record income from discontinued operations Pastel Corporation purchased a 30 percent interest in Lumpia Corporation on January 1, 2016, by issuing 10,000 shares with a market price of $1,000,000 and paid $500,000 in cash when the book value of Lumpia’s net assets equaled
E2-7 General problems 1. On January 3, 2016, Pop Company purchases a 15 percent interest in Son Corporation’s common stock for $50,000 cash. Pop accounts for the investment using the cost method. Son’s net income for 2016 is $20,000, but it declares no dividends. In 2017, Son’s net income is
2. Son Corporation’s stockholders’ equity at December 31, 2016, follows (in thousands):Capital stock, $100 par $3,000 Additional paid-in capital 500 Retained earnings 500 Total stockholders’ equity $4,000 On January 3, 2017, Son sells 10,000 shares of previously unissued $100 par common stock
3. On January 1, Pop Company paid $300,000 for a 20 percent interest in Son Corporation’s voting common stock, at which time Son’s stockholders’ equity consisted of $600,000 capital stock and $400,000 retained earnings. Pop was not able to exercise any influence over the operations of Son and
4. Pop Corporation owns a 40 percent interest in Son Products acquired several years ago at book value. Son’s income statement contains the following information (in thousands):Income from continuing operations $200 Discontinued operations loss (50)Net income $150 Pop should report income from
E2-8 Calculate investment balance four years after acquisition Pam Corporation owns a 40 percent interest in the outstanding common stock of Sun Corporation, having acquired its interest for $2,400,000 on January 1, 2016, when Sun’s stockholders’ equity was $4,000,000. The fair value/book value
E2-9 Investee with preferred stock Jack Ltd. paid $3,500,000 cash on January 1 to acquire 30 percent of William Ltd.’s outstanding common stocks.Assume that William Ltd.’s assets and liabilities were at fair value equal to book value on this date. At the end of the period, William Ltd. reported
E2-10 Calculate income and investment balance for midyear investment Pam Corporation acquired 25 percent of Sun Corporation’s outstanding common stock on October 1, for $300,000. A summary of Sun’s adjusted trial balances on this date and at December 31 follows (in thousands):December 31
E2-11 Adjust investment account and determine income when additional investment qualifies for equity method of accounting Summary balance sheet and income information for Son Company for two years is as follows (in thousands):January 1, 2016 December 31, 2016 December 31, 2017 Current assets $ 50 $
E2-12 Journal entries (investment in previously unissued stock)The stockholders’ equity of Sun Corporation at December 31, 2016, was $380,000, consisting of the following (in thousands):Capital stock, $10 par (24,000 shares outstanding) $240 Additional paid-in capital 60 Retained earnings 80
E2-13 Prepare journal entries and income statement, and determine investment account balance Pop Corporation paid $780,000 for a 30 percent interest in Son Corporation on December 31, 2016, when Son’s stockholders’equity consisted of $2,000,000 capital stock and $800,000 retained earnings. The
E2-14 Calculate income and investment account balance (investee has preferred stock)Pam Corporation paid $290,000 for 40 percent of the outstanding common stock of Sun Corporation on January 2, 2017. During 2017, Sun paid dividends of $48,000 and reported net income of $108,000. A summary of
E2-15 Goodwill impairment Pop Corporation recorded goodwill in the amount of $200,000 in its acquisition of Son Company in 2016. Pop paid a total of $700,000 to acquire Son. In preparing its 2017 financial statements, Pop estimates that identifiable net assets still have a fair value of $500,000,
E2-16 Goodwill impairment Pam, Inc. has two primary business reporting units: Alfa and Beta. In preparing its 2017 financial statements, Pam conducts the required annual impairment review of goodwill. Alfa has recorded goodwill of $35,000 that has an estimated fair value of $30,000. Beta has
Computations for interim purchase (investee has a discontinued operations loss)Kuma Corporation paid $600,000 in cash for a 40 percent interest in Sachi Corporation on April 1, 2016, when Sachi’s common stock was at $1,000,000 and the book value of its net assets equaled fair value. During 2016,
P2-2 Journal entries for a step-by-step acquisition (cost and equity methods)On January 1, 2016, Jang Corporation paid $200,000 in cash for a 10 percent interest in Sheon Corporation when the book value of Sheon’s net assets equaled fair value. One year later, on January 1, 2017, Jang decided to
P2-3 Bargain purchase acquisition Raj Ltd. issued 10,000 shares of $10 par common stock with a total market value of $800,000 to purchase 40 percent ownership of Akash Ltd. on January 1, 2014. Akash Ltd. had net assets of $2,250,000 at the beginning of the year. The information relating to the
P2-4 Journal entries for interim acquisition and extraordinary gains Ahmad Corporation paid $350,000 for a 30 percent interest in Fakhry Corporation on July 1, 2016, when Fakhry Corporation’s common stock was at $350,000 and retained earnings at $150,000. In 2016, Fakhry declared and paid
P2-5 Prepare an allocation schedule; compute income and the investment balance Pop Corporation paid $1,680,000 for a 30 percent interest in Son Corporation’s outstanding voting stock on January 1, 2016. The book values and fair values of Son’s assets and liabilities on January 1, along with
Interim acquisition On March 31, 2014, Wero CA purchased 30 percent interest in Javier CA by paying $450,000 cash. The book values of Javier CA’s assets and liabilities were equal to the fair values at the acquisition date, except for inventories that were overvalued by $100,000 and equipment
P2-7 Partial income statement with discontinued operations Paveen Corporation acquired a 30 percent interest in Cang Corporation at book value on January 1, 2014.Information for 2016 is given below:a. Cang declared and paid dividends of $75,000.b. Cang’s income from continuing operations was at
P2-8 Computations and journal entries with excess of book value over fair value Sun Corporation became a subsidiary of Pam Corporation on July 1, 2016, when Pam paid $1,980,000 cash for 90 percent of Sun’s outstanding common stock. The price paid by Pam reflected the fact that Sun’s inventories
P2-9 Prepare allocation schedules under different stock price assumptions (bargain purchase)Pop Corporation exchanged 40,000 previously unissued no par common shares for a 40 percent interest in Son Corporation on January 1, 2016. The assets and liabilities of Son on that date (after the
P2-10 Computations for a piecemeal acquisition Pam Corporation made three investments in Sun during 2016 and 2017, as follows:Date Acquired Shares Acquired Cost July 1, 2016 3,000 $ 48,750 January 1, 2017 6,000 99,000 October 1, 2017 9,000 162,000 Sun’s stockholders’ equity on January 1, 2016,
P2-11 Computations and a correcting entry (errors)Pam Corporation purchased 40 percent of the voting stock of Sun Corporation on July 1, 2016, for$600,000. On that date, Sun’s stockholders’ equity consisted of capital stock of $1,000,000, retained earnings of $300,000, and current earnings
P2-12 Allocation schedule and computations (excess cost over fair value)Pop Corporation acquired a 70 percent interest in Son Corporation on April 1, 2016, when it purchased 14,000 of Son’s 20,000 outstanding shares in the open market at $13 per share. Additional costs of acquiring the shares
PR 2-2 A firm sells a part of its investment interest, reducing its holding from 30% to 10%. The firm decides, correctly, that the equity method is no longer appropriate.What is the basis for the investment in applying the new accounting method?
2. In allocating the excess of investment fair value over book value of a subsidiary, are the amounts assigned to identifiable assets and liabilities (land and notes payable, for example) recorded separately in the accounts of the parent? Explain.
4. A parent company and its subsidiaries are separate legal entities. Hence, they have separate accounting records. Explain why they might need to be consolidated.
5. What is a noncontrolling interest?
7. What are the permissible options for financing an acquisition under current GAAP/IFRS?
9. Why aren’t all elimination entries of a consolidation recorded in a ledger?
11. Name some reciprocal accounts that might be found in the separate records of a parent and its subsidiaries.
12. Why are reciprocal amounts eliminated in preparing consolidated financial statements?
15. Is noncontrolling interest share an expense? Explain.
16. Describe how total noncontrolling interest at the end of an accounting period is determined.
18. Does the acquisition of shares held by noncontrolling shareholders constitute a business combination?
1. Owning 80 percent of voting common stock means:a No subsidiary is recognized b Only one financial statement is reported c Separate financial statements are reported d None of the above
2. Company A and Company B should be consolidated if:a A purchases B, but is controlled by Company C b A purchases 80 percent of B’s non-voting stock c A purchases 75 percent of B’s voting common stock d None of the above
3. Malaki Corporation owns 80 percent of Mahina Corporation but should not be consolidated because:a Mahina is a foreign company b Mahina is collateralized c Mahina operates in multiple business segments d None of the above
4. 60 percent of Saghir Corporation’s interest is owned by Qawi Corporation, another 30 percent is owned by Kabir Corporation, and the remaining 10 percent is owned by Dayiq Corporation. Qawi, Saghir, Kabir, and Dayiq are:a Investor, affiliate, subsidiary, and non-controlling interest,
5. Which of the following statements characterizes a consolidated entity?a It has an independent management board b It operates solely out of its headquarters c It does not exist d None of the above
E3-2 General questions 1. Under GAAP, a parent company should exclude a subsidiary from consolidation if:a It measures income from the subsidiary under the equity method b The subsidiary is in a regulated industry c The subsidiary is a foreign entity whose books are recorded in a foreign currency d
2. The FASB’s primary motivation for requiring consolidation of all majority-owned subsidiaries was to:a Ensure disclosure of all loss contingencies b Prevent the use of off–balance sheet financing c Improve comparability of the statements of cash flows d Establish criteria for exclusion of
3. Parent-company and consolidated financial statement amounts would not be the same for:a Capital stock b Retained earnings c Investments in unconsolidated subsidiaries d Investments in consolidated subsidiaries
4. Noncontrolling interest, as it appears in a consolidated balance sheet, refers to:a Owners of less than 50 percent of the parent company’s stock b Parent’s interest in subsidiary companies c Interest expense on subsidiary’s bonds payable d Equity in the subsidiary’s net assets held by
5. Pam Corporation acquired an 80 percent interest in Sun Corporation on January 1, 2016, and issued consolidated financial statements at and for the year ended December 31, 2016. Pam and Sun had issued separate-company financial statements in 2015.a The change in reporting entity is reported by
6. The noncontrolling interest share that appears in the consolidated income statement is computed as follows:a Consolidated net income is multiplied by the noncontrolling interest percentage.b The subsidiary’s income less amortization of fair/book value differentials is multiplied by the
7. The retained earnings that appear on the consolidated balance sheet of a parent company and its 60 percent–owned subsidiary are:a Parent company’s retained earnings plus 100 percent of the subsidiary’s retained earnings b Parent company’s retained earnings plus 60 percent of the
1. Cobb Company’s current receivables from affiliated companies at December 31, 2016, are (1) a $75,000 cash advance to Hill Corporation (Cobb owns 30 percent of the voting stock of Hill and accounts for the investment by the equity method), (2) a receivable of $260,000 from Vick Corporation for
2. In Pop’s 2016 consolidated income statement, what amount should be reported for amortization of goodwill?a $0 b $24,000 c $36,000 d $40,000
3. In Pop’s December 31, 2016, consolidated balance sheet, what amount should be reported as total retained earnings?a $2,480,000 b $2,720,000 c $2,760,000 d $3,600,000
E3-4 Correction of consolidated net income Liong Corporation paid $2,500,000 in cash for an 80 percent interest in Taro Corporation on January 1, 2016, when the book value of Taro’s net assets was $2,250,000. Some additional information is given below:a Land was overvalued by $100,000.b Equipment
E3-5 Consolidated Balance Sheet after Acquisition On January 1, 2014, Wins Inc. acquired a 70 percent interest in Matt Inc. at a cost of $1,400,000. Matt Inc.’s net assets on this date were $1,500,000. During 2014, Matt Inc. reported net income of $600,000 and declared dividend of$300,000. The
E3-6 Push-down accounting Lizzy NV acquired 100 percent of the outstanding common stock of Patricia NV by issuing 10,000 shares of $10 par common stock with a market value of $45 per share on December 31, 2014. The acquisition is recorded using pushdown accounting. The balance sheet of Patricia NV
E3-7 Consolidated net income Sooseck Co. Ltd. is an 80 percent owned subsidiary of Yum Co. Ltd., acquired on January 1, 2014. The fair values of Sooseck Co. Ltd.’s net assets were equal to the book value on January 1, 2014. Yum Co. Ltd.’s separate net income before recognizing income from
E3-8 Calculate consolidated balance sheet amounts with goodwill and noncontrolling interest Pop Corporation acquired an 80 percent interest in Son Corporation on January 2, 2016, for $1,400,000. On this date the capital stock and retained earnings of the two companies were as follows (in
E3-9 Calculate consolidated net income one year after acquisition Patta and Qira Corporations’ income statements for 2016 are summarized as follows (in thousands):Patta Qira Sales $7,500 $2,500 Cost of Sales (3,200) (1,000)Depreciation expense (500) (200)Other expense (1,280) (500)Net Income
E3-10 Prepare consolidated income statement three years after acquisition Comparative income statements of Pop Corporation and Son Corporation for the year ended December 31, 2018, are as follows (in thousands):Pop Son Sales $3,200 $1,000 Income from Son 261 —Total revenue 3,461 1,000 Less: Cost
P3-1 Prepare a consolidated balance sheet at acquisition date On December 31, 2016, Ali Corporation acquired 90 percent of interest in Baba Corporation at book value in cash. Separate balance sheets before acquisition are summarized as follows (in thousands):Ali Baba Assets Cash $550 $100 Accounts
P3-2 Allocation schedule for fair value/book value differential and consolidated balance sheet at acquisition Pop Corporation acquired 70 percent of the outstanding common stock of Son Corporation on January 1, 2016, for $350,000 cash. Immediately after this acquisition the balance sheet
P3-3 Allocating excess of investment On March 31, 2014, Tobias AG purchased 90 percent of interest in Mark AG for $8,100,000 cash. Mark AG had unrecorded patents on this date for $100,000. The balance sheet summary of Mark AG on March 31, 2014, was as follows (in thousands):Book Value Fair Value
P3-4 Given separate and consolidated balance sheets, reconstruct the schedule to assign the fair value/book value differential Pam Corporation purchased a block of Sun Company common stock for $1,040,000 cash on January 1, 2016. Separate-company and consolidated balance sheets prepared immediately
P3-5 Prepare a consolidated balance sheet one year after acquisition On January 1, 2016, Mignonne Corporation paid $2,850,000 in cash for a 100 percent interest in Petite Corporation when Petite’s common stock was at $2,000,000 and retained earnings were at $500,000.Equipment with a five-year
P3-6 Consolidation after acquisition Harrison PLC acquires 80 percent of David PLC for $2,080,000 on January 1, 2014. The book values of David PLC’s assets and liabilities are equal to the fair values. David PLC reports net income of $500,000 during the year. Dividends of $200,000 are declared by
P3-7 Calculate items that may appear in consolidated statements two years after acquisition Pop Corporation acquired 80 percent of the outstanding stock of Son Corporation for $1,120,000 cash on January 3, 2016, on which date Son’s stockholders’ equity consisted of capital stock of $800,000 and
P3-8[Based on AICPA] Prepare journal entries to account for investments, and compute noncontrolling interest, consolidated retained earnings, and investment balances On January 1, 2016, Pop Corporation made the following investments:
1. Acquired for cash, 80 percent of the outstanding common stock of Son Corporation at $280 per share.The stockholders’ equity of Son on January 1, 2016, consisted of the following:Common stock, par value $100 $200,000 Retained earnings 80,000
2. Acquired for cash, 70 percent of the outstanding common stock of Sam Corporation at $160 per share. The stockholders’ equity of Sam on January 1, 2016, consisted of the following:Common stock, par value $40 $240,000 Capital in excess of par value 80,000 Retained earnings 160,000
3. After these investments were made, Pop was able to exercise control over the operations of both companies.An analysis of the retained earnings of each company for 2016 is as follows:Pop Son Sam Balance January 1 $ 960,000 $ 80,000 $160,000 Net income (loss) 418,400 144,000 (48,000)Cash dividends
2. Compute the amount of noncontrolling interest in each subsidiary’s stockholders’ equity at December 31, 2016.
3. What amount should be reported as consolidated retained earnings of Pop Corporation and subsidiaries as of December 31, 2016?
4. Compute the correct balances of Pop’s Investment in Son and Investment in Sam accounts at December 31, 2016, before consolidation.
P3-9 Consolidated balance sheet workpapers with patent and consolidated net income Peeves Corporation paid $4,000,000 in cash for an 80 percent interest in Jeeves Corporation on January 1, 2016, when Jeeves’ common stock was at $2,500,000 and retained earnings were at $500,000. Comparative
P3-10 Calculate investment cost and account balances from a consolidated balance sheet five years after acquisition The consolidated balance sheet of Pam Corporation and its 80 percent subsidiary, Sun Corporation, contains the following items on December 31, 2020 (in thousands):Cash $ 160
P3-11 Consolidated balance sheet workpapers (fair value/book value differentials and noncontrolling interest)Pop Corporation acquired a 70 percent interest in Son Corporation on January 1, 2016, for $2,800,000, when Son’s stockholders’ equity consisted of $2,000,000 capital stock and $1,200,000
P3-12 Calculate separate company and consolidated statement items given investment account for three years A summary of changes in Pam Corporation’s Investment in Sun account from January 1, 2016, to December 31, 2018, follows (in thousands):INVESTMENT IN SUN (80%)January 1, 2016 6,080
PR 3-1 Throughout this chapter we typically indicate that acquisitions take place on January
2. At what date should a business combination be recorded?
PR 3-2 What disclosures are required for a parent company with a less than wholly owned subsidiary?
PR 1-2 Does current GAAP provide any exceptions to the fair-value measurement principle for business combinations?
PR 1-1 What are the required disclosures related to goodwill included in the consolidated balance sheet?
P1-8[Appendix] Journal entries and balance sheet for a pooling of interests On January 2, 2000, Pop and Son Corporation merged their operations through a business combination accounted for as a pooling of interests. The $300,000 direct costs of combination were paid in cash by the surviving entity
[Appendix] Journal entries to record pooling business combinations Pam and Sun Corporations entered into a business combination accounted for as a pooling of interests in which Sun was dissolved. Net assets and stockholders’ equities of the two companies immediately before the pooling follow (in
[Appendix] Prepare balance sheets of pooled companies Pop Corporation issued its own common stock for all the outstanding shares of Son Corporation in a pooling of interests business combination on January 1, 2000. The balance sheets of the two companies at December 31, 1999, were as follows (in
Journal entries and balance sheet for an acquisition Ling Corporation decided to acquire all of Huang Corporation’s voting common stock on January 1, 2017. The purchase price consisted of $10,000 for the registering and issuing of 10,000 shares of Ling Corporation. The market value of the
Bargain purchase, allocation schedule, and balance sheet The balance sheets for Pablo Corporation and Diego Corporation at December 31, 2016 are summarized as follows (in thousands):Pablo Corporation Diego Corporation Book Value Fair Value Book Value Fair Value Assets Cash $100 $100 $40 $40
P1-3 Journal entries and balance sheet for an acquisition On January 2, 2016, Pam Corporation issues its own $10 par common stock for all the outstanding stock of Sun Corporation in an acquisition. Sun is dissolved. In addition, Pam pays $40,000 for registering and issuing securities and $60,000
P1-2 Balance sheet after an acquisition On December 31, Jose SA acquired Carlos SA by issuing 200,000 common shares with a par value of $10. The market value for these common shares was $10,000,000 at the date of acquisition. Below is the balance sheet and fair value information for Jose SA and
Acquisition journal entries Phen Ltd. issued 500,000 common shares of $10 at par and paid $1,000,000 for the net assets of Sung Ltd. on August 17, 2014. The market value of Phen Ltd.’s stocks was $20 per share at the time.Sung Ltd. was dissolved immediately after the acquisition. The information
[Appendix] Journal entries to record a pooling On January 1, 2000, Pam Corporation held 2,000 shares of Sun Corporation common stock acquired at $15 per share several years earlier. On this date, Pam issued 1.5 of its $10 par value shares for each of the other 98,000 outstanding shares of Sun in a
E1-6[Appendix] Journal entries to record business combinations Pop Company issued 120,000 shares of $10 par common stock with a fair value of $2,550,000 for all the voting common stock of Son Company. In addition, Pop incurred the following additional costs:Legal fees to arrange the business
Book value different from the fair value Van NV acquired Jong NV by issuing convertible bonds for $5,000,000 and 500,000 shares of $10 par value of common stock with market value of $5,000,000. Given below is the information of Jong NV’s liabilities at the time of the acquisition (in
E1-4 Goodwill or gain of bargain purchases in business combination On July 1, Winter Inc. paid $50,000,000 in cash to acquire Summer Inc. Summer was dissolved after the acquisition.Information for the fair values of Summer Inc.’s net assets is as follows (in thousands):January 1 July 1 Cash
On March 10, PT Pratama Tbk issued 1,000,000 of its common shares with a par value of $20 to acquire PT Sumber Tbk. The fair value of the stock at the time was $40 per share. PT Pratama Tbk incurred costs of $200,000 for registering and issuing the securities, $50,000 for printing the shares,

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