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modern advanced accounting

Advanced Accounting 2nd Edition Debra C. Jeter, Paul Chaney - Solutions

Upstream Workpaper—Partial Equity Method (Note: This is the same problem as Problem 6-7, but assuming the use of the partial equity method.)Paque Corporation owns 90% of the common stock of Segal Company. The stock was purchased for $810,000 on January 1, 2000, when Segal Company’s retained
Upstream and Downstream Workpaper—Partial Equity Method On January 1, 2003, Perry Company purchased 80% of Selby Company for $960,000. At that time Selby had capital stock outstanding of $400,000 and retained earnings of $400,000.The fair value of Selby Company’s assets and liabilities is equal
Upstream and Downstream Sales, Journal Entries, and Controlling and Noncontrolling Interests LO5 On January 1, 2002, Paul Company purchased 80% of the voting stock of Simon Company for $1,360,000 when Simon Company had retained earnings and capital stock in the amounts of $450,000 and $1,000,000,
Complete Equity with Downstream Sales (Note: This is the same problem as Problem 6-11, but assuming the use of the complete equity method.) LO5 Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000 on January 1, 2000, when Sedbrook Company’s
Complete Equity with Upstream Sales (Note: This is the same problem as Problem 6-7 and Problem 6-13, but assuming the use of the complete equity method.)Paque Corporation owns 90% of the common stock of Segal Company. The stock was purchased for $810,000 on January 1, 2000, when Segal Company’s
Comprehensive Complete Equity Problem, Cost Greater Than Fair Value with Intercompany Sales of Inventory (Note: This is the same problem as Problem 6-14, but assuming the use of the complete equity method.) LO5 On January 1, 2003, Perry Company purchased 80% of Selby Company for $960,000. At that
Deferred Taxes and Intercompany Sales of Inventory Pearson Company owns 80% of the common stock of Sedbrook Company. Pearson Company sells merchandise to Sedbrook Company at 25% above its cost. During 2004 and 2005, such sales amounted to $265,000 and $475,000, respectively. The 2004 and 2005
Deferred Taxes, Intercompany Sales of Inventory, Cost Method Peck Corporation owns 70% of the common stock of Seacrest Company. The stock was purchased for $420,000 on January 1, 2000, when Seacrest Company’s retained earnings were $100,000. Preclosing trial balances for the two companies at
Deferred Taxes, Intercompany Sales of Inventory, Partial Equity Method Petra Corporation owns 70% of the common stock of Swain Company. The stock was purchased for $420,000 on January 1, 2000, when Swain Company’s retained earnings were $100,000. Preclosing trial balances for the two companies at
Understand the financial reporting objectives in accounting for intercompany sales of nondepreciable assets on the consolidated financial statements. LO5
Explain the additional financial reporting objectives in accounting for intercompany sales of depreciable assets on the consolidated financial statements. LO5
Explain when gains or losses on intercompany sales of depreciable assets should be recognized on a consolidated basis. LO5
Explain the term “realized through usage.” LO5
Describe the differences between upstream and downstream sales in determining combined income and the controlling interest in combined income. LO5
Compare the eliminating entries when the selling affiliate is a subsidiary (less than wholly owned) versus when the selling affiliate is the parent company. LO5
Compute the noncontrolling interest in combined income when the selling affiliate is a subsidiary. LO5
Compute consolidated net income considering the effects of intercompany sales of depreciable assets. LO5
Describe the eliminating entry needed to adjust the consolidated financial statements when the purchasing affiliate sells a depreciable asset that was acquired from another affiliate. LO5
Explain the basic principles used to record or eliminate intercompany interest, rent, and service fees. LO5
From a consolidated point of view, when should profit be recognized on intercompany sales of depreciable assets? Nondepreciable assets? LO5
In what circumstances might a consolidated gain be recognized on the sale of assets to a nonaffiliate when the selling affiliate recognizes a loss? LO5
Define consolidated net income using the t-account approach. LO5
Why is it important to distinguish between upstream and downstream sales in the analysis of intercompany profit eliminations? LO5
Define consolidated retained earnings using the analytical approach. LO5
Identify the types of transactions that change the parent company’s ownership interest in a subsidiary. LO3
Describe the eliminating entries needed when the parent acquires subsidiary shares through multiple open market purchases. LO3
Explain how the parent determines the cost basis of subsidiary shares sold subsequent to acquisition. LO3
Compute the controlling interest in income after the parent sells some shares of the subsidiary company. LO3
Describe the effect on the eliminating process when the subsidiary issues new shares entirely to the parent, and the parent pays either more or less than the book value of the subsidiary shares. LO3
Describe the impact on the parent’s investment account when the subsidiary issues new shares and either the new shares are purchased ratably by the parent and noncontrolling shareholders or entirely by the noncontrolling shareholders. LO3
Describe the impact on the consolidation process when the subsidiary acquires treasury stock from the noncontrolling shareholders. LO3
Identify three types of transactions that result in a change in a parent company’s ownership interest in its subsidiary. LO3
Why is the date of acquisition of subsidiary stock important under the purchase method? LO3
A gain or loss on the sale of a portion of its investment by a parent company that records its investment using the cost method during a fiscal period consists of three elements. What are they? LO3
Explain how a parent company that owns less than 100% of a subsidiary can purchase an entire new issue of common stock directly from the subsidiary. LO3
When a subsidiary issues additional shares of stock to noncontrolling stockholders and such issuance EXERCISES Chapter 8 Changes in Ownership Interest results in an increase in the book value of the parent’s share of the subsidiary’s equity, what justification exists for treating this increase
Describe the accounting treatment required under current GAAP for varying levels of influence or control by investors. LO6
Prepare journal entries on the parent’s books to account for an investment using the cost method, the partial equity method, and the complete equity method. LO6
Prepare a schedule for the computation and allocation of the difference between cost and book value. LO6
Prepare the workpaper eliminating entries for the year of acquisition (and subsequent years) for the cost and equity methods. LO6
Describe two alternative methods to account for interim acquisitions of subsidiary stock at the end of the first year. LO6
Explain how the consolidated statement of cash flows differs from a single firm’s statement of cash flows. LO6
Understand how the reporting of an acquisition on the consolidated statement of cash flows differs when stock is issued rather than cash. LO6
How should nonconsolidated subsidiaries be reported in consolidated financial statements? LO6
How are liquidating dividends treated on the books of an investor, assuming the investor uses the cost method? Assuming the investor uses the equity method? LO6
How are dividends declared and paid by a subsidiary during the year eliminated in the consolidated workpapers under each method of accounting for investments? LO6
How is the income reported by the subsidiary reflected on the books of the investor under each of the methods of accounting for investments? LO6
Define: consolidated net income; consolidated retained earnings. LO6
Describe two methods for treating the preacquisi- tion revenue and expense items of a subsidiary pur- chased during a fiscal period. LO6
In the preparation of a consolidated statement of cash flows, what adjustments are necessary because of the existence of a noncontrolling interest? (AICPA adapted.) LO6
Is the recognition of a deferred tax asset or deferred tax liability when allocating the differ- ence between cost and book value affected by whether or not the affiliates file a consolidated income tax return? LO6
What assumptions must be made about the real- ization of undistributed subsidiary income when the affiliates file separate income tax returns? Why? LO6
Identify two types of temporary differences that may arise in the consolidated financial statements when the affiliates file separate income tax returns. LO6
Parent Company Entries, Liquidating Dividend Percy Company purchased 80% of the outstanding voting shares of Song Company at the beginning of 2002 for $387,000. At the time of purchase, Song Company’s total stockholders’equity amounted to $475,000. Income and dividend distributions for Song
Workpaper Eliminating Entries, Cost Method Park Company purchased 90% of the stock of Salt Company on January 1, 1998, for $465,000, an amount equal to $15,000 in excess of the book value of equity acquired. This excess payment relates to an undervaluation of Salt Company’s land. On the date of
Workpaper Eliminating Entries, Equity Method At the beginning of 1995, Presidio Company purchased 95% of the common stock of Succo Company for $494,000. On that date, Succo Company’s stockholders’ equity consisted of the following: LO6 Common Stock $300,000 Other Contributed Capital 100,000
Workpaper Eliminating Entries, Losses by Subsidiary Poco Company purchased 85% of the outstanding common stock of Serena Company on December 31, 2002, for $310,000 cash. On that date, Serena Company’s stockholders’ equity consisted of the following: LO6 Common Stock $240,000 Other Contributed
Eliminating Entries, Noncontrolling Interest On January 1, 2002, Plate Company purchased a 90% interest in the common stock of Set Company for $650,000, an amount $20,000 in excess of the book value of equity acquired.The excess relates to the understatement of Set Company’s land
Parent Entries and Eliminating Entries, Equity Method, Year of Acquisition On January 1, 2002, Pert Company purchased 85% of the outstanding common stock of Sales Company for $350,000. On that date, Sales Company’s stockholders’ equity consisted of common stock, $100,000; other contributed
Equity Method, Year Subsequent to Acquisition Continue the situation in Exercise 4-6 and assume that during 2003 Sales Company earned $190,000 and declared and paid a $50,000 dividend. LO6 Required:A. Prepare the investment-related entries on Pert Company’s books for 2003.B. Prepare the workpaper
Interim Purchase of Stock, Full-Year Reporting Alternative, Cost Method On May 1, 2000, Peters Company purchased 80% of the common stock of Smith Company for $50,000. Additional data concerning these two companies for the years 2000 and 2001 are: LO6 2000 2001 Peters Smith Peters Smith Common Stock
Interim Purchase, Partial-Year Reporting Alternative, Cost Method Using the data presented in Exercise 4-8, prepare workpaper elimination entries for 2000 assuming use of the partial-year reporting alternative. LO6 Interim Purchase, Equity Method On October 1, 2003, Para Company purchased 90% of
Cash Flow from Operations A consolidated income statement and selected comparative consolidated balance sheet data for Palano Company and subsidiary follow: LO6 PALANO COMPANY AND SUBSIDIARY Consolidated Income Statement For the Year Ended December 31, 2003 Sales $701,000 Cost of Sales 263,000
Allocation of Difference Between Cost and Book Value, Parent Company Entries, Three Methods On January 1, 2005, Plutonium Corporation acquired 80% of the outstanding stock of the Sulfurst Inc. for $268,000 cash. The following balance sheet shows Sulfurst Inc.’s book values immediately prior to
Subsidiary Loss The following accounts appeared in the separate financial statements at the end of 2009 for Pressing Inc. and its wholly owned subsidiary, Stressing Inc. Stressing was acquired in 2004.Pressing Inc. Stressing Inc. LO6 Investment in Subsidiary 660,000 Dividends Receivable 5,000
Cash Flow Statement, Year of Acquisition Badco Inc. purchased a 90% interest in Lazytoo Company for $600,000 cash on January 1, 2004. Any excess of cost over book value was attributed to depreciable assets with a 15-year remaining life (straight-line depreciation). To help pay for the acquisition,
Entries for Deferred Taxes from Undistributed Income, Cost and Equity On January 1, 2002, Plenty Company purchased a 70% interest in the common stock of Set Company for $650,000, an amount $20,000 in excess of the book value of equity acquired.The excess relates to the understatement of Set
Parent Company Entries, Three Methods OnJ anuary 1, 2000, Perelli Company purchased 90,000 of the 100,000 outstanding shares of common stock of Singer Company as a long-term investment. The purchase price of $4,972,000 was paid in cash. At the purchase date, the balance sheet of Singer Company
Determine Method, Consolidated Workpaper, Wholly Owned Subsidiary Parry Corporation acquired a 100% interest in Sent Company on January 1, 2002, paying $140,000. Financial statement data for the two companies for the year ended December 31, 2002 follow: LO6 Income Statement Parry Sent Sales
Consolidated Workpaper, Wholly Owned Subsidiary Perkins Company acquired 100% of Schultz Company on January 1, 2003, for $161,500. On December 31, 2003, the companies prepared the following trial balances: LO6 Perkins Schultz Cash $ 25,000 $ 30,000 Inventory 105,000 97,500 Investment in Schultz
Consolidated Workpaper, Partially Owned Subsidiary, Cost Method Place Company purchased 92% of the common stock of Shaw, Inc. on January 1, 2003, for $400,000. Trial balances at the end of 2003 for the companies were: LO6 Place Shaw Cash $ 80,350 $ 87,000 Accounts and Notes Receivable 200,000
Consolidated Workpaper, Partially Owned Subsidiary—Subsequent Years On January 1, 2003, Perez Company purchased 90% of the capital stock of Sanchez Company for $85,000. Sanchez Company had capital stock of $70,000 and retained earnings of $12,000 at that time. On December 31, 2007, the trial
Consolidated Workpaper, Partially Owned Subsidiary—Subsequent Years On January 1, 1999, Plank Company purchased 80% of the outstanding capital stock of Scoba Company for $53,000. At that time, Scoba’s stockholders’ equity consisted of capital stock, $55,000; other contributed capital,
Consolidated Workpaper, Partially Owned Subsidiary—Subsequent Years, Cost Method Price Company purchased 90% of the outstanding common stock of Score Company on January 1, 2002; for $450,000. At that time, Score Company had stockholders’ equity consisting of common stock, $200,000; other
Consolidated Workpapers, Two Consecutive Years, Cost Method On January 1, 2003, Parker Company purchased 95% of the outstanding common stock of Sid Company for $160,000. At that time, Sid’s stockholders’ equity consisted of common stock, $120,000; other contributed capital, $10,000; and
Consolidated Workpaper, Treasury Stock, Cost Method December 31, 2002, trial balances for Pledge Company and its subsidiary Stom Company follow: LO6 Pledge Stom Cash and Marketable Securities $ 184,600 $ 72,000 Receivables (net) 182,000 180,000 Inventory 214,000 212,000 Investment in Stom Company
Consolidated Workpaper, Equity Method Poco Company purchased 80% of Solo Company’s common stock on January 1, 2003, for $250,000. On December 31, 2003, the companies prepared the following trial balances: LO6 Poco Solo Cash $161,500 $125,000 Inventory 210,000 195,000 Investment in Solo Company
Consolidated Workpaper, Equity Method (Note that this is the same problem as Problem 4-7, but assuming the use of the equity method.)Price Company purchased 90% of the outstanding common stock of Score Company on January 1, 2002, for $450,000. At that time, Score Company had stockholders’ equity
Consolidated Workpaper, Treasury Stock, Equity Method (Note that this problem is the same as Problem 4-9, but assuming the use of the equity method.)December 31, 2002, trial balances for Pledge Company and its subsidiary Stom Company follow: LO6 Pledge Stom Cash and Marketable Securities $ 184,600
Interim Purchase, Full-Year Reporting Alternative, Cost Method Punca Company purchased 85% of the common stock of Surrano Company on July 1, 2003, for a cash payment of $590,000. December 31, 2003, trial balances for Punca and Surrano were: LO6 Punca Surrano Current Assets $ 150,000 $ 180,000
Interim Purchase, Partial-Year Reporting Alternative, Cost Method Using the data given in Problem 4-14, prepare a workpaper for the preparation of consolidated financial statements at December 31, 2003, assuming that Surrano Company’s revenue and expense accounts are included in the consolidated
Interim Purchase, Full-Year Reporting Alternative, Equity Method Pillow Company purchased 90% of the common stock of Satin Company on May 1, 2002, for a cash payment of $474,000. December 31, 2002, trial balances for Pillow and Satin were: LO6 Pillow Satin Current Assets $ 390,600 $ 179,200
Interim Purchase, Partial-Year Reporting Alternative, Equity Method Using the data given in Problem 4-16, prepare a workpaper for the preparation of consolidated financial statements at December 31, 2002, assuming that Satin Company’s revenue and expense accounts are included in the consolidated
Consolidated Statement of Cash Flows, Indirect Method A consolidated income statement for 2004 and comparative consolidated balance sheets for 2003 and 2004 for P Company and its 80% owned subsidiary follow: LO6 P COMPANY Consolidated Income Statement For the Year Ended December 31, 2004 Sales
Consolidated Statement of Cash Flows, Direct Method The consolidated income statement for the year ended December 31, 2005, and comparative balance sheets for 2004 and 2005 for Parks Company and its 90% owned subsidiary SCR, Inc. are as follows: LO6 PARKS COMPANY AND SUBSIDIARY Consolidated Income
Calculate and allocate the difference between cost and book value to the subsidiary's assets and liabilities. LO2
Explain how any excess of fair value over acquisition cost of net assets is allocated to reduce the subsidiary's assets and liabilities in the case of bargain purchases. LO2
Explain how goodwill is measured at the time of the acquisition. LO2
Describe how the allocation process differs if less than 100% of the subsidiary is acquired. LO2
Record the entries needed on the parent's books to account for the investment under the three methods: the cost, the partial equity, and the complete equity methods. LO2
Prepare workpapers for the year of acquisition and the year(s) subsequent to the acquisition, assuming that the parent accounts for the investment using the cost, the partial equity, and the complete equity methods. LO2
Understand the allocation of the difference between cost and book value to long-term debt components. LO2
Explain how to allocate the difference between cost and book value when some assets have fair values below book values. LO2
Distinguish between recording the subsidiary depreciable assets at net versus gross fair values. LO2
Understand the concept of push down accounting. LO2
Distinguish among the following concepts: (a) Difference between cost and book value. (b) Excess of cost over fair value. (e) Excess of fair value over cost. (d) Deferred excess of fair value over cost. LO2
In what account is "the difference between cost and book value" recorded on the books of the investor? In what account is the "excess of cost over fair value" recorded? LO2
How do you determine the amount of "the differ- ence between cost and book value" to be allocated to a specific asset of a less than wholly owned sub- sidiary? LO2
Why are marketable securities excluded from the noncurrent assets to which any excess of fair value over cost is to be allocated? LO2
Corporation A purchased the net assets of Corporation B for $80,000. On the date of A’s purchase, Corporation B had no long-term investments in marketable securities and $10,000 (book and fair value) of liabilities. The fair values of Corporation B’s assets, when acquired, were LO2 Current

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