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modern advanced accounting
Advanced Accounting 2nd Edition Debra C. Jeter, Paul Chaney - Solutions
Meredith Company and Kyle Company were combined in a purchase transaction. Meredith was able to acquire Kyle at a bargain price. The sum of the market or appraised values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Meredith. After reducing
How does the recording in the consolidated statements workpaper of the increase in depreciation that results from the allocation of a portion of the difference between cost and book value to depreciable property affect the calculation of noncontrolling interest in combined income? LO2
Allocation of Cost On January 1, 2003, Pam Company purchased an 85% interest in Shaw Company for $540,000. On this date, Shaw Company had common stock of $400,000 and retained earnings of $140,000. An examination ot Shaw Company’s assets and liabilities revealed that their book value was equal to
End of the Year of Acquisition Workpaper Entries On January 1, 2005, Payne Corporation purchased a 75% interest in Salmon Company for $585,000. A summary of Salmon Company’s balance sheet on that date revealed the following: LO2 Book Value Fair Value Equipment $ 525,000 $ 705,000 Other Assets
Allocation of Cost Pace Company purchased 20,000 of the 25,000 shares of Saddler Corporation for $525,000.On January 3, 2004, the acquisition date, Saddler Corporation’s capital stock and retained earnings account balances were $500,000 and $100,000, respectively. The following values were
Allocation of Cost and Workpaper Entries at Date of Acquisition On January 1, 2005, Porter Company purchased an 80% interest in Salem Company for $260,000. On this date, Salem Company had common stock of $207,000 and retained earnings of $130,500.An examination of Salem Company’s balance sheet
T-Account Calculation of Controlling Interest in Combined Net Income On January 1, 2004, P Company purchased an 80% interest in S Company for $600,000, at which time S Company had retained earnings of $300,000 and capital stock of $350,000. Any difference between cost and book value was entirely
Workpaper Entries Park Company acquires an 85% interest in Sunland Company on January 2, 2005. The resulting difference between cost and book value in the amount of $120,000 is entirely attributable to equipment with an original life of 15 years and a remaining useful life, on January 2, 2005, of
Workpaper Entries On January 1, 2004, Packard Company purchased an 80% interest in Sage Company for $600,000. On this date Sage Company had common stock of $150,000 and retained earnings of $400,000.Sage Company’s equipment on the date of Packard Company’s purchase had a book value of $400,000
Workpaper Entries and Gain on Sale of Land Padilla Company purchased 80% of the common stock of Sanoma Company in the open market on January 1, 2003, paying $31,000 more than the book value of the interest acquired. The difference between cost and book value is attributable to land. LO2 Required:A.
Allocation of Cost and Workpaper Entries On January 1, 2003, Point Corporation acquired an 80% interest in Sharp Company for $2,000,000. At that time Sharp Company had capital stock of $1,500,000 and retained earnings of $700,000. The book values of Sharp Company’s assets and liabilities were
Allocation of Cost and Workpaper Entries On January 2, 2003, Page Corporation acquired a 90% interest in Salcedo Company for $3,500,000. At that time Salcedo Company had capital stock of $2,250,000 and retained earnings of $1,250,000. The book values of Salcedo Company’s assets and liabilities
Workpaper Entries for Three Years On January 1, 2003, Piper Company acquired an 80% interest in Sand Company for $2,276,000. At that time the capital stock and retained earnings of Sand Company were $1,800,000 and $700,000, respectively. Differences between the fair value and the book value of the
Workpaper Entries and Consolidated Retained Earnings, Cost Method A 90% interest in Saxton Corporation was purchased by Palm Incorporated on January 2, 2004. The capital stock balance of Saxton Corporation was $3,000,000 on this date, and the balance in retained earnings was $1,000,000. The cost of
Push Down Accounting Pascal Corporation purchased 90% of the stock of Salzer Company for $2,070,000 on January 1, 2005. On this date, the fair value of the assets and liabilities of Salzer Company was equal to their book value except for the inventory and equipment accounts. The inventory had a
Workpaper Entries and Consolidated Retained Earnings, Partial Equity A 90% interest in Saxton Corporation was purchased by Palm Incorporated on January 2, 2004. The capital stock balance of Saxton Corporation was $3,000,000 on this date, and the balance in retained earnings was $1,000,000. The cost
Workpaper Entries and Consolidated Retained Earnings, Complete Equity ;A 90% interest in Saxton Corporation was purchased by Palm Incorporated on January 2, 2004. The capital Stock balance of Saxton Corporation was $3,000,000 on this date, and the balance in retained earnings was $1,000,000. The
Goodwill Impairment On January 1, 2003, Porsche Company acquired 100° of Saab Company’s stock for $450,000 cash. The fair value of Saab’s identifiable net assets was $375,000 on this date. Porsche Company decided to measure goodwill impairment using comparable prices of similar businesses to
Accounting for the Transition in Goodwill Treatment Porch Company acquired 100% of the stock of Stairs Company on January 1, 2000, for $600,000. The management of Porch recently adopted a vertical merger strategy. On the date of the combination (immediately before the acquisition), the assets,
Workpaper Entries and Consolidated Net Income for Two Years, Cost Method On January 1, 2004, Palmero Company purchased an 80% interest in Santos Company for $9,800,000, at which time Santos Company had retained earnings of $1,000,000 and capital stock of $500,000. On the date of acquisition, the
Workpaper Entries and Consolidated Net Income for Two Years, Partial Equity Method On January 1, 2004, Paxton Company purchased a 70% interest in Sagon Company for $1,300,000, at which time Sagon Company had retained earnings of $500,000 and capital stock of $1,000,000. On January 1, 2004, the fair
Workpaper Entries and Consolidated Net Income, Complete Equity Method Perke Corporation purchased 80% of the stock of Superstition Company for $1,970,000 on January 1, 2005. On this date, the fair value of the assets and liabilities of Superstition Company was equal to their book value except for
Eliminating Entries and Worksheets for Various Years On January 1, 2003, Porter Company purchased an 80% interest in the capital stock of Salem Company for $850,000. At that time, Salem Company had capital stock of $550,000 and retained earnings of $80,000.Differences between the fair value and the
Workpaper Entries and Consolidated Financial Statements On January 1, 2004, Palmer Company acquired a 90% interest in Stevens Company at a cost of $1,000,000. At the purchase date, Stevens Company’s stockholders’ equity consisted of the following: LO2 Common Stock Retained Earnings $500,000
Workpaper Entries for Two Years and Sale of Equipment in Year Two On January 1, 2004, Perini Company purchased an 85% interest in Silvas Company for $400,000. On this date, Silvas Company had common stock of $90,000 and retained earnings of $210,000. An examination of Silvas Company’s assets and
Workpaper Entries and Sale of Equipment in Year Three, Complete Equity On January 1, 2004, Pueblo Corporation purchased a 75% interest in Sanchez Company for $900,000. A summary of Sanchez Company’s balance sheet at date of purchase follows: LO2 Book Value Fair Value Equipment $ 720,000
Eliminating Entries and Consolidated Net Income Patten Corporation acquired an 85% interest in Savage Company for $3,100,000 on January il, 2004. On this date, the balances in Savage Company’s capital stock and retained earnings accounts were $2,000,000 and $700,000, respectively.An examination
Workpaper Entries and Consolidated Net Income for Year of Acquisition On January 1, 2004, Pump Company acquired all the outstanding common stock of Sound Company for $556,000 in cash. Financial data relating to Sound Company on January 1, 2004, are presented here: LO2 Balance Sheet Book Value Fair
Workpaper Entries for Year of Acquisition Pearson Company purchased a 100% interest in Sanders Company and a 90% interest in Taylor Company on Jariuary 2, 2004, for $800,000 and $1,300,000, respectively. The account balances and fair values of the acquired companies on the acquisition date were as
Eliminating Entries and Worksheets for Various Years (Note. This is the same problem as Problem 5-4, but assuming the use of the partial equity method.)OnJ anuary 1, 2003, Porter Company purchased an 80% interest in the capital stock of Salem Company for $850,000. At that time, Salem Company had
Workpaper Entries and Consolidated Financial Statements (Note. This is the same problem as Problem 5-5 but assuming the use of the partial equity method.)On January 1, 2004, Palmer Company acquired a 90% interest in Stevens Company at a cost of $1,000,000. At the purchase date, Stevens Company’s
Push Down Accounting On January 2, 2004, Press Company purchased on the open market 90% of the outstanding common stock of Sensor Company for $800,000 cash. Balance sheets for Press Company and Sensor Company on January 1, 2004, just before the stock acquisition by Press Company, were: LO2 Press
Push Down Accounting On January 1, 2002, Push Company purchased an 80% interest in the capital stock of WayDown Company for $820,000. At that time, WayDown Company had capital stock of $500,000 and retained earnings of $100,000. Differences between the fair value and the book value of identifiable
Push Down Accounting On January 1, 2002, Push Company purchased an 80% interest in the capital stock of Down Company for $820,000. At that time, Down Company had capital stock of $500,000 and retained earnings of $100,000. Differences between the fair value and the book value of identifiable assets
Eliminating Entries and Worksheets for Various Years (Note: This is the same problem as Problem 5-4 and Problem 5-11, but assuming the use of the complete equity method.)On January 1, 2003, Porter Company purchased an 80% interest in the capital stock of Salem Company for $850,000. At that time,
Workpaper Entries and Consolidated Financial Statements (Note: This is the same problem as Problem 5-5 and Problem 5-12, but assuming the use of the complete equity method.)On January 1, 2004, Palmer Company acquired a 90% interest in Stevens Company at a cost of $1,000,000. At the purchase date,
Impact on Future Profits and In-Process R&D The Mcquire Company is considering acquiring 100% of the Sosa Company. The management of Mcquire fears that the acquisition price may be too high. Condensed financial statements for Sosa Company for the current year are as follows: LO2 Income Statement
Deferred Tax Effects On January 1, 2005, Pruitt Company issued 25,500 shares of its common stock in exchange for 85% of the outstanding common stock of Shah Company. Pruitt’s common stock had a fair value of $28 per share at that time. Pruitt Company uses the cost method to account for its
Understand the concept of control as used in reference to consolidations. LO7
Explain the role of a noncontrolling interest in business combinations. LO7
Describe the reasons why a company acquires a subsidiary rather than its net assets. LO7
Describe the valuation and classification of accounts in consolidated financial statements. LO7
List the requirements for inclusion of a subsidiary in consolidated financial statements. LO7
Discuss the limitations of consolidated financial statements. LO7
Record the investment in the subsidiary on the parent’s books at the date of acquisition. LO7
Prepare the consolidated workpapers and eliminating entries at the date of acquisition. LO7
Compute and allocate the difference between cost (purchase price) and book value of the acquired firm’s equity. LO7
What are the advantages of acquiring the majority of the voting stock of another company rather than acquiring all its voting stock? LO7
What is the justification for preparing consolidated financial statements when, in fact, it is apparent that the consolidated group is not a legal entity? LO7
What aspects of control must exist before a subsidiary is consolidated? LO7
Why are consolidated workpapers used in preparing consolidated financial statements? LO7
Define noncontrolling (minority) interest. List three methods of reporting the noncontrolling interest in a consolidated balance sheet. LO7
Give several reasons why a parent company would be willing to pay more than book value for subsidiary stock acquired. LO7
What effect do subsidiary treasury stock holdings have at the time the subsidiary is acquired? How should the treasury stock be treated on consolidated workpapers? LO7
What effect does a noncontrolling interest have on the amount of intercompany receivables and payables eliminated on a consolidated balance sheet? LO7
Did the decision in SFAS No. 109 to require that a deferred tax asset or liability be recognized for differences between the assigned values and tax bases of assets and liabilities recognized in purchase business combinations change the amount of consolidated net income reported in years subsequent
Workpaper Elimination Entries: Three Cases Prepare in general journal form the workpaper entries to eliminate Prancer Company’s investment in Saltez Company and to allocate any difference between cost and book value in the preparation of a consolidated balance sheet at the date of acquisition for
Stock Purchase Entries On January 1, 2004, Polo Company purchased 100% of the common stock of Save Company by issuing 40,000 shares of its (Polo’s) $10 par value common stock with a market price of$17.50 per share. Polo incurred cash expenses of $20,000 for registering and issuing the common
Consolidated Balance Sheet, Stock Purchase On January 2, 2004, Prunce Company acquired 90% of the outstanding common stock of Sun Company for $192,000 cash. Just before the acquisition, the balance sheets of the two companies were as follows: LO7 Prunce Sun Cash $260,000 $ 64,000 Accounts
Purchase, Date of Acquisition On January 1, 2003, Peach Company issued 1,500 of its $20 par value common shares with a fair value of $60 per share in exchange for the 2,000 outstanding common shares of Swartz Company in a purchase transaction. Registration costs amounted to $1,700, paid in cash.
Treasury Stock Held by Subsidiary Pool Company purchased 90% of the outstanding common stock of Spruce Company on December 31, 2004, for cash. At that time the balance sheet of Spruce Company was as follows: LO7 Current Assets $1,050,000 Plant and Equipment 990,000 Land 170,000 Total Assets
Elimination Entry, Consolidated Balance Sheet On December 31, 2003, Price Company purchased a controlling interest in Shipley Company. The balance sheet of Price Company and the consolidated balance sheet on December 31, 2003 were as follows: LO7 Price Company Consolidated Cash $ 22,000 $ 37,900
Intercompany Receivables and Payables Polychromasia, Inc. had a number of receivables from subsidiaries at the balance sheet date, as well as several payables to subsidiaries. Of its five subsidiaries, four are consolidated in the financial statements (Green Company, Black Inc., White & Sons, and
Stock Acquisition, Journal Entry by Parent Peep Inc. acquired 100% of the outstanding common stock of Shy Inc. for $2,500,000 cash and 15,000 shares of its common stock ($2 par value). The stock’s market value was $40 on the acquisition date. LO7 Required:Prepare the journal entry to record the
Acquisition Costs Assume the same information from Exercise 3-8. In addition, Peep Inc. incurred the following direct costs: LO7 Accounting fees for the purchase $15,000 Legal fees for registering the common stock 30,000 Other legal fees for the acquisition 45,000 Travel expenses to meet with Shy
B Deferred Tax Effects, Acquisition Entry and Eliminating Entries Patel Company paid $570,000 for 95% of the common stock of Seely Company on January 1, 2004. Seely Company had the following assets, liabilities, and owners’ equity at that time: LO7 Cash Accounts Receivable Inventory (LIFO)Land
Deferred Tax Effects at Date of Acquisition Profeet Company purchased the Starless Company in a nontaxable purchase combination consummated as a stock acquisition. Profeet issued 10,000 shares of $5 par value common stock, with a market value of $70, in exchange for all the stock of Starless. The
Consolidated Workpaper: Two Cases The following two separate cases show the financial position of a parent company and its subsidiary company on November 30, 2004, just after the parent had purchased 90% of the subsidiary’s stock: LO7 Case IT P Company — S Company $ 780,000 $280,000 190,000
Consolidated Balance Sheet Workpaper On January 1, 2004, Perry Company purchased 8,000 shares of Soho Company’s common stock for $120,000. Immediately after the stock acquisition, the statements of financial position of Perry and Soho appeared as follows: LO7 Assets Cash Accounts Receivable
Intercompany Bond Holdings at Par, 90% Owned Subsidiary Balance sheets for P Company and S Company on August 1, 2004, are as follows: LO7 Cash Receivables Inventory Investment in Bonds Investment in S Company Stock Plant and Equipment (net)Land Total Accounts Payable Accrued Expenses Bonds Payable,
Parent and Two Subsidiaries, Intercompany Notes On January 2, 2004, Phillips Company purchased 80% of Sanchez Company and 90% of Thomas Company for $225,000 and $168,000, respectively. Immediately before the acquisitions, the balance sheets of the three companies were as follows: LO7 Phillips
Determining Balance Sheet Prior to Consolidation On January 1, 2004, Pat Company purchased 90% of the outstanding common stock of Solo Company for $236,000 cash. The balance sheet for Pat Company just before the exe} Saker of Solo Company stock, along with the consolidated balance sheet prepared at
In-Transit Items On July 31, 2004, Ping Company purchased 90% of Santos Company’s common stock for $2,010,000 cash. Immediately after the acquisition, the two companies’ balance sheets were as follows: LO7 Ping Santos Cash $ 320,000 $ 150,000 Accounts Receivable 600,000 300,000 Note Receivable
Purchase Using Cash and Using Stock Balance sheets for Prego Company and Sprague Company as of December 31, 2003, follow: LO7 Prego Company Sprague Company Cash $ 700,000 $111,000 Accounts Receivable (net) 892,000 230,000 Inventory 544,000 60,000 Property and Equipment (net) $1,927,000 $468,000
Intercompany Items, Two Subsidiaries On February 1, 2004, Punto Company purchased 95% of the outstanding common stock of Sara Company and 85% of the outstanding common stock of Rob Company. Immediately before the two acquisitions, balance sheets of the three companies were as follows: LO7 Punto
Intercompany Notes, 90% Acquisition On January 1, 2005, Pope Company purchased 90% of Sun Company’s common stock for $5,800,000 cash. Immediately after the acquisition, the two companies’ balance sheets were as follows: LO7 Pope Sun Cash $ 297,000 $ 165,000 Accounts Receivable 432,000 468,000
Deferred Tax Effects On January 1, 2005, Pruitt Company issued 25,500 shares of its common stock in exchange for 85% of the outstanding common stock of Shah Company. Pruitt’s common stock had a fair value of $28 per share at that time (par value of $2 per share). Pruitt Company uses the cost
Describe the two major changes in the accounting for business combinations approved by the FASB in 2001, as well as the reasons for those changes. LO4
Discuss the goodwill impairment test described in SFAS No. 142, including its frequency, the steps laid out in the new standard, and some of the likely implementation problems. LO4
Explain how acquisition expenses are reported. LO4
Describe the use of pro forma statements in business combinations. LO4
Describe the valuation of assets, including goodwill, and liabilities acquired in a business combination accounted for by the purchase method. LO4
Identify the impact on the financial statements of the differences between pooling and purchase methods. LO4
Explain how contingent consideration affects the valuation of assets acquired in a business combination accounted for by the purchase method. LO4
Describe a leveraged buyout and the technique of platforming. LO4
Discuss the basic differences between the purchase method and the pooling of interests method.Include the impact on financial ratios. LO4
When a contingency is based on security prices and additional stock is issued, how should the additional stock issued be accounted for? Why? LO4
What are pro forma financial statements? What is their purpose? LO4
How would a company determine whether goodwill has been impaired? LO4
Describe the potential differences between account ing for a merger using the purchase rules as prescribed by the FASB in SEAS Nos. 141 and 142, the former purchase rules (with goodwill amortization), and the pooling of interests method. Assume that the cost of the acquisition exceeds the fair
AOL announced in 2001 that because of a new accounting change (SEAS Nos. 141 and 142), earnings would be increasing over the next 25 years by$5.9 billion a year. What change(s) required by the FASB (in SEAS Nos. 141 and 142) were expected to result in an increase in AOL’s income? Would you expect
Asset Purchase Preston Company acquired the assets (except for cash) and assumed the liabilities of Saville Company. Immediately prior to the acquisition, Saville Company's balance sheet was as follows: LO4 Book Value Fair Value Cash $120,000 $120,000 Receivables (net) 192,000 228,000 Inventory
Purchase Method The balance sheets of Petrello Company and Sanchez Company as of January 1, 2004, are presented below. On that date, after an extended period of negotiation, the two companies agreed to merge. To effect the merger, Petrello Company is to exchange its unissued common stock for all
Asset Purchase, Cash, and Stock Pretzel Company acquired the assets (except for cash) and assumed the liabilities of Salt Company on January 2, 2005. As compensation, Pretzel Company gave 30,000 shares of its common stock, 15,000 shares of its 10% preferred stock, and cash of $50,000 to the
Asset Purchase, Cash P Company acquired the assets and assumed the liabilities of SCompany on January 1, 2003, for $510,000 when S Company’s balance sheet was as follows: LO4 S COMPANY Balance Sheet January 1, 2003 Cash $96,000 Receivables 55,200 Inventory 110,400 Land 169,200 Plant and Equipment
Asset Purchase, Earnings Contingency Pritano Company acquired all the net assets of Succo Company on December 31, 2003, for $2,160,000 cash. The balance sheet of Succo Company immediately prior to the acquisition showed: LO4 Book Value Fair Value Current Assets $ 960,000 $ 960,000 Plant and
Asset Purchase, Stock Contingency On January 1, 2003, Platz Company acquired all the net assets of Satz Company by issuing 75,000 shares of its $10 par value common stock to the stockholders of Satz Company.During negotiations Platz Company agreed that their common stock would have at least its
Leveraged Buyout Managers of Bayco own 500 of its 10,000 outstanding common shares. Draco is formed by the managers of Bayco to take over Bayco in a leveraged buyout. The managers contribute their shares in Bayco, and Draco then borrows $50,000 to purchase the remaining 9,500 outstanding shares of
Multiple Choice Price Company issued 8,000 shares of its $20 par value common stock for the net assets of Sims Company in a business combination under which Sims Company would be merged into Price Company. On the date of the combination, Price Company common stock had a fair value of $30 per share.
Purchase Effective December 31, 2003, Zintel Corporation proposes to issue additional shares of its common stock in exchange for all the assets and liabilities of Smith Corporation and Platz Corporation, after which Smith and Platz will distribute the Zintel stock to their stockholders in complete
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