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modern advanced accounting
Advanced Accounting Concepts And Practice 9th Edition Arnold J. Pahler - Solutions
Allocation of Purchase Price to Various Assets and Liabilities Assuming that S Company has no long-term marketable securities, consider the following scenarios: LO4 Case A Assume that P Company paid $130,000 cash for 100% of the net assets of S Company.S Company Assets Current Assets Long-lived
Goodwill Impairment Test OnJ anuary 1, 2003, Porsche Company acquired the net assets of Saab Company 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 the present value of future cash flows
Accounting for the Transition in Goodwill Treatment Porch Company acquired the net assets 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,
Relation between Purchase Price, Goodwill, and Negative Goodwill The following balance sheets were reported on January 1, 2004, for Peach Company and Stream Company. LO4 Peach Stream Cash $ 100,000 $ 20,000 Inventory 300,000 100,000 Equipment (net) 880,000 380,000 Total $1,280,000 $500,000 Total
Comparison of Earnings Effects of Purchase (Old and New Rules) versus Pooling of Interests The Arthur Company is considering a merger with the Guinevere Corporation as of January 1, 2004. It has not been determined whether the transaction will meet the criteria for a pooling of interests. It has
Acquisition Entry, Deferred Taxes Patel Company issued 100,000 shares of $1 par value common stock (market value of $6/share) for the net assets of Seely Company on January 1, 2004, in a statutory merger.Seely Company had the following assets, liabilities, and owners’ equity at that time: LO4
67 Consolidation Condensed balance sheets for Phillips Company and Solina Company on January 1, 2003, are as follows: LO4 Phillips Solina a a ea a a ee ed os oer eee Current Assets $180,000 $85,000 Plant and Equipment (net) 450,000 140,000 Total Assets $630,000 $225,000 Total Liabilities $95,000
Merger and Consolidation Stockholders of Acme Company, Baltic Company, and Colt Company are considering alternative arrangements for a business combination. Balance sheets and the fair values of each company’s assets on October 1, 2004, were as follows: LO4 Acme Baltic Colt Assets $3,900,000
Purchase of Net Assets Using Bonds On January 1, 2004, Perez Company acquired all the assets and assumed all the liabilities of Stalton Company and merged Stalton into Perez. In exchange for the net assets of Stalton, Perez gave its bonds payable with a maturity value of $600,000, a stated interest
Cash Acquisition, Earnings Contingency Pham Company acquired the assets (except for cash) and assumed the liabilities of Senn Company on January 1, 2004, paying $720,000 cash. Senn Company’s December 31, 2003, balance sheet, reflecting both book values and fair values, showed: LO4 Book Value Fair
Leveraged Buyout The managers of Park Company own 1,000 of its 20,000 outstanding common shares. Step Company is formed by the managers of Park Company to take over Park Company in a leveraged buyout. The managers contribute their shares in Park Company, and Step Company then borrows $90,000 to
Asset Acquisition, Pro Forma Balance sheets for Salt Company and Pepper Company on December 31, 2003, follow: LO4 Salt Pepper ASSETS Cash $95,000 $180,000 Receivables 117,000 230,000 Inventories 134,000 231,400 Plant Assets —_ 690,000 1,236,500 Total Assets $1,036,000 $1,877,900 EQUITIES Accounts
Purchase, Decision to Accept Spalding Company has offered to sell to Ping Company its assets at their book values plus $1,800,000 representing payment for goodwill. Operating data for 2003 for the two companies are as follows: LO4 Ping Company Spalding Company Sales $3,510,100 $2,365,800 Cost of
Acquisition Entry and Deferred Taxes On January 1, 2005, Pruitt Company issued 30,000 shares of its $2 par value common stock for the net assets of Shah Company in a statutory merger accounted for as a purchase.Pruitt’s common stock had a fair value of $28 per share at that time. A schedule of
For which assets transferred within a consolidated group can an intercompany gain or loss be recognized for consolidated reporting purposes at the transfer date?
Do intercompany fixed asset transfers fall under the IRS transfer pricing rules}
What causes the basis of accounting for a fixed asset to change in an intercompany sale?
What is the effect of the consolidation entries relating to intercompany fixed asset transfers?
What is the distinction between the historical cost, the book value, and the carrying value of a depreciable fixed asset?
How is an intercompany gain or loss calculated for a depreciable fixed asset transfer?
For intercompany transfers of depreciable fixed assets at a gain or loss, how and when does realization of intercompany gains and losses occur?
Regarding an intercompany depreciable fixed asset transfer, must the buying entity continue to use the selling entity’s remaining depreciable life of the asset at the transfer date? Why or why not?
Is it necessary for intercompany depreciable fixed asset transfers to use the selling entity’s re¬maining life of the asset to reflect the old basis of accounting in consolidation?
What does a debit to depreciation expense in a consolidation entry signify?
If the selling entity has a loss on an intercompany depreciable fixed asset transfer, will there be incremental depreciation or a depreciation shortage to handle in consolidation?Bond Eloldings
From a consolidated viewpoint, what is the substance of an intercompany bond purchase?
How is the gain or loss on debt extinguishment determined?
Are gains and losses on debt extinguishment extraordinary items?
Does a gain or loss result when (a) each entity has a premium, (b) each entity has a discount, and (c) one entity has a discount and the other a premium}
To which entity should the gain or loss on debt extinguishment be assigned?
Consolidation Entries: Land Transfer — Downstream On 3/31/05, Pasto Inc. sold land costing$40,000 to its 100%-owned subsidiary, Sasto Inc., for $100,000.1. Prepare the consolidation entry(ies) as of 12/31/05 and 06. (For Module 1 only: First prepare any necessary general ledger adjusting entry at
Consolidation Entries: Land Transfer — Upstream On 6/30/05, Pilt Inc. purchased land from Silt Inc., its 80%-owned subsidiary, for $80,000. Silt’s cost was $50,000.1. Prepare the consolidation entry(ies) as of 12/31/05 and 06. (For Module 1 only: First prepare any necessary general ledger
Calculating Consolidated Amounts: Land and Building Transfer — Upstream Sya Inc., a 100%-owned subsidiary of Pya Inc., manufactures and installs air conditioning systems. Sya’s sales are normally to third parties, but during 2004, Pya contracted with Sya to install an air conditioning system in
Calculating Consolidated Amounts: Equipment Transfer — Downstream On 1/1/05 Facto Inc. sold equipment to its 100%-owned subsidiary, Sacto Inc., for $800,000. The equipment cost Facto$1,000,000; accumulated depreciation at the time of the sale was $400,000. Facto has depreciated the equipment over
Reverse Analysis: Equipment Transfer — Downstream In preparing consolidated statements for the year ended 12/31/05, a debit was made to Depreciation Expense for $2,000. This entry was nec¬essary because of a downstream equipment transfer made on 7/3/05 between Fyna Inc. and its 100%-owned
Reverse Analysis: Equipment Transfer — Downstream In preparing consolidated statements for the year ended 12/31/05, a credit was made to Depreciation Expense for $3,000. This entry was nec¬essary because of a downstream equipment transfer made on 4/1/05 between Fyre Inc. and its 100%-owned
Consolidation Entry: Land and Building Transfer — Upstream (100% ownership) On 7/1/05, Sill Inc., a 100%-owned subsidiary, sold a warehouse facility for $129,000 cash to Fane Inc., its par¬ent, recording a $30,000 gain on the sale. Sill’s historical cost for the land and building were $33,000
Consolidation Entry: Continuation of Exercise 10-7 Assume the information provided in Exercise 10-7.Frepare the consolidation entry required at 12/31/06 (one year later) relating to this sale. (For Module / only: First make the necessary general ledger adjusting entry at this date.)
Gain/Loss Calculation Farr Inc. owns 100% of the outstanding common stock of Subb Inc. On 4/1/05, Farr acquired in the open market 25% of Subb’s outstanding 10%, 10-year debentures($4,000,000 face amount) at a cost of $1,015,000. The bonds were issued at a premium of$320,000. They mature on
Gain/Loss Calculation; Bond Consolidation Entry Pell Inc. owns 100% of the outstanding com¬mon stock of Sull Inc. On 1/1/05, Pell acquired in the open market 40% of Suli’s outstanding 10% bonds at a cost of $430,000. On 1/1/05, the carrying value of all of the bonds ($1,000,000 face amount) was
Gain/Loss Calculation; Bond Consolidation Entry (75% ownership) Pidd Inc. owns 75% of the outstanding common stock of Sidd Inc. On 1/1/05, Pidd acquired in the open market 20% of Sidd’s outstanding 10% bonds at a cost of $160,000. On 1/1/05, the carrying value of all of the bonds($1,000,000 face
Gain/Loss Calculation; Bond Consolidation Entries at Year-End Poll Inc. owns 100% of the out¬standing common stock of Soli Inc. On 1/1/05, Poll acquired in the open market 30% of Soli’s out¬standing 10% bonds at a cost of $340,000. On 1/1/05, the carrying value of all of the bonds($1,000,000
Reverse Analysis and Consolidation Entry: Equipment Transfer — Upstream (100% ownership)On 1/1/05 Sax Inc., a 100%-owned subsidiary of Pax Inc., sold Pax office equipment to which Pax assigned a 6-year life. If Sax had not sold the equipment, it would have reported this equipment in its 12/3 1/05
Consolidation Worksheet: Year of Equipment Transfer — Downstream (100% ownership) On 1/2/05, Pato Inc. sold equipment to its 100%-owned subsidiary, Sato Inc. Information relating to the sale follows:Sales price . $35,000 Cost . $ 50,000 Less— Accumulated depreciation (6 years) . (30,000) 20,000
Consolidation Worksheet: Year of Equipment Transfer — Upstream (75% ownership) Several years ago, Pak Inc. created a 75%-owned subsidiary, Shipp Inc. The public acquired the remain¬ing 25% ownership interest on the creation date. On 1/3/05, Shipp sold equipment to Pak. Infor¬mation related to
Mini-Comprehensive — Purchased Subsidiary Consolidation Worksheet: Year of Equipment Trans¬fer — Upstream (80% ownership) On 1/1/05, Puta Inc. purchased 80% of Suta Inc.’s outstanding common stock for $184,000 cash. At that date, Suta had (1) a book value of $175,000 ($100,000 common stock +
COMPREHENSIVE — ACQUIRED SUBSIDIARY Consolidation Worksheet: Year After Year of Equipment Transfer — Upstream (60% ownership); Multiple Year Inventory Transfers — Down¬stream On 1/1/05, Park Inc. acquired 60% of the outstanding common stock of Stall Inc. for$153,000 cash. Park incurred an
Bond-Related Consolidation Entries The partially completed income statements of Place Inc. and its 100%-owned created subsidiary, Show Inc., for the year ended 12/31/06 are as follows:2006 Place Inc. Show Inc.Sales Interest Cost Expenses of.sates expense(noninterest)...Gain on debt extinguishment
Bond-Related Consolidation Entries: Multiple Years Stak Inc. is a 100%-owned created sub¬sidiary of Ptak Inc. On 1/1/03, Stak issued $10,000,000 of 5-year, 10% bonds at 98 (maturity date is 1/1/08). On 1/1/05 (2 years later), Ptak acquired in the open market 30% of these bonds at 102.Each entity
Bond-Related Consolidation Entries: Multiple Years (90% ownership) Sala Inc. is a 90%-owned created subsidiary of Pala Inc. On 1/1/03, Sala issued $10,000,000 of 5-year, 10% bonds at 95(maturity date is 1/1/08). On 1/1/05 (2 years later), Pala acquired in the open market 30% of these bonds at 101.
Maybe It Is and Maybe It Isn’t Kelly says that depreciation is part of the accrual basis of account¬ing. Lynn says it is not.Required 1. Prepare a written solution that need be no more than one page long.2. Is a fixed asset expensed when a company uses the cash basis of accounting? What about
Purchasing Bonds Merely to Report a Gain? For the first nine months of 2006, Purdy Company is experiencing lower earnings than forecasted. Management is searching for ways to increase earn¬ings during the remainder of the year. The controller has suggested that Purdy issue $1,000,000 of bonds and
What are the four general areas to which a new basis of accounting could be applied?
What does the push-down basis of accounting mean?
What is the rationale for using the push-down basis of accounting?
Which new account is created in implementing the push-down basis of accounting when the target company’s assets are MKdervalued?
Which general ledger accounts are brought to a zero balance in implementing the push-down basis of accounting?
To which entities does Staff Accounting Bulletin No. 54 apply?
What are the two major differences between a purchase business combination and a leveraged buyout?
In leveraged buyouts, what two things occur shnultaneously}
How do leveraged buyouts solve the conflict of interest that exists between stockholders and management?
What is the difference between a change in control and a buyout?
What reasons exist for forming a new corporation to effect a leveraged buyout?
Even though more than 50% of a target company’s common stock may be acquired in an LBO, what additional factors must be considered to determine whether a change in control is genuine, substantive, and nontemporary?
What are four ways in which a change of control could occur in a leveraged buyout?
How is a leveraged buyout transaction accounted for if no change in control occurs?
In an LBO, when can the new basis of accounting be used in its entirety even though a 100%cash buyout has not occurred?
Push-Down Applied to Exercise 5-8 Use the information provided in Exercise 5-8 (pages 172-173).1. Prepare the entries the subsidiary makes under the push-down basis of accounting.2. Prepare the basic elimination entry as of the acquisition date.Problems
Push-Down Applied to Problems 5-1 to 5-6: At the Acquisition Date Use the following require¬ments to implement push-down accounting for Problems 5-1 to 5-6 (pages 173-177).1. Prepare ing. the general ledger entries the subsidiary makes under the push-down basis of account¬2. Prepare the basic
Push-Down Applied to Problem 6-1: One Year After the Acquisition Date Use the following re¬quirements for working Problem 6-1 (page 215) under push-down accounting.1. Adjust the parent and subsidiary column amounts to reflect (1) the push-down accounting ad¬justments you determined for Problem
LBO: Continuing Ownership Increases Oldco is a publicly owned company having 10,000 shares of common stock outstanding. In November 2006, Oldco’s upper management, which owns 500 common shares (5%) of Oldco, approached an independent investment firm concerning a lever¬aged buyout of Oldco. The
LBO: Continuing Ownership Decreases Oldco is a privately owned company having 1,000 shares of common stock outstanding, 100% of which is owned by Ralph and Ruth Richy, the founders of the company. The Richys retired several years ago and are no longer active in the management of the business. In
Push-Down: Evaluation of Applicability Press Inc. acquired 100% of the outstanding common stock of Serch Inc. by issuing a new class of common stock (Class B) valued at $700 million. The terms of the issuance call for dividends to be based on Serch’s audited net income using its histor¬ical cost
Push-Down: To Whom Does It Really Matter? Pert, Inc.’s 100%-owned subsidiary, Savy, Inc., is considering raising capital from the public by issuing bonds, preferred stock, or common stock.Pert acquired Savy (a 20-year-old company) one year ago at a cost of $500 million. At that time, Savy’s net
LBO: Evaluating a Change in Ownership An outside investor formed Newco Inc. as a vehicle for acquiring all of the outstanding common stock of Oldco Inc. The new investor invested $50,000 cash in Newco in exchange for 7,000 shares of Newco common stock. Newco issued 3,000 shares of its common stock
LBO: Evaluating a Change in Ownership A new investor and the management of Oldco Inc. form Newco Inc. as a vehicle for acquiring all of the outstanding common stock of Oldco Inc., which is owned solely by the Moola family. The new investor and Oldco’s management each invested $50,000 cash in
Sale of a Subsidiary in a Leveraged Buyout On 6/30/06, Pylox sold its 100% interest in its sub¬sidiary, Sylox Company, to Newco. Sylox had been reported as a separate reportable industry seg¬ment prior to the sale. Newco was recently formed by the top management of Sylox and a group of wealthy
Do the principles and practices that apply to interim reporting apply only to publicly owned companies?
What is the fundamental issue pertaining to interim reporting?
Are the issues associated with interim reporting primarily related to revenues or to costs and expenses}
What are the three schools of thought that exist concerning the approach to interim reporting?
Under which approach must each interim period stand on its own?
Does APBO 28 impose integral techniques for costs and expenses not associated with revenue?Explain.
What factors could cause the estimated annual income tax rate to change from quarter to quar¬ter?
If fourth-quarter results are not furnished in a separate report or in the annual report, which items recognized in the fourth quarter must be disclosed in a note to the anjiual financial state¬ ments!
What is the difference between horizontal, vertical, and conglomerate combinations?
How does the purchase method contrast with the pooling of interests method of accounting?
Why is the acquisition agreement so important in determining the ultimate accounting method used in recording a business combination?
What is the treatment accorded goodwill?
What types of consideration can be given under purchase accounting}
What types of assets can the acquiring company obtain in business combinations?
What various organization forms can result from a business combination?
What is the difference between centralized and decentralized accounting systems?
How is the selling entity’s gain or loss computed on the disposition of the seller’s assets?
Structuring the Business Combination The nine choices listed A through I pertain to how a busi¬ness combination is structured. From these choices, select the appropriate answer for questions 1-13 that follow the choices.a. Acquisition of assetsb. Acquisition of common stockc. Statutory mergerd.
Terminology Indicate the appropriate term or terms for each of the following:1. The expansion of a business by constructing a manufacturing facility.2. A business combination in which a company acquires one of its suppliers.3. A business combination in which a company acquires one of its
Acquisition of Assets Pertex acquired all of Sertex’s assets in a business combination that did not qualify for pooling of interests treatment. Pertex paid $800,000 cash. The book value of Sertex’s net assets is $600,000, and their current value is $750,000.equired Explain the general
Divestiture Accounting: Sale of Common Stock Phaco acquired all of Shaco’s outstanding com¬mon stock from Shaco’s shareholders by issuing common stock.Required Explain in general how Shaco should account for this change in ownership of its outstanding com¬mon stock.
Divestiture Accounting: Sale of Assets Panco acquired all of Sanco’s assets by issuing common stock (and assuming Sanco’s liabilities).Required Explain in general how Sanco should account for this transaction.
Statutory Merger and Statutory Consolidation Parrco is considering a merger or consolidation with Sarrco. Both methods of acquisition are being considered under applicable corporate statu¬tory law. Parrco is the larger of the two corporations and, in reality, is acquiring Sarrco.Required Discuss
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