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modern advanced accounting

Advanced Accounting Concepts And Practice 9th Edition Arnold J. Pahler - Solutions

In step acquisitions in which the investor has never had significant influence, what unique as¬pect must be dealt with at the date control is obtained?
In step acquisitions, does “layering” of goodwill occur in the consolidated balance sheet?
In step acquisitions, how are the excess cost components of an investor’s Investment account as determined for the earlier acquisitions dealt with when control is achieved?
Computers and Spreadsheets: In what three ways can spreadsheet cells be “linked” as that term is used in EXCEL?
Recording Acquisition of Common Stock for Cash and Stock Purl Inc. acquired 100% of the out¬standing common stock of Surl Inc. for $2,300,000 cash and 10,000 shares of its common stock($2 pat value), which was traded at $40 per share at the acquisition date.Required Prepare the entry to record the
Recording Direct Costs Assume the same information provided in Exercise 5-1. In addition, as¬sume that Purl incurred the following direct costs:Legal fees for preparing the acquisition agreement . $ 47,000 Accounting fees for the purchase investigation . 17,000 Travel expenses for meetings held
Contingent Consideration: Future Sales Poly Inc. acquired 100% of the outstanding common stock of Soly Inc. for $1,000,000 cash. If Soly’s cumulative sales for the three years subsequent to the acquisition date exceed $10,000,000, the additional cash of $200,000 is to be paid to Soly’s former
Contingent Consideration: Existing Security Price to Be Maintained Palco Inc. acquired 100% of Salco Inc.’s outstanding common stock by issuing 80,000 shares of its common stock ($10 par value), which had a market value of $40 per share at the acquisition date. If the market value of Palco’s
Contingent Consideration: Higher Security Price to Be Attained Phota Inc. acquired 100% of Sota Inc.’s outstanding common stock by issuing 60,000 shares of its common stock ($5 par value), which had a market value of $50 per share as of the acquisition date. If the market value of Phota’s
Separating Cost into Major Conceptual Elements Potasha Inc. acquired 100% of Sulpha Inc.’s outstanding common stock at a cost of $1,000,000. Sulpha’s net assets have a book value of$600,000 and a current value of $880,000 as of the acquisition date.Required Separate the cost of the investment
Separating Cost into Major Conceptual Elements Pomona Inc. acquired 100% of the outstanding common stock of Sonora Inc., a manufacturing company with extensive manufacturing facilities, at a cost of $2,000,000. Sonora’s net assets have a book value of $1,800,000 and a current value of $2,100,000
Separating Cost into Components of the Major Conceptual Elements Penn Inc. acquired all of Senn Inc.’s outstanding common stock for $800,000 cash. (Assume that there were no direct costs or contingent consideration.) Information about Senn as of the acquisition date is as follows:Required 1.
Analyzing Cost Perusal Inc. acquired 100% of Scanner Inc.’s outstanding conimon stock for$1,500,000 cash. Information with respect to Scanner as of the acquisition date is as follows:Book Value Current Value Cash Accounts.receivable, net ... .Notes receivable .Inventory Land ..Buildings and
Analyzing Cost Pladd Inc. acquired 100% of Stripes Inc.’s outstanding common stock for $310,000 cash. Information about Stripes as of the acquisition date is as follows:Required 1. Separate the investment cost into the components of the major conceptual elements.2. Prepare all consolidation
Analyzing Cost Plugg Inc. acquired 100% of Sparks Inc.’s outstanding common stock for $160,000 cash. Information about Sparks, which leases its manufacturing facilities and which is in poor financial condition as of the acquisition date, is as follows:Book Value Current Value Accounts Cash
Consolidation Worksheet Pya Inc., which is a calendar-year-reporting company, acquired 100%of Sya Inc.’s outstanding common stock at a cost of $325,000 on 12/31/05. The analysis of Pya’s investment account by the individual components of the major conceptual elements as of the ac¬quisition
Consolidation Worksheet Poz Inc., which is a calendar-year-reporting company, acquired 100%of Soz Inc.’s outstanding common stock at a cost of $210,000 on 12/31/05. The analysis of Poz’s Investment account by the individual components of the major conceptual elements as of the ac¬quisition
Analyzing Cost and Consolidation Worksheet Pud Inc. acquired 100% of Stid Inc.’s outstanding common stock for $900,000 cash on 1/1/05. Pud also incurred $55,000 of costs in connection with the acquisition. Of this amount, $15,000 was a finder’s fee, $12,000 an allocation of overhead from the
Step Acquisition; No Significant Influence Penco acquired two blocks of Senco, a family-owned company. Related information is as follows:Information Relating to Investee Percentage Date Block Borneo's Common Retained Undervaluation Acquired Was Required Cost Stock Earnings of Net Assets 10% 1/1/06
Step Acquisition: Significant Influence Pomco acquired blocks of Somco’s outstanding common stock over a two-year period. Related information is as follows:Information Relating to Investee Percentage Acquired Date Block Was Required Pomco's Cost Common Stock Retained Earnings Undervaluation of
Manner of Reporting “Cost in Excess of Net Assets” Hyde Company’s consolidated balance sheet has the following described asset;Excess of cost over related net assets of businesses acquired Required 1. Is the title of the asset informative?2. What does the asset represent?
Assigning Excess of Cost over Book Value Ponda Inc., a highly diversified company, acquired 100% of the outstanding common stock of three companies during the current year. In each case, Ponda’s cost was $500,000 in excess of the $4,000,000 book value of the net assets. The reason Ponda paid more
Theory: Bargain Purchase Element Pinkie Inc. recently acquired 100% of Sinkle Inc.’s assets at an amount below their current value. The controller has listed the following ways to account for the bargain purchase element:1. Credit it to income in the year of the acquisition, possibly classified
Acquiring R&D in Process Plado Inc. recently acquired Slado Inc. in a purchase business combi¬nation. The acquisition’s cost was allocated based on an independent appraisal. Of the $50 million acquisition cost, $18 million was allocated to Research & Development in Process.Required How would you
Recording a Liability Before Its Time? Palto Inc. and Salto Inc. recently combined in a purchase business combination. Goodwill of $10,000,000 was initially calculated residually. To integrate the two operations, certain facilities of both entities will be closed. Consequently, some of the
Valuing “Cost in Excess of Net Assets” in Subsequent Years Payto Inc. acquired the business of Sayto Inc. on 1/1/06 at a cost of $800,000 in excess of the current value of Sayto’s net assets.Sayto’s operations had been unprofitable for the two years preceding the business combination and
Evaluating Future Results under the Purchase Method in a Business Combination with a Troubled Savings and Loan You are the auditor for Pyramid Savings and Loan Association, which recently acquired 100% of the outstanding common stock of Sham Savings and Loan Association. Sham had incurred losses
Time to Write Down Goodwill: Pick a Number On 1/1/06, Pong Inc. acquired 100% of Spinner Inc.’s outstanding common stock. Spinner’s net assets (excluding goodwill) had a current value of$4,000,000.Pong estimated that Spinner would have $700,000 of average annual earnings for the foresee¬able
Time to Sell the Family-Owned Business and Retire: Seller Beware! Ponzi Equities is a publicly owned company with approximately five million common shares outstanding, which are traded(thinly) on the over-the-counter market. During its 15 years of existence, Ponzi issued common stock to acquire all
How are an acquired business’s preacquisition earnings treated under the purchase method?
What is a liquidating dividend!
How are liquidating dividends treated under the equity method?
How is amortization of cost in excess of book value treated under the equity method?
Under what circumstances are an acquired subsidiary’s financial statements relevant amounts from the parent’s perspective?
When must goodwill be tested for impairment?
What is a ‘‘‘'reporting imit” as it pertains to goodwill impairment testing?
How is a reporting unit’s fair value determined?
At what level is goodwill tested for impairment?
How is goodwill’s implied fair value determined?
How is a goodwill impairment writedown reported?
To what extent are a partially owned acquired subsidiary’s assets and liabilities revalued to current values under the parent company coitcept! Under the economic unit concept!
How is goodwill detetmined under the parent company concept! Under the economic unit concept!
In an acquisition of less than 100% of the voting shares, how is goodwill calculated?
In a step acquisition in which a noncontrolling interest exists, to what extent are the sub¬sidiary’s assets and liabilities reported at their current values in the consolidated statement pre¬ pared at the date control was obtained?
Recording Parent’s Entries under the Equity Method For 2006, a 100%-owned subsidiary re¬ ported net income of $90,000 and declared dividends of $40,000. Amortization of cost in excess of book value, as calculated by the parent, was $12,000.Required Prepare the parent’s general ledger entries
Calculating Consolidated and Parent Company Amounts On 9/30/06, Port Inc. acquired all of Shipp Inc.’s outstanding common stock for cash. Both companies have calendar year-ends. Data for each company pertaining to its own separate operations follows:Port Shipp Net Income:9 3months months ended
Applying the Equity Method: Consolidation Entries On 1/1/06, Pele Inc. acquired 100% of Soccerex Inc.’s outstanding common stock at a cost of $400,000. The analysis of Pele’s investment in Soccerex by the individual components of the major conceptual elements as of tht acquisition date
Applying the Equity Method: Consolidation Entries Pitt Inc. acquired 100% of Sitters Inc.’s out¬ standing common stock at a cost of $310,000 on 1/1/06. The analysis of the investment by the components of the major conceptual elements as of the acquisition date (after appropriate alloca¬tion of
Testing Goodwill for Impairment At a postacquisition impairment evaluation date, the following information exists for an acquired subsidiary that is a reporting unit:Book Value Fair Value Recognized Goodwill Tangible net.intangible assets .assets .Unrecognized intangible assets (two internally
Calculating Consolidated Net Income Pushco Inc. owns 75% of Shovex Inc.’s outstanding com¬mon stock. The 2006 net income from each company’s own separate operations, exclusive of earn¬ings and amortization recorded under the equity method, follows:Pushco . $1,000,000 Shovex . 600,000 During
Calculating Consolidated Net Income Potter Inc. owns 90% of Stane Inc.’s outstanding common stock and 80% of Steele Inc.’s outstanding common stock. The 2006 net income from each com¬pany’s own separate operations, exclusive of earnings recorded under the equity method and amor¬ tization of
Calculating Consolidated Net Income On 1/1/06, Palmer Inc. acquired 75% of Snead Inc.’s out¬standing common stock at an amount equal to 75% of Snead’s net assets at carrying value. Each company’s 2006 income statement, exclusive of earnings recorded under the equity method, fol¬ lows:Palmer
Calculating Consolidated and Parent Company Amounts On 4/30/06, Pal Inc. acquired 75% of Salle Inc.’s outstanding common stock for cash. Both companies have calendar year-ends. Data for each company pertaining to its own separate operations follow: Pal Salle Net Income:4 months ended 4/30/06 .8
Separating Parent’s Cost into Components On 5/1/06, Pana Inc. acquired 60% of Sonic Inc.’s out¬standing common stock at a cost of $219,000. Sonic’s capital account balances at that date are as follows:Common stock . $ 50,000 Additional paid-in capital . 550,000 Accumulated deficit .
Separating Parent’s Cost into Components On 1/1/06, Prima Inc. acquired 70% of Seconde Inc.’s outstanding common stock at a cost of $203,000. Seconde’s capital account balances at 12/31/05 are as follows:Common stock . $100,000 Additional paid-in capital . 50,000 Retained earnings .
Determining Subsidiary’s Equity from Consolidated Data Popp Inc. acquired 70% of Soda Inc.’s outstanding common stock. Popp’s separate balance sheet immediately after the acquisition and the consolidated balance sheet (under the parent company concept) follow:Current assets .Investment in
Consolidation Worksheet (Continuation of Problem 5-4) Pya Inc., a calendar-year reporting com¬pany, acquired 100% of Sya Inc.’s outstanding common stock at a cost of $325,000 on 12/31/05.The analysis of the parent’s Investment account as of the acquisition date follows: Remaining Life Book
Consolidation Worksheet (Continuation of Problem 5-5) Poz Inc., a calendar-year reporting com¬pany, acquired 100% of Soz Inc.’s outstanding common stock at a cost of $210,000 on 12/31/05.The analysis of Poz’s Investment account as of the acquisition date follows:1. Update the analyses of the
COMPREHENSIVE: Recording the Acquisition; Analyzing the Investment Account; Applying the Equity Method; Consolidation Worksheet On 1/1/06, Pina Inc. acquired 100% of Sina Inc.’s out¬standing common stock by issuing 6,000 shares of $10 par value common stock (which was trad¬ing at $20 per share
COMPREHENSIVE CHALLENGER: Converting to the Equity Method from the Cost Method Two Years After the Acquisition Date; Consolidation Worksheet Pali Inc. acquired all of Sali Inc.’s outstanding common stock for $820,000 cash on 1/1/05. Pali also incurred $47,000 of direct costs in connection with
COMPREHENSIVE: Recording the Acquisition and Selecting Relevant Data; Consolidation Worksheet On 7/1/06, PBM Inc. acquired 100% of SOS Inc.’s outstanding common stock by is-suing 6,000 shares of its $10 par value common stock (which was trading at $70 per share on that date). In addition, PBM
Consolidation Worksheet as of the Acquisition Date On 12/31/05, Pya Inc., a calendar-year re¬porting company, acquired 80% of Sya Inc.’s outstanding common stock at a cost of $260,000. Selected information on Sya as of the acquisition date follows:Book Current Remaining Value Value Life$ 75,000
As described in Problem 6-6, Pya Inc. t required 80% of Sya Inc. for $260, OOC 1 on 12/31/05. The financial statements as of 12/31/06, one year after the acquisition date, follow: Pya Sya Income Statement (2006)Sales .$ 950,000 $ 600,000 Cost of sales . (520,000) (300,000)Expenses . (370,000)
Consolidation Worksheet as of the Acquisition Date Poz Inc., a calendar-year reporting company.acquired 80% of Soz Inc.’s outstanding common stock at a cost of $168,000 on 12/31/05. Selected information on Soz as of the acquisition date follows:Book Current Remaining Value Value Life Inventory .
Consolidation Worksheet Subsequent to the Acquisition Date (Continuation of Problem 6-8) As described in Problem 6-8, Poz acquired 80% of Soz for $168,000 on 12/31/05. The financial state¬ments as of 12/31/06, one year after the acquisition date, follow:Poz Soz Income Statement (2006)Sales Cost
COMPREHENSIVE: Analyzing the Investment; Applying the Equity Method; Consolidation Worksheet PDQ Inc. acquired 60% of SAS Inc.’s outstanding common stock for cash of $503,000 on 1/1/06. PDQ also incurred $25,000 of direct out-of-pocket costs in connection with the acqui¬sition. Information with
REVIEW (Chapters 5 and 6): Analyzing the Investment; Applying the Equity Method; Computing Noncontrolling Interest and Consolidated Retained Earnings On 1/1/06, Puttnam Inc. made the following investments:The current values of each subsidiary’s net assets equal their book values except for a
COMPREHENSIVE: Recording the Acquisition; Selecting Relevant Data; Consolidation Workcommon stock (which was trading at $65 per share on that date). In addition, Pepsi incurred di¬rect costs of $92,000 relating to the acquisition, $60,000 of which was for registering the shares issued with the
Step Acquisition: Significant Influence; 90% Ownership Obtained Use the information in Problem 5-8 but assume that on 12/31/06 Pomco acquired only 50% of Somco’s outstanding common stock for $180,000 (instead of 60% for $208,000), thus obtaining a 90% ownership interest (instead of a 100%
Step Acquisition: Significant Influence; 75% Ownership Obtained; Mid-Year Acquisition — Postac¬quisition Period On 1/1/06, Plazco Inc. acquired 30% of Slazco Inc.’s outstanding common stock at a cost of $380,000. At that time, Slazco’s capital accounts were as follows:Common stock . $
Actual Practice Case: Subsequently Found Unrecorded Liability On 6/30/06, Primex Inc. acquired 100% of Sumex Inc.’s outstanding common stock for consideration of $300 million. Of this pur¬chase price, $50 million was assigned to undervalued assets and $70 million to goodwill. In Sep¬tember
Calculating Parent’s Annual Return on Investment: 100% Ownership On 1/1/06, Pynco Inc. ac¬quired 100% of Synco Inc.’s outstanding common stock for $1,000,000 cash. For 2006, Synco re¬ ported net income of $150,000. On 12/31/06, Synco declared and paid a $100,000 cash dividend to Pynco. During
Calculating Parent’s Annual Return on Investment: 75% Ownership Certain accounts of PBM Inc.and its 75%-owned subsidiary, SOS Inc. (acquired in a purchase business combination in 2005), for the year ended 12/31/06 follow:PBM SOS Sales Costs Net.and Income expenses... $ 900,000. (500,000). $
Evaluating the Profitability of the Parent’s Investment PTA Inc. acquired 80% of Scoole Inc.’s out¬standing common stock on 1/1/04 for $400,000 cash. Selected financial information follows:PTA Scoole Year Amortization of Cost in Excess of Book Value Income Reported (Loss) Net Dividends
What is the proportional consolidation method?
What are the arguments for full consolidation?
Which concepts fit under full consolidation^
What are the three theoretical ways to classify the NCI in the balance sheet?
How is consolidated net income defined under the parent company concept? Under the eco¬nomic unit concept?
How are dividends paid to a subsidiary’s NCI shareholders treated for consolidated reporting purposes?
When a subsidiary is not consolidated, what factors are relevant in deciding between the eq¬uity and cost methods?
When is the equity method not allowed in reporting an investment in an unconsolidated sub¬ sidiary?
When is the cost method not allowed in reporting an investment in an unconsolidated sub¬ sidiary?
When is the fair market value used to value an investment in a subsidiary?
When might an entity have to consolidate another entity even though the first entity does not own a majority of the outstanding voting common stock of the second entity?
In general, an equity investment below what percentage of the entity’s total assets is deemed insufficient to permit the entity to finance its activities without subordinated financial sup¬port?
What is meant by the term “expected” losses under FIN 46?
Must all VIEs have a primary beneficiary? Why or why not?
When does an entity assess whether it is the primary beneficiary of a VIE?
What events could trigger a change in a VIE’s primary beneficiary?
In what way is consolidating a VIE the same as consolidating a partially owned subsidiary that was acquired in a business combination?
Computers and Spreadsheets: What is the difference between “linking” and “consolidating” as those terms are used in EXCEL?
Partially Owned Subsidiaries: Consolidated Net Income Pila Inc. owns 80% of Sila Inc. For 2006, Sila reported net income of $55,000 and declared dividends of $15,000. Pila reported $100,000 from its own separate operations exclusive of its investment income from Sila.Required 1 What is the
Partially Owned Subsidiaries: Consolidation Entries Information for a 70%-owned created sub¬sidiary for 2006 follows:Common stock (year-end) . $20,000 Retained earnings, 1/1/06 . $80,000 Net income . $40,000 Dividends declared . $30,000 Required 1 Prepare an analysis of the parent’s investment
Partially Owned Subsidiaries: Concepts The following items were obtained at the end of 2006 from the financial statements of a 75%-owned created subsidiary:Dividends declared . S 40,000 Net income . 84,000 Common stock . 200,000 Additional paid-in capital . 100,000 Retained earnings, 1/1/06 .
Partially Owned Subsidiaries: Consolidation Entries Use the information in Exercise 3-3.Required Prepare all consolidation entries at year-end if the parent uses the equity method.
Unconsolidated Subsidiaries: Intended Disposal Pynco is currently taking steps to sell Synco, its subsidiary for which it has, as a minimum, sigjiificant influence. Use the following choices to an¬swer the questions.a. Unconsolidated — the cost method.b. Unconsolidated — the equity method.c.
Unconsolidated Subsidiaries: Currency Restrictions A foreign government has imposed severe div¬idend payment restrictions on Prell’s 100%-owned foreign subsidiary. Consequently, consolidation is no longer appropriate.Required 1 If Prell can exercise significant influence how should the
Variable Interest Entities Both Entity A and Entity B have a variable interest in Vixco, a variable interest entity. Entity A is entitled to receive a majority of Vixco’s expected residual returns. En¬tity B is obligated to absorb a majority of Vixco’s expected losses.Which entity, if any,
Variable Interest Entities Entity A, Entity B, and Entity C each have a variable interest in Vixco, a variable interest entity. Their respective interests in Vixco’s expected residual returns and expected losses are 45%, 30%, and 25%.Which entity must consolidate Vixco?C 3-1 Partially Owned

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