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9/10/2014 1. Assignment Print View award: 10.00 points Problem 3-20 [LO4a] Chapman Company obtains 100 percent of Abernethy Company's stock on January 1, 2012. As of that date, Abernethy has the following trial balance: Debit Credit Accounts payable $ 56,700 Accounts receivable $ 43,800 Additional paid-in capital 50,000 Buildings (net) (4-year life) 143,000 Cash and short-term investments 80,250 Common stock 250,000 Equipment (net) (5-year life) 295,000 Inventory 110,500 Land 112,000 Long-term liabilities (mature 12/31/15) 171,000 Retained earnings, 1/1/12 268,750 Supplies 11,900 Totals $ 796,450 $ 796,450 During 2012, Abernethy reported income of $122,500 while paying dividends of $15,000. During 2013, Abernethy reported income of $159,250 while paying dividends of $49,000. Assume that Chapman Company acquired Abernethy's common stock for $698,050 in cash. As of January 1, 2012, Abernethy's land had a fair value of $123,900, its buildings were valued at $219,400, and its equipment was appraised at $254,500. Chapman uses the equity method for this investment. Prepare consolidation worksheet entries for December 31, 2012, and December 31, 2013. Date Dec. 31, 2012 Entry S http://ezto.mheducation.com/hm.tpx General Journal Debit Credit (Click to select) (Click to select) 1/8 9/10/2014 Assignment Print View (Click to select) (Click to select) Entry A (Click to select) (Click to select) (Click to select) (Click to select) (Click to select) Entry I (Click to select) (Click to select) Entry D (Click to select) (Click to select) Entry E (Click to select) (Click to select) (Click to select) Dec. 31, 2013 Entry S (Click to select) (Click to select) (Click to select) (Click to select) Entry A (Click to select) (Click to select) (Click to select) (Click to select) (Click to select) Entry I (Click to select) (Click to select) Entry D http://ezto.mheducation.com/hm.tpx (Click to select) 2/8 9/10/2014 Assignment Print View (Click to select) Entry E (Click to select) (Click to select) (Click to select) Worksheet Problem 3-20 [LO4a] 2. Difficulty: 3 Hard Learning Objective: 03-04a Prepare consolidated financial statements subsequent to acquisition when the parent has applied the equity method in its internal records. award: 10.00 points Problem 3-21 [LO4b] Chapman Company obtains 100 percent of Abernethy Company's stock on January 1, 2012. As of that date, Abernethy has the following trial balance: Debit Accounts payable Accounts receivable Additional paid-in capital Buildings (net) (4-year life) Cash and short-term investments Common stock Equipment (net) (5-year life) Inventory Land Long-term liabilities (mature 12/31/15) Retained earnings, 1/1/12 Supplies Totals Credit $ 51,500 $ 46,500 50,000 190,000 67,750 250,000 442,500 107,000 93,500 166,500 448,250 19,000 $966,250 $966,250 During 2012, Abernethy reported income of $99,000 while paying dividends of $12,000. During 2013, Abernethy reported income of $151,250 while paying dividends of $53,000. http://ezto.mheducation.com/hm.tpx 3/8 9/10/2014 Assignment Print View Assume that Chapman Company acquired Abernethy's common stock for $855,330 in cash. Assume that the equipment and long-term liabilities had fair values of $464,600 and $134,620, respectively, on the acquisition date. Chapman uses the initial value method to account for its investment. Prepare consolidation worksheet entries for December 31, 2012, and December 31, 2013. Date Dec. 31, 2012 Entry S General Journal Debit Credit (Click to select) (Click to select) (Click to select) (Click to select) Entry A (Click to select) (Click to select) (Click to select) (Click to select) Entry I (Click to select) (Click to select) Entry E Dec. 31, 2013 Entry *C (Click to select) (Click to select) (Click to select) (Click to select) (Click to select) (Click to select) Entry S (Click to select) (Click to select) (Click to select) (Click to select) Entry A http://ezto.mheducation.com/hm.tpx (Click to select) (Click to select) 4/8 9/10/2014 Assignment Print View (Click to select) (Click to select) Entry I (Click to select) (Click to select) Entry E (Click to select) (Click to select) (Click to select) (Click to select) Worksheet Problem 3-21 [LO4b] 3. Difficulty: 3 Hard Learning Objective: 03-04b Prepare consolidated financial statements subsequent to acquisition when the parent has applied the initial value method in its internal records. award: 10.00 points Problem 3-22 [LO4c] Chapman Company obtains 100 percent of Abernethy Company's stock on January 1, 2012. As of that date, Abernethy has the following trial balance: Debit Accounts payable Accounts receivable Additional paid-in capital Buildings (net) (4-year life) Cash and short-term investments Common stock Equipment (net) (5-year life) Inventory Land Long-term liabilities (mature 12/31/15) Retained earnings, 1/1/12 Supplies http://ezto.mheducation.com/hm.tpx Credit $ 54,100 $ 48,500 50,000 130,000 66,000 250,000 437,500 109,000 89,000 178,500 358,800 11,400 5/8 9/10/2014 Assignment Print View Totals $891,400 $891,400 During 2012, Abernethy reported income of $126,000 while paying dividends of $16,000. During 2013, Abernethy reported income of $174,000 while paying dividends of $49,000. Assume that Chapman Company acquired Abernethy's common stock by paying $785,800 in cash. All of Abernethy's accounts are estimated to have a fair value approximately equal to present book values. Chapman uses the partial equity method to account for its investment. Prepare the consolidation worksheet entries for December 31, 2012, and December 31, 2013. (Leave no cells blank. If no entry is required, select "No Journal Entry Required" in the account field and zero (0) in the amount field.) Date Dec. 31, 2012 Entry S General Journal Debit Credit (Click to select) (Click to select) (Click to select) (Click to select) Entry A (Click to select) (Click to select) Entry I (Click to select) (Click to select) Entry D (Click to select) (Click to select) Entry E (Click to select) (Click to select) Dec. 31, 2013 Entry *C (Click to select) (Click to select) http://ezto.mheducation.com/hm.tpx 6/8 9/10/2014 Assignment Print View Entry S (Click to select) (Click to select) (Click to select) (Click to select) Entry A (Click to select) (Click to select) Entry I (Click to select) (Click to select) Entry D (Click to select) (Click to select) Entry E (Click to select) (Click to select) Worksheet Problem 3-22 [LO4c] 4. Difficulty: 3 Hard Learning Objective: 03-04c Prepare consolidated financial statements subsequent to acquisition when the parent has applied the partial equity method in its internal records. award: 10.00 points Problem 4-27 [LO2, LO4, LO5] On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $70,320. Calvin Co. has one recorded asset, a specialized production machine with a book value of $17,700 and no liabilities. The fair value of the machine is $106,200, and the remaining useful life is estimated to be 10 years. Any remaining excess fair value is attributable to an unrecorded process trade secret with an estimated future life of 4 years. Calvin's total acquisition date fair value is $117,200. At the end of the year, Calvin reports the following in its financial statements: http://ezto.mheducation.com/hm.tpx 7/8 9/10/2014 Assignment Print View Revenues Expenses Net income Dividends paid $ 56,700 21,750 $ 34,950 $ Machine Other assets $15,930 24,020 Total assets $39,950 Common stock Retained earnings Total equity $ 10,000 29,950 $ 39,950 5,000 Determine the amounts that Beckman should report in its year-end consolidated financial statements for noncontrolling interest in subsidiary income, total noncontrolling interest, Calvin's machine (net of accumulated depreciation), and the process trade secret. (Input all amounts as positive values.) Amounts Noncontrolling interest in subsidiary income Total noncontrolling interest Calvin's machine (net accumulated depreciation) Process trade secret $ $ $ $ Worksheet Difficulty: 2 Medium Learning Objective: 04-04 Understand the computation and allocation of consolidated net income in the presence of a noncontrolling interest. Problem 4-27 [LO2, LO4, LO5] Learning Objective: 04-02 Describe the valuation principles underlying the acquisition method of accounting for the noncontrolling interest. Learning Objective: 04-05 Identify and calculate the four noncontrolling interest figures that must be included within the consolidation process and prepare a consolidation worksheet in the presence of a noncontrolling interest. http://ezto.mheducation.com/hm.tpx 8/8 9/10/2014 1. Assignment Print View award: 3.00 points Problem 13-22 [LO3, LO5, LO6] A company is to be liquidated and has the following liabilities: Income taxes $ 6,000 Notes payable (secured by land) 150,000 Accounts payable 100,000 Salaries payable (evenly divided between two employees) 21,000 Bonds payable 85,000 Administrative expenses for liquidation 35,000 The company has the following assets: Current assets Land Buildings and equipment Book Value Fair Value $ 95,000 $ 50,000 115,000 105,000 115,000 150,000 How much money will the holders of the notes payable collect following the liquidation? Total amount collected $ Worksheet Learning Objective: 13-05 Account for a company as it enters bankruptcy. Problem 13-22 [LO3, LO5, LO6] 2. Difficulty: 2 Medium Learning Objective: 13-03 Identify the various types of creditors as they are labeled during a bankruptcy. Learning Objective: 13-06 Account for the liquidation of a company in bankruptcy. award: 2.00 points http://ezto.mheducation.com/hm.tpx 1/12 9/10/2014 Assignment Print View Problem 13-23 [LO3, LO6] Xavier Company is going through a Chapter 7 bankruptcy. All assets have been liquidated, and the company retains only $27,400 in free cash. The following debts, totaling $49,050, remain: Government claims to unpaid taxes Salary during last month owed to Mr. Key (not an officer) Administrative expenses Salary during last month owed to Ms. Rankin (not an officer) Unsecured accounts payable $ 8,200 20,025 4,650 7,425 8,750 Indicate how much money will be paid to the creditor associated with each debt. (Be sure to list liabilities in the order of priority.) (Click to select) (Click to select) (Click to select) Worksheet Problem 13-23 [LO3, LO6] 3. Difficulty: 2 Medium Learning Objective: 13-06 Account for the liquidation of a company in bankruptcy. Learning Objective: 13-03 Identify the various types of creditors as they are labeled during a bankruptcy. award: 2.00 points Problem 13-24 [LO3, LO5] Ataway Company has severe financial difficulties and is considering filing a bankruptcy petition. At this time, it has the following assets (stated at net realizable value) and liabilities: Assets (pledged against debts of $76,000) Assets (pledged against debts of $142,000) Other assets Liabilities with priority http://ezto.mheducation.com/hm.tpx $ 128,000 56,000 86,000 65,000 2/12 9/10/2014 Assignment Print View Unsecured creditors 206,000 In a liquidation, how much money would be paid on the partially secured debt? Payment on partially secured debt Worksheet Difficulty: 2 Medium Problem 13-24 [LO3, LO5] 4. $ Learning Objective: 13-03 Identify the various types of creditors as they are labeled during a bankruptcy. Learning Objective: 13-05 Account for a company as it enters bankruptcy. award: 2.00 points Problem 13-25 [LO3, LO5, LO6] Chesterfield Company has cash of $63,000, inventory worth $116,000, and a building worth $143,000. Unfortunately, the company also has accounts payable of $193,000, a note payable of $93,000 (secured by the inventory), liabilities with priority of $40,800, and a bond payable of $176,000 (secured by the building). How much money will the holder of the bond expect to receive? Total amount received by bond holders $ Worksheet Learning Objective: 13-05 Account for a company as it enters bankruptcy. Problem 13-25 [LO3, LO5, LO6] 5. Difficulty: 2 Medium Learning Objective: 13-03 Identify the various types of creditors as they are labeled during a bankruptcy. Learning Objective: 13-06 Account for the liquidation of a company in bankruptcy. award: 3.00 points Problem 13-26 [LO3, LO6] http://ezto.mheducation.com/hm.tpx 3/12 9/10/2014 Assignment Print View Mondesto Company has the following: Unsecured creditors $ 254,000 Liabilities with priority 134,000 Secured liabilities: Debt 1, $258,000; value of pledged asset 204,000 Debt 2, $204,000; value of pledged asset 124,000 Debt 3, $144,000; value of pledged asset 188,000 The company also has a number of other assets that are not pledged in any way. The creditors holding Debt 2 want to receive at least $176,000. For how much do these free assets have to be sold so that the creditors associated with Debt 2 receive exactly $176,000? (Round your percentage answers in calculations to the nearest whole percent.) Sale price $ Worksheet Problem 13-26 [LO3, LO6] 6. Difficulty: 2 Medium Learning Objective: 13-06 Account for the liquidation of a company in bankruptcy. Learning Objective: 13-03 Identify the various types of creditors as they are labeled during a bankruptcy. award: 2.00 points Problem 13-27 [LO3, LO5] A statement of financial affairs created for an insolvent corporation that is beginning the process of liquidation discloses the following data (assets are shown at net realizable values): Assets pledged with fully secured creditors Fully secured liabilities Assets pledged with partially secured creditors Partially secured liabilities Assets not pledged Unsecured liabilities with priority Accounts payable (unsecured) http://ezto.mheducation.com/hm.tpx $ 224,000 162,000 392,000 514,000 312,000 216,800 402,000 4/12 9/10/2014 Assignment Print View a. This company owes $15,000 to an unsecured creditor (without priority). How much money can this creditor expect to collect? Expected amount by creditor $ b. This company owes $124,000 to a bank on a note payable that is secured by a security interest attached to property with an estimated net realizable value of $92,000. How much money can this bank expect to collect? Expected amount by bank $ Worksheet Problem 13-27 [LO3, LO5] 7. Difficulty: 2 Medium Learning Objective: 13-05 Account for a company as it enters bankruptcy. Learning Objective: 13-03 Identify the various types of creditors as they are labeled during a bankruptcy. award: 1.00 point Problem 13-31 [LO8] Pumpkin Company is going through bankruptcy reorganization. It has a $265,000 note payable incurred prior to the order for relief. The company believes that the note will be settled for $73,000 in cash. It is also possible that the creditor will instead take a piece of land that cost the company $63,000 but is worth $85,000. On a balance sheet during the reorganization period, identify the legitimate amount that can be claimed by the creditors. $158,000 $73,000 $265,000 $192,000 Worksheet Difficulty: 2 Medium Problem 13-31 [LO8] Learning Objective: 13-08 Account for a company as it moves through reorganization. http://ezto.mheducation.com/hm.tpx 5/12 9/10/2014 8. Assignment Print View award: 3.00 points Problem 13-32 [LO9] A company is coming out of reorganization with the following accounts: Book Value $ 82,000 202,000 404,000 302,000 Inventory Fair Value $ 94,000 214,000 302,000 Receivables 302,000 Buildings Liabilities 332,000 Common stock Additional paid-in capital Retained earnings (deficit) 24,000 (72,000) The company's assets have a $762,000 reorganization value. As part of the reorganization, the company's owners transferred 75 percent of the outstanding stock to the creditors. Prepare the journal entry that is necessary to adjust the company's records to fresh start accounting. General Journal Debit Credit (Click to select) (Click to select) (Click to select) (Click to select) (Click to select) (Click to select) Worksheet Difficulty: 2 Medium Problem 13-32 [LO9] Learning Objective: 13-09 Describe the financial reporting for a company that successfully exits bankruptcy as a reorganized entity. http://ezto.mheducation.com/hm.tpx 6/12 9/10/2014 9. Assignment Print View award: 5.00 points Problem 13-33 [LO8] Addison Corporation is currently going through a Chapter 11 bankruptcy. The company has the following account balances for the current year. Advertising expense Cost of goods sold Depreciation expense Interest expense Interest revenue Loss on closing of branch Professional fees Rent expense Debit $ 41,000 228,000 39,000 5,000 $ 39,000 126,000 88,000 33,000 586,000 Revenues Salaries expense Credit 87,000 Prepare an income statement for this organization. The effective tax rate is 20 percent (realization of any tax benefits is anticipated). (Amounts to be deducted and losses should be indicated with minus sign, except individual expenses which should be entered as positive values.) ADDISON CORPORATION Income Statement (Click to select) Costs and expenses: (Click to select) (Click to select) (Click to select) (Click to select) (Click to select) (Click to select) $ $ Earnings before reorganization items and tax effects Reorganization items: (Click to select) (Click to select) http://ezto.mheducation.com/hm.tpx 7/12 9/10/2014 Assignment Print View (Click to select) (Click to select) (Click to select) $ (Click to select) Worksheet Problem 13-33 [LO8] 10. Difficulty: 2 Medium Learning Objective: 13-08 Account for a company as it moves through reorganization. award: 5.00 points Problem 13-35 [LO8] Jaez Corporation is in the process of going through a reorganization. As of December 31, 2013, the company's accountant has determined the following information although the company is still several months away from emerging from the bankruptcy proceeding. Cash Inventory Land Buildings Equipment Book Value $ 48,000 70,000 215,000 245,000 179,000 Fair Value $ 48,000 72,000 265,000 285,000 182,000 Allowed Claims Liabilities as of the date of the order for relief Accounts payable Accrued expenses Income taxes payable Note payable (due 2016, secured by land) Note payable (due 2018) Liabilities since the date of the order for relief Accounts payable Note payable (due 2015) http://ezto.mheducation.com/hm.tpx Expected Settlement $ 148,000 $ 45,000 55,000 29,000 47,000 43,000 125,000 125,000 195,000 105,000 $ 85,000 135,000 8/12 9/10/2014 Assignment Print View Stockholders' equity Common stock Deficit $ 225,000 (258,000) Prepare a balance sheet in appropriate form. (Be sure to list assets and liabilities in the order of their liquidity. Negative amounts should be indicated by a minus sign.) JAEZ CORPORATION Balance Sheet December 31, 2013 Current Assets: (Click to select) (Click to select) $ $ Land, Buildings, and Equipment: (Click to select) (Click to select) (Click to select) Total Assets $ Liabilities not Subject to Compromise Current Liabilities: (Click to select) Long-term Liabilities: (Click to select) (Click to select) Total Liabilities Subject to Compromise (Click to select) (Click to select) (Click to select) (Click to select) Total Liabilities Stockholders' Equity: (Click to select) (Click to select) http://ezto.mheducation.com/hm.tpx $ $ $ 9/12 9/10/2014 Assignment Print View Total Liabilities and Shareholders' (deficit) $ Worksheet Problem 13-35 [LO8] 11. Difficulty: 3 Hard Learning Objective: 13-08 Account for a company as it moves through reorganization. award: 12.00 points Problem 13-36 [LO9] Ristoni Company is in the process of emerging from a Chapter 11 bankruptcy. It will apply fresh start accounting as of December 31, 2013. The company currently has 36,000 shares of common stock outstanding with a $288,000 par value. As part of the reorganization, the owners will contribute 21,000 shares of this stock back to the company. A retained earnings deficit balance of $317,000 exists at the time of this reorganization. The company has the following asset accounts: Accounts receivable Inventory Land and buildings Equipment Book Value $ 72,000 106,000 602,000 52,000 Fair Value $ 51,000 78,000 612,000 41,000 The company's liabilities will be settled as follows. Assume that all notes will be issued at reasonable interest rates. Accounts payable of $86,000 will be settled with a note for $11,000. These creditors will also get 4,000 shares of the stock contributed by the owners. Accrued expenses of $41,000 will be settled with a note for $10,000. Note payable of $106,000 (due 2017) was fully secured and has not been renegotiated. Note payable of $201,000 (due 2016) will be settled with a note for $56,000 and 10,000 shares of the stock contributed by the owners. Note payable of $191,000 (due 2014) will be settled with a note for $77,000 and 7,000 shares of the stock contributed by the owners. Note payable of $236,000 (due 2015) will be settled with a note for $116,000. The company has a reorganization value of $880,000. Prepare all journal entries for Ristoni so that the company can emerge from the bankruptcy proceeding. http://ezto.mheducation.com/hm.tpx 10/12 9/10/2014 Assignment Print View (Do not round intermediate calculations. Round your answers to the nearest dollar amount.) General Journal To adjust accounts to market value as part of fresh start accounting. (Click to select) (Click to select) (Click to select) (Click to select) (Click to select) (Click to select) Debit Credit To record shares turned in upon reorganization. (Click to select) (Click to select) To record settlement of accounts payable. (Click to select) (Click to select) (Click to select) (Click to select) (Click to select) To record settlement of accrued expenses. (Click to select) (Click to select) (Click to select) To record settlement of note payable due in 2016. (Click to select) (Click to select) (Click to select) (Click to select) (Click to select) To record settlement of note payable due in 2014. (Click to select) (Click to select) http://ezto.mheducation.com/hm.tpx 11/12 9/10/2014 Assignment Print View (Click to select) (Click to select) (Click to select) To record settlement of note payable due in 2015. (Click to select) (Click to select) (Click to select) To adjust additional paid in capital, close out gain & deficit balance. (Click to select) (Click to select) (Click to select) Worksheet Difficulty: 3 Hard Problem 13-36 [LO9] Learning Objective: 13-09 Describe the financial reporting for a company that successfully exits bankruptcy as a reorganized entity. http://ezto.mheducation.com/hm.tpx 12/12