Objective #3 Adjust Schedule 3 for Acquisition Values

5) Because the project uses a situation you may encounter in practice, the reported results of New Castle Coffee on 3/31 included in schedule 3 do not include any adjustments for the acquisition. Remember that the accounting department of New Castle Coffee would keep functioning as if the acquisition never occurred until new values were established. In practice, this is often a number of months following acquisition to complete the appropriate accounting.

Using only the balance Sheet amounts in Schedule 3, calculate new balances by using the differences identified in #4 above and adding/subtracting to schedule 3 amounts.

Only the cash account through Retained Earnings are required to be adjusted. For example.

Land

Schedule 3 Reported $50,000

Increase in Acquisition value $10,000

Schedule 3 adjusted $60,000

Objective #4 Recognize subsidiary earnings on Java the Hut (parent) ledger.

6) On Javas books, prepare the appropriate journal entries to recognize the first quarter accounting for Newark Coffee earnings. (Schedule 6).

Schedule 3
Trial Balance of New Castle Coffee as of 3/31/18
Accounts	Debit	Credit
Checking	$ 1,500
Money Market Account	$ 3,000
Accounts Receivable	$ 21,000
Allowance for Uncollectable Accounts		$ 2,875
Inventory	$ 13,765
Prepaid Rent - Current	$ 3,750
Land	$ 50,000
Building	$ 85,000
Equipment	$ 48,000
Construction in Process	$ 16,000
Accumulated Depreciation		$ 16,281
Debt Set-up Costs, net	$ 4,687
Accounts Payable		$ 12,800
Accrued Payroll and Benefits		$ 6,000
Accrued Expenses		$ 5,673
Income Tax Payable		$ 2,500
Notes Payable (12/31/16)		$ 100,000
Advance Payable - Java		$ 8,000
Deferred Tax Liability		$ 3,800
Common Stock (1,000 shares O/S, $1 par)		$ 1,000
Additional Paid-In Capital		$ 74,000
Retained Earnings (Loss) - Beginning		$ 5,700
Sales - Coffee		$ 65,000
Sales - Beans		$ 25,000
Sales - Other		$ 8,000
Allowance for Returns - Beans	$ 1,000
Allowance for Returns - Other	$ 400
Cost of Goods Sold - Coffee	$ 39,000
Cost of Goods Sold - Beans	$ 10,000
Cost of Goods Sold - Other	$ 3,600
Selling Expenses	$ 6,000
Professional Fees	$ 4,800
Depreciation - Building (30 years)	$ 31
Depreciation - Equipment (10 years)	$ 1,250
Bad Debt Expense	$ 600
Administrative Salaries	$ 12,000
Other SG&A Expenses	$ 4,000
Interest Income - Money Market		$ 15
Interest Expense - Notes Payable	$ 2,000
Interest Expense - Amortization of Debt Set-Up	$ 313
Income Tax Provision	$ 4,948
Totals	$ 336,644	$ 336,644

Schedule 6
Intercompany Transactions
Intercompany Sales - Q1 2018
	Java the Hut coffee bean sales to New Castle Coffee						$ 15,500
Intercompany Inventory (on hand on 3/31/18)
	Coffee bean inventory from Java the Hut sales to
	New Castle Coffee at 3/31/18						$ 3,500
Equity Investment - Newark Coffee Earnings
	Equity reported by Newark Coffee for the first
	quarter of 2018 were						$ 10,250

Objective 4

Investment in Newark Coffee --------------------

Income from Newark Coffee --------------------

Record Equity earnings for Newark Coffee (40%)

Objective 5

Retained Earnings ------------------

Income Taxes Payable ------------------------

Deferred Taxes Payable ------------------------

Due Diligence Adjustments of new Castle Coffee income tax.