Part A. This is an Excel project, but I dont want your Excel file; I just want a print-out of it, as discussed below.

On 1/1/A, Primitive Co. buys 80% of Sophisticate Co. for $80k; S fmv = nbv = $75k CS, $25k RE (no differential). In years A, B, C, and D, P + S have Net Income / dividends of $60k/20k + 20k/5k, 80k/20k + 30k/10k, 100k/20k + 40k/10k, and 120k/20k + 50k/10k. On 1/1/A S issues $30k of 4-year 13% bonds to yield 17%; the bond date is 1/1/A (thus coupon payments occur each 12/31). P purchases 12 of the bonds on 1/1/B for $12,586.49. For credit, you must provide the following:

1. Provide (attach) a printout of an Excel amortization table for the 12 bonds from the point of view of S Co. from 1/1/B onward. You must use the interest method of amortization and the table format I used in class.

2. Provide (attach) a printout of an Excel amortization table for the 12 bonds from the point of view of P Co. from 1/1/B onward. This table should be on the same worksheet as the table you prepare for item #1 above; that is, both tables should be on the same Excel worksheet. You must use the interest method of amortization and the table format I used in class. Hint: you gotta figure out the market rate of interest on the repurchase date first.

3. Calculate the Gain/Loss on Constructive Retirement that P + S will report on their Consolidated Income Statement; show that it is the difference between Ss 1/1/B Bond net book value and Ps 1/1/B repurchase price in the tables above. These should be the first 2 numbers in your amortization tables.

This amount is_______________

4. Calculate total interest expense for the years following the repurchase (just total the interest column in Ss amortization table).

This amount is _______________

5. Calculate total interest revenue for the years following the repurchase (just total the interest column in Ps amortization table).

This amount is_______________

6. Calculate the difference between #4 and #5 above, and prove that it is the same as the answer to #3 above. This amount is_______________

7. In the space below, provide Ps 12/31/B workpaper entry to eliminate the intercompany bond accounts. Your answer must be in your own personal actual human handwriting (not a copy).

Note: all of the above requirements only concern the 12 bonds purchased by P. Also note: the data supporting your answers for items #1-6 above must be on a single Excel worksheet printout. I dont want your actual file.

Your answer to item #7 above must be in your own personal actual human handwriting (not a copy).

Part B. In class, We indicated that a portion of the purchase differential may be allocated to something he called In-Process R&D. Any leftover amount, if not attributable to some other intangible asset, is assumed to be Goodwill. But is In-Process R&D immediately expensed, or is it capitalized and amortized? (Important: there are tax advantages to immediate expensing.) It is of course possible, however, that he was kidding, and simply made the whole thing up. Was he correct, or not?

You must answer the question by writing a 2-paragraph memo addressed to me (assume I am your client, and I have described a potentially dangerous estimation/allocation method to you). You must state your answer, and include a cite (copy, paste, and cite actual paragraphs from financial accounting pronouncements you find on the FASB.org website) of the specific guidance that supports your position (assuming you can find any). Your answer to this part must be a hardcopy printout of your memo with a hardcopy printout attached of the actual paragraphs from financial accounting pronouncements.

[Go to FASB.org/home and click on advanced search near the little window in the upper right[1]hand portion of the home page. Be sure to check the include documents box. Then put some key words in the little window on the page & get ready for some exciting reading. You may have to dig a bit to find the correct cite. If you cant find anything helpful at FASB.org, see if there is authoritative guidance from another source.]