29 Jun On_January_3.docx (81.51 KB
Question
2. On January 1, 20X1, Pepper Company purchased 100% of the common stock of Salt Company for $360,000. On this date, Salt had common stock, other paid-in capital, and retained earnings of $50,000, $100,000 and $150,000 respectively. Net income and dividends for two years for Salt Company were:
…………………………….
Net income
20X1
20X2
$60,000
$90,000
Dividends……………………………..
20,000
30,000
On January 1, 20X1, the only tangible assets of Salt which were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $10,000 more than cost. The inventory was sold in 20X1. Buildings had a fair value of $320,000, a remaining life of 10 years and straight-line depreciation is used. The book value of the land and building are $50,000 and $260,000 respectively. Patent, if any, is to be amortized over 10 years.
Pepper uses the simple equity method in accounting for its Investment in Salt Company.
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Chapter 3
Required:
a. Using the information above or on the separate worksheet, prepare a determination and distribution of excess schedule.
b. Complete the Figure 3-2 worksheet for consolidated financial statements for 20X2.
3. On January 1, 20X1, Parent Company acquired 100% of the common stock of Subsidiary Company for a cost of $294,000 in a tax-free combination. On this date, Subsidiary had total owner’s equity of $220,000. The excess of cost over book value is due to the undervaluation of inventory, other long-term investments, equipment, and patent.
The inventory is worth $10,000 more than book value and FIFO is used. The inventory was sold during 20X1. The other long-term investments of Subsidiary are worth $20,000 more than book value and are carried under the cost method. The equipment is worth $30,000 more than book value, has a remaining useful life of 10 years, with no salvage value, and straight-line depreciation is used. The patent is to be amortized over 20 years. The corporate tax rate is 30%.
During 20X1, Subsidiary had net income after taxes of $42,000 and in December, paid dividends of $20,000. As a result, the appropriate entries were made on Parent’s books under the equity method.
Required:
a. Prepare a schedule to determine and distribute the excess of cost over book value to assets and to related deferred taxes. Include computations for the write off of the asset increases and the related tax effect.
b. Complete the worksheet in Figure 3-3 for consolidated financial statements for 20X1.
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Chapter 3
4. On January 1, 20X1, Port Company purchased 80% of the common stock of Star Company for $400,000. On this date, Star had common stock, other paid-in capital, and retained earnings of $10,000, $140,000 and $200,000 respectively. Net income and dividends for two years for Star Company were:
……………………………
Net income
20X1
20X2
$50,000
$90,000
Dividends…………………………….
10,000
30,000
On January 1, 20X1, the only tangible assets of Star which were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $10,000 more than cost. The inventory was sold in 20X1. Building, which was worth $27,500 more than book value, has a remaining life of 10 years, and straight-line depreciation is used. Patent, if any, is to be amortized over 10 years.
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Chapter 3
Required:
a. From the information above or on the separate vertical-form worksheet, prepare a determination and distribution of excess schedule. Use the parent company concept (pro rata fair value approach) in any write-up of assets.
b. Port Company carries the Investment in Star Company under the simple equity method. In general journal form, record the entries that would be made to apply the equity method in 20X1 and 20X2.
c. Complete the Figure 3-4 worksheet for consolidated financial statements for 20X2.
5. The Paris Company purchased an 80% interest in Seine, Inc. for $600,000 on July 1, 20X1, when Seine had the following balance sheet:
Assets
$ 50,000
Accounts receivable………………………………
Inventory……………………………………….
120,000
Land……………………………………………
80,000
Building………………………………………..
270,000
Equipment……………………………………….
80,000
…………………………………………Total
$600,000
========
Liabilities and Equity
$100,000
Current liabilities………………………………
Common stock, $5 par……………………………..
50,000
Paid-in capital in excess of par…………………..
150,000
Retained earnings – 7/1…………………………..
300,000
Total…………………………………………
$600,000
========
The inventory is understated by $20,000 and is sold in the third quarter of 20X1. The building has a fair value of $320,000 and a 10-year remaining life. The equipment has a fair value of $120,000 and a remaining life of 5 years. Any remaining excess is attributed to patent with a 20-year life.
On December 31, 20X4, Seine has the following stockholders’ equity:
Common Stock, $5 par……………………………..
$ 50,000
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Chapter 3
Paid-in capital in excess of par…………………..
150,000
Retained earnings………………………………..
600,000
During 20X1, Seine had a net income of $100,000 and paid $10,000 in dividends.
Assume that Paris uses the cost method to record its investment in Seine.
Required:
a. Prepare a determination and distribution of excess schedule as of July 1, 20X1.
b. Prepare the cost to equity conversion adjustment that would be made on the December 31, 20X1, consolidated trial balance worksheet.
c. Prepare the eliminations and adjustments that would be made on the December 31, 20X1, consolidated worksheet to eliminate the investment in Seine. Distribute and amortize any excess.
6. On January 1, 20X1, Parent Company purchased 100% of the common stock of Subsidiary Company for $360,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $50,000, $100,000 and $150,000 respectively. Net income and dividends for two years for Subsidiary Company were:
……………………………
Net income
20X1
20X2
$60,000
$90,000
Dividends…………………………….
20,000
30,000
On January 1, 20X1, the only tangible assets of Subsidiary which were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $10,000 more than cost. The inventory was sold in 20X1. Land had a fair value of $80,000. Buildings had a fair value of $320,00, a remaining life of 10 years and straight-line depreciation is used. The book value of the land and building are $50,000 and $260,000 respectively. Patent, if any, is to be amortized over 10 years.
Parent uses the simple equity method in accounting for its Investment in Subsidiary Company.
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Chapter 3
Required:
a. Using the information above or on the separate worksheet, prepare a determination and distribution of excess schedule.
b. Complete the Figure 3-5 worksheet for consolidated financial statements for 20X2.
7. The Paris Company purchased an 80% interest in Seine, Inc. for $600,000 on July 1, 20X1, when Seine had the following balance sheet:
Assets
$ 50,000
Accounts receivable………………………………
Inventory……………………………………….
120,000
Land……………………………………………
80,000
Building………………………………………..
270,000
Equipment……………………………………….
80,000
…………………………………………Total
$600,000
========
Liabilities and Equity
$100,000
Current liabilities………………………………
Common stock, $5 par……………………………..
50,000
Paid-in capital in excess of par…………………..
150,000
Retained earnings – 7/1…………………………..
300,000
Total…………………………………………
$600,000
========
The inventory is understated by $20,000 and is sold in the third quarter of 20X1. The building has a fair value of $320,000 and a 10-year remaining life. The equipment has a fair value of $120,000 and a remaining life of 5 years. Any remaining excess is attributed to patent with a 20-year life.
On December 31, 20X4, Seine has the following stockholders’ equity:
Common stock, $5 par……………………………..
$ 50,000
Paid-in capital in excess of par…………………..
150,000
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Chapter 3
Retained earnings………………………………..
600,000
During 20X1, Seine had a net income of $100,000 and paid $10,000 in dividends.
Assume that Paris uses the sophisticated equity method to record its investment in Seine.
Required:
a. Prepare a determination and distribution of excess schedule as of July 1, 20X1.
b. Prepare the eliminations and adjustments that would be made on the December 31, 20X1, consolidated worksheet to eliminate the investment in Seine. Distribute and amortize any excess.
8. On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $316,000. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $40,000, $120,000, and $190,000, respectively. Net income and dividends for 2 years for Subsidiary Company were as follows:
……………………………
Net income
20X1
20X2
$50,000
$90,000
Dividends…………………………….
10,000
20,000
On January 1, 20X1, the only tangible assets of Subsidiary which were undervalued were inventory and building. Inventory, for which FIFO is used, was worth $5,000 more than cost. The inventory was sold in 20X1. Building, which was worth $15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Patent, if any, is to be amortized over 10 years.
Required:
a. Using the information above or on the separate worksheet, prepare a determination and distribution of excess schedule. Use the parent company concept (prorata fair value approach) in any write-up of assets.
b. Parent Company carries the Investment in Subsidiary Company under the sophisticated equity method. In general journal form, record the entries that would be made to apply the equity method in 20X1 and 20X2.
c. Compute the balance which should appear in Investment in Subsidiary Company and in Subsidiary Income on December 31, 20X2 (the second year. Fill in these amounts on Parent Company’s trial balance for 20X2.
d. Complete the Figure 3-6 worksheet for consolidated financial statements for 20X2.
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Chapter 3
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… worksheet, prepare a determination and distribution of excess schedule. b. Complete the Figure 3-5 worksheet for consolidated financial statements for 20X2. 7. The Paris Company purchased an 80% interest in Seine, Inc. for $600,000 on July 1, 20X1, w… Login to view tutorial
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Preview: $60,000 excess cost as required by the determination and distribution of excess schedule. Since FIFO is used for inventory, allocate the $10,000 write-up to the January 1, 20X2 retained earning of Parent Company. Cumulatively depreciate the write-up to building over 10 years. Charge the 20X1 depreciation against January 1 20X1 retained earnings of Parent. Charge the 20X2 depreciation against operating expenses. Consolidated Net Income:To Controlling Interest:100,000 + 100%(90,000) – 2,800 = 187,…..
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