Chap002
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Chap002

Course Number: ACC 440, Spring 2008

College/University: University of Phoenix

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CHAPTER 2 REPORTING INTERCORPORATE INTERESTS IN COMMON STOCK ANSWERS TO QUESTIONS Q2-1 (a) An investment in the voting common stock of another company is reported on an equity-method basis when the investor is able to significantly influence the operating and financial policies of the investee. (b) The cost method normally is used for investments in common stock when the investor does not have significant...

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2 CHAPTER REPORTING INTERCORPORATE INTERESTS IN COMMON STOCK ANSWERS TO QUESTIONS Q2-1 (a) An investment in the voting common stock of another company is reported on an equity-method basis when the investor is able to significantly influence the operating and financial policies of the investee. (b) The cost method normally is used for investments in common stock when the investor does not have significant influence and for investments in preferred stock and other securities. The amounts reported in the financial statements may require adjustment to fair value if they fall under the provisions of FASB Statement No. 115. Q2-2 Significant influence occurs when the investor has the ability to influence the operating and financial policies of the investee. Representation on the board of directors of the investee is perhaps the strongest evidence, but other evidence such as routine participation in management decisions or entering into formal agreements that give the investor some degree of influence over the investee also may be used. Q2-3 Equity-method reporting should not be used when (a) an investee is in reorganization or liquidation, (b) the investee has initiated litigation or complaints challenging the investor's ability to exercise significant influence, (c) the investor signs an agreement surrendering its ability to exercise significant influence, (d) majority ownership is concentrated in a small group that operates the company without regard to the investor's desires, (e) the investor is not able to acquire the information needed to use equity-method reporting, or (f) the investor tries and fails to gain representation on the board of directors. Q2-4 The balances will be the same at the date of acquisition and in the periods that follow whenever the cumulative dividends paid by the investee equal or exceed the investee's cumulative earnings since the date of acquisition. The latter case assumes there are no other adjustments needed under the equity method for amortization of differential or other factors. Q2-5 When a company has used the cost method and purchases additional shares which cause it to gain significant influence, a retroactive adjustment is recorded to move from a cost basis to an equity-method basis in the preceding periods. Dividend income is replaced by income from the investee and dividends received are treated as an adjustment to the investment account. Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 47 - Chapter 2 Q2-6 An investor considers a dividend to be a liquidating dividend when the cumulative dividends received from the investee exceed a proportionate share of the cumulative earnings of the investee from the date ownership was acquired. For example, an investor would consider a dividend to be liquidating if it purchases shares of another company in early December and receives a dividend at year-end substantially in excess of its portion of the investee's net income for December. On the other hand, the investee may have reported net income well in excess of the total dividends paid for the year and would not consider the dividends to be liquidating dividends. Q2-7 Liquidating dividends decrease the investment account in both cases. All dividends are treated as a reduction of the investment account when equity-method reporting is used. When the cost method is used and dividends are received in excess of a proportionate share of investee earnings since acquisition, they are treated as a reduction of the investment account as well. Q2-8 The carrying value of the investment is reduced under equity method reporting when (a) a dividend is received from the investee, (b) a purchase differential is amortized, (c) an impairment of goodwill occurs, and (d) the market value of the investment declines and is less than the carrying value and it is concluded the decline in other than temporary. Q2-9 A corporate joint venture is a company that is established and operated by a small group of investors, none of whom hold a majority of the ownership. Because there are only a few owners and each investor normally is expected to have significant influence, equity-method reporting generally is appropriate in accounting for ownership in a corporate joint venture. Q2-10 A differential occurs when an investor pays more than or less than underlying book value in acquiring ownership of an investee. (a) In the case of the cost method, no adjustments are made for amortization of the differential on the investor's books. (b) Under equity-method reporting the difference between the amount paid and book value must be assigned to appropriate asset and liability accounts of the acquired company. If any portion of the differential is assigned to an amortizable or depreciable asset, that amount must be charged against income from the investee over the remaining economic life of the asset. Q2-11 A dividend is treated as a reduction of the investment account under equitymethod reporting. Unless it is a liquidating dividend, it is treated as dividend income under the cost method. Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 48 - Chapter 2 Q2-12 Amortization of a purchase differential is the most common reason for investment income to be lower than a proportionate share of reported income of the investee. If Turner Company has paid more than book value for the shares of Straight Lace Company, the purchase differential must be assigned to identifiable assets and liabilities of the investee, or to goodwill. Those amounts assigned to depreciable and identifiable intangible assets must be amortized and will reduce equity-method income over the remaining economic lives of the underlying assets. Amounts attributable to other items such as land or inventories must be treated as a reduction of income in the period in which Straight Lace disposes of the item. Income also will be lower if the investee has been involved in sales to related companies during the period and there are unrealized profits from those intercompany sales; the income of the selling affiliate must be reduced by the unrealized profits before equity-method income is computed. Finally, if Straight Lace has preferred stock outstanding, preferred dividends must be deducted before assigning earnings to common shareholders. Q2-13 Clear-cut measures of control are not always readily available. For example, a partner contributing a specified share of the partnership=s capital may have a different share of profits or losses, a different proportion of distributions, or a greater or lesser degree of control than indicated by the capital share. Q2-14 There may be situations in which a company has significant influence over another without holding voting common stock. For example, a company might use operating agreements or other contracts to share in the profits of another company, guarantee a certain level of profitability of another company, or participate in the operating decisions of another company. Q2-15* In general, tax allocation procedures should be used whenever there is a difference between dividends received from the investee and the amount of investment income recorded by the investor. Tax allocation is not needed if the companies file a joint tax return or if the investee's earnings can be transferred to the investor in a tax-free transfer. Q2-16* The amount should be larger under the equity method. There should be no need to use tax allocation when the cost method is used in accounting for the investee. Dividends received and taxable income are likely to be the same. Tax allocation normally is needed under the equity method, due to the difference between income recorded and dividends received. Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 49 - Chapter 2 Q2-17* When the basic equity method is used, a proportionate share of subsidiary net income and dividends is recorded on the parent's books and an appropriate amount of any purchase differential is amortized each period. No other adjustments are recorded. Under the fully-adjusted equity method, the parent's books also are adjusted for unrealized profits and any other items that are needed to bring the investor's net income into agreement with the income that would be reported if consolidation were used. Parent company and consolidated net income will always be the same when the fullyadjusted equity method is used. Q2-18* One-line consolidation implies that under equity-method reporting the investor's net income and stockholders' equity will be the same as if the investee were consolidated. Income from the investee is included in a single line in the investor's income statement and the investment is reported as a single line in the investor's balance sheet. Q2-19* The term basic equity method generally is used when the investor records its portion of the reported net income and dividends of the investee and amortizes an appropriate portion of any purchase differential. Unlike the fully-adjusted equity method, no adjustment for unrealized profit on intercompany transfers normally is made on the investor's books. When an investee is consolidated for financial reporting purposes, the investor may not feel it is necessary to record fully-adjusted equity method entries on its books since income from the investee and the balance in the investment account must be eliminated in preparing the consolidated statements. Q2-20* The investor reports a proportionate share of an investee's extraordinary item as an extraordinary item in its own income statement. Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 50 - Chapter 2 SOLUTIONS TO CASES C2-1 Choice of Accounting Method a. The equity method is to be used when an investor has significant influence over an investee. Significant influence normally is assumed when more than 20 percent ownership is held. Factors to be considered in determining whether to apply equitymethod reporting include the following: 1. Is the investee under the control of the courts or other parties as a result of filing for reorganization or entering into liquidation procedures? 2. Does the investor have representation on the board of directors, or has it attempted to gain representation and been unable to do so? 3. Has the investee initiated litigation or complaints challenging the investor's ability to exercise significant influence? 4. Has the investor signed an agreement surrendering its ability to exercise significant influence? 5. Is majority ownership concentrated in a small group that operates the company without regard of the wishes of the investor? 6. Is the investor able to acquire the information needed to use equity-method reporting? b. When subsidiary net income is greater than dividends paid, equity-method reporting is likely to show a larger reported contribution to the earnings of Slanted Building Supplies. If 20X4 earnings are negative or less than dividends distributed in 20X4, the cost basis is likely to result in a larger contribution to Slanted's reported earnings. c. As the investor uses more of its resources to acquire ownership of the investee, and as the investor has a greater share of the investee's profits and losses, the success of the investee's operations may have more of an impact on the overall financial well-being of the investor. In many cases, the investor will want to participate in key decisions of the investee once the investor's ownership share reaches a certain level. Also, use of the equity method eliminates the possibility of the investor manipulating its own income by influencing investee dividend distributions, as might occur under the cost method. Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 51 - Chapter 2 C2-2 Intercorporate Ownership MEMO To: Chief Accountant Most Company , CPA Equity Method Reporting for Investment in Adams Company From: Re: The equity method should be used in reporting investments in which the reporting company has a significant influence over the operating and financing decisions of another company. In this case, Most Company holds 15 percent of the voting common stock of Adams Company and Port Company holds an additional 10 percent. During the course of the year, both Most and Port are likely to use the cost method in recording their respective investments in Adams. However, when consolidated statements are prepared for Most, the combined ownership must be used in determining whether significant influence exists. . . . an investment (direct or indirect) of 20% or more of the voting stock of an investee should lead to a presumption that in the absence of evidence to the contrary an investor has the ability to exercise significant influence over the investee. [APB 18, Par. 17] A total of 15 percent of the voting common stock of Adams is held directly by Most Company and an additional 10 percent is controlled indirectly though Most=s ownership of Port Company. Equity-method reporting for the investment in Adams Company therefore appears to be required. If the cost method has been used by Most and Port in recording their investments during the year, at the time consolidated statements are prepared, adjustments must be made to (a) increase the balance in the investment account for a proportionate share of the investee=s reported net income (25 percent) and reduce the balance in the investment account for a proportionate share of the dividend paid by the investee, (b) include a proportionate share of the investee=s net income in the consolidated income statement, (c) delete any dividend income recorded by Most and Port, and (d) if ownership was purchased at an amount greater than a proportionate share of the fair value of the investee=s net assets at the date of purchase, it may be necessary to amortize a portion of the differential assigned to depreciable or amortizable assets. Primary citation APB 18, par. 17 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 52 - Chapter 2 C2-3 Application of the Equity Method MEMO To: Controller Forth Company , CPA Equity Method Reporting for Investment in Brown Company From: Re: This memo is prepared in response to your request regarding use of the cost or equity methods in accounting for Forth=s investment in Brown Company. Forth Company held 85 percent of the common stock of Brown Company prior to January 1, 20X2, and was required to fully consolidate Brown Company in its financial statements prepared prior to that date [FASB 94]. Forth now holds only 15 percent of the common stock of Brown. The cost method is normally used in accounting for ownership when less than 20 percent of the stock is directly or indirectly held by the investor. Equity-method reporting should be used when the investor has significant influence over operating and financing policies of the investee. While 20 percent ownership is regarded as the level at which the investor is presumed to have significant influence, other factors must be considered as well. The ability to exercise significant influence may be indicated in several ways, such as representation on the board of directors, participation in policy making processes, material intercompany transactions, interchange of managerial personnel, or technological dependency. Another important consideration is the extent of ownership of other shareholdings. [APB 18, Par. 17] Although Forth currently holds only 15 percent of Brown=s common stock, the other factors associated with its ownership indicate that Forth does exercise significant influence over Brown. Forth has two members on Brown=s board of directors, it purchases a substantial portion of Brown=s output, and Forth appears to be the largest single shareholder by virtue of its sale of 10,000 shares to each of 7 other investors. These factors provide strong evidence that Forth has significant influence over Brown and points to the need to use equity-method reporting for its investment in Brown. Your office should monitor the activities of the FASB with respect to consolidation standards [www.fasb.org]. Active consideration is being given to situations in which control may be exercised even though the investor does not hold majority ownership. It is conceivable that your situation might be one in which consolidation could be required. Primary citations APB 18, par. 17 FASB 94 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 53 - Chapter 2 C2-4 Use of the Cost or Equity Method [AICPA Adapted] a. Under the cost method, the investor recognizes income as dividends are received from the investee. Under the equity method, an investor recognizes as income its share of an investee's earnings or losses in the periods in which they are reported by the investee. The amount recognized as income under the equity method is adjusted for any change in the remaining amount of the difference between original investment cost and the investor's equity in net assets of the investee at the investment date. One could argue that the equity method is more consistent with accrual accounting than is the cost method because the equity method recognizes income when earned rather than when dividends are received. On the other hand, one could argue that the cost method is more consistent with the realization concept because the income is not recognized by the investor until actually realized by the investor as it is distributed by the investee. b. Madison should have assessed whether it could have exerted significant influence over Boomer's operating and financial policies. Madison did not own 20 percent or more of Boomer's voting stock (which would have led to the refutable presumption that it could exercise significant influence); however, the ability to exercise significant influence may be indicated by other factors such as Madison's provision of three key management personnel and purchase of 25 percent of Boomer's output. c. On becoming a 30 percent owner of Boomer, Madison should use the equity method to account for its investment. As of January 2, 20X8, Madison's investment and retained earnings accounts must be adjusted retroactively to show balances as if the equity method had been used from the initial purchase date. Both accounts should be increased by 18 percent of Boomer's undistributed income since formation. Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 54 - Chapter 2 C2-5 Equity Method Accounting a. An analysis of the four proposed alternatives in general can be developed with a thoughtful reading of the materials in chapter 2. The unique aspects of the situations presented in this case are the need for the acquiring company to consider (1) if it paid too much and whether the amount paid is the appropriate basis for valuation, and (2) whether or not the question of temporary ownership should influence the way in which the company accounts for the investment. If the purchase is considered to be only temporary and the equity method and consolidation are ruled out, it would seem that alternative #1 may be the best choice. If ownership for several years appears likely, alternative #4 would seem to be preferred. The impact of the assumptions needed to support each alternative provides an excellent means of discussing why the equity method and consolidation are considered superior to use of the cost method for financial reporting purposes. b. Not all industries and companies within an industry use the same reporting procedures for a given situation. The company normally will first consult with its external auditor to determine whether there is a difference of opinion between the way in which the company feels this situation is best reported and the alternative recommended by the auditor. A source often used to acquire information about specialized industries is the AICPA industry audit guides. For regulated industries, the requirements set down by regulatory boards should be examined. Contact with the research staff of the Financial Accounting Standards Board and Chief Accountant=s Office of the Securities and Exchange Commission may be needed to provide clarification in questionable cases. c. An individual company may have little recourse in the near term. If the company reports in a manner deemed to be inconsistent with generally accepted accounting principles in the judgment of their external auditor, the company is likely to receive an adverse opinion on its financial statements. This, in turn, can cause problems in filings with the Securities and Exchange Commission and the ability to continue to have shares traded on the major exchanges. It may be possible to appeal to the Securities and Exchange Commission seeking approval before the financial statements are prepared. If there are not clear accounting guidelines on the area, the company may wish to contact the Emerging Issues Task Force of the Financial Accounting Standards Board to obtain guidance in selecting the most appropriate alternative. If a conflict arises with the existing external auditor, it may be possible that a change in audit firms would be beneficial. Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 55 - Chapter 2 C2-6 Reporting Significant Investments in Common Stock Answers to this case can be found in the annual reports to stockholders of the companies mentioned and in their 10-K filings with the SEC (available at www.sec.gov). a. Before 1998, Harley-Davidson reported its investment in the common stock of Buell Motorcycle Company using the equity method. The 49 percent investment that Harley held since 1993 gave it the ability to significantly influence Buell. In 1998, Harley purchased substantially all remaining shares of Buell and, therefore, Harley fully consolidates Buell in its general-purpose financial statements. b. Texaco reports its investment in Motiva Enterprises, LLC, within Investments and Advances using the equity method. Motiva is a limited liability company. The owners of Motiva are Texaco, Shell Oil, and Saudi Aramco. c. Texaco reports its income from Motiva in revenues as a separate line-item labeled Equity in income of affiliates, interest, asset sales and other. Revenues from transactions with significant affiliates are reported in Sales and services under Revenues, and the amounts are disclosed parenthetically. d. PepsiCo reports investments in unconsolidated affiliates over which it exercises significant influence using the equity method. Prior to 1999, equity-method income or loss from these affiliates was included in selling, general and administrative expenses. Obviously, this is not an appropriate classification for equity-method income from affiliates, but it could be justified if the amounts are considered to be immaterial. In 1999, PepsiCo started reporting its income from equity-method investments separately in the income statement. e. At December 31, 1999, Sears had investments in the voting securities of 37 companies that it accounted for using the equity method. Where these investments are reported is difficult to tell from the financial statements and notes. Apparently the amounts involved are relatively small, and the investments are included in other assets on the balance sheet, with the income reported in other income on the income statement. Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 56 - Chapter 2 SOLUTIONS TO EXERCISES E2-1 Multiple-Choice Questions on Use of Cost and Equity Methods [AICPA Adapted] 1. a 2. a 3. d 4. a 5. b 6. d 7. d E2-2 Multiple-Choice Questions on Intercorporate Investments 1. b 2. c 3. d 4. a 5. a E2-3 Multiple-Choice Questions on Applying Equity Method [AICPA Adapted] 1. c 2. d $250,000 + ($100,000 x .30) - $4,000 3. c 4. d 5. d Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 57 - Chapter 2 E2-4 Cost versus Equity Reporting a. Cost-method journal entries recorded by Roller Corporation: 20X5 Investment in Steam Company Stock Cash Record purchase of Steam Company stock. Cash Dividend Income Record dividend income from Steam Company: $5,000 x .20 20X6 Cash Dividend Income Record dividend income from Steam Company: $15,000 x .20 Cash Dividend Income Record dividend income from Steam Company: $35,000 x .20 Note: Cumulative dividends do not exceed cumulative earnings to date. 70,000 70,000 1,000 1,000 3,000 3,000 20X7 7,000 7,000 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 58 - Chapter 2 E2-4 (continued) b. Equity-method journal entries recorded by Roller Corporation: 20X5 Investment in Steam Company Stock Cash Record purchase of Steam Company stock. Cash Investment in Steam Company Stock Record dividend from Steam Company. Investment in Steam Company Stock Income from Steam Company Record equity-method income. Income from Steam Company Investment in Steam Company Stock Amortize purchase differential: [$70,000 - ($200,000 x .20)] / 10 years 20X6 Cash Investment in Steam Company Stock Record dividend from Steam Company. Investment in Steam Company Stock Income from Steam Company Record equity-method income. Income from Steam Company Investment in Steam Company Stock Amortize purchase differential. 20X7 Cash Investment in Steam Company Stock Record dividend from Steam Company. Investment in Steam Company Stock Income from Steam Company Record equity-method income. Income from Steam Company Investment in Steam Company Stock Amortize purchase differential. 70,000 70,000 1,000 1,000 4,000 4,000 3,000 3,000 3,000 3,000 8,000 8,000 3,000 3,000 7,000 7,000 4,000 4,000 3,000 3,000 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 59 - Chapter 2 E2-5 Cost versus Equity Reporting a. Winston Corporation net income cost method: 20X2 20X3 20X4 a $100,000 $ 60,000 $250,000 + + + .40($30,000) .40($60,000) .40($20,000 + $25,000) a $112,000 84,000 268,000 Dividends paid from undistributed earnings of prior years ($70,000 + $40,000 - $30,000 - $60,000 = $20,000) and $25,000 earnings of current period. b. Winston Corporation net income equity method: 20X2 20X3 20X4 $100,000 $ 60,000 $250,000 + + + .40($70,000) .40($40,000) .40($25,000) $128,000 76,000 260,000 E2-6 Acquisition Price Balance at date of purchase: a. Cost method b. Equity method $54,000 + $2,800 = $56,800 $54,000 - $2,000 = $52,000 Dividends $15,000 10,000 10,000 Change in Investment Account Cost Method Equity Method $(2,800) $(2,800) 800 4,000 $(2,800) $ 2,000 Year Net Income 20X1 $ 8,000 20X2 12,000 20X3 20,000 Change in account balance Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 60 - Chapter 2 E2-7 Investment Income a. (1) Ravine Corporation net income under Cost Method: 20X6 20X7 20X8 20X9 $140,000 $ 80,000 $220,000 $160,000 + + + + .30($20,000) .30($40,000) .30($30,000) .30($20,000) = = = = $146,000 $ 92,000 $229,000 $166,000 (2) Ravine Corporation net income under Equity Method: 20X6 20X7 20X8 20X9 $140,000 $ 80,000 $220,000 $160,000 + + + + .30($30,000) .30($50,000) .30($10,000) .30($40,000) = = = = $149,000 $ 95,000 $223,000 $172,000 b. Journal entries recorded by Ravine Corporation in 20X8: (1) Cost method: Cash Dividend Income Investment in Valley Stock (2) Equity method: Cash Investment in Valley Stock Investment in Valley Stock Income from Valley 12,000 12,000 3,000 3,000 12,000 9,000 3,000 E2-8 Impairment of Investment Value The following amounts would be reported as the carrying value of Port's investment in Sund: 20X2 20X3 20X4 $184,500 = $193,500 = $135,000 = $180,000 + ($40,000 x .30) - ($25,000 x .30) $184,500 + ($30,000 x .30) $4.50 x 30,000 shares; prior to adjustment, the carrying value at the end of 20X4 would be $195,000 [$193,500 + ($5,000 x .30)] Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 61 - Chapter 2 E2-9 Alternative Reporting for Investment in Partnership Moss Company Balance Sheet Pro Rata Equity Method Consolidation $510,000 $622,500(d) 99,000(b) $609,000 $ 40,000 569,000(c) $609,000 $622,500 $ 53,500(e) 569,000(c) $622,500 Full Consolidation $ 760,000 (f) $ 760,000 $ 70,000(g) 121,000(h) 569,000(c) $ 760,000 Assets Investment in TF Partnership Total Assets Liabilities Interest of Outside Partners Owners' Equity Total Liabilities and Equity (a) (b) (c) (d) (e) (f) (g) (h) Cost Method $510,000 90,000 $600,000 $ 40,000 560,000(a) $600,000 $560,000 = $510,000 + $90,000 - $40,000 $99,000 = $90,000 + [($220,000 - ($90,000/.45)) x .45] $569,000 = $560,000 + [($220,000 - ($90,000/.45)) x .45] $622,500 = $510,000 + ($250,000 x .45) $53,500 = $40,000 + ($30,000 x .45) $760,000 = $510,000 + $250,000 $70,000 = $40,000 + $30,000 $121,000 = [($250,000 - $30,000) x .55] Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 62 - Chapter 2 E2-10 Differential Assigned to Patents Journal entries recorded by Power Corporation: 20X2 Investment in Snow Corporation Stock Common Stock Capital in Excess of Par Value Record purchase of Snow Corporation stock. Cash Investment in Snow Corporation Stock Record dividend from Snow Corporation: $20,000 x .35 Investment in Snow Corporation Stock Income from Snow Corporation Record equity-method income: $56,000 x .35 Income from Snow Corporation Investment in Snow Corporation Stock Amortize purchase differential: [$360,000 - ($980,000 x .35)] / 8 years 20X3 Cash Investment in Snow Corporation Stock Record dividend from Snow Corporation: $10,000 x .35 Loss from Snow Corporation Investment in Snow Corporation Stock Record equity-method loss: $44,000 x .35 Loss from Snow Corporation Investment in Snow Corporation Stock Amortize purchase differential. 360,000 90,000 270,000 7,000 7,000 19,600 19,600 2,125 2,125 3,500 3,500 15,400 15,400 2,125 2,125 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 63 - Chapter 2 E2-11 Differential Assigned to Copyrights Journal entries recorded by Best Corporation: 20X7 Investment in Flair Company Stock Cash Bonds Payable Record purchase of Flair Company stock. Cash Investment in Flair Company Stock Record dividend from Flair Company: $24,000 x .25 Loss from Flair Company Investment in Flair Company Stock Record equity-method loss: $88,000 x .25 Loss from Flair Company Investment in Flair Company Stock Amortize purchase differential: Book value of assets Book value of liabilities Net book value Fair value increment Fair value of net assets Portion of ownership purchased Fair value of assets acquired Amount paid Differential Period of amortization (years) Amortization per period 20X8 Cash Investment in Flair Company Stock Record dividend from Flair Company: $24,000 x .25 Investment in Flair Company Stock Income from Flair Company Record equity-method income: $120,000 x .25 Income from Flair Company Investment in Flair Company Stock Amortize purchase differential. 196,000 26,000 170,000 6,000 6,000 22,000 22,000 5,250 5,250 $740,000 (140,000) $600,000 16,000 $616,000 x .25 $154,000 196,000 $ 42,000 8 $ 5,250 6,000 6,000 30,000 30,000 5,250 5,250 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 64 - Chapter 2 E2-12 Purchase Differential Attributable to Depreciable Assets a. Journal entries recorded by Capital Corporation using the equity method: 20X4 Investment in Cook Company Stock Cash Record purchase of Cook Company Stock. Cash Investment in Cook Company Stock Record dividend from Cook Company: $6,000 x .40 Investment in Cook Company Stock Income from Cook Company Record equity-method income: $10,000 x .40 Income from Cook Company Investment in Cook Company Amortize Stock purchase differential: $16,000 / 10 years 20X5 Cash Investment in Cook Company Stock Record dividend from Cook Company: $9,000 x .40 Investment in Cook Company Stock Income from Cook Company Record equity-method income: $20,000 x .40 Income from Cook Company Investment in Cook Company Stock Amortize purchase differential. b. Journal entries recorded by Capital Corporation using the cost method: 20X4 Investment in Cook Company Stock Cash Record purchase of Cook Company Stock. Cash Dividend Income Record dividend income from Cook Company. 20X5 Cash Dividend Income Record dividend income from Cook Company. 136,000 136,000 2,400 2,400 3,600 3,600 136,000 136,000 2,400 2,400 4,000 4,000 1,600 1,600 3,600 3,600 8,000 8,000 1,600 1,600 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 65 - Chapter 2 E2-13 Investment Income Brindle Corporation reported equity-method income of $13,000, computed as follows: Proportionate share of reported income ($68,000 x .25) Amortization of purchase differential: Land ($7,500: not amortized) Equipment ($20,000 / 5 years) Goodwill ($19,500: not amortized) Investment Income Assignment of purchase differential Purchase price Proportionate share of book value of net assets [($690,000 - $230,000) x .25] Differential Differential assigned to land ($30,000 x .25) Differential assigned to equipment ($80,000 x .25) Differential assigned to goodwill E2-14 Income from Investee Spone Corporation reported investment income of $18,000, computed as follows: Proportionate share of reported income ($55,000 x .40) Amortization of purchase differential: Buildings ($24,000 / 10 years) Equipment ($8,000 / 5 years) Goodwill ($5,400: not amortized) Investment income Assignment of purchase differential Purchase price Proportionate share of book value of net assets [($345,000 - 105,000) x .40] Differential Differential assigned to building Differential assigned to equipment Differential assigned to goodwill $133,400 (96,000) $ 37,400 (24,000) (8,000) $ 5,400 $2,400 1,600 -0$22,000 $162,000 (115,000) $ 47,000 (7,500) (20,000) $ 19,500 $17,000 $ -04,000 -0- (4,000) $13,000 (4,000) $18,000 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 66 - Chapter 2 E2-15 Determination of Purchase Price Investment account balance December 31, 20X6 Increase in account balance during 20X5: Proportionate share of income ($110,000 x .30) Amortize differential ($28,000 / 8 years) Dividend received ($50,000 x .30) Decrease in account balance during 20X6: Proportionate share of income ($20,000 x .30) Amortize differential ($28,000 / 8 years) Dividend received ($40,000 x .30) Investment account balance at date of purchase $161,000 $ 33,000 (3,500) (15,000) $ 6,000 (3,500) (12,000) (14,500) 9,500 $156,000 E2-16 Computation of Purchase Price Investment account balance December 31, 20X3 Increase in account balance during 20X2: Proportionate share of income ($60,000 x .30) Dividend received ($15,000 x .30) Decrease in account balance during 20X3: Proportionate share of loss ($40,000 x .30) Dividend received ($35,000 x .30) Investment account balance at date of purchase $135,000 $ 18,000 (4,500) $ (12,000) (10,500) (13,500) 22,500 $144,000 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 67 - Chapter 2 E2-17 Correction of Error Required correcting entry: Investment in Case Products Stock Dividend Income Income from Case Products Retained Earnings Computation of correction of investment account Addition to account for investment income: 20X6: $40,000 x .40 20X7: $60,000 x .40 20X8: $80,000 x .40 Deduction for dividends received: 20X6: $15,000 x .40 20X7: $20,000 x .40 20X8: $20,000 x .40 Amortization of purchase differential: Purchase price Proportionate share of book value of net assets [.40($60,000 + $40,000)] Amount of purchase differential Amortization for 3 years [($16,000 / 8) x 3] Required correction of investment account Computation of correction of retained earnings of Grand Corporation Dividend income recorded in 20X6: $15,000 x .40 20X7: $20,000 x .40 Equity-method income in 20X6: ($16,000 - $2,000) 20X7: ($24,000 - $2,000) Required correction of retained earnings $ 6,000 8,000 $14,000 22,000 ($14,000) 36,000 $22,000 $16,000 24,000 32,000 $ 6,000 8,000 8,000 $56,000 (40,000) $16,000 (6,000) $44,000 44,000 8,000 30,000 22,000 $72,000 (22,000) Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 68 - Chapter 2 E2-18 Purchase Differential Assigned to Land and Equipment Journal entries recorded by Rod Corporation: (1) Investment in Stafford Stock Cash Record purchase of Stafford Stock. (2) Cash Investment in Stafford Stock Record dividend from Stafford: $15,000 x .30 (3) Investment in Stafford Stock Income from Stafford Record equity-method income: $40,000 x .30 (4) Income from Stafford Investment in Stafford Stock Amortize purchase differential assigned to equipment. 65,000 65,000 4,500 4,500 12,000 12,000 1,000 1,000 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 69 - Chapter 2 E2-19 Equity Entries with Positive and Negative Goodwill a. Journal entries recorded following purchase for $175,000: (1) Investment in Turner Corporation Cash Record purchase of Turner stock. (2) Cash Investment in Turner Corporation Record dividend from Turner: $8,000 x .40 (3) Investment in Turner Corporation Income from Turner Corporation Record equity-method income: $40,000 x .40 (4) Income from Turner Corporation Investment in Turner Corporation Write off purchase differential assigned to inventory carried on FIFO basis: $10,000 x .40 (5) Income from Turner Corporation Investment in Turner Corporation Amortize purchase differential assigned to buildings and equipment: [$240,000 - ($300,000 - $150,000)] x .40 10 years 175,000 175,000 3,200 3,200 16,000 16,000 4,000 4,000 3,600 3,600 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 70 - Chapter 2 E2-19 (continued) b. Journal entries recorded following purchase for $140,000: (1) Investment in Turner Corporation Cash Record purchase of Turner stock. (2) Cash Investment in Turner Corporation Record dividend from Turner: $8,000 x .40 (3) Investment in Turner Corporation Income from Turner Corporation Record equity-method income: $40,000 x .40 (4) Income from Turner Corporation Investment in Turner Corporation Write off purchase differential assigned to inventory carried on FIFO basis: $10,000 x .40 (5) Income from Turner Corporation Investment in Turner Corporation Amortize purchase differential assigned to buildings and equipment: $16,000 / 10 years Computation of amortization of differential Amount paid for ownership Proportionate share of underlying book value: Book value of total assets Book value of liabilities Book value of net assets Ownership acquired Book value of ownership acquired Purchase differential Differential assigned to inventory Differential assigned to buildings and equipment 140,000 140,000 3,200 3,200 16,000 16,000 4,000 4,000 1,600 1,600 $140,000 $375,000 (75,000) $300,000 x .40 (120,000) $ 20,000 (4,000) $ 16,000 NOTE: In purchasing 40 percent of Turner Corporation for $140,000, Chad has acquired its ownership for $20,000 less than a proportionate share of the fair value of Turner's net assets [($400,000 x .40) - $140,000]. Negative goodwill is treated as a reduction of the differential assigned to the noncurrent assets in such cases. Thus, a differential of $16,000 is assigned to buildings and equipment rather than $36,000 [($240,000 - ($300,000 - $150,000)) x .40]. Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 71 - Chapter 2 E2-20 Income Reporting Journal entry recorded by Grandview Company: Investment in Spinet Corporation Income from Spinet Corporation Extraordinary Gain (from Spinet Corporation) 36,000 24,000 12,000 E2-21* Investee with Preferred Stock Outstanding Journal entries recorded by Reden Corporation: (1) Investment in Montgomery Co. Stock Cash Record purchase of Montgomery Co. stock. (2) Cash Investment in Montgomery Co. Stock Record dividend from Montgomery Co.: [$40,000 - ($250,000 x .10)] x .45 (3) Investment in Montgomery Co. Stock Income from Montgomery Co. Record equity-method income: [$95,000 - ($250,000 x .10)] x .45 288,000 288,000 6,750 6,750 31,500 31,500 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 72 - Chapter 2 E2-22* Other Comprehensive Income Reported by Investee Journal entries recorded by Callas Corp. during 20X9: (1) Investment in Thinbill Co. Stock Cash (2) Cash Investment in Thinbill Co. Stock Record dividend from Thinbill: $9,000 x .40 (3) Investment in Thinbill Co. Stock Income from Thinbill Co. Record equity-method income: $22,000 = ($45,000 + $10,000) x .40 (4) Investment in Thinbill Co. Stock Unrealized Gain on Investments of Investee (OCI) Record share of OCI reported by Thinbill: $8,000 = $20,000 x .40 Closing entries recorded at December 31, 20X9: (5) Income from Thinbill Co. Retained Earnings (6) Unrealized Gain on Investments of Investee (OCI) Accumulated Other Comprehensive Income from Investee-Unrealized Gain on Investments 22,000 22,000 8,000 8,000 380,000 380,000 3,600 3,600 22,000 22,000 8,000 8,000 E2-23* Other Comprehensive Income Reported by Investee Investment account balance reported by Baldwin Corp. Add decrease in account recorded in 20X8: Equity-method loss ($20,000 x .25) Dividend received ($10,000 x .25) Deduct increase in account recorded in 20X9: Equity-method income ($68,000 x .25) Dividend received ($16,000 x .25) Other comprehensive income reported by Gwin Company ($12,000 x .25) Purchase price $ (5,000) (2,500) $ 17,000 (4,000) 3,000 (16,000) $58,500 $67,000 7,500 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 73 - Chapter 2 E2-24* Deferred Income Taxes Computation of Crabapple's net income: Deferred income tax reported by Denbow Divide by Denbow's effective tax rate Denbow's temporary tax difference Divide by taxable portion Denbow's portion of undistributed earnings Denbow's portion of dividend payments Denbow's portion of Crabapple's new income Divide by proportion of ownership held by Denbow Crabapple's net income for period $ 37,800 .45 $ 84,000 .20 $ 420,000 25,000 $ 445,000 .25 $1,780,000 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 74 - Chapter 2 SOLUTIONS TO PROBLEMS P2-25 Multiple-Choice Questions on Applying the Equity Method [AICPA Adapted] 1. a 2. a 3. c 4. d P2-26 Amortization of Purchase Differential Journal entries recorded by Ball Corporation: (1) Investment in Krown Company Stock Preferred Stock Additional Paid-In Capital -- Preferred Stock Record purchase of Krown Company stock. (2) Cash Investment in Krown Company Stock Record dividend from Krown Company: $10,000 x .30 (3) Investment in Krown Company Stock Income from Krown Company Record equity-method income. (4) Income from Krown Company Investment in Krown Company Stock Amortize purchase differential assigned to buildings and equipment: [($360,000 - $300,000) x .30] / 15 years (5) Income from Krown Company Investment in Krown Company Amortize purchase differential assigned to copyrights: $27,000 / 8 years Computation of copyrights Purchase price Fair value of Krown's: Total assets Total liabilities Proportion of stock held by Ball Amount assigned to copyrights 120,000 50,000 70,000 3,000 3,000 12,000 12,000 1,200 1,200 3,375 3,375 $120,000 $560,000 (250,000) $310,000 x .30 (93,000) $ 27,000 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 75 - Chapter 2 P2-27 Computation of Account Balances a. Easy Chair Company 20X1 equity-method income: Proportionate share of reported income ($30,000 x .40) Amortization of purchase differential assigned to: Buildings and equipment [($35,000 x .40) / 5 years] Goodwill ($8,000: not amortized) Investment Income Assignment of purchase differential Purchase price Proportionate share of book value of net assets ($320,000 x .40) Proportionate share of fair value increase in buildings and equipment ($35,000 x .40) Goodwill $150,000 (128,000) $ (14,000) 8,000 $ 12,000 (2,800) -0$ 9,200 b. c. Dividend income, 20X1 ($9,000 x .40) Cost-method account balance (unchanged): Equity-method account balance: Balance, January 1, 20X1 Investment income Dividends received Balance, December 31, 20X1 $ 3,600 $150,000 $150,000 9,200 (3,600) $155,600 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 76 - Chapter 2 P2-28 Retroactive Recognition Journal entries recorded by Idle Corporation: (1) Investment in Fast Track Enterprises Stock Cash Record purchase of Fast Track stock. (2) Investment in Fast Track Enterprises Stock Retained Earnings Record pick-up of difference between cost and equity income: 20X2 .10($40,000 - $20,000) 20X3 .10($60,000 / 2) .15[($60,000 / 2) - $20,000] 20X4 .15($40,000 - $10,000) Amount of increase (3) Cash Investment in Fast Track Enterprises Record dividend from Fast Track Enterprises: $20,000 x .25 (4) Investment in Fast Track Enterprises Stock Income from Fast Track Enterprises Record equity-method income: $50,000 x .25 34,000 34,000 11,000 11,000 $ 2,000 $3,000 1,500 4,500 4,500 $11,000 5,000 5,000 12,500 12,500 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 77 - Chapter 2 P2-29 Multistep Acquisition Journal entries recorded by Jackson Corp. in 20X9: (1) Investment in Phillips Corp. Stock Cash Record purchase of Phillips stock. (2) Investment in Phillips Corp. Stock Retained Earnings Record pick-up of difference between cost and equity income. Computation of equity pick-up 20X6 .10($70,000 - $20,000) 20X7 .10($70,000 - $20,000) 20X8 .15($70,000 - $20,000) 20X6 amortization of differential 20X7 amortization of differential 20X8 amortization of differential Amount of increase Amortization of differential 20X6 purchase [$25,000 - ($200,000 x .10)] 5 years 20X8 purchase [$15,000 - ($300,000 x .05)] 20X9 purchase [$70,000 - ($350,000 x .20)] Total annual amortization (3) Cash Investment in Phillips Corp. Stock Record dividend from Phillips Corp: $20,000 x .35 (4) Investment in Phillips Corp. Stock Income from Phillips Corp. Record equity-method income: $70,000 x .35 (5) Income from Phillips Corp. Investment in Phillips Corp. Stock Amortize purchase differential. $ 5,000 5,000 7,500 (1,000) (1,000) (1,000) $14,500 70,000 70,000 14,500 14,500 $1,000 0 0 $1,000 7,000 7,000 24,500 24,500 1,000 1,000 P2-30 Investment in Joint Venture a. b. 25 percent = ($60,000 - $52,000) / [($330,000 - $50,000) ($293,000 - $45,000)] $782,500 = $700,000 + ($330,000 x .25) Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 78 - Chapter 2 P2-31 Investment in Partnership Down Corporation Balance Sheet Pro Rata Equity Method Consolidation $800,000 $ 914,000(d) 105,000(b) $905,000 $175,000 730,000(c) $905,000 $ 914,000 $ 184,000(e) 730,000(c) $ 914,000 Full Consolidation $1,180,000 (f) $1,180,000 $ 205,000(g) 245,000(h) 730,000(c) $1,180,000 Assets Investment in DF Partnership Total Assets Liabilities Interest of Outside Partners Owners' Equity Total Liabilities and Equity (a) (b) (c) (d) (e) (f) (g) (h) Cost Method $800,000 84,000 $884,000 $175,000 709,000(a) $884,000 = = = = = = = = $709,000 $105,000 $730,000 $914,000 $184,000 $1,180,000 $205,000 $245,000 $730,000 - ($105,000 - $84,000) given given $800,000 + ($380,000 x .30) $175,000 + ($30,000 x .30) $800,000 + $380,000 $175,000 + $30,000 $350,000 x .70 Down Corporation Income Statement Pro Rata Equity Method Consolidation $ 500,000 $620,000 (b) (345,000) (456,000)(c) 9,000(a) Sales Revenues Expenses Income from Partnership Income to Outside Partners Net Income (a) (b) (c) (d) (e) (f) Cost Method $500,000 (345,000) Full Consolidation $900,000 (d) (715,000)(e) $155,000 = = = = = = $164,000 $164,000 (21,000) (f) $164,000 $ 9,000 $620,000 $456,000 $900,000 $715,000 $ 21,000 [($400,000 - $370,000) x .30] $500,000 + ($400,000 x .30) $345,000 + ($370,000 x .30) $500,000 + $400,000 $345,000 + $370,000 [($400,000 - $370,000) x .70] Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 79 - Chapter 2 P2-32 Complex Differential a. Essex Company 20X2 equity-method income: Proportionate share of reported net income ($80,000 x .30) Deduct increase in cost of goods sold for purchase differential assigned to inventory ($30,000 x .30) Deduct amortization of purchase differential assigned to: Buildings and equipment [($320,000 - $260,000) x .30] / 12 years] Patent [($25,000 x .30) / 10 years] Equity-method income for 20X2 b. Computation of investment account balance on December 31, 20X2: Purchase Price Investment income for 20X2 Dividends received in 20X2 ($9,000 x .30) Investment account balance on December 31, 20X2 $165,000 $12,750 (2,700) 10,050 $175,050 $24,000 (9,000) (1,500) (750) $12,750 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 80 - Chapter 2 P2-33 Equity Entries with Differential a. Journal entry recorded by Hunter Corporation: Investment in Arrow Manufacturing Stock Common Stock Additional Paid-In Capital Record acquisition of Arrow Manufacturing stock. b. 210,000 60,000 150,000 Equity-method journal entries recorded by Hunter Corporation in 20X0: (1) Investment in Arrow Manufacturing Stock Common Stock Additional Paid-In Capital Record acquisition of Arrow Manufacturing stock. (2) Cash Investment in Arrow Manufacturing Stock Record dividends from Arrow Manufacturing: $20,000 x .45 (3) Investment in Arrow Manufacturing Stock Income from Arrow Manufacturing Record equity-method income: $80,000 x .45 (4) Income from Arrow Manufacturing Investment in Arrow Manufacturing Stock Amortize purchase differential assigned to buildings and equipment: ($30,000 x .45) / 10 years 210,000 60,000 150,000 9,000 9,000 36,000 36,000 1,350 1,350 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 81 - Chapter 2 P2-33 (continued) Equity-method journal entries recorded by Hunter Corporation in 20X1: (1) Cash Investment in Arrow Manufacturing Stock Record dividends from Arrow Manufacturing: $40,000 x .45 (2) Investment in Arrow Manufacturing Stock Income from Arrow Manufacturing Record equity-method income for period: $50,000 x .45 (3) Income from Arrow Manufacturing Investment in Arrow Manufacturing Stock Amortize purchase differential assigned to buildings and equipment. c. Investment account balance, December 31, 20X1: Purchase price on January 1, 20X0 20X0: Income from Arrow Manufacturing ($36,000 - $1,350) Dividends received 20X1: Income from Arrow Manufacturing ($22,500 - $1,350) Dividends received Investment account balance, December 31, 20X1 $34,650 (9,000) $21,150 (18,000) $210,000 18,000 18,000 22,500 22,500 1,350 1,350 25,650 3,150 $238,800 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 82 - Chapter 2 P2-34 Equity Entries with Differential a. Equity-method journal entries recorded by Ennis Corporation: (1) Investment in Jackson Corporation Stock Common Stock Additional Paid-In Capital Record acquisition of Jackson Corporation stock. (2) Cash Investment in Jackson Corporation Stock Record dividend from Jackson Corporation: $10,000 x .35 (3) Investment in Jackson Corporation Stock Income from Jackson Corporation Record equity-method income: $70,000 x .35 (4) Income from Jackson Corporation Investment in Jackson Corporation Stock Record expiration of purchase differential assigned to inventory: $20,000 x .35 (5) Income from Jackson Corporation Investment in Jackson Corporation Stock Record amortization of purchase differential assigned to buildings and equipment (net): ($80,000 x .35) / 20 years b. $212,600 = $200,000 + $24,500 - $3,500 - $7,000 - $1,400 200,000 50,000 150,000 3,500 3,500 24,500 24,500 7,000 7,000 1,400 1,400 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 83 - Chapter 2 P2-35 Additional Ownership Level a. Operating income of Amber for 20X3 Operating income of Blair for 20X3 Add: Equity income from Carmen [($50,000 - $6,000) x .25) Blair net income for 20X3 Proportion of stock held by Amber Amortization of purchase differential: Equipment [($30,000 x .40) / 8 years] Patents [($25,000 x .40) / 5 years) Net income of Amber for 20X3 Investment in Blair Corporation Stock Common Stock Capital in Excess of Par Value Purchase of Blair Corporation Stock. Cash Investment in Blair Corporation Stock Record dividend from Blair: $30,000 x .40 Investment in Blair Corporation Stock Income from Blair Corporation Record equity-method income: $111,000 x .40 Income from Blair Corporation Investment in Blair Corporation Stock Amortize purchase differential: $3,500 = $1,500 + $2,000 $220,000 $100,000 11,000 $111,000 x .40 44,400 (1,500) (2,000) $260,900 b. 130,000 40,000 90,000 12,000 12,000 44,400 44,400 3,500 3,500 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 84 - Chapter 2 P2-36 Error in Recording Investment Income a. Cost method entries for 20X4: Cash Dividend Income Record dividend income: $16,000 x .25 Equity method entries for 20X4: Cash Investment in Chadwick Corporation Record dividend from Chadwick: $16,000 x .25 Investment in Chadwick Corporation Income from Chadwick Corporation Record equity-method income: $62,000 x .25 4,000 4,000 b. 4,000 4,000 15,500 15,500 Income from Chadwick Corporation 1,500 Investment in Chadwick Corporation Amortize purchase differential assigned to buildings and equipment: [($300,000 - $240,000) x .25] / 10 years Income from Chadwick Corporation Investment in Chadwick Corporation Amortize purchase differential assigned to other identifiable intangible assets: Purchase price Fair value of net assets ($585,000 - $285,000) x .25 Other identifiable intangible assets Number of years Annual amortization 700 1,500 700 $80,600 (75,000) $ 5,600 8 $ 700 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 85 - Chapter 2 P2-36 (continued) c. Required correcting entry: Investment in Chadwick Corporation Investment Income Retained Earnings 56,900 24,800 32,100 Adjustments to be recorded by Blanch Corporation on December 31, 20X4: Retained Earnings 1/1/20X4 $14,000 9,500 $15,500 (4,000) (4,000) (4,000) 9,300 7,300 13,300 $32,100 $24,800 20X4 Investment Income Investment Balance 12/31/20X4 $14,000 9,500 15,500 (4,000) (4,000) (4,000) 9,300 7,300 13,300 $56,900 Item Add back investment income credited to investment account: 20X2 20X3 20X4 Remove dividend income: 20X2 20X3 20X4 Add correct investment income: 20X2 20X3 20X4 Required adjustment to account balance Computation of investment income $56,000 x .25 $38,000 x .25 $62,000 x .25 Amortize differential assigned to: Inventory ($100,000 - $90,000) x .25 Buildings and equipment [($300,000 - $240,000) x .25]/10 years Intangible assets ($5,600 / 8 years) Investment income 20X2 $14,000 20X3 $9,500 20X4 $15,500 (2,500) (1,500) (700) $ 9,300 (1,500) (700) $7,300 (1,500) (700) $13,300 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 86 - Chapter 2 P2-37 Correction of Error Required correcting entry: Retained Earnings Income from Dale Company Investment in Dale Company Stock Adjustments to current books of Hill Company: Retained Earnings 1/1/20X4 $(14,000) Dale Company Investment 20X4 Balance Income 12/31/20X4 $(10,000) $(24,000) 17,000 11,500 28,500 Item Adjustment to remove dividends included in investment income and not removed from investment account Adjustment to annual amortization of purchase differential: 20X2 and 20X3 20X4 Required adjustment to account balance (3,000) $(17,000) (1,500) $(11,500) (3,000) (1,500) $(28,500) Computation of adjustment to annual amortization of purchase differential Correct amortization of differential assigned to: Equipment [($120,000 - $70,000) x .40] / 5 years Patents: Amount paid Fair value of identifiable net assets ($300,000 + $50,000) x .40 Amount assigned Number of years to be amortized Annual amortization Correct amount to be amortized annually Amount amortized by Hill [($164,000 - ($300,000 x .40)] / 8 years Adjustment to annual amortization $4,000 $164,000 (140,000) $ 24,000 8 3,000 $7,000 (5,500) $1,500 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 87 - Chapter 2 P2-38* Other Comprehensive Income Reported by Investee a. Equity-method income reported by Dewey Corporation in 20X5: Amounts reported by Jimm Co. for 20X5: Operating income Dividend income Gain on investment in trading securities Net income Ownership held by Dewey Investment income reported by Dewey b. Computation of amount added to investment account in 20X5: Balance in investment account reported by Dewey: December 31, 20X5 January 1, 20X5 Increase in investment account in 20X5 Dividends received by Dewey during 20X5 Amount added to investment account in 20X5 c. Computation of other comprehensive income reported by Jimm Co.: Amount added to investment account in 20X5 Investment income reported by Dewey in 20X5 Increase due to other comprehensive income reported by Jimm Co. Proportion of ownership held by Dewey Other comprehensive income reported by Jimm Co. d. Computation of market value of securities held by Jimm Co. Amount paid by Jimm Co. to purchase securities Increase in market value reported as other comprehensive income in 20X5 Market value of available-for-sale securities at December 31, 20X5 $130,000 31,000 $161,000 $ 37,800 (28,500) $ 9,300 .30 $ 31,000 $276,800 (245,000) $ 31,800 6,000 $ 37,800 $70,000 7,000 18,000 $95,000 x .30 $28,500 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 88 - Chapter 2 P2-39* Equity-Method Income Statement a. Diversified Products Corporation Income Statement Year Ended December 31, 20X8 Net Sales Cost of Goods Sold Gross Profit Other Expenses Gain on Sale of Truck Income from Continuing Operations Discontinued Operations: Operating Loss from Discontinued Division Gain on Sale of Division Income before Extraordinary Item and Cumulative Adjustment Extraordinary Item: Loss on Volcanic Activity Cumulative Adjustment: Cumulative Effect of Change in Inventory Method Net Income Diversified Products Corporation Retained Earnings Statement Year Ended December 31, 20X8 Retained Earnings, January 1, 20X8 20X8 Net Income Dividends Declared Retained Earnings, December 31, 20X8 $260,000 69,000 $329,000 (10,000) $319,000 $400,000 (320,000) $ 80,000 $(25,000) 10,000 $(15,000) 44,000 (15,000) $ 65,000 29,000 $ 94,000 (5,000) (20,000) $ 69,000 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 89 - Chapter 2 P2-39* (continued) b. Wealthy Manufacturing Company Income Statement Year Ended December 31, 20X8 Net Sales Cost of Goods Sold Gross Profit Other Expenses Income from Continuing Operations of Diversified Products Corporation Income from Continuing Operations Discontinued Operations: Share of Operating Loss Reported by Diversified Products on Discontinued Division Share of Gain on Sale of Division Reported by Diversified Products Income before Extraordinary Item and Cumulative Adjustment Extraordinary Item: Share of Loss on Volcanic Activity Reported by Diversified Products Cumulative Adjustment: Share of Cumulative Effect of Change in Inventory Method Reported by Diversified Products Net Income Wealthy Manufacturing Company Retained Earnings Statement Year Ended December 31, 20X8 Retained Earnings, January 1, 20X8 20X8 Net Income Dividends Declared Retained Earnings, December 31, 20X8 $420,000 117,600 $537,600 (30,000) $507,600 $850,000 (670,000) $180,000 $(90,000) 26,000 (64,000) $116,000 $ (6,000) 17,600 11,600 $127,600 (2,000) (8,000) $117,600 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 90 - Chapter 2 P2-40* Computing Income Tax Expense a. Income tax expense reported by Swan Products: (1) Cost method (Dividends received net of 80 percent dividend deduction, times effective tax rate): 20X4 20X5 20X6 [($4,000 x .25) x (1 - .80)] x .40 [($10,000 x .25) x (1 - .80)] x .40 [($12,000 x .25) x (1 - .80)] x .40 = = = $ 80 200 240 (2) Equity method: 20X4 Computech dividends Swan Product's share Dividends received by Swan Dividend deduction (80%) Taxable dividend income Taxable dividend income Effective tax rate Income taxes payable Computech's net income Swan Product's share Swan's investment income Assumed dividend deduction (80%) Investment income subject to tax accrual Taxable dividend income Temporary difference Temporary difference Effective tax rate Tax effect of temporary difference Income taxes payable Income tax expense $ 4,000 x .25 $ 1,000 (800) $ 200 $ x $ 200 .40 80 20X5 $10,000 x .25 $ 2,500 (2,000) $ 500 $ x $ 500 .40 200 20X6 $12,000 x .25 $ 3,000 (2,400) $ 600 $ x $ 600 .40 240 $20,000 x .25 $ 5,000 (4,000) $ 1,000 (200) $ 800 $ x $ $ 800 .40 320 80 400 $ 8,000 x .25 $ 2,000 (1,600) 400 (500) $ (100) $ (100) x .40 $ $ (40) 200 160 $ $40,000 x .25 $10,000 (8,000) $ 2,000 (600) $ 1,400 $ 1,400 x .40 $ $ 560 240 800 Note: A simpler approach to reaching the same answers is to multiply the equity-method income from Computech, minus the 80 percent assumed dividend credit, times Swan's effective tax rate. While this approach works in simple situations, it may not always give the same result in complex cases. This approach is shown as follows: 20X4 20X5 20X6 [($20,000 x .25) x .20] x .40 [($8,000 x .25) x .20] x .40 [($40,000 x .25) x .20] x .40 = = = $400 160 800 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 91 - Chapter 2 P2-40* (continued) b. Cost method entries: 20X4: Cash Dividend Income Record dividends from Computech: $4,000 x .25 Income Tax Expense Income Taxes Payable Accrue taxes on dividend income. 20X5: Cash Dividend Income Record dividends from Computech: $10,000 x .25 Income Tax Expense Income Taxes Payable Accrue taxes on dividend income. 20X6: Cash Dividend Income Record dividends from Computech: $12,000 x .25 Income Tax Expense Income Taxes Payable Accrue taxes on dividend income. 3,000 3,000 2,500 2,500 1,000 1,000 80 80 200 200 240 240 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 92 - Chapter 2 P2-40* (continued) c. Equity method entries: 20X4: Cash Investment in Computech Stock Record dividends from Computech: $4,000 x .25 Investment in Computech Stock Income from Computech Record income from Computech: $20,000 x .25 Income Tax Expense Income Taxes Payable Deferred Tax Liability Accrue taxes on investment income: $320 = $800 temporary difference x .40 20X5: Cash Investment in Computech Stock Record dividends from Computech: $10,000 x .25 Investment in Computech Stock Income from Computech Record income from Computech: $8,000 x .25 Income Tax Expense Deferred Tax Liability Income Taxes Payable Accrue taxes on investment income: $40 = $100 reversal of temporary difference x .40 2,500 2,500 1,000 1,000 5,000 5,000 400 80 320 2,000 2,000 160 40 200 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 93 - Chapter 2 P2-40* (continued) 20X6: Cash Investment in Computech Stock Record dividends from Computech: $12,000 x .25 Investment in Computech Stock Income from Computech Record income from Computech: $40,000 x .25 Income Tax Expense Income Taxes Payable Deferred Tax Liability Accrue taxes on investment income: $560 = $1400 temporary difference x .40 3,000 3,000 10,000 10,000 800 240 560 Solutions Manual- Baker/Lembke/King, Advanced Financial Accounting, 6/e - 94 -

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ASU - MKT - 300
Slides 2-14 introduce topics that we will cover more extensively in class. Please become familiar with these concepts prior to class.Lamb, Hair, McDanielMKTG2007-2008CHAPTER5Consumer Decision MakingChapter 5Copyright 2008 by South-Weste
University of Phoenix - ACC - 440
CHAPTER 3 THE REPORTING ENTITY AND CONSOLIDATED FINANCIAL STATEMENTS ANSWERS TO QUESTIONS Q3-1 Underlying the preparation of consolidated financial statements is the notion that the consolidated financial statements present the financial position and
University of Phoenix - ACC - 440
CHAPTER 4 CONSOLIDATION AS OF THE DATE OF ACQUISITION ANSWERS TO QUESTIONS Q4-1 An adjusting entry is recorded on the company's books and causes the balances reported by the company to change. Eliminating entries, on the other hand, are not recorded
University of Phoenix - ACC - 440
CHAPTER 5 CONSOLIDATION FOLLOWING ACQUISITION ANSWERS TO QUESTIONS Q5-1 Additional entries are needed to eliminate all income statement and retained earnings statement effects of intercorporate ownership and any transfers of goods and services betwee
North Texas - HIST - 2620
Comprehension 1. These laws passed by the south during presidential reconstruction place many restrictions- as well as bestowing certain rights- on the freedmen by controlling their labor, and they also helped sour many in the North on president Andr
North Texas - HIST - 2620
Road to World War II ManchuriaProvince of China with rich resources-invaded by Japan in 1931 U.S. is given two options: 1. Tell Japan that We don't care what you do to China as long as you stay out of the US. 2. Tell Japan they are in violation of Jo
North Texas - HIST - 2620
History Congressional ReconstructionreconstructionSept 5Congressional elections of 1866- radical republicans are in control. Because of Andrew Johnsons acts, Radical republicans take over both parties. Texas Vs White (1869)- supreme court rules
North Texas - HIST - 2620
Notes- Sept 7 Reconstruction Cont. Counter Attacks-Conservatives, vigilantes, and the KU KLUX KLAN- goalsStephanie RossA lot of vigilantes groups, KKK- founded by Nathan Bedford Forrest in late 1865- in Tennessee. At first it was a group that the
North Texas - HIST - 2620
Notes- Sept 10 Reconstruction CONT.Stephanie RossPolitical- limited and In expensive government, during reconstruction the government got as big as it has ever been. Leading to gilded age-Retraction of government. Political ramifications, republi
North Texas - HIST - 2620
Notes- Sept 12 The GrangeStephanie Ross1867- Oliver H Kelley- organized the Grange-Fraternal organization for farmers. Goal was to offer, emotional and social uplifting for fellow farmers. Offered services such as libraries, cash only cooperative
North Texas - HIST - 2620
Notes- Sept 17 Politics, Protests and The Populist movement 1877-1896-Politics of the Gilded age. Throughout the Gilded age & reconstruction, congress is in control (except for when Grover Cleveland come to office). until 1901 when Theodore Roosevelt
North Texas - SOCI - 1510
Review for final: sociologyGender:Nature vs. Nurture: Nature has to do with Heredity and Nurture had to do with the Environment. Glass Ceiling- More women and minorities hold higher positions in the work force than ever before, although they are st
Richland Community College - PHIL - 1301
Austin Sandlin 1301 Philosophy Prof. McQuillan Kant and the Analysis Of His WritingWhen I read philosophical theories I tend to look into my experiences and beliefs to either side with the philosopher or dispel his ideas. But when I read Kant, sinc
Full Sail - LIGHTING - 101
Lecture 1ELECTRICITY, SAFETY AND POWER SYSTEMS -The units of electricity Volts = Electromotive Force 120 volts o Higher voltage more electricity AMPS = Current o The rate of flow or current o .7 amps can kill you10/29/2007 9:13:00 AMWatts = Powe
Rutgers - ENG - 101R
1Belkin/Kingsolver In "Made-to-Order Savior," Lisa Belkin explains the agonizing process some parents are willing to undergo in order to save a child with Fanconi Anemia. However, the doctors that she interviewed agreed that the technology used to
Rutgers - ENG - 101R
Slater/SullivanIs it a question of beauty?Procedures such as plastic surgery and hormone injections are both very popular. The two are ways of altering the body. They are commonly discussed and sometimes defended by those who try to justify one m
Rutgers - ENG - 101R
1 KINGSOLVER Interference Religion should not be high priority in scientific inquiry and experimentation. The two should not coexist together. Religion should, for the most part be separate from any kind of advances in science and technology because
Rutgers - AFR - 103
Study Guide for Test1. Why did the Conference of Berlin take place at the time it did and not earlier? What consequences did it bring for Europe and Africa? While some Historians emphasize economic reasons, some stress nationalistic motives, and ot
Rutgers - AFR - 204
NotesBlack Women in the Abolitionist Movement- Essay question 1 - An abolitionist is a person who advocates or supports the abolition of slavery in the US; black liberation is the gaining of equal rights or full social and economic opportunities Wo
UT Chattanooga - MATH - 210
ASU - MKT - 300
Slides 2-7 introduce topics that we will cover more extensively in class. Please become familiar with these concepts prior to class.Lamb, Hair, McDanielMKTG2007-2008CHAPTERDesigned by Amy McGuire, B-books, Ltd.Chapter 1313Retailing1Pre
ASU - MKT - 300
Slides 2-8 introduce topics that we will cover more extensively in class. Please become familiar with these concepts prior to class.Lamb, Hair, McDanielMKTG2007-2008CHAPTER Decision and Support SystemsMarketing Research8Chapter 8Copyrigh
ASU - MKT - 300
Slides 2-15 introduce topics that we will cover more extensively in class. Please become familiar with these concepts prior to class.Lamb, Hair, McDanielMKTG2007-2008CHAPTERProduct Concepts9Chapter 9Copyright 2008 by South-Western, a div
ASU - MKT - 300
Slides 2-14 introduce topics that we will cover more extensively in class. Please become familiar with these concepts prior to class.Lamb, Hair, McDanielMKTG2007-2008CHAPTER10Developing and Managing ProductsChapter 10Copyright 2008 by S
ASU - MKT - 300
Slides 2-7 introduce topics that we will cover more extensively in class. Please become familiar with these concepts prior to class.Lamb, Hair, McDanielMKTG2007-2008CHAPTER11Services and Nonprofit Organization MarketingChapter 11Copyrig
ASU - MKT - 300
Slides 2-10 introduce topics that we will cover more extensively in class. Please become familiar with these concepts prior to class.Lamb, Hair, McDanielMKTG2007-2008CHAPTERDesigned by Amy McGuire, B-books, Ltd.Chapter 1212Marketing Chann
ASU - MKT - 300
We will not discuss Slides 2-12 in class but consider these as testable material for Exam 2.Lamb, Hair, McDanielMKTG2007-2008CHAPTER18Setting the Right PriceThe Legality and Ethics of Price StrategyUnfair Trade PracticesPrice FixingP
ASU - MKT - 300
Slides 2-10 introduce topics that we will cover more extensively in class. Please become familiar with these concepts prior to class.Lamb, Hair, McDanielMKTG2007-2008CHAPTER14Integrated Marketing CommunicationsThe Role of PromotionPromot
ASU - MKT - 300
We will not discuss Slides 2-12 in class but consider these as testable material for Exam 2.Lamb, Hair, McDanielMKTG2007-2008CHAPTER15Advertising and Public RelationsMedia Decisions in AdvertisingMonitored MediaNewspapers MagazinesYell
ASU - MKT - 300
Slides 2-6 introduce topics that we will cover more extensively in class. Please become familiar with these concepts prior to class.Lamb, Hair, McDanielMKTG2007-2008CHAPTER16Sales Promotion and Personal SellingSales PromotionSales Promoti
ASU - MKT - 300
Slides 2-8 introduce topics that we will cover more extensively in class. Please become familiar with these concepts prior to class.Lamb, Hair, McDanielMKTG2007-2008CHAPTERPricing Concepts17Chapter 17Copyright 2008 by South-Western, a di
ASU - SCM - 345
MRP/DRP Example for Practice A cereal company has three distribution centers in San Diego, Chicago, and Boston respectively. All are supplied out of a single factory in Des Moines. The distribution centers have the following forecasts and inventory p
ASU - SCM - 345
ASU - SCM - 345
SCM 345Line # 18500SYLLABUSLogistics Management Spring 2007 Professor Arnold Maltz, PhD. Supply Chain Management W. P. Carey School of Business PO Box 874706 Tempe, AZ 85287-4706 Phone: (480) 965 9768 Email: Arnie.Maltz@asu.edu Prerequisites (1
ASU - SCM - 345
Chapter 8Transportation OperationsTransportation CostsProduct related Density Stowability Ease/difficulty of handling LiabilityMarket related Competition level Location of markets Nature and extent of regulation Balance of freight traffic Seas
ASU - SCM - 345
Global Logistics Overview12Exports by Origin1000000 800000 United States Brazil United Kingdom Hungary China Japan Korea, Republic ofValue600000 400000 200000 019 8 19 0 8 19 2 8 19 4 8 19 6 8 19 8 9 19 0 9 19 2 9 19 4 9 19 6 9 20 8 0 20
ASU - SCM - 345
Chapter 11 Operational Integration And Applications S&OP, APS and MoreTable 11-1 Integrative Management Value PropositionSupply Chain FlowsProduct-Service Value FlowResource BaseMarket Accommodation Flow Information FlowCash FlowEnd Cust
ASU - SCM - 345
Manufacturing and LogisticsFall 2007 SCM 345 Manufacturing1Learning Objectives Understand and quantify the importance of manufacturing as a value-added portion of the supply chain Explain the role of the brand, and brand ownership, in structu
ASU - SCM - 345
Information Technology in LogisticsOverview6/25/2008SCM 345 - Systems1How It FitsBuys/ APMFG: MESSales/ ARIB ShptsP U RMPS ERP: MRPDRPL O GShptsData WarehouseRM INVFG INV6/25/2008SCM 345 - Systems2Figure 5-9 ERP
ASU - SCM - 345
Chapter 6InventoryMcGraw-Hill/Irwin Copyright 2007 The McGraw-Hill Companies, Inc. All rights reserved.Table 6-1 Inventory Functionality6-2Figure 6-1 Inventory Cycle for Typical Product6-3Figure 6-2 Inventory Relationship for Constant Sa
ASU - SCM - 345
Chapter 9WarehousingMcGraw-Hill/Irwin Copyright 2007 The McGraw-Hill Companies, Inc. All rights reserved.Warehouses Another View9-2Why Do Warehouses Exist?McGraw-Hill/IrwinCopyright 2007 The McGraw-Hill Companies, Inc. All rights reser
ASU - SCM - 345
Fisher Article Two characteristics. How they differ between functional and innovative. Why two different supply chains. Focus on cost. Innovative require responsive SC because more concerned with market mediation costs and lost sales a customer serv
ASU - SCM - 345
Trade-offs in SC- Rpacket Integrated SC perspective/organization of SC- Rpacket Gap analysis p. 58- Rpacket Forecasting- Ch 3: p. 64/ p. 7 in packet Errors- p. 72 Issues- p. 14 in packet Methods- p. 68, 72 Exponential Smoothing- p. 70 CPFR- p. 74/ P.
ASU - SCM - 345
Dollar Tree Stores, Inc. iDollar Tree Stores, Inc.An Investigative ReportRobert Belardo Sarah Feller Morgan McGrady Obed Rojas Randall Winward November 20, 2007 Dr. Mark Barratt SCM 345Dollar Tree Stores, Inc. iiTable of ContentsExecutive S
ASU - SCM - 355
Important SCM Trends: 2008. SCM Systems Management Integration among functions of the firm Integration among firms-National-International* Networks-Information Technology *Globalization/International Competition Manufacturing (USA) versus Service Ind
ASU - SCM - 355
HW # 1 (50Points)SCM 355Spring 2008This Document is Posted to the Class MYASU under Course Documents HW # 1. Place the Names of the Two Team Members at the Top of Page Answer Questions 7, 10 on Page 25-26.Answer Questions 11, 12 on Page 68A
ASU - SCM - 355
Wal-Mart boss says he will press suppliers in race to go green Asda owner sets target to cut packaging 5% by 2013 Sustainability now mainstream, says chiefJulia Finch, City editor Friday February 2, 2007 The GuardianThe chief executive of the wo
ASU - SCM - 355
SCM 355 Important Concepts Chapter 1 (Introduction to Purchasing and SCM) Why is Purchasing Important Purchasing is a Functional Group which includes: supplier selection and identification, buying ,negotiation, contracting, supply market research, su
ASU - SCM - 355
SCM 355 Important Concepts Chapter 3 (Purchasing Policy and Procedures) Policy Overview: the term policy includes all the directives, both explicit and implied, that designate the aims and ends of an organization and the appropriate means used in the
ASU - SCM - 355
SCM 355 Important Concepts Chapter 2 (The Purchasing Process) Purchasing Objectives (6): support operational requirements, manage the process efficiently and effectively, supply base management, relationships with other functional groups, support org
ASU - SCM - 355
SCM 355 Important Concepts Chapter 4 (Purchasing Integration for Competitive Advantage) Integration- What Is It? The process of incorporating or bringing together different groups, functions, or organizations, either formally or informally, physicall
ASU - SCM - 355
SCM 355 Important Concepts Chapter 5 (Purchasing and Supply Chain Organization) Purchasing Position within the Organizational Structure: Factors include: history type of industry, value of goods and services: other factors include philosophy of found
ASU - SCM - 355
Questions: The Real Cost of Offshoring? 1. What is the problem identified in the article? 2. Do the "experts" know the accurate or true cost of offshoring? 3. What are some of the social consequences of offshoring jobs? 4. Should profits and producti
ASU - SCM - 355
JUNE 18, 2007 COVER STORYBy Michael MandelThe Real Cost Of OffshoringU.S. data show that moving jobs overseas hasn't hurt the economy. Here's why those stats are wrongCOVER STORY PODCASTWhenever critics of globalization complain about the lo
ASU - SCM - 355
Frontline: Is Wal~Mart Good for America Is Wal~Mart a model for all types of businesses? Retailer not manufacturer has the economic power: The impact of information technology and a global economy: World leader in logistics: From a push to pull produ
ASU - SCM - 355
Characteristics of the current competitive environment Seven periods of evolution (See pgs 5, 22-24 for details) Factors/reason driving emphasis on SCM IT, customer demands, competition increasing, quality (See page 5 for details) Advantages of suppl
ASU - SCM - 355
SCM 355 Important Concepts Chapter 6 (Purchasing and Commodity Strategy Development) Linking Purchasing and Corporate Strategy: The strategy of an organization is a conceptualization of: Long-term objectives and purposes of the organization (Exhibit
ASU - SCM - 355
Purchasing strategies/development Types of Strategies Supply Base Optimization, TQM of Suppliers, Global Sourcing, Long-Term Supplier Relationship, Early Supplier Design Involvement, Supplier Development Total Cost of Ownership and E-Reverse Auctions
ASU - SCM - 355
SCM 355 Important Concepts Chapter 7 (Supplier Evaluation and Selection) One of the most important processes that organizations perform is the evaluation, selection and continuous measurement of suppliers. Regardless of the approach employed, overall
ASU - SCM - 355
SCM 355 Important Concepts Chapter 9 (Supplier Management and Development: Creating a World-Class Supply Base) What is Supplier Performance Measurement? Supplier performance measurement includes the methods and systems to collect and provide informat
ASU - SCM - 355
SCM 355 Important Concepts Chapter 8 (Supplier Quality Management) What is Supplier Quality? Supplier quality represents the ability to meet or exceed current and future customer (i.e., buyer and eventually end customer) expectations or requirements