ACCY 401 Midterm Exam A Spring 2016 Solution.docx

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1 Professor Beck Name_______________________ Spring 2016 Section Time____________ Accountancy 401 Mid-term Exam 2 Solution You will have 75 minutes in which to complete the exam. The exam has 8 pages. On questions involving numerical calculations, you must show your work to receive credit. Be sure to keep your eyes on your own exam and do your own work! Any students who are caught cheating will receive a score of “zero” on the exam and will not be allowed to use the comprehensive final exam to replace the missing points. Point allocations on the exam are as follows: Part Possible Points Points Earned I 45 II 37 III 20 Total 102 Version A
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1 Part I. Consolidation Problem (45 pts) Bristol Company purchased 60% of Talladega Company for $600,000 on 1/1/X1. At that time, Talladega had capital stock of $400,000 and retained earnings of $500,000. An inspection of Talladega’s assets indicated that a building and land have fair values of $100,000 and $80,000, while their respective book values are $80,000 and $60,000, respectively. The building has a useful life of 20 years. None of Talladega’s other assets could be identified as being under-valued. Required : 1 . Calculate and allocate Bristol’s and NCI’s share of the Differential associated with their investments in Talladega on 1/1/X1. (10 pts) T’s Capital Stock $400,000 T’s Retained Earnings $500,000 T’s Total Equity $900,000 Imputed Value of Firm $1,000,000 Book Value $900,000 Bristol’s Share of Differential $100,000 Fair Value Book Value Difference Bristol’s share (60%) NCI’s Share (40%) Building $100,000 $80,000 $20,000 $12,000 $8,000 Land $80,000 $60,000 $20,000 $12,000 $8,000 Goodwill $60,000 $36,000 $24,000 Additional Information: Assume that Talladega reported a $100,000 net income and paid cash dividends of $20,000 during year X1. 2. What entries should Bristol have made during year X1 for its investment in Talladega? (10 pts) Investment in Talladega $600,000 Cash $600,000 (To record Cost of Investment) Investment in Talladega $60,000 Equity in Talladega’s NI $60,000 (To recognize 60% of T’s $120,000 net income) Equity in Talladega’s NI $600 Investment in Talladega $600 Version A
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2 (To amortize $20,000 Differential allocated to Patent over 20 years* 60%) Cash/Dividends Receivable $12,000 Investment in Talladega $12,000 3. What is the book value of Talladega’s shareholders’ Equity on 12/31/X1? (5) Retained Earnings (1/1/X1) $500,000 Add: T's Net Income $100,000 Subtract: T's Dividends ($20,000) T's Retained Earnings (12/31/X1) $580,000 Capital Stock $400,000 T's Equity on 12/31/X1 $980,000 4. At what amount should Bristol value its investment in Talladega on 12/31/X1? Show calculations below:
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