10_Fischer10e_SM_SA02_final

10_Fischer10e_SM_SA02_final - <?xml...

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SPECIAL APPENDIX 2 UNDERSTANDING THE ISSUES 1. (a) Company E net income. ......................... $40,000 Parent’s share. ........................................ × 30% $12,000 Less: Equipment amortization [$200,000 – ($500,000 × 30%)] ÷ 10. .... (5,000 ) Investment income. ................................. $ 7,000 (b) Beginning balance. ................................. $200,000 Investment income. ................................. 7,000 Less dividends ($10,000 × 30%). ........... (3,000 ) Investment balance. ............................... $204,000 (c) The investment balance is the cost of the investment plus the investor’s share of the investee’s undistributed income, less the amortization of the excess of the price paid over the investor’s share of book value. 2. (a) Company E income. ............................... $ 50,000 Gain on sale of equipment. .................... (20,000) Realized gain ($20,000 ÷ 5). .................. 4,000 $ 34,000 Parent’s share. ........................................ × 30% Investment income. ................................. $ 10,200 There is no further adjustment for the profit on the equipment. (b) Investment income = $50,000 × 30% = $15,000 Adjustment for equipment profit: Gain on Sale of Equipment ($20,000 × 30%). ............................... 6,000 Deferred Gain. ................................ 6,000 Deferred Gain ($6,000/5). .................... 1,200 Realized Gain on Equipment Sale. 1,200 3. (a) Investment income = $10,000 dividends × 10% = $1,000 (b) Investment income = [($100,000 × ½) × 10%] + [($100,000 × ½) × 25%] = $17,500 (c) Investment income = [($100,000 × ½) × 30%] + ($10,000 dividends × 10%) = $16,000 4. Cost of investment. ........................................ $ 20,000 20X0–20X4 income, 25% × $200,000. ......... 50,000 20X5–20X9 loss, 25% × ($300,000). ............ (75,000 ) Unrecorded loss. ........................................... $ (5,000 ) 20Y0 income (25% × $30,000 reported income) – unrecorded $5,000 prior loss = $2,500 Investment balance = ($5,000 unrecorded loss) – (25% × $30,000 reported income) = $2,500 SA-7
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SA2—Exercises EXERCISES EXERCISE SA2-1 Investment in Like. ................................................................................... 4,000 Investment Income. ............................................................................ 4,000 To record 20X7 investment income. Investment in Like. ................................................................................... 3,500 Dividends Receivable. ............................................................................. 1,250 Investment Income. ............................................................................ 4,750 To record 20X8 investment income and dividends receivable (20,000 shares × 25% × $0.25 per share). 20X7 20X8 Like Company income. ...................................................................... $20,000 $24,000 Adjustment for inventory profit ($5,000 profit × 20%). ...................... (1,000 ) Adjusted income. ............................................................................... $20,000 $23,000 Ownership percentage. ...................................................................... × 25% × 25% $ 5,000 $ 5,750 Less amortization of excess: Equipment ($10,000 ÷ 10 years). ................................................ (1,000 ) (1,000 ) Investment income. ............................................................................ $ 4,000 $ 4,750 EXERCISE SA2-2 Determination and Distribution of Excess Schedule Price paid for investment. ........................ $90,000 Less book value of interest acquired: Common stock ($10 par). .................. $100,000 Paid-in capital in excess of par. ......... 20,000 Retained earnings. ............................. 130,000 Total stockholders’ equity. ........... $250,000 Interest acquired. ............................... × 30% 75,000 Excess of cost over book value (debit). ... $15,000 Building, amortized over 20 periods, $750 per year
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10_Fischer10e_SM_SA02_final - <?xml...

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