Rubric LT Week # 6


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LEARNING TEAM A LEARNING TEAM A: Melissa Ames, Angela Bell, Blanca Colon, Connie Goddard, and Eva Rios-Rodriguez RESEARCH VI – Consolidations, Segments and Currency – 15 pts    #  Answrs Correct Tot Pts Tot  Awd Q1 7   0% 3 0.00 Q2 2   0% 3 0.00 Q3 4   0% 3 0.00 Q4 2   0% 3 0.00 Q5 3   0% 3 0.00 15 0.0 Q1● Case 16-1 Consolidated Financial Statements: 7 pt Various Issues Because of irreconcilable differences of opinion, a dissenting group within the management and board of directors of the Algo Company resigned and formed the Bevo Corporation to purchase a manufacturing division of the Algo Company. After negotiation of the agreement, but just before closing and actual transfer of the property, a minority stockholder of Algo notified Bevo that a prior stockholder’s agreement with Algo empowered him to prevent the sale. The minority stockholder’s claim was acknowledged by Bevo’s board of directors. Bevo’s board then organized Casco, Inc., to acquire the minority stockholder’s interest in Algo for $75,000, and Bevo advanced the cash to Casco. Bevo exercised control over Casco as a subsidiary corporation with common officers and directors. Casco paid the minority stockholder $75,000 (about twice the market value of the Algo stock) for his interest in Algo. Bevo then purchased the manufacturing division from Algo. Required: a. 1 pt What expenditures are usually included in the cost of property, plant, and equipment acquired in a purchase? Expenditures allocated to the costs are the direct costs and legal costs involved in the acquisition/purchase. The costs are
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first allocated to the identifiable assets and then to good will. All indirect costs are expensed as they occur. i. 1 pt What are the criteria for determining whether to consolidate the financial statements of Bevo Corporation and Casco, Inc.? The criteria for determining whether to consolidate financial statements or not, the following four criteria are considered; * A parent-subsidiary relationship must exist * The parent exercises control over the subsidiary * The parent plans to maintain control over the subsidiary during the near future * The parent and subsidiary operate as an integrated unit and * The fiscal years of the units match each other. (Schroeder, 2005) ii. 1 pt Should the financial statements of Bevo and Casco be consolidated? Discuss. Yes the financial statements of Bevo and Casco should be consolidated. The criteria stated above has been considered and met. In addition, the two overriding principles of (1) an entity cannot own or owe itself and (2) the entity cannot make a profit by selling to itself. (Schroeder, 2005) b. Assume that unconsolidated financial statements are prepared. Discuss the propriety of treating the $75,000 expenditure in the financial statements of the Bevo as: i. 1 pt An account receivable from Casco. . If Bevo reports as a receivable from Casco, then Casco should report this as a payable to Bevo on their financial statements. “Other accounts receivables, such as receivables
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This note was uploaded on 03/24/2011 for the course ACC 541 taught by Professor Chrismoody during the Spring '11 term at University of Phoenix.

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