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Solution to Chapter 3 Sample Quiz

# Solution to Chapter 3 Sample Quiz - Indiana University of...

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Indiana University of Pennsylvania Department of Accounting ACCT 401/501: Advanced Accounting Dr. Rahman Solution to Sample Quiz for Chapter 3 Part I. 1 b 2 a The parent’s retained earnings 3. d Bird’s cost = 7,000 x \$30 \$210,000 Implied fair value of Worm (\$210,000 / 70%) 300,000 Less: Book value (180,000) Goodwill acquired \$120,000 4. c 5. d 6. c \$3,150/0.20 = \$15,750 7. d. 8. c 9. b 10. b

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Part II. Preliminary computations Fair value (purchase price) of 75% interest acquired on January 1, 2017 \$ 180,000 Implied fair value of Stem ((\$180,000 / 75%) \$ 240,000 Book value of Stem’s net assets \$ 200,000 Excess cost over book value acquired \$ 40,000 Initial investment cost \$ 180,000 Income from Stem: (75%)(\$40,000)= 30,000 Dividends (\$20,000)(75%) = -15,000 Balance in Investment in Stem at December 31,2017 \$ 195,000 Monarch Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2017 Monarch Stem Eliminations Balance Sheet Debit Credit ASSETS Cash \$ 8,250 \$ 35,000 \$ 43,250 Dividends Receivable 7,500 b \$ 7,500 Other current Assets 40,000 50,000 90,000 Land 50,000 30,000 80,000 Plant assets 100,000 150,000 250,000 Investment in Stem 195,000 a 195,000 Goodwill a \$ 40,000 40,000 Total Assets \$ 400,750 \$265,000 \$503,250 EQUITIES Accounts payable
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