02 - CHAPTER 2 UNDERSTANDING THE ISSUES 1. a. Johnson has a...

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Unformatted text preview: CHAPTER 2 UNDERSTANDING THE ISSUES 1. a. Johnson has a passive level of ownership and in future periods will record dividend in- come of only 10% of Bicklers declared di- vidends. b. Johnson has an influential level of owner- ship and in future periods will record investment income of 30% of Bicklers net income. c. Johnson has a controlling level of owner- ship and in future periods will add 100% of Bicklers net income to its own net income. Bicklers nominal account balances will be added to Johnsons nominal account bal- ances, which results in consolidated net in- come. d. Johnson has a controlling level of owner- ship and in future periods will add 80% of Bicklers net income to its own net income. Bicklers nominal account balances will be added to Johnsons nominal account bal- ances. This will result in consolidated net income with a distribution to the non-con- trolling interest equal to 20% of Bicklers in- come. 2. Corporation: The parent must have the right to appoint or elect a majority of the board mem- bers. Aside from majority ownership, the parent could gain control by holding securities that can be converted into common stock. Also, if the parent holds a large noncontrolling interest that is three times larger than any other owner or group, the parent is deemed to have control. Fi- nally, the corporate charter, bylaws, or some other agreement may grant control to the par- ent. Partnership: Two things must be true: (1) The parent is the only general partner in a limited partnership or has the unilateral right to as- sume this role. (2) No other partner or group of partners has the power to dissolve the partner- ship or remove the general partner. 3. The elimination process serves to make the consolidated financial statements appear as though the parent had purchased the net as- sets of the subsidiary. The investment account and the subsidiary equity accounts are elimin- ated and replaced by the subsidiarys net as- sets. 4. a. Net Assets marked up $200,000 ($600,000 $400,000) Goodwill $300,000 ($900,000 $600,000) b. Net Assets marked up $160,000 [($600,000 $400,000) 80%] Goodwill $240,000 [$720,000 (80% $600,000)] 5. Zone Analysis Group Total Cumulative Total Priority $ 50,000 $ 50,000 Nonpriority 800,000 850,000 a. $1,000,000 $350,000 = $650,000 excess Current assets...................................................... $ 50,000 Fixed assets......................................................... 450,000 Goodwill................................................................ 150,000 $650,000 b. $500,000 $350,000 = $150,000 excess Current assets...................................................... $ 50,000 Fixed assets......................................................... 100,000 $150,000 31 5. (Concluded) c. $30,000 $350,000 = ($320,000) shortage Current assets...................................................... $ 50,000 Fixed assets.........................................................Fixed assets....
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This note was uploaded on 12/17/2011 for the course ACC 400 STBSBA73 taught by Professor Gilbertrodriguez during the Spring '09 term at University of Phoenix.

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02 - CHAPTER 2 UNDERSTANDING THE ISSUES 1. a. Johnson has a...

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