Advanced Accounting Problems

Advanced Accounting Problems - Name_ F _ ACC 4211MBA 721...

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Unformatted text preview: Name_ F _ ACC 4211MBA 721 Answer Sheet Multipie Choice 1L 2L 4. b LA. 6.__B__ Version 2 L 11 A} Multiple Choice: Select the best answer for each of the following. 1. Which of the following characteristics is not indicativengian‘enterpflsgqgalfiflrflasipflmgjyjeneficiary_with a controlling financial interest in a variable interest entity? " fie The direct ability to make decisions about the entity‘s activities ,8.» The indirect ability to make decisions about the entity's activities C. The obligation to absorb the expected losses of the entity it they occur D. No ability to make decisions about the entity‘s activities E. The right to receive the expected residual returns of the entity if they occur _...___ -. “W ——‘-:a‘ 2. Which of the following will result in the recognition of an Mpairment losson goodwill? Goodwill amortization is to be recognized annually on a systematic and rational basis Both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying " values '65 The fair value of the entity declines significantly D. The fair value of a reporting unit falls below the original consideration transferred for the acquisition :E; The entity is investigated by the SEC and its reputation has been severely damaged 3. Which of the following observations is NOT true? The differential account is a clearing account. ‘_.“B. A clearing account can reduce the chance of error in preparing consolidated statements. ' jZEEliminating entries remove the baiance in the investment account from the parent's books. @ The differential continues to be a part of the investment account balance until fully amortized. 4. A statutory consolidation is a type of business combination in which: one of the combining companies survives and the other ioses its separate identity. B. one company acquires the voting shares of the other company and the two companies continue to operate as separate legal entities. 0. two publicly traded companies agree to share a board of directors. _ (D‘- each of the combining companies is dissolved and the net assets of both companies are transferred to a newl created corporation. 5. Which of the following observations concerning "goode /"" Once written down. it may be written Lip-for recoveries. g“ it must be tested for impairment at least annually. i - Goodwill impairment losses are recognized in income from continuing operations or income before ; I.” extraordinary gains and losses. ' ' i D. it must be reported as a separate line item in the balance sheet. 6. A company is not required to consolidate-a subsidiary in which it holds more than 50% of the voting stock when A. the subsidiary is located in a foreign country. B. the subsidiary in question is a finance subsidiary. ‘13s the company holds more than 50% but less than 60% of the subsidiary‘s voting stock. 'the company holds less than "35% of the subsidiary's voting stock. E". the subsidiary is in bankruptcy. Version 2 A- 7. Direct combination costs and stock issuance costs are often incurred in the process of making a controlling investment in another company. How should those costs be accounted for in an Acquisition transaction? Direct Combination Costs Increase Investment Decrease Investment I ' Decrease Investment mpom> m a Q C) 8. What portion of the balances of subsidiary stockholders equity accounts are eliminated in preparing the consolidated balance sheet? - Common stock Additional paid-in capital \C‘XRetained Earnings ,D'FE'AII of the balances are eliminated 9. Which of the following statements is false concerning variable interest entities (VIEs)? I “)9; Sometimes VIEs do not "have independent management Bi Most VI Es are established for valid business purposes -— C. VlEs may be formed as a source of low-Cost financing _ \;_,-VlEs have little need for voting stock E": A VIE cannot take the form of a trust, partnership, joint venture. corporation or estate Version 2 H EU Decrease Paid-In Capital MM) {tr-{m 9.2M. .. 10. 11. 12. 13. 14. 15 Using the acquisition method, when a bargain purchase occurs and the net amount of the fair values of the separater identified assets acquired and iiabilities exceed the fair vaiue of the consideration transferred, A. assets are recorded at amounts below their assessed fair values. (E. a gain on bargain purchase is recognized at the acquisition date. a loss on bargain purchase is recognized at the acquisition date. “Di/a contingent liability is recognized ,‘Ei' Goodwili is recognized and tested for impairment on an annual basis. Which of the foliowin _is not an indicator that requires a sponsoring firm truzonsoiidatea variable interest entity (VIE) with its own financial statements? W x” The sponsoring firm has the obligation to absorb the expected losses of the VIE if they occur {/BTThe sponsoring firm receives risks and rewards of the VIE in proportion to equity ownership %_The sponsoring firm has the right to receive the expected residual returns of the VIE if they occur ‘ilafj‘he sponsoring firm has direct ability to make decisions about the entity's activities Ed The sponsoring firm has oniy indirect ability to make decisions about the entity's activities On July 1, 2002, Big acquires 100% of Little. Both companies have a fiscal year end of 12!31!02. At12!31i02, her much of the fair market value adjustment associated with inventory should be amortized? 100% of the FMV adjustment. iii—aim a; cv Sr- mind 50% of the FMV adjustment. 50% of 1f3 of the FMV adjustment, assuming the inventory FMV adjustment is amortized over a normal three- year period. None of the FMV adjustment is amortized, ever. The FASB does not allow inventory to be adjusted to FMV on the consolidated financial statements. !"".D $7.03.) Under FASB 141 R, consolidation follows largely which theory approach? A. Proprietary B. Parent company C. Entity D. Variable A change from the cost method to the equity method of accounting for an investment in common stock resulting from an increase in the number of shares held by the investor requires: A. only a footnote disclosure. B. that the cumulative amount of the change be shown as a line item on the income statement. net of tax. C. that the change be accounted for as an unrealized gain included in other comprehensive income. (If?) retroactive restatement as if the investor always had used the equity method. . Company X acquires 100 percent of the voting shares of Company Y for $275,000 on December 31, 2008. The fair value of the net assets of Companyfiat the date of acquisition was $300,000. This is an example of a{n): x A. positive differential. - - . _ @bargain purchase. X “‘9 9:3 ‘3 ‘r 3105‘s] C. extraordinary loss. a) a fl A G D. revaluation adjustment. H " J " ‘ D {7- 3-33901}; r . Version 2 Short Questions 1. Fin 46R expanded the scope of the definition of control for determining entities that should be included in consolidated financial statements. Briefly describehow an entit qualifies as a variable interest entity, t__he_c__rits:i_a_f9r determining a primant beneficiary and the $3.29!? methane? statement? .9130 entity that qualifiesas a primary beneficiary. " H ' n I ‘ . __ l '- I -\ t p J-‘wt kattu‘ 15 a mytu¥h whitest emfi‘tq. a: at H {35%qu \rar (A strokes-fags}. a - .. t . - \ l ' t “ "' l -'_ " I'" ’r - \ " o w A » . " '\ ' k: - ‘ t L, 't Eu‘tfi‘zkge gurgufl \AM wt. .Q’af‘fi .1 at“. \l-JAW}: time cast. as cu: m. 1-" it“: are} Hit in . «a; £ U; hugs Eta-Vt}; _; .1 .‘ \ i _‘ II 1"“ givimh‘fi YENfitm-mq t"; fart-«1 Wm 13 n 3“) 3530M “a Mist-‘52“ :5: “at \assevif‘iztmgor 39W fi‘E' Ux QC‘(%‘\ "‘7 \NL Pl.qu hxfiegka‘t_oyv\.¥&\5u WWVA. . , 't i . ‘ z 2“. - . 1" Ca'uu-blxiioéa Hm flhkgsq 3.1»); \I‘QQ:3‘~¥:_‘V\5‘I £6I¥Ufi§ 1?: tent-3M1 atqu rights in Hyatt-ts? Esta-tr} in: J I t ’i EFL; ('vhkqvcg‘rwt 7V“: \A. (awed: \tflv \hsn 1%v’finmt‘dtl "inw'itumv‘: 15' a “but Q 9"“1“ “1" EN tat; L 2. Starwood Corporation acquired 80% of Horn Company’s voting common stock on January 1, 2010. ' At the time of acquisition, Horn reported buildings at a book value of $250,000. The fair value of the buitdings on January 1, 2010 was $300,000. EU 9 Lt ‘t '3 (Fr: k I?“ :Wf‘tw mg. C20 ‘4 a. Entity theory *- iggfim I b. Parent company theory 6".) 4r(\61c. FLU jch'm-«NB t "-‘ 5": We -'~- {.30 r some; rtfi'LCtflfloc' c. Proprietary theory : "ABM + (‘1’. W Emmet} ) -. -. ‘ ._. 4.31"} r I; R; 1.9:“, -. ‘x r/ .. 2 ti‘ . J: :f 50““ ‘Ui a. x r m ,._., " 'u t .t_ : 43;; or}; .-_. Hgqu ~— 39; ,1 at} 3. FAS 159 permits but does not require companies that hold investments in the common stock of other companies that are not required to be consolidated to use fair value for reporting the investments rather than the cost or equity method. Describe the financial statement implications of the fair value option. k ‘r"" ‘ ‘.- -. - ' ‘- a ‘ 1 M 31:47.“? JAKQK {jg-\WEV‘ Cu\‘_{;-UJ’K wwt?&m\eu; afigéw‘fimk‘ \m Ugigah WLQQEI‘MK‘. Lemma-M sits-0R 0%“ L'Wlit‘mfltr 3}- "AM Raw“ ‘Nf‘u‘fi fiw‘t mm“ “mart J'v-‘A m‘v‘j In“? “A”; _._..v_. w: -.. _.‘_. _-_ ; any man filfiflgcyfilg strex‘tiflé fiftmthcsggf ih__bc~\vwv- v.35: \km‘wa 03* bieow’ aw}, as. y ._ f" . _' 'i;_ ._ _. Z . ' . I \. 3Q. $;f3§".\$i~£um\i~»§ vamglg; tin JVéfi-h 'Qu‘x'h‘iEF-"ffi- “1054" E‘N‘Q‘ ‘¥ fig": '92 lam? $651159“ fl ‘3‘ (Mi-513%? \ . ' ‘ . ‘\ ." 2k 1._ ' ' ul" h h'.--n t' : \ WEN mltwmk Whig, a}? ‘im-e‘lcwéc. “nutter; tare. V»L\‘1Vv“ ‘3 “e “55% to New! asthma ha. ‘1 K ' t ' . :‘X at sews-1m tn fkkkxdtttk‘}: W" «W; VBrSionZ {tension We“? ‘3‘ gmfi“ QANMAS“ \‘O‘fi‘h‘ \ = '- at r , 1- ‘ a" ,.‘- 1‘ -_"-p. \ n _' ‘. - miss WM “9””?! W‘Jdertt‘m wigs-ch 1H,“ ‘wrr W‘s“ 6i M “i‘~'-3"tf“’*‘t°»u“t,w\r-m I--- m 'E‘a'cmmtfie rm gears-t Multiple Choice: Select the best answer for each of the following: Version #2 1. Senior Inc. owns 85 percent of Junior Inc. During 2008. Senior sold goods with a 25 percent gross profit to Junior. Ju ‘or sold all of these goods in 2008. How should 2008 consolidated income statement items be adjusted? _ . No adjustment is necessary. B. Sales and cost of goods sold should be reduced by 85 percent of the intercompany sales. Net income should be reduced by 85 percent of the gross profit on intercompany sales. D Sales and cost of goods sold should be reduced by the intercompany sales. 2. Any intercompany gain or loss on a downstream sale of land should be recognized in consolidated net income: I. in the year of the downstream sale. ll. over the period of time the subsidiary uses the land. Ill. in the year the subsidiary sells the land to an unrelated party. A. | . ll .lorll 1 L_/,... ! "5 La ("n-w- 3. During 2009, Von Co. sold inventory to its wholly-owned subsidiary. Lord Co. The inventory cost $30,000 and was sold to Lord for $44,000. From the perspective of the combination, when is the $14.000 gain realized? A. When the goods are sold to a third party by Lord. B. When Lord pays Von for the goods C. When Von sold the goods to Lord D. When the goods are used by Lord E. No gain can be recognized since the transaction was between related parties 4. Phobos Company holds 80 percent of Deimos Company‘s voting shares. During the preparation of consolidated fine-nciaLgatengentsftgggpoal the following eliminating entry was made: Retained January] 50,000 P _ r g‘ Land 50,000 3 b J A Which of the following statements is correct? A. Phobos Company purchased land from Deimos Company during 2009. B. Phobos Company purchased land from Deimos Company before January 1. 2009. C. Deimos Company purchased land from Phobos Company during 2009. @Deimos Company purchased land from Phobos Company before January 1, 2009. 5. Where do dividends paid to the non-controlling interest of a subsidiary appear on a consolidated statement of cash flows? A. Cash flows from operating activities B. Cash flows from investing activities ©Cash flows from financing activities D. Supplemental schedule of non-cash investing and financing activities E. They do not appear on the consolidated statement of cash flows 6. A wholly owned subsidiary sold land to its parent during the year at a gain. The parent continues to hold the land at the e d of the year. The amount to be reported as consolidated net income for the year should equal: ,_ the parent's separate operating income. plus the subsidiary's net income. B. he parent's separate operating income, plus the subsidiary's net income, minus the intercompany gain. the parent‘s separate operating income, plus the subsidiary's net income. plus the intercompany gain. Bathe parent‘s net income. plus the subsidiary‘s net income. minus the intercompany gain. \_/\ ‘ I m WW LIKED. “'5 Ela'mAt 7. A parent and its 80 percent owned subsidiary have made several intercompany sales of noncurrent assets during the past two years. The‘amo‘gflmcome assignedjgthe non§QD_tLglling__inj_erest for theseccndyear shouldiggtudetwa noncontrolfing_jgte,re.st's.share of-gains: WZed in the second year from upstream sales made in the second year. B. realized in the second year from downstream sales made in both years. . realized in the second year from upstream sales made in both years. . both realized and unrealized from upstream sales made in the second year. 8. Dividends paid to noncontrolling shareholders: I. are reported as a cash outflow in the consolidated cash flow statement. 1 ll. represent funds that are no longer available to the consolidated entity. T Ill. are reported in the consolidated retained earnings statement. 59'. A. Observation I alone is true. B. Observation III alone is true. ©Observations I and II are true. D. Observations I. II, and ll are true. 9. During the year a parent makes sales of inventory at a profit to its 75 percent owned subsidiary. The subsidiary also makes sales of inventory at a profit to its parent during the same year. Both the parent and the subsidiary have on hand at the end of the year 20 percent of the inventory acquired from one another. Consolidated revenues for the year should exclude: / a A. 80 percent of the total revenues from intercompany sales. W ‘7‘” F" “i B. total revenues from intercompany sales. cs. To J New C. only the revenues from the subsidiary's intercompany sales. 0L (- (a? D. only the revenues from the parent‘s intercompany sales. 10. Wolff Corporation owns 70 percent of the outstanding stock of Donald, Inc. During the current year, Donald made $7 ,000 in sales to Wolff. How does this transfer affect the consolidated statement of cash flows? . ncluded as a decrease in the investing section B. Included as an increase in the operating section N “W "3 7‘33?! Q’Nm‘ C._Included as a decrease in the operating section fijglncluded as an increase in the investing section ot reported in the consolidated statement of cash flows 11. How do intercompany sales of inventory affect the preparation of a consolidated statement of cash flows? A. They must be added in calculating cash flows from investing activities B. They must be deducted in calculating cash flows from investing activities C. They must be added in calculating cash flows from operating activities Because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required E. They must be deducted in calculating cash flows from operating activities When a subsidiary is acquired sometime after the first day of the fiscal year. which of the following statements is true? '— . Income from subsidiary is not recognized until there is an entire year of consolidated operations : _ Income from subsidiary is recognized from date of acquisition to year-end _ If xcess cost over acquisition value is recognized at the beginning of the fiscal year "0 goodwill can be recognized filncome from subsidiary is recognized for the entire year 13. When a parent uses the equity method throughout the year to account for investment in a subsidiary. which of the following statements is false before making adjustments on the consolidated worksheet? . Parent company net income equals controlling interest in consolidated net income _ ,1 Parent company retained earnings equals consolidated retained earnings “be we to «E3 Let “t” ‘Nttf’t' C. Parent company total assets equals consolidated total assets D. Parent company dividends equals consolidated dividends \E."Goodwill may need to be recorded iii. Which of the following statements is true for a consollelmm e-iii-rlurln-int of cash flows? A, Parent's dividends and subsidiary's dividends are 00le {ml it llllnilclng activity ‘Only parent's dividends are deducted as a financing fluilvliy — ,g'fParent's dividends and its share of subsidiary‘s dividonl Ia. m a iluiilttjltid as a financing activity (ll-"All of parent's dividends and non—controlling interest of sunset-lam v‘n dividends are deducted as a financing activity E. Neither parent's or subsidiary‘s dividends are deducted 3!?! a final "int; activity PROBLEMS 1.0n January 1, 2008. Vector Company acquired 80 percent in in illar Company's ownership on for Wash. At that date, the fair value of the noncontrolling interest was militia: the book value of Scalar's net assets at acquisition was $35,000,...The book values and fair values of Scalar-‘0 slaw-tile and liabilities were equal, except for buildings and equipment, which were worth $15,000 more thaflboqk valllrt buildings and equipment are depreciated on a 10-year basis. Although goodwill is not amortizedfthewmanagemonl oi flit-iii! concluded at December 31, 2008, tha't—g'SEElTv'ifl—from its acquisition of Scalar shares had been impaired and the 00:1st mryiogamgngtmasrfificggo. Goodwill and goodwill impairment were assigned proportionately to the controlling and ni‘llicontrolling shareholders. (Note that Vector Company does not adjust its Income from Subsidiary for goodwill ilnpi-illnianl under the basic equity method.) No additional impairment occurred in 2009. Trial balance data for Vector and Scalar on December 31. iif'll'lii, are as follows: Vector Company Fin El“! tannin-any Item Debit Credit Ilgtrti ___.§;§0dit Cash $100,000 1 in iii :0 I Accounts Receivable 60,000 .f1:-l.ne nl S at m“: :7. 965’ Inventory 80,000 10ml 6 9’ “a ‘ L r 00 M“) Land 150,000 ’Ii‘ "15“ C G g.- “ l' Buildings and Equipment 300,000 1 *M I n 1! Investment in Scalar Co. Stock 143,800 in; i r (795,600) Cast of Goods Sold 180,000 mi l “till a ( , 3 cc) Wage Expense 50,000 will if; {f r Depreciation Expense 30,000 i '=. “i “I w (a (had) Interest Expense 25,000 h Hm he. i‘ Other Expenses 40.000 ..: l .i in 0,1 LV ,5, (7 -' M)” Dividends Declared 40,000 liiIINHi' I ’5 ' -——""'" Accumulated Depreciation $150,000 $36,000 E fiflw ' Q”, a 24,000 Accounts Payable 90,000 26,000 ___"_‘__,.‘_5'.____.__........_ Wages Payable 30,800 9.000 U) L m g I 10,290 Notes Payable 180,000 50,000 ‘ __'_ H a} "a Common Stock 50,000 100,000 Jane, in» ‘3 ~ 'I ' Retained Earnings 135,000 50,000 .3 my Sales 400,000 200,000 2. C- as k -‘ Income from Subsidiary 18,000 __.___ . ' 1100. m S . 3: MO $1,203,300 $1,203,300 :__;§j_1_l'dllj|_1_nl_ _ 371,000 1,230 (’0 mos—tog ills» 3-10." - an 3‘ Required: Give all the eliminating entries needed to: lu'nparation of a three-part consolidation workpaper at .. - "f. b.;-'-'-. f q" K, 12.002010. _ vaxik s. 3,3,, lam ' _ . . 0 - oat—2003055 in 12"“? .. - Vs.- toz ---,- 30 f, Ag. “we: ilfi‘figw (“M 1%. E? stoop “tattoo”, l13(co {0v Mist 40953,. '1‘, ',; L- _,_._-r"— " \ -- ‘ 2§N5ii LEW" :Nam “L int-testis i gqrfiflh — - {it no was i2 “t- w 1 ~ {1 500‘) tam-t} g 0, 030-13 —-\ 5013 Jo- -- r 3.1.1.3 —- i L W: one :3; 0S"; 0;" .m- - ,- H‘s, see 2 2 en's, -:.i-« i. u - a . ' - ' “4—0-..- x tin-ow. as: {10.63% I ,i. l _' "‘1‘ 'i * 5:13.73 wt}, 1 kn, 3,5047 a ““““ I?“ . . i: 1-0“? "v "54:30 )2' PROBLEMS . .. ' 1. On January 1 2007, Wheeley Company issued common shares with a par value of $20,000 and a market value of $172,000 in exchange for 40 percent ownership of Twain Company. Balance sheet information reported by Twain on that date is given below: Book Value Fair Value Assets Cash and Receivables Inventory (FIFO Basis) Buildings and Equipment (net) Patent Total Assets Liabilifies and Equities Accounts Payable Common Stock Additional Paid-In Capital Retained Earnings Total Liabilities aml Equities Twain reported net income of $56,000 and paid dividends of $25,000 during the year. Wheeley uses the equity method of accounting. The estimated economic life of thepatents held by Twain is 8 years. The buildings and equipment are expected torlgst fi moreyears on average wi zero salvaggyalui Required: _ . 1. Calculate the differential and determine how it is allocated. {vuinJ‘I‘bE b; “‘29 Heft Tess-M Version 2 \ J ctr-M .__ __.,—a~—..._..- 2. Based on the information provided, what amount of income will be rep ed by Wheeley from its investment in Twain for the year 2007? TV fl 4W a grab ‘13}: MW View g; \h M .‘_ E u I ‘<’_ 7r .\ T 4331). r. Elm? jvgoqubw-t ‘1 m'cnl’fim ‘Eunr‘t 31 ‘E @223 11 KO 0 mm. Lit?90"\ i b ii i .5: firm-9 . 1:003 iii-ii: :%mo ea 3 ti} Béfflm y fie: 1‘1}th ’7"! 3. Based on the information provided. wha ill be the balance in the investme 31, 2007 reported by Wheeley? nt account on December énfim \\ “7 Maire“: _‘. .. IL. 3‘: E ‘3‘; »( .G'fizmk“; I; Version 2 y K.» 2. 0352111133: (1% 10’ Pain company acqmred all the net assets of Papiez company by issuing 70,0 direct costs ofltl’lilr va ue conning“ stock with a market value (filo per share. Legal and other e combmatlon amounted to $40,000 and stock issue costs were $10,000. ! The fan‘ girlie: oiPapiez company's identifiable net assets equaled theiI book values, except for bulldmg q 1pment wh1ch has a fair value $150,000 greater than book value. Balance sheets two com an' ‘ ' - for the p 135 lmmedlately precedtng the acquisition were as fOHOWS: 5h Pauli Co. Pagiez Co. {in .3 9962.471. \t—v were” (r caildings & Equipment-Net $400900 $150,000 " , ' ' ' " 3:18,, Identifiable Assets 1133.330 250,000 HI 1st - some: , o ' a ' Total M r I J an. l _y._ : "I ,, . “flies fl maggot] Stock $5 Par $200,000 ngilional Paid-In Capital 500900 A mined Earnings 50900 Rial Liabilities and Equity M T0 M Required: Prepare the journal entries to record the business combination on the books of Pauli Company assummg a statutory merger where Papiez Company will no longer operate as a con . Th I a; a I .. I '3 {rifle} S‘n‘xk 33$; C0111 Vprm'nn ") QM; _.__W__{.,_n-H._=i .. 3. Saco Company purchased 100 percent of the stock of Garland Corp. on December 31, 2008. Them _ (. equity section of Garland's baiance sheet at that date is as follows: £5: '__‘ " a _ a ..,.\ we as . H Common Stock $ 300.000 Sci “5 a“; \a r‘ ‘5 a Additional Paid-tn Capital 500,000 I '2‘ Retained Earnings 400 000 1‘3 want-gyms 1: g rag-1.1,“ ,._ gag-fie ,5 1.. {Brim L_ Total| mg! ' ' r /_'_ -. S _. _ /!’.'.-_g_h a¥flr -' .' p. _;‘_.‘.n ‘01:. Saco financed the acquisition by using $880,000 cash and giving a note payable for $400,000. Book value approximated fair value for all of Garland's assets and liabilities except for buildings, with a 10 year useful life, which had a fair value $00,000 more than its book value. Any remainin_g differential lated to__ goodwfll, Saco has an account payable to Garland in the amount of $20,000. Required: 1. Present all eliminating entries needed to prepare a consolidated balance sheet immediately following the acquisition. 2. If Garland Company breaks even in 2009 (income is zero) and pays no dividends, what additional elimination entrylies)'are necessary, if any, for 2009? . """ ‘"‘ ' 1 ‘ 5 I. -_ i . E '.-. - t a, ,.,,, I; I ' - ( ‘0? . -z’ ' - '. -. ., ,_ ,3, .J_ ’- .---; _- .,1_ -;.....- ; \\..~.‘.‘, 51ft". L-uéti‘K (4“ =;§"'=e:..,f..:- {-10 \Xw‘ a?! H. ' r ‘19-. — av; “1-, ._ - a 9-H." x f E } MC ‘. g m l"gt: 5‘ ‘ \ ‘fi .. . n - - - -. an ‘ , A E _ ‘. ‘ “it \xg a (VP-{42¢ flu“ CR. {CR ‘3 E a {\{K C a! 2‘ “R ‘ '\ ' r' ' ' " " ‘ " f ‘ ‘t '-‘ 'it ._§ “:3 , “ ,.. ...... ..‘ . g; 3. Assume the goodwill has been impaired in 2009 in the amount of $1 0,000. What is the entry to record the impairment? 2,. _ ,g ___ ._ . “DICK”?- I i; L. a": ‘w‘ v v - -"'_'v‘. ‘ ' “'95-. 3. Dodge, Incorporated acquires 15% of Gates Corporation-on January 1 . 2007. for $105,000, the stock’s underlying book value. During 2007 Gates reported neHaeenre—ofsfififioo and paid dividends of $50,000. On January 1, 2008. Dodge purchased an additional 25% of Gates for $2 0,000 w en the book va ue of the total net assets was $600,000. Any excess cost over book value is attributable to a patent with a remaining useful life of 5 years. ‘The fair-value__meti]od.__was used duringgOUZ but Dodge has deemed it necessary to change to theneguitymlboiafiermesecgfldp‘upchase; During 2008 Gates reported net income of $200,000 and reported dividends of $5,000. "<1 0‘5“: ---‘-,- t: Grab, it: i.r'-*r-.-”.r:-<.»c- ‘z'e . .c. v 2.300 Required: a. Prepare a schedule to show the correct balance at December 31. 2008 of Dodge's Investment in Gates stock account beginning with the 2007 purchase. T. q ‘ .4‘ 'vxk, M. 'g‘. ‘1} “£413”; Was-cc, ‘ \ _-. . H- ._ . “Jo .- 4?th \F A_\p\{_ft_w¢_ {If -|I”- V- ' t. . -5. r4: “- . i \--- ,_..._.——- ________,__ i - .. Afifia’ I I S {a J" {:25 r lif- "r l rill! E15 5: fi'T-M‘a' \ fl ' "a , a, E :1 .3 00““ I‘ w, .15 e:- J. “"ry'. 17%,“ I :1. _ _ _ .. go! _‘ i, u \_ I Ila H: 46.90%} {-1.0 l.1 M [A 5:01 CBC-D «gag. .7 ._ 9‘3 'F 'i' I .. F r 1: . i»- Cxx 96c) Elf.“ z tar-72 r £5; , d; 3'27, semi I 1 V“ ,r. ii '\ b. Prepare the journal entry necessary at 11008 to record the change to the equity method. -~—... _\ t _ C t l at . WWSXWfi' Er. ‘—-'-?en3e r 1 r)! I ‘ 1 , r.-. 3 fl", afi-txwefi wscflf?‘-“V5,fi§ EC}: 5-} Verqi rm ’7 0 6. On January( 1, 2905,, Rand Corp. issued shares of its common stock for all of the outstanding common stock of Spaul lng Inc. This combination was accounted for using the acquisition method. Spaulding's book value was only $140,000 at the time, but Rand issued 12,000 shares haiflnga par value of $1 per share and a fair value of $20 per share. Rand was Willing to convey these shares becauEifi'e'lt that buddingsiten-year life) were undervalued on Spaulding's records by $60 00 hits equipment (fiveeyeax life) was um by $25,000. Any excess cost over fair value is assigned to goodwill. Following are e In :vidual financial records for these two companies for the year ended December 31, 2009. f 330m} Rand Spaulding g¥.'w.-«ir 3W Corp. 1m, T n; f "" Revenues $ 372,000 $100,000 who}. Expenses (264,000) (72,000) Equity in subsidiary earnings 25,000 0 Net income M Eel—3.6.292 . 2,0. "‘1, ' LAW! “J” 1-3.: Retained earnings, January 1, 2009 $ 765,000 $102,000 Emmlghw‘k .341. .u ,1, Net income (above) 133,000 36,000 ' " ‘ ‘ ' Dividends paid {84,0001 (24,000) Retained earnings, December 31, 2009 M M0; imam grog; Fifiimy Current assets 0 150,000 0 22,000 In; 0,09:- - 53’"? Investment in Spaulding lnc. 242,000 0 ~1- Buildings (net) 525,000 35,000 lemwetttms, 1:, new. Equipment (net) 389,250 129,000 ‘ ' Total assets EM w Liabilities $ 82,250 $ 50,000 Common stock 360,000 72,000 Additional paid-in capital 50,000 0 Retained earnings, December 31, 2009 814,000 114,000 (above) _ Total liabilities and stockholders’ equity M w Required: 1. 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This note was uploaded on 03/05/2012 for the course ACC 421 taught by Professor Patriciajohnson during the Spring '12 term at Canisius College.

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Advanced Accounting Problems - Name_ F _ ACC 4211MBA 721...

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