Question 2.2. (TCO A) Rome Inc. owns 30% of Amber Co. and applies the equity method. During the current year, Rome bought inventory costing $66,000 and then sold it to Amber for $120,000. At year-end, only $24,000 of merchandise was still being held by Amber. What amount of intercompany inventory profit must be deferred by Rome |
$6,610 $16,200 $10,800 $3,240 $6,480 |
Question 9.9. (TCO A) Jason Company owns 24% of the voting common stock of Kalco Corp. Jason does not have the ability to exercise significant influence over the operations of Kalco. What method should Jason use to account for its investment in Kalco? (Points : 10) |
Question 10.10. (TCO B) Describe how, contingent considerations, and a bargain purchase are reflected in recording an acquisition investment. (Points : 10) |
Question 11.11. (TCO C) Jewels Co. acquired Diamond Co. in an acquisition transaction. Yules decided to use the partial equity method to account for the investment. The current balance in the investment account is $430,000. Describe in words how this balance was derived. (Points : 10) |
Question 12.12. (TCO C) Sand Co. acquired Fence Co. and in effecting this business combination, there was a cash-flow performance contingency to be paid in cash and a market-price performance contingency to be paid in additional shares of stock. In what accounts and in what section(s) of a consolidated balance sheet are these contingent consideration items shown? (Points : 10) |
Question 13.13. (TCO A) On January 2, 20X1, Heinreich Co. paid $500,000 for 24% of the voting common stock of Jones Corp. At the time of the investment, Jones had net assets with a book value and fair value of $1,800,000. During 20X1, Jones incurred a net loss of $60,000 and paid dividends of $100,000. Any excess cost over book value is attributable to goodwill with an indefinite life. Required: -1) Prepare a schedule to show the amount of goodwill from Heinrich's investment in Jones. 2) Prepare a schedule to show the balance in Heinreich's investment account at December 31, 20X1. (Points : 14) |
Question 14.14. (TCO A) Nathan Inc. sold $180,000 in inventory to Miller Co. during 20X0 for $250,000. Miller resold $108,000 of this merchandise in 20X0 with the remainder to be disposed of during 20X1. Assume Nathan owns 25% of Miller and applies the equity method. Required: -1) Determine Nathan's share of the unrealized gain at the end of 20X0. -2) Prepare the journal entry Nathan should record at the end of 20X0 to defer the unrealized intra-entity inventory profit. (Points : 14) |
Question 15.15. (TCO A) Jasper Inc. holds 30% of the outstanding voting shares of Kinson Co. and appropriately applies the equity method of accounting. Amortization associated with this investment equals $11,000 per year. For 20X1, Kinson reported earnings of $100,000 and paid cash dividends of $40,000. During 20X1, Kinson acquired inventory for $62,400, which was then sold to Jasper for $96,000. At the end of 20X1, Jasper still held some of this inventory at its transfer price of $50,000. Required: -1) Determine the amount of intra-entity profit at the end of 20X1. -2) Determine the amount of Equity in Investee Income that Jasper should have reported for 20X1. (Points : 14) |
Question 16.16. (TCO B) The financial statements for Jobe Inc. and Lake Corp., just prior to their combination, for the year ending December 31, 20X2, follow. Lake's buildings were undervalued on its financial records by $60,000. | Jobe Inc. | Lake Corp. | Revenues | $1,300,000 | $500,000 | Expenses | (1,180,000) | (290,000) | Net income | $120,000 | $210,000 | | | | Retained earnings, January 1, 20X2 | 700,000 | 500,000 | Net income (above) | 120,000 | 210,000 | Dividends paid | (110,000) | (110,000) | Retained earnings, December 31, 20X2 | $710,000 | $600,000 | | | | Cash | $160,000 | $120,000 | Receivables and inventory | 240,000 | 240,000 | Buildings (net) | 700,000 | 350,000 | Equipment (net) | 700,000 | 600,000 | Total assets | $1,800,000 | $1,310,000 | | | | Liabilities | $250,000 | $195,000 | Common stock | 750,000 | 430,000 | Additional paid-in capital | 90,000 | 85,000 | Retained earnings, December 31, 20X2 (above) | 710,000 | 600,000 | Total liabilities and stockholders' equity | $1,800,000 | $1,310,000 |
On December 31, 20X2, Jobe issued 54,000 new shares of its $10 par value stock in exchange for all the outstanding shares of Lake. Jobe's shares had a fair value on that date of $35 per share. Jobe paid $34,000 to an investment bank for assisting in the arrangements. Jobe also paid $24,000 in stock issuance costs to effect the acquisition of Lake. Lake will retain its incorporation. -1) Prepare the journal entry to record the issuance of common stock by Jobe.
-2) Prepare the journal entry to record the payment of combination costs. -3) Determine consolidated net income for the year ended December 31, 20x2. -4) Determine consolidated additional paid-in capital at December 31, 20x2. (Points : 14) |
Question 17.17. (TCO B) The financial statements for Metzger Inc. and Ortiz Corp., just prior to their combination, for the year ending December 31, 20X2, follow. Ortiz's buildings were undervalued on its financial records by $80,000. | Metzger Inc. | Ortiz Corp. | Revenues | $1,800,000 | $700,000 | Expenses | (1,580,000) | (590,000) | Net income | $220,000 | $110,000 | | | | Retained earnings, January 1, 2012 | 800,000 | 600,000 | Net income (above) | 220,000 | 110,000 | Dividends paid | (130,000) | (80,000) | Retained earnings, December 31, 2012 | $890,000 | $630,000 | | | | Cash | $240,000 | $160,000 | Receivables and inventory | 270,000 | 260,000 | Buildings (net) | 850,000 | 500,000 | Equipment (net) | 800,000 | 490,000 | Total assets | $2,160,000 | $1,410,000 | | | | Liabilities | $310,000 | $155,000 | Common stock | 850,000 | 530,000 | Additional paid-in capital | 110,000 | 95,000 | Retained earnings, December 31, 20X2 (above) | 890,000 | 630,000 | Total liabilities and stockholders' equity | $2,160,000 | $1,410,000 |
On December 31, 20X2, Metzger issued 58,000 new shares of its $10 par value stock in exchange for all the outstanding shares of Ortiz. Metzger's shares had a fair value on that date of $40 per share. Metzger paid $38,000 to an investment bank for assisting in the arrangements. Metzger also paid $28,000 in stock issuance costs to effect the acquisition of Ortiz. Ortiz will retain its incorporation. -1) Prepare the journal entry to record the issuance of common stock by Metzger. -2) Prepare the journal entry to record the payment of combination costs.
-3) Determine consolidated net income for the year ended December 31, 20X2. -4) Determine consolidated additional paid-in capital at December 31, 20X2. (Points : 14) |
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