Padilla Company purchased 80% of the common stock of Sanoma Company in the open market on January 1, 2013, paying $31,000 more than the book value of the interest acquired. The difference between book value and the value implied by the purchase price is attributable to land. Required: A. What workpaper entry is required each year until the land is disposed of? B. Assume that the land is sold on 1/1/16 and that Sanoma Company recognizes a $50,000 gain on its books. What amount of gain will be reflected in consolidated income on the 2016 consolidated income statement? C. In all years subsequent to the disposal of the land, what workpaper entry will be necessary? Show entry for all three methods (cost, partial equity, and complete equity).
> On January 1, 2017, Chamberlain Corporation pays $388,000 for a 60 percent ownership in Neville. Annual excess fair-value amortization of $15,000 results from the acquisition. On December 31, 2018, Neville reports revenues of $400,000 and expenses of $30
> The noncontrolling interest represents an outside ownership in a subsidiary that is not attributable to the parent company. Where in the consolidated balance sheet is this outside ownership interest recognized? a. In the liability section. b. In a mezz
> On January 1, 2017, Grand Haven, Inc., reports net assets of $760,000 although equipment (with a four-year remaining life) having a book value of $440,000 is worth $500,000 and an unrecorded patent is valued at $45,000. Van Buren Corporation pays $692,00
> Jordan, Inc., holds 75 percent of the outstanding stock of Paxson Corporation. Paxson currently owes Jordan $400,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of this debt should be elimi
> In January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considere
> In January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considere
> Mittelstaedt, Inc., buys 60 percent of the outstanding stock of Sherry, Inc. Sherry owns a piece of land that cost $212,000 but had a fair value of $549,000 at the acquisition date. What value should be attributed to this land in a consolidated balance s
> In January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considere
> In January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considere
> When should a parent consider recognizing an impairment loss for goodwill associated with a subsidiary? How should the loss be reported in the financial statements?
> In January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considere
> West Company acquired 60 percent of Solar Company for $300,000 when Solar’s book value was $400,000. The newly comprised 40 percent noncontrolling interest had an assessed fair value of $200,000. Also at the acquisition date, Solar had
> West Company acquired 60 percent of Solar Company for $300,000 when Solar’s book value was $400,000. The newly comprised 40 percent noncontrolling interest had an assessed fair value of $200,000. Also at the acquisition date, Solar had
> West Company acquired 60 percent of Solar Company for $300,000 when Solar’s book value was $400,000. The newly comprised 40 percent noncontrolling interest had an assessed fair value of $200,000. Also at the acquisition date, Solar had
> McKinley, Inc., owns 100 percent of Jackson Company’s 45,000 voting shares. On June 30, McKinley’s internal accounting records show a $192,000 equity method adjusted balance for its investment in Jackson. McKinley sells 15,000 of its Jackson shares on th
> On April 1, Pujols, Inc., exchanges $430,000 fair-value consideration for 70 percent of the outstanding stock of Ramirez Corporation. The remaining 30 percent of the outstanding shares continued to trade at a collective fair value of $165,000. Ramirez’s
> A parent buys 32 percent of a subsidiary in one year and then buys an additional 40 percent in the next year. In a step acquisition of this type, the original 32 percent acquisition should be a. Maintained at its initial value. b. Adjusted to its equit
> Amie, Inc., has 100,000 shares of $2 par value stock outstanding. Prairie Corporation acquired 30,000 of Amie’s shares on January 1, 2015, for $120,000 when Amie’s net assets had a total fair value of $350,000. On July 1, 2018, Prairie bought an addition
> What is a basic premise of the acquisition method regarding accounting for a noncontrolling interest? a. Consolidated financial statements should be primarily for the benefit of the parent company’s stockholders. b. Consolidated financial statements sh
> Goodwill recognized in a business combination must be allocated among a firm’s identified reporting units. If the fair value of a particular reporting unit with recognized goodwill falls below its carrying amount, which of the following is true? a. No g
> Reimers Company acquires Rollins Corporation on January 1, 2017. As part of the agreement, the parent states that an additional $100,000 payment to the former owners of Rollins will be made in 2018, if Rollins achieves certain income thresholds during th
> In this project, you are to provide an analysis of alternative accounting methods for controlling interest investments and subsequent effects on consolidated reporting. The project requires the use of a computer and a spreadsheet software package (e.g.,
> On January 1, 2017, Plutonium Corporation acquired 80% of the outstanding stock of Sulfurst Inc. for $268,000 cash. The following balance sheet shows Sulfurst Inc.’s book values immediately prior to acquisition, as well as the appraised
> A consolidated income statement and selected comparative consolidated balance sheet data for Palano Company and subsidiary follow: Required: Prepare the cash flow from operating activities section of a consolidated statement of cash flows assuming use
> Percy Company purchased 80% of the outstanding voting shares of Song Company at the beginning of 2014 for $387,000. At the time of purchase, Song Company’s total stockholders’ equity amounted to $475,000. Income and di
> Assume the same information from Exercise 3–8. In addition, Peep Inc. incurred the following direct costs: Accounting fees for the purchase…………………………………………………………. $15,000 Legal fees for registering the common stock ……………………………………………30,000 Other legal f
> On December 31, 2013, Price Company purchased a controlling interest in Shipley Company. The balance sheet of Price Company and the consolidated balance sheet on December 3, 2013, were as follows: On the date of acquisition, the stockholdersâ
> Pool Company purchased 90% of the outstanding common stock of Spruce Company on December 31, 2014, for cash. At that time the balance sheet of Spruce Company was as follows: Required: Prepare the elimination entry required for the preparation of a cons
> On January 1, 2013, Peach Company issued 1,500 of its $20 par value common shares with a fair value of $60 per share in exchange for the 2,000 outstanding common shares of Swartz Company in a purchase transaction. Registration costs amounted to $1,700, p
> On January 2, 2014, Prunce Company acquired 90% of the outstanding common stock of Sun Company for $192,000 cash. Just before the acquisition, the balance sheets of the two companies were as follows: The fair values of Sun Company’s
> On January 1, 2014, Polo Company purchased 100% of the common stock of Save Company by issuing 40,000 shares of its (Polo’s) $10 par value common stock with a market price of $17.50 per share. Polo incurred cash expenses of $20,000 for
> Profeet Company purchased the Starless Company in a nontaxable combination consummated as a stock acquisition. Profeet issued 10,000 shares of $5 par value common stock, with a market value of $70, in exchange for all the stock of Starless. The following
> December 31, 2014, trial balances for Pledge Company and its subsidiary Stom Company follow: Pledge Company purchased 72,000 shares of Stom Company’s common stock on January 1, 2011, for $300,000. On that date, Stom Companyâ
> Patel Company issued 95,000 shares of $1 par value common stock (market value of $6/share) for 95% of the common stock of Seely Company on January 1, 2014. Seely Company had the following assets, liabilities, and owners’ equity at that
> Prepare in general journal form the workpaper entries to eliminate Prancer Company’s investment in Saltez Company in the preparation of a consolidated balance sheet at the date of acquisition for each of the following independent cases:
> Patel Company issued 100,000 shares of $1 par value common stock (market value of $6/share) for the net assets of Seely Company on January 1, 2014, in a statutory merger. Seely Company had the following assets, liabilities, and owners’
> The following balance sheets were reported on January 1, 2014, for Peach Company and Stream Company: Required: Appraisals reveal that the inventory has a fair value of $120,000, and the equipment has a current value of $410,000. The book value and fair
> On January 1, 2013, Porsche Company acquired the net assets of Saab Company for $450,000 cash. The fair value of Saab’s identifiable net assets was $375,000 on this date. Porsche Company decided to measure goodwill impairment using the
> Company S has no long-term marketable securities. Assume the following scenarios: Case A Assume that P Company paid $130,000 cash for 100% of the net assets of S Company. Case B Assume that P Company paid $110,000 cash for 100% of the net assets of S C
> Effective December 31, 2013, Zintel Corporation proposes to issue additional shares of its common stock in exchange for all the assets and liabilities of Smith Corporation and Platz Corporation, after which Smith and Platz will distribute the Zintel stoc
> Price Company issued 8,000 shares of its $20 par value common stock for the net assets of Sims Company in a business combination under which Sims Company will be merged into Price Company. On the date of the combination, Price Company common stock had a
> Assume the same information as in Exercise 2-5 except that instead of paying a cash earnout, Pritano Company agreed to issue 10,000 additional shares of its $10 par value common stock to the stockholders of Succo if the average postcombination earnings o
> Pritano Company acquired all the net assets of Succo Company on December 31, 2013, for $2,160,000 cash. The balance sheet of Succo Company immediately prior to the acquisition showed: As part of the negotiations, Pritano agreed to pay the stockholders
> On January 1, 2012, Parker Company purchased 95% of the outstanding common stock of Sid Company for $160,000. At that time, Sid’s stockholders’ equity consisted of common stock, $120,000; other contributed capital, $10
> P Company acquired the assets and assumed the liabilities of S Company on January 1, 2013, for $510,000 when S Company’s balance sheet was as follows: Fair values of S Company’s assets and liabilities were equal to t
> Pretzel Company acquired the assets (except for cash) and assumed the liabilities of Salt Company on January 2, 2015. As compensation, Pretzel Company gave 30,000 shares of its common stock, 15,000 shares of its 10% preferred stock, and cash of $50,000 t
> The balance sheets of Petrello Company and Sanchez Company as of January 1, 2014, are presented below. On that date, after an extended period of negotiation, the two companies agreed to merge. To effect the merger, Petrello Company is to exchange its uni
> Preston Company acquired the assets (except for cash) and assumed the liabilities of Saville Company. Immediately prior to the acquisition, Saville Company’s balance sheet was as follows: Required: A. Prepare the journal entries on the
> On January 1, 2013, Point Corporation acquired an 80% interest in Sharp Company for $2,000,000. At that time Sharp Company had capital stock of $1,500,000 and retained earnings of $700,000. The book values of Sharp Company’s assets and liabilities were e
> On January 1, 2014, Packard Company purchased an 80% interest in Sage Company for $600,000. On this date Sage Company had common stock of $150,000 and retained earnings of $400,000. Sage Company’s equipment on the date of Packard Company’s purchase had a
> Park Company acquires an 85%interest in Sunland Company on January 2, 2015. The resulting difference between book value and the value implied by the purchase price in the amount of $120,000 is entirely attributable to equipment with an original life of 1
> On January 1, 2014, P Company purchased an 80% interest in S Company for $600,000, at which time S Company had retained earnings of $300,000 and capital stock of $350,000. Any difference between book value and the value implied by the purchase price was
> On January 1, 2015, Porter Company purchased an 80% interest in Salem Company for $260,000. On this date, Salem Company had common stock of $207,000 and retained earnings of $130,500. An examination of Salem Company’s balance sheet reve
> Price Company purchased 90% of the outstanding common stock of Score Company on January 1, 2011, for $450,000. At that time, Score Company had stockholders’ equity consisting of common stock, $200,000; other contributed capital, $160,00
> Pace Company purchased 20,000 of the 25,000 shares of Saddler Corporation for $525,000. On January 3, 2014, the acquisition date, Saddler Corporation’s capital stock and retained earnings account balances were $500,000 and $100,000, res
> On January 1, 2015, Payne Corporation purchased a 75% interest in Salmon Company for $585,000. A summary of Salmon Company’s balance sheet on that date revealed the following: The equipment had an original life of 15 years and has a r
> On January 1, 2013, Porsche Company acquired 100% of Saab Company’s stock for $450,000 cash. The fair value of Saab’s identifiable net assets was $375,000 on this date. Porsche Company decided to measure goodwill impai
> A 90% interest in Saxton Corporation was purchased by Palm Incorporated on January 2, 2014. The capital stock balance of Saxton Corporation was $3,000,000 on this date, and the balance in retained earnings was $1,000,000. The cost of the investment to Pa
> LoJack is a leading global provider of technology products and services for the tracking and recovery of valuable mobile assets and people at risk of wandering. According to a recent Federal Bureau of Investigation Uniform Crime Report for 2009, a motor
> On February 23, 2005, eBay acquired Viva Group, Inc., which does business under the name Rent.com, for a cash purchase price of approximately $435.365 million including net cash and investments of approximately $18 million. Rent.com is an Internet listin
> During 2005, eBay acquired 100% of four different companies as follows (assume all companies have a December 31 year-end). Net income amounts are stated in thousands of dollars; assume that the net income is earned uniformly throughout the year 2005.
> On October 14, 2005, eBay acquired all of the outstanding securities of Skype Technologies S.A. (“Skype”), for a total initial consideration of approximately $2.6 billion, plus potential performance based payments of approximately $1.3 billion (based on
> In the following table, General Electric’s Balance Sheet from its 2005 annual report is shown. There are six columns of numbers. In the first two columns, GE’s consolidated balance sheets for 2010 and 2009, respectivel
> Consider the following information from Alliance Data Systems Corporation 2009 10K. On October 30, 2009, the Company assumed the operations of the Charming Shoppes’ credit card program, including the service center operations associate
> On January 1, 2011, Plank Company purchased 80% of the outstanding capital stock of Scoba Company for $53,000. At that time, Scoba’s stockholders’ equity consisted of capital stock, $55,000; other contributed capital,
> On January 26, 2010, the Emdeon acquired all of the voting interest of FutureVision Investment Group, L.L.C. and substantially all of the assets of two related companies, FVTech, Inc. and FVTech Arizona, Inc. (collectively, “FVTech&acir
> Consider the following footnote from a company’s 2012 10K concerning an acquisition occurring during February of 2011 (The Company’s year-end is January 31). The measurement period adjustment did not occur until Januar
> On November 19, 2009, eBay sold all the capital shares of Skype to Springboard Group. eBay received cash proceeds of approximately $1.9 billion, a subordinated note issued by a subsidiary of the Buyer in the principal amount of $125.0 million and an equi
> On October 14, 2005, eBay acquired all of the outstanding securities of Skype Technologies S.A. (“Skype”), for a total initial consideration of approximately $2.593 billion, plus potential performance- based payments of up to approximately $1.3 billion (
> When does the SEC staff believe that push down accounting should be applied?
> What is a reverse acquisition? How should the consideration transferred in a reverse acquisition be measured?
> FASB Statement No. 142 changed the guidance for goodwill and other intangibles. List all the topics in the Codification where this information can be found (i.e., ASC XXX). (Hint: There are two general topics.)
> What is the objective of the statement of cash flows?
> Management changed an accounting method. Several executives would have qualified for additional bonuses totaling $50,000 in the prior year under the new method. Can the firm restate the previous year’s income statement to include this expense?
> You are writing a research paper on the accounting for treasury stock. You wonder if it is possible to treat treasury stock as an asset. If not, you wonder if, over the history of GAAP, it has ever been acceptable for treasury stock to be classified as a
> On January 1, 2012, Perez Company purchased 90% of the capital stock of Sanchez Company for $85,000. Sanchez Company had capital stock of $70,000 and retained earnings of $12,000 at that time. On December 31, 2016, the trial balances of the two companies
> Can a firm choose a fair value option for reporting some of its investments on the balance sheet? If so, describe the conditions that must be met.
> Suppose that a company accounts for an investment using the equity method. Describe the appropriate accounting if the combined loss reported by the investee exceeds the investor’s balance in the investment account.
> Describe the equity method for accounting for investments. In order to qualify for the equity method, describe the conditions that must be met.
> A company changed its method of accounting for inventory and determined that it was impractical to determine the cumulative effect for all prior periods. The company decided to use the new method on a prospective basis. Is this acceptable under current G
> Is a correction of an error in the financial statements considered an accounting change?
> A company reported net income of $15,000, including an extraordinary loss of $3,000. Another company owns 40% of this company and uses the equity method to account for the investment. On the investee company’s books, does the investee report the net inco
> Variable interest entities (VIEs) are discussed in FASB Interpretation No. 46R. List all the topics in the Codification where this information can be found (i.e., ASC XXX). (Hint: There are three main topics.)
> Suppose a firm purchases treasury stock but pays an amount significantly larger than the market value of the stock. Describe the appropriate accounting for the treasury stock.
> Can treasury stock be listed as an asset on the balance sheet?
> There are two specific operating cash payments that are required to be disclosed as supplemental information to the statement of cash flows (if not presented as line items under the direct method). What are they and where is this located in the Codificat
> Place Company purchased 92% of the common stock of Shaw, Inc. on January 1, 2012, for $400,000. Trial balances at the end of 2012 for the companies were: Inventory balances on December 31, 2012, were $25,000 for Place and $15,000 for Shaw, Inc. Shaw&ac
> Accounting for contingencies was originally addressed in SFAS No. 5. Where is this information included in the Codification? Is all the guidance listed within one topic?
> A company considered displaying negative amounts using red print in a manner that clearly distinguishes the negative attribute. When determining methods of display, does the company need to give consideration to the limitations of reproduction and microf
> The rules providing accounting guidance on subsequent events were originally listed in FASB Statement No. 165. Where is this information located in the Codification? List all the topics and subtopics in the Codification where this information can be foun
> List all the topics found under General Topic 200—Presentation (Hint: There are 15 topics).
> What instruments qualify as cash equivalents?
> In the 1990s, the pooling of interest method was a preferred method of accounting for consolidations by many managers because of the creation of instant earnings if the acquisition occurred late in the year. Can the firms that used pooling of interest in
> Does current GAAP require that the information on the income statement be reported in chronological order with the most recent year listed first, or is the reverse order acceptable as well?
> GAAP requires that firms test for goodwill impairment on an annual basis. One reporting unit performs the impairment test during January while a second reporting unit performs the impairment test during July. If the firm reports annual results on a calen
> Distinguish between an asset acquisition and the acquisition of a business.
> Can the provisions of the Codification be ignored if the item is immaterial?
> Passion Company is trying to decide whether or not to acquire Desiree Inc. The following balance sheet for Desiree Inc. provides information about book values. Estimated market values are also listed, based upon Passion Company’s appraisals.
> How many years of comparative financial statements are required under current GAAP?
> If guidance for a transaction is not specifically addressed in the Codification, what is the appropriate procedure to follow in identifying the proper accounting?
