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Question;5.;On January 1, 20X1, Panther Company purchased 100%;of the common stock of Seahawk Company for $1,410,000. On this date, Seahawk;had total owners' equity of $1,150,000.;On December;31, 20X4, Seahawk Company had reported an operating loss before taxes of;$175,000. Assume a tax rate of 35%. Since a carryback of $75,000 was available;a tax refund receivable of $26,250 was recorded and a net-of-tax loss of;$148,750 was reported. At the date of purchase, Panther Company has concluded;that the balance of the tax benefit of the operating loss will be realized in;20X1 when a consolidated tax return is prepared.;On January;1, 20X1, the excess of cost over book value is due to the tax benefit above, to;a $30,000 undervaluation of Bonds Payable, to an undervaluation of land;building and equipment, and to goodwill. The fair value of land is $500,000.;The fair value of building and equipment is $750,000. The book value of the land;is $400,750. The book value of the building and equipment is $613,000.;2-12;Chapter 2;Required;a.;Using the information above and on the separate;worksheet, complete a schedule for determination and distribution of the excess;of cost over book value.;b. Complete;the Figure 2-3 worksheet for a consolidated balance sheet as of January 1;20X1.;6.;On January 1, 20X1, Parent Company purchased 80% of;the common stock of Subsidiary Company for $248,800. On this date, Subsidiary;had total owners' equity of $240,000.;On December;31, 20X4, Subsidiary Company had reported an operating loss before taxes of;$40,000. Assume a tax rate of 30%. Since a carryback of $20,000 was available;a tax refund receivable of $6,000 was recorded and a net-of-tax loss of $34,000;was reported. At the date of purchase, Parent Company has concluded that the;balance of the tax benefit of the operating loss will be realized in 20X1 when;a consolidated tax return is prepared.;On January;1, 20X1, the excess of cost over book value is due to the tax benefit above, to;a $5,000 undervaluation of Bonds Payable, to an undervaluation of land;building and equipment, and to goodwill. The fair value of land is $40,000. The;fair value of building and equipment is $200,000. The book value of the land is;$30,000. The book value of the building and equipment is $180,000.;Required;a.;From the information above and on the separate;worksheet, complete a schedule for determination and distribution of the excess;of cost over book value. Use the parent company concept (pro rata fair value;approach) in any revaluation of net assets.;b. Complete;the Figure 2-4 worksheet for a consolidated balance sheet as of January 1;20X1.;2-14;Chapter 2;7.;On January 1, 20X1, Parent Company purchased 100% of;the common stock of Subsidiary Company for $280,000. On this date, Subsidiary;had total owners' equity of $240,000.;On January;1, 20X1, the excess of cost over book value is due to a $15,000 undervaluation;of inventory, to a $5,000 overvaluation of Bonds Payable, and to an;undervaluation of land, building and equipment. The fair value of land is;$50,000. The fair value of building and equipment is $200,000. The book value;of the land is $30,000. The book value of the building and equipment is;$180,000.;Required;a.;Using the information above and on the separate;worksheet, complete a schedule for determination and distribution of the excess;of cost over book value.;b. Complete the Figure 2-5;worksheet for a consolidated balance;2-15;Chapter 2;sheet as of January 1, 20X1.;2-16;Chapter 2;8.;On January 1, 20X1, Parent Company purchased 90% of;the common stock of Subsidiary Company for $252,000. On this date, Subsidiary;had total owners' equity of $240,000.;On January;1, 20X1, the excess of cost over book value is due to a $15,000 undervaluation;of inventory, to a $5,000 overvaluation of Bonds Payable, and to an;undervaluation of land, building and equipment. The fair value of land is;$50,000. The fair value of building and equipment is $200,000. The book value;of the land is $30,000. The book value of the building and equipment is;$180,000.;Required;a.;From the information above and on the separate;worksheet, complete a schedule for determination and distribution of the excess;of cost over book value. Use the parent company concept (pro rata fair value;approach) in any revaluation of net assets.;b. Complete;the Figure 2-6 worksheet for a consolidated balance sheet as of January 1;20X1.;2-17;Chapter 2;ANS;a. Determination;and Distribution of Excess of Cost Over Book Value Schedule;Price paid for investment;in Subsidiary;$252,000;Company.............................;Less book value of;interest acquired;Common Stock........................;$ 50,000;Other Paid-in;Capital...............;70,000;Retained;Earnings...................;120,000;Total..............................;$240,000;216,000;Less Interest acquired..............;90%;Excess of cost over book;value;$ 36,000;(debit;balance).....................;========;Allocable to;$13,500;Dr.;Inventory;($15,000 x 90%)............;Discount on bonds payable;4,500;Dr.;($5,000 x;90%)......................;Remainder to other;long-lived assets;$18,000;Dr.;Land................................;14,400;Building............................;3,600;Dr.............................Goodwill;$;0;=======;Alternative 1;100% of Fraction;Total;Allocated;100% of;Asset;Fair;of Fair;Assigned;Assigned;Book;Value;Value;Value*;Value;Value;Land........;$ 50,000;1/5;$230,000;$ 46,000;$ 30,000;Building....;200,000;4/5;230,000;184,000;180,000;$250,000;$230,000;$210,000;========;========;========;Alternative 1 continued;90%;100%;Asset;Increase;Increase;(Decrease);(Decrease);Land........;$16,000;$14,400;Building....;4,000;3,600;$20,000;$18,000;=======;=======;*;If remaining allocable cost on a 90% purchase is;$18,000, it would be $20,000 on a 100% purchase. Book value of $210,000 must be;increased by $20,000 to get total allocable cost. Increase of decrease for 100%;purchase must then be multiplied by 90% to derive correct writeup.;2-18;Chapter 2;Alternative 2;Fraction;Total;Allocated;90% of;90%;90% of;Asset;Fair;of Fair;Assigned;Assigned;Book;Increase;Value;Value;Value**;Value;Value;(Decrease);Land;$ 45,000;1/5;$207,000;$ 41,400;$ 27,000;$14,400;Building;180,000;4/5;207,000;165,600;162,000;3,600;$225,000;$207,000;$189,000;$18,000;========;========;========;=======;**;The remaining allocable cost on a 90% purchase is;$18,000. The book value of the controlling interest in land and building is;$189,000 (90% of $210,000). This book value of $189,000 must be increased by;$18,000 to get the total assigned value.;b.;For the worksheet solution, please refer to Answer;2-6. Eliminations and Adjustments;(EL) Eliminate 90% of the subsidiary's;equity accounts against the investment in subsidiary account.;(D);Allocate the excess of cost over book value to net;assets as required by the determination and distribution of excess schedule.;DIF: D OBJ: 4, 5, 6, 7, 8;2-19;Chapter 2;9.;Consolidated;Pepper Co.;Salt Inc.;Financial;Cash;Statements;$ 26,000;$ 20,000;$ 46,000;Accounts Receivable, net;20,000;30,000;50,000;Inventory;125,000;110,000;270,000;Land;30,000;80,000;124,000;Building and Equipment;320,000;160,000;459,000;Investment in Subsidiary;279,000;-;-;Goodwill;-;-;41,000;Total Assets;$800,000;$400,000;$990,000;========;========;========;Accounts Payable;$;40,000;$;40,000;$;80,000;Other Liabilities;70,000;60,000;130,000;Common Stock;400,000;200,000;400,000;Retained Earnings;290,000;100,000;290,000;Noncontrolling Interest;-;-;90,000;Total Liabilities;$800,000;$400,000;$990,000;Stockholders' Equity;========;========;========;Answer the following based upon the above;financial statements;a.;How;much did Pepper Co. pay to acquire Salt Inc.?;b.;What percentage ownership did Pepper Co. acquire of;Salt Inc.?;c.;What was the fair value of Salt's Inventory at the;time of acquisition?;d.;Was the book value of Salt's Building and Equipment;overvalued or undervalued relative to the Building and Equipment's fair value;at the time of acquisition?;Chapter 2;10.;On January 1, 20X1, Parent Company acquired 80% of;the common stock of Subsidiary Company by issuing Parent common stock with a;fair value of $250,800. On this date, Subsidiary had total owners' equity of;$240,000.;Even though the combination must be accounted for as a purchase;it is a tax-free combination for Federal income tax purposes. The corporate tax;rate is 30%.;On January;1, 20X1, the excess of cost over book value is due to an undervaluation of;land, building, and goodwill. The fair value of land is $40,000. The fair value;of building is $200,000. The book value of the land is $30,000. The book value;of the building is $180,000.;Required;a.;From the information above and on the separate;worksheet, complete a schedule for determination and distribution of the excess;of cost over book value. Use the parent company concept (prorata fair value;approach) in any writeup of net assets.;b. Complete the;Figure 2-7 worksheet for a consolidated balance sheet as of January 1, 20X1.;2-21;Chapter 2;2-22

 

Paper#44353 | Written in 18-Jul-2015

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