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Question;2.;On January 1, 20X1, Pepper Company purchased 100% of;the common stock of Salt Company for $360,000. On this date, Salt had common;stock, other paid-in capital, and retained earnings of $50,000, $100,000 and;$150,000 respectively. Net income and dividends for two years for Salt Company;were:..................................;Net income;20X1;20X2;$60,000;$90,000;Dividends...................................;20,000;30,000;On January;1, 20X1, the only tangible assets of Salt which were undervalued were inventory;and building. Inventory, for which FIFO is used, was worth $10,000 more than;cost. The inventory was sold in 20X1. Buildings had a fair value of $320,000, a;remaining life of 10 years and straight-line depreciation is used. The book;value of the land and building are $50,000 and $260,000 respectively. Patent;if any, is to be amortized over 10 years.;Pepper uses;the simple equity method in accounting for its Investment in Salt Company.;3-10;Chapter 3;Required;a.;Using the information above or on the separate;worksheet, prepare a determination and distribution of excess schedule.;b. Complete;the Figure 3-2 worksheet for consolidated financial statements for 20X2.;3.;On January 1, 20X1, Parent Company acquired 100% of;the common stock of Subsidiary Company for a cost of $294,000 in a tax-free;combination. On this date, Subsidiary had total owner's equity of $220,000. The;excess of cost over book value is due to the undervaluation of inventory, other;long-term investments, equipment, and patent.;The;inventory is worth $10,000 more than book value and FIFO is used. The inventory;was sold during 20X1. The other long-term investments of Subsidiary are worth;$20,000 more than book value and are carried under the cost method. The;equipment is worth $30,000 more than book value, has a remaining useful life of;10 years, with no salvage value, and straight-line depreciation is used. The;patent is to be amortized over 20 years. The corporate tax rate is 30%.;During 20X1;Subsidiary had net income after taxes of $42,000 and in December, paid;dividends of $20,000. As a result, the appropriate entries were made on;Parent's books under the equity method.;Required;a. Prepare a;schedule to determine and distribute the excess of cost over book value to;assets and to related deferred taxes. Include computations for the write off of;the asset increases and the related tax effect.;b. Complete;the worksheet in Figure 3-3 for consolidated financial statements for 20X1.;3-12;Chapter 3;4.;On January 1, 20X1, Port Company purchased 80% of;the common stock of Star Company for $400,000. On this date, Star had common;stock, other paid-in capital, and retained earnings of $10,000, $140,000 and;$200,000 respectively. Net income and dividends for two years for Star Company;were:.................................;Net income;20X1;20X2;$50,000;$90,000;Dividends..................................;10,000;30,000;On January;1, 20X1, the only tangible assets of Star which were undervalued were inventory;and building. Inventory, for which FIFO is used, was worth $10,000 more than;cost. The inventory was sold in 20X1. Building, which was worth $27,500 more;than book value, has a remaining life of 10 years, and straight-line;depreciation is used. Patent, if any, is to be amortized over 10 years.;3-14;Chapter 3;Required;a.;From the information above or on the separate;vertical-form worksheet, prepare a determination and distribution of excess;schedule. Use the parent company concept (pro rata fair value approach) in any;write-up of assets.;b.;Port Company carries the Investment in Star Company;under the simple equity method. In general journal form, record the entries;that would be made to apply the equity method in 20X1 and 20X2.;c. Complete;the Figure 3-4 worksheet for consolidated financial statements for 20X2.;5.;The Paris Company purchased an 80% interest in Seine;Inc. for $600,000 on July 1, 20X1, when Seine had the following balance sheet;Assets;$;50,000;Accounts;receivable....................................;Inventory..............................................;120,000;Land...................................................;80,000;Building...............................................;270,000;Equipment..............................................;80,000................................................Total;$600,000;========;Liabilities;and Equity;$100,000;Current;liabilities....................................;Common stock, $5;par...................................;50,000;Paid-in capital in excess of;par.......................;150,000;Retained earnings -;7/1................................;300,000;Total................................................;$600,000;========;The;inventory is understated by $20,000 and is sold in the third quarter of 20X1.;The building has a fair value of $320,000 and a 10-year remaining life. The;equipment has a fair value of $120,000 and a remaining life of 5 years. Any;remaining excess is attributed to patent with a 20-year life.;On December 31, 20X4, Seine has the following;stockholders' equity;Common Stock, $5;par...................................;$;50,000;3-16;Chapter 3;Paid-in capital in excess;of par.......................;150,000;Retained;earnings......................................;600,000;During;20X1, Seine had a net income of $100,000 and paid $10,000 in dividends.;Assume that;Paris uses the cost method to record its investment in Seine.;Required;a. Prepare a;determination and distribution of excess schedule as of July 1, 20X1.;b.;Prepare the cost to equity conversion adjustment;that would be made on the December 31, 20X1, consolidated trial balance;worksheet.;c. Prepare the;eliminations and adjustments that would be made on the December 31, 20X1;consolidated worksheet to eliminate the investment in Seine. Distribute and;amortize any excess.;6.;On January 1, 20X1, Parent Company purchased 100% of;the common stock of Subsidiary Company for $360,000. On this date, Subsidiary;had common stock, other paid-in capital, and retained earnings of $50,000;$100,000 and $150,000 respectively. Net income and dividends for two years for;Subsidiary Company were:.................................;Net income;20X1;20X2;$60,000;$90,000;Dividends..................................;20,000;30,000;On January;1, 20X1, the only tangible assets of Subsidiary which were undervalued were;inventory and building. Inventory, for which FIFO is used, was worth $10,000;more than cost. The inventory was sold in 20X1. Land had a fair value of;$80,000. Buildings had a fair value of $320,00, a remaining life of 10 years;and straight-line depreciation is used. The book value of the land and building;are $50,000 and $260,000 respectively. Patent, if any, is to be amortized over;10 years.;Parent uses;the simple equity method in accounting for its Investment in Subsidiary Company.;3-18;Chapter 3;Required;a.;Using the information above or on the separate;worksheet, prepare a determination and distribution of excess schedule.;b. Complete;the Figure 3-5 worksheet for consolidated financial statements for 20X2.;7.;The Paris Company purchased an 80% interest in;Seine, Inc. for $600,000 on July 1, 20X1, when Seine had the following balance;sheet;Assets;$;50,000;Accounts;receivable....................................;Inventory..............................................;120,000;Land...................................................;80,000;Building...............................................;270,000;Equipment..............................................;80,000................................................Total;$600,000;========;Liabilities;and Equity;$100,000;Current;liabilities....................................;Common stock, $5;par...................................;50,000;Paid-in capital in excess of;par.......................;150,000;Retained earnings -;7/1................................;300,000;Total................................................;$600,000;========;The;inventory is understated by $20,000 and is sold in the third quarter of 20X1.;The building has a fair value of $320,000 and a 10-year remaining life. The;equipment has a fair value of $120,000 and a remaining life of 5 years. Any;remaining excess is attributed to patent with a 20-year life.;On December 31, 20X4, Seine has the following;stockholders' equity;Common stock, $5;par...................................;$;50,000;Paid-in capital in excess;of par.......................;150,000;3-20;Chapter 3;Retained;earnings......................................;600,000;During;20X1, Seine had a net income of $100,000 and paid $10,000 in dividends.;Assume that;Paris uses the sophisticated equity method to record its investment in Seine.;Required;a. Prepare a;determination and distribution of excess schedule as of July 1, 20X1.;b. Prepare the;eliminations and adjustments that would be made on the December 31, 20X1;consolidated worksheet to eliminate the investment in Seine. Distribute and;amortize any excess.;8.;On January 1, 20X1, Parent Company purchased 80% of;the common stock of Subsidiary Company for $316,000. On this date, Subsidiary;had common stock, other paid-in capital, and retained earnings of $40,000;$120,000, and $190,000, respectively. Net income and dividends for 2 years for;Subsidiary Company were as follows:.................................;Net income;20X1;20X2;$50,000;$90,000;Dividends..................................;10,000;20,000;On January 1, 20X1, the only tangible assets of Subsidiary which;were undervalued were inventory and building. Inventory, for which FIFO is;used, was worth $5,000 more than cost. The inventory was sold in 20X1.;Building, which was worth $15,000 more than book value, has a remaining life of;8 years, and straight-line depreciation is used. Patent, if any, is to be;amortized over 10 years.;Required;a.;Using the information above or on the separate;worksheet, prepare a determination and distribution of excess schedule. Use the;parent company concept (prorata fair value approach) in any write-up of assets.;b.;Parent Company carries the Investment in Subsidiary;Company under the sophisticated equity method. In general journal form, record;the entries that would be made to apply the equity method in 20X1 and 20X2.;c.;Compute the balance which should appear in Investment;in Subsidiary Company and in Subsidiary Income on December 31, 20X2 (the second;year. Fill in these amounts on Parent Company's trial balance for 20X2.;d. Complete;the Figure 3-6 worksheet for consolidated financial statements for 20X2.;3-22;Chapter;3;a. Determination and;Distribution of Excess Schedule;Price paid for investment in;$316,000;Subsidiary Company...................;ANS;9.;Puddle Corporation acquired 90% of Suds Company's;common stock on January 1, 20X1 for $32,000 cash when Sud's stockholders;equity;consisted of;Common Stock;$20,000 Retained Earnings $ 4,000;A;determination and distribution schedule was prepared for the difference between;the price paid by Puddles and the underlying equity acquired in Suds with the;excess of cost over book value being allocated as;Inventory;(undervalued);$;400;Building;Equipment (undervalued);2,000;Patent;8,000;Allocated;excess cost over book value;$10,400;=======;The;inventory was sold during 20X1, and the building and equipment are being depreciated;for 5 years using the straight-line method. The Patent is expected to have a;10-year useful life.;3-24;Chapter 3;Required;The;separate December 31, 20X1 financial statements for Puddle and Suds is provided;on worksheet 3-7. Based upon this information answer the following questions.;a.;Which method to account for its investment in Suds;is Puddle using? Provide supporting computations?;b.;What advantage does Puddle have in using this;method?;c.;What is a disadvantage for Puddle in using this;method?;d.;What amount is reported for Consolidated Net Income?;e. What amount;is reported for Dividends Declared on the Consolidated Statement of Retained;Earnings?;f. What amount;is reported on the December 31, 20X1 consolidated financial statements for;Noncontrolling Interest?;You do not;have to complete the worksheet but it may be helpful to answer the questions.;10.;The Paris Company purchased an 80% interest in;Seine, Inc. for $550,000 on July 1, 20X1, when Seine had the following balance;sheet;Assets;$;50,000;Accounts;receivable....................................;Inventory..............................................;120,000;Land...................................................;80,000;Building...............................................;270,000;Equipment..............................................;80,000................................................Total;$600,000;========;Liabilities;and Equity;$100,000;Current;liabilities....................................;Common stock, $5;par...................................;50,000;Paid-in capital in excess of;par.......................;150,000;Retained earnings -;7/1................................;300,000;Total................................................;$600,000;========;The;inventory is understated by $20,000 and is sold in the third quarter of 20X1.;The building has a fair value of $320,000 and a 10-year remaining life. The;equipment has a fair value of $120,000 and a remaining life of 5 years. Any;remaining excess is attributed to patent with a 20-year life.;On December 31, 20X4, Seine has the following;stockholders' equity;Common stock, $5;par...................................;$;50,000;Paid-in;capital-in excess of par.......................;150,000;Retained;earnings......................................;600,000;During;20X1, Seine had a net income of $100,000 and paid $10,000 in dividends.;Assume that;Paris uses the simple equity method to record its investment in Seine.;Required;a. Prepare a;determination and distribution of excess schedule as of July 1, 20X1.;b. Prepare the;eliminations and adjustments that would be made on the December 31, 20X1;consolidated worksheet to eliminate the investment in Seine. Distribute and;amortize any excess.;3-26;Chapter 3

 

Paper#44360 | Written in 18-Jul-2015

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