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Question;1.;Two types of intercompany stock purchases;significantly complicate the consolidation process. The first occurs when the;subsidiary issues added shares of stock in a public issue and the parent buys a;portion of the shares. The second occurs when the subsidiary purchases;outstanding shares of the parent company.;Required;a.;Discuss the current theoretical consolidation;procedure for situations in which the parent buys a portion of the newly issued;subsidiary shares that is (1) equal to its existing ownership percentage, (2);greater than its existing ownership percentage, and (3) less than its existing;ownership percentage.;b.;Discuss the most widely supported, current;theoretical consolidation procedures used when the subsidiary purchases;outstanding common stock shares of the parent.;8-10;Chapter 8;2.;Company P owned an 80% interest in Company S on January;1, 20X6, when Company S had the following stockholders' equity;Common stock ($20;par)................................;$180,000;Paid-in capital in excess of;par......................;350,000;Retained;earnings.....................................;220,000;Total stockholders;equity..........................;$750,000;========;On July 1;20X6, Company S sold 1,000 additional shares to minority shareholders in a;public offering for $50 per share. Company S's net income for 20X6 was $80,000;and the income was earned evenly during the year.;Company P uses the simple equity method to record the investment;in Company S. Summary entries are made each December 31 to record the year's;activity.;Required;Prepare Company P's equity adjustments for 20X6 that result from;changes in the investment in Company S account. Assume Company P has $500,000;of paid-in capital in excess of par.;8-11;Chapter 8;3.;Company P purchased an 80% interest in Company S on;January 1, 20X1, for $300,000. Any excess of cost was attributable to goodwill.;On January;1, 20X4, Company S purchased 2,400 shares held by noncontrolling stockholders;for $50 per share. Any excess of cost over book value is attributable to;goodwill. No other changes to the paid-in capital account have occurred.;Company S equity balances on various dates;were as follows:...;January;1;December;31;December;31;Capital stock ($10 par);20X1;20X3;20X5;$120,000;$120,000;$120,000;Paid-in;capital in excess;60,000;60,000;60,000;of par..................;Retained earnings.........;160,000;240,000;340,000;Treasury stock (at cost)..;(120,000);Company P;maintains its investment at cost. Company S recorded the purchase of its shares;as treasury stock at cost.;Required;Prepare the;necessary determination and distribution of excess schedules and all Figure 8-1;worksheet eliminations and adjustments on the following partial worksheet;prepared on December 31, 20X6;4.;Company B purchased an 80% interest in the common;stock of Company C for $600,000 on January 1, 20X1. Any excess of cost is;attributable to a patent with a 20-year life. Company B maintains its;investment in Company C under the cost method.;Company A;purchased a 60% interest in the common stock of Company B on January 1, 20X5;for $2,500,000. Any excess of cost is attributable to Company C equipment;which is understated by $100,000, and a Company B building, which is;understated by $200,000. Any remaining excess is considered attributable to the;patent. Relevant stockholders' equities are as follows:............;Company B;Company C;January 1;January 1;January 1;Common stock;20X5;20X1;20X5;$;400,000;$100,000;$100,000;Paid-in;capital in;1,100,000;150,000;150,000;excess of par.........;Retained earnings.......;2,000,000;300,000;450,000;Required;a. Prepare a;determination and distribution of excess schedule for the investment in Company;B.;b. On January;1, 20X6, Company C sold a machine with a net book value of $40,000 to Company A;for $50,000. The machine has a 5-year life. Prepare the eliminations and adjustments;needed on the December 31, 20X7, trial balance worksheet that relate to this;intercompany sale.;8-13;Chapter 8;5.;Company P purchased an 80% interest in the Company S;for $480,000 on January 1, 20X1, when Company S had the following stockholders;equity;Common stock, $10;par..................................;$200,000;Retained earnings......................................;300,000;Total equity.........................................;$500,000;========;Any excess is attributable to goodwill.;On January;1, 20X3, Company S purchased a 10% interest in the Company P at a price equal;to book value. Both firms maintain investments under the cost method.;8-14;Chapter 8;Required;a.;Complete the Figure 8-2 partial worksheet for;December 31, 20X3, assuming the use of the treasury stock method.;b.;Calculate the distribution of income for 20X3;assuming that internally generated net income is $50,000 for Circus and $20,000;for Square.;6.;On January 1, 20X1, Prism Company purchased 7,500;shares of the common stock of Sight Company for $495,000. On this date, Sight;had 20,000 shares of $10 par common stock authorized, 10,000 shares issued and;outstanding. Other paid-in capital and retained earnings were $200,000 and;$300,000 respectively. On January 1, 20X1, any excess of cost over book value;is due to a patent, to be amortized over 15 years.;Sight's;net income and dividends for two years were:..................................;Net income;20X1;20X2;$50,000;$80,000;Dividends...................................;10,000;20,000;In;November, 20X1, Sight Company also declared a 10% stock dividend at a time when;the market price of its common stock was $50 per share. The stock dividend was;distributed on December 31, 20X1.;For both;20X1 and 20X2, Prism Company has accounted for its investment in Sight Company;using the simple equity method.;During 20X1, Sight Company sold goods to Prism Company for;$40,000, of which $10,000 was on hand on December 31, 20X1. During 20X2, Sight;sold goods to Prism for $60,000 of which $15,000 was on hand on December 31;20X2. Sight's gross profit on intercompany sales is 40%.;8-15;Chapter;8;Required;Complete the Figure 8-3 worksheet for consolidated financial;statements for 20X2.

 

Paper#44383 | Written in 18-Jul-2015

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