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Question;17.;On January 1, 20X7, Parent Company purchased 80% of;the common stock of Subsidiary Company for \$402,000. On this date Subsidiary;had total owners' equity of \$440,000.;Any;excess of cost over book value is due to goodwill.;During 20X7 and 20X8, Parent has appropriately accounted for its;investment in Subsidiary using the simple equity method.;On January;1, 20X8, Parent held merchandise acquired from Subsidiary for \$30,000. During;20X8, Subsidiary sold merchandise to Parent for \$100,000, of which \$50,000 is;held by Parent on December 31, 20X8. Subsidiary's usual gross profit on;affiliated sales is 40%.;On December 31, 20X8, Parent still owes Subsidiary \$10,000 for;merchandise acquired in December.;On December;31, 20X7, Parent sold \$100,000 par value of 11%, 10-year bonds for \$106,232;which resulted in an effective interest rate of 10%. The bonds pay interest;semi-annually on June 30 and December 31. Parent uses the effective interest;method of amortization for the premium.;An amortization table for 20X2 is presented;below;Carrying;Carrying;Effective;Interest;Nominal;Premium;Value on;Value;Interest;Expense;Interest;Write-off;12-31-X7;\$106,232;5%;\$5,312;\$5,500;-;\$188;6-30-X8;-;188;5%;5,302;5,500;-;198;-;106,044;12-31-X8;198;\$105,846;========;On December;31, 20X8, Subsidiary repurchased \$50,000 par value of the bonds, paying a price;equal to par.;Required;Complete;the Figure 5-16 worksheet for consolidated financial statements for the year;ended December 31, 20X8. Round all computations to the nearest dollar.;5-37;Chapter 5;18.;On January 1, 20X7, Parent Company purchased 80% of;the common stock of Subsidiary Company for \$402,000. On this date Subsidiary;had total owners' equity of \$440,000. Any excess of cost over book value is due;to goodwill.;During 20X7, 20X8, and 20X9, Parent has appropriately accounted;for its investment in Subsidiary using the simple equity method.;On January;1, 20X9, Parent held merchandise acquired from Subsidiary for \$50,000. During 20X9;Subsidiary sold merchandise to Parent for \$120,000, of which Parent holds;\$30,000 on December 31, 20X9. Subsidiary's gross profit on sales is 40%. On;December 31, 20X9, Parent still owes Subsidiary \$5,000 for merchandise.;On December;31, 20X9, Parent sold \$100,000 par value of 11%, 10-year bonds for \$106,232;which resulted in an effective interest rate of 10%. The bonds pay interest;semi-annually on June 30 and December 31. Parent uses the effective-interest;method of amortization for the premium.;An amortization table for 20X2 and 20X3 is;presented below;Carrying;Carrying;Effective;Interest;Nominal;Premium;Value on;Value;Interest;Expense;Interest;Write-off;12-31-X7;\$106,232;5%;\$5,312;\$5,500;-;\$188;6-30-X8;-;188;5%;5,302;5,500;-;198;-;106,044;12-31-X8;198;5%;5,292;5,500;-;208;-;105,846;6-30-X9;208;5%;5,282;5,000;-;218;-;105,638;12-31-X9;218;\$105,420;========;On December;31, 20X8, Subsidiary repurchased \$50,000 par value of the bonds, paying a price;equal to par. The bonds are still held on December 31, 20X9.;On December;31, 20X9, Parent sold equipment with a cost of \$50,000 and accumulated;depreciation of \$30,000 to Subsidiary for \$40,000. Subsidiary will use the;equipment beginning in 20X0.;Required;Complete;the Figure 5-17 worksheet for consolidated financial statements for the year;ended December 31, 20X9. Round all computations to the nearest dollar.;5-38;Chapter 5;5-39;Chapter 5;19.;On January 1, 20X7, Parent Company purchased 80% of;the common stock of Subsidiary Company for \$402,000. On this date Subsidiary;had total owners' equity of \$440,000 including retained earnings of \$140,000.;Any excess of cost over book value is due to goodwill.;During 20X7, 20X8, and 20X9, Parent has appropriately accounted;for its investment in Subsidiary using the cost method.;On January;1, 20X9, Parent held merchandise acquired from Subsidiary for \$50,000. During;20X9, Subsidiary sold merchandise to Parent for \$120,000, of which \$30,000 is;held by Parent on December 31, 20X9. Subsidiary's usual gross profit on;affiliated sales is 40%. On December 31, 20X9, Parent still owes Subsidiary;\$5,000 for merchandise acquired in December.;On December;31, 20X7, Parent sold \$100,000 par value of 10%, 10-year bonds for \$102,000.;Parent uses the straight-line method of amortization for the premium. The bonds;pay interest semi-annually on June 30 and December 31.;On December;31, 20X8, Subsidiary repurchased \$50,000 par value of the bonds, paying;\$49,100. Subsidiary uses the straight-line method of amortization for the;discount. The bonds are still held on December 31, 20X9.;Required;Complete;the Figure 5-18 worksheet for consolidated financial statements for the year;ended December 31, 20X9. Round all computations to the nearest dollar.;5-40;Chapter 5;5-41;Chapter 5;ESSAY;1.;The Park Company owns 80% of the outstanding common;stock of the Sea Company. Park is about to lease a machine with a 5-year life;to the Sea Company. The lease would begin January 1, 20X8.;Required;Explain the adjustments that will be required in the;consolidation process if each of the following occurs.;a. The lease is an operating;lease.;b. The lease;is a direct financing lease with a bargain purchase option.;c. The lease;is a sales-type lease with a bargain purchase option.

Paper#44461 | Written in 18-Jul-2015

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