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Question 1 Alpha Corporation acquired 75% of Beta...

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Question 1 Alpha Corporation acquired 75% of Beta Corporation?s common stock for $20,100,000 on January 2, 2011. The estimated fair value of the noncontrolling interest was $5,900,000. Beta?s book value at date of acquisition was $10,000,000, and its identifiable net assets were fairly stated except for previously unreported completed technology, valued at $4,000,000, with a remaining life of 5 years, straight-line. It is now December 31, 2014, and you are preparing consolidated financial statements for Alpha and Beta. Following is information on intercompany transactions: 1. On January 2, 2012, Alpha sold equipment to Beta for $6 million and recorded a gain of $2 million. The equipment had a remaining life of 10 years at that time. 2. Beta supplies Alpha with component parts for its products, at a markup of 20% on cost. During 2014, Beta made sales totaling $20 million to Alpha. Alpha had parts purchased for $1.8 million and $2.4 million in its 2014 beginning and ending inventory balances, respectively (Hint: $1.8 million is the unsold inventory from last year and $2.4 is the unsold inventory of this year). 3. Alpha sells materials to Beta for use in its manufacturing processes, at a markup of 20% on selling price. During 2014, Alpha made sales totaling $15 million to Beta. Beta had materials purchased for $3 million and $2.8 million in its 2014 beginning and ending inventory balances, respectively. (Hint: $3 million is the unsold inventory from last year and $2.8 is the unsold inventory of this year). Goodwill arising from this acquisition was impaired by $3 million during the years 2011-2013, and no further goodwill impairment occurred in 2014. The separate December 31, 2014 trial balances of Alpha and Beta appear below, before Alpha?s end-year-adjustment to record its equity in Beta?s income for 2014. Balance Sheet at December 31, 2014 Alpha Beta Cash 1,000 2,500 A/R, net 5,600 10,000 Inventories 70,000 30,000 Plant and Equipment, net 460,000 150,000 Investment in Beta 20,225 Total Assets 556,825 192,500 Current Liabilities 4,000 2,800 Long-term debt 489,825 163,700 Capital Stocks 5,000 2,000 Retained earnings, January 1 90,000 20,000 Dividend (40,000) (3,000) Net Income 8,000 7,000 Total equities 556,825 192,500 Income Statement 2014 Alpha Beta Sales 150,000 50,000 Cost of Sales (100,000) (35,000) Other Expenses (42,000) (8,000) Income from Sandbar Net Income 8,000 7,000 Required: 1. Determine the Goodwill assigned to Non-controlling interest at the acquisition date (2 points). 2. Determine the balance for the account ?Investment in Beta? at December 31, 2014 after Alpha?s end-year-adjustment to record its equity in Beta?s income for 2014 (Hint: Dividend adjustment is already included in the balance of investment). Show your calculations (3 points). 3. Determine the balance of the account ?Equity in Beta?s Income? for the year 2014. Show your calculations (2 points). 4. Calculate the balance of NCI at December 31, 2014. Provide detail calculations of the three components of this balance (3 points). 5. Prepare consolidation adjustment entries (15 points). 6. Complete a consolidated worksheet for Alpha Corporation and its subsidiary Beta as of December 31, 2014. Use the format provided in the next page (You can write your own Excel worksheet, but with the indicated format) (15 points). Question 2 Delta Company acquired 90% of the outstanding common stocks of Gamma Company on June 30, 2011, for $426,000. On that date, Gamma Company had retained earnings in the amount of $60,000, and the fair value of its recorded assets and liabilities was equal to their book value. The excess of implied over fair value of the recorded net assets was attributed to an unrecorded manufacturing formula held by Gamma Company, which had an expected remaining useful life of five years from June 30, 2011. Financial data for 2013 are presented here: Balance Sheet at December 31, 2013 Delta Gamma Cash 119,500 132,500 A/R, net 342,000 125,000 Inventories 362,000 201,000 Other Current Assets 40,500 13,000 Land 150,000 Plant and Equipment 825,000 241,000 Accumulated Depreciation (207,000) (53,500) Investment in Gamma 524,250 Total Assets 2,156,250 659,000 Accounts Payable 295,000 32,000 Other Liabilities 43,000 19,000 Capital Stocks 1,000,000 300,000 APIC 50,000 Retained earnings, January 1 591,200 139,500 Dividend (100,000) (60,000) Net Income 327,050 178,500 Total equities 2,156,250 659,000 Income Statement 2013 Delta Gamma Sales 2,555,500 1,120,000 Cost of Goods Sold (1,730,000) (690,500) Other Expenses (654,500) (251,000) Equity in Gamma's Income 156,050 Net Income 327,050 178,500 On December 31, 2011, Delta Company sold equipment (with an original cost of $100,000 and accumulated depreciation of $50,000) to Gamma Company for $97,500. This equipment has since been depreciated at an annual rate of 20% of the purchase price. During 2012 Gamma Company sold land to Delta Company at a profit of $15,000. The inventory of Delta Company on December 31, 2012, included goods purchased from Gamma Company on which Gamma Company recognized a profit of $7,500. During 2013, Gamma Company sold goods to Delta Company for $375,000, of which $60,000 was unpaid on December 31, 2013. The December 31, 2013, inventory of Delta Company included goods acquired from Gamma Company on which Gamma Company recognized a profit of $10,500. Required: 1. Determine the Goodwill assigned to Non-controlling interest at the acquisition date (2 points). 2. Calculate the balance of NCI at December 31, 2013. Provide detail calculations of the three components of this balance (3 points). 3. Prepare consolidation adjustment entries (15 points) 4. Complete a consolidated worksheet for Delta Company and its subsidiary Gamma Company as of December 31, 2013. Use the format provided in the next page (You can write your own Excel worksheet, but with the indicated format) See attached file

 

Paper#5117 | Written in 18-Jul-2015

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