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Data: ? On January 1, 2011, in a business comb...

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Data: ? On January 1, 2011, in a business combination Pepsi acquired 70% of Sprite Company. ? Pepsi issued 7,000 shares of its $5 par value common stock which was trading at $60 per share on 1/1/11. ? In addition, Pepsi paid cash of $35,000. ? On January 1, 2011, the following selected financial data related to Sprite Company is available. Sprite Co. Accounts Book Value Current Value Remaining Useful Life Inventory $110,000 $120,000 2 months Buildings and Equipment 700,000 770,000 14 years Patents 90,000 60,000 3 years Long-term Debt 500,000 475,000 2 years Common Stock 300,000 Retained Earnings 210,000 ? Just prior to the combination, Pepsi?s equity section contained the following accounts and amounts. Common stock $500,000 Additional paid-in capital 500,000 Retained earnings 360,000 Pepsi uses the equity method in accounting for the Investment in Sprite. For 2011, Pepsi and Sprite had the following earnings and dividends from their own (separate) operations. Pepsi?s data in the following table does not include any amounts related to the Investment in Sprite. EARNINGS AND DIVIDENDS PEPSI SPRITE Sales $2,200,000 $1,400,000 Cost of sales and expenses 1,700,000 1,300,000 Dividends declared 320,000 70,000 Dividends paid 320,000 25,000 At 12/31/2011, the following accounts, among others that are not given, appear in the balance sheets of Pepsi and Sprite. Use these accounts and amounts as given. Do not change the balances in these accounts, but use them as given for the first two amount columns of the worksheet to consolidate the financial statements of Pepsi and Sprite. SELECT ACCOUNTS PEPSI SPRITE Current assets $1,461,000 $475,000 Land 700,000 200,000 Buildings and equipment (net) 2,400,000 650,000 Patents 0 75,000 Accrued liabilities 907,000 360,000 Long-term debt 2,100,000 500,000 Common stock 300,000 Retained earnings 240,000 Requirements: 1. Compute the cost of Pepsi?s Investment in Sprite at 1/1/11. 2. Analyze the cost of Pepsi?s Investment in Sprite and determine the Noncontrolling interest in Sprite at 1/1/11. 3. Create an Amortization Schedule for Differences between Cost and Book Value for 2011. 4. Create a Schedule for the Unamortized Difference between Cost and Book Value at 1/1/11 and at 12/31/11. 5. Prepare the following journal entries: a. 1/1/11: Pepsi?s journal entry to record the acquisition of Sprite Co. stock. b. During 2011: Pepsi?s journal entries for the following: i. To record the Equity in Sprite?s Earnings ii. To record amortization of the difference between cost and book value. iii. To record dividends declared by Sprite. 6. Prove Pepsi?s balance in the Equity in Sprite?s Earnings account at 12/31/11. 7. Prove Pepsi?s balance in the Investment in Sprite account at 12/31/11 two ways. a. Through the changes in Pepsi?s ledger account for the Investment in Sprite. b. By comparison to Sprite?s owners? equity balance at 12/31/11. 8. Prove the balance in the worksheet account created for the Noncontrolling Interest in Sprite?s Earnings for 2011. 9. Prove the balance in the worksheet account created for the Noncontrolling Interest in Sprite at 12/31/11. a. Through the changes in Sprite?s equity during 12/31/11. b. By comparison to Sprite?s owners? equity balance at 12/31/11. 10. Prepare a three-tiered Consolidation Worksheet for Pepsi and Sprite at 12/31/11. Hints: ? Goodwill should equal $65,000. ? Sprint did not pay all the dividends declared. Sprint?s accrued liabilities include the portion not paid. Do not change the balance given for Sprint?s accrued liabilities. The portion of the liability payable to Pepsi in an intra-entity (or intercompany) liability and that must be eliminated in consolidation. Apply the same logic to Pepsi?s current assets. Do not change the balance given for Pepsi?s current assets. Your grade on this exam is affected by the quality and thoroughness of your presentations with respect to the requirements listed above.

 

Paper#7551 | Written in 18-Jul-2015

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