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[answered] AC425 Advanced Accounting Chapters 1 - 5 1. (100 points) Th


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AC425 Advanced Accounting

 

Chapters 1 ? 5 1. (100 points) The Paris Company purchased an 80% interest in Seine, Inc. for $600,000 on July 1,

 

20X5, when Seine had the following balance sheet:

 

Assets Accounts receivable

 

Inventory

 

Land

 

Building

 

Equipment

 

Total $ 50,000

 

120,000

 

80,000

 

270,000

 

80,000

 

$600,000

 

Liabilities and Equity Current liabilities

 

Common stock, $5 par

 

Paid-in capital in excess of par

 

Retained earnings (July 1)

 

Total $100,000

 

50,000

 

150,000

 

300,000

 

$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 goodwill.

 

From July 1 through December 31, 20X5, Seine had 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, 20X5 at

 

acquisition based on all information presented in this problem. b. Prepare the eliminations and adjustments that would be made on the June 30, 2016,

 

consolidated worksheet to eliminate the investment in Seine. Distribute and amortize any

 

excess. ANS:

 

a. Determination and distribution of excess schedule as of July 1, 20X5 at acquisition:

 

Company

 

Implied Fair Parent Price NCI Value Value

 

Fair value of subsidiary

 

Less book value:

 

C Stk

 

APIC

 

R/E

 

Total S/E

 

Interest Acquired

 

Book value

 

Excess of fair over book

 

Adjust identifiable accounts:

 

Inven

 

Building

 

Equipment

 

Goodwill

 

Total Life

 

[sold in third

 

quarter]

 

10

 

5 Amort/Year 250,000 b. Eliminations and adjustments for the June 30, 2016 consolidating worksheet

 

CV Investment in Subsidiary*

 

R/E-Par CY2 Investment in Subsidiary

 

Dividends Declared-Sub EL C Stk-Sub

 

APIC-Sub

 

R/E-Sub

 

Investment in Sub D Cost of Goods Sold

 

Building

 

Equipment

 

Goodwill

 

Investment in Sub

 

R/E-Sub (NCI) A Dep Exp

 

A/D-Building

 

Dep Exp

 

A/D-Equipment Debit

 

n/a Credit

 

n/a *conversion from cost to simple equity not required at end of first year 5,000

 

8,000 DIF: M OBJ: 3-3 | 3-5 2. (100 points) On January 1, 20X1, Prange Company acquired 100% of the common stock of Seaman

 

Company for $600,000. On this date Seaman had total owners' equity of $400,000. Any excess of cost

 

over book value is attributable to a patent, which is to be amortized over 10 years.

 

During 20X1 and 20X2, Prange has appropriately accounted for its investment in Seaman using the

 

simple equity method.

 

On January 1, 20X2, Prange held merchandise acquired from Seaman for $30,000. During 20X2, Seaman

 

sold merchandise to Prange for $100,000, of which $20,000 is held by Prange on December 31, 20X2.

 

Seaman's gross profit on all sales is 40%.

 

On December 31, 20X2, Prange still owes Seaman $20,000 for merchandise acquired in December.

 

Required:

 

Complete the Figure 4-1 worksheet for consolidated financial statements for the year ended December 31,

 

20X2.

 

Figure 4-1 Account Titles

 

Inventory, December 31

 

Other Current Assets

 

Investment in Sub. Company Trial Balance

 

Prange

 

Seaman

 

Company

 

Company

 

100,000

 

105,000

 

207,000

 

325,000

 

710,000 Land

 

Buildings and Equipment

 

Accumulated Depreciation

 

Patent 140,000

 

315,000

 

(220,000)

 

20,000 80,000

 

340,000

 

(130,000) Current Liabilities

 

Bonds Payable

 

Other Long-Term Liabilities (150,000) (70,000)

 

(100,000)

 

(40,000) Common Stock?P Co.

 

Other Paid in Capital?P Co.

 

Retained Earnings?P Co. (200,000)

 

(100,000)

 

(492,000) (200,000) Common Stock?S Co.

 

Other Paid in Capital?S Co.

 

Retained Earnings?S Co. Net Sales

 

Cost of Goods Sold (150,000)

 

(100,000)

 

(200,000) (600,000)

 

360,000 (380,000)

 

228,000 Debit Operating Expenses 140,000 Subsidiary Income

 

Dividends Declared?P Co.

 

Dividends Declared?S Co. (90,000)

 

60,000 62,000 30,000 Consolidated Net Income

 

NCI

 

Controlling Interest

 

Total NCI

 

Ret. Earn. Contr. Int. 12-31

 

0

 

(continued) 0 Account Titles

 

Inventory, December 31

 

Other Current Assets

 

Investment in Sub. Company Land

 

Buildings and Equipment

 

Accumulated Depreciation

 

Patent

 

Current Liabilities

 

Bonds Payable

 

Other Long-Term Liabilities

 

Common Stock?P Co.

 

Other Paid in Capital?P Co.

 

Retained Earnings?P Co. Common Stock?S Co.

 

Other Paid in Capital?S Co.

 

Retained Earnings?S Co. Net Sales

 

Cost of Goods Sold

 

Operating Expenses

 

Subsidiary Income

 

Dividends Declared?P Co.

 

Dividends Declared?S Co. Consolidated Net Income

 

NCI

 

Controlling Interest

 

Total NCI

 

Ret. Earn. Contr. Int. 12-31 Consol.

 

Income

 

Statement NCI Control.

 

Retained

 

Earnings Consol.

 

Balance

 

Sheet Eliminations and Adjustments: (with correct data for roadmap purposes)

 

(CY) Eliminate the current-year entries made in the investment account and in the subsidiary

 

income account. (EL) Eliminate the Seaman Company equity balances at the beginning of the year against the

 

investment account. (D) Distribute the $200,000 excess of cost over book value to patent. (A) Amortize the patent over 10 years, with $20,000 for 20X1 charged to retained earnings,

 

and $20,000 for 20X2 to operating expenses. (BI) Eliminate the $12,000 of gross profit in the beginning inventory. (IS) Eliminate the entire intercompany sales of $100,000. (EI) Eliminate the $8,000 of gross profit in the ending inventory. (IA) Eliminate the $20,000 intercompany accounts receivable and payable. DIF: M OBJ: 4-2 MSC: 100%; simple equity

 


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