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[answered] Mergers and Acquisitions: ACC 4520 - Fall 2016 Exam I Secti


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Mergers and Acquisitions: ACC 4520 - Fall 2016

 

Exam I

 

Section

 

One Description

 

Equity method Points

 

45 Two Consolidation 55 Total 100 Student name:

 

___________ Received Question 1 (42 points)

 

Upon formation of Ramp Co. in June 1987, Pond Co. acquired ten percent of the voting

 

common shares at the par value of $10,000. Ramp has not issued any further shares since

 

its inception.

 

On January 1, 2015, Pond acquired an additional 30% of the outstanding voting common

 

shares of Ramp for $550,000. On that date, Ramp reported assets and liabilities with

 

book values of $2.2 million and $700,000, respectively. A building owned by Ramp had

 

an appraised value of $300,000, although it had a book value of only $120,000. This

 

building had a 12-year remaining life and no salvage value. It was being depreciated on

 

the straight-line basis.

 

Ramp generated net income of $300,000 in 2015 and a loss of $120,000 in 2016. In each

 

of these two years, Ramp paid a cash dividend of $70,000 to its stockholders. During

 

2015, Ramp sold inventory to Pond that had an original cost of $60,000. The

 

merchandise was sold to Pond for $96,000. Of this balance, $72,000 was resold to

 

outsiders during 2015 and the remainder was sold during 2016. In 2016, Ramp sold

 

inventory to Pond for $180,000. This inventory had cost only $108,000. Pond resold

 

$120,000 of the inventory during 2016 and the rest during 2017.

 

Required:

 

For 2015 and then for 2016, prepare the journal entries in Pond?s books in respect of

 

its investment in Ramp given that this investment is correctly classified as an equity

 

investment. Question 2 (58 points).

 

Matthews Co. obtained ninety percent of the common stock of Jackson Co. on January 1,

 

2016. As of that date, Jackson had the following balances, and fair values, on some of its

 

accounts:

 

Cost

 

Fair value

 

Additional paid-in capital

 

60,000

 

Buildings ? net (10 year remaining useful life)

 

140,000

 

188,000

 

Common stock

 

300,000

 

Equipment ? net (8 year remaining useful life)

 

240,000

 

216,000

 

Inventory

 

110,000

 

130,000

 

Land

 

90,000

 

120,000

 

Long-term liabilities (mature 12/31/2018)

 

180,000

 

160,000

 

Patent (10 year remaining useful life )

 

0

 

72,000

 

During 2017 (2016), Jackson reported net income of $132,000 ($96,000) while paying

 

dividends of $36,000 ($12,000). The retained earnings were $300,000 at the end of 2017.

 

Matthews Co. acquired the common stock of Jackson Co. for $585,000 in cash and

 

incurred legal and accounting fees of $40,000 in respect of the merger. Matthews uses the

 

equity method to account for this investment.

 

Required:

 

Prepare the consolidation journal entries for December 31, 2017.

 

Show all steps 1, 2, 3(a), 3(b)

 


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