please provide jornal entries with steps to answers on attached questions.
Mergers and Acquisitions: ACC 4520 - Fall 2016
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
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.
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
Additional paid-in capital
Buildings ? net (10 year remaining useful life)
Equipment ? net (8 year remaining useful life)
Long-term liabilities (mature 12/31/2018)
Patent (10 year remaining useful life )
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.
Prepare the consolidation journal entries for December 31, 2017.
Show all steps 1, 2, 3(a), 3(b)
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