Homework Ch5

7/27/2019 Homework Ch5

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Chapter 5

Questions

1. Distinguish among the following concepts:(a) Difference between cost and book value.

(b) Excess of cost over fair value.(c) Excess of fair value over cost.(d) Deferred excess of fair value over cost.

2. n what account is !the difference between cost and book value" recorded on the books of theinvestor# n what account is the !excess of cost over fair value" recorded#

$. %ow do &ou determine the amount of !the difference between cost and book value" to beallocated to a specific asset of a less than wholl& owned subsidiar

'. he parent compan&s share of the fair value of the net assets of a subsidiar& ma& exceed

ac*uisition cost. %ow must this excess be treated in the preparation of consolidated financialstatements#

+. ,h& are marketable securities excluded from the noncurrent assets to which an& excess offair value over cost is to be allocated#

-. /ompan& ac*uired a 100 interest in /ompan&. 3n the date of ac*uisition the fair valueof the assets and liabilities of /ompan& was e*ual to their book value except for land thathad a fair value of 415+005000 and a book value of 4$005000. 6t what amount should theland of /ompan& be included in the consolidated balance sheet# 6t what amount shouldthe land of /ompan& be included in the consolidated balance sheet if /ompan& ac*uired

an 70 interest in /ompan& rather than a 100 interest#

8. /orporation 6 purchased the net assets of /orporation 9 for 4705000. 3n the date of 6spurchase5 /orporation 9 had no longterm investments in marketable securities and 4105000(book and fair value) of liabilities. he fair values of /orporation 9s assets5 when ac*uired5were

/urrent assets 4 '05000;oncurrent assets -05000otal 4 1005000

%ow should the 4105000 difference between the fair value of the net assets ac*uired(4


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7. >eredith /ompan& and ?&le /ompan& were combined in a purchase transaction. >eredithwas able to ac*uire ?&le at a bargain price. he sum of the market or appraised values ofidentifiable assets ac*uired less the fair value of liabilities assumed exceeded the cost to

>eredith. 6fter reducing noncurrent assets to =ero5 there was still some !negative goodwill."roper accounting treatment b& >eredith is to report the amount as(a) 6n extraordinar& item.(b) art of current income in the &ear of combination.(c) 6 deferred credit.(d) aid in capital.


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iabilities 4 8+5000 4 8+5000/ommon stock 22+5000etained earnings $8+5000

4 -8+5000

he e*uipment had an original life of 1+ &ears and has a remaining useful life of 10 &ears.

Required:

Cor the December $15 200+5 consolidated financial statements workpaper5 prepare the workpaperentr& to allocate and depreciate the difference between cost and book value assuming:6. E*uipment is presented net of accumulated depreciation.9. 6ccumulated depreciation is presented on a separate row in the workpaper and in the

consolidated statement of financial position.

Exercise 5- Allocation of Cost

ace /ompan& purchased 205000 of the 2+5000 shares of addler /orporation for 4+2+5000. 3n

@anuar& $5 200'5 the ac*uisition date5 addler /orporationAs capital stock and retained earningsaccount balances were 4+005000 and 410050005 respectivel&.

he following values were determined for addler /orporation on the date of purchase:

9ook Balue Cair Baluenventor& 4 +05000 4 8050003ther current assets 2005000 2005000>arketable securities 1005000 12+5000lant and e*uipment $005000 $$05000

Required:

6. repare the entr& on the books of ace /ompan& to record its investment in addler/orporation.

9. repare a /omputation and 6llocation chedule for the difference between the cost and bookvalue in the consolidated statements workpaper.

Exercise 5-! Allocation of Cost and Workpaper Entries at "ate of Acquisition

3n @anuar& 15 200+5 orter /ompan& purchased an 70 interest in alem /ompan& for42-05000. 3n this date5 alem /ompan& had common stock of 42085000 and retained earningsof 41$05+00.

6n examination of alem /ompan&As balance sheet revealed the following comparisons betweenbook and fair values:

9ook Balue Cair Baluenventor& 4 $05000 4 $+50003ther current assets +05000 ++5000E*uipment $005000 $+05000and 2005000 2005000


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Required:

6. Determine the amounts that should be allocated to alem /ompan&As assets on theconsolidated financial statements workpaper on @anuar& 15 200+.

9. repare the @anuar& 15 200+5 consolidated financial statements workpaper entries to eliminatethe investment account and to allocate the difference between cost and book value.

Exercise 5-5 #-Account Calculation of Controllin$ %nterest in Co&'ined (et %nco&e

3n @anuar& 15 200'5 /ompan& purchased an 70 interest in /ompan& for 4-0050005 atwhich time /ompan& had retained earnings of 4$005000 and capital stock of 4$+05000. 6n&difference between cost and book value was entirel& attributable to a patent with a remaininguseful life of 10 &ears.

6ssume that and /ompanies reported net incomes from their independent operations of42005000 and 410050005 respectivel&.

Required:

repare a taccount calculation of the controlling interest in combined net income for the &earended December $15 200'.

Exercise 5-) Workpaper Entries

ark /ompan& ac*uires an 7+ interest in unland /ompan& on @anuar& 25 200+. he resultingdifference between cost and book value in the amount of 41205000 is entirel& attributable toe*uipment with an original life of 1+ &ears and a remaining useful life5 on @anuar& 25 200+5 of 10&ears.

Required:

repare the December $1 consolidated financial statements workpaper entries for 200+ and 200-to allocate and depreciate the difference between cost and book value5 recording accumulateddepreciation as a separate balance.

Exercise 5-* Workpaper Entries

3n @anuar& 15 200'5 ackard /ompan& purchased an 70 interest in age /ompan& for4-005000. 3n this date age /ompan& had common stock of 41+05000 and retained earnings of4'005000.

age /ompan&As e*uipment on the date of ackard /ompan&As purchase had a book value of4'005000 and a fair value of 4-005000. 6ll e*uipment had an estimated useful life of 10 &ears on@anuar& 25 1


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adilla /ompan& purchased 70 of the common stock of anoma /ompan& in the open marketon @anuar& 15 200$5 pa&ing 4$15000 more than the book value of the interest ac*uired. hedifference between cost and book value is attributable to land.

Required:

6. ,hat workpaper entr& is re*uired each &ear until the land is disposed of#9. 6ssume that the land is sold on 1F1F0- and that anoma /ompan& recogni=es a 4+05000 gainon its books. ,hat amount of gain will be reflected in combined income on the 200-consolidated income statement#

/. n all &ears subse*uent to the disposal of the land5 what workpaper entr& will be necessar

Exercise 5-/ Allocation of Cost and Workpaper Entries

3n @anuar& 15 200$5 oint /orporation ac*uired an 70 interest in harp /ompan& for4250005000. 6t that time harp /ompan& had capital stock of 415+005000 and retained earningsof 48005000. he book values of harp /ompan&As assets and liabilities were e*ual to their fairvalues except for land and bonds pa&able. he land had a fair value of 41005000 and a book

value of 4705000. he outstanding bonds were issued at par value on @anuar& 15 1


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480050005 respectivel&. Differences between the fair value and the book value of the identifiableassets of and /ompan& were as follows:

Cair Baluen Excess of

9ook Baluenventor& 4 '+5000E*uipment (net) +05000

he book values of all other assets and liabilities of and /ompan& were e*ual to their fairvalues on @anuar& 15 200$. he e*uipment had a remaining useful life of eight &ears. nventor&is accounted for on a CC3 basis. and /ompan&As reported net income and declared dividendsfor 200$ through 200+ are shown here:

200$ 200' 200+;et ncome 4 1005000 4 1+05000 4 705000

Dividends 205000 $05000 1+5000

Required:

repare the eliminatingFadGusting entries needed on the consolidated worksheet for the &earsended 200$5 200' and 200+. (t is not necessar& to prepare the worksheet.)

1) 6ssume the use of the cost method.2) 6ssume the use of the partial e*uit& method.$) 6ssume the use of the complete e*uit& method.

Exercise 5-12 Workpaper Entries and Consolidated Retained Earnin$s Cost ethod

6


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6. repare the workpaper entries5 assuming that the cost method is used to account for theinvestment5 to establish reciprocit&5 to eliminate the investment account5 and to allocate anddepreciate the difference between cost and book value in the 200+ consolidated statementsworkpaper.

9. /alculate the consolidated retained earnings for the &ear ended December $15 200+5

assuming that the balance in alm ncorporatedAs ending retained earnings on that date was4250005000.

Exercise 5-1 3ush "o4n Accountin$

ascal /orporation purchased


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6. repare the worksheet entries5 assuming that the partial e*uit& method is used to account forthe investment5 to eliminate the investment account5 and to allocate and depreciate thedifference between cost and book value in the 200+ consolidated statements workpaper.

9. /alculate the consolidated retained earnings for the &ear ended December $15 200+5 assumingthat the balance in alm ncorporatedAs ending retained earnings on that date was 425'


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Exercise 5-1) ,ood4ill %&pair&ent

3n @anuar& 15 200$5 orsche /ompan& ac*uired 100 percent of aab /ompan&s stock for4'+05000 cash. he fair value of aabs identifiable net assets was 4$8+5000 on this date. orsche

/ompan& decided to measure goodwill impairment using comparable prices of similarbusinesses to estimate the fair value of the reporting unit (aab). he information for thesesubse*uent &ears is as follows:

/arr&ing Balue of Cair Balueresent value aabs dentifiable aabs dentifiable

Hear of Cuture /ash Clows;et 6ssets

200' 4'005000 4$$05000 4$'05000200+ 4'005000 4$205000 $'+5000200- 4$+05000 4$005000 $2+5000

I dentifiable net assets do not include goodwill.

Required:Part A: Cor each &ear determine the amount of goodwill impairment5 if an&. %int: Hou ma&wish to refer back to the section entitled Joodwill mpairment est in /hapter 2.

Part B: repare the workpaper entries needed each year(200' through 200-) on theconsolidating worksheet to record an& goodwill impairment assuming:

1. he cost or partial e*uit& method is used.2. he complete e*uit& method is used.

Exercise 5-1* Accountin$ for the #ransition in ,ood4ill #reat&ent

orch /ompan& ac*uired 100 of the stock of tairs /ompan& on @anuar& 15 2000 for 4-005000.he management of orch recentl& adopted a vertical merger strateg&. 3n the date of thecombination (immediatel& before the ac*uisition)5 the assets5 liabilities5 and stockholders e*uit&of each compan& were as follows:

orch tairs/urrent assets 4 '005000 412+5000lant assets (net) 7705000 $705000otal 4 152705000 4 +0+5000

otal iabilities 4 $005000 41005000/ommon stock5 420 par value '005000 20050003ther contributed capital 2+05000 8+5000etained earnings $$05000 1$05000otal 4152705000 4+0+5000


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3n the date of ac*uisition5 the onl& item on tairs balance sheet not recorded at fair value wasplant assets5 which had a fair value of 4'005000. lant assets had a 10 &ear remaining life andgoodwill was to be amorti=ed over 20 &ears.

n 20015 the C69 issued C6 ;o. 1'1 and 1'2 and the orch /ompan& adopted the new

statements as of @anuar& 2002. 3n @anuar& 15 20025 the fair value of tairs identifiable net assetswas 4'+05000. tairs is considered to be a reporting unit for purposes of goodwill impairmenttesting. ts fair value was estimated to be 4++05000 on @anuar& 15 20025 and its carr&ing value(including goodwill) on that date was 4-005000.

Required:

1. repare the Gournal entr& as of @anuar& 15 20005 to record the ac*uisition of tairs b& orch.repare the eliminatingFadGusting workpaper entries needed to eliminate the investment accountand to allocate the difference between cost and book value immediatel& after the ac*uisition.

2. ecall that although goodwill is no longer amorti=ed under current J665 it was amorti=edfor most companies in the &ears 2000 and 2001. repare the eliminatingFadGusting workpaperentries needed to amorti=e goodwill for the &ears 2000 and 2001.

a. 6ssume the use of the cost or partial e*uit& method on the books of the parent.b. 6ssume the use of the complete e*uit& method on the books of the parent.

,hat is the carr&ing value of goodwill (unamorti=ed balance) resulting from the ac*uisition oftairs as of @anuar& 15 20025 on the consolidated balance sheet#

$. 6 transitional goodwill impairment test is re*uired on the date of adoption of the new C69standards (to be carried out within the first six months after adoption) for preexisting goodwill.9ased on the facts listed above5 perform the impairment test and calculate the loss fromimpairment5 if an&. %int: Hou ma& wish to refer back to the section entitled Joodwillmpairment est in /hapter 2.

'. f there is an impairment of goodwill5 how should it be shown in the consolidated financialstatements for the &ear 2002# repare the eliminatingFadGusting workpaper entr& needed torecord the loss from impairment5 if an&5 in the workpapers for the &ear ending December $152002.

+. ,hat transitional disclosures are re*uired in the &ear of initial adoption of C6 ;o. 1'1 and1'2# (Hou ma& also wish to refer to /hapter 2 to answer this *uestion.)


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3ro'le&s

3ro'le& 5-1 Workpaper Entries and Consolidated (et %nco&e for #4o Years Cost

ethod

3n @anuar& 15 200'5 almero /ompan& purchased an 70 interest in antos /ompan& for42570050005 at which time antos /ompan& had retained earnings of 4150005000 and capitalstock of 4+005000. 3n the date of ac*uisition5 the fair value of the assets and liabilities of antos/ompan& was e*ual to their book value5 except for propert& and e*uipment (net)5 which had afair value of 415+005000 and a book value of 4-005000. he propert& and e*uipment had anestimated remaining life of 10 &ears. almero /ompan& reported net income from independentoperations of 4'005000 in 200' and 4'2+5000 in 200+. antos /ompan& reported net income of4$005000 in 200' and 4'005000 in 200+. ;either compan& declared dividends in 200' or 200+.

almero uses the cost method to account for its investment in antos.

Required:

6. repare in general Gournal form the entries necessar& in the consolidated statementsworkpapers for the &ears ended December $15 200' and 200+.

9. repare a schedule or taccount showing the calculation of the controlling interest incombined net income for the &ears ended December $15 200' and December $15 200+.

3ro'le& 5-2 Workpaper Entries and Consolidated (et %nco&e for #4o Years 3artial

Equit ethod

3n @anuar& 15 200'5 axton /ompan& purchased a 80 interest in agon /ompan& for415$0050005 at which time agon /ompan& had retained earnings of 4+005000 and capital stockof 4150005000. 3n @anuar& 15 200'5 the fair value of the assets and liabilities of agon /ompan&was e*ual to their book value except for bonds pa&able. agon /ompan& had outstanding a4150005000 issue of - bonds that were issued at par and that mature on @anuar& 15 200


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erke /orporation purchased 70 of the stock of uperstition /ompan& for 415


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Hear 200' ;et ncome of 41105000K Dividends Declared of 4$+5000

Required:

6. repare a /omputation and 6llocation chedule for the difference between cost and book

value of e*uit& ac*uired.

9. resent the eliminatingFadGusting entries needed on the consolidated worksheet for the &earended December $15 200$. (t is not necessar& to prepare the worksheet.)

') 6ssume the use of the cost method.+) 6ssume the use of the partial e*uit& method.-) 6ssume the use of the complete e*uit& method.

/. resent the eliminatingFadGusting entries needed on the consolidated worksheet for the &earended December $15 200'. (t is not necessar& to prepare the worksheet.)

1) 6ssume the use of the cost method.2) 6ssume the use of the partial e*uit& method.

$) 6ssume the use of the complete e*uit& method.Lse the following financial data for 200+ for re*uirements D through J.

orter/ompan&

alem/ompan&

ales 4151005000 4'+05000Dividend income '75000 otal revenue 151'75000 '+05000/ost of goods sold


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etained earnings ++75000 $'05000otal liabilities and e*uit& 4 158705000 4 150$05000

Required:

D. repare a consolidated financial statements workpaper for the &ear ended December $15 200+.(%int: Hou can infer the method being used b& the parent from the information in its trialbalance.)

E. repare a consolidated statement of financial position and a consolidated income statement forthe &ear ended December $15 200+.

C. Describe the effect on the consolidated balances if alem /ompan& uses the C3 cost flowassumption in pricing its inventor& and there has been no decrease in ending inventor&*uantities since 200$.

J. repare an anal&tical calculation of consolidated retained earnings for the &ear endedDecember $15 200+.

3ro'le& 5-5 Workpaper Entries and Consolidated 7inancial tate&ents

3n @anuar& 15 200'5 almer /ompan& ac*uired a


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almer tevens/ompan& /ompan&

ales 4 -205000 4 $'05000/ost of sales '$05000 2'05000Jross margin 1


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3n @anuar& 15 200'5 erini /ompan& purchased an 7+ interest in ilvas /ompan& for4'005000. 3n this date5 ilvas /ompan& had common stock of 4


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he e*uipment had an original life of 1+ &ears and remaining useful life of 10 &ears.During 200' ueblo /orporation reported income of 42$85000 and paid dividends of 41+05000.anche= /ompan& reported net income of 412$5000 and paid dividends of 41205000. ueblouses the complete e*uit& method to account for its investment in anche=.

Required:6. repare the elimination entries for the consolidated financial statements workpaper onDecember $15 200'. 6ccumulated depreciation is presented on a separate row in theworkpaper and in the consolidated financial statements.

9. 6ssume that anche= /ompan& disposed of all its e*uipment on @anuar& 15 200-5 for4'+05000.(1) ,hat amount of gain (loss) will anche= /ompan& report#(2) ,hat is the consolidated gain (loss)#($) repare the workpaper entr& necessar& to allocate the amount of the difference between

cost and book value that was originall& allocated to the e*uipment that has now been soldto outsiders.

(') ,hat workpaper entr& will be necessar& to allocate this difference between cost and bookvalue in future &ears#

3ro'le& 5-+ Eli&inatin$ Entries and Consolidated (et %nco&e

atten /orporation ac*uired an 7+ interest in avage /ompan& for 4$51005000 on @anuar& 15200'. 3n this date5 the balances in avage /ompan&As capital stock and retained earningsaccounts were 4250005000 and 480050005 respectivel&.6n examination of avage /ompan&As books on this date revealed the following:

9ook Balue Cair Balue/urrent assets 4 -+05000 4 -+05000nventor& +-05000 -105000>arketable securities '$05000 '$05000lant and e*uipment 152005000 15-005000and '005000


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1) he cost method is used to account for the investment.2) he partial e*uit& method is used to account for the investment.$) he complete e*uit& method is used to account for the investment.

/. /alculate the controlling interest in combined net income for 200' and 200+.

3ro'le& 5-/ Workpaper Entries and Consolidated (et %nco&e for Year of Acquisition

3n @anuar& 15 200'5 ump /ompan& ac*uired all the outstanding common stock of ound/ompan& for 4++-5000 in cash. Cinancial data relating to ound /ompan& on @anuar& 15 200'5are presented here:

9alance heet9ook Balue Cair Balue

/ash 4 10'5++0 4 10'5++0eceivables 12$5000 1125$10nventories 2205000 2-750009uildings $$15000 $8+50006ccumulated depreciation buildings (2-'5700) ($005000)E*uipment 1'+5000 1$050006ccumulated depreciation e*uipment (10758+0) (


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earson /ompan& purchased a 100 interest in anders /ompan& and a


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he book values of all other assets and liabilities of alem /ompan& were e*ual to their fairvalues on @anuar& 15 200$. he e*uipment had a remaining life of five &ears on @anuar& 15 200$5the inventor& was sold in 200$.

alem /ompan&s net income and dividends declared in 200$ and 200' were as follows:Hear 200$ ;et ncome of 41005000K Dividends Declared of 42+5000Hear 200' ;et ncome of 41105000K Dividends Declared of 4$+5000

Required:


9. resent the eliminatingFadGusting entries needed on the consolidated worksheet for the &earended December $15 200'. (t is not necessar& to prepare the worksheet.)

Lse the following financial data for 200+ for re*uirements / through J.

orter/ompan&

alem/ompan&

ales 4151005000 4'+05000E*uit& in subsidiar& income 1$-5000 otal revenue 152$-5000 '+05000/ost of goods sold


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etained earnings 8--5000 $'05000otal liabilities and e*uit& 4 15


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3ther +'57$0 +'57$0 otal 4 -


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6. repare in general Gournal form the workpaper entr& to allocate and depreciate the differencebetween cost and book value in the December $15 200'5 consolidated statements workpaper.

9. repare a consolidated financial statements workpaper for the &ear ended December $15200-.

/. repare in good form a schedule or taccount showing the calculation of the controlling

interest in combined net income for the &ear ended December $15 200-.

f &ou completed roblem ++5 a comparison of the consolidated balances in this problem withthose &ou obtained in roblem ++ will demonstrate that the method (cost or partial e*uit&) usedb& the parent compan& to record its investment in a consolidated subsidiar& has no effect on theconsolidated balances.

3ro'le& 5-1 3ush "o4n Accountin$

3n @anuar& 25 200'5 ress /ompan& purchased on the open market


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retained earnings of 41005000. Differences between the fair value and the book value ofidentifiable assets of ,a&Down /ompan& were as follows:

Cair Baluen Excess of

9ook BalueE*uipment 4 12+5000and -25+00nventor& $85+00

he book values of all other assets and liabilities of ,a&Down /ompan& were e*ual to their fairvalues on @anuar& 15 2002. he e*uipment had a remaining life of five &ears on @anuar& 15 20025the inventor& was sold in 2002. ,a&Down /ompan& revalued its assets on @anuar& 25 2002.;ew values were allocated on the basis of the fair value on ,a&Down /ompan& as a wholeimputed from the transaction.

Cinancial data for 200' are presented here:

ush ,a&Down/ompan& /ompan&

ales 4 150+05000 4 '005000Dividend income '05000 0

otal revenue 150


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evaluation capital '2+5000etained earnings +205000 1825+00 otal liabilities and e*uit& 4 158$05000 4152185+00

Required:

6. n general Gournal form5 prepare the entr& made b& ,a&Down /ompan& on @anuar& 25 20025to record the effect of the pushed down values implied b& the purchase of its stock b& ush/ompan& assuming that values were allocated on the basis of the fair value of ,a&Down/ompan& as a whole imputed from the transaction.

9. repare a consolidated financial statements workpaper for the &ear ended December $15200'.

/. ,hat effect does the decision to appl& the full push down approach have on the followingitems (compared to the case where push down accounting is not used):(1) /onsolidated net income#(2) /onsolidated retained earnings#($) /onsolidated net assets#

(') ;oncontrolling interest in consolidated net assets#

3ro'le& 5-15 3ush "o4n Accountin$

3n @anuar& 15 20025 ush /ompan& purchased an 70 interest in the capital stock of Down/ompan& for 47205000. 6t that time5 Down /ompan& had capital stock of 4+005000 andretained earnings of 41005000. Differences between the fair value and the book value ofidentifiable assets of Down /ompan& were as follows:

Cair Baluen Excess of 9ook Balue

E*uipment 4 12+5000and -25+00nventor& $85+00

he book values of all other assets and liabilities of Down /ompan& were e*ual to their fairvalues on @anuar& 15 2002. he e*uipment had a remaining life of five &ears on @anuar& 15 20025the inventor& was sold in 2002. Down /ompan& revalued its assets on @anuar& 25 2002. ;ewvalues were allocated on the basis of the proportional interest ac*uired b& ush /ompan&.

Cinancial data for 200' are presented here:

ush Down/ompan& /ompan&

ales 4 150+05000 4 '005000Dividend income '05000 0

otal revenue 150


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otal cost and expense


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3ro'le& 5-1) Eli&inatin$ Entries and Worksheets for 6arious Years

(;ote that this is the same problem as roblem +' and roblem +115 but assuming the use ofthe complete e*uit& method.)3n @anuar& 15 200$5 orter /ompan& purchased an 70 interest in the capital stock of alem

/ompan& for 47+05000. 6t that time5 alem /ompan& had capital stock of 4++05000 and retainedearnings of 4705000. orter /ompan& uses the partial e*uit& method to record its investment inalem /ompan&. Differences between the fair value and the book value of the identifiable assetsof alem /ompan& were as follows:

Cair Baluen Excess 3f

9ook BalueE*uipment 41$05000and -+5000nventor& '05000

he book values of all other assets and liabilities of alem /ompan& were e*ual to their fairvalues on @anuar& 15 200$. he e*uipment had a remaining life of five &ears on @anuar& 15 200$5the inventor& was sold in 200$.

alem /ompan&s net income and dividends declared in 200$ and 200' were as follows:Hear 200$ ;et ncome of 41005000K Dividends Declared of 42+5000Hear 200' ;et ncome of 41105000K Dividends Declared of 4$+5000

Required:


9. resent the eliminatingFadGusting entries needed on the consolidated worksheet for the &earended December $15 200'. (t is not necessar& to prepare the worksheet.)

Lse the following financial data for 200+ for re*uirements / through J.

orter/ompan&

alem/ompan&

ales 4151005000 4'+05000E*uit& in subsidiar& income 11+5200 otal revenue 1521+5200 '+05000/ost of goods sold


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1F1 etained earnings 4 +'-5'00 42$05000;et income 21+5200 1805000Dividends declared (


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3ro'le& 5-1* Workpaper Entries and Consolidated 7inancial tate&ents

(;ote that this is the same problem as roblem ++ or roblem +125 but assuming the use of thecomplete e*uit& method.)

3n @anuar& 15 200'5 almer /ompan& ac*uired a


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;et income 1$+5100 '+5000$''5


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%nco&e tate&ent 200+

evenues 41005000/ost of Joods old '05000Jross >argin -05000

3perating Expenses $+5000retax ncome 2+5000ncome ax Expense 105000;et ncome 1+5000

9alance heet

Year ended

1210*

Year Ended

1210+

/ash 4'5000 4'5000eceivables 105000 1'5000nventor& $15000 285000

Cixed 6ssets (net) +05000 ++5000otal 6ssets 4


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3ro'le& 5-1/ "eferred #ax Effects

3n @anuar& 15 200+5 ruitt /ompan& ruitt /ompan& issued 2+5+00 shares of its common stockin exchange for 7+ of the outstanding common stock of hah /ompan&. ruittAs common stockhad a fair value of 427 per share at that time. ruitt /ompan& uses the cost method to account for

its investment in hah /ompan& and files a consolidated income tax return. 6 schedule of thehah /ompan& assets ac*uired and liabilities assumed at book values (which are e*ual to theirtax bases) and fair values follows.

9ook BalueF%te& ax 9asis Cair Balue Excesseceivables (net) 412+5000 4 12+5000 40nventor& 1-85000 1

Homework Ch5

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Transcript of Homework Ch5