Advanced Accounting - Standalone book 12th Edition

CHAPTER 1 THE EQUITY METHOD OF ACCOUNTING FOR INVESTMENTS Chapter Outline I. Three methods are principally used to account for an investment in equity securities along with a fair value option. A. Fair value method: applied by an investor when only a small percentage of a companys voting stock is held. 1. Income is recognized when

17. (10 minutes) (Equity entries for one year, includes intra-entity transfers but no unearned gross profit) Purchase price of Burks stock........................................................ $210,000 Book value of Burks stock ($360,000 40%)................................. (144 ,000) Unidentified asset (goodwill)........................................................... $ 66,000 Life...................................................................................................... indefiniteAnnual amortization.......................................................................... $ -0- Unidentified asset (goodwill)........................................................... $ 66,000 Life...................................................................................................... indefiniteAnnual amortization.......................................................................... $ -0- Unidentified asset (goodwill)........................................................... $ 66,000

27. (30 minutes) (Conversion to equity method, sale of investment, and unrealized gross profit) Part a Allocation and annual amortizationfirst purchase Purchase price of 10 percent interest......................................... $92,000 Net book value ($800,000 10%)................................................. (80 ,000) Copyright....................................................................................... $12,000Remaining life of Copyright.............................................................. 16 yrs Copyright....................................................................................... $12,000Remaining life of Copyright.............................................................. 16 yrs Copyright....................................................................................... $12,000 Remaining life of Copyright.............................................................. 16 yrs Annual Amortization...........................................................................

32. (65 Minutes) (Journal entries for several years. Includes conversion to equity method and a sale of a portion of the investment) 1/1/13 Investment in Sumter....................... 192,000 Cash............................................. 192,000 (To record cost of 16,000 shares of Sumter Company.) 9/15/13 Cash................................................... 8,000Dividend Income......................... 8,000(Annual dividends declared and received from SumterCompany. Because declaration and payment are on

CHAPTER 10 TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS Chapter Outline I. In today's global economy, many companies have invested in operations in foreign countries. A. In preparing consolidated financial statements on a worldwide basis, the foreign currency accounts prepared by foreign operations must be restated into the parent company's reporting currency. B. There are two major issues

25. (15 minutes) (Determine the amounts at which foreign currency balances are reported on a foreign subsidiarys trial balance and in the parents consolidated financial statements) a. Remeasurement of Swiss franc (CHF) balances into Israeli shekels (ILS) to report on the Israeli subsidarys trial balance. December 31, 2015 CHF Exchange Rate ILS* Interest expense 25,000 x

35. (continued) b. and c. The following C$ financial statements are produced by combining the figures from the main operation with the remeasured figures from the branch operation. The Branch Operation and Main Office accounts offset eachother. Cost of goods sold for the Mexican branch is determined bycombining beginning inventory, purchases, and ending

38. (90 minutes) Remeasure the foreign currency transactions of a foreign subsidiary into the subsidiarys functional currency and then translate the subsidiarys trial balance into the parents reporting currency a. Remeasurement of BRL Trial Balance into Mexican Pesos MXN BRL MXN Debit Credit Rate Debit Credit Cash 5,500 6.30 C 34,650 Accounts Receivable

Excel and Analysis Case (continued) a. Translation of Suffolks December 31, 2015 trial balance from British pounds to U.S. dollars. Suffolk PLC Trial Balance December 31, 2015 Exchange Pounds Rate Dollars Cash 1,500,000$1.68 $ 2,520,000 Accounts receivable 5,200,000$1.68 8,736,000 Inventory 18,000,000$1.68 30,240,000Property, plant, & equipment (net) 36,000,000$1.68 60,480,000Accounts payable (1,450,000)$1.68 (2,436,000)Long-term debt (5,000,000)$1.68 (8,400,000) Inventory 18,000,000$1.68 30,240,000Property, plant, & equipment (net)

CHAPTER 11 WORLDWIDE ACCOUNTING DIVERSITY AND INTERNATIONAL STANDARDS Chapter Outline I. Accounting and financial reporting rules differ across countries. There are a variety of factors influencing a countrys accounting system. A. Legal systemprimarily relates to how accounting principles are established; code law countries generally having legislated accounting principles and common law countries having principles established by non-legislative means.

Answers to Problems 1. B 2. C 3. D 4. C 5. D 6. D 7. D8. A 9. A10. C 11. B 12. D 3. D 4. C 5. D 6. D 7. D8. A 9. A10. C 11. B 12. D 3. D 4. C 5. D 6. D

CHAPTER 12 FINANCIAL REPORTING AND THE SECURITIES AND EXCHANGE COMMISSION Chapter Outline I. In the United States, the Securities and Exchange Commission (SEC), created by Act of Congress, is responsible for ensuring that complete and reliable information concerning publicly traded securities is available to investors. A. Although the SEC regulates requirements created by many legislative acts, the

Answers to Problems 1. D A is false because intrastate offerings are typically exempt from registration; B is false because the 1934 Securities Act regulates post-issuance trading of securities; and C is false because blue sky legislation is state law. 2. B Remember that regulation S-X is the regulation that focuses uponfinancial information disclosure.3.

CHAPTER 13 ACCOUNTING FOR LEGAL REORGANIZATIONS AND LIQUIDATIONS Chapter Outline I. Because of a myriad of possible financial or business difficulties, a company may become insolvent, unable to pay its debts as they come due. A. To ensure the equitable treatment of all parties involved with an insolvent company (stockholders as well as creditors), laws have

27.(5 Minutes) (Distribution of assets as a result of liquidation) Liabilities with Priority Paid firstadministrative expense................................. $3,450 Paid secondwages: total of $6,225 for Rankin but only up to a maximum of $12,475 for Key......................... 18,700 Total priority claims.......................................................... 22,150 All remaining money available goes to:Government claims to unpaid taxes......................... 4,050Total of free assets......................................................

40.(40 Minutes) (Prepare journal entries for company emerging from bankruptcy using fresh start accounting) Preliminary computations: BOOK VALUES PRIOR TO EMERGING FROM REORGANIZATION Total assets at book value = $710,000 ($100,000 + $112,000 + $420,000 + $78,000) Total liabilities at book value = $800,000 ($80,000 + $35,000 + $100,000 +$200,000 + $185,000 +

46.(25 Minutes) (Prepare statement of realization and liquidation) a. LITZ CORPORATION Statement of Realization and Liquidation Stock- Liabilities Fully Partially Unsecured holders' Noncash with Secured Secured Nonpriority Equity Cash Assets Priority Creditors Creditors Liabilities (Deficits) Balances, 8/8/15 $ 16,000 $763,000 -0- $259,000 $132,000 $150,000$238,000Investments sold 39,000 (32,000) 7,000Inventory sold 48,000 (69,000) (21,000) Balances, 8/8/15 $ 16,000

51.(30 Minutes) (Prepare Journal entries for company emerging from bankruptcy using fresh start accounting) Holmes Corporation must use fresh start accounting because the reorganization value of $225,000 is less than the company's allowed debts and the original owners hold less than 50 percent of the voting stock after the reorganization. BOOK VALUES AFTER EMERGING FROM REORGANIZATION

(2) Reflects the adjustments to assets and liabilities to estimated fair value, or other measurements specified by FASB ASC 805, in conjunction with the adoption of fresh start accounting. Significant adjustments are summarized as follows and all are considered a Level 3 fair value measurement with the exception of

CHAPTER 14 PARTNERSHIPS: FORMATION AND OPERATION Chapter Outline I. Business organizations that are formed legally as partnerships, although they are not always as visible as corporations, still proliferate throughout this country especially in the legal, medical, and accounting professions. A. Advantages of the partnership format include ease of creation and the absence of the double taxation effect

11.A ASSIGNMENT OF INCOMEYEAR ONE WINSTON DURHAM SALEM TOTAL Interest10% of beginning capital ............... $11,000 $ 8,000 $11,000 $30,000 Salary........................................ 20,000 -0- 10,000 30,000 Allocation of remaining loss ($80,000 divided on a 5:2:3 basis) (40 ,000) (16 ,000) (24 ,000) (80,000) Totals ............................. $(9 ,000) $ (8 ,000) $ (3 ,000) $(20,000) STATEMENT OF CAPITALYEAR ONE WINSTON DURHAM SALEM TOTAL Beginning capital

26. (45 Minutes) (P&L allocations and admission of a new partner) a. The interest factor was probably inserted to reward Hugh for contributing $50,000 more to the partnership than Jacobs. The salary allowance gives an additional $20,000 to Jacobs in recognition of the full-time (rather than part-time) employment. The 40:60 split

31.(75 Minutes) (Recording of changes in the composition of a partnership including allocation of income) a. 1/1/13 Building ....................................................... 52,000 Equipment.................................................... 16,000 Cash ............................................................. 12,000O'Donnell, capital ................................. 40,000Reese, capital ........................................ 40,000(To record initial investment. Assets recorded at fair value with two equal capital balances.) Cash ............................................................. 12,000O'Donnell, capital ................................. 40,000Reese, capital ........................................ 40,000(To record initial

CHAPTER 15 PARTNERSHIPS: TERMINATION AND LIQUIDATION Chapter Outline I. The termination of a partnership and liquidation of its property may take place for a number of reasons. A. The death, withdrawal, or retirement of a partner can lead to cessation of business activity. B. The bankruptcy of either an individual partner or the partnership as a whole

19.(10 minutes) (Determine amount to be contributed by partner with a deficit capital balance) White and Blue are both insolvent and have negative capital balances (after offsetting the loan from White) totaling $15,000 (White, $3,000; Blue, $12,000). Absorption by the other partners of these losses would be as follows (on a 30:10:20 basis):

26. (25 minutes) (Prepare journal entries for a partnership liquidation) JOURNAL ENTRIES a. Cash ............................................................................. 56,000 March, Capital (2/6 of loss) ........................................ 6,000 April, Capital (3/6) ....................................................... 9,000 May, Capital (1/6) ........................................................ 3,000 Inventory ................................................................ 74,000 b. March, Capital (2/6 of expenses) .............................. 2,500April, Capital (3/6) ....................................................... 3,750May, Capital (1/6) ........................................................ 1,250Cash ....................................................................... 7,500c. Liabilities .....................................................................

31. (50 minutes) (Prepare a predistribution plan and journal entries for a partnership liquidation) Part A Preparation of Predistribution Plan Schedule 1 Maximum Loss Capital Balance/ That Can Be Partner Loss Allocation Absorbed Wingler $120,000/30% $400,000 Norris $ 88,000/10% $880,000Rodgers $109,000/20% $545,000Guthrie $ 60,000/40% $150,000 (most vulnerable to loss) Norris $ 88,000/10% $880,000Rodgers $109,000/20% $545,000Guthrie $

CHAPTER 16 ACCOUNTING FOR STATE AND LOCAL GOVERNMENTS (PART ONE) Chapter Outline I. State and local government units are different than for-profit entities in a number of specific ways. A. Governments serve a broader group of stakeholders. B. Most government revenues are raised through involuntary taxes and tolls. C. Monitoring compliance with budgeted public policy

16. C (Under the consumption method, the inventory is recorded when acquired and then reclassified as an expenditure as consumed.) 17. A 18. C (A law was passed and then a government provided money to meet the requirements of that law. That is a government-mandated nonexchange revenue.)19. C (Because of the

40. (25 Minutes) (Answer questions about ledger account balances) a. As the Appropriations account balance in the General Fund shows a total of $171,000, that amount of money has been authorized for expenditure during this fiscal period. Thus, only that total can be expended or committed. To date, a total of

Part b -- FUND FINANCIAL STATEMENTS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE For the Year Ended December 31, 2015 General Fund Revenues Property Taxes $370,000 Student Fees 3 ,000 Total Revenues $373,000 Expenditures Salaries $100,000Rent 70,000Equipment 50,000Land 30,000Maintenance 20,000Computer 4 ,000Total Expenditures $274 ,000 Salaries $100,000Rent 70,000Equipment 50,000Land 30,000Maintenance 20,000Computer 4 ,000Total Expenditures $274 ,000 Salaries $100,000 Rent 70,000 Equipment

52. (12 Minutes) (The financial impact of fund transfers) A. FalseA transfer out will be shown by the governmental activities and a transfer in will be reported by the business-type activities. Those two figures will be netted together so that no overall impact is shown in the total column for the government

2) A number of items are shown in order to reconcile the net changes in fund balances for the governmental funds and the changes in net position. Here is the reconciliation for the City of Phoenix for the year ended June 30, 2012 (all numbers in thousands). Net change in fund balances

CHAPTER 17 ACCOUNTING FOR STATE AND LOCAL GOVERNMENTS (PART TWO) Chapter Outline I. This chapter looks at the reporting for a number of significant transactions that are common for state and local governments. For example, these entities often obtain property by lease rather than by purchase. A. Leases are recorded as either capital leases or

Answers to Problems 1. A (Both the asset and liability are reported at the present value of the minimum lease payments.) 2. D (Record $49,000 in expenditures on the first day of the capital lease and then $70,000 more in the form of payments made over the life of the lease)3.

36. (12 Minutes) (The reporting of a special purpose government and a component unit) a. The major criterion for inclusion in a governments comprehensive annual financial report (CAFR) is financial accountability. b. An activity is viewed as a special purpose government if it meets the following criteria: 1. Has a separately elected governing

CITY OF BERNARD BALANCE SHEET Governmental Funds December 31, 2015 General Fund ASSETS Cash and cash equivalents $139,000 Investments 116,000 Receivables, net 120,000Supplies 6,000Prepaid Insurance 6 ,000Total Assets $387 ,000 Receivables, net 120,000Supplies 6,000Prepaid Insurance 6 ,000Total Assets $387 ,000 Receivables, net 120,000 Supplies 6,000 Prepaid Insurance 6 ,000 Total Assets $387 ,000 LIABILITIES AND FUND BALANCES Liabilities: Salaries Payable $ 36,000 Fund Balances: --Nonspendable $12,000 --Restricted

41. (continued) City of Pfeiffer Statement of Revenues, Expenditures, and Changes in Fund Balance Fund Financial Statements Governmental Funds Year ending December 31, 2015 Total General Special Capital Projects Governmental Fund Revenue Funds Funds Funds Revenues -Property Taxes $560,000 -0- -0- $560,000 -Park 8,000 -0- -0- 8,000 -Operating Grant -0- $ 37,000 -0- 37,000 -School Fees 6,000 -0- -0-

50. (10 Minutes) (Reporting by a government of a landfill) a. True The amount of the liability to be reported in each of the past years would then have been based on $3 million rather than on $2 million. b. True The government-wide financial statements accrue all liabilities whether they are governmental

CHAPTER 18 ACCOUNTING AND REPORTING FOR PRIVATE NOT-FOR-PROFIT ENTITIES Chapter Outline I. Historically, the financial reporting for private not-for-profit entities has differed significantly according to the type of organization (such as a health care entity versus a college or university). The reporting of these entities has now been largely standardized by FASB pronouncements that

20. B (This transaction is an acquisition and the acquired entity is not supported predominantly by contributions or investment income. Thus, the difference in the acquisition value of Northeast ($980,000) and the fair value of the two recognized assets ($950,000 or $150,000 plus $800,000) is recognized as goodwill.)21.D22.C in the acquisition

42. (continued) University of Danville Statement of Activities Unrestricted Temporarily Permanently Total Net Restricted Restricted Assets Net Assets Net Assets Revenues and Gains -Tuition 1,200,000 -Scholarships (100,000) 1,100,000 1,100,000-Unrealized Gain on Investments 30,000 30,000-Dividend Revenue 9,000 9,000 -Scholarships (100,000) 1,100,000 1,100,000-Unrealized Gain on Investments 30,000 30,000-Dividend Revenue 9,000 9,000 -Scholarships (100,000) 1,100,000 1,100,000 -Unrealized Gain on Investments 30,000

48. (10 minutes) (Adjusting totals for incorrectly reported student tuition) a. The tuition was properly recorded as revenue. However, the financial aid figure should have been a direct reduction to the tuition revenue rather than a separate expense. In either case, the aid reduces unrestricted net assets so the $400,000

CHAPTER 19 ACCOUNTING FOR ESTATES AND TRUSTS Chapter Outline I. Estate accounting encompasses the recording and reporting of events that occur from the time of a person's death until distribution of all property. A. An individual who dies "testate" had prepared a valid will whereas one who dies "intestate" expires without a valid will. 1. State probate

30.(30 Minutes) (Define terms used in estate accounting) a. Willthe instructions, prepared consistent with the applicable state laws, given by an individual to direct the distribution to be made of the person's property after death. b. Estatethe legal entity that holds title to all of a decedent's property untilthose assets are properly distributed.c. Intestaterefers

11.Funeral and administrative expenses ........................... 16,000Cash ............................................................................. 16,00012.LegacyHarwood Pope.................................................. 81,000 11.Funeral and administrative expenses ........................... 16,000Cash ............................................................................. 16,00012.LegacyHarwood Pope.................................................. 81,000 11.Funeral and administrative expenses ........................... 16,000 Cash ............................................................................. 16,000 12.LegacyHarwood Pope.................................................. 81,000 Cash.............................................................................. 81,000 Part b. ESTATE OF LENNIE POPE Charge and Discharge Statement As to principal and income I charge myself with: Assets per original inventory .................................... $1,201,000 Assets subsequently discovered: Land.........................................................................

CHAPTER 2 CONSOLIDATION OF FINANCIAL INFORMATION Accounting standards for business combination are found in FASB ASC Topic 805, Business Combinations and Topic 810, Consolidation. These standards require the acquisition method which emphasizes acquisition-date fair values for recording all combinations. In this chapter, we first provide coverage of expansion through corporate takeovers and an overview of

24. (20 Minutes) (Determine selected consolidated balances) Under the acquisition method, the shares issued by Wisconsin are recorded at fair value using the following journal entry: Investment in Badger (value of debt and shares issued). 900,000 Common Stock (par value)............................................. 150,000 Additional Paid-In Capital (excess over par value)...... 450,000Liabilities.......................................................................... 300,000The payment to the broker is

31. (50 Minutes) (Prepare balance sheet for a statutory merger using the acquisition method. Also, use worksheet to derive consolidated totals.) a. In accounting for the combination of NewTune and On-the-Go, the fair value of the acquisition is allocated to each identifiable asset and liability acquired with any remaining excess attributed

CHAPTER 3 CONSOLIDATIONSSUBSEQUENT TO THE DATE OF ACQUISITION I. Several factors serve to complicate the consolidation process when it occurs subsequent to the date of acquisition. In all combinations within its own internal records the acquiring company will utilize a specific method to account for the investment in the acquired company. 1. Three alternatives are available a.

17. (20 minutes) (Record a merger combination with subsequent testing for goodwill impairment). a. In accounting for the combination, the total fair value of Beltran (consideration transferred) is allocated to each identifiable asset acquired and liability assumed with any remaining excess as goodwill. Cash paid $ 450,000 Fair value of shares issued 1

25. (30 Minutes) (Consolidated balances three years after the date of acquisition. Includes questions about parent's method of recording investment for internal reporting purposes.) a. Acquisition-Date Fair Value Allocation and Amortization: Consideration transferred 1/1/13 .............. $600,000 Book value (given) ..................................... (470 ,000) Fair value in excess of book value ..... 130,000 Annual Remaining excessAllocation

30. (65 Minutes) (Consolidated totals and worksheet five years after acquisition. Parent uses equity method. Includes goodwill impairment.) a. Acquisition-date fair value allocations (given) Remaining Annual excess life amortizations Land $90,000 -- -- Equipment 50,000 10 yrs. $5,000Goodwill 60 ,000 indefinite -0-Total $200 ,000 $5,000Because Giant uses the equity method, the $135,000 "Equity

36. (20 Minutes) (Consolidated balances three years after acquisition. Parent has applied the equity method.) a. Schedule 1Acquisition-Date Fair Value Allocation and Amortization Jasmines acquisition-date fair value $206,000 Book value of Jasmine ................... (140 ,000)Fair value in excess of book value 66,000 Book value of Jasmine ................... (140 ,000)Fair value in excess of

Chapter 3 - Computer Project PECOS COMPANY AND SUARO COMPANY Consolidated Information Worksheet Pecos Suaro Revenues (1,052,000) (427,000) Operating expenses 821,000 262,000 Amortization of intangibles 0 Goodwill impairment loss 0 Income of Suaro 0 Net income (165,000) Operating expenses 821,000 262,000 Amortization of intangibles 0 Goodwill impairment loss 0 Income of Suaro 0 Net income (165,000) Operating

CHAPTER 4 CONSOLIDATED FINANCIAL STATEMENTS AND OUTSIDE OWNERSHIP Chapter Outline I. Outside ownership may be present within any business combination. A. Complete ownership of a subsidiary is not a prerequisite for consolidationonly enough voting shares need be owned so that the acquiring company has the ability to control the decision-making process of the acquired

27. (15 minutes) Consolidated figures with noncontrolling interest Fair value of company (given) $60,000 Book value (10 ,000) Fair value in excess of book value 50,000 to machine ($50,000 $10,000) 40 ,000 10 = $4,000 per year to process trade secret $10 ,000 4 = 2,500 per year$6,500 per year to machine

35. (Acquisition Method Consolidated Balances) Adjustments December 31, 2015 Paloma San Marco & Eliminations NCI Consolidated Revenues (1,843,000) (675,000) (2,518,000) Cost of goods sold 1,100,000 322,000 1,422,000 Depreciation expense 125,000 120,000 245,000 Amortization expense 275,000 11,000 (E) 80,000 366,000 Interest expense 27,500 7,000 34,500 Equity in San Marco Income (121,500) (I)121,500 -0-Separate

39. (25 minutes) (Consolidated balances after a mid-year acquisition) a. Investment account balance indicates the initial value method. Consideration transferred by Gibson....... $528,000 Noncontrolling interest fair value ............ 352 ,000 Davis acquisition-date fair value .............. 880,000 Book value of Davis (see below)............... (765 ,000)Fair value in excess of book value ........... $115,000Excess fair value assigned

CHAPTER 5 CONSOLIDATED FINANCIAL STATEMENTS INTRA-ENTITY ASSET TRANSACTIONS Chapter Outline I. The transfer of assets between the companies forming a business combination is a common practice. The opportunity for such direct acquisition (especially of inventory) is often the underlying motive for the creation of the combination. II. Intra-entity inventory transfers A. The individual accounting systems of

18. (40 Minutes) (Series of independent questions concerning various aspects of the consolidation process when intra-entity transfers have occurred) a. Placid Lake's 2015 net income before effect from Scenic...... $300,000 Scenic's reported net income 2015 .......................................... 110,000 Amortization expense (given) .................................................. (5,000)Realization of 2014 intra-entity gross profit (see below) ....... 7,200Deferral of 2015

26. (35 Minutes) (Prepare consolidation entries for a business combination with intra-entity inventory and equipment transfers; includes an outside ownership.) a. Entry *G Retained earnings, 1/1/15 (Sledge) ................ 2,000 Cost of goods sold .................................... 2,000 To remove unrealized gross profit from beginning account balances. This is the 40% gross profit rate ($6,000 $15,000)

30. (continued) A Liabilities ................................................................ 32,000 Equipment .............................................................. 15,000 Brand names ......................................................... 45,000 Investment in Kirby ......................................... 82,800 Noncontrolling interest in Kirby (10%) .......... 9,200 (To recognize unamortized balance of excess allocations as of 1/1/15. Figures have been reduced by one year of amortization) Entry I (the subsidiary declared no dividends so no adjustment needed)E Operating and

35. (60 Minutes) (Consolidation worksheet for combination with upstream inventory transfers and downstream transfer of land. Also asks about transfer of a building. Parent uses partial equity method.) Consideration transferred ................................ $570,000 Noncontrolling interest fair value...................... 380 ,000 Subsidiary fair value at acquisition-date ......... $950,000Book value........................................................... (850 ,000)Fair value in excess of book

CHAPTER 6 VARIABLE INTEREST ENTITIES, INTRA-ENTITY DEBT, CONSOLIDATED CASH FLOWS, AND OTHER ISSUES Chapter Outline I. Variable interest entities (VIEs) A. VIEs typically take the form of a trust, partnership, joint venture, or corporation. In most cases a sponsoring firm creates these entities to engage in a limited and well-defined set of business activities. For example, a

25. (40 minutes) (Acquisition-date consolidated worksheet for a parent and a variable interest entity) Access Net Adjust. & Elim. Consolidated IT Connect NCI Balances Cash 61,000 41,000 102,000 Investment in NetConnect 1,000,000 S 65,600 A 934,400 Capitalized software 981,000 156,000 1,137,000 Computer equipment 1,066,000 56,000 1,122,000 Communications Investment in NetConnect 1,000,000 S 65,600

33.(15 Minutes) (The effect that various events have on a consolidated statement of cash flows.) Sale of building. The $44,000 in cash received from the sale is listed as a cash inflow within the company's investing activities. If the company is using the direct method in presenting cash flows from operating activities,

43.(45 Minutes) (Prepare consolidation entries after intra-entity bond acquisition.) a. Allocation of Acquisition-date Excess Fair Value Consideration transferred $312,000 Noncontrolling interest fair value 208,000 Acquisition-date fair value $520,000 Book value acquired 300,000Fair value in excess of book value $220,000 Annual Excess Excess allocated to patents based Life Amortizations on fair value 90,000 12 years

46.(40 Minutes) (Compute basic and diluted earnings per share. Subsidiary has stock warrants outstanding and convertible debt.) Basic EPSAustin, Inc. Consolidated net income to parent................................ $284,000 Austins preferred dividends .......................................... (40 ,000) Earnings applicable to Austins basic EPS ............. $244 ,000Austin's outstanding common shares .......................... 50,000Basic earnings per share ($244,000 50,000) .................... $4.88 Earnings applicable

CHAPTER 7 CONSOLIDATED FINANCIAL STATEMENTSOWNERSHIP PATTERNS AND INCOME TAXES Chapter Outline I. Indirect subsidiary control A. Control of subsidiary companies within a business combination is often of an indirect nature; one subsidiary possesses the stock of another rather than the parent having direct ownership. 1. These ownership patterns may be developed specifically to enhance control or for organizational

17. (30 Minutes) (Consolidated net income figures for a connecting affiliation) UNREALIZED GROSS PROFIT: Cleveland ($12,000 remaining inventory 25% markup) = $3,000 Cleveland ($12,000 remaining inventory 25% markup) = $3,000 Cleveland ($12,000 remaining inventory 25% markup) = $3,000 Wisconsin ($40,000 remaining inventory 30% markup) = $12,000 NONCONTROLLING INTERESTS: CLEVELAND: Operating income (sales minus cost of goods sold and expenses)

25.(continued) Entry E Operating Expenses ................................................... 2,000 Equipment ................................................................. 5,000 Franchise Contracts ............................................. 4,000 Buildings................................................................. 3,000(To record 2014 amortization on excess payment made in connection with acquisition of Wilson Company.)Entry TISales and Other Revenues ........................................ 200,000 Buildings................................................................. 3,000(To record 2014 amortization on excess payment made in connection with acquisition of Wilson Company.)Entry TISales and Other

28. (40 Minutes) (Series of questions about a business combination and its income tax reporting) a. Partial equity method. "Income of Soludan" is 80% of Soludan's reported total. b. $12,000. Reduction is evidenced by a $338,000 figure reported for consolidated inventory rather than the $350,000 total for the two companies. c. $37,500. Consolidated operating

CHAPTER 8 SEGMENT AND INTERIM REPORTING Chapter Outline I. FASB Accounting Standards Codification Topic 280, Segment Reporting (FASB ASC 280), provides current guidance on segment reporting. A. ASC 280 follows a management approach in which segments are based on the way that management disaggregates the enterprise for making operating decisions; these are referred to as operating

24. C (Determine reportable segments under three tests) Revenue Test Combined segment revenues $32,750,000 10% criterion x 10% Minimum $ 3,275,000 Segments meeting testA, B, C, EProfit or Loss TestSince there are no segments with a loss, this test is applied based on totalcombined segment profit.Combined segment profit $5,800,00010% criterion x 10% Minimum

Develop Your Skills Research Case 1Segment Reporting (60 minutes) This assignment requires the student to select a company and find the note on operating segments in that companys annual report. The responses to this assignment will depend upon the company selected by the student for analysis. Research Case 2Interim Reporting (60 minutes) This assignment requires students

CHAPTER 9 FOREIGN CURRENCY TRANSACTIONS AND HEDGING FOREIGN EXCHANGE RISK Chapter Outline I. In todays global economy, a great many companies deal in currencies other than their reporting currencies. A. Merchandise may be imported or exported with prices stated in a foreign currency. B. For reporting purposes, foreign currency balances must be stated in terms

21-22. (Option cash flow hedge of a forecasted foreign currency transaction) The easiest way to solve problems 21 and 22 is to prepare journal entries for the option cash flow hedge of a forecasted transaction. The journal entries are as follows: 11/1/15 Foreign Currency Option $1,500 Cash $1,500 12/31/15Option Expense $400Foreign Currency Option $400(The option has

32. (40 minutes) (Forward contract hedge of foreign currency payable) a. Cash Flow Hedge 32. (continued) a. Cash Flow Hedge (continued) 32. (continued) b. Fair Value Hedge 32. (continued) b. Fair Value Hedge (continued) 33. (30 minutes) (Option hedge of foreign currency receivable) a. Cash Flow Hedge 6/1 Accounts Receivable (P) $62,000 Sales [$.062

36. (30 minutes) (Forward contract fair value hedge of net foreign currency denominated asset) Account Receivable (Payable) (mongs) Forward Forward Contract Change in U.S. Rate to Change in Date U.S. Dollar Value Dollar Value 1/31/16 Fair Value Fair Value 11/30/15 $265,000 ($159,000) - $.52 $0 - 12/31/15 $250,000 ($150,000) -$15,000 (-$9,000) $.48 $7,9211+$7,921

42. (continued) Part c. Forward Contract Fair Value Hedge of a Foreign Currency Firm Commitment (Purchase) 9/15 There is no formal entry for the forward contract or the purchase order. 9/30 Forward Contract $5,940.60 Gain on Forward Contract $5,940.60 Loss on Firm Commitment $5,940.60Firm Commitment $5,940.6010/31 Forward Contract $2,059.40Gain on Forward Contract $2,059.40Loss

Answer: Answer: Answer: 2) Kaycee Corporation's revenues for the year ended December 31, 2012, were as follows: Consolidated Revenue per the Income Statement: $1,200,000 Upstream Intersegment Sales: $180,000 Downstream Intersegment Sales: $60,000 For purposes of the Revenue Test, what amount will be used as the benchmark for determining whether a segment is reportable? A.$24,000 B.$120,000 C.$138,000 D.$144,000 E.$0 Answer: D

Answer: Answer: Answer: 2) Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2013 are as follows: Assume Jones issues 20,000 new shares of its common stock for $15 per share. Of this total, Webb acquires 18,000 shares to maintain its

1) A company incurs research and development costs of $200,000 in 2013 of which $50,000 of these costs relate to development activities because certain criteria have been met which suggest that an intangible asset has been created. As a result of research and development costs, what is the difference in income

1) Mills Inc. had a receivable from a foreign customer that is due in the local currency of the customer (stickles). On December 31, 2012, this receivable for 200,000 was correctly included in Mills' balance sheet at $132,000. When the receivable was collected on February 15, 2013, the U.S. dollar

1) Which entry would be the correct entry on the donor's books when the donor relinquishes control of an asset that it contributes to a not-for-profit organization? A.Option A B.Option B C.Option C D.Option D E.Option E Answer: A Answer: A Answer: A 2) The financial balances for the Atwood Company and the Franz Company as of December 31,

1) Pot Co. holds 90% of the common stock of Skillet Co. During 2013, Pot reported sales of $1,120,000 and cost of goods sold of $840,000. For this same period, Skillet had sales of $420,000 and cost of goods sold of $252,000. Included in the amounts for Pot's sales were Pot's

1) Natarajan, Inc. had the following operating segments, with the indicated amounts of segment revenues and segment expenses: For purposes of the profit or loss test, segment C's operating profit or (loss) is A.$1,300,000 B.$700,000 C.$2,000,000 D.$200,000 E.$(200,000) Answer: E External Rev $700,000 + I/E Sales $1,300,000 = Total Segment Sales $2,000,000 - Segment Expenses $2,200,000 =

1) West Corp. owned 70% of the voting common stock of East Co. East owned 60% of Compass Co. West and East both used the initial value method to account for their investments. The following information was available from the financial statements and records of the three companies: Operating income included unrealized

1) Baker Corporation changed from the LIFO method to the FIFO method for inventory valuation during 2013. Baker has an effective income tax rate of 30 percent and 100,000 shares of common stock issued and outstanding. The following additional information is available: Assuming Baker makes the change in the first quarter of

1) On January 1, 2013, Riney Co. owned 80% of the common stock of Garvin Co. On that date, Garvin's stockholders' equity accounts had the following balances: The balance in Riney's Investment in Garvin Co. account was $552,000, and the non-controlling interest was $138,000. On January 1, 2013, Garvin Co.

1) Keenan Company has had bonds payable of $20,000 outstanding for several years. On January 1, 2013, there was an unamortized premium of $2,000 with a remaining life of 10 years, Keenan's parent, Ross, Inc., purchased the bonds in the open market for $19,000. Keenan is a 90% owned subsidiary of

1) Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over

1) Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. The book value and fair value of Vicker's accounts on that date (prior to creating the combination) follow, along with the book value of Bullen's accounts: Assume that Bullen issued 12,000 shares of common

1) On January 1, 2013, Riley Corp. acquired some of the outstanding bonds of one of its subsidiaries. The bonds had a carrying value of $421,620, and Riley paid $401,937 for them. How should you account for the difference between the carrying value and the purchase price in the consolidated financial

1) Presented below are the financial balances for the Atwood Company and the Franz Company as of December 31, 2012, immediately before Atwood acquired Franz. Also included are the fair values for Franz Company's net assets at that date. Note: Parenthesis indicate a credit balance Assume a business combination took place at

1) On May 1, 2013, Mosby Company received an order to sell a machine to a customer in Canada at a price of 2,000,000 Mexican pesos. The machine was shipped and payment was received on March 1, 2014. On May 1, 2013, Mosby purchased a put option giving it the

1) On January 1, 2013, Deuce Inc. acquired 15% of Wiz Co.'s outstanding common stock for $62,400 and categorized the investment as an available-for-sale security. Wiz earned net income of $96,000 in 2013 and paid dividends of $36,000. On January 1, 2014, Deuce bought an additional 10% of Wiz for

1) On January 1, 2013, Riney Co. owned 80% of the common stock of Garvin Co. On that date, Garvin's stockholders' equity accounts had the following balances: The balance in Riney's Investment in Garvin Co. account was $552,000, and the non-controlling interest was $138,000. On January 1, 2013, Garvin Co.

1) When a company applies the initial method in accounting for its investment in a subsidiary and the subsidiary reports income in excess of dividends paid, what entry would be made for a consolidation worksheet? A) A above B) B above C) C above D) D above E) E above Answer: B Answer: B Answer: B 2) Watkins, Inc.

1) Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2012. Selected account balances are available for the year ended December 31, 2013, and are stated in Euro, the local currency. Assume the functional currency is the Euro; compute the U.S. balance sheet amount for accumulated depreciation

1) Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities: If Watkins pays $450,000 in cash for Glen, at what amount would Glen's Inventory acquired be represented in a December 31, 2012 consolidated

1) Campbell Inc. owned all of Gordon Corp. For 2013, Campbell reported net income (without consideration of its investment in Gordon) of $280,000 while the subsidiary reported $112,000. The subsidiary had bonds payable outstanding on January 1, 2013, with a book value of $297,000. The parent acquired the bonds on

1) A new truck was ordered for the sanitation department at a cost of $122,200 on September 3, 2013. Required: (A) Prepare the required journal entry in the General Fund for the Fund Financial Statements. (B) Prepare the required journal entry for the Government-Wide Financial Statements. Answer: Answer: Answer: 2) The following information pertains

1) Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2013, have been restated into U.S. dollars as follows: Assuming the functional currency of the subsidiary is the local currency, what total should be included in Parker's consolidated balance sheet at December 31, 2013, for the above

1) Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2012. Selected account balances are available for the year ended December 31, 2013, and are stated in Euro, the local currency. Assume the functional currency is the U.S. Dollar; compute the U.S. statement of retained

1) The Fratilo Co. had three operating segments with the following information: In addition, revenues generated at corporate headquarters are $1,400 What is the minimum amount of revenue that each of these segments must earn to be considered separately reportable? A.$2,730 B.$2,660 C.$2,800 D.$2,940 E.$2,520 Answer: D Combined Segment Revenues $29,400 x 10% = $2,940 Minimum Amount of

1) The following information pertains to inventory held by a company at December 31, 2013. As a result of inventory loss, what is the difference in income between reporting using U.S. GAAP and IFRS? A.U.S. GAAP income is $1,000 higher. B.U.S. GAAP income is $2,000 lower. C.IFRS income is $1,000 higher. D.IFRS income is $1,000

Answer: Answer: Answer: 2) On January 3, 2013, Austin Corp. purchased 25% of the voting common stock of Gainsville Co., paying $2,500,000. Austin decided to use the equity method to account for this investment. At the time of the investment, Gainsville's total stockholders' equity was $8,000,000. Austin gathered the following information

1) Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. The book value and fair value of Vicker's accounts on that date (prior to creating the combination) follow, along with the book value of Bullen's accounts: Assume that Bullen issued preferred stock with a

1) The following information pertains to inventory held by a company at December 31, 2013. What amount of inventory should be reported under U.S. GAAP? A.$25,000. B.$21,000. C.$20,000. D.$16,800. E.$16,000. Answer: C NRV $21,000 > NRV - Normal Profit ($21,000 x ($21,000 x 20%) = $16,800), so RC becomes carrying Value $20,000 Answer: C NRV $21,000 > NRV

1) White Company owns 60% of Cody Company. Separate tax returns are required. For 2012, White's operating income (excluding taxes and any income from Cody) was $300,000 while Cody reported a pretax income of $125,000. During the period, Cody paid a total of $25,000 in cash dividends; $15,000 (60%) to

1) A company sells a building to a bank in 2013 at a gain of $100,000 and immediately leases the building back for period of five years. The lease is accounted for as an operating lease. The building was originally purchased for $200,000 and currently had a book value of $50,000

1) Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over