Advanced Accounting 12th Edition

SA1–1 SPECIAL APPENDIX 1 UNDERSTANDING THE ISSUES 1. (a) Company E net income ......................... $35,000 Parent’s share ....................................... × 30% $10,500 Less: Equipment amortization

SPECIAL APPENDIX 2 UNDERSTANDING THE ISSUES 1. (a) No equity investment would be shown in this case. The Primary Beneficiary could own various debt or equity securities, but it is not required in order to consolidate. (b) The consolidation is required because the

© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PROBLEM 1-6 Total consideration for Sylvester: Cash ........................................................................................... $580,000 Less fair value of net assets acquired:

1–1 CHAPTER 1 UNDERSTANDING THE ISSUES 1. (a) Product extension—manufacturer ex- pands product lines in boating industry. (b) Vertical forward—manufacturer buys distribution outlets (c) Conglomerate—unrelated businesses (d) Vertical backward—manufacturer ac- quires a supplier (e) Vertical forward—an entertainment company acquires outlets for

CHAPTER 10 UNDERSTANDING THE ISSUES 1. If the U.S. dollar strengthens relative to a FC, this means that the dollar commands more FC. The direct exchange rate will change in that 1 FC will be worth fewer dollars. If a U.S. exporter of goods and ser- vices generates

10–13 Ch. 10—Problems PROBLEM 10-3 (1) The foreign currency transaction: March April Sales (200,000 euros × $1.180) ............................................... $236,000 $ — Cost of goods sold .................................................................... 160,000

CHAPTER 11 UNDERSTANDING THE ISSUES 1. If major cash inflows and/or outflows are not denominated in the entity’s domestic currency, this is a strong indicator that another currency is the functional currency. The company’s financing, sales, and ex- penditure activities should be evaluated in order to identify the primary

© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PROBLEM 11-4 Retained Earnings—Parent ................................................. 832,500 Investment in Spruco ..................................................... 832,500 To

CHAPTER 12 UNDERSTANDING THE ISSUES 1. Viewing an interim period as an integral part of a larger annual period has several benefits. The allocation of expense under this viewpoint provides information that al- lows for more meaningful and insightful predictions of annual results. Furthermore, the effect of certain interim conditions that

12–19 Ch. 12—Problems PROBLEM 12-3 Radix, Inc. Interim Income Statements For the For the Second Year-To-Date Quarter Ended Ended June 30, 2011 June 30, 2011 Net sales (see Schedule A) ................................................. $2,690,000 $4,050,000 Cost of sales

13–1 CHAPTER 13 UNDERSTANDING THE ISSUES 1. Partnerships are generally less formal than other types of organizations and yet it is important to consider a number of factors in a partnership agreement. Individual part- ners have more legal exposure in a part- nership because, unlike a corporation, partnerships are characterized

Ch. 13—Problems 13–16 PROBLEMS PROBLEM 13-1 Allocation of $280,000 of Partnership Income Cumulative Rockford Skeeba Tapinski Total Profit and loss percentage ................ 35% 25% 40% Salary ................................................ $50,000 $40,000 $55,000 $145,000 Bonus based on sales .......................

© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Problem 14-2, Concluded (4) The capital of the original partnership plus the contribution of the new partner would total $181,000 of which Partner

CHAPTER 14 UNDERSTANDING THE ISSUES 1. A major concern is that the value used as a basis for establishing the price an incoming partner should pay is the fair value of the ship ($500,000 versus $400,000). existing partnership’s net assets. Existing capital balances most often do not

© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Problem 15-4, Concluded (e) Encumbrances .......................................................................... 276,000 Fund Balance—Assigned .................................................. 276,000

15–1 CHAPTER 15 UNDERSTANDING THE ISSUES 1. GASB Statement No. 34 stipulates a new reporting model that includes two separate, but related sets of financial statements. The first set, the fund financial statements, focuses on reporting activity as a collection of separate funds with a current working

16–19 Ch. 16—Problems PROBLEM 16-7 (1) b, f (2) b, e (3) d, b (4) a, c PROBLEM 16-8 (1) Entries in the Internal Service Fund: Expenses—Claims and Judgments ................................................ 4,000,000 Cash .........................................................................................

Ch. 16—Problems 16–1 16–1 CHAPTER 16 UNDERSTANDING THE ISSUES 1. Capital projects funds are used to account for the inflows and outflows of financial re- sources raised and expended to acquire major capital assets used by the general government. This accounting is in accor- dance with the flows of

CHAPTER 17 UNDERSTANDING THE ISSUES 1. The new reporting model adopts full accrual accounting for the government-wide statements for both governmental and business-type activi- ties. Therefore, a conversion of the govern- mental fund activity is necessary in order to present government-wide financial statements. Since business-type activities are already rec- orded at

18–1 CHAPTER 18 UNDERSTANDING THE ISSUES 1. Separating the accounting for current activ- ities into restricted and unrestricted funds allows for detailed reporting of resources and spending. This is often done to satisfy donors and/or grantors who require de- tailed reporting of inflows and outflows. In addition, the information

© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Problem 19-5, Concluded Event Fund Journal Entry (8)

19–1 CHAPTER 19 UNDERSTANDING THE ISSUES 1. The measurement focuses used by public universities under GASB Statement No. 34 are both the flows of financial resources and the flows of economic resources. Pri- vate universities use a measurement focus of economic resources. Both entities use full accrual accounting and

2–21 Ch. 2—Problems Problem 2-2, Concluded (3) Roland Company and Subsidiary Downes Company Consolidated Balance Sheet July 1, 2016 Assets Current assets: Other assets ......................................................................... $ 80,000* Inventory (including $20,000 adjustment) ............................

2–1 CHAPTER 2 UNDERSTANDING THE ISSUES 1. (a) Jacobson has a passive level of own- ership and in future periods will record dividend income of only 15% of Bil- trite’s declared dividends. Jacobson will also have to adjust the investment to market value at the end of each period.

2–35 Ch. 2—Problems Problem 2-10, Concluded (2) Palto Company and Subsidiary Saleen Company Worksheet for Consolidated Balance Sheet January 1, 2015 Eliminations Consolidated Balance Sheet and Adjustments Balance Palto Saleen Dr. Cr. NCI Sheet

20–1 CHAPTER 20 UNDERSTANDING THE ISSUES 1. Several of the important goals of estate planning are to identify and clearly commu- nicate the desires and wishes of the dece- dent, maximize the value of the estate’s net assets, minimize the taxes that may be assessed against the assets and income

21–13 Ch. 21—Problems Problem 21-1, Concluded Based on a comparison of the above effective interest rates (3.11% vs. 3.09%), it is apparent that the creditor has made a concession. Therefore, the restructuring qualifies as a troubled debt restructuring. June 30, 2015 Debt Issuance Expense ................................................. 50,000

CHAPTER 21 UNDERSTANDING THE ISSUES 1. Given a restructuring that is not under bankruptcy law, the gain on restructuring is measured as the amount by which the book value of the debt, including accrued inter- est, exceeds the total of all restructured principal and interest payments. If the total

3-79 Ch. 3—Problems Problem 3A-1, Concluded See solution to Problem 3-2 for value analysis, D&D schedule, and amortization schedules. Eliminations and Adjustments: (CY) Eliminate the current-year entries made in the investment account and in the subsidiary income account. (EL)

3-21 Ch. 3—Problems Problem 3-1, Continued Simple Equity Method Sophisticated Equity Method Cost Method Eliminations 2015 (CY1) Subsidiary Income ..... 48,000 Subsidiary Income ........ 44,000 No conversion Eliminated current-

3-61 Ch. 3—Problems Problem 3-14, Concluded Eliminations and Adjustments: (CY1) Current-year subsidiary income. (CY2) Current-year dividend. (EL) Eliminate controlling interest in subsidiary equity. (D) Distribute excess according to D&D schedule. (A) Amortize excess using amortization schedule.

CHAPTER 3 UNDERSTANDING THE ISSUES 1. (a) Subsidiary Income = $40,000. Investment in Subsidiary ($500,000 + $40,000 – $5,000) = $535,000. (b) Subsidiary Income ($40,000 – $7,000 amortization) = $33,000. come has, in the past,

3-41 Ch. 3—Problems Problem 3-8, Continued (2) Detner International and Subsidiary Hardy Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 2017 Eliminations Consolidated Controlling Consolidated Trial Balance and Adjustments Income Retained Balance Detner Hardy

CHAPTER 4 UNDERSTANDING THE ISSUES 1. The intercompany sale will cause both sales and costs of goods sold to be over- stated by $50,000 on the consolidated in- come statement. The amount remaining in ending inventory will cause cost of goods sold to be understated by $3,000 (1/4

4–21 Ch. 4—Problems Problem 4-3, Concluded Eliminations and Adjustments: (CY1) Current-year subsidiary income. (CY2) Current-year dividend. (EL) Eliminate controlling interest in subsidiary equity. (D/NCI) Distribute excess and NCI adjustment. (A) Amortize excess. (IS) Eliminate

4–41 Ch. 4—Problems Problem 4-9, Concluded Eliminations and Adjustments: (CV) Adjust investment for change in Sunco retained earnings, 90% × $50,000 = $45,000. (CY2) Eliminate the entry recording the parent’s share of the subsidiary’s cash dividend. (CY3) Eliminate the intercompany dividend payable and receivable. (EL)

4–55 Ch. 4—Problems Problem 4-13, Continued (2) Amortization Schedule Account adjustments Annual Current Prior to be amortized Life Amount Year Years Total Key Buildings

5–21 Ch. 5—Problems Problem 5-5, Continued Intercompany Inventory Profit Deferral Parent Parent Parent Sub Sub Sub Amount Percent Profit Amount Percent Profit Beginning .............................. $20,000 30% $6,000 — 0% —

CHAPTER 5 UNDERSTANDING THE ISSUES 1. The first approach that could be used to reduce the overall consolidated interest cost but maintain the subsidiary as the deb- tor would have the parent advancing $1,000,000 to the subsidiary so that the subsidiary may retire the bonds. The former debt is retired,

5–57 Ch. 5—Problems Problem 5-15, Concluded (CL1a) Eliminate the intercompany interest expense and revenue on factory lease: Original balance ........................................................................... $103,770 First lease payment ...................................................................... (25,000) First-year interest (12% × $78,770) .............................................. 9,452 Second lease

5–41 Ch. 5—Problems PROBLEM 5-12 Determination and Distribution of Excess Schedule Company Parent NCI Implied Price Value Fair Value (80%) (20%) Fair value of subsidiary ..................... $562,500 $450,000 $112,500 Less book value of interest acquired: Common stock

6–1 CHAPTER 6 UNDERSTANDING THE ISSUES 1. (a) Investing activities—Purchase of Sub Company ($900,000 – $50,000) ................ $(850,000) (b) Investing activities—Purchase of Sub Company ($500,000 – $50,000) ................ $(450,000) Noncash

© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Problem 6-9, Concluded Parson Company and Subsidiary Solar Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 2016 (Concluded)

6–21 Ch. 6—Problems Problem 6-5, Concluded Eliminations and Adjustments: (IS) Eliminate intercompany sales. (BI) Adjustment for beginning inventory profit: Sold by Mercer (0.25 × $2,500) = $ 625 Sold by Dawn (0.40 × $2,000) = 800

CHAPTER 7 UNDERSTANDING THE ISSUES 1. Equity prior to sale of new shares ................................................................................. $200,000 Equity gained by sale .................................................................................................... 650,000 Total equity after sale .................................................................................................... $850,000 Parent interest ............................................................................................................... × 60%

7–21 Ch. 7—Problems Problem 7-2, Concluded Eliminations and Adjustments: (CY1) Eliminate the current-year entries for subsidiary income. (CY2) Eliminate current-year entries for subsidiary dividends. (EL) Eliminate 90% of Craft Company equity balances at the beginning of the year

7–35 Ch. 7—Problems Problem 7-7, Continued Titan Corporation and Subsidiaries Boat Corporation and Engine Corporation Worksheet for Consolidated Financial Statements For Year Ended December 31, 2018 (Concluded) Eliminations Consolidated Controlling Consol. Trial Balance and Adjustments Income

8–35 Ch. 8—Problems Problem 8-6, Continued Mary Company and Subsidiaries John Company and Joan Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 2018 (Concluded) Consoli- Eliminations Consolidated Controlling dated Trial Balance

8–21 Ch. 8—Problems Problem 8-3, Continued Palo Company and Subsidiary Sheila Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 2018 Eliminations Consolidated Controlling Consolidated Trial Balance and Adjustments Income Retained

CHAPTER 8 UNDERSTANDING THE ISSUES 1. The stock dividend will result in the following entry being made by the subsidiary: Retained Earnings (10,000 shares × $50 per share) ................... 500,000 Common Stock ($1 par,

9–1 CHAPTER 9 UNDERSTANDING THE ISSUES 1. Aside from the operational issues associated with parent and subsidiary relationships, sever- al accounting issues become apparent. First, assume that the accounting principles the sub- sidiary uses may differ in certain respects from those of the United States and that the subsidi- ary measures its

DM–13 Derivatives Module—Problems PROBLEM M-2 (1) Corn Futures September 1 September 30 October 31 November 5 Number of bushels. ........................ 1,000,000 1,000,000 1,000,000 1,000,000 Spot price per bushel ...................... $2.5000 $2.5380 $2.5680 $2.5685 Futures price per

DM–1 DERIVATIVES MODULE UNDERSTANDING THE ISSUES 1. The intrinsic value of a forward contract to sell a commodity or currency is determined by comparing the spot rate/price at the date of inception of the forward to the spot rate/price at a later valuation date. At date of inception