1) Porter Corporation acquired 70% of the outstanding voting common stock of
Sherman Inc. in 2004 . On January 1, 2005, Sherman Inc. purchased a depreciable
machine for $120,000 cash with an estimated useful life of 10 years that was
depreciated on a straight-line basis. The machine has no estimated salvage value.
Sherman used the machine until the end of 2007 . On January 2, 2008, Sherman sold
the machine to Porter who continued to use the same estimated life (seven years
remaining), salvage value and depreciation method that was used by Sherman. At the
end of 2008, Sherman reported a gain on sale of the machine of $14,000.
Required:
Answer the following questions concerning Porter and Sherman.
1>Prepare elimination/adjusting entries for the consolidated working papers for the year
ended December 31, 2008 .
2>How much depreciation expense relating to the transferred asset did Porter record in
2008 on the company’s separate books?
3>How much depreciation expense relating to the transferred asset was reported on the
consolidated income statement in 2008?
4>What amounts were reported for the Machine and the Accumulated Depreciation in
the consolidated balance sheet on December 31, 2008?
2) On December 31, 2010, Patenne Incorporated purchased 60% of Smolin
Manufacturing for $300,000. The book value and fair value of Smolin’s assets and
liabilities were equal with the exception of plant assets which were undervalued by
$60,000 and had a remaining life of 10 years, and a patent which was undervalued by
$40,000 and had a remaining life of 5 years. At December 31, 2012, the companies
showed the following balances on their respective adjusted trial balances:
PatenneSmolinSmolin
Book ValueBook ValueFair Value
Assets (includes
Investment in Smolin)$950,000300,000320,000
Plant assets – net 590,000150,000150,000
Patent 310,000200,000280,000
Expenses800,000300,000
Liabilities 480,000120,000120,000
Common Stock300,000100,000
Retained Earnings890,000330,000
Revenue980,000400,000
Requirement 1: Calculate the balance in the Plant assets – net and the Patent accounts
on the consolidated balance sheet as of December 31, 2012 .
Requirement 2: Calculate consolidated net income for 2012, and the amount allocated
to the controlling and noncontrolling interests.
Requirement 3: Calculate the balance of the noncontrolling interest in Smolin to be
reported on the consolidated balance sheet at December 31, 2012 .
3) Lesher Corporation lost their primary contract and entered into voluntary Chapter 7
bankruptcy in the early part of 2012 . By July 1, all assets were converted into cash, the
secured creditors were paid, and $124,500 in cash was left to pay the remaining claims
as follows:
Accounts payable$50,000
Claims incurred between the date of filing an involuntary
bankruptcy petition and the date an interim trustee is appointed8,000
Payroll taxes withheld14,000
Wages payable (all under $10,000 per employee; earned within
90 days of filing bankruptcy petition)56,000
Unsecured note payable37,500
Accrued interest on the note payable2,000
Administrative expenses of the trustee22,000
Total$189,500
Required:
Classify the claims by their Chapter 7 priority ranking, and analyze which amounts will
be paid and which amounts will be written off.
4) The balance sheet of the Ama, Bade, and Calli partnership on May 1, 2011 (before
commencement of partnership liquidation) was as follows:
Cash$108,000Accounts payable$56,000
Inventory120,000Notes payable120,000
Loan to Ama20,000Ama, capital (30%)64,000
Loan to Calli32,000Bade, capital (50%)180,000
Plant assets-net220,000Calli, capital (20%)80,000
Total assets$500,000Total liab./equity$500,000
Liquidation events in May were as follows:
– The inventory was sold for $12,000 below book value;
– Plant assets with a book value of $100,000 were sold for $120,000.
Required:
Determine how the available cash on May 31, 2011 should be distributed.
5) On January 1, 2011, Palling Corporation purchased 70% of the common stock of
Sam’s Storage Systems for $320,000 when Sam’s had Common Stock outstanding of
$100,000 and Retained Earnings of $200,000. Any excess differential was attributed to
goodwill.
At the end of 2011, Palling and Sam’s had unrealized inventory profits from
intercompany sales of $6,000 and $8,000, respectively. These year-end profit amounts
were realized in 2012 . At the end of 2012, Palling held inventory acquired from Sam’s
with a $10,000 unrealized profit. Palling reported separate income of $100,000 for 2012
and paid dividends of $30,000. Sam’s reported separate income of $70,000 for 2012 and
paid dividends of $20,000.
Required:
Compute the controlling interest share of consolidated net income for 2012 .
6) Wild West, Incorporated (a U.S. corporation) sold inventory to a company in the
Philippines for 1,600,000 pesos on account on February 1, 2011, with payment
expected in 90 days. Wild West entered into a forward contract to hedge this
transaction, and properly accounts for the transaction as a cash flow hedge. Wild West
has a March 31 fiscal year end, and uses an 8% discount rate, resulting in a 30-day
present value factor of .9934. The forward contract is settled net. The relevant exchange
rates are shown below:
Required:
Record the journal entries needed by Wild West on February 1, March 31, and May 2 .
Round all entries to the nearest whole dollar.
7) Wilhelman University, a not-for-profit, nongovernmental university, had the
following transactions in 2011 .
1>Tuition bills were sent amounting to $4,000,000, with tuition waivers granted on that
amount of $200,000.
2>State funding was received in the amount of $2,000,000.
3>The bookstore and cafeteria sales amounted to $1,600,000, and their cost of sales
was $1,500,000. Assume cash sales and cash purchases for these auxiliary operations.
4>Endowment income amounted to $100,000 that was restricted to chair the accounting
department, and $200,000 of unrestricted income.
5>Expenses were incurred and paid as follows: faculty, $3,800,000 (including faculty
chair, paid in part by endowment income); Student services, $250,000; Facilities
operations, $350,000; and scholarships (excluding tuition waived), $400,000.
Required:
Prepare the journal entries for 2011 for Wilhelman University.
8) A summary balance sheet for the partnership of Quail, Rainne and Selma on
December 31, 2011 is shown below. Partners Quail, Rainne and Selma allocate profit
and loss in their respective ratios of 6:3:1.
Assets
Cash$ 320,000
Marketable securities640,000
Inventory270,000
Land130,000
Building-net210,000
Total assets$1,570,000
Equities
Quail, capital$ 670,000
Rainne, capital580,000
Selma, capital320,000
Total equities$1,570,000
The partners agree to admit Trask for a one-tenth interest. The fair market value for
partnership land is $260,000, and the fair market value of the inventory is $370,000.
Required:
1>Record the entry to revalue the partnership assets prior to the admission of Trask.
2>Calculate how much Trask will have to invest to acquire a 10% interest.
3>Assume the partnership assets are not revalued. If Trask paid $300,000 to the
partnership in exchange for a 10% interest, what would be the bonus that is allocated to
each partner’s capital account?
9) On September 1, 2011, Nelson Corporation acquired a 90% interest in Corbin
Corporation for $900,000. Corbin’s stockholders’ equity at January 1, 2011 consisted of
$200,000 of Common Stock and $600,000 of Retained Earnings. The book values of its
assets and liabilities were equal to their respective fair values on this date. All excess
purchase cost was attributed to goodwill.
During 2011, Corbin uniformly earned $98,000 and paid dividends of $19,000 on each
of four dates: February 1, June 1, August 1, and December 1 .
Required: Compute the following:
1> Implied goodwill associated with Corbin Corporation based on Nelson’s purchase
price on September 1, 2011 .
2> Nelson’s income from Corbin for 2011 .
3> Preacquisition income for Nelson Corporation and Subsidiary for 2011 .
4> Noncontrolling interest share for 2011 .
5> What is the balance in Nelson’s Investment in Corbin account at December 31,
2011?
10) On December 31, 2011, Lorna Corporation has the following information available:
Common stock, $10 par$200,000
Additional paid-in capital60,000
Retained earnings40,000
Total stockholders’ equity$300,000
On December 31, 2011, Gerald Corporation buys an 80% interest in Lorna Corporation
for $240,000. On December 31, 2011, the fair value of Lorna’s assets and liabilities are
equal to the respective book values.
Required:
1> On January 1, 2012, Lorna Corporation buys 500 shares of common stock from
noncontrolling stockholders at $20 per share. Prepare the journal entry for Gerald
Corporation on January 1, 2012 . Use four decimal places for the ownership percentage.
2> On January 1, 2012, Lorna Corporation buys 500 shares of common stock from
noncontrolling stockholders at $30 per share. Prepare the journal entry for Gerald
Corporation on January 1, 2012 . Use four decimal places for the ownership percentage.
3> On January 1, 2012, Lorna Corporation buys 500 shares of common stock from
noncontrolling stockholders at $10 per share. Prepare the journal entry for Gerald
Corporation on January 1, 2012 . Use four decimal places for the ownership percentage.
