(20-30 min.) P 8-59A
Req. 1
Debt ratio of Spindler
considered alone
=
Total liabilities
=
$65.3
=
0.767
Total assets
$85.1
Req. 2
SMCC
Eliminations
Consolidated
Totals
Debit
Credit
(a) $13.3
Total assets …………….
$169.2
(b) 1.3
$239.7
Total liabilities …………
(b)$ 1.3
equity …………………..
Req. 3
Consolidated debt
ratio of Spindler
=
Total liabilities
=
$219.9
=
0.917
Total assets
$239.7
Consolidation of the finance subsidiary increased Spindler’s reported
debt ratio from 0.767 to 0.917. Companies would prefer to report a
(35-45 min.) P 8-60A
Req. 1
Ronny, Inc.
Consolidation Work Sheet
September 30, 2016
ELIMINATIONS
CONSOLIDATED
ASSETS
RONNY
BIRCHER
DEBIT
CREDIT
AMOUNTS
Cash
54,000
20,000
74,000
Accounts receivable, net
196,000
88,000
284,000
Note receivable from Bircher
194,000
—
(b) 194,000
0
Inventory
346,000
815,000
Plant assets, net
381,000
Investment in Bircher
362,000
Total
1,533,000
1,061,000
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Accounts payable
126,000
75,000
201,000
Notes payable
400,000
330,000
(b) 194,000
536,000
Other liabilities
231,000
525,000
Common stock
588,000
254,000
(a) 254,000
588,000
Retained earnings
188,000
(a) 108,000
_______
(20-25 min.) P 8-61A
Req. 1
Investment Opportunity A
Year
Cash
Flow
x
Factor
=
PV of
Cash Flow
1
$7,000
x
.877
=
$ 6,139
2
9,000
X
.769
=
6,921
$22,510
Investment Opportunity B
PV of cash flow = $10,000 x 2.322 = $23,220
(20-25 min.) P 8-62A
Req. 1
This situation will generate a positive translation adjustment, which is
like a gain. The gain occurs because the yen’s current exchange rate,
which is used to translate the subsidiary’s net assets, is greater than
the historical exchange rates at which Mason Corp. invested in the
Japanese subsidiary.
YEN
EXCHANGE
RATE
DOLLARS
Assets
410,000,000
$.0090
$3,690,000
Liabilities
145,000,000
.0090
$1,305,000
Stockholders’ equity:
Common stock
25,000,000
.0075
187,500
Retained earnings
240,000,000
.0088
Accumulated other
comprehensive income:
Foreign-currency
translation adjustment
The foreign currency translation adjustment is reported in accumulated
other comprehensive income in stockholders’ equity on the balance sheet
and other comprehensive income on the statement of comprehensive
income .
Req. 2
(45-60 min.) P 8-63B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2016
Jan.
1
Held-to–Maturity Investment in Bonds
($3,900,000 × 1.14) ………………………………..
4,446,000
Cash ……………………………………………….
4,446,000
To purchase bond investment.
July
1
Cash ($3,900,000 × .04 × 6/12) ……………….
78,000
Interest Revenue ……………………………..
78,000
To receive semiannual interest.
1
Interest Revenue ………………………………….
68,250
Held-to-Maturity Investment in Bonds
[($4,446,000 − $3,900,000) / 48*] × 6 …..
68,250
Req. 2
Oct.
31
Interest Receivable
($3,900,000 × .04 × 4/12) ………………………..
52,000
Interest Revenue ……………………………..
52,000
To accrue interest revenue.
31
Interest Revenue ………………………………….
45,500
Held-to-Maturity Investment in Bonds
_____
*Amortization period: 48 months, from January 1, 2016 to January 1, 2020.
(continued) P 8-63B
Req. 3
Balance sheet at October 31, 2016:
Current assets:
Interest receivable ……………………………………………
$ 52,000
Property, plant, and equipment, net ……………………..
Income statement for the year ended October 31, 2016:
Other revenues:
Interest revenue ($78,000 − $68,250 + $52,000 − $45,500)…
$16,250
(20-30 min.) P 8-64B
Req. 1
Current fair value is used to account for the available-for-sale
investment in Amsterdam, Inc., because the investor expects to sell the
stock at its market value. Fair value is clearly relevant to the investor’s
decisions about this investment.
(continued) P 8-64B
Req. 2
Balance sheet:
ASSETS
Total current assets ……………………………………………………
$ XXX
Property, plant, and equipment, net …………………………….
XXX
Long-term assets:
Equity-method investment ………………………………………..
575,590*
Investment in AFSS ………………………………………………….
30,900
STOCKHOLDERS’ EQUITY
Common stock …………………………………………………………..
$ XXX
Retained earnings ………………………………………………………
XXX
Accumulated other comprehensive income:
Unrealized (loss) on investment in AFSS
Income statement :
Income from operations ……………………………………………..
$ XXX
Other revenue:
Dividend revenue (1,100 × $.34) …………………………..……
Net income ………………………………………………………………..
Statement of Comprehensive Income:
Other comprehensive income:
Unrealized (loss) on investment in AFSS …………………..
(15,575)
_____
*Equity-Method Investment
Purchase
340,000
Net income
Dividends received
($580,000 × .45)
261,000
(21,000 × $1.21)
25,410
Balance
575,590
(45-60 min.) P 8-65B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Mar.
Investment in AFSS (2,200 × $12.00) ……………
Cash ……………………………………………………..
26,400
Purchased investment.
May
21
Cash (2,200 × $2.50) …………………………………..
5,500
Dividend Revenue ………………………………….
Received cash dividend.
Aug.
17
Cash …………………………………………………………
85,000
Equity-Method Investment in NEW Software..
85,000
Received cash dividend on equity-method
investment.
Dec.
31
Equity-Method Investment in NEW Software
($550,000 × .26) ………………………………………….
143,000
Equity-Method Investment Revenue ………..
143,000
To record investment revenue.
31
Allowance to Adjust Investment in AFSS
Unrealized Gain on Investment in AFSS …..
Adjusted investment to market value.
(continued) P 8-65B
Req. 2
Equity-Method Investment
Jan.
1
Balance
614,000
Aug.
17
Dividends
85,000
Dec.
Balance
Req. 3
Total current assets …………………………..………………………..
$ XXX
Long-term assets:
Investment in AFSS ……………………………………………………
26,600
Equity-method investment ………………………………………….
672,000
STOCKHOLDERS’ EQUITY
Accumulated other comprehensive income:
Unrealized gain on investment in AFSS
(20-30 min.) P 8-66B
Req. 1
Debt ratio of Randall
considered alone
=
Total liabilities
=
$63.9
=
0.793
Total assets
$80.6
Req. 2
Randall
RMCC
Eliminations
Consolidated
Totals
Debit
Credit
(a) $1.6
Total assets ……………….
$80.6
$164.8
(b) 9.4
$234.4
Total liabilities ……………
$63.9
$155.4
$217.7
Req. 3
Consolidated debt
ratio of Randall
=
Total liabilities
=
$217.7
=
0.929
Total assets
$234.4
Consolidation of the finance subsidiary increased Randall’s debt ratio
from 0.793 to 0.929. Companies would prefer to report a lower debt
ratio, so they would prefer not to consolidate the financial statements
(35-45 min.) P 8-67B
Req. 1
Robertson, Inc.
Consolidation Work Sheet
September 30, 2016
ELIMINATION
CONSOLIDATED
ASSETS
ROBERTSON
DINETTE
DEBIT
CREDIT
AMOUNTS
Cash
59,000
57,000
116,000
Accounts receivable, net
199,000
87,000
286,000
Note receivable from Dinette
197,000
(b) 197,000
Inventory
294,000
412,000
706,000
Plant assets, net
Investment in Dinette
Total
997,000
1,937,000
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Accounts payable
121,000
77,000
198,000
Notes payable
405,000
335,000
(b) 197,000
543,000
Other liabilities
212,000
296,000
508,000
Common stock
550,000
272,000
550,000
Retained earnings
(15-20 min.) P 8-68B
Req. 1
Investment Opportunity X
Year
Cash
Flow
x
Factor
=
PV of
Cash Flow
1
$ 8,000
x
.926
=
$ 7,408
2
5,000
x
.857
=
4,285
$25,191
Investment Opportunity Y
PV of cash flow = $10,000 x 2.577 = $25,770