Archives: Solution Manual

Wi-Fi Security: “We Spy for U” In 2006 the start-up company, “We Spy for U,” located in the Research Triangle Park in North Carolina, developed a Wi-Fi security system that prevents unauthorized users from hacking into a computer laptop as […]

Who is Responsible? On August 21, 2007, Comfi Beds and Furniture, Inc. planned to purchase Sleep Ezy Corporation, and hired the accounting firm of Loosy and Goosy LLP, to review the audit that had been prepared by Billy Bob and […]

Whistleblowing under Sarbanes-Oxley The case of George Hernondez is a unique one under the whistleblower protection provision of the Sarbanes-Oxley Act because it is the first documented case where someone who sued under Section 806 of the Act was given […]

The CPA Review Course The CPA review course, “Results and Performance,” or RAP is coming to the campus of State University to talk to accounting and other interested students about their review program. Daniel Justin is the campus representative for […]

The State of Nirvana The state of Nirvana was formed as the 51st state of the United States of America in 2010 after California decided to split in two. The northern part of the state became the State of Nirvana […]

The New Staff Member Pavzi Razzouk is working on his first audit after graduation. He came across an unusual transaction. The client had recorded $1million in operating revenue that represented a payment from a customer who had backed out of […]

The Lecturer It was reported in the Los Angeles Times on March 25, 2006 (Page B7) that a business school lecturer at USC was arrested by FBI agents for allegedly bilking students out of more than $1.5 million and spending […]

The Ethics of iPod-ing Your accounting professor just finished a lecture on why it is unethical to download music to an iPod. According to Professor Goody, it is wrong to download music from iTunes Music Store because the artists that […]

The City of West Buckle Kile Jalop is the chief of police of the city of West Buckle. Jalop was the chief of a smaller town and decided to move up after three years. He accepted the offer from the […]

Second National Bank v. First National Bank1 This case involves three parties: 1. A customer, Paul Gerry, who went to a bank and established a relationship after which (about one year later), the customer was allowed to open a revolving […]

Peachtree Enviro-Management Systems Peachtree Enviro-Management Systems is a large provider of trash hauling services primarily in the Atlanta area. The company grew in its early years from $1 million in assets, $700,000 in revenue, and $100,000 in net income in […]

Lupeville Senior Center Lupeville Senior Center serves adults over sixty years of age by providing in home nursing care and residential facilities. The center in Lupeville, Indiana can accommodate up to one hundred residents. The facility was recently investigated for […]

Hot & Cold Inc. Hot & Cold Inc., is a publicly-owned company headquartered in the Los Angeles area. It is a global company with thousands of employees around the world. The company manufactures an extensive variety of temperature measuring equipment […]

Gelt and Moola Gelt Systems is a publicly-owned corporation based in Portland, Oregon. Gelt designs and develops networks communication hardware and software products and provides related support services. Gelt is audited by Ducks and Beavers LLP, a regional firm located […]

Foreign Corrupt Practices Act Allison Yancy and Ginger Boggs just finished playing four hours of board games following a contentious meeting with top management over the responsibility of Monosystems International, a company each had worked for from 1999-2009, for instituting […]

Busyboto Scooter Sales, Inc. Busyboto Scooter Sales, Inc. is the largest manufacturer of scooter bikes in the world. In 2003, the company announced a revolutionary scooter, a 250cc bike with sporty styling and advanced electronic features, including the Busyboto B-Matic […]

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 Foreign […]

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 […]

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 […]

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 […]

CHAPTER 9 FOREIGN CURRENCY TRANSACTIONS AND HEDGING FOREIGN EXCHANGE RISK Chapter Outline I. In today’s 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 […]

Develop Your Skills Research Case 1—Segment Reporting (60 minutes) This assignment requires the student to select a company and find the note on operating segments in that company’s annual report. The responses to this assignment will depend upon the company […]

24. C (Determine reportable segments under three tests) Revenue Test Combined segment revenues $32,750,000 10% criterion x 10% Minimum $ 3,275,000 24. (continued) Asset Test Combined segment assets $67,500,000 10% criterion x 10% Minimum $ 6,750,000 Segments meeting test—A, B, […]

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 […]

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 […]

25.(continued) Entry E Operating Expenses ………….………..………..………..….. 2,000 Equipment ………..………..………..………..………..…..….. 5,000 Franchise Contracts …………………..….…..….….….. 4,000 Cost of Goods Sold………….……….….…..….….……. 200,000 (To eliminate intra-entity inventory sales for the current year.) Entry G Cost of Goods Sold………….………..………..………….….. 18,000 Inventory……………………………..………..………….…… 18,000 (To defer unrealized […]

17. (30 Minutes) (Consolidated net income figures for a connecting affiliation) UNREALIZED GROSS PROFIT: Wisconsin ($40,000 remaining inventory × 30% markup) = $12,000 NONCONTROLLING INTERESTS: CLEVELAND: Operating income (sales minus cost of goods sold and expenses) ………..………..………..………..…………..…..….…… $60,000 Defer unrealized […]

CHAPTER 7 CONSOLIDATED FINANCIAL STATEMENTS—OWNERSHIP 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 […]

46.(40 Minutes) (Compute basic and diluted earnings per share. Subsidiary has stock warrants outstanding and convertible debt.) Basic EPS—Austin, Inc. Consolidated net income to parent….…..…..…..…..…..… $284,000 Austin’s preferred dividends …………………………..………. (40 ,000) Diluted EPS—Austin, Inc. Subsidiary earnings and shares for […]

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 Total $20,500 CONSOLIDATION ENTRIES Entry *TL Investment in Herman ………..…………….………………… 7,000 Land […]

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 […]

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 equipment 916,000 336,000 1,252,000 Research and development asset A1,960,000 1,960,000 Patent 191,000 […]

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 […]

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 to customer […]

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 […]

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 remaining inventory ($5,000). Entry *TA Equipment……….………….………….…..…..…..…… 4,000 Investment in Sledge ……….…..…..…..…..….…. […]

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 Consolidated net income…………..……….………..……….…………… […]

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 […]

39. (25 minutes) (Consolidated balances after a mid-year acquisition) a. Investment account balance indicates the initial value method. Consideration transferred by Gibson……. $528,000 Noncontrolling interest fair value ………… 352 ,000 Davis acquisition-date fair value …..…..…. 880,000 5 years………………………..…..…..…..$(6,000) Goodwill ………..……………….…..…..… […]

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 net income (437,000) (215,000) Consolidated net income (450,500) To noncontrolling interest (13,500) (13,500) […]

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 Consolidated figures: Net income attributable to noncontrolling interest = 40%  ($50,000 revenues less […]

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 consolidation—only enough voting shares need be owned so that […]

Chapter 3 – Computer Project PECOS COMPANY AND SUARO COMPANY Consolidated Information Worksheet Pecos Suaro Revenues (1,052,000) (427,000) Retained earnings—Pecos, 1/1 Retained earnings—Suaro, 1/1 0 (201,000) Net income (above) 0 (165,000) Dividends declared 200,000 35,000 Retained earnings, 12/31 (331,000) Cash […]

36. (20 Minutes) (Consolidated balances three years after acquisition. Parent has applied the equity method.) a. Schedule 1—Acquisition-Date Fair Value Allocation and Amortization Jasmine’s acquisition-date fair value $206,000 Excess fair value assigned to specific accounts based on individual fair values […]

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 — — earnings) less $5,000 in amortization expense computed […]

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) ………………..…..…..……. […]

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 […]

CHAPTER 3 CONSOLIDATIONS—SUBSEQUENT 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 […]

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 […]

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)……………………..…………….… […]