ACC 401 Exam 2 Fall 2023 Solution
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Accounting
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Jun 8, 2024
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1
Professor Beck Name______________
Fall 2023
ACC 401 Exam 2 Solution
Point allocations are as follows:
Maximum Points Points Earned
Part 1
45
Part 2
48
Part 3
12
Total Points
105
You will have 90 minutes to complete the exam. You must show your supporting calculations to receive credit.
1
Part 1 (45 pts)
On 1/1/X1, P Company had a market value of $1,200,000 acquired 80% of Slim Company for $960,000. On the date of acquisition, S reported the following equity balances:
Capital Stock: $1 Par
100,000
Additional Paid in Capital
400,000
Retained Earnings
500,000
An appraisal of Slim’s assets on 1/2/X1 provided the following information:
Asset
Fair value
Book Value
Inventory
$100,000
$90,000
Building (10-yr life)
$150,000
$130,000
Land
$100,000
$80,000
Additional Information:
During year X1, Slim reported a $120,000 income and paid $20,000 of dividends.
Required
:
1. Calculate and Allocate the total Differential on the date of acquisition. (8)
Capital Stock: $1
Par
100,000 Asset
Fair value
Book Value
Differenc
e
P's 80% Share
Additional Paid in
Capital
400,000 Inventor
y
$100,000 $90,000 $10,000 $16,000.
0 Retained Earnings
500,000 Building (10-yr life)
$150,000 $130,00
0 $20,000 $16,000.
0 total Book Equity
1,000,000 Land
$100,000 $80,000 $20,000 $16,000.
0 Market Value
1,200,000 Total Allocatio
n
$50,000 $48,000 Total Differential
200,000 Goodwill
150,000
P's 80% share
160,000
2
2. Prepare P’s investment entries for year X1 under the assumption that the equity method is used and calculate the value of the Slim investment on 12/31/X1. Show supporting calculations. (12)
Investment Entries:
Calculations:
Investment in Slim
960,000
Investment (1/1)
960,000
Cash
960,000
96,000
(9,600)
Investment
96,000 (16,000)
Investment income
96,000 Investment (12/31)
1,030,400
Investment income
9,600 Investment
9,600 (.8*[$10,000 +$2,000])
Cash
16,000 Investment in Slim
16,000
(Dividends)
Amortization
:
COGS
$8,000 (.8*10,000)
Depreciation
$1,600 (.8*20,000/10)
Amortization
$9,600 Investment Entries:
Investment in Slim
960,000 Cash
960,000 Investment
96,000 Investment income
96,000 Investment income
9,600 Investment
9,600 Cash
16,000
Investment in Slim
16,000
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3
3. Assume that trial balances will be consolidated on 12/31/X1. Prepare the consolidation worksheet entries. (20 pts)
Consolidation Entries: Investment Income 86,400 Investment in Slim 70,400 Dividends Paid 16,000 COGS 20,000 Goodwill 140,000 Building 20,000 Land 20,000 Retained Earnings 500,000 Capital Stock 100,000 Additional PIC 400,000 Investment 960,000 NCI 240,000 Depreciation 2,000 Building 2,000 (I recorded COGS directly. However, students could allocate $10,000 to inventory and then expense the inventory in using separate entries.)
4. Calculate NCI on 12/31/X1. (5)
NCI (1/1/X1)
240,000
+NCI’s 20% share of Income
21,600
-NCI’s 20% share of dividends
-4,000
NCI (12/31/X1)
257,600
(You can multiply is by 4 and get P’s investment value of 1,030,400)
4
Part 2: Internal Sales (48 pts)
Big Company acquired 70% of Small Company for $700,000 when Small Company reported the following equity:
Capital Stock: $1 par
100,000 Additional PIC
400,000 Retained Earnings
500,000 Total Book Equity
1,000,000 Additional information
:
During year X1, Small reported a $150,000 income. Small sold 1,000 units of Inventory to Big for $35 each which had a $10 cost per unit. A on 12/31/X1, a count revealed that 300 of the units purchased from Small remained in Big’s inventory.
Required
:
1. Calculate Big’s investment income for year X1 and prepare Big’s investment entries. Show calculations.
(15)
Investment in Small
700,000 Cash 700,000 Small's Internal Sales Profit:
Sales Revenue
35,000 COGS
10,000 Gross Profit
25,000 Unrealized (30%)
7,500 Small's Reported Income
150,000 Deduct: Unrealized Profit
(7,500)
Small's Realized Profit
142,500 Big's 70% Share
99,750 Investment in Small
99,750 Investment Income
99,750
5
2. Assume that the trial balances of Big and Small will be consolidated on 12/31/X1. Prepare the consolidation worksheet entries. (15)
Investment Income
99,750 Investment
99,750 Capital Stock: $1 par
100,000 Additional PIC
400,000 Retained Earnings
500,000 Investment in S
700,000 NCI (30%)
300,000 Sales Revenue
10,500.0 COGS
3,000.0 Inventory
7,500.0 3. Calculate NCI on 12/31/X1. (6 pts)
NCI Calculation
:
NCI on 1/1/X1
300,00
0 (.3*$1,000,000) Add : 30% of Small's Realized Income
42,750
(.3*$142,500) NCI on 12/31/X1
342,75
0
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6
4. Assume that Small reported $160,000 of income in year X2 and that Small sold 500 units of inventory to P for $40 each that had a unit cost of $15. On 12/31/X2, a count revealed that 200 of the units purchased from Small in year X2 remained in Big’s inventory. (12 pts)
How much investment income should Big recognize in year X2? Show calculations.
Small's Internal Sales Profit in X2:
Sales Revenue
20,000 COGS
7,500 Gross Profit
12,500 Unrealized X2 Profit (40%)
3,750 Small's Reported Income
150,000 Deduct: Unrealized X2 Profit
(3,750)
Add: Unrealized X1 Profit
7,500 Small's Realized Profit
153,750 Big's 70% Share
107,625 Investment in Small
107,625 Investment Income
107,625 Part III. Short Answer questions (12 pts)
1. When affiliated companies make internal sales to each other, why is unrealized profit eliminated? (6)
Internal sales merely shift assets from one affiliate to another, but do not actually increase consolidated assets.
To create income for the consolidated entity, consolidated assets must increase. Consolidated assets will increase only when assets are sold to outsiders for more than their internal cost.
2. GAAP requires investors to allocate the differential to mis-valued assets and record amortization on some of the asset allocations. Explain why the allocation and amortization are required. (6)
The differential allocation is made so that assets are recorded at fair value, thus reflecting the purchase price.
If the investee had re-valued depreciable/amortizable assets, the cost basis of inventory and or the amortization/depreciation base of assets would be increased. Thus, the amortization represents an adjustment to the COGS and/or depreciation (amortization) expense recorded by the investee.
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EXCELSIOR COMMUNITY COLLEGE
HOSPITALITY MANAGEMENT ACCOUNING
MID-SEMESTER
ACCT4301
UNIT 2
Section A of this assessment is to be done on Canvas
Section B
Answer all questions in this section - round off your answers to two decimal places
Instructions: Responses should be written on paper. Take a CLEAR, WELL-LIGHTED
picture of each page, the upload to Canvas.
1. The following information relates to Moonlight Hotel
2018
2019 $ change % change
Net sales
1,818,500 1,750,000
Cost of Goods Sold
1,005,500 996,000
Operating profit
813,000 754,000
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506,000 479,000
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19,000
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Onfo
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ZOOM +
Pretax financial income
$480,000
Estimated litigation expense
189,000
Installment sales
(160,000)
Taxable income
$509,000
The estimated litigation expense of $189,000 will be deductible in 2021 when it
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classified as $80,000 current and $80,000 noncurrent. The income tax rate is
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Income tax expense
46°F
Mostly clear
ENG
INTL
ovo
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Start
$1.00
23456
89 10 TV
Key Assumptions
Construction cost ($)
Loan ($)
1,000,000
500,000
Loan interest rate
Loan term (yrs.)
Hangar space (sq.ft.)
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4.8%
22,000
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Rent inflator
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140.000
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Tax rate
21.0%
Discount rate
6.5%
Depreciation/year ($)
20,000
Cash Flows
Rent Income
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minus: Depreciation
= Taxable Income
minus: Taxes
= Net Income
minus: Principal
= Net Operating Cash Flow
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plus: Depreciation
Total Cash Flows
NPV
IRR
Note: Tax shields are the tax gains from expensing interest and depreciation. The formula is interest or depreciation expense times the tax rate
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help please answer in text form with proper workings and explanation for each and every part and steps with concept and introduction no AI no copy paste remember answer must be in proper format with all working!!
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OCX
nsert
Layout
References
Review
View
Help
O Tell me what you want to do
Editing v
Arial
v 18
A
A
ev A
E E E E
Dictate
...
1. Assume that at the beginning of Year 1, Porter Airlines purchased a Bombardier
Q400 aircraft at a cost of $25,000,000. Porter expects that plane to remain useful
for five years (5,000,000 km) and to have a residual value of $2,000,000. Porter
expects the plane to be flown 750,000 km the first year, and 1,250,000 km each
year during years 2 through 4, and 500,000 km the last year (Year 5).
Complete Porter's depreciation table using:
a. straight-line
Calculate annual depreciation: (show your calculation here)
Net
Accumulated
Net
Depreciation
Expense
Book Value
Depreciation
Book Value
Year 1
25,000,000
Year 2
Year 3
Year 4
Year 5
2,000,000
b. double-declining-balance
Useful life; 2? Rate: ??
Double the rate to ??
Depreciation
Expense
Net Book
Accumulated
Net Book
Value
Rate
Depreciation
Value
Year 1
Year 2
Year 3
Year 4
Footer
Year 5
Plug in
100%
ords
English…
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Sheridan Company accepted a national credit card for a $4500 purchase. The cost of the goods sold is $2400. The credit card company
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O Increase by $2037
O Increase by $4365
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More Info
Investment cost
$120
$170
$270
$420
$540
$720
(thousands)
Annual revenue
minus expense
(thousands)
$17
$44.5
$57
$89 5
Si11.5
$145.5
IRR on total
14.2%
26 2%
21.1%
21.3%
20.6%
20.2%
investment
Print
Done
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