Exam2WordBascombRebecca

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Indiana Institute of Technology *

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4700

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Accounting

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Apr 3, 2024

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1 ADV ACCT Exam 2 Chapter 5, 6, 7 and 11 Name: _ Rebecca Bascomb _______________ P1) Presented below are several figures reported for Plate Corporation and Saucer Industries as of December 31, 2014. The cost of the 70% investment was equal to 70% of the book value of Saucer's net assets. At the time of purchase, the fair values and book values of Saucer's assets and liabilities were equal. Plate Saucer Inventory $120,000 $60,000 Sales 200,000 140,000 Cost of Goods Sold 130,000 80,000 Expenses 40,000 30,000 In 2013, Saucer sold inventory to Plate which had cost $40,000 for $60,000. 25% of this inventory remained on hand at December 31, 2013, but was sold in 2014. In 2014, Saucer sold inventory to Plate which had cost $30,000 for $45,000. 40% of this inventory remained unsold at December 31, 2014. (30 pts.) Required : Calculate following balances at December 31, 2014. a. Consolidated Sales b. Consolidated Cost of goods sold c. Consolidated Expenses d. Noncontrolling interest share of Saucer's net income e. Consolidated Inventory a. Consolidated Sales Combined Sales (120,000+60,000) 180,000 Less: Intracompany Sales (60,000) Consolidated Sales 120,000 b. Consolidated Cost of goods sold Combined COGS (130,000+80,000) 210,000 Less: Intercompany sales (45,000) Less: Profit deferred from prior year (60,000-40,000)*25% (5,000) Plus: Profit deferred to next year (45,000-30,000)*40% 6,750 Consolidated COGS 166,750 c. Consolidated Expenses Combined Expenses (40,000+30,000) 70,000 d. Noncontrolling interest share of S’s net income S reported net income (140,000-80,000-30,000) 30,000 Plus: Profit deferred from prior year (60,000-40,000)*25% 5,000

2 Less: Profit deferred to next year (45,000-30,000)*40% (6,750) S adjusted separate net income 28,250 Noncontrolling interest share (30%) 8,475 e. Consolidated Inventory Combined Inventory (120,000+60,000) 180,000 Less: Unrealized profit in ending inventory (6,750) Consolidated Inventory 173,250

3 P2.) Peregrine Corporation acquired an 80% interest in Serine Corporation in 2011 at a time when Serine's book values and fair values were equal to one another. On January 1, 2014, Serine sold a truck with a $55,000 book value to Peregrine for $100,000. Peregrine is depreciating the truck over 10 years using the straight-line method. The truck has no salvage value. Separate incomes for Peregrine and Serine for 2014 were as follows: (30 pts.) Peregrine Serine Sales $1,800,000 $1,050,000 Gain on sale of truck 45,000 Cost of Goods Sold (750,000) (285,000) Depreciation expense (450,000) (135,000) Other expenses (180,000) (450,000) Separate incomes $ 420,000 $ 225,000 Calculate Peregrine's investment income from Serine for 2014: S reported income 225,000 Less: Intercompany gain on truck (45,000) Plus: Recognition of gain (45,000/10) 4,500 S’s adjusted income 184,500 Majority percentage 80% Income from S 147,600

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4 P3.) Pigeon Company owns 80% of the outstanding stock of Spiniflex Corporation, which was purchased on January 1, 2008, when Spiniflex's book values were equal to its fair values. The amount paid by Pigeon included $16,000 for goodwill. On January 1, 2009, Pigeon purchased a truck for $40,000 which had no salvage value with a useful life of 8 years, depreciated on a straight-line basis. On January 1, 2014, Pigeon sold the truck to Spiniflex Corporation for $18,000. The truck was estimated to have a three-year remaining life on this date and no salvage value. All affiliates use the straight-line depreciation method. (30 pts.) Required : Prepare all relevant entries with respect to the truck. 1. Record the journal entries on Pigeon's books for 2014. 2. Record the journal entries on Spiniflex's books for 2014. 3. Prepare the consolidation entries required for Pigeon and subsidiary for 2014 as a result of this transaction. Requirement 1: P’s books 01/01/2014 Cash 18,000 Accumulated Depreciation 25,000 Truck 40,000 Gain on sale 3,000 Requirement 2: S’s books 01/01/2014 Truck 18,000 Cash 18,000 12/31/2014 Depreciation Expense 6,000 Accumulated Depreciation 6,000 Requirement 3: Consolidated entries 12/31/2014 Gain on sale 3,000 Truck 3,000 To eliminate unrealized gain and reduce machinery to a cost basis Accumulated Depreciation 6,000 Depreciation Expense 6,000 To eliminate the current year’s effect of unrealized gain from depreciation accounts.

5 MC1) If the price paid by a parent company to acquire the debt of a subsidiary is greater than the book value of the liability, a ________ occurs. (2 pts.) A) realized loss on the retirement of debt from the viewpoint of the subsidiary B) realized gain on the retirement of debt from the viewpoint of the subsidiary C) constructive loss on the retirement of debt from the viewpoint of the consolidated entity D) constructive gain on the retirement of debt from the viewpoint of the consolidated entity MC2.)Pascalian Company owns a 90% interest in Sapp Company. On January 1, 2013, Pascalian had $300,000, 6% bonds outstanding with an unamortized premium of $9,000. The bonds mature on December 31, 2017. Sapp acquired one-third of Pascalian's bonds in the open market for $97,000 on January 1, 2013. Both companies use straight-line amortization of bond discounts/premiums. Interest is paid on December 31. (300,000+9,000)*1/3 = 103,000 103,000-97,000 = 6,000 The gain from the bond purchase that appeared on the December 31, 2013 consolidated income statement was: (4 pts.) A) $4,320. B) $4,800. C) $5,400. D) $6,000 . MC3.) Under GAAP, the ________ will include the variable interest entity in consolidated financial statements . (2 pts.) A) special purpose entity B) limited liability company C) trust D) primary beneficiary MC4.) With regard to a variable interest entity (VIE), Ann Company may meet the following two conditions : (2 pts.) Condition I Ann Company has the power to direct VIE activities that significantly impact VIE's economic performance. Condition II Ann Company has an obligation to absorb losses and/or a right to receive significant benefits from the VIE. Ann Company must consolidate a VIE if A) Condition I is met only.