ADMS 3585 - Worksheet 7 answers
docx
keyboard_arrow_up
School
Georgian College *
*We aren’t endorsed by this school
Course
3585
Subject
Finance
Date
Nov 24, 2024
Type
docx
Pages
6
Uploaded by hyde67
Chapter 9: Part 2
Use the following information for questions 1-4.
The summarized balance sheets of Janice Corp. and Marshall Corp. at December 31, 2020, are as
follows:
JANICE CORP.
Balance Sheet
December 31, 2020
Assets $ 780,000
Liabilities $ 155,000
Common shares
275,000
Retained earnings
350,000
Total equities $ 780,000
MARSHALL CORP.
Balance Sheet
December 31, 2020
Assets $ 490,000
Liabilities
$ 76,000
Common shares
185,000
Retained earnings
229,000
Total equities $ 490,000
1. Janice acquired a 20% interest in Marshall on December 31, 2020, for $79,000. The equity
method was used to account for this investment. What is the balance of Investment in Marshall
Corp. right after the purchase?
a)
79,000
b)
15,800
c)
65,000
d)
97,000
e)
63,200
Dr. Investment in Marshall 79,000
Cr. Cash 79,000
2. Janice acquired a 30% interest in Marshall on December 31, 2020 for $ 82,000. The equity
method was used to account for this investment. What is the balance of Investment in Marshall
Corp. right after the purchase?
a)
24,600
b)
57,400
c)
82,000
d)
78,000
e)
92,000
Dr. Investment in Marshall 82,000
Cr. Cash 82,000
3. Janice acquired a 20% interest in Marshall on December 31, 2020, for $ 37,500. During 2021
Marshall reported a net income of $ 18,300 and paid a total cash dividend of $ 7,900. If Janice
uses the equity method to account for this investment, what could be the balance of the
Investment in Marshall Corp. account on December 31 2021?
a)
47,900
b)
39,580
c)
27,100
d)
41,160
e)
55,800
Balance at Dec 31 2021 = 37,500 + (18,300 x 20%) – (7,900 x 20%) = 39,580
Note: Opening Balance + Net income – Dividends Received = Ending Balance
4. Please record all the journal entries related to question #3.
Dec 31 2020
Dr. Investment in Marshall 37,500
Cr. Cash 37,500
To record the purchase of 20% interest in Marshall
Dec 31 2021
Dr. Investment in Marshall 3,660
Cr. Investment Income/Equity Method Income 3,660
To record received 20% of Marshall’s net income for the year.
Dr. Cash 1,580
Cr. Investment in Marshall 1,580
To record receiving 20% of dividends declared by Marshall.
5. On January 2, 2020, Mercedes Corp. purchased
365 of the 1,000 outstanding common shares
of Werner Ltd. for
$ 85,000. During 2020, Werner declared total
cash dividends of
$ 12,800 and
reported
net income for the year of $ 63,000. If Mercedes uses the equity method of accounting
for its investment in Werner, Mercedes’s Investment in Werner Ltd. account at December 31,
2020 should be,
a)
135,200
b)
34,800
c)
66,677
d)
103,323
e)
107,995
Percentage of ownership = 365/1000 = 36.5%
Dec 31 2020 Balance = 85,000 + (63,000 x 36.5%) – (12,800 x 36.5%) = 103,323
Use the following information for questions 6-8.
On January 1, 2020, Anderson Ltd. acquired
45% of Valdez Corp.'s common shares for $
560,000. During 2020, Valdez reported
net income of $ 235,000 and paid
total dividends of $
89,000. Anderson's 45% interest in Valdez gives Anderson the ability to exercise significant
influence over their operating and financial policies. During 2021, Valdez reported net income of
$ 190,000 and paid total dividends of $ 30,000 on April 1 and $ 36,000 on October 1. On July 1,
2021, Anderson sold half of its shares in Valdez for $ 490,000 cash.
6. Before income taxes, what income should Anderson include in its 2020 income statement as a
result of this investment?
a)
235,000
b)
89,000
c)
560,000
d)
105,750
e)
40,050
When you have significant influence – use equity method.
Dr. Investment in Valdez (balance sheet)
Cr. Investment Income/Equity method income (income statement)
For record net income
Dr. Cash (balance sheet)
Cr. Investment in Valdez (balance sheet)
To record dividends.
235,000 x 45% = 105,750
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
7. The carrying amount of this investment in Anderson's December 31, 2020, statement of
financial position should be
a)
625,700
b)
665,750
c)
519,950
d)
499,300
e)
626,900
Balance at Dec 31 2020 = 560,000 + (235,000 x 45%) – (89,000 x 45%) = 625,700
8. The gain on disposal of this investment in Anderson's 2021, income statement should be
a)
159,290
b)
327,475
c)
162,525
d)
159,778
e)
218,150
Carrying Amount 2020
625,700
Add: Net Income [190,000 x (6/12) x 45%] 42,750
Less: Dividends (30,000 x 45%)
(13,500)
Balance at July 1
st
654,950
490,000 – (654,950/2) = 162,525
Long Problem 9.12
Brooks Corp. is a medium-sized corporation that specializes in quarrying stone for building
construction. The company has long dominated the market, and at one time had 70% market
penetration. During prosperous years, the company's profits and conservative dividend policy
resulted in funds becoming available for outside investment. Over the years, Brooks has had a
policy of investing idle cash in equity instruments of other companies. In particular, Brooks has
made periodic investments in the company's main supplier, Norton Industries Limited. Although
Brooks currently owns 18% of the outstanding common shares of Norton, it does not yet have
significant influence over the operations of this investee company. Brooks accounts for its
investment in
Norton using FV-OCI without recycling through net income.
Yasmina Olynyk has recently joined Brooks as assistant controller, and her first assignment is to
prepare the 2020 year-end adjusting entries. Olynyk has gathered the following information
about Brooks's relevant investment accounts:
1. In 2020, Brooks acquired shares of Delaney Motors Corp. and Isha Electric Ltd. for short-term
trading purposes.
Brooks purchased 100,000 shares of Delaney Motors for $1.4 million, and the
shares currently have a
fair value of $1.6 million. Brooks's investment in Isha Electric has not
been profitable: the company acquired
50,000 shares of Isha at $20 per share and they currently
have a
fair value of $720,000.
2. Before 2020,
Brooks had invested $22.5 million in Norton Industries and, at December 31,
2019, the investment had a
fair value of $21.5 million. While Brooks did not sell or purchase any
Norton shares this year, Norton declared
and paid a dividend totalling $2.4 million on all of its
common shares, and reported
2020 net income of $13.8 million. Brooks's 18% ownership of
Norton Industries has a
December 31, 2020 fair value of $22,225,000.
Instructions
a.
Prepare the appropriate adjusting entries for Brooks as at
December 31, 2020.
Type of
investment
Investment
Cost/Carrying
Amount
Fair value
Unrealized
gain/loss
FVNI/FVTPL
Delaney Motors
1.4 million
1.6 million
200,000 gain
FVNI/FVTPL
Isha Electric
(50,000 shares x
$20 per share) =
1 million
720,000
280,000 loss
Total
80,000 loss
FV-OCI
Norton
21.5 million
$22,225,000
725,000 gain
Dr. Loss on Investment 80,000
Cr. FV-NI Investment 80,000
To adjust to fair value.
Dr. FV-OCI Investment (Norton) 725,000
Cr. Unrealized gain 725,000
To adjust to fair value.
b.
Prepare the dividend and adjusting entries for the Norton investment, assuming that
Brooks's 18% interest results in significant influence over Norton's activities.
Significant influence – equity method.
Dr. Cash (2,400,000 x 18%) 432,000
Cr. Investment in Norton 432,000
To record dividends received.
Dr. Investment in Norton 2,484,000
Cr. Investment Income 2,484,000
(13,800,000 x 18%)
To record investment income.
c.
Could an 18% ownership interest actually result in Brooks having significant influence?
Yes.
Could Brooks have a 45% ownership interest and yet not have significant
influence?
Yes. Because one other owner could have 55% of the shares.
Explain your
answers.
Qualitative test:
Look at the representation of the board.
Participation in policy making.
If the other shares are widely held, for example, even with 18% interest, Brooks could
still result in significant influence.
Please the feedback form:
https://forms.office.com/r/SnqF46Dmbj
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Related Questions
Financial accounting
arrow_forward
The summarized balance sheets of Pharoah Company and Sheridan Company as of December 31, 2025 are as follows:
Assets
Liabilities
Capital stock
Retained earnings
Total equities
Assets
Liabilities
Capital stock
Retained earnings
Total equities
Pharoah Company
Balance Sheet
December 31, 2025
O $444000.
O $297000.
O $345000.
O $350000.
Sheridan Company
Balance Sheet
December 31, 2025
$2000000
$220000
1000000
780000
$2000000
$1480000
$330000
990000
160000
$1480000
If Pharoah Company acquired a 30% interest in Sheridan Company on December 31, 2025 for $350000 and the equity method of
accounting for the investment was used, the amount of the debit to Equity Investments (Sheridan) to record the purchase would have
been
arrow_forward
1. what id the total shareholder's equity on december 31, 2019
2. compute for the retained earnings on december 31, 2019
arrow_forward
Presented below are data for XYZ Corp.
Assets, January 1
Liabilities, January 1
Stockholders' Equity, Jan. 1
Dividends
Common Stock, Dec. 31
2023
2024
4,560
?
?
2,736
2
2,750
570
646
608
650
Stockholders' Equity, Dec. 31
?
2,266
Net Income
684
Net income for 2024 is
O $484 loss.
O $162 loss
O $162 income.
O $120 income.
$484 income.
$120 loss.
arrow_forward
1
arrow_forward
#12
The summarized balance sheets of ROSE N' Company and GARDEN Company as of December 31, 2021, are as follows:
ROSE N' CompanyBalance SheetDecember 31, 2021
Assets
$2000000
Liabilities
$220000
Capital stock
1000000
Retained earnings
780000
Total equities
$2000000
GARDEN CompanyBalance SheetDecember 31, 2021
Assets
$1480000
Liabilities
$330000
Capital stock
990000
Retained earnings
160000
Total equities
$1480000
If ROSE N' Company acquired a 30% interest in GARDEN Company on December 31, 2021 for $350000 and the equity method of accounting for the investment were used, the amount of the debit to Equity Investments (GARDEN) would have been
$444000.
$297000.
$345000.
$350000.
arrow_forward
.
arrow_forward
II. The following is a comparative balance sheet of ABC Co. for December 31, 2022 and 2021:
Cash and cash equivalents
Accounts receivable
Inventories
Investment in bonds at amortized cost
Equipment
Accumulated depreciation
Total Assets
Accounts payable
Bonds payable, due 2025
Ordinary stock, P20 par
Share premium
Retained earnings
Total Liabilities and Equity
Additional information:
.
2022
250,000
327,600
822,000
0
.
2,400,000
(700,000)
3,099,600
359,000
0
1,800,000
280,000
660,600
3,099,600
2021
220,000
356,000
780,000
200,000
2,040,000
(760,000)
2,836,000
• Net income for 2022, P545,600.
Depreciation reported on income statement, P140,000.
Fully depreciated equipment, no salvage value, was scrapped. Equipment was purchased
for P560,000.
Bonds of P400,000 were retired at their face value.
281,000
400,000
1,600,000
200,000
355,000
2,836,000
10,000 shares of ordinary stock were issued for cash of P28 per share.
Cash dividends declared and paid, P240,000
Investment in bonds with carrying…
arrow_forward
D. The stockholders' equity section of SKSU Corporation's balance sheet on December 31,
2019:
Common stock, P10 par value; authorized 1,500,000
shares; issued and outstanding 900,000 shares
Additional paid-in capital
Retained earnings
Total stockholders' equity
P9,000,000
750,000
2,700,000
P12,450,000
Transactions during 2020 and other information relating to the stockholders' equity accounts
were as follows:
On January 26, SKSU reacquired 75,000 shares of its common stock for P11 per share.
On April 4, SKSU sold 45,000 shares of its treasury stock for P14 per share.
On June 1, SKSU declared a cash dividend of P0.95 per share, payable on July 15, 2020 to
stockholders of record on July 1, 2020.
On August 15, each stockholder was issued one stock right for each share held to purchase
two additional shares of stock for P12 per share. The rights expire on October 31, 2020.
On September 30, 150,000 stock rights were exercised when the market value of the stock
was P12.50 per share.
On…
arrow_forward
Presented below is the balance sheet of Novak Corporation for the current year, 2020.
NOVAK CORPORATIONBALANCE SHEETDECEMBER 31, 2020
Current assets
$ 488,570
Current liabilities
$ 383,570
Investments
643,570
Long-term liabilities
1,003,570
Property, plant, and equipment
1,723,570
Stockholders’ equity
1,773,570
Intangible assets
305,000
$3,160,710
$3,160,710
The following information is presented.
1.
The current assets section includes cash $153,570, accounts receivable $173,570 less $13,570 for allowance for doubtful accounts, inventories $183,570, and unearned rent revenue $8,570. Inventory is stated on the lower-of-FIFO-cost-or-net realizable value.
2.
The investments section includes the cash surrender value of a life insurance contract $43,570; investments in common stock, short-term $83,570 and long-term $273,570; and bond sinking fund $242,860. The cost and fair value of investments in common stock are the…
arrow_forward
CH
Sunland Corporation had the following information in its financial statements for the years ended 2025 and 2026:
Cash dividends for the year 2026
$4700
Net income for the year 2026
97700
Market price of stock, 12/31/25
10
Market price of stock, 12/31/26
12
12
Common stockholders' equity, 12/31/25 1008000
Common stockholders' equity, 12/31/26 1192000
Outstanding shares, 12/31/26
100400
Preferred dividends for the year 2026
14000
What is the rate of return on common stock equity for Sunland Corporation for the year ended 12/31/2026?
7.6%
O 6.6%
8.9%
07.0%
eTextbook and Media
W
X
SPM
DELL
78°F Sunny
arrow_forward
Please provide this question solution general accounting
arrow_forward
Presented below is the balance sheet of Pina Corporation for the current year, 2020.
PINA CORPORATIONBALANCE SHEETDECEMBER 31, 2020
Current assets
$ 486,360
Current liabilities
$ 381,360
Investments
641,360
Long-term liabilities
1,001,360
Property, plant, and equipment
1,721,360
Stockholders’ equity
1,771,360
Intangible assets
305,000
$3,154,080
$3,154,080
The following information is presented.
1.
The current assets section includes cash $151,360, accounts receivable $171,360 less $11,360 for allowance for doubtful accounts, inventories $181,360, and unearned rent revenue $6,360. Inventory is stated on the lower-of-FIFO-cost-or-net realizable value.
2.
The investments section includes the cash surrender value of a life insurance contract $41,360; investments in common stock, short-term $81,360 and long-term $271,360; and bond sinking fund $247,280. The cost and fair value of investments in common stock are the same.…
arrow_forward
Pharoah Corporation’s comparative balance sheet is presented below.
PHAROAH CORPORATIONBalance SheetDecember 31
Assets
2021
2020
Cash
$12,010
$8,980
Accounts receivable
17,810
19,660
Land
16,800
21,840
Buildings
58,800
58,800
Accumulated depreciation—buildings
(12,600
)
(8,400
)
Total
$92,820
$100,880
Liabilities and Shareholders’ Equity
Accounts payable
$10,390
$26,120
Common shares
63,000
57,960
Retained earnings
19,430
16,800
Total
$92,820
$100,880
Additional information:
1.
Profit was $19,010. Dividends declared and paid were $16,380.
2.
No noncash investing and financing activities occurred during 2021.
3.
The land was sold for cash of $4,120 resulting in a loss of $920 on the sale of the land.
Prepare a cash flow statement for 2021 using the indirect method. Lu…
arrow_forward
Need help with this accounting questions
arrow_forward
SEE MORE QUESTIONS
Recommended textbooks for you
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Related Questions
- Financial accountingarrow_forwardThe summarized balance sheets of Pharoah Company and Sheridan Company as of December 31, 2025 are as follows: Assets Liabilities Capital stock Retained earnings Total equities Assets Liabilities Capital stock Retained earnings Total equities Pharoah Company Balance Sheet December 31, 2025 O $444000. O $297000. O $345000. O $350000. Sheridan Company Balance Sheet December 31, 2025 $2000000 $220000 1000000 780000 $2000000 $1480000 $330000 990000 160000 $1480000 If Pharoah Company acquired a 30% interest in Sheridan Company on December 31, 2025 for $350000 and the equity method of accounting for the investment was used, the amount of the debit to Equity Investments (Sheridan) to record the purchase would have beenarrow_forward1. what id the total shareholder's equity on december 31, 2019 2. compute for the retained earnings on december 31, 2019arrow_forward
- Presented below are data for XYZ Corp. Assets, January 1 Liabilities, January 1 Stockholders' Equity, Jan. 1 Dividends Common Stock, Dec. 31 2023 2024 4,560 ? ? 2,736 2 2,750 570 646 608 650 Stockholders' Equity, Dec. 31 ? 2,266 Net Income 684 Net income for 2024 is O $484 loss. O $162 loss O $162 income. O $120 income. $484 income. $120 loss.arrow_forward1arrow_forward#12 The summarized balance sheets of ROSE N' Company and GARDEN Company as of December 31, 2021, are as follows: ROSE N' CompanyBalance SheetDecember 31, 2021 Assets $2000000 Liabilities $220000 Capital stock 1000000 Retained earnings 780000 Total equities $2000000 GARDEN CompanyBalance SheetDecember 31, 2021 Assets $1480000 Liabilities $330000 Capital stock 990000 Retained earnings 160000 Total equities $1480000 If ROSE N' Company acquired a 30% interest in GARDEN Company on December 31, 2021 for $350000 and the equity method of accounting for the investment were used, the amount of the debit to Equity Investments (GARDEN) would have been $444000. $297000. $345000. $350000.arrow_forward
- .arrow_forwardII. The following is a comparative balance sheet of ABC Co. for December 31, 2022 and 2021: Cash and cash equivalents Accounts receivable Inventories Investment in bonds at amortized cost Equipment Accumulated depreciation Total Assets Accounts payable Bonds payable, due 2025 Ordinary stock, P20 par Share premium Retained earnings Total Liabilities and Equity Additional information: . 2022 250,000 327,600 822,000 0 . 2,400,000 (700,000) 3,099,600 359,000 0 1,800,000 280,000 660,600 3,099,600 2021 220,000 356,000 780,000 200,000 2,040,000 (760,000) 2,836,000 • Net income for 2022, P545,600. Depreciation reported on income statement, P140,000. Fully depreciated equipment, no salvage value, was scrapped. Equipment was purchased for P560,000. Bonds of P400,000 were retired at their face value. 281,000 400,000 1,600,000 200,000 355,000 2,836,000 10,000 shares of ordinary stock were issued for cash of P28 per share. Cash dividends declared and paid, P240,000 Investment in bonds with carrying…arrow_forwardD. The stockholders' equity section of SKSU Corporation's balance sheet on December 31, 2019: Common stock, P10 par value; authorized 1,500,000 shares; issued and outstanding 900,000 shares Additional paid-in capital Retained earnings Total stockholders' equity P9,000,000 750,000 2,700,000 P12,450,000 Transactions during 2020 and other information relating to the stockholders' equity accounts were as follows: On January 26, SKSU reacquired 75,000 shares of its common stock for P11 per share. On April 4, SKSU sold 45,000 shares of its treasury stock for P14 per share. On June 1, SKSU declared a cash dividend of P0.95 per share, payable on July 15, 2020 to stockholders of record on July 1, 2020. On August 15, each stockholder was issued one stock right for each share held to purchase two additional shares of stock for P12 per share. The rights expire on October 31, 2020. On September 30, 150,000 stock rights were exercised when the market value of the stock was P12.50 per share. On…arrow_forward
- Presented below is the balance sheet of Novak Corporation for the current year, 2020. NOVAK CORPORATIONBALANCE SHEETDECEMBER 31, 2020 Current assets $ 488,570 Current liabilities $ 383,570 Investments 643,570 Long-term liabilities 1,003,570 Property, plant, and equipment 1,723,570 Stockholders’ equity 1,773,570 Intangible assets 305,000 $3,160,710 $3,160,710 The following information is presented. 1. The current assets section includes cash $153,570, accounts receivable $173,570 less $13,570 for allowance for doubtful accounts, inventories $183,570, and unearned rent revenue $8,570. Inventory is stated on the lower-of-FIFO-cost-or-net realizable value. 2. The investments section includes the cash surrender value of a life insurance contract $43,570; investments in common stock, short-term $83,570 and long-term $273,570; and bond sinking fund $242,860. The cost and fair value of investments in common stock are the…arrow_forwardCH Sunland Corporation had the following information in its financial statements for the years ended 2025 and 2026: Cash dividends for the year 2026 $4700 Net income for the year 2026 97700 Market price of stock, 12/31/25 10 Market price of stock, 12/31/26 12 12 Common stockholders' equity, 12/31/25 1008000 Common stockholders' equity, 12/31/26 1192000 Outstanding shares, 12/31/26 100400 Preferred dividends for the year 2026 14000 What is the rate of return on common stock equity for Sunland Corporation for the year ended 12/31/2026? 7.6% O 6.6% 8.9% 07.0% eTextbook and Media W X SPM DELL 78°F Sunnyarrow_forwardPlease provide this question solution general accountingarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning