4240-6024 Project Fall 2023 part 1 (1)

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University Of Denver *

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4155

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Finance

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Jan 9, 2024

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PROJECT FACTS Ownership (no dissolution) 80% Acquisition Date 1/1/2023 Consideration (paid in cash) $ 396,000 Fair value of NCI $ 99,000 STONY HARBOR FAIR VALUES AT ACQUISITION Equipment (5 year remaining useful life) $ 105,000 Software (3 year remaining useful life) $ 28,000 Customer list (10 year useful life - currently unrecognized) $ 45,000 INTRAENTITY TRANSACTIONS Prairie View sold Land to Stony Harbor on 1/2/2024. They still hold the land at the end of 2024. Sale Price $ 38,000 Book Value $ 30,000 Stony Harbor sold inventory to Prairie View in 2024. Sales price $ 66,000 Cost $ 52,000 Gross Profit % 21% % Remaining at yearend 25% Prairie View owes Stony Harbor at the end of 2024 $ 20,000 This tab contains details needed for the project. Formulas are highlighted in gray. When completing the d this tab. All work will be completed on subsequent tabs.

Stony Harbor Balance Sheet 1/1/2023 Assets Cash 41,700 Accounts Receivable 95,600 Inventory 185,200 Land 46,000 Equipment (net) 85,000 Software (net) 25,000 Total Assets 478,500 Liabilities and Equity Liabilities 102,500 Common Stock 20,000 Additional Paid-in Capital 205,000 Retained Earnings 151,000 Total Liabilities and Equity 478,500 STONY HARBOR'S RETAINED EARNINGS CHANGES 2023 Income $ 45,000 2023 Dividends $ 12,000 2024 Income $ 43,000 2024 Dividends $ 16,000 different parts, link all cells. No cells should be hard coded. Do not fill in or change anything on

Acquisition Journal Entry Investment in Stony Harbor $ 396,000.00 cash 396,000 Fair-Value Allocation Schedule total fair value $ 495,000.00 book value $ (376,000.00) excess initial value $ 119,000.00 to equipment $ 20,000.00 $ 4,000.00 to software $ 3,000.00 $ 1,000.00 to customer list $ 45,000.00 $ 4,500.00 to goodwill $ 51,000.00 $ 9,500.00 Goodwill Allocation Schedule CI NCI Total $ 396,000.00 $ 99,000.00 $ 495,000.00 $ 355,200.00 $ 88,800.00 $ 444,000.00 $ 40,800.00 $ 10,200.00 $ 51,000.00 0 Initial investment, 1/1/23 $ 396,000.00 Dividends $ (9,600.00) Income of Stony Harbor $ 36,000.00 Amortization $ (7,600.00) Investment in Stony Harbor 12/31/23 $ 414,800.00 Dividends $ (12,800.00) Income of Stony Harbor $ 34,400.00 Amortization $ (7,600.00) Deferred profit $ (2,800.00) Deferred gain on sale of land $ (8,000.00) Investment in Stony Harbor 12/31/24 $ 418,000.00 Complete the fair-value allocation schedule, calculate the excess fair-value amortizations, and record entry. In the space below, create a schedule showing the changes in the Investment in Stony Harbor accoun 1/1/2023 through 12/31/2024 for the equity method. This will be helpful for your consolidation work similar to exhibits 5.3 or 4.4 in your textbook. Make sure you pay attention to downstream vs. upstrea discussed on page 227.

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the acquisition journal nt from acquisition on ksheet in part 3. This is am. The difference is

Equity Method Consolidated Worksheet - F Accounts Trial Balance Prairie View Stony Harbor (JE ref) Revenues and Gains 850,000 750,000 Cost of Goods Sold 680,000 602,000 Operating Expenses 145,000 105,000 Income of Stony Harbor Net Income 25,000 43,000 Net Income attributable to NCI Net Income attributable to Prairie View Retained Earnings - Prairie View 1/1 1,074,605 Retained Earnings - Stony Harbor 1/1 184,000 Net Income (above) 25,000 43,000 Dividends Declared 95,000 16,000 Retained Earnings 12/31 1,004,605 211,000 Cash 156,000 115,490 Accounts Receivable 305,000 93,250 Inventory 595,000 160,750 Investment in Stony Harbor 418,000 Land 125,000 84,000 Equipment (net) 463,580 51,000 Software (net) 59,375 19,000 Customer List Goodwill Total Assets 2,121,955 523,490 Liabilities 451,350 87,490 Common Stock 50,000 20,000 Additional Paid-in Capital 600,000 205,000 Noncontrolling Interest in Stony Harbor, 1/1 Noncontrolling Interest in Stony Harbor, 12/31 Retained Earnings (above) 1,004,605 211,000 Total Liabilities and Equity 2,105,955 523,490 16,000 - Complete the consolidation worksheet below. Start by filling in the yellow squares for Prairie Vie sure your debits and credits are being added/subtracted correctly. All consolidation entry values below the consolidation worksheet.

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For the Year Ended 12/31/2024 Consolidation Entries Consolidated Debit (JE ref) Credit Totals - - - ew's trial balance. Use formulas whenever possible (calculating values or totaling rows/columns). Make s need to be linked to the trial balance or other tabs. If any additional schedules are needed, place them Noncontrolling Interest

Consolidated Net Income (Loss) 47,000 (4,000) Consolidated Assets, 1/1/24 2,056,138 2,056,138 Consolidated Assets, 12/31/24 2,295,945 2,244,945 Consolidated Equity, 1/1/24 1,724,605 1,724,605 Consolidated Equity, 12/31/24 1,777,105 1,726,105 Consolidated Liabilities 518,840 518,840 ROA (net income / average assets) ROE (net income / average equity) Debt to Equity (liabilities / equity) Let's assume that the Goodwill balance gets completely impaired at the end of 2024. Record the journal entry to impair the Goodwill balance. Based on the information below, calculate the applicable ratios with and without impairment. Without Impairment With Impairment Answer the following questions: a. What is the effect on each ratio when all of the acquisition related goodwill is considered impaired? b. What are some potential upsides and downsides when an impairment loss is recorded? c. Who is impacted by a goodwill impairment loss being recorded?

EXCHANGE RATES - US DOLLAR FOR 1 LOCAL CURRENCY Year January 1 August 1 2022 $ 1.17610 2023 $ 1.16620 $ 1.16870 2024 $ 1.16510 $ 1.16352 December 31, 2024 Trial Balances Rate Revenues (750,000) Cost of Goods Sold 602,000 Operating Expenses 80,000 Depreciation and Amortization 25,000 Retained Earnings - 1/1/24 (184,000) Dividends Declared - 8/1/24 16,000 Cash 115,490 Accounts Receivable 93,250 Inventory 160,750 Land 84,000 Buildings (net) 51,000 Software (net) 19,000 Liabilities (87,490) Common Stock (20,000) Additional Paid-in Capital (205,000) Translation Adjustment n/a Retained Earnings 1/1/23 (151,000) Net Income 2023 (45,000) Dividends 8/1/23 12,000 Retained Earnings 12/31/23 (1/1/24) (184,000) Retained Earnings 1/1/24 (184,000) Common Stock (20,000) Assume instead that Stony Harbor is located in a different country and the local currency is the functio below to perform an analysis using the current rate method. Ignore all previous parts. Using the exchange rates presented, translate Stony Harbor’s 12/31/2024 trial balance. For accounts th date is not listed, use 1/1/22. Use the reconciliation at the bottom to help solve for the Retained Earnin been started for you. All yellow boxes need to be filled in. Local Currency ( ) means a credit balance Check your work for the current method only by calculating the translation adjustment using the chang method is shown in the PowerPoint slides and on page 497.

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Additional Paid-in Capital (205,000) Net Assets 1/1/24 (409,000) Net Income 2024 (43,000) Dividends 2024 16,000 Net Assets 12/31/24 (436,000) Net Assets, 12/31/24 at current rate (436,000) Translation Adjustment Is the translation adjustment that you calculated recorded with a debit or credit? Do they have a net asset or net liability exposure?

December 31 Average $ 1.16705 $ 1.17560 $ 1.16505 $ 1.16670 $ 1.17541 $ 1.16800 US Dollars $ - $ - $ - $ - $ (176,096) $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ (176,096) $ - $ - $ (176,096) $ (176,096) $ - onal currency. See instructions hat use historical rates and a ngs beginning balance. It's ges in net assets. This