4. On January 1, 2017, the Z Corporation acquired a 20% interest in D Company by purchasing 4,800shares of its 24,000 outstanding shares of common stock. The acquisition price was $30 per share.On the date of purchase, D Company's net assets were as follows:Book Value$ 60,000160,000$220,000Fair Value$ 74,000196.000$270,000Total liabilities$ 80,000$80,000During 2017, D Company earned income of $70,000 and paid dividends of $18,000.The depreciable assets have a ten-year remaining life and no residual value.Nondepreciable assetsDepreciable assetsTotal assetsDifference$14,00036,000$50,000Required:Prepare all of the journal entries on Z Corporation's books to record the acquisition andsubsequent events in 2017 related to the investment in D Company.

Equity method is used by the acquirer entity when the percentage investment lies between 20%-50%. As…

Answered: 4. On January 1, 2017, the Z.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Grat Company acquired 30% of Suth Company’s voting share capital for P2,000,000 on January 1, 2017. Grat’s 30% interest in Suth gave Grat the ability to exercise significant influence over Suth’s operating and financial policies. During2017, Suth earned P800,000 and paid cash dividends of P500,000. Suth reported earnings of P1,000,000 for the six months ended June 30, 2018 and P2,000,000 for the year ended December 31, 2018. On July 1, 2018, Grat sold half of the investment in Suth for P1,500,000 cash. On such date, the investment is measured at fair value through other comprehensive income. The fair value of the retained investment is P1,600,000 on July 1, 2018 and P1,800,000 on December 31, 2018.What amount should be recognized as investment income for 2017 as a result of the investment? 150,000 240,000 500,000 800,000
On January 2, 2018, Sanborn Tobacco Inc. bought 5% of Jackson Industry’s capital stock for $90 million. JacksonIndustry’s net income for the year ended December 31, 2018, was $120 million. The fair value of the shares heldby Sanborn was $98 million at December 31, 2018. During 2018, Jackson declared a dividend of $60 million.Required:1. Prepare all appropriate journal entries related to the investment during 2018.2. Assume that Sanborn sold the stock on January 2, 2019 for $110 million. Prepare the journal entry Sanbornwould use to record the sale
On January 1, 2015, Pub Corporation made a significant acquisition, purchasing 75 percent of SubCorporation's outstanding voting stock for a total of $4,200,000. Sub Corporation's stockholders'equity at that time was made up of the following components (all values in thousands):Capital stock with a par value of $10: $2,000Additional paid-in capital: $1200Retained earnings as of December 31, 2014: $1500Total stockholders' equity: $4700The surplus fair value of the net assets obtained from this acquisition was allocated as follows: 10percent to underappreciated inventory (which was subsequently sold in 2015), 40 percent tounderappreciated plant assets with a remaining useful life of eight years, and the remaining 50 percentto goodwill.Fast forward to December 31, 2019, and we have the comparative trial balances for both PubCorporation and Sub Corporation. Pub SubOther assets—net $5,845 $4500Investment in Sub—75% 3,640 —Expenses (including cost of sales) 5,285 800Dividends 600 300 $15370…
On January 1, 2020, Pinnacle Corporation exchanged $3,568,500 cash for 100 percent of the outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following balance sheet: Cash $ 145,000 Accounts payable $ 453,000 Accounts receivable 356,000 Long-term debt 3,110,000 Inventory 432,000 Common stock 1,500,000 Buildings (net) 2,145,000 Retained earnings 1,365,000 Licensing agreements 3,350,000 Total assets $ 6,428,000 Total liabilities and equity $ 6,428,000 Pinnacle prepared the following fair-value allocation: Fair value of Strata (consideration transferred) $ 3,568,500 Carrying amount acquired 2,865,000 Excess fair value $ 703,500 to buildings (undervalued) $ 328,000 to licensing agreements (overvalued) (101,000 ) 227,000 to goodwill (indefinite life) $ 476,500…
e of cents Price Company purchased 90% of the outstanding common stock of Score Company on January 1, 2016, for $450,000. At that time, Score Company had stockholders' equity consisting of common stock, $200,000; other com $160,000; and retained earnings, $90,000. On December 31, 2020, trial balances for Price Company and Score Company were as follows: Price $ 109,000 $ Cash Accounts Receivable Note Receivable Inventory Investment in Score Company Plant and Equipment Land Score 78,000 94,000 -0- 166,000 75,000 309,000 158,000 450,000 -0- 940,000 420,000 160,000 70,000 70,000 50,000 822,000 242,000 250,500 124,000 Dividends Declared Cost of Goods Sold Operating Expenses Total Debits Accounts Payable Notes Payable Common Stock $3,351,500 $1,236,000 $ 132,000 $ 46,000 300,000 120,000 500,000 200,000 260,000 160,000 Other Contributed Capital Retained Earnings, 1/1 Sales Dividend and Interest Income Total Credits 687,000 1,420,000 52,500 $3.351,500 $1,236,000 210,000 500,000 -0- Price…
2. Cinema Company acquired 75 percent of Movie Corporation's shares on December 31, 2015, at underlying book value of $98,000. At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Movie Corporation. Movie's balance sheet on January 1, 2018, contained the following balances: Cash Accounts Receivable Inventory Buildings and Equipment Less: Accumulated Depreciation Total Assets $50,000 Accounts Payable 35,000 Bonds Payable 40,000 Common Stock 300,000 Additional Paid-In Capital (100,000) Retained Earnings $325,000 Total Liabilities and Equities $40,000 100,000 50,000 Prepare the entries recorded on the books of each company. 75,000 60,000 $325,000 On January 1, 2018, Movie acquired 3,500 of its own $2 par value comm on shares from Nonaffiliated Corporation for $6 per share.
On December 31, 2016, Akron, Inc. purchased 5 Percent of Zip Company’s common shares on the open market in exchange for $16,000. On December 31, 2017, Akron, Inc., acquires an additional 25 percent of Zip Company’s outstanding common stock for $95,000.During the next two years, the following information is available for Zip Company:At December 31, 2017, Zip reports a net book value of $290,000. Akron attributed any excess of its 30 percent share of Zip’s fair over book value to its share of Zip’s franchise agreements. The franchise agreements had a remaining life of 10 years at December 31, 2017.a. Assume Akron applies the equity method to its Investment in Zip account:1. What amount of equity income should Akron report for 2018?2. On Akron’s December 31, 2018, balance sheet, what amount is reported for the Investment in Zip account?b. Assume Akron uses fair-value accounting for its Investment in Zip account:1. What amount of income from its investment in Zip should Akron report for…
D. On May 31, 2020, Roddick Company paid $3,400,000 to acquire all of the ordinary shares of Bolt Corporation, which became a division of Roddick. Bolt reported the following statement of financial position at the time of the acquisition: Equity $2,500,000 Non-current assets $2,700,000 Non-current liabilities 500,000 Current assets 900,000 Current liabilities 600,000 Total assets $3,600,000 Total equity and liabilities $3,600,000 It was determined at the date of the purchase that the fair value of the identifiable net assets of Bolt was $2,800,000. On December 31, 2020, Bolt reports the following statement of financial position information: Current assets $ 800,000 Non-current assets (including goodwill recognized in purchase) 2,400,000 Current liabilities (700,000) Non-current liabilities (500,000) Net assets $2,000,000 It is determined that the recoverable amount value of the…
On May 31, 2018, Armstrong Company paid $3,500,000 to acquire all of the common stock of Hall Corporation, which became a division of Armstrong. Hall reported the following balance sheet at the time of the acquisition: Current assets $ 900,000 Current liabilities $ 600,000 Noncurrent assets 2,700,000 Long-term liabilities 500,000 Stockholders' equity 2,500,000 Total liabilities and Total assets $3,600,000 stockholders' equity $3,600,000 It was determined at the date of the purchase that the fair value of the identifiable net assets of Hall was $3,100,000. At December 31, 2018, Hall reports the following balance sheet information: Current assets $ 800,000 Noncurrent assets (including goodwill recognized in purchase) 2,600,000 Current liabilities (700,000) Long-term liabilities (500,000) Net assets $2,200,000 It is determined that the fair value of the Hall division is $2,300,000. Instructions (a) Compute the amount of goodwill recognized, if any, on May 31, 2018. (b) Determine the…
Following are separate financial statements of Michael Company and Aaron Company as of December 31, 2021 (credit balances indicated by parentheses). Michael acquired all of Aaron’s outstanding voting stock on January 1, 2017, by issuing 20,000 shares of its own $1 par common stock. On the acquisition date, Michael Company’s stock actively traded at $23.50 per share. Michael Company12/31/21 Aaron Company12/31/21 Revenues $ (610,000 ) $ (370,000 ) Cost of goods sold 270,000 140,000 Amortization expense 115,000 80,000 Dividend income (5,000 ) 0 Net income $ (230,000 ) $ (150,000 ) Retained earnings, 1/1/21 $ (880,000 ) $ (490,000 ) Net income (above) (230,000 ) (150,000 ) Dividends declared 90,000 5,000 Retained earnings, 12/31/21 $ (1,020,000 ) $ (635,000 ) Cash $ 110,000 $ 15,000 Receivables 380,000 220,000 Inventory 560,000 280,000 Investment in Aaron Company 470,000…

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