a. Present arguments supporting the Pinch controller's position. b. Present arguments supporting the Silver controller's position. c. Which position do you prefer? Explain.
a. Present arguments supporting the Pinch controller's position. b. Present arguments supporting the Silver controller's position. c. Which position do you prefer? Explain.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Please do not give solution in image format & Correct answer thank You
![In January 2005, Pinch Corporation, a chain of discount stores, began a program of business
combinations with its principal suppliers. On May 31, 2005, the close of its fiscal year, Pinch paid
$8,500,000 cash and issued 100,000 shares of its common stock (current fair value $20 a share) for all
10,000 outstanding shares of common stock of Silver Company. Silver was a furniture manufacturer
whose products were sold in Pinch's stores. Total n stockholders' equity of Silver on May 31, 2005, was
$9,000,000. Out-of-pocket costs attributable to the business combination itself (as opposed to the SEC
registration statement for the 100,000 shares of Pinch's common stock) paid by Pinch on May 31, 2005,
totaled $100,000. In the consolidated balance sheet of Pinch Corporation and subsidiary on May 31,2005,
the $1,600,000 [$8,500,000 + (100,000 x $20) + $100,000 - $9,000,000] difference between the parent
company's cost and the carrying amounts of the subsidiary's identifiable net assets was allocated in
accordance with purchase accounting as follows: Inventories $ 250,000Plant assets 850,000Patents
300,000Goodwill 200,000Total excess of cost over carrying amounts of subsidiary's net assets $1,600,000
Under terms of the indenture for a $1,000,000 bond liability of Silver, Pinch was obligated to maintain
Silver as a separate corporation and to issue a separate balance sheet for Silver each May 31. Pinch's
controller contends that Silver's balance sheet on May 31, 2005, should value net assets at $10,600,000 -
their cost to Pinch. Silver's controller disputes this valuation, claiming that generally accepted accounting
principles require issuance of a historical cost balance sheet for Silver on May 31, 2005.
Instructions
a. Present arguments supporting the Pinch controller's position.
b. Present arguments supporting the Silver controller's position.
c. Which position do you prefer? Explain.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F42fbcea6-afb7-4263-94fe-90d44597a0cf%2F63d47af8-d144-4ce0-9818-f0455573a151%2Fk78uhx_processed.jpeg&w=3840&q=75)
Transcribed Image Text:In January 2005, Pinch Corporation, a chain of discount stores, began a program of business
combinations with its principal suppliers. On May 31, 2005, the close of its fiscal year, Pinch paid
$8,500,000 cash and issued 100,000 shares of its common stock (current fair value $20 a share) for all
10,000 outstanding shares of common stock of Silver Company. Silver was a furniture manufacturer
whose products were sold in Pinch's stores. Total n stockholders' equity of Silver on May 31, 2005, was
$9,000,000. Out-of-pocket costs attributable to the business combination itself (as opposed to the SEC
registration statement for the 100,000 shares of Pinch's common stock) paid by Pinch on May 31, 2005,
totaled $100,000. In the consolidated balance sheet of Pinch Corporation and subsidiary on May 31,2005,
the $1,600,000 [$8,500,000 + (100,000 x $20) + $100,000 - $9,000,000] difference between the parent
company's cost and the carrying amounts of the subsidiary's identifiable net assets was allocated in
accordance with purchase accounting as follows: Inventories $ 250,000Plant assets 850,000Patents
300,000Goodwill 200,000Total excess of cost over carrying amounts of subsidiary's net assets $1,600,000
Under terms of the indenture for a $1,000,000 bond liability of Silver, Pinch was obligated to maintain
Silver as a separate corporation and to issue a separate balance sheet for Silver each May 31. Pinch's
controller contends that Silver's balance sheet on May 31, 2005, should value net assets at $10,600,000 -
their cost to Pinch. Silver's controller disputes this valuation, claiming that generally accepted accounting
principles require issuance of a historical cost balance sheet for Silver on May 31, 2005.
Instructions
a. Present arguments supporting the Pinch controller's position.
b. Present arguments supporting the Silver controller's position.
c. Which position do you prefer? Explain.
![In January 2005, Pinch Corporation, a chain of discount stores, began a program of business
combinations with its principal suppliers. On May 31, 2005, the close of its fiscal year, Pinch paid
$8,500,000 cash and issued 100,000 shares of its common stock (current fair value $20 a share) for all
10,000 outstanding shares of common stock of Silver Company. Silver was a furniture manufacturer
whose products were sold in Pinch's stores. Total n stockholders' equity of Silver on May 31, 2005, was
$9,000,000. Out-of-pocket costs attributable to the business combination itself (as opposed to the SEC
registration statement for the 100,000 shares of Pinch's common stock) paid by Pinch on May 31, 2005,
totaled $100,000. In the consolidated balance sheet of Pinch Corporation and subsidiary on May 31,2005,
the $1,600,000 [$8,500,000 + (100,000 x $20) + $100,000 - $9,000,000] difference between the parent
company's cost and the carrying amounts of the subsidiary's identifiable net assets was allocated in
accordance with purchase accounting as follows: Inventories $ 250,000Plant assets 850,000Patents
300,000Goodwill 200,000 Total excess of cost over carrying amounts of subsidiary's net assets $1,600,000
Under terms of the indenture for a $1,000,000 bond liability of Silver, Pinch was obligated to maintain
Silver as a separate corporation and to issue a separate balance sheet for Silver each May 31. Pinch's
controller contends that Silver's balance sheet on May 31, 2005, should value net assets at $10,600,000 -
their cost to Pinch. Silver's controller disputes this valuation, claiming that generally accepted accounting
principles require issuance of a historical cost balance sheet for Silver on May 31, 2005.
Instructions
a. Present arguments supporting the Pinch controller's position.
b. Present arguments supporting the Silver controller's position.
c. Which position do you prefer? Explain.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F42fbcea6-afb7-4263-94fe-90d44597a0cf%2F63d47af8-d144-4ce0-9818-f0455573a151%2Fofb9hf2k_processed.jpeg&w=3840&q=75)
Transcribed Image Text:In January 2005, Pinch Corporation, a chain of discount stores, began a program of business
combinations with its principal suppliers. On May 31, 2005, the close of its fiscal year, Pinch paid
$8,500,000 cash and issued 100,000 shares of its common stock (current fair value $20 a share) for all
10,000 outstanding shares of common stock of Silver Company. Silver was a furniture manufacturer
whose products were sold in Pinch's stores. Total n stockholders' equity of Silver on May 31, 2005, was
$9,000,000. Out-of-pocket costs attributable to the business combination itself (as opposed to the SEC
registration statement for the 100,000 shares of Pinch's common stock) paid by Pinch on May 31, 2005,
totaled $100,000. In the consolidated balance sheet of Pinch Corporation and subsidiary on May 31,2005,
the $1,600,000 [$8,500,000 + (100,000 x $20) + $100,000 - $9,000,000] difference between the parent
company's cost and the carrying amounts of the subsidiary's identifiable net assets was allocated in
accordance with purchase accounting as follows: Inventories $ 250,000Plant assets 850,000Patents
300,000Goodwill 200,000 Total excess of cost over carrying amounts of subsidiary's net assets $1,600,000
Under terms of the indenture for a $1,000,000 bond liability of Silver, Pinch was obligated to maintain
Silver as a separate corporation and to issue a separate balance sheet for Silver each May 31. Pinch's
controller contends that Silver's balance sheet on May 31, 2005, should value net assets at $10,600,000 -
their cost to Pinch. Silver's controller disputes this valuation, claiming that generally accepted accounting
principles require issuance of a historical cost balance sheet for Silver on May 31, 2005.
Instructions
a. Present arguments supporting the Pinch controller's position.
b. Present arguments supporting the Silver controller's position.
c. Which position do you prefer? Explain.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education