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- Proud Corporation acquired 80 percent of Spirited Company's voting stock on January 1, 20X3, at underlying book value. The fair value of the noncontrolling interest was equal to 20 percent of the book value of Spirited at that date. Assume that the accumulated depreciation on depreciable assets was $52,000 on the acquisition date. Proud uses the equity method in accounting for its ownership of Spirited. On December 31, 20X4, the trial balances of the two companies are as follows: Item Current Assets Depreciable Assets Investment in Spirited Company Depreciation Expense Other Expenses Dividends Declared Accumulated Depreciation Current Liabilities Long-Term Debt Common Stock Retained Earnings Sales Income from Spirited Company $ Proud Corporation Debit 255,000 518,000 133,280 23,000 148,000 53,000 Credit $ 200,000 63,000 127,880 193,000 277,000 231,000 38,400 $1,130,280 $1,130,280 Spirited Company Credit Debit $169,000 311,000 13,000 85,000 25,400 $603,400 $ 78,000 43,000 192,400 87,000…On January 1, 2018, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction Companyfor $300 million cash. At the date of acquisition of the stock, Lake’s net assets had a fair value of $900 million.Their book value was $800 million. The difference was attributable to the fair value of Lake’s buildings and itsland exceeding book value, each accounting for one-half of the difference. Lake’s net income for the year endedDecember 31, 2018, was $150 million. During 2018, Lake declared and paid cash dividends of $30 million. Thebuildings have a remaining life of 10 years.Required:1. Prepare all appropriate journal entries related to the investment during 2018, assuming Cameron accounts forthis investment by the equity method.2. Determine the amounts to be reported by Cameron:a. As an investment in Cameron’s 2018 balance sheetOn December 31, Phoenix Corporation acquired all of Sedona Corporation’s voting stock in exchange for $560,000 cash. At the acquisition date, the fair values of Sedona’s assets and liabilities equaled their carrying values, except that the fair value of the inventory was $20,000 lower than the carrying value, the fair value of the equipment was $50,000 higher than the carrying value, and the fair value of the long-term debt was $4,000 lower than the carrying value. The separate condensed balance sheets of the two companies immediately after the acquisition (on 12/31) are as follows: Phoenix Sedona Cash $ 90,000 $ 60,000 Accounts receivable 130,000 25,000 Inventory 160,000 70,000 Plant and equipment (net)…
- Package Corporation acquired 90 percent ownership of Sack Grain Company on January 1, 20X4, for $116,100 when the fair value of Sack’s net assets was $13,000 higher than its $116,000 book value. The increase in value was attributed to amortizable assets with a remaining life of 10 years. At that date, the fair value of the noncontrolling interest was equal to $12,900. During 20X4, Sack sold land to Package at a $7,000 profit. Sack Grain reported net income of $25,000 and paid dividends of $4,800 in 20X4. Package reported income, exclusive of its income from Sack Grain, of $34,000 and paid dividends of $14,300 in 20X4. Required: Compute the amount of income assigned to the controlling interest in the consolidated income statement for 20X4. By what amount will the 20X4 income assigned to the controlling interest increase or decrease if the sale of land had been from Package to Sack Grain, the gain on the sale of land had been included in Package’s $34,000 income, and the $25,000 was…On January 1, 20X1, Pepper purchased 70% interest in Salt for $420K. At the time of the purchase, Salt’s assets and liabilities were equal to book value except for Inventory, Building and Land (which had fair values in excess of book value of $10K, $30K and $45K respectively). Net Asset BV at the time of purchase was $440K. Included in the $420K purchase price was a covenant not to compete. The covenant was value at $30K and is for a two year period. At the time of the purchase, it was determined that the all of Salt’s depreciable assets had a remaining 5 year life and inventory had a 2 month life. The following events occurred during the year: Event #1 Salt sold inventory with an originally cost of $369K to Pepper for $450K. Pepper sold 70% to a third party for $600K and had 30% of the inventory remaining at the end of the year Event #2 On January 1, 20X1 Salt borrowed $750K from Pepper at 8% interest. Salt paid zero down on the principle during the year. However, Salt paid…Franklin purchases 40 percent of Johnson Company on January 1 for $621,200. Although Franklin did not use it, this acquisition gave Franklin the ability to apply significant influence to Johnson’s operating and financing policies. Johnson reports assets on that date of $1,505,000 with liabilities of $536,000. One building with a seven-year remaining life is undervalued on Johnson’s books by $276,500. Also, Johnson’s book value for its trademark (10-year remaining life) is undervalued by $307,500. During the year, Johnson reports net income of $177,000 while declaring dividends of $110,000. What is the Investment in Johnson Company balance (equity method) in Franklin’s financial records as of December 31?
- Pineburst Inc. acquired an 80% interest in Smallwood Company in January 1, 2003, for an amount equal to book value. Smallwood sold land to Pineburst in 2003 at a profit of $5,000. The land is held by the buying affiliate firm until 2005, when it is sold to an unaffiliated party for a profit of $6,000. Smallwood reported net income for 2003, 2004, and 2005 of $30,000, $40,000, and $50,000, respectively. Assume that the 2003 intercompany transfer of land was upstream from Smallwood to Pinehurst. Prepare the consolidation worksheet adjustment journal entry on December 31, 2005, concerning the intercompany sale of landP owns 40% of S. Professional judgement has applied, and it is concluded that P controls S. The 2019 partial pre-tax income statements of both companies are shown below. Assume no other expenses than indicated below. Revenues S $150,000 $85,000 Miscellaneous Expenses Depreciation Expense $40,000 $30,000 $20,000 $25,000 On January 1, 2019, S sold equipment to P at a profit of $7,000 (before tax). The equipment had a remaining useful life of twenty-five years on that date. During 2019 S declared a dividend of $2.000. Further during 2019, there was a goodwill impairment of $1.000. Required: Assuming a tax rate of 40%. Create a consolidated income statement, including the share attributable to the non-controlling interest.On January 1, 20X4, Pierce Corporation acquired 90 percent of Sharp Company's voting stock, at underlying book value. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Sharp at that date. Pierce uses the equity method in accounting for its ownership of Sharp. On December 31, 20X4, the trial balances of the two companies are as follows: Item Current Assets Depreciable Assets Investment in Sharp Depreciation Expense Other Expenses Dividends Declared Accumulated Depreciation Current Liabilities Long-Term Debt Common Stock Retained Earnings Sales Income from Subsidiary Required: Pierce Company Debit $ 200,000 300,000 139,500 30,000 100,000 30,000 $ 799,500 Credit $ 120,000 62,000 75,000 100,000 120,000 300,000 22,500 $ 799,500 Sharp Corporation Debit $ 120,000 225,000 25,000 60,000 10,000 $ 440,000 Credit $ 75,000 25,000 90,000 75,000 65,000 110,000 $ 440,000 1) Provide all consolidating entries required as of December 31, 20X4, to prepare…
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