Assume that on January 1, 2019, a Reporting Company acquires a 35 percent interest in a Legal Entity for $392,000 cash. The fair value of the 65 percent interest not acquired by the Reporting Company is $728,000. The fair value and book value of the identifiable net assets of the Legal entity equals $1,120,000. The Reporting Company has a right to 35 percent of the reported income (loss) of the Legal Entity. The Legal Entity is determined to be a VIE, and the Reporting Company is determined to be primary beneficiary. For the year ended December 31, 2019, the Reporting Company and the VIE reported the following pre-consolidation income statements assuming that the Reporting Company applies the equity method: Sales Costs of goods sold Gross profit Operating expenses Equity method income (loss) from VIE Net income Reporting Company VIE $1,232,000 $336,000 (739,200) (224,000) 492,800 112,000 (197,120) (33,600) (39,760) 0 $255,920 $78,400

Assume that on January 1, 2019, a Reporting Company acquires a 35 percent interest in a Legal Entity for $392,000 cash. The fair value of the 65 percent interest not acquired by the Reporting Company is $728,000. The fair value and book value of the identifiable net assets of the Legal entity equals $1,120,000. The Reporting Company has a right to 35 percent of the reported income (loss) of the Legal Entity. The Legal Entity is determined to be a VIE, and the Reporting Company is determined to be primary beneficiary. For the year ended December 31, 2019, the Reporting Company and the VIE reported the following pre-consolidation income statements assuming that the Reporting Company applies the equity method: Sales Costs of goods sold Gross profit Operating expenses Equity method income (loss) from VIE Net income Reporting Company VIE $1,232,000 $336,000 (739,200) (224,000) 492,800 112,000 (197,120) (33,600) (39,760) 0 $255,920 $78,400

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Required: Prepare All Elimination Entries on Dec.31, 2021 and on Dec.31, 2022

A: Elimination entries are accounting adjustments made in consolidation to remove intercompany…

Q: YA Inc. wishes to transfer its equity investments initially classified as fair value through other…

A: Other Comprehensive Income consists the expenses, gains, revenues, and also losses, which does not…

Q: instruments in exchange for 75% interest in Titan Co. On acquisition date, Turtle Co. elected to…

A: Consolidated equity refers to the aggregate of the stakeholder's equity of the parent company as…

Q: Boulder, Inc., obtained 90 percent of Rock Corporation on January 1, 2019. Annual amortization of…

A: After combining their financial statements, a company's and its subsidiaries combined net income is…

Q: On January 1, 2019, XYZ Co. issued equity instruments in exchange for 75% interest in ABC Co. On…

A: The question is based on the concept of Consolidated Financial Statements. As per the Bartleby…

Q: ears The additional $159,000 payment is reported as an adjustment to the beginning balance of…

A: Below is the correct answer.

Q: Mighty Company purchased a 60 percent interest in Lowly Company on January 1, 2020, for $459,900 in…

A: Formulas:

Q: On July 1, 2019, Tremen Corporation acquired 48% of the shares of Delany Company. Tremen paid OMR…

A: Financial accounting: Financial accounting is the process of recording, summarizing, and reporting…

Q: On April 23, 2020, Auk Corporation acquires 100% of the outstanding stock of Amazon Corporation (E &…

A: Acquisition is a process of acquiring one company by the other company. The reason for the…

Q: Placid Lake Corporation acquired 80 percent of the outstanding voting stock of Scenic, Inc., on…

A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…

Q: On January 7, 2021, Martin Corporation acquires two properties from a shareholder solely in exchange…

A: Realized loss=Distribution value FMV-Stepped down basis Recognized loss=Acquisition value…

Q: qual to $32,000. On December 31, 2022, the fair value of the investor's share of the investee is…

A: When the investor can exert significant influence, the equity method is applied. Under this method,…

Q: 1) Explain how goodwill is tested for impairment for a reporting unit. 2) Determine the amount, if…

A: Introduction:- Goodwill is an intangible asset. Goodwill is the amount between a business's…

Q: On January 1, 2019, Uncle Company purchased 80 percent of Nephew Company's capital stock for…

A: Given is:On January 1, 2019, Uncle Company purchased 80 percent of Nephew Company's capital stock…

Q: Prepare an acquisition-date consolidated balance sheet for Casey Corporation and its subsidiary…

A: A consolidated balance sheet combines the financial information of a parent company and its…

Q: Required: Prepare an acquisition-date consolidation worksheet Note: For accounts where multiple…

A: The consolation is the accounting process in which the financial results of the parent company and…

Q: On January 1, 2019, XYZ Co. issued equity instruments in exchange for 75% interest in ABC Co. On…

A: All amounts are in P.

Q: a. Compute the gain or loss recognized by Carl Corporation on the distribution if no liability is…

Q: ABC Co. and XYZ, Inc. both engage in the same business. On January 1, 2021, ABC and XYZ signed a…

A: The answer is stated below:

Q: On January 1, 2019, Uncle Company purchased 80 percent of Nephew Company's capital stock for…

A: Consolidation of financial accounts occurs when holding and subsidiary relationship occurs. When a…

Q: On January 1, 20x1, Entity A acquires all the assets and liabilities of Entity B for P2,000,000.…

A: Working Note #1 Computation of consideration transferred: Consideration transferred=P2,000,000 -Off…

Q: In the year ended June 30 2021, Lorelai Ltd, a reporting entity, acquired the assets and assumed the…

A: When a company's ownership is acquired by another company, is is said to be an acquisition. When 2…

Q: Placid Lake Corporation acquired 70 percent of the outstanding voting stock of Scenic, Inc., on…

A: 1. If the intra-entity sales were upstream, how would the consolidated net income be allocated to…

Q: On December 1, 2021. LETSEE Corporation acquired for P1,750,000 all the net assets of SATER Company.…

Q: On January 1, 2019, Pacita Corp. purchased marketable equity securities to be held for trading…

A: For measurements under FVTOCI the transaction cost will be debited to profit or loss account…

Q: On January 7, 2022, Martin Corporation acquires two properties from a shareholder solely in exchange…

A: The "basis" of an asset is what a person has paid for an asset together with money invested in an…

Q: On January 1, 2019, Uncle Company purchased 80 percent of Nephew Company's capital stock for…

Q: On January 1, 2019, ABC Inc., paid P700,000 for 10,000 shares of XYZ’s Company’s voting ordinary…

A: Given, Dates Particulars Amount (in P) 1/1/2019 ABC Inc. paid 10000 for the company's voting…

Q: On September 17, 2024, Ziltech, Incorporated, entered into an agreement to sell one of its divisions…

A: Long term assets which the company plans to dispose in future are known as held for sale.Such assets…

Q: On January 7, 2021, Martin Corporation acquires two properties from a shareholder solely in exchange…

A: When a company liquidates, it recognizes gain or loss based on the property's fair market value.…

Q: On January 1, 2021, Parent Co. acquired the identifiable net asset of Subsidiary, Inc. On this date,…

A: At the time of business combination, all the costs related to the acquisition of the acquirer are…

Q: What is the investment income for 2019? What is the carrying amount of the investment in associate…

A: “Since you have posted a question with many sub-parts, we will solve three sub-parts for you. To get…

Q: Wickum Corporation reports under IFRS, and recognized a $500,000 other-than-temporary impairment of…

A: International Financial Reporting Standards (IFRS): International Financial Reporting Standards is…

Q: On January 7, 2019, Rey Co., acquired a 35% interest in Joanne Co., for P4,300,000. Rey already held…

A: It is the excess of purchase price of a business over the fair market value of the business's assets…

Question

100%

Elimination of intercompany profits for variable interest entities (VIES) and voting interest entities
Assume that on January 1, 2019, a Reporting Company acquires a 35 percent interest in a Legal Entity for $392,000 cash. The
fair value of the 65 percent interest not acquired by the Reporting Company is $728,000. The fair value and book value of the
identifiable net assets of the Legal entity equals $1,120,000. The Reporting Company has a right to 35 percent of the
reported income (loss) of the Legal Entity. The Legal Entity is determined to be a VIE, and the Reporting Company is
determined to be primary beneficiary. For the year ended December 31, 2019, the Reporting Company and the VIE reported
the following pre-consolidation income statements assuming that the Reporting Company applies the equity method:
Sales
Costs of goods sold
Gross profit
Operating expenses
Equity method income (loss) from VIE
Net income
Reporting
Company VIE
$1,232,000 $336,000
(739,200) (224,000)
492,800 112,000
(197,120) (33,600)
(39,760)
0
$255,920
$78,400
Assume that the Legal Entity's income statement for the year ended December 31, 2019 includes sales to the Reporting
Company, and $168,000 of these sales are still in Reporting Company's ending inventory. On intercompany sales, the Legal
Entity earns a gross profit equal to 40 percent of sales price. Assume that all of these intercompany items are in the ending
inventory of the Reporting Company on December 31, 2019.
a. Show how the Equity method income (loss) from VIE is computed.
Note: Use a negative sign with answer only to indicate equity method loss from VIE.
Reporting company's portion of VIE's net income $
Impact of intercompany sales in equity income $
Equity method income (loss) from VIE
$
b. Compute the amount of consolidated net income $ 280,840 x
27,440
2,520 *
24,920 x
c. Compute the amount of consolidated net income attributable to the noncontrolling interest $ 172,788
d. Compute the amount of consolidated net income attributable to the controlling interest $ 93,052 x
x

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction:

VIEW

Step 2: (a) Show how the Equity method income (loss) from VIE is computed:

VIEW

Step 3: (b) Compute the amount of consolidated net income:

VIEW

Step 4: (c) Compute the amount of consolidated net income attributable to the noncontrolling interest:

VIEW

Step 5: (d) Compute the amount of consolidated net income attributable to the controlling interest:

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 6 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Follow-up Questions

Read through expert solutions to related follow-up questions below.

Follow-up Question

e. How would your answers to items (b) through (d) change if the Legal Entity is a "voting interest entity?"
Consolidated net income
$
Consolidated net income attributable to noncontrolling interest $
Consolidated net income attributable to controlling interest $
0
0
0

Solution

by Bartleby Expert

SEE SOLUTION

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.

Similar questions

On January 1, 2021, Entity A and Entity B incorporated AB Company. The contractual agreement provided that the decisions on relevant activities will require the unanimous consent of both Entity A and Entity B, and they will have right to the net assets of AB Company. Entity A and Entity B invested P400,000 and P600,000 respectively, equivalent to 40:60 capital interest of AB Company. The financial statements of AB Company provided the following data for its two-year operation (see image below).1. How much is the balance of Investment in Joint Venture to be reported by Entity B in its Statement of Financial Position at December 31, 2022? 2. How much is the balance of Investment in Joint Venture to be reported by Entity A in its Statement of Financial Position at December 31, 2021? _______________
Parson Company acquired an 80 percent interest in Syber Company on January 1, 2020. Any portion of Syber's business fair value in excess of its corresponding book value was assigned to trademarks. This intangible asset has subsequently undergone annual amortization based on a 15-year life. Over the past two years, regular intra-entity inventory sales transpired between the two companies. No payment has yet been made on the latest transfer. All dividends are paid in the same period as declared. The individual financial statements for the two companies as well as consolidated totals for 2021 follow (credit balances indicated by parentheses): ParsonCompany SyberCompany ConsolidatedTotals Sales $ (744,000 ) $ (654,000 ) $ (1,223,000 ) Cost of goods sold 450,000 412,000 691,000 Operating expenses 104,000 107,000 213,300 Income of Syber (102,960 ) 0 0 Separate company net income $ (292,960 ) $ (135,000 )…
Cred Company’s board of directors declared a property dividend to its incorporators in the form of the company’s equipment and machinery that had a carrying amount on June 30, 2020, the date of declaration of P5,000,000. The fair value less cost to distribute of these assets on the same date amounted to P5,500,000. The date of distribution was scheduled on January 31, 2021. On December 31, 2020, the fair value less cost to distribute of the machinery and equipment was estimated at P4,800,000 and further declined on the date of distribution on January 31, 2021, at a fair value less cost to distribute of P4,300,000. - What is the amount to be recognized in profit or loss for the year ended December 31, 2020? - What is the amount to be recognized in profit or loss in 2021 for the distribution?
Placid Lake Corporation acquired 80 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2020, when Scenic had a net book value of $630,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $6,000 per year. Placid Lake's 2021 net income before consideration of its relationship with Scenic (and before adjustments for intra-entity sales) was $530,000. Scenic reported net income of $340,000. Placid Lake declared $160,000 in dividends during this period; Scenic paid $63,000. At the end of 2021, selected figures from the two companies' balance sheets were as follows: Placid Lake Scenic Inventory $ 370,000 $ 113,000 Land 830,000 430,000 Equipment (net) 630,000 530,000 During 2020, intra-entity sales of $190,000 (original cost of $88,000) were made. Only 20 percent of this inventory was still held within the consolidated entity at the end of 2020. In 2021, $320,000 in intra-entity sales were made…
On December 1, 2021. LETSEE Corporation acquired for P1,750,000 all the net assets of SATER Company. On the date of the combination , the carrying value of SATER Company’s identifiable net assets was P1,437,500. The current fair value of all identifiable net assets of SATER Company were equal to their carrying values, except for its inventories and plants assets. The current fair value of SATER Company’s inventories was P250,000 less than their carrying values, and the current fair value of SATER Company’s plant asset was P500,000 more than their carrying amount. The journal entry prepared by LETSEE Corporation to record the business combination. a.Debit of P437,500 to Goodwill b.Debit of P62,500 to Goodwill c.Debit of P250,000 to Inventories d.Credit of P500,000 to Plant Assets
6. On December 31, 2019, Stefan company purchased for 30 per share all 300,000 of Elena company’s outstanding ordinary shares. On this date, the acquiree’s statement of financial position showed net assets of P7,500,000. Additionally, the fair value of the acquiree’s identifiable assets on this date was 600,000 in excess of carrying amount. In the statement of financial position, what amount should be reported as goodwill as a result ofthe acquisition?
On January 1, 2020, the Balading Corporation purchased marketable equity securities for P2,000,000. The company also paid commission, taxes and other transaction costs amounting to P50,000. Because the securities were acquired not for immediate trading, Balading exercised its option to take the change in fair value through other comprehensive income. The securities had the following fair values at December 31, 2020 and 2021, respectively: P1,750,000 and P2,100,000. No securities were sold during 2020 and 2021. What amount of unrealized gain or loss should be reported in the December 31, 2021 statement of financial position as a component of shareholders' equity? A P250,000 cumulative unrealized loss B) P200,000 cumulative unrealized loss P100,000 cumulative unrealized gain D P50,000 cumulative unrealized gain
Cred Company’s board of directors declared a property dividend to its incorporators in the form of the company’s equipment and machinery that had a carrying amount on June 30, 2020, the date of declaration of P5,000,000. The fair value less cost to distribute of these assets on the same date amounted to P5,500,000. The date of distribution was scheduled on January 31, 2021. On December 31, 2020, the fair value less cost to distribute of the machinery and equipment was estimated at P4,800,000 and further declined on the date of distribution on January 31, 2021, at a fair value less cost to distribute of P4,300,000. - What is the carrying amount of the machinery and equipment to be distributed as property dividends on December 31, 2020? - What is the dividend payable recognized on June 30, 2020?
ABC Co. and XYZ, Inc. both engage in the same business. On January 1, 2021, ABC and XYZ signed a contract, the terms of which resulted in ABC obtaining control over XYZ without any transfer of consideration between the parties. The fair value of the identifiable net assets of XYZ Inc. on January 1, 2021 is ₱4,000,000. XYZ chose to measure non-controlling interest at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets.How much is the goodwill?
Elimination of intercompany profits for variable interest entities (VIES) and voting interest entities Assume that on January 1, 2019, a Reporting Company acquires a 35 percent interest in a Legal Entity for $441,000 cash. The fair value of the 65 percent interest not acquired by the Reporting Company is $819,000. The fair value and book value of the identifiable net assets of the Legal entity equals $1,260,000. The Reporting Company has a right to 35 percent of the reported income (loss) of the Legal Entity. The Legal Entity is determined to be a VIE, and the Reporting Company is determined to be primary beneficiary. For the year ended December 31, 2019, the Reporting Company and the VIE reported the following pre-consolidation income statements assuming that the Reporting Company applies the equity method: Sales Costs of goods sold Gross profit Operating expenses Equity method income (loss) from VIE Net income Reporting Company VIE $1,386,000 $378,000 (831,600) (252,000) 554,400…
Assume that Pauly D Company obtains all of the outstanding common stock of Snooki Company on January 1, 2020. Pauly D acquires this stock for $1,000,000 in cash. The book values as well as the appraised fair values of Snooki's accounts follow: Book Values 1/1/20 Fair Values 1/1/20 Difference Current Assets 350,000 350,000 - Trademarks (indefinite life) 240,000 260,000 20,000 Patented technology (10 yr remaining life) 310,000 450,000 140,000 Equipment (5 year remaining life) 190,000 140,000 (50,000) Liabilities (400,000) (400,000) - Net book value $690,000 $800,000 $110,000 Common Stock $40 par value (270,000) Additional paid-in-capital (20,000) Retained earnings, 1/1/20 (400,000) Pauly D considers the economic life of Snooki's trademarks as having an indefinite life. For definite lived assets acquired in the combination, we assume straight-line amortization and depreciation with no salvage value. Step 1:Perform an Allocation of Purchase Price and identify if Pauly D should…
Camille, Inc., bought all outstanding shares of Jordan Corporation on January 1, 2019, for $734,000 in cash. This portion of the consideration transferred results in a fair-value allocation of $53,400 to equipment and goodwill of $112,200. At the acquisition date, Camille also agrees to pay Jordan’s previous owners an additional $152,000 on January 1, 2021, if Jordan earns a 10 percent return on the fair value of its assets in 2019 and 2020. Jordan’s profits exceed this threshold in both years. Which of the following is true? Multiple Choice Consolidated goodwill as of January 1, 2021, increases by $152,000. The additional $152,000 payment is reported as an adjustment to the beginning balance of consolidated retained earnings. The fair value of the expected contingent payment increases goodwill at the acquisition date. The $152,000 is recorded as a revaluation gain in 2021.