Chapter 4, Problem 57P

a.

To determine

Segregate and record the 100 percent Accounting Premium Acquisition (AAP) activity.

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

An acquisition premium is the distinction between the actual price paid to purchase a business and the pre-acquisition approximately real value of the acquired firm. It's often recorded on the balance sheet as "goodwill."

The activity for the 100% Acquisition Accounting Premium (AAP) is as follows:

AAP Amortization		Amortized
	Allocation	2012	2013	2014	2015	2016
Accounts Rec.	(12,880)	(12,880)
Buildings & Equipment, net	57,960	9,660	9,660	9,660	9,660	9,660
Customer list	135,240	19,320	19,320	19,320	19,320	19,320
Notes payable	4,600	1,150	1,150	1,150	1,150
Goodwill	41,400	-
Net Amortization	226,320	17,250	30,130	30,130	30,130	28,980
Unamortized AAP		Unamortized
	Allocation	12/31/12	12/31/13	12/31/14	12/31/15	12/31/16
Accounts Rec.	(12,880)	-	-	-
Buildings & Equipment, net	57,960	48,300	38,640	28,980	19,320	9,660
Customer list	135,240	115,920	96,600	77,280	57,960	38,640
Notes payable	4,600	3,450	2,300	1,150	-	-
Goodwill	41,400	41,400	41,400	41,400	41,400	41,400
Net Unamortized	226,320	209,070	178,940	148,810	118,680	89,700

b.

To determine

Calculate and organize profits and losses on intercompany transactions and balance

between companies..

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded on a stock exchange.

A transaction between intercompany is one between a parent company and its subsidiaries or other related entities. They often create issues with a parent company's relationship with its bankers and lenders. Intercompany transactions occur when a legal entity unit has a transaction inside the same entity with another unit.

The below table shows the deferred inventory profit is as follows:

	12/31/15	12/31/16
Downstream	(38,640 of 25%) = 9,660	--
Upstream	--	(25,760 of 25%) =6,440
Unpaid I-C amount	6,400	12,880
	FYE 2015	FYE2016
I-C Sales	-	48,300

Table (1)

The computation to show the deferred depreciable asset profit is as follows:

Sale Price	209,300
Carrying value	161,000
Profit (loss)	48,300

Particulars	1/1/15	12/31/15	12/31/16	12/31/17
Deferred Downstream gain	48,300	40,250	32,200	24,150
Life =6
Recognized (each year)		8,050	8,050	8,050

c.

To determine

Calculate the starting and ending balance of the Equity Investment account before

consolidation starting with equity of the subsidiary 's shareholders.

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded on a stock exchange.

Particulars	Amount ($)
Investment at 1/1/16 (Equity)
p% of SE (S) @ BOY	$\$772,800$
Add: p% of AAP	$118,680$
Less: Def 100% of EOY –S IIP	$(\$9,660)$
Less: Def 100% of EOY D-S Asset Gain	$(\$40,250)$
	$\$841,570$
Investment at 12/31/16 (Equity)
p% of SE(S) @ EOY	$\$805,000$
Add: p% of AAP	$89,700$
Less: Def p% of EOY U–S IIP	$(\$6,440)$
Less: 100% of EOY D-S Asset Gain	$(\$32,200)$
	$\$856,060$

Table (1)

d.

To determine

Reinterpret the activity of the pre-consolidation Equity Investment T-account of the

parent for the consolidation year.

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded on a stock exchange.

Equity Investment
Equity Investment at 1/1/16	841,570
Net Income (S)	77,280	45,080	Dividends(S)
Dep. profit confirmed	8,050	28,980	AAP Amortization
BOY inventory profit confirmed	9,660	6,440	EOY inventory profit deferred
Equity Investment at 12/31/16	856,060

e.

To determine

Complete the C-E-A-D-I consolidation entries and execute the consolidation worksheet.

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Income (loss) from subsidiary		$\$59,570$
	Dividends-Subsidiary			$\$45,080$
	Investment in Subsidiary			$\$14,490$
	[E]  Common Stock (S) @ BOY		$\$418,600$
	Retained Earnings (S) @BOY		$\$354,200$
	Equity Investment @BOY			$\$772,800$
	[A]  Buildings and Equipment @ BOY		$\$19,320$
	Customer List @ BOY		$\$57,960$
	Goodwill		$\$41,400$
	Equity Investment @ BOY			$\$118,680$
	[D  Depreciation and Amortization Expense		$\$28,980$
	Buildings and Equipment, net			$\$9,660$
	Customer List			$\$19,320$
	(To record depreciation and amortization expense for the [A] assets)
	[Icogs] Equity investment @BOY		$\$9,660$
	Cost of goods sold			$\$9,660$
	[Isales] Sales		$\$48,300$
	Cost of goods sold			$\$48,300$
	[Icogs] Cost of goods sold		$\$6,440$
	Inventories			$\$6,440$
	[Ipay] Accounts payable		$\$12,880$
	Accounts receivable			$\$12,880$
	[Igain] Equity investment @BOY		$\$40,250$
	Buildings and Equipment, net @BOY			$\$40,250$
	[Idep] Buildings and Equipment, net		$\$8,050$
	Depreciation expense			$\$8,050$

The consolidated spreadsheet for the year ended December 31, 2016 is shown below:

						Elimination entries
Income Statement		Parent		Subsidiary		Dr		Cr		Consolidated
Sales		$1,564,000		$579,600	[Isales]	48,300				$2,095,300
Cost of goods sold		(791,200)		(347,760)	[Icogs]	6,440	[Icogs]	9,660		(1,087,440)
							[Isales]	48,300
Gross Profit		772,800		231,840						1,007,860
Depreciation and Amortization expense		(38,640)		(30,820)	[D]	28,980	[Idep]	8,050		(90,390)
Operating Expenses		(502,320)		(123,740)						(626,060)
Total expenses		(540,960)		(154,560)						(716,450)
Income (loss) from subsidiary		59,570			[C]	59,570				0
Consolidated Net Income		$291,410		$77,280						$291,410
Statement of Retained Earnings
Beginning Retained Earnings-Parent		$939,550								939,550
Beginning Retained Earnings-Subsidiary				$354,200	[E]	354,200
Net Income		291,410		77,280						291,410
Dividends declared
Parent		(193,200)								(193,200)
Subsidiary				(45,080)			[C]	45,080
Ending retained Earnings		$1,037,760		$386,400						$1,037,760
Balance Sheet
Assets
Cash		109,940		$48,300						$158,240
Accounts receivable		172,500		156,400			[Ipay]	12,880		316,020
Inventories		418,600		149,500			[Icogs]	6,440		561,660
Buildings and equipment		404,800		289,800	[A]	19,320	[D]	9,660		672,060
					[Idep]	8,050	[Igain]	40,250
Other Assets		184,000		322,000						506,000
Customer List				32,200	[A]	57,960				70,840
Equity investment		856,060			[Icogs]	9,660	[D]	19,320		0
					[Igain]	40,250	[C]	14,490
							[E]	772,800
							[A]	118,680
Goodwill					[A]	41,400				41,400
Total assets		$2,145,900		$998,200						$2,326,220
Liabilities and Stockholder's Equity
Accounts payable		$103,500		$41,400	[Ipay]	12,880				$132,020
Notes Payable		161,000		69,000						230,000
Other Liabilities		70,840		82,080						153,640
Common stock		772,800		418,600	[E]	418,600				772,800
Retained earnings		1,037,760		386,400						1,037,760
Total Liabilities and Equity		$2,145,900		$998,200		$1,105,610		$1,105,610		$2,326,220