Solutions to Chapter 7 - Advanced Accounting

November 15, 2017 | Author: Damian Lee-Gomez | Category: Consolidation (Business), Book Value, Retained Earnings, Dividend, Investing
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Solutions to Chapter 7 - Advanced Accounting...

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Student Name: Instructor Class: McGraw-Hill Problem 07-25

Calculation of deferred gross profits in beginning and ending inventory: Beginning unrealized gross profit (Wilson) January 1, 2014 Inventory Balance Transfer price Markup Cost Unrealized gross profit

$ $ $

60,000 25% 48,000 Correct! 12,000 Correct!

Ending unrealized gross profit (Wilson) December 31, 2014 Inventory Balance Transfer price Markup Cost Unrealized gross profit

$ $ $

90,000 25% 72,000 Correct! 18,000 Correct!

a. Consolidation entries *G Correct!

Retained Earnings, 1/1/14 (Wilson) Cost of Goods Sold

12,000

(To recognize income on intra-entity inventory transfers made in previous year but not resold until current year.)

*C Correct!

Retained earnings, 1/1/14 (House) Investment in Wilson Company

11,200

(To convert investment account from partial equity method to equity method.)

S1 Correct!

Common stock (Cuddy) Retained earnings, 1/1/14 (Cuddy) Investment in Cuddy Company Noncontrolling interest in Cuddy Common Stk.

150,000 150,000

(To eliminate Cuddy's stockholders' equity against the corresponding investment balance and to recognize noncontrolling interest in common stock.)

S2 Correct!

Common stock (Wilson) Retained earnings, 1/1/14 (Wilson) Investment in Wilson Company Noncontrolling interest in Wilson

310,000 578,000

(To eliminate Wilson's stockholders' equity against corresponding investment balance and to recognize noncontrolling interest.)

A Correct!

Buildings Franchise Contracts Goodwill Equipment Investment in Wilson Noncontrolling interest in Wilson

54,000 32,000 140,000

Student Name: Instructor Class: McGraw-Hill Problem 07-25 (To allocate excess payment made in connection with purchase of Wilson.

Student Name: Instructor Class: McGraw-Hill Problem 07-25

I1 Correct!

Income of Cuddy Company Investment in Cuddy Company

56,000

(To eliminate intra-entity income accrued by both House and Wilson during the year.)

I2 Correct!

Income of Wilson Investment in Wilson

91,000

(To eliminate intra-entity income accrued by House during the year.)

D1 Correct!

Investment in Cuddy Dividends Declared (Cuddy)

40,000

(To eliminate effects of intra-entity dividend payments.)

D2 Correct!

Investment in Wilson Dividends Declared (Wilson)

67,200

(To eliminate effects of intra-entity dividend payments.)

E Correct!

Operating Expenses Equipment Franchise Contracts Buildings

2,000 5,000

(To record 2014 amortization on excess payment made in connection with acquisition of Wilson Company.

TI Correct!

Sales and Other Revenues Cost of Goods Sold

200,000

(To eliminate intra-entity inventory sales for the current year.)

G Correct!

Cost of Goods Sold Inventory

18,000

(To defer unrealized gross profit in ending inventory.)

Noncontrolling Interest in Net Income of Cuddy: Reported net income Outside ownership Noncontrolling interest in Cuddy income - common

$ $

70,000 20% 14,000 Correct!

Noncontrolling Interest in Net Income of Wilson Reported operational income Equity income of Cuddy Excess amortization Recognition of 2013 gross profit Deferral of 2014 unrealized gross profit Realized income Outside ownership

$

$

130,000 28,000 (2,000) 12,000 (18,000) 150,000 30%

Student Name: Instructor Class: McGraw-Hill Problem 07-25

Noncontrolling interest in net income of Wilson

$

45,000 Correct!

Student Name: Instructor Class: McGraw-Hill Problem 07-25 HOUSE CORPORATION AND CONSOLIDATED SUBSIDIARIES Consolidation Worksheet December 31, 2014

Accounts

House

Wilson

Cuddy

Corporation

Company

Company

Sales and other revenue Cost of goods sold

(900,000)

(700,000)

(300,000)

551,000

300,000

140,000

Operating expenses

219,000

Income of Wilson Company

(91,000)

Income of Cuddy Company

(28,000)

(28,000)

(249,000)

(158,000)

Net Income

Consolidation Entries Debit

Credit

[TI]

200,000

[G]

18,000

270,000

90,000

[E]

2,000

-

-

[I2]

91,000

-

[I1]

56,000

[*G]

12,000

[TI]

200,000

[D2]

67,200

[D1]

40,000

[G]

18,000

(70,000)

Consolidated net income Net income attributable to noncontrolling interest (Wilson) Net income attributable to noncontrolling interest (Cuddy) Net income attributable to House Corporation Retained earnings, 1/1/14 --House Corporation

(820,000)

--Wilson Company --Cuddy Company Net Income

[*C]

11,200

[*G]

12,000

[S2]

578,000

(150,000) [S1]

150,000

(590,000)

(249,000)

(158,000)

(70,000)

Dividends declared --House Corporation

100,000

--Wilson Company

96,000

--Cuddy Company Retained earnings, 12/31/14

50,000 (969,000)

(652,000)

(170,000)

Cash and receivables

220,000

334,000

67,000

Inventory

390,200

320,000

103,000

Investment in Wilson Company

807,800

[D2]

Investment in Cuddy Company

128,000

128,000

Buildings

385,000

320,000

Equipment

310,000

Land

180,000

67,200

[*C]

11,200

[S2]

621,600

[I2]

91,000

[A]

151,200

[S1]

240,000

[I1]

56,000

[D1]

40,000

144,000

[A]

54,000

[E]

3,000

130,000

88,000

[E]

5,000

[A]

10,000

300,000

16,000

Goodwill

[A]

140,000

Franchise Contracts

[A]

32,000

[E]

4,000

Total assets Liabilities

2,421,000

1,532,000

418,000

(632,000)

(570,000)

(98,000)

Noncontrolling interest in Cuddy

[S1]

60,000

Noncontrolling interest in Wilson

[S2]

266,400

[A]

64,800

Student Name: Instructor Class: McGraw-Hill Problem 07-25 Noncontrolling interest in subsidiary companies Common stock Retained earnings Total liabilities and equity

(820,000)

(310,000)

(150,000) [S1]

150,000

[S2]

310,000

(969,000)

(652,000)

(170,000)

(2,421,000)

(1,532,000)

(418,000)

1,916,400 Correct!

Parentheses indicate a credit balance.

1,916,400 Correct!

12,000

«- Correct!

11,200

«- Correct!

«- Correct! «- Correct!

240,000 60,000

«- Correct! «- Correct!

«- Correct! «- Correct!

621,600 266,400

«- Correct! «- Correct!

«- Correct! «- Correct! «- Correct!

10,000 151,200 64,800

«- Correct! «- Correct! «- Correct!

56,000

«- Correct!

91,000

«- Correct!

40,000

«- Correct!

67,200

«- Correct!

«- Correct! «- Correct!

4,000 3,000

«- Correct!

200,000

«- Correct!

18,000

«- Correct!

«- Correct!

CONSOLIDATED SUBSIDIARIES

on Worksheet

er 31, 2014 Noncontrolling

Consolidated

Interest

Balance

(45,000) (14,000)

(1,700,000)

Correct!

797,000

Correct!

581,000

Correct!

-

Correct!

-

Correct!

(322,000)

Correct!

45,000

Correct!

14,000

Correct!

(263,000)

Correct!

(808,800)

Correct!

-

Correct!

-

Correct!

(263,000)

Correct!

100,000

Correct!

28,800

-

Correct!

10,000

-

Correct!

(971,800)

Correct!

621,000

Correct!

795,200

Correct!

-

Correct!

-

Correct!

900,000

Correct!

523,000

Correct!

496,000

Correct!

140,000

Correct!

28,000

Correct!

3,503,200

Correct!

(1,300,000)

Correct!

-

Correct!

(60,000) (331,200)

411,400

(971,800)

(411,400)

Correct!

(820,000)

Correct!

(971,800)

Correct!

(3,503,200) Correct!

Given P07-25:

House Corporation purchased ownership in Wilson Company Acquisition date fair value allocation schedule: Consideration transferred for 70% interest in Wilson Fair value of the 30% noncontrolling interest Wilson business fair value Wilson book value Excess fair value over book value Assignments to adjust Wilson's assets to fair value: To buildings (20-year life) To equipment (4-year life) To franchises (10-year life) To goodwill (indefinite life)

70%

$

Year 2012 2013

House and Wilson acquire outstanding stock of Cuddy Company Total price of Cuddy shares Share House and Wilson each paid of purchase price Additional inventory acquired by House from Wilson in 2014 Merchandise still held at year's end Financial Records for 2014

60,000 (20,000) 40,000 $ $

80,000 140,000

$

$

House regularly acquired inventory from Wilson at cost plus a markup of

Intra-Entity Purchases $ 120,000 150,000

$

707,000 303,000 1,010,000 790,000 220,000

25% Retained Intra-Entity Inventory - End of Year (at transfer price) $ 40,000 60,000

$ $

80% 240,000 50% 200,000 45%

Given P07-25:

Sales and other revenues Cost of goods sold Operating expenses Income of Wilson Company Income of Cuddy Company Net income

House Wilson Cuddy Corporation Company Company $ (900,000) $ (700,000) $ (300,000) 551,000 300,000 140,000 219,000 270,000 90,000 (91,000) (28,000) (28,000) $ (249,000) $ (158,000) $ (70,000)

Retained earnings, 1/1/14 Net income Dividends declared Retained earnings, 12/31/14

$

Cash and receivables Inventory Investment in Wilson Company Investment in Cuddy Company Buildings Equipment Land Total assets Liabilities Common stock Retained earnings, 12/31/14 Total liabilities and equity

$

$

$ $

$

(820,000) $ (249,000) 100,000 (969,000) $ 220,000 390,200 807,800 128,000 385,000 310,000 180,000 2,421,000 (632,000) (820,000) (969,000) (2,421,000)

$

$ $

$

(590,000) $ (158,000) 96,000 (652,000) $ 334,000 320,000 128,000 320,000 130,000 300,000 1,532,000 (570,000) (310,000) (652,000) (1,532,000)

$

$ $

$

(150,000) (70,000) 50,000 (170,000) 67,000 103,000 144,000 88,000 16,000 418,000 (98,000) (150,000) (170,000) (418,000)

Retained Intra-Entity Inventory - End of Year (at transfer price)

Student Name: Instructor Class: McGraw-Hill Problem 07-27 TRAVERS COMPANY AND CONSOLIDATED SUBSIDIARIES Acquisition -Date Allocation and Amortization Consideration transferred for Stookey Noncontrolling interest fair value Stookey business fair value Stookey book value Customer list Life in years Annual amortization

$

Consideration transferred for Yarrow Noncontrolling interest fair value Yarrow business fair value Yarrow book value Copyright Life in years Annual amortization

$

$ $ $

$ $ $

344,000 86,000 430,000 (380,000) 50,000 10 5,000 Correct! 720,000 80,000 800,000 (740,000) 60,000 15 4,000 Correct!

Consolidation entries *G Correct! (To give effect to unrealized gain from 2014.)

*C1

Retained Earnings, 1/1/13 (Stookey) Cost of Goods Sold

Investment in Stookey

7,

85,

Retained Earnings, 1/1/14 (Yarrow) Correct! (To recognize equity income accruing from Yarrow's investment in Stookey during 2013.)

*C2

Investment in Yarrow

217,

Retained Earnings, 1/1/14 (Travers) Correct! (To recognize equity income accruing from Travers' investment in Yarrow during 2013.)

S1 Correct!

Common stock (Stookey) Retained earnings, 1/1/14 (Stookey) Investment in Stookey Noncontrolling interest in Stookey

200, 292,

(To eliminate stockholders' equity accounts of subsidiary [Stookey] against corresponding balance in investment account and to recognize noncontrolling interest ownership.)

S2 Correct!

Common stock (Yarrow) Retained earnings, 1/1/14 (Yarrow) Investment in Yarrow Noncontrolling interest in Yarrow

300, 685,

(To eliminate stockholders' equity accounts of subsidiary Yarrow against corresponding balance in investment account and to recognize noncontrolling interest ownership.)

A1

Customer List

45,

Student Name: Instructor Class: McGraw-Hill Problem 07-27

Investment in Stookey Noncontrolling Interest in Stookey

Correct!

(To recognize January 1, 2014 unamortized portion of acquisition price assigned to Stookey's customer list.)

A2 Correct!

Copyright Investment in Yarrow Noncontrolling Interest in Yarrow

56,

(To recognize January 1, 2014 unamortized portion of acquisition price assigned to copyright.)

E Correct!

Operating Expense Customer list Copyright

(To recognize amortization expense for 2014 - $5,000 in connection with Tavers' investment and $3,000 in connection with Yarrow's investment.)

9,

Student Name: Instructor Class: McGraw-Hill Problem 07-27

TI

Sales

100,

Cost of Goods Correct! (To eliminate intra-entity inventory transfers made during 2014.)

G Correct! (To defer unrealized gain in ending inventory.)

Sold

Cost of Goods Sold Inventory

9,

Noncontrolling Interest in Stookey's Net Income 2014 Reported net income Customer list amortization Realization of 2013 deferred gross profit Deferral of 2014 unrealized gross profit Realized income - 2014 Outside ownership Noncontrolling interest in Stookey's net income

$ $

100,000 (5,000) 7,680 (9,600) 93,080 20% 18,616 Correct!

Noncontrolling Interest in Net Income of Yarrow 2014 Reported net income Copyright amortization Accrual of Stookey's income Realized income - 2014 Outside ownership Noncontrolling interest in Yarrow's net income

$

$ $

200,000 (4,000) 74,464 270,464 10% 27,046 Correct!

TRAVERS COMPANY AND CONSOLIDATED SUBSIDIARIES Consolidation Worksheet December 31, 2014

Accounts Sales and other revenues

Travers

Yarrow

Stookey

Company

Company

Company

Consolidation Entries Debit

(900,000)

(600,000)

(500,000)

[TI]

100,000

Cost of goods sold

480,000

320,000

260,000

[G]

9,600

Operating expenses

100,000

80,000

140,000

[E]

9,000

(320,000)

(200,000)

(100,000)

[*G] [TI]

Separate company net income Consolidated net income Net income attributable to NCI (Yarrow)

-

-

-

Net income attributable to NCI (Stookey)

-

-

-

Net income attributable to Travers Company Retained earnings, 1/1/14 --Travers Company

(700,000)

--Yarrow Company

[*C2] (600,000)

--Stookey Company Net Income

[S2] (300,000)

(320,000)

(200,000)

(100,000)

685,856 [*C1]

[*G]

7,680

[S1]

292,320

Student Name: Instructor Class: McGraw-Hill Problem 07-27 Dividends declared Retained earnings, 12/31/14

128,000 (892,000)

(800,000)

(400,000)

Current assets

444,000

380,000

280,000

Investment in Yarrow Company

720,000

[G] [*C2]

217,670

[S2] [A2]

Investment in Stookey Company

344,000

[*C1]

85,856

[S1] [A1]

Land, buildings, & equipment (net)

949,000

836,000

520,000

Customer list

[A1]

45,000

[E]

[A2]

56,000

[E]

Copyright Total assets

2,113,000

1,560,000

800,000

Liabilities

(721,000)

(460,000)

(200,000)

Common stock

(500,000)

(300,000)

(200,000) [S1]

200,000

[S2]

300,000

Retained earnings, 12/31/14

(892,000)

(800,000)

(400,000)

[S1]

NCI interest in Stookey, 1/1/14

-

-

-

[A1]

Noncontrolling interest in Yarrow, 1/1/14

-

-

-

[S2] Noncontrolling interest in subsidiaries Total liabilities and equity

-

-

-

(2,113,000)

(1,560,000)

(800,000)

[A2]

2,008,982 Correct!

Student Name: Instructor Class: McGraw-Hill Problem 07-27

b. Determine income taxes to be paid by Travers and Yarrow on a consolidated tax return for the year 2014. Travers' reported pre-tax income Yarrow's reported pre-tax income Dividend income Intra-entity gains Amortization expense Taxable income Tax rate Income tax payable

$

$ $

320,000 200,000 (9,000) 511,000 45% 229,950

Correct!

c. Determine income taxes to be paid by Stookey on a separate tax return for the year 2007. Stookey's reported pre-tax income Tax rate Income tax payable

$ $

100,000 45% 45,000

Correct!

d. Based on parts (b) and (c), what journal entry would be made by this combination to record 2007 income taxes? 2014 Unrealized gain taxed in 2014 2013 Unrealized gain taxed previously in 2013 Increase in taxable income Tax rate Deterred income tax asset

$ $ $

9,600 (7,680) 1,920 45% 864 Correct!

Income tax expense: Travers and Yarrow-payable Stookey-payable Total taxes to be paid-2014 Prepayment Income tax expense 2014

$ $ $

229,950 45,000 274,950 (864) 274,086 Correct!

Account Income Tax Expense-Current Deferred Income Tax-Asset Income Tax Payable

Debit 274,086 864

Credit Correct! Correct!

274,950

Correct!

OLIDATED SUBSIDIARIES

7,680 7,680

Correct!

85,856

Correct!

217,670

Correct!

85,856

217,670

200,000 292,320

Correct! Correct!

393,856 98,464

300,000 685,856

Correct!

Correct! Correct!

887,270 98,586

45,000

Correct!

Correct! Correct!

Correct!

36,000 9,000

56,000

Correct! Correct!

Correct!

50,400 5,600

9,000

Correct! Correct!

Correct!

5,000 4,000

Correct! Correct!

100,000 100,000

Correct!

9,600

Correct!

9,600

ND CONSOLIDATED SUBSIDIARIES

dation Worksheet

ember 31, 2014 NonConsolidation Entries Credit

controlling

Consolidated

Interest

Balances

7,680

(1,900,000)

Correct!

961,920

Correct!

329,000

Correct!

100,000

(609,080)

Correct!

(27,046)

27,046

Correct!

(18,616)

18,616

Correct!

(563,418)

Correct!

217,670

(917,670)

Correct!

85,856

-

Correct!

-

Correct!

(563,418)

Correct!

128,000

Correct!

(1,353,088)

Correct!

9,600

1,094,400

Correct!

887,270

-

Correct!

-

Correct!

50,400 393,856 36,000 2,305,000

Correct!

5,000

40,000

Correct!

4,000

52,000

Correct!

-

98,464 9,000

3,491,400

Correct!

(1,381,000)

Correct!

(500,000)

Correct!

(1,353,088)

Correct!

(257,312)

Correct!

(107,464)

98,586 5,600

(104,186) (257,312)

2,008,982 Correct!

(3,491,400) Correct!

d tax return for the year 2014.

he year 2007.

nation to record 2007 income taxes?

Given P07-27: Travers Company purchased ownership in Yarrow Company Acquisition cost paid by Travers Assessed fair value of noncontrolling interest Excess purchase price attributed to customer list to be amortized over years Yarrow Company purchased ownership in Stookey Company Acquisition cost paid by Yarrow Assessed fair value of noncontrolling interest Excess purchase price attributed to copyright with a remaining life of: Portion of operational earnings Travers pays as cash dividends Reported income totals for 2013 Travers Company Yarrow Company Stookey Company Inventory transferred to Yarrow since takeover: 2013 2014 Portion of inventory carried into succeeding year Effective tax rate for all companies

Sales Cost of goods sold Operating expenses Net income

$ $

90% 720,000 80,000 15

$ $

80% 344,000 86,000 10 40%

$ $ $

300,000 160,000 120,000

$ $

80,000 100,000 20% 45%

Travers Yarrow Stookey Company Company Company 12/31/2014 12/31/2014 12/31/2014 $ (900,000) $ (600,000) $ (500,000) 480,000 320,000 260,000 100,000 80,000 140,000 $ (320,000) $ (200,000) $ (100,000)

Retained earnings, 1/1/14 Net income Dividends declared Retained earnings, 12/31/14

$

(700,000) $ (320,000) 128,000 (892,000) $

(600,000) $ (200,000) (800,000) $

(300,000) (100,000) (400,000)

Current assets Investment in Yarrow Company Investment in Stookey Company Land, buildings, and equipment (net) Total assets

$

444,000 $ 720,000 949,000 2,113,000 $

380,000 $ 344,000 836,000 1,560,000 $

280,000 520,000 800,000

Liabilities Common stock Retained earnings, 12/31/14 Total liabilities and equities

$

(721,000) $ (460,000) $ (500,000) (300,000) (892,000) (800,000) $ (2,113,000) $ (1,560,000) $

(200,000) (200,000) (400,000) (800,000)

$

$

years

years

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