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6.What procedure is used in the consolidated statements workpaper to adjust the noncontrolling interest in consolidated net assets at the be-ginning of the year for the effects of intercompany profits? 7.What is the essential procedural difference between workpaper eliminating entries for unrealized intercompany profit made when the selling affiliate is a.
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14B.What assumptions must be made about the realization of undistributed subsidiary income when the affiliates file separate income tax returns? Why? (Appendix) 15B.The FASB elected to require that deferred tax effects relating to unrealized intercompany profits be calculated based on the income tax paid by the selling affiliate rather than on.
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11.On November 30, 2010, Pulse Incorporated purchased for cash of $25 per share all 400,000 shares of the outstanding common stock of Surge Company. Surge 's balance sheet at November 30, 2010, showed a book value of $8,000,000. Additionally, the fair value of Surge's property, plant, and equipment on November.
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11.P Company sold merchandise costing $240,000 to S Company (90% owned) for $300,000. At the end of the current year, one-third of the merchandise remains in S Company’s inventory. Applying the lower-of- cost-or-market rule, S Company wrote this inventory down to $92,000.  What amount of intercompany profit should be eliminated.
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Questions from the Textbook Distinguish among the following concepts:(a)Difference between book value and the value implied by the purchase price.(b)Excess of implied value over fair value.(c)Excess of fair value over implied value.(d)Excess of book value over fair value. In what account is the difference between book value and the value implied by.
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11.Which of the following is a limitation of consolidated financial statements? a.Consolidated statements provide no benefit for the stockholders and creditors of the parent company. b.Consolidated statements of highly diversified companies cannot be compared with industry standards. c.Consolidated statements are beneficial only when the consolidated companies operate within the same industry. Consolidated statements are.
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3-4On January 2, 2011, Potter Company acquired 90% of the outstanding common stock of Smiley Company for $480,000 cash.  Just before the acquisition, the balance sheets of the two companies were as follows:             Potter            Smiley Cash$  650,000$ 160,000 Accounts Receivable (net) 360,00060,000 Inventory 290,000 140,000 Plant and Equipment (net)970,000240,000 Land       150,000   80,000 Total Assets$2,420,000$680,000 Accounts.
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4-4Pratt Company purchased 80% of the outstanding common stock of Selby Company on January 2, 2004, for $680,000. The composition of Selby Company’s stockholders’ equity on January 2, 2004, and December 31, 2011, was: 1/2/0412/31/11 Common stock              $540,000              $540,000 Other contributed capital              325,000              325,000 Retained earnings (deficit)                (60,000)                   295,000 Total stockholders’ equity              $805,000             .
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Problems 5-1Phillips Company purchased a 90% interest in Standards Corporation for $2,340,000 on January 1, 2010. Standards Corporation had $1,650,000 of common stock and $1,050,000 of retained earnings on that date. The following values were determined for Standards Corporation on the date of purchase: Book ValueFair Value Inventory$240,000$300,000 Land2,400,0002,700,000 Equipment1,620,0001,800,000 Required: A.Prepare a computation and allocation schedule for.
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Chapter 4 Consolidated Financial Statements after Acquisition 1.An investor adjusts the investment account for the amortization of any difference between cost and book value under the a.cost method. b.complete equity method. c.partial equity method. d.complete and partial equity methods. 2.Under the partial equity method, the entry to eliminate subsidiary income and dividends includes a debit to a.Dividend.
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What aspects of control must exist before a subsidiary is consolidated? Why are consolidated work papers used in pre-paring consolidated financial statements? Define noncontrolling (minority) interest. List three methods that might be used for reporting the noncontrolling interest in a consolidated balance sheet, and state which is preferred under the SFAS No..
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Short Answer Questions from the Textbook 1.Does the elimination of the effects of intercompany sales of merchandise always affect the amount of reported consolidated net income? Explain. 2.Why is the gross profit on intercompany sales, rather than profit after deducting selling and administrative expenses, ordinarily eliminated from consolidated inventory balances? 3.P Company sells.
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7-3Pringle Company owns 104,000 of the 130,000 shares outstanding of Seely Corporation.  Seely Corporation sold equipment to Pringle Company on January 1, 2011 for $740,000.  The equipment was originally purchased by Seely Corporation on January 1, 2010 for $1,280,000 and at that time its estimated depreciable life was 8 years. .
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Problems 4-1On January 1, 2011, Price Company purchased an 80% interest in the common stock of Stahl Company for $1,040,000, which was $60,000 greater than the book value of equity acquired. The difference between implied and book value relates to the subsidiary’s land. The following information is from the consolidated retained earnings.
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Short Answer 1.There are three levels of influence or control by an investor over an investee, which determine the appropriate accounting treatment. Identify and briefly describe the three levels and their accounting treatment. 2.Two methods are available to account for interim acquisitions of a subsidiary’s stock at the end of the first.
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5-4Pennington Corporation purchased 80% of the voting common stock of Stafford Corporation for $3,200,000 cash on January 1, 2010. On this date the book values and fair values of Stafford Corporation's assets and liabilities were as follows: Book ValueFair Value Cash              $     70,000              $     70,000 Receivables              240,000              240,000 Inventories              600,000              700,000 Other Current Assets             .
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A principal limitation of consolidated financial statements is their lack of separate financial in-formation about the assets, liabilities, revenues, and expenses of the individual companies included in the consolidation. Identify some problems that the reader of consolidated financial statements would encounter as a result of this limitation. In the preparation of.
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Problems 3-1On December 31, 2011, Page Company purchased 80% of the outstanding common stock of Snead Company for cash.  At the time of acquisition, Snead Company's balance sheet was as follows: Current assets$  1,680,000 Plant and equipment1,580,000 Land     280,000 Total assets$3,540,000 Liabilities$   1,320,000 Common stock, $10 par value1,440,000 Other contributed capital700,000 Retained earnings     240,000 Total$3,700,000 Treasury stock at cost, 5,000 shares      .
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5-9On January 1, 2010, Prescott Company acquired 80% of the outstanding capital stock of Sherlock Company for $570,000. On that date, the capital stock of Sherlock Company was $150,000 and its retained earnings were $450,000. On the date of acquisition, the assets of Sherlock Company had the following values: Fair Market Book Value Value   Inventories.................................$   .
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Chapter 2 Accounting for Business Combinations Multiple Choice 1. SFAS 141R requires that all business combinations be accounted for using a.the pooling of interests method. b.the acquisition method. c.either the acquisition or the pooling of interests methods. neither the acquisition nor the pooling of interests methods. 2.Under the acquisition method, if the fair values of identifiable net.
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2-7On January 1, 2010, Presley Company acquired the net assets of Sill Company for $1,580,000 cash.  The fair value of Sill’s identifiable net assets was $1,310,000 on his date.  Presley Company decided to measure goodwill impairment using the present value of future cash flows to estimate the fair value of.
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21.If an impairment loss is recorded on previously recognized goodwill due to the transitional goodwill impairment test, the loss should be treated as a(n): loss from a change in accounting principles. extraordinary loss loss from continuing operations. loss from discontinuing operations. 22.P Company acquires all of the voting stock of S Company for $930,000 cash. .
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Problems 7-1Parker Company, a computer manufacturer, owns 90% of the outstanding stock of Santo Company.  On January 1, 2011, Parker sold computers to Santo for $500,000.  The computers, which are inventory to Parker, had a cost to Parker of $350,000.  Santo Company estimated that the computers had a useful life of.
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6-4Powers Company owns an 80% interest in Smiley Company and a 90% interest in Toro Company. During 2010 and 2011, intercompany sales of merchandise were made by all three companies.  Total sales amounted to $2,400,000 in 2010, and $2,700,000 in 2011.  The companies sold their merchandise at the following percentages.
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What are pro forma financial statements? What is their purpose? How would a company determine whether goodwill has been impaired? AOL announced that because of an accounting change (FASB Statements Nos. 141R [ASC 805] and142 [ASC 350]), earnings would be increasing 2002, Veritas Software Corporation’s CFO resigned after claiming to.
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21.P Company purchased 80% of the outstanding common stock of S Company on May 1, 2011, for a cash payment of $318,000. S Company’s December 31, 2010 balance sheet reported common stock of $200,000 and retained earnings of $180,000. During the calendar year 2011, S Company earned $210,000 evenly throughout.
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Chapter 7 Elimination of Unrealized Gains or Losses on Intercompany Sales of Property and Equipment Multiple Choice 1.In the year a subsidiary sells land to its parent company at a gain, a workpaper entry is made debiting 1. Retained Earnings - P Company. 2. Retained Earnings - S Company. 3. Gain on Sale of Land. a.1 b.2 c.3 d.both 1 and.
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Problems 6-1On January 1, 2011, Palmer Company purchased a 90% interest in Sauder Company for $2,800,000.  At that time, Sauder had $1,840,000 of common stock and $360,000 of retained earnings.  The difference between implied and book value was allocated to the following assets of Sauder Company: Inventory$ 80,000 Plant and equipment (net)240,000 Goodwill591,111 The plant.
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Short Answer Questions from the Textbook 1.From a consolidated point of view, when should profit be recognized on intercompany sales of depreciable assets? Nondepreciable  assets? 2.In what circumstances might a consolidated gain be recognized on the sale of assets to a nonaffiliate when the selling affiliate recognizes a loss? 3.What is the essential.
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11.Consolidated net income for a parent company and its partially owned subsidiary is best defined as the parent company’s a.recorded net income. b.recorded net income plus the subsidiary’s recorded net income. c.recorded net income plus the its share of the subsidiary’s recorded net income. d.income from independent operations plus subsidiary’s income resulting from transactions.
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6-7                                                                        PORTER COMPANY AND SUBSIDIARY Consolidated Statements Workpaper For the Year Ended December 31, 2012 Porter Shilo Eliminations Noncontrolling Consolidated Company Company Dr. Cr. Interest Balances Income Statement Sales 4,400,000 1,800,000 6,200,000 Dividend Income 192,000 (a)    192,000 ----    Total Revenue 4,592,000 1,800,000 6,200,000 Cost of Goods Sold 3,600,000 800,000 4,400,000 Depreciation Expense 160,000 120,000 (d)      80,000 360,000 Other expense    240,000      20,000 440,000     Total Cost & Expenses 4,000,000 1,120,000                      5,200,000 Net/Consolidated Income 592,000 680,000                     1,000,000 Noncontrolling Interest in Income 120,000                        120,000 Net Income to Retained Earnings 592,000 680,000 272,000 120,000                        .
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3-7On December 31, 2011, Pryor Company purchased a controlling interest in Shelby Company for $1,060,000. The consolidated balance sheet on December 31, 2011 reported noncontrolling interest in Shelby Company of $265,000. On the date of acquisition, the stockholders' equity section of Shelby Company's balance sheet was as follows: Common stock$520,000 Other contributed capital380,000 Retained.
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2-3Pyle Company acquired the assets (except cash) and assumed the liabilities of Sand Company on January 1, 2011, paying $2,600,000 cash. Immediately prior to the acquisition, Sand Company's balance sheet was as follows: BOOK VALUEFAIR VALUE Accounts receivable (net)$   240,000$   220,000 Inventory290,000320,000 Land960,0001,508,000 Buildings (net)  1,020,000  1,392,000 Total$2,510,000$3,440,000 Accounts payable$   270,000$  270,000 Note payable600,000600,000 Common stock, $5 par420,000 Other contributed.
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11.When preparing consolidated financial statement workpapers, unrealized intercompany gains, as a result of equipment or inventory sales by affiliates, are allocated proportionately by percent of ownership between parent and subsidiary only when the selling affiliate is a.the parent and the subsidiary is less than wholly owned. b.a wholly owned subsidiary. c.the subsidiary and.
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7-5On January 1, 2011, Pinkel Company purchased equipment from its 80%-owned subsidiary for $2,400,000.  On the date of the sale, the carrying value of the equipment on the books of the subsidiary company was $1,800,000. The equipment had a remaining useful life of six years on January 2011.  On January.
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Chapter 3 Consolidated Financial Statements—Date of Acquisition Multiple Choice 1.A majority-owned subsidiary that is in legal reorganization should normally be accounted for using a.consolidated financial statements. b.the equity method. c.the market value method. d.the cost method. 2.Under the acquisition method, indirect costs relating to acquisitions should be a.included in the investment cost. b.expensed as incurred. c.deducted from other contributed capital. d.none of.
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Short Answer 1.There are several reasons why a company would acquire a subsidiary’s voting common stock rather than its net assets. Identify at least two advantages to acquiring a controlling interest in the voting stock of another company rather than its assets. 2.A useful first step in the consolidating process is to.
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Business Ethics Questions from the Textbook From 1999 to 2001, Tyco’s revenue grew approximately24% and it acquired over 700 companies. It was widely rumored that Tyco executives aggressively managed the performance of the companies that they acquired by suggesting that before the acquisition, they should accelerate the payment of liabilities, delay.
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2-5               The stockholders’ equities of P Corporation and S Corporation were as follows on January 1, 2011:     P Corp.    S Corp.  Common Stock, $1 par$1,000,000$   600,000 Other Contributed Capital  2,800,000  1,100,000 Retained Earnings     600,000     340,000   Total Stockholders’ Equity$4,400,000$2,040,000 On January 2, 2011 P Corp. issued 100,000 of its shares with a market value.
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Problems 2-1Balance sheet information for Seitz Corporation at January 1, 2011, is summarized as follows: Current assets$    920,000Liabilities          $ 1,200,000 Plant assets   1,800,000Capital stock $10 par   800,000                Retained earnings   720,000 $2,720,000 $ 2,720,000 Seitz’s assets and liabilities are fairly valued except for plant assets that are undervalued by $200,000.  On January 2, 2011, Pell.
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Define: Consolidated net income; consolidated retained earnings. At the date of an 80% acquisition, a subsidiary had common stock of $100,000 and retained earnings of $16,250. Seven years later, at December 31, 2010, the subsidiary’s retained earnings had increased to $461,430. What adjustment will be made on the consolidated work paper.
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Chapter 5 Allocation and Depreciation of Differences Between Implied and Book Value Multiple Choice 1.When the implied value exceeds the aggregate fair values of identifiable net assets, the residual difference is accounted for as a.excess of implied over fair value. b.a deferred credit. c.difference between implied and fair value. d.goodwill. 2.Long-term debt and other obligations of an acquired company.
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11.Par Company and Sub Company were combined in an acquisition transaction.  Par was able to acquire Sub at a bargain Pratt. The sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Par.  After eliminating previously recorded goodwill, there was.
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Short Answer 1.SFAS No. 142 requires that goodwill impairment be tested annually for each reporting unit.  Discuss the necessary steps of the goodwill impairment test.    2. Briefly describe the different treatment under SFAS 141 vs. SFAS 141R for the following issues: Business definition Acquisitions costs In-process R&D Contingent consideration Short Answer Questions from the Textbook When contingent.
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6-7On January 1, 2011, Porter Company purchased an 80% interest in the capital stock of Shilo Company for $3,400,000.  At that time, Shilo Company had common stock of $2,200,000 and retained earnings of $620,000.  Porter Company uses the cost method to record its investment in Shilo Company.  Differences between the.
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Chapter 6 Elimination of Unrealized Profit on Intercompany Sales of Inventory Multiple Choice 1.Sales from one subsidiary to another are called a.downstream sales. b.upstream sales. c.intersubsidiary sales. d.horizontal sales. 2.Noncontrolling interest in consolidated income is never affected by a.upstream sales. b.downstream sales. c.horizontal sales. d.Noncontrolling interest is affected by all sales. 3.Failure to eliminate intercompany sales would result in an overstatement of consolidated a.net.
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