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LO6 Exercise 8 Swift Corporation paid $88,500 for a 70% interest in Cave Corporation on January 1, 2005, when Cave’s Capital Stock was $70,000 and its Retained Earnings $30,000. The fair values of Cave's identifiable assets and liabilities were the same as the recorded book values on the acquisition date. Trial balances.
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LO3&4 Exercise 3 Tern Corporation acquired an 80% interest in Harbor Corporation several years ago when Harbor’s book values and fair values were equal. Separate company income statements for Tern and Harbor for the year ended December 31, 2005 are summarized as follows: Tern Harbor Sales Revenue $ 1,000,000 $ 600,000 Income from Harbor 80,000 Cost of Goods Sold ( 600,000 )( 300,000 ) Expenses ( 200,000 )( 200,000 ) Net Income $ 280,000 $ 100,000 During 2004 Tern.
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LO5 Exercise 10 On January 1, 2004, Lapwing Corporation purchased 70% of the common stock of Forage Corporation for $320,000 when Forage had Common Stock outstanding of $100,000 and Retained Earnings of $200,000. Any excess differential was attributed to goodwill. At the end of 2004, Lapwing and Forage had unrealized inventory profits from.
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LO4 Exercise 8 Cardinal Corporation acquired a 90% interest in Robin Corporation at book value in 2004. During 2005, Cardinal sold $220,000 of merchandise to Robin at a gross profit rate of 30%. Robin’s beginning and ending inventories for 2005 were $30,000 and $40,000, respectively. Income statement information for both companies for.
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LO6 Exercise 9 Emu Corporation paid $77,000 for a 60% interest in Chick Inc. on January 1, 2005, when Chick’s Capital Stock was $80,000 and its Retained Earnings $20,000. The fair values of Chick's identifiable assets and liabilities were the same as the recorded book values on the acquisition date. Trial balances.
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LO2 Exercise 2 Cuckoo Company acquired all the voting stock of Perch Corporation on January 1, 2004 for $70,000 when Perch had Capital Stock of $50,000 and Retained Earnings of $8,000. The excess of cost over book value was allocated $3,000 to inventories that were sold in 2004, $4,000 to equipment with.
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LO2 Exercise 5 Barn Owl Corporation acquired 70% of the outstanding voting stock of Cave Inc. on January 1, 2003 for $60,000 less than book value. The $60,000 reduction was all assigned to a tractor.  The tractor had a remaining life of 15 years.  On April 1, 2003, Cave sold land to.
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LO3 Exercise 8 Separate income statements of Quail Corporation and its 80%-owned subsidiary, Savannah Corporation, for 2005 are as follows: Quail Savannah Sales Revenue $ 800,000 $ 300,000 Gain on equipment 35,000 Gain on land 20,000 Cost of sales ( 400,000 ) ( 160,000 ) Other expenses ( 265,000 ) ( 60,000 ) Separate incomes $ 170,000 $ 100,000 Additional information: 1. Quail acquired its 80% interest in Savannah Corporation when the book values were equal to the fair values. 2. The gain on equipment relates to.
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LO1&2 Exercise 3 Dove Corporation acquired all of the outstanding voting common stock of the Squab Corporation several years ago when the book values and fair values of Squab’s net assets were equal. On April 1, 2003, Dove sold land that cost $25,000 to Squab for $40,000. Squab resold the land for $45,000.
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LO3&4 Exercise 6 Bittern Corporation acquired a 70% interest in Reed Corporation at book value several years ago. Reed purchases its entire inventory from Bittern at 140% of Bittern’s cost. During 2005, Bittern sold $160,000 of merchandise to Reed. Reed’s beginning and ending inventories for 2005 were $49,000 and $33,600, respectively. Income.
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LO2 Exercise 3 Pheasant Corporation owns 80% of Rural Corporation’s outstanding common stock that was purchased at book value and fair value on January 1, 1999. Additional information: 1. Pheasant sold inventory items that cost $3,000 to Rural during 2006 for $6,000. One-half of this merchandise was inventoried by Rural at year-end. At December 31,.
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LO2 Exercise 4 December 31, 2006 balance sheets for Wren Corporation, and Schrub Corporation, its 90%-owned subsidiary, are presented in the first two columns of partially completed balance sheet working papers. Wren paid $160,000 for its 90% interest in Schrub on January 1, 2003 when Schrub had $150,000 of total stockholders’ equity..
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LO4 Exercise 5 Owl Corporation acquired 90% of Barn Corporation on January 1, 2005 for $72,000 cash when Barn’s stockholders’ equity consisted of $30,000 of Common Stock and $30,000 of Retained Earnings. The difference between the price paid by Owl and the underlying equity acquired in Barn was allocated to a plant.
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LO2 11. Ground Parrot Company completely owns Heathlands Inc.  On January 2, 2005 Ground Parrot sold Heathlands machinery at its book value of $30,000.  Ground Parrot had the machinery two years before selling it and used a five-year straight-line depreciation method, with zero salvage value.  Heathlands will use a three-year straight-line method..
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LO3 Exercise 4 Koel Corporation acquired all the voting stock of Rain Company for $500,000 on January 1, 2005 when Rain had Capital Stock of $300,000 and Retained Earnings of $150,000. Rain’s assets and liabilities were fairly valued except for the plant assets. The entire cost-book differential is allocated to plant assets.
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LO2&3 Exercise 8 Thornbill Corporation owns 90% of the outstanding voting common stock of Hangout Corporation. On January 1, 1998, Hangout issued $1,000,000 face amount of 12%, $1,000 bonds payable at 119.20. The bonds pay interest on January 1 and July 1 of each year and mature on for on January 1,.
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LO2 Exercise 5 Sunbird Corporation owns a 70% interest in Veranda Corporation. At December 31, 2005, Veranda had $3,000,000 of par value 12% bonds outstanding with an unamortized premium of $60,000. The bonds have interest payment dates of January 1 and July 1 and mature on January 1, 2010. On January 2, 2006,.
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LO1 Exercise 1 Separate company and consolidated income statements for Pitta and New Guinea Corporations for the year ended December 31, 2006 are summarized as follows: Pitta New Guinea Consoli- dated Sales Revenue $ 500,000 $ 100,000 $ 600,000 Income from New Guinea 19,900 Bond interest income 6,000 Gain on bond retirement 3,000 Total revenues 519,900 106,000 603,000 Cost of sales $ 280,000 $ 50,000 $ 330,000 Bond interest expense 9,000 3,600 Other expenses 120,900 31,000 151,900 Minority interest income 7,500 Total expenses 409,900 81,000 493,000 Net income $ 110,000 $ 25,000 $ 110,000 The interest income and expense eliminations.
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LO7&8 Exercise 9 Currawong Corporation paid $500,000 for 80% of the outstanding voting common stock of Lizard Corporation on January 2, 2005 when the book value of Lizard’s net assets was $460,000. The fair values of Lizard’s identifiable net assets were equal to their book values except as indicated below. Lizard reported net.
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Multiple Choice Questions LO1 1. Which of the following will be debited to the Investment account when the equity method is used? a. b. Investee net losses. Investee net profits. c. d. Investee declaration of dividends. Depreciation of excess purchase cost attributable to investee equipment. LO1 2. A parent company uses the equity method to account for its wholly-owned subsidiary. The.
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LO4 Exercise 5 Ibis Corporation acquired 100% of Lake Co. common stock on January 1, 2003, for $550,000 when the book values of Lake’s assets and liabilities were equal to their fair values and Lake’s stockholders’ equity consisted of $280,000 of Capital Stock and $270,000 of Retained Earnings. Ibis’ separate income (excluding.
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LO3 11. The majority of errors in consolidated statements a. result because the Investment in Subsidiary account on the parent’s books and the subsidiary equity accounts on the subsidiary’s books are reciprocal. b. have conceptual problems from the minority interest representation of the equity investment in consolidated net assets by stockholders outside the affiliation structure. c. involve the.
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Multiple Choice Questions LO1 1. Which of the following is correct?  The direct sale of additional shares to the parent company from a subsidiary a. decreases the parent’s interest and decreases the noncontrolling shareholders’ interest. b. decreases the parent’s interest and increases the noncontrolling shareholders’ interest. c. increases the parent’s interest and increases the noncontrolling shareholders’ interest. d. increases the parent’s.
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LO2&3 Exercise 7 Osprey Corporation created a wholly owned subsidiary, Branch Corporation, on January 1, 2003, at which time Osprey sold land with a book value of $90,000 to Branch at its fair market value of $140,000. Also, on January 1, 2003, Osprey sold to Branch equipment with a book value of.
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LO3 Exercise 9 Cassowary Corporation acquired a 70% interest in Fruit Corporation in 1999 at a time when Fruit’s book values and fair values were equal. In 2003, Fruit sold land to Cassowary for $82,000 that cost $72,000. The land remained in Cassowary’s possession until 2005 when Cassowary sold it outside the.
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LO2 Exercise 6 Separate income statements of Nightjar Corporation and its 90%-owned subsidiary, Branch Inc., for 2005 were as follows: Nightjar Branch Sales Revenue $ 2,000,000 $ 1,200,000 Cost of sales ( 1,200,000 ) ( 800,000 ) Other expenses ( 400,000 ) ( 200,000 ) Gain on equipment 80,000   Income from Branch 180,000 Net income $ 660,000 $ 200,000 Additional information: 1. Nightjar acquired its 90% interest in Branch Inc. when the book values were equal to the fair values. 2. The gain on equipment relates.
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LO5 Exercise 9 Plover Corporation acquired 80% of Artic Inc. equity on January 1, 2003, when the book values of Artic’s assets and liabilities were equal to their fair values. Plover separate income (excluding Artic) was $1,800,000, 1,700,000 and 1,900,000 in 2003, 2004 and 2005 respectively. Plover sold inventory to Artic during.
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Multiple Choice Questions LO1 1. The material sale of inventory items by a parent company to an affiliated company a. enters the consolidated revenue computation only if the transfer was the result of arm’s length bargaining. b. affects consolidated net income under a periodic inventory system but not under a perpetual inventory system. c. does not result in consolidated.
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LO1&2 Exercise 4 Brolga Corporation paid $26,800 cash for a 70% interest in Dance Company on January 1, 2004, when Dance’s stockholders’ equity consisted of $15,000 Capital Stock and $9,000 of Retained Earnings. Additional information: 1. The cost-book value differential was allocated to a patent with a 20-year amortization period. 2. Brolga Corporation sold inventory items that.
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LO4 Exercise 7 Bronzewing Company has the following information collected in order to do make a cash flow statement and uses the indirect format for Cash Flow from Operations.  The annual report year end is December 31, 2005. Noncontrolling Interest Dividends $17,000 Undistributed Income of Equity Investees 7,500 Depreciation Expense 65,000 Consolidated Net Income 175,000 Increase in Accounts Payable 15,000 Amortization of Patent 13,000 Decrease.
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LO1&2 Exercise 2 Stork Corporation paid $15,700 for a 90% interest in Swamp Corporation on January 1, 2004, when Swamp stockholders’ equity consisted of $10,000 Capital Stock and $3,000 of Retained Earnings. The excess cost over book value was attributable to goodwill. Additional information: 1. Stork sells merchandise to Swamp at 120% of Stork’s cost..
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LO1 Exercise 1 Spiniflex Pigeon Company owns 90% of the outstanding stock of Waterhole Corporation. This interest was purchased on January 1, 1999, when Waterhole’s book values were equal to its fair values. The amount paid by Spiniflex Pigeon included $10,000 for goodwill. On January 1, 2000, Spiniflex Pigeon purchased equipment for $100,000.
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LO3&4 Exercise 9 Honeyeater Corporation owns a 60% interest in Waterhole Corporation acquired several years ago at a price equal to book value and fair value.  On December 31, 2005, Waterhole had $900,000 par of 12% bonds outstanding with an unamortized premium of $30,000. The bonds mature in five years and pay.
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LO4 Exercise 10   Willy Wagtail Company has $4,000,000 of 12% bonds outstanding on December 31, 2004 with unamortized premium of $120,000. These bonds pay interest semiannually on January 1 and July 1 and mature on January 1, 2010. Straight-line amortization is used.   Garden Inc., 80%-owned subsidiary of Willy Wagtail, buys $1,000,000.
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LO3&4 Exercise 2 Frigatebird Co. bought 75% of the outstanding voting stock of Cliff Corporation at book value several years ago. Frigatebird sells merchandise to Cliff at 125% above Frigatebird’s cost. Intercompany sales from Frigatebird to Cliff for 2005 were $650,000. Unrealized profits in Cliff’s December 31, 2004 inventory and December 31,.
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LO1 Exercise 1 Parrot Corporation acquired 80% of Hollow Co. on January 1, 2005 for $24,000 cash when Hollow’s stockholders’ equity consisted of $10,000 of Common Stock and $3,000 of Retained Earnings. The difference between the price paid by Parrot and the underlying equity acquired in Hollow was allocated solely to a.
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LO3 Exercise 1 Petrel Corporation acquired a 60% interest in Salt Corporation on January 1, 2005, at a cost equal to book value and fair value. Salt reports net income of $880,000 for 2005. Petrel regularly sells merchandise to Salt at 120% of Petrel’s cost. The intercompany sales information for 2004 is.
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LO2&4 Exercise 10 Buzzard Corporation acquired 70% of the outstanding voting common stock of Tool Inc. in 1998. On January 1, 1999, Tool Inc. purchased a depreciable machine for $120,000 cash with an estimated useful life of 10 years that was depreciated on a straight-line basis. Tool used the machine until the.
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LO3&4 Exercise 4 Egret Corporation acquired an 80% interest in Tick Corporation at book value in 2004. During 2005, Egret sold $148,000 of merchandise to Tick at 160% of Egret’s cost. Tick’s beginning and ending inventories for 2005 were $38,000 and $44,000, respectively. Income statement information for both companies for 2005 is.
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Use the following information to answer questions 13, 14, and 15. Wren Corporation acquired 80% ownership of Arid Incorporated, at a time when Wren’s investment (using the equity method) and Arid’s book values were equal. During 2005, Wren sold goods to Arid for $200,000 making a gross profit percentage of 20%. .
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LO4 Exercise 6 Lorikeet Company has the following information collected in order to do make a cash flow statement and uses the direct format for Cash Flow from Operations.  The annual report year end is December 31, 2005. Noncontrolling Interest Dividends $20,000 Dividends Received from Equity Investees 17,000 Cash Paid to Employees 37,000 Cash Paid for Other Operating Activities 34,000 Cash.
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LO 3&4 Exercise 7 Egret Corporation paid $24,800 for an 80% interest in Plume Corporation on January 1, 2004, at which time Plume’s stockholders’ equity consisted of $15,000 of Common Stock and $6,000 of Retained Earnings. The fair values of Plume Corporation’s assets and liabilities were identical to recorded book values when.
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LO6 Exercise 8 Bower Corporation paid $5,000 for a 60% interest in Fig Inc. on January 1, 2005 when Fig’s stockholders’ equity consisted of $5,000 Capital Stock and $2,500 Retained Earnings. Fig’s assets and liabilities were fairly valued on this date. Two years later, on December 31, 2006, the balance sheets of.
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LO1 Exercise 2 Jacky Winter Corporation owns a 90% interest in Park Company.  The following information is from the adjusted trial balances at December 31, 2005, at which time the bonds have four years to maturity. Jacky Winter acquired Park’s bonds at the beginning of the year.  The bonds have interest payment.
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Use the following information for questions 10 through 15. Dollarbird Corporation issued five thousand, $1,000 par, 12% bonds on January 1, 2004. Interest is paid on January 1 and July 1 of each year; the bonds mature on January 1, 2009. On January 1, 2006, Branch Corporation, an 80%-owned subsidiary of.
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