ACCT 4020 Advanced Accounting – 2024/Autumn –Assignment 3

Question 1:

Patrick Corporation acquired 88% of the stock of Sammy Company by issuing shares of its common stock with a fair value of $528,000. At that time, the fair value of the noncontrolling interest was estimated to be $72,000, and the fair values of Sammy’s  identifiable assets and liabilities were $680,000 and $120,000, respectively. Sammy’s assets and liabilities had book values of $480,000 and $110,000,respectively.

Required: (Show your detailed computation process.)

Compute the following amounts immediately after the combination.

a)   Investment in Sammy reported by Patrick.

b)   Total net differential resulted from Patrick’s acquisition of Sammy.

c)   Goodwill for the combined entity reported in the consolidated balance sheet.

d)   Noncontrolling interest reported in the consolidated balance sheet.

Question 2:

S Company holds assets with a fair value of $200,000 and a book value of $180,000 whereas liabilities with a fair value of $100,000 and a book value of $120,000.

Required: (Show your detailed computation process.)

Compute  the  following  amounts   if   P  Corporation  acquires  80%  ownership   of  S Company:

a)    What amount did P Corporation pay for the shares if no goodwill and no gain on a bargain purchase are reported?

b)    What amount did P Corporation pay for the shares if the fair value of the noncontrolling interest at acquisition is $38,000 and goodwill of $26,000 is reported?

c)    What balance will be assigned to the noncontrolling interest in the consolidated balance sheet if P Corporation pays $90,000 to acquire its ownership and goodwill of $27,000 is reported?

Question 3:

On December 31, 20X1, Peter Corporation acquired 60% of Sam Inc.’scommon stock for $600,000 in cash. At that date, the fair value of the noncontrolling interest was $400,000. At the date of combination, Sam reported common stock outstanding of  $400,000, retained earnings of $300,000, additional paid-in capital of $100,000 and accumulated depreciation of buildings & equipment of $30,000. Of the total differential in this acquisition, $40,000 related to the increased value of Sam’s inventory, $100,000 related to the increased value of its land, $40,000 related to the  increased value of its equipment, the rest is assigned to goodwill. Sam’s equipment had a remaining life of 4 years from the date of combination. Sam sold all inventory it held at the end of 20X1 during 20X2. The management of Peter decided the goodwill  of Sam was impaired by $10,000 for 20X2. For the year 20X2, Sam reported net income of $150,000 and paid $50,000 dividends. Peter accounts for its investment in Sam using the equity method.

Required: (Show your detailed computation process.)

a)    Present all equity-method entries that Peter would record during 20X2 with respect to its investment in Sam.

b)    Present all consolidation entries that Peter would have been included in the

worksheet to prepare the consolidated financial statements for the year 20X2 .

Question 4:

Park Corporation owns 75% of Star Company’s voting shares. During 20X1, Park produced 25,000 digital readers at a cost of $80 each and sold 10,000 of them to Star for $90 each. Starsold 8,000 of the digital readers to unaffiliated companies for $120  each prior to December 31, 20X1, and then sold the remainder in early 20X2 for $120 each. Both companies use perpetual inventory systems.

Required: (Show your detailed computation process.)

a)   What amounts of cost of goods sold did Park and Star record in 20X1?

b)   What amount of cost of goods sold must be reported in the consolidated income statement for 20X1.

c)   Give    the   worksheet    consolidation   entry    or   entries    needed   in    preparing consolidated   financial   statements   at    December   31,   20X1,   relating   to   the intercorporate sale of inventory.

d)   Give   the    worksheet   consolidation    entry   or    entries   needed    in    preparing consolidated   financial   statements   at    December   31,   20X2,   relating   to   the intercorporate sale of inventory.

e)   Give   the    worksheet   consolidation    entry   or    entries   needed    in    preparing consolidated   financial   statements   at    December   31,   20X2,   relating   to   the intercompany  sale  of  inventory  if  the  sales  were  upstream.  Assume  that  Star produced digital readers at a cost of $80 each and sold 10,000 the digital readers to Park for $90 each in 20X1, with Park selling 8,000 digital readers to unaffiliated companies in 20X1 and the remaining 2,000 in 20X2 for $120 each.

Question 5:

P Corporation holds 80% ownership of S Company. Each year, S Company purchases large quantities of wood used in producing desks and chairs. S Company purchased  $200,000 of wood in 20X1 and sold $80,000 of these wood to P Corporation for $100,000. By the end of 20X1, P Corporation had resold all but $30,000 of its purchase from S Company. P Corporation received $120,000 on the sale of wood to various non-affiliated parties during the year.

Required: (Show your detailed computation process.)

a)    Give the journal entries recorded by S Company during 20X1 relating to the initial purchase, intercorporate sale, and resale of wood.

b)    Give the journal entries recorded by P Corporation during 20X1 relating to the initial purchase, intercorporate sale, and resale of wood.

c)    Give  the  worksheet  consolidation entry or entries  needed as of December 31, 20X1, to remove all effects of the intercompany transfer in preparing the 20X1 consolidated financial statements.

d)    Give   the   worksheet    consolidation   entry    or   entries    needed   in    preparing consolidated  financial   statements   at   December   31,   20X2,   relating   to   the intercompany sale if P Corporation had sold all the remaining wood purchased form. S Company in 20X1 to non-affiliated parties during 20X2.