accounting answer(8)

Chapter 5 Business Combinations

29. The minority interest in net assets of a partially owned subsidiary is: A) Decreased by the minority's share of subsidiary dividends and increased by the

minority's share of subsidiary adjusted net income

B) Increased by the minority's share of subsidiary dividends and decreased by the

minority's share of subsidiary adjusted net income

C) Decreased by the minority's share of both subsidiary dividends and subsidiary

adjusted net income

D) Increased by the minority's share of both subsidiary dividends and subsidiary

adjusted net income

Answer: A

30. If a wholly owned subsidiary's net income was $150,000, the subsidiary declared

dividends of $80,000, and the depreciation and amortization of current fair value excess was $20,000, the parent company's intercompany investment income under the equity method of accounting is:

A) $60,000 B) $70,000 C) $100,000 D) $130,000 E) Some other amount

Answer: D

Rationale: ($150,000 – $20,000 = $130,000)

92 Larsen, Modern Advanced Accounting, Tenth Edition

Chapter 5 Business Combinations

Problems

31. The Investment in Sark Company Common Stock ledger account of Poulter

Corporation was as follows for the year ended December 31, 2006:

Investment in Sark Company Common Stock Date Explanation Debit Credit 2005 Dec. 31 Issuance of cash and common stock in business combination 420,000 2006 Dec. 18 Dividend declared by Sark 40,000 31 Net income of Sark 72,000 31 Depreciation and amortization of differences between current fair values and carrying amounts of Sark's identifiable net assets 19,000 31 Impairment of goodwill 2,900

Balance 420,000 dr 380,000 dr 452,000 dr 432,800 dr 429,900 dr

Poulter had acquired 80% of the outstanding common stock of Sark on December 31, 2005 in a business combination.

For the fiscal year ended December 31, 2006, Poulter had total revenue (excluding intercompany investment income) of $800,000, and total costs and expenses (including goodwill impairment loss) of $600,000. Poulter declared cash dividends of $60,000 during 2006. a. Reconstruct Poulter Corporation's equity-method journal entries for the

operations of Sark Company for 2006. Omit explanations and disregard income taxes. b. Prepare Poulter Corporation's closing entries on December 31, 2006. Omit

explanations. Answer: a. 2006

Dec. 18 Intercompany Dividends Receivable Investment in Sark Company Common Stock 31 Investment in Sark Company Common Stock Intercompany Investment Income 31 Intercompany Investment Income Investment in Sark Company Common Stock 31 Impairment Loss: Goodwill Investment in Sark Company Common Stock

40,000

40,000

72,000

72,000

19,200

19,200

2,900

2,900

93

Larsen, Modern Advanced Accounting, Tenth Edition

Chapter 5 Business Combinations

b. 2006

Dec. 31 Revenue Intercompany Investment Income ($72,000 – $19,200) Income Summary

80,000 52,800

852,800

600,000

600,000

252,800

12,800

240,000

31 Income Summary

Costs and Expenses

31 Income Summary ($852,800 – $600,000)

Retained Earnings of Subsidiary ($52,800 – $40,000)

Retained Earnings ($252,800 – $12,800)

31 Retained Earnings 60,000 Dividends Declared 60,000

32. On July 1, 2005, Parson Corporation acquired all the outstanding common stock of

Scate Company for $900,000. On that date, the carrying amount of Scate's identifiable net assets was $800,000. The difference of $100,000 was allocated as follows:

Inventories (first-in, first-out cost) $ 20,000 Plant assets (net) (economic life 8 years) 50,000 Goodwill 30,000 Total $100,000

Scate had a net income of $190,000 and declared dividends of $100,000 for the fiscal year ended June 30, 2006. Scate uses straight-line depreciation for plant assets. Goodwill was one-thirtieth impaired on June 30, 2006.

Prepare a working paper to compute the following for Parson Corporation under the equity method of accounting (disregard income taxes):

a. Balance of Intercompany Investment Income ledger account on June 30, 2006

b. Balance of Investment in Scate Company Common Stock ledger account on June 30, 2006

94 Larsen, Modern Advanced Accounting, Tenth Edition

Chapter 5 Business Combinations

Answer:

a. Net income of subsidiary $ 190,000 Less: Depreciation and impairment of differences between current fair values and carrying amounts of subsidiary's assets on date of business combination: Inventories?to cost of goods sold $20,000 Plant assets?depreciation ($50,000 ÷ 8) 6,250 Goodwill?impairment ($30,000 ÷ 30) 1,000 27,250 Balance of Intercompany Investment Income account, June 30, 2006 $ 162,750 b. Cost of investment in Scate Company common stock, July 1, 2005 $ 900,000 Add: Intercompany investment income, year ended June 30, 2003 (from a) 162,750 Less: Dividends declared by Scate, year ended June 30, 2006 (100,000) Balance of Investment in Scate Company Common Stock account, June 30, 2006 $ 962,750

Selected ledger account balances (before closing entries) of Pome Corporation on September 30, 2006, one year after the business combination with an 80%-owned subsidiary, were as follows:

33.

Investment in Soper Company common stock (at cost) Intercompany dividend revenue

$1,060,000 dr

16,000 cr

The carrying amount of Soper's identifiable net assets on September 30, 2005, was $1,200,000, which was the same as their current fair value on that date. Soper had a net income of $80,000 and declared and paid dividends of $20,000 during the fiscal year ended September 30, 2006. Goodwill was unimpaired on September 30, 2006.

Prepare an adjusting entry on September 30, 2006, to convert Pome Corporation's accounting for the operations of Soper Company to the equity method of accounting from the cost method of accounting. Disregard income taxes.

Answer:

Investment in Soper Company Common Stock ($64,000 – $16,000)

Intercompany Dividend Revenue

Intercompany Investment Income ($80,000 x 0.80) To convert accounting for operations of Soper Company to equity method of accounting from cost method of accounting.

48,000 16,000

64,000

Larsen, Modern Advanced Accounting, Tenth Edition 95

Chapter 5 Business Combinations

34. For the fiscal year ended March 31, 2006, Sable Company, the 80%-owned subsidiary

of Pastel Corporation, had a net income of $600,000 and declared and paid dividends of $200,000. Fiscal Year 2006 depreciation and amortization of differences between

current fair values and carrying amounts of Sable's identifiable net assets was $30,000; and Fiscal Year 2006 impairment of goodwill recognized in the business combination was $1,000.

Prepare journal entries for Pastel Corporation to record the Fiscal Year 2006 operating

results of Sable Company under the:

a. Equity method of accounting b. Cost method of accounting Omit explanations for the journal entries and disregard income taxes.

Answer:

a. Intercompany Dividends Receivable ($200,000 x 0.80) 160,000

Investment in Sable Company Common Stock 160,000 Cash 160,000 Intercompany Dividends Receivable 160,000 Investment in Sable Company Common Stock ($600,000 x 0.80) 480,000 Intercompany Investment Income 480,000 Intercompany Investment Income ($30,000 x 0.80) 24,000 Investment in Sable Company Common Stock 24,000 Impairment Loss: Goodwill 1,000 Investment in Sable Company Common Stock 1,000 b. Intercompany Dividends Receivable 160,000 Intercompany Dividend Revenue 160,000 Cash 160,000 Intercompany Dividends Receivable 160,000

96 Larsen, Modern Advanced Accounting, Tenth Edition

百度搜索“77cn”或“免费范文网”即可找到本站免费阅读全部范文。收藏本站方便下次阅读，免费范文网，提供经典小说综合文库accounting answer(8)在线全文阅读。