Acct 559- Quiz 3 Feedback Virginia Valdez

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DeVry University, Chicago *

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ACCT 559

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Accounting

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Jan 9, 2024

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Virginia Valdez Quiz #3 Feedback Problem #3-Problem 3-16 (Algo) (LO 3-6) Alfonso Inc. acquired 100 percent of the voting shares of BelAire Company on January 1, 2020. In exchange, Alfonso paid $322,250 in cash and issued 100,000 shares of its own $1 par value common stock. On this date, Alfonso’s stock had a fair value of $15 per share. The combination is a statutory merger with BelAire subsequently dissolved as a legal corporation. BelAire’s assets and liabilities are assigned to a new reporting unit. The following shows fair values for the BelAire reporting unit for January 1, 2020 along with respective carrying amounts on December 31, 2021. BelAire Reporting Unit Fair Values 1/1/20 Carrying Amounts 12/31/21 Cash $ 86,000 $ 47,000 Receivables 186,250 242,000 Inventory 226,000 257,000 Patents 600,500 702,000 Customer relationships 608,500 574,000 Equipment (net) 348,000 251,000 Goodwill ? 576,000 Accounts payable (187,500) (273,000) Long-term liabilities (621,500) (564,000) Note: Parentheses indicate a credit balance. a. Prepare Alfonso’s journal entry to record the assets acquired and the liabilities assumed in the BelAire merger on January 1, 2020. Note: Enter cash paid and cash received as two separate amounts. b. On December 31, 2021, Alfonso opts to forgo any goodwill impairment qualitative assessment and estimates that the total fair value of the entire BelAire reporting unit is $1,690,000. What amount of goodwill impairment, if any, should Alfonso recognize on its 2021 income statement? Your Answer

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Problem #4 Problem 3-19 (Algo) (LO 3-3a) Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that date, Abernethy has the following trial balance: Debit Credit Accounts payable $ 57,600 Accounts receivable $ 40,600 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 126,000 Cash and short-term investments 65,750 Common stock 250,000 Equipment (net) (5-year remaining life) 390,000 Inventory 100,000 Land 110,000 Long-term liabilities (mature 12/31/23) 187,500 Retained earnings, 1/1/20 306,850 Supplies 19,600 Totals $851,950 $851,950 During 2020, Abernethy reported net income of $108,500 while declaring and paying dividends of $14,000. During 2021, Abernethy reported net income of $139,750 while declaring and paying dividends of $54,000. Assume that Chapman Company acquired Abernethy’s common stock for $719,200 in cash. As of January 1, 2020, Abernethy’s land had a fair value of $122,700, its buildings were valued at $185,200, and its equipment was appraised at $353,250. Chapman uses the equity method for this investment. Prepare consolidation worksheet entries for December 31, 2020, and December 31, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Your Answer:

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Correct Solution: All of the other entries were correct.

Problem #5 Problem 3-24 (Algo) (LO 3-2, 3-3, 3-4) Foxx Corporation acquired all of Greenburg Company’s outstanding stock on January 1, 2019, for $662,000 cash. Greenburg’s accounting records showed net assets on that date of $490,000, although equipment with a 10-year remaining life was undervalued on the records by $99,500. Any recognized goodwill is considered to have an indefinite life. Greenburg reports net income in 2019 of $106,000 and $133,000 in 2020. The subsidiary declared dividends of $20,000 in each of these two years. Account balances for the year ending December 31, 2021, follow. Credit balances are indicated by parentheses. Foxx Greenburg Revenues $ (912,000) $(764,000) Cost of goods sold 114,000 191,000 Depreciation expense 370,000 406,000 Investment income (20,000) 0 Net income $ (448,000) $(167,000) Retained earnings, 1/1/21 $(1,204,000) $(389,000) Net income (448,000) (167,000) Dividends declared 120,000 20,000 Retained earnings, 12/31/21 $(1,532,000) $(536,000) Current assets $ 342,000 $ 103,000 Investment in subsidiary 662,000 0 Equipment (net) 1,094,000 640,000 Buildings (net) 922,000 412,000 Land Total assets $ 3,728,000 $ 1,302,000 Liabilities $(1,296,000) $ (466,000) Common stock (900,000) (300,000) Retained earnings (1,532,000) (536,000) Total liabilities and equity $(3,728,000) $(1,302,000) a. Determine the December 31, 2021, consolidated balance for each of the following accounts: Depreciation Expense Buildings Dividends Declared Goodwill Revenues Common Stock Equipment

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b. How does the parent's choice of an accounting method for its investment affect the balances computed in requirement (a)? c. Which method of accounting for this subsidiary is the parent actually using for internal reporting purposes? d. Determine parent's investment income for 2021 under partial equity method and equity method. a. What would be Foxx’s balance for retained earnings as of January 1, 2021, if each of the following methods had been in use?  Initial value method.  Partial equity method.  Equity method. Your answer

Solution a. Acquisition-date fair value allocation and amortization: Consideration transferred 1/1/19 $ 662,000 Book value (given) (490,00 0)

Fair value in excess of book value $ 172,000 Remaining Life Annual Excess Amortizations Allocation to equipment based on fair and book value difference 99,500 10 yrs. $ 9,950 Goodwill $ 72,500 indefinite 0 Total $ 9,950 Consolidated Balances  Depreciation expense = $785,950 (book values plus $9,950 excess depreciation)  Dividends declared = $120,000 (parent balance only. Subsidiary's dividends are eliminated as intra-entity transfer)  Revenues = $1,676,000 (add book values)  Equipment = $1,803,650 (add book values plus $99,500 allocation less three years of excess depreciation [$29,850])  Buildings = $1,334,000 (add book values)  Goodwill = $72,500 (original residual allocation)  Common stock = $900,000 (parent balance only) b. The parent's choice of an investment method has no impact on the consolidated totals. The choice of an investment method only affects the internal reporting of the parent. c. The initial value method is used. The parent's Investment in Subsidiary account still retains the original consideration transferred of $662,000. In addition, the Investment Income account equals the amount of dividends declared by the subsidiary. d. If the partial equity method had been utilized, the investment income account would have shown an equity accrual of $167,000. If the equity method had been applied, the Investment Income account would have included both the equity accrual of $167,000 and excess amortizations of $9,950 for a balance of $157,050. e. Initial value method—Foxx’s retained earnings—1/1/21 Foxx’s 1/1/21 balance (initial value method was employed)$1,204,000 Partial equity method—Foxx’s retained earnings—1/1/21 Foxx’s 1/1/21 balance (initial value method) $1,204,000 2019 net equity accrual for Greenburg ($106,000 − $20,000) 86,000 2020 net equity accrual for Greenburg ($133,000 − $20,000) 113,000 Foxx’s 1/1/21 retained earnings $1,403,000

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Equity method—Foxx’s retained earnings—1/1/21 Foxx’s 1/1/21 balance (initial value method) $1,204,000 2019 net equity accrual for Greenburg ($106,000 - $20,000) 86,000 2019 excess fair over book value amortization (9,950) 2020 net equity accrual for Greenburg ($133,000 - $20,000) 113,000 2020 excess fair over book value amortization (9,950) Foxx’s 1/1/21 retained earnings $1,383,100