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- The Kerr-Graham Corporation had two operating divisions, one manufacturing cooking utensils and the other herb gardens. Both divisions qualified as separate components of the entity. On September 15, 2015, the company adopted a plan to sell the assets of the herb garden division. The actual sale was made on December 8, 2015, at a price of $1.8 million. The book value of the division’s asset was $3 million, resulting in a before-tax loss of $1.2 million on the sale. The division incurred before-tax operating losses of $300,000 from the beginning of the year to September 15, and $90,000 from September 16 through December 8. The income tax rate is 40%. Kerr-Graham’s after-tax income from its continuing operations is $1,050,000. Required: Prepare Kerr-Graham’s income statement for 2015 beginning with “income from continuing operations.” Include appropriate EPS disclosures assuming that 100,000 shares of common stock were outstanding throughout the year. Show calculations.Firenze Company developed a specialized banking application software program that it licenses to various financial institutions through multiple-year agreements. On January 1, 2018, these licensing agreements have a fair value of $830,000 and represent Firenze’s sole asset. Although Firenze currently has no liabilities, the company has a $155,000 net operating loss (NOL) carryforward because of recent operating losses.On January 1, 2018, Parma, Inc., acquired all of Firenze’s voting stock for $1,080,000. Parma expects to extract operating synergies by integrating Firenze’s software into its own products. Parma also hopes that Firenze will be able to receive a future tax reduction from its NOL. Assume an applicable federal income tax rate of 35 percent.a. If there is a greater than 50 percent chance that the subsidiary will be able to utilize the NOL carryforward, how much goodwill should Parma recognize from the acquisition?b. If there is a less than 50 percent chance that the…Firenze Company developed a specialized banking application software program that it licenses to various financial institutions through multiple-year agreements. On January 1, 2018, these licensing agreements have a fair value of $997,500 and represent Firenze's sole asset. Although Firenze currently has no liabilities, the company has a $191,000 net operating loss (NOL) carryforward because of recent operating losses. On January 1, 2018, Parma, Inc., acquired all of Firenze's voting stock for $1,205,000. Parma expects to extract operating synergies by integrating Firenze's software into its own products. Parma also hopes that Firenze will be able to receive a future tax reduction from its NOL. Assume an applicable federal income tax rate of 35 percent. If there is a greater than 50 percent chance that the subsidiary will be able to utilize the NOL carryforward, how much goodwill should Parma recognize from the acquisition? If there is a less than 50 percent chance that the…
- GGG Company ventured into construction of a condominium in Baguio which is rated as the largest state-of-the-art structure. The board of directors decided that instead of selling the condominium, the entity would hold this property for purposes of earning rentals by letting out space to business executives in the area. The construction of the condominium was completed and the property was placed in service on January 1, 2019. The cost of the construction was P50,000,000. The useful life of the condominium is 25 years and the residual value is P5,000,000. An independent valuation expert provided the following hair value at each subsequent year-end: December 31, 2019 = 55,000,000; December 31, 2020 = 53,000,000; December 31, 2021 = 60,000,000. Under fair value model, what amount should be recognized as gain from change in fair value in 2019?GGG Company ventured into construction of a condominium in Baguio which is rated as the largest state-of-the-art structure. The board of directors decided that instead of selling the condominium, the entity would hold this property for purposes of earning rentals by letting out space to business executives in the area. The construction of the condominium was completed and the property was placed in service on January 1, 2019. The cost of the construction was P50,000,000. The useful life of the condominium is 25 years and the residual value is P5,000,000. An independent valuation expert provided the following hair value at each subsequent year-end: December 31, 2019 = 55,000,000; December 31, 2020 = 53,000,000; December 31, 2021 = 60,000,000. Under the cost model, what amount should be reported as depreciation on investment property for 2019?Melinda Stoffers owns and operates ABC Print Co. During February, ABC incurred the following costs in acquiring two printing presses. One printing press was new, and the other was purchased from a business that recently filed for bankruptcy. Costs related to new printing press:1. Fee paid to factory representative for installation2. Freight3. Insurance while in transit4. New parts to replace those damaged in unloading5. Sales tax on purchase price6. Special foundation Costs related to used printing press:7. Fees paid to attorney to review purchase agreement8. Freight9. Installation10. Repair of damage incurred in reconditioning the press11. Replacement of worn-out parts12. Vandalism repairs during installationa. Indicate which costs incurred in acquiring the new printing press should be debited to the asset account.b. Indicate which costs incurred in acquiring the used printing press should be debited to the asset account.
- Chance Company had two operating divisions, one manufacturing farm equipment and the other office supplies. Both divisions are considered separate components as defined by generally accepted accounting principles. The farm equipment component had been unprofitable, and on September 1, 2016, the company adopted a plan to sell the assets of the division. The actual sale was completed on December 15, 2016, at a price of $600,000. The book value of the division’s assets was $1,000,000, resulting in a before-tax loss of $400,000 on the sale. The division incurred a before-tax operating loss from operations of $130,000 from the beginning of the year through December 15. The income tax rate is 40%. Chance’s after-tax income from its continuing operations is $350,000. Required: Prepare an income statement for 2016 beginning with income from continuing operations. Include appropriate EPS disclosures assuming that 100,000 shares of common stock were outstanding throughout the year.Saar Associates sells two licenses to Kim & Company on September 1, 2018. First, in exchange for$100,000, Saar provides Kim with a copy of its proprietary investment management software, whichSaar does not anticipate updating and which Kim can use permanently. Second, in exchange for $90,000,Saar provides Kim with a three-year right to market Kim’s financial advisory services under the name of Saar Associates, which Saar advertises on an ongoing basis. How much revenue will Saar recognize in 2018under this arrangement?The Barrington Construction Company builds office buildings. It also owns and operates achain of motels throughout the Northwest. On September 30, 2018, the company decidedto sell the entire motel business for $40 million. The sale was completed on December 15,2018. Income statement information for 2018 is provided below for the two components ofthe company.($ in millions)ConstructionComponentMotelComponentSales revenue $450.0 $200.0Operating expenses 226.0 210.0Operating income 224.0 (10.0)Other income (loss)* 16.0 (30.0)Income (loss) before income taxes 240.0 (40.0)Income tax expense (benefit)† 96.0 (16.0)Net income (loss) $144.0 $ (24.0)*For the motel component, the entire Other income (loss) amount represents the loss on saleof assets of the component for $40 million when their book value was $70 million.†A 40% tax rate applies to all items of income or loss.In addition, in 2018 the company had pretax net unrealized holding gains on investment securities of $3 million and a…
- Anthony Company sells cars. In 2018, the entity sold 1,000 units before discovering a significant defect in their construction. By December 31,2018, two lawsuits had been filed against the entity. Below are the estimates made by the entity's management and legal counsel: First lawsuit- the entity has a little chance of winning and is expected to be settled out of court for P2,500,000 in 2018. Second lawsuit- The entity's legal counsel believes that it is likely that the entity will win. The entity is being sued for P1,000,000 Required: Determine the amount of liability to be accrued on December 31,2018 as a result of these lawsuitsOn January 1, 20X2, Sansa Company purchases two (2) separate sets of assets and activities from third-parties, as follows:i. A manufacturing plant of Arya Company. The set of assets acquired and liabilities assumed are as follows:Plant premise P100,000,000Machinery 60,000,000Equipment 30,000,000A mortgage loan secured on the plant premise 120,0000Sansa will continue to employ the existing employees of the manufacturing plant and will pay them the same salaries as before. The above manufacturing plant is a cash-generating unit that generates outputs that are sold to outside customers. Sansa pays a cash consideration of P100 million to Arya Company.ii. A set of assets and liabilities of Bron Company.Plant premise P100,000,000Machinery 60,000,000Equipment 30,000,000A mortgage loan secured on the plant premise 120,0000The vendor will retrench the existing employees of the factory and pay their termination benefits. The set of assets is not capable of generating independent cash flows.…On January 1, 2014, Sharon Company, a 60% owned corporation of Polly Company, sells a building with a book value of 300,000 to Polly for 350,000. At the time of the sale, the building has an estimated remaining life of 10 years, no salvage value. If Sharon reports a net income of 1,000,000 in 2014, non-controlling interest in net income will be: A. 402,000 B. 380,000 C. 400,000 D. 382,000