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1UTI3UTI4UTI5UTI6UTI7UTI8UTI9UTI10UTI1.1E1.2E1.3E2E5.1E5.2E6ELake craft Company has the following balance sheet. On December 31, 2015, When it is acquired for $950,000 in cash by Argo Corporation: All assets have fair values equal to their book values. The combination is structured as a tax free exchange. Lake craft Company has a tax loss carry forward of $300,000. Which it has not recorded, The balance of the S300.000 tax loss carryover is considered fully realizable. Argo is taxed at a rate of 30%. Record the acquisition of Lake Craft Company by Argo Corporation.8.2E8.3E9.1E9.2E1A.1.1AE1A.1.2AE1.2P1.3.1P1.4PJack Company is a Corporation that was organized on July 1, 2015. The June 30, 2020, balance sheet for Jack is as follows: The experience of other corn panics over die last several years indicates that die machinery and equipment can be sold at 130% of its book value. An analysis of the accounts receivable indicates that the realizable value is 5925.000. An independent appraisal made in June 2020 values the land at $70,000. Using the lower of-cost of or-market rule, inventory is to be restated at $1,200,000. Callaway Corpora ion plans to exchange 18.000 of its shares for the 120.000 Jack shares. During June 2020, the lair value of a share of always Corporation is $270. Equations costs are $12,000. The stack holder’s equity account balances of always Corporation as of June 30. 2015, are as follows:1.6P1.7.1P1.7.2P1.8P1.10.A1P1.11P1.12P1.13.2P1A.1.1AP1A.1.2AP(Note: The use 01 a financial calculator or Excel is suggested for this case.) Modern Company acquires the net assets of Frontier Company for $1,300,000 on January 11, 2015. A business valuation consultant arrives at the price and deems it to be a good value. Part A. The following list of fair values is provided to you by the consultant: Using the information in the preceding table, contra the accuracy of the present value cal Required collations mode for the building, patent, and mortgage payable.Frontier does not have publicly traded stock. You make an estimate of the value of the company based on the following assumptions that will later be included in the reporting unit valuation procedure: a. Frontier will provide operating cash flows, net of tax, of $150,000 during the next fiscal year. b. Operating cash flows will increase at the rate of 10% per year for the next four fiscal years and then will remain steady for 15 more years. c. Cash flows, defined as net of cash from operations less capital expenditures, will be discounted at an after-tax discount rate of 12%. An annual rate of 12% is a reasonable risk-adjusted rate of return for investments of this type. d. Added capital expenditures will be $100,000 in year 5, $120,000 in year 10, and $130,000 in year 15. e. An estimate of salvage value (net of the tax effect of gains or losses) of the assets after 20 years is estimated to be $300,000. This is a conservative assumption since the unit may be operated after that period. Required 1. Prepare a schedule of net-of-tax cash Rows For Frontier and discount them to present valueFrontier does not have publicly traded stock. You make an estimate of the value of the company based on the following assumptions that will later be included in the reporting unit valuation procedure: a. Frontier will provide operating cash flows, net of tax, of $150,000 during the next fiscal year. b. Operating cash flows will increase at the rate of 10% per year for the next four fiscal years and then will remain steady for 15 more years. c. Cash flows, defined as net of cash from operations less capital expenditures, will be discounted at an after-tax discount rate of 12%. An annual rate of 12% is a reasonable risk-adjusted rate of return for investments of this type. d. Added capital expenditures will be $100,000 in year 5 $120,000 in year 10, and $130,000 in year 15. e. An estimate of salvage value (net of the tax effect of gains or losses) of the assets after 20 years is estimated to be $300,000. This is a conservative assumption since the unit may be operated after that period. 2. Compare the estimated fair value of the reporting unit with amounts assigned to identifiable assets plus goodwill less liabilities.1.1B.3C1.1CC1.2.1C1.2.2CCase 1-2 Disney Acquires Marvel Entertainment On December 31, 2009, The Walt Disney Company acquired all the capital stock of Marvel Entertainment Company. Marvel has created heroes such as Spiderman, the Hulk, and Iron Man. Disney acquired 79.2 million shores of Marvel Entertainment’s shares. Disney issued 59 million shores of Disney stock plus $30 (or each shore of Marvel Entertainment stack. Disney stock, which has a par value of $0.01 per shore, had a market value of $32.25 per shore. The estimated fair value of Marvel Entertainment accounts were as follows: *Other liabilities was actually a noncontrolling interest which is actually on equity interest that is discussed in Chapter 2. 3. Record the acquisition.1UTI2UTI3UTI4UTI5UTI6UTISantos Corporation is considering investing in Fenco Corporation. but is unsure about what level of ownership should be underuk en. Santos and Fenco have the following reported incomes: Fenco paid $15,000 in cash dividends to its investors. Prepare a pro forma income statement for Santos Corporation that compares income under 10%, 30%, and 80% ownership levels.2.1E2.2E3.1E3.2E4.1E4.2E4.3E5.1E5.2E6.1E6.2E7.1E7.2E8.1E9.1E9.2E9.4E2A.1AE2.1.1P2.1.2P2.2.1P2.2.2P2.2.3P2.3.1P2.3.2P2.3.3P2.4.1P2.4.2P2.4.3P2.5.1P2.5.2P2.5.3P2.6.1P2.6.2P2.7.1P2.7.2P2.8.1P2.8.2P2.9.1P2.9.2P2.10.1P2.11.1P2.12.1P2.12.2P2.13.1P2.13.2P2.14.1P2.14.2P2.15.1P2.15.2P2A.1.1AP2A.1.2AP2.1.1C2.1.2C1UTI2UTI3UTI4UTI5UTI6UTI7UTI1E2E3.1E3.2E3.3E3.4E3.5EEquity method, second year, eliminations, income statement. The trial balances of Parker and Sargent companies of Exercise 3 for December 31, 2016, are presented as follows: Parker Company continues to use the simple equity method. 1. Prepare all the eliminations and adjustments that would be made on the 2016 consolidated worksheet.4.2E5.1E5.2E5.3E5.4E5.5E6.1E6.2E7.1E7.2E7.3E7.4E7.5E8.1E8.2E9E10.1E10.2E10.3E11E3B.1.1AE3B.1.2AE3B.1.3AE3B.2.1AE3B.2.2AE3B.3AE3.1.1P3.1.2P3.1.3P3.2.1P3.2.2P3.3.1P3.3.2P3.3.3P3.3.4P3.4.1P3.4.2P3.5.1P3.5.2P3.5.3P3.6.1P3.6.2P3.6.3P3.7.1P3.7.2P3.7.3P3.8.1P3.8.2P3.9.1P3.9.2P3.10.1P3.10.2P3.11.1P3.11.2P3.12.1P3.12.2P3.13.1P3.13.2P3.15.1P3.15.2P3.16.1P3.16.2P3.17.1P3.17.2P3.18.1P3.18.2P3A.1.1AP3A.1.2AP3A.2AP3A.3AP3B.1AP3B.2AP3B.3.1APThe trial balances of Campton Corporation and Dorn Corporation as of December 31. 2015. are as shown on page 203. *$15,000 tax liability ($50,000 income ×30%)- $12,000 tax lass carryover ($40,000 × 30%) On January 1, 2015. Campion purchases 90% of the outstanding stock of Dorn Corporation for $630,000. The acquisition is a tax-free exchange for the seller. At the purchase date, Dorn's equipment is undervalued by $100,000 and has a remaining life of 10 years. All other assets have book values that approximate their fair values. Dorn Corporation has a tax loss carryover of $200,000, of which $50,000 is utilizable in 2015 and the balance in future periods. 1 he tax loss carryover is expected to be fully utilized. Any remaining excess is considered to be goodwill. A tax rate of 30% applies to both companies. 2. Prepare the 2015 consolidated worksheet. Include columns for the eliminations and adjustments, the consolidated income statement, the NCl, the controlling retained earnings and the consolidated balance sheet. Prepare supporting income distribution schedules as well.The trial balances of Campton Corporation and Dorn Corporation as of December 31. 2015. are as shown on page 203. *$15,000 tax liability ($50,000 income ×30%)- $12,000 tax lass carryover ($40,000 × 30%) On January 1, 2015, Campton purchases 90% of the outstanding stock of Dorn Corporation for $630,000. The acquisition is a tax-free exchange for the seller. At the purchase date, Dorn’s equipment is undervalued by $100,000 and has a remaining life of 10 years. All other assets have book values that approximate their fair values. Dorn Corporation has a tax loss carryover of $200,000, of which $50,000 is utilizable in 2015 and the balance in future periods. The tax loss carryover is expected to be fully utilized. Any remaining excess is considered to be goodwill. A tax rate of 30% applies to both companies. 3. Prepare the 2015 consolidated statements, including the income statement, retained earnings Statement, and balance sheet.1UTI2UTI3UTI4UTI5UTI6UTISorel is an 80%-owned subsidiary of Pattern Company. The two affiliates had the following separate income statements for 2015 and 2016. Exercise 1 (LO 1, 2) Gross profit: separate firms versus consolidated. Sorel is an 80%-owned subsidiary of Pattern Company. The two affiliates had the following separate income statements for 2015 and 2016. Sorel sells at the same gross profit percentage to all customers. During 2015, Sorel sold goods to Pattern for the first time in the amount of $120,000. $30,000 of these sales remained in Pattern’s ending inventory. During 2016, sales to Pattern by Sorel were $150,000, of which $25,000 sales were still in Pattern’s December 31, 2016, inventory. Prepare consolidated income Statements including the distribution of income to the cont rolling and noncontrolling interests for 2015 and 2016.Hide Corporation is a wholly owned subsidiary of Seek Company. During 2015, Hide sold all of its production to Seek Company for $400,000. a price ha includes a 25% gross profit. 2015 was the first year that such intercompany sales were made. By year-end. Seek sold, for $416,000. 80% of (he goods it had purchased. The balance of the intercompany goods, $80,000, remained in the ending inventory and was adjusted to a lower fair value of $70,000. The adjustment was a charge to the cost of goods sold. 1. Determine the gross profit on sales recorded by both companies.2.2E3EOn January 1, 2016, Jungle Company sold a machine to Safari Company for $30,000. The machine had an original cost of $24,000, and accumulated depreciation on the asset was $9,000 at the time of the sale. The machine has a 5-year remaining life and will be depreciated on a straight-line basis with no salvage value. Safari Company is an 80%-owned subsidiary of Jungle Company. 1. Explain the adjustments that would have to be made to arrive at consolidated net income for the years 2016 through 2020 as a result of this sale.4.2E4.3E5.1E5.2E6E7E8E9.1E9.2E10.1E10.2E4.1P4.2.1P4.2.2P4.3.1P4.3.2P4.4.1P4.4.2P4.7.1P4.7.2P4.8.1P4.8.2POnJanuary 1, 2015, Peanut Company acquired 80% of the common stock of Salt Company for $200,000. Onthis date, Salt had total owners’ equity of $200,000 (including retained earnings of $l00,000). During 2015 and 2016, Peanut appropriately accounted for its investment in Salt using the simple equity method. Any excess of cost over book value is attributable to inventory (worth $12,500 more than cost), to equipment (worth $25,000 more than book value), and to goodwill. FIFO is used for inventories. The equipment has a remaining life of four years, and straight-line depreciation is used. On January 1, 2016, Peanut held merchandise acquired from Salt for $20,000. During 2016, Salt sold merchandise to Peanut for $40,000, $10,000of which was still held by Peanut on December 31, 2016. Salt’s usual gross profit is 50%. On January 1, 2015, Peanut sold equipment to Salt at a gain of $15,000. Depreciation is being computed using the straight-line method, a 5-year life, and no salvage value. The following trial balances were prepared for the Peanut and Salt companies for December 31,2016: Required Complete balance sheet for consolidated financial statements for the year ended December 31, 2016. Indeed the necessary determination and distribution of excess schedule and income distribution schedules.4.11P4.13.1P4.13.2P4.14.1P4.14.2P4A.1AP4A.2AP4.1.1C1UTISubsidiary Company S has $1000,000 of bonds outstanding at 8% annual interest. The bonds have 10 years to maturity. If the parent. Company P. is able to purchase the bonds at a price that reflects 6% annual interest, what effect will the purchase have on consolidated income in the current and future years? What would the effects be if the purchase price reflected a 9% annual interest rate? Your response need not be quantified.Plessor Industries acquired 80% of the outstanding common stock of Slammer Company on January 1, 2015. for S320,000. On that date, Slammer’s book values approximated fair values. and the balance of its retained earnings account was $80,000. Any excess was attributed to goodwill. Slammer’s net income was $20,000 for 2015 and $30,000 for 2016. No dividends were paid in either year. On January 1, 2016. Slammer signed a 5-year lease with Plessor for the rental of a small factory building with a 10-year life. Payments of $25000 are due at the beginning of each year on January 1, and Slammer is expected to exercise the $5,000 bargain purchase option at the end of the fifth year. The fair value of the factory was $103,770 at the start of the lease term. Plessor’s implicit rate on the lease is 12%. A second lease agreement. for the rental of production equipment with an 8-year life, was signed by Slammer on January 1, 2017. The terms of this 4-year lease require a payment of $15,000 at the beginning of each year on January 1. The present value of the lease payments at Plessor’s 12% implicit rate was equal to the fair value of the equipment, $52,298, when the lease was signed. The cost of the equipment to Plessor was $45,000, and there is a $2,000 bargain purchase option. Eight-year, straight-line depreciation is being used, with no salvage value. The following trial balances were prepared by the separate companies at December 31,2017: Required Prepare the worksheet necessary to produce the consolidated financial statements of Plessor Industries and its subsidiary for the year ended December 31. 2017. Include the determination and distribution of excess and income distribution schedules.Company P purchased $100,000 of subsidiary Company S’s bonds for $96,000 on January 1, 2015, when the bonds had five years to maturity. The bonds had been issued at face value and pay interest at 8% annually. What will the impact of this transact ion be on consolidated net income for the current and future four years? Assuming a 20% noncontrolling interest, how will the NCI be affected in the current and next four years? Quantify your response.5UTI6UTI7UTI1E2E3.1E3.2E4ECarlton Company is an 80%- owned subsidiary of Mirage Company. On January 1, 2015, Carlton sold $100,000 of 10-year. 7% bonds for $101,000. Interest is paid annually on January 1. The market rate for this type of bond was 9% on January 2, 2017, when Mirage purchased 60% of the Carlton bonds for $53,600. Discounts may be amortized on a straight-line basis. 1. Prepare the eliminations and adjustments required for this bond purchase on the December 31, 2017, consolidated worksheet.Carlton Company is an 80%- owned subsidiary of Mirage Company. On January 1, 2015, Carlton sold $100,000 of 10-year. 7% bonds for $101,000. Interest is paid annually on January 1. The market rate for this type of bond was 9% on January 2, 2017, when Mirage purchased 60% of the Carlton bonds for $53,600. Discounts may be amortized on a straight-line basis. 2. Prepare the eliminations and adjustments required on the December 31, 2018, consolidated worksheet.6.1E6.2E7.1E7.2E7.3E8.1E8.3E9E5.1.1P5.1.2P5.2P5.3P5.4P5.5P5.6P5.7P5.8.1P5.8.2P5.9P5.10P5.14P5.2.1C5.2.2C5.3.1C5.3.2C5.3.3C5.3.4C1UTI2UTI3UTI4UTI5UTI6UTI7UTI1E2E3E4EProblem 6-1 (LO 1) Cash flow, year subsequent to purchase. Marion Company is an 80% owned subsidiary of Lange Company. The interest in Marion is purchased on January 1, 2015, for $680,000 cash. The fair value of the NCI was $170,000. At that date, Marion has stockholders' equity of $650,000. The excess price is attributed to equipment with a 5-year life undervalued by $50,000 and to goodwill. The following comparative consolidated trial balances apply to Lange Company and its subsidiary, Marion a. Marion purchases equipment for $70,000. b. Marion issues $350,000 of long-term bonds and later uses the proceeds to purchase a new building. c. On January 1, 2016, Lange purchases 30% of the outstanding common stock of Charles Corporation for $230,000. This is an influential investment. Charles's stockholders' equity is $700,000 on the date of the purchase. Any excess cost is attributed to equipment with a 10-year life. Charles reports net income of $80,000 in 2016 and pays dividends of $25,000. d. Controlling share of consolidated income for 2016 is $262,000; the noncontrolling interest in consolidated net income is $15.000. Lange pays $100,000 in dividends in 2016; Marion pays $15,000 in dividends in 2016. Required Prepare the consolidated statement of cash flows for 2016 using the indirect method. Any supporting calculations (including a determination and distribution of excess schedule) should be in good form.Problem 6-4 (L02) Consolidated EPS. On January 1, 2016, Peanut Corporation acquires an 80% interest in Sunny Corporation, Information regarding the income and equity structure of the two companies as of the year ended December 31, 2018, is as follows: Additional information is as follows: a.The warrants to acquire Peanut stock are issued in 2017- Each warrant can be exchanged for one share of Peanut common stock at an exercise price of $12 per share. b.Each share of convertible preferred stock can be converted into two shares of Sunny com mon stock. The preferred stock pays an annual dividend totaling $4,000. Peanut owns 60% of the convertible preferred stock. c.The nonconvertible preferred stock is issued on July 1, 2018, and pays a 6-month dividend totaling $500. d.Relevant market prices per share of Peanut common stock during 2018 are as follows: Required Compute the basic and diluted consolidated EPS for the year ended December 31, 2018. Use quarterly share averaging.6.8.1P6.8.2PProblem 6-9 (LO 3) Worksheet, consolidated taxation, simple equity, inventory, fixed asset sale, later year. Refer to the preceding facts for Parson's acquisition of Solar common stock. Parson uses the simple equity method to account for its investment in Solar. During 2017, Solar sells $40,000 worth of merchandise to Parson. As a result of these intercompany sales, Parson holds beginning inventory of $16,000 and ending inventory of $10,000 of merchandise acquired from Solar. At December 31, 2017, Parson owes Solar $8,000 from merchandise sales. Solar has a gross profit rate of 30%. During 2017, Parson sells $60,000 worth of merchandise to Solar. Solar holds $15,000 of this merchandise in its ending inventory. Solar owes $10,000 to Parson as a result of these intercompany sales. Parson has a gross profit rate of 40%. On January 1, 2015, Parson sells equipment having a net book value of $50,000 to Solar for $80,000. The equipment has a 5-year useful life and is depreciated using the straight-line method. On January 1, 2017, Solar sells equipment to Parson at a profit of $25,000. The equipment has a 5-year useful life and is depreciated using the straight-line method. Neither company has provided for income tax. The companies qualify as an affiliated group and, thus, will file a consolidated tax return based on a 40% corporate tax rate. The original purchase is not a nontaxable exchange. On December 31, 2017, Parson and Solar have the following trial balances: Required Prepare a determination and distribution of excess schedule.Problem 6-9 (LO 3) Worksheet, consolidated taxation, simple equity, inventory, fixed asset sale, later year. Refer to the preceding facts for Parson's acquisition of Solar common stock. Parson uses the simple equity method to account for its investment in Solar. During 2017, Solar sells $40,000 worth of merchandise to Parson. As a result of these intercompany sales, Parson holds beginning inventory of $16,000 and ending inventory of $10,000 of merchandise acquired from Solar. At December 31, 2017, Parson owes Solar $8,000 from merchandise sales. Solar has a gross profit rate of 30%. During 2017, Parson sells $60,000 worth of merchandise to Solar. Solar holds $15,000 of this merchandise in its ending inventory. Solar owes $10,000 to Parson as a result of these intercompany sales. Parson has a gross profit rate of 40%. On January 1, 2015, Parson sells equipment having a net book value of $50,000 to Solar for $80,000. The equipment has a 5-year useful life and is depreciated using the straight-line method. On January 1, 2017, Solar sells equipment to Parson at a profit of $25,000. The equipment has a 5-year useful life and is depreciated using the straight-line method. Neither company has provided for income tax. The companies qualify as an affiliated group and, thus, will file a consolidated tax return based on a 40% corporate tax rate. The original purchase is not a nontaxable exchange. On December 31, 2017, Parson and Solar have the following trial balances: Required Prepare a consolidated worksheet for the year ended December 31, 2017. Include a provision for income tax and income distribution schedules.6.11.1P6.11.2PProblem 6-12 (LO 4) Worksheet, separate tax, simple equity, inventory, fixed asset sale, analyze price, later year. Refer to the preceding facts for Peruke's acquisition of Stock common stock. Penske accounts for its investment in Stock using the simple equity method, including income tax effects. During 2017, Stock sells $40,000 worth of merchandise to Penske. As a result of these intercompany sales, Penske holds beginning inventory of $1 6,000 and ending inventory of $10,000 of merchandise acquired from Stock. At December 31, 2017, Penske owes Stock $8,000 from merchandise sales. Stock has a gross profit rate of 30%. During 2017, Penske sells $60,000 worth of merchandise to Stock. Stock holds $15,000 of this merchandise in its ending inventory. Stock owes $10,000 to Penske as a result of these intercompany sales. Penske has a gross profit rate of 40%. On January 1, 2015, Penske sells equipment having a net book value of $50,000 to Stock for $90.000. The equipment has a 5-year useful life and is depreciated using the straight-line method. On January 1, 2017, Stock sells equipment to Penske at a profit of $25,000. The equipment has a 5-year useful life and is depreciated using the straight-line method. Penske and Stock do not qualify as an affiliated group for tax purposes and, thus, will file separate tax returns. Assume a 40% corporate tax rate and an 80% dividends received exclusion. On December 31, 2017, Penske and Stock have the following trial balances: Required Prepare a value analysis and a determination and distribution of excess schedule.6.12.2P