Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 4, Problem 4.3E
To determine
Concept Introduction:
Equity Method of valuation of investment: In this method, parent company value investment at the historical cost of the investment plus apportioned profit less dividend paid by the subsidiary company.
To Prepare:
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Planet Corporation acquired 100 percent of the voting common stock of Saturn Company on January 1, 20X7, by issuing bonds with a par value and fair value of $670,000 and making a cash payment of $24,000. At the date of acquisition, Saturn reported assets of $740,000 and liabilities of $140,000. The book values and fair values of Saturn’s net assets were equal except for land and copyrights. Saturn’s land had a fair value $16,000 higher than its book value. All of the remaining purchase price was attributable to the increased value of Saturn’s copyrights with a remaining useful life of eight years. Saturn Company reported a loss of $88,000 in 20X7 and net income of $120,000 in 20X8. Saturn paid dividends of $24,000 each year.
Required:
Assuming that Planet Corporation uses the equity method in accounting for its investment in Saturn Company, prepare all journal entries for Planet for 20X7 and 20X8.
Parent Company purchased 35% interest in Sub Company for P5,600,000 on July 15, 2020. Parent already held a 25% interest purchased for P3,000,000. As of this date, the carrying value of the identifiable net assets of Sub totaled P17,000,000. The carrying value of the identifiable net assets of Sub equal their fair values except for the undervaluation of Inventories and Machineries by P200,000 and P1,000,000 respectively. The fair value of the noncontrolling interest on July 15, 2020 is P7,000,000. How much is the gain on bargain purchase to be recognized as a result of the business combination?
1,600,000
2,320,000
1,320,000
2,600,000
Parent Company purchased 35% interest in Sub Company for P5,600,000 on July 15, 2020. Parent already held a 25% interest purchased for P3,000,000. As of this date, the carrying value of the identifiable net assets of Sub totaled P17,000,000. The carrying value of the identifiable net assets of Sub equal their fair values except for the undervaluation of Inventories and Machineries by P200,000 and P1,000,000 respectively. The fair value of the noncontrolling interest on July 15, 2020 is P7,000,000. How much is the gain on bargain purchase to be recognized as a result of the business combination?
how much is the previously held interest at the date of acquisition?
A. 4,000,000
B. 3,000,000
C. 4,550,000
D. 4,250,000
Chapter 4 Solutions
Advanced Financial Accounting
Ch. 4 - When is the carrying value of the investment...Ch. 4 - What is a differential? How is a differential...Ch. 4 - Prob. 4.3QCh. 4 - Prob. 4.4QCh. 4 - Prob. 4.5QCh. 4 - Prob. 4.6QCh. 4 - Prob. 4.7QCh. 4 - Prob. 4.8QCh. 4 - Prob. 4.9QCh. 4 - Prob. 4.10Q
Ch. 4 - Prob. 4.11QCh. 4 - What determines whether the balance assigned to...Ch. 4 - What does the termpushdown accountingmean?Ch. 4 - Under what conditions is push-down accounting...Ch. 4 - Prob. 4.15QCh. 4 - Prob. 4.2CCh. 4 - Prob. 4.3CCh. 4 - Prob. 4.4CCh. 4 - Prob. 4.1ECh. 4 - Prob. 4.2ECh. 4 - Prob. 4.3ECh. 4 - Prob. 4.4ECh. 4 - Prob. 4.5ECh. 4 - Prob. 4.6ECh. 4 - Prob. 4.7ECh. 4 - Prob. 4.8ECh. 4 - Prob. 4.9ECh. 4 - Prob. 4.10.1ECh. 4 - Prob. 4.10.2ECh. 4 - Prob. 4.10.3ECh. 4 - Prob. 4.10.4ECh. 4 - Prob. 4.10.5ECh. 4 - Prob. 4.11.1ECh. 4 - Prob. 4.11.2ECh. 4 - Prob. 4.11.3ECh. 4 - Prob. 4.11.4ECh. 4 - Prob. 4.12ECh. 4 - Prob. 4.13ECh. 4 - Prob. 4.14ECh. 4 - Prob. 4.15ECh. 4 - Prob. 4.16ECh. 4 - Prob. 4.17ECh. 4 - Prob. 4.18.1ECh. 4 - Prob. 4.18.2ECh. 4 - Prob. 4.18.3ECh. 4 - Prob. 4.18.4ECh. 4 - Prob. 4.18.5ECh. 4 - Prob. 4.18.6ECh. 4 - Prob. 4.19ECh. 4 - Prob. 4.20ECh. 4 - Prob. 4.21ECh. 4 - Prob. 4.22ECh. 4 - Prob. 4.23ECh. 4 - Prob. 4.24AECh. 4 - Prob. 4.25PCh. 4 - Prob. 4.26PCh. 4 - Prob. 4.27PCh. 4 - Consolidated Balance Sheet Powder Company spent...Ch. 4 - Prob. 4.29PCh. 4 - Prob. 4.30PCh. 4 - Prob. 4.31PCh. 4 - Prob. 4.32PCh. 4 - Prob. 4.33PCh. 4 - Prob. 4.34PCh. 4 - Prob. 4.35PCh. 4 - Prob. 4.36PCh. 4 - Prob. 4.37AP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Parent Company purchased 35% interest in Sub Company for P5,600,000 on July 15, 2020. Parent already held a 25% interest purchased for P3,000,000. As of this date, the carrying value of the identifiable net assets of Sub totaled P17,000,000. The carrying value of the identifiable net assets of Sub equal their fair values except for the undervaluation of Inventories and Machineries by P200,000 and P1,000,000 respectively. The fair value of the noncontrolling interest on July 15, 2020 is P7,000,000. How much is the gain on bargain purchase to be recognized as a result of the business combination? A. 2,600,000 B. 2,320,000 C. 1,320,000 D. 1,600,000arrow_forwardParent Company purchased 35% interest in Sub Company for P5,600,000 on July 15, 2020. Parent already held a 25% interest purchased for P3,000,000. As of this date, the carrying value of the identifiable net assets of Sub totaled P17,000,000. The carrying value of the identifiable net assets of Sub equal their fair values except for the undervaluation of Inventories and Machineries by P200,000 and P1,000,000 respectively. The fair value of the noncontrolling interest on July 15, 2020 is P7,000,000. How much is the gain on bargain purchase to be recognized as a result of the business combination? how much is the previously held interest at the date of acquisition?arrow_forwardPirate Corporation acquired 60 percent ownership of Ship Company on January 1, 20X8, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 40 percent of the book value of Ship Company. Accumulated depreciation on Buildings and Equipment was $75,000 on the acquisition date. Trial balance data at December 31, 20X8, for Pirate and Ship are as follows: Item Pirate Corporation Ship Company Debit Credit Debit Credit Cash $ 27,000 $8,000 Accounts Receivable 65,000 22,000 Inventory 40,000 30,000 Buildings and Equipment 500,000 235,000 Investment in Row Company 40,000 Investment in Ship Company 108,000 Cost of Goods Sold 150,000 110,000 Depreciation Expense 30,000 10,000 Interest Expense 8,000 3,000 Dividends Declared 24,000 15,000 Accumulated Depreciation $ 140,000 $ 85,000 Accounts Payable 63,000 20,000 Bonds Payable 100,000 50,000 Common Stock 200,000…arrow_forward
- Pirate Corporation acquired 60 percent ownership of Ship Company on January 1, 20X8, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 40 percent of the book value of Ship Company. Accumulated depreciation on Buildings and Equipment was $75,000 on the acquisition date. Trial balance data at December 31, 20X8, for Pirate and Ship are as follows: Item Pirate Corporation Ship Company Debit Credit Debit Credit Cash $ 27,000 $8,000 Accounts Receivable 65,000 22,000 Inventory 40,000 30,000 Buildings and Equipment 500,000 235,000 Investment in Row Company 40,000 Investment in Ship Company 108,000 Cost of Goods Sold 150,000 110,000 Depreciation Expense 30,000 10,000 Interest Expense 8,000 3,000 Dividends Declared 24,000 15,000 Accumulated Depreciation $ 140,000 $ 85,000 Accounts Payable 63,000 20,000 Bonds Payable 100,000 50,000 Common Stock 200,000…arrow_forwardSub Corporation reports net assets of P300,000 at book value. These net assets have an estimated fair value of P350,000. Parent Corporation buys 80% ownership of Sub for P300,000; there is a control premium of P10,000 included in the purchase price.Of the goodwill reported in the consolidated balance sheet (as of date of acquisition), how much is attributable to the non-controlling interest? A. 3,000 B. 5,000 C. 2,500 D. 4,500arrow_forwardYes Corporation reports net assets of P300,000 at book value. These net assets have an estimated fair value of P350,000. Parent Corporation buys 80% ownership of Sub for P300,000; there is a control premium of P10,000 included in the purchase price.Of the goodwill reported in the consolidated balance sheet (as of date of acquisition), how much is attributable to the non-controlling interest? 5,000 4,500 3,000 2,500arrow_forward
- 8. ABC Corporation acquired 70 percent of XYZ Corporation on August 1 for P420,000. On that date, XYZ Corporation had the following book values and market values. What is the amount of purchase differential recognized on the acquisition date consolidated balance sheet with respect to plant assets.arrow_forwardOn January 1, 20X1, Peace, Inc., acquired 70 percent of Silver's outstanding voting stock. No excess fair-value amortization resulted from the acquisition. On January 1, 20X1, Peace sold equipment to Silver for $20,000. This asset originally cost $32,000 but had a January 1, 20X1, book value of $16,000. At the time of transfer, the equipment's remaining life was estimated to be four years. Silver reported net income of $120,000 for year 20X2. Assume Peace applied equity method to account for this investment. Compute the amount of Income from Silver Peace would record in its internal record for year 20X2:ANSWER IS NOT $84,000arrow_forwardOn January 1, 20X1, Peace, Inc., acquired 70 percent of Silver's outstanding voting stock. No excess fair-value amortization resulted from the acquisition. On January 1, 20X1, Peace sold equipment to Silver for $20,000. This asset originally cost $32,000 but had a January 1, 20X1, book value of $16,000. At the time of transfer, the equipment's remaining life was estimated to be four years. Silver reported net income of $150,000 for year 20X1. Assume Peace applied equity method to account for this investment. Compute the amount of Income from Silver Peace would record in its internal record for year 20X1:ANSWE IS NOT $101,000 NEITHER $104,000arrow_forward
- On January 1, 20X1, Peace, Inc., acquired 70 percent of Silver's outstanding voting stock. No excess fair-value amortization resulted from the acquisition. On January 1, 20X1, Silver sold equipment to Peace for $20,000. This asset originally cost $32,000 but had a January 1, 20X1, book value of $16,000. At the time of transfer, the equipment's remaining life was estimated to be four years. Silver reported net income of $150,000 for year 20X1. What is the noncontrolling interest in the 20X1 income of the subsidiary?arrow_forwardOn January 1, 20X1, Peace, Inc., acquired 70 percent of Silver's outstanding voting stock. No excess fair-value amortization resulted from the acquisition. On January 1, 20X1, Silver sold equipment to Peace for $20,000. This asset originally cost $32,000 but had a January 1, 20X1, book value of $16,000. At the time of transfer, the equipment's remaining life was estimated to be four years. Silver reported net income of $150,000 for year 20X1. What is the noncontrolling interest in the 20X1 income of the subsidiary?ANSWER IS NOT $43,800arrow_forwardHanley acquired 85% of the ordinary share capital of Craig on 30 December 20X7 for $80,000. At this date the net assets of Craig were$95,000. NCI is valued using the fair value method and the fair value of the NCI on the acquisition date is $30,000 What goodwill arises on the acquisition?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning