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(a)
Introduction: Buildings and equipment are the fixed assets of the company. They are purchased for long-term use and are not likely to be converted into cash in the near future. An increment or decrement in its value is to be recorded in the financial statements.
The increase in fair value of buildings and equipment
(a)
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Answer to Problem 6.21P
The increase in fair value of buildings and equipment is $40,000
Explanation of Solution
Particulars | Amount (in $) |
Consolidated total | 680,000 |
Balance reported by L | (400,000) |
Balance reported by T | (240,000) |
Increase in value | 40,000 |
(b)
Introduction:
The
(b)
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Answer to Problem 6.21P
Accumulated depreciation for the consolidated entity is $320,000
Explanation of Solution
Particulars | Amount (in $) |
Accumulated depreciation reported by L | 180,000 |
Accumulated depreciation reported by T | 110,000 |
Cumulative write off depreciation | 30,000 |
Accumulated depreciation | 320,000 |
(c)
Introduction: Ownership of a subsidiary is acquired by either purchase of the majority of shares or acquisition of the entire share capital. The parent company owns a controlling interest of the subsidiary company, meaning thereby it has control over more than half of its stock.
The amount paid by L to acquire the ownership of T.
(c)
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Answer to Problem 6.21P
The amount paid by L is $97,500
Explanation of Solution
Particulars | Amount (in $) |
Common stock outstanding | 60,000 |
30,000 | |
Total book value at acquisition | 90,000 |
Increase in value of buildings and equipment | 40,000 |
Fair value of net assets acquired | 130,000 |
Proportion of ownership acquired | 0.75 |
Amount paid by L | 97,500 |
(d)
Introduction: Investment refers to an asset that is purchased with the hope that it will generate some income or interest over and above the initial purchase value. To invest is to allocate money with the hope of some benefit to arise in the future.
The amount reported by L as investment in T
(d)
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Answer to Problem 6.21P
The amount reported by L as investment is $136,500
Explanation of Solution
Particulars | Amount (in $) |
T’s common stock outstanding on December 31,20X6 | 60,000 |
T’s retained earnings as on December 31, 20X6 | 112,000 |
Total book value at acquisition | 172,000 |
Proportion of ownership held by L | 0.75 |
L’s share of net book value | 129,000 |
Unamortized differential | 7,500 |
Investment in T | 136,500 |
(e)
Introduction: Sales refer to a transaction between two parties in which one party sells a product or a service and another party purchases those goods and services in exchange for a consideration, usually monetary in nature. In inter-corporate sales, products are sold between two companies.
The amount of inter-corporate sales of inventory
(e)
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Answer to Problem 6.21P
The amount of inter-corporate sales in 20X6 is $30,000
Explanation of Solution
Particulars | Amount (in $) |
Sales reported by L | 420,000 |
Sale reported by T | 260,000 |
Total sales | 680,000 |
Sales reported in consolidated income statement | (650,000) |
Intercompany sales | 30,000 |
(f)
Introduction: Unrealized inventory profits arise when one company usually a parent company sells products to another company, subsidiary and the products so sold could not be sold externally into the market by the end of the year.
The amount of unrealized inventory profit
(f)
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Answer to Problem 6.21P
The amount of unrealized inventory profit is $4,000
Explanation of Solution
Particulars | Amount (in $) |
Inventory reported by L | 125,000 |
Inventory reported by T | 90,000 |
Total inventory | 215,000 |
Inventory reported in consolidated income statement | (211,000) |
Unrealized inventory profit | 4,000 |
(g)
Introduction:
Eliminating entry to remove the effects of intercompany inventory sale.
(g)
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Explanation of Solution
Eliminating entry
S.no | Date | Particulars | Debit (in $) | Credit (in$) |
1 | Sales | 30,000 | ||
Cost of goods sold | 26,000 | |||
Inventory | 4,000 | |||
(Elimination of inter-company inventory sale) |
(h)
Introduction: Unrealized inventory profits arise when one company usually a parent company sells products to another company, subsidiary and the products so sold could not be sold externally into the market by the end of the year.
The amount of unrealized inventory profit
(h)
![Check Mark](/static/check-mark.png)
Answer to Problem 6.21P
The amount of unrealized inventory profit is $9,000
Explanation of Solution
Particulars | Amount (in $) |
Cost of goods sold reported by L | 310,000 |
Cost of goods sold reported by T | 170,000 |
Reduction of cost of goods sold for intercompany sales during 20X6 | (26,000) |
Adjusted cost of goods sold | 454,000 |
Cost of goods sold reported in consolidated income statement | (445,000) |
Additional adjustment to cost of goods sold due to unrealized profit in beginning inventory | 9,000 |
(i)
Introduction: Accounts receivable refers to the claim that a company holds against its debtors, the persons who owe the company money. Accounts receivable are the current assets for the company and are mostly converted into cash within a span of one year.
The amount of accounts receivable realized by L at December 31, 20X6
(i)
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Answer to Problem 6.21P
The amount of accounts receivable reported by L is $107,000
Explanation of Solution
Particulars | Amount (in $) | Amount (in $) |
Accounts receivable reported for consolidated entity | 145,000 | |
Accounts receivable reported by T | (55,000) | |
Difference | 90,000 | |
Adjustment for intercompany receivable/ payable: | ||
Accounts payable reported by L | 86,000 | |
Accounts payable reported by T | 20,000 | |
Total reported accounts payable | 106,000 | |
Accounts payable reported on consolidated entity | (89,000) | |
Adjustment for intercompany receivable/ payable | 17,000 | |
Accounts receivable reported by L | 107,000 |
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Chapter 6 Solutions
EBK ADVANCED FINANCIAL ACCOUNTING
- 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. *In good accounting form, please. Thank you!arrow_forwardABC 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 P Co acquired 70% ownership of S Ltd. On the acquisition date all identifiable assets and liabilities had book values equal to fair values. P uses the cost method to record its investment in S. For external reporting purposes consolidated statements are required. However, the purchase did result in the acquisition of goodwill of $55,000. During the past few years, a number of transactions have taken place: Inter-company downstream sales during 20X5 were 120,000. An unrealized profit of 17,000 still remains in the unsold ending inventory. The beginning inventory included an unrealized profit of 11,000 related to last year’s downstream inter-company sales. Inter-company upstream sales during 20X5 were 70,000. An unrealized profit of 8,000 remains in the unsold ending inventory. There were no inter-company upstream sales last year. On January 3, 20X3, P sold equipment to S for 88,000. The equipment had a net book value of $60,000 and a remaining useful life of 10…arrow_forward
- Power Corporation acquired 100 percent ownership of Scrub Company on February 12, 20X9. At the date of acquisition, Scrub Company reported assets and liabilities with book values of $420,000 and $165,000, respectively, common stock outstanding of $80,000, and retained earnings of $175,000. The book values and fair values of Scrub's assets and liabilities were identical except for land, which had increased in value by $20,000, and inventories, which had decreased by $7,000. 1. Prepare the following consolidating entries required to prepare a consolidated balance sheet immediately after the business combination assuming Power acquired its ownership of Scrub for $251,000. ****please help with the red blanks **** Prepare the following consolidating entries required to prepare a consolidated balance sheet immediately after the business combination assuming Power acquired its ownership of Scrub for $251,000. Note: If no entry is required for a transaction/event, select "No journal entry…arrow_forwardPower Corporation acquired 100 percent ownership of Scrub Company on February 12, 20x9. At the date of acquisition, Scrub Company reported assets and labilities with book values of $425,000 and $166,000, respectively, common stock outstanding of $89,000, and retained earnings of $170,000. The book values and fair values of Scrub's assets and labilities were identical except for land, which had increased in value by $21,000, and inventories, which had decreased by $6,000. Required: a Prepare the following consolidation entries required to prepare a consolidated balance sheet immediately after the business combination assuming Power acquired its ownership of Scrub for $284.000. (Ir no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Answer is complete and correct. No Event Accounts Debit Credit Retained eamings 170,000 O Common atock 09.000 O Investnent in Scrb Company 259.000 O Land 21,000 O 10.000 O Goodwil Investment in Scrub…arrow_forwardPutt Corporation acquired 80 percent of Slice Company's voting common stock on January 1, 20X4, for $144,000. At that date, the fair value of the noncontrolling interest was $36,000. Slice's balance sheet at the date of acquisition contained the following balances: Cash Accounts Receivable Land Building and Equipment Less: Accumulated Depreciation Total Assets SLICE COMPANY Balance Sheet January 1, 20X4 $24,000 51,000 91,000 318,000 (94,000) $ 390,000 Total Liabilities and Stockholders' Equity Accounts Payable Notes Payable Common Stock Additional Paid-in Capital Retained Earnings $ 31,000 222,000 92,000 67,000 (22,000) $ 390,000 At the date of acquisition, the reported book values of Slice's assets and liabilities approximated fair value. Required: Prepare the consolidation entry or entries needed to prepare a consolidated balance sheet immediately following the business combination. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first…arrow_forward
- On January 1, 20X3, Plimsol Company acquired 100 percent of Shipping Corporation's voting shares, at underlying book value. Plimsol uses the cost method in accounting for its investment in Shipping. Shipping's reported retained earnings of $75,000 on the date of acquisition. The trial balances for Plimsol Company and Shipping Corporation as of December 31, 20X4, follow: 24 Item Current Assets Depreciable Assets (net) Investment in Shipping Corporation Other Expenses Depreciation Expense Dividends Declared Current Liabilities Long-Term Debt Common Stock Retained Earnings Sales Dividend Income Plimsol Company Debit Credit $ 160,000 180,000 125,000 85,000 20,000 30,000 Shipping Corporation Debit Credit $ 115,000 135,000 60,000 15,000 15,000 $ 25,000 75,000 100,000 210,000 175,000 15,000 $ 600,000 $ 600,000 $ 340,000 $ 340,000 $ 20,000 50,000 50,000 Required: 1. Provide all consolidating entries required to prepare a full set of consolidated statements for 20X4. 2. Prepare a three-part…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_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
- Hanley 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_forwardPutt Corporation acquired 80 percent of Slice Company's voting common stock on January 1, 20X4, for $138,000. At that date, the fair value of the noncontrolling interest was $34,500. Slice's balance sheet at the date of acquisition contained the following balances: Cash Accounts Receivable Land Building and Equipment Less: Accumulated Depreciation Total Assets SLICE COMPANY Balance Sheet January 1, 20X4 $ 20,000 35,000 90,000 300,000 (85,000) $360,000 Accounts Payable Notes Payable Common Stock Additional Paid-in Capital Retained Earnings Total Liabilities and Stockholders' Equity $ 35,000 180,000 100,000 75,000 (30,000) $360,000 At the date of acquisition, the reported book values of Slice's assets and liabilities approximated fair value. Required: Prepare the consolidation entry or entries needed to prepare a consolidated balance sheet immediately following the business combination. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first…arrow_forwardSUBSEQUENT TO DATE OF ACQUISITION CHAPTER 3: CONSOLIDATION- 21. Patriotism Company purchased 70% of Strength Company on January 2, 2022 for P420,000. At that date Strength had inventory and plant assets with market values greater than book values in the amount of P50,000 and P90,000, respectively. The inventory and plant assets were assigned to have a remaining life of six months and five years, respectively. Strength Company has 2022 income and dividends of P160,000 and P60,000, respectively and 2023 income and dividends of P210,000 and P80,000, respectively. The balance of non-controlling interest account on December 31. 180,000 NU beg (420K 787. x30%.) 2023 must be: a. P223,200 b. P276,000 P169,200 с. d. P136,800 22. Jenny Company acquired 80% of the equity share capital of Smitharrow_forward
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