Concept explainers
Concept Introduction:
The intercompany transactions occur when the unit of legal entity is having transactions with another unit of the similar entity. This transaction can be divided into two categories such as direct and indirect intercompany transfer. The direct transfer occurs when there is transfer between the different units of the same entity and indirect transfer occurs when the unit of entity acquires debt or assets issued to unrelated entity through another unit of the same entity. This type of transfer will help the entity in improving the flow of finance and asset in efficient manner.
Requirement 1
The amount needed for purchasing the trucks on January 1 20X2.
Concept Introduction:
The intercompany transactions occur when the unit of legal entity is having transactions with another unit of the similar entity. This transaction can be divided into two categories such as direct and indirect intercompany transfer. The direct transfer occurs when there is transfer between the different units of the same entity and indirect transfer occurs when the unit of entity acquires debt or assets issued to unrelated entity through another unit of the same entity. This type of transfer will help the entity in improving the flow of finance and asset in efficient manner.
Requirement 2
The economic life of the truck on January 1, 20X2
Concept Introduction:
The intercompany transactions occur when the unit of legal entity is having transactions with another unit of the similar entity. This transaction can be divided into two categories such as direct and indirect intercompany transfer. The direct transfer occurs when there is transfer between the different units of the same entity and indirect transfer occurs when the unit of entity acquires debt or assets issued to unrelated entity through another unit of the same entity. This type of transfer will help the entity in improving the flow of finance and asset in efficient manner.
Requirement 3
The consolidation entries while preparing the consolidated financial statement.
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Chapter 7 Solutions
ADVANCED FINANCIAL ACCOUNTING IA
- On January 1, 2010 Hand acquires 100% of Finger in a statutory merger. At acquisition date the following were the book values and fair values of fixed assets of these two companies: Book Value. Fair Value Hand 900,000 800,000 Finger 200,000 300,000 a. What is consolidated fixed assets under the acquisition method b. What is consolidated fixed assets under the purchase method c.What is consolidated fixed assets under the pooling of interests method thank youarrow_forwardConsolidation at the end of the first year subsequent to date of acquisition-Cost method (purchase price equals book value) Assume the parent company acquires its subsidiary on January 1, 2019, by exchanging 20,000 shares of its $1 par value Common Stock, with a market value on the acquisition date of $50 per share, for all of the outstanding voting shares of the acquiree. You have been charged with preparing the consolidation of these two companies at the end of the first year. On the acquisition date, all of the subsidiary's assets and liabilities had fair values equaling their book values. The parent uses the cost method of pre-consolidation Equity investment bookkeeping. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2019. Parent Subsidiary Parent Subsidiary Income statement Sales Cost of goods sold Gross profit Investment income Operating expenses Net income Statement of retained earnings BOY retained earnings Net income…arrow_forwardPreparing the consolidation journal entries for sale of depreciable assets-Equity method Assume that on January 1, 2011, a wholly owned subsidiary sells to its parent, for a sale price of $132,000, equipment that originally cost $156,000 The subsidiary originally purchased the equipment on January 1, 2007, and depreciated the equipment assuming a 10-year useful life (straight-line with no salvage value. The parent has adopted the subsidiary's depreciation policy and depreciates the equipment over the remaining useful life of 6 years. The parent uses the full equity method to account for its Equity Investment a. Compute the annual depreciation expense for the subsidiary (pre-intercompany sale) and the parent (poss-intercompany sale) Annual depreciation expense-subsidiary $156,000 Annual depreciation expense-parent $ 122,000x b. Compute the pre-consolidation Gain on Sale recognized by the subsidiary during 2011. $ 62,400 x c. Prepare the required consolidation journal entry in 2011…arrow_forward
- PROBLEM III P Company acquired 75% of S Company's ordinary share for P510,000 cash. At that date, S Company reports identifiable assets with book value of P1,040,000 and a fair value of P1,280,000 and it has liabilities with book value and a fair value of P716,000. How much is the goodwill or (gain on acquisition) arising on consolidation if NCI is measured at fair value and that control premium of P30,000 included in the purchase price?arrow_forwardPreparing the [I] consolidation journal entries for sale of depreciable assets - Equity methodAssume that on January 1, 2011, a wholly owned subsidiary sells to its parent, for a sale price of $126,000, equipment that originally cost $148,000. The subsidiary originally purchased the equipment on January 1, 2007, and depreciated the equipment assuming a 10-year useful life (straight-line with no salvage value). The parent has adopted the subsidiary's depreciation policy and depreciates the equipment over the remaining useful life of 6 years. The parent uses the full equity method to account for its Equity Investment. a. Compute the annual depreciation expense for the subsidiary (pre-intercompany sale) and the parent (post-intercompany sale). Annual depreciation expense-subsidiary Answer Annual depreciation expense-parent Answer b. Compute the pre-consolidation Gain on Sale recognized by the subsidiary during 2011. $Answer c. Prepare the required [I] consolidation journal…arrow_forwardAxel Corporation acquires 100% of the stock of Wheal Company on December 31, Year 4. The following information pertains to Wheal Company on the date of acquisition: CASE 5-1 Accounting Entries for Consolidation of Intercorporate Book Value Fair Value Investments $ 40,000 60,000 50,000 Property, plant, and equipment (net).... 100,000 $ 40,000 55,000 75,000 200,000 30,000 Cash Accounts receivable. Inventory.. Secret formula (patent)... Total assets.. $250,000 $400,000 $ 30,000 $ 30,000 22,000 Accounts payable Accrued employee pensions. Long-term debt .. Capital stock.. Other contributed capital Retained earnings... 20,000 40,000 100,000 25,000 38,000 35,000 Total liabilities and equity. $250,000 $ 90,000 Axel Corporation issues $110,000 par value ($350,000 market value on December 31, Year 4) of its own stock to the shareholders of Wheal Company to consummate the transaction, and Wheal Company becomes a wholly owned, consolidated subsidiary of Axel Corporation. Required: a. Prepare…arrow_forward
- Consolidation at date of acquisition (purchase price greater than book value, acquisition journal entries, deferred tax liability) Assume that the parent company acquires its subsidiary in a "nontaxable" transaction by exchanging 60,000 shares of its $2 par value Common Stock, with a fair value on the acquisition date of $10 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the fair value of each of the subsidiary's assets and liabilities equals their respective book values except for property, plant and equipment (PPE) assets that are undervalued by $40,000, an unrecorded Customer List with a fair value of $64,000, and an unrecorded Brand Name asset valued at $96,000. And, finally, assume that the tax bases of the subsidiary's pre-acquisition identifiable net assets equal their book values. The parent company's effective tax rate is 22%. a. Prepare the journal entry that the parent makes to record the acquisition. General…arrow_forwardPreparing the consolidation entries for sale of depreciable assets-Equity method Assume that on January 1, 2016, a parent sells to its wholly owned subsidiary, for a sale price of $243,000, equipment that originally cost $276,000. The parent originally purchased the equipment on January 1, 2012, and depreciated the equipment assuming a 10-year useful life (straight-line with no salvage value). The subsidiary has adopted the parent's depreciation policy and depreciates the equipment over the remaining useful life of 6 years. The parent uses the equity method to account for its Equity Investment. a. Compute the annual pre-consolidation depreciation expense for the subsidiary (postintercompany sale) and the parent (pre-intercompany sale). Subsidiary-depreciation $ 40,500 Parent-depreciations 27,600 b. Compute the pre-consolidation Gain on Sale recognized by the parent during 2016. $ 77,400 c. Prepare the required consolidation entry in 2016 (assume a full year of depreciation) Debit…arrow_forwardb. Prepare all consolidation entries needed to prepare consolidated statements for 20X5. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.a. Prepare all journal entries that Pizza recorded during 20×5 related to its investment in Slice. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. View transaction listPizza Corporation acquired 80 percent ownership of Slice Products Company on January 1, 20X1, for $151,000. On that date, the fair value of the noncontrolling interest was $37,750, and Slice reported retained earnings of $46,000 and had $95,000 of common stock outstanding Pizza has used the equity method in accounting for its investment in Slice. Trial balance data for the two companies on December 31, 20X5, are as follows: Item Pizza Corporation Slice Products Company Debit Credit Debit Credit Cash and Receivables $ 86,000 $ 67,000 Inventory 277,000…arrow_forward
- Intra-group transaction Question (worksheet adjustment entries for the following independent transactions) Sydney Ltd owns all of the shares of Mel Ltd. In relation to the following intragroup transactions, all parts of which are independent unless specified, prepare the consolidation worksheet adjusting entries for preparation of the consolidated financial statements as at 30 June 2019. Assume an income tax rate of 30%. (e) SYD Ltd sold a warehouse to MEL Ltd for $150 000. This had originally cost SYD Ltd $123 000. The transaction took place on 1 January 2018. MEL Ltd charges depreciation at 5% p.a. on a straight-line basis.arrow_forwardPCn reported the book value of its net assets at $200,000 when Z Co acquired 100 % ownership The fair value of P's net assets was determined to be $255,000 on that date, what amount of goodwil will be reported in consolidated financial statements presented immediately following the combination if 2 paid $330,000 for the acquisition Select one 25,000 Ob 20.000 €75,000arrow_forwardP Company purchases 80% of the outstanding shares of S Company for P9,000,000. The carrying value of S Company's net assets at the time of acquisition was P6,000,000 and had a fair value of P8,000,000. WHAT IS THE AMOUNT OF THE: a. Goodwill arising from the consolidation if it is to be computed using the proportionate basis or "Partial Goodwill" b. Non-controlling arising from the consolidation if it is to be computed using the proportionate basis or "Partial Goodwill" c. Goodwill arising from the consolidation if it is to be computed using the full (fair value basis of "Full/Gross-up" Goodwill, assuming the cost of acquisition includes a control premium of P400,000. d. Non-controlling interest arising from the consolidation if it is to be computed using the full (fair value basis of "Full/Gross-up" Goodwill, assuming the cost of acquisition includes a control premium of P400,000. e. Goodwill arising from the consolidation if the non-controlling interest is stated at fair value of…arrow_forward
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