Concept explainers
Business combination:
A business combination refers tothe combining of one or more business organizations in a single entity. Business combinations lead to the formation of combined financial statements. After business combination, the entities having separate control merge into one having control over all the assets and liabilities. Merging and acquisition are two types of business combinations.
Consolidated financial statements:
Consolidated financial statements refer to the combined financial statements of entities which are prepared at year-end. Prepared when one organization is either acquired by the other entity or two organizations merged to form a new entity, consolidated financial statements serve the purpose of both the entities about financial information.
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Chapter 7 Solutions
Advanced Accounting
- PROBLEM 35At the beginning of 2018, Esterlina Corporation purchased 40% of the ordinary shares outstanding of Mary Grace Incorporated for P15,000,000 when the net assets of Mary Grace Incorporated amounted to P30,000,000. At the acquisition date, the carrying amounts of the identifiable assets and liabilities of Mary Grace Incorporated were equal to their fair value, except for the following: a. Equipment whose fair value was P7,000,000 greater than its carrying amount.b. Inventory whose fair value was P2,500,000 greater than its carrying amount. The equipment has a remaining life of 4 years, and the inventory was all sold during 2013. Mary Grace Incorporated has two classes of shares: Ordinary shares (par value, P100), 300,000 shares outstanding, 15% cumulative preference shares (par value, P50), 100,000 shares outstanding. The investee reported the following net income (inclusive of enter-company transactions) and payment of cash dividend: 2018…arrow_forwardProblem 4-35 (Algo) (LO 4-2, 4-3, 4-5) Miller Company acquired an 80 percent interest in Taylor Company on January 1, 2019. Miller paid $744,000 in cash to the owners of Taylor to acquire these shares. In addition, the remaining 20 percent of Taylor shares continued to trade at a total value of $186,000 both before and after Miller’s acquisition. On January 1, 2019, Taylor reported a book value of $464,000 (Common Stock = $232,000; Additional Paid-In Capital = $69,600; Retained Earnings = $162,400). Several of Taylor’s buildings that had a remaining life of 20 years were undervalued by a total of $61,900. During the next three years, Taylor reports income and declares dividends as follows: Year Net Income Dividends 2019 $ 54,400 $ 7,800 2020 70,200 11,700 2021 78,000 15,600 Determine the appropriate answers for each of the following questions: What amount of excess depreciation expense should be recognized in the consolidated financial…arrow_forwardQuestion 1: Chapter 7 On 1 October 20X8 Pacemaker Co acquired 30 million of Vardine Co's 100 million shares in exchange for 75 million of its own shares. The fair value of Pacemaker Co's shares at the date of this share exchange was $1.60 each. Vardine Co's profit is subject to seasonal variation. Its profit for the year ended 31 March 20X9 was $100 million. $20 million of this profit was made from 1 April 20X8 to 30 September 20X8. Pacemaker Co has one subsidiary and no other investments apart from Vardine Co. What amount will be shown as 'investment in associate' in the consolidated statement of financial position of Pacemaker Co as at 31 March 20X9?arrow_forward
- PROBLEM 31Cobarrubias Corporation had the following investment at FVTPL at the beginning of the current year: Fair ValueABC Corporation, 10,000 shares (originally cost P1,000,000) - P1,200,000JKL Company, 20,000 shares (originally cost P500,000) - 450,000 During the current year, the following transactions occurred: Feb. 28 ABC Corporation declared a 3-for-2 share split. Apr 31 JKL Company declared a 20% share dividend. The market value of JKL Company on this date is P3.00. June 30 Sold 5,000 shares of JKL Company for P100,000, less brokers fee of P1,000. July 31 Sold 5,000 shares of ABC Corporation for P135. Sept 30 Received share rights to purchase one share of ABC Corporation for P100 per share. The company should tender five rights for every share acquired. The market price of ABC Corporation shares on this date is P140. Oct. 31 Exercise all the share rights from ABC…arrow_forward25 – 26:Judicious Company acquired an equity investment a number of years ago for P 3,000,000 and classified it as fair value through other comprehensive income. On December 31, 2020, the cumulative loss recognized in other comprehensive income was P 400,000 and the carrying amount of the investment was P 2,600,000. On December 31, 2021, the issuer of the equity instrument was in sever financial difficulty and the fair value of the equity investment had fallen to P 1,200,000. 25: What cumulative amount of unrealized loss should be reported as component of other comprehensive income in the statement of changes in equity for the year ended December 31, 2021? 26: prepare journal entry to recognize the decrease in value on December 31, 2021.arrow_forwardQuestion Content Area Exercise 7-18 (LO. 2) On August 27 of the current year, Bailey Corporation exchanged $25,000 of 4% interest-bearing bonds for 100 shares of its common stock worth $300 per share. If your answer amount is zero, enter "0". a. Does this transaction qualify as a nontaxable reorganization? If so, what is its type? b. What is the gain realized by the bondholders on the exchange?$fill in the blank 2 c. What is the gain recognized by the bondholders on the exchange?$fill in the blank 3 d. What is the basis in the stock that was received?$fill in the blank 4arrow_forward
- Exercise 4 – 7On January 1, 2020, Levesque Co. purchased 500,000 ordinary shares of Rowland Co. at ₱14 per share, representing a 25% ownership in Rowland. This allowed Levesque to exercise significant control over Rowland. Rowland declared and paid dividends of ₱1 and ₱2 in 2020 and 2021, respectively. At the end of 2020 and 2021, Rowland’s shares were trading at ₱15 and ₱17 per share. Rowland’s net income in 2020 and 2021 was ₱2,400,000 and ₱3,200,000, respectively.1. Determine the investment income recognized by Levesque in 2020 and 2021.2. Determine the carrying amount of Levesque’s investment on December 31, 2020, and December 31, 2021.arrow_forwardMa1. Question Content AreaMars Corporation merges into Jupiter Corporation by exchanging all of its assets for 300,000 shares of Jupiter stock valued at $2 per share and $100,000 cash. Wanda, the sole shareholder of Mars, surrenders her Mars stock (basis $900,000) and receives all of the Jupiter stock transferred to Mars plus the $100,000. How does Wanda treat this transaction on her Federal income tax return? a.Wanda recognizes a $100,000 gain. Her Jupiter stock basis is $900,000. b.Wanda recognizes a loss of $0. Her Juniper stock basis is $800,000. c.Wanda recognizes a $100,000 gain. Her Jupiter stock basis is $700,000. d.Wanda recognizes a loss of $100,000. Her Jupiter stock basis is $800,000.arrow_forward551. CHAPTER 6âCORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 66 Pursuant to a qualifying stock redemption, Redbird Corporation (E & P of $400,000) transfers land held for investment purposes to Bob, a 10% shareholder. On the date of the distribution, Redbird has a basis of $200,000 in the land and its fair market value is $150,000. Bob has a basis of $40,000 in the shares redeemed. With respect to the redemption: a. Bob will recognize a gain of $110,000. b. Bob will have $150,000 of dividend income. c. Bob will have a $200,000 basis in the land. d. Redbird Corporation will recognize a capital loss of $50,000. e. None of the above. 552. CHAPTER 6âCORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 67 Canary Corporation has 1,000 shares of stock outstanding. It redeems in a qualifying stock redemption 350 shares for $400,000 at a time when it has paid-in capital of $100,000 and E & P of $1 million. What would be the charge to…arrow_forward
- Discussion Question 17-11 (LO. 2) Marmot Corporation pays a dividend of $100,000 in the current year. Otter Corporation, a calendar year C corporation, owns 15% of Marmot's stock. Gerald, an individual taxpayer in the 24% marginal bracket, also owns 15% of Marmot's stock. Compare and contrast the treatment of the dividend by Otter Corporation and Gerald. Use the attached dividend deduction. a. Otter Corporation will be allowed a dividends received deduction equal to 50% of the dividends it received. It will pay tax of fill in the blank % on the remaining portion of the dividends.arrow_forwardQuestion 10 On January 2, 2020, Tuao Company purchased 10% of Abulug Company’s outstanding ordinary shares for P20,000,000. Tuao is the largest single shareholder in Abulug and this gives Tuao the power to participate in the financial and operating policy decisions of the Abulug but is not control or joint control over those policies. Abulug reported profit of P10,000,000 and paid dividend of P4,000,000. What should be the balance in Tuao’s investment in Abulug Company at the end of 2020? Group of answer choices P20,600,000 P21,000,000 P20,000,000 P21,400,000arrow_forwardQuestion 7 During 2020, Crane Company purchased 91000 shares of Novak Corporation common stock for $1370000 as an equity investment. The fair value of these shares was $1299000 at December 31, 2020. Crane sold all of the Novak stock for $16 per share on December 3, 2021, incurring $67000 in brokerage commissions. Crane Company should report a realized gain on the sale of stock in 2021 of $86000. $19000. $157000. $90000.arrow_forward
- Corporate Financial AccountingAccountingISBN:9781305653535Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning