Advanced Financial Accounting Assignment
Q1. PeopleMag sells a plot of land for $100,000 to Seven Star Company, its 100 percent owned subsidiary, on January 1, 20X7. The cost of the land was $75,000, when it was purchased in 20X6. In 20X9, Seven Star sells the land to Hot Properties Inc., an unrelated entity, for $120,000. How is the land reported in the consolidated financial statements for 20X7, 20X8 and 20X9?
Q2. Fred Corporation owns 75 percent of Winner Company's voting shares, acquired on March 21, 20X5, at book value. At that date, the fair value of the non-controlling interest was equal to 25 percent of the book value of Winner Company.
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Fred Corporation
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Winner Company
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|
Cash and Receivable
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$70,000
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$10,000
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|
Inventory
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46,250
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20,000
|
|
Land
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140,000
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45,000
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Building and Equipment
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250,000
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150,000
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Investment in Winner Company Stock
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93,750
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|
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Debits
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$600,000
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$225,000
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Accum. Depreciation
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$100,000
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$42,500
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Accounts Payable
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30,000
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12,500
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|
Notes Payable
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70,000
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45,000
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Common Stock
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100,000
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100,000
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Retained Earnings
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300,000
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25,000
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Credits
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$600,000
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$225,000
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On January 1, 20X4, Fred paid $150,000 for equipment with a 10-year expected total economic life. The equipment was depreciated on a straight-line basis with no residual value. Winner purchased the equipment from Fred on December 31, 20X6, for $140,000. Winner sold land it had purchased for $75,000 on February 18, 20X4, to Fred for $60,000 on October 10, 20X7.
Required: Prepare the elimination entries for 20X8 related to the sale of depreciable assets and land.
Q3. Pie Company acquired 75 percent of Strawberry Company's stock at the underlying book value on January 1, 20X8. At that date, the fair value of the non-controlling interest was equal to 25 percent of the book value of Strawberry Company. Strawberry Company reported shares outstanding of $350,000 and retained earnings of $100,000. During 20X8, Strawberry Company reported net income of $60,000 and paid dividends of $3,000. In 20X9, Strawberry Company reported net income of $90,000 and paid dividends of $15,000. The following transactions occurred between Pie Company and Strawberry Company in 20X8 and 20X9:
Strawberry Co. sold equipment to Pie Co. for a $42,000 gain on December 31, 20X8. Strawberry Co. had originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31, 20X8. At the time of the purchase, Pie Co. estimated that the equipment still had a seven-year remaining useful life.
Pie Co. sold land costing $90,000 to Strawberry Co. on June 28, 20X9, for $110,000.
Required: Give all eliminating entries needed to prepare a consolidation worksheet for 20X9 assuming that Pie Co. uses the fully adjusted equity method to account for its investment in Strawberry Company.
Q4. Pisa Company acquired 75 percent of Siena Company on January 1, 20X3 for $712,500. The fair value of the non-controlling interest was equal to 25 percent of book value. On the date of acquisition, Siena had common stock outstanding of $300,000 and a balance in retained earnings of $650,000. During 20X3, Siena purchased inventory for $35,000 and sold it to Pisa for $50,000. Of this amount, Pisa reported $20,000 in ending inventory in 20X3 and later sold it in 20X4. In 20X4, Pisa sold inventory it had purchased for $40,000 to Siena for $60,000. Siena sold $45,000 of this inventory in 20X4.
Income and dividend information for Siena for 20X3 and 20X4 are as follows:
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Year
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Net Income
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Dividends
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20x3
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$150,000
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$40,000
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20x4
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$200,000
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$50,000
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Pisa Company uses the fully adjusted equity method.
Required:
a. Present the worksheet elimination entries necessary to prepare consolidated financial statements for 20X3.
b. Present the worksheet elimination entries necessary to prepare consolidated financial statements for 20X4.