Question 1) The balance sheets of Power Company and Spectrum Corporation immediately prior to Power's acquisition of 95% of Spectrum's voting stock are:
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Power Company
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Spectrum Corporation
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Assets
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Book Value
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Book Value
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Fair Value
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Current assets
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$ 4,000,000
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$ 1,000,000
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$ 700,000
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Plant & equipment, net
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30,000,000
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8,000,000
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3,000,000
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Total assets
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$34,000,000
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$ 9,000,000
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Liabilities & equity
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|
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Current liabilities
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$ 2,000,000
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$ 600,000
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600,000
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Long-term liabilities
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25,000,000
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6,400,000
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6,200,000
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Common stock, $1 par
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400,000
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20,000
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Additional paid-in capital
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3,200,000
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1,380,000
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Retained earnings
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3,400,000
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600,000
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Total liabilities & equity
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$34,000,000
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$ 9,000,000
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In addition to the assets already reported by Spectrum Corporation, the following previously unreported identifiable intangible assets are identified as owned by Spectrum Corporation. These assets are appropriately recorded as assets.
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Identifiable Intangible Asset
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Fair Value
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Advertising jingles
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$ 4,000,000
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Order backlogs
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1,000,000
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Power Company issues 200,000 shares of $1 par common stock with a market value of $90/share to acquire 95% of Spectrum Corporation's voting stock. Registration fees for the stock issue are $350,000 and out of pocket costs for the services of outside accountants and lawyers are $600,000, both paid in cash. The noncontrolling interest has an estimated fair value of $800,000.
Required-
Present a schedule calculating the goodwill for this acquisition, and its allocation to the controlling and noncontrolling interest.
Prepare a working paper to consolidate the trial balances of Power and Spectrum as of the date of acquisition.
Question 2) Preston Company acquired 80% of Sparkle Corporation's stock for $2,170 in cash on January 1, 2018, when Sparkle Corporation's book value was $500, consisting of $50 in capital stock, $435 in retained earnings, and $15 in accumulated other comprehensive income. The fair value of the noncontrolling interest was $430 at the date of acquisition. Preston uses the complete equity method to account for the investment on its own books.
At the time of acquisition, all of Sparkle's assets and liabilities were reported at fair value, except for unreported identifiable intangible assets with a fair value of $300. These intangibles are appropriately
recorded as assets per ASC Topic 805, and have a remaining life of 2 years, straight-line as of the date of acquisition. Goodwill arising from this acquisition is tested annually for impairment. Impairment for 2018 is $300.
It is now December 31, 2018, and you are preparing the consolidated financial statements. Sparkle reported net income of $750, an other comprehensive loss of $10, and declared and paid dividends of $100 for 2018.
Required-
Calculate total goodwill at the date of acquisition and its allocation to the controlling and noncontrolling interest.
Calculate equity in net income of Sparkle for 2018, as reported on Preston's separate books, and noncontrolling interest in net income of Sparkle for 2018, as reported on the consolidated income statement.
Prepare the eliminating entries, in journal form, to consolidate Preston and Sparkle's trial balances at December 31, 2018.
Question 3) Slag Corporation borrowed $10,000,000 from its parent, PFG Industries, on May 1, 2016. The yearly interest rate is 6%, and interest is due semiannually on April 30 and October 31 of each year. The principal of the loan is due on April 30, 2021. PFG's accounting year ends December 31. It is now December 31, 2016, and Slag has made interest payments as required.
Required -
What balances appear in the December 31, 2016, trial balances of PFG and Slag with respect to this intercompany loan? What balances should appear on the consolidated financial statements?
Prepare the working paper eliminating entries needed for this intercompany loan at December 31, 2016.
Question 4) Paris Corporation acquired Sierra Company at the beginning of the current year. Total retail value of upstream sales for the year were $65,000; the retail value of downstream sales were $25,000. Sierra sells to Paris at a markup of 35% on cost; Paris sells to Sierra at a markup of 30% on sales price. Upstream sales of $13,500 remain in Paris' ending inventory. Downstream sales of $6,000 remain in Sierra's ending inventory.
Required -
Calculate the unconfirmed profit in Paris' ending inventory and in Sierra's ending inventory.
Prepare the working paper eliminating entries for the intercompany inventory transactions that are required to consolidate the trial balances of Paris and Sierra for the year.
Question 5) A Venezuelan subsidiary owns land acquired for 100,000,000 bolivares fuertes (Bs.F) when the exchange rate was $0.50/Bs.F. The rate at the end of the current year is $0.05, and the price level index has increased from 100 at the date the land was acquired to 1200 at the end of the current year. The subsidiary's functional currency is the Bs.F. The parent's reporting (presentation) currency is the U.S. dollar.
Required-
At what value will the land be reported in the consolidated balance sheet, if the subsidiary's parent follows U.S. GAAP and Venezuela is not considered to be a highly inflationary country? At what value will the land be reported in the consolidated balance sheet, if the subsidiary's parent follows IFRS and Venezuela is not considered to be a highly inflationary country?
At what value will the land be reported in the consolidated balance sheet, if the subsidiary's parent follows U.S. GAAP and Venezuela has been declared a highly inflationary country?
At what value will the land be reported in the consolidated balance sheet, if the subsidiary's parent follows IFRS and Venezuela has been declared a highly inflationary country?
If you answered Parts b. and c. correctly, when hyperinflation exists the land is reported at different amounts depending on if the parent follows U.S. GAAP or IFRS. Under what circumstances will the U.S. GAAP and IFRS amounts be the same?