会计英语课后题答案Answer for lesson4.doc

Exercise 4.1 Select the best answer for each of the following unrelated items1. C. This is not a business combination as control has not been achieved given Mr. Bills veto power. XYZ has significant influence and should account for this investment using the equity method.2. A. When control exists, the parent must consolidate the subsidiary.3. B. This is the acquisition method; it includes 100% of the fair value of the subsidiary.4. B. The subsidiarys shares are eliminated upon consolidation.5. C. 600,000 + 1,432,000 56,000 45,000 + 120,000 = 2,051,000.6. C. Undepreciated goodwill = 80,000 20,000 = 60,000.7. C. Net income using the equity method is the same as consolidated net income, except that it is reported on one line.8. B. Cost and equity methods are the two acceptable methods to record investment transactions.4.2 Consolidation of 100% owned subsidiaries at the date of acquisitionOn January 1, 20X6, Persistent Inc. purchased 100% of the outstanding ordinary shares of Reluctant Co. for 500,000. The Statements of Financial Position for both enterprises immediately after the transaction appear below. Reluctants book values equaled their fair values, except for the following: Persistent Inc. Reluctant Co.Book value Fair valueCash 15,000 20,000 20,000Accounts receivable 205,000 90,000 90,000Inventory 160,000 130,000 160,000Plant and equipment 700,000 560,000 540,000Land 80,000 90,000 120,000Investment in Reluctant Co. 500,000 Goodwill 25,000 1,660,000 915,000Accounts payable 250,000 170,000 170,000Long-term debt 640,000 440,000 450,000Ordinary shares 350,000 240,000Retained earnings 420,000 65,000 1,660,000 915,000Enquired Prepare consolidated financial statements for Persistent Inc. immediately after its acquisition of Reluctant Co., using the direct method.Calculation and allocation of purchase discrepancyCost of investment in Reluctant Co.: 500,000Notice that goodwill that existed on Reluctants books at the date of acquisition had a fair value of 0 at the date of acquisition. The amount provides evidence of a previous acquisition of another enterprise by Reluctant. From Persistents point of view, this intangible asset has no value and represents a decrease in Reluctants net asset value. This issue will be covered in more depth in the next topic.4.3 Consolidation less than 100% owned subsidiaries after the date of acquisition using working paper approachOn January 1, 20X5, Pascal Ltd. purchased 90% of Socrates Co. for 1,655,000 cash. At that time, Socrates had the following Statement of Financial Position.SOCRATES CO.Statement of Financial PositionAt January 1, 20X5Book value Fair valueCash 165,000 165,000Accounts receivable 285,000 270,000Inventory 300,000 345,000Plant and equipment Net 2,250,000 2,400,000 3,000,000Accounts payable 270,000 270,000Long-term debt 1,200,000 1,150,000Ordinary shares 600,000Retained earnings 930,000 3,000,000The long-term debt is payable in 10 years. The plant and equipment have an average remaining useful life of 10 years and are being depreciated on a straight-line basis. The annual goodwill impairment tests revealed a 2,000 loss in 20X5 and a 5,100 loss in 20X6. (These losses pertain to Pascals 90% ownership of Socrates. As such, the full amounts should be deducted from the consolidated earnings.) The following occurred in 20X5: Socrates earned 1,300,000 and paid dividends of 75,000.Pascal uses the equity method to record its investment in Socrates but must report on a consolidated basis. At December 31, 20X6, the following financial statements were available:Statements of Financial PositionAt December 31, 20X6Pascal SocratesCash 371,600 239,000Accounts receivable 252,500 517,500Inventory 1,455,000 562,500Plant and equipment Net 3,946,500 2,994,500Investment in subsidiary 2,876,400 8,902,000 4,313,500Accounts payable 675,000 73,500Long-term debt 1,200,000Future income taxes 160,000 75,000Ordinary shares 1,500,000 600,000Retained earnings 6,567,000 2,365,000 8,902,000 4,313,500Statements of Income and Retained EarningsFor the year ended December 31, 20X6Pascal SocratesSales 14,609,550 2,475,000Investment income 183,900 Other income 100,000Cost of sales 11,500,000 1,710,000Depreciation 159,000 156,000Other expenses 606,750 421,500Income tax expense 506,250 57,50012,772,000 2,345,000Net income 2,021,450 230,000Beginning balance, retained earnings 5,045,550 2,155,000Dividends (500,000) (20,000)Ending balance, retained earnings 6,567,000 2,365,000Assume that Pascal elects to value the non-controlling interest in Socrates at the NCIs percentile interest in the identifiable net assets of the subsidiary.Required1. Complete the calculation and allocation of purchase discrepancy and non-controlling interest.2. Complete the purchase discrepancy and adjustment schedule.3. Prepare eliminating entries for 20X6. Be sure to include appropriate commentary in support of each entry.Solution:1. Calculation and allocation of purchase discrepancy and non-controlling interestCost of 90% of Socrates at January 1, 20X5 1,655,000Fair value of identifiable net assets(1,760,000 90%) 1,584,000Balance Goodwill 71,000Purchase discrepancy allocated toAccounts receivable 15,000Inventory 45,000Plant and equipment 150,000Long term debt 50,000 230,000TOTAL 301,000Non-controlling interest: 1,760,000 10% = 176,0002. Purchase discrepancy adjustment schedule3. Eliminating entries#1 Investment income (230,000 90% 23,100) . 183,900Dividends S . 18,000Investment in subsidiary . 165,900To eliminate 20X6 equity basis investment income and the parents share of Socrates 20X6 dividends against the investment account#2 Ordinary shares . 600,000Retained earnings, January 1, 20X6 . 2,155,000Purchase discrepancy . 249,000Investment in subsidiary . 2,710,500Non-controlling interest . 293,500To eliminate start-of-the-year retained earnings and ordinary shares of Socrates against the start-of-the-year balance of the investment account and to establish the purchase discrepancy and non-controlling interest at the end of December 31, 20X5#3 Other expenses (interest) . 5,000Depreciation expense . 15,000Goodwill impairment loss . 5,100Plant and equipment . 120,000Goodwill . 63,900Long-term debt . 40,000Purchase discrepancy . 249,000To allocate the purchase discrepancy amount at the end of 20X5, to record depreciation of purchase discrepancies for 20X6, and to set up the undepreciated purchase discrepancy balances at the end of 20X6#4 Non-controlling interest I/S . 21,000Non-controlling interest SFP . 21,000To allocate the non-controlling interests share of 20X6 net income#5 Non-controlling interest SFP . 2,000Dividends I/S . 2,000To allocate non-controlling interests percentage of dividends paid by Socrates in 20X64.4 Consolidation less than 100% owned subsidiaries after the date of acquisition using direct method and working paper methodOn January 1, 20X2, Ping Inc. acquired 75% of Sing Co. for 1,500,000. Sings condensed balance sheet and fair values immediately before the acquisition were as follows:SING CO. Statement of Financial PositionAt December 31, 20X1Book value Fair valueCash and accounts receivable 540,000 540,000Inventory 250,000 270,000Plant and equipment (net) 1,435,000 1,575,000 2,225,000 2,385,000Current liabilities 785,000 785,000Ordinary shares 1,200,000Retained earnings 240,000 2,225,000 Sings inventory turns over 6 times in a year. Plant and equipment have an estimated useful life of 10 years. Pings annual goodwill impairment test revealed a 30,000 loss for 20X3. The impairment is attributed to economic decline. On December 31, 20X3, Ping owes Sing 18,000 related to an intercompany interest-free loan.The separate entity financial statements for the two companies at December 31, 20X3, are as follows:Income StatementsFor the year ended December 31, 20X3PING SINGSales 3,600,000 2,800,000Investment income 237,000 Total revenue 3,837,000 2,800,000Cost of goods sold 1,600,000 1,500,000Amortization expense 294,000 730,000Administration and other expenses 600,000 200,000Total expenses 2,494,000 2,430,000Net income 1,343,000 370,000Statements of Changes in EquityFor the year ended December 31, 20X3Balance, January 1 Retained earnings 2,504,000 1,546,000Net income 1,343,000 370,0003,847,000 1,916,000Dividends 400,000 200,000Balance, December 31 Retained earnings 3,447,000 1,716,000Statements