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advanced financial accounting

Questions and Answers of Advanced Financial Accounting

Downlink Corporation is 95 percent owned by Online Enterprises. On January 1, 20X1, Downlink Corporation issued \(\$ 200,000\) of five-year bonds at 115 . Annual interest of 12 percent is paid
Bundle Company issued \(\$ 500,000\) par value 10 -year bonds at 104 on January 1, 20X3, which were purchased by Mega Corporation. The coupon rate on the bonds is 11 percent. Interest payments are
Stang Corporation issued to Bradley Company \(\$ 400,000\) par value, 10 -year bonds with a coupon rate of 12 percent on January \(1,20 \mathrm{X} 5\), at 105 . The bonds pay interest semiannually on
Thomas Company owns 95 percent of the common stock of Bradley Financial Corporation, from which Thomas leases some of the assets it uses in its operations. On November 7, 20X8, Thomas entered into an
Porter Company purchased 60 percent ownership of Temple Corporation on January 1, 20X1, at underlying book value. On that date, Porter sold $80,000 par value 8 percent five-year bonds directly to
Mega Corporation purchased 90 percent of the voting common shares of Tarp Company on January 1, 20X2 at underlying book value. Mega also purchased \(\$ 100,000\) of 6 percent five-year bonds directly
On January 1, 20X1, Elm Corporation paid Morton Advertising \(\$ 122,000\) to acquire 70 percent of the stock of Vincent Company. Elm Corporation also paid \(\$ 45,000\) to acquire \(\$ 50,000\) par
Gross Corporation issued \(\$ 500,000\) par value, 10 -year, bonds at 104 on January 1, 20X1, which were purchased by Independent Corporation. On July 1, 20X5, Rupp Corporation purchased \(\$
Amazing Corporation purchased \(\$ 100,000\) par value bonds of its subsidiary, Broadway Company, on December 31, 20X5, from Lemon Corporation. The 10 -year bonds bear a 9 percent coupon rate and
Ballard Corporation purchased 70 percent of the voting shares of Condor Company on January 1, 20X4, at underlying book value. It also purchased \(\$ 100,000\) par value, 12 percent Condor Company
Andover Corporation acquired 65 percent of the ownership of Chad Company on January 1, 20X6, at underlying book value. Financial statements for the two companies at December 31, 20X8, are as
Bath Corporation purchased 80 percent of the stock of Stang Brewing Company on January 1, 20X1, at underlying book value. On that date, Stang Brewing Company issued \(\$ 300,000\) par value, 8
Bliss Perfume Company issued \(\$ 300,000\) of 10 percent bonds on January 1, 20X2, at 110. The bonds mature 10 years from issue and have semiannual interest payments on January 1 and July 1. Parsons
Presented below are selected amounts from the separate unconsolidated financial statements of Poe Corporation and its 90 percent owned subsidiary, Shaw Company, at December 31, 20X2.Additional
Mainstream Corporation holds 80 percent of the voting shares of Offenberg Company, acquired on January 1, 20X1, at underlying book value. On January 1, 20X4, Mainstream purchased Offenberg Company
Tyler Manufacturing purchased 60 percent of the ownership of Brown Corporation stock on January 1, 20X1, at underlying book value. Tyler also purchased \(\$ 50,000\) of Brown Corporation bonds at par
Bennett Corporation owns 60 percent of the stock of Stone Container Company, which it acquired at book value in 20X1. On December 31, 20X3, Bennett Corporation purchased \(\$ 100,000\) par value
Lance Corporation purchased 75 percent of the common stock of Avery Company at underlying book value on January 1, 20X3. Trial balances for Lance Corporation and Avery Company on December \(31,20
On January 1, 20X5, Pond Corporation purchased 75 percent of the stock of Skate Company at underlying book value. The balance sheets for Pond and Skate at January 1, 20X8, and December 31, 20X8, and
Blackwood Enterprises owns 80 percent of the voting stock of Grange Corporation. Blackwood purchased the shares on January \(1,20 \mathrm{X} 4\), for \(\$ 234,500\), at which time Grange reported
Berry Manufacturing Company purchased 90 percent of the outstanding common stock of Bussman Corporation on December 31, 20X5, for \(\$ 1,150,000\). On that date, Bussman reported common stock of \(\$
Johnson Company owns 75 percent of the voting shares of Hall Leasing Corporation. On January 1. 20X3, Hall Leasing Corporation purchased a fleet of small delivery trucks with an expected economic
On December 31, 20X4, Bennett Corporation recorded the following entry on its books to adjust its investment in Stone Container Company stock from the basic equity method to the fully adjusted equity
The trial balance data presented in Problem 8-28 can be converted to reflect use of the cost method by inserting the following amounts in place of those presented for Bennett Corporation:Stone
A parent company sells common shares of one of its subsidiaries to a nonaffiliate for more than their carrying value on the parent's books. How should the sale be reported by the parent company? How
A subsidiary sells additional shares of its common stock to a nonaffiliate at a price that is greater than the previous book value per share. How does the sale benefit the existing shareholders?
A parent company purchases additional common shares of one of its subsidiaries from a nonaffiliate at \(\$ 10\) per share above underlying book value. Explain how this purchase is reflected in the
How does the entity method differ from the treasury stock method in computing consolidated net income when there is reciprocal ownership between the parent and the subsidiary?
Parent Company holds 80 percent ownership of Subsidiary Company, and Subsidiary Company owns 90 percent of the stock of Tiny Corporation. What effect will \(\$ 100,000\) of unrealized intercompany
Snapper Corporation holds 70 percent ownership of Bit Company, and Bit Company holds 60 percent ownership of Slide Company. Should Slide Company be consolidated with Snapper Corporation? Why?
When there are multilevel affiliations, explain why it generally is best to prepare consolidated financial statements by completing the eliminating entries for companies furthest from parent company
Snow Corporation issued common stock with a par value of \(\$ 100,000\) and preferred stock with a par value of \(\$ 80,000\) on January 1, 20X5, when the company was created. Klammer Corporation
Hardcore Mining Company acquired 88 percent of the common stock of Mountain Trucking Company on January 1. 20X2, at a cost of \(\$ 30\) per share. On December 31, 20X7, when the book value of
Strong Manufacturing Company holds 94 percent ownership of Thorson Farm Products and 68 percent ownership of Kenwood Distributors. Thorson Farm Products has excess cash at the end of 20X4 and is
How do unrealized intercompany profits on a downstream sale of inventory made during the current period affect the computation of consolidated net income?
How do unrealized intercompany profits on an upstream sale of inventory made during the current period affect the computation of consolidated net income?
What is the basic eliminating entry needed when inventory is sold to an affiliate at a profit and is resold to an unaffiliated party before the end of the period, if perpetual inventory systems are
What is the basic eliminating entry needed when inventory is sold to an affiliate at a profit and is not resold before the end of the period, if perpetual inventory systems are used by both
How do unrealized intercompany inventory profits from a prior period affect the computation of consolidated net income when the inventory is resold in the current period? Is it important to know if
\(5^{\circ}\) Is an inventory sale from one subsidiary to another treated in the same manner as an upstream sale or a downstream sale? Why?
* Par Company regularly purchased inventory from Eagle Company. Recently, Par Company purchased a majority of the voting shares of Eagle Company. How should it treat inventory profits recorded by
A What are the basic eliminating entries needed when inventory is sold to an affiliate at a profit and is not resold before the end of the period if periodic inventory systems are used by both
A What is the basic eliminating entry needed when inventory is sold to an affiliate at a profit and is resold to an unaffiliated party before the end of the period if periodic inventory systems are
A What is the basic eliminating entry needed under a periodic inventory system when intercompany inventory profits that are unrealized at the beginning of the period are realized during the year?
Shortcut Charlie usually manages to develop some simple rule to handle even the most complex situations. In providing for the elimination of the effects of inventory transfers between the parent
Morrison Company owns 80 percent of the stock of Bloom Corporation. The companies frequently engage in intercompany inventory transactions.\section*{Required}Name the conditions that would make it
Rockness Corporation purchases much of its inventory from its 90 percent owned subsidiary, Mauch Company. Mauch prices its sales to Rockness to earn a 40 percent gross profit on the sales. During
Ready Building Products has six subsidiaries that sell building materials and supplies to the public and to the parent and other subsidiaries. Because of the invoicing system used by Ready Building
Water Company owns 80 percent of the outstanding common stock of Fire Company. On December 31, 20X9, Fire sold equipment to Water at a price in excess of Fire's carrying amount, but less than its
Select the correct answer for each of the following questions.1. Upper Company holds 60 percent of the voting shares of Lower Company. During the preparation of consolidated financial statements for
Huckster Corporation purchased land on January 1, 20X1, for \(\$ 20,000\). On June 10, 20X4, Huckster sold the land to its subsidiary, Lowly Corporation, for \(\$ 30,000\). Huckster Corporation owns
Sparkle Corporation holds 70 percent ownership of Playtime Enterprises. On December 31, 20X6, Playtime paid Sparkle \(\$ 40,000\) for a truck that had been purchased by Sparkle for \(\$ 45,000\) on
Sparkle Corporation holds 70 percent ownership of Playtime Enterprises. On December 31, 20X6, Playtime paid Sparkle \(\$ 40,000\) for a truck that had been purchased by Sparkle for \(\$ 45,000\) on
Frazer Corporation purchased 60 percent of the voting common stock of Minnow Corporation on January 1, 20X1, at underlying book value. On December 31, 20X5, Frazer received \(\$ 210,000\) from Minnow
Frazer Corporation purchased 60 percent of the voting common stock of Minnow Corporation on January 1, 20X1, at underlying book value. On January 1, 20X5, Frazer received \(\$ 245,000\) from Minnow
On January 1, 20X7, Wainwrite Corporation sold to Lance Corporation equipment it had purchased for \(\$ 150,000\) and used for eight years. Wainwrite recorded a gain of \(\$ 14,000\) on the sale. The
Baywatch Industries purchased 80 percent ownership of Tubberware Corporation on January 1, 20X0, at underlying book value. On January 1, 20X6, Baywatch paid \(\$ 270,000\) to Tubberware to acquire
Albion Corporation holds 90 percent ownership of Andrews Company. On July 1, 20X3, Albion Corporation sold equipment that it had purchased for \(\$ 30,000\) on January 1, 20 X1, to Andrews Company
Verry Corporation owns 75 percent of the voting common stock of Spawn Corporation. Verry Corporation reported income from its separate operations of \(\$ 90,000\) and \(\$ 110,000\) in \(20
Speedy Delivery Service purchased at book value 80 percent of the voting shares of Acme Real Estate Company. On January 1, 20X3, the date of purchase, Acme Real Estate reported common stock of \(\$
Turner Company purchased 70 percent of the stock of Split Company approximately 20 years ago. On December 31, 20X8, Turner purchased a building from Split for \(\$ 300,000\). Split purchased the
Parent Company holds 90 percent of the voting common shares of Sunway Company. On December 31, 20X8. Parent Company recorded a loss of \(\$ 16,000\) on the sale of equipment to Sunway Company. At the
Brown Corporation holds 70 percent of the voting common stock of Transom Company. On January 1, 20X2. Transom paid \(\$ 300,000\) to acquire a building with an expected economic life of 15 years.
Swanson Corporation purchased land from Clayton Corporation for \(\$ 240.000\) on December 20 . 20X3. This purchase followed a series of transactions between subsidiaries controlled by Swanson. On
Blank Corporation owns 60 percent of the voting common stock of Grand Corporation. On December 31, 20X4, Blank paid Grand \(\$ 276,000\) for dump trucks purchased by Grand on January \(1,20 \times
Stern Manufacturing purchased an ultrasound drilling machine with a remaining economic life of 10 years from a 70 percent owned subsidiary for \(\$ 360,000\) on January 1, 20X6. Both companies use
Pastel Corporation acquired controlling interest of Somber Corporation in 20X5 at underlying book value. In preparing a consolidated balance sheet workpaper at January 1, 20X9, the controller of
Norgaard Corporation is provided with management consulting services by its 75 percent owned subsidiary. Bline Inc. During 20X3, Bline billed Norgaard \(\$ 123,200\) for the services provided. For
Newtime Products purchased 65 percent of TV Sales Company's stock at underlying book value on January 1, 20X3. At that time, TV Sales reported shares outstanding of \(\$ 300,000\) and retained
United Grain Company is 90 percent owned by Petime Corporation. Petime Corporation paid \(\$ 9.000\) in excess of underlying book value to purchase the shares of United Grain Company and is
Lander Corporation purchased 75 percent of the voting common shares of Toll Corporation for \(\$ 350,000\) on January 1,20X4, when Toll reported common stock outstanding of \(\$ 150,000\) and
Forest Corporation purchased 70 percent of the voting common stock of Part Company on January \(1,20 \mathrm{X} 2\), for \(\$ 294,000\). At the time, Part Company reported common stock outstanding of
A total of 70 percent of Bugle Corporation and 80 percent of Cook Products Corporation stock is held by Smelts Company. Bugle Corporation purchased a warehouse with an expected life of 20 years on
In preparing its consolidated financial statements at December \(31,20 \times 7\), the following eliminating entry was included in the consolidation workpaper of Master Corporation:Master Corporation
Select the correct answer for each of the following questions.1. In the preparation of a consolidated income statement:a. Income assigned to noncontrolling shareholders always is computed as a pro
In its 20X7 consolidated income statement, Skekel Development Company reported consolidated net income of \(\$ 921,000\) and \(\$ 45,000\) of income assigned to the 30 percent noncontrolling interest
Great Company purchased 80 percent of the common stock of Meager Corporation on January 1, \(20 \mathrm{X} 4\), for \(\$ 280,000\). The corporate controller of Great Company has lost the
Lofton Company owns 60 percent of the voting shares of Temple Corporation, purchased on May 17. 20X1, at underlying book value. The permanent accounts of the companies on December 31, 20X6, contained
Mist Company purchased 65 percent of the voting common stock of Blank Corporation on June 20, 20X2, at underlying book value. The balance sheets and income statements for the companies at December
Prime Company holds 80 percent of the stock of Lane Company, acquired on January 1, 20X2, for \(\$ 160,000\). On the date of acquisition, Lane reported retained earnings of \(\$ 50,000\) and had \(\$
On January 1, 20X5, Pond Corporation purchased 80 percent of the stock of Skate Company by issuing common stock with a fair value of \(\$ 180,000\). At that date, Skate reported retained earnings of
Champion Corporation purchased 70 percent of the voting common stock of Morris Company for \(\$ 154,500\) on January 1, 20X3, when Morris reported common stock outstanding of \(\$ 100,000\) and
Prime Company holds 80 percent of the stock of Lane Company, acquired on January 1, 20X2, for \(\$ 160,000\). On the date of acquisition, Lane reported retained earnings of \(\$ 50,000\) and \(\$
Partial trial balance data for Phantom Corporation and Shadow Company at December 31, 20X7. are as follows:1. Phantom Corporation purchased 60 percent ownership of Shadow Company on January \(1,20
Kendel Manufacturing Corporation purchased 60 percent of the outstanding stock of Trendy Products Corporation on January 1, 20X2. Trendy reported retained earnings of \(\$ 120,000\) at the date of
Block Corporation was created on January 1, 20X0, to develop computer software. On January 1, 20X5, Foster Company purchased 90 percent of the common stock of Block Corporation at underlying book
Rossman Corporation holds 75 percent of the common stock of Schmid Distributors Inc. The stock originally was purchased on December \(31,20 \mathrm{X} 1\), for \(\$ 2,340,000\). At the date of
On December 31, 20X7, Prime Company recorded the following entry on its books to adjust its investment in Lane Company from the basic equity method to the fully adjusted equity
The trial balance data presented in Problem 6-35 can be converted to reflect use of the cost method by inserting the following amounts in place of those presented for Prime
When are profits on intercorporate sales considered to be realized?
How are unrealized profits on current-period intercorporate sales treated in preparing the income statement for \((a)\) the selling company and \((b)\) the consolidated entity?
How are unrealized profits treated in the consolidated income statement if the intercorporate sale occurred in a prior period and the transferred item is sold to a nonaffiliate in the current period?
How are unrealized intercorporate profits treated in the consolidated statements if the intercorporate sale occurred in a prior period and the profits have not been realized by the end of the current
What portion of the unrealized intercorporate profit is eliminated in a downstream sale? In an upstream sale?
How is the effect of unrealized intercorporate profits on consolidated net income different between an upstream and a downstream sale?
A subsidiary sold a depreciable asset to the parent company at a profit in the current period. Will the income assigned to the noncontrolling interest in the consolidated income statement for the
A subsidiary sold a depreciable asset to the parent company at a profit of \(\$ 1,000\) in the current period. Will the income assigned to the noncontrolling interest in the consolidated income
A A parent company may use on its books one of several different methods of accounting for its ownership of a subsidiary: (a) cost method, (b) basic equity method, or (c) fully adjusted equity
The consolidation process is intended to adjust the reported amounts of items transferred between related companies back to their original acquisition costs. Such procedures are appropriate so long
The elimination process used in consolidation is intended to remove all unrealized intercorporate profits from the various asset categories.\section*{Required}a. How might companies determine if

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