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modern advanced accounting

Questions and Answers of Modern Advanced Accounting

3. Under the goodwill approach, what is the amount of goodwill that should be recognized by the partnership?
2. Calculate the capital balances for Michelle and Devina using the goodwill approach.
E 16-1 Initial investments Michelle and Devina are forming a partnership. Both of them agree to have equal capital interest. Below are the initial investments for the partnership:550 CHAPTER 16
15. Bob invests $10,000 cash for a 25 percent interest in the capital and earnings of the BOP Partnership.Explain how this investment could give rise to (a) recording goodwill, (b) the write-down of
14. The goodwill procedure was used to record the investment of a new partner in the XYZ Partnership, but immediately thereafter, the entire business was sold for an amount equal to the recorded
13. Explain the bonus procedure for recording an investment in a partnership. When is the bonus applicable to old partners, and when is it applicable to new partners?
12. Why is the goodwill procedure best described as a revaluation procedure?
11. What alternative approaches can be used in recording the admission of a new partner?
10. How does the purchase of an interest from existing partners differ from the acquisition of an interest by investment in a partnership?
9. If a partner sells his or her partnership interest directly to a third party, the partnership may or may not be dissolved. Under what conditions is the partnership dissolved?
8. The concept of partnership dissociation has a technical meaning under the provisions of UPA. Explain the concept.
7. Explain how a partner could have a loss from partnership operations for a period even though the partnership had net income.
6. When a profit-sharing agreement specifies that profits should be divided using the ratio of capital balances, how should capital balances be computed?
5. Are partner salary allowances expenses of the partnership?
4. Why do some profit-sharing agreements provide for salary and interest allowances?
3. How would partners appraise an initial noncash investment value?
2. What should be included in the articles of a partnership?
1. What are the characteristics of a partnership?
PR 10-2 What are the required disclosures related to EPS calculations when preparing consolidated financial statements?
PR 10-1 Your CEO called you into his office to discuss an article he had read over the weekend.The article stated that the FASB had changed accounting for deferred taxes such that all deferred tax
P 10-16[Tax] Computations (separate tax returns with goodwill, downstream inventory sales, and upstream land sale)On January 3, 2016, Pam Corporation purchased a 90% interest in Sun Corporation at a
P 10-15[Tax] Consolidated income statement (separate returns and intercompany equipment)The pretax operating incomes of Pop Corporation and Son Corporation, its 70 percent–owned subsidiary, for
P 10-14[Tax] Allocate fair value/book value differentials in a taxable purchase combination Pop Corporation acquired all the stock of Son Corporation on January 1, 2016, for $280,000 cash, when the
P 10-13[Tax] Reconstruct workpaper (separate and consolidated income statements)Pam Corporation acquired a 90 percent interest in Sun Corporation in a taxable transaction on January 1, 2016, for
P 10-12[Tax] Consolidated income statement (downstream sales)Taxable incomes for Pop Corporation and Son Corporation, its 70 percent–owned subsidiary, for 2016 are as follows (in thousands):Pop Son
P 10-11[Tax] Computations and income statement (upstream sales)Pam Corporation paid $1,155,000 cash for a 70 percent interest in Sun Corporation’s outstanding common stock on January 2, 2016, when
P 10-10[Tax] Comparative income statements (consolidated and separate tax returns)Pop Corporation and its 100 percent–owned subsidiary, Son Corporation, are members of an affiliated group with
4. Pam owned 40,000 shares of Sun common stock throughout 2016.REQuIRED: Compute Pam Corporation’s (and consolidated) basic and diluted EPS.
3. Sun’s reported net income for 2016 is $300,000, allocated $100,000 to preferred stockholders and $200,000 to common stockholders.
2. Sun has warrants outstanding that permit their holders to purchase 10,000 shares of Sun Corporation common stock at $15 per share (average market price $20).
P 10-9[EPS] Computations (subsidiary preferred stock and warrants)Pam Corporation’s net income for 2016 consists of the following:Separate income $320,000 Income from Sun Corporation:80% of Sun’s
P 10-8[EPS] Compute consolidated EPS; subsidiary diluted Pop Company owns 40,000 of 50,000 outstanding shares of Son Company, and during 2016, it recognizes income from Son as follows:Share of Son
2. Compute consolidated basic and diluted earnings per share, assuming that the preferred stock is convertible into 5,000 shares of Pam’s common stock.
P 10-7[EPS] Convertible preferred stock and amortization of excess Pam Corporation owns 80 percent of Sun Corporation’s outstanding common stock. The 80 percent interest was acquired in 2016 at
P 10-6[EPS] Compute basic and diluted EPS (options; preferred stock)Pop Corporation owns an 80 percent interest in Son Corporation. Throughout 2016, Pop had 20,000 shares of common stock outstanding.
P 10-5[EPS] Computing EPS with convertible debentures Pam Corporation has $108,000 income from its own operations for 2016, and $42,000 income from Sun Corporation, its 70 percent–owned subsidiary.
Son declared and paid dividends of $10,000 on its cumulative preferred stock and $10,000 on its common stock in each of the years 2015 and 2016.Financial statements for Pop and Son Corporations at
P 10-4[Preferred stock] Consolidation workpaper (subsidiary preferred stock, downstream inventory sales, upstream sale of land, subsidiary bonds)Pop Corporation acquired an 80 percent interest in Son
P 10-3[Preferred stock] Consolidation workpaper (subsidiary preferred stock, goodwill, midyear purchase, and upstream sales)Agung Corporation acquires 60,000 shares of outstanding voting common stock
P 10-2[Preferred stock] Consolidation entries—investments in preferred and common stock—midyear purchases Pierre SA acquired 90 percent of Sousse SA’s voting common stock for $585,000 on
P 10-1[Preferred stock] Investment in common stock (subsidiary preferred stock)Polka Inc. acquired 80 percent of voting common stock in Dota Inc. for $380,000 in January 1, 2014.Polka made a mistake
E 10-19[Tax] Valuation allowance Krab Corporation recognizes a deferred tax asset (benefit) of $175,000 related to its acquisition of Khun Corporation.Krab has determined that the tax position
E 10-18[Tax] Valuation Allowance Pam Corporation recognizes a deferred tax asset (benefit) of $1,000,000 related to its acquisition of Sun Company. Pam has determined that the tax position qualifies
E 10-17[Tax] Journal entries for unrealized profit from upstream sale and separate tax returns Son Corporation, an 80 percent–owned subsidiary of Pop Corporation, sold equipment with a book value
E 10-16[Tax] Journal entries for unrealized profit with separate and consolidated tax returns Sun Corporation is a 100 percent–owned subsidiary of Pam Corporation. During the current year, Pam sold
E 10-15 Tax expense—separate tax returns Perro Ltd owns 90 percent of Sinn Ltd, which purchased equipment at $50,000 from Perro when its book value was$40,000. The equipment depreciated on a
3. What will be the income taxes currently payable if separate income tax returns are filed? If a consolidated return is filed?
2. Compute the consolidated income tax expense if a consolidated tax return is filed.
The only intercompany transaction during 2016 was a gain on land sold to Sun. Assume a 34 percent flat income tax rate. The land remains unsold at year-end.REQuIRED 1. What amount should be shown on
The pretax accounting incomes of Pam Corporation and its 100 percent–owned subsidiary, Sun Company, for 2016 are as follows (in thousands):Pam Sun Sales $4,000 $2,000 Gain on land 800 —Total
5. Pop Corporation and its 100 percent–owned domestic subsidiary, Son Corporation, are classified as an affiliated group for tax purposes. During the current year, Son pays $160,000 in cash
4. Pop Corporation owns 35 percent of the voting stock of Son Corporation, a domestic corporation. During 2016, Son reports net income of $200,000 and pays dividends of $100,000. Pop’s effective
3. During 2016, Pop Corporation reported $120,000 investment income from Son Corporation, its 30 percent–owned investee, and it received $60,000 dividends from Son. Pop’s effective income tax
2. Pop Corporation, whose effective income tax rate is 34 percent, received $400,000 dividends from its 30 percent–owned domestic equity investee during the current year and recorded $1,000,000
E 10-13[Tax] Asset allocation in business combination, tax effect from equity investees 1. When Pop Corporation acquired its 100 percent interest in Son Corporation in a tax-free reorganization,
E 10-12[Tax] General questions 1. Income taxes are currently due on intercompany profits when:a Profits originate from upstream sales b Separate-company tax returns are filed c Consolidated tax
E 10-11[EPS] Subsidiary EPS and consolidated EPS with goodwill and warrants Pow Corporation owns an 80 percent interest in Soy Corporation. Pow does not have common stock equivalents or other
E 10-10[EPS] Consolidated EPS with unrealized profit from upstream and downstream sale Information about Magulang Corporation and its 90 percent-owned subsidiary, Sangay Corporation, at December 31,
E 10-9[EPS] Consolidated basic and diluted EPS The following information is available regarding Pam Corporation and its 80 percent–owned subsidiary, Sun Corporation, at and for the year ended
E 10-8[EPS] Consolidated EPS with goodwill, noncontrolling interest, and warrants Information regarding Pang Corporation and its 90 percent-owned subsidiary, Wong Corporation, is summarized
3. In computing a parent company’s diluted EPS, it may be necessary to subtract the parent’s equity in subsidiary realized income and replace it with the parent’s equity in subsidiary diluted
2. A parent company has a 90 percent interest in a subsidiary that has no potentially dilutive securities outstanding.In computing consolidated EPS:a Subsidiary common shares are added to parent
E 10-7[EPS] General questions 1. A parent company and its 100 percent–owned subsidiary have only common stock outstanding (10,000 shares for the parent and 3,000 shares for the subsidiary), and
E 10-6[Preferred stock] Journal entries, fair value/book value differentials Minang Corporation’s stockholder equity at December 31, 2016, is as follows (in thousands):15% preferred stock, $100
E 10-5[Preferred stock] Parent owns both common and preferred stock of subsidiary The stockholder’s equity of Dhocerneye Corporation on December 31, 2016, was as follows (in thousands):10%
3. Calculate the underlying book value of Pam’s investment in Sun on December 31, 2017.
2. Calculate Pam’s net income and noncontrolling interest share for 2017.
E 10-4[Preferred stock] Investment cost and net income—subsidiary preferred stock Pam Corporation owns 80 percent of Sun Corporation’s common stock, having acquired the interest at a fair value
3. Calculate the total amount of noncontrolling interest share.E 10-3 Preferred stock held by parent with dividend arrearage On January 1, 2014, Pop AG purchased 750 shares of outstanding preferred
2. Calculate the total amount of stockholders’ equity at the time of the purchase.
Permata Tbk and its affiliate Berlian Tbk recorded goodwill of $75,000 at its consolidated financial statement year ended December 31, 2013. Permata Tbk acquired an 80 percent interest in Berlian Tbk
4. [Tax] Pop Corporation and Son Corporation filed consolidated tax returns. In January 2016, Pop sold land, with a basis of $120,000 and a fair value of $150,000, to Son for $200,000. Son sold the
3. [Tax] In 2016, Pop Corporation received $600,000 in dividends from Son Corporation, its 80 percent–owned subsidiary.What net amount of dividend income should Pop include in its 2016 consolidated
2. [Tax] Pop Corporation uses the equity method to account for its 25% investment in Son Corporation. During 2016, Pop received dividends of $60,000 from Son and recorded $360,000 as its equity in
1. [Preferred stock] During 2017, Pop Corporation owns 20 percent of Son Corporation’s preferred stock and 80 percent of its common stock. Son’s stock outstanding on December 31, 2017, is as
17. When do unrealized and constructive gains and losses create temporary differences for a consolidated entity?E x E R c I S E S E 10-1[Based on AICPA] Preferred stock and income tax
16. Does a parent/investor provide for income taxes on the undistributed earnings of a subsidiary by adjusting investment and investment income accounts? Explain.
15. Describe the nature of the tax effect of temporary differences that arise from use of the equity method of accounting.368 CHAPTER 10
14. Some or all of the dividends received by a corporation from domestic affiliates may be excluded from federal income taxation. When are all of the dividends excluded?
13. What are the primary advantages of filing a consolidated tax return?
12. Can a consolidated entity that is classified as an “affiliated group” under the IRS code elect to file separate tax returns for each affiliate?
11. Are consolidated income tax returns required for all consolidated entities? Discuss.
10. In computing diluted earnings for a parent, it may be necessary to replace the parent’s equity in subsidiary’s realized income with the parent’s equity in the subsidiary’s diluted
9. Potentially dilutive securities of a subsidiary may be converted into parent common stock or subsidiary common stock. Describe how these situations affect the parent’s EPS procedures.
8. It may be necessary to compute the earnings per share for subsidiaries and equity investees before parent(and consolidated) earnings per share can be determined. When are the subsidiary EPS
7. Under what conditions will the procedures used in computing a parent’s EPS be the same as those for a company without equity investments?
6. Do investments in nonconsolidated subsidiaries and 20 to 50 percent–owned investees affect the nature of the investor’s EPS calculations?
5. How does controlling share of consolidated earnings per share differ from parent earnings per share?
4. Describe the computation of noncontrolling interest share for an 80 percent–owned subsidiary with both preferred and common stock outstanding.
3. When a parent acquires only the common stock of a subsidiary that held outstanding preferred stock, how would the common and preferred components of the noncontrolling interest be separated?
2. How is the effect of outstanding preferred stock in the consolidation process generally treated?
1. What are the complications for the consolidation process associated with outstanding preferred stock that is held by a subsidiary?
PR 15-2 When preparing interim reports, does an entity need to use the same method to value inventory that they use at the annual report date? What options are accepted?
PR 15-1 Does an entity need to disclose segment level information about depreciation and amortization (D&A) if the chief decision maker does not consider D&A in their assessment of the segments?
P 15-8 Interim reporting—tax Tor Corporation is subject to income tax rates of 20 percent on its first $50,000 pretax income and 34 percent on amounts in excess of $50,000. Quarterly pretax
2. Prepare a schedule to show how Cob’s segment information would be disclosed under the provisions of FASB ASC Topic 280.
P 15-7 Apply threshold tests—Disclosure The information that follows is for Cob Company at and for the year ended December 31, 2016. Cob’s operating segments are cost centers currently used for
P 15-6 Apply threshold tests—Disclosure The consolidated income statement of Tut Company for 2016 is as follows (in thousands):TUT CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2016
P 15-5 Apply threshold tests—Disclosure Selected information, which is reported to the chief operating officer, for the five segments of Rad Company for the year ended December 31, 2016, is as
P 15-4 Apply threshold tests—Segment and enterprise-wide disclosure Mer Corporation has five major operating segments and operates in both domestic and foreign markets.Mer is organized internally

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