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modern advanced accounting

Questions and Answers of Modern Advanced Accounting

7. P owns 80 percent of S1, and S1 owns 70 percent of S2. Separate incomes of P, S1, and S2 are $20,000,$10,000, and $5,000, respectively, for 2016. During 2016, S1 sold land to P at a gain of
6. In using the schedule approach for allocating income of subsidiaries to controlling and noncontrolling stockholders in an indirect holding affiliation structure, why is it necessary to begin with
5. Pat Corporation owns 80 percent of the stock of Sam Corporation, and Sam owns 70 percent of the stock of Stan Corporation. Separate earnings of Pat, Sam, and Stan are $200,000, $160,000, and
4. Parent Company owns 70 percent of the voting stock of Subsidiary A, and Subsidiary A owns 70 percent of the stock of Subsidiary B. Is the inside ownership of Subsidiary B more than 50 percent?
3. Distinguish between indirect holding affiliation structures and mutual holding affiliation structures.
2. What are the types of indirect holding ownership structures? Explain with examples.
1. Differentiate between direct and indirect holdings. Are there any differences between the accounting methods used for these two?
Company S is an 80%-owned subsidiary of Company P. Company S needed to borrow$500,000 on January 1, 20X1. The best interest rate it could secure was 10% annual. Company P has a better credit rating
Company S is a 70%-owned subsidiary of Company P. Company S is building a ship to be used by Company P. The ship was 40% completed in 20X1 and 100% completed in 20X2.The actual and budgeted profit on
On January 1, 20X1, Company P sold a machine to its 70%-owned subsidiary, Company S, for $60,000. The book value of the machine was $40,000. The machine was depreciated straight-line, over 5 years.
Subsidiary Company S is 80% owned by Company P. Company S sold a machine with a book value of $100,000 to Company P for $150,000. The asset has a 5-year life and is depreciated under the
Company S is 80% owned by Company P. Near the end of 20X1, Company S sold merchandise with a cost of $4,000 to Company P for $6,000. Company P sold the merchandise to a nonaffiliated firm in 20X2 for
During 20X1, Company P sold $40,000 of goods to subsidiary Company S at a profit of$10,000. One-fourth of the goods remain unsold at year-end. What specific procedures are needed on the consolidated
During 20X1, Company P sold $40,000 of goods to subsidiary Company S at a profit of$10,000. One-fourth of the goods remain unsold at year-end. If there were no adjustments made on the consolidated
(Appendix) Apply intercompany profit eliminations on a vertical worksheet.AppendixLO1
Discuss the complications intercompany profits create for the use of the sophisticated equity method.AppendixLO1
Eliminate intercompany loans and notes.AppendixLO1
Demonstrate an understanding of the profit deferral issues for intercompany sales of assets under long-term construction contracts.AppendixLO1
Defer profits on intercompany sales of long-term assets and realize the profits over the period of use and/or at the time of sale to a firm outside the consolidated group.AppendixLO1
Defer intercompany profits on merchandise sales when appropriate and eliminate the double counting of sales between affiliates.AppendixLO1
Explain why transactions between members of a consolidated firm should not be reflected in the consolidated financial statements.AppendixLO1
PR 4-2 Firms adopting the direct method to prepare the statement of cash flows often include a reconciliation of net income to net cash flows from operating activities.Is this required, and, if so,
PR 4-1 In preparing a consolidated statement of cash flows, is a firm required to disclose cash flow per share?
P4-20(Appendix B) Consolidated financial statements (cost method)Pop Company paid $88,000 for an 80% interest in Son Company on January 5, 2016, when Son’s capital stock was $60,000 and its
P4-19 Prepare consolidated statement of cash flows using either the direct or indirect method Comparative consolidated financial statements for Pam Corporation and its 80 percent–owned subsidiary
P4-18[Based on AICPA] Prepare consolidated statement of cash flows The consolidated workpaper balances of Pop, Inc., and its subsidiary, Son Corporation, as of December 31 are as follows (in
P4-17 Prepare consolidated statement of cash flows using the direct method or indirect method Comparative consolidated financial statements for Pam Corporation and its 90 percent–owned subsidiary,
P4-16 Prepare cash flows from operating activities section (direct method)The accountant for Pop Corporation collected the following information that he thought might be useful in the preparation of
P4-15[Appendix A] Trial balance workpapers and financial statements in year of acquisition Pam Corporation owns 90 percent of the voting stock of Sun Corporation and 25 percent of the voting stock of
P4-14[Appendix A] Investment account analysis and trial balance workpapers Pop Company paid $198,000 for a 90 percent interest in Son on January 5, 2016, when Son’s capital stock was $120,000 and
P4-13[Appendix A] Workpapers for two successive years (equity method misapplied in second year)Comparative adjusted trial balances for Pam Corporation and Sun Corporation are given here. Pam
4. Financial statements for Pop and Son Corporations for 2017 follow (in thousands):Pop Son Statements of Income and Retained Earnings for the Year Ended December 31 Sales $ 900 $300 Income from Son
3. A $10,000 dividend was declared by Son on December 30, 2017, but was not recorded by Pop.
2. Son mailed its check for $20,000 to Pop on December 30, 2017, in settlement of the advance.
1. Pop’s account receivable includes $5,000 owed by Son.
P4-12 Workpapers (two years after acquisition, fair value/book differentials, adjustments)Pop Corporation acquired an 80 percent interest in Son Corporation for $240,000 on January 1, 2016, when
3. Half of Sun’s 2020 dividends will be paid in January 2021.REQuIRED: Prepare workpapers to consolidate the balance sheets only of Pam and Sun Corporations at December 31, 2020.
2. Pam advanced $25,000 to Sun during 2018. This advance is still outstanding.
1. The accounts payable of Sun at December 31, 2020, include $5,000 owed to Pam.
P4-11 Balance sheet (four years after acquisition, fair value/book value differentials)Pam Corporation paid $170,000 for an 80 percent interest in Sun Corporation on December 31, 2016, when Sun’s
P4-10 Workpapers (year of acquisition, fair value/book value differentials, intercompany balances)Pop Corporation acquired 80 percent of Son Corporation’s common stock on January 1, 2016,
P4-9 Workpapers (year of acquisition, excess recorded for inventory, equipment and patents, intercompany transactions)Pam Corporation acquired 80 percent of Sun Corporation’s common stock on
3. Son Company owes Pop $5,000 on account, and Pop owes Son $5,000 on a note payable.R E Q u I R E D :Prepare consolidation workpapers for Pop Corporation and Subsidiary for the year ended December
2. Son Company’s land was undervalued when Pop acquired its interest, and accordingly, $20,000 of the fair value/book value differential was assigned to land. Any remaining differential is goodwill.
1. Pop Corporation acquired 13,500 shares of Son Company stock for $15 per share on January 1, 2016, when Son’s stockholders’ equity consisted of $150,000 capital stock and $15,000 retained
P4-8 Workpapers (excess due to undervalued land and goodwill)Separate-company financial statements for Pop Corporation and its subsidiary, Son Company, at and for the year ended December 31, 2017,
P4-7 Workpapers (year of acquisition, excess recorded for inventory, building equipment, and goodwill, intercompany balances)Pam Corporation acquired a 70 percent interest in Sun Corporation’s
P4-6 Workpapers (determine ownership interest, year after acquisition, excess assigned to land and patents)Separate company financial statements for Pop Corporation and its subsidiary, Son Company,
P4-5 Excess identifiable to net assets Nick NV acquired a 90 percent interest in Kim NV on January 1, 2014, by paying $9,000,000 cash. At the time, Kim NV’s net assets were $9,000,000. It was also
P4-4 Consolidation workpapers from separate financial statements Pop Corporation acquired a 75 percent interest in Son Corporation on January 1, 2016, for $720,000 in cash. Financial statements of
P4-3 Workpapers in year of acquisition (goodwill and intercompany transactions)Pam Corporation acquired a 75 percent interest in Sun Corporation on January 1, 2016. Financial statements of Pam and
P4-2 Workpaper in year of acquisition Liam AB acquired an 80 percent ownership in Theo AB on January 1, 2014, for $10mn, when Theo AB’s stockholders’ equity consisted of $2,000,000 capital stock
P4-1 Calculations five years after acquisition Pam Corporation purchased 75 percent of the outstanding voting stock of Sun Corporation for $4,800,000 on January 1, 2016. Sun’s stockholders’
5. Compute consolidated net income for Pop Corporation and subsidiary for 2019.p R O B L E M S
4. Determine the balance of Pop’s Investment in Son account at December 31, 2019, under the equity method.
3. Prepare the journal entries, other than closing entries, on Pop’s books to account for its investment in Son for 2019 under the equity method.
2. Determine the balance of Pop’s Investment in Son account at December 31, 2019, under the cost method.
E 4-8(APPENDIX B) Journal entries and computations (cost and equity methods)Son Corporation’s outstanding capital stock (and paid in capital) has been $200,000 since the company was organized in
E 4-7 Prepare cash flows from operating activities section Information regarding the cash flow activities of Pierre Corporation is given below (in thousands):Cash paid to suppliers $225 Cash paid to
E 4-6 Prepare cash flow from operating activities section]Information regarding the cash flow activities of Mahdi Corporation is given below:Consolidated net income $500,000 Depreciation on buildings
4. In computing cash flows from operating activities under the direct method, the following item is an addition:a Sales b Noncontrolling interest share c Cash received from customers d Depreciation
3. In computing cash flows from operating activities under the indirect method, the following item is an addition to the controlling share of consolidated net income:a Noncontrolling interest
2. In computing cash flows from operating activities under the direct method, the following item is an addition:a Cash dividends from equity investees b Collection of principal on a loan made to a
E 4-5 General questions on statement of cash flows 1. In preparing a statement of cash flows, the cost of acquiring a subsidiary is reported:a As an operating activity under the direct method b As an
4. Calculate noncontrolling interest balance at December 31, 2014.
3. Calculate the balance of the Investment in Sanun Ltd. account at December 31, 2014.
2. Calculate income from Sanun Ltd. for 2014.
1. Calculate the goodwill that should be reported in the consolidated balance sheet.
E 4-4 Excess assigned to identifiable net assets Palat Ltd. paid $3,600,000 cash to acquire 90 percent of Sanun Ltd.’s voting stock on January 1, 2014. Sanun’s total stockholders’ equity at the
E 4-3 Consolidation with dividends Anele PLC became a 75 percent-owned subsidiary of Folake PLC in January 2014. In April and September 2014, Anele PLC declared dividends of $200,000 each. However,
2. Determine the amount of Patent that should appear in the consolidated balance sheet at December 31, 2017.
1. Determine the amount of goodwill.
E 4-2 Consolidation under the equity method Nur PJSC purchased 80 percent outstanding common stock of Salim PJSC for $800,000 cash on January 1, 2014.The total net assets of Salim PJSC at the time of
10. Under the trial balance approach to consolidation workpapers, which of the following is used?a Unadjusted trial balances b Adjusted trial balances c Postclosing trial balances d Either a orb,
9. On consolidation workpapers, consolidated ending retained earnings is determined by:a Adding beginning consolidated retained earnings and the controlling share of consolidated net income and
8. On consolidation workpapers, the investment in subsidiary account balances are:a Always eliminated b Carried forward to the consolidated balance sheet c Eliminated when the financial statement
7. On consolidation workpapers, the controlling share of consolidated net income is determined by:a Subtracting noncontrolling interest share from parent’s net income b Adding net income of the
6. On consolidation workpapers, individual stockholders’ equity accounts of a subsidiary are:a Eliminated b Eliminated only to the extent of noncontrolling interest c Added to parent
5. Net profit on consolidation workpapers is:a Adjusted under all circumstances b Adjusted when the parent uses the cost method c Adjusted when the parent uses the equity method d Not an account
4. Most mistakes made in consolidating financial statements appear when:a Consolidated net income does not equal parent net income b The consolidated balance sheet does not balance c The total of the
3. The portion of a subsidiary’s share that is not owned by the parent is called:a Noncontrolling interest b Noncontrolling interest share c Income from subsidiary d Controlling interest share
2. The portion of a subsidiary’s net income that is not given to the parent is called:a Noncontrolling interest b Noncontrolling interest share c Income from subsidiary d Controlling interest share
1. Under the equity method, the change in the investment account over a period is equal to:a The difference between income from a subsidiary recognized on the parent’s book and dividends received
13. How is reciprocity established between a parent company’s investment account and the equity accounts of its subsidiary when the cost method is used?
12. Can the method used by a parent company in accounting for its subsidiary investments be determined by examining the separate financial statements of the parent and subsidiary companies?
11. Controlling share of consolidated net income is a measurement of income to the stockholders of the parent, but does a change in cash as reflected in a statement of cash flows also relate to other
10. Explain why noncontrolling interest share is added to the controlling share of consolidated net income in determining cash flows from operating activities.
9. When preparing a consolidated cash flow statement, should we use the consolidated balance sheet and the income statement or the separate parent and subsidiary statements? Explain.
8. When is it necessary to adjust the parent’s retained earnings account in the preparation of consolidation workpapers? In answering this question, explain the relationship between parent-retained
7. In what way do the adjustment and elimination entries for consolidation workpapers differ for the financial statement and trial balance approaches?
6. The financial statement and trial balance workpaper approaches illustrated in the chapter generate comparable information, so why learn both approaches?
5. What represents the change in an investment account for a particular period?
4. If a parent uses the equity method but does not amortize the difference between fair value and book value on its separate books, its net income and retained earnings will not equal its share of
3. How are the workpaper procedures for the investment in subsidiary, income from subsidiary, and subsidiary’s stockholders’ equity accounts alike?
2. What is the sequence of workpaper adjustments and eliminations while preparing a consolidated financial statement?
1. What is a fiduciary? How does it relate to estate and trust accounting?
P23-8 Creation of a trust You have been hired as trustee for the testamentary trust created by the will of Tom Josephson. The trust is created on June 30, 2015. (Use the information provided in P
P23-7 Charge and discharge statement for an estate Use the information in P 23-6 to prepare a charge–discharge statement for the estate of Tom Josephson for the period May 16, 2015 through June 30,
P23-6 Estate accounting Tom Josephson dies on May 16, 2015, leaving a valid will. The will reads as follows:I leave my automobile to my niece, Pat. I leave my stock investment accounts to my niece,
P23-5 Creation of a trust You have been hired as trustee for the testamentary trust created by the will of George Wilson. The trust is created on April 30, 2015. (Use the information provided in P

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