1.On January 2, 2014, U. S. Grant Corp. purchased 24,000 shares (40%) of the common stock of R. E. Lee & Company. The purchase price was $480,000. Grant has significant influence over Lee. No amortization is required. During 2014, Lee reported income of $120,000 and paid dividends of $48,000. On January 2, 2015 Grant sold 3,000 shares for $75,000.

Required:

a. Compute the balance in Equity Investment at December 31, 2014.

b. Prepare the journal entry to record the sale of the 3,000 shares.

c. What was the balance in Equity Investment after the shares were sold?

2. On January 1, 2015, Parent Company purchased all of the common stock of Subsidiary Company for $350,000 cash. On that date, Subsidiary had common stock of $20,000, additional paid-in capital of $80,000, and retained earnings of $150,000. The difference between the cost of the purchase and the book value of Subsidiary?s net assets was at least partly due to under or overvalued assets and liabilities. Inventory was undervalued by $5,000. Land was undervalued by $20,000. Buildings and Equipment were undervalued by $30,000. Bonds Payable was overvalued by $5,000. Any unexplained difference is due to Goodwill.

Required: Prepare all necessary entries for a January 1, 2015, consolidated balance sheet.

3. Assume that one of your clients asks for your assistance in allocating the $3,000,000 cost of a 100% acquisition of a competitor firm. You estimate the fair value of the net assets on the investee's balance sheet at $1,800,000. However, there is, in addition, an unrecorded trade name valued at $300,000. The trade name has an indefinite useful life.

Required:

a. What amount of goodwill will be recorded?

b. What will be the effect of the goodwill and trade name on the annual income statement?

c. Now assume that the agreement between the investor and investee calls for an additional payment of $600,000 contingent upon the investee reaching a certain level of income within three years. You estimate the fair value of the potential payment at $300,000. What effect, if any, does the potential payment have on the amount of goodwill recognized?

4.Parent Co. acquired 100% of Sub, Inc. on January 1, 2013. During 2013, Parent sold goods to Sub for $480,000 that cost Parent $360,000. Sub still owned 40% of the goods at the end of the year. Cost of goods sold was $2,160,000 for Parent and $1,280,000 for Sub.

Required:

a. Prepare all consolidation entries related to inventory and cost of goods sold for 2013.

b. Compute consolidated cost of goods sold for 2013.

c. Assuming that the remainder of the inventory was sold to third parties during 2014, prepare the 2014 consolidation entry to recognize the previously deferred profit.

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ADVANCED ACCOUNTING #1 Assume that, on January 1, 2011, a parent company acquired a 70% interest in its subsidiary for a purchase price that was $250,000 over the book value of the subsidiary's Stockholders' Equity on the acquisition date. The parent allocated the excess to the following [A] asset: [A] Asset PPE Initial Fair Value 250,000 Useful Life (years) 20 Assume that the parent sells inventory to the subsidiary (downstream) which includes that inventory in products that it, ultimately, sells to customers outside of the controlled group. You have compiled the following data as of 2013 and 2014: Transfer price for inventory sale Cost of goods sold Gross profit % inventory remaining Gross profit deferred 2013 $194,560 (145,560) $49,000 25% $ 12,250 2014 $266,800 (210,800) $56,000 35% $ 19,600 EOY Receivable/Payable $ 20,000 $ 30,000 The inventory not remaining at the end of the year has been sold outside of the controlled group. The parent and the subsidiary report the following financial statements at December 31, 2014: Income Statement Parent Subsidiary Sales $ 5,430,000 $1,277,300 Cost of goods sold (3,801,000) (600,300) 1,629,000 677,000 Gross Profit Equity investment income 275,709 Operating expenses (1,031,700) Net income $ 873,009 (260,130) $ 416,870 Statement of Retained Earnings Parent BOY Retained Earnings Net income Subsidiary $2,728,032 $516,925 873,009 416,870 Dividends EOY Retained Earnings (136,291) (14,007) $3,464,750 $919,788 Balance Sheet Parent Subsidiary $ 607,551 $ 553,605 695,040 232,116 1,053,420 298,149 Assets: Cash Accounts receivable Inventory Equity Investment PPE, net 869,304 5,067,276 551,609 $8,292,591 $1,635,479 $ 780,291 $ 232,116 2,500,000 333,500 Common Stock 887,805 66,700 APIC 659,745 83,375 3,464,750 919,788 $8,292,591 $1,635,479 Liabilities and Stockholders' Equity: Current Liabilities Long-term Liabilities Retained Earnings Required: a. Compute the EOY Equity Investment balance of $869,304 (4 years subsequent to the acquisition). b. Compute the EOY noncontrolling interest equity balance. c. Prepare the consolidation entries