Accounting 305

Chapter 7 Homework

Exercise 1

On 12/31/13 Kevin Corp. held no investment securities. On 1/01/14 Kevin purchased 2,000 shares of Detsch Corp. stock for $20/share and continued to hold the Detsch stock until 10/09/16 when it was sold for $22/share (ignore transaction costs). On 11/20/14, and on 11/19/15 Kevin receives a dividend of $1/share on the Detsch stock. The market value of Detsch stock was $19/share on 12/31/14 and $18/share on 12/31/15. Required: Provide all investment related entries in accounting equation format assuming that Kevin classifies the Detsch Corp. stock investment as ?Available for Sale.?

Exercise 2

On 1/01/14 Chandler Corp. purchased 100% of the stock of Hosterman Corp. (80,000 shares) for $4,800,000. Hosterman continues to operate as a separate legal corporation. Hosterman presented the following condensed year-end balance sheet at 12/31/2013 (in 1,000?s):

Assets: Liabilities & Stockholders? Equity:

Cash $ 300 Accounts Payable $ 100

Inventory 1,000 Long-term Debt 200 $ 300

Operating Assets (net) 3,000 Paid-In Capital 2,000

Retained Earnings 2,000 4,000

Total Assets $4,300 Total Liabilities & Stockholders? Equity $ 4,300

All assets and liabilities of Hosterman had fair values equal to their book values at 1/1/14 except for equipment that was undervalued by $ 400,000 (fair value=$800,000 and its book value=$400,000) with a remaining life of 8 years.

Immediately after the acquisition, Chandler provided the following balance sheet (in 1,000?s):

Assets: Liabilities & Stockholders? Equity:

Cash $ 1,000 Accounts Payable $1,400

Inventory 7,000 Long-term Debt 4,000 $ 5,400

Operating Assets (net) 8,600 Paid-In Capital 4,000

Investment in Hosterman 4,800 Retained Earnings 12,000 16,000

Total Assets $21,400 Total Liabilities & Stockholders? Equity $ 21,400

Required: Provide a consolidated balance sheet at 1/01/14 for the consolidated entity (Chandler and Hosterman).

Accounting 305 Chapter 7 Homework Exercise 1 On 12/31/13 Kevin Corp. held no investment securities. On 1/01/14 Kevin purchased 2,000 shares of Detsch Corp. stock for $20/share and continued to hold the Detsch stock until 10/09/16 when it was sold for $22/share (ignore transaction costs). On 11/20/14, and on 11/19/15 Kevin receives a dividend of $1/share on the Detsch stock. The market value of Detsch stock was $19/share on 12/31/14 and $18/share on 12/31/15. Required: Provide all investment related entries in accounting equation format assuming that Kevin classifies the Detsch Corp. stock investment as \"Available for Sale.\" Exercise 2 On 1/01/14 Chandler Corp. purchased 100% of the stock of Hosterman Corp. (80,000 shares) for $4,800,000. Hosterman continues to operate as a separate legal corporation. Hosterman presented the following condensed year-end balance sheet at 12/31/2013 (in 1,000's): Assets: Cash $ 300 Inventory 1,000 Operating Assets (net) 3,000 Total Assets $4,300 Liabilities & Stockholders' Equity: Accounts Payable $ 100 Long-term Debt 200 $ 300 Paid-In Capital 2,000 Retained Earnings 2,000 4,000 Total Liabilities & Stockholders' Equity $ 4,300 All assets and liabilities of Hosterman had fair values equal to their book values at 1/1/14 except for equipment that was undervalued by $ 400,000 (fair value=$800,000 and its book value=$400,000) with a remaining life of 8 years. Immediately after the acquisition, Chandler provided the following balance sheet (in 1,000's): Assets: Liabilities & Stockholders' Equity: Cash $ 1,000 Accounts Payable $1,400 Inventory 7,000 Long-term Debt 4,000 $ 5,400 Operating Assets (net) 8,600 Paid-In Capital 4,000 Investment in Hosterman 4,800 Retained Earnings 12,000 16,000 Total Assets $21,400 Total Liabilities & Stockholders' Equity $ 21,400 Required: Provide a consolidated balance sheet at 1/01/14 for the consolidated entity (Chandler and Hosterman)