Advance acounting CH 8

Chapter 8: Exercises 8-1, 8-6, and 8-8; Problems 8-4 and 8-6 Chapter 10: Exercises 10-6 and 10-9; Problems 10-6 and 10-7 EXERCISE 8-1 Multiple Stock PurchasesJournal Entries Peck Company purchased Sanno Company common stock in a series of open-market cash purchases from 2009 through 2011 as follows: Date Shares Acquired Cost January 1, 2009 1,800 $46,000 January 1, 2010 4,500 $95,000 January 1, 2011 9,900 $262,350 Sanno Company had 18,000 shares of $20 par value common stock outstanding during the entire period. Retained earnings balances for Sanno Company on relevant dates were January 1, 2009 $ 20,000 January 1, 2010 (30,000) January 1, 2011 $85,000 December 31, 2011 170,000 Dividends in the amount of $50,000 were distributed by Sanno Company only in 2011. Any difference between implied and book values is assigned to goodwill. Peck Company uses the cost method to account for its investment in Sanno Company. Required: A. Prepare the journal entries that Peck Company would record on its books during 2011 to account for its investment in Sanno Company. B. Prepare the workpaper eliminating entries necessary to prepare a consolidated statements workpaper on December 31, 2011 EXERCISE 8-6 Parent Company and Workpaper EntriesNew Shares Issued by Subsidiary On January 1, 2011, Pace Company purchased 250,000 shares of common stock directly from its subsidiary, Sime Company, for $1.50 per share. Noncontrolling stockholders elected not to participate in the new issue. Pace Company acquired its initial 92.5% interest in Sime Company by purchasing on the open market 462,500 shares of Sime's common stock for $578,125 on January 1, 2007. Sime Company's stockholders' equity just before each of the two purchases was as follows: December 31 December 31 2006 2010 Common Stock $1 par $500,000 Other Contributed Capital 40,000 40,000 Retained Earnings 60,000 150,000 Total $500,000 $690,000 $600,000 During 2011 Sime Company reported $90,000 net income and declared a dividend in the amount of $30,000. Any difference between implied and book values relates to subsidiary land. Pace uses the cost method to account for its investment. Required: A. Prepare the journal entry on Pace Company's books to record the purchase of the additional shares on January 1, 2011. B. Prepare the eliminating entries needed for the preparation of a consolidated statements workpaper on December 31, 2011. EXERCISE 8-8 Parent Company and Workpaper EntriesNew Shares Issued by Subsidiary Padilla Company acquired 80% of the outstanding common stock of Skon Company on January 1, 2009, for $132,000. At the date of purchase, Skon Company had a balance in its $2 par value common stock account of $120,000 and retained earnings of $30,000. On January 1, 2011, Skon Company issued 15,000 shares of its previously unissued stock to noncontrolling stockholders for $3.00 per share. On this date, Skon Company had a retained earnings balance of $50,500. The difference between implied and book values relates to subsidiary land. No dividends were paid in 2011. Skon Company reported income of $10,000 in 2011. Required: A. Prepare the journal entry on Padilla's books to record the effect of the issuance assuming (1) Cost method (2) Complete or partial equity method B. Prepare the eliminating entries needed for the preparation of a consolidated statements Work paper on December 31, 2011 assuming (1) Cost method (2) Complete or partial equity method PROBLEM 8-4 Work paperPurchase and Sale of Shares, Cost Method Trial balances for Porter Company and its subsidiary, Spitz Company, as of December 31, 2011, follow: Debits Porter Spitz Cash $ 90,000 $ 40,000 Accounts Receivable (net) 62,000 38,000 Inventory 64,000 106,000 Investment in Spitz Company121,500 Plant Assets Land 320,000 69,000 46,000 Dividends Declared, 10/1 Total 149,000 $818,500 50,000 30,000 $367,000 Credits Porter Spitz Liabilities $102,000 $ 61,000 Common Stock, $2 per value 250,000 100,000 Other Contributed Capital 172,500 20,000 1/1 Retained Earnings 206,500 126,000 Income Summary 87,500 60,000 Total $367,000 $818,500 Porter Company made the following open-market purchase and sate of Spitz Company common stock: January 1, 2007, purchased 45,000 shares for $135,000; May 1, 2011, sold 4,500 shares for $28,000. The book value of Spitz Company's net assets on January 1, 2007, was $140,000; the excess of cost over net assets acquired relates to land. Subsequent changes in the book value of Spitz Company's net assets are entirely attributable to earnings retained in the business. Spitz Company earns its income evenly throughout the year. Porter Company uses the cost method to account for its investment. Required: Prepare a consolidated financial statements workpaper as of December 31, 2011. Begin the income statement section of the workpaper with \"Net Income Before Dividend Income\" which is $63,200 for Porter Company and $60,000 for Spitz Company. PROBLEM 8-6 WorkpaperPurchase and Sale of Shares, Equity Method (Note: This is the same problem as Problem 8-4, but assuming use of the complete or the partial equity method.) Trial balances for Porter Company and its subsidiary, Spitz Company, as of December 31, 2011, follow: Debits Porter Spitz Cash $ 90,000 $ 40,000 Accounts Receivable (net) 62,000 38,000 Inventory 64,000 106,000 Investment in Spitz Company231,660 Plant Assets Land 320,000 69,000 46,000 Dividends Declared, 10/1 Total 149,000 $928,660 50,000 30,000 $367,000 Credits Liabilities $102,000 $ 61,000 Common Stock, $2 par value 250,000 100,000 Other Contributed Capital 161,160 20,000 1/1 Retained Earnings 301,900 126,000 Income Summary 113,600 Total $367,000 $928,660 60,000 Porter Company made the following open-market purchase and sale of Spitz Company common stock: January 1, 2007, purchased 45,000 shares for $135,000; May 1, 2011, sold 4,500 shares for $28,000. The book value of Spitz Company's net assets on January 1, 2007 was $140,000; the excess of cost over net assets acquired relates to land. Subsequent changes in the book value of Spitz Company's net assets are entirely attributable to earnings retained in the business. Spitz Company earns its income evenly throughout the year. Required: Prepare a consolidated financial statements workpaper as of December 31, 2011. Begin the income statement section of the workpaper with \"Net Income before Equity in Subsidiary Income and Gain on Sale of Investment,\" which is $63,200 for Porter Company and $60,000 for Spitz Company