Answers
what needs to be corrected
Problem 1 To manage its operations, Excellent, Inc. reports to top management on five different segments which are consolidated appropriately for the annual financial statements. Information about each segment included in the current year's consolidated statements appears in the table below (in 000's): Tarps Seats Shades Benches Sales to outside parties $8,220 $2,790 $830 $1,450 Intersegment revenues 140 170 130 140 Outside parties interest income -0- 30 10 -0- Intersegment interest income -0- -0- -0- -0- Operating expenses 5,090 2,100 1,390 750 Interest expense 80 20 170 40 Tangible assets 1,660 3,880 690 730 Intangible assets 120 480 20 60 Excellent, Inc. has $310,000 of corporate expenses that it does not allocate to the segments. Carry out: a. the revenue test, b. the profit and loss test, and c. the asset test to determine which segments are separately reportable. Clearly show the results of each test and your decision on each test. Finance $-0- -0- 250 210 20 110 140 870 Problem 2 Pliable Company holds 75% of Stiff Company stock. Pliable has transferred inventory to Stiff Company as follows: Year 2018 2019 2020 2021 Percent of Transferred Sales Inventory Cost to Price to Held at Pliable Stiff Year end $203,000 $355,000 30% $208,000 $312,000 45% $120,000 $150,000 40% $450,000 $750,000 20% The following balances were included in the individual financial statements of each company for the year ended 12/31/2021 Sales Cost of goods sold Merch. inventory Pliable Stiff $ 7,800,000 3,600,000 $ 3,490,000 2,320,000 $ 610,000 380,000 a. What will be reported as consolidated sales in the year 2021? b. What will be reported as consolidated inventory at 12/31/2021? c. What will be reported as consolidated cost of goods sold for 2021? d. Were the intra-entity sales of inventory items upstream or downstream? Problem 3 Prompt Company acquired 70 % of Slow Corporation on 1/2018. Fair values of Slow's assets and liabilities approximated book values on that date. Prompt uses the initial value method to account for its investment in Slow. On 1/2020, Prompt bought equipment from Slow for $60,000 that had originally cost Slow $120,000 and had $ 110,000 of Accumulated depreciation at the time. The equipment had a five-year remaining life and was being depreciated using the straight line method. You are preparing the worksheet for the 2021 fiscal year. a. Was this equipment sale upstream or downstream? b. How much excess depreciation will there be in each of the first five years after the transfer? c. How much unrealized net gain from the equipment transfer remains at the beginning of 2021? (This is the amount you will need for the *TA entry.) d. Which company's Retained earnings account will be adjusted in the *TA entry in part c? (Which company was the "initiator" of the transaction?) e. Prompt's 2021 net income, without including any investment income, was $ 440,000 and Slow reported net income of $ 137,000 in 2021. What consolidated income will be reported before removing the noncontrolling interest's share of the subsidiary's net income? (This includes the effect of the ED entry.) f. What will the noncontrolling interest's share of the subsidiary's net income be for 2021? (Consider whether the equipment sale had been upstream or down m.) Problems 4 and 5 Plant Company acquired of the common stock of Shoot Company January 1, year one, for The consideration given was proportional to Shoot's fair value. On that date, Shoot had the following trial balance: account debit credit $100,000 Additional paid in capital Building (12-year life) $250,000 Common stock 170,000 Current assets 170,000 Equipment (6-yr life) 160,000 Land 110,000 300,000 Liabilities (due in 4 years) Retained earnings 1/year 1 120,000 Totals $690,000 $690,000 During year one, Shoot reported net income of During year one, Shoot paid dividends of During year two, Shoot reported net income of During year two, Shoot paid dividends of On January 1, year one, fair values were: Land $122,000 $295,000 Building Equipment $172,000 There was no impairment of any goodwill arising from the acquisition. Please indicate clearly which method you choose for Plant to use to account for its acquisition of Shoot Company. Problem 4. Use the data for the Plant Company acquisition of the Shoot Company to prepare the consolidation worksheet entries for December 31 of year one. For clarity, use the entry labels like S, A, I and so on. Problem 5. Use the data for the Plant Company acquisition of the Shoot Company to prepare the consolidation worksheet entries for December 31 of year two. 85% $510,000 $70,000 $30,000 $80,000 $40,000 PROBLEM 1 A. Revenue test B. Profit and loss test Profitable segments Total Revenue Segment = 13,870 all segment are 10% of above = 13,870x10% = 1387. So, the segments, traps and seats are to be repotable. Tarps particulars Sales Seats 8360 Shades 2960 Finance 1590 960 0 250 outside income 0 30 10 0 all less expenses 5170 2120 1560 790 130 Net profitable loss 3190 840 660 800 120 Total profit and loss = 5610 we have 10% above 5610x10% = 560 so, the tarps, seats, shades, benches and finance are repotable Total asset or tangible asset = 7100 at 10% = 710 So, the segments, traps and seats are to be repotable. so, according to give, we have total segments to be reportable are Tarps, seats shades and Benches. 1 CONSOLIDATED SALES PLIABLE STIFF $7,800,000 $3,500,000 ($750,000) IN 2021 SALE FROM PLIABLE TO STIFF TOTAL SALES 2 CONSOLIDATED INVENTORY PILABLE $610,000 STIFF $380,000 LESS; UNREALIZED PROFIT ($187,500) TOTAL CONSOLIDATED INVENTORY $802,500 3 CONSOLIDATED COST OF GOOD SOLD PLIABLE STIFF #* ********** ($450,000) IN 2021 COST OF GOODS SALE FROM PLIABLE TO STIFF TOTAL SALES 4 The intra sales were upstream sales because pliable sold good to stiff after adding profit or we can say market price C. Asset test PROBLEM 2 Benches PROBLEM 3 a. The equipment sale is a UPSTREAM transaction. b. To calculate unrealized net gain from the equipment transfer remains at the beginning of 2021 Step 1 Find Book value on 01/01/2021 had no transfer took place Carrying value on 01/01/2020 = (120000-110000) = 10000 less: Depreciation (10000/5) = 2000 Carrying value on 01/01/2021 had no transfer took place =8000 (A) Step 2 Find Book value on 01/01/2021 after transfer Amount of sale =60000 less: Depreciation (60000/5) = 12000 Carrying value on 01/01/2021 after transfer =48000 (B) Step 3 Unrealised gain = B-A=48000-8000 = 40000 c. Golden rule: Company which earned the profit shall eliminate it from its income statement In this case Slow's retained earnings will be adjusted. d. Depreciation each year had no transfer took place (10000/5) = 2000 Depreciation each year after transfer (60000/5) = 12000 Excess Depreciation each year = 10000 Since straight line method is followed excess depreciation will be same for 5 years. e. Consolidated income of group (440000+137000) =577000 less: Gain on intragroup sale of asset (60000-10000) = 50000 Add: Excess Depreciation allowed = 10000 Adjusted consolidated income = 537000 f. the non-controlling interest's share of the subsidiary's net income be for 2021 = (137000-50000) * 30% = 26100 PROBLEM 4 calculation of fair value of assets. fixed assets 1 land $146,000 2 building $274,000 3 equipment $172,000 current assets 4 current assets current liabilities 5 current liabilities 6 net assetes less of considration=148000 consendration on journal entry on year one particulars land building equipment goodwill investment in second company common stock in second company reained earning in second company investment in second company cash dividend income investment in second company retained earnings consendration journal entries on year 2 particulars Cash Dividend income investment in second company retained earning $110,000 $250,000 $160,000 $170,000 $662,000 $300,000 $362,000 debit $36,000 $24,000 $12,000 $148,000 $144,500 $102,000 $25,500 $25,500 debit $3,400 $34,000 credit $120,000 $246,500 $25,500 $25,500 credit $34,000 $34,000 Problem 1 Item possible actual points points notes 1 1 2 Internal sales have not been included in this test. 2 The choices are not correct due to above. 1 The revenues for this test are not correct because some sales have been ignored. 2 2 2 2 2 The profit and loss divisions should be added separately. 2 The choices are not correct. 1 1 2 The intangible assets are missing from the test. 1 1 2 The choices are not correct. 20 7 Problem score out sales in sales choices revenues exp's no all'cate no mix p&l choices tangible intang rounding choices Problem 2 a. Sales sales TI b. MI MI gain in El C. CGS CGS -gain in BI -TI +gain in El d. transfers direction F Item possible actual points points notes 2 2 2 2 3 The unrealized gain in the portion of the current year's transfer still in ending inventory is removed to find consolidated inventory; you appear to be using the full gain in several years of transfer sales 2 CGS is reduced by the unrealized gain in the beginning inventory. The annual transfer amount is considered to find consolidated CGS. CGS is increased by the unrealized gain in the ending inventory of transferred goods. Sales were from parent to subsidiary, downstream. 9 Problem score 32 N N 2 2 1 2 4 20 Problem 3 Item upstream? ED am't TA* am't sub's cons NI NCI share Problem 4 Item C* S, stock S (R/E) A, Land A, B&E A, GW I D E possible actual points points notes 3 3 4 Part b. is asking for the excess depreciation, not unrealized net gain. 4 Part c. is asking for the unrealized net gain, not which company's records are adjusted. 2 Part d. is asking for which company's records are adjusted. (If you use someone else's old exam, I suggest you read each question carefully before copying in the answers.) 4 The excess depreciation adjustment reduces an expense so it has the effect of increasing income. 3 The subsidiary's income from the consolidated perspective is adjusted for the current year's excess depreciation, not for the entire transfer gain from the previous year. 20 3 Problem score possible actual points notes points 2 This problem asks you to choose which method the parent uses to keep track of its investment -- initial value, partial equity or equity -- and then to provide the 4 or 5 journal entries, in good form, needed for the consolidating worksheet. No choice of investment method was provided. Although two columns labeled debit and credit were shown, no separate journal entries in good form and labeled clearly (S, A, etc.) can be found so this problem cannot be scored. Problem score Nt-NNNN 2 4 1 2 3 2 2 2 20 0 Problem 5 Item possible actual points points 2 2 4 1 2 3 2 2 2 20 C* S, stock S (R/E) A, Land A, B&E A, GW T D E 0 notes No answers were provided for this problem so it cannot be scored. Problem score Problem 1 To manage its operations, Excellent, Inc. reports to top management on five different segments which are consolidated appropriately for the annual financial statements. Information about each segment included in the current year's consolidated statements appears in the table below (in 000's): Tarps Seats Shades Benches Sales to outside parties $8,220 $2,790 $830 $1,450 Intersegment revenues 140 170 130 140 Outside parties interest income -0- 30 10 -0- Intersegment interest income -0- -0- -0- -0- Operating expenses 5,090 2,100 1,390 750 Interest expense 80 20 170 40 Tangible assets 1,660 3,880 690 730 Intangible assets 120 480 20 60 Excellent, Inc. has $310,000 of corporate expenses that it does not allocate to the segments. Carry out: a. the revenue test, b. the profit and loss test, and c. the asset test to determine which segments are separately reportable. Clearly show the results of each test and your decision on each test. Finance $-0- -0- 250 210 20 110 140 870 Problem 2 Pliable Company holds 75% of Stiff Company stock. Pliable has transferred inventory to Stiff Company as follows: Year 2018 2019 2020 2021 Percent of Transferred Sales Inventory Cost to Price to Held at Pliable Stiff Year end $203,000 $355,000 30% $208,000 $312,000 45% $120,000 $150,000 40% $450,000 $750,000 20% The following balances were included in the individual financial statements of each company for the year ended 12/31/2021 Sales Cost of goods sold Merch. inventory Pliable Stiff $ 7,800,000 3,600,000 $ 3,490,000 2,320,000 $ 610,000 380,000 a. What will be reported as consolidated sales in the year 2021? b. What will be reported as consolidated inventory at 12/31/2021? c. What will be reported as consolidated cost of goods sold for 2021? d. Were the intra-entity sales of inventory items upstream or downstream? Problem 3 Prompt Company acquired 70 % of Slow Corporation on 1/2018. Fair values of Slow's assets and liabilities approximated book values on that date. Prompt uses the initial value method to account for its investment in Slow. On 1/2020, Prompt bought equipment from Slow for $60,000 that had originally cost Slow $120,000 and had $ 110,000 of Accumulated depreciation at the time. The equipment had a five-year remaining life and was being depreciated using the straight line method. You are preparing the worksheet for the 2021 fiscal year. a. Was this equipment sale upstream or downstream? b. How much excess depreciation will there be in each of the first five years after the transfer? c. How much unrealized net gain from the equipment transfer remains at the beginning of 2021? (This is the amount you will need for the *TA entry.) d. Which company's Retained earnings account will be adjusted in the *TA entry in part c? (Which company was the "initiator" of the transaction?) e. Prompt's 2021 net income, without including any investment income, was $ 440,000 and Slow reported net income of $ 137,000 in 2021. What consolidated income will be reported before removing the noncontrolling interest's share of the subsidiary's net income? (This includes the effect of the ED entry.) f. What will the noncontrolling interest's share of the subsidiary's net income be for 2021? (Consider whether the equipment sale had been upstream or down m.) Problems 4 and 5 Plant Company acquired of the common stock of Shoot Company January 1, year one, for The consideration given was proportional to Shoot's fair value. On that date, Shoot had the following trial balance: account debit credit $100,000 Additional paid in capital Building (12-year life) $250,000 Common stock 170,000 Current assets 170,000 Equipment (6-yr life) 160,000 Land 110,000 300,000 Liabilities (due in 4 years) Retained earnings 1/year 1 120,000 Totals $690,000 $690,000 During year one, Shoot reported net income of During year one, Shoot paid dividends of During year two, Shoot reported net income of During year two, Shoot paid dividends of On January 1, year one, fair values were: Land $122,000 $295,000 Building Equipment $172,000 There was no impairment of any goodwill arising from the acquisition. Please indicate clearly which method you choose for Plant to use to account for its acquisition of Shoot Company. Problem 4. Use the data for the Plant Company acquisition of the Shoot Company to prepare the consolidation worksheet entries for December 31 of year one. For clarity, use the entry labels like S, A, I and so on. Problem 5. Use the data for the Plant Company acquisition of the Shoot Company to prepare the consolidation worksheet entries for December 31 of year two. 85% $510,000 $70,000 $30,000 $80,000 $40,000 PROBLEM 1 A. Revenue test B. Profit and loss test Profitable segments Total Revenue Segment = 13,870 all segment are 10% of above = 13,870x10% = 1387. So, the segments, traps and seats are to be repotable. Tarps particulars Sales Seats 8360 Shades 2960 Finance 1590 960 0 250 outside income 0 30 10 0 all less expenses 5170 2120 1560 790 130 Net profitable loss 3190 840 660 800 120 Total profit and loss = 5610 we have 10% above 5610x10% = 560 so, the tarps, seats, shades, benches and finance are repotable Total asset or tangible asset = 7100 at 10% = 710 So, the segments, traps and seats are to be repotable. so, according to give, we have total segments to be reportable are Tarps, seats shades and Benches. 1 CONSOLIDATED SALES PLIABLE STIFF $7,800,000 $3,500,000 ($750,000) IN 2021 SALE FROM PLIABLE TO STIFF TOTAL SALES 2 CONSOLIDATED INVENTORY PILABLE $610,000 STIFF $380,000 LESS; UNREALIZED PROFIT ($187,500) TOTAL CONSOLIDATED INVENTORY $802,500 3 CONSOLIDATED COST OF GOOD SOLD PLIABLE STIFF #* ********** ($450,000) IN 2021 COST OF GOODS SALE FROM PLIABLE TO STIFF TOTAL SALES 4 The intra sales were upstream sales because pliable sold good to stiff after adding profit or we can say market price C. Asset test PROBLEM 2 Benches PROBLEM 3 a. The equipment sale is a UPSTREAM transaction. b. To calculate unrealized net gain from the equipment transfer remains at the beginning of 2021 Step 1 Find Book value on 01/01/2021 had no transfer took place Carrying value on 01/01/2020 = (120000-110000) = 10000 less: Depreciation (10000/5) = 2000 Carrying value on 01/01/2021 had no transfer took place =8000 (A) Step 2 Find Book value on 01/01/2021 after transfer Amount of sale =60000 less: Depreciation (60000/5) = 12000 Carrying value on 01/01/2021 after transfer =48000 (B) Step 3 Unrealised gain = B-A=48000-8000 = 40000 c. Golden rule: Company which earned the profit shall eliminate it from its income statement In this case Slow's retained earnings will be adjusted. d. Depreciation each year had no transfer took place (10000/5) = 2000 Depreciation each year after transfer (60000/5) = 12000 Excess Depreciation each year = 10000 Since straight line method is followed excess depreciation will be same for 5 years. e. Consolidated income of group (440000+137000) =577000 less: Gain on intragroup sale of asset (60000-10000) = 50000 Add: Excess Depreciation allowed = 10000 Adjusted consolidated income = 537000 f. the non-controlling interest's share of the subsidiary's net income be for 2021 = (137000-50000) * 30% = 26100 PROBLEM 4 calculation of fair value of assets. fixed assets 1 land $146,000 2 building $274,000 3 equipment $172,000 current assets 4 current assets current liabilities 5 current liabilities 6 net assetes less of considration=148000 consendration on journal entry on year one particulars land building equipment goodwill investment in second company common stock in second company reained earning in second company investment in second company cash dividend income investment in second company retained earnings consendration journal entries on year 2 particulars Cash Dividend income investment in second company retained earning $110,000 $250,000 $160,000 $170,000 $662,000 $300,000 $362,000 debit $36,000 $24,000 $12,000 $148,000 $144,500 $102,000 $25,500 $25,500 debit $3,400 $34,000 credit $120,000 $246,500 $25,500 $25,500 credit $34,000 $34,000 Problem 1 Item possible actual points points notes 1 1 2 Internal sales have not been included in this test. 2 The choices are not correct due to above. 1 The revenues for this test are not correct because some sales have been ignored. 2 2 2 2 2 The profit and loss divisions should be added separately. 2 The choices are not correct. 1 1 2 The intangible assets are missing from the test. 1 1 2 The choices are not correct. 20 7 Problem score out sales in sales choices revenues exp's no all'cate no mix p&l choices tangible intang rounding choices Problem 2 a. Sales sales TI b. MI MI gain in El C. CGS CGS -gain in BI -TI +gain in El d. transfers direction F Item possible actual points points notes 2 2 2 2 3 The unrealized gain in the portion of the current year's transfer still in ending inventory is removed to find consolidated inventory; you appear to be using the full gain in several years of transfer sales 2 CGS is reduced by the unrealized gain in the beginning inventory. The annual transfer amount is considered to find consolidated CGS. CGS is increased by the unrealized gain in the ending inventory of transferred goods. Sales were from parent to subsidiary, downstream. 9 Problem score 32 N N 2 2 1 2 4 20 Problem 3 Item upstream? ED am't TA* am't sub's cons NI NCI share Problem 4 Item C* S, stock S (R/E) A, Land A, B&E A, GW I D E possible actual points points notes 3 3 4 Part b. is asking for the excess depreciation, not unrealized net gain. 4 Part c. is asking for the unrealized net gain, not which company's records are adjusted. 2 Part d. is asking for which company's records are adjusted. (If you use someone else's old exam, I suggest you read each question carefully before copying in the answers.) 4 The excess depreciation adjustment reduces an expense so it has the effect of increasing income. 3 The subsidiary's income from the consolidated perspective is adjusted for the current year's excess depreciation, not for the entire transfer gain from the previous year. 20 3 Problem score possible actual points notes points 2 This problem asks you to choose which method the parent uses to keep track of its investment -- initial value, partial equity or equity -- and then to provide the 4 or 5 journal entries, in good form, needed for the consolidating worksheet. No choice of investment method was provided. Although two columns labeled debit and credit were shown, no separate journal entries in good form and labeled clearly (S, A, etc.) can be found so this problem cannot be scored. Problem score Nt-NNNN 2 4 1 2 3 2 2 2 20 0 Problem 5 Item possible actual points points 2 2 4 1 2 3 2 2 2 20 C* S, stock S (R/E) A, Land A, B&E A, GW T D E 0 notes No answers were provided for this problem so it cannot be scored. Problem score
