Fred and George have been in partnership for many years. The partners, who share profits and losses on a 60:40 basis, respectively, wish to retire
Fred and George have been in partnership for many years. The partners, who share profits and losses on a 60:40 basis, respectively, wish to retire and have agreed to liquidate the business. Liquidation expenses are estimated to be $10,000. At the date the partnership ceases operations, the balance sheet is as follows: Cash $ 100,000 Liabilities $ 80,000 Noncash assets 200,000 Fred, capital 100,000 George, capital 120,000 ________________________________________ ________________________________________ ________________________________________ ________________________________________ Total assets $ 300,000 Total liabilities and capital $ 300,000 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ 1. Prepare journal entries for the following transactions: (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) a. Distributed safe cash payments to the partners. b. Paid $40,000 of the partnership?s liabilities. c. Sold noncash assets for $220,000. d. Distributed safe cash payments to the partners. e. Paid all remaining partnership liabilities of $40,000. f. Paid $8,000 in liquidation expenses; no further expenses will be incurred. g. Distributed remaining cash held by the business to the partners. Ex. 2 A local partnership is to be liquidated. Commissions and other liquidation expenses are expected to total $19,000. The business?s balance sheet prior to the commencement of liquidation is as follows: Cash $ 27,000 Liabilities $ 40,000 Noncash assets 254,000 Simpson, capital (20%) 18,000 Hart, capital (40%) 40,000 Bobb, capital (20%) 48,000 Reidl, capital (20%) 135,000 ________________________________________ ________________________________________ Total assets $281,000 Total liabilities and capital $281,000 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ Prepare a predistribution plan for this partnership. Partner Capital Balance Loss Allocation Maximum loss that can be absorb Schedule 1 Sampson Hart Bobb Reidl Schedule 2 Hart Bobb Reidl Schedule 3 Bobb Reidl Sampson Hart Bobb Reidl Reported balances Assumed loss Schedule 1 Adjusted Balances Assumed loss Schedule 2 Adjusted balances Assumed loss Schedule 3 Adjusted balances EX. 3 The Prince-Robbins partnership has the following capital account balances on January 1, 2015: Prince, Capital $ 70,000 Robbins, Capital 60,000 ________________________________________ Prince is allocated 80 percent of all profits and losses with the remaining 20 percent assigned to Robbins after interest of 10 percent is given to each partner based on beginning capital balances. On January 2, 2015, Jeffrey invests $37,000 cash for a 20 percent interest in the partnership. This transaction is recorded by the goodwill method. After this transaction, 10 percent interest is still to go to each partner. Profits and losses will then be split as follows: Prince (50%), Robbins (30%), and Jeffrey (20%). In 2015, the partnership reports a net income of $15,000. a. Prepare the journal entry to record Jeffrey entrance into the partnership on January 2, 2015. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) EX. 4 On January 1, 2015, Alamar Corporation acquired a 40 percent interest in Burks, Inc., for $210,000. On that date, Burks?s balance sheet disclosed net assets with both a fair and book value of $360,000. During 2015, Burks reported net income of $80,000 and cash dividends of $25,000. Alamar sold inventory costing $30,000 to Burks during 2015 for $40,000. Burks used all of this merchandise in its operations during 2015. Prepare all of Alamar?s 2015 journal entries to apply the equity method to this investment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) ? Record the acquisition of a 40 percent interest in Burks. EX. 4 On December 31, 2014, PanTech Company invests $20,000 in SoftPlus, a variable interest entity. In contractual agreements completed on that date, PanTech established itself as the primary beneficiary of SoftPlus. Previously, PanTech had no equity interest in SoftPlus. Immediately after PanTech?s investment, SoftPlus presents the following balance sheet: Cash $ 20,000 Long-term debt $ 120,000 Marketing software 140,000 Noncontrolling interest 60,000 Computer equipment 40,000 PanTech equity interest 20,000 ________________________________________ ________________________________________ ________________________________________ ________________________________________ Total assets $ 200,000 Total liabilities and equity $ 200,000 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ Each of the above amounts represents an assessed fair value at December 31, 2014, except for the marketing software. a. If the marketing software was undervalued by $20,000, what amounts for SoftPlus would appear in PanTech?s December 31, 2014, consolidated financial statementounts? Account Amount b. If the marketing software was overvalued by $20,000, what amounts for SoftPlus would appear in PanTech?s December 31, 2014, consolidated financial statements? Account Amount EX. 5 On January 1, 2014, Harrison, Inc., acquired 90 percent of Starr Company in exchange for $1,125,000 fair-value consideration. The total fair value of Starr Company was assessed at $1,200,000. Harrison computed annual excess fair-value amortization of $8,000 based on the difference between Starr?s total fair value and its underlying net asset fair value. The subsidiary reported earnings of $70,000 in 2014 and $90,000 in 2015 with dividend declarations of $30,000 each year. Apart from its investment in Starr, Harrison had net income of $220,000 in 2014 and $260,000 in 2015. a. What is the consolidated net income in each of these two years? 2104 2015 Consolidated net income b. What is the ending noncontrolling interest balance as of December 31, 2015? Noncontrolling Interest balance EX.6 On January 1, 2014, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $980,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $700,000, retained earnings of $250,000, and a noncontrolling interest fair value of $245,000. Corgan attributed the excess of fair value over Smashing?s book value to various covenants with a 20-year life. Corgan uses the equity method to account for its investment in Smashing. During the next two years, Smashing reported the following: Net Income Dividends Inventory Purchases from Corgan 2014 $ 150,000 $ 35,000 $ 100,000 2015 130,000 45,000 120,000 Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2014 and 2015, 40 percent of the current year purchases remain in Smashing?s inventory. a. Compute the equity method balance in Corgan?s Investment in Smashing, Inc., account as of December 31, 2015. Investment Balance 12/31/15 $ b. Prepare the worksheet adjustments for the December 31, 2015, consolidation of Corgan and Smashing.(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Transactions Consolidating Entries Debit Credit 1. Prepare entry G 5. Prepare entry D 2. Prepare entry S 6. Prepare entry E 3. Prepare entry A 7. Prepare TI 4. Prepare entry I 8. Prepare G *There are 48 journal entries in all (including the ?No journal entry?) EX. 7 Padre holds 100 percent of the outstanding shares of Sonora. On January 1, 2013, Padre transferred equipment to Sonora for $95,000. The equipment had cost $130,000 originally but had a $50,000 book value and five-year remaining life at the date of transfer. Depreciation expense is computed according to the straight-line method with no salvage value. Consolidated financial statements for 2015 currently are being prepared. What worksheet entries are needed in connection with the consolidation of this asset? Assume that the parent applies the partial equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Transactions Consolidating Entries Debit Credit 1. Prepare entry TA 2. Prepare entry ED Note: There are twelve journal entries (including the? No journal entry?) EX. 8 A The Walston Company is to be liquidated and has the following liabilities: Income taxes $ 8,000 Notes payable (secured by land) 120,000 Accounts payable 85,000 Salaries payable (evenly divided between two employees) 6,000 Bonds payable 70,000 Administrative expenses for liquidation 20,000 ________________________________________ The company has the following assets: Book Value Fair Value Current assets $ 80,000 $ 35,000 Land 100,000 90,000 Buildings and equipment 100,000 110,000 ________________________________________ How much money will the holders of the notes payable collect following liquidation? Total Amount Collected $ EX.8B On January 1, Dandu Corporation started a subsidiary in a foreign country. On April 1, the subsidiary purchased inventory at a cost of 120,000 local currency units (LCU). One-fourth of this inventory remained unsold at the end of the year while 40 percent of the liability from the purchase had not yet been paid. The U.S. $ per LCU exchange rates were as follows: January 1 $ 0.40 April 1 0.38 Average for the current year 0.36 December 31 0.35 ________________________________________ What should be the December 31 Inventory and Accounts Payable balances for this foreign subsidiary as translated into U.S. dollars using the current rate method? Inventory $ Accounts Payable $ EX. 8C Board Company has a foreign subsidiary that began operations at the start of 2015 with assets of 132,000 kites (the local currency unit) and liabilities of 54,000 kites. During this initial year of operation, the subsidiary reported a profit of 26,000 kites. It distributed two dividends, each for 5,000 kites with one dividend declared on March 1 and the other on October 1. Applicable exchange rates for 1 kite follow: January 1, 2015 (start of business) $ 0.80 March 1, 2015 0.78 Weighted average rate for 2015 0.77 October 1, 2015 0.76 December 31, 2015 0.75 ________________________________________ a. Assume that the kite is this subsidiary?s functional currency. What translation adjustment would Board report for the year 2015? Negative Translation adjustment $ Fred and George have been in partnership for many years. The partners, who share profits and losses on a 60:40 basis, respectively, wish to retire and have agreed to liquidate the business. Liquidation expenses are estimated to be $10,000. At the date the partnership ceases operations, the balance sheet is as follows: Cash $ 100,000 Liabilities $ 80,000 Noncash assets 200,000 Fred, capital 100,000 George, capital 120,000 ________________________________________ ________________________________________ ________________________________________ ________________________________________ Total assets $ 300,000 Total liabilities and capital $ 300,000 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ 1. Prepare journal entries for the following transactions: (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) a. Distributed safe cash payments to the partners. b. Paid $40,000 of the partnership?s liabilities. c. Sold noncash assets for $220,000. d. Distributed safe cash payments to the partners. e. Paid all remaining partnership liabilities of $40,000. f. Paid $8,000 in liquidation expenses; no further expenses will be incurred. g. Distributed remaining cash held by the business to the partners. Ex. 2 A local partnership is to be liquidated. Commissions and other liquidation expenses are expected to total $19,000. The business?s balance sheet prior to the commencement of liquidation is as follows: Cash $ 27,000 Liabilities $ 40,000 Noncash assets 254,000 Simpson, capital (20%) 18,000 Hart, capital (40%) 40,000 Bobb, capital (20%) 48,000 Reidl, capital (20%) 135,000 ________________________________________ ________________________________________ Total assets $281,000 Total liabilities and capital $281,000 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ Prepare a predistribution plan for this partnership. Partner Capital Balance Loss Allocation Maximum loss that can be absorb Schedule 1 Sampson Hart Bobb Reidl Schedule 2 Hart Bobb Reidl Schedule 3 Bobb Reidl Sampson Hart Bobb Reidl Reported balances Assumed loss Schedule 1 Adjusted Balances Assumed loss Schedule 2 Adjusted balances Assumed loss Schedule 3 Adjusted balances EX. 3 The Prince-Robbins partnership has the following capital account balances on January 1, 2015: Prince, Capital $ 70,000 Robbins, Capital 60,000 ________________________________________ Prince is allocated 80 percent of all profits and losses with the remaining 20 percent assigned to Robbins after interest of 10 percent is given to each partner based on beginning capital balances. On January 2, 2015, Jeffrey invests $37,000 cash for a 20 percent interest in the partnership. This transaction is recorded by the goodwill method. After this transaction, 10 percent interest is still to go to each partner. Profits and losses will then be split as follows: Prince (50%), Robbins (30%), and Jeffrey (20%). In 2015, the partnership reports a net income of $15,000. a. Prepare the journal entry to record Jeffrey entrance into the partnership on January 2, 2015. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) EX. 4 On January 1, 2015, Alamar Corporation acquired a 40 percent interest in Burks, Inc., for $210,000. On that date, Burks?s balance sheet disclosed net assets with both a fair and book value of $360,000. During 2015, Burks reported net income of $80,000 and cash dividends of $25,000. Alamar sold inventory costing $30,000 to Burks during 2015 for $40,000. Burks used all of this merchandise in its operations during 2015. Prepare all of Alamar?s 2015 journal entries to apply the equity method to this investment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) ? Record the acquisition of a 40 percent interest in Burks. EX. 4 On December 31, 2014, PanTech Company invests $20,000 in SoftPlus, a variable interest entity. In contractual agreements completed on that date, PanTech established itself as the primary beneficiary of SoftPlus. Previously, PanTech had no equity interest in SoftPlus. Immediately after PanTech?s investment, SoftPlus presents the following balance sheet: Cash $ 20,000 Long-term debt $ 120,000 Marketing software 140,000 Noncontrolling interest 60,000 Computer equipment 40,000 PanTech equity interest 20,000 ________________________________________ ________________________________________ ________________________________________ ________________________________________ Total assets $ 200,000 Total liabilities and equity $ 200,000 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ Each of the above amounts represents an assessed fair value at December 31, 2014, except for the marketing software. a. If the marketing software was undervalued by $20,000, what amounts for SoftPlus would appear in PanTech?s December 31, 2014, consolidated financial statementounts? Account Amount b. If the marketing software was overvalued by $20,000, what amounts for SoftPlus would appear in PanTech?s December 31, 2014, consolidated financial statements? Account Amount EX. 5 On January 1, 2014, Harrison, Inc., acquired 90 percent of Starr Company in exchange for $1,125,000 fair-value consideration. The total fair value of Starr Company was assessed at $1,200,000. Harrison computed annual excess fair-value amortization of $8,000 based on the difference between Starr?s total fair value and its underlying net asset fair value. The subsidiary reported earnings of $70,000 in 2014 and $90,000 in 2015 with dividend declarations of $30,000 each year. Apart from its investment in Starr, Harrison had net income of $220,000 in 2014 and $260,000 in 2015. a. What is the consolidated net income in each of these two years? 2104 2015 Consolidated net income b. What is the ending noncontrolling interest balance as of December 31, 2015? Noncontrolling Interest balance EX.6 On January 1, 2014, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $980,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $700,000, retained earnings of $250,000, and a noncontrolling interest fair value of $245,000. Corgan attributed the excess of fair value over Smashing?s book value to various covenants with a 20-year life. Corgan uses the equity method to account for its investment in Smashing. During the next two years, Smashing reported the following: Net Income Dividends Inventory Purchases from Corgan 2014 $ 150,000 $ 35,000 $ 100,000 2015 130,000 45,000 120,000 Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2014 and 2015, 40 percent of the current year purchases remain in Smashing?s inventory. a. Compute the equity method balance in Corgan?s Investment in Smashing, Inc., account as of December 31, 2015. Investment Balance 12/31/15 $ b. Prepare the worksheet adjustments for the December 31, 2015, consolidation of Corgan and Smashing.(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Transactions Consolidating Entries Debit Credit 1. Prepare entry G 5. Prepare entry D 2. Prepare entry S 6. Prepare entry E 3. Prepare entry A 7. Prepare TI 4. Prepare entry I 8. Prepare G *There are 48 journal entries in all (including the ?No journal entry?) EX. 7 Padre holds 100 percent of the outstanding shares of Sonora. On January 1, 2013, Padre transferred equipment to Sonora for $95,000. The equipment had cost $130,000 originally but had a $50,000 book value and five-year remaining life at the date of transfer. Depreciation expense is computed according to the straight-line method with no salvage value. Consolidated financial statements for 2015 currently are being prepared. What worksheet entries are needed in connection with the consolidation of this asset? Assume that the parent applies the partial equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Transactions Consolidating Entries Debit Credit 1. Prepare entry TA 2. Prepare entry ED Note: There are twelve journal entries (including the? No journal entry?) EX. 8 A The Walston Company is to be liquidated and has the following liabilities: Income taxes $ 8,000 Notes payable (secured by land) 120,000 Accounts payable 85,000 Salaries payable (evenly divided between two employees) 6,000 Bonds payable 70,000 Administrative expenses for liquidation 20,000 ________________________________________ The company has the following assets: Book Value Fair Value Current assets $ 80,000 $ 35,000 Land 100,000 90,000 Buildings and equipment 100,000 110,000 ________________________________________ How much money will the holders of the notes payable collect following liquidation? Total Amount Collected $ EX.8B On January 1, Dandu Corporation started a subsidiary in a foreign country. On April 1, the subsidiary purchased inventory at a cost of 120,000 local currency units (LCU). One-fourth of this inventory remained unsold at the end of the year while 40 percent of the liability from the purchase had not yet been paid. The U.S. $ per LCU exchange rates were as follows: January 1 $ 0.40 April 1 0.38 Average for the current year 0.36 December 31 0.35 ________________________________________ What should be the December 31 Inventory and Accounts Payable balances for this foreign subsidiary as translated into U.S. dollars using the current rate method? Inventory $ Accounts Payable $ EX. 8C Board Company has a foreign subsidiary that began operations at the start of 2015 with assets of 132,000 kites (the local currency unit) and liabilities of 54,000 kites. During this initial year of operation, the subsidiary reported a profit of 26,000 kites. It distributed two dividends, each for 5,000 kites with one dividend declared on March 1 and the other on October 1. Applicable exchange rates for 1 kite follow: January 1, 2015 (start of business) $ 0.80 March 1, 2015 0.78 Weighted average rate for 2015 0.77 October 1, 2015 0.76 December 31, 2015 0.75 ________________________________________ a. Assume that the kite is this subsidiary?s functional currency. What translation adjustment would Board report for the year 2015? Negative Translation adjustment $
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Authors: Leonard J Brooks, Paul Dunn
8th Edition
1337514462, 9781337514460
