Han Corporation holds 60% of the common stock of Ben's Distributors, Inc., purchased on December 31, 2011, for $1,872,000. At the date of acquisition, Ben reported common stock with a par value of $1,000,000, additional paid-in-capital of $1,350,000, and retained earnings of $620,000. The fair value of the non-controlling interest at acquisition was $1,248,000. The differential at acquisition was attributable to the following items: Inventory (all sold in 2002) Land Goodwill Total Differential 30,000 56,000 64,000 150,000 Throughout 2018, Han sold merchandise to Ben, Ben sold 60% of the inventory by December 31, 2018. Cost of Inventory to Han $ 200,000 Sale Price of Inventory to Ben S 260,000 On January 1, 2018, Han's inventory contained inventory purchased from Ben, which had produced the inventory. By December 31, 2018, Han had sold all inventory that had been on hand January 1, 2018. Cost of Inventory to Ben S 200,000 Sale Price of Inventory to Han S 667,000 During 2012, Han sold a plot of land that it had purchased several years before to Ben; Ben continues to hold the land. Cost of Land to Han S Sale Price of Land to Ben S 670,000 700,000 On January 1, 2018, Han purchased equipment from Ben. Ben had purchased that equipment on December 31, 2012. The equipment is expected to have a total 15-year life and no salvage value. Both entities use the straight-line method of depreciation and amortization. Cost of Equipment to Ben S Sale Price of Equipment to Han S 610,000 220,000 On January 1, 2016, Han sold par value, 10 percent, five-year bonds at 112 directly to Ben. The bonds pay interest annually on December 31. Both entities amortize bond premiums and discounts on a straight-line basis. Par Value of Bonds S 200,000 Ben issued par value 10-year bonds with a coupon rate of 10 percent on January 1, 2015. On December 31, 2017, Han purchased par value of Ben's bonds. Interest payments are made on July 1 and January 1. Both entities amortize bond premiums and discounts on a straight-line basis. Par Value of Bonds S 600,000 Bond Issue Price $ 595,000 Percentage of Bonds Outstand Purchased 30% Purchase Price of Bond Investment S 192,600 As of December 31, 2018, Ben had declared but not yet paid its fourth-quarter dividend of $5,000. On December 31, 2018, applicable information from the pre-closing trial balances of Han and Ben appeared in T-Accounts as follows: SUBSIDIARY Common Stock $ 1,000,000 R/E $ 1,400,000 Beg. Balance Declared Dividends $ 20,000 $ 110,000 Net Income $ 1,000,000 $ 1,490,000 APIC $ 1,350,000 1. Prepare the differential table as of the date of acquisition and complete the amortization expense columns for 2011-2018 on tab 2. 2. Give the differential balance as of 1/1/2018 on tab 2. 3. Prepare all applicable pictures, answering each question , related to each intercompany transaction (tabs 3-5). 4. Prepare all applicable equity method entries (tab 6) for the year ended, December 31, 2018. 5. Prepare the elimination entries as of December 31, 2018 on tab. Intercompany Inventory Sale: Intercompany Inventory Sale: Is this an UPSTREAM or DOWNSTREAM transaction? What is 2018 EI: What is the Gross Profit %?: What is 2018 EIP: Do you CONFIRM or DEFER the EIP? Is this an UPSTREAM or DOWNSTREAM transaction? What is 2018 BI: What is the Gross Profit %?: What is 2018 BIP: Do you CONFIRM or DEFER the BIP? Intercompany Land Sale: Equipment Inventory Sale: Cost Sale price Gain/Loss 12/31/12 Cost 1/1/18 Accumulated Depreciation 1/1/18 Book Valve 1/1/18 Sale Price 1/1/18 Gain/Loss Is this an UPSTREAM or DOWNSTREAM transaction? Was there a gain or loss on the intercompany asset transfer? If so, what was the amount of gain or loss Is this an UPSTREAM or DOWNSTREAM transaction? What is the balance of Equipment on 1/1/2018 after the intercompany asset transfer? What should the balance of Equipment be on 1/1/2018? What is the balance of Accum. Dep. on 1/1/2018 after the intercompany asset transfer? What should the balance of Accumulated Depreciation be on 1/1/2018? What is the book value of the equipment on 1/1/2018, before the intercompany transfer? What was the original useful life of the equipment? What is the remaining useful life of the equipment on the date of the intercompany asset transfer? What is the amount of the gain or loss on the transaction as of the date of the intercompany transfer? What was the amount of annual depreciation expense taken before the intercompany asset transfer? What is the amount of annual depreciation expense taken after the intercompany asset transfer? What is the amount of the depreciation adjustment needed include whether or not depreciation needs to increase or decrease 2 Intercompany Bond Transfer: Entire Intercompany 1015 Bonds pavable Amortization 12/311 Balance 12/31/18 Balance 12/311 Investment in Bonds Interco. Int. Exp. Interco. Int. Inc. Inc/Exp Adinstment Amortization 12/3118 Investment in Bonds Net Bond Liability Bond Investment Const. Gain/Loss Is this an UPSTREAM or DOWNSTREAM transaction? What is the value of the intercompany bond investment on the date of the intercompany debt transfer? Was the bond investment purchased at par, a premium or a discount? Is this a DIRECT or an INDIRECT transfer of debt? What is the face value (par value) of the intercompany bond liability on the date of the intercompany debt transfer? If purchased at a premium or a discount, what was the balance of the premium or discount on the date of the intercompany debt transfer? Was the bond issued at par, a premium or a discount? If purchased at a premium or a discount, what is the amount of amortization each year? What was the balance of the bond investment on 12/31/2008? If issued at a premium or a discount, what was the balance of the premium or discount on the date of the intercompany debt transfer? If issued at a premium or a discount, what is the amount of amortization each What is the amount of intercompany interest expense: year? What is the amount of intercompany interest income: If issued at a premium or a discount, what was the balance of the premium or discount on 12/31/2008? What is the intercompany net bond liability on the date of the intercompany debt transfer? What is the amount of intercompany interest income/expense adjustment needed: What is the amount of the constructive gain/loss on the transaction, if any: Equity Method Entries Elimination Entries Han Corporation holds 60% of the common stock of Ben's Distributors, Inc., purchased on December 31, 2011, for $1,872,000. At the date of acquisition, Ben reported common stock with a par value of $1,000,000, additional paid-in-capital of $1,350,000, and retained earnings of $620,000. The fair value of the non-controlling interest at acquisition was $1,248,000. The differential at acquisition was attributable to the following items: Inventory (all sold in 2002) Land Goodwill Total Differential 30,000 56,000 64,000 150,000 Throughout 2018, Han sold merchandise to Ben, Ben sold 60% of the inventory by December 31, 2018. Cost of Inventory to Han $ 200,000 Sale Price of Inventory to Ben S 260,000 On January 1, 2018, Han's inventory contained inventory purchased from Ben, which had produced the inventory. By December 31, 2018, Han had sold all inventory that had been on hand January 1, 2018. Cost of Inventory to Ben S 200,000 Sale Price of Inventory to Han S 667,000 During 2012, Han sold a plot of land that it had purchased several years before to Ben; Ben continues to hold the land. Cost of Land to Han S Sale Price of Land to Ben S 670,000 700,000 On January 1, 2018, Han purchased equipment from Ben. Ben had purchased that equipment on December 31, 2012. The equipment is expected to have a total 15-year life and no salvage value. Both entities use the straight-line method of depreciation and amortization. Cost of Equipment to Ben S Sale Price of Equipment to Han S 610,000 220,000 On January 1, 2016, Han sold par value, 10 percent, five-year bonds at 112 directly to Ben. The bonds pay interest annually on December 31. Both entities amortize bond premiums and discounts on a straight-line basis. Par Value of Bonds S 200,000 Ben issued par value 10-year bonds with a coupon rate of 10 percent on January 1, 2015. On December 31, 2017, Han purchased par value of Ben's bonds. Interest payments are made on July 1 and January 1. Both entities amortize bond premiums and discounts on a straight-line basis. Par Value of Bonds S 600,000 Bond Issue Price $ 595,000 Percentage of Bonds Outstand Purchased 30% Purchase Price of Bond Investment S 192,600 As of December 31, 2018, Ben had declared but not yet paid its fourth-quarter dividend of $5,000. On December 31, 2018, applicable information from the pre-closing trial balances of Han and Ben appeared in T-Accounts as follows: SUBSIDIARY Common Stock $ 1,000,000 R/E $ 1,400,000 Beg. Balance Declared Dividends $ 20,000 $ 110,000 Net Income $ 1,000,000 $ 1,490,000 APIC $ 1,350,000 1. Prepare the differential table as of the date of acquisition and complete the amortization expense columns for 2011-2018 on tab 2. 2. Give the differential balance as of 1/1/2018 on tab 2. 3. Prepare all applicable pictures, answering each question , related to each intercompany transaction (tabs 3-5). 4. Prepare all applicable equity method entries (tab 6) for the year ended, December 31, 2018. 5. Prepare the elimination entries as of December 31, 2018 on tab. Intercompany Inventory Sale: Intercompany Inventory Sale: Is this an UPSTREAM or DOWNSTREAM transaction? What is 2018 EI: What is the Gross Profit %?: What is 2018 EIP: Do you CONFIRM or DEFER the EIP? Is this an UPSTREAM or DOWNSTREAM transaction? What is 2018 BI: What is the Gross Profit %?: What is 2018 BIP: Do you CONFIRM or DEFER the BIP? Intercompany Land Sale: Equipment Inventory Sale: Cost Sale price Gain/Loss 12/31/12 Cost 1/1/18 Accumulated Depreciation 1/1/18 Book Valve 1/1/18 Sale Price 1/1/18 Gain/Loss Is this an UPSTREAM or DOWNSTREAM transaction? Was there a gain or loss on the intercompany asset transfer? If so, what was the amount of gain or loss Is this an UPSTREAM or DOWNSTREAM transaction? What is the balance of Equipment on 1/1/2018 after the intercompany asset transfer? What should the balance of Equipment be on 1/1/2018? What is the balance of Accum. Dep. on 1/1/2018 after the intercompany asset transfer? What should the balance of Accumulated Depreciation be on 1/1/2018? What is the book value of the equipment on 1/1/2018, before the intercompany transfer? What was the original useful life of the equipment? What is the remaining useful life of the equipment on the date of the intercompany asset transfer? What is the amount of the gain or loss on the transaction as of the date of the intercompany transfer? What was the amount of annual depreciation expense taken before the intercompany asset transfer? What is the amount of annual depreciation expense taken after the intercompany asset transfer? What is the amount of the depreciation adjustment needed include whether or not depreciation needs to increase or decrease 2 Intercompany Bond Transfer: Entire Intercompany 1015 Bonds pavable Amortization 12/311 Balance 12/31/18 Balance 12/311 Investment in Bonds Interco. Int. Exp. Interco. Int. Inc. Inc/Exp Adinstment Amortization 12/3118 Investment in Bonds Net Bond Liability Bond Investment Const. Gain/Loss Is this an UPSTREAM or DOWNSTREAM transaction? What is the value of the intercompany bond investment on the date of the intercompany debt transfer? Was the bond investment purchased at par, a premium or a discount? Is this a DIRECT or an INDIRECT transfer of debt? What is the face value (par value) of the intercompany bond liability on the date of the intercompany debt transfer? If purchased at a premium or a discount, what was the balance of the premium or discount on the date of the intercompany debt transfer? Was the bond issued at par, a premium or a discount? If purchased at a premium or a discount, what is the amount of amortization each year? What was the balance of the bond investment on 12/31/2008? If issued at a premium or a discount, what was the balance of the premium or discount on the date of the intercompany debt transfer? If issued at a premium or a discount, what is the amount of amortization each What is the amount of intercompany interest expense: year? What is the amount of intercompany interest income: If issued at a premium or a discount, what was the balance of the premium or discount on 12/31/2008? What is the intercompany net bond liability on the date of the intercompany debt transfer? What is the amount of intercompany interest income/expense adjustment needed: What is the amount of the constructive gain/loss on the transaction, if any: Equity Method Entries Elimination Entries