I am the CFO of West Corporation, and the first task relates to two investments that my company made on January 1, 2017. First, we purchased 35% of South Company for $250,000. Second, we purchased 16% of North Company for $95,000. On July 1, 2017 we sold one fifth of our investment in South (7% of South Company) for $87,000 bringing our total ownership interest in South down to 28%. We plan on holding both investments for the foreseeable future, though we could sell them if we need the cash. (They have both done very well for us; the South company stock was worth $128,000 as of Dec.31, 2017, and we estimate the North Company stock was worth $240,000 as of December 31, 2017!) I know almost nothing about accounting for investments and need your help in putting together my companys financial statements for the year ended December 31, 2017.

When determining the appropriate price to pay for these investments, we determined the following information.

South Companys book value on January 1, 2017 was $600,000. However, as of that date, South owned equipment with 8 years of remaining useful life which we believe was undervalued by 48,000.

Norths book value as of January 1, 2017 was $375,000. In addition, we determined that their land was undervalued by $40,000, and that they owned a patent that was undervalued by $140,000 and had 7 years of remaining useful life.

During 2017, South Company earned $160,000 of net income, and paid us dividends of $17,500 on March 31, 2017, and $14,000 on September 30, 2017. North Company earned $80,000 of net income during 2017 (on total sales of $475,000), and paid us quarterly dividends of $2,000 on March 31, June 30, September 30, and December 31. In addition, North Company made sales to our company during October 2017 and I am not sure if those sales need to be accounted for differently. We purchased $200,000 of inventory from North (the inventory originally cost North $90,000) and $60,000 of that inventory was still on hand at the end of the year. So far, we have accounted for it like any other inventory purchase. Specifically, we have recorded the following two entries on our books (and their effect is already included in the attached financial statements):

Dr Inventory 200,000

Cr Cash 200,000 (when we purchased the inventory from South), and

Dr COGS 140,000

Cr Inventory 140,000 (when we sold a portion of the inventory to a third party).

As I stated above, I dont know very much about accounting for investments. Therefore, we have done very little accounting for these two investments. Specifically, we have recorded only the following journal entries:

Dr Investment in South $250,000

Cr Cash $250,000

Dr Investment in North $95,000

Cr Cash $95,000

(I havent even recorded the cash we received as dividends from them yet, because I had no idea what the credit side of that journal entry should be.)

Therefore, my first request is that you let me know what additional entries we need to make related to these investments, and adjust the attached financial statements for West Company for the year ended (as of) December 31, 2017, to reflect those entries.

My second request relates to a potential acquisition that we are considering. My company is currently considering purchasing 100% of East Company and my boss wants to know what effect that investment would have on our financial statements. I have been told that one of the most important decisions we need to make when acquiring a subsidiary is whether to dissolve the subsidiary as a separate legal entity, or to keep them as a separate legal entity. I am not sure which of those decisions we would make and would like to see how our financial statements would look under each of those scenarios. So, if you could prepare pro forma financial statements for my company under each scenario (assuming that we purchased them on December 31, 2017) that would be great.

I have attached a copy of Easts financial statements for the year ended (as of) December 31, 2017. As you can see their total book value on that date was $925,000. However, we are considering an offer of $1,200,000 because we believe their land is undervalued by $70,000, their software is undervalued by $170,000, and we believe their outstanding reputation adds additional value. However, we do believe their equipment is overvalued by $90,000. The software has 10 years of remaining life, and we estimate their overvalued equipment has only 3 years of remaining life. Please base your accounting on the assumption that we purchased them on December 31, 2017 for $1,200,000 cash, and please show the potential impact of this acquisition after including the completed accounting for our investments in North and South

Attachment A: West Company Financial Statements

West Company
Balance Sheet, As of December 31, 2017
Cash			$ 1,945,215
Accounts Receivable			$ 622,500
Inventory			$ 585,300
Investment in South Company			$ 250,000
Investment in North Company			$ 95,000
Land and Buildings			$ 1,420,100
Patent			$ 75,000
Equipment			$ 695,200
Other Assets			$ 42,400
Total Assets			$ 5,730,715
Accounts Payable			$ (825,400)
Bonds Payable			$ (1,500,000)
Discount on Bonds Payable			$ 42,850
Other Liabilities			$ (85,565)
Common Stock			$ (525,000)
Additional Paid in Capital			$ (1,265,000)
Retained Earnings, 12/31			$ (1,572,600)
Total Liabilities and Equity			$ (5,730,715)

West Company
Statement of Retained Earnings, for the 12 months ending December 31, 2017
Retained Earnings, 1/1/17			$ (1,070,550)
Net Income			$ (752,050)
Dividends Declared			$ 250,000
Retained Earnings, 12/31/17			$ (1,572,600)

West Company
Income Statement, for the 12 months ending December 31, 2017
Revenues			$ (4,015,275)
Interest Income			$ (35,150)
Gain on Sale of Equipment			$ (36,000)
Total Revenues			$ (4,086,425)
Cost of Sales			$ 2,942,500
Interest Expense			$ 45,900
Advertisement Expense			$ 92,275
Depreciation and Amortization Expense			$ 253,700
Total Expenses			$ 3,334,375
Net Income			$ (752,050)

West Company Board of Directors

Joshua Kramer, Chief Executive Officer and Chairman of the Board

Joshua Kramer has served as our Chief Executive Officer since October 2011 and our Chairman of the Board since inception. Mr. Kramer currently serves as a member of the board of directors of North Company. Mr. Kramer holds an MBA degree from Stanford University and a B.A. from Virginia Tech.

Emily McHale, Chief Executive Officer and Chairman of the Board, AdUSA, Inc.

Emily McHale has served as one of our directors since March 2013. In late 2009, Ms. McHale founded AdUSA, Inc. where she is now Executive Chairman of the Board. Previously, Ms. McHale served on the board of MarketMe, Inc. from January 2004 until May 2009. Ms. McHale holds a B.S. in Marketing from the University of Missouri.

Kyle Marry, Investor

Kyle Marry has served as one of our directors since July 2014. Mr. Marry was previously on the board of Playtime, Inc. from June 2006 until March 2012, and was recently added to the board of North Company in February 2017. From 1978 until his retirement in 2009, Mr. Marry served in management roles at Accounting for You, Inc. where he became worldwide managing partner of market development and a member of the firms executive committee. Mr. Marry holds an MBA degree from Harvard as well as a B.S. in Accounting from Boston College.

Attachment B: East Company Financial Statements

East Company
Balance Sheet, As of December 31, 2017
Cash			$ 315,200
Accounts Receivable			$ 625,415
Inventory			$ 380,220
Land and Buildings			$ 625,200
Software			$ 180,000
Equipment			$ 530,700
Other Assets			$ 61,615
Total Assets			$ 2,718,350
Accounts Payable			$ (695,200)
Bonds Payable			$ (1,000,000)
Premium on Bonds Payable			$ (26,150)
Other Liabilities			$ (72,000)
Common Stock			$ (40,000)
Additional Paid in Capital			$ (289,000)
Retained Earnings, 12/31			$ (596,000)
Total Liabilities and Equity			$ (2,718,350)

East Company
Statement of Retained Earnings, for the 12 months ending December 31, 2017
Retained Earnings, 1/1/17			$ (420,400)
Net Income			$ (175,600)
Dividends Declared			$ 0
Retained Earnings, 12/31/17			$ (596,000)

East Company
Income Statement, for the 12 months ending December 31, 2017
Revenues			$ (1,020,055)
Interest Income			$ (35,500)
Total Revenues			$ (1,055,555)
Cost of Sales			$ 648,000
Interest Expense			$ 19,755
Depreciation and Amortization Expense			$ 212,200
Total Expenses			$ 879,955
Net Income			$ (175,600)

First, you should provide a list of all journal entries that you record on Wests books to properly account for their investments in North and South companies.

Second, you should provide updated financial statements for West Company reflecting the effect of these entries.

Third, you should provide all entries, either on Wests books or as consolidating entries, that would be necessary if West Company were to acquire 100% of East Company on December 31, 2017 for $1,200,000, and dissolve East Company as a separate legal entity with a clear indication of where the journal entries are posted (i.e., either on Wests books, or as consolidating entries). In addition, you should provide pro forma financial statements for both West Company as a separate legal entity, and consolidated financial statements for West Company assuming East Company is dissolved. A consolidation worksheet will not satisfy this requirement.

Finally, you should provide all entries, either on Wests books or as consolidating entries, that would be necessary if West Company were to acquire 100% of East Company on December 31, 2017 for $1,200,000 and East Company continues to exist as a separate legal entity with a clear indication of where the journal entries are posted (i.e., either on Wests books, or as consolidating entries). In addition, you should provide pro forma financial statements for both Wet company as a separate legal entity, and consolidated financial statements for West Company assuming East Company continues to exist as a separate legal entity. A consolidation worksheet will not satisfy this requirement.