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Advanced Accounting Final Exam Fall 2017 NAME ParentCo Corporation acquired 80 percent of the 10,000 outstanding shares of voting stock of SunnyBoy Company, on January 2, 2014, at $27.25 a share when the stock was selling at $26. At the date of acquisition, SunnyBoy had Capital Stock (no par value) of $10,000, Retained Earnings of $119,300, and Accumulated Other Comprehensive Income of $3,700. ParentCo uses the complete equity method to account for its investment in SunnyBoy. At the date of acquisition, SunnyBoy's assets and liabilities were fairly reported except for the following. There was no contingent consideration. Item Property, Plant & Equipment Unrecorded Items: In Process Research & Development Contracts Assembled Workforce Goodwill Book Value 1/2/2014 Fair Market Value 1/2/2014 Future Cash Flows 12/31/2017 Remaining Life @ 1/2/2014 Undiscounted Discounted 10,000 70,000 15 years N/A N/A 0 15,000 5 years 5,000 4,500 0 0 0 22,000 75,000 - 4 years Indeterminate Indeterminate 17,000 N/A 13,250 N/A Revaluations are amortized on a straight-line basis. Identifiable intangible assets and goodwill arising from this acquisition are tested annually for impairment. IPRD was impaired during 2014-2016 for $2,500. SunnyBoy paid $1,500 in dividends. In 2017, SunnyBoy charged ParentCo $10,000 for janitorial services costing $7,500. ParentCo and SunnyBoy regularly sell merchandise to each other. During 2017, they made the following transfers: Affiliated Transfers of Merchandise 2017 ParentCo SunnyBoy Transfers to Affiliate 18,110 7,850 Merchandise Transfers Remaining in Inventory Beginning 960 1,635 Ending 1,025 2,420 Markup 25% on cost 20% on sales Intercompany Receivables 5,400 2,300 Intercompany Payables 2,300 5,400 Goodwill is tested for impairment annually. Impairments from 2014 to 2016 amounted to $3,000. At December 31, 2017 the fair value of SunnyBoy is $400,000 and the fair value of its net identifiable assets is $375,000 In 2015, ParentCo sold land costing $5,000 to SunnyBoy for $5,500. In 2017, SunnyBoy sold the land in 2017 for $6,250. During 2017, SunnyBoy sold Land to ParentCo with a book value of $2,750 for $3,000. ParentCo still holds the land. In 2014, SunnyBoy sold equipment costing $1,750 with $900 in accumulated depreciation, to ParentCo for $1,500. SunnyBoy estimates the equipment has a 10-year remaining life and will depreciate the equipment straight-line. ParentCo still holds the equipment at the end of 2017. The 2017 Trial Balances for Consolidating are provided below. Required: Show all computations! 1. Allocate the purchase price and calculate the amount of goodwill or bargain purchase at the date of acquisition- January 2, 2014. 2. Calculate the annual amortization of the revalued assets and liabilities. 3. Calculate the balance of the revalued assets and liabilities (\"R\") at January 1, 2017. 4. Perform the impairment test of unrecorded definite lived intangible assets 5. Perform the impairment test of goodwill 6. Calculate the impact of the intercompany transactions: I-1 Intercompany sales and purchases of services I-2 Intercompany sales and purchases of merchandise I-3 Intercompany receivables and payables I-4 Unconfirmed upstream profit in beginning inventory I-5 Unconfirmed downstream profit in the beginning inventory I-6 Unconfirmed profits (upstream and downstream) in the ending inventories I-7 Unconfirmed gains/losses on downstream transfers of nondepreciable assets. I-8 Unconfirmed gains/losses on upstream transfers of nondepreciable assets I-9 Unconfirmed gains/losses on transfers of depreciable assets. 7. Compute SunnyBoy's Net Income 8. Calculate the Equity in Net Income of SunnyBoy for ParentCo and the Noncontrolling Interest 9. Calculate the Controlling Interest and Noncontrolling Interest in SunnyBoy 10. Calculate the amount of SunnyBoy's Retained Earnings and ParentCo's Investment account to be eliminated through entry \"E\" 11. Prepare the Consolidated Worksheet for ParentCo and SunnyBoy for 2017. Consolidating Trial Balances ParentCo SunnyBoy Cash 45,200 22,275 Accounts Receivable 35,850 16,275 Inventories 22,590 12,250 Land 75,000 37,500 415,750 97,000 Plant & Equipment Accumulated Depreciation Investment in SunnyBoy Intangible Assets 97,000 8,000 195,439 27,500 17,410 Accounts Payable 19,300 8,200 Long Term Debt 100,000 12,340 Capital Stock 125,000 10,000 Retained Earnings January 1 431,900 116,470 Accumulated OCI January 1 22,595 3,700 Dividends 12,500 Sales Revenue 1,500 970,0000 267,250 Gain on Sales of Assets 750 Equity in Net Income 15,884 Equity in OCI 400 Cost of Sales 630,500 198,000 Operating Expenses 339,500 25,000 OCI 17,750 500 Allocation of the Purchase of SunnyBoy Requirement 1: Total ParentCo Noncontrolling Interest Purchase Price/Fair Value Book Value Purchase Premium/Discount Difference Between Book and Fair Values (from Schedule below) Goodwill/Bargain Gain Goodwill allocation percentages (if applicable) Schedule of Differences in Book and Fair Values Item Total Book Value Fair Value Difference Requirement 2: Annual Amortization of Revaluations: Entry \"O\" Item Requirement 3: Item Amount Revaluation Balances 1/1/2017: Entry \"R\" Balance 1/2/2014 Amortization/Impairments Taken 2014-2016 Revaluation Balance 1/1/2017 Requirement 4: Impairment Test of Definite Lived Intangibles: Entry \"O\" Intangible Asset Requirement 5: Carrying Value Step 2 Loss Impairment Test of Goodwill: Entry \"O\" Fair Value Fair Value of Net Assets Difference Goodwill Balance Impairment Step 1 Test Entries \"I\" Requirement 6, I-1:Intercompany Services Requirement 6, I-2:Intercompany Transfers of Merchandise Requirement 6, I-3:Intercompany Receivables/Payables Requirement 6, I-4: Confirmed upstream profit in Beginning Inventory Requirement 6, I-5: Confirmed downstream profit in Beginning Inventory Requirement 6, I-6: Unconfirmed profits in Ending Inventory (consolidation entry may be combined but list separately on Equity in Net Income schedule) Upstream Downstream Requirement 6, I-7: Confirmed gain on sale of 2015 downstream transfer of a land Requirement 6, I-8: Unconfirmed gain on 2017 upstream transfer of land Requirement 6 , I-9 through I-11: Equipment 1/1/2017 Gain or Loss on Upstream Transfer in 2014: SunnyBoy's Revised Original Depreciation: ParentCo' s Depreciation Excess Depreciation (Entry I-10) Entry I-11 reinstates the Equipment and Accumulated Depreciation Accounts Requirement 6 (continued) Depreciable Asset Account Entries Remaining Cumulative Difference Charge to Year Unconfirmed Gain Accumulated Depreciation Equipment 2014 2015 Entry I-9 2016 2017 - Requirement 7: SunnyBoy, Inc. Income Statement For Year Ended December 31, 2017 Revenues Cost of Goods Sold Gross Margin Operating Expenses Operating Income Gain on Sale of Land Net Income Other Comprehensive Income Comprehensive Income Requirement 8: Equity in Net Income Total SunnyBoy's Reported Operating Income Adjustments for revaluation of Write-offs & Impairments: Adjustments for Intercompany Profits: Equity In Net Income ParentCo Noncontrolling Interest Requirement 9a: Controlling Interest in SunnyBoy Requirement 9b: Noncontrolling Interest in SunnyBoy Requirement 10a: SunnyBoy's Retained Earnings to be eliminated through entry \"E\" Retained Earnings Beginning Balance $116,470 Consolidating Entries Adjusting Retained Earnings: Retained Earnings Eliminated by Entry \"E\" Requirement 10b: Investment to be eliminated and NCI to be Created through entry \"E\" Retained Earnings Eliminated by Entry \"E\" Capital Stock Accumulated Other Comprehensive Income Remaining Equity To Investment in SunnyBoy To NonControlling Interest $10,000 3,750