Intermediate Accounting, 15th Edition

Question 1 :

Cash 50 Accounts receivable 200 Property, plant, and equipment (net) 2600

Goodwill 200 Less: Notes payable (2700)

Net assets 350

The purpose of the Carlos Division is to develop a nuclear-powered aircraft. If successful, traveling delays associated with refueling could be substantially reduced. Many other benefits would also occur. To date, management has not had much success and is deciding whether a write-down at this time is appropriate. Management estimated its future net cash flows from the project to be $400 million. Management has also received an offer to purchase the division for $335 million. All identifiable assets and liabilities book and fair value amounts are the same.

Instructions

(a) Prepare the journal entry (if any) to record the impairment at December 31, 2014. (b) AtDecember31,2015,itisestimatedthatthedivisionsfairvalueincreasedto$345million.Prepare

the journal entry (if any) to record this increase in fair value.

Question 2 :

Intermediate Accounting, 15th Edition

Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2013. The purchase price was $1,200,000 for 50,000 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2014. Kulikowski reported net income of $730,000 for 2014. The fair value of Kulikowskis stock was $27 per share at December 31, 2014.

Instructions

1. (a) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps cannot exercise significant influence over Kulikowski. The securities should be classified as available- for-sale.
2. (b) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps can exercise significant influence over Kulikowski.
3. (c) At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2014? What is the total net income reported in 2014 under each of these methods?