On January 1, 20X3, Pope Company acquired 100% of the common stock to Siegel company for $300,000. On this date, Siegel hd total owner's equity of $250,000. any excess of cost over book value is attributable to goodwill. Pope accounts for its investment in siegel using the simple equity method. On July 1, 20X3, Siegel Company sold to outside investors $300,000 par value of 10-year, 10% bonds. The price received was equal to par. The bonds pay interest semi-annually on July 1 and January 1. During early 20X4, market interest rates on bonds similar to those issued by Siegel decreased to 8%. As a result, the market value of the bonds increased. On July 1, 20X4, Pope purchased $150,000 par value of Siegel's bonds, paying $163,000. Pope still holds the bonds on December 31, 20X4 and has amortized the premium, using the straight-line method. Required: complete the worksheet for consolidated financial statements for the year ended December 31, 20X4. Round all computations to the nearest dollar.

Wayne Thomas MSM526 2nd Exam Chp 4 & 5 Multiple Choice Identify the choice that best completes the statement or answers the question. __C__ 1. Schiff Company owns 100% of the outstanding common stock of the Viel Company. During 20X1, Schiff sold merchandise to Viel that Viel, in turn, sold to unrelated firms. There were no such goods in Viel's ending inventory. However, some of the intercompany purchases from Schiff had not yet been paid. Which of the following amounts will be incorrect in the consolidated statements if no adjustments are made? a. inventory, accounts payable, net income b. inventory, sales, cost of goods sold, accounts receivable c. sales, cost of goods sold, accounts receivable, accounts payable. d. accounts receivable, accounts payable __C__ 2. Sally Corporation, an 80%-owned subsidiary of Reynolds Company, buys half of its raw materials from Reynolds. The transfer price is exactly the same price as Sally pays to buy identical raw materials from out side suppliers and the same price as Reynolds sells the materials to unrelated customers. In preparing consol idated statements for Reynolds Company and Subsidiary Sally Corporation, a. the intercompany transactions can be ignored because the transfer price represents arm's length bargaining. b. any unrealized profit from intercompany sales remaining in Reynolds' ending inventory must be offset against the unrealized profit in Reynolds' beginning inventory. c. any unrealized profit on the intercompany transactions in Sally's ending inventory is elim inated in its entirety. d. eighty percent of any unrealized profit on the intercompany transactions in Sally's ending inventory is eliminated. __D__ 3. Emron Company owns a 100% interest in the common stock of the Dietz Company. On January 1, 20X2, Em ron sold Dietz a fixed asset that Dietz will use over a 5-year period. The asset was sold at a $5,000 profit. In the consolidated statements, this profit will a. not be recorded. b. be recognized over 5 years. c. be recognized in the year of sale. d. be recognized when the asset is resold to outside parties at the end of its period of use. __D__ 4. Patti Corp. has several subsidiaries (Aeta, Beta, and Gaeta) that are included in its consolidated financial statements. In its 12/31/X1 separate balance sheet, Patti had the following intercompany balances before elim inations: Current Receivable due from Aeta Debit $ 40,000 Credit Noncurrent Receivable due from Beta Cash Advance to Beta 100,000 26,000 Cash Advance from Gaeta Intercompany Payable to Gaeta $75,000 40,000 In its 12/31/X1 consolidated balance sheet, what amount should Patti report as intercompany receivables? a. $166,000 b. $51,000 c. $26,000 d. $0 __D__ 5. Phelps Co. uses the sophisticated equity method to account for the 80% investment in its subsidiary Shore Corp. At the time of the acquisition, the fair values of the net asset required approximated their book values. Based upon the following information, what amount does Phelps Co. record as subsidiary income? Phelps internally generated income: Shore internally generated income: Intercompany profit on Shore beginning inventory: Intercompany profit on Shore ending inventory: $250,000 $ 50,000 $ 10,000 $ 15,000 a. $50,000 b. $44,000 c. $40,000 d. $36,000 __C__ 6. The purchase of outstanding subsidiary bonds by the parent company has the same impact on consolidated statements as: a. the subsidiary retiring its own debt with the proceeds of new debt issued to outside parties. b. the subsidiary retiring the debt with the proceeds of a loan from the parent. c. the subsidiary retiring the debt with the proceeds of a new stock issue. d. allowing the bonds to continue to be held by outside interests. __B__ 7. The purchase of additional shares from the noncontrolling interest of a subsidiary by the parent results in dis closure in which section of a cash flow statement? a. operating activities b. financing activities c. investing activities d. not reflected on the statement of cash flows __A__ 8. Which of the following statements is true about the consolidated statement of cash flows? a. The purchase of intercompany bonds from parties outside the consolidated group is treated as a retirement of consolidated debt; the payment is reported as a cash outflow from finan cing activities. b. The purchase of intercompany bonds from parties outside the consolidated group is treated as a retirement of consolidated debt; the payment is reported as a cash outflow from in vesting activities. c. Intercompany interest payments and amortization of premiums and/or discounts on inter company bonds are reported in the operating activities section of the statement. d. Intercompany interest payments and amortization of premiums and/or discounts on inter company bonds are reported in the investing activities section of the statement. __C__ 9. Program Corporation owns 70% of Solution Company. Selected financial data for each for the current year follows: Program Corporation: Internally generated net income $125,000 Common shares outstanding 100,000 Solution Company: Net income (adjusted for intercompany profits) Common shares outstanding $ 50,000 10,000 Consolidated basic earnings per share (BEPS) is (round to the nearest cent): a. $1.25 b. $1.64 c. $1.60 d. $1.59 Problem 1. Company S has been an 80%-owned subsidiary of Company P since January 1, 20X7. The determination and distribution of excess schedule prepared at the time of purchase was as follows: Entity FV Book value: Pain-in capital in excess of par Retained earnings 1/1/X1 Book value Excess Equipment Goodwill Total Entity 80% Parent $ 712,500 $ 570,000 20% NCI $ 142,500 300,000 300,000 600,000 $ 112,500 $ 50,000 62,500 $ 112,500 480,000 $ 90,000 10 yr 120,000 $ 22,500 5,000 On January 2, 20X9, Company P issued $120,000 of 8% bonds at face value to help finance the purchase of 25% of the outstanding common stock of Alpha Company for $200,000. No excess resulted from this transac tion. Alpha earned $100,000 net income during 20X9 and paid $20,000 in dividends. The only change in plant assets during 20X9 was that Company S sold a machine for $10,000. The machine had a cost of $60,000 and accumulated depreciation of $40,000. Depreciation expense recorded during 20X9 was as follows: Buildings Company P $15,000 Machinery 35,000 Company S Alpha Company $ 8,000 $12,000 20,000 4,000 The 20X9 consolidated income was $180,000, of which the NCI was $10,000. Company P paid dividends of $12,000, and Company S paid dividends of $10,000. Consolidated inventory was $287,000 in 20X8 and $223,000 in 20X9; consolidated current liabilities were $246,000 in 20X8 and $216,700 in 20X9. Cash increased by $203,700. Required: Using the indirect method and the information provided, prepare the 20X9 consolidated statement of cash flows for Company P. and its subsidiary, Company S. 2. On January 1, 20X3, Pope Company acquired 100% of the common stock of Siegel Company for $300,000. On this date Siegel had total owners' equity of $250,000. Any excess of cost over book value is attributable to goodwill. Pope accounts for its investment in Siegel using the simple equity method. On July 1, 20X3, Siegel Company sold to outside investors $300,000 par value of 10-year, 10% bonds. The price received was equal to par. The bonds pay interest semi-annually on July 1 and January 1. During early 20X4, market interest rates on bonds similar to those issued by Siegel decreased to 8%. As a res ult, the market value of the bonds increased. On July 1, 20X4, Pope purchased $150,000 par value of Siegel's bonds, paying $163,000. Pope still holds the bonds on December 31, 20X4 and has amortized the premium, using the straight-line method. Required: Complete the Figure 5-1 worksheet for consolidated financial statements for the year ended December 31, 20X4. Round all computations to the nearest dollar. Account Titles Interest Receivable Other Current Assets Investment in Sub. ComInvestment in Sub. Bonds Figure 5-1 Trial Balance Pope Siegel Company Company 7,500 157,212 371,000 410,000 162,278 Eliminations and Adjustments Debit Credit Land Buildings and Equipment Rent Receivable Goodwill 50,000 350,000 (100,000) 30,000 380,000 (50,000) Interest Payable Other Current Liabilities Bonds Payable, 10% (120,000) (15,000) (56,000) (300,000) Other Long-Term LiabilitCommon Stock - P Co. Other Paid-in Capital - P Retained Earnings - P Co. (200,000) (200,000) (100,000) (280,212) Common Stock - S Co. Other Paid-in Capital - S Retained Earnings - S Co. Net Sales Cost of Goods Sold Operating Expenses Interest Expense Interest Income Subsidiary Income Dividends Declared - P Dividends Declared - S Loss on Retirement of (50,000) (70,000) (180,000) (500,000) 300,000 100,000 (400,000) 240,000 50,000 30,000 (6,778) (80,000) 50,000 20,000 Consolidated Net Income To NCI To Controlling Interest Total NCI Ret. Earn. Contr. Int. 120 0 (continued) Account Titles Interest Receivable Other Current Assets Investment in Sub. ComInvestment in Sub. Bonds Land Buildings and Equipment Rent Receivable Goodwill Consol. Income Statement NCI Control. Retained Earnings Consol. Balance Sheet Interest Payable Other Current Liabilities Bonds Payable, 10% Other Long-Term LiabilitCommon Stock - P Co. Other Paid-in Capital - P Retained Earnings - P Co. Common Stock - S Co. Other Paid-in Capital - S Retained Earnings - S Co. Net Sales Cost of Goods Sold Operating Expenses Interest Expense Interest Income Subsidiary Income Dividends Declared - P Dividends Declared - S Loss on Retirement of Consolidated Net Income To NCI To Controlling Interest Total NCI Ret. Earn. Contr. Int. 12