Parent acquired shares of Subsidiary on January 1, 20xo, as indicated below. Subsidiary's balance sheet and related fair values at the date of acquisition are also shown below. Doo 52, 360 3 3 Number of shares acquired Purchase price per share Fair value per share 2: Dec. 31, 20x2 Useful life of the automobiles Useful life of the equipment Useful lite of the patent Subsidiary's re: income in 20X1 Subsidiary's dividends in 20X1 Tax rate Tax depreciation Estimated tax payment 6.900 7. 70 8.30 5 10 10 41,400 4,100 30.004 23, 900 6,000 Payment Change Subsidiary's note receivable December 31, 20X0 December 31, 20X1 December 31, 20X2 December 31, 20X3 December 31, 20X4 Balance 125,000 98, 347 67, 131 34. 426 36,181 36. 131 36,181 36, 131 144, 726 Payment Interest 5. 104 6, 523 5. 016 3. 426 1, 756 16,726 Interest 4. 604 11. 122 9. 101 6.977 4.755 2, 431 34, 296 (29,653) (21. 166) (22.755) (34,426) (129, 000) Change Subsidiary's note payable December 31, 20XO December 31, 20X1 December 31, 20X2 December 31, 20X3 December 31, 20X4 December 31, 20X5 55. 279 55, 279 55, 279 55, 279 55, 279 276, 296 (44, 147) (46, 178) (43, 302) (50, 524) (52, 349) (242, 000) Balance 242, 000 197, 853 151, 675 103, 372 52, 843 0 Subsidiary Balance Sheet December 31, 20XO Book Valve Fair Value Excess Cash 3 43.700 3 43.700 Accounts receivable 64,500 64, 500 243.600 Other current 255ets Automobiles 243, 600 67,000 106, 200 (15. 200) 5 (3, 040) Accumulated depreciation (24, 000) Beuipment 187.000 196.000 52.000 10 5, 200 (43.000) Accumulated depreciation Note receivable Patent 129.000 123,000 (5,000) 59,000 77.000 18,000 10 1.800 Goodwill 37.900 37.900 Total 3 775.000 862.700 3 87. 700 Accounts payable 3 59. 300 59. 300 59. 200 59. 200 Salaries payable Note payable 242, 000 220,000 (22, 000) Common stock ($1 par value) 63.000 523.600 109.700 Additional paid-in capital 249, 900 Retained earnings 96.000 Total 775.000 862.700 87.700 Probler Parent Company Income Statement for the year ended December 31, 20X2 Fair Value Equity Sales 327, 300 327, 300 Dividend income Unrealized gain Income from Subsidiary Cost of goods sold 124, 400 124, 400 Salary expense 104, 700 104, 700 Depreciation expense 18, 400 18, 400 Interest expense 6, 200 6, 200 Utilities expense 26, 200 26, 200 Pretax income Tax expense Net income Parent Company Statement of Retained Earnings for the year ended December 31 Fair Value Equity Beginning balance 55,500 55, 500 Net income Dividends declared (4,000) (4,000) Ending balance Parent Company Balance Sheet As of December 31, 20X1 and 2x2 20X1 Fair value Equity Cash 112,500 74, 000 74,000 Accounts receivable 26, 800 29,500 29, 500 Inventory 17,000 11, 200 11, 200 Land 151,000 166, 100 166, 100 Equipment 204,500 255, 600 255, 600 Accumulated depreciation (45, 000) (63, 400) (63, 400) Investments Investment in Subsidiary Total 466, 800 Accounts payable 53, 650 50, 500 50, 500 Salaries payable 8,600 9,400 9,400 Taxes payable 6, 200 Dividends payable 1,000 800 800 Deferred taxes payable - Depreciation 6, 750 Deferred taxes payable - Investment Deferred taxes payable - Equity method Note payable 124, 700 118,500 118,500 Common stock 92,500 108, 200 108, 200 Additional paid-in capital 117,900 137, 900 137, 900 Retained earnings 55,500 Total 466, 800 Problem 2 Parent bought some shares of Subsidiary on December 31, 20x0, as indicated below. Number of shares acquired 3, 600 Fair value per share December 31, 20X0 $ 8. 20 December 31, 20X1 $ 9.80 Useful life of equipment 10 Note payable Term 6 Interest rate 4. 90% Tax rate 30.00% Excess $ $ Cash Accounts receivable Other current assets Equipment Accumulated depreciation Goodwill Total Book Value $ 49, 500 124, 200 188, 600 444, 000 (169,000) Fair Value 49,500 124, 200 188, 600 344, 000 69,000 53, 800 760, 100 53, 800 122, 800 637, 300 $ $ $ Accounts payable Other liabilities Notes payable Common stock ($1 per) Additional paid-in capital Retained earnings Total 67, 300 134, 600 241,000 36,000 77, 700 80, 700 637, 300 67, 300 134, 600 263, 000 295, 200 22,000 100, 800 $ 760, 100 122, 800 Subsidiary's income for 20X1 Subsidiary's dividends declared during 20X1 37,000 5,000 Problea 2 Assume Parent has been using the fair value method. On January 1, 20x2, Parent acquired additioinal shares as indicated below, and switched to the equity method. Number of additional shares acquired Purchase price per share 5, 040 9.80 $ B This problem is independent of the first problem. Assume Parent has been using the equity method. On January 1, 20x2, Parent sold shares as indicated below, and switched to the fair value method. 0-O-O Shares sold Sales price 1, 440 9. 80 $ Probler 1 Fair Value Method (determine balances belon as of December 31, 20X2) Investments Deferred taxes payable - Investment Deferred taxes payable - Depreciation Operating cash flow Equity Vethod (determine balances below as of December 31, 20X2) Investment in Subsidiary 52, 360 Taxes payable Deferred taxes payable - Equity method Operating cash flow Problem 2 When switching to the equity method retained earnings is credited for When switching from the equity method. the rain is credited for Parent acquired shares of Subsidiary on January 1, 20xo, as indicated below. Subsidiary's balance sheet and related fair values at the date of acquisition are also shown below. Doo 52, 360 3 3 Number of shares acquired Purchase price per share Fair value per share 2: Dec. 31, 20x2 Useful life of the automobiles Useful life of the equipment Useful lite of the patent Subsidiary's re: income in 20X1 Subsidiary's dividends in 20X1 Tax rate Tax depreciation Estimated tax payment 6.900 7. 70 8.30 5 10 10 41,400 4,100 30.004 23, 900 6,000 Payment Change Subsidiary's note receivable December 31, 20X0 December 31, 20X1 December 31, 20X2 December 31, 20X3 December 31, 20X4 Balance 125,000 98, 347 67, 131 34. 426 36,181 36. 131 36,181 36, 131 144, 726 Payment Interest 5. 104 6, 523 5. 016 3. 426 1, 756 16,726 Interest 4. 604 11. 122 9. 101 6.977 4.755 2, 431 34, 296 (29,653) (21. 166) (22.755) (34,426) (129, 000) Change Subsidiary's note payable December 31, 20XO December 31, 20X1 December 31, 20X2 December 31, 20X3 December 31, 20X4 December 31, 20X5 55. 279 55, 279 55, 279 55, 279 55, 279 276, 296 (44, 147) (46, 178) (43, 302) (50, 524) (52, 349) (242, 000) Balance 242, 000 197, 853 151, 675 103, 372 52, 843 0 Subsidiary Balance Sheet December 31, 20XO Book Valve Fair Value Excess Cash 3 43.700 3 43.700 Accounts receivable 64,500 64, 500 243.600 Other current 255ets Automobiles 243, 600 67,000 106, 200 (15. 200) 5 (3, 040) Accumulated depreciation (24, 000) Beuipment 187.000 196.000 52.000 10 5, 200 (43.000) Accumulated depreciation Note receivable Patent 129.000 123,000 (5,000) 59,000 77.000 18,000 10 1.800 Goodwill 37.900 37.900 Total 3 775.000 862.700 3 87. 700 Accounts payable 3 59. 300 59. 300 59. 200 59. 200 Salaries payable Note payable 242, 000 220,000 (22, 000) Common stock ($1 par value) 63.000 523.600 109.700 Additional paid-in capital 249, 900 Retained earnings 96.000 Total 775.000 862.700 87.700 Probler Parent Company Income Statement for the year ended December 31, 20X2 Fair Value Equity Sales 327, 300 327, 300 Dividend income Unrealized gain Income from Subsidiary Cost of goods sold 124, 400 124, 400 Salary expense 104, 700 104, 700 Depreciation expense 18, 400 18, 400 Interest expense 6, 200 6, 200 Utilities expense 26, 200 26, 200 Pretax income Tax expense Net income Parent Company Statement of Retained Earnings for the year ended December 31 Fair Value Equity Beginning balance 55,500 55, 500 Net income Dividends declared (4,000) (4,000) Ending balance Parent Company Balance Sheet As of December 31, 20X1 and 2x2 20X1 Fair value Equity Cash 112,500 74, 000 74,000 Accounts receivable 26, 800 29,500 29, 500 Inventory 17,000 11, 200 11, 200 Land 151,000 166, 100 166, 100 Equipment 204,500 255, 600 255, 600 Accumulated depreciation (45, 000) (63, 400) (63, 400) Investments Investment in Subsidiary Total 466, 800 Accounts payable 53, 650 50, 500 50, 500 Salaries payable 8,600 9,400 9,400 Taxes payable 6, 200 Dividends payable 1,000 800 800 Deferred taxes payable - Depreciation 6, 750 Deferred taxes payable - Investment Deferred taxes payable - Equity method Note payable 124, 700 118,500 118,500 Common stock 92,500 108, 200 108, 200 Additional paid-in capital 117,900 137, 900 137, 900 Retained earnings 55,500 Total 466, 800 Problem 2 Parent bought some shares of Subsidiary on December 31, 20x0, as indicated below. Number of shares acquired 3, 600 Fair value per share December 31, 20X0 $ 8. 20 December 31, 20X1 $ 9.80 Useful life of equipment 10 Note payable Term 6 Interest rate 4. 90% Tax rate 30.00% Excess $ $ Cash Accounts receivable Other current assets Equipment Accumulated depreciation Goodwill Total Book Value $ 49, 500 124, 200 188, 600 444, 000 (169,000) Fair Value 49,500 124, 200 188, 600 344, 000 69,000 53, 800 760, 100 53, 800 122, 800 637, 300 $ $ $ Accounts payable Other liabilities Notes payable Common stock ($1 per) Additional paid-in capital Retained earnings Total 67, 300 134, 600 241,000 36,000 77, 700 80, 700 637, 300 67, 300 134, 600 263, 000 295, 200 22,000 100, 800 $ 760, 100 122, 800 Subsidiary's income for 20X1 Subsidiary's dividends declared during 20X1 37,000 5,000 Problea 2 Assume Parent has been using the fair value method. On January 1, 20x2, Parent acquired additioinal shares as indicated below, and switched to the equity method. Number of additional shares acquired Purchase price per share 5, 040 9.80 $ B This problem is independent of the first problem. Assume Parent has been using the equity method. On January 1, 20x2, Parent sold shares as indicated below, and switched to the fair value method. 0-O-O Shares sold Sales price 1, 440 9. 80 $ Probler 1 Fair Value Method (determine balances belon as of December 31, 20X2) Investments Deferred taxes payable - Investment Deferred taxes payable - Depreciation Operating cash flow Equity Vethod (determine balances below as of December 31, 20X2) Investment in Subsidiary 52, 360 Taxes payable Deferred taxes payable - Equity method Operating cash flow Problem 2 When switching to the equity method retained earnings is credited for When switching from the equity method. the rain is credited for