Park Company acquired 100 percent of Sand Company’s outstanding stock for $1,450,000 cash on January 1, 2019 and paid $20,000 in fees to their lawyers for completing the deal. 

• By the end of 2019 it became clear that the research project that led to the in-process R&D was a failure with no future economic benefits. 

• Selected amounts from Park’s and Sand’s separate financial statements at December 31, 2020 are presented on the Project Facts tab in the Excel file provided in Canvas. 

• Park’s January 1, 2020, Retained Earnings balance (before any effect from Sand’s 2019 income or consolidation amounts in 2019) is $(930,000) (credit balance). 

• Park has 500,000 common shares outstanding for EPS calculations and reported $2,943,100 for consolidated assets at 1/1/2020. Project Requirements [12 points] On the “Project Facts” tab, review all information provided and complete the fair-value allocation schedule and calculate the excess amortizations for 2019 and 2020. Part 1 

a) Record the journal entry on Park’s books to acquire Sand assuming dissolution occurs, then record the journal entry assuming no dissolution. For the rest of the project, please assume no dissolution. 

b) Create a schedule showing the changes in the Investment in Sand account from acquisition through 12/31/2020 Part 2 [66 points for undergrads, 100 points for grads] Using these instructions as well as the instructions at the top of each tab, complete two (4240) or three (6024) consolidation worksheets. 

a) Equity method consolidation worksheet 

b) Initial value method consolidation worksheet 

c) Partial equity method consolidation worksheet (only 6024) 

d) Discuss the results found addressing the following: 

• The effects of alternative investment accounting methods on the parent’s trial balances and the final consolidation figures. 

• The relation between consolidated retained earnings and the parent’s retained earnings under each of the investment accounting methods 

• Which method did you find easiest to apply and why? 

Part 3 

Calculate and present the effects of a 2020 total goodwill impairment loss on the following ratios for the consolidated entity: Earnings per share (EPS), Return on assets (ROA), Return on equity (ROE), and Debt to equity. Your worksheets should have the capability to adjust immediately for the possibility that all acquisition goodwill can be considered impaired in 2020. However, make sure they do not show the impairment when you submit your final file. Below your calculations, discuss the results found. What is the effect on EPS, ROA, ROE, and debt to equity ratios when all of the acquisition related goodwill is considered impaired in 2021? What are some potential upsides and downsides when an impairment loss is recorded? Who is impacted by a goodwill impairment loss being recorded? Part 4 [49 points] Assume instead that Sand Company is located in Germany and uses the Euro for its currency. Park’s CFO wishes to determine the effect that a change in the value of the Euro would have on the financial results. To help assess the foreign currency exposure associated with the investment in Sand, the CFO requests assistance in comparing results under various exchange rate fluctuations. a) Using the exchange rates presented under the three different scenarios, translate Sand’s 12/31/2020 trial balance. The Euro is Sand’s functional currency. b) Provide a risk assessment for Park regarding how the change in exchange rate could impact net income, cash flows from dividends, and the debt-to-equity ratio. Below your calculations, discuss your findings. Make sure you address the following: • Did the change in rate impact the figures consistently? • When should Park hedge their Euro exposure (when the rate is increasing or decreasing)? • How could Park avoid a negative translation adjustment reported in other comprehensive income? • What are some other strategies Park could use based on your hedging knowledge from Chapter 9?

  

1 Cash 1 Receivables Inventory Land IEquipment (net) Software Total Assets I Liabilities T 1 Sand Balance Sheet 1/1/2019 Assets 1 1 I Common stock iRetained earnings Total Liabilities and Equity 1 Liabilities and Equity $ 37,000 82,000 149,000 90,000 225,000 315,000 898,000 $ (422,000) (350,000) (126,000) (898,000) Excess Fair Values Land Brand name Software In-process R&D Sand's Retained Earnings Changes 2019 2020 Fair-Value Allocation Schedule 80,000 60,000 Indefinite life-unrecognized on Sand's books 415,000 2-year estimated remaining useful life 300,000 Income 75,000 165,000 12 pts Dividends 35,000 December 31, 2020 Trial Balances Revenues Operating Expenses Goodwill Impairment Loss Income of Sand Net Income Retained Earnings-Park 1/1/20 Retained Earnings-Sand 1/1/20 Net Income (above) Dividends Declared Retained Earnings 12/31/20 Cash Receivables Inventory Investment in Sand Land Equipment (net) Software Other Intangibles Goodwill Total Assets Liabilities Common Stock Retained Earngings (above) Total Liabilities and Equity $ Park (1,052,000) $ 821,000 ? ? (231,000) ? (231,000) 200,000 (31,000) 195,000 247,000 415,000 ? 341,000 240,100 145,000 1,583,100 (1,537,100) (500,000) (31,000) (2,068,100) Sand (427,000) 262,000 I (165,000), (201,000) (165,000) 35,000! (331,000) 95,000 143,000 I 197,000 I 85,000 i 100,000 312,000! 932,000! (251,000) (350,000) (331,000) (932,000)