Purposes of the assignment: Problem #1 focuses on some of the material in related to business acquisitions under the acquisition method. Problem #2 focuses on asset allocation and accounting under the equity method (chapter 1 material). 1. On January 1, 2012, Apsel Company acquired all of CRAFT Corporation?s assets and liabilities by issuing 25,000 shares of its $4 par value common stock. At that date, Apsel shares were selling at $26 per share. Historical cost and fair value balance sheet data for CRAFT at the time of the acquisition were as follows: Balance Sheet Item Historical Cost Fair Value Cash $33,000 $33,000 Inventory 94,000 108,000 Buildings and Equipment 600,000 500,000 Accumulated deprec. (240,000) Total Assets $487,000 $631,000 Accounts Payable $41,000 $41,000 Notes Payable 65,000 70,000 Common stock ($10 par) 160,000 Retained Earnings 221,000 Total Liabilities & Shareholders Equity $487,000 Craft also had In-Process Research and Development with a fair value of $100,000. Apsel paid legal fees for the transfer of assets and liabilities of $50,000. Apsel also paid audit fees of $22,000 and listing application fees of $8,000 both related to the issuance of new shares. Required: Your Deliverable: Prepare the journal entries made by Apsel to record the business combination. 2. Puhlman Company issued common shares with a par value of $50,000 and a market value of $450,000 in exchange for 25% percent ownership of Jacobs Corporation on January 1, 2013. Jacobs reported the following balances on that date: Jacobs Corporation Balance Sheet At January 1, 2013 Book Value Fair Value Assets Cash $80,000 $80,000 Accounts Receivable 160,000 160,000 Inventory (FIFO) 240,000 340,000 Land 100,000 125,000 Buildings and Equipment 1,000,000 720,000 Less: Accum. Deprn. (480,000) Patent 100,000 Total Assets $1,100,000 $1,525,000 Liabilities & Equities Accounts Payable $60,000 $60,000 Bonds Payable 200,000 See below Total Liabilities $260,000 Common stock 300,000 APIC 40,000 Retained Earnings 500,000 Total Stockholders Equity $840,000 Total Liabilities & Equities $1,100,000 The estimated economic life of the patents held by Jacobs is 10 years. The buildings and equipment are expected to last 15 years on average. Jacobs paid dividends of $40,000 during 2013 and reported net income of $150,000 for the year. Make reasonable assumptions about inventory when computing investment income given that Jacobs uses FIFO. The bonds have ten years to maturity at 1/1/13 and were initially issued at par. The coupon rate is 10% with interest paid annually at 12/31/13 and the market rate of interest for similarly risky bonds is 8% on 1/1/13. Puhlman uses the effective interest method for bond amortization. Required: 1. Prepare the journal entries made by Puhlman to record the initial purchase of Jacobs stock and the subsequent entries it would make to account for its investment in Jacobs assuming that significant influence is being exerted by Puhlman. Show all of your underlying assumptions and computations. 2. Compute the 12/31/13 ending balance in the Investment in Jacobs account and reconcile it to the ending stockholders' equity of Jacobs at 12/31/13.

Advanced Accounting Spring, 2014 Homework Set #1 Due at the beginning of class on Tuesday, April 15, 2014 Make a copy of your solution for yourself. Solution must be typed. Purposes of the assignment: Problem #1 focuses on some of the material in related to business acquisitions under the acquisition method. Problem #2 focuses on asset allocation and accounting under the equity method (chapter 1 material). 1. On January 1, 2012, Apsel Company acquired all of CRAFT Corporation's assets and liabilities by issuing 25,000 shares of its $4 par value common stock. At that date, Apsel shares were selling at $26 per share. Historical cost and fair value balance sheet data for CRAFT at the time of the acquisition were as follows: Balance Sheet Item Cash Inventory Buildings and Equipment Accumulated deprec. Total Assets Accounts Payable Notes Payable Common stock ($10 par) Retained Earnings Total Liabilities & Shareholders Equity Historical Cost Fair Value $33,000 94,000 600,000 (240,000) $487,000 $41,000 65,000 160,000 221,000 $33,000 108,000 500,000 $631,000 $41,000 70,000 $487,000 Craft also had In-Process Research and Development with a fair value of $100,000. Apsel paid legal fees for the transfer of assets and liabilities of $50,000. Apsel also paid audit fees of $22,000 and listing application fees of $8,000 both related to the issuance of new shares. Required: Your Deliverable: Prepare the journal entries made by Apsel to record the business combination. 2. Puhlman Company issued common shares with a par value of $50,000 and a market value of $450,000 in exchange for 25% percent ownership of Jacobs Corporation on January 1, 2013. Jacobs reported the following balances on that date: Jacobs Corporation Balance Sheet At January 1, 2013 Book Value Fair Value Assets Cash Accounts Receivable Inventory (FIFO) Land Buildings and Equipment Less: Accum. Deprn. Patent Total Assets $1,100,000 Liabilities & Equities Accounts Payable Bonds Payable Total Liabilities Common stock APIC Retained Earnings Total Stockholders Equity Total Liabilities & Equities $60,000 200,000 $260,000 300,000 40,000 500,000 $840,000 $1,100,000 $80,000 160,000 240,000 100,000 1,000,000 (480,000) $80,000 160,000 340,000 125,000 720,000 100,000 $1,525,000 $60,000 See below The estimated economic life of the patents held by Jacobs is 10 years. The buildings and equipment are expected to last 15 years on average. Jacobs paid dividends of $40,000 during 2013 and reported net income of $150,000 for the year. Make reasonable assumptions about inventory when computing investment income given that Jacobs uses FIFO. The bonds have ten years to maturity at 1/1/13 and were initially issued at par. The coupon rate is 10% with interest paid annually at 12/31/13 and the market rate of interest for similarly risky bonds is 8% on 1/1/13. Puhlman uses the effective interest method for bond amortization. Required: 1. Prepare the journal entries made by Puhlman to record the initial purchase of Jacobs stock and the subsequent entries it would make to account for its investment in Jacobs assuming that significant influence is being exerted by Puhlman. Show all of your underlying assumptions and computations. 2. Compute the 12/31/13 ending balance in the Investment in Jacobs account and reconcile it to the ending stockholders' equity of Jacobs at 12/31/13