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Question 2 ( 2 5 marks ) The Statements of Financial Position of Plymouth Incorporated and Studebaker Incorporated a t December 3 1 , 2
Question marks The Statements of Financial Position of Plymouth Incorporated and Studebaker Incorporated at December were: You are provided with information to enable you to prepare consolidated financial statements for the two companies as at December : Plymouth Incorporated acquired of the outstanding common shares of Studebaker Incorporated on July at a cost of $ Plymouth accounts for its investment in Studebaker using the cost method and values the noncontrolling interest in its subsidiary based on the value of its shares on the national stock exchange immediately after the acquisition. When the markets opened on July shares in Studebaker were trading for $ per share. On the acquisition date, the shareholders' equity of Studebaker amounted to $ and its accumulated amortization amounted to $ Inventory on its balance sheet was overvalued by $ buildings with a remaining life of years were undervalued by $ and the patents which had a carrying value of $ had a fair value of $ and a remaining economic life of eight years. There were no changes in Studebaker's share capital between the acquisition date and the end of From the acquisition date to December goodwill impairment totalled $ of which $ pertained to the noncontrolling interest share of the goodwill. Goodwill impairment in indicated a further loss of $ of which $ related to the noncontrolling interest share. During Plymouth reported net income of $ and declared dividends of $ and Studebaker declared net income of $ and declared dividends of $ Plymouth has been selling merchandise to its subsidiary on a regular basis with the goods priced to provide Plymouth with a gross profit of Such sales amounted to $ in and $ in On January the inventory of Studebaker contained goods purchased from Plymouth at a cost of $ and its inventory at December contained goods purchased from Plymouth at a cost of $ On August Studebaker sold some land to Plymouth at a profit of $ During Plymouth sold onethird of this land to an unrelated party. Plymouth also charges royalties to Studebaker. During these charges totalled $ At December Studebaker owed Plymouth $ for royalties and an additional $ for inventory purchases. Both companies pay income tax at a rate of Required: a Prepare the consolidated statement of financial position of Plymouth and its subsidiary Studebaker as at December b Prepare the journal entries that would be made on the books of Plymouth for the year ended December if Plymouth accounted for its investment in Studebaker using the equity method.
Question marks
The Statements of Financial Position of Plymouth Incorporated and Studebaker Incorporated at December
were:
You are provided with information to enable you to prepare consolidated financial statements for the two
companies as at December :
Plymouth Incorporated acquired of the outstanding common shares of Studebaker Incorporated
on July at a cost of $ Plymouth accounts for its investment in Studebaker using the cost
method and values the noncontrolling interest in its subsidiary based on the value of its shares on the national
stock exchange immediately after the acquisition. When the markets opened on July shares in
Studebaker were trading for $ per share.
On the acquisition date, the shareholders' equity of Studebaker amounted to $ and its accumulated
amortization amounted to $ Inventory on its balance sheet was overvalued by $ buildings with
a remaining life of years were undervalued by $ and the patents which had a carrying value of
$ had a fair value of $ and a remaining economic life of eight years. There were no changes in
Studebaker's share capital between the acquisition date and the end of
From the acquisition date to December goodwill impairment totalled $ of which $
pertained to the noncontrolling interest share of the goodwill. Goodwill impairment in indicated a further
loss of $ of which $ related to the noncontrolling interest share.
During Plymouth reported net income of $ and declared dividends of $ and Studebaker
declared net income of $ and declared dividends of $
Plymouth has been selling merchandise to its subsidiary on a regular basis with the goods priced to provide
Plymouth with a gross profit of Such sales amounted to $ in and $ in On
January the inventory of Studebaker contained goods purchased from Plymouth at a cost of $
and its inventory at December contained goods purchased from
Plymouth at a cost of $
On August Studebaker sold some land to Plymouth at a profit of $ During Plymouth sold
onethird of this land to an unrelated party.
Plymouth also charges royalties to Studebaker. During these charges totalled $ At December
Studebaker owed Plymouth $ for royalties and an additional $ for inventory purchases.
Both companies pay income tax at a rate of
Required:
a Prepare the consolidated statement of financial position of Plymouth and its subsidiary Studebaker as at
December
b Prepare the journal entries that would be made on the books of Plymouth for the year ended December
if Plymouth accounted for its investment in Studebaker using the equity method.
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