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Problem 3 (50 points) With a cash payment of $15 million and by issuing 500,000 shares of their own $1 par value common stock, Preston Company acquired a 100% of the outstanding common stock of Scalibrini, Inc. At the acquisition date, 1/1/20x0, Preston Company's common stock had a market value of $8/share. At the time of the acquisition, the book value of Scalibrini's net assets was $16,970,000. There was no control premium in this transaction. Any amount of the acquisition price paid in excess of the fair value of the net assets acquired is assigned to goodwill. At 1/1/20x0, Scalibrini, Inc. prepared the following analysis of the book value vs. the fair value of their non-current assets: Remaining Useful Life Land Buildings Equipment Book Value $1,700,000 2,700,000 3,700,000 Fair Value $2,550,000 3,400,000 3,300,000 7 years 5 years Preston Company uses the equity method to account for the acquisition of Scalibrini, Inc. and, after the acquisition, Scalibrini, Inc. will be a separate operating subsidiary of Preston Company. Required: A. Prepare the journal entry to record Preston Company's investment in Scalibrini, Inc. @1/1/20x0. B. Prepare a schedule showing the allocation of the purchase price to the net assets acquired. In your schedule include the estimated useful lives and annual amortizations for fair value adjustments to specific net assets acquired. C. Prepare a schedule showing the change in Preston Company's Investment in Scalibrini, Inc. account from the acquisition date, i.e., 1/1/20x0, to 12/31/20x0. D. On the next page, I've posted Preston Company and Scalibrini, Inc.'s account balances as of December 31, 20x0. Using those account balances, 1. Prepare Preston Company's fye 12/31/20x0 journal entries on their separate company books and records related to their investment in Scalibrini, Inc. 2. Prepare the worksheet adjusting entries as of December 31, 20x0 necessary to consolidate Preston Company and Scalibrini, Inc. 3. Using the given information and an excel worksheet, prepare the worksheet to consolidate Preston Company and Scalibrini, Inc. E. For information purposes, the Controller of Preston Company asks that you briefly summarize the implications for the consolidation accounting and the consolidating adjusting entries of an intra-entity transfer of a depreciable asset, i.e. between Preston and Scalibrini. Following are the separate financial statements of Preston and Scalibrini, Inc. for the year ending 12/31/20x0: Revenues Expenses Equity in income of Scalibrini, Inc. Net income Preston Company 298,000,000 271,000,000 8,000,000 35.000.000 Scalibrini Incorporated 103,750,000 95,800,000 0 7.950.000 Retained earnings, January 1, 20x0 Net income (above) Dividends paid Retained earnings, December 31, 20x0 2,300,000 35,000,000 4,800,000 32.500.000 100,000 7,950,000 3,000,000 5.050.000 20,800,000 Current Assets Investment in Scalibrini, Inc. Land Buildings Equipment (net) Total assets 24,850,500 22,450,000 1,500,000 5,600,000 3,100,000 57.500.500 1,700,000 2,360,000 2,960,000 27.820,000 3,100,000 Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings, Dec. 31, 20x0 (above) Total liabilities and stockholders' equity 2,900,000 19,000,000 32,500,000 57,500,000 4,900,000 1,000,000 6,000,000 10,870,000 5,050,000 27.820.000 Bonus Question (5 points) With respect to accounting for goodwill reported in the acquisition of Scalibrini, Inc.: 1. Explain the U.S. GAAP approach for accounting for the impairment of goodwill. 2. Discuss the difference between U.S. GAAP and international accounting standards on the accounting for goodwill impairment. In answering this question, discuss accounting for the impairment of goodwill only. No credit will be given for unrelated comments. Problem 3 (50 points With a cash payment of $15 million and by issuing 500,000 shares of their own $1 par value common stock, Preston Company acquired a 100% of the outstanding common stock of Scalibrini, Inc. At the acquisition date, 1/1/20x0, Preston Company's common stock had a market value of $8/share. At the time of the acquisition, the book value of Scalibrini's net assets was $16,970,000. There was no control premium in this transaction. Any amount of the acquisition price paid in excess of the fair value of the net assets acquired is assigned to goodwill. At 1/1/20x0, Scalibrini, Inc. prepared the following analysis of the book value vs. the fair value of their non-current assets: Book Fair Remaining Value Value Useful life Land $1,700,000 $2,550,000 Buildings 2,700,000 3,400,000 7 years Equipment 3,700,000 3,300,000 5 years Preston Company uses the equity method to account for the acquisition of Scalibrini, Inc. and, after the acquisition, Scalibrini, Inc. will be a separate operating subsidiary of Preston Company. Required: A. Prepare the journal entry to record Preston Company's investment in Scalibrini, Inc. @1/1/20x0. B. Prepare a schedule showing the allocation of the purchase price to the net assets acquired. In your schedule include the estimated useful lives and annual amortizations for fair value adjustments to specific net assets acquired. C. Prepare a schedule showing the change in Preston Company's Investment in Scalibrini, Inc. account from the acquisition date, i.e., 1/1/20x0, to 12/31/20x0. D. On the next page, I've posted Preston Company and Scalibrini, Inc.'s account balances as of December 31, 20x0. Using those account balances, 1. Prepare Preston Company's fye 12/31/20x0 journal entries on their separate company books and records related to their investment in Scalibrini, Inc. 2. Prepare the worksheet adjusting entries as of December 31, 20x0 necessary to consolidate Preston Company and Scalibrini, Inc. 3. Using the given information and an excel worksheet, prepare the worksheet to consolidate Preston Company and Scalibrini, Inc. E. For information purposes, the Controller of Preston Company asks that you briefly summarize the implications for the consolidation accounting and the consolidating adjusting entries of an intra-entity transfer of a depreciable asset, i.e. between Preston and Scalibrini. Following are the separate financial statements of Preston and Scalibrini, Inc. for the year ending 12/31/20x0: Preston Scalibrini Company Incorporated Revenues 298,000,000 103,750,000 Expenses 271,000,000 95,800,000 Equity in income of Scalibrini, Inc. 8.000.000 Net income 35,000,000 7950.000 Retained earnings, January 1, 20x0 Net income (above) Dividends paid Retained earnings, December 31, 20x0 2,300,000 35,000,000 4.800.000 32.500.000 100,000 7,950,000 3.000.000 5.050.000 20,800,000 Current Assets Investment in Scalibrini, Inc. Land Buildings Equipment (net) Total assets 24,850,500 22,450,000 1,500,000 5,600,000 3.100,000 57.500.500 1,700,000 2,360,000 2.960,000 27.820,000 3,100,000 Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings, Dec 31, 20x0 (above) Total liabilities and stockholders' equity 2,900,000 19,000,000 32,500,000 57,500,000 4,900,000 1,000,000 6,000,000 10,870,000 5,050.000 27.820,000 Bonus Question is points) With respect to accounting for goodwill reported in the acquisition of Scalibrini, Inc.: 1. Explain the U.S. GAAP approach for accounting for the impairment of goodwill 2. Discuss the difference between U.S. GAAP and international accounting standards on the accounting for goodwill impairment. In answering this question, discuss accounting for the impairment of goodwill only. No credit will be given for unrelated comments. Problem 3 (50 points) With a cash payment of $15 million and by issuing 500,000 shares of their own $1 par value common stock, Preston Company acquired a 100% of the outstanding common stock of Scalibrini, Inc. At the acquisition date, 1/1/20x0, Preston Company's common stock had a market value of $8/share. At the time of the acquisition, the book value of Scalibrini's net assets was $16,970,000. There was no control premium in this transaction. Any amount of the acquisition price paid in excess of the fair value of the net assets acquired is assigned to goodwill. At 1/1/20x0, Scalibrini, Inc. prepared the following analysis of the book value vs. the fair value of their non-current assets: Remaining Useful Life Land Buildings Equipment Book Value $1,700,000 2,700,000 3,700,000 Fair Value $2,550,000 3,400,000 3,300,000 7 years 5 years Preston Company uses the equity method to account for the acquisition of Scalibrini, Inc. and, after the acquisition, Scalibrini, Inc. will be a separate operating subsidiary of Preston Company. Required: A. Prepare the journal entry to record Preston Company's investment in Scalibrini, Inc. @1/1/20x0. B. Prepare a schedule showing the allocation of the purchase price to the net assets acquired. In your schedule include the estimated useful lives and annual amortizations for fair value adjustments to specific net assets acquired. C. Prepare a schedule showing the change in Preston Company's Investment in Scalibrini, Inc. account from the acquisition date, i.e., 1/1/20x0, to 12/31/20x0. D. On the next page, I've posted Preston Company and Scalibrini, Inc.'s account balances as of December 31, 20x0. Using those account balances, 1. Prepare Preston Company's fye 12/31/20x0 journal entries on their separate company books and records related to their investment in Scalibrini, Inc. 2. Prepare the worksheet adjusting entries as of December 31, 20x0 necessary to consolidate Preston Company and Scalibrini, Inc. 3. Using the given information and an excel worksheet, prepare the worksheet to consolidate Preston Company and Scalibrini, Inc. E. For information purposes, the Controller of Preston Company asks that you briefly summarize the implications for the consolidation accounting and the consolidating adjusting entries of an intra-entity transfer of a depreciable asset, i.e. between Preston and Scalibrini. Following are the separate financial statements of Preston and Scalibrini, Inc. for the year ending 12/31/20x0: Revenues Expenses Equity in income of Scalibrini, Inc. Net income Preston Company 298,000,000 271,000,000 8,000,000 35.000.000 Scalibrini Incorporated 103,750,000 95,800,000 0 7.950.000 Retained earnings, January 1, 20x0 Net income (above) Dividends paid Retained earnings, December 31, 20x0 2,300,000 35,000,000 4,800,000 32.500.000 100,000 7,950,000 3,000,000 5.050.000 20,800,000 Current Assets Investment in Scalibrini, Inc. Land Buildings Equipment (net) Total assets 24,850,500 22,450,000 1,500,000 5,600,000 3,100,000 57.500.500 1,700,000 2,360,000 2,960,000 27.820,000 3,100,000 Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings, Dec. 31, 20x0 (above) Total liabilities and stockholders' equity 2,900,000 19,000,000 32,500,000 57,500,000 4,900,000 1,000,000 6,000,000 10,870,000 5,050,000 27.820.000 Bonus Question (5 points) With respect to accounting for goodwill reported in the acquisition of Scalibrini, Inc.: 1. Explain the U.S. GAAP approach for accounting for the impairment of goodwill. 2. Discuss the difference between U.S. GAAP and international accounting standards on the accounting for goodwill impairment. In answering this question, discuss accounting for the impairment of goodwill only. No credit will be given for unrelated comments. Problem 3 (50 points With a cash payment of $15 million and by issuing 500,000 shares of their own $1 par value common stock, Preston Company acquired a 100% of the outstanding common stock of Scalibrini, Inc. At the acquisition date, 1/1/20x0, Preston Company's common stock had a market value of $8/share. At the time of the acquisition, the book value of Scalibrini's net assets was $16,970,000. There was no control premium in this transaction. Any amount of the acquisition price paid in excess of the fair value of the net assets acquired is assigned to goodwill. At 1/1/20x0, Scalibrini, Inc. prepared the following analysis of the book value vs. the fair value of their non-current assets: Book Fair Remaining Value Value Useful life Land $1,700,000 $2,550,000 Buildings 2,700,000 3,400,000 7 years Equipment 3,700,000 3,300,000 5 years Preston Company uses the equity method to account for the acquisition of Scalibrini, Inc. and, after the acquisition, Scalibrini, Inc. will be a separate operating subsidiary of Preston Company. Required: A. Prepare the journal entry to record Preston Company's investment in Scalibrini, Inc. @1/1/20x0. B. Prepare a schedule showing the allocation of the purchase price to the net assets acquired. In your schedule include the estimated useful lives and annual amortizations for fair value adjustments to specific net assets acquired. C. Prepare a schedule showing the change in Preston Company's Investment in Scalibrini, Inc. account from the acquisition date, i.e., 1/1/20x0, to 12/31/20x0. D. On the next page, I've posted Preston Company and Scalibrini, Inc.'s account balances as of December 31, 20x0. Using those account balances, 1. Prepare Preston Company's fye 12/31/20x0 journal entries on their separate company books and records related to their investment in Scalibrini, Inc. 2. Prepare the worksheet adjusting entries as of December 31, 20x0 necessary to consolidate Preston Company and Scalibrini, Inc. 3. Using the given information and an excel worksheet, prepare the worksheet to consolidate Preston Company and Scalibrini, Inc. E. For information purposes, the Controller of Preston Company asks that you briefly summarize the implications for the consolidation accounting and the consolidating adjusting entries of an intra-entity transfer of a depreciable asset, i.e. between Preston and Scalibrini. Following are the separate financial statements of Preston and Scalibrini, Inc. for the year ending 12/31/20x0: Preston Scalibrini Company Incorporated Revenues 298,000,000 103,750,000 Expenses 271,000,000 95,800,000 Equity in income of Scalibrini, Inc. 8.000.000 Net income 35,000,000 7950.000 Retained earnings, January 1, 20x0 Net income (above) Dividends paid Retained earnings, December 31, 20x0 2,300,000 35,000,000 4.800.000 32.500.000 100,000 7,950,000 3.000.000 5.050.000 20,800,000 Current Assets Investment in Scalibrini, Inc. Land Buildings Equipment (net) Total assets 24,850,500 22,450,000 1,500,000 5,600,000 3.100,000 57.500.500 1,700,000 2,360,000 2.960,000 27.820,000 3,100,000 Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings, Dec 31, 20x0 (above) Total liabilities and stockholders' equity 2,900,000 19,000,000 32,500,000 57,500,000 4,900,000 1,000,000 6,000,000 10,870,000 5,050.000 27.820,000 Bonus Question is points) With respect to accounting for goodwill reported in the acquisition of Scalibrini, Inc.: 1. Explain the U.S. GAAP approach for accounting for the impairment of goodwill 2. Discuss the difference between U.S. GAAP and international accounting standards on the accounting for goodwill impairment. In answering this question, discuss accounting for the impairment of goodwill only. No credit will be given for unrelated comments