In many cases, EPS is computed based on the parent’s portion of consolidated net income and parent company shares and convertibles. However, a different process must be used for some business combinations. When is this alternative approach required?
> Several years ago Brant, Inc., sold $900,000 in bonds to the public. Annual cash interest of 9 percent ($81,000) was to be paid on this debt. The bonds were issued at a discount to yield 12 percent. At the beginning of 2016, Zack Corporation (a wholly ow
> Bolero Company holds 80 percent of the common stock of Rivera, Inc., and 40 percent of this subsidiary’s convertible bonds. The following consolidated financial statements are for 2017 and 2018: Additional Information for 2018 â
> On January 1, 2017, Mona, Inc., acquired 80 percent of Lisa Company’s common stock as well as 60 percent of its preferred shares. Mona paid $65,000 in cash for the preferred stock, with a call value of 110 percent of the $50 per share p
> Highlight, Inc., owns all outstanding stock of Kiort Corporation. The two companies report the following balances for the year ending December 31, 2017: On January 1, 2017, Highlight acquired on the open market bonds for $108,000 originally issued by Ki
> Pavin acquires all of Stabler’s outstanding shares on January 1, 2015, for $460,000 in cash. Of this amount, $30,000 was attributed to equipment with a 10-year remaining life and $40,000 was assigned to trademarks expensed over a 20-yea
> On January 1, 2016, Aronsen Company acquired 90 percent of Siedel Company’s outstanding shares. Siedel had a net book value on that date of $480,000: common stock ($10 par value) of $200,000 and retained earnings of $280,000. Aronsen paid $584,100 for t
> Cairns owns 75 percent of the voting stock of Hamilton, Inc. The parent’s interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other allocation was recorded in connection with the acquisition. C
> On January 1, 2018, Primair Corporation loaned Vista Company $300,000 and agreed to guarantee all of Vista’s long-term debt in exchange for (1) decision-making authority over all of Vista’s activities and (2) an annual
> The following separate income statements are for Burks Company and its 80 percent–owned subsidiary, Foreman Company: Additional Information ∙ Amortization expense resulting from Foreman’s excess acq
> How are intra-entity inventory gross profits created, and what consolidation entries does the presence of these gross profits necessitate?
> Garfun, Inc., owns all of the stock of Simon, Inc. For 2018, Garfun reports income (exclusive of any investment income) of $480,000. Garfun has 80,000 shares of common stock outstanding. It also has 5,000 shares of preferred stock outstanding that pay a
> Primus, Inc., owns all outstanding stock of Sonston, Inc. For the current year, Primus reports net income (exclusive of any investment income) of $600,000. Primus has 100,000 shares of common stock outstanding. Sonston reports net income of $200,000 for
> On December 31, 2017, PanTech Company invests $20,000 in SoftPlus, a variable interest entity. In contractual agreements completed on that date, PanTech established itself as the primary beneficiary of SoftPlus. Previously, PanTech had no equity interest
> On January 1, 2017, Panther, Inc., issued securities with a total fair value of $577,000 for 100 percent of Stark Corporation’s outstanding ownership shares. Stark has long supplied inventory to Panther. The companies expect to achieve
> The following describes a set of arrangements between TecPC Company and a variable interest entity (VIE) as of December 31, 2017. TecPC agrees to design and construct a new research and development (R&D) facility. The VIE’s sole purpose is to finance and
> On January 1, 2016, Monica Company acquired 70 percent of Young Company’s outstanding common stock for $665,000. The fair value of the noncontrolling interest at the acquisition date was $285,000. Young reported stockholdersâ€
> Hillsborough Country Outfitters, Inc., entered into an agreement for HCO Media LLC to exclusively conduct Hillsborough’s e-commerce initiatives through a jointly owned (50 percent each) Internet site known as HCO.com. HCO Media receives 2 percent of all
> Opus, Incorporated, owns 90 percent of Bloom Company. On December 31, 2017, Opus acquires half of Bloom’s $500,000 outstanding bonds. These bonds had been sold on the open market on January 1, 2015, at a 12 percent effective rate. The bonds pay a cash in
> Following are financial statements for Moore Company and Kirby Company for 2018: ∙ Moore purchased 90 percent of Kirby on January 1, 2017, for $657,000 in cash. On that date, the 10 percent noncontrolling interest was assessed to have
> In computing the noncontrolling interest’s share of consolidated net income, how should the subsidiary’s net income be adjusted for intra-entity transfers? a. The subsidiary’s reported net income is adjusted for the impact of upstream transfers prior to
> Compute the balances in problem (28) again, assuming that all intra-entity transfers were made from ClipRite to ProForm. From problem 28: ProForm acquired 70 percent of ClipRite on June 30, 2017, for $910,000 in cash. Based on ClipRite’
> ProForm acquired 70 percent of ClipRite on June 30, 2017, for $910,000 in cash. Based on ClipRite’s acquisition-date fair value, an unrecorded intangible of $400,000 was recognized and is being amortized at the rate of $10,000 per year.
> Pitino acquired 90 percent of Brey’s outstanding shares on January 1, 2016, in exchange for $342,000 in cash. The subsidiary’s stockholders’ equity accounts totaled $326,000 and the noncontrolling int
> On January 1, 2018, Sledge had common stock of $120,000 and retained earnings of $260,000. During that year, Sledge reported sales of $130,000, cost of goods sold of $70,000, and operating expenses of $40,000. On January 1, 2016, Percy, Inc., acquired 8
> Allison Corporation acquired 90 percent of Bretton on January 1, 2016. Of Bretton’s total acquisition-date fair value, $60,000 was allocated to undervalued equipment (with a 10-year remaining life) and $80,000 was attributed to franchis
> On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $200,000 in cash. The equipment had originally cost $180,000 but had a book value of only $110,000 when transferred. On that date, the equipment had a five-year rema
> Padre holds 100 percent of the outstanding shares of Sonora. On January 1, 2016, Padre transferred equipment to Sonora for $95,000. The equipment had cost $130,000 originally but had a $50,000 book value and five-year remaining life at the date of transf
> Many companies make annual reports available on their corporate web page, often under an Investors tab. Annual reports also can be accessed through the SEC’s EDGAR system at www.sec.gov (under Filings, click Company Filings Search, type in Company Name,
> A client of the CPA firm of Harston and Mendez is a medical practice of seven local doctors. One doctor has been sued for several million dollars as the result of a recent operation. Because of what appears to be this doctor’s very poor judgment, a patie
> Download Pfizer’s 2015 annual report (search Pfizer Investor Relations). Locate the firm’s consolidated statement of cash flows and answer the following: ∙ Does the firm employ the direct or indirect method of accounting for operating cash flows? ∙ Why
> Many companies make annual reports available on their corporate website, often under an Investors tab. Annual reports also can be accessed through the SEC’s EDGAR system at www.sec.gov (under Filings, click Company Filings Search, type in Company Name, a
> On January 1, 2017, QuickPort Company acquired 90 percent of the outstanding voting stock of NetSpeed, Inc., for $810,000 in cash and stock options. At the acquisition date, NetSpeed had common stock of $800,000 and Retained Earnings of $40,000. The acqu
> Many companies make annual reports available on their corporate website, often under an Investors tab. Annual reports also can be accessed through the SEC’s EDGAR system at www.sec.gov (under Filings, click Company Filings Search, type in Company Name, a
> Go to the Buckeye Partners, L.P. website where forms filed with the SEC are available through the Investor Center. Find Buckeye’s recent annual financial statements in their 10–K report for the partnership. Required Review Buckeye’s financial statemen
> The Pier Ten Company, a U.S. company, made credit sales to four customers in Asia on September 15, 2015, and received payment on October 15, 2015. Information related to these sales is as follows The Pier Ten Company’s fiscal year ends
> The FASB ASC Subtopic “Variable Interest Entities” affects thousands of business enterprises that now, as primary beneficiaries, consolidate entities that qualify as controlled VIEs. Retrieve the annual reports of one or more of the following companies (
> Palmetto Bug Extermination Corporation (PBEC), a U.S. company, regularly purchases chemicals from a supplier in Switzerland with the invoice price denominated in Swiss francs. PBEC has experienced several foreign exchange losses in the past year due to i
> Use the information in Communication Case 1. Required Write a report for these two individuals outlining the types of situations in which the partnership form of legal structure would be the best choice. From communication case 1 : Kelly Fernandez and
> Read the following as well as any other published articles on the bankruptcy of the partnership of Laventhol & Horwath: “Laventhol Says It Plans to File for Chapter 11,” The Wall Street Journal, November 20, 1990, p. A3. “Laventhol Partners Face Long P
> On February 1, 2017, Linber Company forecasted the purchase of component parts on May 1, 2017, at a price of 100,000 euros. On that date, Linber entered into a forward contract to purchase 100,000 euros on May 1, 2017. It designated the forward contract
> Go to the website www.napico.com and click on “Partnership Financial Information—Click Here.” Then click on “2015 Annual Reports” to access the Form 10-K annual report for Real Estate Associates Limited II (Real II). Read the financial statements contain
> Hamilton Hawks Players’ Association and Mr. Sideline, the CEO and majority owner of Hamilton Hawks Soccer, Inc, ask your help in resolving a salary dispute. Mr. Sideline presents the following income statement to the playersâ€
> Akron, Inc., owns all outstanding stock of Toledo Corporation. Amortization expense of $15,000 per year for patented technology resulted from the original acquisition. For 2018, the companies had the following account balances: Intra-entity sales of $32
> Hughes Inc. has a wholly owned subsidiary in Canada that previously had been determined as having the Canadian dollar as its functional currency. Due to a recent restructuring, Hughes Inc.’s CFO believes that the functional currency of the Canadian compa
> Lynch Corporation has a wholly owned subsidiary in Mexico (Lynmex) with two distinct and unrelated lines of business. Lynmex’s Small Appliance Division manufactures small household appliances such as toasters and coffeemakers at a factory in Monterrey, N
> What valuation should be recorded for noncash assets transferred to a partnership by one of the partners?
> When a company acquires an affiliated company’s debt instruments from a third party, how is the gain or loss on extinguishment of the debt calculated? When should this balance be recognized?
> Barker Company owns 80 percent of the outstanding voting stock of Walden Company. During the current year, intra-entity sales amount to $100,000. These transactions were made with a gross profit rate of 40 percent of the transfer price. In consolidating
> Assume the same information as in question (16) except that Metcalf issues a 10 percent stock dividend instead of selling new shares of stock. How does this transaction affect the business combination? From 16: Washburn Company owns 75 percent of Metcal
> The income statement and the balance sheet are produced using a worksheet, but a consolidated statement of cash flows is not. What process is followed in preparing a consolidated statement of cash flows?
> Perkins Company acquires 90 percent of the outstanding common stock of the Butterfly Corporation as well as 55 percent of its preferred stock. How should these preferred shares be accounted for within the consolidation process?
> A partnership is currently holding $400,000 in assets and $234,000 in liabilities. The partnership is to be liquidated, and $20,000 is the best estimation of the expenses that will be incurred during this process. The four partners share profits and loss
> Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2017, for $612,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft’s identifiable assets and
> James Corporation owns 80 percent of Carl Corporation’s common stock. During October, Carl sold merchandise to James for $250,000. At December 31, 40 percent of this merchandise remains in James’s inventory. Gross profit percentages were 20 percent for J
> A partnership has the following capital balances: X (50 percent of profits and losses) = $150,000; Y (30 percent of profits and losses) = $120,000; Z (20 percent of profits and losses) = $80,000. If the partnership is to be liquidated and $30,000 becomes
> Carney, Pierce, Menton, and Hoehn are partners who share profits and losses on a 4:3:2:1 basis, respectively. They are beginning to liquidate the business. At the start of this process, capital balances are Carney, capital ............................ $6
> Bishop has a capital balance of $120,000 in a local partnership, and Cotton has a $90,000 balance. These two partners share profits and losses by a ratio of 60 percent to Bishop and 40 percent to Cotton. Lovett invests $60,000 in cash in the partnership
> A partnership has the following capital balances: Comprix (35% of gains and losses) .......... $150,000 Heflin (40%) ................................................ 300,000 Kaplan (25%) ................................................ 320,000 Mahar is
> Pat, Jean Lou, and Diane are partners with capital balances of $50,000, $30,000, and $20,000, respectively. These three partners share profits and losses equally. For an investment of $50,000 cash (paid to the business), MaryAnn will be admitted as a par
> Which of the following best describes the articles of partnership agreement? a. The purpose of the partnership and partners’ rights and responsibilities are required elements of the articles of partnership. b. The articles of partnership are a legal co
> How does partnership accounting differ from corporate accounting? a. The matching principle is not considered appropriate for partnership accounting. b. Revenues are recognized at a different time by a partnership than is appropriate for a corporation.
> William (40% of gains and losses) ........... $ 220,000 Jennings (40%) ............................................. 160,000 Bryan (20%).................................................... 110,000 Darrow invests $250,000 in cash for a 30 percent ownersh
> William (40% of gains and losses) ........... $ 220,000 Jennings (40%) ............................................. 160,000 Bryan (20%).................................................... 110,000 Darrow invests $270,000 in cash for a 30 percent ownersh
> At year-end, the Circle City partnership has the following capital balances: Manning, Capital …………………….$130,000 Gonzalez, Capital .......................... 110,000 Clark, Capital ................................. 80,000 Freeney, Capital ................
> On January 1, 2017, Doone Corporation acquired 60 percent of the outstanding voting stock of Rockne Company for $300,000 consideration. At the acquisition date, the fair value of the 40 percent noncontrolling interest was $200,000 and Rockne’s assets and
> At year-end, the Circle City partnership has the following capital balances: Manning, Capital …………………….$130,000 Gonzalez, Capital .......................... 110,000 Clark, Capital ................................. 80,000 Freeney, Capital ................
> A partnership has the following capital balances: Allen, Capital ............................. $60,000 Burns, Capital.............................. 30,000 Costello, Capital ......................... 90,000 Profits and losses are split as follows: Allen
> A partnership begins its first year of operations with the following capital balances: According to the articles of partnership, all profits will be assigned as follows: ∙ Winston will be awarded an annual salary of $20,000 with $10,000 assigned to Sale
> Which of the following is not a reason for the popularity of partnerships as a legal form for businesses? a. Partnerships may be formed merely by an oral agreement. b. Partnerships can more easily generate significant amounts of capital. c. Partnershi
> Newberry, Inc., whose reporting currency is the U.S. dollar ($), has a subsidiary in Argentina, whose functional currency also is the $. The subsidiary acquires inventory on credit on November 1, 2017, for 100,000 pesos that is sold on January 17, 2018,
> Newberry, Inc., whose reporting currency is the U.S. dollar ($), has a subsidiary in Argentina, whose functional currency also is the $. The subsidiary acquires inventory on credit on November 1, 2017, for 100,000 pesos that is sold on January 17, 2018,
> Certain balance sheet accounts of a foreign subsidiary of Orchid Company have been stated in U.S. dollars as follows: This subsidiary’s functional currency is the U.S. dollar. What total should Orchid’s balance sheet
> Certain balance sheet accounts of a foreign subsidiary of Orchid Company have been stated in U.S. dollars as follows: This subsidiary’s functional currency is a foreign currency. What total should Orchid’s balance she
> At what rates should the following balance sheet accounts in foreign statements be translated (using the current rate method) into U.S. dollars? Accumulated Equipment Depreciation-Equipment a. Current Current b. Current Average for year Historical Cu
> A foreign subsidiary of Thun Corporation has one asset (inventory) and no liabilities. The functional currency for this subsidiary is the yuan. The inventory was acquired for 100,000 yuan when the exchange rate was $0.16 = 1 yuan. Consolidated statements
> Placid Lake Corporation acquired 80 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2017, when Scenic had a net book value of $400,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $5,000 per y
> McCarthy, Inc.’s Brazilian subsidiary borrowed 100,000 euros on January 1, 2017. Exchange rates between the Brazilian real (BRL) and euro (€) and between the U.S. dollar ($) and BRL are as follows: What amo
> McCarthy, Inc.’s Brazilian subsidiary borrowed 100,000 euros on January 1, 2017. Exchange rates between the Brazilian real (BRL) and euro (€) and between the U.S. dollar ($) and BRL are as follows: At what
> The functional currency of Bertrand, Inc.’s Irish subsidiary is the euro. Bertrand borrowed euros as a partial hedge of its investment in the subsidiary. Since then, the euro has decreased in value. Bertrand’s negative translation adjustment on its inves
> A Clarke Corporation subsidiary buys marketable equity securities and inventory on April 1, 2017, for 100,000 won each. It pays for both items on June 1, 2017, and they are still on hand at year-end. Inventory is carried at cost under the lower-of-cost-o
> A Clarke Corporation subsidiary buys marketable equity securities and inventory on April 1, 2017, for 100,000 won each. It pays for both items on June 1, 2017, and they are still on hand at year-end. Inventory is carried at cost under the lower-of-cost-o
> St. Philip Company ordered parts costing €100,000 from a foreign supplier on January 15 when the spot rate was $0.20 per €. A one-month forward contract was signed on that date to purchase €100,000 at a forward rate of $0.23. The forward contract is prop
> On July 1, 2017, Mifflin Company borrowed 200,000 euros from a foreign lender evidenced by an interest-bearing note due on July 1, 2018. The note is denominated in euros. The U.S. dollar equivalent of the note principal is as follows: In its 2018 income
> On October 1, 2017, Tile Co., a U.S. company, purchased products from Azulejo, a Portuguese company, with payment due on December 1, 2017. If Tile’s 2017 operating income included no foreign exchange gain or loss, the transaction could have a. Been deno
> On December 15, 2017, Lisbeth Inc. (a U.S. company) purchases merchandise inventory from a foreign supplier for 50,000 schillings. Lisbeth agrees to pay in 45 days after it sells the merchandise. Lisbeth makes sales rather quickly and pays the entire obl
> Peerless Corporation (a U.S. company) made a sale to a foreign customer on September 15, for 100,000 crowns. It received payment on October 15. The following exchange rates for 1 crown apply: September 15………..$0.60 September 30………….0.66 October 15……………….
> On January 1, 2017, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $980,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $700,000, retained earnings of $250,0
> On November 1, 2017, Dos Santos Company forecasts the purchase of raw materials from a Brazilian supplier on February 1, 2018, at a price of 200,000 Brazilian reals. On November 1, 2017, Dos Santos pays $1,500 for a three-month call option on 200,000 rea
> On November 1, 2017, Dos Santos Company forecasts the purchase of raw materials from a Brazilian supplier on February 1, 2018, at a price of 200,000 Brazilian reals. On November 1, 2017, Dos Santos pays $1,500 for a three-month call option on 200,000 rea
> On June 1, 2017, Micro Corp. received an order for parts from a Mexican customer at a price of 1,000,000 Mexican pesos with a delivery date of July 31, 2017. On June 1, when the U.S. dollar–Mexican peso spot rate is $0.115, Micro Corp. entered into a two
> On June 1, 2017, Micro Corp. received an order for parts from a Mexican customer at a price of 1,000,000 Mexican pesos with a delivery date of July 31, 2017. On June 1, when the U.S. dollar–Mexican peso spot rate is $0.115, Micro Corp. entered into a two
> On June 1, 2017, Micro Corp. received an order for parts from a Mexican customer at a price of 1,000,000 Mexican pesos with a delivery date of July 31, 2017. On June 1, when the U.S. dollar–Mexican peso spot rate is $0.115, Micro Corp. entered into a two
> On September 1, 2017, Jensen Company received an order to sell a machine to a customer in Canada at a price of 100,000 Canadian dollars. Jensen shipped the machine and received payment on March 1, 2018. On September 1, 2017, Jensen purchased a put option
> On September 1, 2017, Jensen Company received an order to sell a machine to a customer in Canada at a price of 100,000 Canadian dollars. Jensen shipped the machine and received payment on March 1, 2018. On September 1, 2017, Jensen purchased a put option
> On September 1, 2017, Jensen Company received an order to sell a machine to a customer in Canada at a price of 100,000 Canadian dollars. Jensen shipped the machine and received payment on March 1, 2018. On September 1, 2017, Jensen purchased a put option
> Torres Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 100,000 pounds, with delivery and payment to be made on September 20. On July 20, Torres purchased a two-month call option on 100,000 pounds and design
> On March 1, Pimlico Corporation (a U.S.-based company) expects to order merchandise from a supplier in Sweden in three months. On March 1, when the spot rate is $0.10 per Swedish krona, Pimlico enters into a forward contract to purchase 500,000 Swedish k
> Following are several figures reported for Allister and Barone as of December 31, 2018: Allister acquired 90 percent of Barone in January 2017. In allocating the newly acquired subsidiary’s fair value at the acquisition date, Allister
> MNC Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2017, with payment of 10 million South Korean won to be received on March 31, 2018. The following exchange rates apply: MNC’s incremental borrowing r
> MNC Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2017, with payment of 10 million South Korean won to be received on March 31, 2018. The following exchange rates apply: MNC’s incremental borrowing r
