On January 1, 2020, Ridge Road Company acquired 20 percent of the voting shares of Sauk Trail, Inc., for $2,700,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trailâs board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trailâs board, which gave it the ability to significantly influence Sauk Trailâs operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trailâs assets and liabilities follow:
Also, as of January 1, 2020, Sauk Trailâs computing equipment had a seven-year remaining esti- mated useful life. The patented technology was estimated to have a three-year remaining useful life. The trademarkâs useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends:
a. How much of Ridge Roadâs $2,700,000 payment for Sauk Trail is attributable to goodwill? b. What amount should Ridge Road report for its equity in Sauk Trailâs earnings on its income statements for 2020 and 2021? c. What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021?
> How are changes in the fair value of an option accounted for in a cash flow hedge? In a fair value hedge?
> How does the accounting for a hedge of a foreign currency firm commitment affect assets and liabilities reported on the balance sheet differently from the accounting for a hedge of a forecasted foreign currency transaction?
> Under what conditions can a foreign currency derivative be considered “highly effective” as a hedge without conducting a quantitative assessment?
> On its December 31, 2021, consolidated balance sheet, what amount should Phoenix report for Sedona’s customer list? a. $10,000 b. $20,000 c. $25,000 d. $50,000
> When an indirect ownership is present, why is a specific ordering necessary for determining the incomes of the component corporations?
> In a recent acquisition, the consolidated value of a subsidiary’s assets exceeded the basis appropriate for tax purposes. How does this difference affect the consolidated balance sheet?
> If a parent and its subsidiary file separate income tax returns, why will the parent frequently have to recognize deferred income taxes? Why might the subsidiary have to recognize deferred income taxes?
> What is a father-son-grandson relationship?
> A subsidiary that has a net operating loss carry-forward is acquired. The related deferred income tax asset is $230,000. Because the parent believes that a portion of this carry-forward likely will never be used, it also recognizes a valuation allowance
> Jones acquires Wilson, in part because the new subsidiary has an unused net operating loss carry- forward for tax purposes. How does this carry-forward affect the consolidated figures at the acquisition date?
> Sloane, Inc., issues 25,000 shares of its own common stock in exchange for all of the outstanding shares of Benjamin Company. Benjamin will remain a separately incorporated operation. How does Sloane record the issuance of these shares?
> Reimers Company acquires Rollins Corporation on January 1, 2020. As part of the agreement, the parent states that an additional $100,000 cash payment to the former owners of Rollins will be made in 2021, if Rollins achieves certain income thresholds duri
> Why is the allocation of the income tax expense figure between the members of a business combination important? By what methods can this allocation be made?
> What are the advantages to a business combination filing a consolidated tax return? Considering these advantages, why do some members of a business combination file separate tax returns?
> What is Phoenix’s consolidated retained earnings balance at December 31, 2021? a. $250,000 b. $290,000 c. $330,000 d. $360,000
> For income tax purposes, how is affiliated group defined?
> In accounting for mutual ownerships, what is the treasury stock approach?
> What is the difference between a connecting affiliation and a mutual ownership?
> What is goodwill? a. An intangible asset representing the excess of consideration transferred over the collective fair values of the net identifiable assets acquired in a business combination b. An expense that an acquiring firm recognizes for the excess
> On January 1, 2021, Jay Company acquired all the outstanding ownership shares of Zee Company. In assessing Zeeâ€™s acquisition-date fair values, Jay concluded that the carrying value of Zeeâ€™s long- term debt (eight-year
> The equity method tends to be most appropriate if a. An investment represents 50 percent or more of the voting stock of an investee. b. An investment enables the investor to influence the operating and financial decisions of the investee. c. Majority own
> In a father-son-grandson business combination, which of the following is true? a. The father company always must have its total accrual-based income computed first. b. The computation of a company’s accrual-based net income has no effect on the accrual-b
> Pratt Company acquired all of the outstanding shares of Spider, Inc., on December 31, 2021, for $495,000 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spiderâ€™
> 4. On January 1, 2021, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $200,000 in long-term liabilities and 20,000 shares of common stock having a par value of $1 per shar
> On January 1, 2021, James Corporation exchanged $3,050,000 cash for 100 percent of the out- standing voting stock of Johnson Corporation. James plans to maintain Johnson as a wholly owned subsidiary with separate legal status and accounting information s
> What is consolidated net income for Phoenix and Sedona for 2021? a. $148,000 b. $203,000 c. $228,000 d. $238,000
> On January 1, 2021, Casey Corporation exchanged $3,300,000 cash for 100 percent of the outstanding voting stock of Kennedy Corporation. Casey plans to maintain Kennedy as a wholly owned subsidiary with separate legal status and accounting information sys
> On June 30, 2020, Wisconsin, Inc., issued $300,000 in debt and 15,000 new shares of its $10 par value stock to Badger Company owners in exchange for all of the outstanding shares of that company. Wisconsin shares had a fair value of $40 per share. Prior
> In the December 31, 2020, consolidated balance sheet of Patrick and its subsidiary, what amount of total stockholders’ equity should be reported? a. $1,100,000 b. $1,125,000 c. $1,150,000 d. $1,355,000
> On January 1, 2020, Stream Company acquired 30 percent of the outstanding voting shares of Q-Video, Inc., for $770,000. Q-Video manufactures specialty cables for computer monitors. On that date, Q-Video reported assets and liabilities with book values of
> On January 1, 2020, Fisher Corporation purchased 40 percent (80,000 shares) of the common stock of Bowden, Inc., for $982,000 in cash and began to use the equity method for the investment. The price paid represented a $60,000 payment in excess of the boo
> On July 1, 2019, Killearn Company acquired 88,000 of the outstanding shares of Shaun Company for $13 per share. This acquisition gave Killearn a 25 percent ownership of Shaun and allowed Killearn to significantly influence the investee’s decisions. As of
> On January 1, 2021, Pine Company owns 40 percent (40,000 shares) of Seacrest, Inc., which it purchased several years ago for $182,000. Since the date of acquisition, the equity method has been properly applied, and the carrying amount of the investment a
> Harper, Inc., acquires 40 percent of the outstanding voting stock of Kinman Company on January 1, 2020, for $210,000 in cash. The book value of Kinman’s net assets on that date was $400,000, although one of the company’s buildings, with a $60,000 carryin
> Belden, Inc., acquires 30 percent of the outstanding voting shares of Sheffield, Inc., on January 1, 2020, for $312,000, which gives Belden the ability to significantly influence Sheffield. Sheffield has a net book value of $800,000 at January 1, 2020. S
> On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Companyâ€™s common shares on the open market in exchange for $16,000. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Companyâ€™s ou
> On June 30, 2021, Streeter Company reported the following account balances: On June 30, 2021, Princeton Company paid $310,800 cash for all assets and liabilities of Streeter, which will cease to exist as a separate entity. In connection with the acquisit
> Matthew, Inc., owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee’s operations and decision making. On January 1, 2021, the balance in the Investment in Lindman account is $335,000. Amo
> In the December 31, 2020, consolidated balance sheet of Patrick and its subsidiary, what amount of total assets should be reported? a. $1,375,000 b. $1,395,000 c. $1,520,000 d. $1,980,000
> Parrot Corporation holds a 42 percent ownership of Sunrise, Inc., and applies the equity method to account for its investment. Parrot assigned the entire original excess purchase price over book value to goodwill. During 2020, the two companies made intr
> Echo, Inc., purchased 10 percent of ProForm Corporation on January 1, 2020, for $345,000 and accounted for the investment using the fair-value method. Echo acquires an additional 15 percent of ProForm on January 1, 2021, for $580,000. The equity method o
> On January 1, 2019, Halstead, Inc., purchased 75,000 shares of Sedgwick Company common stock for $1,480,000, giving Halstead 25 percent ownership and the ability to apply significant influence over Sedgwick. Any excess of cost over book value acquired wa
> BuyCo, Inc., holds 25 percent of the outstanding shares of Marqueen Company and appropriately applies the equity method of accounting. Excess cost amortization (related to a patent) associated with this investment amounts to $10,000 per year. For 2020, M
> Camille, Inc., sold $120,000 in inventory to Eckerle Company during 2020 for $200,000. Eckerle resold $85,000 of this merchandise in 2020 with the remainder to be disposed of during 2021. Assuming that Camille owns 30 percent of Eckerle and applies the e
> Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2020, for $190,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2021, Milani purchased an additional 30 percent of Seida for $600,000 which
> On January 1, 2021, Alamar Corporation acquired a 40 percent interest in Burks, Inc., for $210,000. On that date, Burks’s balance sheet disclosed net assets with both a fair and book value of $360,000. During 2021, Burks reported net income of $80,000 an
> On January 1, 2020, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $200,000 and liabilities of $75,000. A patent held by Holister having a $5,000 book value was a
> Allerton Company acquires all of Deluxe Companyâ€™s assets and liabilities for cash on January 1, 2021, and subsequently formally dissolves Deluxe. At the acquisition date, the following book and fair values were available for the Deluxe
> Go to the following story about the bankruptcy filing of Sears Holdings Corp., https://www.cnbc .com/2018/10/15/sears-files-for-bankruptcy.html. Search for other stories about the bankruptcy of Sears Holdings. Next, go to the Securities and Exchange Comm
> On January 1, 2021, Fisher Corporation paid $2,290,000 for 35 percent of the outstanding voting stock of Steel, Inc., and appropriately applied the equity method for its investment. Any excess of cost over Steel’s book value was attributed to goodwill. D
> On January 3, 2021, Matteson Corporation acquired 40 percent of the outstanding common stock of O’Toole Company for $1,160,000. This acquisition gave Matteson the ability to exercise significant influence over the investee. The book value of the acquired
> Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2020, for $530,000. The equity method of accounting is to be used. Steinbartâ€™s net assets on that date were $1.2 million. Any excess of cost over book value is attributable
> Jubilee, Inc., owns 35 percent of JPW Company and applies the equity method. During the current year, Jubilee buys inventory costing $60,000 and then sells it to JPW for $75,000. At the end of the year, JPW still holds only $30,000 of merchandise. What a
> Perez, Inc., applies the equity method for its 25 percent investment in Senior, Inc. During 2021, Perez sold goods with a 40 percent gross profit to Senior, which sold all of these goods in 2021. How should Perez report the effect of the intra-entity sal
> Camille, Inc., bought all outstanding shares of Jordan Corporation on January 1, 2019, for $700,000 in cash. This portion of the consideration transferred results in a fair-value allocation of $35,000 to equipment and goodwill of $88,000. At the acquisit
> Consolidated financial statements are typically prepared when one company has a. Accounted for its investment in another company by the equity method. b. Dividend income from another company. c. Significant influence over the operating and financial poli
> In January 2020, Domingo, Inc., acquired 20 percent of the outstanding common stock of Martes, Inc., for $700,000. This investment gave Domingo the ability to exercise significant influence over Martes, whose balance sheet on that date showed total asset
> On January 1, Belleville Company paid $2,295,000 to acquire 90,000 shares of O’Fallon’s voting common stock, which represents a 30 percent investment. No allocations to goodwill or other specific accounts were made. Significant influence over O’Fallon is
> What is pushdown accounting? a. A requirement that a subsidiary must use the same accounting principles as a parent company. b. Inventory transfers made from a parent company to a subsidiary. c. A subsidiary’s recording of the fair-value allocations as w
> Paar Corporation bought 100 percent of Kimmel, Inc., on January 1, 2018. On that date, Paar’s equipment (10-year remaining life) has a book value of $420,000 but a fair value of $520,000. Kimmel has equipment (10-year remaining life) with a book value of
> James Albemarle created a trust fund at the beginning of 2019. The income from this fund will go to his son Edward. When Edward reaches the age of 25, the principal of the fund will be conveyed to United Charities of Cleveland. Mr. Albemarle specified th
> During 2019, an estate generated income of $20,000: The interest income is conveyed immediately to the beneficiary stated in the decedentâ€™s will. The dividends are given to the decedentâ€™s church. What is the taxable in
> M. Wilson Waltman died on January 1, 2019. All of his property was conveyed to beneficiaries on October 1, 2019. For federal estate tax purposes, the executor chose the alternate valuation date. On what date was the value of the property determined? a. J
> Sally Anne Williams died on January 1, 2019. All of her property was conveyed to several relatives on April 1, 2019. For federal estate tax purposes, the executor chose the alternate valuation date. On what date was the value of the property determined?
> The following unmarried individuals died in 2019. The estate of John Lexington has a taxable value of $4,590,000. The estate of Dorothy Alexander has a taxable value of $6.9 million. The estate of Scotty Fitzgerald has a taxable value of $11.6 million. N
> Which of the following is true concerning the Tax Cuts and Jobs Act of 2017? a. This tax law leads to the immediate elimination of the federal estate tax. b. This tax law leads to the immediate elimination of the federal gift tax. c. This tax law provide
> The governing board of a private not-for-profit entity votes to set $400,000 in cash aside in an investment fund so that this money and future interest will be available in five years, when a new building is scheduled for construction. Which of the follo
> In Year 6, a donor gives $112,000 to a private not-for-profit entity to enable it to pay the salary of a new doctor to be hired by the organization. Near the end of Year 7, this money is used for the stipulated purpose. Which of the following is true abo
> A local private not-for-profit health care entity (Rochester Medical) incurred the following transactions during the current year. Record each of these transactions in appropriate journal entry form. Prepare a schedule calculating the change in net asset
> Many non-U.S. companies make annual reports available on their corporate website. Access the financial statements from the most recent annual report for a non-U.S. company with which you are familiar to complete this assignment. Required a. Determine the
> In Year 6, a donor gives $112,000 to a private not-for-profit entity to enable it to buy a new bus for transportation purposes. Near the end of Year 7, this money is used for the stipulated purpose. The donor made no provisions about the accounting for t
> Under Lennon Hospital’s standard rate structure, it earned $9 million in revenues for the year ended December 31, 2020. However, Lennon did not expect to collect this entire amount because officials deemed $1.5 million to be charity care. Of the remainde
> The following questions concern the appropriate accounting for a private not-for-profit health care entity. Write complete answers for each of these independent questions. a. What is a third-party payor, and how does the presence of third-party payors im
> Help & Save is a private not-for-profit entity that operates in Kansas. Swim For Safety is a private not-for-profit entity that operates in Missouri. The leaders of these two organizations have decided to combine forces on January 1, 2020, in order t
> The Watson Foundation, a private not-for-profit entity, starts 2020 with cash of $100,000, contributions receivable (net) of $200,000, investments of $300,000, and land, buildings, and equipment (net) of $200,000. Net assets without donor restrictions we
> You are preparing a statement of activities for the University of Richland, a private not-for-profit entity. The following questions should be viewed as independent of each other. Part I During the current year, a donor gives $400,000 cash to the school
> The University of Danville is a private not-for-profit university that starts the current year with $700,000 in net assets: $400,000 without donor restrictions and $300,000 with donor restrictions. The $300,000 is composed of $200,000 with purpose restri
> The following questions concern the accounting principles and procedures applicable to a private not-for-profit entity. Write answers to each question. a. What is the difference between exchange revenue and contributed revenue? b. What is the significanc
> Why is a private not-for-profit entity more likely to use the direct method of reporting operating activity cash flows than a for-profit business would be? a. The direct method is the traditional approach for private not-for-profit entities. b. An indire
> The Willson Center is a private not-for-profit entity. During 2020, it receives pledges of $600,000 that it expects to collect during 2021. Of that amount, 10 percent is viewed as conditional. Of the rest, $300,000 must be used for automotive equipment f
> The IFRS Foundation and IASB maintain a website at www.ifrs.org. Go to this website and access “Use of IFRS Standards by jurisdiction” (click on the “Around the World” tab). Select a country of interest, and access its “Jurisdictional Profile” (available
> A private not-for-profit entity is working to create a cure for a disease. The charity starts the year with one asset, cash of $700,000. Net assets without donor restrictions are $400,000. Net assets with donor restrictions are $300,000. Of the restricte
> During the year ended December 31, 2020, Andersen Hospital (operated as a private not-for-profit entity) received and incurred the following:
> Shirly Ngo spends four days in a local private not-for-private hospital. The hospital charges her $140,000 for the services. Her insurance company has contracts with the hospital that will lower the amount that has to be paid. The hospital believes it ha
> Mike Jones spends five days in a local private not-for-profit hospital. The hospital charges him $170,000 for the services. His insurance company has contracts with the hospital that will lower the amount that has to be paid. The hospital believes it has
> Which of the following is not true about the application of new revenue recognition rules to private not-for-profit health care entities? a. Revenues are likely to be much lower than under previous rules. b. Bad debts will be recorded as direct reduction
> A health care entity provides services to a patient. Those services have a standard charge of $76,000. The insurance company that represents the patient has a contract with the entity that leads to a $20,000 reduction in that charge. That reduction is re
> Which of the following are unique to the reporting of revenue by a health care entity? a. Charity care must be reported even if the entity does not anticipate seeking collection. b. The patients pay for little of the services, and significant discounts a
> What are the three types of restricted net assets? a. Current, noncurrent, structural b. Purpose, time, permanent c. Immediate, longer than one year, longer than five years d. Monetary, nonmonetary, leveraged
> A local private not-for-profit entity receives a large monetary pledge. Accountants are attempting to determine if the contribution is conditional. They are assessing the possible existence of a barrier that has to be overcome. Which of the following is
> The Houston Corporation signs a formal pledge to give $100,000 in cash to a private not-for-profit entity within the next year. The money must be spent to upgrade important equipment used by the charity. The pledge is judged to be a conditional contribut
> The Cinco Centavo Company (CCC), a U.S. company, made credit sales to four customers in Asia on September 15, 2018, and received payment on October 15, 2018. Information related to these sales is as follows: CCCâ€™s fiscal year ends Septe
> The Stanton Company conveys $23,000 in cash to a private not-for-profit entity. The money must be used for a designated purpose. This conveyance is viewed as a conditional contribution. Which of the following is recorded by the private not-for-profit ent
> The Peyton Corporation conveys $60,000 in cash to a private not-for-profit entity. It is viewed as a conditional contribution. Which of the following is most likely to be true about this donation? a. It has been restricted for use in a future period of t
> A statement of financial position shows account balances in two separate columns. How are those columns labeled? a. Current and noncurrent b. Temporary and permanent c. Without donor restrictions and with donor restrictions d. Contributed funds and funds
> The Jones family lost its home in a fire during December 2020. On December 25, 2020, a philanthropist sent money to the Amer Benevolent Society, a private not-for-profit entity, specifically to be conveyed to the Jones family to help them recover. The mo
> A private not-for-profit entity receives $32,000 in cash from solicitations made in the local community. The charity receives an additional $1,500 from members in payment of their annual dues. These members receive benefits of commensurate value to the a
> A private not-for-profit entity receives a gift of new furniture from a retail department store. The furniture has a fair value of $2,100. The entity holds the furniture for several weeks. After a flood, the entity gives the furniture to several needy fa
> A private not-for-profit entity sends a mailing to all of its current and former members regardless of whether they have ever donated money or not. The mailing has a total cost of $22,000. It asks for monetary contributions to help achieve the charity’s
> A private not-for-profit entity has the following expenses for the current year. How should the not-for-profit entity report these costs? a. Program service expenses of $100,000 and supporting service expenses of $160,000 b. Program service expenses of $