F4 Liabilities

Question 1

F4 M1
Calculate Sales revenue and sales tax payable

Answer 1

Step 1: Sales revenue = credit to sales revenue / (sales tax rate plus 1)
Step 2: sales tax collected = sales tax rate * sales revenue
Step 3: sales tax payable = Sales tax collected - advanced payments i.e debts in sales revenue account. OR Beginning sales take plus current sales tax and subtract what has been paid
JE of sales with tax is DR cash and CR sales rev and sales tax payable

Question 2

Calculate Interest payable balance Year 1

Answer 2

Step 1: calculate remaining loan= borrowed amount minus interest of each year
Step 2: calculate interest accrued for months where interest has not been paid in cash= remaining loan amount * rate % * (#/12)

Question 3

Employees compensation for future absences should be accrued if:

Answer 3

a) employees’ right to receive compensation is attributable to service already rendered
b) liability relates to vested or accumulated rights
c) payment is probable
d) amount can be reasonably estimated

Question 4

Determine notes payable

Answer 4

Notes payable excluded from current laib is shares of common stock * $ per share. The remaining excluded from owed notes payable is included in current liab b/c current assets will be used to pay off balance

Question 5

Calculate promised payment

Answer 5

promised pay in future should be expensed prior to start of promised payment = total amount promised / (# years from year 1 to prior promise payment)

Question 6

Calculate adj balance for compensation expense

Answer 6

= compensation expense before year end adj + salary accrual + bonuses not paid

Question 7

How to treat common stock issued after the end of year

Answer 7

should be removed from ST liabilities and should be disclosed for financial statements. Entry to correct is DR ST liability and CR LT liability

Question 8

Calculate net payroll amount

Answer 8

Step 1: Employer FICA tax: wages * FICA rate
Step 2: Gross wages plus Employer FICA tax

Question 9

F4 M2
Explain difference scenarios on contingency accrue liability or disclosure

Answer 9

Remote = neither accrue nor disclose
Reasonably possible = no need to accrue for liability but disclose
Probable= accrue for liability & disclose. Expenses & liab increases

• Estimate of loss or range of loss must be disclosed with nature and financial impact
• Minimum amount in range is reported as liability when contingent loss is accrued and no amount is better estimate than range of possible loss can be be estimated
• if a most likely amount is given than accrue that over the minimum amount of the range
• If a probable loss is not recorded in F/S it means, no reasonable estimate of loss can be made.

Question 10

Calculate estimated liability for coupons?

Answer 10

Step 1: calculate coupons expected to be redeemed= sales of candy packages * redemption rate
Step 2: Estimated unredeemed coupons= coupons expected to be redeemed minus redemptions
Step 3: Toys to be redeemed= estimated of unredeemed coupons / $ coupons per toy
Step 4: Estimated liability for coupons = toys to be redeemed * net cost of toys i.e (cost $- $ received)
- Coupons at sale price i.e cash received is recorded as unearned revenue bc revenue is earned when coupons are redeemed and cost is matched

Question 11

How are gain contingencies treated?

Answer 11

• Gain contingencies are disclosed and reported in F/S only when transaction is complete so not to mislead
• Gain contingencies that are probable and reasonably possible are disclosed as full range of possible settlements
• Gain contingencies GAAP concept is conservatism to anticipate all losses but not gains so to not recognize revenue prior to its realization

Question 12

Calculate estimated liab for following:

Answer 12

a) under warranties account
Step 1 Calculate initial warranty liab = units sold * estimated warranty cost per unit
Step 2: Calculate esti warranty = initial warranty minus actual expenses

b) for coupons = (redemption* ($ off each box + additional $)) - paid to retailers
c) for on purchase commitments= purchase minus new market value at year end
d) for unredeemed coupons
Step 1: calculate probable additional coupons to be redeemed= probable coupons redeemed minus coupons already processed
Step 2: liability to be accrued = probable additional coupons to be redeemed * net cost
e) for warranty cost = warranty expense minus warranty cost incurred
f) for discounted note receivable that must be disclosed = maturity value. This is disclosed as contingent liability b/c note is “with recourse” and endorser is liable if maker does not pay

Question 13

Calculate estimated warranty Y2:

Answer 13

Step 1 Calculate warranty liability for each year and total
Step 2 Subtract warranty costs from liability
- When sold, warranty costs are probable and estimable and must be recognized
Calculate warranty expense= % of sales

Question 14

Other Characteristics of Contingency and Commitments

Answer 14

Reduction in deferred revenue YOY with same # of contracts, will occur when Y2 contracts were signed earlier than before meaning more warranty work would be performed by year-end
When there is a acquisition occurring, the acquirer must record probable amount at the fair value in liability
- Amounts reported pretax gain must be fully awarded and no longer be in contingency

Question 15

F4 M3
How to treat Current maturities of LT debt

Answer 15

a) include amounts due and payables w/in 1 yr, add them
b) if notes payable is due than take full amount
c) if notes payable is due but as installments starting year than amount divided by # equal payments

Question 16

Calculate the following LT Liab components?

Answer 16

a) Calculate accrued interest receivable= loan amount * loan % * (1/12)
Difference of proceeds received and accrued interest receivable is amortization of deferred interest income

b) Calculate notes payable on non-interest bearing note is PV of note = non-interest bearing note annual payment *PV of ordinary annuity factor of note %
c) Notes payable is shown in F/S = face value amount - discount at imputed interest rate
d) ) Calculate interest income reported on i/S: Non-interest bearing note face amount * PV factor * interest rate.
Non-interest bearing note is recorded at PV using market interest rate and market interest rate is used to calculate interest note
e) Calculate reported notes receivable of 1st payment: = PV of ordinary annuity of the 9 equal payments market interest rate * annual payment amount

f) A installment notes receivable balance at any time is the present value of the remaining monthly payments discount at interest %
g) An interest expense is imputed interest on non-interest bearing note
h) Identify Y2 interest expense understated: = sum Y2 Accrual minus sum paid in Y2

Question 17

What of LT Liab should be reported in B/S?

Answer 17

When note does not exceed 1 year its reported at face amount. When note exceeds 1 year than reported at present value= face amount * PV factor of 8%

Question 18

How to determine recognition of following LT Liab?

Answer 18

a) Recognition of discount on notes receivable occurs when interest is imputed on non-interest bearing note
b) Recognition of deferred charge occurs when commitment to purchase
- An example of entries for these 2 items will be: DR Notes receivable and deferred charges; CR cash and discount on notes receivable
- Discount is calculated by notes receivable amount minus present value which will be provided

Question 20

F4 M4
Calculate Bond Liability

Answer 20

= cash received - bond issuance costs
OR Calculate Bond Liability in B/S= bond liability + net premium
OR =# issued amount in thousand * bonds at % -cost

Question 21

What is entry to record original issue of bond?

Answer 21

DR Cash and discount on bonds payable, CR bonds payable

a) Bonds issued ie cash= bonds issued% * maturity value which means bonds issued at % is issued at $ of face value
b) Bonds payable= maturity value
c) Discount= Bonds payable - bonds issued

When bond issued less than FV, its issued at discount not premium
When bond sells more than FV than issued at premium

Question 22

Calculate proceeds on sale of bond

Answer 22

• Bond rate greater than market rate = bond sell at premium i.e bond proceeds greater than bond issuance $
• Proceeds from bond is PV of bond issued = Present value of principal + PV of bond of interest payments
  a) PV of Principal = bonds issue $ * PV of $ 1 factor
  b) PV of interest payment= (bond issue $ * market rate) * PV of ordinary annual factor
  i = Adjust market rate to reflect interest payments i.e. market rate / semi annual payments. This will be discount rate to calculate PV of principle payments and interest payments
  N = is Years * payments i.e semiannual

Question 23

F4 M5

Calculate value of net bonds payable at Y1 end?

Answer 23

= carrying value + amortization of discount
a) carrying value = (face value * factor present value of $1 on market rate) + (( bond rate * face value) * PV of ordinary annuity on market rate)
b) amortization discount = [(carrying value * market rate) i.e interest expense] minus (bond rate * face value

Question 24

Stated rate of interest is less than interest rate. What is reported on 1st interest payment date?

Answer 24

stated rate of interest is less than interest rate= bond is issued at a discount = 1st interest payment discount is amortized = interest expense increases and will exceed interest payment
- bond discount account is debited

• The period used for determining interest expense is month of issuance to year end i.e issued June 1 than period is 7 months

Question 25

Bond issued at premium and amortized using effective interest method?

Answer 25

JE of interest payment accrual = DR interest expense and amortization of premium; CR interest payable
a) Interest expense debit gets smaller as amortization gets larger
b) bonds issued at premium = interest expense decreases

Calculate interest expense for Y2 using effective interest method for amortization
=market rate for comparable bonds which is given* Y2 carrying value
a) Y2 carrying value= Y1 amortization of discount + Y1 carrying value this is given
b) Y1 amortization of discount = (Y1 carrying value * market rate) - (($ par value of bonds * # of bonds issued)* coupon rate %)

Question 26

How is amortization of discount treated?

Answer 26

amortization of discount of a note is interest expense.
a) Amortization of discount is subtracted from interest expense to compute interest paid on for discount bonds
b) Amortization of premium is added to interest expense to compute interest paid for premium bond

interest expense =face value of bond *bond rate / (12/ # of months from issued to Dec)

Question 27

What happens when failure to record amortization

Answer 27

a) Failure to record premium amortization = interest expense overstated and bond carrying value overstated b/c amortization of premium reduces interest expense and carrying amount
b) Failure to record discount amortization = interest expense understated and bond carrying value understated

Question 28

Calculate unamortized premium on bond Y3

Answer 28

Use yield rate when unamortized premium
=Y2 Unamortized premium minus Y3 premium amortized
Y2 Unamortized premium= Y2 carrying amount of outstanding bond -original face value of bond
Y3 premium amortized = (interest paid ie bond % * bond face value) - (interest expense i.e Y2 carrying amount of outstanding bond * effective interest rate)

Question 29

Calculate bond carrying amount on December when bond issued Jan and interest payable on June and Dec?

Answer 29

=Jan 1 carrying amount minus June Amortization amount.. continue formula to Dec
Jan 1 carrying amount = is given
June Amortization amount = interest expense - interest payment
June Amortization interest expense = (previous carrying value * yield or market rate)/2
June Amortization interest payable = (face value* bond rate)/2
divided by 2 b.c its months

Question 30

How does discount/ premium affect carrying amount

Answer 30

a) discount = carrying amount of bond increases
b) premium= carrying amount of bond decreases

B/S carrying amount of bond liability = face value + unamortized premium or minus on amortized discount b/c amortization causes carrying value to approach face value

Question 31

How does interest payable/expense affect face value

Answer 31

a) The amount of interest payable is face value at beg of period * contractual interest rate when effect interest method of amortization is used for bonds issued at premium
b) The amount of interest expense is face value at beg of period * effective interest rate when effect interest method of amortization is used for bonds issued at premium

Question 32

Calculate cash received at time of bond issuance

Answer 32

• If bond issued between interest payments than formula will be = insurance price + interest accrued for period between interest payment date and issuance date
• Issuance price at 97 = # of bonds * face value is par value which is multiplied by 97%
• interest accrued = (par value * bond %)/ (semiannual i.e. 2 + halfway through year i.e 2)

Question 33

Affect of bonds carrying amount when there is an error of using wrong method to amortize discount

Answer 33

1) Start of Bond carrying value of bond is overstated
2) End of bond carrying value of bond has no effect

Question 34

F4 M6 Troubled Debt
Calculate gain/loss on

Answer 34

a) transfer of real estate= fair value of real estate transferred minus carrying amount of real estate transferred. Real estate is adj to fair value and gain/loss is recorded when asset is transferred in troubled debt restructuring
b) disposal/exchange= face value of transfer minus net book value of asset exchanged
c) extinguishment of debt at time bonds = reacquisition price minus net carrying value
* reacquisition price = face value * issue date issue amount %
* Net carrying value = face value - unamortized discount (ie [(face value - (face value * par bonds at %))]*(2/3) b/c retired at 10 years into 30 years and 2/3 of original discount has been amortized - unamortized bond issuance cost (ie bond issuance costs minus unamortized discount)

Question 35

Calculate restructering payable

Answer 35

= carrying amount of liability liquidated minus fair value of real estate transferred

• A loss is recognized when, a settlement price of a bond is greater than book value i.e settlement price is greater than FV of debt & FV is greater than book value. Gain/loss on bond retirements is recorded in continruing operations

Question 36

Calculate total stockholders equity net increase:

Answer 36

1) Troubled debt restructuring = creditor grants concession to a debtor
2) If face amount of payable above FMV of assets and or equity transferred = gain is recognized by debtor
3) Gain on troubled debt restructuring= Payables face amount minus cash paid for asset transfer and stock issued on transfer
4) increase in stockholders equity = gain on troubled debt restructuring + stock issued
5) Increase in stockholders equity is gain and issuance of new stock increase

Question 37

Calculate amount in Y2 I/S as loss on extinguishment of debt

Answer 37

= net carrying amount - reacquisition price
1) Net carrying amount = bonds retired face value minus pro rate unamortized bonds issuance costs
2) pro rate unamortized bonds issuance costs = outstanding bonds at par / bonds payable * unamortized bonds issuance cost
3) reacquisition price = $ outstanding bonds at par + call premium

• Extinguishment prior to maturity will be a gain in income from continuing operations when bond is issued at premium and redeemed ad discount to par b/c bond issued above par and redeemed below par will be gain bc paying less than par to remove liability

Question 38

A extinguishment of liability is NOT allowed

Answer 38

when an in-substance defeasance ie bond placed in irrevocable trust b/c freezes payment of principal and interest until later time and liability remains on debtor’s books. Each situation allow for extinguishment of liability
a) When the bond is paid off prior to maturity and a gain or loss is booked
b) The legal release of a debtor by judicial decree
c) When the bond is paid off at maturity at par.

Question 39

Calculate components of loss:

Answer 39

a) unamortized discount = original discount minus amortized amount
b) unamortized bond issuance cost = original of cost minus straight line amortization per year
c) premium paid to redeem = issue % of bond amount
To calculate premium paid to retire = bond minus premium paid to redeem

• When issue is redeemed, premium paid to retire is booked for loss b/c carrying value for discount bond is always below par prior to maturity & premium is paid above par to redeem issue

Question 40

Calculate retirement bonds

Answer 40

1) Calculate bond on retirement = carrying value of bonds to be retired - cash paid
a) carrying value of bonds to be retired = bonds at face value + unamortized bond premium
b) cash paid = face value * reacquired bonds %
c) JE is DR bonds payable and unamortized bond premium and CR cash and gain
2) calculate gain/loss from retirement of bonds = book value minus settlement price
a) book value of debt = face value + unamortized premium
b) Settlement = face value * face value at %
c) face value is # outstanding * $ face value bonds
d) if redemption takes place on interest date than no interest actual
e) Gain/loss is reported as part of continuing operations and must be reported b/c retirement price does not equal book value
3) JE when bond is redeemed is DR bonds payable and loss on debt extinguishment; CR cash and discount on bonds payable and unamortized bond issuance costs

Question 41

Other characteristics of trouble debt

Answer 41

a) The impact on NI when In exchange of debt owed there is gross receivables with allowance for uncollectible accounts, is a gain on restructuring of payables.
b) When a liability of debt is paid with a asset creating a gross receivable, the amount of carrying amount of payable (ie debt) minus fair value asset (AR) exchanged will be gain/loss on restructuring
c) A callable bond give a early redemption option to issuer and likely to call a bond as rates move lower

Question 42

Calculate amount of gain before income taxes from debt restructuring

Answer 42

= net carrying amount minus settlement price in cash.. gain is recognized in period of settlement and will have both principal balance outstanding and accrued interest
- net carrying amount = principal + interest accrued
1) When troubled debt restructuring involved only modification terms, the total future cash payments is compared to carrying amount to report gain on restructuring ie gain= carrying amount - total future cash payments
2) during troubled debt restructuring = if full settlement of debt is achieved be transferring asset a gain is recognized when fair market value is less than debt amount and calculated by carrying value transfer minus fair value of transfer. A ordinary gain is also reported on disposition of land

Question 43

Gain/loss on bond redemption in I/S?

Answer 43

a) When bond is redeemed, bonds payable will be debited at par
b) Greater discount at issuance = lower carrying value = greater loss on extinguishment
c) When discount bond redeemed at premium par the bond issuance costs is not fully amortized and increases size of loss booked. Any unamortized bond issuance costs is deducted from carrying value when redeemed, when loss is qual to reacquisition price ie carrying value= lower carrying value = greater loss

if bond discount is less then redeemed discount than a loss. A loss is booked in income from continuing operations. To determine gain/loss the unamortized discount is subtracted from carrying value. Discount bonds do not have unamortized premium. To determine gain/loss for Premium bond redeemed prior to maturity will have unamortized premium added to carrying value

Question 44

F4 M7
Under US GAAP to be a lease, one of the following are met and is treated as if owned by the lessee:

Answer 44

1) The lease transfers ownership to the lessee by the end of the lease term.
2) The lease contains a written purchase option that the lessee is reasonably certain to exercise.
3) The present value at the beginning of the lease term of the ““minimum lease payments”” equals or exceeds the fair value of the leased property (generally 90 percent of FV is the minimum threshold).
4) The lease term is the major part (75 percent or more) of the estimated economic life of the leased property.
5) The asset is specialized such that there is no alternative use to the lessor.

Question 45

Calculate lease liability

Answer 45

a) at end of Y1 = lease payment * PV factor of implicitly interest rate - end of year lease payment. if beginning of lease term than ie. PV of lease= lease payment * PV factor of implicit interest rate
b) after 1st required payment = (Annual payments * PV of annuity due minus) + (residual value * PV of $1 for lease term)
c) at end of Y2
Step 1 calculate liability before payments which is lease amount
Step 2: calculate liability after 1st year payment i.e Y1 end of year. = Step 1 liability minus decline in liability
Step 3: calculate liability Y2 end of year. = Step 2 liability minus decline in liability. Decline liability is payment minus interest

1) Identify threshold by lease term/ life of machine
2) If known to the lessee, use implicit rate to calculate present value
3) A finance lease term represents a major part of economic life of asset i.e 75% threshold

Question 46

Calculate lease depreciation expense

Answer 46

= (finance lease amount - fair value estimate ) / # useful life yrs
1) Depreciation is based on asset life (not lease) when capitalized b.c of transfer of title or written purchase option
2) Depreciation cant be taken below salvage value

Question 47

Calculate machine’s value at lease inception

Answer 47

= Required payments + expected residual
1) Lease is recorded as both asset and liability at PV of minimum lease payments
2) Required Payments= annual payment * factor of annuity due at implicit rate and lease term
3) Expected residual = residual value * PV of $1 implicate rate and lease term

Question 48

Components of lease accounting

Answer 48

a) Operating leases do not have separately recorded interest component. Lease expense and interest does not change
b) Variable payment ie commencement of the lease term and is used on PV of lease liability calculation
c) lease property amortization is over economic life of asset when there is a purchase option of when lessee takes ownership of asset at end of lease term
d) A lease written purchase option and is reasonably certain to exercise = finance lease
e) Variable lease payments not included in lease liability are cash outflows from operations and have a negative impact on bottom-line cash flow from ops. W criteria in OWNES

Question 49

Calculate principal amount of lease obligation

Answer 49

= annual lease payments * PV of ordinary annuity

Question 50

M5 F2
Various ways to calculate Equity Method Investment in B/S?

Answer 50

a) Calculate Y3
Use BASE formula. Ending Investment = Beginning investment + % investment income - % investment dividend/ withdrawals
b) Calculate investment amount in B/S
Original investment + cost of additional shares. b/c when purchases cause ownership to go from less than 20% to more than 20% than cost of acquiring is added to carrying value and equity method is used going forward
c) Calculate YE 1 carrying amount of investment in B/S
Step 1: Determine investment ownership %
Step 2: Balance YE 1: beginning purchase price + (Y1 Income * ownership %) - (Y1 dividends *ownership %)

Question 51

Explain Equity Method

Answer 51

Equity method is used when investor has input into managements decision, not necessarily determined by % of voting stock. Fair Value method is used when investor has no significant influence. sometimes can use benchmark of less than 20%. Equity method is only when significant investment of common stock 20 to 50%. Over 50% is consolidated F/S and equity method is not used
Step 1: determine % of ownership
Step 2: difference between increase earnings and decrease dividends pay out. Multiply by % step 2
stock dividend received will be recorded with memorandum entry that reduces unit cost of all stock owned. Dividend revenue is not recorded when stock dividend of same shares in same company is received
* Identifier when determining equity method is voting shares = common stock

Question 52

Explain why Under equity method, there is NO effect on change in market value of investees common stock and cash dividends from investe

Answer 52

Rules
a)Investor records as revenue its “share of the investee’s earnings” (not “dividends received”) under the equity method.
b)Dividends from an investee company are recorded by the investor as a reduction in the carrying amount of the investment on the balance sheet of the investor.
c) Changes in the market value of investee’s common stock are not considered income to the parent under the equity method.
d) Under the fair value method, receipt of a dividend is recorded as income and does not affect the investment account.

Question 53

Under equity method, Calculate dividend revenue for Y1

Answer 53

a) Equity method dividend is a return of capital and Fair value method ie no significant ownership and dividend rev will be reported.
b) Stock dividend is not reported as revenue, only memo entry made. meaning dividend revue not recorded in I/S
c) Cash dividend under equity method reduced investment account and does not affect revenue
d) If cash received is $25K on ownership interest 5% than paid dividends is 500,000. Excess dividends of retained earnings (ie liquidating dividends) than dividends minus retained earnings

Question 54

Under equity method, calculate goodwill?

Answer 54

Goodwill= purcahse price - fair value of assets acquired
Fair value of net assets acquired = Purchase price minus goodwill amount
% acquired = Fair value of net assets acquired / overall net assets with fair value amount
Shareholders Equity Y1 Beg= Shareholders Equity YE 1 + dividends paid - NI Y1
Fair Value of assets Y1 beg = Shareholders Equity Y1 beg + FV in excess of shareholders equity
Fair Value of %ownership of assets purchased = Fair Value of assets Y1 beg * % ownership

Question 55

Under equity method, Calculate revenue recorded Y1 Investments when ownership changes from equity to fair value method halfway through year. Means calculate equity method value for 1st half of year.

Answer 55

= (NI *2 b/c qtrly NI *% ownership) + (# shares kept * $ per share dividend)
*Moving from equity method to fair value method does not need a retroactive adjustment

Question 56

When use equity method and preferred stock is available than add with common stock

Answer 56

= Common stock % ownership earnings + preferred stock dividends received
Common stock % ownership earnings = see previous questions
preferred stock dividends received = ($ cumulative preferred stock * % of cumulative preferred stock ) * ownership %

Question 57

Gain from sale of half of investments Y2 I/S

Answer 57

Step 1: Determine investment ownership %
Step 2: Balance YE 1: beginning purchase price + (Y1 Income * ownership %) - (Y1 dividends *ownership %)
Step 3: Balance Y 2: balance Y1 + (Y2 income * ownership %)
Step 3: cost of half sold = % sold ie (50%) * Balance Y 2
Step 4 Gain on sale: Selling price minus cost of half sold

Question 58

Equity method other components

Answer 58

When fair value of INV and lan exceed carrying value than inventory excess decreases and land excess has no effect on equity earnings
Calculate amount included in Y1 I/S based on investments = ownership $ * income
- When business combination occurs than goodwill calculation on B/S by acquiring firm is excess of price paid over FV of identifiable net assets acquired
- Application of equity method was discontinued b/c carrying amount was 0 b/c of losses. Equity method is resumed when a) return is profitable and b) net losses allocated during suspension not recognized are covered by investors share of investee NI

Question 59

Explain acquisition method

Answer 59

• Under acquisition method, Consolidation equity is equal to parent’s equity balance and subsidiary’s equity total is eliminated
• Consolidated B/S-> parent & subsidiary assets & liab items are combined to single statement
• I/C is eliminated in consolidated to avoid double-counting
• Subsidiary B/S ->payables & receivables with parent will be shown

Question 60

Under Acquisition method, calculate following consolidations?

Answer 60

a) Consolidated RE= parent RE + (subsidiary consolidated NI * ownership) OR total RE= same as parent RE under acquisition method and full ownership OR Total RE in B/S = parent’s equity. 100% of subsidiary equity is eliminated
b) Calculate consolidated f/S total liab = parent liab + subsidiary liab - i/c liab. If over 50% ownership or controlling interest than use consolidated F/S under acquisition method
c) Calculate amount parent company should report as I/C receivables. None b/c 100% I/C balances are eliminated
d) Calculate cost of sales in consolidated I/S? Combine parent and subsidiary cost of sales and remove any i/c inventory cost of sales
e) Calculate I/C rev by consolidated reve minus parent & subsidiary rev

Question 61

Under Acquisition method, calculate following consolidations?

Answer 61

Calculate subsidiary payable to parent’s for I/C sales = Consolidated AR - (parent AR + subsidiary AR)
Determine parent’s dividends paid= only parent’s. JE Eliminating entry = DR inv sub and non-controlling interest. CR is dividends paid/RE
c) Calculate consolidated plant assets= FV subsidiary + BV parent’s
d) Determine consolidation view when parent sold land to subsidiary then subsidiary sold to external. I/C gain on sale from land from parent to subsidiary is eliminated on parent’s consolidation. The gain on sale to external is recognized at YE

Question 62

Calculate total dividends reported in consolidated and subsidiaries F/S?

Answer 62

• Consolidated F/S will show dividends paid to outsiders or external parties i.e I/C eliminated
• Parent owns 90% of subsidiary A and 100% of subsidiary B. Subsidiary B is 100% eliminated; subsidiary A only 90% is eliminated so 10% *100,000 is reported

Question 63

Calculate inv reported on combined B/S of 2 subsidiaries?

Answer 63

= inv acquired from outsides parties + Inv acquired from I/C - unrealized profit ie GM % of I/C acquired from I/C
a) GM % = (shipments from subsidiary - shipments to other subsidiary)/shipments from subsidiary

Question 64

Calculate consolidated b/s total stockholders equity?

Answer 64

= common stock + APIC + non-controlling interest + RE
Step 1 NI = YE RE - beg RE + dividends
Step 2 NCI share of dividends = (100% minus ownership %) * cash dividends
Step 3 NCI share of NI = 100% minus ownership %) * NI
Step 4 Non-controlling interest beginning = (100% minus ownership %) * (acquisition cost / ownership %)
Step 5 Noncontrolling interest YE = Noncontrolling interest beginning + NCI share of NI - NCI share of dividends

Question 65

F5 M4
Regarding partnerships, calculate following on partners

Answer 65

a) Determine Capital Partner= =beg balance + revenue in excess of expenses - drawing expenses
b) Determine which partner has largest capital balance. If cash amount is averrable use. IF property or asset use fair value and if applicable subtract mortgage amount
c) Determine Partner A NI =Identify NI total * % allocation Partner A
d) Calculate partners capital account that will be credited= add total capital * allocation %. CR capital account; DR difference between capital account and land fair value
e) Determine which partner has greater advantage when there is a profit/loss in partnership? partner with less from ratio
calculate cash available for partner A?
Step 1 Sell other assets for cash = sales price - BV
Step 2 Payoff AP with cash = cash from sale - AP
Step 3 Allocate loss to partners= allocate on Step 1
Step 4 cash received = parnter A capital - loan - partner loss from step 3

Question 66

Determine amount Partner B capital account changes?

Answer 66

Step 1 Identify capital (given)
Step 2 calculate interest = capital * interest %
Step 3 Add Step 1 and 2
Step 4 = total partnership profit (given) - total of step 2 for each Partner A and b
Step 5 Loss allocation ( problem says divided equally) step 4 divided by 2
Step 6 Step 3 add Step 5
Step 7 Net Change for Partner B = Step 6 - step 1

Question 67

Under partnership, calculate following on partners

Answer 67

a) Calculate available cash for distributed for Partner A= Partner A Capital +[(Price from asset sold - other assets BV)*allocation%]
b) New capital for Partner B after new partner admitted = = Total capital / interest ie allocation %
c) Capital partner B capital account = equipment FMV - mortgage on equipment
d) New partner is admitted, determine what they should contribute in cash or other assets?
Step 1 Fair value of net assets prior to admitting new partner = assets- AP
Step 2 =(Fair value of net assets prior to admitting new partner * allocation %) / (100%-allocation %)

Question 68

Calculate earnings distributed to each partner?

Answer 68

Step 1 net earnings distribute = Earnings - total salary allowance
Step 2 determine distribution for each = net earnings distribute * allocation %
Step 3 determine earning distribution for each = salary allowance from each partner minus distribution from each pattern

Question 69

Calculate bonus to original partners basically Contribution of Parter B and capital account balance pf Partner B is credited to other partners as bonus?

Answer 69

Step 1 Add each total $ contribution
Step 2 Total $ contribution * % partnership B
Step 3 =Contribution B $ - Step 2

Question 70

Calculate goodwill on partner?

Answer 70

Step 1 implied total partnership capital = # partners * interest of 1 partners
Step 2 actual total partnership capital = Step 1 + other partners capital account balances
Step 3 Step 1 - step 2
OR Calculate recorded goodwill to original partner
Step 1 Total assets contributed balances of each Partner given
Step 2 total capital = Partner C investment / %
Step 3 goodwill to original partners = total capital - total assets contributed

Question 71

Under partnership, Calculate additional contributed capital

Answer 71

= net assets - common stock
a) Fair market value of assets contributed = current assets + equipment
b) Net assets = Fair market value of assets contributed - liabilities assumed

Question 72

Other components on Partnership

Answer 72

1) When partners contribute assets to a partnership, its valued at fair market value, net of any related liabilities
2) Tangible assets (inv and real estate) partnership are recorded at fair market value
3) Noncash property contributed to partnership is valued at fair value at date of contribution
4) under the “bonus” method, the credit to the new partner’s capital account is calculated so that the new partner will receive the proper ownership percentage. The amount credited to the partners’ capital account as determined in this manner generally is not equal to the amount of the investment.
5) the bonus method increases (or decreases) the individual partners accounts without changing total net assets of the partnership. Since the capital accounts of Beck and Chale decreased, goodwill was not recorded as an asset, but instead the bonus paid to Allen was charged against the capital accounts of the remaining partners. The goodwill method increases the individual partners accounts and also changes total net assets of the partnership.
6) Adel and Brick’s old profit and loss ratio would be used to allocate the excess of Colter’s contribution over the amount credited to Colter’s capital account.Capital ratios are inappropriate to reflect operating effectiveness of the old partners; thus bonus paid has the same impact as additional net income, and is shared in the old profit and loss ratio.

Question 73

Calculate amount of additional paid in capital

Answer 73

= difference between fair value of net assets ie assets - laib - common stock issued. JE for additional paid in capital: DR assets fair value; CR liab fair value, common stock, APIC