Far Module 5 Flashcards
Inventory on balance sheet
should be adjusted to faair value and increased or decreased as such
On consolidations adjust depreciation
to what the parents depreciation would have been had the sale not taken place
To calculate intercompany sales on a consolidation
Take both companys revenues add them together then subtract out the consoldiates sales that is your intercompany amount
When consolidating net income to cash provided by op activities net income from
ling the parent and subsidiary should be used in reconciling
In a consolidaation to report intercompany combined inventory
first add together the inventory aacquired from outside parties
Then take the inventory acquired from sub and add that to the total
Then get a ratio for gross profit by taking intercompany shipments to and from
(shipments from-shipments to)/shipments from
multiply this by the sub inventory acquired subtract this amount from the total of inventory acquired from outside + inventory acquired from sub
Wagner, a holder of a $1,000,000 Palmer, Inc. bond, collected the interest due on March 31, Year 1, and then sold the bond to Seal, Inc. for $975,000. On that date, Palmer, a 75% owner of Seal, had a $1,075,000 carrying amount for this bond. What was the effect of Seal’s purchase of Palmer’s bond on the retained earnings and noncontrolling interest amounts reported in Palmer’s March 31, Year 1, consolidated balance sheet?
Retained earnings
Noncontrolling interest
A.
$75,000 increase
$25,000 increase
B. $100,000 increase
$0
C. $0
$100,000 increase
D. $0
$25,000 increase
Choice “B” is correct, $100,000 increase in consolidated earnings. $0 effect on noncontrolling interest. The purchase of the parent company bond by the subsidiary is treated as if the bond were retired when the financial statements are consolidated. Because the bond had a book value of $1,075,000, but was “retired” for $975,000, a gain is recorded upon consolidation.
Debit (Dr) Credit (Cr)
Bond premium
Bond premium (Palmer’s books)
75,000
Bond payable (Palmer’s books) 1,000,000
Bond investment (Seal’s books)
975,000
Retained earnings - consolidated 100,000
Noncontrolling interest 0
Journal entry on consolidated worksheet
Noncontrolling interest is only adjusted if the bonds were originally issued by the subsidiary and, as a result, a portion of the gain must be allocated to the noncontrolling interest. In this problem, the parent issued the bonds, so the elimination has no impact on noncontrolling interest.
16
MCQ-00427
Application
On January 1, Year 1, Dallas Inc. acquired 80 percent of Style Inc.’s outstanding common stock for $120,000. On that date, the carrying amounts of Style’s assets and liabilities approximated their fair values. During Year 1, Style paid $5,000 cash dividends to its stockholders. Summarized balance sheet information for the two companies follows:
Dallas Style
12/31/Year 1 12/31/Year 1 1/1/Year 1
Investment in Style (equity method)
$132,000
Other assets
138,000
$115,000
$100,000
$270,000
$115,000
$100,000
Common stock
$50,000
$20,000
$20,000
Additional paid-in capital
80,250
44,000
44,000
Retained earnings
139,750
51,000
36,000
$270,000
$115,000
$100,000
What amount of total stockholders’ equity should be reported in Dallas’ December 31, Year 1, consolidated balance sheet?
Take the amount acquired then divide by percentage 1cquired 120,000/80%=150,000
Then multiply 150,00020%=non control interest of invest in sub
30,000
+NI 4,000
-=(20%5000 dividends)=-1,000
=33,000
Add this amount to the total equity of the parent company
Then you want to find out the net income that you don’t own
So take begin RE
36,0000
solving for NI
Less dividends(5000)
end RE =51000
Then work backwards 560000-36000=20,000 20% of 20,000=4000 NCI in NI
IN CONSOLIDATIONS IF WE SELL EXCLUSIVELY TO ONE PARTY AAND THEY BUY EXCLUSIVELY FROM US WHEN CONSOLIDATING AND CALCULATING GROSS PROFIT FOR ELIMINATIONS
THE PERCENTAGE AMAOUNT OF THEIR COST OF SALES DIVIDED BY THE TOTAL AMOUNT OF SALES NEEDS TO BE ELIMINATED TO CALACULTE ELIMINATION OF GROSS PROFIT
THEN ALSO CALCULATE AMOUNT OF ENDING INVENTORY TO ELIMINATE BASED ON PERCENTAGE OVER TOTAL SALES OF COMPANY THAT SOLDTO THEM ANAD THEIR ENDING INVENTORY
Use inventory to calculate intercompany profit
both companies inventory added together less the
During Year 1, Abaco Co., the 100% owned subsidiary of Walker Inc., sold merchandise to Walker at a 25% markup over its cost. Intercompany sales to Walker totaled $800,000 during Year 1. On December 31, Year 1, Walker held $200,000 of the inventory purchased from Abaco in its ending inventory. In Walker’s December 31, Year 1 elimination of the intercompany sales transaction, the intercompany profit that must be eliminated from ending inventory is:
The first step in this problem is to calculate the intercompany profit
Take 800000/1.25 for the markup and you get 640,000
then take 800-640=160 profit to be elminiates
State out by eliminiateong there salkes with debit to sales
Sales-800000
Intercompany Cogs -640,000 since that is the price of the goods to abaco
Inventory Walker-160*.25=40,000
Then credit cogs walker for 120,000 the 75% of 160 profit that mist have been sold
Consolidations balance sheet if you aacquire a company and their PPE balance has increased to calculate total ppe of both companuys and also goodwill
Take the PPE less the accumulated depreciation and then add to that the increase in fair value of whatever ppe item then add that to the total value of ppe of parent company this is your ppe total value adjust according;y
For goodwill take the book value of subs equity aka the car common stock apic and retained earnings add together and add any increases in fair value then take the purchase price if you paid over that then that is the amount of goodwill a
Income statement intercompeny transationswould be
dividends paid
Intercompany balance sheet transactions woukd be
receivables and payables
Subs dividends paid are
100% eliminated in consolidation
Additional information: During Year 1, Pard sold goods to Spin at the same markup on cost that Pard uses for all sales. At December 31, Year 1, Spin had not paid for all of these goods and still held 37.5% of them in inventory.
In Pard’s consolidated balance sheet, what was the carrying amount of the inventory that Spin purchased from Pard?
To calculate this take the revenues of both companies and add together and less the consolidated revenue once you have that divide cost of sales/total sales to get cogs percentage multiply this by the previous answer then multiply that amount by 37,5
If premium paid to retire bonds then the difference will be
a reduction to retained eearnings since higher amount paid to retire
Cash flows from financing if you purchase equipment for 30,000 and pay 3,000 cash and the rest is issued with a note what is the portion related to investing activities
Only the 3,000 is related to investing activities because the 3,000 represents ana outflow of cash for the equipment the remaining 27k would be aa noincash outflow from financing and investing specifically the principal repayment
If a vendor allows a company to buy on credit, it is a use of cash to the buying company.
Its a source of cash to the buying company
New England Co. had net cash provided by operating activities of $351,000; net cash used by investing activities of $420,000; and cash provided by financing activities of $250,000. New England’s cash balance was $27,000 on January 1. During the year, there was a sale of land that resulted in a gain of $25,000 and proceeds of $40,000 were received from the sale. What was New England’s cash balance at the end of the year?
Ignore the $25,000 aand 40,000 they would already be included in operating and investing
3
An interest payment of $85,000 is made on a new long-term debt issued at par.
operating activity aamount to net income aadjusted 0
