Problems Flashcards
Attributable to goodwill
- Find net Assets for Book and Fair value
- Multiply both by % ownership
- Fair - Purchase Price = Goodwill
- Book- Purchase Price = Undervalued assets
JE’s to report equity on sub earnings on IS and to report investment on sub earnings on BS
- Find 100% and % of ownership for each undervalued assets.
- Divide ownership % by life to = amortization
- Year 1 you will have the acquired date JE: Debit Investment, Credit Cash for purchase price
- Income: Debit Investment, Credit Income for given net income * % owner
- Dividend: Debit Cash, Credit Investment for given Dividends * % ownership
- Amortization: Debit to Income, Credit to investment for total from 2 - Next years will just be income, dividend, and excess
T Charts to report equity on sub earnings on IS and to report investment on sub earnings on BS
- 1st years T chart for Investment:
LEFT:
- Purchase Price
- Number from Income JE
RIGHT:
- Dividend JE #
- Amort JE #
Income:
LEFT:
- Amort JE #
RIGHT:
- Purch date JE #
- 2nd yrs years T chart for Investment:
LEFT:
- End # previously
- Number from Income JE
RIGHT:
- Dividend JE #
- Amort JE #
Income:
LEFT:
- Amort JE #
RIGHT:
- Income JE #
Equity Method for balance in investment
- Find attributable to goodwill and include undervalued assets inbetween
- Find 100% and % of ownership for each undervalued assets.
- Divide ownership % by life to = amortization
- Year 1 you will
- Income: Debit Investment, Credit Income for given net income * % owner
- Dividend: Debit Cash, Credit Investment for given Dividends * % ownership
- Amortization: Debit to Income, Credit to investment for total from 2 - Next years will just be income, dividend, and excess
Fair Value for income from investment
- List FV for each years
- Years 1s JE:
- Income: Debit Cash, Credit Dividends (Given Dividends * Ownership %
- Adjustment: Debit Market Adj, Credit UHGL-Income for (yr 2 FV - yr 1 FV) - Years 2s JE:
- Income: Debit Cash, Credit Dividends (Given Dividends * Ownership %
- Adjustment: Debit Market Adj, Credit UHGL-Income for (yr 3 FV - yr 2 FV) - Do charts for each year that go like this:
Investment at Fair Value –
Dividend Income –
UHGL- Income –
=
Journal entry for intra-equity gross profit
- Parent Co JE:
- Debit Cash, Credit Sales for purchase price
- Debit COGS, credit inventory for cost of inv - Find Profit % = (Sales – Cost) / Sales
- Sub Co JE:
Debit Inventory, Credit Cash for purchase price - T Chart for INV
RIGHT:
Purchase Price
LEFT:
Resold price
= unsold inv - Deferred Profit = Unsold Inventory * Percent Ownership * Profit Percent
- 2023 JE:
Debit Income, Credit Investment for deferred profit - When sold JE:
Debit Investment, Credit Income for deferred profit
Equity in Investee Income for equity method
- Profit percentage: (Sales – Cost) / Sales
- JEs:
income: Debit Investment, Credit Income for given net income * % owner
- Dividend: Debit Cash, Credit Investment for given Dividends * % ownership
- Amortization: Debit to Income, Credit to investment for given
- Deferral: Debit Income, Credit Investment for (unsold inventory * % ownership * profit %)
How will the intra-entity transfer affect for parent co in equity method
If inventory sold in 2024: debit investment and credit income for (unsold inventory * % ownership * profit %)
If parent sold inventory how would investee income and intra-equity be effected for equity method
makes no difference if upstream or downstream sale.
Determine the amounts that would appear on subsidary’s income statement relating to its ownership and partial sale of its investment in Parents common stock.
- Find Investment for each year by
- Purchase price
- Each years NI * % Ownership
- next column do: Dividend * % ownership - Basis/ Share = per share
- Debit Cash for previous years first column amt * % ownership
Credit Investment for previous years first column amt * basis/sahre
Credit Gain on Sale for plug
Prepare Subsidarys journal entries to record its acquisition of Parent Co if paid in shares and cash
- Find Goodwill attributable
- JEs for:
- Stock Issue: Debit PIC-CS, Credit Cash for given
- Legal Costs: Debit Fee Expense, Credit Cash for given - Acquisition JE
Debit all Assets for Fair Value
Debit Goodwill (PLUG)
Credit All Negative Assets Credit CS/PIC-CS (par / Fair-par)
Prepare Subsidarys journal entries to record its acquisition of Parent Co if paid in cash only
- Find Gain on bargain same way as goodwill
- JEs:
- Legal Costs: Debit Fee Expense, Credit Cash for given
- Acquisition:
Debit all Assets for Fair Value
Credit All Negative Assets Credit Gain Purchase for 1s #
Prepare Subsidarys journal entries to record the Parents acquisition assuming its initial cash payment to the former owners was ….
- Find Gain same way as Goodwill
- Purchase Price: … $ + contingency
- Book Value: CS + RE
- Fair: Fair Value of Assets (Include R&D) – Fair Value of Liabilities - JEs:
- Transaction: Debit Fee Expense, Credit Cash for Paid
Fair: Debit all assets and goodwill.
Credit Liabilities
Credit Negative assets, gain and performance oblig.
Prepare an acquisition-date consolidated balance sheet for Parent and its subsidiary
- Find Goodwill
- JE for Acq: Debit Investment, Credit Cash for purchase price
- Elimination Entries:
- S: Debit CS, PIC-CS, RE (Parent), Credit Investment
- A: Debit Building and Goodwill, Credit Licensing and Investment - Worksheet
Prepare consolidation worksheet entries for equity method
- Purchase allocation
- Amortize table
- Elimination Entries:
- S: Debit CS, PIC-CS, RE. Credit Investment
- A: Debit Goodwill, Land, Building. Credit Equipment and Investment
- I: Debit Income, Credit Investment ((CS + Income)-Total Amort)
D: Debit Investment, Credit Dividends
Debit Depr Exp, Credit building
Debit Eq, Credit Depr Exp - Next Years
- Repeat S,A,I
- D: Debit Investment, Credit Dividends
- E: Debit Depr Exp, Equipment, Credit Building
