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Accounting & MIS 4200
Exam III
Spring 2013
Instructions:
1.
Read each question carefully and answer fully. Unless otherwise
specified, subsidiaries do not use the push-down method of accounting.
All consolidations are handled as purchases (not pooling) unless
indicated. All firms use a calendar year. Use post-December 2008 GAAP
unless otherwise told to do so. Round all answers to nearest whole
dollar.
2.
Problems not supported by relevant and readable computations are
subject to point loss. Where appropriate, terms like “net income,” “net
loss,” etc. must be included with number answers.
3.
Budget your time carefully. It is generally better to finish half of each
problem than to complete all of half the problems. Students who continue
to work on exams after instructed to stop will receive a zero on this exam.
4.
It is the student's responsibility to verify that all the listed problems and
pages are contained is this booklet. Unanswered questions receive zero
points regardless of reason.
Approximate
Points
Approximate
Time
Problem
Pages
I
2-4
94
34 – 41 minutes
II
5-6
31
11 – 14 minutes
125
45 - 55 minutes
Total
Page 2 of 6
PROBLEM I
Presented below is a worksheet for Parent and Sub immediately after Parent acquired
90% of Sub. The current and book value of all of Sub’s recorded assets were the same except as
follows. The Bonds Payable, which were originally sold by Sub at a discount to yield 7% in the
market, had a $12,330 fair (and market) value on the acquisition date because the market
wanted a yield of 4%. They pay interest on 31 Dec of each year. The fair market value of the
non-controlling interest was $2,000 at the acquisition date. The resulting consolidated unit will
have $6,330 (hint!) of goodwill that will never be impaired. (Hint: you will note the only
intercompany transaction occurs in the second year together.)
Part A. Required: Complete the worksheet. {31 points}
1 Jan 20x1
Cash & Receivables
Inventory
Property, P, E, net
Parent
5,000
7,000
33,000
Investment in S
21,000
Current Liabilities
6% Bonds Payable
Discount on B/P
3,000
Common Stock
Ret. Earnings, end
3,000
60,000
66,000
Sub
3,000
4,000
24,000
2,000
10,000
945
66,000
31,945
1,000
18,945
31,945
Adjustments
Consolidated
Page 3 of 6
PROBLEM I (continued)
Part B. Below is the worksheet at the end of the first year. Goodwill has not been impaired.
Required: Complete the worksheet. {31 points}
31 Dec 20x1
Sales
Cost of Sales
Oper. Expenses
Interest Expense
Parent
90,000
65,000
14,000
Sub
70,000
50,200
12,166
634
Equity in S Income
Consolidated Net Inc.
NCI in Net Income
Net Income/Loss Parent
6,300
17,300
7,000
17,300
7,000
Ret. Earnings, beg.
Net Income/Loss
Dividends Declared
60,000
17,300
18,945
7,000
3,000
Ret. Earnings, end
2,000
74,300
Cash & Receivables
Inventory
Property, P, E, net
16,800
8,000
31,000
Investment in S
25,500
23,945
14,034
3,000
22,000
Current Liabilities
6% Bonds Payable
Discount on B/P
4,000
Common Stock
Ret. Earnings, end
3,000
74,300
81,300
5,000
10,000
911
81,300
39,945
1,000
23,945
39,945
Adjustments
Consolidated
Page 4 of 6
PROBLEM I (continued)
Part C. Below is the worksheet for the second year. Goodwill has not been impaired. On 1 Jan
20x2, Parent went to the marketplace and purchased the entire amount of Sub’s outstanding
bonds for $11,038 (as the market wanted a 5% interest rate at that point). Sub paid the interest
due to Parent on those bonds on 31 Dec 20x2. Parent considers these bonds as a held-tomaturity investment.
Required: Complete the worksheet. {32 points}
31 Dec 20x2
Sales
Cost of Sales
Oper. Expenses
Interest Expense
Interest Revenue
Parent
90,000
65,000
14,000
Sub
70,000
50,204
10,160
636
552
Equity in S Income
Consolidated Net Inc.
NCI in Net Income
Net Income/Loss Parent
8,100
19,652
9,000
19,652
9,000
Ret. Earnings, beg.
Net Income/Loss
Dividends Declared
74,300
19,652
23,945
9,000
3,000
Ret. Earnings, end
2,000
90,952
Cash & Receivables
Inventory
Property, P, E, net
Investment in Bonds
16,162
8,000
31,000
10,990
Investment in S
31,800
30,945
21,070
3,000
22,000
Current Liabilities
6% Bonds Payable
Discount on B/P
4,000
Common Stock
Ret. Earnings, end
3,000
90,952
97,952
5,000
10,000
875
97,952
46,945
1,000
30,945
46,945
Adjustments
Consolidated
Page 5 of 6
PROBLEM II
On 1 Jan 20x1, Parent purchased 100% of Sub for cash. Your assistant began the preparation
of the consolidation worksheet below under the assumption that you will not use the push-down
method. However, you have determined that use of push-down is appropriate. All parts that
follow assume the push-down method is used upon acquisition.
1/1/20x1
Cash
Inventory
Patent
Build. & Equipment
Accum. Depr.-B & E
Jingles
Land
Goodwill
Investment in Sub.
Payables and Accruals
Long-term Debt
Common Stock
Retained Earnings, end
Parent
70
100
Sub
175
160
60
800
240
50
100
Adjustments
110
10
j
35
j
110
50
k
j
110
k
5
j
900
j
j
900
120
140
250
300
16
100
25
25
890
700 700
1410 1410 1275 1275 1035
20
j
80
89
Consolidated
j
j
j
1035
Part A. Required: Present the entry on Parent’s book to record the acquisition of Sub, given
the push-down method is being used. {4 points}
Page 6 of 6
Problem IV (continued)
Part B. Required: Present the entries on the Sub’s book to record the acquisition, given the
push-down method is being used. {14 points}
Part C. Required: Present, in general journal form, the basic elimination entry on the
consolidation worksheet necessary after the push-down is accomplished. {8 points}
Part D. Assume instead of the previous facts that Parent paid $800 to acquire 85% of Sub and
the portion not owned by Parent is worth $112 on the date of acquisition. Required: Present, in
general journal form, the basic elimination entry on the consolidation worksheet necessary
after the push-down is accomplished. {5 points}