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Accounting & MIS 4200
Exam II
Spring 2014
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
2-5
75
27 – 33 minutes
II
6-8
50
18 – 22 minutes
125
45 - 55 minutes
Total
Page 2 of 8
PROBLEM I
Presented below is the partially completed worksheet for Parent and Sub
immediately after Parent acquired 70% of Sub. The current and book value of all of Sub’s
recorded assets were the same except as follows. Inventory (LIFO) has a fair value of $570.
Property, Plant & Equipment (10 years remaining) has a fair value of $1,400. Land
(indefinite life) has a fair value of $510. Long-term Liabilities (3 years remaining) has a
$730 current value. The Sub was determined to have previously unrecorded Trademarks
worth $100. The fair market value of the non-controlling interest was $650 at the
acquisition date.
Part A. Required: Complete the worksheet. {19 points}
1 Jan 20x1
Cash & Receivables
Inventory
Property, P, E, net
Land
Trademarks
Goodwill
Investment in S
Parent
2,660
1,000
900
1,200
Sub
400
600
1,200
530
Adjustments
1,900
Current Liabilities
Long-term Liabilities
NCI in Net Assets
Common Stock
Ret. Earnings, end
7,660
700
450
200
700
10
6,500
7,660
30
1,800
2,730
2,730
Consolidated
Page 3 of 8
PROBLEM I (continued)
Part B. Below is the worksheet at the end of the first year under the complete equity
method. Goodwill (if any) lost 20% of its value. Trademarks are worth $110.
Required: Complete the worksheet. {23 points}
31 Dec 20x1
Parent
Sub
Sales
3,000
4,000
Cost of Sales
800
2,400
Oper. Expenses
2,000
1,000
Equity in S Income
Consolidated Net Inc.
NCI in Net Income
Net Income/Loss Parent
Ret. Earnings, beg.
Net Income/Loss
Dividends Declared
600
520
600
6,500
520
1,800
600
200
Ret. Earnings, end
Cash & Receivables
Inventory
Property, P, E, net
Land
Trademarks
Goodwill
Investment in S
320
520
100
6,820
2,730
900
800
1,200
2,300
870
800
1,050
530
2,150
Current Liabilities
Long-term Liabilities
NCI in Net Assets
Common Stock
Ret. Earnings, end
7,780
500
450
220
700
10
6,820
7,780
30
2,300
3,250
3,250
Adjustments
Consolidated
Page 4 of 8
PROBLEM I (continued)
Part C. Below is the worksheet for the second year.
impaired. Trademarks are worth $60.
Goodwill (if any) has not been
Required: Fill out the entire worksheet (including missing amounts in Parent’s columns)
under the complete equity method. {16 points}
31 Dec 20x2
Sales
Cost of Sales
Oper. Expenses
Parent
3,500
1,000
2,000
Equity in S Income
Consolidated Net Inc.
NCI in Net Income
Net Income/Loss Parent
Ret. Earnings, beg.
Net Income/Loss
Dividends Declared
Cash & Receivables
Inventory
Property, P, E, net
Land
Trademarks
Goodwill
Investment in S
Adjustments
4,200
2,500
1,000
469
969
700
969
700
6,820
969
2,300
700
300
Ret. Earnings, end
Sub
200
7,489
3,420
700
700
1,200
2,800
2,100
200
900
530
2,479
Current Liabilities
Long-term Liabilities
NCI in Net Assets
Common Stock
Ret. Earnings, end
8,499
550
450
200
700
10
7,489
8,499
30
2,800
3,730
3,730
Consolidated
Page 5 of 8
PROBLEM I (continued)
Part D. This will draw upon GAAP from prior December 2008.
Required: Calculate what is requested below: {12 points}
NCI in net assets under full revaluation
$
NCI in net assets under partial revaluation
$
Part E. This question is unrelated to the data in parts A through D. Parker owns 80% of
Smith. During 20x7, Parker saw the Investment in Smith account increase in value.
However, the consolidated balance sheet on 31 Dec 20x7 showed a balance less than 31 Dec
20x6 in the NCI in Net Assets account. Explain succinctly what conditions and factors
caused this to occur in 20x7. {5 points}
Page 6 of 8
PROBLEM II
Parent created Sub in many years ago. The Sub’s only source of inventory in 20x1
and 20x2 were items purchased from Parent. Sub uses a weighted-average inventory flow
for these homogeneous items.
Part A. Required: Complete the following worksheet for 20x1 under partial equity. {19
points}
12/31/20x1
Partial Equity
Sales
CGS
Expenses
Intercompany Sales
Intercompany CGS
Parent
Sub
2000
1200
140
Adjustments
900
250
60
400
320
Eq. in Net Inc. of Sub.
Net Income/Loss
590
1330
590
Ret. Earnings, beg.
Net Income/Loss
Dividends Declared
Ret. Earnings, end
1000
1330
500
590
Inventory
100
25
2230
600
Investment in Sub.
1070
Other Assets
Liabilities
Common Stock
Ret. Earnings, end
840
2510
1065
150
950
200
80
2230
2510
1100
30
5
1065
1100
Consolidated
Page 7 of 8
Problem II (continued)
Part B. Required: Complete the following worksheet for 20x2 under partial equity. {13
points}
12/31/20x2
Partial Equity
Sales
CGS
Expenses
Intercompany Sales
Intercompany CGS
Parent
1450
920
330
Inventory
Adjustments
1000
550
120
500
400
Eq. in Net Inc. of Sub.
Net Income/Loss
Ret. Earnings, beg.
Net Income/Loss
Dividends Declared
Ret. Earnings, end
Sub
330
630
330
2230
630
1065
330
100
30
2760
600
Investment in Sub.
1370
Other Assets
Liabilities
Common Stock
Ret. Earnings, end
930
2900
1365
100
1315
40
100
2760
2900
1415
45
5
1365
1415
Consolidated
Page 8 of 8
Problem II (continued)
Part C. Required: Present, in general journal form, all the adjusting “entries” that would
appear on the 20x1 worksheet if Parent had used the complete equity method to account for
the investment in Sub. {9 points}
PART D. Required: Present, in general journal form, all the adjusting “entries” that would
appear on the 20x2 worksheet if Parent had used the complete equity method to account for
the investment in Sub. {9 points}