Required: a) For the buildings and equipment held by Atoom when MidStrata acquired it and still on hand on December 31, 20X6, by what amount had buildings and equipment increased in value from their acquisition to the date of combination with MidStrata? b) What amount should be reported as accumulated depreciation for the consolidated entity at December 31, 20X6 (assuming MidStrata does not make the optional accumulated depreciation consolidation entry)? c) If Atoom reported capital stock outstanding of $60,000 and retained earnings of $30,000 on January 1, 20X1, what amount did MidStrata pay to acquire its ownership of Atoom? d) What balance does MidStrata report as its investment in Atoom at December 31, 20X6? e) What amount of intercorporate sales of inventory occurred in 20X6? f) What amount of unrealized inventory profit exists at December 31, 20X6? g) Give the consolidation entry used in eliminating intercompany inventory sales during 20X6. h) What was the amount of unrealized inventory profit at January 1, 20X6? i) What balance in accounts receivable did MidStrata report at December 31, 20X6?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
MidStrata Corporation acquired 75% of the voting shares of Atoom Company on January 1, 20X1. The fair value of
the non-controlling interest at acquisition was equal to its proportionate share of the fair value of the net assets of
Atoom. The full amount of the differential at acquisition was attributable to buildings and equipment, which had a
remaining useful life of eight years. Financial statement data for the two companies and the consolidated entity at
December 31, 20X6, are as follows:
MIDSTRATA CORPORATION AND ATOOM COMPANY
Balance Sheet Data
December 31, 20X6
Item MidStrata Corporation Atoom Company Consolidated Entity
Cash $ 67,000 $ 45,000 $ 112,000
Account Receivable ? 55,000 145,000
Inventory 125,000 90,000 211,000
Buildings & Equipment 400,000 240,000 680,000
Less:
Investment in Atoom Company ?
Total Assets $ ? $320,000 $
Accounts Payable $ 86,000 $ 20,000 $ 89,000
Other Payables ? 8,000 ?
Notes Payable 250,000 120,000 370,000
Common Stock 120,000 60,000 120,000
Non-controlling Interest 44,500
Total Liabilities & Equity ? $ 320,000 ?
MIDSTRATA CORPORATION AND ATOOM COMPANY
Income Statement Data
For the Year Ended December 31, 20X6
Item MidStrata Corporation Atoom Company Consolidated Entity
Sales $420,000 $ 260,000 $ 650,000
Income from Atoom Company 32,250
Total Income $452,250 $260,000 $650,000
Cost of Goods Sold $310,000 $170,000 $445,000
Depreciation Expense 20,000 25,000 50,000
Interest Expense 25,000 9,500 34,500
Other Expenses 22,000 15,500 37,500
Total Expenses ($377,000) ($220,000) ($567,000)
Consolidated Net Income $ 83,000
Income to Noncontrolling Interest (7,750)
Controlling Interest in Net Income $ 75,250 $ 40,000 $ 75,250
Group Case Study ACCT 4001
All unrealized profit on intercompany inventory sales on January 1, 20X6, were eliminated on MidStrata’s books.
All unrealized inventory profits at December 31, 20X6, were eliminated on Atoom’s books. Assume MidStrata uses
the fully adjusted equity method and that MidStrata does not make the optional depreciation consolidation
worksheet entry.
Required:
a) For the buildings and equipment held by Atoom when MidStrata acquired it and still on hand on
December 31, 20X6, by what amount had buildings and equipment increased in value from their
acquisition to the date of combination with MidStrata?
b) What amount should be reported as accumulated depreciation for the consolidated entity at December
31, 20X6 (assuming MidStrata does not make the optional accumulated depreciation consolidation
entry)?
c) If Atoom reported capital stock outstanding of $60,000 and retained earnings of $30,000 on January 1,
20X1, what amount did MidStrata pay to acquire its ownership of Atoom?
d) What balance does MidStrata report as its investment in Atoom at December 31, 20X6?
e) What amount of intercorporate sales of inventory occurred in 20X6?
f) What amount of unrealized inventory profit exists at December 31, 20X6?
g) Give the consolidation entry used in eliminating intercompany inventory sales during 20X6.
h) What was the amount of unrealized inventory profit at January 1, 20X6?
i) What balance in
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