Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
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Question
Chapter 11, Problem 4E
To determine
Equity Method:
Equity method is an approach used for accounting a company that has invested in another company’s securities and stock. This accounting method is only applicable when an investing company has a substantial influence over the investee’s financial or operating aspects.
: Computation of amount that M’s Venture should report for its investment in C’s corporation as of December 31, 2016 under sophisticated equity method.
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Assume that Horicon Corp acquired 25% of the common stock of Sheboygan Corp.
on January 1, 2015, for $300,000. During 2015, Sheboygan Corp. reported net
income of $160,000 and paid total dividends of $60,000. If Horicon uses the
equity method to account for its investment, the balance in the investment
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Prepare the journal entries for an investment accounted for under the equity method.
a. On January 2, 2017, Workowski Corporation purchased 55,000 shares (26%) of Wendy Company at a cost of $8 per share.
b. At the end of 2017, Wendy Company reported net income of $350,000 (Workowski’s share is 26%).
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d. In early 2018, Wendy Company paid a $75,000 dividend. Workowski’s share is 26%.
Use the following data to answer this question.
It is January 1, 2017 and Pegasus is contemplating the acquisition of competitor Chimera. The following details are available ($ in millions except per share
data):
January 1, 2017 ($ in millions) Pegasus Chimera
GAAP revenue
$150.40 $112.00
GAAP net income
$14.04 $9.92
Tax rate
40%
35%
Assume all activities below occur on January 1, 2017:
You also obtained the following transaction-related data:
Offer value
Sources of
funds
Refinanced debt
Transaction fees
Financing fees
Cost synergies
Revenue
synergies
Goodwill
Asset write ups
What is the sum of all acquisition adjustments pertaining to the Acquisition Financing, needed to calculate 2017 pro forma (combined) GAAP pre-tax
income?
Hint: There will be three components - lost interest income, interest from new debt (acquisition debt & Chimera debt), and reduced Chimera debt interest.
O 21.66
O -3.10
O -3.96
O -4.01
$132.0 million in cash
50% of the offer value funded using Pegasus's cash…
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