Soft Bound Version for Advanced Accounting 13th Edition
13th Edition
ISBN: 9781260110579
Author: Hoyle
Publisher: McGraw Hill Education
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Textbook Question
Chapter 3, Problem 31P
On January 1, 2017, Pinnacle Corporation exchanged $3,200,000 cash for 100 percent of the outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following balance
sheet:
| Cash.................... | $ 122,000 | Accounts payable........ | $ 375,000 |
| Accounts receivable....... | 283,000 | Long-term debt.......... | 2,655,000 |
| Inventory................. | 350,000 | Common stock.......... | 1,500,000 |
| Buildings (net)............ | 1,875,000 | 1,100,000 | |
| Licensing agreements..... | 3,000,000 | $5,630,000 | |
| $5,630,000 | |||
| Pinnacle prepared the following fair-value allocation: | |||
| Fair value of Strata (consideration transferred). | $3,200,000 | ||
| Carrying amount acquired................... | 2,600,000 | ||
| Excess fair value........................... | 600,000 | ||
| to buildings (undervalued)................. | $300,000 | ||
| to licensing agreements (overvalued)....... | (100,000) | 200,000 | |
| to |
$ 400,000 | ||
At the acquisition date, Strata’s buildings had a 10-year remaining life and its licensing agreements were due to expire in 5 years. At December 31, 2018, Strata’s accounts payable included an $85,000 current liability owed to Pinnacle. Strata Corporation continues its separate legal existence as a wholly owned subsidiary of Pinnacle with independent accounting records. Pinnacle employs the initial value method in its internal accounting for its investment in Strata.
The separate financial statements for the two companies for the year ending December 31, 2018,
follow. Credit balances are indicated by parentheses.
| Pinnacle | Strata | |
| Sales......................................... | $ (7,000,000) | $(3,000,000) |
| Cost of goods sold............................. | 4,650,000 | 1,700,000 |
| Interest expense............................... | 255,000 | 160,000 |
| Depreciation expense.......................... | 585,000 | 350,000 |
| Amortization expense.......................... | 600,000 | |
| Dividend income............................... | (50,000) | |
| Net income.................................. | $ (1,560,000) | $ (190,000) |
| Retained earnings 1/1/18....................... | $ (5,000,000) | ${1,350,000) |
| Net income.................................... | (1,560,000) | (190,000) |
| Dividends declared............................. | 560,000 | 50,000 |
| Retained earnings 12/31/18.................. | $ (6,000,000) | $(1,490,000) |
| Cash......................................... | $ 433,000 | $ 165,000 |
| Accounts receivable | 1,210,000 | 200,000 |
| Inventory...................................... | 1,235,000 | 1,500,000 |
| Investment in Strata............................ | 3,200,000 | |
| Buildings (net)................................. | 5,572,000 | 2,040,000 |
| Licensing agreements.......................... | 1,800,000 | |
| Goodwill...................................... | 350,000 | |
| Total assets................................. | $ 12,000,000 | $ 5,705,000 |
| Accounts payable.............................. | $ (300,000) | $ (715,000) |
| Long-term debt................................ | (2,700,000) | (2,000,000) |
| Common stock................................ | (3,000,000) | (1,500,000) |
| Retained earnings 12/31/18..................... | (6,000,000) | (1,490,000) |
| Total liabilities and OE........................ | $(12,000,000) | $(5,705,000) |
a. Prepare a worksheet to consolidate the financial information for these two companies.
b. Compute the following amounts that would appear on Pinnacle’s 2018 separate (nonconsolidated) financial records if Pinnacle’s investment accounting was based on the equity method.
- Subsidiary income.
- Retained earnings, 1/1/18.
- Investment in Strata.
c. What effect does the parent’s internal investment accounting method have on its consolidated financial statements?
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Chapter 3 Solutions
Soft Bound Version for Advanced Accounting 13th Edition
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Ch. 3 - Prob. 1PCh. 3 - Prob. 2PCh. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - Paar Corporation bought 100 percent of Kimmel,...Ch. 3 - Prob. 6PCh. 3 - Prob. 7PCh. 3 - If no legal, regulatory, contractual, competitive,...Ch. 3 - Prob. 9PCh. 3 - Prob. 10PCh. 3 - What is Phoenixs consolidated retained earnings...Ch. 3 - On its December 31, 2018, consolidated balance...Ch. 3 - Prob. 13PCh. 3 - Herbert, Inc., acquired all of Rambis Companys...Ch. 3 - Prob. 15PCh. 3 - Prob. 16PCh. 3 - Prob. 17PCh. 3 - Prob. 18PCh. 3 - Prob. 19PCh. 3 - Prob. 20PCh. 3 - Prob. 21PCh. 3 - Prob. 22PCh. 3 - Following are selected account balances from...Ch. 3 - Prob. 24PCh. 3 - Prob. 25PCh. 3 - Prob. 26PCh. 3 - Prob. 27PCh. 3 - Prob. 28PCh. 3 - Prob. 29PCh. 3 - Prob. 30PCh. 3 - On January 1, 2017, Pinnacle Corporation exchanged...Ch. 3 - Following are selected accounts for Mergaronite...Ch. 3 - Prob. 33PCh. 3 - Prob. 34PCh. 3 - Prob. 35PCh. 3 - Prob. 36PCh. 3 - Prob. 37PCh. 3 - Prob. 38PCh. 3 - Prob. 39APCh. 3 - Prob. 40APCh. 3 - Prob. 1DYSCh. 3 - FASB ASC AND IASB RESEARCH CASE A vice president...Ch. 3 - Prob. 4DYSCh. 3 - Prob. 5DYS
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