Acc407 Advanced Accounting: Week 5 Assignment (E6-11, E5-13, P5-32)

Acc407 Advanced Accounting 
Week 5 Assignment (E6-11, E5-13, P5-32) 

E6-11 Upstream Sale of Equipment in Prior Period 
Baywatch Industries has owned 80 percent of Tubberware Corporation for many years. On January 1, 20X6, Baywatch paid Tubberware $270,000 to acquire equipment that Tubberware had purchased on January 1, 20X3, for $300,000. The equipment is expected to have no scrap value and is depreciated over a 15-year useful life. Baywatch reported operating earnings of $100,000 for 20X8 and paid dividends of $40,000. Tubberware reported net income of $40,000 and paid dividends of $20,000 in 20X8. 

a. Compute the amount reported as consolidated net income for 20X8. 
b. By what amount would consolidated net income change if the equipment sale had been a downstream sale rather than an upstream sale? 
c. Give the eliminating entry or entries required to eliminate the effects of the intercompany sale of equipment in preparing a full set of consolidated financial statements at December 31, 20X8. 

E5-13 Consolidation after One Year of Ownership 
Pioneer Corporation purchased 80 percent of Lowe Corporation’s stock on January 1, 20X2. At that date Lowe reported retained earnings of $80,000 and had $120,000 of stock outstanding. The fair value of its buildings was $32,000 more than the book value. Pioneer paid $190,000 to acquire the Lowe shares. At that date, the noncontrolling interest had a fair value of $47,500. The remaining economic life for all Lowe’s depreciable assets was eight years on the date of combination. The amount of the differential assigned to goodwill is not impaired. Lowe reported net income of $40,000 in 20X2 and declared no dividends. 

a. Give the eliminating entries needed to prepare a consolidated balance sheet immediately after Pioneer purchased Lowe stock. 
b. Give all eliminating entries needed to prepare a full set of consolidated financial statements for 20X2. 

P5-32 Consolidation Workpaper at End of First Year of Ownership 
Power Corporation acquired 75 percent of Best Company’s ownership on January 1, 20X8, for $96,000. At that date, the fair value of the noncontrolling interest was $32,000. The book value of Best’s net assets at acquisition was $100,000. The book values and fair values of Best’s assets and liabilities were equal, except for Best’s buildings and equipment, which were worth $20,000 more than book value. Buildings and equipment are depreciated on a 10-year basis. 
Although goodwill is not amortized, the management of Power concluded at December 31, 20X8, that goodwill from its purchase of Best shares had been impaired and the correct carrying amount was $2,500. Goodwill and goodwill impairment were assigned proportionately to the controlling and noncontrolling shareholders. (Note that Power Company does not adjust its Income from Subsidiary for goodwill impairment under the basic equity method.) 
Trial balance data for Power and Best on December 31, 20X8, are as follows: 
Power Corporation Best Company 
Item Debit Credit Debit Credit 
Cash 47,500 21,000 
Accounts Receivable 70,000 12,000 
Inventory 90,000 25,000 
Land 30,000 15,000 
Buildings and Equipment 350,000 150,000 
Investment in Best Co. Stock 100,500 
Cost of Goods Sold 125,000 110,000 
Wage Expense 42,000 27,000 
Depreciation Expense 25,000 10,000 
Interest Expense 12,000 4,000 
Other Expenses 13,500 5,000 
Dividends Declared 30,000 16,000 
Accumulated Depreciation 145,000 40,000 
Accounts Payable 45,000 16,000 
Wages Payable 17,000 9,000 
Notes Payable 150,000 50,000 
Common Stock 200,000 60,000 
Retained Earnings 102,000 40,000 
Sales 260,000 180,000 
Income from Subsidiary 16,500 
$935,500 $935,500 $395,000 $395,000 

a. Give all eliminating entries needed to prepare a three-part consolidation workpaper as of December 31, 20X8. 
b. Prepare a three-part consolidation workpaper for 20X8 in good form. 
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