Accounts-Q25

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Instructions
 
1. This portion of the exam is open book and open note, but you are not to consult with any other student, teacher, friend, parent, cousin who is a CPA, etc. In other words, you may use the non-human resource available to you.
2. The take home exam consists of several problems that are worth 50 points in total.
 
3. Read each problem carefully and enter your responses in the provided excel file.
a. Within the excel file, use tabs named “Problem X Answer” to record your final answers to each problem. Use the tabs named “Problem X Calculations” to show any work you did that is not reflected in the answers tab. YOU MUST SHOW YOUR WORK (i.e., leaving the calculations page blank will receive a score of zero).
 
b. Eliminating entries provided in worksheet format MUST BE NUMBERED (so that I can tell which debits and credits are part of the same entry) in order to receive credit.
 
4. Submit your completed excel file via Webcourses no later than December 8 at 11:59PM.
5. Please refrain from sharing this exam with others even after the semester has concluded.
Statement of Academic Integrity
 
By submitting your take home final for grading you are pledging that the work contained therein is entirely your own and that you have not received, or given, help from any other person in completing this assignment. Cheating of any kind on this examination will result in a score of zero and referral to the Office of Student Conduct for further action. (This is not an idle threat – students have received zeros in the past.)
 
Excel Tip
 
Select the following commands from the Excel menu to view your “Calculations tab” side-by-side with your “Answers tab”:
 
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Problem 1: Date of Acquisition (10 points)
 
Balance sheets for Pilates Company and Spinning Company on August 1, 2014, are as follows:
Pilates
Spinning
Cash
$ 331,000
$ 212,000
Receivables
732,000
252,000
Inventory
522,000
216,000
Investment in bonds
612,000
–
Investment in S Company
1,173,000
–
Plant and equipment (net)
1,146,000
640,000
Land
400,000
600,000
Total Assets
$ 4,916,000
$ 1,920,000
Accounts payable
$ 348,000
$ 116,000
Accrued expenses
65,000
52,000
Bonds payable 8%
–
400,000
Common stock
3,000,000
920,000
Other contributed capital
520,000
120,000
Retained earnings
983,000
312,000
Total Liabilities and Equities
$ 4,916,000
$ 1,920,000
Required
 

You can read more about our case study assignment help services here.
 

 
Prepare a workpaper for a consolidated balance sheet for Pilates Company and its subsidiary on August 1, 2014, taking into consideration the following
 

1. Pilates Company acquired 90% of the outstanding common stock of Spinning Company on August 1, 2014, for a cash payment of $1,173,000.
2. Included in the Investment in Bonds account are $80,000 par value of Spinning Company bonds payable that were purchased at par by Pilates Company in 2002. The bonds pay interest on April 30 and October 31. S Company has appropriately accrued interest expense on August 1, 2014; Pilates Company, however, inadvertently failed to accrue interest income on the Spinning Company bonds.
 
3. Included in Pilates Company receivables is a $70,000 cash advance to Spinning Company that was mailed on August 1, 2014. Spinning Company had not yet received the advance at the time of the preparation of its August 1, 2014 balance sheet.
4. Assume that any excess of book value over the value implied by purchase price is due to overvalued plant and equipment.
 
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Problem 2: Accounting for Investment in Subsidiary (14 points)
 
The following accounts appeared in the separate financial statements at the end of 2014 for Pretzel, Inc. and its wholly-owned subsidiary, Salt, Inc. Salt was acquired on January 1, 2014 at book value.
 
Pretzel
Salt
Investment in subsidiary
660,000
–
Dividends receivable
5,000
–
Dividends payable
20,000
5,000
Common stock
300,000
20,000
Additional paid-in-capital
500,000
380,000
Retained earnings, 12/31/14
500,000
260,000
Dividends declared
(75,000)
(24,000)
Equity in net loss of subsidiary
(55,000)
–
Retained earnings at 1/1/14
380,000
–
 
Required
 

1. (1 point) How can you determine whether Pretzel is using the cost or equity method to account for its investment in Salt?
2. (1 point) Compute consolidated net income.
 
3. (1 point) How much income did Pretzel, Inc. earn from its own independent operations?
4. (1 point) Compute consolidated retained earnings at 12/31/14.
 
5. (1 point) What are consolidated dividends?
6. (1 point) Compute retained earnings at 1/1/14 for Salt, Inc.
 
7. (4 points) Was there any difference between book value and the value implied by the purchase price at acquisition? Prepare workpaper entries needed at the end of 2014.
8. (1 point) If Pretzel used the cost method instead of the equity method, how would Pretzel, Inc.’s non-consolidated retained earnings change at the end of 2014? Describe in words.
 
9. (3 points) If Pretzel uses the cost method instead of the equity method, what workpaper entries would be required at the end of 2014? Describe in words and compare to the equity method entries.
 
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Problem 3: Consolidation After Acquisition (12 points)
 
On January 1, 2017, Pence Company purchased 85% of the outstanding common stock of Spicer Company for $525,000. On that date, Spicer Company’s stockholders’ equity consisted of common stock, $150,000; other contributed capital, $60,000; and retained earnings, $210,000. Pence Company paid more than the book value of net assets acquired because the recorded cost of Spicer Company’s land was significantly less than its fair value.
During 2017 Spicer Company earned $222,000 and declared and paid a $75,000 dividend. Pence Company used the partial equity method to record its investment in Spicer Company.
 
Required
 
A. (6 points) Prepare the investment related entries on Pence Company’s books for 2017.
B. (6 Points) Prepare the workpaper eliminating entries for a workpaper on December 31, 2017.
 
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Problem 4: Consolidation with Allocation after the Date of Acquisition (14 points)
 
Parcival Corporation acquired 70% of the voting stock of Summer Corporation on January 1, 2016, for $210,000 when Summer had common stock of $140,000 and retained earnings of $24,000. The excess of implied over book value was allocated $11,000 to inventories that were sold in 2016, $35,000 to equipment with a 5-year remaining useful life under the straight-line method, and the remainder to goodwill.
 
Financial statements for Parcival and Summer Corporations at the end of the fiscal year ended December 31, 2017 (two years after acquisition) are provided below. Parcival Corp. has accounted for its investment in Summer using the complete equity method of accounting.

 
Income Statement
Parcival
Summer
Sales
$ 618,000
$ 180,000
Equity from Subsidiary Income
20,300
Cost of Sales
450,000
90,000
Other Expenses (incl. Depreciation)
114,000
54,000
Net Income
$ 74,300
$ 36,000
Retained Earnings
Parcival
Summer
1/1 Retained Earnings
$ 71,200
$ 30,000
Add: Net Income
74,300
36,000
Less: Dividends
(60,000)
(12,000)
12/31 Retained Earnings
$ 85,500
$ 54,000
Balance Sheets
Parcival
Summer
Cash
$ 32,000
$ 21,000
Inventory
63,000
45,000
Note Receivable
10,000
Land
33,000
18,000
Equipment (net)
192,000
165,000
Investment in Subsidiary
213,500
Total Assets
$ 543,500
$ 249,000
Note Payable
$ 10,000
Other Liabilities
$ 158,000
45,000
Common Stock
300,000
140,000
Retained Earnings
85,500
54,000
Total Liabilities and Equities
$ 543,500
$ 249,000
 
Product Code-Accounts-Q25
 

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