Equity Finance Analysis Help With Solution

Posted on February 22, 2017

Equity Finance Analysis Help With Solution

 

P acquired 90 % of S’s Common stock for $1,300,000 and 40% of preferred stock for $300,000. On the date of acquisition, January 1 2013 the following was reported:
 
Preferred stock is 10% cumulative, participating and liquidation value $102 of par. Dividends not declared in 2012. In 2013 Sub reported net income of $200,000 and declared and paid cash dividend of $120,000.
Required:
 
(a) Determine S’s amount of retained earnings allocated to preferred stock on date of acquisition.
 
(b) Determine non-control interest in 2013 reported net income of S.
 
Problem 2
 
P owns 20,000 shares (80%) of LT. On July 1st 2010 P sells 16,000 shares of LT shares for $150 per share which has a $50 premium. Consolidated carry amount of net assets of LT on 1/1/10 was $3,700,000 which includes beginning $100,000 unamortized patent that’s being amortized over 10 more years. In 2010 LT earned $1,900,000 and paid a $.25 per share quarterly dividend.
Required:
 
(a) Determine P’s gain or loss on the sale of 16,000 shares.
 

(b) Prepare entry by P for the sale.
 

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Problem 3
 
P acquired 80% of outstanding common stock of S on January 1, 2011 for $396,000. As the date of purchase S had balance in $2 par value in common stock account of $360,000 and retained earnings of $90,000. On January 1, 2013 S issued 45,000 shares of its previously unissued stock of which 20,000 shares were purchased by P and remaining shares by the non-control shareholders for $5 per share. On this date S had retained earnings balance of $152,000. The difference between cost and book value relates to S land. No dividends were paid in 2013. S reported income of $30,000 in 2013.
 
Required:
 
(a) Prepare Journal entry on P’s books to record effect of issuance assuming the equity method.
 
(b) Prepare the eliminating entries needed for the preparation of the consolidated statement worksheet on December 31, 2013 assuming equity method.
 
Problem 4
 
P acquired 70% of common stock of S in 2 cash transactions. The first purchase was of 18,000 shares on January 1, 2012 for $7 per share. The second purchase was 108,000 shares on January 1, 2013. Any difference between book value and cost relates to equipment with remaining life of five years in 2012 and inventory 2013. S stock equity was as follows:
 

12/31/2012
12/31/2013
common stock $5 par value
900,000.00
900,000.00
retained earnings 1/1
262,000.00
301,000.00
net income
69,000.00
90,000.00
dividend declared
(30,000.00)
(38,000.00)
retained earnings 12/31
301,000.00
353,000.00
total stock equity on 12/31
1,201,000.00
1,253,000.00

 
On April 1, 2013 after significant rise in market price of S stock P sole 32,400 of S shares for $390,000. S told p that net income for fist three months was $22,000. Shares sold were identified as those obtained in the first purchases
 
Required:
 

(a) Prepare journal entries P will make on its books during 2013 to account for investment in S.
 
Problem 5
 
P acquired 80% of outstanding voting stock of S when fair values equaled book value. On December 1st 1995 S sold land to P for $110,000 and the land originally cost $100,000. P resold land October 30th 2009 for $80,000.
 
On July 31st 2009 S sold equipment to P for $40,000. S originally paid $50,000 for equipment and had accumulated depreciation of $20,000. Equipment had a 5 year remaining life and not used by P until 1/31/2010.
 
Sell merchandise to P at 50% mark up on selling price. During 2008 and 2009 intercompany sales accounted to $270,000 and $300,000 respectively. 10% of 2009 sales were returned to S. At the end of 2008 P had 1/5 of goods purchased that year in purchases from ending inventory. P’s 2009 ending inventory contained ¼ of that years purchases from S.
 

P
S
Elimination Entries
Debit Credit
Consolidated Bal
Sales
$ 600,000
$ 1,800,000

Dividend Income from S
$ 90,000

Gain on Sale of Equipment

$ 10,000

Loss on land
$ (30,000)

Cost of sales
$ (400,000)
$ (1,250,000)

Depreciation expense
$ (80,000)
$ (40,000)

other expenses
$ (100,000)
$ (50,000)

net income
$ 80,000
$ 470,000

 

consolidated Net Income

 

Less Net Income attribual to Non Control Interest

 

Controlling Interest Income

 

Complete the consolidated income statement for P corp & Sub for year end 12/31/2009

 
Problem 6
 
P Co. purchased 80 percent (20,000 shares) of S Co. on January 1, 2009. Of the purchase differential, 20% was allocated to a patent with a ten-year estimated life, 30% was allocated to machinery with a five year life, and 25% to backorders (inventory) that were produced and delivered in 2010; the remainder of the differential was allocated to goodwill. On December 31, 2010, P Co. sold equipment to its 80-percent-owned subsidiary, for $420,000 the equipment originally was purchased at the beginning of 2000 for $960,000. S Co. continued to depreciate the equipment on a straight-line basis over its remaining 2-year life. On July 1, 2011 the equipment was sold to an outside party for 20% above book value.
 
During 2010, PCo. Recognized an impairment loss of $20,000. Assume that the impairment loss was booked by P co. in its investment account under the full equity method.
 
On July 7, 2010, S Co. sold idle land to its parent for $240,000. The land’s carrying amount on S Co.’s books was $180,000. During 2011, P Co. Sold the land to an unaffiliated buyer at $70,000 loss.
 
At the beginning of 2011, S Co. held inventory acquired from P Co. in 2010 in the amount of $75,000, and P Co. held beginning inventory in the amount of $90,000 transferred from S Co.
Also in 2011, S Co. sold inventory to P Co. for $171,250 of which 20% was returned because it was determined to be defective; one-half of the remaining inventory is still held by P co., at the end of 2011. On the other hand, P Co. sold inventory for $120,000 to S Co.; 75% of this inventory was sold to unaffiliated buyers in 2011. S Co. sells its inventory at a 35% markup on cost and P Co. enjoys a 20% gross profit margin.
 
P Co. Reported net income from its separate operations in 2011 was $1,400,000. S Co. reported net income for 2011 was $1,120,000. P Co. declared dividends in the amount of $200,000 in 2011. S Co. declared dividends in the amount of $75,000 in that same year. P Co. purchased S Co. for $2,200,000, which includes a 10% purchase premium. On the date of acquisition, S Co. had $500,000 in Common stock and retained earnings of $1,700,000. S Co.’s retained earnings at December 31, 2010 was $3,000,000. P Co.’s separate ending retained earnings on December 31st 2010 was $25,000,000
 
Required: Using 141 (R) acquisition method answer the following: (Show all computations!)
 
a) Calculate 2011 income from S using Full Equity Method
 
b) Calculate 2011 income from S using partial equity Method
 
c) Calculate 2011 income from S using Partial Equity Method
 
d) Compute 2011 controlling interest income
 
e) Calculate the amount of income assigned to non controlling interest in 2011
 
f) Compute consolidated net income
 
g) For 2011, compute ending non controlling interest.
 
h) For 2011, calculate the retained earnings difference between the cost method and the full equity method
 
i) For 2011, calculate the ending retained earnings difference between the full equity method and partial equity method.
 

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