Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 5, Problem 5.21.1P
To determine
Concept Introduction:
Equity Method of valuation of investment: In this method parent company value investment on the historical cost of the investment plus apportioned profit in the associate company less dividend paid by the associate company. The difference in the historical value and the amount paid for investment is debited to
To choose: The correct option and calculates income of associate company.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Case 2: Non-Controlling Interest measured at fair valueInahan Co. elects the option to measure the non-controlling interest at fair value. However, no independent consultant were engaged. Inahan paid P 1,500,000.00 cash and P 750,000.00 land with fair value of P 1,000,000.00 as consideration for the 75% interest in Bunso, Inc
1.How much is the previously held equity interest in the acquiree?a. 0.00b. 600,000.00c. 652,500.00d. 833,333.33
2.How much is the fair value of the net identifiable assets acquired?a. 4,560,000.00b. 2,610,000.00c. 3,110,000.00d. 2,810,000.00
3.How much is the goodwill (gain on bargain purchase) on the business combination?
a. 490,000.00b. 542,500.00c. 723,333.33d. 750,000.00
Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does not indicate completio
Peel Corporation purchased 60 percent of Split Products Company's shares on December 31, 20X7, for $216,000. At that date, the fair
value of the noncontrolling interest was $144,000. On January 1, 20X9, Peel purchased an additional 20 percent of Split's common
stock for $100,000. Summarized balance sheets for Split on the dates Indicated are as follows:
20X7
Assets
Cash
Accounts Receivable
Inventory
Buildings & Equipment (net)
$ 44,000
57,000
78,000
350,000
Total Assets
Accounts Payable
Bonds Payable
$ 529,000
Liabilities & Equities
Common Stock
Retained Earnings
Total Liabilities & Equities
December 31
20X8
20X9
$ 64,000
105,000
155,000
205,000
$ 74,000
97,000
108,000
330,000
$ 609,000
$ 114,000
105,000
155,000
235,000
$ 94,000
127,000
168,000
310,000
$ 699,000
$ 154,000
105,000
155,000
285,000
$ 529,000
S 609 000
$ 699,000
Split paid dividends of $21,000…
How much is the unrealized gain (loss) accumulated in equity as of December 31,
20x2?
Karen Co. purchased the following equity securities on January 1, 20x1 for a total amount of
P360,000.
Cost
Alaska Co. preference shares
P200,000
160,000
Valdez Co. ordinary shares
Totals
P360,000
The shares did not qualify for recognition as held for trading, thus they were classified as
investment in equity securities measured at fair value through other comprehensive income.
On December 31, 20x1, the portfolio of Karen Co. comprised the following.
Fair value - 12/31/x1
Alaska Co. preference shares
P240,000
60,000
Valdez Co. ordinary shares
Total
P300,000
On December 31, 20x2, the portfolio of Karen Co. comprised the following:
Fair value - 12/31/x2
Alaska Co. preference shares
P220,000
180,000
Valdez Co. ordinary shares
Total
P400,000
On February 2, 20x3, all of the Alaska Co. preference shares were sold for P160,000 net of transaction
costs.
0
100,000
40,000
O (40,000)
Chapter 5 Solutions
Advanced Financial Accounting
Ch. 5 - Where is the balance assigned to the...Ch. 5 - Why must a noncontrolling interest be reported in...Ch. 5 - Prob. 5.3QCh. 5 - Prob. 5.4QCh. 5 - Prob. 5.5QCh. 5 - Prob. 5.6QCh. 5 - Prob. 5.7QCh. 5 - Prob. 5.8QCh. 5 - Prob. 5.9QCh. 5 - Prob. 5.10Q
Ch. 5 - Under what Circumstances would a parent company...Ch. 5 - Prob. 5.12QCh. 5 - Prob. 5.13QCh. 5 - Prob. 5.14AQCh. 5 - Prob. 5.15AQCh. 5 - Consolidation Worksheet Preparation The newest...Ch. 5 - Prob. 5.2CCh. 5 - Prob. 5.3CCh. 5 - Prob. 5.4CCh. 5 - Prob. 5.5CCh. 5 - Prob. 5.1.1ECh. 5 - Prob. 5.1.2ECh. 5 - Prob. 5.1.3ECh. 5 - Prob. 5.1.4ECh. 5 - Prob. 5.2.1ECh. 5 - Prob. 5.2.2ECh. 5 - Prob. 5.2.3ECh. 5 - Prob. 5.2.4ECh. 5 - Prob. 5.2.5ECh. 5 - Prob. 5.3ECh. 5 - Prob. 5.4ECh. 5 - Balance Sheet Worksheet Problem Company owns 90...Ch. 5 - Prob. 5.6ECh. 5 - Prob. 5.7ECh. 5 - Prob. 5.8.1ECh. 5 - Prob. 5.8.2ECh. 5 - Prob. 5.8.3ECh. 5 - Prob. 5.8.4ECh. 5 - Prob. 5.8.5ECh. 5 - Prob. 5.8.6ECh. 5 - Prob. 5.8.7ECh. 5 - Prob. 5.9ECh. 5 - Prob. 5.10ECh. 5 - Prob. 5.11ECh. 5 - Prob. 5.12ECh. 5 - Prob. 5.13ECh. 5 - Prob. 5.14ECh. 5 - Prob. 5.15ECh. 5 - Prob. 5.16ECh. 5 - Prob. 5.17AECh. 5 - Prob. 5.18AECh. 5 - Prob. 5.19PCh. 5 - Prob. 5.20PCh. 5 - Prob. 5.21.1PCh. 5 - Multiple-Choice Questions on Applying the Equity...Ch. 5 - Prob. 5.21.3PCh. 5 - Prob. 5.21.4PCh. 5 - Prob. 5.22PCh. 5 - Computation of Account Balances Pencil Company...Ch. 5 - Prob. 5.24PCh. 5 - Equity Entries with Differential On January 1,...Ch. 5 - Equity Entries with Differential Plug Corporation...Ch. 5 - Prob. 5.27PCh. 5 - Prob. 5.28PCh. 5 - Prob. 5.29P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Hamilton Companys balance sheet on January 1, 2019, was as follows: Korbel Company is considering purchasing Hamilton (a privately held company) and discovers the following about Hamilton: a. No allowance for doubtful accounts has been established. A 10,000 allowance is considered appropriate. b. Marketable securities are valued at cost. The current market value is 60,000. c. The LIFO inventory method is used. The FIFO inventory of 140,000 would be used if the company is acquired. d. Land, included in property, plant, and equipment, which is recorded at its cost of 50,000, is worth 120,000. The remaining property, plant, and equipment is worth 10% more than its depreciated cost. e. The company has an unrecorded trademark that is worth 70,000. f. The companys bonds are currently trading for 130,000. g. The pension liability is understated by 40,000. Required: 1. Compute the amount of goodwill if Korbel agrees to pay 500,000 cash for Hamilton. 2. Next Level What are the reasons that the book value of Hamiltons net identifiable assets differ from their market value? 3. Prepare the journal entry to record the acquisition on the books of Korbel assuming Hamilton is liquidated. 4. If Korbel agrees to pay only 400,000 cash, how much goodwill exists? 5. If Korbel pays only 400,000 cash, prepare the journal entry to record the acquisition on its books, assuming Hamilton is liquidated.arrow_forwardOman Gulf purchased 15% shares of Oman Construction. Oman Gulf's intention is only to make profit from the shares it bought from Oman Construction. Fair value of the shares is known to both companies. What accounting method for equity securities should Oman Gulf use? a. Fair Value Method b. Full Consolidation Method c. Equity Method d. Cost Methodarrow_forwardHow much is the unrealized gain (loss) recognized in other comprehensive income on December 31, 20x1? Karen Co. purchased the following equity securities on January 1, 20x1 for a total amount of P360,000. Cost Alaska Co. preference shares P200,000 160,000 Valdez Co. ordinary shares Totals P360,000 The shares did not qualify for recognition as held for trading, thus they were classified as investment in equity securities measured at fair value through other comprehensive income. On December 31, 20x1, the portfolio of Karen Co. comprised the following. Fair value - 12/31/x1 Alaska Co. preference shares P240,000 60,000 Valdez Co. ordinary shares Total P300,000 On December 31, 20x2, the portfolio of Karen Co. comprised the following: Fair value-12/31/x2 Alaska Co. preference shares P220,000 Valdez Co. ordinary shares 180,000 Total P400,000 On February 2, 20x3, all of the Alaska Co. preference shares were sold for P160,000 net of transaction costs. 60,000 100,000 O (60,000)arrow_forward
- On January 1, 2011, Jordan Inc. acquired 30% of Nico Corp. Jordan used the equity method to account for the investment. On January 1, 2012, Jordan sold two-thirds of its investment in Nico. It no longer had the ability to exercise significant influence over the operations of Nico. How should Jordan have accounted for this change? Multiple Choice Jordan should restate the prior years' financial statements and change the balance in the investment account as if the fair-value method had been used since 2011. Jordan should report the effect of the change from the equity to the fair-value method as a retrospective change in accounting principle. Jordan should continue to use the equity method to maintain consistency in its financial statements. Jordan has the option of using either the equity method or the fair-value method for 2011 and future years. Jordan should use the fair-value method for 2012 and future years but should not make a retrospective adjustment to the investment account.arrow_forwardJam Ltd acquired all the equity in Cab Ltd on 31 December 20X4 for $370 000. At the control date, the equity of Cab was recorded as Paid-up capital of $250 000 and Retained profits of $31 000. The purchase price was based on the agreed fair values of Cab's identifiable assets and liabilities on that date. The following items were not at fair value in Cab's financial statements on the control date. Carrying amount ($) Fair value ($) Inventory 31 000 40 000 Property (Cost of $350 000, Accumulated depreciation of $100 000) 250 000 300 000 Other information: • Both Cab and the group entity account for its property by the cost model, and apply straight-line depreciation to the property. The property in Cab Ltd is expected to have a remaining life of 20 years from 31 December 20X4, and no residual value. • Cab sold goods to Jam for $10,000 during FY20X5, the cost of these inventories was 7,000. All these inventories were still on hand by Jam by 31 December 20X5, the year-end. Required:…arrow_forward(TCO A) Steven Inc. sold $219,000 in inventory to Thomas Co. during 20X0 for $300,000. Thomas resold $100,000 of this merchandise in 20X0 with the remainder to be disposed of during 20X1.Assume Steven owns 28% of Thomas and applies the equity method.Required:(1) Determine Steven's share of the unrealized gain at the end of 20X0.(2) Prepare the journal entry Steven should record at the end of 20X0 to defer the unrealized intra-entity inventory profit.arrow_forward
- Majan SAOG purchased 25% shares of Teejan SAOG. Majan SAOG also intends to influence and control the affairs of Teejan SAOG business. What accounting method for equity securities should Majan use? a. Fair Value Method b. Cost Method c. Full Consolidation Method d. Equity Methodarrow_forwardI wanna know the transaction of dt ct sides . 1.The company sold assets previously revalued by 150 through revaluation reserve. dt asset 150 ct revaluation reserve 150 2.the company issued to shareholders 100 shares at a nominal value of 1 and issue price of 4. I do not know this transaction. 3.The company purchased on deferred payment shares of X company for immediate sale 50 shares at a value of 5 per share and commission of 1 per share. dt short term investment 300 ct liabilities 300 ( I am considering if ct : deferred cost)arrow_forwardCn you help me to solve this question please? Placid Lake Corporation acquired 70 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2017, when Scenic had a net book value of $440,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $7,000 per year. Placid Lake's 2018 net income before consideration of its relationship with Scenic (and before adjustments for intra-entity sales) was $340,000. Scenic reported net income of $150,000. Placid Lake declared $140,000 in dividends during this period; Scenic paid $44,000. At the end of 2018, selected figures from the two companies' balance sheets were as follows: Placid LakeScenicInventory$180,000 $94,000 Land 640,000 240,000 Equipment (net) 440,000 340,000 During 2017, intra-entity sales of $95,000 (original cost of $50,000) were made. Only 10 percent of this inventory was still held within the consolidated entity at the end of 2017. In 2018, $130,000 in intra-entity sales were made…arrow_forward
- On August 31, 2002, Rubics Company purchased the following equity securities and irrevocably elected to measure them at fair value through other comprehensive income: Fair Value Security Cost December 31, 2002 ₱ 96,000 ₱ 84,000 152,000 158,000 162,000 146,000 On December 31, 2002, Rubics reclassified its investment in security F from fair value through other comprehensive income to held for trading securities. What total amount of loss on reclassification should be included in Rubics' income statement for the year ended December 31, 2002? 0 b. 16,000 c. 22,000 d. 28,000arrow_forwardOn 1 October 2020, OXIOM purchased 200,000 equity share in Eban, a key supplier. Eban’s shares are listed on the Ghana Stock Exchange (GSE). This share purchase did not five OXIOM control or significant influence over Eban but OXIOM intends to retain the shares in Eban as a long-term strategic investment and has elected irrevocable to measure and recognize gains and losses through other comprehensive income OXIOM paid GH₵2.40 per share for these shares being their fair value at the date of purchase. Additionally, brokers charge a fee of 2% of the amounts paid to buy the shares. On 31 March 2021, Eban paid a dividend of 25 pesewas per share On 30 September 2021, information received from GSE regarding Eban’s share price indicates the fair value of the share at GH₵2.90 Required. Explain with calculations how OXIOM should account for the transactions for the year to 30 September, 2021.arrow_forwardnEED IN 10 MINUTES 9. On January 1, 20x1, an entity purchased marketable equity securities for P2,500,000. The entity paid commission and taxes of P190,000. The equity securities do not qualify as financial asset held for trading. The entity made irrevocable election to present unrealized gain and loss in other comprehensive income. The securities have a market value of P2,600,000, and P2,750,000 on December 31, 20x1 and December 31, 20x2. On July 1, 2022, half of the securities are sold for P1,400,000. On July 1, 2022, the net increase/ decrease in retained earnings account is (sample answer: 10,500 increase or 10,500 decrease)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning