BUAD 465 Advanced Accounting Final Examination Name
Problem 1. Pepper Company purchased an 80% interest in Salt Company for $250,000 on January 1, 20X1, when Salt Company had the following balance sheet:
Assets Liabilities and Equity
Current assets $100,000 Current liabilities $50,000
Depreciable fixed assets 200,000 Common stock ($10 par) 100,000 Retained earnings 150,000
Total assets $300,000 Total liabilities and equity $300,000
Any excess of the price paid over book value is attributable only to the fixed assets, which have a 10-year remaining life. Pepper uses the sophisticated equity method to record the investment in Salt Company.
The following trial balances of the two companies were prepared on December 31, 20X1:
Pepper Salt
Current Assets 60,000 130,000
Depreciable Fixed Assets 400,000 200,000
Accumulated Depreciation (106,000) (20,000)
Investment in Salt Company 261,000
Current Liabilities (60,000) (40,000)
Common Stock ($10 par) (300,000) (100,000)
Retained Earnings, January 1, 20X1 (200,000) (150,000)
Sales (150,000) (100,000)
Expenses 110,000 75,000
Subsidiary Income (from Salt Company) (15,000)
Dividends Declared 5,000
Total 0 0
1. Prepare a determination and distribution of differential schedule for the investment.
2. Prepare all the eliminations and adjustments that would be made on the 20X1 consolidated worksheet.
3. Prepare the 20X1 consolidated income statement
4. Prepare the 20X1 consolidated balance sheet.
Problem 2. The trial balances of Pepper and Salt companies of Problem 1 for December 31, 20X2, are presented as follows:
Pepper Salt
Current Assets 152,000 115,000
Depreciable Fixed Assets 400,000 200,000
Accumulated Depreciation (130,000) (40,000)
Investment in Salt Company 260,000
Current Liabilities (80,000)
Common Stock ($10 par) (300,000) (100,000)
Retained Earnings, January 1, 20X2 (255,000) (170,000)
Sales (200,000) (100,000)
Expenses 160,000 85,000
Subsidiary Income (from Salt Company) (7,000)
Dividends Declared 10,000
Total 0 0
Pepper Company continued to use the sophisticated equity method.
1. Prepare all the eliminations and adjustments that would be made on the 20X2 consolidated worksheet.
2. Prepare the 20X2 consolidated income statement and balance sheet.
Problem 3. On January 1, 20X2, Jungle Company sold a machine to Safari Company for $30,000. The machine had an original cost of $24,000, and accumulated depreciation on the asset was $9,000 at the time of the sale. The machine has a five-year remaining life and will be depreciated on a straight-line basis with no salvage value. Safari Company is an 80%-owned subsidiary of Jungle Company.
Prepare the elimination that would be required on the December 31, 20X2, consolidation worksheet.
Prepare the elimination that would be required on the December 31, 20X3, consolidation worksheet.
Problem 4
Now that you have seen the entire consolidation process, how would push-down accounting simplify consolidated worksheet procedures?
Problem 5 – EXTRA CREDIT
Van Nick
Corporation Company
Sales 220,000 120,000
Cost of Goods Sold (150,000) (90,000)
Gross Profit 70,000 30,000
Other Expenses (40,000) (12,000)
Other income 5,000
Operating income 35,000 18,000
Subsidiary Income 14,400
Net Income 49,400 18,000
Additional information:
Van Corporation sold $70,000 of goods to Nick Company. The gross profits on sales to Nick Company and to unrelated companies are equal and have not changed from the previous years.
Nick Company held $15,000 of the goods purchased from Van Corporation in its beginning inventory and $20,000 of such goods in ending inventory.
Prepare the elimination entries for the intercompany merchandise transaction.