Solution manual advanced accounting 10e by fischer taylor CH10

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SPECIAL APPENDIX UNDERSTANDING THE ISSUES (a) Company E net income Parent’s share Less: Equipment amortization [$200,000 – ($500,000 × 30%)] ÷ 10 Investment income $ × $ 40,000 30% 12,000 (5,000) 7,000 $ (b) Beginning balance Investment income Less dividends ($10,000 × 30%) Investment balance $200,000 7,000 (3,000) $204,000 (c) The investment balance is the cost of the investment plus the investor’s share of the investee’s undistributed income, less the amortization of the excess of the price paid over the investor’s share of book value (a) Company E income Gain on sale of equipment Realized gain ($20,000 ÷ 5) Parent’s share Investment income $ $ × $ 50,000 (20,000) 4,000 34,000 30% 10,200 There is no further adjustment for the profit on the equipment (b) Investment income = $50,000 × 30% = $15,000 Adjustment for equipment profit: Gain on Sale of Equipment ($20,000 × 30%) Deferred Gain 6,000 6,000 Deferred Gain ($6,000/5) Realized Gain on Equipment Sale 1,200 1,200 (a) Investment income = $10,000 dividends × 10% = $1,000 (b) Investment income = [($100,000 ì ẵ) ì 10%] + [($100,000 ì ẵ) ì 25%] = $17,500 (c) Investment income = [($100,000 ì ẵ) ì 30%] + ($10,000 dividends × 10%) = $16,000 Cost of investment 20X0–20X4 income, 25% × $200,000 20X5–20X9 loss, 25% × ($300,000) Unrecorded loss $ $ 20,000 50,000 (75,000) (5,000) 20Y0 income (25% × $30,000 reported income) – unrecorded $5,000 prior loss = $2,500 Investment balance = ($5,000 unrecorded loss) – (25% × $30,000 reported income) = $2,500 SA-7 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA2—Exercises EXERCISES EXERCISE SA2-1 Investment in Like Investment Income To record 20X7 investment income 4,000 Investment in Like Dividends Receivable Investment Income To record 20X8 investment income and dividends receivable (20,000 shares × 25% × $0.25 per share) 3,500 1,250 Like Company income Adjustment for inventory profit ($5,000 profit × 20%) Adjusted income Ownership percentage Less amortization of excess: Equipment ($10,000 ÷ 10 years) Investment income 4,000 4,750 20X7 $20,000 × $ $ EXERCISE SA2-2 Determination and Distribution of Excess Schedule Price paid for investment Less book value of interest acquired: Common stock ($10 par) $100,000 Paid-in capital in excess of par 20,000 Retained earnings 130,000 Total stockholders’ equity $250,000 Interest acquired × 30% Excess of cost over book value (debit) Building, amortized over 20 periods, $750 per year SA-8 $90,000 75,000 $15,000 20X8 $24,000 (1,000) $20,000 $23,000 25% × 25% 5,000 $ 5,750 (1,000) 4,000 $ (1,000) 4,750 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA2—Exercises Exercise SA2-2 Concluded Minnie Company Income Distribution Profit in ending inventory Internally generated net (40% × $40,000) $16,000 income Realized profit on beginning inventory (40% × $10,000) Adjusted income Turf’s ownership interest Share of income Less building depreciation Turf’s net share of income Investment in Minnie Investment Income 13,650 Gain on Sale of Machine ($5,000 × 30%) Deferred Gain 1,500 Deferred Gain ($1,500 ÷ 5) Realized Profit on Machine Sale $60,000 4,000 $48,000 × 30% $14,400 (750) $13,650 13,650 1,500 300 300 EXERCISE SA2-3 Werl Corporation Income Distribution Profit in ending inventory (30% × $30,000) Gain on sale of machine $9,000 5,000 Internally generated net income Realize 1/5 of machine profit Realize profit on beginning inventory (30% × $20,000) Adjusted net income Ownership interest Interest on adjusted income Less equipment depreciation Net investment income Investment in Werl Investment Income 21,700 Cash Investment in Werl (30% × $20,000 dividends) 6,000 SA-9 $90,000 1,000 6,000 $83,000 × 30% $24,900 (3,2 $21,700 21,700 6,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA2—Exercises EXERCISE SA2-4 Determination and Distribution of Excess Schedule 10% purchase: Price paid Less interest acquired: Total stockholders’ equity Interest acquired Goodwill 15% purchase: Price paid Less interest acquired: Total stockholders’ equity Interest acquired Excess of book value over cost (credit balance) Decrease in equipment (4-year life) $80,000 $750,000 × 10% 75,000 $ 5,000 Dr $110,000 $800,000 × 15% 120,000 $(10,000) 10,000 Cr $ (1) Investment in Novic Retained Earnings To record equity “catch-up” entry 5,000 5,000 Calculations: Increase in retained earnings, January 1, 20X6, to January 1, 20X8 Ownership interest Equity “catch-up” adjustment (2) Investment in Novic Cash (50,000 shares × 25% × $0.20 per share) Investment Income To record net share of subsidiary income and dividends received $50,000 × 10% $ 5,000 10,000 2,500 12,500 Income Distribution for Investment in Novic Company Reported income Ownership interest Share of income Decrease in equipment depreciation expense ($10,000 ÷ 4) Investment income, net of amortizations SA-10 $40,000 × 25% $10,000 2,500 $12,500 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA2—Exercises EXERCISE SA2-5 Determination and Distribution of Excess Schedule Price paid Equity interest purchased, 30% × $400,000 Excess of cost over book value (debit balance) Allocate to machinery, 30% × $50,000, 5-year life, $3,000 per year Goodwill $200,000 120,000 $ 80,000 15,000 Dr $ 65,000 Dr Calculation of investment account balance, January 2, 20X9: Original cost Share of income: 20X7 20X8 Dividends paid: 20X7 20X8 $200,000 $50,000 45,000 $95,000 × 30% $10,000 10,000 $20,000 × 30% Amortization of excess: Machinery ($3,000 × years) Balance Entry: Cash Investment in Aluma-Boat Company Realized Gain on Sale of Investment SA-11 28,500 (6,000) (6,000) $216,500 230,000 216,500 13,500 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA2—Problems PROBLEMS PROBLEM SA-1 Determination and Distribution of Excess Schedule Price paid for investment in Fink Less interest acquired: Total stockholders’ equity Interest acquired Excess of cost over book value (debit balance) Attributable to long-lived assets: Less undervaluation of building ($40,000 × 0.25, 20 years, $500 per year) Goodwill $320,000 $1,000,000 × 25% 250,000 $ 70,000 10,000 $ 60,000 20X6 Income Distribution for Investment in Fink Company Reported net income $48,000 Adjusted net income Ownership interest Share of income Less excess amortization Net share of income $48,000 × 25% $12,000 500 $11,500 20X6 Entries: Cash ($10,000 × 25%) Investment in Fink ($11,500 – $2,500 dividends) Investment Income Sales ($8,000 × 25%) Realized Gross Profit (1/10 × $2,000 × ½ year) Deferred Gross Profit SA-12 2,500 9,000 11,500 2,000 100 1,900 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA2—Problems Problem SA-1 Concluded 20X7 Income Distribution for Investment in Fink Company Profit in ending inventory ($2,000 × 25%) Reported net income $50,000 Adjusted net income Ownership interest Share of income Less excess amortization Net share of income $49,500 × 25% $12,375 500 $11,875 $500 20X7 Entries: Cash ($10,000 × 25%) Investment in Fink ($11,875 – $2,500 dividends) Investment Income Deferred Gross Profit Realized Gross Profit 2,500 9,375 11,875 200 200 20X8 Income Distribution for Investment in Fink Company Profit in ending inventory ($3,000 × 25%) $750 Reported net income $65,000 Beginning inventory profit ($2,000 × 25%) 500 Adjusted net income Ownership interest Share of income Less excess amortization Share of income 20X8 Entries: Cash ($10,000 × 25%) Investment in Fink ($15,687 – $2,500 dividends) Investment Income Deferred Gross Profit Realized Gross Profit SA-13 $64,750 × 25% $16,187 500 $15,687 2,500 13,187 15,687 200 200 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA2—Problems PROBLEM SA2-2 December 31, 20X6: Investment in Cramer Company Cash (for dividends) Investment Income Reported income of Cramer ($60,000 – $18,000 tax) Ownership interest 8,500 1,250 9,750 $42,000 × 25% $10,500 Less amortizations of excess cost: Equipment ($7,500 ÷ 10 years) Adjusted income 750 9,750 Provision for Income Tax (30% × 20%* × $10,500) Income Tax Payable (30% × 20%* × $1,250) Deferred Tax Liability To record provision for tax; amortizations of excess are not deductible *100% – 80% dividend exclusion December 31, 20X7: Investment in Cramer Company Cash (for dividends) Investment Income (See IDS, which follows) $ 630 75 555 9,963 2,500 12,463 Provision for Income Tax (30% × 20%* × $13,213) Income Tax Payable (30% × 20%* × $2,500) Deferred Tax Liability *100% – 80% dividend exclusion 793 Sales ($4,000 × 40% × 25% interest) income before amortization Deferred Gross Profit on Sales to Investee 400 Deferred Tax Liability Provision for Income Tax Tax on deferred gross profit on ending inventory (30% × $400) 120 SA-14 150 643 400 120 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA2—Problems Problem SA2-2, Continued Cramer Company Income Distribution (20X7) Gain on machine sale $5,000 Reported net income Realized gain on machine* $80,000 500 Adjusted income Income tax (30%) Net income Ownership interest Interest in income Less amortization of excess cost (as above) $75,500 22,650 $52,850 × 25% $13,213 Net investment income $12,463 750 *$5,000 ì ẵ year ì 1/5 December 31, 20X8: Investment in Cramer Company Cash (for dividends) Investment Income (See IDS, which follows) Provision for Income Tax (30% × 20%* × $17,675) income before amortization Income Tax Payable (30% × 20%* × $2,500) Deferred Tax Liability *100% – 80% dividend exclusion 14,425 2,500 16,925 1,061 150 911 Sales (net increase $1,000* × 40% × 25% interest) 100 Deferred Gross Profit on Sales to Investee *$5,000 ending inventory profit – $4,000 beginning inventory profit = net increase Provision for Income Tax Deferred Tax Liability Tax on increase in deferred gross profit on ending inventory (30% × $100) SA-15 100 30 30 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA2—Problems Problem SA2-2, Concluded Cramer Company Income Distribution (20X8) Reported net income Realized gain on machine $100,000 1,000 Adjusted income Income tax (30%) Net income Ownership interest Interest in income Less amortization of excess cost (as above) $101,000 30,300 $ 70,700 × 25% $ 17,675 Net investment income $ 16,925 SA-16 750 ...To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA2—Exercises EXERCISES EXERCISE... $20,000 $23,000 25% × 25% 5,000 $ 5,750 (1,000) 4,000 $ (1,000) 4,750 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA2—Exercises Exercise SA2-2 Concluded... $90,000 1,000 6,000 $83,000 × 30% $24,900 (3,2 $21,700 21,700 6,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA2—Exercises EXERCISE SA2-4 Determination