Please complete the following questions:  1

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Please complete the following questions: 

1.      Phillips Company purchased a 90% interest in Standards Corporation for $2,340,000 on January 1, 2010. Standards Corporation had $1,650,000 of common stock and $1,050,000 of retained earnings on that date.

 

The following values were determined for Standards Corporation on the date of purchase:

 

	Book Value	Fair Value
Inventory	$240,000	$300,000
Land	2,400,000	2,700,000
Equipment	1,620,000	1,800,000

 

Required:

a.       Prepare a computation and allocation schedule for the difference between the implied and book value in the consolidated statements work paper.

b.      Prepare the January 1, 2010, work paper entries to eliminate the investment account and allocate the difference between implied and book value.

 

(Jeter, et al., 2010)

2.      Pruitt Corporation acquired all of the voting stock of Soto Corporation on January 1, 2010, for $210,000 when Soto had common stock of $150,000 and retained earnings of $24,000. The excess of implied over book value was allocated $9,000 to inventories that were sold in 2010, $12,000 to equipment with a 4-year remaining useful life under the straight-line method, and the remainder to goodwill.

Financial statements for Pruitt and Soto Corporations at the end of the fiscal year ended December 31, 2011 (two years after acquisition) appear in the first two columns of the partially completed consolidated statements work paper. Pruitt Corporation has accounted for its investment in Soto using the partial equity method of accounting.

 

 

Required: 

a.       Complete the consolidated statements workpaper for Pruitt Corporation and Soto Corporation for December 31, 2011.

 

b.      Pruitt Corporation and Soto Corporation Consolidated Statements Workpaper at December 31, 2011. 

 

			Eliminations
	Pruitt Corp.	Soto Corp.	Debit	Credit	Consolidated Balances
INCOME STATEMENT Sales	618,000	180,000
Equity from Subsidiary Income	36,000
Cost of Sales	(450,000)	(90,000)
Other Expenses	(114,000)	(54,000)
Net Income to Ret. Earn.	90,000	36,000
Pruitt Retained Earnings 1/1	72,000
Soto Retained Earnings 1/1		3,000
Add:  Net Income	90,000	36,000
Less:  Dividends	(60,000)	(12,000)
Retained Earnings 12/31	102,000	54,000
BALANCE SHEET
Cash	42,000	21,000
Inventories	63,000	45,000
Land	33,000	18,000
Equipment and  Buildings - net	192,000	165,000
Investment in Soto Corp.	240,000
Total Assets	570,000	249,000
LIABILITIES & EQUITIES Liabilities	168,000	45,000
Common Stock	300,000	150,000
Retained Earnings	102,000	54,000
TOTAL EQUITIES	570,000	249,000

 

(Jeter, et al., 2010)

 

 

3.      Business Ethics Question: 

 

a.       Consider the following: Many years ago, a student in a consolidated financial statements class came to me and said that Grand Central (a multi-store grocery and variety chain in Salt Lake City and surrounding towns and cities) was going to be acquired and that I should try to buy the stock and make lots of money. I asked him how he knew, and he told me that he worked part-time for Grand Central and heard that Fred Meyer was going to acquire it. I did not know whether the student worked in the accounting department at Grand Central or was a custodian at one of the stores. I thanked him for the information but did not buy the stock. Within a few weeks, the announcement was made that Fred Meyer was acquiring Grand Central and the stock price shot up, almost doubling. It was clear that I had missed an opportunity to make a lot of money ... I don't know to this day whether or not that would have been insider trading. However, I have never gone home at night and asked my wife if the SEC called. 

From "Don't go to jail and other good advice for accountants," by Ron Mano, Accounting Today, October 25, 1999.

 

b.      Question: Do you think this individual would have been guilty of insider trading if he had purchased the stock in Grand Central based on this advice? Why or why not? Are there ever instances where you think it would be wise to miss out on an opportunity to reap benefits simply because the behavior necessitated would have been in a gray ethical area, though not strictly illegal? Defend your position.

 

(Jeter, et al., 2010)

 

 

4.      Bass Industries operates in four different industries. Information concerning the operations of these industries for the year 2011 is as follows:

 

Revenue: 

Industry Segment	Total	Intersegment	Operating Profit (Loss)	Segment Assets
A	$24,000	$4,200	$2,700	$22,400
B	18,000	2,200	(2,000)	25,200
C	90,000	14,000	3,600	70,000
D	168,000	- 0 -	23,700	162,400
	$300,000		$28,000	$280,000

 

Required: 

a.       Complete the following schedule to determine which of the above segments must be treated as reportable segments:

 

10% Test for

	Segment	Revenue	Operating Profit (Loss)	Segment Assets	Reportable?
A
B
C
D

 

(Jeter, et al., 2010)

 Use the following information to answer questions 5-7: 

 On January 1, 2010, AirFrance purchases an airplane for €14,400,000. The components of the airplane and its useful life are as follows:

 

Component	Cost	Useful Life
Frame	€7,200,000	24 years
Engine	4,800,000	20 years
Other	2,400,000	10 years

 AirFrance uses the straight-line method of depreciation. The asset is assumed to have no salvage value.

 5.      Under IFRS, the entry to record the acquisition of the airplane would include

a.       a debit to Asset/ Airplane of €14,400,000.

b.      a debit to Asset/ Airplane frame of €14,400,000.

c.       a debit to Asset/ Airplane engine of €4,800,000.

d.      cannot be determined from the information given.

 6.      Under U.S. GAAP, the entry to record depreciation expense on the asset at December 31, 2011 will include

a.       a credit to accumulated depreciation of €1,200,000.

b.      a debit to depreciation expense of €1,440,000.

c.       a debit to depreciation expense of €800,000.

d.      a credit to accumulated depreciation of €600,000.

 7.      Under IFRS, the entry to record depreciation expense on the asset at December 31, 2011 will include a credit to accumulated depreciation of

a.       €1,440,000.

b.      €1,200,000.

c.       €800,000.

d.      €600,000.

8.      Accounting terminology that differs between IFRS and U.S. GAAP include all of the following except

a.       the use by IFRS of "turnover" for revenue.

b.      the use by IFRS of "share premium" for additional paid-in-capital.

c.       the use by IFRS of "other capital reserves" for retained earnings.

d.      the use by IFRS of "issued capital" for common stock.

9.      New terminology introduced under the joint IFRS - U.S. GAAP Customer Consideration (Allocation) Model includes all of the following except

a.       revenue recognition voids.

b.      contract rights.

c.       net contract asset/ liability.

d.      performance obligations.

10.  Under IFRS, the criteria to determine whether a lease should be capitalized include

a.       the present value of the minimum lease payments is 90% or more of the fair value of the asset at the inception of the lease.

b.      the term of the lease is 75% or more of the economic life of the asset.

c.       the term of the lease is equal to substantially all of the economic life of the asset.

d.      the present value of the minimum lease payments is equal to substantially all of the fair value of the asset at the inception of the lease.