Question 1

Orleans Corporation purchased 1,000,000 shares of Creole Corporation's common stock, which constitutes 10% of Creole's voting stock on June 30, 2016 for $42 per share. Orleans' intent is to keep these shares beyond the current year. On December 20, 2016, Creole paid a $4,000,000 cash dividend. On December 31, 2016, Creole's stock was trading at $45 per share and their reported 2016 net income was $52 million.
Required:
A.Record the transaction to record the acquisition of Creole Corporation on June 30, 2016.
B.Record the transaction for the dividend received by Orleans on December 20, 2016.
C.Record any year-end entries needed by Orleans Corporation.

Accepted Answer

The answer of Orleans Corporation purchased 1,000,000 shares of Creole...

Question 2

Discuss how the equity method of accounting for investments prevents managers of the investor corporation from manipulating income related to dividends from the investee.

Accepted Answer

The answer of Discuss how the equity method of accounting...

Question 3

On March 1, 2017, Young Company paid cash to purchase the following stocks as long-term investments in available-for-sale securities:
Old Corporation common stock (par $5), 2,000 shares at $5 per share (10% of outstanding shares)
ABC Corporation common stock (par $10), 3,000 shares at $25 per share (15% of outstanding shares)
XYZ Corporation common stock (par $10), 3,000 shares at $20 per share (10% of outstanding shares)
The market prices per share at December 31, end of the accounting period, were as follows:  Required:
Prepare the required journal entries at the following dates: March 1, 2017, December 31, 2017 and December 31, 2018.

Accepted Answer

The answer of On March 1, 2017, Young Company paid...

Question 4

On January 1, 2016, Alden Company acquired 15,000 shares of the nonvoting common stock of Maxim Corporation as a long-term investment. Maxim reported a 2016 net income of $35,000. On January 2, 2017, Maxim declared and paid a $10,000 cash dividend. The fair value of the Maxim stock held by Alden on December 31, 2016, was $224,000. Alden Company has recorded only the following journal entries:
January 1, 2016:  December 31, 2016 (end of the accounting period):
No entry
January 2, 2017:  Required:
Based on the above information, answer the following questions: 
A.What method did Alden use to account for the investment?
B.Did Alden fail to make an adjusting entry on December 31, 2016?
C.What condition, if changed, would require that the equity method be used?
D.Assuming the fair value method is used; calculate the valuation of the net investment on January 3, 2017.

Accepted Answer

The answer of On January 1, 2016, Alden Company acquired...

Question 5

On January 2, 2016, Eagle Company acquired 100% of Solly Company's common stock for $900,000 cash in a merger transaction. At this date, the book value of all of Solly Company's assets, except a building, was $700,000. The fair value of these assets without the building was $800,000. In addition to these assets is a building that has a book value of $400,000 and a fair value of $440,000. The book value and fair value of Solly Company's liabilities is $520,000.
Required:
A.Prepare a schedule to calculate the goodwill arising from the transaction.
B.Prepare the journal entry to record the merger on the books of Eagle Company at the acquisition date.

Accepted Answer

The answer of On January 2, 2016, Eagle Company acquired...

Question 6

On January 1, 2016, Presto Corporation purchased, as a long-term investment, 5,000 shares of the outstanding voting common stock of Shazam Corporation at $30 per share. During 2016, the following events occurred at Shazam Corporation:  Required:
A. Prepare the journal entry for Presto Corporation to record the investment (use an account titled "Long-term investment").
 B. Assume two independent situations, Case A for 5,000 shares as 10% ownership and Case B for 5,000 shares as 40% ownership. For each situation, prepare the following entries:
 1. To recognize net income for 2016.
 2. To record cash dividend declared and received.
 3. To record any adjustment to market price of stock at year-end. 
A.Prepare the journal entry for Presto Corporation to record the investment (use an account titled "Long-term investment").
B.Assume two independent situations, Case A for 5,000 shares as 10% ownership and Case B for 5,000 shares as 40% ownership.For each situation, prepare the following entries:
1.To recognize net income for 2016.2.To record cash dividend declared and received.3.To record any adjustment to market price of stock at year-end.

Accepted Answer

The answer of On January 1, 2016, Presto Corporation purchased,...

Question 7

On January 31, 2016, McBurger Corporation purchased the following shares of voting common stock as long-term investments in available-for-sale securities. None of these holdings amounted to more than 5% of the respective company's outstanding voting shares. The accounting period ends December 31.  All of the Bailey Corporation stock was sold for $13,500 on January 12, 2018.
Required:
Prepare the required journal entries at the following dates: January 31, 2016, December 31, 2016, December 31, 2017 and January 12, 2018.

Accepted Answer

The answer of On January 31, 2016, McBurger Corporation purchased...

Question 8

During 2016, the following items were reported on ShoeCo's statement of cash flows in millions of dollars.
Required:
For each item, identify the type of activity it is (operating, investing, financing) and the effect it would have on the statement of cash flows. The operating activities section is prepared using the indirect method. Enter "+" if the item is added or "-" if the item is subtracted. Do not enter dollar amounts.

Accepted Answer

The answer of During 2016, the following items were reported...

Question 9

On January 1, 2016, Fall Corporation acquired 100% of the outstanding voting shares of Foliage Corporation for $600,000. The book and fair values of Foliage's assets and liabilities as of January 1, 2016 are listed below:

Accepted Answer

The answer of On January 1, 2016, Fall Corporation acquired...

Question 10

As a long-term investment, Martha Company purchased 5,000 of the 12,500 outstanding voting shares of Stewart Corporation at $20 per share on January 1, 2016. At the end of 2016, Stewart reported net income of $100,000 and declared and paid dividends of $10,000. The market price of the Stewart stock at the end of 2016 was $23 per share.
Required:
Calculate the net balance in Martha's investment account at the end of 2016.

Accepted Answer

The answer of As a long-term investment, Martha Company purchased...

Question 11

Required:
A.Discuss the criteria for applying the equity method of accounting for long-term investments.
B.Discuss the rationale for the equity method procedures of accounting for long-term investments.

Accepted Answer

The answer of Required:
A.Discuss the criteria for applying the equity...

Question 12

During 2016, the following items were reported on The Mickey Company's statement of cash flows in millions of dollars.
Required:
For each item, identify the type of activity it is (operating, investing, financing) and the effect it would have on the statement of cash flows. The operating activities section is prepared using the indirect method. Enter "+" if the item is added or "-" if the item is subtracted. Do not enter dollar amounts.

Accepted Answer

The answer of During 2016, the following items were reported...

Question 13

Describe the difference in the calculation of the realized gain or loss on the sale of an investment when the trading security classification is used relative to use of the available-for-sale classification.

Accepted Answer

The answer of Describe the difference in the calculation of...

Question 14

Donald Corporation purchased 3,000 shares of the outstanding common voting stock of Apprentice Corporation on January 2, 2016, for $80 per share. At the date of purchase Apprentice Corporation had outstanding 10,000 shares of common stock with a par value of $50 per share. During 2016, Apprentice reported net income of $60,000 and declared and paid a $5,000 cash dividend. The December 31, 2016, fair value of Apprentice's stock was $84.
Required:
Prepare the journal entries required for Donald Corporation on January 2, 2016 and December 31, 2016.

Accepted Answer

The answer of Donald Corporation purchased 3,000 shares of the...

Question 15

On December 31, 2016, Jean World Corporation recorded the following journal entry relating to its investment in 9,000 shares of common stock of Soda Corporation.  At the end of 2016, Soda Corporation reported net income of $120,000.
Earlier in the year, Soda declared and paid dividends of $18,000.
Required: 
A.What method is being used to account for this investment?
B.What is the total number of shares outstanding of Soda's common stock?

Accepted Answer

The answer of On December 31, 2016, Jean World Corporation...

Quiz 14: PPA: Reporting and Interpreting Investments in Other Corporations

Discuss how the equity method of accounting for investments prevents managers of the investor corporation from manipulating income related to dividends from the investee.

On January 1, 2016, Fall Corporation acquired 100% of the outstanding voting shares of Foliage Corporation for $600,000. The book and fair values of Foliage's assets and liabilities as of January 1, 2016 are listed below:

Required: A.Discuss the criteria for applying the equity method of accounting for long-term investments. B.Discuss the rationale for the equity method procedures of accounting for long-term investments.

Describe the difference in the calculation of the realized gain or loss on the sale of an investment when the trading security classification is used relative to use of the available-for-sale classification.