Shine Corporation purchased 30 percent of the common stock of Ash Corporation on January 1, 2002

Shine Corporation purchased 30 percent of the common stock of Ash Corporation on January 1, 2002, at $28,000 in excess of underlying book value. The excess is attributable to equipment with a remaining useful life of 2 years. The companies reported the following operating results and dividends for the 3 years following the date of purchase:

Shine Ash
Operating Income Dividends Net Income Dividends
2002 1,000,000 130,000 400,000 40,000
2003 960,000 140,000 300,000 40,000
2004 1,200,000 140,000 500,000 22,000

Required:
A) Compute the net income reported by Shine for each of the 3 years, assuming Shine accounts for its investment in Ash using the cost method.

B) Compute the net income reported by Shine for each of the 3 years, assuming Shine accounts for its investment in Ash using the equity method.


Click here for the solution: Shine Corporation purchased 30 percent of the common stock of Ash Corporation on January 1, 2002

The citizen of Spencer County approved the issuance of $2,000,000 in 6 percent general obligation bonds

The citizen of Spencer County approved the issuance of $2,000,000 in 6 percent general obligation bonds to finance the construction of a courthouse annex. A capital projects fund was established for that purpose. The preclosing trial balance of the courthouse annex capital project fund follows:

Trial Balance - December 31, 2012
Debit Credits
Cash $ 1,265,000
Contract payable $ 550,000
Due from state government 200,000
Encumbrances 750,000
Expenditures - capital 1,485,000
Intergovernmental grant 40,000
OFS: premium on bonds 35,000
OFS: proceeds sale of bonds 2,000,000
Budgetary fund balance - 750,000
Reserve for encumbrances Transfer out 35,000
$ 3,735,000 $ 3,375,000

a. Prepare any closing entries necessary at year-end.
b. Prepare a Statement of Revenues, Expenditures, And Changes in Fund Balance for the courthouse annex capital project fund.
c. Prepare a balance sheet for the Courthouse Annex Capital Project Fund, assuming all unexpected resources are restricted to construction of the courthouse annex.


Click here for the solution: The citizen of Spencer County approved the issuance of $2,000,000 in 6 percent general obligation bonds

Mountain Mist Inc.’s cost of capital is 11 percent

Mountain Mist Inc.’s cost of capital is 11 percent. In 2010, one of the firm’s divisions generated an EVA of $1,130,000. The fair market value of the capital investment in that division was $29,500,000. How much after-tax income was generated by the division in 2010?


Click here for the solution: Mountain Mist Inc.’s cost of capital is 11 percent

On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds

6-7 On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds. It established a debt service fund to account for resources set aside to pay interest rates. In the year that it issued the debt, the city engaged in the following transactions involving the debt service fund.

1. It estimated that it would make interest payments of $3 million and have interest earnings of $30,000 from investments. It would transfer from the general fund to the debt service fund$2.97 million to pay interest and $500,000 to provide for the payment of principal when the bonds mature. Further, as required by the bond indentures, it would transfer $1 million of the bond proceeds from the capital projects fund to the debt service fund to be held in reserve until the debt matures.
2. Upon issuing the bonds, the city transferred $1 million of the bond proceeds from the capital projects fund. It invested $977,254 of the funds in twenty – year, 6 percent Treasury bonds that had a face value of $1 million. The bond discount of $22,746 reflected an effective yield rate of 6.2 percent.
3. On December 31, the city received $30,000 interest on the Treasury bonds. This payment represented interest for six months. Correspondingly, the market value of the bonds increased by $294, reflecting the amortization of the discount.
4. On the same day the city transferred $2.97 million from the general fund to pay interest on the bonds that it had issued. It also transferred $500,000 for the eventual repayment of principal.
5. Also on December 31, it made its first interest payment of $3 million to bondholders.

a. Prepare appropriate journal entries in the debt service fund, including budgetary and closing entries.
b. The bonds issued by the city pay interest at the rate of 6 percent. The bonds in which the city invested its reserve have an effective yield of 6.2 percent. What might the differences in rates create a potential liability for the city?


Click here for the solution: On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds

JBC Corporation is owned 20 percent by John, 30 percent by Brian, 30 percent by Charlie, and 20 percent by Z Corporation

JBC Corporation is owned 20 percent by John, 30 percent by Brian, 30 percent by Charlie, and 20 percent by Z Corporation. Z Corporation is owned 80 percent by John and 20 percent by an unrelated party. Brian and Charlie are brothers. Answer each of the following questions about JBC under the constructive ownership rules of Section 267:
a. What is John's percentage ownership?
b. What is Brian's percentage ownership?


Click here for the solution: JBC Corporation is owned 20 percent by John, 30 percent by Brian, 30 percent by Charlie, and 20 percent by Z Corporation

Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation

Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation. Guilda's basis in her stock is $25,000. On July 31, 2010, Bill sells his stock, with a basis of $40,000, to Loraine for $50,000. For the 2010 tax year, Radiata Corporation has a loss of $100,375.

a. Calculate the amount of the corporation's loss that may be deducted by Bill on his 2010 tax return.
b. Calculate the amount of the corporation's loss that may be deducted by Guilda on her 2010 tax return.
c. Calculate the amount of the corporation's loss that may be deducted by Loraine on her 2010 tax return.


Click here for the solution: Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation

Carter Corporation's sales are expected to increase from $5 million in 2005 to $6 million in 2006, or by 20 percent

AFN equation - Carter Corporation's sales are expected to increase from $5 million in 2005 to $6 million in 2006, or by 20 percent. Its assets totaled $3 million at the end of 2005. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2005, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. The after-tax profit margin is forecasted to be 5 percent, and the forecasted retention ratio is 30 percent. Use the AFN equation to forecast Carter's additional funds needed for the coming year.


Click here for the solution: Carter Corporation's sales are expected to increase from $5 million in 2005 to $6 million in 2006, or by 20 percent

Crane Mechanics acquired 75 percent of Downey Enterprises on March 31, 2005, for $3,645,000

Exercise 3-14 Crane Mechanics acquired 75 percent of Downey Enterprises on March 31, 2005, for $3,645,000.

Downey’s book value at that date totaled $4,000,000. Appraisal values were greater than book values for identifiable assets in the following amounts: Inventory ($300,000) and Plant and Equipment ($700,000). The purchase differential for Inventory is to be amortized over five months and Plant and Equipment over ten years. For the remainder of 2005 Downey reports $635,000 of income and pays $100,000 in dividends. The following balances exist for Crane at December 31, 2005, and Downey at March 31 and December 31, 2005.

Crain Downey_______
12/31 3/31 12/31
Cash $730,000 $175,000 $180,000
Inventory 1,950,000 260,000 340,000
Plant and Equipment 17,650,000 5,150,000 5,765,000
Accumulated Depreciation (4,655,000) (935,000) (1,250,000)
Investment in Downey 3,886,875
Expenses 6,400,000 1,000,000 4,265,000
Dividends 1,275,000 150,000 250,000
Total Debits $27,236,875 $5,800,000 $9,550,000
Liabilities $3,550,000 650,000 $500,000
Common Stock 350,000 100,000 100,000
Additional Paid-In Capital 2,650,000 850,000 850,000
Retained Earnings 9,720,000 2,800,000 2,800,000
Sales 10,650,000 1,400,000 5,300,000
Extraordinary Gain From
Acquisition of Downey 105,000
Investment Income 211,875
Total Credits $27,236,875 $5,800,000 $9,550,000

Required: Prepare the consolidation worksheet for Crain and Downey at December 31, 2005.


Click here for the solution: Crane Mechanics acquired 75 percent of Downey Enterprises on March 31, 2005, for $3,645,000

The SIMPLEX financial system is characterized by a required reserves ratio of 11 percent

P5-5 The SIMPLEX financial system is characterized by a required reserves ratio of 11 percent; initial excess reserves are $1 million, and there are no currency or other leakages.
a. What would be the maximum amount of checkable deposits after deposit expansion, and what would be the money multiplier?
b. How would your answer in (a) change if the reserve requirement had been 9 percent?

Click here for the solution: The SIMPLEX financial system is characterized by a required reserves ratio of 11 percent

Davis Corporation was authorized to issue 100,000 shares of $10 par common stock and 50,000 shares of $50 par, 6 percent, cumulative preferred stock

Problem 8-18 (Recording and reporting stock transactions and cash dividends across two accounting cycles) Davis Corporation was authorized to issue 100,000 shares of $ 10 par common stock and 50,000 shares of $ 50 par, 6 percent, cumulative preferred stock. Davis Corporation completed the following transactions during its first two years of operation.
2012 Jan.
2 Issued 5,000 shares of $ 10 par common stock for $ 28 per share.
15 Issued 1,000 shares of $ 50 par preferred stock for $ 70 per share.
Feb. 14 Issued 15,000 shares of $ 10 par common stock for $ 30 per share.
Dec.
31 During the year, earned $ 170,000 of cash service revenue and paid $ 110,000 of cash operating expenses.
31 Declared the cash dividend on outstanding shares of preferred stock for 2012. The dividend will be paid on January 31 to stockholders of record on January 15, 2013.
2013 Jan. 31 Paid the cash dividend declared on December 31, 2012.
Mar. 1 Issued 2,000 shares of $ 50 par preferred stock for $ 58 per share.
June 1 Purchased 500 shares of common stock as treasury stock at $ 43 per share. Dec. 31 During the year, earned $ 210,000 of cash service revenue and paid $ 175,000 of cash operating expenses.
31 Declared the dividend on the preferred stock and a $ 0.60 per share dividend on the common stock.

Required
a. Organize the transaction data in accounts under an accounting equation.
b. Prepare the stockholders’ equity section of the balance sheet at December 31, 2012.
c. Prepare the balance sheet at December 31, 2013.

Click here for the solution: Davis Corporation was authorized to issue 100,000 shares of $10 par common stock and 50,000 shares of $50 par, 6 percent, cumulative preferred stock

(Comprehensive Problem: Majority-Owned Subsidiary) Master Corporation acquired 80 percent ownership of Stanley Wood Products Company on January 1, 20X1, for $160,000

P5-37 (Comprehensive Problem: Majority-Owned Subsidiary) Master Corporation acquired 80 percent ownership of Stanley Wood Products Company on January 1, 20X1, for $160,000. On that date, the fair value of the noncontrolling interest was $40,000, and Stanley reported retained earnings of $50,000 and had $100,000 of common stock outstanding. Master has used the equity method in accounting for its investment in Stanley.

Trial balance data for the two companies on December 31, 20X5, are as follows:

Item
Master
Corporation
Stanley Wood
Products Company
Debit Credit Debit Credit
Cash and Receivables $ 81,000 $ 65,000
Inventory 260,000 90,000
Land 80,000 80,000
Buildings and Equipment 500,000 150,000
Investment in Stanley Wood Products Stock 188,000
Cost of Goods Sold 120,000 50,000
Depreciation Expense 25,000 15,000
Inventory Losses 15,000 5,000
Dividends Declared 30,000 10,000
Accumulated Depreciation $ 205,000 $105,000
Accounts Payable 60,000 20,000
Notes Payable 200,000 50,000
Common Stock 300,000 100,000
Retained Earnings 314,000 90,000
Sales 200,000 100,000
Income from Subsidiary 20,000
$1,299,000 $1,299,000 $465,000 $465,000

Additional Information
1. On the date of combination, the fair value of Stanley’s depreciable assets was $50,000 more than book value. The differential assigned to depreciable assets should be written off over the following 10-year period.
2. There was $10,000 of intercorporate receivables and payables at the end of 20X5.

Required:
1. Prepare all entries recorded by the parent co with respect to its investment in the sub for 20X5
2. Prepare all elimination entries for 20X5
3. Prepare a three-part worksheet as of December 31, 20X5

Click here for the solution: (Comprehensive Problem: Majority-Owned Subsidiary) Master Corporation acquired 80 percent ownership of Stanley Wood Products Company on January 1, 20X1, for $160,000