Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 3C
1.
To determine
Explain the meaning of
2.
To determine
State the reason behind the difference between the book and fair values of the goodwill of Company E.
3.
To determine
Explain the given propriety:
(a) Increasing the stated value of goodwill prior to the negotiations, and
(b) Eliminating goodwill completely from the
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
The Kerr-Graham Corporation had two operating divisions, one manufacturing cooking utensils and the other herb gardens. Both divisions qualified as separate components of the entity. On September 15, 2015, the company adopted a plan to sell the assets of the herb garden division. The actual sale was made on December 8, 2015, at a price of $1.8 million. The book value of the division’s asset was $3 million, resulting in a before-tax loss of $1.2 million on the sale.
The division incurred before-tax operating losses of $300,000 from the beginning of the year to September 15, and $90,000 from September 16 through December 8. The income tax rate is 40%. Kerr-Graham’s after-tax income from its continuing operations is $1,050,000.
Required:
Prepare Kerr-Graham’s income statement for 2015 beginning with “income from continuing operations.” Include appropriate EPS disclosures assuming that 100,000 shares of common stock were outstanding throughout the year. Show calculations.
The Kerr-Graham Corporation had two operating divisions, one manufacturing cooking utensils and the other herb gardens. Both divisions qualified as separate components of the entity. On September 15, 2015, the company adopted a plan to sell the assets of the herb garden division. The actual sale was made on December 8, 2015, at a price of $1.8 million. The book value of the division’s asset was $3 million, resulting in a before-tax loss of $1.2 million on the sale.
The division incurred before-tax operating losses of $300,000 from the beginning of the year to September 15, and $90,000 from September 16 through December 8. The income tax rate is 40%. Kerr-Graham’s after-tax income from its continuing operations is $1,050,000.
Required:
Prepare Kerr-Graham’s income statement for 2015 beginning with “income from continuing operations.” Include appropriate EPS disclosures assuming that 100,000 shares of common stock were outstanding throughout the year. Show calculations.…
The ink-jet printing division of Environmental Printing has grown tremendously in recent years. Assume the following transactions related to the ink-jet division occur during the year ended December 31, 2021.
Environmental Printing is being sued for $9 million by Addamax. Plaintiff alleges that the defendants formed an unlawful joint venture and drove it out of business. The case is expected to go to trial later this year. The likelihood of payment is reasonably possible.
Environmental Printing is the plaintiff in an $7 million lawsuit filed against a competitor in the high-end color-printer market. Environmental Printing expects to win the case and be awarded between $4.5 and $7 million.
Environmental Printing recently became aware of a design flaw in one of its ink-jet printers. A product recall appears probable. Such an action would likely cost the company between $300,000 and $700,000.
Record any amounts as a result of each of these contingencies. (If no entry is…
Chapter 12 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 12 - Prob. 1GICh. 12 - Prob. 2GICh. 12 - Prob. 3GICh. 12 - Prob. 4GICh. 12 - Prob. 5GICh. 12 - Prob. 6GICh. 12 - Prob. 7GICh. 12 - What activities are included in RD? Which are...Ch. 12 - What elements of RD activities does a company...Ch. 12 - How does a company record a patent worth 100,000...
Ch. 12 - Prob. 11GICh. 12 - Prob. 12GICh. 12 - Over how many years are patents amortized?...Ch. 12 - Prob. 14GICh. 12 - Prob. 15GICh. 12 - Prob. 16GICh. 12 - Prob. 17GICh. 12 - Prob. 18GICh. 12 - Prob. 19GICh. 12 - Prob. 20GICh. 12 - What is the proper time or time period over which...Ch. 12 - Prob. 2MCCh. 12 - Prob. 3MCCh. 12 - Which of the following assets typically are...Ch. 12 - Prob. 5MCCh. 12 - Prob. 6MCCh. 12 - Prob. 7MCCh. 12 - Prob. 8MCCh. 12 - Prob. 9MCCh. 12 - Prob. 10MCCh. 12 - Steel Magnolia Incorporated purchased a trademark...Ch. 12 - Match the following items with correct accounting...Ch. 12 - Notting Hill Company incurred the following costs...Ch. 12 - Hook Corp. incurred the following start-up costs,...Ch. 12 - Mystic Pizza Company purchased a patent from Prime...Ch. 12 - Mystic Pizza Company purchases a franchise from NY...Ch. 12 - Prob. 7RECh. 12 - Prob. 8RECh. 12 - Prob. 9RECh. 12 - Prob. 10RECh. 12 - Prob. 1ECh. 12 - On January 4, 2019, Franc Company purchased for...Ch. 12 - On January 11, 2019, Hughes Company applied for a...Ch. 12 - Gansac Publishing Company signed a contract with...Ch. 12 - Prob. 5ECh. 12 - Prob. 6ECh. 12 - KLK Clothing Company manufactures professional...Ch. 12 - Cressman Company incurred RD costs for various...Ch. 12 - In 2019, Lalli Corporation incurred RD costs as...Ch. 12 - Kling Company was organized in late 2019 and began...Ch. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Company is considering purchasing EKC Company....Ch. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Halpern Companys controller prepared the following...Ch. 12 - Prob. 5PCh. 12 - Prob. 6PCh. 12 - Hamilton Companys balance sheet on January 1,...Ch. 12 - Prob. 8PCh. 12 - Lee Manufacturing Corporation was incorporated on...Ch. 12 - Information concerning Tully Corporations...Ch. 12 - Prob. 11PCh. 12 - In examining Samson Manufacturing Companys books,...Ch. 12 - Prob. 2CCh. 12 - Prob. 3CCh. 12 - Prob. 4CCh. 12 - On June 30, 2019, your client, Sprauge...Ch. 12 - Prob. 6CCh. 12 - NBC paid 401 million for the rights to televise...Ch. 12 - Prob. 8C
Knowledge Booster
Similar questions
- Riverbed is a cologne retailer. During 2020, Riverbed had the following non-monetary transactions. Scenario 1: Riverbed exchanged 4,500 of its common shares (FMV of $9 each) for equipment with a FMV of $45,000. Scenario 2: Riverbed traded machinery with a cost of $14,700 and accumulated depreciation of $5,880 for an inventory management equipment owned by Francis Inc. which is expected to help increase the speed with which Riverbed fills its orders. An additional $3,200 was paid by Riverbed in the exchange. The inventory management equipment has a cost of $18,600 and accumulated depreciation of $11,160 on Francis’ accounting records. Fair values for the machinery and the inventory management equipment are $9,820 and $13,020 respectively. For each of the above independent scenarios, prepare the journal entry necessary to record the transaction, assuming that Riverbed follows IFRS Hint: Scenario 1: 2 entries Scenario 2: 5 entriesarrow_forwardOsama Co. is a listed company operating in the textile industry. Osama Co’s board of directors met recently to discuss a new strategy for the business. The proposal put forward was to sell all the old plant and machinery and use this fund as well as borrow from market to purchase new plant and equipment. The new plant and machinery are more productive and meet the current standard quality required by the international buyers. It is also argued that new plant is more energy efficient and environment friendly that gives more advantage when facing international competitors. The proposal stated that the funds raised from the sale of the old plant and machinery would be used to buy the new plant and machinery. New borrowing for the balance amount will be made from local bank which offered lowest rate. Since inflation is on higher side compared to last few years so cost of borrowing is on higher side which will increase firm cost of capital. The board of directors are of the opinion…arrow_forwardOsama Co. is a listed company operating in the textile industry. Osama Co’s board of directors met recently to discuss a new strategy for the business. The proposal put forward was to sell all the old plant and machinery and use this fund as well as borrow from market to purchase new plant and equipment. The new plant and machinery are more productive and meet the current standard quality required by the international buyers. It is also argued that new plant is more energy efficient and environment friendly that gives more advantage when facing international competitors. The proposal stated that the funds raised from the sale of the old plant and machinery would be used to buy the new plant and machinery. New borrowing for the balance amount will be made from local bank which offered lowest rate. Since inflation is on higher side compared to last few years so cost of borrowing is on higher side which will increase firm cost of capital. The board of directors are of the opinion…arrow_forward
- Osama Co. is a listed company operating in the textile industry. Osama Co’s board of directors met recently to discuss a new strategy for the business. The proposal put forward was to sell all the old plant and machinery and use this fund as well as borrow from market to purchase new plant and equipment. The new plant and machinery are more productive and meet the current standard quality required by the international buyers. It is also argued that new plant is more energy efficient and environment friendly that gives more advantage when facing international competitors. The proposal stated that the funds raised from the sale of the old plant and machinery would be used to buy the new plant and machinery. New borrowing for the balance amount will be made from local bank which offered lowest rate. Since inflation is on higher side compared to last few years so cost of borrowing is on higher side which will increase firm cost of capital. The board of directors are of the opinion…arrow_forwardThe Jaecke Group, Inc., manufactures various kinds of hydraulic pumps. In June 2018, the company signed a fouryear purchase agreement with one of its main parts suppliers, Hydraulics, Inc. Over the four-year period, Jaeckehas agreed to purchase 100,000 units of a key component used in the manufacture of its pumps. The agreementallows Jaecke to purchase the component at a price lower than the prevailing market price at the time of purchase.As part of the agreement, Jaecke will lend Hydraulics $200,000 to be repaid after four years with no stated interest(the prevailing market rate of interest for a loan of this type is 10%).Jaecke’s chief accountant has proposed recording the note receivable at $200,000. The parts inventory purchase from Hydraulics over the next four years will then be recorded at the actual prices paid.Required:Do you agree with the accountant’s valuation of the note and his intention to value the parts inventory acquiredover the four-year period of the agreement at…arrow_forwardPelé Corp. owns a popular convenience store in Washington state. Messi Corp. is hoping to purchase the store from Pelé for $8,500,000. Messi has identified the land and building have a fair value of $7,000,000 while inventory has a fair value of $700,000. Because of the store’s popularity, excellent customer service, and customer loyalty, Messi is willing to pay $800,000 above the fair value of the assets acquired in the purchase. If Pelé Corp. decides it will not accept anything less than $8,500,000, which Messi Corp. agrees to pay, how is the excess $800,000 payment accounted for? Excess Contributed Capital Plant, & Equipment Property, Plant, & Equipment Accumulated Deprecitation Accumulated Deprecitationarrow_forward
- Sweets Inc. made several capital purchases during the last month of the year. As part of the purchases the company sold some existing fixed assets. Yesterday, as you were walking to the company cafeteria, you saw the President of Sweets Inc. While walking with the President you mentioned that recent capital purchases would significantly impact the financial statements. Today, the President called you directly and asked you to write a memorandum explaining the impact of the capital purchases (and related sale of some existing fixed assets) on each of the following financial statements; Income Statement Balance Sheet Statement of Cash Flows Summary of December Capital Transactions On Dec. 1, 2021 Sweets Inc. purchased a new delivery truck for $ 100,000 The following additional information was provided: The truck was paid for with cash. The truck is expected to have a service life of No salvage value is expected after the service life. The company uses straight-line depreciation for their…arrow_forwardThe semiconductor business of the California Microtech Corporation qualifies as a component of the entity according to GAAP. The book value of the assets of the segment was $8 million. The loss from operations of the segment during 2021 was $3.6 million. Pretax income from continuing operations for the year totaled $5.8 million. The income tax rate is 25%. The estimated fair value of the segment's assets, less costs to sell, on December 31 was $7 million. Prepare the lower portion of the 2021 income statement beginning with income from continuing operations before income taxes. Ignore EPS disclosures. (Amounts to be deducted and negative amounts should be indicated with a minus sign. Enter your answers in whole dollars and not in millions.)arrow_forwardBarkley Corp. obtained a trade name in January 2016, incurring legal costs of $82,000. The company amortizes the trade name over 8 years. Barkley successfully defended its trade name in January 2017, incurring $19,000 in legal fees. At the beginning of 2018, based on new marketing research, Barkley determines that the fair value of the trade name is $60,000. Estimated future net cash flows from the trade name are $62,000 on January 4, 2018. I. Instructions Prepare the necessary journal entries for the years ending December 31, 2016, 2017, and 2018. Show all computations.arrow_forward
- Sweets Inc. made several capital purchases during the last month of the year. As part of the purchases the company sold some existing fixed assets. Yesterday, as you were walking to the compnay cafeteria, you saw the President of Sweets Inc. While walking the President you mentioned the recent capital purchases would significantly impact the financial statments. Today, the President called you directly and asked you to write a memorandum explaining the impact of the capital purchases (and related sales of some existing fixed assets) on each of the following financial statments; Income Statement, Balance Sheet, Statement of Cash Flows. Summary of December Capital Transactions On Dec 1, 2021 Sweets Inc purchased a new delivert truck for $100,000 The following additional information was provided: The truck was paid for with cash. The truck is expected to have a service life of 10 years. No salvage value is expected after the service life. The company uses straight line depreciation for…arrow_forwardHenry Company is a marketer of branded foods to retail and foodservice channels. Exhibit 6.18 presents Henry’s income statements for Year 10, Year 11, and Year 12. Notes to the financial statements reveal the following information:1. Gain on sale of a portion of the branded product line. In Year 10, Henry completed the sale of a portion of one of its branded product lines for $735 million. The transaction resulted in a pretax gain of $464.5 million. The sale did not qualify as a discontinued operation. Henry did not disclose the tax effect of the gain reported in Exhibit 6.18.2. Extraordinary loss. In Year 11, Henry experienced an extraordinary loss when a subsidiary was expropriated during a military coup in a previously stable country. The loss was $17 million, net of income taxes of $10 million. 3. Sale and promotion costs. In Year 11, Henry changed the classification of certain sale and promotion incentives provided to customers and consumers. In the past, Henry classified these…arrow_forwardCarniTrin is a manufacturer of Carnival costumes in a highly competitive market. Thecompany's management team is seeking guidance on the use of financial performancemeasures to identify the key drivers of the company's financial performance and develop astrategy to improve it. The following data relate to the company for the year 2022: In its clothing division, the company has $6,000,000 invested in assets. After-taxoperating income from sales of clothing in 2022 is $900,000. Income for the clothingdivision has grown steadily over the last few years. The cosmetics division has $14,000,000 invested in assets and an after-tax operatingincome in 2022 of $1,900,000. The weighted-average cost of capital for CarniTrin is 10% and the 2021’s after-taxreturn on investment for each division was 15%. The general manager of CarniTrin has asserted that in the future, managers shouldhave their compensation structure aligned with their performance measures with nofixed salaries. However, the…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
