Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 4, Problem 4.6E
To determine
Concept Introduction:
Equity Method of valuation of investment: In this method parent company value investment on the historical cost of the investment plus apportioned profit in the associate company less dividend paid by the associate company.
To Prepare:
Calculation of amount paid for purchase of investment.
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On January 2, 20Y7, Mikedes Company acquired 30% of the outstanding stock of Violet Company for $720,000. For the year ended December 31, 20Y7, Violet Company earned income of $190,000 and paid dividends of $40,000. On January 31, 20Y8, Mikedes Company sold all of its investment in Violet Company stock for $770,000.
Required:
Journalize the entries for Mikedes Company for the purchase of the stock, the share of Violet income, the dividends received from Violet Company, and the sale of the Violet Company stock. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered.
On 1 January 2020, Company P purchased 80% of the equity of Company S. The
following transactions arose at the acquisition date.
Deferred cash payment
Immediate cash payment
Issue of P's shares
Due diligence fees paid to lawyers
Equipment transferred
$1,000,000 payable 3 years later
$500,000
1,200,000 shares
$40,000
$30,000
Note:
a. P's effective interest rate was 5% per annum.
b. P's share price was $1.3.
c. The fair value of non-controlling interests at acquisition date was $640,000.
d. Share capital and Retained earnings of S were $1,000,000 and $900,000
respectively on 1 January 2020. On the same day, there was an intangible asset
carried in S at $500,000 but the fair value of it was $800,000.
e. Fair value of the equipment transferred was close to its book value.
Required:
a. Determine the fair value of the consideration transferred on 1 January 2020 in
accordance with IFRS 3 Business Combinations. Round to the nearest integer.
b. Prepare the journal entries in P's books on 1…
On 1 January 2020, Company P purchased 80% of the equity of Company S. The
following transactions arose at the acquisition date.
Deferred cash payment
Immediate cash payment
Issue of P's shares
Due diligence fees paid to lawyers
Equipment transferred
$1,000,000 payable 3 years later
$500,000
1,200,000 shares
$40,000
$30,000
Note:
a. P's effective interest rate was 5% per annum.
b. P's share price was $1.3.
c. The fair value of non-controlling interests at acquisition date was $640,000.
d. Share capital and Retained earnings of S were $1,000,000 and $900,000
respectively on 1 January 2020. On the same day, there was an intangible asset
carried in S at $500,000 but the fair value of it was $800,000.
e. Fair value of the equipment transferred was close to its book value.
Chapter 4 Solutions
Advanced Financial Accounting
Ch. 4 - When is the carrying value of the investment...Ch. 4 - What is a differential? How is a differential...Ch. 4 - Prob. 4.3QCh. 4 - Prob. 4.4QCh. 4 - Prob. 4.5QCh. 4 - Prob. 4.6QCh. 4 - Prob. 4.7QCh. 4 - Prob. 4.8QCh. 4 - Prob. 4.9QCh. 4 - Prob. 4.10Q
Ch. 4 - Prob. 4.11QCh. 4 - What determines whether the balance assigned to...Ch. 4 - What does the termpushdown accountingmean?Ch. 4 - Under what conditions is push-down accounting...Ch. 4 - Prob. 4.15QCh. 4 - Prob. 4.2CCh. 4 - Prob. 4.3CCh. 4 - Prob. 4.4CCh. 4 - Prob. 4.1ECh. 4 - Prob. 4.2ECh. 4 - Prob. 4.3ECh. 4 - Prob. 4.4ECh. 4 - Prob. 4.5ECh. 4 - Prob. 4.6ECh. 4 - Prob. 4.7ECh. 4 - Prob. 4.8ECh. 4 - Prob. 4.9ECh. 4 - Prob. 4.10.1ECh. 4 - Prob. 4.10.2ECh. 4 - Prob. 4.10.3ECh. 4 - Prob. 4.10.4ECh. 4 - Prob. 4.10.5ECh. 4 - Prob. 4.11.1ECh. 4 - Prob. 4.11.2ECh. 4 - Prob. 4.11.3ECh. 4 - Prob. 4.11.4ECh. 4 - Prob. 4.12ECh. 4 - Prob. 4.13ECh. 4 - Prob. 4.14ECh. 4 - Prob. 4.15ECh. 4 - Prob. 4.16ECh. 4 - Prob. 4.17ECh. 4 - Prob. 4.18.1ECh. 4 - Prob. 4.18.2ECh. 4 - Prob. 4.18.3ECh. 4 - Prob. 4.18.4ECh. 4 - Prob. 4.18.5ECh. 4 - Prob. 4.18.6ECh. 4 - Prob. 4.19ECh. 4 - Prob. 4.20ECh. 4 - Prob. 4.21ECh. 4 - Prob. 4.22ECh. 4 - Prob. 4.23ECh. 4 - Prob. 4.24AECh. 4 - Prob. 4.25PCh. 4 - Prob. 4.26PCh. 4 - Prob. 4.27PCh. 4 - Consolidated Balance Sheet Powder Company spent...Ch. 4 - Prob. 4.29PCh. 4 - Prob. 4.30PCh. 4 - Prob. 4.31PCh. 4 - Prob. 4.32PCh. 4 - Prob. 4.33PCh. 4 - Prob. 4.34PCh. 4 - Prob. 4.35PCh. 4 - Prob. 4.36PCh. 4 - Prob. 4.37AP
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