高级会计学(第10版)习题答案ch02_Beams10e_sm.pdf

13 Chapter 2 STOCK INVESTMENTS INVESTOR ACCOUNTING AND REPORTING Answers to Questions 1 Only the investors accounts are affected when outstanding stock is acquired from existing stockholders.The investor records the investment at its cost.Since the investee company is not a party to the transaction,its accounts are not affected.Both investor and investee accounts are affected when unissued stock is acquired directly from the investee.The investor records the investment at its cost and the investee adjusts its asset and owners equity accounts to reflect the issuance of previously unissued stock.2 Goodwill arising from an equity investment of 20 percent or more is not recorded separately from the investment account.Under the equity method,the investment is presented on one line of the balance sheet in accordance with the one-line consolidation concept.3 Dividends received from earnings accumulated before an investment is acquired are treated as decreases in the investment account balance under the fair value/cost method.Such dividends are considered a return of a part of the original investment.4 The equity method of accounting for investments increases the investment account for the investors share of the investees income and decreases it for the investors share of the investees losses and for dividends received from the investee.In addition,the investment and investment income accounts are adjusted for amortization of any investment cost-book value differentials related to the interest acquired.Adjustments to the investment and investment income accounts are also needed for unrealized profits and losses from transactions between the investor and investee companies.A fair value adjustment is optional under SFAS No.159.5 The equity method is referred to as a one-line consolidation because the investment account is reported on one line of the investors balance sheet and investment income is reported on one line of the investors income statement(except when the investee has extraordinary or cumulative-effect type adjustments).In addition,the investment income is computed such that the parent companys income and stockholders equity are equal to the consolidated net income and consolidated stockholders equity that would result if the statements of the investor and investee were consolidated.6 If the equity method of accounting is applied correctly,the income of the parent company will generally equal the controlling interest share of consolidated net income.7 The difference in the equity method and consolidation lies in the detail reported,but not in the amount of income reported.The equity method reports investment income on one line of the income statement whereas the details of revenues and expenses are reported in the consolidated income statement.8 The investment account balance of the investor will equal underlying book value of the investee if(a)the equity method is correctly applied,(b)the investment was acquired at book value which was equal to fair value,the pooling method was used,or the cost-book value differentials have all been amortized,and(c)there have been no intercompany transactions between the affiliated companies that have created investment account-book value differences.9 The investment account balance must be converted from the cost to the equity method when acquisitions increase the interest held to 20 percent or more.The amount of the adjustment is the difference between the investment income reported under the cost method in prior years and the income that would have been reported if the equity method of accounting had been used.Changes from the cost to the equity method of accounting for equity investments are changes in the reporting entity that require restatement of prior years financial statements when the effect is material.14 Stock Investments Investor Accounting and Reporting 10 The one-line consolidation is adjusted when the investees income includes extraordinary items,gains or losses from discontinued operations,or cumulative-effect type adjustments.In this case,the investors share of the investees ordinary income is reported as investment income under a one-line consolidation,but the investors share of extraordinary items,cumulative-effect type adjustments,and gains and losses from discontinued operations is combined with similar items of the investor.11 The remaining 15 percent interest in the investee is accounted for under the fair value/cost method,and the investment account balance immediately after the sale becomes the new cost basis.12 Yes.When an investee has preferred stock in its capital structure,the investor has to allocate the investees income to preferred and common stockholders.Then,the investor takes up its share of the investees income allocated to common stockholders in applying the equity method.The allocation is not necessary when the investee has only common stock outstanding.13 Goodwill impairment losses are calculated by business reporting units.For each reporting unit,the company must first determine the fair values of net assets.The fair value of the reporting unit is the amount at which it could be purchased in a current market transaction.This may be based on market prices,discounted cash flow analyses,or similar current transactions.This is done in the same manner as is done to originally record a combination.Any excess measured fair value is the fair value of goodwill.The company then compares the goodwill fair value estimate to the carrying value of goodwill to determine if there has been an impairment during the period.14 Yes.Impairment losses for subsidiaries are computed as outlined in the solution to question 13.Companies compare fair values to book valuers for equity method investments as a whole.Firms may recognize impairments for equity method investments as a whole,but perform no separate goodwill impairment.15 Initial impairment losses recorded upon adoption of SFAS 142 are treated as the cumulative effect of an accounting change.Impairment losses resulting from subsequent annual reviews are included in the calculation of income from operations.Chapter 2 15 SOLUTIONS TO EXERCISES Solution E2-1 1 d 2 c 3 c 4 d 5 b Solution E2-2 AICPA adapted 1 d 2 b 3 d 4 b Grades investment is reported at its$300,000 cost because the equity method is not appropriate and because Grades share of Mediums income exceeds dividends received since acquisition($260,000 15%)$20,000.5 c Dividends received from Zafacon for the two years were$10,500($70,000 15%),but only$9,000(15%of Zafacons income of$60,000 for the two years)is shown on Torquels income statement as dividend income from the Zafacon investment.The remaining$1,500 reduces the investment account balance.6 c$50,000+$150,000+($300,000 10%)7 a 8 d Investment balance January 2$250,000 Add:Income from Pod($100,000 30%)30,000 Investment in Pod December 31$280,000 Solution E2-3 1 Bowmans percentage ownership in Trevor Bowmans 20,000 shares/(60,000+20,000)shares=25%2 Goodwill Investment cost$500,000 Book value acquired($1,000,000+$500,000)25%375,000 Goodwill$125,000 Solution E2-4 Income from Medley for 2009 Share of Medleys income($200,000 1/2 year 30%)$30,000 16 Stock Investments Investor Accounting and Reporting Solution E2-5 1 Income from Oakey Share of Oakeys reported income($800,000 30%)$240,000 Less:Excess allocated to inventory (100,000)Less:Depreciation of excess allocated to building ($200,000/4 years)(50,000)Income from Oakey$90,000 2 Investment account balance at December 31 Cost of investment in Oakey$2,000,000 Add:Income from Oakey 90,000 Less:Dividends (60,000)Investment in Oakey December 31$2,030,000 Alternative solution Underlying equity in Oakey at January 1($1,500,000/.3)$5,000,000 Income less dividends 600,000 Underlying equity December 31 5,600,000 Interest owned 30%Book value of interest owned December 31 1,680,000 Add:Unamortized excess 350,000 Investment in Oakey December 31$2,030,000 Solution E2-6 Journal entry on Martins books Investment in Neighbors 120,000 Loss from discontinued operations 20,000 Income from Kelly 140,000 To recognize income from 40%investment in Neighbors.Chapter 2 17 Solution E2-7 1 a Dividends received from Bennett($120,000 15%)$18,000 Share of income since acquisition of interest 2008($20,000 15%)(3,000)2009($80,000 15%)(12,000)Excess dividends received over share of income$3,000 Investment in Bennett January 3,2008$50,000 Less:Excess dividends received over share of income (3,000)Investment in Bennett December 31,2009$47,000 2 b Cost of 10,000 of 40,000 shares outstanding$1,400,000 Book value of 25%interest acquired($4,000,000 stockholders equity at December 31,2008+$1,400,000 from additional stock issuance)25%1,350,000 Excess fair value over book value(goodwill)$50,000 3 d The investment in Monroe balance remains at the original cost.4 c Income before extraordinary item$200,000 Percent owned 40%Income from Krazy Products$80,000 Solution E2-8 Preliminary computations Cost of 40%interest January 1,2008$2,400,000 Book value acquired($4,000,000 40%)(1,600,000)Excess fair value over book value$800,000 Excess allocated to Inventories$100,000 40%$40,000 Equipment$200,000 40%80,000 Goodwill for the remainder 680,000 Excess fair value over book value$800,000 Raythons underlying equity in Treaton($5,500,000 40%)$2,200,000 Add:Goodwill 680,000 Investment balance December 31,2012$2,880,000 Alternative computation Raythons share of the change in Treatons stockholders equity($1,500,000 40%)$600,000 Less:Excess allocated to inventories($40,000 100%)(40,000)Less:Excess allocated to equipment($80,000/4 years 4 years)(80,000)Increase in investment account 480,000 Original investment 2,400,000 Investment balance December 31,2012$2,880,000 18 Stock Investments Investor Accounting and Reporting Solution E2-9 1 Income from Runner Share of income to common($400,000-$30,000 preferred dividends)30%$111,000 2 Investment in Runner December 31,2009 NOTE:The$50,000 direct costs of acquiring the investment must be expensed when incurred.They are not a part of the cost of the investment.Investment cost$1,200,000 Add:Income from Runner 111,000 Less:Dividends from Runner($200,000 dividends-$30,000 dividends to preferred)30%(51,000)Investment in Runner December 31,2009$1,260,000 Solution E2-10 1 Income from Tree($300,000 100,000)25%Investment income October 1 to December 31$25,000 2 Investment balance December 31 Investment cost October 1$600,000 Add:Income from Tree 25,000 Less:Dividends -Investment in Tree December 31$625,000 Chapter 2 19 Solution E2-11 Preliminary computations Goodwill from first 10%interest:Cost of investment$50,000 Book value acquired($420,000 10%)(42,000)Excess fair value over book value$8,000 Goodwill from second 10%interest:Cost of investment$100,000 Book value acquired($500,000 10%)(50,000)Excess fair value over book value$50,000 1 Correcting entry as of January 2,2009 to convert investment to the equity basis Accumulated gain/loss on stock available for Sale 50,000 Valuation allowance to record SAS at fair Value 50,000 To remove the valuation allowance entered on December 31,2009 under the fair value method for an available for sale security.Investment in Twizzle 8,000 Retained earnings 8,000 To adjust investment account to an equity basis computed as follows:Share of Twizzles income for 2009$20,000 Less:Share of dividends for 2009 (12,000)$8,000 2 Income from Twizzle for 2009 Income from Twizzle on original 10%investment$10,000 Income from Twizzle on second 10%investment 10,000 Income from Twizzle$20,000 20 Stock Investments Investor Accounting and Reporting Solution E2-12 Preliminary computations Stockholders equity of Tall on December 31,2008$380,000 Sale of 12,000 previously unissued shares on January 1,2009 250,000 Stockholders equity after issuance on January 1,2009$630,000 Cost of 12,000 shares to River$250,000 Book value of 12,000 shares acquired$630,000 12,000/36,000 shares 210,000 Excess fair value over book value$40,000 Excess is allocated as follows Buildings$60,000 12,000/36,000 shares$20,000 Goodwill 20,000 Excess fair value over book value$40,000 Journal entries on Rivers books during 2009 January 1 Investment in Tall 250,000 Cash 250,000 To record acquisition of a 1/3 interest in Tall.During 2009 Cash 30,000 Investment in Tall 30,000 To record dividends received from Tall($90,000 1/3).December 31 Investment in Tall 38,000 Income from Tall 38,000 To record investment income from Tall computed as follows:Share of Talls income($120,000 1/3)$40,000 Depreciation on building($20,000/10 years)(2,000)Income from Tall$38,000 Chapter 2 21 Solution E2-13 1 Journal entries on BIPs books for 2009 Cash 30,000 Investment in Crown(30%)30,000 To record dividends received from Crown($100,000 30%).Investment in Crown(30%)60,000 Extraordinary loss(from Crown)6,000 Income from Crown 66,000 To record investment income from Crown computed as follows:Share of income before extraordinary item$170,000 30%$51,000 Add:Excess fair value over cost realized in 2009$50,000 30%15,000 Income from Crown before extraordinary loss$66,000 2 Investment in Crown balance December 31,2009 Investment cost$195,000 Add:Income from Crown after extraordinary loss 60,000 Less:Dividends received from Crown (30,000)Investment in Crown December 31$225,000 Check:Investment balance is equal to underlying book value ($700,000+$150,000-$100,000)30%=$225,000 3 BIP Corporation Income Statement for the year ended December 31,2009 Sales$1,000,000 Expenses 700,000 Operating income 300,000 Income from Crown(before extraordinary item)66,000 Income before extraordinary item 366,000 Extraordinary loss(net of tax effect)6,000 Net income$360,000 Solution E2-14 1 Income from Water for 2009 Equity in income($108,000-$8,000 preferred)40%$40,000 2 Investment in Water December 31,2009 Cost of investment in Water common$290,000 Add:Income from Water 40,000 Less:Dividends (16,000)Investment in Water December 31$314,000 22 Stock Investments Investor Accounting and Reporting Solution E2-15 Since the total value of Steele has declined by$60,000 while the fair value of the net identifiable assets is unchanged,the$60,000 decline is the impairment in goodwill for the period.Assuming this is not the initial adoption of SFAS 142,the$60,000 impairment loss is deducted in calculating Parks income from continuing operations.Solution E2-16 Goodwill impairments are calculated at the business reporting unit level.Increases and decreases in fair values across business units are not offsetting.Flash must report an impairment loss of$5,000 in calculating 2009 income from continuing operations.SOLUTIONS TO PROBLEMS Solution P2-1 1 Goodwill Cost of investment in Telly on April 1$343,000 Book value acquired:Net assets at December 31$1,000,000 Add:Income for 1/4 year($120,000 25%)30,000 Less:Dividends paid March 15 (20,000)Book value at April 1 1,010,000 Interest acquired 30%303,000 Goodwill from investment in Telly$40,000 2 Income from Telly for