BA 459
Advanced Accounting: Beams, Clement, Anthony, Lowensohn
Floyd A. Beams
Robin P. Clement
Joseph H. Anthony
Suzanne Lowensohn
9th Edition 10th Edition
Chapter 3
Exercise 3-3 (E3-3)
[AICPA adapted] General problems
Use the following information in answering questions 1 and 2:
Apex Company acquired 70% of the outstanding stock of Nadir Corporation. The separate balance sheet of Apex immediately after the acquisition and the consolidated balance sheet are as follows:
Apex Consolidated
Current assets $106,000 $146,000
Investment in Nadir—cost 100,000 —
Goodwill — 8,100
Fixed assets—net 270,000 370,000
$476,000 $524,100
Current liabilities $ 15,000 $ 28,000
Capital stock 350,000 350,000
Minority interest — 35,100
Retained earnings 111,000 111,000
$476,000 $524,100
Of the excess payment for the investment in Nadir, $10,000 was ascribed to undervaluation of its fixed assets. The balance of the excess payment was ascribed to goodwill. Current assets of Nadir included a $2,000 receivable from Apex, which arose before they became related on an ownership basis. The following two items relate to Nadir’s separate balance sheet prepared at the time Apex acquired its 70% interest in Nadir.
1. What was the total of the current assets on Nadir’s separate balance sheet immediately before Apex acquired its 70% interest?
2. What was the total stockholders’ equity on Nadir’s separate balance sheet at the time Apex acquired its 70% interest?
3. Cobb Company’s current receivables from affiliated companies at December 31, 2006, are (1) a $75,000 cash advance to Hill Corporation (Cobb owns 30% of the voting stock of Hill and accounts for the investment by the equity method), (2) a receivable of $260,000 from Vick Corporation for administrative and selling services (Vick is 100% owned by Cobb and is included in Cobb’s consolidated financial statements), and (3) a receivable of $200,000 from Ward Corporation for merchandise sales on credit (Ward is a 90%-owned, unconsolidated subsidiary of Cobb accounted for by the equity method). In the current assets section of its December 31, 2006, consolidated balance sheet, Cobb should report accounts receivable from investees in the amount of:
Use the following information in answering questions 4 and 5:
On January 1, 2006, Owen Corporation purchased all of Sharp Corporation’s common stock for $1,200,000. On that date, the fair values of Sharp’s assets and liabilities equaled their carrying amounts of $1,320,000 and $320,000, respectively. Owen’s policy is to amortize intangibles other than goodwill over 10 years. During 2006, Sharp paid cash dividends of $20,000.
Selected information from the separate balance sheets and income statements of Owen and Sharp as of December 31, 2006, and for the year then ended follows (in thousands):
Owen Sharp Balance Sheet Accounts
Investment in subsidiary $1,320 —
Retained earnings 1,240 $ 560
Total stockholders’ equity 2,620 1,120
Income Statement Accounts
Operating income $ 420 $ 200
Equity in earnings of Sharp 140 —
Net income 400 140
4. In Owen’s 2006 consolidated income statement, what amount should be reported for amortization of goodwill?
5. In Owen’s December 31, 2006, consolidated balance sheet, what amount should be reported as total retained earnings?
6. Wright Corporation has several subsidiaries that are included in its consolidated financial statements. In its December 31, 2006, trial balance, Wright had the following intercompany balances before eliminations:
Debit Credit
Current receivable due from Main Co. $ 32,000
Noncurrent receivable from Main 114,000
Cash advance from Corn Corp. 6,000
Cash advance from King Co. $ 15,000
Intercompany payable to King 101,000
7. In its December 31, 2006, consolidated balance sheet, what amount should Wright report as intercompany receivables?
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