Professional Documents
Culture Documents
The title of each problem is followed by the estimated time in minutes required for completion and by a
difficulty rating. The time estimates are applicable for students using the partially filled-in working papers.
SOLUTIONS TO EXERCISES
Ex. 10–1 1. b 8. b
2. d 9. e
3. b 10. d
4. b 11. b
5. a 12. c
6. a 13. d
The McGraw-Hill Companies, Inc., 2006
72 Modern Advanced Accounting, 10/e
7. b 14. b
Ex. 10–2 Computation of goodwill and minority interest in net assets of subsidiary, Apr. l, 2006:
500
Goodwill: $65,400 + $10,000 – $22,800 x = $67,800
1,500 *
1,000
Minority interest: $22,800 x = $15,200
1,500
*Parent company’s 85% interest indicates minority interest of 15%, or 1,500 shares (10,000 x
0.15 = 1,500).
Ex. 10–3 Computation of nonoperating gain to Prester Company, Jan. 3, 2005:
Minority
Prester’s interest
Total share share
Carrying amount of Shire Company’s
identifiable net assets after common stock
10 2
issuance to public $51,000 12 $42,500 12 $8,500
Ex. 10–5 a. Aggregate call price of preferred stock (100,000 x $1.10) $110,000
Add: Cumulative preferred dividends in arrears ($8,000 x 2) 16,000
Total callable value of preferred stock $126,000
Portion acquired by Panay Corporation equals amount of total cost
assignable to preferred stock ($126,000 x 0.50) $ 63,000
CASES
Case 10–1 The belief of Wayne Cartwright that SEC pronouncements should prevail over preferences of the
FASB tentatively appears contrary to the evidence derived from the references cited in the case. For
example, Section l0l of the SEC’s Codification of Financial Reporting Policies includes the
following:
Various Acts of Congress administered by the Securities and Exchange Commission clearly
state the authority of the Commission to prescribe the methods to be followed in the
preparation of accounts and the form and content of financial statements to be filed under the
20 05
Dec 29 Intercompany Dividends Receivable [(400,000 –
20,000) x $0.10] 3 8 0 0 0
Investment in Showboat Company Common
Stock 3 8 0 0 0
To record dividend declared by Showboat Company,
payable in Year 2006.
20 07
Oct 31 Intercompany Dividends Receivable [(9,800 + 1,000) x
$2] 2 1 6 0 0
Investment in Salton Company Common
Stock 2 1 6 0 0
To record dividend declared by Salton Company.
b. Pumble Corporation
Working Paper Eliminations
October 31, 2007
(a) Common Stock—Salton ($10,000 + $1,000) 1 1 0 0 0
Additional Paid-in Capital—Salton ($60,000 + $19,000) 7 9 0 0 0
Retained Earnings—Salton [($80,000 + $40,000 –
$10,000) x 0.02] 2 2 0 0
Retained Earnings of Subsidiary—Pumble ($78,400 +
$39,200 – $9,800) 1 0 7 8 0 0
Intercompany Investment Income—Pumble ($35,000 x
0.9818) 3 4 3 6 3
Investment in Salton Company Common
Stock—Pumble ($176,400 + $19,960* +
$34,363 – $21,600) 2 0 9 1 2 3
Dividends Declared—Salton (11,000 x $2) 2 2 0 0 0
Minority Interest in Net Assets of Subsidiary
[$2,800 + $800 + $40 – (200 x $2)] 3 2 4 0
To eliminate intercompany investment and related
accounts for stockholders’ equity of subsidiary at
beginning of year, and investment income from
subsidiary; and to establish minority interest in net
assets of subsidiary at beginning of year, less minority
interest in dividends.
20 06
Mar 1 Cash 3 2 0 0 0
Common Stock (2,000 x $1) 2 0 0 0
Paid-in Capital in Excess of Par 3 0 0 0 0
To record issuance of 2,000 shares of common stock
to Pronto Corporation.
b. Pronto Corporation
Computation of Balance of Investment in Speedy Company Common Stock
Ledger Account
March 1, 2006
Balance, Feb. 28, 2006 $ 7 5 0 0 0
Add: Acquisition of 2,000 shares, Mar. 1, 2006 3 2 0 0 0
Subtotal $ 1 0 7 0 0 0
Less: Nonoperating loss on acquisition of 2,000 shares
[$32,000 – [($132,000 x 0.66 2/3) – ($100,000 x
0.60)]} 4 0 0 0
Balance. Mar 1, 2006 $ 1 0 3 0 0 0
Note to Instructor: There is no goodwill or other asset amortization associated with Pomerania
Corporation’s Investment in Sylvania Company because the investments were equal to the carrying
amount of the stock acquired, computed as follows:
Carrying amount
and cost
Preferred stock:
$50,000
$50,000 + x $100,000 x 0.10 $ 7,000
$250,000
Common stock:
$200,000
$200,000 + x $100,000 x 0.70 $196,000
$ 250,000
b. Plover Corporation
Adjusting Entry
December 31, 2006
Other Plant Assets 5 7 0 0 0
Intercompany Payables 5 7 0 0 0
To record liability to subsidiary for costs and earnings
on contract for construction in progress on Dec. 31, 2006
computed as follows:
Cost $45,000
Add: Earnings[($95,000 – $75,000) x 45/75] 12,000
Total costs and earnings $57,000