Consolidation: Adjustments to the Balance Sheet Presented below are condensed balance sheets for the ASAP Company and its wholly owned subsidiary, BYOB Inc., at December 31, 1999 (dollars in millions): ASAP Company BYOB Inc. Current assets $ 30 $ 55 Noncurrent assets 210 95 Total $240 $150 Liabilities $110 $ 85 Shareholders’ equity 130 65 Total $240 $150 Required Explain how each of the following […]

Consolidation of Balance Sheets Selected items from the unconsolidated financial statements of Tipton Financial Services, Inc., and its wholly owned subsidiary are provided below. Tipton accounts for its investment in Smartcom, Inc., using the equity method. Its investment cost is equal to Smartcom’s net asset book value (shareholders’ equity). Tipton Smartcom (Dollars in thousands) Total assets (including the investment) $ 420,000 $210,000 Total liabilities 230,000 […]

Statement of Consolidation Policy Cabot Corporation, a producer of specialty chemicals and materials, reported the following accounting policies for inter corporate investments: Principles of Consolidation: The Consolidated Financial Statements include the accounts of Cabot Corporation and majority-owned and controlled domestic and foreign subsidiaries. Investments in majority-owned affiliates where control is temporary and investments in 20 to 50 percent-owned affiliates are accounted for on the equity […]

Effects of Consolidation on Selected Accounts and Ratios Selected items from the unconsolidated financial statements of Mammoth Motors Company and its wholly owned subsidiary, Chattel Credit Corp., are provided below. Mammoth uses the equity method to account for its investment in Chattel, and the investment cost is equal to Chattel’s book value of shareholders’ equity. Mammoth Chattel Motors Co. Credit Corp. (Dollars in millions) Total […]

Interpreting Financial Statements: Affiliated Firms Review Reebok’s financial statements in Appendix E. Required a. Read Notes 1 and 12. Identify any unfamiliar or unusual terms. Match the terms presented in this chapter to the terms used by Reebok. b. Determine whether Reebok’s relationships with its subsidiaries seem to have a significant effect on the firm’s liquidity, profitability, capital structure, or other important dimensions of the […]

Allocation of Acquisition Cost in a Purchase Ronco, Inc. purchased all of the outstanding voting stock of Nanco,Ltd. on January 1, 1999, at a cost of $750 million paid in cash. On the acquisition date, Nanco had the following assets and liabilities (dollars in millions): Book Value Fair Market Value Cash $ 55 $ 55 Other assets 820 950 Liabilities 430 364 Required a. Explain […]

Preparation of Consolidated Balance Sheet at Acquisition Date On January 1, 1999,Tipper Company purchased all of Albert Inc.’s outstanding stock. The post-combination balance sheets of both firms are listed below (dollars in millions): Tipper Company Albert Inc. Cash $ 20 $ 5 Accounts receivable 120 65 Other assets 950 330 Investment in Albert, Inc. 410 — Total assets $1500 $400 Liabilities $650 160 Shareholders’ equity […]

Accounting treatment of property, plant, and equipment (including a sale) On Jan 01, 01, entity E acquires an automobile for CU 24 that represents an item of property, plant, and equipment in E”s operations. Depreciation is calculated according to the straight-line method. Unexpectedly, the automobile is already sold on Jun 30, 02 for CU 20. Version (a) E is a car rental agency. Each year, […]

Scope of the principle of consistency (a) Useful life of a wind-driven power station of entity E was initially estimated to be 16 years. When preparing the financial statements for a later period, it turns out that repairs are necessary more often than originally expected and that there are more down times than previously expected. (b) Contingent liabilities are disclosed in the notes unless the […]

Revaluation of land – without taking deferred tax into account On Jan 01, 01, entity E acquires land for CU 40. Payment is effected in cash on the same day. The piece of land is measured according to the revaluation model after recognition. Revaluations are carried out on an annual basis. Fair value of the land changes as follows: Dec 31, 01 44 Dec 31, […]