Question 1

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King Corp.owns 80% of Kong Corp and uses the cost method to account for its investment,which it acquired on January 1,2009.The Financial Statements of King Corp and Kong Corp for the Year ended December 31,2009 are shown below:  Other Information:
$\bullet$King sold a tract of Land to Kong at a profit of $10,000 during 2009.This land is still the property of Kong Corp.
$\bullet$On January 1,2009,Kong sold equipment to King at a price that was $20,000 higher than its book value.The equipment had a remaining useful life of 4 years from that date.
$\bullet$On January 1,2009 King's inventories contained items purchased from Kong for $10,000.This entire inventory was sold to outsiders during the year.Also during 2009,King sold Inventory to Kong for $50,000.Half this inventory is still in Kong's warehouse at year end.All sales are priced at a 25% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Kong's Retained Earnings on the date of acquisition amounted to $250,000.There have been no changes to the company's common shares account.
$\bullet$Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a Fair value that was $20,000 higher than its book value.This inventory was sold to outsiders during 2009.
▫ A Patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $15,000.The patent had an estimated useful life of 3 years.
▫ There was a goodwill impairment loss of $4,000 during 2009.
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization.
-Ignoring taxes,what is the total amount of pre-tax profit from intercompany inventory sales that was realized during 2009?

Accepted Answer

The answer of The following information pertains to questions
King Corp.owns...

Question 2

The following information pertains to questions
Ting Corp.owns 75% of Won Corp and uses the Cost Method to account for its Investment,which it acquired on January 1,2010 The Financial Statements of Ting Corp and Won Corp for the Year ended December 31,2010 are shown below:  Other Information:
$\bullet$Won sold a tract of land to Ting at a profit of $20,000 during 2010.This land is still the property of Ting Corp.
$\bullet$On January 1,2010,Won sold equipment to Ting at a price that was $20,000 lower than its book value.The equipment had a remaining useful life of 5 years from that date.
$\bullet$On January 1,2010,Won's inventories contained items purchased from Ting for $120,000.This entire inventory was sold to outsiders during the year.Also during 2010,Won sold inventory to Ting for $30,000.Half this inventory is still in Ting's warehouse at year end.All sales are priced at a 20% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Won's Retained Earnings on the date of acquisition amounted to $400,000.There have been no changes to the company's common shares account.
$\bullet$Won's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a fair value that was $50,000 higher than its book value
▫ A patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $20,000.The patent had an estimated useful life of 5 years.
▫ There was a goodwill impairment loss of $10,000 during 2010
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization exclusively.
▫ On January 1,2010,Ting acquired half of Won's bonds for $60,000
▫ The bonds carry a coupon rate of 10% and mature on January 1,2030.The initial bond issue took place on January 1,2010.The total discount on the issue date of the bonds was $20,000.
▫ Gains and losses from intercompany bondholdings are to be allocated to the two companies when consolidated statements are prepared.
-What would be the carrying value of the bonds payable appearing on Ting's December 31,2010 Consolidated Statement of Financial Position?

Accepted Answer

The answer of The following information pertains to questions
Ting Corp.owns...

Question 3

The following information pertains to questions
King Corp.owns 80% of Kong Corp and uses the cost method to account for its investment,which it acquired on January 1,2009.The Financial Statements of King Corp and Kong Corp for the Year ended December 31,2009 are shown below:  Other Information:
$\bullet$King sold a tract of Land to Kong at a profit of $10,000 during 2009.This land is still the property of Kong Corp.
$\bullet$On January 1,2009,Kong sold equipment to King at a price that was $20,000 higher than its book value.The equipment had a remaining useful life of 4 years from that date.
$\bullet$On January 1,2009 King's inventories contained items purchased from Kong for $10,000.This entire inventory was sold to outsiders during the year.Also during 2009,King sold Inventory to Kong for $50,000.Half this inventory is still in Kong's warehouse at year end.All sales are priced at a 25% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Kong's Retained Earnings on the date of acquisition amounted to $250,000.There have been no changes to the company's common shares account.
$\bullet$Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a Fair value that was $20,000 higher than its book value.This inventory was sold to outsiders during 2009.
▫ A Patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $15,000.The patent had an estimated useful life of 3 years.
▫ There was a goodwill impairment loss of $4,000 during 2009.
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization.
-What would be the non-controlling interest amount appearing on King's Consolidated Income Statement for 2009?

Accepted Answer

To calculate the non-controlling interest amount, we need to first calculate the net income of Kong Corp for the year ended December 31, 2009:
Net Income = ($500,000 - $200,000 - $20,000 + $20,000 + $15,000 - $4,000) x 80% = $248,000
Next, we need to calculate the share of net income attributable to the non-controlling interest:
Non-controlling Interest = $248,000 x 20% = $49,600
Finally, we subtract the non-controlling interest from the net income to find the amount attributable to the controlling interest on King's Consolidated Income Statement:
Controlling Interest = $248,000 - $49,600 = $198,400
Therefore, the non-controlling interest amount appearing on King's Consolidated Income Statement for 2009 would be $12,000 (Option C) - calculated as 20% of Kong's net income.

Question 4

The following information pertains to questions
Ting Corp.owns 75% of Won Corp and uses the Cost Method to account for its Investment,which it acquired on January 1,2010 The Financial Statements of Ting Corp and Won Corp for the Year ended December 31,2010 are shown below:  Other Information:
$\bullet$Won sold a tract of land to Ting at a profit of $20,000 during 2010.This land is still the property of Ting Corp.
$\bullet$On January 1,2010,Won sold equipment to Ting at a price that was $20,000 lower than its book value.The equipment had a remaining useful life of 5 years from that date.
$\bullet$On January 1,2010,Won's inventories contained items purchased from Ting for $120,000.This entire inventory was sold to outsiders during the year.Also during 2010,Won sold inventory to Ting for $30,000.Half this inventory is still in Ting's warehouse at year end.All sales are priced at a 20% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Won's Retained Earnings on the date of acquisition amounted to $400,000.There have been no changes to the company's common shares account.
$\bullet$Won's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a fair value that was $50,000 higher than its book value
▫ A patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $20,000.The patent had an estimated useful life of 5 years.
▫ There was a goodwill impairment loss of $10,000 during 2010
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization exclusively.
▫ On January 1,2010,Ting acquired half of Won's bonds for $60,000
▫ The bonds carry a coupon rate of 10% and mature on January 1,2030.The initial bond issue took place on January 1,2010.The total discount on the issue date of the bonds was $20,000.
▫ Gains and losses from intercompany bondholdings are to be allocated to the two companies when consolidated statements are prepared.
-What amount of sales revenue would appear on Ting's Consolidated Income Statement for the year ended December 31,2010?

Accepted Answer

The answer of The following information pertains to questions
Ting Corp.owns...

Question 5

The following information pertains to questions
King Corp.owns 80% of Kong Corp and uses the cost method to account for its investment,which it acquired on January 1,2009.The Financial Statements of King Corp and Kong Corp for the Year ended December 31,2009 are shown below:  Other Information:
$\bullet$King sold a tract of Land to Kong at a profit of $10,000 during 2009.This land is still the property of Kong Corp.
$\bullet$On January 1,2009,Kong sold equipment to King at a price that was $20,000 higher than its book value.The equipment had a remaining useful life of 4 years from that date.
$\bullet$On January 1,2009 King's inventories contained items purchased from Kong for $10,000.This entire inventory was sold to outsiders during the year.Also during 2009,King sold Inventory to Kong for $50,000.Half this inventory is still in Kong's warehouse at year end.All sales are priced at a 25% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Kong's Retained Earnings on the date of acquisition amounted to $250,000.There have been no changes to the company's common shares account.
$\bullet$Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a Fair value that was $20,000 higher than its book value.This inventory was sold to outsiders during 2009.
▫ A Patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $15,000.The patent had an estimated useful life of 3 years.
▫ There was a goodwill impairment loss of $4,000 during 2009.
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization.
-What would be the amount appearing for accumulated depreciation - equipment on King's 2009 Consolidated Statement of Financial Position?

Accepted Answer

Since King Corp uses the cost method to account for its investment in Kong Corp, the equipment that was sold by Kong Corp to King Corp on January 1, 2009, is recorded at its cost of $20,000 higher than its book value. Therefore, the accumulated depreciation for the equipment would also be based on the book value. The book value of the equipment at January 1, 2009, would be its cost ($120,000) minus accumulated depreciation ($80,000) which is $40,000. Since the remaining useful life of the equipment is 4 years, the annual depreciation would be $20,000 ($40,000/4). Therefore, the accumulated depreciation for 2009 would be $80,000 (4 years x $20,000 per year). Thus, the amount appearing for accumulated depreciation - equipment on King's 2009 Consolidated Statement of Financial Position would be $395,000 ($475,000 - $80,000).

Question 6

The following information pertains to questions
King Corp.owns 80% of Kong Corp and uses the cost method to account for its investment,which it acquired on January 1,2009.The Financial Statements of King Corp and Kong Corp for the Year ended December 31,2009 are shown below:  Other Information:
$\bullet$King sold a tract of Land to Kong at a profit of $10,000 during 2009.This land is still the property of Kong Corp.
$\bullet$On January 1,2009,Kong sold equipment to King at a price that was $20,000 higher than its book value.The equipment had a remaining useful life of 4 years from that date.
$\bullet$On January 1,2009 King's inventories contained items purchased from Kong for $10,000.This entire inventory was sold to outsiders during the year.Also during 2009,King sold Inventory to Kong for $50,000.Half this inventory is still in Kong's warehouse at year end.All sales are priced at a 25% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Kong's Retained Earnings on the date of acquisition amounted to $250,000.There have been no changes to the company's common shares account.
$\bullet$Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a Fair value that was $20,000 higher than its book value.This inventory was sold to outsiders during 2009.
▫ A Patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $15,000.The patent had an estimated useful life of 3 years.
▫ There was a goodwill impairment loss of $4,000 during 2009.
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization.
-Ignoring income taxes and any minority interest effects,what is the amount of unrealized profit remaining from the intercompany sale of equipment at December 31,2009?

Accepted Answer

The unrealized profit is the difference between the selling price and the book value of the equipment. The selling price is $100,000 and the book value is $85,000, so the unrealized profit is $15,000.

Question 7

The following information pertains to questions
Ting Corp.owns 75% of Won Corp and uses the Cost Method to account for its Investment,which it acquired on January 1,2010 The Financial Statements of Ting Corp and Won Corp for the Year ended December 31,2010 are shown below:  Other Information:
$\bullet$Won sold a tract of land to Ting at a profit of $20,000 during 2010.This land is still the property of Ting Corp.
$\bullet$On January 1,2010,Won sold equipment to Ting at a price that was $20,000 lower than its book value.The equipment had a remaining useful life of 5 years from that date.
$\bullet$On January 1,2010,Won's inventories contained items purchased from Ting for $120,000.This entire inventory was sold to outsiders during the year.Also during 2010,Won sold inventory to Ting for $30,000.Half this inventory is still in Ting's warehouse at year end.All sales are priced at a 20% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Won's Retained Earnings on the date of acquisition amounted to $400,000.There have been no changes to the company's common shares account.
$\bullet$Won's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a fair value that was $50,000 higher than its book value
▫ A patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $20,000.The patent had an estimated useful life of 5 years.
▫ There was a goodwill impairment loss of $10,000 during 2010
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization exclusively.
▫ On January 1,2010,Ting acquired half of Won's bonds for $60,000
▫ The bonds carry a coupon rate of 10% and mature on January 1,2030.The initial bond issue took place on January 1,2010.The total discount on the issue date of the bonds was $20,000.
▫ Gains and losses from intercompany bondholdings are to be allocated to the two companies when consolidated statements are prepared.
-What effect would the intercompany bond sale have on Ting?

Accepted Answer

The answer of The following information pertains to questions
Ting Corp.owns...

Question 8

The following information pertains to questions
Ting Corp.owns 75% of Won Corp and uses the Cost Method to account for its Investment,which it acquired on January 1,2010 The Financial Statements of Ting Corp and Won Corp for the Year ended December 31,2010 are shown below:  Other Information:
$\bullet$Won sold a tract of land to Ting at a profit of $20,000 during 2010.This land is still the property of Ting Corp.
$\bullet$On January 1,2010,Won sold equipment to Ting at a price that was $20,000 lower than its book value.The equipment had a remaining useful life of 5 years from that date.
$\bullet$On January 1,2010,Won's inventories contained items purchased from Ting for $120,000.This entire inventory was sold to outsiders during the year.Also during 2010,Won sold inventory to Ting for $30,000.Half this inventory is still in Ting's warehouse at year end.All sales are priced at a 20% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Won's Retained Earnings on the date of acquisition amounted to $400,000.There have been no changes to the company's common shares account.
$\bullet$Won's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a fair value that was $50,000 higher than its book value
▫ A patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $20,000.The patent had an estimated useful life of 5 years.
▫ There was a goodwill impairment loss of $10,000 during 2010
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization exclusively.
▫ On January 1,2010,Ting acquired half of Won's bonds for $60,000
▫ The bonds carry a coupon rate of 10% and mature on January 1,2030.The initial bond issue took place on January 1,2010.The total discount on the issue date of the bonds was $20,000.
▫ Gains and losses from intercompany bondholdings are to be allocated to the two companies when consolidated statements are prepared.
-What effect would the intercompany bond sale have on Won?

Accepted Answer

When Ting acquired half of Won's bonds for $60,000 on January 1, 2010, it means that Won received $60,000 in cash. As a result of the intercompany bond sale, Won will have a loss of $10,000, which is the difference between the $60,000 proceeds from the bond sale and the $70,000 carrying value of the bonds. (Carrying value = face value - discount amortization = $100,000 - [$20,000 ÷ 20 years] × 1 year = $70,000)

Question 9

The following information pertains to questions
Ting Corp.owns 75% of Won Corp and uses the Cost Method to account for its Investment,which it acquired on January 1,2010 The Financial Statements of Ting Corp and Won Corp for the Year ended December 31,2010 are shown below:  Other Information:
$\bullet$Won sold a tract of land to Ting at a profit of $20,000 during 2010.This land is still the property of Ting Corp.
$\bullet$On January 1,2010,Won sold equipment to Ting at a price that was $20,000 lower than its book value.The equipment had a remaining useful life of 5 years from that date.
$\bullet$On January 1,2010,Won's inventories contained items purchased from Ting for $120,000.This entire inventory was sold to outsiders during the year.Also during 2010,Won sold inventory to Ting for $30,000.Half this inventory is still in Ting's warehouse at year end.All sales are priced at a 20% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Won's Retained Earnings on the date of acquisition amounted to $400,000.There have been no changes to the company's common shares account.
$\bullet$Won's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a fair value that was $50,000 higher than its book value
▫ A patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $20,000.The patent had an estimated useful life of 5 years.
▫ There was a goodwill impairment loss of $10,000 during 2010
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization exclusively.
▫ On January 1,2010,Ting acquired half of Won's bonds for $60,000
▫ The bonds carry a coupon rate of 10% and mature on January 1,2030.The initial bond issue took place on January 1,2010.The total discount on the issue date of the bonds was $20,000.
▫ Gains and losses from intercompany bondholdings are to be allocated to the two companies when consolidated statements are prepared.
-What would be the amount of other revenue appearing on Ting's Consolidated Income Statement for the Year ended December 31,2010?

Accepted Answer

The correct amount of other revenue is $840,000, which is the total revenue from sources other than the primary business activities, as reported in Ting's Consolidated Income Statement for the year ended December 31, 2010.

Question 10

The following information pertains to questions
Ting Corp.owns 75% of Won Corp and uses the Cost Method to account for its Investment,which it acquired on January 1,2010 The Financial Statements of Ting Corp and Won Corp for the Year ended December 31,2010 are shown below:  Other Information:
$\bullet$Won sold a tract of land to Ting at a profit of $20,000 during 2010.This land is still the property of Ting Corp.
$\bullet$On January 1,2010,Won sold equipment to Ting at a price that was $20,000 lower than its book value.The equipment had a remaining useful life of 5 years from that date.
$\bullet$On January 1,2010,Won's inventories contained items purchased from Ting for $120,000.This entire inventory was sold to outsiders during the year.Also during 2010,Won sold inventory to Ting for $30,000.Half this inventory is still in Ting's warehouse at year end.All sales are priced at a 20% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Won's Retained Earnings on the date of acquisition amounted to $400,000.There have been no changes to the company's common shares account.
$\bullet$Won's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a fair value that was $50,000 higher than its book value
▫ A patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $20,000.The patent had an estimated useful life of 5 years.
▫ There was a goodwill impairment loss of $10,000 during 2010
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization exclusively.
▫ On January 1,2010,Ting acquired half of Won's bonds for $60,000
▫ The bonds carry a coupon rate of 10% and mature on January 1,2030.The initial bond issue took place on January 1,2010.The total discount on the issue date of the bonds was $20,000.
▫ Gains and losses from intercompany bondholdings are to be allocated to the two companies when consolidated statements are prepared.
-The amount of goodwill arising from this business combination is

Accepted Answer

The answer of The following information pertains to questions
Ting Corp.owns...

Question 11

The following information pertains to questions
King Corp.owns 80% of Kong Corp and uses the cost method to account for its investment,which it acquired on January 1,2009.The Financial Statements of King Corp and Kong Corp for the Year ended December 31,2009 are shown below:  Other Information:
$\bullet$King sold a tract of Land to Kong at a profit of $10,000 during 2009.This land is still the property of Kong Corp.
$\bullet$On January 1,2009,Kong sold equipment to King at a price that was $20,000 higher than its book value.The equipment had a remaining useful life of 4 years from that date.
$\bullet$On January 1,2009 King's inventories contained items purchased from Kong for $10,000.This entire inventory was sold to outsiders during the year.Also during 2009,King sold Inventory to Kong for $50,000.Half this inventory is still in Kong's warehouse at year end.All sales are priced at a 25% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Kong's Retained Earnings on the date of acquisition amounted to $250,000.There have been no changes to the company's common shares account.
$\bullet$Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a Fair value that was $20,000 higher than its book value.This inventory was sold to outsiders during 2009.
▫ A Patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $15,000.The patent had an estimated useful life of 3 years.
▫ There was a goodwill impairment loss of $4,000 during 2009.
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization.
-Ignoring income taxes and any minority interest effects,what is the amount of profit realized during 2009 from the intercompany sale of equipment?

Accepted Answer

The profit realized from the intercompany sale of equipment is the difference between the sale price and the book value of the equipment. If the sale price was $5,000 more than the book value, then the profit is $5,000.

Question 12

The following information pertains to questions
King Corp.owns 80% of Kong Corp and uses the cost method to account for its investment,which it acquired on January 1,2009.The Financial Statements of King Corp and Kong Corp for the Year ended December 31,2009 are shown below:  Other Information:
$\bullet$King sold a tract of Land to Kong at a profit of $10,000 during 2009.This land is still the property of Kong Corp.
$\bullet$On January 1,2009,Kong sold equipment to King at a price that was $20,000 higher than its book value.The equipment had a remaining useful life of 4 years from that date.
$\bullet$On January 1,2009 King's inventories contained items purchased from Kong for $10,000.This entire inventory was sold to outsiders during the year.Also during 2009,King sold Inventory to Kong for $50,000.Half this inventory is still in Kong's warehouse at year end.All sales are priced at a 25% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Kong's Retained Earnings on the date of acquisition amounted to $250,000.There have been no changes to the company's common shares account.
$\bullet$Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a Fair value that was $20,000 higher than its book value.This inventory was sold to outsiders during 2009.
▫ A Patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $15,000.The patent had an estimated useful life of 3 years.
▫ There was a goodwill impairment loss of $4,000 during 2009.
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization.
-What would be the amount of consolidated patents appearing on King's Consolidated Statement of Financial Position as at December 31,2009?

Accepted Answer

The answer of The following information pertains to questions
King Corp.owns...

Question 13

The following information pertains to questions
King Corp.owns 80% of Kong Corp and uses the cost method to account for its investment,which it acquired on January 1,2009.The Financial Statements of King Corp and Kong Corp for the Year ended December 31,2009 are shown below:  Other Information:
$\bullet$King sold a tract of Land to Kong at a profit of $10,000 during 2009.This land is still the property of Kong Corp.
$\bullet$On January 1,2009,Kong sold equipment to King at a price that was $20,000 higher than its book value.The equipment had a remaining useful life of 4 years from that date.
$\bullet$On January 1,2009 King's inventories contained items purchased from Kong for $10,000.This entire inventory was sold to outsiders during the year.Also during 2009,King sold Inventory to Kong for $50,000.Half this inventory is still in Kong's warehouse at year end.All sales are priced at a 25% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Kong's Retained Earnings on the date of acquisition amounted to $250,000.There have been no changes to the company's common shares account.
$\bullet$Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a Fair value that was $20,000 higher than its book value.This inventory was sold to outsiders during 2009.
▫ A Patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $15,000.The patent had an estimated useful life of 3 years.
▫ There was a goodwill impairment loss of $4,000 during 2009.
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization.
-What is the amount of unamortized acquisition differential on December 31,2009?

Accepted Answer

The unamortized acquisition differential is the excess of the cost of the investment over the book value of Kong Corp on the date of acquisition, adjusted for any impairments or fair value adjustments.

The cost of the investment is not provided in the information given, but since King Corp owns 80% of Kong Corp and acquired the investment using the cost method, it can be assumed that the cost is 80% of the book value of Kong Corp on the date of acquisition.

On the date of acquisition, Kong Corp's book value was equal to the sum of its common shares and retained earnings, which totaled $250,000. Since there have been no changes to the common shares account, the book value of Kong Corp at the end of 2009 is still $250,000.

Therefore, the cost of King Corp's investment is $200,000 (80% of $250,000) and the unamortized acquisition differential is $10,000 ($210,000 - $200,000).

Question 14

The following information pertains to questions
King Corp.owns 80% of Kong Corp and uses the cost method to account for its investment,which it acquired on January 1,2009.The Financial Statements of King Corp and Kong Corp for the Year ended December 31,2009 are shown below:  Other Information:
$\bullet$King sold a tract of Land to Kong at a profit of $10,000 during 2009.This land is still the property of Kong Corp.
$\bullet$On January 1,2009,Kong sold equipment to King at a price that was $20,000 higher than its book value.The equipment had a remaining useful life of 4 years from that date.
$\bullet$On January 1,2009 King's inventories contained items purchased from Kong for $10,000.This entire inventory was sold to outsiders during the year.Also during 2009,King sold Inventory to Kong for $50,000.Half this inventory is still in Kong's warehouse at year end.All sales are priced at a 25% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Kong's Retained Earnings on the date of acquisition amounted to $250,000.There have been no changes to the company's common shares account.
$\bullet$Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a Fair value that was $20,000 higher than its book value.This inventory was sold to outsiders during 2009.
▫ A Patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $15,000.The patent had an estimated useful life of 3 years.
▫ There was a goodwill impairment loss of $4,000 during 2009.
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization.
-Ignoring taxes,what is the total amount of unrealized profits in inventory at the start of 2010?

Accepted Answer

King sold inventory to Kong at a 25% markup above cost, and half of this inventory was still with Kong at the year-end. Therefore, the unrealized profit in inventory at the start of 2010 would be half of the $40,000 cost of the inventory sold to Kong ($50,000 x 0.25 x 0.5 = $6,250). However, King had purchased inventory from Kong for $10,000, which had been sold to outsiders during the year. As a result, the unrealized profit would be reduced by this amount ($6,250 - $2,250 = $4,000). Additionally, King had sold a tract of land to Kong at a profit of $10,000 during the year, which would need to be adjusted. Therefore, the total amount of unrealized profits in inventory at the start of 2010 would be $10,000 - $6,250 + $2,250 = $5,000.

Question 15

The following information pertains to questions
Ting Corp.owns 75% of Won Corp and uses the Cost Method to account for its Investment,which it acquired on January 1,2010 The Financial Statements of Ting Corp and Won Corp for the Year ended December 31,2010 are shown below:  Other Information:
$\bullet$Won sold a tract of land to Ting at a profit of $20,000 during 2010.This land is still the property of Ting Corp.
$\bullet$On January 1,2010,Won sold equipment to Ting at a price that was $20,000 lower than its book value.The equipment had a remaining useful life of 5 years from that date.
$\bullet$On January 1,2010,Won's inventories contained items purchased from Ting for $120,000.This entire inventory was sold to outsiders during the year.Also during 2010,Won sold inventory to Ting for $30,000.Half this inventory is still in Ting's warehouse at year end.All sales are priced at a 20% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Won's Retained Earnings on the date of acquisition amounted to $400,000.There have been no changes to the company's common shares account.
$\bullet$Won's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a fair value that was $50,000 higher than its book value
▫ A patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $20,000.The patent had an estimated useful life of 5 years.
▫ There was a goodwill impairment loss of $10,000 during 2010
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization exclusively.
▫ On January 1,2010,Ting acquired half of Won's bonds for $60,000
▫ The bonds carry a coupon rate of 10% and mature on January 1,2030.The initial bond issue took place on January 1,2010.The total discount on the issue date of the bonds was $20,000.
▫ Gains and losses from intercompany bondholdings are to be allocated to the two companies when consolidated statements are prepared.
-What effect would the intercompany bond sale have on Ting's December 31,2010 Consolidated Income Statement?

Accepted Answer

The intercompany bond sale would result in a gain of $5,000 for Ting because the bonds were sold at a price that was higher than their carrying value.

Question 16

The following information pertains to questions
King Corp.owns 80% of Kong Corp and uses the cost method to account for its investment,which it acquired on January 1,2009.The Financial Statements of King Corp and Kong Corp for the Year ended December 31,2009 are shown below:  Other Information:
$\bullet$King sold a tract of Land to Kong at a profit of $10,000 during 2009.This land is still the property of Kong Corp.
$\bullet$On January 1,2009,Kong sold equipment to King at a price that was $20,000 higher than its book value.The equipment had a remaining useful life of 4 years from that date.
$\bullet$On January 1,2009 King's inventories contained items purchased from Kong for $10,000.This entire inventory was sold to outsiders during the year.Also during 2009,King sold Inventory to Kong for $50,000.Half this inventory is still in Kong's warehouse at year end.All sales are priced at a 25% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Kong's Retained Earnings on the date of acquisition amounted to $250,000.There have been no changes to the company's common shares account.
$\bullet$Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a Fair value that was $20,000 higher than its book value.This inventory was sold to outsiders during 2009.
▫ A Patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $15,000.The patent had an estimated useful life of 3 years.
▫ There was a goodwill impairment loss of $4,000 during 2009.
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization.
-What would be the amount appearing on the December 31,2009 Consolidated Statement of Financial Position for cost of goods sold?

Accepted Answer

The answer of The following information pertains to questions
King Corp.owns...

Question 17

The following information pertains to questions
King Corp.owns 80% of Kong Corp and uses the cost method to account for its investment,which it acquired on January 1,2009.The Financial Statements of King Corp and Kong Corp for the Year ended December 31,2009 are shown below:  Other Information:
$\bullet$King sold a tract of Land to Kong at a profit of $10,000 during 2009.This land is still the property of Kong Corp.
$\bullet$On January 1,2009,Kong sold equipment to King at a price that was $20,000 higher than its book value.The equipment had a remaining useful life of 4 years from that date.
$\bullet$On January 1,2009 King's inventories contained items purchased from Kong for $10,000.This entire inventory was sold to outsiders during the year.Also during 2009,King sold Inventory to Kong for $50,000.Half this inventory is still in Kong's warehouse at year end.All sales are priced at a 25% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Kong's Retained Earnings on the date of acquisition amounted to $250,000.There have been no changes to the company's common shares account.
$\bullet$Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a Fair value that was $20,000 higher than its book value.This inventory was sold to outsiders during 2009.
▫ A Patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $15,000.The patent had an estimated useful life of 3 years.
▫ There was a goodwill impairment loss of $4,000 during 2009.
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization.
-What would be the amount appearing on the December 31,2009 Consolidated Statement of Financial Position for inventories?

Accepted Answer

The correct amount for inventories on the Consolidated Statement of Financial Position is $295,000, as it reflects the accurate valuation after considering any necessary adjustments or eliminations in the consolidation process.

Question 18

The following information pertains to questions
King Corp.owns 80% of Kong Corp and uses the cost method to account for its investment,which it acquired on January 1,2009.The Financial Statements of King Corp and Kong Corp for the Year ended December 31,2009 are shown below:  Other Information:
$\bullet$King sold a tract of Land to Kong at a profit of $10,000 during 2009.This land is still the property of Kong Corp.
$\bullet$On January 1,2009,Kong sold equipment to King at a price that was $20,000 higher than its book value.The equipment had a remaining useful life of 4 years from that date.
$\bullet$On January 1,2009 King's inventories contained items purchased from Kong for $10,000.This entire inventory was sold to outsiders during the year.Also during 2009,King sold Inventory to Kong for $50,000.Half this inventory is still in Kong's warehouse at year end.All sales are priced at a 25% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Kong's Retained Earnings on the date of acquisition amounted to $250,000.There have been no changes to the company's common shares account.
$\bullet$Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a Fair value that was $20,000 higher than its book value.This inventory was sold to outsiders during 2009.
▫ A Patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $15,000.The patent had an estimated useful life of 3 years.
▫ There was a goodwill impairment loss of $4,000 during 2009.
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization.
-What would be the amount appearing on the December 31,2009 Consolidated Statement of Financial Position for land?

Accepted Answer

The answer of The following information pertains to questions
King Corp.owns...

Question 19

The following information pertains to questions
King Corp.owns 80% of Kong Corp and uses the cost method to account for its investment,which it acquired on January 1,2009.The Financial Statements of King Corp and Kong Corp for the Year ended December 31,2009 are shown below:  Other Information:
$\bullet$King sold a tract of Land to Kong at a profit of $10,000 during 2009.This land is still the property of Kong Corp.
$\bullet$On January 1,2009,Kong sold equipment to King at a price that was $20,000 higher than its book value.The equipment had a remaining useful life of 4 years from that date.
$\bullet$On January 1,2009 King's inventories contained items purchased from Kong for $10,000.This entire inventory was sold to outsiders during the year.Also during 2009,King sold Inventory to Kong for $50,000.Half this inventory is still in Kong's warehouse at year end.All sales are priced at a 25% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Kong's Retained Earnings on the date of acquisition amounted to $250,000.There have been no changes to the company's common shares account.
$\bullet$Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a Fair value that was $20,000 higher than its book value.This inventory was sold to outsiders during 2009.
▫ A Patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $15,000.The patent had an estimated useful life of 3 years.
▫ There was a goodwill impairment loss of $4,000 during 2009.
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization.
-What would be the non-controlling Interest amount appearing on King's Consolidated Statement of Financial Position at the START of 2009?

Accepted Answer

The non-controlling interest at the start of 2009 would be the amount that represents the portion of the subsidiary not owned by the parent company, which is typically calculated based on the subsidiary's equity at the acquisition date. In this case, it is $125,000.

Question 20

The following information pertains to questions
King Corp.owns 80% of Kong Corp and uses the cost method to account for its investment,which it acquired on January 1,2009.The Financial Statements of King Corp and Kong Corp for the Year ended December 31,2009 are shown below:  Other Information:
$\bullet$King sold a tract of Land to Kong at a profit of $10,000 during 2009.This land is still the property of Kong Corp.
$\bullet$On January 1,2009,Kong sold equipment to King at a price that was $20,000 higher than its book value.The equipment had a remaining useful life of 4 years from that date.
$\bullet$On January 1,2009 King's inventories contained items purchased from Kong for $10,000.This entire inventory was sold to outsiders during the year.Also during 2009,King sold Inventory to Kong for $50,000.Half this inventory is still in Kong's warehouse at year end.All sales are priced at a 25% mark-up above cost,regardless of whether the sales are internal or external.
$\bullet$Kong's Retained Earnings on the date of acquisition amounted to $250,000.There have been no changes to the company's common shares account.
$\bullet$Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
▫ Inventory had a Fair value that was $20,000 higher than its book value.This inventory was sold to outsiders during 2009.
▫ A Patent (which had not previously been accounted for)was identified on the acquisition date with an estimated fair value of $15,000.The patent had an estimated useful life of 3 years.
▫ There was a goodwill impairment loss of $4,000 during 2009.
▫ Both companies are subject to an effective tax rate of 40%.
▫ Both companies use straight line amortization.
-What would be the amount appearing on the December 31,2009 Consolidated Statement of Financial Position for future income taxes?

Accepted Answer

Since King Corp uses the cost method to account for its investment in Kong Corp, there would be no goodwill recognized on the consolidated statement of financial position. However, the difference between the book value and the fair value of Kong's inventory would result in a temporary difference that will reverse in the future when the inventory is sold. Additionally, the profit on the intercompany land sale and the excess acquisition price of the equipment will also result in temporary differences. Therefore, future income taxes will need to be recognized on these temporary differences. The total amount of these temporary differences is $12,000 ($20,000 + $10,000 - $18,000). Thus, the answer is B.

Quiz 7: Aintercompany Profits in Depreciable Assets