Exam 7: Investing Activities

Olivia Co. owns 4,000 of the 10,000 outstanding shares of Hobbitt Corp. common stock and exercises significant influence over the company. During 2011, Hobbitt earns $80,000 and pays cash dividends of $30,000. If the beginning balance in the investment account was $160,000, the balance at December 31, 2011 should be:

United owns Estada, a European based subsidiary for which the Euro is the functional currency. Estada had a net asset position at January 1, 2012 of 1,200,000 Euros and reported income of 350,000 Euros for 2012, which was earned evenly throughout the year. In addition, Estada paid 100,000 Euros of dividends at December 31, 2012. The following were in effect during 2012: January 1,2012 1 Euros =\ 0.99 Average for 2012 1 Euros =\ 0.98 Dectmber 31, 2012 1 Euros =\ 1.10 Determine the amount of the unrealized translation gain or loss United should record for 2012 with respect to Estada.

Unrealized holding gains or losses which are recognized in the income statement are from securities classified as

Penguin, Inc. acquires 100% of the outstanding shares of Snowflake Corp. for $2,250,000 and accounts for the transaction using the purchase method. Snowflake's balance sheet at the acquisition date is as follows: $\text {Snowtiake, Corp.}$ $\text {Balance Slieet}$ $\text {Acquisition Date}$ Current Historical Manket Cost Value Assets Current Assets \9 00,000 \9 00,000 Depreciable Assetsless Accumulated Depreciation \8 75,000 \1 ,250,000 Goodwill Total Assets \1 ,775,000 Liabilities and Equities Liabilities \1 ,100,000 \1 ,100,000 Deferred Income Tax Liability \1 25,000 \1 25,000 Shareholders' Equity \5 50,000 Total Liabilities and Equities \1 ,775,000 - Based on the information concerning Snowflake Corp. what is the value of the goodwill related to the acquisition?

Record Corporation. CD Inc. acquires 100% of the outstanding shares of Record Corp. for $1,200,000 and accounts for the transaction using the purchase method. Record Corp's balance sheet at the date of acquisition appears below: Record, Corp. Balance Sheet Accuisition Date Current Historical Market Cost Value Assets Cash \ 479,000 \ 479,000 Accounts Receivable 225,400 210,000 Inventory 98,900 105,000 Depreciable Assets less Accumulated 554,700 600,000 Depreciation Note Receivable 100,000 100,000 Goodwill Total Assets \ 1,458,000 Liabilities and Equities Accounts Payable \ 458,000 458,000 Note Payable 325,000 325,000 Deferred Income Tax Liability 125,000 125,000 Shareholders Equity 550,000 Total Liabilities and Equities \1 ,458,000 - Based on the information concerning Record Corp. what is the market value of the company's shareholders' equity at the acquisition date?

The ____________________ method views a corporate acquisition as conceptually identical to the purchase of any single asset.

Unrealized holding gains and losses from investments classified as available for sale are reported in _____________________________________________.

Assume that Hsu Company needs to acquire a large special-purpose materials handling facility. Given that no outside vendor exists for this type of facility and that the company has available engineering, management, and productive capacity, the Hsu borrows funds and builds the facility. Identify the costs that should be capitalized as part of this facility.

Expenditures included in the cost of a long-lived asset are

When a foreign entity has the U.S. dollar as its functional currency, it uses which exchange rate to translate monetary assets and liabilities?

Managers are typically faced with all of the following primary choices and estimates when allocating acquisition costs of tangible assets and intangible assets to the periods benefited except:

Under which of the following scenarios would an entity not be classified as a variable interest entity?

Caruso Company incurred the following costs during 2012 in connection with its research and development activities. Cost of equipment acquired that will have alternative uses in future R\&D projects over the next 4 years (uses straight-line depreciation) \2 20,000 Materials consumed in R\&D projects 67,000 Consulting fees paid to outsiders for R\&D projects 80,000 Personnel costs of persons involved in R\&D projects 108,000 Indirect costs reasonably allocable to R\&D projects 45,000 Materials purchased for future R\&D projects 34,000 REQUIRED: Compute the amount to be reported as research and development expense by Caruso on its income statement for 2012. (Assume equipment is purchased at the beginning of the year and economic viability has not been achieved.)

When one company acquires another company it may not be able to estimate the potential losses inherent in the acquired assets or the potential liability of the acquired company, for these reasons the acquirer may establish ________________________________________.

Buchaneer Co., a waste collection company, estimates that its landfill will be in operation for five years and will cost $300 million to build, with generation of $900 million in revenues during its useful life. According to Federal Law, Buchaneer must decommission and decontaminate the site at the end of its useful life. Based on estimates by its engineers, Buchaneer will have to spend $20 million on this process when the landfill is finally shut down in five years. Buchaneer's credit adjusted rate of interest is 10%. (Hint: Use PV factors to estimate fair value of this ARO.) Required: 1. In accounting for asset retirement obligations, how should Buchaneer account for the costs associated with this decommisioning process according to U.S. GAAP? Show journal entries and prepare an amortization table. 2. How should these costs be reported on the income statement and how does this treatment improve the matching process?

Ashley Company purchased 2,000 of the 10,000 outstanding shares of Judd, Inc.'s common stock for $60,000 on January 1, 2010. During 2010, Judd declared a dividend of $5 per share and reported net income of $75,000. At the end of 2010 the market value of a share of Judd, Inc. stock has increased to $32 per share. - If Ashley Company accounts for the investment as a minority, active investment and uses the equity method to account for the investment, Ashley will recognize what amount of 2010 income from the investment?

Six years ago Moline Industries acquired a new machine to use in it primary manufacturing operations. The machine cost $45 million and the company expected the machine to have a nine-year useful life with a zero salvage value. The company uses straight-line depreciation for the asset. However, because of changes within the industry, Moline reevaluated the machine at the end of Year 6 and estimated that the machine is capable of generating undiscounted future cash flows of $11 million. Based on the quoted market prices of similar assets, Moline estimates the fair value of the machine at $9.5 million. Required: 1. What is the machine's book value at the end of Year 6? 2. Should Moline recognize an impairment of the asset? Why or why not? If yes, what amount? 3. At the end of Year 6, what amount should the machine be listed at on Moline's balance sheet?

A company would need to record an impairment loss for its equipment when

Using the information below calculate the average total depreciable life of the assets: $\text { Information from the Balance Sheet: }$ 2012 2011 Depreciable Assets \ 475,000 \ 385,000 Accumulated Depreciation Depreciable Assets(Net) \3 25,000 \ 290,000 From the Income Statement 2012 Depreciation Expense \4 7,000

Interpretation No. 46R relates to the issue of whether an investing firm is the primary beneficiary in a variable-interest entity. When is an entity classified as a variable interest entity?