Exam 8: Investing Activities

Pop,Inc.acquires 100% of the outstanding shares of Snap Corp.for $3,923,450 and accounts for the transaction using the purchase method.The purchase price Pop paid for Snap exceeded Snap's book value for four reasons: 1.Snap's long-term depreciable assets have a market value of $1,250,000. 2.Deferred income taxes of $125,000 arise from the excess of market value over the book value of the depreciable assets. 3.Pop assigns a value of $90,000 to Snap's customer list and records it as an intangible asset. 4.Goodwill exists equal to the difference between the acquisition cost and the market value of the identifiable assets and liabilities acquired. Information about Pop and Snap's balance sheet at the acquisition date and the current market value of Snap's assets appears below: Consolidated Fintancial Information Pop, Inc. and Snap Corp. Acquisition Date Assets Current Assets Depreciable Assetsless Accumulated Depreciation Intangible Asset - Customer List Goodwill Total Assets Liabilities and Equities Liabilities Deferred Income Tax Liability Shareholders' Equity Total Liabilities and Equities Snap at Current Historical Historical Market Cost-Pop Cost-Snap Value \ 4,230,600 \ 1,330,000 \ 1,330,000 \ 7,245,000 \ 945,000 \ 1,250,000 \ 0 \ 0 \ 90,000 \ 0 \ 0 \ 11,475,600 \ 2,275,000 \ 6,100,600 \ 1,670,000 \ 1,670,000 \ 0 \ 0 \ 125,000 \ 5,375,000 \ 605,000 \ 11,475,600 \ 2,275,000 Consolidater at Date of Acq Required: Complete the table for Snap's current market values and the consolidated amounts at the date of acquisition.

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:

Six years ago Moline Industries acquired a new machine to use in its primary manufacturing operations.The machine cost $47 million and the company expected the machine to have a ten-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 $12 million.Based on the quoted market prices of similar assets,Moline estimates the fair value of the machine at $10.5 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?

Under the equity method the investor's share of investee income ____________________ the investment account and dividends ____________________ the investment account.

___________________________________ include trade and brand names,trademarks,patents,copyrights,franchise rights,customer lists and goodwill.

GAAP stipulates that firms should do what with expenditures that increase the service potential of an asset beyond that originally anticipated?

When the purchase price of another entity exceeds the book value of the entity's net assets the purchaser allocates the excess to identifiable assets and liabilities in order to revalue them to market value and any additional excess is allocated to ____________________.

An analyst can estimate the average total life of depreciable assets by:

Carlson Company began constructing a building for its own use in January 2012.During 2012,Carlson incurred interest of $75,000 on specific construction debt and $16,750 on other borrowings.Interest computed on the weighted-average amount of accumulated expenditures for the building during 2012 as $55,000 Required: What amount of interest should Carlson capitalize?

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

Assume that Morrison Company used cash to acquire machinery expected to contribute to the generation of revenues over a three-year period and the company erroneously expensed the cost to acquire the machine. Required: a.Describe the effects on ROA of the error over the three-year period. b.Explain how the error would affect the statement of cash flows.

Firms that capitalize routine maintenance and repair charges will end up with the result of having the current period's income being ____________________.

All of the following are types of intercorporate investments in capital stock except:

Ashley Company 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,passive investment and classifies it as an available-for-sale security,then the investment will appear in the December 31,2010 balance sheet at what amount?

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 Euras =\ 0.99 Average far 2012 1 Euras =\ 0.98 December 31, 2012 1 Eures =\ 1.10 Determine the amount of the unrealized translation gain or loss United should record for 2012 with respect to Estada.

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

When a firm can exercise control or significantly influence the operations of a company it has only a minority interest in,it should account for the investment using the ______________________________.

Under IFRS,when an asset is revalued upwards,subsequent depreciation is based on: 

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.For the year ended December 31,2011,Olivia should report income related to the investment equal to:

Coffee Corp.purchased 45% of the outstanding shares of Cream Corp.for $1,845,000.The investment allows Coffee to exert significant influence over the operations of Cream.During 2011 Cream recognized net income of $2,500,000 and paid $650,000 in dividends.Discuss how Coffee should account for its investment in Cream and how the information would appear in Coffee's balance sheet,income statement,and cash flow statement.