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Part A Equipment 180,000 Difference between Implied and Book Value 180,000

Part A Equipment 180,000 Difference between Implied and Book Value 180,000 Depreciation Expense ($180,000/10) 18,000 Accumulated Depreciation 18,000. Part B Allocated to Equipment = 180000 ÷ 10/15 = 270,000

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Part A Equipment 180,000 Difference between Implied and Book Value 180,000

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  1. Part A Equipment 180,000 Difference between Implied and Book Value 180,000 Depreciation Expense ($180,000/10) 18,000 Accumulated Depreciation 18,000

  2. Part B Allocated to Equipment = 180000 ÷10/15 = 270,000 Allocated to Accumulated Depreciation = 270,000 * 5/15= 90,000 Equipment 270,000 Accumulated Depreciation 90,000 Difference (IV&BV) 180,000 Depreciation Expense ($180,000/10) 18,000 Accumulated Depreciation 18,000

  3. Exercise 5-3 Part A Investment in Saddler Corporation 525,000 Cash 525,000

  4. Part B (1) Common Stock207,000 Beginning Retained Earnings- 130,500 Difference (IV&BV) 12,500 Investment in Salem Company 260,000 Noncontrolling interest 65,000 • (2) Difference (IV&BV) 12,500 • Inventory 5,000 • Current Assets 5,000 • Equipment (net) 50,000 • Gain on acquisition 58,000 • Noncontrollinginterest 14,500

  5. aPresent Value on 1/1/2010 of 10% Bonds Payable Discounted at 8% over 5 periods Principal ($500,000 * 0.68058) $340,290 Interest ($50,000 * 3.99271) 199,636 Fair value of bond $539,926 Face value of bond 500,000 Bond premium 39,926

  6. Land 20,000 Goodwill 319,926 Unamortized Premium on Bonds Payable 39,926 Difference between (IV&BV) 300,000 Unamortized Premium on Bonds Payable 6,806 Interest Expense ($50,000 – ($539,926 * 0.08)) 6,806 a Effective Interest (($539,926 * 0.08)$(43,194) Nominal Interest (0.10 * $500,000) 50,000 Difference $6806

  7. Exercise 5-10

  8. a Present Value on 1/2/2007 of 9% Bonds Payable Discounted at 6% for 5 periods Principal ($500,000 *0.74726) $373,630 Interest ($45,000 * 4.21236) 189,556 Fair value of bond $563,186 Face value of bond 500,000 Premium on bond payable 63,186

  9. Land 80,000 Goodwill 372,075 Unamortized Premium on Bonds Payable 63,186 Difference between(IV&BV) 388,889 Unamortized Premium on Bonds Payable 11,209 Interest Expense 11,209a aEffective Interest (0.06 *$563,186) $(33,791) Nominal Interest (0.09 * $500,000) 45,000 Difference 11,209

  10. Exercise 5-11

  11. Part 1 – Cost Method 2010 (1) Dividend Income 16,000 Dividends Declared (0.80 ×$20,000) 16,000 To eliminate intercompany dividends

  12. 2) Beginning Retained Earnings700,000 Capital Stock1,800,000 Difference between Implied and Book Value 345,000 Investment in Sand Company 2,276,000 Noncontrolling interest 569,000 (3) Cost of Goods Sold (Beginning Inventory) 45,000 Equipment (net) 50,000 Goodwill 250,000 Difference between (IV&BV) 345,000 (4) Depreciation Expense ($50,000/8) 6,250 Equipment (net) 6,250

  13. 2011 (1) Investment in Sand Company ($80,000 ×0.80) 64,000 Beginning Retained Earnings 64,000 To establish reciprocity/convert to equity method as of 1/1/2008 (2) Dividend Income ($30,000 *0.80) 24,000 Dividends Declared 24,000 To eliminate intercompany dividends (3) Beginning Retained Earnings ($700,000 + $100,000 – $20,000) 780,000 Capital Stock1,800,000 Difference between Implied and Book Value 345,000 Investment in Sand Company ($2,276,000 + $64,000) 2,340,000 NCI ($569,000 + 16000) 585,000

  14. (4) Beginning Retained Earnings-Piper Company 36,000 NoncontrollingInterest 9,000 Equipment (net) 50,000 Goodwill 250,000 Difference between Implied and Book Value 345,000 (5) Beginning Retained Earnings-Piper Company 5,000 NoncontrollingInterest 1,250 Depreciation Expense ($50,000/8) 6,250 Equipment (net) 12,500

  15. 2012 (1) Investment in Sand Company ($200,000 *0.80) 160,000 Beginning Retained Earnings-Piper Company 160,000 To establish reciprocity/convert to equity method as of 1/1/2009 (2) Dividend Income ($15,000 * 0.80) 12,000 Dividends Declared 12,000 To eliminate intercompany dividends (3) Beginning Retained Earnings($780,000 + $150,000 – $30,000) 900,000 Common Stock- Sand Company 1,800,000 Difference between Implied and Book Value 345,000 Investment ($2,276,000 + $160,000) 2,436,000 NCI ($569,000 + ($900,000 – $700,000) x 0.20) 609,000 To eliminate investment account and create noncontrolling interest account

  16. (4) Beginning Retained Earnings-Piper Company 36,000 Noncontrolling Interest 9,000 Equipment (net) 50,000 Goodwill 250,000 Difference between (IV&BV) 345,000 (5) Beginning Retained Earnings-Piper Company 10,000 Noncontrolling Interest 2,500 Depreciation Expense ($50,000/8) 6,250 Equipment (net) 18,750

  17. (1) Investment in Saxton Corporation 225,000 Beginning Retained Earnings-Palm Inc. 225,000 To establish reciprocity/convert to equity (0.90 *($1,250,000 – $1,000,000))

  18. (2) Beginning Retained Earnings-Saxton Co.1/1/2012 1,250,000 Capital Stock- Saxton Co. 3,000,000 Difference between Implied and Book Value 166,667 Investment ($3,750,000 + $225,000) 3,975,000 NoncontrollingInterest 441,667 To eliminate the investment amount and create noncontrolling interest account (3) Beginning Retained Earnings-Palm Inc. 90,000 Noncontrolling Interest 10,000 Land 400,000 Difference between (IV&BV) 166,667 Gain on Acquisition 300,000 Noncontrolling Interest 33,333 To allocate and depreciate the difference between implied and book value

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