Advanced Accounting Part 2 Final Quiz Miami Corporation acquires 80,000 shares of Heat Companys outstanding stock January

y 1, 2013, y gi!ing the fo""o#ing considerations e"o#$ Cash, %2,000,000 &ssued 80,000 shares of common stock #ith a %'0 fair !a"ue during acquisition date( ) contingent payment of %200,000 cash on *ecem er 31, 201+, if the a!erage income of during the 2,year period of 2013 - 201+ e.ceeds %2'0,000 per year( Miami estimates that there is a 30/ percent change or pro a i"ity that the %200,000 payment #i"" e required( Miami a"so agreed to issue additiona" ',000 shares if Heat Company #i"" generate cash f"o#s from operation of %1,000,000( 0he additiona" ',000 shares e.pected to e issued are !a"ued at %31',000(

Heat Company de ited other recei!a "es for the payments made in comp"eting the acquisition( )cquisition costs paid #ere as fo""o#s$ 2rokers fee paid to firm that "ocated Heat )ccountants fee for pre,acquisition 3ega" fee for contract of usiness com ination Cost of 45C registration, inc"uding accounting and "ega" fees %rinting cost of stock certificates issued 6enera" and administrati!e e.penses 10,000 20,000 3',000 20,000 10,000 2',000

7n *ecem er 31, 2012, prior to the usiness com ination, the fo""o#ing data are a!ai"a "e$ Common stock, %20 par Common stock, %20 par %aid in capita" in e.cess of par 8etained earnings Miami %',000,000 2,'00,000 1,'00,000 Heat % 2,000,000 1,180,000 820,000

7n the same date, the current !a"ue of Heat Companys identifia "e assets and "ia i"ities #ere the same as their carrying !a"ues e.cept for the fo""o#ing assets$ )ssets &n!entories 3and 2ui"ding 5quipment Machineries$ Machinery 301 Machinery 101 2onds %aya "e &ncrease 200,000 200,000 200,000 30,000 35,000 *ecrease 2'/ #ere sti"" unso"d year ended 2013( 20 years remaining "ife 100,000 10 years remaining "ife ' years remaining "ife 7 years remaining life 20,000 ' years remaining "ife

)t the date of acquisition the fair !a"ue of non,contro""ing interest is estimated to e %1,'00,000( 7n )ugust 1, 2013, Miami recei!ed the fina" !a"ue of Heats 3and and 2ui"ding from the independent appraisa" if fina" !a"ues are compared #ith the pro!isiona" amount gi!en during acquisition date oth assets are sti"" under!a"ued y %300,000 and %100,000, respecti!e"y( 7n 9o!em er 1, 2013, the pro a i"ity !a"ues that Heat a!erage income #i"" e.ceed %2'0,000 is estimated to increase y +0/(

Inter-company sales of inventory (Under FIFO) $ear 2013 2013 201+ 201+ %old to Miami eat eat Miami %old from eat Miami Miami eat %ales 2:3,2'0 2:2,'00 280,000 210,000 &ost 1=',000 11',000 200,000 1+0,000 'nsold 101,2'0 118,12' 10,000 10',000

&n year 201+, Heat sti"" o#es Miami from intercompany purchases made amounted to %12',000, #hi"e Miami sti"" o#es Heat from purchased made 201+ amounted to %=0,000( Inter-company sale of plant assets 7n January 1, 2013, Miami so"d a ui"ding to Heat for %1,380,000( 0he cost of the ui"ding #as %2,000,000 #ith 2' years usefu" "ife and accumu"ated depreciation of %800,000 on the date of sa"e( 7n Ju"y 1, 2013, Heat so"d "and purchased for %'00,000 t#o years ago to Miami for %1'0,000( >urthermore, 7n )pri" 1, 2013 Miami purchased Heat Machinery,101 for %108,000( 0he machinery #as acquired y Ce"tic January 1, 2010 for %120,000 #ith estimated usefu" "ife of 10 years and no sa"!age !a"ue( Miami used the remaining "ife of the machinery for future depreciation( 7n January 1, 201+, Miami Company so"d equipment to Heat for %8+,000 #ith a ook !a"ue of %:0,000( 0he equipment is e.pected to ha!e a remaining "ife of si. ;:< years from the date of sa"e( 7n Ju"y 1, 201+, Miami so"d Machinery,101 to outsider for % %18,000( 2oth companies are using straight "ine method for depreciation( )dditiona" information &mpairment of good#i"" %200,000 year 2013 and %100,000 year 201+ Miami dec"ared di!idends of %200,000 in year 2013 and on the same year recei!ed di!idends from Heat of %80,000( %rior to conso"idation of Miami and Heat financia" statements, Miami #as gi!en information that Heat met a"" the condition for contingent "ia i"ities agreed during acquisition #ith the o"d stockho"ders( Miami #ith the minority stockho"ders of Heat Company agreed to sett"e a"" contingencies this year 201+( )cquisition costs are sti"" unsett"ed y year end 201+(

0he indi!idua" financia" statements for these t#o companies as of *ecem er 31, 201+ are as fo""o#s$

4a"es Cost of goods so"d 7perating e.penses *i!idends income 3oss on sa"e of machinery 6ain on sa"e of equipment 9et &ncome 8etained 5arnings, January 1, 201+ 9et income *i!idends paid 8etained 5arnings, *ecem er 31, 201+

Miami 1,'1+,200 ;8:',200< ;221,000< =:,000 ;10,000< 2+,000 '32,000 1,='0,000 '32,000 200,000 2,2!2,000

eat 1,'':,2'0 ;110,800< ;20:,+'0<

'1=,000 1,321,000 '1=,000 120,000 ",7!#,000

Miami Current )ssets Cash and cash equi!a"ents 0rade and other recei!a "es &n!entories 0ota" Current )ssets 9on,current )ssets 3and 2ui"ding )ccumu"ated *eprecation , 2ui"ding 5quipment )ccumu"ated *epreciation - 5quipment Machineries )ccumu"ated *epreciation , Machinery &n!estment in Ce"tics 0ota" 9on,current assets 0ota" )ssets *ia+ilities 0rade and other paya "es 2onds %aya "e 0ota" "ia i"ities %toc,-olders. /0uity Common 4tock %aid in capita" in e.cess of par 8etained 5arnings 0ota" stockho"ders? equity 0ota" "ia i"ities and equities 2,0+=,000 1,322,'00 1,+'0,000 (,!2",500

eat 811,000 1,010,000 1,21',000 3,"#2,000

1,=00,000 2,000,000 ;800,000< '20,000 ;312,000< 1,++8,000 ;'30,'00< :,000,000 "0,225,500 "5,0(7,000

'00,000 1,=80,000 ;':,000< 28+,000 ;=+,000< 120,000 ;+',000< 2,#!),000 5,!5",000

1:',000 '00,000 1,2:',000

:8',000 200,000 88',000

:,:00,000 +,=00,000 2,282,000 13,182,000 "5,0(7,000

2,000,000 1,180,000 1,18:,000 +,=::,000 5,!5",000

Ans1er t-e follo1ing2 'nder Full 3ood1ill Quiz " 4anuary ", 20"3 1( 4u sidiary 9et assets at fair !a"ue 2( 6ood#i"" attri uta "e to %arent 3( 6ood#i"" attri uta "e to 9C& +( Conso"idated Common stock '( Conso"idated %aid in capita" ;total) :( Conso"idated 8etained earnings 1( Conso"idated 4tockho"ders 5quity Quiz 2 5 At 6ecem+er 3", 20"3 in 7re7aration of consolidated financial statement, determine t-e follo1ing accounts 1( Conso"idated net income 2( 9C& in the net income of 4u sidiary 3( Conso"idated net income attri uta "e to parent +( 6ood#i"" after impairment "oss '( 0ota" net ad@ustment on %"ant )sset for conso"idated 2a"ance 4heet ;at gross<( :( 0ota" net ad@ustment on )ccumu"ated *epreciation for conso"idated 2a"ance 4heet( 1( Common 4tock 8( %aid in capita" ;total) =( 8etained 5arnings 10( 9C& in the net assets of 4u sidiary Quiz 3 At 6ecem+er 3", 20"( in 7re7aration of consolidated financial statement, determine t-e follo1ing accounts 1( 6ain on sa"es of "and - in the consolidated income statement 2( 6ainA;"oss< on sa"e of machinery - in the consolidated income statement 3( 4a"es +( Cost of goods so"d '( 7perating e.penses :( 9et income 1( 9et income attri uta "e to parent 8( 9et income attri uta "e to 9C& =( 8etained 5arnings 10( Common stock 11( %aid in Capita" ;total) 12( 9C& in the net asset of 4u sidiary 13( Conso"idated 0ota" )ssets 1+( Conso"idated 0ota" 3ia i"ities 1'( Conso"idated 4tockho"ders 5quity

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