THE PROBLEM
Part 1 THE PROBLEM: (70 Pts)
Thomas, the President of "Thomas' Turkey Corporation" (Turkey), a fabric material company, gobbled up "The Best Stuffing Company "(Stuffing), a pillow manufacturer, when Turkey paid $33,600 cash for a 70% interest in Stuffing on January 1, 2012, when Stuffing's stockholders’ equity consisted of $20,000 Capital Stock and $10,000 of Retained Earnings.
Stuffing' s Assets and Liabilities were tailored specifically for this acquisition and had total Fair Market Value differentials as follows at the time of acquisition:
Inventory was undervalued by $3,000 and were sold evenly over a three year period starting at the date of acquisition
Plant Assets with a 5 yr life were overvalued by $5,000
Trade Marks with a 20 yr life and $6,000 in value were not recorded
A mortgage with 10 yrs of remaining payments were overvalued by $1,000
Any remaing difference in Cost vs Book was attributed to Goodwill
Additional information:
1. Turkey sold feathers that cost $6,000 to Stuffing for $8,000 during 2012 and one-half of these feathers remained in stock by Stuffing on December 31, 2012.
2. During 2013 Turkey Corporation sold feathers that cost $8,000 to Stuffing for $10,000 and 30% of these feathers remained unsold by Stuffing on December 31, 2013. Stuffing Company owed Turkey $2,000 on account at year-end 2013.
3. Turkey Corporation sold a plucking machine with a 5-year remaining life and a book value of $4,000 to Stuffing for $5,000 on July 1, 2013. Straight-line depreciation is used.
4. On Sept 1, 2013 Stuffing shaved the price to $5,000 on a turkey feather trimming machine it sold to Turkey when the trimming machine had a book value of $7,000 with a 10 year remaining life.
5. Turkey and Stuffing declared annual dividends in 2013 of $10,000 and $4,000, respectively so that their shareholders could share in the gravy.
6. Separate financial statements for Turkey and Stuffing appear on partially completed consolidation working papers.
7. In 2012, Stuffing made net income of $10,000 and paid dividends of $2,000
Required:
So before you start, since you are doing 20"13", make a wish using a "Turkey Wishbone" and then:
Please prepare all the required carryforward schedules for the above Consolidation
We need to put the Stuffing back into the Turkey as a consolidated group as of December 31, 2013. So please complete the working papers to consolidate the financial statements for 2013 including all entries required in good journal form. Also prepare all proofs that you deem necessary (please note I am looking for your discretion on what you should prove but I believe there is a minimum that you need to do, so use your professional judgment and hopefully you will do all the right ones). If you believe there is an error in the underlying accounting of the parent's equity accounting please make the appropriate correcting entry.
Part 2 (30 Pts):
Explain the 7 major classes of Eliminating entries. Just dont state what we do, I can see that by looking at the entry, tell me the theory of why you are doing it. Also if there is a major class that we dont have any entries for explain that major class anyways.
Extra Credit:
On January 1, 2012, Tidal Wave, Co. purchased 70% of the outstanding voting common stock of Colony, Inc., for $2,100,000. The book value of Colony's net equity on that date was $3,000,000. Book values were equal to fair values except as follows:
Assets & Liabilities Book Values Fair Values
Inventory (sold current year) $200,000 $225,000
Building (10 year life Straight line) 850,000 750,000
Note payable (Due in 5 years) 300,000 320,000
Do all the underlying accounting of the Parent for both years including but not limited to all the general journal entries in good form, and the T accounts for both the "investment" accounting and "the income from Sub". Also include anything else as a good accountant would!!!
kindy
assignment.xlsx
