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    Advanced Accounting: Platte Co., River Co., Kim Corp. consolidations

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    1. On 1/1/02, Platte acquired 80% of River Co. The purchase resulted in a differential of $120,000, half of which was assigned to a patent and the other half assigned to inventory. The patent is being amortized over a 5 year period. The inventory was sold during 2002 to an unrelated party.

    During 2002, River sold to Platte inventory for $1,000,000. The inventory cost River
    $700,000. By 12/31/02, ¼ of this inventory was still held by Platte, and was sold to unrelated parties in 2003. Both companies use perpetual systems.

    The results of operations for 2002 are as follows:

    Platte $1,750,000
    River 1,100,000
    Total $2,850,000

    Required:
    a. Give the entry needed to eliminate the effects of the intercompany inventory transfer for 2002.
    b. Compute 2002 Consolidated Income
    c. Compute income to Minority Interest for 2002.
    d. Give entry needed for 2003 to eliminate the effects of the 2002 inventory transfer.
    e. Give the entries needed for 2002 and 2003 to eliminate the effects of the intercompany transfer of inventory assuming the use of periodic systems.

    a. Sales 1,000,000
    COGS 925,000
    Inventory 75,000

    b. Plate's income 1,750,000
    Amortization of patent (12,000)
    Platte's consolidated income 1,738,000
    River's income 1,100,000
    Less: unrealized profit (75,000)
    1,025,000
    Platte's share x .80 820,000
    Consolidated income 2,558,000

    c. River's income 1,100,000
    Minority portion x .20
    Income to minority interest 220,000

    d. No entry is required.

    e. ? I don't know which entry would be appropriate one.

    2. On 7/1/96, Kim Corp. purchased bonds of Locke Co., its 80% owned subsidiary. The bonds were purchased directly from Locke. The face value of the bonds was $1,000,000, with a 12% nominal rate and a 10 year maturity. The bonds were issued at 103. Interest is payable semiannually at 1/1 and 7/1. Both companies use SL amortization. On 1/1/04, Locke retired ½ of the bonds at par.

    a. Give the elimination entries related to this debt appearing for 1996.
    b. Give the elimination entries related to this debt appearing for 2004.

    a. Bonds payable 1,000,000
    Premium on bonds 28,500
    Investment in Locke 1,028,000

    Interest income 58,500
    Interest expense 58,500

    Interest payable 60,000
    Interest receivable 60,000

    b. Bonds payable 500,000
    Loss on retirement of bonds 18,750
    Discount on bonds payable 3,750
    Investment in Locke 515,000

    Bonds payable 500,000
    Interest income 58,500
    Retained earnings 15,000
    Minority interest 3,750
    Discount on bonds payable 2,250
    Investment in Locke's bonds 513,500
    Interest expense 61,500

    Interest payable 60,000
    Interest receivable 60,000

    3. On 1/1/02, Gild Co. purchased 60% of Leeds Co. at Book Value. At the time of acquisition, Leeds has stock of $1,000,000, and retained earnings of $800,000.

    On 12/31/02, Gild bought 50% of Leeds' bonds outstanding which had been issued on
    1/2/99, at 99. The total issue has a Face Value of $600,000, pays a nominal rate of 10%
    annually, and has a 10 year maturity. Leeds uses a SL method for amortization. Gild paid
    $306,000 for the bonds and will hold them until maturity.

    Income and dividends for 2002 and 2003 are as follows:

    Gild Leeds
    Income Dividends Income Dividends
    2002 $1,600,000 $400,000 $600,000 $300,000
    2003 1,200,000 400,000 1,000,000 300,000

    a. Present the elimination entries for 2002 and 2003, assuming the cost method is used by Gild.
    b. Present the elimination entries for 2002 and 2003, assuming the equity method is used by Gild.

    a. 2002 E1 Dividend income 180,000
    Dividend declared 180,000
    E2 Income to minority interest 236,880
    Dividends declared 120,000
    Minority interest 116,880
    E3 Common stock-Leeds 1,000,000
    Retained earnings, 1/1, 800,000
    Investment in Leeds 1,080,000
    Minority interest 720,000
    E4 Bonds payable 300,000
    Loss on retirement 7,800
    Discount on bonds payable 1,800
    Investment in Leeds 306,000
    a. 2003 E1 Dividend income 180,000
    Dividend declared 180,000
    E2 Income to minority interest 397,400
    Dividends declared 120,000
    Minority interest 277,400
    E3 Common stock-Leeds 1,000,000
    Retained earnings, 1/1, 800,000
    Investment in Leeds 1,080,000
    Minority interest 720,000
    E4 Retained earnings, 1/1,
    Minority interest
    E5 Bonds payable 300,000
    Retained earnings, 1/1, 7,680
    Interest income 29,000
    Minority interest 3,120
    Interest expense 30,300
    Investment in Leeds 305,000
    Discount on bonds 1,500

    b. 2002 E1 Income from subsidiary 360,000
    Dividends declared 180,000
    Investment in Leeds 180,000
    E2 Income to minority interest 236,880
    Dividends declared 120,000
    Minority interest 116,880
    E3 Common stock-Leeds 1,000,000
    Retained earnings, 1/1, 800,000
    Investment in Leeds stock 1,080,000
    Minority interest 720,000
    E4 Bonds payable 300,000
    Loss on retirement 7,800
    Investment in Leeds bonds 306,000
    Discount on bonds payable 1,800

    b. 2003 E1 Income from subsidiary 600,000
    Dividends declared 180,000
    Investment in Leeds stock 420,000

    E2 Income to minority interest 397,400
    Dividends declared 120,000
    Minority interest 277,400
    E3 Common stock-Leeds 1,000,000
    Retained earnings, 1/1, 1,100,000
    Investment in Leeds stock 1,260,000
    Minority interest 840,000
    E4 Bonds payable 300,000
    Interest income 29,000
    Retained earnings 4,680
    Minority interest 3,120
    Discount on bonds payable 1,500
    Investment in Leeds bonds 305,000
    Interest expense 30,300

    4. On 1/1/01, Dale Industries issued $800,000 of 10 year bonds with a coupon rate of 7%, to unrelated parties at 103. Interest is paid on 6/30 and 12/31. Dale's subsidiary, Martin Tech, acquired the bonds at 97 on 7/1/03, and plans to hold them to maturity. The straight line method of amortizing premiums/discounts is used.

    a. Compute the gain/loss from constructive retirement that should be recognized in the consolidated income statement for 2003
    b. Prepare all eliminating entries related to intercompany debt that would appear in the work papers to prepare consolidated financial statements for 2003 and 2004.

    a. Book Value of Dale's bonds 818,000
    Price paid by Martin (776,000)
    Gain on retirement of bonds 42,000

    b. 2003 Bonds payable 800,000
    Premium on bonds payable 16,800
    Interest income 28,000
    Investment in Dale's bonds 776,000
    Interest expense 26,800
    Gain on bonds 42,000

    2004 Bonds payable 800,000
    Premium on bonds payable 14,400
    Interest income 58,400
    Investment in Dale's bonds 778,400
    Interest expense 54,200
    Retained earnings 40,200

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    https://brainmass.com/business/purchases-inventory-and-cogs/advanced-accounting-platte-co-river-co-kim-corp-consolidations-132403

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