Solution Manual for Advanced Accounting, 12th Edition

Solution Manual for Advanced

Accounting, 12th Edition
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 $100,000 ($900,000 – $800,000) resulting (a) The equipment and building will be re-
from the excess of the price paid over the fair stated at $180,000 and $550,000 on
value. Semos will record the removal of its the comparative 2015 and 2016 bal-
net as- sets at their book values. Semos will ance sheets.
record (b) Originally, depreciation on the equip-
ment is $40,000 ($200,000/5) per year.
It will be recalculated as $36,000
($180,000/5) per year. The adjustment
for 2015 is for a half year. 2015 depre-
ciation expense and accumulated de-
preciation will be restated at $18,000
instead of $20,000 for the half year.
Depreciation expense for 2016 will be
$36,000.

1–1

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1–2

(c) Originally, depreciation on the building (c) Since this agreement is based on is-
is $25,000 ($500,000/20) per year. suance of additional shares based on a
It will be recalculated as $27,500 decrease in value, it is recorded as a
($550,000/20) per year. The adjust- liability based on the estimated value.
ment for 2015 is for a half year. 2015 On each reporting date, the liability
depreciation expense and accumulated would be re-estimated. Upon the set-
depreciation will be restated at $13,750 tlement date, the liability would be ex-
instead of $12,500 for the half year. tinguished by the issuance of the addi-
Depreciation expense for 2016 will be tional shares.
$27,500.
(d) Goodwill is reduced $30,000 on the 10. The two major differences are:
comparative 2015 and 2016 balance
(a) Goodwill is $100,000. Under U.S.
sheets.
GAAP it would be impairment tested
8. Fair value of operating unit ...... $1,200,000 and possibly reduced in future periods.
Book value including goodwill .. 1,250,000 Under IFRS, it would be amortized over
Goodwill is impaired. some number of future periods.
Fair value of operating unit ...... $1,200,000 (b) Under U.S. GAAP, the stock issue
costs would reduce the amount cre-
Fair value of net identifiable
dited to paid in capital. Under IFRS, the
assets (excluding goodwill) ... 1,120,000
issue costs would be expensed in the
Recalculated goodwill .............. $ 80,000
period incurred.
Existing goodwill ...................... 200,000
Goodwill impairment loss ......... $ 120,000
9. (a) An estimated liability should have been
recorded on the purchase date. Any dif-
ference between that estimate and the
$100,000 paid would be recorded as
a gain or loss on the liability already
recorded.
(b) The estimated amount due would be
recorded as a part of the purchase price
and would result to a credit to paid-
in capital, contingent share agreement.
There would be no re-estimation of the
amount.

© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1–3 Ch. 1—Exercises

EXERCISES

EXERCISE 1-1

(1) Current Assets.......................................................................... 85,000

Land.......................................................................................... 90,000
Building..................................................................................... 300,000
Equipment ................................................................................ 275,000
Goodwill.................................................................................... 227,000
Liabilities .............................................................................. 102,000
Cash..................................................................................... 875,000
Expenses (acquisition costs) .................................................... 15,000
Cash..................................................................................... 15,000

(2) Cash ......................................................................................... 875,000

Liabilities................................................................................... 100,000
Accumulated Depreciation—Building ....................................... 200,000
Accumulated Depreciation—Equipment ................................... 100,000
Current Assets ..................................................................... 80,000
Land ..................................................................................... 70,000
Building ................................................................................ 450,000
Equipment ............................................................................ 300,000
Gain on Sale of Business..................................................... 375,000
Note: Seller does not receive the acquisition costs.

(3) Investment in Crown Company ................................................ 875,000

Cash ................................................................................... 875,000
Expenses (acquisition costs) .................................................... 15,000
Cash ................................................................................... 15,000
Note: At year-end, Crown would be consolidated with Barstow, as will be explained in
Chapter 2.

© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Ch. 1—Exercises 1–4

EXERCISE 1-2

Cash................................................................................................. 100,000
Inventory .......................................................................................... 270,000
Equipment........................................................................................ 220,000
Land ................................................................................................. 180,000
Buildings .......................................................................................... 300,000
Goodwill*.......................................................................................... 515,000
Discount on Bonds Payable............................................................. 75,000
Current Liabilities ....................................................................... 80,000
Bonds Payable ........................................................................... 500,000
Common Stock........................................................................... 60,000
Paid-In Capital in Excess of Par................................................. 1,020,000
Acquisition Expense......................................................................... 25,000
Paid-In Capital in Excess of Par ...................................................... 10,000
Cash........................................................................................... 35,000
*Total consideration:
Common stock (60,000 shares × $18)....................................... $1,080,000
Less fair value of net assets acquired:
Cash..................................................................................... $100,000
Inventory .............................................................................. 270,000
Equipment ........................................................................... 220,000
Land ..................................................................................... 180,000
Buildings............................................................................... 300,000
Current liabilities................................................................... (80,000)
Bonds payable ..................................................................... (425,000)
Value of net identifiable assets acquired.............................. 565,000
Excess of total cost over fair value of net assets (goodwill)............. $ 515,000

© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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