Winston Corporation purchased 40 percent of the stock of Fullbright Company on January 1, 20X2, at underlying book value. During the period of January 1, 20X2, through December 31, 20X4, the market value of Winston's investment in Fullbright's stock increased by $20,000 each year. The companies reported the following operating results and dividend payments during the first three years of inter-corporate ownership:

$$\begin{array}{l} \hspace{50pt}\textbf{Winston Corporation} \hspace{30pt} \textbf{Fullbright Company}\\ \end{array}$$

$$\begin{array}{lrrrr} \textbf{Year} & \textbf{Operating Income} &\textbf{ Dividends} & \textbf{Net Income} & \textbf{Dividends} \\ \\ \text{20X2} & \$100,000 & \$\hspace{7pt}40,000 & \$70,000 & \$30,000\\ \text{20X3} & 60,000 & 80,000 & 40,000 & 60,000 \\ \text{20X4} & 250,000 & 120,000 & 25,000 & 50,000 \\ \end{array}$$

Required

Compute the net income reported by Winston for each of the three years, assuming it accounts for its investment in Fullbright by using the equity method.

Would you usually expect GDP as measured by what is demanded to be greater than GDP measured by what is supplied, or the reverse?

Trim Corporation acquired 100 percent of Round Corporation's voting common stock on January 1, 20X2, for $400,000. At that date, the book values and fair values of Round's assets and liabilities were equal. Round reported the following summarized balance sheet data:

$$\begin{array}{lrlr} \text{Assets} & \$700,000 & \text{Accounts Payable} & \$100,000 \\ & & \text{Bonds Payable} & 200,000 \\ & & \text{Common Stock} & 120,000 \\ & & \text{Retained Earnings} & 280,000 \\ \hline \text{Total} & \underline{\underline{\$700,000}} & \text{Total} & \underline{\underline{\$700,000}} \\ \end{array}$$

Round reported net income of $80,000 for 20X2 and paid dividends of$25,000.

Required

Give the consolidation entries needed at December 31, 20X2, to prepare consolidated financial statements.

On January 1, 20X3, Parade Corporation reported total assets of $470,000, liabilities of$270.000. and stockholders' equity of $200,000. At that date, Summer Corporation reported total assets of$190,000, liabilities of $135,000, and stockholders' equity of$5,000. Following lengthy negotiations, Parade paid Summer's existing shareholders $44,000 in cash for 80 percent of the voting common shares of Summer.

Required

Immediately after Parade purchased the Summer shares, what amount of total assets was reported in the consolidated balance sheet?

On January 1, 20X3, Parade Corporation reported total assets of $470,000, liabilities of$270.000. and stockholders' equity of $200,000. At that date, Summer Corporation reported total assets of$190,000, liabilities of $135,000, and stockholders' equity of$5,000. Following lengthy negotiations, Parade paid Summer's existing shareholders $44,000 in cash for 80 percent of the voting common shares of Summer.

Required

Immediately after Parade purchased the Summer shares, what amount of stockholders' equity was reported in the consolidated balance sheet?

On January 1, 20X3, Parade Corporation reported total assets of $470,000, liabilities of$270.000. and stockholders' equity of $200,000. At that date, Summer Corporation reported total assets of$190,000, liabilities of $135,000, and stockholders' equity of$5,000. Following lengthy negotiations, Parade paid Summer's existing shareholders $44,000 in cash for 80 percent of the voting common shares of Summer.

Required

Immediately after Parade purchased the Summer shares, what amount of total liabilities was reported in the consolidated balance sheet?

Pintime Industries Inc. entered into a business combination agreement with Sydrolized Chemical Corporation (SCC) to ensure an uninterrupted supply of key raw materials and to realize certain economies from combining the operating processes and the marketing efforts of the two companies. Under the terms of the agreement, Pintime issued 180,000 shares of its $1 par common stock in exchange for all of SCC's assets and liabilities. The Pintime shares then were distributed to SCC's shareholders, and SCC was liquidated.

Immediately prior to the combination, SCC's balance sheet appeared as follows, with fair values also indicated:

$$\begin{array}{lrr} & \textbf{Book Values} &\textbf{ Fair Values} \\ \\ \textbf{Assets}\\ \text{Cash} & \$\hspace{19pt} 28,000 & \$\hspace{19pt} 28,000 \\ \text{Accounts Receivable} & 258,000 & 251,500 \\ \text{Less: Allowance for Bad Debts} & (6,500) & \\ \text{Inventory} & 381,000 & 395,000 \\ \text{Long-Term Investments} & 150,000 & 175,000 \\ \text{Land} & 55,000 & 100,000 \\ \text{Rolling Stock} & 130,000 & 63,000 \\ \text{Plant \& Equipment} & 2,425,000 & 2,500,000 \\ \text{Less: Accumulated Depreciation} & (614,000) & \\ \text{Patents} & 125,000 & 500,000 \\ \text{Special Licenses} & \underline{95,800} & \underline{100,000} \\ \text{Total Assets} & \underline{\underline{\$ 3,027,300}} & \underline{\underline{\$ 4,112,500}} \\ \\ \textbf{Liabilities}\\ \text{Current Payables} &\$\hspace{10pt} 137,200 & \$\hspace{10pt} 137,200 \\ \text{Mortgage Payable} & 500,000 & 520,000 \\ \text{Equipment Trust Notes} & 100,000 & 95,000 \\ \text{Debentures Payable} & 1,000,000 & 950,000 \\ \text{Less: Discount on Debentures} & \underline{(40,000)} & \\ \text{Total Liabilities } & \underline{\underline{\$ 1,697,200}} & \underline{\underline{\$ 1,702,200}} \\ \\ \textbf{Stockholders' Equity}\\ \text{Common Stock (\$5 par)} & 600,000 \\ \text{Additional Paid-In Capital from Common Stock} & 500,000\\ \text{Additional Paid-In Capital from} \\ \text{$\quad$ Retirement of Preferred Stock} & 22,000 \\ \text{Retained Earnings} & 220,100 \\ \text{Less: Treasury Stock (1.500 shares)}& \underline{(12,000)} \\ \text{Total Liabilities \& Equity } & \underline{\underline{\$ 3,027,300}}\\ \end{array}$$

Immediately prior to the combination, Pintime's common stock was selling for $14 per share. Pintime incurred direct costs of$135,000 in arranging the business combination and $42,000 of costs associated with registering and issuing the common stock used in the combination.

Required

Present all journal entries that should have been entered on SCC's books to record the combination and the distribution of the stock received.

Pun Corporation concluded the fair value of Slender Company was $60,000 and paid that amount to acquire its net assets. Slender reported assets with a book value of$55,000 and fair value of $71,000 and liabilities with a book value and fair value of$20,000 on the date of combination. Pun also paid $4,000 to a search firm for finder's fees related to the acquisition.

Required

Give the journal entries to be made by Pun to record its investment in Slender and its payment of the finder's fees.

Punyain Company acquired Sallsap Corporation on January 1, 20X1, through an exchange of common shares. All of Sallsap's assets and liabilities were immediately transferred to Punyain, which reported total par value of shares outstanding of $218,400 and$327,600 and additional paid-in capital of $370,000 and$650,800 immediately before and after the business combination, respectively.

Required

What is the par value per share of Punyain's common stock?

The fair values of assets and liabilities held by three reporting units and other information related to the reporting units owned by Prover Company are as follows:

$$\begin{array}{c} \hspace{190pt}\textbf{Reporting Unit}\\ \end{array}$$

$$\begin{array}{lrrr} & \textbf{A} & \textbf{B} & \textbf{C}\\ \\ \text{Cash \& Receivables} & \$\hspace{7pt}30,000 & \$\hspace{7pt}80,000 & \$\hspace{7pt} 20,000 \\ \text{Inventory} & 60,000 & 100,000 & 40,000 \\ \text{Land} & 20,000 & 30,000 & 10,000 \\ \text{Buildings} & 100,000 & 150,000 & 80,000 \\ \text{Equipment} & 140,000 & 90,000 & 50,000 \\ \text{Accounts Payable} & 40,000 & 60,000 & 10,000 \\ \text{Fair Value of Reporting Unit} & 400,000 & 440,000 & 265,000 \\ \text{Carrying Value of Investment} & 420,000 & 500,000 & 290,000 \\ \text{Goodwill Included in Carrying Value} & 70,000 & 50,000 & 40,000 \\ \end{array}$$

Required

Determine the amount of goodwill that Prover should report in its current financial statements.

Phoster Corporation established Skine Company as a wholly owned subsidiary. Phoster reported the following balance sheet amounts immediately before and after it transferred assets and accounts payable to Skine Company in exchange for 4,000 shares of $12 par value common stock:

$$\begin{array}{l} \hspace{190pt}\textbf{Amount Reported} \\ \hspace{140pt}\textbf{Before Transfer} \hspace{30pt} \textbf{After Transfer}\\ \end{array}$$

$$\begin{array}{lrrrr} \text{Cash} && \$\hspace{6pt}40,000 && \$\hspace{6pt}25,000\\ \text{Accounts Receivable} && 65,000 && 41,000\\ \text{Inventory} && 30,000 && 21,000\\ \text{Investment in Skine Company} &&&& 66,000\\ \text{Land} && 15,000 && 12,000\\ \text{Depreciable Assets} & \$180,000 && \$115,000\\ \text{Accumulated Depreciation} &\underline{75,000} &\underline{105,000} &\underline{47,000} & \underline{68,000}\\ \text{Total Assets} && \underline{\underline{\$255,000}} && \underline{\underline{\$233,000}}\\ \\ \text{Accounts Payable} && \$\hspace{6pt}40,000 && \$\hspace{6pt}18,000\\ \text{Bonds Payable} && 80,000 && 80,000\\ \text{Common Stock} && 60,000 && 60,000\\ \text{Retained Earnings} && 75,000 && 75,000\\ \hline \text{Total Liabilities \& Equities} && \underline{\underline{\$255,000}} && \underline{\underline{\$233,000}}\\ \end{array}$$

Required

Give the journal entry that Phoster recorded when it transferred its assets and accounts payable to Skine.

Pintime Industries Inc. entered into a business combination agreement with Sydrolized Chemical Corporation (SCC) to ensure an uninterrupted supply of key raw materials and to realize certain economies from combining the operating processes and the marketing efforts of the two companies. Under the terms of the agreement, Pintime issued 180,000 shares of its $1 par common stock in exchange for all of SCC's assets and liabilities. The Pintime shares then were distributed to SCC's shareholders, and SCC was liquidated.

Immediately prior to the combination, SCC's balance sheet appeared as follows, with fair values also indicated:

$$\begin{array}{lrr} & \textbf{Book Values} &\textbf{ Fair Values} \\ \\ \textbf{Assets}\\ \text{Cash} & \$\hspace{19pt} 28,000 & \$\hspace{19pt} 28,000 \\ \text{Accounts Receivable} & 258,000 & 251,500 \\ \text{Less: Allowance for Bad Debts} & (6,500) & \\ \text{Inventory} & 381,000 & 395,000 \\ \text{Long-Term Investments} & 150,000 & 175,000 \\ \text{Land} & 55,000 & 100,000 \\ \text{Rolling Stock} & 130,000 & 63,000 \\ \text{Plant \& Equipment} & 2,425,000 & 2,500,000 \\ \text{Less: Accumulated Depreciation} & (614,000) & \\ \text{Patents} & 125,000 & 500,000 \\ \text{Special Licenses} & \underline{95,800} & \underline{100,000} \\ \text{Total Assets} & \underline{\underline{\$ 3,027,300}} & \underline{\underline{\$ 4,112,500}} \\ \\ \textbf{Liabilities}\\ \text{Current Payables} &\$\hspace{10pt} 137,200 & \$\hspace{10pt} 137,200 \\ \text{Mortgage Payable} & 500,000 & 520,000 \\ \text{Equipment Trust Notes} & 100,000 & 95,000 \\ \text{Debentures Payable} & 1,000,000 & 950,000 \\ \text{Less: Discount on Debentures} & \underline{(40,000)} & \\ \text{Total Liabilities } & \underline{\underline{\$ 1,697,200}} & \underline{\underline{\$ 1,702,200}} \\ \\ \textbf{Stockholders' Equity}\\ \text{Common Stock (\$5 par)} & 600,000 \\ \text{Additional Paid-In Capital from Common Stock} & 500,000\\ \text{Additional Paid-In Capital from} \\ \text{$\quad$ Retirement of Preferred Stock} & 22,000 \\ \text{Retained Earnings} & 220,100 \\ \text{Less: Treasury Stock (1.500 shares)}& \underline{(12,000)} \\ \text{Total Liabilities \& Equity } & \underline{\underline{\$ 3,027,300}}\\ \end{array}$$

Immediately prior to the combination, Pintime's common stock was selling for $14 per share. Pintime incurred direct costs of$135,000 in arranging the business combination and $42,000 of costs associated with registering and issuing the common stock used in the combination.

Required

Prepare all journal entries that Pintime should have entered on its books to record the business combination.

How is the receipt of a dividend recorded under the equity method? When investments are carried at fair value?