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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 06 Aug 2017 My Price 14.00

Storm Company

On December 31, Year 2, Palm Inc. purchased 80% of the outstanding ordinary shares of Storm Company for $410,000. At that date, Storm had ordinary shares of $300,000 and retained earnings of $70,000. In negotiating the purchase price, it was agreed that the assets on Storm’s statement of financial position were fairly valued except for plant assets, which had a $41,000 excess of fair value over carrying amount. It was also agreed that Storm had unrecognized intangible assets consisting of trademarks that had an estimated value of $30,000. The plant assets had a remaining useful life of 8 years at the acquisition date and the trademarks would be amortized over a 12-year period. Any goodwill arising from this business combination would be tested periodically for impairment. Palm accounts for its investment using the cost method.

Additional Information
•

At December 31, Year 5, an impairment test of Storm’s goodwill revealed the following:

 

     
Fair value less disposal costs based on recent offer from prospective purchaser $ 56,000
Value in use based on undiscounted future net cash flows   75,000
Value in use based on discounted future net cash flows using a discount rate of    
6%, which is Storm’s incremental borrowing rate   50,000
2%, which is the risk-free rate on government bonds   55,000

An impairment test indicated that the trademarks had a recoverable amount of $15,250. The impairment loss on these assets occurred entirely in Year 6.
• On December 26, Year 6, Palm declared dividends of $46,000, while Storm declared dividends of $30,000.
•

Amortization expense is reported in selling expenses, while impairment losses are reported in other expenses.

Financial statements for Palm and Storm for the year ended December 31, Year 6, were as follows:

 

STATEMENTS OF FINANCIAL POSITION
December 31, Year 6
    Palm     Storm
Assets          
Plant assets — net $ 330,000   $ 260,000
Investment in Storm   410,000     –
Other investments   92,000     32,000
Notes receivable   –     20,000
Inventory   200,000     280,000
Accounts receivable   98,000     210,000
Cash   30,000     40,000
 
 
  $ 1,160,000   $ 842,000
 
 
Shareholders’ Equity and Liabilities          
Ordinary shares $ 600,000   $ 300,000
Retained earnings   210,000     250,000
Notes payable   180,000     150,000
Other current liabilities   20,000     60,000
Accounts payable   150,000     82,000
 
 
  $ 1,160,000   $ 842,000
 
 

 

INCOME STATEMENTS
Year ended December 31, Year 6
    Palm     Storm
Sales $ 970,000   $ 615,000
Cost of goods sold   (688,000)     (410,000)
 
 
Gross profit $ 282,000   $ 205,000
Selling expenses   (32,000)     (45,000)
Other expenses   (168,000)     (92,000)
Interest and dividend income   44,000     12,000
 
 
Profit $ 126,000   $ 80,000
 
 

 

Required:
(a) Prepare consolidated financial statements. (Input all values as positive numbers.)
   
Palm Inc.
Consolidated Income Statement
Year ended December 31, Year 6
(Click to select)Accounts payableAssetsSalesInvestmentInventoryIncome taxesCash   $
(Click to select)Common sharesAccounts receivableNon-controlling interestInvestmentRetained earningsInterest income    
 
     
 
(Click to select)Interest expenseSelling expensesIncome tax expenseOther expensesSalariesCost of salesRent expenseAdministration expense    
(Click to select)Income tax expenseCost of salesAdministration expenseOther expensesRent expenseSelling expensesSalariesInterest expense    
(Click to select)Other expensesCost of salesInterest expenseAdministration expenseIncome tax expenseSalariesRent expenseSelling expenses    
 
     
 
(Click to select)ProfitLoss   $
 
Attributable to:    
Palm’s shareholders   $
Non-controlling interest    
 
    $
 

 

Palm Inc.
Consolidated Statement of Financial Position
Year ended December 31, Year 6
(Click to select)InvestmentsTrademarksGoodwillPlant assetsAccounts receivableCashInventoryNotes receivableCurrent assets   $
(Click to select)InvestmentsPlant assetsAccounts receivableNotes receivableGoodwillCashCurrent assetsInventoryTrademarks    
(Click to select)GoodwillInvestmentsNotes receivableCashTrademarksPlant assetsCurrent assetsInventoryAccounts receivable    
(Click to select)InventoryNotes receivableGoodwillCashInvestmentsAccounts receivablePlant assetsCurrent assetsTrademarks    
(Click to select)GoodwillCurrent assetsInventoryInvestmentsCashAccounts receivableTrademarksNotes receivablePlant assets    
(Click to select)Current assetsInventoryTrademarksAccounts receivableInvestmentsPlant assetsCashNotes receivableGoodwill    
(Click to select)Current assetsTrademarksInventoryAccounts receivableNotes receivableGoodwillPlant assetsCashInvestments    
(Click to select)Accounts receivablePlant assetsNotes receivableInvestmentsInventoryCurrent assetsTrademarksGoodwillCash    
 
    $
 
(Click to select)Accounts payableNotes receivableOrdinary sharesRetained earningsSalary payableNon-controlling interestOther current liabilitiesNotes payable   $
(Click to select)Non-controlling interestSalary payableNotes receivableOther current liabilitiesAccounts payableNotes payableOrdinary sharesRetained earnings    
(Click to select)Accounts payableNotes payableOrdinary sharesSalary payableNon-controlling interestOther current liabilitiesRetained earningsNotes receivable    
(Click to select)Accounts payableOrdinary sharesRetained earningsNotes receivableSalary payableNotes payableOther current liabilitiesNon-controlling interest    
(Click to select)Notes payableOrdinary sharesRetained earningsNon-controlling interestOther current liabilitiesNotes receivableAccounts payableSalary payable    
(Click to select)Salary payableRetained earningsOther current liabilitiesOrdinary sharesNotes receivableNotes payableNon-controlling interestAccounts payable    
 
    $
 

 

(b)

Assuming that none of the acquisition differential had been allocated to trademarks at the date of acquisition complete the table given below. (Leave no cells blank - be certain to enter "0" wherever required.)
    Bal   Amortization   Loss   Bal
  Dec. 31/Yr2   to Dec.31/Yr5   Yr6   Yr6   Dec. 31/Yr6
Plant assets   $     $     $     $     $
Goodwill                            
 
 
 
 
 
    $     $     $     $     $
 
 
 
 
 

Answers

Maurice Tutor
(5)
Status NEW Posted 06 Aug 2017 12:08 AM My Price 14.00

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