I) On 1/1/15 Big Co. acquired 70% of Little Co. for 350,000 Euros (€). The fair value of the non-controlling interest on that date was €150,000. Little's book value on that date was €500,000, and all assets and liabilities had fair values equal to book value.
Trial balances far Little, for 2016 and 2017 are given below, as are the relevant exchange rates. Assuming the € is the functional currency, convert the trial balances to US Dollars and prepare all necessary, equity, method and elimination entries for both years.
Please BE SURE to clearly separate the equity method entries from the elimination entries.
Exchange rates:
1/1/16 - $1.20 per €
10/1/16 - 1.18 per €
12/31/16 - 1.15 per €
2016 average - 1.17 per €
10/1/17 - 1.12 per €
12/31/17 - 1.10 per €
2017 average - 1.13 per €
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2016 Trial balance
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€
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Exchange rate
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US Dollar
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Cash and receivables
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50,000
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|
|
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Inventory
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80,000
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|
|
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PPE
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500,000
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|
|
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Patents
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100,000
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|
|
|
|
|
|
|
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Current liabilities
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30,000
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|
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Bonds payable
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100,000
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|
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Common Stock
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200,000
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|
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Retained earnings
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300,000
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|
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Sales
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400,000
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|
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Cost of goods sold
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220,000
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Operating expenses
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50,000
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|
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Dividends {declared 10/1)
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30,000
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|
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2017 Trial balance
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€
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Exchange rate
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US Dollar
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|
Cash and receivables
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50,000
|
|
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Inventory
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100,000
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|
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PPE
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600,000
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|
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Patents
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100,000
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|
|
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|
|
|
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Current liabilities
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40,000
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|
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Bonds payable
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100,000
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|
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Common Stock
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200,000
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|
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Retained earnings
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400,000
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|
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Sales
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450,000
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|
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Cost of goods sold
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240,000
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|
|
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Operating expenses
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60,000
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|
|
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Dividends (declared 10/1)
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40,000
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|
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II) The MHB Partnership has the following capital balances:
Mises, capital - 500,000
Hayek, capital - 300,000
Bohm-Bawerk, capital - 200,000
Mises, Hayek, and Bohm-Bawerk share profits and losses in a 60:25:15 (12:5:3 if you prefer) ratio. Please provide entries to record the following INDEPENDENT partnership events (i.e.., each question goes back to the original data set):
A. Mises wishes to retire, and will be paid $600,000. Record Mises retirement assuming:
a. The bonus method is used
b. The goodwill method is used, with goodwill to Mises only
c. The goodwill method k used, with goodwill to all partners
B. Ropke wishes to join the partnership. He pays $250,000 for a 10% ownership interest. Record his admission under:
a. The bonus method
b. The goodwill method
C. The MHB partnership decides to liquidate. Prepare a cash distribution plan and interpret what it means.
The MHB partnership (described above) has the following trial balance at 1/1/16
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|
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Cash
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100,000
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Inventory
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150,000
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PPE, net
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700,000
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Goodwill
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100,000
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Current liabilities
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50,000
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Mises, Capital
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500,000
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Hayek, Capital
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300,000
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Bohm-Bawerk, Capital
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200,000
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Answer the following questions:
A. Assuming that the MHB Partnership wishes to retain $20,000 against unforeseen liquidation expenses, prepare a schedule of safe payments.
B. Assume that the inventory is sold for $100,000 and the goodwill is written off. Continue to assume that the partnership wishes to hold back $20,000 against unforeseen expenses. Prepare a schedule of safe payments.
III) The ABC Partnership allocates income among their partners on the following bass:
a. A and B receive salaries of $60,000 and 70,000, respectively.
b. Each partner receives a 10% return on weighted average capital.
c. Any remainder is split 40/20/40.
ABC have the following capital balances at year end:
A, capital 400,000
B, capital 300,000
C, capital 200,000
A and B have had no changes in their capital balances over the course of the year. C had the following transactions in her capital account:
1/1/16 Balance 400,000
3/1/15 Withdrawal 300,000
12/1/16 Investment 100,000
Ending balance 200,000
Assuming that the partnership had $150,000 of income during 2016, how much income would be allocated to each partner?
IV) On 1/1/16 Big Company acquired 90% of Little Company for €450,000. The fair value of the non-controlling interest on that date was €50,000. Little's book value was €400,000. The entire €100,000 differential was due to undervalued property, plant, and equipment with a 5 year remaining useful rife. The € is Little's functional currency.
Exchange rates for 2016 were:
1/1/15 $1.20 per €
12/31/16 1.30 per €
2016 average 1.25 per €
How much of a translation gain or loss would arise from the translation of the differential?