On January 1, 2010, Parena Inc. acquired 60,000 shares of Stipple company's common shares for cash. On the acquisition date, Stipple's financial statements reflected common stock of $50,000, Additional Paid-in Capital of $200,000 and Retained Earnings of $90,000.
The acquisition analysis as of January 1, 2010 indicated that Stipple's net assets BV represented FV for all items except the following:
|
|
|
Remaining
|
|
BV
|
FV
|
Life
|
|
Equipment
|
125,000
|
181,000
|
4 years
|
|
Trademark
|
0
|
190,000
|
10 years
|
|
Bonds Payable
|
90,000
|
98,000
|
8 years
|
It was further determined that Stipple had research in process that had a value of $160,000.
Stipple's net income and dividends declared and paid for years 2010 through 2013 were:
|
Year
|
NI
|
Dividend
|
|
2010
|
30,000
|
10,000
|
|
2011
|
(20,000)
|
10,000
|
|
2012
|
40,000
|
15,000
|
|
2013
|
50,000
|
15,000
|
On December 31, 2014, the trial balances of the two companies are as follows:
|
Account
|
Parena
|
Stipple
|
|
|
Sales Revenue
|
|
450,000
|
|
250,000
|
|
Buildings & Equipment
|
350,000
|
|
215,000
|
|
Cost of Goods Sold
|
280,000
|
|
130,000
|
|
Accumulated Depreciation - B & E
|
270,000
|
|
30,000
|
|
Retained Earnings, 1/1/14
|
180,000
|
|
90,000
|
|
Investment in Stipple
|
???
|
|
|
|
Land
|
|
300,000
|
|
130,000
|
|
Common Stock
|
200,000
|
|
50,000
|
|
Inventory
|
|
85,000
|
|
70,000
|
|
Other Expenses
|
80,000
|
|
59,000
|
|
Bonds Payable (long term)
|
75,000
|
|
60,000
|
|
Accounts Receivable
|
60,000
|
|
35,000
|
|
Income from Stipple
|
???
|
|
|
|
Additional Paid-in Capital
|
|
541,200
|
|
200,000
|
|
Cash
|
|
40,000
|
|
30,000
|
|
Dividends Declared
|
30,000
|
|
15,000
|
|
Accounts Payable
|
25,000
|
|
20,000
|
|
Depreciation Expense
|
20,000
|
|
16,000
|
|
|
Data for project - continued
Stipple's stock price on December 31st for the years 2010-2014 were:
|
Year
|
Stock Price
|
|
2010
|
$9.25
|
|
2011
|
$9.00
|
|
2012
|
$9.15
|
|
2013
|
$9.50
|
|
2014
|
$9.40
|
Each of the FOUR scenarios described below is independent of the previous or following scenarios. When completing a scenario, please disregard the assumptions in all other scenarios, and complete the requirements for each scenario using the assumptions in that scenario only.
Scenario 1. On 1/1/10 Stipple's stock price was $9.20 per share. Assume that the 60,000 shares represent 10% of Stipples stock and that management does not intend to trade the Stipple stock in the short-term. State the appropriate investment accounting method to be used. Using T-Accounts for the accounts related to reporting the investment and any investment income, indicate the appropriate accounting for Parena's investment in Stipple for the years 2010 through 2014. Describe the financial statement impact of the investment in Stipple on Parena's 12/31/14 financial statements.
Scenario 2. . On 1/1/10 Stipple's stock price was $9.20 per share. Assume that the 60,000 shares represent 30% of Stipples stock and that management does not intend to trade the Stipple stock in the short-term. State the appropriate investment accounting method to be used. Using T-Accounts for the accounts related to reporting the investment and any investment income, indicate the appropriate accounting for Parena's investment in Stipple for the years 2010 through 2014. Describe the financial statement impact of the investment in Stipple on Parena's 12/31/14 financial statements.
Scenario 3. Assume that Stipples outstanding stock as of 1/1/10 totaled 100,000 shares. Also assume that Parena acquired the 60,000 shares on 1/1/10 at the market stock price of $9.20 per share. Further, assume that Parena uses the equity method to account for the investment in Stipples stock. Using T-Accounts for the accounts related to reporting the investment and any investment income, indicate the appropriate accounting for Parena's investment in Stipple for the years 2010 through 2014. Prepare a consolidated worksheet, a consolidated classified balance sheet and a consolidated multi-step income statement for Parena as of 12/31/14 in good format.
Scenario 4. Assume that Stipples outstanding stock as of 1/1/10 totaled 100,000 shares. Also assume that Parena acquired the 60,000 shares on 1/1/10 at $9.50 per share when the market stock price was $9.20 per share. Further, assume that Parena uses the equity method to account for the investment in Stipples stock. Using T-Accounts for the accounts related to reporting the investment and any investment income, indicate the appropriate accounting for Parena's investment in Stipple for the years 2010 through 2014. Prepare the consolidating entries A1 and A2 required on the consolidating worksheet for 12/31/14. (You are not required to complete a consolidating worksheet nor consolidated financial statements for this scenario).