Concept explainers
a.
Business combination:
Business combination refers to the combining of one or more business organizations in a single entity. The business combination leads to the formation of combined financial statements. After business combination, the entities having separate control merges into one having control over all the assets and liabilities. Merging and acquisition are types of business combinations.
Consolidated financial statements:
The consolidated financial statements refer to the combined financial statements of the entities which are prepared at the year-end. The consolidated financial statements are prepared when one organization is either acquired by the other entity or two organizations merged to form the new entity. The consolidated financial statements serve the purpose of both the entities about financial information.
The criteria for determining whether the investor should apply the equity method of accounting to this investment or not is as follows:
- The investor should invest at least 20% or it should acquire at least 20% of the investee’s share.
- The investor should be able to exercise the significant influence over the investee.
If the above two conditions are fulfilled then the organization can use the equity method.
To Compute:
The investment income of Company R.
a.
Explanation of Solution
Compute the investment income of Company R for 2015:
Thus, the investment income of Company R for 2015 is $6,500.
Working note:
Compute the amortization on equipment:
b.
Consolidated financial statements:
The consolidated financial statements refer to the combined financial statements of the entities which are prepared at the year-end. The consolidated financial statements are prepared when one organization is either acquired by the other entity or two organizations merged to form the new entity. The consolidated financial statements serve the purpose of both the entities about financial information.
To Compute:
The balance in investment as on December 31, 2015.
b.
Explanation of Solution
Compute the investment balance of Company R as on December 31, 2015:
Thus, the investment balance of Company R as on December 31, 2015 is $173,500.
c.
Consolidated financial statements:
The consolidated financial statements refer to the combined financial statements of the entities which are prepared at the year-end. The consolidated financial statements are prepared when one organization is either acquired by the other entity or two organizations merged to form the new entity. The consolidated financial statements serve the purpose of both the entities about financial information.
To Explain:
The investment balance as on December 31, 2015, in words.
c.
Explanation of Solution
The investment balance as on December 31, 2015 has been computed by adding the share of parent company’s income in the cost of investment. The amount of dividend has been deducted from the investment balance. The amount of dividend represents the amount of amortization which is in excess of book value.
Want to see more full solutions like this?
- Use the following information for the next three questions. Instrument Corp. has the following investments which were held throughout 2015-2016: Cost P300,000 300,000 Fair Value 12/31/15 P400,000 320,000 12/31/16 P380,000 360,000 Trading Non-trading What amount of gain or loss would Instrument Corp. report in its income statement for the year ended December 31, 2016 related to its investments? a. P20,000 gain. b. P20,000 loss. c. P140,000 gain. d. P80,000 gain. 5. 6. What amount would be reported as accumulated other comprehensive income related to investments in Instrument Corp.'s statement of financial position at December 31, 2015? a. P40,000 gain. b. P60,000 gain. c. P20,000 gain. d. P120,000 gain.arrow_forwardBailey Corporation’s financial statements (dollars and shares are in‘millions) are provided here. a.What was net operating working capital for 2014 and 20152b.What was Bailey’s 2015 free cash flow?c.Construct Bailey’s 2015 statement of stockholders” equity.d.What was Bailey’s 2015 EVA? Assume that its after-tax cost of capital is 10%.e.What was Bailey’s MVA at year-end 20152 Assume that its stock price at December 31, 2015 was $20. LYarrow_forwardFollowing is a portion of the investments footnote from Redfield Inc.'s 2017 annual report. (in millions) 2017 Amortized cost of marketable equity $546,673 Gross unrealized gains 13,114 Gross unrealized losses $ 38,983 What amount does Redfield report for its passive investments in marketable equity securities on it 2017 balance sheet?arrow_forward
- Heritage Ltd. was organized on January 2, 2023. The following investment transactions and events occurred during the following months: 2023 Jan.. 6 Heritage paid $589,500 (including transaction fees of $50) for 51,400 shares (20%) of Port Inc. outstanding common shares. Apr. 30 Port declared and paid a cash dividend of $1.50 per share. Dec. 31 Port announced that its profit for 2023 was $620,000. Fair value of the shares was $13.20 per share. 2024 Oct. 15 Port declared and paid a cash dividend of $1.10 per share. Dec. 31 Port announced that its profit for 2024 was $770,000. Fair value of the shares was $13.58 per share.. 2025 Jan. 5 Heritage sold all of its investment in Port for $696,000 cash. Assume that Heritage has a significant influence over Port with its 20% share. Required: 1. Prepare the entries to record the preceding transactions in Heritage's books. View transaction list Journal entry worksheet < 1 2 3 Ets dabika kinon 4 5 Record the purchase in strategic investment. 6arrow_forwardAssume that an investor expects 18X their investment into a company. Assume the post money exit valuation of a company is going to be $3.6 Million. Assume that the investor's investment into the company is going to be $130,000. Assume the company will likely have 14 employees at the point of the liquidation event. According to the investor's expectations, at the point when the investor invests their money, what proportion of the company will the investor own? O a. 3.6% O b. 50.5% Oc. 35% O d. 65% 18%arrow_forwardJoy Elle's Vegatable Market had to following transactions during 2017: (1) Issued $100,000 of par value ordinary shares for cash. (2) Repaid a 6-year bank loan in the amount of $44,000. (3) Acquired land by issuing ordinary shares of per value $200,000. (4) Declared and paid a cash dividend of $4,000. (5) Sold a non-current investment (cost $84,000) for cash of $12,000. (6) Acquired an investment in IBM shares for casah of $24,000. What is the net cash provided by financing activities? a) $52,000 b) $100,000 c) $36,000 d) $56,000arrow_forward
- NESTLE Inc., invested its excess cash in equity securities during 2016. The business model for these investments is to profit from trading on price changes. (a) As of December 31, 2016, the equity investment portfolio consisted of the following: Investment Lj, Inc. Polland Co. Alabang Corp. Total Quantity 1,000 shares 2,000 shares 2,000 shares Cost P45,000 120,000 216,000 P381,000 Fair Value P63,000 126,000 180,000 P369,000arrow_forwardQ1. Alpha Corporation reported the following financial details for the financial year 2021. Revenue is $250 million. EBITDA margin is 45%, EBIT margin is 25%. D&A is $10 million. Interest expense is $5 million. Interest & dividend income is $15 million. The firm sold an asset that has a book value of $33 million, for $30 million. The tax rate applicable for the firm is 20%. The basic number of shares were 5 million, and diluted number of shares were 5.25 million. a) Show the required workings to determine the basic EPS and diluted EPS for 2021. b) The Board of Directors of Alpha Corporation decided to declare 40% of net income as dividend for the financial year 2021. An investor holds 350 shares of Alpha Corporation. Determine the dividend income received by the investor. How much funds will be added to the retained earnings account for 2021.arrow_forwardA. Gympa reported on its income statement a net income $647,000 for the year ended December 31 before considering the following: During the year, Gympa purchased trading securities At year-end , the fair value of the investment portfolio was $50,000 lesshan the cost The balance of Retained Earnings was $792,000 on January 1 Gympa paid $67,000 in cash dividends during the year. Using the above data, calculate the balance of Retained Earnings on Decemeber 31. A. The Nile House of Fashion has Asset Turnover of 2.65X. What does it mean? That each dollar of Nile’s asset generates $2.25 in sales That each dollar of stockholders’ equity generates $2.25 of profit That Nile’s EPS is $2.25 That each dollar of Nile’s Equity generates a deficit of $2.25 None of the above.arrow_forward
- NESTLE Inc., invested its excess cash in equity securities during 2016. The business model for these investments is to profit from trading on price changes. As of December 31, 2016, the equity investment portfolio consisted of the following: Fair Value Investment Lj, Inc. Polland Co. Alabang Corp. Quantity 1,000 shares 2,000 shares 2,000 shares Cost P45,000 120,000 216,000 P381,000 P63,000 126,000 180,000 P369,000 Total In the December 31, 2016, statement of financial position, what should be reported as carrying amount of the investment? 369,000 345,000 381,000 405,000 a b. С. d. In the 2016 income statement, what amount should be reported as unrealized gain or loss? Unrealized gain of P12,000 Unrealized loss of P12,000 Unrealized loss P36,000 Unrealized gain of P24,000 а b. C. d.arrow_forwardA company sold 500 shares of stock at $5 each and issued 100 bonds at $1000 each in 2015. Now, the company's stock is being sold at $40 per share. The current market value of the bonds is a total of $150,000. a.In 2015, what was the book value of the assets? b. What are the book value and market value of the company now? c. What is the market value of the assets now?arrow_forwardThe following data is extracted from ABC Bank financial statements for the financial year ended 31 December 2021, equity $600 million, interest expense $190 million, provision for loan loss (P) $28 million, noninterest income $25 million, noninterest expense $45 million and a tax rate is 33%. Calculate the minimum total interest income required to give a return on equity (ROE) of 14%. Please show each step of your calculation.arrow_forward
Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning