Need help with filling out entries
Advanced Accounting CFS Assignment University of Rhode Island BUS 402 Advanced Accounting 2020 Joseph M. D’Adamo Consolidated Financial Statement Assignment Overview Page 1 of 13 Consolidated Financial Statement Assignment Overview Page 12 of 13 Due Date:Friday, July 17 By submitting this solution with your name in the space below, you are acknowledging that you completed the work in accordance with the Academic Honesty and Integrity policy for the course as described in the syllabus. Instances of noncompliance that I detect will result in a grade of zero. Your Names Date Elizabeth Tan 7/17/20 Michael Prezioso 7/17/20 Points Assigned Points You Earned Summary Schedule of the Acquisition-Date Fair Values 30 Supporting Documentation: Consolidated Statement of Financial Position @ 12/31/2019 50 Supporting Documentation: Consolidated Financial Statements for 2020 80 Consolidated Comprehensive Income Statement 60 Consolidated Statement of Financial Position 80 Totals 300 Specific Instructions: Download the Excel file Consol FS 402 SU 2020.xls from the Assignments page in our Sakai course site. Change the name of the Excel file to include the name of at least one team member. Business Combination Information: On December 31, 2019, PageOne Corp. acquired 100% of the outstanding stock of StageOne Inc. by issuing 230,000 shares of its $10 par value common stock. PageOne Corp.’s stock closed on December 31, 2019, at a market value of $42.50 per share. This transaction was properly recorded by PageOne Corp. on December 31, 2019. Its effects were included in PageOne's unconsolidated statement of financial position at December 31, 2019, as presented in the 12 31 17 Worksheet in the Excel file. Both companies continued operating as separate legal entities after the business combination transaction. Acquisition-Date Fair Values of StageOne Inc.'s Net Identifiable Assets and Related Information: PageOne Corp.’s management, assisted by its investment banking firm and its internal audit staff, evaluated the fair values of StageOne Inc., its net identifiable assets, and its goodwill to determine the value of the consideration offered for StageOne's stock and the net assets and their amounts recognized under acquisition method of accounting. Presented below are the acquisition-date fair values of StageOne Inc.'s net identifiable assets and related additional information: StageOne Inc. Acquisition-Date Fair Values December 31, 2019 Cash $422,000 Accounts Receivable, net 1,293,000 Inventories 2,146,000 Prepaid Expenses 82,000 Available-for-Sale Equity Securities 905,000 Property, Plant and Equipment, net 4,169,000 Patents 316,000 Company Name 230,000 Accounts Payable 465,000 Accrued Expenses 336,000 Long-Term Debt, including Current Portion 1,500,000 Deferred Tax Liability: Noncurrent 14,000 1)Prepare the Summary Schedule of the Acquisition-Date Fair Values using the form on the following page. (30 points) PageOne Corp. and Subsidiary Summary Schedule of Acquisition-Date Values December 31, 2019 StageOne’s Carrying Value PageOne’s Consolidated Basis Total Fair Value Differential: FV of Consideration Transferred $9,775,000 CV of Net Identifiable Assets Acquired $6,435,000 Total Fair Value Differential $3,340,000 FV Adjustments to Net Identifiable Assets Acquired: Cash $422,000 -0- $422,000 Accounts Receivable, net 1,318,000 Cr. $25,000 $1,293,000 Inventories 2,171,000 Cr. $25,000 $2,146,000 Prepaid Expenses 82,000 -0- $82,000 Available-for-Sale Equity Securities 905,000 -0- $905,000 Property, Plant and Equipment, net 3,640,000 Dr. $529,000 $4,169,000 Patents 200,000 Dr. $116,000 $316,000 Company Name 0 Dr. $230,000 $230,000 Accounts Payable 465,000 -0- $465,000 Accrued Expenses 324,000 Cr. $12,000 $336,000 Long-Term Debt, including Current Portion 1,500,000 -0- $1,500,000 Deferred Tax Liability: Noncurrent 14,000 -0- $14,000 Net Adjustments Dr. $813,000 Goodwill Dr. $2,527,000 $2,527,000 Net Assets $6,435,000 $9,775,000 2)In the Excel file go to cell A45 in the 12 31 19 Worksheet and follow the specific instructions to complete the Consolidation Worksheet as the basis for preparing the Consolidated Statement of Financial Position at the Acquisition Date (12/31/2019). Be sure to follow those instructions to benefit from the preformatted worksheet. You must use the forms below to prepare the two Consolidation Entries required at December 31, 2019. (30 points for entries + 20 points for worksheet = 50 points) Consolidation Entry Eliminate the Beginning Balances of the Parent’s Investment Account against the Sub’s Equity Accounts and Recognize the Fair Value Differential DATE WORKSHEET ENTRY ONLY DEBIT CREDIT 12/31/2019 Common Stock (Sub’s) 1,500,000 Additional Paid-in Capital (Sub’s) 2,150,000 Retained Earnings (Sub’s) 2,745,000 Accumulated Other Comprehensive Income (Sub’s) 40,000 Fair Value Differential (Sub’s) 3,340,000 Investment in StageOne Inc. (Parent) 9,775,000 Consolidation Entry Allocate the Fair Value Differential to the Sub’s Specific Assets and Liabilities DATE WORKSHEET ENTRY ONLY DEBIT CREDIT 12/31/2019 Plant assets (Sub’s) 529,000 Patents (Sub’s) 116,000 Company Name (Sub’s) 230,000 Goodwill (Sub’s) 2,527,000 Accounts Receivable (Sub’s) 25,000 Inventory (Sub’s) 25,000 Accrued Expenses (Sub’s) 12,000 Fair Value Differential 3,340,000 3)In the Excel file go to cell A80 in the 12 31 20 Worksheet and once again follow the specific instructions to complete the Consolidation Worksheet as the basis for preparing the Consolidated Financial Statements for the Initial Fiscal Year after the acquisition (2020). Be sure to follow those instructions to benefit from the preformatted worksheet. You must use the forms below to prepare the five sets of Consolidation Entries required at December 31, 2020. (50 points for entries + 30 points for worksheet = 80 points) Consolidation Entry Eliminate the Beginning Balances of the Parent’s Investment Account against the Sub’s Equity Accounts and Recognize the Fair Value Differential DATE WORKSHEET ENTRY ONLY DEBIT CREDIT Consolidation Entry Allocate the Fair Value Differential to the Sub’s Specific Assets and Liabilities DATE WORKSHEET ENTRY ONLY DEBIT CREDIT During 2020, PageOne Corp. recorded the following entries under the simplified equity method. The entries are: DATE ACCOUNT NAMES DEBIT CREDIT 12/31 2020 Investment in StageOne Inc. 1,512,000 Equity in Net Earnings of StageOne Inc. 1,512,000 12/31 2020 Investment in StageOne Inc. 52,000 Equity in Other Comprehensive Income of StageOne Inc. 52,000 2020 Cash 600,000 Investment in StageOne Inc. 600,000 The above entries are reflected in the 12/31/2020 consolidated worksheet in the Excel file. Consolidation Entry Eliminate Current Year’s Activity in Parent’s Investment Account DATE WORKSHEET ENTRY ONLY DEBIT CREDIT Additional Information relating to the Acquisition-Date Fair Values: a)The accounts receivable was overvalued due to an inadequate allowance for doubtful accounts at December 31, 2019; StageOne Inc. increased the allowance and recognized bad debts expense in 2020. b) The inventory at December 31, 2019 included obsolete goods that StageOne wrote off to cost of sales in 2020. c) The companies used the straight-line method to depreciate their plant assets and amortize their finite life intangibles. At December 31, 2019, the average remaining useful lives of the undervalued plant assets and the undervalued patents were: Undervalued Plant Assets4 years Undervalued Patents5 years d) A portion of StageOne Inc.'s fair value was attributed to its company name that was successfully branded through a series of promotional campaigns over the past five years. PageOne Corp. classified the Company Name as an indefinite-life intangible. e) Accrued expenses were undervalued at December 31, 2019 because StageOne's liability for compensated future absences earned and accumulated by employees in accordance with the Company's benefit program was improperly estimated. StageOne Inc. recorded the additional liability in 2020 and classified the related expense as “Other Operating Expenses”. Consolidation Entry Amortize the Fair Value Differential from the specific asset and liability accounts into the related revenue and expense accounts DATE WORKSHEET ENTRY ONLY DEBIT CREDIT Consolidation Entry Continued DATE WORKSHEET ENTRY ONLY DEBIT CREDIT 2020 Intra-Entity Transactions and Related-Information: a) During 2020 StageOne Inc. began selling goods to PageOne Corp. The following information was obtained from the separate accounting records of the two companies: Total Sales to PageOne Corp. during 2020 $3,036,000 Average Gross Margin on Sales to PageOne Corp. during 2020 32.5% PageOne's Inventory at December 31, 2020 purchased from StageOne $455,000 Accounts Payable to StageOne from PageOne at December 31, 2020 $228,000 b) On February 15, 2020, PageOne Corp. agreed to lease a small garage facility to StageOne Inc. for a two-year period beginning on beginning on March 1, 2020. Rent of $3,000 per month was due on the 5th of the month following its accrual. Consolidation Entry Eliminate the Intra-Entity Transactions DATE WORKSHEET ENTRY ONLY DEBIT CREDIT