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ACCTG 305 Chapter 7 Homework Exercise 1-2

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Accounting 305

Chapter 7 Homework

Exercise 1

On 12/31/13 Kevin Corp. held no investment securities.  On 1/01/14 Kevin purchased 2,000 shares of Detsch Corp. stock for $20/share and continued to hold the Detsch stock until 10/09/16 when it was sold for $22/share (ignore transaction costs).  On 11/20/14, and on 11/19/15 Kevin receives a dividend of $1/share on the Detsch stock.  The market value of Detsch stock was $19/share on 12/31/14 and $18/share on 12/31/15.  Required: Provide all investment related entries in accounting equation format assuming that Kevin classifies the Detsch Corp. stock investment as “Available for Sale.”

 

 

 

 

 

 

 

 

Exercise 2

On 1/01/14 Chandler Corp. purchased 100% of the stock of Hosterman Corp. (80,000 shares) for $4,800,000.  Hosterman continues to operate as a separate legal corporation.  Hosterman presented the following condensed year-end balance sheet at 12/31/2013 (in 1,000’s):

 

Assets:                                                                                                                           Liabilities & Stockholders’ Equity:

Cash                                         $   300                                                       Accounts Payable                             $   100

Inventory                                1,000                                                       Long-term Debt                                                         200      $  300

Operating Assets (net)                    3,000                                                       Paid-In Capital                                                        2,000

                                                                                                                           Retained Earnings                               2,000     4,000

Total Assets                        $4,300                                                      Total Liabilities & Stockholders’ Equity               $  4,300

 

All assets and liabilities of Hosterman had fair values equal to their book values at 1/1/14 except for equipment that was undervalued by $ 400,000 (fair value=$800,000 and its book value=$400,000) with a remaining life of 8 years. 

 

Immediately after the acquisition, Chandler provided the following balance sheet (in 1,000’s):

Assets:                                                                                                                           Liabilities & Stockholders’ Equity:

Cash                                     $ 1,000                                                         Accounts Payable                             $1,400

Inventory                               7,000                                                       Long-term Debt                                                      4,000                    $ 5,400

Operating Assets (net)     8,600                                                                      Paid-In Capital                                                          4,000

Investment in Hosterman           4,800                                                       Retained Earnings                              12,000                    16,000

Total Assets                   $21,400                                                        Total Liabilities & Stockholders’ Equity               $ 21,400

 

Required: Provide a consolidated balance sheet at 1/01/14 for the consolidated entity (Chandler and Hosterman).

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