Elimination Entries, Consolidated Income Statement, and Exchange Gain/Loss in Accounting

Question 1 A

1 A- On January 1, 2018, Panorama Corporation acquired a 75 percent interest in Scan Corporation for $1,800,000, when Scan’s equity consisted of $900,000 capital stock and $300,000 retained earnings. The fair values of Scan’s assets and liabilities were equal to book values on this date. Panorama uses the equity method of accounting for Scan.

During 2018, Panorama sold inventory items to Scan for $480,000, and at December 31, 2018, Scan’s inventory included items on which there were $60,000 unrealized profits. During 2019, Panorama sold inventory items to Scan for $780,000, and at December 31, 2019, Scan’s inventory included items on which there were $120,000 unrealized profits.

On December 31, 2019, Scan owed Panorama $90,000 on account for merchandise purchases. The financial statements of Panorama and Scan Corporations at and for the year ended December 31, 2019, are summarized as follows (in thousands):

Required:

1)Prepare all elimination entries in 2019 (Including the entries not affecting the consolidated Income statement). Show all your calculations.

2)Prepare a workpaper for consolidated income statement only, for the year ended December 31, 2019.

B-Assume that a German corporation imports electronic equipment from USA in a transaction denominated in euro. Is this transaction a foreign currency transaction? A foreign transaction? Explain the difference between these two concepts and their application here.

C- The unrealized gains and losses from intercompany transactions involving plant assets might be eventually realized. Does it make any difference if these assets are depreciable or non-depreciable? Explain.

Q2 A- Panda Corporation has an 80% ownership stake in Smile Inc. when the book values were equal to the fair values. Separate income statements of Panda Corporation and its subsidiary, Smile Inc., for 2019 were as follows:

                                              Panda              Smile 
Sales Revenue                     $2,200,000        $1,000,000 
Cost of sales                        (1,400,000)         (600,000)
Other expenses                   (400,000)            (200,000)
Gain on sale- equipment    100,000 
Income from Smile             131,000

Net income                         $631,000          $200,000 

Additional information:

Panda had sold inventory that cost $160,000 to Smile for $300,000 in 2018, 50% of that inventory remained unsold at year-end.

Question 2 A

Panda had sold inventory that cost $140,000 to Smile for $200,000 in 2019, 40% of that inventory remained unsold at year-end.

The 2018 ending inventory is sold in 2019.

Panda sold equipment with a book value of $120,000 and a 4-year remaining useful life to Smile for $220,000 on January 2, 2019.

The equipment has no salvage value. The straight-line depreciation method is used.  

Smile did not declare or pay dividends in 2018 and 2019.

Required:

1. Prepare adjusting/eliminating entries for the consolidation worksheet at December 31, 2019.

2. Prepare a consolidated income statement for Panda Corporation and Subsidiary for the   year ended December 31, 2019. Show all your calculations.

B- A review of Sara Company, a U.S. corporation, shows the following balances in accounts receivable detail at December 31, 2019, their fiscal year end.

Receivables denominated in U.S. dollar $426,000. Receivable denominated in 40,000 Australian dollar $43,000, and Receivable denominated in 70,000 Canadian dolla $71,750

As Sara prepared to close their books, they noted that the December 31 exchange rates for the Australian dollar, Canadian dollar and Hong Kong dollar were $1.0366, $1.0301 and $0.1284, respectively.

Calculate the exchange gain or loss to be included in the 2019 financial statements, and determine the amount of Accounts Receivable that will be included on the December 31, 2019 balance sheet.

Q3 A- On December 31, 2019, the unadjusted credit balance of the Allowance for Overvaluation of Inventories: Hope Branch ledger account in the accounting records of the home office of Farah Company was $60,000. The home office of Farah ships merchandise to the branch at a markup of 20% on billed price. For the fiscal year ended December 31, 2019, the branch had reported a net loss (based on billed prices of merchandise shipped from home office) of $18,400 and ending inventories (all received from home office) of $132,000 at billed prices.

Prepare journal entries for the home office of Farah Company on December 31, 2019, to record the foregoing information.

B- The following ledger account was in the accounting records of the Habiba Branch of ABC Company on December 31, 2019:

The home office of ABC Company used the perpetual inventory system, and billed the branch for merchandise shipments at 20% above home office cost.

Required:

Prepare journal entries to record the above indicated transactions and events (From March 10 to December 31) in the accounting records of the home office of ABC Company.

C- The reciprocal ledger account balances of Youssef Company’s branch and home office are not in agreement at year-end. What factors might have caused this? Give examples.