ACC 405 Module 2 Project Solutions (2026) | Practice Problems PDF, Exams of Accounting

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ACC 405

Module 2 Project

Practice Problems and Solutions

Southern New Hampshire University

Problem 2 On January 2, 2020, Pope Company acquired 90% of the outstanding common stock of Smithwick Company for $480,000 cash. Just before the

acquisition, the balance sheets of the two companies were as follows:

Accounts Payable $ 260,000 $ 120, Mortgage Payable 180,000 100, Common Stock, $2 par value 1,000,000 170, Other Contributed Capital 520,000 50, Retained Earnings 460,000 240, Total Equities $2,420,000 $680,

The fair values of Smithwick's assets and liabilities are equal to their book values with the exception of land. Required: A. Prepare the journal entry necessary to record the purchase of XXXXXXX’s common stock. B. Prepare a consolidated balance sheet at the date of acquisition. Answer: A. Investment in Smithwick Company 480, Cash 480,

B. POPE COMPANY AND SUBSIDIARY Consolidated Balance Sheet January 2, 2020 Assets

On the date of acquisition, the stockholders' equity section of Shelter Company's balance sheet was as follows: Common stock $520, Other contributed capital 380, Retained earnings 280, Total 1,180, Required: A. Compute the noncontrolling interest percentage on December 31, 2020.

B. Prepare the investment elimination entry made to prepare a consolidated balance sheet workpaper. Any difference between book value and the value implied by the purchase price relates to subsidiary land. Answer: A. 265,000/(1,060,000 +265,000) = 20% Noncontrolling interest B.

Problem 4. On February 1, 2019, Punto Company purchased 95% of the outstanding common stock of Sara Company and 85% of the outstanding common stock of Rob Company. Immediately before the two acquisitions, balance sheets of the three companies were as follows: Punto Sara Rob Cash $165,000 $45,000 $17, Accounts receivable 35,000 35,000 26,

Common Stock – Shelter 520, Other Contributed Capital – Shelter 380, Retained Earnings – Shelter 280, Difference between Implied and Book Values 145, Investment in Shelter Company 1,060, Noncontrolling Interest in Equity 265,

Notes receivable 18,000 — 0 — — 0 — Merchandise inventory 106,000 35,500 14, Prepaid insurance 13,500 2,500 500 Advances to Sara Company 10, Advances to Rob Company 5, Land 248,000 43,000 15, Buildings (net) 100,000 27,000 16, Equipment (net) 35,000 10,000 2, Total $735,500 $198,000 $91, Accounts payable $ 25,500 $ 20,000 $10, Income taxes payable 30,000 10,000 — 0 — Notes payable — 0 — 6,000 10, Bonds payable Common stock, $10 par value

Other contributed capital 150,000 12,000 38, Retained earnings (deficit) 130,000 6,000 (10,000) Total $735,500 $198,000 $91,

The following additional information is relevant. One week before the acquisitions, Punto Company had advanced $10,000 to Sara Company and $5,000 to Rob Company. Sara Company recorded an increase to Accounts Payable for its advance, but Rob Company had not recorded the transaction. On the date of acquisition, Punto Company owed Sara Company $12,000 for purchases on account, and Rob Company owed Punto Company $3,000 and Sara Company $6,000 for such purchases. The goods purchased had all been sold to outside parties prior to acquisition. Punto Company exchanged 13,400 shares of its common stock with a fair value of $12 per share for 95% of the outstanding common stock of Sara Company. In addition, stock issue fees of $4,000 were paid in cash. The acquisition was accounted for as a purchase. Punto Company paid $50,000 cash for the 85% interest in Rob Company. Three thousand dollars of Sara Company's notes payable and $9,500 of Rob Company's notes payable were payable to Punto Company. Assume that for Sara, any difference between book value and the value implied by the purchase price relates to subsidiary land. However, for Rob, assume that any excess of book value over the value implied by the purchase price is due to overvalued buildings.

Common Stock:

Problem 4 (continued) (a) To adjust for cash in transit from Punto to Rob (1) To eliminate intercompany advances (2) To eliminate intercompany accounts receivable and accounts payable (3) To eliminate intercompany notes receivable and notes payable (4) To eliminate investment in Sara Company and create noncontrolling interest account of $8, (5) To eliminate investment in Rob Company and create noncontrolling interest account of $8, (6) To allocate the difference between implied and book value to the under-valuation of Sara’s land (7) To allocate the difference between implied and book value to the over-valuation of Rob’s buildings

• [$160,800/.95 x .05] = $8, $8,463 (entry 4) + $8,824 (entry 5) = $17, ** $160,800/.95 – ($144,000 + $12,000 + $6,000) Computation and Allocation of Difference Parent Non- Entire Share Controlling Value Share Purchase price and implied value 50,000 8,824 58,824* Less: Book value of equity acquired 59,500 10,500 70,

Difference between implied and book value (9,500) (1,676) (11,176) Decrease buildings to fair value 9,500 1,676 11, Balance - 0 - - 0 - - 0 -

• $50,000/.

Part C PUNTO COMPANY AND SUBSIDIARIES Consolidated Balance Sheet February 1, 2024 Assets Current Assets: Cash $178,

Problem 5. On January 2, 2019, Prunce Company acquired 90% of the outstanding common stock of Sun Company for $192,000 cash. Just before the acquisition, the balance sheets of the two companies were as follows:

Cash

Prunce $260,

Sun $64, Accounts receivable (net) 142,000 23, Inventory Plant and equipment (net)

Land 63,000 32, Total asset $968,000 $271, Accounts payable $104,000 $47, Mortgage payable Common stock, $2 par value

Other contributed capital 208,000 20, Retained earnings 184,000 95, Total equities $968,000 $271,

The fair values of Sun Company's assets and liabilities are equal to their book values with the exception of land. Required: Prepare a journal entry to record the purchase of Sun Company's common stock. Prepare a consolidated balance sheet at the date of acquisition. Answer Part A Investment in Sun Company 192, Cash 192,

Part B PRUNCE COMPANY AND SUBSIDIARY Consolidated Balance Sheet January 2, 2024 Assets Cash ($260,000 + $64,000 – $192,000) $132, Accounts Receivable 165,

Liabilities and Stockholders’ Equity

• Current assets $246,
• Plant and equipment (net) 784,
• Land ($160,000 + $115,000 excess cost) 275,
• Total $1,305,
• Current liabilities $ 148,
• Long-term notes payable 36,
• Common stock 480,
• Noncontrolling interest 95,
• Other contributed capital 244,
• Retained earnings 302,
• Total $1,305,
• Cash $ 650,000 $ 160, Pope Smithwick
• Accounts Receivable (net) 360,000 60,
• Inventory 290,000 140,
• Plant and Equipment (net) 970,000 240,
• Land 150,000 80,
  • Total Assets $2,420,000 $680,
  • Total Assets 892,300 198,000 91,000 923,
• Accounts Payable 25,500 20,000 10,500 (1) 15, - (2) 21,000 (a) 5,000 25,
• Income Taxes Payable 30,000 10,000 40,
• Notes Payable 6,000 10,500 (3) 12,500 4,
• Bonds Payable 100,000 100,
  • Punto Company 434,000 434,
  • Sara Company 144,000 (4) 144,
  • Rob Company 42,000 (5) 42,
  • Punto Company 172,800 172, Other Contributed Capital:
  • Sara Company 12,000 (4) 12,
  • Rob Company 38,000 (5) 38,
  • Punto Company 130,000 130, Retained Earnings
  • Sara Company 6,000 (4) 6,
  • Rob Company (10,000) (5) 10,
  • Total Liabilities and Equity 892,300 198,000 91,000 321,202 321, Noncontrolling Interest (4)(5)17,287 * - 17,287 17, - 923,
• Accounts Receivable 75,
• Notes Receivable 5,
• Merchandise Inventory 155,
• Prepaid Insurance 16,
  • Total Current Assets $ 430,
• Land 313,
• Buildings(net) 131,
• Equipment(net) 47,
  • Total Assets $ 923,
• Accounts Payable $25, Current Liabilities:
• Income Tax Payable 40,
• Notes Payable 4,
  • Total Current Liabilities $ 69,
• Bonds Payable 100,
  • Total Liabilities 169,
• Noncontrolling Interest in Subsidiaries 17, Stockholders’ Equity:
• Common Stock 434,
• Other Contributed Capital 172,
• Retained Earnings 130,
  • Total Stockholders’ Equity 754,
  • Total Liabilities and Stockholders’ Equity $ 923,
• Inventory 171,
• Plant and Equipment (net) 484,
• Land ($63,000 + $32,000 + $28,333*) 123,
  • Total Assets $1,075,
• Accounts Payable $151,
• Mortgage Payable 111,
  • Total Liabilities 262,
• Noncontrolling Interest ($192,000/0.9 ฀0.1) $21,
• Common Stock 400,
• Other Contributed Capital 208,
• Retained Earnings 184,
  • Total Stockholders’ Equity 813,
    • Total Liabilities and Stockholders’ Equity $1,075,
• • [$192,000/0.9 – ($70,000 + $20,000 + $95,000)] = $28,