4. (TCO E) During 20X3, Edwards Co. sold inventory to its parent company, First Corp. First still owned the entire inventory purchased at the end of 20X3. Why must the gross profit on the sale be deferred when consolidated financial statements are prepared at the end of 20X3? (Points : 15) 6.(TCO C) Assume that on January 1, 20X2, investors form Acme Corp agree to consolidate the operations of ABC, Inc., and DEF Company in a deal valued at $2.0 billion. Acme organizes each former entity as an operating segment. Additionally, Acme two divisions—ABC Hot and ABC Cold—that, along with DEF, are treated as independent reporting units for internal performance evaluation and management reviews. ACME recognizes $215 million as goodwill at the merger date of January 1, 20X3 and allocates this entire amount to its reporting units. That information and each reporting unit's acquisition-date fair values are as follows. New Corp’s Acquisition-Date Fair Values Reporting Units Goodwill January 1, 20X3 ABC Hot $ 22,000,000 $750,000,000 ABC Cold 155,000,000 748,000,000 DEF Company 38,000,000 502,000,000 In December, 20X3, Acme Corp performed an analysis for each of its three reporting units to assess potential goodwill impairment. They examined the events that may affect the fair values of its reporting units. The analysis reveals that the fair value of each reporting unit likely exceeds its carrying amount except for ABC Cold. The goodwill impairment test then reveals that ABC Cold’s fair value has fallen to $70 million, well below its current carrying amount. Acme compared the implied fair value of ABC Cold’s goodwill to its carrying amount. Acme needs to determine the implied fair value of goodwill. The fair value of ABC Cold’s net assets as of December 31, 21X3 is shown below. ABC Cold December 31, 20X3, fair value $70,000,000 Fair values of ABC Cold net assets at December 31, 20X3: Current assets $ 5,000,000 Property 10,000,000 Equipment 5,000,000 Subscriber list 1,000,000 Patented technology 1,000,000 Current liabilities (4,000,000) Long-term debt (10,000,000) Required: (1) What is the implied fair value of goodwill for ABC Cold? (2) What is the carry value of the assets of ABC Cold before impairment? (3) What is the impairment loss of ABC Cold? (Points : 25) 7. (TCO A) Steven Company owns 40% of the outstanding voting common stock of Nicole Corp. and has the ability to significantly influence the investee's operations. On January 3, 20X1, the balance in the Investment in Nicole Corp. account was $503,000. Amortization associated with this acquisition is $12,000 per year. During 20X1, Nicole earned a net income of $120,000 and paid cash dividends of $40,000. Previously in 20X0, Nicole had sold inventory costing $35,000 to Steven for $50,000. All but 25% of that inventory had been sold to outsiders by Steven during 20X0. Additional sales were made to Steven in 20X1 at a transfer price.

1. 4.
(TCO E) During 20X3, Edwards Co. sold inventory to its parent
company, First Corp. First still owned the entire inventory
purchased at the end of 20X3. Why must the gross profit on the
sale be deferred when consolidated financial statements are
prepared at the end of 20X3?
(Points : 15)

2. 6.(TCO C) Assume that on January 1, 20X2, investors form
Acme Corp agree to consolidate the operations of ABC, Inc.,
and DEF Company in a deal valued at $2.0 billion. Acme
organizes each former entity as an operating segment.
Additionally, Acme two divisions—ABC Hot and ABC Cold—
that, along with DEF, are treated as independent reporting units
for internal performance evaluation and management reviews.
ACME recognizes $215 million as goodwill at the merger date
of January 1, 20X3 and allocates this entire amount to its
reporting units. That information and each reporting unit's
acquisition-date fair values are as follows.
New Corp’s Acquisition-Date Fair Values
Reporting Units Goodwill January 1, 20X3

3. ABC Hot $ 22,000,000 $750,000,000
ABC Cold 155,000,000 748,000,000
DEF Company 38,000,000 502,000,000
In December, 20X3, Acme Corp performed an analysis for each
of its three reporting units to assess potential goodwill
impairment. They examined the events that may affect the fair
values of its reporting units. The analysis reveals that the fair
value of each reporting unit likely exceeds its carrying amount
except for ABC Cold. The goodwill impairment test then reveals
that ABC Cold’s fair value has fallen to $70 million, well below
its current carrying amount. Acme compared the implied fair
value of ABC Cold’s goodwill to its carrying amount. Acme
needs to determine the implied fair value of goodwill. The fair
value of ABC Cold’s net assets as of December 31, 21X3 is
shown below.
ABC Cold December 31, 20X3, fair value $70,000,000
Fair values of ABC Cold net assets at December 31, 20X3:
Current assets $ 5,000,000
Property 10,000,000
Equipment 5,000,000
Subscriber list 1,000,000
Patented technology 1,000,000
Current liabilities (4,000,000)
Long-term debt (10,000,000)

4. Required:
(1) What is the implied fair value of goodwill for ABC Cold?
(2) What is the carry value of the assets of ABC Cold before
impairment?
(3) What is the impairment loss of ABC Cold? (Points : 25)
7.
(TCO A) Steven Company owns 40% of the outstanding voting
common stock of Nicole Corp. and has the ability to
significantly influence the investee's operations. On January 3,
20X1, the balance in the Investment in Nicole Corp. account
was $503,000. Amortization associated with this acquisition is
$12,000 per year. During 20X1, Nicole earned a net income of
$120,000 and paid cash dividends of $40,000. Previously in
20X0, Nicole had sold inventory costing $35,000 to Steven for
$50,000. All but 25% of that inventory had been sold to
outsiders by Steven during 20X0. Additional sales were made to
Steven in 20X1 at a transfer price of $75,000 that had cost
Nicole $54,000. Only 10% of the 20X1 purchases had not been
sold to outsiders by the end of 20X1.
Required:
(A) What amount of unrealized intra-entity inventory profit
should be deferred by Steven at December 31, 20X0?
(B) What amount of unrealized intra-entity profit should be
deferred by Steven at December 31, 20X1?

5. (C) What amount of equity income would Steven have
recognized in 20X1 from its ownership interest in Nicole?
(D) What was the balance in the Investment in Nicole Corp.
account at December 31, 20X1?
(Points : 25)
8.
(TCO E) Several years ago, Polar Inc. acquired an 80% interest
in Icecap Co. The book values of Icecap's asset and liability
accounts at that time were considered to be equal to their fair
values. Polar's acquisition value corresponded to the underlying
book value of Icecap so that no allocations or goodwill resulted
from the transaction.
The following selected account balances were from the
individual financial records of these two companies as of
December 31, 20X1.
Polar Inc.
Icecap Co.
Sales
$896,000

6. $504,000
Cost of goods sold
406,000
276,000
Operating expenses
210,000
147,000
Retained earnings, 1/1/11
1,036,000
252,000
Inventory
484,000
154,000
Buildings (net)
501,000
220,000
Investment income
Not given
Polar sold a building to Icecap on January 1, 20X0 for
$112,000, although the book value of this asset was only
$70,000 on that date. The building had a 5-year remaining
useful life and was to be depreciated using the straight-line
method with no salvage value.
Required:
For the consolidated financial statements for 20X1, determine
the balances that would appear for the following accounts.
(1) Buildings (net)
(2) Operating Expenses
(3) Noncontrolling Interest in Subsidiary's Net Income

7. (Points : 25)
9.
(TCO F) Boerkian Co. started in 20X1 with two assets: cash of
§26,000 (stickles) and land that originally cost §72,000 when
acquired on April 4, 20XX. On May 1, 20X1, the company
rendered services to a customer for §36,000, an amount
immediately paid in cash. On October 1, 20X1, the company
incurred an operating expense of §22,000 that was immediately
paid. No other transactions occurred during the year so an
average exchange rate is not necessary.
Currency exchange rates were as follows.
April 4, 20XX
§1 = $.28
January 1, 20X1
§1 = $.29
May 1, 20X1
§1 = $.30
October 1, 20X1
§1 = $.31
December 31, 20X1
§1 = $.35
Assume that Boerkian was a foreign subsidiary of a U.S.
multinational company and the stickle (§) was the functional
currency of the subsidiary.
Required:
(A) Calculate Boerkian's net assets in stickles as of December

8. 31, 20X1.
(B) Calculate the translation adjustment for this subsidiary for
20X1 and state whether this is a positive or a negative
adjustment.
(Points : 25)
10.
(TCO G) Norr and Caylor established a partnership on January
1, 20X0. Norr invested cash of $100,000 and Caylor invested
$30,000 in cash and equipment with a book value of $40,000
and fair value of $50,000. For both partners, the beginning
capital balance was to equal the initial investment. Norr and
Caylor agreed to the following procedure for sharing profits and
losses:
- 12% interest on the yearly beginning capital balance;
- $10 per hour of work that can be billed to the partnership's
clients; and
- the remainder divided in a 3:2 ratio.
The articles of partnership specified that each partner should
withdraw no more than $1,000 per month.
For 20X0, the partnership's income was $70,000. Norr had
1,000 billable hours and Caylor worked 1,400 billable hours. In
20X1, the partnership's income was $24,000, and Norr and
Caylor worked 800 and 1,200 billable hours, respectively. Each
partner withdrew $1,000 per month throughout 20X0 and 20X1.
Required:
(A) Determine the amount of net income allocated to each
partner for 20X0.
(B) Determine the balance in both capital accounts at the end
of 20X0.
(Points : 25)