HOPE COLLEGE OF BUSINESS, SCIENCE AND

TECHNOLOGY
FACULTY OF BUSINESS
Department of Accounting and Finance
Advanced Accounting Assignment

1. Included in the accounting records of the home office and Wade Branch, respectively, of
Lobo Company were the following ledger accounts for the month of January 2005:
Investment in Wade Branch (in Home Office accounting records)
Date
Explanations
Dr
Cr
Jan 1.

Balance

9 Shipment of merchandise

39,200.0
0
4,000.00

21

Receipt of cash
Collection of branch trade accounts
27 receivable
31

Date
Jan 1.
10

Shipment of merchandise
31 Payment of branch trade accounts
payables

1,600.00
1,100.00
6,000.00
2,000.00

Home Office (in Wade Branch accounting records)

Explanations
Dr
Cr
Balance

39,200.0
0

Receipt of merchandise

4,000.00

19 Remittance of cash

1,600.00

28 Acquisition of furniture 1

1,200.00

30

2,200.00

Return of merchandise

31

Remittance of cash

2,500.00

Instructions
a. Prepare a working paper to reconcile the reciprocal ledger accounts of Lobo Companys home
office and Wade Branch to the corrected balances on January 31, 2005.
b. Prepare journal entries on January 31, 2005, for the (1) home office and (2) Wade
Branch of Lobo Company to bring the accounting records up to date. Both the home office and
the branch use the perpetual inventory system.
2. The unadjusted general ledger trial balances on December 31, 2005, for Calco Corporations
home office and its only branch are shown below:
CALCO CORPORATION
Unadjusted Trial Balances
Home Office Dr
(Cr)
Cash
Trade accounts receivable (net)
Inventories, Jan. 1, 2005 (at cost to home
office)

Branch Dr
(Cr)

28,000.00

23,000.00

35,000.00

12,000.00

70,000.00

15,000.00

Investment in branch

30,000.00

Equipment (net)

90,000.00

Trade accounts payable

(46,000.00)

(13,500.00)

Accrued liabilities

(14,000.00)

(2,500.00)

Home office

(19,000.00)

Common stock, $10 par

(50,000.00)

Retained earnings, Jan. 1, 2005

(48,000.00)

Dividends declared

10,000.00

Sales
Purchases

(450,000.00)

(100,000.00)

290,000.00
Shipments from home office
Operating expenses

24,000.00
45,000.00

55,000.00

16,000.00

Your audit disclosed the following:

1. On December 10, 2005, the branch manager acquired equipment for $500, but failed to notify
the home office. The branch accountant, knowing that branch equipment is carried in the home
office ledger, recorded the proper journal entry in the branch accounting records. It is Calcos
policy not to recognize depreciation on equipment acquired in the last half of a year.
2. On December 27, 2005, Mojo, Inc., a customer of the branch, erroneously paid its account of
$2,000 to the home office. The accountant made the correct journal entry in the home office
accounting records but did not notify the branch.
3. On December 30, 2005, the branch remitted to the home office cash of $5,000, which had not
been received by the home office as of December 31, 2005.
4. On December 31, 2005, the branch accountant erroneously recorded the December allocated
expenses from the home office as $500 instead of $5,000.
5. On December 31, 2005, the home office shipped merchandise billed at $3,000 to the branch;
the shipment had not been received by the branch as of December 31, 2005.
6. The inventories on December 31, 2005, excluding the shipment in transit, were: home office
$60,000 (at cost); branch$20,000 (consisting of $18,000 from home office at billed prices and
$2,000 from suppliers). Both the home office and the branch use the periodic inventory system.
7. The home office erroneously billed shipments to the branch at a markup of 20% above home
office cost, although the billing should have been at cost. The Sales ledger account was credited
for the invoices price by the home office.
Instructions
a. Prepare journal entries for the home office of Calco Corporation on December 31, 2005, to
bring the accounting records up to date and to correct any errors.
b. Prepare journal entries for the branch of Calco Corporation on December 31, 2005, to bring
the accounting records up to date and to correct any errors. Record ending inventories at cost to
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the home office by an offsetting credit to the Income Summary ledger account. Do not prepare
other closing entries.
c. Prepare a working paper to summarize the operations of Calco Corporation for the year ended
December 31, 2005.

3. Discuss about business amalgamation (combination) in Ethiopian context under the

Commercial Code of Ethiopia.
4. Discuss about Business Combination under international context under IFRS 3 (International
Financial Reporting Standards).
5. On January 1, 2010, Big Company pays birr 70,000 for a 10 percent interest in Little
Company. On that date, Little has a book value of birr 600,000, although equipment, which
has a five-year life, is undervalued by birr 100,000 on its books. Little Companys stock is
closely held by a few investors and is traded only infrequently and fair values are not readily
available on a continuing basis.
On January 1, 2011, Big acquires an additional 30 percent of Little Company for birr 264,000
while the book value of its identifiable net assets was birr 700,000. This second purchase
provides Big the ability to exert significant influence over Little. At the time of this
transaction, Littles equipment with a four-year life was undervalued by only birr 80,000.
During these two years, Little reported the following operational results:
Year
2010
2011

Net Income
210,000
250,000

Cash Dividends Paid

110,000
100,000

Required: Record the necessary journal entries in the books of Big Company for 2010
and 2011.
6. Following are the account balances of M Company and R Company as of
December 31.
M Co.
Book Values
Cash. . . . . . . . . . . . . . . . . . . . . . . . $ 600,000
Receivables. . . . . . . . . . . . . . . . . . . 900,000
Inventory . . . . . . . . . . . . . . . . . . . . 1,100,000
Buildings and equipment (net) . . . . 9,000,000
Patented technology . . . . . . . . .

R Co.
Book Values
$ 200,000
300,000
600,000
800,000

R Co.
Fair Values
$ 200,000
290,000
820,000
900,000
600,000

Accounts payable . . . . . . . . . . . . . . (400,000)

Notes payable. . . . . . . . . . . . . . . . . (3,400,000)
Common stock$20 par value . . . (2,000,000)
Common stock$5 par value . . . .
Additional paid-in capital . . . . . . . . (900,000)
Retained earnings . . .
(4,900,000)

(200,000)
(1,100,000)

(200,000)
(1,100,000)

(220,000)
(100,000)
(280,000)

Additional Information

On December 31, M Co. issues 50,000 shares of its $20 par value common stock for all of
the outstanding shares of R Company. M Cos stock has a fair value of $32.00 per share.
As part of the acquisition agreement, M agrees to pay the former owners of R $250,000 if
certain profit projections are realized over the next three years. M calculates the acquisition
date fair value of this contingency at $100,000.
In creating this combination, M pays $10,000 in stock issue costs and $20,000 in accounting
and legal fees.

Required: Calculate goodwill on acquisition and prepare consolidated balance sheet on the
date of acquisition.

7. On January 1, P Corporation acquired 80 percent of the 100,000 outstanding voting shares of

S. Inc., in exchange for $31.25 per share cash. At January 1, Ss book and fair values were as
follows:
Book Values
Fair Values
Remaining Life
Current assets . . . . . . . . . . . . . . . . . . 80,000
80,000
Buildings and equipment . . . . . . . . . . 1,250,000
1,000,000
5 years
Trademarks . . . . . . . . . . . . . . . . . . . . 700,000
900,000
10 years
Patented technology . . . . . . . . . . . . . 940,000
2,000,000
4 years
Current liabilities . . . . . . . . . . . . . . . . 180,000
180,000
Long-term notes payable . . . . . . . . . . 1,500,000
1,500,000
Common stock . . . . . . . . . . . . . . . . . 50,000
Additional paid-in capital . . . . . . . . . . 500,000
Retained earnings . . . . . . . . . . . . . . . 740,000
During the year, S Inc paid a $30,000 dividend to its shareholders. The companies reported the
following revenues and expenses from their separate operations for the year ending December
31.
P
S
5

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750,000

1,400,000
600,000

Required:
a. How much goodwill resulted from Ps acquisition of S?
b. What is the non-controlling interest amount reported at the date of acquisition?
c. What is the consolidated net income for the year and what amounts are allocated to the
controlling and non-controlling interests?
d. What is the non-controlling interest amount reported in the December 31 consolidated
balance sheet?
8. B Company, headquartered in Ethiopia, has occasional transactions with companies in a
foreign country whose currency is USD. Prepare journal entries for the following
transactions in birr. Also prepare any necessary adjusting entries at December 31 caused by
fluctuations in the value of the Birr.
Transactions in 2014
February 1: Bought equipment for 40,000 USD on credit.
April 1: Paid for the equipment purchased February 1.
June 1: Bought inventory for 30,000 USD on credit.
August 1: Sold 70 percent of inventory purchased June 1 for 40,000 USD on credit.
October 1: Collected 30,000 USD from the sales made on August 1, 2014.
November 1: Paid 20,000 USD on the debts incurred on June 1, 2011.
Transactions in 2015
February 1: Collected remaining 10,000 USD from August 1, 2011, sales.
March 1: Paid remaining 10,000 USD on the debts incurred on June 1, 2011.
Currency exchange rates for 1 birr for 2014
February 1
$0.44
April 1
0.45
June 1
0.47
August 1
0.48
October 1
0.49
November 1
0.50
December 31 0.52
Currency exchange rates for 1 birr for 2015
February 1
$0.54
March 1
0.55