tion that enables users of its financial statements to P. iry atty shall rured e
ID: 2584416 • Letter: T
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tion that enables users of its financial statements to P. iry atty shall rured entities Bature in unconsolidatere th its interests in joit re and extent of its interests in unconsolidated struc es and changes in, the risks associated with its interests dated structured entities . Evaluate the consolidated Financial Statements: Various Issues cases case 16-1 cilable differences of opinion, a dissenting group within the d board of directors of the Algo Company resigned and formed the , Case 16-7 use of ment and urchase a manufacturing division of the Algo Company nage Corporation to fe negotiation of the agreem property a se Pholder's agi holder's claim was acknowledged by Bevo's board of directors. ent, but just before closing and actual transfer of ntrolling stockholder of Algo notified Bevo that a prior ith Algo empowered him to prevent the sale. The non erty, a lling gt rganized Casco, Inc., to acquire the minority stockholders in- s boar erest in Algo for ntrollin Bevo advanced the cash to Casco. Bevo exercised a subsidiary corporation with common officers and directors o for $75,000, and rol over Casco as subsidia astock) for his interest in Algo. Bevo then purchased the manufacturing of the vision from Algo. ontrolling stockholder $75,000 (about twice the market value Reguired , What expenditures are usually included in the cost of property, plant, amd equipment acquired in a purchase? h i. What are the criteria for determining whether to consolidate the financial statements of Bevo Corporation and Casco, Inc.? i. Should the financial statements of Bevo and Casco be consolidated? Discuss c Assume that unconsolidated financial statements are prepared. Discuss the propriety of treating the $75,000 expenditure in the financial statements of the Bevo as i. An account receivable from Casco ii. An investment in Casco i. Part of the cost of the property, plant, and equipment iv. A lossExplanation / Answer
a.1 ptWhat expenditures are usually included in the cost of property, plant, andequipment acquired in a purchase?
Expenditures allocated to the costs are the direct costs and legal costs involved in the acquisition/purchase. The costs are first allocated to the identifiable assets and then to good will. All indirect costs are expensed as they occur.
B i.1 pt What are the criteria for determining whether to consolidate the financial statements of Bevo Corporation and Casco, Inc.?
The criteria for determining whether to consolidate financial statements or not, the following four criteria are considered;*A parent-subsidiary relationship must exist*The parent exercises control over the subsidiary*The parent plans to maintain control over the subsidiary during the near future* The parent and subsidiary operate as an integrated unit and*The fiscal years of the units match each other.(Schroeder, 2005)
ii. 1 pt Should the financial statements of Bevo and Casco be consolidated? Discuss.Yes the financial statements of Bevo and Casco should be consolidated. The criteria stated above has been considered and met. In addition, the two overriding principles of (1) an entity cannot own or owe itself and (2) the entity cannot make a profit by selling to itself.(Schroeder, 2005)
b. Assume that unconsolidated financial statements are prepared. Discuss thepropriety of treating the $75,000 expenditure in the financial statements of theBevo as:i.
1 pt An account receivable from Casco..
If Bevo reports as a receivable from Casco, then Casco should report this as a payable to Bevo on their financial statements. “Other accounts receivables, such as receivables from related parties, shall be listed separately at net realizable value.”(FASB 310-45-1)
ii.1 pt An investment in Casco.
An investor (Bevo) shall report its investments (Casco) at fair market value (75,000) on the statement of financial position. (FABA 325-45-1) Casco would represent this as outstanding shares at the fair market value with the difference be going to owner’s equity.
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