Prepare a schedule of safe payments

Reference no: EM131314451

I) On 1/1/15 Big Co. acquired 70% of Little Co. for 350,000 Euros (€). The fair value of the non-controlling interest on that date was €150,000. Little's book value on that date was €500,000, and all assets and liabilities had fair values equal to book value.

Trial balances far Little, for 2016 and 2017 are given below, as are the relevant exchange rates. Assuming the € is the functional currency, convert the trial balances to US Dollars and prepare all necessary, equity, method and elimination entries for both years.

Please BE SURE to clearly separate the equity method entries from the elimination entries.

Exchange rates:

1/1/16 - $1.20 per €

10/1/16 - 1.18 per €

12/31/16 - 1.15 per €

2016 average - 1.17 per €

10/1/17 - 1.12 per €

12/31/17 - 1.10 per €

2017 average - 1.13 per €

2016 Trial balance	€	Exchange rate	US Dollar
Cash and receivables	50,000
Inventory	80,000
PPE	500,000
Patents	100,000

Current liabilities	30,000
Bonds payable	100,000
Common Stock	200,000
Retained earnings	300,000
Sales	400,000
Cost of goods sold	220,000
Operating expenses	50,000
Dividends {declared 10/1)	30,000

2017 Trial balance	€	Exchange rate	US Dollar
Cash and receivables	50,000
Inventory	100,000
PPE	600,000
Patents	100,000

Current liabilities	40,000
Bonds payable	100,000
Common Stock	200,000
Retained earnings	400,000
Sales	450,000
Cost of goods sold	240,000
Operating expenses	60,000
Dividends (declared 10/1)	40,000

II) The MHB Partnership has the following capital balances:

Mises, capital - 500,000

Hayek, capital - 300,000

Bohm-Bawerk, capital - 200,000

Mises, Hayek, and Bohm-Bawerk share profits and losses in a 60:25:15 (12:5:3 if you prefer) ratio. Please provide entries to record the following INDEPENDENT partnership events (i.e.., each question goes back to the original data set):

A. Mises wishes to retire, and will be paid $600,000. Record Mises retirement assuming:

a. The bonus method is used

b. The goodwill method is used, with goodwill to Mises only

c. The goodwill method k used, with goodwill to all partners

B. Ropke wishes to join the partnership. He pays $250,000 for a 10% ownership interest. Record his admission under:

a. The bonus method

b. The goodwill method

C. The MHB partnership decides to liquidate. Prepare a cash distribution plan and interpret what it means.

The MHB partnership (described above) has the following trial balance at 1/1/16


Cash	100,000
Inventory	150,000
PPE, net	700,000
Goodwill	100,000

Current liabilities	50,000
Mises, Capital	500,000
Hayek, Capital	300,000
Bohm-Bawerk, Capital	200,000

Answer the following questions:

A. Assuming that the MHB Partnership wishes to retain $20,000 against unforeseen liquidation expenses, prepare a schedule of safe payments.

B. Assume that the inventory is sold for $100,000 and the goodwill is written off. Continue to assume that the partnership wishes to hold back $20,000 against unforeseen expenses. Prepare a schedule of safe payments.

III) The ABC Partnership allocates income among their partners on the following bass:

a. A and B receive salaries of $60,000 and 70,000, respectively.

b. Each partner receives a 10% return on weighted average capital.

c. Any remainder is split 40/20/40.

ABC have the following capital balances at year end:

A, capital 400,000

B, capital 300,000

C, capital 200,000

A and B have had no changes in their capital balances over the course of the year. C had the following transactions in her capital account:

1/1/16 Balance 400,000

3/1/15 Withdrawal 300,000

12/1/16 Investment 100,000

Ending balance 200,000

Assuming that the partnership had $150,000 of income during 2016, how much income would be allocated to each partner?

IV) On 1/1/16 Big Company acquired 90% of Little Company for €450,000. The fair value of the non-controlling interest on that date was €50,000. Little's book value was €400,000. The entire €100,000 differential was due to undervalued property, plant, and equipment with a 5 year remaining useful rife. The € is Little's functional currency.

Exchange rates for 2016 were:

1/1/15 $1.20 per €

12/31/16 1.30 per €

2016 average 1.25 per €

How much of a translation gain or loss would arise from the translation of the differential?

Reference no: EM131314451

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