Mitchell Boehm

Mergers & Acquisitions

Problems 5-7
5
a. Share of Income ($4,000,000*30%)
$ 1,200,000
Revaluation of write-offs:
Plant and Equipment ($4,000,000*30%/10)
120,000
Uncomfirmed Inventory Profits:
Upstream Sales 12/31/14 ($625,000 - 625,000/1.25)
(37,500)
Upstream 12/31/13 (beg inventory)
55,500
Downstream Sales 12/31/14 ($696,000 - 696,000/1.2)
(34,800)
Downstream 12/31/13 (beg inventory)
21,000
Equity in Net Income of Seaway Company
$ 1,324,200

b. Investment in Seaway Company

1,324,200
Equity in income of Seaway Company
1,324,200
To accrue Rance's share of the earnings of the investee
Unrealized losses (OCI)
240,000
Investment in Seaway Company
240,000
To report 30% share of Seaway's unrealized losses on AFS securities
Dividends receivable
Investment in Seaway
To record the declared dividend; 30%*1,500,000

450,000

Cash

450,000

Dividends Receivable
To record receipt of the declared dividend
c.

2012&2013
Dr. 10,000,000
Dr. 4,200,000
Cr. 1,500,000
Dr. 240,000
Cr. 1,800,000
Cr. 55,500
Cr. 21,000
Dr. 300,000

2014
Dr. 1,324,200
Cr. 240,000
Cr. 450,000
Investment Balance
$11,997,700

450,000

450,000

6
a. 40% of the voting stock for $3.2 million
They have $500,000 in common stock at $2.00 par, so therefore they have
250,000 shares total ($500,000/$2.00). 40% of 250,000 shares is 100,000 shares
(250,000*.4)

b.
Dr. 720,000 (1,800,000*.4)
Cr. 80,000 (unreported franchise agreements)
Dr. 28,000
Dr. 160,000

Equity in net income of Manchester

7
a. Investment in Jackson
Cash
To record initial investment
Downstream sales
Investment
To record ending inventory from downstream sales
Upstream sales
Investment
To record ending inventory from upstream sales
Investment in Jackson
Equity in net income of Jackson
Equity in net income of Jackson
b. HARCKER
JACKSON
Sales Rev
131,000,000 264,000,000
COS
110,000,000 229,000,000
GM
21,000,000 35,000,000
Portion of Jackson's Rev
105,600,000
Portion of Jackson's COS
91,600,000
Total GM
35,000,000

828,000

40,000,000
40,000,000
15,000,000
15,000,000
14,000,000
14,000,000
12,000,000
12,000,000
23,000,000

Individually, Jackson, the investee, has a greater gross margin on sales by $14,000,000. As reported by GAAP,
however, Harcker would have a greater gross margin on sales due to its 40% investment in the voting stock of
Jackson.