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Mami SA contributes $170,000 cash and Nasrin Company brings innet assets valued at $170,000 to form Mazda Inc. Mami, SA andNasrin Company each receive 50 percent equity interest in MazdaInc. The financial statements of Mazda Inc. for its first year ofoperations are as follows:

Mazda Inc.

Income Statement

YEAR 1

______________________________________________________________________________

Revenues $80,000

Expenses 50,000

________

Income beforetax 30,000

TaxExpense 10,000

________

NetIncome $20,000

________

Mazda Inc.

Balance Sheet

December 31, Year 1

______________________________________________________________________________

Cash $40,000 Liabilities $60,000

Inventory 60,000

Property, Plant,and CommonStock 340,000

Equipment(net) 320,000 Retained Earnings 20,000

_________ ________

TotalAssets $420,000 $420,000

_________ ________

Mami SA’s financial statements for the year ended December 31,Year 1 and before making any accounting entries related to itsinvestment in Mazda, Inc., are as follows:

Mami SA

Income Statement for Year 1

______________________________________________________________________________

Revenues $800,000

Expenses 450,000

________

Income beforetax 350,000

TaxExpense 100,000

________

NetIncome $250,000

________

Mami SA

Balance Sheet for the year ended on December 31, Year1

______________________________________________________________________________

Cash $130,000 Liabilities $250,000

Inventory 200,000

Property, Plant,and CommonStock 600,000

Equipment(net) 650,000 Retained Earnings 300,000

Investment in

Mazda Inc. (at cost) 170,000

___________ __________

TotalAssets $1,150,000 $1,150,000

___________ __________

Restate Mami, SA’s Year 1 financial statements to properlyaccount for its investment in Mazda Inc. under the proportionateconsolidation method and equity method.

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Keith Leannon
Keith LeannonLv2
28 Sep 2019

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MugsCompany
ComparativeBalance Sheet
December 31,2007 2007 2006
Assets
Cash $ 25,000 $40,000
Marketablesecurities 20,000 60,000
AccountsReceivable (net) 40,000 30,000
Inventory 150,000 170,000
Property,plantand equipment (net) 170,000 200,000
Total Assets $405,000 $500,000
Liabilities and stockholders' equity
Accountspayable $ 25,000 $ 30,000
BondInterest payable 40,000 90,000
Bondspayable 75,000 160,000
CommonStock 175,000 145,000
Retainedearnings 90,000 75,000
Totalliabilities and stockholders' equity $405,000 $500,000

MugsCompany
IncomeStatement
Forthe Year Ended 12/31/07
NetSales $360,000
Costof goods sold 184,000
Grossprofit 176,000
Expenses
InterestExpense $21,000
SellingExpense 30,000
AdministrativeExpenses 20,000
Totalexpenses 71,000
Income beforeincome taxes 105,000
Income taxexpense 30,000
NetIncome $75,000

AdditionalInformation:

  1. Cashdividends of $50,000 were declared and paid in 2007.
  2. Weighted averagenumber of shares of common stock outstanding during 2007 were62,000 shares.
  3. Market value ofcommon stock on December 31,2007 was $15 per share.
  4. Netcash provided by operating activities for 2007 was$65,000.

Using thefinancial statements and additional information, compute thefollowing ratios for the Mugs Company for 2007. You need to labelyour ratios and show your calculations for maximumcredit.

  1. Currentratio
  2. Return oncommon stockholders' equity
  3. Price-earningsratio
  4. Inventoryturnover ratio
  5. Average daysin inventory
  6. Receivableturnover
  7. Average daysto collect receivables
  8. Profit marginratio
  9. Payoutratio
  10. Return onassets


Parente Corporation acquired 100 percent of Benson Company’soutstanding common stock on January 1, 2015 for $550,000 in cash.Benson reported net assets with a carrying amount of $350,000 atthat time. Some of Benson’s assets either were unrecorded (havingbeen internally developed) or had fair values that differed frombook values as follows:

BookValues Fair Values

Trademarks (indefinitelife) $ 60,000 $ 160,000

Customer relationships (5-year remaining life) -0- 75,000

Equipment (10-year remaininglife) 342,000 312,000

Any goodwill is considered to have an indefinite life with noimpairment charges during the year.

During 2015, Benson had the following income and dividendsdeclared in its own separately prepared financial reports:

Net Income -$222,000

Dividends -$80,000

Following are financial statements at the end of the first yearfor these two companies prepared from their separately maintainedaccounting systems. Benson declared and paid dividends in the sameperiod. Credit balances are indicated by parentheses.

Parente Benson

Revenues $ (1,125,000) $ (520,000)

Cost of GoodsSold 300,000 228,000

DepreciationExpense 75,000 70,000

AmortizationExpense 25,000 -0-

Income fromBenson (210,000) -0-

NetIncome $ (935,000) $ (222,000)

Retained Earnings1/1 $ (700,000) $ (250,000)

NetIncome (935,000) (222,000)

Dividendsdeclared 142,000 80,000

Retained Earnings12/31 $(1,493,000) $ (392,000)

Cash $ 185,000 $ 105,000

Receivables 225,000 56,000

Inventory 175,000 135,000

Investment inBenson 680,000 -0-

Trademarks 474,000 60,000

CustomerRelationships -0- -0-

Equipment(net) 925,000 272,000

Goodwill -0- -0-

TotalAssets $ 2,664,000 $ 628,000

Liabilities $ (771,000) $ (136,000)

CommonStock (400,000) (100,000)

Retained Earnings12/31 (1,493,000) (392,000)

Total Liabilities andEquity $(2,664,000) $ (628,000)

Requirements:

a )Prepare Parente’s acquisition-date fair-value allocationschedule for its investment in Benson.

b) Show how Parente determined its December 31, 2015 Investmentin Benson balance.

c) Prepare a worksheet to determine the balances for Parente’sDecember 31, 2015 consolidated financial statements.

Please answer the previous questions in the worksheet providedat the bottom of the page.

Parente Company andConsolidated Subsidiary
Consolidation Worksheet
For Year Ending December 31,2015
Consolidation Entries Consolidated
Parente Benson Type Debit Type Credit Totals
Revenues (1,125,000) (520,000)
Cost of goods sold 300,000 228,000
Depreciation expense 75,000 70,000
Amortization expense 25,000 0
Equity Income from Benson (210,000) 0
NetIncome (935,000) (222,000)
Retained earnings 1/1 (700,000) (250,000)
Net Income (935,000) (222,000)
Dividends paid 142,000 80,000
Retained earnings 12/31 (1,493,000) (392,000)
Cash 185,000 105,000
Receivables 225,000 56,000
Inventory 175,000 135,000
Investment in Benson 680,000 0
Trademarks 474,000 60,000
Customer relationships 0 0
Equipment (net) 925,000 272,000
Goodwill 0 0
Totalassets 2,664,000 628,000
Liabilities (771,000) (136,000)
Common stock (400,000) (100,000)
Retained earnings 12/31 (1,493,000) (392,000)
Totalliabilities and equity (2,664,000) (628000) 0 0

1. The financial statements ofGaines Company appear below: GAINES COMPANY Comparative BalanceSheet December 31, �������������������������������������������Assets 2013 2012 Cash................................................................................................... $25,000 $ 40,000 Short-terminvestments...................................................................... 15,000 60,000 Accounts receivable(net).................................................................. 50,000 30,000Inventory........................................................................................... 50,000 70,000 Property, plant and equipment(net).................................................. 260,000 300,000 Total assets.................................................................................. $400,000 $500,000 Liabilities and stockholders' equity Accountspayable............................................................................... $20,000 $ 30,000 Short-term notespayable................................................................... 30,000 90,000 Bondspayable................................................................................... 90,000 160,000 Commonstock................................................................................... 150,000 150,000 Retainedearnings.............................................................................. 110,000 70,000 Totalliabilities and stockholders'equity...................................... $400,000 $500,000 GAINES COMPANY Income Statement For the Year EndedDecember 31, 2013 Netsales............................................................................................. $400,000 Cost of goodssold............................................................................. 240,000 Grossprofit........................................................................................ 160,000 Expenses Operatingexpenses...................................................................... $42,000 Interestexpense........................................................................... 18,000 Totalexpenses........................................................................ 60,000 Income before incometaxes.............................................................. 100,000 Income taxexpense........................................................................... 30,000 Netincome......................................................................................... $ 70,000 Additional information: a. Cashdividends of $23,000 were declared and paid in 2013.b. Weighted-average number of shares ofcommon stock outstanding during 2013 was 30,000 shares.c. Market value of common stock on December31, 2013, was $21 per share. Required: Using the financialstatements and additional information, compute the following ratiosfor Gaines Company for 2013. Show all computations. (20 min.) 1. Current ratio1.8:1 (90,000/50,000) 2. Return on commonstockholders' equity _________. 3. Price-earnings ratio _________. 4. Acid-test ratio_________. 5. Receivables turnover _________. 6. Times interest earned _________. 7. Profit margin_________. 8. Days ininventory _________. 9. Payout ratio 32.8% 10. Return on assets_________.

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