Advanced Accounting

November 27, 2019

Facilitator: Aprilia Beta Suandi, Dr. M.Ec.

Problem 1
Hilfmir Corporation filed for Chapter 11 bankruptcy on January 1, 2014. A summary of their financial
status is shown below on June 30, 2014, at the date of the approved reorganization plan, along with the
fair value of their assets.

Per Books Fair Value

Cash $ 134,000 $ 134,000
A/R - net 20,000 20,000
Inventory 32,000 40,000
Plant Assets - net 114,000 106,000
Patent 80,000 0
$ 380,000

A/P $ 60,000
Wages Payable 20,000
Prepetition liab. 250,000
Common Stock 140,000
Deficit (90,000)
$ 380,000

Under the reorganization plan, the reorganization value has been set at $320,000. Prepetition liabilities
include $30,000 of trade Accounts Payable and a $220,000 Note Payable to Bigg Bank. The reorganization
plan calls for the Prepetition accounts payable to be paid at 80% at a later date, and the Note Payable for
$220,000 to be replaced by a Note Payable for $76,000 and the issuance of common stock of the new entity
for $100,000. The former stockholders will receive $40,000 in common stock of the new entity, Hilfmir, in
exchange for their shares.

Required:
Show the calculations to determine if Hilfmir is eligible for fresh-start accounting
Prepare necessary journal entries to adopt fresh-start reporting
Prepare a fresh-start balance sheet for the new entity, Hilfmir, as of July 1, 2014.
Problem 2
Quantex Corporation has five operating segments, as summarized below:

Household Industrial Packaging Storage Services

Sales to outside
entities 700,000 4,300,000 400,000 1,700,000 100,000
Intersegment sales 50,000 600,000 800,000 200,000 -0-
Cost of goods sold 300,000 2,700,000 700,000 900,000 -0-
Operating Expenses 200,000 1,300,000 200,000 600,000 30,000
Interest Expense 10,000 40,000 5,000 -0- -0-
Income Tax
Expense 60,000 210,000 70,000 100,000 18,000
Assets 540,000 1,900,000 1,600,000 70,000 32,000

Required:
Determine which of the operating segments of Quantex Corporation are reportable segments for the
period shown

Problem 3

Pew Corporation (a U.S. corporation) acquired all of the stock of Skunk Company (a Brazilian company)
on January 1, 2014 for $9,300,000 when Skunk had 10,000,000 Brazilian real (BR) capital stock and
5,000,000 BR retained earnings. The book value of Skunk's net assets equaled the fair value on this date,
and any cost/book value differential is due to a patent with a 5-year remaining useful life. Skunk's
functional currency is the BR. Skunk's books are maintained in the functional currency. The exchange
rates for BR's for 2014 are shown below:

January 1, 2014 $0.60

Average for 2014 $0.64
December 31, 2014 $0.68

Required:
1. Calculate the patent value from the business combination on January 1, 2014 in U.S. dollars.

2. Calculate the patent amortization in U.S. dollars for 2014.

3. Prepare the journal entry (in U.S. dollars) required on Pew's books to record the patent amortization for
2014, assuming that Pew accounts for Skunk using the equity method.
Problem 4

Ivan has 14,000 barrels of oil that were purchased a month ago at $50.00 per barrel. On November 1, 2014
Ivan hedges the value of the inventory by entering into a forward contract to sell 14,000 barrels of oil on
January 31, 2015 for $60.00 per barrel. The forward contract is to be settled net. Assume this is a fair value
hedge.

Required:
Assume a 6% discount rate is reasonable*, and using a mixed-attribute model, prepare the journal entries
to account for this hedge at the following dates:

When the market price is...

November 1, 2014 $60.00 per barrel
December 31, 2014 $65.00 per barrel
January 31, 2015 $62.00 per barrel
*to calculate estimated present value, divide your calculation by 1.005

Problem 5

Sally Corporation's stockholders' equity on December 31, 2014 was as follows:

10% cumulative preferred stock, $100 par value,

callable at $105, with one year dividends in arrears $10,000
Common stock, $1 par value 50,000
Additional paid-in capital 150,000
Retained earnings 160,000
Total stockholders' equity $370,000

On January 1, 2015, Panera Corporation paid $500,000 for a 70% interest in Sally's common stock. On
January 1, 2015, the book values of Sally's assets and liabilities were equal to fair values.

Required:
1. Determine the book value of the common stockholders' equity for Sally Corporation on January 1, 2015.

2. What is the amount of goodwill reported on the consolidated balance sheet for Panera Corporation and
Subsidiary at January 2, 2015?

3. On January 2, 2015, Panera purchased 70% of Sally's preferred stock for $5,000. Prepare the journal
entry(ies) for Panera for this purchase on January 2, 2015.

4. Prepare the elimination entry on the consolidating work papers for the Investment in Sally, Preferred
Stock and Sally's Preferred Stock on January 2, 2015.
Problem 6

Paice Corporation owns 80% of the voting common stock of Accardi Corporation. Paice owns 60% of the
voting common stock of Badger Corporation. Accardi owns 20% of the voting common stock of Badger.
There are no cost/book value/fair value differentials to consider. The separate net incomes (excluding
investment income) of these affiliated companies for 2014 are:

Paice $300,000
Accardi 160,000
Badger 120,000

Required:
Calculate controlling interest share of consolidated net income and noncontrolling interest shares for
Paice Corporation and Subsidiaries for 2014.