On July 1, 2011, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $720,000 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $290,000 both before and after Truman’s acquisition. In reviewing its acquisition, Truman assigned a $100,000 fair value to a patent recently developed by Atlanta, even though it was not recorded within the financial records of the subsidiary. This patent is anticipated to have a remaining life of five years.
The following financial information is available for these two companies for 2011. In addition, the subsidiary’s income was earned uniformly throughout the year. Subsidiary dividend payments were made quarterly.
Truman
Atlanta
Revenues
$ (670,000)
$ (400,000)
Operating expenses
402,000
280,000
Income of subsidiary
(35,000)
Net income
$ (303,000)
$ (120,000)
Retained earnings, 1/1/11
$ (823,000)
$ (500,000)
Net income (above)
(303,000)
(120,000)
Dividends paid
145,000
80,000
Retained earnings, 12/31/11
$ (981,000)
$ (540,000)
Current assets
$ 481,000
$ 390,000
Investment in Atlanta
727,000
Land
388,000
200,000
Buildings
701,000
630,000
Total assets
$ 2,297,000
$ 1,220,000
Liabilities
$ (816,000)
$ (360,000)
Common stock
(95,000)
(300,000)
Additional paid-in capital
(405,000)
(20,000)
Retained earnings, 12/31/11
(981,000)
(540,000)
Total liabilities and stockholders’ equity
$(2,297,000)
$(1,220,000)
Answer each of the following:
a. How did Truman allocate Atlanta’s acquisition-date fair value to the various assets acquired and liabilities assumed in the combination?
b. How did Truman allocate the goodwill from the acquisition across the controlling and noncontrolling interests?
c. How did Truman derive the Investment in Atlanta account balance at the end of 2011?
d. Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2011.

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(Learning Objective 3: Consolidating a wholly-owned subsidiary) Razorback Express, Inc., paid $266,000 to acquire all the common stock of Sooner Corporation, and Sooner owes Razorback $81,000 on a note payable. Immediately after the purchase on September 30, 20X8, the 2 companies’ balance sheets follow.
Razorback
Sooner
Assets
Cash
$ 24,000
$ 20,000
Accounts receivable, net
91,000
42,000
Note receivable from Sooner
81,000
—
Inventory
19,000
214,000
Investment in Sooner
266,000
—
Plant assets, net
278,000
219,000
Total
$759,000
$495,000
Liabilities and Stockholders’ Equity
Accounts payable
$ 57,000
$ 49,000
Notes payable
175,000
149,000
Other liabilities
129,000
31,000
Common stock
150,000
118,000
Retained earnings
248,000
148,000
Total
$759,000
$495,000
Required
Prepare the consolidated balance sheet of Razorback Express (It is sufficient to complete a consolidation work sheet.)

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(Recognition of Revenue on Long-Term Contract and Entries) Hamilton Construction Company uses the percentage-of-completion method of accounting. In 2012, Hamilton began work under contract #E2-D2, which provided for a contract price of $2,200,000. Other details follow:
2012
2013
Costs incurred during the year
$640,000
$1,425,000
Estimated costs to complete, as of December 31
960,000
–0–
Billings during the year
420,000
1,680,000
Collections during the year
350,000
1,500,000
Instructions
(a) What portion of the total contract price would be recognized as revenue in 2012? In 2013?
(b) Assuming the same facts as those above except that Hamilton uses the completed-contract method of accounting, what portion of the total contract price would be recognized as revenue in 2013?
(c) Prepare a complete set of journal entries for 2012 (using the percentage-of-completion method).

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Olga is the proprietor of a small business. In 2012, the business income, before consideration of any cost recovery or § 179 deduction, is $250,000. Olga spends $600,000 on new seven-year class assets and elects to take the § 179 deduction on them. She elects not to take additional first-year depreciation. Olga's cost recovery deduction for 2012, except for the cost recovery with respect to the new seven-year assets, is $95,000. Determine her total cost recovery for 2012 with respect to the seven-year class assets and the amount of any § 179 carryforward.

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Files and More, Inc. (F&M), a manufacturer of office equipment, uses MRP to schedule its production. Because of the current recession and the need to cut costs, F&M has targeted inventory as a prime area for cost reduction. However, the company does not want to reduce its customer service level in the process. Demand and inventory data for a two-drawer file cabinet are given in the following table. Complete an MRP matrix for the file cabinet using: (a) L4L, (b) EOQ, and (c) POQ lot sizing. Which lot-sizing rule do you recommend?
Period
1
2
3
4
5
Demand
20
40
30
10
45
Ordering cost = $100 per order
Holding cost = $1 per cabinet per period
Lead time = 1 period
Beginning inventory = 25

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Haney Company's payroll for the week ending January 15 amounted to $95,000 for Office Salaries and $150,000 for Store Wages. None of the employees has reached the earnings limits specified for federal or state employer payroll taxes. The following deductions were withheld from employees'salaries and wages:Federal Income Tax $50,000State Income tax $ 9,000FICA Taxes $19,600Union Dues $ 2,700United Fund $ 1,800
Federal unemployment tax (FUTA) rate is 6.2% less a credit equal to the rate paid for state unemployment taxes. The state unemployment tax (SUTA) rate is 5.4%.InstructionsPrepare the journal entry to brecord the weekly payroll ending January 15 and also the employers payroll tax expense on the payroll.

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Lissette Jones, the materials manager for an upscale retailer, wants to measure her customer service level. She has collected the following representative data.
Order Number
Number of List Items
Dollar Value of Order
1
4
1000
2
8
1440
3
2
1600
4
6
920
5
10
1800
6
8
1200
7
8
2700
8
4
1560
9
5
1780
10
5
1000
Total
60
$15,000
Assuming that orders 1–6 and 8–10 shipped on schedule:
(a) Calculate the customer service level using the percentage of orders that shipped on schedule.
(b) Calculate the customer service level using the percentage of line orders that shipped on schedule.
(c) Calculate the customer service level using the percentage of dollar volume that shipped on schedule.
(d) Which of these measures would you recommend to Lissette?

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LIFO Liquidation Profit - The Hammond Company adopted LIFO when it was formed on January 1, 2005. Since then, the company has had the following purchases and sales of its single inventory item:
Year
Units Purchased
Cost per Unit
Units Sold
Price per Unit
2005
10,000
$5
8,000
$12
2006
12,000
6
9,000
13
2007
15,000
8
14,000
16
In December 2008, the controller realized that because of an unexpected increase in demand, the company had sold 22,000 units but had purchased only 19,000 units during the year. In 2008, each unit had been sold for $19, and each unit purchased had cost $10. The income tax rate is 30%.
Required

1. If the company makes no additional purchases in 2008, how much LIFO liquidation profit will it report?
2. Prepare the appropriate annual report disclosures for 2008.
3. If the company purchases an additional 7,000 units in December 2008, how much income tax will the company save?
4. If the company purchases the additional 7,000 units, how much income tax has the company saved over the four-year period by using LIFO instead of the FIFO cost flow assumption?

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(Direct material and direct labor variances) Lisa Scamponi Ltd. Produces evening bags. In December 2001, Ms. Scamponi, president of the company, received the following information from Antonio Buffa, the new controller, in regard to November production:
Production during month
1,200 handbags
Actual cost of material purchased and used
$4,767.18
Standard material allowed
1/3 square yard per bag
Material quantity variance
$594 U
Actual hours worked
2,520
Standard labor time per handbag
2 hours
Labor rate variance
$630 F
Standard labor rate per hour
$7
Standard price per yard of material
$8
Ms. Scamponi asked Mr. Buffa to provide her with the following specific information:
a. The standard quantity of material allowed for November production
b. The standard direct labor hours allowed for November production
c. The material price variance
d. The labor efficiency variance
e. The standard prime (direct material and direct labor) cost to produce one bag
f. The actual cost to produce one bag in November
g. An explanation for the difference between standard and actual cost. Be sure the explanation is consistent with the pattern of the variances.

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Using a 5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer. Project 1 Initial Invest= $500,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10. Project 2 Initial Invest= $1,000,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10. Project 3 Initial Invest= $800,000, Cash inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year 10. (Part 2) Assuming a budget of $1,200,000 what are your recommendations for the three projects in the above problem. Explain. Assuming a budget of $2,000,000 what are your recommendations for the above problem? Explain.

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