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    Q3

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    neobuxcmamsc

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    Q3

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    neobuxcmamsc
    9 views20 pages

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    9 views20 pages

    Q3

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    neobuxcmamsc

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    © All Rights Reserved
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    You are on page 1of 20

    Q3.

    Make the necessary adjusting


    entries to account for Unbekannt,
    Inc.’s investment in Éxito Real, Inc., at
    the end of the fiscal year, assuming
    that Unbekannt’s finance team
    decides to use the equity method to
    account for the investment.

    Adjusting Equity
    entries method
    Q3
    Answer
    Preface

    Number of shares

    Éxito Real, Inc.’s total shares outstanding 150,000

    Number of shares owned by Unbekannt 18,000

    % ownership of investee (18000/150000) 12%


    12%
    Stock price
    Purchase price $4

    Market price on 12/31/2022 $7.25

    Stock initial acquisition cost (18000*4$) $72,000


    Stock market price (Fair value)*(18000*7.25$)

    $130,500
    Financial results

    Éxito Real, Inc.’s reported net profit (loss) (20,000)

    Dividends paid by Éxito Real during 2022 35,000

    Unbekannt, Inc.’s reported net profit (loss)


    (20000)*12% ($2,400)
    Step 1) Record the initial acquisition
    transaction

    $72,00
    Stock initial acquisition cost (18000*4$) 0

    Account
    Total Name Debit
    investment in investee(Éxito Real, $72,00 Credit
    Inc) 0
    Have been adjusted already
    We can see that
    Investment in investee(Éxito Real, Inc.) in financial
    $72,000
    statements
    $72,00
    Cash
    Asset Asset Cash flows 0
    Step 2) Record share of net income / loss for Tax
    the period rate
    28%
    Net loss reported by investee(Éxito Real, ($20,00
    Inc.) 0)

    x Ownership % 12%
    Account Name Debit Credit

    loss from investment in investee(Éxito ($2,400


    Loss from Inc)
    According
    Real, stock investment
    to loss, inaffected
    it will be investee(Éxito
    net income before
    ) tax then
    Real,
    thereInc.)
    will be different between tax expense now and $1728
    before which
    will result to deferred tax asset.

    Asset Equity Cash flows


    It appears clearly
    Deferred tax asset when preparing$672
    the
    Asset
    income statement
    Step 3) Record share of dividends

    $35,00
    Dividends paid by Éxito Real during 2022 0

    x Ownership % 12%
    Account Name Debit Credit

    Due from dividends from investee(Éxito


    Cash
    Real,Inc) $4,200
    $4,200

    Asset AssetReal, Inc.)


    Investment in investee(Éxito Cash flows$4,200
    T accounts
    Cash
    Deferred Tax
    Stock investment asset

    $476,250 $672
    $72,000 $2,400
    $4,200

    $4,200
    Retained earning(Net income)

    $480,450 $672

    $1,728 $3,661,666
    $65,400
    Q4.Update Unbekannt, Inc.’s financial
    statements to incorporate the effects
    of the adjusting entries for the equity
    method.

    Update
    financial Equity
    statements method
    Q4
    Answer
    MULTI-STEP INCOME STATEMENT FOR YEAR ENDED DECEMBER 31, 2022
    Sales revenue $31,750,000
    Cost of Goods Sold $22,034,500
    Gross Profit (Loss) $9,715,500
    Operating activites
    Selling Expenses
    Advertising expense $595,313 -
    Bad debt expense $495,000 -
    Sales force salaries expense $1,706,563 -
    Shipping expense $259,953 -
    Total Selling Expenses $3,056,829
    Administrative Expenses
    Executive salaries expense $2,032,000 -
    Insurance expense $47,625 -
    Depreciation expense $635,000 -
    Miscellaneous admin expenses $31,750 -
    Rent expenses $762,000 -
    Utilities Expenses $127,000 -
    Total Administrative Expenses $3,635,375
    Total Operating Expenses $6,692,204
    income from operations $3,023,296
    Other gain and losses
    loss from stock ivestment -$2,400
    Interest expense -$202,406
    income from continuing operations Before Taxes $2,818,490
    Less: Tax Expense $789,849 $789,177
    Net Profit (Loss) $2,029,313
    Earning per share($2,029,313/2100) $0.97

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