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Sally Gomez is interested in starting a new business
Sally Gomez is interested in starting a new business. Although Gomez has developed her business plan and is ready to implement her ideas, she lacks the necessary finances to begin her new business. Along with a lack of finances, Gomez worries about the potential liability involved with starting a new business. Gomez would hate to lose all that she has personally accumulated to date in the event of a successful lawsuit against her. She is considering a sole proprietorship, a partnership, or a corporation as the organizing structure of her new venture.
Which type of business would best serve Gomez's needs at this given time? Which type of business structure would be the worst?
Expert Solution
Part A
A foreign currency transaction refers to a business transaction denominated in a currency other than a company's functional or home currency. The French corporation has exported electronic equipment to the USA in a transaction denominated in the dollar, not its functional currency. Thus, this transaction can be termed as a foreign currency transaction.
A foreign transaction refers to an international transaction that involves the transfer of funds that crosses national borders. In this transaction, the $ amount is being transferred from the USA to France. Thus, this is a Foreign transaction.
Part B
c. In this, the entity recognizes unrealized losses or gains on the selling price and cost of the consolidated entity.
If the assets are kept inside the combined organization, unrealized profits and losses from intercompany sales of depreciable assets are realized by usage. Assets are marketed to third parties via asset sales. The method of remembering previously unrealized profits and losses from use is done piecemeal over the depreciable asset's remaining useful life.
Part C
Elimination Entries:
1.
Income from Skelly $23,000
NCI 1000
Dividends Declared-Skelly $10,000
Investment in Skelly 14,000
To eliminate income and dividends from Skelly.
2.
Capital Stock $50,000
Retained Earnings-Jan. 1. 25,000
.Investment in Skelly $67,500
.NCI 7,500
To eliminate equity accounts of Skelly at the beginning of the year.
3.
Goodwill. $25,000
.Investment in Skelly. $23,000
.NCI $2,500
To allocate unamortized difference.
4.
Sales$30,000
.Cost of Goods Sold$30,000
To eliminate intercompany sales.
5.
Cost of Goods Sold$3,000
Inventory$3,000
To eliminate unrealized profit in ending inventory.
6.
Investment in Skelly.$2,000
Cost of Goods Sold$2,000
To eliminate realized profit in beginning inventory.
7.
Accounts Payable$7,500
Receivables$7,500
To eliminate the amounts owed by Skelly.
8.
Gain on sale of equipment$4,000
Equipment$4,000
To eliminate the intercompany gain from the sale of equipment.
9.
Equipment.1000
Other Expenses.1000
To eliminate the excess depreciation.
10.
NCI in CI of Subsidiary$2,800
.NCI$2,800
To recognize NCI in Skelly's Adjusted CI
|
|
Skelly |
Eliminations |
Consolidate |
||
|
Debit |
Credit |
||||
|
Income Statement |
|||||
|
Sales |
$300,000 |
$70,000 |
4. $30,000 |
$340,000 |
|
|
Income from Skelly |
25,000 |
1. 13,000 |
- |
||
|
Gain on Equipment Sale |
4,000 |
8. 4,000 |
- |
||
|
Cost of Sales |
(130,000) |
(22,000) |
4. 30,000 |
||
|
5. 3,000 |
|||||
|
6. 2,000 |
(123,000) |
||||
|
Other Expenses |
(70,000) |
(9,000) |
9. 1000 |
(157,000) |
|
Non-controlling Interest |
10. 2,800 |
(2,800) |
|||
|
Net Income |
$57,000 |
$30,000 |
$57,200 |
||
|
Retained Earnings 1/1 |
$47,500 |
$25,000 |
2. 25,000 |
$47,500 |
|
|
Add: Net Income |
28,500 |
30,000 |
57,200 |
||
|
Dividends |
(35,000) |
(10,000) |
1. 10,000 |
(35,000) |
|
|
Retained Earnings 12/31 |
$69,500 |
$25,000 |
$69,700 |
||
|
Balance Sheet |
|||||
|
Cash |
$27,500 |
$15,000 |
$21,250 |
||
|
Receivables |
35,000 |
20,000 |
7. 7,500 |
47,500 |
|
|
Inventories |
50,000 |
22,500 |
5. 3,000 |
69,500 |
|
Equipment,net |
120,000 |
45,000 |
8. 4,000 |
||
|
19000 |
162,000 |
||||
|
Land |
20,000 |
17500 |
37,500 |
||
|
Investment in Skelly |
102,000 |
1. 14,000 |
|||
|
2. 67,500 |
|||||
|
3. 22,500 |
|||||
|
6. 2,000 |
- |
||||
|
Goodwill |
3. 25,000 |
25,000 |
|||
|
Total Assets |
$354,500 |
$120,000 |
$384,000 |
||
|
Liabilities and Equity |
|||||
|
Accounts Payable |
$35000 |
$25000 |
7. 7500 |
$52500 |
|
|
Capital Stock |
250,000 |
50,000 |
2. 50,000 |
250,000 |
|
|
Retained Earnings |
69,500 |
45000 |
6700 |
||
|
1/1 Noncontrolling Interest |
|||||
|
12/31 Non-controlling Interest |
1. 1000 |
||||
|
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