Advanced Financial Accounting – ACCT302
(1) Stubben Corporation is a 90%-owned subsidiary of Parker Corporation, acquired for
$290,000 on 1/1/2005.
o Investment cost was equal to book value and fair value.
o
Stubben’s net income in 2005 was $80,000, and Parker’s income, excluding its income
from Stubben, was $100,000.
o Parker’s income includes a $8,000 unrealized gain on land that cost $40,000 and was sold
to Stubben for $48,000.
o Assume that Stubben sold the land in 2007 for $64,000. Assume Parker adjusts for this
transaction in the equity accounts.
o Split up the adjustment for unrealized gains proportionately.
Required:
1. What Entry(ies) would Parker make in 2005 and 2007?
2. Prepare the consolidation entries at 12/31/2005, 12/31/2006, and 12/31/2007.
Answers from Slides 7-30 to 7-35
1.
2005 Equity method entries:
Investment in Stubben
Income from Stubben
Income from Stubben
Investment in Stubben
2007 Equity method entries:
Investment in Stubben
Income from Stubben
2.
Consolidation Entry at 12/31/2005
Gain on Sale of Land
Land
Consolidation Entry at 12/31/2006
Investment in Stubben
Land
72,000 (80,000*90%)
72,000
8,000
8,000
8,000
8,000
8,000
8,000
8,000
8,000
Consolidation Entry at 12/31/2007 (Stubben resold the land in 2007)
Investment in Stubben
8,000
Gain on Sale of Land
8,000
pg. 1 @Mshari357
Advanced Financial Accounting – ACCT302
(2) Relationship between Currencies and Exchange Rates:
Exchange Rates
January 1, 2022 June 30, 2022
Direct Exchange Rate
5.08 SAR
4.5647 SAR
(SAR/GBP)
Indirect Exchange Rate
0.1969 GBP
0.2191 GBP
(GBP/SAR)
*Numbers above are accurate according to SaudiExchangeRates.org.uk
December 31, 2022
4.5474 SAR
0.2199 GBP
Required:
a) Choose any two currencies of the two nations
b) Determine the Direct and Indirect Exchange Rates on the above given dates in table.
c) Explain clearly the Decrease or Increase in the DER and IER during the two period
given in the table.
d) Explain Relative Strengths and Weaknesses of these currencies during these periods.
e) Discuss the impact of Changes in the Exchange Rates on the Import and Export of
these nations.
Answer from Slide 8-11
a) Saudi Arabia and Great British Pound is chosen as the two currencies in the table.
b) Data given above, based on historical data from exchangerates.org.uk
c,d & e)
Because of the war happening in Europe during 2022, the same trend happens in both first and
second half of the year 2022.
First half of 2022 (Jan 1, 2022 to June 30, 2022)
Direct rate decreases and indirect rate increases, which means it takes less SAR to
acquire GBP and inversely more GBP to acquire a SAR.
Which means imports to Saudi Arabia from the United Kingdom will increase in quantity
(because Saudi Riyal can acquire now more than it used to) and exports from Saudi Arabia to the
UK normally decrease (because it takes more GBP to acquire the same amount).
The same relationship is inverse to UK imports and exports to Saudi Arabia during the period.
Second half of 2022 (June 30, 2022 to December 31, 2022)
Similar trend to the first half of the year with similar effect, though the decrease in direct rate is
lower as well as the increase in the indirect rate.
pg. 2 @Mshari357
Advanced Financial Accounting – ACCT302
(3) Partnership form of business organisation has certain pros and cons. Explain any Two
advantages and Two Disadvantage of Partnership form of business organisation.
Answer from slides 10-6 and book page 508
Advantages:
Ease of formation: A primary advantage of the partnership form of entity is ease of formation. The
agreement to form a partnership may be as informal as a handshake or as formal as a many paged
partnership agreements.
Single Taxation: Partnerships only report their earnings—they are not taxed at the business entity
level (as are corporations).
Disadvantages:
Unlimited Liability: In a general partnership, all partners have unlimited liability for the debts and
obligations of the business. This means that if the business is unable to pay its debts, the partners’
personal assets may be at risk.
Difficulty in disposing of partnership interest: In many partnerships, the partnership agreement
may place restrictions on the transfer of ownership interests. For example, the other partners may
have the right of first refusal, meaning that they have the first opportunity to buy the departing
partner’s interest before it can be offered to an outside party. Additionally, finding a buyer for a
partnership interest can be challenging, as the buyer would be entering into a pre-existing business
relationship with the remaining partners.
Nothing follows.
* For feedback
JammyBoy
pg. 3 @Mshari357
College of Administration and Finance Sciences
Assignment (2)
Deadline: Saturday 03/June/2023 @ 23:59
Course Name: Advanced Financial
Accounting
Student’s Name:
Course Code: ACCT 302
Student’s
Semester: 3rd
CRN:
Academic Year: 1444 H
For Instructor’s Use only
Instructor’s Name:
Students’ Grade:
/15
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
• All answers must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism.
• Submissions without this cover page will NOT be accepted.
College of Administration and Finance Sciences
(1) Stubben Corporation is a 90%-owned subsidiary of Parker Corporation, acquired
for $290,000 on 1/1/2005.
o Investment cost was equal to book value and fair value.
o Stubben’s net income in 2005 was $80,000, and Parker’s income, excluding its
income from Stubben, was $100,000.
o Parker’s income includes a $8,000 unrealized gain on land that cost $40,000 and
was sold to Stubben for $48,000.
o Assume that Stubben sold the land in 2007 for $64,000. Assume Parker adjusts
for this transaction in the equity accounts.
o Split up the adjustment for unrealized gains proportionately.
Required:
1. What Entry(ies) would Parker make in 2005 and 2007?
2. Prepare the consolidation entries at 12/31/2005, 12/31/2006, and 12/31/2007.
(5 Marks)
(2) Relationship between Currencies and Exchange Rates:
Exchange Rates
January 1, 2022
June 30, 2022 December 31, 2022
Direct Exchange
Rate
Indirect Exchange
Rate
Required:
a) Choose any two currencies of the two nations
b) Determine the Direct and Indirect Exchange Rates on the above given dates
in table.
College of Administration and Finance Sciences
c) Explain clearly the Decrease or Increase in the DER and IER during the two
period given in the table.
d) Explain Relative Strengths and Weaknesses of these currencies during these
periods.
e) Discuss the impact of Changes in the Exchange Rates on the Import and
Export of these nations.
(5 Marks)
(3) Partnership form of business organisation has certain pros and cons. Explain any
Two advantages and Two Disadvantage of Partnership form of business
organisation.
(5 Marks)
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