Question 1
On December 31, 2014, Paladium International purchased 70% of the outstanding common stock of Sennex Chemical. Paladium paid $140,000 for the shares and determined that the fair value of all recorded Sennex assets and liabilities approximated their book values, with the exception of a customer list that was not recorded and had a fair value of $10,000 and an expected remaining useful life of 5 years. At the time of purchase, Sennex had stockholders’ equity consisting of capital stock amounting to $20,000 and retained earnings amounting to $80,000. Any remaining excess fair value was attributed to goodwill. The separate financial statements at December 31, 2015 appear in the first two columns of the consolidation workpapers shown below.
Complete the consolidation working papers for Paladium and Sennex for the year 2015.
| Paladium | Sennex | Eliminations | Consolidated | |||||
| Debit | Credit | |||||||
| INCOME STATEMENT Sales |
$ | 331,900 | 48,000 | |||||
| Income of Sennex | 9,100 | |||||||
| Cost of Sales | (148,000) | (25,000) | ||||||
| Other Expenses | (72,000) | (8,000) | ||||||
| Noncontrolling Interest Share | ||||||||
| Net Income | 121,000 | 15,000 | ||||||
| Retained Earnings 1/1 | 846,000 | 80,000 | ||||||
| Add: Net Income |
121,000 | 15,000 | ||||||
| Less: Dividends |
(9,000) | (4,000) | ||||||
| Retained Earnings 12/31 | $ | 958,000 | 91,000 | |||||
| BALANCE SHEET Cash |
135,000 | 64,000 | ||||||
| Accounts Receivable-net | 227,000 | 160,000 | ||||||
| Inventories | 316,000 | 86,000 | ||||||
| Land | 80,000 | 40,000 | ||||||
| Equipment and Buildings-net | 469,000 | 230,000 | ||||||
| Investment in Sennex | 146,300 | |||||||
| Customer List | ||||||||
| Goodwill | ||||||||
| TOTAL ASSETS | $ | 1,373,300 | 580,000 | |||||
| LIAB. & EQUITY Accounts Payable |
$ | 305,300 | 469,000 | |||||
| Capital Stock | 110,000 | 20,000 | ||||||
| Retained earnings | 958,000 | 91,000 | ||||||
| 1/1 Noncontrol. Interest | ||||||||
| 12/31 Noncontrol. Int. | ||||||||
| TOTAL LIAB. & EQUITY | $ | 1,373,300 | 580,000 | |||||
Question 2
Powell Corporation acquired 90% of the voting stock of Santer Corporation on January 1, 2014 for $11,700 when Santer had Capital Stock of $5,000 and Retained Earnings of $4,000. The amounts reported on the financial statements approximated fair value, with the exception of inventories, which were understated on the books by $500 and were sold in 2014, land which was undervalued by $1,000, and equipment with a remaining useful life of 5 years under the straight-line method, which was undervalued by $1,500. Any remainder was assigned to goodwill.
Financial statements for Powell and Santer Corporations at the end of the fiscal year ended December 31, 2015 appear in the first two columns of the partially completed consolidation working papers. Powell has accounted for its investment in Santer using the equity method of accounting. Powell Corporation owed Santer Corporation $100 on open account at the end of the year. Dividends receivable in the amount of $450 payable from Santer to Powell is included in Powell’s net receivables.
Complete the consolidation working papers for Powell Corporation and Subsidiary for the year ended December 31, 2015.
| Powell | Santer | Eliminations | Consolidated | |||||
| Debit | Credit | |||||||
| INCOME STATEMENT Sales |
$ | 10,000 | 6,500 | |||||
| Income from Santer | 1,080 | |||||||
| Cost of Sales | (4,000) | (3,300) | ||||||
| Depreciation Expense | (1,000) | (1,000) | ||||||
| Other Expenses | (1,800) | (700) | ||||||
| Noncontrolling Interest Share | ||||||||
| Net Income | 4,280 | 1,500 | ||||||
| Retained Earnings 1/1 | 2,510 | 5,000 | ||||||
| Add: Net Income |
4,280 | 1,500 | ||||||
| Less: Dividends |
(2,000) | (1,000) | ||||||
| Retained Earnings 12/31 | $ | 4,790 | 5,500 | |||||
| BALANCE SHEET Cash |
1,440 | 1,900 | ||||||
| Receivables-net | 1,100 | 600 | ||||||
| Inventories | 1,500 | 1,200 | ||||||
| Land | 1,000 | 1,600 | ||||||
| Equipment and Buildings-net | 7,500 | 6,700 | ||||||
| Investment in Santer Corp. | 12,060 | |||||||
| Goodwill | ||||||||
| TOTAL ASSETS | $ | 24,600 | 12,000 | |||||
| LIAB. & EQUITY Accounts Payable |
$ | 3,810 | 1,000 | |||||
| Dividends Payable | 2,000 | 500 | ||||||
| Capital Stock | 14,000 | 5,000 | ||||||
| Ret. Earnings | 4,790 | 5,500 | ||||||
| Nonctl. Interest 1/1 | ||||||||
| Nonctl. Interest 12/31 | ||||||||
| TOTAL LIAB. & EQUITY | $ | 24,600 | 12,000 | |||||
Question 3
Pennack Corporation purchased 75% of the outstanding stock of Shing Corporation on January 1, 2014 for $300,000 cash. At the time of the purchase, the book value and fair value of Shing’s assets and liabilities were equal. Shing’s balance sheet at the time of acquisition and December 31, 2014 are shown below.
Jan 1, 2014 Dec 31, 2014
Cash $75,000 80,000
Other current assets 175,000 160,000
Plant Assets — net 250,000 240,000
Total assets 500,000 480,000
Liabilities 100,000 50,000
Capital stock 100,000 100,000
Retained earnings 300,000 330,000
Total liabilities and equity 500,000 480,000
Shing earned $60,000 in income during the year and paid out $30,000 in dividends. Pennack uses the equity method to account for its investment in Shing.
Part 1: Calculate Pennack’s net income from Shing in 2014.
Part 2: Calculate the noncontrolling interest share in Shing’s income for 2014.
Part 3: Calculate the balance in the Investment in Shing’s account reported on Pennack’s separate general ledger at December 31, 2014.
Part 4: Calculate the noncontrolling interest that will be reported on the consolidated balance sheet at December 31, 2014.
Question 4
Salli Corporation regularly purchases merchandise from their 90% owner, Playtime Corporation. Playtime purchased the 90% interest at a cost equal to 90% of the book value of Salli’s net assets. At the time of acquisition, the book values and fair values of Salli’s assets and liabilities were equal. Playtime makes their sales to Salli at 120% of cost. In 2014, Salli reported net income of $460,000, and made purchases totaling $172,000 from Playtime. Although Salli had no inventory on hand at the beginning of 2014 that they had purchased from Playtime, at year end, they had $51,600 of this merchandise in inventory.
Part 1: Determine the unrealized profit in Salli’s inventory at December 31, 2014.
Part 2: Compute Playtime’s income from Salli for 2014.
Question 5
Pexo Industries purchases the majority of their raw materials from a wholly-owned subsidiary, Springmade Chemicals. Pexo purchased Springmade to assure supply availability at a time when the materials were being rationed in the industry due to supply issues overseas. Pexo was able to purchase Springmade at the book value of Springmade’s net assets. At the time of purchase, the book value and fair value of Springmade’s net assets were equal. Pexo purchased $2,890,000 of materials from Springmade in 2014 alone. All intercompany sales are made at 120% of cost, although Springmade is able to mark up their products 80% to other outside buyers. Pexo carried inventory on their books at the beginning and end of the year in the amount of $450,000 and $480,000, respectively, all of which had been purchased from Springmade. Income statement information for both companies for 2014 is as follows:
Pexo Springmade
Sales Revenue $3,793,000 $4,441,000
Investment income from Springmade 245,000
Cost of Goods Sold (3,139,000) (3,270,000)
Expenses (257,000) (921,000)
Net Income $642,000 $250,000
Prepare a consolidated income statement for Pexo Corporation and Subsidiary for 2014.
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