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
$ 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
Net Income
121,000 15,000
(9,000) (4,000)
Retained Earnings 12/31 $ 958,000 91,000
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
TOTAL ASSETS $ 1,373,300 580,000
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
$ 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
Net Income
4,280 1,500
(2,000) (1,000)
Retained Earnings 12/31 $ 4,790 5,500
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
TOTAL ASSETS $ 24,600 12,000
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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