Exam 4: Consolidated Techniques and Procedures

On January 1,2014,Paisley Incorporated paid $300,000 for 60% of Smarnia Company's outstanding capital stock.Smarnia reported common stock on that date of $250,000 and retained earnings of $100,000.Plant assets,which had a five-year remaining life,were undervalued in Smarnia's financial records by $10,000.Smarnia also had a patent that was not on the books,but had a market value of $60,000.The patent has a remaining useful life of 10 years.Any remaining fair value/book value differential is allocated to goodwill.Smarnia's net income and dividends paid the first three years that Paisley owned them are shown below. Requirement 1: Calculate the noncontrolling interest share in Smarnia's income for each of the three years. Requirement 2: Calculate the noncontrolling interest that should be reported on the consolidated balance sheet at the end of each of the three years. Requirement 3: Assuming that Paisley uses the equity method to record their investment in Smarnia,calculate the ending balance in the Investment in Smarnia account for each of the three years.

Bird Corporation has several subsidiaries that are included in its consolidated financial statements and several other investments in corporations that are not consolidated.In its year-end trial balance,the following intercompany balances appear.Ostrich Corporation is the unconsolidated company;the rest are consolidated. What amount should Bird report as intercompany receivables on its consolidated balance sheet?

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. Required: Complete the consolidation working papers for Powell Corporation and Subsidiary for the year ended December 31,2015.

On January 2,2014,PBL Enterprises purchased 90% of Santos Incorporated outstanding common stock for $1,687,500 cash.Santos' net assets had a book value of $1,300,000 at the time.A building with a 15-year remaining life and a book value of $100,000 had a fair value of $175,000.Any other excess amount was attributed to goodwill.PBL reported net income for the first year of $350,000 (without regard for its ownership in Santos),while Santos had $175,000 in earnings. Required: 1.Calculate the amount of goodwill related to this acquisition as reported on the consolidated balance sheet at January 2,2014. 2.Calculate the amount of consolidated net income for the year ended December 31,2014. 3.What is the amount that will be assigned to the building on the consolidated balance sheet at the date of acquisition?

At the beginning of 2014,Parling Food Services acquired a 90% interest in Simmons' Orchards when Simmons' book values of identifiable net assets equaled their fair values.On December 26,2014,Simmons declared dividends of $50,000,and the dividends were unpaid at year-end.Parling had not recorded the dividend receivable at December 31.A consolidated working paper entry is necessary to

Platt Corporation paid $87,500 for a 70% interest in Suve Corporation on January 1,2014,when Suve's Capital Stock was $70,000 and its Retained Earnings $30,000.The fair values of Suve's identifiable assets and liabilities were the same as the recorded book values on the acquisition date.Trial balances at the end of the year on December 31,2014 are given below: During 2014,Platt made only two journal entries with respect to its investment in Suve.On January 1,2014,it debited the Investment in Suve account for $87,500 and on November 1,2014,it credited Dividend Income for $7,000. Required: 1.Prepare a consolidated income statement and a statement of retained earnings for Platt and Subsidiary for the year ended December 31,2014. 2.Prepare a consolidated balance sheet for Platt and Subsidiary as of December 31,2014.

A parent corporation owns 55% of the outstanding voting common stock of one domestic subsidiary.The parent has control over the subsidiary.Which of the following statements is correct?

On December 31,2014,Patenne Incorporated purchased 60% of Smolin Manufacturing for $300,000.The book value and fair value of Smolin's assets and liabilities were equal with the exception of plant assets which were undervalued by $60,000 and had a remaining life of 10 years,and a patent which was undervalued by $40,000 and had a remaining life of 5 years.At December 31,2016,the companies showed the following balances on their respective adjusted trial balances: Requirement 1: Calculate the balance in the Plant assets - net and the Patent accounts on the consolidated balance sheet as of December 31,2016. Requirement 2: Calculate consolidated net income for 2016,and the amount allocated to the controlling and noncontrolling interests. Requirement 3: Calculate the balance of the noncontrolling interest in Smolin to be reported on the consolidated balance sheet at December 31,2016.

Which of the following statements is not true with respect to the statement of cash flows for a consolidated entity?

What is the amount of consolidated Retained Earnings?

What is the amount of total assets?

A parent company uses the equity method to account for its wholly-owned subsidiary.Which of the following will be a correct procedure for the Investment account?

Parakeet Company has the following information collected in order to prepare a cash flow statement and uses the direct method for Cash Flow from Operations.The annual report year end is December 31,2014. Required: 1.Prepare the Cash Flow for Operations part of the cash flow statement for Parakeet for the year ended December 31,2014.

When preparing consolidated financial statements,which of the following is a subtraction in the calculation of cash flows from operating activities under the indirect method?

Pommu Corporation paid $78,000 for a 60% interest in Schtick Inc.on January 1,2014,when Schtick's Capital Stock was $80,000 and its Retained Earnings $20,000.The fair values of Schtick's identifiable assets and liabilities were the same as the recorded book values on the acquisition date.Trial balances at the end of the year on December 31,2014 are given below: During 2014,Pommu made only two journal entries with respect to its investment in Schtick.On January 1,2014,it debited the Investment in Schtick account for $78,000 and on November 1,2014,it credited Dividend Income for $6,000. Required: 1.Prepare a consolidated income statement and a statement of retained earnings for Pommu and Subsidiary for the year ended December 31,2014. 2.Prepare a consolidated balance sheet for Pommu and Subsidiary as of December 31,2014.

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. 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. Requirement 1: Calculate Pennack's net income from Shing in 2014. Requirement 2: Calculate the noncontrolling interest share in Shing's income for 2014. Requirement 3: Calculate the balance in the Investment in Shing account reported on Pennack's separate general ledger at December 31,2014. Requirement 4: Calculate the noncontrolling interest that will be reported on the consolidated balance sheet at December 31,2014.

Which of the following will be debited to the Investment account when the equity method is used?

When performing a consolidation,if the balance sheet does not balance,