Exam 3: An Introduction to Consolidated Financial Statements

Parrot Inc.acquired an 85% interest in Sparrow Corporation on January 2,2014 for $42,500 cash when Sparrow had Capital Stock of $15,000 and Retained Earnings of $25,000.Sparrow's assets and liabilities had book values equal to their fair values except for inventory that was undervalued by $2,000.Balance sheets for Parrot and Sparrow on January 2,2014,immediately after the business combination,are presented in the first two columns of the consolidated balance sheet working papers. Required: Complete the consolidation balance sheet working papers for Parrot and subsidiary at January 1,2014.

Subsequent to an acquisition,the parent company and consolidated financial statement amounts would not be the same for

Pamula Corporation paid $279,000 for 90% of Shad Corporation's $10 par common stock on December 31,2014,when Shad Corporation's stockholders' equity was made up of $200,000 of Common Stock,$60,000 Additional Paid-in Capital and $40,000 of Retained Earnings.Shad's identifiable assets and liabilities reflected their fair values on December 31,2014,except for Shad's inventory which was undervalued by $5,000 and their land which was undervalued by $2,000.Balance sheets for Pamula and Shad immediately after the business combination are presented in the partially completed working papers. Required: Complete the consolidated balance sheet working papers for Pamula Corporation and Subsidiary.

Pomograte Corporation bought 75% of Sycamore Company's common stock,with a book value of $900,000,on January 2,2014 for $750,000.The law firm of Dewey,Cheatam and Howe was paid $55,000 to facilitate the purchase.At what amount should Pomograte's Investment in Sycamore account be reported on January 2,2014?

Passerby International purchased 80% of Standaround Company's outstanding common stock for $200,000 on January 2,2014.At that time,the fair value of Standaround's net assets were equal to the book values.The balance sheets of Passerby and Standaround at January 2,2014 are summarized as follows: Required: Determine the consolidated balances as of January 2,2014 for the following five balance sheet line items: Goodwill,Liabilities,Capital Stock,Retained Earnings,and Noncontrolling Interest.

In the consolidated income statement of Wattlebird Corporation and its 85% owned Forest subsidiary,the noncontrolling interest share was reported at $45,000.Assume the book value and fair value of Forest's net assets were equal at the acquisition date.What amount of net income did Forest have for the year?

What method must be used if FASB Statement No.94 prohibits full consolidation of a 70% owned subsidiary?

Pal Corporation paid $5,000 for a 60% interest in Sonny Inc.on January 1,2014 when Sonny's stockholders' equity consisted of $5,000 Capital Stock and $2,500 Retained Earnings.The fair value and book value of Sonny's assets and liabilities were equal on this date.Two years later,on December 31,2015,the balance sheets of Pal and Sonny are summarized as follows: Required: Complete the consolidated balance sheet working papers for Pal Corporation and Subsidiary at December 31,2015.

On July 1,2014,Polliwog Incorporated paid cash for 21,000 shares of Salamander Company's $10 par value stock,when it was trading at $22 per share.At that time,Salamander's total stockholders' equity was $597,000,and they had 30,000 shares of stock outstanding,both before and after the purchase.The book value of Salamander's net assets is believed to approximate the fair values. Requirement 1: Prepare the journal entry that Polliwog would record at the date of acquisition on their general ledger. Requirement 2: Calculate the balance of the goodwill that would be recorded on Polliwog's general ledger,on Salamander's general ledger,and in the consolidated financial statements.

Polaris Incorporated purchased 80% of The Solar Company on January 2,2014,when Solar's book value was $800,000.Polaris paid $700,000 for their acquisition,and the fair value of noncontrolling interest was $175,000.At the date of acquisition,the fair value and book value of Solar's identifiable assets and liabilities were equal.At the end of the year,the separate companies reported the following balances: Requirement 1: Calculate consolidated balances for each of the accounts as of December 31,2014. Requirement 2: Assuming that Solar has paid no dividends during the year,what is the ending balance of the noncontrolling interest in the subsidiary?

Pool Industries paid $540,000 to purchase 75% of the outstanding stock of Swimmin Corporation,on December 31,2014.Any excess fair value over the identified assets and liabilities is attributed to goodwill.The following year-end information was available just before the purchase: Required: 1.Prepare Pool's consolidated balance sheet on December 31,2014.

Passcode Incorporated acquired 90% of Safe Systems International for $540,000,the market value at that time.On the date of acquisition,Safe Systems showed the following balances on their ledger: Safe Systems has determined that their buildings have a remaining life of 10 years,and their equipment has a remaining useful life of 8 years. Requirement 1: Calculate the amount of goodwill that will appear on the general ledger of Passcode and Safe Systems,as well as the amount that will appear on the consolidated financial statements. Requirement 2: Calculate the amount of amortization that will appear on the consolidated financial statements for buildings and equipment,and explain how this amortization of excess fair value is shown on the separate general ledgers of Passcode and Safe Systems.

From the standpoint of accounting theory,which of the following statements is the best justification for the preparation of consolidated financial statements?

Percy Inc.acquired 80% of the outstanding stock of Sillson Company in a business combination.The book values of Sillson's net assets are equal to the fair values except for the building,whose net book value and fair value are $500,000 and $800,000,respectively.At what amount is the building reported on the consolidated balance sheet?

Push-down accounting

Petra Corporation paid $500,000 for 80% of the outstanding voting common stock of Sizable Corporation on January 2,2014 when the book value of Sizable's net assets was $460,000.The fair values of Sizable's identifiable net assets were equal to their book values except as indicated below. Sizable reported net income of $75,000 during 2014;dividends of $35,000 were declared and paid during the year. Required: 1.Prepare a schedule to allocate the fair value/book value differential to the specific identifiable assets and liabilities. 2.Determine Petra's income from Sizable for 2014. 3.Determine the correct balance in the Investment in Sizable account as of December 31,2014.

Pental Corporation bought 90% of Sedacor Company's common stock at its book value of $400,000 on January 1,2014.During 2014,Sedacor reported net income of $130,000 and paid dividends of $40,000.At what amount should Pental's Investment in Sedacor account be reported on December 31,2014?

On January 1,2014,Parry Incorporated paid $72,000 cash for 80% of Samuel Company's common stock.At that time Samuel had $40,000 capital stock and $30,000 retained earnings.The book values of Samuel's assets and liabilities were equal to fair values,and any excess amount is allocated to goodwill.Samuel reported net income of $18,000 during 2014 and declared $5,000 of dividends on December 31,2014.At the time the dividends were declared,Parry recorded a receivable for the amount they expected to receive the following month.A summary of the balance sheets of Parry and Samuel are shown below. Required: Complete the consolidated balance sheet working papers for Parry Corporation and Subsidiary at December 31,2014.

The unamortized excess account is