Exam 4: Consolidated Techniques and Procedures

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.

A parent company uses the equity method to account for its wholly-owned subsidiary,but has applied it incorrectly.In each of the past four full years,the company adjusted the Investment account when it received dividends from the subsidiary but did not adjust the account for any of the subsidiary's profits.The subsidiary had four years of profits and paid yearly dividends in amounts that were less than reported net incomes.Which one of the following statements is correct if the parent company discovered its mistake at the end of the fourth year,and is now preparing consolidation working papers?

The portion of a subsidiary's net income not accruing to the parent can be referred to as noncontrolling interest share.

Which one of the following will increase consolidated retained earnings?

The consolidated cash flow statement is prepared from the consolidated income statement and consolidated balance sheet.

Pull Incorporated and Shove Company reported summarized balance sheets as shown below,on December 31,2014. On January 1,2015,Pull purchased 70% of the outstanding capital stock of Shove for $392,000,of which $92,000 was paid in cash,and $300,000 was borrowed from their bank.The debt is to be repaid in 10 annual installments beginning on December 31,2015,with each payment consisting of $30,000 principal,plus accrued interest. The excess fair value of Shove Company over the underlying book value is allocated to inventory (60 percent)and to goodwill (40 percent). Required: Calculate the balance in each of the following accounts,on the consolidated balance sheet,immediately following the acquisition. a.Current assets b.Noncurrent assets c.Current liabilities d.Long-term debt e.Stockholders' equity

Packo Company acquired all the voting stock of Sennett Corporation on January 1,2014 for $90,000 when Sennett had Capital Stock of $50,000 and Retained Earnings of $8,000.The excess of fair value over book value was allocated as follows: (1)$5,000 to inventories (sold in 2014),(2)$16,000 to equipment with a 4-year remaining useful life (straight-line method of depreciation)and (3)the remainder to goodwill. Financial statements for Packo and Sennett at the end of the fiscal year ended December 31,2015 (two years after acquisition),appear in the first two columns of the partially completed consolidation working papers.Packo has accounted for its investment in Sennett using the equity method of accounting. Required: Complete the consolidation working papers for Packo Company and Subsidiary for the year ending December 31,2015.

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?

Parrot Corporation acquired 90% of Swallow Co.on January 1,2014 for $27,000 cash when Swallow's stockholders' equity consisted of $10,000 of Capital Stock and $5,000 of Retained Earnings.The difference between the fair value and book value of Swallow's net assets was allocated solely to a patent amortized over 5 years.The separate company statements for Parrot and Swallow appear in the first two columns of the partially completed consolidation working papers. Required: Complete the consolidation working papers for Parrot and Swallow for the year 2014.

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. Required: Complete the consolidation working papers for Paladium and Sennex for the year 2015.