Exam 3: An Introduction to 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?

A parent's income from subsidiary investments can be referred to investment income from subsidiary.

The excess of fair value over book value in a Parent-Subsidiary is assigned to goodwill assuming identifiable assets and liabilities are equal.

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 January 2,2014,Power Incorporated paid $630,000 for a 90% interest in Smallsen Company.Smallsen's equity at that time amounted to $600,000,and their book values for assets and liabilities recorded approximated their fair values.Smallsen did not issue any additional stock in 2014.At December 31,2014,the two companies' balance sheets are summarized as follows: Required: Complete the consolidation worksheet for Power Incorporated and Subsidiary at December 31,2014.

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.

Pardo Corporation paid $140,000 for a 70% interest in Spedeal Inc.on January 1,2014,when Spedeal had Capital Stock of $50,000 and Retained Earnings of $100,000.Fair values of identifiable net assets were the same as recorded book values.During 2014,Spedeal had income of $40,000,declared dividends of $15,000,and paid $10,000 of dividends.On December 31,2014,the consolidated financial statements will show

Pinata Corporation acquired an 80% interest in Smackem Inc.for $130,000 on January 1,2014,when Smackem had Capital Stock of $125,000 and Retained Earnings of $25,000.Assume the fair value and book value of Smackem's net assets were equal on January 1,2014.Pinata's separate income statement and a consolidated income statement for Pinata and Subsidiary as of December 31,2014,are shown below. Noncontrolling Smackem's separate income statement must have reported net income of

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

On January 1,2014,Packaging International purchased 90% of Shipaway Corporation's outstanding shares for $135,000 when the fair value of Shipaway's net assets were equal to the book values.The balance sheets of Packaging and Shipaway Corporations at year-end 2013 are summarized as follows: If a consolidated balance sheet was prepared immediately after the business combination,the noncontrolling interest would be

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?

Pattalle Co.purchases Senday,Inc.on January 1 of the current year for $70,000 more than the fair value of Senday's net assets.Push-down accounting is used.At that date,the following values exist: Requirement: Determine what amounts will appear in the listed accounts on Pattalle's general ledger,on Senday's general ledger,and on the consolidated balance sheet immediately following the acquisition.Make sure you post the entry to record the investment on Pattalle's books.

On July 1,2014,Piper Corporation issued 23,000 shares of its own $2 par value common stock for 40,000 shares of the outstanding stock of Sector Inc.in an acquisition.Piper common stock at July 1,2014 was selling at $16 per share.Just before the business combination,balance sheet information of the two corporations was as follows: Required: 1.Prepare the journal entry on Piper Corporation's books to account for the investment in Sector Inc. 2.Prepare a consolidated balance sheet for Piper Corporation and Subsidiary immediately after the business combination.

Park Corporation paid $180,000 for a 75% interest in Stem Co.'s outstanding Capital Stock on January 1,2014,when Stem's stockholders' equity consisted of $150,000 of Capital Stock and $50,000 of Retained Earnings.Book values of Stem's net assets were equal to their fair values on this date.The adjusted trial balances of Park and Stem on December 31,2014 were as follows: Required: Complete the partially prepared consolidated balance sheet working papers that appear below.

The unamortized excess account is

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: Using the data provided above,assume that Pool decided rather than paying $540,000 cash,Pool issued 10,000 shares of their own stock to the owners of Swimmin.At the time of issue,the $10 par value stock had a market value of $60 per share. Required: Prepare Pool's consolidated balance sheet on December 31,2014.

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?

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.

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?

A subsidiary can be excluded from consolidation if