Exam 3: An Introduction to Consolidated Financial Statements

The acquisitions method for consolidation requires that all assets and liabilities of the subsidiary are reported using 100% of fair values at the combination date.

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.

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.

The GAAP requires a noncontrolling interest in a subsidiary be displayed and labeled in the consolidated balance sheet as a separate component of equity.

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

When a parent acquires 100% of a subsidiary at book value the consolidated balance sheet eliminates reciprocal accounts and combines nonrecirpocal accounts.

A consolidated income statement must clearly separate income attributable to the controlling and noncontrolling interests.

On June 1,2014,Puell Company acquired 100% of the stock of Sorrell Inc.On this date,Puell had Retained Earnings of $100,000 and Sorrell had Retained Earnings of $50,000.On December 31,2014,Puell had Retained Earnings of $120,000 and Sorrell had Retained Earnings of $60,000.The amount of Retained Earnings that appeared in the December 31,2014 consolidated balance sheet was

Patterson Company acquired 90% of Starr Corporation on January 1,2014 for $2,250,000.Starr had net assets at that time with a fair value of $2,500,000.At the time of the acquisition,Patterson computed the annual excess fair-value amortization to be $20,000,based on the difference between Starr's net book value and net fair value.Assume the fair value exceeds the book value,and $20,000 pertains to the whole company.Separate from any earnings from Starr,Patterson reported net income in 2014 and 2015 of $550,000 and $575,000,respectively.Starr reported the following net income and dividend payments: Required: Calculate the following: • Investment in Starr shown on Patterson's ledger at December 31,2014 and 2015. • Investment in Starr shown on the consolidated statements at December 31,2014 and 2015. • Consolidated net income for 2014 and 2015. • Noncontrolling interest balance on Patterson's ledger at December 31,2014 and 2015. • Noncontrolling interest balance on the consolidated statements at December 31,2014 and 2015.

The consolidated balance sheet of Pasker Corporation and Shishobee Farm,its 80% owned subsidiary,as of December 31,2014,contains the following accounts and balances: Pasker Corporation acquired its interest in Shishobee Farm on January 1,2014,when Shishobee Farm had $450,000 of Capital Stock and $210,000 of Retained Earnings.Shishobee Farm's net assets had fair values equal to their book values when Pasker acquired its interest.No changes have occurred in the amount of outstanding stock since the date of the business combination.Pasker uses the equity method of accounting for its investment. Required: Determine the following amounts: 1.The balance of Pasker's Capital Stock and Retained Earnings accounts at December 31,2014. 2.Cost of Pasker's purchase of Shishobee Farm on January 1,2014.