Exam 3: An Introduction to Consolidated Financial Statements

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.

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.

A newly acquired subsidiary had pre-existing goodwill on its books. The parent company's consolidated balance sheet will

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?

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. Smackem's separate income statement must have reported net income of

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

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

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?

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.

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?

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.

The unamortized excess account is

In the preparation of consolidated financial statements, which of the following intercompany transactions must be eliminated as part of the preparation of the consolidation working papers?

On January 1, 2014, Pinnead Incorporated paid $300,000 for an 80% interest in Shalle Company. At that time, Shalle's total book value was $300,000. Patents were undervalued in the amount of $10,000. Patents had a 5-year remaining useful life, and any remaining excess value was attributed to goodwill. The income statements for the year ended December 31, 2014 of Pinnead and Shalle are summarized below: Requirements: 1. Calculate the goodwill that will appear in the consolidated balance sheet of Pinnead and Subsidiary at December 31, 2014. 2. Calculate consolidated net income for 2014. 3. Calculate the noncontrolling interest share for 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.

On July 1, 2014, when Salaby Company's total stockholders' equity was $360,000, Pogana Corporation purchased 14,000 shares of Salaby's common stock at $30 per share. Salaby had 20,000 shares of common stock outstanding both before and after the purchase by Pogana, and the book value of Salaby's net assets on July 1, 2014 was equal to the fair value. On a consolidated balance sheet prepared at July 1, 2014, goodwill 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?

A subsidiary can be excluded from consolidation if

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.