Exam 3: An Introduction to Consolidated Financial Statements

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.

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

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.

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.

Pregler Inc. has 70% ownership of Sach Company, but should exclude Sach from its consolidated financial statements if

On January 1, 2014, Myna Corporation issued 10,000 shares of its own $10 par value common stock for 9,000 shares of the outstanding stock of Berry Corporation in an acquisition. Myna common stock at January 1, 2014 was selling at $70 per share. Just before the business combination, balance sheet information of the two corporations was as follows: Required: 1. Prepare the journal entry on Myna Corporation's books to account for the investment in Berry Company. 2. Prepare a consolidated balance sheet for Myna Corporation and Subsidiary immediately after the business combination.

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.

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

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.

Push-down accounting

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.

Panini Corporation owns 85% of the outstanding voting stock of Strathmore Company and Malone Corporation owns the remaining 15% of Strathmore's voting stock. On the consolidated financial statements of Panini Corporation and Strathmore, Malone is

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.

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

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.

Perth Corporation acquired a 100% interest in Sansone Company for $1,600,000 when Sansone had no liabilities. The book values and fair values of Sansone's assets were: Immediately following the acquisition, equipment will be included on the consolidated balance sheet at

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?

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