Exam 3: An Introduction to Consolidated Financial Statements

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?

Park Corporation paid $180,000 for a 75% interest in Stem Co.'s outstanding Capital Stock on January 1,2011,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 31,2011 were as follows: Required: Complete the partially prepared consolidated balance sheet working papers that appear below.

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 1,2011,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.

Pamula Corporation paid $279,000 for 90% of Shad Corporation's $10 par common stock on December 31,2011,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 31,2011,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.

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

Pool Industries paid $540,000 to purchase 75% of the outstanding stock of Swimmin Corporation,on December 31,2011.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 31,2011.

On January 1,2011,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 31,2011 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 31,2011. 2.Calculate consolidated net income for 2011. 3.Calculate the noncontrolling interest share for 2011.

Pental Corporation bought 90% of Sedacor Company's common stock at its book value of $400,000 on January 1,2011.During 2011,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 31,2011?

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?

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?

Pinata Corporation acquired an 80% interest in Smackem Inc.for $130,000 on January 1,2011,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 1,2011.Pinata's separate income statement and a consolidated income statement for Pinata and Subsidiary as of December 31,2011,are shown below. Smackem's separate income statement must have reported net income of

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

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.

Pomograte Corporation bought 75% of Sycamore Company's common stock,with a book value of $900,000,on January 2,2011 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 2,2011?

On July 1,2011,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 1,2011 was equal to the fair value.On a consolidated balance sheet prepared at July 1,2011,goodwill would be

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 1,2011,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 1,2011 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.

Pal Corporation paid $5,000 for a 60% interest in Sonny Inc.on January 1,2011 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 31,2012,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 31,2012.