Exam 8: Consolidations - Changes in Ownership Interests

If a parent company and outside investors purchase shares of a subsidiary in relation to existing stock ownership (ratably),then

A 15% stock dividend by a subsidiary causes

On December 31,2013,Potter Corporation has the following stockholders' equity: On January 1,2014,Potter Corporation declared and issued a 10% stock dividend when the market price per share was $50. On January 2,2014,Corrao Corporation purchased an 80% interest in Potter Corporation for $250,000 on the open market.On January 2,2014,the fair value of Potter's individual assets and liabilities was equal to book value.Any excess cost over book value is attributed to goodwill. Required: 1.Prepare the journal entry(ies)for Potter Corporation on January 1,2014. 2.Prepare the journal entry(ies)for Corrao Corporation on January 2,2014. 3.Prepare the elimination entry(ies)for consolidating work papers on January 2,2014. 4.Prepare the elimination entry(ies)for consolidating work papers on January 2,2014 if the 10% stock dividend is not declared and issued on January 1,2014.

At December 31,2015 year-end,Lapwing Corporation's investment in Ground Inc.was $200,000 consisting of 80% of Ground's $250,000 stockholders' equity on that date.On April 1,2016,Lapwing sold 20% interest (one-fourth of its holdings)in Ground for $65,000.During 2016,Ground had net income of $75,000(earned uniformly)and on July 1,2016,Ground paid dividends of $40,000.Lapwing uses the equity method to account for the investment. Required: 1.What is the gain or loss on sale of the 20% interest? 2.Record the journal entries for Lapwing for the year ending December 31,2016.Use the actual-sale-date assumption.

Utah Company holds 80% of the stock of a subsidiary company.The subsidiary issues 100 additional shares of stock to Utah Company at a price above book value per share.The subsidiary does not issue any additional shares at the same time.How will Utah Company record the purchase?

On December 31,2013,Maria Corporation has the following stockholders' equity: On January 1,2014,Maria Corporation declared and issued a 10% stock dividend when the market price per share was $50. On January 2,2014,James Corporation purchased an 80% interest in Maria Corporation for $160,000 from the open market.On January 2,2014,the fair value of Maria's individual assets and liabilities was equal to book value. Required: 1.Prepare the journal entry(ies)for Maria Corporation on January 1,2014. 2.Prepare the journal entry(ies)for James Corporation on January 2,2014. 3.Prepare the elimination entry(ies)for consolidating work papers on January 2,2014. 4.Prepare the elimination entry(ies)for consolidating work papers on January 2,2014 if the 10% stock dividend is not declared and issued on January 1,2014.

At December 31,2014 year-end,Arnold Corporation's investment in Oakes Inc.was $200,000 consisting of 80% of Oakes's $250,000 stockholders' equity on that date.On April 1,2015,Arnold sold 20% interest (one-fourth of its holdings)in Oakes for $65,000.During 2015,Oakes had net income of $75,000 (earned uniformly)and on July 1,2015,Oakes paid dividends of $40,000.Arnold uses the equity method to account for the investment. Required: 1.What is the gain or loss on sale of the 20% interest? 2.Record the journal entries for Arnold for the year ending December 31,2015.Use the beginning-of-the-year-sale-date assumption.

Use the following information to answer the question(s)below. On December 31,2013,Giant Corporation's Investment in Penguin Corporation account had a balance of $500,000.The balance consisted of 80% of Penguin's $625,000 stockholders' equity on that date.Giant owns 80% of Penguin.On January 2,2014,Penguin increased its outstanding common stock from 15,000 to 18,000 shares. -Assume that Penguin sold the additional 3,000 shares directly to Giant for $150,000 on January 2,2014.Giant's percentage ownership in Penguin immediately after the purchase of the additional stock is

On September 1,2013,Beck Corporation acquired an 80% interest in Johnsen Corporation for $700,000.Johnsen's stockholders' equity at January 1,2013 consisted of $200,000 of Common Stock and $600,000 of Retained Earnings.The book values of its assets and liabilities were equal to their respective fair values on this date.All excess purchase cost was attributed to goodwill. During 2013,Johnsen uniformly earned $78,000 and paid dividends of $9,000 on each of four dates: February 1,June 1,August 1,and December 1. Required: Compute the following: 1.Implied goodwill associated with Johnsen Corporation based on Beck's purchase price on September 1,2013. 2.Beck's income from Johnsen for 2013. 3.Preacquisition income for Beck Corporation and Subsidiary for 2013. 4.Noncontrolling interest share for 2013. 5.What is the balance in Beck's Investment in Johnsen account at December 31,2013?

On April 1,2014,Paramount Company acquires 100% of the outstanding stock of Yester Company on the open market.Paramount and Yester have December 31 fiscal year ends.Under GAAP,a consolidated income statement for the year ending December 31,2014,will include

At January 1,2013,the stockholders' equity of Raven Corporation and its 60%-owned subsidiary,Trunk Corporation,are as follows: Trunk's net income for 2013 was $40,000.No dividends were declared or paid in 2010.Raven's Investment in Trunk account balance on December 31,2013 was equal to its underlying equity on December 31,2013.Trunk Corporation issued 10,000 additional shares of common stock directly to Raven on January 1,2014 at $22 per share. Required: 1.Compute the balance in Raven's Investment in Trunk account on January 1,2014 after its purchase of the additional Trunk shares. 2.Determine the increase or decrease in goodwill stemming from Raven's investment in the 10,000 Trunk shares.Assume the fair value and book value of Trunk's assets and liabilities are equal.

Jersey Company acquired 90% of York Company on April 1,2014.Both Jersey Company and York Company have December 31 fiscal year ends.Under current GAAP,which of the following statements is false?

On December 31,2013,Dixie Corporation has the following information available: On December 31,2013,Grimsled Corporation buys an 80% interest in Dixie Corporation for $240,000.On December 31,2013,the fair value of Dixie's assets and liabilities are equal to the respective book values. Required: 1.On January 1,2014,Dixie Corporation sells 5,000 additional shares of common stock to noncontrolling stockholders at $20 per share.Prepare the journal entry for Grimsled Corporation on January 1,2014. 2.On January 1,2014,Dixie Corporation sells 5,000 additional shares of common stock to noncontrolling stockholders at $35 per share.Prepare the journal entry for Grimsled Corporation on January 1,2014. 3.On January 1,2014,Dixie Corporation sells 5,000 additional shares of common stock to noncontrolling stockholders at $10 per share.Prepare the journal entry for Grimsled Corporation on January 1,2014.

Use the following information to answer the question(s)below. Great Corporation acquired a 90% interest in SOS Corporation at its $810,000 book value on December 31,2013.A summary of the stockholders' equity for SOS at the end of 2013 and 2014 is as follows: On January 1,2015,SOS sold 10,000 new shares of its $10 par value common stock for $45 per share. -If SOS sold the additional shares directly to Great,Great's Investment in SOS account after the sale would be

Use the following information to answer the question(s)below. Bower Corporation purchased a 70% interest in Stage Corporation on June 1,2013 at a purchase price of $350,000.On June 1,2013,the book values of Stage's assets and liabilities were equal to fair values.On June 1,2013,Stage's stockholders' equity consisted of $290,000 of Common Stock and $210,000 of Retained Earnings.All cost-book differentials were attributed to goodwill. During 2013,Stage earned $120,000 of net income,earned uniformly throughout the year and paid $6,000 of dividends on March 1 and another $6,000 on September 1. -Preacquisition income for 2013 is

On January 1,2013,Starling Corporation held an 80% interest in Twig Corporation and the investment account balance was $900,000.On January 1,2013,Twig's total stockholders' equity was $1,125,000. During 2013,Twig uniformly earned $234,000 and paid dividends of $37,500 on April 1 and again on October 1.On August 1,2013,Starling sold 30% of its investment in Twig for $262,500,thereby reducing its interest in Twig to 56%. Required: Compute the following using the actual sales date assumption: 1.Gain or loss on sale. 2.Income from Twig for 2013. 3.Noncontrolling interest share for 2013.

Which of the following is correct? The direct sale of additional shares of stock at book value per share to only the parent company from a subsidiary

Olson Corporation paid $62,000 to acquire 100% of Towing Corporation's outstanding voting common stock at book value on May 1,2013.The stockholders' equity of Towing on January 1,2013 consisted of $40,000 Capital Stock and $20,000 Retained Earnings.Towing's total dividends for 2013 were $6,000,paid equally on April 1 and October 1.Towing's net income was earned uniformly throughout 2013.In 2013,preacquisition sales were $10,000 and preacquisition expenses were cost of sales for $5,000.(There were no other preacquisition expenses in 2013 . ) During 2013,Olson made sales of $10,000 to Towing at a gross profit of $3,000.One-half of this merchandise was inventoried by Towing at year-end,and one-half of the 2011 intercompany sales were unpaid at year-end 2013. Olson sold equipment with a ten-year remaining useful life to Towing at a $2,000 gain on December 31,2013.The straight-line depreciation method is used by both companies.The equipment has no salvage value. Financial statements of Olson and Towing Corporations for 2013 appear in the first two columns of the partially completed consolidation working papers. Required: Complete the consolidating working papers for Olson Corporation and Subsidiary for the year ending December 31,2013.