Exam 11: Consolidation Theories, push-Down Accounting, and Corporate Joint Ventures

The Securities and Exchange Commission requires the use of push-down accounting for SEC filings when a subsidiary is substantially wholly-owned with no substantial publicly held debt or preferred stock outstanding.

The GAAP states a noncontrolling interest in a subsidiary should be labeled and displayed as a separate financial note to the consolidated balance sheet.

On January 1,2014,Jeff Company acquired a 90% interest in Marian Company for $198,000 cash.On January 1,2014,Marian Company had the following assets and liabilities: Liabilities \ 25,000 \ 25,000 Capital Stock 100,000 Retained Earnings Total Liabilities & Push-down accounting is used for the acquisition. Required: 1.Assume both companies use the entity theory.Prepare the elimination entry(ies)on consolidating work papers on January 1,2014. 2.Assume both companies use the parent company theory.Prepare the elimination entry(ies)on consolidating work papers on January 1,2014.

Per the GAAP,the noncontrolling interest is shown as a single,combined amount under the consolidated stockholder's equity.

On July 1,2013,Parslow Corporation acquired a 75% interest in Sanderson Corporation for $150,000.Sanderson's net assets on this date had a book value of $140,000 and a fair value of $160,000.The excess of fair value over book value at acquisition was due to understated plant assets with a remaining useful life of five years from July 1,2013.Separate net incomes (excluding investment income)of Parslow and Sanderson for 2014 were $400,000 and $20,000,respectively. Required: 1.Compute goodwill at July 1,2013 under the parent company theory and the entity theory. 2.Determine consolidated net income and noncontrolling interest share for 2014 under the parent company theory and the entity theory.

Under parent company theory,the amount of consolidated net income is equal to the amount of ________ under entity theory.

Use the following information to answer the question(s) below. On January 1, 2014, Penelope Company acquired a 90% interest in Leah Company for $180,000 cash. On January 1, 2014, Leah Company had the following assets and liabilities: Book Value Fair Value Cash \ 10,000 \ 10,000 Accounts Receivable 30,000 35,000 Inventory 40,000 50,000 Plant Assets Total Assets Liabilities \ 25,000 \2 5,000 Capital Stock 100,000 Retained Earnings 15,000 Push-down accounting is used for the acquisition. -Assume the parent company theory is used.On January 2,2014,Leah Company will report Goodwill of ________ and Accounts Receivable of ________ on Leah's balance sheet.

Use the following information to answer the question(s) below. Paris Corporation purchased 80% of the outstanding voting common stock of Sanders Corporation on January 1, 2014, at a cost of $400,000. The stockholders' equity of Sanders Corporation on this date consisted of $200,000 of Capital Stock and $100,000 of Retained Earnings. Book values were equal to fair values except for land and inventory. The book value of Sanders' land was $10,000, and fair value was $22,000. The book value of Sanders' inventory was $30,000, and fair value was $25,000. -Assume Paris's land account had a book value of $50,000 and a fair value of $70,000 on January 1,2014.Using the parent company and entity theories,what amounts would be reported on the consolidated balance sheet at January 1,2014 for the land account?

On January 1,2014,Penny Company acquired a 90% interest in Lampire Company for $180,000 cash.On January 1,2014,Lampire Company had the following assets and liabilities: Total Liabilities & Push-down accounting is used for the acquisition. Required: 1.Assume both companies use the entity theory.Record the push-down adjustment on Lampire's separate books on January 1,2014. 2.Assume both companies use the parent company theory.Record the push-down adjustment on Lampire's separate books on January 1,2014.

Under the entity theory,subsidiary assets and liabilities are consolidated at fair values and controlling and noncontrolling interests in the net assets are accounted for consistently.

On January 1,2014,Jennifer Company acquired a 90% interest in Jayda Company for $270,000 cash.On January 1,2014,Jayda Company had the following assets and liabilities: Cash \ 10,000 \ 10,000 Accounts Receivable 50,000 70,000 Inventory 50,000 80,000 Plant Assets Total Assets Liabilities \ 100,000 \1 20,000 Capital Stock 100,000 Retained Earnings Total Liabilities & $\text { Stockholders' Equity } \quad \underline{\$ 210,000}$ Push-down accounting is used for the acquisition.Both companies use the entity theory. Required: 1.What is the goodwill associated with Jayda Company on January 1,2014? 2.Prepare the journal entry(ies)on Jayda's books on January 1,2014. 3.Prepare the journal entry(ies)on Jennifer's books on January 1,2014. 4.Prepare the elimination entry(ies)on the consolidating working papers on January 1,2014.

Under push-down accounting,the ________ of the acquired subsidiary's assets and liabilities are reported on the financial statements of the ________.

Use the following information to answer the question(s) below. Pascoe Corporation paid $450,000 for a 90% interest in Sarabet Corporation on January 1, 2014, when Sarabet's stockholders' equity consisted of $250,000 Common Stock and $50,000 Retained Earnings. The book values and fair values of Sarabet's assets and liabilities were equal when Pascoe acquired its interest. The separate net incomes (excluding investment income) of Pascoe and Sarabet for 2014 were $600,000 and $100,000, respectively. Dividends declared and paid during 2014 were $250,000 for Pascoe and $50,000 for Sarabet. Pascoe uses the entity theory in consolidating its financial statements with those of Sarabet. -Pascoe's income from Sarabet under the equity method for 2014 was

Under parent company theory,noncontrolling interest is valued at ________ on the consolidated balance sheet.Under entity theory,noncontrolling interest is valued at ________ on the consolidated balance sheet.

On January 1,2014,Gregory Company acquired a 90% interest in Subway Company for $200,000 cash.On January 1,2014,Subway Company had the following assets and liabilities: Cash \ 5,000 \ 5,000 Accounts Receivable 30,000 35,000 Inventory 40,000 50,000 Other Current Assets 10,000 10,000 Plant Assets Total Assets Liabilities \ 25,000 \2 5,000 Common Stock 100,000 Retained Earnings Total Liabilities & The plant assets have 20 years of useful life remaining.Straight-line depreciation is used.The excess fair value over book value associated with Accounts Receivable and Inventory is realized in 2014. In 2014,Subway reported net income of $35,000 and declared and paid common dividends of $10,000.Gregory reported Income from Subway in 2014 of $17,100. Required: Assume both companies use the entity theory.Prepare the elimination entry(ies)on consolidating work papers for the year ending December 31,2014.

Paroz Corporation acquired a 70% interest in Sandberg Corporation for $900,000 when Sandberg's stockholders' equity consisted of $600,000 of Capital Stock and $600,000 of Retained Earnings.The fair values of Sandberg's net assets were equal to their recorded book values.At the time of acquisition,on Paroz's books,Paroz will record

Use the following information to answer the question(s) below. Pascoe Corporation paid $450,000 for a 90% interest in Sarabet Corporation on January 1, 2014, when Sarabet's stockholders' equity consisted of $250,000 Common Stock and $50,000 Retained Earnings. The book values and fair values of Sarabet's assets and liabilities were equal when Pascoe acquired its interest. The separate net incomes (excluding investment income) of Pascoe and Sarabet for 2014 were $600,000 and $100,000, respectively. Dividends declared and paid during 2014 were $250,000 for Pascoe and $50,000 for Sarabet. Pascoe uses the entity theory in consolidating its financial statements with those of Sarabet. -Noncontrolling interest share was reported in the 2014 consolidated income statement at

Entities other than the primary beneficiary account for their investment in a variable interest entity using the

Patch Corporation has a 50% undivided interest in Saric Corporation,a joint venture.Patch accounts for its interest in Saric by the equity method and also prepares consolidated financial statements for external reporting purposes.Patch follows specialized industry practices and uses proportionate consolidation for its interest in Saric.Separate financial statements for Patch and Saric are as follows: Required: Prepare the consolidated balance sheet for Patch Corporation and its undivided interest in Saric Corporation.

Partridge Corporation purchased an 80% interest in Sandy Corporation for $840,000 on January 1,2014.Sandy's balance sheet book values and accompanying fair values on this date are shown below. Required: Complete the push-down columns of Sandy Corporation's restructured balance sheet using entity theory and parent company theory.