Exam 9: Indirect and Mutual Holdings

Direct holdings result from direct investments in the voting stock of one or more investees.

Pacini Corporation owns an 80% interest in Abdoo Corporation,acquired on January 1,2013 for $700,000 when Abdoo's stockholders' equity consisted of $600,000 of Capital Stock and $200,000 of Retained Earnings. Abdoo Corporation acquired a 60% interest in Bach Corporation on July 1,2013 for $180,000 when Bach had Capital Stock of $200,000 and Retained Earnings of $50,000.On January 1,2014,Abdoo acquired a 70% interest in Cabo Corporation for $270,000 when Cabo had Capital Stock of $250,000 and Retained Earnings of $100,000. No change in outstanding stock of any of the affiliated companies has occurred since the investments were made.All cost-book value differentials are goodwill.There are no fair value/book value differentials.The stockholders' equity section of the separate balance sheets of Abdoo,Bach,and Cabo at December 31,2014 are as follows: Capital Stock \ 600,000 \ 200,000 \ 250,000 Retained Earnings Total stockholders' equity Required: 1.Compute the amount at which goodwill should be shown in the consolidated balance sheet of Pacini Corporation and Subsidiaries at December 31,2014. 2.Pacini and Abdoo have applied the equity method correctly.Determine the balances of the three investment accounts at December 31,2014.

When mutually-held stock involves subsidiaries holding the stock of each other,the ________ method is not used.

Use the following information to answer the question(s) below. Paiva Corporation owns 80% of Ackroyd Corporation's outstanding common stock and Ackroyd owns 80% of the outstanding common stock of Bailey Corporation. Bailey Corporation owns 10% of the outstanding common stock of Ackroyd Corporation. The cost of the investments was equal to book value and there were not fair value/book value differences for the investments. The separate net incomes for the three affiliated companies for the year ended December 31, 2014 (excluding investment income) are as follows: Paiva Corporation, $100,000, Ackroyd Corporation, $50,000, and Bailey Corporation, $30,000. Use the conventional approach. Symbols used: $P =$ Income of Paiva on a consolidated basis A = Income of Ackroyd on a consolidated basis B = Income of Eailey on a consolidated basis -The equation,in a set of simultaneous equations,that computes Paiva Corporation income on a consolidated basis is

For consolidated statements,indirect holding affiliation and mutual holding affiliation structures are treated the same.

Pabari Corporation owns an 80% interest in Alders Corporation and Alders owns a 60% interest in Babao Corporation.Both interests were acquired at a cost equal to book value equal to fair value.During 2013,Alders sells land to Babao at a profit of $12,000.Babao still holds the land at December 31,2013.Net income (loss)of the three companies (excluding investment income)for 2013 are: Pabari Coporation \ 180,000 Alders Corportion 72,000 Fabao Copporation (30,000) Controlling interest share of consolidated net income and noncontrolling interest share,respectively,for 2013 are

Mutual holdings occur when affiliates hold ownership interests in each other.

Use the following information to answer the question(s) below. Pahm Corporation owns 80% of the outstanding voting common stock of Abussi Corporation, which was purchased for $60,000 over Abussi's book value. The excess purchase price was attributable to goodwill. Abussi Corporation owns 60% of the outstanding common stock of Badock Corporation, which was purchased at book value. The separate net incomes of Pahm, Abussi, and Badock (excluding investment income) for the year are $200,000, $240,000, and $260,000, respectively. There were no fair value/book value differences in the assets and liabilities of Pahm, Abussi and Badock. -Controlling interest share of consolidated net income for the current year is

The conventional approach for eliminating parent stock treats the investment as constructively retired.

Paice Corporation owns 80% of the voting common stock of Accardi Corporation.Paice owns 60% of the voting common stock of Badger Corporation.Accardi owns 20% of the voting common stock of Badger.There are no cost/book value/fair value differentials to consider.The separate net incomes (excluding investment income)of these affiliated companies for 2014 are: Paice \ 300,000 Accardi 160,000 Badger 120,000 Required: Calculate controlling interest share of consolidated net income and noncontrolling interest shares for Paice Corporation and Subsidiaries for 2014.

On January 1,2014,Singh Company acquired an 80 percent interest in Gonzalez Company for $300,000.On January 1,2014,Gonzalez's total stockholders' equity was $375,000.The fair value and book value of Gonzalez's individual assets and liabilities were equal. On January 2,2014,Gonzalez Company acquired a 10 percent interest in Singh Company for $50,000.On January 2,2014,Singh's total stockholders' equity was $500,000.The fair value and book value of Singh's individual assets and liabilities were equal. For the year ending December 31,2014,the following data is available: Net income Dividends Singh Company \ 40,000 \ 0 Gonzalez Company \ 10,000 \ 0 The treasury stock method is used to account for the mutual stock holdings between Singh and Gonzalez.The separate net incomes do not include investment income. Required: 1.What is Gonzalez's income from Singh for 2014? 2.What is Singh's income from Gonzalez for 2014? 3.What is the noncontrolling interest share associated with Gonzalez Company for 2014? 4.Prepare the elimination entry for Gonzalez's Investment in Singh Company.

Consolidated statements are appropriate when one corporation directly or indirectly owns a majority of the outstanding voting stock of another.

On January 1,2014,Klode Corporation acquired an 80% interest in Savy Company for $400,000 when Savy's stockholders' equity was $500,000; with Common stock $400,000 and Retained earnings $100,000. On January 1,2014,Savy purchased a 10% interest in Klode for $50,000 when Klode's total stockholders' equity was $500,000; with Common stock $400,000 and Retained earnings $100,000. The following data was available for the year ending December 31,2014: Klode Company Savy Company Net income \ 70,000 \ 50,000 Dividends 0 0 Use the conventional approach to account for the mutually-held stock.Assume there were no book value/fair value differentials for each investment.The separate net incomes do not include investment income. Required: 1.Prepare the journal entry for Klode on January 1,2014. 2.Prepare the journal entry for Savy on January 1,2014. 3.Prepare the journal entry to record the constructive retirement of 10% of Klode's outstanding stock due to Savy's purchase of Klode's stock. 4.Determine the incomes of Klode and Savy on a consolidated basis with mutual income for 2014 using simultaneous equations. 5.What is controlling interest share of consolidated net income and noncontrolling interest shares for 2014?

On January 1,2014 Paki Inc.bought 75% interest in Adam Corporation.At the time of purchase,Adam owned 80% of Baird Company.In all acquisitions,the book value equals the fair value,which equals the acquisition cost.Separate earnings (loss)(excluding investment income)for the three affiliates for 2014 are as follows: Separate Earnings (Loss) Dividends Paki Inc. \ 400,000 \ 150,000 Adam Corporation (50,000) 90,000 Baird Company 100,000 35,000 Required: Compute controlling interest share of consolidated net income and noncontrolling interest shares for Paki and affiliates for 2014.

Use the following information to answer the question(s) below. Paint Corporation owns 82% of Achille Corporation and Achille Corporation owns 80% of Badrack Corporation. For the current year, the separate net incomes (excluding investment income) of Paint, Achille, and Badrack are $120,000, $100,000, and $50,000, respectively. The cost of each investment was equal to the book value of the investment, which was also equal to the fair value. -Noncontrolling interest share for Achille is

Use the following information to answer the question(s) below. Pace Corporation owns 70% of Abaza Corporation and 60% of Babon Corporation. Abaza Corporation owns 20% of Babon Corporation. Pace's investment in Abaza was consummated in one transaction at a purchase price $20,000 in excess of the book value. Pace's purchase of Babon was made in one transaction at a price $30,000 above book value. Abaza's investment in Babon was completed in one transaction at a purchase price $10,000 in excess of the book value. The purchase price differential for all three investments was attributable to goodwill. (There were no fair value/book value differences in assets and liabilities for each investment.) Pace's separate net income for the current year is $100,000. Abaza's separate net income is $190,000, which includes a $10,000 unrealized loss on the sale of land to Pace. Babon's separate net income is $150,000. Separate net incomes exclude investment income. -The amount of noncontrolling interest share for the current year is

Use the following information to answer the question(s) below. Pahm Corporation owns 80% of the outstanding voting common stock of Abussi Corporation, which was purchased for $60,000 over Abussi's book value. The excess purchase price was attributable to goodwill. Abussi Corporation owns 60% of the outstanding common stock of Badock Corporation, which was purchased at book value. The separate net incomes of Pahm, Abussi, and Badock (excluding investment income) for the year are $200,000, $240,000, and $260,000, respectively. There were no fair value/book value differences in the assets and liabilities of Pahm, Abussi and Badock. -The net income reported for Pahm Corporation for the current year is

Page Corporation acquired a 60% interest in Ace Corporation at a price $40,000 in excess of book value and fair value on January 1,2013.On the same date,Ace acquired a 70% interest in Bader Corporation at a price $30,000 in excess of book value and fair value.The excess purchase cost paid by Page and Ace was attributed to goodwill.Separate net incomes (excluding investment income)for the three affiliates for 2013 are as follows: Page,$500,000,Ace,$300,000,and Bader,$400,000. Page's controlling interest share of consolidated net income for 2013 is

Use the following information to answer the question(s) below. Pahm Corporation owns 80% of the outstanding voting common stock of Abussi Corporation, which was purchased for $60,000 over Abussi's book value. The excess purchase price was attributable to goodwill. Abussi Corporation owns 60% of the outstanding common stock of Badock Corporation, which was purchased at book value. The separate net incomes of Pahm, Abussi, and Badock (excluding investment income) for the year are $200,000, $240,000, and $260,000, respectively. There were no fair value/book value differences in the assets and liabilities of Pahm, Abussi and Badock. -The amount of income for the current year assigned to the noncontrolling shareholders of Badock Corporation is

The effect of mutually held parent stock is eliminated from consolidated financial statements by either the treasury stock approach or the conventional approach.