Module 4 exam 2
Question 1 (20 points) Question 1 Unsaved
On December 31, 2014, Paladium International purchased 70%
of the outstanding common stock of Sennex Chemical. Paladium paid $140,000 for
the shares and determined that the fair value of all recorded Sennex assets and
liabilities approximated their book values, with the exception of a customer
list that was not recorded and had a fair value of $10,000 and an expected
remaining useful life of 5 years. At the time of purchase, Sennex had
stockholders’ equity consisting of capital stock amounting to $20,000 and
retained earnings amounting to $80,000. Any remaining excess fair value was
attributed to goodwill. The separate financial statements at December 31, 2015
appear in the first two columns of the consolidation workpapers shown below.
Complete the consolidation working papers for Paladium and
Sennex for the year 2015.
Paladium
Sennex
Eliminations
Consolidated
Debit
Credit
INCOME STATEMENT
Sales
$
331,900
48,000
Income of Sennex
9,100
Cost of Sales
(148,000)
(25,000)
Other Expenses
(72,000)
(8,000)
Noncontrolling Interest Share
Net Income
121,000
15,000
Retained Earnings 1/1
846,000
80,000
Add:
Net Income
121,000
15,000
Less:
Dividends
(9,000)
(4,000)
Retained Earnings 12/31
$
958,000
91,000
BALANCE SHEET
Cash
135,000
64,000
Accounts Receivable-net
227,000
160,000
Inventories
316,000
86,000
Land
80,000
40,000
Equipment and Buildings-net
469,000
230,000
Investment in Sennex
146,300
Customer List
Goodwill
TOTAL ASSETS
$
1,373,300
580,000
LIAB. & EQUITY
Accounts Payable
$
305,300
469,000
Capital Stock
110,000
20,000
Retained earnings
958,000
91,000
1/1 Noncontrol. Interest
12/31 Noncontrol. Int.
TOTAL LIAB. & EQUITY
$
1,373,300
580,000
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Question 2 (20 points) Question 2 Unsaved
Packo Company acquired all the voting stock of Sennett
Corporation on January 1, 2014 for $90,000 when Sennett had Capital Stock of
$50,000 and Retained Earnings of $8,000. The excess of fair value over book value
was allocated as follows: (1) $5,000 to inventories (sold in 2014), (2) $16,000
to equipment with a 4-year remaining useful life (straight-line method of
depreciation) and (3) the remainder to goodwill.
Financial statements for Packo and Sennett at the end of the
fiscal year ended December 31, 2015 (two years after acquisition) appear in the
first two columns of the partially completed consolidation working papers.
Packo has accounted for its investment in Sennett using the equity method of
accounting.
Complete the consolidation working papers for Packo Company
and Subsidiary for the year ending December 31, 2015.
Packo
Sennett
Eliminations
Consolidated
Debit
Credit
INCOME STATEMENT
Sales
$
206,000
60,000
Income from Sennett
8,000
Cost of Sales
(150,000)
(30,000)
Other Expenses
(38,000)
(18,000)
Net Income
26,000
12,000
Packo Retained Earnings 1/1
24,000
Sennett Retained Earnings 1/1
10,000
Add:
Net Income
26,000
12,000
Less:
Dividends
(20,000)
(4,000)
Retained Earnings 12/31
$
30,000
18,000
BALANCE SHEET
Other Current Assets
10,000
7,000
Inventories
21,000
15,000
Land
11,000
6,000
Equipment and Buildings-net
64,000
55,000
Investment in Sennett Corp.
87,000
Goodwill
TOTAL ASSETS
$
193,000
83,000
LIAB. & EQUITY
Liabilities
$
63,000
15,000
Capital Stock
100,000
50,000
Retained earnings
30,000
18,000
TOTAL LIAB. & EQUITY
$
193,000
83,000
Question 3 Question 3 Unsaved
Pommu Corporation paid $78,000 for a 60% interest in Schtick
Inc. on January 1, 2014, when Schtick’s Capital Stock was $80,000 and its
Retained Earnings $20,000. The fair values of Schtick’s identifiable assets and
liabilities were the same as the recorded book values on the acquisition date.
Trial balances at the end of the year on December 31, 2014 are given below:
Pommu Schtick
Cash
$4,500 $20,000
Accounts Receivable 24,000 30,000
Inventory
100,000 70,000
Investment in Schtick 78,000
Cost of Goods Sold 71,500 50,000
Operating Expenses 22,000 37,000
Dividends
15,000 10,000
$315,000 $217,000
Liabilities
$47,000 $27,000
Capital stock, $10 par value 100,000 80,000
Additional Paid-in Capital 11,000
Retained Earnings 31,000 20,000
Sales Revenue
120,000 90,000
Dividend Income 6,000
$315,000 $217,000
During 2014, Pommu made only two journal entries with
respect to its investment in Schtick. On January 1, 2014, it debited the
Investment in Schtick account for $78,000 and on November 1, 2014, it credited
Dividend Income for $6,000.
Part 1: Prepare a
consolidated income statement and a statement of retained earnings for Pommu
and Subsidiary for the year ended December 31, 2014.
Part 2: Prepare a
consolidated balance sheet for Pommu and Subsidiary as of December 31, 2014.
Question 4 (20 points) Question 4 Unsaved
Salli Corporation regularly purchases merchandise from their
90% owner, Playtime Corporation. Playtime purchased the 90% interest at a cost
equal to 90% of the book value of Salli’s net assets. At the time of
acquisition, the book values and fair values of Salli’s assets and liabilities
were equal. Playtime makes their sales to Salli at 120% of cost. In 2014, Salli
reported net income of $460,000, and made purchases totaling $172,000 from
Playtime. Although Salli had no inventory on hand at the beginning of 2014 that
they had purchased from Playtime, at year end, they had $51,600 of this
merchandise in inventory.
Part 1: Determine the
unrealized profit in Salli’s inventory at December 31, 2014.
Part 2: Compute
Playtime’s income from Salli for 2014.
Question 5 (20 points) Question 5 Unsaved
Perry Instruments International purchased 75% of the
outstanding common stock of Standard Systems in 1997 when the book values and
fair values of Standard’s assets and liabilities were equal. The cost of
Perry’s investment was equal to 75% of the book value of Standard’s net assets.
Separate company income statements for Perry and Standard for the year ended
December 31, 2014 are summarized as follows:
Perry Standard
Sales Revenue
$2,400,000 $800,000
Investment income from Standard 142,000
Cost of Goods Sold
(1,600,000) (400,000)
Expenses
(450,000) (200,000)
Net Income
$492,000 $200,000
During 2014, the companies began to manage their inventory
differently and worked together to keep their inventories low at each location.
In doing so, they agreed to sell inventory to each other as needed at a markup
of 10% of cost. Perry sold merchandise that cost $100,000 to Standard for
$110,000, and Standard sold inventory that cost $80,000 to Perry for $88,000.
Half of this merchandise remained in each company’s inventory at December 31,
2014.
Prepare a consolidated income statement for Perry
Corporation and Subsidiary for 2014.
