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.