saint ACC401 exam 2 july 2017

  

Question 1 (20 points)

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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.

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Question 2 (20 points)

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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.

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Question 3 (20 points)

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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.

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Question 4 (20 points)

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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.

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Question 5 (20 points)

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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.