Final Exam
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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.
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)
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Powell Corporation acquired 90% of the voting
stock of Santer Corporation on January 1, 2014 for $11,700 when Santer had
Capital Stock of $5,000 and Retained Earnings of $4,000. The amounts reported
on the financial statements approximated fair value, with the exception of
inventories, which were understated on the books by $500 and were sold in 2014,
land which was undervalued by $1,000, and equipment with a remaining useful
life of 5 years under the straight-line method, which was undervalued by
$1,500. Any remainder was assigned to goodwill.
Financial statements for Powell and Santer
Corporations at the end of the fiscal year ended December 31, 2015 appear in
the first two columns of the partially completed consolidation working papers.
Powell has accounted for its investment in Santer using the equity method of
accounting. Powell Corporation owed Santer Corporation $100 on open account at
the end of the year. Dividends receivable in the amount of $450 payable from
Santer to Powell is included in Powell’s net receivables.
Complete the consolidation working papers for
Powell Corporation and Subsidiary for the year ended December 31, 2015.
Powell
Santer
Eliminations
Consolidated
Debit
Credit
INCOME STATEMENT
Sales
$
10,000
6,500
Income from Santer
1,080
Cost of Sales
(4,000)
(3,300)
Depreciation Expense
(1,000)
(1,000)
Other Expenses
(1,800)
(700)
Noncontrolling Interest Share
Net Income
4,280
1,500
Retained Earnings 1/1
2,510
5,000
Add:
Net Income
4,280
1,500
Less:
Dividends
(2,000)
(1,000)
Retained Earnings 12/31
$
4,790
5,500
BALANCE SHEET
Cash
1,440
1,900
Receivables-net
1,100
600
Inventories
1,500
1,200
Land
1,000
1,600
Equipment and Buildings-net
7,500
6,700
Investment in Santer Corp.
12,060
Goodwill
TOTAL ASSETS
$
24,600
12,000
LIAB. & EQUITY
Accounts Payable
$
3,810
1,000
Dividends Payable
2,000
500
Capital Stock
14,000
5,000
Ret. Earnings
4,790
5,500
Nonctl. Interest 1/1
Nonctl. Interest 12/31
TOTAL LIAB. & EQUITY
$
24,600
12,000
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Question 3 (20 points)
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Pennack Corporation purchased 75% of the
outstanding stock of Shing Corporation on January 1, 2014 for $300,000 cash. At
the time of the purchase, the book value and fair value of Shing’s assets and
liabilities were equal. Shing’s balance sheet at the time of acquisition and
December 31, 2014 are shown below.
Jan
1, 2014 Dec 31, 2014
Cash
$75,000 80,000
Other current assets 175,000 160,000
Plant Assets — net 250,000 240,000
Total
assets
500,000 480,000
Liabilities 100,000 50,000
Capital stock 100,000 100,000
Retained earnings 300,000 330,000
Total
liabilities and equity 500,000
480,000
Shing earned $60,000 in income during the year
and paid out $30,000 in dividends. Pennack uses the equity method to account
for its investment in Shing.
Part 1:
Calculate Pennack’s net income from Shing in 2014.
Part 2:
Calculate the noncontrolling interest share in Shing’s income for 2014.
Part 3:
Calculate the balance in the Investment in Shing’s account reported on
Pennack’s separate general ledger at December 31, 2014.
Part 4:
Calculate the noncontrolling interest that will be reported on the
consolidated balance sheet at 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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Pexo Industries purchases the majority of their
raw materials from a wholly-owned subsidiary, Springmade Chemicals. Pexo
purchased Springmade to assure supply availability at a time when the materials
were being rationed in the industry due to supply issues overseas. Pexo was
able to purchase Springmade at the book value of Springmade’s net assets. At
the time of purchase, the book value and fair value of Springmade’s net assets
were equal. Pexo purchased $2,890,000 of materials from Springmade in 2014
alone. All intercompany sales are made at 120% of cost, although Springmade is
able to mark up their products 80% to other outside buyers. Pexo carried
inventory on their books at the beginning and end of the year in the amount of
$450,000 and $480,000, respectively, all of which had been purchased from
Springmade. Income statement information for both companies for 2014 is as
follows:
Pexo Springmade
Sales Revenue
$3,793,000 $4,441,000
Investment income from Springmade 245,000
Cost of Goods Sold
(3,139,000) (3,270,000)
Expenses
(257,000) (921,000)
Net Income
$642,000 $250,000
Prepare a consolidated income statement for
Pexo Corporation and Subsidiary for 2014.
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