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Advanced Accounting Chapter 3

This document provides 10 examples of accounting problems related to consolidated financial statements. The examples cover topics such as calculating retained earnings on a consolidated balance sheet, determining goodwill and non-controlling interests, and preparing consolidated journal entries and balance sheets.

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1K views

Advanced Accounting Chapter 3

This document provides 10 examples of accounting problems related to consolidated financial statements. The examples cover topics such as calculating retained earnings on a consolidated balance sheet, determining goodwill and non-controlling interests, and preparing consolidated journal entries and balance sheets.

Uploaded by

Kiwid
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ADVANCED ACCOUNTING

CHAPTER 3
AN INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENT

1. On June 1, 2014, Puell Company acquired 100% of the stock of Sorrell Inc. On this date,
Puell had Retained Earnings of $100,000 and Sorrell had Retained Earnings of $50,000.
On December 31, 2014, Puell had Retained Earnings of $120,000 and Sorrell had Retained
Earnings of $60,000. The amount of Retained Earnings that appeared in the December 31,
2014 consolidated balance sheet was…

2. Perth Corporation acquired a 100% interest in Sansone Company for $1,600,000 when
Sansone had no liabilities. The book values and fair values of Sansone's assets were:

Book Value Fair Value


Current assets $350,000 $400,000
Equipment 150,000 210,000
Land & buildings 570,000 590,000
Total assets $1,070,000 $1,200,000

Immediately following the acquisition, equipment will be included on the consolidated


balance sheet at…

3. On January 1, 2014, Packaging International purchased 90% of Shipaway Corporation's


outstanding shares for $135,000 when the fair value of Shipaway's net assets were equal
to the book values. The balance sheets of Packaging and Shipaway Corporations at year-
end 2013 are summarized as follows:

Packaging Shipaway
Assets $590,000 $180,000

Liabilities $70,000 $30,000


Capital stock 360,000 90,000
Retained earnings 160,000 60,000

If a consolidated balance sheet was prepared immediately after the business combination,
the noncontrolling interest would be…

4. On July 1, 2014, when Salaby Company's total stockholders' equity was $360,000, Pogana
Corporation purchased 14,000 shares of Salaby's common stock at $30 per share. Salaby
had 20,000 shares of common stock outstanding both before and after the purchase by
Pogana, and the book value of Salaby's net assets on July 1, 2014 was equal to the fair
value. On a consolidated balance sheet prepared at July 1, 2014, goodwill would be…

5. Pomograte Corporation bought 75% of Sycamore Company's common stock, with a book
value of $900,000, on January 2, 2014 for $750,000. The law firm of Dewey, Cheatam
and Howe was paid $55,000 to facilitate the purchase. At what amount should Pomograte's
Investment in Sycamore account be reported on January 2, 2014?
6. Pinata Corporation acquired an 80% interest in Smackem Inc. for $130,000 on January 1,
2014, when Smackem had Capital Stock of $125,000 and Retained Earnings of $25,000.
Assume the fair value and book value of Smackem's net assets were equal on January 1,
2014. Pinata's separate income statement and a consolidated income statement for Pinata
and Subsidiary as of December 31, 2014, are shown below.

Pinata Consolidated
Sales revenue $145,850 $234,750
Income from Smackem 12,600
Cost of sales (60,000) (100,000)
Other expenses (20,000) (50,000)
Noncontrolling
interest share (3,150)
Net income $ 78,450 $ 81,600

Smackem's separate income statement must have reported net income of…

7. Passerby International purchased 80% of Standaround Company's outstanding common


stock for $200,000 on January 2, 2014. At that time, the fair value of Standaround's net
assets were equal to the book values. The balance sheets of Passerby and Standaround at
January 2, 2014 are summarized as follows:

Passerby Standaround
Assets $1,600,000 $470,000
Liabilities $840,000 $230,000
Capital stock 360,000 50,000
Retained earnings 400,000 190,000

Required: Determine the consolidated balances as of January 2, 2014 for the following
five balance sheet line items:
a. Goodwill
b. Liabilities
c. Capital Stock
d. Retained Earnings
e. Noncontrolling Interest.

8. On January 1, 2014, Myna Corporation issued 10,000 shares of its own $10 par value
common stock for 9,000 shares of the outstanding stock of Berry Corporation in an
acquisition. Myna common stock at January 1, 2014 was selling at $70 per share. Just
before the business combination, balance sheet information of the two corporations was as
follows:

Myna Berry Berry


Book Book Fair
Value Value Value
Cash $25,000 $12,000 $12,000
Inventories 55,000 32,000 36,000
Other current assets 110,000 90,000 110,000
Land 100,000 30,000 90,000
Plant and equipment-net 660,000 250,000 375,000
$950,000 $414,000 $623,000

Liabilities $220,000 $50,000 $50,000


Capital stock, $10 par value 500,000 100,000
Additional paid-in capital 170,000 40,000
Retained earnings 60,000 224,000
$950,000 $414,000

Required:
a. Prepare the journal entry on Myna Corporation's books to account for the investment
in Berry Company.

b. Prepare a consolidated balance sheet for Myna Corporation and Subsidiary


immediately after the business combination.

9. On July 1, 2014, Polliwog Incorporated paid cash for 21,000 shares of Salamander
Company's $10 par value stock, when it was trading at $22 per share. At that time,
Salamander's total stockholders' equity was $597,000, and they had 30,000 shares of stock
outstanding, both before and after the purchase. The book value of Salamander's net assets
is believed to approximate the fair values.

Required:
a. Prepare the journal entry that Polliwog would record at the date of acquisition on their
general ledger.
b. Calculate the balance of the goodwill that would be recorded on Polliwog's general
ledger, on Salamander's general ledger, and in the consolidated financial statements.

10. Patterson Company acquired 90% of Starr Corporation on January 1, 2014 for $2,250,000.
Starr had net assets at that time with a fair value of $2,500,000. At the time of the
acquisition, Patterson computed the annual excess fair-value amortization to be $20,000,
based on the difference between Starr's net book value and net fair value. Assume the fair
value exceeds the book value, and $20,000 pertains to the whole company. Separate from
any earnings from Starr, Patterson reported net income in 2014 and 2015 of $550,000 and
$575,000, respectively. Starr reported the following net income and dividend payments:

2014 2015
Net Income $150,000 $180,000
Dividends $30,000 $30,000

Required: Calculate the following


a. Investment in Starr shown on Patterson's ledger at December 31, 2014 and 2015.
b. Investment in Starr shown on the consolidated statements at December 31, 2014 and
2015.
c. Consolidated net income for 2014 and 2015.
d. Noncontrolling interest balance on Patterson's ledger at December 31, 2014 and
2015.
e. Noncontrolling interest balance on the consolidated statements at December 31, 2014
and 2015.

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