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On January 1, 2011, Porter Company purchased an 90% interest in the capital stock of Salem Company for $850,000. The fair value of the noncontrolling interest was proportionate to the consideration paid by the controlling interest. At that time, Salem Company had capital stock of $550,000 and retained earnings of $80,000. Differences between the fair value and the book value of the identifiable assets of Salem Company were as follows: Equipment Land Inventory In-Process Research & Development Bonds payable The book values of all other assets and liabilities of Salem Company were equal to their fair values on January 1, 20011 The inventory was sold in 2011 and the equipment has a 5-year remaining life as of January 1, 2011. The bonds payable mature in 5 years from January 1, 2011 At 12/31/13, Salem owes Porter $25000 Required for the year ended December 31, 2013: 1. Prepare the analysis as of acquisition date including unamortized differential at 1/1/11. 2. Prepare the journal entries Porter recorded with respect to its investment in Porter for the year ended 12/31/13. 3. Calculate Net income to controlling interest and Net income to non controlling interest for the year 2013. 4. Prepare all necessary elimination entries for the year ended 2013. 5. Complete the consolidated workpapers for the year ended 12/31/13. Use formulas in all calculations. INCOME STATEMENT P CO. S CO. ELIMINATIONS CONS.TOT. 12/31/2013 (000’s) DR. CR. Sales 2,100.00 450.00 2,550.000 Dividend Income 54.00 54.000 0.000 Total revenues 2,154.00 450.00 2,604.00 Cost of goods sold 950.00 200.00 1,150.00 Depreciation exp 50.00 30.00 80.00 Other Expenses 60.00 50.00 110.00 0.00 Total expenses 1,060.00 280.00 1,340.00 Total Net income 1,094.00 170.00 1,264.00 Less net income to noncontrolling interest 0.00 Net income to controlling interest 1,264.00 RETAINED EARNINGS STATEMENT Retained Earnings 1/1/13 500.00 230.00 730.000 Net income 1,094.00 170.00 1,264.00 Dividends declared 90.00 60.00 150.00 Retained Earnings 12/31/13 1,504.00 340.00 1,844.00 BALANCE SHEET Cash 76.00 65.00 141.00 Accounts receivable 445.00 190.00 635.00 Inventory 780.00 175.00 955.00 Investment in Sub 850.00 850.00 Land 215.00 320.00 535.00 IPR&D 0.00 Plant and Equipment 360.00 280.00 640.00 Goodwill 0.00 Total assets 2,726.00 1,030.00 3,756.00 Accounts payable 132.00 110.00 242.000 bonds payable 90.00 30.00 120.000 Common stock 1,000.00 550.00 1,550.000 Paid in capital 0.000 Retained earnings 1,504.00 340.00 1,844.000 Noncontrolling interest in sub 0.000 Total liabilities and equity 2,726.00 1,030.00 0.00 0.00 3,756.00 0.00 0.00 0.00 Problrm Workpaper Entries and Consolidated Financial Statements On January 1, 2004, Palmer Company acquired a 90% interest in Stevens Company at a cost of $1,000,000. At the purchase date, Stevens Company’s stockholders’ equity consisted of the following: Common Stock $500,000 Retained Earnings 190,000 An examination of Stevens Company’s assets and liabilities revealed the following at the date of acquisition: Book Value Fair Value Cash $ 90,726 $ 90,726 Accounts Receivable 200,000 200,000 Inventories 160,000 210,000 Equipment 300,000 390,000 Accumulated Depreciation – Equipment (100,000) (130,000) Land 190,000 290,000 Bonds Payable (205,556) (150,000) Other 54,830 54,830 Total $ 690,000 $ 955,556 Additional Information—Date of Acquisition: Stevens Company’s equipment had an original life of 15 years and a remaining useful life of 10 years. All the inventory was sold in 2004. Stevens Company purchased its bonds payable on the open market on January 10, 2004, for $150,000 and recognized a gain of $55,556. Financial statement data for 2006 are presented here: Workpaper Entries and Consolidated Financial Statements On January 1, 2004, Palmer Company acquired a 90% interest in Stevens Company at a cost of $1,000,000. At the purchase date, Stevens Company’s stockholders’ equity consisted of the following: Common Stock $500,000 Retained Earnings 190,000 An examination of Stevens Company’s assets and liabilities revealed the following at the date of acquisition: Book Value Fair Value Cash $ 90,726 $ 90,726 Accounts Receivable 200,000 200,000 Inventories 160,000 210,000 Equipment 300,000 390,000 Accumulated Depreciation – Equipment (100,000) (130,000) Land 190,000 290,000 Bonds Payable (205,556) (150,000) Other 54,830 54,830 Total $ 690,000 $ 955,556 Additional Information—Date of Acquisition: Stevens Company’s equipment had an original life of 15 years and a remaining useful life of 10 years. All the inventory was sold in 2004. Stevens Company purchased its bonds payable on the open market on January 10, 2004, for $150,000 and recognized a gain of $55,556. Financial statement data for 2006 are presented here: Palmer Stevens Company Company 1/1 Retained Earnings $ 297,600 $ 210,000 Net Income 131,500 45,000 429,100 255,000 Dividends (120,000) (35,000) 12/31 Retained Earnings $ 309,100 $ 220,000 Cash $ 201,200 $ 151,000 Accounts Receivable 221,000 173,000 Inventories 100,400 81,000 Investment in Stevens Company 1,000,000 Equipment 450,000 300,000 Accumulated Depreciation – Equipment (300,000) (140,000) Land 360,000 290,000 Total Assets $2,032,600 $ 855,000 Accounts Payable $ 323,500 $ 135,000 Bonds Payable 400,000 Common Stock 1,000,000 500,000 Retained Earnings 309,100 220,000 Total Liabilities and Equity $2,032,600 $ 855,000 What method is Palmer using to account for its investment in Stevens? How can you tell? Prepare a consolidated ?nancial statements workpaper for the year ended December 31, 2006 Prepare a consolidated ?nancial statements workpaper for the year ended December 31, 2006 Prepare in good form a schedule or t-account showing the calculation of the controlling interest in combined net income for the year ended December 31, 2006. PROBLEM 5-6 Workpaper Entries for Two Years and Sale of Equipment in Year Two On January 1, 2004, Perini Company purchased an 85% interest in Silvas Company for $400,000. On this date, Silvas Company had common stock of $90,000 and retained earnings of $210,000. An examination of Silvas Company’s assets and liabilities revealed that their book value was equal to their fair value except for the equipment. Book Value Fair Value Equipment $ 360,000 Accumulated Depreciation (120,000) $ 240,000 $ 300,000 (1) The cost method is used to account for the investment. (2) The partial equity method is used to account for the investment. During 2004 and 2005, Perini Company reported net income from its own operations of $80,000 and paid dividends of $50,000 in each year. Silvas Company had income of $40,000 each year and paid dividends of $30,000 on each December 31. Accumulated depreciation is presented on a separate row in the workpaper and in the consolidated ?nancial statements Prepare eliminating entries for consolidated ?nancial statements workpaper for the year ended December 31, 2004, assuming: (1) The cost method is used to account for the investment. (2) The partial equity method is used to account for the investment. Accumulated depreciation is presented on a separate row in the workpaper and in the consolidated ?nancial statements The cost method is used to account for the investment. (2) The partial equity method is used to account for the investment.

On January 1, 2011, Porter Company purchased an 90% interest in the capital stock of Salem Company for $850,000. The fair value of the noncontrolling interest was proportionate to the consideration paid by the controlling interest. At that time, Salem Company had capital stock of $550,000 and retained earnings of $80,000. Differences between the fair value and the book value of the identifiable assets of Salem Company were as follows: Equipment Land Inventory In-Process Research & Development Bonds payable The book values of all other assets and liabilities of Salem Company were equal to their fair values on January 1, 20011 The inventory was sold in 2011 and the equipment has a 5-year remaining life as of January 1, 2011. The bonds payable mature in 5 years from January 1, 2011 At 12/31/13, Salem owes Porter $25000 Required for the year ended December 31, 2013: 1. Prepare the analysis as of acquisition date including unamortized differential at 1/1/11. 2. Prepare the journal entries Porter recorded with respect to its investment in Porter for the year ended 12/31/13. 3. Calculate Net income to controlling interest and Net income to non controlling interest for the year 2013. 4. Prepare all necessary elimination entries for the year ended 2013. 5. Complete the consolidated workpapers for the year ended 12/31/13. Use formulas in all calculations. INCOME STATEMENT P CO. S CO. ELIMINATIONS CONS.TOT. 12/31/2013 (000’s) DR. CR. Sales 2,100.00 450.00 2,550.000 Dividend Income 54.00 54.000 0.000 Total revenues 2,154.00 450.00 2,604.00 Cost of goods sold 950.00 200.00 1,150.00 Depreciation exp 50.00 30.00 80.00 Other Expenses 60.00 50.00 110.00 0.00 Total expenses 1,060.00 280.00 1,340.00 Total Net income 1,094.00 170.00 1,264.00 Less net income to noncontrolling interest 0.00 Net income to controlling interest 1,264.00 RETAINED EARNINGS STATEMENT Retained Earnings 1/1/13 500.00 230.00 730.000 Net income 1,094.00 170.00 1,264.00 Dividends declared 90.00 60.00 150.00 Retained Earnings 12/31/13 1,504.00 340.00 1,844.00 BALANCE SHEET Cash 76.00 65.00 141.00 Accounts receivable 445.00 190.00 635.00 Inventory 780.00 175.00 955.00 Investment in Sub 850.00 850.00 Land 215.00 320.00 535.00 IPR&D 0.00 Plant and Equipment 360.00 280.00 640.00 Goodwill 0.00 Total assets 2,726.00 1,030.00 3,756.00 Accounts payable 132.00 110.00 242.000 bonds payable 90.00 30.00 120.000 Common stock 1,000.00 550.00 1,550.000 Paid in capital 0.000 Retained earnings 1,504.00 340.00 1,844.000 Noncontrolling interest in sub 0.000 Total liabilities and equity 2,726.00 1,030.00 0.00 0.00 3,756.00 0.00 0.00 0.00

Problrm

Workpaper Entries and Consolidated Financial Statements

On January 1, 2004, Palmer Company acquired a 90% interest in Stevens Company at a cost

of $1,000,000. At the purchase date, Stevens Company’s stockholders’ equity consisted of the

following:

Common Stock $500,000

Retained Earnings 190,000

An examination of Stevens Company’s assets and liabilities revealed the following at the date

of acquisition:

Book Value Fair Value

Cash $ 90,726 $ 90,726

Accounts Receivable 200,000 200,000

Inventories 160,000 210,000

Equipment 300,000 390,000

Accumulated Depreciation – Equipment (100,000) (130,000)

Land 190,000 290,000

Bonds Payable (205,556) (150,000)

Other 54,830 54,830

Total $ 690,000 $ 955,556

Additional Information—Date of Acquisition:

Stevens Company’s equipment had an original life of 15 years and a remaining useful life of

10 years. All the inventory was sold in 2004. Stevens Company purchased its bonds payable

on the open market on January 10, 2004, for $150,000 and recognized a gain of $55,556.

Financial statement data for 2006 are presented here:

Workpaper Entries and Consolidated Financial Statements

On January 1, 2004, Palmer Company acquired a 90% interest in Stevens Company at a cost

of $1,000,000. At the purchase date, Stevens Company’s stockholders’ equity consisted of the

following:

Common Stock $500,000

Retained Earnings 190,000

An examination of Stevens Company’s assets and liabilities revealed the following at the date

of acquisition:

Book Value Fair Value

Cash $ 90,726 $ 90,726

Accounts Receivable 200,000 200,000

Inventories 160,000 210,000

Equipment 300,000 390,000

Accumulated Depreciation – Equipment (100,000) (130,000)

Land 190,000 290,000

Bonds Payable (205,556) (150,000)

Other 54,830 54,830

Total $ 690,000 $ 955,556

Additional Information—Date of Acquisition:

Stevens Company’s equipment had an original life of 15 years and a remaining useful life of

10 years. All the inventory was sold in 2004. Stevens Company purchased its bonds payable

on the open market on January 10, 2004, for $150,000 and recognized a gain of $55,556.

Financial statement data for 2006 are presented here:

Palmer Stevens

Company Company

1/1 Retained Earnings $ 297,600 $ 210,000

Net Income 131,500 45,000

429,100 255,000

Dividends (120,000) (35,000)

12/31 Retained Earnings $ 309,100 $ 220,000

Cash $ 201,200 $ 151,000

Accounts Receivable 221,000 173,000

Inventories 100,400 81,000

Investment in Stevens Company 1,000,000

Equipment 450,000 300,000

Accumulated Depreciation – Equipment (300,000) (140,000)

Land 360,000 290,000

Total Assets $2,032,600 $ 855,000

Accounts Payable $ 323,500 $ 135,000

Bonds Payable 400,000

Common Stock 1,000,000 500,000

Retained Earnings 309,100 220,000

Total Liabilities and Equity $2,032,600 $ 855,000

What method is Palmer using to account for its investment in Stevens? How can you tell?

Prepare a consolidated ?nancial statements workpaper for the year ended December 31,

2006

Prepare a consolidated ?nancial statements workpaper for the year ended December 31,

2006

Prepare in good form a schedule or t-account showing the calculation of the controlling interest in combined net income for the year ended December 31, 2006.

 

PROBLEM 5-6 Workpaper Entries for Two Years and Sale of Equipment in Year Two

 

On January 1, 2004, Perini Company purchased an 85% interest in Silvas Company for

$400,000. On this date, Silvas Company had common stock of $90,000 and retained earnings

of $210,000. An examination of Silvas Company’s assets and liabilities revealed that their

book value was equal to their fair value except for the equipment.

Book Value Fair Value

Equipment $ 360,000

Accumulated Depreciation (120,000)

$ 240,000 $ 300,000

(1) The cost method is used to account for the investment.

(2) The partial equity method is used to account for the investment.

During 2004 and 2005, Perini Company reported net income from its own operations of

$80,000 and paid dividends of $50,000 in each year. Silvas Company had income of $40,000

each year and paid dividends of $30,000 on each December 31.

Accumulated depreciation is presented on a separate row in the workpaper and in the consolidated ?nancial statements

Prepare eliminating entries for consolidated ?nancial statements workpaper for the year

ended December 31, 2004, assuming:

(1) The cost method is used to account for the investment.

(2) The partial equity method is used to account for the investment.

Accumulated depreciation is presented on a separate row in the workpaper and in the

consolidated ?nancial statements

The cost method is used to account for the investment.

(2) The partial equity method is used to account for the investment.

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