Chapter 11 Test Bank CONSOLIDATION THEORIES, PUSH-DOWN ACCOUNTING, AND CORPORATE JOINT VENTURES

Multiple Choice Questions Use the following information in answering Questions 1 and 2. Pasfield Corporation acquired a 90% interest in Santini Corporation for $90,000 cash on January 1, 2005. The following information is available for Santini at that time. Book Value 40,000 60,000 50,000 ) 50,000 Fair Value Difference 50,000 $ 10,000 75,000 15,000 50,000 ) 0 75,000

Current assets Plant assets Liabilities Net assets LO1 1.

$ ( $

$ ( $

Under the entity theory, a consolidated balance sheet prepared immediately after the business combination will show goodwill of a. b. c. d. $15,000. $22,500. $25,000. $32,500.

LO1 2.

Under the entity theory, a consolidated balance sheet prepared immediately after the business combination will show minority interest of a. b. c. d. $ 5,000. $ 7,500. $ 9,000. $10,000.

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LO1 3.

Paroz Corporation acquired a 70% interest in Sandberg Corporation for $900,000 when Sandbergs stockholders equity consisted of $600,000 of Capital Stock and $600,000 of Retained Earnings. The fair values of Sandbergs net assets were equal to their recorded book values. At the time of acquisition, Pratt will record a. goodwill for $60,000 under the parent company theory. b. goodwill for $85,714 under the entity theory. c. investment in Sandberg for $1,285,714 under the entity theory. d. investment in Sandberg for $900,000 under the entity and parent company theories.

Use the following information for Questions 4, 5, and 6. Pascoe Corporation paid $450,000 for a 90% interest in Sarabet Corporation on January 1, 2005, when Sarabets stockholders equity consisted of $250,000 Common Stock and $50,000 Retained Earnings. The book values and fair values of Shelbys assets and liabilities were equal when Pascoe acquired its interest. The separate incomes of Pascoe and Sarabet for 2005 were $600,000 and $100,000, respectively. Dividends declared and paid during 2005 were $250,000 for Pascoe and $50,000 for Sarabet. Pascoe uses the entity theory in consolidating its financial statements with those of Sarabet. LO1 4. Goodwill was reported in the December 31, 2005 consolidated balance sheet at a. b. c. d. LO1 5. $170,000. $180,000. $200,000. $210,000.

Minority interest income was reported in the 2005 consolidated income statement at a. b. c. d. $ 5,000. $ 6,000. $ 8,000. $10,000.

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LO1 6.

Pascoes income from Sarabet under the equity method for 2005 was a. b. c. d. $ 72,000. $ 87,500. $ 90,000. $100,000.

Use the following information for Questions 7, 8, 9, and 10. Paris Corporation purchased 80% of the outstanding voting common stock of Sanders Corporation on January 1, 2005, at a cost of $400,000. The stockholders equity of Sanders Corporation on this date consisted of $200,000 of Capital Stock and $100,000 of Retained Earnings. Book values were equal to fair values except for land and inventory. The book value of Sanders land was $10,000, and fair value was $22,000. The book value of Sanders inventory was $30,000, and fair value was $25,000. LO1 7. What amount of goodwill was reported under the parent company theory? a. b. c. d. LO1 8. $148,000. $153,000. $154,400. $160,000.

What amount of goodwill was reported under the entity theory? a. b. c. d. $185,000. $191,250. $193,000. $200,000.

LO1 9.

At what amount was consolidated Land account stated under the parent company and entity theories, respectively, if Pariss land account had a book value of $50,000 and a fair value of $70,000? a. b. c. d. $69,600 $72,000 $72,000 $92,000 and and and and $72,000. $72,000. $92,000. $72,000.

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LO1 10.

If Pariss inventory account had a book value of $40,000 and a fair value of $44,000, what was the amount stated on the consolidated balance sheet for inventories under the parent theory of consolidation? a. b. c. d. $65,000. $66,000. $69,000. $70,000.

LO2 11.

The SEC requires push-down accounting for SEC filings of subsidiaries when the subsidiary has no substantial publiclyheld debt or preferred stock outstanding and a. b. c. d. the the the the parent parent parent parent has has has has substantial substantial substantial substantial ownership ownership ownership ownership (5% or greater). (20% or greater). (50% or greater). (97% or greater).

LO2 12.

In practice, push-down accounting a. must use the cost method to report goodwill. b. revalues the subsidiary assets on a proportional basis. c. requires neither a new basis of accounting nor a new reporting basis. d. requires a deferred credit for goodwill.

LO2 13.

Companies that use push-down accounting a. must use the parent company theory approach. b. must use the entity theory approach. c. may use either the parent company or entity theory approach. d. shall use neither the parent company nor entity theory approach.

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LO2 14.

A parent company acquired 100% of the outstanding common stock of another corporation. The parent is going to use push-down accounting. The fair market value of each of the acquired corporations assets is lower than its respective book value. The fair market value of each of the acquired corporations liabilities is higher than its respective book value. The corporation has a deficit in the Retained Earnings account. Which one of the following statements is correct? a. The push-down capital account will have a credit balance after this transaction is posted. b. The push-down capital account will have a debit balance after this transaction is posted. c. The push-down capital account will have either a debit or a credit balance depending upon whether the asset adjustments exceed the liability adjustments, or vice versa. d. Subsidiary retained Earnings will have a deficit balance after this transaction is posted.

LO3 15.

Earth Company, Fire Incorporated, and Wind Incorporated created a joint venture to market their products on the internet. Earth owns 40% of the stock. Fire owns 45% of the stock and Wind owns the remaining 15%. Which firms should report their joint venture investments using the equity method? a. b. c. d. Earth. Fire. Earth and Fire. Earth, Fire and Wind.

LO3 16.

Anthony and Cleopatra create a joint venture to distribute artifacts. Anthony contributes 70% and Cleopatra 30% of the cash for assets purchased from Tomb Company. How would Anthony report information about Cleopatra on Anthonys financial statements? a. b. c. d. Not at all. In a footnote. As a liability. As a noncontrolling interest.

LO3 17.

If a joint venturer holds a 60% interest in a subsidiary a. b. c. d. the equity method must be used. either the equity or cost method may be used. the cost method must be used. proportionate consolidation must be used.
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LO4 18.

A companys variable interest entities (VIEs) a. b. c. d. will have ownership control and financial control. may have no ownership control but financial control. does not require ownership control or financial control. does not have to be an entity. shall consolidate a variable interest entity

LO4 19.

An enterprise (VIE) if

I. that enterprise has a variable interest that will absorb a majority of the VIEs expected losses. II. that enterprise will receive a majority of a VIEs expected returns. a. b. c. d. LO5 20. I. only II. only either I or II neither I or II is necessary

If a company pays more for a variable interest entity (VIE)than the fair value of the net assets a. an extraordinary loss is recorded. b. goodwill is recorded if the VIE is defined as a business. c. a deferred credit is recorded and amortized over the useful life. d. a write-down is taken in all situations.

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LO1 Exercise 1 On July 1, 2004, Parslow Corporation acquired a 75% interest in Sanderson Corporation for $150,000. Sandersons net assets on this date had a book value of $140,000 and a fair value of $160,000. The excess of fair value over book value at acquisition was due to understated plant assets with a remaining useful life of five years from July 1, 2004. Separate incomes of Parslow and Sanderson for 2005 were $400,000 and $20,000, respectively. Required: 1. Compute goodwill at July 1, 2004 under the parent company theory and the entity theory. 2. Determine consolidated net income and minority interest income for 2005 under the parent company theory and the entity theory. LO1 Exercise 2 Partel Corporation purchased 75% of Sandford Corporation on January 1, 2005, for $230,000. Balance sheets for the two companies on this date, prepared just prior to the purchase, are provided below. Partel Book Values Cash Inventory Buildings & net Total assets $ equipment$ 330,000 $ 270,000 500,000 1,100,000 $ Sandford Book Values 10,000 $ 70,000 120,000 200,000 $ Sandford Fair Values 10,000 90,000 190,000 290,000

Common stock Retained earnings Total equities

$ $

300,000 800,000 1,100,000 $

95,000 105,000 200,000

Required: Prepare one consolidated balance sheet using the proprietary (prorata) theory of consolidation, and, prepare a second consolidated balance sheet using the parent company theory of consolidation.
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LO1 Exercise 3 Pashley Corporation purchased 75% of Sargent Corporation on January 1, 2005, for $115,000. Balance sheets for the two companies on this date, prepared just prior to the purchase, are provided below. Pashley Book Values Cash Inventory Buildings & net Total assets $ equipment$ 165,000 $ 135,000 250,000 550,000 $ Sargent Book Values 5,000 $ 35,000 60,000 100,000 $ Sargent Fair Values 5,000 45,000 95,000 145,000

Common stock Retained earnings Total equities

$ $

150,000 $ 400,000 550,000 $

47,500 52,500 100,000

Required: Prepare a consolidated consolidation. LO1 Exercise 4 Patane Corporation acquired 80% of the outstanding voting common stock of Sanlon Corporation on January 1, 2005, for $500,000. Sanlon Corporations stockholders equity at this date consisted of $250,000 in Capital Stock and $100,000 in Retained Earnings. The fair value of Sanlons assets was equal to the book value of the assets except for land with a fair value $40,000 greater than its book value, and marketable securities with a fair value $50,000 greater than its book value. Sanlon also had a valuable patent with a fair value of $25,000 and a book value of zero because its development costs were expensed as incurred. The fair value of Sanlons liabilities is $10,000 higher than the $40,000 book value. Required: Calculate the amount of goodwill under the parent company and entity theories of consolidation.
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balance

sheet

using

the

entity

theory

of

LO1 Exercise 5 On January 1, 2005, Parton Corporation acquired an 80% interest in Sandra Corporation for $184,000. Sandras net assets on this date had a book value of $160,000 and a fair value of $210,000. The excess of fair value over book value at acquisition was attributable to $20,000 of understated plant assets with a remaining useful life of five years from January 1, 2005, and $30,000 to an understated patent with a remaining economic life of six years from January 1, 2005. Separate incomes of Parton and Sandra for 2005 were $300,000 and $50,000, respectively. Required: 1. Compute goodwill at January 1, 2005 under the parent company theory and the entity theory. 2. Determine consolidated net income and minority interest income for 2005 under the parent company theory and the entity theory.

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LO2 Exercise 6 Partridge Corporation purchased an 80% interest in Sandy Corporation for $840,000 on January 1, 2005. Sandy's balance sheet book values and accompanying fair values on this date are shown below. Parent Company Theory PushDown Balance Sheet

Book Value Cash Receivables Inventory Land Plant assets-net Total Assets $ $ 30,000 200,000 300,000 50,000 250,000 830,000

Fair Value $ 30,000 200,000 360,000 90,000 300,000 $980,000

Entity Theory PushDown Balance Sheet

Current liabilities Other liabilities Common Stock Retained Earnings Total Liab. & Equity

180,000 120,000 400,000 130,000

$180,000 100,000

830,000

Required Complete the push-down columns of Sandy Corporations restructured balance sheet using entity theory and parent company theory.

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LO2 Exercise 7 Party Corporation acquired an 80% interest in Sang Corporation on January 1, 2005 for $20,000. Balance sheet and fair value information on this date is summarized as follows: Party Book Value 15,000 $ 35,000 8,000 58,000 $ 27,000 $ 18,000 13,000 58,000 $ Sang Book Value 9,000 $ 7,000 4,000 20,000 $ 10,000 4,000 6,000 20,000 Sang Fair Value 9,000 7,000 6,000 22,000 10,000

Current assets Land and Building-net Equipment Total assets Liabilities Capital stock Retained earnings Total liab. & equity

$ $

Required: 1. Prepare an entry on the books of Sang Corporation to record the push-down adjustment under parent company theory. 2. Prepare an entry on the books of Sang Corporation to record a push-down adjustment under entity theory.

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LO2 Exercise 8 Pascal Corporation paid $225,000 for a 70% interest in Sank Corporation on January 1, 2005. On that date, Sanks balance sheet accounts, at book value and fair value, were as follows: Book Value Assets Cash Accounts receivable-net Inventories Property, plant, and equipment-net Total assets Equities Accounts payable Common stock Retained earnings Total liab. & equity Required: Prepare a balance sheet for Sank Corporation immediately after the acquisition transaction by using push-down accounting under the parent company theory. $ 25,000 $ 45,000 40,000 140,000 250,000 $ Fair Value 25,000 55,000 60,000 125,000 265,000

40,000 $ 120,000 90,000 250,000

40,000

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LO3 Exercise 9 Patch Corporation has a 50% undivided interest in Saric Corporation, a joint venture. Patch accounts for its interest in Saric by the equity method and also prepares consolidated financial statements for external reporting purposes. Patch follows specialized industry practices and uses proportionate consolidation for its interest in Saric. Separate financial statements for Patch and Saric are as follows:

Cash $ Accounts receivable Inventories Land Plant, property, equipment Total assets $ Accounts payable Common stock Retained earnings Venture capital Total liab. & equity $

Patch 30,000 $ 70,000 80,000 116,000 200,000 496,000 $ 24,000 $ 200,000 272,000 496,000 $

Saric 18,000 42,000 72,000 140,000 248,000 520,000 20,000 220,000 280,000 520,000

Consolidation

Required: Prepare the consolidated balance sheet for Patch Corporation and its undivided interest in Saric Corporation.

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LO4 & LO5 Exercise 10 On January 1, 2005, Alford Corporation and Bancroft Inc. decided to set up a syndicate called Showtime to conduct. The partners agreed to a 50%-50% split of Showtimes profits, but Alford will absorb all losses. After the partners contributed $15,000 each on January 1, 2005, no journal entries were made for Alford or Bancroft during the year to report Showtime activities. During the year, Showtime sold $110,000 of tickets for five shows at $25 per ticket and performers were paid $60,000 in advance with one show remaining to be performed next year. Market value was assumed to be cash present value. On December 31, 2005 year-end, worksheet financial statements for Alford and Bancroft were as follows:

Alford Corporation, Bancroft Inc. and Showtime Affiliate Financial Statement Working Papers on December 31, 2005 Alford Bancroft Showtime INCOME STATEMENT 23,680 $15,000 Sales $ $88,000 Cost of Sales Other Expenses Net income Retained Earnings 1/1 Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash Accounts Receivable-net Inventories Land Equipment and Buildings-net Investment in Showtime TOTAL ASSETS TOTAL ASSETS ( ( 9,200) 2,300) 12,180 11,000 12,180 ( $ 3,000) 20,180 2,000 22,000 14,000 27,000 61,080 15,000 $ 141,080 ( ( ( 4,700) 4,000) 6,300 3,000 6,300 2,000) $ 7,300 1,900 15,500 8,000 27,000 33,000 15,000 $100,400 100 40,000 80,000 40,000 48,000

40,000

$80,000

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LIAB. & EQUITY Liabilities Capital Stock/Partnership Retained Earnings 12/31 Noncontrol. Interest Earnings $ TOTAL LIAB. & EQUITY

90,900 30,000 20,180

83,100 10,000 7,300

10,000 30,000 40,000

141,080

$100,400

$80,000

Required: 1.Prepare a balance sheet for Alford as of December 31, 2005. 2.Prepare a balance sheet for Bancroft as of December 31, 2005.

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SOLUTIONS
Multiple Choice Questions 1. c $ $ 100,000 75,000 25,000

Imputed value of Santini ($90,000/90%) Less: Fair value of net assets acquired Goodwill

2.

d $ $ 100,000 10% 10,000

Imputed value of Santini ($90,000/90%) Minority interest percentage Minority interest

3. 4.

d c

The investment is recorded at cost

Imputed value of Sarabet ($450,000/90%) Less: Total underlying book value Total amount of implied goodwill Majority percentage acquired Goodwill under contemporary theory

$ $ $

500,000 300,000 200,000 90% 180,000

Under contemporary theory the amount of goodwill recorded would be $180,000; however, under pure entity theory, the amount of goodwill will be $200,000.

5.

d $ $ 100,000 10% 10,000

Sarabets separate income Minority percentage Minority interest income

6.

c $ $ 100,000 90% 90,000

Sarabets separate income Majority percentage Income from Sarabet to Pascoe

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7.

c $ $ ( $ 400,000 240,000 160,000 9,600 ) 4,000 154,400

Purchase price of 80% interest Less: Book value acquired ($300,000 x 80%) Excess of cost over book value Less: Excess allocated to land ($12,000 x 80%) Plus: Excess allocated to inventory ($5,000 x 80%) Remainder allocated to goodwill

8. 9.

c a

$154,400/80% = $193,000

Under the parent company theory, the Land account on the consolidated balance sheet would be the sum of the book value of the parents Land account balance of $50,000 plus the book value of the Land account on the subsidiarys books of $10,000 plus 80% of the $12,000 excess of the fair value in excess of book value of $9,600, for a total of $69,600. Under the entity theory, the land would be valued at the book value of the parent of $50,000 plus the full fair value of the subsidiarys land which is $22,000 for a total of $72,000. 10. b

Under the parent company theory, the Inventory account on the consolidated balance sheet would be the sum of the book value of the parents Inventory account balance of $40,000 plus the book value of the Inventory account on the subsidiarys books of $30,000 less 80% of the $5,000 excess of the book value in excess of fair value, or ($4,000), for a total of $66,000. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. d b c b d d a b c b
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Exercise 1 Requirement 1: Parent company theory: Cost of 75% interest on July 1, 2004 $ Book value acquired ($140,000 x 75%) Excess cost over book value acquired $ Excess: Allocated to plant assets ($160,000 - $140,000) x 75% ( Goodwill $ Entity theory: Total value implied by purchase price ($150,000/75%) Book value Excess implied value over book value Excess: Allocated to plant assets ($160,000-$140,000) Goodwill Or: ($30,000 goodwill)/75%

150,000 105,000 45,000 15,000 ) 30,000

$ $ ( $ $

200,000 140,000 60,000 20,000 ) 40,000 40,000

Requirement 2: Combined separate incomes $ Less: Depreciation on excess allocated to plant assets: $15,000/5 years ( $20,000/5 years Less: Minority interest income ( Consolidated net income $ Total consolidated income Income allocated to majority shareholders Income allocated to minority shareholders

Parent Theory 420,000 3,000 )

$ (

Entity Theory 420,000 4,000 )

5,000 ) 412,000 $ $ $ 416,000 412,000 4,000

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Exercise 2 Requirement 1 Partel Corporation and Subsidiary Consolidated Balance Sheet January 1, 2005 (Proprietary Theory) Assets Cash ($330,000 - $230,000) + (75% x 10,000) Inventories $270,000 + (75% x 90,000) Buildings & equipment-net $500,000 + (75% x 190,000) Goodwill ($230,000 paid ($290,000 x 75%) Total assets Equity Common stock Retained earnings Total equity $ 107,500 337,500 642,500 12,500 1,100,000

$ $

300,000 800,000 1,100,000

Requirement 2 Partel Corporation and Subsidiary Consolidated Balance Sheet January 1, 2005 (Parent Company Theory) Assets Cash ($330,000 - $230,000) + $10,000) Inventories ($270,000 + $70,000) + (75% x 20,000) Buildings & Equip.-net ($500,000 + $120,000) + (75% x $70,000) Goodwill ($230,000 paid ($290,000 x 75%) Total assets Equity Minority Interest ($200,000 x 25%) Common stock Retained earnings Total equity $ 110,000 355,000 672,500 12,500 1,150,000

50,000 300,000 800,000 1,150,000

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Exercise 3 Pashley Corporation and Subsidiary Consolidated Balance Sheet January 1, 2005 (Entity Theory of Consolidation) Assets Cash ($165,000 - $115,000) + $5,000) Inventories ($135,000 + $45,000) Buildings & equipment-net ($250,000 + $95,000) Goodwill ($115,000/75%) - $145,000 fair value Total assets $ 55,000 180,000 345,000 8,333 588,333

Equity Minority Interest ($45,000 excess of fair value over book value x 25%) + (25% x $100,000 net book values) + ($8,333 goodwill x 25%) $ Common stock Retained earnings Total equity $

38,333 150,000 400,000 588,333

Exercise 4 Preliminary calculations: Sanlon net assets at January 1, 2005: ($250,000 capital stock + $100,000 Retained Earnings) Plus: Book value of liabilities Equals: Book value of assets Book value of assets Plus: Excess of land fair value over book value Plus: Excess of securities fair value over book value Plus: Fair value of patent in excess of book value Equals: Total fair value of assets Less: Fair value of liabilities Equals: Fair value of net assets Percentage acquired Equals: Fair value of net assets acquired

$ $ $

350,000 40,000 390,000 390,000 40,000 50,000 25,000 505,000 50,000 455,000 80% 364,000

$ $ $

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Required: Goodwill under the parent company theory: Purchase price Less: Fair value of net assets acquired Goodwill using the parent company theory Goodwill under the parent company theory Divided by: Percentage acquired Goodwill under the entity theory $ 500,000 364,000 136,000 136,000 80% 170,000

$ $ $

Exercise 5 Requirement 1: Parent company theory: Cost of 80% interest on January 1, 2005 Book value acquired ($160,000 x 80%) Excess cost over book value acquired Excess allocation: Plant assets ($20,000 x 80%) = $16,000 Patent ($30,000 x 80%) = 24,000 Goodwill Entity theory: Total value implied by purchase price ($184,000/80%) Book value Excess implied value over book value Excess allocated: Plant assets $20,000 Patent 30,000 Goodwill Or: ($16,000 goodwill)/80%

$ $ ( $

184,000 128,000 56,000 40,000 ) 16,000

$ $ ( $ $

230,000 160,000 70,000 50,000 ) 20,000 20,000

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Requirement 2: Parent Theory 350,000 ( ( 3,200 ) ( 4,000 ) ( ( $ 10,000 ) 332,800 $ $ $ 341,000 332,800 8,200 5,000 ) 4,000 ) Entity Theory 350,000

Combined separate incomes Less: Deprec./Amort. on excess to: Plant assets: $16,000/5 years $20,000/5 years Patent: $24,000/6 years $30,000/6 years Less: Minority interest income Consolidated net income Total consolidated income Income allocated to majority shareholders Income allocated to minority shareholders

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Exercise 6 Preliminary computations: Parent company theory: Cost of 80% interest Fair value acquired $700,000 x 80% Goodwill Entity theory: Implied value $840,000/80% Fair value of net assets Goodwill

$ $

840,000 560,000 280,000

$ $

1,050,000 700,000 350,000

Book Value Cash Receivables Inventory Land Plant assets-net Goodwill Total Assets $ 830,000 $ $ 30,000 $ 200,000 300,000 50,000 250,000

Fair Value 30,000 $ 200,000 360,000 90,000 300,000

Entity Theory PushDown Balance Sheet 30,000 $ 200,000 360,000 90,000 300,000 350,000

Parent Company Theory PushDown Balance Sheet 30,000 200,000 348,000 82,000 290,000 280,000 1,230,000

980,000 $

1,330,000 $

Current liabilities Other liabilities Common Stock Retained Earnings Push-down capital Tot. Liab & Equity

180,000 $ 120,000 400,000 130,000

180,000 $ 100,000

180,000 $ 100,000 400,000 0 650,000

180,000 104,000 400,000 0 546,000 1,230,000

830,000

1,330,000 $

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Exercise 7 Requirement 1: Push-down under parent company theory: Cost of the 80% interest Book value acquired ($10,000 x 80%) Excess of cost over book value Excess allocated to: Equipment ($2,000 x 80%) Goodwill Excess of cost over book value Entry: Equipment Goodwill Retained earnings Push-down capital Requirement 2: Push-down under entity theory: Implied value ($20,000/80%) Fair value Excess of cost over book value Excess allocated to: Equipment Goodwill Excess of cost over book value

$ $ $ $

20,000 8,000 12,000 1,600 10,400 12,000

1,600 10,400 6,000 18,000

$ $

25,000 (10,000) 15,000

$ $

2,000 13,000 15,000

Entry: Equipment Goodwill Retained earnings Push-down capital

2,000 13,000 6,000 21,000

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Exercise 8 Cost of a 70% interest in Sank Fair value acquired ($225,000 x 70%) Goodwill Cost Book value acquired ($210,000 x 70%) Excess of cost over book value acquired Excess allocated: Receivables: $10,000 x 70% Inventories: $20,000 x 70% Property, plant & equipment ($15,000) x 70% Goodwill Total excess cost over book value Entry: Receivables Inventories Goodwill Retained earnings Plant, property, and equipment Push-down capital Sank Corporation Balance Sheet 1/1/03 (After Push-Down) Assets Cash Receivables Inventories Property, plant, and equipment Goodwill Total assets Liabilities & Equity Accounts payable Common stock Push-down capital Total liab. & equity $ 25,000 52,000 54,000 129,500 67,500 328,000 $ $ $ $ 225,000 157,500 67,500 225,000 147,000 78,000

$ ( $

7,000 14,000 10,500 ) 67,500 78,000

7,000 14,000 67,500 90,000 10,500 168,000

40,000 120,000 168,000 328,000

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Exercise 9 Patch Corporation Balance Sheet Assets Cash Accounts receivable Inventories Land Plant, property & equipment Total assets Liabilities & Equity Accounts payable Common stock Retained earnings Venture capital Total liab. & equity $ 39,000 91,000 116,000 186,000 324,000 756,000

34,000 200,000 272,000 250,000 756,000

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Exercise 10 Requirement 1 Alford Corporation Consolidated Financial Statement Working Papers at December 31, 2005 Alford Showtime Consolidated INCOME STATEMENT 23,680 $111,680 Sales $ $88,000 Cost of Sales Other Expenses Noncontrolling Interest Net income Retained Earnings 1/1 Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash Accounts Receivable-net Inventories Land Equipment and Buildings-net Investment in Showtime TOTAL ASSETS $ TOTAL ASSETS LIAB. & EQUITY Liabilities Capital Stock/Partnership Retained Earnings 12/31 Noncontrol. Interest Earnings $ TOTAL LIAB. & EQUITY 12,180 11,000 12,180 ( $ 3,000) 20,180 2,000 22,000 14,000 27,000 61,080 15,000 141,080 90,900 30,000 20,180 $80,000 10,000 30,000 40,000 40,000 80,000 40,000 ( 40,000 ( ( 9,200) 2,300) ( 48,000) ( 57,200) ( 2,300) ( 24,000) 28,180 11,000 28,180 3,000) 36,180 82,000 22,000 14,000 27,000 61,080 206,080 100,900 30,000 36,180 39,000 141,080 $80,000 206,080

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Requirement 2 Bancroft Inc. Financial Statement Working Papers at December 31, 2005 Bancroft INCOME STATEMENT Sales Cost of Sales Other Expenses Net income Retained Earnings 1/1 Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash Accounts Receivable-net Inventories Land Equipment and Buildings-net Investment in Showtime TOTAL ASSETS $ TOTAL ASSETS LIAB. & EQUITY Liabilities Capital Stock/Partnership Retained Earnings Adjustment in Long-term Security Investment $ TOTAL LIAB. & EQUITY $ ( ( $15,000 4,700) 4,000) 6,300 3,000 6,300 ( $ 2,000) $ 7,300 1,900 15,500 8,000 27,000 33,000 40,000 $125,400 100 83,100 10,000 7,300 25,000

$125,400

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