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SOAL UAS AKL 2

Chapter 4
Consolidated Techniques and Procedures

1) Parrot Corporation acquired 90% of Swallow Co. on January 1, 2014 for $27,000 cash when
Swallow's stockholders' equity consisted of $10,000 of Capital Stock and $5,000 of Retained Earnings.
The difference between the fair value and book value of Swallow's net assets was allocated solely to a
patent amortized over 5 years. The separate company statements for Parrot and Swallow appear in
the first two columns of the partially completed consolidation working papers.

Required:
Complete the consolidation working papers for Parrot and Swallow for the year 2014.
Eliminations
Parrot Swallow Consolidated
Debit Credit
INCOME
STATEMENT $ 20,000 $ 15,000
Sales
Income of Swallow 2,970
Cost of Sales (9,200) (4,700)
Other Expenses (2,300) (4,000)
Noncontrolling
Interest Share
Net Income $ 11,470 $ 6,300
Retained Earnings 1/1 $ 11,000 $ 5,000
Add:
11,470 6,300
Net Income
Less:
(3,000) (2,000)
Dividends
Retained Earnings
$ 19,470 $ 9,300
12/31
BALANCE SHEET
$ 2,000 $ 1,900
Cash
Accounts Receivable-
12,000 5,500
net
Inventories 14,000 8,000
Patent
Land 27,000 42,000
Equipment and
60,000 43,000
Buildings-net
Investment in Swallow
28,170
Co.
TOTAL ASSETS $ 143,170 $ 100,400
LIAB & EQUITY
$ 93,700 $81,100
Accounts Payable
Capital Stock 30,000 10,000
Retained Earnings 19,470 9,300
1/1 Noncontrolling
Interest
12/31 Noncontrolling
Interest
TOTAL LIAB &
$ 143,170 $ 100,400
EQUITY

Answer:
Eliminations
Parrot Swallow Consolidated
Debit Credit
INCOME
STATEMENT $ 20,000 $ 15,000
Sales
Income of Swallow 2,970 a
Cost of Sales (9,200) (4,700)
Other Expenses (2,300) (4,000) c
Noncontrolling
Interest Share
Net Income $ 11,470 $ 6,300
Retained Earnings 1/1 $ 11,000 $ 5,000 b
Add:
11,470 6,300
Net Income
Less:
(3,000) (2,000)
Dividends
Retained Earnings
$ 19,470 $ 9,300
12/31
BALANCE SHEET
$ 2,000 $ 1,900
Cash
Accounts Receivable-
12,000 5,500
net
Inventories 14,000 8,000
Patent b
Land 27,000 42,000
Equipment and
60,000 43,000
Buildings-net
Investment in Swallow
28,170
Co.
TOTAL ASSETS $ 143,170 $ 100,400
LIAB & EQUITY
$ 93,700 $81,100
Accounts Payable
Capital Stock 30,000 10,000 b
Retained Earnings 19,470 9,300
1/1 Noncontrolling
Interest
12/31 Noncontrolling
Interest
TOTAL LIAB &
$ 143,170 $ 100,400
EQUITY
2) 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.

Required:
Complete the consolidation working papers for Paladium and Sennex for the year 2015.
Eliminations
Paladium Sennex Consolidated
Debit Credit
INCOME
STATEMENT $ 331,900 $ 48,000
Sales
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:
121,000 15,000
Net Income
Less:
(9,000) (4,000)
Dividends
Retained Earnings
$ 958,000 $ 91,000
12/31
BALANCE SHEET
$ 135,000 $ 64,000
Cash
Accounts Receivable-
227,000 160,000
net
Inventories 316,000 86,000
Land 80,000 40,000
Equipment and
469,000 230,000
Buildings-net
Investment in Sennex 146,300
Customer List
Goodwill
TOTAL ASSETS $ 1,373,300 $ 580,000
LIAB & EQUITY
$ 305,300 $ 469,000
Accounts Payable
Capital Stock 110,000 20,000
Retained Earnings 958,000 91,000
1/1 Noncontrolling
Interest
12/31 Noncontrolling
Interest
TOTAL LIAB &
$ 1,373,300 $ 580,000
EQUITY
Answer:
Eliminations
Paladium Sennex Consolidated
Debit Credit
INCOME
STATEMENT $ 331,900 $ 48,000
Sales
Income of Sennex 9,100 a
Cost of Sales (148,000) (25,000)
Other Expenses (72,000) (8,000) c
Noncontrolling
d
Interest Share
Net Income $ 121,000 $ 15,000
Retained Earnings 1/1 $ 846,000 $ 80,000 b
Add:
121,000 15,000
Net Income
Less:
(9,000) (4,000)
Dividends
Retained Earnings
$ 958,000 $ 91,000
12/31
BALANCE SHEET
$ 135,000 $ 64,000
Cash
Accounts Receivable-
227,000 160,000
net
Inventories 316,000 86,000
Land 80,000 40,000
Equipment and
469,000 230,000
Buildings-net
Investment in Sennex
146,300
Customer List b
Goodwill b
TOTAL ASSETS $ 1,373,300 $ 580,000
LIAB & EQUITY
$ 305,300 $ 469,000
Accounts Payable
Capital Stock 110,000 20,000 b
Retained Earnings 958,000 91,000
1/1 Noncontrolling
Interest
12/31 Noncontrolling
Interest
TOTAL LIAB &
$ 1,373,300 $ 580,000
EQUITY

3) 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.

Required:
Complete the consolidation working papers for Packo Company and Subsidiary for the year ending
December 31, 2015.
Eliminations
Packo Sennet Consolidated
Debit Credit
INCOME
STATEMENT $ 206,000 $ 60,000
Sales
Income from Sennett 8,000
Cost of Sales (150,000) (30,000)
Other Expenses (38,000) (18,000)
Net Income $ 26,000 $ 12,000
Packo Retained
$ 24,000
Earnings 1/1
Sennet Retained
$ 10,000
Earnings 1/1
Add:
26,000 12,000
Net Income
Less:
(20,000) (4,000)
Dividends
Retained Earnings
$ 30,000 $ 18,000
12/31
BALANCE SHEET
Other Current Assets $ 10,000 $ 7,000
Inventories 21,000 15,000
Land 11,000 6,000
Equipment and
64,000 55,000
Buildings-net
Investment in Sennett
87,000
Corp
Goodwill
TOTAL ASSETS $ 193,000 $ 83,000
LIAB & EQUITY
$ 63,000 $ 15,000
Liabilities
Capital Stock 100,000 50,000
Retained Earnings 30,000 18,000
TOTAL LIAB &
$ 193,000 $ 83,000
EQUITY

Answer:
Eliminations
Packo Sennet Consolidated
Debit Credit
INCOME
STATEMENT $ 206,000 $ 60,000
Sales
Income from Sennett 8,000 a
Cost of Sales (150,000) (30,000)
Other Expenses (38,000) (18,000) c
Net Income $ 26,000 $ 12,000
Packo Retained
$ 24,000
Earnings 1/1
Sennet Retained
$ 10,000 b
Earnings 1/1
Add:
26,000 12,000
Net Income
Less:
(20,000) (4,000)
Dividends
Retained Earnings
$ 30,000 $ 18,000
12/31
BALANCE SHEET
Other Current Assets $ 10,000 $ 7,000
Inventories 21,000 15,000
Land 11,000 6,000
Equipment and
64,000 55,000 b
Buildings-net
Investment in Sennett
87,000
Corp
Goodwill b
TOTAL ASSETS $ 193,000 $ 83,000
LIAB & EQUITY
$ 63,000 $ 15,000
Liabilities
Capital Stock 100,000 50,000 b
Retained Earnings 30,000 18,000
TOTAL LIAB &
$ 193,000 $ 83,000
EQUITY

4) 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.

Required:
Complete the consolidation working papers for Powell Corporation and Subsidiary for the year
ended December 31, 2015.

Eliminations
Powell Santer Consolidated
Debit Credit
INCOME $ 10,000 $ 6,500
STATEMENT
Sales
Income from Santer 1,080
Cost of Sales (4,000) (3,300)
Depreciation Expenses (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:
4,280 1,500
Net Income
Less:
(2,000) (1,000)
Dividends
Retained Earnings
$ 4,790 $ 5,500
12/31
BALANCE SHEET
$ 1,440 $ 1,900
Cash
Receivable-net 1,100 600
Inventories 1,500 1,200
Land 1,000 1,600
Equipment and
7,500 6,700
Buildings-net
Investment in Santer
12,060
Corp
Goodwill
TOTAL ASSETS $ 24,600 $ 12,000
LIAB & EQUITY
$ 3,810 $ 1,000
Accounts Payable
Dividends Payable 2,000 500
Capital Stock 14,000 5,000
Retained Earnings 4,790 5,500
Noncontrolling
Interest 1/1
Noncontrolling
Interest 12/31
TOTAL LIAB &
$ 24,600 $ 12,000
EQUITY

Answer:
Eliminations
Powell Santer Consolidated
Debit Credit
INCOME
STATEMENT $ 10,000 $ 6,500
Sales
Income from Santer 1,080 a
Cost of Sales (4,000) (3,300)
Depreciation Expenses (1,000) (1,000) c
Other Expenses (1,800) (700)
Noncontrolling
e
Interest Share
Net Income $ 4,280 $ 1,500
Retained Earnings 1/1 $ 2,510 $ 5,000 b
Add:
4,280 1,500
Net Income
Less:
(2,000) (1,000)
Dividends
Retained Earnings
$ 4,790 $ 5,500
12/31
BALANCE SHEET
$ 1,440 $ 1,900
Cash
Receivable-net 1,100 600
Inventories 1,500 1,200
Land 1,000 1,600 b
Equipment and
7,500 6,700 b
Buildings-net
Investment in Santer
12,060
Corp
Goodwill b
TOTAL ASSETS $ 24,600 $ 12,000
LIAB & EQUITY
$ 3,810 $ 1,000 d
Accounts Payable
Dividends Payable 2,000 500 d
Capital Stock 14,000 5,000 b
Retained Earnings 4,790 5,500
Noncontrolling
Interest 1/1
Noncontrolling
Interest 12/31
TOTAL LIAB &
$ 24,600 $ 12,000
EQUITY

5) Puddle Corporation acquired all the voting stock of Soggi Company for $500,000 on January 1, 2014
when Soggi had Capital Stock of $300,000 and Retained Earnings of $150,000. The book value of
Soggi's assets and liabilities were equal to the fair value except for the plant assets. The entire cost-
book value differential is allocated to plant assets and is fully depreciated on a straight-line basis over
a 10-year period.
During 2014, Puddle borrowed $25,000 on a short-term non-interest-bearing note from Soggi, and on
December 31, 2014, Puddle mailed a check to Soggi to settle the note. Soggi deposited the check on
January 5, 2015, but receipt of payment of the note was not reflected in Soggi's December 31, 2014
balance sheet.

Required:
Complete the consolidation working papers for the year ended December 31, 2014.
Eliminations
Puddle Soggi Consolidated
Debit Credit
INCOME
STATEMENT $ 500,000 $ 400,000
Sales
Income from Soggi 135,000
Cost of Sales (350,000) (200,000)
Other Expenses (100,000) (60,000)
Net Income $ 185,000 $ 140,000

Puddle Retained
$ 300,000
Earnings 1/1
Soggi Retained
$ 150,000
Earnings
Add:
185,000 140,000
Net Income
Less:
(70,000)
Dividends
Retained Earnings
$ 485,000 $ 220,000
12/31
BALANCE SHEET
Note Receivable from
$ 25,000
Puddle
Other Current Assets $ 210,000 300,000
Plant Assets-Net 200,000 425,000
Investment in Soggi
565,000
Company
TOTAL ASSETS $ 975,000 $ 750,000
EQUITIES
$ 290,000 $ 230,000
Liabilities
Capital Stock 200,000 300,000
Retained Earnings 485,000 220,000
TOTAL EQUITIES $ 975,000 $ 750,000

Answer:
Eliminations
Puddle Soggi Consolidated
Debit Credit
INCOME
STATEMENT $ 500,000 $ 400,000
Sales
Income from Soggi 135,000 b
Cost of Sales (350,000) (200,000)
Other Expenses (100,000) (60,000) d
Net Income $ 185,000 $ 140,000

Puddle Retained
$ 300,000
Earnings 1/1
Soggi Retained
$ 150,000 c
Earnings
Add:
185,000 140,000
Net Income
Less:
(70,000)
Dividends
Retained Earnings
$ 485,000 $ 220,000
12/31
BALANCE SHEET
Note Receivable from
$ 25,000
Puddle
Other Current Assets $ 210,000 300,000 a
Plant Assets-Net 200,000 425,000 c
Investment in Soggi
565,000
Company
TOTAL ASSETS $ 975,000 $ 750,000
EQUITIES
$ 290,000 $ 230,000
Liabilities
Capital Stock 200,000 300,000 c
Retained Earnings 485,000 220,000
TOTAL EQUITIES $ 975,000 $ 750,000

Chapter 5
Intercompany Profit Transactions - Inventories

1) Penguin Corporation acquired a 60% interest in Squid Corporation on January 1, 2014, at a cost
equal to 60% of the book value of Squid's net assets. At the time of the acquisition, the book values of
Squid's assets and liabilities were equal to the fair values. Squid reports net income of $880,000 for
2014. Penguin regularly sells merchandise to Squid at 120% of Penguin's cost. The intercompany sales
information for 2014 is as follows:

Intercompany sales at selling price $672,000


Sales value of merchandise unsold by Squid $132,000

Required:
1. Determine the unrealized profit in Squid's inventory at December 31, 2014.

2 Compute Penquin's income from Squid for 2014.

2) 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.

Required:
1. Determine the unrealized profit in Salli's inventory at December 31, 2014.

2. Compute Playtime's income from Salli for 2014.

3) Pirate Transport bought 80% of the outstanding voting stock of Seaways Shipping at book value
several years ago. (At the time of purchase, the fair value and book value of Seaways' net assets were
equal.) Pirate sells merchandise to Seaways at 120% above Pirate's cost. Intercompany sales from
Pirate to Seaways for 2014 were $450,000. Unrealized profits in Seaways' December 31, 2013 inventory
and December 31, 2014 inventory were $17,000 and $15,000, respectively. Seaways reported net
income of $750,000 for 2014.

Required:
1. Determine Pirate's income from Seaways for 2014.

2. In General Journal format, prepare consolidation working paper entries at December 31, 2014 to
eliminate the effects of the intercompany inventory sales assuming the perpetual inventory method is
used.

4) Psalm Enterprises owns 90% of the outstanding voting stock of Solomon Siding, which was
purchased at a cost equal to 90% of the book value of Solomon's net assets many years ago. (At the
time of purchase, the fair value and book value of Solomon's net assets were equal.) Psalm purchases
merchandise from Solomon at 110% above Solomon's cost. In 2014, intercompany sales from Solomon
to Psalm amounted to $362,000. Unrealized profits in Psalm's December 31, 2013 inventory and
December 31, 2014 inventory were $82,000 and $26,000, respectively. Solomon reported net income of
$980,000 for 2014.

Required:
1. Determine Psalm's income from Solomon for 2014.

2. In General Journal format, prepare consolidation working paper entries at December 31, 2014 to
eliminate the effects of the intercompany inventory sales assuming the perpetual inventory method is
used.

5) Pfeifer Corporation acquired an 80% interest in Stern Corporation several years ago when the book
values and fair values of Stern's assets and liabilities were equal. At the time of acquisition, the cost of
the 80% interest was equal to 80% of the book value of Stern's net assets. Separate company income
statements for Pfeifer and Stern for the year ended December 31, 2014 are summarized as follows:

Pfeifer Stern
Sales Revenue $ 1,000,000 $ 600,000
Investment income from Stern 85,000
Cost of Goods Sold (600,000) (300,000)
Expenses (200,000) (200,000)
Net Income $ 285,000 $ 100,000

During 2013, Pfeifer sold merchandise that cost $120,000 to Stern for $180,000. Half of this
merchandise remained in Stern's inventory at December 31, 2013. During 2014, Pfeifer sold
merchandise that cost $150,000 to Stern for $225,000. One-third of this merchandise remained in
Stern's December 31, 2014 inventory.

Required:
Prepare a consolidated income statement for Pfeifer Corporation and Subsidiary for 2014.

6) 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.

Required:
Prepare a consolidated income statement for Perry Corporation and Subsidiary for 2014.

7) Preen Corporation acquired a 60% interest in Shino Corporation at a cost equal to 60% of the book
value of Shino's net assets in 2014. At the time of acquisition, the book value and fair value of Shino's
assets and liabilities were equal. During 2015, Preen sold $120,000 of merchandise to Shino. All
intercompany sales are made at 150% of Preen's cost. Shino's beginning and ending inventories
resulting from intercompany sales for 2015 were $60,000 and $36,000, respectively. Income statement
information for both companies for 2015 is as follows:

Preen Shino
Sales Revenue $ 730,000 $ 262,000
Investment income from Shino 38,000
Cost of Goods Sold (319,000) (172,000)
Expenses (165,000) (40,000)
Net Income $ 284,000 $ 50,000

Required:
Prepare a consolidated income statement for Preen Corporation and Subsidiary for 2015.

8) Presented below are several figures reported for Plate Corporation and Saucer Industries as of
December 31, 2014. Plate has owned 70% of Saucer for the past five years, and at the time of
purchase, the book value of Saucer's assets and liabilities equaled the fair value. The cost of the 70%
investment was equal to 70% of the book value of Saucer's net assets. At the time of purchase, the fair
values and book values of Saucer's assets and liabilities were equal.

Plate Saucer
Inventory $ 120,000 $ 60,000
Sales 200,000 140,000
Cost of Goods Sold 130,000 80,000
Expenses 40,000 30,000

In 2013, Saucer sold inventory to Plate which had cost $40,000 for $60,000. 25% of this inventory
remained on hand at December 31, 2013, but was sold in 2014. In 2014, Saucer sold inventory to Plate
which had cost $30,000 for $45,000. 40% of this inventory remained unsold at December 31, 2014.

Required: Calculate following balances at December 31, 2014.


a. Consolidated Sales
b. Consolidated Cost of goods sold
c. Consolidated Expenses
d. Noncontrolling interest share of Saucer's net income
e. Consolidated Inventory