Advanced Financial Accounting 1

Ch. 9: Consolidation Ownership Issues & Ch. 10: Additional Consolidation Reporting Issues
Tutor: Whanegi Skar Al Khalifi

PROBLEM 1
Panadol Corporation acquired 75 percent of the stock of Sanmol Company, 7500 shares, on
January 1, 20X7, for $225,000.At that date, the fair value of the noncontrolling interest was
$75,000. Sanmol's balance sheet contained the following amounts at the time of the
combination:

During each of the next three years, Sanmol reported net income of $30,000 and paid dividends
of $10,000. On January 1, 20X9, Panadol sold 1,500 shares of Sanmol's $10 par value shares
for $60,000 in cash. Panadol used the fully adjusted equity method in accounting for its
ownership of Sanmol Company. Based on the preceding information:
Required:
1. Prepare the journal entry recorded by Panadol for sale of shares
2. Prepare the elimination entries to complete consolidated financial statement on
December 31, 20X9 (after sale of stock)

PROBLEM 2
For the first quarter of 20X8, Sun Corporation reported sales of $150,000 and operating
expenses of $100,000, and paid dividends of $20,000. Sun Company operates on a calendar-
year basis. On April 1, 20X8, Primer Corporation acquired 80 percent of Sun's common stock
for $320,000. At that date, the fair value of the noncontrolling interest was $80,000, and Sun
had 20,000 shares of $5 par common stock outstanding, originally issued at $12 per share. The
differential is related to goodwill. On December 31, 20X8, the management of Primer
Corporation reviewed the amount attributed to goodwill as a result of its acquisition of Sun
common stock and concluded that goodwill was not impaired. Sun's retained earnings
statement for the full year 20X8 appears as follows:

Primer uses the fully adjusted equity method in accounting for this investment:
Required:
1. Prepare all entries that Primer would have recorded in accounting for its investment in
Sun during 20X8.
2. Present all eliminating entries needed in a worksheet to prepare a complete set of
consolidated financial statements for the year 20X8.
 Advanced Financial Accounting 1
Ch. 9: Consolidation Ownership Issues & Ch. 10: Additional Consolidation Reporting Issues
Tutor: Whanegi Skar Al Khalifi

HOMEWORK
Parent Company acquired 70 percent of Subsidiary Corporation's shares on December 31,
20X5, at underlying book value of $98,000. At that date, the fair value of the noncontrolling
interest was equal to 30 percent of the book value of Subsidiary Corporation. Subsidiary's
balance sheet on January 1, 20X8, contained the following balances:

On January 1, 20X8, Subsidiary acquired 5,000 of its own $2 par value common shares from
Nonaffiliated Corporation for $6 per share. Based on the preceding information:
Required:
1. Prepare the journal entry to be recorded on Parent Company's books to recognize the
change in the book value of the shares it holds.
2. Prepare the eliminating entry needed in completing a consolidated balance sheet
immediately following the acquisition of shares.