CASE 1

Flamingo Corporation acquired an 80% interest in Stone Corporation several years ago
when the book values and fair values of Stone'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
Stone's net assets. Separate company income statements for Flamingo and Stone for the
year ended December 31, 2017 are summarized as follows:

Flamingo Stone
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 2016, Flamingo sold merchandise that cost $120,000 to Stone for $180,000. Half
of this merchandise remained in Stone's inventory at December 31, 2016. During 2017,
Flamingo sold merchandise that cost $150,000 to Stone for $225,000. One-third of this
merchandise remained in Stone's December 31, 2017 inventory.

Required:
Prepare a consolidated income statement for Flamingo Corporation and Subsidiary for
2017.

CASE 2
On January 1, 2014, Paar Incorporated paid $38,500 for a 70% interest in Siba
Enterprises, at a time when Siba's stockholder's equity consisted of $20,000 in Capital
stock and $30,000 in Retained Earnings. The fair values of Siba's assets and liabilities
equaled their recorded book values at that time, so any additional amount paid was
attributed to goodwill.

In 2014, Siba purchased merchandise from Paar at a price of $6,000. The products
originally cost Paar $4,000, and 75% of this merchandise remained in inventory at
December 31, 2014. This inventory was sold in 2015. Siba reported net income of
$9,000 and paid dividends of $3,000 during 2014.

In 2015, Siba purchased merchandise from Paar at a price of $8,000. The products had a
cost to Paar of $7,000, and 50% of this merchandise remained in inventory at December
31, 2015. Siba still owed Paar $1,800 for these purchases at December 31, 2015.

Required:
Financial statements of Paar and Siba appear in the first two columns of the partially
completed working papers.
1) Complete the consolidation working papers for Paar Corporation and Subsidiary for
the year ended December 31, 2015.
2) Provide the working paper journalizing necessary for the elimination and
adjustment process in the making of consolidated financial statements.