joint venture

Chapter 11 Test Bank

CONSOLIDATION THEORIES, PUSH-DOWN ACCOUNTING, ANDCORPORATE 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.

BookValue

FairValue Difference

Current assets $ 40,000 $ 50,000 $ 10,000Plant assets 60,000 75,000 15,000Liabilities ( 50,000 ) ( 50,000 ) 0Net assets $ 50,000 $ 75,000

LO11. Under the entity theory, a consolidated balance sheet prepared

immediately after the business combination will show goodwill of

a. $15,000.b. $22,500.c. $25,000.d. $32,500.

LO12. Under the entity theory, a consolidated balance sheet prepared

immediately after the business combination will show minority interest of

a. $ 5,000.b. $ 7,500.c. $ 9,000.d. $10,000.

©2009 Pearson Education, Inc. publishing as Prentice Hall11-1

LO13. Paroz Corporation acquired a 70% interest in Sandberg

Corporation for $900,000 when Sandberg’s stockholders’ equity consisted of $600,000 of Capital Stock and $600,000 of Retained Earnings. The fair values of Sandberg’s 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 Sarabet’s stockholders’ equity consisted of $250,000 Common Stock and $50,000 Retained Earnings. The book values and fair values of Shelby’s 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.LO14. Goodwill was reported in the December 31, 2005 consolidated

balance sheet at

a. $170,000.b. $180,000.c. $200,000.d. $210,000.

LO15. Minority interest income was reported in the 2005 consolidated

income statement at

a. $ 5,000.b. $ 6,000.c. $ 8,000.d. $10,000.


LO16. Pascoe’s income from Sarabet under the equity method for 2005

was

a. $ 72,000.b. $ 87,500.c. $ 90,000.d. $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.

LO17. What amount of goodwill was reported under the parent company

theory?

a. $148,000.b. $153,000.c. $154,400.d. $160,000.

LO18. What amount of goodwill was reported under the entity theory?

a. $185,000.b. $191,250.c. $193,000.d. $200,000.

LO19. At what amount was consolidated Land account stated under the

parent company and entity theories, respectively, if Paris’s land account had a book value of $50,000 and a fair value of $70,000?

a. $69,600 and $72,000.b. $72,000 and $72,000.c. $72,000 and $92,000.d. $92,000 and $72,000.


LO110. If Paris’s 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. $65,000.b. $66,000.c. $69,000.d. $70,000.

LO211. The SEC requires push-down accounting for SEC filings of

subsidiaries when the subsidiary has no substantial publicly-held debt or preferred stock outstanding and

a. the parent has substantial ownership (5% or greater).b. the parent has substantial ownership (20% or greater).c. the parent has substantial ownership (50% or greater).d. the parent has substantial ownership (97% or greater).

LO212. 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.

LO213. 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.


LO214. 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 corporation’s assets is lower than its respective book value. The fair market value of each of the acquired corporation’s 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.

LO315. 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. Earth.b. Fire.c. Earth and Fire.d. Earth, Fire and Wind.

LO316. 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 Anthony’s financial statements?

a. Not at all.b. In a footnote.c. As a liability.d. As a noncontrolling interest.

LO317. If a joint venturer holds a 60% interest in a subsidiary

a. the equity method must be used.b. either the equity or cost method may be used.c. the cost method must be used.d. proportionate consolidation must be used.


LO418. A company’s variable interest entities (VIEs)

a. will have ownership control and financial control.b. may have no ownership control but financial control.c. does not require ownership control or financial control.d. does not have to be an entity.

LO419. An enterprise shall consolidate a variable interest entity

(VIE) if

I. that enterprise has a variable interest that will absorb a majority of the VIE’s expected losses.

II. that enterprise will receive a majority of a VIE’s expected returns.

a. I. onlyb. II. onlyc. either I or IId. neither I or II is necessary

LO520. 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.


LO1Exercise 1

On July 1, 2004, Parslow Corporation acquired a 75% interest in Sanderson Corporation for $150,000. Sanderson’s 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.

LO1Exercise 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.

PartelBook

Values

SandfordBook

Values

SandfordFair

Values

Cash $ 330,000 $ 10,000 $ 10,000Inventory 270,000 70,000 90,000Buildings & equipment- net

500,000 120,000 190,000

Total assets $ 1,100,000 $ 200,000 $ 290,000

Common stock $ 300,000 95,000Retained earnings 800,000 105,000Total equities $ 1,100,000 $ 200,000

Required:

Prepare one consolidated balance sheet using the proprietary (pro-rata) theory of consolidation, and, prepare a second consolidated balance sheet using the parent company theory of consolidation.


LO1Exercise 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.

PashleyBook

Values

SargentBook

Values

SargentFair

Values

Cash $ 165,000 $ 5,000 $ 5,000Inventory 135,000 35,000 45,000Buildings & equipment- net

250,000 60,000 95,000

Total assets $ 550,000 $ 100,000 $ 145,000

Common stock $ 150,000 $ 47,500Retained earnings 400,000 52,500Total equities $ 550,000 $ 100,000

Required:

Prepare a consolidated balance sheet using the entity theory of consolidation.

LO1Exercise 4

Patane Corporation acquired 80% of the outstanding voting common stock of Sanlon Corporation on January 1, 2005, for $500,000. Sanlon Corporation’s stockholders’ equity at this date consisted of $250,000 in Capital Stock and $100,000 in Retained Earnings. The fair value of Sanlon’s 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 Sanlon’s 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.


LO1Exercise 5

On January 1, 2005, Parton Corporation acquired an 80% interest in Sandra Corporation for $184,000. Sandra’s 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.


LO2Exercise 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.

BookValue

FairValue

EntityTheoryPush-Down

BalanceSheet

ParentCompanyTheoryPush-Down

BalanceSheet

Cash $ 30,000 $ 30,000

Receivables 200,000 200,000

Inventory 300,000 360,000

Land 50,000 90,000

Plant assets-net 250,000 300,000

Total Assets $ 830,000 $980,000

Current liabilities $ 180,000 $180,000

Other liabilities 120,000 100,000

Common Stock 400,000

Retained Earnings 130,000

Total Liab. & Equity $ 830,000

Required

Complete the push-down columns of Sandy Corporation’s restructured balance sheet using entity theory and parent company theory.


LO2Exercise 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:

PartyBookValue

SangBookValue

SangFairValue

Current assets $ 15,000 $ 9,000 $ 9,000Land and Building-net 35,000 7,000 7,000Equipment 8,000 4,000 6,000Total assets $ 58,000 $ 20,000 $ 22,000

Liabilities $ 27,000 $ 10,000 10,000Capital stock 18,000 4,000Retained earnings 13,000 6,000Total liab. & equity $ 58,000 $ 20,000

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.


LO2Exercise 8

Pascal Corporation paid $225,000 for a 70% interest in Sank Corporation on January 1, 2005. On that date, Sank’s balance sheet accounts, at book value and fair value, were as follows:

Book Value Fair ValueAssetsCash $ 25,000 $ 25,000Accounts receivable-net 45,000 55,000Inventories 40,000 60,000Property, plant, and equipment-net 140,000 125,000Total assets $ 250,000 $ 265,000

EquitiesAccounts payable $ 40,000 $ 40,000Common stock 120,000Retained earnings 90,000Total liab. & equity $ 250,000

Required:

Prepare a balance sheet for Sank Corporation immediately after the acquisition transaction by using push-down accounting under the parent company theory.


LO3Exercise 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:

Patch Saric ConsolidationCash $ 30,000 $ 18,000Accounts receivable 70,000 42,000Inventories 80,000 72,000Land 116,000 140,000Plant, property, equipment 200,000 248,000Total assets $ 496,000 $ 520,000

Accounts payable $ 24,000 $ 20,000Common stock 200,000 220,000Retained earnings 272,000Venture capital 280,000Total liab. & equity $ 496,000 $ 520,000

Required:

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


LO4 & LO5Exercise 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 Showtime’s 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 AffiliateFinancial Statement Working Papers

on December 31, 2005Alford Bancroft Showtime

INCOME STATEMENTSales $ 23,680 $15,000 $88,000

Cost of Sales ( 9,200) ( 4,700) 48,000Other Expenses ( 2,300) ( 4,000)

Net income 12,180 6,300 40,000RetainedEarnings 1/1 11,000 3,000Add:Net income 12,180 6,300 40,000Less:Dividends ( 3,000) ( 2,000)RetainedEarnings 12/31 $ 20,180 $ 7,300 40,000BALANCE SHEETCash 2,000 1,900 80,000AccountsReceivable-net 22,000 15,500

Inventories 14,000 8,000

Land 27,000 27,000Equipment andBuildings-net 61,080 33,000Investment inShowtime 15,000 15,000TOTAL ASSETS $ 141,080 $100,400 $80,000


LIAB. & EQUITYLiabilities 90,900 83,100 10,000

CapitalStock/Partnership 30,000 10,000 30,000RetainedEarnings 20,180 7,300 40,00012/31 Noncontrol.InterestEarningsTOTAL LIAB. & EQUITY

$ 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.


SOLUTIONS

Multiple Choice Questions

1. c

Imputed value of Santini ($90,000/90%) $ 100,000Less: Fair value of net assets acquired 75,000Goodwill $ 25,000

2. d

Imputed value of Santini ($90,000/90%) $ 100,000Minority interest percentage 10%Minority interest $ 10,000

3. d The investment is recorded at cost

4. c

Imputed value of Sarabet ($450,000/90%) $ 500,000Less: Total underlying book value 300,000Total amount of implied goodwill $ 200,000Majority percentage acquired 90%Goodwill under contemporary theory $ 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

Sarabet’s separate income $ 100,000Minority percentage 10%Minority interest income $ 10,000

6. c

Sarabet’s separate income $ 100,000Majority percentage 90%Income from Sarabet to Pascoe $ 90,000


7. c

Purchase price of 80% interest $ 400,000Less: Book value acquired ($300,000 x 80%) 240,000Excess of cost over book value $ 160,000Less: Excess allocated to land ($12,000 x 80%) ( 9,600 )Plus: Excess allocated to inventory ($5,000 x 80%) 4,000Remainder allocated to goodwill $ 154,400

8. c $154,400/80% = $193,000

9. a

Under the parent company theory, the Land account on the consolidated balance sheet would be the sum of the book value of the parent’s Land account balance of $50,000 plus the book value of the Land account on the subsidiary’s 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 subsidiary’s 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 parent’s Inventory account balance of $40,000 plus the book value of the Inventory account on the subsidiary’s 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. d

12. b

13. c

14. b

15. d

16. d

17. a

18. b

19. c

20. b


Exercise 1

Requirement 1:Parent company theory:Cost of 75% interest on July 1, 2004 $ 150,000Book value acquired ($140,000 x 75%) 105,000Excess cost over book value acquired $ 45,000Excess: Allocated to plant assets ($160,000 - $140,000) x 75% ( 15,000 )Goodwill $ 30,000

Entity theory:Total value implied by purchase price ($150,000/75%) $ 200,000Book value 140,000Excess implied value over book value $ 60,000Excess:Allocated to plant assets ($160,000-$140,000) ( 20,000 )Goodwill $ 40,000

Or: ($30,000 goodwill)/75% $ 40,000

Requirement 2:Parent Theory

EntityTheory

Combined separate incomes $ 420,000 $ 420,000Less: Depreciation on excess allocated to plant assets: $15,000/5 years ( 3,000 ) $20,000/5 years ( 4,000 )Less: Minority interest income ( 5,000 )Consolidated net income $ 412,000

Total consolidated income $ 416,000

Income allocated to majority shareholders $ 412,000

Income allocated to minority shareholders $ 4,000


Exercise 2

Requirement 1

Partel Corporation and SubsidiaryConsolidated Balance Sheet

January 1, 2005(Proprietary Theory)

AssetsCash ($330,000 - $230,000) + (75% x 10,000) $ 107,500Inventories $270,000 + (75% x 90,000) 337,500Buildings & equipment-net $500,000 + (75% x 190,000) 642,500Goodwill ($230,000 paid – ($290,000 x 75%) 12,500Total assets $ 1,100,000

EquityCommon stock $ 300,000Retained earnings 800,000Total equity $ 1,100,000

Requirement 2

Partel Corporation and SubsidiaryConsolidated Balance Sheet

January 1, 2005(Parent Company Theory)

AssetsCash ($330,000 - $230,000) + $10,000) $ 110,000Inventories ($270,000 + $70,000) + (75% x 20,000) 355,000Buildings & Equip.-net ($500,000 + $120,000) + (75% x $70,000) 672,500Goodwill ($230,000 paid – ($290,000 x 75%) 12,500Total assets $ 1,150,000

EquityMinority Interest ($200,000 x 25%) $ 50,000Common stock 300,000Retained earnings 800,000Total equity $ 1,150,000


Exercise 3

Pashley Corporation and SubsidiaryConsolidated Balance Sheet

January 1, 2005(Entity Theory of Consolidation)

AssetsCash ($165,000 - $115,000) + $5,000) $ 55,000Inventories ($135,000 + $45,000) 180,000Buildings & equipment-net ($250,000 + $95,000) 345,000Goodwill ($115,000/75%) - $145,000 fair value 8,333Total assets $ 588,333

EquityMinority Interest ($45,000 excess of fair value over book value x 25%) + (25% x $100,000 net book values) + ($8,333 goodwill x 25%) $ 38,333Common stock 150,000Retained earnings 400,000Total equity $ 588,333

Exercise 4

Preliminary calculations:Sanlon net assets at January 1, 2005: ($250,000 capital stock + $100,000 Retained Earnings) $ 350,000Plus: Book value of liabilities 40,000Equals: Book value of assets $ 390,000

Book value of assets $ 390,000Plus: Excess of land fair value over book value 40,000Plus: Excess of securities fair value over book value

50,000

Plus: Fair value of patent in excess of book value 25,000Equals: Total fair value of assets $ 505,000Less: Fair value of liabilities 50,000Equals: Fair value of net assets $ 455,000Percentage acquired 80%Equals: Fair value of net assets acquired $ 364,000


Required:

Goodwill under the parent company theory:Purchase price $ 500,000

Less: Fair value of net assets acquired 364,000Goodwill using the parent company theory $ 136,000

Goodwill under the parent company theory $ 136,000Divided by: Percentage acquired 80%Goodwill under the entity theory $ 170,000

Exercise 5

Requirement 1:Parent company theory:Cost of 80% interest on January 1, 2005 $ 184,000Book value acquired ($160,000 x 80%) 128,000Excess cost over book value acquired $ 56,000Excess allocation: Plant assets ($20,000 x 80%) = $16,000 Patent ($30,000 x 80%) = 24,000 ( 40,000 )Goodwill $ 16,000

Entity theory:Total value implied by purchase price ($184,000/80%) $ 230,000Book value 160,000Excess implied value over book value $ 70,000Excess allocated:Plant assets $20,000Patent 30,000 ( 50,000 )Goodwill $ 20,000

Or: ($16,000 goodwill)/80% $ 20,000


Requirement 2:

Parent Theory

EntityTheory

Combined separate incomes $ 350,000 $ 350,000Less: Deprec./Amort. on excess to: Plant assets: $16,000/5 years ( 3,200 ) $20,000/5 years Patent: $24,000/6 years $30,000/6 years

( 4,000 )(

(

4,000

5,000

)

)

Less: Minority interest income ( 10,000 )Consolidated net income $ 332,800

Total consolidated income $ 341,000

Income allocated to majority shareholders $ 332,800

Income allocated to minority shareholders $ 8,200


Exercise 6Preliminary computations:Parent company theory:Cost of 80% interest $ 840,000Fair value acquired $700,000 x 80% 560,000Goodwill $ 280,000

Entity theory:Implied value $840,000/80% $ 1,050,000Fair value of net assets 700,000Goodwill $ 350,000

BookValue

FairValue

EntityTheoryPush-Down

BalanceSheet

ParentCompanyTheoryPush-Down

BalanceSheet

Cash $ 30,000 $ 30,000 $ 30,000 $ 30,000

Receivables 200,000 200,000 200,000 200,000

Inventory 300,000 360,000 360,000 348,000

Land 50,000 90,000 90,000 82,000

Plant assets-net 250,000 300,000 300,000 290,000

Goodwill 350,000 280,000

Total Assets $ 830,000 $ 980,000 $ 1,330,000 $ 1,230,000

Current liabilities $ 180,000 $ 180,000 $ 180,000 $ 180,000

Other liabilities 120,000 100,000 100,000 104,000

Common Stock 400,000 400,000 400,000

Retained Earnings 130,000 0 0

Push-down capital 650,000 546,000

Tot. Liab & Equity $ 830,000 $ 1,330,000 $ 1,230,000


Exercise 7

Requirement 1:Push-down under parent company theory:Cost of the 80% interest $ 20,000Book value acquired ($10,000 x 80%) 8,000Excess of cost over book value $ 12,000

Excess allocated to:Equipment ($2,000 x 80%) $ 1,600Goodwill 10,400Excess of cost over book value $ 12,000

Entry:Equipment 1,600Goodwill 10,400Retained earnings 6,000 Push-down capital 18,000

Requirement 2:Push-down under entity theory:Implied value ($20,000/80%) $ 25,000Fair value (10,000)Excess of cost over book value $ 15,000

Excess allocated to:Equipment $ 2,000Goodwill 13,000Excess of cost over book value $ 15,000

Entry:Equipment 2,000Goodwill 13,000Retained earnings 6,000 Push-down capital 21,000


Exercise 8

Cost of a 70% interest in Sank $ 225,000Fair value acquired ($225,000 x 70%) 157,500Goodwill $ 67,500

Cost $ 225,000Book value acquired ($210,000 x 70%) 147,000Excess of cost over book value acquired $ 78,000

Excess allocated: Receivables: $10,000 x 70% $ 7,000 Inventories: $20,000 x 70% 14,000 Property, plant & equipment ($15,000) x 70% ( 10,500 ) Goodwill 67,500Total excess cost over book value $ 78,000

Entry:Receivables 7,000Inventories 14,000Goodwill 67,500Retained earnings 90,000 Plant, property, and equipment 10,500 Push-down capital 168,000

Sank CorporationBalance Sheet

1/1/03 (After Push-Down)

AssetsCash $ 25,000Receivables 52,000Inventories 54,000Property, plant, and equipment 129,500Goodwill 67,500Total assets $ 328,000

Liabilities & EquityAccounts payable $ 40,000Common stock 120,000Push-down capital 168,000Total liab. & equity $ 328,000


Exercise 9

Patch CorporationBalance Sheet

AssetsCash $ 39,000Accounts receivable 91,000Inventories 116,000Land 186,000Plant, property & equipment 324,000Total assets $ 756,000

Liabilities & EquityAccounts payable $ 34,000Common stock 200,000Retained earnings 272,000Venture capital 250,000Total liab. & equity $ 756,000


Exercise 10

Requirement 1

Alford CorporationConsolidated Financial Statement Working Papers

at December 31, 2005Alford Showtime Consolidated

INCOME STATEMENTSales $ 23,680 $88,000 $111,680

Cost of Sales ( 9,200) ( 48,000) ( 57,200)Other Expenses ( 2,300) ( 2,300)

Noncontrolling Interest ( 24,000)

Net income 12,180 40,000 28,180RetainedEarnings 1/1 11,000 11,000Add:Net income 12,180 40,000 28,180Less:Dividends ( 3,000) ( 3,000)RetainedEarnings 12/31 $ 20,180 40,000 36,180BALANCE SHEETCash 2,000 80,000 82,000

AccountsReceivable-net 22,000 22,000

Inventories 14,000 14,000

Land 27,000 27,000Equipment andBuildings-net 61,080 61,080Investment inShowtime 15,000 -

TOTAL ASSETS $ 141,080 $80,000 206,080LIAB. & EQUITYLiabilities 90,900 10,000 100,900

CapitalStock/Partnership 30,000 30,000 30,000RetainedEarnings 20,180 40,000 36,180

12/31 Noncontrol.InterestEarnings

39,000

TOTAL LIAB. & EQUITY

$ 141,080 $80,000 206,080


Requirement 2

Bancroft Inc.Financial Statement Working Papers

at December 31, 2005Bancroft

INCOME STATEMENTSales $ $15,000

Cost of Sales ( 4,700)Other Expenses ( 4,000)

Net income 6,300RetainedEarnings 1/1 3,000Add:Net income 6,300Less:Dividends ( 2,000)RetainedEarnings 12/31 $ $ 7,300

BALANCE SHEETCash 1,900

AccountsReceivable-net 15,500

Inventories 8,000

Land 27,000Equipment andBuildings-net 33,000Investment inShowtime 40,000TOTAL ASSETS $ $125,400LIAB. & EQUITYLiabilities 83,100

CapitalStock/Partnership 10,000

RetainedEarnings 7,300

Adjustment in Long-term Security Investment

25,000

TOTAL LIAB. & EQUITY

$$125,400
