acc401 Module 4 exam 2 latest 2017 august

Module 4 exam 2 Question 1 (20 points) Question 1 Unsaved 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. Complete the consolidation working papers for Paladium and Sennex for the year 2015. Paladium Sennex Eliminations Consolidated Debit Credit INCOME STATEMENT Sales $ 331 900 48 000 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: Net Income 121 000 15 000 Less: Dividends (9 000) (4 000) Retained Earnings 12/31 $ 958 000 91 000 BALANCE SHEET Cash 135 000 64 000 Accounts Receivablenet 227 000 160 000 Inventories 316 000 86 000 Land 80 000 40 000 Equipment and Buildings-net 469 000 230 000 Investment in Sennex 146 300 Customer List Goodwill TOTAL ASSETS $ 1 373 300 580 000 LIAB. & EQUITY Accounts Payable $ 305 300 469 000 Capital Stock 110 000 20 000 Retained earnings 958 000 91 000 1/1 Noncontrol. Interest 12/31 Noncontrol. Int. TOTAL LIAB. & EQUITY $ 1 373 300 580 000 Question 1 options: Spell check Save Question 2 (20 points) Question 2 Unsaved 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. Complete the consolidation working papers for Packo Company and Subsidiary for the year ending December 31 2015. Packo Sennett Eliminations Consolidated Debit Credit INCOME STATEMENT Sales $ 206 000 60 000 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 Earnings 1/1 24 000 Sennett Retained Earnings 1/1 10 000 Add: Net Income 26 000 12 000 Less: Dividends (20 000) (4 000) Retained Earnings 12/31 $ 30 000 18 000 BALANCE SHEET Other Current Assets 10 000 7 000 Inventories 21 000 15 000 Land 11 000 6 000 Equipment and Buildings-net 64 000 55 000 Investment in Sennett Corp. 87 000 Goodwill TOTAL ASSETS $ 193 000 83 000 LIAB. & EQUITY Liabilities $ 63 000 15 000 Capital Stock 100 000 50 000 Retained earnings 30 000 18 000 TOTAL LIAB. & EQUITY $ 193 000 83 000 Question 3 Question 3 Unsaved Pommu Corporation paid $78 000 for a 60% interest in Schtick Inc. on January 1 2014 when Schtick’s Capital Stock was $80 000 and its Retained Earnings $20 000. The fair values of Schtick’s identifiable assets and liabilities were the same as the recorded book values on the acquisition date. Trial balances at the end of the year on December 31 2014 are given below: Pommu Schtick Cash $4 500 $20 000 Accounts Receivable 24 000 30 000 Inventory 100 000 70 000 Investment in Schtick 78 000 Cost of Goods Sold 71 500 50 000 Operating Expenses 22 000 37 000 Dividends 15 000 10 000 $315 000 $217 000 Liabilities $47 000 $27 000 Capital stock $10 par value 100 000 80 000 Additional Paid-in Capital 11 000 Retained Earnings 31 000 20 000 Sales Revenue 120 000 90 000 Dividend Income 6 000 $315 000 $217 000 During 2014 Pommu made only two journal entries with respect to its investment in Schtick. On January 1 2014 it debited the Investment in Schtick account for $78 000 and on November 1 2014 it credited Dividend Income for $6 000. Part 1: Prepare a consolidated income statement and a statement of retained earnings for Pommu and Subsidiary for the year ended December 31 2014. Part 2: Prepare a consolidated balance sheet for Pommu and Subsidiary as of December 31 2014. Question 4 (20 points) Question 4 Unsaved 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. Part 1: Determine the unrealized profit in Salli’s inventory at December 31 2014. Part 2: Compute Playtime’s income from Salli for 2014. Question 5 (20 points) Question 5 Unsaved 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. Prepare a consolidated income statement for Perry Corporation and Subsidiary for 2014.