Question: Financial statements for Pop Corporation and its
Financial Statements for Pop Corporation and its 75 percent–owned subsidiary, Son Corporation, for 2017 are summarized as follows (in thousands):
Pop Corporation acquired its interest in Son at book value during 2014, when the fair values of Son’s assets and liabilities were equal to recorded book values.
ADDITIONAL INFORMATION:
1. Pop uses the equity method for its investment in Son.
2. Intercompany sales of merchandise between the two affiliates totalled $100,000 during 2017. All intercompany balances have been paid except for $20,000 in transit from Son to Pop at December 31, 2017.
3. Unrealized profits in Son’s inventories of merchandise acquired from Pop were $24,000 at December 31, 2016, and $30,000 at December 31, 2017.
4. Son sold equipment with a six-year remaining useful life to Pop on January 2, 2015, at a gain of $48,000. The equipment is still in use by Pop.
5. Pop sold a plant to Son on July 1, 2017. The land was sold at a gain of $20,000 and the building, which had a remaining useful life of 10 years, at a gain of $40,000.
6. Son purchased $200,000 par of Pop’s 10 percent bonds in the open market for $188,000 plus $10,000 accrued interest on December 31, 2017. Interest is paid semiannually on January 1 and July 1, and the bonds mature on January 1, 2022.
REQUIRED:
Prepare a consolidation workpaper for Pop Corporation and subsidiary for the year ended December 31, 2017.
Transcribed Image Text:
Роp Pop Son Combined Income and Retained Earnings Statement for the Year Ended December 31, 2017 Sales $1,260 S1,000 Gain on plant Income from Son Cost of goods sold Depreciation expense Interest expense Other expenses 60 104 (700) (152) (40) (92) (600) (80) (120) Net income 440 200 Add: Beginning retained earnings Deduct: Dividends Retained earnings December 31 200 (160) $ 240 300 (320) $ 420 Balance Sheet at December 31, 2017 Cash $ 54 S 162 Bond interest receivable 10 Other receivables-net 80 60 Inventories 160 100 Land 180 140 Buildings-net Equipment-net Investment in Son 300 360 280 180 686 Investment in Pop bonds Total assets 188 $1,740 S T00 $1,200 160 Accounts payable Bond interest payable 10% bonds payable Common stock 20 400 800 800 Retained earnings Total equities 420 $1,740 240 $1,200
> Pam Corporation pays $10,800,000 for an 80 percent interest in Sun Corporation on January 1, 2016, at which time the book value and fair value of Sun’s net assets are as follows (in thousands): REQUIRED: Prepare a schedule to assign t
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> Pop Corporation acquired 70 percent of the outstanding common stock of Son Corporation on January 1, 2016, for $350,000 cash. Immediately after this acquisition the balance sheet information for the two companies was as follows (in thousands)
> On December 31, 2016, Pam Corporation purchased 80 percent of the stock of Sun Company at book value. The data reported on their separate balance sheets immediately after the acquisition follow. At December 31, 2016, Pam Corporation owes Sun
> Pam and Sun Corporations’ balance sheets at December 31, 2015, are summarized as follows (in thousands): Pam acquired 80 percent of the voting stock of Sun on January 2, 2016, at a cost of $640,000. The fair values of Sunâ€
> Pam Corporation owns 90 percent of the voting stock of Sun Corporation and 25 percent of the voting stock of Ell Corporation. The 90 percent interest in Sun was acquired for $36,000 cash on January 1, 2016, when Sun’s stockholdersâ
> Pop Corporation acquired an 80 percent interest in Son Corporation on January 2, 2016, for $1,400,000. On this date the capital stock and retained earnings of the two companies were as follows (in thousands): The assets and liabilities of Son were stat
> Summary income statement information for Pam Corporation and its 70 percent–owned subsidiary, Sun, for the year 2017 is as follows (in thousands): REQUIRED: 1. Assume that Pam acquired its 70 percent interest in Sun at book value on J
> Book values and fair values of Son Corporation’s assets and liabilities on December 31, 2015, are as follows (in thousands): On January 1, 2016, Pop Corporation acquires all of Son’s capital stock for $10,000,000 cas
> Pop Corporation paid $3,600,000 for a 90 percent interest in Son Corporation on January 1, 2016; Son’s total book value was $3,600,000. The excess was allocated as follows: $120,000 to undervalued equipment with a three-year remaining u
> 1. Cobb Company’s current receivables from affiliated companies at December 31, 2016, are (1) a $75,000 cash advance to Hill Corporation (Cobb owns 30 percent of the voting stock of Hill and accounts for the investment by the equity met
> 1. Under GAAP, a parent company should exclude a subsidiary from consolidation if: a It measures income from the subsidiary under the equity method b The subsidiary is in a regulated industry c The subsidiary is a foreign entity whose books are recorded
> Pop Corporation purchased a 70 percent interest in Son Corporation on January 2, 2016, for $98,000, when Son had capital stock of $100,000 and retained earnings of $20,000. On June 30, 2017, Pop purchased an additional 20 percent interest for $37,000. Co
> 1. A 75 percent–owned subsidiary should not be consolidated when: a Its operations are dissimilar from those of the parent company b Control of the subsidiary does not lie with the parent company c There is a dominant noncontrolling interest in the subsi
> Comparative income statements of Pop Corporation and Son Corporation for the year ended December 31, 2018, are as follows (in thousands): ADDITIONAL INFORMATION: 1. Son is a 90 percent–owned subsidiary of Pop, acquired by Pop for $1,6
> On December 31, 2016, the separate-company financial statements for Pam Corporation and its 70 percent-owned subsidiary, Sun Corporation, had the following account balances related to dividends (in thousands): REQUIRED: 1. At what amount will dividends
> Briefly outline the steps to calculate a goodwill impairment loss.
> Comparative adjusted trial balances for Pam Corporation and Sun Corporation are given here. Pam Corporation acquired an 80 percent interest in Sun Corporation on January 1, 2016, for $80,000 cash. Except for inventory items that were undervalued by $1,00
> Does cumulative preferred stock in the capital structure of an investee affect the way that an investor accounts for its 30 percent common stock interest? Explain.
> Ordinarily, the income from an investment accounted for by the equity method is reported on one line of the investor’s income statement. When would more than one line of the income statement of the investor be required to report such income?
> What accounting procedures or adjustments are necessary when an investor uses the cost method of accounting for an investment in common stock and later increases the investment such that the equity method is required?
> Cite the conditions under which you would expect the balance of an equity investment account on a balance sheet date subsequent to acquisition to be equal to the underlying book value represented by that investment.
> What is the difference in reporting income from a subsidiary in the parent’s separate income statement and in consolidated financial statements?
> Pam Corporation purchased 9,000 shares of Sun Corporation’s $50 par common stock at $90 per share on January 1, 2016, when Sun had capital stock of $500,000 and retained earnings of $300,000. During 2016, Sun Corporation had net income of $50,000 but dec
> Pam Corporation acquired a 90 percent interest in Sun Corporation on July 1, 2017, for $675,000. The stockholders’ equity of Sun at December 31, 2016, was as follows (in thousands): Capital stock..................... $500 Retained earn
> The stockholder’s equity of Son Corporation at December 31, 2015, 2016, and 2017, is as follows (in thousands): Son reported income of $80,000 in 2016 and paid no dividends. In 2017, Son reported net income of $80,000 and declared and
> Pam Corporation owns two-thirds (600,000 shares) of the outstanding $1 par common stock of Sun Company on January 1, 2016. In order to raise cash to finance an expansion program, Sun issues an additional 100,000 shares of its common stock for $5 per shar
> The stockholders’ equities of Pop Corporation and its 80 percent–owned subsidiary, Son Corporation, on December 31, 2016, appear as follows (in thousands): Pop’s Investment in Son account on this da
> The stockholders’ equities of Pam Corporation and its 80 percent–owned subsidiary, Sun Corporation, on December 31, 2016, are as follows (in thousands): Pam’s Investment in Sun account balance on De
> Pop Corporation paid $2,548,000 cash for 70 percent of the common stock of Son Corporation on June 1, 2016. The assets and liabilities of Son were fairly valued, and any fair value/book value differential is goodwill. Data related to the stockholders’ eq
> The balance of Pam Corporation’s investment in Sun Company account at December 31, 2015, was $436,000, consisting of 80 percent of Sun’s $500,000 stockholders’ equity on that date and $36,000 goodwill. On May 1, 2016, Pam sold a 20 percent interest in Su
> Pam Corporation acquired a 75 percent interest in Sun Corporation on January 1, 2016. Financial statements of Pam and Sun Corporations for the year 2016 are as follows (in thousands): REQUIRED: Prepare consolidation workpapers for Pam Corporation and S
> Pop Corporation owns 100 percent (300,000 shares) of the outstanding shares of Son Corporation’s common stock on January 1, 2016. Its Investment in Son account on this date is $4,400,000, equal to Son’s $4,000,000 stockholders’ equity plus $400,000 goodw
> On January 1, 2016, Pam Corporation purchased a 40 percent interest in Sun Corporation for $1,600,000, when Sun’s stockholders’ equity consisted of $2,000,000 capital stock and $2,000,000 retained earnings. On September 1, 2016, Pam purchased an addition
> Pop Corporation increases its ownership interest in its subsidiary, Son Corporation, from 70 percent on January 1, 2016, to 90 percent at July 1, 2016. Son’s net income for 2016 is $200,000, and it declares $60,000 dividends on March 1 and $60,000 on Sep
> Calculate the parent’s income from its 75 percent–owned subsidiary if the reported net income of the subsidiary for the period is $100,000 and the consolidated entity has a constructive loss of $8,000 from the parent’s acquisition of subsidiary bonds.
> Prepare a journal entry (or entries) to account for the parent’s investment income for the current year if the reported income of its 80 percent–owned subsidiary is $50,000 and the consolidated entity has a $4,000 constructive gain from the subsidiary’s
> The following information related to intercompany bond holdings was taken from the adjusted trial balances of a parent and its 90 percent–owned subsidiary four years before the bond issue matured: Construct the consolidation workpaper
> If a subsidiary purchases parent bonds at a price in excess of recorded book value, is the gain or loss attributed to the parent or the subsidiary? Explain.
> Describe the process by which constructive gains on intercompany bonds are realized and recognized on the books of the affiliates. Does recognition of a constructive gain in consolidated financial statements precede or succeed recognition on the books of
> Compare a constructive gain on intercompany bonds with an unrealized gain on the intercompany sale of land.
> A company has a $1,000,000 bond issue outstanding with unamortized premium of $10,000 and unamortized issuance cost of $5,300. What is the book value of its liability? If an affiliate purchases half the bonds in the market at 98, what is the gain or loss
> Pop Corporation acquired 70 percent of the outstanding voting stock of Son Corporation for $182,000 cash on January 1, 2016, when Son’s stockholders’ equity was $260,000. All the assets and liabilities of Son were stat
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> Do direct lending and borrowing transactions between affiliates give rise to unrealized gains or losses and unrecognized gains or losses?
> If a parent reports interest expense of $4,300 with respect to bonds held intercompany and the subsidiary reports interest income of $4,500 for the same bonds: (a) Was there a constructive gain or loss on the bonds? (b) Is the gain or loss attributed to
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> A firm issues mandatorily redeemable preferred stock. Should this be classified as debt or equity in the consolidated financial statements?
> How should a company determine the fair value of long-term debt?
> Selected amounts from the separate unconsolidated financial statements of Pam Corporation and its 90 percent–owned subsidiary, Sun Company, at December 31, 2016, are as follows (in thousands). ADDITIONAL INFORMATION: 1. On January 2,
> Pop Corporation acquired an 80 percent interest in Son Corporation on January 1, 2016, for $640,000, at which time Son had capital stock of $400,000 outstanding and retained earnings of $200,000. The price paid reflected a $200,000 undervaluation of Son&
> Financial statements for Pam Corporation and its 75 percent–owned subsidiary, Sun Corporation, for 2016 are summarized as follows (in thousands): Pam acquired its interest in Sun at book value during 2013, when the fair values of Sun&
> Pam Corporation purchased 75 percent of the outstanding voting stock of Sun Corporation for $4,800,000 on January 1, 2016. Sun’s stockholders’ equity on this date consisted of the following (in thousands): Capital sto
> Intercompany transactions between Pop Corporation and Son Corporation, its 80 percent–owned subsidiary, from January 2016, when Pop acquired its controlling interest, to December 31, 2019, are summarized as follows: 2016 P
> Partial adjusted trial balances for Pam Corporation and its 90 percent–owned subsidiary, Sun Corporation, for the year ended December 31, 2016, are as follows: Sun Corporation acquired $100,000 par of Pam’s bonds on
> Pop Corporation acquired an 80 percent interest in Son Corporation at book value equal to fair value on January 1, 2017, at which time Son’s capital stock and retained earnings were $200,000 and $80,000, respectively. On January 2, 2018, Son purchased $1
> Pop Corporation, which owns an 80 percent interest in Son Corporation, purchases $100,000 of Son’s 8 percent bonds at 106 on July 2, 2016. The bonds pay interest on January 1 and July 1 and mature on July 1, 2019. Pop uses the equity me
> Comparative income statements for Pam Corporation and its 80 percent–owned subsidiary, Sun Corporation, for the year ended December 31, 2017, are summarized as follows: Pam purchased its 80 percent interest in Sun at book value on Jan
> Pop Corporation has $8,000,000 of 12 percent bonds outstanding on December 31, 2016, with unamortized premium of $240,000. These bonds pay interest semiannually on July 1 and January 1 and mature on January 1, 2022. On January 2, 2017, Son Corporation, a
> The balance sheets of Pam and Sun Corporations, an 80 percent–owned subsidiary of Pam, at December 31, 2016, are as follows (in thousands): The book value of Pam’s bonds reflects a $100,000 unamortized discount. The
> The consolidated balance sheet of Pop Corporation and Son (an 80 percent–owned subsidiary) at December 31, 2016, includes the following items related to an 8 percent, $500,000 outstanding bond issue: Current Liabilities Bond interest payable (6 months’
> Comparative balance sheets of Pam and Sun Corporations at December 31, 2016, follow: Pam acquired 80 percent of Sun’s capital stock for $3,320,000 on January 1, 2014, when Sun’s capital stock was $4,000,000 and Sun&a
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> Pop Company paid $88,000 for an 80% interest in Son Company on January 5, 2016, when Son’s capital stock was $60,000 and its retained earnings $40,000. Trial balances for the companies at December 31, 2016, are as follows (in thousands)
> Comparative income statements for Pam Corporation and its 100 percent–owned subsidiary, Sun Corporation, for the year ended December 31, 2024, are summarized as follows: Pam purchased its interest in Sun at fair value equal to book va
> Pop Company acquired an 80 percent interest in Son Company on January 1, 2016, for $1,600,000 in excess of book value and fair value. On January 1, 2019, Pop had $4,000,000 par, 8 percent bonds outstanding with a $160,000 unamortized discount. On January
> Pam Corporation’s long-term debt on January 1, 2016, consists of $400,000 par value of 10 percent bonds payable due on January 1, 2020, with an unamortized discount of $8,000. On January 2, 2016, Sun Corporation, Pam’s 90 percentowned subsidiary, purchas
> Son Corporation is a 70 percent–owned subsidiary of Pop Corporation. On January 2, 2016, Son purchased $600,000 par of Pop’s $900,000 outstanding bonds for $602,000 in the bond market. Pop’s bonds have an 8 percent interest rate, pay interest on January
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> Describe the computation of noncontrolling interest share in the year of an upstream sale of depreciable plant assets.
> How are unrealized gains and losses from intercompany transactions involving depreciable assets eventually realized?
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> Pop Company paid $198,000 for a 90 percent interest in Son on January 5, 2016, when Son’s capital stock was $120,000 and its retained earnings $40,000. Trial balances for the companies at December 31, 2019, are as follows (in thousands)
> How is the computation of noncontrolling interest share affected by downstream sales of land? By upstream sales of land?
> When are unrealized gains and losses from intercompany sales of land realized from the viewpoint of the selling affiliate?
> In accounting for unrealized profits and losses from intercompany sales of plant assets, does it make any difference if the parent is the purchaser or the seller? Would your answer be different if the subsidiary were 100 percent owned?
> Explain the sequence of workpaper adjustments and eliminations for unrealized gains and losses on depreciable plant assets. Is your answer affected by whether the intercompany transaction occurred in the current year or in prior years?
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> Separate company and consolidated financial statements for Pop Corporation and its only subsidiary, Son Corporation, for 2017 are summarized here. Pop acquired its interest in Son on January 1, 2016, at a price in excess of book value, which was due to a
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> Pam Corporation acquired an 80 percent interest in Sun Corporation on January 1, 2016, for $108,000 cash, when Sun’s capital stock was $100,000 and retained earnings were $10,000. The difference between investment fair value and book va
> The information needed to prepare the Cash Flow from Operating Activities section of Pop Corporation’s consolidated statement of cash flows is included in the following list (in thousands): Cash received from customers...................................
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