Is noncontrolling interest share an expense? Explain.
> Pop Corporation paid $686,000 for a 30 percent interest in Son Corporation’s outstanding voting stock on April 1, 2016. At December 31, 2015, Son had net assets of $2,000,000 and only common stock outstanding. During 2016, Son declared and paid dividends
> Pam Corporation paid $290,000 for 40 percent of the outstanding common stock of Sun Corporation on January 2, 2017. During 2017, Sun paid dividends of $48,000 and reported net income of $108,000. A summary of Sun’s stockholdersâ&#
> Pop Corporation acquired a 90 percent interest in Son Corporation at book value on January 1, 2016. Intercompany purchases and sales and inventory data for 2016, 2017, and 2018, are as follows: Selected data from the financial statements of Pop and Son
> Pop Corporation paid $780,000 for a 30 percent interest in Son Corporation on December 31, 2016, when Son’s stockholders’ equity consisted of $2,000,000 capital stock and $800,000 retained earnings. The price paid by Pop reflected the fact that Son’s inv
> The stockholders’ equity of Sun Corporation at December 31, 2016, was $380,000, consisting of the following (in thousands): Capital stock, $10 par (24,000 shares outstanding)........... $240 Additional paid-in capital....................................
> Pop Corporation acquired 80 percent of Son Corporation’s common stock on January 1, 2016, for $420,000 cash. The stockholders’ equity of Son at this time consisted of $300,000 capital stock and $100,000 retained earnin
> Summary balance sheet and income information for Son Company for two years is as follows (in thousands): On January 2, 2016, Pop Company purchases 10 percent of Son Company for $25,000 cash, and it accounts for its investment (classified as an availabl
> Pam Corporation acquired 25 percent of Sun Corporation’s outstanding common stock on October 1, for $300,000. A summary of Sun’s adjusted trial balances on this date and at December 31 follows (in thousands): Pam use
> Pop Corporation purchased 480,000 shares of Son Corporation’s common stock (an 80 percent interest) for $10,600,000 on January 1, 2016. The $1,000,000 excess of investment fair value over book value acquired was attributed to goodwill.
> Son Company had net income of $400,000 and paid dividends of $200,000 during 2017. Son’s stockholders’ equity on December 31, 2016, and December 31, 2017, is summarized as follows (in thousands): On January 2, 2017,
> Pam Corporation owns a 40 percent interest in the outstanding common stock of Sun Corporation, having acquired its interest for $2,400,000 on January 1, 2016, when Sun’s stockholders’ equity was $4,000,000. The fair value/book value differential was assi
> 1. On January 3, 2016, Pop Company purchases a 15 percent interest in Son Corporation’s common stock for $50,000 cash. Pop accounts for the investment using the cost method. Son’s net income for 2016 is $20,000, but it declares no dividends. In 2017, Son
> Pop Company acquired a 30 percent interest in Son on January 1 for $500,000 cash. Assume the cost of the investment equals the fair value of Son’s net assets. Pop assigned the $125,000 excess of fair value over book value of the interest acquired to the
> 1. Intercompany profit elimination entries in consolidation workpapers are prepared in order to: a Nullify the effect of intercompany transactions on consolidated statements b Defer intercompany profit until realized c Allocate unrealized profits between
> 1. Pam Company owns 25 percent of Sun Corporation. During the year, Sun had net earnings of $450,000 and paid dividends of $28,000. Pam mistakenly recorded these transactions using the cost method rather than the equity method. What effect would this hav
> 1. GAAP provides indicators of an investor’s inability to exercise significant influence over an investee. Which of the following is not included among those indicators? a Surrender of significant stockholder rights by agreement b Concentration of majori
> Pop Corporation recorded goodwill in the amount of $200,000 in its acquisition of Son Company in 2016. Pop paid a total of $700,000 to acquire Son. In preparing its 2017 financial statements, Pop estimates that identifiable net assets still have a fair v
> Pam, Inc. has two primary business reporting units: Alfa and Beta. In preparing its 2017 financial statements, Pam conducts the required annual impairment review of goodwill. Alfa has recorded goodwill of $35,000 that has an estimated fair value of $30,0
> Pam Corporation acquired 80 percent of Sun Corporation’s common stock on January 1, 2016, for $840,000 cash. The stockholders’ equity of Sun at this time consisted of $600,000 capital stock and $200,000 retained earnin
> Pam Corporation purchased a 40 percent interest in Sun Corporation for $2,000,000 on January 1, at book value, when Sun’s assets and liabilities were recorded at fair values. During the year, Sun reported net income of $1,200,000 as follows (in thousands
> A summary of changes in the stockholders’ equity of Sun Corporation from January 1, 2016, to December 31, 2017, appears as follows (in thousands): Pam Corporation purchases 40,000 shares of Sun’s outstanding stock on
> Pam Corporation pays $300,000 for a 30 percent interest in Sun Corporation on July 1, 2016, when the book value of Sun’s identifiable net assets equals fair value. Information relating to Sun follows (in thousands): REQUIRED: Calculat
> Son Corporation’s stockholders’ equity at December 31, 2015, consisted of the following (in thousands): Capital stock, $10 par, 60,000 shares issued and outstanding ..............$600 Additional paid-in capital ..........................................
> What is a bargain purchase? Describe the accounting procedures necessary to record and account for a bargain purchase.
> The consolidated income statement of Pop and Son for 2016 was as follows (in thousands): Sales........................................................................................... $5,520 Cost of sales...............................................
> Pam Corporation owns an 80 percent interest in Sun Corporation acquired several years ago. Sun regularly sells merchandise to Pam at 125 percent of Sun’s cost. Gross profit data of Pam and Sun for 2017 are as follows: During 2017, Pam
> Pop Corporation owns an 80 percent interest in Son Corporation and at December 31, 2016, Pop’s investment in Son on an equity basis was equal to 80 percent of Son’s stockholders’ equity. During 2017,
> 1. The separate incomes of Pop Corporation and Son Corporation, a 100 percent–owned subsidiary of Pop, for 2017 are $2,000 and $1,000, respectively. Pop sells all of its output to Son at 150 percent of Pop’s cost of pr
> Pam Corporation acquired an 85 percent interest in Sun Corporation on August 1, 2016, for $522,750, equal to 85 percent of the underlying equity of Sun on that date. In August 2016, Sun sold inventory items to Pam for $60,000 at a gross profit of $15,000
> 1. Pop, Inc., owns 80 percent of Son, Inc. During 2016, Pop sold goods with a 40 percent gross profit to Son. Son sold all of these goods in 2016. For 2016 consolidated financial statements, how should the summation of Pop and Son income statement items
> Can the method used by a parent company in accounting for its subsidiary investments be determined by examining the separate financial statements of the parent and subsidiary companies?
> Controlling share of consolidated net income is a measurement of income to the stockholders of the parent, but does a change in cash as reflected in a statement of cash flows also relate to other stockholders of the parent?
> What approach would you use to check the accuracy of the consolidated retained earnings and noncontrolling interest amounts that appear in the balance sheet section of completed consolidation workpapers?
> When is it necessary to adjust the parent’s retained earnings account in the preparation of consolidation workpapers? In answering this question, explain the relationship between parent-retained earnings and consolidated retained earnings.
> The financial statement and trial balance workpaper approaches illustrated in the chapter generate comparable information, so why learn both approaches?
> Are workpaper adjustments and eliminations entered on the parent’s books? The subsidiary’s books? Explain.
> Son Corporation’s outstanding capital stock (and paid in capital) has been $200,000 since the company was organized in 2016. Son’s retained earnings account since 2016 is summarized as follows: Pop Corporation purcha
> If a parent uses the equity method but does not amortize the difference between fair value and book value on its separate books, its net income and retained earnings will not equal its share of consolidated net income and consolidated retained earnings.
> How are the workpaper procedures for the investment in subsidiary, income from subsidiary, and subsidiary’s stockholders’ equity accounts alike?
> Pam Corporation acquired a 70 percent interest in Sun Corporation’s outstanding voting common stock on January 1, 2016, for $980,000 cash. The stockholders’ equity (book value) of Sun on this date consisted of $1,000,0
> How is noncontrolling interest share entered in consolidation workpapers?
> How is reciprocity established between a parent company’s investment account and the equity accounts of its subsidiary when the cost method is used?
> Explain why noncontrolling interest share is added to the controlling share of consolidated net income in determining cash flows from operating activities.
> In what way do the adjustment and elimination entries for consolidation workpapers differ for the financial statement and trial balance approaches?
> If a parent in accounting for its subsidiary amortizes patents on its separate books, why do we include an adjustment for patents amortization in the consolidation workpaper?
> Firms adopting the direct method to prepare the statement of cash flows often include a reconciliation of net income to net cash flows from operating activities. Is this required, and, if so, how should it be presented?
> In preparing a consolidated statement of cash flows, is a firm required to disclose cash flow per share?
> Comparative consolidated financial statements for Pam Corporation and its 80 percent–owned subsidiary at and for the years ended December 31 are summarized as follows: REQUIRED: Prepare a consolidated statement of cash flows for Pam
> 1. In preparing a statement of cash flows, the cost of acquiring a subsidiary is reported: a As an operating activity under the direct method b As an operating activity under the indirect method c As an investing activity d As a financing activity 2. In
> Pop Corporation acquired a 70 percent interest in Son Corporation on January 1, 2016, for $420,000 cash, when Son’s equity consisted of $300,000 capital stock and $200,000 retained earnings. On July 1, 2017, Pop acquired an additional 1
> The consolidated workpaper balances of Pop, Inc., and its subsidiary, Son Corporation, as of December 31 are as follows (in thousands): ADDITIONAL INFORMATION: 1. On January 20, 2016, Pop issued 10,000 shares of its common stock for land having a fair
> Why are reciprocal amounts eliminated in preparing consolidated financial statements?
> Name some reciprocal accounts that might be found in the separate records of a parent and its subsidiaries.
> How should the parent’s investment in subsidiary account be classified in a consolidated balance sheet? In the parent’s separate balance sheet?
> In what general ledger would you expect to find the account “goodwill from consolidation”?
> What is a noncontrolling interest?
> Define or explain the terms parent company, subsidiary company, affiliates, and associates.
> If the fair value of a subsidiary’s land was $100,000 and its book value was $90,000 when the parent acquired its 100 percent interest for cash, at what amount would the land be included in the consolidated balance sheet immediately after the acquisition
> In allocating the excess of investment fair value over book value of a subsidiary, are the amounts assigned to identifiable assets and liabilities (land and notes payable, for example) recorded separately in the accounts of the parent? Explain.
> Does the acquisition of shares held by noncontrolling shareholders constitute a business combination?
> Pam Corporation paid $175,000 for a 70 percent interest in Sun Corporation’s outstanding stock on April 1, 2016. Sun’s stockholders’ equity on January 1, 2016, consisted of $200,000 capital stock and
> Is there a difference in the amounts reported in the statement of retained earnings of a parent that uses the equity method of accounting and the amounts that appear in the consolidated retained earnings statement?
> Comparative consolidated financial statements for Pam Corporation and its 90 percent–owned subsidiary, Sun Corporation, at and for the years ended December 31 are as follows: REQUIRED: Prepare a consolidated statement of cash flows fo
> How does the stockholders’ equity of the parent that uses the equity method of accounting differ from the consolidated stockholders’ equity of the parent and its subsidiaries?
> What amount of capital stock is reported in a consolidated balance sheet?
> Who are the primary users for which consolidated financial statements are intended?
> Describe the circumstances under which the accounts of a subsidiary would not be included in the consolidated financial statements.
> When does a corporation become a subsidiary of another corporation?
> What disclosures are required for a parent company with a less than wholly owned subsidiary?
> Throughout this chapter we typically indicate that acquisitions take place on January 2. At what date should a business combination be recorded?
> A summary of changes in Pam Corporation’s Investment in Sun account from January 1, 2016, to December 31, 2018, follows (in thousands): ADDITIONAL INFORMATION: 1. Pam acquired its 80 percent interest in Sun Corporation when Sun had ca
> Pop Corporation acquired an 80 percent interest in Son Corporation on October 1, 2016, for $82,400, equal to 80 percent of the underlying equity of Son on that date plus $16,000 goodwill (total goodwill is $20,000). Financial statements for Pop and Son C
> Pop Corporation acquired a 70 percent interest in Son Corporation on January 1, 2016, for $2,800,000, when Son’s stockholders’ equity consisted of $2,000,000 capital stock and $1,200,000 retained earnings. On this date
> The consolidated balance sheet of Pam Corporation and its 80 percent subsidiary, Sun Corporation, contains the following items on December 31, 2020 (in thousands): Cash........................................................ $ 160 Inventories...........
> The accountant for Pop Corporation collected the following information that he thought might be useful in the preparation of the company’s consolidated statement of cash flows (in thousands): Cash paid for purchase of equipment..........................
> Pam Corporation purchased 90 percent of Sun Corporation’s outstanding stock for $14,400,000 cash on January 1, 2016, when Sun’s stockholders’ equity consisted of $8,000,000 capital stock and $2,800,00
> On January 1, 2016, Pop Corporation made the following investments: 1. Acquired for cash, 80 percent of the outstanding common stock of Son Corporation at $280 per share. The stockholders’ equity of Son on January 1, 2016, consisted of
> Pop Corporation acquired 80 percent of the outstanding stock of Son Corporation for $1,120,000 cash on January 3, 2016, on which date Son’s stockholders’ equity consisted of capital stock of $800,000 and retained earni
> Pam Corporation paid $1,800,000 cash for 90 percent of Sun Corporation’s common stock on January 1, 2016, when Sun had $1,200,000 capital stock and $400,000 retained earnings. The book values of Sun’s assets and liabil
> Adjusted trial balances for Pop and Son Corporations at December 31, 2016, are as follows (in thousands): Pop purchased all the stock of Son for $3,200,000 cash on January 1, 2016, when Son’s stockholders’ equity con
> Pam Corporation purchased a block of Sun Company common stock for $1,040,000 cash on January 1, 2016. Separate-company and consolidated balance sheets prepared immediately after the acquisition are summarized as follows (in thousands): REQUIRED: Recons
> 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
> Comparative separate-company and consolidated balance sheets for Pam Corporation and its 70 percent–owned subsidiary, Sun Corporation, at year-end 2016, were as follows (in thousands): Sun’s net income for 2017 was $
> 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.
