Pam Corporation acquired its 90 percent interest in Sun Corporation at its book value of $3,600,000on January 1, 2016, when Sun had capital stock of $3,000,000 and retained earnings of $1,000,000.The December 31, 2016 and 2017, inventories of Pam included merchandise acquired from Sunof $300,000 and $400,000, respectively. Sun realizes a gross profit of 40 percent on all merchandisesold. During 2016 and 2017, sales by Sun to Pam were $600,000 and $800,000, respectively.Summary adjusted trial balances for Pam and Sun at December 31, 2017, follow (inthousands): Pam SunCash $ 1,000 $ 200Receivables—net 2,000 500Inventories 2,400 1,000Plant assets—net 2,500 4,800Investment in Sun—90% 4,356 —Cost of sales 8,000 3,900Other expenses 3,400 1,600Dividends 1,000 500$24,656 $ 12,500Pam SunAccounts payable $ 1,500 $ 900Other liabilities 600 600Capital stock, $10 par 5,000 3,000Retained earnings 3,692 1,500Sales 13,000 6,500Income from Sun 864 —$24,656 $12,500 P 5-1Consolidated income and retained earnings (upstream sales, noncontrolling interest)Pam Corporation acquired its 90 percent interest in Sun Corporation at its book value of $3,600,000on January 1, 2016, when Sun had capital stock of $3,000,000 and retained earnings of $1,000,000.The December 31, 2016 and 2017, inventories of Pam included merchandise acquired from Sunof $300,000 and $400,000, respectively. Sun realizes a gross profit of 40 percent on all merchandisesold. During 2016 and 2017, sales by Sun to Pam were $600,000 and $800,000, respectively.Summary adjusted trial balances for Pam and Sun at December 31, 2017, follow (inthousands):PamSun$ 1,0002,0002,4002,500CashReceivables-netInventories$ 2005001,0004,800Plant assets netInvestment in Sun–90%4,3568,0003,4001,000$24,656Cost of salesOther expensesDividends3,9001,600500$ 12,500PamSun$ 1,500$ 900600Accounts payableOther liabilitiesCapital stock, $10 parRetained earnings6005,0003,69213,0003,0001,5006,500SalesIncome from Sun864$24,656$12,500REQUIRED: Prepare a combined consolidated income and retained earnings statement for Pam Corporationand Subsidiary for the year ended December 31, 2017. P 5-1Consolidated income and retained earnings (upstream sales, noncontrolling interest)Pam Corporation acquired its 90 percent interest in Sun Corporation at its book value of $3,600,000on January 1, 2016, when Sun had capital stock of $3,000,000 and retained earnings of $1,000,000.The December 31, 2016 and 2017, inventories of Pam included merchandise acquired from Sunof $300,000 and $400,000, respectively. Sun realizes a gross profit of 40 percent on all merchandisesold. During 2016 and 2017, sales by Sun to Pam were $600,000 and $800,000, respectively.Summary adjusted trial balances for Pam and Sun at December 31, 2017, follow (inthousands):PamSun$ 1,0002,0002,4002,500CashReceivables-netInventories$ 2005001,0004,800Plant assets netInvestment in Sun–90%4,3568,0003,4001,000$24,656Cost of salesOther expensesDividends3,9001,600500$ 12,500PamSun$ 1,500$ 900600Accounts payableOther liabilitiesCapital stock, $10 parRetained earnings6005,0003,69213,0003,0001,5006,500SalesIncome from Sun864$24,656$12,500REQUIRED: Prepare a combined consolidated income and retained earnings statement for Pam Corporationand Subsidiary for the year ended December 31, 2017.

Income statement is the statement showing expenses and revenues and where the former is reduced…

P 5-1 Consolidated income and retained earnings (upstream sales, noncontrolling interest) Pam Corporation acquired its 90 percent interest in Sun Corporation at its book value of $3,600,000 on January 1, 2016, when Sun had capital stock of $3,000,000 and retained earnings of $1,000,000 The December 31, 2016 and 2017, inventories of Pam included merchandise acquired from Su of $300,000 and $400,000, respectively. Sun realizes a gross profit of 40 percent on all merchandis sold. During 2016 and 2017, sales by Sun to Pam were $600,000 and $800,000, respectively. Summary adjusted trial balances for Pam and Sun at December 31, 2017, follow (in thousands): Pam Sun Cash $ 1,000 $ 200 2,000 500 Receivables net Inventories 2,400 1,000 Plant assets net 2,500 4,800 Investment in Sun-90% 4,356 Cost of sales 8,000 3,900 3,400 1,600 Other expenses Dividends 1,000 500 $24,656 $ 12,500 Pam Sun $1,500 $ 900 Accounts payable Other liabilities 600 600 5,000 3,000 3,692 1,500 Capital stock, $10 par Retained earnings Sales Income from Sun 13,000 6,500 864 $24,656 $12,500 REQUIRED: Prepare a combined consolidated income and retained earnings statement for Pam Corporation and Subsidiary for the year ended December 31, 2017.

P 5-1 Consolidated income and retained earnings (upstream sales, noncontrolling interest) Pam Corporation acquired its 90 percent interest in Sun Corporation at its book value of $3,600,000 on January 1, 2016, when Sun had capital stock of $3,000,000 and retained earnings of $1,000,000 The December 31, 2016 and 2017, inventories of Pam included merchandise acquired from Su of $300,000 and $400,000, respectively. Sun realizes a gross profit of 40 percent on all merchandis sold. During 2016 and 2017, sales by Sun to Pam were $600,000 and $800,000, respectively. Summary adjusted trial balances for Pam and Sun at December 31, 2017, follow (in thousands): Pam Sun Cash $ 1,000 $ 200 2,000 500 Receivables net Inventories 2,400 1,000 Plant assets net 2,500 4,800 Investment in Sun-90% 4,356 Cost of sales 8,000 3,900 3,400 1,600 Other expenses Dividends 1,000 500 $24,656 $ 12,500 Pam Sun $1,500 $ 900 Accounts payable Other liabilities 600 600 5,000 3,000 3,692 1,500 Capital stock, $10 par Retained earnings Sales Income from Sun 13,000 6,500 864 $24,656 $12,500 REQUIRED: Prepare a combined consolidated income and retained earnings statement for Pam Corporation and Subsidiary for the year ended December 31, 2017.

Accounting (Text Only)

26th Edition

ISBN:9781285743615

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter15: Investments And Fair Value Accounting

Section: Chapter Questions

Problem 15.28EX

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E 5-6 Upstream and downstream sales Pam Corporation owns 70 percent of Sun Company’s common stock, acquired January 1, 2017. Patents from the investment are being amortized at a rate of $20,000 per year. Sun regularly sells merchandise to Pam at 150 percent of Sun’s cost. Pam’s December 31, 2017, and 2018 inventories include goods purchased intercompany of $112,500 and $33,000, respectively. The separate incomes (do not include investment income) of Pam and Sun for 2018 are summarized as follows: Pam Sun Sales $1,200,000 $800,000 Cost of sales (600,000) (500,000) Other expenses (400,000) (100,000) Separate incomes $ 200,000 $200,000 Total consolidated income should be allocated to controlling and noncontrolling interest shares in the amounts of: $344,550 and $61,950, respectively $358,550 and $60,000, respectively $346,500 and $60,000, respectively…
P 4-5 Workpapers in year of acquisition (excess recorded for inventory, building, equipment, trademarks, and goodwill) 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 $1,000,000 capital stock and $200,000 retained earnings. The differences between the fair value of Sun and the book value of Sun were assigned $10,000 to Sun’s undervalued inventory, $28,000 to undervalued buildings, $42,000 to undervalued equipment, and $80,000 to previously unrecorded trademarks. Any remaining excess is goodwill. The undervalued inventory items were sold during 2016, and the undervalued buildings and equipment had remaining useful lives of seven years and three years, respectively. The trademarks have a 40-year life. Depreciation is straight line. At December 31, 2016, Sun’s accounts payable include $20,000 owed to Pam. This $20,000 account…
P 2-6 Computations for a midyear acquisition Pam Corporation purchased for cash 6,000 shares of voting common stock of Sun Corporation at $16 per share on July 1, 2016. On this date, Sun’s equity consisted of $100,000 of $10 par capital stock, $20,000 retained earnings from prior periods, and $10,000 current earnings (for one-half of 2016). Sun’s income for 2016 was $20,000, and it paid dividends of $12,000 on November 1, 2016. All of Sun’s assets and liabilities had book values equal to fair values at July 1, 2016, and any differences between investment cost and book value acquired should be assigned to equipment and amortized over a 10-year period. Required Compute the correct amounts for each of the following items using the equity method of accounting for Pam’s investment: Pam’s income from its investment in Sun for the year ended December 31, 2016. The balance of Pam’s Investment in Sun account at December 31, 2016. (Note: Assumptions on page 49 are needed for this…
P 4-1 Calculations five years after acquisition 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 stock, $10 par $2,000 Additional paid-in capital 1,200 Retained earnings December 31, 2015 1,600 Total stockholders’ equity $4,800 The excess fair value of the net assets acquired was assigned 10 percent to undervalued inventory (sold in 2016), 40 percent to undervalued plant assets with a remaining useful life of eight years, and 50 percent to goodwill. Comparative trial balances of Pam Corporation and Sun at December 31, 2020, are as follows (in thousands): Pam Sun Other assets—net $7,530 $5,200 Investment in Sun—75% 4,680 — Expenses (including cost of sales) 6,370 1,200 Dividends 1,000 400…
P 4-1 Calculations five years after acquisition 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 stock, $10 par $2,000 Additional paid-in capital 1,200 Retained earnings December 31, 2015 1,600 Total stockholders’ equity $4,800 The excess fair value of the net assets acquired was assigned 10 percent to undervalued inventory (sold in 2016), 40 percent to undervalued plant assets with a remaining useful life of eight years, and 50 percent to goodwill. Comparative trial balances of Pam Corporation and Sun at December 31, 2020, are as follows (in thousands): Pam Sun Other assets—net $7,530 $5,200 Investment in Sun—75% 4,680 — Expenses (including cost of sales) 6,370 1,200 Dividends 1,000 400…
P 3-6 Consolidated balance sheet workpapers with goodwill and dividends 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 liabilities were equal to fair values. During 2016, Sun reported net income of $80,000 and declared $40,000 in dividends on December 31. Balance sheets for Pam and Sun at December 31, 2016, are as follows (in thousands): Pam Sun Assets Cash $ 168 $ 80 Receivables—net 200 520 Inventories 1,400 200 Land 600 800 Equipment—net 2,400 400 Investment in Sun 1,836 $6,604 $2,000 Equities Accounts payable $1,640 $ 320 Dividends payable 240…
P 4-2 Workpapers and financial statements in year of acquisition 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 stated at fair values (equal to book values) when Pop acquired its 70 percent interest. Financial statements of the two corporations at and for the year ended December 31, 2016, are summarized as follows (in thousands): Pop Son Combined Income and Retained Earnings Statements for the Year Ended December 31 Sales $1,240 $400 Income from Son 42 — Cost of goods sold (800) (260) Operating expenses (308) (80) Net income 174 60 Add: Retained earnings January 1 260 44 Deduct: Dividends (120) (40) Retained earnings December 31 $ 314 $ 64 Balance Sheet at December 31 Cash $ 182 $ 60 Receivables—net…
P 2-1 Computations for a midyear purchase (investee has a discontinued operations gain) 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 of $40,000 each quarter on March 15, June 15, September 15, and December 15 ($160,000 in total). At April 1, 2016, the book value of assets and liabilities equals the fair value. Son’s 2016 income was reported as follows: Income from continuing operations $240,000 Discontinued operations gain, December 2016 80,000 Net income $320,000 Required Determine the following items for Pop: Goodwill from the investment in Son Income from Son for 2016 Investment in Son account balance at December 31, 2016 Pop’s equity in Son’s net assets at December 31, 2016 The amount of discontinued operations gain that Pop will show…
E 4-2 Consolidated statement items with equity method Pop Corporation purchased 80 percent of the outstanding voting common stock of Son Corporation on January 2, 2016, for $1,200,000 cash. Son’s balance sheets on this date and on December 31, 2016, are as follows: Son Corporation Balance Sheets January 2 December 31 Inventory $ 200,000 $ 80,000 Other current assets 200,000 320,000 Plant assets—net 800,000 880,000 Total assets $1,200,000 $1,280,000 Liabilities $ 200,000 $ 240,000 Capital stock 600,000 600,000 Retained earnings 400,000 440,000 Total equities $1,200,000 $1,280,000 Additional Information Pop uses the equity method of accounting for its investment in Son. Son’s 2016 net income and dividends were $280,000 and $240,000, respectively. Son’s…
Exercise 4 – 7On January 1, 2020, Levesque Co. purchased 500,000 ordinary shares of Rowland Co. at ₱14 per share, representing a 25% ownership in Rowland. This allowed Levesque to exercise significant control over Rowland. Rowland declared and paid dividends of ₱1 and ₱2 in 2020 and 2021, respectively. At the end of 2020 and 2021, Rowland’s shares were trading at ₱15 and ₱17 per share. Rowland’s net income in 2020 and 2021 was ₱2,400,000 and ₱3,200,000, respectively.1. Determine the investment income recognized by Levesque in 2020 and 2021.2. Determine the carrying amount of Levesque’s investment on December 31, 2020, and December 31, 2021.
P 2-8 Computations and journal entries with excess of book value over fair value Sun Corporation became a subsidiary of Pam Corporation on July 1, 2016, when Pam paid $1,980,000 cash for 90 percent of Sun’s outstanding common stock. The price paid by Pam reflected the fact that Sun’s inventories were undervalued by $50,000, and Sun’s plant assets were overvalued by $500,000. Sun sold the undervalued inventory items during 2016 but continues to hold the overvalued plant assets that had a remaining useful life of nine years from July 1, 2016. During the years 2016 through 2018, Sun’s paid-in capital consisted of $1,500,000 capital stock and $500,000 additional paid-in capital. Sun’s retained earnings statements for 2016, 2017, and 2018 were as follows (in thousands): Year Ended December 31, 2016 Year Ended December 31, 2017 Year Ended December 31, 2018 Retained earnings January 1 $525 $600 $700 Add: Net income 250 300 200 Deduct: Dividends…
Q3) (1) Liala ltd acquired all the issued shares of Jordan ltd on 1 January 2015. The following transactions occurred between the two entities: (a) On 1 June 2016, Liala ltd sold inventory to Jordan ltd for $12,000, this inventory previously costed Liala ltd $10,000. By 30 June 2016, Jordan ltd had sold 20% of this inventory to other entities for $3,000. The other 80% was all sold to external entities by 30 June 2017 for $13,000. (b) During the 2016-2017 period, Jordan ltd sold inventory to Liala ltd for $6,ooo, this being at cost plus 20% mark-up. Of this inventory, 20% remained on hand in Liala ltd at 30 June 2017. The tax rate is 30%. Required: (i) Prepare the consolidation worksheet entries for Liala ltd at 30 June 2017 in relation to the intragroup transfers of inventory. (ii) Compute the amount of cost of goods sold to be reported in the consolidated income statement for 2017 relating intra-group sales. (2) On July 2016, Liala ltd sold an item of plant to Jordan ltd for $150,000…