Chapter 06, Modern Advanced Accounting-Review Q & Exr

CHAPTER 6
CONSOLIDATED FINANCIAL STATEMENTS:

ON DATE OF BUSINESS COMBINATION
The title of each problem is followed by the estimated time in minutes required for completion and by a
difficulty rating. The time estimates are applicable for students using the partially filled-in working papers.
Pr. 6–1 Parr Corporation (20 minutes, easy)

Journal entries for business combination (parent and partially owned subsidiary relationship)
and working paper elimination on date of business combination. Goodwill is involved.
Pr. 6–2 Philly Corporation (30 minutes, easy)
Preparation of journal entries for business combination involving partially owned subsidiary.
Working paper elimination and working paper for consolidated balance sheet. Goodwill
acquired by parent company.
Pr. 6–3 Pellman Corporation (25 minutes, easy)
Journal entries for business combination with wholly owned subsidiary. Bargain-purchase
excess is involved. Preparation of working paper for consolidated balance sheet and related
working paper elimination.
Pr. 6–4 Powell Corporation (40 minutes, medium)
Journal entries for business combination in which partially owned subsidiary paid out-of-
pocket costs of the combination. Goodwill acquired by parent company. Preparation of
working paper elimination and working paper for consolidated balance sheet.
Pr. 6–5 Pyr Corporation (30 minutes, easy)
Preparation of journal entries for business combination involving wholly owned subsidiary
with unimpaired goodwill. Preparation of working paper for consolidated balance sheet and
working paper elimination.
Pr. 6–6 Pali Corporation (45 minutes, strong)
Given unconsolidated and consolidated balance sheets of parent company and partially owned
subsidiary, reconstruct working paper elimination. Goodwill is involved.
Pr. 6–7 Pagel Corporation (40 minutes, easy)
Journal entries for business combination with partially owned subsidiary. Working paper
elimination and working paper for consolidated balance sheet. Goodwill is involved.
Pr. 6–8 Porcino Corporation (45 minutes, medium)
Journal entries for business combination with wholly owned subsidiary involving bargain-
purchase excess. Preparation of working paper elimination and working paper for consolidated
balance sheet.
Pr. 6–9 Pandit Corporation (45 minutes, strong)
Journal entries to correct inventories errors in subsidiary's accounting records, which have not
been closed. Preparation of working paper elimination and working paper for consolidated
balance sheet. Bargain-purchase excess and minority interest are involved.
The McGraw-Hill Companies, Inc., 2006

198 Modern Advanced Accounting, 10/e
Pr. 6–10 Pliny Corporation (45 minutes, medium)
Journal entry for business combination with wholly owned subsidiary. Part of consideration for
subsidiary is bonds issued by parent company at a discount that must be computed.
Preparation of working paper elimination and working paper for consolidated balance sheet.
Subsidiary has outstanding bonds that must be valued at present value. Goodwill is involved.
Pr. 6–11 Parthenia Corporation (45 minutes, medium)
Given erroneous parent company journal entry for business combination and erroneous
working paper for consolidated balance sheet, prepare a correcting journal entry and correct
working paper elimination and working paper for consolidated balance sheet. Subsidiary is
partially owned. Goodwill is involved.
ANSWERS TO REVIEW QUESTIONS

1. Consolidated financial statements for a parent company and its subsidiaries are similar to
combined financial statements for home office and branches of a single legal entity in that both
types of financial statements include the total revenue, expenses, assets, and liabilities of the
constituent segments after all intracompany and intercompany transactions, profits or gains, and
balances have been eliminated. The two types of financial statements are dissimilar because the
separate legal entity status of a parent company and its subsidiaries necessitates more complex
financial statement items, such as minority interest in net assets of subsidiary.
2. A subsidiary may be excluded from consolidated financial statements if it is undergoing court-
supervised bankruptcy reorganization; if it is in a foreign country having severe production,
monetary, or income tax restrictions; or if it has a participative minority interest.
3. No, a consolidated income statement is not required for the year ended on the date of a business
combination. A purchase represents a fresh start for accounting purposes; thus, only a consolidated
balance sheet is appropriate on the date of a business combination.
4. No, the subsidiary does not enter the current fair values of its identifiable net assets in its
accounting records on the date of a business combination. To do so would violate the valuation
principle of historical cost. Instead, working paper eliminations are used to reflect differences
between carrying amounts and current fair values of the subsidiary's identifiable net assets in the
consolidated balance sheet.
5. Eliminations for the preparation of consolidated financial statements are working paper entries
only. They are not entered in the accounting records of either the parent company or the subsidiary.
6. A working paper for consolidated balance sheet is used by an accountant to combine the
separate balance sheets of a parent company and its subsidiaries into a single balance sheet for the
combined enterprise. A consolidated balance sheet is the formal financial statement issued to
stockholders of the parent company and other interested parties; it is prepared from data in the
working paper for consolidated balance sheet.
7. Following are the three methods that have been proposed for valuing minority interest and goodwill
in the consolidated balance sheet of a parent company and its partially owned subsidiary:
Method 1 Measure minority interest based on current fair value of subsidiary's identifiable net
assets; compute goodwill as difference between parent company's cost and its share of current fair
value of subsidiary's identifiable net assets.
Method 2 Measure minority interest based on carrying amount of subsidiary's identifiable net
assets; compute goodwill as in Method 1.
Method 3 Measure minority interest and goodwill based on current fair value of 100% of
subsidiary's total net assets, based on independent measurement of minority interest or by inference
from the cost of parent company's investment in the subsidiary.
8. Under the parent company concept of consolidated financial statements, the minority interest in
net assets of subsidiary is considered to be a liability that is increased each accounting period by
the minority interest in net income of subsidiary (an expense) and decreased by dividends paid to

minority stockholders. Under the economic unit concept of consolidated financial statements, the
minority interest in net assets of subsidiary is treated as a part of consolidated stockholders'
equity, and the minority interest in net income of subsidiary is considered to be a distribution of
consolidated net income.
9. The principal limitation of consolidated financial statement results in the following problems,
among others:
(1) Users of consolidated financial statements cannot determine from them the operating results,
financial position, or cash flows of individual subsidiaries.
(2) Creditors of the constituent companies comprising the combined enterprise cannot ascertain the
asset coverages for their respective claims.
(3) Asset liens that affect the rights of creditors are difficult to disclose and explain in consolidated
financial statements.
(4) Because consolidated financial statements are a composite, a weak subsidiary is difficult to
distinguish from a strong one.
10. Push-down accounting is the valuation of net assets (and related revenue and expenses) in the
separate financial statements of a subsidiary at their current fair values as reflected in the
consolidated financial statements.
SOLUTIONS TO EXERCISES
Ex. 6–1 1. a 9. c [($100,000 + $15,000) – $10,000 = $105,000]
2. a 10. a
3. a 11. a
4. d 12. b
5. c 13. c
6. a 14. b
7. d 15. a [$1,200,000 – ($1,250,000 x 0.80) = $200,000; $1,250,000 x 0.20 = $250,000]
8. b 16. c
Ex. 6–2 Computation of amount of goodwill in Mar. 31, 2005, consolidated balance sheet of Prye
Corporation and subsidiary:
Cost of Prye Corporation's investment in Stark Company common stock $8,200,000
Less: Current fair value of Stark's identifiable net assets
($6,400,000 + $1,500,000 – $300,000 + $400,000) 8,000,000
Amount of goodwill $ 200,000

Solutions Manual, Chapter 6 200
Ex. 6–3 a. Computation of amount of goodwill in Dec. 31, 2005, consolidated balance sheet of
Phyll Corporation and subsidiary:
Cost of Phyll Corporation's investment in Single Company
common stock $1,560,000
Less: Single’s total stockholders’ equity
($100,000 + $200,000 + $600,000) $900,000
Excess of carrying amount of Single’s inventories
over current fair value ($510,000 – $450,000) (60,000)
Excess of current fair value of Single's plant assets
over carrying amount ($1,000,000 – $900,000) 100,000
Current fair value of Single's identifiable net assets 940,000
Amount of goodwill $ 620,000
b. Consolidated retained earnings on the date of a business

combination includes the parent company's retained earnings
only; therefore, consolidated retained earnings on the date of
the Phyll Corporation-Single Company business
combination is: $2,500,000
Ex. 6–4 a. Computation of amount of goodwill in Dec. 31, 2005, consolidated balance sheet of
Pelerin Corporation and subsidiary:
Cost of Pelerin Corporation’s investment in South Company common
stock $2,000,000
Less: Current fair value of South's identifiable net assets
($100,000 + $200,000 + $1,500,000 – $100,000) 1,700,000
Goodwill in consolidated balance sheet $ 300,000
b. Computation of amount of plant assets in Dec. 31, 2005, consolidated balance sheet of
Pelerin Corporation and subsidiary:
Plant assets (net) of Pelerin Corporation $5,000,000
Add: Current fair value of South Company's plant assets
(net) $1,500,000
Less: Excess of current fair value of South's identifiable net
assets ($1,700,000) over cost of Pelerin's investment in
South ($1,600,000) 100,000 1,400,000
Plant assets (net) in consolidated balance sheet $6,400,000
Ex. 6–5 PAINTER CORPORATION AND SUBSIDIARY

Consolidated Balance Sheet
May 31, 2005
Assets
Current assets:
Inventories ($60,000 + $40,000) $100,000
Other ($140,000 + $110,000) 250,000
Total current assets $350,000
Plant assets (net) ($220,000 + $180,000) 400,000
Goodwill [$10,000 + ($250,000 – $230,000)] 30,000
Total assets $780,000
(continued)
Liabilities & Stockholders' Equity

Liabilities
Current liabilities ($100,000 + $70,000) $170,000
Bonds payable ($104,000 + $30,000) 134,000
Total liabilities $304,000
Stockholders' equity:
Common stock, $1 par $200,000
Additional paid-in capital 116,000
Retained earnings 160,000
Total stockholders' equity $476,000
Total liabilities & stockholders' equity $780,000
Ex. 6–6 Working paper elimination for Pristine Corporation and subsidiary, May 31, 2005:
Common StockSuperb 100,000
Additional Paid-in CapitalSuperb 200,000
Retained EarningsSuperb 450,000
InventoriesSuperb 60,000
LandSuperb 40,000
Building (net) Superb 50,000
GoodwillSuperb 50,000
Investment in Superb Company Common StockPristine 950,000
Ex. 6–7 Working paper elimination for Perth Corporation and subsidiary, June 30, 2005:
Common StockSykes 200,000
Additional Paid-in CapitalSykes 210,000
InventoriesSykes ($610,000 – $590,000) 20,000
Plant Assets (net)Sykes ($1,440,000 – $1,360,000) 80,000
GoodwillSykes ($120,000 – $100,000) 20,000
Investment in Sykes Company Common StockPerth 440,000
Retained EarningsSykes 90,000
To eliminate intercompany investment and equity accounts of
subsidiary on date of business combination and to establish
difference between current fair values and carrying amounts of
subsidiary's inventories and plant assets, with remainder to
goodwill. (Income tax effects are disregarded.)
Ex. 6–8 Journal entries for Prox Corporation, Nov. 1, 2005:
Investment in Senna Company Common Stock (10,000 x $30) 300,000
Common Stock (10,000 x $10) 100,000
Paid-in Capital in Excess of Par 200,000
To record issuance of 10,000 shares of common stock for 85 of
the 100 shares of Senna Company's outstanding common stock
in a business combination. (Income tax effects are disregarded.)
Investment in Senna Company Common Stock 36,800

Cash 56,800
To record payment of out-of-pocket costs of business
combination with Senna Company.

Ex. 6–9 a. Journal entries for Ploy Corporation, Feb. 28, 2005:
Investment in Skye Company Common Stock 150,000
Cash 50,000
Common Stock (5,000 x $10) 50,000
Paid-in Capital in Excess of Par (5,000 x $10) 50,000
To record payment of cash and issuance of common stock
for 8,800 of the 10,000 outstanding shares of Skye
Company common stock in a business combination.
Investment in Skye Company Common Stock 15,000

Cash 25,000
combination with Skye Company.
b. Computations for consolidated balance sheet of Ploy Corporation and subsidiary, Feb.
28, 2005:
(1) Goodwill:
Cost of Ploy's investment in Skye ($150,000 + $15,000) $165,000
Less: Ploy's share of current fair value of Skye's identifiable net
assets [($10,000 + $30,000 + $60,000 + $20,000 + $80,000 –
$30,000) x 0.88] 149,600
Goodwill $ 15,400
(2) Minority interest in net assets of subsidiary:
Current fair value of Skye's identifiable net assets [from (1)] $170,000
Minority share (100% – 88%) 0.12
Minority interest in net assets of subsidiary ($170,000 x 0.12) $ 20,400
Ex. 6–10 a. Consolidated current assets $146,000

Less: Current assets of Pullin Corporation (106,000)
Add: Style Company receivable from Pullin 2,000
Total current assets in Style Company’s separate balance sheet, July 31,
2005 $ 42,000
b. Style Company’s current assets (from a) $ 42,000
Style’s plant assets ($370,000 – $10,000 – $270,000) 90,000
Style’s current liabilities ($28,000 – $15,000 + $2,000) (15,000)
Total stockholders’ equity in Style Company’s separate balance sheet,
July 31, 2005 $117,000
Alternative computation:
Current fair value of Style Company's identifiable net assets ($38,100 ÷
0.30) $127,000
Less: Difference between current fair value and carrying amount of Style's
plant assets 10,000
Carrying amount of Style's identifiable net assets (equal to Style
Company's stockholders' equity) $117,000
c. Investment in Style Company common stock $100,000
Less: Current fair value of Style's identifiable net assets acquired by Pullin
Corporation ($127,000 x 0.70) 88,900
Goodwill in consolidated balance sheet, July 31, 2005 $ 11,100

Ex. 6–11 Computation of debit to Goodwill and credit to Minority Interest in Net Assets of Subsidiary:
Implied value of 100% of subsidiary's net assets ($800,000 ÷ 0.80) $1,000,000
Less: Current fair value of subsidiary's identifiable net assets ($50,000 +
$60,000 + $490,000 + $50,000 + $100,000) 750,000
Debit to Goodwill $ 250,000
Implied value of 100% of subsidiary's net assets (above) $1,000,000
Minority interest percentage 0.20
Credit to Minority Interest in Net Assets of Subsidiary ($1,000,000 x 0.20) $ 200,000
Ex. 6–12 Computation of minority interest in net assets of subsidiary and goodwill by three alternative
methods:
Method 1 Identifiable net assets recognized at current fair value; minority interest based on
current fair value of identifiable net assets:
Minority interest: $800,000 x 0.20 = $160,000
Goodwill: $700,000 – ($800,000 x 0.80) = $60,000
Method 2 Identifiable net assets recognized at current fair value only to extent of parent
company's interest; remainder of net assets and minority interest reflected at carrying amounts:
Minority interest: $600,000 x 0.20 = $120,000
Goodwill: $700,000 – ($800,000 x 0.80) = $60,000
Method 3 Current fair value (through inference) assigned to total net assets of subsidiary,
including goodwill:
Minority interest: ($700,000 ÷ 0.80) x 0.20 = $175,000
Goodwill: ($700,000 ÷ 0.80) – $800,000 = $75,000
Ex. 6–13 Working paper elimination for Pismo Corporation and subsidiary, May 31, 2005:
Common StockSobol 300,000
Retained EarningsSobol 400,000
InventoriesSobol 40,000
LandSobol 50,000
Building (net)Sobol 60,000
GoodwillPismo [$760,000 – ($850,000 x 0.80)] 80,000
Investment in Sobol Company Common
StockPismo 760,000
Minority Interest in Net Assets of Subsidiary
($850,000 x 0.20) 170,000
Ex. 6–14 a. Cost of investment in subsidiary’s common stock $165,660
Less: Goodwill (5,280)
Cost attributable to identifiable net assets of subsidiary $160,380
Current fair value of identifiable net assets of subsidiary ($60,000 +
$35,250 + $50,100 + $3,900 + $28,500 + $4,500) $182,250
Percentage of subsidiary's outstanding common stock acquired by parent
company ($160,380 ÷ $182,250) 88%
b. Aggregate current fair value of subsidiary’s identifiable net assets
(computed in a) $182,250
c. Cost of investment in subsidiary $165,660
Parent company’s ownership percentage (from a) 88%
Inferred total current fair value of all subsidiary's net assets ($165,660 ÷ 0.88) $188,250
(continued)
Less: Aggregate current fair value of subsidiary's identifiable net assets
(from a and b) (182,250)

Goodwill under inference method $ 6,000
d. Inferred total current fair value of all subsidiary's net assets (from c) $188,250
Minority interest percentage (100% – 88% owned by parent company) 12%
Minority interest under inference method ($188,250 x 0.12) $ 22,590
CASES
Case 6–1 If one considers the definition of a quasi-reorganization in Chapter 7A of Accounting
Research Bulletin No. 43, “Restatement and Revision of Accounting Research Bulletins,” it is
difficult to accept the premise that push-down accounting procedures should be the same as
those for quasi-reorganizations. A subsidiary that issues separate financial statements has not
been reorganized; that is, its parent company has not elected to restate its assets, capital stock,
and retained earnings through a readjustment, as that term is used in ARB 43, Chapter 7A.
On a going-concern basis, the subsidiary's retained earnings should not be written off; to do so
would be to misstate the dividend-paying ability of the subsidiary. Unfortunately, the “new
basis accounting” component of the FASB's “Consolidations and Related Matters” project was
inactive in mid-2003; guidance for push-down accounting is sorely needed.
Case 6–2 Given the FASB's definition of fair value in recent Statements (for example, Nos. 67, 87, 115,
and 121) as the amount at which an asset could be bought or sold in a current transaction
between willing parties, the arbitrary reduction of asset values required by FASB Statement
No. 141 is not justifiable. The FASB should consider whether there has been an enhancement
of the paid-in capital of a combinor in a bargain purchase acquisition of a combinee, as a
justification for overturning paragraph 44 of FASB Statement No 141.
Case 6–3 Subsequent to Photo Corporation's assignment of 15,000 shares of Soto Company common
stock owned by Photo to the voting trust, the trustee thereof has custody of 55% [(40,000 +
15,000) ÷ (105,000 – 5,000) = 0.55] of Soto's outstanding common stock. However, unless
Photo has lost its control, as defined by the FASB, Photo may continue to issue consolidated
financial statements that include Soto's, because the term of the voting trust is three years.
Case 6–4 a. Paley Corporation's journal entry for its investment in common stock of Saye Company
appears to be in accord with the provisions of APB Opinion No. 29, “Accounting for
Nonmonetary Transactions.” Relevant provisions of APB Opinion No. 29 follow:1
[T]he cost of a nonmonetary asset acquired in exchange for another nonmonetary asset
is the fair value of the asset surrendered to obtain it, and a gain or loss should be
recognized on the exchange. The fair value of the asset received should be used to
measure the cost if it is more clearly evident than the fair value of the asset
surrendered.
The price of $1,000 a share in an unrelated sale of nearly the same number of shares of
Saye Company common stock as the shares acquired by Paley Corporation provides an
appropriate measure of the current fair value of the Saye common stock acquired by Paley
because a current fair value for the transferred research and development projects is
unavailable.
1APB Opinion No. 29, "Accounting for Nonmonetary Transactions," AICPA (New York: 1973), par. 18.
b. The $55,000 gain was realized in a transaction between the parent company and the
former stockholder of the subsidiary; thus, the gain is not an intercompany gain requiring
elimination. Further, only a consolidated balance sheet is appropriate for Paley
Corporation and Saye Company on July 31, 2005, because purchase accounting is
required for the Paley-Saye business combination. Assuming that the two companies

adopted a July 31 fiscal year, the gain would not appear in a consolidated income
statement for Paley Corporation and subsidiary for the year ended July 31, 2005.
Case 6–5 Although Patrick Corporation does not own more than 50% of Stear Company's outstanding
common stock, and thus in legal form does not have a majority ownership of Stear, Patrick's
officers constitute a majority of Stear's board of directors. Further, Patrick has only to convert
the $500,000 face amount of Stear's bonds to Stear common stock in order to obtain a majority
(50,000 of 90,000 shares) of Stear's outstanding common stock. For the foregoing reasons,
Patrick substantively controls Stear, and consolidated financial statements are appropriate for
Patrick Corporation and Stear Company.
Case 6–6 a. Purchase accounting requires a fresh start with respect to accounting for the net assets of
the subsidiary. This fresh start necessitates stating net assets of the subsidiary at their
current fair values in the consolidated balance sheet on the date of the business
combination. Similar treatment should be given to the subsidiary's net assets in its separate
balance sheet, for the sake of consistency if for no other reason. Further, to state the net
assets of a wholly owned subsidiary at their carrying amounts in the subsidiary's
accounting records would imply that the subsidiary was the same going concern it was
before the business combination. Such an inference is unwarranted.
b. Generally accepted accounting principles do not sanction write-ups of assets of a going
concern to their current fair values. The fact that Silver Company has become a subsidiary
of Pinch Corporation does not change its separate legal existence or its status as a going
concern. Moreover, increasing Silver's asset valuations would necessitate an adjustment of
Silver's stockholders’ equity in a manner that has not yet been standardized by the FASB.
Further, recognizing goodwill in Silver's balance sheet would violate the principle that
goodwill should be recognized only when purchased. Pinch, not Silver, acquired the
goodwill.
c. Despite the Securities and Exchange Commission's sanctioning of “push-down
accounting” for certain subsidiaries of parent companies that report to the SEC, the author
supports the position of Silver's controller. Prior to the action by the FASB, too many
unresolved problems are associated with write-ups of assets to make this course of action
feasible. However, a note to Silver's separate balance sheet should disclose the business
combination with Pinch and the current fair values included in the consolidated balance
sheet for Silver's assets.
Case 6–7 The controller of Purdido Corporation may ethically comply with the CFO's instructions only
if it is probable that a business combination will be enacted soon enough to permit use of the
materials and services attributable to the abandoned SEC filing in a filing in connection with a
completed combination. However, it seems likely that many of the costs incurred in the
abandoned filing related solely to services and materials with respect to Sontee Company; if so,
such costs should be recognized as a loss. An additional paid-in capital ledger account may be
debited only for costs directly associated with a specific issuance of common stock.
Case 6–8 It is not unusual for opinions of the staff of the AICPA to be at variance with those of the SEC;
a publicly owned company is subject to that agency's jurisdiction. The CFO should carefully
analyze the facts regarding the CEO's planned corporation investment and compare those facts
with the issues in AAER 34 and “Reporting on Company Where Options to Acquire Control
Exists.” If, substantively, the corporation established by the CEO is controlled by the CFO's
corporate employer, consolidated financial statements are required.
Case 6–9 Student Michael is probably correct in asserting that the minority interest in net assets of a
subsidiary is not a liability, as that element is defined in paragraph 35 of Statement of
Financial Accounting Concepts No. 6, “Elements of Financial Statements” (CON 6).
However, given the definition of equity in paragraph 49 of CON 6 as the residual interest in
the assets of an entity that remains after deducting its liabilities and the positions taken by the
FASB, as described on page xxx of the textbook, Michael's statement that minority interest is
not a part of consolidated stockholders' equity may be challenged. Nonetheless, for many years
proponents of the parent company concept have maintained that minority stockholders of a

subsidiary, who exercise no significant influence on either the subsidiary or the parent
company, are in substance a special class of creditors of the consolidated entity.
In view of the foregoing, student Roger's suggestion that minority interest in net assets of a
subsidiary be displayed between liabilities and stockholders' equity in a consolidated balance
sheet has merit. Financial statement users could decide whether minority interest is debt or
equity when they compute the consolidated enterprise's debt-to-equity ratio.

20 Minutes, Easy
Parr Corporation Pr. 6–1
a. Parr Corporation
Journal Entries
20 05
Sept 30 Investment in Sane Company Common Stock 1 0 0 0 0 0 0
Cash 1 0 0 0 0 0 0
To record acquisition of 90,000 of the 100,000
outstanding shares Sane Company in a business
combination.
30 Investment in Sane Company Common Stock 8 0 0 0 0

Cash 8 0 0 0 0
combination with Sane Company.
b. Parr Corporation and Subsidiary

Working Paper Elimination
September 30, 2005
(a) Common Stock—Sane 4 0 0 0 0 0
Retained Earnings—Sane 5 0 0 0 0 0
Inventories—Sane 3 0 0 0 0
Plant Assets—Sane 6 0 0 0 0
Goodwill—Parr [$1,080,000 – ($990,000 x 0.90)] 1 8 9 0 0 0
Investment in Sane Company Common Stock
—Parr ($1,000,000 + $80,000) 1 0 8 0 0 0 0
($990,000 x 0.10) 9 9 0 0 0
To eliminate intercompany investment and equity
accounts of subsidiary on date of business
combination; to allocate excess of cost over carrying
amount of identifiable net assets acquired, with
remainder to goodwill; and to establish minority
interest in net assets of subsidiary on date of business
combination. (Income tax effects are disregarded.)
30 Minutes, Easy
Philly Corporation Pr. 6–2
a. Philly Corporation
Journal Entries
20 05
Sept 30 Investment in Stype Company Common Stock
(100,000 x $12) 1 2 0 0 0 0 0
Common Stock, no par 1 2 0 0 0 0 0
To record issuance of 100,000 shares of common
stock for 18,800 of the 20,000 outstanding shares of
Stype Company common stock in a business
combination.
30 Investment in Stype Company Common Stock

($150,000 x 0.60) 9 0 0 0 0
Common Stock, no par ($150,000 x 0.40) 6 0 0 0 0
Cash 1 5 0 0 0 0
combination with Stype Company.
b. (Working paper for consolidated balance sheet is

on page 210.)
Philly Corporation and Subsidiary

September 30, 2005
(a) Common Stock—Stype 4 0 0 0 0 0
Retained Earnings—Stype 7 0 0 0 0 0
Inventories—Stype ($340,000 – $300,000) 4 0 0 0 0
Plant Assets—Stype ($1,100,000 – $1,000,000) 1 0 0 0 0 0
Discount on Long-Term Debt—Stype ($100,000 –
$90,000) 1 0 0 0 0
Goodwill—Philly [$1,290,000 – ($1,250,000 x 0.94)] 1 1 5 0 0 0
Investment in Stype Company Common
Stock—Philly ($1,200,00 + $90,000) 1 2 9 0 0 0 0
($1,250,000 x 0.06) 7 5 0 0 0
amounts of identifiable net assets acquired, with
interest in net assets of subsidiary on date of business

Philly Corporation (concluded) Pr. 6–2
Philly Corporation and Subsidiary
Working Paper for Consolidated Balance Sheet
September 30, 2005
Eliminations
Philly Stype increase
Corporation Corporation (decrease) Consolidated
Assets
Cash 5 0 0 0 0 1 0 0 0 0 0 1 5 0 0 0 0
Trade accounts receivable (net) 4 0 0 0 0 0 2 0 0 0 0 0 6 0 0 0 0 0
Inventories (net) 6 0 0 0 0 0 3 0 0 0 0 0 (a) 4 0 0 0 0 9 4 0 0 0 0
Investment in Stype Company
common stock 1 2 9 0 0 0 0 (a)(1 2 9 0 0 0 0 )
Plant assets (net) 1 3 0 0 0 0 0 1 0 0 0 0 0 0 (a) 1 0 0 0 0 0 2 4 0 0 0 0 0
Goodwill (a) 1 1 5 0 0 0 1 1 5 0 0 0
Total assets 3 6 4 0 0 0 0 1 6 0 0 0 0 0 (1 0 3 5 0 0 0 ) 4 2 0 5 0 0 0
Liabilities & Stockholders’ Equity

Current liabilities 8 0 0 0 0 0 4 0 0 0 0 0 1 2 0 0 0 0 0
Long-term debt 1 0 0 0 0 0 1 0 0 0 0 0
Discount on long-term debt (a) 1 0 0 0 0 * ( 1 0 0 0 0 )
Common stock, no par 2 3 4 0 0 0 0 2 3 4 0 0 0 0
Common stock, $20 par 4 0 0 0 0 0 (a)( 4 0 0 0 0 0 )
Minority interest in net assets
of subsidiary (a) 7 5 0 0 0 7 5 0 0 0
Retained earnings 5 0 0 0 0 0 7 0 0 0 0 0 (a)( 7 0 0 0 0 0 ) 5 0 0 0 0 0
Total liabilities & stockholders’
equity 3 6 4 0 0 0 0 1 6 0 0 0 0 0 (1 0 3 5 0 0 0 ) 4 2 0 5 0 0 0
*An increase in discount on long-term debt and a decrease in total liabilities & stockholders’ equity.

25 Minutes, Easy
Pellman Corporation Pr. 6–3
a. Pellman Corporation
Journal Entries
20 05
May 31 Investment in Shire Company Common Stock 3 0 0 0 0 0
Cash 3 0 0 0 0 0
To record acquisition of all 10,000 outstanding shares
of Shire Company common stock in a business
combination.
31 Investment in Shire Company Common Stock 5 0 0 0 0

Cash 5 0 0 0 0
combination with Shire Company.
b. (Working paper for consolidated balance sheet is on

page 212.)
Pellman Corporation and Subsidiary

May 31, 2005
(a) Common Stock—Shire 1 0 0 0 0 0
Additional Paid-in Capital—Shire 1 4 0 0 0 0
Retained Earnings—Shire 1 8 0 0 0 0
Inventories—Shire ($140,000 – $120,000) 2 0 0 0 0
Plant Assets (net)—Shire ($690,000 – $610,000 –
$380,000 + $350,000) 5 0 0 0 0
Premium on Long-Term Debt—Shire
($440,000 – $400,000) 4 0 0 0 0
Investment in Shire Company Common
Stock—Pellman 3 5 0 0 0 0
combination, and to deduct $30,000 excess of current
fair values of subsidiary’s identifiable net assets over
acquisition price from current fair value of subsidiary’s
plant assets. (Income tax effects are disregarded.)
Pellman Corporation (concluded) Pr. 6–3

Pellman Corporation and Subsidiary
May 31, 2005
Eliminations
Pellman Shire increase
Assets
Cash 2 0 0 0 0 0 1 0 0 0 0 2 1 0 0 0 0
Trade accounts receivable (net) 7 0 0 0 0 0 6 0 0 0 0 7 6 0 0 0 0
Inventories (net) 1 4 0 0 0 0 0 1 2 0 0 0 0 (a) 2 0 0 0 0 1 5 4 0 0 0 0
Investment in Shire Company
common stock 3 5 0 0 0 0 (a)( 3 5 0 0 0 0 )
Plant assets (net) 2 8 5 0 0 0 0 6 1 0 0 0 0 (a) 5 0 0 0 0 3 5 1 0 0 0 0
Total assets 5 5 0 0 0 0 0 8 0 0 0 0 0 ( 2 8 0 0 0 0 ) 6 0 2 0 0 0 0

Current liabilities 5 0 0 0 0 0 8 0 0 0 0 5 8 0 0 0 0
Long-term debt 1 0 0 0 0 0 0 4 0 0 0 0 0 1 4 0 0 0 0 0
Premium on long-term debt (a) 4 0 0 0 0 4 0 0 0 0
Common stock, $10 par 1 5 0 0 0 0 0 1 0 0 0 0 0 (a)( 1 0 0 0 0 0 ) 1 5 0 0 0 0 0
Additional paid-in capital 1 2 0 0 0 0 0 4 0 0 0 0 (a) ( 4 0 0 0 0 ) 1 2 0 0 0 0 0
Retained earnings 1 3 0 0 0 0 0 1 8 0 0 0 0 (a)( 1 8 0 0 0 0 ) 1 3 0 0 0 0 0
Total liabilities &
stockholders’ equity 5 5 0 0 0 0 0 8 0 0 0 0 0 ( 2 8 0 0 0 0 ) 6 0 2 0 0 0 0

40 Minutes, Easy
Powell Corporation Pr. 6–4
a. Seaver Company
Journal Entries
20 05
Apr 30 Receivable from Powell Corporation 7 0 0 0 0
Cash 7 0 0 0 0
To record payment, on behalf of Powell Corporation,
of out-of-pocket costs of business combination with
Powell.
b. Powell Corporation
Journal Entries
20 05
Apr 30 Investment in Seaver Company Common Stock
(30,000 x $20) 6 0 0 0 0 0
Common Stock, no par 6 0 0 0 0 0
To record issuance of 30,000 shares of common stock
for 8,000 of the 10,000 outstanding shares of Seaver
Company common stock in a business combination.
30 Investment in Seaver Company Common Stock 4 0 0 0 0

Common Stock, no par 3 0 0 0 0
Payable to Seaver Company 7 0 0 0 0
To record liability to Seaver Company for Seaver’s
payment of out-of-pocket costs of business
combination with Seaver. Finder’s and legal fees
relating to the combination are recorded as additional
costs of the investment; costs associated with the SEC
registration statement are recorded as an offset to the
previously recorded proceeds from the issuance of
common stock.

Powell Corporation (concluded) Pr. 6–4
c. Powell Corporation and Subsidiary
April 30, 2005
Eliminations
Powell Seaver increase
Assets
Cash 5 0 0 0 0 8 0 0 0 0 1 3 0 0 0 0
Trade accounts receivable (net) 2 3 0 0 0 0 2 0 0 0 0 0 4 3 0 0 0 0
Intercompany receivables
(payables) ( 7 0 0 0 0 ) 7 0 0 0 0
Inventories 4 0 0 0 0 0 3 5 0 0 0 0 (a) 9 0 0 0 0 8 4 0 0 0 0
Investment in Seaver Company
common stock 6 4 0 0 0 0 (a)( 6 4 0 0 0 0 )
Plant assets (net) 1 3 0 0 0 0 0 5 6 0 0 0 0 (a) 2 2 0 0 0 0 2 0 8 0 0 0 0
Goodwill (a) 8 0 0 0 0 8 0 0 0 0
Total assets 2 5 5 0 0 0 0 1 2 6 0 0 0 0 ( 2 5 0 0 0 0 ) 3 5 6 0 0 0 0

Current liabilities 3 1 0 0 0 0 2 5 0 0 0 0 5 6 0 0 0 0
Long-term debt 8 0 0 0 0 0 6 0 0 0 0 0 1 4 0 0 0 0 0
Common stock, no par 1 0 7 0 0 0 0 1 0 7 0 0 0 0
Additional paid-in capital 3 6 0 0 0 0 (a)( 3 6 0 0 0 0 )
of subsidiary (a) 1 4 0 0 0 0 1 4 0 0 0 0
Retained earnings (deficit) 3 7 0 0 0 0 ( 5 0 0 0 0 ) (a) 5 0 0 0 0 3 7 0 0 0 0
Total liabilities &
stockholders’ equity 2 5 5 0 0 0 0 1 2 6 0 0 0 0 ( 2 5 0 0 0 0 ) 3 5 6 0 0 0 0
(Working paper elimination is on page 215.)

Powell Corporation (concluded) Pr. 6–4
Powell Corporation and Subsidiary
April 30, 2005
(a) Common Stock—Seaver 1 0 0 0 0 0
Additional Paid-In Capital—Seaver 3 6 0 0 0 0
Inventories—Seaver ($440,000 – $350,000) 9 0 0 0 0
Plant Assets (net)—Seaver ($780,000 – $560,000) 2 2 0 0 0 0
Goodwill—Powell [$640,000 – ($700,000 x 0.80)] 8 0 0 0 0
Retained Earnings—Seaver 5 0 0 0 0
Premium on Long-Term Debt—Seaver
($620,000 – $600,000) 2 0 0 0 0
Investment in Seaver Company Common
Stock—Powell 6 4 0 0 0 0
($700,000 x 0.20) 1 4 0 0 0 0
amounts of identifiable assets acquired, with
interest in net assets of subsidiary on date of
business combination. (Income tax effects are
disregarded.)

30 Minutes, Easy
Pyr Corporation Pr. 6–5
a. Pyr Corporation
Journal Entries
20 05
July 31 Investment in Soper Company Common Stock
(20,000 x $10) 2 0 0 0 0 0
Common Stock (20,000 x $2) 4 0 0 0 0
Paid-in Capital in Excess of Par 1 6 0 0 0 0
To record issuance of 20,000 shares of common stock
for all 5,000 outstanding shares of common stock of
Soper Company in a business combination.
31 Investment in Soper Company Common Stock 2 0 0 0 0

Paid-in Capital in Excess of Par 1 0 0 0 0
Cash 3 0 0 0 0
combination with Soper Company.

page 217.)
Pyr Corporation and Subsidiary

July 31, 2005
(a) Common Stock—Soper 2 5 0 0 0
Additional Paid-in Capital—Soper 5 0 0 0 0
Retained Earnings—Soper 7 5 0 0 0
Current Assets (Inventories)—Soper ($65,000 –
$60,000) 5 0 0 0
Plant Assets (net)—Soper ($340,000 – $300,000) 4 0 0 0 0
Discount on Long-Term Debt—Soper ($200,000 –
$190,000) 1 0 0 0 0
Goodwill—Soper ($220,000 – $185,000 – $20,000) 1 5 0 0 0
Investment in Soper Company Common
Stock—Pyr 2 2 0 0 0 0
combination; and to allocate excess of cost over
carrying amounts of identifiable net assets acquired,
with remainder to goodwill. (Income tax effects are
disregarded.)

Pyr Corporation (concluded) Pr. 6–5
Pyr Corporation and Subsidiary
July 31, 2005
Eliminations
Pyr Soper increase
Assets
Current assets 7 7 0 0 0 0 1 5 0 0 0 0 (a) 5 0 0 0 9 2 5 0 0 0
Investment in Soper Company
common stock 2 2 0 0 0 0 (a)( 2 2 0 0 0 0 )
Goodwill 2 0 0 0 0 (a) 1 5 0 0 0 3 5 0 0 0
Total assets 3 3 9 0 0 0 0 4 7 0 0 0 0 ( 1 6 0 0 0 0 ) 3 7 0 0 0 0 0

Long-term debt 1 0 0 0 0 0 0 2 0 0 0 0 0 1 2 0 0 0 0 0
Common stock, $2 par 8 4 0 0 0 0 8 4 0 0 0 0
Common stock, $5 par 2 5 0 0 0 (a) ( 2 5 0 0 0 )
Additional paid-in capital 5 5 0 0 0 0 5 0 0 0 0 (a) ( 5 0 0 0 0 ) 5 5 0 0 0 0
Retained earnings 6 0 0 0 0 0 7 5 0 0 0 (a) ( 7 5 0 0 0 ) 6 0 0 0 0 0
Total liabilities &

45 Minutes, Strong
Pali Corporation Pr. 6–6
Pali Corporation and Subsidiary
August 31, 2005
(a) Common Stock—Soda 2 0 0 0 0 0 (1)
Additional Paid-in Capital—Soda 1 2 0 0 0 0 (2)
Retained Earnings—Soda 2 4 0 0 0 0 (3)
Inventories—Soda 3 0 0 0 0 (4)
Plant Assets (net)—Soda 5 0 0 0 0 (5)
Goodwill—Pali 8 0 0 0
Premium on Long-Term Debt—Soda 2 0 0 0 0
Investment in Soda Company Stock—Pali 3 8 0 0 0 0
Minority Interest Net Assets of Subsidiary 2 4 8 0 0 0
account of subsidiary on date of business combination;
to allocate excess of cost over carrying amounts
of identifiable net assets acquired, with remainder
to goodwill; and to establish minority interest
in net assets of subsidiary on date of business
Supporting computations:
(1) ($380,000 – $20,000) ÷ $3 = 120,000 shares;
120,000 ÷ 0.60 = 200,000; 200,000 x $1 =
$200,000
(2) 200,000 x ($2.80 – $1.00) = $360,000;

$360,000 x 1/3 = $120,000
(3) $360,000 x 2/3 = $240,000 (or $120,000 x

2 = $240,000)
(4) Current fair value of identifiable net

assets of Soda Company:
$248,000 minority interest ÷ 0.40 $620,000
Less: Soda’s stockholders’ equity
[total of (1), (2), and (3)] reduced
by increase in premium on long-
term debt ($560,000 – $20,000) 540,000
Excess of current fair value of
Soda’s plant assets and inventories
over carrying amount $ 80,000
Let x = increase in value of inventories
1 2/3x = increase in value of plant assets
2 2/3x = $80,000
x = $30,000
(5) $30,000 x 1 2/3 = $50,000
(See Note to Instructor on page 219.)
Pali Corporation (concluded) Pr. 6–6

Note to Instructor: Soda Company’s separate balance sheet on August 31, 2005, may be reconstructed as follows:
Soda Company
Separate Balance Sheet
August 31, 2005
Assets
Cash ($160,000 – $120,000) $ 4 0 0 0 0
Trade accounts receivable (net) ($540,000 – $380,000) 1 6 0 0 0 0
Inventories ($730,000 – $470,000 – $30,000) 2 3 0 0 0 0
Plant assets (net) ($1,470,000 – $850,000 – $50,000) 5 7 0 0 0 0
Total assets $1 0 0 0 0 0 0

Current liabilities ($690,000 – $430,000) $ 2 6 0 0 0 0
Long-term debt ($730,000 – $550,000) 1 8 0 0 0 0
Common stock, $1 par 2 0 0 0 0 0
Additional paid-in capital 1 2 0 0 0 0
Retained earnings 2 4 0 0 0 0
Total liabilities & stockholders’ equity $1 0 0 0 0 0 0

40 Minutes, Easy
Pagel Corporation Pr. 6–7
a. Pagel Corporation
Journal Entries
20 05
Oct 31 Investment in Sayre Company Common Stock
(50,000 x $10) 5 0 0 0 0 0
Common Stock, no par (50,000 x $2) 1 0 0 0 0 0
Paid-in Capital in Excess of Stated Value 4 0 0 0 0 0
To record issuance of 50,000 shares of common
stock for 83% of outstanding common stock of Sayre
Company in a business combination.
31 Investment in Sayre Company Common Stock 3 4 7 5 0

Paid-in Capital in Excess of Stated Value 5 5 2 5 0
Cash 9 0 0 0 0
To record payment of out-of-pocket costs of
business combination with Sayre Company.

page 221.)
Pagel Corporation and Subsidiary

October 31, 2005
(a) Common Stock—Sayre 1 0 0 0 0 0
Retained Earnings—Sayre 3 3 6 0 0 0
Inventories—Sayre ($620,000 – $600,000) 2 0 0 0 0
Plant Assets (net)—Sayre ($1,550,000 – $1,500,000) 5 0 0 0 0
Patents (net)—Sayre ($95,000 – $80,000) 1 5 0 0 0
Discount on Long-Term Debt—Sayre
($1,240,000 – $1,225,000) 1 5 0 0 0
Goodwill—Pagel [$534,750 – ($536,000 x 0.83)] 8 9 8 7 0
Investment in Sayre Company Common
Stock—Pagel 5 3 4 7 5 0
($536,000 x 0.17) 9 1 1 2 0
amounts of identifiable net assets acquired, with
interest in subsidiary on date of business combination.
(Income tax effects are disregarded.)
Pagel Corporation (concluded) Pr. 6–7

Pagel Corporation and Subsidiary
October 31, 2005
Eliminations
Pagel Sayre increase
Assets
Cash 1 6 0 0 0 0 1 5 0 0 0 0 3 1 0 0 0 0
Inventories 8 6 0 0 0 0 6 0 0 0 0 0 (a) 2 0 0 0 0 1 4 8 0 0 0 0
Other current assets 5 0 0 0 0 0 2 6 0 0 0 0 7 6 0 0 0 0
Investment in Sayre Company
common stock 5 3 4 7 5 0 (a)( 5 3 4 7 5 0 )
Plant assets (net) 3 4 0 0 0 0 0 1 5 0 0 0 0 0 (a) 5 0 0 0 0 4 9 5 0 0 0 0
Patents (net) 8 0 0 0 0 (a) 1 5 0 0 0 9 5 0 0 0
Goodwill (a) 8 9 8 7 0 8 9 8 7 0
Total assets 5 4 5 4 7 5 0 2 5 9 0 0 0 0 ( 3 5 9 8 8 0 ) 7 6 8 4 8 7 0

Income taxes payable 4 0 0 0 0 6 0 0 0 0 1 0 0 0 0 0
Other current liabilities 3 9 0 0 0 0 8 5 4 0 0 0 1 2 4 4 0 0 0
Long-term debt 9 5 0 0 0 0 1 2 4 0 0 0 0 2 1 9 0 0 0 0
Common stock, $2 stated value 1 6 0 0 0 0 0 1 6 0 0 0 0 0
Common stock , $10 par 1 0 0 0 0 0 (a)( 1 0 0 0 0 0 )
Additional paid-in capital 1 8 4 4 7 5 0 1 8 4 4 7 5 0
of subsidiary (a) 9 1 1 2 0 9 1 1 2 0
Total liabilities &
stockholders’ equity 5 4 5 4 7 5 0 2 5 9 0 0 0 0 ( 3 5 9 8 8 0 ) 7 6 8 4 8 7 0
* An increase in discount on long-term debt and a decrease in total liabilities & stockholders’ equity.

45 Minutes, Medium
Porcino Corporation Pr. 6–8
a. Porcino Corporation
Journal Entries
20 05
Jan 31 Investment in Secor Company Common Stock
[$50,000 + (6,000 x $15) + $50,000] 1 9 0 0 0 0
Cash 5 0 0 0 0
Common Stock (6,000 x $2) 1 2 0 0 0
Paid-in Capital in Excess of Par 7 8 0 0 0
Notes Payable 5 0 0 0 0
To record issuance of cash, 6,000 shares of common
stock, and five-year, 14% note payable for all 10,000
shares of Secor Company’s outstanding common
stock in a business combination.
31 Investment in Secor Company Common Stock 1 0 0 0 0

Cash 1 0 0 0 0
combination with Secor Company.
b. (Working paper for consolidated balance sheet is

on page 223.)
Porcino Corporation and Subsidiary

January 31, 2005
(a) Common Stock—Secor 1 5 0 0 0 0
Additional Paid-in Capital—Secor 1 6 0 0 0 0
Inventories—Secor ($70,000 – $60,000) 1 0 0 0 0
Plant Assets (net)—Secor [$540,000 – $470,000 –
($50,000 x 0.90)] 2 5 0 0 0
Intangible Assets (net)—Secor [$60,000 – $40,000 –
($50,000 x 0.10)] 1 5 0 0 0
Retained Earnings—Secor 1 1 0 0 0 0
Premium on Long-Term Debt—Secor
($350,000 – $300,000) 5 0 0 0 0
Investment in Secor Company Common
Stock—Porcino 2 0 0 0 0 0
combination, and to allocate $50,000 excess
($250,000 – $200,000 = $50,000) of current fair
value of subsidiary’s identifiable net assets over cost
to subsidiary’s plant assets and intangible assets in
ratio of $540,000 : $60,000, or 9:1. (Income tax effects
are disregarded.)
Porcino Corporation (concluded) Pr. 6–8

Porcino Corporation and Subsidiary
January 31, 2005
Eliminations
Porcino Secor increase
Assets
Inventories 3 8 0 0 0 0 6 0 0 0 0 (a) 1 0 0 0 0 4 5 0 0 0 0
Other current assets 5 8 0 0 0 0 1 3 0 0 0 0 7 1 0 0 0 0
Investment in Secor Company
common stock 2 0 0 0 0 0 (a)( 2 0 0 0 0 0 )
0
Intangible assets (net) 1 6 0 0 0 0 4 0 0 0 0 (a) 1 5 0 0 0 2 1 5 0 0 0
Total assets 2 8 4 0 0 0 0 7 0 0 0 0 0 ( 1 5 0 0 0 0 ) 3 3 9 0 0 0 0

Long-term debt 7 0 0 0 0 0 3 0 0 0 0 0 1 0 0 0 0 0 0
Common stock, $2 par 8 1 2 0 0 0 8 1 2 0 0 0
Additional paid-in capital 2 9 8 0 0 0 1 6 0 0 0 0 (a)( 1 6 0 0 0 0 ) 2 9 8 0 0 0
Retained earnings 6 1 0 0 0 0 ( 1 1 0 0 0 0 ) (a) 1 1 0 0 0 0 6 1 0 0 0 0
Total liabilities &

45 Minutes, Strong
Pandit Corporation Pr. 6–9
a. Singh Company
Correcting Entries
June 30, 2005
Income Tax Refund Receivable ($60,000 x 0.40) 2 4 0 0 0
Retained Earnings (Prior Period Adjustment)
($60,000 – $24,000) 3 6 0 0 0
Cost of Goods Sold 6 0 0 0 0
To correct July 1, 2004, retained earnings balance
for after-tax effect of overstatement of 2004 net
income due to overstatement of inventories on
June 30, 2004; to set up claim for refund of 2004
income taxes overpaid because of overstatement of
2004 pre-tax income; and to correct cost of goods sold
due to overstatement of beginning inventories on
July 1, 2004
Income Taxes Expense ($60,000 x 0.40) 2 4 0 0 0

Income Taxes Payable 2 4 0 0 0
To increase income taxes for 2005 for effects of
overstatement of 2005 cost of goods sold.
Inventories in Transit 3 5 0 0 0
Trade Accounts Payable 3 5 0 0 0
To correct accounting records for effect of omission of
merchandise in transit on June 30, 2005.

Pandit Corporation (continued) Pr. 6–9
b. Pandit Corporation and Subsidiary
June 30, 2005
(a) Common Stock—Singh 1 0 0 0 0 0
Additional Paid-In Capital—Singh 1 3 0 0 0 0
Retained Earnings—Singh ($120,000 + $60,000 –
36,000 – $24,000) 1 2 0 0 0 0
Inventories—Singh ($185,000 – $155,000) 3 0 0 0 0
Plant Assets (net)—Singh [$280,000 – $240,000 –
($420,000* x 0.85) + $320,000] 3 0 0 0
Investment in Singh Company Common
Stock—Pandit 3 2 0 0 0 0
($420,000* x 0.15) 6 3 0 0 0
combination; to increase subsidiary inventories by
difference between current fair value and carrying
amount; to reduce current fair value of subsidiary’s
plant assets by excess of parent company’s share of
current fair value of subsidiary’s identifiable net assets
over parent company’s cost; and to establish minority
interest in subsidiary on date of business combination.
* Current fair value of Singh Company’s identifiable

net assets:
Singh’s stockholders’ equity
($100,000 +$130,000 +
$120,000) $350,000
Difference between current
fair values and carrying amounts
of Singh’s assets:
Inventories ($185,000 – $155,000) 30,000
Plant assets ($280,000 – $240,000) 40,000
Current fair value of Singh’s
identifiable net assets $420,000
(Working paper for consolidated balance sheet is on

on page 226.)

Pandit Corporation (concluded) Pr. 6–9
Pandit Corporation and Subsidiary
June 30, 2005
Eliminations
Pandit Singh increase
Assets
Cash 8 0 0 0 0 6 0 0 0 0 1 4 0 0 0 0
Income tax refund receivable 2 4 0 0 0 2 4 0 0 0
Inventories 3 7 0 0 0 0 1 5 5 0 0 0 * 3 0 0 0 0 5 5 5 0 0 0
Investment in Singh Company
common stock 3 2 0 0 0 0 (a)( 3 2 0 0 0 0 )
Plant assets (net) 5 7 0 0 0 0 2 4 0 0 0 0 (a) 3 0 0 0 8 1 3 0 0 0
Goodwill 5 0 0 0 0 5 0 0 0 0
Total assets 1 5 6 0 0 0 0 5 6 9 0 0 0 ( 2 8 7 0 0 0 ) 1 8 4 2 0 0 0

Trade accounts payable 2 2 0 0 0 0 1 5 5 0 0 0 3 7 5 0 0 0
Income taxes payable 1 0 0 0 0 0 6 4 0 0 0 1 6 4 0 0 0
15% note payable 3 0 0 0 0 0 3 0 0 0 0 0
Common stock, $10 par 2 5 0 0 0 0 1 0 0 0 0 0 (a)( 1 0 0 0 0 0 ) 2 5 0 0 0 0
of subsidiary (a) 6 3 0 0 0 6 3 0 0 0
Total liabilities &
*Including $35,000 in transit.

45 Minutes, Medium
Pliny Corporation Pr. 6–10
a. Pliny Corporation
Journal Entries
20 05
Dec 31 Investment in Sylla Company Common Stock
($100,000 + $1,352,727) 1 4 5 2 7 2 7
Discount on Bonds Payable ($1,500,000 – $1,352,727) 1 4 7 2 7 3
Cash 1 0 0 0 0 0
Bonds Payable 1 5 0 0 0 0 0
To record issuance of cash and 14%, 10-year bonds
for all 200,000 outstanding shares of Sylla Company
common stock in a business combination.
Present value of bonds is computed as follows:
[($1,500,000 x 0.214548) + ($105,000 x
9.818147) = $1,352,727].
31 Investment in Sylla Company Common Stock 5 0 0 0 0

Bond Issue Costs 4 0 0 0 0
Cash 9 0 0 0 0
To record payment of out-of-pocket costs of
business combination with Sylla Company.
b. (Working paper for consolidation balance sheet is

on page 228.)
Pliny Corporation and Subsidiary

December 31, 2005
(a) Common Stock—Sylla 2 0 0 0 0 0
Additional Paid-In Capital—Sylla 4 0 0 0 0 0
Retained Earnings—Sylla 7 0 0 0 0 0
Inventories—Sylla ($330,000 – $300,000) 3 0 0 0 0
Long-Term Investment in Marketable Securities—Sylla
($230,000 – $200,000) 3 0 0 0 0
Plant Assets (net)—Sylla ($940,000 – $900,000) 4 0 0 0 0
Intangible Assets (net)—Sylla ($220,000 – $200,000) 2 0 0 0 0
Discount on Bonds Payable—Sylla ($500,000 –
$432,899) 6 7 1 0 1
Goodwill—Sylla ($1,502,727 – $1,487,101) 1 5 6 2 6
Investment in Sylla Company Common
Stock—Pliny 1 5 0 2 7 2 7
combination; and to allocate excess of cost over
carrying amounts of identifiable net assets acquired,
with remainder to goodwill. (Income tax effects are
disregarded.) Present value of bonds is computed as
follows: [($500,000 x 0.463193) + ($30,000 x
6.710081) = $432,899].
Pliny Corporation (concluded) Pr. 6–10

Pliny Corporation and Subsidiary
December 31, 2005
Eliminations
Pliny Sylia increase
Assets
Inventories 8 0 0 0 0 0 3 0 0 0 0 0 (a) 3 0 0 0 0 1 1 3 0 0 0 0
Other current assets 1 0 1 0 0 0 0 5 0 0 0 0 0 1 5 1 0 0 0 0
Investment in Sylla Company
common stock 1 5 0 2 7 2 7 (a)(1 5 0 2 7 2 7 )
Long-term investments in
marketable securities 2 0 0 0 0 0 (a) 3 0 0 0 0 2 3 0 0 0 0
Intangible assets (net) 1 0 0 0 0 0 2 0 0 0 0 0 (a) 2 0 0 0 0 3 2 0 0 0 0
Goodwill (a) 1 5 6 2 6 1 5 6 2 6
Bond issue costs 4 0 0 0 0 4 0 0 0 0
Total assets 5 9 5 2 7 2 7 2 1 0 0 0 0 0 (1 3 6 7 1 0 1 ) 6 6 8 5 6 2 6

Current liabilities 1 4 0 0 0 0 0 3 0 0 0 0 0 1 7 0 0 0 0 0
10% note payable 2 0 0 0 0 0 0 2 0 0 0 0 0 0
Bonds payable 1 5 0 0 0 0 0 5 0 0 0 0 0 2 0 0 0 0 0 0
Discount on bonds payable ( 1 4 7 2 7 3 ) (a) 6 7 1 0 1 * ( 2 1 4 3 7 4 )
Common stock, $1 par 6 0 0 0 0 0 2 0 0 0 0 0 (a)( 2 0 0 0 0 0 ) 6 0 0 0 0 0
Total liabilities &
stockholders’ equity 5 9 5 2 7 2 7 2 1 0 0 0 0 0 (1 3 6 7 1 0 1 ) 6 6 8 5 6 2 6
* An increase in discount on bonds payable and a decrease in total liabilities & stockholders’ equity.

45 Minutes, Medium
Parthenia Corporation Pr. 6–11
a. Parthenia Corporation
Correcting Journal Entry
June 30, 2005
Investment in Storey Company Common Stock 7 0 0 0 0
Goodwill 6 0 0 0 0
Expenses of Business Combination 1 0 0 0 0
To correct June 30, 2005, journal entries for
business combination with Storey Company as
follows:
Investment
in Storey
Company Expenses of
common business
stock Goodwill combination
Balance should be $ 290,000 $ -0- $ -0-
Balance per
accounting records 220,000 60,000 10,000
Correction [dr.(cr.)] $ 70,000 $(60,000) $(10,000)
b. (Working paper for consolidated balance sheet is on page 230.)
Parthenia Corporation and Subsidiary

June 30, 2005
(a) Common Stock—Storey 5 0 0 0 0
Additional Paid-In Capital—Storey 7 0 0 0 0
Retained Earnings—Storey 1 0 0 0 0 0
Inventories—Storey ($180,000 – $160,000) 2 0 0 0 0
Plant Assets (net)—Storey ($530,000 – $500,000) 3 0 0 0 0
Discount on Long-Term Debt—Storey ($300,000 –
$260,000) 4 0 0 0 0
Goodwill—Parthenia [$290,000 – ($310,000 x 0.80)] 4 2 0 0 0
Investment in Storey Company Common
Stock—Parthenia 2 9 0 0 0 0
($310,000 x 0.20) 6 2 0 0 0
amounts of identifiable net assets, with remainder to
goodwill; and to establish minority interest in net
assets of subsidiary on date of business combination.

Parthenia Corporation (concluded) Pr. 6–11
Parthenia Corporation and Subsidiary
June 30, 2005
Eliminations
Parthenia Storey increase
Assets
Cash 6 0 0 0 0 5 0 0 0 0 1 1 0 0 0 0
Inventories 2 5 0 0 0 0 1 6 0 0 0 0 (a) 2 0 0 0 0 4 3 0 0 0 0
Investment in Storey Company
common stock 2 9 0 0 0 0 (a)( 2 9 0 0 0 0 )
Plant assets (net) 5 9 0 0 0 0 5 0 0 0 0 0 (a) 3 0 0 0 0 1 1 2 0 0 0 0
Goodwill (a) 4 2 0 0 0 4 2 0 0 0
Total assets 1 3 1 0 0 0 0 8 0 0 0 0 0 ( 1 9 8 0 0 0 ) 1 9 1 2 0 0 0

Long-term debt 5 0 0 0 0 0 3 0 0 0 0 0 8 0 0 0 0 0
Common stock, $5 par 1 0 0 0 0 0 1 0 0 0 0 0
Common stock , $10 par 5 0 0 0 0 (a) ( 5 0 0 0 0 )
Additional paid-in capital 2 0 0 0 0 0 7 0 0 0 0 (a) ( 7 0 0 0 0 ) 2 0 0 0 0 0
of subsidiary (a) 6 2 0 0 0 6 2 0 0 0
Total liabilities &


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Chapter 06, Modern Advanced Accounting-Review Q & Exr

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CHAPTER 6

CONSOLIDATED FINANCIAL STATEMENTS:

Pr. 6–1 Parr Corporation (20 minutes, easy)

The McGraw-Hill Companies, Inc., 2006

ANSWERS TO REVIEW QUESTIONS

The McGraw-Hill Companies, Inc., 2006

The McGraw-Hill Companies, Inc., 2006

b. Consolidated retained earnings on the date of a business

Ex. 6–5 PAINTER CORPORATION AND SUBSIDIARY

Liabilities & Stockholders' Equity

Investment in Senna Company Common Stock 36,800

The McGraw-Hill Companies, Inc., 2006

Investment in Skye Company Common Stock 15,000

Ex. 6–10 a. Consolidated current assets $146,000

The McGraw-Hill Companies, Inc., 2006

The McGraw-Hill Companies, Inc., 2006

The McGraw-Hill Companies, Inc., 2006

The McGraw-Hill Companies, Inc., 2006

The McGraw-Hill Companies, Inc., 2006

30 Investment in Sane Company Common Stock 8 0 0 0 0

b. Parr Corporation and Subsidiary

30 Investment in Stype Company Common Stock

b. (Working paper for consolidated balance sheet is

Philly Corporation and Subsidiary

The McGraw-Hill Companies, Inc., 2006

Liabilities & Stockholders’ Equity

The McGraw-Hill Companies, Inc., 2006

31 Investment in Shire Company Common Stock 5 0 0 0 0

b. (Working paper for consolidated balance sheet is on

Pellman Corporation and Subsidiary

Pellman Corporation (concluded) Pr. 6–3

The McGraw-Hill Companies, Inc., 2006

Liabilities & Stockholders’ Equity

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30 Investment in Seaver Company Common Stock 4 0 0 0 0

The McGraw-Hill Companies, Inc., 2006

Liabilities & Stockholders’ Equity

(Working paper elimination is on page 215.)

The McGraw-Hill Companies, Inc., 2006

The McGraw-Hill Companies, Inc., 2006

31 Investment in Soper Company Common Stock 2 0 0 0 0

b. (Working paper for consolidated balance sheet is on

Pyr Corporation and Subsidiary

The McGraw-Hill Companies, Inc., 2006

Liabilities & Stockholders’ Equity

The McGraw-Hill Companies, Inc., 2006

(2) 200,000 x ($2.80 – $1.00) = $360,000;

(3) $360,000 x 2/3 = $240,000 (or $120,000 x

(4) Current fair value of identifiable net

(5) $30,000 x 1 2/3 = $50,000

(See Note to Instructor on page 219.)

Pali Corporation (concluded) Pr. 6–6

The McGraw-Hill Companies, Inc., 2006

Liabilities & Stockholders’ Equity

The McGraw-Hill Companies, Inc., 2006

31 Investment in Sayre Company Common Stock 3 4 7 5 0

b. (Working paper for consolidated balance sheet is on

Pagel Corporation and Subsidiary

Pagel Corporation (concluded) Pr. 6–7

Liabilities & Stockholders’ Equity

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31 Investment in Secor Company Common Stock 1 0 0 0 0