Chapter 4

Questions with Trouble:

- Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 2014. During
2014, Harbor had revenues of $2,500,000 and expenses of $2,000,000. The amortization of excess cost
allocations totaled $60,000 in 2014.
The non-controlling interest's share of the earnings of Harbor Corp. is calculated to be
2,500,000-2,000,000=500,000-60,000=440,000*.30
-Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2014. For 2014, Kailey
reported revenues of $810,000 and expenses of $630,000, all reflected evenly throughout the year. The
annual amount of amortization related to this acquisition was $15,000.
What is the amount of net income to the controlling interest for 2014?
810,000-630,000=180,000*(4/12)=60,000.-(15,000*(4/12))=55,000*.60=33,000
-What is consolidated net income for 2015 attributable to Royces controlling interest?
(Parent Revnue-Exp.)+((Sub Rev.-Exp)*.60)-(undervalued amount/years*.60)=635600
-Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing
common stock? The book value of the sub wil increase
-When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year,
which of the following statements is true in the presentation of consolidated financial statements? Preacquistion earnings are ignored in the
consolidated income statement.
-Jax Company uses the acquisition method for accounting for its investment in Saxton Company. Jax
sells some of its shares of Saxton such that neither control nor significant influence exists. Which of the
following statements is true? The difference between selling price and carrying value is recorded as a realized gain
or loss
-Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported
common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued
by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any
excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based
on an annual review, goodwill has not been impaired.
Demers earns income and pays dividends as follows:
Net Income- 100,000 120,000 130,000
Dividends- 40,000
50,000 60,000
Compute Pells investment account balance in Demers at December 31, 2015
542,400+ (120,000*.80)-(50,000*.80)-(7,000*.80)=592,800
Compute the non-controlling interest in Demers at December 31,2014
125,000 + (100,000*.20) (40,000*.20)-(7000*.20)=135,600
Compute the non-controlling interest in Demers at December 31, 2016
148,200+(130,000*.20)-(60,000*.20)-(7000*.20)=160,800

Chapter 5
- Webb Co. acquired 100% of Rand Inc. on January 5, 2013. During 2013, Webb sold goods to Rand for $2,400,000 that cost
Webb $1,800,000. Rand still owned 40% of the goods at the end of the year. Cost of goods sold was $10,800,000 for Webb and
$6,400,000 for Rand. What was consolidated cost of goods sold?
2,400,000-1,800,000=60,000*.40=240,000
10,800,000+6,400,000-2,400,000+240,000=15,040,000
- Gentry Inc. acquired 100% of Gaspard Farms on January 5, 2012. During 2012, Gentry sold Gaspard Farms for $625,000 goods
which had cost $425,000. Gaspard Farms still owned 12% of the goods at the end of the year. In 2013, Gentry sold goods with a
cost of $800,000 to Gaspard Farms for $1,000,000, and Gaspard Farms still owned 10% of the goods at year-end. For 2013, cost
of goods sold was $5,400,000 for Gentry and $1,200,000 for Gaspard Farms. What was consolidated cost of goods sold for
2013?
1,000,000-800,000=200,000*.10=20,000
5,400,000+1,200,000-1,000,000+(24,000)+20,000=5,596,000
(625,000-425,000)*.12
- Clemente Co. owned all of the voting common stock of Snider Co. On January 2, 2012, Clemente sold equipment to Snider for
$125,000. The equipment had cost Clemente $140,000. At the time of the sale, the balance in accumulated depreciation was
$40,000. The equipment had a remaining useful life of five years and a $0 salvage value. Straight-line depreciation is used by
both Clemente and Snider. At what amount should the equipment (net of depreciation) be included in the consolidated balance
sheet dated December 31, 2013?
125,000-140,000=15,000-ignored
100,000-(100,000/5)=60,000
- Bauerly Co. owned 70% of the voting common stock of Devin Co. During 2012, Devin made frequent sales of inventory to
Bauerly. There were unrealized gains of $40,000 in the beginning inventory and $25,000 of unrealized gains at the end of the
year. Devin reported net income of $137,000 for 2012. Bauerly decided to use the equity method to account for the investment.
What is the non-controlling interest's share of Devin's net income for 2012?
137,000+40,000-25,000=152,000*.30=45,600
- Chain Co. owned all of the voting common stock of Shannon Corp. The corporations' balance sheets dated December 31, 2012,
include the following balances for land: for Chain--$416,000, and for Shannon-$256,000. On the original date of acquisition, the
book value of Shannon's land was equal to its fair value. On April 4, 2013, Chain sold to Shannon a parcel of land with a book

value of $65,000. The selling price was $83,000. There were no other transactions which affected the companies' land accounts
during 2012. What is the consolidated balance for land on the 2013 balance sheet?
416,000+256,000=672,000
- Yukon Co. acquired 75% percent of the voting common stock of Ontario Corp. on January 1, 2013. During the year, Yukon
made sales of inventory to Ontario. The inventory cost Yukon $260,000 and was sold to Ontario for $390,000. Ontario still had
$60,000 of the goods in its inventory at the end of the year. The amount of unrealized intra-entity profit that should be eliminated
in the consolidation process at the end of 2013 is
340,000-260,000=130,000 *(60,000/390,000)=20,000
- Prince Corp. owned 80% of Kile Corp.'s common stock. During October 2013, Kile sold merchandise to Prince for $140,000.
At December 31, 2013, 50% of this merchandise remained in Prince's inventory. For 2013, gross profit percentages were 30% of
sales for Prince and 40% of sales for Kile. The amount of unrealized intra-entity profit in ending inventory at December 31, 2013
that should be eliminated in the consolidation process is
140,000*.40=56,000 *.50=28,000
-Pot Co. What are consolidated sales and cost of goods sold for 2013?
1,120,000+420,000=1,540,000-140,000=1,400,000
840,000+252,000-140,000+14,000=966,000
140,000*.40=56,000*.25=14,000.25=280,000/1,120,000
-Pot Co. Had resold all of the intra-entity purchases
First stays the same. Second: 840,000+252,000-140,000=952,000
-Pride Inc. What is the total consolidated Revenues?- Parents Rev+Subs Rev- Intra Equity Sale price sold for
Operating Expenses? Parent +Sub+(Undervalued by amount/years)
Cost of Goods sold? Par+Sub-sold for+(of this payment amount*.60 percent still in possession)=184,800
-Strickland In the consolidation worksheet for 2012, which of the following choices would be a debit entry to eliminate the intraentity transfer of inventory? Sales
-Strickland In the consolidation worksheet for 2012, which of the following choices would be a credit entry to eliminate the intraentity transfer of inventory? Cost of Goods Sold
-Strickland In the consolidation worksheet for 2012, which of the following choices would be a credit entry to eliminate
unrealized intra-entity gross profit with regard to the 2012 intra-entity sales? Inventory
-Which of the following statements is true regarding an intra-entity sale of land?
A loss and a gain are always eliminated in a consolidated income statement
- Parent sold land to its subsidiary for a gain in 2010. The subsidiary sold the land externally for a gain in )A gain will be reported
in the consolidated income statement in 2013
- An intra-entity sale took place whereby the transfer price exceeded the book value of a depreciable asset. Which statement is
true for the year following the sale? A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer
when the parent uses the equity method.
- An intra-entity sale took place whereby the book value exceeded the transfer price of a depreciable asset. Which statement is
true for the year following the sale? A worksheet entry is made with a credit to retained earnings for an upstream transfer
- Compute the equity in earnings of Gargiulo reported on Posito's books for 2012.
(70,000*.90)-(1,200 .25 .90)=62,730
- Compute the equity in earnings of Gargiulo reported on Posito's books for 2013.
(85,000*.90)-(4,000 .25 .90)+270(this is the year befores)=75,870
- Compute the equity in earnings of Gargiulo reported on Posito's books for 2014.
(94,000 *.90)- (3,000 .25 .90)+900=84,825
-For consolidation purposes, what amount would be debited to cost of goods sold for the 2013 consolidation worksheet with regard to the
unrealized gross profit of the 2013 intra-entity transfer of merchandise. (4,000 .25)=1,000
- Patti Company owns 80% of the common stock of Shannon, Inc. In the current year, Patti reports sales of $10,000,000 and cost of goods sold of
$7,500,000. For the same period, Shannon has sales of $200,000 and cost of goods sold of $160,000. During the year, Patti sold merchandise to
Shannon for $60,000 at a price based on the normal markup. At the end of the year, Shannon still possesses 30 percent of this inventory.
-Compute consolidated cost of goods sold
7,500,000+160,000-60,000+15,000 .30)=7,604,500
- Assume the same information, except Shannon sold inventory to Patti. Compute consolidated sales.
10,000,000+200,000=10,200,00-60,000=10,140,000
-Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2012, for $75,000. The land originally cost
Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2012 and 2013, respectively. Leo uses the equity method to account for its
investment.
Compute the gain or loss on the intra-entity sale of land
75,000-60,000=15,000 gain