Problem 1 - At December 31, 2010, the stockholders' equity of Gost Corporation and its 80%-owned subsidiary, Tree Corporation, are as follows:
Gost Tree
Common stock, $10 par value $20,000 $12,000
Retained earnings 8,000 6,000
Totals $28,000 $18,000
Gost's Investment in Tree is equal to 80 percent of Tree's book value. Tree Corporation issued 225 additional shares of common stock directly to Gost on January 1, 2011 at $18 per share.
Required:
1. Compute the balance in Gost's Investment in Tree account on January 1, 2011 after the new investment is recorded.
2. Determine the increase or decrease in goodwill from Gost's new investment in the 225 Tree shares. Use four decimal places for the ownership percentage. Assume the fair values of Tree's assets and liabilities are equal to book values.
Problem 2 - Paice Corporation owns 80% of the voting common stock of Accardi Corporation. Paice owns 60% of the voting common stock of Badger Corporation. Accardi owns 20% of the voting common stock of Badger. There are no cost/book value/fair value differentials to consider. The separate net incomes (excluding investment income) of these affiliated companies for 2011 are:
Paice $300,000
Accardi 160,000
Badger 120,000
Required: Calculate controlling interest share of consolidated net income and noncontrolling interest shares for Paice Corporation and Subsidiaries for 2011.
Problem 3 - Sally Corporation's stockholders' equity on December 31, 2010 was as follows:
10% cumulative preferred stock, $100 par value, callable at $105, with one year dividends in arrears $10,000
Common stock, $1 par value 50,000
Additional paid-in capital 150,000
Retained earnings 160,000
Total stockholders' equity $370,000
On January 1, 2011, Panera Corporation paid $500,000 for a 70% interest in Sally's common stock. On January 1, 2011, the book values of Sally's assets and liabilities were equal to fair values.
Required:
1. Determine the book value of the common stockholders' equity for Sally Corporation on January 1, 2011.
2. What is the amount of goodwill reported on the consolidated balance sheet for Panera Corporation and Subsidiary at January 2, 2011?
3. On January 2, 2011, Panera purchased 70% of Sally's preferred stock for $5,000. Prepare the journal entry(ies) for Panera for this purchase on January 2, 2011.
4. Prepare the elimination entry on the consolidating work papers for the Investment in Sally, Preferred Stock and Sally's Preferred Stock on January 2, 2011.
Problem 4 - Pascal Corporation paid $225,000 for a 70% interest in Sank Corporation on January 1, 2011. On that date, Sank's balance sheet accounts, at book value and fair value, were as follows:
Book Value Fair Value
Assets
Cash $25,000 $25,000
Accounts receivable-net 45,000 55,000
Inventories 40,000 60,000
Plant, property and equipment-net 140,000 125,000
Total assets $250,000 $265,000
Equities
Accounts payable $40,000 $40,000
Common stock 120,000
Retained earnings 90,000
Total liab. & equity $250,000
Both companies use the parent company theory. Push-down accounting is used for the acquisition.
Required:
1. Prepare the journal entry on January 1, 2011 on Sank Corporation's books.
2. Prepare a balance sheet for Sank Corporation immediately after the acquisition on January 1, 2011.
Problem 5 - A summary of changes in the stockholders' equity of Sin Corporation from January 1, 2011, to December 31, 2012, appears as follows (in thousands):
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Capital Stock 10 $ Par
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Add paid in Capital
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Ret Earn
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Total Equity
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Bal Jan 1, 2011
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$500
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$50
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$550
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Dividends Dec 2011
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-50
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-50
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Income 2011
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100
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100
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Balance Dec 31, 2011
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$500
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$100
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$600
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Sale of Stock Jan 1, 2012
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$100
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$62
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$162
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Dividends Dec 2012
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-60
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($60)
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Income 2012
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150
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$150
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Bal Dec 31, 2012
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$600
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$62
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$190
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$852
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Par Corporation purchases 40,000 shares of Sin's outstanding stock on July 1, 2011, in the open market for $620,000 and an additional 10,000 shares directly from Sin for $162,000 on January 1, 2012. Any excess of investment fair value over book value is due to goodwill.
REQUIRED
1. Determine the balance of Par's Investment in Sin account on December 31, 2011.
2. Compute Par's investment income from Sin for 2012.
3. Determine the balance of Par's Investment in Sin account on December 31, 2012.