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Quiz Advance Accounting

1. Palma acquired 70% of Salma's stock for $91,000 on January 1, 2017. Salma's equity was $130,000 at the time of acquisition. 2. The financial statements show Palma and its 80% owned subsidiary Salma for the year ended December 31, 2017. 3. Pita acquired 80% of Sita's stock for $840,000 on January 2, 2017. Sita's equity was $750,000 at the time of acquisition. The adjusted trial balances for Pita and Sita at December 31, 2018 are provided.

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509 views5 pages

Quiz Advance Accounting

1. Palma acquired 70% of Salma's stock for $91,000 on January 1, 2017. Salma's equity was $130,000 at the time of acquisition. 2. The financial statements show Palma and its 80% owned subsidiary Salma for the year ended December 31, 2017. 3. Pita acquired 80% of Sita's stock for $840,000 on January 2, 2017. Sita's equity was $750,000 at the time of acquisition. The adjusted trial balances for Pita and Sita at December 31, 2018 are provided.

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Gery
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© © All Rights Reserved
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PROBLEM 1

Palma corporation acquired 70 percent of the outstanding voting stock of Salma corporation for
$91,000 cash on January 1, 2017, when Sal stockholders’ equity was $130,000. All assets and
liabilities of Salma were stated at fair value (equal to book values) when Palma acquired its 70
percent interest.

80% Adjustments and Consolidated


Palma Salma Eliminations Statements

Income Statement
Sales $ 620 $ 200

Income from Salma 21

Cost of goods sold 400* 130*

Operating expenses 154* 40*

Consolidated NI

Noncontrol.interest share
($1530,000 ´ 30%)

Controlling share $ 87 $ 30

Retained Earnings
Retained earnings — Palma $ 130

Retained earnings — Salma $ 22

Net income 87✓ 30✓

Dividends 60* 20*

Retained earnings
December 31 $ 157 $ 32

Balance Sheet
Cash $ 91 $ 30

Receivables — net 120 60

Inventories 48 40

PP&E — net 240 70

Investment in Salma 98

$ 597 $ 200

Accounts payable $ 60 $ 36

Other liabilities 40 24

Capital stock 300 100

Other paid-in capital 40 8

Retained earnings 157✓ 32✓

$ 597 $ 200

Noncontrolling interest January 1

Noncontrolling interest December 31


Required:
Based on financial statements of two corporations at and for the year ended December 2017,
complete the consolidation workpapers below for Palma and subsidiary for 2017.
Palma Corporation and Subsidiary
Consolidation Workpapers
for the year ended December 31, 2017
(in thousands)

Pita Sita
Debits
Current assets $ 612 $ 225
Plant assets—net 1,200 900
Investment in Sita —80% 1,020 —
Cost of goods sold 750 360
Other expenses 150 90
Dividends 180 75
$3,912 $1,650
Credits
Current liabilities $ 486 $ 150
Capital stock 1,500 600
Retained earnings 606 300
Sales 800 1,200 600
Income from Sita 120 -
$3,912 $1,650
PROBLEM 2
Pita Corporation acquired 80 percent of the outstanding stock of Sita Corporation for $840,000
cash on January 2, 2017, on which date Sita's stockholders’ equity consisted of capital stock of
$600,000 and retained earnings of $150,000. There were no changes in the outstanding stock of
either corporation during 2017 and 2018. At December 31, 2018, the adjusted trial balances of
Pita and Sita are as follows (in thousands):

Additional Information:
1. All of Sita’s Assets and liabilities were recorded at fair values equal to book values on January
2, 2017.
2. The current liabilities of Sita at December 31, 2018, include dividends payable of $30,000.
Required:
Determine the amounts that should appear in the consolidated statements of Pita Corporation
and subsidiary at December 31, 2018, for each of the following:
1. Noncontrolling interest share.
2. Current Assets
3. Capital Stock.
4. Income from Sita.
5. Investment in Sita.
6. Excess of investment fair value over book value.
7. Consolidated net income for year ended December 31, 2018.
8. Consolidated retained earnings, December 31, 2017.

1.
9. Consolidated retained earnings, December 31, 2018.
10. Non controlling interest, December 31, 2018.

2.

3.

4.

5.

6.

7.

8.

9.
PROBLEM 3
Perry(P) acquired 70% of Salt(S) on 1/1/2011 for $420 when Salt's equity consisted of $200
capital stock and $200 retained earnings. Salt's inventory was understated by $50 and building,

10.

with a 20-year life, was understated by $100. Any excess is goodwill.


2011 2012

Perry Salt Perry Salt


Separate income $1,250 $705 $1,500 $745
Dividends $600 $280 $600 $300

1. Prepare Computation of Perry’s income from Salt for 2011 and 2012.
2. Prepare P’s journal entries regarding for its investment in S in 2011 and 2012.
3. Prepare elimination entries that have to be made for consolidation purpose in 2012.

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