Problem 1 (Recommended: review slides 2-16)

On January 1, 2025, Primair Corporation loaned Vista Company $300,000 and agreed to
guarantee all of Vista’s long-term debt in exchange for (1) decision-making authority over all of
Vista’s activities and (2) an annual cash payment of 25 percent of Vista’s revenues. As a result of
the agreement, Primair is the primary beneficiary of Vista (a variable interest entity). Primair’s
loan to Vista stipulated a 7 percent (market) rate of interest to be paid annually.

On January 1, 2025, Primair estimated that the fair value of Vista’s equity shares equaled
$150,000 while Vista’s book value was $55,000. Any excess fair over book value at that date
was attributed to Vista’s trademark with an indefinite life. Because Primair owns no equity in
Vista, all of the acquisition-date excess fair over book value is allocated to the non-controlling
interest.

Vista paid Primair 25 percent of its 2025 revenues at the end of the year. On December 31, 2025,
Primair and Vista submitted the following statements for consolidation. Parentheses indicate
credit balances.
Primair Vista
Revenues (839,500) (188,000)
Cost of good sold 612,000 75,000
Other operating expenses 78,000 25,000
Interest income (21,000) -0-
Interest expense -0- 21,000
Net income (170,500) (67,000)

Retained earnings, 1/1 (1,555,000) (40,000)

Net income (170,500) (67,000)
Dividends declared 250,000 -0-
Retained earnings, 12/31 (1,475,500) (107,000)

Current assets 460,500 50,000

Loan receivable from Vista 300,000
Equipment (net) 794,000 525,000
Trademark -0- 45,000
Total assets 1,554,500 620,000

Current liabilities (29,000) (18,000)

Long-term debt -0- (180,000)
Loan payable to Primair (300,000)
Common stock (50,000) (15,000)
Retained earnings, 12/31 (1,475,500) (107,000)
Total liabilities and equity (1,554,500) (620,000)

In computing the amount of Vista’s net income attributable to the non-controlling interest,

 Vista’s net income should be reduced by the 25% revenue allocation to Primair.
 Interest expense paid to Primair is not excluded from Vista’s net income because it is
a contractual distribution of Vista’s net income to Primair.

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1. What is the ECOBV amortization schedule in this transaction?

2. What is the year-end balance of NCI?

3. What are the journal entries needed to complete the consolidation worksheet?

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 4. Prepare consolidation worksheet at December 31, 2025

Primair Vista Consolidation entries. NCI Consolidated

Revenues (839,500) (188,000)
Cost of goods sold 612,000 75,000
Other operating expenses 78,000 25,000
Interest income (21,000)
Interest expense 21,000
Net Income (170,500) (67,000)
Consolidated Net Income
to NCI
to Primair

RE 1/1 (1,555,000) (40,000)

Net income (170,500) (67,000)
Dividends declared 250,000 -0-
RE 12/31 (1,475,500) (107,000)

Current Assets 460,500 50,000

Loan Receivable from Vista 300,000
Equipment (net) 794,000 525,000
Trademark 0 45,000
Total Assets 1,554,500 620,000

Current liabilities (29,000) (18,000)

Long-term debt (180,000)
Loan Payable to Primair (300,000)
Common stock (50,000) (15,000)

Noncontrolling interest

Retained earnings 12/31 (1,475,500) (107,000)

Total liabilities and equity (1,554,500) (620,000)

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Problem 2 (Recommended: review slides 17-24)
Hoyle, Schaefer and Doupnik – Chapter 6 Problem 39
Pavin acquires all of Stabler’s outstanding shares on January 1, 2021, for $460,000 in cash. Of
this amount, $30,000 was attributed to equipment with a 10-year remaining life and $40,000 was
assigned to trademarks expensed over a 20-year period. Pavin applies the partial equity method
so that income is accrued each period based solely on the earnings reported by the subsidiary.

On January 1, 2024, Pavin reports $300,000 in bonds outstanding with a carrying amount of
$282,000. Stabler purchases half of these bonds on the open market for $145,500.
During 2024, Pavin begins to sell merchandise to Stabler. During that year, inventory costing
$80,000 was transferred at a price of $100,000. All but $10,000 (at sales price) of these goods
were resold to outside parties by year end. Stabler still owes $33,000 for inventory shipped from
Pavin during December.
The following financial figures are for the two companies for the year ending December 31,
2024. Dividends were both declared and paid during the current year.
Pavin Stabler
Revenues $ (740,000) $ (505,000)
Cost of goods sold 455,000 240,000
Expenses 125,000 158,500
Interest expense—bonds 36,000 –0–
Interest income—bond investment –0– (16,500)
Loss on extinguishment of bonds –0– –0–
Equity in Stabler’s income (123,000) –0–
Net income $ (247,000) $ (123,000)

Retained earnings, 1/1/24 $ (345,000) $ (361,000)

Net income (above) (247,000) (123,000)
Dividends declared 155,000 61,000
Retained earnings, 12/31/24 $ (437,000) $ (423,000)

Cash and receivables $ 217,000 $ 35,000

Inventory 175,000 87,000
Investment in Stabler 613,000 –0–
Investment in Pavin bonds –0– 147,000
Land, buildings, and equipment (net) 245,000 541,000
Trademarks –0– –0–
Total assets $ 1,250,000 $ 810,000

Accounts payable $ (225,000) $ (167,000)

Bonds payable (300,000) (100,000)
Discount on bonds 12,000 –0–
Common stock (300,000) (120,000)
Retained earnings (above) (437,000) (423,000)
Total liabilities and stockholders’ equity $(1,250,000) $ (810,000)

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1. Prepare an ECOBV amortization schedule at the date of acquisition.

2. What is the amount of gross profit to be deferred in 2024?

3. What consolidation entries are needed at the end of 2024?

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4. Prepare a consolidation worksheet for Pavin and Stabler at December 31, 2024.

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 Problem 3 (Recommended: review slides 25-34)
On January 1, 2025, Epsilon, exchanged $213,600 for 30% of Zeta. Epsilon appropriately
applied the equity method to this investment. At January 1, the book values of Zeta’s assets and
liabilities approximated their fair values.

On June 30, 2025 Epsilon paid $520,000 for an additional 65% of Zeta. The price paid for the
65% acquisition was proportionate to Zeta’s total fair value. At June 30, the carrying values of
Zeta’s asset and liabilities approximated their fair values. Any remaining excess fair value was
attributed to goodwill.

Zeta reports the following amounts at December 31, 2025 (credit balances shown in
parentheses):

Accounts Balances
Revenues $(170,000)

Expenses 100,000

Retained Earnings, January 1 (300,000)

Dividend, September 1 20,000

Common Stock (400,000)

Zeta’ revenues and expenses were distributed evenly throughout the year and no changes in
Zeta’s stock have occurred.

1. What is the amount of goodwill recognized by Epsilon on its December 31 consolidate

balance sheet?

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2. What is the revaluation gain (or loss) reported by Epsilon for its 30% investment in
Zeta on June 30?

3. What is the non-controlling interest amount reported by Epsilon on its December 31

consolidated balance sheet?

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 Problem 4 (Recommended: review slides 46-56)

Peter Company acquired 80 percent of the common stock of Paul Company on January 1, 2024, when
Paul had the following balances in its stockholders’ equity accounts:

Common stock (40,000 shares outstanding) $ 100,000

Additional paid-in capital 75,000
Retained earnings, 1/1/24 540,000
Total stockholders’ equity $ 715,000

To acquire this interest in Paul, Peter pays a total of $592,000. The acquisition-date fair value of the
20 percent noncontrolling interest was $148,000. Any excess fair value was allocated to goodwill,
which has not experienced any impairment.

Peter uses the equity method to account for its investment in Paul. On January 1, 2025, Paul has
retained earnings of $620,000.

Treat each of the following scenarios as an independent situation:

1. On January 1, 2025, Paul issues 10,000 additional shares of common stock for $25 per share.
Peter acquires 8,000 of these shares. What is the adjustment (if any) required to the investment
account? What is the journal entry for the adjustment if one is needed?

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2. On January 1, 2025, Paul issues 10,000 additional shares of common stock for $15 per share.
Peter does not acquire any of this newly issued stock. What is the adjustment (if any) required
to the investment account? What is the journal entry for the adjustment if one is needed?

3. On January 1, 2025, Paul reacquires 8,000 of the outstanding shares of its own common stock
for $24 per share. None of these shares belonged to Peter. What is the adjustment (if any)
required to the investment account? What is the journal entry for the adjustment if one is
needed?

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4. On January 1, 2025, Paul issues 10,000 shares as stock dividend when the stock’s fair market
value is $15 per share. What is the adjustment (if any) required to the investment account?
What is the journal entry for the adjustment if one is needed?

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