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Question;EXERCISE 5-5 T;On January 1, 2011, Porter Company purchased;an 90% interest in the capital stock of Salem Company for $850,000. The fair;value of the noncontrolling interest was proportionate to the consideration;paid by the controlling interest. At that time, Salem Company had capital stock;of $550,000 and retained earnings of $80,000. Differences between the fair;value and the book value of the identifiable assets of Salem Company were as;follows: Equipment Land Inventory In-Process Research & Development Bonds;payable The book values of all other assets and liabilities of Salem Company;were equal to their fair values on January 1, 20011 The inventory was sold in;2011 and the equipment has a 5-year remaining life as of January 1, 2011. The;bonds payable mature in 5 years from January 1, 2011 At 12/31/13, Salem owes;Porter $25000 Required for the year ended December 31, 2013;1.;Prepare the analysis as of acquisition date including unamortized differential;at 1/1/11.;2.;Prepare the journal entries Porter recorded with respect to its investment in;Porter for the year ended 12/31/13.;3.;Calculate Net income to controlling interest and Net income to non controlling interest;for the year 2013.;4.;Prepare all necessary elimination entries for the year ended 2013.;5.;Complete the consolidated workpapers for the year ended 12/31/13. Use formulas;in all calculations. INCOME STATEMENT P CO. S CO. ELIMINATIONS CONS.TOT.;12/31/2013 (000's) DR. CR. Sales 2,100.00 450.00 2,550.000 Dividend Income;54.00 54.000 0.000 Total revenues 2,154.00 450.00 2,604.00 Cost of goods sold;950.00 200.00 1,150.00 Depreciation exp 50.00 30.00 80.00 Other Expenses 60.00;50.00 110.00 0.00 Total expenses 1,060.00 280.00 1,340.00 Total Net income 1,094.00;170.00 1,264.00 Less net income to noncontrolling interest 0.00 Net income to;controlling interest 1,264.00 RETAINED EARNINGS STATEMENT Retained Earnings;1/1/13 500.00 230.00 730.000 Net income 1,094.00 170.00 1,264.00 Dividends;declared 90.00 60.00 150.00 Retained Earnings 12/31/13 1,504.00 340.00 1,844.00;BALANCE SHEET Cash 76.00 65.00 141.00 Accounts receivable 445.00 190.00 635.00;Inventory 780.00 175.00 955.00 Investment in Sub 850.00 850.00 Land 215.00;320.00 535.00 IPR&D 0.00 Plant and Equipment 360.00 280.00 640.00 Goodwill;0.00 Total assets 2,726.00 1,030.00 3,756.00 Accounts payable 132.00 110.00;242.000 bonds payable 90.00 30.00 120.000 Common stock 1,000.00 550.00;1,550.000 Paid in capital 0.000 Retained earnings 1,504.00 340.00 1,844.000 Noncontrolling;interest in sub 0.000 Total liabilities and equity 2,726.00 1,030.00 0.00 0.00;3,756.00 0.00 0.00 0.00;Problrm;Workpaper Entries and Consolidated Financial Statements;On January 1, 2004, Palmer Company acquired a 90% interest;in Stevens Company at a cost;of $1,000,000. At the purchase date, Stevens Company?s;stockholders? equity consisted of the;following;Common Stock $500,000;Retained Earnings 190,000;An examination of Stevens Company?s assets and liabilities;revealed the following at the date;of acquisition;Book Value Fair Value;Cash $ 90,726 $ 90,726;Accounts Receivable 200,000 200,000;Inventories 160,000 210,000;Equipment 300,000 390,000;Accumulated Depreciation ? Equipment (100,000) (130,000);Land 190,000 290,000;Bonds Payable (205,556) (150,000);Other 54,830 54,830;Total $ 690,000 $ 955,556;Additional Information?Date of Acquisition;Stevens Company?s equipment had an original life of 15 years;and a remaining useful life of;10 years. All the inventory was sold in 2004. Stevens;Company purchased its bonds payable;on the open market on January 10, 2004, for $150,000 and;recognized a gain of $55,556.;Financial statement data for 2006 are presented here;Workpaper Entries and Consolidated Financial Statements;On January 1, 2004, Palmer Company acquired a 90% interest in;Stevens Company at a cost;of $1,000,000. At the purchase date, Stevens Company?s;stockholders? equity consisted of the;following;Common Stock $500,000;Retained Earnings 190,000;An examination of Stevens Company?s assets and liabilities;revealed the following at the date;of acquisition;Book Value Fair Value;Cash $ 90,726 $ 90,726;Accounts Receivable 200,000 200,000;Inventories 160,000 210,000;Equipment 300,000 390,000;Accumulated Depreciation ? Equipment (100,000) (130,000);Land 190,000 290,000;Bonds Payable (205,556) (150,000);Other 54,830 54,830;Total $ 690,000 $ 955,556;Additional Information?Date of Acquisition;Stevens Company?s equipment had an original life of 15 years;and a remaining useful life of;10 years. All the inventory was sold in 2004. Stevens;Company purchased its bonds payable;on the open market on January 10, 2004, for $150,000 and;recognized a gain of $55,556.;Financial statement data for 2006 are presented here;Palmer Stevens;Company Company;1/1 Retained Earnings $ 297,600 $ 210,000;Net Income 131,500 45,000;429,100 255,000;Dividends (120,000) (35,000);12/31 Retained Earnings $ 309,100 $ 220,000;Cash $ 201,200 $ 151,000;Accounts Receivable 221,000 173,000;Inventories 100,400 81,000;Investment in Stevens Company 1,000,000;Equipment 450,000 300,000;Accumulated Depreciation ? Equipment (300,000) (140,000);Land 360,000 290,000;Total Assets $2,032,600 $ 855,000;Accounts Payable $ 323,500 $ 135,000;Bonds Payable 400,000;Common Stock 1,000,000 500,000;Retained Earnings 309,100 220,000;Total Liabilities and Equity $2,032,600 $ 855,000;What method is Palmer using to account for its investment in;Stevens? How can you tell?;Prepare a consolidated?nancial statements workpaper for the;year ended December 31;2006;Prepare a consolidated?nancial statements workpaper for the;year ended December 31;2006;Prepare in good form a schedule or t-account showing the;calculation of the controlling interest in combined net income for the year;ended December 31, 2006.;PROBLEM 5-6 Workpaper;Entries for Two Years and Sale of Equipment in Year Two;On January 1, 2004, Perini Company purchased an 85% interest;in Silvas Company for;$400,000. On this date, Silvas Company had common stock of;$90,000 and retained earnings;of $210,000. An examination of Silvas Company?s assets and;liabilities revealed that their;book value was equal to their fair value except for the;equipment.;Book Value Fair Value;Equipment $ 360,000;Accumulated Depreciation (120,000);$ 240,000 $ 300,000;(1) The cost method is used to account for the investment.;(2) The partial equity method is used to account for the;investment.;During 2004 and 2005, Perini Company reported net income;from its own operations of;$80,000 and paid dividends of $50,000 in each year. Silvas;Company had income of $40,000;each year and paid dividends of $30,000 on each December 31.;Accumulated depreciation is presented on a separate row in;the workpaper and in the consolidated?nancial statements;Prepare eliminating entries for consolidated?nancial;statements workpaper for the year;ended December 31, 2004, assuming;(1) The cost method is used to account for the investment.;(2) The partial equity method is used to account for the;investment.;Accumulated depreciation is presented on a separate row in;the workpaper and in the;consolidated?nancial statements;The cost method is used to account for the investment.;(2) The partial equity method is used to account for the;investment.

 

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