Note: This homework assignment accounts for 6 points. No point will be given when (1) it isincomplete, (2) it is past due, (3) no work is provided, or (4) most answer/work is incorrect.
Points will be deducted if part of the answer/work provided is incorrect.
Power Inc. acquired 70% of Sky Co. on January 1, 2021. The total annual excess
amortization resulting from the acquisition was $ 25,000 per year.
Power sold inventory to Sky in both years 2021 and 2022. Specifically, in 2021, Power
sold goods with a cost of $500,000 for $700,000 to Sky, and Sky still owned 16% of
these goods at the end of 2021. In 2022, Power sold goods with a cost of $690,000 for
$830,000 to Sky, and Sky still owned 10% of these goods at the end of 2022.
For 2022, the companies reported the following account balances:
Sales
Cost of goods sold
Other income/expense
Net income
Power
3,800,000
1,500,000
Not given
Not given
Sky
1,300,000
900,000
-400,000
Requirements:
(a) Compute the consolidated sales for 2022.
Answer:
(b) Compute the consolidated cost of goods sold for 2022.
Answer:
(c) Compute the noncontrolling interest’s share in Sky’s income for 2022.
Answer:
(d) Assume that the intra-entity sales were upstream (i.e. assume that it was Sky who
sold inventory to Power), compute the noncontrolling interest’s share in Sky’s
income for 2022.
Answer:
Note: This practice assignment accounts for 3 extra points. No point will be given when (1) it is overdue, (2)
it is only partially completed, (3) no work is provided, and/or (4) most answer/work is incorrect. Points will
be deducted if part of the answer/work provided is incorrect.
On January 1, Year 1, Paloma Corporation exchanged $1,710,000 cash for 90 percent of the outstanding
voting stock of San Marco Company. The consideration transferred by Paloma provided a reasonable
basis for assessing the total January 1, Year 1, fair value of San Marco Company. At the acquisition date,
San Marco has reported the owners’ equity at the amount of $725,000 (including common stock,
$400,000; additional paid-in capital, $60,000; and retained earnings, $265,000) in its balance sheet.
Paloma noted that the values for San Marco’s recorded assets and liabilities approximated their fair
values, except for an internally developed customer base with an assessed fair value of $800,000 that
was not reflected on San Marco’s books. The customer base is assumed to have a 10-year remaining
life. Any remaining excess of cost over book value is attributed to goodwill.
At December 31, Year 2, the two companies report the following balances:
Requirement: Prepare a worksheet to consolidate the financial statements of these companies for Year 2.
Name:
Accounts
Paloma
San Marco
Revenues
(1,843,000)
(675,000)
Cost of goods sold
1,100,000
322,000
Depreciation expense
125,000
120,000
Amortization expense
275,000
11,000
Interest expense
27,500
7,000
Equity in San Marco Income
(121,500)
Separate company
(437,000)
(215,000)
(2,625,000)
(395,000)
Net Income
(437,000)
(215,000)
Dividends declared
350,000
25,000
Retained Earnings 12/31
(2,712,000)
(585,000)
Current Assets
1,204,000
430,000
Investment in San Marco
1,854,000
net income
Consolidated net income
To noncontrolling interest
To Paloma Company
Retained Earnings 1/1
Customer base
-0-
-0-
Buildings and Equipment
931,000
863,000
Copyrights
950,000
107,000
Total Assets
4,939,000
1,400,000
Accounts Payable
(485,000)
(200,000)
Notes Payable
(542,000)
(155,000)
Common Stock
(900,000)
(400,000)
Additional Paid-In Capital
(300,000)
(60,000)
Retained Earnings 12/31
(2,712,000)
(585,000)
Total Liab. and SE
(4,939,000) (1,400,000)
Goodwill
NCI in San Marco
Consolidation Entries
Dr.
Cr.
NCI
Consolidated
Total
Instruction for practice assignment #2
Complete the assignment following the steps below.
1. Prepare a formal allocation of excess cost over book value for the acquisition.
2. Provide work to verify the following amounts:
Equity income for San Marco for Year 2=
Investment in San Marco balance at the end of Year 2=
3. Compute the following amounts:
Consolidated net income allocable to noncontrolling interest for Year 2:
Noncontrolling interest balance at the end of Year 2:
4. Review five consolidation entries.
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