G3 CH3 ZAK

Solution (in thousands)

Pas Corporation and Subsidiary

Partial Balance Sheet
at December 31, 2011

Stockholders’ equity:
Capital stock, $10 par $600
Additional paid-in capital 100
Retained earnings 130
Equity of controlling stockholders 830
Noncontrolling interest 82
Total stockholders’ equity $912

➢ Supporting computations

Computation of consolidated retained earnings:

Pas’s December 31, 2010 retained earnings $ 70

Add: Pas’s reported income for 2011 110
Less: Pas’s dividends (50)
Consolidated retained earnings December 31, 2011 $130

Computation of noncontrolling interest at December 31, 2011

Sal’s December 31, 2010 stockholders’ equity $400

Income less dividends for 2011 ($40 - $30) 10
Sal’s December 31, 2011 stockholders’ equity 410
Noncontrolling interest percentage 20%
Noncontrolling interest December 31, 2011 $ 82
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Solution

1 Pen Corporation and Subsidiary

Consolidated Balance Sheet
at December 31, 2011
(in thousands)

Assets
Cash ($64 + $36) $ 100
Accounts receivable ($90 + $68 - $10) 148
Inventories ($286 + $112) 398
Equipment — net ($760 + $350) 1,110
Total assets $1,756

Liabilities and Stockholders’ Equity

Liabilities:
Accounts payable ($80 + $66 - $10) $ 136
Stockholders’ equity:
Common stock, $10 par 920
Retained earnings 600
Noncontrolling interest ($300 + $200)  20% 100
Total liabilities and stockholders’ equity $1,756
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2 Consolidated net income for 2012

Pen’s separate income $340

Add: Income from Sut 180
Consolidated net income $520
Noncontrolling interest share (20% x $180,000) $ 36
Controlling interest share (80%) $484
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Solution (in thousands)

1 Schedule to allocate fair value/book value differential

Cost of investment in Set $350

Implied fair value of Set ($350 / 70%) $500
Book value of Set (220)
Excess fair value over book value $280

Excess allocated:
Fair Value Book Value Allocation
Inventories ($100 - $60) $ 40
Land ($120 - $100) 20
Buildings — net ($180 - $140) 40
Equipment — net ($60 - $80) (20)
Other liabilities ($80 - $100) 20
Allocated to identifiable net assets 100
Goodwill for the remainder 180
Excess fair value over book value $280

2 Par Corporation and Subsidiary

Consolidated Balance Sheet
at January 1, 2011

Assets

Current assets:

Cash ($70 + $40) $110

Receivables — net ($160 + $60) 220
Inventories ($140 + $60 + $40) 240 $ 570

Property, plant and equipment:

Land ($200 + $100 + $20) $320

Buildings — net ($220 + $140 + $40) 400
Equipment — net ($160 + $80 - $20) 220 940
Goodwill (from consolidation) 180
Total assets $1,690

Liabilities and Stockholders’ Equity

Liabilities:

Accounts payable ($180 + $160) $ 340

Other liabilities ($20 + $100 - $20) 100 $ 440

Stockholders’ equity:

Capital stock $1,000

Retained earnings 100
Equity of controlling stockholders 1,100
Noncontrolling interest * 150 1,250
Total liabilities and stockholders’ equity $1,690

* 70% of implied fair value of $500 = $150.

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SOL.
Pal Corporation and Subsidiary
Consolidated Balance Sheet
at December 31, 2011
(in thousands)
Assets
Current assets $ 680
Plant assets 1,660
Goodwill 400
$2,740
Equities
Liabilities $1,320
Capital stock 600
Retained earnings 820
$2,740

Supporting computations
Sor’s net income ($800 - $600 - $100) $ 100
Less: Excess allocated to inventories that were sold in 2011 (40)
Less: Depreciation on excess allocated to plant
assets ($80 /4 years) (20)
Income from Sor $ 40

Plant assets ($1,000 + $600 + $80 - $20) $1,660

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Pal’s retained earnings:

Beginning retained earnings $ 680

Add: Operating income 200
Add: Income from Sor 40
Deduct: Dividends (100)
Retained earnings December 31, 2011 $ 820
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Per Corporation and Subsidiary

Consolidated Balance Sheet Working Papers
at December 31, 2011
(in thousands)
Per Sim Adjustments and Consolidated
per books per books Eliminations Balance Sheet
Cash $ 84 $ 40 $ 124
Receivables — net 100 260 b 18 342
Inventories 700 100 800
Land 300 400 700
Equipment — net 1,200 200 1,400
Investment in Sim 918 a 918
Goodwill a 200 200
Total assets $3,302 $1,000 $3,566
Accounts payable $ 820 $ 160 $ 980
Dividends payable 120 20 b 18 122
Capital stock 2,000 600 a 600 2,000
Retained earnings 362 220 a 220 362
Noncontrolling interest a 102 102
Total equities $3,302 $1,000 $3,566

a To eliminate reciprocal investment and equity accounts, record goodwill ($200), and enter noncontrolling interest
[($820 equity + $200 goodwill)  10%)].
b To eliminate reciprocal dividends receivable (included in receivables — net) and dividends payable amounts ($20
dividends  90%).