North South University 1.

1. This is s confidential document, it is for your use only, you cannot share it with anyone else.
Fall 2020 2. No cheating of any kind.
ACT 460 3. This part of the exam will end at 10:45 AM. If it is submitted late, for every minute you will
Midterm exam lose 1 point.
M. Golam Rabbani
Total points: 100 Good Luck
Time 45 min

Problem 1 (cost method)

On January 1, 2009, Perry Company purchased 90% of Selby Company for $1,113,750. At that time Selby had capital
stock outstanding of $350,000 and retained earnings of $375,000. The fair value of Selby Company’s assets and liabilities
is equal to their book value except for the following:

Fair Value Book Value

Inventory $210,000 $160,000
Plant and Equipment (10-year life) 780,000 630,000

One-half of the inventory was sold in 2009, the remainder was sold in 2010. At the end of 2009, Perry Company had in
its ending inventory $60,000 of merchandise it had purchased from Selby Company during the year. Selby Company sold
the merchandise at 25% above cost. During 2010, Perry Company sold merchandise to Selby Company for $310,000 at a
markup of 20% of the selling price. At December 31, 2010, Selby still had merchandise that it purchased from Perry
Company for $80,000 in its inventory.
(a) Prepare the consolidated statements workpaper for the year ended December 31, 2010. Also prepare the
workpaper entries in journal format. Show all your calculations (30 points for the consolidated statements
workpaper, 30 points for workpaper entries)
(b) Calculate consolidated retained earnings on December 31, 2010. Show all your calculations. (10 points)
(c) Viva on December 25th, 2020. You need to be able to explain your reasoning for every step in the exam. (30
points)