1. Par Corporation acquired 70% of the outstanding voting stock of Sto Inc.

on January 1,
2017 for $60,000 less than book value. The $60,000 reduction was all assigned to a
tractor. The tractor had a remaining life of 15 years. On April 1, 2017, Sto sold land to
Par for a gain of $40,000 and originally cost $35,000. Par sold the property for $85,000
on October 1, 2019. Par sold equipment for $96,000 to Sto on January 1, 2018 which
had a book value of $80,000. The equipment cost Par $72,000. The equipment had a
remaining useful life of 8 years on the sale date and is depreciated under the straight-
line method.

Instruction:
Prepare a schedule for the calculation of consolidated net income for Par and subsidiary
for 2017, 2018 and 2019.

2017 2018 2019

Par separate income 300,000 225,000 60,000
Sto net income 90,000 110,000 120,000

(35 marks)

2. At December 31, 2015 year-end, Lapwing Corporation's investment in Ground Inc. was
$200,000 consisting of 80% of Ground's $250,000 stockholders' equity on that date.
On April 1, 2016, Lapwing sold 20% interest (one-fourth of its holdings) in Ground for
$65,000. During 2016, Ground had net income of $75,000 (earned uniformly) and on
July 1, 2016, Ground paid dividends of $40,000. Lapwing uses the equity method to
account for the investment.

Required:
1. What is the gain or loss on sale of the 20% interest?
2. Record the journal entries for Lapwing for the year ending December 31.

(30 marks)

3. Pacini Corporation owns an 80% interest in Abdoo Corporation, acquired on January 1,

2018 for $700,000 when Abdoo’s stockholders’ equity consisted of $600,000 of Capital
Stock and $200,000 of Retained Earnings. Abdoo Corporation acquired a 60% interest
in Bach Corporation on July 1, 2018 for $180,000 when Bach had Capital Stock of
$200,000 and Retained Earnings of $50,000. On January 1, 2019, Abdoo acquired a
70% interest in Carl Corporation for $270,000 when Carl had Capital Stock of $250,000
and Retained Earnings of $100,000. No change in outstanding stock of any of the
affiliated companies has occurred since the investments were made. All cost-book
differentials are goodwill. The stockholders’ equity section of the separate balance
sheets of Abdoo, Bach, and Carl at December 31, 2019 are as follows:

Abdoo Bach Carl

 Capital stocks $600,000 $200,000 $250,000
Retained earnings 280,000 140,000 130,000
Total equity $880,000 $340,000 $380,000

Instructions:
a. Compute the amount at which goodwill should be shown in the consolidated
balance sheet of Pacini Corporation and Subsidiaries at December 31, 2019.
b. Pacini and Abdoo have applied the equity method correctly. Determine the balances
of the three investment accounts at December 31, 2019.

(35 Marks)

Name : Alexander Steven Themas

Student ID : 008201800046

Subject : Advanced Accounting

1.

2017 2018 2019

Par Corporation separate income 300,000 225,000 60,000
Cave’s net income 90,000 110,000 120,000
Tractor Adjustment 4,000 4,000 4,000
Land gain (40,000) 38,000
Equipment gain (16,000)
Depreciation Expense (2,000) (2,000) (2,000)
Minority Interest Expense (15,000) (33,000) (39,000)
Net Income 321,000 304,000 181,000

Tractor Adjustment 60,000/15 4,000 4,000 4,000

Land gain (40,000) (40,000)
Land gain 28,000+10,000 38,000
Equipment (16,000)
Depreciation expense (96,000-80,000)/8 (2,000) (2,000) (2,000)
Minority Interest Expense (15,000)

[90,000-40,000]*.3=15,000
Minority Interest Expense (33,000)

110,000*.3
Minority Interest Expense (39,000)

(85,000-75,000)*.3=3,000 +

120,000*.3

2. Required:
1. What is the gain or loss on sale of the 20% interest?

Selling price $65,000

Book value of interest sold:

Beginning balance $200,000

Income for 3 months

$75,000 1/4 80% = 15,000

Adjusted book value 215,000

Percentage of interest sold 25%

Book value applied 53,750 (53,750)

Gain on sale $11,250

2. Record the journal entries for Lapwing for the year ending December 31

April 1

Investment in Ground 15,000

Income from Ground 15,000

Cash 65,000
 Investment in Ground 53,750

Gain from sale of investment in Ground 11,250

July 1

Cash ($40,000 60%) 24,000

Investment in Ground 24,000

December 31

Investment in Ground 33,750

Income from Ground 33,750

($75,000 60% 9/12)

3.

a.

Pacini’s investment in Abdoo:

Goodwill at acquisition $700,000 cost – ($800,000 x 80%) book value $60,000

Abdoo’s investment in Bach:

Goodwill at acquisition: $180,000 cost –

($250,000 x 60%) book value acquired 30,000

Abdoo’s investment in Cabo:

Goodwill at acquisition: $270,000 cost –

($350,000 x 70%) book value acquired 25,000

Total goodwill on December 31, 2019 $115,000

b.

Pacini Abdoo’s books

 Equity Equity Equity

in Abdoo in Bach in Cabo

Investment cost $ 700,000 $ 180,000 $ 270,000

Investors’ share of equity

since acquisition:
Abdoo: ($80,000 x 80%) 64,000
Bach: ($90,000 x 60%) 54,000
Cabo: ($30,000 x 70%) 21,000

Investment account balance $ 764,000 $ 234,000 $ 291,000