29 Jul MODULE 2 EXAM 1 QUESTION 1 (20 POINTS)
Module 2 exam 1
Question 1 (20 points)
On January 2, 2013 Piron Corporation issued 100,000 new
shares of its $5 par value common stock valued at $19 a share for all of Seana
Corporation’s outstanding common shares. Piron paid $15,000 to register and
issue shares. Piron also paid $20,000 for the direct combination costs of the
accountants. The fair value and book value of Seana’s identifiable assets and liabilities
were the same. Summarized balance sheet information for both companies just
before the acquisition on January 2, 2013 is as follows:
Piron Seana
Cash
$150,000 $120,000
Inventories
320,000 400,000
Other current assets 500,000 500,000
Land 350,000 250,000
Plant assets-net 4,000,000 1,500,000
Total assets
$5,320,000 $2,770,000
Accounts payable $1,000,000 $300,000
Notes payable
1,300,000 660,000
Capital stock, $5 par 2,000,000 500,000
Additional paid-in capital 1,000,000 100,000
Retained earnings 20,000 1,210,000
Total liabilities & equities $5,320,000 $2,770,000
Part 1: Prepare
Piron’s general journal entry for the acquisition of Seana, assuming that Seana
survives as a separate legal entity.
Part 2: Prepare
Piron’s general journal entry for the acquisition of Seana, assuming that Seana
will dissolve as a separate legal entity.
Question 1 options:
Question 2 (20 points) Question 2 Und
Pancake Corporation saw the potential for vertical
integration and purchased a 15% interest in Syrup Corp. on January 1, 2013, for
$150,000. At that date, Syrup’s stockholders’ equity included $200,000 of $10
par value common stock, $300,000 of additional paid in capital, and $500,000
retained earnings. The companies began to work together and realized improved
sales by both parties. On December 31, 2014, Pancake paid $250,000 for an
additional 20% interest in Syrup Corp. Both of Pancake’s investments were made when
Syrup’s book values equaled their fair values. Syrup’s net income and dividends
for 2013 and 2014 were as follows:
2013 2014
Net income
$220,000 $330,000
Dividends
$20,000 $30,000
Part 1: Prepare
journal entries for Pancake Corporation to account for its investment in Syrup
Corporation for 2013 and 2014.
Part 2: Calculate the
balance of Pancake’s investment in Syrup at December 31, 2014.
Question 2 options:
Question 3 (20 points) Question 3 Und
On January 1, 2013, Pailor Inc. purchased 40% of the
outstanding stock of Saska Company for $300,000. At that time, Saska’s
stockholders’ equity consisted of $270,000 common stock and $330,000 of
retained earnings. Saska Corporation reported net income of $360,000 for 2013.
The allocation of the $60,000 excess of cost over book value acquired is shown
below, along with information relating to the useful lives of the items:
Overvalued
receivables (collected in 2013)
$(5,000)
Undervalued
inventories (sold in 2013)
16,000
Undervalued
building (4 years’ useful life remaining at January 1, 2013) 24,000
Undervalued
land
8,000
Unrecorded
patent (6 years’ economic life remaining at January 1, 2013) 18,000
Undervalued
accounts payable (paid in 2013)
(4,000)
Total of excess
allocated to identifiable assets and liabilities 57,000
Goodwill
3,000
Excess cost over
book value acquired
$60,000
Determine Pailor’s investment income from Saska for 2013.
Question 3 options:
Question 4 (20 points) Question 4 Und
On July 1, 2014, Polliwog Incorporated paid cash for 21,000
shares of Salamander Company’s $10 par value stock when it was trading at $22
per share. At that time, Salamander’s total stockholders’ equity was $597,000,
and they had 30,000 shares of stock outstanding, both before and after the
purchase. The book value of Salamander’s net assets is believed to approximate
the fair values.
Part 1: Prepare the
journal entry that Polliwog would record at the date of acquisition on their
general ledger.
Part 2: Calculate the
balance of the goodwill that would be recorded on Polliwog’s general ledger, on
Salamander’s general ledger, and in the consolidated financial statements.
Question 4 options:
Question 5 (20 points) Question 5 Und
On January 1, 2014, Pinnead Incorporated paid $300,000 for
an 80% interest in Shalle Company. At
that time, Shalle’s total book value was $300,000. Patents were undervalued in
the amount of $10,000. Patents had a 5 year remaining useful life, and any
remaining excess value was attributed to goodwill. The income statements for the year ended
December 31, 2014 of Pinnead and Shalle are summarized below:
Pinnead Shalle
Sales
$800,000 $300,000
Income from Shalle 78,400
Cost of sales (100,000) (100,000)
Depreciation (70,000) (30,000)
Other expenses
(130,000)
(70,000)
Net income
$578,400
$100,000
Part 1: Calculate the
goodwill that will appear in the consolidated balance sheet of Pinnead and Subsidiary
at December 31, 2014.
Part 2: Calculate
consolidated net income for 2014.
Part 3: Calculate the
noncontrolling interest share for 2014.
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