5) Saveed Corporation purchased the net assets of Penny Inc. on January 2, 2011 for $1,690,000 cash and also paid $15,000 in direct acquisition costs. Penny dissolved as of the date of the acquisition. Penny's balance sheet on January 2, 2011 was as follows: Accounts receivable-net$190,000Current liabilities$235,000 Inventory480,000Long term debt650,000 Land10,000Common stock ($1 par)25,000 Building-net630,000Paid-in capital150,000 Equipment-net  240,000Retained earnings  590,000 Total assets$1,650,000Total liab. & equity $1,650,000 Fair values agree with book values except for inventory, land, and equipment, which have fair values of $640,000, $140,000 and $230,000, respectively. Penny has customer contracts valued at $20,000. Required:

Exercises 1) Penguin Corporation acquired a 60% interest in Squid Corporation on January 1, 2012, at a cost equal to 60% of the book value of Squid's net assets.  At the time of the acquisition, the book values of Squid's assets and liabilities were equal to the fair values. Squid reports net income of $880,000 for 2012. Penguin regularly sells merchandise to Squid at 120% of Penguin's cost. The intercompany sales information for 2012 is as follows: Intercompany sales at selling price $672,000 Sales value of merchandise unsold by Squid$132,000 Required: 1.  Determine the unrealized profit in Squid's inventory at […]

Multiple Choice Questions 1) The material sale of inventory items by a parent company to an affiliated company A) enters the consolidated revenue computation only if the transfer was the result of arm's length bargaining. B) affects consolidated net income under a periodic inventory system but not under a perpetual inventory system. C) does not result in consolidated income until the merchandise is sold to outside parties. D) does not require a working paper adjustment if the merchandise was transferred at cost. 2) Phast Corporation owns a 80% interest in Stechno Company, acquired several years ago at a cost equal […]

Exercises 1) At December 31, 2010, the stockholders' equity of Gost Corporation and its 80%-owned subsidiary, Tree Corporation, are as follows:     Gost       Tree  Common stock, $10 par value$20,000$12,000 Retained earnings8,0006,000 Totals$28,000$18,000 Gost's Investment in Tree is equal to 80 percent of Tree's book value. Tree Corporation issued 225 additional shares of common stock directly to Gost on January 1, 2011 at $18 per share. Required: 1. Compute the balance in Gost's Investment in Tree account on January 1, 2011 after the new investment is recorded. 2. Determine the increase or decrease in goodwill from Gost's new investment in […]

13) Separate income statements of Plantation Corporation and its 90%-owned subsidiary, Savannah Corporation, for 2011 are as follows, prior to Plantation recording any income related to its subsidiary: PlantationSavannah Sales Revenue$870,000 $230,000 Gain on equipment35,000 Gain on land20,000 Cost of sales(470,000)(90,000) Other expenses(265,000)(60,000) Separate incomes$170,000 $100,000 Additional information: 1.Plantation acquired its 90% interest in Savannah Corporation when the book values were equal to the fair values. 2.The gain on equipment relates to equipment with a book value of $95,000 and a 7-year remaining useful life that Plantation sold to Savannah for $130,000 on January 1, 2011. The straight-line depreciation method […]