On January 1, 2011, Paar Incorporated paid $38,500 for a 70% interest in Siba En
ID: 2564786 • Letter: O
Question
On January 1, 2011, Paar Incorporated paid $38,500 for a 70% interest in Siba Enterprises, at a time when Siba's stockholder's equity consisted of $20,000 in Capital stock and $30,000 in Retained Earnings. The fair values of Siba's assets and liabilities equaled their recorded book values at that time, so any additional amount paid was attributed to goodwill.
In 2011, Siba purchased merchandise from Paar at a price of $6,000. The products originally cost Paar $4,000, and 75% of this merchandise remained in inventory at December 31, 2011. This inventory was sold in 2012. Siba reported net income of $9,000 and paid dividends of $3,000 during 2011.
In 2012, Siba purchased merchandise from Paar at a price of $8,000. The products had a cost to Paar of $7,000, and 50% of this merchandise remained in inventory at December 31, 2012. Siba still owed Paar $1,800 for these purchases at December 31, 2012.
A.Prepare all necessary working paper eliminating entries
Eliminations Debit Consoli- dated Siba Credit Paar 81,000 8.700 INCOME STATEMENT Invest rom Siba 38,000 9.500 ost of Sales ther expensC3 trolling nterest share et income etained arnings 1/1 59, 500 39,000 11,000 ss: Dividends etained arnings 12/31 9,000) 4,000) 89, 500 $43,000 SHEET 23,000 34,000 5, 000 10, 000 ReceivablesExplanation / Answer
Value of good will
Common stock of SIBA
20,000
Retained earning
30,000
Total value of company with fair value
50,000
Share for 70% (50000*70%)
35,000
Amount paid for 70% investment in SIBA
38,500
Value of good will
3,500
elimination
income statements
PAAR
SIBA
debit
credit
consolidation
sales
81000
24000
105000
investment income from SIBA
8700
-8700
0
cost of sales
-38000
-9500
500 unrealized gain in 2012
-48000
other expenses
-12700
-3500
-16200
non controlling share
net income
39000
11000
-9200
40800
retained earnings (beginning year)
59500
36000
95500
net income
39000
11000
-9200
40800
dividends
-9000
-4000
-13000
retained earning (ending year)
89500
43000
-9200
123300
123300
balance sheet
cash
23000
5000
28000
net receivable
34000
10000
1800
42200
dividend receivable
1400
1400
0
inventories
27000
9000
500
35500
goodwill
3500
3500
plant assets
37000
62000
99000
investment in SIBA
47100
47100
0
total assets
169500
86000
208200
account -payable
7000
11000
1800
16200
dividend payable
10000
2000
1400
10600
other debts
23000
10000
33000
capital stock
40000
20000
20000
40000
retained earnings (89500-7500)
82000
43000
32350
92650
non controlling interest
15750
15750
total liability
162000
86000
208200
Unrealized gain on inventory
In 2012, SIBA purchase merchandise from PAAR at 8000 which cost price 7000
Out of above stock 50% stock unsold
Unrealized gain for 2012 ( 8000-7000)*50% = 500
Inventory for 2012 deduct extent of unrealized gain i.e. 500
Minority interest
Capital stock (20000*25%)
5000
Retained earnings (43000*25%)
10750
Minority interest
15750
Common stock of SIBA
20,000
Retained earning
30,000
Total value of company with fair value
50,000
Share for 70% (50000*70%)
35,000
Amount paid for 70% investment in SIBA
38,500
Value of good will
3,500
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