Problem 1 Santa Corporation is 90 percent owned subsidiary of Panta Corporation,
ID: 2577246 • Letter: P
Question
Problem 1
Santa Corporation is 90 percent owned subsidiary of Panta Corporation, acquired by Panta on January 1, 20X1 for $270,000 when Santa’s common stock and retained earnings were $100,000 and $150,000 respectively. All book values of Santa’s assets and liabilities were equal to their fair values except unrecorded patent which its fair value is equal the differential value with remaining life of 10 years. Both firms are using FIFO method of inventory. Followings are the transactions of merchandize between these two firms:
----------------------------------------------------------------------------------------------------------- Cost Sales value Ending Inventory
-----------------------------------------------------------------------------------------------------------
20X1 Panta sold to Santa $60,000 $ 80,000 $16,000
20X2 Panta sold to Santa 80,000 100,000 15,000
------------------------------------------------------------------------------------------------------------
During 20X2 Panta sold a parcel of land with cost of $20,000 to Santa for $30,000.
----------------------------------------------------------------------------------------------------------------- Panta Santa
------------------------------------------------------------------------------------------------------------------
Separate income (not included Investment income) for 20X1 $40,000 $30,000
Dividend 0 0
Income statements for Panta and Santa Corporations for 20X2 are:
----------------------------------------------------------------------------------------------------------------- Panta Santa
------------------------------------------------------------------------------------------------------------------
Sales $300,000 $150,000
Income from Santa 31,500
Gain on Land 10,000
Cost of Sales (200,000) ( 90,000)
Other expenses ( 67,000) (10,000)
Net Income $ 74,500 $ 50,000
Dividend 0 0
Balance Sheet item (December 31, 20X2):
Investment in Santa $320,000
Required:
1. Calculate total fair value of Santa as of 1/1/20X1
2. Calculate total value of the patent (1 point).
3. Calculate investment income recorded by Panta for 20X1.
4. Calculate balance of investment in Santa in the book of Panta as of December 31, 20X1
5. Verify the amount of Income from Santa for $31,500.
6. Unrealized profit in Santa’s beginning inventory is : $_________________.
7. Unrealized profit in Santa’s ending inventory is: $_________________.
8. Unrealized profit in land for 20X2 is: $_________________.
9. Patent (net) that appear in the Dec. 31, 20X2 consolidated balance sheet (show all of your calculations):
$_________________.
10. Patent (net) that appear in Panta’ book as of Dec. 31, 20X2 $_________________.
11. Verify the balance of investment in Santa that appear in the 20X2 Panta’s balance sheet : $_______________.
12. How much investment in Santa is reported in the 20X2 consolidated balance sheet?
$_______________.
13. How much land is reported in Santa’s book as of Dec. 31, 20x2? $______________.
14. How much land is reported in consolidated balance sheet as of Dec. 31, 20x2?
$____________.
15. Minority Interest Income (Expense) for 20x2 (show all of your calculations)is :
$________________.
16. Consolidated (controlling group) net income for 20X2 is : $_______________.
17. Show, in detail, working paper eliminating entries for all inter-company merchandize inventory transactions in order to prepare 20x2 consolidated financial statements.
18. Prepare Consolidated Income Statement for year 20X2.
19. Show working paper eliminating entry for land only for 20X3.
Explanation / Answer
1) Total Fair Value of Santa on 1 January, 20X1 = Total Purchase value of investments/% of share acquired
= $270,000/90% = $300,000
2) Value of the Patent is the differential amount between total fair value and total book value of assets and liabilities (Total Assets = Common stock and retained earnings) which is shown as follows:-
Patent = $300,000-$250,000 = $50,000
3) Investment Income recorded will be 90% of 20X1 income (i.e.90% of $30,000 = $27,000)
4) Investment will be shown in the balance sheet as on Dec 31,20X1 as follows:-
Purchase Value of Investments $270,000 Add: Current year Income $27,000 Less: Patents Written off 1/10 of [270,000-(250,000*90%)] ($4,500) Total value of Investments in Santa Ltd. 292,500Related Questions
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