Question

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

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20X1   Panta sold to Santa               $60,000           $ 80,000                      $16,000

20X2   Panta sold to Santa              80,000            100,000                      15,000

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-----------------------------------------------------------------------------------------------------------------                                                                                                                             Panta              Santa

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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

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Sales                                                                                                    $300,000         $150,000

Income from Santa                                                                                41,500

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                                                                            $330,000                    

Required:

Calculate total fair value of Santa as of 1/1/20X1 .

Calculate total value of the patent.

Calculate investment income recorded by Panta for 20X1.

Calculate balance of investment in Santa in the book of Panta as of Dec.r 31, 20X1

Verify the amount of Income from Santa for $41,500 (1 point).

Unrealized profit in Santa’s beginning inventory is :           $_________________.

Unrealized profit in Santa’s ending inventory is :    $_________________.

Patent (net) that appear in the Dec. 31, 20X2 consolidated balance sheet (show all of your calculations)

                                                                                          $_________________.

Verify the balance of investment in Santa that appear in the 20X2 Panta’s balance sheet

                                                                                                   $_________________.

How much investment in Santa is reported in the 20X2 consolidated balance sheet?

$_______________.

Minority Interest Income (Expense) for 20x2 (show all of your calculations)is :

                                                                                                      $________________.

12.       Consolidated (controlling group) net income for 20X2 is $_______________.  

Show, in detail, working paper eliminating entries for all inter-company merchandize inventory transactions in order to prepare 20x2 consolidated financial statements

14.       Prepare Consolidated Income Statement for year 20X2

Answer 1

1	Fair value of Santa as of 1/1/20X1
	Amount paid for acquiring 90% share	$270,000
	Fair value of non-controlling 10% share
	($270000/90% x 10%)	$30,000
	Fair value of Santa as of 1/1/20X1	$300,000
2	Total value of Patent
	Fair value of Santa as of 1/1/20X1	$300,000
	Less:
	Common Stock	$100,000
	Retained Earnings	$150,000
	Excess of fair value over book value	$50,000
	Value of Patent	$50,000
3	Investment income recorded by Panta for 20X1
	Separate income of Santa	$30,000
	Less: Patent amortization	$5,000
	Net income	$25,000
	Non-controlling interest	$2,500
	Investment income recorded by Panta	$22,500
4	Balance of investment in Santa in the books of Panta as of Dec. 31, 20X1
	Investment in Santa on 1/1/20X1	$270,000
	Add: Investment Income	$22,500
	Investment in Santa on 31/12/20X1	$292,500
5	Verify the amount of income from Santa for $41,500
	Separate income of Santa	$50,000
	Less: Patent amortization	$5,000
	Net income	$45,000
	Panta's 90% of income	$40,500
	Beginning Inventory adjustment	$16,000
	Less: ending inventory adjustment	($15,000)
	Investment income recorded by Panta	$41,500
6	Unrealized profit in Santa's beginning inventory
	Beginning inventory	$16,000
	Gross margin	20%
	Unrealized profit	$3,200
7	Unrealized profit in Santa's ending inventory
	Ending inventory	$15,000
	Gross margin	20%
	Unrealized profit	$3,000
8	Patent (net) that appear in the Dec. 31, 20X2 consolidated balance sheet
	Value of Patent	$50,000
	Less: Amortization for 20X1	$5,000
	Amortization for 20X2	$5,000
	Net value of Patent on 31/12/20X2	$40,000
10	Verify the balance of investment in Santa that appear in 20X2 Panta's balance sheet
	Investment in Santa on 1/1/20X1	$270,000
	Add: Investment Income for 20X1	$22,500
	Unrealized profit for 20X1	($3,200)
	Investment in Santa on 31/12/20X1	$289,300
	Add: Investment Income for 20X2	$41,500
	Profit realized from inventory	$3,200
	Beginning Inventory	($16,000)
	Ending Inventory	$15,000
	Unrealized profit for 20X2	($3,000)
	Investment in Santa on 31/12/20X2	$330,000
11	Minority Interest Income
		Total	Panta	NCI
	Sales	$150,000	$135,000	$15,000
	Cost of Sales	($90,000)	($81,000)	($9,000)
	Other expenses	($10,000)	($9,000)	($1,000)
	Net Income	$50,000	$45,000	$5,000
12	Consolidated net income
		Panta	Santa	Elimination	Consolidated
	Sales	$300,000	$150,000	($100,000)	$350,000
	Income from Santa	$41,500		($41,500)	$0
	Cost of Sales	($200,000)	($90,000)	$101,000	($189,000)
	Other expenses	($67,000)	($10,000)	($5,000)	($82,000)
	Net Income	$74,500	$50,000		$79,000
	Noncontrolling interest				$4,500
	Controlling interest				$74,500