Question

Presented below are selected amounts from the separate unconsolidated financial statements of Pero Corporation and its 90%-owned subsidiary Sean Company at December 31, 2016. Additional information follows:

	Pero Corporation	Sean Company
Selected income statement amounts:
Sales	$ 710,000	$ 530,000
Cost of goods sold	490,000	370,000
Gain on the sale of equipment		21,000
Earnings from investment in subsidiary (equity)	63,000
Other expenses	48,000	75,000
Interest expense		16,000
Depreciation	25,000	20,000
Selected balance sheet amounts:
Cash	30,000	18,000
Inventories	229,000	150,000
Equipment	440,000	360,000
Accumulated depreciation	(200,000)	(120,000)
Investment in Sean (equity balance)	211,000
Investment in bonds	(100,000)
Discount on bonds	(9,000)
Bonds payable		(200,000)
Discount on bonds payable		3,000
Common stock	100,000)	(10,000)
Additional paid-in capital in excess of par	(250,000)	(40,000)
Retained earnings	(402,000)	(140,000)
Selected statement of retained earnings amounts:
Beginning balance, December 31, 2015	272,000	100,000
Net income	210,000	70,000
Dividends paid	80,000	30,000

2. Items (a) through (l) below refer to accounts that may or may not be included in Pero’s consolidated financial statements. The list on the right refers to the various possibilities of those amounts to be reported in Pero’s consolidated financial statements for the year ended December 31, 2016. Consider all transactions stated above in determining your answer. Ignore income tax considerations.

Items to be answered:	Responses to be selected:
a. Cash b. Equipment c. Investment in subsidiary d. Bonds payable e. NCI f. Common stock g. Beginning retained earnings h. Dividends paid i. Gain on retirement of bonds j. Cost of goods sold k. Interest expense l. Depreciation expense	1. Sum of amounts on Pero’s and Sean’s separate unconsolidated financial statements. 2. Less than the sum of amounts on Pero’s and Sean’s separate unconsolidated financial statements, but not the same as the amount on either. 3. Same as amount for Pero only. 4. Same as amount for Sean only. 5. Eliminated entirely in consolidation. 6. Shown in consolidated financial statements but not in separate unconsolidated financial statements. 7. Neither in consolidated nor in separate unconsolidated financial statements.

Answer 1

a. Cash - Sum of amounts on Pero’s and Sean’s separate unconsolidated financial statements.

b. Equipment - Sum of amounts on Pero’s and Sean’s separate unconsolidated financial statements.

c. Investment in subsidiary - Eliminated entirely in consolidation.

d. Bonds payable - Same as amount for Sean only.

e. NCI - Shown in consolidated financial statements but not in separate unconsolidated financial statements

f. Common stock - Same as amount for Pero only

g. Beginning retained earnings - Sum of amounts on Pero’s and Sean’s separate unconsolidated financial statements.

h. Dividends paid - Less than the sum of amounts on Pero’s and Sean’s separate unconsolidated financial statements, but not the same as the amount on either.

i. Gain on retirement of bonds - Same as amount for Pero only

j. Cost of goods sold - Neither in consolidated nor in separate unconsolidated financial statements.

k. Interest expense - Sum of amounts on Pero’s and Sean’s separate unconsolidated financial statements

l. Depreciation expense - Sum of amounts on Pero’s and Sean’s separate unconsolidated financial statements