Santa Corporation is 90 percent owned subsidiary of Panta Corporation, acquired
ID: 2403287 • Letter: S
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
-----------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------
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 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
Explanation / Answer
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
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