Paramount Co$.$ acquired all of Sanders Company on January $1,2021$ for $$2,000,000,$

which includes Paramount issuing $20,000$ shares $($$$10$ par$)$ of its $$80$ fair value common

shares and $$400,000$ cash. The book value of Sanders Co$.$ on this date was $$740,000$

$($common stock, $$220,000$; additional paid$-$in capital, $$160,000,$ and retained earnings,

$$360,000).$ Sanders will continue as a separate legal entity.

In addition, at the date of acquisition, Sanders had a building was overvalued by

$$120,000(12-$year life$)$; and, there were unrecorded customer contracts totaling $$580,000$

$(10-$year life$).$ Paramount incurred $$23,000$ in direct combination costs and $$42,000$ in

stock issue costs as a result of this acquisition.

On April $16,2021,$ Sanders Co$.$ declared a dividend of $$30,000,$ which was paid on May $4.$ At December $31,2021,$ Sanders Co$.$ had net income of $$140,000.$

Instructions:

$1.$ Calculate the allocation of the acquisition price.

$2.$ Record the journal entry$($ies$)$ necessary to record the acquisition on January $1,2021.$

$3.$ Record the necessary journal entries during $2021.$

$4.$ Prepare the Consolidation Worksheet Entries for $2021.$

Problem IV$.(45$ points$).$ Recommended Time: $30$ minutes.

Continuing with the fact pattern in Problem III, the following activity occurred from $2021$

to $2024$:

Year

Dividends

Net Income

$2021$

$ $30,000$

$ $140,000$

$2022$

$40,000$

$90,000$

$2023$

$50,000$

$110,000$

$2024$

$70,000150,000$

Instructions:

$1.$ Prepare a T$-$account for Investment in Sanders. Properly label all the activity since the January $1,2021$ acquisition through $2024,$ showing the balance at December $31,2024.$

$2.$ Prepare the Consolidation Worksheet Entries for $2024.$

$3.$ There are three $(3)$ parts to this question. Using the facts in this problem, prepare the

consolidated financial statements at December $31,2024.$ Be sure to label each worksheet

entry:

a$.$ Prepare the Paramount$$s consolidated worksheet and income statement for the year

ended, December $31,2024$:

Paramount

Sanders

Dr$.$

Cr$.$

Consolidated

Revenues

$(1,380,000)(420,000)$

Cost of Goods Sold

$510,000220,000$

Depreciation Expense

$80,00040,000$

Amortization Expense

$24,00010,000$

Equity in Sub Earnings

$(102,000)-$

Net Income

$(868,000)(150,000)$

b$.$ Prepare the Paramount$$s consolidated retained earnings worksheet and statement for

the year ended, December $31,2024$:

Paramount

Sanders

Dr$.$

Cr$.$

Consolidated

Retained Earnings, $1-1-24$

$(2,940,000)$

Net Income

$(868,000)$

$(150,000)$

Dividends Paid

$128,00070,000$

Retained Earnings, $12-31-24$

c$.$ Prepare the Paramount$$s consolidated balance sheet worksheet and statement at

December $31,2024$ for only the selected accounts:

End of Exam

Paramount

Sanders

Dr$.$

Cr$.$

Consolidated

Investment in Sanders

$-$

Buildings $($net$)$

$2,400,000$

$1,400,000$

Equipment $($net$)$

$1,500,000$

$960,000$

Customer Contracts

$-$

$-$

Trademark

$270,000200,000$

Goodwill

$-$

$-$