PART D

1) On January 1, 2018, Panorama Corporation made the following investments:

• Acquired for cash, 70 percent of the outstanding common stock of Silly Corporation at $140 per share
• Acquired for cash, 60 percent of the outstanding common stock of Sky Corporation at $80 per share

The stockholders equity of the two companies on January 1, 2018 were as follows:

	Silly Corporation	Sky Corporation
Common stock, par value $100 Common stock, par value $40	$100,000	$120,000
Capital in excess of par value		40,000
Retained earnings	40,000	80,000

- After these investments were made, Panorama was able to exercise control over the operations ofboth companies. An analysis of the retained earnings of each company for 2018 is as follows:

Panorama Silly Sky

Balance January 1 $480,000 $40,000 $80,000

Net income (loss) 209,200 72,000 (24,000)

Cash dividends paid (80,000) (32,000) (18,000)

Balance December 31 $609,200 $80,000 $38,000

Required:

1. What entries should have been made on the books of Panorama during 2018 to record the

Parents share of subsidiary income or loss

2. What amount should be reported as consolidated retained earnings of Panorama Corporation and subsidiaries as of December 31, 2018? Why?

3. Compute the correct balances of Panoramas Investment in Silly and Investment in Sky accounts at December 31, 2018, before consolidation. (9 Marks)

2) At December 31, 2020, The Comparative income statements of Philly Corporation and Silly Corporation were as follows (in thousands):

	Philly	Silly
Sales	$3,200	$1,300
Income from Silly	384
Total revenue	3,584	1,300
Less: Cost of goods sold	1,800	400
Operating expenses	800	400
Net income	$984	500

Additional information

1. Philly Corporation acquired 80 percent of Silly for $1,600,000 on January 1, 2018, when Sillys stockholders equity at book value was $1,400,000.

2. The excess of the cost of Phillys investment in Silly over book value acquired was allocated

$60,000 to undervalued inventories that were sold in 2018, $80,000 to undervalued equipment

with a four-year remaining useful life, and the remainder to goodwill.

Required:

Prepare a consolidated income statement for Philly Corporation and Subsidiary for the year

ended December 31, 2020. (6 marks)

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