Pavement Corp. (Pavement) has been operating since 1998. It is now December 31, 2004, and Pavement is about to prepare consolidated financial statements for Pavement and its subsidiary, Sigur, Co. (Sigur). Pavement acquired 80 percent of the outstanding common stock of Sigur on January 1, 2004, for $1,416,000. An independent appraisal indicated that the remaining 20% interest in Sigur is worth $354,000. On the acquisition date, Sigur reported owners equity of $1,375,000. The fair values of the net assets of Sigur are equal to their book values except for the following:

Page 1 Comprehensive example of Consolidated Financial Statements with NCI Consolidated Financial Information Pavement Corp. ("Pavement") has been operating since 1998. It is now December 31, 2004, and Pavement is about to prepare consolidated financial statements for Pavement and its subsidiary. Sigur, Co. ("Sigur"). Pavement acquired 80 pe ent of the outstanding common stock of Sigur on January 1, 2004, for $1,416,000. An independent appraisal indicated that the remaining 20% interest in Sigur is Worth $354,000. On the acquisition date, Sigur reported owners' equity of $1,375,000. The fair values of the net assets of Sigur are equal to their book values except for the following: Dr (Cr) Account Inventories Land Patents Long-term notes payable Book Value $ 350,000 388,000 160.000 (100,000) Fair Value $ 260,000 408,000 210,000 (90,000) Assumptions on the acquisition date: A1: The tax bases of the net assets are equal to their consolidated financial bases, A2: neither company has any additional notes payable and Sigur's long-term notes payable are interest bearing and are due in full on December 31, 2013. Premiums and discounts are amortized using the straight-line method, A3: all the inventory was sold during 2004, and A4: the patents have a 10-year remaining useful life. DOO Unconsolidated equity investments: Pavement acquired 30 percent of the outstanding shares of Ros' voting common stock on January 1, 1999. At the acquisition date, Pavement paid $300,000, which was equal to 30 percent of the book value of net assets for Ros. In addition, on the date of Pavement's acquisition, all identifiable net assets had book values equal to their fair values. Ros reported $100,000 of net income during 2004. Pavement's books reflect the full equity method of accounting for Ros. Upstream: On January 2, 2004, Sigur sold equipment with an original cost of $100,000 and a carrying value of $57,000 to Pavement for $36,000. The equipment had a remaining life of three years and was depreciated using the straight-line method by both companies. Page 2 Upstream: During 2004, Sigur sold merchandise to Pavement for $60,000, which included profit of $20,000. At December 31, 2004. half of this merchandise remained in Pavement's inventory. Downstream During 2004, Pavement sold merchandise to Sigur for $50,000. Sigur sold all of these goods to non- affiliates during 2004. At December 31, 2004, Sigur still owed Pavement payment for half of the intercompany purchases that occurred during the year 2004. Current Accounting Information: A consolidation worksheet for the year ended December 31, 2004 is presented on the next page. The requirements for this problem start on the page after the worksheet. Please note that this worksheet is only presented to you as a source of current financial information and in some perverse way) as a source of comfort: you are not required to complete the worksheet! Pavement uses the Cost Method to account for its investment in Sigur and the Equity Method to account for its investment in Ros Page 4 Consolidated Financial Information (continued) Required: Please determine the best answer for th Financial statements. Write your final answer in the small dark box and, each small box, be sure to include evidence of all that the answer to any question is "zero" or none, must show computations/explanation in the space toile answer. In addition, this documentation is the only way you can eam pa best answer for the following amounts in the December 31, 2004 consolidated al answer in the small dark box and, in the space provided next to sure to include evidence of all calculations and clearly label your work. If you believe any question is "zero" or "none." you must indicate that answer in the small box. You Putations/explanation in the space following each item to receive any credit for your omy way you can earn partial credit! "Sales" "Equity in Ros Earnings" "Cost of Goods Sold" "Interest expense" e. "Depreciation and Amortization expense" 156 Page 5 "Noncontrolling Interest Share of Net Income" "Goodwill" "Net buildings and equipment" "Investment in Sigur" j. "Accounts Payable" "Long-Term Notes Payable" "Noncontrolling Interest" Page 6 le the mts, es an utad 1, m. "Consolidated Net Income". "Net income attributed to the Controlling Interest" "Retained earnings, 12/31/2004" "Other (Income) & Expense" "Dividend Income from Sigur" "inventories" "Inventories" "Patents" "Land" "Accounts receivable and cash" Page 1 Comprehensive example of Consolidated Financial Statements with NCI Consolidated Financial Information Pavement Corp. ("Pavement") has been operating since 1998. It is now December 31, 2004, and Pavement is about to prepare consolidated financial statements for Pavement and its subsidiary. Sigur, Co. ("Sigur"). Pavement acquired 80 pe ent of the outstanding common stock of Sigur on January 1, 2004, for $1,416,000. An independent appraisal indicated that the remaining 20% interest in Sigur is Worth $354,000. On the acquisition date, Sigur reported owners' equity of $1,375,000. The fair values of the net assets of Sigur are equal to their book values except for the following: Dr (Cr) Account Inventories Land Patents Long-term notes payable Book Value $ 350,000 388,000 160.000 (100,000) Fair Value $ 260,000 408,000 210,000 (90,000) Assumptions on the acquisition date: A1: The tax bases of the net assets are equal to their consolidated financial bases, A2: neither company has any additional notes payable and Sigur's long-term notes payable are interest bearing and are due in full on December 31, 2013. Premiums and discounts are amortized using the straight-line method, A3: all the inventory was sold during 2004, and A4: the patents have a 10-year remaining useful life. DOO Unconsolidated equity investments: Pavement acquired 30 percent of the outstanding shares of Ros' voting common stock on January 1, 1999. At the acquisition date, Pavement paid $300,000, which was equal to 30 percent of the book value of net assets for Ros. In addition, on the date of Pavement's acquisition, all identifiable net assets had book values equal to their fair values. Ros reported $100,000 of net income during 2004. Pavement's books reflect the full equity method of accounting for Ros. Upstream: On January 2, 2004, Sigur sold equipment with an original cost of $100,000 and a carrying value of $57,000 to Pavement for $36,000. The equipment had a remaining life of three years and was depreciated using the straight-line method by both companies. Page 2 Upstream: During 2004, Sigur sold merchandise to Pavement for $60,000, which included profit of $20,000. At December 31, 2004. half of this merchandise remained in Pavement's inventory. Downstream During 2004, Pavement sold merchandise to Sigur for $50,000. Sigur sold all of these goods to non- affiliates during 2004. At December 31, 2004, Sigur still owed Pavement payment for half of the intercompany purchases that occurred during the year 2004. Current Accounting Information: A consolidation worksheet for the year ended December 31, 2004 is presented on the next page. The requirements for this problem start on the page after the worksheet. Please note that this worksheet is only presented to you as a source of current financial information and in some perverse way) as a source of comfort: you are not required to complete the worksheet! Pavement uses the Cost Method to account for its investment in Sigur and the Equity Method to account for its investment in Ros Page 4 Consolidated Financial Information (continued) Required: Please determine the best answer for th Financial statements. Write your final answer in the small dark box and, each small box, be sure to include evidence of all that the answer to any question is "zero" or none, must show computations/explanation in the space toile answer. In addition, this documentation is the only way you can eam pa best answer for the following amounts in the December 31, 2004 consolidated al answer in the small dark box and, in the space provided next to sure to include evidence of all calculations and clearly label your work. If you believe any question is "zero" or "none." you must indicate that answer in the small box. You Putations/explanation in the space following each item to receive any credit for your omy way you can earn partial credit! "Sales" "Equity in Ros Earnings" "Cost of Goods Sold" "Interest expense" e. "Depreciation and Amortization expense" 156 Page 5 "Noncontrolling Interest Share of Net Income" "Goodwill" "Net buildings and equipment" "Investment in Sigur" j. "Accounts Payable" "Long-Term Notes Payable" "Noncontrolling Interest" Page 6 le the mts, es an utad 1, m. "Consolidated Net Income". "Net income attributed to the Controlling Interest" "Retained earnings, 12/31/2004" "Other (Income) & Expense" "Dividend Income from Sigur" "inventories" "Inventories" "Patents" "Land" "Accounts receivable and cash