Problem 1

On January 1, 2015, Pub Corporation made a significant acquisition, purchasing 75 percent of Sub Corporation's outstanding voting stock for a total of $4,200,000. Sub Corporation's stockholders' equity at that time was made up of the following components (all values in thousands):

Capital stock with a par value of $10:	$2,000
Additional paid-in capital:	$1,200
Retained earnings as of December 31, 2014:	$1,500
Total stockholders' equity:	$4,700

The surplus fair value of the net assets obtained from this acquisition was allocated as follows: 10 percent to underappreciated inventory (which was subsequently sold in 2015), 40 percent to underappreciated plant assets with a remaining useful life of eight years, and the remaining 50 percent to goodwill.

Fast forward to December 31, 2019, and we have the comparative trial balances for both Pub Corporation and Sub Corporation.

	Pub	Sub
Other assets - net	$5,845	$4,500
Investment in Sub - 75%	3,640	-
Expenses (including cost of sales)	5,285	800
Dividends	600	300
	$15,370	$5,600
Capital stock, $10 par	$4,000	$2,000
Additional paid-in capital	850	1,200
Retained earnings	2,670	1,500
Sales	7,380	900
Income from Sub	470	-
	$15,370	$5,600

R E Q U I R E D:

Make sure to prepare income statement for a simple group. Outline the treatment of non-controlling interest in consolidated statement of comprehensive income. Record for inter-group trading activities and the impairment of goodwill in the preparation of consolidated financial statements, with emphasis on the consolidated income statement.

Determine the amounts that would appear in the consolidated financial statements of Pub Corporation and Sub for each of the following:

1. Goodwill at December 31, 2019

2. Non-controlling interest share for 2019

3. Consolidated retained earnings at December 31, 2018

4. Consolidated retained earnings at December 31, 2019

5. Consolidated net income for 2019

6. Non-controlling interest at December 31, 2018

7. Non-controlling interest at December 31, 2019

Problem 2

Comparative income statements of Samba Corporation for the calendar years 2017, 2018, and 2019 are as follows (in thousands):

	2017	2018	2019
Sales	$14,000	$16,250	$16,850
Cost of Sales	8,100	8,900	9,100
Gross Profit	5,900	7,150	7,750
Operating Expenses	4,700	5,500	6,000
Net Income	1,200	1,650	1,750

ADDITIONAL INFORMATION

1. Samba was a 75 percent-owned subsidiary of Pamba Corporation throughout the 2017- 2019 period. Pamba's separate income (excludes income from Samba) was $6,400,000, $5,600,000, and $7,000,000 in 2017, 2018, and 2019, respectively. Pamba acquired its interest in Samba at its underlying book value, which was equal to fair value on July 1, 2016.

2. Pamba sold inventory items to Samba during 2017 at a gross profit to Pamba of $650,000. Half the merchandise remained in Samba's inventory at December 31, 2017. Total sales by Pamba to Samba in 2017 were $1,600,000. The remaining merchandise was sold by Samba in 2018.

3. Pamba's inventory at December 31, 2018, included items acquired from Samba on which Samba made a profit of $350,000. Total sales by Samba to Pamba during 2018 were $1,400,000.

4. There were no unrealized profits in the December 31, 2019, inventories of either Samba or Pamba.

5. Pamba uses the equity method of accounting for its investment in Samba.

REQUIRED

Make sure to prepare income statement for a simple group. Outline the treatment of non-controlling interest in consolidated statement of comprehensive income. Record for inter-group trading activities and the impairment of goodwill in the preparation of consolidated financial statements, with emphasis on the consolidated income statement.

1. Prepare schedule showing Pamba's income from Samba for the years 2017, 2018, and 2019.

2. Compute Pamba's net income for the years 2017, 2018, and 2019.

3. Prepare schedule of consolidated net income for Pamba Corporation and Subsidiary for the years 2017, 2018, and 2019, beginning with the separate incomes of the two affiliates and including noncontrolling interest computations.