Problem 5 Santa Corporation is 90 percent owned subsidiary of Panta Corporation, acquired by Panta on January 1, 20X1 for $270,000 when Santas common stock and retained earnings were $100,000 and $150,000 respectively. All book values of Santas 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 Santa sold to Panta $60,000 $ 80,000 $16,000

20X2 Santa sold to Panta 80,000 100,000 15,000

------------------------------------------------------------------------------------------------------------

During 20X1 Santa sold an equipment with book value of $20,000 to Panta for $30,000. The remaining life of the equipment is 5 years.

----------------------------------------------------------------------------------------------------------------- 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 43,200

Cost of Sales (200,000) ( 90,000)

Other expenses ( 67,000) (10,000)

Net Income $ 76,200 $ 50,000

Dividend 0 0

Balance Sheet item (December 31, 20X2):

Investment in Santa $324,900

Required:

5. What is the net value of equipment reported in 20X1 consolidated balance sheet? $_________________.

6. What is the net value of equipment reported in 20X2 consolidated balance sheet? $_________________.

7. Verify the amount of Income from Santa for $43,200.

8. Unrealized profit in Santas beginning inventory is : $_________________.