Q1

On 1/1/2014, Phillip incorporation invested $650,000 in Shelter incorporation (100% owned). For 2014, Shelter incorporation:

(1) Earned $90,000,

(2) Declared dividends of $60,000, and

(3) Paid dividends of $40,000.

What amounts does Phillip incorporation report for the following?

Cost Method Equity method

Investment income for 2014 ____________ ___________

Investment in Shelter Inc. at year-end ____________ ___________

Retained earnings increase ____________ ___________

Q2. Without consolidated statements, it is often very difficult for an investor to gain an understanding of the total resources controlled by a company. A consolidated balance sheet provides a much better picture of both the total assets under the control of the parent company and the financing used in providing those resources. Similarly, the consolidated income statement provides a better picture of the total revenue generated and the costs incurred in generating the revenue. Estimates of future profit potential and the ability to meet anticipated funds flows often can be more easily assessed by analyzing the consolidated statements. Consolidated financial statements are required by GAAP in certain circumstances. This information can be very useful to stockholders and creditors. Yet, there are some limitations to these financial statements for which the users must be aware. Refer to some of the consolidated financial statements of companies and discuss what are the limitations that can you think of consolidated financial statements?

Q3.

On July 1, 2015, Link Corporation paid $340,000 for all of Tinsel Company's outstanding common stock. On that date, the costs and fair values of Tinsel's recorded assets and liabilities were as follows:

Based on the above information you are required

1. To calculate the differential reflected in a consolidation worksheet to prepare a consolidated balance sheet immediately after the business combination.

2. To calculate what amount should be allocated to goodwill in the consolidated balance sheet, prepared after this business combination.

Q4. In reading a set of consolidated financial statements you are surprised to see the term noncontrolling interest not reported under the Liability section of the Balance Sheet so do think by the a non-controlling interest and Why must it be reported in the financial statements as an element of equity rather than a liability?

Fair Value Cash and Receivables Inventory Buildings and Equipment (net) Liabilities Net assets $50,000 125,000 240,000 (100,000)(100,000) $270,000 $315,000 Cost $50,000 120,000 200,000