(Preparation of a consolidated balance sheet on the date a subsidiary is purchased when less than 100% of the subsidiary is purchased, LO 1) On October 31, 2006, Pahonan Inc. (Pahonan) purchased 75% of the common shares of Seebe Ltd. (Seebe) for $1,500,000. Pahonan’s and Seebe’s balance sheets on October 31, 2006 just before the purchase were:

Management determined that the fair values of Seebe’s assets and liabilities were as follows:

Required

a. Prepare the journal entry that Pahonan would prepare to record its purchase of Seebe’s shares.

b. Prepare the journal entry that Seebe would prepare to record its purchase by Pahonan.

c. Calculate the amount of goodwill that would be reported on Pahonan’s consolidated balance sheet on October 31, 2006.

d. Calculate the amount of non-controlling interest that would be reported on the consolidated balance sheet on October 31, 2006.

e. Prepare Pahonan’s consolidated balance sheet on October 31, 2006.

f. Calculate the current ratios and debt-to-equity ratios for Pahonan and Seebe, and for the consolidated balance sheet. Interpret the differences between the ratios.
g. Explain what the non-controlling interest on the balance sheet represents.
How would you interpret it from the perspective of a shareholder of Pahonan?
How would you interpret it from the perspective of a shareholder in Seebe?
How would you interpret it from the perspective of a lender?

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Current assets Capital assets Balance Sheets As of October 31, 2006 Pahonan Inc. $2,000,000 6,875,000 $8,875,000 $ 600,000 3,000,000 Seebe Ltd. $2,250,000 750,000 $3,000,000 $ 750,000 250,000 Total assets Current liabilities Non-current liabilities Capital stock Retained earnings 1,525,000 500,000 Total liabilities and shareholders' equity $5,875,000 $3,000,000 3,750,000 1,500,000