Pan Corporation and Subsidiary

Consolidation Workpapers
for the year ended December 31, 2011 (in thousands)

Pan Saf 75% Adjustments & Eliminations

Income Statement
Sales $ 800 $ 200
Income from Saf 27.6 a 27.6
Cost of sales 500* 100*
Other expenses 194* 52* c 11.2
Consolidated Net Income
Noncontrolling share f 9.2
Controlling share of NI $133.6 $ 48

Retained Earnings $360

Retained earnings— Pan
Retained earnings — Saf $68 b 68
Controlling share of NI 133.6 48
Dividends 100* 32* a 24

Retained earnings $393.6 $ 84

December 31
Balance Sheet
Cash $ 106 $30
Accounts receivable 172 40
Dividends receivable 12 e 12
from Saf
Inventories 190 20
Note receivable from Pan 10 d 10
Land 130 60
Buildings— net 340 160
Equipment — net 260 100
a 3.6
Investment in Saf 363.6
b 360
Patents b 112 c 11.2
$1,573.6 $420

Accounts payable $ 170 $ 20

Note payable to Saf 10 d 10
Dividends payable 16 e 12
Capital stock, $10 par 1,000 300 b 300
Retained earnings 393.6 84
$1,573.6 $420
Noncontrolling interest January 1 b 120
Noncontrolling interest December 31 f 1.2
550 550

*Deduct / Kurang
Supporting Calculations

Saf’s value at acquisition

Book value at December 31, 2011 $ 384
Less: 2011 Net income -48
Add: 2011 Dividends 32
Book value on January 1, 2011 $ 368
Fair value of patents 112
Saf’s fair value on January 1, 2011 $ 480

Purchase price (fair value) of Pan’s 75% share $360

Noncontrolling interest (25%) $120

Patents have a ten-year life, so amortization is $11,200 per year.

Saf’s Adjusted Income

Saf’s net income $ 48
Less: Amortization of Patents -11.2
Saf’s adjusted income $ 36.8
Pan’s 75% share $ 27.6
Noncontrolling interest 25% share $ 9.2
 P4-3
sands)

Consolidated Statements

$ 1,000

600*
257.2*
$ 142.8
9.2*
$ 133.6

$360

133.6

$ 393.6

$ 136
212

210

190
500
360

100.8
$1,708.8

$ 190

4
1,000
393.6

121.2
$1,708.8
 Pal Corporation and Subsidiary
Consolidation Workpapers
for the year ended December 31, 2011 (in thousands)

Pal Sun 75% Adjustments & Eliminations

Income Statement
Sales $ 800 $ 200
Income from Sun 36 a 36
Cost of sales 500* 100*
Other expenses 194* 52*
Consolidated Net Income
Noncontrolling share c 12
Controlling share of NI $142 $ 48

Retained Earnings $360

Retained earnings— Pal
Retained earnings — Sun $68 b 68
Controlling share of NI 142 48
Dividends 100* 32* a 24

Retained earnings $402 $ 84

December 31
Balance Sheet
Cash $ 118 $30
Accounts receivable 160 40
Dividends receivable 12 e 12
from Sun
Inventories 190 20
Note receivable from Pal 10 d 10
Land 130 60
Buildings— net 340 160
Equipment — net 260 100
a 12
Investment in Sun 372
b 360
Goodwill b 112
$1,582 $420

Accounts payable $ 170 $ 20

Note payable to Sun 10 d 10
Dividends payable 16 e 12
Capital stock, $10 par 1,000 300 b 300
Retained earnings 402 84
$1,582 $420
Noncontrolling interest January 1 b 120
Noncontrolling interest December 31 c4
 550 550

*Deduct / Kurang

Supporting Calculations

Sun’s value at acquisition

Book value at December 31, 2011 $ 384
Less: 2011 Net income -48
Add: 2011 Dividends 32
Book value on January 1, 2011 $ 368

Purchase price of Pal’s 75% share $ 360

Implied fair value of Sun ($360 / 75%) $ 480
Sun’s book value 368
Excess allocated to Goodwill $ 112
Noncontrolling interest (25% x $480) $ 120

Sun’s Adjusted Income

Sun’s net income $ 48
Less: Amortization of Goodwill 0
Sun’s adjusted income $ 48
Pal’s 75% share $ 36
Noncontrolling interest 25% share $ 12
 P4-4
sands)

Consolidated Statements

$ 1,000

600*
246
$ 154
12*
$142

$360

142

$ 402

$ 148
200

210

190
500
360

112
$1,720

$ 190

4
1,000
402

124
$1,720
Preliminary computations

Allocation of excess fair value over book value

Cost of 70% interest January 1
Implied fair value of Sul ($490,000 / 70%)
Book value of Sul
Excess fair value over book value
Noncontrolling interest – 30% of fair value at acquisition

Excess allocated
Undervalued inventory items sold in 2011
Undervalued buildings (7 year life)
Undervalued equipment (3 year life)
Patents
Remainder to Goodwill
Excess fair value over book value

Calculation of income from Sul

Sul’s net income
Less: Undervalued inventories sold in 2011
Less: Additional Depreciation on building ($14,000/7 years)
Less: Additional Depreciation on equipment ($21,000/3 years)
Less: Patent amortization ($40,000/40 years)
Sul’s adjusted income
Par’s 70% controlling interest share
Noncontrolling interest’s 30% share

Workpaper entries for 2011

a Income from Sul 59,500

Dividends (Sul) 35,000
Investment in Sul 24,500

b Capital stock (Sul) 500,000

Retained earnings (Sul) January 1 100,000
Unamortized excess 100,000
Investment in Sul 490,000
Noncontrolling interest January 1 210,000

c Cost of sales (for inventory items) 5,000

Buildings — net 14,000
Equipment — net 21,000
Patents 40,000
 Goodwill 20,000
Unamortized Excess 100,000

d Depreciation expense 2,000

Buildings — net 2,000

e Depreciation expense 7,000

Equipment — net 7,000

f Other expenses 1,000

Patents 1,000

g Accounts payable 10,000

Accounts receivable 10,000

h Dividends payable 14,000

Dividens receivable 14,000

i Noncontrolling Interest Share 25,500

Dividends — Sul 15,000
Noncontrolling Interest 10,500

Par Corporation and Subsidiary

Consolidation Workpapers
for the year ended December 31, 2011 (in thousands)

Par Sul 75% Adjustments & Eliminations Consolidated Statements

Income Statement
Sales $ 800 $ 700 $ 1,500
Income from Sul 59.5 a 59.5
Cost of sales 300* 400* c5 705*
Depreciation expense 154* 60* d2 223*
e7
Other expenses 160* 140* f1 301*
Consolidated Net Income $ 271
Noncontrolling share i 25.5 25.5*
Controlling share of NI $ 245.5 $ 100 $ 245.5

Retained Earnings $ 300 $ 300

Retained earnings— Par
Retained earnings — Sul $ 100 b 100
Net income 245.5 100 245.5
Dividends 200* 50* a 35
i 15 200*
Retained earnings $ 345.5 $ 150 $ 345.5
December 31
Retained earnings $ 345.5 $ 150 $ 345.5
December 31
Balance Sheet
Cash $ 86 $60 $ 146
Accounts receivable 100 70 g 10 160
Dividends receivable 14 h 14
from Sul
Inventories 150 100 250
Other current assets 70 30 100
Land 130 60 190
Buildings— net 140 160 c 14 d2 312
Equipment — net 260 100 360
a 24.5
Investment in Sul 514.5
b 490
Patents c 40 f1 39
Goodwill c 20 20
Unamortized excess b 100 c 100
$1,694.5 $ 850 $2,091

Accounts payable $ 200 $ 85 g 10 $ 275

Dividends payable 100 20 h 14 106
Other liabilities 49 95 144
Capital stock, $10 par 1,000 500 b 500 1000
Retained earnings 345.5 150 345.5
$1,694.5 $ 850
Noncontrolling interest January 1 b 210
Noncontrolling interest December 31 i 10.5 220.5
919 919 $2,091

*Deduct / Kurang
 P4-5

$ 490,000
$ 700,000
-600,000
$ 100,000
$ 210,000

$ 5,000
14,000
21,000
40,000
20,000
$ 100,000

$ 100,000
-5,000
-2,000
-7,000
-1,000
$ 85,000
$ 59,500
$ 25,500
Supporting computations

Ownership percentage 13,500/15,000 shares = 90%

Investment cost (13,500 shares x $15) $202,500

Implied fair value of Syn ($202,500 / 90%) $225,000
Book value of Syn 165,000
Excess fair value over book value $ 60,000

Excess allocated to
Land $ 20,000
Remainder to patents 40,000
Excess fair value over book value $ 60,000

Income from Syn

Syn’s reported net income $ 24,000
Less: Patent amortization -4,000
Syn’s adjusted income $ 20,000

Pen’s share of Syn’s income (90%) $ 18,000

Noncontrolling interest share (10%) $ 2,000

Investment in Syn December 31, 2012

Cost January 1, 2011 $202,500
Pen’s share of the change in Syn’s retained earnings
($42,000 - $15,000) x 90% 24,300
Less: Pen’s share (90%) of Patent amortization for 2 years -7,200
Investment in Syn December 31 $219,600

Pen Corporation and Subsidiary

Consolidation Workpapers
for the year ended December 31, 2011 (in thousands)

Pen 90% Syn Adjustments & Eliminations Consolidated Statements

Income Statement
Sales $ 400 $ 100 $ 500
Income from Syn 18 a 18
Cost of sales 250* 50* 300*
Other expenses 100.6* 26* c4 130.6*
Consolidated Net Income $ 69.4
Noncontrolling share g2 2*
Controlling share of NI $ 67.4 $ 24 $ 67.4

Retained Earnings $ 177 $ 177

Retained earnings— Pen
Retained Earnings $ 177 $ 177
Retained earnings— Pen
Retained earnings — Syn $ 34 b 34
Net income 67.4 24 67.4
Dividends 50* 16* a 14.4
g 1.6 50*
Retained earnings $ 194.4 $ 42 $ 194.4
December 31
Balance Sheet
Cash $ 18 $ 15 $ 33
Accounts receivable 80 20 f5 95
Dividends receivable 7.2 d 7.2
from Syn
Inventories 95 10 105
Note receivable — Pen 5 e5
Investment in Syn 219.6 a 3.6
b 216
Land 65 30 b 20 115
Buildings— net 170 80 250
Equipment — net 130 50 180
b 36 c4 32
Patents
$ 784.8 $ 210 $ 810
Accounts payable $ 85.4 $ 10 f5 $ 90.4
Note payable to Syn 5 e5
Dividends payable 8 d 7.2 0.8
Capital stock 500 150 b 150 500
Retained earnings 194.4 42 194.4
$ 784.8 $ 210
Noncontrolling interest January 1 b 24
Noncontrolling interest December 31 g 0.4 24.4
281.2 281.2 $ 810

*Deduct / Kurang
P4-6