15. Briefly explain, what are the consolidated financial statements, and how is the consolidation
accomplished?
16. McDuff Company owns 100 percent of the stock of Goode Company. The separate income statements
for the two companies for the year ended December 31, 2010, are as follows:
McDuff Company
Goode Company
Sales
$800,000
$500,000
Cost of goods sold
650,000
396,000
Gross margin
$150,000
$104,000
Operating expenses, including rent
(86,000)
(48,000)
Rental revenue
$ 56,000
—
Income taxes expense
(44,000)
(22,000)
Net income
$ 76,000
$ 34,000
McDuff Company sold merchandise to Goode Company for $120,000, which in turn was sold by
Goode Company to its customers. Goode Company paid rentals of $18,000 to McDuff Company on a
long-term lease. Using the partially completed form that follows, prepare a consolidated income
statement for the year ended December 31, 2010.
Sales
Cost of goods sold
Gross margin
Operating expenses
Rental revenue
Income taxes expense
Net income
Cost of goods sold
17. Nate Lobell is the president and sole owner of Gal’s Pal Apparel, Inc. Gal’s Pal has two wholly owned
subsidiaries with which it occasionally transacts business. Nate has been trying to get the consolidated
net income of Gal’s Pal above the $1,000,000 mark so that he can qualify for a line of credit with his
bank. This year Gal’s Pal is on track to earn approximately $700,000 after all costs and expenses.
Likewise, each subsidiary should have roughly $200,000 in net earnings by year end. Approximately
20 percent of the net earnings of Gal’s Pal will come as a result of sales to the subsidiaries, which in
turn sold the items to customers for a similar amount of profit. Nate is elated to learn that the expected
total earnings of the three companies added together will exceed his $1,000,000 goal. Assuming the
businesses finish the year as expected, discuss the result of Nate’s request for a line of credit.
18. In the journal provided, prepare the entries for the transactions described below. (Omit explanations.)
May
5
Purchased 120-day Treasury bills for $78,000. This investment will be
held to maturity.
Sept.
2
Treasury bills matured; $80,000 received. (No prior entries were made to
recognize revenue.)
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
19. In the journal provided, prepare the entries for the transactions described below. (Omit explanations.)
Mar.
17
Purchased 90-day Treasury bills for $11,850. This investment will be held to
maturity.
June
15
Treasury bills matured; $12,000 received. (No prior entries were made to
recognize revenue.)
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
Cash
Sept.
Cash
20. On November 19, 2009, Lassen Company purchased 30,000 shares of JCN Corporation stock for
$480,000, and 10,000 shares of Canoga Corporation stock for $250,000. Lassen’s management intends
to hold all 40,000 shares for a short period of time. On December 31, 2009, the price of JCN’s stock
was $13 per share, and the price of the Canoga stock was $30 per share. Finally, on January 27, 2010,
Lassen sold all 10,000 shares of Canoga stock for $320,000. In the journal provided below, prepare
Lassen’s entries for November 19, December 31, and January 27.
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
Credit
Nov.
Short-Term Investments
21. Using the journal provided, enter the following transactions for LaPana Corporation for 2009 and
2010. Please provide all explanations.
2009
Aug.
13
Purchased 1,000 shares of Casper Corporation stock for $30,000. These
securities were purchased primarily for trading purposes.
Oct.
5
Purchased 4,000 shares of Tally Corporation stock for $68,000. These
securities were purchased primarily for trading purposes.
Nov.
1
Invested $98,000 in 120-day U.S. Treasury bills that have a maturity value
of $100,000.
Dec.
31
The market value of the Casper Corporation shares is $31,000, and the
market value of the Tally Corporation stock is $63,000. A year-end
adjustment is made.
31
A year-end adjustment is made for accrued interest on the Treasury bills.
2010
Mar.
1
Received maturity value of U.S. Treasury bills in cash.
Apr.
14
Sold all 1,000 shares of Casper Corporation stock for $30,800.
Sept.
22
Received dividends of $1 per share from Tally Corporation.
Dec.
31
The market value of the Tally Corporation shares is $70,000. A year-end
adjustment is made.
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
22. The following transactions and information pertain to Lazar Corporation for 2009 and 2010.
2009
May
1
Purchased 3,000 shares of Ross Corporation common stock at $20 per share
(representing 5 percent of Ross’s total outstanding stock) as a long-term
investment.
Sept.
1
Received a cash dividend from Ross equal to $.60 per share.
Dec.
31
Market value of Ross stock at year end was $18 per share.
2010
Sept.
1
Received a cash dividend from Ross equal to $.50 per share.
Nov.
1
Sold 400 shares of Ross at $19 per share.
Dec.
31
Market value of Ross stock at year end was $17 per share.
Prepare entries in journal form, without explanations, to record the above. Lazar’s accounting year
ends December 31.
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
Cash
23. The following transactions and information pertain to Yates Corporation for 2009 and 2010.
2009
May
1
Purchased 3,000 shares of Templin Corporation common stock at $32 per share
representing 2 percent of Templin’s total outstanding stock) as a long-term
investment.
Sept.
1
Received a cash dividend from Templin equal to $1.40 per share.
Dec.
31
Market value of Templin stock at year end was $24 per share.
2010
Sept.
1
Received a cash dividend from Templin equal to $1.40 per share.
Nov.
1
Sold 300 shares of Templin at $26 per share.
Dec.
31
Market value of Templin stock at year end was $22 per share.
Prepare entries in journal form, without explanations, to record the above. Yates’s accounting year
ends December 31.
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
24. Barker Company purchased 100 percent of Coll Company for $130,000. The balance sheets for the
two companies are provided below. Complete the work sheet by providing the figures for the
Eliminations columns and the Consolidated Balance Sheet column.
Accounts
Balance Sheet,
Barker
Company
Balance Sheet,
Coll Company
Eliminations
Consolidated
Balance Sheet
Debit
Credit
Cash
Cash
60,000
30,000
Investment in Coll
Company
130,000
—
Plant and
equipment
240,000
135,000
Total assets
430,000
165,000
Liabilities
180,000
35,000
Common stock
150,000
90,000
Retained
earnings
100,000
40,000
Total liabilities
and stockholders’
equity
430,000
165,000
25. Ming Company purchased 100 percent of Savran Company for $94,000. Of the excess of cost over
book value, $15,000 was attributed to Savran’s undervalued plant and equipment. The rest was
attributed to the general strength of the company. Complete the following work sheet by providing the
figures for the Eliminations columns and the Consolidated Balance Sheet column.
Cash
Investment in
Coll Company
Total assets
Liabilities
Retained
earnings
(1)
100,000
Accounts
Balance Sheet,
Ming
Company
Balance Sheet,
Savran
Company
Eliminations
Consolidated
Balance Sheet
Debit
Credit
Cash
56,000
24,000
Investment in
Savran Company
94,000
—
Plant and
equipment
160,000
64,000
Goodwill
—
—
Total assets
310,000
88,000
Liabilities
108,000
26,000
Common stock
96,000
40,000
Retained
earnings
106,000
22,000
Total liabilities
and stockholders’
equity
310,000
88,000
Cash
Liabilities
26. Rosche Company purchased 75 percent of Grubbs Company for $78,000. Complete the following
work sheet by providing the figures for the Eliminations columns and the Consolidated Balance Sheet
column.
Accounts
Balance Sheet,
Rosche
Company
Balance Sheet,
Grubbs Company
Eliminations
Consolidated
Balance Sheet
Debit
Credit
Cash
36,000
20,000
Investment in
Grubbs Company
78,000
—
Plant and
equipment
222,000
108,000
Total assets
336,000
128,000
Liabilities
92,000
24,000
Common stock
120,000
84,000
Retained
earnings
124,000
20,000
Minority interest
—
—
Total liabilities
and stockholders’
equity
336,000
128,000
27. Burr Company purchased 70 percent of Oswald Company for $71,400. Complete the following work
sheet by providing the figures for the Eliminations columns and the Consolidated Balance Sheet
column.
Accounts
Balance Sheet,
Burr Company
Balance Sheet,
Oswald
Company
Eliminations
Consolidated
Balance
Sheet
Debit
Credit
Cash
40,800
18,000
Investment in
Oswald Company
71,400
—
Plant and equipment
228,000
108,000
Total assets
340,200
126,000
Liabilities
92,000
24,000
Common stock
120,000
72,000
Retained
earnings
128,200
30,000
Minority interest
—
—
Total liabilities and
stockholders’ equity
340,200
126,000
28. Sugar Company owns 100 percent of the stock of Spice Company. The separate income statements for
the two companies for the year ended December 31, 2010, are provided below. Sugar Company sold a
product to Spice Company for $28,000, and Spice Company sold it to a customer for $40,000. Spice
paid Sugar $3,000 interest on a loan from Sugar. Complete the work sheet by providing the amounts
for the Eliminations columns and the Consolidated Income Statement column.
Accounts
Income
Statement,
Sugar
Company
Income
Statement,
Spice
Company
Eliminations
Consolidated
Income
Statement
Debit
Credit
Sales
260,000
140,000
Other revenues
37,000
8,000
Total revenues
297,000
148,000
Cost of goods sold
117,000
85,000
Other expenses
90,000
23,000
Total costs and
expenses
207,000
108,000
Net income
90,000
40,000