Problem

Pan Corporation purchased an 80 percent interest in Set for $170,000 on January 1, 2011, w...

Pan Corporation purchased an 80 percent interest in Set for $170,000 on January 1, 2011, when Set’s equity was $200,000. The excess of fair value over book value is due to goodwill.

At December 31, 2012, the balance of Pan’s Investment in Set account is $208,000, and the stockholders’ equity of the two corporations is as follows:

 

Pan

Set

Capital stock

$600,000

$150,000

Retained earnings

200,000

100,000

Total

$800,000

$250,000

On January 2, 2013, Set acquires a 10 percent interest in Pan for $80,000. Earnings and dividends for 2013 are:

 

Pan

Set

Separate earnings

$100,000

$40,000

Dividends

50,000

20,000

REQUIRED

1. Compute controlling and noncontrolling interest shares of consolidated net income for 2013 using the conventional approach.


2. Prepare journal entries to account for Pan’s investment in Set for 2013 under the equity method (conventional approach).


3. Prepare journal entries on Set’s books to account for its investment in Pan under the equity method (conventional approach).


4. Compute Pan’s and Set’s net incomes for 2013.


5. Determine the balances of Pan’s and Set’s investment accounts on December 31, 2013.


6. Determine the total stockholders’ equity of Pan and Set on December 31, 2013.


7. Compute the noncontrolling interest in Set on December 31, 2013.


8. Prepare the adjusting and eliminating entries needed to consolidate the financial statements of Pan and Set for the year ended December 31, 2013.

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Solutions For Problems in Chapter 9