Power Corporation acquired 80% of Snyder Company

Advanced Accounting Project

Power Corporation acquired 80% of Snyder Company’s 1,250 shares of outstanding $100 par common stock on July 1, 2012 for $158,600. The excess of the current fair value of Snyder’s identifiable net assets over the carrying amounts on July 1, 2012, was attributable as follows:

To inventories (fifo) $3,000

To equipment

(five year remaining life) 4,000

In addition, on July 1, 2012, Power acquired in the open market for $37,000, $39,000 of Snyder Company’s 6% bonds payable at a yield of 7%. Interest is payable by Snyder each June 30 and

December 31.

Separate financial statements for Power Corporation and Snyder Company for the periods ended December 31, 2012, were as follows:

Power Snyder

(year ended (six months

12/31/2012) ended 12/31/2012)

Revenue:

Net Sales $961,905 $505,000

Interest Revenue 1,295

Income of Subsidiary 16,000 _______

$979,200 $505,000

Cost/Expenses/Losses:

Cost of Goods Sold $770,000 $384,000

Operating Expenses 124,140 98,450

Interest Expense 2,550

Loss on Sale of Equipment 2,000 _______

$896,140 $485,000

Net Income $83,060 $20,000

Retained Earnings, Beginning of Period $220,000 $50,000

Add: Net Income 83,060 20,000

Subtotal $303,060 $70,000

Less: Dividends Declared 36,000 9,000

Retained Earnings, End of Period $267,060 $61,000

Assets

Intercompany Accounts Receivable $100

Inventory (fifo) 300,000 $75,000

Investment in Snyder Stock 167,400

Investment in Snyder Bonds 37,125

Plant Assets 794,000 280,600

Accumulated Depreciation on Plant Assets (260,000) (30,000)

Other Assets 613,775 73,400

Total Assets $1,652,400 $399,000

Liabilities and Equity

Intercompany Accounts Payable $100

Bonds Payable $600,000 85,000

Other Liabilities 376,340 115,900

Common Stock, $100 par 360,000 125,000

Excess Paid In Capital 49,000 12,000

Retained Earnings 267,060 61,000

Total Liabilities and Equity $1,652,400 $399,000

Additional Information:

1. During 2012 Power sold to Snyder inventory for $50,000 that had cost Power $40,000. Snyder held $18,000 of this purchase in inventory at the end of the year.
2. During 2012 Snyder sold to Power inventory for $100,000 that had cost Snyder $85,000. Power held $25,000 of this purchase in inventory at the end of the year.
3. On October 1, 2012, Power had sold to Snyder for $10,000 equipment having a carrying amount of $12,000 on that date. Snyder established a five-year remaining economic life, no residual value, and the straight-line method of depreciation for the equipment. Snyder includes depreciation expense in operating expenses.
4. Goodwill was unimpaired as of December 31, 2012.

Required:

1. Prepare the journal entries for Power to acquire the ownership in Snyder and prepare the entries made by Power under the simple equity method. Prove that the ending amounts for the investment account and the income of subsidiary account are correct as shown in the financial statements.
2. Prepare a working paper for a consolidated income statement, statement of retained earnings, for the year ending December 31, 2012 and a consolidated balance sheet as of December 31, 2012. You will need to convert the financial statements given into trial balances for the worksheet – meaning that the beginning retained earnings should be shown on the trial balance together with all asset, liability, equity, revenue, expense, and dividend accounts – as though the books had not been closed.
3. Prepare the consolidated income statement for the year ending December 31, 2012 and the consolidated balance sheet as of December 31, 2012.