Paroz Corporation acquired a 70% interest in Sandberg
Corporation for $900,000 when Sandberg’s stockholders’ equity
consisted of $600,000 of Capital Stock and $600,000 of Retained
Earnings. The fair values of Sandberg’s net assets were equal
to their recorded book values. At the time of acquisition,
Pratt will record:
a. Goodwill for $60,000 under the parent company theory.
b. Goodwill for $85,714 under the entity theory.
c. Investment in Sandberg for $1,285,714 under the entity
d. Investment in Sandberg for $900,000 under the entity and
parent company theories.
Use the following information for Questions 4, 5, and 6.
Pascoe Corporation paid $450,000 for a 90% interest in Sarabet
Corporation on January 1, 2005, when Sarabet’s stockholders’ equity
consisted of $250,000 Common Stock and $50,000 Retained Earnings. The
book values and fair values of Shelby’s assets and liabilities were
equal when Pascoe acquired its interest.
The separate incomes of Pascoe and Sarabet for 2005 were $600,000 and
$100,000, respectively. Dividends declared and paid during 2005 were
$250,000 for Pascoe and $50,000 for Sarabet. Pascoe uses the entity
theory in consolidating its financial statements with those of
Goodwill will be reported in the December 31, 2005 consolidated
balance sheet at:
Minority interest income will be reported in the 2005
consolidated income statement at:
a. $ 5,000.
b. $ 6,000.
c. $ 8,000.