CPA Objective, equipment, merchandise, bonds. The problem below is an example of a question of the CPA ‘‘Other Objective Format’’ type as it was applied to the consolidations area. A mark-sensing answer sheet was used on the exam. You may just supply the answer, which should be accompanied by calculations where appropriate.
Presented below are selected amounts from the separate unconsolidated financial statements of Pero Corporation and its 90%-owned subsidiary Sean Company at December 31, 2016.
Additional information follows:
1. On January 2, 2016, Pero purchased 90% of Sean’s 100,000 outstanding common stock for cash of $175,000. On that date, Sean’s stockholders’ equity equaled $150,000, and the fair values of Sean’s assets and liabilities equaled their carrying amounts. Any remaining excess is considered to be goodwill.
2. On September 4, 2016, Sean paid cash dividends of $30,000.
3. On December 31, 2016, Pero recorded its equity in Sean’s earnings.
1. Items (a) through (c) on page 311 represent transactions between Pero and Sean during 2016. Determine the dollar amount effect of the consolidating adjustment on 2016 consolidated net income. Ignore income tax considerations.