CH05SMF

CHAPTER 5 CONSOLIDATION FOLLOWING ACQUISITION
ANSWERS TO QUESTIONS Q5-1 Additional entries are needed to eliminate all income statement and retained earnings statement effects of intercorporate ownership and any transfers of goods and services between related companies. Q5-2 Separate parts of the consolidation workpaper are used to develop the consolidated income statement, retained earnings statement, and balance sheet. All eliminating entries needed to complete the entire workpaper normally are entered before any of the three statements are prepared. The income statement portion of the workpaper is completed first so that net income can be carried forward to the retained earnings statement portion of the workpaper. When the retained earnings portion is completed, the ending balances are carried forward and entered in the consolidated balance sheet portion of the workpaper. Q5-3 Income assigned to noncontrolling shareholders in the consolidated income statement is based on the reported net income of the subsidiary. As illustrated in the chapters that follow, when a subsidiary has recorded profit on a transaction with a related company, the income assigned to noncontrolling shareholders must be adjusted for the effects of any unrealized profits as well. Q5-4 None of the dividends declared by the subsidiary are included in the consolidated retained earnings statement. Those which are paid to the parent have not gone outside the consolidated entity and therefore must be eliminated in preparing the consolidated statements. Those paid to noncontrolling shareholders are treated as a reduction in the net assets assigned to noncontrolling interest and also must be eliminated. Q5-5 All the revenue and expenses of the subsidiary resulting from transactions with nonaffiliates are included in the consolidated income statement under current reporting practice. As a result, all the subsidiary's realized income is included in the consolidated income statement. Because consolidated net income includes only income assigned to the shareholders of the parent company, that portion of the income of the subsidiary assigned to the noncontrolling shareholders must be deducted in arriving at consolidated net income. Q5-6 Consolidated net income is that portion of the income enterprise assigned to the shareholders of the parent company. of the total
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002
Q5-7 Revenue and expenses of the acquired company generally are included for the entire period even though the parent has purchased ownership sometime during the year. Because consolidated net income can include only an appropriate portion of the earnings subsequent to the date of acquisition, both the income assigned to those noncontrolling shareholders that remain at the end of the period and the earnings from the start of the year to the date of acquisition on the shares purchased must be deducted in computing consolidated net income. The amount treated as preacquisition income is computed by multiplying the proportion of ownership acquired times the earnings between the start of the period and the date of acquisition. Q5-8 Consolidated net income is computed by deducting income noncontrolling interests from consolidated revenues less expenses. assigned to
Q5-9 Consolidated retained earnings is defined in current accounting practice as that portion of the undistributed earnings of the consolidated entity assignable to the parent company shareholders. Q5-10 Consolidated retained earnings includes the parents retained earnings from its own operations (i.e., excluding any income from consolidated subsidiaries recognized by the parent) and the parents proportionate share of the net income of each subsidiary since the date of acquisition, adjusted for differential write-off. Q5-11 The retained earnings statement shows the increase or decrease in retained earnings during the period. Thus, net income for the period is added to the beginning balance and dividends are deducted in deriving the ending balance in retained earnings. Because the consolidation workpaper includes the retained earnings statement, the beginning retained earnings balance must be entered in the workpaper. Q5-12 An additional eliminating entry normally must be entered in the workpaper to expense an appropriate portion of the amount assigned to buildings and equipment. Normally depreciation expense is debited and accumulated depreciation is credited. Q5-13 The differential is simply a clearing account used in the consolidation process. If the differential arises because the fair value of land held by the subsidiary is greater than book value, the amount assigned to the differential will remain constant so long as the subsidiary continues to hold the land. When the differential arises because the fair value of depreciable or amortizable assets is greater than book value, the amount debited to the differential account each period will decrease as the parent amortizes an appropriate portion of the differential against investment income. Q5-14 Other comprehensive income elements reported by a subsidiary must be reported as other comprehensive income in the consolidated financial statements. If the subsidiary is not wholly owned, the noncontrolling interest's portion of the subsidiary's other comprehensive income (loss) will be deducted (added) in determining the amount reported as consolidated comprehensive income.
Q5-15* In the period in which the land is sold, the gain or loss recorded by the subsidiary must be adjusted by the amount of the differential assigned to land. When the differential is apportioned in the eliminating entries at the end of the period, a debit will be made to the gain or loss on sale of land recorded by the subsidiary. Q5-16A When the cost method is used, income reported by the parent and the resulting balance in the investment account do not reflect undistributed earnings of the subsidiary following the date of acquisition. Because these account balances are different under the cost and equity methods, a different set of eliminating entries must be used. The major change in eliminating entries when the cost method is adopted is that a portion of the subsidiary retained earnings is carried forward to the consolidated total. The carryforward is needed because the parents retained earnings does not include its portion of undistributed subsidiary earnings following the acquisition, and therefore is less than consolidated retained earnings.
SOLUTIONS TO CASES C5-1 Consolidation Workpaper Preparation
a. If the parent company is using the equity method and both the equity-method entries and the consolidation entries have been properly prepared, consolidated net income should equal parent company income. These two amounts can be easily checked in the income statement portion of the consolidation workpaper. b. It should be possible to tell if the preparer has included the parent's proportionate share of the subsidiary's reported income in computing consolidated net income. It is not possible to tell from looking at the workpaper alone whether or not all the adjustments that should have been made for amortization of the differential or to eliminate unrealized profits have been properly treated in computing the consolidated net income. c. If the parent paid more than the fair value of the subsidiarys net assets, the eliminating entries relating to that subsidiary should show amounts assigned to individual asset accounts for fair value adjustments and to goodwill when the investment account balance is eliminated. It should be relatively easy to determine if this has occurred by examining the consolidation workpaper.
d. In the entry to eliminate the stockholders' equity section of the subsidiary at the start of the period, the parent's investment account normally is credited for its percentage of subsidiary stockholders' equity plus any unamortized purchase differential and noncontrolling shareholders are credited for their percentage of subsidiary's stockholders' equity. The credit to noncontrolling interest in this entry divided by total subsidiary stockholders' equity should give the percentage held by noncontrolling interest. In addition, if the income assigned to noncontrolling interest is not adjusted for unrealized profits, it is possible to determine the ownership percentage held by the noncontrolling shareholders by dividing income assigned to noncontrolling interest by the reported net income of the subsidiary.
C5-2
Elimination Procedures
a. The eliminating entries are recorded only in the consolidation workpaper and therefore do not change the balances recorded on the companies' books. Each time consolidated statements are prepared the balances reported on the companies' books serve as the starting point. Thus, all the necessary eliminating entries must be entered in the consolidation workpaper each time consolidated statements are prepared.
b. The balance assigned to the noncontrolling shareholders at the beginning of the period is based on the book value of the net assets of the subsidiary at that date and is recorded in the workpaper in the entry to eliminate the beginning stockholders' equity balances of the subsidiary and the investment account balance of the parent. c. In the consolidation workpaper the ending balance assigned to noncontrolling interest is derived by crediting noncontrolling interest for the starting balance, as indicated in the preceding question, and then adding income assigned to the noncontrolling interest in the consolidated income statement and deducting a pro rata portion of subsidiary dividends declared during the period.
d. All the stockholders' equity account balances of the subsidiary must be eliminated each time consolidated statements are prepared.
e. The "investment in subsidiary" and "income from subsidiary" accounts must be eliminated each time a full set of consolidated statements is prepared.
C5-3
Treatment of Differential
The answers for this case can be found in Form 10-K and other forms filed with the SEC by each company and available on the SEC's EDGAR database (www.sec.gov). 1. a. Union Pacific purchase. accounted for its acquisition of Southern Pacific as a
b. Union Pacific does not have to assign an amount to goodwill from the Southern Pacific acquisition because the total purchase price was assigned by Union Pacific to identifiable assets and liabilities of Southern Pacific and none to goodwill.
2. During 1998, Union Pacific changed its method of measuring an impairment of enterprise-level goodwill from an undiscounted cash flow method to one based on discounted cash flows. In connection with the change in accounting policy with respect to measurement of goodwill impairment, Overnite recorded a $547 million charge ($2.22 per share) for a revaluation of goodwill in 1998. The goodwill was related to the acquisition of Overnite by Union Pacific in 1986.
3. No goodwill related to Ciscos acquisition of ArrowPoint was recorded because the acquisition was treated as a pooling of interest. The total purchase price of Monterey Networks was $517 million. Of the total purchase price, $354 million was assigned to in-process research and development. For financial reporting, all of the amount assigned to in-process research and development was expensed. The reason companies give for doing this is that the FASB requires research and development costs to be expensed as incurred, although whether or not the FASBs requirement applies to in-process research and development acquired in a business combination is not clear. In general, companies prefer to expense immediately such costs as those of in-process research and development acquired in a business combination rather than having to amortize them as reductions in the income of future periods. Monterey Networks was obviously not acquired for its tangible assets given that $354 million of the purchase price was assigned to in-process research and development and another $154 million was assigned to goodwill and other intangibles.
SOLUTIONS TO EXERCISES E5-1 1. 2. 3. 4. b c a c Multiple-Choice Questions on Consolidation [AICPA Adapted]
E5-2 1. 2. 3. 4. 5. a d c c b
Multiple-Choice Questions on Consolidation
[AICPA Adapted]
($1,700,000 - $1,300,000) $975,000 - [($1,000,000 + $100,000) x .80] ($1,000,000 + $190,000 - $125,000) x .20
E5-3 a.
Consolidation Entries for Wholly-Owned Subsidiary Journal entries recorded by Trim Corporation: (1) Investment in Round Corporation Stock Cash Record investment. Investment in Round Corporation Stock Income from Subsidiary Record equity-method income. Cash Investment in Round Corporation Stock Record dividends from Round Corporation. 400,000 400,000 80,000 80,000 25,000 25,000
(2)
(3)
E5-3 b.
(continued) Eliminating entries:
E(1)
Income from Subsidiary Dividends Declared Investment in Round Corporation Stock Eliminate income from subsidiary. Common Stock--Round Corporation Retained Earnings, January 1 Investment in Round Corporation Stock Eliminate beginning investment balance.
80,000 25,000 55,000 120,000 280,000 400,000
E(2)
E5-4 a.
Consolidation Entries for Majority-Owned Subsidiary Journal entries recorded by Trim Corporation: (1) Investment in Round Corporation Stock Cash Record investment. Investment in Round Corporation Stock Income from Subsidiary Record equity-method income. Cash Investment in Round Corporation Stock Record dividends from Round Corporation. 300,000 300,000 60,000 60,000 18,750 18,750
(2)
(3)
b.
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Round Corporation Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock--Round Corporation Retained Earnings, January 1 Investment in Round Corporation Stock Noncontrolling Interest Eliminate beginning investment balance. 60,000 18,750 41,250 20,000 6,250 13,750
E(2)
E(3)
120,000 280,000 300,000 100,000
E5-5 a.
Basic Consolidation Entries for Fully-Owned Subsidiary Journal entries recorded by Purple Company: (1) Investment in Amber Corporation Stock Cash Record investment. Investment in Amber Corporation Stock Income from Subsidiary Record equity-method income. Cash Investment in Amber Corporation Stock Record dividends from Amber Corporation. 500,000 500,000
(2)
50,000 50,000
(3)
20,000 20,000
b.
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Amber Corporation Stock Eliminate income from subsidiary. Common Stock--Amber Corporation Retained Earnings, January 1 Investment in Amber Corporation Stock Eliminate beginning investment balance. 50,000 20,000 30,000
E(2)
300,000 200,000 500,000
E5-6 a.
Basic Consolidation Entries for Majority-Owned Subsidiary Journal entries recorded by Horrigan Corporation: (1) Investment in Farmstead Company Stock Cash Record purchase of Farmstead Company Stock. Investment in Farmstead Company Stock Income from Subsidiary Record equity-method income. Cash Investment in Farmstead Company Stock Record dividends from Farmstead Company. 210,000 210,000
(2)
14,000 14,000 3,500 3,500
(3)
b.
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Farmstead Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock--Farmstead Company Retained Earnings, January 1 Investment in Farmstead Company Stock Noncontrolling Interest Eliminate beginning investment balance. 14,000 3,500 10,500
E(2)
6,000 1,500 4,500 100,000 200,000 210,000 90,000
E(3)
E5-7 a.
Wholly-Owned Subsidiary with Differential Journal entries recorded by Winston Corporation: (1) Investment in Canton Corporation Stock Cash Record investment. Investment in Canton Corporation Stock Income from Subsidiary Record equity-method income. Cash Investment in Canton Corporation Stock Record dividends from Canton Corporation. (4) Income from Subsidiary 4,000 Investment in Canton Corporation Stock Amortize differential assigned to equipment: $4,000 = $28,000 / 7 years 178,000 178,000
(2)
30,000 30,000
(3)
12,000 12,000
4,000
b.
Eliminating entries December 31, 20X3: E(1) Income from Subsidiary Dividends Declared Investment in Canton Corporation Stock Eliminate income from subsidiary. Common Stock--Canton Corporation Retained Earnings, January 1 Differential Investment in Canton Corporation Stock Eliminate beginning investment balance. Equipment Differential Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential related to equipment. 26,000 12,000 14,000
E(2)
60,000 90,000 28,000 178,000
E(3)
28,000 28,000
E(4)
4,000 4,000
E5-8 a.
Majority-Owned Subsidiary with Differential Journal entries recorded by Winston Corporation: (1) Investment in Canton Corporation Stock Cash Record investment. Investment in Canton Corporation Stock Income from Subsidiary Record equity-method income: $22,500 = $30,000 x .75 Cash Investment in Canton Corporation Stock Record dividends from Canton Corporation. $9,000 = $12,000 x .75 (4) Income from Subsidiary 3,000 Investment in Canton Corporation Stock Amortize differential assigned to equipment: $3,000 = [$133,500 - ($150,000 x .75)] / 7 years 133,500 133,500
(2)
22,500 22,500
(3)
9,000 9,000
3,000
b.
Eliminating entries December 31, 20X3: E(1) Income from Subsidiary Dividends Declared Investment in Canton Corporation Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. $7,500 = $30,000 x .25 $3,000 = $12,000 x .25 19,500 9,000 10,500
E(2)
7,500 3,000 4,500
E(2)
Common Stock--Canton Corporation 60,000 Retained Earnings, January 1 90,000 Differential 21,000 Investment in Canton Corporation Stock Noncontrolling Interest Eliminate beginning investment balance. $21,000 = $133,500 - ($90,000 + $60,000) x .75 Equipment Differential Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential related to equipment: $3,000 = $21,000 / 7 years 21,000
133,500 37,500
E(3)
21,000 3,000 3,000
E(4)
E5-9
Differential Assigned to Depreciable Assets
Eliminating entries, December 31, 20X6: E(1) Equipment Differential Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential. 30,000 30,000
E(2)
3,000 3,000
Eliminating entries, December 31, 20X7: E(1) Equipment Differential Accumulated Depreciation Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential. 30,000 27,000 3,000 3,000 3,000
E(2)
E5-10 a.
Differential Assigned to Amortizable Asset $120,000 380,000 $500,000 x .90 $450,000 36,000 $486,000 54,000 (7,200) (18,000) $514,800
Lancaster Company common stock, January 1, 20X1 Lancaster Company retained earnings, January 1, 20X1 Book value of Lancaster net assets Proportion of stock acquired Book value of Lancaster's shares purchased by Franklin Corporation Excess of purchase price over book value Purchase price Add: Share of Lancaster's net income ($60,000 x .90) Less: Amortization of differential ($36,000 / 5) Dividends paid by Lancaster ($20,000 x .90) Balance in investment account, December 31, 20X1
b.
Eliminating entries, December 31, 20X1: E(1) Income from Subsidiary Dividends Declared Investment in Lancaster Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $6,000 = $60,000 x .10 $2,000 = $20,000 x .10 Common Stock--Lancaster Company Retained Earnings, January 1 Differential Investment in Lancaster Company Stock Noncontrolling Interest Eliminate investment balance. Patents Differential Assign differential. Amortization Expense Patents Amortize differential related to patents. 46,800 18,000 28,800 6,000 2,000 4,000
E(2)
E(3)
120,000 380,000 36,000 486,000 50,000 36,000 36,000 7,200 7,200
E(4)
E(5)
E5-11
Differential Assigned to Amortizable Asset Acquired in Prior Period $120,000 380,000 $500,000 x .90 $450,000 36,000 $486,000 126,000 (14,400) (45,000) $552,600
a.
Lancaster Company common stock, January 1, 20X1 Lancaster Company retained earnings, January 1, 20X1 Book value of Lancaster net assets Proportion of stock acquired Book value of Lancaster's shares purchased by Franklin Corporation Excess of purchase price over book value Purchase price Add: Share of Lancaster's net income for 20X1 and 20X2 [($60,000 + $80,000) x .90] Less: Amortization of differential ($36,000 / 5) x 2 Dividends paid by Lancaster during 20X1 and 20X2 [($20,000 + $30,000) x .90] Balance in investment account, December 31, 20X2 Eliminating entries, December 31, 20X2: E(1) Income from Subsidiary Dividends Declared Investment in Lancaster Company Stock Eliminate income from subsidiary: $64,800 = ($80,000 x .90) - $7,200 $27,000 = $30,000 x .90 Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $8,000 = $80,000 x .10 $3,000 = $30,000 x .10 Common Stock--Lancaster Company Retained Earnings, January 1 Differential Investment in Lancaster Company Stock Noncontrolling Interest Eliminate investment balance: $420,000 = $380,000 + ($60,000 - $20,000) $28,800 = $36,000 - $7,200 $514,800 = [($120,000 + $420,000) x .90] + $28,800 $54,000 = ($120,000 + $420,000) x .10 Patents Differential Assign differential. Amortization Expense Patents Amortize differential related to patents. 64,800
b.
27,000 37,800
E(2)
8,000 3,000 5,000
E(3)
120,000 420,000 28,800 514,800 54,000
E(4)
28,800 28,800 7,200 7,200
E(5)
E5-12 a.
Consolidation after 1 Year of Ownership
Eliminating entries, January 1, 20X2: E(1) Common Stock--Lowe Corporation Retained Earnings Differential Investment in Lowe Corporation Stock Noncontrolling Interest Eliminate investment balance. 120,000 80,000 30,000 190,000 40,000
Computation of differential Purchase Price Underlying book value ($200,000 x .80) Differential E(2) Buildings and Equipment Goodwill Differential Assign differential: $25,600 = $32,000 x .80 $4,400 = $30,000 - $25,600 $190,000 (160,000) $ 30,000 25,600 4,400 30,000
b.
Eliminating entries, December 31, 20X2: E(1) Income from Subsidiary Investment in Lowe Corporation Stock Eliminate income from subsidiary. Computation of income from subsidiary Reported net income of Lowe Proportion of stock acquired Income before amortizing differential Amortization of differential assigned to Buildings and equipment ($25,600 / 8) Income from subsidiary for 20X2 $40,000 x .80 $32,000 (3,200) $28,800 28,800 28,800
E5-12 E(2)
(continued) Income to Noncontrolling Interest Noncontrolling Interest Assign income to noncontrolling interest. Common Stock--Lowe Corporation Retained Earnings, January 1 Differential Investment in Lowe Corporation Stock Noncontrolling Interest Eliminate beginning investment balance. Buildings and Equipment Goodwill Differential Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential. 8,000 8,000
E(3)
120,000 80,000 30,000 190,000 40,000 25,600 4,400 30,000
E(4)
E(5)
3,200 3,200
E5-13
Computation of Income Reported by Subsidiary $126,100 $100,000 (15,000) (3,900) (81,100) $ 45,000 .60 $ 75,000
Carrying value of investment at Dec. 31, 20X8 Purchase price of Spirit Company shares Reduction for dividends received Reduction for amortization of differential Carrying value of investment prior to recognition of equity-method income Increase from income reported by Spirit Company Proportion of ownership held by Blithe Income reported by Spirit Company Amortization of differential
Purchase price Book value of net assets reported by Spirit Company: Common stock $120,000 Retained earnings 25,000 Total $145,000 Proportion of ownership held by Blithe x .60 Purchase differential Amortization period Amortization per period Number of years owned Amount amortized
$100,000
(87,000) $ 13,000 10 years $ 1,300 x 3 $ 3,900
E5-14 a. (1)
Computation of Parent Company and Consolidated Balances Consolidated net income: Operating income of Jersey Company Net income of Briar Company Income to all shareholders Income to noncontrolling interest ($35,000 x .20) Consolidated net income $ 95,000 35,000 $130,000 (7,000) $123,000
(2)
Investment account balance: Purchase price Equity-method income ($35,000 x .80) Dividends from subsidiary ($15,000 x .80) Balance in investment account at end of year $176,000 28,000 (12,000) $192,000 $ 7,000
(3)
Income to noncontrolling interest ($35,000 x .20)
b.
(1)
Consolidated net income: Operating income of Jersey Company Net income of Briar Company Income to all shareholders Less: Amortization of differential assigned to: Depreciable assets ($30,000 / 8) Goodwill impairment loss [($40,000 - $30,000) - $2,000] Income to all shareholders Income to noncontrolling interest ($35,000 x .20) Consolidated net income $ 95,000 35,000 $130,000 (3,750) (8,000) $118,250 (7,000) $111,250
(2)
Investment account balance: Purchase price Equity-method income: Share of reported income $28,000 Amortization of differential assigned to depreciable assets (3,750) Dividends from subsidiary ($15,000 x .80) Balance in investment account at end of year $216,000
24,250 (12,000) $228,250
(3)
7,000
E5-15 a. E(1)
Consolidation Following Three Years of Ownership Common Stock--Conway Company 250,000 Retained Earnings 150,000 Differential 37,500 Investment in Conway Company Stock Noncontrolling Interest Eliminate investment balance: $37,500 = $277,500 - [($250,000 + $150,000) x .60] Land Equipment Patents Differential Assign differential: $4,500 = ($30,000 - $22,500) x .60 $24,000 = ($360,000 - $320,000) x .60 $9,000 = $37,500 - $4,500 - $24,000 4,500 24,000 9,000 37,500
277,500 160,000
E(2)
b.
Computation of investment account balance at January 1, 20X9: Purchase price Undistributed income since acquisition ($100,000 - $60,000) x .60 Amortization of differential assigned to: Equipment ($24,000 / 6) x 2 years Patents ($9,000 / 10) x 2 years Account balance at January 1, 20X9 $277,500 24,000 (8,000) (1,800) $291,700
c.
Entries recorded by Boxwell during 20X9: (1) Investment in Conway Company Stock Income from Subsidiary Record equity-method income. Cash Investment in Conway Company Stock Record dividends from subsidiary. (3) Income from Subsidiary Investment in Conway Company Stock Amortize differential: $4,900 = ($24,000 / 6 years) + ($9,000 / 10 years) 4,900 4,900 18,000 18,000 6,000 6,000
(2)
E5-15 d.
(continued)
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Conway Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock--Conway Company Retained Earnings, January 1 Differential Investment in Conway Company Stock Noncontrolling Interest Eliminate beginning investment balance. Land Buildings and Equipment Patents Differential Accumulated Depreciation Assign beginning differential. Depreciation Expense Amortization Expense Accumulated Depreciation Patents Amortize differential. 13,100 6,000 7,100 12,000 4,000 8,000
E(2)
E(3)
250,000 190,000 27,700 291,700 176,000 4,500 24,000 7,200 27,700 8,000
E(4)
E(5)
4,000 900 4,000 900
E5-16 a. b.
Computation of Consolidated Balances in Subsequent Period $310,000 $202,000
Inventory ($230,000 + $80,000) Land [$150,000 + $40,000 + .60($60,000 - $40,000)]
c.
Buildings and Equipment [$400,000 + $240,000 + .60($200,000 - $150,000)]
$670,000
d.
Accumulated Depreciation: Reported by companies ($180,000 + $90,000) Amortization of differential [4 years x .60($200,000 - $150,000) / 15]
$270,000 8,000 $278,000
e.
Not included
f.
Goodwill: Purchase price Book value of shares purchased [.60($200,000 + $50,000)] Differential assigned to: Inventory [.60($50,000 - $40,000)] Land [.60($60,000 - $40,000)] Buildings and equipment [.60($200,000 - $150,000)] Goodwill at acquisition Less: Goodwill impairment loss Balance of goodwill at end of 20X4
$226,000 $150,000 6,000 12,000 30,000 (198,000) $ 28,000 (12,000) $ 16,000
g. h.
Common Stock Retained earnings (Asp Corporation accounts for its investment in Parry Company using the equity method, but without recognizing goodwill impairment. Thus, consolidated retained earnings is equal to the parents retained earnings reduced for the impairment loss: $140,000 - $12,000)
$400,000
$128,000
E5-17 1. d
Multiple-Choice Questions on Consolidated Balances Net income of Rand Proportion of stock held by Farrow Income to Farrow Amortization of purchase differential: Purchase price paid by Farrow Proportionate share of book value of Rand ($250,000 + $150,000) x .70 Purchase differential Number of years Amortization Expense for 20X7 Investment income for 20X7 $204,000 = $180,000 + $24,000 $40,000 x .70 $28,000 $300,000 (280,000) $ 20,000 x 5 (4,000) $24,000
2.
3. 4.
b d
$12,000 = $40,000 x .30 Dividends declared by the parent company
5. 6.
a c
Stock outstanding reported by the parent company Retained earnings reported by the parent company = $409,000 = $240,000 + $180,000 + $24,000 - $35,000 $317,000 = $300,000 + $24,000 - $7,000
7.
E5-18 a.
Basic Consolidation Workpaper
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Shaw Corporation Stock Eliminate income from subsidiary. Common Stock--Shaw Corporation Retained Earnings, January 1 Investment in Shaw Corporation Stock Eliminate beginning investment balance. 30,000 10,000 20,000 100,000 50,000 150,000
E(2)
E5-18 b.
(continued) Blake Corporation and Shaw Corporation Consolidation Workpaper December 31, 20X3 Item Blake Corp. Shaw Corp. Eliminations Debit Credit Consolidated 320,000 320,000 40,000 180,000 (220,000) 100,000 230,000 100,000 330,000 (40,000) 290,000 250,000 550,000 (1) 20,000 (2)150,000 330,000 40,000 120,000 800,000 90,000 220,000 200,000 100,000 290,000 640,000 70,000 330,000 (2)100,000 80,000 180,000 10,000 180,000 290,000 800,000
Sales 200,000 120,000 Income from Subsidiary 30,000 (1) 30,000 Credits 230,000 120,000 Depreciation Expense 25,000 15,000 Other Expenses 105,000 75,000 Debits (130,000) (90,000) Net Income, carry forward 100,000 30,000 30,000 Ret. Earnings, Jan. 1 Net income, from above 230,000 50,000 (2) 50,000 100,000 30,000 30,000 330,000 80,000 (40,000) (10,000) (1) 10,000 70,000 105,000 225,000 80,000 10,000
Dividends Declared Ret. Earnings, Dec. 31, carry forward 290,000 Current Assets Depreciable Assets Investment in Shaw Corporation Stock Debits Current Liabilities Long-Term Debt Common Stock Blake Corporation Shaw Corporation Retained Earnings, from above Credits 145,000 325,000 170,000 640,000 50,000 100,000 200,000
E5-19 a.
Basic Consolidation Workpaper for Second Year
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Shaw Corporation Stock Eliminate income from subsidiary. Common Stock--Shaw Corporation Retained Earnings, January 1 Investment in Shaw Corporation Stock Eliminate beginning investment balance. 35,000 15,000 20,000 100,000 70,000 170,000
E(2)
E5-19 b.
(continued) Blake Corporation and Shaw Corporation Consolidation Workpaper December 31, 20X4 Item Blake Corp. Shaw Corp. Eliminations Debit Credit Consolidated 370,000 370,000 40,000 240,000 (280,000) 90,000 290,000 90,000 380,000 (50,000) 330,000 360,000 510,000 (1) 20,000 (2)170,000 360,000 50,000 120,000 870,000 120,000 220,000 200,000 100,000 330,000 700,000 90,000 360,000 (2)100,000 105,000 205,000 15,000 205,000 330,000 870,000
Sales 230,000 140,000 Income from Subsidiary 35,000 (1) 35,000 Credits 265,000 140,000 Depreciation Expense 25,000 15,000 Other Expenses 150,000 90,000 Debits (175,000)(105,000) Net Income, carry forward 90,000 35,000 35,000 Ret. Earnings, Jan. 1 Net income, from above 290,000 70,000 (2) 70,000 90,000 35,000 35,000 380,000 105,000 (50,000) (15,000) (1) 15,000 90,000 150,000 210,000 105,000 15,000
Dividends Declared Ret. Earnings, Dec. 31, carry forward 330,000 Current Assets Depreciable Assets Investment in Shaw Corporation Stock Debits Current Liabilities Long-Term Debt Common Stock Blake Corporation Shaw Corporation Retained Earnings, from above Credits 210,000 300,000 190,000 700,000 70,000 100,000 200,000
E5-20 a.
Consolidation Workpaper with Differential
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Short Company Stock Eliminate income from subsidiary. Common Stock--Short Company Retained Earnings, January 1 Differential Investment in Short Company Stock Eliminate beginning investment balance. Depreciable Assets (net) Differential Assign beginning differential. Depreciation Expense Depreciable Assets (net) Amortize differential. 25,000 10,000 15,000 100,000 50,000 30,000 180,000 30,000 30,000 5,000 5,000
E(2)
E(3)
E(4)
E5-20
(continued)
b.
Kennelly Corporation and Short Company Consolidation Workpaper December 31, 20X5 Kennelly Corp. Short Co. Eliminations Debit Credit Consolidated 320,000 320,000 45,000 180,000 (225,000) 95,000 230,000 95,000 325,000 (40,000) 285,000 20,000 70,000 130,000 575,000
Item Sales Income from Subsidiary Credits Depreciation Expense Other Expenses Debits Net Income, carry forward Ret. Earnings, Jan. 1 Net income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward
200,000 120,000 25,000 (1) 25,000 225,000 120,000 25,000 15,000 (4) 5,000 105,000 75,000 (130,000) (90,000) 95,000 30,000 30,000
230,000 50,000 (2) 50,000 95,000 30,000 30,000 325,000 80,000 (40,000) (10,000) (1) 10,000 285,000 70,000 5,000 40,000 60,000 225,000 80,000 10,000
Cash 15,000 Accounts Receivable 30,000 Inventory 70,000 Depreciable Assets (net) 325,000 Investment in Short Company Stock 195,000 Differential Debits Accounts Payable Notes Payable Common Stock Kennelly Corporation Short Company Retained Earnings, from above Credits
(3) 30,000 (4)
5,000
(1) 15,000 (2)180,000 (2) 30,000 (3) 30,000 330,000 40,000 120,000 795,000 90,000 220,000 200,000 100,000 (2)100,000 80,000 240,000 10,000 240,000 285,000 795,000
635,000 50,000 100,000 200,000
285,000 635,000
70,000 330,000
E5-21
Consolidation Workpaper for Majority-Owned Subsidiary
a.
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Stergis Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock--Stergis Company Retained Earnings, January 1 Investment in Stergis Company Stock Noncontrolling Interest Eliminate beginning investment balance. 24,000 8,000 16,000
E(2)
6,000 2,000 4,000 100,000 50,000 120,000 30,000
E(3)
E5-21
(continued)
b.
Proud Corporation and Stergis Company Consolidation Workpaper December 31, 20X3
Item
Proud Corp.
Stergis Co.
Eliminations Debit Credit
Consolidated 320,000 320,000 40,000 180,000 (220,000) 100,000 (6,000) 94,000 230,000 94,000 324,000
Sales 200,000 120,000 Income from Subsidiary 24,000 (1) 24,000 Credits 224,000 120,000 Depreciation Expense 25,000 15,000 Other Expenses 105,000 75,000 Debits (130,000) (90,000) Income to Noncontrolling Interest Net Income, carry forward Ret. Earnings, Jan. 1 Net income, from above Dividends Declared (2) 94,000 30,000 6,000 30,000
230,000 50,000 (3) 50,000 94,000 30,000 30,000 324,000 80,000 (40,000) (10,000) (1) (2) 70,000 105,000 300,000 80,000
8,000 2,000 10,000
(40,000) 284,000 278,000 800,000
Ret. Earnings, Dec. 31, carry forward 284,000 Current Assets Depreciable Assets Investment in Stergis Company Stock Debits Accum. Depreciation Current Liabilities Long-Term Debt Common Stock Proud Corporation Stergis Company Retained Earnings, from above Noncontrolling Interest Credits 173,000 500,000 136,000 809,000 175,000 50,000 100,000 200,000
(1) 16,000 (3)120,000 405,000 75,000 40,000 120,000 100,000 (3)100,000 10,000 (2) 4,000 (3) 30,000 180,000 180,000 80,000 284,000 34,000 1,078,000 1,078,000 250,000 90,000 220,000 200,000 70,000
284,000
809,000
405,000
E5-21
(continued)
c.
Proud Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X3 $278,000 $800,000 (250,000) 550,000 $828,000 $ 90,000 220,000 34,000 $200,000 284,000 484,000 $828,000
Current Assets Depreciable Assets Less: Accumulated Depreciation Total Assets Current Liabilities Long-Term Debt Noncontrolling Interest Common Stock Retained Earnings Total Liabilities and Stockholders' Equity
Proud Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X3 Sales Depreciation Other Expenses Total Expenses Income to Noncontrolling Interest Consolidated Net Income $320,000 $ 40,000 180,000 220,000 $100,000 (6,000) $ 94,000
Proud Corporation and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X3 Retained Earnings, January 1, 20X3 20X3 Net Income Dividends Paid in 20X3 Retained Earnings, December 31, 20X3 $230,000 94,000 $324,000 (40,000) $284,000
E5-22
Consolidation Workpaper for Majority-Owned Subsidiary for Second Year
a.
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Stergis Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock--Stergis Company Retained Earnings, January 1 Investment in Stergis Company Stock Noncontrolling Interest Eliminate beginning investment balance. 28,000 12,000 16,000
E(2)
7,000 3,000 4,000 100,000 70,000 136,000 34,000
E(3)
E5-22
(continued)
b.
Proud Corporation and Stergis Company Consolidation Workpaper December 31, 20X4
Item
Proud Corp.
Stergis Co.
Eliminations Debit Credit
Consolidated 370,000 370,000 40,000 240,000 (280,000) 90,000 (7,000) 83,000 284,000 83,000 367,000 (50,000) 317,000 385,000 800,000
Sales 230,000 140,000 Income from Subsidiary 28,000 (1) 28,000 Credits 258,000 140,000 Depreciation Expense 25,000 15,000 Other Expenses 150,000 90,000 Debits (175,000)(105,000) Income to Noncontrolling Interest Net Income, carry forward Ret. Earnings, Jan. 1 Net income, from above Dividends Declared (2) 83,000 35,000 7,000 35,000
284,000 70,000 (3) 70,000 83,000 35,000 35,000 367,000 105,000 (50,000) (15,000) (1) 12,000 (2) 3,000 90,000 150,000 300,000 (1) 16,000 (3)136,000 450,000 90,000 50,000 120,000 100,000 317,000 90,000 (3)100,000 105,000 15,000 (2) 4,000 (3) 34,000 205,000 205,000 105,000 15,000
Ret. Earnings, Dec. 31, carry forward 317,000 Current Assets Depreciable Assets Investment in Stergis Company Stock Debits Accum. Depreciation Current Liabilities Long-Term Debt Common Stock Proud Corporation Stergis Company Retained Earnings, from above Noncontrolling Interest Credits 235,000 500,000 152,000 887,000 200,000 70,000 100,000 200,000
1,185,000 290,000 120,000 220,000 200,000 317,000 38,000 1,185,000
887,000
450,000
E5-23
Preparation of Stockholders' Equity Section with Other Comprehensive Income
a.
Consolidated net income: Operating income of Tollway Proportionate share of Stem net income: $40,000 x .75 $60,000 x .75 Amortization of purchase differential: [$435,000 - ($500,000 x .75)] / 10 years Consolidated net income 20X8 $120,000 30,000 45,000 (6,000) $144,000 (6,000) $179,000 20X9 $140,000
b.
Comprehensive net income: Consolidated net income Proportionate share of Other Comprehensive Income reported by Stem: ($50,000 - $40,000) x .75 ($65,000 - $60,000) x .75 Comprehensive income 20X8 $144,000 20X9 $179,000
7,500 $151,500 3,750 $182,750
c.
Consolidated stockholders' equity: Common Stock Retained Earnings Accumulated Other Comprehensive Income to Controlling Interest Total Stockholders' Equity 20X8 $320,000 504,000 7,500 $831,500 20X9 $320,000 613,000 11,250 $944,250
E5-24
Eliminating Entries for Subsidiary with Other Comprehensive Income
a.
Journal entries recorded by Palmer Corp. in 20X8: (1) Investment in Krown Corp. Stock Cash Record purchase of Krown Corp. Investment in Krown Corp. Stock Income from Subsidiary Record equity-method income. Cash Investment in Krown Corp. Stock Record dividends from subsidiary. (4) Investment in Krown Corp. Stock Other Comprehensive Income from Subsidiary (OCI) Record Palmer's proportionate share of other comprehensive income of subsidiary. 4,200 4,200 140,000 140,000
(2)
21,000 21,000
(3)
17,500 17,500
b.
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Krown Corp. Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Other Comprehensive Income from Subsidiary (OCI) Investment in Krown Corp. Stock Eliminate other comprehensive income from subsidiary. Other Comprehensive Income to Noncontrolling Interest Noncontrolling Interest Assign other comprehensive income to noncontrolling interest. Common Stock--Krown Corp. Retained Earning--Krown Corp. Investment in Krown Corp. Stock Noncontrolling Interest Eliminate beginning investment balance. 21,000 17,500 3,500
E(2)
9,000 7,500 1,500
E(3)
4,200 4,200
E(4)
1,800 1,800
E(5)
120,000 80,000 140,000 60,000
E5-25* a.
Complex Assignment of Differential
Equity-method entries recorded by Holly during 20X5: Investment in Brinker Common Stock Income from Brinker, Inc. Record equity-method income: $68,000 x .90 Income from Brinker, Inc. Investment in Brinker Common Stock Record write-off of differential. 61,200 61,200
91,500 91,500
Computation of differential write-off Total differential Assignment to identifiable assets and liabilities: Inventory $ 5,000 Land 75,000 Equipment 60,000 Discount on Notes Payable 50,000 Total Goodwill Write-off of differential: Inventory sold Land sold Depreciation of equipment ($60,000 / 15) Amortization of discount on notes payable Total write-off for 20X5 $240,000
(190,000) $ 50,000
5,000 75,000 4,000 7,500 $ 91,500
E5-25* b.
(continued)
Elimination entries: Investment in Brinker Common Stock Income from Brinker, Inc. Income to Noncontrolling Interest Noncontrolling Interest $68,000 x .10 Common Stock--Brinker Premium on Common Stock Retained Earnings, January 1 Differential Investment in Brinker Common Stock Noncontrolling Interest $72,000 = ($500,000 + $100,000 + $120,000) x .10 Cost of Goods Sold Gain on Sale of Land Equipment Discount on Notes Payable Goodwill Differential Depreciation Expense Interest Expense Accumulated Depreciation Discount on Notes Payable 30,300 30,300 6,800 6,800 500,000 100,000 120,000 240,000 888,000 72,000
5,000 75,000 60,000 50,000 50,000 240,000 4,000 7,500 4,000 7,500
E5-26A a.
Consolidation Using Cost-Method Accounting $102,000 70,000 $172,000 (21,000) $151,000
Operating income of City Touring ($130,000 - $28,000) Net income of Country Playgrounds Income to noncontrolling interest ($70,000 x .30) Consolidated net income
b.
$ 21,000
c. The parent's retained earnings and its portion of undistributed subsidiary earnings since the date of purchase must be known in order to compute consolidated retained earnings.
E5-27A a.
Computation of Consolidated Balances Using the Cost Method
Computation of Brush Company retained earnings at January 1, 20X5: Retained earnings reported at January 1, 20X9 Increase in retained earnings since date of acquisition ($21,000 / .30) Retained earnings at January 1, 20X5 $230,000 (70,000) $160,000
b.
Computation of consolidated retained earnings at January 1, 20X9: Retained earnings reported by Cable Corporation Proportionate share of undistributed earnings of Brush since acquisition ($70,000 x .70) Amortization of purchase differential: Purchase price Proportionate share of book value at acquisition ($280,000 x .70) Purchase differential Number of years amortized Annual amortization Number of years owned Consolidated retained earnings $520,000 49,000 $220,000 (196,000) $ 24,000 10 $ 2,400 x 4
(9,600) $559,400
c.
Consolidated net income for 20X9: Net income reported by Cable Proportionate share of undistributed earnings of Brush [($25,000 - $10,000) x .70] Amortization of purchase differential Consolidated net income $120,000 10,500 (2,400) $128,100
d.
Consolidated retained earnings at December 31, 20X9: Consolidated Consolidated Consolidated Consolidated retained earnings at January 1, 20X9 net income dividends retained earnings $559,400 128,100 (50,000) $637,500
E5-28A a.
Basic Cost-Method Workpaper
Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Common Stock--Shaw Corporation Retained Earnings, January 1 Investment in Shaw Corporation Stock Eliminate original investment balance. 10,000 10,000
E(2)
100,000 50,000 150,000
b.Blake Corporation and Shaw Corporation Consolidation Workpaper December 31, 20X3 Item Sales Dividend Income Credits Depreciation Expense Other Expenses Debits Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above Blake Corp. Shaw Corp. Eliminations Debit Credit Consolidated 320,000 320,000 40,000 180,000 (220,000) 100,000 230,000 100,000 330,000 (40,000) 290,000 250,000 550,000 (2)150,000 330,000 40,000 120,000 100,000 270,000 620,000 70,000 330,000 (2)100,000 60,000 160,000 10,000 160,000 290,000 800,000 800,000 90,000 220,000 200,000
200,000 120,000 10,000 (1) 10,000 210,000 120,000 25,000 15,000 105,000 75,000 (130,000) (90,000) 80,000 30,000 10,000
Dividends Declared Ret. Earnings, Dec. 31, carry forward 270,000 Current Assets Deprec. Assets (net) Investment in Shaw Corporation Stock Debits Current Liabilities Long-Term Debt Common Stock Blake Corporation Shaw Corporation Retained Earnings, from above Credits 145,000 325,000 150,000 620,000 50,000 100,000 200,000
230,000 50,000 (2) 50,000 80,000 30,000 10,000 310,000 80,000 (40,000) (10,000) (1) 10,000 70,000 105,000 225,000 60,000 10,000
E5-29A a.
Cost-Method Workpaper in Subsequent Period
Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Common Stock--Shaw Corporation Retained Earnings, January 1 Investment in Shaw Corporation Stock Eliminate original investment balance. 15,000 15,000
E(2)
100,000 50,000 150,000
b.
Blake Corporation and Shaw Corporation Consolidation Workpaper December 31, 20X4 Item Blake Corp. Shaw Corp. Eliminations Debit Credit Consolidated 500,000 500,000 40,000 410,000 (450,000) 50,000 290,000 50,000 340,000 (20,000) 320,000 280,000 510,000 (2)150,000 320,000 20,000 120,000 100,000 290,000 80,000 620,000 320,000 (2)100,000 65,000 165,000 15,000 320,000 165,000 790,000 790,000 50,000 220,000 200,000
Sales Dividend Income Credits Depreciation Expense Other Expenses Debits Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above
300,000 200,000 15,000 (1) 15,000 315,000 200,000 25,000 15,000 250,000 160,000 (275,000)(175,000) 40,000 25,000 15,000
Dividends Declared Ret. Earnings, Dec. 31, carry forward 290,000 Current Assets Deprec. Assets (net) Investment in Shaw Corporation Stock Debits Current Liabilities Long-Term Debt Common Stock Blake Corporation Shaw Corporation Retained Earnings, from above Credits 170,000 300,000 150,000 620,000 30,000 100,000 200,000
270,000 70,000 (2) 50,000 40,000 25,000 15,000 310,000 95,000 (20,000) (15,000) (1) 15,000 80,000 110,000 210,000 65,000 15,000
E5-30A a.
Cost-Method Consolidation for Majority-Owned Subsidiary Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock--Knight Company Retained Earnings, January 1 Investment in Knight Company Stock Noncontrolling Interest Eliminate original investment balance. Retained Earnings--Knight Company Noncontrolling Interest Assign undistributed prior earnings of subsidiary to noncontrolling interest: ($70,000 - $50,000) x .20 16,000 16,000
E(2)
6,000 4,000 2,000 100,000 50,000 120,000 30,000 4,000 4,000
E(3)
E(4)
E5-30A b.
(continued) Lintner Corporation and Knight Company Consolidation Workpaper December 31, 20X7 Item Lintner Corp. Knight Co. Eliminations Debit Credit Consolidated 500,000 500,000 40,000 406,000 (446,000) 54,000 (6,000) 48,000
Sales Dividend Income Credits Depreciation Expense Other Expenses Debits Income to Noncontrolling Interest Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above Dividends Declared
300,000 200,000 16,000 (1) 16,000 316,000 200,000 25,000 15,000 251,000 155,000 (276,000)(170,000) (2) 40,000 268,000 30,000 70,000 6,000 22,000 (3) 50,000 (4) 4,000 22,000 (1) 16,000 (2) 4,000 76,000 20,000
40,000 30,000 308,000 100,000 (25,000) (20,000)
284,000 48,000 332,000 (25,000) 307,000 263,000 800,000 (3)120,000
Ret. Earnings, Dec. 31, carry forward 283,000 Current Assets Depreciable Assets Investment in Knight Company Stock Debits Accum. Depreciation Accounts Payable Common Stock Lintner Corporation Knight Company Retained Earnings, from above Noncontrolling Interest 183,000 500,000 120,000 803,000 200,000 120,000 200,000
80,000 80,000 300,000
380,000 90,000 110,000
1,063,000 290,000 230,000 200,000
100,000 283,000 80,000
(3)100,000 20,000 (2) 2,000 (3) 30,000 (4) 4,000 176,000 176,000 76,000 307,000 36,000 1,063,000
Credits
803,000
380,000
E5-30A c.
(continued) Lintner Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X7 $263,000 $800,000 (290,000) 510,000 $773,000 $230,000 36,000 $200,000 307,000 507,000 $773,000
Current Assets Depreciable Assets Less: Accumulated Depreciation Total Assets Accounts Payable Noncontrolling Interest Common Stock Retained Earnings Total Liabilities and Stockholders' Equity
Lintner Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X7 Sales Depreciation Other Expenses Total Expenses Income to Noncontrolling Interest Consolidated Net Income $500,000 $ 40,000 406,000 446,000 $ 54,000 (6,000) $ 48,000
Lintner Corporation and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X7 Retained Earnings, January 1, 20X7 20X7 Net Income Dividends Paid in 20X7 Retained Earnings, December 31, 20X7 $284,000 48,000 $332,000 (25,000) $307,000
SOLUTIONS TO PROBLEMS P5-31 1. a Consolidated Balances [AICPA Adapted] $455,000 = $310,000 + $135,000 + $10,000
2.
Total assets reported by Purl Deduct investment in Scott Assets held other than investment in Scott Total assets reported by Scott Unamortized purchase differential: Amount paid by Purl Book value of net assets at acquisition ($410,000 - $160,000) Differential Amortization of differential assigned to copyrights: ($100,000 / 10) Differential at December 31, 20X0 Total assets The balance reported by Purl
$1,325,000 (390,000) $ 935,000 415,000 $360,000 (250,000) $110,000 (10,000) 100,000 $1,450,000
3.
4.
The net income reported by Purl (Purl uses the equity method in accounting for its investment in Scott)
5.
$100,000 / 10 years
P5-32 a.
Ownership Balances
Total stockholders' equity of Eastland Company, December 31, 20X4 ($227,500 / .25) Total stockholders' equity of Eastland Company at acquisition Increase in retained earnings Original balance in retained earnings Balance in retained earnings December 31, 20X4
$910,000 (800,000) $110,000 320,000 $430,000
b.
Purchase price of Eastland shares Increase in Eastland's retained earnings Proportion of stock held by Penn Corporation Annual amortization of differential [$648,000 - ($800,000 x .75)] / 8 years Number of years owned Balance in investment account, December 31, 20X4
$648,000 $110,000 x .75 $ x 6,000 3 82,500 (18,000) $712,500
c.
Retained earnings of Penn Corporation at January 1, 20X2 Income from separate operations Dividends paid Earnings of Eastland since date of acquisition [$110,000 + ($20,000 x 3)] Proportion of stock held by Penn Income recorded by Penn before amortization of purchase differential Amortization of purchase differential ($6,000 x 3 years) Consolidated retained earnings, December 31, 20X4
$485,000 $195,000 (90,000) $170,000 x .75 $127,500 (18,000) 109,500 $699,500 105,000
P5-33 a.
Consolidated Income and Retained Earnings
Consolidated net income for 20X4: Operating income of Allied Net income of Bolt Proportion of stock held by Allied Consolidated net income $ 90,000 $30,000 x .80 24,000 $114,000
b.
Consolidated retained earnings, December 31, 20X4: Because Allied Foundries uses the equity method in accounting for its ownership in Bolt Corporation, Allied's retained earnings fully reflect the income from its own operations and its proportionate share of Bolt's net income for each period. Thus, Allied's retained earnings and consolidated retained earnings are the same at December 31, 20X4. Retained earnings of Allied Foundries Reconciling items Consolidated retained earnings $642,000 --$642,000
c.
Bolt Corporation's stockholders' equity, December 31, 20X4: Common stock Additional paid-in capital Retained earnings Proportion of stock held by noncontrolling interest Noncontrolling interest $100,000 40,000 150,000 $290,000 x .20 $ 58,000 $548,000 114,000 $662,000 (20,000) $642,000
d.
Consolidated Retained Earnings, January 1, 20X4a Add: Consolidated Net Income Less: Dividends Declared Consolidated Retained Earnings, December 31, 20X4
a
Consolidated balance is equal to parent company balance when parent uses equity-method reporting for investment in subsidiary.
P5-34 a.
Income and Retained Earnings
Net income for 20X9: Operating income Income from subsidiary Net income Quill $ 90,000 24,500 $114,500 North $35,000 $35,000
b. Consolidated net income is equal to the $114,500 net income reported by Quill.
c.
Retained earnings reported at December 31, 20X9: Retained earnings, January 1, 20X9 Net income for 20X9 Dividends paid in 20X9 Retained earnings, December 31, 20X9 Quill $290,000 114,500 (30,000) $374,500 North $40,000 35,000 (10,000) $65,000
d. Consolidated retained earnings at December 31, 20X9, is equal to the $374,500 retained earnings balance reported by Quill. e. When the cost method is used, the parent's proportionate share of the increase in retained earnings of the subsidiary subsequent to acquisition is not included in the parent's retained earnings. Thus, this amount must be added to the total retained earnings reported by the parent in arriving at consolidated retained earnings.
P5-35
Eliminating Entries for Consolidated Balance Sheet
a. The balance in the investment account is $421,000, computed as follows: Purchase price Proportionate share of increase in retained earnings [($395,000 - $310,000) x .60)] Less: Amortization of differential: Amount paid Book value of net assets ($550,000 x .60) Differential Amortization period Annual amortization Number of years owned Balance in investment account $400,000 51,000 $400,000 (330,000) $ 70,000 7 years $ 10,000 x 3
(30,000) $421,000
b. Eliminating entries for balance sheet December 31, 20X9: E(1) Common Stock--Doughboy Company Retained Earnings Differential Investment in Doughboy Company Stock Noncontrolling Interest Eliminate investment balance. Buildings and Equipment Accumulated Depreciation Differential Assign differential. 240,000 395,000 40,000 421,000 254,000 70,000 30,000 40,000
E(2)
P5-36 a.
Consolidation Workpaper at End of First Year of Ownership
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Best Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock--Best Company Retained Earnings, January 1 Differential Investment in Best Company Stock Noncontrolling Interest Eliminate beginning investment balance. Buildings and Equipment Goodwill Differential Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential: $1,500 = $15,000 / 10 years Goodwill Impairment Loss Goodwill 16,500 12,000 4,500 6,000 4,000 2,000
E(2)
E(3)
60,000 40,000 21,000 96,000 25,000 15,000 6,000 21,000
E(4)
E(5)
1,500 1,500
E(6)
3,500 3,500
P5-36 b.
(continued)
Power Corporation and Best Company Consolidation Workpaper December 31, 20X8 Item Power Corp. Best Co. Eliminations Debit Credit Consolidated 440,000 440,000 235,000 69,000 36,500 16,000 18,500 3,500 (378,500) 61,500 (6,000) 55,500 102,000 55,500 157,500 (30,000) 127,500 68,500 82,000 115,000 45,000 515,000
Sales 260,000 180,000 Income from Subsidiary 16,500 (1) 16,500 Credits 276,500 180,000 Cost of Goods Sold 125,000 110,000 Wage Expense 42,000 27,000 Depreciation Expense 25,000 10,000 (5) 1,500 Interest Expense 12,000 4,000 Other Expenses 13,500 5,000 Goodwill Impairment Loss (6) 3,500 Debits (217,500) (156,000) Income to Noncontrolling Interest Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Best Company Stock Differential Goodwill Debits (2) 59,000 102,000 59,000 161,000 (30,000) 131,000 47,500 70,000 90,000 30,000 350,000 100,500 24,000 6,000 27,500
40,000 (3) 40,000 24,000 27,500 64,000 (16,000) (1) 12,000 (2) 4,000 48,000 21,000 12,000 25,000 15,000 150,000 67,500 16,000
(4) 15,000 (1) 4,500 (3) 96,000 (3) 21,000 (4) 21,000 (4) 6,000 (6) 3,500
688,000
223,000
2,500 828,000
P5-36
(continued) Power Corp. 145,000 45,000 17,000 150,000 200,000 60,000 131,000 48,000 (3) 60,000 67,500 16,000 127,500 Best Co. 40,000 16,000 9,000 50,000 Eliminations Debit Credit (5) 1,500 Consolidated 186,500 61,000 26,000 200,000 200,000
Item Accum. Depreciation Accounts Payable Wages Payable Notes Payable Common Stock Power Corporation Best Company Retained Earnings, from above Noncontrolling Interest Credits
688,000
223,000
(2) 2,000 (3) 25,000 169,500 169,500
27,000 828,000
P5-37 a.
Consolidation Workpaper at End of Second Year of Ownership
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Best Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock--Best Company Retained Earnings, January 1 Differential Investment in Best Company Stock Noncontrolling Interest Eliminate beginning investment balance. Buildings and Equipment Goodwill Retained Earnings, January 1 Differential Accumulated Depreciation Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential: $1,500 = $15,000 / 10 years 25,500 15,000 10,500 9,000 5,000 4,000
E(2)
E(3)
60,000 48,000 19,500 100,500 27,000 15,000 2,500 3,500 19,500 1,500
E(4)
E(5)
1,500 1,500
P5-37 b.
(continued)
Power Corporation and Best Company Consolidation Workpaper December 31, 20X9 Item Power Corp. Best Co. Eliminations Debit Credit Consolidated 490,000 490,000 259,000 55,000 36,500 16,000 39,000 (405,500) 84,500 (9,000) 75,500 127,500 75,500 203,000 (1) 15,000 (2) 5,000 87,500 20,000 (30,000) 173,000 100,500 99,000 121,000 75,000 515,000 (1) 10,500 (3)100,500 (4) 19,500 2,500 913,000
Sales 290,000 200,000 Income from Subsidiary 25,500 (1) 25,500 Credits 315,500 200,000 Cost of Goods Sold 145,000 114,000 Wage Expense 35,000 20,000 Depreciation Expense 25,000 10,000 (5) 1,500 Interest Expense 12,000 4,000 Other Expenses 23,000 16,000 Debits (240,000) (164,000) Income to Noncontrolling Interest Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above Dividends Declared
(2) 75,500 131,000 75,500 206,500 (30,000) 36,000 48,000 36,000 84,000 (20,000) 64,000 32,000 14,000 24,000 25,000 150,000
9,000 36,000
(3) 48,000 (4) 3,500 36,000
Ret. Earnings, Dec. 31, carry forward 176,500 Cash 68,500 Accounts Receivable 85,000 Inventory 97,000 Land 50,000 Buildings and Equipment 350,000 Investment in Best Company Stock 111,000 Differential Goodwill Debits
(4) 15,000
(3) 19,500 (4) 2,500 761,500 245,000
P5-37
(continued) Power Corp. 170,000 51,000 14,000 150,000 200,000 60,000 176,500 64,000 (3) 60,000 87,500 20,000 (2) 4,000 (3) 27,000 184,500 173,000 31,000 913,000 Best Co. 50,000 15,000 6,000 50,000 Eliminations Debit Credit (4) (5) 1,500 1,500 Consolidated
Item Accum. Depreciation Accounts Payable Wages Payable Notes Payable Common Stock Power Corporation Best Company Retained Earnings, from above Noncontrolling Interest Credits
223,000 66,000 20,000 200,000 200,000
761,500
245,000
184,500
P5-37 c.
(continued)
Power Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X9 Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Goodwill Total Assets Accounts Payable Wages Payable Notes Payable Noncontrolling Interest Common Stock Retained Earnings Total Liabilities and Stockholders' Equity $100,500 99,000 121,000 75,000 $515,000 (223,000) 292,000 2,500 $690,000 $ 66,000 20,000 200,000 31,000 $200,000 173,000 373,000 $690,000
Power Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X9 Sales Cost of Goods Sold Wage Expense Depreciation Expense Interest Expense Other Expenses Total Expenses Income to Noncontrolling Interest Consolidated Net Income $490,000 $259,000 55,000 36,500 16,000 39,000 (405,500) $ 84,500 (9,000) $ 75,500
Power Corporation and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X9 Retained Earnings, January 1, 20X9 20X9 Net Income Dividends Paid in 20X9 Retained Earnings, December 31, 20X9 $127,500 75,500 $203,000 (30,000) $173,000
P5-38
Consolidation of Majority-Owned Subsidiary
Eliminating entries: E(1) Income from Subsidiary 43,500 Dividends Declared Investment in Terrier Corporation Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock--Terrier Corporation Additional Paid-In Capital Retained Earnings, January 1 Differential Investment in Terrier Corporation Stock Noncontrolling Interest Eliminate beginning investment balance. Buildings and Equipment Differential Accumulated Depreciation Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential. 15,000 5,000 10,000 15,000 28,500
E(2)
E(3)
40,000 35,000 75,000 10,500 123,000 37,500
E(4)
12,000 10,500 1,500 1,500 1,500
E(5)
P5-38 a.
(continued) Richards Company and Terrier Corporation Consolidation Workpaper December 31, 20X6 Item Richards Terrier Eliminations Company Corp. Debit Credit 700,000 400,000 43,500 (1) 43,500 743,500 400,000 500,000 250,000 45,000 35,000 25,000 15,000 (5) 1,500 30,000 40,000 (600,000)(340,000) Consolidated 1,100,000 1,100,000 750,000 80,000 41,500 70,000 (941,500) 158,500 (15,000) 143,500 228,500 143,500 372,000 (50,000) 322,000 215,500 340,000 100,000 662,000
Sales Income from Subsidiary Credits Cost of Goods Sold Wage Expense Depreciation Expense Other Expenses Debits Income to Noncontrolling Interest Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash and Receivables Inventory Land Buildings and Equipment Investment in Terrier Corporation Stock Differential Debits Accum. Depreciation Accounts Payable Notes Payable Common Stock Richards Company Terrier Corporation Additional Paid-In Capital Retained Earnings, from above Noncontrolling Interest Credits
(2) 15,000 143,500 60,000 60,000
228,500 75,000 (3) 75,000 143,500 60,000 60,000 372,000 135,000 (50,000) (20,000) (1) 15,000 (2) 5,000 322,000 135,500 240,000 80,000 500,000 151,500 115,000 80,000 100,000 20,000 150,000 135,000 20,000
(4) 12,000 (1) 28,500 (3)123,000 (3) 10,500 (4) 10,500
1,107,000 155,000 70,000 200,000 300,000
350,000 75,000 35,000 50,000 (4) (5) 1,500 1,500
1,317,500 233,000 105,000 250,000 300,000
40,000 60,000 322,000 1,107,000 35,000 115,000 350,000
(3) 40,000 (3) 35,000 135,000 20,000 (2) 10,000 (3) 37,500 232,500 232,500 60,000 322,000 47,500 1,317,500
P5-38 b.
(continued) Richards Company and Subsidiary Consolidated Balance Sheet December 31, 20X6 $ $662,000 (233,000) 215,500 340,000 100,000
Cash and Receivables Inventory Land Buildings and Equipment Less: Accumulated Depreciation Total Assets Accounts Payable Notes Payable Noncontrolling Interest Common Stock Additional Paid-In Capital Retained Earnings Total Liabilities and Stockholders' Equity
429,000 $1,084,500 $ 105,000 250,000 47,500
$300,000 60,000 322,000
682,000 $1,084,500
Richards Company and Subsidiary Consolidated Income Statement Year Ended December 31, 20X6 Sales Cost of Goods Sold Wage Expense Depreciation Expense Other Expenses Total Expenses Income to Noncontrolling Interest Consolidated Net Income $1,100,000 $750,000 80,000 41,500 70,000 $ $ 941,500 158,500 (15,000) 143,500
Richards Company and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X6 Retained Earnings, January 1, 20X6 20X6 Net Income Dividends Paid in 20X6 Retained Earnings, December 31, 20X6 $ $ $ 228,500 143,500 372,000 (50,000) 322,000
P5-39
Balance Sheet Consolidation [AICPA Adapted] Case, Inc. and Frey, Inc. Consolidated Balance Sheet Workpaper December 31, 20X4 Item Case Inc. Frey Inc. Eliminations Debit Credit Consolidated
Cash 825,000 330,000 1,155,000 Accounts and Other Receivables 2,140,000 835,000 2,975,000 Inventory 2,310,000 1,045,000 3,355,000 Land 650,000 300,000 (2) 250,000 1,200,000 Deprec. Assets (net) 4,575,000 1,980,000 6,555,000 Investment in Frey, Inc. 2,680,000 (1)2,680,000 Long-Term Investments and Other Assets 865,000 385,000 1,250,000 Differential (1) 250,000 (2) 250,000 Total Debits 14,045,000 4,875,000 16,490,000 Accounts Payable and Other Current Liabilities 2,465,000 1,145,000 3,610,000 Long-Term Debt 1,900,000 1,300,000 3,200,000 Common Stock, $25 Par 3,200,000 1,000,000 (1)1,000,000 3,200,000 Additional Paid-In Capital 2,100,000 190,000 (1) 190,000 2,100,000 Retained Earnings 4,380,000 1,240,000 (1)1,240,000 4,380,000 Total Credits 14,045,000 4,875,000 2,930,000 2,930,000 16,490,000
P5-40 a.
Consolidated Balance Sheet
Eliminating entries: E(1) Common Stock--Lake Corporation Retained Earnings Differential Investment in Lake Corporation Stock Eliminate investment balance. Buildings and Equipment Accumulated Depreciation Differential Assign purchase differential. 100,000 120,000 32,000 252,000
E(2)
40,000 8,000 32,000
b. Thompson Company and Lake Corporation Consolidated Balance Sheet Workpaper December 31, 20X3 Thompson Co. 30,000 100,000 60,000 500,000 252,000 942,000 230,000 80,000 40,000 100,000 200,000 292,000 942,000 460,000 75,000 10,000 70,000 85,000 100,000 120,000 460,000 (2) 8,000 Lake Corp. 20,000 40,000 50,000 350,000 Eliminations Debit Credit Consolidated 50,000 140,000 110,000 890,000
Item Cash Accounts Receivable Land Buildings and Equipment Investment in Lake Corporation Differential Total Debits Accum. Depreciation Accounts Payable Taxes Payable Notes Payable Common Stock Retained Earnings Total Credits
(2) 40,000 (1)252,000 (1) 32,000 (2) 32,000
1,190,000 313,000 90,000 110,000 185,000 200,000 292,000 1,190,000
(1)100,000 (1)120,000 292,000
292,000
P5-41 a.
Comprehensive Problem: Majority Ownership in Subsequent Period
Journal entries recorded by Thompson Corporation (1) Investment in Lake Corporation Stock Income from Subsidiary Record equity-method income. Income from Subsidiary Investment in Lake Corporation Stock Amortize differential: $40,000 / 10 years Cash Investment in Lake Corporation Stock Record dividends from subsidiary. 32,000 32,000
(2)
4,000 4,000
(3)
12,000 12,000
b.
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Lake Corporation Stock Eliminate income from subsidiary. Common Stock--Lake Corporation Retained Earnings, January 1 Differential Investment in Lake Corporation Stock Eliminate beginning investment balance. Buildings and Equipment Accumulated Depreciation Differential Assign purchase differential. Depreciation Expense Accumulated Depreciation Amortize differential. Accounts Payable Accounts Receivable Eliminate intercorporate receivable/payable. 28,000 12,000 16,000
E(2)
100,000 120,000 32,000 252,000
E(3)
40,000 8,000 32,000 4,000 4,000 2,500 2,500
E(4)
E(5)
P5-41 c.
(continued) Thompson Corporation and Lake Corporation Consolidation Workpaper December 31, 20X4 Item Thompson Co. 610,000 28,000 638,000 Lake Corp. 240,000 (1) 28,000 240,000 850,000 600,000 57,000 117,000 (774,000) 76,000 292,000 76,000 368,000 (30,000) 338,000 116,000 180,500 110,000 890,000 Eliminations Debit Credit Consolidated 850,000
Service Revenue Income from Subsidiary Credits Cost of Services Provided Depreciation Expense Other Expenses Debits Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivables Land Buildings and Equipment Investment in Lake Corporation Stock Differential Debits Accum. Depreciation Accounts Payable Taxes Payable Notes Payable Common Stock Thompson Company Lake Corporation Retained Earnings, from above Credits
470,000 130,000 35,000 18,000 (4) 57,000 60,000 (562,000)(208,000) 76,000 32,000
4,000
32,000
292,000 120,000 (2)120,000 76,000 32,000 32,000 368,000 152,000 (30,000) (12,000) (1) 12,000 338,000 74,000 130,000 60,000 500,000 268,000 1,032,000 265,000 71,000 58,000 100,000 200,000 100,000 338,000 1,032,000 140,000 495,000 (2)100,000 152,000 326,500 12,000 326,500 495,000 93,000 17,000 60,000 85,000 (5) 2,500 (3) (4) 8,000 4,000 140,000 42,000 53,000 50,000 350,000 152,000 12,000
(5) (3) 40,000
2,500
(1) 16,000 (2)252,000 (2) 32,000 (3) 32,000 1,296,500
370,000 85,500 118,000 185,000 200,000
338,000 1,296,500
P5-42 a.
Comprehensive Problem: Majority-Owned Subsidiary
Journal entries recorded by Pillar Corporation: (1) Investment in Stanley Wood Products Stock Income from Subsidiary Record equity-method income: $30,000 x .80 Income from Subsidiary Investment in Stanley Wood Products Stock Amortize differential: $40,000 / 10 years Cash Investment in Stanley Wood Products Stock Record dividends from Stanley Wood Products: $10,000 x .80 24,000 24,000
(2)
4,000 4,000 8,000 8,000
(3)
b.
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Stanley Wood Products Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. 20,000 8,000 12,000 6,000 2,000 4,000
E(2)
E(3)
Common Stock--Stanley Wood Products 100,000 Retained Earnings, January 1 90,000 Differential 24,000 Investment in Stanley Wood Products Stock Noncontrolling Interest Eliminate beginning investment balance: $176,000 = [.80($100,000 + $90,000) + $24,000] $38,000 = [.20($100,000 +$90,000)] Buildings and Equipment Accumulated Depreciation Differential Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential. Accounts Payable Cash and Receivables Eliminate intercorporate receivable/payable. 40,000
176,000 38,000
E(4)
16,000 24,000 4,000 4,000 10,000 10,000
E(5)
E(6)
P5-42 c.
(continued) Pillar Corporation and Stanley Wood Products Company Consolidation Workpaper December 31, 20X5 Item Pillar Corp. Stanley Wood Eliminations Debit Credit Consolidated 300,000 300,000 170,000 44,000 20,000 (234,000) 66,000 (6,000) 60,000 314,000 60,000 374,000 8,000 2,000 10,000 (6) 10,000 (4) 40,000 (1) 12,000 (3)176,000 (3) 24,000 (4) 24,000 385,000 105,000 20,000 50,000 (6) 10,000 (4) 16,000 (5) 4,000 1,336,000 330,000 70,000 250,000 300,000 100,000 344,000 1,109,000 110,000 385,000 (3)100,000 120,000 10,000 (2) 4,000 (3) 38,000 294,000 294,000 344,000 42,000 1,336,000 (30,000) 344,000 136,000 350,000 160,000 690,000
Sales Income from Subsidiary Credits Cost of Goods Sold Depreciation Expense Inventory Losses Debits Income to Noncontrolling Interest Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash and Receivables Inventory Land Buildings and Equipment Investment in Stanley Wood Products Stock Differential Debits Accum. Depreciation Accounts Payable Notes Payable Common Stock Pillar Corporation Stanley Wood Products Retained Earnings, from above Noncontrolling Interest Credits
200,000 100,000 20,000 (1) 20,000 220,000 100,000 120,000 50,000 25,000 15,000 (5) 4,000 15,000 5,000 (160,000) (70,000)
(2) 60,000 30,000
6,000 30,000
314,000 90,000 (3) 90,000 60,000 30,000 30,000 374,000 120,000 (30,000) (10,000) (1) (2) 344,000 81,000 260,000 80,000 500,000 188,000 110,000 65,000 90,000 80,000 150,000 120,000
1,109,000 205,000 60,000 200,000 300,000
P5-43 a.
Comprehensive Problem: Differential Apportionment
Journal entries recorded by Bigelow Corporation: (1) Investment in Granite Company Stock Cash Purchase of Granite Company stock. Investment in Granite Company Stock Income from Subsidiary Record equity-method income: $60,000 x .80 Cash Investment in Granite Company Stock Record dividends from Granite Company: $20,000 x .80 (4) Income from Subsidiary Investment in Granite Company Stock Amortize differential assigned to depreciable assets: ($33,000 / 11 years) 3,000 3,000 173,000 173,000
(2)
48,000 48,000
(3)
16,000 16,000
P5-43 b.
(continued)
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Granite Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock--Granite Company Retained Earnings, January 1 Differential Investment in Granite Company Stock Noncontrolling Interest Eliminate beginning investment balance. Goodwill Buildings and Equipment Differential Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential related to depreciable assets. Accounts Payable Accounts Receivable Eliminate intercorporate receivable/payable. 45,000 16,000 29,000 12,000 4,000 8,000
E(2)
E(3)
50,000 100,000 53,000 173,000 30,000 20,000 33,000 53,000
E(4)
E(5)
3,000 3,000
E(6)
16,000 16,000
P5-43 c.
(continued) Bigelow Corporation and Granite Company Consolidation Workpaper December 31, 20X7 Item Bigelow Corp. Granite Co. Eliminations Debit Credit Consolidated 1,100,000 1,100,000 750,000 43,000 150,000 (943,000) 157,000 (12,000) 145,000 290,000 145,000 435,000 (50,000) 385,000 63,000 89,000 340,000 100,000 683,000
Sales Income from Subsidiary Credits Cost of Goods Sold Depreciation Expense Other Expenses Debits Income to Noncontrolling Interest Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Granite Company Stock Differential Goodwill Debits Accum. Depreciation Accounts Payable Mortgages Payable Common Stock Bigelow Corporation Granite Company Retained Earnings, from above Noncontrolling Interest Credits
700,000 400,000 45,000 (1) 45,000 745,000 400,000 500,000 250,000 25,000 15,000 (5) 3,000 75,000 75,000 (600,000)(340,000)
(2) 12,000 145,000 60,000 60,000
290,000 100,000 (3)100,000 145,000 60,000 60,000 435,000 160,000 (50,000) (20,000) (1) 16,000 (2) 4,000 385,000 38,000 50,000 240,000 80,000 500,000 202,000 140,000 25,000 55,000 100,000 20,000 150,000 160,000 20,000 (6) 16,000
(4) 33,000 (1) 29,000 (3)173,000 (3) 53,000 (4) 53,000 (4) 20,000
1,110,000 155,000 70,000 200,000 300,000
350,000 75,000 35,000 50,000 50,000 (5) (6) 16,000 3,000
20,000 1,295,000 233,000 89,000 250,000 300,000
(3) 50,000 160,000 20,000 (2) 8,000 (3) 30,000 332,000 332,000 385,000 38,000 1,295,000
385,000
140,000
1,110,000
350,000
P5-44
Comprehensive Problem: Differential Apportionment in Subsequent Period.
a.
Journal entries recorded by Bigelow Corporation: (1) Investment in Granite Company Stock Income from Subsidiary Record equity-method income: $45,000 x .80 Cash Investment in Granite Company Stock Record dividends from Granite Company: $20,000 = $25,000 x .80 (3) Income from Subsidiary Investment in Granite Company Stock Amortize differential assigned to depreciable assets: ($33,000 / 11 years) 3,000 3,000 36,000 36,000
(2)
20,000 20,000
P5-44 b.
(continued)
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Granite Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock--Granite Company Retained Earnings, January 1 Differential Investment in Granite Company Stock Noncontrolling Interest Eliminate beginning investment balance. Goodwill Buildings and Equipment Differential Accumulated Depreciation Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential related to depreciable assets. Goodwill Impairment Loss Goodwill Impairment of goodwill. Accounts Payable Accounts Receivable Eliminate intercorporate receivable/payable. 33,000 20,000 13,000 9,000 5,000 4,000
E(2)
E(3)
50,000 140,000 50,000 202,000 38,000 20,000 33,000 50,000 3,000 3,000 3,000
E(4)
E(5)
E(6)
14,000 14,000
E(7)
9,000 9,000
P5-44 c.
(continued) Bigelow Corporation and Granite Company Consolidation Workpaper December 31, 20X8 Item Bigelow Corp. Granite Co. Eliminations Debit Credit Consolidated 1,120,000 1,120,000 800,000 43,000 14,000 162,000 (1,019,000) 101,000 (9,000) 92,000 385,000 92,000 477,000 (45,000) 432,000 90,000 145,000 393,000 110,000 683,000
Sales 650,000 470,000 Income from Subsidiary 33,000 (1) 33,000 Credits 683,000 470,000 Cost of Goods Sold 490,000 310,000 Depreciation Expense 25,000 15,000 (5) 3,000 Goodwill Impairment Loss (6) 14,000 Other Expenses 62,000 100,000 Debits (577,000)(425,000) Income to Noncontrolling Interest Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Granite Company Stock Differential Goodwill Debits Accum. Depreciation Accounts Payable Mortgages Payable Common Stock Bigelow Corporation Granite Company Retained Earnings, from above Noncontrolling Interest Credits (2) 106,000 45,000 9,000 59,000
385,000 140,000 (3)140,000 106,000 45,000 59,000 491,000 185,000 (45,000) (25,000) (1) 20,000 (2) 5,000 446,000 59,000 83,000 275,000 80,000 500,000 215,000 160,000 31,000 71,000 118,000 30,000 150,000 199,000 25,000
(7) (4) 33,000
9,000
(1) 13,000 (3)202,000 (3) 50,000 (4) 50,000 (4) 20,000 (6) 14,000 400,000 90,000 30,000 70,000 50,000 (7) 9,000 (4) (5) 3,000 3,000
1,212,000 180,000 86,000 200,000 300,000
6,000 1,427,000
276,000 107,000 270,000 300,000
(3) 50,000 199,000 25,000 (2) 4,000 (3) 38,000 361,000 361,000 432,000 42,000 1,427,000
446,000
160,000
1,212,000
400,000
P5-45 a.
Analyzing Consolidated Data Proportion of stock held by Buckman Corporation: Amount assigned to noncontrolling interest in consolidated balance sheet Book value of Eckel Mining Company net assets Proportion of stock held by noncontrolling interest ($68,000 / $170,000) Proportion of stock held by Buckman (1.00 - .40) $ 68,000 170,000 .40 .60
b. The stock was purchased for an amount $20,000 in excess of book value. Balance reported in Buckman's investment account Net assets of Eckel Mining Company Proportion of stock held by Buckman Amount in excess of book value on December 31, 20X3 Amortization per year ($18,000 / 9 years) Patents on January 1, 20X3 c.
$120,000 $170,000 x .60 (102,000) $ 18,000 2,000 $ 20,000 $ 12,000 .40 $ 30,000
Income to noncontrolling interest Proportion of stock held by noncontrolling interest Income of Eckel Mining Company for 20X3
d.
1.
Noncontrolling interest, December 31, 20X3 Eckel Mining's income for 20X3 Eckel Mining's dividends for 20X3 Increase in Eckel Mining's retained earnings Proportion of stock held by noncontrolling interest Noncontrolling interest, January 1, 20X3 Balance in investment account on December 31, 20X3 Eckel Mining's income for 20X3 Proportion of stock held by Buckman Less: Amortization of differential Equity-method income Less: Dividends received ($10,000 x .60) Change in investment balance Purchase price, January 1, 20X3
$ 68,000 $30,000 (10,000) $20,000 x .40 (8,000) $ 60,000
2.
$120,000 $30,000 x .60 $18,000 (2,000) $16,000 (6,000) (10,000) $110,000
e.
Yes. The current liabilities of Buckman and Eckel Mining total $100,000 and the consolidated balance is $60,000. A $40,000 inter-corporate payable apparently exists.
P5-46 a.
Subsidiary with Other Comprehensive Income in Year of Acquisition
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Sparta Company Stock Eliminate income from subsidiary. 15,000 9,000 6,000
E(2)
Income to Noncontrolling Interest 10,000 Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Other Comprehensive Income from Subsidiary-Unrealized Gain on Investments (OCI) Investment in Sparta Company Stock Eliminate other comprehensive income from subsidiary. Other Comprehensive Income to Noncontrolling Interest Noncontrolling Interest Assign other comprehensive income to noncontrolling interest. Common Stock--Sparta Company Retained Earnings, January 1 Investment in Sparta Company Stock Noncontrolling Interest Eliminate beginning investment balance. 6,000
6,000 4,000
E(3)
6,000
E(4)
4,000 4,000
E(5)
100,000 60,000 96,000 64,000
P5-46 b.
(continued)
Amber Corporation and Sparta Company Consolidation Workpaper December 31, 20X8 Item Amber Corp. Sparta Co. Eliminations Debit Credit Consolidated 368,000 368,000 260,000 40,000 11,000 (311,000) 57,000 (10,000) 47,000 208,000 47,000 255,000 9,000 6,000 15,000 (24,000) 231,000 35,000 87,000 70,000 735,000 40,000 (1) 6,000 (3) 6,000 (5) 96,000 335,000 967,000
Sales 220,000 148,000 Income from Subsidiary 15,000 (1) 15,000 Credits 235,000 148,000 Cost of Goods Sold 150,000 110,000 Depreciation Expense 30,000 10,000 Interest Expense 8,000 3,000 Debits (188,000) (123,000) Income to Noncontrolling Interest Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above Dividends Declared
(2) 10,000 47,000 208,000 47,000 255,000 (24,000) 25,000 25,000
60,000 (5) 60,000 25,000 25,000 85,000 (15,000) (1) (2) 70,000 8,000 22,000 30,000 235,000 40,000 85,000
Ret. Earnings, Dec. 31, carry forward 231,000 Cash 27,000 Accounts Receivable 65,000 Inventory 40,000 Buildings and Equipment 500,000 Investment in Row Company Securities Investment in Sparta Company Stock 108,000
Debits
740,000
P5-46
(continued) Amber Corp. 140,000 63,000 100,000 200,000 100,000 231,000 6,000 70,000 10,000 (5)100,000 85,000 10,000 (2) 4,000 (4) 4,000 (5) 64,000 195,000 195,000 15,000 231,000 6,000 Sparta Co. 85,000 20,000 50,000 Eliminations Debit Credit Consolidated 225,000 83,000 150,000 200,000
Item Accum. Depreciation Accounts Payable Bonds Payable Common Stock Amber Corporation Sparta Company Retained Earnings, from above Accumulated Other Comprehensive income, from below Noncontrolling Interest
Credits Other Comprehensive Income: OCI from Subsidiary-Unrealized Gain on Investments Unrealized Gain on Investments Other Comprehensive Income to Noncontrolling Interest Accumulated Other Comprehensive Income, December 31, carry up
740,000
335,000
72,000 967,000
6,000 10,000
(3)
6,000 10,000
(4)
4,000
(4,000)
6,000
10,000
10,000
6,000
P5-46 c.
(continued)
Amber Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X8 Cash Accounts Receivable Inventory Buildings and Equipment Less: Accumulated Depreciation Investment in Marketable Securities Total Assets Accounts Payable Bonds Payable Noncontrolling Interest Common Stock Retained Earnings Accumulated Other Comprehensive Income to Controlling Interest Total Liabilities and Stockholders' Equity $ 35,000 87,000 70,000 $735,000 (225,000) 510,000 40,000 $742,000 $ 83,000 150,000 72,000 $200,000 231,000 6,000 437,000 $742,000
Amber Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X8 Sales Cost of Goods Sold Depreciation Expense Interest Expense Total Expenses Income to Noncontrolling Interest Consolidated Net Income $368,000 $260,000 40,000 11,000 311,000 $ 57,000 (10,000) $ 47,000
Amber Corporation and Subsidiary Consolidated Statement of Comprehensive Income Year Ended December 31, 20X8 Net Income Other Comprehensive Income: Unrealized Gain on Investments Held by Subsidiary Other Comprehensive Income to Noncontrolling Interest Other Comprehensive Income to Controlling Interest Comprehensive Income $ 47,000 $10,000 (4,000) 6,000 $ 53,000
P5-47
Subsidiary with Other Comprehensive Income in Year Following Acquisition
a.
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Sparta Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Other Comprehensive Income from Subsidiary-Unrealized Gain on Investments (OCI) Investment in Sparta Company Stock Eliminate other comprehensive income from subsidiary. Other Comprehensive Income to Noncontrolling Interest Noncontrolling Interest Assign other comprehensive income to noncontrolling interest. Common Stock--Sparta Company Retained Earnings, January 1 Accumulated Other Comprehensive Income Investment in Sparta Company Stock Noncontrolling Interest Eliminate beginning investment balance. 18,000 12,000 6,000 12,000 8,000 4,000
E(2)
E(3)
2,400 2,400
E(4)
1,600 1,600
E(5)
100,000 70,000 10,000 108,000 72,000
P5-47 b.
(continued)
Amber Corporation and Sparta Company Consolidation Workpaper December 31, 20X9 Item Sales Income from Subsidiary Credits Cost of Goods Sold Depreciation Expense Interest Expense Debits Income to Noncontrolling Interest Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Buildings and Equipment Investment in Row Company Securities Investment in Sparta Company Stock Amber Corp. Sparta Co. Eliminations Debit Credit Consolidated 390,000 390,000 267,000 40,000 11,000 (318,000) 72,000 (12,000) 60,000 231,000 60,000 291,000 (1) 12,000 (2) 8,000 20,000 (40,000) 251,000 29,000 66,000 70,000 842,000 44,000 (1) 6,000 (3) 2,400 (5)108,000 363,000 1,051,000
250,000 140,000 18,000 (1) 18,000 268,000 140,000 170,000 97,000 30,000 10,000 8,000 3,000 (208,000) (110,000)
(2) 12,000 60,000 231,000 60,000 291,000 (40,000) 30,000 30,000
70,000 (5) 70,000 30,000 30,000 100,000 (20,000)
251,000 18,000 45,000 40,000 585,000
80,000 11,000 21,000 30,000 257,000 44,000
100,000
116,400
Debits
804,400
P5-47
(continued) Amber Corp. 170,000 75,000 100,000 200,000 100,000 251,000 8,400 80,000 14,000 (5)100,000 100,000 14,000 (2) 4,000 (4) 1,600 (5) 72,000 214,000 20,000 251,000 8,400 Sparta Co. 95,000 24,000 50,000 Eliminations Debit Credit Consolidated 265,000 99,000 150,000 200,000
Item Accum. Depreciation Accounts Payable Bonds Payable Common Stock Amber Corporation Sparta Company Retained Earnings, from above Accumulated Other Comprehensive Income, from below Noncontrolling Interest
Credits Other Comprehensive Income: OCI from Subsidiary-Unrealized Gain on Investments Unrealized Gain on Investments Other Comprehensive Income to Nonconcontrolling Interest Accumulated Other Comprehensive Income, January 1 Accumulated Other Comprehensive Income, December 31, carry up
804,400
363,000
214,000
77,600 1,051,000
2,400 4,000
(3)
2,400 4,000
(4)
1,600
(1,600)
6,000 8,400
10,000 14,000
(5) 10,000 14,000
6,000 8,400
P5-48A a.
Computation of Balances when Cost Method Is Used
Investment in Spike Company, January 1, 20X9: Common stock outstanding--Spike Company Retained earnings--Spike Company Book value of net assets Proportion of ownership acquired Proportionate share of book value of net assets Purchase differential Purchase price and current carrying value $200,000 100,000 $300,000 x .70 $210,000 50,000 $260,000
b.
Pine Corporation net income for 20X9: Income from Pine's separate operations Dividend income ($30,000 x .70) Net income reported by Pine Corporation $ 85,000 21,000 $106,000
c.
Consolidated net income for 20X9: Income from Pine's separate operations Net income reported by Spike Proportion of ownership acquired by Pine Proportionate share of reported net income Amortization of purchase differential ($50,000 / 10 years) Income from subsidiary Consolidated net income $ 85,000 $50,000 x .70 $35,000 (5,000) 30,000 $115,000
d.
Retained earnings reported by Pine at December 31, 20X9: Retained earnings, January 1, 20X9 Net income for 20X9 Total Dividends paid in 20X9 Retained earnings, December 31, 20X9 $500,000 106,000 $606,000 (40,000) $566,000
e.
Consolidated retained earnings, December 31, 20X9: Retained earnings reported by Pine Undistributed earnings of Spike Company: Retained earnings of Spike January 1, 20X9 $300,000 Retained earnings of Spike January 1, 20X3 (100,000) Increase in retained earnings $200,000 Undistributed net income for 20X9 ($50,000 - $30,000) 20,000 Total undistributed earnings $220,000 Proportion of ownership acquired by Pine x .70 Proportionate share of undistributed earnings Amortization of purchase differential: ($50,000 / 10 years) x 7 years Consolidated retained earnings December 31, 20X9 $566,000
154,000 (35,000) $685,000
P5-49A
Cost-Method Workpaper with Differential
Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Common Stock--Star Company Retained Earnings, January 1 Differential Investment in Star Company Stock Eliminate investment balance at date of acquisition. Goodwill Differential Assign differential at date of acquisition. 10,000 10,000
E(2)
150,000 50,000 20,000 220,000
E(3)
20,000 20,000 12,000 12,000
E(4) Goodwill Impairment Loss Goodwill Record impairment of goodwill.
P5-49A
(continued) Light Corporation and Star Company Consolidated Workpaper December 31, 20X5 Item Light Corp. Star Co. Eliminations Debit Credit Consolidated 450,000 450,000 295,000 45,000 12,000 48,000 (400,000) 50,000 230,000 50,000 280,000 (20,000) 260,000 57,000 80,000 130,000 540,000 (2) 20,000 (3) 20,000 677,000 105,000 40,000 70,000 200,000 150,000 262,000 677,000 60,000 350,000 (2)150,000 72,000 262,000 10,000 262,000 260,000 815,000 350,000 65,000 20,000 55,000 (2)220,000 (3) 20,000 (4) 12,000
Sales 300,000 150,000 Dividend Income 10,000 (1) 10,000 Credits 310,000 150,000 Cost of Goods Sold 210,000 85,000 Depreciation Expense 25,000 20,000 Goodwill Impairment Loss (4) 12,000 Other Expenses 23,000 25,000 Debits (258,000) (130,000) Net Income, carry forward 52,000 20,000 22,000 Ret. Earnings, Jan. 1 Net Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Buildings and Equipment Investment in Star Company Stock Differential Goodwill Debits Accum. Depreciation Accounts Payable Taxes Payable Common Stock Light Corporation Star Company Retained Earnings, from above Credits 230,000 52,000 282,000 (20,000) 262,000 37,000 50,000 70,000 300,000 220,000 50,000 (2) 50,000 20,000 22,000 70,000 (10,000) 60,000 20,000 30,000 60,000 240,000 72,000
(1) 10,000 10,000
8,000 815,000 170,000 60,000 125,000 200,000
P5-50A
Cost-Method Consolidation in Subsequent Period
Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Common Stock--Star Company Retained Earnings, January 1 Differential Investment in Star Company Stock Eliminate investment balance at date of acquisition. Goodwill Retained Earnings, January 1 Differential Assign differential at beginning of year. 20,000 20,000
E(2)
150,000 50,000 20,000 220,000
E(3)
8,000 12,000 20,000
P5-50A
(continued) Light Corporation and Star Company Consolidated Workpaper December 31, 20X6 Item Light Corp. Star Co. Eliminations Debit Credit Consolidated 550,000 550,000 405,000 45,000 31,000 (481,000) 69,000
Sales Dividend Income Credits Cost of Goods Sold Depreciation Expense Other Expenses Debits Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Buildings and Equipment Investment in Star Company Stock Differential Goodwill Debits Accum. Depreciation Accounts Payable Taxes Payable Common Stock Light Corporation Star Company Retained Earnings, from above Credits
350,000 200,000 20,000 (1) 20,000 370,000 200,000 270,000 135,000 25,000 20,000 21,000 10,000 (316,000) (165,000) 54,000 262,000 54,000 316,000 (20,000) 296,000 46,000 55,000 75,000 300,000 220,000 696,000 130,000 20,000 50,000 200,000 150,000 296,000 696,000 75,000 375,000 (2)150,000 82,000 260,000 20,000 260,000 375,000 85,000 30,000 35,000 35,000 60,000 35,000 95,000 (20,000) 75,000 30,000 40,000 65,000 240,000 (2)220,000 (2) 20,000 (3) 20,000 (3) 8,000 20,000 (2) 50,000 (3) 12,000 20,000 (1) 20,000 82,000 20,000
260,000 69,000 329,000 (20,000) 309,000 76,000 95,000 140,000 540,000
8,000 859,000 215,000 50,000 85,000 200,000
309,000 859,000
P5-51A
Cost-Method Consolidation of Majority-Owned Subsidiary
Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $12,000 = $60,000 x .20 Common Stock--Rapid Delivery Retained Earnings, January 1 Investment in Rapid Delivery Stock Noncontrolling Interest Eliminate investment balance at date of acquisition. 16,000 16,000
E(2)
12,000 4,000 8,000
E(3)
50,000 100,000 120,000 30,000
P5-51A
(continued) Samuelson Company and Rapid Delivery Corporation Consolidation Workpaper December 31, 20X6 Samuelson Company Rapid Delivery Eliminations Debit Credit Consolidated 1,100,000 1,100,000 750,000 40,000 80,000 70,000 (940,000) 160,000 (12,000) 148,000 290,000 148,000 438,000 (50,000) 388,000 221,000 340,000 100,000 650,000 (3)120,000 350,000 75,000 35,000 50,000 50,000 356,000 140,000 (3) 50,000 128,000 20,000 388,000 1,311,000 230,000 105,000 250,000 300,000
Item Sales Dividend Income Credits Cost of Goods Sold Depreciation Expense Wage Expense Other Expenses Debits Income to Noncontrolling Interest Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward
700,000 400,000 16,000 (1) 16,000 716,000 400,000 500,000 250,000 25,000 15,000 45,000 35,000 30,000 40,000 (600,000)(340,000)
(2) 12,000 116,000 60,000 28,000
290,000 100,000 (3)100,000 116,000 60,000 28,000 406,000 160,000 (50,000) (20,000) (1) 16,000 (2) 4,000 356,000 140,000 80,000 100,000 20,000 150,000 128,000 20,000
Cash and Receivables 141,000 Inventory 240,000 Land 80,000 Buildings and Equipment 500,000 Investment in Rapid Delivery Stock 120,000 Debits 1,081,000 Accum. Depreciation Accounts Payable Notes Payable Common Stock Samuelson Company Rapid Delivery Retained Earnings, from above Noncontrolling Interest Credits 155,000 70,000 200,000 300,000
1,081,000
350,000
(2) 8,000 (3) 30,000 178,000 178,000
38,000 1,311,000
P5-51A
(continued) Samuelson Company and Subsidiary Consolidated Balance Sheet December 31, 20X6
Cash and Receivables Inventory Land Buildings and Equipment Less: Accumulated Depreciation Total Assets Accounts Payable Notes Payable Noncontrolling Interest Common Stock Retained Earnings Total Liabilities and Stockholders' Equity
$ $650,000 (230,000)
221,000 340,000 100,000
420,000 $1,081,000 $ 105,000 250,000 38,000
$300,000 388,000
688,000 $1,081,000
Samuelson Company and Subsidiary Consolidated Income Statement Year Ended December 31, 20X6 Sales Cost of Goods Sold Depreciation Expense Wage Expense Other Expenses Total Expenses Income to Noncontrolling Interest Consolidated Net Income $1,100,000 $750,000 40,000 80,000 70,000 $ $ 940,000 160,000 (12,000) 148,000
Samuelson Company and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X6 Retained Earnings, January 1, 20X6 20X6 Net Income Dividends Paid in 20X6 Retained Earnings, December 31, 20X6 $ $ $ 290,000 148,000 438,000 (50,000) 388,000
P5-52A a.
Comprehensive Cost-Method Consolidation Problem
Journal entry recorded by Pillar Corporation: Cash Dividend Income 8,000 8,000
b.
Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock--Stanley Wood Products Retained Earnings, January 1 Differential Investment in Stanley Wood Products Stock Noncontrolling Interest Eliminate investment balance at date of acquisition. Retained Earnings, January 1 Noncontrolling Interest Assign undistributed prior earnings of subsidiary to noncontrolling interest: ($90,000 - $50,000) x .20 Buildings and Equipment Differential Assign differential at date of acquisition. Retained Earnings, January 1 Accumulated Depreciation Enter differential amortization of prior years: ($40,000 / 10) x 4 years Depreciation Expense Accumulated Depreciation Amortize differential. Accounts Payable Cash and Receivables Eliminate intercorporate receivable/payable. 8,000 8,000
E(2)
6,000 2,000 4,000 100,000 50,000 40,000 160,000 30,000
E(3)
E(4)
8,000 8,000
E(5)
40,000 40,000
E(6)
16,000 16,000
E(7)
4,000 4,000
E(8)
10,000 10,000
P5-52A c.
(continued) Pillar Corporation and Stanley Wood Products Company Consolidation Workpaper December 31, 20X5 Item Pillar Corp. Stanley Wood Eliminations Debit Credit Consolidated 300,000 8,000 4,000 300,000 170,000 44,000 20,000 (234,000) 66,000 (6,000) 60,000
Sales Dividend Income Credits Cost of Goods Sold Depreciation Expense Inventory Losses Debits Income to Noncontrolling Interest Net Income, carry forward Ret. Earnings, Jan. 1 Net Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward
200,000 100,000 8,000 (1) 208,000 100,000 120,000 50,000 25,000 15,000 (7) 15,000 5,000 (160,000) (70,000)
(2) 48,000 298,000 30,000 90,000
6,000 18,000
48,000 30,000 346,000 120,000 (30,000) (10,000)
(3) 50,000 (4) 8,000 (6) 16,000 18,000 (1) (2) 92,000 8,000 2,000 10,000 (8) 10,000 (5) 40,000 (3)160,000 (3) 40,000 (5) 40,000
314,000 60,000 374,000 (30,000) 344,000 136,000 350,000 160,000 690,000
316,000
110,000 65,000 90,000 80,000 150,000
Cash and Receivables 81,000 Inventory 260,000 Land 80,000 Buildings and Equipment 500,000 Investment in Stanley Wood Products Stock 160,000 Differential Debits 1,081,000 Accum. Depreciation Accounts Payable Notes Payable Common Stock Pillar Corporation Stanley Wood Retained Earnings, from above Noncontrolling Interest Credits 205,000 60,000 200,000 300,000
385,000 105,000 20,000 50,000 100,000 (8) 10,000 (6) 16,000 (7) 4,000
1,336,000
330,000 70,000 250,000 300,000
(3)100,000 10,000 (2) 4,000 (3) 30,000 (4) 8,000 282,000 282,000 92,000 344,000
316,000
110,000
1,081,000
385,000
42,000 1,336,000
P5-53B
Push-Down Accounting
a. Entry to record purchase of Lindy stock on books of Greenly: Investment in Lindy Company Stock Cash 935,000 935,000
b. Entry to record revaluation of assets on books of Lindy Company at date of combination: Inventory Land Buildings Equipment Revaluation Capital 5,000 85,000 100,000 70,000 260,000
c. Investment elimination entry in consolidation workpaper prepared December 31, 20X6 (no other entries needed): Common Stock--Lindy Company Additional Paid-In Capital Retained Earnings Revaluation Capital Investment in Lindy Company Stock 100,000 400,000 175,000 260,000 935,000
d. Equity-method entries on the books of Greenly during 20X7: Cash Investment in Lindy Company Stock Record dividend from Lindy Company. Investment in Lindy Company Stock Income from Lindy Company Record equity-method income. 88,000 88,000 50,000 50,000
P5-53B
(continued)
e. Eliminating entries in consolidation workpaper prepared December 31, 20X7 (no other entries needed): E(1) Income from Lindy Company Dividends Declared Investment in Lindy Company Stock Common Stock--Lindy Company Additional Paid-In Capital Retained Earnings, January 1 Revaluation Capital Investment in Lindy Company Stock 88,000 50,000 38,000 100,000 400,000 175,000 260,000 935,000
E(2)
f. Eliminating entries in consolidation workpaper prepared December 31, 20X8 (no other entries needed): E(1) Income from Lindy Company Dividends Declared Investment in Lindy Company Stock Common Stock--Lindy Company Additional Paid-In Capital Retained Earnings, January 1 Revaluation Capital Investment in Lindy Company Stock $213,000 = $175,000 + $88,000 - $50,000 $973,000 = $935,000 + $88,000 - $50,000 90,000 50,000 40,000 100,000 400,000 213,000 260,000 973,000
E(2)

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CHAPTER 5 CONSOLIDATION FOLLOWING ACQUISITION

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

SOLUTIONS TO CASES C5-1 Consolidation Workpaper Preparation

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

SOLUTIONS TO EXERCISES E5-1 1. 2. 3. 4. b c a c Multiple-Choice Questions on Consolidation [AICPA Adapted]

Multiple-Choice Questions on Consolidation

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

(continued) Eliminating entries:

80,000 25,000 55,000 120,000 280,000 400,000

120,000 280,000 300,000 100,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

300,000 200,000 500,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

14,000 14,000 3,500 3,500

6,000 1,500 4,500 100,000 200,000 210,000 90,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

60,000 90,000 28,000 178,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

7,500 3,000 4,500

21,000 3,000 3,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

Differential Assigned to Depreciable Assets

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

120,000 380,000 36,000 486,000 50,000 36,000 36,000 7,200 7,200

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

8,000 3,000 5,000

120,000 420,000 28,800 514,800 54,000

28,800 28,800 7,200 7,200

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

Consolidation after 1 Year of Ownership

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

120,000 80,000 30,000 190,000 40,000 25,600 4,400 30,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

(87,000) $ 13,000 10 years $ 1,300 x 3 $ 3,900

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

Income to noncontrolling interest ($35,000 x .20)

24,250 (12,000) $228,250

Income to noncontrolling interest ($35,000 x .20)

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

4,000 900 4,000 900

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

Computation of Consolidated Balances in Subsequent Period $310,000 $202,000

Inventory ($230,000 + $80,000) Land [$150,000 + $40,000 + .60($60,000 - $40,000)]

Buildings and Equipment [$400,000 + $240,000 + .60($200,000 - $150,000)]

$270,000 8,000 $278,000

$226,000 $150,000 6,000 12,000 30,000 (198,000) $ 28,000 (12,000) $ 16,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

$12,000 = $40,000 x .30 Dividends declared by the parent company

Basic Consolidation Workpaper

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

Basic Consolidation Workpaper for Second Year

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

Consolidation Workpaper with Differential

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002

(3) 30,000 (4)

635,000 50,000 100,000 200,000

McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2002