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Chapter 6 Exercise 4 On January 1, 2011, Pearce Company purchased an 80% interest in the capital stock of Searl Company
for $2,460,000. At that time, Searl Company had capital stock of $1,500,000 and retained earnings of $300,000. The difference
between book of value Searl equity and the value implied by the purchase price was attributed to specific assets of Searl
Company as follows: 375,000 to equipment of Searl Company with a five-year remaining life. 187,500 to land held by Searl
Company. 112,500 to inventory of Searl Company. Searl uses the FIFO assumption In pricing its inventory, and 600,000 that
could not be assigned to specific assets or liabilities of Searl Company. 1,275,000 Total At year-end 2011 and 2012, Searl had in
its inventory merchandise that it had purchased from Pearce at a 25% markup on cost during each year in the following
amounts: 2011 $90,000 2012 $105,000 During 2011, Pearce reported net income from independent operations (including sales
to affiliates) of $1,500,000, while Searle reported net income of $600,000. In 2012, Pearces net income from independent
operations (including sales to affiliates) was $1,800,000 and Searls was $750,000. Calculate the controlling interest in
consolidated net income for 2011 and 2012.

The $600,000 that could not be assigned to specific assets and liabilities is assumed to represent goodwill (the unidentifiable
intangible asset), which is not amortized under current GAAP but is reviewed periodically for impairment. In contrast, identifiable
intangible assets would be amortized if they have a definite life but not if the life is indefinite in duration. Thus, only if the $600,000
pertained to an identifiable intangible asset with a finite life would amortization be required. We assume that is not the case here.
2011
Pearce Company's net income from its independent operations $1,500,000
$90 ,000
Amount of income not realized in transactions with third parties ($90,000 ) (18,000)
1.25
Pearce Company's income from its independent operations that has been realized
in transactions with third parties 1,482,000
Pearce's share of Searl Company adjusted income that has been realized in transactions
with third parties ($412,500* 0.80) 330,000*
Controlling interest in consolidated net income for 2011 $1,812,000
*[$600,000 ($75,000 + $112,500)] x 0.80 = 330,000,
where $75,000 = $375,000/5
Alternatively,
Controlling Interest in Consolidated Income
Net income internally generated by Pearce Company $1,500,000

Unrealized profit on downstream Realized profit (downstream sales) from begin. inventory
sales to Searl Company (ending
Inventory) ($90,000 $90,000/1.25) 18,000 Pearce Company's percentage of Searl Company's income
realized from third parties, .80($412,500) 330,000

Controlling interest in Consolidated Income $1,812,000

2012
Pearce Company's net income from its independent operations $1,800,000
Less profit included therein that has not been realized in transactions with third parties
($105,000 ($105,000/1.25)) (21,000)
Plus profit realized in 2012 ($90,000 ($90,000/1.25)) 18,000
Pearce Company's income from its independent operations that has been realized
in transactions with third parties 1,797,000
Pearce's share of Searl Company adjusted income that has been realized in transactions
with third parties ($675,0000 .80) 540,000
Controlling interest in consolidated net income for 2012 $2,337,000

*[$750,000 $75,000] x 0.80 = $540,000,

where $75,000 = $375,000/5

Alternatively,
Controlling Interest in Consolidated Income
Net income internally generated by Pearce Company $1,800,000
Unrealized profit on
downstream Realized profit (downstream sales) from begin. inventory 18,000
sales to Searl Company (ending
Inventory) 21,000 Pearce Company's percentage of Searl Company's income
realized from third parties, .80($675,000) 540,000

Controlling interest in Consolidated Income $2,337,000

Chapter 6 Exercise 5 Refer to Exercise 6-4. Using the same figures, assume that the merchandise mentioned was included in
Pearces inventory, having been purchased from Searl. Calculate the controlling interest in consolidated net income for 2011
and 2012.

2011
Pearce Company's income from its independent operations $1,500,000

Plus: Pearce Company's interest in the realized net income of Searl Company:
Reported Net income $600,000
Less Amortization of difference between implied and book value
($75,000 + $112,500) (187,500)
$90 ,000
Less unrealized profit included therein ($90,000 - ) (18,000)
1.25
Income realized in transaction with third parties $394,500
Pearce Company's interest therein (0.8 $394,500) $315,600
Controlling interest in consolidated net income $1,815,600
2012
Pearce Company's income from its independent operations $1,800,000

Plus: Pearce Company's interest in the realized net income of Searl Company:
Reported Net income $750,000
Less amortization of difference between implied and book value (75,000)
 Less profit included therein that has not been realized in transactions
$105,000
with third parties ($105,000 - ) (21,000)
1.25
$90 ,000
Plus profit realized in 2012 ($90,000 - ) 18,000
1.25
Income realized in transaction with third parties $672,000
Pearce Company's interest therein (0.8 $672,000) 537,600
Controlling interest in consolidated net income $2,337,600

Chapter 6 Problem 16 Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased
for $540,000 on January 1, 2009, when Sedbrook Companys retained earnings were $100,000. Preclosing trial balances for the
two companies at December 31, 2013 are presented here: Pruitt Corporation Sedbrook Company Cash $83,000 $80,000
Accounts Receivable 213,000 112,500 Inventory 1/1 150,000 110,000 Investment in Sedbrook Co. 568,250 Other Assets 500,000
400,000 Dividends Declared 100,000 30,000 Purchases 850,000 350,000 Other Expenses 180,000 137,500 2,644,250 1,220,000
Accounts Payable 70,000 30,000 Other Liabilities 75,000 40,000 Common Stock 800,000 500,000 Retained Earnings, 1/1
532,000 120,000 Sales 1,100,000 530,000 Equity in Subsidiary Income 67,250 2,644,250 1,220,000 Ending Inventory 200,000
120,000 The January 1, 2013, inventory of Sedbrook Company includes $30,000 of profit recorded by Pruitt Corporation on
2012 sales. During 2013, Pruitt Corporation made intercompany sales of $200,000 with a markup of 25% on cost. The ending
inventory of Sedbrook Company includes good purchased in 2013 from Pruitt for $50,000, Pruitt Corporation uses the
complete equity method to records its investment in Sedbrook Company. A. Prepare the consolidated statements workpaper
for the year ended December 31, 2013. B. Calculate the consolidated retained earnings on December 31, 2013, using the
analytical or t-account approach.

PRUITT CORPORATION AND SUBSIDIARY

Part A Consolidated Statement Workpaper
For the Year Ended December 31, 2013
 Pruitt Sedbrook Eliminations Noncontrolling Consolidated
Corporation Company Dr. Cr. Interest Balances
Income Statement
Sales 1,100,000 530,000 (2) 200,000 1,430,000
Equity in subsidiary income 67,250 (1) 67,250
Total revenue 1,167,250 530,000 1,430,000
Cost of goods sold:
Beginning inventory 150,000 110,000 (4) 30,000 230,000
Purchases 850,000 350,000 (2) 200,000 1,000,000
Cost of goods available 800,000 460,000 1,230,000
Less ending inventory 200,000 120,000 (3) 10,000 310,000
Cost of goods sold 1,000,000 340,000 920,000
Other expenses 180,000 137,500 317,500
6-28

Total cost & expense 980,000 477,500 1,237,500

Net/consolidated income 187,250 52,500 192,500
Noncontrolling interest in income 5,250 * (5,250)*
Net income to retained earnings 187,250 52,500 277,250 230,000 5,250 187,250

Statement of Retained Earnings

1/1 Retained earnings
Pruitt Corporation 532,000 532,000
Sedbrook Company 120,000 (5)120,000
Net income from above 187,250 52,500 277,250 230,000 5,250 187,250
Dividends declared
Pruitt Corporation (100,000) (100,000)
Sedbrook Company (30,000) (1) 27,000 (3,000)
12/31 Retained earnings to balance sheet 619,250 142,500 397,250 257,000 2,250 619,250
 Pruitt Sedbrook Eliminations Noncontrolling Consolidated
Corporation Company Dr. Cr. Interest Balances
Balance Sheet
Cash 83,000 80,000 163,000
Accounts receivable 213,000 112,500 325,500
Inventory 200,000 120,000 (3) 10,000 310,000
Investment in Sedbrook Company 568,250 (4) 30,000 (5) 558,000
(1) 40,250
Other assets 500,000 400,000 900,000
Total assets 1,564,250 712,500 1,698,500

Accounts payable 70,000 30,000 100,000

Other liabilities 75,000 40,000 115,000
Capital stock:
Pruitt Corporation 800,000 800,000
Sedbrook Company 500,000 (5) 500,000
Retained earnings from above 619,250 142,500 397,250 257,000 2,250 619,250
1/1 Noncontrolling interest (5) 62,000 62,000
12/31 Noncontrolling interest 64,250 64,250
Total liabilities & equity 1,564,250 712,500 927,250 927,250 1,698,500

*Noncontrolling interest in income = 0.10 $52,500 = $5,250

Explanation of workpaper entries

(1) Equity in Subsidiary Income 67,250*
Investment in Sedbrook Company 40,250
 Dividends Declared ($30,000 0.90) 27,000
To reverse the effect of parent company entries during the
year for subsidiary dividends and income
* (.90)($52,500) + $30,000 - $10,000 = $67,250

(2) Sales 200,000

Purchases (Cost of Goods Sold) 200,000
To eliminate intercompany sales

(3) Ending Inventory - Income Statement (CoGS) 10,000

Ending Inventory (Balance Sheet) 10,000
To eliminate unrealized intercompany profit in
ending inventory ($50,000 ($50,000/1.25))

(4) Investment in Sedbrook Company 30,000

Beginning Inventory (Income Statement) 30,000
To recognize intercompany profit in beginning inventory
realized during the year

(5) Beginning Retained Earnings- Sedbrook Co. 120,000

Common Stock - Sedbrook Company 500,000
Investment in Sedbrook Company ($568,250 - $40,250 + $30,000) 558,000
Noncontrolling Interest ($500,00 + $120,000) x .10 62,000
To eliminate investment account and create noncontrolling interest account

Part B Pruitt Corporation's retained earnings on 12/31/2013 $ 619,250

Consolidated retained earnings on 12/31/2013 $ 619,250
Chapter 6 Problem 17 Paque Corporation owns 90% of the common stock of Segal Company. The stock was purchased for $810,000
on January 1, 2009, when Segal Companys retained earnings were $150,000. Financial data for 2013 are presented here: Paque
Corporation Segal Company Sales $1,650,000 $795,000 Equity in Subsidiary Income 91,125 Total Revenue 1,741,125 795,000 Cost
of Goods Sold: Beginning Inventory 225,000 165,000 Purchases 1,275,000 525,000 Cost of Goods Available 1,500,000 690,000 Less:
Ending Inventory 210,000 172,500 Cost of Goods Sold 1,290,000 517,500 Other Expenses 310,500 206,250 Total Cost and Expense
1,600,500 723,500 Net Income 140,625 71,250 1/1 Retained Earnings 798,000 180,000 Net Income 140,625 71,250 Dividends
Declared (150,000) (60,000) 12/31 Retained Earnings 788,625 191,250 Cash 93,000 75,000 Accounts Receivable 319,500 168,750
Inventory 210,000 172,500 Investment in Segal Company 833,625 Other Assets 750,000 630,000 Total Assets 2,206,125 1,046,250
Accounts Payable 105,000 45,000 Other Current Liabilities 112,500 60,000 Capital Stock 1,200,000 750,000 Retained Earnings
788,625 191,250 Total Liabilities and Equity 2,206,125 1,046,250 The January 1, 2013, inventory of Paque Corporation includes
$45,000 of profit recorded by Segal Company on 2012 sales. During 2013, Segal Company made intercompany sales of $300,000
with a markup of 20% of selling price. The ending inventory of Paque Corporation includes good purchased in 2013 from Segal
Company for $75,000. Paque Corporation used the complete equity method to records its investment in Segal Company. A. Prepare
the consolidated statements workpaper for the year ended December 31, 2013. B. Calculate consolidated retained earnings on
December 31, 2013, using the analytical or t-account approach.

Problem 6-17 PAQUE CORPORATION AND SUBSIDIARY

Part A Consolidated Statement Workpaper

For the Year Ended December 31, 2013

Paque Segal Eliminations Noncontrolling Consolidated

Corporation Company Dr. Cr. Interest Balances
Income Statement
Sales 1,650,000 795,000 (2) 300,000 2,145,000
Equity in subsidiary income 91,125 (1) 91,125
Total revenue 1,741,125 795,000 2,145,000
Cost of goods sold:
Beginning inventory 225,000 165,000 (4) 45,000 345,000
Purchases 1,275,000 525,000 (2) 300,000 1,500,000
Cost of goods available 1,500,000 690,000 1,845,000
Less ending inventory 210,000 172,500 (3) 15,000 367,500
Cost of goods sold 1,290,000 517,500 1,477,500
Other expenses 310,500 206,250 516,750
Total cost & expense 1,600,500 723,750 1,994,250
Net/consolidated income 140,625 71,250 150,750
Noncontrolling interest in income 10,125 * (10,125)
Net income to retained earnings 140,625 71,250 406,125 345,000 10,125 140,625

Statement of Retained Earnings

1/1Retained earnings
Paque Corporation 798,000 798,000
Segal Company 180,000 (5) 180,000

Net income from above 140,625 71,250 406,125 345,000 10,125 140,625
Dividends declared
Paque Corporation (150,000) (150,000)
Segal Company (60,000) (1) 54,000 (6,000)
12/31 Retained earnings to balance sheet 788,625 191,250 586,125 399,000 4,125 788,625

Problem 6-17 (continued) Paque Segal Eliminations Noncontrolling Consolidated

Corporation Company Dr. Cr. Interest Balances
Balance Sheet
Cash 93,000 75,000 168,000
Accounts Receivable 319,500 168,750 488,250
 Inventory 210,000 172,500 (3) 15,000 367,500
Investment in Segal Company 833,625 (4) 40,500 (5) 837,000
(1) 37,125
Other Assets 750,000 630,000 1,380,000

Total assets 2,206,125 1,046,250 2,403,750

Accounts Payable 105,000 45,000 150,000

Other Current Liabilities 112,500 60,000 172,500
Capital Stock:
Paque Corporation 1,200,000 1,200,000
Segal Company 750,000 (5) 750,000
Retained Earnings from above 788,625 191,250 586,125 399,000 4,125 788,625
1/1 Noncontrolling Interest (4) 4,500 (5) 93,000 88,500
12/31 Noncontrolling Interest 92,625 92,625
Total liabilities & equity 2,206,125 1,046,250 1,381,125 1,381,125 2,403,750

*Noncontrolling Interest in Consolidated Income = 0.10 ($71,250 + $45,000 $15,000) = $10,125

Explanation of workpaper entries

(1) Equity in Subsidiary Income 91,125*
Investment in Segal Company 37,125
Dividends Declared ($60,000 0.90) 54,000
To reverse the effect of parent company entries during the year
for subsidiary dividends and income
* 0.90 ($71,250 + $45,000 $15,000) = $91,125

(2) Sales 300,000

 Purchases (Cost of Goods Sold) 300,000
To eliminate intercompany sales

(3) Ending Inventory - Income Statement (CoGS) 15,000

Ending Inventory (Balance Sheet) 15,000
To eliminate unrealized intercompany profit in ending
inventory ($75,000 0.2).

(4) Investment in Segal Company (.90)($45,000) 40,500

Noncontrolling Interest (.1)($45,000) 4,500
Beginning Inventory -Income Statement (CoGS) 45,000
To recognize intercompany profit realized during the year and to
reduce controlling and noncontrolling interests for their share of
unrealized profit at beginning of year

(5) Beginning Retained Earnings- Segal Co. 180,000

Common Stock - Segal Company 750,000
Investment in Segal Company ($833,625 - $37,125 + $40,500) 837,000
Noncontrolling Interest ($750,000 + $180,000) x .10 93,000

Part B
Paque Corporation's Retained Earnings on 12/31/2013 $ 788,625
Consolidated retained earnings on 12/31/2013 $ 788,625