Chap009 131230191204 Phpapp01

Chapter 09 - Consolidation Ownership Issues
CHAPTER 9
CONSOLIDATION OWNERSHIP ISSUES
ANSWERS TO QUESTIONS
Q9-1 Preferred stock of the subsidiary is eliminated in the consolidation process in a

manner comparable to that used in eliminating the common stock of the subsidiary. For
those preferred shares held by the parent company, a proportionate share of subsidiary
income and net assets assigned to the preferred shares is eliminated against the balance in
the parent's investment account. Subsidiary income and net assets assigned to preferred
shares not held by the parent are included as a part of the noncontrolling interest along with
the balances assigned to noncontrolling interest for common stock not held by the parent.
The claim of the preferred shareholders normally is computed before the common stock is
eliminated so that any priority claim associated with the preferred stock can be properly
recognized and assigned to the correct shareholder group.
Q9-2 All preferred shares held by the parent are eliminated against the balance in the
investment account. Those held by unrelated parties are included in the total assigned to
the noncontrolling interest.
Q9-3 Preferred dividends normally are deducted in arriving at income available to common
shareholders. When preferred dividends are paid by the subsidiary to shareholders other
than the parent, the income accruing to the common shares held by the parent company is
reduced. Therefore, they must be deducted to arrive at income available to the parent
company shareholders. No preferred dividends are deducted if the parent company owns
all the shares or if no dividends are declared and the preferred stock is noncumulative.
Q9-4 In the event the preferred shares are redeemed, the subsidiary must pay the call
premium and the net assets of the subsidiary will be reduced by the amount of the
premium. Because it is more conservative to assume the call premium will be paid, the
amount of the premium normally is added to the claim of the preferred shareholders and
deducted from the equity assigned to the common shareholders whenever consolidated
statements are prepared.
Q9-5 The fair value of the net assets of the subsidiary is computed by deducting the fair
value of the subsidiary's liabilities from the fair value of its assets. When the subsidiary has
preferred stock outstanding, the claims of the preferred shareholders, including dividends in
arrears and participation rights held by preferred shareholders, must be taken into
consideration in determining the fair value of net assets available to common shareholders.
These items, when deducted from the fair value of the identifiable assets of the acquired
company, will reduce the amount of net assets assigned to common stock and potentially
increase the amount reported as goodwill.
9-1
Q9-6 The parent may record the difference between the carrying value and the sale price
of the shares as either a gain on sale of investment or an adjustment to its additional paid-in
capital. No gain or loss on the sale of subsidiary shares should be reported in the
consolidated statements. If the parent records a gain on the sale, it should be eliminated in
the consolidation process and treated as a part of additional paid-in capital of the
consolidated entity.
Q9-7 All common shareholders should share equally in the net assets of a company.
When a subsidiary sells additional shares to a nonaffiliate at a price in excess of existing
book value, the effect will be to increase the net book value of all shareholders. Because it
is a capital transaction, no gain or loss is recognized on the sale.
Q9-8 Each purchase of additional shares should be examined to determine the difference
between the price paid and underlying book value. When an amount greater than book
value is paid directly to the subsidiary for the shares, the book value of the shares held by
the noncontrolling interest will increase. As a result, the increase in the parent’s claim on the
net assets of the subsidiary will be less than the amount paid. When consolidated
statements are prepared, additional paid-in capital or retained earnings (if the parent has no
additional paid-in capital) must be debited for the increase in the balance assigned to the
noncontrolling interest, thereby reducing the amount reported in the consolidated balance
sheet.
Q9-9 All the shares of the subsidiary are eliminated in preparing the consolidated
statements. Thus, treasury shares reported by the subsidiary are eliminated in the
consolidation workpaper. The effect of the retirement on the consolidated statements
depends on the price paid and whether the shares were purchased from the parent or from
a nonaffiliate.
Q9-10 Indirect ownership is a general term used whenever one company owns shares of
another company and that company holds ownership in a third company. Indirect control
occurs when a majority of the shares of a particular company are held by one or more
companies that are, in turn, under the control of another company. By exercising its control
over those companies the parent can exercise control of the company indirectly owned.
Q9-11 A reciprocal relationship exists if Subsidiary A and Subsidiary B hold ownership in

each other. If Subsidiary A records investment income based on the reported net income of
Subsidiary B and Subsidiary B records investment income based on the reported net
income of Subsidiary A, the sum of the reported net income totals for the two companies
may be substantially greater than the sum of the reported operating income totals for the
two companies. Parent company net income will be overstated if the impact of the
reciprocal relationship is ignored when the parent company records investment income on
its ownership in the two subsidiaries.
Q9-12 Under the treasury stock method the parent company shares that have been
purchased by a subsidiary are reported as treasury stock in the consolidated balance sheet.
The carrying value of the shares is the amount paid by the subsidiary when they were
purchased.
9-2
Q9-13 Consolidated net income will be reduced by $100,000. Income assigned to the
controlling interest will be reduced by $72,000 ($100,000 x .90 x .80) when the unrealized
profit of Tiny Corporation is eliminated. A total of $10,000 is treated as a reduction to the
income assigned to noncontrolling shareholders of Tiny Corporation ($100,000 x .10) and
$18,000 is a reduction of the income assigned to noncontrolling shareholders of Subsidiary
Company ($100,000 x .90 x .20).
Q9-14 All three companies should be included in the consolidated financial statements.
Slide Company should be consolidated with Bit Company because Bit holds majority
ownership of Slide. Bit Company, in turn, should be consolidated with Snapper Corporation
because Snapper holds majority ownership of Bit.
Q9-15 A subsidiary's stock dividend results in the capitalization of some portion of its
retained earnings. Such an action will have no effect on the consolidated financial
statements since the entire stockholders' equity section of the subsidiary is eliminated in
preparing the consolidation workpaper.
Q9-16 A 15 percent stock dividend is a small stock dividend and must be recorded by
capitalizing retained earnings equal to the market price per share of the stock times the
number of shares actually issued. As a result, retained earnings will decrease and the par
value of stock outstanding and additional paid-in capital will increase on the subsidiary's
books. There should be no change in the investment account balance reported by the
parent. Thus, the only change in the eliminating entries is the relative amount debited to
each of the three individual stockholders' equity accounts of the subsidiary.
Q9-17 When the parent or other affiliates own all the shares of all companies included in
the consolidation, the order in which the consolidation is completed may not be particularly
critical. On the other hand, when less than 100 percent ownership is held there is a much
greater chance of error in apportioning unrealized profits or other adjustments between
noncontrolling ownership and consolidated net income when some other sequence is used.
By starting the consolidation with the company furthest away from the parent, the
computation of income assigned to noncontrolling interest at each level can be most easily
accomplished.
9-3
SOLUTIONS TO CASES
C9-1 Effect of Subsidiary Preferred Stock
When a parent company does not own all the shares of a subsidiary, income assigned to
the noncontrolling interest includes (1) a portion of subsidiary preferred dividends and (2) a
portion of earnings available to common shareholders.
To determine the amount of income to assign to preferred and common shareholders of the
subsidiary, the controller needs to have the following information about the preferred stock:
1. The number of preferred shares outstanding and the number owned by the parent and
other affiliates.
2. The annual preferred dividend rate per share and whether the dividends are cumulative
or noncumulative.
3. If the dividends are noncumulative, the amount of preferred dividends declared during
the period, if any.
In this particular case the parent does not appear to own any of the subsidiary's preferred
shares. Once the controller determines the portion of subsidiary income assignable to
common shareholders, consolidated net income attributable to the controlling interest is
computed by adding the parent's pro rata share of this amount to the parent's income from
its own operations.
C9-2 Consolidated Stockholders’ Equity: Theory vs. Practice
a. 1Upon the sale of stock of a subsidiary, Xerox used to recognize a gain or loss in the
consolidated income statement equal to the company’s proportionate share of the
corresponding increase or decrease in that subsidiary’s equity. Under FASB 160, the sale
of subsidiary shares is viewed as an equity transaction and does not affect income.
Instead, the difference between the fair value of the consideration received and the change
in the amount of the noncontrolling interest is recognized as an adjustment to stockholders’
equity (usually additional paid-in capital).
b. Occidental Petroleum has generally treated subsidiary preferred stock as a liability (the
amount is small). It should be reported as part of the noncontrolling interest.
9-4
C9-3 Sale of Subsidiary Shares
MEMO
To: Robert Reader

Vice President of Finance
Book Corporation
From: , CPA
Re: Recognition of Gain on Sale of Subsidiary Shares
Previous accounting standards did not specifically address the issue of how to treat a sale
of subsidiary shares when the parent retained controlling ownership. However, a common
practice was to recognize a gain or loss on the sale of shares.
The FASB’s recent issuance of FASB 160 makes clear that, from a consolidated
perspective, a parent’s sale of subsidiary shares while maintaining control is an equity
transaction. Accordingly, no gain or loss on the sale should be reported in the consolidated
income statement. Instead, equity should be adjusted by the difference between the
consideration received and the change in the parent’s subsidiary interest.
In the current situation, Book’s interest in Lance prior to its sale of Lance shares was
$360,000, an amount equal to 90 percent of Lance’s $400,000 book value. Immediately
following the sale of Lance shares, Book’s remaining 60 percent interest in Lance is
$240,000 ($400,000 x .60), a decrease of $120,000 ($360,000 - $240,000). The difference
between the proceeds received and the change in the book value of Book’s interest in
Lance is as follows:
Proceeds received ($5.60 x 30,000 shares) $168,000

Change in book value of interest ($360,000 - $240,000) 120,000
Required adjustment to equity $ 48,000
This $48,000 difference should be reported within equity in the consolidated balance sheet.
Although alternatives exist in terms of how to meet the FASB’s reporting requirement, the
following entry to record the sale of shares on Book’s books would be consistent with the
FASB’s requirement and probably the most efficient approach:
Cash 168,000
Investment in Lance Company Stock 120,000
Additional Paid-In Capital 48,000
The additional paid-in capital recorded on Book’s books would carry over to the
consolidated balance sheet and would be included in consolidated equity.
If Book elected to record a $48,000 gain on the sale of Lance shares instead of recognizing
additional paid-in capital as shown in the entry, that gain would have to be transferred to
additional paid-in capital in the preparation of consolidated financial statements.
Primary citation:
FASB 160
ARB 51 (as amended by FASB 160), Par. 33.
9-5
9-6
C9-4 Sale of Subsidiary Shares
(a) With a sale of shares to a nonaffiliate, net resources have been brought into the
consolidated entity and the noncontrolling shareholders have an additional claim. The
excess of the proceeds received from the sale over the change in the parent’s interest in
the subsidiary increases the amount of additional paid-in capital reported in the
consolidated balance sheet. A sale of subsidiary shares to a nonaffiliate also changes the
amount of income assigned to the noncontrolling interest in the consolidated income
statement and the amount of net assets assigned to the noncontrolling interest in the
consolidated balance sheet.
(b) When a parent sells shares of one subsidiary to another subsidiary, net resources to
the consolidated entity do not change. Any gain recorded by the parent must be eliminated
when the investment balance reported by the subsidiary is eliminated in preparing
consolidated financial statements. A change in the claim of the noncontrolling interest is
likely to occur if the subsidiary that purchases the shares is not wholly owned. As a result,
there may be some change in consolidated income and the balance sheet totals assigned
to noncontrolling interest.
C9-5 Reciprocal Ownership
A great many factors beyond the immediate impact on reported earnings may be important
in deciding on the use of the funds. Items such as the following should be considered:
1. Are the excess funds held by Thorson available only temporarily or are they not likely to
be needed in the foreseeable future?
2. Will there be any regulatory or taxation problems associated with one or more of the
alternatives?
3. Can shares of the companies be purchased in the desired quantities and at existing
market prices or are there potential difficulties associated with one or more alternatives?
4. Is it desirable to acquire more shares of either subsidiary since controlling ownership

already is in the hands of Strong Manufacturing?
5. Have the noncontrolling shareholders of either subsidiary been troublesome or caused

the parent to refrain from actions that it might otherwise have taken?
With the information given, it is difficult to determine which action will have the most
favorable impact on consolidated net income. The earnings of each company, the number
of shares outstanding, and the relative market prices of the shares each will have an effect.
In general, reported income is maximized by purchasing the shares with the lowest price-
earnings ratio.
9-7
SOLUTIONS TO EXERCISES
E9-1 Multiple-Choice Questions on Preferred Stock Ownership
1. d $50,000 = $20,000 + $30,000
2. c $29,000 = $20,000 + .30($30,000)
3. b Only the retained earnings of the acquiring company is included.
4. a The portion held by the parent is eliminated when the preferred investment is
eliminated, and the portion held by nonaffiliates is eliminated and included with the
balance reported as noncontrolling interest in the consolidated balance sheet.
E9-2 Multiple-Choice Questions on Multilevel Ownership
1. b $188,000 = $100,000 + .80[$80,000 + .60($50,000)]
2. b $20,000 = .40($50,000)
3. c $22,000 = .20[$80,000 + .60($50,000)]
4. c $42,000 = .40($50,000) + .20[$80,000 + .60($50,000)]
5. b $2,400 = .80 x .60[($150,000 + $100,000 - $200,000) / 10 years)
E9-3 Acquisition of Preferred Shares
Eliminating entries:
E(1) Common Stock — Separate Company 50,000

Retained Earnings 150,000
Investment in Separate Company Common
Stock 140,000
Noncontrolling Interest 60,000
Eliminate investment in common stock.
E(2) Preferred Stock — Separate Company 100,000

Investment in Separate Company
Preferred Stock 60,000
Eliminate subsidiary preferred stock.
9-8
E9-4 Reciprocal Ownership [AICPA Adapted]
a. None of Simba's dividends is reported in the consolidated statements. All of

Simba's dividends are eliminated in the consolidation process.
b. Only 90 percent of Pride's dividends are included in the consolidated retained

earnings statement. The dividend payment on the 10 percent owned by Simba is
an intercorporate payment to an affiliate and must be eliminated in the
consolidation process.
E9-5 Subsidiary with Preferred Stock Outstanding
E(1) Common Stock — Topple Company 150,000

Investment in Topple Common Stock 270,000
E(2) Preferred Stock — Topple Company 200,000

Investment in Topple Preferred Stock 80,000
E9-6 Subsidiary with Preferred Stock Outstanding
a. Entries recorded by Clayton Corporation:
(1) Investment in Topple Common Stock 270,000

Cash 350,000
Record purchase of Topple stock.
(2) Cash 25,500

Record dividends from Topple:
$25,500 = ($50,000 - $16,000) x .75
(3) Cash 6,400

Dividend Income 6,400
Record dividends on preferred stock
from Topple: $16,000 x .40
(4) Investment in Topple Common Stock 40,500

Income from Subsidiary 40,500
Record equity-method income:
$40,500 = ($70,000 - $16,000) x .75
9-9
E9-6 (continued)
b. Eliminating entries:
E(1) Income from Subsidiary 40,500

Dividends Declared — Common Stock 25,500
Eliminate income from subsidiary.
E(2) Dividend Income — Preferred 6,400

Dividends Declared — Preferred 6,400
Eliminate dividend income from
subsidiary preferred.
E(3) Income to Noncontrolling Interest 23,100

Dividends Declared — Preferred Stock 9,600
Assign income to noncontrolling interest:
$23,100 = [($70,000 - $16,000) x .25] +
($16,000 x .60)
$9,600 = $16,000 x .60
$8,500 = ($50,000 - $16,000) x .25
$5,000 = $13,500 - $8,500
E(4) Common Stock — Topple Company 150,000

Retained Earnings, January 1 210,000
Eliminate beginning investment balance.
E(5) Preferred Stock — Topple Company 200,000

9-10
E9-7 Preferred Dividends and Call Premium
a. Culbertson Company's contribution to 20X2 consolidated net income is equal to

its reported net income of $70,000.
b. Income assigned to noncontrolling interest:
Preferred shares [.40($100,000 x .12)] $ 4,800

Common shares {.10[$70,000 - ($100,000 x .12)]} 5,800
Total income assigned to noncontrolling interest $10,600
c. Retained earnings assignable to preferred shareholders:
Dividends in arrears [5 years x ($100,000 x .12)] $60,000

Call feature ($2 x 10,000 shares) 20,000
Total retained earnings assigned to preferred stock $80,000
d. Book value of common shares:
Par value of common shares outstanding $300,000

Retained earnings balance $380,000
Less: Balance assigned to preferred shares (80,000) 300,000
Book value of common shares $600,000
e. Total noncontrolling interest:
Preferred stock [.40($100,000 + $80,000)] $

72,000
Common stock (.10 x $600,000) 60,000
Total noncontrolling interest $132,000
9-11
E9-8 Multilevel Ownership
a. Consolidated net income for 20X6 is $190,000 ($90,000 +

$40,000 + $60,000)
b. Income of $36,800 is assigned to the noncontrolling interest:
Income from Dally ($40,000 x .35) $14,000

Income from Latent [($60,000 + $16,000) x .30] 22,800
Total income assigned to noncontrolling interest $36,800
c. Income of $153,200 is assigned to the controlling interest:
Consolidated net income $190,000

Less: Income assigned to noncontrolling interest (36,800)
Income assigned to controlling interest $153,200
d. Only the $45,000 of dividends paid by Grasper Corporation to its

shareholders will be reported as dividends declared in Grasper’s
20X6 consolidated retained earnings statement.
9-12
E9-9 Eliminating entries for Multilevel Ownership
a. Journal entries recorded by Brown Corporation on its investment in Tann Company:
(1) Investment in Tann Company Stock 120,000

Cash 120,000
Record purchase of Tann Company stock.
(2) Cash 9,000

Investment in Tann Company Stock 9,000
Record dividends from Tann Company:
$15,000 x .60
(3) Investment in Tann Company Stock 24,000

Income from Tann Company 24,000
$40,000 x .60
b. Journal entries recorded by Promise Enterprises on its investment in Brown

Corporation:
(1) Investment in Brown Corporation Stock 315,000

Cash 315,000
Record purchase of Brown Corporation
stock.
(2) Cash 45,000

Investment in Brown Corporation Stock 45,000
Record dividends from Brown Corporation:
$50,000 x .90
(3) Investment in Brown Corporation Stock 129,600

Income from Brown Corporation 129,600
($120,000 + $24,000) x .90
c. Eliminating entries:
E(1) Income from Tann Company 24,000

Dividends Declared 9,000
Eliminate income from Tann Company.

$16,000 = $40,000 x .40
$6,000 = $15,000 x .40
9-13
E9-9 (continued)
E(3) Common Stock — Tann Company 100,000

Eliminate investment in Tann Company
stock:
$120,000 = $200,000 x .60
$80,000 = $200,000 x .40
E(4) Income from Brown Corporation 129,600

Eliminate income from Brown Corporation.

Assign income to noncontrolling
shareholders of Brown Corporation:
$14,400 = ($120,000 + $24,000) x .10
$5,000 = $50,000 x .10
$9,400 = $14,400 - $5,000
E(6) Common Stock — Brown Corporation 150,000

Eliminate investment in Brown
Corporation stock:
$315,000 = $350,000 x .90
$35,000 = $350,000 x .10
9-14
E9-10 Reciprocal Ownership
Operating income of Grower Supply Corporation $112,000

Operating income of Schultz Company 50,000
Less: Income to noncontrolling interest:
($50,000 x .15) (7,500)
Income to controlling interest $154,500
9-15
E9-11 Consolidated Balance Sheet with Reciprocal Ownership
Talbott Company and Short Company

Consolidated Balance Sheet Workpaper
December 31, 20X9
Talbott Short Eliminations Consol-
Item Company Company Debit Credit idated
Cash 78,000 39,000 117,000

Accounts Receivable 120,000 80,000 200,000
Inventory 150,000 120,000 270,000
Buildings and
Equipment (net) 400,000 300,000 700,000
Investment in Short
Co. Common Stock 352,000 (1)352,000
Investment in Talbott
Co. Common Stock 61,000 (2) 61,000
Treasury Stock (2) 61,000 61,000
Debits 1,100,000 600,000 1,348,000
Accounts Payable 90,000 60,000 150,000

Bonds Payable 400,000 100,000 500,000
Common Stock 300,000 200,000 (1)200,000 300,000
Retained Earnings 310,000 240,000 (1)240,000 310,000
Noncontrolling Interest (1) 88,000 88,000
Credits 1,100,000 600,000 501,000 501,000 1,348,000
E(1) Common Stock — Short Company 200,000
Investment in Short Company Common
Stock 352,000
E(2) Treasury Stock 61,000

Investment in Talbott Company
Common Stock 61,000
9-16
E9-11 (continued)
Talbott Company and Subsidiary

Consolidated Balance Sheet
December 31, 20X9
Current Assets:
Cash $117,000
Accounts Receivable 200,000
Inventory 270,000 $ 587,000
Noncurrent Assets:
Buildings and Equipment (net) 700,000
Total Assets $1,287,000
Current Liabilities:
Accounts Payable $ 150,000
Bonds Payable 500,000
Stockholders' Equity:
Controlling Interest:
Common Stock $300,000
Total Controlling Interest $610,000
Total Equity before Reduction for Treasury Shares $698,000
Less: Treasury Shares (61,000)
Total Stockholders’ Equity 637,000
Total Liabilities and Stockholders' Equity $1,287,000
9-17
E9-12 Subsidiary Stock Dividend
a. Lake Company:
Stock Dividends Declared 40,000
Common Stock 40,000
Lindale Company: No entry required.
b. Eliminating entries, December 31, 20X3:

Investment in Lake Company Stock 10,500

E(3) Common Stock — Lake Company 140,000

Stock Dividends Declared 40,000
c. Eliminating entry, January 1, 20X4:
E(1) Common Stock — Lake Company 140,000

Lake Company retained earnings, December 31, 20X3:
Balance, December 31, 20X2 $200,000

Add: Net income for 20X3 25,000
Less: Stock dividend in 20X3 (40,000)
Cash dividend paid in 20X3 (10,000)
Balance, December 31, 20X3 $175,000
9-18
E9-13 Sale of Subsidiary Shares by Parent
a. Investment in Acme Concrete, January 1, 20X5:

Purchase price $360,000
Acme net income in 20X3 and 20X4 $100,000
Dividends paid by Acme in 20X3 and 20X4 (40,000)
$ 60,000
Proportion of stock held by Stable x .80 48,000
Balance prior to sale of shares $408,000
b. Journal entry recorded by Stable Home Builders for sale of shares:
Cash 120,000
Investment in Acme Stock 102,000
Additional Paid-in Capital 18,000
$102,000 = $408,000 x 4,000 /
[($200,000 / $10) x .80]


E(3) Common Stock — Acme Concrete 200,000

Noncontrolling interest 204,000
E9-14 Purchase of Additional Shares from Nonaffiliate
a. Purchase price, December 31, 20X7 $210,000

Modern Products Company net income for 20X8
($230,000 + $20,000 - $200,000) $50,000
Proportion of stock held by Weal x .60
Income from subsidiary 30,000
Dividend received from Modern Products Company
($20,000 x .60) (12,000)
Balance in investment account, December 31, 20X8 $228,000
9-19
E9-14 (continued)
b. Balance in investment account, December 31, 20X8 $228,000

Purchase of additional shares on January 1, 20X9 96,000
Investment balance January 1, 20X9, after purchase $324,000
Modern Products Company net income for 20X9
($280,000 + $20,000 - $230,000) $70,000
Proportion of stock held by Weal x .80
$56,000
Less: Amortization of differential on stock
purchased January 1, 20X9: ($20,000 / 10 (2,000)
years)
Income from subsidiary 54,000
Dividend received from Modern Products
Company ($20,000 x .80) (16,000)
Balance in investment account, December 31, 20X9 $362,000
E(1) Income from Modern Products Company 54,000

Investment in Modern Products
Company Stock 38,000

$14,000 = $70,000 x .20
E(3) Common Stock — Modern Products Company 150,000

Differential 20,000
Investment in Modern Products
Company Stock 324,000
Eliminate beginning investment balance:
$20,000 = $96,000 – ($380,000 x .20)
$76,000 = $380,000 x .20
E(4) Patents 18,000

Amortization Expense 2,000
Differential 20,000
Assign differential and amortize for year:
$2,000 = $20,000 / 10 years
9-20
E9-15 Repurchase of Shares by Subsidiary from Nonaffiliate
a. Book value of Quinn stock outstanding $500,000

Cost of treasury shares repurchased (84,000)
Book value of remaining shares outstanding $416,000
Proportion of remaining shares held by
noncontrolling
Interest (2,000 / 8,000) x .25
Adjusted book value of shares held $104,000
Book value of shares held before treasury stock
repurchase by Quinn ($500,000 x .20) (200,000)
Reduction of noncontrolling interest $ 96,000
Consideration given by Quinn Manufacturing (84,000)
Increase in equity attributable to parent $ 12,000
b. Investment in Quinn Manufacturing Stock 12,000

c. Common Stock — Quinn Manufacturing 100,000

Investment in Quinn Stock 312,000
Treasury Shares 84,000
$312,000 = .75($500,000 - $84,000)
$104,000 = .25($500,000 - $84,000)
9-21
E9-16 Sale of Shares by Subsidiary to Nonaffiliate
a. Computation of change in book value of Schroeder Corporation shares held by

Browne Corporation:
Before After
Sale Sale
Common stock, $10 par value $150,000 $ 200,000

Additional paid-in capital 50,000 400,000
Retained earnings 400,000 400,000
Total stockholders' equity of Schroeder $600,000 $1,000,000
Proportion of stock held by Browne
Corporation:
11,000 / 15,000 x .733
11,000 / (15,000 + 5,000) x .550
Book value of shares $440,000 $ 550,000
Increase in book value of shares held by

Browne Corporation $ 110,000
b. Investment in Schroeder Stock 110,000

c. Common Stock — Schroeder Corporation 200,000

Investment in Schroeder Stock 550,000
$450,000 = $1,000,000 x .45
9-22
SOLUTIONS TO PROBLEMS
P9-17 Multiple-Choice Questions on Preferred Stock Ownership
1. d Book value of shares held by noncontrolling interest:

Preferred stock ($100,000 x .30) $30,000
Common stock [($200,000 + $50,000) x .20] 50,000
Total book value $80,000
2. b Income to noncontrolling preferred

shareholders
[($100,000 x .10) x .30] $3,000
Income to noncontrolling common
shareholders:
Reported net income of Upland Company $30,000
Income to preferred shareholders (10,000)
Income to common shareholders $20,000
Proportion of common stock owned by
noncontrolling interest x .20 4,000
Total income to noncontrolling interest $7,000
3. b Reported net income of Upland Company $ 30,000

Operating income of Stacey Company 100,000
Less: Income to noncontrolling interest (7,000)
4. c Controlling interest:
Common stock $ 300,000
Retained earnings 350,000
Total controlling interest $ 650,000
Noncontrolling interest: ($250,000 x .20) +
($100,000 x .30) 80,000
Total stockholders’ equity $730,000
5. a All preferred shares of the subsidiary are eliminated in preparing the

consolidated financial statements.
9-23
P9-18 Multilevel Ownership with Differential
a. Journal entries recorded by Corn Corporation on its investment in Bark Company:
(1) Investment in Bark Company Stock 406,000

Cash 406,000
Record purchase of Bark Company stock.
(2) Cash 14,000

Investment in Bark Company Stock 14,000
Record dividends from Bark Company:
$20,000 x .70
(3) Investment in Bark Company Stock 21,000

Income from Bark Company 21,000
$30,000 x .70
(4) Income from Bark Company 2,100

Amortize differential related to
buildings and equipment:
($30,000 / 10 years) x .70
b. Journal entries recorded by Purple Corporation on its investment in Corn

Corporation:
(1) Cash 20,000

Investment in Corn Corporation Stock 20,000
Record dividends from Corn Corporation:
$25,000 x .80
(2) Investment in Corn Corporation Stock 63,120

Income from Corn Corporation 63,120
($60,000 + $18,900) x .80
(3) Income from Corn Corporation 8,000

trademark: ($50,000 / 5 years) x .80
9-24
P9-18 (continued)
E(1) Income from Bark Company 18,900

Eliminate income from Bark Company.

shareholders of Bark Company:
$8,100 = ($30,000 - $3,000) x .30
$6,000 = $20,000 x .30
$2,100 = $8,100 - $6,000
E(3) Common Stock — Bark Company 250,000

Differential 30,000
Eliminate investment in Bark Company
stock:
$30,000 = $406,000 + $174,000 - $550,000
E(4) Buildings and Equipment 30,000

Differential 30,000
Assign beginning differential.
E(5) Depreciation Expense 3,000

Accumulated Depreciation 3,000
buildings and equipment:
$30,000 / 10 years
E(6) Income from Corn Corporation 55,120

Eliminate income from Corn Corporation.

shareholders of Corn Corporation:
$13,780 = ($60,000 + $18,900 - $10,000) x .
20
$5,000 = $25,000 x .20
$8,780 = $13,780 - $5,000
9-25
P9-18 (continued)
E(8) Common Stock — Corn Corporation 400,000

Differential 30,000
Eliminate investment in Corn
Corporation stock:
$270,000 = $200,000 + $35,000 + $35,000
$30,000 = $50,000 - $10,000 - $10,000
$560,000 = $520,000 + [($35,000 - $10,000)
x .80] x 2 years
$140,000 = $700,000 x .20
E(9) Trademark 30,000

Differential 30,000
Assign beginning differential:
$50,000 - ($10,000 x 2 years)
E(10) Amortization Expense 10,000

Trademark 10,000
trademark: $50,000 / 5 years
9-26
P9-19 Subsidiary Stock Dividend
Investment elimination entry, January 1, 20X8:
Alternative 1: Pound Manufacturing stock is split 2:1.
E(1) Common Stock — Pound Manufacturing 100,000

Investment in Pound Mfg. Stock 306,000
Alternative 2: A stock dividend of 4,000 shares is issued.

Alternative 3: A stock dividend of 1,500 shares is issued.

9-27
P9-20 Subsidiary Preferred Stock Outstanding
a. Eliminating entries, January 1, 20X5:
Preferred Stock — Pert Company 200,000

Investment in Pert Preferred Stock 92,800
Eliminate preferred stock:
$32,000 = ($200,000 x .08) x 2 years
Common Stock — Pert Company 150,000

Investment in Pert Common Stock 222,600
Eliminate common stock:
$168,000 = $200,000 - $32,000
b. Consolidated net income and income to controlling

interest:
Operating income of Emerald Corporation $ 80,000
Net income of Pert 34,000
Income to noncontrolling interest:
Income from preferred stock of Pert Company
($16,000 x .60) $ 9,600
Income from common stock of Pert Company
[($34,000 - $16,000) x .30] 5,400
Income to noncontrolling interest (15,000)
Income to controlling interest $ 99,000
Alternate computation of income to controlling interest

Operating income of Emerald Corporation $80,000
Income from preferred stock of Pert Company
($16,000 x .40) 6,400
Income from common stock of Pert Company
[($34,000 - $16,000) x .70] 12,600
9-28
P9-21 Ownership of Subsidiary Preferred Stock
a. Preferred stockholders' claim on net assets of Jacobs:
Liquidation value of preferred stock ($101 per share) $202,000

20X6 dividends in arrears ($200,000 x .10) 20,000
Total preferred stockholder claim, December 31, 20X6 $222,000
b. Book value of Jacobs common shares acquired by Presley:
Total Jacobs stockholders' equity, December 31, 20X6 $3,155,000

Claim of preferred stockholders (222,000 )
Book value of Jacobs common stock $2,933,000
Portion acquired by Presley x .60
Book value of common shares acquired by Presley $1,759,800
c. Goodwill associated with acquisition of common shares:
Consideration given by Presley to acquire shares $1,800,000

Fair value of noncontrolling interest in common shares 1,200,000
Total fair value $3,000,000
Book value of common shares (2,933,000)
Goodwill $ 67,000
d. Income to noncontrolling interest, 20X7:
Jacobs net income $280,000

Less: impairment of goodwill (26,000)
Less: 20X7 preferred dividends ($200,000 x .10) (20,000)
Income accruing to common shareholders $234,000
Noncontrolling common shareholders' interest x .40
Income to noncontrolling common shareholders $ 93,600
Preferred dividends to noncontrolling
shareholders ($20,000 x .80) 16,000
Total income to noncontrolling shareholders $109,600
e. Presley's income from investment in subsidiary common stock:
Jacobs net income $280,000

Less: 20X7 preferred dividends ($200,000 x .10) (20,000)
Income accruing to common shareholders $260,000
Presley's proportionate share x .60
Presley's share of income to common shareholders $156,000
Note: Basic equity method does not include adjustment for

Impairment of goodwill.
9-29
P9-21 (continued)
f. Noncontrolling interest, December 31, 20X7:
Total amount assigned to noncontrolling interest:

Noncontrolling interest - common $1,289,600
Noncontrolling interest - preferred 161,600
Total noncontrolling interest $1,451,200
Assigned to noncontrolling interest - common

Jacobs stockholders' equity, January 1, 20X7 $3,155,000
20X7 net income 280,000
Less: Preferred dividends (40,000)
Less: Common dividends (10,000)
Total Jacobs stockholders' equity, December 31, 20X7 $3,385,000
Claim of preferred stockholders (202,000 )
Book value of Jacobs' common stock $3,183,000
Unimpaired goodwill at December 31, 20X7 ($67,000 - $26,000) 41,000
Total basis for common shareholders $3,224,000
Noncontrolling stockholders' interest x .40
Noncontrolling interest — common $1,289,600
Assigned to noncontrolling interest - preferred

Total Jacobs preferred stockholders' equity,
January 1, 20X7 $222,000
Less: Dividends in arrears paid during 20X7 (20,000)
Jacobs preferred stockholders' equity,
December 31, 20X7 $202,000
Noncontrolling stockholders' interest x .80
Noncontrolling interest — preferred $161,600
9-30
P9-21 (continued)
g. Eliminating entries:

Dividends Declared — Common 6,000
Investment in Jacobs Common Stock 150,000
E(2) Dividend Income — Preferred 8,000

Eliminate dividend income from subsidiary
preferred stock: $40,000 x .20

Dividends Declared — Common 4,000
$4,000 = $10,000 x .40
$32,000 = $40,000 x .80
E(4) Common Stock — Jacobs Jacuzzi 500,000

Additional Paid-In Capital — Common 800,000
Premium on Preferred Stock 3,000 *
Retained Earnings, January 1 1,630,000 **
Goodwill 67,000
Investment in Jacobs Common Stock 1,800,000
Noncontrolling Interest 1,200,000
Eliminate beginning investment in common
stock:
$3,000 = $5,000 - $2,000
$1,630,000 = $1,650,000 - $20,000
*Portion accruing to common shareholders
**Portion accruing to common shareholders after deducting

preferred dividends in arrears
9-31
P9-21 (continued)
E(5) Goodwill Impairment Loss 26,000

Goodwill 26,000
Recognize goodwill impairment loss.
E(6) Preferred Stock — Jacobs Jacuzzi 200,000

Premium on Preferred Stock 2,000 *
Retained Earnings, January 1 20,000 **
Investment in Jacobs Preferred Stock 42,000
Additional Paid-In Capital —
Retirement of Preferred Stock 2,400
Eliminate subsidiary preferred stock:
$2,000 = $5,000 - $3,000
$20,000 = $200,000 x .10
$2,400 = ($222,000 x .20) - $42,000
$177,600 = $222,000 x .8
*Portion representing call premium
**Portion relating to preferred dividends in arrears
P9-22 Consolidation Workpaper with Subsidiary Preferred Stock
a. Eliminating entries:

Investment in White Common Stock 49,500
E(2) Dividend Income 9,000


E(4) Common Stock — White Corporation 100,000

Investment in White Common Stock 315,000
E(5) Preferred Stock — White Corporation 200,000

Investment in White Preferred Stock 120,000
E(6) Dividends Payable 9,000

Dividends Receivable 9,000
9-32
P9-22 (continued)
b. Brown Company and White Corporation
Consolidation Workpaper
December 31, 20X6
Brown White Eliminations Consol-
Corporatio
Item Company n Debit Credit idated
Sales 500,000 300,000 800,000

Dividend Income 9,000 (2) 9,000
Income from Subsidiary 58,500 (1) 58,500
Credits 567,500 300,000 800,000
Cost of Goods Sold 280,000 170,000 450,000
Deprec. and Amort. 40,000 30,000 70,000
Other Expenses 131,000 20,000 151,000
Debits (451,000) (220,000) (671,000)
Consolidated Net Income 129,000
Income to Noncon-
trolling Interest (3) 12,500 (12,500)
Income, carry forward 116,500 80,000 80,000 116,500
Retained Earnings, Jan. 1 435,000 250,000 (4) 250,000 435,000

Income, from above 116,500 80,000 80,000 116,500
551,500 330,000 551,500
Dividends Declared
Preferred Stock (15,000) (2) 9,000
(3) 6,000
Common Stock (60,000) (10,000) (1) 9,000
(3) 1,000 (60,000)
Ret. Earnings, Dec. 31,
carry forward 491,500 305,000 330,000 25,000 491,500
Cash 58,000 100,000 158,000

Dividends Receivable 9,000 (6) 9,000
Inventory 100,000 200,000 300,000
Bldgs. and Equip. (net) 360,000 270,000 630,000
Investment in White Corp.:
Preferred Stock 120,000 (5) 120,000
Common Stock 364,500 (1) 49,500
(4) 315,000
Debits 1,091,500 690,000 1,288,000

Dividends Payable 15,000 (6) 9,000 6,000
Bonds Payable 300,000 300,000
Preferred Stock 200,000 (5) 200,000
Common Stock 200,000 100,000 (4) 100,000 200,000
Ret. Earnings, from above 491,500 305,000 330,000 25,000 491,500
Noncontrolling Interest (3) 5,500
(4) 35,000
(5) 80,000 120,500
Credits 1,091,500 690,000 639,000 639,000 1,288,000
9-33
P9-23 Subsidiary Stock Transactions
a. (1) Book value of Beta Company stock outstanding $500,000

Proportion of remaining shares held by noncontrolling
Interest (1,500 / 9,000) x .1667
Adjusted book value of shares held $ 72,000
repurchase by Beta Company ($500,000 x .25) (125,000 )
Reduction of noncontrolling interest $ 53,000
Consideration given by Beta Company (68,000)
Decrease in equity attributable to parent $ (15,000)
(2) Journal entry recorded by Apex Corporation:

Investment in Beta Company Stock 15,000
(3) Eliminating entries:

$45,000 x .833

$45,000 x .167
E(3) Common Stock — Beta Company 100,000

Treasury Stock 68,000
b. (1) Book value of Beta Company stock outstanding $500,000

Proportion of remaining shares held by noncontrolling
Interest (2,500 / 9,000) x .2778
Adjusted book value of shares held by noncontrolling
Interest $120,000
repurchase by Beta Company ($500,000 x .25) (125,000)
Increase in equity attributable to parent $ 5,000
(2) Journal entry recorded by Apex Corporation:
Cash 68,000
9-34
P9-23 (continued)
(3) Eliminating entries:

$45,000 x .722

$45,000 x .278
E(3) Common Stock — Beta Company 100,000

Treasury Stock 68,000
P9-24 Sale of Subsidiary Shares
a. Eliminating entries:
E(1) Gain on Sale of ENC Company Stock 10,000

Eliminate gain on sale of ENC shares:
$60,000 - ($250,000 x .20)

Investment in ENC Company Stock 12,000
Eliminate income from subsidiary:
$18,000 = .60($170,000 - $140,000)

$12,000 = .40($170,000 - $140,000)
E(4) Common Stock — ENC Company 100,000

Investment in ENC Company Stock 150,000
9-35
P9-24 (continued)
b. Penn Corporation and ENC Company
December 31, 20X4
Penn ENC Eliminations Consol-
Item Corp. Company Debit Credit idated
Sales 280,000 170,000 450,000

Gain on Sale of ENC
Company Stock 10,000 (1) 10,000
Income from Subsidiary 18,000 _______ (2) 18,000
Credits 308,000 170,000 450,000
Cost of Goods Sold 210,000 100,000 310,000
Depreciation Expense 20,000 15,000 35,000
Other Expenses 21,000 25,000 46,000
Debits (251,000) (140,000) (391,000)
Consolidated net income 59,000
Income to Noncon-
trolling Interest (3) 12,000 (12,000)
Income, carry forward 57,000 30,000 40,000 47,000
Retained Earnings,
January 1 320,000 130,000 (4)130,000 320,000
Income, from above 57,000 30,000 40,000 47,000
377,000 160,000 367,000
Dividends Declared (15,000) (10,000) (2) 6,000
(3) 4,000 (15,000)
Ret. Earnings, Dec. 31,
carry forward 362,000 150,000 170,000 10,000 352,000
Cash 30,000 35,000 65,000

Inventory 120,000 100,000 220,000
Buildings and
Equipment 650,000 230,000 880,000
Investment in ENC
Company Stock 162,000 (2) 12,000
(4) 150,000
Debits 1,032,000 415,000 1,285,000
Accum. Depreciation 170,000 95,000 265,000

Bonds Payable 200,000 30,000 230,000
Common Stock 200,000 100,000 (4)100,000 200,000
Additional Paid-In
Capital 50,000 20,000 (4) 20,000 (1) 10,000 60,000
Retained Earnings,
from above 362,000 150,000 170,000 10,000 352,000
Noncontrolling Interest (3) 8,000
(4)100,000 108,000
Credits 1,032,000 415,000 290,000 290,000 1,285,000
9-36
P9-25 Sale of Shares by Subsidiary to Nonaffiliate
a. E(1) Common Stock — Delta Corporation 240,000

Investment in Delta Corporation Stock 520,000
Eliminate investment in common stock:
$240,000 = $200,000 + ($10 x 4,000 shares)
$190,000 = $50,000 + [($45 - $10) x 4,000 shares]
$520,000 = $780,000 x (16,000 shares / 24,000 shares)
$260,000 = $780,000 x (8,000 shares / 24,000 shares)
Journal entry recorded by Craft Corporation:
Investment in Delta Corporation Stock 40,000

Book value of shares held by Craft:
After sale $780,000 x (16,000 / 24,000) $520,000
Before sale $600,000 x (16,000 / 20,000) (480,000 )
Increase in book value $ 40,000
b. Craft Corporation and Delta Corporation

Consolidated Balance Sheet Workpaper
January 1, 20X3
Craft Delta Eliminations Consol-

Item Corp. Corp. Debit Credit idated
Cash 50,000 230,000 280,000

Inventory 180,000 200,000 380,000
Buildings & Equipment 700,000 600,000 1,300,000
Investment in Delta
Corporation 520,000 (1)520,000
Total Debits 1,540,000 1,150,000 2,170,000
Accumulated
Depreciation 200,000 220,000 420,000
Taxes Payable 80,000 80,000
Mortgages Payable 250,000 250,000
Common Stock 300,000 240,000 (1)240,000 300,000
Additional Paid-In
Capital 220,000 190,000 (1)190,000 220,000
Retained Earnings, 500,000 350,000 (1)350,000 500,000
Noncontrolling
Interest (1)260,000 260,000
Total Credits 1,540,000 1,150,000 780,000 780,000 2,170,000
9-37
P9-25 (continued)
c. Craft Corporation and Subsidiary

Consolidated Balance Sheet
January 1, 20X3
Current Assets:
Cash $ 280,000
Accounts Receivable 210,000
Inventory 380,000 $ 870,000
Noncurrent Assets:
Buildings and Equipment $1,300,000
Less: Accumulated Depreciation (420,000 ) 880,000
Total Assets $1,750,000
Current Liabilities:
Accounts Payable $ 140,000
Taxes Payable 80,000 $ 220,000
Mortgages Payable 250,000
Stockholders’ Equity:
Controlling Interest:
Common Stock $ 300,000
Total Controlling Interest $1,020,000
Total Stockholders’ Equity 1,280,000
Total Liabilities and Stockholders' Equity $1,750,000
9-38
P9-26 Sale of Additional Shares to Parent
a. Eliminating entry:
E(1) Common Stock — Tin Corporation 125,000

Investment in Tin Corporation 412,500
Eliminate investment balance:
$125,000 = $100,000 + (2,500 x $10)
$187,500 = computed below
Computation of debit to Additional Paid-In Capital

Balance reported by Tin Corporation prior to
sale of additional shares $ 50,000
Increase in paid-in capital from sale of shares
[$150,000 – (2,500 x $10)] 125,000
Noncontrolling interest after sale of shares
($500,000 x .20) $100,000
Noncontrolling interest before sale of shares
($350,000 x .25) (87,500)
Increase in book value of noncontrolling interest 12,500
Debit to additional paid-in capital $187,500
Journal entry recorded by Tin Corporation:
Cash 150,000
Common Stock 25,000
Journal entry recorded by Lane Manufacturing:
Investment in Tin Corporation Stock 150,000

Cash 150,000
9-39
P9-26 (continued)
b. Lane Manufacturing Company and Tin Corporation

January 2, 20X1
Lane Tin Eliminations Consol-

Item Corp. Corp. Debit Credit idated
Cash 77,500 210,000 287,500

Inventory 100,000 180,000 280,000
Buildings and
Equipment 600,000 600,000 1,200,000
Investment in Tin
Corporation Stock 412,500 (1)412,500
Debits 1,250,000 1,090,000 1,927,500
Accum. Depreciation 150,000 240,000 390,000

Bonds Payable 400,000 300,000 700,000
Common Stock 200,000 125,000 (1)125,000 200,000
Additional Paid-In
Capital 50,000 175,000 (1)187,500 37,500
Retained Earnings, 400,000 200,000 (1)200,000 400,000
Noncontrolling
Interest (1)100,000 100,000
Total Credits 1,250,000 1,090,000 512,500 512,500 1,927,500
9-40
P9-27 Complex Ownership Structure
The overall ownership structure can be diagrammed as follows:
Consolidated net income of $98,800First

is reported:
Boston
Operating income of First Boston $ 44,000
Operating income of Gulfside 34,000
Operating income of.80
Paddock .10 50,000
Total earnings available $128,000
Income to noncontrolling interests:
Paddock .40[$50,000 + .10($30,000)] $21,200
Gulfside
Gulfside .20[$34,000 + .60($10,000)]
.60 Paddoc
8,000 (29,200)
Consolidated net income k $ 98,800
9-41

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Chapter 09 - Consolidation Ownership Issues

CONSOLIDATION OWNERSHIP ISSUES

Q9-1 Preferred stock of the subsidiary is eliminated in the consolidation process in a

Q9-11 A reciprocal relationship exists if Subsidiary A and Subsidiary B hold ownership in

C9-1 Effect of Subsidiary Preferred Stock

C9-2 Consolidated Stockholders’ Equity: Theory vs. Practice

C9-3 Sale of Subsidiary Shares

To: Robert Reader

Re: Recognition of Gain on Sale of Subsidiary Shares

Proceeds received ($5.60 x 30,000 shares) $168,000

C9-4 Sale of Subsidiary Shares

C9-5 Reciprocal Ownership

4. Is it desirable to acquire more shares of either subsidiary since controlling ownership

5. Have the noncontrolling shareholders of either subsidiary been troublesome or caused

E9-1 Multiple-Choice Questions on Preferred Stock Ownership

1. d $50,000 = $20,000 + $30,000

2. c $29,000 = $20,000 + .30($30,000)

3. b Only the retained earnings of the acquiring company is included.

E9-2 Multiple-Choice Questions on Multilevel Ownership

1. b $188,000 = $100,000 + .80[$80,000 + .60($50,000)]

3. c $22,000 = .20[$80,000 + .60($50,000)]

4. c $42,000 = .40($50,000) + .20[$80,000 + .60($50,000)]

5. b $2,400 = .80 x .60[($150,000 + $100,000 - $200,000) / 10 years)

E9-3 Acquisition of Preferred Shares

E(1) Common Stock — Separate Company 50,000

E(2) Preferred Stock — Separate Company 100,000

E9-4 Reciprocal Ownership [AICPA Adapted]

a. None of Simba's dividends is reported in the consolidated statements. All of

b. Only 90 percent of Pride's dividends are included in the consolidated retained

E9-5 Subsidiary with Preferred Stock Outstanding

E(1) Common Stock — Topple Company 150,000

E(2) Preferred Stock — Topple Company 200,000

E9-6 Subsidiary with Preferred Stock Outstanding

a. Entries recorded by Clayton Corporation:

(1) Investment in Topple Common Stock 270,000

(2) Cash 25,500

(3) Cash 6,400

(4) Investment in Topple Common Stock 40,500

E(1) Income from Subsidiary 40,500

E(2) Dividend Income — Preferred 6,400

E(3) Income to Noncontrolling Interest 23,100

E(4) Common Stock — Topple Company 150,000

E(5) Preferred Stock — Topple Company 200,000

E9-7 Preferred Dividends and Call Premium

a. Culbertson Company's contribution to 20X2 consolidated net income is equal to

b. Income assigned to noncontrolling interest:

Preferred shares [.40($100,000 x .12)] $ 4,800

c. Retained earnings assignable to preferred shareholders:

Dividends in arrears [5 years x ($100,000 x .12)] $60,000

d. Book value of common shares:

Par value of common shares outstanding $300,000

e. Total noncontrolling interest:

Preferred stock [.40($100,000 + $80,000)] $

E9-8 Multilevel Ownership

a. Consolidated net income for 20X6 is $190,000 ($90,000 +

b. Income of $36,800 is assigned to the noncontrolling interest:

Income from Dally ($40,000 x .35) $14,000

c. Income of $153,200 is assigned to the controlling interest:

Consolidated net income $190,000

d. Only the $45,000 of dividends paid by Grasper Corporation to its

E9-9 Eliminating entries for Multilevel Ownership

a. Journal entries recorded by Brown Corporation on its investment in Tann Company:

(1) Investment in Tann Company Stock 120,000