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ACC-405 Chapter 5 Handout

5-1. Danielle’s Clothing, Inc. buys 80 percent of Lindsay’s Coffee Corporation for
$240,000 on January 1, 2015. The following trial balances existed immediately
prior to the acquisition:

Danielle’s Lindsay’s
Account Book Value Market Value Book Value Market Value
Cash and Receivables 375,000 225,000 25,000 25,000
Inventory 50,000 150,000 50,000 75,000
Plant Assets (net) 425,000 975,000 115,000 150,000
Patents _______ _10,000 15,000
Total Debits 850,000 200,000
Current Liabilities 110,000 110,000
Long-Term Debt 150,000 150,000 30,000 40,000
Common Stock ($5 par) 90,000 40,000
Retained Earnings 500,000 130,000
Total Credits 850,000 200,000

Assume that the inventory will be sold the first year (FIFO cost flow), plant assets have a
useful life of 7 years, the patent is amortized over 5 years, and the long-term debt will
mature in 5 years on December 31, 2015.

Financial information for Lindsay’s Coffee for the two-year period ending December 31,
2015 is as follows:

Date Net Income Dividends Declared

December 31, 2015 $50,000 $10,000


December 31, 2016 40,000 10,000

a. Prepare the entries on Danielle’s books for 2015 and 2016.


b. Prepare the CAD Schedule.
c. Prepare the consolidation entries for 2015 and 2016.
d. Prepare the Consolidation Worksheet for 2015.

CAD Schedule
Parent Share NCI Total
Value
Price Paid 240 60 300
Less: Book Value
Common Stock 32 8 40
OCC (Other Contributed Capital) 0 0 0
Retained Earnings 104 26 130
Total Book Value 136 34 170
Difference between IV & BV 104 26 130

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Adjust to Fair Value
Inventory (20) (5) (25)
Bldg & Equip (28) (7) (35)
Patent (4) (1) (5)
Long Term Liability 8 2 10
Balance 44 11 55
Record Goodwill 60 15 75
Balance 0 0 0

Parents Books Entries


A. Investment in L 240,
Cash 240,

Investment in L 40,
(50,000*.8)
E in S I 40,
Cash 8,
(dividends)
Investment in L 8,

E in Subs I 20,
(25,000*.8)
(inventory to CGS)
Investment in L 20,

E in Subs I 4,
(35/7*.8)
(Plant Assets)
Investment in L 4,

E in Subs I 800
(5/5*.8)
(patent)
Investment in L 800

Investment in L 1600
(10/5*.8)
(LT Liability)
E in subs I 1600

B. Elimination Entries

E in Subs I 16,800
Dividends 8,000
Investment 8,800

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OR
E in Subs I 16,800
Investment 16,800
&
Investment 8,000
Dividends 8,000

Common Stock 40
Retained Earnings(1/1/15) 130
Difference Bet IV&BV 130
Investment in L 240
Noncontrolling Interest 60

Cost of Gd Sold 25
Pl Assets 35
Patent 5
Goodwill 75
Long Term Liab 10
Diff bet IV & BV 130

Operating Expenses 5,
(depreciation 35/7)
Plant Assets 5,

Operating Expense 1,
5/5
Patent 1,

Long term debt 2,


10/5
Operating Exp 2,

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Lindsays Income

50,000
(29,000)
21,000
Noncontrolling Interest NI 21* 20%=4,200
Net Income (Danielle Share) 21* 80%=16,800

Noncontrolling Interest 1/1/11 (300,000*20%) 60,000


Net income (50,000*20%) 10,000
Excess amortization (5,800)
Dividends (10,000*20%) (2,000)
62,200

Noncontrolling Interest Net Income 10,000


(5,800)
4,200

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Debit Credit Noncont Consolidation
Danielle Lindsay

Income Statement
Sales 1,100,000 100,000 1,200,000
Equity in S Income 16,800
16,800
Total Revenue 1,116,800 100,000 1,200,000
Cost of Goods Sold 500,000 30,000 25 555,000
Operating Expenses 200,000 20,000 4 224,000
Total Cost and Expenses 700,000 50,000 779,000
Net Consolidated Income 416,800 421,000

Noncontrolling Interest NI 4.2 4,200


Net Income (to Statement of 416,800 50,000 69 23.2 4.2 416,800
Retained Earnings)
Retained Earnings
Statement
Retained Earnings (1/1/15) 500,000 130,000 130 500,000
Add: Net Income (from 416,800 50,000 69 23.2 4.2 416,800
Income Statement)
Subtotal 916,800 180,000 916,800
Less: Dividends
D Company 100,000 8 100,000
L Company 10,000 2
Retained Earnings (to Balance 816,800 170,000 199 31.2 2.2 816,800
Sheet)
Balance Sheet

Cash and Receivables 90,000 40,000 130,000


Inventory 70,000 36,000 106,000
Plant Assets 642,000 35 5 822,000
150,000
Patent 8,000 5 1 12,000
Investment in Lindsay 248,800 240
8.8
Difference Between IV & BV 130 130
Goodwill 75 75,000
Total Assets 1,020,800 234,000 1,145,000
Current Liabilities 100,000 100,000
Long Term Debt 44,000 24,000 2 10 76,000
Noncontrolling Interest in 60 60
Lindsay (1/1/15)
Noncontrolling Interest in 62.2 62,200
Lindsay (12/31/15)
/Common Stock 90,000 40,000 40 90,000
Retained Earnings (12/31/15) 816,800 170,000 199 31.2 816,800
Total Stockholders’ Equity 906,800 210,000 906,800

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Total Liabilities and 1,145,000
Stockholders’ Equity 1,050,800 234,000

Investment in L 32,
(40,000*.8)
E in Subs I 32,

Cash 8,
(dividends)
Investment in L 8

E in Subs I 4,
(35/7*.8)
(Plant Assets)
Investment in L 4,

E in Subs I 800
(5/5*.8)
(patent)
Investment in L 800

Investment in L 1600
(10/5*.8)
(LT Liability)
E in E 1600

B. Elimination Entries

Common Stock 40,000


Retained Earnings(1/1/16) 170,000
Difference Bet IV&BV 101,000
Investment in L 248,800
Noncontrolling Interest 62,200

Pl Assets 30
Patent 4
Goodwill 75
Long Term Liab 8
Diff bet IV & BV 101

Operating Expenses 5,
(depreciation 35/7)
Plant Assets 5,

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Operating Expense 1,
5/5
Patent 1,

Long term debt 2,


10/5
Operating Exp 2,

E in Subs I 28,800
Dividends 8,000
Investment 20,800

OR
E in Subs I 28,800
Investment 28,800

Investment 8,000
Dividends 8,000

Lindsays Income

40,000
(4,000)
36,000
Noncontrolling Interest NI 36* 20%= 7,200
Net Income (Danielle Share) 36* 80%=28,800

Noncontrolling Interest 1/1/16 (300,000*20%) 62,200


Net income (40,000*20%) 8,000
Excess amortization (800)
Dividends (10,000*20%) (2,000)
67,400

Noncontrolling Interest Net Income 8,000


(,800)

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7,200

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