SM Chap 9

Chapter 9 - 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 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. Shares 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 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 reclassified as a part of additional paid-in capital of the consolidated entity.
Q9-6 All common shareholders 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.
Q9-7 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
9-1
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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.
Q9-8 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 worksheet.
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.
Q9-9 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 (Company D) are held by one or more
companies (Companies B and C) that are, in turn, under the control of another company
(Company A). By exercising its control over those companies (Companies B and C) the parent
(Company A) can exercise control of the company indirectly owned (Company D).
Q9-10 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.
Q9-11 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.
Q9-12 Consolidated net income will be reduced by $100,000. Income assigned to the
controlling interest will be reduced by $72,000 ($100,000 x 0.90 x 0.80) 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 0.10) and $18,000 is a
reduction of the income assigned to noncontrolling shareholders of Subsidiary Company
($100,000 x 0.90 x 0.20).
Q9-13 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.
Q9-14 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
worksheet.
Q9-15 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
9-2
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.
Q9-16 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.
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. Upon 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 ASC 810-10-55-4H, 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).
9-3
b. Occidental Petroleum has generally treated subsidiary preferred stock as a liability (the
amount is small). ASC 480-10-25 gives specific guidance on whether or not to treat preferred
stock as a liability. Consequently, Occidental's subsidiary preferred stock should be reported as
part of the noncontrolling interest.
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 ASC 810-10-55-4H 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 0.60),
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.
9-4
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:
ASC 810-10-55-4H
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,
9-5
reported income is maximized by purchasing the shares with the lowest price-earnings ratio.
C9-6 Complex Organizational Structures
a. Atlas America is a corporation. Its operations involve the development, production, and
distribution of natural gas, and to a lesser extent, oil. It also offers tax-advantaged investment
programs for gas and oil investors.
b. The subsidiaries of Atlas America include corporations, limited liability companies (LLCs), and
both general and limited partnerships. The company fully consolidates its subsidiaries. In
accordance with industry practice, the company reflects its interests in energy partnerships in its
consolidated statements using pro rata consolidation.
c. Atlas Pipeline Holdings is a subsidiary of Atlas America. It has complete ownership of Atlas
Pipeline Partners GP, LLC, a limited liability company that is the general partner of Atlas
Pipeline Partners, L.P. The only cash generating assets of Atlas Pipeline Holdings are its
indirect interests in Atlas Pipeline Partners, L.P.
d. Atlas Pipeline Partners, L.P. is a partnership, specifically a publicly-traded limited partnership.

A limited partnership must have at least one general partner with unlimited liability, and it may
have numerous limited partners whose liability is limited and may not participate in the
management of the partnership. Atlas Pipeline Partners, L.P. has a number of subsidiaries,
including general and limited partnerships, corporations, and limited liability companies. Limited
liability companies, in general, have the advantages of corporations with less of the formalities.
They often have certain tax advantages over corporations. Atlas Pipeline Partners, L.P. is
managed by its general partner, Atlas Pipeline Partners GP, LLC. The executives responsible
for Atlas Pipeline’s management are employees of Atlas America, as indicated in Atlas
Pipeline’s Form 10-K, in the item entitled Directors and Executive Officers of the Registrant.
These employees not only manage Atlas Pipeline Partners, L.P., but also Atlas America and its
other affiliates.
e. Atlas Pipeline Partners, L.P. presents consolidated financial statements in which it

consolidates all of its wholly-owned and majority-owned subsidiaries. NOARK Pipeline System
is a limited partnership that is 100 percent owned by Atlas Pipeline Partners. Prior to 2006, Atlas
Pipeline Partners owned 75 percent of NOARK. Atlas consolidates 100 percent of NOARK, and
previously also consolidated 100 percent of NOARK even though it was only 75 percent owned.
9-6
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 + 0.30($30,000)
3. b – Only the retained earnings of the parent 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 + 0.80[$80,000 + (0.60 x $50,000)]
2. b – $20,000 = 0.40 x $50,000
3. c – $22,000 = 0.20 x [$80,000 + (0.60 x $50,000)]
4. c – $42,000 = (0.40 x $50,000) + {0.20 x [$80,000 + (0.60 x $50,000)]}
5. b – $2,400 = 0.80 x {0.60 x [($150,000 + $100,000 - $200,000) / 10 years)]}
E9-3 Acquisition of Preferred Shares
Eliminating entry:
Preferred stock 100,000
Common stock 50,000
Retained earnings 150,000
Investment in Separate CS 140,000
Investment in Separate PS 60,000
NCI in NA of Separate 100,000
9-7
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
intercompany payment to an affiliate and must be eliminated in the consolidation
process.
E9-5 Subsidiary with Preferred Stock Outstanding
Eliminating entry:
Common stock 150,000
Investment in Separate CS 270,000
Investment in Separate PS 80,000
NCI in NA of Separate 210,000
E9-6 Subsidiary with Preferred Stock Outstanding
a. Entries recorded by Clayton Corporation:
Investment in Topple Common Stock 270,000

Investment in Topple Preferred Stock 80,000
Cash 350,000
Record purchase of Topple stock.
Cash 25,500
Record dividends from Topple: $25,500 = ($50,000 - $16,000) x 0.75
Cash 6,400
Dividend Income 6,400
Record dividends on preferred stock from Topple: $16,000 x 0.40

Income from Subsidiary 40,500
Record equity-method income: $40,500 = ($70,000 - $16,000) x 0.75
9-8
E9-6 (continued)
b. Elimination entries:
NOTE: This answer assumes that the $50,000 in dividends paid includes the preferred
dividends.
Book Value Calculations:
Pref.
NCI Inv. Div.
60%/25 PS Income Inv. CS Preferred Common Retained
% + 40% + 40% + 75% = Stock + Stock + Earnings
Beginning book value 210,000 80,000 270,000 200,000 150,000 210,000
+ Net income 23,100 6,400 40,500 70,000
- Preferred dividends (9,600) (6,400) (16,000)
- Common dividends (8,500) (25,500) (34,000)
Ending Book Value 215,000 80,000 0 285,000 200,000 150,000 230,000

Income from Topple Co. 40,500
Dividends Income--Preferred 6,400
NCI in NI of Topple Co. 23,100
Dividends declared, Preferred 16,000
Dividends declared, Common 34,000
Investment in Topple Co. CS 285,000
Investment in Topple Co. PS 80,000
NCI in NA of Topple Co. 215,000
9-9
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 [0.40($100,000 x 0.12)] $ 4,800

Common shares {0.10[$70,000 - ($100,000 x 0.12)]} 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 0.12)] $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 [0.40($100,000 + $80,000)] $ 72,000

Common stock (0.10 x $600,000) 60,000
Total noncontrolling interest $132,000
9-10
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 0.35) $14,000

Income from Latent [($60,000 + $16,000) x 0.30] 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.
9-11
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 0.60
(3) Investment in Tann Company Stock 24,000

Income from Tann Company 24,000
Record equity-method income: $40,000 x 0.60
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 0.90
(3) Investment in Brown Corporation Stock 129,600

Income from Brown Corporation 129,600
Record equity-method income: ($120,000 + $24,000) x 0.90
c.
Brown Add.
+ Corp. = Common + Paid-In + Retained
NCI 40% 60% Stock Capital Earnings
Beginning book
value 80,000 120,000 100,000 60,000 40,000
+ Net Income 16,000 24,000 40,000
- Dividends (6,000) (9,000) (15,000)
Ending book value 90,000 135,000 100,000 60,000 65,000

Additional paid-in capital 60,000
Income from Tann Co. 24,000
NCI in NI of Tann Co. 16,000
Dividends declared 15,000
Investment in Tann Co. 135,000
NCI in NA of Tann Co. 90,000
9-12
E9-9 (continued)

Add.
+ Promise = Common + Paid-In + Retained
Beginning book
value 35,000 315,000 150,000 60,000 140,000
+ Net Income 14,400 129,600 144,000
- Dividends (5,000) (45,000) (50,000)

Income from Brown Corp. 129,600
NCI in NI of Brown Corp. 14,400
Investment in Brown Corp. 399,600
NCI in NA of Brown Corp. 44,400
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 0.15) (7,500)
Income to controlling interest $154,500
9-13
E9-11 Consolidated Balance Sheet with Reciprocal Ownership

Investment in Short Co. 352,000
NCI in NA of Short Co. 88,000
Treasury Stock 61,000

Investment in Talbott Co. 61,000
Talbott Short Elimination Entries

Co. Co. DR CR Consolidated
Balance Sheet
Cash 78,000 39,000 117,000
Accounts Receivable 120,000 80,000 200,000
Inventory 150,000 120,000 270,000
Buildings & Equipment
(net) 400,000 300,000 700,000
Investment in Short Co. 352,000 352,000 0
Investment in Talbott Co. 61,000 61,000 0
Total Assets 1,100,000 600,000 0 413,000 1,287,000
Accounts Payable 90,000 60,000 150,000

Bonds Payable 400,000 100,000 500,000
Common Stock 300,000 200,000 200,000 300,000
Retained Earnings 310,000 240,000 240,000 310,000
Treasury Stock 61,000 (61,000)
NCI in NA of Short Co. 88,000 88,000
Total Liabilities &
Equity 1,100,000 600,000 501,000 88,000 1,287,000
9-14
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
Retained Earnings 310,000
Total Controlling Interest $610,000
Noncontrolling Interest 88,000
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
9-15
E9-12 Subsidiary Stock Dividend
a. Lake Company:
Stock Dividends Declared 40,000
Common Stock 40,000
Lindale Company: No entry required.

b.
Lindale
NCI + Co. = Common + Retained
30% 70% Stock Earnings
Beginning book value 90,000 210,000 100,000 200,000
+ Net Income 7,500 17,500 25,000
- Dividends (3,000) (7,000) (10,000)
-Stock Dividend 40,000 (40,000)
Ending book value 94,500 220,500 140,000 175,000

Income from Lake Co. 17,500
NCI in NI of Lake Co. 7,500
Stock dividends declared 40,000
Investment in Lake Co. 220,500
NCI in NA of Lake Co. 94,500
c.
Lindale
NCI + Co. = Common + Retained
Total 94,500 220,500 140,000 175,000

Investment in Lake Co. 220,500
NCI in NA of Lake Co. 94,500
9-16
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 0.80 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 0.80]
c. Eliminating entries:
NCI + Stable = Common + Retained
+ Net Income 20,000 30,000 50,000
- Dividends (8,000) (12,000) (20,000)

Income from Acme 30,000
NCI in NI of Acme 20,000
Investment in Acme 324,000
NCI in NA of Acme 216,000
9-17
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 0.60
Income from subsidiary 30,000
Dividend received from Modern Products Company
($20,000 x 0.60) (12,000)
Balance in investment account, December 31, 20X8 $228,000
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 0.80
$56,000
Less: Amortization of differential on stock
purchased January 1, 20X9: ($20,000 / 10 years) (2,000)
Income from subsidiary 54,000
Dividend received from Modern Products
Company ($20,000 x 0.80) (16,000)
Balance in investment account, December 31, 20X9 $362,000
9-18
E9-14 (continued):
c. Eliminating entries:

NCI + Well Corp. = Common + Retained
Beginning book
value 76,000 304,000 150,000 230,000
+ Net Income 14,000 56,000 70,000
- Dividends (4,000) (16,000) (20,000)
Basic elimination entry

Income from Modern Products Co. 56,000
NCI in NI of Modern Products
Co. 14,000
Investment in Modern Products Co. 344,000
NCI in NA of Modern Products Co. 86,000
Excess Value (Differential) Calculations:

Well Corp. 100% = Patents
Beginning balance 20,000 20,000
Changes (2,000) (2,000)
Ending balance 18,000 18,000
Note: Although Well Corp. owns 80 percent of the common stock, the entire differential related
to patents is attributed to Well since the differential only arose for the 20X9 stock purchase.
Amortized excess value reclassification entry:

Amortization Expense 2,000
Income from Modern Products Co. 2,000
Excess value (differential) reclassification entry:

Patents 18,000
Investment in Modern Products Co. 18,000
9-19
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 0.25
Adjusted book value of shares held $104,000
Book value of shares held before treasury stock
repurchase by Quinn ($500,000 x 0.20) (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 12,000

c.
Add.
NCI + Blatant = Com. + Paid-In + Treasur + Retained
25% 75% Stock Capital y Stock Earnings
Beginning book
value 200,000 300,000 100,000 150,000 250,000
Shares repurchased (96,000) 12,000 (84,000)
Ending book value 104,000 312,000 100,000 150,000 (84,000) 250,000

Treasury stock 84,000
Investment in Quinn 312,000
NCI in NA of Quinn 104,000
9-20
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.
Browne Add.
NCI + Corp. = Common + Paid-In + Retained
45% 55% Stock Capital Earnings
Beginning book value 160,000 440,000 150,000 50,000 400,000
New Shares 290,000 110,000 50,000 350,000

Investment in Schroeder Corp. 550,000
NCI in NA of Schroeder Corp. 450,000
9-21
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 0.30) $30,000
Common stock [($200,000 + $50,000) x 0.20] 50,000
Total book value $80,000
2. b – Income to noncontrolling preferred shareholders

[($100,000 x 0.10) x 0.30] $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 0.20 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
Total controlling interest $ 650,000
Noncontrolling interest: ($250,000 x 0.20) +
($100,000 x 0.30) 80,000
Total stockholders’ equity $730,000
5. a – All preferred shares of the subsidiary are eliminated in preparing the

consolidated financial statements.
9-22
P9-18 Multilevel Ownership with Differential
a. Journal entries recorded by Corn Corporation on its investment in Bark Company:
Investment in Bark Company Stock 406,000

Cash 406,000
Record purchase of Bark Company stock.
Cash 14,000
Record dividends from Bark Company: $20,000 x 0.70

Income from Bark Company 21,000
Record equity-method income: $30,000 x 0.70
Income from Bark Company 2,100

Amortize differential related to buildings and equipment: ($30,000 / 10 years)
x 0.70
b. Journal entries recorded by Purple Corporation on its investment in Corn Corporation:
Cash 20,000
Investment in Corn Corporation Stock 20,000
Record dividends from Corn Corporation: $25,000 x 0.80

Income from Corn Corporation 63,120
Record equity-method income: ($60,000 + $18,900) x 0.80
Income from Corn Corporation 8,000

Amortize differential related to trademark: ($50,000 / 5 years) x 0.80
9-23
P9-18 (continued)
c. Eliminating Entries

Corn
NCI + Corp. = Common + Retained
Beginning book
value 165,000 385,000 250,000 300,000
+ Net Income 9,000 21,000 30,000
- Dividends (6,000) (14,000) (20,000)

Income from Bark Co. 21,000
NCI in NI of Bark Co. 9,000
Investment in Bark Co. 392,000
NCI in NA of Bark Co. 168,000

Buildings
NCI Corn and Acc.
30% + Corp. 70% = Equipment + Depr.
Beginning balance 9,000 21,000 30,000 0
Changes (900) (2,100) (3,000)
Ending balance 8,100 18,900 30,000 (3,000)

Depreciation expense 3,000
Income from Bark Co. 2,100
NCI in NI of Bark Co. 900

Buildings and Equipment 30,000
Accumulated Depreciation 3,000
Investment in Bark Co. 18,900
NCI in NA of Bark Co. 8,100
9-24
P9-18 (continued)

Purple
NCI + Corp. = Common + Retained
Beginning book
value 134,000 536,000 400,000 270,000*
+ Net Income 15,780 63,120 78,900
- Dividends (5,000) (20,000) (25,000)
* BB 1/1/X1 $200,000 + 60,000 NI – 25,000 Div = $235,000 12/31/X1

* BB 1/1/X2 $235,000 + 60,000 NI – 25,000 Div = $270,000 12/31/X2 (1/1/X3)

Income from Corn Corp. 63,120
NCI in NI of Corn Corp. 15,780
Investment in Corn Corp. 579,120
NCI in NA of Corn Corp. 144,780

NCI Purple
20% + Corp. 80% = Trademark
Beginning balance 6,000 24,000 30,000*
Changes (2,000) (8,000) (10,000)
Ending balance 4,000 16,000 20,000
* $50,000 Acquisition date differential

- 10,000 20X1 amortization
- 10,000 20X2 amortization
$30,000 Beginning balance 1/1/X3

Amortization Expense 10,000
Income from Corn Corp. 8,000
NCI in NI of Corn Corp. 2,000

Trademark 20,000
Investment in Corn Corp. 16,000
NCI in NA of Corn Corp. 4,000
9-25
P9-19 Subsidiary Stock Dividend
Alternative 1: Pound Manufacturing stock is split 2:1.

Quick Add.
NCI + Sales = Common + Paid-In + Retained
Beginning book
value 144,000 306,000 100,000 70,000 280,000
-Stock Dividend 0 0

Investment in Pound 306,000
NCI in NA of Pound 144,000
Alternative 2: A stock dividend of 4,000 shares is issued (large stock dividend)

Quick Add.
+ Sales = Common + Paid-In + Retained
Beginning book
value 144,000 306,000 100,000 70,000 280,000*
-Stock Dividend 40,000 (40,000)*
Ending book value 144,000 306,000 140,000 70,000 240,000*
* This is an example of a large stock dividend (similar to the one illustrated in the chapter). The entry only
involves a transfer of the par value of the shares (4,000 X $10) from Retained Earnings to Common Stock.

Alternative 3: A stock dividend of 1,500 shares is issued (small stock dividend)

Quick Add.
NCI + Sales = Common + Paid-In + Retained
Beginning book
value 144,000 306,000 100,000 70,000 280,000*
-Stock Dividend 15,000 60,000 (75,000)*
Ending book value 144,000 306,000 115,000 130,000 205,000*
* This is an example of a small stock dividend (not specifically illustrated in the chapter). The entry involves a
transfer of the fair value of the shares (1,500 X $50) from Retained Earnings to Common Stock and APIC.

9-26

P9-20 Subsidiary Preferred Stock Outstanding
a.
NCI Inv. PS Inv. CS Pref. Com. Ret.
60%/30% + 40% + 70% = Stock + Stock + Earn.
Begining book value 225,000 80,000 245,000 200,000 150,000 200,000
- Dividends in arrears (based on
common stock ownership) (9,600) (22,400)
+ Dividends in arrears to
owners 19,200 12,800
Ending Book Value 234,600 92,800 222,600 200,000 150,000 200,000

Investment in Pert Co. CS 222,600
Investment in Pert Co. PS 92,800
NCI in NA of Pert Co. 234,600
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 0.60) $ 9,600
Income from common stock of Pert Company
[($34,000 - $16,000) x 0.30] 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 0.40) 6,400
Income from common stock of Pert Company
[($34,000 - $16,000) x 0.70] 12,600
P9-21 Ownership of Subsidiary Preferred Stock

9-27
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 0.10) 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 0.60
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 0.10) (20,000)
Income accruing to common shareholders $234,000
Noncontrolling common shareholders' interest x 0.40
Income to noncontrolling common shareholders $ 93,600
Preferred dividends to noncontrolling
shareholders ($20,000 x 0.80) 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 0.10) (20,000)
Less: impairment of goodwill (26,000)
Income accruing to common shareholders $234,000
Presley's proportionate share x 0.60
Presley's share of income to common shareholders $140,400
9-28
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 0.40
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 0.80
Noncontrolling interest — preferred $161,600
9-29
P9-21 (continued)
g. Eliminating entries:
Basic elimination entry:

Preferred Stock 200,000
Premium on Preferred Stock 5,000
Common Stock 500,000
Retained Earnings 1,650,000
Income from Jacobs Jacuzzi 156,000
NCI in NI of Jacobs Jacuzzi 120,000
Investment in Jacobs Jacuzzi CS 1,909,800
Investment in Jacobs Jacuzzi PS 42,000
NCI in NA of Jacobs Jacuzzi 1,434,800

Presley Pools
NCI 40% + 60% = Goodwill
Beginning balance 26,800 40,200 67,000
Changes (10,400) (15,600) (26,000)
Ending balance 16,400 24,600 41,000

Goodwill impairment loss 26,000
Income from Jacobs Jacuzzi 15,600
NCI in NI of Jacobs Jacuzzi 10,400

Goodwill 41,000
Investment in Jacobs Jacuzzi 24,600
NCI in NA of Jacobs Jacuzzi 16,400
9-30
P9-22 Consolidation Worksheet with Subsidiary Preferred Stock

a.
Pref.
Div.
NCI Inv. PS Income Inv. CS Pref. Com. Ret.
40%/10% + 60% + 60% + 90% = Stock + Stock + Earn.
Beginning book
value 115,000 120,000 315,000 200,000 100,000 250,000
+ Net income 12,500 9,000 58,500 80,000
- Preferred dividends (6,000) (9,000) (15,000)
- Common dividends (1,000) (9,000) (10,000)
Ending Book Value 120,500 120,000 0 364,500 200,000 100,000 305,000

Income from White Corp. 58,500
NCI in NI of White Corp. 12,500
Investment in White Corp. CS 364,500
Investment in White Corp. PS 120,000
NCI in NA of White Corp. 120,500
Eliminate intercompany payable/receivable:

Dividends Payable 9,000
Dividends Receivable 9,000
9-31
P9-22 (continued)
b.
Brown White Elimination Entries
Co. Co DR CR Consolidated
Income Statement
Sales 500,000 300,000 800,000
Dividend Income 9,000 0 9,000 0
Less: COGS (280,000) (170,000) (450,000)
Less: Depreciation Expense (40,000) (30,000) (70,000)
Less: Other Expenses (131,000) (20,000) (151,000)
Income from White Co 58,500 0 58,500 0
Consolidated Net Income 116,500 80,000 67,500 0 129,000
NCI in Net Income 12,500 (12,500)
Controlling Interest in NI 116,500 80,000 80,000 0 116,500
Statement of Retained Earnings

Beginning Balance 435,000 250,000 250,000 435,000
Net Income 116,500 80,000 80,000 0 116,500
Less: Dividends Declared,
Preferred (15,000) 15,000 0
Less: Dividends Declared,
Common (60,000) (10,000) 10,000 (60,000)
Ending Balance 491,500 305,000 330,000 25,000 491,500
Balance Sheet
Cash 58,000 100,000 158,000
Dividends Receivable 9,000 0 9,000 0
Inventory 100,000 200,000 300,000
Buildings and Equipment (net) 360,000 270,000 630,000
Investment in White Co. CS 364,500 0 364,500 0
Investment in White Co. PS 120,000 0 120,000 0
Total Assets 1,091,500 690,000 0 493,500 1,288,000

Bonds Payable 300,000 0 300,000
Dividends Payable 0 15,000 9,000 6,000
Preferred Stock 0 200,000 200,000 0
Common Stock 200,000 100,000 100,000 200,000
Retained Earnings 491,500 305,000 330,000 25,000 491,500
NCI in NA of White Co 120,500 120,500
Total Liabilities & Equity 1,091,500 690,000 639,000 145,500 1,288,000
9-32
P9-23 Subsidiary Stock Transactions
a. (1) Book value of Beta Company stock outstanding $500,000

Interest (1,500 / 9,000) x 0.1667
Adjusted book value of shares held $ 72,000
repurchase by Beta Company ($500,000 x 0.25) (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:

Apex Add.
NCI + Corp. = Common + Paid-In + Treasury + Retained
16.7% 83.3% Stock Capital Stock Earnings
Beginning book
value 125,000 375,000 100,000 80,000 320,000
+ Net Income 7,500 37,500 45,000
Shares repurchased (53,000) (15,000) (68,000)

Income from Beta Co. 37,500
NCI in NI of Beta Co. 7,500
Investment in Beta Co. 397,500
NCI in NA of Beta Co. 79,500
9-33
P9-23 (continued)
b. (1) Book value of Beta Company stock outstanding $500,000

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 0.25) (125,000)
Increase in equity attributable to parent $ 5,000
(2) Journal entry recorded by Apex Corporation:
Cash 68,000
Investment in Beta Company Stock 63,000
(3) Eliminating entries:

Apex Add.
NCI + Corp. = Common + Paid-In + Treasury + Retained
27.8% 72.2% Stock Capital Stock Earnings
Beginning book
value 125,000 375,000 100,000 80,000 320,000
+ Net Income 12,500 32,500 45,000
Shares repurchased (5,000) (63,000) (68,000)

Income from Beta Co. 32,500
NCI in NI of Beta Co. 12,500
Investment in Beta Co. 344,500
NCI in NA of Beta Co. 132,500
9-34
P9-24 Sale of Subsidiary Shares

a.
Penn Add.
Beginning book
value 100,000 150,000 100,000 20,000 130,000
+ Net Income 12,000 18,000 30,000
- Dividends (4,000) (6,000) (10,000)

Income from ENC Co. 18,000
NCI in NI of ENC Co. 12,000
Investment in ENC Co. 162,000
NCI in NA of ENC Co. 108,000
Eliminate gain on sale of ENC stock:

Gain on Sale of ENC Stock 10,000
9-35
P9-24 (continued)
b.
Penn Elimination Entries
Corp. ENC Co. DR CR Consolidated
Income Statement
Sales 280,000 170,000 450,000
Gain on Sale of ENC Stock 10,000 0 10,000 0
Less: COGS (210,000) (100,000) (310,000)
Less: Depreciation Expense (20,000) (15,000) (35,000)
Less: Other Expenses (21,000) (25,000) (46,000)
Income from ENC Co. 18,000 0 18,000 0
Consolidated Net Income 57,000 30,000 28,000 0 59,000
NCI in Net Income 12,000 (12,000)
Controlling Interest in NI 57,000 30,000 40,000 0 47,000
Statement of Retained Earnings

Beginning Balance 320,000 130,000 130,000 320,000
Net Income 57,000 30,000 40,000 0 47,000
Less: Dividends Declared (15,000) (10,000) 10,000 (15,000)
Ending Balance 362,000 150,000 170,000 10,000 352,000
Balance Sheet
Cash 30,000 35,000 65,000
Inventory 120,000 100,000 220,000
Buildings and Equipment 650,000 230,000 880,000
Less: Accumulated
Depreciation (170,000) (95,000) (265,000)
Investment in ENC Co. 162,000 0 162,000 0
Total Assets 862,000 320,000 0 162,000 1,020,000

Bonds Payable 200,000 30,000 230,000
Common Stock 200,000 100,000 100,000 200,000
Additional Paid-In Capital 50,000 20,000 20,000 10,000 60,000
Retained Earnings 362,000 150,000 170,000 10,000 352,000
NCI in NA of ENC Co. 108,000 108,000
Total Liabilities & Equity 862,000 320,000 290,000 128,000 1,020,000
9-36
P9-25 Sale of Shares by Subsidiary to Nonaffiliate
a.
Craft Add.
33.3% 66.7% Stock Capital Earnings
New Shares 140,000 40,000 40,000 140,000

Investment in Delta Corp. 520,000
NCI in NA of Delta Corp. 260,000
$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
9-37
P9-25 (continued)
b.
Craft Delta Elimination Entries
Corp. Corp. DR CR Consolidated
Balance Sheet
Cash 50,000 230,000 280,000
Inventory 180,000 200,000 380,000
Buildings and Equipment 700,000 600,000 1,300,000
Less: Accumulated Depr. (200,000) (220,000) (420,000)
Investment in Delta Corp. 520,000 0 520,000 0
Total Assets 1,340,000 930,000 0 520,000 1,750,000

Mortgages Payable 250,000 250,000
Taxes Payable 80,000 80,000
Common Stock 300,000 240,000 240,000 300,000
Additional Paid-In Capital 220,000 190,000 190,000 220,000
NCI in NA of Delta Corp. 260,000 260,000
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
Noncontrolling Interest 260,000
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:
Lane's Previous Shares 7,500 Total Original Shares 10,000
New Shares Purchased by Lane 2,500 New Shares 2,500
Lane's Total Shares 10,000 Total Shares 12,500
Lane's New % 80% (10,000/12,500)

New NCI % 20%

Add.
NCI + Lane = Common + Paid-In + Retained
New Shares 12,500 137,500 25,000 125,000

Investment in Tin Corp. 400,000
NCI in NA of Tin Corp. 100,000
Journal entry recorded by Tin Corporation:
Cash 150,000
Common Stock 25,000
Journal entry recorded by Lane Manufacturing:
Investment in Tin Corporation Stock 137,500

Cash 150,000
9-39
P9-26 (continued)
b.
Tin Elimination Entries
Lane Corp. DR CR Consolidated
Balance Sheet
Cash 77,500 210,000 287,500
Inventory 100,000 180,000 280,000
Buildings and Equipment 600,000 600,000 1,200,000
Less: Accumulated Depreciation (150,000) (240,000) (390,000)
Investment in Tin Corp. 400,000 400,000 0
Total Assets 1,087,500 850,000 0 400,000 1,537,500

Bonds Payable 400,000 300,000 700,000
Common Stock 200,000 125,000 125,000 200,000
Additional Paid-In Capital 37,500 175,000 175,000 37,500
NCI in NA of Tin Corp. 100,000 100,000
9-40
P9-27 Complex Ownership Structure
The overall ownership structure can be diagrammed as follows:
First
Boston
0.80 0.10
Gulfside 0.60 Paddoc

k
Consolidated net income of $98,800 is reported:
Operating income of First Boston $ 44,000

Operating income of Gulfside 34,000
Operating income of Paddock 50,000
Income to noncontrolling interests:
Paddock 0.40[$50,000 + 0.10($30,000)] $21,200
Gulfside 0.20[$34,000 + 0.60($50,000)] 12,800 (34,000)
Controlling interest in consolidated net income $ 94,000
9-41

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Chapter 9 - Consolidation Ownership Issues

CONSOLIDATION OWNERSHIP ISSUES

C9-1 Effect of Subsidiary Preferred Stock

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

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

C9-6 Complex Organizational Structures

d. Atlas Pipeline Partners, L.P. is a partnership, specifically a publicly-traded limited partnership.

e. Atlas Pipeline Partners, L.P. presents consolidated financial statements in which it

E9-1 Multiple-Choice Questions on Preferred Stock Ownership

1. d – $50,000 = $20,000 + $30,000

2. c – $29,000 = $20,000 + 0.30($30,000)

3. b – Only the retained earnings of the parent company is included.

E9-2 Multiple-Choice Questions on Multilevel Ownership

1. b – $188,000 = $100,000 + 0.80[$80,000 + (0.60 x $50,000)]

2. b – $20,000 = 0.40 x $50,000

3. c – $22,000 = 0.20 x [$80,000 + (0.60 x $50,000)]

4. c – $42,000 = (0.40 x $50,000) + {0.20 x [$80,000 + (0.60 x $50,000)]}

5. b – $2,400 = 0.80 x {0.60 x [($150,000 + $100,000 - $200,000) / 10 years)]}

E9-3 Acquisition of Preferred Shares

E9-4 Reciprocal Ownership [AICPA Adapted]

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

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

E9-5 Subsidiary with Preferred Stock Outstanding

E9-6 Subsidiary with Preferred Stock Outstanding

a. Entries recorded by Clayton Corporation:

Investment in Topple Common Stock 270,000

Investment in Topple Common Stock 40,500

Preferred stock 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 [0.40($100,000 x 0.12)] $ 4,800

c. Retained earnings assignable to preferred shareholders:

Dividends in arrears [5 years x ($100,000 x 0.12)] $60,000

d. Book value of common shares:

Par value of common shares outstanding $300,000

e. Total noncontrolling interest:

Preferred stock [0.40($100,000 + $80,000)] $ 72,000

E9-8 Multilevel Ownership

a. Consolidated net income for 20X6 is $190,000 ($90,000 + $40,000

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

Income from Dally ($40,000 x 0.35) $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

(2) Cash 9,000

(3) Investment in Tann Company Stock 24,000

b. Journal entries recorded by Promise Enterprises on its investment in Brown

(1) Investment in Brown Corporation Stock 315,000

(2) Cash 45,000

(3) Investment in Brown Corporation Stock 129,600

Common stock 100,000

Book Value Calculations:

Common stock 150,000

E9-10 Reciprocal Ownership

Operating income of Grower Supply Corporation $112,000