Beruflich Dokumente
Kultur Dokumente
4-1
44
Consolidated Financial
Statements After Acquisition
Chapter
4-3
Learning
Learning Objectives
Objectives
Chapter
4-4
Investments
Investments in
in Stock
Stock
cost,
fair value, or
equity.
Chapter
4-5
Accounting
Accounting for
for Investments
Investments by
by the
the Cost,
Cost,
Partial
Partial Equity,
Equity, and
and Complete
Complete Equity
Equity Methods
Methods
Ownership Percentages
Chapter
4-7 LO 1 Varying levels of ownership are accounted for differently.
Accounting
Accounting for
for Investments
Investments by
by the
the Cost
Cost Method
Method
E4-1 Percy Company purchased 80% of the outstanding
voting shares of Song Company at the beginning of 2006 for
$387,000. At the time of purchase, Song Company’s total
stockholders’ equity amounted to $475,000. Income and
dividend distributions for Song Company from 2006 through
2008 are as follows:
2006 2007 2008
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
Dividend distribution 25,000 50,000 35,000
Cash 20,000
Dividend income (.8 x $25,000) 20,000
Chapter
4-9 LO 2 Journal entries for Parent using cost method.
Accounting
Accounting for
for Investments
Investments by
by the
the Cost
Cost Method
Method
E4-1 A. Percy Company uses the cost method to record its
investment.
2006 2007 2008
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
Dividend distribution 25,000 50,000 35,000
Chapter
4-10 LO 2 Journal entries for Parent using cost method.
Accounting
Accounting for
for Investments
Investments by
by Partial
Partial Equity
Equity
E4-1 B. Percy Company uses the partial equity method to
record its investment.
2006 2007 2008
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
Dividend distribution 25,000 50,000 35,000
Cash 20,000
Investment in Song (.8 x $25,000) 20,000
Chapter
4-11 LO 2 Journal entries for Parent using partial equity method.
Accounting
Accounting for
for Investments
Investments by
by Partial
Partial Equity
Equity
E4-1 B. Percy Company uses the partial equity method to
record its investment.
2006 2007 2008
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
Dividend distribution 25,000 50,000 35,000
Cash 40,000
Investment in Song (.8 x $50,000) 40,000
Chapter
4-12 LO 2 Journal entries for Parent using partial equity method.
Accounting
Accounting for
for Investments
Investments by
by Partial
Partial Equity
Equity
E4-1 B. Percy Company uses the partial equity method to
record its investment.
2006 2007 2008
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
Dividend distribution 25,000 50,000 35,000
Cash 28,000
Investment in Song (.8 x $35,000) 28,000
Chapter
4-13 LO 2 Journal entries for Parent using partial equity method.
Accounting
Accounting for
for Investments
Investments by
by Complete
Complete Equity
Equity
E4-1 C. Percy Company uses the complete equity method to
record its investment. The difference between book value of
equity acquired and the value implied by the purchase price
was attributed solely to an excess of market over book values
of depreciable assets, with a remaining life of 10 years.
2006 2007 2008
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
Dividend distribution 25,000 50,000 35,000
Cash 20,000
Investment in Song (.8 x $25,000) 20,000
Chapter
4-15 LO 2 Journal entries for Parent using complete equity method.
Accounting
Accounting for
for Investments
Investments by
by Complete
Complete Equity
Equity
E4-1 C. Percy Company uses the complete equity method to
record its investment.
Cash 40,000
Investment in Song (.8 x $50,000) 40,000
Cash 28,000
Investment in Song (.8 x $35,000) 28,000
Chapter
4-19 LO 3 Use of workpapers.
Consolidated
Consolidated Statements
Statements After
After Acquisition
Acquisition
Year of Acquisition—Cost Method
P4-8 On January 1, 2007, Parker Company purchased 95% of the
outstanding common stock of Sid Company for $160,000. At that
time, Sid’s stockholders’ equity consisted of common stock,
$120,000; other contributed capital, $10,000; and retained
earnings, $23,000.
Required:
A. Prepare a consolidated statements workpaper on Dec. 31, 2007.
B. Prepare a consolidated statements workpaper on Dec. 31, 2008.
Chapter
4-20 LO 3 Use of workpapers.
Consolidated
Consolidated Statements
Statements After
After Acquisition
Acquisition
P4-8 Begin the consolidating process by preparing a Computation and
Allocation Schedule, as follows: 95% 5% 100%
Parent NCI Total
Share Share Value
Purchase price and implied value $ 160,000 $ 8,421 $ 168,421
Chapter
4-23 LO 5 Workpapers eliminating entries.
Consolidated
Consolidated Statements
Statements After
After Acquisition
Acquisition
P4-8 A. 2007 Year of Acquisition
Eliminations Consolidated
Balance Sheet Parker Sid Debit Credit NCI Balances
Cash $ 62,000 $ 30,000 $ 92,000
Accounts receivable 32,000 29,000 61,000
Inventory 30,000 16,000 46,000
Investment in Sid 160,000 - 160,000 -
Difference (cost & book) 15,421 15,421 -
Plant and equipment 105,000 82,000 187,000
Land 29,000 34,000 63,000
Goodwill 15,421 15,421
Total assets $ 418,000 $ 191,000 $ 464,421
Goodwill 15,421
Difference between Implied and Book 15,421
Chapter
4-26 LO 5 Workpapers eliminating entries.
Consolidated
Consolidated Statements
Statements After
After Acquisition
Acquisition
Workpaper Observations
5. Noncontrolling interest in consolidated net income:
Chapter
4-27 LO 5 Workpapers eliminating entries.
Consolidated
Consolidated Statements
Statements After
After Acquisition
Acquisition
Workpaper Observations
6. Consolidated retained earnings:
Chapter
4-28 LO 5 Workpapers eliminating entries.
Consolidated
Consolidated Statements
Statements After
After Acquisition
Acquisition
Workpaper Observations
7. Total eliminations for all three sections are in balance.
8. To calculate the noncontrolling interest in net assets
or equity at year-end, compute the following:
Chapter
4-29 LO 5 Workpapers eliminating entries.
Consolidated
Consolidated Statements
Statements After
After Acquisition
Acquisition
After Year of Acquisition – Cost Method
Parker Sid
P4-8 B. 2008 Cash $ 67,000 $ 16,000
Accounts receivable 56,000 32,000
On December 31, 2008, Inventory 38,000 48,500
the two companies’ trial Investment in Sid 160,000 -
Plant and equipment 124,000 80,000
balances were as follows Land 29,000 34,000
at right: Dividends declared 20,000 20,000
Cost of goods sold 155,000 52,000
Required B. Prepare a Operating expenses 30,000 18,000
Total debits $ 679,000 $ 300,500
consolidated statements
workpaper on December Accounts payable $ 16,000 $ 7,000
Other liabilities 15,000 14,500
31, 2008. Common stock 180,000 120,000
Other contributed capital 60,000 10,000
Retained earnings 149,000 29,000
Sales 240,000 120,000
Dividend income 19,000 -
Total credits $ 679,000 $ 300,500
Chapter
4-30 LO 5 Workpapers eliminating entries after acquisition (cost method).
Consolidated
Consolidated Statements
Statements After
After Acquisition
Acquisition
P4-8 B. 2008 After Year of Acquisition
Eliminations Consolidated
Income Statement Parker Sid Debit Credit NCI Balances
Sales $ 240,000 $ 120,000 $ 360,000
Dividend income 19,000 19,000 -
Total revenue 259,000 120,000 360,000
Cost of goods sold 155,000 52,000 207,000
Other expenses 30,000 18,000 48,000
Total cost and expense 185,000 70,000 255,000
Net income 74,000 50,000 105,000
Noncontrolling interest 2,500 (2,500)
Net income $ 74,000 $ 50,000 $ 19,000 $ - $ 2,500 $ 102,500
Chapter
4-31 LO 5 Workpapers eliminating entries after acquisition (cost method).
Consolidated
Consolidated Statements
Statements After
After Acquisition
Acquisition
P4-8 B. 2008 After Year of Acquisition
Eliminations Consolidated
Balance Sheet Parker Sid Debit Credit NCI Balances
Cash $ 67,000 $ 16,000 $ 83,000
Accounts receivable 56,000 32,000 88,000
Inventory 38,000 48,500 86,500
Investment in Sid 160,000 - 5,700 165,700 -
Difference (cost & book) 15,421 15,421 -
Plant and equipment 124,000 80,000 204,000
Land 29,000 34,000 63,000
Goodwill 15,421 15,421
Total assets $ 474,000 $ 210,500 $ 539,921
Chapter
4-32 LO 5 Workpapers eliminating entries after acquisition (cost method).
Consolidated
Consolidated Statements
Statements After
After Acquisition
Acquisition
Workpaper Observations
1. Before elimination of the investment account, a workpaper
entry is made to the investment account and Parker
Company’s beginning retained earnings to recognize
Parker’s share of the cumulative undistributed income or
loss of Sid Company from the date of acquisition to the
beginning of the current year as follows:
Chapter
4-34 LO 5 Workpapers eliminating entries after acquisition (cost method).
Recording
Recording Investments
Investments –– Equity
Equity Method
Method
Equity Method
Record the investment at cost and subsequently
adjust the amount each period for
the investor’s proportionate share of the
earnings (losses) and
dividends received by the investor.
Chapter
4-35 LO 5 Workpaper eliminating entries (equity method).
Recording
Recording Investments
Investments –– Equity
Equity Method
Method
Instructions
Prepare the journal entries for Pennington to record the
purchase and any additional entries related to this
investment in Edwards Company in 2007.
Chapter
4-36 LO 5 Workpaper eliminating entries (equity method).
Recording
Recording Investments
Investments –– Equity
Equity Method
Method
Example Prepare the entries for Pennington to record the
purchase and any additional entries related to this
investment in Edwards Company in 2007.
Cash 6,000
Investment in Stock ($20,000 x 30%) 6,000
Chapter
4-37 LO 5 Workpaper eliminating entries (equity method).
Recording
Recording Investments
Investments –– Equity
Equity Method
Method
Investment Carried at Equity—Year of Acquisition
P4-12 On January 1, 2007, Parker Company purchased 90% of the
outstanding common stock of Sid Company for $180,000. At that
time, Sid’s stockholders’ equity consisted of common stock,
$120,000; other contributed capital, $20,000; and retained
earnings, $25,000. Assume that any difference between book
value of equity and the value implied by the purchase price is
attributable to land.
Required:
A. Prepare a consolidated statements workpaper on Dec. 31, 2007.
B. Prepare a consolidated statements workpaper on Dec. 31, 2008.
Chapter
4-38 LO 5 Workpaper eliminating entries (equity method).
Recording
Recording Investments
Investments –– Equity
Equity Method
Method
P4-12 Begin the consolidating process by preparing a Computation and
Allocation Schedule, as follows: 90% 10% 100%
Parent NCI Total
Share Share Value
Purchase price and implied value $ 180,000 $ 20,000 $ 200,000
Chapter
4-41 LO 5 Workpaper eliminating entries (equity method).
Recording
Recording Investments
Investments –– Equity
Equity Method
Method
P4-12 A. 2007 Year of Acquisition
Eliminations Consolidated
Balance Sheet Parker Sid Debit Credit NCI Balances
Cash $ 65,000 $ 35,000 $ 100,000
Accounts receivable 40,000 30,000 70,000
Inventory 25,000 15,000 40,000
Investment in Sid 184,500 - 4,500 -
180,000
Difference (cost & book) 35,000 35,000 -
Plant and equipment 110,000 85,000 195,000
Land 48,500 45,000 35,000 128,500
Total assets $ 473,000 $ 210,000 $ 533,500
Chapter
4-42 LO 5 Workpaper eliminating entries (equity method).
Recording
Recording Investments
Investments –– Equity
Equity Method
Method
Workpaper Observations
The following workpaper entries were made:
To eliminate the account “equity in subsidiary income”
and intercompany dividends.
To eliminate the Investment account against subsidiary
equity.
To distribute the difference between implied and book
value of equity acquired.
Chapter
4-43 LO 5 Workpaper eliminating entries (equity method).
Recording
Recording Investments
Investments –– Equity
Equity Method
Method
Investment Carried at Equity—After Year of Acquisition
Parker Sid
P4-12 B. 2008 Cash $ 70,000 $ 20,000
Accounts receivable 60,000 35,000
On December 31, 2008, Inventory 40,000 30,000
the two companies’ trial Investment in Sid 193,500 -
Plant and equipment 125,000 90,000
balances were as follows Land 48,500 45,000
at right: Dividends declared 20,000 15,000
Cost of goods sold 160,000 65,000
Required B. Prepare a Operating expenses 35,000 20,000
Total debits $ 752,000 $ 320,000
consolidated statements
workpaper on December Accounts payable $ 16,500 $ 16,000
Other liabilities 15,000 24,000
31, 2008. Common stock 200,000 120,000
Other contributed capital 70,000 20,000
Retained earnings 168,000 30,000
Sales 260,000 110,000
Equity in subsidiary income 22,500 -
Total credits $ 752,000 $ 320,000
Chapter
4-44 LO 5 Workpaper eliminating entries (equity method).
Recording
Recording Investments
Investments –– Equity
Equity Method
Method
P4-12 B. 2008 After Year of Acquisition
Eliminations Consolidated
Income Statement Parker Sid Debit Credit NCI Balances
Sales $ 260,000 $ 110,000 $ 370,000
Equity in subsidiary income 22,500 22,500 -
Total revenue 282,500 110,000 370,000
Cost of goods sold 160,000 65,000 225,000
Other expenses 35,000 20,000 55,000
Total cost and expense 195,000 85,000 280,000
Net income 87,500 25,000 90,000
Noncontrolling interest 2,500 (2,500)
Net income $ 87,500 $ 25,000 $ 22,500 $ - $ 2,500 $ 87,500
Chapter
4-45 LO 5 Workpaper eliminating entries (equity method).
Recording
Recording Investments
Investments –– Equity
Equity Method
Method
P4-12 B. 2008 After Year of Acquisition
Eliminations Consolidated
Balance Sheet Parker Sid Debit Credit NCI Balances
Cash $ 70,000 $ 20,000 $ 90,000
Accounts receivable 60,000 35,000 95,000
Inventory 40,000 30,000 70,000
Investment in Sid 193,500 - 9,000 -
184,500
Difference (cost & book) 35,000 35,000 -
Plant and equipment 125,000 90,000 215,000
Land 48,500 45,000 35,000 128,500
Total assets $ 537,000 $ 220,000 $ 598,500
Chapter
4-47 LO 6 Two approaches for interim acquisitions.
Interim
Interim Acquisitions
Acquisitions of
of Subsidiary
Subsidiary Stock
Stock
Equity Method—Full-Year Reporting Alternative
P4-16 Pillow Satin
Cash $ 390,600 $ 179,200
Pillow Company purchased Treasury stock at cost 32,000
Investment in Satin 510,000 -
90% of the common stock Plant and equipment 1,334,000 562,000
of Satin Company on May Cost of goods sold 1,261,000 584,000
Operating expenses 484,000 242,000
1, 2006, for a cash Dividends declares - 60,000
payment of $474,000. Total debits $ 3,979,600 $ 1,659,200
December 31, 2006, trial
Accounts and notes payable $ 270,240 $ 124,000
balances for Pillow and Dividends payable - 60,000
Satin were: Common stock
Other contributed capital
1,000,000
364,000
200,000
90,000
Retained earnings 315,360 209,200
Sales 1,940,000 976,000
Equity in subsidiary income 90,000 -
Total credits $ 3,979,600 $ 1,659,200
Chapter
4-48 LO 6 Two approaches for interim acquisitions.
Interim
Interim Acquisitions
Acquisitions of
of Subsidiary
Subsidiary Stock
Stock
P4-16
Chapter
4-49 LO 6 Two approaches for interim acquisitions.
Interim
Interim Acquisitions
Acquisitions of
of Subsidiary
Subsidiary Stock
Stock
P4-16 Computation and Allocation of Difference between Cost and
Book Value Acquired: 90% 10% 100%
Parent NCI Total
Share Share Value
Purchase price and implied value $ 474,000 $ 52,667 $ 526,667
Chapter
4-50 LO 6 Two approaches for interim acquisitions.
Interim
Interim Acquisitions
Acquisitions of
of Subsidiary
Subsidiary Stock
Stock
P4-16 Full-Year Reporting Alternative
Eliminations Consolidated
Income Statement Pillow Satin Debit Credit NCI Balances
Sales $ 1,940,000 $ 976,000 $ 2,916,000
Equity in subsidiary income 90,000 90,000 -
Total revenue 2,030,000 976,000 2,916,000
Cost of goods sold 1,261,000 584,000 1,845,000
Other expenses 484,000 242,000 726,000
Total cost and expense 1,745,000 826,000 2,571,000
Net income 285,000 150,000 345,000
Net income purchased 45,000 (45,000)
Noncontrolling interest 15,000 (15,000)
Net income $ 285,000 $ 150,000 $ 135,000 $ - $ 15,000 $ 285,000
Chapter
4-51 LO 6 Two approaches for interim acquisitions.
Interim
Interim Acquisitions
Acquisitions of
of Subsidiary
Subsidiary Stock
Stock
P4-16 Full-Year Reporting Alternative
Eliminations Consolidated
Balance Sheet Pillow Satin Debit Credit NCI Balances
Current assets $ 390,600 $ 179,200 54,000 $ 515,800
Investment in Satin 510,000 474,000 -
36,000
Difference (cost & book) 9,467 9,467 -
Plant and equipment 1,334,000 562,000 9,467 1,905,467
Total assets $ 2,234,600 $ 741,200 $ 2,421,267
Chapter
4-52 LO 6 Two approaches for interim acquisitions.
Interim
Interim Acquisitions
Acquisitions of
of Subsidiary
Subsidiary Stock
Stock
P4-17 (Data from P4-16) Partial-Year Reporting Alternative
Eliminations Consolidated
Income Statement Pillow Satin Debit Credit NCI Balances
Sales $ 1,940,000 $ 650,666 $ 2,590,666
Equity in subsidiary income 90,000 90,000 -
Total revenue 2,030,000 650,666 2,590,666
Cost of goods sold 1,261,000 389,333 1,650,333
Other expenses 484,000 161,333 645,333
Total cost and expense 1,745,000 550,666 2,295,666
Net income 285,000 100,000 295,000
Noncontrolling interest 10,000 (10,000)
Net income $ 285,000 $ 100,000 $ 90,000 $ - $ 10,000 $ 285,000
Chapter
4-53 LO 6 Two approaches for interim acquisitions.
Interim
Interim Acquisitions
Acquisitions of
of Subsidiary
Subsidiary Stock
Stock
P4-17 (Data from P4-16) Partial-Year Reporting Alternative
Eliminations Consolidated
Balance Sheet Pillow Satin Debit Credit NCI Balances
Current assets $ 390,600 $ 179,200 54,000 $ 515,800
Investment in Satin 510,000 474,000 -
36,000
Difference (cost & book) 9,467 9,467 -
Plant and equipment 1,334,000 562,000 9,467 1,905,467
Total assets $ 2,234,600 $ 741,200 $ 2,421,267
Chapter
4-54 LO 6 Two approaches for interim acquisitions.
Consolidated
Consolidated Statement
Statement of
of Cash
Cash Flows
Flows
Peculiarities:
1. If the statement of cash flows starts with consolidated
net income, then the noncontrolling interest is already
included and need not be added back.
2. Subsidiary dividends paid to the noncontrolling
stockholders must be included with dividends paid by the
parent company when calculating cash outflow from
financing activities.
3. Subsidiary stock acquired directly from the subsidiary
represents an intercompany cash transfer that does not
affect the total cash balance of the consolidated group.
Chapter
4-55 LO 7 Peculiarities of Consolidated Statement of Cash Flows.
Consolidated
Consolidated Statement
Statement of
of Cash
Cash Flows
Flows
Chapter
4-56 LO 8 Stock issued as Consideration in Statement of Cash Flows.
Copyright
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Chapter
4-57