Chapter 5 Consolidation of Less Than Wholly Owned Subsidiaries

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries
CHAPTER 5 CONSOLIDATION OF LESS-THAN-WHOLLY OWNED SUBSIDIARIES ANSWERS TO QUESTIONS Q5-1 The noncontrolling interest is reported as a separate item in the stockholders equity section of the balance sheet. Past practice often presented the noncontrolling interest between long-term liabilities and stockholders equity. Q5-2 The consolidated balance sheet always includes 100 percent of the subsidiarys assets and liabilities. When the parent holds less than 100 percent ownership of the subsidiary, the noncontrolling interests claim on those net assets must be reported. Q5-3 The income statement portion of the consolidation workpaper is expanded to include a line for income assigned to the noncontrolling interest. This amount is deducted from consolidated net income in computing income to the controlling interest. The balance sheet portion of the workpaper also is expanded to include the claim of the noncontrolling shareholders on the net assets of the subsidiary. Q5-4 The balance assigned to the noncontrolling interest is based on the fair value of the noncontrolling interest at the date of acquisition. Q5-5 Consolidated retained earnings includes only amounts attributable to the shareholders of the parent company. Thus, none of the retained earnings is assigned to the noncontrolling interest. Q5-6 One hundred percent of the fair value of the subsidiarys assets is included. Q5-7 The amount of goodwill at the date of acquisition is determined by deducting the fair value of the net assets of the acquired company from the sum of the fair value of the consideration given by the acquiring company and the fair value of the noncontrolling interest. The resulting goodwill must be apportioned between the controlling and noncontrolling interest. Under normal circumstances, goodwill apportioned to the noncontrolling interest will equal the excess of the fair value of the noncontrolling interest over its proportionate share of the fair value of the net assets of the acquired company. Q5-8 Income assigned to the noncontrolling interest normally is a proportionate share of the net income of the subsidiary. Q5-9 Income assigned to noncontrolling shareholders is reported as a deduction from consolidated net income in arriving at income assigned to the parent company shareholders. Q5-10 Dividends paid to noncontrolling shareholders are eliminated in preparing the consolidated statement of retained earnings. Only dividends paid to the parent company shareholders are reported as dividends distributed to shareholders.
5-1
Q5-11 When the parent owns all the shares of a subsidiary (and the subsidiary has no other publicly traded securities outstanding), it is free to decide whether it wishes to publish separate statements for the subsidiary. In some cases creditors, regulatory boards, or other interested parties may insist that such statements be produced. If the parent does not own all the shares of the subsidiary, the subsidiary normally would be expected to publish separate financial statements for distribution to the noncontrolling shareholders. In general, the consolidated statements are published for use by parent company shareholders and are likely to be of little use to shareholders of the subsidiary. Q5-12 Other comprehensive income elements reported by the subsidiary must be included in other comprehensive income in the consolidated financial statement. If the subsidiary is not wholly owned, income assigned to the noncontrolling interest will include a proportionate share of the subsidiarys other comprehensive income. Q5-13 The parents portion of the subsidiarys other comprehensive income is included in comprehensive income attributable to the controlling interest. Q5-14 Prior to FASB 141R, the differential was computed as the difference between the fair value of the consideration given in acquiring ownership of the subsidiary and the parents portion of the book value of the subsidiarys net assets. Q5-15 Prior to FASB 141R, goodwill was reported as the difference between the fair value of the consideration given in acquiring ownership of the subsidiary and the parents portion of the fair value of the subsidiarys net assets. Q5-16 Prior to FASB 141R, consolidated net income was computed by deducting income to noncontrolling interest from consolidated revenues less expenses. Q5-17* The only effect of a negative balance in retained earnings is the need for a credit to subsidiary retained earnings, rather than a debit to retained earnings, when the stockholders equity accounts of the subsidiary and the investment account of the parent are eliminated. Q5-18* In the period in which the land is sold, the gain or loss recorded by the subsidiary must be adjusted by the amount of the differential assigned to the land. When the differential is assigned in the workpaper eliminating entries at the end of the period, a debit will be made to the gain or loss on sale of land that came to the workpaper from the subsidiarys books. Q5-19A When the cost method is used, income reported by the parent and the resulting balance in the investment account do not reflect undistributed earnings of the subsidiary following the date of acquisition. Because these account balances are different under the cost and equity methods, a different set of eliminating entries must be used. The major change in eliminating entries when the cost method is adopted is that a portion of the subsidiary retained earnings is carried forward to the consolidated total. The carryforward is needed because the parents retained earnings does not include its portion of undistributed subsidiary earnings following the acquisition, and therefore is less than consolidated retained earnings.
5-2
SOLUTIONS TO CASES C5-1 Consolidation Workpaper Preparation a. If the parent company is using the equity method, the elimination of the income recognized by the parent from the subsidiary generally should not be equal to a proportionate share of the subsidiarys dividends. If the parent has recognized only dividend income from the subsidiary, it is using the cost method. b. It should be possible to tell if the preparer has included the parent's share of the subsidiary's reported income in computing consolidated net income. It is not possible to tell from looking at the workpaper alone whether or not all the adjustments that should have been made for amortization of the differential or to eliminate unrealized profits have been properly treated in computing the consolidated net income. c. If the parent paid more than its proportionate share of the fair value of the subsidiarys net assets, the eliminating entries relating to that subsidiary should show amounts assigned to individual asset accounts for fair value adjustments and to goodwill when the investment account balance is eliminated and any noncontrolling interest is established in the workpaper. It should be relatively easy to determine if this has occurred by examining the consolidation workpaper. d. If the preparer has made a separate entry in the workpaper to eliminate the change in the parents investment account during the period, the easiest way to ascertain the parents subsidiary ownership percentage is to determine the percentage share of the subsidiarys dividends eliminated in that entry. Another approach might be to divide the total amount of the parents subsidiary investment account eliminated in the workpaper by the sum of the total parents investment account eliminated and the total amount of the noncontrolling interest established in the workpaper through eliminating entries. However, this approach assumes that the fair value of the consideration given by the parent when acquiring its subsidiary interest and the fair value of the noncontrolling interest on that date were proportional, which is usually, by not always, the case.
5-3
C5-2 Consolidated Income Presentation MEMO TO: FROM: RE: Treasurer Standard Company , Accounting Staff Allocation of Consolidated Income to Parent and Noncontrolling Shareholders
FASB 160 specifies that consolidated net income reflects the income of the entire consolidated entity and that consolidated net income must be allocated between the controlling and noncontrolling interests. Earnings per share reported in the consolidated income statement is based on the income allocated to the controlling interest only. Consolidated net income increased by $34,000 from 20X4 to 20X5, an increase of 52 percent. However, consolidated net income allocated to the controlling interest increased by $24,100 from 20X4 to 20X5, an increase of only 38 percent. The increase in the controlling interests share of consolidated net income did not keep pace with the increase in sales because nearly all of the sales increase was experienced by Jewel, which has a very low profit margin. In addition the parent receives only 55 percent of the increased profits of the subsidiary. Consolidated net income for the two years is computed and allocated as follows: Consolidated revenues Operating costs Consolidated net income Income to noncontrolling shareholders Income to controlling shareholders (a) (b) (c) (d) (e) (f) $100,000 + $60,000 $120,000 + $280,000 ($100,000 x .40) + ($60,000 x .90) ($120,000 x .40) + ($280,000 x .90) ($60,000 x .10 x .45) ($280,000 x .10 x .45) 20X4 $160,000 (a) (94,000)(c) $ 66,000 (2,700)(e) $ 63,300 20X5 $400,000 (b) (300,000)(d) $100,000 (12,600) (f) $ 87,400
Primary citations: FASB 160 Secondary source: ARB 51
5-4
C5-3 Pro Rata Consolidation MEMO To: From: Re: Financial Vice-President Rose Corporation , Senior Accountant Pro Rata Consolidation of Joint Venture
This memo is in response to your request for additional information on the desirability of using pro rata consolidation rather than equity method reporting for Rose Corporations investment in its joint venture with Krome Company. The equity method is used by most companies in reporting their investments in corporate joint ventures. [APB Opinion, Par. 16] While APB 18 provides guidance for joint ventures that have issued common stock, it does not provide guidance for ownership of noncorporate entities. Interpretation No. 2 to APB 18 suggests that the equity method would be appropriate for unincorporated entities as well. [APB 18, Int. #2] Assuming the joint venture with Krome Company is unincorporated, Rose owns an undivided interest in each asset held by the joint venture and is liable for its share of each of its liabilities and, under certain circumstances, the entire amount. In this case, it can be argued pro rata consolidation provides a more accurate picture of Roses assets and liabilities, although not all agree with this assertion. Pro rata consolidation is generally considered not acceptable in this country, although it is a widely used industry practice in a few industries such as oil and gas exploration and production. If the joint venture is incorporated, Rose does not have a direct claim on the assets of the joint venture and Roses liability is sheltered by the joint ventures corporate structure. In this case, continued use of the equity method appears to be appropriate. Primary citations: APB 18 APB 18, INT #2
5-5
C5-4 Elimination Procedures a. The eliminating entries are recorded only in the consolidation workpaper and therefore do not change the balances recorded on the company's books. Each time consolidated statements are prepared the balances reported on the company's books serve as the starting point. Thus, all the necessary eliminating entries must be entered in the consolidation workpaper each time consolidated statements are prepared. b. For acquisitions prior to the application of FASB 141R, the balance assigned to the noncontrolling shareholders at the beginning of the period is based on the book value of the net assets of the subsidiary at that date and is recorded in the workpaper in the entry to eliminate the beginning stockholders' equity balances of the subsidiary and the beginning investment account balance of the parent. For acquisitions after the effective date of FASB 141R, the noncontrolling interest at a point in time is equal to its fair value on the date of combination, adjusted to date for a proportionate share of the undistributed earnings of the subsidiary and the noncontrolling interests share of any write-off of differential. Another approach to determining the noncontrolling interest at a point in time is to add the remaining differential at that time to the subsidiarys common stockholders equity and multiply the result by the noncontrolling interests proportionate ownership interest in the subsidiary. c. In the consolidation workpaper the ending balance assigned to noncontrolling interest is derived by crediting noncontrolling interest for the starting balance, as indicated in the preceding question, and then adding income assigned to the noncontrolling interest in the consolidated income statement and deducting a pro rata portion of subsidiary dividends declared during the period. d. All the stockholders' equity account balances of the subsidiary must be eliminated each time consolidated financial statements are prepared. Intercompany receivables and payables, if any, must also be eliminated. e. The "investment in subsidiary" and "income from subsidiary" accounts must be eliminated each time consolidated financial statements are prepared. Intercompany receivables and payables, if any, must also be eliminated.
5-6
C5-5 Changing Accounting Standards: Monsanto Company 1 a. Monsanto reported the income to noncontrolling (minority) shareholders of consolidated subsidiaries as an expense in the continuing operations portion of its 2007 income statement. b. Monsanto reported the noncontrolling interest in consolidated subsidiaries in other liabilities in its consolidated balance sheet. c. In 2007, Monsantos treatment of its noncontrolling interest in its consolidated financial statements, although theoretically objectionable, was considered acceptable. The noncontrolling (minority) interest did not fit the definition of a liability, and its share of income did not fit the definition of an expense. Nevertheless, prior to 2008 no authoritative pronouncement prohibited the treatment exhibited by Monsanto. With the issuance of FASB 160, however, Monsantos 2007 treatment became unacceptable. The noncontrolling interest is now required to be treated as an equity item, with the income attributed to the noncontrolling interest treated as an allocation of consolidated net income. d. Monsanto provided customer financing through a lender that was a special purpose entity. Monsanto had no ownership interest in the special purpose entity but did consolidate it because Monsanto effectively originated, guaranteed, and serviced the loans. Monsanto had a 9-percent ownership interest in one variable interest entity and a 49-percent ownership interest in another. Neither entity was consolidated because Monsanto was not the primary beneficiary of either entity.
5-7
SOLUTIONS TO EXERCISES E5-1 Multiple-Choice Questions on Consolidation Process 1. d 2. d 3. b 4. d [AICPA Adapted]
E5-2 Multiple-Choice Questions on Consolidation [AICPA Adapted] 1. b 2. c 3. a 4. c 5. c $650,000 = $500,000 + $200,000 - $50,000 $95,000 = ($956,000 / .80) - $1,000,000 - $100,000 $251,000 = .20[($956,000 + $239,000) + ($190,000 - $5,000 - $125,000)]
5-8
E5-3 Eliminating Entries with Differential a. Eliminating entries: E(1) Common Stock Amber Company Retained Earnings Differential Investment in Amber Company Stock Noncontrolling Interest Computation of differential Fair value of the consideration given by Game Corp. Fair value of noncontrolling interest Total fair value Book value of Ambers net assets ($85,000 - $28,000) Differential E(2) Inventory Buildings and Equipment (net) Differential $5,000 = $25,000 - $20,000 $20,000 = $70,000 - $50,000 5,000 20,000 20,000 37,000 25,000
49,200 32,800
$49,200 32,800 $82,000 (57,000) $25,000
25,000
b.
Journal entries used to record transactions, adjust account balances, and close income and revenue accounts at the end of the period are recorded in the company's books and change the reported balances. On the other hand, eliminating entries are entered only in the consolidation workpaper to facilitate the preparation of consolidated financial statements. As a result, they do not change the balances recorded in the company's accounts and must be reentered each time a consolidation workpaper is prepared.
5-9
E5-4 Computation of Consolidated Balances a. Inventory b. Land c. Buildings and Equipment $140,000 $ 60,000 $550,000 $470,000 117,500 $587,500
d. Fair value of consideration given by Ford Fair value of noncontrolling interest Total fair value Book value of Slims net assets Fair value increment for: Inventory Land Buildings and equipment (net) Fair value of identifiable net assets Goodwill e. Investment in Slim Corporation: None would be reported; the balance in the investment account is eliminated. f. Noncontrolling Interest ($587,500 x .20)
$450,000 20,000 (10,000) 70,000
(530,000) $ 57,500
$117,500
5-10
E5-5 Balance Sheet Workpaper Power Company and Pleasantdale Dairy Consolidated Balance Sheet Workpaper January 1, 20X7 PleasPower antdale Company Dairy 130,000 70,000 210,000 90,000 70,000 40,000 390,000 270,000 1,070,000 80,000 200,000 400,000 390,000 1,070,000 420,000 40,000 100,000 60,000 220,000 420,000 220,000 (1) 20,000 (3) 8,900 (1)270,000 (2) 20,000 Adjustments and Eliminations Debit Credit (a) 900 (3) 8,900 (2) 20,000 Consolidated 192,000 300,000 130,000 610,000
Item Cash and Receivables Inventory Land Buildings and Equipment (net) Investment in Pleasantdale Stock Differential Total Debits Current Payables Long-Term Liabilities Common Stock Power Company Pleasantdale Dairy Retained Earnings Noncontrolling Interest Total Credits
1,232,000 111,100 300,000 400,000
(1) 60,000 (1)220,000 329,800
(a) 900 (1) 30,000 329,800
390,900 30,000 1,232,000
Adjusting and eliminating entries: (a) Cash and Receivables Retained Earnings Accrue interest earned by Power Company. E(1) Common Stock Pleasantdale Dairy Retained Earnings Differential Investment in Pleasantdale Dairy Stock Noncontrolling Interest Eliminate investment balance. $20,000 = $270,000 + $30,000 - $280,000 E(2) Land Differential Assign differential. E(3) Current Payables Cash and Receivables Eliminate intercompany receivable/payable. 900 900
60,000 220,000 20,000
270,000 30,000
20,000
20,000
8,900
8,900
5-11
E5-6 Majority-Owned Subsidiary Acquired at Greater than Book Value a. Eliminating entries: E(1) Common Stock Down Corporation Retained Earnings Differential Investment in Down Corporation Stock Noncontrolling Interest Eliminate investment balance: $21,000 = $102,200 + $43,800 - $125,000 E(2) Inventory Buildings and Equipment Differential Assign differential. E(3) Accounts Payable Accounts Receivable Eliminate intercompany receivable/payable. 40,000 85,000 21,000
102,200 43,800
6,000 15,000
21,000
12,500
12,500
Solutions Manual Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e 5 - 12
E5-6 (continued) b. Zenith Corporation and Down Corporation Consolidated Balance Sheet Workpaper December 31, 20X4 Item Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Down Corporation Stock Differential Total Debits Accumulated Depreciation Accounts Payable Mortgage Payable Common Stock Zenith Corporation Down Corporation Retained Earnings Noncontrolling Interest Total Credits c. Zenith Corp. Down Corp. Eliminations Debit Credit (3) 12,500 Consolidated 71,300 121,500 211,000 90,000 675,000
50,300 21,000 90,000 44,000 130,000 75,000 60,000 30,000 410,000 250,000 102,200 842,500 420,000 150,000 80,000 152,500 35,000 250,000 180,000 80,000 210,000 40,000 85,000
(2) 6,000 (2) 15,000 (1) 21,000
(1)102,200 (2) 21,000
1,168,800 230,000 175,000 430,000 80,000 210,000 43,800 1,168,800
(3) 12,500
(1) 40,000 (1) 85,000 179,500
842,500 420,000
(1) 43,800 179,500
Zenith Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X4 Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Total Assets Accounts Payable Mortgage Payable Stockholders Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders Equity Total Liabilities and Stockholders' Equity $ 71,300 121,500 211,000 90,000 445,000 $938,800 $175,000 430,000 $ 80,000 210,000 $290,000 43,800
$675,000 (230,000)
333,800 $938,800
5-13
E5-7 Consolidation with Minority Interest Eliminating entries: E(1) Common Stock Dynamic Corporation Retained Earnings Differential Investment in Dynamic Corporation Stock Noncontrolling Interest Eliminate investment balance: $160,000 = $390,000 + $130,000 ($120,000 + $240,000) $130,000 = $520,000 x .25 120,000 240,000 160,000
390,000 130,000
E(2) Buildings Inventories Goodwill Differential Assign differential: $44,000 = $160,000 - $80,000 - $36,000
80,000 36,000 44,000
160,000
E5-8 Workpaper for Majority-Owned Subsidiary a. Eliminating entry: E(1) Common Stock Lowtide Builders Retained Earnings Investment in Lowtide Builders Stock Noncontrolling Interest Eliminate investment balance. 140,000 10,000
90,000 60,000
5-14
E5-8 (continued) b. Glitter Enterprises and Lowtide Builders Consolidated Balance Sheet Workpaper January 1, 20X5 Glitter Enterprises 80,000 150,000 430,000 90,000 750,000 100,000 400,000 200,000 50,000 750,000 Lowtide Builders 30,000 350,000 80,000 460,000 110,000 200,000 140,000 (1)140,000 10,000 (1) 10,000 460,000 150,000 (1) 60,000 150,000 (1) 90,000 Eliminations Debit Credit Consolidated 110,000 500,000 510,000 1,120,000 210,000 600,000 200,000 50,000 60,000 1,120,000
Item Cash and Receivables Inventory Buildings and Equipment (net) Investment in Lowtide Stock Total Debits Current Liabilities Long-Term Debt Common Stock Glitter Lowtide Retained Earnings Noncontrolling Interest Total Credits c.
Glitter Enterprises and Subsidiary Consolidated Balance Sheet January 1, 20X5 Cash and Receivables Inventory Buildings and Equipment (net) Total Assets Current Liabilities Long-Term Debt Stockholders Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders Equity Total Liabilities and Stockholders' Equity $ 110,000 500,000 510,000 $1,120,000 $ 210,000 600,000 $200,000 50,000 $250,000 60,000
310,000 $1,120,000
5-15
E5-9 Multiple-Choice Questions on Balance Sheet Consolidation 1. 2. d c $215,000 $40,000 = = $130,000 + $70,000 + ($85,000 - $70,000) ($150,500 + $64,500) - ($405,000 - $28,000 - $37,000 - $200,000) - $15,000 - $20,000 = Total Assets of Power Corp. Less: Investment in Silk Corp. Book value of assets of Silk Corp. Book value reported by Power and Silk Increase in inventory ($85,000 - $70,000) Increase in land ($45,000 - $25,000) Goodwill Total assets reported $ 791,500 (150,500) $ 641,000 405,000 $1,046,000 15,000 20,000 40,000 $1,121,000
3.
$1,121,000
4.
$701,500
($61,500 + $95,000 + $280,000) + ($28,000 + $37,000 + $200,000)
5. 6. 7.
d d c
$64,500 $205,000 $419,500 = = The amount reported by Power Corporation ($150,000 + $205,000) + $64,500
5-16
E5-10 Basic Consolidation Entries for Majority-Owned Subsidiary a. Journal entries recorded by Horrigan Corporation: (1) Investment in Farmstead Company Stock Cash Record purchase of Farmstead Company Stock. (2) Cash Investment in Farmstead Company Stock Record dividends from Farmstead Company. (3) Investment in Farmstead Company Stock Income from Subsidiary Record equity-method income. b. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Farmstead Company Stock Eliminate income from subsidiary. E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. E(3) Common Stock Farmstead Company Retained Earnings, January 1 Investment in Farmstead Company Stock Noncontrolling Interest Eliminate investment balance. 14,000 3,500 10,500 210,000 210,000
3,500
3,500
14,000
14,000
6,000
1,500 4,500
100,000 200,000
210,000 90,000
5-17
E5-11 Majority-Owned Subsidiary with Differential a. Journal entries recorded by West Corporation: (1) Investment in Canton Corporation Stock Cash Record investment. (2) Cash Investment in Canton Corporation Stock Record dividends from Canton Corporation: $9,000 = $12,000 x .75 (3) Investment in Canton Corporation Stock Income from Subsidiary Record equity-method income: $22,500 = $30,000 x .75 (4) Income from Subsidiary Investment in Canton Corporation Stock Amortize differential assigned to equipment: $3,000 = ($28,000 / 7 years) x .75 b. Eliminating entries December 31, 20X3: E(1) Income from Subsidiary Dividends Declared Investment in Canton Corporation Stock Eliminate income from subsidiary. E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $6,500 = ($30,000 - $4,000) x .25 $3,000 = $12,000 x .25 E(3) Common Stock Canton Corporation Retained Earnings, January 1 Differential Investment in Canton Corporation Stock Noncontrolling Interest Eliminate beginning investment balance: $28,000 = ($133,500 + $44,500) $150,000 E(4) Equipment Differential Assign beginning differential. E(5) Depreciation Expense Accumulated Depreciation Amortize differential related to equipment: $4,000 = $28,000 / 7 years 19,500 9,000 10,500 133,500 133,500
9,000
9,000
22,500
22,500
3,000
3,000
6,500
3,000 3,500
60,000 90,000 28,000
133,500 44,500
28,000
28,000
4,000
4,000
5-18
E5-12 Differential Assigned to Amortizable Asset a. Lancaster Companys common stock, January 1, 20X1 Lancaster Companys retained earnings, January 1, 20X1 Book value of Lancasters net assets Proportion of stock acquired Book value of Lancaster's shares purchased by Major Corporation Excess of acquisition price over book value Fair value of consideration given Add: Share of Lancaster's net income ($60,000 x .90) Less: Amortization of patents ($40,000 / 5) x .90 Dividends paid by Lancaster ($20,000 x .90) Balance in investment account, December 31, 20X1 Eliminating entries, December 31, 20X1: E(1) Income from Subsidiary Dividends Declared Investment in Lancaster Company Stock Eliminate income from subsidiary: $46,800 = ($60,000 x .90) ($8,000 x .90) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $5,200 = ($60,000 - $8,000) x .10 $2,000 = $20,000 x .10 Common Stock Lancaster Company Retained Earnings, January 1 Differential Investment in Lancaster Company Stock Noncontrolling Interest Eliminate investment balance: $40,000 = ($486,000 + $54,000) - $500,000 Patents Differential Assign differential. Amortization Expense Patents Amortize differential related to patents. 46,800 18,000 28,800 $120,000 380,000 $500,000 x .90 $450,000 36,000 $486,000 54,000 (7,200) (18,000) $514,800
b.
E(2)
5,200
2,000 3,200
E(3)
120,000 380,000 40,000
486,000 54,000
E(4)
40,000
40,000
E(5)
8,000
8,000
5-19
E5-13 Consolidation after One Year of Ownership a. Eliminating entries, January 1, 20X2: E(1) Common Stock Lowe Corporation Retained Earnings, January 1 Differential Investment in Lowe Corporation Stock Noncontrolling Interest Eliminate investment balance. Computation of differential Fair value of consideration given by Pioneer Fair value of noncontrolling interest Total fair value Underlying book value Differential E(2) Buildings Goodwill Differential Assign differential: $5,500 = $37,500 - $32,000 120,000 80,000 37,500
190,000 47,500
$190,000 47,500 237,500 (200,000) $ 37,500 32,000 5,500
37,500
b.
Eliminating entries, December 31, 20X2: E(1) Income from Subsidiary Investment in Lowe Corporation Stock Eliminate income from subsidiary. Computation of income from subsidiary Reported net income of Lowe Amortization of differential assigned to buildings ($32,000 / 8 years) Income after amortization of differential Proportion of stock acquired Income from subsidiary for 20X2 28,800 28,800
$40,000 (4,000) $36,000 x .80 $28,800
5-20
E5-13 (continued) E(2) Income to Noncontrolling Interest Noncontrolling Interest Assign income to noncontrolling interest: $7,200 = ($40,000 - $4,000) x .20 Common Stock Lowe Corporation Retained Earnings, January 1 Differential Investment in Lowe Corporation Stock Noncontrolling Interest Eliminate beginning investment balance. Buildings Goodwill Differential Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential. 7,200 7,200
E(3)
120,000 80,000 37,500
190,000 47,500
E(4)
32,000 5,500
37,500
E(5)
4,000
4,000
5-21
E5-14 Consolidation Following Three Years of Ownership a. Computation of increase in value of patents: Fair value of consideration given by Knox Fair value of noncontrolling interest Total fair value Book value of Conway stock Excess of fair value over book value Increase in value of land ($30,000 - $22,500) Increase in value of equipment ($360,000 - $320,000) Increase In value of patents b. E(1) Common Stock Conway Company 250,000 Retained Earnings 150,000 Differential 62,500 Investment in Conway Company Stock Noncontrolling Interest Eliminate investment balance: $62,500 = ($277,500 + $185,000) ($250,000 + $150,000) Land Equipment Patents Differential Assign differential. 7,500 40,000 15,000 62,500 $277,500 185,000 $462,500 (400,000) $ 62,500 (7,500) (40,000) $ 15,000
277,500 185,000
E(2)
c.
Computation of investment account balance at January 1, 20X9: Fair value of consideration given Undistributed income since acquisition ($100,000 - $60,000) x .60 Amortization of differential assigned to: Equipment ($40,000 / 8) x .60 x 2 years Patents ($15,000 / 10) x .60 x 2 years Account balance at January 1, 20X9 $277,500 24,000 (6,000) (1,800) $293,700
d.
Entries recorded by Knox during 20X9: (1) Cash Investment in Conway Company Stock Record dividends from subsidiary. Investment in Conway Company Stock Income from Subsidiary Record equity-method income. Income from Subsidiary Investment in Conway Company Stock Amortize differential: 6,000 6,000 18,000 18,000 3,900 3,900
(2)
(3)
5-22
$3,900 = [($40,000 / 8 years) x .60] + [($15,000 / 10 years) x .60]
5-23
E5-14 (continued) e. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Conway Company Stock Eliminate income from subsidiary: $14,100 = $18,000 - $3,900 Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $9,400 = ($30,000 - $5,000 - $1,500) x .40 Common Stock Conway Company Retained Earnings, January 1 Differential Investment in Conway Company Stock Noncontrolling Interest Eliminate beginning investment balance: $49,500 = $62,500 ($5,000 x 2) ($1,500 x 2) Land Buildings and Equipment Patents Differential Accumulated Depreciation Assign beginning differential: $12,000 = $15,000 ($1,500 x 2) Depreciation Expense Amortization Expense Accumulated Depreciation Patents Amortize differential. 14,100 6,000 8,100
E(2)
9,400
4,000 5,400
E(3)
250,000 190,000 49,500
293,700 195,800
E(4)
7,500 40,000 12,000
49,500 10,000
E(5)
5,000 1,500
5,000 1,500
5-24
E5-15 Consolidation Workpaper for Majority-Owned Subsidiary a. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Stergis Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock Stergis Company Retained Earnings, January 1 Investment in Stergis Company Stock Noncontrolling Interest Eliminate beginning investment balance. 24,000 8,000 16,000
E(2)
6,000
2,000 4,000
E(3)
100,000 50,000
120,000 30,000
5-25
E5-15 (continued) b. Proud Corporation and Stergis Company Consolidation Workpaper December 31, 20X3 Item Sales Income from Subsidiary Credits Depreciation Expense Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Current Assets Depreciable Assets Investment in Stergis Company Stock Debits Accum. Depreciation Current Liabilities Long-Term Debt Common Stock Proud Corporation Stergis Company Retained Earnings, from above Noncontrolling Interest Credits Proud Corp. 200,000 24,000 224,000 25,000 105,000 (130,000) Stergis Co. 120,000 120,000 15,000 75,000 (90,000) Eliminations Debit Credit (1) 24,000 Consolidated 320,000 320,000 40,000 180,000 (220,000) 100,000 (6,000) 94,000 230,000 94,000 324,000 (40,000) 284,000 278,000 800,000 (1) 16,000 (3)120,000
94,000 230,000 94,000 324,000 (40,000) 284,000 173,000 500,000 136,000 809,000 175,000 50,000 100,000 200,000 284,000 809,000
30,000
(2)
6,000 30,000
50,000 (3) 50,000 30,000 30,000 80,000 (10,000) 70,000 105,000 300,000 80,000
(1) 8,000 (2) 2,000 10,000
405,000 75,000 40,000 120,000 100,000 70,000 405,000 (3)100,000 80,000 180,000
1,078,000 250,000 90,000 220,000 200,000
10,000 284,000 (2) 4,000 (3) 30,000 34,000 180,000 1,078,000
5-26
E5-15 (continued) c. Proud Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X3 $800,000 (250,000) $278,000 550,000 $828,000 $ 90,000 220,000 $200,000 284,000 $484,000 34,000
Current Assets Depreciable Assets Less: Accumulated Depreciation Total Assets Current Liabilities Long-Term Debt Stockholders Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders Equity Total Liabilities and Stockholders' Equity
518,000 $828,000
Proud Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X3 Sales Depreciation Other Expenses Total Expenses Consolidated Net Income Income to Noncontrolling Interest Income to Controlling Interest $ 40,000 180,000 $320,000 (220,000) $100,000 (6,000) $ 94,000
Proud Corporation and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X3 Retained Earnings, January 1, 20X3 Income to Controlling Interest, 20X3 Dividends Declared, 20X3 Retained Earnings, December 31, 20X3 $230,000 94,000 $324,000 (40,000) $284,000
E5-16 Consolidation Workpaper for Majority-Owned Subsidiary for Second Year a. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Stergis Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock Stergis Company Retained Earnings, January 1 Investment in Stergis Company Stock Noncontrolling Interest Eliminate beginning investment balance. 28,000 12,000 16,000
E(2)
7,000
3,000 4,000
E(3)
100,000 70,000
136,000 34,000
E5-16 (continued) b. Proud Corporation and Stergis Company Consolidation Workpaper December 31, 20X4 Item Sales Income from Subsidiary Credits Depreciation Expense Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Current Assets Depreciable Assets Investment in Stergis Company Stock Debits Accum. Depreciation Current Liabilities Long-Term Debt Common Stock Proud Corporation Stergis Company Retained Earnings, from above Noncontrolling Interest Credits Proud Corp. Stergis Co. Eliminations Debit Credit Consolidated 370,000 370,000 40,000 240,000 (280,000) 90,000 (7,000) 83,000 284,000 83,000 367,000 (50,000) 317,000 385,000 800,000 (1) 16,000 (3)136,000
230,000 140,000 28,000 (1) 28,000 258,000 140,000 25,000 15,000 150,000 90,000 (175,000) (105,000) (2) 7,000 35,000
83,000 284,000 83,000 367,000 (50,000) 317,000 235,000 500,000 152,000 887,000 200,000 70,000 100,000 200,000 317,000 887,000
35,000
70,000 (3) 70,000 35,000 35,000 105,000 (15,000) 90,000 150,000 300,000 105,000
(1) 12,000 (2) 3,000 15,000
450,000 90,000 50,000 120,000 100,000 90,000 450,000 (3)100,000 105,000 205,000
1,185,000 290,000 120,000 220,000 200,000
15,000 317,000 (2) 4,000 (3) 34,000 38,000 205,000 1,185,000
E5-17 Preparation of Stockholders' Equity Section with Other Comprehensive Income a. Consolidated net income: Operating income of Broadmore Net income of Stem Amortization of differential ($580,000 - $500,000) / 10 Years Consolidated net income Comprehensive gain reported by Stem Consolidated comprehensive income b. Comprehensive income attributable to controlling interest: Consolidated comprehensive income Comprehensive income attributable to Noncontrolling interest ($50,000 - $8,000) x .25 ($65,000 - $8,000) x .25 Comprehensive income attributable to controlling interest c. Consolidated stockholders' equity: Controlling Interest: Common Stock Retained Earnings Accumulated Other Comprehensive Income Total Controlling Interest Noncontrolling Interest Total Stockholders Equity 20X8 20X9 $120,000 $ 140,000 40,000 60,000 (8,000) (8,000) $152,000 $ 192,000 10,000 5,000 $162,000 $ 197,000
20X8 20X9 $162,000 $ 197,000 (10,500)
(14,250)
$151,500 $ 182,750
20X8
20X9
$320,000 $ 320,000 504,000 613,000 7,500 11,250 831,500 944,250 151,750 158,500 $983,250 $1,102,750
E5-18 Eliminating Entries for Subsidiary with Other Comprehensive Income a. Journal entries recorded by Palmer Corp. in 20X8: (1) Investment in Krown Corp. Stock Cash Record acquisition of Krown Corp. stock. Cash Investment in Krown Corp. Stock Record dividends from subsidiary. Investment in Krown Corp. Stock Income from Subsidiary Record equity-method income. Investment in Krown Corp. Stock Other Comprehensive Income from Subsidiary (OCI) Record Palmer's proportionate share of other comprehensive income of subsidiary. 140,000 140,000
(2)
17,500
17,500
(3)
21,000
21,000
(4)
4,200 4,200
b.
Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Krown Corp. Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Other Comprehensive Income from Subsidiary (OCI) Investment in Krown Corp. Stock Eliminate other comprehensive income from subsidiary. Other Comprehensive Income to Noncontrolling Interest Noncontrolling Interest Assign other comprehensive income to noncontrolling interest. Common Stock Krown Corp. Retained Earnings, January 1 Investment in Krown Corp. Stock Noncontrolling Interest Eliminate beginning investment balance. 21,000 17,500 3,500
E(2)
9,000
7,500 1,500
E(3)
4,200
4,200
E(4)
1,800
1,800
E(5)
120,000 80,000
140,000 60,000
E5-19 Majority-Owned Subsidiary with Differential Prior Procedures a. Journal entries recorded by West Corporation: (1) Investment in Canton Corporation Stock Cash Record investment. (2) Cash Investment in Canton Corporation Stock Record dividends from Canton Corporation: $9,000 = $12,000 x .75 (3) Investment in Canton Corporation Stock Income from Subsidiary Record equity-method income: $22,500 = $30,000 x .75 (4) Income from Subsidiary Investment in Canton Corporation Stock Amortize differential assigned to equipment: $3,000 = [$133,500 - ($150,000 x .75)] / 7 years b. Eliminating entries December 31, 20X3: E(1) Income from Subsidiary Dividends Declared Investment in Canton Corporation Stock Eliminate income from subsidiary. E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $7,500 = $30,000 x .25 $3,000 = $12,000 x .25 E(3) Common Stock Canton Corporation Retained Earnings, January 1 Differential Investment in Canton Corporation Stock Noncontrolling Interest Eliminate beginning investment balance: $21,000 = $133,500 - ($90,000 + $60,000) x .75 E(4) Equipment Differential Assign beginning differential. E(5) Depreciation Expense Accumulated Depreciation Amortize differential related to equipment: $3,000 = $21,000 / 7 years 19,500 9,000 10,500 133,500 133,500
9,000
9,000
22,500
22,500
3,000
3,000
7,500
3,000 4,500
60,000 90,000 21,000
133,500 37,500
21,000
21,000
3,000
3,000
E5-20 Consolidation after One Year of Ownership Prior Procedures a. Eliminating entries, January 1, 20X2: E(1) Common Stock Lowe Corporation Retained Earnings, January 1 Differential Investment in Lowe Corporation Stock Noncontrolling Interest Eliminate investment balance. Computation of differential Fair value of consideration given Underlying book value ($200,000 x .80) Differential E(2) Buildings and Equipment Goodwill Differential Assign differential: $25,600 = $32,000 x .80 $4,400 = $30,000 - $25,600 $190,000 (160,000) $ 30,000 25,600 4,400 120,000 80,000 30,000
190,000 40,000
30,000
b.
Eliminating entries, December 31, 20X2: E(1) Income from Subsidiary Investment in Lowe Corporation Stock Eliminate income from subsidiary. Computation of income from subsidiary Reported net income of Lowe Proportion of stock acquired Income before amortizing differential Amortization of differential assigned to buildings and equipment ($25,600 / 8) Income from subsidiary for 20X2 $40,000 x .80 $32,000 (3,200) $28,800 28,800 28,800
E5-20 (continued) E(2) Income to Noncontrolling Interest Noncontrolling Interest Assign income to noncontrolling interest. Common Stock Lowe Corporation Retained Earnings, January 1 Differential Investment in Lowe Corporation Stock Noncontrolling Interest Eliminate beginning investment balance. Buildings and Equipment Goodwill Differential Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential. 8,000 8,000
E(3)
120,000 80,000 30,000
190,000 40,000
E(4)
25,600 4,400
30,000
E(5)
3,200
3,200
E5-21 Balance Sheet Workpaper Prior Procedures Power Company and Pleasantdale Dairy Consolidated Balance Sheet Workpaper January 1, 20X7 PleasAdjustments and Power antdale Eliminations Company Dairy Debit Credit 130,000 70,000 (a) 900 (3) 8,900 210,000 90,000 70,000 40,000 (2) 18,000 390,000 220,000 270,000 1,070,000 420,000 (1) 18,000 8,900 (1)270,000 (2) 18,000 Consolidated 192,000 300,000 128,000 610,000
Item Cash and Receivables Inventory Land Buildings and Equipment (net) Investment in Pleasantdale Stock Differential Total Debits Current Payables Long-Term Liabilities Common Stock Power Company Pleasantdale Dairy Retained Earnings Noncontrolling Interest Total Credits
1,230,000 111,100 300,000 400,000
80,000 40,000 (3) 200,000 100,000 400,000
60,000 (1) 60,000 390,000 220,000 (1)220,000 1,070,000 420,000 325,800
(a) 900 390,900 (1) 28,000 28,000 325,800 1,230,000
Adjusting and eliminating entries: (a) Cash and Receivables Retained Earnings Accrue interest earned by Power Company. E(1) Common Stock Pleasantdale Dairy Retained Earnings Differential Investment in Pleasantdale Dairy Stock Noncontrolling Interest Eliminate investment balance. E(2) Land Differential Assign differential. E(3) Current Payables Cash and Receivables Eliminate intercompany receivable/payable. 900 900
60,000 220,000 18,000
270,000 28,000
18,000
18,000
8,900
8,900
E5-22* Consolidation of Subsidiary with Negative Retained Earnings Eliminating entries: E(1) Common Stock Strap Company Additional Paid-In Capital Differential Retained Earnings Investment in Strap Company Stock Noncontrolling Interest Eliminate investment balance: $27,500 = ($138,000 / .80) - $145,000 $34,500 = ($138,000 / .80) x .20 E(2) Goodwill Differential Assign differential. 100,000 75,000 27,500
30,000 138,000 34,500
27,500
27,500
E5-23* Complex Assignment of Differential a. Equity-method entries recorded by Worth during 20X5: Investment in Brinker Common Stock Income from Brinker Inc. Record equity-method income: $135,000 = $150,000 x .90 Income from Brinker Inc. Investment in Brinker Common Stock Record write-off of differential. 135,000 135,000
82,350
82,350
Computation of differential write-off Total differential Assigned to identifiable assets and liabilities: Inventory Land Equipment Discount on Notes Payable Total Goodwill Write-off of differential: Inventory sold Land sold Depreciation of equipment ($60,000 / 15) Amortization of discount on notes payable Total write-off for 20X5 Ownership held by Worth Reduction of investment income $240,000 $ 5,000 75,000 60,000 50,000
(190,000) $ 50,000 $ 5,000 75,000 4,000 7,500 $ 91,500 x .90 $ 82,350
E5-23* (continued) b. Elimination entries: Income from Brinker, Inc. Investment in Brinker Common Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Noncontrolling Interest Assign income to noncontrolling interest: $5,850 = ($150,000 - $91,500) x .10 Common Stock Brinker Premium on Common Stock Retained Earnings, January 1 Differential Investment in Brinker Common Stock Noncontrolling Interest Eliminate beginning investment balance: $96,000 = $960,000 x .10 Cost of Goods Sold Gain on Sale of Land Equipment Discount on Notes Payable Goodwill Differential Assign beginning differential. Depreciation Expense Interest Expense Accumulated Depreciation Discount on Notes Payable Amortize differential. 52,650 52,650
5,850
5,850
500,000 100,000 120,000 240,000
864,000 96,000
5,000 75,000 60,000 50,000 50,000
240,000
4,000 7,500
4,000 7,500
E5-24A Basic Cost-Method Workpaper a. Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Common Stock Shaw Corporation Retained Earnings, January 1 Investment in Shaw Corporation Stock Eliminate original investment balance. Blake Corporation and Shaw Corporation Consolidation Workpaper December 31, 20X3 Item Sales Dividend Income Credits Depreciation Expense Other Expenses Debits Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Current Assets Deprec. Assets (net) Investment in Shaw Corporation Stock Debits Current Liabilities Long-Term Debt Common Stock Blake Corporation Shaw Corporation Retained Earnings, from above Credits Blake Corp. Shaw Corp. Eliminations Debit Credit Consolidated 320,000 320,000 40,000 180,000 (220,000) 100,000 230,000 100,000 330,000 (40,000) 290,000 250,000 550,000 (2)150,000 800,000 90,000 220,000 (2)100,000 60,000 160,000 10,000 160,000 200,000 290,000 800,000 10,000 10,000
E(2)
100,000 50,000
150,000
b.
200,000 120,000 10,000 (1) 10,000 210,000 120,000 25,000 15,000 105,000 75,000 (130,000) (90,000) 80,000 30,000 10,000 230,000 80,000 310,000 (40,000) 270,000 145,000 325,000 150,000 620,000 50,000 100,000 200,000 270,000 620,000 50,000 (2) 50,000 30,000 10,000 80,000 (10,000) 70,000 105,000 225,000 330,000 40,000 120,000 100,000 70,000 330,000 60,000
(1) 10,000 10,000
5-39
E5-25A Cost-Method Workpaper in Subsequent Period a. Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Common Stock Shaw Corporation Retained Earnings, January 1 Investment in Shaw Corporation Stock Eliminate original investment balance. Blake Corporation and Shaw Corporation Consolidation Workpaper December 31, 20X4 Item Sales Dividend Income Credits Depreciation Expense Other Expenses Debits Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Current Assets Deprec. Assets (net) Investment in Shaw Corporation Stock Debits Current Liabilities Long-Term Debt Common Stock Blake Corporation Shaw Corporation Retained Earnings, from above Credits Blake Corp. Shaw Corp. Eliminations Debit Credit Consolidated 500,000 500,000 40,000 410,000 (450,000) 50,000 290,000 50,000 340,000 (20,000) 320,000 280,000 510,000 (2)150,000 790,000 50,000 220,000 (2)100,000 65,000 165,000 15,000 165,000 200,000 320,000 790,000 15,000 15,000
E(2)
100,000 50,000
150,000
b.
300,000 200,000 15,000 (1) 15,000 315,000 200,000 25,000 15,000 250,000 160,000 (275,000) (175,000) 40,000 25,000 15,000 270,000 40,000 310,000 (20,000) 290,000 170,000 300,000 150,000 620,000 30,000 100,000 200,000 290,000 620,000 70,000 (2) 50,000 25,000 15,000 95,000 (15,000) 80,000 110,000 210,000 320,000 20,000 120,000 100,000 80,000 320,000 65,000
(1) 15,000 15,000
5-40
E5-26A Cost-Method Consolidation for Majority-Owned Subsidiary a. Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock Knight Company Retained Earnings, January 1 Investment in Knight Company Stock Noncontrolling Interest Eliminate original investment balance. Retained Earnings, January 1 Noncontrolling Interest Assign undistributed prior earnings of subsidiary to noncontrolling interest: ($70,000 - $50,000) x .20 16,000 16,000
E(2)
6,000
4,000 2,000
E(3)
100,000 50,000
120,000 30,000
E(4)
4,000
4,000
5-41
E5-26A (continued) b. Lintner Corporation and Knight Company Consolidation Workpaper December 31, 20X7 Item Sales Dividend Income Credits Depreciation Expense Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Current Assets Deprec. Assets (net) Investment in Knight Company Stock Debits Accum. Depreciation Accounts Payable Common Stock Lintner Corporation Knight Company Retained Earnings, from above Noncontrolling Interest Credits Lintner Corp. Knight Co. Eliminations Debit Credit Consolidated 500,000 500,000 40,000 406,000 (446,000) 54,000 (6,000) 48,000 284,000 48,000 332,000 (25,000) 307,000 263,000 800,000 (3)120,000 1,063,000 290,000 230,000 (3)100,000 76,000 200,000 20,000 307,000 (2) 2,000 (3) 30,000 (4) 4,000 36,000 176,000 1,063,000
300,000 200,000 16,000 (1) 16,000 316,000 200,000 25,000 15,000 251,000 155,000 (276,000) (170,000) (2) 6,000 22,000 (3) 50,000 (4) 4,000 22,000 (1) 16,000 (2) 4,000 76,000 20,000
40,000 268,000 40,000 308,000 (25,000) 283,000 183,000 500,000 120,000 803,000 200,000 120,000 200,000 283,000
30,000 70,000 30,000 100,000 (20,000) 80,000 80,000 300,000 380,000 90,000 110,000 100,000 80,000
803,000
380,000
176,000
5-42
E5-26A (continued) c. Lintner Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X7 $263,000 $800,000 (290,000) 510,000 $773,000 $230,000 $200,000 307,000 $507,000 36,000 543,000 $773,000
Current Assets Depreciable Assets Less: Accumulated Depreciation Total Assets Accounts Payable Stockholders Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders Equity Total Liabilities and Stockholders' Equity
Lintner Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X7 Sales Depreciation Other Expenses Total Expenses Consolidated Net Income Income to Noncontrolling Interest Income to Controlling Interest $500,000 $ 40,000 406,000 (446,000) $ 54,000 (6,000) $ 48,000
Lintner Corporation and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X7 Retained Earnings, January 1, 20X7 Income to Controlling Interest, 20X7 Dividends Declared, 20X7 Retained Earnings, December 31, 20X7 $284,000 48,000 $332,000 (25,000) $307,000
5-43
SOLUTIONS TO PROBLEMS P5-27 Majority-Owned Subsidiary Acquired at Book Value a. Eliminating entries: E(1) Common Stock Darla Corporation Retained Earnings Investment in Darla Corporation Stock Noncontrolling Interest Eliminate investment balance. E(2) Accounts Payable Accounts Receivable Eliminate intercompany receivable/payable. b. 40,000 85,000
87,500 37,500
12,500
12,500
Cameron Corporation and Darla Corporation Consolidated Balance Sheet Workpaper December 31, 20X4 Item Cameron Corp. 65,000 90,000 130,000 60,000 410,000 87,500 842,500 150,000 152,500 250,000 80,000 210,000 842,500 Darla Corp. 21,000 44,000 75,000 30,000 250,000 420,000 80,000 35,000 180,000 40,000 85,000 420,000 (2) 12,500 Eliminations Debit Credit (2) 12,500 Consolidated 86,000 121,500 205,000 90,000 660,000 1,162,500 230,000 175,000 430,000 80,000 (1) 37,500 137,500 210,000 37,500 1,162,500
Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Darla Corporation Stock Total Debits Accumulated Depreciation Accounts Payable Mortgage Payable Common Stock Cameron Corporation Darla Corporation Retained Earnings Noncontrolling Interest Total Credits
(1) 87,500
(1) 40,000 (1) 85,000 137,500
5-44
P5-27 (continued) c. Cameron Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X4 Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Total Assets Accounts Payable Mortgage Payable Stockholders Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders equity Total Liabilities and Stockholders' Equity $ 86,000 121,500 205,000 90,000 430,000 $932,500 $175,000 430,000 $ 80,000 210,000 $290,000 37,500
$660,000 (230,000)
327,500 $932,500
P5-28 Majority-Owned Subsidiary Acquired at Greater than Book Value a. Eliminating entries: E(1) Common Stock Darla Corporation Retained Earnings Differential Investment in Darla Corporation Stock Noncontrolling Interest Eliminate investment balance. E(2) Inventory Buildings and Equipment Differential Assign differential. E(3) Accounts Payable Accounts Receivable Eliminate intercompany receivable/payable. 40,000 85,000 21,000
102,200 43,800
6,000 15,000
21,000
12,500
12,500
5-45
P5-28 (continued) b. Porter Corporation and Darla Corporation Consolidated Balance Sheet Workpaper December 31, 20X4 Item Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Darla Corporation Stock Differential Total Debits Accumulated Depreciation Accounts Payable Mortgage Payable Common Stock Cameron Corporation Darla Corporation Retained Earnings Noncontrolling Interest Total Credits c. Porter Corp. Darla Corp. Eliminations Debit Credit (3) 12,500 Consolidated 71,300 121,500 211,000 90,000 675,000
50,300 21,000 90,000 44,000 130,000 75,000 60,000 30,000 410,000 250,000 102,200 842,500 420,000 150,000 80,000 152,500 35,000 250,000 180,000 80,000 210,000 40,000 85,000
(2) 6,000 (2) 15,000 (1) 21,000
(1)102,200 (2) 21,000
1,168,800 230,000 175,000 430,000 80,000 210,000 43,800 1,168,800
(3) 12,500
(1) 40,000 (1) 85,000 179,500
842,500 420,000
(1) 43,800 179,500
Porter Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X4 Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Total Assets Accounts Payable Mortgage Payable Stockholders Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders Equity Total Liabilities and Stockholders' Equity $ 71,300 121,500 211,000 90,000 445,000 $938,800 $175,000 430,000 $ 80,000 210,000 $290,000 43,800
$675,000 (230,000)
333,800 $938,800
5-46
P5-29 Balance Sheet Consolidation of Majority-Owned Subsidiary a. Entry on Total Corporation's books to record purchase of Ticken Tie stock: Investment in Ticken Tie Stock Bonds Payable Bond Premium 510,000 500,000 10,000
Note: The bonds go directly to the stockholders of Ticken Tie and are not recorded on the books of Ticken Tie. b. Eliminating entries: E(1) Common Stock Ticken Tie Company Additional Paid-In Capital Retained Earnings Differential Investment in Ticken Tie Stock Noncontrolling Interest Eliminate investment balance: $202,000 = ($510,000 + $170,000) - $478,000 E(2) Inventory Land Buildings and Equipment Patent Goodwill Differential Assign differential. E(3) Current Payables Receivables Eliminate intercompany receivable/payable. 200,000 130,000 148,000 202,000
510,000 170,000
4,000 20,000 50,000 40,000 88,000
202,000
6,500
6,500
5-47
P5-29 (continued) c. Total Corporation and Ticken Tie Company Consolidated Balance Sheet Workpaper January 2, 20X8 Item Cash Receivables Inventory Investment in Ticken Tie Stock Land Buildings and Equipment Patent Goodwill Differential Total Assets Allowance for Bad Debts Accumulated Depreciation Current Payables Bonds Payable Bond Premium Common Stock Additional Paid-In Capital Retained Earnings Noncontrolling Interest Total Liabilities and Stockholders Equity Total Corp. 12,000 41,000 86,000 510,000 55,000 960,000 Ticken Tie 9,000 31,000 68,000 50,000 670,000 Eliminations Debit Credit (3) 6,500 Consolidated 21,000 65,500 158,000 125,000 1,680,000 40,000 88,000 2,177,500 3,000 (3) 6,500 631,000 60,500 800,000 10,000 300,000 100,000 103,000 170,000 2,177,500
(2)
4,000
1,664,000 2,000 411,000 38,000 700,000 10,000 300,000 100,000 103,000 1,664,000
828,000 1,000 220,000 29,000 100,000 200,000 130,000 148,000 828,000
(1)510,000 (2) 20,000 (2) 50,000 (2) 40,000 (2) 88,000 (1)202,000 (2)202,000
(1)200,000 (1)130,000 (1)148,000 888,500
(1)170,000 888,500
5-48
P5-29 (continued) d. Total Corporation and Subsidiary Consolidated Balance Sheet January 2, 20X8 Cash Receivables Less: Allowance for Bad Debts Inventory Land Buildings and Equipment Less: Accumulated Depreciation Patent Goodwill Total Assets Current Payables Bonds Payable Premium on Bonds Payable Stockholders Equity: Controlling Interest: Common Stock Additional Paid-In Capital Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders Equity Total Liabilities and Stockholders' Equity $ 65,500 (3,000) $ 21,000 62,500 158,000 125,000 1,049,000 40,000 88,000 $1,543,500 $ 60,500 810,000
$1,680,000 (631,000)
$ 800,000 10,000 $ 300,000 100,000 103,000 $ 503,000 170,000
673,000 $1,543,500
5-49
P5-30 Incomplete Data a. b. c. $15,000 $65,000 Skyler: $24,000 Blue: $70,000 d. Fair value of Skyler as a whole: $200,000 10,000 40,000 9,000 $259,000 e. f. . 65 percent Capital Stock Retained Earnings = = = = ($115,000 + $46,000) - $146,000 = ($148,000 - $98,000) + $15,000 = $380,000 - ($46,000 + $110,000 + $75,000 + $125,000) = $94,000 - $24,000
Book value of Skyler shares Differential assigned to inventory ($195,000 - $105,000 - $80,000) Differential assigned to buildings and equipment ($780,000 - $400,000 - $340,000) Differential assigned to goodwill Fair value of Skyler 1.00 ($90,650 / $259,000) $120,000 $115,000
5-50
P5-31 Income and Retained Earnings a. Net income for 20X9: Operating income Income from subsidiary Net income b. Consolidated net income is $125,000 ($90,000 + $35,000). c. Retained earnings reported at December 31, 20X9: Retained earnings, January 1, 20X9 Net income for 20X9 Dividends paid in 20X9 Retained earnings, December 31, 20X9 Quill $290,000 114,500 (30,000) $374,500 North $40,000 35,000 (10,000) $65,000 Quill $ 90,000 24,500 $114,500 North $35,000 $35,000
d. Consolidated retained earnings at December 31, 20X9, is equal to the $374,500 retained earnings balance reported by Quill. e. When the cost method is used, the parent's proportionate share of the increase in retained earnings of the subsidiary subsequent to acquisition is not included in the parent's retained earnings. Thus, this amount must be added to the total retained earnings reported by the parent in arriving at consolidated retained earnings.
5-51
P5-32 Consolidation Workpaper at End of First Year of Ownership a. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Best Company Stock Eliminate income from subsidiary: $16,500 = ($24,000 - $2,000) x .75 Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $4,125 = ($24,000 - $2,000 - $5,500) x .25 Common Stock Best Company Retained Earnings, January 1 Differential Investment in Best Company Stock Noncontrolling Interest Eliminate beginning investment balance: $28,000 = ($96,000 + $32,000) - $100,000 Buildings and Equipment Goodwill Differential Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential related to buildings and equipment: $2,000 = $20,000 / 10 years Goodwill Impairment Loss Goodwill Write down goodwill for impairment. 16,500 12,000 4,500
E(2)
4,125
4,000 125
E(3)
60,000 40,000 28,000
96,000 32,000
E(4)
20,000 8,000
28,000
E(5)
2,000
2,000
E(6)
5,500
5,500
5-52
P5-32 (continued) b. Power Corporation and Best Company Consolidation Workpaper December 31, 20X8 Item Sales Income from Subsidiary Credits Cost of Goods Sold Wage Expense Depreciation Expense Interest Expense Other Expenses Goodwill Impairment Loss Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Best Company Stock Differential Goodwill Debits Power Corp. 260,000 16,500 276,500 125,000 42,000 25,000 12,000 13,500 Best Co. 180,000 180,000 110,000 27,000 10,000 4,000 5,000 Eliminations Debit Credit (1) 16,500 Consolidated 440,000 440,000 235,000 69,000 37,000 16,000 18,500 5,500 (381,000) 59,000 (4,125) 54,875 102,000 54,875 156,875 (30,000) 126,875 68,500 82,000 115,000 45,000 520,000 (1) 4,500 (3) 96,000 (4) 28,000 (6) 5,500
(5) 2,000 (6) 5,500
(217,500) (156,000)
59,000 102,000 59,000 161,000 (30,000) 131,000 47,500 70,000 90,000 30,000 350,000 100,500
24,000 40,000 24,000 64,000 (16,000) 48,000 21,000 12,000 25,000 15,000 150,000
(2) 4,125 28,125 (3) 40,000 28,125 (1) 12,000 (2) 4,000 68,125 16,000
(4) 20,000
688,000
223,000
(3) 28,000 (4) 8,000
2,500 833,000
5-53
P5-32 (continued) Item Accum. Depreciation Accounts Payable Wages Payable Notes Payable Common Stock Power Corporation Best Company Retained Earnings, from above Noncontrolling Interest Credits Power Corp. 145,000 45,000 17,000 150,000 200,000 131,000 Best Co. 40,000 16,000 9,000 50,000 60,000 48,000 (3) 60,000 68,125 16,000 (2) 125 (3) 32,000 184,125 Eliminations Debit Credit (5) 2,000 Consolidated 187,000 61,000 26,000 200,000 200,000 126,875 32,125 833,000
688,000
223,000
184,125
5-54
P5-33 Consolidation Workpaper at End of Second Year of Ownership a. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Best Company Stock Eliminate income from subsidiary: $25,500 = ($36,000 - $2,000) x .75 Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $8,500 = ($36,000 - $2,000) x .25 Common Stock Best Company Retained Earnings, January 1 Differential Investment in Best Company Stock Noncontrolling Interest Eliminate beginning investment balance: $52,125 = $48,000 + ($5,500 x .75) $20,500 = $28,000 - $2,000 - $5,500 $32,125 = ($60,000 + $48,000 + $20,500) x .25 Buildings and Equipment Goodwill Differential Accumulated Depreciation Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential related to buildings and equipment: $2,000 = $20,000 / 10 years 25,500 15,000 10,500
E(2)
8,500
5,000 3,500
E(3)
60,000 52,125 20,500
100,500 32,125
E(4)
20,000 2,500
20,500 2,000
E(5)
2,000
2,000
5-55
P5-33 (continued) b. Power Corporation and Best Company Consolidation Workpaper December 31, 20X9 Item Sales Income from Subsidiary Credits Cost of Goods Sold Wage Expense Depreciation Expense Interest Expense Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Best Company Stock Differential Goodwill Debits Power Corp. Best Co. Eliminations Debit Credit (1) 25,500 Consolidated 490,000 490,000 259,000 55,000 37,000 16,000 39,000 (406,000) 84,000 (8,500) 75,500 126,875 75,500 202,375 (30,000) 172,375 100,500 99,000 121,000 75,000 520,000 (1) 10,500 (3)100,500 (4) 20,500
290,000 200,000 25,500 315,500 200,000 145,000 114,000 35,000 20,000 25,000 10,000 12,000 4,000 23,000 16,000 (240,000) (164,000)
(5) 2,000
75,500 131,000 75,500 206,500 (30,000) 176,500 68,500 85,000 97,000 50,000 350,000 111,000
36,000 48,000 36,000 84,000 (20,000) 64,000 32,000 14,000 24,000 25,000 150,000
(2) 8,500 36,000 (3) 52,125 36,000 (1) 15,000 (2) 5,000 88,125 20,000
(4) 20,000
761,500
245,000
(3) 20,500 (4) 2,500
2,500 918,000
5-56
P5-33 (continued) Item Accum. Depreciation Accounts Payable Wages Payable Notes Payable Common Stock Power Corporation Best Company Retained Earnings, from above Noncontrolling Interest Credits Power Corp. 170,000 51,000 14,000 150,000 200,000 176,500 Best Co. 50,000 15,000 6,000 50,000 60,000 64,000 (3) 60,000 88,125 20,000 (2) 3,500 (3) 32,125 191,125 Eliminations Debit Credit (4) 2,000 (5) 2,000 Consolidated 224,000 66,000 20,000 200,000 200,000 172,375 35,625 918,000
761,500
245,000
191,125
5-57
P5-33 (continued) c. Power Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X9
Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Goodwill Total Assets
$100,500 99,000 121,000 75,000 $520,000 (224,000) 296,000 2,500 $694,000 $ 66,000 20,000 200,000 $200,000 172,375 $372,375 35,625 408,000 $694,000
Accounts Payable Wages Payable Notes Payable Stockholders Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders Equity Total Liabilities and Stockholders' Equity Power Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X9 Sales Cost of Goods Sold Wage Expense Depreciation Expense Interest Expense Other Expenses Total Expenses Consolidated Net Income Income to Noncontrolling Interest Income to Controlling Interest
$490,000 $259,000 55,000 37,000 16,000 39,000 (406,000) $ 84,000 (8,500) $ 75,500
Power Corporation and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X9 Retained Earnings, January 1, 20X9 Income to Controlling Interest, 20X9 $126,875 75,500 $202,375
5-58
Dividends Declared, 20X9 Retained Earnings, December 31, 20X9
(30,000) $172,375
5-59
P5-34 Comprehensive Problem: Majority-Owned Subsidiary a. Journal entries recorded by Master Corporation: (1) Cash Investment in Stanley Wood Products Stock Record dividends from Stanley Wood Products: $10,000 x .80 Investment in Stanley Wood Products Stock Income from Subsidiary Record equity-method income: $30,000 x .80 Income from Subsidiary Investment in Stanley Wood Products Stock Amortize differential: ($50,000 / 10 years) x .80 Computation of differential: Fair value of consideration given by Master Corp. Fair value of noncontrolling interest Total fair value Underlying book value Differential at acquisition, January 1, 20X1 8,000 8,000
(2)
24,000
24,000
(3)
4,000 4,000
$160,000 40,000 $200,000 (150,000 ) $ 50,000
5-60
P5-34 (continued) b. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Stanley Wood Products Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $5,000 = ($30,000 - $5,000) x .20 Common Stock Stanley Wood Products Retained Earnings, January 1 Differential Investment in Stanley Wood Products Stock Noncontrolling Interest Eliminate beginning investment balance: $30,000 = $50,000 ($5,000 x 4 years) $176,000 = .80($100,000 + $90,000 + $30,000) $44,000 = .20($100,000 +$90,000 + 30,000) Buildings and Equipment Accumulated Depreciation Differential Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential. Accounts Payable Cash and Receivables Eliminate intercorporate receivable/payable. 20,000 8,000 12,000 5,000
E(2)
2,000 3,000
E(3)
100,000 90,000 30,000 176,000 44,000
E(4)
50,000
20,000 30,000
E(5)
5,000
5,000
E(6)
10,000
10,000
5-61
P5-34 (continued) c. Master Corporation and Stanley Wood Products Company Consolidation Workpaper December 31, 20X5 Item Sales Income from Subsidiary Credits Cost of Goods Sold Depreciation Expense Inventory Losses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash and Receivables Inventory Land Buildings and Equipment Investment in Stanley Wood Products Stock Differential Debits Accum. Depreciation Accounts Payable Notes Payable Common Stock Master Corporation Stanley Wood Products Retained Earnings, from above Noncontrolling Interest Credits Master Corp. 200,000 20,000 220,000 120,000 25,000 15,000 (160,000) Stanley Wood 100,000 _______ 100,000 50,000 15,000 5,000 (70,000) Eliminations Debit Credit (1) 20,000 (5) 5,000 Consolidated 300,000 300,000 170,000 45,000 20,000 (235,000) 65,000 (5,000) 60,000 314,000 60,000 374,000 (30,000) 344,000 136,000 350,000 160,000 700,000
60,000 314,000 60,000 374,000 (30,000) 344,000 81,000 260,000 80,000 500,000 188,000 1,109,000 205,000 60,000 200,000 300,000 344,000 1,109,000
30,000 90,000 30,000 120,000 (10,000) 110,000 65,000 90,000 80,000 150,000
(2)
5,000 30,000
(3) 90,000 30,000 (1) (2) 120,000 8,000 2,000 10,000 (6) 10,000 (4) 50,000 (1) 12,000 (3)176,000 (4) 30,000 (4) 20,000 (5) 5,000
385,000 105,000 20,000 50,000 100,000 110,000 385,000
(3) 30,000
1,346,000 335,000 70,000 250,000 300,000
(6) 10,000
(3)100,000 120,000 310,000
10,000 344,000 (2) 3,000 (3) 44,000 47,000 310,000 1,346,000
5-62
P5-35 Comprehensive Problem: Differential Apportionment a. Journal entries recorded by Mortar Corporation: (1) Investment in Granite Company Stock Cash Purchase of Granite Company stock. Cash Investment in Granite Company Stock Record dividends from Granite Company: $20,000 x .80 Investment in Granite Company Stock Income from Subsidiary Record equity-method income: $60,000 x .80 Income from Subsidiary Investment in Granite Company Stock Amortize differential assigned to depreciable assets: [($191,250 - $150,000) x .80] / 11 years 173,000 173,000
(2)
16,000
16,000
(3)
48,000
48,000
(4)
3,000
3,000
5-63
P5-35 (continued) b. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Granite Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $11,250 = [$60,000 ($41,250 / 11)] x .20 Common Stock Granite Company Retained Earnings, January 1 Differential Investment in Granite Company Stock Noncontrolling Interest Eliminate beginning investment balance: $66,250 = ($173,000 + $43,250) - $150,000 Goodwill Buildings and Equipment Differential Assign beginning differential: $41,250 = $191,250 - $150,000 $25,000 = $66,250 - $41,250 Depreciation Expense Accumulated Depreciation Amortize differential related to depreciable assets: $41,250 / 11 years Accounts Payable Accounts Receivable Eliminate intercorporate receivable/payable. 45,000 16,000 29,000
E(2)
11,250
4,000 7,250
E(3)
50,000 100,000 66,250
173,000 43,250
E(4)
25,000 41,250
66,250
E(5)
3,750
3,750
E(6)
16,000
16,000
5-64
P5-35 (continued) c. Mortar Corporation and Granite Company Consolidation Workpaper December 31, 20X7 Item Sales Income from Subsidiary Credits Cost of Goods Sold Depreciation Expense Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Granite Company Stock Differential Goodwill Debits Accum. Depreciation Accounts Payable Mortgages Payable Common Stock Mortar Corporation Granite Company Retained Earnings, from above Noncontrolling Interest Credits Mortar Corp. 700,000 45,000 745,000 500,000 25,000 75,000 (600,000) Granite Co. 400,000 400,000 250,000 15,000 75,000 (340,000) Eliminations Debit Credit (1) 45,000 (5) 3,750 Consolidated 1,100,000 1,100,000 750,000 43,750 150,000 (943,750) 156,250 (11,250) 145,000 290,000 145,000 435,000 (50,000) 385,000 63,000 89,000 340,000 100,000 691,250
145,000 290,000 145,000 435,000 (50,000) 385,000 38,000 50,000 240,000 80,000 500,000 202,000
60,000 100,000 60,000 160,000 (20,000) 140,000 25,000 55,000 100,000 20,000 150,000
(2) 11,250 60,000 (3) 100,000 60,000 (1) 16,000 (2) 4,000 160,000 20,000 (6) 16,000 (4) 41,250 (1) 29,000 (3) 173,000 (4) 66,250
1,110,000 155,000 70,000 200,000 300,000 385,000 1,110,000
350,000 75,000 35,000 50,000 50,000 140,000 350,000
(3) 66,250 (4) 25,000
25,000 1,308,250 233,750 89,000 250,000 300,000
(6) 16,000
(5)
3,750
(3) 50,000 160,000 358,500
20,000 385,000 (2) 7,250 (3) 43,250 50,500 358,500 1,308,250
5-65
P5-36 Comprehensive Problem: Differential Apportionment in Subsequent Period. a. Journal entries recorded by Mortar Corporation: (1) Cash Investment in Granite Company Stock Record dividends from Granite Company: $20,000 = $25,000 x .80 Investment in Granite Company Stock Income from Subsidiary Record equity-method income: $45,000 x .80 Income from Subsidiary Investment in Granite Company Stock Amortize differential assigned to depreciable assets:
$3,000 = [($191,250 - $150,000) / 11 years] x .80
20,000
20,000
(2)
36,000
36,000
(3)
3,000
3,000
5-66
P5-36 (continued) b. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Granite Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $6,050 = ($45,000 - $3,750 - $11,000) x .20 Common Stock Granite Company Retained Earnings, January 1 Differential Investment in Granite Company Stock Noncontrolling Interest Eliminate beginning investment balance: $66,250 Differential at acquisition (3,750) Depreciation in 20X7 $62,500 Unamortized differential Jan. 1, 20X8 Goodwill Buildings and Equipment Differential Accumulated Depreciation Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential related to depreciable assets. Goodwill Impairment Loss Goodwill Impairment of goodwill. Accounts Payable Accounts Receivable Eliminate intercorporate receivable/payable. 33,000 20,000 13,000
E(2)
6,050
5,000 1,050
E(3)
50,000 140,000 62,500
202,000 50,500
E(4)
25,000 41,250
62,500 3,750
E(5)
3,750
3,750
E(6)
11,000
11,000
E(7)
9,000
9,000
5-67
P5-36 (continued) c. Mortar Corporation and Granite Company Consolidation Workpaper December 31, 20X8 Item Sales Income from Subsidiary Credits Cost of Goods Sold Depreciation Expense Goodwill Impairment Loss Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Granite Company Stock Differential Goodwill Debits Accum. Depreciation Accounts Payable Mortgages Payable Common Stock Mortar Corporation Granite Company Retained Earnings, from above Noncontrolling Interest Credits Mortar Corp. 650,000 33,000 683,000 490,000 25,000 62,000 (577,000) Granite Co. 470,000 470,000 310,000 15,000 100,000 (425,000) Eliminations Debit Credit (1) 33,000 (5) 3,750 (6) 11,000 Consolidated 1,120,000 1,120,000 800,000 43,750 11,000 162,000 (1,016,750) 103,250 (6,050) 97,200 385,000 97,200 482,200 (45,000) 437,200 90,000 145,000 393,000 110,000 691,250
106,000 385,000 106,000 491,000 (45,000) 446,000 59,000 83,000 275,000 80,000 500,000 215,000
45,000 140,000 45,000 185,000 (25,000) 160,000 31,000 71,000 118,000 30,000 150,000
(2)
6,050 53,800
(3)140,000 53,800 (1) 20,000 (2) 5,000 193,800 (7) (4) 41,250 (1) 13,000 (3)202,000 (4) 62,500 (6) 11,000 (4) (5) 3,750 3,750 25,000 9,000
1,212,000 180,000 86,000 200,000 300,000 446,000 1,212,000
400,000 90,000 30,000 70,000 50,000 160,000 400,000
(3) 62,500 (4) 25,000
14,000 1,443,250 277,500 107,000 270,000 300,000
(7) 9,000
(3) 50,000 193,800 381,550 25,000 (2) 1,050 (3) 50,500 381,550
437,200 51,550 1,443,250
5-68
P5-37 Subsidiary with Other Comprehensive Income in Year of Acquisition a. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Sparta Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Other Comprehensive Income from Subsidiary Unrealized Gain on Investments (OCI) Investment in Sparta Company Stock Eliminate other comprehensive income from subsidiary. Other Comprehensive Income to Noncontrolling Interest Noncontrolling Interest Assign other comprehensive income to noncontrolling interest. Common Stock Sparta Company Retained Earnings, January 1 Investment in Sparta Company Stock Noncontrolling Interest Eliminate beginning investment balance. 15,000 9,000 6,000
E(2)
10,000
6,000 4,000
E(3)
6,000
6,000
E(4)
4,000
4,000
E(5)
100,000 60,000
96,000 64,000
5-69
P5-37 (continued) b. Amber Corporation and Sparta Company Consolidation Workpaper December 31, 20X8 Item Sales Income from Subsidiary Credits Cost of Goods Sold Depreciation Expense Interest Expense Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Buildings and Equipment Investment in Row Company Securities Investment in Sparta Company Stock Debits Amber Corp. 220,000 15,000 235,000 150,000 30,000 8,000 (188,000) Sparta Co. 148,000 148,000 110,000 10,000 3,000 (123,000) Eliminations Debit Credit (1) 15,000 Consolidated 368,000 368,000 260,000 40,000 11,000 (311,000) 57,000 (10,000) 47,000 208,000 47,000 255,000 (24,000) 231,000 35,000 87,000 70,000 735,000 40,000 (1) 6,000 (3) 6,000 (5) 96,000
47,000 208,000 47,000 255,000 (24,000) 231,000 27,000 65,000 40,000 500,000
25,000 60,000 25,000 85,000 (15,000) 70,000 8,000 22,000 30,000 235,000 40,000
(2) 10,000 25,000 (5) 60,000 25,000 (1) 9,000 (2) 6,000 85,000 15,000
108,000 740,000 335,000
967,000
5-70
P5-37 (continued) Item Accum. Depreciation Accounts Payable Bonds Payable Common Stock Amber Corporation Sparta Company Retained Earnings, from above Accumulated Other Comprehensive Income, from below Noncontrolling Interest Credits Other Comprehensive Income: OCI from Subsidiary Unrealized Gain on Investments Unrealized Gain on Investments Other Comprehensive Income to Noncontrolling Interest Accumulated Other Comprehensive Income, December 31, carry up Amber Corp. 140,000 63,000 100,000 200,000 231,000 6,000 Sparta Co. 85,000 20,000 50,000 100,000 70,000 10,000 (5)100,000 85,000 10,000 (2) 4,000 (4) 4,000 (5) 64,000 195,000 15,000 Eliminations Debit Credit Consolidated 225,000 83,000 150,000 200,000 231,000 6,000
740,000
335,000
195,000
72,000 967,000
6,000 10,000
(3) 6,000 10,000 (4) 4,000 (4,000) 6,000
6,000
10,000
10,000
5-71
P5-37 (continued) c. Amber Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X8 $ 35,000 87,000 70,000 510,000 40,000 $742,000 $ 83,000 150,000 $200,000 231,000 6,000 $437,000 72,000
Cash Accounts Receivable Inventory Buildings and Equipment Less: Accumulated Depreciation Investment in Marketable Securities Total Assets Accounts Payable Bonds Payable Stockholders Equity: Controlling Interest: Common Stock Retained Earnings Accumulated Other Comprehensive Income Total Controlling Interest Noncontrolling Interest Total Stockholders Equity Total Liabilities and Stockholders' Equity
$735,000 (225,000)
509,000 $742,000
Amber Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X8 Sales Cost of Goods Sold Depreciation Expense Interest Expense Total Expenses Consolidated Net Income Income to Noncontrolling Interest Income to Controlling Interest $260,000 40,000 11,000 $368,000
(311,000) $ 57,000 (10,000) $ 47,000
Amber Corporation and Subsidiary Consolidated Statement of Comprehensive Income Year Ended December 31, 20X8 Consolidated Net Income Other Comprehensive Income: Unrealized Gain on Investments Held by Subsidiary Total Consolidated Comprehensive Income Less: Comprehensive Income Attributable to Noncontrolling Interest Comprehensive Income Attributable to Controlling Interest $57,000 10,000 $67,000 (14,000) $53,000
5-72
P5-38 Subsidiary with Other Comprehensive Income in Year Following Acquisition a. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Sparta Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Other Comprehensive Income from Subsidiary Unrealized Gain on Investments (OCI) Investment in Sparta Company Stock Eliminate other comprehensive income from subsidiary. Other Comprehensive Income to Noncontrolling Interest Noncontrolling Interest Assign other comprehensive income to noncontrolling interest. Common Stock Sparta Company Retained Earnings, January 1 Accumulated Other Comprehensive Income Investment in Sparta Company Stock Noncontrolling Interest Eliminate beginning investment balance. 18,000 12,000 6,000
E(2)
12,000
8,000 4,000
E(3)
2,400
2,400
E(4)
1,600
1,600
E(5)
100,000 70,000 10,000
108,000 72,000
5-73
P5-38 (continued) b. Amber Corporation and Sparta Company Consolidation Workpaper December 31, 20X9 Item Sales Income from Subsidiary Credits Cost of Goods Sold Depreciation Expense Interest Expense Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Buildings and Equipment Investment in Row Company Securities Investment in Sparta Company Stock Debits Amber Corp. 250,000 18,000 268,000 170,000 30,000 8,000 (208,000) Sparta Co. 140,000 140,000 97,000 10,000 3,000 (110,000) Eliminations Debit Credit (1) 18,000 Consolidated 390,000 390,000 267,000 40,000 11,000 (318,000) 72,000 (12,000) 60,000 231,000 60,000 291,000 (40,000) 251,000 29,000 66,000 70,000 842,000 44,000 (1) 6,000 (3) 2,400 (5)108,000
60,000 231,000 60,000 291,000 (40,000) 251,000 18,000 45,000 40,000 585,000
30,000 70,000 30,000 100,000 (20,000) 80,000 11,000 21,000 30,000 257,000 44,000
(2) 12,000 30,000 (5) 70,000 30,000 (1) 12,000 (2) 8,000 100,000 20,000
116,400 804,400 363,000
1,051,000
5-74
P5-38 (continued) Item Accum. Depreciation Accounts Payable Bonds Payable Common Stock Amber Corporation Sparta Company Retained Earnings, from above Accumulated Other Comprehensive Income, from below Noncontrolling Interest Credits Other Comprehensive Income: OCI from Subsidiary Unrealized Gain on Investments Unrealized Gain on Investments Other Comprehensive Income to Noncontrolling Interest Accumulated Other Comprehensive Income, January 1 Accumulated Other Comprehensive Income December 31, carry up Amber Corp. 170,000 75,000 100,000 200,000 251,000 8,400 Sparta Co. 95,000 24,000 50,000 100,000 80,000 14,000 (5)100,000 100,000 14,000 (2) 4,000 (4) 1,600 (5) 72,000 214,000 20,000 Eliminations Debit Credit Consolidated 265,000 99,000 150,000 200,000 251,000 8,400
804,400
363,000
214,000
77,600 1,051,000
2,400 4,000
(3)
2,400 4,000
(4) 6,000 8,400 10,000 14,000
1,600
(1,600) 6,000 8,400
(5) 10,000 14,000
5-75
P5-39 Income and Retained Earnings Prior Procedures a. Net income for 20X9: Operating income Income from subsidiary Net income Quill $ 90,000 24,500 $114,500 North $35,000 $35,000
b. Consolidated net income is equal to the $114,500 net income reported by Quill. c. Retained earnings reported at December 31, 20X9: Retained earnings, January 1, 20X9 Net income for 20X9 Dividends paid in 20X9 Retained earnings, December 31, 20X9 Quill $290,000 114,500 (30,000) $374,500 North $40,000 35,000 (10,000) $65,000
d. Consolidated retained earnings at December 31, 20X9, is equal to the $374,500 retained earnings balance reported by Quill. e. When the cost method is used, the parent's proportionate share of the increase in retained earnings of the subsidiary subsequent to acquisition is not included in the parent's retained earnings. Thus, this amount must be added to the total retained earnings reported by the parent in arriving at consolidated retained earnings.
5-76
P5-40 Majority-Owned Subsidiary Acquired at Greater than Book Value Prior Procedures a. Eliminating entries: E(1) Common Stock Darla Corporation Retained Earnings Differential Investment in Darla Corporation Stock Noncontrolling Interest Eliminate investment balance: $14,700 = $102,200 - .70 x ($40,000 + $85,000) E(2) Inventory Buildings and Equipment Differential Assign differential. E(3) Accounts Payable Accounts Receivable Eliminate intercompany receivable/payable. 40,000 85,000 14,700
102,200 37,500
4,200 10,500
14,700
12,500
12,500
5-77
P5-40 (continued) b. Porter Corporation and Darla Corporation Consolidated Balance Sheet Workpaper December 31, 20X4 Item Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Darla Corporation Stock Differential Total Debits Accumulated Depreciation Accounts Payable Mortgage Payable Common Stock Porter Corporation Darla Corporation Retained Earnings Noncontrolling Interest Total Credits c. Porter Corp. Darla Corp. Eliminations Debit Credit (3) 12,500 Consolidated 71,300 121,500 209,200 90,000 670,500
50,300 21,000 90,000 44,000 130,000 75,000 60,000 30,000 410,000 250,000 102,200 842,500 420,000 150,000 80,000 152,500 35,000 250,000 180,000 80,000 210,000 40,000 85,000
(2) 4,200 (2) 10,500 (1) 14,700
(1)102,200 (2) 14,700
1,162,500 230,000 175,000 430,000 80,000 210,000 37,500 1,162,500
(3) 12,500
(1) 40,000 (1) 85,000 166,900
842,500 420,000
(1) 37,500 166,900
Porter Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X4 Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Total Assets Accounts Payable Mortgage Payable Stockholders Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders Equity Total Liabilities and Stockholders' Equity $ 71,300 121,500 209,200 90,000 440,500 $932,500 $175,000 430,000 $ 80,000 210,000 290,000 37,500
$670,500 (230,000)
327,500 $932,500
5-78
P5-41 Consolidation Workpaper at End of First Year of Ownership Prior Procedures a. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Best Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock Best Company Retained Earnings, January 1 Differential Investment in Best Company Stock Noncontrolling Interest Eliminate beginning investment balance: $21,000 = $96,000 (.75 x $100,000) Buildings and Equipment Goodwill Differential Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential: $1,500 = $15,000 / 10 years Goodwill Impairment Loss Goodwill Write down goodwill for impairment. 16,500 12,000 4,500
E(2)
6,000
4,000 2,000
E(3)
60,000 40,000 21,000
96,000 25,000
E(4)
15,000 6,000
21,000
E(5)
1,500
1,500
E(6)
3,500
3,500
5-79
P5-41 (continued) b. Power Corporation and Best Company Consolidation Workpaper December 31, 20X8 Item Sales Income from Subsidiary Credits Cost of Goods Sold Wage Expense Depreciation Expense Interest Expense Other Expenses Goodwill Impairment Loss Debits Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Best Company Stock Differential Goodwill Debits Power Corp. 260,000 16,500 276,500 125,000 42,000 25,000 12,000 13,500 Best Co. 180,000 180,000 110,000 27,000 10,000 4,000 5,000 Eliminations Debit Credit (1) 16,500 Consolidated 440,000 440,000 235,000 69,000 36,500 16,000 18,500 3,500 (378,500) 61,500 (6,000) 55,500 102,000 55,500 157,500 (30,000) 127,500 68,500 82,000 115,000 45,000 515,000 (1) 4,500 (3) 96,000 (4) 21,000 (6) 3,500
(5) 1,500 (6) 3,500
(217,500) (156,000)
59,000 102,000 59,000 161,000 (30,000) 131,000 47,500 70,000 90,000 30,000 350,000 100,500
24,000 40,000 24,000 64,000 (16,000) 48,000 21,000 12,000 25,000 15,000 150,000
(2) 6,000 27,500 (3) 40,000 27,500 (1) 12,000 (2) 4,000 67,500 16,000
(4) 15,000
688,000
223,000
(3) 21,000 (4) 6,000
2,500 828,000
5-80
P5-41 (continued) Item Accum. Depreciation Accounts Payable Wages Payable Notes Payable Common Stock Power Corporation Best Company Retained Earnings, from above Noncontrolling Interest Credits Power Corp. 145,000 45,000 17,000 150,000 200,000 131,000 Best Co. 40,000 16,000 9,000 50,000 60,000 48,000 (3) 60,000 67,500 16,000 (2) 2,000 (3) 25,000 169,500 Eliminations Debit Credit (5) 1,500 Consolidated 186,500 61,000 26,000 200,000 200,000 127,500 27,000 828,000
688,000
223,000
169,500
5-81
P5-42 Consolidation Workpaper at End of Second Year of Ownership Prior Procedures a. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Best Company Stock Eliminate income from subsidiary: $25,500 = ($36,000 - $2,000) x .75 Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $9,000 = $36,000 x .25 Common Stock Best Company Retained Earnings, January 1 Differential Investment in Best Company Stock Noncontrolling Interest Eliminate beginning investment balance: $51,500 = $48,000 + $3,500 $16,000 = $21,000 Original differential (1,500) Amortization of differential in 20X8 (3,500) Goodwill impaired in 20X8 $16,000 Differential at Jan. 1, 20X9 $27,000 = ($60,000 + $48,000) x .25 Buildings and Equipment Goodwill Differential Accumulated Depreciation Assign beginning differential. Depreciation Expense Accumulated Depreciation Amortize differential related to buildings and equipment: $1,500 = $15,000 / 10 years 25,500 15,000 10,500
E(2)
9,000
5,000 4,000
E(3)
60,000 51,500 16,000
100,500 27,000
E(4)
15,000 2,500
16,000 1,500
E(5)
1,500
1,500
5-82
P5-42 (continued) b. Power Corporation and Best Company Consolidation Workpaper December 31, 20X9 Item Sales Income from Subsidiary Credits Cost of Goods Sold Wage Expense Depreciation Expense Interest Expense Other Expenses Debits Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Best Company Stock Differential Goodwill Debits Power Corp. Best Co. Eliminations Debit Credit (1) 25,500 Consolidated 490,000 490,000 259,000 55,000 36,500 16,000 39,000 (405,500) 84,500 (9,000) 75,500 127,500 75,500 203,000 (30,000) 173,000 100,500 99,000 121,000 75,000 515,000 (1) 10,500 (3)100,500 (4) 16,000
290,000 200,000 25,500 315,500 200,000 145,000 114,000 35,000 20,000 25,000 10,000 12,000 4,000 23,000 16,000 (240,000) (164,000)
(5) 1,500
75,500 131,000 75,500 206,500 (30,000) 176,500 68,500 85,000 97,000 50,000 350,000 111,000
36,000 48,000 36,000 84,000 (20,000) 64,000 32,000 14,000 24,000 25,000 150,000
(2) 9,000 36,000 (3) 51,500 36,000 (1) 15,000 (2) 5,000 87,500 20,000
(4) 15,000
761,500
245,000
(3) 16,000 (4) 2,500
2,500 913,000
5-83
P5-42 (continued) Item Accum. Depreciation Accounts Payable Wages Payable Notes Payable Common Stock Power Corporation Best Company Retained Earnings, from above Noncontrolling Interest Credits Power Corp. 170,000 51,000 14,000 150,000 200,000 176,500 Best Co. 50,000 15,000 6,000 50,000 60,000 64,000 (3) 60,000 87,500 20,000 (2) 4,000 (3) 27,000 181,000 Eliminations Debit Credit (4) 1,500 (5) 1,500 Consolidated 223,000 66,000 20,000 200,000 200,000 173,000 31,000 913,000
761,500
245,000
181,000
5-84
P5-42 (continued) c. Power Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X9 $100,500 99,000 121,000 75,000 $515,000 (223,000) 292,000 2,500 $690,000 $ 66,000 20,000 200,000 $200,000 173,000 $373,000 31,000 404,000 $690,000
Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Goodwill Total Assets Accounts Payable Wages Payable Notes Payable Stockholders Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders Equity Total Liabilities and Stockholders' Equity Power Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X9 Sales Cost of Goods Sold Wage Expense Depreciation Expense Interest Expense Other Expenses Total Expenses Income to Noncontrolling Interest Consolidated Net Income
$490,000 $259,000 55,000 36,500 16,000 39,000 (405,500) $ 84,500 (9,000) $ 75,500
Power Corporation and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X9 Retained Earnings, January 1, 20X9 Consolidated Net Income $127,500 75,500 $203,000
5-85
Dividends Declared, 20X9 Retained Earnings, December 31, 20X9
(30,000) $173,000
5-86
P5-43A Cost-Method Workpaper with Differential Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Common Stock Star Company Retained Earnings, January 1 Differential Investment in Star Company Stock Eliminate investment balance at date of acquisition: $20,000 = $220,000 - $150,000 - $50,000 Goodwill Differential Assign differential at date of acquisition. Goodwill Impairment Loss Goodwill Record impairment of goodwill. 10,000 10,000
E(2)
150,000 50,000 20,000
220,000
E(3)
20,000
20,000
E(4)
12,000
12,000
5-87
P5-43A (continued) Light Corporation and Star Company Consolidated Workpaper December 31, 20X5 Item Sales Dividend Income Credits Cost of Goods Sold Depreciation Expense Goodwill Impairment Loss Other Expenses Debits Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Buildings and Equipment Investment in Star Company Stock Differential Goodwill Debits Accum. Depreciation Accounts Payable Taxes Payable Common Stock Light Corporation Star Company Retained Earnings, from above Credits Light Corp. 300,000 10,000 310,000 210,000 25,000 23,000 (258,000) 52,000 230,000 52,000 282,000 (20,000) 262,000 37,000 50,000 70,000 300,000 220,000 677,000 105,000 40,000 70,000 200,000 262,000 677,000 350,000 65,000 20,000 55,000 150,000 60,000 350,000 (2)150,000 72,000 262,000 10,000 262,000 Star Co. 150,000 150,000 85,000 20,000 25,000 (130,000) 20,000 50,000 20,000 70,000 (10,000) 60,000 20,000 30,000 60,000 240,000 (2) 20,000 (3) 20,000 (2)220,000 (3) 20,000 (4) 12,000 Eliminations Debit Credit (1) 10,000 Consolidated 450,000 450,000 295,000 45,000 12,000 48,000 (400,000) 50,000 230,000 50,000 280,000 (20,000) 260,000 57,000 80,000 130,000 540,000
(4) 12,000 22,000 (2) 50,000 22,000 (1) 10,000 72,000 10,000
8,000 815,000 170,000 60,000 125,000 200,000 260,000 815,000
5-88
P5-44A Cost-Method Consolidation in Subsequent Period Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Common Stock Star Company Retained Earnings, January 1 Differential Investment in Star Company Stock Eliminate investment balance at date of acquisition: $62,000 = $50,000 + $12,000 (goodwill impairment) $8,000 = $20,000 - $12,000 Goodwill Differential Assign differential at beginning of year. 20,000 20,000
E(2)
150,000 62,000 8,000
220,000
E(3)
8,000
8,000
5-89
P5-44A (continued) Light Corporation and Star Company Consolidated Workpaper December 31, 20X6 Item Sales Dividend Income Credits Cost of Goods Sold Depreciation Expense Other Expenses Debits Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Inventory Buildings and Equipment Investment in Star Company Stock Differential Goodwill Debits Accum. Depreciation Accounts Payable Taxes Payable Common Stock Light Corporation Star Company Retained Earnings, from above Credits Light Corp. 350,000 20,000 370,000 270,000 25,000 21,000 (316,000) 54,000 262,000 54,000 316,000 (20,000) 296,000 46,000 55,000 75,000 300,000 220,000 696,000 130,000 20,000 50,000 200,000 296,000 696,000 375,000 85,000 30,000 35,000 150,000 75,000 375,000 (2)150,000 82,000 248,000 20,000 248,000 Star Co. 200,000 200,000 135,000 20,000 10,000 (165,000) 35,000 60,000 35,000 95,000 (20,000) 75,000 30,000 40,000 65,000 240,000 (2) (3) 8,000 8,000 (2)220,000 (3) 8,000 Eliminations Debit Credit (1) 20,000 Consolidated 550,000 550,000 405,000 45,000 31,000 (481,000) 69,000 260,000 69,000 329,000 (20,000) 309,000 76,000 95,000 140,000 540,000
20,000 (2) 62,000 20,000 (1) 20,000 82,000 20,000
8,000 859,000 215,000 50,000 85,000 200,000 309,000 859,000
5-90
P5-45A Cost-Method Consolidation of Majority-Owned Subsidiary Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $12,000 = $60,000 x .20 Common Stock Rapid Delivery Retained Earnings, January 1 Investment in Rapid Delivery Stock Noncontrolling Interest Eliminate investment balance at date of acquisition. 16,000 16,000
E(2)
12,000
4,000 8,000
E(3)
50,000 100,000
120,000 30,000
5-91
P5-45A (continued) Samuelson Company and Rapid Delivery Corporation Consolidation Workpaper December 31, 20X6 Item Sales Dividend Income Credits Cost of Goods Sold Depreciation Expense Wage Expenses Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash and Receivables Inventory Land Buildings and Equipment Investment in Rapid Delivery Stock Debits Accum. Depreciation Accounts Payable Notes Payable Common Stock Samuelson Company Rapid Delivery Retained Earnings, from above Noncontrolling Interest Credits Samuelson Company 700,000 16,000 716,000 500,000 25,000 45,000 30,000 (600,000) Rapid Delivery 400,000 400,000 250,000 15,000 35,000 40,000 (340,000) Eliminations Debit Credit (1) 16,000 Consolidated 1,100,000 1,100,000 750,000 40,000 80,000 70,000 (940,000) 160,000 (12,000) 148,000 290,000 148,000 438,000 (50,000) 388,000 221,000 340,000 100,000 650,000 (3)120,000 1,311,000 230,000 105,000 250,000 (3) 50,000 128,000 20,000 (2) 8,000 (3) 30,000 178,000 300,000 388,000 38,000 1,311,000
116,000 290,000 116,000 406,000 (50,000) 356,000 141,000 240,000 80,000 500,000 120,000 1,081,000 155,000 70,000 200,000 300,000 356,000
60,000 100,000 60,000 160,000 (20,000) 140,000 80,000 100,000 20,000 150,000 350,000 75,000 35,000 50,000 50,000 140,000
(2) 12,000 28,000 (3)100,000 28,000 (1) 16,000 (2) 4,000 128,000 20,000
1,081,000
350,000
178,000
P5-45A (continued) Samuelson Company and Subsidiary Consolidated Balance Sheet December 31, 20X6 Cash and Receivables Inventory Land Buildings and Equipment Less: Accumulated Depreciation Total Assets Accounts Payable Notes Payable Stockholders Equity: Controlling Interest: Common Stock Retained Earnings, Total Controlling Interest Noncontrolling Interest Total Stockholders Equity Total Liabilities and Stockholders' Equity $ 221,000 340,000 100,000 420,000 $1,081,000 $ 105,000 250,000 $300,000 388,000 $688,000 38,000
$650,000 (230,000)
726,000 $1,081,000
Samuelson Company and Subsidiary Consolidated Income Statement Year Ended December 31, 20X6 Sales Cost of Goods Sold Depreciation Expense Wage Expense Other Expenses Total Expenses Consolidated Net Income Income to Noncontrolling Interest Income to Controlling Interest $750,000 40,000 80,000 70,000 $1,100,000
(940,000) $ 160,000 (12,000) $ 148,000
Samuelson Company and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X6 Retained Earnings, January 1, 20X6 Income to Controlling Interest, 20X6 Dividends Declared, 20X6 Retained Earnings, December 31, 20X6 $ 290,000 148,000 $ 438,000 (50,000) $ 388,000
P5-46A Comprehensive Cost-Method Consolidation Problem a. Journal entry recorded by Master Corporation: Cash Dividend Income b. Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. $5,000 = [$30,000 ($50,000 / 10 years)] x .20 Common Stock Stanley Wood Products Retained Earnings, January 1 Differential Investment in Stanley Wood Products Stock Noncontrolling Interest Eliminate investment balance at date of acquisition. Retained Earnings, January 1 Noncontrolling Interest Assign undistributed prior earnings of subsidiary to noncontrolling interest: ($90,000 - $50,000) x .20 Buildings and Equipment Differential Assign differential at date of acquisition. Retained Earnings, January 1 Noncontrolling Interest Accumulated Depreciation Enter differential amortization of prior years: ($50,000 / 10) x 4 years Depreciation Expense Accumulated Depreciation Amortize differential. Accounts Payable Cash and Receivables Eliminate intercorporate receivable/payable. 8,000 8,000 8,000 8,000
E(2)
5,000
2,000 3,000
E(3)
100,000 50,000 50,000 160,000 40,000
E(4)
8,000
8,000
E(5)
50,000
50,000
E(6)
16,000 4,000
20,000
E(7)
5,000
5,000
E(8)
10,000
10,000
P5-46A (continued) c. Master Corporation and Stanley Wood Products Company Consolidation Workpaper December 31, 20X5 Item Sales Dividend Income Credits Cost of Goods Sold Depreciation Expense Inventory Losses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash and Receivables Inventory Land Buildings and Equipment Investment in Stanley Wood Products Stock Differential Debits Accum. Depreciation Accounts Payable Notes Payable Common Stock Master Corporation Stanley Wood Retained Earnings, from above Noncontrolling Interest Credits Master Corp. 200,000 8,000 208,000 120,000 25,000 15,000 (160,000) Stanley Wood 100,000 100,000 50,000 15,000 5,000 (70,000) (1) (7) Eliminations Debit Credit 8,000 5,000 Consolidated 300,000 300,000 170,000 45,000 20,000 (235,000) 65,000 (5,000) 60,000
48,000 298,000 48,000 346,000 (30,000) 316,000 81,000 260,000 80,000 500,000 160,000 1,081,000 205,000 60,000 200,000 300,000 316,000
30,000 90,000 30,000 120,000 (10,000) 110,000 65,000 90,000 80,000 150,000
(2)
5,000 18,000
(3) 50,000 (4) 8,000 (6) 16,000 18,000 (1) (2) 92,000 8,000 2,000 10,000 (8) 10,000 (5) 50,000 (3) 50,000 (3)160,000 (5) 50,000 (6) 20,000 (7) 5,000
314,000 60,000 374,000 (30,000) 344,000 136,000 350,000 160,000 700,000
385,000 105,000 20,000 50,000 100,000 110,000
1,346,000 335,000 70,000 250,000 300,000
(8) 10,000
(3)100,000 (6) 92,000 4,000 306,000 10,000 (2) 3,000 (3) 40,000 (4) 8,000 306,000
344,000 47,000 1,346,000
1,081,000
385,000

Chapter 5 Consolidation of Less Than Wholly Owned Subsidiaries

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Chapter 5 Consolidation of Less Than Wholly Owned Subsidiaries

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Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

Primary citations: FASB 160 Secondary source: ARB 51

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

SOLUTIONS TO EXERCISES E5-1 Multiple-Choice Questions on Consolidation Process 1. d 2. d 3. b 4. d [AICPA Adapted]

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

$49,200 32,800 $82,000 (57,000) $25,000

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

$450,000 20,000 (10,000) 70,000

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

1,232,000 111,100 300,000 400,000

(1) 60,000 (1)220,000 329,800

(a) 900 (1) 30,000 329,800

390,900 30,000 1,232,000

60,000 220,000 20,000

Solutions Manual Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e 5 - 12

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

(2) 6,000 (2) 15,000 (1) 21,000

(1)102,200 (2) 21,000

1,168,800 230,000 175,000 430,000 80,000 210,000 43,800 1,168,800

(1) 40,000 (1) 85,000 179,500

(1) 43,800 179,500

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

80,000 36,000 44,000

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

($61,500 + $95,000 + $280,000) + ($28,000 + $37,000 + $200,000)

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

60,000 90,000 28,000

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

120,000 380,000 40,000

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

$190,000 47,500 237,500 (200,000) $ 37,500 32,000 5,500

$40,000 (4,000) $36,000 x .80 $28,800

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

120,000 80,000 37,500

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

$3,900 = [($40,000 / 8 years) x .60] + [($15,000 / 10 years) x .60]

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

250,000 190,000 49,500

7,500 40,000 12,000

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

(1) 8,000 (2) 2,000 10,000

1,078,000 250,000 90,000 220,000 200,000

10,000 284,000 (2) 4,000 (3) 30,000 34,000 180,000 1,078,000

(1) 12,000 (2) 3,000 15,000

1,185,000 290,000 120,000 220,000 200,000

15,000 317,000 (2) 4,000 (3) 34,000 38,000 205,000 1,185,000

20X8 20X9 $162,000 $ 197,000 (10,500)

60,000 90,000 21,000

120,000 80,000 30,000

1,230,000 111,100 300,000 400,000

80,000 40,000 (3) 200,000 100,000 400,000

60,000 (1) 60,000 390,000 220,000 (1)220,000 1,070,000 420,000 325,800

(a) 900 390,900 (1) 28,000 28,000 325,800 1,230,000