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 subsidiary’s assets and liabilities. When the parent holds less than 100 percent ownership of the subsidiary, the noncontrolling interest’s 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 subsidiary’s 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.

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

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 subsidiary’s other comprehensive income. Q5-13 The parent’s portion of the subsidiary’s 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 parent’s portion of the book value of the subsidiary’s 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 parent’s portion of the fair value of the subsidiary’s 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 subsidiary’s 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 parent’s retained earnings does not include its portion of undistributed subsidiary earnings following the acquisition, and therefore is less than consolidated retained earnings.

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

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 subsidiary’s 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 subsidiary’s 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 parent’s investment account during the period, the easiest way to ascertain the parent’s subsidiary ownership percentage is to determine the percentage share of the subsidiary’s dividends eliminated in that entry. Another approach might be to divide the total amount of the parent’s subsidiary investment account eliminated in the workpaper by the sum of the total parent’s 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.

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

C5-2 Consolidated Income Presentation MEMO TO:

Treasurer Standard Company

FROM: RE:

, 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 interest’s 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: 20X4 $160,000 (a) (94,000)(c) $ 66,000 (2,700)(e) $ 63,300

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)

Primary citations: FASB 160 Secondary source: ARB 51

5-4

20X5 $400,000 (b) (300,000)(d) $100,000 (12,600) (f) $ 87,400

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

C5-3 Pro Rata Consolidation MEMO To:

Financial Vice-President Rose Corporation

From: Re:

, 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 Corporation’s 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 Rose’s 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 Rose’s liability is sheltered by the joint venture’s corporate structure. In this case, continued use of the equity method appears to be appropriate. Primary citations: APB 18 APB 18, INT #2

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

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 interest’s 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 subsidiary’s common stockholders’ equity and multiply the result by the noncontrolling interest’s 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.

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

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, Monsanto’s 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, Monsanto’s 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.

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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]

E5-2 Multiple-Choice Questions on Consolidation [AICPA Adapted] 1. b 2. c 3. a

$650,000 = $500,000 + $200,000 - $50,000

4. c

$95,000 = ($956,000 / .80) - $1,000,000 - $100,000

5. c

$251,000 = .20[($956,000 + $239,000) + ($190,000 - $5,000 - $125,000)]

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

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

20,000 37,000 25,000

Computation of differential Fair value of the consideration given by Game Corp. Fair value of noncontrolling interest Total fair value Book value of Amber’s 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

b.

49,200 32,800

$49,200 32,800 $82,000 (57,000) $25,000 5,000 20,000

25,000

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.

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

E5-4 Computation of Consolidated Balances a. Inventory

$140,000

b. Land

$ 60,000

c.

$550,000

Buildings and Equipment

d. Fair value of consideration given by Ford Fair value of noncontrolling interest Total fair value Book value of Slim’s net assets Fair value increment for: Inventory Land Buildings and equipment (net) Fair value of identifiable net assets Goodwill

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

$470,000 117,500 $587,500

(530,000) $ 57,500

e. Investment in Slim Corporation: None would be reported; the balance in the investment account is eliminated. f.

Noncontrolling Interest ($587,500 x .20)

5-10

$117,500

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

E5-5 Balance Sheet Workpaper Power Company and Pleasantdale Dairy Consolidated Balance Sheet Workpaper January 1, 20X7

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

PleasPower antdale Company Dairy 130,000 70,000 210,000 90,000 70,000 40,000 390,000

Adjustments and Eliminations Debit Credit (a) 900 (3) 8,900 (2) 20,000

220,000

270,000

610,000 (1) 20,000

1,070,000

420,000

80,000 200,000

40,000 100,000

(3)

390,000

60,000 220,000

(1) 60,000 (1)220,000

1,070,000

420,000

329,800

400,000

Consolidated 192,000 300,000 130,000

(1)270,000 (2) 20,000

8,900

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

(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.

900

60,000 220,000 20,000

20,000

E(3) Current Payables Cash and Receivables Eliminate intercompany receivable/payable.

5-11

8,900

900

270,000 30,000

20,000

8,900

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

40,000 85,000 21,000

E(2) Inventory Buildings and Equipment Differential Assign differential.

6,000 15,000

E(3) Accounts Payable Accounts Receivable Eliminate intercompany receivable/payable.

12,500

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

102,200 43,800

21,000

12,500

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

E5-6 (continued) Zenith Corporation and Down Corporation Consolidated Balance Sheet Workpaper December 31, 20X4

b.

Item

Zenith Corp.

Down Corp.

Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Down Corporation Stock Differential Total Debits

50,300 21,000 90,000 44,000 130,000 75,000 60,000 30,000 410,000 250,000

Accumulated Depreciation Accounts Payable Mortgage Payable Common Stock Zenith Corporation Down Corporation Retained Earnings Noncontrolling Interest Total Credits

150,000 80,000 152,500 35,000 250,000 180,000

c.

102,200 842,500 420,000

80,000

Eliminations Debit Credit

(2) 6,000 (2) 15,000

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

(1) 21,000

(1) 40,000 (1) 85,000

842,500 420,000

179,500

71,300 121,500 211,000 90,000 675,000

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

(3) 12,500

40,000 85,000

210,000

(3) 12,500

Consolidated

(1) 43,800 179,500

210,000 43,800 1,168,800

Zenith Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X4 Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Total Assets

$675,000 (230,000)

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

5-13

$ 71,300 121,500 211,000 90,000 445,000 $938,800 $175,000 430,000

$ 80,000 210,000 $290,000 43,800

333,800 $938,800

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

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

E(2) Buildings Inventories Goodwill Differential Assign differential: $44,000 = $160,000 - $80,000 - $36,000

120,000 240,000 160,000

80,000 36,000 44,000

390,000 130,000

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.

5-14

140,000 10,000

90,000 60,000

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

E5-8 (continued) b.

Glitter Enterprises and Lowtide Builders Consolidated Balance Sheet Workpaper January 1, 20X5 Glitter Enterprises

Lowtide Builders

Cash and Receivables Inventory Buildings and Equipment (net) Investment in Lowtide Stock Total Debits

80,000 150,000

30,000 350,000

110,000 500,000

430,000

80,000

510,000

90,000 750,000

460,000

Current Liabilities Long-Term Debt Common Stock Glitter Lowtide Retained Earnings Noncontrolling Interest Total Credits

100,000 400,000

110,000 200,000

c.

Glitter Enterprises and Subsidiary Consolidated Balance Sheet January 1, 20X5

Item

200,000 50,000 750,000

Eliminations Debit Credit

(1) 90,000

1,120,000 210,000 600,000 200,000

140,000 (1)140,000 10,000 (1) 10,000 460,000

Consolidated

150,000

50,000 (1) 60,000 150,000

60,000 1,120,000

Cash and Receivables Inventory Buildings and Equipment (net) Total Assets

$ 110,000 500,000 510,000 $1,120,000

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

$ 210,000 600,000

5-15

$200,000 50,000 $250,000 60,000

310,000 $1,120,000

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

E5-9 Multiple-Choice Questions on Balance Sheet Consolidation 1.

d

$215,000

=

$130,000 + $70,000 + ($85,000 - $70,000)

2.

c

$40,000

=

($150,500 + $64,500) - ($405,000 - $28,000 - $37,000 - $200,000) - $15,000 - $20,000

3.

b

$1,121,000

=

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

4.

d

$701,500

5.

d

$64,500

6.

d

7.

c

$ 791,500 (150,500) $ 641,000 405,000 $1,046,000 15,000 20,000 40,000 $1,121,000

=

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

$205,000

=

The amount reported by Power Corporation

$419,500

=

($150,000 + $205,000) + $64,500

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

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.

210,000

3,500

14,000

210,000

3,500

14,000

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.

5-17

14,000

6,000

100,000 200,000

3,500 10,500

1,500 4,500

210,000 90,000

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

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.

133,500

9,000

22,500

3,000

133,500

9,000

22,500

3,000

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

19,500

6,500

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

60,000 90,000 28,000

E(4) Equipment Differential Assign beginning differential.

28,000

E(5) Depreciation Expense Accumulated Depreciation Amortize differential related to equipment: $4,000 = $28,000 / 7 years

5-18

4,000

9,000 10,500

3,000 3,500

133,500 44,500

28,000

4,000

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

E5-12 Differential Assigned to Amortizable Asset a.

b.

Lancaster Company’s common stock, January 1, 20X1 Lancaster Company’s retained earnings, January 1, 20X1 Book value of Lancaster’s 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

$120,000 380,000 $500,000 x .90 $450,000 36,000 $486,000 54,000 (7,200) (18,000) $514,800

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)

E(2)

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

E(3)

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

E(4)

Patents Differential Assign differential.

E(5)

Amortization Expense Patents Amortize differential related to patents.

46,800

5,200

120,000 380,000 40,000

40,000

5-19

8,000

18,000 28,800

2,000 3,200

486,000 54,000

40,000

8,000

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

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)

b.

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

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

5-20

28,800

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

28,800

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

E5-13 (continued) E(2)

Income to Noncontrolling Interest Noncontrolling Interest Assign income to noncontrolling interest: $7,200 = ($40,000 - $4,000) x .20

7,200

E(3)

Common Stock — Lowe Corporation Retained Earnings, January 1 Differential Investment in Lowe Corporation Stock Noncontrolling Interest Eliminate beginning investment balance.

120,000 80,000 37,500

E(4)

E(5)

Buildings Goodwill Differential Assign beginning differential.

32,000 5,500

Depreciation Expense Accumulated Depreciation Amortize differential.

4,000

5-21

7,200

190,000 47,500

37,500

4,000

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

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)

E(2)

c.

$277,500 185,000 $462,500 (400,000) $ 62,500 (7,500) (40,000) $ 15,000

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

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

d.

277,500 185,000

$277,500 24,000 (6,000) (1,800) $293,700

Entries recorded by Knox during 20X9: (1)

(2)

(3)

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:

5-22

6,000 6,000 18,000 18,000 3,900 3,900

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

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

5-23

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

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

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $9,400 = ($30,000 - $5,000 - $1,500) x .40

E(3)

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)

E(4)

E(5)

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

9,400

250,000 190,000 49,500

7,500 40,000 12,000

5,000 1,500

5-24

6,000 8,100

4,000 5,400

293,700 195,800

49,500 10,000

5,000 1,500

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

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.

24,000

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest.

6,000

E(3)

Common Stock — Stergis Company Retained Earnings, January 1 Investment in Stergis Company Stock Noncontrolling Interest Eliminate beginning investment balance.

100,000 50,000

5-25

8,000 16,000

2,000 4,000

120,000 30,000

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

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

Proud Corp.

Stergis Co.

200,000 24,000 224,000 25,000 105,000 (130,000)

120,000

94,000

30,000

120,000 15,000 75,000 (90,000)

Eliminations Debit Credit

320,000 40,000 180,000 (220,000) 100,000

6,000 30,000

(6,000) 94,000

50,000 (3) 50,000 30,000 30,000 80,000 (10,000)

230,000 94,000 324,000

Dividends Declared

230,000 94,000 324,000 (40,000)

Ret. Earnings, Dec. 31, carry forward

284,000

70,000

Current Assets Depreciable Assets Investment in Stergis Company Stock

173,000 500,000

105,000 300,000

Debits

809,000

405,000

Accum. Depreciation Current Liabilities Long-Term Debt Common Stock Proud Corporation Stergis Company Retained Earnings, from above Noncontrolling Interest

175,000 50,000 100,000

75,000 40,000 120,000

Credits

80,000

10,000

(1) 16,000 (3)120,000

(40,000) 284,000

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

100,000

(3)100,000

284,000

70,000

80,000

809,000

405,000

180,000

5-26

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

278,000 800,000

136,000

200,000

320,000

(1) 24,000

(2)

Consolidated

200,000 10,000 284,000 (2) 4,000 (3) 30,000 34,000 180,000 1,078,000

E5-15 (continued) c.

Proud Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X3

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

$800,000 (250,000)

$278,000 550,000 $828,000 $ 90,000 220,000

$200,000 284,000 $484,000 34,000

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.

28,000

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest.

7,000

E(3)

Common Stock — Stergis Company Retained Earnings, January 1 Investment in Stergis Company Stock Noncontrolling Interest Eliminate beginning investment balance.

100,000 70,000

12,000 16,000

3,000 4,000

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

Proud Corp.

Stergis Co.

Eliminations Debit Credit

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)

83,000

370,000 40,000 240,000 (280,000) 90,000 (7,000) 83,000

70,000 (3) 70,000 35,000 35,000 105,000 (15,000)

284,000 83,000 367,000

Dividends Declared

284,000 83,000 367,000 (50,000)

Ret. Earnings, Dec. 31, carry forward

317,000

90,000

Current Assets Depreciable Assets Investment in Stergis Company Stock

235,000 500,000

150,000 300,000

Debits

887,000

450,000

Accum. Depreciation Current Liabilities Long-Term Debt Common Stock Proud Corporation Stergis Company Retained Earnings, from above Noncontrolling Interest

200,000 70,000 100,000

90,000 50,000 120,000

Credits

105,000

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

(50,000) 317,000 385,000 800,000

152,000

200,000

370,000

7,000 35,000

35,000

(2)

Consolidated

(1) 16,000 (3)136,000

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

100,000

(3)100,000

317,000

90,000

105,000

887,000

450,000

205,000

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.

b.

Journal entries recorded by Palmer Corp. in 20X8: (1)

Investment in Krown Corp. Stock Cash Record acquisition of Krown Corp. stock.

140,000

(2)

Cash Investment in Krown Corp. Stock Record dividends from subsidiary.

17,500

(3)

Investment in Krown Corp. Stock Income from Subsidiary Record equity-method income.

21,000

(4)

Investment in Krown Corp. Stock Other Comprehensive Income from Subsidiary (OCI) Record Palmer's proportionate share of other comprehensive income of subsidiary.

140,000

17,500

21,000

4,200 4,200

Eliminating entries: E(1)

Income from Subsidiary Dividends Declared Investment in Krown Corp. Stock Eliminate income from subsidiary.

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest.

E(3)

Other Comprehensive Income from Subsidiary (OCI) Investment in Krown Corp. Stock Eliminate other comprehensive income from subsidiary.

E(4)

E(5)

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

9,000

4,200

1,800

120,000 80,000

17,500 3,500

7,500 1,500

4,200

1,800

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.

133,500

9,000

22,500

3,000

133,500

9,000

22,500

3,000

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

19,500

7,500

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

60,000 90,000 21,000

E(4) Equipment Differential Assign beginning differential.

21,000

E(5) Depreciation Expense Accumulated Depreciation Amortize differential related to equipment: $3,000 = $21,000 / 7 years

3,000

9,000 10,500

3,000 4,500

133,500 37,500

21,000

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.

120,000 80,000 30,000

190,000 40,000

Computation of differential Fair value of consideration given Underlying book value ($200,000 x .80) Differential E(2)

b.

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

30,000

Eliminating entries, December 31, 20X2: E(1)

Income from Subsidiary Investment in Lowe Corporation Stock Eliminate income from subsidiary.

28,800

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

E5-20 (continued) E(2)

Income to Noncontrolling Interest Noncontrolling Interest Assign income to noncontrolling interest.

8,000

E(3)

Common Stock — Lowe Corporation Retained Earnings, January 1 Differential Investment in Lowe Corporation Stock Noncontrolling Interest Eliminate beginning investment balance.

120,000 80,000 30,000

E(4)

E(5)

Buildings and Equipment Goodwill Differential Assign beginning differential.

25,600 4,400

Depreciation Expense Accumulated Depreciation Amortize differential.

3,200

8,000

190,000 40,000

30,000

3,200

E5-21 Balance Sheet Workpaper– Prior Procedures Power Company and Pleasantdale Dairy Consolidated Balance Sheet Workpaper January 1, 20X7

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

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

Consolidated 192,000 300,000 128,000 610,000

(1) 18,000

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

(1)270,000 (2) 18,000

8,900

111,100 300,000

400,000

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

325,800

1,230,000

400,000 (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

60,000 220,000 18,000

18,000

8,900

900

270,000 28,000

18,000

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

27,500

30,000 138,000 34,500

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

82,350

135,000

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.

52,650

Income to Noncontrolling Interest Noncontrolling Interest Assign income to noncontrolling interest: $5,850 = ($150,000 - $91,500) x .10

5,850

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

500,000 100,000 120,000 240,000

Cost of Goods Sold Gain on Sale of Land Equipment Discount on Notes Payable Goodwill Differential Assign beginning differential.

5,000 75,000 60,000 50,000 50,000

Depreciation Expense Interest Expense Accumulated Depreciation Discount on Notes Payable Amortize differential.

4,000 7,500

52,650

5,850

864,000 96,000

240,000

4,000 7,500

E5-24A Basic Cost-Method Workpaper a.

Eliminating entries: E(1)

Dividend Income Dividends Declared Eliminate dividend income from subsidiary.

E(2)

Common Stock — Shaw Corporation Retained Earnings, January 1 Investment in Shaw Corporation Stock Eliminate original investment balance.

b.

10,000

100,000 50,000

10,000

150,000

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

Blake Corp.

Shaw Corp.

Eliminations Debit Credit

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)

50,000 (2) 50,000 30,000 10,000 80,000 (10,000)

270,000

70,000

Current Assets Deprec. Assets (net) Investment in Shaw Corporation Stock Debits

145,000 325,000

105,000 225,000

150,000 620,000

330,000

Current Liabilities Long-Term Debt Common Stock Blake Corporation Shaw Corporation Retained Earnings, from above Credits

50,000 100,000

40,000 120,000

200,000 270,000 620,000

60,000

320,000 320,000 40,000 180,000 (220,000) 100,000

(1) 10,000

230,000 100,000 330,000 (40,000)

10,000

290,000 250,000 550,000

(2)150,000

800,000 90,000 220,000

100,000

(2)100,000

70,000 330,000

60,000 160,000

5-39

Consolidated

200,000 10,000 160,000

290,000 800,000

E5-25A Cost-Method Workpaper in Subsequent Period a. Eliminating entries: E(1)

Dividend Income Dividends Declared Eliminate dividend income from subsidiary.

E(2)

Common Stock – Shaw Corporation Retained Earnings, January 1 Investment in Shaw Corporation Stock Eliminate original investment balance.

b.

15,000

100,000 50,000

15,000

150,000

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

Blake Corp.

Shaw Corp.

Eliminations Debit Credit

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)

70,000 (2) 50,000 25,000 15,000 95,000 (15,000)

290,000

80,000

Current Assets Deprec. Assets (net) Investment in Shaw Corporation Stock Debits

170,000 300,000

110,000 210,000

150,000 620,000

320,000

Current Liabilities Long-Term Debt Common Stock Blake Corporation Shaw Corporation Retained Earnings, from above Credits

30,000 100,000

20,000 120,000

200,000 290,000 620,000

65,000

500,000 500,000 40,000 410,000 (450,000) 50,000

(1) 15,000

290,000 50,000 340,000 (20,000)

15,000

320,000 280,000 510,000

(2)150,000

790,000 50,000 220,000

100,000

(2)100,000

80,000 320,000

65,000 165,000

5-40

Consolidated

200,000 15,000 165,000

320,000 790,000

E5-26A Cost-Method Consolidation for Majority-Owned Subsidiary a.

Eliminating entries: E(1)

Dividend Income Dividends Declared Eliminate dividend income from subsidiary.

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest.

E(3)

Common Stock – Knight Company Retained Earnings, January 1 Investment in Knight Company Stock Noncontrolling Interest Eliminate original investment balance.

E(4)

Retained Earnings, January 1 Noncontrolling Interest Assign undistributed prior earnings of subsidiary to noncontrolling interest: ($70,000 - $50,000) x .20

5-41

16,000

6,000

100,000 50,000

4,000

16,000

4,000 2,000

120,000 30,000

4,000

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

Lintner Corp.

Knight Co.

Eliminations Debit Credit

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)

40,000

30,000

Ret. Earnings, Jan. 1

268,000

70,000

Income, from above Dividends Declared

40,000 308,000 (25,000)

30,000 100,000 (20,000)

Ret. Earnings, Dec. 31, carry forward

283,000

80,000

Current Assets Deprec. Assets (net) Investment in Knight Company Stock Debits

183,000 500,000

80,000 300,000

120,000 803,000

380,000

Accum. Depreciation Accounts Payable Common Stock Lintner Corporation Knight Company Retained Earnings, from above Noncontrolling Interest

200,000 120,000

90,000 110,000

Credits

200,000

500,000 40,000 406,000 (446,000) 54,000 (6,000) 48,000

(3) 50,000 (4) 4,000 22,000 (1) 16,000 (2) 4,000 20,000

284,000 48,000 332,000 (25,000) 307,000 263,000 800,000

(3)120,000

1,063,000 290,000 230,000

100,000

(3)100,000

283,000

80,000

76,000

803,000

380,000

176,000

5-42

500,000

(2) 6,000 22,000

76,000

Consolidated

200,000 20,000 307,000 (2) 2,000 (3) 30,000 (4) 4,000 36,000 176,000 1,063,000

E5-26A (continued) c.

Lintner Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X7

Current Assets Depreciable Assets Less: Accumulated Depreciation Total Assets

$263,000 $800,000 (290,000)

Accounts Payable Stockholders’ Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity Total Liabilities and Stockholders' Equity

510,000 $773,000 $230,000

$200,000 307,000 $507,000 36,000 543,000 $773,000

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

$284,000 48,000 $332,000 (25,000) $307,000

Dividends Declared, 20X7 Retained Earnings, December 31, 20X7

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.

40,000 85,000

E(2) Accounts Payable Accounts Receivable Eliminate intercompany receivable/payable.

12,500

b.

87,500 37,500

12,500

Cameron Corporation and Darla Corporation Consolidated Balance Sheet Workpaper December 31, 20X4 Cameron Corp.

Darla Corp.

Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Darla Corporation Stock Total Debits

65,000 90,000 130,000 60,000 410,000

21,000 44,000 75,000 30,000 250,000

87,500 842,500

420,000

Accumulated Depreciation Accounts Payable Mortgage Payable Common Stock Cameron Corporation Darla Corporation Retained Earnings Noncontrolling Interest Total Credits

150,000 152,500 250,000

80,000 35,000 180,000

(2) 12,500

210,000

40,000 85,000

(1) 40,000 (1) 85,000

842,500

420,000

137,500

Item

80,000

5-44

Eliminations Debit Credit (2) 12,500

(1) 87,500

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

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

$660,000 (230,000)

Accounts Payable Mortgage Payable Stockholders’ Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholder’s 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

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.

40,000 85,000 21,000

E(2) Inventory Buildings and Equipment Differential Assign differential.

6,000 15,000

E(3) Accounts Payable Accounts Receivable Eliminate intercompany receivable/payable.

12,500

5-45

102,200 43,800

21,000

12,500

P5-28 (continued) Porter Corporation and Darla Corporation Consolidated Balance Sheet Workpaper December 31, 20X4

b.

Porter Corp.

Item

Darla Corp.

Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Darla Corporation Stock Differential Total Debits

50,300 21,000 90,000 44,000 130,000 75,000 60,000 30,000 410,000 250,000

Accumulated Depreciation Accounts Payable Mortgage Payable Common Stock Cameron Corporation Darla Corporation Retained Earnings Noncontrolling Interest Total Credits

150,000 80,000 152,500 35,000 250,000 180,000

c.

102,200 842,500 420,000

80,000

Eliminations Debit Credit

(2) 6,000

71,300 121,500 211,000 90,000 675,000

(3) 12,500

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

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

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

(3) 12,500

40,000 85,000

(1) 40,000 (1) 85,000

842,500 420,000

179,500

210,000

Consolidated

(1) 43,800 179,500

210,000 43,800 1,168,800

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

5-46

$675,000 (230,000)

$ 71,300 121,500 211,000 90,000 445,000 $938,800 $175,000 430,000

$ 80,000 210,000 $290,000 43,800

333,800 $938,800

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.

200,000 130,000 148,000 202,000

4,000 20,000 50,000 40,000 88,000

E(3) Current Payables Receivables Eliminate intercompany receivable/payable.

5-47

6,500

510,000 170,000

202,000

6,500

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.

Ticken Tie

Eliminations Debit Credit

12,000 41,000 86,000

9,000 31,000 68,000

510,000 55,000 960,000

50,000 670,000

1,664,000

828,000

2,000

1,000

411,000 38,000 700,000 10,000 300,000

220,000 29,000 100,000

(3)

200,000

(1)200,000

100,000 103,000

130,000 148,000

(1)130,000 (1)148,000

1,664,000

828,000

888,500

5-48

Consolidated

6,500

21,000 65,500 158,000

(1)510,000 (2) 20,000 (2) 50,000 (2) 40,000 (2) 88,000 (1)202,000 (2)202,000

125,000 1,680,000 40,000 88,000

(2)

4,000

(3)

2,177,500 3,000 631,000 60,500 800,000 10,000 300,000

6,500

(1)170,000

100,000 103,000 170,000

888,500

2,177,500

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

$

65,500 (3,000)

$1,680,000 (631,000)

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

$ 800,000 10,000 $ 300,000 100,000 103,000 $ 503,000 170,000

$

21,000 62,500 158,000 125,000

1,049,000 40,000 88,000 $1,543,500 $

60,500 810,000

673,000 $1,543,500

5-49

P5-30 Incomplete Data a.

$15,000

= ($115,000 + $46,000) - $146,000

b.

$65,000

= ($148,000 - $98,000) + $15,000

c.

Skyler: $24,000

= $380,000 - ($46,000 + $110,000 + $75,000 + $125,000) = $94,000 - $24,000

Blue: $70,000 d.

Fair value of Skyler as a whole: $200,000 10,000

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

40,000 9,000 $259,000 e.

65 percent

=

1.00 – ($90,650 / $259,000)

f.

Capital Stock Retained Earnings

= =

$120,000 $115,000

.

5-50

P5-31 Income and Retained Earnings a.

Net income for 20X9: Operating income Income from subsidiary Net income

Quill $ 90,000 24,500 $114,500

North $35,000

Quill $290,000 114,500 (30,000) $374,500

North $40,000 35,000 (10,000) $65,000

$35,000

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

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

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $4,125 = ($24,000 - $2,000 - $5,500) x .25

4,125

E(3)

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

60,000 40,000 28,000

Buildings and Equipment Goodwill Differential Assign beginning differential.

20,000 8,000

E(4)

16,500

E(5)

Depreciation Expense Accumulated Depreciation Amortize differential related to buildings and equipment: $2,000 = $20,000 / 10 years

2,000

E(6)

Goodwill Impairment Loss Goodwill Write down goodwill for impairment.

5,500

5-52

12,000 4,500

4,000 125

96,000 32,000

28,000

2,000

5,500

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

Power Corp.

Best Co.

260,000 16,500 276,500 125,000 42,000 25,000 12,000 13,500

180,000 180,000 110,000 27,000 10,000 4,000 5,000

(217,500) (156,000)

440,000 235,000 69,000 37,000 16,000 18,500 5,500 (381,000) 59,000

(5) 2,000 (6) 5,500

40,000 24,000 64,000 (16,000)

(3) 40,000 28,125

102,000 54,875 156,875

131,000

48,000

68,125

47,500 70,000 90,000 30,000 350,000

21,000 12,000 25,000 15,000 150,000

Dividends Declared

102,000 59,000 161,000 (30,000)

Ret. Earnings, Dec. 31, carry forward

Differential Goodwill Debits

440,000

(1) 16,500

(4,125) 54,875

24,000

Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Best Company Stock

Consolidated

(2) 4,125 28,125

59,000

Ret. Earnings, Jan. 1 Income, from above

Eliminations Debit Credit

(1) 12,000 (2) 4,000

223,000

5-53

(3) 28,000 (4) 8,000

126,875 68,500 82,000 115,000 45,000 520,000

(4) 20,000

100,500

688,000

16,000

(30,000)

(1) 4,500 (3) 96,000 (4) 28,000 (6) 5,500

2,500 833,000

P5-32 (continued) Item

Power Corp.

Accum. Depreciation Accounts Payable Wages Payable Notes Payable Common Stock Power Corporation Best Company Retained Earnings, from above Noncontrolling Interest

145,000 45,000 17,000 150,000

Credits

688,000

200,000 131,000

Best Co.

Eliminations Debit Credit

40,000 16,000 9,000 50,000

(5) 2,000

Consolidated 187,000 61,000 26,000 200,000 200,000

60,000

(3) 60,000

48,000

68,125

16,000

126,875

184,125

(2) 125 (3) 32,000 184,125

32,125 833,000

223,000

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

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $8,500 = ($36,000 - $2,000) x .25

E(3)

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

60,000 52,125 20,500

Buildings and Equipment Goodwill Differential Accumulated Depreciation Assign beginning differential.

20,000 2,500

E(4)

E(5)

Depreciation Expense Accumulated Depreciation Amortize differential related to buildings and equipment: $2,000 = $20,000 / 10 years

5-55

25,500

8,500

2,000

15,000 10,500

5,000 3,500

100,500 32,125

20,500 2,000

2,000

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

Power Corp.

Best Co.

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)

490,000 259,000 55,000 37,000 16,000 39,000 (406,000) 84,000

(5) 2,000

48,000 36,000 84,000 (20,000)

(3) 52,125 36,000

126,875 75,500 202,375

176,500

64,000

88,125

68,500 85,000 97,000 50,000 350,000

32,000 14,000 24,000 25,000 150,000

Dividends Declared

131,000 75,500 206,500 (30,000)

Ret. Earnings, Dec. 31, carry forward

Differential Goodwill Debits

490,000

(1) 25,500

(8,500) 75,500

36,000

Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Best Company Stock

Consolidated

(2) 8,500 36,000

75,500

Ret. Earnings, Jan. 1 Income, from above

Eliminations Debit Credit

(1) 15,000 (2) 5,000

245,000

5-56

(3) 20,500 (4) 2,500

172,375 100,500 99,000 121,000 75,000 520,000

(4) 20,000

111,000

761,500

20,000

(30,000)

(1) 10,500 (3)100,500 (4) 20,500

2,500 918,000

P5-33 (continued) Power Corp.

Best Co.

Accum. Depreciation

170,000

50,000

Accounts Payable Wages Payable Notes Payable Common Stock Power Corporation Best Company Retained Earnings, from above Noncontrolling Interest

51,000 14,000 150,000

15,000 6,000 50,000

Credits

761,500

Item

200,000 176,500

Eliminations Debit Credit (4) 2,000 (5) 2,000

Consolidated 224,000 66,000 20,000 200,000 200,000

60,000

(3) 60,000

64,000

88,125

20,000

172,375

191,125

(2) 3,500 (3) 32,125 191,125

35,625 918,000

245,000

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)

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

296,000 2,500 $694,000 $ 66,000 20,000 200,000

$200,000 172,375 $372,375 35,625 408,000 $694,000

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

(2)

Investment in Stanley Wood Products Stock Income from Subsidiary Record equity-method income: $30,000 x .80

(3)

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

5-60

8,000 8,000

24,000

24,000

4,000 4,000

$160,000 40,000 $200,000 (150,000 ) $ 50,000

P5-34 (continued) b.

Eliminating entries: E(1)

Income from Subsidiary Dividends Declared Investment in Stanley Wood Products Stock Eliminate income from subsidiary.

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $5,000 = ($30,000 - $5,000) x .20

E(3)

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)

20,000

12,000 5,000

2,000 3,000

100,000 90,000 30,000 176,000 44,000

E(4)

Buildings and Equipment Accumulated Depreciation Differential Assign beginning differential.

50,000

E(5)

Depreciation Expense Accumulated Depreciation Amortize differential.

5,000

E(6)

Accounts Payable Cash and Receivables Eliminate intercorporate receivable/payable.

5-61

8,000

10,000

20,000 30,000

5,000

10,000

P5-34 (continued) c.

Master Corporation and Stanley Wood Products Company Consolidation Workpaper December 31, 20X5 Master Corp.

Stanley Wood

200,000 20,000 220,000 120,000 25,000 15,000 (160,000)

100,000 _______ 100,000 50,000 15,000 5,000 (70,000)

60,000

30,000

Dividends Declared

314,000 60,000 374,000 (30,000)

Ret. Earnings, Dec. 31, carry forward

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

Cash and Receivables Inventory Land Buildings and Equipment Investment in Stanley Wood Products Stock Differential Debits

Eliminations Debit Credit

300,000

(1) 20,000

300,000 170,000 45,000 20,000 (235,000) 65,000

(5)

5,000

(2)

5,000 30,000

(5,000) 60,000

90,000 30,000 120,000 (10,000)

(3) 90,000 30,000

314,000 60,000 374,000

344,000

110,000

120,000

81,000 260,000 80,000 500,000

65,000 90,000 80,000 150,000

(1) (2)

188,000 (3) 30,000

385,000

Accum. Depreciation

205,000

105,000

Accounts Payable Notes Payable Common Stock Master Corporation Stanley Wood Products Retained Earnings, from above Noncontrolling Interest

60,000 200,000

20,000 50,000

(6) 10,000

100,000

(3)100,000

344,000

110,000

120,000

1,109,000

385,000

310,000

300,000

5-62

8,000 2,000

(30,000)

10,000

344,000

(6) 10,000

136,000 350,000 160,000 700,000

(4) 50,000

1,109,000

Credits

Consolidated

(1) 12,000 (3)176,000 (4) 30,000 (4) 20,000 (5) 5,000

1,346,000 335,000 70,000 250,000 300,000

10,000 344,000 (2) 3,000 (3) 44,000 47,000 310,000 1,346,000

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.

(2)

Cash Investment in Granite Company Stock Record dividends from Granite Company: $20,000 x .80

16,000

(3)

Investment in Granite Company Stock Income from Subsidiary Record equity-method income: $60,000 x .80

48,000

(4)

Income from Subsidiary Investment in Granite Company Stock Amortize differential assigned to depreciable assets: [($191,250 - $150,000) x .80] / 11 years

5-63

173,000

3,000

173,000

16,000

48,000

3,000

P5-35 (continued) b.

Eliminating entries: E(1)

Income from Subsidiary Dividends Declared Investment in Granite Company Stock Eliminate income from subsidiary.

45,000

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $11,250 = [$60,000 – ($41,250 / 11)] x .20

11,250

E(3)

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

E(4)

Goodwill Buildings and Equipment Differential Assign beginning differential: $41,250 = $191,250 - $150,000 $25,000 = $66,250 - $41,250

50,000 100,000 66,250

25,000 41,250

E(5)

Depreciation Expense Accumulated Depreciation Amortize differential related to depreciable assets: $41,250 / 11 years

E(6)

Accounts Payable Accounts Receivable Eliminate intercorporate receivable/payable.

3,750

16,000

5-64

16,000 29,000

4,000 7,250

173,000 43,250

66,250

3,750

16,000

P5-35 (continued) c.

Mortar Corporation and Granite Company Consolidation Workpaper December 31, 20X7 Mortar Corp.

Granite Co.

700,000 45,000 745,000 500,000 25,000 75,000 (600,000)

400,000 400,000 250,000 15,000 75,000 (340,000)

145,000

60,000

Dividends Declared

290,000 145,000 435,000 (50,000)

Ret. Earnings, Dec. 31, carry forward

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

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

Eliminations Debit Credit

1,100,000

(1) 45,000 (5)

Consolidated

1,100,000 750,000 43,750 150,000 (943,750) 156,250

3,750

(2) 11,250 60,000

(11,250) 145,000

100,000 60,000 160,000 (20,000)

(3) 100,000 60,000

290,000 145,000 435,000

385,000

140,000

160,000

38,000 50,000 240,000 80,000 500,000

25,000 55,000 100,000 20,000 150,000

(1) 16,000 (2) 4,000

(6) 16,000 (4) 41,250

202,000 (3) 66,250 (4) 25,000

1,110,000

350,000

155,000 70,000 200,000

75,000 35,000 50,000

(6) 16,000

50,000

(3) 50,000

385,000

140,000

160,000

1,110,000

350,000

358,500

300,000

5-65

20,000

(1) 29,000 (3) 173,000 (4) 66,250

(5)

3,750

(50,000) 385,000 63,000 89,000 340,000 100,000 691,250

25,000 1,308,250 233,750 89,000 250,000 300,000

20,000 385,000 (2) 7,250 (3) 43,250 50,500 358,500 1,308,250

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

20,000

(2)

Investment in Granite Company Stock Income from Subsidiary Record equity-method income: $45,000 x .80

36,000

(3)

Income from Subsidiary Investment in Granite Company Stock Amortize differential assigned to depreciable assets: $3,000 = [($191,250 - $150,000) / 11 years] x .80

5-66

3,000

20,000

36,000

3,000

P5-36 (continued) b.

Eliminating entries: E(1)

Income from Subsidiary Dividends Declared Investment in Granite Company Stock Eliminate income from subsidiary.

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $6,050 = ($45,000 - $3,750 - $11,000) x .20

E(3)

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

E(4)

33,000

6,050

50,000 140,000 62,500

Goodwill Buildings and Equipment Differential Accumulated Depreciation Assign beginning differential.

25,000 41,250

E(5)

Depreciation Expense Accumulated Depreciation Amortize differential related to depreciable assets.

3,750

E(6)

Goodwill Impairment Loss Goodwill Impairment of goodwill.

11,000

E(7)

Accounts Payable Accounts Receivable Eliminate intercorporate receivable/payable.

9,000

5-67

20,000 13,000

5,000 1,050

202,000 50,500

62,500 3,750

3,750

11,000

9,000

P5-36 (continued) c.

Mortar Corporation and Granite Company Consolidation Workpaper December 31, 20X8 Mortar Corp.

Granite Co.

650,000 33,000 683,000 490,000 25,000

470,000

62,000 (577,000)

100,000 (425,000)

106,000

45,000

Dividends Declared

385,000 106,000 491,000 (45,000)

Ret. Earnings, Dec. 31, carry forward

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

Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Granite Company Stock Differential Goodwill Debits

470,000 310,000 15,000

Eliminations Debit Credit

1,120,000 800,000 43,750 11,000 162,000 (1,016,750) 103,250

(5) 3,750 (6) 11,000

6,050 53,800

(6,050) 97,200

140,000 45,000 185,000 (25,000)

(3)140,000 53,800

385,000 97,200 482,200

446,000

160,000

193,800

59,000 83,000 275,000 80,000 500,000

31,000 71,000 118,000 30,000 150,000

(1) 20,000 (2) 5,000

(3) 62,500 (4) 25,000

400,000

Accum. Depreciation

180,000

90,000

Accounts Payable Mortgages Payable Common Stock Mortar Corporation Granite Company Retained Earnings, from above Noncontrolling Interest

86,000 200,000

30,000 70,000

(7) 9,000

50,000

(3) 50,000

446,000

160,000

193,800

1,212,000

400,000

381,550

5-68

9,000

(4) 41,250

215,000

300,000

25,000 (7)

1,212,000

Credits

1,120,000

(1) 33,000

(2)

Consolidated

(1) 13,000 (3)202,000 (4) 62,500 (6) 11,000 (4) (5)

3,750 3,750

(45,000) 437,200 90,000 145,000 393,000 110,000 691,250

14,000 1,443,250 277,500 107,000 270,000 300,000

25,000 (2) 1,050 (3) 50,500 381,550

437,200 51,550 1,443,250

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.

15,000

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest.

10,000

E(3)

Other Comprehensive Income from Subsidiary — Unrealized Gain on Investments (OCI) Investment in Sparta Company Stock Eliminate other comprehensive income from subsidiary.

E(4)

E(5)

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.

5-69

6,000

4,000

100,000 60,000

9,000 6,000

6,000 4,000

6,000

4,000

96,000 64,000

P5-37 (continued) b.

Amber Corporation and Sparta Company Consolidation Workpaper December 31, 20X8 Amber Corp.

Sparta Co.

220,000 15,000 235,000 150,000 30,000 8,000 (188,000)

148,000 148,000 110,000 10,000 3,000 (123,000)

47,000

25,000

Dividends Declared

208,000 47,000 255,000 (24,000)

Ret. Earnings, Dec. 31, carry forward

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

Eliminations Debit Credit

Consolidated 368,000

(1) 15,000

368,000 260,000 40,000 11,000 (311,000) 57,000

(2) 10,000 25,000

(10,000) 47,000

60,000 25,000 85,000 (15,000)

(5) 60,000 25,000

208,000 47,000 255,000

231,000

70,000

85,000

Cash Accounts Receivable Inventory Buildings and Equipment Investment in Row Company Securities Investment in Sparta Company Stock

27,000 65,000 40,000 500,000

8,000 22,000 30,000 235,000

35,000 87,000 70,000 735,000

40,000

40,000

Debits

740,000

Ret. Earnings, Jan. 1 Income, from above

108,000 335,000

5-70

(1) 9,000 (2) 6,000 15,000

(1) 6,000 (3) 6,000 (5) 96,000

(24,000) 231,000

967,000

P5-37 (continued) Amber Corp.

Sparta Co.

Accum. Depreciation Accounts Payable Bonds Payable Common Stock Amber Corporation Sparta Company Retained Earnings, from above Accumulated Other Comprehensive Income, from below Noncontrolling Interest

140,000 63,000 100,000

85,000 20,000 50,000

Credits

740,000

Item

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

200,000

Eliminations Debit Credit

225,000 83,000 150,000

100,000

(5)100,000

231,000

70,000

85,000

6,000

10,000

10,000

335,000

6,000

195,000

200,000 15,000

231,000 6,000

(2) 4,000 (4) 4,000 (5) 64,000 195,000

72,000 967,000

(3) 6,000 10,000

6,000

Consolidated

10,000

5-71

10,000 (4) 4,000

(4,000)

10,000

6,000

P5-37 (continued) c.

Amber Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X8

Cash Accounts Receivable Inventory Buildings and Equipment Less: Accumulated Depreciation Investment in Marketable Securities Total Assets

$735,000 (225,000)

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

$ 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

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

5-72

$57,000 10,000 $67,000 (14,000) $53,000

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.

18,000

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest.

12,000

E(3)

Other Comprehensive Income from Subsidiary — Unrealized Gain on Investments (OCI) Investment in Sparta Company Stock Eliminate other comprehensive income from subsidiary.

E(4)

E(5)

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.

5-73

2,400

1,600

100,000 70,000 10,000

12,000 6,000

8,000 4,000

2,400

1,600

108,000 72,000

P5-38 (continued) b.

Amber Corporation and Sparta Company Consolidation Workpaper December 31, 20X9 Amber Corp.

Sparta Co.

250,000 18,000 268,000 170,000 30,000 8,000 (208,000)

140,000 140,000 97,000 10,000 3,000 (110,000)

60,000

30,000

Dividends Declared

231,000 60,000 291,000 (40,000)

Ret. Earnings, Dec. 31, carry forward

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

Eliminations Debit Credit

Consolidated 390,000

(1) 18,000

390,000 267,000 40,000 11,000 (318,000) 72,000

(2) 12,000 30,000

(12,000) 60,000

70,000 30,000 100,000 (20,000)

(5) 70,000 30,000

231,000 60,000 291,000

251,000

80,000

100,000

Cash Accounts Receivable Inventory Buildings and Equipment Investment in Row Company Securities Investment in Sparta Company Stock

18,000 45,000 40,000 585,000

11,000 21,000 30,000 257,000

29,000 66,000 70,000 842,000

44,000

44,000

Debits

804,400

Ret. Earnings, Jan. 1 Income, from above

116,400 363,000

5-74

(1) 12,000 (2) 8,000 20,000

(1) 6,000 (3) 2,400 (5)108,000

(40,000) 251,000

1,051,000

P5-38 (continued) Item

Amber Corp.

Sparta Co.

Accum. Depreciation Accounts Payable Bonds Payable Common Stock Amber Corporation Sparta Company Retained Earnings, from above Accumulated Other Comprehensive Income, from below Noncontrolling Interest

170,000 75,000 100,000

Credits

804,400

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

200,000

Eliminations Debit Credit

95,000 24,000 50,000

265,000 99,000 150,000

100,000

(5)100,000

251,000

80,000

100,000

8,400

14,000

14,000

363,000

2,400

Consolidated

214,000

(3)

200,000 20,000

251,000 8,400

(2) 4,000 (4) 1,600 (5) 72,000 214,000

77,600 1,051,000

2,400

4,000

4,000 (4)

1,600

(1,600)

6,000

10,000

(5) 10,000

6,000

8,400

14,000

14,000

8,400

5-75

P5-39 Income and Retained Earnings – Prior Procedures a.

Net income for 20X9: Quill $ 90,000 24,500 $114,500

Operating income Income from subsidiary Net income

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: Quill $290,000 114,500 (30,000) $374,500

Retained earnings, January 1, 20X9 Net income for 20X9 Dividends paid in 20X9 Retained earnings, December 31, 20X9

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)

40,000 85,000 14,700

E(2) Inventory Buildings and Equipment Differential Assign differential.

4,200 10,500

E(3) Accounts Payable Accounts Receivable Eliminate intercompany receivable/payable.

12,500

5-77

102,200 37,500

14,700

12,500

P5-40 (continued) Porter Corporation and Darla Corporation Consolidated Balance Sheet Workpaper December 31, 20X4

b.

Item

Porter Corp.

Darla Corp.

Eliminations Debit Credit

Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Darla Corporation Stock Differential Total Debits

50,300 21,000 90,000 44,000 130,000 75,000 60,000 30,000 410,000 250,000

Accumulated Depreciation Accounts Payable Mortgage Payable Common Stock Porter Corporation Darla Corporation Retained Earnings Noncontrolling Interest Total Credits

150,000 80,000 152,500 35,000 250,000 180,000

c.

Porter Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X4

102,200 842,500 420,000

80,000

(2) 4,200 (2) 10,500 (1) 14,700

(1) 40,000 (1) 85,000

842,500 420,000

166,900

Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Total Assets

(1)102,200 (2) 14,700

(1) 37,500 166,900

$670,500 (230,000)

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

5-78

71,300 121,500 209,200 90,000 670,500

1,162,500 230,000 175,000 430,000 80,000

(3) 12,500

40,000 85,000

210,000

(3) 12,500

Consolidated

210,000 37,500 1,162,500

$ 71,300 121,500 209,200 90,000 440,500 $932,500 $175,000 430,000

$ 80,000 210,000 290,000 37,500

327,500 $932,500

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.

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest.

6,000

E(3)

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)

60,000 40,000 21,000

Buildings and Equipment Goodwill Differential Assign beginning differential.

15,000 6,000

E(5)

Depreciation Expense Accumulated Depreciation Amortize differential: $1,500 = $15,000 / 10 years

1,500

E(6)

Goodwill Impairment Loss Goodwill Write down goodwill for impairment.

3,500

E(4)

5-79

16,500

12,000 4,500

4,000 2,000

96,000 25,000

21,000

1,500

3,500

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

Power Corp.

Best Co.

260,000 16,500 276,500 125,000 42,000 25,000 12,000 13,500

180,000 180,000 110,000 27,000 10,000 4,000 5,000

(217,500) (156,000)

440,000 235,000 69,000 36,500 16,000 18,500 3,500 (378,500) 61,500

(5) 1,500 (6) 3,500

40,000 24,000 64,000 (16,000)

(3) 40,000 27,500

102,000 55,500 157,500

131,000

48,000

67,500

47,500 70,000 90,000 30,000 350,000

21,000 12,000 25,000 15,000 150,000

Dividends Declared

102,000 59,000 161,000 (30,000)

Ret. Earnings, Dec. 31, carry forward

Differential Goodwill Debits

440,000

(1) 16,500

(6,000) 55,500

24,000

Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Best Company Stock

Consolidated

(2) 6,000 27,500

59,000

Ret. Earnings, Jan. 1 Income, from above

Eliminations Debit Credit

(1) 12,000 (2) 4,000

223,000

5-80

(3) 21,000 (4) 6,000

127,500 68,500 82,000 115,000 45,000 515,000

(4) 15,000

100,500

688,000

16,000

(30,000)

(1) 4,500 (3) 96,000 (4) 21,000 (6) 3,500

2,500 828,000

P5-41 (continued) Item

Power Corp.

Accum. Depreciation Accounts Payable Wages Payable Notes Payable Common Stock Power Corporation Best Company Retained Earnings, from above Noncontrolling Interest

145,000 45,000 17,000 150,000

Credits

688,000

200,000 131,000

Best Co.

Eliminations Debit Credit

40,000 16,000 9,000 50,000

(5) 1,500

Consolidated 186,500 61,000 26,000 200,000 200,000

60,000

(3) 60,000

48,000

67,500

16,000

127,500

169,500

(2) 2,000 (3) 25,000 169,500

27,000 828,000

223,000

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

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $9,000 = $36,000 x .25

E(3)

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

60,000 51,500 16,000

Buildings and Equipment Goodwill Differential Accumulated Depreciation Assign beginning differential.

15,000 2,500

E(4)

E(5)

Depreciation Expense Accumulated Depreciation Amortize differential related to buildings and equipment: $1,500 = $15,000 / 10 years

5-82

25,500

9,000

1,500

15,000 10,500

5,000 4,000

100,500 27,000

16,000 1,500

1,500

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

Power Corp.

Best Co.

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)

490,000 259,000 55,000 36,500 16,000 39,000 (405,500) 84,500

(5) 1,500

48,000 36,000 84,000 (20,000)

(3) 51,500 36,000

127,500 75,500 203,000

176,500

64,000

87,500

68,500 85,000 97,000 50,000 350,000

32,000 14,000 24,000 25,000 150,000

Dividends Declared

131,000 75,500 206,500 (30,000)

Ret. Earnings, Dec. 31, carry forward

Differential Goodwill Debits

490,000

(1) 25,500

(9,000) 75,500

36,000

Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Best Company Stock

Consolidated

(2) 9,000 36,000

75,500

Ret. Earnings, Jan. 1 Income, from above

Eliminations Debit Credit

(1) 15,000 (2) 5,000

245,000

5-83

(3) 16,000 (4) 2,500

173,000 100,500 99,000 121,000 75,000 515,000

(4) 15,000

111,000

761,500

20,000

(30,000)

(1) 10,500 (3)100,500 (4) 16,000

2,500 913,000

P5-42 (continued) Power Corp.

Best Co.

Accum. Depreciation

170,000

50,000

Accounts Payable Wages Payable Notes Payable Common Stock Power Corporation Best Company Retained Earnings, from above Noncontrolling Interest

51,000 14,000 150,000

15,000 6,000 50,000

Credits

761,500

Item

200,000 176,500

Eliminations Debit Credit (4) 1,500 (5) 1,500

Consolidated 223,000 66,000 20,000 200,000 200,000

60,000

(3) 60,000

64,000

87,500

20,000

173,000

181,000

(2) 4,000 (3) 27,000 181,000

31,000 913,000

245,000

5-84

P5-42 (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 $515,000 (223,000)

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

292,000 2,500 $690,000 $ 66,000 20,000 200,000

$200,000 173,000 $373,000 31,000 404,000 $690,000

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

$490,000 $259,000 55,000 36,500 16,000 39,000 (405,500) $ 84,500 (9,000) $ 75,500

Income to Noncontrolling Interest Consolidated Net Income 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.

10,000

E(2)

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

150,000 50,000 20,000

E(3)

Goodwill Differential Assign differential at date of acquisition.

20,000

E(4)

Goodwill Impairment Loss Goodwill Record impairment of goodwill.

12,000

5-87

10,000

220,000

20,000

12,000

P5-43A (continued) Light Corporation and Star Company Consolidated Workpaper December 31, 20X5 Light Corp.

Star Co.

300,000 10,000 310,000 210,000 25,000

150,000

23,000 (258,000) 52,000

25,000 (130,000) 20,000

230,000 52,000 282,000 (20,000)

50,000 20,000 70,000 (10,000)

(2) 50,000 22,000

262,000

60,000

72,000

Cash Accounts Receivable Inventory Buildings and Equipment Investment in Star Company Stock Differential Goodwill Debits

37,000 50,000 70,000 300,000

20,000 30,000 60,000 240,000

677,000

350,000

Accum. Depreciation Accounts Payable Taxes Payable Common Stock Light Corporation Star Company Retained Earnings, from above Credits

105,000 40,000 70,000

65,000 20,000 55,000

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

150,000 85,000 20,000

220,000

200,000 262,000 677,000

Eliminations Debit Credit

450,000

(1) 10,000

450,000 295,000 45,000 12,000 48,000 (400,000) 50,000

(4) 12,000 22,000

(1) 10,000

230,000 50,000 280,000 (20,000)

10,000

260,000 57,000 80,000 130,000 540,000

(2) 20,000 (3) 20,000

(2)220,000 (3) 20,000 (4) 12,000

8,000 815,000 170,000 60,000 125,000

150,000

(2)150,000

60,000 350,000

72,000 262,000

5-88

Consolidated

200,000 10,000 262,000

260,000 815,000

P5-44A Cost-Method Consolidation in Subsequent Period Eliminating entries: E(1)

Dividend Income Dividends Declared Eliminate dividend income from subsidiary.

E(2)

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

E(3)

Goodwill Differential Assign differential at beginning of year.

5-89

20,000

150,000 62,000 8,000

8,000

20,000

220,000

8,000

P5-44A (continued) Light Corporation and Star Company Consolidated Workpaper December 31, 20X6 Light Corp.

Star Co.

Sales Dividend Income Credits Cost of Goods Sold Depreciation Expense Other Expenses Debits Income, carry forward

350,000 20,000 370,000 270,000 25,000 21,000 (316,000) 54,000

200,000 200,000 135,000 20,000 10,000 (165,000) 35,000

Ret. Earnings, Jan. 1 Income, from above

262,000 54,000 316,000 (20,000)

60,000 35,000 95,000 (20,000)

(2) 62,000 20,000

296,000

75,000

82,000

Cash Accounts Receivable Inventory Buildings and Equipment Investment in Star Company Stock Differential Goodwill Debits

46,000 55,000 75,000 300,000

30,000 40,000 65,000 240,000

696,000

375,000

Accum. Depreciation Accounts Payable Taxes Payable Common Stock Light Corporation Star Company Retained Earnings, from above Credits

130,000 20,000 50,000

85,000 30,000 35,000

Item

Dividends Declared Ret. Earnings, Dec. 31, carry forward

220,000

200,000 296,000 696,000

Eliminations Debit Credit

550,000

(1) 20,000

550,000 405,000 45,000 31,000 (481,000) 69,000

20,000

(1) 20,000

260,000 69,000 329,000 (20,000)

20,000

309,000 76,000 95,000 140,000 540,000

(2) (3)

8,000 8,000

(2)220,000 (3) 8,000

8,000 859,000 215,000 50,000 85,000

150,000

(2)150,000

75,000 375,000

82,000 248,000

5-90

Consolidated

200,000 20,000 248,000

309,000 859,000

P5-45A Cost-Method Consolidation of Majority-Owned Subsidiary Eliminating entries: E(1)

Dividend Income Dividends Declared Eliminate dividend income from subsidiary.

16,000

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $12,000 = $60,000 x .20

12,000

E(3)

Common Stock — Rapid Delivery Retained Earnings, January 1 Investment in Rapid Delivery Stock Noncontrolling Interest Eliminate investment balance at date of acquisition.

5-91

50,000 100,000

16,000

4,000 8,000

120,000 30,000

P5-45A (continued) Samuelson Company and Rapid Delivery Corporation Consolidation Workpaper December 31, 20X6 Samuelson Company

Rapid Delivery

700,000 16,000 716,000 500,000 25,000 45,000 30,000 (600,000)

400,000 400,000 250,000 15,000 35,000 40,000 (340,000)

116,000

60,000

Dividends Declared

290,000 116,000 406,000 (50,000)

Ret. Earnings, Dec. 31, carry forward

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

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

Eliminations Debit Credit

Consolidated 1,100,000

(1) 16,000

1,100,000 750,000 40,000 80,000 70,000 (940,000) 160,000

(2) 12,000 28,000

(12,000) 148,000

100,000 60,000 160,000 (20,000)

(3)100,000 28,000

290,000 148,000 438,000

356,000

140,000

128,000

141,000 240,000 80,000 500,000

80,000 100,000 20,000 150,000

120,000 1,081,000

350,000

155,000 70,000 200,000

75,000 35,000 50,000

300,000 356,000

1,081,000

(1) 16,000 (2) 4,000 20,000

(50,000) 388,000 221,000 340,000 100,000 650,000

(3)120,000

1,311,000 230,000 105,000 250,000 300,000

50,000

(3) 50,000

140,000

128,000

20,000

388,000

178,000

(2) 8,000 (3) 30,000 178,000

38,000 1,311,000

350,000

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

$650,000 (230,000)

$ 221,000 340,000 100,000 420,000 $1,081,000 $ 105,000 250,000

$300,000 388,000 $688,000 38,000

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.

8,000

8,000

Eliminating entries: E(1)

Dividend Income Dividends Declared Eliminate dividend income from subsidiary.

8,000

E(2)

Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. $5,000 = [$30,000 – ($50,000 / 10 years)] x .20

5,000

E(3)

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.

160,000 40,000

Retained Earnings, January 1 Noncontrolling Interest Assign undistributed prior earnings of subsidiary to noncontrolling interest: ($90,000 - $50,000) x .20

E(5)

Buildings and Equipment Differential Assign differential at date of acquisition.

50,000

E(6)

Retained Earnings, January 1 Noncontrolling Interest Accumulated Depreciation Enter differential amortization of prior years: ($50,000 / 10) x 4 years

16,000 4,000

Depreciation Expense Accumulated Depreciation Amortize differential.

E(8)

Accounts Payable Cash and Receivables Eliminate intercorporate receivable/payable.

2,000 3,000

100,000 50,000 50,000

E(4)

E(7)

8,000

8,000

5,000

10,000

8,000

50,000

20,000

5,000

10,000

P5-46A (continued) Master Corporation and Stanley Wood Products Company Consolidation Workpaper December 31, 20X5

c.

Master Corp.

Stanley Wood

200,000 8,000 208,000 120,000 25,000 15,000 (160,000)

100,000

48,000

30,000

Ret. Earnings, Jan. 1

298,000

90,000

Income, from above Dividends Declared

48,000 346,000 (30,000)

30,000 120,000 (10,000)

Ret. Earnings, Dec. 31, carry forward

316,000

110,000

81,000 260,000 80,000 500,000

65,000 90,000 80,000 150,000

Item Sales Dividend Income Credits Cost of Goods Sold Depreciation Expense Inventory Losses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward

Cash and Receivables Inventory Land Buildings and Equipment Investment in Stanley Wood Products Stock Differential Debits

100,000 50,000 15,000 5,000 (70,000)

160,000

Eliminations Debit Credit (1)

8,000

(7)

5,000

(2)

5,000 18,000

(3) 50,000

Accum. Depreciation

205,000

105,000

Accounts Payable Notes Payable Common Stock Master Corporation Stanley Wood Retained Earnings, from above Noncontrolling Interest

60,000 200,000

20,000 50,000

(8) 10,000

100,000

(3)100,000

Credits

110,000

1,081,000

385,000

(5,000) 60,000

8,000 2,000

(6)

92,000 4,000 306,000

314,000 60,000 374,000 (30,000)

10,000

344,000

(8) 10,000

136,000 350,000 160,000 700,000

(5) 50,000

385,000

316,000

300,000 170,000 45,000 20,000 (235,000) 65,000

(1) (2)

1,081,000

300,000

300,000

(3) 50,000 (4) 8,000 (6) 16,000 18,000

92,000

Consolidated

(3)160,000 (5) 50,000 (6) 20,000 (7) 5,000

1,346,000 335,000 70,000 250,000 300,000

10,000 (2) 3,000 (3) 40,000 (4) 8,000 306,000

344,000 47,000 1,346,000