solusi manual advanced acc zy Chap005

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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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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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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C5-2 Consolidated Income Presentation

MEMO

TO: TreasurerStandard Company

FROM: , Accounting Staff

RE: 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 20X5 Consolidated revenues $160,000 (a) $400,000 (b)Operating costs (94,000 )(c) (300,000)(d)Consolidated net income $ 66,000 $100,000 Income to noncontrolling shareholders (2,700 )(e) (12,600 ) (f)Income to controlling shareholders $ 63,300 $ 87,400

(a) $100,000 + $60,000(b) $120,000 + $280,000(c) ($100,000 x .40) + ($60,000 x .90)(d) ($120,000 x .40) + ($280,000 x .90)(e) ($60,000 x .10 x .45)(f) ($280,000 x .10 x .45)

Primary citations:FASB 160

Secondary source:ARB 51

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C5-3 Pro Rata Consolidation

MEMO

To: Financial Vice-PresidentRose Corporation

From: , Senior Accountant

Re: 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 18APB 18, INT #2

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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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C5-5 Changing Accounting Standards: Monsanto Company

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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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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E5-3 Eliminating Entries with Differential

a. Eliminating entries:

E(1) Common Stock – Amber Company 20,000 Retained Earnings 37,000 Differential 25,000 Investment in Amber Company Stock 49,200 Noncontrolling Interest 32,800

Computation of differentialFair value of the consideration given by Game Corp. $49,200 Fair value of noncontrolling interest 32,800 Total fair value $82,000 Book value of Amber’s net assets ($85,000 - $28,000) (57,000 )Differential $25,000

E(2) Inventory 5,000 Buildings and Equipment (net) 20,000 Differential 25,000 $5,000 = $25,000 - $20,000 $20,000 = $70,000 - $50,000

b. Journal entries used to record transactions, adjust account balances, and close income and revenue accounts at the end of the period are recorded in the company's books and change the reported balances. On the other hand, eliminating entries are entered only in the consolidation workpaper to facilitate the preparation of consolidated financial statements. As a result, they do not change the balances recorded in the company's accounts and must be reentered each time a consolidation workpaper is prepared.

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E5-4 Computation of Consolidated Balances

a. Inventory $140,000

b. Land $ 60,000

c. Buildings and Equipment $550,000

d. Fair value of consideration given by Ford $470,000 Fair value of noncontrolling interest 117,500 Total fair value $587,500 Book value of Slim’s net assets $450,000Fair value increment for: Inventory 20,000 Land (10,000) Buildings and equipment (net) 70,000 Fair value of identifiable net assets (530,000 )Goodwill $ 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) $117,500

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E5-5 Balance Sheet Workpaper

Power Company and Pleasantdale DairyConsolidated Balance Sheet Workpaper

January 1, 20X7

Pleas- Adjustments andPower antdale Eliminations Consol-

Item Company Dairy Debit Credit idated Cash and Receivables 130,000 70,000 (a) 900 (3) 8,900 192,000Inventory 210,000 90,000 300,000Land 70,000 40,000 (2) 20,000 130,000Buildings and Equipment (net) 390,000 220,000 610,000Investment in Pleasantdale Stock 270,000 (1)270,000Differential (1) 20,000 (2) 20,000 Total Debits 1,070,000 420,000 1,232,000

Current Payables 80,000 40,000 (3) 8,900 111,100Long-Term Liabilities 200,000 100,000 300,000Common Stock Power Company 400,000 400,000 Pleasantdale Dairy 60,000 (1) 60,000Retained Earnings 390,000 220,000 (1)220,000 (a) 900 390,900Noncontrolling Interest (1) 30,000 30,000 Total Credits 1,070,000 420,000 329,800 329,800 1,232,000

Adjusting and eliminating entries:

(a) Cash and Receivables 900 Retained Earnings 900 Accrue interest earned by Power Company.

E(1) Common Stock – Pleasantdale Dairy 60,000Retained Earnings 220,000Differential 20,000 Investment in Pleasantdale Dairy Stock 270,000 Noncontrolling Interest 30,000 Eliminate investment balance. $20,000 = $270,000 + $30,000 - $280,000

E(2) Land 20,000 Differential 20,000 Assign differential.

E(3) Current Payables 8,900 Cash and Receivables 8,900 Eliminate intercompany receivable/payable.

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

5 - 12


E5-6 Majority-Owned Subsidiary Acquired at Greater than Book Value


E(1) Common Stock – Down Corporation 40,000Retained Earnings 85,000Differential 21,000 Investment in Down Corporation Stock 102,200 Noncontrolling Interest 43,800 Eliminate investment balance: $21,000 = $102,200 + $43,800 - $125,000

E(2) Inventory 6,000Buildings and Equipment 15,000 Differential 21,000 Assign differential.

E(3) Accounts Payable 12,500 Accounts Receivable 12,500 Eliminate intercompany receivable/payable.

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E5-6 (continued)

b. Zenith Corporation and Down CorporationConsolidated Balance Sheet Workpaper

December 31, 20X4

Zenith Down Eliminations Consol- Item Corp. Corp. Debit Credit idated

Cash 50,300 21,000 71,300Accounts Receivable 90,000 44,000 (3) 12,500 121,500Inventory 130,000 75,000 (2) 6,000 211,000Land 60,000 30,000 90,000Buildings and Equipment 410,000 250,000 (2) 15,000 675,000Investment in Down Corporation Stock 102,200 (1)102,200Differential (1) 21,000 (2) 21,000 Total Debits 842,500 420,000 1,168,800

Accumulated Depreciation 150,000 80,000 230,000Accounts Payable 152,500 35,000 (3) 12,500 175,000Mortgage Payable 250,000 180,000 430,000Common Stock 80,000 Zenith Corporation 80,000 Down Corporation 40,000 (1) 40,000Retained Earnings 210,000 85,000 (1) 85,000 210,000Noncontrolling Interest (1) 43,800 43,800 Total Credits 842,500 420,000 179,500 179,500 1,168,800

c. Zenith Corporation and SubsidiaryConsolidated Balance Sheet

December 31, 20X4

Cash $ 71,300Accounts Receivable 121,500Inventory 211,000Land 90,000Buildings and Equipment $675,000 Less: Accumulated Depreciation (230,000 ) 445,000 Total Assets $938,800

Accounts Payable $175,000Mortgage Payable 430,000Stockholders’ Equity: Controlling Interest: Common Stock $ 80,000 Retained Earnings 210,000 Total Controlling Interest $290,000 Noncontrolling Interest 43,800 Total Stockholders’ Equity 333,800 Total Liabilities and Stockholders' Equity $938,800

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E5-7 Consolidation with Minority Interest

Eliminating entries:

E(1) Common Stock – Dynamic Corporation 120,000 Retained Earnings 240,000 Differential 160,000 Investment in Dynamic Corporation Stock 390,000 Noncontrolling Interest 130,000 Eliminate investment balance: $160,000 = $390,000 + $130,000 – ($120,000 + $240,000) $130,000 = $520,000 x .25

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

E5-8 Workpaper for Majority-Owned Subsidiary

a. Eliminating entry:

E(1) Common Stock – Lowtide Builders 140,000Retained Earnings 10,000 Investment in Lowtide Builders Stock 90,000 Noncontrolling Interest 60,000 Eliminate investment balance.

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E5-8 (continued)

b. Glitter Enterprises and Lowtide BuildersConsolidated Balance Sheet Workpaper

January 1, 20X5

Glitter Enter- Lowtide Eliminations Consol-

Item prises Builders Debit Credit idated

Cash and Receivables 80,000 30,000 110,000Inventory 150,000 350,000 500,000Buildings and Equipment (net) 430,000 80,000 510,000Investment in Lowtide Stock 90,000 (1) 90,000 Total Debits 750,000 460,000 1,120,000

Current Liabilities 100,000 110,000 210,000Long-Term Debt 400,000 200,000 600,000Common Stock Glitter 200,000 200,000 Lowtide 140,000 (1)140,000Retained Earnings 50,000 10,000 (1) 10,000 50,000NoncontrollingInterest (1) 60,000 60,000 Total Credits 750,000 460,000 150,000 150,000 1,120,000

c. Glitter Enterprises and SubsidiaryConsolidated Balance Sheet

January 1, 20X5

Cash and Receivables $ 110,000Inventory 500,000Buildings and Equipment (net) 510,000 Total Assets $1,120,000

Current Liabilities $ 210,000Long-Term Debt 600,000Stockholders’ Equity: Controlling Interest: Common Stock $200,000 Retained Earnings 50,000 Total Controlling Interest $250,000 Noncontrolling Interest 60,000 Total Stockholders’ Equity 310,000 Total Liabilities and Stockholders' Equity $1,120,000

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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. $ 791,500 Less: Investment in Silk Corp. (150,500 )

$ 641,000 Book value of assets of Silk Corp. 405,000 Book value reported by Power and Silk $1,046,000 Increase in inventory ($85,000 - $70,000) 15,000 Increase in land ($45,000 - $25,000) 20,000 Goodwill 40,000 Total assets reported $1,121,000

4. d $701,500 = ($61,500 + $95,000 + $280,000) + ($28,000 + $37,000+ $200,000)

5. d $64,500

6. d $205,000 = The amount reported by Power Corporation

7. c $419,500 = ($150,000 + $205,000) + $64,500

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E5-10 Basic Consolidation Entries for Majority-Owned Subsidiary

a. Journal entries recorded by Horrigan Corporation:

(1) Investment in Farmstead Company Stock 210,000 Cash 210,000 Record purchase of Farmstead Company Stock.

(2) Cash 3,500 Investment in Farmstead Company Stock 3,500 Record dividends from Farmstead Company.

(3) Investment in Farmstead Company Stock 14,000 Income from Subsidiary 14,000 Record equity-method income.

b. Eliminating entries:

E(1) Income from Subsidiary 14,000 Dividends Declared 3,500 Investment in Farmstead Company Stock 10,500 Eliminate income from subsidiary.

E(2) Income to Noncontrolling Interest 6,000 Dividends Declared 1,500 Noncontrolling Interest 4,500 Assign income to noncontrolling interest.

E(3) Common Stock — Farmstead Company 100,000Retained Earnings, January 1 200,000 Investment in Farmstead Company Stock 210,000 Noncontrolling Interest 90,000 Eliminate investment balance.

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E5-11 Majority-Owned Subsidiary with Differential

a. Journal entries recorded by West Corporation:

(1) Investment in Canton Corporation Stock 133,500 Cash 133,500 Record investment.

(2) Cash 9,000 Investment in Canton Corporation Stock 9,000 Record dividends from Canton Corporation: $9,000 = $12,000 x .75

(3) Investment in Canton Corporation Stock 22,500 Income from Subsidiary 22,500 Record equity-method income: $22,500 = $30,000 x .75

(4) Income from Subsidiary 3,000 Investment in Canton Corporation Stock 3,000 Amortize differential assigned to equipment: $3,000 = ($28,000 / 7 years) x .75

b. Eliminating entries December 31, 20X3:

E(1) Income from Subsidiary 19,500 Dividends Declared 9,000 Investment in Canton Corporation Stock 10,500 Eliminate income from subsidiary.

E(2) Income to Noncontrolling Interest 6,500 Dividends Declared 3,000 Noncontrolling Interest 3,500 Assign income to noncontrolling interest: $6,500 = ($30,000 - $4,000) x .25 $3,000 = $12,000 x .25

E(3) Common Stock — Canton Corporation 60,000Retained Earnings, January 1 90,000Differential 28,000 Investment in Canton Corporation Stock 133,500 Noncontrolling Interest 44,500 Eliminate beginning investment balance: $28,000 = ($133,500 + $44,500) – $150,000

E(4) Equipment 28,000 Differential 28,000 Assign beginning differential.

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

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E5-12 Differential Assigned to Amortizable Asset

a. Lancaster Company’s common stock, January 1, 20X1 $120,000 Lancaster Company’s retained earnings, January 1, 20X1 380,000 Book value of Lancaster’s net assets $500,000 Proportion of stock acquired x .90 Book value of Lancaster's shares purchased by Major Corporation $450,000 Excess of acquisition price over book value 36,000 Fair value of consideration given $486,000 Add: Share of Lancaster's net income ($60,000 x .90) 54,000 Less: Amortization of patents ($40,000 / 5) x .90 (7,200) Dividends paid by Lancaster ($20,000 x .90) (18,000 )Balance in investment account, December 31, 20X1 $514,800

b. Eliminating entries, December 31, 20X1:

E(1) Income from Subsidiary 46,800 Dividends Declared 18,000 Investment in Lancaster Company Stock 28,800 Eliminate income from subsidiary: $46,800 = ($60,000 x .90) – ($8,000 x .90)

E(2) Income to Noncontrolling Interest 5,200 Dividends Declared 2,000 Noncontrolling Interest 3,200 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 120,000Retained Earnings, January 1 380,000Differential 40,000 Investment in Lancaster Company Stock 486,000 Noncontrolling Interest 54,000 Eliminate investment balance: $40,000 = ($486,000 + $54,000) - $500,000

E(4) Patents 40,000 Differential 40,000 Assign differential.

E(5) Amortization Expense 8,000 Patents 8,000 Amortize differential related to patents.

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E5-13 Consolidation after One Year of Ownership

a. Eliminating entries, January 1, 20X2:

E(1) Common Stock — Lowe Corporation 120,000 Retained Earnings, January 1 80,000 Differential 37,500 Investment in Lowe Corporation Stock 190,000 Noncontrolling Interest 47,500 Eliminate investment balance.

Computation of differentialFair value of consideration given by Pioneer $190,000 Fair value of noncontrolling interest 47,500 Total fair value 237,500 Underlying book value (200,000 )Differential $ 37,500

E(2) Buildings 32,000 Goodwill 5,500 Differential 37,500 Assign differential: $5,500 = $37,500 - $32,000


E(1) Income from Subsidiary 28,800 Investment in Lowe Corporation Stock 28,800 Eliminate income from subsidiary.

Computation of income from subsidiaryReported net income of Lowe $40,000 Amortization of differential assigned to buildings ($32,000 / 8 years) (4,000 )Income after amortization of differential $36,000 Proportion of stock acquired x .80 Income from subsidiary for 20X2 $28,800

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E5-13 (continued)

E(2) Income to Noncontrolling Interest 7,200 Noncontrolling Interest 7,200 Assign income to noncontrolling interest: $7,200 = ($40,000 - $4,000) x .20

E(3) Common Stock — Lowe Corporation 120,000Retained Earnings, January 1 80,000Differential 37,500 Investment in Lowe Corporation Stock 190,000 Noncontrolling Interest 47,500 Eliminate beginning investment balance.

E(4) Buildings 32,000Goodwill 5,500 Differential 37,500 Assign beginning differential.

E(5) Depreciation Expense 4,000 Accumulated Depreciation 4,000 Amortize differential.

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E5-14 Consolidation Following Three Years of Ownership

a. Computation of increase in value of patents:

Fair value of consideration given by Knox $277,500 Fair value of noncontrolling interest 185,000 Total fair value $462,500 Book value of Conway stock (400,000 )Excess of fair value over book value $ 62,500 Increase in value of land ($30,000 - $22,500) (7,500)Increase in value of equipment ($360,000 - $320,000) (40,000 )Increase In value of patents $ 15,000

b. E(1) Common Stock — Conway Company 250,000Retained Earnings 150,000Differential 62,500 Investment in Conway Company Stock 277,500 Noncontrolling Interest 185,000 Eliminate investment balance: $62,500 = ($277,500 + $185,000) – ($250,000 + $150,000)

E(2) Land 7,500Equipment 40,000Patents 15,000 Differential 62,500 Assign differential.

c. Computation of investment account balance at January 1, 20X9:

Fair value of consideration given $277,500 Undistributed income since acquisition ($100,000 - $60,000) x .60 24,000 Amortization of differential assigned to: Equipment ($40,000 / 8) x .60 x 2 years (6,000) Patents ($15,000 / 10) x .60 x 2 years (1,800 )Account balance at January 1, 20X9 $293,700

d. Entries recorded by Knox during 20X9:

(1) Cash 6,000 Investment in Conway Company Stock 6,000 Record dividends from subsidiary.

(2) Investment in Conway Company Stock 18,000 Income from Subsidiary 18,000 Record equity-method income.

(3) Income from Subsidiary 3,900 Investment in Conway Company Stock 3,900 Amortize differential:

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

E5-14 (continued)

e. Eliminating entries:

E(1) Income from Subsidiary 14,100 Dividends Declared 6,000 Investment in Conway Company Stock 8,100 Eliminate income from subsidiary: $14,100 = $18,000 - $3,900

E(2) Income to Noncontrolling Interest 9,400 Dividends Declared 4,000 Noncontrolling Interest 5,400 Assign income to noncontrolling interest: $9,400 = ($30,000 - $5,000 - $1,500) x .40

E(3) Common Stock — Conway Company 250,000Retained Earnings, January 1 190,000Differential 49,500 Investment in Conway Company Stock 293,700 Noncontrolling Interest 195,800 Eliminate beginning investment balance: $49,500 = $62,500 – ($5,000 x 2) – ($1,500 x 2)

E(4) Land 7,500Buildings and Equipment 40,000Patents 12,000 Differential 49,500 Accumulated Depreciation 10,000 Assign beginning differential: $12,000 = $15,000 – ($1,500 x 2)

E(5) Depreciation Expense 5,000Amortization Expense 1,500 Accumulated Depreciation 5,000 Patents 1,500 Amortize differential.

E5-15 Consolidation Workpaper for Majority-Owned Subsidiary


E(1) Income from Subsidiary 24,000 Dividends Declared 8,000 Investment in Stergis Company Stock 16,000 Eliminate income from subsidiary.


E(3) Common Stock — Stergis Company 100,000Retained Earnings, January 1 50,000 Investment in Stergis Company Stock 120,000 Noncontrolling Interest 30,000 Eliminate beginning investment balance.

E5-15 (continued)

b. Proud Corporation and Stergis CompanyConsolidation Workpaper

December 31, 20X3

Proud Stergis Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 200,000 120,000 320,000 Income from Subsidiary 24,000 (1) 24,000 Credits 224,000 120,000 320,000 Depreciation Expense 25,000 15,000 40,000 Other Expenses 105,000 75,000 180,000 Debits (130,000) (90,000) (220,000 )Consolidated Net Income 100,000 Income to Noncon- trolling Interest (2) 6,000 (6,000 )Income, carry forward 94,000 30,000 30,000 94,000

Ret. Earnings, Jan. 1 230,000 50,000 (3) 50,000 230,000 Income, from above 94,000 30,000 30,000 94,000

324,000 80,000 324,000 Dividends Declared (40,000) (10,000) (1) 8,000

(2) 2,000 (40,000 )Ret. Earnings, Dec. 31, carry forward 284,000 70,000 80,000 10,000 284,000

Current Assets 173,000 105,000 278,000 Depreciable Assets 500,000 300,000 800,000 Investment in Stergis Company Stock 136,000 (1) 16,000

(3)120,000 Debits 809,000 405,000 1,078,000

Accum. Depreciation 175,000 75,000 250,000 Current Liabilities 50,000 40,000 90,000 Long-Term Debt 100,000 120,000 220,000 Common Stock Proud Corporation 200,000 200,000 Stergis Company 100,000 (3)100,000Retained Earnings, from above 284,000 70,000 80,000 10,000 284,000 Noncontrolling Interest (2) 4,000

(3) 30,000 34,000 Credits 809,000 405,000 180,000 180,000 1,078,000

E5-15 (continued)

c. Proud Corporation and SubsidiaryConsolidated Balance Sheet

December 31, 20X3

Current Assets $278,000 Depreciable Assets $800,000 Less: Accumulated Depreciation (250,000 ) 550,000 Total Assets $828,000

Current Liabilities $ 90,000 Long-Term Debt 220,000 Stockholders’ Equity: Controlling Interest: Common Stock $200,000 Retained Earnings 284,000 Total Controlling Interest $484,000 Noncontrolling Interest 34,000 Total Stockholders’ Equity 518,000 Total Liabilities and Stockholders' Equity $828,000

Proud Corporation and SubsidiaryConsolidated Income StatementYear Ended December 31, 20X3

Sales $320,000 Depreciation $ 40,000 Other Expenses 180,000 Total Expenses (220,000 )Consolidated Net Income $100,000 Income to Noncontrolling Interest (6,000 )Income to Controlling Interest $ 94,000

Proud Corporation and SubsidiaryConsolidated Retained Earnings Statement

Year Ended December 31, 20X3

Retained Earnings, January 1, 20X3 $230,000 Income to Controlling Interest, 20X3 94,000

$324,000 Dividends Declared, 20X3 (40,000 )Retained Earnings, December 31, 20X3 $284,000

E5-16 Consolidation Workpaper for Majority-Owned Subsidiary for Second Year


E(1) Income from Subsidiary 28,000 Dividends Declared 12,000 Investment in Stergis Company Stock 16,000 Eliminate income from subsidiary.


E(3) Common Stock — Stergis Company 100,000Retained Earnings, January 1 70,000 Investment in Stergis Company Stock 136,000 Noncontrolling Interest 34,000 Eliminate beginning investment balance.

E5-16 (continued)

b. Proud Corporation and Stergis CompanyConsolidation Workpaper

December 31, 20X4

Proud Stergis Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 230,000 140,000 370,000 Income from Subsidiary 28,000 (1) 28,000 Credits 258,000 140,000 370,000 Depreciation Expense 25,000 15,000 40,000 Other Expenses 150,000 90,000 240,000 Debits (175,000) (105,000) (280,000 )Consolidated Net Income 90,000 Income to Noncon- trolling Interest (2) 7,000 (7,000 )Income, carry forward 83,000 35,000 35,000 83,000




Current Assets 235,000 150,000 385,000 Depreciable Assets 500,000 300,000 800,000 Investment in Stergis Company Stock 152,000 (1) 16,000

(3)136,000 Debits 887,000 450,000 1,185,000

Accum. Depreciation 200,000 90,000 290,000 Current Liabilities 70,000 50,000 120,000 Long-Term Debt 100,000 120,000 220,000 Common Stock Proud Corporation 200,000 200,000 Stergis Company 100,000 (3)100,000Retained Earnings, from above 317,000 90,000 105,000 15,000 317,000 Noncontrolling Interest (2) 4,000

(3) 34,000 38,000 Credits 887,000 450,000 205,000 205,000 1,185,000

E5-17 Preparation of Stockholders' Equity Section with Other Comprehensive Income

a. Consolidated net income: 20X8 20X9

Operating income of Broadmore $120,000 $ 140,000 Net income of Stem 40,000 60,000 Amortization of differential ($580,000 - $500,000) / 10 Years (8,000 ) (8,000 )Consolidated net income $152,000 $ 192,000 Comprehensive gain reported by Stem 10,000 5,000 Consolidated comprehensive income $162,000 $ 197,000

b. Comprehensive income attributable to controlling interest:

20X8 20X9 Consolidated comprehensive income $162,000 $ 197,000 Comprehensive income attributable to Noncontrolling interest ($50,000 - $8,000) x .25 (10,500) ($65,000 - $8,000) x .25 (14,250) Comprehensive income attributable to controlling interest $151,500 $ 182,750

c. Consolidated stockholders' equity: 20X8 20X9

Controlling Interest: Common Stock $320,000 $ 320,000 Retained Earnings 504,000 613,000 Accumulated Other Comprehensive Income 7,500 11,250 Total Controlling Interest 831,500 944,250 Noncontrolling Interest 151,750 158,500 Total Stockholders’ Equity $983,250 $1,102,750

E5-18 Eliminating Entries for Subsidiary with Other Comprehensive Income

a. Journal entries recorded by Palmer Corp. in 20X8:

(1) Investment in Krown Corp. Stock 140,000 Cash 140,000 Record acquisition of Krown Corp. stock.

(2) Cash 17,500 Investment in Krown Corp. Stock 17,500 Record dividends from subsidiary.

(3) Investment in Krown Corp. Stock 21,000 Income from Subsidiary 21,000 Record equity-method income.

(4) Investment in Krown Corp. Stock 4,200 Other Comprehensive Income from Subsidiary (OCI) 4,200 Record Palmer's proportionate share of other comprehensive income of subsidiary.


E(1) Income from Subsidiary 21,000 Dividends Declared 17,500 Investment in Krown Corp. Stock 3,500 Eliminate income from subsidiary.


E(3) Other Comprehensive Income from Subsidiary (OCI) 4,200 Investment in Krown Corp. Stock 4,200 Eliminate other comprehensive income from subsidiary.

E(4) Other Comprehensive Income toNoncontrolling Interest 1,800 Noncontrolling Interest 1,800 Assign other comprehensive income to noncontrolling interest.

E(5) Common Stock — Krown Corp. 120,000Retained Earnings, January 1 80,000 Investment in Krown Corp. Stock 140,000 Noncontrolling Interest 60,000 Eliminate beginning investment balance.

E5-19 Majority-Owned Subsidiary with Differential – Prior Procedures

a. Journal entries recorded by West Corporation:

(1) Investment in Canton Corporation Stock 133,500 Cash 133,500 Record investment.

(2) Cash 9,000 Investment in Canton Corporation Stock 9,000 Record dividends from Canton Corporation: $9,000 = $12,000 x .75

(3) Investment in Canton Corporation Stock 22,500 Income from Subsidiary 22,500 Record equity-method income: $22,500 = $30,000 x .75

(4) Income from Subsidiary 3,000 Investment in Canton Corporation Stock 3,000 Amortize differential assigned to equipment: $3,000 = [$133,500 - ($150,000 x .75)] / 7 years

b. Eliminating entries December 31, 20X3:

E(1) Income from Subsidiary 19,500 Dividends Declared 9,000 Investment in Canton Corporation Stock 10,500 Eliminate income from subsidiary.

E(2) Income to Noncontrolling Interest 7,500 Dividends Declared 3,000 Noncontrolling Interest 4,500 Assign income to noncontrolling interest: $7,500 = $30,000 x .25 $3,000 = $12,000 x .25

E(3) Common Stock — Canton Corporation 60,000Retained Earnings, January 1 90,000Differential 21,000 Investment in Canton Corporation Stock 133,500 Noncontrolling Interest 37,500 Eliminate beginning investment balance: $21,000 = $133,500 - ($90,000 + $60,000) x .75

E(4) Equipment 21,000 Differential 21,000 Assign beginning differential.

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

E5-20 Consolidation after One Year of Ownership– Prior Procedures

a. Eliminating entries, January 1, 20X2:

E(1) Common Stock — Lowe Corporation 120,000 Retained Earnings, January 1 80,000 Differential 30,000 Investment in Lowe Corporation Stock 190,000 Noncontrolling Interest 40,000 Eliminate investment balance.

Computation of differential

Fair value of consideration given $190,000 Underlying book value ($200,000 x .80) (160,000 )Differential $ 30,000

E(2) Buildings and Equipment 25,600 Goodwill 4,400 Differential 30,000 Assign differential: $25,600 = $32,000 x .80 $4,400 = $30,000 - $25,600


E(1) Income from Subsidiary 28,800 Investment in Lowe Corporation Stock 28,800 Eliminate income from subsidiary.

Computation of income from subsidiary

Reported net income of Lowe $40,000 Proportion of stock acquired x .80 Income before amortizing differential $32,000 Amortization of differential assigned to buildings and equipment ($25,600 / 8) (3,200 )Income from subsidiary for 20X2 $28,800

E5-20 (continued)

E(2) Income to Noncontrolling Interest 8,000 Noncontrolling Interest 8,000 Assign income to noncontrolling interest.

E(3) Common Stock — Lowe Corporation 120,000Retained Earnings, January 1 80,000Differential 30,000 Investment in Lowe Corporation Stock 190,000 Noncontrolling Interest 40,000 Eliminate beginning investment balance.

E(4) Buildings and Equipment 25,600Goodwill 4,400 Differential 30,000 Assign beginning differential.


E5-21 Balance Sheet Workpaper– Prior Procedures

Power Company and Pleasantdale DairyConsolidated Balance Sheet Workpaper

January 1, 20X7

Pleas- Adjustments andPower antdale Eliminations Consol-

Item Company Dairy Debit Credit idated Cash and Receivables 130,000 70,000 (a) 900 (3) 8,900 192,000Inventory 210,000 90,000 300,000Land 70,000 40,000 (2) 18,000 128,000Buildings and Equipment (net) 390,000 220,000 610,000Investment in Pleasantdale Stock 270,000 (1)270,000Differential (1) 18,000 (2) 18,000 Total Debits 1,070,000 420,000 1,230,000

Current Payables 80,000 40,000 (3) 8,900 111,100Long-Term Liabilities 200,000 100,000 300,000Common Stock Power Company 400,000 400,000 Pleasantdale Dairy 60,000 (1) 60,000Retained Earnings 390,000 220,000 (1)220,000 (a) 900 390,900Noncontrolling Interest (1) 28,000 28,000 Total Credits 1,070,000 420,000 325,800 325,800 1,230,000

Adjusting and eliminating entries:

(a) Cash and Receivables 900 Retained Earnings 900 Accrue interest earned by Power Company.

E(1) Common Stock – Pleasantdale Dairy 60,000Retained Earnings 220,000Differential 18,000 Investment in Pleasantdale Dairy Stock 270,000 Noncontrolling Interest 28,000 Eliminate investment balance.

E(2) Land 18,000 Differential 18,000 Assign differential.

E(3) Current Payables 8,900 Cash and Receivables 8,900 Eliminate intercompany receivable/payable.

E5-22* Consolidation of Subsidiary with Negative Retained Earnings


E(1) Common Stock — Strap Company 100,000Additional Paid-In Capital 75,000Differential 27,500 Retained Earnings 30,000 Investment in Strap Company Stock 138,000 Noncontrolling Interest 34,500 Eliminate investment balance: $27,500 = ($138,000 / .80) - $145,000 $34,500 = ($138,000 / .80) x .20

E(2) Goodwill 27,500 Differential 27,500 Assign differential.

E5-23* Complex Assignment of Differential

a. Equity-method entries recorded by Worth during 20X5:

Investment in Brinker Common Stock 135,000 Income from Brinker Inc. 135,000 Record equity-method income: $135,000 = $150,000 x .90

Income from Brinker Inc. 82,350 Investment in Brinker Common Stock 82,350 Record write-off of differential.

Computation of differential write-off

Total differential $240,000 Assigned to identifiable assets and liabilities: Inventory $ 5,000 Land 75,000 Equipment 60,000 Discount on Notes Payable 50,000 Total (190,000)Goodwill $ 50,000

Write-off of differential: Inventory sold $ 5,000 Land sold 75,000 Depreciation of equipment ($60,000 / 15) 4,000 Amortization of discount on notes payable 7,500 Total write-off for 20X5 $ 91,500 Ownership held by Worth x .90 Reduction of investment income $ 82,350

E5-23* (continued)

b. Elimination entries:

Income from Brinker, Inc. 52,650 Investment in Brinker Common Stock 52,650 Eliminate income from subsidiary.

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

Common Stock — Brinker 500,000Premium on Common Stock 100,000Retained Earnings, January 1 120,000Differential 240,000 Investment in Brinker Common Stock 864,000 Noncontrolling Interest 96,000 Eliminate beginning investment balance: $96,000 = $960,000 x .10

Cost of Goods Sold 5,000Gain on Sale of Land 75,000Equipment 60,000Discount on Notes Payable 50,000Goodwill 50,000 Differential 240,000 Assign beginning differential.

Depreciation Expense 4,000Interest Expense 7,500 Accumulated Depreciation 4,000 Discount on Notes Payable 7,500 Amortize differential.

5-45

E5-24A Basic Cost-Method Workpaper


E(1) Dividend Income 10,000 Dividends Declared 10,000 Eliminate dividend income from subsidiary.

E(2) Common Stock — Shaw Corporation 100,000Retained Earnings, January 1 50,000 Investment in Shaw Corporation Stock 150,000 Eliminate original investment balance.

b. Blake Corporation and Shaw CorporationConsolidation Workpaper

December 31, 20X3

Blake Shaw Eliminations Consol- Item Corp. Corp. Debit Credit idated

Sales 200,000 120,000 320,000 Dividend Income 10,000 (1) 10,000 Credits 210,000 120,000 320,000 Depreciation Expense 25,000 15,000 40,000 Other Expenses 105,000 75,000 180,000 Debits (130,000) (90,000 ) (220,000)Income, carry forward 80,000 30,000 10,000 100,000


310,000 80,000 330,000 Dividends Declared (40,000 ) (10,000 ) (1) 10,000 (40,000 )Ret. Earnings, Dec. 31, carry forward 270,000 70,000 60,000 10,000 290,000

Current Assets 145,000 105,000 250,000 Deprec. Assets (net) 325,000 225,000 550,000 Investment in Shaw Corporation Stock 150,000 (2)150,000 Debits 620,000 330,000 800,000

Current Liabilities 50,000 40,000 90,000 Long-Term Debt 100,000 120,000 220,000 Common Stock Blake Corporation 200,000 200,000 Shaw Corporation 100,000 (2)100,000Retained Earnings, from above 270,000 70,000 60,000 10,000 290,000 Credits 620,000 330,000 160,000 160,000 800,000

5-46

E5-25A Cost-Method Workpaper in Subsequent Period



E(2) Common Stock – Shaw Corporation 100,000Retained Earnings, January 1 50,000 Investment in Shaw Corporation Stock 150,000 Eliminate original investment balance.

b. Blake Corporation and Shaw CorporationConsolidation Workpaper

December 31, 20X4

Blake Shaw Eliminations Consol- Item Corp. Corp. Debit Credit idated

Sales 300,000 200,000 500,000 Dividend Income 15,000 (1) 15,000 Credits 315,000 200,000 500,000 Depreciation Expense 25,000 15,000 40,000 Other Expenses 250,000 160,000 410,000 Debits (275,000) (175,000) (450,000)Income, carry forward 40,000 25,000 15,000 50,000


310,000 95,000 340,000 Dividends Declared (20,000 ) (15,000) (1) 15,000 (20,000 )Ret. Earnings, Dec. 31, carry forward 290,000 80,000 65,000 15,000 320,000

Current Assets 170,000 110,000 280,000 Deprec. Assets (net) 300,000 210,000 510,000 Investment in Shaw Corporation Stock 150,000 (2)150,000 Debits 620,000 320,000 790,000

Current Liabilities 30,000 20,000 50,000 Long-Term Debt 100,000 120,000 220,000 Common Stock Blake Corporation 200,000 200,000 Shaw Corporation 100,000 (2)100,000 Retained Earnings, from above 290,000 80,000 65,000 15,000 320,000 Credits 620,000 320,000 165,000 165,000 790,000

5-47

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




E(3) Common Stock – Knight Company 100,000Retained Earnings, January 1 50,000 Investment in Knight Company Stock 120,000 Noncontrolling Interest 30,000 Eliminate original investment balance.

E(4) Retained Earnings, January 1 4,000 Noncontrolling Interest 4,000 Assign undistributed prior earnings of subsidiary to noncontrolling interest: ($70,000 - $50,000) x .20

5-48

5-49

E5-26A (continued)

b. Lintner Corporation and Knight CompanyConsolidation Workpaper

December 31, 20X7

Lintner Knight Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 300,000 200,000 500,000 Dividend Income 16,000 (1) 16,000 Credits 316,000 200,000 500,000 Depreciation Expense 25,000 15,000 40,000 Other Expenses 251,000 155,000 406,000 Debits (276,000) (170,000) (446,000 )Consolidated Net Income 54,000 Income to Noncon- trolling Interest (2) 6,000 (6,000 )Income, carry forward 40,000 30,000 22,000 48,000

Ret. Earnings, Jan. 1 268,000 70,000 (3) 50,000(4) 4,000 284,000

Income, from above 40,000 30,000 22,000 48,000 308,000 100,000 332,000

Dividends Declared (25,000) (20,000) (1) 16,000 (2) 4,000 (25,000 )

Ret. Earnings, Dec. 31, carry forward 283,000 80,000 76,000 20,000 307,000

Current Assets 183,000 80,000 263,000 Deprec. Assets (net) 500,000 300,000 800,000 Investment in Knight Company Stock 120,000 (3)120,000 Debits 803,000 380,000 1,063,000

Accum. Depreciation 200,000 90,000 290,000 Accounts Payable 120,000 110,000 230,000 Common Stock Lintner Corporation 200,000 200,000 Knight Company 100,000 (3)100,000Retained Earnings,from above 283,000 80,000 76,000 20,000 307,000 Noncontrolling Interest (2) 2,000

(3) 30,000 (4) 4,000 36,000

Credits 803,000 380,000 176,000 176,000 1,063,000

5-50

5-51

E5-26A (continued)

c. Lintner Corporation and SubsidiaryConsolidated Balance Sheet

December 31, 20X7

Current Assets $263,000 Depreciable Assets $800,000 Less: Accumulated Depreciation (290,000) 510,000 Total Assets $773,000

Accounts Payable $230,000 Stockholders’ Equity: Controlling Interest: Common Stock $200,000 Retained Earnings 307,000 Total Controlling Interest $507,000 Noncontrolling Interest 36,000 Total Stockholders’ Equity 543,000 Total Liabilities and Stockholders' Equity $773,000

Lintner Corporation and SubsidiaryConsolidated Income StatementYear Ended December 31, 20X7

Sales $500,000 Depreciation $ 40,000 Other Expenses 406,000 Total Expenses (446,000 )Consolidated Net Income $ 54,000 Income to Noncontrolling Interest (6,000 )Income to Controlling Interest $ 48,000

Lintner Corporation and SubsidiaryConsolidated Retained Earnings Statement



$332,000 Dividends Declared, 20X7 (25,000 )Retained Earnings, December 31, 20X7 $307,000

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

5 - 52

5-53

SOLUTIONS TO PROBLEMS

P5-27 Majority-Owned Subsidiary Acquired at Book Value


E(1) Common Stock – Darla Corporation 40,000Retained Earnings 85,000 Investment in Darla Corporation Stock 87,500 Noncontrolling Interest 37,500 Eliminate investment balance.


b. Cameron Corporation and Darla CorporationConsolidated Balance Sheet Workpaper

December 31, 20X4

Cameron Darla Eliminations Consol- Item Corp. Corp. Debit Credit idated

Cash 65,000 21,000 86,000Accounts Receivable 90,000 44,000 (2) 12,500 121,500Inventory 130,000 75,000 205,000Land 60,000 30,000 90,000Buildings and Equipment 410,000 250,000 660,000Investment in Darla Corporation Stock 87,500 (1) 87,500 Total Debits 842,500 420,000 1,162,500

Accumulated Depreciation 150,000 80,000 230,000Accounts Payable 152,500 35,000 (2) 12,500 175,000Mortgage Payable 250,000 180,000 430,000Common Stock Cameron Corporation 80,000 80,000 Darla Corporation 40,000 (1) 40,000Retained Earnings 210,000 85,000 (1) 85,000 210,000Noncontrolling Interest (1) 37,500 37,500 Total Credits 842,500 420,000 137,500 137,500 1,162,500

5-54

P5-27 (continued)

c. Cameron Corporation and SubsidiaryConsolidated Balance Sheet

December 31, 20X4


Accounts Payable $175,000Mortgage Payable 430,000Stockholders’ Equity: Controlling Interest: Common Stock $ 80,000 Retained Earnings 210,000 Total Controlling Interest $290,000 Noncontrolling Interest 37,500 Total Stockholder’s equity 327,500 Total Liabilities and Stockholders' Equity $932,500

P5-28 Majority-Owned Subsidiary Acquired at Greater than Book Value


E(1) Common Stock – Darla Corporation 40,000Retained Earnings 85,000Differential 21,000 Investment in Darla Corporation Stock 102,200 Noncontrolling Interest 43,800 Eliminate investment balance.



5-55

P5-28 (continued)

b. Porter Corporation and Darla CorporationConsolidated Balance Sheet Workpaper

December 31, 20X4

Porter Darla Eliminations Consol- Item Corp. Corp. Debit Credit idated

Cash 50,300 21,000 71,300Accounts Receivable 90,000 44,000 (3) 12,500 121,500Inventory 130,000 75,000 (2) 6,000 211,000Land 60,000 30,000 90,000Buildings and Equipment 410,000 250,000 (2) 15,000 675,000Investment in Darla Corporation Stock 102,200 (1)102,200Differential (1) 21,000 (2) 21,000 Total Debits 842,500 420,000 1,168,800

Accumulated Depreciation 150,000 80,000 230,000Accounts Payable 152,500 35,000 (3) 12,500 175,000Mortgage Payable 250,000 180,000 430,000Common Stock 80,000 Cameron Corporation 80,000 Darla Corporation 40,000 (1) 40,000Retained Earnings 210,000 85,000 (1) 85,000 210,000Noncontrolling Interest (1) 43,800 43,800 Total Credits 842,500 420,000 179,500 179,500 1,168,800

c. Porter Corporation and SubsidiaryConsolidated Balance Sheet

December 31, 20X4


Accounts Payable $175,000Mortgage Payable 430,000Stockholders’ Equity: Controlling Interest: Common Stock $ 80,000 Retained Earnings 210,000 Total Controlling Interest $290,000 Noncontrolling Interest 43,800 Total Stockholders’ Equity 333,800 Total Liabilities and Stockholders' Equity $938,800

5-56

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 510,000 Bonds Payable 500,000 Bond Premium 10,000

Note: The bonds go directly to the stockholders of Ticken Tie and are not recorded on the books of Ticken Tie.


E(1) Common Stock – Ticken Tie Company 200,000Additional Paid-In Capital 130,000Retained Earnings 148,000Differential 202,000 Investment in Ticken Tie Stock 510,000 Noncontrolling Interest 170,000 Eliminate investment balance: $202,000 = ($510,000 + $170,000) - $478,000

E(2) Inventory 4,000Land 20,000Buildings and Equipment 50,000Patent 40,000Goodwill 88,000 Differential 202,000 Assign differential.

E(3) Current Payables 6,500 Receivables 6,500 Eliminate intercompany receivable/payable.

5-57

P5-29 (continued)

c. Total Corporation and Ticken Tie CompanyConsolidated Balance Sheet Workpaper

January 2, 20X8

Total Ticken Eliminations Consol- Item Corp. Tie Debit Credit idated

Cash 12,000 9,000 21,000Receivables 41,000 31,000 (3) 6,500 65,500Inventory 86,000 68,000 (2) 4,000 158,000Investment in Ticken Tie Stock 510,000 (1)510,000Land 55,000 50,000 (2) 20,000 125,000Buildings and Equipment 960,000 670,000 (2) 50,000 1,680,000Patent (2) 40,000 40,000Goodwill (2) 88,000 88,000Differential (1)202,000 (2)202,000 Total Assets 1,664,000 828,000 2,177,500

Allowance for Bad Debts 2,000 1,000 3,000Accumulated Depreciation 411,000 220,000 631,000Current Payables 38,000 29,000 (3) 6,500 60,500Bonds Payable 700,000 100,000 800,000Bond Premium 10,000 10,000Common Stock 300,000 200,000 (1)200,000 300,000Additional Paid-In Capital 100,000 130,000 (1)130,000 100,000Retained Earnings 103,000 148,000 (1)148,000 103,000Noncontrolling Interest (1)170,000 170,000 Total Liabilities and Stockholders’ Equity 1,664,000 828,000 888,500 888,500 2,177,500

5-58

P5-29 (continued)

d. Total Corporation and SubsidiaryConsolidated Balance Sheet

January 2, 20X8

Cash $ 21,000Receivables $ 65,500 Less: Allowance for Bad Debts (3,000 ) 62,500Inventory 158,000Land 125,000Buildings and Equipment $1,680,000 Less: Accumulated Depreciation (631,000 ) 1,049,000Patent 40,000Goodwill 88,000 Total Assets $1,543,500

Current Payables $ 60,500Bonds Payable $ 800,000 Premium on Bonds Payable 10,000 810,000Stockholders’ Equity: Controlling Interest: Common Stock $ 300,000 Additional Paid-In Capital 100,000 Retained Earnings 103,000 Total Controlling Interest $ 503,000 Noncontrolling Interest 170,000 Total Stockholders’ Equity 673,000 Total Liabilities and Stockholders' Equity $1,543,500

5-59

5-60

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)

Blue: $70,000 = $94,000 - $24,000

d. Fair value of Skyler as a whole:

$200,000 Book value of Skyler shares10,000 Differential assigned to inventory

($195,000 - $105,000 - $80,000)40,000 Differential assigned to buildings and equipment

($780,000 - $400,000 - $340,000) 9,000 Differential assigned to goodwill$259,000 Fair value of Skyler

e. 65 percent = 1.00 – ($90,650 / $259,000)

f. Capital Stock = $120,000Retained Earnings = $115,000

.

5-61

5-62

P5-31 Income and Retained Earnings

a. Net income for 20X9:

Quill North Operating income $ 90,000 $35,000 Income from subsidiary 24,500 Net income $114,500 $35,000

b. Consolidated net income is $125,000 ($90,000 + $35,000).

c. Retained earnings reported at December 31, 20X9:

Quill North Retained earnings, January 1, 20X9 $290,000 $40,000 Net income for 20X9 114,500 35,000 Dividends paid in 20X9 (30,000 ) (10,000 )Retained earnings, December 31, 20X9 $374,500 $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.

5-63

P5-32 Consolidation Workpaper at End of First Year of Ownership


E(1) Income from Subsidiary 16,500 Dividends Declared 12,000 Investment in Best Company Stock 4,500 Eliminate income from subsidiary: $16,500 = ($24,000 - $2,000) x .75

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

E(3) Common Stock — Best Company 60,000Retained Earnings, January 1 40,000Differential 28,000 Investment in Best Company Stock 96,000 Noncontrolling Interest 32,000 Eliminate beginning investment balance: $28,000 = ($96,000 + $32,000) - $100,000


E(5) Depreciation Expense 2,000 Accumulated Depreciation 2,000 Amortize differential related to buildings and equipment: $2,000 = $20,000 / 10 years

E(6) Goodwill Impairment Loss 5,500 Goodwill 5,500 Write down goodwill for impairment.

5-64

P5-32 (continued)

b. Power Corporation and Best CompanyConsolidation Workpaper

December 31, 20X8

Power Best Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 260,000 180,000 440,000 Income from Subsidiary 16,500 (1) 16,500 Credits 276,500 180,000 440,000 Cost of Goods Sold 125,000 110,000 235,000 Wage Expense 42,000 27,000 69,000 Depreciation Expense 25,000 10,000 (5) 2,000 37,000 Interest Expense 12,000 4,000 16,000 Other Expenses 13,500 5,000 18,500 Goodwill Impairment Loss (6) 5,500 5,500 Debits (217,500) (156,000) (381,000)Consolidated Net Income 59,000 Income to Noncon- trolling Interest (2) 4,125 (4,125 )Income, carry forward 59,000 24,000 28,125 54,875




Cash 47,500 21,000 68,500 Accounts Receivable 70,000 12,000 82,000 Inventory 90,000 25,000 115,000 Land 30,000 15,000 45,000 Buildings and Equipment 350,000 150,000 (4) 20,000 520,000 Investment in Best Company Stock 100,500 (1) 4,500

(3) 96,000Differential (3) 28,000 (4) 28,000Goodwill (4) 8,000 (6) 5,500 2,500 Debits 688,000 223,000 833,000

5-65

P5-32 (continued)


Accum. Depreciation 145,000 40,000 (5) 2,000 187,000Accounts Payable 45,000 16,000 61,000Wages Payable 17,000 9,000 26,000Notes Payable 150,000 50,000 200,000Common Stock Power Corporation 200,000 200,000 Best Company 60,000 (3) 60,000Retained Earnings, from above 131,000 48,000 68,125 16,000 126,875Noncontrolling Interest (2) 125

(3) 32,000 32,125 Credits 688,000 223,000 184,125 184,125 833,000

5-66

5-67

P5-33 Consolidation Workpaper at End of Second Year of Ownership



E(2) Income to Noncontrolling Interest 8,500 Dividends Declared 5,000 Noncontrolling Interest 3,500 Assign income to noncontrolling interest: $8,500 = ($36,000 - $2,000) x .25

E(3) Common Stock — Best Company 60,000Retained Earnings, January 1 52,125Differential 20,500 Investment in Best Company Stock 100,500 Noncontrolling Interest 32,125 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

E(4) Buildings and Equipment 20,000Goodwill 2,500 Differential 20,500 Accumulated Depreciation 2,000 Assign beginning differential.


McGraw-Hill/Irwin© The McGraw-Hill Companies, Inc., 2005

68

5-69

P5-33 (continued)


December 31, 20X9


Sales 290,000 200,000 490,000 Income from Subsidiary 25,500 (1) 25,500 Credits 315,500 200,000 490,000 Cost of Goods Sold 145,000 114,000 259,000 Wage Expense 35,000 20,000 55,000 Depreciation Expense 25,000 10,000 (5) 2,000 37,000 Interest Expense 12,000 4,000 16,000 Other Expenses 23,000 16,000 39,000 Debits (240,000) (164,000) (406,000)Consolidated Net Income 84,000 Income to Noncon- trolling Interest (2) 8,500 (8,500 )Income, carry forward 75,500 36,000 36,000 75,500





(3)100,500Differential (3) 20,500 (4) 20,500Goodwill (4) 2,500 2,500 Debits 761,500 245,000 918,000

5-70

P5-33 (continued)


Accum. Depreciation 170,000 50,000 (4) 2,000(5) 2,000 224,000

Accounts Payable 51,000 15,000 66,000Wages Payable 14,000 6,000 20,000Notes Payable 150,000 50,000 200,000Common Stock Power Corporation 200,000 200,000 Best Company 60,000 (3) 60,000Retained Earnings, from above 176,500 64,000 88,125 20,000 172,375Noncontrolling Interest (2) 3,500

(3) 32,125 35,625 Credits 761,500 245,000 191,125 191,125 918,000

5-71

5-72

P5-33 (continued)

c. Power Corporation and SubsidiaryConsolidated Balance Sheet

December 31, 20X9Cash $100,500 Accounts Receivable 99,000 Inventory 121,000 Land 75,000 Buildings and Equipment $520,000 Less: Accumulated Depreciation (224,000) 296,000 Goodwill 2,500 Total Assets $694,000

Accounts Payable $ 66,000 Wages Payable 20,000 Notes Payable 200,000 Stockholders’ Equity: Controlling Interest: Common Stock $200,000 Retained Earnings 172,375 Total Controlling Interest $372,375 Noncontrolling Interest 35,625 Total Stockholders’ Equity 408,000 Total Liabilities and Stockholders' Equity $694,000

Power Corporation and SubsidiaryConsolidated Income StatementYear Ended December 31, 20X9

Sales $490,000 Cost of Goods Sold $259,000 Wage Expense 55,000 Depreciation Expense 37,000 Interest Expense 16,000 Other Expenses 39,000 Total Expenses (406,000 )Consolidated Net Income $ 84,000 Income to Noncontrolling Interest (8,500 )Income to Controlling Interest $ 75,500

Power Corporation and SubsidiaryConsolidated Retained Earnings Statement



$202,375 Dividends Declared, 20X9 (30,000 )

5-73

Retained Earnings, December 31, 20X9 $172,375

5-74

P5-34 Comprehensive Problem: Majority-Owned Subsidiary

a. Journal entries recorded by Master Corporation:

(1) Cash 8,000 Investment in Stanley Wood Products Stock 8,000 Record dividends from Stanley Wood Products: $10,000 x .80

(2) Investment in Stanley Wood Products Stock 24,000 Income from Subsidiary 24,000 Record equity-method income: $30,000 x .80

(3) Income from Subsidiary 4,000 Investment in Stanley Wood Products Stock 4,000 Amortize differential: ($50,000 / 10 years) x .80

Computation of differential: Fair value of consideration given by Master Corp. $160,000 Fair value of noncontrolling interest 40,000 Total fair value $200,000 Underlying book value (150,000

) Differential at acquisition, January 1, 20X1 $ 50,000

5-75

P5-34 (continued)


E(1) Income from Subsidiary 20,000 Dividends Declared 8,000 Investment in Stanley Wood Products Stock 12,000 Eliminate income from subsidiary.

E(2) Income to Noncontrolling Interest 5,000 Dividends Declared 2,000 Noncontrolling Interest 3,000 Assign income to noncontrolling interest: $5,000 = ($30,000 - $5,000) x .20

E(3) Common Stock — Stanley Wood Products 100,000Retained Earnings, January 1 90,000Differential 30,000 Investment in Stanley Wood Products Stock 176,000 Noncontrolling Interest 44,000 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)

E(4) Buildings and Equipment 50,000 Accumulated Depreciation 20,000 Differential 30,000 Assign beginning differential.


E(6) Accounts Payable 10,000 Cash and Receivables 10,000 Eliminate intercorporate receivable/payable.

5-76

5-77

P5-34 (continued)

c. Master Corporation and Stanley Wood Products CompanyConsolidation Workpaper

December 31, 20X5

Master Stanley Eliminations Consol- Item Corp. Wood Debit Credit idated

Sales 200,000 100,000 300,000 Income from Subsidiary 20,000 _______ (1) 20,000 Credits 220,000 100,000 300,000 Cost of Goods Sold 120,000 50,000 170,000 Depreciation Expense 25,000 15,000 (5) 5,000 45,000 Inventory Losses 15,000 5,000 20,000 Debits (160,000) (70,000) (235,000 )Consolidated Net Income 65,000 Income to Noncon- trolling Interest (2) 5,000 (5,000 )Income, carry forward 60,000 30,000 30,000 60,000




Cash and Receivables 81,000 65,000 (6) 10,000 136,000 Inventory 260,000 90,000 350,000 Land 80,000 80,000 160,000 Buildings and Equipment 500,000 150,000 (4) 50,000 700,000 Investment in Stanley Wood Products Stock 188,000 (1) 12,000

(3)176,000Differential (3) 30,000 (4) 30,000 Debits 1,109,000 385,000 1,346,000


Accounts Payable 60,000 20,000 (6) 10,000 70,000 Notes Payable 200,000 50,000 250,000 Common Stock Master Corporation 300,000 300,000 Stanley Wood Products 100,000 (3)100,000Retained Earnings, from above 344,000 110,000 120,000 10,000 344,000 Noncontrolling Interest (2) 3,000

(3) 44,000 47,000 Credits 1,109,000 385,000 310,000 310,000 1,346,000

5-78

P5-35 Comprehensive Problem: Differential Apportionment

a. Journal entries recorded by Mortar Corporation:

(1) Investment in Granite Company Stock 173,000 Cash 173,000 Purchase of Granite Company stock.

(2) Cash 16,000 Investment in Granite Company Stock 16,000 Record dividends from Granite Company: $20,000 x .80

(3) Investment in Granite Company Stock 48,000 Income from Subsidiary 48,000 Record equity-method income: $60,000 x .80

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

5-79

P5-35 (continued)


E(1) Income from Subsidiary 45,000 Dividends Declared 16,000 Investment in Granite Company Stock 29,000 Eliminate income from subsidiary.

E(2) Income to Noncontrolling Interest 11,250 Dividends Declared 4,000 Noncontrolling Interest 7,250 Assign income to noncontrolling interest: $11,250 = [$60,000 – ($41,250 / 11)] x .20

E(3) Common Stock — Granite Company 50,000Retained Earnings, January 1 100,000Differential 66,250 Investment in Granite Company Stock 173,000 Noncontrolling Interest 43,250 Eliminate beginning investment balance: $66,250 = ($173,000 + $43,250) - $150,000

E(4) Goodwill 25,000Buildings and Equipment 41,250 Differential 66,250 Assign beginning differential: $41,250 = $191,250 - $150,000 $25,000 = $66,250 - $41,250

E(5) Depreciation Expense 3,750 Accumulated Depreciation 3,750 Amortize differential related to depreciable assets: $41,250 / 11 years

E(6) Accounts Payable 16,000 Accounts Receivable 16,000 Eliminate intercorporate receivable/payable.

5-80

P5-35 (continued)

c. Mortar Corporation and Granite CompanyConsolidation Workpaper

December 31, 20X7

Mortar Granite Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 700,000 400,000 1,100,000 Income from Subsidiary 45,000 (1) 45,000 Credits 745,000 400,000 1,100,000 Cost of Goods Sold 500,000 250,000 750,000 Depreciation Expense 25,000 15,000 (5) 3,750 43,750 Other Expenses 75,000 75,000 150,000 Debits (600,000) (340,000) (943,750 )Consolidated Net Income 156,250 Income to Noncon- trolling Interest (2) 11,250 (11,250 )Income, carry forward 145,000 60,000 60,000 145,000




Cash 38,000 25,000 63,000 Accounts Receivable 50,000 55,000 (6) 16,000 89,000 Inventory 240,000 100,000 340,000 Land 80,000 20,000 100,000 Buildings and Equipment 500,000 150,000 (4) 41,250 691,250 Investment in Granite Company Stock 202,000 (1) 29,000

(3) 173,000Differential (3) 66,250 (4) 66,250Goodwill (4) 25,000 25,000 Debits 1,110,000 350,000 1,308,250

Accum. Depreciation 155,000 75,000 (5) 3,750 233,750 Accounts Payable 70,000 35,000 (6) 16,000 89,000 Mortgages Payable 200,000 50,000 250,000 Common Stock Mortar Corporation 300,000 300,000 Granite Company 50,000 (3) 50,000Retained Earnings, from above 385,000 140,000 160,000 20,000 385,000 Noncontrolling Interest (2) 7,250

(3) 43,250 50,500 Credits 1,110,000 350,000 358,500 358,500 1,308,250

5-81

5-82

P5-36 Comprehensive Problem: Differential Apportionment in Subsequent Period.

a. Journal entries recorded by Mortar Corporation:

(1) Cash 20,000 Investment in Granite Company Stock 20,000 Record dividends from Granite Company: $20,000 = $25,000 x .80

(2) Investment in Granite Company Stock 36,000 Income from Subsidiary 36,000 Record equity-method income: $45,000 x .80

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

P5-36 (continued)


E(1) Income from Subsidiary 33,000 Dividends Declared 20,000 Investment in Granite Company Stock 13,000 Eliminate income from subsidiary.

E(2) Income to Noncontrolling Interest 6,050 Dividends Declared 5,000 Noncontrolling Interest 1,050 Assign income to noncontrolling interest: $6,050 = ($45,000 - $3,750 - $11,000) x .20

E(3) Common Stock — Granite Company 50,000Retained Earnings, January 1 140,000Differential 62,500 Investment in Granite Company Stock 202,000 Noncontrolling Interest 50,500 Eliminate beginning investment balance: $66,250 Differential at acquisition (3,750 ) Depreciation in 20X7 $62,500 Unamortized differential Jan. 1, 20X8

E(4) Goodwill 25,000Buildings and Equipment 41,250 Differential 62,500 Accumulated Depreciation 3,750 Assign beginning differential.

E(5) Depreciation Expense 3,750 Accumulated Depreciation 3,750 Amortize differential related to depreciable assets.

E(6) Goodwill Impairment Loss 11,000 Goodwill 11,000 Impairment of goodwill.

E(7) Accounts Payable 9,000 Accounts Receivable 9,000 Eliminate intercorporate receivable/payable.

P5-36 (continued)

c. Mortar Corporation and Granite CompanyConsolidation Workpaper

December 31, 20X8

Mortar Granite Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 650,000 470,000 1,120,000 Income from Subsidiary 33,000 (1) 33,000 Credits 683,000 470,000 1,120,000 Cost of Goods Sold 490,000 310,000 800,000 Depreciation Expense 25,000 15,000 (5) 3,750 43,750 Goodwill Impairment Loss (6) 11,000 11,000 Other Expenses 62,000 100,000 162,000 Debits (577,000) (425,000) (1,016,750)Consolidated Net Income 103,250 Income to Noncon- trolling Interest (2) 6,050 (6,050 )Income, carry forward 106,000 45,000 53,800 97,200

Ret. Earnings, Jan. 1 385,000 140,000 (3)140,000 385,000 Income, from above 106,000 45,000 53,800 97,200



Cash 59,000 31,000 90,000 Accounts Receivable 83,000 71,000 (7) 9,000 145,000 Inventory 275,000 118,000 393,000 Land 80,000 30,000 110,000 Buildings and Equipment 500,000 150,000 (4) 41,250 691,250 Investment in Granite Company Stock 215,000 (1) 13,000

(3)202,000Differential (3) 62,500 (4) 62,500Goodwill (4) 25,000 (6) 11,000 14,000 Debits 1,212,000 400,000 1,443,250


Accounts Payable 86,000 30,000 (7) 9,000 107,000 Mortgages Payable 200,000 70,000 270,000 Common Stock Mortar Corporation 300,000 300,000 Granite Company 50,000 (3) 50,000Retained Earnings, from above 446,000 160,000 193,800 25,000 437,200 Noncontrolling Interest (2) 1,050

(3) 50,500 51,550 Credits 1,212,000 400,000 381,550 381,550 1,443,250

P5-37 Subsidiary with Other Comprehensive Income in Year of Acquisition


E(1) Income from Subsidiary 15,000 Dividends Declared 9,000 Investment in Sparta Company Stock 6,000 Eliminate income from subsidiary.


E(3) Other Comprehensive Income from Subsidiary —Unrealized Gain on Investments (OCI) 6,000 Investment in Sparta Company Stock 6,000 Eliminate other comprehensive income from subsidiary.

E(4) Other Comprehensive Income toNoncontrolling Interest 4,000 Noncontrolling Interest 4,000 Assign other comprehensive income to noncontrolling interest.

E(5) Common Stock — Sparta Company 100,000Retained Earnings, January 1 60,000 Investment in Sparta Company Stock 96,000 Noncontrolling Interest 64,000 Eliminate beginning investment balance.

P5-37 (continued)

b. Amber Corporation and Sparta CompanyConsolidation Workpaper

December 31, 20X8

Amber Sparta Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 220,000 148,000 368,000 Income from Subsidiary 15,000 (1) 15,000 Credits 235,000 148,000 368,000 Cost of Goods Sold 150,000 110,000 260,000 Depreciation Expense 30,000 10,000 40,000 Interest Expense 8,000 3,000 11,000 Debits (188,000) (123,000) (311,000)Consolidated Net Income 57,000 Income to Noncon- trolling Interest (2) 10,000 (10,000 )Income, carry forward 47,000 25,000 25,000 47,000




Cash 27,000 8,000 35,000 Accounts Receivable 65,000 22,000 87,000 Inventory 40,000 30,000 70,000 Buildings and Equipment 500,000 235,000 735,000 Investment in Row Company Securities 40,000 40,000 Investment in Sparta Company Stock 108,000 (1) 6,000

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

Debits 740,000 335,000 967,000

P5-37 (continued)


Accum. Depreciation 140,000 85,000 225,000 Accounts Payable 63,000 20,000 83,000 Bonds Payable 100,000 50,000 150,000 Common Stock Amber Corporation 200,000 200,000 Sparta Company 100,000 (5)100,000Retained Earnings, from above 231,000 70,000 85,000 15,000 231,000 Accumulated OtherComprehensive Income, from below 6,000 10,000 10,000 6,000 NoncontrollingInterest (2) 4,000

(4) 4,000 (5) 64,000 72,000

Credits 740,000 335,000 195,000 195,000 967,000

Other Comprehensive Income: OCI from Subsidiary — Unrealized Gain on Investments 6,000 (3) 6,000 Unrealized Gain on Investments 10,000 10,000 Other Comprehensive Income to Noncon- trolling Interest (4) 4,000 (4,000 )Accumulated Other Comprehensive Income, December 31, carry up 6,000 10,000 10,000 6,000

P5-37 (continued)

c. Amber Corporation and SubsidiaryConsolidated Balance Sheet

December 31, 20X8

Cash $ 35,000 Accounts Receivable 87,000 Inventory 70,000 Buildings and Equipment $735,000 Less: Accumulated Depreciation (225,000) 510,000 Investment in Marketable Securities 40,000 Total Assets $742,000

Accounts Payable $ 83,000 Bonds Payable 150,000 Stockholders’ Equity: Controlling Interest: Common Stock $200,000 Retained Earnings 231,000 Accumulated Other Comprehensive Income 6,000 Total Controlling Interest $437,000 Noncontrolling Interest 72,000 Total Stockholders’ Equity 509,000 Total Liabilities and Stockholders' Equity $742,000

Amber Corporation and SubsidiaryConsolidated Income StatementYear Ended December 31, 20X8

Sales $368,000 Cost of Goods Sold $260,000 Depreciation Expense 40,000 Interest Expense 11,000 Total Expenses (311,000 )Consolidated Net Income $ 57,000 Income to Noncontrolling Interest (10,000 )Income to Controlling Interest $ 47,000

Amber Corporation and SubsidiaryConsolidated Statement of Comprehensive Income


Consolidated Net Income $57,000 Other Comprehensive Income: Unrealized Gain on Investments Held by Subsidiary 10,000 Total Consolidated Comprehensive Income $67,000 Less: Comprehensive Income Attributable to Noncontrolling Interest (14,000 )Comprehensive Income Attributable to Controlling Interest $53,000

P5-38 Subsidiary with Other Comprehensive Income in Year FollowingAcquisition


E(1) Income from Subsidiary 18,000 Dividends Declared 12,000 Investment in Sparta Company Stock 6,000 Eliminate income from subsidiary.


E(3) Other Comprehensive Income from Subsidiary —Unrealized Gain on Investments (OCI) 2,400 Investment in Sparta Company Stock 2,400 Eliminate other comprehensive income from subsidiary.

E(4) Other Comprehensive Income to Noncontrolling Interest 1,600 Noncontrolling Interest 1,600 Assign other comprehensive income to noncontrolling interest.

E(5) Common Stock — Sparta Company 100,000Retained Earnings, January 1 70,000Accumulated Other Comprehensive Income 10,000 Investment in Sparta Company Stock 108,000 Noncontrolling Interest 72,000 Eliminate beginning investment balance.

P5-38 (continued)

b. Amber Corporation and Sparta CompanyConsolidation Workpaper

December 31, 20X9


Sales 250,000 140,000 390,000 Income from Subsidiary 18,000 (1) 18,000 Credits 268,000 140,000 390,000 Cost of Goods Sold 170,000 97,000 267,000 Depreciation Expense 30,000 10,000 40,000 Interest Expense 8,000 3,000 11,000 Debits (208,000) (110,000) (318,000 )Consolidated Net Income 72,000 Income to Noncon- trolling Interest (2) 12,000 (12,000 )Income, carry forward 60,000 30,000 30,000 60,000




Cash 18,000 11,000 29,000 Accounts Receivable 45,000 21,000 66,000 Inventory 40,000 30,000 70,000 Buildings and Equipment 585,000 257,000 842,000 Investment in Row Company Securities 44,000 44,000 Investment in Sparta Company Stock 116,400 (1) 6,000

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

Debits 804,400 363,000 1,051,000

5-94

5-95

P5-38 (continued)


Accum. Depreciation 170,000 95,000 265,000 Accounts Payable 75,000 24,000 99,000 Bonds Payable 100,000 50,000 150,000 Common Stock Amber Corporation 200,000 200,000 Sparta Company 100,000 (5)100,000Retained Earnings, from above 251,000 80,000 100,000 20,000 251,000 Accumulated OtherComprehensive Income, from below 8,400 14,000 14,000 8,400 NoncontrollingInterest (2) 4,000

(4) 1,600 (5) 72,000 77,600

Credits 804,400 363,000 214,000 214,000 1,051,000

Other Comprehensive Income: OCI from Subsidiary — Unrealized Gain on Investments 2,400 (3) 2,400 Unrealized Gain on Investments 4,000 4,000 Other Comprehensive Income to Noncon- trolling Interest (4) 1,600 (1,600) Accumulated Other Comprehensive Income, January 1 6,000 10,000 (5) 10,000 6,000 Accumulated Other Comprehensive Income December 31, carry up 8,400 14,000 14,000 8,400

5-96

5-97

P5-39 Income and Retained Earnings – Prior Procedures

a. Net income for 20X9:

Quill North Operating income $ 90,000 $35,000 Income from subsidiary 24,500 - Net income $114,500 $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 North Retained earnings, January 1, 20X9 $290,000 $40,000 Net income for 20X9 114,500 35,000 Dividends paid in 20X9 (30,000 ) (10,000 )Retained earnings, December 31, 20X9 $374,500 $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.

5-98

P5-40 Majority-Owned Subsidiary Acquired at Greater than Book Value – Prior Procedures


E(1) Common Stock – Darla Corporation 40,000Retained Earnings 85,000Differential 14,700 Investment in Darla Corporation Stock 102,200 Noncontrolling Interest 37,500 Eliminate investment balance: $14,700 = $102,200 - .70 x ($40,000 + $85,000)



5-99

P5-40 (continued)

b. Porter Corporation and Darla CorporationConsolidated Balance Sheet Workpaper

December 31, 20X4

Porter Darla Eliminations Consol- Item Corp. Corp. Debit Credit idated

Cash 50,300 21,000 71,300Accounts Receivable 90,000 44,000 (3) 12,500 121,500Inventory 130,000 75,000 (2) 4,200 209,200Land 60,000 30,000 90,000Buildings and Equipment 410,000 250,000 (2) 10,500 670,500Investment in Darla Corporation Stock 102,200 (1)102,200Differential (1) 14,700 (2) 14,700 Total Debits 842,500 420,000 1,162,500

Accumulated Depreciation 150,000 80,000 230,000Accounts Payable 152,500 35,000 (3) 12,500 175,000Mortgage Payable 250,000 180,000 430,000Common Stock 80,000 Porter Corporation 80,000 Darla Corporation 40,000 (1) 40,000Retained Earnings 210,000 85,000 (1) 85,000 210,000Noncontrolling Interest (1) 37,500 37,500 Total Credits 842,500 420,000 166,900 166,900 1,162,500

c. Porter Corporation and SubsidiaryConsolidated Balance Sheet

December 31, 20X4

Cash $ 71,300Accounts Receivable 121,500Inventory 209,200Land 90,000Buildings and Equipment $670,500 Less: Accumulated Depreciation (230,000) 440,500 Total Assets $932,500

Accounts Payable $175,000Mortgage Payable 430,000Stockholders’ Equity: Controlling Interest: Common Stock $ 80,000 Retained Earnings 210,000 Total Controlling Interest 290,000 Noncontrolling Interest 37,500 Total Stockholders’ Equity 327,500 Total Liabilities and Stockholders' Equity $932,500

5-100

5-101

P5-41 Consolidation Workpaper at End of First Year of Ownership – Prior Procedures


E(1) Income from Subsidiary 16,500 Dividends Declared 12,000 Investment in Best Company Stock 4,500 Eliminate income from subsidiary.


E(3) Common Stock — Best Company 60,000Retained Earnings, January 1 40,000Differential 21,000 Investment in Best Company Stock 96,000 Noncontrolling Interest 25,000 Eliminate beginning investment balance: $21,000 = $96,000 – (.75 x $100,000)


E(5) Depreciation Expense 1,500 Accumulated Depreciation 1,500 Amortize differential: $1,500 = $15,000 / 10 years

E(6) Goodwill Impairment Loss 3,500 Goodwill 3,500 Write down goodwill for impairment.

5-102

5-103

P5-41 (continued)


December 31, 20X8


Sales 260,000 180,000 440,000 Income from Subsidiary 16,500 (1) 16,500 Credits 276,500 180,000 440,000 Cost of Goods Sold 125,000 110,000 235,000 Wage Expense 42,000 27,000 69,000 Depreciation Expense 25,000 10,000 (5) 1,500 36,500 Interest Expense 12,000 4,000 16,000 Other Expenses 13,500 5,000 18,500 Goodwill Impairment Loss (6) 3,500 3,500 Debits (217,500) (156,000) (378,500)

61,500 Income to Noncon- trolling Interest (2) 6,000 (6,000 )Income, carry forward 59,000 24,000 27,500 55,500





(3) 96,000Differential (3) 21,000 (4) 21,000Goodwill (4) 6,000 (6) 3,500 2,500 Debits 688,000 223,000 828,000

5-104

P5-41 (continued)


Accum. Depreciation 145,000 40,000 (5) 1,500 186,500Accounts Payable 45,000 16,000 61,000Wages Payable 17,000 9,000 26,000Notes Payable 150,000 50,000 200,000Common Stock Power Corporation 200,000 200,000 Best Company 60,000 (3) 60,000Retained Earnings, from above 131,000 48,000 67,500 16,000 127,500Noncontrolling Interest (2) 2,000

(3) 25,000 27,000 Credits 688,000 223,000 169,500 169,500 828,000

5-105

5-106

P5-42 Consolidation Workpaper at End of Second Year of Ownership – Prior Procedures



E(2) Income to Noncontrolling Interest 9,000 Dividends Declared 5,000 Noncontrolling Interest 4,000 Assign income to noncontrolling interest: $9,000 = $36,000 x .25

E(3) Common Stock — Best Company 60,000Retained Earnings, January 1 51,500Differential 16,000 Investment in Best Company Stock 100,500 Noncontrolling Interest 27,000 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

E(4) Buildings and Equipment 15,000Goodwill 2,500 Differential 16,000 Accumulated Depreciation 1,500 Assign beginning differential.


McGraw-Hill/Irwin© The McGraw-Hill Companies, Inc., 2005

107

5-108

P5-42 (continued)


December 31, 20X9


Sales 290,000 200,000 490,000 Income from Subsidiary 25,500 (1) 25,500 Credits 315,500 200,000 490,000 Cost of Goods Sold 145,000 114,000 259,000 Wage Expense 35,000 20,000 55,000 Depreciation Expense 25,000 10,000 (5) 1,500 36,500 Interest Expense 12,000 4,000 16,000 Other Expenses 23,000 16,000 39,000 Debits (240,000) (164,000) (405,500)

84,500 Income to Noncon- trolling Interest (2) 9,000 (9,000 )Income, carry forward 75,500 36,000 36,000 75,500





(3)100,500Differential (3) 16,000 (4) 16,000Goodwill (4) 2,500 2,500 Debits 761,500 245,000 913,000

5-109

P5-42 (continued)



Accounts Payable 51,000 15,000 66,000Wages Payable 14,000 6,000 20,000Notes Payable 150,000 50,000 200,000Common Stock Power Corporation 200,000 200,000 Best Company 60,000 (3) 60,000Retained Earnings, from above 176,500 64,000 87,500 20,000 173,000Noncontrolling Interest (2) 4,000

(3) 27,000 31,000 Credits 761,500 245,000 181,000 181,000 913,000

5-110

5-111

P5-42 (continued)

c. Power Corporation and SubsidiaryConsolidated Balance Sheet

December 31, 20X9

Cash $100,500 Accounts Receivable 99,000 Inventory 121,000 Land 75,000 Buildings and Equipment $515,000 Less: Accumulated Depreciation (223,000) 292,000 Goodwill 2,500 Total Assets $690,000

Accounts Payable $ 66,000 Wages Payable 20,000 Notes Payable 200,000 Stockholders’ Equity: Controlling Interest: Common Stock $200,000 Retained Earnings 173,000 Total Controlling Interest $373,000 Noncontrolling Interest 31,000 Total Stockholders’ Equity 404,000 Total Liabilities and Stockholders' Equity $690,000

Power Corporation and SubsidiaryConsolidated Income StatementYear Ended December 31, 20X9

Sales $490,000 Cost of Goods Sold $259,000 Wage Expense 55,000 Depreciation Expense 36,500 Interest Expense 16,000 Other Expenses 39,000 Total Expenses (405,500 )

$ 84,500 Income to Noncontrolling Interest (9,000 )Consolidated Net Income $ 75,500

Power Corporation and SubsidiaryConsolidated Retained Earnings Statement


Retained Earnings, January 1, 20X9 $127,500 Consolidated Net Income 75,500

$203,000 Dividends Declared, 20X9 (30,000 )

5-112

Retained Earnings, December 31, 20X9 $173,000

5-113

P5-43A Cost-Method Workpaper with Differential



E(2) Common Stock — Star Company 150,000Retained Earnings, January 1 50,000Differential 20,000 Investment in Star Company Stock 220,000 Eliminate investment balance at date of acquisition: $20,000 = $220,000 - $150,000 - $50,000

E(3) Goodwill 20,000 Differential 20,000 Assign differential at date of acquisition.

E(4) Goodwill Impairment Loss 12,000 Goodwill 12,000 Record impairment of goodwill.

5-114

5-115

P5-43A (continued)

Light Corporation and Star CompanyConsolidated Workpaper

December 31, 20X5

Light Star Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 300,000 150,000 450,000 Dividend Income 10,000 (1) 10,000 Credits 310,000 150,000 450,000 Cost of Goods Sold 210,000 85,000 295,000 Depreciation Expense 25,000 20,000 45,000 Goodwill Impairment Loss (4) 12,000 12,000 Other Expenses 23,000 25,000 48,000 Debits (258,000) (130,000) (400,000)Income, carry forward 52,000 20,000 22,000 50,000


282,000 70,000 280,000 Dividends Declared (20,000 ) (10,000 ) (1) 10,000 (20,000 )Ret. Earnings, Dec. 31,carry forward 262,000 60,000 72,000 10,000 260,000

Cash 37,000 20,000 57,000 Accounts Receivable 50,000 30,000 80,000 Inventory 70,000 60,000 130,000 Buildings and Equipment 300,000 240,000 540,000 Investment in Star Company Stock 220,000 (2)220,000Differential (2) 20,000 (3) 20,000Goodwill (3) 20,000 (4) 12,000 8,000 Debits 677,000 350,000 815,000

Accum. Depreciation 105,000 65,000 170,000 Accounts Payable 40,000 20,000 60,000 Taxes Payable 70,000 55,000 125,000 Common Stock Light Corporation 200,000 200,000 Star Company 150,000 (2)150,000Retained Earnings, from above 262,000 60,000 72,000 10,000 260,000 Credits 677,000 350,000 262,000 262,000 815,000

5-116

P5-44A Cost-Method Consolidation in Subsequent Period



E(2) Common Stock — Star Company 150,000Retained Earnings, January 1 62,000Differential 8,000 Investment in Star Company Stock 220,000 Eliminate investment balance at date of acquisition: $62,000 = $50,000 + $12,000 (goodwill impairment) $8,000 = $20,000 - $12,000

E(3) Goodwill 8,000 Differential 8,000 Assign differential at beginning of year.

5-117

P5-44A (continued)

Light Corporation and Star CompanyConsolidated Workpaper

December 31, 20X6

Light Star Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 350,000 200,000 550,000 Dividend Income 20,000 (1) 20,000 Credits 370,000 200,000 550,000 Cost of Goods Sold 270,000 135,000 405,000 Depreciation Expense 25,000 20,000 45,000 Other Expenses 21,000 10,000 31,000 Debits (316,000) (165,000) (481,000)Income, carry forward 54,000 35,000 20,000 69,000


316,000 95,000 329,000 Dividends Declared (20,000 ) (20,000 ) (1) 20,000 (20,000 )Ret. Earnings, Dec. 31, carry forward 296,000 75,000 82,000 20,000 309,000

Cash 46,000 30,000 76,000 Accounts Receivable 55,000 40,000 95,000 Inventory 75,000 65,000 140,000 Buildings and Equipment 300,000 240,000 540,000 Investment in Star Company Stock 220,000 (2)220,000Differential (2) 8,000 (3) 8,000Goodwill (3) 8,000 8,000 Debits 696,000 375,000 859,000

Accum. Depreciation 130,000 85,000 215,000 Accounts Payable 20,000 30,000 50,000 Taxes Payable 50,000 35,000 85,000 Common Stock Light Corporation 200,000 200,000 Star Company 150,000 (2)150,000Retained Earnings, from above 296,000 75,000 82,000 20,000 309,000 Credits 696,000 375,000 248,000 248,000 859,000

5-118

5-119

P5-45A Cost-Method Consolidation of Majority-Owned Subsidiary



E(2) Income to Noncontrolling Interest 12,000 Dividends Declared 4,000 Noncontrolling Interest 8,000 Assign income to noncontrolling interest: $12,000 = $60,000 x .20

E(3) Common Stock — Rapid Delivery 50,000Retained Earnings, January 1 100,000 Investment in Rapid Delivery Stock 120,000 Noncontrolling Interest 30,000 Eliminate investment balance at date of acquisition.

5-120

P5-45A (continued)

Samuelson Company and Rapid Delivery CorporationConsolidation Workpaper

December 31, 20X6

Samuelson Rapid Eliminations Consol- Item Company Delivery Debit Credit idated

Sales 700,000 400,000 1,100,000 Dividend Income 16,000 (1) 16,000 Credits 716,000 400,000 1,100,000 Cost of Goods Sold 500,000 250,000 750,000 Depreciation Expense 25,000 15,000 40,000 Wage Expenses 45,000 35,000 80,000 Other Expenses 30,000 40,000 70,000 Debits (600,000) (340,000) (940,000 )Consolidated Net Income 160,000 Income to Noncon- trolling Interest (2) 12,000 (12,000 )Income, carry forward 116,000 60,000 28,000 148,000

Ret. Earnings, Jan. 1 290,000 100,000 (3)100,000 290,000 Income, from above 116,000 60,000 28,000 148,000



Cash and Receivables 141,000 80,000 221,000 Inventory 240,000 100,000 340,000 Land 80,000 20,000 100,000 Buildings and Equipment 500,000 150,000 650,000 Investment in Rapid Delivery Stock 120,000 (3)120,000 Debits 1,081,000 350,000 1,311,000

Accum. Depreciation 155,000 75,000 230,000 Accounts Payable 70,000 35,000 105,000 Notes Payable 200,000 50,000 250,000 Common Stock Samuelson Company 300,000 300,000 Rapid Delivery 50,000 (3) 50,000Retained Earnings, from above 356,000 140,000 128,000 20,000 388,000 Noncontrolling Interest (2) 8,000

(3) 30,000 38,000 Credits 1,081,000 350,000 178,000 178,000 1,311,000

5-121

P5-45A (continued)

Samuelson Company and SubsidiaryConsolidated Balance Sheet

December 31, 20X6

Cash and Receivables $ 221,000 Inventory 340,000 Land 100,000 Buildings and Equipment $650,000 Less: Accumulated Depreciation (230,000) 420,000 Total Assets $1,081,000

Accounts Payable $ 105,000 Notes Payable 250,000 Stockholders’ Equity: Controlling Interest: Common Stock $300,000 Retained Earnings, 388,000 Total Controlling Interest $688,000 Noncontrolling Interest 38,000 Total Stockholders’ Equity 726,000 Total Liabilities and Stockholders' Equity $1,081,000

Samuelson Company and SubsidiaryConsolidated Income StatementYear Ended December 31, 20X6

Sales $1,100,000 Cost of Goods Sold $750,000 Depreciation Expense 40,000 Wage Expense 80,000 Other Expenses 70,000 Total Expenses (940,000 )Consolidated Net Income $ 160,000 Income to Noncontrolling Interest (12,000 )Income to Controlling Interest $ 148,000

Samuelson Company and SubsidiaryConsolidated Retained Earnings Statement


Retained Earnings, January 1, 20X6 $ 290,000 Income to Controlling Interest, 20X6 148,000

$ 438,000 Dividends Declared, 20X6 (50,000 )Retained Earnings, December 31, 20X6 $ 388,000

5-122

P5-46A Comprehensive Cost-Method Consolidation Problem

a. Journal entry recorded by Master Corporation:

Cash 8,000 Dividend Income 8,000



E(2) Income to Noncontrolling Interest 5,000 Dividends Declared 2,000 Noncontrolling Interest 3,000 Assign income to noncontrolling interest. $5,000 = [$30,000 – ($50,000 / 10 years)] x .20

E(3) Common Stock — Stanley Wood Products 100,000Retained Earnings, January 1 50,000Differential 50,000 Investment in Stanley Wood Products Stock 160,000 Noncontrolling Interest 40,000 Eliminate investment balance at date of acquisition.

E(4) Retained Earnings, January 1 8,000 Noncontrolling Interest 8,000 Assign undistributed prior earnings of subsidiary to noncontrolling interest: ($90,000 - $50,000) x .20

E(5) Buildings and Equipment 50,000 Differential 50,000 Assign differential at date of acquisition.

E(6) Retained Earnings, January 1 16,000Noncontrolling Interest 4,000 Accumulated Depreciation 20,000 Enter differential amortization of prior years: ($50,000 / 10) x 4 years


E(8) Accounts Payable 10,000 Cash and Receivables 10,000 Eliminate intercorporate receivable/payable.

5-123

P5-46A (continued)

c. Master Corporation and Stanley Wood Products CompanyConsolidation Workpaper

December 31, 20X5

Master Stanley Eliminations Consol- Item Corp. Wood Debit Credit idated

Sales 200,000 100,000 300,000 Dividend Income 8,000 (1) 8,000 Credits 208,000 100,000 300,000 Cost of Goods Sold 120,000 50,000 170,000 Depreciation Expense 25,000 15,000 (7) 5,000 45,000 Inventory Losses 15,000 5,000 20,000 Debits (160,000) (70,000) (235,000 )Consolidated Net Income 65,000 Income to Noncon- trolling Interest (2) 5,000 (5,000 )Income, carry forward 48,000 30,000 18,000 60,000

Ret. Earnings, Jan. 1 298,000 90,000 (3) 50,000(4) 8,000(6) 16,000 314,000

Income, from above 48,000 30,000 18,000 60,000 346,000 120,000 374,000

Dividends Declared (30,000) (10,000) (1) 8,000 (2) 2,000 (30,000 )

Ret. Earnings, Dec. 31, carry forward 316,000 110,000 92,000 10,000 344,000

Cash and Receivables 81,000 65,000 (8) 10,000 136,000 Inventory 260,000 90,000 350,000 Land 80,000 80,000 160,000 Buildings and Equipment 500,000 150,000 (5) 50,000 700,000 Investment in Stanley Wood Products Stock 160,000 (3)160,000Differential (3) 50,000 (5) 50,000 Debits 1,081,000 385,000 1,346,000


Accounts Payable 60,000 20,000 (8) 10,000 70,000 Notes Payable 200,000 50,000 250,000 Common Stock Master Corporation 300,000 300,000 Stanley Wood 100,000 (3)100,000Retained Earnings, from above 316,000 110,000 92,000 10,000 344,000 Noncontrolling Interest (6) 4,000 (2) 3,000

(3) 40,000 (4) 8,000 47,000

Credits 1,081,000 385,000 306,000 306,000 1,346,000

5-124

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