Exercise 8-2January 1, 2011

Investment in Serbin Company 220,000Cash 220,000

Note: The $9,333 transfer to paid in capital is handled in consolidation.

April 1, 2011Cash 260,000

Investment in Serbin Company ((21,600/72,000)$490,000) 147,000Additional Contributed Capital 113,000

September 30, 2011

Cash 16,750Dividend Income (.67*$25,000) 16,750* .67 = (72,000 + 30,000 -21,600)120,000

Exercise 8-5Part A 2010

Investment in Serbin Company 490,000Cash 490,000

Cash 12,000Investment in Serbin Company (.60$20,000 subsidiary dividend) 12,000

Investment in Serbin Company 27,600Equity in Subsidiary Income (.60 $46,000 subsidiary income) 27,600

2011

Investment in Serbin Company 210,667Additional Paid in Capital – Papke Company a 9,333

Cash 220,000

a Price paid for 25% interest 220,000 Less interest acquired:

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Common Stock (25% x 600,000) 150,000Retained Earnings (25% x $201,000) 50,250Goodwill (25% x $41,667) 10,417 (210,667 )*

Adjustment to Additional Contributed Capital – Papke 9,333

* or 25% of the total carrying value of Serbin Company, or ($490,000/.60) plus the change in retained earnings for 2008 of $26,000), or (25%)($842,667) = $210,667.

Investment in Serbin Company 12,750Equity in Subsidiary Income (.85$15,000 income for 1st three months) 12,750

Cash 260,000Investment in Serbin Company* 154,380Additional Contributed Capital 105,620

Cost of first purchase (60%) $490,0002010 subsidiary income (.60$46,000) 27,6002010 subsidiary dividends (.60$20,000) (12,000)2011 subsidiary income to April 1 (.60$15,000) 9,000Total 514,600Portion sold (21,600/72,000) .30 Carrying value of investment sold $154,380

Cash 16,750Investment in Serbin Company (.67** $25,000 subsidiary dividend) 16,750** .67 =(72,000 + 30,000 -21,600)120,000

Investment in Serbin Company 30,150Equity in Subsidiary Income [.67($60,000 - $15,000)] 30,150

Part B Equity in Subsidiary Income ($12,750 + $30,150) 42,900Subsidiary Income Sold ($15,000 .60 .30) 2,700Dividends Declared – Serbin ($25,000 .67) 16,750Investment in Serbin Company 23,450

Common Stock - Serbin 600,0001/1 Retained Earnings – Serbin 201,000Difference between Implied and Book Value 41,667

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Investment in Serbin Company 564,587Noncontrolling interest b 278,080

Goodwill 41,667Difference between Implied and Book Value 41,667

Computation and Allocation of Difference between Implied and Book Value Acquired

Parent Non- EntireShare Controlling Value

SharePurchase price and implied value $490,000 326,667 816,667Less: Book value of equity acquired: Common Stock (360,000) (240,000) (600,000)Retained Earnings (105,000) (70,000) (175,000)

Difference between implied and book value 25,000 16,667 41,667Goodwill (25,000) (16,667) ( 41,667) Balance - 0 - - 0 - - 0 -

a Price paid for 25% interest 220,000 Less interest acquired:

Common Stock (25% × 600,000) 150,000Retained Earnings (25% × $201,000) 50,250Goodwill (25% × $41,667) 10,417 (210,667 )

Adjustment to Additional Contributed Capital – Papke 9,333

b 33% × 816,667 + 33% × ($201,000-$175,00) = $278,080 or

$326,667 – $210,667 + 40% × ($201,000-$175,000) + $154,380 - $2,700 = $278,080

Problem 8-3 PYLE COMPANY AND SUBSIDIARYConsolidated Statements Workpaper

For the Year Ended December 31, 2011

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Pyle Stern Eliminations Noncontrolling ConsolidatedCompany Company Dr. Cr. Interest Balances

Income StatementIncome before Dividend Income* $172,000 $186,000 $358,000Dividend Income 48,000 (1) 48,000

Net/Consolidated Income 220,000 186,000 358,000Subsidiary Income Sold (3) 2,325 2,325

Noncontrolling Interest in Income (.2 $186,000) 37,200 (37,200)Net Income to Retained Earnings $220,000 $186,000 48,000 2,325 37,200 $323,125

Retained Earnings StatementRetained Earnings, 1/1:

Pyle Company $1,200,000 (2) 8,600(4)137,600 1,346,200

Stern Company 292,000 (5) 292,000Net Income from above 220,000 186,000 48,000 2,325 37,200 323,125Dividends Declared:

Pyle Company (80,000) (80,000)Stern Company (60,000) (1) 48,000 (12,000)

12/31 Retained Earnings to Balance Sheet $1,340,000 $418,000 $340,000 $196,525 $25,200 $1,589,325*Reported Net Income $220,000

Less: Dividend Income (.8 $60,000) (48,000)$172,000

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Problem 8-3 (continued) Pyle Stern Eliminations Noncontrolling ConsolidatedCompany Company Dr. Cr. Interest Balances

Balance SheetCurrent Assets $600,000 $320,000 $920,000Investment in Stern Company 480,000 (4) 137,600 (5) 617,600Other Assets 1,180,000 668,000 1,848,000

Total $2,260,000 $988,000 $2,768,000

Liabilities $190,000 $90,000 $280,000Common Stock:

Pyle Company 500,000 500,000Stern Company 300,000 (5) 300,000

Other Contributed CapitalPyle Company 230,000 (2) 8,600 219,075

(3) 2,325Stern Company 180,000 (5) 180,000

Retained Earnings from above 1,340,000 418,000 340,000 196,525 25,200 1,589,3251/1 Noncontrolling Interest in Net Assets (5) 154,400 154,40012/31 Noncontrolling Interest $179,600 179,600

Total $2,260,000 $988,000 $968,525 $968,525 $2,768,000 (1) To eliminate intercompany dividends. (80% of $60,000)

(2) To adjust additional contributed capital for portion included in income in prior years 3/51 [.85 ($772,000 - $600,000)](3) To adjust additional contributed capital for current year's income sold to noncontrolling stockholders 3/51 (3/12$186,000.85)

(4) To establish reciprocity/convert to equity on shares retained (.8 ($292,000 - $120,000))(5) To eliminate investment account and create noncontrolling interest account. $510,000/.85 x.2 + ($292,000 - $120,000) x .2

Verification of Controlling interest in Consolidated Net Income:Stern company's reported income $186,000 Allocated to noncontrolling interest:

First three months ($46,500.15) $6,975 Last nine months ($139,500.2) 27,900 34,875

Allocated to controlling interest (Pyle Company) 151,125Pyle Company's Income 172,000

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Controlling interest in Consolidated Net Income $323,125

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On Pyle’s booksCash 100,000

Investment in S Company (3,000/51,000 × $510,000) 30,000Additional Contributed Capital—Pyle Company 70,000

Cost of Shares (3,000/51,000 × $510,000) $30,000Plus: Undistributed Income:(A) Change in Retained Earnings from the date of

acquisition (1/2/09) to the beginning of the year(1/1/11)($292,000 - $120,000) $172,000

Ownership percentage sold 5% 8,600(B) Earnings from beginning of current year to the

the date of sale (1/1/11 to 4/1/11)($186,000/4) 46,500Ownership percentage sold 5% 2,325

Adjusted cost of shares sold $40,925

Selling price of shares $100,000Adjusted cost of shares sold 40,925Additional paid in capital – Pyle Company $59,075Paid in capital recorded on Pyle’s books 70,000 Reduction in paid in capital needed 10,925

(1) Dividend Income 48,000Dividend Declared—Stern Company 48,000

(2) Additional Contributed Capital—Pyle Company 8,6001/1 Retained Earnings— Pyle Company 8,600(Consolidated Retained Earnings)

(3) Additional Contributed Capital— Pyle Company 2,325Subsidiary Income Sold 2,325

(4) Investment in Stern Company (.8 ($292,000 - $120,000)) 137,6001/1 Retained Earnings— Pyle Company 137,600

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To establish reciprocity on shares still owned at year-end

(5) Common Stock— Stern Company 300,000Other Contributed Capital – Stern Company 180,0001/1 Retained Earnings— Stern Company 292,000

Investment in S Company (72%) ($510,000 - $30,000 + $137,600) 617,600Noncontrolling Interest [25,000 + 28% (185,000 - 120,000) + 45,000] 154,400

Problem 8-5 PYLE COMPANY AND SUBSIDIARYConsolidated Statements Workpaper

For the Year Ended December 31, 2011

Pyle Stern Eliminations Noncontrolling ConsolidatedCompany Company Dr. Cr. Interest Balances

Income Statement

Income before Equity in Subsidiary $172,000 $186,000 $358,000Equity in Subsidiary Income 151,125 (1) 151,125Net/Consolidated Income 323,125 186,000 358,000Subsidiary Income Sold (1) 2,325 2,325Noncontrolling Interest in Income (.2 $186,000) 37,200 (37,200)Net Income to Retained Earnings $323,125 $186,000 $151,125 $2,325 $37,200 $323,125

Retained Earnings StatementRetained Earnings, 1/1:

Pyle Company $1,346,200 $1,346,200Stern Company 292,000 (2) 292,000

Net Income from above 323,125 186,000 151,125 2,325 37,200 323,125Dividends Declared:

Pyle Company (80,000) (80,000)

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Stern Company (60,000) (1) 48,000 (12,000)12/31 Retained Earnings to Balance Sheet $1,589,325 $418,000 $443,125 $50,325 $25,200 $1,589,325

* Reported Net Income $323,125 Less: Equity in Subsidiary Income ($46,500 .85*) + ($139,500 .80**) (151,125)

$172,000 * 51,000/60,000 = .85; ** (51,000 – 3,000)/60,000 = .80

Exercise 10-7

BALL COMPANYStatement of AffairsJune 30, 2009

Book Value Assets

RealizableValue

Assets Pledged with Fully Secured Creditors:$180,000 Inventory $110,000

Note Payable 100,000 $ 10,000

Assets Pledged with Partially Secured Creditors:170,000 Accounts Receivable 95,000

Note Payable 100,000

Free Assets20,400 Cash 20,400

430,000 Property and Equipment 320,000 Total Net Realizable Value 350,400 Liabilities having Priority – Wages 120,000 Net Free Assets 230,400

Estimated Deficiency to Unsecured Creditors 124,600$800,400 $355,000

Unsecure

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Equities dLiabilities Having Priority:

$120,000 Accrued Wages $120,000

Fully Secured Creditors:100,000 Note Payable $100,000

Partially Secured Creditors:100,000 Note Payable $100,000

Accounts Receivable 95,000 $ 5,000

Unsecured Creditors:350,000 Accounts Payable 350,000

Stockholders’ Equity400,000 Common Stock

(269,600) Retained Earnings (deficit)$800,400 $355,000

Exercise 10-7 (continued)

BALL COMPANYDeficiency Account

June 30, 2009

Estimated Losses: Estimated Gains:Accounts Receivable $ 75,000 Common Stock $ 400,000Inventory   70,000 Retained Earnings (269,600)Property and Equipment   110,000 Estimated Deficiency to Unsecured Creditors 124,600

$255,000 $255,000

Exercise 10-8

Part A Retained Earnings 52,700

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Allowance for Uncollectibles ($48,700 - $40,000) 8,700Property and Equipment ($142,000 - $118,000) 24,000Goodwill 20,000

To record the revaluation of assets

Common Stock - $20 par 200,000 Common Stock - $4 par ($4 10,000) 40,000 Reorganization Capital 160,000

To record the exchange of $20 par common stock for $4 par common stock.

10% Bonds Payable 130,000 Reorganization Capital 24,000

Common Stock (6,000 shares at $4 per share) 24,000 8% Bonds Payable 130,000

To record the exchange of 8% bonds and common stock for the 10% bonds.

Reorganization Capital 134,000 Retained Earnings ($81,300 + $52,700) 134,000

To eliminate the deficit in retained earnings.

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Exercise 10-8 (continued)

Part B CRANE COMPANYBalance Sheet

December 31, 2009

Cash $ 33,000Accounts Receivable $ 52,500

Less Allowance for Uncollectibles 12,500 40,000Inventory 71,000

Property and Equipment ($142,000 - $24,000) 118,000 Total Assets $262,000

Accounts Payable $ 66,0008% Bonds Payable, due 6/30/2016 130,000Common Stock, $4 par, 16,000 shares 64,000

Reorganization Capital ($160,000 – $24,000 - $134,000) 2,000Total Equities $262,000

Problem 10-2

Part A1. Allowance for Uncollectibles 16,750

Loss on Transfer of Assets 3,700 Accounts Receivable ($71,450 - $51,000) 20,450

Accounts Payable 69,000 Accounts Receivable 51,000Gain on Restructuring of Debt 18,000

2. Patents 8,000Gain on Transfer of Asset ($50,000 - $42,000) 8,000

Accounts Payable 54,000Patents 50,000

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Gain on Restructuring of Debt 4,000

3. Accrued Wages 11,900Cash 11,900

Accounts Payable ($142,700 - $69,000 - $54,000) 19,700Cash ( .6 $19,700) 11,820Gain on Restructuring of Debt 7,880

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Problem 10-2 (continued)

4. Notes Payable 57,000Accrued Interest Payable 6,000Restructured Debt – due 1/2/11 63,000

Total future cash payments:Principal $63,000Interest (6% $63,000) 2 7,560

Total 70,560Carrying value $63,000

No gain recognized

5. Notes Payable 54,400Accrued Interest Payable 11,900Restructured Debt – due 1/2/12 52,000Gain on Restructuring of Debt 14,300

Total future cash payments:Principal ($54,400 - $14,400) $40,000Interest (10% $40,000) 3 12,000

Total 52,000Carrying value ($54,400 + $11,900) 66,300Gain on Restructuring $14,300

6. Mortgage Note Payable 80,000Accrued Interest Payable 20,500Common Stock (100,000 $0.50) 50,000Paid-in Capital in Excess of Par 9,000Gain on Restructuring of Debt ($100,500 – (100,000 $.59) 41,500

7, Common Stock ($290,000 – (580,000 $.10) 232,000Retained Earnings 66,820Paid-in Capital in Excess of Par 165,180

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Retained EarningsBalance 1/2/09 156,800Gain on restructuring (1) 18,000Loss on transfer (1) 3,700Gain on transfer (2) 8,000

Gain on restructuring (2) 4,000Gain on restructuring (3) 7,880Gain on restructuring (5) 14,300Gain on restructuring (6) 41,500

Balance 66,820

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Problem 10-2 (continued)

Part B SRP COMPANYBalance Sheet

January 2, 2009

Cash ($32,200 - $11,900 - $11,820) $ 8,480Inventories 126,600

Plant and Equipment $322,000Less Accumulated Depreciation 180,700 141,300Land 20,800

Patents ($92,000 - $8,000 - $50,000) 50,000 Total $347,180

Restructured Debt – Due 2009 $ 63,000Due 2012 52,000

Common Stock, $ .10 par value, 580,000 shares outstanding 58,000 Paid-in Capital in Excess of Par

174,180Retained Earnings since Reorganization on 1/2/09 - 0 -

Total $347,180

Part C 12/31/09Interest Expense 3,780

Interest Payable ($63,000 .06) 3,780

No interest is accrued on the debt due in 2012 because all cash payments are reductions of the carrying value of the debt.

1/2/10Interest Payable 3,780

Cash 3,780

Restructured Debt 5,200Cash ($52,000 .10) 5,200

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Problem 10-4

BRAN COMPANYJim Brown, Trustee

Reconciliation and Liquidation AccountJune 30, 2009 to December 31, 2009

Assets to be Realized Assets Realized Receivables (old) $ 45,000 Receivables (old) $ 38,000

Less: Allowance for Uncollectibles 6,000 $ 39,000 Receivables (new) 85,000 Inventory 104,000 Plant and Equipment 39,000

Plant and Equipment 215,000 Less: Accumulated Depreciation 70,000 145,000 Assets Not Realized

Receivables (new) $ 15,000 Less: Allowance for Uncollectibles 2,000 13,000

Assets Acquired Inventory 75,000 Receivables (new) 100,000 Plant and Equipment * 151,000

Less: Accumulated Depreciation 55,000 96,000Supplementary Charges Purchases 35,000 Supplementary Credits Operating Expenses 47,000 Sales 130,000 Trustee Expenses 2,000 Gain on Sale of Land 11,000 Loss on Sale of Equipment 12,000

Liabilities to be LiquidatedLiabilities Liquidated Accounts Payable (old) 145,000 Accounts Payable (old) 110,000 Accounts Payable (new) 30,000 Liabilities Incurred

Accounts Payable (new) 35,000Liabilities Not Liquidated Accounts Payable (old) 35,000 Accounts Payable (new) 5,000Net Gain (1) 3,000

$667,000 $667,000

* ($215,000 - $14,000 - $50,000) = $151,000

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Problem 10-4 (continued)

CashBalance June 30 15,000 Accounts Payable (old) 110,000Sales 30,000 Accounts Payable (new) 30,000Accounts Receivable (old)   38,000 Operating Expenses 47,000Accounts Receivable (new)   85,000 Trustee Expenses 2,000Sale of Land and Equipment 38,000Balance 12/31   17,000

(1) Proof of Gain:Sales $ 130,000Cost of Sales ($104,000 + $35,000 - $75,000) (64,000)Operating Expenses (47,000)Trustee Expenses (2,000)Bad Debts Expense (3,000)Depreciation Expense (10,000)Gain on Sale of Land 11,000Loss on Sale of Equipment (12,000 ) Net Gain $ 3,000

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Problem 8-5 (continued) Pyle Stern Eliminations Noncontrolling ConsolidatedCompany Company Dr. Cr. Interest Balances

Balance SheetCurrent Assets $600,000 $320,000 $920,000Investment in Stern Company 718,400 (1) 100,800

(2) 617,600Other Assets 1,180,000 668,000 1,848,000

Total $2,498,400 $988,000 $2,768,000

Liabilities $190,000 $90,000 $280,000Common Stock:

Pyle Company 500,000 500,000Stern Company 300,000 (2) 300,000

Other Contributed Capital:Pyle Company 219,075 219,075Stern Company 180,000 (2) 180,000

Retained Earnings from above 1,589,325 418,000 443,125 50,325 25,200 1,589,3251/1 Noncontrolling Interest (5) 154,400 154,40012/31 Noncontrolling Interest $179,600 179,600

Total $2,498,400 $988,000 $923,125 $923,125 $2,768,000

(1) To reverse the effect of parent company entries during the year for subsidiary dividends and income(2) To eliminate investment account and create noncontrolling interest account $510,000/.85 x.2 + ($292,000 - $120,000) x .2 Verification of Consolidated Net Income:

Stern Company's reported income $186,000Allocated to noncontrolling interest:

First three months $46,500.15 $6,975Last nine months $139,500.2 27,900 34,875

Allocated to controlling interest (Pyle Company) 151,125Pyle Company's Income 172,000Consolidated Net Income $323,125

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On Pyle’s booksCash 100,000

Investment in S Company (3,000/51,000 × $510,000) 40,925Additional Contributed Capital—Pyle Company 59,075

Cost of Shares (3,000/51,000 × $510,000) $30,000Plus: Undistributed Income:(A) Change in Retained Earnings from the date of

acquisition (1/2/09) to the beginning of the year(1/1/11)($292,000 - $120,000) $172,000

Ownership percentage sold 5% 8,600(B) Earnings from beginning of current year to the

the date of sale (1/1/11 to 4/1/13)($186,000/4) 46,500Ownership percentage sold 5% 2,325

Adjusted cost of shares sold $40,925

Selling price of shares $100,000Adjusted cost of shares sold 40,925Additional paid in capital – Pyle Company $59,075

(1) Equity Income ($46,500×.85)+($139,500×.80) 151,125Investment in Skon Company 100,800Dividends Declared – Skon Company ($60,000×.80) 48,000Subsidiary income sold ($46,500×.05) 2,325

(2) Common Stock— Skon Company 300,000Other Contributed Capital – Skon Company 180,0001/1 Retained Earnings— Skon Company 292,000

Investment in Skon Company 617,600 ($510,000-40,925 + 2,325 + $146,200) Noncontrolling Interest 154,400 [90,000 + 15% (292,000 - 120,000) + 40,925 - 2,325]

Cost of Shares $510,000Plus: Undistributed Income:(A) Change in Retained Earnings from the date of

acquisition (1/2/09) to the beginning of the year(1/1/11)($292,000 - $120,000) $172,000

Ownership percentage 85% 146,200(B) Earnings from beginning of current year to the

the date of sale (1/1/11 to 4/1/13)($186,000/4) 46,500Ownership percentage 85% 39,525

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Adjusted cost of shares sold $695,725Less carrying value sold 40,925Carrying value of retained ownership 654,800Earnings since 4/1/13 ($186,000-46,500)× .80 111,600Dividends since 4/1/13 ($60,000 × .80) -48,000 63,600Investment balance 12/31/2011 718,400

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