Chapter 8

CONSOLIDATIONS CHANGES IN OWNERSHIP INTERESTS

Answers to Questions
1 Preacquisition earnings and dividends are te earnings and dividends a!!"ica#"e to an invest$ent interest
!rior to its acquisition during an accounting !eriod% Assu$e tat P !urcases an &' !ercent interest in S
on (u") *+ ,''- and tat S as earnings o. /*''+''' #et0een (anuar) * and (u") *+ ,''- and !a)s /1'+'''
dividends on 2a) *+ ,''-% In tis case+ !reacquisition earnings and dividends are /&'+''' and /3'+'''+
res!ective")% Historica"")+ !reacquisition earnings !urcased 0ere so0n as a deduction on te inco$e
state$ent to arrive at conso"idated net inco$e% 4nder SFAS No. 160+ tis is no "onger te case% Instead+
te conso"idated inco$e state$ent sou"d on") re!ort revenues+ e5!enses+ gains and "osses su#sequent to
te co$#ination date% 6or e5a$!"e+ in a 2$arc 7* acquisition+ te conso"idated inco$e state$ent 0ou"d
on") inc"ude inco$e o. te su#sidiar) .ro$ A!ri" * troug Dece$#er 7*% Te 6AS8 reasons tat
acquirers !urcase assets and assu$e "ia#i"ities+ #ased on teir .air va"ues% Acquirers do not 9!urcase:
!reacquisition earnings+ a"toug .air va"ues o. net assets sou"d re."ect earning !o0er o. te acquired
.ir$%
2 Preacquisition earnings are not recorded #) a !arent co$!an) under te equit) $etod #ecause te
investor on") recogni;es inco$e su#sequent to acquisition on te interest acquired% Historica"")+
!reacquisition earnings !urcased 0ere so0n as a deduction on te inco$e state$ent to arrive at
conso"idated net inco$e% 4nder SFAS No. 160+ tis is no "onger te case% Instead+ te conso"idated
inco$e state$ent sou"d on") re!ort revenues+ e5!enses+ gains and "osses su#sequent to te co$#ination
date% 6or e5a$!"e+ in a 2$arc 7* acquisition+ te conso"idated inco$e state$ent 0ou"d on") inc"ude
inco$e o. te su#sidiar) .ro$ A!ri" * troug Dece$#er 7*%
3 Noncontro""ing stoc<o"ders o. Su# Co$!an) e"d a ,' !ercent interest during te .irst a". )ear and a *'
!ercent interest during te "ast a". )ear and at )ear=end% 8ut noncontro""ing interest sare .or te )ear
and tota" noncontro""ing interest at )ear=end are co$!uted .or te *' !ercent interest e"d #)
noncontro""ing stoc<o"ders trougout te )ear%
4 Preacquisition inco$e is si$i"ar to noncontro""ing interest sare #ecause it re!resents te inco$e o. a
su#sidiar) attri#uta#"e to stoc<o"ders outside te conso"idated entit)% 8ut !reacquisition inco$e is not
inco$e o. te noncontro""ing stoc<o"der grou! at te date o. te .inancia" state$ents% In .act+
!reacquisition inco$e re"ates to a !revious contro""ing stoc<o"der grou! 0en te interest acquired
e5ceeds 1' !ercent% In suc a case+ it see$s i$!ro!er to re!ort tis as a deduction in te conso"idated
inco$e state$ent% Rater+ te .air va"ue o. net assets acquired sou"d re."ect te acquiree>s earnings
istor)%
5 4nder 6AS8 State$ent No% *?'+ a gain or "oss is on") recorded 0en te so"d interest resu"ts in
deconso"idation o. te su#sidiar)+ i%e%+ te !arent no "onger o"ds a contro""ing interest% Te gain or "oss on
te sa"e o. an equit) interest is te di..erence #et0een te !roceeds .ro$ te sa"e @te .air va"ueA and te
recorded #oo< va"ue o. te interest so"d+ !rovided tat te invest$ent is accounted .or as a one="ine
conso"idation% I. anoter $etod o. accounting as #een used+ te invest$ent account $ust #e converted
to te equit) $etod so tat an) gain or "oss on sa"e is te sa$e as i. a one="ine conso"idation ad #een
used !revious")%
Wen te !arent $aintains a contro""ing interest a.ter te sa"e+ te sa"e is treated as an equit) transaction+
0it no gain or "oss recognition% Te !arent de#its cas or oter consideration received in te sa"e+ credits
te invest$ent account #ased on !ercent o. carr)ing va"ue so"d+ and records te di..erence as an
adBust$ent to oter !aid=in ca!ita"%
6 Conce!tua"")+ te inco$e a!!"ica#"e to an equit) interest so"d during an accounting !eriod sou"d #e
inc"uded in invest$ent inco$e and conso"idated net inco$e% In tis case+ te gain or "oss on sa"e is
co$!uted on te #asis o. te #oo< va"ue o. te interest at te ti$e o. sa"e+ and inco$e is assigned to te
C ,''- Pearson Education+ Inc% !u#"ising as Prentice Ha""
&=*
8-2 Consolidations Changes in Ownership Interests
increased noncontro""ing interest on") a.ter te date o. sa"e% As a !ractica" e5!edient+ a #eginning=o.=te=
!eriod sa"e date can #e used suc tat no inco$e is recogni;ed on te interest so"d u! to te ti$e o. sa"e+
and te gain or "oss is co$!uted on te #oo< va"ue at te #eginning o. te !eriod% Wen tis e5!edient is
used+ inco$e $ust #e assigned to te increased noncontro""ing interest .or te entire )ear o. sa"e% Te
co$#ined invest$ent inco$e and gain or "oss on sa"e are te sa$e under #ot a!!roaces !rovided tat
te assu$!tions @#eginning o. te )ear and ti$e o. sa"eA are .o""o0ed consistent")% As noted in question 1+
gain or "oss on te sa"e o. te equit) interest is on") recogni;ed 0en te su#sidiar) is donconso"idated%
Oter 0ise+ te gain or "oss is an adBust$ent to oter !aid=in ca!ita"%
7 Assu$ing tat no gain or "oss is recogni;ed+ no adBust$ent o. te !arent>s invest$ent account is
necessar) 0en te su#sidiar) se""s additiona" sares to outside !arties at #oo< va"ue #ecause te !arent>s
sare o. under")ing #oo< va"ue does not cange% I. additiona" sares are so"d a#ove #oo< va"ues+ te
!arent>s sare o. te under")ing equit) o. te su#sidiar) increases% Tis increase is recorded #) te !arent
co$!an) as .o""o0sD
Invest$ent in su#sidiar) EE
Additiona" !aid=in ca!ita" EE
I. te su#sidiar) se""s additiona" sares #e"o0 #oo< va"ue+ te !arent>s interest is decreased and
te !arent co$!an) records decreases in its invest$ent and additiona" !aid=in ca!ita" accounts% In a""
tree cases @#oo< va"ue+ a#ove #oo< va"ue+ or #e"o0 #oo< va"ueA+ te !arent co$!an)>s o0nersi!
!ercentage decreases .ro$ &' !ercent @&+''' o. *'+''' saresA to ??
,
7
!ercent @&+''' o. *,+''' saresA%
No gain or "oss is recogni;ed+ te cange in under")ing #oo< va"ue+ adBusted .or one=si5t F@&'G
H ??
,
7
GA &'GI o. an) una$orti;ed cost #oo< va"ue di..erentia" is re!orted as adBust$ent to additiona"
!aid=in ca!ita"+ since te !arent $aintains its contro""ing interest% An a"ternative co$!utation is to assu$e
tat te !arent so"d one=si5t o. its interest .or ??
,
7
!ercent o. te !roceeds+ te di..erence #eing te
a$ount o. ad<ust$ent to additiona" !aid=in ca!ita"%
8 Te acquisition o. te ,+''' sares direct") .ro$ te su#sidiar) increases te !arent>s !ercentage interest
.ro$ &' !ercent @&+''' o. *'+''' saresA to 1J? @*'+''' o. *,+''' sares+ or &7 *J7GA% Te cange in te
interest e"d does not a..ect te 0a) in 0ic te !arent co$!an) records its additiona" invest$ent% Te
!arent co$!an) in a"" cases increases its invest$ent account #) te a$ount o. cas !aid or oter
consideration given .or te additiona" invest$ent% It $a<es no di..erence i. te !urcase !rice is a#ove or
#e"o0 #oo< va"ue%
9 Treasur) stoc< transactions #) a su#sidiar) cange te !arent co$!an)>s !ro!ortionate interest in te
su#sidiar)% An) canges in te !arent>s sare o. te under")ing #oo< va"ue o. te su#sidiar) require
adBust$ents in te !arent co$!an)>s invest$ent in su#sidiar) and additiona" !aid=in ca!ita" accounts%
10 Gains and "osses to a !arent co$!an) @or equit) investorA do not resu"t .ro$ te treasur) stoc<
transactions o. its su#sidiaries @or equit) investeesA% A"toug te !arent>s invest$ent interest $a)
increase or decrease .ro$ suc transactions+ te !redo$inate vie0 is tat suc canges are o. a ca!ita"
nature and sou"d #e accounted .or #) additiona" !aid=in ca!ita" adBust$ents rater tan #) recorded gains
and "osses%
11 Stoc< s!"its and stoc< dividends #) a su#sidiar) do not a..ect te a$ounts tat a!!ear in te conso"idated
.inancia" state$ents% 8ut stoc< dividends #) a su#sidiar) resu"t in ca!ita"i;ation o. su#sidiar) retained
earnings and te a$ounts invo"ved in e"i$inations .or te su#sidiar)>s stoc<o"ders> equit) accounts are
a..ected%
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-3
SOLUTIONS TO EXERCISES
Solution E8-1
Allocation of Sweets net income:
Controlling share of income
(!00,000 "0# ! $ear% & (!00,000 20# !'2 $ear%
(0,000
)oncontrolling interest share (!00,000 !0# ! $ear%
!0,000
Preac*uisition income (!00,000 20# !'2 $ear%
!0,000
)ote+ ,his does not appear on the consolidated income statement.
Companies onl$ include subsidiar$ earnings subse*uent to the
ac*uisition date.
Allocation of Sweets dividends:
-i.idends to Pie (/0,000 "0#% & (/0,000 90#%
0(,000
)oncontrolling interest (10,000 !0#%
1,000
Preac*uisition interests (/0,000 20#%
1,000
Solution E8-2
1 Income from 2uperstore for 2009+
10# interest 200,000 !'/ $ear
0(,000
2 Preac*uisition income+
3nder 2452 )o. !10, no preac*uisition income appears on the
consolidated income statement. ,he income statement onl$
includes income of the subsidiar$ earned after the parent
obtains its controlling interest. Control 6as established on
2eptember !, 6hen Pinnacle7s interest increased from 00# to
10#, so the consolidated income statement includes
2uperstore income of (0,000 (200,000 8 !'/ of $ear%.
3 )oncontrolling interest share for 2009+
(0,000 00#
/2,000
2009 Pearson Education, Inc. publishing as Prentice Hall
8-4 Consolidations Changes in Ownership Interests
Solution E8-3 (amounts in thousands%
Entry to record sale of 15% interest:
Cash "90
In.estment in 26amp 110
:ther paid;in capital 90
,o record sale of !9# interest in 26amp.
No gain or loss on sale is recognized
since Peat maintains an 85% controlling
interest.
Entry to record investment income for !!":
In.estment in 26amp(100 (9#%
9!0
Income from 26amp 9!0
,o record income from 26amp.
#$ec%:
In.estment balance <anuar$ !, 2009 0,000
=ess+ >oo? .alue of interest sold (110%
5dd+ Income from 26amp 9!0
In.estment balance -ecember /!, 2009 0,290
3nderl$ing e*uit$ (0,100 (9#%
/,9!0
5dd+ (9# of @ood6ill A /00
In.estment balance -ecember /!, 2009 0,290
A )ote that implied total good6ill is 000 (/00 ' (9#%.
Solution E8-4 (amounts in thousands%
1 @ain on sale of 20# interest+ )o gain or loss is recogniBed since Paule$
maintains a 10# controlling interest.
&eginning of t$e 'eriod sale ass(m'tion
2elling price !/0
>oo? .alue of interest (0/1 in.estment
account balance 20#'(0#%
!09
5dCustment to other paid;in capital 2!
Act(al sale date ass(m'tion
2elling price !/0
>oo? .alue of interest sold+
>eginning of the period balance 0/1
5dd+ Income (!90 !'/ $ear (0#%
00
0"1
Interest sold 29# !!9
5dCustment to increase additional paid;in capital !!
2 Income from 2a.age
&eginning of t$e 'eriod sale ass(m'tion
Income from 2a.age(!90 10#%
90
Act(al sale date ass(m'tion
<anuar$ ! to Da$ !+
2hare of 2a.age7s income (!90 (0# !'/ $ear%
00
Da$ ! to -ecember /!+
2hare of 2a.age7s income (!90 10# 2'/ $ear%
10
Income from 2a.age !00
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-5
2009 Pearson Education, Inc. publishing as Prentice Hall
8-6 Consolidations Changes in Ownership Interests
Solution E8-4 (continued%
3 In.estment in 2a.age -ecember /!, 2009
>eginning of 5ctual
Period 2ale 2ale -ate
5ssumption 5ssumption
In.estment balance <anuar$ ! 0/1 0/1
>oo? .alue of interest sold (!09% (!!9%
Income from 2a.age 90 !00
-i.idends (0(% (0(%
In.estment balance -ecember /!, 2009 /19 /19
Solution E8-5
(amounts in thousands%
1a 4air .alue boo? .alue differential
Cost !,2"0
Implied fair .alue of 2tor? (!,2"0 ' "0#% !,(20
>oo? .alue (!,0(0 <anuar$ ! balance
& !00 income for 9 months ; 10 di.idends in
<anuar$ and 5pril% (!,920%
@ood6ill /00
1b Income from 2tor? ()ote+ :nl$ include earnings subse*uent to the
ac*uisition date%.
Income from 2tor? (200,000 "'!2 $ear "0#%
9(
1c In.estment in 2tor? at -ecember /!
In.estment cost !,2"0
5dd+ Income from 2tor? 9(
-educt+ -i.idends (10,000 "0#%
(02%
In.estment in 2tor? -ecember /!, 2009 !,//0
2 Consolidation 6or?ing paper entries+
a Income from 2tor? 9(
In.estment in 2tor? 91
-i.idends 02
,o eliminate income and di.idends from 2tor? and adCust
in.estment account to its cost on <une !.
b Common stoc?, !0 par 2tor? !,000
Eetained earnings 2tor? 9(0
@ood6ill /00
In.estment in 2tor? !,2"0
)oncontrolling interest 910
-i.idends 02
,o eliminate reciprocal in.estment and e*uit$ balances,
record preac*uisition income and beginning noncontrolling
interest, and eliminate preac*uisition di.idends.
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-7
2009 Pearson Education, Inc. publishing as Prentice Hall
8-8 Consolidations Changes in Ownership Interests
Solution E8-6
1 In.estment in 2o6er (in thousands%
In.estment balance -ecember /!, 2009 (9,000 (0#%
",200
Cost of ne6 shares (29 10,000 shares%
!,900
In.estment in 2o6er after ne6 in.estment (,"00
2 @ood6ill from ne6 in.estment
2o6er7s stoc?holders7 e*uit$ after issuance
(9,000 & !,900% !0,900
Petal7s o6nership percentage
(0(0,000 & 10,000 shares%'110,000 shares .(!(2
Petal7s boo? .alue after issuance (,99!.!
=ess+ Petal7s boo? .alue before issuance (",200%
Increase in boo? .alue from purchase
(boo? .alue ac*uired% !,/9!.!
Cost of 10,000 shares !,900
>oo? .alue ac*uired (!,/9!.!%
@ood6ill from ac*uisition of ne6 sharesA !0(.9
A ,his implies total good6ill is e*ual to !/1,!29.
Solution E8-7
1 2od issues /0,000 shares to Pod at 20 per share
Pod7s o6nership interest before issuance+ !"1,000'220,000 shares F (0#
Pod7s o6nership interest after issuance+ 201,000'290,000 shares F (2.0#
2 2od sells /0,000 shares to the public at 20 per share
Pod7s o6nership interest after issuance+ !"1,000'290,000 shares F "0.0#
3 2od sells /0,000 shares to the publicG no gain or loss recogniBed+
In.estment in 2od !!9,200
5dditional paid;in capital !!9,200
,o record increase in in.estment in 2od computed as follo6s+
>oo? .alue before issuance (/,200,000 (0#%
2,910,000
>oo? .alue after issuance (/,(00,000 "0.0#%
2,1"9,200
5dditional paid;in capital !!9,200
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-9
Solution E8-8
Primetime )(ys s$ares
1a Percentage o6nership after additional in.estment+
"00,000'!,000,000 F "0#
1b @ood6ill from additional in.estment (in thousands%+
>oo? .alue of interest after sale
2,100 "0#
!,(20
>oo? .alue of interest before sale
2,!00 2'/
!,000
>oo? .alue of interest ac*uired 020
Cost of interest 900
@ood6ill from additional in.estment A (0
A ,his implies total good6ill is no6 e*ual to !!0,2(1.
*(tsiders )(y s$ares
2a Percentage o6nership after sale+
100,000'!,000,000 F 10#
2b Change in underl$ing boo? .alue of in.estment in 2atellite+
2atellite7s underl$ing e*uit$ after sale 2,100,000
Primetime7s interest 10#
>oo? .alue of Primetime7s in.estment in 2atellite
after the sale !,910,000
=ess+ >oo? .alue before the sale !,000,000
Increase in boo? .alue of in.estment !10,000
2c Entr$ to adCust in.estment account+
In.estment in 2atellite !10,000
5dditional paid;in capital !10,000
2009 Pearson Education, Inc. publishing as Prentice Hall
8-10 Consolidations Changes in Ownership Interests
Solution E8-9
Preliminar$ computations of fair .alue boo? .alue differentials+
A'ril 1+ !!" ac,(isition
Cost of 0,000 shares (20# interest% 10,000
Implied total fair .alue of 2um (10,000 ' 20#% /20,000
>oo? .alue of 2um on april ! ac*uisition date+
>eginning stoc?holders7 e*uit$ 2(0,000
5dd+ Income for / months ((0,000 H $ear%
20,000
2toc?holders7 e*uit$ 5pril ! /00,000
@ood6ill 20,000
-(ly 1+ !1! ac,(isition
Cost of (,000 shares (00# interest% !10,000
Implied total fair .alue of 2um (!10,000 ' 00#% 0!0,000
>oo? .alue on <ul$ ! ac*uisition date+
>eginning stoc?holders7 e*uit$ /10,000
5dd+ Income for 1 months ((0,000 !'2 $ear%
00,000
=ess+ -i.idends Da$ ! (!0,000%
2toc?holders7 e*uit$ <ul$ ! /90,000
@ood6ill (amount is unchanged b$ this transaction% 20,000
1 Income from 2um
!!"
Income from 2um for 2009 ((0,000 20# /'0 $ear%
!2,000
!1! Income from 2um for 20!0
20# share of reported income ((0,000 20#%
!1,000
00# share of reported income ((0,000 00# !'2 $ear%
!1,000
Income from 2um /2,000
2 )oncontrolling interest -ecember /!, 20!0
((020,000 boo? .alue & 20,000 good6ill% 00#%
!"1,000
3 Preac*uisition income (does not appear in come statement%
2um income (0,000
,ime before ac*uisition !'2
Percent ac*uired in 20!0 00#
Preac*uisition income ((0,000 .9 .0%
!1,000
4 In.estment balance at -ecember /!, 20!0
Cost of 20# in.estment 10,000
Income from 2um for 2009 !2,000
Cost of 00# in.estment !10,000
Income from 2um for 20!0 /2,000
=ess+ -i.idends (2,000 & 1,000% ((,000%
In.estment in 2um 210,000
Chec?+
2hare of 2um7s -ecember /!, 20!0 e*uit$ (020,000 10#%
292,000
5dd+ 10# of 20,000 @ood6ill !2,000
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-11
In.estment in 2um 210,000
2009 Pearson Education, Inc. publishing as Prentice Hall
8-12 Consolidations Changes in Ownership Interests
Solution E8-1
!"#li$ina"% co$&utation'
In.estment cost <ul$ !, 20!0 1"9,000
Implied total fair .alue of 2andridge (1"9,000 ' 90#% "90,000
=ess+ >oo? .alue of 2andridge at ac*uisition+
E*uit$ of 2andridge Dines -ecember /!, 2009 "00,000
5dd+ Income for !'2 $ear 90,000
E*uit$ of 2andridge Dines <ul$ !, 20!0 "90,000
E8cess (boo? .alue F underl$ing e*uit$% 0
1 .nvestment income from Sandridge /ines
Income from 2andridge 20!0 (!00,000 !'2 $ear 90#%
09,000
Income from 2andridge 20!!+
<anuar$ ! to <ul$ ! ((0,000 !'2 $ear 90#%
/1,000
<ul$ ! to -ecember /! ((0,000 !'2 $ear (0#%
/2,000
1(,000
In.estment in 2andridge Dines
Cost <ul$ !, 20!0 1"9,000
5dd+ Income from 2andridge 20!0 09,000
=ess+ -i.idends paid in -ecember (90,000 90#%
(09,000%
In.estment balance -ecember /!, 20!0 1"9,000
=ess+ >oo? .alue of !'9 interest sold on <ul$ !, 20!!
a ("9,000%
5dd+ Income from 2andridge 20!! 1(,000
=ess+ -i.idends paid in -ecember (/0,000 (0#%
(20,000%
In.estment balance -ecember /!, 20!! 100,000
a 2ale of !0# interest <ul$ !, 20!!+
E*uit$ of 2andridge Dines -ecember /!, 2009 "00,000
5dd+ Income less di.idends 20!0
90,000
5dd+ Income for !'2 $ear 20!!
00,000
E*uit$ of 2andridge Dines <ul$ !, 20!! "90,000
Interest sold !0#
3nderl$ing e*uit$ of interest sold "9,000
@ain on sale of !'9 interest ((9,000 proceeds ; "9,000%
2ince Piccolo maintains a controlling interest, the gain is
not recorded, but sho6n as an adCustment to additional paid;
in capital.
1,000
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-13
Solution E8-1 (continued%
2 Noncontrolling interest s$are
)oncontrolling interest share 20!0+
(!00,000 income !0# interest%
!0,000
)oncontrolling interest share 20!!+
((0,000 !'2 $ear !0#% & ((0,000 !'2 $ear 20#%
!2,000
Noncontrolling interest 0ecem)er 11+ !1!
E*uit$ of 2andridge Dines <anuar$ ! "00,000
5dd+ Income less di.idends for 20!0 90,000
E*uit$ of 2andridge Dines -ecember /! "90,000
)oncontrolling interest percentage !0#
)oncontrolling interest -ecember /! "9,000
Noncontrolling interest 0ecem)er 11+ !11
E*uit$ of 2andridge Dines <anuar$ ! "90,000
5dd+ Income less di.idends for 20!! 90,000
E*uit$ of 2andridge Dines -ecember /! (00,000
)oncontrolling interest percentage 20#
)oncontrolling interest -ecember /! !10,000
Solution E8-11
Preliminar$ computations+
In.estment cost <anuar$ !, 20!0 190,000
Implied total fair .alue of 2an$o (190,000 ' "9#% 920,000
>oo? .alue of 2an$o ((00,000%
E8cess fair .alue o.er boo? .alue F @ood6ill !20,000
1 2nderlying )oo% val(e 0ecem)er 11+ !1!
!,000,000 e*uit$ "9#
"90,000
2 Percentage owners$i' )efore '(rc$ase of additional s$ares
/0,000 shares o6ned'00,000 shares outstanding F "9# interest
Percentage o6nership after purchase of additional shares
00,000 shares o6ned'90,000 shares outstanding F (0# interest
3 .nvestment in Sanyo )alance -an(ary 1+ !11
In.estment cost <anuar$ !, 2009 190,000
5dd+ 2hare of 2an$o7s income less di.idends
for 2009 (200,000 "9#%
!90,000
In.estment in 2an$o -ecember /!, 2009 (00,000
5dd+ 5dditional in.estment <anuar$ /, 20!!
2009 Pearson Education, Inc. publishing as Prentice Hall
8-14 Consolidations Changes in Ownership Interests
(!0,000 shares /0%
/00,000
In.estment in 2an$o balance <anuar$ /, 20!! !,!00,000
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-15
4 Percentage owners$i' if s$ares sold to o(tside entities
/0,000 shares o6ned'90,000 shares outstanding F 10# interest
5 .nvestment in Sanyo )alance -an(ary 1+ !11
In.estment in 2an$o -ecember /!, 2009
(see / abo.e% (00,000
5dd+ Increase in boo? .alue from change in
o6nership interest+
>oo? .alue after additional !0,000 shares
6ere issued (!,/00,000 e*uit$ 10#%
"(0,000
>oo? .alue before additional !0,000 shares
6ere issued (!,000,000 e*uit$ "9#%
("90,000% /0,000
In.estment in 2an$o balance ; <anuar$ /, 20!! ("0,000
Solution E8-12
Preliminary com'(tations:
Cost of additional in.estment (2,000 shares (0%
!10,000
Implied total fair .alue of 2aton
!10,000 ' (2,000'!2,000% 910,000
=ess+ >oo? .alue of 2aton after issuance "!0,000
E8cess fair .alue o.er boo? .alue 290,000
-an(ary + !1!
In.estment in 2aton !10,000
Cash !10,000
,o record purchase of additional 2,000 shares of 2aton.
0ecem)er !1!
Cash 90,000
In.estment in 2aton 90,000
,o record receipt of di.idends (10,000 !0,000'!2,000 shares%.
0ecem)er 11+ !1!
In.estment in 2aton "9,000
Income from 2aton "9,000
,o record income from 2aton(90,000 !0,000'!2,000%.
2009 Pearson Education, Inc. publishing as Prentice Hall
8-16 Consolidations Changes in Ownership Interests
Solution E8-13
1 .nvestment in Stri'er 3in t$o(sands4
Cost !,(00
5dd+ 90# of /00 increase in e*uit$ since 2009 2"0
In.estment in 2triper <anuar$ !, 20!! 2,0"0
2 Entry on Patric%s )oo%s 3no gain or loss recognized4
In.estment in 2triper !(0
5dditional paid;in capital !(0
,o recogniBe change in boo? .alue of in.estment from 2triper7s
sale of additional shares, computed as follo6s+
3nderl$ing e*uit$ after issuance (2,000 "9#%
!,(00
3nderl$ing e*uit$ before issuance (!,(00 90#%
(!,120%
!(0
SOLUTIONS TO !RO(LE)S
Solution !8-1
Preliminary com'(tations 3in t$o(sands4:
Cost of 00,000 shares <ul$ !, 2009 120
Implied total fair .alue of 2pindle (120 ' (0#% ""9
>oo? .alue of 2pindle (990 & 90 income% (100%
E8cess fair .alue o.er boo? .alue !"9
Cost of !0,000 shares <anuar$ !, 20!0 !12
>oo? .alue after issuance ("12 9'1%
1/9
>oo? .alue before issuance (100 (0#%
(0(0% (!99%
E8cess fair .alue o.er boo? .alue of !0,000 shares
ac*uired
"
1 .nvestment in S'indle 0ecem)er 11+ !!"
In.estment cost 120
5dd+ Income from 2pindle; !00 !'2 $ear (0#
00
=ess+ -i.idends (90 (0#%
(00%
In.estment in 2pindle -ecember /!, 2009 120
2 .ncome from S'indle !1!
2hare of 2pindle7s income (!90 9'1%
!29
3 .nvestment in S'indle 0ecem)er 11+ !1!
In.estment balance -ecember /!, 2009 120
5dd+ 5dditional in.estment !12
5dd+ Income from 2pindle 20!0 !29
=ess+ -i.idends for 20!0 (10 9'1%
(90%
In.estment in 2pindle -ecember /!, 20!0 (9"
Chec?+
2hare of 2pindle7s e*uit$ ((92 9'1%
"!0
@ood6ill I (!"9 8 (0#% & (2!0 8 (9'1 J (0#% K !0"
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-17
In.estment in 2pindle -ecember /!, 20!0 (9"
2009 Pearson Education, Inc. publishing as Prentice Hall
8-18 Consolidations Changes in Ownership Interests
Solution !8-2
1 .nvestment in Smit$town 3in t$o(sands4
3nderl$ing e*uit$ 21,000 (0#
20,(00
@ood6ill ((0#% 2,000
In.estment in 2mithto6n <anuar$ !, 20!! 22,(00
2 Percentage interest after stoc% iss(ance
2hares o6ned 910,000'!,100,000 outstanding shares F 10# interest
3 No gain or loss recognized on iss(ance of additional s$ares
In.estment in 2mithto6n 2,000
:ther paid;in capital 2,000
,o recogniBe change in o6nership interest computed as+ 3nderl$ing
e*uit$ after sale (/(,000 10#% less underl$ing e*uit$ before
sale of additional shares (21,000 (0#%.
Solution !8-3
1 -o(rnal entry to record sale as of act(al sale date
Cash !20,000
5dditional paid;in capital !,900
In.estment in 2ha6nee !2!,900
,o record sale of !'9 of in.estment in 2ha6nee. >oo? .alue of
interest sold is computed as follo6s+
In.estment balance -ecember /!, 200( !,0/9,900
5dd+ Income from 2ha6nee for one;half $ear
(2(0,000 !'2 $ear 90#%
!21,000
=ess+ -i.idends ((0,000 90#%
("2,000%
>oo? .alue of in.estment on <ul$ !, 2009 !,09/,900
>oo? .alue of interest sold (!,09/,900'9% !2!,900
2 -o(rnal entry to record sale as of -an(ary 1+ !!"
Cash !20,000
5dditional paid;in capital !2,900
In.estment in 2ha6nee !0",900
,o record sale of !'9 of in.estment in 2ha6nee. >oo? .alue of
interest sold is computed as follo6s+
In.estment balance -ecember /!, 200( !,0/9,900
=ess+ -i.idends ("2,000%
>oo? .alue adCusted for di.idends 91",900
>oo? .alue of interest sold (91",900'9% !0",900
3 5econciliation
In.estment in
2ha6nee
5ctual 2ale -ate
In.estment in
2ha6nee
>eginning of Lear
2ale -ate
>alance <anuar$ !, 2009 !,0/9,900 !,0/9,900
5dd+ Income from 2ha6nee
<anuar$ ! <ul$ ! !21,000 !!2,000
<ul$ ! -ecember /! !!2,000 !l2,000
=ess+ -i.idends
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-19
4irst half;$ear ("2,000% ("2,000%
=ast half;$ear (10,000% (10,000%
=ess+ >oo? .alue of interest sold (!2!,900% (!0",900%
>alance -ecember /!, 2009 !,020,000 !,020,000
Solution !8-4
(in thousands%
Entries on Panama7s boo?s to reflect the change in o6nership interest+
:ption ! Panama sells /0,000 shares of 2henandoah
Cash !,900
In.estment in 2henandoah ("0
5dditional paid;in capital 1/0
,o record sale of /0,000 shares at 90 per share. )o gain or loss is
recogniBed since parent maintains a controlling interest.
:ption 2 2henandoah issues and sells 00,000 shares to the public
In.estment in 2henandoah 1/0
5dditional paid;in capital 1/0
,o record adCustment in o6nership computed as follo6s+
>oo? .alue after sale of 00,000 shares
(!2,000 "9#%
9,//0
>oo? .alue before sale of 00,000 shares
(!0,000 9'1%
((,"00%
Increase in boo? .alue of in.estment from sale 1/0
:ption / 2henandoah reissues 00,000 shares of treasur$ stoc?
In.estment in 2henandoah 1/0
5dditional paid;in capital 1/0
,o record adCustment in o6nership computed the same as 2 abo.e.
Con'oli*at#* Stoc+,ol*#"'- E.uit%
at <anuar$ !, 20!0
:ption ! :ption 2 :ption /
Common stoc? !0,000 !0,000 !0,000
5dditional paid;in capital /,1/0 /,1/0 /,1/0
Eetained earnings ",000 ",000 ",000
)oncontrolling interest
a 2,1!0 /,!!0 /,!!0
,otal stoc?holders7 e*uit$ 2/,200 2/,"00 2/,"00
a
)oncontrolling interest under option !+ !0,000 29#
)oncontrolling interest under options 2 and /+ !2,000 29#
2009 Pearson Education, Inc. publishing as Prentice Hall
8-20 Consolidations Changes in Ownership Interests
Solution !8-5
Preliminary com'(tations:
Cost of 9,000 shares (90# interest% <anuar$ !, 2009 (!0,000
Implied total fair .alue of 2ala ((!0,000 ' 90#% 900,000
>oo? .alue of 2ala (900,000 & /00,000% ((00,000%
E8cess fair .alue o.er boo? .alue F @ood6ill !00,000
1 .nvestment )alance 0ecem)er 11+ !!"
Cost <anuar$ !, 2009 (9,000 shares 90%
(!0,000
5dd+ 2hare of 2ala7s 2009 income (90,000 90#%
09,000
In.estment in 2ala -ecember /! (99,000
2 6oodwill at 0ecem)er 11+ !1!3Pallo '(rc$ased additional s$ares%
@ood6ill from <anuar$ !, 2009 purchase !00,000
@ood6ill from <anuar$ !, 20!0 purchase+
>oo? .alue before purchase (90,000
>oo? .alue after purchase (!,/90,000%
>oo? .alue ac*uired (900,000%
Cost of additional 9,000 shares 900,000
@ood6ill from <anuar$ !, 20!0 0
@ood6ill at -ecember /!, 20!0 !00,000
3 Additional 'aid7in ca'ital 3o(tsider '(rc$ased additional s$ares4
>oo? .alue after issuance (!,/90,000 10#%
(!0,000
>oo? .alue before issuance ((90,000 90#%
("19,000%
5dditional paid;in capital (gain is not recogniBed% 09,000
4 Noncontrolling interest 0ecem)er 11+ !1! 3o(tsider '(rc$ased s$ares4
2ubsidiar$ e*uit$ <anuar$ !, 2009 (00,000
Increase for 2009 90,000
Increase for 20!0 "0,000
2ale of additional shares 900,000
>oo? .alue !,020,000
@ood6ill !00,000
4air .alue of 2ubsidiar$ e*uit$ -ecember /!, 20!0 !,920,000
)oncontrolling interest percentage 1,000'!9,000 shares 00#
)oncontrolling interest -ecember /!, 20!0 10(,000
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-21
Solution !8-6
1 .nvestment in Sta%e 0ecem)er 11+ !1!
In.estment in 2ta?e <anuar$ 2, 2009 9(,000
Increase for 2009 (/0,000 retained earnings increase "0#%
2!,000
Purchase of additional 20# interest <une /0, 20!0 /",000
Increase 20!0+
(/0,000 !'2 $ear "0#% & (/0,000 !'2 $ear 90#%
20,000
-i.idends 20!0+ (!0,000 90#%
(9,000%
In.estment in 2ta?e -ecember /!, 20!0 !"!,000
2 6oodwill 0ecem)er 11+ !1!
<anuar$ 2, 2009 purchase+
Cost of "0# interest 9(,000
Implied fair .alue of 2ta?e (9(,000 ' "0#% !00,000
=ess+ >oo? .alue of 2ta?e !20,000
@ood6ill 20,000
<une /0, 20!0 purchase+
Cost of 20# interest /",000
Implied fair .alue of 2ta?e (/",000 ' 20#% !(9,000
=ess+ >oo? .alue of 2ta?e !19,000
@ood6ill ; -ecember /!, 20!0 20,000
3 #onsolidated net income
2ales 100,000
Cost of sales (000,000%
E8penses ("0,000%
Consolidated net income !/0,000
)oncontrolling interest share A 1,000
Controlling share of net income !20,000
A )oncontrolling share is !0# for full $ear plus
20# for M $ear.
5lternati.e+
Post7s reported income F Controlling share of net income !20,000
4 #onsolidated retained earnings 0ecem)er 11+ !1!
>eginning retained earnings 200,000
5dd+ Controlling share of Consolidated net income 20!0 !20,000
=ess+ -i.idends (10,000%
Consolidated retained earnings ending 210,000
5lternati.e solution+
Post7s reported ending retained earnings F Consolidated
retained earnings ending 210,000
5 Noncontrolling interest 0ecem)er 11+ !1!
E*uit$ of 2ta?e -ecember /!, 20!0 !"0,000
@ood6ill 20,000
4air .alue of 2ta?e !90,000
)oncontrolling interest percentage !0#
)oncontrolling interest -ecember /!, 20!0 !9,000
2009 Pearson Education, Inc. publishing as Prentice Hall
8-22 Consolidations Changes in Ownership Interests
Solution !8-7
1 !#"c% Co"&o"ation an* Sub'i*ia"%
Consolidated Income 2tatement
for the $ear ended -ecember /!, 20!0
(in thousands%
2ales /,200
Cost of sales (!,900%
@ross profit !,/00
-epreciation e8pense ("00%
:ther e8penses (!90%
Consolidated net income 090
)oncontrolling interest share (!90,000 20#% &
(!90,000 !'0 $ear !0#%
(//."9%
Controlling share of Consolidated net income 0!1.29
2 Sc$ed(le to allocate Sawyers income and dividends
Control. )oncontrol. Preac*uisition ,otal
2a6$er7s income "0# !09,000 20# //,"9 !/9,000
!0# !!,290 !9,000
5llocation !!1,290 //,"90 !90,000
-i.idends "0# 91,000 20# !1,000 "2,000
!0# 0,000 0,000 (,000
5llocation 10,000 !1,000 0,000 (0,000
Solution !8-8
Preliminary com'(tations
Cost :ctober !, 2009 (2,000
Implied fair .alue of 2at ((2,000 ' (0#% !0/,000
>oo? .alue on :ctob6er ! ac*uisition date+
>oo? .alue on <anuar$ !, 2009 "0,000
5dd+ Income <anuar$ ! to :ctober !
(20,000 /'0 $ear%
!(,000
-educt+ -i.idends Darch !9 (9,000%
>oo? .alue :ctober ! (/,000
@ood6ill 20,000
Income from 2at for 2009
2hare of 2at7s net income (20,000 !'0 $ear (0#%
0,(00
=ess+ 3nrealiBed profit in 2at7s ending in.entor$ (!,000%
Income from 2at /,(00
A Preac*uisition income (20,000 /'0 $ear (0#%
!0,000
A Preac*uisition di.idends (9,000 (0#%
0,000
A )oncontrolling interest share (1,000 20#%
!,200
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-23
A 3nder 2452 )o. !10, preac*uisition earnings are not
sho6n as a reduction of consolidated net income. Eather,
6e onl$ include earnings and di.idends subse*uent to the
ac*uisition date. Preac*uistion amounts are disclosed in
re*uired pro;forma disclosures for ac*uisitions. ,he
6or?sheet on the follo6ing page reflects these
adCustments.
Solution !8-8 (continued%
!o& Co"&o"ation an* Sub'i*ia"%
Consolidation Nor?ing Papers
for the $ear ended -ecember /!, 2009
Pop 2at (0#
5dCustments and
Eliminations
Consolidated
2tatements
.ncome Statement
2ales !!2,000 90,000 a !2,000
c /",900
!!2,900
Income from 2at /,(00 b /,(00
Cost of sales 10,000A 20,000A d !,000 a !2,000
c !9,000
90,000A
:perating e8penses 29,!00A 1,000A c 0,900 21,100A
Consolidated net income /!,900
)oncontrolling int. share f !,200 !,200A
Controlling share of )I /0,"00 20,000 /0,"00
5etained Earnings
Eetained earnings Pop /0,000 /0,000
Eetained earnings 2at 20,000 e 20,000
)et income /0,"00 20,000 /0,"00
-i.idends 20,000A !0,000A b 0,000
c 9,000
f !,000 20,000A
Eetained earnings
-ecember /! 00,"00 /0,000 00,"00
&alance S$eet
Cash 9,!00 ",000 !2,!00
5ccounts recei.able !0,000 !",000 @ 1,000 2!,000
)ote recei.able 9,000 !0,000 !9,000
In.entories /0,000 !1,000 d !,000 09,000
Plant assets net ((,000 10,000 !0(,000
In.estment in 2at (2,200 b 200
e (2,000
@ood6ill e 20,000 20,000
220,"00 !!0,000 21!,900
5ccounts pa$able !9,000 !1,000 g 1,000 29,000
)otes pa$able 29,000 !0,000 /9,000
Capital stoc? !00,000 90,000 e 90,000 !00,000
2009 Pearson Education, Inc. publishing as Prentice Hall
8-24 Consolidations Changes in Ownership Interests
Eetained earnings 00,"00 /0,000 00,"00
220,"00 !!0,000
)oncontrolling interest beginning c !/,000
e ",100
)oncontrolling interest -ecember /! f 200 20,(00
21!,900
A -educt
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-25
Solution !8-9
S(''orting com'(tations:
4air .alue boo? .alue differential
In.estment cost !"9,000
Implied total fair .alue of 2id (!"9,000 ' "0#% 290,000
=ess+ >oo? .alue of 2id (290,000 e*uit$ on <anuar$ ! plus
!0,000 net income (!'0 $ear% less !0,000 di.idends% 290,000
4air .alue boo? .alue differential 0
Allocation of Sids re'orted net income
Parent compan$ (00,000 /'0 $ear "0#%
2!,000
Preac*uisition income (00,000 !'0 $ear "0#%
",000
)oncontrolling interest share (00,000 ! $ear /0#%
!2,000
2id7s net income 00,000
Pals income from Sid
E*uit$ in 2id7s income 2!,000
Constructi.e gain on parent7s bonds
)ote that bonds pa$able has a boo? .alue of !09,000 on -ecember
/!, 2009. 5 half;$ear of premium amortiBation (/00% $ields a boo?
.alue of !09,"00 at <ul$ !, 2009.
( !09,"00 boo? .alue on <ul$ ! less !02,(90 on -ecember /!% 2,(90
Eecognition of constructi.e gain on separate boo?s
(2,(90 1'!!0 months%
(!90%
@ain on intercompan$ sale of e*uipment do6nstream
I/0,000 ; (/1,000'2%K (!2,000%
Piecemeal recognition of gain on e*uipment do6nstream
(!2,000'/ $ears !'2 $ear%
2,000
@ain on intercompan$ sale of land upstream
(!0,000 ; (,000 cost% "0#
(!,000%
Income from 2id !2,/00
2009 Pearson Education, Inc. publishing as Prentice Hall
8-26 Consolidations Changes in Ownership Interests
Solution !8-9 /continu#*0
8or%s$eet entries in 9o(rnal form
a Income from 2id !2,/00
-i.idends ; 2id ",000
In.estment in 2id common 9,/00
Eliminate intercompan$ post;ac*uisition earnings and
di.idends and return In.estment to beginning
balance.
b 2ales A /",900
Cost of sales A 2",900
-i.idends J 2idA !0,000
Eetained earnings ; 2id 90,000
Common stoc? ; 2id 200,000
In.estment in 2id ; common !"9,000
)oncontrolling interest "9,000
Eliminate preac*uisition earnings and di.idends.
Eliminate 2id7s e*uit$ accounts, the in.estment
account and establish beginning noncontrolling
interest.
c @ain on plan assets !2,000
Plan assets !2,000
Eliminate intercompan$ gain on sale of e*uipment.
d @ain on plan assets 2,000
Plan assets 2,000
Eliminate intercompan$ gain on sale of land.
e Interest income 9,(90
Interest e8pense 9,"00
@ain on bond retirement 2,(90
In.estment in Pal bonds !02,"00
>onds pa$able !00,000
Premium on bonds 9,000
Eecord constructi.e retirement of bonds pa$able.
f Interest pa$able 1,000
Interest recei.able 1,000
Eliminate reciprocal interest accounts.
g :ther current liabilities ",000
:ther current assets ",000
Eliminate reciprocal for unpaid intercompan$
di.idends.
h )oncontrolling interest share (,000
-i.idends ; 2id /,000
)oncontrolling interest 9,000
Eecord noncontrolling interest share of earnings and
post;ac*uisition di.idends.
i Plan assets 2,000
E8penses 2,000
Eliminate e8cess depreciation on e*uipment.
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-27
Solution !8-9 (continued%
!al Co"&o"ation an* Sub'i*ia"%
Consolidation Nor?ing Papers
for the $ear ended -ecember /!, 2009
Pal 2id "0#
5dCustments and
Eliminations
Consolidated
2tatements
.ncome Statement
2ales 2(",!00 !90,000 b /",900 /99,100
Income from 2id !2,/00 a !2,/00
@ain on bonds a 2,(90 2,(90
@ain on plant assets !2,000 2,000 c !2,000
d 2,000
Interest income 9,(90 e 9,(90
Interest e8pense !!,000A e 9,"00 9,"00A
E8penses includes cost of
goods sold
200,000A !!",(90A
b 2",900
i 2,000 2((,/90A
Consolidated )I !01,000
)oncontrolling int. share h (,000 (,000A
Controlling share of )I
!00,000 00,000 !00,000
5etained Earnings
Eetained earnings Pal 290,000 290,000
Eetained earnings 2id 90,000 b 90,000
)et income !00,000 00,000 !00,000
-i.idends 90,000A 20,000A a ",000
b !0,000
h /,000 90,000A
Eetained earnings
-ecember /!
/00,000 "0,000 /00,000
&alance S$eet
Cash !",000 0,000 2!,000
Interest recei.able 1,000 f 1,000
In.entories !00,000 10,000 200,000
:ther current assets !!0,000 20,000 g ",000 !2/,000
Plant assets net 902,"00 !0",/00 i 2,000 c !2,000
d 2,000 99(,000
In.estment 2id common !(0,/00 a 9,/00
b !"9,000
In.estment Pal bonds !02,"00 e !02,"00
990,000 /00,000 902,000
Interest pa$able 1,000 f 1,000
:ther current liabilities /(,100 /0,000 g ",000 1!,100
!2# bonds pa$able !00,000 e !00,000
Premium on bonds 9,000 e 9,000
Common stoc? 900,000 200,000 b 200,000 900,000
Eetained earnings /00,000 "0,000 /00,000
990,000 /00,000
)oncontrolling interest (290,000 /0#%
b "9,000
)oncontrolling interest -ecember /!
(21(,000 /0#%
i 9,000 (0,000
902,000
2009 Pearson Education, Inc. publishing as Prentice Hall
8-28 Consolidations Changes in Ownership Interests
Solution !8-1
S(''orting com'(tations:
In.estment cost of "0# interest 020,000
Implied total fair .alue of 2am (020,000 ' "0#% 100,000
>oo? .alue of 2am 900,000
@ood6ill !00,000
In.estment cost of !0# interest 1",900
Implied total fair .alue of 2am (1",900 ' !0#% 1"9,000
>oo? .alue of 2am+
>eginning e*uit$ <anuar$ !, 20!0 990,000
5dd+ Income for !'2 $ear 90,000
=ess+ <une di.idends (29,000%
>oo? .alue at <ul$ !, 20!0 9"9,000
@ood6ill (unchanged% !00,000
In.estment in 2am account+
In.estment cost <anuar$ !, 2009 020,000
5dd+ 2009 share of retained earnings
increase (90,000 "0#%
/9,000
=ess+ 3nrealiBed profit in ending in.entor$ (9,000%
=ess+ 3nrealiBed gain on land ((,000% 22,000
In.estment balance -ecember /!, 2009 002,000
5dd+ In.estment cost of !0# interest 1",900
5dd+ Income from 2am for 20!0
!00,000 "0# interest ! $ear
"0,000
!00,000 !0# interest !'2 $ear
9,000
5dd+ >eginning in.entor$ profits 9,000
=ess+ Ending in.entor$ profits (1,000%
=ess+ @ain+ intercompan$ sale machiner$ (00,000%
5dd+ Piecemeal recognition of gain
(00,000'9 !'2 $ear%
0,000 /(,000
=ess+ -i.idends from 2am
(29,000 "0#% & (29,000 (0#%
(/",900%
In.estment balance -ecember /!, 20!0 9!0,000
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-29
Solution !8-1 (continued%
!oco Co"&o"ation an* Sub'i*ia"%
Consolidation Nor?ing Papers
for the $ear ended -ecember /!, 20!0
(in thousands%
Poco
(0#
2am
5dCustments and
Eliminations
Consolidated
2tatements
.ncome Statement
2ales 900 900 a 0( !,/92
Income from 2am /( f /(
@ain on machiner$ 00 d 00
Cost of sales 000A /00A c 1 a 0(
b 9 19/A
-epreciation e8pense 90A 10A d 0 !01A
:ther e8penses !10A 00A 200A
Consolidated net income /9/
)oncontrolling int. share h 29 29A
Controlling share of )I
/2( !00 /2(
5etained Earnings
Eetained earnings Poco !99 !99
Eetained earnings 2am 290 g 290
Controlling share of )I /2( !00 /2(
-i.idends 200A 90A f /".9
h !0
g 2.9 200A
Eetained earnings
-ecember /!
2(/ /00 2(/
&alance S$eet
Cash 20 (0 !00
5ccounts recei.able !/0 /0 i 29 !/9
-i.idends recei.able 20 C 20
In.entories 90 "0 c 1 !90
:ther current items 20 (0 !00
=and 90 00 e ( (2
>uildings net 10 !09 !19
Dachiner$ net !00 /20 d /1 /(0
In.estment in 2am 9!0 b 9
e (
g 922.9
f .9
@ood6ill g !00 !00
!,000 "29 !,220
5ccounts pa$able !"" 00 i 29 !92
-i.idends pa$able !00 29 C 20 !09
:ther liabilities !00 10 200
Capital stoc?, !0 par /00 /00 g /00 /00
Eetained earnings 2(/ /00 2(/
!,000 "29
)oncontrolling interest, <anuar$ ! g !29
)oncontrolling interest, -ecember /! h 9 !00
!,220
A -educt
2009 Pearson Education, Inc. publishing as Prentice Hall
8-30 Consolidations Changes in Ownership Interests
Solution !8-11
Preliminar$ computations+
In.estment cost of (9# of 2l$ 5ugust !, 2009 922,"90
Implied fair .alue of 2l$ (922,"90 ' (9#% 1!9,000
>oo? .alue 5ugust !, 2009+
Capital stoc? 900,000
Eetained earnings !00,000
5dd+ Income for " months /9,000
=ess+ -i.idends for !'2 $ear (20,000%
2toc?holders7 e*uit$ 5ugust !, 2009 1!9,000
4air .alue J boo? .alue differential 0
In.estment cost 5ugust !, 2009 922,"90
E*uit$ in income 10,000 9'!2 $ear (9#
2!,290
=ess+ -eferred in.entor$ profit from
upstream sale 9,000 (9#
(0,290%
=ess+ -eferred profit from sale of
e*uipment !0,000 profit ; (2,000 !'0 $ear%
(9,900%
Income from 2l$ 2009 ",900
=ess+ -i.idends from 2l$ 20,000 (9#
(!",000%
In.estment in 2l$ -ecember /!, 2009 9!/,290
)oncontrolling interest share of post;ac*uisition income, adCusted for the
in.entor$ profit+ (29,000 ; 9,000% !9# F /,000
Preac*uisition earnings (/9,000 (9#% F 29,"90
3nder 2452 )o. !10, pre;ac*uisition earnings and di.idends are closed to
retained earnings, and the consolidated income statement reports onl$ post;
ac*uisition earnings.
8or%ing 'a'er entries:
a 2ales 10,000
Cost of sales 10,000
,o eliminate intercompan$ sales.
b Cost of sales 9,000
In.entories 9,000
,o defer unrealiBed in.entor$ profits.
c 2ales 90,000
Cost of sales 00,000
Plant assets net !0,000
,o eliminate intercompan$ sale of in.entor$ item to be used as
e*uipment.
d Plant assets net 900
:perating e8pense 900
,o record depreciation for !'0 $ear on intercompan$ gain on plant
asset.
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-31
!8-11 (continued%
e Income from 2l$ ",900
In.estment in 2l$ 9,900
-i.idends !",000
,o eliminate income and di.idends and return in.estment account to
its beginning;of;the;period balance.
f Capital stoc? 900,000
Eetained earnings !00,000
In.estment in 2l$ 922,"90
)oncontrolling interest 92,290
2ales A 2//,///
Cost of sales A !09,(//
:perating e8penses A 92,900
-i.idends A 20,000
,o eliminate reciprocal e*uit$ and in.estment balances, and enter
beginning noncontrolling interest (A adCusted for preac*uisition
earnings and di.idends%.
g -i.idends pa$able !",000
-i.idends recei.able !",000
,o eliminate reciprocal di.idends recei.able and pa$able amounts.
h )oncontrolling Interest 2hare /,000
-i.idends /,000
,o enter )oncontrolling Interest share of subsidiar$ post;
ac*uisition income and di.idends.
Alternative to entry c:
2ales 90,000
Cost of sales 90,000
Cost of sales !0,000
Plant assets net !0,000
2009 Pearson Education, Inc. publishing as Prentice Hall
8-32 Consolidations Changes in Ownership Interests
Solution !8-11 (continued%
!a+ Co"&o"ation an* Sub'i*ia"%
Consolidation Nor?ing Papers
for the $ear ended -ecember /!, 2009
Pa? 2l$ (9#
5dCustments and
Eliminations
Consolidated
2tatements
.ncome Statement
2ales 9!0,000 000,000 a 10,000
c 90,000
f 2//,/// 911,11"
Income from 2l$ ",900 e ",900
Cost of sales 900,000A 290,000A b 9,000 a 10,000
c 00,000
f !09,(// 909,!1"A
:perating e8pense 200,000A 90,000A d 900
f 92,900
2/",000A
Consolidated net income 220,,900A
)oncontrolling int. share h /,000 /,000A
Controlling share of )I 2!",900 10,000 2!",900
5etained Earnings
Eetained earnings Pa? !92,900 !92,900
Eetained earnings 2l$ !00,000 f !00,000
)et income 2!",900 10,000 2!",900
-i.idends !00,000A 00,000A e !",000
f 20,000
h /,000 !00,000A
Eetained earnings
-ecember /! /!0,000 !20,000 /!0,000
&alance S$eet
Cash //,"90 !0,000 0/,"90
-i.idends recei.able !",000 g !",000
5ccounts recei.able !20,000 "0,000 !90,000
In.entories /00,000 !90,000 b 9,000 009,000
Plant assets net ((0,000 900,000 d 900 c !0,000 !,/"0,900
In.estment in 2l$ 9!/,290 e 9,900 f 922,"90
!,(10,000 "/0,000 2,009,290
5ccounts pa$able !90,000 90,000 200,000
-i.idends pa$able 20,000 g !",000 /,000
Capital stoc? !,000,000 900,000 f 900,000 !,000,000
Eetained earnings /!0,000 !20,000 /!0,000
!,(10,000 "/0,000
)oncontrolling interest <anuar$ ! f 92,290
)oncontrolling interest -ecember /! 92,290
2,009,290
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-33
2009 Pearson Education, Inc. publishing as Prentice Hall
8-34 Consolidations Changes in Ownership Interests
Solution !8-12
.ndirect /et$od
!o11 Co"&o"ation an* Sub'i*ia"%
Consolidated 2tatement of Cash 4lo6s
for the $ear ended -ecember /!, 20!0
Cash 4lo6s from :perating 5cti.ities
Consolidated net income J controlling share /00,000
5dCustments to reconcile net income to cash
pro.ided b$ operating acti.ities+
)oncontrolling interest share 22,000
-epreciation e8pense 92(,000
-ecrease in accounts recei.able 2,900
-ecrease in prepaid e8penses 20,000
-ecrease in accounts pa$able (20/,900%
Increase in in.entories (!/0,000%
@ain on sale of !0# interest A (9,"00% 2//,/00
)et cash flo6s from operating acti.ities 9//,/00
Cash 4lo6s from In.esting 5cti.ities
Purchase of e*uipment (!00,000%
2ale of !0# interest in subsidiar$ "2,"00
)et cash flo6s from in.esting acti.ities (2",/00%
Cash 4lo6s from 4inancing 5cti.ities
Cash paid on long;term note (/00,000%
Pa$ment of cash di.idends controlling (200,000%
Pa$ment of cash di.idends noncontrolling (!0,000%
)et cash flo6s from financing acti.ities (9!0,000%
-ecrease in cash for 20!0 (0,000%
Cash on hand <anuar$ !, 20!0 90,900
Cash on hand -ecember /!, 20!0 01,900
: Note: Since Poff maintains a controlling interest in Sato+ no gain or loss
s$o(ld $ave )een recognized on sale of t$e 1! interest. 5at$er+ t$is amo(nt
s$o(ld a''ear as an increase in ot$er 'aid7in ca'ital. ;$e net effect on t$e
statement of cas$ flows is t$e same.
2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8 8-35
Solution !8-12 (continued%
!o11 Co"&o"ation an* Sub'i*ia"%
Nor?ing Papers for the 2tatement of Cash 4lo6s (Indirect Dethod%
for the $ear ended -ecember /!, 20!0
Eeconciling Items Cash 4lo6s Cash 4lo6s Cash 4lo6s
Lear7s from In.esting 4inancing
Change -ebit Credit :perations 5cti.ities 5cti.ities
Asset #$anges
Cash (0,000%
5ccounts
recei.able net (2,900% e 2,900
In.entories !/0,000 ? !/0,000
Prepaid e8penses (20,000% l 20,000
E*uipment 90,000 h !0,000 g !00,000
5ccumulated
depreciation
(09(,000% f 900,000 h 2,000
=and and buildings 0
5ccumulated
depreciation
(2(,000% f 2(,000
,otal asset
changes (//2,900%
#$anges in E,(ities
5ccounts pa$able (20/,900% i 20/,900
-i.idends pa$able 0
=ong;term note
pa$able
(/00,000% C /00,000
Common stoc? 0
Eetained earnings !00,000 a /00,000 c 200,000
)oncontrol. int. 20# "!,000 b 22,000 d !0,000
h 99,000
Changes in
e*uities (//2,900%
Consolidated net income a /00,000 /00,000
)oncontrolling int. share b 22,000 22,000
Purchase of e*uipment g !00,000 (!00,000%
-epreciation e*uipment
and buildings f 92(,000 92(,000
@ain ; sale of !0# subsidiar$
Interest h 9,"00 (9,"00%
-ecrease in accounts
recei.able
e 2,900 2,900
Increase in in.entories ? !/0,000 (!/0,000%
-ecrease in prepaid e8penses l 20,000 20,000
-ecrease in accounts pa$able i 20/,900 (20/,900%
Cash paid on long;term note C /00,000 (/00,000%
Paid di.idends controlling
c 200,000 (200,000%
Paid di.idends noncontrol. d !0,000 (!0,000%
2ale of !0# interest in
2ubsidiar$ h "2,"00 "2,"00
!,(90,"00 !,(90,"00
9//,/00 (2",/00% (9!0,000%
2009 Pearson Education, Inc. publishing as Prentice Hall
8-36 Consolidations Changes in Ownership Interests
Cash decrease for 20!0 F 9//,/00 ; 2",/00 ; 9!0,000 F (0,000%.
: Note: Since Poff maintains a controlling interest in Sato+ no gain or loss
s$o(ld $ave )een recognized on sale of t$e 1! interest. 5at$er+ t$is amo(nt
s$o(ld a''ear as an increase in ot$er 'aid7in ca'ital. ;$e net effect on t$e
statement of cas$ flows is t$e same.
2009 Pearson Education, Inc. publishing as Prentice Hall