SM Akl

CHAPTER 1
INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES

SOLUTIONS TO EXERCISES
E1-1 Multiple-Choice Questions on Complex Organizations
1. b
2. d
3. a
4. b
5. d
E1-2 Multiple-Choice Questions on Recording Business Combinations
[AICPA Adapted]
1. a
2. c
3. d
4. d
5. c
E1-3 Multiple-Choice Questions on Reported Balances [AICPA Adapted]
1. d
2. d
3. c
4. c
E1-4 Multiple-Choice Questions Involving Account Balances
1. c
2. c
3. b
4. b
5. b
E1-5 Asset Transfer to Subsidiary
a. Journal entry recorded by Pale Company for transfer of assets to Bright Company:
Investment in Bright Company Common Stock
Accumulated Depreciation Buildings
Accumulated Depreciation Equipment
Cash
Inventory
Land
Buildings
Equipment
408,000
24,000
36,000
21,000
37,000
80,000
240,000
90,000
b. Journal entry recorded by Bright Company for receipt of assets from Pale Company:
Cash
21,000
Inventory
37,000
Land
80,000
Buildings
240,000
Equipment
90,000

Common Stock
Additional Paid-In Capital
24,000
36,000
60,000
348,000
E1-6 Creation of New Subsidiary

a. Journal entry recorded by Lester Company for transfer of assets to Mumby Corporation:
Investment in Mumby Corporation Common Stock
Allowance for Uncollectible Accounts Receivable
Cash
Accounts Receivable
Inventory
Land
Buildings
Equipment
498,000
7,000
35,000
60,000
40,000
75,000
50,000
35,000
160,000
240,000
b. Journal entry recorded by Mumby Corporation for receipt of assets from Lester Company:
Cash
Accounts Receivable
Inventory
Land
Buildings
Equipment
Allowance for Uncollectible
Accounts Receivable
Common Stock
40,000
75,000
50,000
35,000
160,000
240,000
7,000
35,000
60,000
120,000
378,000
E1-7 Balance Sheet Totals of Parent Company

a. Journal entry recorded by Foster Corporation for transfer of assets and accounts payable to
Kline Company:
Investment in Kline Company Common Stock
Accumulated Depreciation
Accounts Payable
Cash
Accounts Receivable
Inventory
Land
Depreciable Assets
66,000
28,000
22,000
15,000
24,000
9,000
3,000
65,000
b. Journal entry recorded by Kline Company for receipt of assets and accounts payable from
Foster Corporation:
Cash
Accounts Receivable
Inventory
Land
Depreciable Assets
Accounts Payable
Common Stock
15,000
24,000
9,000
3,000
65,000
28,000
22,000
48,000
18,000
E1-8 Creation of Partnership

a. Journal entry recorded by Glover Corporation for transfer of assets to G&R
Partnership:
Investment in G&R Partnership
Cash
Accounts Receivable
Inventory
Land
Buildings
Equipment
450,000
60,000
40,000
10,000
19,000
35,000
16,000
260,000
210,000
b. Journal entry recorded by Renfro Company for the transfer of cash to G&R
Partnership:
Investment in G&R Partnership
Cash
50,000
50,000
c. Journal entry recorded by G&R Partnership for receipt of assets from Glover
Corporation and Renfro Company:
Cash
Accounts Receivable
Inventory
Land
Buildings
Equipment
Capital, Glover Corporation
Capital, Renfro Company
60,000
19,000
35,000
16,000
260,000
210,000
60,000
40,000
450,000
50,000
E1-9 Acquisition of Net Assets

Sun Corporation will record the following journal entries:
(1)
Assets
Goodwill
Liabilities
Cash
(2)
Merger Expense
Cash
71,000
9,000
20,000
60,000
4,000
4,000
E1-10 Reporting Goodwill

a. Goodwill: $120,000 = $310,000 - $190,000
Investment: $310,000
b. Goodwill: $6,000 = $196,000 - $190,000
Investment: $196,000
c. Goodwill: $0; no goodwill is recorded when the purchase price is below the fair
value of the net identifiable assets.
Investment: $190,000; recorded at the fair value of the net identifiable assets.
E1-11 Stock Acquisition
Journal entry to record the purchase of Tippy Inc., shares:
Investment in Tippy Inc., Common Stock
Common Stock
986,000
425,000
561,000
$986,000 = $58 x 17,000 shares

$425,000 = $25 x 17,000 shares
$561,000 = ($58 - $25) x 17,000 shares
E1-12 Balances Reported Following Combination
a. Stock Outstanding: $200,000 + ($10 x 8,000 shares)
$280,000
b. Cash and Receivables: $150,000 + $40,000
190,000
c.
185,000
Land: $100,000 + $85,000
d. Buildings and Equipment (net): $300,000 + $230,000

e. Goodwill: ($50 x 8,000) - $355,000
f.
Additional Paid-In Capital:

$20,000 + [($50 - $10) x 8,000]
g. Retained Earnings
530,000
45,000
340,000
330,000
4
E1-13 Goodwill Recognition

Journal entry to record acquisition of Spur Corporation net assets:
Cash and Receivables
Inventory
Land
Plant and Equipment
Patent
Goodwill
Accounts Payable
Cash
40,000
150,000
30,000
350,000
130,000
55,000
85,000
670,000
Computation of goodwill
Fair value of consideration given
Fair value of assets acquired
Fair value of liabilities assumed
Fair value of net assets acquired
Goodwill
$700,000
(85,000)
$670,000
615,000
$ 55,000
E1-14 Acquisition Using Debentures

Journal entry to record acquisition of Sorden Company net assets:
Inventory
Land
Plant and Equipment
Discount on Bonds Payable
Goodwill
Accounts Payable
Bonds Payable
50,000
200,000
100,000
300,000
17,000
8,000
50,000
625,000
Goodwill
$650,000
(50,000)
$608,000
600,000
$ 8,000
E1-15 Bargain Purchase

Journal entry to record acquisition of Sorden Company net assets:
Inventory
Land
50,000
200,000
100,000
5
Plant and Equipment

Accounts Payable
Bonds Payable
Gain on Bargain Purchase of Subsidiary
300,000
16,000
50,000
580,000
36,000
The gain represents the excess of the $600,000 fair value of the net assets
acquired ($650,000 - $50,000) over the $564,000 paid to purchase ownership.
E1-16 Impairment of Goodwill

a. Goodwill of $80,000 will be reported. The fair value of the reporting unit ($340,000) is
greater than the carrying amount of the investment ($290,000) and the goodwill
does not need to be tested for impairment.
b. Goodwill of $35,000 will be reported (fair value of reporting unit of $280,000 - fair value
of net assets of $245,000). An impairment loss of $45,000 ($80,000 - $35,000) will
be recognized.
c. Goodwill of $15,000 will be reported (fair value of reporting unit of $260,000 - fair value
of net assets of $245,000). An impairment loss of $65,000 ($80,000 - $15,000) will
be recognized.
E1-17 Assignment of Goodwill
a. No impairment loss will be recognized. The fair value of the reporting unit ($530,000) is
greater than the carrying value of the investment ($500,000) and goodwill does not
need to be tested for impairment.
b. An impairment of goodwill of $15,000 will be recognized. The implied value of goodwill
is $45,000 ($485,000 - $440,000), which represents a $15,000 decrease from the
original $60,000.
c. An impairment of goodwill of $50,000 will be recognized. The implied value of goodwill
is $10,000 ($450,000 - $440,000), which represents a $50,000 decrease from the
original $60,000.
E1-18 Goodwill Assigned to Reporting Units
Goodwill of $158,000 ($60,000 + $48,000 + $0 + $50,000) should be reported, computed
as follows:
Reporting Unit A: Goodwill of $60,000 should be reported. The implied value of
goodwill is $90,000 ($690,000 - $600,000) and the carrying amount of goodwill is
$60,000.
Reporting Unit B: Goodwill of $48,000 should be reported. The fair value of the
reporting unit ($335,000) is greater than the carrying value of the investment
($330,000).
Reporting Unit C: No goodwill should be reported. The fair value of the net assets
($400,000) exceeds the fair value of the reporting unit ($370,000).
Reporting Unit D: Goodwill of $50,000 should be reported. The fair value of the
reporting unit ($585,000) is greater than the carrying value of the investment
($520,000).
E1-19 Goodwill Measurement
a. Goodwill of $150,000 will be reported. The fair value of the reporting unit ($580,000) is
greater than the carrying value of the investment ($550,000) and goodwill does not
need to be tested for impairment.
b. Goodwill of $50,000 will be reported. The implied value of goodwill is $50,000 (fair
value of reporting unit of $540,000 - fair value of net assets of $490,000). Thus, an
impairment of goodwill of $100,000 ($150,000 - $50,000) must be recognized.
c. Goodwill of $10,000 will be reported. The implied value of goodwill is $10,000 (fair value
of reporting unit of $500,000 - fair value of net assets of $490,000). Thus, an
impairment loss of $140,000 ($150,000 - $10,000) must be recognized.
d. No goodwill will be reported. The fair value of the net assets ($490,000) exceeds the
fair value of the reporting unit ($460,000). Thus, the implied value of goodwill is $0
and an impairment loss of $150,000 ($150,000 - $0) must be recognized.
E1-20 Computation of Fair Value
Amount paid
Book value of assets
Book value of liabilities
Book value of net assets
Adjustment for research and development costs
Adjusted book value
Fair value of patent rights
Goodwill recorded
Fair value increment of buildings and equipment
Book value of buildings and equipment
Fair value of buildings and equipment
$624,000
(356,000)
$268,000
(40,000)
$228,000
120,000
93,000
$517,000
(441,000)
$ 76,000
341,000
$417,000
E1-21 Computation of Shares Issued and Goodwill

a. 15,600 shares were issued, computed as follows:
Par value of shares outstanding following merger
Paid-in capital following merger
Total par value and paid-in capital
Par value of shares outstanding before merger
Paid-in capital before merger
$218,400
370,000
Increase in par value and paid-in capital

Divide by price per share
Number of shares issued
$327,600
650,800
$978,400
(588,400)
$390,000
$25
15,600
b. The par value is $7, computed as follows:

Increase in par value of shares outstanding
($327,600 - $218,400)
Divide by number of shares issued
Par value
$109,200
15,600
$
7.00
c. Goodwill of $34,000 was recorded, computed as follows:

Increase in par value and paid-in capital
Fair value of net assets ($476,000 - $120,000)
Goodwill
$390,000
(356,000)
$ 34,000
E1-22 Combined Balance Sheet

Adam Corporation and Best Company
Combined Balance Sheet
January 1, 20X2
Inventory
Buildings and Equipment
Less: Accumulated Depreciation
Goodwill
$ 240,000
460,000
840,000
(250,000)
75,000
$1,365,000
Accounts Payable
Notes Payable
Common Stock
Retained Earnings
$ 125,000
235,000
244,000
556,000
205,000
$1,365,000
Fair value of compensation given
Fair value of net identifiable assets
($490,000 - $85,000)
Goodwill
$480,000
(405,000)
$ 75,000
E1-23 Recording a Business Combination

Merger Expense
Deferred Stock Issue Costs
Cash
54,000
29,000
Cash
Accounts Receivable
Inventory
Land
Goodwill (1)
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Additional Paid-In Capital (2)
70,000
110,000
200,000
100,000
350,000
30,000
83,000
195,000
100,000
5,000
320,000
211,000
29,000
Fair value of consideration given (40,000 x $14)
Goodwill
$830,000
(300,000)
$560,000
(530,000)
$ 30,000
Computation of additional paid-in capital

Issue price in excess of par value ($14 - $8)
Total
Less: Deferred stock issue costs
Increase in additional paid-in capital
40,000
x
$6
$240,000
(29,000)
$211,000
E1-24 Reporting Income

20X2:
Net income
Earnings per share
=
=
$6,028,000 [$2,500,000 + $3,528,000]

$5.48 [$6,028,000 / (1,000,000 + 100,000*)]
20X1:
Net income
Earnings per share
=
=
$4,460,000 [previously reported]

$4.46 [$4,460,000 / 1,000,000]
* 100,000 = 200,000 shares x year
SOLUTIONS TO PROBLEMS
P1-25 Assets and Accounts Payable Transferred to Subsidiary
a. Journal entry recorded by Tab Corporation for its transfer of
assets and accounts payable to Collon Company:
Investment in Collon Company Common Stock
Accounts Payable
Cash
Inventory
Land
Buildings
Equipment
320,000
45,000
40,000
10,000
25,000
70,000
60,000
170,000
90,000
b. Journal entry recorded by Collon Company for receipt of assets

and accounts payable from Tab Corporation:
Cash
Inventory
Land
Buildings
Equipment
Accounts Payable
Common Stock
25,000
70,000
60,000
170,000
90,000
45,000
40,000
10,000
180,000
140,000
P1-26 Creation of New Subsidiary

a. Journal entry recorded by Eagle Corporation for transfer of assets
and accounts payable to Sand Corporation:
Investment in Sand Corporation Common Stock
Accounts Payable
Cash
Accounts Receivable
Inventory
Land
400,000
5,000
40,000
10,000
30,000
45,000
60,000
20,000
300,000
b. Journal entry recorded by Sand Corporation for receipt of assets and

accounts payable from Eagle Corporation:
Cash
Accounts Receivable
30,000
45,000
10
Inventory
Land
Accounts Payable
Common Stock
60,000
20,000
300,000
5,000
40,000
10,000
50,000
350,000
P1-27 Incomplete Data on Creation of Subsidiary

a. The book value of assets transferred was $152,000 ($3,000 + $16,000 + $27,000 + $9,000 +
$70,000 + $60,000 - $21,000 - $12,000).
b. Thumb Company would report its investment in New Company equal to the book value of net
assets transferred of $138,000 ($152,000 - $14,000).
c. 8,000 shares ($40,000/$5).
d. Total assets declined by $14,000 (book value of assets transferred of $152,000 - investment
in New Company of $138,000).
e. No effect. The shares outstanding reported by Thumb Company are not affected by the
creation of New Company.
P1-28 Establishing a Partnership
a. Journal entry recorded by K&D partnership for receipt of assets and
accounts payable:
Cash
Inventory
Land
Buildings
Equipment
Accounts Payable
Capital, Krantz Company
Capital, Dull Corporation
210,000
30,000
70,000
200,000
120,000
50,000
30,000
50,000
300,000
200,000
b. Journal entry recorded by Krantz Company for transfer of assets and

accounts payable to K&D Partnership:
Investment in K&D Partnership
Accounts Payable
Cash
Inventory
300,000
50,000
30,000
50,000
10,000
30,000
11
Land
Buildings
Equipment
70,000
200,000
120,000
Journal entry recorded by Dull Corporation for cash transferred to

K&D Partnership:
Investment in K&D Partnership
Cash
200,000
200,000
P1-29 Balance Sheet Data for Companies Establishing a Partnership

a. Journal entry recorded by Good Corporation for assets transferred to
G&W Partnership:
Investment in G&W Partnership
Cash
Inventory
Land
Buildings
Equipment
150,000
30,000
20,000
21,000
4,000
15,000
100,000
60,000
b. Journal entry recorded by Nevall Company for assets transferred to

G&W Partnership:
Investment in G&W Partnership
Cash
Inventory
Equipment
50,000
14,000
3,000
25,000
36,000
c. Journal entry recorded by G&W Partnership for assets received from

Good Corporation and Nevall Company:
Cash
Inventory
Land
Buildings
Equipment
Capital, Good Corporation
Capital, Nevall Company
24,000
29,000
15,000
100,000
96,000
30,000
34,000
150,000
50,000
12
P1-30 Acquisition in Multiple Steps

Deal Corporation will record the following entries:
(1)
Investment in Mead Company Stock

Common Stock - $10 Par Value
(2)
Merger Expense
Cash
3,500
2,000
Investment in Mead Company Stock

Gain on Increase in Value of Mead Company Stock
6,000
(3)
85,000
40,000
45,000
5,500
6,000
P1-31 Journal Entries to Record a Business Combination

Journal entries to record acquisition of TKK net assets:
(1) Merger Expense
Cash
Record payment of legal fees.
14,000
(2) Deferred Stock Issue Costs

Cash
Record costs of issuing stock.
28,000
(3) Cash and Receivables

Inventory
Goodwill
Accounts Payable
Notes Payable
Common Stock
Record purchase of TKK Corporation.
28,000
122,000
470,000
12,000
14,000
28,000
41,000
63,000
96,000
404,000
28,000
($620,000 - $104,000)
Goodwill
$528,000
(516,000)
$ 12,000

Total
24,000
x
$18
$432,000
(28,000)
$404,000
13
P1-32 Recording Business Combinations

Merger Expense
Cash
Cash and Equivalents
Accounts Receivable
Inventory
Land
Buildings
Equipment
Goodwill
Accounts Payable
Short-Term Notes Payable
Bonds Payable
Common Stock $2 Par
38,000
22,000
41,000
73,000
144,000
200,000
1,500,000
300,000
127,000
60,000
35,000
50,000
500,000
900,000
878,000
22,000
Fair value of net assets acquired ($41,000
+ $73,000 + $144,000 + $200,000 + $1,500,000
+ $300,000 - $35,000 - $50,000 - $500,000)
Goodwill
$1,800,000
(1,673,000)
$ 127,000

Total
450,000
x
$2
$900,000
(22,000)
$878,000
P1-33 Business Combination with Goodwill

a. Journal entry to record acquisition of Zink Company net assets:
Cash
Accounts Receivable
Inventory
Patents
Goodwill
Accounts Payable
Notes Payable
Cash
20,000
35,000
50,000
60,000
150,000
38,000
55,000
120,000
178,000
14
b. Balance sheet immediately following acquisition:

Anchor Corporation and Zink Company
February 1, 20X3
Cash
Accounts Receivable
Inventory
Patents
Less: Accumulated
Depreciation
Goodwill
$ 82,000
175,000
220,000
140,000
530,000
(190,000)
38,000
$995,000
Accounts Payable
Notes Payable
Common Stock
Additional Paid-In
Capital
Retained Earnings
$140,000
270,000
200,000
160,000
225,000
$995,000
c. Journal entry to record acquisition of Zink Company stock:

Investment in Zink Company Common Stock
Cash
178,000
178,000
($20,000 + $35,000 + $50,000 + $60,000
+ $150,000 - $55,000 -$120,000)
Goodwill
$178,000
(140,000)
$ 38,000
P1-34 Bargain Purchase

Journal entries to record acquisition of Lark Corporation net assets:
Merger Expense
Cash
Inventory
Buildings and Equipment (net)
Patent
Accounts Payable
Cash
Gain on Bargain Purchase of Lark Corporation
5,000
50,000
150,000
300,000
200,000
5,000
30,000
625,000
45,000
Computation of gain
($700,000 - $30,000)
Gain on bargain purchase
$625,000
(670,000)
$ 45,000
15
P1-35 Computation of Account Balances

a.
Liabilities reported by the Aspro Division at year-end:

Fair value of reporting unit at year-end
Acquisition price of reporting unit
($7.60 x 100,000)
Fair value of net assets at acquisition
($810,000 - $190,000)
Goodwill at acquisition
Impairment in current year
Goodwill at year-end
Fair value of net assets at year-end
$930,000
$760,000
(620,000)
$140,000
(30,000)
(110,000)
$820,000
Fair value of assets at year-end

Fair value of liabilities at year-end
$950,000
(820,000)
$130,000
b. Required fair value of reporting unit:

Fair value of assets at year-end
Fair value of liabilities at year-end (given)
Original goodwill balance
Required fair value of reporting unit to avoid recognition of
impairment of goodwill
$ 950,000
(70,000)
$ 880,000
140,000
$1,020,000
P1-36 Goodwill Assigned to Multiple Reporting Units

a. Goodwill to be reported by Rover Company:
Carrying value of goodwill

Implied goodwill at year-end
Goodwill to be reported at year-end
A
$70,000
90,000
70,000
Reporting Unit
B
$80,000
50,000
50,000
Total goodwill to be reported at year-end:

Reporting unit A
Reporting unit B
Reporting unit C
Total goodwill to be reported
Computation of implied goodwill
Reporting unit A
Fair value of reporting unit
Fair value of identifiable assets
Fair value of accounts payable
Fair value of net assets
C
$40,000
75,000
40,000
$ 70,000
50,000
40,000
$160,000
$350,000
(40,000)
$400,000
(310,000)
$ 90,000
Reporting unit B
16

Reporting unit C
$450,000
(60,000)
$200,000
(10,000)
$440,000
(390,000)
$ 50,000
$265,000
(190,000)
$ 75,000
b. Goodwill impairment of $30,000 ($80,000 - $50,000) must be reported in the

current period for reporting unit B.
P1-37 Journal Entries
Journal entries to record acquisition of Light Steel net assets:
(1) Merger Expense
Cash
Record finder's fee and transfer costs.
(2) Deferred Stock Issue Costs
Cash
Record audit fees and stock registration fees.
(3) Cash
Accounts Receivable
Inventory
Land
Bond Discount
Goodwill
Accounts Payable
Bonds Payable
Common Stock
Record merger with Light Steel Company.
19,000
9,000
60,000
100,000
115,000
70,000
350,000
20,000
95,000
19,000
9,000
10,000
200,000
120,000
471,000
9,000
Fair value of net assets acquired ($695,000 - $10,000
- $180,000)
Goodwill
$600,000
(505,000)
$ 95,000
17

Total
12,000
x
$40
$480,000
(9,000)
$471,000
P1-38 Purchase at More than Book Value

a. Journal entry to record acquisition of Stafford Industries net
assets:
Cash
Accounts Receivable
Inventory
Land
Bond Discount
Goodwill
Accounts Payable
Bonds Payable
Common Stock
30,000
60,000
160,000
30,000
350,000
5,000
125,000
10,000
150,000
80,000
520,000
b. Balance sheet immediately following acquisition:

Ramrod Manufacturing and Stafford Industries
January 1, 20X2
Cash
Accounts Receivable
Inventory
Land
Less: Accumulated
Depreciation
Goodwill
$ 100,000
160,000
360,000
80,000
950,000
Accounts Payable
Bonds Payable
Less: Discount
Common Stock
Additional
Paid-In Capital
(250,000) Retained Earnings
125,000
$1,525,000
$450,000
(5,000)
60,000
445,000
280,000
560,000
180,000
$1,525,000
Fair value of net assets acquired ($630,000 - $10,000
- $145,000)
Goodwill
$600,000
(475,000)
$125,000
18
P1-39 Business Combination

Journal entry to record acquisition of Toot-Toot Tuba net assets:
Cash
Accounts Receivable
Inventory
Plant and Equipment
Other Assets
Goodwill
Allowance for Uncollectibles
Accounts Payable
Notes Payable
Mortgage Payable
Bonds Payable
Capital Stock ($10 par)
Premium on Capital Stock
300
17,000
35,000
500,000
25,800
86,500
1,400
8,200
10,000
50,000
100,000
90,000
405,000
Computation of fair value of net assets acquired

Cash
Accounts Receivable
Allowance for Uncollectible Accounts
Inventory
Plant and Equipment
Other Assets
Accounts Payable
Notes Payable
Mortgage Payable
Bonds Payable
$300
17,000
(1,400)
35,000
500,000
25,800
(8,200)
(10,000)
(50,000)
(100,000)
$408,500
Goodwill
$495,000
(408,500)
$86,500
P1-40 Combined Balance Sheet

a. Balance sheet:
Bilge Pumpworks and Seaworthy Rope Company

January 1, 20X3

Inventory
Land
Plant and Equipment
Less: Accumulated
Depreciation
Goodwill
$110,000 Current Liabilities

142,000 Capital Stock
115,000 Capital in Excess
540,000
of Par Value
Retained Earnings
(150,000)
13,000
$770,000
100,000
214,000
216,000
240,000
770,000
19
Fair value of consideration given (700 x $300)
Fair value of net assets acquired ($217,000 $20,000)
Goodwill
b.
$210,000
(197,000)
$13,000
(1) Stockholders' equity with 1,100 shares issued:

Capital Stock [$200,000 + ($20 x 1,100 shares)]
Capital in Excess of Par Value
[$20,000 + ($300 - $20) x 1,100 shares]
Retained Earnings
222,000
328,000
240,000
790,000

[$20,000 + ($300 - $20) x 1,800 shares]
Retained Earnings
$ 236,000
524,000
240,000
$1,000,000

[$20,000 + ($300 - $20) x 3,000 shares]
Retained Earnings
$ 260,000
860,000
240,000
$1,360,000
P1-41 Incomplete Data Problem

a. 5,200 = ($126,000 - $100,000)/$5
b. $208,000 = ($126,000 + $247,000) - ($100,000 + $65,000)
c. $46,000 = $96,000 - $50,000
d. $130,000 = ($50,000 + $88,000 + $96,000 + $430,000 - $46,000 $220,000 - $6,000) - ($40,000 + $60,000 + $50,000 + $300,000 $32,000 - $150,000 - $6,000)
e. $78,000 = $208,000 - $130,000
f. $97,000 (as reported by End Corporation)
g. $13,000 = ($430,000 - $300,000)/10 years
P1-42 Incomplete Data Following Purchase
a. 14,000 = $70,000/$5
b. $8.00 = ($70,000 + $42,000)/14,000
c. 7,000 = ($117,000 - $96,000)/$3
20
d. $24,000 = $65,000 + $15,000 - $56,000

e. $364,000 = ($117,000 + $553,000 + $24,000) ($96,000 + $234,000)
f. $110,000 = $320,000 - $210,000
g. $306,000 = ($15,000 + $30,000 + $110,000 + $293,000) -($22,000 + $120,000)
h. $58,000 = $364,000 - $306,000
P1-43 Comprehensive Business Combination Problem
a. Journal entries on the books of Bigtime Industries to record the combination:
Merger Expense
Cash
Cash
Cash
Accounts Receivable
Inventory
Long-Term Investments
Land
Rolling Stock
Plant and Equipment
Patents
Special Licenses
Discount on Equipment Trust Notes
Discount on Debentures
Goodwill
Current Payables
Mortgages Payable
Premium on Mortgages Payable
Equipment Trust Notes
Debentures Payable
Common Stock
Additional Paid-In Capital Common
135,000
42,000
28,000
251,500
395,000
175,000
100,000
63,000
2,500,000
500,000
100,000
5,000
50,000
109,700
135,000
42,000
137,200
500,000
20,000
100,000
1,000,000
180,000
2,298,000
42,000
Value of stock issued ($14 x 180,000)
Fair value of net identifiable assets
Goodwill
$4,112,500
(1,702,200)
$2,520,000
(2,410,300)
$ 109,700
21
P1-43 (continued)
b. Journal entries on the books of HCC to record the combination:
Investment in Bigtime Industries Stock
Allowance for Bad Debts
Current Payables
Mortgages Payable
Equipment Trust Notes
Debentures Payable
Discount on Debentures Payable
Cash
Accounts Receivable
Inventory
Long-Term Investments
Land
Rolling Stock
Plant and Equipment
Patents
Special Licenses
Gain on Sale of Assets and Liabilities
Record sale of assets and liabilities.
2,520,000
6,500
614,000
137,200
500,000
100,000
1,000,000
Common Stock
Additional Paid-In Capital Common Stock
Treasury Stock
Record retirement of Treasury Stock:*
$7,500 = $5 x 1,500 shares
$4,500 = $12,000 - $7,500
7,500
4,500
Common Stock
Additional Paid-In Capital Common
Additional Paid-In Capital Retirement
of Preferred
Retained Earnings
Investment in Bigtime
Industries Stock
Record retirement of HCC stock and
distribution of Integrated Industries stock:
$592,500 = $600,000 - $7,500
$495,500 = $500,000 - $4,500
1,410,000 = $220,100 + $1,189,900
592,500
495,500
40,000
28,000
258,000
381,000
150,000
55,000
130,000
2,425,000
125,000
95,800
1,189,900
12,000
22,000
1,410,000
2,520,000
*Alternative approaches exist.
22
CHAPTER 2
REPORTING INTERCORPORATE INVESTMENTS AND CONSOLIDATION OF WHOLLY OWNED
SUBSIDIARIES WITH NO DIFFERENTIAL
E2-1 Multiple-Choice Questions on Use of Cost and Equity Methods
[AICPA Adapted]
1. a
2. a
3. d
4. a
5. b
6. d
7. d
E2-2 Multiple-Choice Questions on Intercorporate Investments
1. b
2. c
E2-3 Multiple-Choice Questions on Applying Equity Method
[AICPA Adapted]
1. c (Preferred stock is not accounted for under the equity method, thus dividends are income.)
2. d $250,000 + ($100,000 x 0.30) ($10,000 x 0.30)
3. c
4. d
5. d
E2-4 Cost versus Equity Reporting
a. Winston Corporation net income cost method:
20X2
$100,000
+
.40($30,000)
20X3
$ 60,000
+
.40($60,000)
20X4
$250,000
+
.40($20,000
+
a
$25,000)a
$112,000
84,000
268,000
Dividends paid from undistributed earnings of prior years

($70,000 + $40,000 - $30,000 - $60,000 = $20,000)
and $25,000 earnings of current period.
b. Winston Corporation net income equity method:

20X2
$100,000
+
.40($70,000)
20X3
$ 60,000
+
.40($40,000)
20X4
$250,000
+
.40($25,000)
$128,000
76,000
260,000
E2-5 Acquisition Price

Balance at date of acquisition:
a. Cost method
$54,000 + $2,800 = $56,800
b. Equity method $54,000 - $2,000 = $52,000
Year
Net Income
20X1
$ 8,000
20X2
12,000
20X3
20,000
Change in account balance
Dividends
$15,000
10,000
10,000
Change in Investment Account

Cost Method
Equity Method
$(2,800)
$(2,800)
800
______
4,000
$(2,800)
$ 2,000
23
E2-6 Investment Income

a. (1) Ravine Corporation net income under Cost Method:
20X6
$140,000
+
0.30($20,000)
20X7
$ 80,000
+
0.30($40,000)
a
20X8
$220,000
+
0.30($20,000 + $10,000)
20X9
$160,000
+
0.30($20,000)
a
Dividends paid from undistributed earnings of prior years
($30,000 + $50,000 - $20,000 - $40,000= $20,000) and $10,000
earnings of current period.
=
=
=
=
$146,000
$ 92,000
$229,000
$166,000
(2) Ravine Corporation net income under Equity Method:

20X6
$140,000
+
0.30($30,000)
=
$149,000
20X7
$ 80,000
+
0.30($50,000)
=
$ 95,000
20X8
$220,000
+
0.30($10,000)
=
$223,000
20X9
$160,000
+
0.30($40,000)
=
$172,000
b. Journal entries recorded by Ravine Corporation in 20X8:

(1) Cost method:
Cash
Dividend Income
Investment in Valley Stock
(2) Equity method:
Cash
Income from Valley
12,000
9,000
3,000
12,000
12,000
3,000
3,000
E2-7 Investment Value

The following amounts would be reported as the carrying value of Ports investment in Sund:
20X2
$184,500 = $180,000
+ ($40,000 x 0.30)
($25,000 x 0.30)
20X3
$193,500 = $184,500
+ ($30,000 x 0.30)
20X4
$195,000 = $193,500 + ($5,000 x 0.30)
E2-8* Income Reporting
Journal entry recorded by Grandview Company:
Investment in Spinet Corporation Stock
Income from Spinet Corporation
Extraordinary Gain (from Spinet Corporation)
36,000
24,000
12,000
E2-9 Fair Value Method

a. Cost method:
Operating income reported by Mock
Dividend income from Small ($15,000 x 0.20)
Net income reported by Mock
$90,000
3,000
$93,000
b. Equity method:
Income from investee ($40,000 x 0.20)
$90,000
8,000
$98,000
24
b. Fair value method:

Unrealized gain on increase in value of Small stock
Dividend income from Small ($15,000 x 0.20)
E2-10 Fair Value Recognition
a. Journal entries under the equity method:
(1) Investment in Lomm Company Stock
Cash
Record purchase of Lomm Company stock.
(2)
(3)
b.
Cash
Investment in Lomm Company Stock
Record dividends from Lomm Company: $20,000 x 0.35
Income from Lomm Company
Record equity-method income: $80,000 x 0.35
Journal entries under fair value method:

(1) Investment in Lomm Company Stock
Cash
Record purchase of Lomm Company stock.
(2)
(3)
Cash
Dividend Income
Record dividends from Lomm Company: $20,000 x 0.35
Urealized Gain on Increase in Value of Lomm Stock
Record increase in value of Lomm stock: $174,000 - $140,000
E2-11* Investee with Preferred Stock Outstanding

Journal entries recorded by Reden Corporation:
(1) Investment in Montgomery Co. Stock
Cash
Record purchase of Montgomery Co. stock.
(2)
(3)
$90,000
16,000
3,000
$ 109,000
140,000
140,000
7,000
7,000
28,000
28,000
140,000
140,000
7,000
7,000
34,000
34,000
288,000
Cash
6,750
Investment in Montgomery Co. Stock
Record dividend from Montgomery Co.: [$40,000 - ($250,000 x .10)] x 0.45
Investment in Montgomery Co. Stock
31,500
Income from Montgomery Co.
Record equity-method income: [$95,000 - ($250,000 x .10)] x 0.45
288,000
6,750
31,500
25
E2-12* Other Comprehensive Income Reported by Investee

Journal entries recorded by Callas Corp. during 20X9:
(1)
(2)
(3)
(4)
Investment in Thinbill Co. Stock

Cash
Record purchase of Thinbill Company
Cash
Record dividend from Thinbill: $9,000 x 0.40
380,000
380,000
3,600
3,600

22,000
Income from Thinbill Co.
Record equity-method income: $22,000 = ($45,000 + $10,000) x 0.40
22,000

8,000
Unrealized Gain on Investments of Investee (OCI)
Record share of OCI reported by Thinbill: $8,000 = $20,000 x 0.40
8,000
Closing entries recorded at December 31, 20X9:

(5)
(6)
Income from Thinbill Co.

Retained Earnings
Unrealized Gain on Investments of Investee (OCI)
Accumulated Other Comprehensive Income from
Investee-Unrealized Gain on Investments
22,000
22,000
8,000
8,000
E2-13* Other Comprehensive Income Reported by Investee

Investment account balance reported by Baldwin Corp.
Add decrease in account recorded in 20X8:
Equity-method loss ($20,000 x .25)
Dividend received ($10,000 x .25)
Deduct increase in account recorded in 20X9:
Equity-method income ($68,000 x .25)
Dividend received ($16,000 x .25)
Other comprehensive income reported by Gwin Company
($12,000 x .25)
Purchase price
$67,000
$ (5,000)
(2,500)
7,500
$17,000
(4,000)
3,000
(16,000)
$58,500
E2-14 Basic Elimination Entry

Common Stock Broadway Corporation
Retained Earnings
Investment in Broadway Common Stock
200,000
300,000
100,000
600,000
26
E2-15 Balance Sheet Worksheet

a.
Equity Method Entries on Blank's Books:
Investment in Faith
150,000
Cash
150,000
Record the initial investment in Faith

12/31/X2
Goodwill = 0
Identifiable
excess = 0
$150,000
Initial
investment in
Faith
Book value =
CS + RE =
150,000
Book Value Calculations:

Total
Book Value
Ending book value
150,000
Common
Stock
60,000
Retained
Earnings
90,000
Basic Elimination Entry

Common stock
60,000
Retained earnings
90,000
Investment in Faith
150,000
Optional accumulated depreciation elimination entry

Accumulated depreciation
Building & equipment
30,000
30,000
(Since the buildings and equipment are reported net of accumulated depreciation on the balance sheet,
this entry will not affect the worksheet. However, if sufficient information had been given, this entry would
have made a difference in the worksheet balances for Buildings and Equipment and Accumulated
Depreciation.)
27
E2-15 (continued)
b.
Elimination Entries
Blank
Faith
DR
CR
Consolidated
Balance Sheet
Cash
65,000
18,000
83,000
Accounts Receivable
87,000
37,000
124,000
Inventory
110,000
60,000
170,000
Buildings & Equipment (net)
220,000
150,000
370,000
Investment in Faith
150,000
Total Assets
632,000
265,000
Accounts Payable
150,000
150,000
747,000
92,000
35,000
127,000
Bonds Payable
150,000
80,000
230,000
Common Stock
100,000
60,000
60,000
100,000
Retained Earnings
290,000
90,000
90,000
290,000
Total Liabilities & Equity
632,000
265,000
150,000
747,000
28
E2-16 Consolidation Entries for Wholly Owned Subsidiary

a.
Equity Method Entries on Trim Corp.'s Books:
Investment in Round Corp.
400,000
Cash
400,000
Record the initial investment in Round Corp.
80,000
Income from Round Corp.
80,000
Record Trim Corp.'s 100% share of Round Corp.'s 20X2 income
Cash
25,000
25,000
Record Trim Corp.'s 100% share of Round Corp.'s 20X2 dividend

b.
Total
Book Value
Common
Stock
Retained
Earnings
Original book
value
400,000
+ Net Income
80,000
80,000
- Dividends
(25,000)
(25,000)
Ending book value
455,000
120,000
120,000
280,000
335,000
29
E2-16 (continued)
Common stock
120,000
Retained earnings
280,000
Income from Round Corp.
80,000
Dividends declared
25,000
455,000
1/1/X2
12/31/X2
Goodwill = 0
Goodwill = 0
Identifiable
excess = 0
Book value =
CS + RE =
400,000
Excess = 0
$400,000
Initial
investment
in Round
Corp.
Book value =
CS + RE =
455,000
$455,000
Net
investment in
Round Corp.
E2-17 Basic Consolidation Entries for Fully Owned Subsidiary

a.
Equity Method Entries on Purple Co.'s Books:
Investment in Amber Corp.
500,000
Cash
500,000
Record the initial investment in Amber Corp.
50,000
Income from Amber Corp.
50,000
Record Purple Co.'s 100% share of Amber Corp.'s 20X7 income
Cash
20,000
20,000
Record Purple Co.'s 100% share of Amber Corp.'s 20X7 dividend
30
b.
Total
Book Value
Original book
value
+ Net Income
500,000
Common
Stock
300,000
Retained
Earnings
200,000
50,000
50,000
- Dividends
(20,000)
(20,000)
Ending book value
530,000
300,000
230,000
31
1/1/X7
12/31/X7
Goodwill = 0
Goodwill = 0
Identifiable
excess = 0
Book value =
CS + RE =
500,000
$500,000
Initial
investment
in Amber
Corp.
Excess = 0
Book value =
CS + RE =
530,000
$530,000
Net
investment in
Amber Corp.
32
E2-17 (continued)

Common stock
300,000
Retained earnings
200,000
Income from Amber Corp.
50,000
Dividends declared
20,000

Investment in
Income from
Amber Corp.
Amber Corp.
Acquisition
Price
500,000
Net Income
50,000
20,000
Ending Balance
530,000
530,000
530,000
0
50,000
Net Income
50,000
Ending Balance
Dividends
Basic
50,000
0
33
P2-18 Retroactive Recognition
Journal entries recorded by Idle Corporation:
(1)
(2)
(3)
(4)
Investment in Fast Track Enterprises Stock

Cash
Record purchase of Fast Track stock.
34,000

Retained Earnings
Record pick-up of difference between
cost and equity income:
20X2
.10($40,000 - $20,000)
20X3
.10($60,000 / 2)
.15[($60,000 / 2) - $20,000]
20X4
.15($40,000 - $10,000)
Amount of increase
11,000
34,000
11,000
$ 2,000
$3,000
1,500
Cash
Record dividend from Fast Track Enterprises: $20,000 x .25
Income from Fast Track Enterprises
Record equity-method income: $50,000 x .25
4,500
4,500
$11,000
5,000
5,000
12,500
12,500
P2-19 Fair Value Method

20X6
20X7
20X8
Dividend income
$ 3,000
$ 6,000
$ 4,000
Balance in investment account
$70,000
$70,000
$70,000
a. Cost method:
b. Equity method:
Investment income:
$40,000 x .20
$35,000 x .20
$60,000 x .20
Balance in investment account:
Balance at January 1
Investment income
Dividends received
Balance at December 31
$ 8,000
$ 7,000
$12,000
$70,000
8,000
(3,000)
$75,000
$75,000
7,000
(6,000)
$76,000
$76,000
12,000
(4,000)
$84,000
34
c. Fair value method:

20X6
20X7
20X8
Investment income:
Dividends received
Gain (loss) on fair value
Total income reported
$ 3,000
19,000
$22,000
$ 6,000
(3,000)
$ 3,000
$ 4,000
11,000
$15,000
Balance in investment account
$89,000
$86,000
$97,000
P2-20 Fair Value Journal Entries

Journal entries under fair value method for 20X8:
(1)
(2)
(3)
Investment in Brown Company Stock

Cash
Record purchase of Brown Company stock.
Cash
Dividend Income
Record dividends from Brown Company: $10,000 x .40
Unrealized Gain on Increase in Value of Brown
Company Stock
Record increase in value of Brown stock: $97,000 - $85,000
85,000
85,000
4,000
4,000
12,000
12,000
Journal entries under fair value method for 20X9:

(1)
(2)
Cash
Dividend Income
Record dividends from Brown Company: $15,000 x .40
Unrealized Loss on Decrease in Value of Brown
Company Stock
Record decrease in value of Brown stock: $97,000 - $92,000
6,000
6,000
5,000
5,000
P2-21* Other Comprehensive Income Reported by Investee

a. Equity-method income reported by Dewey Corporation in 20X5:
Amounts reported by Jimm Co. for 20X5:
Operating income
Dividend income
Gain on investment in trading securities
Net income
Ownership held by Dewey
Investment income reported by Dewey
$70,000
7,000
18,000
$95,000
x
.30
$28,500
b. Computation of amount added to investment account in 20X5:

35
Balance in investment account reported by Dewey:

December 31, 20X5
January 1, 20X5
Increase in investment account in 20X5
Dividends received by Dewey during 20X5
Amount added to investment account in 20X5
$276,800
(245,000)
$ 31,800
6,000
$ 37,800
c. Computation of other comprehensive income reported by Jimm Co.:

Amount added to investment account in 20X5
Investment income reported by Dewey in 20X5
Increase due to other comprehensive income reported by Jimm Co.
Proportion of ownership held by Dewey
Other comprehensive income reported by Jimm Co.
$ 37,800
(28,500)
$ 9,300
0.30
$ 31,000
d. Computation of market value of securities held by Jimm Co.

Amount paid by Jimm Co. to purchase securities
Increase in market value reported as other comprehensive income in 20X5
Market value of available-for-sale securities at December 31, 20X5
$130,000
31,000
$161,000
P2-22* Equity-Method Income Statement

a.
Diversified Products Corporation
Income Statement
Year Ended December 31, 20X8
Net Sales
Cost of Goods Sold
Gross Profit
Other Expenses
Gain on Sale of Truck
Income from Continuing Operations
Discontinued Operations:
Operating Loss from Discontinued Division
Gain on Sale of Division
Income before Extraordinary Item
Extraordinary Item:
Loss on Volcanic Activity
Net Income
$400,000
(320,000)
$ 80,000
$(25,000)
10,000
$(15,000)
44,000
(15,000)
$ 65,000
29,000
$ 94,000
(5,000)
$ 89,000
36

Retained Earnings Statement
Retained Earnings, January 1, 20X8
20X8 Net Income
$240,000 (1)
89,000
$329,000
(10,000)
$319,000
Dividends Declared, 20X8

Retained Earnings, December 31, 20X8
(1) The Retained Earnings balance on January 1, 20X8, has been reduced by the $20,000
cumulative adjustment for change in inventory method on January 1, 20X8.
b.
Wealthy Manufacturing Company
Income Statement
Net Sales
Cost of Goods Sold
Gross Profit
Other Expenses
Income from Continuing Operations of
Income from Continuing Operations
Discontinued Operations:
Share of Operating Loss Reported by
Diversified Products on Discontinued
Division
Share of Gain on Sale of Division
Reported by Diversified Products
Income before Extraordinary Item
Extraordinary Item:
Share of Loss on Volcanic Activity
Reported by Diversified Products
Net Income
$850,000
(670,000)
$180,000
$(90,000)
26,000
(64,000)
$116,000
$ (6,000)
17,600
11,600
$127,600
(2,000)
$125,600
Wealthy Manufacturing Company

Retained Earnings Statement
20X8 Net Income
$412,000
125,600
$537,600
(30,000)
$507,600
(1)
(1) The Retained Earnings balance of Wealthy Manufacturing Company on January 1, 20X8,
has been reduced by $8,000 to reflect its proportionate share of the $20,000 cumulative
adjustment for the change in inventory method recorded by Diversified Products Corporation on
January 1, 20X8 ($20,000 x 0.40 = $8,000).
37
P2-23 Consolidated Worksheet at End of the First Year of Ownership (Equity Method)
a.
Equity Method Entries on Peanut Co.'s Books:
Investment in Snoopy Co.
300,000
Cash
300,000
Record the initial investment in Snoopy Co.

75,000
Income from Snoopy Co.
75,000
Record Peanut Co.'s 100% share of Snoopy Co.'s 20X8 income

Cash
20,000
20,000
Record Peanut Co.'s 100% share of Snoopy Co.'s 20X8 dividend

b.
Total
Book
Value
Original book value
+ Net Income
300,000
Common
Stock
200,000
Retained
Earnings
100,000
75,000
75,000
- Dividends
(20,000)
(20,000)
Ending book value
355,000
200,000
155,000
38
1/1/X8
12/31/X8
Goodwill = 0
Goodwill = 0
Identifiable
excess = 0
Excess = 0
$300,000
Initial
investment
in Snoopy
Co.
Book value =
CS + RE =
300,000
$355,000
Net
investment in
Snoopy Co.
Book value =
CS + RE =
355,000
P2-23 (continued)
Common stock
200,000
Retained earnings
100,000
75,000
Dividends declared
20,000
355,000

10,000
10,000
Investment in
Income from
Snoopy Co.
Snoopy Co.
Acquisition
Price
300,000
Net Income
75,000
20,000
Ending Balance
Net Income
75,000
Ending
Balance
Dividends
355,000
355,000
75,000
Basic
75,000
0
39
P2-23 (continued)
Peanut
Co.
Snoopy
Co.
Elimination Entries
DR
CR
Consolidated
Income Statement
Sales
Less: COGS
Less: Depreciation Expense
Less: Other Expenses
Net Income
800,000
250,000
1,050,000
(200,000)
(125,000)
(325,000)
(50,000)
(10,000)
(60,000)
(225,000)
(40,000)
75,000
(265,000)
75,000
400,000
75,000
75,000
225,000
100,000
100,000
75,000
0
0
400,000
Statement of Retained
Earnings
Beginning Balance
Net Income
225,000
400,000
75,000
(100,000)
(20,000)
525,000
155,000
Cash
130,000
80,000
210,000
Accounts Receivable
165,000
65,000
230,000
Inventory
200,000
75,000
275,000
355,000
Land
200,000
100,000
Buildings & Equipment
700,000
200,000
(450,000)
(20,000)
10,000
Total Assets
1,300,000
500,000
10,000
75,000
60,000
135,000
Bonds Payable
200,000
85,000
285,000
Common Stock
500,000
200,000
200,000
Retained Earnings
525,000
155,000
175,000
20,000
525,000
1,300,000
500,000
375,000
20,000
1,445,000
Less: Dividends Declared

Ending Balance
175,000
400,000
20,000
(100,000)
20,000
525,000
Balance Sheet
Accounts Payable
355,000
0
300,000
10,000
890,000
(460,000)
365,000
1,445,000
500,000
40
P2-24 Consolidated Worksheet at End of the Second Year of Ownership (Equity Method)
a.
80,000
80,000

Cash
30,000
30,000

b.
1/1/X9
12/31/X9
Goodwill = 0
Goodwill = 0
Excess = 0
Excess = 0
$355,000
Net
investment
in Snoopy
Co.
Book value =
CS + RE =
355,000
Book value =
CS + RE =
405,000
$405,000
Net
investment in
Snoopy Co.

Total
Book Value
Beg. book value
+ Net Income
355,000
Common
Stock
200,000
Retained
Earnings
155,000
80,000
80,000
- Dividends
(30,000)
(30,000)
Ending book value
405,000
200,000
205,000
41
P2-24 (continued)
Common stock
200,000
Retained earnings
155,000
80,000
Dividends declared
30,000
405,000

10,000
10,000
Investment in
Income from
Snoopy Co.
Snoopy Co.
Beginning
Balance
355,000
Net Income
80,000
Ending Balance
30,000
Dividends
405,000
Basic
405,000
0
80,000
Net Income
80,000
Ending Balance
80,000
0
42
P2-24 (continued)
Peanut
Co.
Snoopy
Co.
Elimination Entries
DR
CR
Consolidated
Income Statement
Sales
Less: COGS
Net Income
850,000
300,000
1,150,000
(270,000)
(150,000)
(420,000)
(50,000)
(10,000)
(60,000)
(230,000)
(60,000)
80,000
(290,000)
80,000
380,000
80,000
80,000
525,000
155,000
155,000
80,000
0
0
380,000
Earnings
Beginning Balance
Net Income
525,000
380,000
80,000
(225,000)
(30,000)
680,000
205,000
Cash
230,000
75,000
305,000
Accounts Receivable
190,000
80,000
270,000
Inventory
180,000
100,000
280,000
405,000
Land
200,000
100,000
700,000
200,000
(500,000)
(30,000)
10,000
Total Assets
1,405,000
525,000
10,000
75,000
35,000
110,000
Bonds Payable
150,000
85,000
235,000
Common Stock
500,000
200,000
200,000
Retained Earnings
680,000
205,000
235,000
30,000
680,000
1,405,000
525,000
435,000
30,000
1,525,000

Ending Balance
235,000
380,000
30,000
(225,000)
30,000
680,000
Balance Sheet
Accounts Payable
405,000
0
300,000
10,000
890,000
(520,000)
415,000
1,525,000
500,000
43
a.
Equity Method Entries on Paper Co.'s Books:
Investment in Scissor Co.
370,000
Cash
370,000
Record the initial investment in Scissor Co.

93,000
Income from Scissor Co.
93,000
Record Paper Co.'s 100% share of Scissor Co.'s 20X8 income

Cash
25,000
25,000
Record Paper Co.'s 100% share of Scissor Co.'s 20X8 dividend

b.
Total
Book Value
Original book value
+ Net Income
370,000
Common
Stock
250,000
Retained
Earnings
120,000
93,000
93,000
- Dividends
(25,000)
(25,000)
Ending book value
438,000
250,000
188,000
44
1/1/X8
12/31/X8
Goodwill = 0
Goodwill = 0
Identifiable
excess = 0
Book value =
CS + RE =
370,000
$370,000
Initial
investment
in Scissor
Co.
Excess = 0
Book value =
CS + RE =
438,000
$438,000
Net
investment in
Scissor Co.
45
P2-25 (continued)
Common stock
250,000
Retained earnings
120,000
93,000
Dividends declared
25,000
438,000

24,000
24,000
Investment in
Income from
Scissor Co.
Scissor Co.
Acquisition Price
370,000
Net Income
93,000
Ending Balance
25,000
Dividends
438,000
Basic
438,000
0
93,000
Net Income
93,000
Ending Balance
93,000
0
46
P2-25 (continued)
Paper
Co.
Scissor
Co.
Elimination Entries
DR
CR
Consolidated
Income Statement
Sales
Less: COGS
Net Income
800,000
310,000
1,110,000
(250,000)
(155,000)
(405,000)
(65,000)
(12,000)
(77,000)
(280,000)
(50,000)
93,000
(330,000)
93,000
298,000
93,000
93,000
280,000
120,000
120,000
93,000
0
0
298,000
Earnings
Beginning Balance
280,000
Net Income
298,000
93,000
(80,000)
(25,000)
Ending Balance
498,000
188,000
Cash
122,000
46,000
168,000
Accounts Receivable
140,000
60,000
200,000
Inventory
190,000
120,000
310,000
438,000
Land
250,000
125,000
875,000
250,000
(565,000)
(36,000)
24,000
Total Assets
1,450,000
565,000
24,000
77,000
27,000
104,000
Bonds Payable
250,000
100,000
350,000
Common Stock
625,000
250,000
250,000
Retained Earnings
498,000
188,000
213,000
25,000
498,000
1,450,000
565,000
463,000
25,000
1,577,000
213,000
298,000
25,000
(80,000)
25,000
498,000
Balance Sheet
Accounts Payable
438,000
0
375,000
24,000
1,101,000
(577,000)
462,000
1,577,000
625,000
47
a.
107,000
107,000
Cash
30,000
30,000

b.
Total
Book
Value
Common
Stock
250,000
Retained
Earnings
Beg. book value
438,000
+ Net Income
107,000
107,000
- Dividends
(30,000)
(30,000)
Ending book value
515,000
250,000
188,000
265,000
1/1/X9
12/31/X9
Goodwill = 0
Goodwill = 0
Excess = 0
Book value =
CS + RE =
438,000
$438,000
Net
investment
in Scissor
Co.
Excess = 0
Book value =
CS + RE =
515,000
$515,000
Net
investment in
Scissor Co.
48
P2-26 (continued)
Common stock
250,000
Retained earnings
188,000
107,000
Dividends declared
30,000
515,000

24,000
24,000
Investment in
Income from
Scissor Co.
Scissor Co.
Beginning
Balance
438,000
Net Income
107,000
Ending Balance
30,000
Dividends
515,000
Basic
515,000
0
107,000
Net Income
107,000
Ending Balance
107,000
0
49
P2-26 (continued)
Elimination Entries
Paper
Co.
Scissor
Co.
880,000
(278,000)
355,000
(178,000
)
(65,000)
(12,000)
(77,000)
(312,000)
(58,000)
(370,000)
DR
Consolidate
d
CR
Income Statement
Sales
Less: COGS
107,000
Net Income
332,000
107,000
Beginning Balance
498,000
188,000
Net Income
332,000
107,000
(90,000)
(30,000)
1,235,000
(456,000)
107,00
0
107,00
0
0
0
332,000
Earnings
Ending Balance
188,00
0
107,00
0
295,00
0
498,000
0
332,000
30,000
(90,000)
30,000
740,000
740,000
265,000
Cash
232,000
116,000
348,000
Accounts Receivable
165,000
97,000
262,000
Inventory
193,000
115,000
Balance Sheet
515,000
Land
250,000
125,000

Less: Accumulated
Depreciation
875,000
250,000
(630,000)
1,600,00
0
(48,000)
85,000
40,000
150,000
100,000
Total Assets
Accounts Payable
Bonds Payable
655,000
Common Stock
625,000
250,000
Retained Earnings
740,000
1,600,00
0
265,000
308,000
515,00
0
655,000
0
375,000
24,000
24,000
24,000
1,101,000
(654,000)
539,00
0
1,740,000
125,000
250,000
250,00
0
295,00
0
545,00
0
625,000
30,000
740,000
30,000
1,740,000
50
P2-27 * Consolidated Worksheet at End of the First Year of Ownership (Cost Method)
a.
Cost Method Entries on Peanut Co.'s Books:
300,000
Cash
300,000
Cash
20,000
Dividend Income
20,000

b.
Total
Book Value
Original book value
300,000
Common
Stock
200,000
Retained
Earnings
100,000
1/1/X8
12/31/X8
Goodwill = 0
Goodwill = 0
Identifiable
excess = 0
Book value =
CS + RE =
300,000
$300,000
Initial
investment
in Snoopy
Co.
Excess = 0
Book value =
CS + RE =
300,000
$300,000
Net
investment in
Snoopy Co.
51
P2-27 (continued)
Investment elimination entry
Common stock
200,000
Retained earnings
100,000
300,000
Dividend elimination
Dividend income
20,000
Dividends declared
20,000

10,000
10,000
Investment in
Snoopy Co.
Acquisition Price
Ending Balance
Dividend
Income
300,000
300,000
300,000
0
Basic
20,000
Dividends
20,000
Ending Balance
20,000
0
52
P2-27 (continued)
Peanut
Co.
Snoopy
Co.
Elimination Entries
DR
CR
Consolidated
Income Statement
Sales
Less: COGS
Dividend Income
Net Income
800,000
250,000
1,050,000
(200,000)
(125,000)
(325,000)
(50,000)
(10,000)
(60,000)
(225,000)
(40,000)
20,000
(265,000)
20,000
345,000
75,000
20,000
225,000
100,000
100,000
20,000
0
0
400,000
Earnings
Beginning Balance
Net Income
225,000
345,000
75,000
(100,000)
(20,000)
470,000
155,000
Cash
130,000
80,000
210,000
Accounts Receivable
165,000
65,000
230,000
Inventory
200,000
75,000
275,000
300,000
Land
200,000
100,000
700,000
200,000
(450,000)
(20,000)
10,000
Total Assets
1,245,000
500,000
10,000
75,000
60,000
135,000
Bonds Payable
200,000
85,000
285,000
Common Stock
500,000
200,000
200,000
Retained Earnings
470,000
155,000
120,000
20,000
525,000
1,245,000
500,000
320,000
20,000
1,445,000

Ending Balance
120,000
400,000
20,000
(100,000)
20,000
525,000
Balance Sheet
Accounts Payable
300,000
0
300,000
10,000
890,000
(460,000)
310,000
1,445,000
500,000
53
P2-28 * Consolidated Worksheet at End of the Second Year of Ownership (Cost Method)
a.
Cost Method Entries on Peanut Co.'s Books:
Cash
30,000
Dividend Income
30,000

b.
Total
Book Value
Original book value
Common
Stock
300,000
200,000
Retained
Earnings
100,000
1/1/X9
12/31/X9
Goodwill = 0
Goodwill = 0
Excess = 0
Book value =
CS + RE =
300,000
$300,000
Net
investment
in Snoopy
Co.
Excess = 0
Book value =
CS + RE =
300,000
$300,000
Net
investment in
Snoopy Co.
54
P2-28 (continued)
Investment elimination entry
Common stock
200,000
Retained earnings
100,000
300,000
Dividend elimination
Dividend income
30,000
Dividends declared
30,000

10,000
10,000
Investment in
Snoopy Co.
Acquisition Price
Ending Balance
Dividend
Income
300,000
300,000
300,000
0
Basic
20,000
Dividends
20,000
Ending Balance
20,000
0
55
P2-28 (continued)
Elimination Entries
Peanut
Co.
Snoopy
Co.
850,000
(270,000)
300,000
(150,000
)
(50,000)
(10,000)
(60,000)
(230,000)
(60,000)
(290,000)
DR
Consolidate
d
CR
Income Statement
Sales
Less: COGS
Divident Income
Net Income
30,000
1,150,000
(420,000)
30,000
330,000
80,000
30,000
Beginning Balance
470,000
155,000
100,00
0
Net Income
330,000
80,000
30,000
(225,000)
(30,000)
0
0
380,000
Earnings

Ending Balance
130,00
0
525,000
0
380,000
30,000
(225,000)
30,000
680,000
575,000
205,000
Cash
230,000
75,000
305,000
Accounts Receivable
190,000
80,000
270,000
Inventory
180,000
100,000
Balance Sheet
300,000
Land
200,000
100,000

Less: Accumulated
Depreciation
700,000
200,000
(500,000)
1,300,00
0
(30,000)
75,000
35,000
150,000
85,000
Total Assets
Accounts Payable
Bonds Payable
525,000
Common Stock
500,000
200,000
Retained Earnings
575,000
1,300,00
0
205,000
280,000
300,00
0
525,000
0
300,000
10,000
10,000
10,000
890,000
(520,000)
310,00
0
1,525,000
110,000
235,000
200,00
0
130,00
0
330,00
0
500,000
30,000
680,000
30,000
1,525,000
56
CHAPTER 3
THE REPORTING ENTITY AND CONSOLIDATION OF LESS-THAN-WHOLLY-OWNED
SUBSIDIARIES WITH NO DIFFERENTIAL
E3-1 Multiple-Choice Questions on Consolidation Overview
[AICPA Adapted]
1. d
2. c
3. b
4. a
5. b
E3-2 Multiple-Choice Questions on Variable Interest Entities
1. c
2. d
3. a
4. b
E3-3 Multiple-Choice Questions on Consolidated Balances [AICPA Adapted]
1. a
2. b
3. b
4. c
5. a
E3-4 Multiple-Choice Questions on Consolidation Overview
[AICPA Adapted]
1. d
2. The wording of this question is somewhat confusing. Since Aaron owns 80% of Belle, it has
to consolidate Belle. There is no choice about whether or not to consolidate. A more clear
wording of the question would say to compare Aarons parent company earnings (Y) to the
consolidated earnings (X). The question also assumes both companies have positive
earnings.
a (if Aaron accounts for the investment under the cost method)
b (if Aaron accounts for the investment under the equity method)
3. b
4. d
E3-5 Balance Sheet Consolidation
a. $470,000 = $470,000 - $44,000 + $44,000
b. $616,000 = ($470,000 - $44,000) + $190,000
c. $405,000 = $270,000 + $135,000
d. $211,000
Acquisition price
percent purchased
44,000
80%
57
Total fair value of Bristol Corporation's NA

NCI in NA of Bristol Corporation
55,000
$
Guild Corporation's Stockholders Equity

Total Consolidated Stockholder's Equity
11,000
200,000
$ 211,000
E3-6 Balance Sheet Consolidation with Intercompany Transfer

a. $631,500 = $510,000 + $121,500
b. $845,000 = $510,000 + $350,000 - $15,000
c. $641,500 = ($320,000 + $121,500) + $215,000 - $15,000
d. $203,500
Acquisition price
percent purchased
Total fair value of Stately Corporation's NA
NCI in NA of Stately Corporation
121,500
90%
135,000
Potter Company's Stockholders Equity

Total Consolidated Stockholder's Equity
13,500
190,000
$ 203,500
E3-7 Subsidiary Acquired for Cash

Equity Method Entries on Fineline Pencil's Books:
Investment in Smudge Eraser
72,000
Cash
72,000
Record the initial investment in Smudge Eraser

NCI
20%
Original book value
18,000
Fineline
Pencil
80%
72,000
Common
Stock
50,000
Retained
Earnings
40,000
1/1/X3
Goodwill = 0
Identifiable
excess = 0
80%
Book value =
72,000
$72,000
Initial
investment
in Smudge
Eraser
58

Common stock
50,000
Retained earnings
40,000
72,000
NCI in NA of Smudge Eraser
18,000
Investment in
Smudge Eraser
Acquisition Price
72,000
72,000
Basic Entry
E3-7 (continued)
Elimination
Entries
Fineline
Pencil
Smudge
Eraser
Cash
128,000
50,000
178,000
Other Assets
400,000
120,000
520,000
DR
CR
Consolidated
Balance Sheet
72,000
0
72,000
72,000
698,000
Total Assets
600,000
170,000
Current Liabilities
100,000
80,000
Common Stock
300,000
50,000
50,000
300,000
Retained Earnings
200,000
40,000
40,000
200,000
180,000
NCI in NA of Smudge Eraser

600,000
170,000
90,000
18,000
18,000
18,000
698,000
Fineline Pencil Company and Subsidiary

Consolidated Balance Sheet
January 2, 20X3
Cash ($128,000 + $50,000)
Other Assets ($400,000 + $120,000)
Total Assets
$178,000
520,000
$698,000
Current Liabilities ($100,000 + $80,000)

Common Stock
Retained Earnings
Noncontrolling Interest in Net Assets of Smudge Eraser
Total Liabilities and Stockholders' Equity
$180,000
300,000
200,000
18,000
$698,000
59
E3-8 Subsidiary Acquired with Bonds

Equity Method Entries on Byte Computer's Books:
Investment in Nofail Software
67,500
Cash
67,500
Record the initial investment in Nofail Software

NCI
25%
Original book value
Byte
Computer
75%
22,500
Common
Stock
67,500
50,000
Retained
Earnings
40,000
1/1/X3
Goodwill = 0
Identifiable
excess = 0
$67,500
Initial
investment
in Nofail
Software
75%
Book value =
67,500

Common stock
50,000
Retained earnings
40,000
67,500
NCI in NA of Nofail Software
22,500
Investment in
Nofail Software
Acquisition Price
67,500
67,500
Basic Entry
60
E3-8 (continued)
Elimination
Entries
Byte
Computer
Nofail
Software
Cash
200,000
50,000
250,000
Other Assets
400,000
120,000
520,000
DR
CR
Consolidated
Balance Sheet
67,500
Total Assets
667,500
170,000
Current Liabilities
100,000
80,000
67,500
67,500
770,000
180,000
Bonds Payable
50,000
50,000
Bond Premium
17,500
17,500
Common Stock
300,000
50,000
50,000
300,000
Retained Earnings
200,000
40,000
40,000
200,000

667,500
170,000
90,000
22,500
22,500
22,500
770,000
Byte Computer Corporation and Subsidiary

January 2, 20X3
Cash ($200,000 + $50,000)
Other Assets ($400,000 + $120,000)
Total Assets
$250,000
520,000
$770,000
Current Liabilities
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
Noncontrolling Interest in Net Assets of Smudge Eraser
$50,000
17,500
$180,000
67,500
300,000
200,000
22,500
$770,000
E3-9 Subsidiary Acquired by Issuing Preferred Stock

Equity Method Entries on Byte Computer's Books:
81,000
Preferred Stock
60,000
21,000
Record the initial investment in Nofail Software
61

NCI
10%
Original book value
Byte
Computer
90%
9,000
Common
Stock
81,000
50,000
Retained
Earnings
40,000
1/1/X3
Goodwill = 0
Identifiable
excess = 0
$81,000
Initial
investment
in Nofail
Software
90%
Book value =
81,000

Common stock
50,000
Retained earnings
40,000
81,000
9,000
Investment in
Nofail Software
Acquisition Price
81,000
81,000
Basic Entry
62
E3-9 (continued)
Byte
Computer
Nofail
Software
Elimination Entries
DR
CR
Consolidated
Balance Sheet
Cash
200,000
50,000
250,000
Other Assets
400,000
120,000
520,000
81,000
Total Assets
681,000
170,000
Current Liabilities
100,000
80,000
81,000
81,000
770,000
180,000
Preferred Stock
60,000
60,000
21,000
21,000
Common Stock
300,000
50,000
50,000
Retained Earnings
200,000
40,000
40,000

681,000
170,000
90,000
300,000
200,000
9,000
9,000
9,000
770,000
Byte Computer Corporation and Subsidiary

January 2, 20X3
Cash ($200,000 + $50,000)
Other Assets ($400,000 + $120,000)
Total Assets
$250,000
520,000
$770,000
Current Liabilities ($100,000 + $80,000)

Preferred Stock ($6 x 10,000)
Additional Paid-In Capital ($2.10 x 10,000)
Common Stock
Retained Earnings
Noncontrolling Interest in Net Assets of Nofail
$180,000
60,000
21,000
300,000
200,000
9,000
$770,000
E3-10 Reporting for a Variable Interest Entity

Gamble Company
Cash
Total Assets
Accounts Payable
Bonds Payable
Bank Notes Payable
$370,600,000(b)
(10,100,000)
$ 18,600,000(a)
360,500,000
$379,100,000
$
5,000,000
20,300,000
140,000,000
63
Noncontrolling Interest
Common Stock
Retained Earnings
Total Liabilities and Equities
(a) $18,600,000
(b) $370,600,000
$103,000,000
105,200,000
5,600,000
208,200,000
$379,100,000
= $3,000,000 + $5,600,000 + ($140,000,000 $130,000,000)

= $240,600,000 + $130,000,000
E3-11 Consolidation of a Variable Interest Entity

Teal Corporation
Total Assets
$682,500(a)
Total Liabilities
Common Stock
Retained Earnings
Total Liabilities and Equities
$550,000(b)
22,500(c)
(a) $682,500
(b) $550,000
(c) $22,500
=
=
=
$15,000
95,000
110,000
$682,500
$500,000 + $190,000 - $7,500

$470,000 + $80,000
($500,000 - $470,000) x 0.75
E3-12 Computation of Subsidiary Net Income

Messer Company reported net income of $60,000 ($18,000 / 0.30) for 20X9.
E3-13 Incomplete Consolidation
a.
b.
Belchfire apparently owns 100 percent of the stock of Premium Body Shop since the
balance in the investment account reported by Belchfire is equal to the net book value of
Premium Body Shop.
Accounts Payable
60,000
Accounts receivable were reduced by

$10,000, presumably as a reduction
of receivables and payables.
Bonds Payable
600,000
There is no indication of intercorporate

ownership.
Common Stock
200,000
Common stock of Premium must be

eliminated.
Retained Earnings
260,000
Retained earnings of Premium also must

be
eliminated
in
preparing
consolidated statements.
64
$1,120,000
E3-14 Noncontrolling Interest
a.
The total noncontrolling interest reported in the consolidated balance sheet at January 1,
20X7, is $126,000 ($420,000 x .30).
b. The stockholders' equity section of the consolidated balance sheet includes the claim of the
noncontrolling interest and the stockholders' equity section of the subsidiary is eliminated
when the consolidated balance sheet is prepared:
Controlling Interest:
Common Stock
Retained Earnings
Total Controlling Interest
Total Stockholders Equity
c.
$ 400,000
222,000
358,000
$ 980,000
126,000
$1,106,000
Sanderson is mainly interested in assuring a steady supply of electronic switches. It can

control the operations of Kline with 70 percent ownership and can use the money that would
be needed to purchase the remaining shares of Kline to finance additional operations or
purchase other investments.
E3-15 Computation of Consolidated Net Income

a.
Ambrose should report income from its subsidiary of $15,000 ($20,000 x .75) rather than
dividend income of $9,000.
b. A total of $5,000 ($20,000 x .25) should be assigned to the noncontrolling interest in the
20X4 consolidated income statement.
c. Consolidated net income of $70,0000 should be reported for 20X4, computed as follows:
Reported net income of Ambrose
Less: Dividend income from Kroop
Operating income of Ambrose
Net income of Kroop
Consolidated net income
$59,000
(9,000)
$50,000
20,000
$70,000
d. Income of $79,000 would be attained by adding the income reported by Ambrose ($59,000)
to the income reported by Kroop ($20,000). However, the dividend income from Kroop
recorded by Ambrose must be excluded from consolidated net income.
E3-16 Computation of Subsidiary Balances
a.
Light's net income for 20X2 was $32,000 ($8,000 / 0.25).
b. Common Stock Outstanding (1)

Additional Paid-In Capital (given)
$120,000
40,000
65
Retained Earnings ($70,000 + $32,000)

Total Stockholders' Equity
102,000
$262,000
(1) Computation of common stock outstanding:

Total stockholders' equity ($65,500 / 0.25)
Additional paid-in capital
Retained earnings
Common stock outstanding
$262,000
(40,000)
(102,000)
$120,000
E3-17 Subsidiary Acquired at Net Book Value

Equity Method Entries on Banner Corp.'s Books:
Investment in Dwyer Co.
36,000
Cash
136,000
Record the initial investment in Dwyer Co.

NCI
20%
Original book value
Banner
Corp.
80%
34,000
136,000
Common
Stock
90,000
Retained
Earnings
80,000
1/1/X8
Goodwill = 0
Identifiable
excess = 0
$136,000
Initial
investment
in Dwyer
Co.
80%
Book value =
136,000

Common stock
90,000
Retained earnings
80,000

NCI in NA of Dwyer Co.
136,000
34,000
Investment in
Dwyer Co.
66
Acquisition Price
136,000
136,000
Basic Entry
E3-17 (continued)
Banner
Corp.
Dwyer
Co.
Elimination Entries
DR
CR
Consolidated
Balance Sheet
Cash
74,000
20,000
94,000
Accounts Receivable
120,000
70,000
190,000
Inventory
180,000
90,000
270,000
Fixed Assets (net)
350,000
240,000
590,000
136,000
Total Assets
860,000
420,000
65,000
30,000
95,000
Notes Payable
350,000
220,000
570,000
Common Stock
150,000
90,000
90,000
150,000
Retained Earnings
295,000
80,000
80,000
295,000
Accounts Payable
NCI in NA of Dwyer Co.

860,000
420,000
170,000
136,000
136,000
1,144,000
34,000
34,000
34,000
1,144,000
Banner Corporation and Subsidiary

December 31, 20X8
Cash ($74,000 + $20,000)
Accounts Receivable ($120,000 + $70,000)
Inventory ($180,000 + $90,000)
Fixed Assets (net) ($350,000 + $240,000)
Total Assets
94,000
190,000
270,000
590,000
$1,144,000
Accounts Payable ($65,000 + $30,000)

Notes Payable ($350,000 + $220,000)
Common Stock
Retained Earnings
Noncontrolling Interest in Net Assets of Dwyer Co.
95,000
570,000
150,000
295,000
34,000
$1,144,000
E3-18 Applying Alternative Accounting Theories

a.
Proprietary theory:
Total revenue [$400,000 + ($200,000 x .75)]
Total expenses [$280,000 + ($160,000 x .75)]
Consolidated net income [$120,000 + ($40,000 x .75)]
$550,000
400,000
150,000
67
b.
Parent company theory:

Total revenue ($400,000 + $200,000)
Total expenses ($280,000 + $160,000)
Consolidated net income [$120,000 + ($40,000 x .75)]
c.
150,000
Entity theory:
Total revenue ($400,000 + $200,000)
Total expenses ($280,000 + $160,000)
Consolidated net income ($120,000 + $40,000)
d.
$600,000
440,000
$600,000
440,000
160,000
Current accounting practice:

Total revenue ($400,000 + $200,000)
Total expenses ($280,000 + $160,000)
Consolidated net income ($120,000 + $40,000)
$600,000
440,000
160,000
E3-19 Measurement of Goodwill

a. $240,000
= computed in the same manner as under the parent company

approach.
b. $400,000
= $240,000 / 0.60
c. $400,000
= computed in the same manner as under the entity theory.
E3-20 Valuation of Assets under Alternative Accounting Theories

a. Entity theory:
Book Value
Fair Value Increase
($240,000 x 1.00)
($50,000 x 1.00)
$240,000
50,000
$290,000
b. Parent company theory:

Book Value
Fair Value Increase
($240,000 x 1.00)
($50,000 x 0.75)
$240,000
37,500
$277,500
c. Proprietary theory:
Book Value
Fair Value Increase
($240,000 x 0.75)
($50,000 x 0.75)
$180,000
37,500
$217,500
d. Current accounting practice:

Book Value
Fair Value Increase
($240,000 x 1.00)
($50,000 x 1.00)
$240,000
50,000
$290,000
68
E3-21 Reported Income under Alternative Accounting Theories

a. Entity theory:
Total revenue ($410,000 + $200,000)

Total expenses ($320,000 + $150,000)
Consolidated net income [$90,000 + ($50,000 x 1.00)]
$610,000
470,000
140,000
b. Parent company theory:

Total revenue ($410,000 + $200,000)
Total expenses ($320,000 + $150,000)
$610,000
470,000
130,000
c. Proprietary theory:
Total revenue [$410,000 + ($200,000 x 0.80)]
Total expenses [$320,000 + ($150,000 x 0.80)]
$570,000
440,000
130,000
d. Current accounting practice:

Total revenue ($410,000 + $200,000)
Total expenses ($320,000 + $150,000)
Consolidated net income [$90,000 + (50,000 x 1.00)]
$610,000
470,000
140,000
E3-22 Acquisition of Majority Ownership

a. Net identifiable assets: $720,000 = $520,000 + $200,000
b. Noncontrolling interest: $50,000 = $200,000 x 0.25
P3-23 Multiple-Choice Questions on Consolidated and Combined Financial Statements
[AICPA Adapted]
1.
2.
3.
4.
d
c
b
c
P3-24 Determining Net Income of Parent Company

Income of subsidiary ($15,200 / 0.40)
Income from Tally's operations
$164,300
(38,000)
$126,300
P3-25 Reported Balances

a. The investment balance reported by Roof will be $192,000.
69
b.
Total assets will increase by $310,000.
c.
Total liabilities will increase by $95,000.
d.
The amount of goodwill for the entity as a whole will be $25,000

[($192,000 + $48,000) - ($310,000 - $95,000)].
e.
Noncontrolling interest will be reported at $48,000 ($240,000 x 0.20).
P3-26 Acquisition Price

a.
$57,000 = ($120,000 - $25,000) x 0.60
b.
$81,000 = ($120,000 - $25,000) + $40,000 - $54,000
c.
$48,800 = ($120,000 - $25,000) + $27,000 - $73,200
P3-27 Consolidation of a Variable Interest Entity

Stern Corporation
January 1, 20X4
Cash
Accounts Receivable
Less: Allowance for Uncollectibles
Other Assets
Total Assets
Accounts Payable
Notes Payable
Bonds Payable
Stockholders Equity:
Common Stock
Retained Earnings
Total Liabilities and Stockholders Equity
(a) $ 8,150,000
(b) $12,200,000
(c) $ 610,000
=
=
=
$12,200,000 (b)
(610,000) (c)
$ 8,150,000 (a)
11,590,000
5,400,000
$25,140,000
$
700,000
6,150,000
$ 6,850,000
40,000
950,000
7,500,000
9,800,000
6,890,000
$25,140,000
$7,960,000 + $190,000
$4,200,000 + $8,000,000
$210,000 + $400,000
70
P3-28 Reporting for Variable Interest Entities

Purified Oil Company
Cash
Drilling Supplies
Accounts Receivable
Equipment (net)
Land
Total Assets
640,000
420,000
640,000
8,500,000
5,100,000
$15,300,000
Accounts Payable
Bank Loans Payable
Common Stock
Retained Earnings
Total Liabilities and Stockholders Equity
$ 590,000
11,800,000
$ 560,000
2,150,000
$2,710,000
200,000
2,910,000
$15,300,000
P3-29 Consolidated Income Statement Data

a. Sales: ($300,000 + $200,000 - $50,000)
$450,000
b. Investment income from LoCal Bakeries:
c. Cost of goods sold: ($200,000 + $130,000 - $35,000)
$295,000
d. Depreciation expense: ($40,000 + $30,000)
$ 70,000
-0-
P3-30 Parent Company and Consolidated Amounts

a.
Common stock of Tempro Company

on December 31, 20X5
Retained earnings of Tempro Company
January 1, 20X5
Sales for 20X5
Less: Expenses
Dividends paid
Retained earnings of Tempro Company
on December 31, 20X5
Net book value on December 31, 20X5
Proportion of stock acquired by Quoton
Purchase price
$ 90,000
$130,000
195,000
(160,000)
(15,000)
150,000
$240,000
x
0.80
$192,000
71
b.
Net book value on December 31, 20X5

Proportion of stock held by
noncontrolling interest
Balance assigned to noncontrolling interest
$240,000
x
0.20
$ 48,000
c. Consolidated net income is $143,000. None of the 20X5 net income of Tempro Company
was earned after the date of purchase and, therefore, none can be included in consolidated
net income.
d. Consolidate net income would be $178,000 [$143,000 + ($195,000 - $160,000)].
P3-31 Parent Company and Consolidated Balances
a.
Balance in investment account, December 31, 20X7

Cumulative earnings since acquisition
Cumulative dividends since acquisition
Total
Proportion of stock held by True Corporation
Total Amount Debited to Investment Account
Purchase Amount
110,000
(46,000)
$64,000
x
0.75
$259,800
(48,000)
$211,800
b.
$282,400 ($211,800 / 0.75) is the fair value of net assets on January 1, 20X5
b.
c.
$70,600 ($282,400 x 0.25) is the value assigned to the NCI shareholders on January
1, 20X5.
c.
d.
d.
$86,600 = ($259,800 / 0.75) x 0.25 will be assigned to noncontrolling interest in the
consolidated balance sheet prepared at December 31, 20X7.
P3-32 Indirect Ownership

The following ownership chain exists:
Purple
.70
Green
.40
Yellow
.10
Orange
.60
Blue
72
The earnings of Blue Company and Orange Corporation are included under cost method
reporting due to the 10 percent ownership level of Orange Corporation.
Net income of Green Company:
Reported operating income
Dividend income from Orange ($30,000 x 0.10)
Equity-method income from Yellow ($60,000 x 0.40)
Green Company net income
$ 20,000
3,000
24,000
$ 47,000
Consolidated net income:

Operating income of Purple
Net income of Green
$ 90,000
47,000
$137,000
Purple company net income (Not Required):

Operating income of Purple
Purple's share of Green's net income ($47,000 x 0.70)
Purples net income
$ 90,000
32,900
$122,900
P3-33 Balance Sheet Amounts under Alternative Accounting Theories

a.
Proprietary theory:
Cash and inventory [$300,000 + ($80,000 x 0.75)]
[$400,000 + ($180,000 x 0.75)]
Goodwill [$210,000 - ($260,000 x 0.75)]
b.
$380,000
565,000
15,000
Entity theory:
Cash and inventory ($300,000 + $80,000)
($400,000 + $180,000)
Goodwill [($210,000 / 0.75) - $260,000]
d.
535,000
15,000
Parent company theory:

[$400,000 + $120,000 + ($60,000 x 0.75)]
Goodwill [$210,000 ($260,000 x 0.75)]
c.
$360,000
$380,000
580,000
20,000
Current accounting practice:

($400,000 + $180,000)
Goodwill [($210,000 / 0.75) - $260,000]
$380,000
580,000
20,000
73
P3-34 Consolidated Worksheet and Balance Sheet on the Acquisition Date (Equity
Method)
a.
270,000
Cash
270,000

b.
NCI
10%
Original book value
Peanut
Co.
90%
30,000
270,000
Common
Stock
200,000
Retained
Earnings
100,000
1/1/X8
Goodwill = 0
Identifiable
excess = 0
$270,000
Initial
investment
in Snoopy
Co.
90%
Book value =
270,000

Common stock
200,000
Retained earnings
100,000
270,000
NCI in NA of Snoopy Co.
30,000

10,000
10,000
Investment in
Snoopy Co.
Acquisition Price
270,000
270,000
Basic Entry
0
74
P3-34 (continued)
Peanut
Co.
Snoopy
Co.
Elimination Entries
DR
CR
Consolidated
Balance Sheet
Cash
55,000
20,000
75,000
Accounts Receivable
50,000
30,000
80,000
Inventory
100,000
60,000
160,000
270,000
Land
225,000
100,000
700,000
200,000
(400,000)
(10,000)
10,000
Total Assets
1,000,000
400,000
10,000
75,000
25,000
100,000
Bonds Payable
200,000
75,000
275,000
Common Stock
500,000
200,000
200,000
Retained Earnings
225,000
100,000
100,000
Accounts Payable
270,000
325,000
10,000

1,000,000
400,000
300,000
890,000
(400,000)
280,000
1,130,000
500,000
225,000
30,000
30,000
30,000
1,130,000
c.
Peanut Co.
1/1/20X8
Cash
Accounts Receivable
Inventory
Land
Total Assets
75,000
80,000
160,000
325,000
890,000
(400,000)
1,130,000
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
100,000
275,000
500,000
225,000
30,000
1,130,000
75
a.
270,000
Cash
270,000

67,500
67,500

Cash
18,000
18,000

b.
NCI
10%
Original book value
Peanut
Co.
90%
Common
Stock
Retained
Earnings
30,000
270,000
7,500
67,500
75,000
- Dividends
(2,000)
(18,000)
(20,000)
Ending book value
35,500
319,500
+ Net Income
200,000
200,000
100,000
155,000
1/1/X8
12/31/X8
Goodwill = 0
Goodwill = 0
Identifiable
excess = 0
90%
Book value =
270,000
$270,000
Initial
investment
in Snoopy
Co.
Excess = 0
90%
Book value =
319,500
$319,500
Net
investment
in Snoopy
Co.
76
P3-35 (continued)
Common stock
200,000
Retained earnings
100,000
67,500
NCI in NI of Snoopy Co.
7,500
Dividends declared
20,000
319,500
35,500

10,000
10,000
Investment in
Income from
Snoopy Co.
Snoopy Co.
Acquisition Price
270,000
90% Net Income
67,500
Ending Balance
319,500
18,000
319,500
0
67,500
90% Net Income
67,500
Ending Balance
90% Dividends
Basic
67,500
0
77
P3-35 (continued)
Peanut
Co.
Snoopy
Co.
Elimination Entries
DR
CR
Consolidated
Income Statement
Sales
Less: COGS
800,000
250,000
1,050,000
(200,000)
(125,000)
(325,000)
(50,000)
(10,000)
(60,000)
(225,000)
(40,000)
(265,000)
67,500
Consolidated Net Income
392,500
NCI in Net Income

Controlling Interest in Net
Income
75,000
67,500
67,500
400,000
7,500
(7,500)
392,500
75,000
75,000
392,500
Beginning Balance
225,000
100,000
100,000
Net Income
392,500
75,000
75,000
(100,000)
(20,000)
517,500
155,000
Cash
158,000
80,000
238,000
Accounts Receivable
165,000
65,000
230,000
Inventory
200,000
75,000
275,000
319,500
Land
200,000
Statement of Retained Earnings

Ending Balance
175,000
225,000
0
392,500
20,000
(100,000)
20,000
517,500
Balance Sheet
319,500
100,000
300,000
700,000
200,000
(450,000)
(20,000)
10,000
Total Assets
1,292,500
500,000
10,000
Accounts Payable
10,000
890,000
(460,000)
329,500
1,473,000
75,000
60,000
135,000
Bonds Payable
200,000
85,000
285,000
Common Stock
500,000
200,000
200,000
Retained Earnings
517,500
155,000
175,000

1,292,500
500,000
375,000
500,000
20,000
517,500
35,500
35,500
55,500
1,473,000
78
a.
72,000
72,000

Cash
27,000
27,000

b.
NCI
10%
Beginning book value
Peanut
Co.
90%
Common
Stock
35,500
319,500
8,000
72,000
80,000
- Dividends
(3,000)
(27,000)
(30,000)
Ending book value
40,500
364,500
+ Net Income
200,000
Retained
Earnings
200,000
1/1/X9
12/31/X9
Goodwill = 0
Goodwill = 0
Excess = 0
90%
Book value =
319,500
$319,500
Net
investment
in Snoopy
Co.
Excess = 0
90%
Book value =
364,500
155,000
205,000
$364,500
Net
investment
in Snoopy
Co.
79
P3-36 (continued)
Common stock
200,000
Retained earnings
155,000
72,000
NCI in NI of Snoopy Co.
8,000
Dividends declared
30,000
364,500
40,500

10,000
10,000
Investment in
Income from
Snoopy Co.
Snoopy Co.
Beginning Balance
319,500
90% Net Income
72,000
Ending Balance
364,500
27,000
364,500
0
72,000
90% Net Income
72,000
Ending Balance
90% Dividends
Basic
72,000
0
80
P3-36 (continued)
Peanut
Co.
Snoopy
Co.
Elimination Entries
DR
CR
Consolidated
Income Statement
Sales
Less: COGS
850,000
300,000
1,150,000
(270,000)
(150,000)
(420,000)
(50,000)
(10,000)
(60,000)
(230,000)
(60,000)
(290,000)
72,000
372,000
NCI in Net Income

Income
80,000
72,000
72,000
380,000
8,000
(8,000)
372,000
80,000
80,000
372,000
Beginning Balance
517,500
155,000
155,000
Net Income
372,000
80,000
80,000
(225,000)
(30,000)
664,500
205,000
Cash
255,000
75,000
330,000
Accounts Receivable
190,000
80,000
270,000
Inventory
180,000
100,000
280,000
364,500
Land
200,000

Ending Balance
235,000
517,500
0
372,000
30,000
(225,000)
30,000
664,500
Balance Sheet
364,500
100,000
300,000
700,000
200,000
(500,000)
(30,000)
10,000
Total Assets
1,389,500
525,000
10,000
Accounts Payable
10,000
890,000
(520,000)
374,500
1,550,000
75,000
35,000
110,000
Bonds Payable
150,000
85,000
235,000
Common Stock
500,000
200,000
200,000
Retained Earnings
664,500
205,000
235,000

1,389,500
525,000
435,000
500,000
30,000
664,500
40,500
40,500
70,500
1,550,000
81
P3-37 Consolidated Worksheet and Balance Sheet on the Acquisition Date (Equity
Method)
a.
296,000
Cash
296,000

b.
NCI
20%
Original book value
74,000
Paper
Co.
80%
Common
Stock
296,000
250,000
Retained
Earnings
120,000
1/1/X8
Goodwill = 0
Identifiable
excess = 0
$296,000
Initial
investment
in Scissor
Co.
80%
Book value =
296,000

Common stock
250,000
Retained earnings
120,000
296,000
NCI in NA of Scissor Co.
74,000

24,000
24,000
Investment in
Scissor Co.
Acquisition Price
296,000
296,000
Basic Entry
0
82
P3-37 (continued)
Paper
Co.
Scissor
Co.
Elimination Entries
DR
CR
Consolidated
Balance Sheet
Cash
109,000
25,000
134,000
65,000
37,000
102,000
Inventory
125,000
87,000
212,000
296,000
Land
280,000
125,000
875,000
250,000
(500,000)
(24,000)
24,000
Total Assets
1,250,000
500,000
24,000
Accounts Receivable
Accounts Payable
296,000
24,000
1,101,000
405,000
(500,000)
320,000
1,454,000
95,000
30,000
125,000
Bonds Payable
250,000
100,000
350,000
Common Stock
625,000
250,000
250,000
625,000
Retained Earnings
280,000
120,000
120,000
280,000

1,250,000
500,000
370,000
74,000
74,000
74,000
1,454,000
c.
Paper Co.
1/1/20X8
Cash
Accounts Receivable
Inventory
Land
Total Assets
134,000
102,000
212,000
405,000
1,101,000
(500,000)
1,454,000
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
125,000
350,000
625,000
280,000
74,000
1,454,000
83
a.
296,000
Cash
296,000

74,400
74,400

Cash
20,000
20,000

b.
NCI
20%
Paper
Co.
80%
Common
Stock
Retained
Earnings
Original book value
74,000
296,000
250,000
+ Net Income
18,600
74,400
93,000
- Dividends
(5,000)
(20,000)
(25,000)
Ending book value
87,600
350,400
250,000
120,000
188,000
1/1/X9
12/31/X9
Goodwill = 0
Goodwill = 0
Identifiable
excess = 0
80%
Book value =
296,000
$296,000
Initial
investment
in Scissor
Co.
Excess = 0
80%
Book value =
350,400
$350,400
Net
investment
in Scissor
Co.
84
P3-38 (continued)
Common stock
250,000
Retained earnings
120,000
74,400
NCI in NI of Scissor Co.
18,600
Dividends declared
25,000
350,400
87,600

24,000
24,000
Investment in
Income from
Scissor Co.
Scissor Co.
Acquisition Price
296,000
80% Net Income
74,400
20,000
Ending Balance
350,400
350,400
0
74,400
80% Net Income
74,400
Ending Balance
80%
Dividends
Basic
74,400
0
85
P3-38 (continued)
Paper
Co.
Scissor
Co.
Elimination Entries
DR
CR
Consolidated
Income Statement
Sales
Less: COGS
800,000
310,000
1,110,000
(250,000)
(155,000)
(405,000)
(65,000)
(12,000)
(77,000)
(280,000)
(50,000)
(330,000)
74,400
279,400
NCI in Net Income

Income
74,400
93,000
74,400
298,000
18,600
(18,600)
279,400
93,000
93,000
279,400
Beginning Balance
280,000
120,000
120,000
Net Income
279,400
93,000
93,000
(80,000)
(25,000)
Ending Balance
479,400
188,000
Cash
191,000
46,000
237,000
Accounts Receivable
140,000
60,000
200,000
Inventory
190,000
120,000
350,400
Land
250,000
125,000
875,000
250,000
(565,000)
(36,000)
24,000
Total Assets
1,431,400
565,000
24,000
77,000
27,000
Bonds Payable
250,000
100,000
Common Stock
625,000
250,000
250,000
Retained Earnings
479,400
188,000
213,000
213,000
280,000
0
279,400
25,000
(80,000)
25,000
479,400
Balance Sheet
Accounts Payable
310,000
350,400
375,000
24,000
1,431,400
565,000
1,101,000
(577,000)
374,400
1,646,000
104,000
350,000

463,000
625,000
25,000
479,400
87,600
87,600
112,600
1,646,000
86
a.
85,600
85,600

Cash
24,000
24,000

b.
NCI
20%
Paper
Co.
80%
Common
Stock
Beginning book value
87,600
350,400
+ Net Income
21,400
85,600
107,000
- Dividends
(6,000)
(24,000)
(30,000)
103,000
412,000
Ending book value
250,000
Retained
Earnings
250,000
1/1/X9
12/31/X9
Goodwill = 0
Goodwill = 0
Excess = 0
80%
Book value =
350,400
$350,400
Net
investment
in Scissor
Co.
Excess = 0
80%
Book value =
412,000
188,000
265,000
$412,000
Net
investment
in Scissor
Co.
87
P3-39 (continued)
Common stock
250,000
Retained earnings
188,000
85,600
NCI in NI of Scissor Co.
21,400
Dividends declared
30,000
412,000
103,000

24,000
24,000
Investment in
Income from
Scissor Co.
Scissor Co.
Beginning Balance
350,400
80% Net Income
85,600
Ending Balance
24,000
80% Dividends
412,000
Basic
412,000
0
85,600
80% Net Income
85,600
Ending Balance
85,600
0
88
P3-39 (continued)
Paper
Co.
Scissor
Co.
Elimination Entries
DR
CR
Consolidated
Income Statement
Sales
Less: COGS
880,000
355,000
1,235,000
(278,000)
(178,000)
(456,000)
(65,000)
(12,000)
(77,000)
(312,000)
(58,000)
(370,000)
85,600
310,600
NCI in Net Income

Income
85,600
107,000
85,600
332,000
21,400
(21,400)
310,600
107,000
107,000
310,600
Beginning Balance
479,400
188,000
188,000
Net Income
310,600
107,000
107,000
(90,000)
(30,000)
Ending Balance
700,000
265,000
Cash
295,000
116,000
411,000
Accounts Receivable
165,000
97,000
262,000
Inventory
193,000
115,000
412,000
Land
250,000
125,000
875,000
250,000
(630,000)
(48,000)
24,000
Total Assets
1,560,000
655,000
24,000
85,000
40,000
Bonds Payable
150,000
100,000
Common Stock
625,000
250,000
250,000
Retained Earnings
700,000
265,000
295,000
295,000
479,400
0
310,600
30,000
(90,000)
30,000
700,000
Balance Sheet
Accounts Payable
308,000
412,000
375,000
24,000
1,560,000
655,000
1,101,000
(654,000)
436,000
1,803,000
125,000
250,000

545,000
625,000
30,000
700,000
103,000
103,000
133,000
1,803,000
89
CHAPTER 4
CONSOLIDATION OF WHOLLY OWNED SUBSIDIARIES ACQUIRED AT MORE THAN
BOOK VALUE
E4-1 Cost versus Equity Reporting
a. Cost-method journal entries recorded by Roller Corporation:
20X5
Investment in Steam Company Stock

Cash
Record purchase of Steam Company stock.
270,000
Cash
Dividend Income
Record dividend income from Steam Company
5,000
20X6
Cash
Dividend Income
15,000
20X7
Cash
Dividend Income
35,000
270,000
5,000
15,000
35,000
Note: Cumulative dividends do not exceed cumulative earnings to date.
b. Equity-method journal entries recorded by Roller Corporation:

20X5

Cash
Record purchase of Steam Company stock.
Cash
Record dividend from Steam Company.
Income from Steam Company
Record equity-method income.
Amortize differential: ($270,000 - $200,000) / 10 years
20X6
270,000
5,000
20,000
7,000
Cash
15,000

40,000
270,000
5,000
20,000
7,000
15,000
40,000
90
20X7

Amortize differential.
7,000
Cash
35,000

20,000

7,000
7,000
35,000
20,000
7,000
E4-2 Differential Assigned to Patents

Journal entries recorded by Power Corporation:
20X2
20X3
Investment in Snow Corporation Stock

Common Stock
Record purchase of Snow Corporation stock
1,080,000
Cash
Record dividend from Snow Corporation
20,000

Income from Snow Corporation
Record equity-method income
56,000

Amortize differential: ($1,080,000 - $980,000) / 8 years
12,500
Cash
Record dividend from Snow Corporation
10,000

Record equity-method loss
44,000

Amortize differential
12,500
270,000
810,000
20,000
56,000
12,500
10,000
44,000
12,500
91
E4-3 Differential Assigned to Copyrights

Journal entries recorded by Best Corporation:
20X7
20X8
Investment in Flair Company Stock

Cash
Bonds Payable
Record purchase of Flair Company stock.
694,000
Cash
Record dividend from Flair Company
24,000
Income from Flair Company

Record equity-method loss
88,000

Amortize differential:
Book value of assets
Book value of liabilities
Net book value
Land fair value increment
Amount paid
Differential
Period of amortization (years)
Amortization per period
9,750
Cash
Record dividend from Flair Company
24,000
670,000
24,000
88,000
9,750
$740,000
(140,000)
$600,000
16,000
$616,000
694,000
$ 78,000
8
$ 9,750
24,000
120,000
9,750
24,000
120,000
9,750
92
E4-4 Differential Attributable to Depreciable Assets

a. Journal entries recorded by Capital Corporation using the equity method:
20X4
Investment in Cook Company Stock

Cash
Record purchase of Cook Company Stock.
Cash
Record dividend from Cook Company
Income from Cook Company
20X5
340,000
6,000
10,000

Amortize differential: (340,000 300,000) / 10 years
4,000
Cash
Record dividend from Cook Company
9,000

20,000
4,000
340,000
6,000
10,000
4,000
9,000
20,000
4,000
b. Journal entries recorded by Capital Corporation using the cost method:

20X4
20X5

Cash
Record purchase of Cook Company Stock.
340,000
Cash
Dividend Income
Record dividend income from Cook Company.
6,000
Cash
Dividend Income
Record dividend income from Cook Company.
9,000
340,000
6,000
9,000
93
E4-5 Investment Income

Brindle Company reported equity-method income of $52,000, computed as follows:
Proportionate share of reported income
Amortization of differential:
Land ($108,000: not amortized)
Equipment ($80,000 / 5 years)
Goodwill ($0: not amortized)
Investment Income
$68,000
$ -016,000
-0-
Assignment of differential
Purchase price
Proportionate share of book value of net assets
($690,000 - $230,000)
Differential
Differential assigned to land
Differential assigned to equipment
Differential assigned to goodwill
(16,000)
$52,000
$648,000
(460,000)
$ 188,000
(108,000)
(80,000)
$
0
E4-6 Determination of Purchase Price

Investment account balance December 31, 20X6
$161,000
Increase in account balance during 20X5:

Proportionate share of income
Amortize differential ($28,000 / 8 years)
Dividend received
$ 33,000
(3,500)
(15,000)
(14,500)
Decrease in account balance during 20X6:

Proportionate share of income
Amortize differential ($28,000 / 8 years)
Dividend received
$ 6,000
(3,500)
(12,000)
9,500
Investment account balance at date of purchase
$156,000
94
E4-7 Correction of Error

Required correcting entry:
Investment in Case Products Stock
Dividend Income
Income from Case Products
Retained Earnings
Computation of correction of investment account
Addition to account for investment income:
20X6: $16,000
20X7: $24,000
20X8: $32,000
Deduction for dividends received:
20X6: $6,000
20X7: $8,000
20X8: $8,000
Purchase price
Proportionate share of book value of net assets
($10,000 + $30,000)
Amount of differential
Amortization for 3 years [($16,000 / 8) x 3]
Required correction of investment account
44,000
8,000
$16,000
24,000
32,000
$72,000
$ 6,000
8,000
8,000
(22,000)
$56,000
(40,000)
$16,000
Computation of correction of retained earnings of Grand Corporation

Dividend income recorded in 20X6: $6,000
$ 6,000
20X7: $8,000
8,000
Equity-method income in 20X6: ($16,000 - $2,000)
20X7: ($24,000 - $2,000)
Required correction of retained earnings
30,000
22,000
$14,000
22,000
(6,000)
$44,000
($14,000)
36,000
$22,000
E4-8 Differential Assigned to Land and Equipment

Journal entries recorded by Rod Corporation:
(1) Investment in Stafford Corporation Stock
Cash
Record purchase of Stafford Stock.
(2) Cash
Investment in Stafford Corporation Stock
Record dividend from Stafford
(3) Investment in Stafford Corporation Stock
Income from Stafford
(4) Income from Stafford
Investment in Stafford Corporation Stock
65,000
4,500
12,000
1,000
65,000
4,500
12,000
1,000
95
Amortize differential assigned to equipment.

E4-9 Equity Entries with Goodwill
Journal entries recorded following purchase:
(1) Investment in Turner Corporation Stock
Cash
Record purchase of Turner stock.
437,500
(2) Cash
Investment in Turner Corporation Stock
Record dividend from Turner
3,200
(3) Investment in Turner Corporation Stock

Income from Turner Corporation
16,000
(4) Income from Turner Corporation Stock

10,000
Investment in Turner Corporation
Write off differential assigned to inventory carried on FIFO basis
(5) Income from Turner Corporation Stock
9,000
Investment in Turner Corporation
Amortize differential assigned to buildings and equipment:
[$240,000 - ($300,000 - $150,000)] / 10 years
437,500
3,200
16,000
10,000
9,000
E4-10 Multiple-Choice Questions on Consolidation Process

1. c
2. d [AICPA Adapted]
3. d
4. b
5. a
E4-11 Multiple-Choice Questions on Consolidation [AICPA Adapted]
1. c
2. a
3. d
4. c $400,000 = $1,700,000 - $1,300,000
E4-12 Eliminating Entries with Differential
a.
Equity Method Entries on Tower Corp.'s Books:
Investment in Brown Co.
100,000
Cash
100,000
Record the initial investment in Brown Co.

Total Book
Value
Common
Stock
Retained
Earnings
96
Original book value
57,000
20,000
37,000
1/1/X8
Goodwill = 18,000
Identifiable excess
= 25,000
$100,000
Initial
investment
in Brown
Co.
100%
Book value =
57,000

Common stock
20,000
Retained earnings
37,000
57,000
Excess Value (Differential) Calculations:

Total
Balances
43,000
Inventory
Buildings &
Equipment
5,000
20,000
Goodwill
18,000
Excess value (differential) reclassification entry:

Inventory
5,000
20,000
Goodwill
18,000
43,000
97
E4-12 (continued)
Investment in
Brown Co.
Acquisition Price
100,000
57,000
Basic
43,000
Excess Reclass.
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 worksheet 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 worksheet is prepared.
E4-13 Balance Sheet Consolidation

Equity Method Entries on Reed Corp.'s Books:
Investment in Thorne Corp.
395,000
Cash
395,000

Total Book
Value
Original book
value
360,000
Common
Stock
120,000
Retained
Earnings
240,000
1/1/X4
Goodwill = 19,000
Identifiable excess
= 16,000
100%
Book value =
360,000
$395,000
Initial
investment
in Thorne
Corp.
98

Common stock
120,000
Retained earnings
240,000
360,000

Total
Balances
Buildings
35,000
Inventory
(20,000)
36,000
Goodwill
19,000

Inventory
36,000
Goodwill
19,000
Buildings
20,000
35,000
Investment in
Thorne Corp.
Acquisition Price
395,000
360,000
35,000
Basic
Excess Reclass.
E4-14 Acquisition with Differential

a. Goodwill is $60,000, computed as follows:
Book value of Conger's net assets:
Retained earnings
Fair value increment:
Land ($100,000 - $80,000
Buildings ($400,000 - $220,000)
Goodwill
$ 80,000
130,000
$ 20,000
180,000
$210,000
200,000
$410,000
(470,000)
$ 60,000
b.
Equity Method Entries on Road Corp.'s Books:
Investment in Conger Corp.
Cash
470,000
470,000
Record the initial investment in Conger Corp.
99

Total Book
Value
Original book value
Common
Stock
210,000
80,000
Retained
Earnings
130,000
1/1/X2
Goodwill = 60,000
Identifiable excess
= 200,000
$470,000
Initial
investment
in Conger
Corp.
100%
Book value =
210,000

Common stock
80,000
Retained earnings
130,000
210,000

Total
Balances
260,000
Land
20,000
Buildings
180,000
Goodwill
60,000

Land
20,000
Buildings
180,000
Goodwill
60,000
260,000
100
E4-15 Balance Sheet Worksheet with Differential

a.
Equity Method Entries on Blank Corp.'s Books:
Investment in Faith Corp.
189,000
Cash
189,000
Record the initial investment in Faith Corp.

Total Book
Value
Original book
value
Common
Stock
150,000
60,000
Retained
Earnings
90,000
1/1/X2
Goodwill = 0
Identifiable excess
= 39,000
$189,000
Initial
investment
in Faith
Corp.
100%
Book value =
150,000

Common stock
60,000
Retained earnings
90,000
150,000

Total
Balances
39,000
Inventory
24,000
Buildings &
Equipment
15,000

Inventory
24,000
15,000
39,000
101
E4-15 (continued)
Investment in
Faith Corp.
Acquisition Price
189,000
150,000
Basic
39,000
Excess Reclass.
b.
Elimination Entries
Blank
Corp.
Faith
Corp.
Cash
26,000
18,000
44,000
Accounts Receivable
87,000
37,000
124,000
Inventory
110,000
60,000
24,000
220,000
150,000
15,000
189,000
DR
CR
Consolidated
Balance Sheet
194,000
385,000
150,000
39,000
Goodwill
Total Assets
632,000
265,000
92,000
35,000
127,000
Notes Payable
150,000
80,000
230,000
Common Stock
100,000
60,000
60,000
100,000
Retained Earnings
290,000
90,000
90,000
290,000
632,000
265,000
150,000
Accounts Payable
39,000
189,000
747,000
747,000
E4-16 Worksheet for Wholly Owned Subsidiary

a.
Equity Method Entries on Gold Enterprises Books:
Investment in Premium Builders
167,000
Cash
167,000
Record the initial investment in Premium Builders

Total Book
Value
Original book
value
150,000
Common
Stock
140,000
Retained
Earnings
10,000
102
1/1/X5
Goodwill = 0
Identifiable excess
= 17,000
100%
Book value =
150,000
$167,000
Initial
investment
in Premium
Builders

Common stock
140,000
Retained earnings
10,000
150,000

Cash and
Total = Receivables + Inventory
Balances
17,000
(2,000)
Buildings &
Equipment
7,000
12,000

Inventory
7,000
12,000
2,000
17,000
103
E4-16 (continued)
Investment in
Premium Builders
Acquisition Price
167,000
150,000
Basic
17,000
Excess Reclass.
0
b.
Gold
Enterprises
Premium
Builders
Elimination Entries
DR
CR
Consolidated
Balance Sheet
80,000
30,000
Inventory
150,000
350,000
7,000
2,000
108,000
507,000
430,000
80,000
12,000
522,000
167,000
150,000
17,000
Total Assets
827,000
460,000
Current Liabilities
100,000
110,000
Long-Term Debt
400,000
200,000
Common Stock
200,000
140,000
140,000
200,000
Retained Earnings
127,000
10,000
10,000
127,000
827,000
460,000
150,000
c.
19,000
169,000
1,137,000
210,000
600,000
1,137,000
Gold Enterprises and Subsidiary

January 1, 20X5

Inventory
Buildings and
Equipment (net)
$ 108,000
507,000
Total Assets
$1,137,000
522,000
Current Liabilities
Long-Term Debt
Common Stock
Retained Earnings
Total Liabilities &
Stockholders' Equity
$200,000
127,000
$ 210,000
600,000
327,000
$1,137,000
E4-17 Computation of Consolidated Balances

a. Inventory
$ 140,000
b. Land
$ 60,000
c.
$ 550,000
104
d. Goodwill:

Book value of net assets
at acquisition
Fair value increment for:
Inventory
Land
Buildings and equipment
at acquisition
Balance assigned to goodwill
$ 576,000
$450,000
20,000
(10,000)
70,000
(530,000)
$ 46,000
e. Investment in Astor Corporation: Nothing would be reported; the balance in the

investment account is eliminated.
E4-18 Multiple-Choice Questions on Balance Sheet Consolidation
1.
$215,000
$130,000 + $85,000
2.
$23,000
$198,000 ($405,000 - $265,000 + $15,000 + $20,000)
3.
$1,109,000
Total Assets of Top Corp.

Less: Investment in Sun Corp.
Book value of assets of Top Corp.
Book value of assets of Sun Corp.
Total book value
Payment in excess of book value
($198,000 - $140,000)
Total assets reported
$ 844,000
(198,000)
$ 646,000
405,000
$1,051,000
58,000
$1,109,000
4.
$701,500
($61,500 + $95,000 + $280,000) + ($28,000 + $37,000

+ $200,000)
5.
$257,500
The amount reported by Top Corporation
6.
$407,500
The amount reported by Top Corporation
E4-19 Wholly Owned Subsidiary with Differential

a.
Equity Method Entries on Winston Corp.'s Books:
Investment in Canton Corp.
178,000
Cash
178,000
Record the initial investment in Canton Corp.

30,000
Income from Canton Corp.
30,000
Record Winston Corp.'s 100% share of Canton Corp.'s 20X3 income

Cash
12,000
12,000
105
Record Winston Corp.'s 100% share of Canton Corp.'s 20X3 dividend
4,000
4,000
Record amortization of excess acquisition price

b.
Total Book
Value
Original book value
+ Net Income
150,000
Common
Stock
60,000
Retained
Earnings
90,000
30,000
30,000
- Dividends
(12,000)
(12,000)
Ending book value
168,000
60,000
1/1/X3
108,000
12/31/X3
Goodwill = 0
Goodwill = 0
Excess = 24,000
Identifiable excess
= 28,000
100%
Book value =
150,000
$178,000
Initial
investment
in Canton
Corp.
100%
Book value =
168,000
$192,000
Net
investment in
Canton Corp.
106
E4-19 (continued)
Common stock
60,000
Retained earnings
90,000
30,000
Dividends declared
12,000
168,000

Total
Beginning Balances
28,000
Changes
(4,000)
Ending Balances
24,000
Equipment
Acc.
Depr.
28,000
(4,000)
28,000
(4,000)
Amortized excess value reclassification entry:

Depreciation expense
4,000
4,000

Equipment
28,000
4,000
24,000
Investment in
Income from
Canton Corp.
Canton Corp.
Acquisition Price
178,000
100% Net Income
30,000
Ending Balance
12,000
100% Dividends
4,000
Excess Val. Amort.
24,000
0
Basic
Excess Reclass.
100% Net Income
26,000
Ending Balance
4,000
192,000
168,000
30,000
30,000
4,000
0
107
E4-20 Basic Consolidation Worksheet

a.
Equity Method Entries on Blake Corp.'s Books:
Investment in Shaw Corp.
150,000
Cash
150,000
Record the initial investment in Shaw Corp.

30,000
Income from Shaw Corp.
30,000
Record Blake Corp.'s 100% share of Shaw Corp.'s 20X3 income

Cash
10,000
10,000
Record Blake Corp.'s 100% share of Shaw Corp.'s 20X3 dividend

Total Book
Value
Original book value
+ Net Income
150,000
Common
Stock
100,000
Retained
Earnings
50,000
30,000
30,000
- Dividends
(10,000)
(10,000)
Ending book value
170,000
100,000
1/1/X3
12/31/X3
Goodwill = 0
Goodwill = 0
Identifiable excess
=0
100%
Book value =
150,000
70,000
Excess = 0
$150,000
Initial
investment
in Shaw
Corp.
100%
Book value =
170,000
$170,000
Net
investment in
Shaw Corp.
108
E4-20 (continued)
Common stock
100,000
Retained earnings
50,000
30,000
Dividends declared
10,000

Investment in
Income from
Shaw Corp.
Shaw Corp.
Acquisition Price
150,000
100% Net Income
30,000
Ending Balance
170,000
10,000
100%
Dividends
170,000
Basic
170,000
0
30,000
100% Net Income
30,000
Ending Balance
30,000
0
109
E4-20 (continued)
b.
Blake
Corp.
Shaw
Corp.
Elimination Entries
DR
CR
Consolidated
Income Statement
Sales
200,000
120,000
320,000
(25,000)
(15,000)
(40,000)
(105,000)
(75,000)
(180,000)

Net Income
30,000
30,000
100,000
30,000
30,000
100,000
Beginning Balance
230,000
50,000
50,000
Net Income
100,000
30,000
30,000
(40,000)
(10,000)
Ending Balance
290,000
70,000
Current Assets
145,000
105,000
250,000
Depreciable Assets (net)
325,000
225,000
550,000
170,000
Total Assets
640,000
330,000
Current Liabilities
50,000
40,000
90,000
Long-Term Debt
100,000
120,000
220,000
Common Stock
200,000
100,000
100,000
Retained Earnings
290,000
70,000
80,000
10,000
290,000
640,000
330,000
180,000
10,000
800,000
80,000
230,000
0
100,000
10,000
(40,000)
10,000
290,000
Balance Sheet
170,000
170,000
800,000
200,000
110
E4-21 Basic Consolidation Worksheet for Second Year

a.
Equity Method Entries on Blake Corp.'s Books:
35,000
35,000
Record Blake Corp.'s 100% share of Shaw Corp.'s 20X4 income
Cash
15,000
15,000
Record Blake Corp.'s 100% share of Shaw Corp.'s 20X4 dividend

Total Book
Value
Original book value
+ Net Income
170,000
Common
Stock
100,000
Retained
Earnings
70,000
35,000
35,000
- Dividends
(15,000)
(15,000)
Ending book value
190,000
100,000
1/1/X4
12/31/X4
Goodwill = 0
Goodwill = 0
Identifiable excess
=0
100%
Book value =
170,000
90,000
Excess = 0
$170,000
Net
investment
in Shaw
Corp.
100%
Book value =
190,000
$190,000
Net
investment in
Shaw Corp.
111
E4-21 (continued)
Basic elimination entry
Common stock
100,000
Retained earnings
70,000
35,000
Dividends declared
15,000
190,000
Investment in
Income from
Shaw Corp.
Shaw Corp.
Beginning Balance
170,000
100% Net Income
35,000
15,000
Ending Balance
190,000
190,000
0
35,000
100% Net Income
35,000
Ending Balance
100%
Dividends
Basic
35,000
0
112
E4-21 (continued)
b.
Elimination Entries
Blake
Corp.
Shaw
Corp.
DR
Consolidate
d
CR
Income Statement
Sales
230,000
(25,000)
(150,000
)
140,000
(15,000
)
(90,000
)
370,000
(40,000)
(240,000)
35,000
35,000
Net Income
90,000
35,000
35,000
290,000
70,000
70,000
90,000
35,000
(15,000
)
35,000
0
0
90,000
Earnings
Beginning Balance
Net Income
Ending Balance
(50,000)
330,000
90,000
Current Assets
210,000
150,000
300,000
210,000
105,00
0
290,000
0
90,000
15,000
(50,000)
15,000
330,000
Balance Sheet
190,000
Total Assets
700,000
360,000
Current Liabilities
70,000
50,000
Long-Term Debt
100,000
120,000
Common Stock
200,000
100,000
Retained Earnings
330,000
90,000
700,000
360,000
360,000
510,000
190,00
0
190,00
0
0
870,000
120,000
220,000
100,00
0
105,00
0
205,00
0
200,000
15,000
330,000
15,000
870,000
113
E4-22 Consolidation Worksheet with Differential

a.
Equity Method Entries on Kennelly Corp.'s Books:
Investment in Short Co.
180,000
Cash
180,000
Record the initial investment in Short Co.

30,000
Income from Short Co.
30,000
Record Kennelly Corp.'s 100% share of Short Co.'s 20X5 income

Cash
10,000

10,000
Record Kennelly Corp.'s 100% share of Short Co.'s 20X5
dividend
5,000
5,000

Total Book
Value
Original book value
+ Net Income
150,000
Common
Stock
100,000
Retained
Earnings
50,000
30,000
30,000
- Dividends
(10,000)
(10,000)
Ending book value
170,000
100,000
70,000
114
1/1/X5
12/31/X5
Goodwill = 0
Goodwill = 0
Excess = 25,000
Identifiable excess
= 30,000
$195,000
Net
investment in
Short Co.
$180,000
Initial
investment
in Short Co.
100%
Book value =
150,000
100%
Book value =
170,000

Common stock
100,000
Retained earnings
50,000
30,000
Dividends declared
10,000
170,000

Depreciable
Total =
Assets
Beginning balance
30,000
Changes
(5,000)
Ending balance
25,000
30,000
Acc.
Depr.
0
(5,000)
30,000
(5,000)

5,000
5,000

Depreciable Assets
30,000
5,000
25,000
115
Acquisition
Price
100% Net
Income
Ending Balance
Investment in
Income from
Short Co.
Short Co.
180,000
30,000
10,000
100% Dividends
5,000
Excess Val. Amort.
25,000
0
Basic
Excess Reclass.
100% Net
Income
25,000
Ending Balance
5,000
195,000
170,000
30,000
30,000
5,000
0
116
E4-22 (continued)
b.
Elimination Entries
Kennelly
Corp.
Short
Co.
DR
CR
Consolidate
d
Income Statement
Sales
200,000
(25,000)
(105,000
)
25,000
Net Income
95,000
120,000
(15,000
)
(75,000
)
320,000
5,000
(45,000)
(180,000)
30,000
5,000
30,000
35,000
5,000
95,000
230,000
50,000
50,000
95,000
35,000
85,000
Statement of Retained Earning

Beginning Balance
Net Income
230,000
(40,000)
30,000
(10,000
)
5,000
95,000
10,000
(40,000)
Ending Balance
285,000
70,000
15,000
285,000
Cash
15,000
5,000
Accounts Receivable
30,000
40,000
70,000
Inventory
70,000
60,000
130,000
325,000
225,000
195,000
5,000
170,00
0
635,000
25,000
200,00
0
Balance Sheet
Total Assets
Accounts Payable
330,000
20,000
30,000
30,000
575,000
0
795,000
50,000
40,000
90,000
Notes Payable
100,000
120,000
220,000
Common Stock
200,000
100,000
100,000
Retained Earnings
285,000
70,000
85,000
15,000
285,000
635,000
330,000
185,000
15,000
795,000
200,000
117
E4-23 Consolidation Worksheet for Subsidiary

a.
Equity Method Entries on Land Corp.'s Books:
Investment in Growth Co.
170,000
Cash
170,000
Record the initial investment in Growth Co.

35,000
Income from Growth Co.
35,000
Record Land Corp.'s 100% share of Growth Co.'s 20X4 income

Cash
15,000
15,000
Record Land Corp.'s 100% share of Growth Co.'s 20X4 dividend

Total Book
Value
Original book value
+ Net Income
170,000
Common
Stock
100,000
Retained
Earnings
70,000
35,000
35,000
- Dividends
(15,000)
(15,000)
Ending book value
190,000
100,000
90,000
1/1/X4
12/31/X4
Goodwill = 0
Goodwill = 0
Identifiable excess
=0
Excess = 0
100%
Book value =
170,000
$170,000
Initial
investment
in Growth
Co.
100%
Book value =
190,000
$190,000
Net
investment in
Growth Co.
118
E4-23 (continued)
Common stock
100,000
Retained earnings
70,000
35,000
Dividends declared
15,000
190,000

75,000
Acquisition
Price
100% Net
Income
75,000
Investment in
Income from
Growth Co.
Growth Co.
170,000
35,000
15,000
Ending Balance
100% Net
Income
35,000
Ending Balance
100% Dividends
190,000
190,000
35,000
Basic
35,000
0
119
E4-23 (continued)
b.
Elimination Entries
Land
Corp.
Growth
Co.
Sales
230,000
140,000
370,000
(25,000)
(15,000)
(40,000)
(150,000)
(90,000)
DR
CR
Consolidated
Income Statement
(240,000)
35,000
35,000
Net Income
90,000
35,000
35,000
318,000
70,000
70,000
90,000
35,000
35,000
(50,000)
(15,000)
Ending Balance
358,000
90,000
238,000
150,000
0
0
90,000

Beginning Balance
Net Income
105,000
318,000
0
90,000
15,000
(50,000)
15,000
358,000
Balance Sheet
Current Assets
Depreciable Assets
500,000
300,000
(200,000)
(90,000)
388,000
75,000
75,000
725,000
(215,000)
190,000
Total Assets
728,000
360,000
Current Liabilities
70,000
50,000
120,000
Long-Term Debt
100,000
120,000
220,000
Common Stock
200,000
100,000
100,000
Retained Earnings
358,000
90,000
105,000
15,000
358,000
728,000
360,000
205,000
15,000
898,000
75,000
190,000
265,000
898,000
200,000
120
E4-24 Push-Down Accounting

a. Entry to record acquisition of Louis stock on books of Jefferson:
Investment in Louis Corporation Stock
Cash
789,000
789,000
b. Entry to record revaluation of assets on books of Louis Corporation:

Land
Buildings
Equipment
Revaluation Capital
15,000
50,000
20,000
85,000
c. Investment elimination entry in consolidation worksheet (no other entries needed):

Common Stock Louis Corporation
Retained Earnings
Revaluation Capital
Investment in Louis Corporation Stock
Total
Book
= Common + Additional +
Value
Stock
Capital
789,000
200,000
425,000
Orig. book value
200,000
425,000
79,000
85,000
789,000
Retained + Revaluation
Earnings
Capital
79,000
85,000
121
P4-25 Assignment of Differential in Worksheet
a.
Equity Method Entries on Teresa Corp.'s Books:
Investment in Sally Enterprises
290,000
Cash
290,000
Record the initial investment in Sally Enterprises

Total Book
Value
Original book value
250,000
Common
Stock
100,000
Retained
Earnings
150,000
1/1/X4
Goodwill = 30,000
Identifiable excess
= 10,000
$290,000
Initial
investment
in Sally
Enterprises
100%
Book value =
250,000

Common stock
100,000
Retained earnings
150,000
250,000

Total
Balances
40,000

10,000
Goodwill
30,000
122

10,000
Goodwill
30,000

P4-25 (continued)
40,000

65,000
65,000
Investment in
Sally Enterprises
Acquisition Price
290,000
250,000
40,000
Basic
Excess Reclass.
Teresa
Corp.
Sally
Enterprises
Elimination Entries
DR
CR
Consolidated
Balance Sheet
40,000
20,000
60,000
Inventory
95,000
40,000
135,000
Land
80,000
90,000
170,000
400,000
230,000
10,000
(175,000)
(65,000)
65,000

290,000
65,000
575,000
(175,000)
250,000
40,000
Goodwill
Total Assets
30,000
730,000
315,000
60,000
15,000
75,000
Notes Payable
100,000
50,000
150,000
Common Stock
300,000
100,000
100,000
300,000
Retained Earnings
270,000
150,000
150,000
270,000
730,000
315,000
250,000
Accounts Payable
75,000
30,000
355,000
795,000
795,000
123
P4-25 (continued)
b.
Teresa Corporation and Subsidiary

January 1, 20X4
Inventory
Land
Goodwill
Total Assets
Accounts Payable
Notes Payable
Common Stock
Retained Earnings
Total Liabilities and
$575,000
(175,000)
$300,000
270,000
$ 60,000
135,000
170,000
400,000
30,000
$795,000
$ 75,000
150,000
570,000
$795,000
P4-26 Computation of Consolidated Balances

a.
Inventories ($110,000 + $170,000)
$280,000
b.
Buildings and Equipment (net) ($350,000 + $375,000)
$725,000
c.
Investment in Decibel stock will be fully eliminated and will not

appear in the consolidated balance sheet.
d.
Goodwill Fair value of consideration given

Fair value of Decibel's net assets:
Cash and receivables
Inventory
Buildings and equipment (net)
Accounts payable
Notes payable
Fair value of net identifiable
assets
Goodwill to be reported
$280,000
$ 40,000
170,000
375,000
(90,000)
(250,000)
(245,000)
$ 35,000
Note: Goodwill on books of Decibel is not an identifiable asset and therefore

is not included in the computation of Decibel's net identifiable assets at the
date of acquisition.
e.
Common Stock
$400,000
f.
Retained Earnings
$105,000
124
P4-27 Balance Sheet Consolidation [AICPA Adapted]

We note that the printer moved the stockholders equity table item #5 refers to. It appears
below the balance sheets on p. 199.
Equity Method Entries on Case Inc.'s Books:
Investment in Frey Inc.
2,260,000
Cash
2,260,000
Record the initial investment in Frey Inc.

580,000
Income from Frey Inc.
580,000
Record Case Inc.'s 100% share of Frey Inc.'s 20X4 income

Cash
160,000
160,000
Record Case Inc.'s 100% share of Frey Inc.'s 20X4 dividend

Total
Book
Value
Original book value
+ Net Income
2,010,000
Common
Stock
1,000,000
Retained
Earnings
820,000
580,000
580,000
- Dividends
(160,000)
(160,000)
Ending book value
2,430,000
1,000,000
1/1/X4
100%
Book value =
2,010,000
1,240,000
Additional
Paid-In
Capital
190,000
190,000
12/31/X4
Goodwill = 0
Goodwill = 0
Identifiable excess
= 250,000
Excess = 250,000
$2,260,000
Initial
investment
in Frey Inc.
100%
Book value =
2,430,000
$2,680,000
Net
investment in
Frey Inc.
125
P4-27 (continued)
Common stock
1,000,000
Retained earnings
820,000
Income from Frey Inc.
580,000
190,000
Dividends declared
160,000
2,430,000

Total
Beginning balance
250,000
Changes
Ending balance
Land
250,000
250,000
250,000

Land
250,000
250,000
Investment in
Income from
Frey Inc.
Frey Inc.
Acquisition Price
2,260,000
100% Net Income
580,000
160,000
Ending Balance
250,000
0
100% Net Income
580,000
Ending Balance
100% Dividends
2,680,000
2,430,000
580,000
Basic
580,000
Excess Reclass.
0
126
P4-27 (continued)
Elimination Entries
Case Inc.
Frey Inc.
DR
CR
Consolidated
Balance Sheet
Cash
825,000
330,000
1,155,000
Accounts and Other Receivables
2,140,000
835,000
2,975,000
Inventory
2,310,000
1,045,000
3,355,000
Land
650,000
300,000
4,575,000
1,980,000
2,680,000
250,000
1,200,000
6,555,000
2,430,000
250,000
Long-Term Investments & Other
Assets
865,000
385,000
14,045,000
4,875,000
Accounts Payable and Other Cur.

Liabilities
2,465,000
1,145,000
3,610,000
Long-Term Debt
1,900,000
1,300,000
3,200,000
Common Stock
3,200,000
1,000,000
1,000,000
3,200,000
2,100,000
190,000
190,000
2,100,000
Retained Earnings
4,380,000
1,240,000
820,000
4,380,000
Total Assets
1,250,000
250,000
2,680,000
16,490,000
580,000
160,000
14,045,000
4,875,000
2,590,000
16,490,000
127
P4-28 Consolidated Balance Sheet

a.
Common Stock
100,000
Retained Earnings
120,000
Investment in Lake Corp.
220,000

40,000
8,000
32,000

75,000
75,000
b.
Thompson
Co.
Lake
Corp.
Elimination Entries
DR
CR
Consolidated
Balance Sheet
Cash
Accounts Receivable
Land
Investment in Lake Corporation
30,000
20,000
50,000
100,000
40,000
140,000
60,000
50,000
110,000
500,000
350,000
40,000
75,000
815,000
(230,000)
(75,000)
75,000
8,000
(238,000)
220,000
252,000
32,000
Total Assets
712,000
385,000
115,000
303,000
Accounts Payable
80,000
10,000
90,000
Taxes Payable
40,000
70,000
110,000
Notes Payable
100,000
85,000
185,000
Common Stock
200,000
100,000
100,000
200,000
Retained Earnings
292,000
120,000
120,000
292,000
712,000
385,000
220,000
877,000
877,000
128
P4-29 Comprehensive Problem: Consolidation in Subsequent Period

a.
Equity Method Entries on Thompson Co.'s Books:
32,000
Income from Lake Corp.

32,000
Record Thompson Co.'s 100% share of Lake Corp.'s 20X4
income
Cash
12,000

12,000
Record Thompson Co.'s 100% share of Lake Corp.'s 20X4
dividend
4,000
4,000

b.
Total Book
Value
Original book value
+ Net Income
220,000
Common
Stock
100,000
Retained
Earnings
120,000
32,000
32,000
- Dividends
(12,000)
(12,000)
Ending book value
240,000
100,000
1/1/X4
140,000
12/31/X4
Goodwill = 0
Goodwill = 0
Excess = 28,000
Identifiable excess
= 32,000
100%
Book value =
220,000
$252,000
Net
investment
in Lake
Corp.
100%
Book value =
240,000
$268,000
Net
investment in
Lake Corp.
129
P4-29 (continued)
Common stock
100,000
Retained earnings
120,000
32,000
Dividends declared
12,000
240,000

Buildings &
Total
=
Equipment
Beginning balance
32,000
Changes
(4,000)
Ending balance
28,000
40,000
Acc.
Depr.
(8,000)
(4,000)
40,000
(12,000)

4,000
4,000

40,000
12,000
28,000
Eliminate intercompany accounts:

Accounts Payable
2,500
Accounts Receivable
2,500
Investment in
Income from
Lake Corp.
Lake Corp.
Beginning
Balance
252,000
100% Net Income
32,000
Ending Balance
12,000
100% Dividends
4,000
Excess Val. Amort.
28,000
0
Basic
Excess Reclass.
100% Net Income
28,000
Ending Balance
4,000
268,000
240,000
32,000
32,000
4,000
0
130
P4-29 (continued)
c.
Thompson
Co.
Lake
Corp.
Elimination Entries
DR
CR
Consolidated
Income Statement
Service Revenue
610,000
240,000
850,000
(470,000)
(130,000)
(600,000)
(35,000)
(18,000)
(57,000)
(60,000)
Less: Cost of Services
28,000
Net Income
76,000
4,000
(57,000)
(117,000)
32,000
4,000
32,000
36,000
4,000
76,000
292,000
120,000
120,000
76,000
32,000
36,000
(30,000)
(12,000)
Ending Balance
338,000
140,000
74,000
42,000
130,000
53,000
60,000
50,000
500,000
350,000
(265,000)
(93,000)

Beginning Balance
Net Income
156,000
292,000
4,000
76,000
12,000
(30,000)
16,000
338,000
Balance Sheet
Cash
Accounts Receivable
Land
116,000
2,500
180,500
110,000
40,000
268,000
890,000
12,000
(370,000)
240,000
28,000
Total Assets
767,000
402,000
40,000
71,000
17,000
2,500
Taxes Payable
58,000
60,000
118,000
Notes Payable
100,000
85,000
185,000
Common Stock
200,000
100,000
100,000
Retained Earnings
338,000
140,000
156,000
16,000
338,000
767,000
402,000
258,500
16,000
926,500
Accounts Payable
282,500
926,500
85,500
200,000
131
P4-30 Acquisition at Other than Fair Value of Net Assets

a. Ownership acquired for $280,000:
Equity Method Entries on Mason Corp.'s Books:
Investment in Best Co.
280,000
Cash
280,000
Record the initial investment in Best Co.

Total Book
Value
Original book value
Common
Stock
255,000
80,000
Retained
Earnings
175,000
1/1/X9
Goodwill = 12,000
Identifiable excess
= 13,000
$280,000
Initial
investment
in Best Co.
100%
Book value =
255,000

Common stock
80,000
Retained earnings
175,000
255,000

Total
Balances
25,000
Land
20,000
Inventories
(7,000)
Goodwill
12,000

Land
20,000
Goodwill
12,000
Inventories
7,000
25,000
132
P4-30 (continued)
Investment in
Best Co.
Acquisition Price
280,000
255,000
Basic
25,000
Excess Reclass.
0
b. Ownership acquired for $251,000:
Equity Method Entries on Mason Corp.'s Books:
251,000
Cash
251,000

Total Book
Value
Original book value
255,000
Common
Stock
Retained
Earnings
80,000
175,000

Common stock
80,000
Retained earnings
175,000
255,000

Total
Balances
(4,000)
Land
20,000
Inventories
(7,000)
Gain
(17,000)

Land
20,000
4,000
Inventories
7,000
Gain on Bargain Purchase
17,000
Investment in
Best Co.
Acquisition Price
251,000
255,000
Excess Reclass.
Basic
4,000
0
133
P4-31 Intercorporate Receivables and Payables

a. Eliminating entries:
Equity Method Entries on Kim Corp.'s Books:
Investment in Normal Co.
305,000
Cash
305,000
Record the initial investment in Normal Co.

Total Book
Value
Original book value
285,000
Common
Stock
150,000
Additional
PIC
140,000
Retained
Earnings
(5,000)
1/1/X7
Goodwill = 20,000
Identifiable excess
=0
$305,000
Initial
investment
in Normal
Co.
100%
Book value =
285,000

Common stock
150,000
Paid-in capital in excess of par
140,000
Retained earnings
5,000
285,000

Total
Balances
20,000
Goodwill
20,000

Goodwill
20,000
20,000
134
P4-31 (continued)
Bonds Payable
50,000
Investment in Normal Co. Bonds
50,000
Accounts Payable
10,000
Accounts Receivable
10,000

75,000
75,000
Investment in
Normal Co.
Acquisition Price
305,000
285,000
20,000
Basic
Excess Reclass.
0
b.
Kim
Corp.
Normal
Co.
Elimination Entries
DR
CR
Consolidated
Balance Sheet
Cash
70,000
35,000
Accounts Receivable
90,000
65,000
Inventory
84,000
80,000

Investment in Normal Company Stock
400,000
300,000
(160,000)
(75,000)
105,000
10,000
145,000
164,000
75,000
75,000
305,000
625,000
(160,000)
285,000
20,000
Investment in Normal Company Bonds
50,000
50,000
Goodwill
Total Assets
Accounts Payable
20,000
839,000
405,000
75,000
0
20,000
85,000
899,000
50,000
20,000
10,000
60,000
Bonds Payable
200,000
100,000
50,000
250,000
Common Stock
300,000
150,000
150,000
300,000
140,000
140,000
Capital in Excess of Par

Retained Earnings
289,000
(5,000)
839,000
405,000
350,000
5,000
289,000
5,000
899,000
135
P4-31 (continued)
c.
Kim Corporation and Subsidiary

January 1, 20X7
Cash
Accounts Receivable
Inventory
Goodwill
Total Assets
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
$625,000
(160,000)
$300,000
289,000
$105,000
145,000
164,000
465,000
20,000
$899,000
$ 60,000
250,000
589,000
$899,000
136
P4-32 Balance Sheet Consolidation

a.
Equity Method Entries on Primary Corp.'s Books:
Investment in Street Co.
650,000
Bonds Payable
650,000
Record the initial investment in Street Co.

b.
Total Book
Value
Original book value
478,000
Common
Stock
Addl PaidIn-Capital
200,000
130,000
Retained
Earnings
148,000
1/1/X8
Goodwill = 48,000
Identifiable excess
= 124,000
100%
Book value =
478,000
$650,000
Initial
investment
in Street
Co.

Common stock
200,000
130,000
Retained earnings
148,000
478,000
137
P4-32 (continued)
Total
Balances
Inventory
172,000
4,000
Land
Buildings
&
Equipment
20,000
50,000
Patent
40,000
Disc. on
Bonds
Payable
10,000
Goodwill
48,000

Inventory
4,000
Land
20,000
50,000
Patent
40,000
10,000
Goodwill
Investment in Street
Co.
48,000
172,000

Current Payables
6,500
Receivables
6,500
The FASB now requires that no allowance accounts be carried forward from the
acquiree in a business combination. However, because of immateriality and the shortlived nature of the carry forward subsequent to the date of combination, the allowance in
this problem has not been offset against the receivable. If such an offset is desired, the
following elimination entry would be made:
Allowance for Bad Debts
Receivables
1,000
1,000
However, since receivables are reported net of the allowance, the entry is not shown in the
worksheet.
220,000
220,000
Investment in
Street Co.
Acquisition Price
650,000
478,000
Basic
172,000
Excess Reclass.
138
P4-32 (continued)
c.
Elimination Entries
Primary
Corp.
Street
Co.
DR
Consolidate
d
CR
Balance Sheet
Cash
12,000
9,000
Receivables (net)
39,000
30,000
Inventory
86,000
68,000
4,000
Land
55,000
50,000
20,000

Less: Accumulated
Depreciation
960,000
(411,000)
670,000
(220,000
)
21,000
6,500
50,000
220,00
0
125,000
220,00
0
1,460,000
(411,000)
478,00
0
172,00
0
650,000
62,500
158,000
Patents
40,000
40,000
Goodwill
48,000
48,000

Total Assets
Current Payables
1,391,00
0
607,000
10,000
294,00
0
6,500
38,000
29,000
Bonds Payable
850,000
100,000
Common Stock
300,000
200,000
100,000
130,000
Retained Earnings
103,000
1,391,00
0
148,000
607,000
10,000
226,50
0
1,513,500
60,500
950,000
200,00
0
130,00
0
148,00
0
484,50
0
300,000
100,000
103,000
0
1,513,500
139
P4-32 (continued)
d.
Primary Corporation and Subsidiary

January 2, 20X8
Cash
Receivables
Less: Allowance for Bad Debts
Inventory
Land
Patent
Goodwill
Total Assets
65,500
(3,000)
$1,460,000
(411,000)
Current Payables
Bonds Payable
Less: Discount on Bonds Payable
Stockholders Equity
Common Stock
Retained Earnings
$ 950,000
(10,000)
$ 300,000
100,000
103,000
21,000
62,500
158,000
125,000
1,049,000
40,000
48,000
$1,503,500
$
60,500
940,000
503,000
$1,503,500
P4-33 Consolidation Worksheet at End of First Year of Ownership

a.
Equity Method Entries on Mill Corp.'s Books:
Investment in Roller Co.
128,000
Cash
128,000
Record the initial investment in Roller Co.

24,000
Income from Roller Co.
24,000
Record Mill Corp.'s 100% share of Roller Co.'s 20X8 income

Cash
16,000
16,000
Record Mill Corp.'s 100% share of Roller Co.'s 20X8 dividend

7,500
7,500
140

Total Book
Value
Original book value
100,000
+ Net Income
Common
Stock
Retained
Earnings
60,000
40,000
24,000
24,000
- Dividends
(16,000)
(16,000)
Ending book value
108,000
60,000
48,000
1/1/X8
12/31/X8
Goodwill = 2,500
Goodwill = 8,000
Excess = 18,000
Identifiable excess
= 20,000
$128,000
Initial
investment
in Roller
Co.
100%
Book value =
100,000
$128,500
Net
investment in
Roller Co.
100%
Book value =
108,000

Common stock
60,000
Retained earnings
40,000
24,000
Dividends declared
16,000
108,000

Buildings &
Total =
Equipment
Beginning balance
28,000
Changes
(7,500)
Ending balance
20,500
20,000
20,000
Acc.
Depr.
+
0
Goodwill
8,000
(2,000)
(5,500)
(2,000)
2,500
141
Amortized excess value reclassification

entry:
2,000
Goodwill impairment loss
5,500
7,500
P4-33 (continued)
20,000
Goodwill
2,500
2,000
20,500

30,000
30,000
Investment in
Income from
Roller Co.
Roller Co.
Acquisition Price
128,000
100% Net Income
24,000
Ending Balance
16,000
100% Dividends
7,500
Excess Val. Amort.
20,500
0
Basic
Excess Reclass.
100% Net Income
16,500
Ending Balance
7,500
128,500
108,000
24,000
24,000
7,500
0
142
P4-33 (continued)
b.
Elimination Entries
Mill
Corp.
Roller
Co.
Less: COGS
260,000
(125,000
)
180,000
(110,000
)
(235,000)
Less: Wage Expense
(42,000)
(27,000)
(69,000)
(25,000)
(10,000)
Less: Interest Expense
(12,000)
(4,000)
(16,000)
(13,500)
(5,000)
(18,500)
DR
CR
Consolidate
d
Income Statement
Sales
Less: Impairment Loss
440,000
2,000
(37,000)
5,500
16,500
Net Income
59,000
(5,500)
24,000
7,500
24,000
31,500
7,500
59,000
102,000
40,000
40,000
59,000
24,000
31,500
(30,000)
(16,000)
Ending Balance
131,000
48,000
Cash
19,500
21,000
40,500
Accounts Receivable
70,000
12,000
82,000
Inventory
90,000
25,000
115,000
Land
30,000
15,000
45,000
350,000
(145,000
)
150,000
20,000
30,000
490,000
(40,000)
30,000
2,000
108,00
0
(157,000)
Earnings
Beginning Balance
Net Income
71,500
102,000
7,500
59,000
16,000
(30,000)
23,500
131,000
Balance Sheet

Less: Accumulated
Depreciation
128,500
20,500
Goodwill
Total Assets
2,500
50,000
2,500
543,000
183,000
32,000
618,000
Accounts Payable
45,000
16,000
61,000
Wages Payable
17,000
9,000
26,000
Notes Payable
150,000
50,000
200,000
Common Stock
200,000
60,000
60,000
Retained Earnings
131,000
48,000
543,000
183,000
71,500
131,50
0
200,000
23,500
131,000
23,500
618,000
143
P4-34 Consolidation Worksheet at End of Second Year of Ownership

a.
Equity Method Entries on Mill Corp.'s Books:
36,000
36,000
Record Mill Corp.'s 100% share of Roller Co.'s 20X9 income

Cash
20,000
20,000
Record Mill Corp.'s 100% share of Roller Co.'s 20X9 dividend

2,000
2,000

Total Book
Value
Original book value
+ Net Income
108,000
Common
Stock
60,000
Retained
Earnings
48,000
36,000
36,000
- Dividends
(20,000)
(20,000)
Ending book value
124,000
60,000
1/1/X9
64,000
12/31/X9
Goodwill = 2,500
Goodwill = 2,500
Excess = 16,000
Identifiable excess
= 18,000
100%
Book value =
108,000
$128,500
Net
investment
in Roller
Co.
100%
Book value =
124,000
$142,500
Net
investment in
Roller Co.
144
P4-34 (continued)
Common stock
60,000
Retained earnings
48,000
36,000
Dividends declared
20,000
124,000

Buildings &
Total =
Equipment
Beginning balance
20,500
Changes
(2,000)
Ending balance
18,500
Acc.
Depr.
20,000
Goodwill
(2,000)
2,500
(2,000)
20,000
(4,000)
2,500

2,000
2,000

20,000
Goodwill
2,500
4,000
18,500

30,000
30,000
Investment in
Income from
Roller Co.
Roller Co.
Beginning Balance
128,500
100% Net Income
36,000
Ending Balance
20,000
100% Dividends
2,000
Excess Val. Amort.
18,500
0
Basic
Excess Reclass.
100% Net Income
34,000
Ending Balance
2,000
142,500
124,000
36,000
36,000
2,000
0
145
P4-34 (continued)
b.
Elimination Entries
Mill
Corp.
Roller
Co.
290,000
200,000
490,000
(145,000)
(114,000)
(259,000)
Less: Wage Expense
(35,000)
(20,000)
(55,000)
(25,000)
(10,000)
(12,000)
(4,000)
(16,000)
(23,000)
(16,000)
(39,000)
DR
CR
Consolidated
Income Statement
Sales
Less: COGS
34,000
Net Income
84,000
2,000
(37,000)
36,000
2,000
36,000
38,000
2,000
84,000
131,000
48,000
48,000
84,000
36,000
38,000
(30,000)
(20,000)
Ending Balance
185,000
64,000
Cash
45,500
32,000
Accounts Receivable
85,000
14,000
99,000
Inventory
97,000
24,000
121,000
Land
50,000
25,000
75,000
350,000
150,000
20,000
(170,000)
(50,000)
30,000
Earnings
Beginning Balance
Net Income
86,000
131,000
2,000
84,000
20,000
(30,000)
22,000
185,000
Balance Sheet

77,500
142,500
30,000
490,000
4,000
(194,000)
124,000
18,500
Goodwill
Total Assets
2,500
50,000
2,500
600,000
195,000
34,000
671,000
Accounts Payable
51,000
15,000
66,000
Wages Payable
14,000
6,000
20,000
Notes Payable
150,000
50,000
Common Stock
200,000
60,000
60,000
Retained Earnings
185,000
64,000
86,000
22,000
185,000
600,000
195,000
146,000
22,000
671,000
200,000
200,000
146
P4-34 (continued)
c.
Mill Corporation and Subsidiary

December 31, 20X9
Cash
Accounts Receivable
Inventory
Land
Goodwill
Total Assets
Accounts Payable
Wages Payable
Notes Payable
Common Stock
Retained Earnings
$490,000
(194,000)
$200,000
185,000
$ 77,500
99,000
121,000
75,000
296,000
2,500
$671,000
$ 66,000
20,000
200,000
385,000
$671,000

Consolidated Income Statement
Sales
Cost of Goods Sold
Wage Expense
Depreciation Expense
Interest Expense
Other Expenses
Total Expenses
$259,000
55,000
37,000
16,000
39,000
$490,000
(406,000)
$ 84,000

Consolidated Retained Earnings Statement
20X9 Net Income
$131,000
84,000
$215,000
(30,000)
$185,000
147
P4-35 Comprehensive Problem: Wholly Owned Subsidiary

a.
Equity Method Entries on Power Corp.'s Books:
Investment in Upland Products
30,000
Income from Upland Products
30,000
Record Power Corp.'s 100% share of Upland Products' 20X5 income

Cash
10,000
10,000
Record Power Corp.'s 100% share of Upland Products' 20X5 dividend

5,000
5,000

b.
Common stock
100,000
Retained earnings
90,000
30,000
Dividends declared
10,000
210,000

Buildings &
Total = Equipment
Beginning balance
30,000
Changes
(5,000)
Ending balance
25,000
50,000
Acc.
Depr.
(20,000)
(5,000)
50,000
(25,000)

5,000
5,000

Building
50,000
25,000
25,000

Accounts Payable
10,000
10,000
148
P4-35 (continued)
c.
Power
Corp.
Upland
Products
Elimination Entries
DR
CR
Consolidated
Income Statement
Sales
200,000
100,000
300,000
(120,000)
(50,000)
(170,000)
(25,000)
(15,000)
Less: Inventory Losses
(15,000)
(5,000)
Less: COGS
25,000
Net Income
65,000
5,000
(45,000)
(20,000)
30,000
5,000
30,000
35,000
5,000
65,000
318,000
90,000
90,000
65,000
30,000
35,000
(30,000)
(10,000)
Ending Balance
353,000
110,000
43,000
65,000
260,000
90,000
350,000
80,000
80,000
160,000
500,000
150,000
(205,000)
(105,000)

Beginning Balance
Net Income
125,000
318,000
5,000
65,000
10,000
(30,000)
15,000
353,000
10,000
98,000
Balance Sheet
Inventory
Land
50,000
235,000
700,000
25,000
(335,000)
210,000
25,000
Goodwill
Total Assets
0
913,000
280,000
50,000
60,000
20,000
10,000
Notes Payable
200,000
50,000
Common Stock
300,000
100,000
100,000
Retained Earnings
353,000
110,000
125,000
15,000
353,000
913,000
280,000
235,000
15,000
973,000
Accounts Payable
35,000
973,000
70,000
250,000
300,000
149
P4-36 Comprehensive Problem: Differential Apportionment

a.
Equity Method Entries on Jersey Corp.'s Books:
Investment in Lime Co.
203,000
Cash
203,000
Record the initial investment in Lime Co.

60,000
Income from Lime Co.
60,000
Record Jersey Corp.'s 100% share of Lime Co.'s 20X7 income

Cash
20,000
20,000
Record Jersey Corp.'s 100% share of Lime Co.'s 20X7 dividend

3,000
3,000

b.
Total Book
Value
Original book value
+ Net Income
150,000
Common
Stock
50,000
Retained
Earnings
100,000
60,000
60,000
- Dividends
(20,000)
(20,000)
Ending book value
190,000
50,000
140,000
1/1/X7
12/31/X7
Goodwill = 20,000
Goodwill = 20,000
Identifiable excess
= 33,000
100%
Book value =
150,000
Excess = 30,000
$203,000
Initial
investment
in Lime Co.
100%
Book value =
190,000
$240,000
Net
investment in
Lime Co.
150
P4-36 (continued)
Common stock
50,000
Retained earnings
100,000
60,000
Dividends declared
20,000
190,000

Buildings &
Total =
Equipment
Beginning balance
53,000
Changes
(3,000)
Ending balance
50,000
Acc.
Depr.
33,000
33,000
Goodwill
20,000
(3,000)
(3,000)
20,000

3,000
3,000

33,000
Goodwill
20,000
3,000
50,000

Accounts Payable
16,000
Accounts Receivable
16,000

60,000
60,000
151
Investment in
Acquisition Price
Lime Co.
203,00
0
100% Net Income
60,000
Ending Balance
Income from
Lime Co.
20,000
100% Dividends
3,000
Excess Val. Amort.
Basic
50,000
Excess Reclass.
100% Net Income
57,000
Ending Balance
3,000
240,00
0
190,000
60,000
60,000
3,000
0
152
P4-36 (continued)
c.
Jersey
Corp.
Elimination Entries
Lime Co.
DR
CR
Consolidated
Income Statement
Sales
700,000
400,000
1,100,000
(500,000)
(250,000)
(750,000)
(25,000)
(15,000)
(75,000)
(75,000)
57,000
Less: COGS
Net Income
3,000
(43,000)
(150,000)
60,000
3,000
3,000
157,000
157,000
60,000
63,000
290,000
100,000
100,000
63,000
Earnings
Beginning Balance
Net Income
157,000
60,000
(50,000)
(20,000)
Ending Balance
397,000
140,000
Cash
82,000
25,000
Accounts Receivable
50,000
55,000
170,000
100,000
163,000
290,000
3,000
157,000
20,000
(50,000)
23,000
397,000
Balance Sheet
Inventory
Land
107,000
16,000
89,000
270,000
80,000
20,000
500,000
150,000
33,000
60,000
100,000
623,000
(155,000)
(75,000)
60,000
3,000
(173,000)
240,000
190,000
50,000
Goodwill
Total Assets
20,000
20,000
967,000
275,000
93,000
70,000
35,000
16,000
Mortgages Payable
200,000
50,000
Common Stock
300,000
50,000
50,000
Retained Earnings
397,000
140,000
163,000
23,000
397,000
967,000
275,000
229,000
23,000
1,036,000
Accounts Payable
79,000
1,036,000
89,000
250,000
300,000
153
P4-37 Push-Down Accounting

a.
Entry to record acquisition of Lindy stock on books of Greenly:

Investment in Lindy Company Stock
Cash
b.
935,000
Entry to record revaluation of assets on books of Lindy Company at date of

combination:
Inventory
5,000
Land
85,000
Buildings
100,000
Equipment
70,000
Revaluation Capital
Revalue assets to reflect fair values at date of combination.
c.
260,000
Investment elimination entry in consolidation worksheet prepared December 31,

20X6 (no other entries needed):
Common Stock Lindy Company
Retained Earnings
Revaluation Capital
d.
935,000
100,000
400,000
175,000
260,000
935,000
Equity-method entries on the books of Greenly during 20X7:

Cash
Record dividend from Lindy Company.
50,000

Income from Lindy Company
88,000
50,000
88,000
154
P4-37 (continued)
e.
Eliminating entries in consolidation worksheet prepared December 31, 20X7

(no other entries needed):
Retained Earnings, January 1
Revaluation Capital
Dividends Declared
Eliminate beginning investment balance.
$973,000 = $935,000 + $88,000 - $50,000
f.
100,000
400,000
175,000
260,000
88,000
50,000
973,000
Eliminating entries in consolidation worksheet prepared December 31, 20X8 (no

other entries needed):
Retained Earnings, January 1
Revaluation Capital
Dividends Declared
Eliminate beginning investment balance:
$213,000 = $175,000 + $88,000 - $50,000
$1,013,000 = $973,000 + $90,000 - $50,000
100,000
400,000
213,000
260,000
90,000
50,000
1,013,000
155
CHAPTER 5
CONSOLIDATION OF LESS-THAN-WHOLLY-OWNED SUBSIDIARIES ACQUIRED AT
MORE THAN BOOK VALUE
E5-1 Multiple-Choice Questions on Consolidation Process
1. d
2. d
3. b
4. d [AICPA Adapted]
E5-2
1. b
2. c
3. a
4. c
5. c
Multiple-Choice Questions on Consolidation [AICPA Adapted]

$650,000 = $500,000 + $200,000 - $50,000
$95,000 = ($956,000 / 0.80) - $1,000,000 - $100,000
$251,000 = .20[($956,000 + $239,000) + ($190,000 - $5,000 - $125,000)]
E5-3 Eliminating Entries with Differential

a.
Equity Method Entries on Game Corp.'s Books:
49,200
Cash
49,200
Record the initial investment in Amber Corp.

NCI
40%
Ending book value
22,800
Game Corp.
60%
34,200
Common
Stock
20,000
Retained
Earnings
37,000
6/10/X8
Goodwill = 0
Identifiable excess
= 15,000
60%
Book value =
34,200
$49,200
Initial
investment in
Amber Corp.
156

Common stock
20,000
Retained earnings
37,000
34,200
NCI in NA of Amber Corp.
22,800

NCI
40%
+
Beginning balances
10,000
Game Corp.
60%
15,000
Inventory
5,000
Buildings &
Equipment
20,000

Inventory
5,000
20,000
15,000
NCI in NA of Amber Corp.
10,000
E5-3 (continued)
Investment in
Amber Corp.
Acquisition
Price
49,200
34,200
Basic
15,000
Excess Reclass.
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 worksheet 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 worksheet is prepared.
E5-4 Computation of Consolidated Balances

a. Inventory
$140,000
b. Land
$ 60,000
c.
$550,000
d. Fair value of consideration given by Ford

Fair value of noncontrolling interest
Total fair value
$470,000
117,500
$587,500
157
Book value of Slims net assets

Fair value increment for:
Inventory
Land
Buildings and equipment (net)
Fair value of identifiable net assets
Goodwill
$450,000
20,000
(10,000)
70,000
(530,000)
$ 57,500
e. Investment in Slim Corporation: None would be reported;

the balance in the investment account is eliminated.
f.
Noncontrolling Interest ($587,500 x .20)
$117,500
158
E5-5 Balance Sheet Worksheet

900
Retained Earnings
900
Accrued interest earned by Power Co.

Equity Method Entries on Power Co.'s Books:
Investment in Pleasantdale Dairy
270,000
Cash
270,000
Record the initial investment in Pleasantdale Dairy

NCI
10%
Ending book value
Power Co.
90%
28,000
Common
Stock
252,000
60,000
Retained
Earnings
220,000
Goodwill = 0
Identifiable excess
= 18,000
90%
Book value =
252,000
$270,000
Initial
investment in
Pleasantdale
Dairy

Common stock
Retained earnings
NCI in NA of Pleasantdale Dairy
60,000
220,000
252,000
28,000
159
E5-5 (continued)
NCI
Power Co.
10%
+
90%
Beginning balances
2,000
18,000
Land
20,000

Land
20,000
18,000
2,000

Current Payables
8,900
8,900
Investment in
Pleasantdale Dairy
Acquisition
Price
270,000
252,000
18,000
Basic
Excess Reclass.
0
Power
Co.
Pleasantdale
Dairy
Elimination Entries
DR
CR
Consolidated
Balance Sheet
130,900
70,000
Inventory
210,000
90,000
Land
70,000
40,000
390,000
220,000
270,000
8,900
192,000
300,000
20,000
130,000
610,000
252,000
18,000
Total Assets
1,070,900
420,000
20,000
80,000
40,000
8,900
Long-Term Liabilities
200,000
100,000
Common Stock
400,000
60,000
60,000
400,000
Retained Earnings
390,900
220,000
220,000
390,900
Current Payables
260,900
1,232,000
111,100
300,000
28,000
30,000
2,000
1,070,900
420,000
288,900
28,000
1,232,000
160
E5-6 Majority-Owned Subsidiary Acquired at Greater than Book Value

a.
Equity Method Entries on Zenith Corp.'s Books:
Investment in Down Corp.
102,200
Cash
102,200
Record the initial investment in Down Corp.

NCI
30%
Ending book value
37,500
Zenith
Corp.
70%
Common
Stock
87,500
40,000
Retained
Earnings
85,000
12/31/X4
Goodwill = 0
Identifiable excess
= 14,700
$102,200
Initial
investment in
Down Corp.
70%
Book value =
87,500

Common stock
40,000
Retained earnings
85,000
87,500
NCI in NA of Down Corp.
37,500

NCI
Zenith Corp.
30%
+
70%
Beginning balances
6,300
14,700
Inventory
6,000
Buildings &
Equipment
15,000
161
E5-6 (continued)
Inventory
6,000
15,000
14,700
6,300

Accounts Payable
12,500
Accounts Receivable
12,500

80,000
80,000
Investment in
Down Corp.
Acquisition
Price
102,200
87,500
Basic
14,700
Excess Reclass.
0
b.
Elimination Entries
DR
CR
Zenith
Corp.
Down
Corp.
50,300
90,000
130,000
60,000
410,000
(150,000)
102,200
21,000
44,000
75,000
30,000
250,000
(80,000)
Total Assets
692,500
340,000
101,000
Accounts Payable
Mortgage Payable
Common Stock
Retained Earnings
152,500
250,000
80,000
210,000
35,000
180,000
40,000
85,000
12,500
692,500
Balance Sheet
Cash
Accounts Receivable
Inventory
Land
340,000
12,500
6,000
15,000
80,000
80,000
87,500
14,700
180,000
40,000
85,000
137,500
37,500
6,300
37,500
Consolidated
71,300
121,500
211,000
90,000
595,000
(150,000)
0
938,800
175,000
430,000
80,000
210,000
43,800
938,800
162
E5-6 (continued)
c.
Zenith Corporation and Subsidiary

December 31, 20X4
Cash
Accounts Receivable
Inventory
Land
Total Assets
Accounts Payable
Mortgage Payable
Common Stock
Retained Earnings
$595,000
(150,000)
$ 71,300
121,500
211,000
90,000
445,000
$938,800
$175,000
430,000
$ 80,000
210,000
$290,000
43,800
333,800
$938,800
163
E5-7 Consolidation with Minority Interest

Equity Method Entries on Temple Corp.'s Books:
Investment in Dynamic Corp.
Cash
Record the initial investment in Dynamic Corp.
390,000
390,000

NCI
25%
Ending book value
90,000
Temple
Corp.
75%
Common
Stock
270,000
Retained
Earnings
120,000
240,000
12/31/X4
Goodwill = 33,000
Identifiable excess
= 87,000
75%
Book value =
270,000

Common stock
Retained earnings
NCI in NA of Dynamic Corp.
$390,000
Initial
investment in
Dynamic
Corp.
120,000
240,000

NCI
Temple Corp.
25%
+
75%
Beginning balances 40,000
120,000
270,000
90,000
Buildings
80,000
Inventories
36,000
Goodwill
44,000

Buildings
80,000
Inventories
36,000
Goodwill
44,000
120,000
NCI in NA of Dynamic Corp.
40,000
164
E5-8 Worksheet for Majority-Owned Subsidiary

a.
Equity Method Entries on Glitter Enterprises's Books:
Investment in Lowtide Builders
90,000
Cash
90,000
Record the initial investment in Lowtide Builders

NCI
40%
Ending book value
Glitter
Enterprises
60%
60,000
90,000
Common
Stock
140,000
Retained
Earnings
10,000
1/1/X5
Goodwill = 0
Identifiable excess
=0
$90,000
Initial
investment in
Lowtide
Builders
60%
Book value =
90,000

Common stock
140,000
Retained earnings
10,000
90,000
NCI in NA of Lowtide Builders
60,000
Investment in
Lowtide Builders
Acquisition Price
90,000
90,000
Basic
165
E5-8 (continued)
b.
Elimination Entries
Glitter
Enterprises
Lowtide
Builders
80,000
30,000
110,000
Inventory
150,000
350,000
500,000
430,000
80,000
510,000
DR
CR
Consolidated
Balance Sheet
90,000
90,000
1,120,000
750,000
460,000
Current Liabilities
100,000
110,000
Long-Term Debt
400,000
200,000
Common Stock
200,000
140,000
140,000
200,000
50,000
10,000
10,000
50,000
210,000
600,000
NCI in NA of Lowtide Builders

c.
Total Assets
Retained Earnings
90,000
750,000
460,000
150,000
60,000
60,000
60,000
1,120,000
Glitter Enterprises and Subsidiary

January 1, 20X5
Inventory
Total Assets
$ 110,000
500,000
510,000
$1,120,000
Current Liabilities
Long-Term Debt
Common Stock
Retained Earnings
$ 210,000
600,000
$200,000
50,000
$250,000
60,000
310,000
$1,120,000
166
E5-9 Multiple-Choice Questions on Balance Sheet Consolidation

1.
$215,000
$130,000 + $70,000 + ($85,000 - $70,000)
2.
$40,000
($150,500 + $64,500) - ($405,000 - $28,000 - $37,000

- $200,000) - $15,000 - $20,000
3.
$1,121,000
Total Assets of Power Corp.

Less: Investment in Silk Corp.
Book value of assets of Silk Corp.
Book value reported by Power and
Silk
Increase in inventory ($85,000 - $70,000)
Increase in land ($45,000 - $25,000)
Goodwill
Total assets reported
4.
$701,500
5.
$64,500
6.
7.
$ 791,500
(150,500)
$ 641,000
405,000
$1,046,000
15,000
20,000
40,000
$1,121,000
($61,500 + $95,000 + $280,000) + ($28,000 + $37,000

+ $200,000)
$205,000
The amount reported by Power Corporation
$419,500
($150,000 + $205,000) + $64,500
167
E5-10 Basic Consolidation Entries for Majority-Owned Subsidiary

a.
Equity Method Entries on Horrigan Corp.'s Books:
Investment in Farmstead Co.
210,000
Cash
210,000
Record the initial investment in Farmstead Co.

14,000
Income from Farmstead Co.
14,000
Record Horrigan Corp.'s 70% share of Farmstead Co.'s 20X9 income

Cash
3,500
3,500
Record Horrigan Corp.'s 70% share of Farmstead Co.'s 20X9 dividend

b.
NCI
30%
Original book value
Horrigan
Corp.
70%
Common
Stock
Retained
Earnings
90,000
210,000
6,000
14,000
20,000
- Dividends
(1,500)
(3,500)
(5,000)
Ending book value
94,500
220,500
+ Net Income
200,000
200,000
1/1/X9
12/31/X9
Goodwill = 0
Goodwill = 0
Identifiable excess
=0
70%
Book value =
210,000
$210,000
Initial
investment in
Farmstead
Co.
Excess = 0
70%
Book value =
220,500
100,000
115,000
$220,500
Net
investment
in
Farmstead
Co.
168
E5-10 (continued)
Common stock
200,000
Retained earnings
100,000
Income from Farmstead Co.
14,000
NCI in NI of Farmstead Co.
6,000
Dividends declared
5,000
220,500
NCI in NA of Farmstead Co.
94,500
Investment in
Income from
Farmstead Co.
Farmstead Co.
Acquisition Price
210,000
70% Net Income
14,000
3,500
Ending Balance
70% Net Income
14,000
Ending Balance
70% Dividends
220,500
220,500
14,000
Basic
14,000
0
169
E5-11 Majority-Owned Subsidiary with Differential

a.
Equity Method Entries on West Corp.'s Books:
133,500
Cash
133,500
Record the initial investment in Canton Corp.

22,500
22,500
Record West Corp.'s 75% share of Canton Corp.'s 20X3 income

Cash
9,000
9,000
Record West Corp.'s 75% share of Canton Corp.'s 20X3 dividend

3,000
3,000

b.
NCI
25%
Original book value
West
Corp.
75%
Common
Stock
Retained
Earnings
37,500
112,500
7,500
22,500
30,000
- Dividends
(3,000)
(9,000)
(12,000)
Ending book value
42,000
126,000
+ Net Income
1/1/X3
60,000
60,000
Goodwill = 0
Excess = 18,000
75%
Book value =
112,500
108,000
12/31/X3
Goodwill = 0
Identifiable excess
= 21,000
90,000
$133,500
Initial
investment in
Canton Corp.
75%
Book value =
126,000
$144,000
Net
investment in
Canton
Corp.
170
E5-11 (continued)
Common stock
60,000
Retained earnings
90,000
22,500
NCI in NI of Canton Corp.
7,500
Dividends declared
12,000
126,000
NCI in NA of Canton Corp.
42,000

NCI
West Corp.
25%
+
75%
Beginning balance
Changes
Ending balance
7,000
21,000
(1,000)
(3,000)
6,000
18,000
Equipment
Acc. Depr.
28,000
0
(4,000)
28,000
(4,000)

4,000
3,000
NCI in NI of Canton Corp.
1,000

Equipment
28,000
Acc. Depr.
4,000
18,000
NCI in NA of Canton Corp.

Investment in
Income from
Canton Corp.
Canton Corp.
Acquisition Price
133,500
75% Net Income
22,500
Ending Balance
6,000
9,000
75% Dividends
3,000
Excess Val. Amort.
18,000
0
Basic
Excess Reclass.
75% Net Income
19,500
Ending Balance
3,000
144,000
126,000
22,500
22,500
3,000
0
171
E5-12 Differential Assigned to Amortizable Asset

a.
Lancaster Companys common stock, January 1, 20X1

Lancaster Companys retained earnings, January 1, 20X1
Book value of Lancasters net assets
Proportion of stock acquired
Book value of Lancaster's shares purchased
by Major Corporation
Excess of acquisition price over book value
Add: Share of Lancaster's net income ($60,000 x .90)
Less: Amortization of patents ($40,000 / 5) x .90
Dividends paid by Lancaster ($20,000 x .90)
Balance in investment account, December 31, 20X1
$120,000
380,000
$500,000
x
.90
$450,000
36,000
$486,000
54,000
(7,200)
(18,000)
$514,800
b.
Equity Method Entries on Major Corp.'s Books:
Investment in Lancaster Co.
486,000
Cash
486,000
Record the initial investment in Lancaster Co.

54,000
Income from Lancaster Co.
54,000
Record Major Corp.'s 90% share of Lancaster Co.'s 20X1 income

Cash
18,000
18,000
Record Major Corp.'s 90% share of Lancaster Co.'s 20X1 dividend

7,200
7,200

NCI
10%
Original book value
Major
Corp.
90%
Common
Stock
Retained
Earnings
50,000
450,000
6,000
54,000
60,000
- Dividends
(2,000)
(18,000)
(20,000)
Ending book value
54,000
486,000
+ Net Income
120,000
120,000
380,000
420,000
172
E5-12 (continued)
1/1/X1
12/31/X1
Goodwill = 0
Goodwill = 0
Excess = 28,800
Identifiable excess
= 36,000
$486,000
Initial
investment in
Lancaster
Co.
90%
Book value =
450,000
90%
Book value =
486,000
$514,800
Net
investment in
Lancaster
Co.

Common stock
120,000
Retained earnings
380,000
54,000
NCI in NI of Lancaster Co.
6,000
Dividends declared
20,000
486,000
NCI in NA of Lancaster Co.
54,000

NCI
Major Corp.
10%
+
90%
Beginning
balance
4,000
36,000
Patents
40,000
Changes
(800)
(7,200)
(8,000)
Ending balance
3,200
28,800
32,000

Patents
NCI in NI of Lancaster Co.
8,000
7,200
800
173
E5-12 (continued)
Patents
32,000
28,800
NCI in NA of Lancaster Co.

Investment in
Income from
Lancaster Co.
Lancaster Co.
Acquisition
Price
486,000
90% Net Income
54,000
Ending Balance
3,200
18,000
90% Dividends
7,200
Excess Val. Amort.
Basic
28,800
Excess Reclass.
90% Net Income
46,800
Ending Balance
7,200
514,800
486,000
54,000
54,000
7,200
0
174
E5-13 Consolidation after One Year of Ownership

a.
Equity Method Entries on Pioneer Corp.'s Books:
Investment in Lowe Corp.
190,000
Cash
190,000
Record the initial investment in Lowe Corp.

NCI
20%
Ending book value
40,000
Pioneer Corp.
80%
160,000
Common
Stock
120,000
Retained
Earnings
80,000
1/1/X2
Goodwill = 4,400
Identifiable excess
= 25,600
$190,000
Initial
investment in
Lowe Corp.
80%
Book value =
160,000

Common stock
120,000
Retained earnings
80,000
160,000
NCI in NA of Lowe Corp.
40,000

NCI
Pioneer Corp.
20%
+
80%
Beginning balances
7,500
30,000
Buildings
32,000
Goodwill
5,500
175
E5-13 (continued)
Buildings
32,000
Goodwill
5,500
30,000
7,500
Investment in
Lowe Corp.
Acquisition Price
190,000
160,000
Basic
30,000
Excess Reclass.
0
b.
Equity Method Entries on Pioneer Corp.'s Books:
190,000
Cash
190,000
Record the initial investment in Lowe Corp.

32,000
Income from Lowe Corp.
32,000
Record Pioneer Corp.'s 80% share of Lowe Corp.'s 20X2 income
3,200
3,200

NCI
20%
Original book value
+ Net Income
- Dividends
Ending book value
Pioneer
Corp.
80%
Common
Stock
120,000
Retained
Earnings
40,000
160,000
8,000
32,000
40,000
48,000
192,000
120,000
80,000
120,000
176
E5-13 (continued)
1/1/X2
12/31/X2
Goodwill = 4,400
Goodwill = 4,400
Excess = 22,400
Identifiable excess
= 25,600
$190,000
Initial
investment in
Lowe Corp.
80%
Book value =
160,000
$218,800
Net
investment in
Lowe Corp.
80%
Book value =
192,000

Common stock
120,000
Retained earnings
80,000
32,000
NCI in NI of Lowe Corp.
8,000
192,000
48,000

NCI
Pioneer
20%
+
Corp. 80%
Beginning balance
7,500
30,000
Changes
(800)
(3,200)
Ending balance
6,700
26,800
Buildings
32,000
32,000
Acc. Depr.
Goodwill
5,500
(4,000)
(4,000)
5,500

4,000
3,200
NCI in NI of Lowe Corp.
800
Excess value (differential)

reclassification entry:
Buildings
32,000
Goodwill
5,500
Acc. Depr.
4,000
177
26,800
6,700
E5-13 (continued)
Investment in
Income from
Lowe Corp.
Lowe Corp.
Acquisition Price
190,000
80% Net Income
32,000
3,200
Ending Balance
Excess Val. Amort.
218,800
192,000
26,800
32,000
80% Net Income
28,800
Ending Balance
3,200
Basic
32,000
Excess Reclass.
3,200
E5-14 Consolidation Following Three Years of Ownership

a.
Computation of increase in value of patents:

Fair value of consideration given by Knox
Fair value of noncontrolling interest
Total fair value
Book value of Conway stock
Excess of fair value over book value
Increase in value of land ($30,000 - $22,500)
Increase in value of equipment ($360,000 - $320,000)
Increase In value of patents
$277,500
185,000
$462,500
(400,000)
$ 62,500
(7,500)
(40,000)
$ 15,000
b.
Equity Method Entries on Knox Corp.'s Books:
Investment in Conway Corp.
277,500
Cash
277,500
Record the initial investment in Conway Corp.

NCI
40%
Ending book value
160,000
Knox
Corp.
60%
240,000
Common
Stock
50,000
Retained
Earnings
150,000
178
1/1/X7
Goodwill = 0
Identifiable excess
= 37,500
$277,500
Net
investment in
Conway
Corp.
60%
Book value =
240,000

Common stock
250,000
Retained earnings
150,000
240,000
NCI in NA of Conway Corp.
160,000

NCI
Knox Corp.
40%
+
60%
Beginning
balances
25,000
37,500
Land
7,500
Equipment
40,000
Patent
15,000
Excess value (differential) reclassification

entry:
Land
7,500
Equipment
40,000
Patent
15,000
37,500
25,000
Investment in
Conway Corp.
Acquisition
Price
277,500
240,000
37,500
Basic
Excess Reclass.
179
E5-14 (continued)
c.
Computation of investment account balance at January 1, 20X9:
Undistributed income since acquisition
($100,000 - $60,000) x .60
Amortization of differential assigned to:
Equipment ($40,000 / 8) x .60 x 2 years
Patents ($15,000 / 10) x .60 x 2 years
Account balance at January 1, 20X9
$277,500
24,000
(6,000)
(1,800)
$293,700
d.
Equity Method Entries on Knox Corp.'s Books:
18,000
Income from Conway Corp.
18,000
Record Knox Corp.'s 60% share of Conway Corp.'s 20X7 income

Cash
6,000
6,000
Record Knox Corp.'s 60% share of Conway Corp.'s 20X7 dividend

3,900
3,900

e.
NCI
40%
Original book value
Knox
Corp.
60%
Common
Stock
Retained
Earnings
176,000
264,000
+ Net Income
12,000
18,000
30,000
- Dividends
(4,000)
(6,000)
(10,000)
184,000
276,000
Ending book value
250,000
250,000
190,000
210,000
180
E5-14 (continued)
1/1/X7
12/31/X7
Goodwill = 0
Goodwill = 0
Excess = 25,800
Identifiable excess
= 29,700
$293,700
Initial
investment in
Conway
Corp.
60%
Book value =
264,000
$301,800
Net
investment in
Conway
Corp.
60%
Book value =
276,000

Common stock
250,000
Retained earnings
190,000
18,000
NCI in NI of Conway Corp.
12,000
Dividends declared
10,000
276,000
184,000

Knox
NCI
Corp.
40%
+
60%
Beginning
balance
19,800
29,700
Land
7,500
Changes
(2,600)
(3,900)
Ending balance
17,200
25,800
7,500
Equipment
40,000
40,000
Patent
Acc.
Depr.
12,000
(10,000)
(1,500)
(5,000)
10,500
(15,000)

Amortization Expense
1,500
5,000
3,900
NCI in NI of Conway Corp.
2,600
181

Land
7,500
Equipment
40,000
Patent
10,500
Acc. Depr.
15,000
25,800
17,200
E5-15 Consolidation Worksheet for Majority-Owned Subsidiary

a.
Equity Method Entries on Proud Corp.'s Books:
Investment in Stergis Co.
120,000
Cash
120,000
Record the initial investment in Stergis Co.

24,000
Income from Stergis Co.
24,000
Record Proud Corp.'s 80% share of Stergis Co.'s 20X3 income

Cash
8,000
8,000
Record Proud Corp.'s 80% share of Stergis Co.'s 20X3 dividend

NCI
20%
Original book value
Proud Corp.
80%
Common
Stock
Retained
Earnings
30,000
120,000
6,000
24,000
30,000
- Dividends
(2,000)
(8,000)
(10,000)
Ending book value
34,000
136,000
+ Net Income
100,000
100,000
50,000
70,000
182
E5-15 (continued)
1/1/X3
12/31/X3
Goodwill = 0
Goodwill = 0
Excess = 0
Identifiable excess
=0
$120,000
Initial
investment in
Stergis Co.
80%
Book value =
120,000
$136,000
Net
investment in
Stergis Co.
80%
Book value =
136,000

Common stock
100,000
Retained earnings
50,000
24,000
NCI in NI of Stergis Co.
6,000
Dividends declared
10,000
136,000
NCI in NA of Stergis Co.
34,000
Investment in
Income from
Stergis Co.
Stergis Co.
Acquisition Price
120,000
80% Net Income
24,000
Ending Balance
136,000
8,000
136,000
24,000
80% Net Income
24,000
Ending Balance
80% Dividends
Basic
24,000

Depreciable Assets
E5-15 (continued)
b.
60,000
60,000
183
Elimination Entries
Proud
Corp.
Stergis
Co.
Sales
200,000
120,000
320,000
(25,000)
(15,000)
(40,000)
(105,000)
(75,000)
(180,000)
DR
CR
Consolidated
Income Statement

24,000
94,000
NCI in Net Income

Income
30,000
24,000
24,000
100,000
6,000
(6,000)
94,000
30,000
30,000
230,000
50,000
50,000
94,000
30,000
30,000
(40,000)
(10,000)
Ending Balance
284,000
70,000
173,000
105,000
94,000

Beginning Balance
Net Income
80,000
230,000
0
94,000
10,000
(40,000)
10,000
284,000
Balance Sheet
Current Assets
Depreciable Assets
500,000
300,000
(175,000)
(75,000)
278,000
60,000
60,000
740,000
(190,000)
136,000
Total Assets
634,000
330,000
Current Liabilities
50,000
40,000
90,000
Long-Term Debt
100,000
120,000
220,000
Common Stock
200,000
100,000
100,000
Retained Earnings
284,000
70,000
80,000
60,000

634,000
330,000
180,000
136,000
60,000
828,000
200,000
10,000
284,000
34,000
34,000
44,000
828,000
184
E5-15 (continued)
c.
Proud Corporation and Subsidiary

December 31, 20X3
Current Assets
Depreciable Assets
Total Assets
Current Liabilities
Long-Term Debt
Common Stock
Retained Earnings
$740,000
(190,000)
$278,000
550,000
$828,000
$ 90,000
220,000
$200,000
284,000
$484,000
34,000
518,000
$828,000

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

Income to Controlling Interest, 20X3
$230,000
94,000
$324,000
(40,000)
$284,000
185
E5-16 Consolidation Worksheet for Majority-Owned Subsidiary for Second Year

a.
Equity Method Entries on Proud Corp.'s Books:
28,000
28,000
Record Proud Corp.'s 80% share of Stergis Co.'s 20X4 income

Cash
12,000
12,000
Record Proud Corp.'s 80% share of Stergis Co.'s 20X4 dividend

NCI
20%
Original book value
Proud Corp.
80%
Common
Stock
34,000
136,000
7,000
28,000
35,000
- Dividends
(3,000)
(12,000)
(15,000)
Ending book value
38,000
152,000
+ Net Income
1/1/X4
100,000
Retained
Earnings
100,000
70,000
90,000
12/31/X4
Goodwill = 0
Goodwill = 0
Excess = 0
Identifiable excess
=0
80%
Book value =
136,000
$136,000
Net
investment in
Stergis Co.
80%
Book value =
152,000
$152,000
Net
investment in
Stergis Co.
186
E5-16 (continued)
Common stock
100,000
Retained earnings
70,000
28,000
NCI in NI of Stergis Co.
7,000
Dividends declared
15,000
152,000
38,000
Investment in
Income from
Stergis Co.
Stergis Co.
Beginning Balance
136,000
80% Net Income
28,000
12,000
Ending Balance
80% Net Income
28,000
Ending Balance
80% Dividends
152,000
152,000
28,000
Basic
28,000
0

Depreciable Assets
60,000
60,000
187
E5-16 (continued)
b.
Elimination Entries
Proud
Corp.
Stergis
Co.
Sales
230,000
140,000
370,000
(25,000)
(15,000)
(40,000)
(150,000)
(90,000)
(240,000)
DR
CR
Consolidated
Income Statement

28,000
83,000
35,000
NCI in Net Income

Controlling Interest in Net Income
28,000
28,000
90,000
7,000
(7,000)
83,000
35,000
35,000
284,000
70,000
70,000
83,000
35,000
35,000
(50,000)
(15,000)
Ending Balance
317,000
90,000
Current Assets
235,000
150,000
Depreciable Assets
500,000
300,000
(200,000)
(90,000)
83,000

Beginning Balance
Net Income
105,000
284,000
0
83,000
15,000
(50,000)
15,000
317,000
Balance Sheet
385,000
60,000
60,000
740,000
(230,000)
152,000
Total Assets
687,000
360,000
Current Liabilities
70,000
50,000
120,000
Long-Term Debt
100,000
120,000
220,000
Common Stock
200,000
100,000
100,000
Retained Earnings
317,000
90,000
105,000
60,000

687,000
360,000
205,000
152,000
60,000
895,000
200,000
15,000
317,000
38,000
38,000
53,000
895,000
188
E5-17 Preparation of Stockholders' Equity Section with Other Comprehensive Income

a.
Consolidated net income:

Operating income of Broadmore
Net income of Stem
Amortization of differential ($580,000 - $500,000) / 10
Years
Comprehensive gain reported by Stem
Consolidated comprehensive income
b.
Comprehensive income attributable to controlling interest:

Consolidated comprehensive income
Comprehensive income attributable to
Noncontrolling interest
($50,000 - $8,000) x .25
($65,000 - $8,000) x .25
Comprehensive income attributable to controlling interest
c.
Consolidated stockholders' equity:

Common Stock
Retained Earnings
Accumulated Other Comprehensive Income
20X8
20X9
$120,000 $ 140,000
40,000
60,000
(8,000)
(8,000)
$152,000 $ 192,000
10,000
5,000
$162,000 $ 197,000
20X8
20X9
$162,000 $ 197,000
(10,500)
(14,250)
$151,500 $ 182,750
20X8
20X9
$320,000 $ 320,000
504,000
613,000
7,500
11,250
831,500
944,250
151,750
158,500
$983,250 $1,102,750
189
E5-18 Eliminating Entries for Subsidiary with Other Comprehensive Income

a.
Equity Method Entries on Palmer Corp.'s Books:
Investment in Krown Corp.
140,000
Cash
140,000
Record the initial investment in Krown Corp.

21,000
Income from Krown Corp.
21,000
Record Palmer Corp.'s 70% share of Krown Corp.'s 20X8 income

Cash
17,500
17,500
Record Palmer Corp.'s 70% share of Krown Corp.'s 20X8 dividend

4,200
Other Comprehensive Income from Krown Corp.
4,200
Record Palmer Corp.'s proportionate share of OCI from Krown Corp.

NCI
30%
Original book value
+ Net Income
60,000
Palmer Corp.
70%
140,000
Common
Stock
120,000
Retained
Earnings
80,000
9,000
21,000
30,000
- Dividends
(7,500)
(17,500)
(25,000)
Ending book value
61,500
143,500
1/1/X8
120,000
85,000
12/31/X8
Goodwill = 0
Goodwill = 0
Excess = 0
Identifiable excess
=0
70%
Book value =
140,000
$140,000
Initial
investment in
Krown Corp.
70%
Book value =
147,700
$147,700
Net
investment in
Krown Corp.
190
E5-18 (continued)
Common stock
120,000
Retained earnings
80,000
21,000
NCI in NI of Krown Corp.
9,000
Dividends declared
25,000
143,500
NCI in NA of Krown Corp.
61,500
Other Comprehensive Income Entry:

OCI from Krown Corp.
4,200
OCI to the NCI
1,800
4,200
NCI in NA of Krown Corp.
1,800
Investment in
Income from
Krown Corp.
Krown Corp.
Acquisition Price
140,000
70% Net Income
21,000
21,000
17,500
4,200
Ending Balance
70% Dividends
70% OCI
147,700
21,000
143,500
4,200
Basic
21,000
OCI Entry
0
191
E5-19* Consolidation of Subsidiary with Negative Retained Earnings

Equity Method Entries on General Corp.'s Books:
Investment in Strap Co.
138,000
Cash
138,000
Record the initial investment in Strap Co.

NCI
20%
Ending book value
29,000
General
Corp.
80%
116,000
Common
Stock
100,000
Add. Paidin Capital

75,000
Retained
Earnings
(30,000)
1/1/X4
Goodwill = 22,000
Identifiable excess
=0
80%
Book value =
116,000
$138,000
Initial
investment in
Strap Co.

Common stock
Additional Paid-in Capital
Retained earnings
NCI in NA of Strap Co.
100,000
75,000
30,000
116,000
29,000
192
E5-19* (continued)
NCI
General Corp.
20%
+
80%
Beginning balances
5,500
Goodwill
22,000
27,500

Goodwill
27,500
22,000
NCI in NA of Strap Co.
5,500
Investment in
Strap Co.
Acquisition
Price
138,000
116,000
22,000
Basic
Excess Reclass.
E5-20* Complex Assignment of Differential

a.
Equity Method Entries on Worth Corp.'s Books:
Investment in Brinker Inc.
864,000
Cash
864,000
Record the initial investment in Brinker Inc.

135,000
Income from Brinker Inc.
135,000
Record Worth Corp.'s 90% share of Brinker Inc.'s 20X5 income

82,350
82,350
193
b.
NCI
10%
Worth
Corp.
90%
Common
Stock
Premium
on Com.
Stock
72,000
648,000
+ Net Income
15,000
135,000
150,000
87,000
783,000
Ending book value
500,000
100,000
Retained
Earnings
Original book value

- Dividends
500,000
100,000
120,000
270,000
E5-20* (continued)
12/1/X5
12/31/X5
Goodwill = 45,000
Goodwill = 45,000
Excess = 88,650
Identifiable excess
= 171,000
90%
Book value =
648,000
$864,000
Initial
investment in
Brinker Inc.
90%
Book value =
783,000
$916,650
Net
investment in
Brinker Inc.

Common stock
500,000
Premium on common stock
100,000
Retained earnings
120,000
135,000
NCI in NI of Brinker Inc.

NCI in NA of Brinker Inc.
15,000
783,000
87,000
194

NCI
10%
Beg.
balance
Changes
End.
balance
Worth
Corp.
90%
Inventory
Land
24,000
216,000
5,000
75,000
(9,150)
(82,350)
(5,000)
(75,000)
14,850
133,650
Equipment
60,000
60,000
Disc.
on
notes
payable
Acc.
Depr.
Goodwill
50,000
50,000
(7,500)
(4,000)
42,500
(4,000)
50,000

Cost of goods sold
5,000
Gain on sale of land
75,000
Interest expense
7,500
4,000
82,350
NCI in NI of Brinker Inc.
9,150
E5-20* (continued)
Equipment
60,000
Discount on notes payable
42,500
Goodwill
50,000
Acc. Depr.
NCI in NA of Brinker Inc.
4,000
133,650
14,850
P5-21 Multiple-Choice Questions on Applying the Equity Method [AICPA Adapted]
1. a
2. a
3. c
4. d
P5-22 Amortization of Differential
Journal entries recorded by Ball Corporation:
Equity Method Entries on Ball Corp.'s Books:
120,000
Preferred Stock
50,000
70,000
Record the initial investment in Krown Corp.

195
12,000
12,000
Record Ball Corp.'s 30% share of Krown Corp.'s 20X5 income

Cash
3,000
3,000
Record Ball Corp.'s 30% share of Krown Corp.'s 20X5 dividend

4,575
4,575
P5-22 (continued)
Amortization of differential assigned to buildings and equipment:
Fair value of buildings and equipment
$360,000
Book value of buildings and equipment
300,000
Differential
$60,000
Portion of stock held by Ball
x
0.30
Differential assigned to buildings and equipment
$18,000
Remaining life
15
Yearly amortization
$1,200
Amortization of differential assigned to copyrights:
Purchase price
Fair value of Krown's:
Total assets
$560,000
Total liabilities
(250,000)
$310,000
Proportion of stock held by Ball
x
.30
Amount assigned to copyrights
Remaining life
Yearly amortization
$120,000
(93,000)
$27,000
8
$3,375
196
P5-23 Computation of Account Balances

a.
Easy Chair Company 20X1 equity-method income:

Proportionate share of reported income ($30,000 x .40)
Amortization of differential assigned to:
Buildings and equipment [($35,000 x .40) / 5 years]
Goodwill ($8,000: not impaired)
Investment Income
Assignment of differential
Purchase price
Proportionate share of book value of
net assets ($320,000 x .40)
Proportionate share of fair value increase in
buildings and equipment ($35,000 x .40)
Goodwill
$ 12,000
(2,800)
-0$ 9,200
$150,000
(128,000)
$
(14,000)
8,000
b.
Dividend income, 20X1 ($9,000 x .40)
3,600
c.
Cost-method account balance (unchanged):
$150,000
Equity-method account balance:

Balance, January 1, 20X1
Investment income
Dividends received
Balance, December 31, 20X1
$150,000
9,200
(3,600)
$155,600
P5-24 Multistep Acquisition

Journal entries recorded by Jackson Corp. in 20X9:
(1) Investment in Phillips Corp. Stock
Cash
Record purchase of Phillips stock.
70,000

Retained Earnings
Record pick-up of difference between
cost and equity income.
14,500
Computation of equity pick-up

20X6 .10($70,000 - $20,000)
20X7 .10($70,000 - $20,000)
20X8 .15($70,000 - $20,000)
20X6 amortization of differential
Amount of increase
70,000
14,500
$ 5,000
5,000
7,500
(1,000)
(1,000)
(1,000)
$14,500
197
Amortization of differential
20X6 purchase [$25,000 - ($200,000 x .10)]
5 years
20X8 purchase [$15,000 - ($300,000 x .05)]
20X9 purchase [$70,000 - ($350,000 x .20)]
Total annual amortization
(3) Cash
Investment in Phillips Corp. Stock
Record dividend from Phillips Corp:
$20,000 x .35
Income from Phillips Corp.
Record equity-method income:
$70,000 x .35
(5) Income from Phillips Corp.
Investment in Phillips Corp. Stock
$1,000
0
0
$1,000
7,000
24,500
1,000
7,000
24,500
1,000
P5-25 Complex Differential

a. Essex Company 20X2 equity-method income:
Proportionate share of reported net income
($80,000 x .30)
Deduct increase in cost of goods sold for purchase
differential assigned to inventory ($30,000 x .30)
Deduct amortization of differential assigned to:
Buildings and equipment
[($320,000 - $260,000) x .30] / 12 years]
Patent [($25,000 x .30) / 10 years]
Equity-method income for 20X2
$24,000
(9,000)
(1,500)
(750)
$12,750
b. Computation of investment account balance on December 31, 20X2:

Purchase Price
Investment income for 20X2
Dividends received in 20X2 ($9,000 x .30)
Investment account balance on December 31, 20X2
$12,750
(2,700)
$165,000
10,050
$175,050
P5-26 Equity Entries with Differential

a. Journal entry recorded by Hunter Corporation:
Investment in Arrow Manufacturing
Common Stock
210,000
60,000
150,000
198
Record acquisition of Arrow Manufacturing stock.

b.
Equity-method journal entries recorded by Hunter Corporation in 20X0:

(1) Investment in Arrow Manufacturing Stock
Common Stock
Record acquisition of Arrow Manufacturing stock.
210,000
(2) Cash
9,000
Investment in Arrow Manufacturing Stock
Record dividends from Arrow Manufacturing: $20,000 x 0.45
Income from Arrow Manufacturing
36,000
(4) Income from Arrow Manufacturing

1,350
Amortize differential assigned to buildings and equipment:
($30,000 x .45) / 10 years
60,000
150,000
9,000
36,000
1,350
P5-26 (continued)
Equity-method journal entries recorded by Hunter Corporation in 20X1:
(1) Cash
18,000
Record dividends from Arrow Manufacturing: $40,000 x 0.45
18,000

22,500
Income from Arrow Manufacturing
Record equity-method income for period: $50,000 x 0.45
22,500
(3) Income from Arrow Manufacturing

1,350
Amortize differential assigned to buildings and equipment.
1,350
c. Investment account balance, December 31, 20X1:

Purchase price on January 1, 20X0
20X0: Income from Arrow Manufacturing
($36,000 - $1,350)
Dividends received
20X1: Income from Arrow Manufacturing
($22,500 - $1,350)
Dividends received
Investment account balance, December 31, 20X1
$210,000
$34,650
(9,000)
$21,150
(18,000)
25,650
3,150
$238,800
199
P5-27 Equity Entries with Differential

a. Equity-method journal entries recorded by Ennis Corporation:
(1) Investment in Jackson Corporation Stock
Common Stock
Record acquisition of Jackson Corporation stock.
200,000
(2) Cash
3,500
Investment in Jackson Corporation Stock
Record dividend from Jackson Corporation: $10,000 x 0.35
(3) Investment in Jackson Corporation Stock
Income from Jackson Corporation
24,500
50,000
150,000
3,500
24,500
(4) Income from Jackson Corporation

7,000
7,000
Record expiration of differential assigned to inventory: $20,000 x 0.35
(5) Income from Jackson Corporation
1,400
1,400
Record amortization of differential assigned to buildings and equipment (net):
($80,000 x .35) / 20 years
b. $212,600 = $200,000 + $24,500 - $3,500 - $7,000 - $1,400
P5-28 Additional Ownership Level
a.
Operating income of Amber for 20X3

Operating income of Blair for 20X3
Add: Equity income from Carmen
[($50,000 - $6,000) x .25)
Blair net income for 20X3
Proportion of stock held by Amber
Equipment [($30,000 x .40) / 8 years]
Patents [($25,000 x .40) / 5 years)
Net income of Amber for 20X3
$100,000
11,000
$111,000
x
0.40
$220,000
44,400
(1,500)
(2,000)
$260,900
200
b.
Investment in Blair Corporation Stock

Common Stock
Additional paid-In Capital
Purchase of Blair Corporation Stock.
130,000
Cash
Record dividend from Blair: $30,000 x 0.40
12,000

Income from Blair Corporation
44,400
Income from Blair Corporation

Amortize differential: $3,500 = $1,500 + $2,000
3,500
40,000
90,000
12,000
44,400
3,500
P5-29 Correction of Error

Required correcting entry:
Retained Earnings
Income from Dale Company
Investment in Dale Company Stock
Adjustments to current books of Hill Company:
Item
Adjustment to remove dividends
included in investment income and not
removed from investment account
Adjustment to annual amortization
of differential:
20X2 and 20X3
20X4
Required adjustment to account balance
17,000
11,500
28,500
Dale Company
Retained
Investment
Earnings
Balance
1/1/20X4 20X4 Income
12/31/20X4
$(14,000)
(3,000)
$(17,000)
$(10,000)
$(24,000)
(1,500)
$(11,500)
(3,000)
(1,500)
$(28,500)
Computation of adjustment to annual amortization of differential

Correct amortization of differential assigned to:
Equipment [($120,000 - $70,000) x 0.40] / 5 years
Patents:
Amount paid
Fair value of identifiable net assets
($300,000 + $50,000) x 0.40
Amount assigned
$4,000
$164,000
(140,000)
$ 24,000
201
Number of years to be amortized

Annual amortization
Correct amount to be amortized annually
Amount amortized by Hill
[($164,000 - ($300,000 x 0.40)] / 8 years
Adjustment to annual amortization
3,000
$7,000
(5,500)
$1,500
P5-30 Majority-Owned Subsidiary Acquired at Book Value

a.
Equity Method Entries on Cameron Corp.'s Books:
Investment in Darla Corp.
87,500
Cash
87,500
Record the initial investment in Darla Corp.

NCI
30%
Ending book value
Cameron
Corp.
70%
37,500
87,500
Common
Stock
40,000
Retained
Earnings
85,000
12/31/X4
Goodwill = 0
Identifiable excess
=0
$87,500
Initial
investment in
Darla Corp.
70%
Book value =
87,500

Common stock
40,000
Retained earnings
85,000
87,500
NCI in NA of Darla Corp.
37,500
Investment in
202
Darla Corp.
Acquisition Price
87,500
87,500
Basic
203

Accounts payable
12,500
Accounts receivable
12,500
P5-30 (continued)
80,000
80,000
b.
Cameron
Corp.
Darla
Corp.
Elimination Entries
DR
CR
Consolidated
Balance Sheet
Cash
65,000
21,000
Accounts Receivable
90,000
44,000
130,000
75,000
Inventory
Land
60,000
30,000
410,000
250,000
(150,000)
(80,000)
86,000
12,500
121,500
205,000
90,000
80,000
80,000
87,500
580,000
(150,000)
87,500
180,000
932,500
Total Assets
692,500
340,000
80,000
Accounts Payable
152,500
35,000
12,500
Mortage Payable
250,000
180,000
80,000
40,000
40,000
80,000
210,000
85,000
85,000
210,000
Common Stock
Retained Earnings
430,000

692,500
340,000
175,000
137,500
37,500
37,500
37,500
932,500
204
c.
Cameron Corporation and Subsidiary

December 31, 20X4
Cash
Accounts Receivable
Inventory
Land
Total Assets
$660,000
(230,000)
Accounts Payable
Mortgage Payable
Common Stock
$ 80,000
Retained Earnings
210,000
$290,000
37,500
Total Stockholders equity
P5-31 Majority-Owned Subsidiary Acquired at Greater than Book Value
$ 86,000
121,500
205,000
90,000
430,000
$932,500
$175,000
430,000
327,500
$932,500
a.
Equity Method Entries on Porter Corp.'s Books:
102,200
Cash
102,200
Record the initial investment in Darla Corp.

NCI
30%
Ending book value
37,500
Porter
Corp.
70%
87,500
Common
Stock
40,000
Retained
Earnings
85,000
205
1/1/X4
Goodwill = 0
Identifiable excess
= 14,700
$102,200
Initial
investment in
Darla Corp.
70%
Book value =
87,500

Common stock
40,000
Retained earnings
85,000
87,500
37,500

NCI
Porter Corp.
30%
+
70%
Beginning balances
6,300
14,700
Inventory
6,000
Buildings &
Equipment
15,000
206
P5-31 (continued)
Inventory
6,000
15,000
14,700
6,300

Accounts Payable
12,500
Accounts Receivable
12,500

80,000
80,000
Investment in
Darla Corp.
Acquisition Price
102,200
87,500
Basic
14,700
Excess Reclass.
207
P5-31 (continued)
Elimination Entries
Porter
Corp.
Darla
Corp.
DR
CR
Consolidate
d
Balance Sheet
Cash
50,300
21,000
Accounts Receivable
90,000
44,000
130,000
75,000
60,000
30,000
410,000
(150,000
)
250,000
(80,000
)
Inventory
Land
Less: Accumulated
Depreciation
71,300
12,500
6,000
121,500
211,000
90,000
15,000
80,000
80,000
595,000
(150,000)
102,200
87,500
Total Assets
692,500
340,000
101,00
0
14,700
180,00
0
938,800
Accounts Payable
152,500
35,000
12,500
Mortgage Payable
250,000
180,000
80,000
40,000
40,000
80,000
210,000
85,000
85,000
210,000
Common Stock
Retained Earnings
175,000
430,000
37,500
43,800
6,300
692,500
340,000
137,50
0
37,500
938,800
208
c.
Porter Corporation and Subsidiary

December 31, 20X4
Cash
Accounts Receivable
Inventory
Land
Total Assets
$595,000
(150,000)
Accounts Payable
Mortgage Payable
Common Stock
Retained Earnings
$ 71,300
121,500
211,000
90,000
445,000
$938,800
$175,000
430,000
$ 80,000
210,000
$290,000
43,800
333,800
$938,800
P5-32 Balance Sheet Consolidation of Majority-Owned Subsidiary

a.
Equity Method Entries on Total Corp.'s Books:
Investment in Ticken Tie Co.
510,000
Bonds Payable
500,000
Bond Premium
10,000
Record the initial investment in Ticken Tie Co.
209
b.
NCI
25%
Ending book value
119,500
Total
Corp.
75%
358,500
Common
Stock
200,000
Add. Paidin Capital

130,000
Retained
Earnings
148,000
1/1/X8
Goodwill = 66,000
Identifiable excess
= 85,500
75%
Book value =
358,500
$510,000
Initial
investment in
Ticken Tie
Co.

Common stock
200,000
130,000
Retained earnings
148,000
358,500
NCI in NA of Ticken Tie Co.
119,500
210
P5-32 (continued)
Total
NCI
Corp.
Inven25%
tory
+
75%
=
Beg.
balances 50,500
151,500
4,000
Land
Building &
Equipment
20,000
50,000
Patent
40,000
Goodwill
88,000

Inventory
4,000
Land
20,000
Building & Equipment
50,000
Patent
40,000
Goodwill
88,000
151,500
50,500

Current payables
6,500
Receivables
6,500

220,000
220,000
Investment in
Ticken Tie Co.
Acquisition Price
510,000
358,500
Basic
151,500
Excess Reclass.
211
P5-32 (continued)
c.
Balance Sheet
Cash
Receivables
Inventory
Land
Patent
Goodwill
Total Assets
Current Payables
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
d.
Total
Corp.
Ticken
Tie Co.
12,000
39,000
86,000
55,000
960,000
(411,000)
510,000
9,000
30,000
68,000
50,000
670,000
(220,000)
Elimination Entries
DR
CR
6,500
4,000
20,000
50,000
220,000
358,500
151,500
40,000
88,000
294,000
1,251,000
607,000
38,000
700,000
10,000
300,000
100,000
103,000
29,000
100,000
6,500
200,000
130,000
148,000
200,000
130,000
148,000
1,251,000
220,000
607,000
484,500
585,000
119,500
50,500
119,500
Consolidated
21,000
62,500
158,000
125,000
1,460,000
(411,000)
0
40,000
88,000
1,543,500
60,500
800,000
10,000
300,000
100,000
103,000
170,000
1,543,500
Total Corporation and Subsidiary

January 2, 20X8
Cash
Receivables
Less: Allowance for Bad Debts
Inventory
Land
Patent
Goodwill
Total Assets
Current Payables
Bonds Payable
Premium on Bonds Payable
Common Stock
Retained Earnings
65,500
(3,000)
$1,460,000
(411,000)
$ 800,000
10,000
$ 300,000
100,000
103,000
$ 503,000
170,000
21,000
62,500
158,000
125,000
1,049,000
40,000
88,000
$1,543,500
$
60,500
810,000
673,000
212
P5-33 Incomplete Data
$1,543,500
a.
$15,000
= ($115,000 + $46,000) - $146,000
b.
$65,000
= ($148,000 - $98,000) + $15,000
c.
Skyler: $24,000
= $380,000 - ($46,000 + $110,000

+ $75,000 + $125,000)
= $94,000 - $24,000
Blue: $70,000
d.
Fair value of Skyler

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

Differential assigned to inventory
($195,000 - $105,000 - $80,000)
Differential assigned to buildings and equipment
($780,000 - $400,000 - $340,000)
Differential assigned to goodwill
Fair value of Skyler
40,000
9,000
$259,000
e.
65 percent
f.
Capital Stock
Retained Earnings
= $120,000
= $115,000
1.00 ($90,650 / $259,000)
213
P5-34 Income and Retained Earnings

a.
Net income for 20X9:

Operating income
Income from subsidiary
Net income
Quill
$ 90,000
24,500
$114,500
North
$35,000
Quill
$290,000
114,500
(30,000)
$374,500
North
$40,000
35,000
(10,000)
$65,000
$35,000
b. Consolidated net income is $125,000 ($90,000 + $35,000).

c. Retained earnings reported at December 31, 20X9:
Retained earnings, January 1, 20X9
Net income for 20X9
Dividends paid in 20X9
Retained earnings, December 31, 20X9
d. Consolidated retained earnings at December 31, 20X9, is equal to the $374,500 retained
earnings balance reported by Quill.
e. When the cost method is used, the parent's proportionate share of the increase in retained
earnings of the subsidiary subsequent to acquisition is not included in the parent's retained
earnings. Thus, this amount must be added to the total retained earnings reported by the
parent in arriving at consolidated retained earnings.
214
P5-35 Consolidation Worksheet at End of First Year of Ownership

a.
96,000
Cash
96,000

18,000
Income from Best Co.
18,000
Record Power Corp.'s 75% share of Best Co.'s 20X8 income

Cash
12,000
12,000
Record Power Corp.'s 75% share of Best Co.'s 20X8 dividend

5,625
5,625

NCI
25%
Original book value
+ Net Income
25,000
Power Corp.
75%
75,000
Common
Stock
60,000
Retained
Earnings
40,000
6,000
18,000
24,000
- Dividends
(4,000)
(12,000)
(16,000)
Ending book value
27,000
81,000
60,000
1/1/X8
12/31/X8
Goodwill = 6,000
Goodwill = 1,875
Identifiable excess
= 15,000
Excess = 13,500
75%
Book value =
75,000
$96,000
Initial
investment in
Best Co.
75%
Book value =
81,000
48,000
$96,375
Net
investment
in Best Co.
215
P5-35 (continued)
Common stock
Retained earnings
NCI in NI of Best Co.
Dividends declared
NCI in NA of Best Co.
60,000
40,000
18,000
6,000
16,000
81,000
27,000

NCI
Power Corp.
25%
+
75%
Beginning balance
7,000
21,000
Changes
(1,875)
(5,625)
Ending balance
5,125
15,375
Buildings &
Equipment
20,000
20,000

Acc.
Depr.
0
(2,000)
(2,000)
Goodwill
8,000
(5,500)
2,500
2,000
5,500
5,625
1,875

Goodwill
Acc. Depr.
20,000
2,500
2,000
15,375
5,125

30,000
30,000
Investment in
Income from
Best Co.
Best Co.
Acquisition Price
96,000
75% Net Income
18,000
Ending Balance
12,000
75% Dividends
5,625
Excess Val. Amort.
Basic
15,375
Excess Reclass.
75% Net Income
12,375
Ending Balance
5,625
96,375
81,000
18,000
18,000
5,625
0
216
P5-35 (continued)
b.
Income Statement
Sales
Less: COGS
Less: Wage Expense
Less: Impairment Loss
NCI in Net Income
Income
Power
Corp.
Best Co.
260,000
(125,000)
(42,000)
(25,000)
(12,000)
(13,500)
180,000
(110,000)
(27,000)
(10,000)
(4,000)
(5,000)
Elimination Entries
DR
CR
Consolidated
5,500
18,000
25,500
6,000
5,625
5,625
1,875
440,000
(235,000)
(69,000)
(37,000)
(16,000)
(18,500)
(5,500)
0
59,000
(4,125)
24,000
31,500
7,500
54,875
102,000
54,875
(30,000)
126,875
40,000
24,000
(16,000)
48,000
40,000
31,500
7,500
16,000
23,500
102,000
54,875
(30,000)
126,875
47,500
70,000
90,000
30,000
350,000
(145,000)
96,375
21,000
12,000
25,000
15,000
150,000
(40,000)
20,000
30,000
538,875
183,000
2,500
50,000
Accounts Payable
Wages Payable
Notes Payable
Common Stock
Retained Earnings
45,000
17,000
150,000
200,000
126,875
16,000
9,000
50,000
60,000
48,000
60,000
71,500
538,875
183,000
131,500
Earnings
Beginning Balance
Net Income
Ending Balance
Balance Sheet
Cash
Accounts Receivable
Inventory
Land
Goodwill
Total Assets
12,375
54,875
24,000
54,875
2,000
71,500
30,000
2,000
81,000
15,375
128,375
23,500
27,000
5,125
23,500
68,500
82,000
115,000
45,000
490,000
(157,000)
0
2,500
646,000
61,000
26,000
200,000
200,000
126,875
32,125
646,000
217
P5-36 Consolidation Worksheet at End of Second Year of Ownership

a.
27,000
27,000
Record Power Corp.'s 75% share of Best Co.'s 20X9 income

Cash
15,000
15,000
Record Power Corp.'s 75% share of Best Co.'s 20X9 dividend

1,500
1,500

NCI
25%
Original book value
Power
Corp.
75%
Common
Stock
Retained
Earnings
27,000
81,000
9,000
27,000
36,000
- Dividends
(5,000)
(15,000)
(20,000)
Ending book value
31,000
93,000
+ Net Income
60,000
60,000
1/1/X9
12/31/X9
Goodwill = 1,875
Goodwill = 1,875
Identifiable excess
= 13,500
75%
Book value =
81,000
48,000
64,000
Excess = 12,000
$96,375
Net
investment in
Best Co.
75%
Book value =
93,000
$106,875
Net
investment
in Best Co.
218
P5-36 (continued)
Common stock
Retained earnings
Dividends declared
60,000
48,000
27,000
9,000
20,000
93,000
31,000
Beginning balance
Changes
Ending balance
NCI
25%
5,125
(500)
4,625
Power
Corp. 75%
15,375
(1,500)
13,875
Buildings
and
Equipment
20,000
20,000

Goodwill
Acc. Depr.
Acc.
Depr.
(2,000)
(2,000)
(4,000)
20,000
2,500
4,000
13,875
4,625
40,000
Income from
Best Co.
Best Co.
96,375
75% Net Income
27,000
15,000
75% Dividends
1,500
Excess Val. Amort.
93,000
Basic
13,875
Excess Reclass.
27,000
75% Net Income
25,500
Ending Balance
1,500
106,875
Goodwill
2,500
0
2,500
1,500
500
Investment in
Beginning Balance
2,000

40,000
Ending Balance
27,000
1,500
0
219
P5-36 (continued)
b.
Power
Corp.
Income Statement
Sales
Less: COGS
Less: Wage Expense
NCI in Net Income
Best Co.
Elimination Entries
DR
CR
290,000
(145,000)
(35,000)
(25,000)
(12,000)
(23,000)
25,500
75,500
200,000
(114,000)
(20,000)
(10,000)
(4,000)
(16,000)
75,500
36,000
126,875
75,500
(30,000)
172,375
48,000
36,000
(20,000)
64,000
68,500
85,000
97,000
50,000
350,000
(170,000)
106,875
32,000
14,000
24,000
25,000
150,000
(50,000)
20,000
40,000
587,375
195,000
2,500
60,000
Accounts Payable
Wages Payable
Notes Payable
Common Stock
Retained Earnings
51,000
14,000
150,000
200,000
172,375
15,000
6,000
50,000
60,000
64,000
60,000
86,000
587,375
195,000
146,000

Beginning Balance
Net Income
Ending Balance
Balance Sheet
Cash
Accounts Receivable
Inventory
Land
Goodwill
Total Assets
36,000
1,500
1,500
500
2,000
490,000
(259,000)
(55,000)
(37,000)
(16,000)
(39,000)
0
84,000
(8,500)
75,500
2,000
20,000
22,000
126,875
75,500
(30,000)
172,375
2,000
27,000
29,000
9,000
38,000
48,000
38,000
86,000
Consolidated
40,000
4,000
93,000
13,875
150,875
22,000
31,000
4,625
22,000
100,500
99,000
121,000
75,000
480,000
(184,000)
0
2,500
694,000
66,000
20,000
200,000
200,000
172,375
35,625
694,000
220
P5-36 (continued)
c.
Power Corporation and Subsidiary

December 31, 20X9
Cash
Accounts Receivable
Inventory
Land
Goodwill
Total Assets
Accounts Payable
Wages Payable
Notes Payable
Common Stock
Retained Earnings
$480,000
(184,000)
$100,500
99,000
121,000
75,000
296,000
2,500
$694,000
$ 66,000
20,000
200,000
$200,000
172,375
$372,375
35,625
408,000
$694,000

Sales
Cost of Goods Sold
Wage Expense
Interest Expense
Other Expenses
Total Expenses
$259,000
55,000
37,000
16,000
39,000
$490,000
(406,000)
$ 84,000
(8,500)
$ 75,500

$126,875
75,500
$202,375
(30,000)
$172,375
221
P5-37 Comprehensive Problem: Majority-Owned Subsidiary

a.
Equity Method Entries on Master Corp.'s Books:
Investment in Stanley Wood Co.
24,000
Income from Stanley Wood Co.
24,000
Record Master Corp.'s 80% share of Stanley Wood Co.'s 20X5 income
Cash
8,000

Record Master Corp.'s 80% share of Stanley Wood Co.'s 20X5
dividend
8,000
4,000
4,000

b.
NCI
20%
Original book value
Master Corp.
80%
Common
Stock
Retained
Earnings
38,000
152,000
6,000
24,000
30,000
- Dividends
(2,000)
(8,000)
(10,000)
Ending book value
42,000
168,000
+ Net Income
100,000
100,000
90,000
110,000
222
1/1/X5
12/31/X5
Goodwill = 0
Goodwill = 0
Excess = 20,000
Identifiable excess
= 24,000
80%
Book value =
152,000
$176,000
Net
investment in
Stanley
Wood Co.
80%
Book value =
168,000
$188,000
Net
investment in
Stanley
Wood Co.
223
P5-37 (continued)
Common stock
Retained earnings
NCI in NI of Stanley Wood Co.
Dividends declared
NCI in NA of Stanley Wood Co.
100,000
90,000
24,000
6,000
10,000
168,000
42,000

NCI
Master Corp.
20%
+
80%
Beginning balance
6,000
24,000
Changes
(1,000)
(4,000)
Ending balance
5,000
20,000
NCI in NI of Stanley Wood Co.
Acc. Depr.
(20,000)
(5,000)
(25,000)
50,000
4,000
1,000
50,000
25,000
20,000
5,000
10,000
10,000
Investment in
Income from
Stanley Wood Co.
Stanley Wood Co.
Beginning
Balance
176,000
80% Net Income
24,000
Ending Balance
Buildings &
Equipment
50,000
5,000

Acc. Depr.
Accounts payable
Cash and receivables
8,000
80% Dividends
4,000
Excess Val. Amort.
20,000
0
Basic
Excess Reclass.
80% Net Income
20,000
Ending Balance
4,000
188,000
168,000
24,000
24,000
4,000
0
224
P5-37 (continued)
c.
Master
Corp.
Stanley
Wood
Co.
Elimination Entries
DR
CR
Consolidated
Income Statement
Sales
200,000
100,000
300,000
(120,000)
(50,000)
(170,000)
(25,000)
(15,000)
Less: Inventory Losses
(15,000)
(5,000)
Less: COGS
20,000
60,000
30,000
NCI in Net Income

5,000
(45,000)
(20,000)
24,000
4,000
29,000
4,000
65,000
6,000
1,000
(5,000)
5,000
60,000
60,000
30,000
35,000
314,000
90,000
90,000
60,000
30,000
35,000
(30,000)
(10,000)
Ending Balance
344,000
110,000
81,000
65,000
260,000
90,000
350,000
80,000
80,000
160,000
500,000
150,000
(205,000)
(105,000)
188,000

Beginning Balance
Net Income
125,000
314,000
5,000
60,000
10,000
(30,000)
15,000
344,000
10,000
136,000
Balance Sheet
Inventory
Land
50,000
700,000
25,000
(335,000)
168,000
20,000
Total Assets
Accounts Payable
904,000
280,000
50,000
10,000
60,000
20,000
Notes Payable
200,000
50,000
Common Stock
300,000
100,000
100,000
Retained Earnings
344,000
110,000
125,000
35,000
1,011,000
70,000
250,000
300,000
15,000
344,000
42,000
47,000
5,000
904,000
280,000
235,000
57,000
1,011,000
225
P5-38 Comprehensive Problem: Differential Apportionment

a.
Equity Method Entries on Mortar Corp.'s Books:
Investment in Granite Co.
173,000
Cash
173,000
Record the initial investment in Granite Co.

48,000
Income from Granite Co.
48,000
Record Mortar Corp.'s 80% share of Granite Co.'s 20X7 income

Cash
16,000
16,000
Record Mortar Corp.'s 80% share of Granite Co.'s 20X7 dividend

3,000
3,000

b.
NCI
20%
Mortar
Corp.
80%
Common
Stock
Retained
Earnings
Original book value
30,000
120,000
+ Net Income
12,000
48,000
60,000
- Dividends
(4,000)
(16,000)
(20,000)
Ending book value
38,000
152,000
1/1/X7
50,000
50,000
100,000
140,000
12/31/X7
Goodwill = 20,000
Goodwill = 20,000
Excess = 30,000
Identifiable excess
= 33,000
80%
Book value =
120,000
$173,000
Initial
investment in
Granite Co.
80%
Book value =
152,000
$202,000
Net
investment in
Granite Co.
226
P5-38 (continued)
Common stock
Retained earnings
NCI in NI of Granite Co.
Dividends declared
NCI in NA of Granite Co.
50,000
100,000
48,000
12,000
20,000
152,000
38,000

NCI
Mortar
20%
+
Corp. 80%
Beginning balance
13,250
53,000
Changes
(750)
(3,000)
Ending balance
12,500
50,000
Goodwill
Acc. Depr.
Accounts payable
Accounts receivable
Buildings &
Equipment
41,250
41,250
Acquisition Price
80% Net Income
Ending Balance
Acc.
Depr.
0
(3,750)
(3,750)
Goodwill
25,000
0
25,000
3,750
3,000
750
41,250
25,000
3,750
50,000
12,500
16,000
16,000

60,000
Investment in
Granite Co.
173,000
48,000
16,000
3,000
202,000
152,000
50,000
0
60,000
Income from
Granite Co.
80% Dividends
Excess Val. Amort.
Basic
Excess Reclass.
48,000
80% Net Income
45,000
Ending Balance
3,000
48,000
3,000
0
227
P5-38 (continued)
c.
Elimination Entries
DR
CR
Mortar
Corp.
Granite
Co.
700,000
(500,000)
(25,000)
(75,000)
45,000
145,000
400,000
(250,000)
(15,000)
(75,000)
60,000
48,000
51,750
12,000
3,000
3,000
750
1,100,000
(750,000)
(43,750)
(150,000)
0
156,250
(11,250)
145,000
60,000
63,750
3,750
145,000
290,000
145,000
(50,000)
385,000
100,000
60,000
(20,000)
140,000
100,000
63,750
3,750
20,000
23,750
290,000
145,000
(50,000)
385,000
38,000
50,000
240,000
80,000
500,000
(155,000)
202,000
25,000
55,000
100,000
20,000
150,000
(75,000)
41,250
60,000
955,000
275,000
25,000
101,250
Accounts Payable
Mortgage Payable
Common Stock
Retained Earnings
70,000
200,000
300,000
385,000
35,000
50,000
50,000
140,000
50,000
163,750
955,000
275,000
229,750
Income Statement
Sales
Less: COGS
NCI in Net Income
Income
Beginning Balance
Net Income
Ending Balance
Balance Sheet
Cash
Accounts Receivable
Inventory
Land
Goodwill
Total Assets
3,750
163,750
16,000
60,000
3,750
152,000
50,000
79,750
16,000
23,750
38,000
12,500
61,750
Consolidated
63,000
89,000
340,000
100,000
631,250
(173,750)
0
25,000
1,074,500
89,000
250,000
300,000
385,000
50,500
1,074,500
228
P5-39 Comprehensive Problem: Differential Apportionment in Subsequent Period.

a.
Equity Method Entries on Mortar Corp.'s Books:
36,000
36,000
Record Mortar Corp.'s 80% share of Granite Co.'s 20X8 income
Cash
20,000
20,000
Record Mortar Corp.'s 80% share of Granite Co.'s 20X8 dividend
11,800
11,800
b.
NCI
Mortar Corp.
Common
+
=
+
20%
80%
Stock
Original book value
38,000
152,000
50,000
+ Net Income
9,000
36,000
- Dividends
(5,000)
(20,000)
Ending book value
42,000
168,000
50,000
1/1/X8
Retained
Earnings
140,000
45,000
(25,000)
160,000
12/31/X8
Goodwill = 11,200
Goodwill = 20,000
Excess = 27,000
Identifiable excess
= 30,000
80%
Book value =
152,000
$202,000
Net
investment in
Granite Co.
80%
Book value =
168,000
$206,200
Net
investment
in Granite
Co.
229
P5-39 (continued)
Common stock
Retained earnings
Dividends declared
50,000
140,000
36,000
9,000
25,000
168,000
42,000

NCI
Mortar
20%
+ Corp. 80% =
Beginning balance
12,500
50,000
Changes
(2,950)
(11,800)
Ending balance
9,550
38,200
Goodwill
Acc. Depr.
Accounts payable
Accounts receivable
Buildings &
Equipment
41,250
41,250
Acc.
Depr.
(3,750)
(3,750)
(7,500)
+ Goodwill
25,000
(11,000)
14,000
3,750
11,000
11,800
2,950
41,250
14,000
7,500
38,200
9,550
9,000
9,000

60,000
60,000
Beginning Balance
80% Net Income
Ending Balance
Investment in
Granite Co.
202,000
36,000
20,000
11,800
206,200
168,000
38,200
0
Income from
Granite Co.
80% Dividends
Excess Val. Amort.
Basic
Excess Reclass.
36,000
80% Net Income
24,200
Ending Balance
11,800
36,000
11,800
0
230
P5-39 (continued)
c.
Income Statement
Sales
Less: COGS
Less: Goodwill Impairment
NCI in Net Income
Income
Earnings
Beginning Balance
Net Income
Ending Balance
Mortar
Corp.
Granite
Co.
650,000
(490,000)
(25,000)
(62,000)
470,000
(310,000)
(15,000)
(100,000)
Elimination Entries
DR
CR
11,000
36,000
50,750
9,000
11,800
11,800
2,950
1,120,000
(800,000)
(43,750)
(162,000)
(11,000)
0
103,250
(6,050)
45,000
59,750
14,750
97,200
385,000
97,200
(45,000)
437,200
140,000
45,000
(25,000)
160,000
140,000
59,750
14,750
25,000
39,750
385,000
97,200
(45,000)
437,200
24,200
97,200
45,000
97,200
3,750
199,750
Balance Sheet
Cash
Accounts Receivable
Inventory
Land
Less: Accumulated
Depreciation
59,000
83,000
275,000
80,000
500,000
31,000
71,000
118,000
30,000
150,000
41,250
60,000
(180,000)
206,200
(90,000)
60,000
7,500
168,000
38,200
Goodwill
Total Assets
1,023,200
310,000
14,000
101,250
86,000
200,000
300,000
437,200
30,000
70,000
50,000
160,000
50,000
199,750
1,023,200
310,000
258,750
Accounts Payable
Mortgage Payable
Common Stock
Retained Earnings
Consolidated
9,000
76,500
9,000
39,750
42,000
9,550
81,750
90,000
145,000
393,000
110,000
631,250
(217,500)
0
14,000
1,165,750
107,000
270,000
300,000
437,200
51,550
1,165,750
231
P5-40 Subsidiary with Other Comprehensive Income in Year of Acquisition

a.
Equity Method Entries on Amber Corp.'s Books:
Investment in Sparta Co.
96,000
Cash
96,000
Record the initial investment in Sparta Co.

15,000
Income from Sparta Co.
15,000
Record Amber Corp.'s 60% share of Sparta Co.'s 20X8 income

Cash
9,000
9,000
Record Amber Corp.'s 60% share of Sparta Co.'s 20X8 dividend

6,000
Other Comprehensive Income from Sparta Co.
6,000
Record share of increase in value of securities held by Sparta Co.

NCI
40%
Original book value
64,000
Amber Corp.
60%
96,000
Common
Stock
100,000
Retained
Earnings
60,000
+ Net Income
10,000
15,000
25,000
- Dividends
(6,000)
(9,000)
(15,000)
Ending book value
68,000
102,000
1/1/X8
100,000
70,000
12/31/X8
Goodwill = 0
Goodwill = 0
Excess = 0
Identifiable excess
=0
60%
Book value =
96,000
$96,000
Initial
investment in
Sparta Co.
60%
Book value =
108,000
$108,000
Net
investment in
Sparta Co.
232
P5-40 (continued)
Common stock
100,000
Retained earnings
60,000
15,000
NCI in NI of Sparta Co.
10,000
Dividends declared
15,000
102,000
NCI in NA of Sparta Co.
68,000

OCI from Sparta Co.
6,000
OCI to the NCI
4,000
6,000
4,000
Investment in
Income from
Sparta Co.
Sparta Co.
Acquisition Price
96,000
60% Net Income
15,000
9,000
6,000
Ending Balance
60% Net Income
15,000
Ending Balance
60% Dividends
OCI Entry
108,000
102,000
6,000
0
15,000
Basic
15,000
OCI
0
233
P5-40 (continued)
b.
Income Statement
Sales
Less: COGS
NCI in Net Income
Beginning Balance
Net Income
Ending Balance
Balance Sheet
Cash
Accounts Receivable
Inventory
Investment in Row Company
Amber
Corp.
Sparta
Co.
220,000
(150,000)
(30,000)
(8,000)
15,000
47,000
148,000
(110,000)
(10,000)
(3,000)
47,000
25,000
208,000
47,000
(24,000)
231,000
60,000
25,000
(15,000)
70,000
27,000
65,000
40,000
500,000
(140,000)
8,000
22,000
30,000
235,000
(85,000)
40,000
25,000
15,000
15,000
10,000
25,000
60,000
25,000
85,000
600,000
250,000
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
Accumulated OCI
63,000
100,000
200,000
231,000
6,000
20,000
50,000
100,000
70,000
10,000
600,000
250,000
0
15,000
15,000
208,000
47,000
(24,000)
231,000
75,000
75,000
100,000
85,000
10,000
185,000
Consolidated
368,000
(260,000)
(40,000)
(11,000)
0
57,000
(10,000)
47,000
75,000
108,000
Total Assets
Other Comprehensive Income

Accumulated Other Comprehensive
Income, 1/1/20X8
Other Comprehensive Income from
Sparta Co.
Unrealized Gain on Investments
Other Comprehensive Income to NCI
Income, 12/31/20X8
Elimination Entries
DR
CR
102,000
6,000
75,000
15,000
68,000
4,000
83,000
35,000
87,000
70,000
660,000
(150,000)
40,000
0
742,000
83,000
150,000
200,000
231,000
6,000
72,000
742,000
0
6,000
6,000
0
10,000
(4,000)
10,000
4,000
6,000
10,000
10,000
6,000
234
P5-40 (continued)
c.
Amber Corporation and Subsidiary

December 31, 20X8
Cash
Accounts Receivable
Inventory
Investment in Marketable Securities
Total Assets
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
Accumulated Other Comprehensive Income
$660,000
(150,000)
$ 35,000
87,000
70,000
510,000
40,000
$742,000
$ 83,000
150,000
$200,000
231,000
6,000
$437,000
72,000
509,000
$742,000

Sales
Cost of Goods Sold
Interest Expense
Total Expenses
$260,000
40,000
11,000
$368,000
(311,000)
$ 57,000
(10,000)
$ 47,000

Consolidated Statement of Comprehensive Income
Other Comprehensive Income:
Unrealized Gain on Investments Held by Subsidiary
Total Consolidated Comprehensive Income
Less: Comprehensive Income Attributable to
Comprehensive Income Attributable to Controlling
Interest
$57,000
10,000
$67,000
(14,000)
$53,000
235
P5-41 Subsidiary with Other Comprehensive Income in Year Following

Acquisition
a.
Equity Method Entries on Amber Corp.'s Books:
108,000
Cash
108,000
Record the initial investment in Sparta Co.

18,000
18,000
Record Amber Corp.'s 60% share of Sparta Co.'s 20X9 income

Cash
12,000
12,000
Record Amber Corp.'s 60% share of Sparta Co.'s 20X9 dividend

2,400
Other Comprehensive Income from Sparta Co.
2,400
Record share of increase in value of securities held by Sparta Co.

NCI
40%
Original book value
72,000
Amber Corp.
60%
108,000
Common
Stock
100,000
Retained
Earnings
70,000
+ Net Income
12,000
18,000
30,000
- Dividends
(8,000)
(12,000)
(20,000)
Ending book value
76,000
114,000
1/1/X9
100,000
80,000
OCI
10,000
10,000
12/31/X9
Goodwill = 0
Goodwill = 0
Excess = 0
Excess = 0
60%
Book value =
108,000
$108,000
Net
investment in
Sparta Co.
60%
Book value =
116,400
$116,400
Net
investment in
Sparta Co.
236
P5-41 (continued)
Common stock
100,000
Retained earnings
70,000
Accumulated OCI
10,000
18,000
NCI in NI of Sparta Co.
12,000
Dividends declared
20,000
114,000
76,000

OCI from Sparta Co.
2,400
OCI to the NCI
1,600
2,400
1,600
Investment in
Income from
Sparta Co.
Sparta Co.
Beginning Balance
108,000
60% Net Income
18,000
12,000
2,400
Ending Balance
60% Net Income
18,000
Ending Balance
60% Dividends
OCI Entry
116,400
114,000
2,400
0
18,000
Basic
18,000
OCI
0
237
P5-41 (continued)
b.
Income Statement
Sales
Less: COGS
NCI in Net Income
Income
Beginning Balance
Net Income
Ending Balance
Balance Sheet
Cash
Accounts Receivable
Inventory
Investment in Row Company
Elimination Entries
DR
CR
Amber
Corp.
Sparta
Co.
250,000
(170,000)
(30,000)
(8,000)
18,000
60,000
140,000
(97,000)
(10,000)
(3,000)
30,000
18,000
18,000
12,000
60,000
30,000
30,000
231,000
60,000
(40,000)
251,000
70,000
30,000
(20,000)
80,000
70,000
30,000
18,000
45,000
40,000
585,000
(170,000)
11,000
21,000
30,000
257,000
(95,000)
44,000
100,000
Consolidated
390,000
(267,000)
(40,000)
(11,000)
0
72,000
(12,000)
0
60,000
0
20,000
20,000
231,000
60,000
(40,000)
251,000
75,000
75,000
116,400
Total Assets
634,400
268,000
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
Accumulated OCI
75,000
100,000
200,000
251,000
8,400
24,000
50,000
100,000
80,000
14,000
634,400
268,000
200,000
6,000
10,000
10,000
6,000
2,400
0
4,000
(1,600)
Other Comprehensive Income

Income, 1/1/20X9
Other Comprehensive Income from
Sparta Co.
Unrealized Gain on Investments
Other Comprehensive Income to NCI
Income, 12/31/20X9
2,400
75,000
114,000
2,400
75,000
29,000
66,000
70,000
767,000
(190,000)
44,000
0
100,000
100,000
14,000
20,000
76,000
1,600
96,000
4,000
1,600
8,400
14,000
14,000
786,000
99,000
150,000
200,000
251,000
8,400
77,600
786,000
8,400
238
CHAPTER 6
INTERCOMPANY INVENTORY TRANSACTIONS
E6-1 Multiple-Choice Questions on Intercompany Inventory Transfers
[AICPA Adapted]
1.
2.
3.
4.
5.
6.
a
c
a
c
c
Net assets reported

Profit on intercompany sale
Proportion of inventory unsold at year end
($60,000 / $240,000)
Unrealized profit at year end
Amount reported in consolidated statements
$48,000
x
0.25
Inventory reported by Banks ($175,000 + $60,000)

Inventory reported by Lamm
Total inventory reported
[$50,000 x ($60,000 / $200,000)]
Amount reported in consolidated statements
$320,000
(12,000)
$308,000
$235,000
250,000
$485,000
(15,000)
$470,000
E6-2 Multiple-Choice Questions on the Effects of Inventory Transfers

[AICPA Adapted]
1.
Cost of goods sold reported by Park

Cost of goods sold reported by Small
Total cost of goods sold reported
Cost of goods sold reported by Park on
sale to Small ($500,000 x 0.40)
Reduction of cost of goods sold reported by
Small for profit on intercompany sale
[($500,000 x 4 / 5) x 0.60]
Cost of goods sold for consolidated entity
$ 800,000
700,000
$1,500,000
(200,000)
(240,000)
$1,060,000
Note:
Answer b in the actual CPA examination question was

$1,100,000, requiring candidates to select the closest
answer.
2.
$32,000
($200,000 + $140,000) $308,000
3.
$6,000
($26,000 + $19,000) $39,000
239
4.
$9,000
Inventory held by Spin

($32,000 x 0.375)
Unrealized profit on sale
[($30,000 + $25,000) $52,000]
Carrying cost of inventory for
Power
$12,000
(3,000)
$ 9,000
5.
0.20 = $14,000 / [(Stockholders Equity $50,000) +(Patent $20,000)]
6.
14 years = ($28,000 / [(28,000 - $20,000) / 4 years]
E6-3 Multiple Choice Consolidated Income Statement

1.
2.
3.
Total income ($86,000 - $47,000)

Income assigned to noncontrolling
interest [0.40($86,000 - $60,000)]
Consolidated net income assigned
to controlling interest
$39,000
(10,400)
$28,600
6-4 Multiple-Choice Questions Consolidated Balances

1.
2.
Amount paid by Lorn Corporation

Unrealized profit
Actual cost
Portion sold
Cost of goods sold
$120,000
(45,000)
$ 75,000
x
0.80
$ 60,000
3.
Consolidated sales
Cost of goods sold
Income to Dressers noncontrolling
interest:
Sales
Reported cost of sales
Report income
Portion realized
Realized net income
Portion to Noncontrolling
Interest
Income to noncontrolling
Interest
Income to controlling interest
$140,000
(60,000)
$ 80,000
$120,000
(75,000)
$ 45,000
x
0.80
$ 36,000
x
0.30
(10,800)
$ 69,200
240
4.
Inventory reported by Lorn

Unrealized profit ($45,000 x .20)
Ending inventory reported
$ 24,000
(9,000)
$ 15,000
E6-5 Multiple-Choice Questions Consolidated Income Statement

1.
$20,000 = $30,000 x [($48,000 - $16,000) / $48,000]
2.
Sales reported by Movie Productions Inc.

Cost of goods sold ($30,000 x 2/3)
3.
$7,000 = [($67,000 - $32,000) x 0.20]
$67,000
(20,000)
$47,000
241
E6-6 Realized Profit on Intercompany Sale

a.
b.
c.
Journal entries recorded by Nordway Corporation:

(1)
Inventory
Cash (Accounts Payable)
960,000
(2)
Cash (Accounts Receivable)

Sales
750,000
(3)
Cost of Goods Sold

Inventory
600,000
960,000
750,000
600,000
Journal entries recorded by Olman Company:

(1)
Inventory
750,000
(2)

Sales
1,125,000
(3)
Cost of Goods Sold

Inventory
750,000
750,000
1,125,000
750,000
Eliminating entry:
Sales
Cost of Goods Sold
750,000
750,000
242
E6-7 Sale of Inventory to Subsidiary

a.
b.
c.
Journal entries recorded by Nordway Corporation:

(1)
Inventory
960,000
(2)

Sales
750,000
(3)
Cost of Goods Sold

Inventory
600,000
960,000
750,000
600,000
Journal entries recorded by Olman Company:

(1)
Inventory
750,000
(2)

Sales
810,000
(3)
Cost of Goods Sold

Inventory
540,000
750,000
810,000
540,000
Eliminating entry:
Sales
Cost of Goods Sold
Inventory
750,000
708,000
42,000
Calculations
Sales
COGS
Ending
Total
= Re-Sold + Inventory
750,000
540,000
210,000
600,000
432,000
168,000
Gross Profit
150,000
Gross Profit %
108,000
42,000
20%
243
E6-8 Inventory Transfer between Parent and Subsidiary
a.
Karlow Corporation reported cost of goods sold of $820,000 ($82 x 10,000 desks)
and Draw Company reported cost of goods sold of $658,000 ($94 x 7,000 desks).
b.
Cost of goods sold for the consolidated entity is $574,000 ($82 x 7,000 desks).
c.
Eliminating entry:
Sales
Cost of Goods Sold
Inventory
940,000
904,000
36,000
Calculations
d.
Sales
COGS
Ending
Total
= Re-sold + Inventory
940,000
658,000
282,000
820,000
574,000
246,000
Gross Profit
120,000
Gross Profit %
12.77%
36,000
Eliminating entry:
Investment in Draw Company
Cost of Goods Sold
e.
84,000
36,000
36,000
Eliminating entry:
Investment in Draw Company
NCI in NA of Draw Company
Cost of Goods Sold
21,600
14,400
36,000
244
E6-9 Income Statement Effects of Unrealized Profit

a.
b.
Sale price to Holiday Bakery per bag ($900,000 / 100,000)

Profit per bag [$9.00 - ($9.00 / 1.5)]
Cost per bag
Bags sold by Holiday Bakery (100,000 - 20,000)
Consolidated cost of goods sold
Sales
Cost of Goods Sold
Inventory ($3.00 x 20,000 bags)
9.00
(3.00)
$
6.00
x 80,000
$480,000
900,000
840,000
60,000
Calculations
Sales
COGS
Gross Profit
Gross Profit
%
Total
900,000
600,000
300,000
Ending
Re-sold + Inventory
720,000
180,000
480,000
120,000
240,000
60,000
33.33%
Required Adjustment to Cost of Goods Sold:

Cost of goods sold Farmco ($900,000 / 1.5)
Cost of goods sold Holiday ($9.00 x 80,000 units)
$ 600,000
720,000
$1,320,000
(480,000)
$ 840,000
Consolidated cost of goods sold ($6.00 x 80,000 units)

Required adjustment
c.
Operating income of Holiday Bakery

Net income of Farmco Products
$400,000
150,000
$550,000
(60,000)
$490,000
Less: Unrealized inventory profits

Less: Income assigned to noncontrolling interest
($150,000 - $60,000 unrealized profit) x 0.40
Income assigned to controlling interest
Alternate computation:
Unrealized profits ($3.00 x 20,000 units)
Realized net income
Ownership held by Holiday Bakery
(36,000)
$454,000
$150,000
(60,000)
$ 90,000
x
0.60
$400,000
54,000
$454,000
245
E6-10 Prior-Period Unrealized Inventory Profit

a.
Cost per bag of flour ($9.00 / 1.5)

Bags sold
Cost of goods sold from inventory held, January 1, 20X9
$
6.00
x 20,000
$120,000
b.
Investment in Farmco
NCI in NA of Farmco
Cost of Goods Sold
$60,000 = 20,000 bags x $3.00
c.
36,000
24,000

Add: Inventory profits realized in 20X9
Less: Income assigned to noncontrolling shareholders
($250,000 + $60,000) x 0.40
Alternate computation:
Inventory profits realized in 20X9
Realized net income
Ownership held by Holiday Bakery
$250,000
60,000
$310,000
x
0.60
60,000
$300,000
250,000
$550,000
60,000
$610,000
(124,000)
$486,000
$300,000
186,000
$486,000
246
E6-11 Computation of Consolidated Income Statement Data

Downstream Transaction Calculations
Sales
COGS
Total
=
30,000
20,000
Gross Profit
10,000
Gross Profit %
33.33%
Re-sold +
24,000
16,000
8,000
Ending
Inventory
6,000
4,000
2,000
Worksheet Entry (not requested in problem)

Sales
30,000
Cost of Goods Sold
28,000
Inventory
2,000
Upstream Transaction Calculations
Sales
COGS
Total
=
80,000
50,000
Gross Profit
30,000
Gross Profit %
Re-sold +
60,000
37,500
Ending
Inventory
20,000
12,500
22,500
7,500
37.50%
Worksheet Entry (not requested in problem)

Sales
80,000
Cost of Goods Sold
72,500
Inventory
7,500
a.
Reported sales of Prem Company

Reported sales of Cooper Company
Intercompany sales by Prem Company in 20X5
Intercompany sales by Cooper Company in 20X5
Sales reported on consolidated income statement
$ 30,000
80,000
$400,000
200,000
$600,000
(110,000)
$490,000
247
E6-11 (continued)
b.
Cost of goods sold reported by Prem Company

Cost of goods sold reported by Cooper Company
$250,000
120,000
$370,000
(100,500)
$269,500
Adjustment due to intercompany sales

Adjustment to cost of goods sold:
c.
d.
CGS charged by Prem on sale to Cooper

CGS charged by Cooper ($30,000 - $6,000)
Total charged to CGS
CGS for consolidated entity
$20,000 x ($24,000 / $30,000)
Required adjustment to CGS
$ 20,000
24,000
$ 44,000
CGS charged by Cooper on sale to Prem

CGS charged by Prem ($80,000 - $20,000)
Total charged to CGS
CGS for consolidated entity
$50,000 x ($60,000 / $80,000)
Required adjustment to CGS
Total adjustment required
$ 50,000
60,000
$110,000
(16,000)
(37,500)
Reported net income of Cooper Company

Unrealized profit on sale to Prem Company
$30,000 x ($20,000 / $80,000)
Realized net income
Noncontrolling interest's share
Income assigned to noncontrolling interest
Reported net income of Pem Company
Less: Income from Cooper
Net income of Cooper Company
Operating income
Less: Unrealized inventory profits of Prem
Company [$10,000 x ($6,000 / $30,000)]
Unrealized inventory profits of Copper
Company [$30,000 x ($20,000 / $80,000)]
Income assigned to noncontrolling
interest
$ 28,000
72,500
$100,500
$ 45,000
(7,500)
$ 37,500
x
0.40
$ 15,000
$100,500
(20,500)
$ 80,000
45,000
$125,000
$ 2,000
7,500
15,000
(24,500)
$ 100,500
248
E6-12 Sale of Inventory at a Loss

a.
Entries recorded by Trent Company:

Inventory
Cash
Purchase inventory.
400,000
Cash
Sales
Sale of inventory to Gord Corporation.
300,000
Cost of Goods Sold

Inventory
Record cost of goods sold.
400,000
400,000
300,000
400,000
Entries recorded by Gord Corporation

Inventory
Cash
Purchase of inventory from Trent.
300,000
Cash
Sales
Sale of inventory to nonaffiliates.
360,000
Cost of Goods Sold

Inventory
Record cost of goods sold: $180,000 = $300,000 x .60
180,000
b.
Consolidated cost of goods sold for 20X8 should be reported

as $240,000 ($400,000 x 0.60).
c.
Operating income reported by Gord

Net income reported by Trent
Unrealized loss on intercorporate sale
($400,000 - $300,000) x 0.40
Income to assigned to noncontrolling interest
($120,000 x 0.25)
$ 80,000
40,000
300,000
360,000
180,000
$230,000
120,000
$350,000
(30,000)
$320,000
249
E6-12 (continued)
d.
Eliminating entry, December 31, 20X8:

Sales
Inventory
Cost of Goods Sold
300,000
40,000
340,000
Computation of cost of goods sold to be eliminated

Cost of goods sold recorded by Trent
Cost of goods sold recorded by Gord
Total recorded
Required elimination
$400,000
180,000
$580,000
(240,000)
$340,000
Intercompany Transaction Calculations
Sales
COGS
Gross Profit
Gross Profit %
Total
=
300,000
400,000
(100,000)
Re-sold +
180,000
240,000
(60,000)
Ending
Inventory
120,000
160,000
(40,000)
-33.33%
250
E6-13 Intercompany Sales

20X4 Calculations:
Sales
COGS
Gross Profit
Gross Profit %
Total
= Re-sold +
180,000
135,000
120,000
90,000
60,000
45,000
33.33%
Ending
Inventory
45,000
30,000
15,000
Worksheet Entry (not required in problem)

Sales
180,000
Cost of Goods Sold
165,000
Inventory
15,000
20X5 Calculations:
20X5 Upstream
Sales
COGS
Gross Profit
Gross Profit %
Total
135,000
90,000
45,000
33.33%
Re-sold
105,000
70,000
35,000
Ending
Inventory
30,000
20,000
10,000
20X5 Downstream
Sales
COGS
Gross Profit
Gross Profit %
Total
= Re-sold +
280,000
170,000
140,000
85,000
140,000
85,000
50.00%
Ending
Inventory
110,000
55,000
55,000
Worksheet Elimination Entries (not required in problem):

Eliminate Upstream Transactions
Sales
135,000
Cost of Goods Sold
125,000
Inventory
10,000
Eliminate Downstream Transactions
Sales
280,000
Cost of Goods Sold
225,000
Inventory
55,000
Reversal of 20X4 Upstream Deferral
Investment in Surg
10,500
NCI in NA of Surg
4,500
Cost of Goods Sold
15,000
251
E6-13 (continued)
a.
Consolidated net income for 20X4:

Operating income of Hollow Corporation
Net income of Surg Corporation
$160,000
90,000
$250,000
(15,000)
$235,000
Less: Unrealized profit Surg Corporation

b.
c.
Inventory balance, December 31, 20X5:

Inventory reported by Hollow Corporation
Unrealized profit on books of Surg
Corporation
($135,000 - $90,000) x ($30,000/$135,000)
$ 30,000
Inventory reported by Surg Corporation

Unrealized profit on books of Hollow
Corporation
($280,000 - $140,000) x ($110,000/$280,000)
Inventory, December 31, 20X5
$110,000
(10,000)
55,000
$75,000
Consolidated cost of goods sold for 20X5:

COGS on sale of inventory on hand January 1, 20X5
$45,000 x ($120,000 / $180,000)
COGS on items purchased from Surg in 20X5
($135,000 - $30,000) x ($90,000 / $135,000)
COGS on items purchased from Hollow in 20X5
($280,000 - $110,000) x ($140,000 / $280,000)
Total cost of goods sold
d.
(55,000)
$20,000
$ 30,000
70,000
85,000
$185,000
Income assigned to controlling interest:

Operating income of Hollow Corporation
Net income of Surg Corporation
Add: Inventory profit of prior year realized in 20X5
Less: Unrealized inventory profit Surg Corporation
Unrealized inventory profit Hollow Corporation
Income to noncontrolling interest
($85,000 + $15,000 - $10,000) x 0.30
$220,000
85,000
$305,000
15,000
(10,000)
(55,000)
(27,000)
$228,000
252
E6-14 Consolidated Balance Sheet Worksheet

a.
Equity Method Entries on Doorst Corp.'s Books:
Investment in Hingle Co.
49,000
Income from Hingle Co.
49,000
Record Doorst Corp.'s 70% share of Hingle Co.'s 20X8 income

Cash
9,800
9,800
Record Doorst Corp.'s 70% share of Hingle Co.'s 20X8 dividend

10,000
10,000
Eliminate the deferred gross profit from downstream sales in 20X8

28,000
28,000
Eliminate the deferred gross profit from upstream sales in 20X8

NCI
30%
Original book value
Doorst
Corp.
70%
103,200
Common
Stock
240,800
150,000
Retained
Earnings
194,000
+ Net Income
21,000
49,000
70,000
- Dividends
(4,200)
(9,800)
(14,000)
120,000
280,000
Ending book value
150,000
250,000
Reversal/Deferred GP Calculations:
Total
Doorst
Corp.'s
share
NCI's share
Downstream Deferred GP
(10,000)
(10,000)
Upstream Deferred GP
(40,000)
(28,000)
(12,000)
Total
(50,000)
(38,000)
(12,000)
253
E6-14 (continued)
Common stock
150,000
Original amount invested (100%)
Retained earnings
194,000
Beginning balance in retained earnings
11,000
NCI in NI of Hingle Co.
Doorsts % of NI - Deferred GP + Reversal
9,000
NCI share of NI - Deferred GP + Reversal
Dividends declared
14,000
100% of Hingle Co.'s dividends declared
242,000
Net book value - Deferred GP + Reversal
NCI in NA of Hingle Co.
108,000
NCI share of BV - Deferred GP + Reversal
Deferral of this year's unrealized profits on inventory transfers

Sales
400,000
Cost of Goods Sold
350,000
Inventory
50,000
20X8 Downstream Transactions

Total
Re-sold
Ending
Inventory
Sales
100,000
75,000
25,000
COGS
60,000
45,000
15,000
Gross Profit
40,000
30,000
10,000
Gross Profit %
40.00%
20X8 Upstream Transactions

Total
Re-sold
Ending
Inventory
Sales
300,000
205,000
95,000
COGS
173,684
118,684
55,000
Gross Profit
126,316
86,316
40,000
Gross Profit %
42.11%
Investment in
Income from
Hingle Co.
Hingle Co.
Acquisition Price
240,800
70% Net Income
49,000
Ending Balance
9,800
70% Dividends
38,000
Deferred GP
Basic
70% Net Income
11,000
Ending Balance
38,000
242,000
242,000
49,000
11,000
0
254
E6-14 (continued)
b.
Elimination Entries
Doorst
Corp.
Hingle
Co.
Balance Sheet
Inventory
Total Assets
98,000
150,000
310,000
242,000
800,000
40,000
100,000
280,000
Accounts Payable
Common Stock
Retained Earnings
70,000
200,000
530,000
20,000
150,000
250,000
NCI in NA of Hingle Co.

800,000
420,000
420,000
DR
CR
50,000
0
150,000
194,000
11,000
9,000
400,000
764,000
242,000
292,000
14,000
350,000
108,000
472,000
Consolidate
d
138,000
200,000
590,000
0
928,000
90,000
200,000
530,000
108,000
928,000
255
E6-15* Multiple Transfers between Affiliates

a.
Entries recorded by Klon Corporation

Cash
Sales
Sale of inventory to Brant Company.
150,000
Cost of Goods Sold

Inventory
100,000
150,000
100,000
Entries recorded by Brant Company

Inventory
Cash
Purchase of inventory from Klon.
150,000
Cash
Sales
Sale of inventory to Torkel Company.
150,000
Cost of Goods Sold

Inventory
150,000
150,000
150,000
150,000
Entries recorded by Torkel Company

Inventory
Cash
Purchase of inventory from Brant.
150,000
Cash
Sales
Sale of inventory to nonaffiliates.
120,000
Cost of Goods Sold

Inventory
90,000
b.
Cost of goods sold for 20X8 should be reported as $60,000

[$90,000 x ($100,000 / $150,000)].
c.
Inventory at December 31, 20X8, should be reported at $40,000

[$60,000 x ($100,000 / $150,000)].
150,000
120,000
90,000
256
E6-15* (continued)
d.
Eliminating entry for inventory:

Sales
Cost of Goods Sold
Inventory
300,000
280,000
20,000
Computation of cost of goods sold to be eliminated

Cost of goods sold recorded by Klon
Cost of goods sold recorded by Brant
Cost of goods sold recorded by Torkel
Total recorded
$100,000
150,000
90,000
$340,000
(60,000)
$280,000
Computation of reduction to carrying value of inventory

Inventory reported by Torkel
Inventory balance to be reported
$60,000
(40,000)
$20,000
257
E6-16 Inventory Sales

a.
Journal entries recorded by Spice Company:

(1)
Inventory
Record purchases from nonaffiliate.
150,000
(2)

Sales
Record sale to Herb Corporation.
60,000
(3)
Cost of Goods Sold

Inventory
Record cost of goods sold to Herb
Corporation.
40,000
150,000
60,000
40,000
Journal entries recorded by Herb Corporation:
b.
(1)
Inventory
Record purchases from Spice Company.
60,000
(2)

Sales
Record sale of items to nonaffiliates.
90,000
(3)
Cost of Goods Sold

Inventory
45,000
(4)
Income from Herb

5,000
Investment in Herb
5,000
Eliminate unrealized gross profit on inventory purchases from Herb.
60,000
90,000
45,000
Eliminating entry:
Sales
COGS
Total
= Re-sold +
60,000
45,000
40,000
30,000
Gross Profit
20,000
Gross Profit %
15,000
Ending
Inventory
15,000
10,000
5,000
33.33%
Sales
Cost of Goods Sold
Inventory
Eliminate intercompany sale of inventory.
60,000
55,000
5,000
258
E6-17 Prior-Period Inventory Profits

a.
20X8 Sale:
Sales
COGS
Gross Profit
Gross Profit %
Total
= Re-sold +
180,000
170,000
120,000
113,333
60,000
56,667
Ending
Inventory
30,000
20,000
10,000
33.33%
20X9 Sale:
Sales
COGS
Gross Profit
Gross Profit %
Total
= Re-sold +
240,000
170,000
160,000
113,333
80,000
56,667
Ending
Inventory
150,000
100,000
50,000
33.33%
Investment in Level Brothers

NCI in NA of Level Brothers
Cost of goods sold
Reversal of 20X8 gross profit deferral
Sales
Cost of Goods Sold
Inventory
Eliminate 20X9 intercompany sale of inventory.
b.
Reported net income of Level Brothers

Unrealized profit, December 31, 20X8
Realized net income
Noncontrolling interest's share of ownership
7,500
2,500
240,000
20X8
$350,000
(10,000)
$340,000
x
0.25
$ 85,000
10,000
190,000
50,000
20X9
$420,000
10,000
(50,000)
$380,000
x
0.25
$ 95,000
259
P6-18 Consolidated Income Statement Data
a.
$180,000 = $550,000 + $450,000 - $820,000
b.
January 1, 20X2: $25,000 = $75,000 - $50,000

December 31, 20X2: $15,000 = $180,000 + $210,000 - $375,000
c.
Investment in Bitner
NCI in NA of Bitner
Cost of Goods Sold
Eliminate beginning inventory profit.
Sales
Cost of Goods Sold
Inventory
d.
Reported net income of Bitner Company

Prior-period profit realized in 20X2
Unrealized profit on 20X2 sales
Realized income
Proportion held by noncontrolling interest
15,000
10,000
180,000
25,000
165,000
15,000
$ 90,000
25,000
(15,000)
$100,000
x
0.40
$ 40,000
260
P6-19 Unrealized Profit on Upstream Sales

20X2
Sales
COGS
Gross Profit
Gross Profit %
Ending
Total
200,000
130,000
70,000
160,000
104,000
56,000
40,000
26,000
14,000
20.00%
20X3
Sales
COGS
Gross Profit
Gross Profit %
Total
=
175,000
140,000
35,000
Ending
Re-sold + Inventory
70,000
105,000
56,000
84,000
14,000
21,000
20.00%
20X4
Sales
COGS
Gross Profit
Gross Profit %
Ending
Total
225,000
105,000
120,000
180,000
84,000
96,000
45,000
21,000
24,000
20.00%
Operating income reported by Pacific

Net income reported by Carroll
Inventory profit, December 31, 20X2
$70,000 - ($70,000 / 1.25)
$105,000 - ($105,000 / 1.25)
$120,000 - ($120,000 / 1.25)
Income to noncontrolling interest:
($100,000 - $14,000) x 0.40
($90,000 + $14,000 - $21,000) x 0.40
($160,000 + $21,000 - $24,000) x 0.40
20X2
20X3
20X4
$150,000
100,000
$250,000
$240,000
90,000
$330,000
$300,000
160,000
$460,000
(14,000)
14,000
$236,000
(34,400)
$201,600
(21,000)
21,000
$323,000
(24,000)
$457,000
(33,200)
$289,800
(62,800)
$394,200
261
P6-20 Net Income of Consolidated Entity

Operating income of Master for 20X5
Net income of Crown for 20X5
$118,000
65,000
$183,000
25,000
40,000
(14,000)
(55,000)
Add:
Prior year profits realized by Master

Prior year profits realized by Crown
Less:
Unrealized profits for 20X5 by Master
Unrealized profits for 20X5 by Crown
Amortization of differential
($45,000 / 15 years)
Consolidated net income, 20X5
Less:
($65,000 + $40,000 - $55,000 - $3,000) x 0.30
(3,000)
$176,000
(14,100)
$161,900
P6-21 Correction of Eliminating Entries

a.
Proportion of intercompany inventory purchases resold during 20X5:

$ 12,000
Intercompany transfer price
$140,000
Cost of inventory sold ($140,000 / 1.40)
(100,000)
Total Profit
40,000
Proportion of intercompany sale held by
Bolger at year end
0.30
Proportion of intercompany purchases resold
by Bolger during 20X5 (1.00 - 0.30)
b.
0.70
Eliminating entries, December 31, 20X5:

Intercompany Transactions
Sales
COGS
Ending
Total
140,000
98,000
42,000
100,000
70,000
30,000
Gross Profit
40,000
Gross Profit %
28.57%
28,000
Accounts Payable
Accounts Receivable
Eliminate intercompany receivable/payable.
Sales
Cost of Goods Sold
Inventory
12,000
80,000
140,000
80,000
128,000
12,000
262
P6-22 Incomplete Data

a.
Increase in fair value of buildings and equipment:

Consolidated total
Balance reported by Lever
Balance reported by Tropic
Increase in value
b.
Accumulated depreciation for consolidated entity:

Accumulated depreciation reported by Lever
Accumulated depreciation reported by Tropic
Cumulative write-off of differential
($5,000 x 6 years)
Accumulated depreciation for consolidated entity
c.
30,000
$320,000
$ 60,000
30,000
$ 90,000
40,000
$130,000
x
0.75
$ 97,500
Investment in Tropic Company stock reported at December 31, 20X6:

Tropic's common stock outstanding December 31, 20X6
Tropic's retained earnings reported December 31, 20X6
Total book value
Proportion of ownership held by Lever
Lever's share of net book value
Unamortized differential ($5,000 x 2 years) x 0.75
20X6 Gross Profit Deferral on Downstream Sale
Investment in Tropic Company stock
e.
$180,000
110,000
Amount paid by Lever to acquire ownership in Tropic:

Retained earnings at acquisition
Total book value at acquisition
Increase in value of buildings and equipment
Proportion of ownership acquired
Amount paid by Lever
d.
$ 680,000
(400,000)
(240,000)
$ 40,000
$ 60,000
112,000
$172,000
x
0.75
$129,000
7,500
(3,000)
$133,500
Intercorporate sales of inventory in 20X6:

Sales reported by Lever
Sales reported by Tropic
Total sales
Sales reported in consolidated income statement
Intercompany sales during 20X6
$420,000
260,000
$680,000
(650,000)
$ 30,000
263
P6-22 (continued)
f.
Unrealized inventory profit, December 31, 20X6:

Inventory reported by Lever
Inventory reported by Tropic
Total inventory
Inventory reported in consolidated balance sheet
Unrealized inventory profit, December 31, 20X6
g.
Eliminating entry to remove the effects of intercompany inventory

sales during 20X6:
Sales
Cost of Goods Sold
Inventory
h.
$125,000
90,000
$215,000
(211,000)
$ 4,000
30,000
Unrealized inventory profit at January 1, 20X6:

Cost of goods sold reported by Lever
Cost of goods sold reported by Tropic
Reduction of cost of goods sold for intercompany
sales during 20X6
Adjusted cost of goods sold
Cost of goods sold reported in consolidated
income statement
Additional adjustment to cost of goods sold
due to unrealized profit in beginning inventory
i.
26,000
4,000
$310,000
170,000
(26,000)
$454,000
(445,000)
$ 9,000
Accounts receivable reported by Lever at December 31, 20X6:

Accounts receivable reported for consolidated entity
Accounts receivable reported by Tropic
Difference
Adjustment for intercompany receivable/payable:
Accounts payable reported by Lever
Accounts payable reported by Tropic
Total reported accounts payable
Accounts payable reported for consolidated
entity
Adjustment for intercompany receivable/payable
Accounts receivable reported by Lever
$145,000
(55,000)
$ 90,000
$ 86,000
20,000
$106,000
(89,000)
17,000
$107,000
264
P6-23 Eliminations for Upstream Sales

a.
Equity Method Entries on Clean Air's Books:
Investment in Special Filter
32,000
Income from Special Filter
32,000
Record Clean Air's 80% share of Special Filter's 20X8 income

16,000
16,000
Reverse of the deferred gross profit from upstream sales in 20X7

12,000
12,000

NCI
20%
Original book value
Clean Air
80%
62,000
248,000
8,000
32,000
70,000
280,000
+ Net Income
Ending book value
Common
Stock
90,000
Retained
Earnings
220,000
40,000
90,000
260,000
Total
Downstream Reversal
Upstream Reversal
Total
Clean
Air's
share
20,000
16,000
NCI's share
4,000
(15,000)
(12,000)
(3,000)
5,000
4,000
1,000
Basic elimination entry:

Common stock
Retained earnings
NCI in NI of Special Filter
NCI in NA of Special Filter
90,000
220,000
Beginning balance in RE
36,000
Parents % of NI - Def. GP + Reversal
9,000
NCI share of NI - Def. GP + Reversal
284,000
71,000
Net book value - Def. GP + Reversal

NCI share of BV - Def. GP + Reversal
265
P6-23 (continued)
20X8
Beg.
Inventory
Sales
60,000
COGS
40,000
Gross Profit
20,000
Gross Profit %
33.33%

Total
Re-sold
Ending
Inventory
Sales
150,000
105,000
45,000
COGS
100,000
70,000
30,000
50,000
35,000
15,000
Gross Profit
Gross Profit %
33.33%
Reversal of last year's deferral:

NCI in NA of Special Filter
16,000
4,000
Cost of Goods Sold
20,000

Sales
Cost of Goods Sold
Inventory
150,000
135,000
15,000
266
P6-23 (continued)
b.
Computation of consolidated net income and income assigned

to controlling interest:
Operating income reported by Clean Air Products
($250,000 - $175,000 - $30,000)
Net income of Superior Filter
($200,000 - $140,000 - $20,000)
Inventory profit realized from 20X7
Unrealized inventory profit for 20X8
($40,000 + $20,000 - $15,000) x 0.20
c.
$ 45,000
40,000
$ 85,000
20,000
(15,000)
$ 90,000
(9,000)
$ 81,000
Noncontrolling interest, December 31, 20X8:

Common stock
Retained earnings ($220,000 + $40,000)
Less: Unrealized inventory profit
Proportion of stock held by noncontrolling interest
Noncontrolling interest
$ 90,000
260,000
(15,000)
$335,000
x
0.20
$ 67,000
267
P6-24 Multiple Inventory Transfers

a.
b.
c.

Operating income of Ajax Corporation
($35,000 - $15,000) x ($7,000 / $35,000)
$80,000
Net income of Beta Corporation

Profit realized from 20X7
($30,000 - $24,000) x ($10,000 / $30,000)
($72,000 - $63,000) x ($12,000 / $72,000)
$37,500
Net income of Cole Corporation

Profit realized from 20X7
($72,000 - $60,000) x ($18,000 / $72,000)
($45,000 - $27,000) x ($15,000 / $45,000)
$20,000
(4,000)
$ 76,000
2,000
(1,500)
38,000
3,000
(6,000)
17,000
$131,000
Inventory balance, December 31, 20X8:

Balance per Beta Corporation
Less: Unrealized profit
$ 7,000
(4,000)
$ 3,000
Balance per Cole Corporation

$12,000
(1,500)
10,500
Balance per Ajax Corporation

Inventory balance per consolidated statement
$15,000
(6,000)
9,000
$22,500
Income assigned to noncontrolling interest in 20X8:

Realized income of Beta Corporation
$38,000
Realized income of Cole Corporation

$17,000
0.30
0.10
$11,400
1,700
$13,100
268
P6-25
Consolidation with Inventory Transfers and Other Comprehensive Income

Sales
COGS
Gross Profit
Gross Profit %
Total
108,000
90,000
18,000
16.67%
Re-sold
60,000
50,000
10,000
Re-sold
27,000
18,000
9,000
Re-sold
24,000
20,000
4,000
Re-sold
6,000
4,000
2,000
Ending
Inventory
48,000
40,000
8,000

Sales
COGS
Gross Profit
Gross Profit %
Total
45,000
30,000
15,000
33.33%
Ending
Inventory
18,000
12,000
6,000

Sales
COGS
Gross Profit
Gross Profit %
Total
36,000
30,000
6,000
16.67%
Ending
Inventory
12,000
10,000
2,000

Sales
COGS
Gross Profit
Gross Profit %
Beg. Balance
90% Net Income
20X4 Reversal
Ending Balance
Reversal
Total
48,000
32,000
16,000
33.33%
Investment in
Tall Corp.
1,246,600
81,000
54,000
18,000
13,400
1,290,400
13,400
0
14,600
1,285,800
18,000
Ending
Inventory
42,000
28,000
14,000
Income from
Tall Corp.
90% Dividends
90% of OCI
Gain
Deferred GP
Basic
OCI Entry
14,600
81,000
90% Net Income
13,400
79,800
20X4 Reversal
Ending Balance
79,800
0
269
P6-25 (continued)
a.
Balance in investment account at December 31, 20X5:

Proportionate share of Tall's net assets,
January 1 ([$1,400,000 x .90] 8,000 [6,000 x 0.90])
Proportionate share of 20X5 net income
($90,000 x 0.90)
Proportionate share of other comprehensive
income for 20X5 ($20,000 x 0.90)
Proportionate share of dividends received
($60,000 x 0.90)
Reversal of deferred gain from 20X4 downstream transaction
Reversal of deferred gain from 20X4 upstream transaction
($6,000 x .090)
Deferred gain from downstream transaction
Proportionate share of deferred gain from upstream
transaction ($14,000 x 0.90)
Balance in investment account December 31, 20X5
b.
81,000
18,000
(54,000)
8,000
5,400
(2,000)
(12,600)
$1,290,400
Investment income for 20X5:

Net income reported by Tall
Proportion of ownership held by Priority
Prioritys share of reported income from Tall
Reversal of deferred gain from 20X4 downstream transaction
Reversal of deferred gain from 20X4 upstream transaction
($6,000 x 0.90)
Deferred gain from downstream transaction
Proportionate share of deferred gain from upstream
transaction ($14,000 x 0.90)
Investment income for 20X5
c.
$1,246,600
$90,000
x 0.90
81,000
8,000
5,400
(2,000)
(12,600)
$79,800
Income to noncontrolling interests for 20X5:

Net income reported by Tall
20X4 inventory profits realized in 20X5
($15,000 x 0.40)
20X5 unrealized inventory profits
$30,000 - [$30,000 x ($48,000 / $90,000)]
Realized net income
Proportion of ownership held by noncontrolling interest
$90,000
6,000
(14,000)
$82,000
x 0.10
$ 8,200
270
P6-25 (continued)
d.
Balance assigned to noncontrolling interest in consolidated balance sheet:

Net assets reported by Tall, January 1
Net income for 20X5
Net assets reported, December 31, 20X5
Unrealized inventory profits at
December 31, 20X5
Other comprehensive income in 20X5
Adjusted net assets, December 31, 20X5
Proportion of ownership held by noncontrolling
interest
Net assets assigned to noncontrolling interest
e.
f.
$1,400,000
90,000
(60,000)
$1,430,000
(14,000)
20,000
$1,436,000
x
0.10
$ 143,600
Inventory reported in consolidated balance sheet:

Inventory held by Priority
$120,000
(14,000)
Inventory held by Tall

$6,000 - [$6,000 x ($24,000 / $36,000)]
Inventory
$100,000
(2,000)
98,000
$204,000

Operating income of Priority
Net income of Tall
Total unadjusted income
20X4 inventory profits realized in 20X5
($6,000 + $8,000)
Unrealized inventory profits on 20X5 sales
($14,000 + $2,000)
g.
$106,000
$240,000
90,000
$330,000
14,000
(16,000)
$328,000
Eliminating entries, December 31, 20X5
Original book value

+ Net Income
- Dividends
Ending book value
NCI
10%
140,000
9,000
(6,000)
143,000
Priority
Corp.
90%
1,260,000
81,000
(54,000)
1,287,000
Comm.
Stock
400,000
400,000
Add.
Paid-In
Capital
200,000
200,000
Retained
Earnings
790,000
90,000
(60,000)
820,000
Acc.
OCI
10,000
10,000
271
272
P6-25 (continued)
Total
Downstream Reversal
Upstream Reversal
Total
8,000
6,000
(2,000)
(14,000)
(2,000)
Priority
Corp.'s
share
8,000
5,400
(2,000)
(12,600)
(1,200)
NCI's
share
600
(1,400)
(800)

Common stock
400,000
200,000
Beginning balance in APIC
Retained earnings
790,000
Accumulated OCI
10,000
Beginning balance in Acc. OCI
Income from Tall Corp.
79,800
PC.s % of NI - Def. GP + Reversal
NCI in NI of Tall Corp.
8,200
Investment in Tall Corp.
1,285,800
NCI in NA of Tall Corp.
142,200


OCI from Tall Corp.
OCI to the NCI
18,000
2,000
18,000
2,000

13,400
600
Cost of Goods Sold
14,000

Sales
Cost of Goods Sold
Inventory
126,000
110,000
16,000
273
P6-26 Multiple Inventory Transfers between Parent and Subsidiary

20X5 Downstream
Total
= Re-sold +
150,000
90,000
100,000
60,000
50,000
30,000
33.33%
Sales
COGS
Gross Profit
Gross Profit %
Ending
Inventory,
20X5
60,000
40,000
20,000
20X5 Upstream
Sales
COGS
Gross Profit
Gross Profit %
Total
= Re-sold +
100,000
30,000
70,000
21,000
30,000
9,000
30.00%
Sales
COGS
Gross Profit
Gross Profit %
Beg
Inventory,
20X6
= Re-sold +
70,000
50,000
49,000
35,000
21,000
15,000
30.00%
Ending
Inventory,
20X5
70,000
49,000
21,000
Ending
Inventory,
20X6
20,000
14,000
6,000
20X6 Downstream
Sales
COGS
Gross Profit
Gross Profit %
Total
= Re-sold +
60,000
54,000
40,000
36,000
20,000
18,000
33.33%
Ending
Inventory,
20X6
6,000
4,000
2,000
20X6 Upstream
Sales
COGS
Gross Profit
Gross Profit %
Total
= Re-sold +
240,000
60,000
200,000
50,000
40,000
10,000
16.67%
Ending
Inventory,
20X6
180,000
150,000
30,000
274
a.
b.
Eliminating entries:
Investment in Slinky
20,000
Cost of goods sold
Eliminate beginning inventory profit of Proud Company.
20,000
Investment in Slinky
12,600
NCI in NA of Slinky
8,400
Cost of goods sold
Inventory
Eliminate beginning inventory profit of Slinky Company.
15,000
6,000
Sales
60,000
Cost of goods sold
Inventory
Eliminate intercompany sale of inventory by Proud Company.
58,000
2,000
Sales
240,000
Cost of goods sold
Inventory
Eliminate intercompany sale of inventory by Slinky Company.
210,000
30,000
Computation of cost of goods sold for consolidated entity:

Inventory produced by Proud in 20X5
($100,000 x 0.40)
Inventory produced by Slinky in 20X5
($70,000 x 0.50)
Inventory produced by Proud in 20X6
($40,000 x 0.90)
Inventory produced by Slinky in 20X6
($200,000 x 0.25)
Cost of goods sold reported in
consolidated income statement
$ 40,000
35,000
36,000
50,000
$161,000
275
P6-27 Consolidation following Inventory Transactions

a.
Equity Method Entries on Bell Co.'s Books:
Investment in Troll Corp.
18,000
Income from Troll Corp.
Record Bell Co.'s 60% share of Troll Corp.'s 20X2 income
18,000
Cash
6,000
Record Bell Co.'s 60% share of Troll Corp.'s 20X2 dividend
6,000

6,500
6,500

2,040
2,040

2,520
2,520
b.
NCI
40%
Bell Co.
60%
Common
Stock
100,000
Retained
Earnings
Original book value
60,000
90,000
+ Net Income
12,000
18,000
30,000
- Dividends
(4,000)
(6,000)
(10,000)
Ending book value
68,000
102,000
100,000
50,000
70,000
Total
Downstream Reversal
Bell Co.'s
share
NCI's share
3,400
2,040
(6,500)
(6,500)
(4,200)
(2,520)
(1,680)
Total
(7,300)
(6,980)
(320)
Upstream Reversal
1,360
276
P6-27 (continued)
Common stock
100,000
Retained earnings
50,000
11,020
Bells % of NI - Def. GP + Reversal
NCI in NI of Troll Corp.
11,680
Dividends declared
10,000
100% of Troll Corp.'s dividends
95,020
NCI in NA of Troll Corp.
67,680

NCI
Bell Co.
40%
+
60%
Beginning balance
Land
7,200
10,800
18,000
7,200
10,800
18,000
Changes
Ending balance

Land
18,000
10,800
7,200

45,000
45,000

2,040
1,360
Cost of Goods Sold
3,400

Sales
63,000
Cost of Goods Sold
52,300
Inventory
10,700
277
P6-27 (continued)
20X2 Downstream
Transactions
Total
Re-sold
Ending
Inventory
Sales
28,000
15,000
13,000
COGS
14,000
7,500
6,500
Gross Profit
14,000
7,500
6,500
Gross Profit %
50.00%

Total
Re-sold
Ending
Inventory
Sales
42,500
34,000
8,500
COGS
25,500
20,400
5,100
Gross Profit
17,000
13,600
3,400
Gross Profit %
40.00%

Total
Re-sold
Ending
Inventory
Sales
35,000
24,500
10,500
COGS
21,000
14,700
6,300
Gross Profit
14,000
9,800
4,200
Gross Profit %
40.00%
Investment in
Troll Corp.
Beginning
Balance
60% Net Income
20X1 Reversal
Ending Balance
Reversal
Income from
Troll Corp.
98,760
18,000
2,040
103,780
2,040
0
6,000
9,020
60% Dividends
Deferred GP
95,020
10,800
Basic
Excess Reclass.
9,020
18,000
60% Net Income
2,040
11,020
20X1 Reversal
Ending Balance
11,020
0
278
P6-27 (continued)
c.
Bell Co.
Income Statement
Sales
Less: COGS
Troll
Corp.
Elimination Entries
DR
CR
200,000
(99,800)
120,000
(61,000)
(25,000)
(6,000)
11,020
80,220
(15,000)
(14,000)
30,000
11,020
74,020
11,680
55,700
80,220
30,000
85,700
55,700
80,220
227,960
80,220
(40,000)
268,180
50,000
30,000
(10,000)
70,000
50,000
85,700
55,700
10,000
65,700
227,960
80,220
(40,000)
268,180
69,400
60,000
40,000
520,000
(175,000)
103,780
51,200
55,000
30,000
350,000
(75,000)
Total Assets
618,180
411,200
Accounts Payable
Bonds Payable
Bonds Premium
Common Stock
Retained Earnings
68,800
80,000
1,200
200,000
268,180
41,200
200,000
100,000
70,000
100,000
135,700
1,360
618,180
411,200
237,060

NCI in Net Income
Income
Beginning Balance
Net Income
Ending Balance
Balance Sheet
Cash and Accounts Receivable
Inventory
Land
63,000
Consolidated
52,300
3,400
135,700
10,700
18,000
45,000
45,000
2,040
65,040
95,020
10,800
161,520
65,700
67,680
7,200
140,580
257,000
(105,100)
(40,000)
(20,000)
0
91,900
(11,680)
120,600
104,300
88,000
825,000
(205,000)
0
932,900
110,000
280,000
1,200
200,000
268,180
73,520
932,900
279
P6-28 Consolidation Worksheet

a.
Equity Method Entries on Crow Corp.'s Books:
Investment in West Co.
14,000
Income from West Co.
14,000
Record Crow Corp.'s 70% share of West Co.'s 20X9 income

Cash
3,500
3,500
Record Crow Corp.'s 70% share of West Co.'s 20X9 dividend

15,000
15,000
Reverse of the deferred gross profit from downstream sales in 20X8

8,000
8,000

21,000
21,000

17,500
17,500

NCI
30%
Original book
value
+ Net Income
- Dividends
Ending book value
120,000
6,000
(1,500)
124,500
Crow
Corp.
70%
280,000
14,000
(3,500)
290,500
Common
Stock
150,000
150,000
Retained
Earnings
250,000
20,000
(5,000)
265,000
280
P6-28 (continued)
Downstream Reversal
Upstream Reversal
Total
Total
15,000
30,000
(8,000)
(25,000)
12,000

Common stock
Retained earnings
NCI in NI of West Co.
Dividends declared
NCI in NA of West Co.
Crow
Corp.'s
share
15,000
21,000
(8,000)
(17,500)
10,500
NCI's share
150,000
250,000
24,500
7,500
5,000
301,000
126,000

NCI
Crow Corp.
30%
+
70%
Beginning
balance
10,800
25,200
Changes
0
0
Ending balance
10,800
25,200
Land
14,000
0
14,000

Land
14,000
Goodwill
22,000
25,200
10,800

Cost of Goods Sold
45,000
9,000
(7,500)
1,500

Crows % of NI - Def. GP + Reversal
100% of West Co.'s dividends
Goodwill
22,000
0
22,000
36,000
9,000

Sales
152,000
Cost of Goods Sold
119,000
Inventory
33,000
281
P6-28 (continued)
Total
Re-sold
Ending
Inventory
Sales
90,000
70,000
20,000
COGS
54,000
42,000
12,000
Gross Profit
36,000
28,000
8,000
Gross Profit %
40.00%

Total
Re-sold
Ending
Inventory
Sales
62,000
62,000
COGS
37,000
37,000
Gross Profit
25,000
25,000
Gross Profit %
40.32%
Investment in
Income from
West Co.
West Co.
Beginning
Balance
269,200
70% Net Income
14,000
20X8 Reversal
36,000
Ending Balance
290,200
Reversal
36,000
0
3,500
70% Dividends
25,500
Deferred GP
301,000
Basic
25,200
Excess Reclass.
25,500
14,000
70% Net Income
36,000
20X8 Reversal
24,500
Ending Balance
24,500
0
282
P6-28 (continued)
b.
Crow
Corp.
West Co.
300,000
(200,000)
200,000
(150,000)
(40,000)
24,500
84,500
(30,000)
84,500
20,000

Beginning Balance
Net Income
Ending Balance
532,000
84,500
(35,000)
581,500
250,000
20,000
(5,000)
265,000
Balance Sheet
Cash and Receivable
Inventory
Land, Buildings, and Equipment (net)
81,300
200,000
270,000
290,200
85,000
110,000
250,000
Goodwill
Total Assets
841,500
445,000
Accounts Payable
Common Stock
Retained Earnings
60,000
200,000
581,500
30,000
150,000
265,000
841,500
445,000
Income Statement
Sales
Less: COGS
NCI in Net Income
c.
20,000
Retained earnings reconciliation, December 31, 20X9:

Retained earnings, Crow Corporation
Retained earnings, West Company
Elimination of Wests beginning RE
Elimination debits in income statement
Elimination credits in income statement
Remove Wests dividends
Consolidated retained earnings
Elimination Entries
DR
CR
152,000
119,000
45,000
24,500
176,500
7,500
184,000
250,000
184,000
434,000
22,000
72,000
150,000
434,000
9,000
593,000
348,000
(186,000)
164,000
(70,000)
0
92,000
(7,500)
84,500
164,000
5,000
169,000
532,000
84,500
(35,000)
581,500
164,000
33,000
14,000
36,000
Consolidated
301,000
25,200
359,200
169,000
126,000
10,800
305,800
166,300
277,000
534,000
0
22,000
999,300
90,000
200,000
581,500
127,800
999,300
$581,500
265,000
(250,000)
(184,000)
164,000
5,000
$581,500
283
P6-29 Computation of Consolidated Totals

a.
Consolidated sales for 20X8:

Sales reported
Intercorporate sales
Sales to nonaffiliates
b.
Bunker
Corp.
$660,000
(140,000)
$520,000
Harrison
Co.
$510,000
(240,000)
$270,000
$660,000
1.4
$471,429
$510,000
1.2
$425,000
(128,000)
$343,429
(232,000)
$193,000
Consolidated
$790,000
Consolidated cost of goods sold:

Total sales reported
Ratio of cost to sales price
Cost of goods sold
Amount to be eliminated
(see entry)
Cost of goods sold adjusted
$536,429
Downstream:
Sales
COGS
Gross Profit
Gross Profit %
Ending
Total
140,000
98,000
42,000
100,000
70,000
30,000
40,000
28,000
12,000
28.57%
Upstream:
Sales
COGS
Gross Profit
Gross Profit %
Ending
Total
240,000
192,000
48,000
200,000
160,000
40,000
40,000
32,000
8,000
16.67%
Sales
Cost of Goods Sold
Inventory
Elimination of sales by Bunker to Harrison:
140,000
Sales
Cost of Goods Sold
Inventory
Elimination of sales by Harrison to Bunker:
240,000
128,000
12,000
232,000
8,000
284
P6-29 (continued)
c.
Operating income of Bunker Corporation (excluding

income from Harrison Company)
Net income of Harrison Company
$70,000
20,000
$90,000
(12,000)
(8,000)
$70,000
Less: Unrealized inventory profits of Bunker

Unrealized inventory profits of Harrison
Less: Income assigned to noncontrolling interest
($20,000 - $8,000) x 0.20
Income to controlling interest 20X8
d.
(2,400)
$67,600
Inventory balance in consolidated balance sheet:

Inventory reported by Bunker Corporation
Unrealized profits
$48,000
(8,000)
Inventory reported by Harrison Company

Unrealized profits
Inventory balance, December 31, 20X8
$42,000
(12,000)
$40,000
30,000
$70,000
285
P6-30 Intercompany Transfer of Inventory and Land

a.
Equity Method Entries on Pine Corp.'s Books:
Investment in Bock Co.
17,500
Income from Bock Co.
Record Pine Corp.'s 70% share of Bock Co.'s 20X3 income
17,500
Cash
10,500
Record Pine Corp.'s 70% share of Bock Co.'s 20X3 dividend
10,500

6,300
6,300

3,800
3,800
6,300
6,300
5,600
NCI
30%
Original book value
39,000
+ Net Income
7,500
- Dividends
(4,500)
Ending book value
42,000
Pine Corp.
70%
91,000
17,500
(10,500)
98,000
5,600
Common
Stock
70,000
70,000
Retained
Earnings
60,000
25,000
(15,000)
70,000
Upstream Reversal
Total
Total
9,000
(3,800)
(8,000)
(2,800)
Pine
Corp.'s
share
6,300
(3,800)
(5,600)
(3,100)
NCI's share
2,700
(2,400)
300
286
P6-30 (continued)
Common stock
70,000
Retained earnings
60,000
14,400
Pines % of NI - Def. GP + Reversal
NCI in NI of Bock Co.
7,800
Dividends declared
15,000
100% of Bock Co.'s dividends
94,900
NCI in NA of Bock Co.
42,300

NCI
Pine Corp.
30%
+
70%
Beginning
balance
13,800
32,200
Changes
(2,700)
(6,300)
Ending balance
11,100
25,900
Buildings and
Equipment
20,000
20,000
Patents
Acc.
Depr.
28,000
(2,000)
(7,000)
(2,000)
21,000
(4,000)

Amortization expense
7,000
2,000
6,300
NCI in NI of Bock Co.
2,700

20,000
Patents
21,000
4,000
25,900
11,100
Optional accumulated depreciation elimination entry:

50,000
50,000

6,300
2,700
Cost of Goods Sold
9,000
287
P6-30 (continued)
4,900
2,100
Inventory
7,000
Sales
120,000
Cost of Goods Sold
108,200
Inventory
11,800
20X3 Downstream Transactions:
Sales
COGS
Gross Profit
Gross Profit %
Total
30,000
15,000
15,000
50.00%
Re-sold
22,400
11,200
11,200
Ending Inventory,
20X2
48,000
32,000
16,000
33.33%
Re-sold,
20X3
27,000
18,000
9,000
Ending
Inventory
7,600
3,800
3,800
20X2 Upstream Transactions:
Sales
COGS
Gross Profit
Gross Profit %
Ending
Inventory,
20X3
21,000
14,000
7,000

Ending
Total
=
Re-sold
+ Inventory
Sales
90,000
66,000
24,000
COGS
60,000
44,000
16,000
Gross Profit
30,000
22,000
8,000
Gross Profit %
33.33%
Investment in
Income from
Bock Co.
Bock Co.
Beg. Balance 112,000
70% Net Income 17,500
17,500
70% Net Income
10,500
70% Dividends
6,300
Excess Val. Amort. 6,300
20X2 Reversal 6,300
9,400
Deferred GP
9,400
6,300
20X2 Reversal
Ending Balance 109,600
8,100
Ending Balance
Reversal 6,300
94,900
Basic
14,400
20X2 Deferred
GP
4,900
25,900
Excess Reclass.
6,300
0
0
288
P6-30 (continued)
b.
Income Statement
Sales
Other Income
Less: COGS
Less: Amortization Expense
NCI in Net Income
Pine
Corp.
Bock
Co.
260,000
13,600
(186,000)
125,000
(79,800)
(20,000)
(16,000)
(15,000)
(5,200)
8,100
59,700
25,000
59,700
25,000

Beginning Balance
Net Income
Ending Balance
127,900
59,700
(30,000)
157,600
60,000
25,000
(15,000)
70,000
Balance Sheet
Inventory
15,400
165,000
21,600
35,000
80,000
340,000
(140,000)
109,600
40,000
260,000
(80,000)
570,000
276,600
Accounts Payable
Bonds Payable
Bonds Premium
Common Stock
Retained Earnings
92,400
200,000
120,000
157,600
35,000
100,000
1,600
70,000
70,000
570,000
276,600
Land
Patents
Total Assets
Elimination Entries
DR
CR
120,000
108,200
9,000
2,000
7,000
14,400
143,400
7,800
151,200
60,000
151,200
211,200
70,000
211,200
2,700
2,100
286,000
265,000
13,600
(148,600)
6,300
123,500
2,700
126,200
(37,000)
(21,200)
(7,000)
0
64,800
(5,100)
59,700
126,200
15,000
141,200
127,900
59,700
(30,000)
157,600
11,800
7,000
20,000
50,000
6,300
4,900
21,000
102,200
Consolidated
50,000
4,000
94,900
25,900
193,600
141,200
42,300
11,100
194,600
37,000
181,200
120,000
570,000
(174,000)
0
21,000
755,200
127,400
300,000
1,600
120,000
157,600
48,600
755,200
289
P7-30 (continued)
Note: Financial statements are not required.
Pine Corporation and Subsidiary
December 31, 20X3
Inventory
Land
Patent
Total Assets
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
$570,000
(174,000)
$300,000
1,600
$120,000
157,600
$277,600
48,600
$ 37,000
181,200
120,000
396,000
21,000
$755,200
$127,400
301,600
326,200
$755,200

Sales
Other Income
Total Income
Cost of Goods Sold
Interest Expense
Amortization Expense
Total Expenses
$148,600
37,000
21,200
7,000
$265,000
13,600
$278,600
(213,800)
$ 64,800
(5,100)
$ 59,700

$127,900
59,700
$187,600
(30,000)
$157,600
290
P6-31 Consolidation Using Financial Statement Data

a.
Equity Method Entries on Bower Corp.'s Books:
Investment in Concerto Co.
21,000
Income from Concerto Co.
Record Bower Corp.'s 60% share of Concerto Co.'s 20X6 income
21,000
Cash
12,000
Record Bower Corp.'s 60% share of Concerto Co.'s 20X6 dividend
12,000

6,000
6,000

4,000
4,000

2,000
2,000

4,800
4,800

5,400
5,400

NCI
40%
Bower
Corp.
60%
Original book value
80,000
120,000
+ Net Income
14,000
21,000
- Dividends
(8,000)
(12,000)
Ending book value
86,000
129,000
Common
Stock
50,000
Retained
Earnings
150,000
35,000
(20,000)
50,000
165,000
291
P6-31 (continued)
Downstream Reversal
Upstream Reversal
Total
Common stock
Retained earnings
NCI in NI of Concerto Co.
Dividends declared
NCI in NA of Concerto Co.
Total
4,000
8,000
(2,000)
(9,000)
1,000
Bower
Corp.'s
share
4,000
4,800
(2,000)
(5,400)
1,400
NCI's share
3,200
(3,600)
(400)
50,000
150,000
22,400
13,600
20,000
130,400
85,600

NCI
Bower Corp.
40%
+
60%
Beginning balance
16,000
24,000
Changes
(4,000)
(6,000)
Ending balance
12,000
18,000

Bowers % of NI - Def. GP + Reversal
100% of Concerto Co.'s dividends
Goodwill
40,000
(10,000)
30,000

10,000
NCI in NI of Concerto Co.
6,000
4,000

Goodwill
30,000
18,000
12,000

25,000
25,000
292
P6-31 (continued)
8,800
3,200
Cost of Goods Sold
12,000

Sales
112,000
Cost of Goods Sold
101,000
Inventory
11,000
Sales
COGS
Gross Profit
Gross Profit %
Ending Inv.,
20X5
14,000
10,000
4,000
28.57%

Sales
COGS
Gross Profit
Gross Profit %
Total
22,000
15,714
6,286
28.57%
Re-sold
15,000
10,714
4,286
Re-sold
36,000
30,000
6,000
Ending
Inventory
7,000
5,000
2,000
Sales
COGS
Gross Profit
Gross Profit %
Ending Inv.,
20X5
48,000
40,000
8,000
16.67%

Sales
COGS
Gross Profit
Gross Profit %
P6-31 (continued)
Total
90,000
75,000
15,000
16.67%
Ending
Inventory
54,000
45,000
9,000
Investment in
Income from
Concerto Co.
Concerto Co.
293
P6-31 (continued)
Beg. Balance
60% Net Income
20X5 Reversal
Ending Balance
Reversal
135,200
21,000
8,800
12,000
60% Dividends
6,000
Excess Val. Amort.
6,000
7,400
Deferred GP
7,400
139,600
8,800
130,400
18,000
Basic
21,000
60% Net Income
8,800
20X5 Reversal
16,400
Ending Balance
22,400
Excess Reclass.
6,000
b.
Income Statement
Sales
Less: COGS
Less: Depreciation & Amort. Expense
Less: Goodwill Impairment Loss
NCI in Net Income
Bower
Corp.
Concerto
Co.
400,000
(280,000)
200,000
(120,000)
(25,000)
(35,000)
(15,000)
(30,000)
16,400
76,400
35,000
76,400
35,000
285,000
76,400
(50,000)
311,400
150,000
35,000
(20,000)
165,000
26,800
80,000
120,000
70,000
340,000
(165,000)
139,600
35,000
40,000
90,000
20,000
200,000
(85,000)
611,400
300,000
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
80,000
120,000
100,000
311,400
15,000
70,000
50,000
165,000
611,400
300,000

Beginning Balance
Net Income
Ending Balance
Balance Sheet
Cash
Accounts Receivable
Inventory
Land
Goodwill
Total Assets
Elimination Entries
DR
CR
112,000
12,000
101,000
10,000
22,400
144,400
13,600
158,000
150,000
158,000
308,000
6,000
119,000
4,000
123,000
123,000
20,000
143,000
285,000
76,400
(50,000)
311,400
25,000
30,000
63,800
50,000
308,000
3,200
361,200
488,000
(287,000)
(40,000)
(65,000)
(10,000)
0
86,000
(9,600)
76,400
11,000
25,000
8,800
Consolidated
130,400
18,000
184,400
143,000
85,600
12,000
240,600
61,800
120,000
199,000
90,000
515,000
(225,000)
0
30,000
790,800
95,000
190,000
100,000
311,400
94,400
790,800
294
P6-32 Intercorporate Transfers of Inventory and Equipment

a.
Consolidated cost of goods sold for 20X9:

Amount reported by Foster Company
Amount reported by Block Corporation
Adjustment for unrealized profit in
beginning inventory sold in 20X9
Adjustment for inventory purchased from
subsidiary and resold during 20X9:
CGS recorded by Foster ($30,000 x 0.60)
CGS recorded by Block
Total recorded
CGS based on Block's cost ($20,000 x 0.60)
Required adjustment
Cost of goods sold
b.
(15,000)
$18,000
20,000
$38,000
(12,000)
(26,000)
$822,000
Consolidated inventory balance:

Amount reported by Foster
Amount reported by Block
Total inventory reported
Unrealized profit in ending inventory held by
Foster [($30,000 - $20,000) x 0.40]
Consolidated balance
c.
$593,000
270,000
$137,000
130,000
$267,000
(4,000)
$263,000
Income assigned to noncontrolling interest:

Net income reported by Block Corporation
Adjustment for realization of profit on inventory
sold to Foster in 20X8
Adjustment for unrealized profit on inventory sold
to Foster in 20X9
Realized net income of Block for 20X9
Proportion of ownership held by noncontrolling interest
$70,000
15,000
(4,000)
$81,000
x 0.10
$ 8,100
295
P6-32 (continued)
d.
Amount assigned to noncontrolling interest in consolidated balance

sheet:
Block Corporation common stock outstanding
Block Corporation retained earnings, January 1, 20X9
Net income for 20X9
Book value, December 31, 20X9
Adjustment for unrealized profit on inventory
sold to Foster
Realized book value of Block Corporation
Proportion of ownership held by noncontrolling
interest
Balance assigned to noncontrolling interest
e.
$ 50,000
165,000
70,000
(20,000)
$265,000
(4,000)
$261,000
x
0.10
$ 26,100
Consolidated retained earnings at December 31, 20X9:

Balance reported by Foster Company, January 1, 20X9
Net income for 20X9
Balance reported by Foster Company, December 31, 20X9
f.
$235,000
180,900
(40,000)
$375,900

NCI
10%
Original book value
+ Foster Co.
90%
Comm
on
Stock
Retained
Earnings
21,500
193,500
7,000
63,000
70,000
- Dividends
(2,000)
(18,000)
(20,000)
Ending book value
26,500
238,500
+ Net Income
50,000
50,000
165,000
215,000
296
P6-32 (continued)
Downstream Reversal
Upstream Reversal
Total
Total
0
15,000
0
(4,000)
11,000

Common stock
Retained earnings
Income from Block Corp.
NCI in NI of Block Corp.
Dividends declared
Investment in Block Corp.
NCI in NA of Block Corp.
Cost of Goods Sold
Foster
Co.'s
share
0
13,500
0
(3,600)
9,900
NCI's share
1,500
(400)
1,100
50,000
165,000
72,900
8,100
20,000
248,400
27,600

Fosters % of NI - Def. GP + Reversal
100% of Block Corp.'s dividends
13,500
1,500
15,000

Sales
30,000
Cost of Goods Sold
26,000
Inventory
4,000
Sales
COGS
Gross Profit
Gross Profit %
Ending
Inventory
75,000
60,000
15,000
20.00%

Sales
COGS
Gross Profit
Gross Profit %
Total
30,000
20,000
10,000
33.33%
Re-sold
18,000
12,000
6,000
Ending
Inventory
12,000
8,000
4,000
297
P6-32 (continued)
Beg. Balance
90% Net Income
20X8 Reversal
Ending Balance
Reversal
Investment in
Income from
Block Corp.
Block Corp.
180,000
63,000
13,500
18,000
90% Dividends
3,600
Deferred GP
3,600
234,900
13,500
248,400
Basic
63,000
90% Net Income
13,500
20X8 Reversal
72,900
Ending Balance
72,900
g.
Income Statement
Sales
Other Income
Less: COGS
Income from Block Corp.
NCI in Net Income
Income
Beginning Balance
Net Income
Ending Balance
Balance Sheet
Cash
Accounts Receivable
Other Receivables
Inventory
Land
Total Assets
Accounts Payable
Other Payables
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
Elimination Entries
DR
CR
Foster
Co.
Block
Corp.
815,000
26,000
(593,000)
415,000
15,000
(270,000)
(45,000)
(95,000)
72,900
180,900
(15,000)
(75,000)
70,000
72,900
102,900
8,100
41,000
180,900
70,000
111,000
41,000
180,900
235,000
180,900
(40,000)
375,900
165,000
70,000
(20,000)
215,000
165,000
111,000
41,000
20,000
61,000
235,000
180,900
(40,000)
375,900
187,000
80,000
40,000
137,000
80,000
500,000
(155,000)
234,900
1,103,900
57,400
90,000
10,000
130,000
60,000
250,000
(75,000)
63,000
95,000
250,000
35,000
20,000
200,000
2,400
50,000
210,000
110,000
375,900
1,103,900
522,400
215,000
522,400
30,000
15,000
26,000
276,000
(60,000)
(170,000)
0
189,000
(8,100)
248,400
252,400
61,000
27,600
88,600
98,000
115,000
450,000
2,400
210,000
110,000
375,900
26,100
1,387,400
50,000
276,000
1,500
327,500
1,200,000
41,000
(822,000)
244,400
170,000
50,000
263,000
140,000
750,000
(230,000)
0
1,387,400
4,000
13,500
13,500
Consolidated
298
P6-33 Consolidated Balance Sheet Worksheet [AICPA Adapted]

NCI
10%
80,000
10,100
(100)
90,000
Original book value

+ Net Income
- Dividends
Ending book value
Pine Corp.
90%
720,000
90,900
(900)
810,000
Common
Stock
200,000
Retained
Earnings
600,000
101,000
(1,000)
700,000
200,000
Total
0
0
-3,000
0
(3,000)
Downstream Reversal
Upstream Reversal
Total
Pine
Corp.'s
share
0
0
-3,000
0
(3,000)
NCI's share
0
0
0

Common stock
200,000
Retained earnings
600,000
Income from Slim Corp.
87,900
Pines % of NI - Def. GP + Reversal
NCI in NI of Slim Corp.
10,100
Dividends declared
1,000
Investment in Slim Corp.
807,000
NCI in NA of Slim Corp.
Changes
Ending balance
90,000

NCI
Pine Corp.
10%
+
90%
Beginning balance
100% of Slim Corp.'s dividends
Goodwill
50,000
450,000
500,000
50,000
450,000
500,000

Goodwill
500,000
450,000
50,000
299
P6-33 (continued)
Intercompany Transactions
Dividends Payable
900
Dividends Receivable
900
Accounts Payable
90,000
Accounts Receivable
90,000
Note Payable
100,000
Note Receivable
100,000
Interest Payable
5,000
Interest Receivable
5,000

Sales
300,000
Cost of Goods Sold
297,000
Inventory
3,000
Total
Re-sold
Ending
Inventory
Sales
300,000
285,000
15,000
COGS
240,000
228,000
12,000
60,000
57,000
3,000
Gross Profit
Gross Profit %
20.00%
Investment in
Income from
Slim Corp.
Slim Corp.
Acquisition
Price
1,170,000
90% Net Income
90,900
900
3,000
Ending Balance
90% Net Income
87,900
Ending Balance
90% Dividends
Deferred GP
3,000
807,000
Basic
87,900
450,000
Excess Reclass.
1,257,000
90,900
300
P6-33 (continued)
Pine
Corp.
Slim
Corp.
Balance Sheet
Cash
AR & Other Receivables
105,000
410,000
15,000
120,000
Merchandise Inventory
Plant & Equipment (net)
920,000
1,000,000
1,257,000
670,000
400,000
Goodwill
Total Assets
3,692,000
1,205,000
140,000
305,000
500,000
3,052,000
200,000
700,000
AP & Other Liabilities
Common Stock
Retained Earnings
Elimination Entries
DR
CR
900
90,000
100,000
5,000
3,000
807,000
450,000
500,000
500,000
900
90,000
100,000
5,000
200,000
600,000
87,900
10,100
300,000

3,692,000
1,205,000
1,393,900
1,455,900
Consolidated
120,000
334,100
1,587,000
1,400,000
0
500,000
3,941,100
249,100
1,000
297,000
90,000
50,000
438,000
500,000
3,052,000
140,000
3,941,100
301
P6-34 Comprehensive Worksheet Problem

a.
Equity Method Entries on Randall Corp.'s Books:
Investment in Sharp Co.
320,000
Cash
320,000
Record the initial investment in Sharp Co.

32,000
Income from Sharp Co.
32,000
Record Randall Corp.'s 80% share of Sharp Co.'s 20X7 income

Cash
20,000
20,000
Record Randall Corp.'s 80% share of Sharp Co.'s 20X7 dividend

4,000
4,000

2,000
2,000

3,000
3,000

6,400
6,400

8,000
8,000
302
6-34 (continued)
b.
NCI
20%
Original book value
Randall
Corp.
80%
Common
Stock
Add. Paidin Capital
Retained
Earnings
67,000
268,000
8,000
32,000
40,000
- Dividends
(5,000)
(20,000)
(25,000)
Ending book value
70,000
280,000
+ Net Income
100,000
20,000
100,000
20,000
215,000
230,000
Total
Randall
Corp.'s
share
NCI's share
Downstream Reversal
2,000
2,000
Upstream Reversal
Downstream Deferred
GP
8,000
6,400
(3,000)
(3,000)
(10,000)
(8,000)
(2,000)
(3,000)
(2,600)
(400)
Total
1,600

Common stock
100,000
20,000
Retained earnings
215,000
29,400
NCI in NI of Sharp Co.
Randalls % of NI - Def. GP + Reversal
7,600
Dividends declared
25,000
277,400
NCI in NA of Sharp Co.
69,600

NCI
Randall
20%
+ Corp. 80%
Beginning balance
Changes
Ending balance
7,000
28,000
(1,000)
(4,000)
6,000
24,000
100% of Sharp Co.'s dividends

Buildings &
equipment
50,000
Acc. Depr.
(15,000)
(5,000)
50,000
(20,000)
303
P6-34 (continued)
5,000
4,000
1,000

Buildings & equipment
50,000
20,000
24,000
6,000

Accounts payable
Accounts receivable
10,000
10,000

40,000
Cost of Goods Sold
40,000
8,400
1,600
10,000

Sales
57,000
Cost of Goods Sold
44,000
Inventory
13,000
Sales
COGS
Gross Profit
Gross Profit %
Total
26,000
20,000
6,000
23.08%
Re-sold
17,333
13,333
4,000
Re-sold
Ending
Inventory
8,667
6,667
2,000

Sales
COGS
Gross Profit
Gross Profit %
Total
12,000
9,000
3,000
25.00%
0
0
0
Ending
Inventory
12,000
9,000
3,000
304
P6-34 (continued)
Total
Re-sold
Ending
Inventory
Sales
60,000
36,000
24,000
COGS
40,000
24,000
16,000
Gross Profit
20,000
12,000
8,000
Gross Profit %
33.33%

Total
Re-sold
Ending
Inventory
Sales
45,000
15,000
30,000
COGS
30,000
10,000
20,000
Gross Profit
15,000
5,000
10,000
Gross Profit %
33.33%
Investment in
Income from
Sharp Co.
Sharp Co.
Beginning Balance
287,600
80% Net Income
32,000
32,000
20,000
20X6 Reversal
8,400
Ending Balance
293,000
Reversal
8,400
0
4,000
80% Dividends
Excess Val.
Amort.
4,000
11,000
Deferred GP
11,000
8,400
25,400
277,400
Basic
24,000
Excess Reclass.
80% Net Income
20X6 Reversal
Ending Balance
29,400
4,000
0
305
P6-34 (continued)
Elimination Entries
DR
CR
Randall
Corp.
Sharp
Co.
500,000
20,400
(416,000)
250,000
30,000
(202,000)
57,000
(30,000)
(24,000)
25,400
75,800
(20,000)
(18,000)
5,000
40,000
29,400
91,400
7,600
4,000
58,000
1,000
(55,000)
(42,000)
0
82,400
(6,600)
75,800
40,000
99,000
59,000
75,800
337,500
75,800
(50,000)
363,300
215,000
40,000
(25,000)
230,000
215,000
99,000
59,000
25,000
84,000
337,500
75,800
(50,000)
363,300
130,300
80,000
170,000
600,000
(310,000)
293,000
10,000
70,000
110,000
400,000
(120,000)
Total Assets
963,300
470,000
98,400
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
100,000
300,000
10,000
363,300
15,200
100,000
4,800
100,000
20,000
230,000
963,300
470,000
Income Statement
Sales
Other Income
Less: COGS
Less: Depreciation & Amortization Exp.
NCI in Net Income
Income
Beginning Balance
Net Income
Ending Balance
Balance Sheet
Cash
Accounts Receivable
Inventory
200,000
10,000
44,000
314,000
50,000
40,000
8,400
100,000
20,000
314,000
1,600
445,600
10,000
13,000
40,000
20,000
277,400
24,000
384,400
84,000
69,600
6,000
159,600
Consolidated
693,000
50,400
(564,000)
140,300
140,000
267,000
1,010,000
(410,000)
0
1,147,300
105,200
400,000
4,800
200,000
0
363,300
74,000
1,147,300
306
P6-34 (continued)
d.
Randall Corporation and Subsidiary

December 31, 20X7
Cash
Accounts Receivable
Inventory
Total Current Assets
Total Assets
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
$ 140,300
140,000
267,000
$1,010,000
(410,000)
$ 400,000
4,800
$ 200,000
363,300
$ 563,300
74,000
$ 547,300
600,000
$1,147,300
$ 105,200
404,800
637,300
$1,147,300

Sales
Other Income
Cost of Goods Sold
Depreciation and Amortization Expense
Other Expenses
$ 564,000
55,000
42,000
$ 693,000
50,400
$ 743,400
(661,000)
$ 82,400
(6,600)
$ 75,800

Consolidated Statement of Retained Earnings
$ 337,500
75,800
$ 413,300
(50,000)
$ 363,300
307
P6-35 Comprehensive Consolidation Worksheet; Equity Method [AICPA Adapted]

Equity Method Entries on Fran Corp.'s Books:
Investment in Brey Inc.
750,000
Cash
750,000
Record the initial investment in Brey Inc.

190,000
Income from Brey Inc.
190,000
Record Fran Corp.'s 100% share of Brey Inc.'s 20X9 income

Cash
40,000
40,000
Record Fran Corp.'s 100% share of Brey Inc.'s 20X9 dividend

44,000
44,000

18,000
18,000
Fran Corp.
100%
Common
Stock
400,000
Add. Paidin Capital
Retained
Earnings
Original book value
636,000
+ Net Income
190,000
190,000
- Dividends
(40,000)
(40,000)
Ending book value
786,000
400,000
80,000
80,000
156,000
306,000
Total
Fran Corp.'s
share
(18,000)
(18,000)
Total
(18,000)
(18,000)
308
P6-35 (continued)
Common stock
400,000
80,000
Retained earnings
156,000
172,000
Dividends declared

Frans % of NI - Def. GP
40,000
Fran Corp.
100%
Beginning balance
114,000
Changes
(44,000)
Ending balance
100% of Brey Inc.'s dividends
768,000
70,000
Machinery
Net book value - Def. GP
Acc. Depr.
54,000
54,000
Goodwill
60,000
(9,000)
(35,000)
(9,000)
25,000

9,000
35,000
44,000

Machinery
54,000
Goodwill
25,000
9,000
70,000

Accounts payable
86,000
Accounts receivable
86,000

Sales
Cost of Goods Sold
Inventory
180,000
162,000
18,000
309
P6-35 (continued)
Total
Re-sold
Ending
Inventory
Sales
180,000
144,000
36,000
COGS
90,000
72,000
18,000
Gross Profit
90,000
72,000
18,000
Gross Profit %
Investment in
Income from
Brey Inc.
Brey Inc.
Acquisition Price
750,000
100% Net Income
190,000
Ending Balance
50.00%
40,000
100% Dividends
44,000
Excess Val. Amort.
44,000
18,000
Deferred GP
18,000
838,000
768,000
Basic
70,000
Excess Reclass.
190,000
100% Net Income
128,000
Ending Balance
172,000
44,000
0
310
P6-35 (continued)
Note that in the 8th edition, the sale of the warehouse was an intercompany transaction and needed to be
eliminated. We changed the problem in the 9th edition to assume that the sale was to a non-affiliated third
party. Thus, the gain on the sale of the warehouse is not eliminated in this problem.
Income Statement
Net Sales
Gain on Sale of Warehouse
Less: COGS
Less: Operating Expenses
Less: Goodwill Impairment
Net Income
Earnings
Beginning Balance
Net Income
Ending Balance
Fran Corp.
Brey Inc.
Elimination Entries
DR
CR
3,800,000
30,000
(2,360,000)
(1,100,000)
1,500,000
180,000
128,000
498,000
440,000
498,000
938,000
(870,000)
(440,000)
190,000
156,000
190,000
(40,000)
306,000
44,000
206,000
5,120,000
30,000
(3,068,000)
(1,549,000)
(35,000)
0
498,000
206,000
40,000
246,000
440,000
498,000
0
938,000
162,000
9,000
35,000
172,000
396,000
156,000
396,000
552,000
Balance Sheet
Cash
Accounts Receivable (net)
Inventories
Land, Plant, and Equipment
570,000
860,000
1,060,000
1,320,000
(370,000)
838,000
150,000
350,000
410,000
680,000
(210,000)
Goodwill
Total Assets
4,278,000
1,380,000
25,000
79,000
Accounts Payable & Accrued

Expenses
Common Stock
Retained Earnings
1,340,000
1,700,000
300,000
938,000
4,278,000
594,000
400,000
80,000
306,000
1,380,000
86,000
400,000
80,000
552,000
1,118,000
Consolidated
86,000
18,000
54,000
9,000
768,000
70,000
720,000
1,124,000
1,452,000
2,054,000
(589,000)
0
951,000
25,000
4,786,000
246,000
246,000
1,848,000
1,700,000
300,000
938,000
4,786,000
311
P6-36A Fully Adjusted Equity Method

a. Adjusted trial balance:
Item
Cash
Accounts Receivable
Inventory
Investment in Sharp
Company Stock
Cost of Goods Sold
Depreciation and Amortization
Other Expenses
Dividends Declared
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
Sales
Other Income
Income from Subsidiary
Randall Corporation
Debit
Credit
Sharp Company
Debit
Credit
$ 130,300
80,000
170,000
600,000
$ 10,000
70,000
110,000
400,000
304,000
416,000
30,000
24,000
50,000
202,000
20,000
18,000
25,000
$ 310,000
100,000
300,000
200,000
$1,804,300
345,900
500,000
20,400
28,000
$1,804,300
$855,000
$120,000
15,200
100,000
4,800
100,000
20,000
215,000
250,000
30,000
$855,000
b.
32,000
32,000

Cash
20,000
20,000
Record Randall Corp.'s 80% share of Sharp Co.'s 20X7 dividend

4,000
4,000
312
P6-36A (continued)
c.
NCI
20%
Original book value
Randall
Corp.
80%
67,000
268,000
8,000
32,000
- Dividends
(5,000)
(20,000)
Ending book value
70,000
280,000
+ Net Income
Commo
n
Stock
100,000
Add. Paidin Capital
Retained
Earning
s
20,000
215,000
40,000
(25,000)
100,000
20,000
230,000
Total
Randall
Corp.'s
share
NCI's share
Downstream Reversal
2,000
2,000
Upstream Reversal
8,000
6,400
(3,000)
(3,000)
(10,000)
(8,000)
(2,000)
(3,000)
(2,600)
(400)
Total
1,600

Common stock
100,000

Retained earnings
20,000
Randall Corp.s % of NI
7,600
Dividends declared
25,000
280,000
69,600

NCI
Randall Corp.
20%
+
80%
Ending balance
32,000
Changes
215,000
Beginning balance
7,000
28,000
(1,000)
(4,000)
6,000
24,000
100% of Sharp Co.'s dividends

Net book value
Buildings &
equipment
50,000
Acc. Depr.
(15,000)
(5,000)
50,000
(20,000)
313
P6-36A (continued)
5,000
4,000
1,000

50,000
20,000
24,000
6,000

Accounts payable
10,000
Accounts receivable
10,000

40,000
40,000

Retained earnings
8,400
1,600
Cost of Goods Sold
10,000

Sales
57,000
Cost of Goods Sold
44,000
Inventory
13,000
(See Problem 6-34 for unrealized profit calculations.)
314
P6-36A (continued)
d.
Elimination Entries
DR
CR
Randall
Corp.
Sharp
Co.
500,000
20,400
(416,000)
250,000
30,000
(202,000)
57,000
(30,000)
(24,000)
28,000
78,400
(20,000)
(18,000)
5,000
40,000
32,000
94,000
7,600
4,000
58,000
1,000
(55,000)
(42,000)
0
82,400
(6,600)
78,400
40,000
101,600
59,000
75,800

Beginning Balance
345,900
215,000
Net Income
Ending Balance
78,400
(50,000)
374,300
40,000
(25,000)
230,000
215,000
8,400
101,600
130,300
80,000
170,000
600,000
(310,000)
304,000
10,000
70,000
110,000
400,000
(120,000)
50,000
40,000
Total Assets
974,300
470,000
90,000
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
100,000
300,000
10,000
374,300
15,200
100,000
4,800
100,000
20,000
230,000
974,300
470,000
Income Statement
Sales
Other Income
Less: COGS
NCI in Net Income
Income
Balance Sheet
Cash
Accounts Receivable
Inventory
200,000
44,000
10,000
325,000
100,000
20,000
325,000
1,600
456,600
Consolidated
693,000
50,400
(564,000)
337,500
59,000
25,000
84,000
10,000
13,000
40,000
20,000
280,000
24,000
387,000
84,000
69,600
6,000
159,600
75,800
(50,000)
363,300
140,300
140,000
267,000
1,010,000
(410,000)
0
1,147,300
105,200
400,000
4,800
200,000
0
363,300
74,000
1,147,300
315
P6-37A Cost Method

a.
20,000
20,000

b.
Investment elimination entry:
Common stock
100,000

Retained earnings
20,000
180,000
240,000
60,000
Dividend elimination entry:

Dividend Income
20,000
5,000
Dividends Declared
25,000

50,000
40,000
10,000
Amortize differential from previous years:

Retained earnings
12,000
3,000
15,000
Amortize differential for 20X7

5,000
5,000
Assign Sharp's undistributed income to NCI

1,600
Retained Earnings
7,000
8,600
316
P6-37A (continued)
Accounts payable
10,000
Accounts receivable
10,000

40,000
40,000

Retained Earnings
8,400
1,600
Cost of Goods Sold
10,000

Sales
57,000
Cost of Goods Sold
44,000
Inventory
13,000
(See Problem 6-34 for unrealized profit calculations.)
317
P6-37A (continued)
Randall
Corp.
Income Statement
Sales
Other Income
Dividend Income
Less: COGS
Elimination Entries
DR
CR
57,000
(416,000)
250,000
30,000
20,000
(202,000)
(30,000)
(24,000)
50,400
(20,000)
(18,000)
60,000
5,000
50,400

Beginning Balance
Net Income
Ending Balance

NCI in Net Income of Sharp Co.
Income
Balance Sheet
Cash
Accounts Receivable
Inventory
500,000
20,400
Sharp
Co.
20,000
10,000
44,000
82,000
5,000
1,600
54,000
60,000
88,600
54,000
329,900
215,000
50,400
(50,000)
330,300
60,000
(25,000)
250,000
180,000
8,400
12,000
7,000
88,600
130,300
80,000
170,000
600,000
(310,000)
10,000
70,000
110,000
400,000
(120,000)
296,000
50,000
40,000
280,000
Total Assets
950,300
470,000
90,000
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
100,000
300,000
10,000
330,300
15,200
100,000
4,800
100,000
20,000
250,000
930,300
490,000
200,000
100,000
20,000
296,000
1,600
3,000
430,600
Consolidated
693,000
50,400
0
(564,000)
(55,000)
(42,000)
82,400
(6,600)
75,800
337,500
54,000
25,000
79,000
10,000
13,000
40,000
5,000
15,000
240,000
40,000
363,000
79,000
60,000
10,000
8,600
157,600
75,800
(50,000)
363,300
140,300
140,000
267,000
1,010,000
(410,000)
0
1,147,300
105,200
400,000
4,800
200,000
0
363,300
74,000
1,147,300
318

SM Akl

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

SM Akl

Загружено:

Авторское право:

Доступные форматы

CHAPTER 1

INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES

Accumulated Depreciation Buildings

E1-6 Creation of New Subsidiary

E1-7 Balance Sheet Totals of Parent Company

E1-8 Creation of Partnership

E1-9 Acquisition of Net Assets

E1-10 Reporting Goodwill

$986,000 = $58 x 17,000 shares

b. Cash and Receivables: $150,000 + $40,000

Land: $100,000 + $85,000

d. Buildings and Equipment (net): $300,000 + $230,000

Additional Paid-In Capital:

E1-13 Goodwill Recognition

E1-14 Acquisition Using Debentures

E1-15 Bargain Purchase

Plant and Equipment

E1-16 Impairment of Goodwill

E1-21 Computation of Shares Issued and Goodwill

Increase in par value and paid-in capital

b. The par value is $7, computed as follows:

c. Goodwill of $34,000 was recorded, computed as follows:

E1-22 Combined Balance Sheet

E1-23 Recording a Business Combination

Computation of additional paid-in capital

E1-24 Reporting Income

$6,028,000 [$2,500,000 + $3,528,000]

$4,460,000 [previously reported]

* 100,000 = 200,000 shares x year

b. Journal entry recorded by Collon Company for receipt of assets

P1-26 Creation of New Subsidiary

b. Journal entry recorded by Sand Corporation for receipt of assets and

P1-27 Incomplete Data on Creation of Subsidiary

b. Journal entry recorded by Krantz Company for transfer of assets and

Journal entry recorded by Dull Corporation for cash transferred to

P1-29 Balance Sheet Data for Companies Establishing a Partnership

b. Journal entry recorded by Nevall Company for assets transferred to

c. Journal entry recorded by G&W Partnership for assets received from

P1-30 Acquisition in Multiple Steps

Investment in Mead Company Stock

Investment in Mead Company Stock

P1-31 Journal Entries to Record a Business Combination

(2) Deferred Stock Issue Costs

(3) Cash and Receivables

Computation of additional paid-in capital

P1-32 Recording Business Combinations

Computation of additional paid-in capital

P1-33 Business Combination with Goodwill

b. Balance sheet immediately following acquisition:

c. Journal entry to record acquisition of Zink Company stock:

P1-34 Bargain Purchase

P1-35 Computation of Account Balances

Liabilities reported by the Aspro Division at year-end:

Fair value of assets at year-end

b. Required fair value of reporting unit:

P1-36 Goodwill Assigned to Multiple Reporting Units

Carrying value of goodwill

Total goodwill to be reported at year-end:

Fair value of reporting unit

b. Goodwill impairment of $30,000 ($80,000 - $50,000) must be reported in the

Computation of additional paid-in capital

Number of shares issued

P1-38 Purchase at More than Book Value