Chapter 4 CONSOLIDATION TECHNIQUES AND PROCEDURES

Answers to Questions 1 Under the equity method, a parent amorti e! patent! "rom it! !u#!idiary in$e!tment! #y ad%u!tin& it! !u#!idiary in$e!tment and in'ome a''ount!( Sin'e patent! and patent amorti ation a''ount! are not re'orded on the parent)! #oo*!, they are 'reated "or 'on!o+idated !tatement purpo!e! throu&h ,or*paper entrie!( Non'ontro++in& intere!t !hare i! entered in the 'on!o+idation ,or*paper! #y preparin& a ,or*paper ad%u!tin& entry in ,hi'h non'ontro++in& intere!t !hare i! de#ited, non'ontro++in& intere!t)! !hare o" di$idend! i! 'redited and non'ontro++in& intere!t i! 'redited( The non'ontro++in& intere!t !hare -de#it. i! 'arried to the 'on!o+idated in'ome !tatement a! a dedu'tion, and the 'redit to non'ontro++in& intere!t "or non'ontro++in& intere!t !hare i! added to the #e&innin& non'ontro++in& intere!t( The non'ontro++in& intere!t !hare i! 'a+'u+ated #a!ed on the !u#!idiary)! reported net in'ome ad%u!ted to re"+e't "air $a+ue throu&h the amorti ation o" the e/'e!! o" "air $a+ue o$er #oo* $a+ue( Thi! i! the approa'h i++u!trated throu&hout thi! te/t( 0or*paper pro'edure! "or the in$e!tment in !u#!idiary, in'ome "rom !u#!idiary, and !u#!idiary equity a''ount! are a+i*e in re&ard to the o#%e'ti$e! o" 'on!o+idation( Re&ard+e!! o" the 'on"i&uration o" the ,or*paper entrie!, the "ina+ re!u+t o" ad%u!tment! "or the!e item! i! to e+iminate them throu&h ,or*paper entrie!( In other ,ord!, the in$e!tment in !u#!idiary, in'ome "rom !u#!idiary, and the 'apita+ !to'*, additiona+ paid1in 'apita+, retained earnin&!, and other !to'*ho+der!) equity a''ount! o" the !u#!idiary ne$er appear in 'on!o+idated "inan'ia+ !tatement!( 0hen the parent doe! not amorti e "air $a+ue2#oo* $a+ue di""erentia+! on it! !eparate #oo*!, the parent)! in'ome "rom !u#!idiary and in$e!tment in !u#!idiary a''ount! are o$er!tated in the year o" a'qui!ition( In !u#!equent year!, the in'ome "rom the !u#!idiary, in$e!tment in !u#!idiary, and parent)! #e&innin& retained earnin&! ,i++ #e o$er!tated( -Thi! a!!ume! that the a!!et i! under$a+ued.(The error may #e 'orre'ted in the ,or*paper! ,ith the "o++o,in& entrie!3 Year of acquisition In'ome "rom !u#!idiary In$e!tment in !u#!idiary Subsequent year In'ome "rom !u#!idiary Retained earnin&! 5 parent In$e!tment in !u#!idiary 444 444 444 444 444

678 9 9 Pear!o n Edu'a tio n, In'( pu#+i!hin& a! Prenti'e Ha++ :1 9

4-2

Consolidation Techniques and Procedures

;y enterin& a 'orre'tin& entry, a++ other ,or*paper entrie! are the !ame a! i" the parent pro$ided "or amorti ation on it! !eparate #oo*!( I" the error! are not 'orre'ted throu&h the ,or*paper entrie! !u&&e!ted a#o$e, the entry to e+iminate the in'ome "rom !u#!idiary in the year o" a'qui!ition i! prepared in the u!ua+ manner ,ithout "urther 'omp+i'ation! #e'au!e neither the #e&innin& in$e!tment nor retained earnin&! a''ount! are a""e'ted #y the omi!!ion( In !u#!equent year! the entry to e+iminate in'ome "rom !u#!idiary and di$idend! "rom !u#!idiary ,i++ ha$e to #e 'han&ed to 'orre't the #e&innin&1o"1the1period retained earnin&! a! "o++o,!3 In'ome "rom !u#!idiary Retained earnin&! 5 parent Di$idend! -!u#!idiary. In$e!tment in !u#!idiary 5 444 444

444 444

No( 0or*paper ad%u!tment! are not entered in the &enera+ +ed&er o" the parent or any other entity( They are u!ed in the preparation o" 'on!o+idated "inan'ia+ !tatement! "or a 'on'eptua+ entity "or ,hi'h there are no "orma+ a''ountin& re'ord!( 0or*paper! are too+! o" the a''ountant that "a'i+itate the 'on!o+idation o" parent and !u#!idiary "inan'ia+ !tatement!( <i$en the too+! a$ai+a#+e, the a''ountant !hou+d !e+e't tho!e that are mo!t 'on$enient in the 'ir'um!tan'e!( I" "inan'ia+ !tatement! are to #e 'on!o+idated, the "inan'ia+ !tatement approa'h i! the appropriate too+( The tria+ #a+an'e approa'h i! mo!t 'on$enient ,hen the data are pre!ented in the "orm o" a tria+ #a+an'e( The a''ountant need! to #e "ami+iar ,ith #oth approa'he! to per"orm the ,or* a! e""i'ient+y a! po!!i#+e( 0or*paper ad%u!tment and e+imination entrie! a! i++u!trated in thi! te/t are e/a't+y the !ame ,hen the tria+ #a+an'e approa'h i! u!ed a! ,hen the "inan'ia+ !tatement approa'h i! u!ed( Thi! i! po!!i#+e throu&h a 'he'*1o"" !y!tem that nu++i"ie! the '+o!in& pro'e!! ,hen the "inan'ia+ !tatement approa'h i! u!ed( The retained earnin&! o" the parent ,i++ equa+ 'on!o+idated retained earnin&! i" the equity method o" a''ountin& ha! #een 'orre't+y app+ied( In 'on!o+idatin& the "inan'ia+ !tatement! o" a""i+iated 'ompanie!, the #e&innin& retained earnin&! o" the parent are u!ed a! #e&innin& 'on!o+idated retained earnin&!( I" the equity method ha! not #een 'orre't+y app+ied, parent #e&innin& retained earnin&! ,i++ not equa+ #e&innin& 'on!o+idated retained earnin&!( In thi! 'a!e, retained earnin&! o" the parent are ad%u!ted to a 'orre't equity #a!i! in order to e!ta#+i!h the 'orre't amount o" #e&innin& 'on!o+idated retained earnin&!( Thu!, ,or*paper ad%u!tment! to #e&innin& retained earnin&! o" the parent are needed ,hene$er the #e&innin& retained earnin&! o" the parent do not 'orre't+y re"+e't the equity method( The non'ontro+in& intere!t that appear! in the 'on!o+idated #a+an'e !heet 'an #e 'he'*ed #y "ir!t ad%u!tin& the equity o" the !u#!idiary on the 'on!o+idated #a+an'e !heet date to "air $a+ue -i(e(, ad%u!tin& "or any unamorti ed e/'e!! o" "air $a+ue o$er #oo* $a+ue. and then mu+tip+yin& #y the non'ontro++in& intere!t per'enta&e( Con!o+idated retained earnin&! at a #a+an'e !heet date 'an #e 'he'*ed #y 'omparin& the amount ,ith the parent)! retained earnin&! on the !ame date( I" 'on!o+idated retained earnin&! and parent retained earnin&! are not equa+, either 'on!o+idated retained earnin&! ha$e #een 'omputed in'orre't+y, or parent retained earnin&! do not re"+e't a 'orre't equity method o" a''ountin&( Con!o+idated a!!et! and +ia#i+itie! are reported "or a++ equity ho+der!5non'ontro++in& a! ,e++ a! 'ontro++in&( There"ore, the 'han&e in net a!!et! "rom operation! "or a period re!u+t! "rom non'ontro++in& intere!t !hare and 'ontro++in& intere!t !hare( A 'han&e in 'a!h re+ate! to a++ intere!t! in the 'on!o+idated entity( Thi! di""eren'e i! one o" many in'on!i!ten'ie! in the 'on'ept! under+yin& 'on!o+idated "inan'ia+ !tatement!( Con!ider, "or e/amp+e, the error that 'ou+d re!u+t "rom di$idin& 'a!h pro$ided #y operation! #y out!tandin& parent !hare! to 'ompute 'a!h "+o, per !hare(

10

11

SOLUTIONS TO EXERCISES Solution E4-1 2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-3

1 2 3 4 5

d c a d b

6 7 8 9 10

d b b a b

Solution E4-2 Preliminary computations (in thousands) Investment cost January 2 Implied total "air value o" #al $ !00 % &0'( +ess, -oo. value E/cess "air value over boo. value Excess allocated to, Inventory 0emainder to good1ill E/cess "air value over boo. value 1 Income from Sal #al2s reported net income +ess, E/cess allocated to inventory $sold in 2011( #al ad4usted income Pan2s &0' share Noncontrolling interest share #al2s ad4usted income 11* 20' noncontrolling interest Noncontrolling interest December 31 #al2s e7uity boo. value 8dd, 9namorti:ed e/cess $;ood1ill( #al2s e7uity "air value 20' noncontrolling interest In estment in Sal December 31 Investment cost January 2 8dd, Income "rom #al $given(< +ess, =ividends $ 120 &0'( Investment in #al =ecember 61 < 8ssumes this is based on #al2s ad4usted income >onsolidated net income ?oncontrolling interest share >ontrolling interest share e7uals Parent ?I under e7uity method.

!00 )*0 $*00( 2*0 2* 22* 2*0 130 $2*( 11* 52

26 *20 22* )3* 135 !00 100 $5!( !03 6&6.3 26 6!0.3

2011 Pearson Education, Inc. publishing as Prentice Hall

4-4

Consolidation Techniques and Procedures

Solution E4-3 1 )00,000

$ 600,000 @

330,000 A

30,000 intercompany( 2&,000 30,000 60,000 10,000 23,000 $)00( 26,600 @ $600( 26,000 2&,000 2&0 2&,2&0

Preliminary computations for ! and 3 Investment cost on January 1, 2011 Implied total "air value o" #ar $ 2&,000 % )0'( -oo. value o" #ar E/cess allocated entirely to ;ood1ill 2 Pim"s separate income for !#13 +oss "rom investment in #ar $ 1,000 )0'( >ontrolling share o" consolidated net income ?oncontrolling share >onsolidated net income Investment cost January 1, 2011 8dd, #hare o" income less dividends 2011 5 2016 $ 1,300 income A 1,000 dividends( )0' Investment balance =ecember 61, 2016

Solution E4-4 Preliminary computations Investment cost Implied total "air value o" #in $ *&0,000 % &0'( -oo. value Botal e/cess "air value over boo. value Excess allocated to$ E7uipment $*Ayear li"e( Patents $10Ayear amorti:ation period( Botal e/cess "air value over boo. value Income from Sin #in2s reported net income +ess, =epreciation o" e/cess allocated to e7uipment +ess, 8morti:ation o" patents #in2s ad4usted income Income "rom #in $&0'( 1a 2011 120,000 $10,000( $),*00( 102,*00 &2,000 *&0,000 )2*,000 !00,000 12*,000 *0,000 )*,000 12*,000 2012 1*0,000 $10,000( $),*00( 162,*00 10!,000

1b

%onsolidated net income for !#11 Pen2s net income C controlling share o" consolidated net income under e7uity method 8dd, ?oncontrolling interest share >onsolidated net income In estment in Sin December 31& !#11 >ost January 1 8dd, Income "rom #in 5 2011 +ess, =ividends "rom #in 5 2011 $ &0,000 &0'( Investment in #in =ecember 61 Noncontrolling interest share !#11 $ 102,*00 ad4usted income 20'( Noncontrolling interest December 31& !#1! #in2s e7uity boo. value at ac7uisition date

630,000 20,*00 6!0,*00 *&0,000 &2,000 $!3,000( *5&,000 20,*00

1!

!00,000

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-5

8dd, Income less dividends "or 2011 and 2012 $see note( #in2s e7uity boo. value at =ecember 61, 2012 9namorti:ed e/cess at =ecember 61, 2012 #in2s e7uity "air value at =ecember 61, 2012 ?oncontrolling interest percentage ?oncontrolling interest =ecember 61, 2012 Solution E4-4 " ontinu#!$ ?ote, #in2s income less dividends, 2011 ?et Income 2011 =ividends 2012 ?et Income 2012 =ividends Botal Solution E4-5 1 2 3 4 5 c a b c d 120,000 $&0,000( 1*0,000 $50,000( 100,000

100,000 )00,000 50,000 )50,000 20' 1*&,000

Solution E4-6 %at Co&'o&ation an! Sub(i!ia&) Partial >onsolidated >ash Dlo1s #tatement "or the year ended =ecember 61, %ash 'lo(s from )perating *cti ities >ontrolling interest share o" consolidated net income *d+ustments to reconcile net income to cash pro ided by operating acti ities$ ?oncontrolling interest share *0,000 9ndistributed income o" e7uity investees $*,000( +oss on sale o" land 100,000 =epreciation e/pense 120,000 Patents amorti:ation 1!,000 Increase in accounts receivable $10*,000( Increase in inventories $3*,000( =ecrease in accounts payable $20,000( Net cash flo(s from operating acti ities Solution E4-7 %&o Co&'o&ation an! Sub(i!ia&) Partial >onsolidated >ash Dlo1s #tatement "or the year ended =ecember 61, %ash 'lo(s from )perating *cti ities >ash received "rom customers =ividends received "rom e7uity investees +ess, >ash paid to suppliers 622,*00 ),000 1&2,*00 100,000

111,000 211,000

2011 Pearson Education, Inc. publishing as Prentice Hall

4-6

Consolidation Techniques and Procedures

>ash paid to employees >ash paid "or other operating items >ash paid "or interest e/pense Net cash flo(s from operating acti ities

2),000 26,*00 12,000

23*,000 &3,*00

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-7

SOLUTIONS TO %RO*LE+S Solution %4-1 $in thousands o" ( 2,300 6,200 $2,300( &00 &0 620 300 &00 300 300 $30( 6!0 50

Preliminary computations Investment in #en $)*'( January 1, 2011 Implied "air value o" #en $ 2,300 % )*'( -oo. value o" #en Botal e/cess o" "air value over boo. value E/cess allocated, 10' to inventories $sold in 2011( 30' to plant assets $use"ul li"e & years( *0' to good1ill Botal e/cess o" "air value over boo. value 1 2 ;ood1ill at =ecember 61, 201* $not amorti:ed( Noncontrolling interest share for !#1, ?et income $ 1,000 sales A !00 e/penses( +ess, 8morti:ation o" e/cess Plant assets $ 620 % & yrs.( 8d4usted #en income 2*' #hare %onsolidated retained earnings December 31& !#1E7ual to Pea2s =ecember 61, 2013 retained earnings #ince this a trial balance, reported retained earnings e7uals beginning o" 201* retained earnings. %onsolidated retained earnings December 31& !#1, Pea2s retained earnings =ecember 61, 2013 8dd, Pea2s net income "or 201* +ess, Pea2s dividends "or 201* >onsolidated retained earnings =ecember 61 %onsolidated net income for !#1, >onsolidated sales +ess, >onsolidated e/penses $ 6,)&* @ 30 depreciation( Botal consolidated income +ess, ?oncontrolling interest share >ontrolling share o" consolidated net income "or 201* Noncontrolling interest December 31& !#1#en2s stoc.holders2 e7uity at boo. value 9namorti:ed e/cess a"ter "our years, Inventory Plant assets $ 620 A 1!0( ;ood1ill #en2s stoc.holders2 e7uity at "air value 2*' #en2s stoc.holders2 e7uity at "air value Noncontrolling interest December 31& !#1, #en2s stoc.holders2 e7uity at boo. value 9namorti:ed e/cess a"ter "ive years, Inventory

1,!)0 1,!)0 1,0&* $*00( 2,2** *,000 $6,&2*( 1,1)* $50( 1,0&* 2,300 0 1!0 300 2,5!0 )30 2,!00 0

2011 Pearson Education, Inc. publishing as Prentice Hall

4-8

Consolidation Techniques and Procedures

Plant assets $ 620 A 200( ;ood1ill #en2s stoc.holders2 e7uity at "air value 2*' #en2s stoc.holders2 e7uity at "air value

120 300 6,120 )&0

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-9

Solution %4-2 1
%al Co&'o&ation an! Sub(i!ia&) >onsolidation Eor.papers "or the year ended =ecember 61, 2011 $in thousands( Pal Income Statement #ales Income "rom #al >ost o" goods sold Fperating e/penses >onsolidated ?I ?oncontrol.interest share $ 1*60,000 60'( >ontrolling share .etained Earnings 0etained earnings 5 Pal 0etained earnings 5 #al ?et income =ividends 0etained earnings =ecember 61 /alance Sheet >ash 0eceivables 5 net Inventories PPGE 5 net Investment in #al !20 21 300 < 1*3 < &0' #al 200 a 21 160 < 30< *60 < 153 < 5! c &) 160 &) !0< 22 60 20< b 22 &) a 13 c ! !0< 1*) 121 1&0 && 610 a ) b 51 200 6! 23 100 & 62 200 b100 b & !55 5! !3 600 30 1*) b 65 1!0
< =educt

8d4ustments and Eliminations

>onsolidated #tatements &20

5< &) 160

60

1*) 51 120 3& 230 5& *5)

62 60 !0 30 )0

8ccounts payable Fther liabilities >apital stoc. Fther paidAin capital 0etained earnings

!0 30 600 30 1*) *5)

?oncontrolling interest January 1 ?oncontrolling interest =ecember 61

c 6 1!0

32 !55

0or1paper entries a Bo eliminate income "rom #al and dividends received "rom #al and ad4ust the investment in #al account to its beginning o" the period balance. b Bo eliminate reciprocal investment in #al and e7uity amounts o" #al and to enter beginning noncontrolling interest. c Bo enter noncontrolling interest share o" subsidiary income and dividends.

2011 Pearson Education, Inc. publishing as Prentice Hall

4-10

Consolidation Techniques and Procedures

Solution %4-2 $continued( 2 %al Co&'o&ation an! Sub(i!ia&) >onsolidated Income #tatement "or the year ended =ecember 61, 2011 $in thousands( #ales +ess, >ost o" goods sold ;ross pro"it Fperating e/penses >onsolidated net income +ess, ?oncontrolling interest share >ontrolling share o" consolidated net income %al Co&'o&ation an! Sub(i!ia&) >onsolidated 0etained Earnings #tatement "or the year ended =ecember 61, 2011 >onsolidated retained earnings January 1 8dd, >ontrolling share o" onsolidated net income +ess, =ividends o" Pal >onsolidated retained earnings =ecember 61 %al Co&'o&ation an! Sub(i!ia&) >onsolidated -alance #heet at =ecember 61, 2011 *ssets >urrent assets, >ash 0eceivables 5 net Inventories Plant assets 5 net Botal assets 2iabilities and Stoc1holders" E3uity +iabilities, 8ccounts payable Fther liabilities #toc.holders2 e7uity, >apital stoc., 10 par Fther paidAin capital >onsolidated retained earnings 8dd, ?oncontrolling interest Botal liabilities and stoc.holders2 e7uity 121 1&0 && &20 *60 250 153 5! 5 &)

160 &) $!0( 1*)

6&5 610 !55

5! !3 600 30 1*) 35) 32

1!0

*65 !55

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-11

Solution %4-3 %an Co&'o&ation an! Sub(i!ia&) >onsolidation Eor.papers "or the year ended =ecember 61, 2011 $in thousands(
Pan Income Statement #ales Income "rom #a" >ost o" sales Fther e/penses >onsolidated ?et Income ?oncontrolling share >ontrolling share o" ?I .etained Earnings 0etained earnings 5 Pan 0etained earnings 5 #a" >ontrolling share o" ?I =ividends 0etained earnings =ecember 61 /alance Sheet >ash 8ccounts receivable =ividends receivable "rom #a" Inventories ?ote receivable "rom Pan +and -uildings 5 net E7uipment 5 net Investment in #a" Patents 1,*)6.! 8ccounts payable ?ote payable to #a" =ividends payable >apital stoc., 10 par 0etained earnings 1)0 10 1,000 656.! 1,*)6.! 320 20 1! 600 &3 320 d e b 10 12 600 &00 2).! *00< 153 < #a" )*' 200 a 100 < *2< c " 166.! 3& 2).! 11.2 5.2 !00< 2*).2 < 132.& 5.2 < 166.! 8d4ustments and Eliminations >onsolidated #tatements 1,000

6!0 166.! 100 < !& 3& 62< b !&

6!0 166.! a " 23 & 100< 656.!

656.!

&3

10! 1)2 12 150 160 630 2!0 6!6.!

60 30 e 20 10 !0 1!0 100 d 12

16! 212

210 10 150 *00 6!0 a 6.! b 6!0 c 11.2

112

100.& 1,)0&.& 150 3 1,000 656.!

?oncontrolling interest January 1 ?oncontrolling interest =ecember 61 **0

<=educt

b 120 " 1.2 **0

121.2 1,)0&.&

2011 Pearson Education, Inc. publishing as Prentice Hall

4-12

Consolidation Techniques and Procedures

Solution %4-3 $continued( Supporting %alculations Saf"s alue at ac3uisition -oo. value at =ecember 61, 2011 +ess, 2011 ?et income 8dd, 2011 =ividends -oo. value on January 1, 2011 Dair value o" patents #a"2s "air value on January 1, 2011 Purchase price $"air value( o" Pan2s )*' share ?oncontrolling interest $2*'( Patents have a tenAyear li"e, so amorti:ation is Saf"s *d+usted Income #a"2s net income +ess, 8morti:ation o" Patents #a"2s ad4usted income Pan2s )*' share ?oncontrolling interest 2*' share 3& $11.2( 6!.& 2).! 5.2 6&3 $3&( 62 6!& 112 3&0 6!0 120 11,200 per year.

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-13

Solution %4-4 %al Co&'o&ation an! Sub(i!ia&) >onsolidation Eor.papers "or the year ended =ecember 61, 2011 $in thousands(
Pal Income Statement #ales Income "rom #un >ost o" sales Fther e/penses >onsolidated ?I ?oncontrolling share >ontrolling share o" ?I .etained Earnings 0etained earnings 5 Pal 0etained earnings 5 #un >ontrolling share o" ?I =ividends &00 6! *00< 153< #un )*' 200 a 100< *2< c 132 3& 12 6! !00 < 23! < 1*3 12< 132 8d4ustments and Eliminations >onsolidated #tatements 1,000

6!0 132 100< !& 3& 62< &3 b !&

6!0 132 a c 23 & 100< 302

0etained earnings H =ec 61 302 /alance Sheet >ash 8ccounts receivable =ividends receivable "rom #un Inventories ?ote receivable "rom Pal +and -uildings 5 net E7uipment 5 net Investment in #un ;ood1ill 1,*&2 8ccounts payable ?ote payable to #un =ividends payable >apital stoc., 10 par 0etained earnings 1)0 10 1,000 302 1,*&2

11& 1!0 12 150 160 630 2!0 6)2

60 30 e 20 10 !0 1!0 100 d 12

13& 200

210 10 150 *00 6!0 a 12 b 6!0 b 112

320 20 1! 600 &3 320 d 10 e 12 b 600

112 1,)20 150 3 1,000 302 b 120 c 3 **0

?oncontrolling interest January 1 ?oncontrolling interest =ecember 61 **0

< =educt

123 1,)20

2011 Pearson Education, Inc. publishing as Prentice Hall

4-14

Consolidation Techniques and Procedures

Solution %4-4$continued( Supporting %alculations Sun"s alue at ac3uisition$ -oo. value at =ecember 61, 2011 +ess, 2011 ?et income 8dd, 2011 =ividends -oo. value on January 1, 2011 Purchase price o" Pal2s )*' share Implied "air value o" #un $ 6!0 % )*'( #un2s boo. value E/cess allocated to ;ood1ill ?oncontrolling interest $2*' / 3&0( Sun"s*d+usted Income #a"2s net income +ess, 8morti:ation o" ;ood1ill #un2s ad4usted income Pal2s )*' share ?oncontrolling interest 2*' share Solution %4-5 Preliminary computations *llocation of excess fair alue o er boo1 alue >ost o" )0' interest January 1 Implied "air value o" #ul $ 350,000 % )0'( -oo. value o" #ul E/cess "air value over boo. value ?oncontrolling interest H 60' o" "air value at ac7uisition Excess allocated 9ndervalued inventory items sold in 2011 9ndervalued buildings $) year li"e( 9ndervalued e7uipment $6 year li"e( Patents 0emainder to ;ood1ill E/cess "air value over boo. value %alculation of income from Sul #ul2s net income +ess, 9ndervalued inventories sold in 2011 +ess, 8dditional =epreciation on building $ 13,000%) years( +ess, 8dditional =epreciation on e7uipment $ 21,000%6 years( +ess, Patent amorti:ation $ 30,000%30 years( #ul2s ad4usted income Par2s )0' controlling interest share ?oncontrolling interest2s 60' share 350,000 )00,000 $!00,000( 100,000 210,000 *,000 13,000 21,000 30,000 20,000 100,000 100,000 $*,000( $2,000( $),000( $1,000( &*,000 *5,*00 2*,*00

6&3 $3&( 62 6!& 6!0 3&0 6!& 112 120 3& $0( 3& 6! 12

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-15

Solution %4-5 $continued( 0or1paper entries for !#11 a Income "rom #ul =ividends $#ul( Investment in #ul >apital stoc. $#ul( 0etained earnings $#ul( January 1 9namorti:ed e/cess Investment in #ul ?oncontrolling interest January 1 >ost o" sales $"or inventory items( -uildings 5 net E7uipment 5 net Patents ;ood1ill 9namorti:ed e/cess =epreciation e/pense -uildings 5 net =epreciation e/pense E7uipment 5 net Fther e/penses Patents 8ccounts payable 8ccounts receivable =ividends payable =ividends receivable ?oncontrolling Interest #hare =ividends 5 #ul ?oncontrolling Interest *5,*00 6*,000 23,*00 *00,000 100,000 100,000 350,000 210,000 *,000 13,000 21,000 30,000 20,000 100,000 2,000 2,000 ),000 ),000 1,000 1,000 10,000 10,000 13,000 13,000 2*,*00 1*,000 10,*00

d e " g h i

2011 Pearson Education, Inc. publishing as Prentice Hall

4-16

Consolidation Techniques and Procedures

Solution %4-5 $continued( %a& Co&'o&ation an! Sub(i!ia&) >onsolidation Eor.papers "or the year ended =ecember 61, 2011
$in thousands( Par Income Statement #ales Income "rom #ul >ost o" sales =epreciation e/pense Fther e/penses >onsolidated ?I ?oncontrolling share >ontrolling share o" ?I .etained Earnings 0etained earnings 5 Par 0etained earnings 5 #ul ?et income =ividends 0etained earnings H =ec 61 /alance Sheet >ash 8ccounts receivable =ividends receivable Inventories Fther current assets +and -uildings 5 net E7uipment 5 net Investment in #ul Patents ;ood1ill 9namorti:ed e/cess 1,!53.* 8ccounts payable =ividends payable Fther liabilities >apital stoc., 10 par 0etained earnings 200 100 35 1,000 63*.* 1,!53.* &*0 &* 20 5* *00 1*0 &*0 g h 10 13 &00 *5.* 600 < 1*3 < 1!0 < #ul )0' )00 300 < !0< 130 < a c d e " i 23*.* 100 *5.* * 2 ) 1 2*.* 8d4ustments and Eliminations >onsolidated #tatements 1,*00 )0* < 226 < 601 < 2)1 2*.* < 23*.*

600 23*.* 200 < 63*.* &! 100 13 1*0 )0 *0 130 *)0 *13.* 100 100 *0< 1*0 !0 )0 100 60 100 1!0 660 b 100

600 23*.* a i 6* 1* 200 < 63*.* 13! 1!0 2*0 100 1*0 612 513

g h

10 13

c c

13 21

c 30 c 20 b 100

d 2 e ) a 23.* b 350 " 1 c 100

65 20 2,051 2)* 10! 133 1,000 63*.*

b *00

?oncontrolling interest January 1 ?oncontrolling interest =ecember 61

b 210 i 10.*

220.*

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4 515
< =educt

4-17 515 2,051

2011 Pearson Education, Inc. publishing as Prentice Hall

4-18

Consolidation Techniques and Procedures

Solution %4-6 Supporting computations F1nership percentage 16,*00%1*,000 shares C 50' Investment cost $16,*00 shares 1*( Implied "air value o" #yn $ 202,*00 % 50'( -oo. value o" #yn E/cess "air value over boo. value Excess allocated to +and 0emainder to patents E/cess "air value over boo. value Income from Syn #yn2s reported net income +ess, Patent amorti:ation #yn2s ad4usted income Pen2s share o" #yn2s income $50'( ?oncontrolling interest share $10'( In estment in Syn December 31& !#1! >ost January 1, 2011 Pen2s share o" the change in #yn2s retained earnings $ 32,000 A 1*,000( 50' +ess, Pen2s share $50'( o" Patent amorti:ation "or 2 years Investment in #yn =ecember 61 202,*00 22*,000 1!*,000 !0,000 20,000 30,000 !0,000 23,000 $3,000( 20,000 1&,000 2,000 202,*00 23,600 $),200( 215,!00

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-19

Solution %4-6 $continued( %#n Co&'o&ation an! Sub(i!ia&) >onsolidation Eor.papers "or the year ended =ecember 61, 2012
$in thousands( Pen Income Statement #ales Income "rom #yn >ost o" sales Fther e/penses >onsolidated ?I ?oncontrolling share >ontrolling share o" ?I .etained Earnings 0etained earnings 5 Pen 0etained earnings 5 #yn ?et income =ividends 0etained earnings H =ec 61 /alance Sheet >ash 8ccounts receivable =ividends receivableAA#yn Inventories ?ote receivable 5 Pen Investment in #yn +and -uildings 5 net E7uipment 5 net Patents 8ccounts payable ?ote payable to #yn =ividends payable >apital stoc. 0etained earnings 300 1& 2*0 < 100.! < 50' #yn 100 a *0< 2!< c g !).3 23 1& 3 2 600 < 160.! < !5.3 2 < !).3 8d4ustments and Eliminations >onsolidated #tatements *00

1)) !).3 *0< 153.3 63 23 1!< 32 b 63

1)) !).3 a g 13.3 1.! *0< 153.3

1& &0 ).2 5* 215.! !* 1)0 160 )&3.& &*.3 * *00 153.3 )&3.&

1* 20 10 *

" d

* ).2

66 5* 10*

e * a 6.! b 21! b 20 11* 2*0 1&0 62 &10 50.3 .& *00 153.3 b 23 g .3 2&1.2

60 &0 *0 210 10 & 1*0 32 210

6!

" * e * d ).2 b 1*0

?oncontrolling interest January 1 ?oncontrolling interest =ecember 61 2&1.2

< =educt

23.3 &10

2011 Pearson Education, Inc. publishing as Prentice Hall

4-20

Consolidation Techniques and Procedures

Solution %4-7 Preliminary computations *llocation of excess fair alue o er boo1 alue >ost o" )0' interest January 1 Implied "air value o" #ol $ 350,000 % )0'( -oo. value o" #ol E/cess "air value over boo. value Excess allocated 9ndervalued inventory items sold in 2011 9ndervalued buildings $) year li"e( 9ndervalued e7uipment $6 year li"e( 0emainder to good1ill E/cess "air value over boo. value %alculation of income from Sol #ol2s reported net income +ess, 9ndervalued inventories sold in 2011 +ess, =epreciation on building $ 13,000%) years( +ess, =epreciation on e7uipment $ 21,000%6 years( 8d4usted income "rom #oul Par2s )0' controlling share 60' ?oncontrolling interest share 0or1paper entries for !#11 a Income "rom #ol =ividends $#ol( Investment in #ol b >apital stoc. $#ol( 0etained earnings $#ol( A January 1 9namorti:ed e/cess Investment in #ol ?oncontrolling interest A January 1 >ost o" sales $"or inventory items( -uildings 5 net E7uipment 5 net ;ood1ill 9namorti:ed e/cess =epreciation e/pense -uildings 5 net =epreciation e/pense E7uipment 5 net ?oncontrolling Interest #hare =ividends 5 #ol ?oncontrolling Interest 8ccounts payable 8ccounts receivable !0,200 6*,000 2*,200 *00,000 100,000 100,000 350,000 20,000 *,000 13,000 21,000 !0,000 100,000 2,000 2,000 ),000 ),000 2*,&00 1*,000 10,&00 10,000 10,000 350,000 )00,000 $!00,000( 100,000 *,000 13,000 21,000 !0,000 100,000 100,000 $*,000( $2,000( $),000( &!,000 !0,200 2*,&00

d e "

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-21

=ividends payable =ividends receivable

13,000 13,000

2011 Pearson Education, Inc. publishing as Prentice Hall

4-22

Consolidation Techniques and Procedures

Solution %4-7 $continued( %a& Co&'o&ation an! Sub(i!ia&) >onsolidation Eor.papers "or the year ended =ecember 61, 2011 $in thousands(
Par Income Statement #ales Income "rom #ol ;ain on e7uipment >ost o" sales =epreciation e/pense Fther e/penses >onsolidated ?I ?oncontrolling share >ontrolling share o" ?I .etained Earnings 0etained earnings 5 Par 0etained earnings 5 #ol >ontrolling share o" ?I =ividends 0etained earnings H =ec 61 /alance Sheet >ash 8ccounts receivable =ividends receivable Inventories Fther current assets +and -uildings 5 net E7uipment 5 net Investment in #ol ;ood1ill 9namorti:ed e/cess 1,)0*.2 8ccounts payable =ividends payable Fther liabilities >apital stoc., 10 par 0etained earnings 200 100 *0 1,000 6**.2 1,)0*.2 &*0 &* 20 5* *00 1*0 &*0 g h 10 13 &00 !0.2 10 600 < 1** < 1!0 < #ol )0' )00 a 300 < !0< 130 < " 2**.2 100 2*.& c d e !0.2 * 2 ) 10 )0* < 223 < 600 < 2&1 2*.& < 2**.2 8d4ustments and Eliminations >onsolidated #tatements 1,*00

600 2**.2 200 < 6**.2 100 100 *0< 1*0 b 100

600 2**.2 a " 6* 1* 200< 6**.2

5! 100 13 1*0 )0 *0 130 *)0 *1*.2

!0 )0 100 60 100 1!0 660

g h

10 13

1*! 1!0 2*0 100 1*0 612 513

c c

13 21

d 2 e ) a 2*.2 b 350 c 100

c !0 b 100

!0 2,102 2)* 10! 13* 1,000 6**.2 b 210

b *00

?oncontrolling interest January 1

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4 ?oncontrolling interest =ecember 61 515

< =educt

4-23 " 10.& 515 220.& 2,102

2011 Pearson Education, Inc. publishing as Prentice Hall

4-24

Consolidation Techniques and Procedures

Solution %4-8 Supporting computations F1nership percentage 16,*00%1*,000 shares C 50' 202,*00 22*,000 1!*,000 !0,000 20,000 30,000 !0,000 21,!00 202,*00 23,600 22!,&00 2*,200

Investment cost $16,*00 shares 1*( Implied "air value o" #on $ 202,*00 % 50'( -oo. value o" #on E/cess "air value over boo. value Excess allocated to +and 0emainder to good1ill E/cess "air value over boo. value Income from Son Pun2s controlling share o" #on2s income $ 23,000 50'( In estment in Son December 31& !#1! >ost January 1, 2011 Pun2s share o" the change in #on2s retained earnings $ 32,000 A 1*,000( 50' Investment in #on =ecember 61 ?oncontrolling interest at =ecember 61, 2012 $10' o" "air value( $$ 22*,000 @ 32,000 A 1*,000( / 10'(

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-25

Solution %4-8 $continued( %un Co&'o&ation an! Sub(i!ia&) >onsolidation Eor.papers "or the year ended =ecember 61, 2012 $in thousands(
Pun Income Statement #ales Income "rom #on >ost o" sales E/penses >onsolidated ?I ?oncontrolling share >ontrolling share o" ?I .etained Earnings 0etained earnings 5 Pun 0etained earnings 5 #on >ontrolling share o" ?I =ividends 0etained earnings H =ec 61 /alance Sheet >ash 8ccounts receivable =ividends receivable Inventories ?ote receivable 5 Pun Investment in #on +and -uildings 5 net E7uipment 5 net ;ood1ill 300 21.! 2*0 < 100.! < 50' #on 100 a *0< 2!< c )1 23 2.3 21.! 600 < 12!.! < )6.3 2.3< )1 8d4ustments and Eliminations >onsolidated #tatements *00

1&1 )1 *0< 202 63 23 1!< 32 b 63

1&1 )1 a c 13.3 1.! *0< 202

1& &0 ).2 5* 22!.& !* 1)0 160 )52

1* 20 10 *

" d

* ).2

66 5* 10*

e * a ).2 b 215.! b 20 11* 2*0 1&0 30 &1& 50 .& *00 202 b 23.3 c .& 2&*.2

60 &0 *0 210 10 & 1*0 32 210

30

8ccounts payable ?ote payable to #on =ividends payable >apital stoc. 0etained earnings

&* * *00 202 )52

" * e * d ).2 b 1*0

?oncontrolling interest January 1 ?oncontrolling interest =ecember 61 2&*.2

< =educt

2*.2 &1&

2011 Pearson Education, Inc. publishing as Prentice Hall

4-26

Consolidation Techniques and Procedures

Solution %4-9 %a( Co&'o&ation an! Sub(i!ia&) >onsolidation Eor.papers "or the year ended =ecember 61, 2011
$in thousands( Pas Income Statement #ales Income "rom #el >ost o" sales =epreciation e/pense Fther e/penses >onsolidated ?I ?oncontrolling share >ontrolling share o" ?I .etained Earnings 0etained earnings 5 Pas 0etained earnings 5 #el >ontrolling share o" ?I =ividends 0etained earnings H =ec 61 /alance Sheet >ash Brade receivables 5 net =ividends receivable Inventories +and -uildings 5 net E7uipment 5 net Investment in #el Patents *5!.* 8ccounts payable =ividends payable Fther liabilities >apital stoc. 0etained earnings 30 100 *0 600 10!.* *5!.* 600 *0 10 20 1*0 )0 600 e " 3 & 200 1) &0< 30< 2*.* < &0' #el 110 30< 20< 10< a b d g c )1.* 30 1) 12.* * 1.2* 3.2* 8d4ustments and Eliminations >onsolidated #tatements 610 162.* < !*< 6!.)* < )*.)* 3.2* < )1.*

)* )1.* 30< 10!.* *0 30 20< )0 b *0

)* )1.* a c 1! 3 30< 10!.*

25.* 2& & 30 1* !* 200 211

60 30 60 60 )0 100

e "

3 &

*5.* !3 )0 3* 16* 620

2*

2*

d * a 1 b 210 g 1.2*

26.)* )1).2* &! 102 )0 600 10!.*

b 1*0

?oncontrolling interest January 1 ?oncontrolling interest =ecember 61 602

< =educt

b *2.* c .2* 602

*2.)* )1).2*

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-27

Solution %4-9 $continued( Supporting computations Investment cost January 1, 2011 Implied "air value o" #el $ 210,000 % &0'( -oo. value o" #el E/cess "air value over boo. value E/cess allocated, 9ndervalued inventory 9ndervalued e7uipment 0emainder to patents E/cess "air value over boo. value 210,000 2!2,*00 200,000 !2,*00 12,*00 2*,000 2*,000 !2,*00

2011 Pearson Education, Inc. publishing as Prentice Hall

4-28

Consolidation Techniques and Procedures

Solution %4-10 %i, Co&'o&ation an! Sub(i!ia&) >onsolidation Eor.papers "or the year ended =ecember 61, 2011 $in thousands(
Pi. Income Statement #ales Income "rom #el >ost o" sales =epreciation e/pense Fther e/penses >onsolidated ?I ?oncontrolling share >ontrolling share o" ?I .etained Earnings 0etained earnings 5 Pi. 0etained earnings 5 #el >ontrolling share o" ?I =ividends 0etained earnings H =ec 61 /alance Sheet >ash Brade receivables 5 net =ividends receivable Inventories +and -uildings 5 net E7uipment 5 net Investment in #el ;ood1ill *5).* 8ccounts payable =ividends payable Fther liabilities >apital stoc. 0etained earnings 30 100 *0 600 10).* *5).* 600 *0 10 20 1*0 )0 600 e " 3 & 200 1& &0< 30< 2*.* < &0' #el 110 30< 20< 10< a b d 1& 12.* * 8d4ustments and Eliminations >onsolidated #tatements 610 162.* < !*< 6*.* < )) 3.*< )2.*

c )2.* 30

3.*

)* )2.* 30< 10).* *0 30 20< )0 b *0

)* )2.* a c 1! 3 30< 10).*

25.* 2& & 30 1* !* 200 212

60 30 60 60 )0 100

e "

3 &

*5.* !3 )0 3* 16* 620

2*

d * a 2 b 210

2*

2* )1&.* &! 102 )0 600 10).*

b 1*0

?oncontrolling interest January 1 ?oncontrolling interest =ecember 61 602

< =educt

b *2.* c .* 602

*6 )1&.*

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-29

Solution %4-10 $continued( Supporting computations Investment cost January 1, 2011 Implied "air value o" #el $ 210,000 % &0'( -oo. value o" #el E/cess "air value over boo. value E/cess allocated, 9ndervalued inventory 9ndervalued e7uipment 0emainder to good1ill E/cess "air value over boo. value Income from Sel #el2s reported net income +ess amorti:ation o" e/cess "air value, Inventory =epreciation $ 2*,000 % * years( #el2s ad4usted income Pi.2s &0' controlling share 20' ?oncontrolling interest share 30,000 $12,*00( $ *,000( 22,*00 1&,000 3,*00 210,000 2!2,*00 200,000 !2,*00 12,*00 2*,000 2*,000 !2,*00

2011 Pearson Education, Inc. publishing as Prentice Hall

4-30

Consolidation Techniques and Procedures

Solution %4-11 Supporting computations Investment cost =ecember 61, 2011 Implied "air value o" #tu $ 1)0,000 % &0'( -oo. value o" #tu E/cess "air value over boo. value 8llocation o" E/cess &,)*0 22,*00 61,2*0 !2,*00 8morti:ation 2012 5 201* &,)*0 10,000 2*,000 36,)*0 1)0,000 212,*00 1*0,000 !2,*00 9namorti:ed E/cess =ecember 61, 201* AAA 12,*00 !,2*0 1&,)*0

Inventories Plant assets 5 net Patents

%il Co&'o&ation an! Sub(i!ia&) >onsolidated -alance #heet Eor.papers on =ecember 61, 201*
Pil *ssets >ash Brade receivables =ividends receivable 8dvance to #tu Inventories Plant assets 5 net Investment in #tu Patents 9namorti:ed e/cess Botal assets E3uities 8ccounts payable =ividends payable 8dvance "rom Pil >apital stoc. 0etained earnings ?oncontrolling interest Botal e7uities 31,000 !0,000 &,000 2*,000 12*,000 600,000 151,000 b a )*0,000 600,000 #tu &0' 6*,000 **,000 8d4ustments and Eliminations >onsolidated -alance #heet )!,000 110,000

c d e b 12,*00

*,000 &,000 2*,000

6*,000 1)*,000

1!0,000 3&),*00 !,2*0 &65,)*0

a 151,000 !,2*0 1&,)*0 b 1&,)*0

*0,000

300,000 600,000 )*0,000

3*,000 10,000 2*,000 100,000 120,000 600,000

c *,000 d &,000 e 2*,000 a 100,000 a 120,000 a 3),)*0

50,000 2,000 300,000 600,000 3),)*0 &65,)*0

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-31

Solution %4-12 Preliminary computations Investment cost Implied "air value #ci $ 3&0,000 % &0'( -oo. value o" #ci E/cess "air value over boo. value *llocation of differential Plant assets ;ood1ill E/cess "air value over boo. value *morti4ation Plant assets 100,000%3 years C 2*,000 per year *&0,000 *0,000 *0,000 !&0,000 *33,000 16!,000 *!0,000 "or 3&0,000 !00,000 3*0,000 1*0,000 100,000 *0,000 1*0,000

In estment account balance at December 31& !#1! 9nderlying boo. value 8dd, 9namorti:ed e/cess allocated to plant assets $ 100,000 A *0,000 depreciation( 8dd, 9namorti:ed good1ill Dair value o" #ci at =ecember 61 Investment account balance at =ecember 61 $&0'( ?oncontrolling interest at =ecember 61 $20'( Bhe investment account balance is overstated at the 1!,000 dividend receivable.

2011 Pearson Education, Inc. publishing as Prentice Hall

4-32

Consolidation Techniques and Procedures

Solution %4-12 $continued( %at Co&'o&ation an! Sub(i!ia&) >onsolidation Eor.papers "or the year ended =ecember 61, 2012 $in thousands(
Pat Income Statement #ales Income "rom #ci >ost o" sales Fperating e/pense >onsolidated ?I ?oncontrolling share >ontrolling share o" ?I .etained Earnings 0etained earnings 5 Pat 0etained earnings 5 #ci >ontrolling share o" ?I =ividends 0etained earnings H =ec 61 /alance Sheet >ash 8ccounts receivable Inventories 8dvance to #ci Fther current assets +and Plant assets 5 net Investment in #ci 1,&00 )! 1,200 < 6&0 < #ci &0' !00 c 600 < 1&0 < e " 25! 120 )! 2* 15 1,*00 < *&* < 61* 15< 25! 8d4ustments and Eliminations >onsolidated #tatements 2,300

233 100 25! 200 < 630 120 30< 1&0 d 100

233 25! c " 62 & 200 < 630

12 *2 1!3 30 1!0 620 !&0 *!0

60 30 120 10 !0 3!0

30 h a 10 30

&2 &2 2&3 1)0 6&0 1,150

)*

2*

=ividends receivable ;ood1ill 1,5&& 8ccounts payable =ividends payable Fther liabilities >apital stoc. 0etained earnings 3& 200 1,300 630 1,5&& )20 60 20 50 300 1&0 )20

b d

1! *0

b 1! c 33 d *00 g 1! *0 2,26& !& 3 250 1,300 630 d 12* " 11 &2)

h g

10 1!

d 300

?oncontrolling interest January 1 ?oncontrolling interest =ecember 61 &2)

< =educt

16! 2,26&

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-33

2011 Pearson Education, Inc. publishing as Prentice Hall

4-34

Consolidation Techniques and Procedures

Solution %4-13 Supporting computations Investment cost January 1, 2011 Implied "air value o" #.i $ &0,000 % &0'( -oo. value o" #.i E/cess "air value over boo. value Excess allocated to Inventory $sold in 2011( E7uipment $3Ayear remaining use li"e( Intangible assets $30Ayear amorti:ation period( E/cess "air value over boo. value Income from S1i for !#11 #.i2s net income +ess, E/cess allocated to inventories +ess, 8morti:ation o" e/cess allocated to e7uipment $ 3,000%3 years( +ess, 8morti:ation o" intangibles $ *,000%30 years( #.i2s ad4usted income "or 2011 Ply2s &0' controlling interest share ?oncontrolling interest share "or 2011 $20'( Income from S1i for !#1! #.i2s net income +ess, 8morti:ation o" e/cess allocated to e7uipment $ 3,000%3 years( +ess, 8morti:ation o" intangibles $ *,000%30 years( #.i2s ad4usted income "or 2012 Ply2s &0' controlling interest share ?oncontrolling interest share "or 2012 $20'( &0,000 100,000 50,000 10,000 1,000 3,000 *,000 10,000 1*,000 $1,000( $1,000( $12*( 12,&)* 10,600 2,*)* 20,000 $1,000( $12*( 1&,&)* 1*,100 6,))*

?ote, #ince the prior year2s income is not a""ected by the current year2s error o" omission, the 1or.papers "or 2012 are easier to prepare 1ithout an additional conversionAtoAe7uity entry.

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-35

Solution %4-13 $continued( %l) Co&'o&ation an! Sub(i!ia&) >onsolidation Eor.papers "or the year ended =ecember 61, 2011
Ply Income Statement #ales Income "rom #.i >ost o" sales Fperating e/penses >onsolidated ?I ?oncontrolling share >ontrolling share o" ?I .etained Earnings 0etained earnings 5 Ply 0etained earnings 5 #.i >ontrolling share o" ?I =ividends 0etained earnings H =ec 61 /alance Sheet >ash Brade receivables 5 net =ividends receivable Inventories Plant G e7uipment 5 net Investment in #.i Intangibles 2&0,000 8ccounts payable =ividends payable >apital stoc. Fther paidAin capital 0etained earnings 20,)00 5,000 100,000 !0,000 50,600 2&0,000 120,000 1*,000 *,000 e 3,000 30,000 b 30,000 20,000 b 20,000 30,000 120,000 b 20,000 " 1,*)* 11&,000 1!0,000 10,600 10*,000 < 6*,000 < #.i &0' &0,000 6*,000 < 60,000 < a 10,600 b 1,000 c 1,000 d 12* " 60,600 1*,000 2,*)* 8d4ustments and Eliminations >onsolidated #tatements 230,000 131,000 < !!,12* < 62,&)* 2,*)* < 60,600

)0,000 60,000 60,600 10,000 < 50,600 1*,000 *,000 < 30,000 b 60,000

)0,000 60,600 a " 3,000 1,000 10,000 < 50,600

23,)00 2*,000 3,000 30,000 100,000 &!,600

1*,000 20,000 0 60,000 **,000 e b 3,000 c 3,000 1,000

65,)00 3*,000 )0,000 1*&,000

*,000

a !,600 b &0,000 d 12*

3,&)* 61),*)* 6*,)00 10,000 100,000 !0,000 50,600

?oncontrolling interest January 1 ?oncontrolling interest =ecember 61 11&,000

< =educt

21,*)* 61),*)*

2011 Pearson Education, Inc. publishing as Prentice Hall

4-36

Consolidation Techniques and Procedures

Solution %4-13 $continued( %l) Co&'o&ation an! Sub(i!ia&) >onsolidation Eor.papers "or the year ended =ecember 61, 2012
Ply Income Statement #ales Income "rom #.i >ost o" sales Fperating e/penses >onsolidated ?I ?oncontrolling share >ontrolling share o" ?I .etained Earnings 0etained earnings 5 Ply 0etained earnings 5 #.i >ontrolling share o" ?I =ividends 0etained earnings H =ec 61 /alance Sheet >ash Brade receivables 5 net =ividends receivable Inventories Plant G e7uipment 5 net Investment in #.i Intangible assets 60*,000 8ccounts payable =ividends payable >apital stoc. Fther paidAin capital 0etained earnings 1),)00 !,000 100,000 !0,000 121,600 60*,000 130,000 2*,000 *,000 e 3,000 30,000 b 30,000 20,000 b 20,000 *0,000 130,000 b 21,*)* " 1,))* 162,))*
< =educt

#.i &0' 50,000

8d4ustments and Eliminations

>onsolidated #tatements 2!0,000

1)0,000 1!,000 110,000 < 60,000 <

a 1!,000 6*,000 < 6*,000 < c d " 1,000 12* 6,))* 13*,000 < !!,12* < 3&,&)* 6,))* < 3*,100

3!,000

20,000

50,600 30,000 3!,000 1*,000 < 121,600 20,000 10,000 < *0,000 b 30,000

50,600 3*,100 a " &,000 2,000 1*,000 < 120,300

2!,)00 3*,000 3,000 30,000 5*,000 53,600

20,000 60,000 e 60,000 !0,000 b 6,000 c 3,000 1,000

3!,)00 )*,000 )0,000 1*),000

3,&)*

a &,000 b &!,600 d 12*

3,)*0 6*6,3*0 32,)00 ),000 100,000 !0,000 120,300

?oncontrolling interest January 1 ?oncontrolling interest =ecember 61

26,6*0 6*6,3*0

162,))*

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-37

Solution %4-14 Preliminary computations Investment cost Implied "air value o" #im $ 55,000 % 50'( -oo. value o" #im E/cess "air value over boo. value E/cess allocated to, Inventories $sold in 2011( Patents $10Ayear remaining use"ul li"e( E/cess "air value over boo. value 1 *nalysis of in estment in Sim account Dair value o" #im January *, 2011 8dd, >hange in retained earnings "rom January *, 2011 to =ecember 61, 2016 +ess, 8morti:ation o" e/cess 8llocated to inventories and amorti:ed in 2011 8llocated to patents and amorti:ed over 10 years $ 20,000%10 years( 6 years Dair value at =ecember 61, 2016 8dd, Income "rom #im "or 2013 +ess, =ividends in 2013 Dair value at =ecember 61, 2013 Investment in #im on =ecember 61, 2016 $50' "air value( Investment in #im on =ecember 61, 2013 $50' "air value( ?oncontrolling interest on =ec. 61, 2016 $10' "air value( ?oncontrolling interest on =ec. 61, 2013 $10' "air value( 110,000 *0,000 $10,000( $!,000( 133,000 1&,000 $10,000( 1*2,000 125,!00 16!,&00 13,300 1*,200 55,000 110,000 &0,000 60,000 10,000 20,000 60,000

2011 Pearson Education, Inc. publishing as Prentice Hall

4-38

Consolidation Techniques and Procedures

Solution %4-14 $continued( %#' Co-'an) an! Sub(i!ia&) >onsolidation Eor.papers "or the year ended =ecember 61, 2013
Pep Debits >ash 8ccounts receivable Plant assets Investment in #im Patents >ost o" goods sold Fperating e/penses =ividends 11,000 1*,000 220,000 16!,&00 b 13,000 *0,000 2*,000 20,000 3)),&00 %redits 8ccumulated depreciation +iabilities >apital stoc. PaidAinAe/cess 0etained earnings #ales Income "rom #im 60,000 30,000 c 10,000 600,000 2,000 a d 5,000 1,000 #im 1*,000 2*,000 1&0,000 a ),200 b 125,!00 c 2,000 &0,000 < !),000 < 20,000 < 3)&,000 8d4ustments and Eliminations Income 0etained #tatement Earnings -alance #heet 2!,000 30,000 300,000

12,000

50,000 &0,000 100,000 20,000 )1,!00 100,000 1!,200 3)),&00

*0,000 60,000 !0,000 b !0,000 )0,000 b )0,000 50,000 a 1!,200 600,000 b 1,&00 13,300 1,&00 < 31,200 d &00 1!3,000 )1,!00 150,000

130,000 110,000 100,000 20,000

?oncontrolling interest =ec 61, 2016 ?oncontrolling interest share $ 1&,000 ad4. inc. / 10'( d >ontrolling share o" ?I >onsolidated retained earnings ?oncontrolling interest =ec 61, 2013

31,200 52,&00 52,&00 1*,200 3)&,000

1!3,000
< =educt

a b c d

Bo eliminate income "rom subsidiary and dividends received and reduce the investment account to its beginningAo"AtheAperiod balance. Bo eliminate reciprocal investment and subsidiary e7uity amounts, establish beginning noncontrolling interest, and ad4ust patents "or the unamorti:ed e/cess as o" the beginning o" the period. Bo amorti:e e/cess allocated to patents "or 2013. Bo enter noncontrolling interest share o" subsidiary income and dividends.

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-39

Solution %4-15 1 5ournal entries on Peg"s boo1s 5anuary 1& !#11 Investment in #up $50'( 1&,000 >ash 1&,000 Bo record purchase o" 50' o" #up2s stoc. "or cash. 5uly 1& !#11 Investment in Ell $2*'( ),000 >ash ),000 Bo record purchase o" 2*' o" Ell2s stoc. "or cash. No ember !#11 >ash Investment in #up $50'( Bo record receipt o" 50' o" #up2s No ember !#11 >ash Investment in Ell $2*'( Bo record receipt o" 2*' o" Ell2s 2,)00 2,)00 6,000 dividends. 1,2*0 1,2*0 *,000 dividends.

December 31& !#11 Investment in #up $50'( 3,*00 Income "rom #up Bo record #hare o" #up2s reported income $ 2&,000 A 26,000( 50' December 31& !#11 Investment in Ell $2*'( )00 Income "rom Ell Bo record investment income "rom Ell "or 20115 computed as, #hare o" Ell2s reported income )*0 $ 60,000A 23,000(1%2 year 2*' +ess, 8morti:ation o" e/cess I ),000 H $ 23,000 2*'(J $*0( 10 years 1%2 year )00

3,*00

)00

2011 Pearson Education, Inc. publishing as Prentice Hall

4-40

Consolidation Techniques and Procedures

Solution %4-15 $continued( 2 Peg"s separate company financial statements %#. Co&'o&ation Income #tatement "or the year ended =ecember 61, 2011 .e enues #ales Income "rom #up Income "rom Ell Botal revenue %osts and expenses >ost o" sales Fther e/penses Botal costs and e/penses ?et income 100,000 3,*00 )00 10*,200 !0,000 2*,000 &*,000 20,200

%#. Co&'o&ation 0etained Earnings #tatement "or the year ended =ecember 61, 2011 0etained earnings January 1 8dd, ?et income =educt, =ividends 0etained earnings =ecember 61 %#. Co&'o&ation -alance #heet at =ecember 61, 2011 *ssets >urrent assets, >ash Fther current assets Plant assets 5 net Investments, Investment in #up $50'( Investment in Ell $2*'( Botal assets 2iabilities and stoc1holders" e3uity >urrent liabilities #toc.holders2 e7uity, >apital stoc. 0etained earnings =ecember 61 Botal liabilities and stoc.holders2 e7uity 1&,5*0 30,000 15,&00 !,3*0 *&,5*0 120,000 2!,2*0 20*,200 2*,000 1*0,000 60,200 1&0,200 20*,200 20,000 20,200 $10,000( 60,200

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-41

Solution %4-15 $continued( 3 >onsolidation 1or.papers 5 trial balance "ormat %#. Co&'o&ation an! Sub(i!ia&) >onsolidation Eor.papers "or the year ended =ecember 61, 2011
Peg Debits >ash Fther current assets Plant assets 5 net Investment in #up Investment in Ell >ost o" sales Fther e/penses =ividends 1&,5*0 30,000 120,000 15,&00 !,3*0 !0,000 2*,000 10,000 50' #up 3,000 11,000 13,000 a 1,&00 b 1&,000 !,3*0 1!,000 ),000 6,000 )!,000< 62,000< a 2,)00 10,000< d 600< Botal debits %redits >urrent liabilities >apital stoc. 0etained earnings #ales Income "rom #up Income "rom Ell Botal credits ?oncontrolling interest A January 1 ?oncontrolling interest share *,000 10' >ontrolling share o" ?I >onsolidated retained earnings ?oncontrolling interest =ecember 61 d 200 d *00 *00< 20,200 20,200 60,200 60,200 2,200 213,300 600,200 **,000 213,300 8d4ustments and Eliminations Income 0etained #tatement Earnings -alance #heet 22,5*0 *1,000 163,000

2*,000 1*0,000 20,000 100,000 3,*00 )00 600,200

),000 1&,000 b 1&,000 2,000 b 2,000 2&,000 a 3,*00 **,000 b 2,000

62,000 1*0,000 20,000 12&,000 )00

2011 Pearson Education, Inc. publishing as Prentice Hall

4-42

Consolidation Techniques and Procedures

Solution %4-15 $continued( 4 %onsolidated financial statements %#. Co&'o&ation an! Sub(i!ia&) >onsolidated Income #tatement "or the year ended =ecember 61, 2011 .e enues #ales 12&,000 Income "rom Ell $e7uity method( )00 Botal revenues %osts and expenses >ost o" sales )!,000 Fther e/penses 62,000 Botal costs and e/penses Botal consolidated income +ess, ?oncontrolling interest share
>ontrolling share o" ?I

12&,)00

10&,000 20,)00 *00 20,200

%#. Co&'o&ation an! Sub(i!ia&) >onsolidated 0etained Earnings #tatement "or the year ended =ecember 61, 2011 >onsolidated retained earnings January 1 8dd, >ontrolling share o" ?I =educt, =ividends >onsolidated retained earnings =ecember 61 %#. Co&'o&ation an! Sub(i!ia&) >onsolidated -alance #heet at =ecember 61, 2011 *ssets >urrent assets, >ash 22,5*0 Fther current assets *1,000 Plant assets 5 net Investments and other assets, Investment in Ell Botal assets 2iabilities and stoc1holders" e3uity >urrent liabilities #toc.holders2 e7uity, >apital stoc. 1*0,000 >onsolidated retained earnings 60,200 ?oncontrolling interest 2,200 Botal liabilities and stoc.holders2 e7uity Solution %4-16

20,000 20,200 $10,000( 60,200

)6,5*0 163,000 !,3*0 213,300 62,000

1&2,300 213,300

Partial consolidated statement of cash flo(s using the direct method %il Co&'o&ation an! Sub(i!ia&i#( Partial >onsolidated #tatement o" >ash Dlo1s "or the current year %ash 'lo(s from )perating *cti ities >ash received "rom customers 1,!00,000 =ividends "rom e7uity investees 30,000 Interest received "rom shortAterm loan *,000 2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-43

>ash paid "or other e/penses >ash paid to suppliers ?et cash "lo1 "rom operating activities

$3*0,000( $!60,000( *!*,000

2011 Pearson Education, Inc. publishing as Prentice Hall

4-44

Consolidation Techniques and Procedures

Solution %4-17 /i&# t +#t0o! %#( Co&'o&ation an! Sub(i!ia&) >onsolidated #tatement o" >ash Dlo1s "or the year ended =ecember 61, 2011 %ash 'lo(s from )perating *cti ities >ash received "rom customers >ash paid to suppliers >ash paid "or operating e/penses ?et cash "lo1s "rom operating activities %ash 'lo(s from In esting *cti ities Purchase o" plant and e7uipment ?et cash "lo1s "rom investing activities %ash 'lo(s from 'inancing *cti ities Payment o" cash dividends 5 controlling Payment o" cash dividends 5 noncontrolling Payment o" longAterm liabilities ?et cash "lo1s "rom "inancing activities =ecrease in cash "or the year >ash on January 1 >ash on =ecember 61 !)0,000 $ 63&,000( $1*),*00( $12*,000( $12*,000( $6!,000( $2,000( $11,000( $35,000( $5,*00( !*,000 **,*00 $*0*,*00( 1!3,*00

.econciliation of net income to cash pro ided by operating acti ities

>ontrolling share o" ?I

160,000 *,000 *1,000 *00 22,000 $*,000( $20,000( $15,000(

8d4ustments to reconcile net income to cash provided by operating activities, ?oncontrolling interest share =epreciation e/pense Patents amorti:ation Increase in accounts payable Increase in accounts receivable Increase in inventories Increase in other current assets ?et cash "lo1s "rom operating activities

63,*00 1!3,*00

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-45

Solution %4-17 In!i&# t +#t0o!

$continued(

%#( Co&'o&ation an! Sub(i!ia&) >onsolidated #tatement o" >ash Dlo1s "or the year ended =ecember 61, 2011 %ash 'lo(s from )perating *cti ities
>ontrolling share o" ?I

160,000

8d4ustments to reconcile net income to net cash "rom operating activities, ?oncontrolling share o" ?I *000 =epreciation Patents amorti:ation Increase in accounts receivable Increase in inventories Increase in other current assets Increase in accounts payable ?et cash "lo1s "rom operating activities %ash 'lo(s from In esting *cti ities Purchase o" plant and e7uipment ?et cash "lo1s "rom investing activities %ash 'lo(s from 'inancing *cti ities Payment o" cash dividends 5 controlling Payment o" cash dividends 5 noncontrolling Payment o" longAterm liabilities ?et cash "lo1s "rom "inancing activities =ecrease in cash "or the year >ash on January 1 >ash on =ecember 61 *1,000 *00 $*,000( $20,000( $15,000( 22,000 $12*,000( $12*,000( $6!,000( $2,000( $11,000( $35,000( $5,*00( !*,000 **,*00

63,*00 1!3,*00

Note$ 6he cash flo(s from in esting acti ities and cash flo(s from financing acti ities sections of the statement of cash flo(s are the same under the direct and indirect method7

2011 Pearson Education, Inc. publishing as Prentice Hall

4-46

Consolidation Techniques and Procedures

Solution %4-18 I8I>P8J In!i&# t +#t0o! %u01 In 2 an! Sub(i!ia&) #tatement o" >ash Dlo1s (Indirect 8ethod) "or the year ended =ecember 61, 2011 %ash 'lo(s from )perating *cti ities
>ontrolling share o" ?I

15&,000 66,000 &2,000 6,000 22,000 121,000 12,000 $)0,000( $11,000( $!,000( $12),000( 30,000 $&),000( 33,000 $*&,000( $1*,000( $1*0,000( $1)5,000( 11&,000 15*,000 616,000

8d4ustments to reconcile net income to cash provided by operating activities, ?oncontrolling interest share =epreciation e/pense Patents amorti:ation =ecrease in accounts receivable Increase in accounts payable Increase in de"erred income ta/es Increase in inventories ;ain on mar.etable e7uity securities ;ain on sale o" e7uipment ?et cash "lo1s "rom operating activities %ash 'lo(s from In esting *cti ities Purchase o" e7uipment Proceeds "rom sale o" e7uipment ?et cash "lo1s "rom investing activities %ash 'lo(s from 'inancing *cti ities >ash received "rom sale o" treasury stoc. Payment o" cash dividends 5 controlling Payment o" cash dividends 5 noncontrolling Payment on longAterm note ?et cash "lo1s "rom "inancing activities Increase in cash "or the year >ash on January 1 >ash on =ecember 61 +isting o" nonAcash investing and "inancing activities,

1&!,000 6&3,000

Issued common stoc. in e/change "or land 1ith a "air value o"

21*,000.

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-47

Solution %4-18 $continued( In!i&# t +#t0o! %u01 In 2 an! Sub(i!ia&) Eor.papers "or the #tatement o" >ash Dlo1s (Indirect 8ethod) "or the year ended =ecember 61, 2011
Kear2s >hange *sset %hanges >ash 8llo1ance to reduce LE# 8ccounts receivable 5 net Inventories +and< Plant and e7uipment 8ccumulated depreciation Patents 5 net Botal asset changes %hanges in E3uities 8ccounts G accrued payable ?ote payable longAterm =e"erred income ta/es ?oncontrolling interest in #to >ommon stoc., 10 par< 8dditional paidAin capital 0etained earnings Breasury stoc. at cost Botal changes in e7uities 11&,000 11,000 $22,000( )0,000 21*,000 !*,000 $*3,000( $6,000( 300,000 0econciling Items =ebit >redit >ash Dlo1 Drom Fperations >ash Dlo1 Investing 8ctivities >ash Dlo1 Dinancing 8ctivities

e " 22,000

11,000

. l m

!2,000 &2,000 6,000

g )0,000 h 21*,000 4 12),000 . 2&,000

121,000 $1*0,000( 12,000 1&,000 100,000 126,000 130,000 6!,000 300,000

n 121,000 o 1*0,000 p b 12,000 66,000 d 1*,000

h 100,000 h 11*,000 i &,000 a 15&,000 i 6!,000

*&,000

>ontrolling share o" ?I ?oncontrolling interest share ;ain on LE# Purchase o" e7uipment #ale o" e7uipment ;ain on e7uipment =epreciation e/pense Payment on longAterm note 8morti:ation o" patents =ecrease in receivables Increase in inventories Increase in accounts payable Increase in de"erred income ta/es Proceeds "rom treasury stoc. Payment o" dividends Payment o" dividends

a 15&,000 b 66,000 e 11,000 4 12),000 . . !,000 l o 1*0,000 m " g )0,000 n 121,000 p 12,000 i 33,000 c *&,000 d 1*,000 1,225,000 6,000 22,000 &2,000 30,000

15&,000 66,000 $11,000( $12),000( 30,000 $!,000( &2,000 $1*0,000( 6,000 22,000 $)0,000( 121,000 12,000 33,000 $*&,000( $1*,000( 6&3,000 $&),000( $1)5,000(

5 controlling 5 noncontrolling

1,225,000

>ash increase "or the year C < ?onAcash item, Purchased

6&3,000 H &),000 H 1)5,000 C 11&,000. 21*,000 land through common stoc. issuance.

2011 Pearson Education, Inc. publishing as Prentice Hall

4-48

Consolidation Techniques and Procedures

Solution %4-19 Indirect 8ethod %il Co&'o&ation an! Sub(i!ia&) >onsolidated #tatement o" >ash Dlo1s "or the year ended =ecember 61, 2011 %ash 'lo(s from )perating *cti ities >ontrolling share o" ?I 8d4ustments to reconcile net income to cash provided by operating activities, ?oncontrolling interest share =epreciation e/pense Patents amorti:ation Increase in accounts payable Income less dividends 5 e7uity investee Increase in accounts receivable ?et cash "lo1s "rom operating activities %ash 'lo(s from In esting *cti ities Purchase o" e7uipment ?et cash "lo1s "rom investing activities %ash 'lo(s from 'inancing *cti ities >ash received "rom longAterm note Payment o" cash dividends 5 controlling Payment o" cash dividends 5 noncontrolling ?et cash "lo1s "rom "inancing activities Increase in cash "or the year >ash on January 1 >ash on =ecember 61

*00,000

30,000 200,000 10,000 1),000 $60,000( $210,000(

2),000 *2),000

$*00,000( $*00,000( 200,000 $16),000( $20,000( 36,000 )0,000 6!0,000 360,000

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-49

Solution %4-19 $continued( Indirect 8ethod %il Co&'o&ation an! Sub(i!ia&) Eor.papers "or the #tatement o" >ash Dlo1s $Indirect Lethod( "or the year ended =ecember 61, 2011
>ash Dlo1s Drom Fperations >ash Dlo1s Investing 8ctivities >ash Dlo1s Dinancing 8ctivities

Kear2s >hange *sset %hanges >ash 8ccounts receivable 5 net Inventories Plant G e7uipment 5 net E7uity investments Patents Botal asset changes )0,000 210,000 0 600,000 60,000 $10,000( !00,000

0econciling Items =ebit >redit

e 210,000 " 200,000 l 60,000 h 10,000 g *00,000 m !0,000

%hanges in E3uities 8ccounts payable 1),000 =ividends payable 16,000 +ongAterm note payable 200,000 >ommon stoc. 0 Fther paidAin capital 0 0etained earnings 6*0,000 ?oncontrol. interest 20' 20,000 >hanges in e7uities !00,000 >ontrolling share o" ?I ?oncontrolling interest share Purchase o" plant G e7uipment =epreciation 5 plant G e7uipment 8morti:ation o" patents Increase in accounts receivable Income less dividends "rom investees Increase in accounts payable 0eceived cash "rom longAterm note

i 1),000 . 16,000 4 200,000

a *00,000 b 30,000

c 1*0,000 d 20,000

a *00,000 b 30,000 g *00,000 " 200,000 h 10,000 e 210,000 m !0,000 l 60,000 i 1),000 4 200,000 . 16,000 1,5*0,000 36,000 C

*00,000 30,000 $*00,000( 200,000 10,000 $210,000( $60,000( 1),000 0

c 1*0,000 Payment o" dividends 5 controlling Payment o" dividends 5 noncontrolling d 20,000 1,5*0,000 >ash increase "or the year C *2),000 H

*2),000 )0,000.

$*00,000(

200,000 $16),000( $20,000( 36,000

*00,000 @

2011 Pearson Education, Inc. publishing as Prentice Hall

4-50

Consolidation Techniques and Procedures

Solution %4-19 $continued( Direct 8ethod %il Co&'o&ation an! Sub(i!ia&) >onsolidated #tatement o" >ash Dlo1s "or the year ended =ecember 61, 2011 %ash 'lo(s from )perating *cti ities >ash received "rom customers >ash received "rom e7uity investees >ash paid to suppliers >ash paid "or operating e/penses ?et cash "lo1s "rom operating activities %ash 'lo(s from In esting *cti ities Purchase o" e7uipment ?et cash "lo1s "rom investing activities %ash 'lo(s from 'inancing *cti ities >ash received "rom longAterm note Payment o" cash dividends 5 controlling Payment o" cash dividends 5 noncontrolling ?et cash "lo1s "rom "inancing activities Increase in cash "or the year >ash on January 1 >ash on =ecember 61 .econciliation of net income to cash pro ided by operating acti ities >ontrolling share o" ?I 8d4ustments to reconcile net income to cash provided by operating activities, ?oncontrolling interest share Income less dividends 5 e7uity investee =epreciation e/pense Patents amorti:ation Increase in accounts payable Increase in accounts receivable ?et cash "lo1s "rom operating activities

2,650,000 60,000 $ 1,366,000( $3!0,000($1,&56,000( *2),000 $*00,000( $*00,000( 200,000 $16),000( $20,000( 36,000 )0,000 6!0,000 360,000

*00,000

30,000 $60,000( 200,000 10,000 1),000 $210,000(

2),000 *2),000

2011 Pearson Education, Inc. publishing as Prentice Hall

Chapter 4

4-51

Solution %4-19 $continued( Direct 8ethod %il Co&'o&ation an! Sub(i!ia&) Eor.papers "or the #tatement o" >ash Dlo1s $=irect Lethod( "or the year ended =ecember 61, 2011
>ash Dlo1 Drom Fperations >ash Dlo1 >ash Dlo1 Investing Dinancing 8ctivities 8ctivities

Kear2s >hange *sset %hanges >ash 8ccounts receivable 5 net Inventories Plant G e7uipment 5 net E7uity investments Patents Botal asset changes >hanges in E7uities 8ccounts payable =ividends payable +ongAterm note payable 0etained earnings< ?oncontrol.interest 20' >hanges in e7uities 0et. earnings change< #ales Income "rom e7uity investees >ost o" goods sold =epreciation e/pense Fther operating e/penses ?oncontrolling interest share =ividends declared 5 Pil )0,000 210,000 0 600,000 60,000 $10,000( !00,000 1),000 16,000 200,000 6*0,000 20,000 !00,000 2,!00,000 !0,000 $1,3*0,000( $200,000( $3)0,000( $30,000( $1*0,000(

0econciling Items =ebit >redit

a 210,000 b 200,000 e 10,000 c *00,000 d 60,000

" 1),000 g 16,000 h 200,000 i 30,000 4 20,000

a 210,000 d 60,000 " 1),000 b 200,000 e 10,000 i 30,000

2,650,000 60,000 $1,366,000( 0 $3!0,000( 0

g 16,000 . 16),000

0etained earnings change 6*0,000 0eceived cash "rom longAterm note Payment o" dividends 5 controlling Payment o" dividends 5 noncontrolling Purchase o" e7uipment
<

h 200,000 . 16),000 4 20,000 c *00,000 1,6)),000

200,000 $16),000( $20,000( *2),000 $*00,000( $*00,000( 36,000

1,6)),000

0etained earnings changes replace the retained earnings account "or reconciling purposes.

>ash increase "or the year C

*2),000 A

*00,000 @

36,000 C

)0,000.

2011 Pearson Education, Inc. publishing as Prentice Hall