Академический Документы
Профессиональный Документы
Культура Документы
LO1
1.
LO1
2.
LO1
3.
a.
b.
c.
d.
LO1
5.
Corellas Income
from Hollow
No effect.
No effect.
Decreased.
Increased.
No effect.
Decreased.
No effect.
Decreased.
a.
b.
c.
d.
Consolidated Net
Income
Consolidated Net
Assets
No effect.
No effect.
Decreased.
Decreased.
No effect.
Increased.
Decreased.
No effect.
LO1
6.
LO1, 2 & 4
Use the following information to answer questions 7 through 10.
On January 1, 2003, Shrimp Corporation purchased a delivery
truck with an expected useful life of five years. On January 1,
2005, Shrimp sold the truck to Avocet Corporation and recorded
the following journal entry:
Cash
Accumulated depreciation
Truck
Gain on Sale of Truck
Debit
50,000
18,000
Credit
53,000
15,000
LO1
8.
LO2
9.
LO4
10.
$121,000.
$125,000.
$131,000.
$143,000.
LO2
11.
$18,000.
$22,000.
$23,000.
$27,000.
LO2
12.
required no adjustment.
decreased by $4,000.
increased by $4,000
increased by $30,000.
d.
of
is
LO2
13.
Falcon
Rodent
$
750,000 $
300,000
( 200,000)
(
50,000)
$
550,000 $
250,000
$1,025,000
$1,025,000
$1,025,000
$1,050,000
and
and
and
and
$245,000.
$250,000.
$245,000.
$250,000.
Peregrine
1,800,000
$
(
(
(
$
Cliff
$ 1,050,000
45,000
750,000)
( 285,000)
450,000)
( 135,000)
180,000)
( 450,000)
420,000 $
225,000
$161,550.
$162,000.
$166,050.
$202,500.
LO2
15.
Kestrel
400,000
120,000
Reptile
250,000
75,000
The
consolidated
amounts
for
Buildings
and
Accumulated
Depreciation - Buildings that appeared, respectively, on the
balance sheet at December 31, 2005, were
a.
b.
c.
d.
LO2
16.
and
and
and
and
$192,000.
$195,000.
$192,000.
$195,000.
Pigeon
Corporation
purchased
land
from
its
60%-owned
subsidiary, Seed Inc., in 2003 at a cost $30,000 greater than
Seeds book value. In 2005, Pigeon sold the land to an outside
entity for $40,000 more than Pigeons book value. The 2005
consolidated income statement reported a gain on the sale of
land of
a.
b.
c.
d.
LO2
17.
$620,000
$620,000
$650,000
$650,000
$40,000.
$42,000.
$58,000.
$70,000.
$249,250.
$250,500.
$254,250.
$288,000.
LO3
18.
LO4
19.
LO4
20.
$48,000.
$60,000.
$64,000.
$80,000.
$710,000.
$764,000.
$800,000.
$900,000.
LO1
Exercise 1
Spiniflex Pigeon Company owns 90% of the outstanding stock of
Waterhole Corporation. This interest was purchased on January 1,
1999, when Waterholes book values were equal to its fair values. The
amount paid by Spiniflex Pigeon included $10,000 for goodwill.
On January 1, 2000, Spiniflex Pigeon purchased equipment for $100,000
which had no salvage value with a useful life of 8 years. on a
straight-line basis. On January 1, 2005, Spiniflex Pigeon sold the
truck to Waterhole Corporation for $40,000. The equipment was
estimated to have a four-year remaining life on this date.
All
affiliates use the straight-line depreciation method.
Required:
Prepare all relevant entries with respect to the truck.
1. Record the journal entries on Spiniflex Pigeons books for 2005.
2. Record the journal entries on Waterholes books for 2005.
LO1&2
Exercise 2
Stork Corporation paid $15,700
Corporation on January 1, 2004,
consisted of $10,000 Capital Stock
The excess cost over book value was
Additional information:
1. Stork sells merchandise to Swamp at 120% of Storks cost. During
2004, Storks sales to Swamp were $4,800, of which half of the
merchandise remained in Swamps inventory at December 31, 2004.
During 2005, Storks sales to Swamp were $6,000 of which 60%
remained in Swamps inventory at December 31, 2005. At year-end
2005 Swamp owed Stork $1,500 for the inventory purchased during
2005.
2. Stork Corporation sold equipment with a book value of $2,000 and
a remaining useful life of four years and no salvage value to
Swamp Corporation on January 1, 2005 for $2,800.
3. Separate company financial statements for Stork Corporation and
Subsidiary at December 31, 2005 are summarized in the first two
columns of the consolidation working papers.
4. Helpful hint: Stork's investment in Swamp account balance at
December 31, 2004 consisted of the following:
Investment cost
Equity in Swamps income for 2004
Less: Unrealized inventory profit
15,700
3,600
(
400)
( 1,800)
$ 17,100
Required:
Complete the working papers to consolidate the financial statements
of Stork Corporation and subsidiary for the year ended December 31,
2005.
60,000
Non- Balance
Cntrl. Sheet
$14,000
4,500
800
26,000) (
28,000) (
11,300
4,400)
3,600)
6,000
9,500
11,300
7,000) (
5,000
6,000
2,000)
13,800
$ 9,000
6,000
7,000
10,000
24,000
4,000
3,000
4,000
4,500
9,000
3,500
19,800
70,800
$24,000
7,000
5,000
50,000
10,000
13,800
9,000
70,800
$24,000
LO1&2
2009 Pearson Education, Inc. publishing as Prentice Hall
6-10
Exercise 3
Dove Corporation acquired all of the outstanding voting common stock
of the Squab Corporation several years ago when the book values and
fair values of Squabs net assets were equal.
On April 1, 2003, Dove sold land that cost $25,000 to Squab for
$40,000. Squab resold the land for $45,000 on December 1, 2005.
On July 1, 2005, Dove sold equipment with a book value of $10,000 to
Squab for $26,000. Squab is depreciating the equipment over a fouryear period using the straight-line method.
Required:
The first two columns in the working papers presented below summarize
income statement information from the separate company financial
statements of Dove and Squab for the year ended December 31, 2005.
Fill in the consolidated working paper columns to show how each of
the items from the separate company reports will appear in the
consolidated income statement.
Sales
Income from Squab
Gain on sale of equipment
Gain on sale of land
Cost of sales
Depreciation expense
Other expenses
Net income
Dove
450,000
46,000
16,000
( 211,500)
( 45,500)
( 120,000)
135,000
Squab
200,000
(
(
(
Consolidated
5,000
91,500)
23,500)
34,000)
56,000
LO1&2
Exercise 4
Brolga Corporation paid $26,800 cash for a 70% interest in Dance
Company on January 1, 2004, when Dances stockholders equity
consisted of $15,000 Capital Stock and $9,000 of Retained Earnings.
Additional information:
1. The cost-book value differential was allocated to a patent with
a 20-year amortization period.
2. Brolga Corporation sold inventory items that cost $4,000 to
Dance for $4,800 during 2004 and one-half of these inventory
items remained unsold by Dance on December 31, 2004.
3. During 2005 Brolga Corporation sold inventory items that cost
$5,000 to Dance for $6,000 and 30% of these inventory items
remained unsold by Dance on December 31, 2005. Dance Corporation
owed Brolga $700 on account at year-end 2005.
4. Brolga Corporation sold equipment with a 5-year remaining life
and a book value of $4,000 to Dance for $5,000 on January 1,
2005. Straight-line depreciation is used.
5. Brolga and Dance pay annual dividends of $10,000 and $3,000,
respectively.
6. Separate financial statements for Brolga and Dance Corporations
appear on partially completed consolidation working papers.
Required:
Complete the working papers to consolidate the financial statements
for 2005.
90,000
$35,000
2,300
1,000
( 40,000) ( 20,000)
( 6,000) ( 2,000)
( 24,500) ( 8,000)
22,800
5,000
25,000
12,000
22,800
5,000
( 10,000) ( 3,000)
$
37,800
$14,000
10,350
1,500
1,050
12,000
41,000
1,500
2,700
6,000
23,500
28,200
$
94,100
$33,700
6,300
10,000
40,000
2,200
1,500
1,000
15,000
37,800
14,000
94,100
$33,700
LO2
Exercise 5
Barn Owl Corporation acquired 70% of the outstanding voting stock of
Cave Inc. on January 1, 2003 for $60,000 less than book value. The
$60,000 reduction was all assigned to a tractor. The tractor had a
remaining life of 15 years. On April 1, 2003, Cave sold land to Barn
Owl for a gain of $40,000 and originally cost $35,000. Barn Owl sold
the property for $85,000 on October 1, 2005. Barn Owl sold equipment
for $96,000 to Cave on January 1, 2004 which had a book value of
$80,000. The equipment cost Barn Owl $72,000. The equipment had a
remaining useful life of 8 years on the sale date and is depreciated
under the straight-line method.
Required:
Prepare a schedule for the calculation of consolidated net income for
Barn Owl and subsidiary for 2003, 2004 and 2005.
2003
300,000
90,000
2004
225,000
110,000
2005
60,000
120,000
LO2
Exercise 6
Separate income statements of Nightjar Corporation and its 90%-owned
subsidiary, Branch Inc., for 2005 were as follows:
Sales Revenue
Cost of sales
Other expenses
Gain on equipment
Income from Branch
Net income
$
(
(
$
Nightjar
2,000,000
1,200,000 )
400,000 )
80,000
180,000
660,000
Branch
$ 1,200,000
(
800,000 )
(
200,000 )
$
200,000
Additional information:
1. Nightjar acquired its 90% interest in Branch Inc. when the book
values were equal to the fair values.
2. The gain on equipment relates to equipment with a book value of
$120,000 and a 4-year remaining useful life that Branch sold to
Nightjar for $200,000 on January 2, 2005. The straight-line
depreciation method is used.
3. In 2004 Nightjar sold inventory to Branch of which the remainder
was sold in 2005.
2009 Pearson Education, Inc. publishing as Prentice Hall
6-14
Intercompany sales
Cost of intercompany sales
Percentage unsold at year-end
2004
300,000
180,000
40
2005
200,000
120,000
50
Required:
Prepare a consolidated income statement for Nightjar Corporation and
Subsidiary for the year ended December 31, 2005.
LO2&3
Exercise 7
Osprey Corporation created a wholly owned subsidiary, Branch
Corporation, on January 1, 2003, at which time Osprey sold land with
a book value of $90,000 to Branch at its fair market value of
$140,000. Also, on January 1, 2003, Osprey sold to Branch equipment
with a book value of $130,000 and a fair value of $165,000. The
equipment had a remaining useful life of 4 years and is being
depreciated under the straight-line method. On January 1, 2005,
Branch resold the land to an outside entity for $150,000. Branch
continues to use the equipment purchased from Osprey.
Income statements for Osprey and Branch for the year ended December
31, 2005 are summarized below:
Sales
Gain on sale of land
Income from Branch
Cost of sales
Depreciation expense
Other expenses
Net income
$
(
(
(
$
Osprey
450,000
55,000
220,000 ) (
95,000 ) (
37,000 ) (
153,000
$
Branch
100,000
10,000
50,000 )
32,000 )
8,000 )
20,000
Required:
At what amounts did the following items appear on a consolidated
income statement for Osprey Corporation and Subsidiary for the year
ended December 31, 2005?
1. Gain on Sale of Land
2. Depreciation Expense
3. Consolidated net income
LO3
Exercise 8
Separate income statements of Quail Corporation and its 80%-owned
subsidiary, Savannah Corporation, for 2005 are as follows:
Sales Revenue
Gain on equipment
Gain on land
Cost of sales
Other expenses
Separate incomes
Quail
800,000
35,000
(
(
$
400,000 )
265,000 )
170,000
(
(
$
Savannah
300,000
20,000
160,000 )
60,000 )
100,000
Additional information:
1. Quail acquired its 80% interest in Savannah Corporation when the
book values were equal to the fair values.
2. The gain on equipment relates to equipment with a book value of
$85,000 and a 7-year remaining useful life that Quail sold to
Savannah for $120,000 on January 2, 2005. The straight-line
depreciation method was used.
3. In 2005, Savannah sold land to an outside entity for $80,000.
The land was acquired from Quail in 2003 for $60,000. The
original cost of the land to Quail was $35,000.
Required:
Prepare a consolidated income statement for Quail Corporation and
Subsidiary for the year 2005.
LO3
Exercise 9
Cassowary Corporation acquired a 70% interest in Fruit Corporation in
1999 at a time when Fruits book values and fair values were equal.
In 2003, Fruit sold land to Cassowary for $82,000 that cost $72,000.
The land remained in Cassowarys possession until 2005 when Cassowary
sold it outside the combined entity for $102,000.
After the books were closed in 2005, it was discovered that Cassowary
had not considered the unrealized gain from its intercompany purchase
of land in preparing the consolidated financial statements. The only
entry on Cassowarys books was a debit to Land and a credit to Cash
in 2003 for $82,000, and, in 2005, a debit to Cash for $102,000 and
credits to Land for $82,000 and Gain on sale of land for $20,000.
Before the discovery of the error, the
statements disclosed the following amounts:
Consolidated net income
Land
2003
750,000
200,000
consolidated
2004
600,000
240,000
financial
2005
910,000
300,000
Required:
1. Determine the correct amounts of consolidated net income for
2003, 2004, and 2005.
2. Determine the correct amounts for Land in 2003, 2004, and 2005.
3. Calculate the amount at which the gain on the sale of land
should have been reported in 2005.
LO2&4
Exercise 10
Buzzard Corporation acquired 70% of the outstanding voting common
stock of Tool Inc. in 1998. On January 1, 1999, Tool Inc. purchased a
depreciable machine for $120,000 cash with an estimated useful life
of 10 years that was depreciated on a straight-line basis. Tool used
the machine until the end of 2004. On January 2, 2005, Tool sold the
machine to Buzzard who continued to use the same estimated life and
depreciation method that was used by Tool.
At the end of 2005, Buzzard made the following elimination entry in
the consolidation working papers.
Machine
Gain on Sale of Machine
Depreciation Expense
Accumulated Depreciation
22,000
14,000
2,000
34,000
Required:
Answer the following questions concerning Buzzard and Tool.
1. How much depreciation expense did Buzzard record in 2005?
2. What amounts were reported for the Machine and the Accumulated
Depreciation in the consolidated balance sheet on December 31,
2005?
3. If Tool reported $60,000 of net income for 2005, what amount was
assigned to the non-controlling interest?
SOLUTIONS
Multiple Choice Questions
1
($53,000 - $50,000)
125,000
10
18,000
$ 1,050,000
(
25,000 )
$ 1,025,000
$
(
250,000
5,000 )
245,000
225,000
11
12
13
14
45,000 )
4,500
184,500
90%
166,050
15
16
17
18
19
20
$
(
$
650,000
30,000 )
620,000
195,000
3,000 )
192,000
288,000
45,000 )
11,250
254,250
22,500
Exercise 1
Requirement 1: Spiniflex Pigeons books
01/01/05
Cash
Accumulated Depreciation
Equipment
Gain on Sale
40,000
62,500
100,000
2,500
Equipment
Cash
40,000
40,000
Depreciation Expense
Accumulated Depreciation
7,500
7,500
Exercise 2
Stork Corporation and Subsidiary
Consolidation Working Papers
at December 31, 2005
Eliminations
Stork
Swamp
Debit
Credit
INCOME STATEMENT
Sales
$
Income from
Swamp
Gain on
equipment sale
Cost of Sales
Other Expenses
Minority income
Net income
Retained
Earnings 1/1
Add: Net income
Dividends
Retained
Earnings 12/31
BALANCE SHEET
Cash
Receivables
Inventories
Equipment-net
Land
Investment in
Swamp
60,000
$ 6,000
4,500
4,500
800
d
b
( 26,000) (
( 28,000) (
$14,000
11,300
4,400)
3,600)
5,000 f
6,000
2,000)
13,800
$ 9,000
6,000
7,000
10,000
24,000
4,000
3,000
4,000
4,500
9,000
3,500
800
600 a
c
d
$ 6,000
400
200
5,000
e
(24,600)
(31,400)
600(
600)
11,400
9,500
11,400
1,800( 200) ( 7,000)
$13,900
c
19,800
$68,000
6,000
9,500
11,300
( 7,000) (
$
g
b
d
1,500
600
600
400 e
f
2,700
17,500
9,000
9,500
13,900
32,400
7,500
Goodwill
TOTAL ASSETS
$
LIAB. & EQUITY
Accounts payable
Capital
Stock
Retained
Earnings
1/1 Noncntrl.
Interest
12/31 Noncntrl.
Interest
TOTAL LIAB. &
$
EQUITIES
4,000 g
4,000
$76,300
70,800
$24,000
7,000
5,000
1,500
10,500
50,000
10,000
10,000
50,000
13,800
9,000
13,900
f
1,500 1,500
1,900
70,800
$24,000
1,900
$76,300
Exercise 3
Sales
Income from Squab
Gain on sale of equipment
Gain on sale of land
Cost of sales
Depreciation expense
Other expenses
Net income
Dove
450,000
46,000
16,000
( 211,500)
( 45,500)
( 120,000)
135,000
Squab
200,000
(
(
(
5,000
91,500)
23,500)
34,000)
56,000
Consolidated
650,000
0
0
20,000
( 303,000)
(
67,000)
( 154,000)
146,000
Exercise 4
Brolga Corporation and Subsidiary
Consolidation Working Papers
at December 31, 2005
Eliminations
Brolga
Dance
Debit
Credit
INCOME STATEMENT
Sales
$ 90,000
$35,000
Income from
2,300
Dance
Gain on
equipment sale
1,000
Cost of sales
( 40,000) ( 20,000)
Depreciation exp
Minority income
Other Expenses
Net income
Retained
Earnings 1/1
6,000) (
( 24,500) (
22,800
25,000
a
f
d
c
2,000)
8,000) h
5,000
12,000
NonContrl.
$ 6,000
2,300
1,000
300 a
b
e
500
Consolidated
$ 119,000
$ 6,000
400
( 53,900)
200
( 7,800)
$ 1,500 ( 1,500)
( 33,000)
22,800
12,000
25,000
22,800
10,000) (
5,000
3,000)
37,800
$14,000
10,350
1,500
1,050
12,000
41,000
1,500
2,700
6,000
23,500
28,200
94,100
$33,700
6,300
10,000
40,000
2,200
1,500
1,000
15,000
37,800
14,000
22,800
900) ( 10,000)
2,100(
$37,800
i
j
c
200 d
400 g
f
9,500 h
i
j
700
1,050
15,000
e
b
11,850
3,500
700
1,050
300
1,000
28,400
200
500
17,700
63,700
9,000
$105,750
7,800
450
11,000
40,000
37,800
8,100 8,100
8,700
94,100
$33,700
8,700
$105,750
Exercise 5
2003
300,000
90,000
4,000
(40,000)
(16,000)
(2,000)
(15,000)
321,000
4,000
(40,000)
(16,000)
(2,000)
2004
225,000
110,000
4,000
2005
60,000
120,000
4,000
38,000
(2,000)
(33,000)
304,000
(2,000)
(39,000)
181,000
4,000
4,000
38,000
(2,000)
(2,000)
(15,000)
(33,000)
(39,000)
Exercise 6
Nightjar Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 2005
Sales (see below)
Cost of sales (see below)
Other expenses (see below)
Minority interest (see below)
Consolidated net income
Sales:
$2,000,000 + 1,200,000 - 200,000
$
(
(
(
3,000,000
1,792,000 )
580,000 )
20,000 )
608,000
3,000,000
Cost of Sales
$1,200,000 + 800,000 - 200,000 - 48,000 + 40,000
Other expenses:
$400,000 + 200,000 - 20,000
1,792,000
580,000
Minority income
Net income from Branch x 10%: ($200,000 x 10%) =
20,000
Exercise 7
Requirement 1
The gain on the sale of the land in 2005 was equal to the sales price
minus the original cost of the land when it was first acquired by the
combined entity. In this case the gain was $150,000 - $90,000, or
$60,000.
Requirement 2
The consolidated amount of depreciation expense was the combined
amounts of depreciation expense showing on the separate income
statements minus the piecemeal recognition of the gain on the sale of
the equipment. Thus, the consolidated amount of depreciation expense
was $95,000 + $32,000 ($35,000/4 years) = $118,250.
Requirement 3
Consolidated net income:
Osprey separate income (not including Income
from Branch)= $153,000 - $55,000 =
Income from Branch
Plus: Deferred gain on land
Plus: Piecemeal recognition of gain on equipment sale: $35,000 gain/4 years =
Consolidated net income
$ 98,000
20,000
50,000
8,750
$176,750
Exercise 8
Quail Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 2005
Sales
Gain on land ($20,000 + $25,000)
Cost of sales
Other expenses (see below)
Minority interest (see below)
Consolidated net income
$
(
(
(
$
1,100,000
45,000
560,000 )
320,000 )
20,000 )
245,000
Other expenses:
$265,000 + $60,000 - $5,000 piecemeal recognition of
gain on equipment
320,000
Minority income
Net income from Savannah x 20%: ($100,000 x 20%) =
20,000
Exercise 9
Requirement 1
Consolidated net income as
reported
Less: $10,000 deferred gain
Plus:
Minority
interest
portion of the gain
Plus: Deferred gain
Corrected consolidated net
income
Requirement 2
Land account as reported
Less: Intercompany profit
Restated land account
2003
2004
2005
$ 750,000
-10,000
$ 600,000
$ 910,000
3,000
7,000
$ 743,000
$ 600,000
$ 917,000
2003
$ 200,000
-10,000
$ 190,000
2004
$ 240,000
-10,000
$ 230,000
2005
$ 300,000
$ 300,000
Requirement 3
Final sales price outside the entity minus the original cost to the
combined entity equals $102,000 minus $72,000 = $30,000
Exercise 10
Requirement 1
On the consolidated balance sheet, the machine must be reported at
its original cost when Tool purchased it on January 1, 1999, which is
$120,000. Since the elimination entry debited the machine account for
$22,000 which must be the amount needed to bring the machine account
up to $120,000, Buzzard must have recorded the machine at $98,000.
Since the remaining useful life is seven years, Buzzard will record
$14,000 of depreciation expense each year.
Requirement 2
The correct balances on the consolidated balance sheet for the
Machine and Accumulated Depreciation accounts are the balances that
would be in the accounts if there had been no sale. The balance in
the machine account would be the original purchase price to Tool or
$120,000. The balance in the Accumulated Depreciation account will be
the original amount of annual depreciation, ($12,000) times the
number of years the machine has been depreciated (4), or $48,000.
Requirement 3
The minority interest income will be 30% of Tool adjusted net
income. Tool reported net income of $60,000 is reduced by the
$14,000 unrealized gain on the sale of the machine and is increased
by the piecemeal recognition of the gain, which is $2,000. The net
result of $48,000 is then multiplied by 30% to calculate a $14,400
income for the non-controlling interest.