Chapter 3

Consolidated
Statements

Subsequent to
Acquisition
Consolidated statements subsequent to
acquisition

Worksheet procedures; Purchase Method

Using the Income Distribution Schedule
Reporting income for the consolidated
company
Maintaining the investment account
Incomplete Complete
Equity Equity Cost
Add parent %
of subsidiary Yes Yes No
income
Adjust for
amortizations No Yes No
of excess
Reduce Reduce Parent %
Recording of
investment investment reported as
dividends
account account income
Price paid: $ 800,000
Interest acquired:
Common stock $ 200,000
Retained earnings 400,000
Total Equity 600,000
Ownership interest 80% 480,000
Excess cost 320,000 Life Ann Amort
Inventory (80% 50,000) 40,000 1 40,000
Building (80% 100,000) 80,000 20 4,000
Goodwill 200,000 n/a
 Subsidiary income
Income
and dividends
Dividends
Year 1 100,000 10,000
Year 2 150,000 20,000

Parent reports only 80% of above amounts

 Parent recording of subsidiary
income (year 1)
Incomplete Complete
Equity Equity Cost
Investment balance 800,000 800,000 800,000
Year 1 income: (44,000 amort)
Investment in Sub 80,000 36,000 no entry
Investment income 80,000 36,000
Year 1 dividends:
Cash 8,000 8,000 8,000
Investment in Sub 8,000 8,000
Dividend income 8,000
Investment balance 872,000 828,000 800,000
 Parent recording of subsidiary
income (year 2)
Incomplete Complete
Equity Equity Cost
Investment balance 872,000 828,000 800,000
Year 2 income: (4,000 amort)
Investment in Sub 120,000 116,000 no entry
Investment income 120,000 116,000
Year 2 dividends:
Cash 16,000 16,000 16,000
Investment in Sub 16,000 16,000
Dividend income 16,000
Investment balance 976,000 928,000 800,000
 Worksheet procedures
The RE of the Sub and the Investment
account must be at the same point in time
The account adjustments made require
amortization for current and prior periods
No entries are made on either firms books for
worksheet eliminations
Cost Method: Year 1
Selected accounts Trial Balances Eliminations
Parent Sub Dr Cr
Investment in Sub 800,000 EL 480.000
D 320,000
Building 500,000 D2 80,000
Accumulated depr. (200,000) A2 4,000
Goodwill D3 200,000
Dividend income (8,000) CY2 8,000
Dividends declared 10,000 CY2 8,000
Com Stock - Sub (200,000) EL 160,000
RE - Sub (400,000) EL 320,000
RE - Parent (700,000)
Cost of goods sold 400,000 300.000 D1 40,000
Expenses 250,000 180,000 A2 4,000
Cost Method: Year 2
Selected accounts Trial Balances Eliminations
Parent Sub Dr Cr
Investment in Sub 800,000 CV 72,000 EL 552.000
D 320,000
Building 500,000 D2 80,000
Accumulated depr. (200,000) A2 8,000
Goodwill D3 200,000
Dividend income (16,000) CY2 16,000
Dividends declared 20,000 CY2 16,000
Com Stock - Sub (200,000) EL 160,000
RE - Sub (490,000) EL 392,000
RE - Parent (828,000) D1 40,000 CV 72,000
A2 4,000
Cost of goods sold 500,000 400.000
Expenses 350,000 280,000 A2 4000
Consolidation procedures for a pooling
Recall that investment was recorded at amount
equal to book value. If this was not the case,
correct the investment account.
Cost or equity method may be used (sophisticated
equity has no application - no excess)
There should not be any excess to distribute or
amortize - it was just like a purchase at a price
equal to underlying subsidiary book value!