Chapter 5 - Solution Manual

Chapter 05 - Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book ValueCHAPTER 5 CONSOLIDATION OF LESS-THAN-WHOLLY-OWNED SUBSIDIARIES ACQUIRED AT MORE THAN BOOK VALUE ANSWERS TO QUESTIONS Q5-1 The noncontrolling interest is reported as a separate item in the stockholders’ equity section of the balance sheet. Past practice often presented the noncontrolling interest between long-term liabilities and stockholders’ equity. Q5-2 The consolidated balance sheet always includes 100 percent of the subsidiary’s assets and liabilities. When the parent holds less than 100 percent ownership of the subsidiary, the noncontrolling interest’s claim on those net assets must be reported. Q5-3 The income statement portion of the consolidation worksheet is expanded to include a line for income assigned to the noncontrolling interest. This amount is deducted from consolidated net income in computing income to the controlling interest. The balance sheet portion of the worksheet also is expanded to include the claim of the noncontrolling shareholders on the net assets of the subsidiary. Q5-4 The balance assigned to the noncontrolling interest is based on the fair value of the noncontrolling interest at the date of acquisition. Q5-5 Consolidated retained earnings includes only amounts attributable to the shareholders of the parent company. Thus, none of the retained earnings is assigned to the noncontrolling interest. Q5-6 One hundred percent of the fair value of the subsidiary’s assets is included. Q5-7 The amount of goodwill at the date of acquisition is determined by deducting the fair value of the net assets of the acquired company from the sum of the fair value of the consideration given by the acquiring company and the fair value of the noncontrolling interest. The resulting goodwill must be apportioned between the controlling and noncontrolling interest. Under normal circumstances, goodwill apportioned to the noncontrolling interest will equal the excess of the fair value of the noncontrolling interest over its proportionate share of the fair value of the net assets of the acquired company. Q5-8 Income assigned to the noncontrolling interest normally is a proportionate share of the net income of the subsidiary. Q5-9 Income assigned to noncontrolling shareholders is reported as a deduction from consolidated net income in arriving at income assigned to the parent company shareholders. Q5-10 Dividends paid to noncontrolling shareholders are eliminated in preparing the consolidated statement of retained earnings. Only dividends paid to the parent company shareholders are reported as dividends distributed to shareholders. 5-1 Chapter 05 - Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value Q5-11 When the parent owns all the shares of a subsidiary (and the subsidiary has no other publicly traded securities outstanding), it is free to decide whether it wishes to publish separate statements for the subsidiary. In some cases creditors, regulatory boards, or other interested parties may insist that such statements be produced. If the parent does not own all the shares of the subsidiary, the subsidiary normally would be expected to publish separate financial statements for distribution to the noncontrolling shareholders. In general, the consolidated statements are published for use by parent company shareholders and are likely to be of little use to shareholders of the subsidiary. Q5-12 Other comprehensive income elements reported by the subsidiary must be included in other comprehensive income in the consolidated financial statement. If the subsidiary is not wholly owned, income assigned to the noncontrolling interest will include a proportionate share of the subsidiary’s other comprehensive income. Q5-13 The parent’s portion of the subsidiary’s other comprehensive income is included in comprehensive income attributable to the controlling interest. Q5-14 Prior to FASB 141R (ASC 805), the differential was computed as the difference between the fair value of the consideration given in acquiring ownership of the subsidiary and the parent’s portion of the book value of the subsidiary’s net assets. Q5-15 Prior to FASB 141R (ASC 805), goodwill was reported as the difference between the fair value of the consideration given in acquiring ownership of the subsidiary and the parent’s portion of the fair value of the subsidiary’s net assets. Q5-16 Prior to FASB 141R (ASC 805), consolidated net income was computed by deducting income to noncontrolling interest from consolidated revenues less expenses. Q5-17* The only effect of a negative balance in retained earnings is the need for a credit to subsidiary retained earnings, rather than a debit to retained earnings, when the stockholders’ equity accounts of the subsidiary and the investment account of the parent are eliminated. Q5-18* In the period in which the land is sold, the gain or loss recorded by the subsidiary must be adjusted by the amount of the differential assigned to the land. When the differential is assigned in the worksheet eliminating entries at the end of the period, a debit will be made to the gain or loss on sale of land that came to the worksheet from the subsidiary’s books. 5-2 Chapter 05 - Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value SOLUTIONS TO CASES C5-1 Consolidation Worksheet Preparation a. If the parent company is using the equity method, the elimination of the income recognized by the parent from the subsidiary generally should not be equal to a proportionate share of the subsidiary’s dividends. If the parent has recognized only dividend income from the subsidiary, it is using the cost method. b. It should be possible to tell if the preparer has included the parent's share of the subsidiary's reported income in computing consolidated net income. It is not possible to tell from looking at the worksheet alone whether or not all the adjustments that should have been made for amortization of the differential or to eliminate unrealized profits have been properly treated in computing the consolidated net income. c. If the parent paid more than its proportionate share of the fair value of the subsidiary’s net assets, the eliminating entries relating to that subsidiary should show amounts assigned to individual asset accounts for fair value adjustments and to goodwill when the investment account balance is eliminated and any noncontrolling interest is established in the worksheet. It should be relatively easy to determine if this has occurred by examining the consolidation worksheet. d. If the preparer has made a separate entry in the worksheet to eliminate the change in the parent’s investment account during the period, the easiest way to ascertain the parent’s subsidiary ownership percentage is to determine the percentage share of the subsidiary’s dividends eliminated in that entry. Another approach might be to divide the total amount of the parent’s subsidiary investment account eliminated in the worksheet by the sum of the total parent’s investment account eliminated and the total amount of the noncontrolling interest established in the worksheet through eliminating entries. However, this approach assumes that the fair value of the consideration given by the parent when acquiring its subsidiary interest and the fair value of the noncontrolling interest on that date were proportional, which is usually, by not always, the case. 5-3 000 $120.000 (2.000)(c) $ 66.40) + ($60.90) ($60.45) ($280.000 x .000 + $280.000 x .90) ($120.000 (b) (300. However.000 + $60. consolidated net income allocated to the controlling interest increased by $24.000 (a) (94. an increase of only 38 percent.400 .Chapter 05 . The increase in the controlling interest’s share of consolidated net income did not keep pace with the increase in sales because nearly all of the sales increase was experienced by Jewel.000 (12.40) + ($280.000 x .000 x .000)(d) $100.300 Consolidated revenues Operating costs Consolidated net income Income to noncontrolling shareholders Income to controlling shareholders (a) (b) (c) (d) (e) (f) $100. Consolidated net income for the two years is computed and allocated as follows: 20X4 $160.45) Primary citations: FASB 160 (ASC 810) Secondary source: ARB 51 (ASC 810) 5-4 20X5 $400. Accounting Staff Allocation of Consolidated Income to Parent and Noncontrolling Shareholders FASB 160 (ASC 810) specifies that consolidated net income reflects the income of the entire consolidated entity and that consolidated net income must be allocated between the controlling and noncontrolling interests. In addition the parent receives only 55 percent of the increased profits of the subsidiary.10 x . Earnings per share reported in the consolidated income statement is based on the income allocated to the controlling interest only. which has a very low profit margin.10 x .000 from 20X4 to 20X5.700)(e) $ 63.000 x .Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value C5-2 Consolidated Income Presentation MEMO TO: Treasurer Standard Company FROM: RE: . Consolidated net income increased by $34. an increase of 52 percent.000 x .600) (f) $ 87.000 ($100.100 from 20X4 to 20X5. 2 to APB 18 (ASC 323) suggests that the equity method would be appropriate for unincorporated entities as well. Interpretation No. #2] Assuming the joint venture with Krome Company is unincorporated. Int. the entire amount.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value C5-3 Pro Rata Consolidation MEMO To: Financial Vice-President Rose Corporation From: Re: . it does not provide guidance for ownership of noncorporate entities. Rose owns an undivided interest in each asset held by the joint venture and is liable for its share of each of its liabilities and. In this case. Primary citations: APB 18. ASC 323 APB 18. Pro rata consolidation is generally considered not acceptable in this country. [APB Opinion. it can be argued pro rata consolidation provides a more accurate picture of Rose’s assets and liabilities. although it is a widely used industry practice in a few industries such as oil and gas exploration and production. under certain circumstances. continued use of the equity method appears to be appropriate. In this case.Chapter 05 . Rose does not have a direct claim on the assets of the joint venture and Rose’s liability is sheltered by the joint venture’s corporate structure. [APB 18. 16. The equity method is used by most companies in reporting their investments in corporate joint ventures. INT #2 5-5 . Senior Accountant Pro Rata Consolidation of Joint Venture This memo is in response to your request for additional information on the desirability of using pro rata consolidation rather than equity method reporting for Rose Corporation’s investment in its joint venture with Krome Company. If the joint venture is incorporated. although not all agree with this assertion. Par. ASC 323] While APB 18 provides guidance for joint ventures that have issued common stock. as indicated in the preceding question. e. Intercompany receivables and payables. if any. Another approach to determining the noncontrolling interest at a point in time is to add the remaining differential at that time to the subsidiary’s common stockholders’ equity and multiply the result by the noncontrolling interest’s proportionate ownership interest in the subsidiary. In the consolidation worksheet the ending balance assigned to noncontrolling interest is derived by crediting noncontrolling interest for the starting balance. The "investment in subsidiary" and "income from subsidiary" accounts must be eliminated each time consolidated financial statements are prepared. must also be eliminated. all the necessary eliminating entries must be entered in the consolidation worksheet each time consolidated statements are prepared. must also be eliminated. c. Each time consolidated statements are prepared the balances reported on the company's books serve as the starting point. 5-6 . All the stockholders' equity account balances of the subsidiary must be eliminated each time consolidated financial statements are prepared. the noncontrolling interest at a point in time is equal to its fair value on the date of combination.Chapter 05 . if any. b. and then adding income assigned to the noncontrolling interest in the consolidated income statement and deducting a pro rata portion of subsidiary dividends declared during the period. d. For acquisitions after the effective date of FASB 141R (ASC 805). The eliminating entries are recorded only in the consolidation worksheet and therefore do not change the balances recorded on the company's books. adjusted to date for a proportionate share of the undistributed earnings of the subsidiary and the noncontrolling interest’s share of any write-off of differential.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value C5-4 Elimination Procedures a. Intercompany receivables and payables. Thus. prior to 2008 no authoritative pronouncement prohibited the treatment exhibited by Monsanto.Chapter 05 . The noncontrolling interest is now required to be treated as an equity item. was considered acceptable.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value C5-5 Changing Accounting Standards: Monsanto Company a. In 2007. and serviced the loans. and its share of income did not fit the definition of an expense. d. Monsanto provided customer financing through a lender that was a special purpose entity. with the income attributed to the noncontrolling interest treated as an allocation of consolidated net income. With the issuance of FASB 160 (ASC 810). Monsanto reported the noncontrolling interest in consolidated subsidiaries in other liabilities in its consolidated balance sheet. guaranteed. The noncontrolling (minority) interest did not fit the definition of a liability. b. Monsanto reported the income to noncontrolling (minority) shareholders of consolidated subsidiaries as an expense in the continuing operations portion of its 2007 income statement. although theoretically objectionable. Monsanto’s treatment of its noncontrolling interest in its consolidated financial statements. Monsanto had a 9 percent ownership interest in one variable interest entity and a 49 percent ownership interest in another. however. c. Nevertheless. Monsanto had no ownership interest in the special purpose entity but did consolidate it because Monsanto effectively originated. Monsanto’s 2007 treatment became unacceptable. Neither entity was consolidated because Monsanto was not the primary beneficiary of either entity. 5-7 . 000) + ($190.000.000 . d 2.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value SOLUTIONS TO EXERCISES E5-1 Multiple-Choice Questions on Consolidation Process 1.000 + $239.000 5.$100.$125.80) .000 . a $650.000 = $500. d [AICPA Adapted] E5-2 Multiple-Choice Questions on Consolidation [AICPA Adapted] 1.000 . c $95.000 = .$5.000 / 0. b 2.Chapter 05 .000 + $200.000 = ($956.20[($956. c $251. b 4.$50.$1.000 4. d 3. c 3.000 .000)] 5-8 . 200 $49.000 37.000 5-9 = Inventory 5.800 Game Corp.Chapter 05 .200 Common Stock + 20. 60% 22.200 22. 60% 15.000 .000 Retained Earnings 37. NCI in NA of Amber Corp.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-3 Eliminating Entries with Differential a.000 34. Excess Value (Differential) Calculations: NCI 40% + Beginning balances 10. 0 49.20 Investment in Amber Corp.200 Book Value Calculations: NCI 40% Ending book value + Game Corp.800 = 34.200 Initial investment in Amber Corp.000 + Buildings & Equipment 20.000 20. Equity Method Entries on Game Corp.000 60% Book value = 34. Basic elimination entry Common stock Retained earnings Investment in Amber Corp.'s Books: 49.000 6/10/X8 Goodwill = 0 Identifiable excess = 15. Cash Record the initial investment in Amber Corp. 000 c.500 x .000) 70. As a result. Noncontrolling Interest ($587. f. E5-4 Computation of Consolidated Balances a. Inventory $140. the balance in the investment account is eliminated.000 (10.000 Buildings and Equipment d.500 $587. Journal entries used to record transactions. Fair value of consideration given by Ford Fair value of noncontrolling interest Total fair value Book value of Slim’s net assets Fair value increment for: Inventory Land Buildings and equipment (net) Fair value of identifiable net assets Goodwill $450.000) $ 57.20) $117. they do not change the balances recorded in the company's accounts and must be reentered each time a consolidation worksheet is prepared.200 34. $550.500 (530. adjust account balances.500 5-10 . NCI in NA of Amber Corp. and close income and revenue accounts at the end of the period are recorded in the company's books and change the reported balances. Land $ 60. 0 b.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value Excess value (differential) reclassification entry: Inventory 5.000 10.000 b. eliminating entries are entered only in the consolidation worksheet to facilitate the preparation of consolidated financial statements.000 Basic Excess Reclass.000 117.000 Investment in Amber Corp. Acquisition Price 49.000 Buildings & Equipment 20. Investment in Slim Corporation: None would be reported. On the other hand. 15.000 20.000 E5-3 (continued) Investment in Amber Corp.Chapter 05 .000 $470.200 15.500 e. 's Books: Investment in Pleasantdale Dairy 270.000 220.000 252.000 28.000 5-11 Retained Earnings 220.000 = Common Stock 252.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-5 Balance Sheet Worksheet Cash and Receivables Retained Earnings Accrued interest earned by Power Co.000 Initial investment in Pleasantdale Dairy Basic elimination entry Common stock Retained earnings Investment in Pleasantdale Dairy NCI in NA of Pleasantdale Dairy 60.000 $270.000 + 60.000 Cash Record the initial investment in Pleasantdale Dairy 270.000 . 900 900 Equity Method Entries on Power Co.000 90% Book value = 252.000 Book Value Calculations: NCI 10% Ending book value Power Co.000 Goodwill = 0 Identifiable excess = 18.Chapter 05 . 90% + 28. 000 2.070.000 100.000 252.900 420.000 5-12 288. Pleasantdale Dairy Cash and Receivables 130.000 130.000 18.000 400.000 90.100 300.232.000 Inventory 210.900 Long-Term Liabilities 200.900 Investment in Pleasantdale Dairy Acquisition Price 270.900 220. 0 Power Co.900 70.000 220.000 Investment in Pleasantdale Dairy NCI in NA of Pleasantdale Dairy Eliminate intercompany accounts: Current Payables Cash and Receivables 18.070.900 1.900 28.900 Current Payables 260.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-5 (continued) Excess Value (Differential) Calculations: NCI Power Co.000 Excess value (differential) reclassification entry: Land 20.000 60.000 40.000 Elimination Entries DR CR Consolidated Balance Sheet Land 8.000 20.900 8.000 = Land 20.900 192.000 2.000 Total Assets 1.000 Buildings & Equipment (net) 390.000 40. 10% + 90% Beginning balances 2.000 70.900 420.000 111.000 18.232.000 220.000 60.000 1.000 NCI in NA of Pleasantdale Dairy 28.000 Basic Excess Reclass.000 610.000 .000 20.000 Retained Earnings 390.000 300.000 8.000 Investment in Pleasantdale Dairy 270.000 8.000 30.000 0 18.000 Total Liabilities & Equity 1.Chapter 05 .000 252.000 80.000 Common Stock 400.000 390. Equity Method Entries on Zenith Corp.200 Book Value Calculations: NCI 30% Ending book value 37.Chapter 05 .000 12/31/X4 Goodwill = 0 Identifiable excess = 14.000 Retained Earnings 85.'s Books: Investment in Down Corp. $102.000 85.300 14. NCI in NA of Down Corp.200 102.500 + Zenith Corp.500 Excess Value (Differential) Calculations: NCI Zenith Corp.500 + 40. 102. 40. 30% + 70% Beginning balances 6.000 87.200 Initial investment in Down Corp.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-6 Majority-Owned Subsidiary Acquired at Greater than Book Value a. 70% = Common Stock 87. Cash Record the initial investment in Down Corp.700 5-13 = Inventory 6.500 Basic elimination entry Common stock Retained earnings Investment in Down Corp.000 .700 70% Book value = 87.000 + Buildings & Equipment 15.500 37. 000 Accounts Payable Mortgage Payable Common Stock Retained Earnings NCI in NA of Down Corp.000 180.000 40.000 430.50 0 14.000 595.000 43.000 44.500 6.000 137.800 175.500 Balance Sheet Cash Accounts Receivable Inventory Land Buildings & Equipment Less: Accumulated Depreciation Investment in Down Corp.500 250.000) 0 938.000 80.500 37.500 Total Liabilities & Equity 692.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-6 (continued) Excess value (differential) reclassification entry: Inventory 6.500 6.000 250.000 15.000 80.700 Basic Excess Reclass.200 87.300 121. Elimination Entries DR CR Zenith Corp. 0 b. NCI in NA of Down Corp.000 40.000 (150.000 85.500 211.000 101.000 60. 14. 152.000 90. Acquisition Price 102.800 .000 87. 50.000 80.000 Investment in Down Corp.000 Investment in Down Corp. 340.000 210.000 Building & equipment 80.500 340.700 180.300 90.000 (80.000 410.000 210.700 6.000 35.300 Eliminate intercompany accounts: Accounts Payable Accounts Receivable 12.000 12.200 21.500 12.000 Buildings & Equipment 15.000 30.000 130.000 5-14 12.000 (150.000) Total Assets 692.000 80.000 85.800 938.000 75.000) 102.Chapter 05 . Down Corp.300 37.500 Optional accumulated depreciation elimination entry Accumulated depreciation 80.500 Consolidated 71.500 14. Chapter 05 . 20X4 Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Total Assets $595.800 $175.500 211.800 333.000 430.000) Accounts Payable Mortgage Payable Stockholders’ Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity Total Liabilities and Stockholders' Equity 5-15 $ 71.000 43.000 $ 80.800 .300 121.000 $290.000 (150.000 $938.000 210.000 90.000 445.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-6 (continued) c. Zenith Corporation and Subsidiary Consolidated Balance Sheet December 31.800 $938. 000 12/31/X4 Goodwill = 33.000 75% Book value = 270.000 5-16 + Inventories 36. 40.000 = Buildings 80.'s Books: Investment in Dynamic Corp.000 + Goodwill 44.000 Excess value (differential) reclassification entry: Buildings 80. 120. $390.000 240.000 .000 Initial investment in Dynamic Corp. 120.000 Excess Value (Differential) Calculations: NCI Temple Corp. 390. NCI in NA of Dynamic Corp.000 Goodwill 44.000 Identifiable excess = 87.000 240.000 120.000 90.000 Book Value Calculations: NCI 25% Ending book value 90.000 NCI in NA of Dynamic Corp. 75% = Common Stock 270.000 Basic elimination entry Common stock Retained earnings Investment in Dynamic Corp. 25% + 75% Beginning balances 40.000 + Temple Corp.000 + Retained Earnings 120.000 390. Cash Record the initial investment in Dynamic Corp.000 Inventories 36.000 270.000 Investment in Dynamic Corp.Chapter 05 .Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-7 Consolidation with Minority Interest Equity Method Entries on Temple Corp. 000 90. Equity Method Entries on Glitter Enterprises's Books: Investment in Lowtide Builders 90.Chapter 05 .000 Basic 0 5-17 + Retained Earnings 10.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-8 Worksheet for Majority-Owned Subsidiary a.000 Initial investment in Lowtide Builders 60% Book value = 90.000 60.000 90.000 Common Stock 140.000 Basic elimination entry Common stock Retained earnings Investment in Lowtide Builders NCI in NA of Lowtide Builders 140.000 = 90.000 Record the initial investment in Lowtide Builders Book Value Calculations: NCI 40% Ending book value Glitter Enterprises 60% + 60.000 10.000 1/1/X5 Goodwill = 0 Identifiable excess =0 $90.000 .000 Cash 90.000 Investment in Lowtide Builders Acquisition Price 90. 000 DR CR Consolidated Balance Sheet Cash and Receivables Investment in Lowtide Builders 90.000 140.000 50. Elimination Entries Glitter Enterprises Lowtide Builders 80.000 150.000 460.000 60.000 10.Chapter 05 . 0 Total Assets Retained Earnings 0 90.000 200.000 60.000 $1.000 350.000 110.000 Common Stock 200.120.000 $1.000 Long-Term Debt 400.000 $250.000 90.000 600.000 460.000 NCI in NA of Lowtide Builders Total Liabilities & Equity c.120.000 1.000 50. 20X5 Cash and Receivables Inventory Buildings and Equipment (net) Total Assets $ 110.000 510.120.000 Glitter Enterprises and Subsidiary Consolidated Balance Sheet January 1.000 600.000 510.000 80.000 310.000 500.000 Current Liabilities Long-Term Debt Stockholders’ Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity Total Liabilities and Stockholders' Equity $ 210.000 60.000 30.000 1.000 60.000 210.000 Inventory 150.000 10.000 Current Liabilities 100.000 500.000 50.000 750.000 750.000 Buildings & Equipment (net) 430.000 .000 140.120.000 200.000 5-18 $200.000 110.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-8 (continued) b. Chapter 05 .500 6.000 15.000 .000 = ($150.000 $1.($405.121.000 $1. c $ 791.000 . Less: Investment in Silk Corp. d $64.$20.000 .$200.000 .$25.500) $ 641.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-9 Multiple-Choice Questions on Balance Sheet Consolidation 1.000 .000) Goodwill Total assets reported 4. b $1.500 5.$15.$70. Book value reported by Power and Silk Increase in inventory ($85.000 = The amount reported by Power Corporation $419.000 + ($85.000) 2.$70.000 .000 = ($61.000 + $70.000 405. c $40.000 3.046.000) Increase in land ($45.500 = ($150.$37.000) .500 (150.000 .000 20.500 + $95. d 7.000 = $130.000) + $64.000 40.$28.000 + $37. d $701.000 = Total Assets of Power Corp.000) $205. Book value of assets of Silk Corp.000 + $205.500 + $64.121.000 + $200.500) .500 5-19 .000 + $280.000) + ($28. d $215. 000 1/1/X9 12/31/X9 Goodwill = 0 Goodwill = 0 Identifiable excess =0 70% Book value = 210.500 Net investment in Farmstead Co. 210.000 Cash Record the initial investment in Farmstead Co.000 Investment in Farmstead Co. Book Value Calculations: Original book value + Net Income .'s 20X9 income Cash 3.000 (3. 70% 210.000 14.000 $210.Chapter 05 .000 (1.500 Investment in Farmstead Co.000 Income from Farmstead Co.500 Record Horrigan Corp.000 (5.000 Initial investment in Farmstead Co. .500) Ending book value 94.'s Books: Investment in Farmstead Co.000) 115. 3.000 Record Horrigan Corp.'s 70% share of Farmstead Co. 14.500 = Common Stock 200.000 200.500 + Horrigan Corp.'s 70% share of Farmstead Co.000 $220.000 6.'s 20X9 dividend b.000 20. Equity Method Entries on Horrigan Corp. 5-20 Excess = 0 70% Book value = 220.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-10 Basic Consolidation Entries for Majority-Owned Subsidiary a. 14.Dividends NCI 30% 90.500) 220. 210.500 + Retained Earnings 100. 000 5.000 Ending Balance 70% Dividends Basic 0 14.500 94. Dividends declared Investment in Farmstead Co. Acquisition Price 70% Net Income Ending Balance Investment in Farmstead Co.000 0 5-21 .Chapter 05 .000 14. 210. NCI in NA of Farmstead Co.500 200. NCI in NI of Farmstead Co.000 3.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-10 (continued) Basic elimination entry Common stock Retained earnings Income from Farmstead Co. 14.000 220.000 6.500 220.000 14.500 220.000 70% Net Income 14.000 100.500 Income from Farmstead Co. 's 20X3 dividend 9. Investment in Canton Corp.500 Investment in Canton Corp. Equity Method Entries on West Corp.500 Income from Canton Corp. 75% 112.000) Ending book value 42. Record West Corp.000 Excess = 18.000 75% Book value = 112.500 $133.000) 60.'s 75% share of Canton Corp.000 3. 22. 5-22 75% Book value = 126. Book Value Calculations: Original book value + Net Income .000 b.'s Books: Investment in Canton Corp. Record amortization of excess acquisition price 3.000 (12. 133.500 133.500 22.'s 20X3 income 22.500 Initial investment in Canton Corp.500 (3.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-11 Majority-Owned Subsidiary with Differential a.500 7. Record West Corp.000 Net investment in Canton Corp.500 Cash 9. Cash Record the initial investment in Canton Corp.000 + Retained Earnings 90.000 Investment in Canton Corp.000 108.500 (9.000 Common Stock 60.000) = 126. .000 30.Chapter 05 .000 + West Corp.'s 75% share of Canton Corp.000 $144.Dividends NCI 25% 37.000 1/1/X3 12/31/X3 Goodwill = 0 Goodwill = 0 Identifiable excess = 21.000 Income from Canton Corp. 500 Ending Balance 3.000 Investment in Canton Corp. NCI in NA of Canton Corp.Chapter 05 . 18.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-11 (continued) Basic elimination entry Common stock Retained earnings Income from Canton Corp.500 22. NCI in NI of Canton Corp.500 7. Depr.000 42.000 144. 133.000 Excess Value (Differential) Calculations: NCI West Corp.000 Excess Reclass.000 Acquisition Price 75% Net Income Ending Balance Investment in Canton Corp.000 Amortized excess value reclassification entry: Depreciation expense Income from Canton Corp.500 12. 0 5-23 22.500 9.000 22.000 21.000 Changes (1.000 3. 60. = Equipment 28. 0 (4.000 126.000 Income from Canton Corp.000 3.000 Acc. 25% + 75% Beginning balance 7.000) (4.000 Excess value (differential) reclassification entry: Equipment 28.500 3.000 0 . 4. 6.000) Ending balance 6. 126.000 22.000 Basic 18. 75% Dividends Excess Val.000 18.000) (3.000 1. Depr.000 Acc. Dividends declared Investment in Canton Corp.000 90.000 + 28.000 NCI in NA of Canton Corp. Amort.500 75% Net Income 19.000) 4. NCI in NI of Canton Corp. 000 Common Stock 120.'s 90% share of Lancaster Co.000 36. 20X1 Book value of Lancaster’s net assets Proportion of stock acquired Book value of Lancaster's shares purchased by Major Corporation Excess of acquisition price over book value Fair value of consideration given Add: Share of Lancaster's net income ($60.Dividends NCI 10% 50.90) Less: Amortization of patents ($40.000 x . 54.000 Investment in Lancaster Co. 20X1 $120. 486.000 120.000 Income from Lancaster Co. January 1.Chapter 05 .000 380.000 $486. Cash Record the initial investment in Lancaster Co. Record amortization of excess acquisition price 7.000 x . 20X1 Lancaster Company’s retained earnings.'s 20X1 dividend Income from Lancaster Co.000 / 5) x .000 54. Equity Method Entries on Major Corp.90 Dividends paid by Lancaster ($20.'s 90% share of Lancaster Co.000 60.'s Books: Investment in Lancaster Co. Lancaster Company’s common stock.90 $450.200 7.000 (7.000) Ending book value 54.'s 20X1 income Cash 18.000 6.000 5-24 + Retained Earnings 380.000 . January 1.000 54. Investment in Lancaster Co.000 (2.000 + Major Corp.000) = 486.000) 420.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-12 Differential Assigned to Amortizable Asset a.000 Record Major Corp.90) Balance in investment account.800 b.000 (18. 54.000 Record Major Corp.000) $514. 90% 450. 18.000 486.000 (20.200) (18.000 Investment in Lancaster Co.000 $500.000 x .200 Book Value Calculations: Original book value + Net Income . December 31. 000 36. 10% + 90% Beginning balance 4.000 54. 90% Book value = 486.000 Income from Lancaster Co.000 Changes (800) (7.000 (8. .000 6. NCI in NI of Lancaster Co.800 20.000 Excess Value (Differential) Calculations: NCI Major Corp.000 Initial investment in Lancaster Co.000 380.200) Ending balance 3.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-12 (continued) 1/1/X1 12/31/X1 Goodwill = 0 Goodwill = 0 Identifiable excess = 36. NCI in NA of Lancaster Co.Chapter 05 . $486.000) 32.000 Amortized excess value reclassification entry: Patents 8.000 54. Dividends declared Investment in Lancaster Co.000 Basic elimination entry Common stock Retained earnings Income from Lancaster Co. NCI in NI of Lancaster Co.000 486.800 Net investment in Lancaster Co.200 800 $514.200 28.800 90% Book value = 450.000 = Patents 40.000 120. 5-25 7.000 Excess = 28. Chapter 05 - Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-12 (continued) Excess value (differential) reclassification entry: Patents 32,000 Investment in Lancaster Co. NCI in NA of Lancaster Co. 28,800 3,200 Investment in Lancaster Co. Acquisition Price 90% Net Income 486,000 54,000 18,000 7,200 Ending Balance Income from Lancaster Co. 90% Dividends Excess Val. Amort. Basic 28,800 Excess Reclass. 0 5-26 90% Net Income 46,800 Ending Balance 7,200 514,800 486,000 54,000 54,000 7,200 0 Chapter 05 - Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-13 Consolidation after One Year of Ownership a. Equity Method Entries on Pioneer Corp.'s Books: Investment in Lowe Corp. 190,000 Cash Record the initial investment in Lowe Corp. 190,000 Book Value Calculations: 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 80% Book value = 160,000 Basic elimination entry Common stock Retained earnings Investment in Lowe Corp. NCI in NA of Lowe Corp. $190,000 Initial investment in Lowe Corp. 120,000 80,000 160,000 40,000 Excess Value (Differential) Calculations: NCI Pioneer Corp. 20% + 80% Beginning balances 7,500 30,000 5-27 = Buildings 32,000 + Goodwill 5,500 Chapter 05 - Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-13 (continued) Excess value (differential) reclassification entry: Buildings 32,000 Goodwill 5,500 Investment in Lowe Corp. NCI in NA of Lowe Corp. Acquisition Price Investment in Lowe Corp. 190,000 160,000 30,000 0 30,000 7,500 Basic Excess Reclass. b. Equity Method Entries on Pioneer Corp.'s Books: Investment in Lowe Corp. 190,000 Cash Record the initial investment in Lowe Corp. 190,000 Investment in Lowe Corp. 32,000 Income from Lowe Corp. 32,000 Record Pioneer Corp.'s 80% share of Lowe Corp.'s 20X2 income 3,20 Income from Lowe Corp. Investment in Lowe Corp. Record amortization of excess acquisition price 0 3,200 Book Value Calculations: Original book value + Net Income - Dividends NCI 20% 40,000 8,000 0 Ending book value 48,000 + Pioneer Corp. 80% 160,000 32,000 0 = 192,000 Common Stock 120,000 120,000 5-28 + Retained Earnings 80,000 40,000 0 120,000 000 80.500 30.000 Basic elimination entry Common stock Retained earnings Income from Lowe Corp.000 32. 0 (4.000) + Goodwill 5. 3.200 800 32.000 120.000 Income from Lowe Corp.500 . Excess value (differential) reclassification entry: Buildings Goodwill Acc.800 6. $218.000 192.800 Net investment in Lowe Corp.600 Excess = 22.000 Changes (800) (3. $190.000 Amortized excess value reclassification entry: Depreciation expense 4.400 Goodwill = 4. Investment in Lowe Corp. NCI in NA of Lowe Corp.800 = Buildings 32.400 Identifiable excess = 25.000 5.000 Excess Value (Differential) Calculations: NCI Pioneer 20% + Corp.Chapter 05 . Depr.000 8.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-13 (continued) 1/1/X2 12/31/X2 Goodwill = 4.000 Initial investment in Lowe Corp.000 48.000 26.400 80% Book value = 160. NCI in NI of Lowe Corp.200) Ending balance 6.500 0 5. 80% Book value = 192. Investment in Lowe Corp.700 26.700 5-29 + Acc. Depr.500 4. NCI in NI of Lowe Corp. 80% Beginning balance 7.000 32.000) (4. NCI in NA of Lowe Corp. 000 .000) $ 15.500) (40. Amort. Excess Val.000 32.800 Ending Balance 3.$320.000 80% Net Income 28.500 185.800 Excess Reclass. Equity Method Entries on Knox Corp.500) Increase in value of equipment ($360.000 Common Stock 50.$22.200 218. 60% = 240. 192.200 0 0 E5-14 Consolidation Following Three Years of Ownership a. 277.000 3.000 Basic 26.000) Increase In value of patents $277.200 32.500 (7.000 $462.000) $ 62.500 277.500 Book Value Calculations: NCI 40% Ending book value 160.'s Books: Investment in Conway Corp.000 3. Cash Record the initial investment in Conway Corp.000 .Chapter 05 .Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-13 (continued) Acquisition Price 80% Net Income Ending Balance Investment in Lowe Corp. 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 ($30.500 (400.000 . 190.000 + Knox Corp.000 b.000 5-30 + Retained Earnings 150. 32.800 Income from Lowe Corp. 000 240. Acquisition Price 277.500 Excess value (differential) reclassification entry: Land Equipment Patent Investment in Conway Corp.000 + Patent 15.500 7.000 Investment in Conway Corp. NCI in NA of Conway Corp.000 .500 + Basic Excess Reclass.000 37. = Land 7. 0 5-31 Equipment 40.000 37. 250.000 Basic elimination entry Common stock Retained earnings Investment in Conway Corp. 40% + 60% Beginning balances 25.500 Net investment in Conway Corp. 60% Book value = 240.000 15. NCI in NA of Conway Corp.000 150.500 40.000 37.Chapter 05 .Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value 1/1/X7 Goodwill = 0 Identifiable excess = 37.000 Excess Value (Differential) Calculations: NCI Knox Corp.000 160.500 240.500 25.500 $277. Dividends NCI 40% 176. 18.700 d. Equity Method Entries on Knox Corp.Chapter 05 .000) (1. 60% 264. 6.000 (4.000 Record Knox Corp.000 (10.000 Record Knox Corp.'s 20X7 income Cash 6.'s 60% share of Conway Corp. Investment in Conway Corp.60 Amortization of differential assigned to: Equipment ($40. Computation of investment account balance at January 1. Book Value Calculations: Original book value + Net Income .800) $293.000 Income from Conway Corp.500 24. 18.000 Investment in Conway Corp.'s 60% share of Conway Corp.$60.60 x 2 years Patents ($15.000 + Knox Corp. 20X9 $277.000 .000 .000 5-32 = Common Stock 250.900 3.900 e.000 (6. 20X9: Fair value of consideration given Undistributed income since acquisition ($100.000 / 10) x .'s Books: Investment in Conway Corp.000 250.000) x .000 (6.000) Ending book value 184.000) 210.000 18.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-14 (continued) c.000) 276.000 / 8) x .000 12.000 30.000 + Retained Earnings 190. Record amortization of excess acquisition price 3.'s 20X7 dividend Income from Conway Corp.60 x 2 years Account balance at January 1. 000 184.800 60% Book value = 264.500 + Acc. NCI in NA of Conway Corp.000 3. 40% + 60% Beginning balance 19.000) (15.800 $301.800 Net investment in Conway Corp.000 = Land + 7.000 18.600) (3.200 25.000 40.000 (1. (10.900 2. Basic elimination entry Common stock Retained earnings Income from Conway Corp. Equipment 40.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-14 (continued) 1/1/X7 12/31/X7 Goodwill = 0 Goodwill = 0 Identifiable excess = 29.000 250.000 $293. NCI in NI of Conway Corp. Excess Value (Differential) Calculations: Knox NCI Corp.000 276.900) Ending balance 17.800 29.500) 10.700 Initial investment in Conway Corp.000 10.500 0 7.000 1. Depr.600 5-33 + Patent 12.700 Excess = 25. NCI in NI of Conway Corp.000) .700 Changes (2.Chapter 05 .000 12.500 Amortized excess value reclassification entry: Amortization Expense Depreciation expense Income from Conway Corp.000 190.500 5. 60% Book value = 276.000) (5. Dividends declared Investment in Conway Corp. 000 24.000 30.Dividends NCI 20% 30.000) Ending book value 34. 120.000 120.000 (2. 7.500 40.'s Books: Investment in Stergis Co.000 Investment in Stergis Co.000 + Retained Earnings 50.'s 80% share of Stergis Co. Investment in Conway Corp.000 100.Chapter 05 .000 10.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value Excess value (differential) reclassification entry: Land Equipment Patent Acc.000 + Proud Corp.000 Income from Stergis Co.000 Book Value Calculations: Original book value + Net Income .500 15.000 Investment in Stergis Co.200 E5-15 Consolidation Worksheet for Majority-Owned Subsidiary a. 80% 120.000 6.000 5-34 = Common Stock 100.'s 20X3 income 24.000) 70.'s 20X3 dividend 8.000) 136.'s 80% share of Stergis Co. Cash Record the initial investment in Stergis Co.000 (8. Record Proud Corp.000 . Record Proud Corp. Depr. 24.000 (10. Equity Method Entries on Proud Corp.800 17. NCI in NA of Conway Corp.000 25.000 Cash 8. 000 136. NCI in NA of Stergis Co. Acquisition Price 80% Net Income Ending Balance $136. NCI in NI of Stergis Co. 80% Book value = 136.000 6.000 10.000 Income from Stergis Co.000 24.000 Initial investment in Stergis Co.000 5-35 .000 34. 120.000 Ending Balance 80% Dividends Basic 0 24.000 8.Consolidation of Less-than-Wholly-Owned Subsidiaries Acquired at More than Book Value E5-15 (continued) 1/1/X3 12/31/X3 Goodwill = 0 Goodwill = 0 Identifiable excess =0 Excess = 0 $120.000 Net investment in Stergis Co.000 136.000 0 Optional accumulated depreciation elimination entry Accumulated depreciation 60. 80% Book value = 120. Dividends declared Investment in Stergis Co.000 Depreciable Assets 60.000 80% Net Income 24.000 136.000 24.000 50.000 Investment in Stergis Co. 24.000 100.Chapter 05 .000 Basic elimination entry Common stock Retained earnings Income from Stergis Co. 000 10.000 300.000 34.000) 94.000 200.000 828.E5-15 (continued) b. Stergis Co.000 100.000 Retained Earnings 284.000 120.000 284.000 105.000 34.000 Current Liabilities 50.000) 10.000) DR CR Consolidated Income Statement Less: Other Expenses Income from Stergis Co.000 44.000 Statement of Retained Earnings Beginning Balance Net Income 80.000) (105.000 320.000 Current Assets 173.000 136.000 70.000 90.000) (40. 136.000 80.000 6.000 40.000 Total Assets 634.000 Long-Term Debt 100.000 180.000 60. 24.000 330.000) (75.000) (15.000 Consolidated Net Income 94.000 NCI in NA of Stergis Co.000 30.000 (180.000 100.000 .000) (10.000 230.000 50.000) Investment in Stergis Co.000) 24. Total Liabilities & Equity 634.000 Less: Dividends Declared (40.000 220.000 (40.000 10.000 30.000 828.000 120. Elimination Entries Proud Corp.000 60.000 30. Sales 200.000 50.000 284.000 94.000 Common Stock 200.000 0 60.000) Ending Balance 284.000) (75.000 330.000 Depreciable Assets 500.000 0 94.000 70.000 100.000 60.000) 0 94.000 (190.000 230.000 740.000 (6.000 Balance Sheet Less: Accumulated Depreciation 278.000 (175.000 NCI in Net Income Controlling Interest in Net Income 30.000 0 24.000 Less: Depreciation Expense (25.000 30. 000 (220.000 Proud Corporation and Subsidiary Consolidated Income Statement Year Ended December 31.000 180.000 (190.000 .000 $828.000 Proud Corporation and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31. December 31. 20X3 Retained Earnings.000 $324. 20X3 $230.000) $278. 20X3 Sales Depreciation Other Expenses Total Expenses Consolidated Net Income Income to Noncontrolling Interest Income to Controlling Interest $ 40. January 1.000) $ 94.000 284.000) $100.000 34.000 518.000 220.000 $200.000 $484.E5-15 (continued) c. Proud Corporation and Subsidiary Consolidated Balance Sheet December 31. 20X3 Income to Controlling Interest. 20X3 Current Assets Depreciable Assets Less: Accumulated Depreciation Total Assets Current Liabilities Long-Term Debt Stockholders’ Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity Total Liabilities and Stockholders' Equity $740.000 94.000 (40.000 (6.000) $284.000 $ 90.000 $320.000 $828.000 550. 20X3 Retained Earnings. 20X3 Dividends Declared. Dividends NCI 20% 34.'s 20X4 dividend Book Value Calculations: Original book value + Net Income .000 Net investment in Stergis Co. 80% 136.000 (3.000 = Common Stock 100.'s Books: Investment in Stergis Co.000 7.000 Record Proud Corp.'s 80% share of Stergis Co. 28. Equity Method Entries on Proud Corp.000 $136.000) 152.000 Record Proud Corp.000 Retained Earnings 70.000 + 100.000 Income from Stergis Co.000 (12. 80% Book value = 152.E5-16 Consolidation Worksheet for Majority-Owned Subsidiary for Second Year a.000) Ending book value 38.000 Net investment in Stergis Co.000 35.000 $152.'s 20X4 income Cash 12. . 28. 12.000 + Proud Corp.000) 90.000 1/1/X4 12/31/X4 Goodwill = 0 Goodwill = 0 Identifiable excess =0 Excess = 0 80% Book value = 136.000 (15.000 28.'s 80% share of Stergis Co.000 Investment in Stergis Co. 000 Depreciable Assets 60. 28.000 Income from Stergis Co.000 152. Beginning Balance 80% Net Income Ending Balance Investment in Stergis Co.000 28.000 38.000 0 100. NCI in NA of Stergis Co.000 7.000 152.000 28.000 0 . NCI in NI of Stergis Co.000 152.000 15.E5-16 (continued) Basic elimination entry Common stock Retained earnings Income from Stergis Co.000 12.000 28.000 Ending Balance 80% Dividends Basic Optional accumulated depreciation elimination entry Accumulated depreciation 60. Dividends declared Investment in Stergis Co.000 70. 136.000 80% Net Income 28. 000 70.000 Total Assets 687.000 0 83.E5-16 (continued) b.000 100.000 50.000 220.000 90.000 0 28.000 70.000 150.000 (230.000 740.000 (50.000 360. Total Liabilities & Equity 687.000 15.000 NCI in Net Income Controlling Interest in Net Income 370. Elimination Entries Proud Corp.000 38.000 35.000 Common Stock 200.000 35.000 60. Stergis Co.000 895.000) (90.000 140.000 (200.000 895.000 90.000) (150.000 (7. 28.000 Retained Earnings 317.000) 105.000 300.000) Ending Balance 317.000 205.000) (15.000 35.000 Consolidated Net Income 83.000 35.000 28.000 Long-Term Debt 100.000) (240.000 NCI in NA of Stergis Co.000 284.000 317.000 0 60.000 Current Liabilities 70.000 Current Assets 235.000 90.000) DR CR Consolidated Income Statement Sales Less: Depreciation Expense Less: Other Expenses Income from Stergis Co.000 Less: Dividends Declared (50.000 60.000 0 83.000 120.000 284.000 (25.000 38.000) (90. 230.000 Depreciable Assets 500.000 200.000) 15.000 100.000 7.000) 83.000) 152.000) (15.000 15.000 Statement of Retained Earnings Beginning Balance Net Income 83.000 53.000 360.000 317. 152.000 60.000) (40.000 .000 105.000 120.000 385.000 35.000 Balance Sheet Less: Accumulated Depreciation Investment in Stergis Co. $8.250 $1.$8.750 .000) x .000) / 10 Years Consolidated net income Comprehensive gain reported by Stem Consolidated comprehensive income b.250 831. Consolidated stockholders' equity: Controlling Interest: Common Stock Retained Earnings Accumulated Other Comprehensive Income Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity 20X8 20X9 $120.000 .000 $162.750 158.000 40.000 $ 197.000 $ 192.000) x .000) (8.000 .000 10.000 .102.000 $ 140.250) $151.000 613.000 (8.750 20X8 20X9 $320. Consolidated net income: Operating income of Broadmore Net income of Stem Amortization of differential ($580.000 504.25 Comprehensive income attributable to controlling interest c. Comprehensive income attributable to controlling interest: Consolidated comprehensive income Comprehensive income attributable to Noncontrolling interest ($50.25 ($65.E5-17 Preparation of Stockholders' Equity Section with Other Comprehensive Income a.000 7.000 60.000 $ 320.500 11.000) $152.000 $ 197.000 (10.500 $983.500) (14.250 151.500 944.$500.500 $ 182.000 20X8 20X9 $162.000 5. .000 140.000 1/1/X8 12/31/X8 Goodwill = 0 Goodwill = 0 Identifiable excess =0 Excess = 0 70% Book value = 140. 4.'s Books: Investment in Krown Corp. 140.000) 85.000 Record Palmer Corp. 17.000 (7.500 Investment in Krown Corp.000 (17.200 Other Comprehensive Income from Krown Corp.000 + 120.000 $147. 70% 140. Book Value Calculations: Original book value + Net Income .000 Investment in Krown Corp.000 Income from Krown Corp.'s 20X8 dividend Investment in Krown Corp.500 + Palmer Corp.000 (25. Equity Method Entries on Palmer Corp. 4.000 21.500 Record Palmer Corp.Dividends NCI 30% 60.'s proportionate share of OCI from Krown Corp.'s 20X8 income Cash 17.000 Initial investment in Krown Corp.700 Retained Earnings 80.'s 70% share of Krown Corp. Cash Record the initial investment in Krown Corp. 70% Book value = 147.500) 143.000 $140. 21.500 = Common Stock 120.000 9. 21.E5-18 Eliminating Entries for Subsidiary with Other Comprehensive Income a.500) Ending book value 61.000 30.200 Record Palmer Corp.'s 70% share of Krown Corp.700 Net investment in Krown Corp. 500 4.000 143.000 0 .000 21. 140.000 9.500 61. Other Comprehensive Income Entry: OCI from Krown Corp. NCI in NA of Krown Corp.000 17.E5-18 (continued) Basic elimination entry Common stock Retained earnings Income from Krown Corp.200 1. Acquisition Price 70% Net Income Ending Balance Investment in Krown Corp. NCI in NA of Krown Corp. NCI in NI of Krown Corp.000 80.800 4.000 70% Dividends 70% OCI 21.000 21.000 25.200 0 120.700 143. OCI to the NCI Investment in Krown Corp.500 4.500 4. 21.800 Income from Krown Corp.200 1. Dividends declared Investment in Krown Corp.000 Basic OCI Entry 21.200 147. 000 + General Corp. Paidin Capital 75. 80% Retained = 116.000 30.000 Initial investment in Strap Co.000 Book Value Calculations: NCI 20% Ending book value 29.000 Cash Record the initial investment in Strap Co. 138.000 Identifiable excess =0 80% Book value = 116.000) .000 Basic elimination entry Common stock Additional Paid-in Capital Retained earnings Investment in Strap Co.000 Common Stock + 100.000 116.E5-19* Consolidation of Subsidiary with Negative Retained Earnings Equity Method Entries on General Corp. 100.000 1/1/X4 Goodwill = 22. $138.000 29.000 Add.'s Books: Investment in Strap Co.000 + Earnings (30. 138. NCI in NA of Strap Co.000 75. E5-19* (continued) Excess Value (Differential) Calculations: NCI General Corp. 20% + 80% Beginning balances 5,500 22,000 = Goodwill 27,500 Excess value (differential) reclassification entry: Goodwill 27,500 Investment in Strap Co. NCI in NA of Strap Co. 22,000 5,500 Investment in Strap Co. Acquisition Price 138,000 116,000 22,000 Basic Excess Reclass. 0 E5-20* Complex Assignment of Differential a. Equity Method Entries on Worth Corp.'s Books: Investment in Brinker Inc. Cash Record the initial investment in Brinker Inc. 864,000 864,000 Investment in Brinker Inc. 135,000 Income from Brinker Inc. Record Worth Corp.'s 90% share of Brinker Inc.'s 20X5 income Income from Brinker Inc. Investment in Brinker Inc. Record amortization of excess acquisition price 135,000 82,350 82,350 b. Book Value Calculations: Original book value + Net Income - Dividends NCI 10% 72,000 15,000 0 Ending book value 87,000 + Worth Corp. 90% 648,000 135,000 0 783,000 = Common Stock 500,000 Premium on Com. Stock 100,000 + 500,000 100,000 Retained + Earnings 120,000 150,000 0 270,000 E5-20* (continued) 12/1/X5 12/31/X5 Goodwill = 45,000 Goodwill = 45,000 Identifiable excess = 171,000 Excess = 88,650 90% Book value = 648,000 Basic elimination entry Common stock Premium on common stock Retained earnings Income from Brinker Inc. NCI in NI of Brinker Inc. Investment in Brinker Inc. NCI in NA of Brinker Inc. $864,000 Initial investment in Brinker Inc. 90% Book value = 783,000 500,000 100,000 120,000 135,000 15,000 783,000 87,000 $916,650 Net investment in Brinker Inc. Excess Value (Differential) Calculations: 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 0 Amortized excess value reclassification entry: Cost of goods sold Gain on sale of land Interest expense Depreciation expense Income from Brinker Inc. NCI in NI of Brinker Inc. + 0 Equipment + 60,000 60,000 Disc. on notes payable + Acc. Depr. 0 50,000 (7,500) (4,000) 0 42,500 (4,000) 50,000 5,000 75,000 7,500 4,000 82,350 9,150 60,000 42,500 50,000 4,000 133,650 14,850 SOLUTIONS TO PROBLEMS P5-21 Multiple-Choice Questions on Applying the Equity Method [AICPA Adapted] 1. a 2. a 3. c 4. d Goodwill 50,000 E5-20* (continued) Excess value (differential) reclassification entry: Equipment Discount on notes payable Goodwill Acc. Depr. Investment in Brinker Inc. NCI in NA of Brinker Inc. + 000 Income from Krown Corp.575 P5-22 (continued) Amortization of differential assigned to buildings and equipment: Fair value of buildings and equipment $360.000 8 $3.200 Amortization of differential assigned to copyrights: Purchase price Fair value of Krown's: Total assets $560.000 Remaining life ÷ 15 Yearly amortization $1.000 Investment in Krown Corp.000 Proportion of stock held by Ball x .000 3.575 4.000 70.000) $310.P5-22 Amortization of Differential Journal entries recorded by Ball Corporation: Equity Method Entries on Ball Corp.'s Books: Investment in Krown Corp. Investment in Krown Corp.375 .000 Differential $60.000 Portion of stock held by Ball x 0.'s 20X5 dividend Income from Krown Corp.000 50.000 Book value of buildings and equipment 300. Record Ball Corp. 120.000 Total liabilities (250. Record Ball Corp.30 Differential assigned to buildings and equipment $18.30 Amount assigned to copyrights Remaining life ÷ Yearly amortization 5-48 $120.'s 30% share of Krown Corp.000 4. Preferred Stock Additional Paid-in Capital Record the initial investment in Krown Corp.000) $27. 12.000 Investment in Krown Corp. Record amortization of excess acquisition price 3.'s 20X5 income Cash 12.000 (93.'s 30% share of Krown Corp. 600 c.40) $ 3. 20X1 ($9. Easy Chair Company 20X1 equity-method income: Proportionate share of reported income ($30.000 5.500 (1.000 x .000) $14. in 20X9: (1) Investment in Phillips Corp.000: not impaired) Investment Income Assignment of differential Purchase price Proportionate share of book value of net assets ($320.000 .000) $ (14.40) Proportionate share of fair value increase in buildings and equipment ($35. Cost-method account balance (unchanged): $150.000) (1. Stock Cash Record purchase of Phillips stock.10($70. 14. Dividend income.000) 20X6 amortization of differential 20X7 amortization of differential 20X8 amortization of differential Amount of increase $ 5.40) Goodwill $ 12.$20.000) 20X8 .600 P5-24 Multistep Acquisition Journal entries recorded by Jackson Corp. 70.000 (128.$20.000 .10($70.40) Amortization of differential assigned to: Buildings and equipment [($35.000 9. December 31. January 1.P5-23 Computation of Account Balances a.000 14.800) -0$ 9.000) 20X7 .200 $150.000 x .600) $155.000 (2) Investment in Phillips Corp.000 x .500 5-49 70.000 x .000) 8.500 .15($70.000 7.000) (1. 20X1 $150.500 Computation of equity pick-up 20X6 .000 b.000 x .000 Equity-method account balance: Balance.200 (3.$20. Stock Retained Earnings Record pick-up of difference between cost and equity income.000 . 20X1 Investment income Dividends received Balance.000 (2.40) / 5 years] Goodwill ($8. 05)] 20X9 purchase [$70. Stock Income from Phillips Corp.000 7. Stock Record dividend from Phillips Corp: $20.Amortization of differential 20X6 purchase [$25. Investment in Phillips Corp.20)] Total annual amortization (3) Cash Investment in Phillips Corp.($200.($300.000 0 0 $1.000 .000 .35 $1.000 x .000 .500 (5) Income from Phillips Corp. Stock Amortize differential. 5-50 1.000 x .500 1.($350. Record equity-method income: $70.000 .000 x .35 (4) Investment in Phillips Corp.000 7.000 x .000 24.000 x .000 24.10)] 5 years 20X8 purchase [$15. 000 x 0.000 Investment in Arrow Manufacturing Stock Record dividends from Arrow Manufacturing: $20.30) / 10 years] Equity-method income for 20X2 $24. 20X2 $12. Essex Company 20X2 equity-method income: Proportionate share of reported net income ($80.000 x .000 150.000 .000 x . b.000 10.700) $165.750 b.000 (4) Income from Arrow Manufacturing 1.000 (9.000 x .000) (1.000 150.050 $175.45 (3) Investment in Arrow Manufacturing Stock Income from Arrow Manufacturing Record equity-method income: $80.000 x 0.30) Deduct increase in cost of goods sold for purchase differential assigned to inventory ($30.000 1.050 P5-26 Equity Entries with Differential a.000 36.350 . 210.000 60. Computation of investment account balance on December 31.000 Equity-method journal entries recorded by Hunter Corporation in 20X0: (1) Investment in Arrow Manufacturing Stock Common Stock Additional Paid-In Capital Record acquisition of Arrow Manufacturing stock.30) Investment account balance on December 31.350 Investment in Arrow Manufacturing Stock Amortize differential assigned to buildings and equipment: ($30.$260.750 (2.P5-25 Complex Differential a. 210.45 36. Journal entry recorded by Hunter Corporation: Investment in Arrow Manufacturing Common Stock Additional Paid-In Capital Record acquisition of Arrow Manufacturing stock.000) x .45) / 10 years 5-51 60.500) (750) $12.000 x .30] / 12 years] Patent [($25.000 (2) Cash 9.000 9. 20X2: Purchase Price Investment income for 20X2 Dividends received in 20X2 ($9.30) Deduct amortization of differential assigned to: Buildings and equipment [($320.000 x . 500 Income from Arrow Manufacturing Record equity-method income for period: $50.$1.P5-26 (continued) Equity-method journal entries recorded by Hunter Corporation in 20X1: (1) Cash 18.000 x 0. 20X0 20X0: Income from Arrow Manufacturing ($36.000) 25.650 (9. 20X1: Purchase price on January 1.$1. December 31.500 .350) Dividends received 20X1: Income from Arrow Manufacturing ($22.800 .500 (3) Income from Arrow Manufacturing 1. 1.150 (18.350 Investment in Arrow Manufacturing Stock Amortize differential assigned to buildings and equipment.350 c. December 31.350) Dividends received Investment account balance.45 22.000 $34.000) $21.150 $238. 20X1 5-52 $210.45 18.000 .000 x 0.650 3.000 Investment in Arrow Manufacturing Stock Record dividends from Arrow Manufacturing: $40. Investment account balance.000 (2) Investment in Arrow Manufacturing Stock 22. 000 x . Operating income of Amber for 20X3 Operating income of Blair for 20X3 Add: Equity income from Carmen [($50.000 x .000 + $24.40 $220.$7.600 = $200.400 (1.$1.000 $111.000) $260.P5-27 Equity Entries with Differential a.000 44.000 x 0.40) / 8 years] Patents [($25. 200.500 .35) / 20 years b.400 Record amortization of differential assigned to buildings and equipment (net): ($80.400 P5-28 Additional Ownership Level a.000 Investment in Jackson Corporation Stock Record expiration of differential assigned to inventory: $20.000 11.000 150.500 (4) Income from Jackson Corporation 7.000 x 0.35 3.000 .35 7.000 .500 24.40) / 5 years) Net income of Amber for 20X3 $100.000 (2) Cash 3.000 (5) Income from Jackson Corporation 1.500 Investment in Jackson Corporation Stock Record dividend from Jackson Corporation: $10. $212.000 x 0.$3.500) (2.500 .000) x .400 Investment in Jackson Corporation Stock 1.$6.900 5-53 .25) Blair net income for 20X3 Proportion of stock held by Amber Amortization of differential: Equipment [($30.500 24. Equity-method journal entries recorded by Ennis Corporation: (1) Investment in Jackson Corporation Stock Common Stock Additional Paid-In Capital Record acquisition of Jackson Corporation stock.000 50.000 x 0.35 (3) Investment in Jackson Corporation Stock Income from Jackson Corporation Record equity-method income: $70.000 x . 130.500 = $1.000 Investment in Blair Corporation Stock Income from Blair Corporation Record equity-method income: $111.000 3.40 12.500 5-54 40.000 44.000 x 0.000 x 0.b.400 Income from Blair Corporation Investment in Blair Corporation Stock Amortize differential: $3.000 90.400 3.000 12. Investment in Blair Corporation Stock Common Stock Additional paid-In Capital Purchase of Blair Corporation Stock.500 .500 + $2.000 Cash Investment in Blair Corporation Stock Record dividend from Blair: $30.40 44. $70.000) x 0.40 Amount assigned Number of years to be amortized Annual amortization Correct amount to be amortized annually Amount amortized by Hill [($164.000) 17.000 11.000 ÷ 8 3.000 + $50.000) (1.40] / 5 years Patents: Amount paid Fair value of identifiable net assets ($300.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: Retained Earnings 1/1/20X4 Item Adjustment to remove dividends included in investment income and not removed from investment account $(14.000) (1.000) x 0.500) $(11.500) $(28.40)] / 8 years Adjustment to annual amortization 5-55 $4.000 x 0.($300.000 .000) Adjustment to annual amortization of differential: 20X2 and 20X3 20X4 Required adjustment to account balance (3.000 (140.500) $1.500 Dale Company Investment 20X4 Balance Income 12/31/20X4 $(10.000) $ 24.500) (3.500) Computation of adjustment to annual amortization of differential Correct amortization of differential assigned to: Equipment [($120.000 (5.000 $164.000 $7.500 28.000) $(24.500 .000 .000) $(17. P5-30 Majority-Owned Subsidiary Acquired at Book Value a.500 37. 70% 37. 70% Book value = 87.500 Book Value Calculations: NCI 30% Ending book value + Cameron Corp.500 0 40.000 87. 87.500 = 87. 87. Acquisition Price Investment in Darla Corp.500 87.500 Common Stock 40. Equity Method Entries on Cameron Corp.000 .'s Books: Investment in Darla Corp.000 85.500 Basic 5-56 + Retained Earnings 85.500 Basic elimination entry Common stock Retained earnings Investment in Darla Corp.000 12/31/X4 Goodwill = 0 Identifiable excess =0 $87. 87. NCI in NA of Darla Corp.500 Cash Record the initial investment in Darla Corp.500 Initial investment in Darla Corp. 000 80.000 Accounts Payable 152.000 130.000) 80.000 30.000 75.500 37.000 5-57 175.000 210.000 44. 86.500 340.000 90.000 87. Darla Corp.500 P5-30 (continued) Optional accumulated depreciation elimination entry Accumulated depreciation 80. 65.500 12.000 60.500 932.000 (150.000 40.000 Building & equipment 80.Eliminate intercompany accounts: Accounts payable Accounts receivable 12.000 40.000 b.000 12.000) (80.500 205.500 340.500 0 180.000 80.500 .000 137.500 37.500 121.500 Total Assets 692.000 12.000) 87.000 80. Total Liabilities & Equity 692. Cameron Corp.500 37.000 85.000 (150.000 Common Stock Retained Earnings 430.000 250.000 80.000 180.000 932.000 210.000 21.500 580.500 35.000 410.000 NCI in NA of Darla Corp.500 Mortage Payable 250.000 90.000 85.000 Elimination Entries DR CR Consolidated Balance Sheet Cash Accounts Receivable Inventory Land Buildings & Equipment Less: Accumulated Depreciation Investment in Darla Corp. 500 $932.500 Common Stock 40.500 . 70% = 87.200 102.000 90.000) Accounts Payable Mortgage Payable Stockholders’ Equity: Controlling Interest: Common Stock $ 80.000 430.000 $ 86. 20X4 Cash Accounts Receivable Inventory Land Buildings and Equipment $660. Cash Record the initial investment in Darla Corp.200 Book Value Calculations: NCI 30% Ending book value 37.500 + Porter Corp. Cameron Corporation and Subsidiary Consolidated Balance Sheet December 31. 102. Equity Method Entries on Porter Corp.500 Total Stockholder’s equity Total Liabilities and Stockholders' Equity P5-31 Majority-Owned Subsidiary Acquired at Greater than Book Value a.000 121.000 5-58 + Retained Earnings 85.500 205.000 Retained Earnings 210.'s Books: Investment in Darla Corp.000 Total Controlling Interest $290.000 430.000 Noncontrolling Interest 37.500 $175.c.000 Less: Accumulated Depreciation Total Assets (230.000 $932.000 327. 700 70% Book value = 87.300 14.500 37. $102.500 Basic elimination entry Common stock Retained earnings Investment in Darla Corp. 40.1/1/X4 Goodwill = 0 Identifiable excess = 14. NCI in NA of Darla Corp.000 87.700 5-59 = Inventory 6. 30% + 70% Beginning balances 6.000 .200 Initial investment in Darla Corp.000 + Buildings & Equipment 15.500 Excess Value (Differential) Calculations: NCI Porter Corp.000 85. 300 Eliminate intercompany accounts: Accounts Payable Accounts Receivable 12.500 12.000 Basic Excess Reclass.000 Building & equipment Acquisition Price Investment in Darla Corp.000 Buildings & Equipment 15. 102.700 6.700 0 80.200 87.500 Optional accumulated depreciation elimination entry Accumulated depreciation 80.P5-31 (continued) Excess value (differential) reclassification entry: Inventory 6. 5-60 .000 Investment in Darla Corp.500 14. NCI in NA of Darla Corp. 14. 000 210.000 (80.300 Total Liabilities & Equity 692.300 21.000 (150.000 430.000 40.200 71. Darla Corp.000 DR CR Consolidate d Balance Sheet Inventory Land 60.000 80.000 Buildings & Equipment Less: Accumulated Depreciation 410.500 340.500 35.500 938.500 Mortgage Payable 250.800 Total Assets 692.500 211.P5-31 (continued) Elimination Entries Porter Corp.000 30.000 15.000 Accounts Receivable 90.000 75.50 0 37.000 80.500 340.000 90.000 210.000 101.00 0 Accounts Payable 152.000 44.000 NCI in NA of Darla Corp.000 12.300 12.000 121.800 .000 5-61 137.000 40. Cash 50.00 0 938.800 6.000) 87.000 80.000 ) Investment in Darla Corp.000 (150.000 595. 37.500 0 14.500 6.700 180.000 130.000 Common Stock Retained Earnings 175. 102.000 180.000 85.000 ) 250.000 80.500 43.000 85. 000 430.300 121.800 a.000 90.000 P5-32 Balance Sheet Consolidation of Majority-Owned Subsidiary Equity Method Entries on Total Corp. $ 71.000 $290.000) Accounts Payable Mortgage Payable Stockholders’ Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity Total Liabilities and Stockholders' Equity $ 80.c.'s Books: Investment in Ticken Tie Co. 20X4 Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Total Assets $595.000 43. 510.800 $175.000 10.000 5-62 445.000 210.000 $938.000 500.800 .000 (150.800 $938.500 211. Bonds Payable Bond Premium Record the initial investment in Ticken Tie Co. Porter Corporation and Subsidiary Consolidated Balance Sheet December 31.000 333. 500 Common Stock + 200.000 Initial investment in Ticken Tie Co.000 148.000 . NCI in NA of Ticken Tie Co.500 + Total Corp.500 Basic elimination entry Common stock Additional Paid-in Capital Retained earnings Investment in Ticken Tie Co.b. $510.000 + Earnings 148. Paidin Capital 130.500 75% Book value = 358.000 1/1/X8 Goodwill = 66.000 Identifiable excess = 85.500 119. 75% Retained = 358.500 5-63 Add. 200. Book Value Calculations: NCI 25% Ending book value 119.000 130.000 358. balances 50. 5-64 + Patent 40.000 Excess value (differential) reclassification entry: Inventory Land Building & Equipment Patent Goodwill Investment in Ticken Tie Co.500 0 + 220.000 40.000 151.500 50.500 151.500 151.500 Optional accumulated depreciation elimination entry Accumulated depreciation 220.000 20. Inven25% + 75% = tory Beg. 510.000 .000 Building & equipment Investment in Ticken Tie Co.500 4.000 50.500 6. Eliminate intercompany accounts: Current payables Receivables Acquisition Price Building & Equipment 50.P5-32 (continued) Excess Value (Differential) Calculations: Total NCI Corp.000 Basic Excess Reclass.000 88.000 358.000 4.500 6.000 + Land 20.000 + Goodwill 88. NCI in NA of Ticken Tie Co. 000 86.000 200.000 130.000 103. Patent Goodwill Total Assets d.500 119.000 6.460.000 100.000 700.543.000 39.000 484.000 1.000 62.000 1.000 88.000 220.000 (411.500 Total Corporation and Subsidiary Consolidated Balance Sheet January 2.251.000) 0 40.500 60.000 170.000 62.000 29.000 100.049.500 Consolidated 21.500 800.500 50.000 68.P5-32 (continued) c.500 158.000 125.000 (411.000 (220.000 Total Liabilities & Equity 1.000 88.000) $1.500 810.500 151.000 170.000 (411.000 103.251.000 125.500 $ 60.000 88.500 158.000 103.500 (3.000 5-65 $ 21.000 148.000 220.000 1.000 10.000 30. 38.000 130.000 670. Balance Sheet Cash Receivables Inventory Land Buildings & Equipment Less: Accumulated Depreciation Investment in Ticken Tie Co. 20X8 Cash Receivables Less: Allowance for Bad Debts Inventory Land Buildings and Equipment Less: Accumulated Depreciation Patent Goodwill Total Assets $ 65.000) 510.543.000 20.000 673.000 50.000 100.543.000 $1.000 9. Ticken Tie Co.000 10.000 1.000 55.500 40.000 960.000 .460.000 607.000 300.000 50.500 585.000) Current Payables Bonds Payable Premium on Bonds Payable Stockholders’ Equity: Controlling Interest: Common Stock Additional Paid-In Capital Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity Total Liabilities and $ 800.000 10.500 200.000 $ 300.000 100.000 607.000 148. Total Corp.500 4.000 358.000 294.000) Elimination Entries DR CR 6.000 $ 503. 12.000 300.000 40.000 1.000 Current Payables Bonds Payable Bond Premium Common Stock Additional Paid-in Capital Retained Earnings NCI in NA of Ticken Tie Co.000 119. 000 + $110.000) .$24.000 $115.000 .000 + $46.($46.000) Differential assigned to goodwill Fair value of Skyler 40.500 a.$340.000) Differential assigned to buildings and equipment ($780.000 d. Fair value of Skyler as a whole: $200.000 + $125.000 .000 = $380.000 10.$98.000 .000 b. 65 percent = 1.000 .000 Book value of Skyler shares Differential assigned to inventory ($195.000 .000 = ($148.000 .000 + $75. Skyler: $24.$400.000 .543.000 9. 5-66 .000 $259.650 / $259.000 c.000 e.$146. $65.000 .Stockholders' Equity P5-33 Incomplete Data $1.$80.$105.000 Blue: $70.000) f. Capital Stock Retained Earnings = = $120.00 – ($90.000 = ($115.000) = $94. $15.000) + $15. 20X9.000 35.500 (30. 20X9 d.000) $65.000 $35. 5-67 .P5-34 Income and Retained Earnings a.000) $374.000 b. When the cost method is used. Retained earnings reported at December 31.500 North $35. 20X9 Net income for 20X9 Dividends paid in 20X9 Retained earnings.000 ($90. Consolidated retained earnings at December 31. January 1.000). Thus. Net income for 20X9: Operating income Income from subsidiary Net income Quill $ 90. December 31. 20X9: Retained earnings. this amount must be added to the total retained earnings reported by the parent in arriving at consolidated retained earnings.500 retained earnings balance reported by Quill.000 (10. e.000 + $35.500 $114. is equal to the $374.000 Quill $290. c.000 24.500 North $40. Consolidated net income is $125.000 114. 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. 000 Investment in Best Co.000 + 60.000) 48.000 Excess = 13.000 96.'s Books: Investment in Best Co. Record Power Corp.000 24.625 5.000 6.'s 75% share of Best Co.000 (12. Record Power Corp. 18.500 75% Book value = 75.000 Goodwill = 1.000 Income from Best Co. Equity Method Entries on Power Corp.'s 20X8 income 18. 75% 75.000) Ending book value 27. Record amortization of excess acquisition price 5.000 Cash 12.000 1/1/X8 12/31/X8 Goodwill = 6.000 $96.000 (4.'s 75% share of Best Co. 5-68 75% Book value = 81.P5-35 Consolidation Worksheet at End of First Year of Ownership a.000 + Power Corp.000 Investment in Best Co.'s 20X8 dividend 12. Investment in Best Co.000 18.000 Retained Earnings 40. .000 Income from Best Co.Dividends NCI 25% 25. Cash Record the initial investment in Best Co.375 Net investment in Best Co.875 Identifiable excess = 15.625 Book Value Calculations: Original book value + Net Income .000 = Common Stock 60.000 $96.000 (16. 96.000 Initial investment in Best Co.000) 81. 375 5.000 27.000 Basic 15.000 12.875 Excess value (differential) reclassification entry: Buildings & Equipment Goodwill Acc.375 Amortized excess value reclassification entry: Depreciation expense Goodwill impairment loss Income from Best Co.625 0 . 0 (2.625 18.000 5.000 15.000 20.875) (5.000 Excess Value (Differential) Calculations: NCI Power Corp.000 (5.000 + Acc.P5-35 (continued) Basic elimination entry Common stock Retained earnings Income from Best Co.000 Changes (1. Investment in Best Co.375 Excess Reclass.500 2.000 6. Dividends declared Investment in Best Co.000 16. Depr.000 75% Net Income 12.000) (2.000) + Goodwill 8.375 Income from Best Co.000 40.625 96. NCI in NI of Best Co. Amort. 75% Dividends Excess Val. 0 5-69 18.000 5. 81. NCI in NA of Best Co.625 1.000 81. 60. NCI in NI of Best Co.000 5.000 18. 96. NCI in NA of Best Co.500 2.000 21.000 18. Depr.000 Building & equipment 30.000 Acquisition Price 75% Net Income Ending Balance Investment in Best Co.000 2. 20. = Buildings & Equipment 20.500 5.125 Optional accumulated depreciation elimination entry Accumulated depreciation 30.375 Ending Balance 5. 25% + 75% Beginning balance 7.625) Ending balance 5.125 15.500) 2. 000 31.500 646.000) (5.000) Elimination Entries DR CR Consolidated 5.000) (42.000 81.375 23.875 32.875 183.000) (16.625 5.000 150.000 54.000 31.000 60.875 (30.500 27. Income Statement Sales Less: COGS Less: Wage Expense Less: Depreciation Expense Less: Interest Expense Less: Other Expenses Less: Impairment Loss Income from Best Co.000) 126.000 350.500 50.000 538.000 200.625 1.500 102.875 102.000 200.000) (69.000 (16.125 646.500 70.000) (13.125) 24.000 26.000 54.000 23.000 2.500 82.500 Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared Ending Balance Balance Sheet Cash Accounts Receivable Inventory Land Buildings & Equipment Less: Accumulated Depreciation Investment in Best Co.000 48.000) 0 2.000) 126.000 30.000 45.000 126.500 16.000) (12.500 54.375 128.000 5.000 17.000 (145.875 16.000 90.000) (4.000 30.000 15.875 183.000 25.000 2.000 150.000 9.500 Total Liabilities & Equity 538.500 18.000 61.000 12.000 15.000 (235.875 (30.875 47.000 126.000 24.000) 96.500 7.500 30.000 Accounts Payable Wages Payable Notes Payable Common Stock Retained Earnings NCI in NA of Best Co.000 25.000 71.500) (5. Consolidated Net Income NCI in Net Income Controlling Interest in Net Income Power Corp.000 (157.000 50.875 40.000 40.500 6.000 54.000) (18.125 23.000 (125.875 24.375 54.000 200.000) (10.000 490.000) (25.000 71.000 (4.000) (37.000 5.000 (40.000) 20. Goodwill Total Assets 12.375 21. Best Co.500 68.P5-35 (continued) b. 260.500 7.500) 0 59.000) 48.000 (110.000 .000 60.000) (27.500) 180. 45.875 5-70 2.000 131.875 440.000 115. 000 9.'s 75% share of Best Co.000) = 93. Record Power Corp.875 Identifiable excess = 13. Record amortization of excess acquisition price 27. 75% 81.000 $106.000 (5.875 Net investment in Best Co.000 15.000) Ending book value 31. Record Power Corp. Investment in Best Co.P5-36 Consolidation Worksheet at End of Second Year of Ownership a.500 Book Value Calculations: Original book value + Net Income .500 Excess = 12.000 + Power Corp.Dividends NCI 25% 27.000 1. 27.000 Income from Best Co.'s 75% share of Best Co.000 (20. .000) 60.'s Books: Investment in Best Co. Equity Method Entries on Power Corp.000 $96.000 64.000 + Retained Earnings 48.000 (15.'s 20X9 income Cash 15.000 Investment in Best Co. 5-71 75% Book value = 93.375 Net investment in Best Co.000 27.000 1/1/X9 12/31/X9 Goodwill = 1.000 Common Stock 60.'s 20X9 dividend Income from Best Co.500 1.875 Goodwill = 1.000 75% Book value = 81.000 36. Ending Balance + Goodwill 2.000 48. 0 5-72 27.000 Excess value (differential) reclassification entry: Buildings and Equipment Goodwill Acc.625 Optional accumulated depreciation elimination entry Accumulated depreciation 40.000 = 20. Investment in Best Co.000 1. Amort. NCI in NA of Best Co.625 + Power Corp.000 2.375 27.000 Amortized excess value reclassification entry: Depreciation expense Income from Best Co.875 + 40.500 106.000 1. NCI in NA of Best Co. 96.P5-36 (continued) Basic elimination entry Common stock Retained earnings Income from Best Co.000 Basic 13.000) (2.500 500 20.000) 2.000 13. (2. 75% Dividends Excess Val. NCI in NI of Best Co.500) 13. 60.500 Ending Balance 1.875 Excess Reclass.000 9. Depr.000) (4.000 15.000 93.875 Buildings and Equipment 20. Depr.500 27. NCI in NI of Best Co.000 Excess Value (Differential) Calculations: Beginning balance Changes Ending balance NCI 25% 5.375 (1.500 4.000 31.000 75% Net Income 25.500 0 . 93.000 27.000 Income from Best Co.125 (500) 4. 75% 15. Dividends declared Investment in Best Co.500 1.875 4. Investment in Best Co.000 Building & equipment Beginning Balance 75% Net Income Acc.000 20.500 0 2. 000 .500 75.000 Total Liabilities & Equity 587.000) (35.500 500 2.000 126.000 60.000 64.375 48.000 66.000 48.000 6.000 27.000 86.000 25.000 150.000) (12.875 75.000 480.000) (23.625 694.000 200.000) 0 84.000 2.000 4. 51.000 150.000 350.000) (4.500) 75.000) 75.000 93.000) (16.000 200.000) (16.000 50. Income Statement Sales Less: COGS Less: Wage Expense Less: Depreciation Expense Less: Interest Expense Less: Other Expenses Income from Best Co.000 38.000 86.000 100.000 121.000 (50.000 14.000 Consolidated 40.000) (20.500 694.000 (170.000 Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared Ending Balance Balance Sheet Cash Accounts Receivable Inventory Land Buildings & Equipment Less: Accumulated Depreciation Investment in Best Co.000 490.000 (259.000 40.375 2.000) 106.000) 25.000 38.000) (55.000 200.000 31.875 75.000 29.000 172.500 (30.000 Accounts Payable Wages Payable Notes Payable Common Stock Retained Earnings NCI in NA of Best Co.000) (10.500 99.000) (39.000) (25.625 22.000) 172.000 22.500 (30. Goodwill Total Assets 36.500 36.500 60.000 97.000 20.000 (114.000 146.000 4.000 50.000 (184.375 195.000 36.000 20.000) (37.375 35. Power Corp.000 14.000 172.875 22.500 2.375 195.000 (20.500 85. Consolidated Net Income NCI in Net Income Controlling Interest in Net Income Best Co.875 32.000 24.000 (8.000) 172.000 60.000 587.375 15.000 126.875 150.500 200.000) 0 2.000 5-73 1.000 9.000) 20.500 1.000 (145.000 75.P5-36 (continued) b.000 68.000) 64.000 13. Elimination Entries DR CR 290. P5-36 (continued) c.000 Power Corporation and Subsidiary Consolidated Income Statement Year Ended December 31.500 $694.375 (30.500 99.000 20.000) Accounts Payable Wages Payable Notes Payable Stockholders’ Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity Total Liabilities and Stockholders' Equity $100.375 $372. January 1.000 121.000 $490. 20X9 Sales Cost of Goods Sold Wage Expense Depreciation Expense Interest Expense Other Expenses Total Expenses Consolidated Net Income Income to Noncontrolling Interest Income to Controlling Interest $259.000 16.000 2.000 172.000 $200.000 $ 66.000 (184. 20X9 Retained Earnings.000 39.875 75.500 $202.000 55.000 200. 20X9 $126. 20X9 Income to Controlling Interest.500) $ 75. December 31.000 $694.000 296.375 35. 20X9 Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Goodwill Total Assets $480.000 (406.000) $172.625 408.000 (8.000 75. 20X9 Retained Earnings. 20X9 5-74 .000 37.000) $ 84. Power Corporation and Subsidiary Consolidated Balance Sheet December 31.375 Dividends Declared.500 Power Corporation and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31. 5-75 . 000 b. 24.'s 80% share of Stanley Wood Co. 8.'s 20X5 income Cash 8.000 Income from Stanley Wood Co. 80% 152.'s 80% share of Stanley Wood Co.000) 110. Record amortization of excess acquisition price 4.Dividends NCI 20% 38.000 Record Master Corp.000 30.000 (8.000 .000 24. Book Value Calculations: Original book value + Net Income .000) Ending book value 42. Equity Method Entries on Master Corp.'s 20X5 dividend Income from Stanley Wood Co. 24.000 (2.000 Record Master Corp.000 4. Investment in Stanley Wood Co.000 + Retained Earnings 90.000 Investment in Stanley Wood Co.000 6.P5-37 Comprehensive Problem: Majority-Owned Subsidiary a.000 + Master Corp.000 5-76 = Common Stock 100.000 100.000 (10.'s Books: Investment in Stanley Wood Co.000) 168. 000 80% Book value = 152.000 $176. .000 Excess = 20.000 Net investment in Stanley Wood Co. 5-77 80% Book value = 168.000 $188.1/1/X5 12/31/X5 Goodwill = 0 Goodwill = 0 Identifiable excess = 24.000 Net investment in Stanley Wood Co. 000 24. = 50.000 24.000) (5.000 5. (20.000 Excess Value (Differential) Calculations: NCI Master Corp.P5-37 (continued) Basic elimination entry Common stock Retained earnings Income from Stanley Wood Co. 20% + 80% Beginning balance 6.000 4.000 24.000 8.000) (25. Dividends declared Investment in Stanley Wood Co.000 6.000 20. NCI in NI of Stanley Wood Co.000 Eliminate intercompany accounts: Accounts payable Cash and receivables Income from Stanley Wood Co.000 10.000 80% Dividends Excess Val. 176.000 Amortized excess value reclassification entry: Depreciation expense Income from Stanley Wood Co.000) Ending balance 5.000 10.000 188.000 20. NCI in NA of Stanley Wood Co. 0 5-78 80% Net Income 20.000 25.000 1.000 42.000) 4. Basic 20. Beginning Balance 80% Net Income Buildings & Equipment 50.000 50. Depr. NCI in NA of Stanley Wood Co. 100.000 10.000 90.000 24. Depr.000 4.000 0 . Investment in Stanley Wood Co.000 168. Ending Balance Acc.000 168.000 24.000 + 5.000 Excess Reclass.000 Ending Balance 4.000 Investment in Stanley Wood Co.000 Changes (1.000 Excess value (differential) reclassification entry: Buildings & Equipment Acc. NCI in NI of Stanley Wood Co. Amort.000) (4. 000 (30.000 Total Assets 904.000 20.000 Retained Earnings 344.000 60.000 57.000 280.000 15. 300.000 60.000 Total Liabilities & Equity 904.000 60.000 30.P5-37 (continued) c.000 81.000) 15.000 Balance Sheet Cash and Receivables Inventory Land 80.000) (15.000 70.000 5-79 235.000 90.011.000) (5.000 314.000 344.000 125.000 Statement of Retained Earnings Beginning Balance Net Income 125.000 260.000) (50.000 100.011. Stanley Wood Co.000) (20.000 Less: Dividends Declared (30.000 150.000 .000) Investment in Stanley Wood Co.000 (335.000 60.000 110.000 65.000 Buildings & Equipment 350.000 (120.000) (170.000) Less: Depreciation Expense (25.000 42. 20.000 500.000 90.000 0 20.000 35.000) Ending Balance 344.000 10.000 35.000) 5.000 Less: Accumulated Depreciation (205.000 100.000 60. Master Corp.000 1.000) Less: Inventory Losses (15.000 250.000 5.000 100. 188.000 6.000 50.000 Consolidated Net Income 60.000 160.000 30.000 5.000 (5.000 1.000 10.000 90.000 136.000) (105.000 300.000 4.000 110.000 25.000) (10. 200.000 47.000 4.000 50.000 30.000 Common Stock 300.000 80.000) Elimination Entries DR CR Consolidated Income Statement Sales Less: COGS Income from Stanley Wood Co.000 Accounts Payable 35.000 NCI in Net Income Controlling Interest in Net Income 5.000 10.000 1.000 50.000 700.000 314.000) 168.000 0 29.000 Notes Payable 200.000 (45.000 65.000 NCI in NA of Stanley Wood Co.000) 24.000 280.000 344. 000 (20.Dividends NCI 20% 30.000 48.000) Ending book value 38.000 173. Record Mortar Corp.000 Net investment in Granite Co.'s Books: Investment in Granite Co.000 Goodwill = 20.000 1/1/X7 12/31/X7 Goodwill = 20. Equity Method Entries on Mortar Corp.000 (4. 3. 48. Record amortization of excess acquisition price b.000 Excess = 30. 5-80 80% Book value = 152.000 + Retained Earnings 100.000) = 152. Investment in Granite Co.000 60.000 3. .000 (16.000 + Mortar Corp.'s 80% share of Granite Co. Record Mortar Corp.P5-38 Comprehensive Problem: Differential Apportionment a.000 Income from Granite Co. Cash Record the initial investment in Granite Co.000 Cash 16.000 $173.000 Book Value Calculations: Original book value + Net Income .000 Income from Granite Co.000 12.000 Investment in Granite Co. 173.000 Investment in Granite Co.000) 50.'s 20X7 dividend 16.'s 80% share of Granite Co.000 Common Stock 50.'s 20X7 income 48.000 Identifiable excess = 33. 80% 120.000 $202.000 80% Book value = 120.000 140.000 Initial investment in Granite Co. 250 25.000 Excess Value (Differential) Calculations: NCI Mortar 20% + Corp.000) Ending balance 12.500 50. NCI in NA of Granite Co.000 50.000 16. 80% Beginning balance 13.000 Optional accumulated depreciation elimination entry Accumulated depreciation 60. NCI in NI of Granite Co. Dividends declared Investment in Granite Co.250 41.000 202. NCI in NI of Granite Co.750) 3.000 Income from Granite Co.750 50.000 38. 173.000 12.000 3.000 Ending Balance 3. Basic Excess Reclass.000 3.000 48.250 53. NCI in NA of Granite Co. Amort.000 20.000 152.250 Amortized excess value reclassification entry: Depreciation expense Income from Granite Co. 5-81 48.750 Excess value (differential) reclassification entry: Buildings & Equipment Goodwill Acc.000 41.000 80% Net Income 45.500 16.000 = Buildings & Equipment 41. 0 (3.000 Building & equipment Ending Balance + 3. Depr.000 0 25. 50. Investment in Granite Co.P5-38 (continued) Basic elimination entry Common stock Retained earnings Income from Granite Co.750) (3.000 750 Eliminate intercompany accounts: Accounts payable Accounts receivable Acquisition Price 80% Net Income Acc. Goodwill 25.000 3.000 100.000 152.000 48.000 48.000 0 .000 16. Investment in Granite Co. 80% Dividends Excess Val.000 0 + 60.000 12. Depr.000 Changes (750) (3. 000 145.000) (15.000 48.000 100.000) 385.000 60.000 100.250) 145.000) (43.000 89.000) (25.000 60.750 Consolidated 63.000 50.000) (75.750 163.000 50.000 63.000 200.000 100. Consolidated Net Income NCI in Net Income Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared Ending Balance Balance Sheet Cash Accounts Receivable Inventory Land Buildings & Equipment Less: Accumulated Depreciation Investment in Granite Co.000 80.100.000) 140.000 140.000 50.000 100.000) 202.000 163.000 101.500 89.000 79.250 (11.000 1.000) 41.750 3.000 400.500 61.000 385.000 300.000 20.000 385.750 16.000 35.000 (750.750 12.000 750 1.000 (75.750 Total Liabilities & Equity 955.000 275.750 152.000 290.000 51. Goodwill Total Assets 5-82 3.000 60.000 3.000 3.000 50.750) (150.000 300.750) 0 25.000 250. Elimination Entries DR CR Mortar Corp.000 3.750 3.750 16.750 Income Statement Sales Less: COGS Less: Depreciation Expense Less: Other Expenses Income from Granite Co.000) 45.000 (250. 70.074.P5-38 (continued) c.000) 385.000 (155.000 23.000) (75.500 1.000 145.000 25.000 55.000 340.000 (20.000) 60.000 229.000 240.000 145.000 25.000 150.000 12.000 500.750 145. 700.000 275.000 631.000 (50.000 63.000 50.750 20.000 (50. Granite Co.250 (173.750 38.000 (500.000 23.000 955.074.250 60.000 38.500 .000 50.250 Accounts Payable Mortgage Payable Common Stock Retained Earnings NCI in NA of Granite Co.750 290.000) 0 156. a.000 45.000 + Net Income 9.000 36. Record amortization of excess acquisition price b.00 Investment in Granite Co.'s Books: 36. 000 36.00 Income from Granite Co.000 .'s 20X8 income 20.'s 80% share of Granite Co.00 0 160.000 ) 42. 800 Investment in Granite Co.00 0 168. Cash 000 20.Dividends (5.000 Ending book value 5-83 50. Investment in Granite Co.00 0 + Mortar Corp.00 0 Retaine d + Earning s 140. Income from Granite Co. 0 Record Mortar Corp.000 . Equity Method Entries on Mortar Corp.80 0 Comm = on Stock 50. 80% 152.'s 80% share of Granite Co. 0 Record Mortar Corp. Book Value Calculations: NCI 20% Original book value 38.000 11.000 ) (20.P5-39 Comprehensive Problem: Differential Apportionment in Subsequent Period.'s 20X8 dividend 11.000) (25. 000 80% Book value = 152.200 Net investmen t in Granite Co.000 Net investmen t in Granite Co.000 $202.200 Goodwill = 20.000 80% Book value = 168.1/1/X8 12/31/X8 Goodwill = 11. . 5-84 Excess = 27.000 Identifiable excess = 30.000 $206. 5 00 (2. NCI in NI of Granite Co.75 0 11.80 0) 41.000 Retained earnings Income from Granite Co. NCI in NI of Granite Co. (3.0 00 42. Excess Value (Differential) Calculations: Beginning balance Changes Ending balance NCI 20% 12. 9.20 0 Investment in Granite Co. 7.500 38. + 80% Building s& Equipm = ent 50.P5-39 (continued) Basic elimination entry 5 Common stock 0. Depr. 5-85 + Good will 25.55 0 Mortar Corp.0 00 Buildings & Equipment Goodwill Acc.00 0 168.250 38. NCI in NA of Granite Co.0 00 Depreciation expense Goodwill impairment loss 11.000 3 6.00 0) 14.75 0) (7. Excess value (differential) reclassification entry: 41.000 25.00 0 Dividends declared Investment in Granite Co.75 0) (3.950 Income from Granite Co.80 0 2.2 50 14.00 0 (11.200 41.50 0) Amortized excess value reclassification entry: 3.9 50) 9. Depr.000 14 0.00 0 .000 (11.250 + Acc. Beginning 202.000 Optional accumulated depreciation elimination entry Accumulated 6 depreciation 0. Eliminate intercompany accounts: Accounts payable Accounts receivable 9.8 00 Ending 206.80 0 Excess Val.0 00 38.00 0 80% Dividends 11.00 0 36.20 0 Ending Balance 11. Income from Granite Co.2 Balance 00 168.00 Income 0 20. Amort.550 9.20 0 36. Basic Excess Reclass.NCI in NA of Granite Co.000 Building & equipment 60.000 9.0 00 11.80 0 0 . 0 5-86 80% Net Income 24.0 Balance 00 80% Net 36.00 0 Investment in Granite Co. 000 59.200 45.0 00 59.00 0 7.200 (45. 24.00 0 59.000 ) 160.000 ) 140.00 0) (15.20 0 631.120.80 0 2.00 0 (180.000 71.000 110.000) 11.000 ) (62.000 500. Elimination Entries Mortar Corp.00 0 Goodwill 385.20 0 31.750) (162.000 145.000 385.7 50 5-87 437.000 97.950 14.00 0 30.000) 11.00 0 39.000 90.250 (217.000) 393.75 0 25.200 9.25 0 60.00 0 (490.00 0) (25.00 0 36.00 0 (90.000 14.000 ) 437.750 (43.75 0 60.00 0 140.000 ) 470.P5-39 (continued) c.000 (800.000 118.75 0 9.75 0 (11.000) 3.75 0 199.250 (6.00 0) DR CR Consolida ted Income Statement Sales Less: COGS Less: Depreciation Expense Less: Other Expenses Less: Goodwill Impairment Income from Granite Co.000 97.000 150.000 ) (100.000 275.000 .500 168.00 0 1.200 Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared Ending Balance Balance Sheet Cash Accounts Receivable Inventory Land Buildings & Equipment Less: Accumulated Depreciation Investment in Granite Co.500) 0 14.00 0 80.75 0 0 103.00 0) 206.00 0 14.20 0 45.0 00 38.200 (45. 650.000 41.050) 97. Granit e Co.000 83.00 0 (310.00 0 50. 97.200 45.000 (25.200 Consolidated Net Income NCI in Net Income Controlling Interest in Net Income 97.80 0 11. 00 0 5-88 1.000 160.7 50 300.00 0 300.000 9.00 0 437.000 70.550 81.165.750 .000 50.165. Total Liabilities & Equity 76.00 0 199.2 50 86.000 39.Total Assets Accounts Payable Mortgage Payable Common Stock Retained Earnings 1.00 0 1.00 0 101.000 200.750 107.7 50 NCI in NA of Granite Co.75 0 437.000 270. 200 310.50 0 258.023. 200 310.550 1.20 0 30.023.75 0 42.00 0 9.200 51.000 50. .000 25.'s Books: Investment in Sparta Co.000 Retained Earnings 60.000 + Amber Corp.000 Initial investment in Sparta Co.000 $108.'s 20X8 dividend 9.000 1/1/X8 12/31/X8 Goodwill = 0 Goodwill = 0 Identifiable excess =0 Excess = 0 60% Book value = 96.P5-40 Subsidiary with Other Comprehensive Income in Year of Acquisition a. 6.000 Book Value Calculations: Original book value + Net Income . Cash Record the initial investment in Sparta Co.000 Cash 9.Dividends NCI 40% 64.000 10.000 (6. Record Amber Corp.000 + 100.'s 20X8 income 15.000 Net investment in Sparta Co. 96. Equity Method Entries on Amber Corp.000 Investment in Sparta Co.'s 60% share of Sparta Co.000 Investment in Sparta Co.000 96. Record Amber Corp.000 (15. 5-89 60% Book value = 108.000) 70.'s 60% share of Sparta Co.000 Income from Sparta Co.000 = Common Stock 100.000 (9. 60% 96. 6.000 Investment in Sparta Co. Record share of increase in value of securities held by Sparta Co.000 Other Comprehensive Income from Sparta Co.000 15. 15.000 $96.000) Ending book value 68.000) 102. NCI in NI of Sparta Co.000 6.000 6. 15.000 60.000 102.000 9.000 68.000 15.000 4.000 15.000 102.000 60% Net Income 15.000 15.000 Income from Sparta Co. NCI in NA of Sparta Co.000 108. OCI to the NCI Investment in Sparta Co. NCI in NA of Sparta Co.P5-40 (continued) Basic elimination entry Common stock Retained earnings Income from Sparta Co.000 10. Acquisition Price 60% Net Income Ending Balance Investment in Sparta Co. Dividends declared Investment in Sparta Co.000 0 100.000 Ending Balance 60% Dividends OCI Entry Basic OCI 15.000 0 5-90 .000 6. Other Comprehensive Income Entry: OCI from Sparta Co.000 4. 96.000 6. 000) (40.000 Consolidated 368. Amber Corp.000) 10.000 25.000 (4.000) 0 57.000) (30.000 75.000 600.000 0 742.000 47.000 (150.000 47.000 0 6.000) (8.000 108.000 10. Consolidated Net Income NCI in Net Income Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared Ending Balance Balance Sheet Cash Accounts Receivable Inventory Buildings & Equipment Less: Accumulated Depreciation Investment in Row Company Investment in Sparta Co.000 25.000 75. Sparta Co.000) (3.000 (24.000 100.000 (110. 220.000 10.000 20.000 (10.000) (10.000 231.000 Accounts Payable Bonds Payable Common Stock Retained Earnings Accumulated OCI NCI in NA of Sparta Co.000 208.000 50. Income Statement Sales Less: COGS Less: Depreciation Expense Less: Interest Expense Income from Sparta Co.000 47.000 235. 12/31/20X8 Elimination Entries DR CR 102.000 27. Unrealized Gain on Investments Other Comprehensive Income to NCI Accumulated Other Comprehensive Income.000 75.000 15.000 250.000 231.000 (24.000 30.000) 8.000 75.000 100.000 0 0 15.000 250. 63.000) 40.000 0 6.000) 47.000 Total Liabilities & Equity 600.000) (11.000 65.000) 47.000 200.000 35.000 (140.000 660.000 (85.000 150.000 15.000 0 10.000 5-91 10.000 25.000) 231.000 6.000 148.000 83. 1/1/20X8 Other Comprehensive Income from Sparta Co.000 Total Assets Other Comprehensive Income Accumulated Other Comprehensive Income.000 4.000 742.000 (150.000 40.000 6.000 70.000 68.000 500.000 15.P5-40 (continued) b.000 200.000 6.000 10.000 72.000 22.000 208.000 10.000 60.000 6.000 25.000 185.000 60.000) 15.000) 231.000) 40.000 4.000 85.000 100.000 87.000 15.000 .000 83.000 85.000 (260.000 70.000 (15.000) 70.000 25.000 6. 000 11.000 150.000 40.000 231. 20X8 Sales Cost of Goods Sold Depreciation Expense Interest Expense Total Expenses Consolidated Net Income Income to Noncontrolling Interest Income to Controlling Interest $260.000 Amber Corporation and Subsidiary Consolidated Statement of Comprehensive Income Year Ended December 31.000 510.000 $437. 20X8 Consolidated Net Income Other Comprehensive Income: Unrealized Gain on Investments Held by Subsidiary Total Consolidated Comprehensive Income Less: Comprehensive Income Attributable to Noncontrolling Interest Comprehensive Income Attributable to Controlling Interest 5-92 $57.P5-40 (continued) c.000 87.000 Amber Corporation and Subsidiary Consolidated Income Statement Year Ended December 31.000 $742.000 $ 83.000 (10.000 509.000 (311.000 (150.000 72.000 $67.000 10.000 70.000 $742.000 40.000) $53. Amber Corporation and Subsidiary Consolidated Balance Sheet December 31.000) Accounts Payable Bonds Payable Stockholders’ Equity: Controlling Interest: Common Stock Retained Earnings Accumulated Other Comprehensive Income Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity Total Liabilities and Stockholders' Equity $ 35.000 .000 (14.000 $368.000 6.000 $200. 20X8 Cash Accounts Receivable Inventory Buildings and Equipment Less: Accumulated Depreciation Investment in Marketable Securities Total Assets $660.000) $ 47.000) $ 57. Record Amber Corp.000 18.000 + 100.000 (8.000 108.000 Net investment in Sparta Co.000 Investment in Sparta Co. 2.000 Income from Sparta Co.000 Excess = 0 Excess = 0 60% Book value = 108. P5-41 (continued) 5-93 60% Book value = 116.000 Investment in Sparta Co.000 (12.Dividends NCI 40% 72.000) 114. Equity Method Entries on Amber Corp.000 Retained Earnings 70.'s 20X9 dividend 12.'s 60% share of Sparta Co. .000 1/1/X9 12/31/X9 Goodwill = 0 Goodwill = 0 80.400 Net investment in Sparta Co. 2.000 = Common Stock 100.400 $116. 108.P5-41 Subsidiary with Other Comprehensive Income in Year Following Acquisition a.'s 60% share of Sparta Co.000 10.000 30.000 (20. 60% 108.000) Ending book value 76.400 Book Value Calculations: Original book value + Net Income . 18.000 + OCI 10.000 Investment in Sparta Co. Record Amber Corp. Cash Record the initial investment in Sparta Co.000 Cash 12.000 + Amber Corp.000) $108.400 Other Comprehensive Income from Sparta Co.'s 20X9 income 18. Record share of increase in value of securities held by Sparta Co.000 12.'s Books: Investment in Sparta Co. 000 0 5-94 .000 18. Other Comprehensive Income Entry: OCI from Sparta Co.400 1.000 60% Net Income 18.400 114.000 70.400 116.000 12. 108.000 18.600 2.000 2.000 10.000 114. NCI in NI of Sparta Co.600 Income from Sparta Co.000 12. 18. Beginning Balance 60% Net Income Ending Balance Investment in Sparta Co.000 2.400 0 100. OCI to the NCI Investment in Sparta Co.000 2. NCI in NA of Sparta Co.000 Ending Balance 60% Dividends OCI Entry Basic OCI 18.400 1.000 76. NCI in NA of Sparta Co.000 20.Basic elimination entry Common stock Retained earnings Accumulated OCI Income from Sparta Co. Dividends declared Investment in Sparta Co. 12/31/20X9 2.000 30.000 1.000 6.000 (40.000) 18.000 8.000 4.000) (30.000 5-95 14.000 18.000) (40.000 0 786.000 585.000 200.000 30.000 60.000 (12.400 0 4.000 (1.000 45.000 60.000) (3.000 75.000 99.000 76.400 24.000 50.000) 11.400 75. Unrealized Gain on Investments Other Comprehensive Income to NCI Accumulated Other Comprehensive Income.400 268.000 200.000 0 20.000) (11.600 96.000 116.000 257.000 70.000 Consolidated 100.000) 80.000 Total Liabilities & Equity 634.000 18.000 8.000 80.000 (170.000 66.000 (40.400 114.000 20.000 150.000 (97.000 Accounts Payable Bonds Payable Common Stock Retained Earnings Accumulated OCI NCI in NA of Sparta Co.000) (8.000 (95.000 30.600) Other Comprehensive Income Accumulated Other Comprehensive Income.000 (190.000 6.000 767.000 10.000) 0 72. Elimination Entries DR CR Amber Corp.600 8.000 251.000 70.400 75.000) (10.400 268.000 2.000 231.000 140.000) 0 60. Sparta Co.000 12.600 786.000) 44. Income Statement Sales Less: COGS Less: Depreciation Expense Less: Interest Expense Income from Sparta Co.000 (170.000 (267.000 100.000 200.000 390.000) 30.400 14.000 75.000 100.000 40.000 0 Total Assets 634.000 2.000 29. 1/1/20X9 Other Comprehensive Income from Sparta Co.400 77.000 60.000 18.000 14.000 30.000 251.P5-41 (continued) b.000 231.000 100.000 20.000 14.000 100. 250.000 (20.000 21.400 .000 60.000 70.000 10.000 30.000 1. Consolidated Net Income NCI in Net Income Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared Ending Balance Balance Sheet Cash Accounts Receivable Inventory Buildings & Equipment Less: Accumulated Depreciation Investment in Row Company Investment in Sparta Co.000) 251. 75.000) 44.000) 251.000 8.