Solution manual advanced accounting 4e jeter ch06

To download more slides, ebook, solutions and test bank, visit

CHAPTER 6
Note: The letter A indicated for a question, exercise, or problem means that the question, exercise,
or problem relates to the chapter appendix.
ANSWERS TO QUESTIONS
1. No. If all of the merchandise sold by one affiliate to another has subsequently been sold to outsiders,
the only effect that the elimination of intercompany sales of merchandise will have on the
consolidated financial statements is to reduce consolidated sales and consolidated cost of sales by an
equal amount. Consolidated net income will be unaffected.
2. The effect of eliminating profit on intercompany sales after deducting selling and administrative
expenses rather than gross profit is to include selling and administrative expenses associated with the
intercompany sale in consolidated inventories. Support for the gross profit approach is based on the
proposition that consolidated inventory balances should include manufacturing costs only and that
generally accepted accounting standards normally preclude the capitalization of selling and
administrative costs.
3. $10,000 in intercompany profit should be eliminated on the consolidated statements workpaper
$100,000
($60,000 –
= $10,000). After this elimination the merchandise will be included in the
2
$100,000
consolidated statements at its cost to the affiliated group of $50,000 (
).
2
4. Yes. Although 100 percent elimination of intercompany profit has long been required in the
preparation of consolidated financial statements, the adjustments to the noncontrolling interest
described in this text were discretionary prior to the current standard. The FASB requires that these
adjustments be allocated between the noncontrolling and controlling interests.
5. When the subsidiary is the intercompany seller, the unrealized profit is shown in the accounts of the
sub (S Company). These accounts provide the starting point for the calculation of the noncontrolling

share of current year earnings. Failure to eliminate unrealized profit would result in the overstatement
of the noncontrolling share in profits. However, when the parent is the intercompany seller, the
unrealized profit is shown in the accounts of the parent (P Company). Since the noncontrolling
interest does not share in the earnings of P Company, the noncontrolling interest is not affected by the
unrealized profit therein.
6. Noncontrolling interest in consolidated net assets at the beginning of the year is adjusted by debiting
or crediting the subsidiary’s beginning retained earnings in the consolidated statements workpaper.
7. The only procedural difference in the workpaper entries relating to the elimination of intercompany
profits when the selling affiliate is a less than wholly owned subsidiary is that the noncontrolling
interest in the amount of intercompany profit in beginning inventory must be recognized by debiting
or crediting the noncontrolling shareholders’ percentage interest in such adjustments to the beginning
retained earnings of the subsidiary.
8. Controlling interest in consolidated net income is equal to the parent company’s income from its
independent operations that has been realized in transactions with third parties plus its share of
reported subsidiary income that has been realized in transactions with third parties and adjusted for its
share of the amortization of the difference between implied and book value for the period.

6-1


To download more slides, ebook, solutions and test bank, visit

9. It is important to distinguish between upstream and downstream sales because the calculation of
noncontrolling interest in the consolidated financial statements differs depending on whether the
intercompany sale giving rise to unrealized intercompany profit is upstream or downstream.
10. Profit relating to the intercompany sale of merchandise is recognized in the consolidated financial
statements in the period in which the merchandise is sold to outsiders. It is recognized in the
consolidated financial statements by reducing cost of goods sold (thus increasing gross profit and net
income).

6-2


To download more slides, ebook, solutions and test bank, visit

ANSWERS TO BUSINESS ETHICS CASE
1.
Independence of the auditor is essential in maintaining effective audits. When auditors are
involved in non-audit services, their independence may be impaired (in essence they may
be viewed as auditing their own work).
Many times auditors have to rely on management representation when no supporting
evidence is available. Auditors’ involvement in non-audit services can help them gain
sufficient familiarity with their client’s business and operational activities to reduce such
dependencies and perhaps to lower audit risk.
2.
The growing importance of non-audit service fees to the audit firms over time may have
increased the potential for the auditors to lose independence, even to the extent of financial
fraud involvement.
The increasing effort to reduce costs (in a competitive marketplace for audit services)
imposes limitations on the scope of the audit work involved-- to avoid operating at a loss.
Subsidizing any shortfall between audit revenues and audit costs with non-audit fees can
help in overcoming such limitations.
3.
Audit fees would have to increase if auditors are held liable to a greater degree. The
increased fees would cover both increased auditor effort to detect errors and to cover the
increased litigation settlements/insurance premiums. The additional benefits would be
weighed against the costs.
Timeliness and accuracy present constant tradeoffs in any audit. Time and budget
constraints may potentially result in an audit staff not performing sufficient work to meet
deadlines. Further, excessive cost-cutting may cause audit work to be inappropriately

reduced, which leads to increased reliance by auditors on client presentations to document
areas where the data are not easily available. Such reliance can cause audit judgments to
be inappropriately influenced. When factors outside their control cause auditors to rely on
the representations of others, they should not be solely responsible for resulting errors.
Legislation aimed at protecting auditors to some extent also serves to keep audits from
becoming prohibitively expensive.

6-3


To download more slides, ebook, solutions and test bank, visit

ANSWERS TO EXERCISES
Exercise 6-1
Part A (1) Sales

2,700,000
2,700,000

Purchases (Cost of Goods Sold)
To eliminate intercompany sales of 2011
(2) 12/31 Inventory-Income Statement (Cost of Goods Sold)
12/31 Inventory (Balance Sheet)
To eliminate unrealized intercompany profit in inventory

487,500
487,500

Exercise 6-2
Reported Net Income- S Company

Noncontrolling Interest Percentage
Noncontrolling Interest in Net Income

$ 525,000
0.20
$ 105,000

Exercise 6-3
2011
Reported net income

$ 30,000

$20,800
Unrealized intercompany profit included therein
= $5,200; $5,200
4
Profit included in consolidated income
Percentage interest
Noncontrolling interest in consolidated income

2012 (Rounded to nearest dollar)
Reported net income
Intercompany profit included in beginning inventory, now realized
$25,000
Unrealized intercompany profit included therein
= $6,250; $6,250
4
Profit included in consolidated income
Percentage interest

Noncontrolling interest in consolidated income

6-4

0.25 =

(1,300)
28,700
0.10
$ 2,870
$ 35,000
1,300

0.25 =

(1,563)
34,737
0.10
$ 3,474


To download more slides, ebook, solutions and test bank, visit

Exercise 6-4
The $600,000 that could not be assigned to specific assets and liabilities is assumed to represent goodwill
(the unidentifiable intangible asset), which is not amortized under current GAAP but is reviewed
periodically for impairment. In contrast, identifiable intangible assets would be amortized if they have a
definite life but not if the life is indefinite in duration. Thus, only if the $600,000 pertained to an
identifiable intangible asset with a finite life would amortization be required. We assume that is not the
case here.

2011
Pearce Company's net income from its independent operations
$90 ,000
Amount of income not realized in transactions with third parties ($90,000 –
)
1.25
Pearce Company's income from its independent operations that has been realized
in transactions with third parties
Pearce's share of Searl Company adjusted income that has been realized in transactions
with third parties ($412,500* 0.80)
Controlling interest in consolidated net income for 2011

$1,500,000
(18,000)
1,482,000
330,000*
$1,812,000

*[$600,000 – ($75,000 + $112,500)] x 0.80 = 330,000,
where $75,000 = $375,000/5
Alternatively,
Controlling Interest in Consolidated Income
Net income internally generated by Pearce Company
Unrealized profit on downstream
sales to Searl Company (ending
Inventory) ($90,000 – $90,000/1.25)

$1,500,000

Realized profit (downstream sales) from begin. inventory

18,000

Pearce Company's percentage of Searl Company's income
realized from third parties, .80($412,500)
Controlling interest in Consolidated Income

2012
Pearce Company's net income from its independent operations
Less profit included therein that has not been realized in transactions with third parties
($105,000 – ($105,000/1.25))
Plus profit realized in 2012 ($90,000 – ($90,000/1.25))
Pearce Company's income from its independent operations that has been realized
in transactions with third parties
Pearce's share of Searl Company adjusted income that has been realized in transactions
with third parties ($675,0000 .80)
Controlling interest in consolidated net income for 2012
*[$750,000 – $75,000] x 0.80 = $540,000,
where $75,000 = $375,000/5

6-5

330,000
$1,812,000

$1,800,000
(21,000)
18,000
1,797,000
540,000
$2,337,000

To download more slides, ebook, solutions and test bank, visit

Exercise 6-4 (continued)
Alternatively,
Controlling Interest in Consolidated Income
Net income internally generated by Pearce Company

$1,800,000

Unrealized profit on downstream
Realized profit (downstream sales) from begin. inventory
sales to Searl Company (ending
Inventory)
21,000 Pearce Company's percentage of Searl Company's income
realized from third parties, .80($675,000)

18,000

540,000

Controlling interest in Consolidated Income

$2,337,000

Exercise 6-5
2011
Pearce Company's income from its independent operations
Plus: Pearce Company's interest in the realized net income of Searl Company:

Reported Net income
Less Amortization of difference between implied and book value
($75,000 + $112,500)
$90 ,000
Less unrealized profit included therein ($90,000 )
1.25
Income realized in transaction with third parties
Pearce Company's interest therein (0.8 $394,500)
Controlling interest in consolidated net income

$1,500,000

$600,000
(187,500)
(18,000)
$394,500
$315,600
$1,815,600

2012
Pearce Company's income from its independent operations
Plus: Pearce Company's interest in the realized net income of Searl Company:
Reported Net income
Less amortization of difference between implied and book value
Less profit included therein that has not been realized in transactions
$105 ,000
with third parties ($105,000 )
1.25
$90 ,000
Plus profit realized in 2012 ($90,000 )

1.25
Income realized in transaction with third parties
Pearce Company's interest therein (0.8 $672,000)
Controlling interest in consolidated net income

6-6

$1,800,000

$750,000
(75,000)
(21,000)
18,000
$672,000
537,600
$2,337,600


To download more slides, ebook, solutions and test bank, visit

Exercise 6-6
Part A
Payne Company's net income from its independent operations
Sierra Company's net income from its independent operations
Plus: profit realized from beginning inventory
Less: unrealized profit in ending inventory
Sierra Company's net income realized in transactions with third parties
Payne Company's share thereof (1.00 $171,000)
Santa Fe Company's net income from its independent operations
Plus: profit realized from beginning inventory

Less: unrealized profit in ending inventory
Santa Fe Company's net income realized in transactions with third parties
Payne Company's share thereof (0.80 $122,300)
Controlling interest in consolidated net income

$280,000
$172,000
3,800
(4,800)
$171,000
171,000
$120,000
4,600
(2,300)
$122,300
97,840
$548,840

Exercise 6-7
Part A
2011
(1) Sales

450,000

Purchases (Cost of Goods Sold)
To eliminate intercompany sales

450,000

(2) Ending Inventory – Income Statement (CoGS)
12/31 Inventory (Balance Sheet)

25,000
25,000

$150 ,000
To eliminate intercompany profit in ending inventory ($150,000 )
1.20

2012
(1) Sales

486,000

Purchases (Cost of Goods Sold)
To eliminate intercompany sales

486,000

(2) Beginning Retained Earnings-Perkins
25,000
Beginning Inventory – Income Statement (CoGS)
25,000
To recognize intercompany profit included in beginning inventory and reduce beginning
consolidated retained earnings for unrealized intercompany profit at the beginning of the year
(3) Ending Inventory – Income Statement (CoGS)
12/31 Inventory (Balance Sheet)

27,000

27,000

To eliminate intercompany profit in ending inventory ($162,000 -

6-7

$162 ,000
)
1.20


To download more slides, ebook, solutions and test bank, visit

Exercise 6-8
2011
(1) Sales
Purchases (Cost of Goods Sold)

450,000
450,000

(2) Ending Inventory – Income Statement (CoGS)
12/31 Inventory (Balance Sheet)
To eliminate intercompany profit in ending inventory ($150,000 - $150,000/1.2)
2012
(1) Sales

25,000
25,000

486,000
486,000

Purchases (Cost of Goods Sold)
To eliminate intercompany sales

(2) 1/1 Retained Earnings-Perkins Company (85%)($25,000)
21,250
1/1 Noncontrolling Interest (15%)($25,000)
3,750
Beginning Inventory – Income Statement (CoGS)
25,000
To recognize intercompany profit in beginning inventory realized during the year and reduce
controlling and noncontrolling interests for their share of unrealized intercompany profit at beginning
of year.
(3) Ending Inventory – Income Statement (CoGS)
12/31 Inventory (Balance Sheet)
To eliminate intercompany profit in ending inventory. ($162,000 - $162,000/1.2)

6-8

27,000
27,000


To download more slides, ebook, solutions and test bank, visit

Exercise 6-9

PEAT COMPANY AND SUBSIDIARY

Consolidated Income Statement
For the Year Ended December 31, 2012

Sales ($14,000,000 - $1,400,000)
Cost of Goods Sold (a)
Operating Expense
Consolidated Income
Less Noncontrolling Interest in Consolidated Income (b)
Controlling Interest in Consolidated Net Income
(a) Reported Cost of Goods Sold
Less intercompany sales in 2012

$12,600,000
$7,900,000
1,800,000

9,700,000
2,900,000
210,000
$2,690,000
$9,200,000
(1,400,000)

2
($1,400,000 - $900,000))
5
1
Less realized profit in beginning inventory (
($1,800,000 - $1,500,000))
3

Corrected cost of goods sold

Plus unrealized profit in ending inventory (

200,000
(100,000)
$7,900,000

$200 ,000
$2,000,000
0.1
Plus unrealized profit on subsidiary sales in 2011 that is considered realized in 2012
1
(
($1,800,000 - $1,500,000))
100,000
3
Less unrealized profit on subsidiary sales in 2012 (there were no upstream sales in 2012)
0
Income realized in transactions with third parties
2,100,000
0.10
Noncontrolling interest in consolidated income
$210,000

(b) Reported net income of subsidiary

6-9

To download more slides, ebook, solutions and test bank, visit

ANSWERS TO PROBLEMS
Problem 6-1
Part A
2011
(1) Sales

436,000

Purchases (Cost of Goods Sold)
To eliminate intercompany sales

436,000

(2) 12/31 Inventory (Income Statement)
Inventory (Balance Sheet)

18,167

18,167
$109 ,000
To eliminate unrealized intercompany profit in ending inventory ($109,000 –
)
1.2

2012

(1) Sales

532,000

Purchases (Cost of Goods Sold)
To eliminate intercompany sales

532,000

(2) Beginning Retained Earnings-Peel Co. (0.9 $18,167)
Noncontrolling Interest (0.10 $18,167)
1/1 Inventory (Income Statement)
To recognize gross profit in beginning inventory realized in 2012

16,350
1,817

(3) 12/31 Inventory (Income Statement)
Inventory (Balance Sheet)
To eliminate unrealized intercompany profit in ending inventory
($133,000 – ($133,000/1.2))

22,167

18,167

Part B Reported subsidiary income
Add: Realized profit in beginning inventory
Less: Unrealized profit in ending inventory
Subsidiary income included in consolidated income
Noncontrollong interest ownership percentage
Noncontrolling interest in consolidated income

Part C Peel Company's net income from independent operations
Reported income of Seacore Company
Less: Unrealized profit on intercompany sales of 2012
Add: Profit on 2011 sales to Peel realized in transactions
with third parties
Subsidiary income realized in transactions with third parties
Peel 's share of subsidiary income (0.90 $126,000)
Controlling interest in consolidated net income

6 - 10

22,167

$130,000
18,167
(22,167)
126,000
0.10
$12,600
$300,000
$130,000
(22,167)
18,167
$126,000
113,400
$413,400


To download more slides, ebook, solutions and test bank, visit

Problem 6-2
Part A 2011
(1) Sales

442,500

Purchases (Cost of Goods Sold)
To eliminate intercompany sales

442,500

(2) 12/31 Inventory (Income Statement)
44,250
Inventory (Balance Sheet)
To eliminate unrealized intercompany profit in ending inventory ($221,250
2012
(1) Sales

44,250
0.2)

386,250

Purchases (Cost of Goods Sold)
To eliminate intercompany sales
(2) 12/31 Inventory (Income Statement)
12/31 Inventory (Balance Sheet)
To eliminate intercompany profit in ending inventory ($77,250

386,250

15,450
15,450
0.20)

(3) Beginning Retained Earnings-Plaster Co. (0.85 $44,250)
37,612
Noncontrolling Interest (0.15 $44,250)
6,638
1/1 Inventory (Income Statement)
To recognize realization of intercompany profit in beginning inventory
Part B Reported subsidiary income
Add: Intercompany profit in beginning inventory
Deduct Unrealized intercompany profit in ending inventory
Subsidiary income realized in transactions with third parties
and included in consolidated income
Noncontrolling interest percentage
Noncontrolling interest in consolidated income
Part C Plaster's income from independent operations
Reported income of Shell Company
Add: Intercompany profit in beginning inventory
Deduct: Unrealized profit in ending inventory
Subsidiary Income realized in transactions with third parties
Plaster's share of subsidiary income ($364,200 0.85)
Controlling interest in consolidated net income

6 - 11

44,250

$335,400

44,250
(15,450)
364,200
0.15
$54,630
$780,000
$335,400
44,250
(15,450)
$364,200
309,570
$1,089,570


To download more slides, ebook, solutions and test bank, visit

Problem 6-3
Part A 2011
(1) Sales

265,000

Purchases (Cost of Goods Sold)
To eliminate intercompany sales
(2) 12/31 Inventory (Income Statement)
12/31 Inventory (Balance Sheet)
To eliminate unrealized profit in ending inventory ($125,000 –
2012
(1) Sales

265,000
25,000
25,000
$125 ,000
)
1.25

475,000

Purchases (Cost of Goods Sold)
To eliminate intercompany sales

475,000

(2) 12/31 Inventory (Income Statement)
12/31 Inventory (Balance Sheet)
To eliminate intercompany profit in ending inventory
($170,000 – ($170,000/1.25))

34,000

(3) Beginning Retained Earnings-Peer Co.
1/1 Inventory (Income Statement)
To recognize intercompany profit in beginning inventory
realized during the year

25,000

34,000

25,000

2011

2012

$225,000
20%
$45,000

$275,000
20%
$55,000

Part B
Reported subsidiary income
Noncontrolling interest ownership percentage
Noncontrolling interest in consolidated income
Part C Peer Company's income from independent operations
Less: Unrealized profit in ending inventory
Add: Realized profit in beginning inventory
Peer Company's income realized in transactions with third parties
Peer Company's share of subsidiary income ($275,000 0.8)
Controlling interest in consolidated net income

6 - 12

2012
$480,000
(34,000)

25,000
471,000
220,000
$691,000


To download more slides, ebook, solutions and test bank, visit

Problem 6-4
Part A
(1) Sales

225,000

Purchases (Cost of Goods Sold)
To eliminate intercompany sales for 2012
(2) Ending Inventory – Income Statement (CoGS)
12/31 Inventory (Balance Sheet)
To eliminate unrealized profit in ending inventory

225,000
21,000

(3) Beginning Retained Earnings-Pace Company
($7,000 + ($8,000 0.85) + $8,000)
21,800
Noncontrolling Interest ($8,000 0.15)
1,200
Beginning Inventory – Income Statement (CoGS)
To recognize gross profit in beginning inventory realized in current year

Part B Consolidated income (a)
Noncontrolling interest in consolidated income (b)
Controlling interest in consolidated net income (c)

21,000

23,000
$477,000
21,450
$455,550

(a) ($475,000* + $23,000 – $21,000)
(b) (0.15 ($150,000 + $8,000 – $15,000)
(c) ($200,000 + ($7,000 – $2,000) + (0.85 ($150,000 + $8,000 – $15,000)) + ($125,000 + $8,000 –
$4,000))
* ($200,000 + $150,000 + $125,000)

6 - 13


To download more slides, ebook, solutions and test bank, visit

Problem 6-5
Part A

PRUITT CORPORATION AND SUBSIDIARY
For the Year Ended December 31, 2013

Pruitt
Sedbrook

Corporation Company
Income Statement
Sales
Dividend Income
Total Revenue
Cost of Goods Sold:
Inventory, 1/1
Purchases
Cost of Available for Sale
Inventory, 12/31
Cost of Goods Sold
Other Expense
Total Cost and Expense
Net/Consolidated Income
Noncontrolling Interest In Consolidated
Income
Net Income to Retained Earnings
Retained Earnings Statement
1/1 Retained Earnings:
Pruitt Corporation
Sedbrook Company
Net Income from above
Dividends Declared
Pruitt Corporation
Sedbrook Company
12/31/ Retained Earnings to Balance Sheet

Eliminations
Debit
Credit

$1,210,000 $636,000 (2) $250,000
31,500
(5)
31,500
1,241,500 636,000
165,000
935,000
1,100,000
220,000
880,000
198,000
1,078,000
163,500

132,000
420,000
552,000
144,000 (3)
408,000
165,000
573,000
63,000

$163,500

$63,000

$598,400

(4)
144,000 (6)
63,000

163,500

$0

Noncontrolling Consolidated
Interest
Balances
$0

1,596,000
(4)
(2)

25,000
250,000

272,000
1,105,000
1,377,000
354,000
1,023,000
363,000
1,386,000
210,000

10,000

$291,500

25,000
144,000
291,500

$1,596,000

$275,000

(1)

6,300
$6,300

44,100
275,000

(6,300)
$203,700

$617,500
6,300

(110,000)

203,700
(110,000)

(35,000)
$651,900 $172,000

6 - 14

(5)
$460,500

31,500
$350,600

(3,500)
$2,800

$711,200


To download more slides, ebook, solutions and test bank, visit

Problem 6-5 (continued)
Balance Sheet
Cash
Accounts Receivable
Inventory
Investment in Sedbrook Comp.
Other Assets
Total
Accounts Payable
Other Liabilities
Common stock:

Pruitt Corporation
Sedbrook Company
Retained Earnings from above
1/1 Noncontrolling Interest in Net Assets
12/31 Noncontrolling Interest
Total

Pruitt
Sedbrook
Corporation Company
90,800
96,000
243,300 135,000
220,000 144,000
625,500
(1)
550,000 480,000
$1,729,600 $855,000
77,000
120,700

Eliminations
Debit
Credit

(3)
44,100 (6)

Noncontrolling Consolidated
Interest

Balances
186,800
378,300
10,000
354,000
669,600
1,030,000
$1,949,100

36,000
47,000

113,000
167,700

880,000
651,900

880,000
600,000 (6)
172,000

600,000
460,500
(6)

$1,729,600 $855,000

6 - 15

1,104,600

350,600
74,400
1,104,600

2,800
74,400
77,200

711,200
77,200
$1,949,100


To download more slides, ebook, solutions and test bank, visit

Problem 6-5 (continued)
Explanations of workpaper entries
(1) Investment in Sedbrook Company (0.90 ($144,000 – $95,000))
Beginning Retained Earnings - Pruitt Co.
To establish reciprocity/convert to equity as of 1/1/13
(2) Sales

44,100
44,100
250,000

Purchases (Cost of Goods Sold)
To eliminate intercompany sales

250,000

(3) Ending Inventory - Income Statement (CoGS)
Ending Inventory (Balance Sheet)
To eliminate unrealized intercompany profit in ending
inventory ($60,000 – ($60,000/1.2)

10,000

(4) Beginning Retained Earnings - Pruitt Co.
Beginning Inventory (Income Statement)
To recognize intercompany profit in beginning inventory
realized during the year

25,000

(5) Dividend Income ($35,000 .90)
Dividends Declared
To eliminate intercompany dividends

31,500

10,000

25,000

(6) Beginning Retained Earnings - Sedbrook Co.
144,000
Common Stock - Sedbrook Co.

600,000
Investment in Sedbrook Co.($625,500 + $44,100)
Noncontrolling Interest ($744,000 x .10)
To eliminate investment account and create noncontrolling interest account

6 - 16

31,500

669,600
74,400


To download more slides, ebook, solutions and test bank, visit

Problem 6-5 (continued)
Part B Pruitt Corporation's Retained Earnings on 12/31/13
Amount of Pruitt Corporation Retained Earnings that have not been
realized in transactions with third parties
Pruitt Corporation's Retained Earnings that have been realized in
transactions with third parties
Increase in retained earnings of Sedbrook Company that have been
realized in transactions with third parties
from 1/1/09 to 12/31/13 ($172,000 – $95,000)
$ 77,000
Pruitt Corporation's share
x .90
Consolidated Retained Earnings as of 12/31/13

$651,900

10,000
641,900

69,300
$711,200

Consolidated Retained Earnings
Pruitt Corporation's Retained Earnings on 12/31/13
Pruitt Corporation's share of the increase in
Sedbrook Company's Retained Earnings
since acquisition ($172,000 - $95,000).90
Unrealized profit on downstream
sales to Sedbrook Company (in
Sedbrook's ending Inventory

$651,900

69,300

10,000
Consolidated Retained Earnings

6 - 17

$711,200


To download more slides, ebook, solutions and test bank, visit

Problem 6-6

PRUITT CORPORATION AND SUBSIDIARY
Consolidated Statements Workpaper
For the Year Ended December 31, 2013
Consolidated
Pruitt
Sedbrook
Eliminations
Income
Corporation
Company
Dr.
Cr.
Statement

Consolidated
Retained Noncontrolling Consolidated
Earnings
Interest
Balances

Debits
Cash
Accounts Receivable (net)
Inventory 1/1
Investment in Sedbrook Company
Other Assets
Dividends Declared
Pruitt Corporation
Sedbrook Company

Purchases
Other Expenses
Total
Inventory 12/31
Total Assets

$ 90,800
243,300
165,000
625,500
550,000

$ 96,000
135,000
132,000
(4) 25,000
(1) 44,100 (6) 669,600
480,000

$186,800
378,300
272,000
1,030,000

110,000

(110,000)

35,000
935,000

420,000
198,000
165,000
2,917,600
1,463,000
$ 220,000

$ 144,000

77,000
120,700

36,000
47,000

(5) 31,500
(2) 250,000

(3,500)
1,105,000
363,000

(3) 10,000

354,000
$1,949,100

Credits
Accounts Payable
Other Liabilities

Common Stock:
Pruitt Corporation
Sedbrook Company
Retained Earnings
Pruitt Corporation
Sedbrook Company
Sales
Dividend Income
Totals

113,000
167,700

880,000

880,000
600,000 (6)600,000

598,400

(4) 25,000
(1) 44,100
144,000 (6)144,000
1,210,000 636,000 (2)250,000
31,500
(5) 31,500
$2,917,600 $1,463,000

Inventory 12/31
$ 220,000

Net/Consolidated Income
Noncontrolling Interest in Consolidated Net Income
Controlling Interest in Consolidated Net Income
Consolidated Retained Earnings
1/1 Noncontrolling Interest in Net Assets
12/31 Noncontrolling Interest in Net Assets

$ 144,000 (3) 10,000

(6) 74,400
_______ __
$1,104,600 $1,104,600

Total Liabilities and Equity
*Noncontrolling Interest in Consolidated Income = 0.10 $63,000 = $6,300
See solution to Problem 6-5 for explanation of Workpaper entries

6-18

617,500
(1,596,000)

(354,000)
210,000
(6,300)
$203,700

6,300
203,700
$711,200

711,200
74,400
$77,200

77,200
$1,949,100


To download more slides, ebook, solutions and test bank, visit

Problem 6-7
Part A

PAQUE CORPORATION AND SUBSIDIARY
Consolidated Statement Workpaper
For the Year Ended December 31, 2013
Paque
Corporation

Income Statement
Sales
Dividend Income
Total revenue
Cost of Goods Aold:
Beginning Inventory
Purchases
Cost of Goods Available
Less Ending Inventory
Cost of Goods Sold

Other Expenses
Total Cost & Expense
Net/Consolidated Income
Noncontrolling Interest in Income
Net Income to Retained Earnings
Statement of Retained Earnings
1/1 Retained Earnings
Paque Corporation
Segal Company
Net Income from above
Dividends Declared
Paque Corporation
Segal Company
12/31 Retained Earnings to Balance Sheet

*Noncontrolling Interest in Consolidated Income = 0.10

Segal
Company

Eliminations
Dr.
Cr.

Noncontrolling Consolidated
Interest
Balances

1,650,000 795,000(2) 300,000
54,000

(5) 54,000
1,704,000 795,000

225,000
1,275,000
1,500,000
210,000
1,290,000
310,500
1,600,500
103,500
103,500

811,500

103,500

165,000
525,000
690,000
172,500 (3)
517,500
206,250
723,750
71,250
71,250

2,145,000
2,145,000

(4) 45,000
(2) 300,000
15,000

369,000

345,000

10,125*
10,125

(4) 40,500 (1) 27,000
180,000 (6) 180,000
71,250

369,000

345,000

798,000

10,125

(150,000)
765,000

140,625
(150,000)

(60,000)

191,250

(5) 54,000
589,500
426,000

($71,250 + $45,000 – $15,000) = $10,125

6-19

345,000
1,500,000
1,845,000
367,500
1,477,500
516,750
1,994,250
150,750
(10,125)
140,625

(6,000)
4,125

788,625


To download more slides, ebook, solutions and test bank, visit

Problem 6-7(continued)

Balance Sheet
Cash
Accounts Receivable
Inventory
Investment in Segal Company
Other Assets
Total assets
Accounts Payable
Other Current Liabilities
Capital Stock:
Paque Corporation
Segal Company
Retained Earnings from above
1/1 Noncontrolling Interest
12/31 Noncontrolling Interest
Total liabilities & equity

Paque
Corporation

Segal
Company
75,000
168,750
172,500

Eliminations
Dr.
Cr.

Noncontrolling Consolidated
Interest
Balances

93,000
319,500
210,000
810,000
750,000
2,182,500

168,000
488,250
367,500

630,000
1,046,250

1,380,000
2,403,750

105,000
112,500

45,000
60,000

150,000
172,500

(3) 15,000
(1) 27,000 (6) 837,000

1,200,000
765,000

2,182,500

1,200,000
750,000 (6) 750,000
191,250
589,500
(4) 4,500
1,046,250

1,371,000

Explanations of workpaper entries are on next page

6-20

426,000
(6) 93,000
1,371,000

4,125
88,500
92,625

788,625

92,625
2,403,750


To download more slides, ebook, solutions and test bank, visit

Problem 6-7 (continued)
Explanation of workpaper entries
(1) Investment in Segal (0.90 ($180,000 – $150,000))
Beginning Retained Earnings-Paque Co.
To establish reciprocity as of 1/1/2013

27,000
27,000

(2) Sales

300,000

Purchases (Cost of Goods Sold)
To eliminate intercompany sales

300,000

(3) Ending Inventory - Income Statement (CoGS)
Ending Inventory (Balance Sheet)
To eliminate unrealized intercompany profit in ending inventory ($75,000

15,000
15,000

0.20)

(4) Beginning Retained Earnings - Paque Co. ($45,000 0.90)
Noncontrolling Interest ($45,000 0.10)
Beginning Inventory
To recognize intercompany profit realized during the year and to reduce
controlling and noncontrolling interests for their share of unrealized profit
at beginning of year

40,500
4,500

(5) Dividend Income ($60,000 0.90)
Dividends Declared
To eliminate intercompany dividends

54,000

45,000

54,000

(6) Beginning Retained Earnings- Segal Co.
Common Stock - Segal Company
Investment in Segal Company ($810,000 + $27,000)
Noncontrolling Interest ($750,000 + $180,000) x .10
To eliminate investment account and create noncontrolling interest account

6-21

180,000
750,000
837,000
93,000


To download more slides, ebook, solutions and test bank, visit

Problem 6-7 (continued)
Part B
PAQUE CORPORATION AND SUBSIDIARY
Calculation of Controlling Interest in Net Income
For Year Ended December 31,2013
Paque's net income from its independent operations
($103,500 reported income less $54,000 in subsidiary dividend income)
Less: unrealized profit on 2013 sales to Segal
Plus: profit on prior year's sales to Segal realized in transactions
with third parties in 2013
Paque's income from its independent operations that has been realized
in transactions with third parties
Reported income of Segal
Less amortization of difference between implied and book value
Less: unrealized profit on 2013 sales to Paque
Plus: profit on prior year's sales to Paque realized in transactions
with third parties in 2013
Income of Segal that has been realized in transactions with third parties
Paque's share of Segal’s income
Controlling interest in Consolidated net income

$49,500

-0-0$49,500
$71,250
0
(15,000)
45,000
$ 101,250
90%

91,125
$140,625

Noncontrolling Interest in Consolidated Income
Unrealized profit on upstream

Net income reported by Segal Company

sales in ending inventory

$ 71,250

15,000
Realized profit (upstream sales) from beginning inventory

Amortization of the difference between
implied and book value

45,000

0
Subsidiary Income included in Consolidated Income

$101,250

Controlling Interest in Consolidated Income
Net income internally generated by Paque Corporation
Paque Corporation's percentage of Segal Company's income
realized from third parties, .90($101,250)
Controlling Interest in Consolidated Income

6-22

$ 49,500

91,125
$140,625


To download more slides, ebook, solutions and test bank, visit

Problem 6-8
Part A (1) Sales

1,140,000

Purchases (Cost of Goods Sold) ($950,000
To eliminate intercompany sales for 2011

1.2)

1,140,000

(2) 12/31 Inventory (Income Statement)
96,000
12/31 Inventory (Balance Sheet)
To eliminate unrealized profit in ending Inventory ($576,000 – ($576,000/1.2))
(3) Common Stock - Sterling Company
800,000
Beginning Retained Earnings - Sterling Company
425,000
Difference between Implied and Book Value ($1,400,000/.90 – $1,225,000) 330,556
Investment in Sterling Company
Noncontrolling Interest [($1,400,000/.90) x .10]
(4) Depreciation Expense ($200,000/10)
Plant and Equipment (net) ($200,000 – $20,000)
1/1 Inventory (Income Statement)
Goodwill
Difference between Implied and Book Value
Alternative to entry (4)
(4a)
Plant and Equipment (net)
1/1 Inventory (Income Statement)
Goodwill
Difference between Implied and Book Value
(4b)
Depreciation Expense ($200,000/10)
Plant and Equipment (net)

6-23

96,000

1,400,000
155,556

20,000
180,000
41,667
88,889
330,556

200,000
41,667
88,889
330,556
20,000
20,000


To download more slides, ebook, solutions and test bank, visit

Problem 6-8 (continued)
Part B
Patten Company and Subsidiary Sterling Company
Analytical Calculation of Controlling Interest in Consolidated Net Income
For the Year Ended December 31, 2011
Patten Company's net income from its independent operations
($2,000,000 reported income less $0 in subsidiary dividend income)
Less: Unrealized profit on 2011 sales to Sterling Company
Plus: Profit on prior year's sales to Sterling Company
realized in transactions with third parties in 2011

Patten Company's income from its independent operations that has been
realized in transactions with third parties
Reported income of Sterling Company
Less: Amortization of the difference between implied and book value
($20,000 + $41,667)
Less: Unrealized profit on 2011 sales to Patten Company
Plus: Profit on prior year's sales to Patten Company realized
in transactions with third parties in 2011
Income of Sterling Company that has been realized in
transactions with third parties
Patten Company's share
Controlling interest in consolidated net income

$ 2,000,000
-0-02,000,000
410,000
(61,667)
(96,000)
-0$252,333
90%

227,100
$ 2,227,100

Part C Noncontrolling Interest In Consolidated Income
Reported income of Sterling Company
Less: Amortization of the difference between implied and book value
($20,000 + $41,667)
Less: Unrealized profit on 2011 sales to Patten Company
Income of Sterling Company included in consolidated income

Noncontrolling interest share thereof (.1

$252,333)

6-24

$410,000
(61,667)
(96,000)
$252,333
$25,233


To download more slides, ebook, solutions and test bank, visit

Problem 6-9

PERRY COMPANY AND SUBSIDIARY
Consolidated Statements Workpaper
For the Year Ended December 31, 2010

Part A

Income Statement
Sales
Dividend Income
Total Revenue
Cost of Goods Sold:
Inventory, 1/1
Purchases

Cost of Available for Sale
Inventory, 12/31
Cost of Goods Sold
Other Expense
Total Cost and Expense
Net/Consolidated Income
Noncontrolling Interest In Consolidated Income
Net Income to Retained Earnings
Retained Earnings Statement
1/1 Retained Earnings:
Perry Company

Perry
Company

Selby
Company

$1,400,000
20,000
1,420,000

$800,000 (2) $310,000
(5)
20,000
800,000

230,000
900,000
1,130,000

450,000
680,000
250,000
930,000
490,000
$490,000

$1,500,000

Selby Company
Net Income from above
Dividends Declared

490,000

Perry Company
Selby Company
12/31/ Retained Earnings to Balance Sheet
* Noncontrolling interest in income = .2

145,000 (7)
380,000
525,000
200,000 (3)
325,000
195,000 (8)
520,000
280,000
$280,000

Eliminations
Debit
Credit

Noncontrolling
Interest

$1,890,000
1,890,000

25,000 (4)
(2)

12,000
310,000

16,400
15,000

$386,400

$322,000

(4)
(7)
(8)
480,000 (6)

$9,600 (1) $84,000
20,000

12,000
480,000

280,000

386,400

322,000

50,400
$50,400

*

388,000
970,000
1,358,000
633,600
724,400
460,000
1,184,400
705,600
(50,400)
$655,200

$1,542,400

50,400

(50,000)

$1,940,000

Consolidated
Balances

655,200
(50,000)

(25,000)
$735,000

(5)
$908,000

($280,000 + $12,000 – $25,000 – $15,000) = $50,400
6-25

20,000
$426,000

(5,000)
$45,400

$2,147,600