Solution manual advanced accounting 11th by beams chapter04
Bạn đang xem bản rút gọn của tài liệu. Xem và tải ngay bản đầy đủ của tài liệu tại đây (251.27 KB, 45 trang )
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Chapter 4
CONSOLIDATION TECHNIQUES AND PROCEDURES
Answers to Questions
1
Under the equity method, a parent amortizes patents from its subsidiary investments by adjusting its
subsidiary investment and income accounts. Since patents and patent amortization accounts are not
recorded on the parent’s books, they are created for consolidated statement purposes through workpaper
entries.
2
Noncontrolling interest share is entered in the consolidation workpapers by preparing a workpaper
adjusting entry in which noncontrolling interest share is debited, noncontrolling interest’s share of
dividends is credited and noncontrolling interest is credited. The noncontrolling interest share (debit) is
carried to the consolidated income statement as a deduction, and the credit to noncontrolling interest for
noncontrolling interest share is added to the beginning noncontrolling interest. The noncontrolling interest
share is calculated based on the subsidiary’s reported net income adjusted to reflect fair value through the
amortization of the excess of fair value over book value. This is the approach illustrated throughout this
text.
3
Workpaper procedures for the investment in subsidiary, income from subsidiary, and subsidiary equity
accounts are alike in regard to the objectives of consolidation. Regardless of the configuration of the
workpaper entries, the final result of adjustments for these items is to eliminate them through workpaper
entries. In other words, the investment in subsidiary, income from subsidiary, and the capital stock,
additional paid-in capital, retained earnings, and other stockholders’ equity accounts of the subsidiary
never appear in consolidated financial statements.
4
When the parent does not amortize fair value/book value differentials on its separate books, the parent’s
income from subsidiary and investment in subsidiary accounts are overstated in the year of acquisition. In
subsequent years, the income from the subsidiary, investment in subsidiary, and parent’s beginning
retained earnings will be overstated. (This assumes that the asset is undervalued).The error may be
corrected in the workpapers with the following entries:
Year of acquisition
Income from subsidiary
Investment in subsidiary
Subsequent year
Income from subsidiary
Retained earnings — parent
Investment in subsidiary
XXX
XXX
XXX
XXX
XXX
©2011 Pearson Education, Inc. publishing as Prentice Hall
4-1
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Consolidation Techniques and Procedures
4-2
By entering a correcting entry, all other workpaper entries are the same as if the parent provided for
amortization on its separate books.
If the errors are not corrected through the workpaper entries suggested above, the entry to
eliminate the income from subsidiary in the year of acquisition is prepared in the usual manner without
further complications because neither the beginning investment nor retained earnings accounts are affected
by the omission. In subsequent years the entry to eliminate income from subsidiary and dividends from
subsidiary will have to be changed to correct the beginning-of-the-period retained earnings as follows:
Income from subsidiary
Retained earnings — parent
Dividends (subsidiary)
Investment in subsidiary
XXX
XXX
XXX
XXX
5
No. Workpaper adjustments are not entered in the general ledger of the parent or any other entity. They are
used in the preparation of consolidated financial statements for a conceptual entity for which there are no
formal accounting records.
6
Workpapers are tools of the accountant that facilitate the consolidation of parent and subsidiary financial
statements. Given the tools available, the accountant should select those that are most convenient in the
circumstances. If financial statements are to be consolidated, the financial statement approach is the
appropriate tool. The trial balance approach is most convenient when the data are presented in the form of
a trial balance. The accountant needs to be familiar with both approaches to perform the work as efficiently
as possible.
7
Workpaper adjustment and elimination entries as illustrated in this text are exactly the same when the trial
balance approach is used as when the financial statement approach is used. This is possible through a
check-off system that nullifies the closing process when the financial statement approach is used.
8
The retained earnings of the parent will equal consolidated retained earnings if the equity method of
accounting has been correctly applied. In consolidating the financial statements of affiliated companies, the
beginning retained earnings of the parent are used as beginning consolidated retained earnings. If the
equity method has not been correctly applied, parent beginning retained earnings will not equal beginning
consolidated retained earnings. In this case, retained earnings of the parent are adjusted to a correct equity
basis in order to establish the correct amount of beginning consolidated retained earnings. Thus, workpaper
adjustments to beginning retained earnings of the parent are needed whenever the beginning retained
earnings of the parent do not correctly reflect the equity method.
9
The noncontroling interest that appears in the consolidated balance sheet can be checked by first adjusting
the equity of the subsidiary on the consolidated balance sheet date to fair value (i.e., adjusting for any
unamortized excess of fair value over book value) and then multiplying by the noncontrolling interest
percentage. Consolidated retained earnings at a balance sheet date can be checked by comparing the
amount with the parent’s retained earnings on the same date. If consolidated retained earnings and parent
retained earnings are not equal, either consolidated retained earnings have been computed incorrectly, or
parent retained earnings do not reflect a correct equity method of accounting.
10
Consolidated assets and liabilities are reported for all equity holders—noncontrolling as well as
controlling. Therefore, the change in net assets from operations for a period results from noncontrolling
interest share and controlling interest share.
11
A change in cash relates to all interests in the consolidated entity. This difference is one of many
inconsistencies in the concepts underlying consolidated financial statements. Consider, for example, the
error that could result from dividing cash provided by operations by outstanding parent shares to compute
cash flow per share.
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Chapter 4
4-3
SOLUTIONS TO EXERCISES
Solution E4-1
d
1
c
2
a
3
d
4
b
5
6
7
8
9
10
d
b
b
a
b
Solution E4-2
Preliminary computations (in thousands)
Investment cost January 2
Implied total fair value of Sal ($600 / 80%)
Less: Book value
Excess fair value over book value
Excess allocated to:
Inventory
Remainder to goodwill
Excess fair value over book value
1
2
Income from Sal
Sal’s reported net income
Less: Excess allocated to inventory (sold in 2011)
Sal adjusted income
Pan’s 80% share
$600
$750
(500)
$250
$ 25
225
$250
$140
(25)
$115
$ 92
Noncontrolling interest share
Sal’s adjusted income $115 20% noncontrolling interest
$ 23
3
4
5
Noncontrolling interest December 31
Sal’s equity book value
Add: Unamortized excess (Goodwill)
Sal’s equity fair value
20% noncontrolling interest
Investment in Sal December 31
Investment cost January 2
Add: Income from Sal (given)*
Less: Dividends ($120 80%)
Investment in Sal December 31
* Assumes this is based on Sal’s adjusted income
Consolidated net income
Noncontrolling interest share
Controlling interest share equals Parent NI under equity
method.
$520
225
$745
$149
$600
100
(96)
$604
$383.4
$ 23
$360.4
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Consolidation Techniques and Procedures
4-4
Solution E4-3
1
$700,000
($300,000 + $440,000 - $40,000 intercompany)
Preliminary computations for 2 and 3
Investment cost on January 1, 2011
Implied total fair value of Sar ($28,000 / 70%)
Book value of Sar
Excess allocated entirely to Goodwill
2
3
$28,000
$40,000
30,000
$10,000
$24,000
(700)
$23,300
+ (300)
$23,000
$28,000
Pim’s separate income for 2013
Loss from investment in Sar ($1,000 70%)
Controlling share of consolidated net income
Noncontrolling share
Consolidated net income
Investment cost January 1, 2011
Add: Share of income less dividends 2011 — 2013
($1,400 income - $1,000 dividends) 70%
Investment balance December 31, 2013
280
$28,280
Solution E4-4
Preliminary computations
Investment cost
Implied total fair value of Sin ($580,000 / 80%)
Book value
Total excess fair value over book value
$580,000
$725,000
600,000
$125,000
Excess allocated to:
Equipment (5-year life)
Patents (10-year amortization period)
Total excess fair value over book value
$ 50,000
75,000
$125,000
Income from Sin
Sin’s reported net income
Less: Depreciation of excess allocated to equipment
Less: Amortization of patents
Sin’s adjusted income
Income from Sin (80%)
1a
1b
1c
1d
2011
$120,000
(10,000)
(7,500)
$102,500
$ 82,000
2012
$150,000
(10,000)
(7,500)
$132,500
$106,000
Consolidated net income for 2011
Pen’s net income = controlling share of consolidated net
income under equity method
Add: Noncontrolling interest share
Consolidated net income
Investment in Sin December 31, 2011
Cost January 1
Add: Income from Sin — 2011
Less: Dividends from Sin — 2011 ($80,000 80%)
Investment in Sin December 31
$580,000
82,000
(64,000)
$598,000
Noncontrolling interest share — 2011
($102,500 adjusted income 20%)
$ 20,500
Noncontrolling interest December 31, 2012
Sin’s equity book value at acquisition date
Add: Income less dividends for 2011 and 2012 (see note)
Sin’s equity book value at December 31, 2012
Unamortized excess at December 31, 2012
$600,000
100,000
700,000
90,000
$340,000
20,500
$360,500
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Chapter 4
4-5
Sin’s equity fair value at December 31, 2012
Noncontrolling interest percentage
Noncontrolling interest December 31, 2012
Solution E4-4 (continued)
$790,000
20%
$158,000
Note: Sin’s income less dividends:
2011 Net Income
2011 Dividends
2012 Net Income
2012 Dividends
Total
$ 120,000
(80,000)
150,000
(90,000)
$ 100,000
Solution E4-5
1
2
3
4
5
c
a
b
c
d
Solution E4-6
Pat Corporation and Subsidiary
Partial Consolidated Cash Flows Statement
for the year ended December 31,
Cash Flows from Operating Activities
Controlling interest share of consolidated net income
Adjustments to reconcile net income to cash
provided by operating activities:
Noncontrolling interest share
$ 50,000
Undistributed income of equity investees
(5,000)
Loss on sale of land
100,000
Depreciation expense
120,000
Patents amortization
16,000
Increase in accounts receivable
(105,000)
Increase in inventories
(45,000)
Decrease in accounts payable
(20,000)
Net cash flows from operating activities
$100,000
111,000
$211,000
Solution E4-7
Pro Corporation and Subsidiary
Partial Consolidated Cash Flows Statement
for the year ended December 31,
Cash Flows from Operating Activities
Cash received from customers
Dividends received from equity investees
Less: Cash paid to suppliers
Cash paid to employees
Cash paid for other operating items
Cash paid for interest expense
Net cash flows from operating activities
$322,500
7,000
$182,500
27,000
23,500
12,000
245,000
$ 84,500
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Consolidation Techniques and Procedures
4-6
SOLUTIONS TO PROBLEMS
Solution P4-1 (in thousands of $)
Preliminary computations
Investment in Sen (75%) January 1, 2011
Implied fair value of Sen ($2,400 / 75%)
Book value of Sen
Total excess of fair value over book value
Excess allocated:
10% to inventories (sold in 2011)
40% to plant assets (useful life 8 years)
50% to goodwill
Total excess of fair value over book value
1
Goodwill at December 31, 2015 (not amortized)
2
Noncontrolling interest share for 2015
Net income ($1,000 sales - $600 expenses)
Less: Amortization of excess
Plant assets ($320 / 8 yrs.)
Adjusted Sen income
25% Share
3
4
5
6
7
$2,400
$3,200
(2,400)
$ 800
$
$
80
320
400
800
$
400
$
400
$
$
(40)
360
90
Consolidated retained earnings December 31, 2014
Equal to Pea’s December 31, 2014 retained earnings
Since this a trial balance, reported retained earnings
equals beginning of 2015 retained earnings.
$1,670
Consolidated retained earnings December 31, 2015
Pea’s retained earnings December 31, 2014
Add: Pea’s net income for 2015
Less: Pea’s dividends for 2015
Consolidated retained earnings December 31
$1,670
1,085
(500)
$2,255
Consolidated net income for 2015
Consolidated sales
Less: Consolidated expenses ($3,785 + $40 depreciation)
Total consolidated income
Less: Noncontrolling interest share
Controlling share of consolidated net income for 2015
$5,000
(3,825)
1,175
(90)
$1,085
Noncontrolling interest December 31, 2014
Sen’s stockholders’ equity at book value
Unamortized excess after four years:
Inventory
Plant assets ($320 - $160)
Goodwill
Sen’s stockholders’ equity at fair value
25% Sen’s stockholders’ equity at fair value
Noncontrolling interest December 31, 2015
Sen’s stockholders’ equity at book value
Unamortized excess after five years:
Inventory
Plant assets ($320 - $200)
Goodwill
Sen’s stockholders’ equity at fair value
$2,400
0
160
400
$2,960
$ 740
$2,600
0
120
400
$3,120
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Chapter 4
4-7
25% Sen’s stockholders’ equity at fair value
$
©2011 Pearson Education, Inc. publishing as Prentice Hall
780
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Consolidation Techniques and Procedures
4-8
Solution P4-2
Pal Corporation and Subsidiary
Consolidation Workpapers
for the year ended December 31, 2011
(in thousands)
1
80%
Sal
Pal
Income Statement
$ 620
Sales
Income from Sal
21
Cost of goods sold
400*
Operating expenses
154*
Consolidated NI
Noncontrol.interest share
($1530,000 30%)
Controlling share
$
Retained Earnings
Retained earnings — Pal
$ 130
Balance Sheet
Cash
Receivables — net
Inventories
PP&E — net
Investment in Sal
Accounts payable
Other liabilities
Capital stock
Other paid-in capital
Retained earnings
$ 200
87
$ 820
130*
40*
530*
194*
$ 96
$
30
$
22
9*
9
$
87
$ 130
87
60*
b 22
87
30
20*
a 14
c 6
60*
$ 157
$
32
$ 157
$
$
30
60
40
70
$ 121
180
88
310
91
120
48
240
98
a 7
b 91
$ 597
$ 200
$ 699
$
$
$
60
40
300
40
157
$ 597
36
24
100
8
32
$ 200
b100
b 8
Noncontrolling interest January 1
Noncontrolling interest December 31
160
*
Consolidated
Statements
a 21
c
Retained earnings — Sal
Net income
Dividends
Retained earnings
December 31
Adjustments and
Eliminations
b 39
c 3
160
96
64
300
40
157
42
$ 699
Deduct
Workpaper entries
a To eliminate income from Sal and dividends received from Sal and adjust the
investment in Sal account to its beginning of the period balance.
b To eliminate reciprocal investment in Sal and equity amounts of Sal and to
enter beginning noncontrolling interest.
c To enter noncontrolling interest share of subsidiary income and dividends.
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Chapter 4
4-9
Solution P4-2 (continued)
2
Pal Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 2011
(in thousands)
Sales
Less: Cost of goods sold
Gross profit
Operating expenses
Consolidated net income
Less: Noncontrolling interest share
Controlling share of consolidated net income
$820
530
290
194
96
9
$ 87
Pal Corporation and Subsidiary
Consolidated Retained Earnings Statement
for the year ended December 31, 2011
Consolidated retained earnings January 1
Add: Controlling share of onsolidated net income
Less: Dividends of Pal
Consolidated retained earnings December 31
$130
87
(60)
$157
Pal Corporation and Subsidiary
Consolidated Balance Sheet
at December 31, 2011
Assets
Current assets:
Cash
Receivables — net
Inventories
Plant assets — net
Total assets
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable
Other liabilities
Stockholders’ equity:
Capital stock, $10 par
Other paid-in capital
Consolidated retained earnings
Add: Noncontrolling interest
Total liabilities and stockholders’ equity
$121
180
88
$ 96
64
$300
40
157
497
42
$389
310
$699
$160
539
$699
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Consolidation Techniques and Procedures
4-10
Solution P4-3
Pan Corporation and Subsidiary
Consolidation Workpapers
for the year ended December 31, 2011
(in thousands)
Pan
Income Statement
Sales
Income from Saf
Cost of sales
Other expenses
Consolidated Net Income
Noncontrolling share
Controlling share of NI
Retained Earnings
Retained earnings — Pan
Retained earnings — Saf
Controlling share of NI
Dividends
Retained earnings
December 31
Balance Sheet
Cash
Accounts receivable
Dividends receivable
from Saf
Inventories
Note receivable from Pan
Land
Buildings — net
Equipment — net
Investment in Saf
$800
27.6
500*
194*
$200
100*
52*
Consolidated
Statements
$1,000
a
27.6
c
11.2
f
9.2
$
600*
257.2*
142.8
9.2*
133.6
$
360
$
$133.6
$ 48
$360
$ 68
133.6
100*
b
68
133.6
48
32*
a
f
24
8
100*
$393.6
$ 84
$
393.6
$
$ 30
40
$
136
212
106
172
12
190
130
340
260
363.6
20
10
60
160
100
Patents
Accounts payable
Note payable to Saf
Dividends payable
Capital stock, $10 par
Retained earnings
Adjustments and
Eliminations
Saf 75%
$1,573.6
$420
$
$ 20
170
10
1,000
393.6
$1,573.6
Noncontrolling interest January 1
Noncontrolling interest December 31
16
300
84
$420
e
12
d
10
210
190
500
360
b
112
d
e
b
10
12
300
a
3.6
b 360
c 11.2
100.8
$1,708.8
$
550
190
4
1,000
393.6
b 120
f
1.2
550
121.2
$1,708.8
*Deduct
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Chapter 4
4-11
Solution P4-3 (continued)
Supporting Calculations
Saf’s value at acquisition
Book value at December 31, 2011
Less: 2011 Net income
Add: 2011 Dividends
Book value on January 1, 2011
Fair value of patents
Saf’s fair value on January 1, 2011
$384
(48)
32
$368
112
$480
Purchase price (fair value) of Pan’s 75% share
Noncontrolling interest (25%)
$360
$120
Patents have a ten-year life, so amortization is $11,200 per year.
Saf’s Adjusted Income
Saf’s net income
Less: Amortization of Patents
Saf’s adjusted income
Pan’s 75% share
Noncontrolling interest 25% share
$ 48
(11.2)
$ 36.8
$ 27.6
$ 9.2
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Consolidation Techniques and Procedures
4-12
Solution P4-4
Pal Corporation and Subsidiary
Consolidation Workpapers
for the year ended December 31, 2011
(in thousands)
Pal
Income Statement
Sales
Income from Sun
Cost of sales
Other expenses
Consolidated NI
Noncontrolling share
Controlling share of NI
Retained Earnings
Retained earnings — Pal
$800
36
500*
194*
$200
36
100*
52*
$
$142
12
$ 48
$
$360
142
100*
$
118
160
12
190
b
68
142
48
32*
a
c
$ 30
40
Buildings — net
130
340
Equipment — net
Investment in Sun
260
100
372
$
e
12
d
10
148
200
210
190
500
360
b 112
$1,582
$420
$
$ 20
1,000
402
$1,582
100*
$402
a 12
b 360
Goodwill
16
300
84
$420
112
$1,720
$
d 10
e 12
b 300
Noncontrolling interest January 1
Noncontrolling interest December 31
550
*
24
8
$ 84
20
10
60
160
170
10
600*
246*
154
12*
142
$360
$ 68
Retained earnings – Dec 31 $402
Accounts payable
Note payable to Sun
Dividends payable
Capital stock, $10 par
Retained earnings
Consolidated
Statements
$1,000
a
c
Retained earnings — Sun
Controlling share of NI
Dividends
Balance Sheet
Cash
Accounts receivable
Dividends receivable
from Sun
Inventories
Note receivable from Pal
Land
Adjustments and
Eliminations
Sun 75%
190
4
1,000
402
b 120
c
4
550
124
$1,720
Deduct
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Chapter 4
4-13
Solution P4-4(continued)
Supporting Calculations
Sun’s value at acquisition:
Book value at December 31, 2011
Less: 2011 Net income
Add: 2011 Dividends
Book value on January 1, 2011
$384
(48)
32
$368
Purchase price of Pal’s 75% share
Implied fair value of Sun ($360 / 75%)
Sun’s book value
Excess allocated to Goodwill
Noncontrolling interest (25% x $480)
$360
$480
368
$112
$120
Sun’sAdjusted Income
Saf’s net income
Less: Amortization of Goodwill
Sun’s adjusted income
Pal’s 75% share
Noncontrolling interest 25% share
$48
(0)
$48
$36
$12
Solution P4-5
Preliminary computations
Allocation of excess fair value over book value
Cost of 70% interest January 1
Implied fair value of Sul ($490,000 / 70%)
Book value of Sul
Excess fair value over book value
Noncontrolling interest – 30% of fair value at acquisition
Excess allocated
Undervalued inventory items sold in 2011
Undervalued buildings (7 year life)
Undervalued equipment (3 year life)
Patents
Remainder to Goodwill
Excess fair value over book value
Calculation of income from Sul
Sul’s net income
Less: Undervalued inventories sold in 2011
Less: Additional Depreciation on building ($14,000/7 years)
Less: Additional Depreciation on equipment ($21,000/3 years)
Less: Patent amortization ($40,000/40 years)
Sul’s adjusted income
Par’s 70% controlling interest share
Noncontrolling interest’s 30% share
$490,000
$700,000
(600,000)
$100,000
$210,000
$
5,000
14,000
21,000
40,000
20,000
$100,000
$100,000
(5,000)
(2,000)
(7,000)
(1,000)
$ 85,000
$ 59,500
$ 25,500
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Consolidation Techniques and Procedures
4-14
Solution P4-5 (continued)
Workpaper entries for 2011
a
b
c
d
e
f
g
h
i
Income from Sul
Dividends (Sul)
Investment in Sul
Capital stock (Sul)
Retained earnings (Sul) January 1
Unamortized excess
Investment in Sul
Noncontrolling interest January 1
Cost of sales (for inventory items)
Buildings — net
Equipment — net
Patents
Goodwill
Unamortized excess
59,500
35,000
24,500
500,000
100,000
100,000
490,000
210,000
5,000
14,000
21,000
40,000
20,000
100,000
Depreciation expense
Buildings — net
2,000
Depreciation expense
Equipment — net
7,000
Other expenses
Patents
1,000
2,000
7,000
1,000
Accounts payable
Accounts receivable
10,000
Dividends payable
Dividends receivable
14,000
Noncontrolling Interest Share
Dividends — Sul
Noncontrolling Interest
25,500
10,000
14,000
©2011 Pearson Education, Inc. publishing as Prentice Hall
15,000
10,500
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Chapter 4
4-15
Solution P4-5 (continued)
Par Corporation and Subsidiary
Consolidation Workpapers
for the year ended December 31, 2011
(in thousands)
Par
Income Statement
Sales
Income from Sul
Cost of sales
Depreciation expense
$
800
59.5
300*
154*
Other expenses
Consolidated NI
Noncontrolling share
Controlling share of NI
$
245.5
Retained Earnings
Retained earnings — Par
$
300
$ 700
400*
60*
160*
140*
$1,500
a
c
d
e
f
59.5
5
2
7
1
i
$ 100
Retained earnings – Dec 31 $
345.5
$ 150
86
100
14
150
70
50
140
$
$
Buildings — net
$
301*
271
25.5*
245.5
$
300
25.5
b 100
245.5
100
50*
570
Equipment — net
Investment in Sul
a
i
$
g
h
10
14
200*
345.5
146
160
100
30
100
160
c
14
d
2
250
100
150
312
330
c
21
e
7
914
514.5
c 40
c 20
b 100
$1,694.5
$ 850
$
$
200
100
49
1,000
345.5
$1,694.5
35
15
$
60
70
Patents
Goodwill
Unamortized excess
85
20
95
500
150
$ 850
a 24.5
b 490
f
1
39
20
c 100
$2,091
g
h
10
14
$
275
106
144
1,000
345.5
b 500
Noncontrolling interest January 1
Noncontrolling interest December 31
919
*
705*
223*
$ 100
245.5
200*
Accounts payable
Dividends payable
Other liabilities
Capital stock, $10 par
Retained earnings
Consolidated
Statements
$
Retained earnings — Sul
Net income
Dividends
Balance Sheet
Cash
Accounts receivable
Dividends receivable
Inventories
Other current assets
Land
Adjustments and
Eliminations
Sul 70%
b 210
i 10.5
919
220.5
$2,091
Deduct
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Consolidation Techniques and Procedures
4-16
Solution P4-6
Supporting computations
Ownership percentage 13,500/15,000 shares = 90%
Investment cost (13,500 shares $15)
Implied fair value of Syn ($202,500 / 90%)
Book value of Syn
Excess fair value over book value
$202,500
$225,000
165,000
$ 60,000
Excess allocated to
Land
Remainder to patents
Excess fair value over book value
$ 20,000
40,000
$ 60,000
Income from Syn
Syn’s reported net income
Less: Patent amortization
Syn’s adjusted income
$ 24,000
(4,000)
$ 20,000
Pen’s share of Syn’s income (90%)
Noncontrolling interest share (10%)
$ 18,000
$ 2,000
Investment in Syn December 31, 2012
Cost January 1, 2011
Pen’s share of the change in Syn’s retained earnings
($42,000 - $15,000) 90%
Less: Pen’s share (90%) of Patent amortization for 2 years
Investment in Syn December 31
$202,500
24,300
(7,200)
$219,600
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Chapter 4
4-17
Solution P4-6 (continued)
Pen Corporation and Subsidiary
Consolidation Workpapers
for the year ended December 31, 2012
(in thousands)
Pen
Income Statement
Sales
Income from Syn
Cost of sales
Other expenses
Consolidated NI
Noncontrolling share
Controlling share of NI
Retained Earnings
Retained earnings — Pen
$ 400
18
250*
100.6*
$ 100
$
$
67.4
18
c
4
g
2
67.4
50*
$
Note receivable — Pen
Investment in Syn
24
18
80
7.2
95
34
b
34
67.4
24
16*
$
42
$
15
20
Buildings — net
Equipment — net
Patents
10
5
30
80
130
50
f
d
5
7.2
e
5
50*
$ 194.4
33
95
105
b
$ 210
$
$
10
8
150
42
$ 210
20
115
250
180
b
$ 784.8
500
194.4
$ 784.8
14.4
1.6
a
3.6
b 216
65
170
85.4
5
a
g
$
219.6
Land
36
c
4
f
5
e
5
d
7.2
b 150
Noncontrolling interest January 1
Noncontrolling interest December 31
281.2
*
300*
130.6*
$ 69.4
2 *
$ 67.4
$ 177
$
Retained earnings – Dec 31 $ 194.4
Accounts payable
Note payable to Syn
Dividends payable
Capital stock
Retained earnings
50*
26*
Consolidated
Statements
$ 500
a
$ 177
Retained earnings — Syn
Net income
Dividends
Balance Sheet
Cash
Accounts receivable
Dividends receivable--Syn
Inventories
Adjustments and
Eliminations
90% Syn
32
$ 810
$
90.4
.8
500
194.4
b 24
g
.4
281.2
24.4
$ 810
Deduct
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Consolidation Techniques and Procedures
4-18
Solution P4-7
Preliminary computations
Allocation of excess fair value over book value
Cost of 70% interest January 1
Implied fair value of Sol ($490,000 / 70%)
Book value of Sol
Excess fair value over book value
$490,000
$700,000
(600,000)
$100,000
Excess allocated
Undervalued inventory items sold in 2011
Undervalued buildings (7 year life)
Undervalued equipment (3 year life)
Remainder to goodwill
Excess fair value over book value
$
5,000
14,000
21,000
60,000
$100,000
Calculation of income from Sol
Sol’s reported net income
Less: Undervalued inventories sold in 2011
Less: Depreciation on building ($14,000/7 years)
Less: Depreciation on equipment ($21,000/3 years)
Adjusted income from Soul
Par’s 70% controlling share
30% Noncontrolling interest share
Workpaper entries for 2011
a
Income from Sol
Dividends (Sol)
Investment in Sol
b
c
d
e
f
g
h
Capital stock (Sol)
Retained earnings (Sol) - January 1
Unamortized excess
Investment in Sol
Noncontrolling interest - January 1
Cost of sales (for inventory items)
Buildings — net
Equipment — net
Goodwill
Unamortized excess
$100,000
(5,000)
(2,000)
(7,000)
$ 86,000
$ 60,200
$ 25,800
60,200
35,000
25,200
500,000
100,000
100,000
490,000
20,000
5,000
14,000
21,000
60,000
100,000
Depreciation expense
Buildings — net
2,000
Depreciation expense
Equipment — net
7,000
2,000
7,000
Noncontrolling Interest Share
Dividends — Sol
Noncontrolling Interest
25,800
Accounts payable
Accounts receivable
10,000
Dividends payable
Dividends receivable
14,000
15,000
10,800
10,000
14,000
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Chapter 4
4-19
Solution P4-7 (continued)
Par Corporation and Subsidiary
Consolidation Workpapers
for the year ended December 31, 2011
(in thousands)
Par
Income Statement
Sales
Income from Sol
Gain on equipment
Cost of sales
Depreciation expense
$
800
60.2
10
300*
155*
Other expenses
Consolidated NI
Noncontrolling share
Controlling share of NI
$
255.2
Retained Earnings
Retained earnings — Par
$
300
$ 700
400*
60*
160*
$1,500
a
60.2
c
d
e
5
2
7
$
300*
281
25.8*
255.2
$
300
$ 100
$
b 100
255.2
100
50*
355.2
$ 150
96
100
14
150
70
50
140
$
570
Equipment — net
Investment in Sol
25.8
$ 100
255.2
200*
Buildings — net
a
f
$
g
h
10
14
200*
355.2
156
160
100
30
100
160
c
14
d
2
250
100
150
312
330
c
21
e
7
914
515.2
a 25.2
b 490
c 60
b 100
$1,705.2
$ 850
$
$
200
100
50
1,000
355.2
$1,705.2
35
15
$
60
70
Goodwill
Unamortized excess
85
20
95
500
150
$ 850
60
c 100
$2,102
g
h
10
14
$
275
106
145
1,000
355.2
b 500
Noncontrolling interest January 1
Noncontrolling interest December 31
919
*
10
705*
224*
140*
f
Retained earnings – Dec 31 $
Accounts payable
Dividends payable
Other liabilities
Capital stock, $10 par
Retained earnings
Consolidated
Statements
$
Retained earnings — Sol
Controlling share of NI
Dividends
Balance Sheet
Cash
Accounts receivable
Dividends receivable
Inventories
Other current assets
Land
Adjustments and
Eliminations
Sol 70%
b 210
f 10.8
919
220.8
$2,102
Deduct
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Consolidation Techniques and Procedures
4-20
Solution P4-8
Supporting computations
Ownership percentage
13,500/15,000 shares = 90%
Investment cost (13,500 shares $15)
Implied fair value of Son ($202,500 / 90%)
Book value of Son
Excess fair value over book value
$202,500
$225,000
165,000
$ 60,000
Excess allocated to
Land
Remainder to goodwill
Excess fair value over book value
$ 20,000
40,000
$ 60,000
Income from Son
Pun’s controlling share of Son’s income ($24,000 90%)
$ 21,600
Investment in Son December 31, 2012
Cost January 1, 2011
Pun’s share of the change in Son’s retained earnings
($42,000 - $15,000) 90%
Investment in Son December 31
Noncontrolling interest at December 31, 2012 (10% of fair value)
(($225,000 + $42,000 - $15,000) x 10%)
$202,500
24,300
$226,800
$ 25,200
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Chapter 4
4-21
Solution P4-8 (continued)
Pun Corporation and Subsidiary
Consolidation Workpapers
for the year ended December 31, 2012
(in thousands)
Pun
Income Statement
Sales
Income from Son
Cost of sales
Expenses
Consolidated NI
Noncontrolling share
Controlling share of NI
Retained Earnings
Retained earnings — Pun
$ 400
21.6
250*
100.6*
$
71
a
Note receivable — Pun
Investment in Son
18
80
7.2
95
$
24
$
34
b
$
42
$
15
20
50
$ 792
$ 210
14.4
1.6
$
f
d
5
7.2
e
5
50*
202
33
95
105
$
$
b
10
8
150
42
$ 210
20
115
250
180
40
f
5
e
5
d
7.2
b 150
Noncontrolling interest January 1
Noncontrolling interest December 31
285.2
*
181
$
b
500
202
$ 792
$
a
7.2
b 219.6
130
85
5
$
71
a
c
10
5
30
80
Equipment — net
Goodwill
$
300*
126.6*
73.4
2.4*
71
34
24
16*
65
170
Buildings — net
500
2.4
226.8
Land
$
50*
26*
71
50*
$
Consolidated
Statements
21.6
$ 181
Retained earnings – Dec 31 $ 202
Accounts payable
Note payable to Son
Dividends payable
Capital stock
Retained earnings
$ 100
c
Retained earnings — Son
Controlling share of NI
Dividends
Balance Sheet
Cash
Accounts receivable
Dividends receivable
Inventories
Adjustments and
Eliminations
90% Son
$
40
818
$
90
.8
500
202
b 24.4
c
.8
285.2
$
Deduct
©2011 Pearson Education, Inc. publishing as Prentice Hall
25.2
818
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Consolidation Techniques and Procedures
4-22
Solution P4-9
Pas Corporation and Subsidiary
Consolidation Workpapers
for the year ended December 31, 2011
(in thousands)
Pas
Income Statement
Sales
Income from Sel
Cost of sales
Depreciation expense
Other expenses
Consolidated NI
Noncontrolling share
Controlling share of NI
Retained Earnings
Retained earnings — Pas
$ 200
17
80*
40*
25.5*
$ 110
$
71.5
$
40
$
75
$
50
Retained earnings — Sel
Controlling share of NI
Dividends
40*
20*
10*
$
70
Balance Sheet
Cash
$
30
40
Buildings — net
Equipment — net
Investment in Sel
29.5
28
8
40
15
65
30
30
70
200
100
17
12.5
5
1.25
c
4.25
b
$ 596.5
$ 300
$
$
40
100
50
300
106.5
$ 596.5
50
10
20
150
70
$ 300
75
71.5
a
c
16
4
e
4
f
8
40*
$ 106.5
$
59.5
64
70
45
135
b
25
d
b
25
a
1
b 210
g
1.25
e
f
4
8
5
302
320
23.75
$ 717.25
$
b 150
Noncontrolling interest January 1
Noncontrolling interest December 31
*
132.5*
65*
36.75*
$ 75.75
4.25*
$ 71.5
50
211
Patents
Accounts payable
Dividends payable
Other liabilities
Capital stock
Retained earnings
$ 310
a
b
d
g
40
20*
Retained earnings – Dec 31 $ 106.5
$
Consolidated
Statements
$
71.5
40*
Trade receivables — net
Dividends receivable
Inventories
Land
Adjustments and
Eliminations
80% Sel
b 52.5
c
.25
302
86
102
70
300
106.5
52.75
$ 717.25
Deduct
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Chapter 4
4-23
Solution P4-9 (continued)
Supporting computations
Investment cost January 1, 2011
Implied fair value of Sel ($210,000 / 80%)
Book value of Sel
Excess fair value over book value
Excess allocated:
Undervalued inventory
Undervalued equipment
Remainder to patents
Excess fair value over book value
$210,000
$262,500
200,000
$ 62,500
$ 12,500
25,000
25,000
$ 62,500
©2011 Pearson Education, Inc. publishing as Prentice Hall
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Consolidation Techniques and Procedures
4-24
Solution P4-10
Pik Corporation and Subsidiary
Consolidation Workpapers
for the year ended December 31, 2011
(in thousands)
80%
Sel
Pik
Income Statement
Sales
Income from Sel
Cost of sales
Depreciation expense
Other expenses
Consolidated NI
Noncontrolling share
Controlling share of NI
Retained Earnings
Retained earnings — Pik
$ 200
18
80*
40*
25.5*
Adjustments and
Eliminations
$ 110
40*
20*
10*
$
a
b
d
18
12.5
5
c
4.5
$
$
72.5
$
75
Retained earnings — Sel
Controlling share of NI
Dividends
$
40
$
50
72.5
40*
70
Balance Sheet
Cash
$
30
40
Trade receivables — net
Dividends receivable
Inventories
Land
Buildings — net
Equipment — net
Investment in Sel
29.5
28
b
8
40
15
65
30
30
70
200
100
75
16
4
$
$
e
4
f
8
40*
107.5
59.5
64
70
45
135
b
25
d
5
320
a
2
b 210
Goodwill
b
$ 597.5
$ 300
$
$
50
10
20
150
70
$ 300
25
$
e
f
4
8
$
b 150
Noncontrolling interest January 1
Noncontrolling interest December 31
302
*
132.5*
65*
35.5*
77
4.5*
72.5
72.5
a
c
212
40
100
50
300
107.5
$ 597.5
310
50
40
20*
$
$
$
$
Retained earnings – Dec 31 $ 107.5
Accounts payable
Dividends payable
Other liabilities
Capital stock
Retained earnings
Consolidated
Statements
b 52.5
c
.5
302
$
Deduct
©2011 Pearson Education, Inc. publishing as Prentice Hall
25
718.5
86
102
70
300
107.5
53
718.5
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Chapter 4
4-25
Solution P4-10 (continued)
Supporting computations
Investment cost January 1, 2011
Implied fair value of Sel ($210,000 / 80%)
Book value of Sel
Excess fair value over book value
Excess allocated:
Undervalued inventory
Undervalued equipment
Remainder to goodwill
Excess fair value over book value
Income from Sel
Sel’s reported net income
Less amortization of excess fair value:
Inventory
Depreciation ($25,000 / 5 years)
Sel’s adjusted income
Pik’s 80% controlling share
20% Noncontrolling interest share
$210,000
$262,500
200,000
$ 62,500
$ 12,500
25,000
25,000
$ 62,500
$ 40,000
(12,500)
( 5,000)
$ 22,500
$ 18,000
$ 4,500
©2011 Pearson Education, Inc. publishing as Prentice Hall
