solusi manual advanced acc zy Chap009

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solusi manual advanced acc zy Chap009

  1. 1. Chapter 09 - Consolidation Ownership Issues CHAPTER 9 CONSOLIDATION OWNERSHIP ISSUES ANSWERS TO QUESTIONS Q9-1 Preferred stock of the subsidiary is eliminated in the consolidation process in a manner comparable to that used in eliminating the common stock of the subsidiary. For those preferred shares held by the parent company, a proportionate share of subsidiary income and net assets assigned to the preferred shares is eliminated against the balance in the parent's investment account. Subsidiary income and net assets assigned to preferred shares not held by the parent are included as a part of the noncontrolling interest along with the balances assigned to noncontrolling interest for common stock not held by the parent. The claim of the preferred shareholders normally is computed before the common stock is eliminated so that any priority claim associated with the preferred stock can be properly recognized and assigned to the correct shareholder group. Q9-2 All preferred shares held by the parent are eliminated against the balance in the investment account. Those held by unrelated parties are included in the total assigned to the noncontrolling interest. Q9-3 Preferred dividends normally are deducted in arriving at income available to common shareholders. When preferred dividends are paid by the subsidiary to shareholders other than the parent, the income accruing to the common shares held by the parent company is reduced. Therefore, they must be deducted to arrive at income available to the parent company shareholders. No preferred dividends are deducted if the parent company owns all the shares or if no dividends are declared and the preferred stock is noncumulative. Q9-4 In the event the preferred shares are redeemed, the subsidiary must pay the call premium and the net assets of the subsidiary will be reduced by the amount of the premium. Because it is more conservative to assume the call premium will be paid, the amount of the premium normally is added to the claim of the preferred shareholders and deducted from the equity assigned to the common shareholders whenever consolidated statements are prepared. Q9-5 The fair value of the net assets of the subsidiary is computed by deducting the fair value of the subsidiary's liabilities from the fair value of its assets. When the subsidiary has preferred stock outstanding, the claims of the preferred shareholders, including dividends in arrears and participation rights held by preferred shareholders, must be taken into consideration in determining the fair value of net assets available to common shareholders. These items, when deducted from the fair value of the identifiable assets of the acquired company, will reduce the amount of net assets assigned to common stock and potentially increase the amount reported as goodwill. 9-1
  2. 2. Chapter 09 - Consolidation Ownership Issues Q9-6 The parent may record the difference between the carrying value and the sale price of the shares as either a gain on sale of investment or an adjustment to its additional paid-in capital. No gain or loss on the sale of subsidiary shares should be reported in the consolidated statements. If the parent records a gain on the sale, it should be eliminated in the consolidation process and treated as a part of additional paid-in capital of the consolidated entity. Q9-7 All common shareholders should share equally in the net assets of a company. When a subsidiary sells additional shares to a nonaffiliate at a price in excess of existing book value, the effect will be to increase the net book value of all shareholders. Because it is a capital transaction, no gain or loss is recognized on the sale. Q9-8 Each purchase of additional shares should be examined to determine the difference between the price paid and underlying book value. When an amount greater than book value is paid directly to the subsidiary for the shares, the book value of the shares held by the noncontrolling interest will increase. As a result, the increase in the parent’s claim on the net assets of the subsidiary will be less than the amount paid. When consolidated statements are prepared, additional paid-in capital or retained earnings (if the parent has no additional paid-in capital) must be debited for the increase in the balance assigned to the noncontrolling interest, thereby reducing the amount reported in the consolidated balance sheet. Q9-9 All the shares of the subsidiary are eliminated in preparing the consolidated statements. Thus, treasury shares reported by the subsidiary are eliminated in the consolidation workpaper. The effect of the retirement on the consolidated statements depends on the price paid and whether the shares were purchased from the parent or from a nonaffiliate. Q9-10 Indirect ownership is a general term used whenever one company owns shares of another company and that company holds ownership in a third company. Indirect control occurs when a majority of the shares of a particular company are held by one or more companies that are, in turn, under the control of another company. By exercising its control over those companies the parent can exercise control of the company indirectly owned. Q9-11 A reciprocal relationship exists if Subsidiary A and Subsidiary B hold ownership in each other. If Subsidiary A records investment income based on the reported net income of Subsidiary B and Subsidiary B records investment income based on the reported net income of Subsidiary A, the sum of the reported net income totals for the two companies may be substantially greater than the sum of the reported operating income totals for the two companies. Parent company net income will be overstated if the impact of the reciprocal relationship is ignored when the parent company records investment income on its ownership in the two subsidiaries. Q9-12 Under the treasury stock method the parent company shares that have been purchased by a subsidiary are reported as treasury stock in the consolidated balance sheet. The carrying value of the shares is the amount paid by the subsidiary when they were purchased. 9-2
  3. 3. Chapter 09 - Consolidation Ownership Issues Q9-13 Consolidated net income will be reduced by $100,000. Income assigned to the controlling interest will be reduced by $72,000 ($100,000 x .90 x .80) when the unrealized profit of Tiny Corporation is eliminated. A total of $10,000 is treated as a reduction to the income assigned to noncontrolling shareholders of Tiny Corporation ($100,000 x .10) and $18,000 is a reduction of the income assigned to noncontrolling shareholders of Subsidiary Company ($100,000 x .90 x .20). Q9-14 All three companies should be included in the consolidated financial statements. Slide Company should be consolidated with Bit Company because Bit holds majority ownership of Slide. Bit Company, in turn, should be consolidated with Snapper Corporation because Snapper holds majority ownership of Bit. Q9-15 A subsidiary's stock dividend results in the capitalization of some portion of its retained earnings. Such an action will have no effect on the consolidated financial statements since the entire stockholders' equity section of the subsidiary is eliminated in preparing the consolidation workpaper. Q9-16 A 15 percent stock dividend is a small stock dividend and must be recorded by capitalizing retained earnings equal to the market price per share of the stock times the number of shares actually issued. As a result, retained earnings will decrease and the par value of stock outstanding and additional paid-in capital will increase on the subsidiary's books. There should be no change in the investment account balance reported by the parent. Thus, the only change in the eliminating entries is the relative amount debited to each of the three individual stockholders' equity accounts of the subsidiary. Q9-17 When the parent or other affiliates own all the shares of all companies included in the consolidation, the order in which the consolidation is completed may not be particularly critical. On the other hand, when less than 100 percent ownership is held there is a much greater chance of error in apportioning unrealized profits or other adjustments between noncontrolling ownership and consolidated net income when some other sequence is used. By starting the consolidation with the company furthest away from the parent, the computation of income assigned to noncontrolling interest at each level can be most easily accomplished. 9-3
  4. 4. Chapter 09 - Consolidation Ownership Issues SOLUTIONS TO CASES C9-1 Effect of Subsidiary Preferred Stock When a parent company does not own all the shares of a subsidiary, income assigned to the noncontrolling interest includes (1) a portion of subsidiary preferred dividends and (2) a portion of earnings available to common shareholders. To determine the amount of income to assign to preferred and common shareholders of the subsidiary, the controller needs to have the following information about the preferred stock: 1. The number of preferred shares outstanding and the number owned by the parent and other affiliates. 2. The annual preferred dividend rate per share and whether the dividends are cumulative or noncumulative. 3. If the dividends are noncumulative, the amount of preferred dividends declared during the period, if any. In this particular case the parent does not appear to own any of the subsidiary's preferred shares. Once the controller determines the portion of subsidiary income assignable to common shareholders, consolidated net income attributable to the controlling interest is computed by adding the parent's pro rata share of this amount to the parent's income from its own operations. C9-2 Consolidated Stockholders’ Equity: Theory vs. Practice a. 1Upon the sale of stock of a subsidiary, Xerox used to recognize a gain or loss in the consolidated income statement equal to the company’s proportionate share of the corresponding increase or decrease in that subsidiary’s equity. Under FASB 160, the sale of subsidiary shares is viewed as an equity transaction and does not affect income. Instead, the difference between the fair value of the consideration received and the change in the amount of the noncontrolling interest is recognized as an adjustment to stockholders’ equity (usually additional paid-in capital). b. Occidental Petroleum has generally treated subsidiary preferred stock as a liability (the amount is small). It should be reported as part of the noncontrolling interest. 9-4
  5. 5. Chapter 09 - Consolidation Ownership Issues C9-3 Sale of Subsidiary Shares MEMO To: Robert Reader Vice President of Finance Book Corporation From: Re: , CPA Recognition of Gain on Sale of Subsidiary Shares Previous accounting standards did not specifically address the issue of how to treat a sale of subsidiary shares when the parent retained controlling ownership. However, a common practice was to recognize a gain or loss on the sale of shares. The FASB’s recent issuance of FASB 160 makes clear that, from a consolidated perspective, a parent’s sale of subsidiary shares while maintaining control is an equity transaction. Accordingly, no gain or loss on the sale should be reported in the consolidated income statement. Instead, equity should be adjusted by the difference between the consideration received and the change in the parent’s subsidiary interest. In the current situation, Book’s interest in Lance prior to its sale of Lance shares was $360,000, an amount equal to 90 percent of Lance’s $400,000 book value. Immediately following the sale of Lance shares, Book’s remaining 60 percent interest in Lance is $240,000 ($400,000 x .60), a decrease of $120,000 ($360,000 - $240,000). The difference between the proceeds received and the change in the book value of Book’s interest in Lance is as follows: Proceeds received ($5.60 x 30,000 shares) Change in book value of interest ($360,000 - $240,000) Required adjustment to equity $168,000 120,000 $ 48,000 This $48,000 difference should be reported within equity in the consolidated balance sheet. Although alternatives exist in terms of how to meet the FASB’s reporting requirement, the following entry to record the sale of shares on Book’s books would be consistent with the FASB’s requirement and probably the most efficient approach: Cash Investment in Lance Company Stock Additional Paid-In Capital 168,000 120,000 48,000 The additional paid-in capital recorded on Book’s books would carry over to the consolidated balance sheet and would be included in consolidated equity. If Book elected to record a $48,000 gain on the sale of Lance shares instead of recognizing additional paid-in capital as shown in the entry, that gain would have to be transferred to additional paid-in capital in the preparation of consolidated financial statements. Primary citation: FASB 160 ARB 51 (as amended by FASB 160), Par. 33. 9-5
  6. 6. Chapter 09 - Consolidation Ownership Issues 9-6
  7. 7. Chapter 09 - Consolidation Ownership Issues C9-4 Sale of Subsidiary Shares (a) With a sale of shares to a nonaffiliate, net resources have been brought into the consolidated entity and the noncontrolling shareholders have an additional claim. The excess of the proceeds received from the sale over the change in the parent’s interest in the subsidiary increases the amount of additional paid-in capital reported in the consolidated balance sheet. A sale of subsidiary shares to a nonaffiliate also changes the amount of income assigned to the noncontrolling interest in the consolidated income statement and the amount of net assets assigned to the noncontrolling interest in the consolidated balance sheet. (b) When a parent sells shares of one subsidiary to another subsidiary, net resources to the consolidated entity do not change. Any gain recorded by the parent must be eliminated when the investment balance reported by the subsidiary is eliminated in preparing consolidated financial statements. A change in the claim of the noncontrolling interest is likely to occur if the subsidiary that purchases the shares is not wholly owned. As a result, there may be some change in consolidated income and the balance sheet totals assigned to noncontrolling interest. C9-5 Reciprocal Ownership A great many factors beyond the immediate impact on reported earnings may be important in deciding on the use of the funds. Items such as the following should be considered: 1. Are the excess funds held by Thorson available only temporarily or are they not likely to be needed in the foreseeable future? 2. Will there be any regulatory or taxation problems associated with one or more of the alternatives? 3. Can shares of the companies be purchased in the desired quantities and at existing market prices or are there potential difficulties associated with one or more alternatives? 4. Is it desirable to acquire more shares of either subsidiary since controlling ownership already is in the hands of Strong Manufacturing? 5. Have the noncontrolling shareholders of either subsidiary been troublesome or caused the parent to refrain from actions that it might otherwise have taken? With the information given, it is difficult to determine which action will have the most favorable impact on consolidated net income. The earnings of each company, the number of shares outstanding, and the relative market prices of the shares each will have an effect. In general, reported income is maximized by purchasing the shares with the lowest priceearnings ratio. 9-7
  8. 8. Chapter 09 - Consolidation Ownership Issues SOLUTIONS TO EXERCISES E9-1 Multiple-Choice Questions on Preferred Stock Ownership 1. d $50,000 = $20,000 + $30,000 2. c $29,000 = $20,000 + .30($30,000) 3. b Only the retained earnings of the acquiring company is included. 4. a The portion held by the parent is eliminated when the preferred investment is eliminated, and the portion held by nonaffiliates is eliminated and included with the balance reported as noncontrolling interest in the consolidated balance sheet. E9-2 Multiple-Choice Questions on Multilevel Ownership 1. b $188,000 = $100,000 + .80[$80,000 + .60($50,000)] 2. b $20,000 = .40($50,000) 3. c $22,000 = .20[$80,000 + .60($50,000)] 4. c $42,000 = .40($50,000) + .20[$80,000 + .60($50,000)] 5. b $2,400 = .80 x .60[($150,000 + $100,000 - $200,000) / 10 years) E9-3 Acquisition of Preferred Shares Eliminating entries: E(1) E(2) Common Stock — Separate Company Retained Earnings Investment in Separate Company Common Stock Noncontrolling Interest Eliminate investment in common stock. 50,000 150,000 Preferred Stock — Separate Company Investment in Separate Company Preferred Stock Noncontrolling Interest Eliminate subsidiary preferred stock. 100,000 9-8 140,000 60,000 60,000 40,000
  9. 9. Chapter 09 - Consolidation Ownership Issues E9-4 Reciprocal Ownership [AICPA Adapted] a. None of Simba's dividends is reported in the consolidated statements. All of Simba's dividends are eliminated in the consolidation process. b. Only 90 percent of Pride's dividends are included in the consolidated retained earnings statement. The dividend payment on the 10 percent owned by Simba is an intercorporate payment to an affiliate and must be eliminated in the consolidation process. E9-5 Subsidiary with Preferred Stock Outstanding Eliminating entries: E(1) E(2) Common Stock — Topple Company Retained Earnings Investment in Topple Common Stock Noncontrolling Interest Eliminate investment in common stock. 150,000 210,000 Preferred Stock — Topple Company Investment in Topple Preferred Stock Noncontrolling Interest Eliminate subsidiary preferred stock. 200,000 270,000 90,000 80,000 120,000 E9-6 Subsidiary with Preferred Stock Outstanding a. Entries recorded by Clayton Corporation: (1) Investment in Topple Common Stock Investment in Topple Preferred Stock Cash Record purchase of Topple stock. 270,000 80,000 (2) Cash Investment in Topple Common Stock Record dividends from Topple: $25,500 = ($50,000 - $16,000) x .75 (3) Cash Dividend Income Record dividends on preferred stock from Topple: $16,000 x .40 6,400 (4) Investment in Topple Common Stock Income from Subsidiary Record equity-method income: $40,500 = ($70,000 - $16,000) x .75 40,500 9-9 25,500 350,000 25,500 6,400 40,500
  10. 10. Chapter 09 - Consolidation Ownership Issues E9-6 (continued) b. Eliminating entries: E(1) Income from Subsidiary Dividends Declared — Common Stock Investment in Topple Common Stock Eliminate income from subsidiary. E(2) Dividend Income — Preferred Dividends Declared — Preferred Eliminate dividend income from subsidiary preferred. E(3) Income to Noncontrolling Interest Dividends Declared — Preferred Stock Dividends Declared — Common Stock Noncontrolling Interest Assign income to noncontrolling interest: $23,100 = [($70,000 - $16,000) x .25] + ($16,000 x .60) $9,600 = $16,000 x .60 $8,500 = ($50,000 - $16,000) x .25 $5,000 = $13,500 - $8,500 23,100 E(4) Common Stock — Topple Company Retained Earnings, January 1 Investment in Topple Common Stock Noncontrolling Interest Eliminate beginning investment balance. 150,000 210,000 Preferred Stock — Topple Company Investment in Topple Preferred Stock Noncontrolling Interest Eliminate subsidiary preferred stock. 200,000 E(5) 9-10 40,500 6,400 25,500 15,000 6,400 9,600 8,500 5,000 270,000 90,000 80,000 120,000
  11. 11. Chapter 09 - Consolidation Ownership Issues E9-7 Preferred Dividends and Call Premium a. Culbertson Company's contribution to 20X2 consolidated net income is equal to its reported net income of $70,000. b. Income assigned to noncontrolling interest: Preferred shares [.40($100,000 x .12)] Common shares {.10[$70,000 - ($100,000 x .12)]} Total income assigned to noncontrolling interest c. $ 4,800 5,800 $10,600 Retained earnings assignable to preferred shareholders: Dividends in arrears [5 years x ($100,000 x .12)] Call feature ($2 x 10,000 shares) Total retained earnings assigned to preferred stock d. Book value of common shares: Par value of common shares outstanding Retained earnings balance Less: Balance assigned to preferred shares Book value of common shares e. $60,000 20,000 $80,000 $380,000 (80,000) $300,000 300,000 $600,000 Total noncontrolling interest: Preferred stock [.40($100,000 + $80,000)] Common stock (.10 x $600,000) Total noncontrolling interest 9-11 $ 72,000 60,000 $132,000
  12. 12. Chapter 09 - Consolidation Ownership Issues E9-8 Multilevel Ownership a. Consolidated net income for 20X6 is $190,000 ($90,000 + $40,000 + $60,000) b. Income of $36,800 is assigned to the noncontrolling interest: Income from Dally ($40,000 x .35) Income from Latent [($60,000 + $16,000) x .30] Total income assigned to noncontrolling interest c. Income of $153,200 is assigned to the controlling interest: Consolidated net income Less: Income assigned to noncontrolling interest Income assigned to controlling interest d. $14,000 22,800 $36,800 Only the $45,000 of dividends paid by Grasper Corporation to its shareholders will be reported as dividends declared in Grasper’s 20X6 consolidated retained earnings statement. 9-12 $190,000 (36,800) $153,200
  13. 13. Chapter 09 - Consolidation Ownership Issues E9-9 Eliminating entries for Multilevel Ownership a. Journal entries recorded by Brown Corporation on its investment in Tann Company: (1) (2) Cash Investment in Tann Company Stock Record dividends from Tann Company: $15,000 x .60 (3) b. Investment in Tann Company Stock Cash Record purchase of Tann Company stock. Investment in Tann Company Stock Income from Tann Company Record equity-method income: $40,000 x .60 9,000 24,000 120,000 9,000 24,000 Journal entries recorded by Promise Enterprises on its investment in Brown Corporation: (1) Investment in Brown Corporation Stock Cash Record purchase of Brown Corporation stock. (2) Cash Investment in Brown Corporation Stock Record dividends from Brown Corporation: $50,000 x .90 (3) c. 120,000 Investment in Brown Corporation Stock Income from Brown Corporation Record equity-method income: ($120,000 + $24,000) x .90 315,000 45,000 129,600 315,000 45,000 129,600 Eliminating entries: E(1) Income from Tann Company Dividends Declared Investment in Tann Company Stock Eliminate income from Tann Company. 24,000 E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $16,000 = $40,000 x .40 $6,000 = $15,000 x .40 16,000 9-13 9,000 15,000 6,000 10,000
  14. 14. Chapter 09 - Consolidation Ownership Issues E9-9 (continued) E(3) Common Stock — Tann Company Additional Paid-In Capital Retained Earnings, January 1 Investment in Tann Company Stock Noncontrolling Interest Eliminate investment in Tann Company stock: $120,000 = $200,000 x .60 $80,000 = $200,000 x .40 100,000 60,000 40,000 E(4) Income from Brown Corporation Dividends Declared Investment in Brown Corporation Stock Eliminate income from Brown Corporation. 129,600 E(5) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling shareholders of Brown Corporation: $14,400 = ($120,000 + $24,000) x .10 $5,000 = $50,000 x .10 $9,400 = $14,400 - $5,000 E(6) Common Stock — Brown Corporation Additional Paid-In Capital Retained Earnings, January 1 Investment in Brown Corporation Stock Noncontrolling Interest Eliminate investment in Brown Corporation stock: $315,000 = $350,000 x .90 $35,000 = $350,000 x .10 9-14 14,400 150,000 60,000 140,000 120,000 80,000 45,000 84,600 5,000 9,400 315,000 35,000
  15. 15. Chapter 09 - Consolidation Ownership Issues E9-10 Reciprocal Ownership Operating income of Grower Supply Corporation Operating income of Schultz Company Consolidated net income Less: Income to noncontrolling interest: ($50,000 x .15) Income to controlling interest 9-15 $112,000 50,000 $162,000 (7,500) $154,500
  16. 16. Chapter 09 - Consolidation Ownership Issues E9-11 Consolidated Balance Sheet with Reciprocal Ownership Talbott Company and Short Company Consolidated Balance Sheet Workpaper December 31, 20X9 Talbott Company Item Cash Accounts Receivable Inventory Buildings and Equipment (net) Investment in Short Co. Common Stock Investment in Talbott Co. Common Stock Treasury Stock Debits Accounts Payable Bonds Payable Common Stock Retained Earnings Noncontrolling Interest Credits Short Company 78,000 120,000 150,000 39,000 80,000 120,000 117,000 200,000 270,000 400,000 300,000 700,000 Eliminations Credit 352,000 Consolidated (1)352,000 61,000 (2) 61,000 1,100,000 600,000 90,000 400,000 300,000 310,000 60,000 100,000 200,000 240,000 (1)200,000 (1)240,000 1,100,000 600,000 501,000 Eliminating entries: E(1) Common Stock — Short Company Retained Earnings Investment in Short Company Common Stock Noncontrolling Interest E(2) Debit Treasury Stock Investment in Talbott Company Common Stock 9-16 (2) 61,000 (1) 88,000 501,000 61,000 1,348,000 150,000 500,000 300,000 310,000 88,000 1,348,000 200,000 240,000 352,000 88,000 61,000 61,000
  17. 17. Chapter 09 - Consolidation Ownership Issues E9-11 (continued) Talbott Company and Subsidiary Consolidated Balance Sheet December 31, 20X9 Current Assets: Cash Accounts Receivable Inventory Noncurrent Assets: Buildings and Equipment (net) Total Assets $117,000 200,000 270,000 $ 587,000 700,000 $1,287,000 Current Liabilities: Accounts Payable Bonds Payable Stockholders' Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Equity before Reduction for Treasury Shares Less: Treasury Shares Total Stockholders’ Equity Total Liabilities and Stockholders' Equity 9-17 $ 150,000 500,000 $300,000 310,000 $610,000 88,000 $698,000 (61,000) 637,000 $1,287,000
  18. 18. Chapter 09 - Consolidation Ownership Issues E9-12 Subsidiary Stock Dividend a. Lake Company: Stock Dividends Declared Common Stock 40,000 40,000 Lindale Company: No entry required. b. Eliminating entries, December 31, 20X3: E(1) E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest E(3) c. Income from Subsidiary Dividends Declared Investment in Lake Company Stock Common Stock — Lake Company Retained Earnings, January 1 Investment in Lake Company Stock Noncontrolling Interest Stock Dividends Declared 17,500 7,500 140,000 200,000 7,000 10,500 3,000 4,500 210,000 90,000 40,000 Eliminating entry, January 1, 20X4: E(1) Common Stock — Lake Company Retained Earnings Investment in Lake Company Stock Noncontrolling Interest 140,000 175,000 Lake Company retained earnings, December 31, 20X3: Balance, December 31, 20X2 Add: Net income for 20X3 Less: Stock dividend in 20X3 Cash dividend paid in 20X3 Balance, December 31, 20X3 $200,000 25,000 (40,000) (10,000) $175,000 9-18 220,500 94,500
  19. 19. Chapter 09 - Consolidation Ownership Issues E9-13 Sale of Subsidiary Shares by Parent a. Investment in Acme Concrete, January 1, 20X5: Purchase price Acme net income in 20X3 and 20X4 Dividends paid by Acme in 20X3 and 20X4 Proportion of stock held by Stable Balance prior to sale of shares b. $360,000 48,000 $408,000 Journal entry recorded by Stable Home Builders for sale of shares: Cash Investment in Acme Stock Additional Paid-in Capital $102,000 = $408,000 x 4,000 / [($200,000 / $10) x .80] c. $100,000 (40,000) $ 60,000 x .80 120,000 102,000 18,000 Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Acme Stock 30,000 E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest 20,000 E(3) Common Stock — Acme Concrete Retained Earnings, January 1 Investment in Acme Stock Noncontrolling interest 200,000 310,000 12,000 18,000 8,000 12,000 306,000 204,000 E9-14 Purchase of Additional Shares from Nonaffiliate a. Purchase price, December 31, 20X7 Modern Products Company net income for 20X8 ($230,000 + $20,000 - $200,000) Proportion of stock held by Weal Income from subsidiary Dividend received from Modern Products Company ($20,000 x .60) Balance in investment account, December 31, 20X8 9-19 $210,000 $50,000 x .60 30,000 (12,000) $228,000
  20. 20. Chapter 09 - Consolidation Ownership Issues E9-14 (continued) b. Balance in investment account, December 31, 20X8 Purchase of additional shares on January 1, 20X9 Investment balance January 1, 20X9, after purchase Modern Products Company net income for 20X9 ($280,000 + $20,000 - $230,000) Proportion of stock held by Weal Less: Amortization of differential on stock purchased January 1, 20X9: ($20,000 / 10 years) Income from subsidiary Dividend received from Modern Products Company ($20,000 x .80) Balance in investment account, December 31, 20X9 c. $228,000 96,000 $324,000 $70,000 x .80 $56,000 (2,000) 54,000 (16,000) $362,000 Eliminating entries: E(1) Income from Modern Products Company Dividends Declared Investment in Modern Products Company Stock Eliminate income from subsidiary. 54,000 E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $14,000 = $70,000 x .20 14,000 E(3) Common Stock — Modern Products Company Retained Earnings, January 1 Differential Investment in Modern Products Company Stock Noncontrolling Interest Eliminate beginning investment balance: $20,000 = $96,000 – ($380,000 x .20) $76,000 = $380,000 x .20 E(4) Patents Amortization Expense Differential Assign differential and amortize for year: $2,000 = $20,000 / 10 years 9-20 16,000 38,000 4,000 10,000 150,000 230,000 20,000 324,000 76,000 18,000 2,000 20,000
  21. 21. Chapter 09 - Consolidation Ownership Issues E9-15 Repurchase of Shares by Subsidiary from Nonaffiliate a. Book value of Quinn stock outstanding Cost of treasury shares repurchased Book value of remaining shares outstanding Proportion of remaining shares held by noncontrolling Interest (2,000 / 8,000) Adjusted book value of shares held Book value of shares held before treasury stock repurchase by Quinn ($500,000 x .20) Reduction of noncontrolling interest Consideration given by Quinn Manufacturing Increase in equity attributable to parent b. Investment in Quinn Manufacturing Stock Additional Paid-In Capital c. Common Stock — Quinn Manufacturing Additional Paid-In Capital Retained Earnings, January 1 Investment in Quinn Stock Noncontrolling Interest Treasury Shares $312,000 = .75($500,000 - $84,000) $104,000 = .25($500,000 - $84,000) 9-21 $500,000 (84,000) $416,000 x .25 $104,000 (200,000) $ 96,000 (84,000) $ 12,000 12,000 100,000 150,000 250,000 12,000 312,000 104,000 84,000
  22. 22. Chapter 09 - Consolidation Ownership Issues E9-16 Sale of Shares by Subsidiary to Nonaffiliate a. Computation of change in book value of Schroeder Corporation shares held by Browne Corporation: Before Sale $150,000 50,000 400,000 $600,000 Common stock, $10 par value Additional paid-in capital Retained earnings Total stockholders' equity of Schroeder Proportion of stock held by Browne Corporation: 11,000 / 15,000 11,000 / (15,000 + 5,000) Book value of shares After Sale $ 200,000 400,000 400,000 $1,000,000 x .733 $440,000 Increase in book value of shares held by Browne Corporation x .550 $ 550,000 $ 110,000 b. Investment in Schroeder Stock Additional Paid-In Capital 110,000 c. Common Stock — Schroeder Corporation Additional Paid-In Capital Retained Earnings Investment in Schroeder Stock Noncontrolling Interest $450,000 = $1,000,000 x .45 200,000 400,000 400,000 9-22 110,000 550,000 450,000
  23. 23. Chapter 09 - Consolidation Ownership Issues SOLUTIONS TO PROBLEMS P9-17 Multiple-Choice Questions on Preferred Stock Ownership 1. d Book value of shares held by noncontrolling interest: Preferred stock ($100,000 x .30) Common stock [($200,000 + $50,000) x .20] Total book value 2. b Income to noncontrolling preferred shareholders [($100,000 x .10) x .30] Income to noncontrolling common shareholders: Reported net income of Upland Company Income to preferred shareholders Income to common shareholders Proportion of common stock owned by noncontrolling interest Total income to noncontrolling interest 3. b c Controlling interest: Common stock Retained earnings Total controlling interest Noncontrolling interest: ($250,000 x .20) + ($100,000 x .30) Total stockholders’ equity $3,000 $30,000 (10,000) $20,000 x .20 4,000 $7,000 Reported net income of Upland Company Operating income of Stacey Company Consolidated net income Less: Income to noncontrolling interest Income to controlling interest 4. $30,000 50,000 $80,000 5. a $ 30,000 100,000 $130,000 (7,000) $123,000 $ 300,000 350,000 $ 650,000 All preferred shares of the subsidiary are eliminated in preparing the consolidated financial statements. 9-23 80,000 $730,000
  24. 24. Chapter 09 - Consolidation Ownership Issues P9-18 Multilevel Ownership with Differential a. Journal entries recorded by Corn Corporation on its investment in Bark Company: (1) (2) Cash Investment in Bark Company Stock Record dividends from Bark Company: $20,000 x .70 14,000 (3) Investment in Bark Company Stock Income from Bark Company Record equity-method income: $30,000 x .70 21,000 (4) b. Investment in Bark Company Stock Cash Record purchase of Bark Company stock. 406,000 Income from Bark Company Investment in Bark Company Stock Amortize differential related to buildings and equipment: ($30,000 / 10 years) x .70 2,100 406,000 14,000 21,000 2,100 Journal entries recorded by Purple Corporation on its investment in Corn Corporation: (1) Cash Investment in Corn Corporation Stock Record dividends from Corn Corporation: $25,000 x .80 20,000 (2) Investment in Corn Corporation Stock Income from Corn Corporation Record equity-method income: ($60,000 + $18,900) x .80 63,120 (3) Income from Corn Corporation Investment in Corn Corporation Stock Amortize differential related to trademark: ($50,000 / 5 years) x .80 9-24 8,000 20,000 63,120 8,000
  25. 25. Chapter 09 - Consolidation Ownership Issues P9-18 (continued) c. Eliminating entries: E(1) Income from Bark Company Dividends Declared Investment in Bark Company Stock Eliminate income from Bark Company. E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling shareholders of Bark Company: $8,100 = ($30,000 - $3,000) x .30 $6,000 = $20,000 x .30 $2,100 = $8,100 - $6,000 E(3) Common Stock — Bark Company Retained Earnings, January 1 Differential Investment in Bark Company Stock Noncontrolling Interest Eliminate investment in Bark Company stock: $30,000 = $406,000 + $174,000 - $550,000 18,900 8,100 250,000 300,000 30,000 E(4) Buildings and Equipment Differential Assign beginning differential. 30,000 E(5) Depreciation Expense Accumulated Depreciation Amortize differential related to buildings and equipment: $30,000 / 10 years 3,000 E(6) Income from Corn Corporation Dividends Declared Investment in Corn Corporation Stock Eliminate income from Corn Corporation. 55,120 E(7) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling shareholders of Corn Corporation: $13,780 = ($60,000 + $18,900 - $10,000) x . 20 $5,000 = $25,000 x .20 $8,780 = $13,780 - $5,000 13,780 9-25 14,000 4,900 6,000 2,100 406,000 174,000 30,000 3,000 20,000 35,120 5,000 8,780
  26. 26. Chapter 09 - Consolidation Ownership Issues P9-18 (continued) E(8) Common Stock — Corn Corporation Retained Earnings, January 1 Differential Investment in Corn Corporation Stock Noncontrolling Interest Eliminate investment in Corn Corporation stock: $270,000 = $200,000 + $35,000 + $35,000 $30,000 = $50,000 - $10,000 - $10,000 $560,000 = $520,000 + [($35,000 - $10,000) x .80] x 2 years $140,000 = $700,000 x .20 400,000 270,000 30,000 E(9) Trademark Differential Assign beginning differential: $50,000 - ($10,000 x 2 years) 30,000 E(10) Amortization Expense Trademark Amortize differential related to trademark: $50,000 / 5 years 10,000 9-26 560,000 140,000 30,000 10,000
  27. 27. Chapter 09 - Consolidation Ownership Issues P9-19 Subsidiary Stock Dividend Investment elimination entry, January 1, 20X8: Alternative 1: Pound Manufacturing stock is split 2:1. E(1) Common Stock — Pound Manufacturing Additional Paid-In Capital Retained Earnings Investment in Pound Mfg. Stock Noncontrolling Interest 100,000 70,000 280,000 306,000 144,000 Alternative 2: A stock dividend of 4,000 shares is issued. E(1) Common Stock — Pound Manufacturing Additional Paid-In Capital Retained Earnings Investment in Pound Mfg. Stock Noncontrolling Interest 140,000 70,000 240,000 306,000 144,000 Alternative 3: A stock dividend of 1,500 shares is issued. E(1) Common Stock — Pound Manufacturing Additional Paid-In Capital Retained Earnings Investment in Pound Mfg. Stock Noncontrolling Interest 9-27 115,000 130,000 205,000 306,000 144,000
  28. 28. Chapter 09 - Consolidation Ownership Issues P9-20 Subsidiary Preferred Stock Outstanding a. Eliminating entries, January 1, 20X5: Preferred Stock — Pert Company Retained Earnings Investment in Pert Preferred Stock Noncontrolling Interest Eliminate preferred stock: $32,000 = ($200,000 x .08) x 2 years Common Stock — Pert Company Retained Earnings Investment in Pert Common Stock Noncontrolling Interest Eliminate common stock: $168,000 = $200,000 - $32,000 b. 200,000 32,000 150,000 168,000 Consolidated net income and income to controlling interest: Operating income of Emerald Corporation Net income of Pert Consolidated net income Income to noncontrolling interest: Income from preferred stock of Pert Company ($16,000 x .60) Income from common stock of Pert Company [($34,000 - $16,000) x .30] Income to noncontrolling interest Income to controlling interest Alternate computation of income to controlling interest Operating income of Emerald Corporation Income from preferred stock of Pert Company ($16,000 x .40) Income from common stock of Pert Company [($34,000 - $16,000) x .70] Income to controlling interest 9-28 92,800 139,200 222,600 95,400 $ 80,000 34,000 $114,000 $ 9,600 5,400 (15,000) $ 99,000 $80,000 6,400 12,600 $99,000
  29. 29. Chapter 09 - Consolidation Ownership Issues P9-21 Ownership of Subsidiary Preferred Stock a. Preferred stockholders' claim on net assets of Jacobs: Liquidation value of preferred stock ($101 per share) 20X6 dividends in arrears ($200,000 x .10) Total preferred stockholder claim, December 31, 20X6 b. Book value of Jacobs common shares acquired by Presley: Total Jacobs stockholders' equity, December 31, 20X6 Claim of preferred stockholders Book value of Jacobs common stock Portion acquired by Presley Book value of common shares acquired by Presley c. $1,800,000 1,200,000 $3,000,000 (2,933,000) $ 67,000 Income to noncontrolling interest, 20X7: Jacobs net income Less: impairment of goodwill Less: 20X7 preferred dividends ($200,000 x .10) Income accruing to common shareholders Noncontrolling common shareholders' interest Income to noncontrolling common shareholders Preferred dividends to noncontrolling shareholders ($20,000 x .80) Total income to noncontrolling shareholders e. $3,155,000 (222,000 ) $2,933,000 x .60 $1,759,800 Goodwill associated with acquisition of common shares: Consideration given by Presley to acquire shares Fair value of noncontrolling interest in common shares Total fair value Book value of common shares Goodwill d. $202,000 20,000 $222,000 $280,000 (26,000) (20,000) $234,000 x .40 $ 93,600 16,000 $109,600 Presley's income from investment in subsidiary common stock: Jacobs net income Less: 20X7 preferred dividends ($200,000 x .10) Income accruing to common shareholders Presley's proportionate share Presley's share of income to common shareholders Note: Basic equity method does not include adjustment for Impairment of goodwill. 9-29 $280,000 (20,000) $260,000 x .60 $156,000
  30. 30. Chapter 09 - Consolidation Ownership Issues P9-21 (continued) f. Noncontrolling interest, December 31, 20X7: Total amount assigned to noncontrolling interest: Noncontrolling interest - common Noncontrolling interest - preferred Total noncontrolling interest $1,289,600 161,600 $1,451,200 Assigned to noncontrolling interest - common Jacobs stockholders' equity, January 1, 20X7 20X7 net income Less: Preferred dividends Less: Common dividends Total Jacobs stockholders' equity, December 31, 20X7 Claim of preferred stockholders Book value of Jacobs' common stock Unimpaired goodwill at December 31, 20X7 ($67,000 - $26,000) Total basis for common shareholders Noncontrolling stockholders' interest Noncontrolling interest — common $3,155,000 280,000 (40,000) (10,000) $3,385,000 (202,000 ) $3,183,000 41,000 $3,224,000 x .40 $1,289,600 Assigned to noncontrolling interest - preferred Total Jacobs preferred stockholders' equity, January 1, 20X7 Less: Dividends in arrears paid during 20X7 Jacobs preferred stockholders' equity, December 31, 20X7 Noncontrolling stockholders' interest Noncontrolling interest — preferred 9-30 $222,000 (20,000) $202,000 x .80 $161,600
  31. 31. Chapter 09 - Consolidation Ownership Issues P9-21 (continued) g. Eliminating entries: E(1) Income from Subsidiary Dividends Declared — Common Investment in Jacobs Common Stock Eliminate income from subsidiary. E(2) Dividend Income — Preferred Dividends Declared — Preferred Eliminate dividend income from subsidiary preferred stock: $40,000 x .20 E(3) Income to Noncontrolling Interest Dividends Declared — Common Dividends Declared — Preferred Noncontrolling Interest Assign income to noncontrolling interest: $4,000 = $10,000 x .40 $32,000 = $40,000 x .80 E(4) Common Stock — Jacobs Jacuzzi Additional Paid-In Capital — Common Premium on Preferred Stock Retained Earnings, January 1 Goodwill Investment in Jacobs Common Stock Noncontrolling Interest Eliminate beginning investment in common stock: $3,000 = $5,000 - $2,000 $1,630,000 = $1,650,000 - $20,000 156,000 8,000 109,600 500,000 800,000 3,000 * 1,630,000 ** 67,000 *Portion accruing to common shareholders **Portion accruing to common shareholders after deducting preferred dividends in arrears 9-31 6,000 150,000 8,000 4,000 32,000 73,600 1,800,000 1,200,000
  32. 32. Chapter 09 - Consolidation Ownership Issues P9-21 (continued) E(5) Goodwill Impairment Loss Goodwill Recognize goodwill impairment loss. E(6) Preferred Stock — Jacobs Jacuzzi Premium on Preferred Stock Retained Earnings, January 1 Investment in Jacobs Preferred Stock Additional Paid-In Capital — Retirement of Preferred Stock Noncontrolling Interest Eliminate subsidiary preferred stock: $2,000 = $5,000 - $3,000 $20,000 = $200,000 x .10 $2,400 = ($222,000 x .20) - $42,000 $177,600 = $222,000 x .8 26,000 200,000 2,000 * 20,000 ** 26,000 42,000 2,400 177,600 *Portion representing call premium **Portion relating to preferred dividends in arrears P9-22 Consolidation Workpaper with Subsidiary Preferred Stock a. Eliminating entries: E(1) Income from Subsidiary Dividends Declared — Common Stock Investment in White Common Stock 58,500 E(2) Dividend Income Dividends Declared — Preferred Stock 9,000 E(3) Income to Noncontrolling Interest Dividends Declared — Preferred Stock Dividends Declared — Common Stock Noncontrolling Interest 12,500 E(4) Common Stock — White Corporation Retained Earnings, January 1 Investment in White Common Stock Noncontrolling Interest 100,000 250,000 E(5) Preferred Stock — White Corporation Investment in White Preferred Stock Noncontrolling Interest 200,000 E(6) Dividends Payable Dividends Receivable 9,000 9-32 9,000 49,500 9,000 6,000 1,000 5,500 315,000 35,000 120,000 80,000 9,000
  33. 33. Chapter 09 - Consolidation Ownership Issues P9-22 (continued) b. Brown Company and White Corporation Consolidation Workpaper December 31, 20X6 Brown Item Sales Dividend Income Income from Subsidiary Credits Cost of Goods Sold Deprec. and Amort. Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Retained Earnings, Jan. 1 Income, from above Dividends Declared Preferred Stock Common Stock Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Dividends Receivable Inventory Bldgs. and Equip. (net) Investment in White Corp.: Preferred Stock Common Stock Debits Accounts Payable Dividends Payable Bonds Payable Preferred Stock Common Stock Ret. Earnings, from above Noncontrolling Interest Credits Company White Corporatio n 500,000 300,000 9,000 58,500 567,500 300,000 280,000 170,000 40,000 30,000 131,000 20,000 (451,000) (220,000) 116,500 80,000 435,000 116,500 551,500 250,000 80,000 330,000 Eliminations Debit 435,000 116,500 551,500 (2) (3) (1) (3) (6) 120,000 364,500 300,000 (6) 9,000 200,000 491,500 200,000 100,000 305,000 (5) 200,000 (4) 100,000 330,000 1,091,500 690,000 639,000 9-33 (60,000) 491,500 9,000 (5) 120,000 (1) 49,500 (4) 315,000 690,000 70,000 15,000 9,000 6,000 9,000 1,000 25,000 330,000 200,000 270,000 100,000 800,000 450,000 70,000 151,000 (671,000) 129,000 (4) 250,000 80,000 100,000 120,000 1,091,500 800,000 (12,500) 116,500 305,000 58,000 80,000 9,000 100,000 360,000 idated (3) 12,500 80,000 (10,000) 491,500 Credit (2) 9,000 (1) 58,500 (15,000) (60,000) Consol- 158,000 200,000 300,000 630,000 1,288,000 170,000 6,000 300,000 200,000 25,000 491,500 (3) 5,500 (4) 35,000 (5) 80,000 120,500 639,000 1,288,000
  34. 34. Chapter 09 - Consolidation Ownership Issues P9-23 Subsidiary Stock Transactions a. (1) (2) Book value of Beta Company stock outstanding Cost of treasury shares repurchased Book value of remaining shares outstanding Proportion of remaining shares held by noncontrolling Interest (1,500 / 9,000) Adjusted book value of shares held Book value of shares held before treasury stock repurchase by Beta Company ($500,000 x .25) Reduction of noncontrolling interest Consideration given by Beta Company Decrease in equity attributable to parent Income from Subsidiary Investment in Beta Company Stock $45,000 x .833 E(2) Income to Noncontrolling Interest Noncontrolling Interest $45,000 x .167 E(3) Common Stock — Beta Company Additional Paid-In Capital Retained Earnings, January 1 Treasury Stock Investment in Beta Company Stock Noncontrolling Interest (1) (2) (125,000 ) $ 53,000 (68,000) $ (15,000) 15,000 15,000 Eliminating entries: E(1) b. x .1667 $ 72,000 Journal entry recorded by Apex Corporation: Retained Earnings Investment in Beta Company Stock (3) $500,000 (68,000) $432,000 37,500 37,500 7,500 7,500 100,000 80,000 320,000 Book value of Beta Company stock outstanding Cost of treasury shares repurchased Book value of remaining shares outstanding Proportion of remaining shares held by noncontrolling Interest (2,500 / 9,000) Adjusted book value of shares held by noncontrolling Interest Book value of shares held before treasury stock repurchase by Beta Company ($500,000 x .25) Increase in equity attributable to parent 68,000 360,000 72,000 $500,000 (68,000) $432,000 x .2778 $120,000 (125,000) $ 5,000 Journal entry recorded by Apex Corporation: Cash Investment in Beta Company Stock Additional Paid-In Capital 9-34 68,000 63,000 5,000
  35. 35. Chapter 09 - Consolidation Ownership Issues P9-23 (continued) (3) Eliminating entries: E(1) Income from Subsidiary Investment in Beta Company Stock $45,000 x .722 32,500 E(2) Income to Noncontrolling Interest Noncontrolling Interest $45,000 x .278 12,500 E(3) Common Stock — Beta Company Additional Paid-In Capital Retained Earnings, January 1 Treasury Stock Investment in Beta Company Stock Noncontrolling Interest 100,000 80,000 320,000 32,500 12,500 68,000 312,000 120,000 P9-24 Sale of Subsidiary Shares a. Eliminating entries: E(1) Gain on Sale of ENC Company Stock Additional Paid-In Capital Eliminate gain on sale of ENC shares: $60,000 - ($250,000 x .20) 10,000 E(2) Income from Subsidiary Dividends Declared Investment in ENC Company Stock Eliminate income from subsidiary: $18,000 = .60($170,000 - $140,000) 18,000 E(3) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $12,000 = .40($170,000 - $140,000) 12,000 E(4) Common Stock — ENC Company Additional Paid-In Capital Retained Earnings, January 1 Investment in ENC Company Stock Noncontrolling Interest Eliminate investment in common stock. 9-35 100,000 20,000 130,000 10,000 6,000 12,000 4,000 8,000 150,000 100,000
  36. 36. Chapter 09 - Consolidation Ownership Issues P9-24 (continued) b. Penn Corporation and ENC Company Consolidation Workpaper December 31, 20X4 Item Sales Gain on Sale of ENC Company Stock Income from Subsidiary Credits Cost of Goods Sold Depreciation Expense Other Expenses Debits Consolidated net income Income to Noncontrolling Interest Income, carry forward Penn Corp. 280,000 ENC Company 170,000 10,000 18,000 _______ 308,000 170,000 210,000 100,000 20,000 15,000 21,000 25,000 (251,000) (140,000) 320,000 47,000 367,000 362,000 150,000 170,000 30,000 70,000 120,000 35,000 50,000 100,000 65,000 120,000 220,000 650,000 230,000 880,000 Ret. Earnings, Dec. 31, carry forward Credits 450,000 310,000 35,000 46,000 (391,000) 59,000 (4)130,000 40,000 Dividends Declared Accum. Depreciation Accounts Payable Bonds Payable Common Stock Additional Paid-In Capital Retained Earnings, from above Noncontrolling Interest (1) 10,000 (2) 18,000 130,000 30,000 160,000 (10,000) 320,000 57,000 377,000 (15,000) Debits 450,000 (12,000) 47,000 30,000 Cash Accounts Receivable Inventory Buildings and Equipment Investment in ENC Company Stock Consolidated (3) 12,000 40,000 57,000 Retained Earnings, January 1 Income, from above Eliminations Debit Credit (2) (3) 162,000 6,000 4,000 10,000 (2) 12,000 (4) 150,000 1,032,000 415,000 170,000 50,000 200,000 200,000 95,000 20,000 30,000 100,000 (4)100,000 50,000 20,000 (4) 20,000 362,000 150,000 170,000 1,032,000 415,000 290,000 9-36 (15,000) 352,000 1,285,000 265,000 70,000 230,000 200,000 (1) 10,000 60,000 10,000 352,000 (3) 8,000 (4)100,000 108,000 290,000 1,285,000
  37. 37. Chapter 09 - Consolidation Ownership Issues P9-25 Sale of Shares by Subsidiary to Nonaffiliate a. E(1) Common Stock — Delta Corporation 240,000 Additional Paid-In Capital 190,000 Retained Earnings 350,000 Investment in Delta Corporation Stock Noncontrolling Interest Eliminate investment in common stock: $240,000 = $200,000 + ($10 x 4,000 shares) $190,000 = $50,000 + [($45 - $10) x 4,000 shares] $520,000 = $780,000 x (16,000 shares / 24,000 shares) $260,000 = $780,000 x (8,000 shares / 24,000 shares) 520,000 260,000 Journal entry recorded by Craft Corporation: Investment in Delta Corporation Stock Additional Paid-In Capital Book value of shares held by Craft: After sale $780,000 x (16,000 / 24,000) Before sale $600,000 x (16,000 / 20,000) Increase in book value b. 40,000 40,000 $520,000 (480,000 ) $ 40,000 Craft Corporation and Delta Corporation Consolidated Balance Sheet Workpaper January 1, 20X3 Item Cash Accounts Receivable Inventory Buildings & Equipment Investment in Delta Corporation Total Debits Accumulated Depreciation Accounts Payable Taxes Payable Mortgages Payable Common Stock Additional Paid-In Capital Retained Earnings, Noncontrolling Interest Total Credits Craft Corp. Delta Corp. 50,000 90,000 180,000 700,000 Eliminations Debit Credit 230,000 120,000 200,000 600,000 280,000 210,000 380,000 1,300,000 520,000 1,540,000 1,150,000 200,000 70,000 Consolidated (1)520,000 240,000 (1)240,000 420,000 140,000 80,000 250,000 300,000 190,000 350,000 (1)190,000 (1)350,000 220,000 500,000 1,540,000 1,150,000 780,000 250,000 300,000 220,000 500,000 220,000 70,000 80,000 2,170,000 9-37 (1)260,000 780,000 260,000 2,170,000
  38. 38. Chapter 09 - Consolidation Ownership Issues P9-25 (continued) c. Craft Corporation and Subsidiary Consolidated Balance Sheet January 1, 20X3 Current Assets: Cash Accounts Receivable Inventory Noncurrent Assets: Buildings and Equipment Less: Accumulated Depreciation Total Assets $ 280,000 210,000 380,000 $1,300,000 (420,000 ) Current Liabilities: Accounts Payable Taxes Payable Mortgages Payable Stockholders’ Equity: Controlling Interest: Common Stock Additional Paid-In Capital Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity Total Liabilities and Stockholders' Equity $ 140,000 80,000 $ 300,000 220,000 500,000 $1,020,000 260,000 9-38 $ 870,000 880,000 $1,750,000 $ 220,000 250,000 1,280,000 $1,750,000
  39. 39. Chapter 09 - Consolidation Ownership Issues P9-26 Sale of Additional Shares to Parent a. Eliminating entry: E(1) Common Stock — Tin Corporation Additional Paid-In Capital Retained Earnings Investment in Tin Corporation Noncontrolling Interest Eliminate investment balance: $125,000 = $100,000 + (2,500 x $10) $187,500 = computed below Computation of debit to Additional Paid-In Capital Balance reported by Tin Corporation prior to sale of additional shares Increase in paid-in capital from sale of shares [$150,000 – (2,500 x $10)] Noncontrolling interest after sale of shares ($500,000 x .20) Noncontrolling interest before sale of shares ($350,000 x .25) Increase in book value of noncontrolling interest Debit to additional paid-in capital 125,000 187,500 200,000 412,500 100,000 $ 50,000 125,000 $100,000 (87,500) 12,500 $187,500 Journal entry recorded by Tin Corporation: Cash Common Stock Additional Paid-In Capital 150,000 25,000 125,000 Journal entry recorded by Lane Manufacturing: Investment in Tin Corporation Stock Cash 9-39 150,000 150,000
  40. 40. Chapter 09 - Consolidation Ownership Issues P9-26 (continued) b. Lane Manufacturing Company and Tin Corporation Consolidation Workpaper January 2, 20X1 Item Cash Accounts Receivable Inventory Buildings and Equipment Investment in Tin Corporation Stock Debits Accum. Depreciation Accounts Payable Bonds Payable Common Stock Additional Paid-In Capital Retained Earnings, Noncontrolling Interest Total Credits Lane Corp. Tin Corp. Eliminations Debit Credit Consolidated 77,500 60,000 100,000 210,000 100,000 180,000 287,500 160,000 280,000 600,000 600,000 1,200,000 412,500 1,250,000 1,090,000 (1)412,500 1,927,500 150,000 50,000 400,000 200,000 240,000 50,000 300,000 125,000 (1)125,000 390,000 100,000 700,000 200,000 50,000 400,000 175,000 200,000 (1)187,500 (1)200,000 37,500 400,000 1,250,000 1,090,000 512,500 9-40 (1)100,000 512,500 100,000 1,927,500
  41. 41. Chapter 09 - Consolidation Ownership Issues P9-27 Complex Ownership Structure The overall ownership structure can be diagrammed as follows: Consolidated net income of $98,800First is reported: Boston Operating income of First Boston Operating income of Gulfside Operating income of.80 Paddock Total earnings available Income to noncontrolling interests: Paddock .40[$50,000 + .10($30,000)] Gulfside Gulfside .20[$34,000 + .60($10,000)] .60 Consolidated net income 9-41 $ 44,000 34,000 50,000 $128,000 .10 $21,200 Paddoc 8,000 k (29,200) $ 98,800

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