Your SlideShare is downloading. ×
Chapter 10 - Additional Consolidation Reporting Issues

CHAPTER 10
ADDITIONAL CONSOLIDATION REPORTING ISSUES
ANSWERS TO QU...
Chapter 10 - Additional Consolidation Reporting Issues

Q10-9 The revenues and expenses of the subsidiary for the full yea...
Chapter 10 - Additional Consolidation Reporting Issues

assigned to noncontrolling common shareholders are deducted from c...
Chapter 10 - Additional Consolidation Reporting Issues

SOLUTIONS TO CASES
C10-1 The Effect of Security Type on Earnings p...
Chapter 10 - Additional Consolidation Reporting Issues

C10-2 Evaluating Consolidated Statements
MEMO
To:
From:
Re:

Treas...
Chapter 10 - Additional Consolidation Reporting Issues

C10-2 (continued)
FASB Statement No. 95, “Statement of Cash Flows,...
Chapter 10 - Additional Consolidation Reporting Issues

C10-3 Income Tax Expense
a. When prior-period intercompany profits...
Chapter 10 - Additional Consolidation Reporting Issues

C10-4 Consolidated Cash Flows
a. The factors contributing to the i...
Chapter 10 - Additional Consolidation Reporting Issues

SOLUTIONS TO EXERCISES
E10-1 Analysis of Cash Flows
a.

The consol...
Chapter 10 - Additional Consolidation Reporting Issues

E10-2 Statement of Cash Flows
a.

The noncontrolling interest rece...
Chapter 10 - Additional Consolidation Reporting Issues

E10-4 Consolidated Operating Cash Flows
a. Cash received from cust...
Chapter 10 - Additional Consolidation Reporting Issues

E10-6 Direct Method Cash Flow Statement
Consolidated Enterprises I...
Chapter 10 - Additional Consolidation Reporting Issues

E10-7 Analysis of Consolidated Cash Flow Statement
a.

Dividends p...
Chapter 10 - Additional Consolidation Reporting Issues

E10-8 Midyear Acquisition
a.

The retained earnings balance report...
Chapter 10 - Additional Consolidation Reporting Issues

E10-9 Purchase of Shares at Midyear
a.

Journal entries recorded b...
Chapter 10 - Additional Consolidation Reporting Issues

E10-10 Tax Deferral on Gains and Losses
Eliminating entries, Decem...
Chapter 10 - Additional Consolidation Reporting Issues

E10-12 Allocation of Income Tax Expense
a.

Allocation of tax expe...
Chapter 10 - Additional Consolidation Reporting Issues

E10-13 Effect of Preferred Stock on Earnings per Share
Because bot...
Chapter 10 - Additional Consolidation Reporting Issues

E10-15 Effect of Convertible Preferred Stock on Earnings per Share...
Chapter 10 - Additional Consolidation Reporting Issues

SOLUTIONS TO PROBLEMS
P10-16 Direct Method Computation of Cash Flo...
Chapter 10 - Additional Consolidation Reporting Issues

P10-17 Preparing a Statement of Cash Flows
a.

Metal Corporation a...
Chapter 10 - Additional Consolidation Reporting Issues

P10-17 (continued)
b.

Consolidated statement of cash flows for 20...
Chapter 10 - Additional Consolidation Reporting Issues

P10-18 Preparing a Statement of Cash Flows – Direct Method
a.

Met...
Chapter 10 - Additional Consolidation Reporting Issues

P10-18 (continued)
Cash Flows from Operating Activities:
Cash Rece...
Chapter 10 - Additional Consolidation Reporting Issues

P10-18 (continued)
The FASB also requires the following reconcilia...
Chapter 10 - Additional Consolidation Reporting Issues

P10-19 Consolidated Statement of Cash Flows
a.

Traper Company and...
Chapter 10 - Additional Consolidation Reporting Issues

P10-19 (continued)
Explanation of Workpaper Entries:
(a)

Increase...
Chapter 10 - Additional Consolidation Reporting Issues

P10-19 (continued)
b.

Consolidated statement of cash flows for 20...
Chapter 10 - Additional Consolidation Reporting Issues

P10-20 Consolidated Statement of Cash Flows — Direct Method
a.

Tr...
Chapter 10 - Additional Consolidation Reporting Issues

P10-20 (continued)
Cash Flows from Operating Activities:
Cash Rece...
Chapter 10 - Additional Consolidation Reporting Issues

P10-20 (continued)
b.

Consolidated statement of cash flows for 20...
Chapter 10 - Additional Consolidation Reporting Issues

P10-21 Consolidated Statement of Cash Flows
Weatherbee Company and...
Chapter 10 - Additional Consolidation Reporting Issues

P10-22 Consolidated Statement of Cash Flows — Direct Method
Weathe...
Chapter 10 - Additional Consolidation Reporting Issues

P10-23 Consolidated Statement of Cash Flows [AICPA Adapted]
Brimer...
Chapter 10 - Additional Consolidation Reporting Issues

P10-23 (continued)
Explanations of Amounts:
[1]

Depreciation:
Acc...
Chapter 10 - Additional Consolidation Reporting Issues

P10-24 Statement of Cash Flows Prepared from Consolidation Workpap...
Chapter 10 - Additional Consolidation Reporting Issues

P10-24 (continued)
b.

Consolidated cash flow statement for 20X3:
...
Chapter 10 - Additional Consolidation Reporting Issues

P10-25 Midyear Purchase of Controlling Interest
a.

Equity-method ...
Chapter 10 - Additional Consolidation Reporting Issues

P10-25 (continued)
b.

Eliminating entries, December 31, 20X1:
E(1...
Chapter 10 - Additional Consolidation Reporting Issues

P10-26 Consolidation Involving a Midyear Purchase
a.

Journal entr...
Chapter 10 - Additional Consolidation Reporting Issues

P10-26 (continued)
Famous Products Corporation and Sanford Company...
Chapter 10 - Additional Consolidation Reporting Issues

P10-27 Tax Allocation in Consolidated Balance Sheet
a.

Acme Powde...
Chapter 10 - Additional Consolidation Reporting Issues

P10-27 (continued)
E(2)

E(3)

E(4)

Deferred Tax Asset
Retained E...
Chapter 10 - Additional Consolidation Reporting Issues

P10-27 (continued)
b.

Acme Powder Corporation and Subsidiary
Cons...
Chapter 10 - Additional Consolidation Reporting Issues

P10-28 Computations Involving Tax Allocation
a.

Basic equity-meth...
Chapter 10 - Additional Consolidation Reporting Issues

P10-29 Workpaper Involving Tax Allocation
a.

Eliminating entries:...
Chapter 10 - Additional Consolidation Reporting Issues

P10-29 (continued)
b.

Hardtack Bread Company and Custom Pizza Cor...
Chapter 10 - Additional Consolidation Reporting Issues

P10-29 (continued)

Item
Cash
Accounts Receivable
Inventory
Land
B...
Chapter 10 - Additional Consolidation Reporting Issues

P10-30 Earnings per Share with Convertible Securities
Basic earnin...
Chapter 10 - Additional Consolidation Reporting Issues

P10-31 Comprehensive Earnings per Share
Basic earnings per share
M...
Upcoming SlideShare
Loading in...5
×

solusi manual advanced acc zy Chap010

1,749

Published on

Published in: Technology, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
1,749
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
108
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Transcript of "solusi manual advanced acc zy Chap010"

  1. 1. Chapter 10 - Additional Consolidation Reporting Issues CHAPTER 10 ADDITIONAL CONSOLIDATION REPORTING ISSUES ANSWERS TO QUESTIONS Q10-1 The balance sheet, income statement, and statement of changes in retained earnings are an integrated set and generally need to be completed as a unit. Once completed, these statements can then be used in preparing a consolidated cash flow statement. Because both the beginning and ending consolidated balance sheet totals are needed in determining cash flows for the period, the cash flow statement cannot be easily incorporated into the existing three-part workpaper format. Q10-2 Consolidated retained earnings do not include the earnings assigned to noncontrolling shareholders. As a result, dividends paid to noncontrolling shareholders are not included in the consolidated retained earnings statement. On the other hand, all the cash generated by the subsidiary is included in the consolidated cash flow statement and all uses of cash must also be included, including that distributed to noncontrolling shareholders in the form of dividends. Q10-3 The indirect method focuses on reconciling between net income and cash flows from operations and does not attempt to report payments to suppliers or other specific uses of cash. It does report the change in inventory and accounts payable which are included in determining payments to suppliers. While adjusting net income for changes in inventory and accounts payable leads to a correct reporting of cash flows from operations, it does not permit explicit reporting of payments to suppliers. Q10-4 Changes in inventory balances are used in computing the amount reported as payments to suppliers and do not need to be separately reported. Q10-5 Sales must be included in the consolidated cash flows workpaper when the direct method is used. They are excluded from the workpaper when the indirect method is used. Q10-6 (a) When the indirect method is used the changes in inventory are reported as a reconciling item in the statement of cash flows. (b) When the direct method is used, changes in inventory are included in the computation of payments to suppliers and not separately disclosed. Q10-7 Only sales subsequent to the date of acquisition are included. The acquired company was not part of the consolidated entity prior to the date of acquisition. Q10-8 Dividends paid by the acquired company to the noncontrolling shareholders following the date of acquisition are included as a cash outflow in the consolidated statement of cash flows. Dividends paid by the acquired company prior to acquisition are excluded. The acquired company was not part of the consolidated entity. 10-1
  2. 2. Chapter 10 - Additional Consolidation Reporting Issues Q10-9 The revenues and expenses of the subsidiary for the full year are included in the consolidated income statement when the acquisition occurs at the beginning of the year. When a mid-year acquisition occurs, the revenues and expenses of the acquired company prior to the date of acquisition were not transactions of the consolidated entity. The eliminating entries at the end of the year must be expanded to eliminate those amounts. In addition, the eliminating entry used to assign income to the noncontrolling interest and eliminate dividends paid to the noncontrolling shareholders will be modified to include only the income earned and dividends declared for that portion of the year in which ownership was held by the parent. Q10-10 An accurate measure of the overall profit contribution from each segment of business operations is often considered desirable in evaluating past operations and in planning future strategy. In some cases the tax impact of operating a particular division is very different from one or more other divisions, and that difference should be recognized in evaluating the segment. Even when such differences do not exist, better knowledge of the approximate after tax return from a particular subsidiary can be very helpful in assessing future investment and operating strategies. Q10-11 When a consolidated tax return is filed, all intercorporate transfers are eliminated in computing taxable income and there should be no need to adjust recorded tax expense in preparing consolidated financial statements for the period. When the companies do not file a consolidated return, tax payments and expense accruals recorded by the individual companies presumably will include gains and losses on intercompany transfers. If an unrealized gain or loss is eliminated in consolidation, the amount reported as tax expense also should be adjusted to reflect only the tax expense on those items included in the consolidated income statement. Q10-12 Assuming an unrealized profit has been reported, an additional elimination entry is needed to reduce tax expense and establish a deferred tax asset in the amount of the excess payment. If a loss is eliminated, additional tax expense and taxes payable must be established in the elimination process. Q10-13 When one of the companies in the consolidated entity has recorded tax expense on unrealized profit in a preceding period, its retained earnings balance at the start of the period will be overstated by the amount of unrealized profit less the tax expense recorded thereon. In the period in which the item is sold and the profit is considered realized, the eliminating entries must include a debit to beginning retained earnings for the amount of the net overstatement and a debit to tax expense for the proper amount of expense to be recognized. Q10-14 When taxes are not considered, income assigned to noncontrolling shareholders is reduced by a proportionate share of the unrealized profit. When taxes are considered, the reduction is based on a proportionate share of the after tax balance of unrealized profits. Q10-15 Perhaps the most important reason is that the earnings per share data reported by the separate companies may include unrealized profits that must be eliminated in computing the consolidated totals. Even without unrealized profits, simple addition could not be used when the companies do not have an equal number of shares outstanding or when the parent does not hold all the common or preferred shares of the subsidiary. Q10-16 The full amount of dividends paid to unaffiliated preferred shareholders of the parent are deducted from consolidated net income in arriving at consolidated earnings per share. Preferred dividends paid by the subsidiary to noncontrolling shareholders and income 10-2
  3. 3. Chapter 10 - Additional Consolidation Reporting Issues assigned to noncontrolling common shareholders are deducted from consolidated revenue and expenses in computing consolidated net income and earnings per share. Subsidiary preferred dividends paid to the parent or other affiliates must be eliminated and are not deducted in computing consolidated earnings per share. Q10-17 A subsidiary's contribution to consolidated earnings per share may be different from its contribution to consolidated net income if the subsidiary has convertible bonds or preferred stock outstanding that are treated as if they had been converted, or if the treasury stock method is used to include the dilutive effects of subsidiary stock rights or stock options outstanding. Q10-18 The net of tax interest savings from the assumed conversion of the bond into common stock is included in the numerator and the additional shares are added to the denominator of the earnings per share computation for the subsidiary. In doing so, earnings per share of the subsidiary will be reduced. Moreover, the additional shares added to the denominator will potentially alter the ownership ratio held by the parent; thus, the amount of subsidiary income included in the consolidated earnings per share computation is likely to be reduced. Q10-19 Those rights, warrants, and options treated as stock outstanding in the denominator of the earnings per share computation of the subsidiary will reduce the amount of subsidiary income included in the consolidated earnings per share computation to the extent that the ownership ratio held by the parent is reduced. The actual shares will not be reported as such, because they are assumed to be either eliminated or assigned to the noncontrolling interest. Q10-20 In the earnings per share computation, the amount of income assigned to noncontrolling interest may change as it is assumed that convertible securities are converted or rights, warrants, and options are exercised. Both the amount of subsidiary income included in the numerator and the proportion of parent company ownership may vary, thereby changing the amount of subsidiary income included in the consolidated earnings per share computation. 10-3
  4. 4. Chapter 10 - Additional Consolidation Reporting Issues SOLUTIONS TO CASES C10-1 The Effect of Security Type on Earnings per Share a. Until the securities are converted, the interest expense on bonds and the preferred dividends must both be deducted in determining income available to common shareholders when basic earnings per share is computed. Because interest expense is deductible for tax purposes and preferred dividends are not, the increase in earnings available to common shareholders will be less with conversion of the debentures. The decrease in earnings per share will be greater with conversion of the convertible debentures since the two securities convert into an equal number of common shares. b. Interest expense is deducted in computing net income and preferred dividends are not. Thus, conversion of the bonds will increase net income and conversion of the preferred stock will have no effect on the reported net income of Stage Corporation. If Stage Corporation is a parent company, consolidated net income will increase by the full amount of the interest saving (net of tax) if the bonds are converted. In the event Stage Corporation is a subsidiary of another company, consolidated net income again will increase if the bonds are converted, but the amount of the increase depends on the percentage ownership of Stage by the parent. Conversion of the preferred stock will increase consolidated net income because it increases Stage’s income available to common shareholders, of which the parent is one. The increase will be greater than the effect of the bond conversion because the preferred dividends have no tax effect, but the amount of the increase will depend on the parent’s percentage ownership. c. If the preferred shares are those of a parent company, they will be excluded entirely if (1) all the shares are owned by its subsidiaries, or (2) the preferred shares are noncumulative and have had no dividends declared during the period. If the shares are those of a subsidiary, the preferred shares will have an effect on basic earnings per share unless (1) the parent or other affiliates own all the common and preferred shares outstanding, or (2) the preferred shares are noncumulative and have had no dividends declared during the period. d. Interest expense will be deducted in computing Stage's net income. The preferred dividends will then be deducted from net income in computing Stage's income available to common shareholders. Assuming both securities are dilutive, interest expense (net of tax) will be added back to Stage's net income, no preferred dividends will be deducted, and the increased number of shares from the conversion of both securities will be added to the denominator in computing Stage’s diluted earnings per share. These earnings per share amounts will then be used by Prop Company in determining the income from the subsidiary to be included in its consolidated earnings per share computations. 10-4
  5. 5. Chapter 10 - Additional Consolidation Reporting Issues C10-2 Evaluating Consolidated Statements MEMO To: From: Re: Treasurer Cowl Corporation , Accounting Staff Disclosure of Transfer of Cash from Subsidiary to Parent The following comments are provided in response to your concern with respect to the transfer of cash from Plum Corporation to the parent company. Intercompany borrowings often offer an opportunity for one company to borrow money from an affiliate at rates favorable to both parties. As a result, transfers of cash between affiliates are very common. These transactions are eliminated in preparing the consolidated statements and the financial statement reader will be unaware of them unless supplemental disclosures are made. In general, the FASB does not require separate disclosure of transactions between consolidated entities when they are eliminated in the preparation of consolidated or combined financial statements. [FASB 57, Par. 2] Nevertheless, the fact that Cowl Company is unable to generate sufficient cash from its separate operations to pay its bills appears to be of sufficient importance that disclosure would be appropriate in both the Management Discussion and Analysis (MD&A) section of Cowl’s annual report and in the notes to the financial statements. The SEC establishes the disclosure requirements for MD&A and requires discussion of currently known trends, demands, commitments, events, or uncertainties that are reasonably expected to have material effects on the registrant’s financial condition or results of operations, or that would cause reported financial information not to be necessarily indicative of future operating results or financial condition. [SEC Regulation S-K, Item 303] The SEC also requires discussion of both short- and long-term liquidity and capital resources. [SEC Financial Reporting Release 36] 10-5
  6. 6. Chapter 10 - Additional Consolidation Reporting Issues C10-2 (continued) FASB Statement No. 95, “Statement of Cash Flows,” does not specify those situations in which a discussion of operating cash flows must be included in the notes to the financial statements. However, if the negative cash flow from Cowl Company’s operations significantly affects the operating cash flows of the consolidated entity, one or more notes to the financial statements should be used to provide information to the financial statement readers. One possible form for doing so would be to include supplemental cash flow information if the operations of the parent are identified as a separate reportable segment [FASB 131, Par. 16]. Primary citations: FASB 57, Par. 2 SEC Regulation S-K, Item 303 Secondary citations: FASB 95 FASB 131, Par. 131 10-6
  7. 7. Chapter 10 - Additional Consolidation Reporting Issues C10-3 Income Tax Expense a. When prior-period intercompany profits are realized through resale to a nonaffiliate in the current period, tax expense reported by the consolidated entity will be greater than actual tax payments made by the separate companies. b. Two reporting procedures are usually discussed in dealing with income tax allocation for consolidated entities. One procedure is to report the additional amount paid as a deferred tax asset or as prepaid income tax in the consolidated balance sheet. An alternate approach is to net the overpayment for unrealized profits against deferred income taxes payable. c. Whenever separate tax returns are filed and unrealized profits are recorded on intercompany transfers of land, buildings and equipment, or other assets, income tax expense reported in the consolidated income statement in the period of the intercompany transfer will be less than tax payments made. A similar effect occurs when one affiliate purchases the bonds of another affiliate and a constructive loss on bond retirement is reported in the consolidated income statement. d. When unrealized profits from a prior period are realized in the current period, income tax expense recognized in the current period will be greater than the actual tax payment made. Also, when unrealized losses are recorded on intercompany transfers, tax expense reported in the consolidated income statement in the period of the transfer will be greater than the actual tax payment. A constructive gain on bond retirement on a purchase of an affiliate's bonds will also result in an excess of consolidated tax expense over tax payments. 10-7
  8. 8. Chapter 10 - Additional Consolidation Reporting Issues C10-4 Consolidated Cash Flows a. The factors contributing to the increase in net income over the prior period are key in this case. One possible explanation is that operating earnings of the combined companies actually declined and the increase in net income resulted from a substantial gain on sale of a division or other assets in the current period. Another possibility would be a decrease in noncash charges deducted in computing income. Cash generated by operations often is well above operating earnings as a result of charges such as amortization of intangible assets or depreciation. A decrease in these charges will increase net income but not change cash flows Changes in the net amounts invested in receivables, inventories, and other current assets are included in the computation of cash flows from operations. Increases in these balances can substantially reduce the reported cash flows from operations without affecting net income. b. Both sales and the balance in accounts receivable should increase when less stringent criteria are used in extending credit. Similarly, both should decrease when credit terms are tightened. If the companies have relaxed credit standards during the current period, net income may be greater as a result of increased sales; however, cash flows are likely to increase to a lesser degree as accounts receivable increase. c. An inventory write-down under lower of cost or market and other noncash charges will not reduce cash flows from operations. The amount expensed would be added back to consolidated net income in arriving at cash generated by operating activities. d. Assuming an allowance account is used, this particular write-off will not appear in either the income statement or computation of cash flows from operations. There is no charge in the income statement and no change in the net receivable balance as a result of a simple write-off of an account receivable. e. There are no significant differences between the preparation of a statement of cash flows for a consolidated entity and a single corporate entity. However, for the consolidated entity, dividend payments to the subsidiary’s noncontrolling interest must be included in the financing section because they use cash even though they are not viewed as dividends of the consolidated entity. 10-8
  9. 9. Chapter 10 - Additional Consolidation Reporting Issues SOLUTIONS TO EXERCISES E10-1 Analysis of Cash Flows a. The consolidated cash balance at January 1, 20X2, was $83,000, computed as follows: Balance at December 31, 20X2 Decrease in cash balance during 20X2: Cash flows from operations Cash outflow for investment activities Cash outflow for financing activities Net cash outflow Cash balance at January 1, 20X2 b. $ 57,000 $284,000 (80,000) (230,000) Dividends of $48,000 were reported: Dividends paid to Lamb shareholders Dividends paid to noncontrolling interest of Mint Company ($10,000 x .30) Total cash payments c. 26,000 $83,000 $45,000 3,000 $48,000 Consolidated net income was $207,000, computed as follows: Cash flow from operations Adjustments to reconcile consolidated net income and cash provided by operations Consolidated net income 10-9 $284,000 (77,000) $207,000
  10. 10. Chapter 10 - Additional Consolidation Reporting Issues E10-2 Statement of Cash Flows a. The noncontrolling interest received dividends of $6,000 ($15,000 x .40). b. A total of $320,000 will be reported as cash provided by operations, computed as follows: Consolidated net income Depreciation expense Amortization of patents Gain on bond retirement Loss on sale of land Decrease in accounts receivable Increase in inventory Decrease in accounts payable Increase in wages payable Total c. $271,000 21,000 13,000 (4,000) 8,000 32,000 (16,000) (12,000) 7,000 $320,000 Cash used in investing activities will be reported at $161,000, computed as follows: Purchases of equipment Sale of land Total d. $(295,000) 134,000 $(161,000) Cash used in financing activities will be reported at $81,000, computed as follows: Sale of stock Bond retirement Dividends paid to Becon Corporation shareholders Dividends paid to noncontrolling interests Total e. $150,000 (200,000) (25,000) (6,000) $ (81,000) The cash balance increased by $78,000 ($320,000 - $161,000 - $81,000) in 20X4. E10-3 Computation of Operating Cash Flows Cash received from customers was $293,000 ($310,000 - $17,000). Cash payments to suppliers was $193,000 ($180,000 - $8,000 + $21,000), resulting in cash flows from operations of $100,000 ($293,000 - $193,000). 10-10
  11. 11. Chapter 10 - Additional Consolidation Reporting Issues E10-4 Consolidated Operating Cash Flows a. Cash received from customers was $482,000 ($300,000 + $200,000 - $28,000 + $10,000). b. Cash payments to suppliers was $288,000 ($160,000 + $95,000 + $35,000 - $15,000 + 17,000 - $4,000). c. Cash flows from operating activities was $194,000 ($482,000 - $288,000). E10-5 Preparation of Statement of Cash Flows Consolidated Enterprises Inc. and Subsidiary Consolidated Statement of Cash Flows For the Year Ended December 31, 20X3 Cash Flows from Operating Activities: Consolidated Net Income Noncash Expenses, Revenue, and Gains Included in Income: Depreciation Expense Goodwill Impairment Loss Gain on Sale of Equipment Decrease in Accounts Receivable Increase in Accounts Payable Increase in Inventory Net Cash Provided by Operating Activities Cash Flows from Investing Activities: Equipment Purchased Sale of Equipment Net Cash Used in Investing Activities $ 464,000 73,000 3,000 (8,000) 23,000 5,000 (15,000) $(380,000) 45,000 Cash Flows from Financing Activities: Sale of Bonds Repurchase of Common Stock Dividends Paid: To Parent Company Shareholders To Noncontrolling Shareholders Net Cash Provided by Financing Activities Net Increase in Cash $545,000 (335,000) $ 120,000 (35,000) (60,000) (6,000) 19,000 $229,000 10-11
  12. 12. Chapter 10 - Additional Consolidation Reporting Issues E10-6 Direct Method Cash Flow Statement Consolidated Enterprises Inc. and Subsidiary Consolidated Statement of Cash Flows For the Year Ended December 31, 20X3 Cash Flows from Operating Activities: Cash Received from Customers Cash Payments to Suppliers Net Cash Provided by Operating Activities Cash Flows from Investing Activities: Equipment Purchased Sale of Equipment Net Cash Used in Investing Activities $ 923,000 (a) (378,000) (b) $ 545,000 $(380,000) 45,000 Cash Flows from Financing Activities: Sale of Bonds Repurchase of Common Stock Dividends Paid: To Parent Company Shareholders To Noncontrolling Shareholders Net Cash Provided by Financing Activities (335,000) $120,000 (35,000) (60,000) (6,000) Net Increase in Cash 19,000 $ 229,000 (a) $923,000 = $900,000 + $23,000 (b) $378,000 = $368,000 - $5,000 + $15,000 The FASB also requires the following reconciliation when the statement of cash flows is prepared using the direct method: Reconciliation of consolidated net income to net cash provided by operating activities Consolidated Net Income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Expense Goodwill Impairment Loss Gain on Sale of Equipment Decrease in Accounts Receivable Increase in Inventory Increase in Accounts Payable Total Adjustments Net Cash Provided by Operating Activities 10-12 $464,000 $73,000 3,000 (8,000) 23,000 (15,000) 5,000 81,000 $545,000
  13. 13. Chapter 10 - Additional Consolidation Reporting Issues E10-7 Analysis of Consolidated Cash Flow Statement a. Dividends paid to noncontrolling interest Proportion of stock held by noncontrolling interest Total dividends paid by Jones Delivery b. When bonds are sold at a premium the annual cash payment is greater than reported interest expense. The amount of premium amortized must therefore be deducted from net income in determining the cash flow from operations. c. An increase in accounts receivable means that cash collections have been less than sales for the period. The amount of the increase must be deducted from operating income to determine the amount of cash actually made available from current period operations. d. Dividends paid to noncontrolling shareholders are reported as a cash outflow in the cash flow statement because they represent funds that have been distributed during the period and are no longer available to the consolidated entity. On the other hand, these same dividends are omitted from the retained earnings statement. Only the income to the parent company shareholders is included in the consolidated retained earnings statement and only dividends to the parent company shareholders are deducted in deriving the ending consolidated retained earnings balance. e. The loss occurred on a sale to a nonaffiliate. All profits and losses on sales to affiliates are eliminated in the period of intercorporate sale and are considered realized as the equipment is depreciated by the purchasing affiliate. 10-13 $ 6,000 ÷ .40 $15,000
  14. 14. Chapter 10 - Additional Consolidation Reporting Issues E10-8 Midyear Acquisition a. The retained earnings balance reported for the consolidated entity as of January 1, 20X1, would be $400,000. b. Separate earnings of Yarn Manufacturing Net income reported by Spencer Corporation Portion of year ownership was held by Yarn Income earned following acquisition Consolidated net income Income to noncontrolling interest ($20,000 x .05) Income to controlling interest $60,000 x 4/12 $140,000 20,000 $160,000 (1,000) $159,000 c. Consolidated retained earnings, January 1, 20X1 Income to controlling interest Dividends paid by Yarn Manufacturing Consolidated retained earnings, December 31, 20X1 $400,000 159,000 (80,000) $479,000 d. Purchase price on August 30, 20X1 Equity method income Dividends received from Spencer ($25,000 x .95) Balance in investment account December 31, 20X1 $503,500 19,000 (23,750) $498,750 10-14
  15. 15. Chapter 10 - Additional Consolidation Reporting Issues E10-9 Purchase of Shares at Midyear a. Journal entries recorded by Highbeam in 20X2: (1) (2) Cash Investment in Copper Company Stock Record dividends from Copper Company. 13,500 (3) b. Investment in Copper Company Stock Cash Record purchase of Copper Company Stock. 319,500 Investment in Copper Company Stock Income from Subsidiary Record equity-method income. 27,000 319,500 13,500 27,000 Eliminating Entries: E(1) Income from Subsidiary Dividends Declared Investment in Copper Company Stock Eliminate income from subsidiary. 27,000 E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $3,000 = $30,000 x .10 $1,500 = $15,000 x .10 3,000 E(3) Common Stock — Copper Company Additional Paid-In Capital Retained Earnings, January 1 Sales Total Expenses Dividends Declared Investment in Copper Company Stock Noncontrolling Interest Eliminate beginning investment balance. 160,000 40,000 150,000 90,000 10-15 13,500 13,500 1,500 1,500 80,000 5,000 319,500 35,500
  16. 16. Chapter 10 - Additional Consolidation Reporting Issues E10-10 Tax Deferral on Gains and Losses Eliminating entries, December 31, 20X7: E(1) Sales Cost of Goods Sold Inventory Eliminate downstream inventory sale: $20,000 = ($90,000 - $60,000) x 2/3 E(2) Deferred Tax Asset Income Tax Expense Eliminate tax expense on unrealized intercompany profit on inventory transfer. E(3) Gain on Sale of Land Land Eliminate upstream gain on sale of land. E(4) Deferred Tax Asset Income Tax Expense Eliminate tax expense on unrealized intercompany profit on land transfer. 90,000 8,000 100,000 40,000 70,000 20,000 8,000 100,000 40,000 E10-11 Unrealized Profits in Prior Year Eliminating entries, December 31, 20X8: E(1) E(2) Retained Earnings, January 1 Income Tax Expense Cost of Goods Sold Eliminate beginning inventory profit. 12,000 8,000 Deferred Tax Asset Retained Earnings, January 1 Noncontrolling Interest Land Eliminate unrealized gain on sale of land. 40,000 45,000 15,000 10-16 20,000 100,000
  17. 17. Chapter 10 - Additional Consolidation Reporting Issues E10-12 Allocation of Income Tax Expense a. Allocation of tax expense incurred in 20X5: Item Winter Corporation Ray Guard Corporation Block Company $100,000 40,000 $50,000 $30,000 20,000 (10,000) $130,000 (20,000) $30,000 (10,000) $40,000 Reported operating income 20X4 profits realized in 20X5 Unrealized profits in 20X5 sales Realized income before tax Income tax assigned: ($130,000 / $200,000) x $80,000 ($30,000 / $200,000) x $80,000 ($40,000 / $200,000) x $80,000 b. $ 52,000 $12,000 $16,000 Computation of consolidated net income and income to controlling interest: Realized income before tax: Winter Corporation Ray Guard Corporation Block Company Consolidated income before tax Income tax expense Consolidated net income Income to noncontrolling interests: Ray Guard Corporation ($30,000 - $12,000) x .20 Block Company ($40,000 - $16,000) x .10 Income to controlling interest 10-17 $130,000 30,000 40,000 $200,000 (80,000) $120,000 $ 3,600 2,400 (6,000) $114,000
  18. 18. Chapter 10 - Additional Consolidation Reporting Issues E10-13 Effect of Preferred Stock on Earnings per Share Because both companies paid preferred dividends in 20X1 and neither issue is convertible, only one basic consolidated earnings per share number will be reported for 20X1: Operating income of Amber Corporation Net income of Newtop Company Less: Preferred dividends Earnings available to Newtop common shareholders Consolidated net income Less: Income to noncontrolling interest ($40,000 x .30) Income to common shareholders of Amber Corporation Less: Preferred dividends of Amber Corporation Earnings available to common shareholders Consolidated earnings per share for 20X1 ($78,000 / 12,000 shares) $45,000 (5,000) $ 59,000 40,000 $99,000 (12,000) $87,000 (9,000) $78,000 $6.50 E10-14 Effect of Convertible Bonds on Earnings per Share Basic earnings per share: Operating income of Crystal Corporation Contribution to consolidated EPS from Evans Company ($30,000 / 10,000) x 6,000 shares Earnings available to common shareholders Consolidated earnings per share for 20X2 ($63,000 / 30,000 shares) $45,000 18,000 $63,000 $2.10 Diluted earnings per share: Operating income of Crystal Corporation Contribution to consolidated EPS from Evans Company: $30,000 + $12,000 (a) x 6,000 shares 10,000 shares + 10,000 shares Earnings available to common shareholders Consolidated earnings per share for 20X2 ($57,600 / 30,000 shares) (a) $12,000 = ($200,000 x .10) x (1 - .40) 10-18 $45,000 12,600 $57,600 $1.92
  19. 19. Chapter 10 - Additional Consolidation Reporting Issues E10-15 Effect of Convertible Preferred Stock on Earnings per Share Basic earnings per share: Operating income of Eagle Corporation Contribution to consolidated EPS from Standard Company: $45,000 - $12,000 10,000 shares $60,000 x 8,000 shares 26,400 Earnings available to shareholders Preferred dividends of Eagle Corporation Earnings available to common shareholders Consolidated earnings per share for 20X1 ($70,400 / 10,000 shares) $86,400 (16,000) $70,400 $7.04 Diluted earnings per share: Operating income of Eagle Corporation Contribution to consolidated EPS from Standard Company: $45,000 x 8,000 shares 10,000 shares + 15,000 shares Earnings available to shareholders Preferred dividends of Eagle Corporation Earnings available to common shareholders Consolidated earnings per share for 20X1 ($58,400 / 10,000 shares) 10-19 $60,000 14,400 $74,400 (16,000) $58,400 $5.84
  20. 20. Chapter 10 - Additional Consolidation Reporting Issues SOLUTIONS TO PROBLEMS P10-16 Direct Method Computation of Cash Flows Car Corporation and Subsidiary Operating Cash Flows For the Year Ended December 31, 20X1 Cash Flows from Operating Activities: Cash Received from Customers Cash Payments to Suppliers Net Cash Provided by Operating Activities $533,000 (268,000) $265,000 Computation of payments received from customers Sales of Car Corporation Sales to outside parties by Bus Company ($240,000 - $100,000) Increase in Car Corporation accounts receivable Decrease in Bus Company’s accounts receivable Payments received from customers $400,000 140,000 (9,000) 2,000 $533,000 Computation of payments to suppliers Cost of goods sold by Car Corporation excluding sale of inventory purchased from Bus Company ($235,000 - $40,000) Cost of goods sold on sales by Bus Company to outside parties ($105,000 - $70,000) Cost of goods sold on intercompany sales resold in period ($70,000 x .40) Decrease in Car Corporation inventory Increase in Bus Company inventory Decrease in accounts payable of Car Corporation Increase in accounts payable of Bus Company Payment made to suppliers 10-20 $195,000 35,000 28,000 (22,000) 16,000 31,000 (15,000) $268,000
  21. 21. Chapter 10 - Additional Consolidation Reporting Issues P10-17 Preparing a Statement of Cash Flows a. Metal Corporation and Ocean Company Consolidated Cash Flow Workpaper Year Ended December 31, 20X3 Item Balance 1/1/X3 Cash Accounts Receivable Inventory Land Buildings and Equipment Patents 68,500 82,000 115,000 45,000 515,000 5,000 830,500 Accumulated Depreciation Accounts Payable Wages Payable Notes Payable Common Stock Retained Earnings Noncontrolling Interest 186,500 61,000 26,000 250,000 150,000 130,000 27,000 830,500 Cash Flows from Operating Activities: Consolidated Net Income Depreciation Expense Amortization of Patent Increase in Accounts Receivable Increase in Inventory Increase in Accounts Payable Decrease in Wages Payable Debit (a) (b) (c) (d) (e) (i) 32,000 15,000 8,000 10,000 35,000 6,000 (k) 30,000 (m) 5,000 141,000 (l) 83,500 (g) 36,500 (f) 1,000 (h) 5,000 Cash Flows from Investing Activities: Purchase of Land Purchase of Buildings and Equipment Credit (f) 1,000 (g) 36,500 (h) 5,000 (j) 15,000 (l) 74,500 (l) 9,000 141,000 (b) 15,000 (c) 8,000 (i) 6,000 (d) 10,000 (e) 35,000 Cash Flows from Financing Activities: Increase in Notes Payable Dividends Paid: To Metal Corporation Shareholders To Ocean Company Shareholders Increase in Cash (j) 15,000 141,000 10-21 (k) 30,000 (m) 5,000 (a) 32,000 141,000 Balance 12/31/X3 100,500 97,000 123,000 55,000 550,000 4,000 929,500 223,000 66,000 20,000 265,000 150,000 174,500 31,000 929,500
  22. 22. Chapter 10 - Additional Consolidation Reporting Issues P10-17 (continued) b. Consolidated statement of cash flows for 20X3 Metal Corporation and Subsidiary Consolidated Statement of Cash Flows Year Ended December 31, 20X3 Cash Flows from Operating Activities Consolidated Net Income Noncash Expenses, Revenue, Losses, and Gains Included in Income: Depreciation Expense Amortization Expense Increase in Accounts Receivable Increase in Inventory Increase in Accounts Payable Decrease in Wages Payable Net Cash Provided by Operating Activities $ 83,500 36,500 1,000 (15,000) (8,000) 5,000 (6,000) Cash Flows from Investing Activities: Purchase of Land Purchase of Buildings and Equipment Net Cash Used in Investing Activities $(10,000) (35,000) Cash Flows from Financing Activities: Increase in Notes Payable Dividends Paid to Parent Company Shareholders Dividends Paid to Noncontrolling Shareholders Net Cash Used in Financing Activities $ 15,000 (30,000) ( 5,000) Net Increase in Cash Cash at Beginning of Year Cash at End of Year $97,000 (45,000) (20,000) $ 32,000 68,500 $100,500 10-22
  23. 23. Chapter 10 - Additional Consolidation Reporting Issues P10-18 Preparing a Statement of Cash Flows – Direct Method a. Metal Corporation and Ocean Company Consolidated Cash Flow Workpaper Year Ended December 31, 20X3 Item Balance 1/1/X3 Cash Accounts Receivable Inventory Land Buildings and Equipment Patents 68,500 82,000 115,000 45,000 515,000 5,000 830,500 Accumulated Depreciation Accounts Payable Wages Payable Notes Payable Common Stock Retained Earnings Noncontrolling Interest 186,500 61,000 26,000 250,000 150,000 130,000 27,000 830,500 Sales Cost of Goods Sold Wage Expense Depreciation Expense Interest Expense Amortization Expense Other Expenses 490,000 259,000 55,000 36,500 16,000 1,000 39,000 406,500 83,500 Consolidated Net Income 10-23 Debit (a) (b) (c) (d) (e) 32,000 15,000 8,000 10,000 35,000 (h) 6,000 (k) 30,000 (m) 5,000 141,000 (c)259,000 (h) 55,000 (g) 36,500 (i) 16,000 (f) 1,000 (c) 39,000 (l) 83,500 490,000 Credit (f) 1,000 (g) 36,500 (c) 5,000 (j) 15,000 (l) 74,500 (l) 9,000 141,000 (b)490,000 490,000 Balance 12/31/X3 100,500 97,000 123,000 55,000 550,000 4,000 929,500 223,000 66,000 20,000 265,000 150,000 174,500 31,000 929,000
  24. 24. Chapter 10 - Additional Consolidation Reporting Issues P10-18 (continued) Cash Flows from Operating Activities: Cash Received from Customers Cash Paid to Suppliers Cash Paid to Employees Cash Paid for Interest on Notes Payable (b) 475,000 Cash Flows from Investing Activities: Purchase of Land Purchase of Buildings and Equipment (d) 10,000 (e) 35,000 Cash Flows from Financing Activities: Increase in Notes Payable Dividends Paid: To Metal Corporation Shareholders To Ocean Company Shareholders Increase in Cash b. (c)301,000 (h) 61,000 (i) 16,000 (j) 15,000 490,000 (k) 30,000 (m) 5,000 (a) 32,000 490,000 Consolidated statement of cash flows for 20X3 Metal Corporation and Subsidiary Consolidated Statement of Cash Flows Year Ended December 31, 20X3 Cash Flows from Operating Activities: Cash Received from Customers Cash Paid to Suppliers Cash Paid to Employees Cash Paid for Interest on Notes Payable Net Cash Provided by Operating Activities Cash Flows from Investing Activities: Purchase of Land Purchase of Buildings and Equipment Net Cash Used in Investing Activities Cash Flows from Financing Activities: Increase in Notes Payable Dividends Paid to Parent Company Shareholders Dividends Paid to Noncontrolling Shareholders Net Cash Used in Financing Activities Net Increase in Cash Cash at Beginning of Year Cash at End of Year $301,000 61,000 16,000 $(10,000) (35,000) $15,000 (30,000) ( 5,000) $475,000 (378,000) $ 97,000 (45,000) (20,000) $ 32,000 68,500 $100,500 10-24
  25. 25. Chapter 10 - Additional Consolidation Reporting Issues P10-18 (continued) The FASB also requires the following reconciliation when the statement of cash flows is prepared using the direct method: Reconciliation of consolidated net income to net cash provided by operating activities Consolidated Net Income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Expense Amortization Expense Increase in Accounts Receivable Increase in Inventory Increase in Accounts Payable Decrease in Wages Payable Total Adjustments Net Cash Provided by Operating Activities 10-25 $83,500 $36,500 1,000 (15,000) (8,000) 5,000 (6,000) 13,500 $97,000
  26. 26. Chapter 10 - Additional Consolidation Reporting Issues P10-19 Consolidated Statement of Cash Flows a. Traper Company and Arrow Company Consolidation Cash Flow Workpaper Year Ended December 31, 20X4 Balance 1/1/X4 Item Cash Accounts Receivable Inventory Land Buildings and Equipment Goodwill 83,000 210,000 320,000 190,000 850,000 40,000 1,693,000 Accum. Depreciation Accounts Payable Interest Payable Bonds Payable Bond Premium Common Stock Additional Paid-In Capital Retained Earnings Noncontrolling Interest 280,000 52,000 45,000 400,000 18,000 300,000 70,000 488,000 40,000 1,693,000 Cash Flows from Operating Activities: Consolidated Net Income Depreciation Expense Goodwill Impairment Loss Amortization of Bond Premium Loss on Sale of Land Decrease in Accounts Receivable Increase in Inventory Increase in Accounts Payable Decrease in Interest Payable Debit (a) 98,000 (c) 50,000 (e)130,000 (i) 15,000 (k) 2,000 (l) 25,000 (n) 3,000 323,000 (m) 79,000 (g) 45,000 (f) 12,000 (d) 20,000 (b) 35,000 (h) 22,000 Cash Flows from Investing Activities: Sale of Land Purchase of Buildings and Equipment (d) 10,000 Cash Flows from Financing Activities: Sale of Bonds Dividends Paid: To Traper Shareholders To Noncontrolling Shareholders Increase in Cash Credit (b) 35,000 (d) 30,000 (f) 12,000 (g) 45,000 (h) 22,000 (j) 100,000 (m) 72,000 (m) 7,000 323,000 (k) 2,000 (c) 50,000 (i) 15,000 (e)130,000 (j)100,000 323,000 10-26 (l) 25,000 (n) 3,000 (a) 98,000 323,000 Balance 12/31/X4 181,000 175,000 370,000 160,000 980,000 28,000 1,894,000 325,000 74,000 30,000 500,000 16,000 300,000 70,000 535,000 44,000 1,894,000
  27. 27. Chapter 10 - Additional Consolidation Reporting Issues P10-19 (continued) Explanation of Workpaper Entries: (a) Increase in cash balance (b) Decrease in accounts receivable (c) Increase in inventory (d) Sale of land (e) Purchase of buildings and equipment (f) Goodwill impairment loss recognized in 20X4 (g) Depreciation charges for 20X4 (h) Increase in accounts payable (i) Decrease in interest payable (j) Sale of bonds (k) Amortize bond premium (l) Traper Company dividend $25,000 (m ) Consolidated net income $79,000 (n) Arrow Company dividend $15,000 x .20 10-27
  28. 28. Chapter 10 - Additional Consolidation Reporting Issues P10-19 (continued) b. Consolidated statement of cash flows for 20X4: Traper Company and Subsidiary Consolidated Statement of Cash Flows For Year Ended December 31, 20X4 Cash Flows from Operating Activities: Consolidated Net Income Noncash Expenses, Revenue, Losses, and Gains Included in Income: Depreciation Expense Goodwill Impairment Loss Amortization of Bond Premium Loss on Sale of Land Decrease in Accounts Receivable Increase in Inventory Increase in Accounts Payable Decrease in Interest Payable Net Cash Provided by Operating Activities Cash Flows from Investing Activities: Sale of Land Purchase of Buildings and Equipment Net Cash Used in Investing Activities $79,000 45,000 12,000 (2,000) 20,000 35,000 (50,000) 22,000 (15,000) $ 10,000 (130,000) Cash Flows from Financing Activities: Sale of Bonds Dividends Paid: To Parent Company Shareholders To Noncontrolling Shareholders Net Cash Provided by Financing Activities Net Increase in Cash Cash Balance at Beginning of Year Cash Balance at End of Year $146,000 (120,000) $100,000 (25,000) (3,000) 72,000 $ 98,000 83,000 $181,000 10-28
  29. 29. Chapter 10 - Additional Consolidation Reporting Issues P10-20 Consolidated Statement of Cash Flows — Direct Method a. Traper Company and Arrow Company Consolidation Cash Flow Workpaper Year Ended December 31, 20X4 Item Cash Accounts Receivable Inventory Land Buildings and Equipment Goodwill Accum. Depreciation Accounts Payable Interest Payable Bonds Payable Bond Premium Common Stock Additional Paid-In Capital Retained Earnings Noncontrolling Interest Sales Cost of Goods Sold Depreciation Expense Interest Expense Loss on Sale of Land Goodwill Impairment Loss Consolidated Net Income Balance 1/1/X4 83,000 210,000 320,000 190,000 850,000 40,000 1,693,000 280,000 52,000 45,000 400,000 18,000 300,000 70,000 488,000 40,000 1,693,000 600,000 375,000 45,000 69,000 20,000 12,000 521,000 79,000 10-29 Debit (a) 98,000 (c) 50,000 (e)130,000 (h) 15,000 (h) 2,000 (j) 25,000 (l) 3,000 323,000 (c)375,000 (g) 45,000 (h) 69,000 (d) 20,000 (f) 12,000 (k) 79,000 600,000 Credit (b) 35,000 (d) 30,000 (f) 12,000 (g) 45,000 (c) 22,000 Balance 12/31/X4 181,000 175,000 370,000 160,000 980,000 28,000 1,894,000 (i) 100,000 325,000 74,000 30,000 500,000 16,000 300,000 70,000 (k) 72,000 (k) 7,000 323,000 535,000 44,000 1,894,000 (b) 600,000 600,000
  30. 30. Chapter 10 - Additional Consolidation Reporting Issues P10-20 (continued) Cash Flows from Operating Activities: Cash Received from Customers Cash Paid to Suppliers Cash Paid for Interest on Bonds Payable (b)635,000 (h) 86,000 Cash Flows from Investing Activities: Sale of Land Purchase of Buildings and Equipment (d) 10,000 Cash Flows from Financing Activities: Sale of Bonds Dividends Paid: To Traper Shareholders To Noncontrolling Shareholders Increase in Cash 745,000 (a) Increase in cash balance (b) Payments received from customers (c) Payments to suppliers (d) Sale of land (e) Purchase of buildings and equipment Goodwill impairment loss recognized in 20X4 (g) Depreciation charges for 20X4 (h) Payment of interest (i) Sale of bonds (j) Traper Company dividend $25,000 (k) Consolidated net income $79,000 (l) (e)130,000 (i) 100,000 Explanation of Workpaper Entries: (f) (c)403,000 Arrow Company dividend $15,000 x .20 10-30 (j) 25,000 (l) 3,000 (a) 98,000 745,000
  31. 31. Chapter 10 - Additional Consolidation Reporting Issues P10-20 (continued) b. Consolidated statement of cash flows for 20X4: Traper Company and Subsidiary Consolidated Statement of Cash Flows For Year Ended December 31, 20X4 Cash Flows from Operating Activities: Cash Received from Customers Cash Payments to Suppliers Cash Payments of Interest Net Cash Provided by Operating Activities Cash Flows from Investing Activities: Sale of Land Purchase of Buildings and Equipment Net Cash Used in Investing Activities $403,000 86,000 $ 10,000 (130,000) Cash Flows from Financing Activities: Sale of Bonds Dividends Paid: To Parent Company Shareholders To Noncontrolling Shareholders Net Cash Provided by Financing Activities $635,000 (489,000) $146,000 (120,000) $100,000 (25,000) (3,000) Net Increase in Cash Cash Balance at Beginning of Year Cash Balance at End of Year 72,000 $ 98,000 83,000 $181,000 The FASB also requires the following reconciliation when the statement of cash flows is prepared using the direct method: Reconciliation of consolidated net income to net cash provided by operating activities Consolidated Net Income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Expense Goodwill Impairment Loss Amortization of Bond Premium Loss on Sale of Land Decrease in Accounts Receivable Increase in Inventory Increase in Accounts Payable Decrease in Interest Payable Total Adjustments Net Cash Provided by Operating Activities 10-31 $ 79,000 $45,000 12,000 (2,000) 20,000 35,000 (50,000) 22,000 (15,000) 67,000 $146,000
  32. 32. Chapter 10 - Additional Consolidation Reporting Issues P10-21 Consolidated Statement of Cash Flows Weatherbee Company and Sun Corporation Consolidation Cash Flow Workpaper Year Ended December 31, 20X6 Balance 1/1/X6 Item Debit Cash Accounts Receivable Inventory Land Buildings and Equipment 54,000 121,000 230,000 95,000 800,000 1,300,000 (a) 21,000 Accumulated Depreciation Accounts Payable Bonds Payable Common Stock Retained Earnings Noncontrolling Interest 290,000 90,000 300,000 300,000 290,000 30,000 1,300,000 (e)100,000 Cash Flows from Operating Activities: Consolidated Net Income Depreciation Expense Gain on Sale of Equipment Decrease in Accounts Receivable Increase in Inventory Increase in Accounts Payable (c)130,000 (d) 5,000 (h) 50,000 (i) 65,000 (k) 4,000 375,000 (j) 160,000 (f) 40,000 (b) 10,000 (g) 15,000 Cash Flows from Investing Activities: Sale of Buildings and Equipment Purchase of Land (e) 80,000 Cash Flows from Financing Activities: Bond Retirement Dividends Paid: To Weatherbee Company Shareholders To Noncontrolling Shareholders Increase in Cash Credit (b) 10,000 (e)150,000 (f) 40,000 (g) 15,000 (j) 148,000 (j) 12,000 375,000 (e) 30,000 (c)130,000 (d) 5,000 (h) 50,000 305,000 10-32 (i) 65,000 (k) 4,000 (a) 21,000 305,000 Balance 12/31/X6 75,000 111,000 360,000 100,000 650,000 1,296,000 230,000 105,000 250,000 300,000 373,000 38,000 1,296,000
  33. 33. Chapter 10 - Additional Consolidation Reporting Issues P10-22 Consolidated Statement of Cash Flows — Direct Method Weatherbee Company and Sun Corporation Consolidation Cash Flow Workpaper Year Ended December 31, 20X6 Balance 1/1/X6 Item Debit Credit Cash Accounts Receivable Inventory Land Buildings and Equipment 54,000 (a) 21,000 121,000 230,000 (c) 130,000 95,000 (d) 5,000 800,000 1,300,000 Accumulated Depreciation Accounts Payable Bonds Payable Common Stock Retained Earnings Noncontrolling Interest 290,000 (e) 100,000 90,000 300,000 (g) 50,000 300,000 290,000 (h) 65,000 30,000 (j) 4,000 1,300,000 375,000 (f) (c) Sales Gain on Sale of Equipment 1,070,000 (b)1,070,000 30,000 1,100,000 750,000 40,000 150,000 940,000 160,000 (e) Cost of Goods Sold Depreciation Expense Other Expenses Consolidated Net Income 10,000 (e) 150,000 40,000 15,000 (i) 148,000 (i) 12,000 375,000 30,000 (c) 750,000 (f) 40,000 (c) 150,000 (i) 160,000 1,100,000 Cash Flows from Operating Activities: Cash Received from Customers Cash Paid to Suppliers (b)1,080,000 Cash Flows from Investing Activities: Sale of Buildings and Equipment Purchase of Land (e) Cash Flows from Financing Activities: Bond Retirement Dividends Paid To Weatherbee Company Shareholders To Noncontrolling Shareholders Increase in Cash (b) 80,000 1,100,000 (c)1,015,000 10-33 5,000 (g) 1,160,000 (d) 50,000 (h) 65,000 (j) 4,000 (a) 21,000 1,160,000 Balance 12/31/X6 75,000 111,000 360,000 100,000 650,000 1,296,000 230,000 105,000 250,000 300,000 373,000 38,000 1,296,000
  34. 34. Chapter 10 - Additional Consolidation Reporting Issues P10-23 Consolidated Statement of Cash Flows [AICPA Adapted] Brimer, Inc., and Subsidiary Consolidated Statement of Cash Flows For the Year Ended December 31, 20X6 Cash Flows from Operating Activities: Consolidated Net Income Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation Goodwill Impairment Loss Gain on Sale of Equipment Decrease in Allowance to Reduce Marketable Securities to Market Decrease in Accounts Receivable Increase in Inventories Increase in Accounts Payable and Accrued Liabilities Increase in Deferred Income Taxes Total Adjustments Net Cash Provided by Operating Activities Cash Flows from Investing Activities: Purchase of Equipment Sale of Equipment Net Cash Used in Investing Activities $231,000 82,000 [1] 3,000 (6,000) (11,000) 22,000 (70,000) 121,000 12,000 $(127,000) 40,000 Cash Flows from Financing Activities: Payment on Note Payable Sale of Treasury Stock Cash Dividend Paid by Parent Company Cash Dividend Paid to Minority Stockholders of Subsidiary Net Cash Used in Financing Activities 153,000 $384,000 (87,000) $(150,000) 44,000 (58,000) (15,000) [2] Net Increase in Cash Cash at Beginning of Year Cash at End of Year (179,000) $118,000 195,000 $313,000 Supplemental Schedule of Noncash Investing and Financing Activities: Issuance of Common Stock to Purchase Land 10-34 $215,000
  35. 35. Chapter 10 - Additional Consolidation Reporting Issues P10-23 (continued) Explanations of Amounts: [1] Depreciation: Accumulated depreciation, Dec. 31, 20X6 Accumulated depreciation on equipment sold ($62,000 - $34,000) Deduct accumulated depreciation, Dec. 31, 20X5 Depreciation for 20X6 [2] Cash dividends paid to minority stockholders of subsidiary: Cash dividend paid by Dore Corporation Minority ownership Cash dividend paid to minority stockholders in 20X6 10-35 $199,000 28,000 227,000 (145,000) $ 82,000 $ 50,000 x .30 $ 15,000
  36. 36. Chapter 10 - Additional Consolidation Reporting Issues P10-24 Statement of Cash Flows Prepared from Consolidation Workpaper a. Workpaper for consolidated statement of cash flows: Detecto Corporation and Strand Company Consolidation Cash Flow Workpaper Year Ended December 31, 20X3 Item Balance 1/1/X3 Cash Accounts Receivable Inventory Land Buildings and Equipment 92,000 135,000 140,000 75,000 400,000 Patents 30,000 872,000 Accumulated Depreciation Accounts Payable Bonds Payable Common Stock Retained Earnings Noncontrolling Interest 210,000 114,200 90,000 100,000 273,000 84,800 872,000 Cash Flows from Operating Activities: Consolidated Net Income Amortization Expense Depreciation Expense Decrease in Accounts Receivable Increase in Inventory Decrease in Accounts Payable Debit (c) 59,000 (d) 5,000 (e)100,000 (f) 40,000 (i) 19,200 (k) 50,000 (m) 8,000 281,200 (l) 91,000 (g) 5,000 (h) 40,000 (b) 15,000 Cash Flows from Investing Activities: Purchase of Land Acquisition of Buildings and Equipment from Bond Issue Purchase of Buildings and Equipment Cash Flows from Financing Activities: Dividends Paid: To Detecto Corp. Shareholders To Noncontrolling Shareholders Issuance of Bonds for Buildings and Equipment Decrease in Cash Credit (a) 30,200 (b) 15,000 (g) 5,000 (h) 40,000 (j) 100,000 (l) 79,400 (l) 11,600 281,200 (c) 59,000 (i) 19,200 (d) 5,000 (e)100,000 (f) 40,000 (k) 50,000 (m) 8,000 (j) 100,000 (a) 30,200 281,200 10-36 281,200 Balance 12/31/X3 61,800 120,000 199,000 80,000 540,000 25,000 1,025,800 250,000 95,000 190,000 100,000 302,400 88,400 1,025,800
  37. 37. Chapter 10 - Additional Consolidation Reporting Issues P10-24 (continued) b. Consolidated cash flow statement for 20X3: Detecto Corporation and Subsidiary Consolidated Statement of Cash Flows For the Year Ended December 31, 20X3 Cash Flows from Operating Activities: Consolidated Net Income Noncash Expenses, Revenue, Losses and Gains Included in Income: Amortization Expense Depreciation Expense Decrease in Accounts Receivable Increase in Inventory Decrease in Accounts Payable Net Cash Provided by Operating Activities $ 91,000 5,000 40,000 15,000 (59,000) (19,200 ) Cash Flows from Investing Activities: Purchase of Land Purchase of Buildings and Equipment Net Cash Used in Investing Activities $ (5,000) (40,000) Cash Flows from Financing Activities: Dividends Paid: To Parent Company Shareholders To Noncontrolling Shareholders Net Cash Received from Financing Activities $ 72,800 $(50,000) (8,000) (45,000) (58,000) Net Decrease in Cash Cash Balance at Beginning of Year Cash Balance at End of Year $(30,200) 92,000 $ 61,800 Supplemental Schedule of Noncash Investing and Financing Activities: Issuance of Bonds to Purchase Equipment $100,000 10-37
  38. 38. Chapter 10 - Additional Consolidation Reporting Issues P10-25 Midyear Purchase of Controlling Interest a. Equity-method entries recorded by Mega Theaters during 20X1: (1) Investment in Blase Company Common Stock Cash Record purchase of Blase Company stock. (2) Cash Investment in Blase Company Common Stock Record dividends from Blase Company: $30,000 x .85 25,500 Investment in Blase Company Common Stock Income from Blase Company Record equity-method income: ($175,000 - $60,000) x .85 97,750 (3) 10-38 765,000 765,000 25,500 97,750
  39. 39. Chapter 10 - Additional Consolidation Reporting Issues P10-25 (continued) b. Eliminating entries, December 31, 20X1: E(1) E(2) E(3) Income from Blase Company Dividends Declared Investment in Blase Company Common Stock Eliminate income from subsidiary: $25,500 = ($40,000 - $10,000) x .85 97,750 Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $17,250 = ($175,000 - $60,000) x .15 $4,500 = ($40,000 - $10,000) x .15 17,250 25,500 72,250 4,500 12,750 Common Stock Additional Paid-In Capital Retained Earnings, January 1 Sales Differential Operating Expense Dividends Declared Investment in Blase Company Common Stock Noncontrolling Interest Eliminate beginning investment balance, subsidiary stockholders’ equity, and subsidiary preacquisition income and dividends. 100,000 500,000 150,000 240,000 100,000 180,000 10,000 765,000 135,000 Computation of differential Compensation given by Mega Theaters Fair value of noncontrolling interest Total fair value Book value of Blase stock: Common stock Additional paid-in capital Retained earnings, January 1 First quarter undistributed earnings ($60,000 - $10,000) Book value, April 1 Differential E(4) Goodwill Differential Assign differential to goodwill. 10-39 $765,000 135,000 $900,000 $100,000 500,000 150,000 50,000 (800,000) $100,000 100,000 100,000
  40. 40. Chapter 10 - Additional Consolidation Reporting Issues P10-26 Consolidation Involving a Midyear Purchase a. Journal entries recorded by Famous Products: (1) (2) Cash Investment in Sanford Company Stock Record dividend received from Sanford: $9,000 = $10,000 x .90 (3) b. Investment in Sanford Company Stock Common Stock Additional Paid-In Capital Record purchase of Sanford Company stock: $80,000 = $10 x 8,000 shares $167,500 = $247,500 - $80,000 Investment in Sanford Company Stock Income from Subsidiary Record equity-method income: $13,500 = $15,000 x .90 247,500 9,000 13,500 80,000 167,500 9,000 13,500 Eliminating entries, December 31, 20X2: E(1) Income from Subsidiary Dividends Declared Investment in Sanford Company Stock Eliminate income from subsidiary. 13,500 E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $1,500 = $15,000 x .10 $1,000 = $10,000 x .10 1,500 E(3) Common Stock — Sanford Company Retained Earnings, January 1 Sales Cost of Goods Sold Depreciation Expense Other Expenses Dividends Declared Investment in Sanford Company Stock Noncontrolling Interest Eliminate beginning investment balance, subsidiary stockholders’ equity, and subsidiary preacquisition income and dividends. 10-40 150,000 100,000 205,000 9,000 4,500 1,000 500 126,000 16,000 18,000 20,000 247,500 27,500
  41. 41. Chapter 10 - Additional Consolidation Reporting Issues P10-26 (continued) Famous Products Corporation and Sanford Company Consolidation Workpaper December 31, 20X2 c. Item Sales Income from Subsidiary Credits Cost of Goods Sold Depreciation Expense Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Retained Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Famous Products Sanford Corp. Co. 390,000 250,000 13,500 403,500 250,000 305,000 145,000 25,000 20,000 14,000 25,000 (344,000) (190,000) 59,500 60,000 135,000 59,500 194,500 (40,000) 100,000 60,000 160,000 (30,000) Eliminations Debit Credit (3) 205,000 (1) 13,500 (3) 126,000 (3) 16,000 (3) 18,000 (2) 1,500 220,000 160,000 (3)100,000 220,000 160,000 (1) 9,000 (2) 1,000 (3) 20,000 154,500 130,000 320,000 Cash Accounts Receivable Inventory Buildings and Equipment Investment in Sanford Stock 85,000 100,000 150,000 400,000 50,000 60,000 100,000 340,000 Debits 987,000 550,000 Accum. Depreciation Accounts Payable Taxes Payable Bonds Payable Common Stock Additional Paid-In Capital Retained Earnings, from above Noncontrolling Interest 105,000 40,000 70,000 250,000 200,000 65,000 50,000 55,000 100,000 150,000 154,500 130,000 320,000 Credits 987,000 550,000 470,000 190,000 Consolidated 435,000 435,000 324,000 29,000 21,000 (374,000) 61,000 (1,500) 59,500 135,000 59,500 194,500 (40,000) 154,500 135,000 160,000 250,000 740,000 252,000 (1) 4,500 (3)247,500 1,285,000 170,000 90,000 125,000 350,000 200,000 (3)150,000 167,500 167,500 10-41 190,000 (2) 500 (3) 27,500 470,000 154,500 28,000 1,285,000
  42. 42. Chapter 10 - Additional Consolidation Reporting Issues P10-27 Tax Allocation in Consolidated Balance Sheet a. Acme Powder Corporation and Brown Company Consolidated Balance Sheet Workpaper December 31, 20X9 Item Acme Powder Corp. Brown Co. Cash Accounts Receivable Inventory 44,400 120,000 170,000 20,000 60,000 120,000 Land Buildings and Equipment Investment in Brown Company Stock Deferred Tax Asset 90,000 500,000 30,000 300,000 Eliminations Debit Credit Debits 280,000 1,204,400 Accum. Depreciation Accounts Payable Wages Payable Bonds Payable Common Stock Retained Earnings, 530,000 180,000 70,000 80,000 200,000 100,000 574,400 Noncontrolling Interest Credits 1,204,400 530,000 64,400 180,000 (2) 20,000 (3) 25,000 245,000 120,000 830,000 (4) 30,000 (2) 8,000 (3) 10,000 (4) 20,000 80,000 20,000 30,000 150,000 250,000 Consolidated (1)280,000 38,000 1,477,400 (4) 80,000 (1)150,000 (1)250,000 (2) 8,400 (3) 15,000 (4) 21,000 (2) 3,600 (4) 9,000 525,000 (1)120,000 525,000 340,000 90,000 110,000 200,000 100,000 530,000 107,400 1,477,400 Eliminating entries, December 31, 20X9 (not required) E(1) Common Stock — Brown Company Retained Earnings Investment in Brown Company Stock Noncontrolling Interest Eliminate investment balance. 10-42 150,000 250,000 280,000 120,000
  43. 43. Chapter 10 - Additional Consolidation Reporting Issues P10-27 (continued) E(2) E(3) E(4) Deferred Tax Asset Retained Earnings Noncontrolling Interest Inventory Eliminate inventory profit of Brown Company: $8,000 = $20,000 x .40 $8,400 = ($20,000 - $8,000) x .70 $3,600 = ($20,000 - $8,000) x .30 8,000 8,400 3,600 Deferred Tax Asset Retained Earnings Inventory Eliminate inventory profit of Acme Powder Corporation: $10,000 = $25,000 x .40 $15,000 = $25,000 - $10,000 10,000 15,000 Buildings and Equipment Deferred Tax Asset Retained Earnings Noncontrolling Interest Accumulated Depreciation Eliminate unrealized profit on equipment: $30,000 = $120,000 - $90,000 $20,000 = ($90,000 - $40,000) x .40 $21,000 = [($90,000 - $40,000) x .60] x .70 $9,000 = [($90,000 - $40,000) x .60] x .30 30,000 20,000 21,000 9,000 10-43 20,000 25,000 80,000
  44. 44. Chapter 10 - Additional Consolidation Reporting Issues P10-27 (continued) b. Acme Powder Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X9 Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Deferred Tax Asset Total Assets $ $830,000 (340,000) Accounts Payable Wages Payable Bonds Payable Stockholders' Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity Total Liabilities and Stockholders' Equity 64,400 180,000 245,000 120,000 490,000 38,000 $1,137,400 $ 90,000 110,000 200,000 $100,000 530,000 $630,000 107,400 10-44 737,400 $1,137,400
  45. 45. Chapter 10 - Additional Consolidation Reporting Issues P10-28 Computations Involving Tax Allocation a. Basic equity-method journal entries recorded by Broom Manufacturing: (1) (2) b. Cash Investment in Satellite Industries Stock Record dividends for 20X5: $150,000 x .75 112,500 Investment in Satellite Industries Stock Income from Subsidiary Record equity-method income for 20X5: $190,000 x .75 142,500 112,500 Income assigned to noncontrolling interest: Net income of Satellite Industries Unrealized inventory profit ($30,000 x .60) Unrealized profit on sale of land ($120,000 x .60) Satellite's realized net income Proportion of stock held by noncontrolling interest Income to noncontrolling interest c. $190,000 (18,000) (72,000) $100,000 x .25 $ 25,000 Consolidated net income and income to controlling Interest: Operating income of Broom Manufacturing Inventory profits realized in 20X5 Realized operating income of Broom Manufacturing Realized income of Satellite Industries Consolidated income before provision for taxes Provision for income taxes on: Operating income ($720,000 x .40) Income from Satellite Industries ($112,500 x .20 x .40) $700,000 20,000 $720,000 100,000 $820,000 $288,000 Consolidated Net Income Income to noncontrolling interest Income to controlling interest d. 142,500 9,000 (297,000) $523,000 (25,000) $498,000 Net assets assigned to noncontrolling interest in consolidated balance sheet at December 31, 20X5: Net assets reported by Satellite Industries Less: Unrealized inventory profits ($30,000 x .60) Unrealized profit on land ($120,000 x .60) Realized net assets of Satellite Industries Proportion of stock held by noncontrolling interest Net assets assigned to noncontrolling interest 10-45 $900,000 (18,000) (72,000) $810,000 x .25 $202,500
  46. 46. Chapter 10 - Additional Consolidation Reporting Issues P10-29 Workpaper Involving Tax Allocation a. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Custom Pizza Common Stock Eliminate income from subsidiary: $25,200 = $36,000 x .70 25,200 7,000 18,200 E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $8,100 = ($36,000 + $6,000 - $15,000) x .30 $3,000 = $10,000 x .30 $5,100 = $8,100 - $3,000 E(3) Common Stock ─ Custom Pizza Retained Earnings, January 1 Investment in Custom Pizza Common Stock Noncontrolling Interest Eliminate beginning investment balance. 50,000 150,000 Tax Expense Retained Earnings, January 1 Noncontrolling Interest Cost of Goods Sold Eliminate unrealized profits in beginning inventory on upstream sale. 4,000 4,200 1,800 E(4) 8,100 140,000 60,000 E(5) Sales Cost of Goods Sold Inventory Eliminate unrealized profits in ending inventory on upstream sale. 120,000 E(6) Deferred Tax Asset Tax Expense Eliminate tax expense on unrealized intercompany profit: $25,000 x .40 10,000 E(7) Buildings and Equipment Gain on Sale of Equipment Accumulated Depreciation Eliminate unrealized profit on downstream sale of equipment. 85,000 15,000 E(8) Deferred Tax Asset Tax Expense Eliminate income tax expense on unrealized gain on equipment: $15,000 x .40 10-46 3,000 5,100 6,000 10,000 95,000 25,000 10,000 100,000 6,000
  47. 47. Chapter 10 - Additional Consolidation Reporting Issues P10-29 (continued) b. Hardtack Bread Company and Custom Pizza Corporation Consolidation Workpaper December 31, 20X7 Item Sales Gain on Sale of Equipment Income from Subsidiary Credits Cost of Goods Sold Depreciation and Amortization Tax Expense Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Hardtack Bread Co. Custom Pizza Corp. 580,000 300,000 15,000 25,200 620,200 435,000 300,000 210,000 40,000 44,000 20,000 24,000 Eliminations Debit Credit (5)120,000 89,800 36,000 Ret. Earnings, Jan. 1 374,200 150,000 Income, from above Dividends Declared 89,800 464,000 (20,000) 36,000 186,000 (10,000) Ret. Earnings, Dec. 31, carry forward 444,000 176,000 10-47 760,000 (7) 15,000 (1) 25,200 (4) 10,000 (5) 95,000 (4) 4,000 (2) 8,100 172,300 121,000 (3)150,000 (4) 4,200 172,300 121,000 11,400 10,000 (530,400) (264,000) (6) 10,000 (8) 6,000 (1) 7,000 (2) 3,000 326,500 Consolidated 131,000 760,000 540,000 60,000 56,000 21,400 (677,400) 82,600 (8,100) 74,500 370,000 74,500 444,500 (20,000) 424,500
  48. 48. Chapter 10 - Additional Consolidation Reporting Issues P10-29 (continued) Item Cash Accounts Receivable Inventory Land Buildings and Equipment Patents Investment in Custom Pizza Stock Hardtack Bread Co. 35,800 130,000 220,000 60,000 450,000 70,000 Custom Pizza Corp. 56,000 40,000 60,000 20,000 400,000 Accumulated Depreciation Accounts Payable Wages Payable Bonds Payable Deferred Income Tax Common Stock Retained Earnings, from above Noncontrolling Interest Credits (5) 25,000 (7) 85,000 158,200 Deferred Tax Asset Debits Eliminations Debit Credit (6) 10,000 (8) 6,000 1,124,000 576,000 150,000 40,000 70,000 200,000 120,000 100,000 160,000 30,000 20,000 100,000 40,000 50,000 444,000 176,000 326,500 (4) 1,800 1,124,000 576,000 479,300 10-48 Consolidated 91,800 170,000 255,000 80,000 935,000 70,000 (1) 18,200 (3)140,000 16,000 1,617,800 (7)100,000 410,000 70,000 90,000 300,000 160,000 100,000 131,000 (2) 5,100 (3) 60,000 479,300 424,500 (3) 50,000 63,300 1,617,800
  49. 49. Chapter 10 - Additional Consolidation Reporting Issues P10-30 Earnings per Share with Convertible Securities Basic earnings per share Branch Manufacturing income from operations Short Retail Stores net income Preferred dividends ($100,000 x .08) Earnings available Short shares outstanding Computed EPS for Short Shares held by Branch Manufacturing Contribution to Branch Manufacturing earnings Total earnings of Branch Manufacturing Preferred dividends of Branch Manufacturing Earnings to Branch common shareholders Branch Manufacturing shares outstanding Basic earnings per share $49,200 (8,000) $41,200 ÷20,000 $ 2.06 x16,000 $100,000 32,960 $132,960 (22,000) $110,960 ÷ 15,000 $ 7.40 Diluted earnings per share Branch Manufacturing income from operations Short Retail Stores net income Assumed conversion of bonds: $20,000 x .60 Earnings available Short shares outstanding 20,000 Assumed conversion of bonds 8,000 Assumed conversion of preferred 12,000 Total shares Computed EPS for Short Shares held by Branch Manufacturing Contribution to Branch Manufacturing earnings Total earnings of Branch Manufacturing Preferred dividends of Branch Manufacturing Earnings to Branch common shareholders Branch Manufacturing shares outstanding Diluted earnings per share 10-49 $49,200 $100,000 12,000 $61,200 ÷40,000 $ 1.53 x16,000 24,480 $124,480 (22,000) $102,480 ÷ 15,000 $ 6.83
  50. 50. Chapter 10 - Additional Consolidation Reporting Issues P10-31 Comprehensive Earnings per Share Basic earnings per share Mighty Corporation operating income Longfellow net income Preferred dividends ($200,000 x .11) Earnings available to common shareholders $115,000 (22,000) $ 93,000 ÷ 40,000 $ 2.325 x 32,000 Longfellow shares outstanding Computed EPS for Longfellow Shares held by Mighty Corporation Contribution to Mighty Corporation earnings Total earnings of Mighty Corporation Mighty Corporation shares outstanding Basic earnings per share $300,000 74,400 $374,400 ÷100,000 $ 3.74 Diluted earnings per share Mighty Corporation operating income Longfellow net income Assumed conversion of bonds ($500,000 x .08) x .60 Earnings available to common Longfellow shares outstanding Assumed conversion of bonds Assumed conversion of preferred Exercise of warrants: 10,000 - [($8 x 10,000) / $40] Total shares Computed EPS for Longfellow Shares held by Mighty Corporation Contribution to Mighty Corporation Earnings Total earnings of Mighty Corporation Interest savings on assumed conversion of bonds ($800,000 x .10) x .60 Mighty Corporation shares Diluted earnings per share 10-50 $115,000 40,000 30,000 20,000 8,000 $300,000 24,000 $139,000 ÷ 98,000 $ 1.418 x 32,000 45,376 $345,376 48,000 $393,376 ÷125,000 $ 3.15

×