Chapter 4: Consolidated Financial Statements After Acquisition / Homework Submission
Exercise 4-2
Workpaper entries 12/31/13 Cost Method
Investment in Salt Co 99,000 Retained Earnings 1/1 - Park Co 99,000 ($160,000 $50,000)*.90)
Dividend Income 9,000 Dividends Declared Salt Co 9,000
Parent Non- Entire Share Controlling Value
Purchase price and implied value 465,000 51,667 516,667 Less: Book value: 450,000 50,000 500,000 Difference between IV and BV 15,000 1,667 16,667 Allocated to undervalued land (15,000) (1,667) (16,667) Balance 0 0 0
Common Stock - Salt Co 450,000 Retained Earnings 1/1/13 - Salt Co 160,000 Land 16,667 Investment in Salt Co ($465,000 + $99,000) 564,000 Non-controlling Interest ($51,667 + .10 x ($160,000 $50,000) 62,667
The balance in the investment account at the beginning of the year is $532,000, which is computed as:
[$494,000 + (.95 x ($160,000 $120,000))] = $532,000
Common Stock - Succo Company 300,000 Other Contributed Capital - Succo Company 100,000 Retained Earnings 1/1/17 - Succo Company 160,000 Investment in Succo Company 532,000 Noncontrolling Interest 28,000 $520,000 x .05 + (.05 x ($160,000 - $120,000)) = 28,000
Equity Income ($40,000)(.95) 38,000
Dividends Declared ($19,000)(.95) 18,050 Investment in Succo Company 19,950
Exercise 4-6
Journal and Workpaper Entries - Equity Method
Part A - Journal Entries
Investment in Sales 350,000 Cash 350,000
Investment in Sales ($148,000)(.85) 125,800 Equity in Subsidiary Income 125,800
Cash ($50,000)(.85) 42,500 Investment in Sales 42,500
Part B - Workpaper Entries
Equity in Subsidiary Income 125,800 Dividends Declared - Sales 42,500 Investment in Sales 83,300
Common Stock - Sales 100,000 Other Contributed Capital Sales 40,000 Retained Earnings 1/1 Sales 140,000 Difference between Implied and Book Value 131,765 Investment in Sales 350,000 Noncontrolling Interest 61,765
Goodwill 131,765 Difference between Implied and Book Value 131,765
Computation and Allocation of Difference between Implied and Book Value Acquired
Parent Non- Entire Share Controlling Value
Purchase price and implied value 350,000 61,765 411,765* Less: Book value of equity acquired: 238,000 42,000 280,000 Difference between implied and book value 112,000 19,765 131,765 Goodwill (112,000) (19,765) (131,765) Balance - 0 - - 0 - - 0 -
* $350,000/.85
Problem 4-18
Consolidated Statement of Cash Flows - Indirect Method P Company and Subsidiary Consolidated Statement of Cash Flows For the Year Ended December 31, 2011
Cash flows from operating activities: Consolidated net income $330,000 Adjustments to convert consolidated net income to net cash flow from operating activities Depreciation expense 95,000 Increase in accounts receivable (110,000) Increase in inventories (20,000) Decrease in accounts payable (232,000) Increase in accrued payable 60,000 (207000)
Net cash flow from operating activities 123,000
Cash flows from investing activities: Purchases of plant assets (545,000)
Cash flows from financing activities: Proceeds from the issuance of bonds 240,000 Proceeds from the issuance of common stock 200,000 Cash dividends paid (68,000) Net cash flow from financing activities 372,000 Decrease in cash ($50,000)
Problem 4-19 Parks Company and Subsidiary Consolidated Statement of Cash Flows Direct Method For the Year Ended December 31, 2012
Cash flows from operating activities: Cash received from customers (1) $274,000 Cash received from investment income 4,500 Total cash provided by operating activities $278,500 Less cash paid for: Merchandise purchases (2) $159,000 Operating expenses (3) 83,000 242,000 Net cash flow from operating activities $36,500
Cash flows from investing activities: Purchase of plant assets (4) (33,000)
Cash flows from financing activities: Proceeds from the issuance of common stock $ 87,500
Retirement of bonds payable (50,000) Cash dividends paid (5) (20,300)
Net cash flow from financing activities 17,200 Increase in cash $20,700
(1)Accrual basis sales $239,000 Plus: beginning accounts receivable 90,000 Less: ending accounts receivable (55,000 ) Cash received from customers $274,000
(4)Increase in property, plant, and equipment $6,000 Add: Depreciation 27,000 Cash paid for purchases of plant assets $33,000
(5)Beginning retained earnings $112,500 Plus: consolidated net income 37,500 Total 150,000 Less: ending retained earnings 130,500 Dividends paid by Parks Company 19,500 Plus: dividends paid by SCR, Inc. to noncontrolling interest 800 Cash paid for dividends $20,300