Professional Documents
Culture Documents
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 worksheet 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 worksheet when the direct
method is used. They are excluded from the worksheet 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
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.As a result, an additional
elimination entry is made to close pre-acquisition accounts to retained earnings.
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 the Investment in Subsidiary account 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.
10-2
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 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
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
Stages 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 parents 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
Stages 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
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; ASC 850-10-50-4]
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 Cowls
annual report and in the notes to the financial statements. The SEC establishes the disclosure
requirements for MD&A and requires discussion ofcurrently known trends, demands,
commitments, events, or uncertainties that are reasonably expected to have material effects on
the registrants 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]
FASB Statement No. 95,Statement of Cash Flows, (ASC 230) 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 Companys 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;
ASC 280-10-50-10].
Primary citations:
FASB 57, Par. 2; ASC 850-10-50-4
SEC Regulation S-K, Item 303
Secondary citations:
FASB 95; ASC 230
FASB 131, Par. 16; ASC 280-10-50-10
10-5
10-6
10-7
SOLUTIONS TO EXERCISES
E10-1 Analysis of Cash Flows
a.
b.
$ 57,000
$284,000
(80,000)
(230,000)
c.
26,000
$83,000
$45,000
3,000
$48,000
10-8
$284,000
(77,000)
$207,000
b.
c.
$271,000
21,000
13,000
(4,000)
8,000
32,000
(16,000)
(12,000)
7,000
$320,000
d.
$(295,000)
134,000
$(161,000)
e.
$150,000
(200,000)
(25,000)
(6,000)
$(81,000)
10-9
$ 464,000
73,000
3,000
(8,000)
23,000
5,000
(15,000)
$(380,000)
45,000
$545,000
(335,000)
$ 120,000
(35,000)
(60,000)
(6,000)
10-10
19,000
$229,000
$ 923,000 (a)
(378,000) (b)
$ 545,000
$(380,000)
45,000
(335,000)
$120,000
(35,000)
(60,000)
(6,000)
19,000
$229,000
10-11
$464,000
$73,000
3,000
(8,000)
23,000
(15,000)
5,000
81,000
$545,000
$ 6,000
.40
$15,000
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.
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.
The retained earnings balance reported for the consolidated entity as of January 1,
20X1, would be $400,000.
b.
$60,000
x 4/12
$140,000
20,000
$160,000
(1,000)
$159,000
c.
$400,000
159,000
(80,000)
$479,000
d.
$503,500
19,000
(23,750)
$498,750
10-12
b.
319,500
319,500
27,000
Cash
Investment in Copper Co.
Record dividends from Copper Company.
13,500
27,000
13,500
Eliminating Entries:
Sales
Total Expenses
Dividends declared
Retained earnings
90,000
80,000
5,000
5,000
NCI
10%
35,500
3,000
(1,500)
37,000
Highbeam
Corp.
90%
319,500
27,000
(13,500)
Common
Stock
160,000
333,000
160,00
0
40,000
155,00
0
27,000
3,000
15,000
333,00
0
10-13
160,000
Add.
Paid-In
Cap.
40,000
40,000
Retained
Earnings
155,000
30,000
(15,000)
170,000
37,000
10-14
Total
90,000
60,000
30,000
33.33%
Re-sold
30,000
20,000
10,000
Ending
Inventory
60,000
40,000
20,000
90,000
70,000
20,000
100,000
100,000
20,000
100,000
10-15
b.
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
$ 52,000
$12,000
$16,000
10-16
$130,000
30,000
40,000
$200,000
(80,000)
$120,000
$ 3,600
2,400
(6,000)
$114,000
$45,000
(5,000)
$59,000
40,000
$99,000
(12,000)
$87,000
(9,000)
$78,000
$6.50
$45,000
18,000
$63,000
$2.10
10-17
$45,000
12,600
$57,600
$1.92
$60,000
26,400
$86,400
(16,000)
$70,400
$7.04
10-18
$60,000
14,400
$74,400
(16,000)
$58,400
$5.84
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
$400,000
140,000
(9,000)
2,000
$533,000
10-19
$195,000
35,000
28,000
(22,000)
16,000
31,000
(15,000)
$268,000
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
Debit
(a)32,000
(b) 15,000
(c) 8,000
(d)10,000
(e)35,000
(i) 6,000
(k) 30,000
(m) 5,000
141,000
(l) 83,500
(g) 36,500
(f) 1,000
(h) 5,000
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
(j) 15,000
141,000
10-20
(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
P10-17 (continued)
b.
$ 83,500
36,500
1,000
(15,000)
(8,000)
5,000
(6,000)
$(10,000)
(35,000)
$ 15,000
(30,000)
( 5,000)
$97,000
(45,000)
(20,000)
$ 32,000
68,500
$100,500
10-21
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
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
10-22
(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
929,500
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
(d) 10,000
(e) 35,000
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
$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
10-23
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
10-24
$83,500
$36,500
1,000
(15,000)
(8,000)
5,000
(6,000)
13,500
$97,000
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
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
(d) 10,000
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
10-25
(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
P10-19 (continued)
Explanation of Worksheet Entries:
(a)
(b)
(c)
Increase in inventory
(d)
Sale of land
(e)
(f)
(g)
(h)
(i)
(j)
Sale of bonds
(k)
(l)
(m
)
(n)
10-26
P10-19 (continued)
b.
$79,000
45,000
12,000
(2,000)
20,000
35,000
(50,000)
22,000
(15,000)
$ 10,000
(130,000)
$146,000
(120,000)
$100,000
(25,000)
(3,000)
10-27
72,000
$ 98,000
83,000
$181,000
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
Debit
(a) 98,000
(c) 50,000
(e)130,000
(h) 15,000
(h)
488,000
40,000
1,693,000
600,000
375,000
45,000
69,000
20,000
12,000
521,000
79,000
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
10-28
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
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
(c)403,000
(h) 86,000
(d) 10,000
(e)130,000
(i) 100,000
745,000
10-29
(j) 25,000
(l) 3,000
(a) 98,000
745,000
P10-20 (continued)
b.
$403,000
86,000
$ 10,000
(130,000)
$635,000
(489,000)
$146,000
(120,000)
$100,000
(25,000)
(3,000)
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
10-30
$ 79,000
$45,000
12,000
(2,000)
20,000
35,000
(50,000)
22,000
(15,000)
67,000
$146,000
Item
Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment
54,000
121,000
230,000
95,000
800,000
1,300,000
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
Debit
(a) 21,000
(c)130,000
(d) 5,000
(e)100,000
(h) 50,000
(i) 65,000
(k) 4,000
375,000
(j)160,000
(f) 40,000
(b) 10,000
(g) 15,000
(e) 80,000
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
10-31
(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
Item
Debit
Credit
Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment
Accumulated Depreciation
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
Noncontrolling Interest
(f)
(c)
Sales
Gain on Sale of Equipment
1,070,000
30,000
1,100,000
750,000
40,000
150,000
940,000
160,000
(b)1,070,000
(e) 30,000
10,000
(e) 150,000
40,000
15,000
(i) 148,000
(i) 12,000
375,000
(c) 750,000
(f) 40,000
(c) 150,000
(i) 160,000
1,100,000
(b)1,080,000
(e) 80,000
(b)
1,160,000
10-32
1,100,000
(c)1,015,000
(d)
5,000
(g)
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
$231,000
82,000 [1]
3,000
(6,000)
(11,000)
22,000
(70,000)
121,000
12,000
$(127,000)
40,000
153,000
$384,000
(87,000)
$(150,000)
44,000
(58,000)
(15,000) [2]
(179,000)
$118,000
195,000
$313,000
10-33
$215,000
P10-23 (continued)
Explanations of Amounts:
[1]
[2]
Depreciation:
Accumulated depreciation, Dec. 31, 20X6
Accumulated depreciation on equipment sold
($62,000 - $34,000)
$199,000
28,000
227,000
(145,000)
$ 82,000
$ 50,000
x
0.30
$ 15,000
10-34
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
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
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
10-35
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
P10-24 (continued)
b.
$ 91,000
5,000
40,000
15,000
(59,000)
(19,200)
$ (5,000)
(40,000)
$ 72,800
(45,000)
$(50,000)
(8,000)
(58,000)
$(30,200)
92,000
$ 61,800
$100,000
10-36
765,000
765,000
Investment in BlaseCo.
97,750
Income from Blase Co.
Record equity-method income: ($175,000 - $60,000) x 0.85
97,750
Cash
25,500
Investment in Blase Co.
Record dividends from Blase Company: $30,000 x 0.85
25,500
10-37
P10-25 (continued)
b. Eliminating entries, December 31, 20X1:
Sales
Operating Expenses
Dividends declared
Retained earnings
240,000
180,000
10,000
50,000
NCI
15%
120,000
17,250
(4,500)
132,750
Mega
Theaters
85%
680,000
97,750
(25,500)
752,250
Common
Stock
100,000
100,000
Add.
Paid-In
Cap.
500,000
500,000
Retained
+
Earnings
200,000
115,000
(30,000)
285,000
100,000
500,000
200,000
97,750
17,250
30,000
752,250
132,750
NCI 15%
15,000
0
15,000
Mega Theaters
85%
85,000
0
85,000
Goodwill
100,000
0
100,000
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
Goodwill
$765,000
135,000
$900,000
$100,000
500,000
150,000
50,000
(800,000)
$100,000
10-38
10-39
247,500
80,000
167,500
13,500
Cash
9,000
Investment in Sanford Co.
Record dividend received from Sanford: $9,000 = $10,000 x 0.90
b. Eliminating entries, December 31, 20X2:
Pre-acquisition income and dividend elimination entry:
Sales
205,000
Cost of Goods Sold
126,000
Depreciation Expense
16,000
Other Expenses
18,000
Dividends declared
20,000
Retained earnings
25,000
Book Value Calculations:
NCI
10%
27,500
1,500
(1,000)
28,000
Famous
Products
90%
247,500
13,500
(9,000)
252,000
Common
Stock
150,000
150,000
150,000
125,000
13,500
1,500
10,000
252,000
28,000
10-40
Retained
Earnings
125,000
15,000
(10,000)
130,000
9,000
P10-26 (continued)
c.
Elimination Entries
DR
CR
Famous
Products
Sanford
Co.
390,000
(305,000)
(25,000)
(14,000)
13,500
59,500
250,000
(145,000)
(20,000)
(25,000)
0
60,000
59,500
60,000
135,000
59,500
(40,000)
100,000
60,000
(30,000)
125,000
220,000
Ending Balance
154,500
130,000
345,000
85,000
100,000
150,000
400,000
(105,000)
252,000
882,000
50,000
60,000
100,000
340,000
(65,000)
0
485,000
40,000
70,000
250,000
200,000
167,500
154,500
50,000
55,000
100,000
150,000
0
130,000
882,000
485,000
Income Statement
Sales
Less: COGS
Less: Depreciation Expense
Less: Other Expenses
Income from Sanford Co.
Consolidated Net Income
NCI in Net Income
Controlling Interest in Net Income
Balance Sheet
Cash
Accounts Receivable
Inventory
Buildings and Equipment
Less: Accumulated Depreciation
Investment in Sanford Co.
Total Assets
Accounts Payable
Taxes Payable
Bonds Payable
Common Stock
Additional Paid-In Capital
Retained Earnings
NCI in NA of Sanford Co.
Total Liabilities & Equity
10-41
205,000
126,000
16,000
18,000
13,500
218,500
1,500
220,000
160,000
160,000
25,000
160,000
10,000
20,000
215,000
495,000
435,000
(324,000)
(29,000)
(21,000)
0
61,000
(1,500)
59,500
135,000
59,500
(40,000)
154,500
252,000
252,000
135,000
160,000
250,000
740,000
(170,000)
0
1,115,000
215,000
28,000
243,000
90,000
125,000
350,000
200,000
167,500
154,500
28,000
1,115,000
150,000
345,000
Consolidated
NCI
30%
120,000
Acme
Powder
70%
280,000
Common
Stock
150,000
Retained
Earnings
250,000
Total
(12,000)
(15,000)
(30,000)
(57,000)
44,400
12,600
235,600
107,400
Acme
Powder's
share
(8,400)
(15,000)
(21,000)
(44,400)
NCI's
share
(3,600)
(9,000)
(12,600)
10-42
Sales
COGS
Gross Profit
Gross Profit %
Total
70,000
50,000
20,000
28.57%
Re-sold
0
0
0
Ending Inventory
70,000
50,000
20,000
70,000
50,000
20,000
10-43
P10-27 (continued)
Sales
COGS
Gross Profit
Gross Profit %
Total
85,000
60,000
25,000
29.41%
Re-sold
0
0
0
Ending Inventory
85,000
60,000
25,000
85,000
60,000
25,000
Acme Powder
Brown Co.
Equipment
90,000
30,000
120,000
Accumulated
Depreciation
Actual
0
80,000
80,000
"As If"
10-44
P10-27 (continued)
BASED ON CORRECTED NUMBERS:
a.
Balance Sheet
Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment
Less: Accumulated Depreciation
Investment in Brown Co.
Deferred Tax Asset
Acme
Powder
Brown
Co.
44,400
120,000
170,000
20,000
60,000
120,000
90,000
500,000
(180,000)
235,600
30,000
300,000
(80,000)
0
Total Assets
980,000
450,000
Accounts Payable
Wages Payable
Bonds Payable
Common Stock
Retained Earnings
70,000
80,000
200,000
100,000
530,000
20,000
30,000
0
150,000
250,000
980,000
450,000
10-45
Elimination Entries
DR
CR
20,000
25,000
30,000
80,000
235,600
8,000
10,000
20,000
68,000
150,000
250,000
70,000
85,000
50,000
605,000
360,600
44,400
12,600
50,000
8,000
60,000
10,000
20,000
107,400
312,400
Consolidated
64,400
180,000
245,000
120,000
830,000
(340,000)
0
38,000
1,137,400
90,000
110,000
200,000
100,000
530,000
107,400
1,137,400
P10-27 (continued)
b.
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
10-46
737,400
$1,137,400
P10-27 (continued)
BASED ON UNCORRECTED NUMBERS:
a.
Balance Sheet
Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment
Less: Accumulated Depreciation
Investment in Brown Co.
Deferred Tax Asset
Acme
Powder
Brown
Co.
44,400
120,000
170,000
20,000
60,000
120,000
90,000
500,000
(180,000)
280,000
30,000
300,000
(80,000)
0
Elimination Entries
DR
CR
20,000
25,000
30,000
80,000
235,600
8,000
10,000
20,000
Total Assets
1,024,40
0
450,000
Accounts Payable
Wages Payable
Bonds Payable
Common Stock
Retained Earnings
70,000
80,000
200,000
100,000
574,400
20,000
30,000
0
150,000
250,000
68,000
150,000
250,000
70,000
85,000
50,000
1,024,40
0
450,000
10-47
605,000
360,600
44,400
12,600
50,000
8,000
60,000
10,000
20,000
107,400
312,400
Consolidated
64,400
180,000
245,000
120,000
830,000
(340,000)
44,400
38,000
1,181,800
90,000
110,000
200,000
100,000
574,400
107,400
1,181,800
P10-27 (continued)
b.
Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment
Less: Accumulated Depreciation
Investment in Brown Co.
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
44,400
38,000
$1,181,800
$ 90,000
110,000
200,000
$100,000
574,400
$674,400
107,400
10-48
781,800
$1,181,800
b.
142,500
Cash
112,500
Investment in Satellite Industries
Record dividends for 20X5: $150,000 x 0.75
112,500
c.
d.
$190,000
(18,000)
(72,000)
$100,000
x
0.25
$ 25,000
$700,000
20,000
$720,000
100,000
$820,000
$288,000
9,000
(297,000)
$523,000
(25,000)
$498,000
10-49
$900,000
(18,000)
(72,000)
$810,000
x
.25
$202,500
NCI
30%
60,000
10,800
(3,000)
67,800
Hardtack
Bread
70%
140,000
25,200
(7,000)
158,200
Common
Stock
50,000
50,000
Retained
Earnings
150,000
36,000
(10,000)
176,000
Total
6,000
(15,000)
(9,000)
(18,000)
50,000
150,000
9,900
8,100
Custom
Pizza's
share
4,200
(10,500)
(9,000)
(15,300)
NCI's share
1,800
(4,500)
(2,700)
10,000
142,900
65,100
10-50
10,000
120,000
95,000
25,000
P10-29 (continued)
Custom Pizza
Hardtack Bread
Equipment
65,000
85,000
150,000
Accumulated
Depreciation
Actual
"As If"
10-51
0
100,000
100,000
P10-29 (continued)
BASED ON CORRECTED NUMBERS:
b.
Hardtack
Bread
Custom
Pizza
580,000
(435,000)
300,000
(210,000)
(40,000)
(44,000)
(20,000)
(24,000)
(11,400)
9,900
15,000
74,500
(10,000)
0
0
36,000
74,500
36,000
370,000
74,500
(20,000)
424,500
150,000
36,000
(10,000)
176,000
35,800
130,000
220,000
60,000
450,000
(150,000)
70,000
138,700
56,000
40,000
60,000
20,000
400,000
(160,000)
0
0
Total Assets
954,500
416,000
Accounts Payable
Wages Payable
Bonds Payable
Deferred Income Taxes
Common Stock
Retained Earnings
NCI in NA of Custom Pizza
Total Liabilities & Equity
40,000
70,000
200,000
120,000
100,000
424,500
30,000
20,000
100,000
40,000
50,000
176,000
954,500
416,000
Income Statement
Sales
Less: COGS
10-52
Elimination Entries
DR
CR
120,000
10,000
95,000
4,000
9,900
15,000
148,900
8,100
157,000
150,000
157,000
307,000
10,000
6,000
(60,000)
(56,000)
121,000
121,000
10,000
131,000
370,000
74,500
(20,000)
424,500
121,000
85,000
100,000
50,000
307,000
1,800
358,800
760,000
(540,000)
(21,400)
0
0
82,600
(8,100)
74,500
25,000
4,200
10,000
6,000
105,200
Consolidated
142,900
91,800
170,000
255,000
80,000
935,000
(410,000)
70,000
0
16,000
267,900
1,207,800
131,000
65,100
196,100
70,000
90,000
300,000
160,000
100,000
424,500
63,300
1,207,800
P10-29 (continued)
BASED ON UNCORRECTED NUMBERS:
b.
Hardtack
Bread
Custom
Pizza
580,000
(435,000)
300,000
(210,000)
(40,000)
(44,000)
(20,000)
(24,000)
(11,400)
25,200
15,000
89,800
(10,000)
0
0
36,000
89,800
36,000
374,200
89,800
(20,000)
444,000
150,000
36,000
(10,000)
176,000
35,800
130,000
220,000
60,000
450,000
(150,000)
70,000
158,200
56,000
40,000
60,000
20,000
400,000
(160,000)
0
0
Total Assets
974,000
416,000
Accounts Payable
Wages Payable
Bonds Payable
Deferred Income Taxes
Common Stock
Retained Earnings
NCI in NA of Custom Pizza
Total Liabilities & Equity
40,000
70,000
200,000
120,000
100,000
444,000
30,000
20,000
100,000
40,000
50,000
176,000
974,000
416,000
Income Statement
Sales
Less: COGS
10-53
Elimination Entries
DR
CR
120,000
10,000
95,000
4,000
9,900
15,000
148,900
8,100
157,000
150,000
157,000
307,000
10,000
6,000
(60,000)
(56,000)
121,000
121,000
10,000
131,000
374,200
89,800
(20,000)
444,000
121,000
85,000
100,000
50,000
307,000
1,800
358,800
760,000
(540,000)
(21,400)
15,300
0
97,900
(8,100)
89,800
25,000
4,200
10,000
6,000
105,200
Consolidated
142,900
91,800
170,000
255,000
80,000
935,000
(410,000)
70,000
19,500
16,000
267,900
1,227,300
131,000
65,100
196,100
70,000
90,000
300,000
160,000
100,000
444,000
63,300
1,227,300
$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
10-54
$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
$115,000
(22,000)
$
93,000
40,000
$
2.325
x 32,000
$300,000
74,400
$374,400
100,000
$ 3.74
10-55
$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