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 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
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
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]
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 of currently 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]
10-5
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 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].
Primary citations:
FASB 57, Par. 2
SEC Regulation S-K, Item 303
Secondary citations:
FASB 95
FASB 131, Par. 131
10-6
10-7
10-8
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
10-9
$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)
10-10
$ 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)
19,000
$229,000
10-11
$ 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
10-12
$464,000
$73,000
3,000
(8,000)
23,000
(15,000)
5,000
81,000
$545,000
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.
10-13
$ 6,000
.40
$15,000
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
10-14
b.
319,500
(2)
Cash
Investment in Copper Company Stock
Record dividends from Copper Company.
13,500
(3)
27,000
319,500
13,500
27,000
Eliminating Entries:
E(1)
27,000
E(2)
3,000
E(3)
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
Sales
Cost of Goods Sold
Inventory
Eliminate downstream inventory sale:
$20,000 = ($90,000 - $60,000) x 2/3
E(2)
E(3)
E(4)
90,000
8,000
100,000
40,000
70,000
20,000
8,000
100,000
40,000
E(2)
12,000
8,000
40,000
45,000
15,000
10-16
20,000
100,000
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
10-17
$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
10-18
$45,000
12,600
$57,600
$1.92
$60,000
x 8,000 shares
26,400
$86,400
(16,000)
$70,400
$7.04
10-19
$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
10-20
$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)
(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
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
10-21
(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
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
10-22
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
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
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
10-24
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
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
10-26
(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
P10-19 (continued)
Explanation of Workpaper Entries:
(a)
(b)
(c)
Increase in inventory
(d)
Sale of land
(e)
(f)
(g)
(h)
(i)
(j)
Sale of bonds
(k)
(l)
(m
)
(n)
10-27
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)
72,000
$ 98,000
83,000
$181,000
10-28
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
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
(d) 10,000
745,000
Sale of bonds
(j)
(e)130,000
(i) 100,000
(f)
(c)403,000
10-30
(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
10-31
$ 79,000
$45,000
12,000
(2,000)
20,000
35,000
(50,000)
22,000
(15,000)
67,000
$146,000
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
(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
(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
10-32
(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
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
(b)1,070,000
30,000
1,100,000
750,000
40,000
150,000
940,000
160,000
(e)
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
(b)1,080,000
(e)
(b)
80,000
1,160,000
10-33
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
10-34
$215,000
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]
10-35
$199,000
28,000
227,000
(145,000)
$ 82,000
$ 50,000
x
.30
$ 15,000
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
10-36
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
P10-24 (continued)
b.
$ 91,000
5,000
40,000
15,000
(59,000)
(19,200
)
$ (5,000)
(40,000)
$(50,000)
(8,000)
$ 72,800
(45,000)
(58,000)
$(30,200)
92,000
$ 61,800
$100,000
10-37
(2)
Cash
Investment in Blase Company
Common Stock
Record dividends from Blase Company:
$30,000 x .85
25,500
97,750
(3)
10-38
765,000
765,000
25,500
97,750
P10-25 (continued)
b.
E(2)
E(3)
97,750
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
b.
(2)
Cash
Investment in Sanford Company Stock
Record dividend received from Sanford:
$9,000 = $10,000 x .90
(3)
247,500
9,000
13,500
80,000
167,500
9,000
13,500
13,500
E(2)
1,500
E(3)
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
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
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
Debits
Accum. Depreciation
Accounts Payable
Wages Payable
Bonds Payable
Common Stock
Retained Earnings,
280,000
1,204,400
530,000
180,000
70,000
80,000
200,000
100,000
574,400
80,000
20,000
30,000
150,000
250,000
Noncontrolling Interest
Credits
1,204,400
530,000
Eliminations
Debit
Credit
Consolidated
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
(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
10-42
150,000
250,000
280,000
120,000
P10-27 (continued)
E(2)
E(3)
E(4)
8,000
8,400
3,600
10,000
15,000
30,000
20,000
21,000
9,000
10-43
20,000
25,000
80,000
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
10-44
737,400
$1,137,400
(2)
b.
Cash
Investment in Satellite
Industries Stock
Record dividends for 20X5:
$150,000 x .75
112,500
142,500
112,500
c.
$190,000
(18,000)
(72,000)
$100,000
x
.25
$ 25,000
$700,000
20,000
$720,000
100,000
$820,000
$288,000
142,500
9,000
(297,000)
$523,000
(25,000)
$498,000
10-45
$900,000
(18,000)
(72,000)
$810,000
x
.25
$202,500
Eliminating entries:
E(1)
25,200
18,200
E(2)
E(3)
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
Sales
Cost of Goods Sold
Inventory
Eliminate unrealized profits in ending
inventory on upstream sale.
120,000
E(6)
10,000
E(7)
85,000
15,000
10-46
3,000
5,100
140,000
60,000
E(5)
E(8)
7,000
6,000
10,000
95,000
25,000
10,000
100,000
6,000
P10-29 (continued)
b.
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
374,200
150,000
89,800
464,000
(20,000)
36,000
186,000
(10,000)
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
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
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
$49,200
(8,000)
$41,200
20,000
$ 2.06
x16,000
$100,000
32,960
$132,960
(22,000)
$110,960
15,000
$
7.40
10-49
$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
$115,000
(22,000)
$
93,000
40,000
$
2.325
x 32,000
$300,000
74,400
$374,400
100,000
$ 3.74
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