Professional Documents
Culture Documents
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
Q6-8 Consolidated net income is reduced by the amount of unrealized profits assigned to the
shareholders of the parent company. When a downstream sale occurs, all the profit is on the parent's
books and consolidated net income is reduced by the full amount of any unrealized profit. On the
other hand, when an upstream sale occurs all the intercorporate profit is recorded on the books of the
subsidiary and the amount of income assigned to both the parent company shareholders and the
noncontrolling shareholders is reduced by a proportionate amount of any unrealized profit.
Q6-9 The amount of intercorporate profit realized in the current period from prior years' sales to
the parent is added to the reported net income of the subsidiary in computing income assigned to the
noncontrolling interest.
Q6-10 Income assigned to noncontrolling interest for the current period will be less than a
proportionate share of the reported net income of the subsidiary. In determining the amount of
income to be assigned to the noncontrolling interest in the consolidated income statement, the net
income reported by the subsidiary must be adjusted to exclude any unrealized gain recorded during
the period on the sale of depreciable assets to the parent. On the other hand, if an unrealized loss had
been recorded, the basis used in assigning income to the noncontrolling interest would be greater
than the reported net income of the subsidiary. Such adjustments must be made to assure that the
income assigned to noncontrolling interest is based on the contribution of the subsidiary to
consolidated net income rather than the amount the subsidiary may have reported as net income.
Q6-11 All other factors being equal, the income assigned to noncontrolling interest will be larger if
the sale occurs at the start of the current period. Some part of the gain will be considered realized in
the current period as the parent depreciates the asset if the sale occurs before year-end. None of the
gain will be considered realized in the period of transfer if the sale occurs at year-end.
Q6-12 As in all other cases, income from the subsidiary recorded on the parent's books must be
eliminated in preparing the consolidated income statement and an appropriate amount of subsidiary
net income must be assigned to the noncontrolling interest if the parent owns less than 100 percent
of the subsidiary's stock. The gain recorded on the parent's books also must be eliminated.
Q6-13 Depreciation expense recorded by the subsidiary is overstated from the viewpoint of the
consolidated entity when the subsidiary pays the parent more than book value for the asset at the
start of the period. As a result, an eliminating entry is needed to reduce depreciation expense and
accumulated depreciation by the amount of excess depreciation recorded during 20X3.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
Q6-14 Following an intercorporate sale of a depreciable asset, the eliminating entries should adjust
the balance in the asset account to reflect the original purchase price to the first owner and
accumulated depreciation should be adjusted to reflect the balance that would be reported if the asset
were still held by the first owner. In the case of an intercorporate sale of an intangible asset, only the
unamortized balance normally is reported and an eliminating entry is needed to adjust the carrying
value to that which would be reported if the asset were still held by the first owner.
Q6-15 Profit on an intercorporate sale of land is considered realized at the time the purchaser sells
the land to a nonaffiliate. Profit on equipment normally is considered realized as the asset is used and
depreciated on the books of the purchaser. Equipment typically is considered to be used up in the
production process and therefore is charged to expense over its remaining economic life, while land
is not.
Q6-16 A portion of the profit is considered realized each period as the asset is depreciated by the
purchaser. Thus, the net amount considered unrealized decreases each period and a smaller debit to
beginning retained earnings is needed.
Q6-17A The balance in the investment account will depend on which method the parent uses to
account for its investment in the subsidiary. If the parent uses (a) the cost method or (b) the basic
equity method, no adjustments are made on the parent company's books for unrealized intercompany
profits and the balance in the investment account will be the same as if there were no unrealized
profits. If the parent uses (c) the fully-adjusted equity method, the balance in the investment account
will be reduced by the full amount of the unrealized profit when the profit is on the parent's books
and by a proportionate share of the unrealized profit when it is on the subsidiary's books.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
SOLUTIONS TO CASES
C6-1 Historical Cost Model
A change to replacement cost accounting could potentially simplify the elimination process when
there have been intercorporate transfers. If assets are transferred between affiliates at fair value, the
balance sheet amount reported by the purchaser should reflect replacement cost on the date of
transfer and no adjustment would be needed if consolidation were to occur at that time. In the
periods that follow, the adjustment for the change in replacement cost from the beginning of the
period to the end of the period on the books of the purchaser should be the same as if there had been
no intercompany transfer and no eliminating entries are needed.
In preparing the consolidated income statement for the period of transfer, any gain or loss recorded
by the seller on the intercorporate sale must be eliminated. The exact nature of the adjustment will
depend on whether the change in replacement cost each period is considered to be a realized or an
unrealized gain. If the change in replacement cost each period is considered realized, the gain or loss
recorded on the intercorporate sale will need to be treated as an adjustment to the gain or loss on the
change in replacement cost in the period of transfer. No special adjustment will be needed in the
years that follow. If the change in replacement cost is considered unrealized, the gain or loss
recorded at the time of transfer will be treated as an adjustment to the unrealized gain or loss on the
change in replacement cost each time consolidated statements are prepared.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
SOLUTIONS TO EXERCISES
E6-1 Multiple-Choice Questions on Intercompany Transfers
[AICPA Adapted]
1. c
2. d
3. b
4. a
5. b Depreciation expense recorded by Pirn
$40,000
Depreciation expense recorded by Scroll
10,000
Total depreciation reported
$50,000
Adjustment for excess depreciation charged
by Scroll as a result of increase in
carrying value of equipment due to gain
on intercompany sale ($12,000 / 4 years)
(3,000)
Depreciation for consolidated statements
$47,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
E6-2 (continued)
5. b Reported net income of Gold Company
$45,000
Reported gain on sale of equipment
$15,000
Intercompany profit realized in 20X6
(5,000) (10,000)
Realized net income of Gold Company
$35,000
Proportion of stock held by
noncontrolling interest
x .40
Income assigned to noncontrolling interests
$14,000
6. b Operating income reported by Silver Corporation
$ 85,000
Net income reported by Gold Company
45,000
$130,000
Less: Unrealized gain on sale of equipment
($15,000 - $5,000)
(10,000)
Income to noncontrolling interest
(14,000)
Consolidated net income
$106,000
10,000
10,000
10,000
10,000
10,000
10,000
6,000
4,000
10,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
5,000
10,000
15,000
5,000
10,000
1,000
14,000
45,000
45,000
31,500
13,500
45,000
30,000
30,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
90,000
30,000
120,000
90,000
30,000
5,000
115,000
55,000
35,000
5,000
85,000
55,000
30,000
5,000
80,000
$150,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
84,000
84,000
12,000
12,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
E6-8 (continued)
d.
Eliminating entry at January 1, 20X8, to eliminate intercompany sale of equipment and prepare
a consolidated balance sheet only:
Equipment
66,000
Retained Earnings
12,000
Accumulated Depreciation
Eliminate unrealized profit on equipment.
78,000
Consolidated net income for 20X8 would be $500 greater [$2,500 - ($2,500 x .80)] if the sale of
equipment had been from parent to subsidiary on January 1, 20X6.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
E6-9 (continued)
c. Eliminating entry, December 31, 20X8:
E(1) Buildings and Equipment
30,000
Retained Earnings
20,000
Noncontrolling Interest
5,000
Depreciation Expense
2,500
Accumulated Depreciation
52,500
Eliminate unrealized profit on building.
Adjustment to buildings and equipment
Amount paid by Tubberware to acquire building
$300,000
Amount paid by Baywatch on intercompany sale
(270,000)
Adjustment to buildings and equipment
$ 30,000
Adjustment to retained earnings, January 1, 20X8
Unrealized gain recorded January 1, 20X6
$30,000
Amount realized following intercompany sale
($2,500 x 2)
(5,000)
Unrealized gain, January 1, 20X8
$25,000
Proportion of ownership held by Baywatch
x .80
Required adjustment
$20,000
Adjustment to Noncontrolling interest, January 1, 20X8
Unrealized gain at January 1, 20X8
$25,000
Proportion of ownership held by noncontrolling
interest
x .20
Required adjustment
$ 5,000
Adjustment to depreciation expense
Depreciation expense recorded by Baywatch
Industries ($270,000 / 12 years)
$22,500
Depreciation expense recorded by Tubberware
Corporation ($300,000 / 15 years)
(20,000)
Adjustment to depreciation expense
$ 2,500
Adjustment to accumulated depreciation
Amount required ($20,000 x 6 years)
$120,000
Amount reported by Baywatch ($22,500 x 3 years) (67,500)
Required adjustment
$ 52,500
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
2,000
10,500
1,500
11,000
2,000
9,000
3,000
8,000
$10,500
(1,500)
$ 9,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
32,000
32,000
(2) Cash
8,000
Investment in Acme Real Estate Stock
Record dividends from Acme Real Estate:
$10,000 x .80
8,000
c. Eliminating entries:
E(1) Income from Subsidiary
32,000
Dividends Declared
8,000
Investment in Acme Real Estate Stock
24,000
Eliminate income from subsidiary.
E(2) Income to Noncontrolling Interest
3,000
Dividends Declared
2,000
Noncontrolling Interest
1,000
Assign income to noncontrolling interest:
$3,000 = ($40,000 - $25,000) x .20
E(3) Common Stock__Acme Real Estate Company
300,000
Retained Earnings, January 1
100,000
Investment in Acme Real Estate Stock
320,000
Noncontrolling Interest
80,000
Eliminate beginning investment balance.
E(4) Gain on Sale of Land
25,000
Land
25,000
Eliminate unrealized gain on land.
E(5) Service Revenue
Delivery Expense
15,000
15,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
b.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
E6-13 (continued)
d.
e.
Consolidated net income for 20X8 will be greater than Parent Company's income from
operations plus its proportionate share of Sunway's reported net income. The eliminating entries
at December 31, 20X8, will result in an increase of $18,000 to consolidated net income.
b.
As a result of purchasing the equipment at less than Parent's book value, depreciation expense
reported by Sunway will be $2,000 ($16,000 / 8 years) below the amount that would have been
recorded by Parent. Thus, depreciation expense must be increased by $2,000 when eliminating
entries are prepared at December 31, 20X9. Because the loss was recorded on Parent's books in
20X8, consolidated net income will be decreased by the full amount of the $2,000 increase in
depreciation expense.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
156,000
36,000
120,000
E6-15 (continued)
Adjustment to retained earnings, January 1, 20X8
Unrealized loss recorded, December 31, 20X7 $36,000
Proportion of ownership held by Brown
x .70
Required adjustment
$25,200
Adjustment to Noncontrolling interest, January 1, 20X8
Unrealized loss recorded, December 31, 20X7 $36,000
Proportion of ownership held by noncontrolling
interest
x .30
Required adjustment
$10,800
d. Consolidated net income for 20X8:
Operating income reported by Brown
Net income reported by Transom
Adjustment for loss on sale of building
Realized net income of Transom
Proportion of ownership held by Brown
Consolidated net income
$150,000
$40,000
(4,000)
$36,000
x .70
25,200
$175,200
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
$150,000
$150,000
120,000
60,000
80,000
$410,000
$27,000
3,000
2,000 (32,000)
$283,000
d. Eliminating entry:
E(1) Gain on Sale of Land
Loss on Sale of Land
Land
110,000
15,000
95,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
b.
c. E(X) Trucks
24,000
Retained Earnings
21,600
Noncontrolling Interest
14,400
Depreciation Expense
3,000
Accumulated Depreciation
57,000
Eliminate unrealized gain on trucks:
$21,600 = $36,000 x .60
$14,400 = $36,000 x .40
$57,000 = ($20,000 x 4 years) - ($23,000
x 1 year)
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
90,000
60,000
6,000
144,000
90,000
37,800
16,200
6,000
138,000
$60,000
(6,000)
$54,000
x .70
$37,800
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
Pastel owns 90 percent ($9,450 / ($9,450 + $1,050) of the stock of Somber Corporation.
b.
The subsidiary was the owner. The sale was from the subsidiary to the parent, as evidenced by
the debit to noncontrolling interest in the eliminating entry.
Total depreciation expense of $22,500 ($15,000 + $9,000 - $1,500) will be reported by the
consolidated entity for 20X9.
f.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
E6-19 (continued)
E(4) Buildings and Equipment
53,500
Retained Earnings, January 1
9,450
Noncontrolling Interest
1,050
Accumulated Depreciation
64,000
Eliminate unrealized gain on upstream
sale of equipment.
E(5) Accumulated Depreciation
Depreciation Expense
Adjust depreciation for realization of
intercompany gain.
1,500
1,500
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
13,000
11,000
5,200
5,200
26,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
Equipment
40,000
Eliminate unrealized gain on upstream
sale of equipment.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
E6-21A (continued)
E(6) Accumulated Depreciation
Depreciation Expense
Adjust depreciation for realization of
intercompany gain.
8,000
8,000
15,750
15,750
sale of equipment.
E(7) Accumulated Depreciation
Depreciation Expense
Adjust depreciation for realization of
intercompany gain.
8,000
8,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
SOLUTIONS TO PROBLEMS
P6-22 Computation of Consolidated Net Income
a. Separate operating income of Petime Corporation
$34,000
Reported net income of United Grain Company $19,000
Unrealized profit of sale of land
(7,000)
Realized income for 20X4
$12,000
Proportion of stock held by Petime
x .90
$10,800
Amortization of differential ($9,000 / 10)
(900)
Contribution to 20X4 consolidated net income
9,900
Consolidated net income
$43,900
b. Separate operating income of Petime Corporation
$34,000
Reported net income by United Grain Company $19,000
Proportion of stock held by Petime
x .90
$17,100
Amortization of differential
(900)
Contribution to 20X4 consolidated income
16,200
Unrealized profit on sale of land
(7,000)
Consolidated net income
$43,200
Reported income will decrease by $700. In the upstream case the unrealized profit ($7,000) is
apportioned to both majority ($6,300) and noncontrolling ($700) shareholders. In the
downstream case, it is apportioned entirely to the majority shareholders ($7,000).
P6-23 Subsidiary Net Income
a.
Toll Corporation reported net income of $90,000 for 20X4, computed as follows:
.25(X - $20,000) = $17,500
X - $20,000 = $70,000
X = $70,000 + $20,000
X = $90,000
b.
(20,000)
$283,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
$ ---
$ 3,000
$ 2,000
Fixed assets__Warehouse
---
45,000
40,000
Accumulated depreciation
---
3,000
12,000
15,000
---
---
$600,000
$460,000
(28,000)
(432,000)
as follows:
$ 67,000
Proportion of stock held by noncontrolling interest
Income assigned to noncontrolling interest
x .40
$ 26,800
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
60,000
E(2) Equipment
110,000
Retained Earnings, January 1
25,000
Accumulated Depreciation
130,000
Depreciation Expense
5,000
Eliminate unrealized profit on equipment:
$110,000 = $350,000 - $240,000
$25,000 = $30,000 - $5,000
$130,000 = ($35,000 x 6) - ($40,000 x 2)
$5,000 = $40,000 - $35,000
c. Subsidence Mining's 20X7 net income:
Subsidence Mining's income to noncontrolling
shareholders
$ 45,000
Noncontrolling interest's share of subsidiary income
.30
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-28 (continued)
d. Skekel's 20X7 income from its separate operations:
Consolidated net income
$921,000
Less:
Proportionate share of realized income of
Subsidence Mining ($150,000 x .70)
(105,000)
Partial realization of prior year's
intercompany profit ($30,000 / 6 years)
(5,000)
Add back:
Amortization of differential ($300,000 / 20 years)
15,000
Skekel's 20X7 income from its separate operations
$826,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
Lofton Temple
Eliminations
ConsolCompany Corp. Debit Credit idated
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-30 (continued)
Eliminating entries:
E(1) Common Stock__Temple Corporation
200,000
Retained Earnings
50,000
Investment in Temple Corporation Stock
150,000
Noncontrolling Interest
100,000
Eliminate investment account balance.
E(2) Land
10,000
Retained Earnings
6,000
Noncontrolling Interest
4,000
Eliminate unrealized loss on sale of land.
E(3) Buildings and Equipment
9,000
Retained Earnings
15,000
Accumulated Depreciation
24,000
Eliminate unrealized gain on sale of
equipment.
Accumulated depreciation adjustment:
Required [($100,000 / 10 years) x 5 years]
$50,000
Recorded [($91,000 / 7 years) x 2 years]
(26,000)
Required increase
$24,000
Gain recorded by Temple Corporation,
January 1, 20X5
$21,000
Realized in 20X5 and 20X6 ($3,000 x 2 years)
(6,000)
Unrealized balance, December 31, 20X6
$15,000
b. Consolidated balance sheet:
Lofton Company and Subsidiary
Consolidated Balance Sheet
December 31, 20X6
Cash and Accounts Receivable
Inventory
Land
Buildings and Equipment
Less: Accumulated Depreciation
Total Assets
Accounts Payable
Notes Payable
Noncontrolling Interest
$121,000
120,000
250,000
$709,000
(244,000) 465,000
$956,000
$115,000
290,000
104,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
Common Stock
$100,000
Retained Earnings
347,000 447,000
Total Liabilities and Stockholders' Equity
$956,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
19,500
3,250
16,250
24,000
24,000
4,000
4,000
13,200
1,100
12,100
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-31 (continued)
b.
Mist Blank
Eliminations
ConsolCompany Corp. Debit Credit idated
35,000 20,000
180,000 80,000
100,000 60,000 (3) 60,000
55,000
260,000
100,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
Retained Earnings,
from above
225,000 110,000 151,965 30,100 213,135
Noncontrolling Interest
(2) 4,515
(3) 50,750 55,265
Credits
540,000 270,000 211,965 211,965 683,400
P6-31 (continued)
c.
Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment (net)
Total Assets
$ 54,500
99,000
166,000
51,000
312,900
$683,400
Accounts Payable
$ 55,000
Bonds Payable
260,000
Noncontrolling Interest
55,265
Common Stock
$100,000
Retained Earnings
213,135 313,135
Total Liabilities and Stockholders' Equity
$683,400
$391,000
$235,000
39,900
69,700
344,600
$ 46,400
(6,265)
$ 40,135
$198,000
40,135
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
$238,135
Dividends Paid in 20X4
Retained Earnings, December 31, 20X4
(25,000)
$213,135
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
40,000
40,000
25,000
25,000
7,000
7,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-32 (continued)
b.
Prime Lane
Eliminations
Company Company Debit
ConsolCredit idated
Sales
240,000 120,000
360,000
Gain on Sale of Equip. 20,000
(7) 20,000
Income from Subsidiary 32,000
(1) 32,000
Credits
292,000 120,000
360,000
Cost of Goods Sold
140,000 60,000
200,000
Deprec. & Amortization 25,000 15,000
(7) 2,000 38,000
Goodwill Impairment Loss
(5) 25,000
25,000
Other Expenses
15,000 5,000
20,000
Debits
(180,000) (80,000)
(283,000)
77,000
Income to Noncontrolling Interest
(2) 8,000
(8,000)
Net Income,
carry forward
112,000 40,000 85,000
2,000 69,000
Ret. Earnings, Jan. 1
Retained Earnings,
from above
420,000 140,000 198,000
7,000 369,000
Noncontrolling Interest
(6) 2,000 (2) 7,000
(3) 41,000 46,000
Credits
1,185,000 355,000 392,000 392,000 1,311,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-32 (continued)
c.
$ 141,000
350,000
150,000
$655,000
(273,000)
382,000
15,000
$1,038,000
Accounts Payable
Bonds Payable
Noncontrolling Interest
Common Stock
Retained Earnings
Total Liabilities and Stockholders' Equity
$ 73,000
250,000
46,000
300,000
369,000
$1,038,000
$ 330,000
69,000
$ 399,000
Dividends Paid in 20X6
(30,000)
Retained Earnings, December 31, 20X6
$ 369,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
2,000
1,000
2,000
1,000
10,400
2,600
13,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-33 (continued)
b.Pond Corporation and Skate Company
Consolidation Workpaper
December 31, 20X8
Item
Pond
Skate
Corp.
Co.
Eliminations
Debit
Credit
Consolidated
Sales
450,000 250,000
700,000
Income from Subsidiary
21,000
(1) 21,000
Interest Income
14,900
14,900
Credits
485,900 250,000
714,900
Cost of Goods Sold
285,000 136,000
421,000
Other Operating Expenses 50,000 40,000
90,000
Depreciation Expense
35,000 24,000 (5) 1,000 (6) 1,500 58,500
Interest Expense
24,000 10,500
34,500
Miscellaneous Expenses
11,900 9,500
21,400
Amortization Expense
(5) 2,000
2,000
Debits
(405,900) (220,000)
(627,400)
87,500
Income to Noncontrolling Interest
(2) 6,000
(6,000)
Net Income,
carry forward
80,000 30,000
30,000
1,500 81,500
Ret. Earnings, Jan. 1
Bonds
Bond Discount
Differential
Patents
Debits
134,000
134,000
3,000
3,000
(3) 51,000 (4) 51,000
(4) 34,000 (5) 2,000 32,000
1,191,400 437,000
1,503,400
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-33 (continued)
Item
Pond
Skate
Corp.
Co.
Accum. Depreciation
185,000
Eliminations
Debit
Credit
94,000
(5) 1,000
(6) 73,500
11,000
Consolidated
(4) 3,000
356,500
Accounts Payable
65,000
76,000
Interest and
Other Payables
45,000 12,000
57,000
Bonds Payable
300,000 100,000
400,000
Common Stock
Pond Corporation
150,000
150,000
Skate Company
30,000 (3) 30,000
Additional Paid-In
Capital
155,000 20,000 (3) 20,000
155,000
Retained Earnings,
from above
291,400 170,000 205,400 11,500 267,500
Noncontrolling
Interest
(7) 2,600 (2) 4,000
(3) 40,000
41,400
Credits
1,191,400 437,000 423,000 423,000 1,503,400
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
$154,500
$100,000
85,000
$185,000
x .70
(129,500)
$ 25,000
(3,500)
(3,000)
$ 18,500
6,480
1,500
4,980
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-34 (continued)
E(3) Common stock__Morris Company
100,000
Retained Earnings, January 1
100,000
Differential
18,500
Investment in Morris Company Stock
158,500
Noncontrolling Interest
60,000
Eliminate beginning investment balance.
E(4) Buildings and Equipment
Copyright
Accumulated Depreciation
Differential
Assign beginning differential.
E(5) Depreciation Expense
Amortization Expense
Accumulated Depreciation
Copyright
Amortize differential.
17,500
4,500
3,500
18,500
1,750
1,500
1,750
1,500
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-34 (continued)
d.Champion Corporation and Morris Company
Consolidation Workpaper
December 31, 20X5
Item
Champion Morris
Eliminations
ConsolCorp.
Co.
Debit
Credit
idated
Sales
450,000 190,400
640,400
Other Income
28,250
28,250
Gain on Sale of
Equipment
9,600 (7) 9,600
Income from Subsidiary 17,750
(1) 17,750
Credits
496,000 200,000
668,650
Cost of Goods Sold
375,000 110,000
485,000
Depreciation Expense
25,000 10,000 (5) 1,750 (7) 1,200 35,550
Interest Expense
24,000 33,000
57,000
Other Expenses
28,000 17,000
45,000
Amortization Expense
(5) 1,500
1,500
Debits
(452,000) (170,000)
(624,050)
44,600
Income to Noncontrolling Interest
(2) 6,480
(6,480)
Net Income,
carry forward
44,000 30,000
37,080
1,200 38,120
Ret. Earnings, Jan. 1
Differential
Copyright
Debits
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-34 (continued)
Item
Champion Morris
Eliminations
ConsolCorp.
Co.
Debit
Credit idated
Accum. Depreciation
Buildings and Equip.
120,000
60,000
(5) 1,750
(7) 16,800
61,000 28,000
30,000 20,000
250,000 300,000
(4) 3,500
202,050
Accounts Payable
89,000
Other Payables
50,000
Bonds Payable
550,000
Common Stock
Champion Corporation 150,000
150,000
Morris Company
100,000 (3)100,000
Additional Paid-In
Capital
30,000
30,000
Retained Earnings,
from above
192,000 125,000 148,080
6,200 175,120
Noncontrolling
Interest
(2) 4,980
(3) 60,000
64,980
Credits
833,000 633,000 296,980 296,980 1,311,150
$45,000
x .80
$36,000
P6-35 (continued)
c. Eliminating entries, December 31, 20X7:
E(1) Income from Subsidiary
36,000
Dividends Declared
28,000
Investment in Lane Company Stock
8,000
Eliminate income from subsidiary.
E(2) Income to Noncontrolling Interest
9,000
Dividends Declared
7,000
Noncontrolling Interest
2,000
Assign income to noncontrolling interest:
$9,000 = $45,000 x .20
E(3) Common Stock__Lane Company
100,000
Retained Earnings, January 1
140,000
Differential
40,000
Investment in Lane Company Stock
232,000
Noncontrolling Interest
48,000
Eliminate beginning investment balance:
$40,000 = $160,000 - $50,000 + $100,000) x .80
$232,000 = $240,000 - $8,000
$48,000 = ($100,000 + $140,000) x .20
E(4) Goodwill
Retained Earnings
Differential
Assign differential to goodwill.
15,000
25,000
40,000
4,000
4,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
Eliminate intercorporate
receivable/payable.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-35 (continued)
d.
Prime Lane
Eliminations
ConsolItem
Company Company Debit
Credit idated
Sales
250,000 150,000
400,000
Income from Subsidiary 36,000
(1) 36,000
Credits
286,000 150,000
400,000
Cost of Goods Sold
160,000 80,000
240,000
Deprec. and Amortization 25,000 15,000
(6) 2,000 38,000
Other Expenses
20,000 10,000
30,000
Debits
(205,000)(105,000)
(308,000)
92,000
Income to Noncontrolling Interest
(2) 9,000
(9,000)
Net Income,
carry forward
81,000 45,000
45,000
2,000 83,000
Ret. Earnings, Jan. 1
Retained Earnings,
from above
441,000 150,000 236,000 37,000 392,000
Noncontrolling Interest
(5) 2,000 (2) 2,000
(3) 48,000 48,000
Credits
1,231,000 385,000 402,000 402,000 1,382,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-37 (continued)
6. a Retained earnings of Kendel Manufacturing
$421,000
Unrealized gain on downstream sale of land
(20,000)
Unrealized gain on upstream sale of
equipment ($10,000 - $2,000) x .60
(4,800)
Consolidated retained earnings
$396,200
Alternate computation:
Retained earnings of Kendel Manufacturing
$421,000
Retained earnings of Trendy Products
200,000
Total
$621,000
Unrealized gain on downstream sale of land
(20,000)
Unrealized gain on upstream sale of
equipment ($10,000 - $2,000)
(8,000)
Kendel Manufacturing's proportionate share
of Trendy Products retained earnings
($200,000 x .60)
(120,000)
Trendy Products retained earnings assigned
to noncontrolling interest
($200,000 - $8,000) x .40
(76,800)
Consolidated retained earnings
$396,200
7. c Trendy Products:
Common stock outstanding
$ 90,000
Additional paid-in capital
10,000
Retained earnings
200,000
Book value of net assets
$300,000
Unrealized gain on transfer of equipment
(8,000)
$292,000
Proportion of stock held by noncontrolling interest x .40
Noncontrolling interest, December 31, 20X4
$116,800
8. b Trendy Products:
Common stock outstanding
$ 90,000
Additional paid-in capital
10,000
Retained earnings:
December 31, 20X4
$200,000
Increase in 20X4 ($40,000 - $15,000) (25,000)
Balance, December 31, 20X3
175,000
Net book value, December 31, 20X3
$275,000
Proportion of stock held by noncontrolling interest x .40
Balance, December 31, 20X3
$110,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-38 (continued)
Adjustment to noncontrolling interest
Loss not yet realized for consolidated
statement purposes
$18,000
Proportion of ownership held by noncontrolling
interest
x .10
Adjustment to noncontrolling interest
$ 1,800
Adjustment to accumulated depreciation
Accumulated depreciation based on original
cost [($90,000 / 10 years) x 5 years]
$45,000
Accumulated depreciation recorded by Foster
[($48,000 / 8 years) x 3 years]
(18,000)
Adjustment to accumulated depreciation
$27,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-38 (continued)
b.Foster Company and Block Corporation
Consolidation Workpaper
December 31, 20X9
Item
Foster
Co.
Block
Corp.
Eliminations
Debit
Credit
Consolidated
Sales
680,000 385,000
1,065,000
Other Income
26,000 15,000
41,000
Income from Subsidiary 54,000
(1) 54,000
Credits
760,000 400,000
1,106,000
Cost of Goods Sold
500,000 250,000
750,000
Depreciation Expense
45,000 15,000 (4) 3,000
63,000
Other Expenses
95,000 75,000
170,000
Debits
(640,000) (340,000)
(983,000)
123,000
Income to Noncontrolling Interest
(2) 5,700
(5,700)
Net Income,
carry forward
120,000 60,000
62,700
117,300
Ret. Earnings, Jan. 1 235,000 150,000 (3)150,000 (4) 16,200 251,200
Net Income, from above 120,000 60,000
62,700
117,300
355,000 210,000
368,500
Dividends Declared
(40,000) (20,000)
(1) 18,000
(2) 2,000 (40,000)
Ret. Earnings, Dec. 31,
carry forward
315,000 190,000 212,700 36,200 328,500
Cash
82,000 32,400
114,400
Accounts Receivable
80,000 90,000
170,000
Other Receivables
40,000 10,000
50,000
Inventory
200,000 130,000
330,000
Land
80,000 60,000
140,000
Buildings and Equipment 500,000 250,000 (4) 42,000
792,000
Investment in Block
Corporation Stock
216,000
(1) 36,000
(3)180,000
Debits
1,198,000 572,400
1,596,400
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-38 (continued)
Item
Foster
Co.
Block
Corp.
Eliminations
Debit
Credit
Consolidated
Accum. Depreciation
155,000 75,000
(4) 27,000 257,000
Accounts Payable
63,000 35,000
98,000
Other Payables
95,000 20,000
115,000
Bonds Payable
250,000 200,000
450,000
Bond Premium
2,400
2,400
Common Stock
Foster Company
210,000
210,000
Block Corporation
50,000 (3) 50,000
Additional Paid-In
Capital
110,000
110,000
Retained Earnings,
from above
315,000 190,000 212,700 36,200 328,500
Noncontrolling
Interest
(2) 3,700
(3) 20,000
(4) 1,800 25,500
Credits
1,198,000 572,400 304,700 304,700 1,596,400
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
$112,500
(22,500)
$ 90,000
82,500
15,000
67,500
36,500
5,000
31,500
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-39 (continued)
E(3) Common Stock__Schmid
1,000,000
Additional Paid-In Capital
1,350,000
Retained Earnings, January 1
1,400,000
Differential
90,000
Investment in Schmid Stock
2,902,500
Noncontrolling Interest
937,500
Eliminate beginning investment balance:
$2,902,500 = $2,970,000 - ($110,000
- $20,000) x .75
$937,500 = ($1,000,000 + $1,350,000
+ $1,400,000) x .25
E(4) Land
Goodwill
Differential
Assign differential.
40,000
50,000
90,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-39 (continued)
d.Rossman Corporation and Schmid Distributors, Inc.
Consolidation Workpaper
December 31, 20X8
Item
Rossman
Eliminations
Schmid
Debit
ConsolCredit
idated
Sales
4,801,000 985,000
5,786,000
Income from Subsidiary 82,500
(1) 82,500
Other Income (Loss)
90,000 (35,000) (7) 80,000 (6) 40,000 15,000
Credits
4,973,500 950,000
5,801,000
Cost of Goods Sold
2,193,000 525,000
2,718,000
Depreciation
and Amortization
202,000 88,000 (6) 4,000
294,000
Other Expenses
1,381,000 227,000
(7) 80,000 1,528,000
Debits
(3,776,000) (840,000)
(4,540,000)
1,261,000
Income to Noncontrolling Interest
(2) 36,500
(36,500)
Net Income,
carry forward
1,197,500 110,000
203,000
120,000 1,224,500
Retained Earnings,
Jan. 1
1,497,800 1,400,000 (3)1,400,000
(5) 23,000
1,474,800
Net Income, from above 1,197,500 110,000
203,000
120,000 1,224,500
2,695,300 1,510,000
2,699,300
Dividends Declared
(50,000) (20,000)
(1) 15,000
(2) 5,000 (50,000)
Retained Earnings,
Dec. 31, carry forward 2,645,300 1,490,000 1,626,000
140,000 2,649,300
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-39 (continued)
Item
Rossman
Eliminations
Schmid
Debit
ConsolCredit
idated
Cash
50,700 38,000
88,700
Current Receivables
101,800 89,400
(8) 20,000
(9) 3,750 167,450
Inventory
286,000 218,900
504,900
Investment in Schmid
Stock
2,970,000
(1) 67,500
(3)2,902,500
Land
400,000 1,200,000 (4) 40,000 (5) 23,000 1,617,000
Buildings
and Equipment
2,400,000 2,990,000 (6) 185,000
5,575,000
Goodwill
(4) 50,000
50,000
Differential
(3) 90,000 (4) 90,000
Debits
6,208,500 4,536,300
8,003,050
Accumulated
Depreciation
Current Payables
1,105,000 420,000
(6) 149,000 1,674,000
86,200 76,300 (8) 20,000
(9) 3,750
138,750
1,000,000 200,000
1,200,000
Bonds Payable
Common Stock
Rossman Corporation 100,000
100,000
Schmid Distributors
1,000,000 (3)1,000,000
Additional Paid-In
Capital
1,272,000 1,350,000 (3)1,350,000
1,272,000
Retained Earnings,
from above
2,645,300 1,490,000 1,626,000
140,000 2,649,300
Noncontrolling Interest
(2) 31,500
(3) 937,500 969,000
Credits
6,208,500 4,536,300 4,364,750 4,364,750 8,003,050
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
Prime Company
Debit
Credit
Lane Company
Debit Credit
36,000
36,000
28,000
2,000
2,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-40A (continued)
c. Eliminating entries, December 31, 20X7:
E(1) Income from Subsidiary
38,000
Dividends Declared
28,000
Investment in Lane Company Stock
10,000
Eliminate income from subsidiary.
E(2) Income to Noncontrolling Interest
9,000
Dividends Declared
7,000
Noncontrolling Interest
2,000
Assign income to noncontrolling interest:
$9,000 = $45,000 x .20
E(3) Common Stock__Lane Company
100,000
Retained Earnings, January 1
140,000
Differential
40,000
Investment in Lane Company Stock
232,000
Noncontrolling Interest
48,000
Eliminate beginning investment balance:
$40,000 = $160,000 - ($50,000 + $100,000) x .80
$232,000 = $240,000 - $8,000
$48,000 = ($100,000 + $140,000) x .20
E(4) Goodwill
Retained Earnings
Differential
Assign differential to goodwill.
15,000
25,000
40,000
8,000
4,000
4,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
Eliminate intercorporate
receivable/payable.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-40A (continued)
d.
Prime Lane
Eliminations
Company Company Debit
ConsolCredit idated
Sales
250,000 150,000
400,000
Income from Subsidiary 38,000
(1) 38,000
Credits
288,000 150,000
400,000
Cost of Goods Sold
160,000 80,000
240,000
Deprec. and Amortization 25,000 15,000
(6) 2,000 38,000
Other Expenses
20,000 10,000
30,000
Debits
(205,000)(105,000)
(308,000)
92,000
Income to Noncontrolling Interest
(2) 9,000
(9,000)
Net Income,
carry forward
83,000 45,000
47,000
2,000 83,000
Ret. Earnings, Jan. 1
Noncontrolling Interest
Credits
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
28,000
28,000
28,000
18,000
18,000
E(5) Goodwill
15,000
Retained Earnings, January 1
25,000
Differential
40,000
Assign differential at beginning of
period.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-41A (continued)
E(6) Retained Earnings, January 1
8,000
Noncontrolling Interest
2,000
Land
10,000
Eliminate unrealized profit on land.
E(7) Buildings and Equipment
5,000
Retained Earnings, January 1
18,000
Depreciation and Amortization Expense
2,000
Accumulated Depreciation
21,000
Eliminate unrealized profit on equipment.
E(8) Accounts Payable
4,000
Accounts Receivable
4,000
Eliminate intercorporate receivable/payable.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
P6-41A (continued)
c.
Prime Lane
Eliminations
Company Company Debit
Sales
250,000 150,000
Dividend Income
28,000
(1) 28,000
Credits
278,000 150,000
Cost of Goods Sold
160,000 80,000
Deprec. and Amortization 25,000 15,000
Other Expenses
20,000 10,000
Debits
(205,000)(105,000)
92,000
Income to Noncontrolling Interest
(2) 9,000
Net Income,
carry forward
73,000 45,000
37,000
ConsolCredit idated
400,000
400,000
240,000
(7) 2,000 38,000
30,000
(308,000)
(9,000)
2,000
83,000
Retained Earnings,
from above
361,000 150,000 156,000 37,000 392,000
Noncontrolling Interest
(6) 2,000 (2) 2,000
(3) 30,000
(4) 18,000 48,000
Credits
1,151,000 385,000 322,000 322,000 1,382,000
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002