CHAPTER 5

SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS

MULTIPLE CHOICE QUESTIONS
1.

b
Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value
Plant and equipment revaluation
Identifiable intangibles
Fair value of identifiable net assets
Goodwill

$ 91,700,000
6,300,000
98,000,000
$ 13,000,000
(25,000,000)
40,000,000
28,000,000
$ 70,000,000

Allocation of goodwill between controlling and noncontrolling interest:

Total goodwill
Pomegranates goodwill: $91,700,000 (90% x $28,000,000)
Goodwill to noncontrolling interest

$ 70,000,000
66,500,000
$ 3,500,000

Goodwill is allocated 95% to the controlling interest and 5% to the noncontrolling

interest.
(R)
Identifiable intangibles
Goodwill
Plant and equipment
Investment in Starfruit (1)
Noncontrolling interest in Starfruit (2)

40,000,000
70,000,000
25,000,000
80,000,000
5,000,000

(1) [90% x ($40,000,000 - $25,000,000)] + $66,500,000

(2) [10% x ($40,000,000 - $25,000,000)] + $3,500,000

2.

c
(R)
Identifiable intangibles
Goodwill
Plant and equipment
Investment in Starfruit (1)
Noncontrolling interest in Starfruit (2)

24,000,000
68,000,000
20,000,000
68,200,000
3,800,000

(1) [90% x ($24,000,000 - $20,000,000)] + (95% x $68,000,000)

(2) [10% x ($24,000,000 - $20,000,000)] + (5% x $68,000,000)

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3.

b
Starfruit net income
Revaluation write-offs:
Plant and equipment depreciation
Identifiable intangibles amortization
Goodwill impairment loss

4.

Equity in Net Income

$ 6,750,000

NCI in Net Income

$ 750,000

2,250,000
(7,200,000)
(475,000)
$ 1,325,000

250,000
(800,000)
(25,000)
$ 175,000

c
10% x ($13,000,000 + $40,000,000 $25,000,000) = $2,800,000

5.

c
Noncontrolling interest in net income = $750,000 + $250,000 $800,000 =
Noncontrolling interest in OCI = 10% x $100,000 =
Noncontrolling interest in comprehensive income

6.

$ 200,000
10,000
$ 210,000

d
(E)
Stockholders equity
Investment in Starfruit
Noncontrolling interest in Starfruit

13,000,000
11,700,000
1,300,000

(R)
Identifiable intangibles
Plant and equipment
Investment in Starfruit (1)
Noncontrolling interest in Starfruit (2)

40,000,000
25,000,000
14,300,000
700,000

(1) Investment in Starfruit balance on Pomegranates books is $26,000,000 (= $20,000,000 cost + $6,000,000
gain on acquisition). Elimination of the investment in (R) is the remainder of the investment balance, after
elimination (E).
(2) The credit to noncontrolling interest in (R) brings the noncontrolling interest to fair value, after
elimination (E).

7.

a
There is no goodwill when the acquisition is a bargain purchase.

8.

9.

10.

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Advanced Accounting, 3rd Edition

EXERCISES
E5.5

Consolidation Eliminating Entries at End of First Year (see related E4.3)

a. Calculation of goodwill is as follows:
Acquisition cost ($10,000,000 + $300,000)
Fair value of noncontrolling interest
Total
Book value of Saddlestone
Revaluation: Identifiable intangibles
Goodwill

$ 10,300,000
6,500,000
16,800,000
$ 7,200,000
2,000,000

9,200,000
$ 7,600,000

Allocation of goodwill between controlling and noncontrolling interest:

Total goodwill
Peaks goodwill: $10,300,000 (60% x $9,200,000)
Goodwill to noncontrolling interest

$ 7,600,000
4,780,000
$ 2,820,000

b. 2016 equity in net income and noncontrolling interest in net income:

Saddlestones reported net income

Revaluation write-off:
Identifiable intangibles $2,000,000/5

Total
$ 3,000,000
(400,000)
$ 2,600,000

Equity in NI
$ 1,800,000
(240,000)
$ 1,560,000

Noncontrolling
interest in NI
$ 1,200,000
(160,000)
$ 1,040,000

c. Consolidation working paper eliminating entries for 2016:

(C)
Equity in net income of Saddlestone
Dividends Saddlestone
Investment in Saddlestone
(E)
Stockholders equitySaddlestone, 1/1
Investment in Saddlestone
Noncontrolling interest in Saddlestone
(R)
Identifiable intangibles
Goodwill
Investment in Saddlestone (1)
Noncontrolling interest in Saddlestone (2)

1,560,000
600,000
960,000
7,200,000
4,320,000
2,880,000
2,000,000
7,600,000
5,980,000
3,620,000

(1) (60% x $2,000,000) + $4,780,000

(2) (40% x $2,000,000) + $2,820,000
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Cambridge Business Publishers, 2016

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Advanced Accounting, 3rd Edition

(O)
Amortization expense
Identifiable intangibles

400,000
400,000

(N)
Noncontrolling interest in income of Saddlestone
Dividends Saddlestone
Noncontrolling interest in Saddlestone
E5.6

1,040,000
400,000
640,000

Consolidation Eliminations Several Years After Acquisition

a.
Paramounts acquisition cost
Fair value of noncontrolling interest
Total
Book value, date of acquisition
Revaluations:
Accounts receivable
Inventory
Equipment
Patents
Deferred tax liabilities
Goodwill

$ 2,910,000
790,000
3,700,000
$1,500,000
(100,000)
(125,000)
(400,000)
200,000
(75,000)

1,000,000
$ 2,700,000

Paramounts share of goodwill = $2,910,000 (75% x $1,000,000) = $2,160,000

Noncontrolling interests share of goodwill = $540,000 (20%)

(80%)

b.
January 2012 balance
Change in Suns retained earnings, 2012-2017:
($1,800,000 $800,000), divided 75:25
Write-off of Suns identifiable net asset revaluations,
2012-2017: ($100,000 + $125,000 + $240,000
$200,000 + $60,000), divided 75:25
Goodwill impairment, 2012-2017:
($2,700,000 $2,000,000), divided 80:20
Balance, end of 2017

Solutions Manual, Chapter 5

Investment
$ 2,910,000

Noncontrolling
interest
$
790,000

750,000

250,000

243,750

81,250

(560,000)
$ 3,343,750

(140,000)
981,250

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c. (E)
Stockholders equity-Sun
Investment in Sun
Noncontrolling interest in Sun
(R)
Goodwill
Equipment, net (1)
Deferred tax liabilities
Investment in Sun (2)
Noncontrolling interest in Sun (3)

2,500,000
1,875,000
625,000
2,000,000
160,000
15,000
1,468,750
356,250

(1) $400,000 [(6/10) x $400,000]

(2) (80% x $2,000,000) (75% x $175,000)
(3) (20% x $2,000,000) (25% x $175,000)

PROBLEMS
P5.1

Consolidation Working Paper, Date of Acquisition

(in millions)
a. Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value of Bagota
Revaluations:
Property, plant and equipment
Patents and trademarks
Customer-related intangibles
Long-term liabilities
Goodwill

$ 1,200
_375
1,575
$ 500
(200)
45
30
25

_ 400
$ 1,175

Allocation of goodwill between controlling and noncontrolling interest:

Total goodwill
Hersheys goodwill: $1,200 (75% x $400)
Goodwill to noncontrolling interest

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$ 1,175
900
$ 275

Advanced Accounting, 3rd Edition

b.
Consolidation Working Paper
Accounts Taken
From Books
Eliminations
(in millions)
Current assets
PP&E, net
Investment in Bagota
Patents and trademarks
Customer-related intangs
Goodwill
Current liabilities
Long-term liabilities
Common stock, par value
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated OCL
Noncontrolling interest
Total liabilities and equity

Solutions Manual, Chapter 5

Hershey
Dr (Cr)
$ 1,500
1,600
1,200

Bagota
Dr (Cr)
$ 325
600
--

1,300
--

75

(1,600)
(1,900)
(300)
(1,950)
(3,900)
4,000
50

(100)
(400)
(10)
(200)
(300)
-10

______
$
0

______
$
0

Dr

Cr
200 (R)
375 (E)
825 (R)

(R)
45
(R)
30
(R) 1,175
(R)
(E)
(E)
(E)

25
10
200
300

______
$ 1,785

10 (E)
125 (E)
250 (R)
$ 1,785

Consolidated
Balances
Dr (Cr)
$ 1,825
2,000
-1,420
30
1,175
(1,700)
(2,275)
(300)
(1,950)
(3,900)
4,000
50

(375)
0

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c.
Consolidated Balance Sheet, July 1, 2016
Assets
Current assets
Property, plant and equipment, net
Goodwill
Identifiable intangibles
Total assets
Liabilities and stockholders equity
Current liabilities
Long-term liabilities
Total liabilities
Stockholders equity
Hersheys stockholders equity:
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive loss
Total Hershey stockholders equity
Noncontrolling interest
Total stockholders equity
Total liabilities and stockholders equity

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$
$

1,825
2,000
1,175
1,450
6,450
1,700
2,275
3,975

300
1,950
3,900
(4,000)
(50)
2,100
375
2,475
$ 6,450

Advanced Accounting, 3rd Edition

P5.3

Consolidation Eliminating Entries, Date of Acquisition

(in thousands)
a.
Investment in Summer
Merger expenses
Cash
Earnings contingency liability

8,800
300
8,300
800

b. Consolidation working paper eliminating entries:

(E)
Common stock
Retained earnings
Investment in Summer
Noncontrolling interest

500
3,000
2,625
875

(R)
In-process research and development
Goodwill (1)
Noncurrent liabilities
Cash and receivables
Inventories
Plant assets, net
Intangibles
Lawsuit liability
Investment in Summer (2)
Noncontrolling interest (3)
(1) Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value of Summer
Revaluations:
Cash and receivables
Inventories
Plant assets, net
Intangibles
Noncurrent liabilities
IPR&D
Lawsuit liability
Goodwill

1,500
9,300
100
200
500
1,000
1,000
400
6,175
1,625
$ 8,800
2,500
11,300
$ 3,500
(200)
(500)
(1,000)
(1,000)
100
1,500
(400)

2,000
$ 9,300

Allocation of goodwill between controlling and noncontrolling interest:

Total goodwill
$ 9,300
Placers goodwill: $8,800 (75% x $2,000)
7,300
Goodwill to noncontrolling interest
$ 2,000
(2) [75% x ($100 + $1,500 $200 $500 $1,000 $1,000 $400)] + $7,300 = $6,175
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(3) [25% x ($100 + $1,500 $200 $500 $1,000 $1,000 $400)] + $2,000 = $1,625

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Advanced Accounting, 3rd Edition

P5.6

Consolidation Working Paper, Second Year Following Acquisition

(in millions)
a. Calculation of 2015 equity in net loss and noncontrolling interest in net loss:

Total
Emerald Safari Resort reported loss ($2,200 +
$300 + $200 $1,800 $1,000) = $(100)

Equity
in NL

Noncontrolling
interest in NL

$ (100)

$ (70)

$ (30)

( 10)

(7)

(3)

$ (110)

$ (77)

$ (33)

Revaluation write-offs:
Identifiable intangibles

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b.
Consolidation Working Paper, December 31, 2015
Trial Balances
Taken From Books
Dr (Cr)
Harrahs
Entertainment
Current assets

1,400

Land, buildings,
riverboats and
equipment, net

17,844.7

Intangible assets

2,500

Investment in Emerald

Eliminations

Emerald
Safari Resort
$

Dr

Cr

200

20,263.7

800

(R)

60

--

(C)

80.5

10

(O)

3,350

436.8 (E)
42

Long-term liabilities

1,600

2,419

398.3

Current liabilities

Consolidated
Balances
Dr (Cr)

(R)

--

(1,500)

(300)

(1,800)

(14,000)

(2,600)

(16,600)

(5,520)

(324)

(E)

324

(5,520)

(900)

(300)

(E)

300

(900)

Capital stock
Retained earnings, Jan. 1
Noncontrolling interest

--

--

(N)

34.5

187.2 (E)
18

Dividends

100

(R)

(170.7)

3.5 (C)
1.5 (N)

100

Casino revenues

(6,600)

(2,200)

(8,800)

Food and beverage

revenues

(1,400)

(300)

(1,700)

Rooms revenues

(1,000)

(200)

(1,200)

Equity in net loss of

Emerald

77

--

Direct casino, food and

beverage, rooms
expenses

7,200

1,800

9,000

General and
administrative expenses

1,400

1,000

2,400

Impairment losses

--

--

Noncontrolling interest in
net loss

--

--

_____

33

$ 809

$ 809

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77

(O)

(C)

--

10

10
(N)

(33)
$

Advanced Accounting, 3rd Edition

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