Student Name: Instructor

Class: McGraw-Hill
Problem 07-25

Calculation of deferred gross profits in beginning and

ending inventory:

Beginning unrealized gross profit (Wilson)

January 1, 2014 Inventory Balance

Transfer price $ 60,000

Markup 25%
Cost $ 48,000 Correct!
Unrealized gross profit $ 12,000 Correct!

Ending unrealized gross profit (Wilson)

December 31, 2014 Inventory Balance

Transfer price $ 90,000

Markup 25%
Cost $ 72,000 Correct!
Unrealized gross profit $ 18,000 Correct!

a. Consolidation entries

*G Retained Earnings, 1/1/14 (Wilson) 12,000

Correct! Cost of Goods Sold
(To recognize income on intra-entity inventory transfers made in previous year but not resold until current year.)

*C Retained earnings, 1/1/14 (House) 11,200

Correct! Investment in Wilson Company
(To convert investment account from partial equity method to equity method.)

S1 Common stock (Cuddy) 150,000

Correct! Retained earnings, 1/1/14 (Cuddy) 150,000
Investment in Cuddy Company
Noncontrolling interest in Cuddy Common Stk.
(To eliminate Cuddy's stockholders' equity against the corresponding investment balance and to recognize noncontrolling
interest in common stock.)

S2 Common stock (Wilson) 310,000

Correct! Retained earnings, 1/1/14 (Wilson) 578,000
Investment in Wilson Company
Noncontrolling interest in Wilson
(To eliminate Wilson's stockholders' equity against corresponding investment balance and to recognize noncontrolling
interest.)

A Buildings 54,000
Correct! Franchise Contracts 32,000
Goodwill 140,000
Equipment
Investment in Wilson
Noncontrolling interest in Wilson
Student Name: Instructor
Class: McGraw-Hill
Problem 07-25

(To allocate excess payment made in connection with purchase of Wilson.

Student Name: Instructor
Class: McGraw-Hill
Problem 07-25

I1 Income of Cuddy Company 56,000

Correct! Investment in Cuddy Company
(To eliminate intra-entity income accrued by both House and Wilson during the year.)

I2 Income of Wilson 91,000

Correct! Investment in Wilson
(To eliminate intra-entity income accrued by House during the year.)

D1 Investment in Cuddy 40,000

Correct! Dividends Declared (Cuddy)
(To eliminate effects of intra-entity dividend payments.)

D2 Investment in Wilson 67,200

Correct! Dividends Declared (Wilson)
(To eliminate effects of intra-entity dividend payments.)

E Operating Expenses 2,000

Correct! Equipment 5,000
Franchise Contracts
Buildings
(To record 2014 amortization on excess payment made in connection with acquisition of Wilson Company.

TI Sales and Other Revenues 200,000

Correct! Cost of Goods Sold
(To eliminate intra-entity inventory sales for the current year.)

G Cost of Goods Sold 18,000

Correct! Inventory
(To defer unrealized gross profit in ending inventory.)

Noncontrolling Interest in Net Income of Cuddy:

Reported net income $ 70,000

Outside ownership 20%
Noncontrolling interest in Cuddy income - common $ 14,000
Correct!
Noncontrolling Interest in Net Income of Wilson
Reported operational income $ 130,000
Equity income of Cuddy 28,000
Excess amortization (2,000)
Recognition of 2013 gross profit 12,000
Deferral of 2014 unrealized gross profit (18,000)
Realized income $ 150,000
Outside ownership 30%
Student Name: Instructor
Class: McGraw-Hill
Problem 07-25

Noncontrolling interest in net income of Wilson $ 45,000

Correct!
Student Name: Instructor
Class: McGraw-Hill
Problem 07-25

HOUSE CORPORATION AND CONSOLIDATED SUBSIDIARIES

Consolidation Worksheet
December 31, 2014

House Wilson Cuddy Consolidation Entries

Accounts Corporation Company Company Debit Credit
Sales and other revenue (900,000) (700,000) (300,000)
[TI] 200,000
Cost of goods sold 551,000 300,000 140,000 [G] 18,000 [*G] 12,000
[TI] 200,000
Operating expenses 219,000 270,000 90,000 [E] 2,000
Income of Wilson Company (91,000) - - [I2] 91,000
Income of Cuddy Company (28,000) (28,000) - [I1] 56,000
Net Income (249,000) (158,000) (70,000)
Consolidated net income
Net income attributable to
noncontrolling interest (Wilson)
Net income attributable to
noncontrolling interest (Cuddy)
Net income attributable to House Corporation
Retained earnings, 1/1/14
--House Corporation (820,000) [*C] 11,200
--Wilson Company (590,000) [*G] 12,000
[S2] 578,000
--Cuddy Company (150,000) [S1] 150,000
Net Income (249,000) (158,000) (70,000)
Dividends declared
--House Corporation 100,000
--Wilson Company 96,000 [D2] 67,200
--Cuddy Company 50,000 [D1] 40,000
Retained earnings, 12/31/14 (969,000) (652,000) (170,000)

Cash and receivables 220,000 334,000 67,000

Inventory 390,200 320,000 103,000 [G] 18,000
Investment in Wilson Company 807,800 [D2] 67,200 [*C] 11,200
[S2] 621,600
[I2] 91,000
[A] 151,200
Investment in Cuddy Company 128,000 128,000 [D1] 40,000 [S1] 240,000
[I1] 56,000
Buildings 385,000 320,000 144,000 [A] 54,000 [E] 3,000
Equipment 310,000 130,000 88,000 [E] 5,000 [A] 10,000
Land 180,000 300,000 16,000
Goodwill [A] 140,000
Franchise Contracts [A] 32,000 [E] 4,000
Total assets 2,421,000 1,532,000 418,000

Liabilities (632,000) (570,000) (98,000)

Noncontrolling interest in Cuddy [S1] 60,000
Noncontrolling interest in Wilson [S2] 266,400
[A] 64,800
Student Name: Instructor
Class: McGraw-Hill
Problem 07-25

Noncontrolling interest in
subsidiary companies
Common stock (820,000) (310,000) (150,000) [S1] 150,000
[S2] 310,000
Retained earnings (969,000) (652,000) (170,000)
Total liabilities and equity (2,421,000) (1,532,000) (418,000) 1,916,400 1,916,400
Correct! Correct!
Parentheses indicate a credit balance.
 12,000 - Correct!

11,200 - Correct!

- Correct!
- Correct!
240,000 - Correct!
60,000 - Correct!

- Correct!
- Correct!
621,600 - Correct!
266,400 - Correct!

- Correct!
- Correct!
- Correct!
10,000 - Correct!
151,200 - Correct!
64,800 - Correct!
 56,000 - Correct!

91,000 - Correct!

40,000 - Correct!

67,200 - Correct!

- Correct!
- Correct!
4,000 - Correct!
3,000 - Correct!

200,000 - Correct!

18,000 - Correct!
CONSOLIDATED SUBSIDIARIES
on Worksheet
er 31, 2014

Non-
controlling Consolidated
Interest Balance
(1,700,000) Correct!

797,000 Correct!

581,000 Correct!
- Correct!
- Correct!

(322,000) Correct!

(45,000) 45,000 Correct!

(14,000) 14,000 Correct!

(263,000) Correct!

(808,800) Correct!
- Correct!

- Correct!
(263,000) Correct!

100,000 Correct!
28,800 - Correct!
10,000 - Correct!
(971,800) Correct!

621,000 Correct!
795,200 Correct!
- Correct!

- Correct!

900,000 Correct!
523,000 Correct!
496,000 Correct!
140,000 Correct!
28,000 Correct!
3,503,200 Correct!

(1,300,000) Correct!
(60,000) - Correct!

(331,200)
411,400 (411,400) Correct!

(820,000) Correct!

(971,800) (971,800) Correct!

(3,503,200)
Correct!
Given P07-25:

House Corporation purchased ownership in Wilson Company 70%

Acquisition date fair value allocation schedule:

Consideration transferred for 70% interest in Wilson $ 707,000
Fair value of the 30% noncontrolling interest 303,000
Wilson business fair value $ 1,010,000
Wilson book value 790,000
Excess fair value over book value $ 220,000
Assignments to adjust Wilson's assets to fair value:
To buildings (20-year life) $ 60,000
To equipment (4-year life) (20,000)
To franchises (10-year life) 40,000 $ 80,000
To goodwill (indefinite life) $ 140,000

House regularly acquired inventory from Wilson at cost plus a markup of 25%

Retained Intra-Entity
Intra-Entity Inventory - End of Year
Year Purchases (at transfer price)
2012 $ 120,000 $ 40,000
2013 150,000 60,000

House and Wilson acquire outstanding stock of Cuddy Company 80%

Total price of Cuddy shares $ 240,000
Share House and Wilson each paid of purchase price 50%
Additional inventory acquired by House from Wilson in 2014 $ 200,000
Merchandise still held at year's end 45%

Financial Records for 2014

Given P07-25:

House Wilson Cuddy

Corporation Company Company
Sales and other revenues $ (900,000) $ (700,000) $ (300,000)
Cost of goods sold 551,000 300,000 140,000
Operating expenses 219,000 270,000 90,000
Income of Wilson Company (91,000) - -
Income of Cuddy Company (28,000) (28,000) -
Net income $ (249,000) $ (158,000) $ (70,000)

Retained earnings, 1/1/14 $ (820,000) $ (590,000) $ (150,000)

Net income (249,000) (158,000) (70,000)
Dividends declared 100,000 96,000 50,000
Retained earnings, 12/31/14 $ (969,000) $ (652,000) $ (170,000)

Cash and receivables $ 220,000 $ 334,000 $ 67,000

Inventory 390,200 320,000 103,000
Investment in Wilson Company 807,800 - -
Investment in Cuddy Company 128,000 128,000 -
Buildings 385,000 320,000 144,000
Equipment 310,000 130,000 88,000
Land 180,000 300,000 16,000
Total assets $ 2,421,000 $ 1,532,000 $ 418,000
Liabilities $ (632,000) $ (570,000) $ (98,000)
Common stock (820,000) (310,000) (150,000)
Retained earnings, 12/31/14 (969,000) (652,000) (170,000)
Total liabilities and equity $ (2,421,000) $ (1,532,000) $ (418,000)
 Retained Intra-Entity
Inventory - End of Year
(at transfer price)
 Student Name: Instructor
Class: McGraw-Hill
Problem 07-27

TRAVERS COMPANY AND CONSOLIDATED SUBSIDIARIES

Acquisition -Date Allocation and Amortization

Consideration transferred for Stookey $ 344,000

Noncontrolling interest fair value 86,000
Stookey business fair value $ 430,000
Stookey book value (380,000)
Customer list $ 50,000
Life in years 10
Annual amortization $ 5,000 Correct!

Consideration transferred for Yarrow $ 720,000

Noncontrolling interest fair value 80,000
Yarrow business fair value $ 800,000
Yarrow book value (740,000)
Copyright $ 60,000
Life in years 15
Annual amortization $ 4,000 Correct!

Consolidation entries

*G Retained Earnings, 1/1/13 (Stookey) 7,

Correct! Cost of Goods Sold
(To give effect to unrealized gain from 2014.)

*C1 Investment in Stookey 85,

Correct! Retained Earnings, 1/1/14 (Yarrow)
(To recognize equity income accruing from Yarrow's investment in Stookey during 2013.)

*C2 Investment in Yarrow 217,

Correct! Retained Earnings, 1/1/14 (Travers)
(To recognize equity income accruing from Travers' investment in Yarrow during 2013.)

S1 Common stock (Stookey) 200,

Correct! Retained earnings, 1/1/14 (Stookey) 292,
Investment in Stookey
Noncontrolling interest in Stookey
(To eliminate stockholders' equity accounts of subsidiary [Stookey] against corresponding balance in investment account and to
recognize noncontrolling interest ownership.)

S2 Common stock (Yarrow) 300,

Correct! Retained earnings, 1/1/14 (Yarrow) 685,
Investment in Yarrow
Noncontrolling interest in Yarrow
(To eliminate stockholders' equity accounts of subsidiary Yarrow against corresponding balance in investment account and to
recognize noncontrolling interest ownership.)

A1 Customer List 45,

 Student Name: Instructor
Class: McGraw-Hill
Problem 07-27

Correct! Investment in Stookey

Noncontrolling Interest in Stookey
(To recognize January 1, 2014 unamortized portion of acquisition price assigned to Stookey's customer list.)

A2 Copyright 56,
Correct! Investment in Yarrow
Noncontrolling Interest in Yarrow
(To recognize January 1, 2014 unamortized portion of acquisition price assigned to copyright.)

E Operating Expense 9,
Correct! Customer list
Copyright
(To recognize amortization expense for 2014 - $5,000 in connection with Tavers' investment and $3,000 in connection with Yarrow's
investment.)
 Student Name: Instructor
Class: McGraw-Hill
Problem 07-27

TI Sales 100,
Correct! Cost of Goods Sold
(To eliminate intra-entity inventory transfers made during 2014.)

G Cost of Goods Sold 9,

Correct! Inventory
(To defer unrealized gain in ending inventory.)

Noncontrolling Interest in Stookey's Net Income

2014 Reported net income 100,000
Customer list amortization (5,000)
Realization of 2013 deferred gross profit 7,680
Deferral of 2014 unrealized gross profit (9,600)
Realized income - 2014 $ 93,080
Outside ownership 20%
Noncontrolling interest in Stookey's net income $ 18,616
Correct!

Noncontrolling Interest in Net Income of Yarrow

2014 Reported net income $ 200,000
Copyright amortization (4,000)
Accrual of Stookey's income 74,464
Realized income - 2014 $ 270,464
Outside ownership 10%
Noncontrolling interest in Yarrow's net income $ 27,046
Correct!

TRAVERS COMPANY AND CONSOLIDATED SUBSIDIARIES

Consolidation Worksheet
December 31, 2014

Travers Yarrow Stookey Consolidation Entries

Accounts Company Company Company Debit
Sales and other revenues (900,000) (600,000) (500,000) [TI] 100,000
Cost of goods sold 480,000 320,000 260,000 [G] 9,600 [*G]
[TI]
Operating expenses 100,000 80,000 140,000 [E] 9,000
Separate company net income (320,000) (200,000) (100,000)
Consolidated net income
Net income attributable to NCI (Yarrow) - - -
Net income attributable to NCI (Stookey) - - -
Net income attributable to Travers Company
Retained earnings, 1/1/14
--Travers Company (700,000) [*C2]
--Yarrow Company (600,000) [S2] 685,856 [*C1]
--Stookey Company (300,000) [*G] 7,680
[S1] 292,320
Net Income (320,000) (200,000) (100,000)
 Student Name: Instructor
Class: McGraw-Hill
Problem 07-27

Dividends declared 128,000

Retained earnings, 12/31/14 (892,000) (800,000) (400,000)

Current assets 444,000 380,000 280,000 [G]

Investment in Yarrow Company 720,000 [*C2] 217,670 [S2]
[A2]
Investment in Stookey Company 344,000 [*C1] 85,856 [S1]
[A1]
Land, buildings, & equipment (net) 949,000 836,000 520,000
Customer list [A1] 45,000 [E]
[A2] 56,000 [E]
Copyright
Total assets 2,113,000 1,560,000 800,000

Liabilities (721,000) (460,000) (200,000)

Common stock (500,000) (300,000) (200,000) [S1] 200,000
[S2] 300,000
Retained earnings, 12/31/14 (892,000) (800,000) (400,000) [S1]
NCI interest in Stookey, 1/1/14 - - - [A1]
[S2]
Noncontrolling interest in Yarrow, 1/1/14 - - - [A2]
Noncontrolling interest in subsidiaries - - -
Total liabilities and equity (2,113,000) (1,560,000) (800,000) 2,008,982
Correct!
 Student Name: Instructor
Class: McGraw-Hill
Problem 07-27

b. Determine income taxes to be paid by Travers and Yarrow on a consolidated tax return for the year 2014.

Travers' reported pre-tax income $ 320,000

Yarrow's reported pre-tax income 200,000
Dividend income -
Intra-entity gains -
Amortization expense (9,000)
Taxable income $ 511,000
Tax rate 45%
Income tax payable $ 229,950 Correct!

c. Determine income taxes to be paid by Stookey on a separate tax return for the year 2007.

Stookey's reported pre-tax income $ 100,000

Tax rate 45%
Income tax payable $ 45,000 Correct!

d. Based on parts (b) and (c), what journal entry would be made by this combination to record 2007 income taxes?

2014 Unrealized gain taxed in 2014 $ 9,600

2013 Unrealized gain taxed previously in 2013 (7,680)
Increase in taxable income $ 1,920
Tax rate 45%
Deterred income tax asset $ 864
Correct!
Income tax expense:
Travers and Yarrow-payable $ 229,950
Stookey-payable 45,000
Total taxes to be paid-2014 $ 274,950
Prepayment (864)
Income tax expense 2014 $ 274,086
Correct!
Account Debit Credit
Income Tax Expense-Current 274,086 Correct!
Deferred Income Tax-Asset 864 Correct!
Income Tax Payable 274,950 Correct!
OLIDATED SUBSIDIARIES

7,680
7,680 Correct!

85,856
85,856 Correct!

217,670
217,670 Correct!

200,000 Correct!
292,320 Correct!
393,856 Correct!
98,464 Correct!

300,000 Correct!
685,856 Correct!
887,270 Correct!
98,586 Correct!

45,000 Correct!
 36,000 Correct!
9,000 Correct!

56,000 Correct!
50,400 Correct!
5,600 Correct!

9,000 Correct!
5,000 Correct!
4,000 Correct!
 100,000
100,000 Correct!

9,600
9,600 Correct!

ND CONSOLIDATED SUBSIDIARIES
dation Worksheet
ember 31, 2014

Non-
Consolidation Entries controlling Consolidated
Credit Interest Balances
(1,900,000) Correct!
7,680 961,920 Correct!
100,000
329,000 Correct!

(609,080) Correct!
(27,046) 27,046 Correct!
(18,616) 18,616 Correct!
(563,418) Correct!

217,670 (917,670) Correct!

85,856 - Correct!
- Correct!

(563,418) Correct!
 128,000 Correct!
(1,353,088) Correct!

9,600 1,094,400 Correct!

887,270 - Correct!
50,400
393,856 - Correct!
36,000
2,305,000 Correct!
5,000 40,000 Correct!
4,000 52,000 Correct!
-
3,491,400 Correct!

(1,381,000) Correct!
(500,000) Correct!

98,464 (1,353,088) Correct!

9,000 (107,464)
98,586
5,600 (104,186)
(257,312) (257,312) Correct!
2,008,982 (3,491,400)
Correct! Correct!
d tax return for the year 2014.

he year 2007.

nation to record 2007 income taxes?

Given P07-27:

Travers Company purchased ownership

in Yarrow Company 90%
Acquisition cost paid by Travers $ 720,000
Assessed fair value of noncontrolling interest $ 80,000
Excess purchase price attributed to customer
list to be amortized over years 15
Yarrow Company purchased ownership
in Stookey Company 80%
Acquisition cost paid by Yarrow $ 344,000
Assessed fair value of noncontrolling interest $ 86,000
Excess purchase price attributed to copyright
with a remaining life of: 10
Portion of operational earnings Travers pays as cash dividends 40%
Reported income totals for 2013
Travers Company $ 300,000
Yarrow Company $ 160,000
Stookey Company $ 120,000
Inventory transferred to Yarrow since takeover:
2013 $ 80,000
2014 $ 100,000
Portion of inventory carried into succeeding year 20%
Effective tax rate for all companies 45%

Travers Yarrow Stookey

Company Company Company
12/31/2014 12/31/2014 12/31/2014
Sales $ (900,000) $ (600,000) $ (500,000)
Cost of goods sold 480,000 320,000 260,000
Operating expenses 100,000 80,000 140,000
Net income $ (320,000) $ (200,000) $ (100,000)

Retained earnings, 1/1/14 $ (700,000) $ (600,000) $ (300,000)

Net income (320,000) (200,000) (100,000)
Dividends declared 128,000 - -
Retained earnings, 12/31/14 $ (892,000) $ (800,000) $ (400,000)

Current assets $ 444,000 $ 380,000 $ 280,000

Investment in Yarrow Company 720,000 - -
Investment in Stookey Company - 344,000 -
Land, buildings, and equipment (net) 949,000 836,000 520,000
Total assets $ 2,113,000 $ 1,560,000 $ 800,000

Liabilities $ (721,000) $ (460,000) $ (200,000)

Common stock (500,000) (300,000) (200,000)
Retained earnings, 12/31/14 (892,000) (800,000) (400,000)
Total liabilities and equities $ (2,113,000) $ (1,560,000) $ (800,000)
years

years