CH05SMF

CHAPTER 5

CONSOLIDATION FOLLOWING ACQUISITION

ANSWERS TO QUESTIONS

Q5-1 Additional entries are needed to eliminate all income statement and retained earnings statement effects of intercorporate ownership and any transfers of goods and services between related companies.

Q5-2 Separate parts of the consolidation workpaper are used to develop the consolidated income statement, retained earnings statement, and balance sheet. All eliminating entries needed to complete the entire workpaper normally are entered before any of the three statements are prepared. The income statement portion of the workpaper is completed first so that net income can be carried forward to the retained earnings statement portion of the workpaper. When the retained earnings portion is completed, the ending balances are carried forward and entered in the consolidated balance sheet portion of the workpaper.

Q5-3 Income assigned to noncontrolling shareholders in the consolidated income statement is based on the reported net income of the subsidiary. As illustrated in the chapters that follow, when a subsidiary has recorded profit on a transaction with a related company, the income assigned to noncontrolling shareholders must be adjusted for the effects of any unrealized profits as well.

Q5-4 None of the dividends declared by the subsidiary are included in the consolidated retained earnings statement. Those which are paid to the parent have not gone outside the consolidated entity and therefore must be eliminated in preparing the consolidated statements. Those paid to noncontrolling shareholders are treated as a reduction in the net assets assigned to noncontrolling interest and also must be eliminated.

Q5-5 All the revenue and expenses of the subsidiary resulting from transactions with nonaffiliates are included in the consolidated income statement under current reporting practice. As a result, all the subsidiary's realized income is included in the consolidated income statement. Because consolidated net income includes only income assigned to the shareholders of the parent company, that portion of the income of the subsidiary assigned to the noncontrolling shareholders must be deducted in arriving at consolidated net income.

Q5-6 Consolidated net income is that portion of the income of the total enterprise assigned to the shareholders of the parent company.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2002

Q5-7 Revenue and expenses of the acquired company generally are included for the entire period even though the parent has purchased ownership sometime during the year. Because consolidated net income can include only an appropriate portion of the earnings subsequent to the date of acquisition, both the income assigned to those noncontrolling shareholders that remain at the end of the period and the earnings from the start of the year to the date of acquisition on the shares purchased must be deducted in computing consolidated net income. The amount treated as preacquisition income is computed by multiplying the proportion of ownership acquired times the earnings between the start of the period and the date of acquisition.

Q5-8 Consolidated net income is computed by deducting income assigned to noncontrolling interests from consolidated revenues less expenses.

Q5-9 Consolidated retained earnings is defined in current accounting practice as that portion of the undistributed earnings of the consolidated entity assignable to the parent company shareholders.

Q5-10 Consolidated retained earnings includes the parent’s retained earnings from its own operations (i.e., excluding any income from consolidated subsidiaries recognized by the parent) and the parent’s proportionate share of the net income of each subsidiary since the date of acquisition, adjusted for differential write-off.

Q5-11 The retained earnings statement shows the increase or decrease in retained earnings during the period. Thus, net income for the period is added to the beginning balance and dividends are deducted in deriving the ending balance in retained earnings. Because the consolidation workpaper includes the retained earnings statement, the beginning retained earnings balance must be entered in the workpaper.

Q5-12 An additional eliminating entry normally must be entered in the workpaper to expense an appropriate portion of the amount assigned to buildings and equipment. Normally depreciation expense is debited and accumulated depreciation is credited.

Q5-13 The differential is simply a clearing account used in the consolidation process. If the differential arises because the fair value of land held by the subsidiary is greater than book value, the amount assigned to the differential will remain constant so long as the subsidiary continues to hold the land. When the differential arises because the fair value of depreciable or amortizable assets is greater than book value, the amount debited to the differential account each period will decrease as the parent amortizes an appropriate portion of the differential against investment income.

Q5-14 Other comprehensive income elements reported by a subsidiary must be reported as other comprehensive income in the consolidated financial statements. If the subsidiary is not wholly owned, the noncontrolling interest's portion of the subsidiary's other comprehensive income (loss) will be deducted (added) in determining the amount reported as consolidated comprehensive income.


Q5-15* In the period in which the land is sold, the gain or loss recorded by the subsidiary must be adjusted by the amount of the differential assigned to land. When the differential is apportioned in the eliminating entries at the end of the period, a debit will be made to the gain or loss on sale of land recorded by the subsidiary.

Q5-16A When the cost method is used, income reported by the parent and the resulting balance in the investment account do not reflect undistributed earnings of the subsidiary following the date of acquisition. Because these account balances are different under the cost and equity methods, a different set of eliminating entries must be used. The major change in eliminating entries when the cost method is adopted is that a portion of the subsidiary retained earnings is carried forward to the consolidated total. The carryforward is needed because the parent’s retained earnings does not include its portion of undistributed subsidiary earnings following the acquisition, and therefore is less than consolidated retained earnings.


SOLUTIONS TO CASES

C5-1 Consolidation Workpaper Preparation

a. If the parent company is using the equity method and both the equity-method entries and the consolidation entries have been properly prepared, consolidated net income should equal parent company income. These two amounts can be easily checked in the income statement portion of the consolidation workpaper.

b. It should be possible to tell if the preparer has included the parent's proportionate share of the subsidiary's reported income in computing consolidated net income. It is not possible to tell from looking at the workpaper alone whether or not all the adjustments that should have been made for amortization of the differential or to eliminate unrealized profits have been properly treated in computing the consolidated net income.

c. If the parent paid more than the fair value of the subsidiary’s net assets, the eliminating entries relating to that subsidiary should show amounts assigned to individual asset accounts for fair value adjustments and to goodwill when the investment account balance is eliminated. It should be relatively easy to determine if this has occurred by examining the consolidation workpaper.

d. In the entry to eliminate the stockholders' equity section of the subsidiary at the start of the period, the parent's investment account normally is credited for its percentage of subsidiary stockholders' equity plus any unamortized purchase differential and noncontrolling shareholders are credited for their percentage of subsidiary's stockholders' equity. The credit to noncontrolling interest in this entry divided by total subsidiary stockholders' equity should give the percentage held by noncontrolling interest. In addition, if the income assigned to noncontrolling interest is not adjusted for unrealized profits, it is possible to determine the ownership percentage held by the noncontrolling shareholders by dividing income assigned to noncontrolling interest by the reported net income of the subsidiary.


C5-2 Elimination Procedures

a. The eliminating entries are recorded only in the consolidation workpaper and therefore do not change the balances recorded on the companies' books. Each time consolidated statements are prepared the balances reported on the companies' books serve as the starting point. Thus, all the necessary eliminating entries must be entered in the consolidation workpaper each time consolidated statements are prepared.

b. The balance assigned to the noncontrolling shareholders at the beginning of the period is based on the book value of the net assets of the subsidiary at that date and is recorded in the workpaper in the entry to eliminate the beginning stockholders' equity balances of the subsidiary and the investment account balance of the parent.

c. In the consolidation workpaper the ending balance assigned to noncontrolling interest is derived by crediting noncontrolling interest for the starting balance, as indicated in the preceding question, and then adding income assigned to the noncontrolling interest in the consolidated income statement and deducting a pro rata portion of subsidiary dividends declared during the period.

d. All the stockholders' equity account balances of the subsidiary must be eliminated each time consolidated statements are prepared.

e. The "investment in subsidiary" and "income from subsidiary" accounts must be eliminated each time a full set of consolidated statements is prepared.


C5-3 Treatment of Differential

The answers for this case can be found in Form 10-K and other forms filed with the SEC by each company and available on the SEC's EDGAR database (www.sec.gov).

1. a. Union Pacific accounted for its acquisition of Southern Pacific as a purchase.

b. Union Pacific does not have to assign an amount to goodwill from the Southern Pacific acquisition because the total purchase price was assigned by Union Pacific to identifiable assets and liabilities of Southern Pacific and none to goodwill.

2. During 1998, Union Pacific changed its method of measuring an impairment of enterprise-level goodwill from an undiscounted cash flow method to one based on discounted cash flows. In connection with the change in accounting policy with respect to measurement of goodwill impairment, Overnite recorded a $547 million charge ($2.22 per share) for a revaluation of goodwill in 1998. The goodwill was related to the acquisition of Overnite by Union Pacific in 1986.

3. No goodwill related to Cisco’s acquisition of ArrowPoint was recorded because the acquisition was treated as a pooling of interest.

The total purchase price of Monterey Networks was $517 million. Of the total purchase price, $354 million was assigned to in-process research and development. For financial reporting, all of the amount assigned to in-process research and development was expensed. The reason companies give for doing this is that the FASB requires research and development costs to be expensed as incurred, although whether or not the FASB’s requirement applies to in-process research and development acquired in a business combination is not clear. In general, companies prefer to expense immediately such costs as those of in-process research and development acquired in a business combination rather than having to amortize them as reductions in the income of future periods. Monterey Networks was obviously not acquired for its tangible assets given that $354 million of the purchase price was assigned to in-process research and development and another $154 million was assigned to goodwill and other intangibles.


SOLUTIONS TO EXERCISES

E5-1 Multiple-Choice Questions on Consolidation [AICPA Adapted]

1. b

2. c

3. a

4. c

E5-2 Multiple-Choice Questions on Consolidation [AICPA Adapted]

1. a

2. d

3. c ($1,700,000 - $1,300,000)

4. c $975,000 - [($1,000,000 + $100,000) x .80]

5. b ($1,000,000 + $190,000 - $125,000) x .20

E5-3 Consolidation Entries for Wholly-Owned Subsidiary

a. Journal entries recorded by Trim Corporation:

(1) Investment in Round Corporation Stock 400,000 Cash 400,000 Record investment.

(2) Investment in Round Corporation Stock 80,000 Income from Subsidiary 80,000 Record equity-method income.

(3) Cash 25,000 Investment in Round Corporation Stock 25,000 Record dividends from Round Corporation.


E5-3 (continued)

b. Eliminating entries: E(1) Income from Subsidiary 80,000 Dividends Declared 25,000 Investment in Round Corporation Stock 55,000 Eliminate income from subsidiary.

E(2) Common Stock--Round Corporation 120,000 Retained Earnings, January 1 280,000 Investment in Round Corporation Stock 400,000 Eliminate beginning investment balance.

E5-4 Consolidation Entries for Majority-Owned Subsidiary

a. Journal entries recorded by Trim Corporation:

(1) Investment in Round Corporation Stock 300,000 Cash 300,000 Record investment.

(2) Investment in Round Corporation Stock 60,000 Income from Subsidiary 60,000 Record equity-method income.

(3) Cash 18,750 Investment in Round Corporation Stock 18,750 Record dividends from Round Corporation.

b. Eliminating entries: E(1) Income from Subsidiary 60,000 Dividends Declared 18,750 Investment in Round Corporation Stock 41,250 Eliminate income from subsidiary. E(2) Income to Noncontrolling Interest 20,000 Dividends Declared 6,250 Noncontrolling Interest 13,750 Assign income to noncontrolling interest. E(3) Common Stock--Round Corporation 120,000 Retained Earnings, January 1 280,000 Investment in Round Corporation Stock 300,000 Noncontrolling Interest 100,000 Eliminate beginning investment balance.


E5-5 Basic Consolidation Entries for Fully-Owned Subsidiary

a. Journal entries recorded by Purple Company:

(1) Investment in Amber Corporation Stock 500,000 Cash 500,000 Record investment.

(2) Investment in Amber Corporation Stock 50,000 Income from Subsidiary 50,000 Record equity-method income.

(3) Cash 20,000 Investment in Amber Corporation Stock 20,000 Record dividends from Amber Corporation.

b. Eliminating entries: E(1) Income from Subsidiary 50,000 Dividends Declared 20,000 Investment in Amber Corporation Stock 30,000 Eliminate income from subsidiary.

E(2) Common Stock--Amber Corporation 300,000 Retained Earnings, January 1 200,000 Investment in Amber Corporation Stock 500,000 Eliminate beginning investment balance.


E5-6 Basic Consolidation Entries for Majority-Owned Subsidiary

a. Journal entries recorded by Horrigan Corporation:

(1) Investment in Farmstead Company Stock 210,000 Cash 210,000 Record purchase of Farmstead Company Stock.

(2) Investment in Farmstead Company Stock 14,000 Income from Subsidiary 14,000 Record equity-method income.

(3) Cash 3,500 Investment in Farmstead Company Stock 3,500 Record dividends from Farmstead Company.

b. Eliminating entries: E(1) Income from Subsidiary 14,000 Dividends Declared 3,500 Investment in Farmstead Company Stock 10,500 Eliminate income from subsidiary.

E(2) Income to Noncontrolling Interest 6,000 Dividends Declared 1,500 Noncontrolling Interest 4,500 Assign income to noncontrolling interest.

E(3) Common Stock--Farmstead Company 100,000 Retained Earnings, January 1 200,000 Investment in Farmstead Company Stock 210,000 Noncontrolling Interest 90,000 Eliminate beginning investment balance.


E5-7 Wholly-Owned Subsidiary with Differential

a. Journal entries recorded by Winston Corporation:

(1) Investment in Canton Corporation Stock 178,000 Cash 178,000 Record investment.

(2) Investment in Canton Corporation Stock 30,000 Income from Subsidiary 30,000 Record equity-method income.

(3) Cash 12,000 Investment in Canton Corporation Stock 12,000 Record dividends from Canton Corporation.

(4) Income from Subsidiary 4,000 Investment in Canton Corporation Stock 4,000 Amortize differential assigned to equipment: $4,000 = $28,000 / 7 years

b. Eliminating entries December 31, 20X3: E(1) Income from Subsidiary 26,000 Dividends Declared 12,000 Investment in Canton Corporation Stock 14,000 Eliminate income from subsidiary.

E(2) Common Stock--Canton Corporation 60,000 Retained Earnings, January 1 90,000 Differential 28,000 Investment in Canton Corporation Stock 178,000 Eliminate beginning investment balance.

E(3) Equipment 28,000 Differential 28,000 Assign beginning differential.

E(4) Depreciation Expense 4,000 Accumulated Depreciation 4,000 Amortize differential related to equipment.


E5-8 Majority-Owned Subsidiary with Differential

a. Journal entries recorded by Winston Corporation:

(1) Investment in Canton Corporation Stock 133,500 Cash 133,500 Record investment.

(2) Investment in Canton Corporation Stock 22,500 Income from Subsidiary 22,500 Record equity-method income: $22,500 = $30,000 x .75

(3) Cash 9,000 Investment in Canton Corporation Stock 9,000 Record dividends from Canton Corporation. $9,000 = $12,000 x .75

(4) Income from Subsidiary 3,000 Investment in Canton Corporation Stock 3,000 Amortize differential assigned to equipment: $3,000 = [$133,500 - ($150,000 x .75)] / 7 years

b. Eliminating entries December 31, 20X3: E(1) Income from Subsidiary 19,500 Dividends Declared 9,000 Investment in Canton Corporation Stock 10,500 Eliminate income from subsidiary. E(2) Income to Noncontrolling Interest 7,500 Dividends Declared 3,000 Noncontrolling Interest 4,500 Assign income to noncontrolling interest. $7,500 = $30,000 x .25 $3,000 = $12,000 x .25

E(2) Common Stock--Canton Corporation 60,000 Retained Earnings, January 1 90,000 Differential 21,000 Investment in Canton Corporation Stock 133,500 Noncontrolling Interest 37,500 Eliminate beginning investment balance. $21,000 = $133,500 - ($90,000 + $60,000) x .75


E(4) Depreciation Expense 3,000 Accumulated Depreciation 3,000 Amortize differential related to equipment: $3,000 = $21,000 / 7 years


E5-9 Differential Assigned to Depreciable Assets

Eliminating entries, December 31, 20X6:


E(2) Depreciation Expense 3,000 Accumulated Depreciation 3,000 Amortize differential.

Eliminating entries, December 31, 20X7:

E(1) Equipment 30,000 Differential 27,000 Accumulated Depreciation 3,000 Assign beginning differential.



E5-10 Differential Assigned to Amortizable Asset

a. Lancaster Company common stock, January 1, 20X1 $120,000 Lancaster Company retained earnings, January 1, 20X1 380,000 Book value of Lancaster net assets $500,000 Proportion of stock acquired x .90 Book value of Lancaster's shares purchased by Franklin Corporation $450,000 Excess of purchase price over book value 36,000 Purchase price $486,000 Add: Share of Lancaster's net income ($60,000 x .90) 54,000 Less: Amortization of differential ($36,000 / 5) (7,200) Dividends paid by Lancaster ($20,000 x .90) (18,000) Balance in investment account, December 31, 20X1 $514,800

b. Eliminating entries, December 31, 20X1: E(1) Income from Subsidiary 46,800 Dividends Declared 18,000 Investment in Lancaster Company Stock 28,800 Eliminate income from subsidiary. E(2) Income to Noncontrolling Interest 6,000 Dividends Declared 2,000 Noncontrolling Interest 4,000 Assign income to noncontrolling interest: $6,000 = $60,000 x .10 $2,000 = $20,000 x .10

E(3) Common Stock--Lancaster Company 120,000 Retained Earnings, January 1 380,000 Differential 36,000 Investment in Lancaster Company Stock 486,000 Noncontrolling Interest 50,000 Eliminate investment balance.

E(4) Patents 36,000 Differential 36,000 Assign differential.

E(5) Amortization Expense 7,200 Patents 7,200 Amortize differential related to patents.


E5-11 Differential Assigned to Amortizable Asset Acquired in Prior Period

a. Lancaster Company common stock, January 1, 20X1 $120,000 Lancaster Company retained earnings, January 1, 20X1 380,000 Book value of Lancaster net assets $500,000 Proportion of stock acquired x .90 Book value of Lancaster's shares purchased by Franklin Corporation $450,000 Excess of purchase price over book value 36,000 Purchase price $486,000 Add: Share of Lancaster's net income for 20X1 and 20X2 [($60,000 + $80,000) x .90] 126,000 Less: Amortization of differential ($36,000 / 5) x 2 (14,400) Dividends paid by Lancaster during 20X1 and 20X2 [($20,000 + $30,000) x .90] (45,000) Balance in investment account, December 31, 20X2 $552,600

b. Eliminating entries, December 31, 20X2:

E(1) Income from Subsidiary 64,800 Dividends Declared 27,000 Investment in Lancaster Company Stock 37,800 Eliminate income from subsidiary: $64,800 = ($80,000 x .90) - $7,200 $27,000 = $30,000 x .90 E(2) Income to Noncontrolling Interest 8,000 Dividends Declared 3,000 Noncontrolling Interest 5,000 Assign income to noncontrolling interest: $8,000 = $80,000 x .10 $3,000 = $30,000 x .10

E(3) Common Stock--Lancaster Company 120,000 Retained Earnings, January 1 420,000 Differential 28,800 Investment in Lancaster Company Stock 514,800 Noncontrolling Interest 54,000 Eliminate investment balance: $420,000 = $380,000 + ($60,000 - $20,000) $28,800 = $36,000 - $7,200 $514,800 = [($120,000 + $420,000) x .90] + $28,800 $54,000 = ($120,000 + $420,000) x .10

E(4) Patents 28,800 Differential 28,800 Assign differential.

E(5) Amortization Expense 7,200 Patents 7,200 Amortize differential related to patents.


E5-12 Consolidation after 1 Year of Ownership

a. Eliminating entries, January 1, 20X2:

E(1) Common Stock--Lowe Corporation 120,000 Retained Earnings 80,000 Differential 30,000 Investment in Lowe Corporation Stock 190,000 Noncontrolling Interest 40,000 Eliminate investment balance.

Computation of differential Purchase Price $190,000 Underlying book value ($200,000 x .80) (160,000) Differential $ 30,000

E(2) Buildings and Equipment 25,600 Goodwill 4,400 Differential 30,000 Assign differential: $25,600 = $32,000 x .80 $4,400 = $30,000 - $25,600

b. Eliminating entries, December 31, 20X2:

E(1) Income from Subsidiary 28,800 Investment in Lowe Corporation Stock 28,800 Eliminate income from subsidiary.

Computation of income from subsidiary

Reported net income of Lowe $40,000 Proportion of stock acquired x .80 Income before amortizing differential $32,000 Amortization of differential assigned to Buildings and equipment ($25,600 / 8) (3,200) Income from subsidiary for 20X2 $28,800


E5-12 (continued)

E(2) Income to Noncontrolling Interest 8,000 Noncontrolling Interest 8,000 Assign income to noncontrolling interest.

E(3) Common Stock--Lowe Corporation 120,000 Retained Earnings, January 1 80,000 Differential 30,000 Investment in Lowe Corporation Stock 190,000 Noncontrolling Interest 40,000 Eliminate beginning investment balance.

E(4) Buildings and Equipment 25,600 Goodwill 4,400 Differential 30,000 Assign beginning differential.



E5-13 Computation of Income Reported by Subsidiary

Carrying value of investment at Dec. 31, 20X8 $126,100Purchase price of Spirit Company shares $100,000Reduction for dividends received (15,000)Reduction for amortization of differential (3,900)Carrying value of investment prior to recognition of equity-method income (81,100)Increase from income reported by Spirit Company $ 45,000Proportion of ownership held by Blithe .60 Income reported by Spirit Company $ 75,000

Amortization of differential

Purchase price $100,000Book value of net assets reported by Spirit Company: Common stock $120,000 Retained earnings 25,000 Total $145,000Proportion of ownership held by Blithe x .60 (87,000)Purchase differential $ 13,000Amortization period 10 yearsAmortization per period $ 1,300Number of years owned x 3Amount amortized $ 3,900


E5-14 Computation of Parent Company and Consolidated Balances

a. (1) Consolidated net income:

Operating income of Jersey Company $ 95,000 Net income of Briar Company 35,000 Income to all shareholders $130,000 Income to noncontrolling interest ($35,000 x .20) (7,000) Consolidated net income $123,000

(2) Investment account balance:

Purchase price $176,000 Equity-method income ($35,000 x .80) 28,000 Dividends from subsidiary ($15,000 x .80) (12,000) Balance in investment account at end of year $192,000

(3) Income to noncontrolling interest ($35,000 x .20) $ 7,000

b. (1) Consolidated net income:

Operating income of Jersey Company $ 95,000 Net income of Briar Company 35,000 Income to all shareholders $130,000 Less: Amortization of differential assigned to: Depreciable assets ($30,000 / 8) (3,750) Goodwill impairment loss [($40,000 - $30,000) - $2,000] (8,000) Income to all shareholders $118,250 Income to noncontrolling interest ($35,000 x .20) (7,000) Consolidated net income $111,250

(2) Investment account balance:

Purchase price $216,000 Equity-method income: Share of reported income $28,000 Amortization of differential assigned to depreciable assets (3,750) 24,250 Dividends from subsidiary ($15,000 x .80) (12,000) Balance in investment account at end of year $228,250

(3) Income to noncontrolling interest ($35,000 x .20) $ 7,000


E5-15 Consolidation Following Three Years of Ownership

a. E(1) Common Stock--Conway Company 250,000 Retained Earnings 150,000 Differential 37,500 Investment in Conway Company Stock 277,500 Noncontrolling Interest 160,000 Eliminate investment balance: $37,500 = $277,500 - [($250,000 + $150,000) x .60]

E(2) Land 4,500 Equipment 24,000 Patents 9,000 Differential 37,500 Assign differential: $4,500 = ($30,000 - $22,500) x .60 $24,000 = ($360,000 - $320,000) x .60 $9,000 = $37,500 - $4,500 - $24,000

b. Computation of investment account balance at January 1, 20X9:

Purchase price $277,500 Undistributed income since acquisition ($100,000 - $60,000) x .60 24,000 Amortization of differential assigned to: Equipment ($24,000 / 6) x 2 years (8,000) Patents ($9,000 / 10) x 2 years (1,800) Account balance at January 1, 20X9 $291,700

c. Entries recorded by Boxwell during 20X9:

(1) Investment in Conway Company Stock 18,000 Income from Subsidiary 18,000 Record equity-method income.

(2) Cash 6,000 Investment in Conway Company Stock 6,000 Record dividends from subsidiary.

(3) Income from Subsidiary 4,900 Investment in Conway Company Stock 4,900 Amortize differential: $4,900 = ($24,000 / 6 years) + ($9,000 / 10 years)


E5-15 (continued)

d. Eliminating entries:

E(1) Income from Subsidiary 13,100 Dividends Declared 6,000 Investment in Conway Company Stock 7,100 Eliminate income from subsidiary.


E(3) Common Stock--Conway Company 250,000 Retained Earnings, January 1 190,000 Differential 27,700 Investment in Conway Company Stock 291,700 Noncontrolling Interest 176,000 Eliminate beginning investment balance.

E(4) Land 4,500 Buildings and Equipment 24,000 Patents 7,200 Differential 27,700 Accumulated Depreciation 8,000 Assign beginning differential.

E(5) Depreciation Expense 4,000 Amortization Expense 900 Accumulated Depreciation 4,000 Patents 900 Amortize differential.


E5-16 Computation of Consolidated Balances in Subsequent Period

a. Inventory ($230,000 + $80,000) $310,000

b. Land [$150,000 + $40,000 + .60($60,000 - $40,000)] $202,000

c. Buildings and Equipment [$400,000 + $240,000 + .60($200,000 - $150,000)] $670,000

d. Accumulated Depreciation: Reported by companies ($180,000 + $90,000) $270,000 Amortization of differential [4 years x .60($200,000 - $150,000) / 15] 8,000 $278,000

e. Not included

f. Goodwill: Purchase price $226,000 Book value of shares purchased [.60($200,000 + $50,000)] $150,000 Differential assigned to: Inventory [.60($50,000 - $40,000)] 6,000 Land [.60($60,000 - $40,000)] 12,000 Buildings and equipment [.60($200,000 - $150,000)] 30,000 (198,000) Goodwill at acquisition $ 28,000 Less: Goodwill impairment loss (12,000) Balance of goodwill at end of 20X4 $ 16,000

g. Common Stock $400,000

h. Retained earnings (Asp Corporation accounts for its investment in Parry Company using the equity method, but

without recognizing goodwill impairment. Thus, consolidated retained earnings is equal to the parent’s retained earnings reduced for the impairment loss: $140,000 - $12,000) $128,000


E5-17 Multiple-Choice Questions on Consolidated Balances

1. d Net income of Rand $40,000 Proportion of stock held by Farrow x .70 Income to Farrow $28,000 Amortization of purchase differential: Purchase price paid by Farrow $300,000 Proportionate share of book value of Rand ($250,000 + $150,000) x .70 (280,000) Purchase differential $ 20,000 Number of years x 5 Amortization Expense for 20X7 (4,000) Investment income for 20X7 $24,000

2. d $204,000 = $180,000 + $24,000

3. b $12,000 = $40,000 x .30

4. d Dividends declared by the parent company

5. a Stock outstanding reported by the parent company

6. c Retained earnings reported by the parent company = $409,000 = $240,000 + $180,000 + $24,000 - $35,000

7. b $317,000 = $300,000 + $24,000 - $7,000

E5-18 Basic Consolidation Workpaper

a. Eliminating entries:

E(1) Income from Subsidiary 30,000 Dividends Declared 10,000 Investment in Shaw Corporation Stock 20,000 Eliminate income from subsidiary.

E(2) Common Stock--Shaw Corporation 100,000 Retained Earnings, January 1 50,000 Investment in Shaw Corporation Stock 150,000 Eliminate beginning investment balance.


E5-18 (continued)

b. Blake Corporation and Shaw Corporation Consolidation Workpaper December 31, 20X3

Blake Shaw Eliminations Consol- Item Corp. Corp. Debit Credit idated

Sales 200,000 120,000 320,000Income from Subsidiary 30,000 (1) 30,000 Credits 230,000 120,000 320,000Depreciation Expense 25,000 15,000 40,000Other Expenses 105,000 75,000 180,000Debits (130,000) (90,000) (220,000)Net Income, carry forward 100,000 30,000 30,000 100,000

Ret. Earnings, Jan. 1 230,000 50,000 (2) 50,000 230,000Net income, from above 100,000 30,000 30,000 100,000 330,000 80,000 330,000Dividends Declared (40,000) (10,000) (1) 10,000 (40,000)Ret. Earnings, Dec. 31, carry forward 290,000 70,000 80,000 10,000 290,000 Current Assets 145,000 105,000 250,000Depreciable Assets 325,000 225,000 550,000Investment in Shaw Corporation Stock 170,000 (1) 20,000 (2)150,000 Debits 640,000 330,000 800,000

Current Liabilities 50,000 40,000 90,000Long-Term Debt 100,000 120,000 220,000Common Stock Blake Corporation 200,000 200,000 Shaw Corporation 100,000 (2)100,000Retained Earnings, from above 290,000 70,000 80,000 10,000 290,000Credits 640,000 330,000 180,000 180,000 800,000


E5-19 Basic Consolidation Workpaper for Second Year


E(1) Income from Subsidiary 35,000 Dividends Declared 15,000 Investment in Shaw Corporation Stock 20,000 Eliminate income from subsidiary.

E(2) Common Stock--Shaw Corporation 100,000 Retained Earnings, January 1 70,000 Investment in Shaw Corporation Stock 170,000 Eliminate beginning investment balance.


E5-19 (continued)



Sales 230,000 140,000 370,000Income from Subsidiary 35,000 (1) 35,000 Credits 265,000 140,000 370,000Depreciation Expense 25,000 15,000 40,000Other Expenses 150,000 90,000 240,000Debits (175,000)(105,000) (280,000)Net Income, carry forward 90,000 35,000 35,000 90,000

Ret. Earnings, Jan. 1 290,000 70,000 (2) 70,000 290,000Net income, from above 90,000 35,000 35,000 90,000 380,000 105,000 380,000Dividends Declared (50,000) (15,000) (1) 15,000 (50,000)Ret. Earnings, Dec. 31, carry forward 330,000 90,000 105,000 15,000 330,000

Current Assets 210,000 150,000 360,000Depreciable Assets 300,000 210,000 510,000Investment in Shaw Corporation Stock 190,000 (1) 20,000 (2)170,000 Debits 700,000 360,000 870,000



E5-20 Consolidation Workpaper with Differential


E(1) Income from Subsidiary 25,000 Dividends Declared 10,000 Investment in Short Company Stock 15,000 Eliminate income from subsidiary.

E(2) Common Stock--Short Company 100,000 Retained Earnings, January 1 50,000 Differential 30,000 Investment in Short Company Stock 180,000 Eliminate beginning investment balance.

E(3) Depreciable Assets (net) 30,000 Differential 30,000 Assign beginning differential.

E(4) Depreciation Expense 5,000 Depreciable Assets (net) 5,000 Amortize differential.


E5-20 (continued)

b. Kennelly Corporation and Short Company Consolidation Workpaper December 31, 20X5

Kennelly Short Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 200,000 120,000 320,000Income from Subsidiary 25,000 (1) 25,000 Credits 225,000 120,000 320,000Depreciation Expense 25,000 15,000 (4) 5,000 45,000Other Expenses 105,000 75,000 180,000Debits (130,000) (90,000) (225,000)Net Income, carry forward 95,000 30,000 30,000 95,000

Ret. Earnings, Jan. 1 230,000 50,000 (2) 50,000 230,000Net income, from above 95,000 30,000 30,000 95,000 325,000 80,000 325,000Dividends Declared (40,000) (10,000) (1) 10,000 (40,000)Ret. Earnings, Dec. 31, carry forward 285,000 70,000 80,000 10,000 285,000

Cash 15,000 5,000 20,000Accounts Receivable 30,000 40,000 70,000Inventory 70,000 60,000 130,000Depreciable Assets (net) 325,000 225,000 (3) 30,000 (4) 5,000 575,000Investment in Short Company Stock 195,000 (1) 15,000 (2)180,000Differential (2) 30,000 (3) 30,000 Debits 635,000 330,000 795,000

Accounts Payable 50,000 40,000 90,000Notes Payable 100,000 120,000 220,000Common Stock Kennelly Corporation 200,000 200,000 Short Company 100,000 (2)100,000 Retained Earnings, from above 285,000 70,000 80,000 10,000 285,000Credits 635,000 330,000 240,000 240,000 795,000


E5-21 Consolidation Workpaper for Majority-Owned Subsidiary


E(1) Income from Subsidiary 24,000 Dividends Declared 8,000 Investment in Stergis Company Stock 16,000 Eliminate income from subsidiary.


E(3) Common Stock--Stergis Company 100,000 Retained Earnings, January 1 50,000 Investment in Stergis Company Stock 120,000 Noncontrolling Interest 30,000 Eliminate beginning investment balance.


E5-21 (continued)

b. Proud Corporation and Stergis Company Consolidation Workpaper December 31, 20X3

Proud Stergis Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 200,000 120,000 320,000Income from Subsidiary 24,000 (1) 24,000 Credits 224,000 120,000 320,000Depreciation Expense 25,000 15,000 40,000Other Expenses 105,000 75,000 180,000Debits (130,000) (90,000) (220,000) 100,000Income to Noncon- trolling Interest (2) 6,000 (6,000)Net Income, carry forward 94,000 30,000 30,000 94,000

Ret. Earnings, Jan. 1 230,000 50,000 (3) 50,000 230,000Net income, from above 94,000 30,000 30,000 94,000 324,000 80,000 324,000Dividends Declared (40,000) (10,000) (1) 8,000 (2) 2,000 (40,000)Ret. Earnings, Dec. 31, carry forward 284,000 70,000 80,000 10,000 284,000

Current Assets 173,000 105,000 278,000Depreciable Assets 500,000 300,000 800,000Investment in Stergis Company Stock 136,000 (1) 16,000 (3)120,000 Debits 809,000 405,000 1,078,000

Accum. Depreciation 175,000 75,000 250,000Current Liabilities 50,000 40,000 90,000Long-Term Debt 100,000 120,000 220,000Common Stock Proud Corporation 200,000 200,000 Stergis Company 100,000 (3)100,000Retained Earnings, from above 284,000 70,000 80,000 10,000 284,000Noncontrolling Interest (2) 4,000 (3) 30,000 34,000Credits 809,000 405,000 180,000 180,000 1,078,000


E5-21 (continued)

c. Proud Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X3

Current Assets $278,000Depreciable Assets $800,000Less: Accumulated Depreciation (250,000) 550,000Total Assets $828,000

Current Liabilities $ 90,000Long-Term Debt 220,000Noncontrolling Interest 34,000Common Stock $200,000 Retained Earnings 284,000 484,000Total Liabilities and Stockholders' Equity $828,000

Proud Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X3

Sales $320,000Depreciation $ 40,000Other Expenses 180,000Total Expenses 220,000 $100,000Income to Noncontrolling Interest (6,000)Consolidated Net Income $ 94,000

Proud Corporation and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X3

Retained Earnings, January 1, 20X3 $230,00020X3 Net Income 94,000 $324,000Dividends Paid in 20X3 (40,000)Retained Earnings, December 31, 20X3 $284,000


E5-22 Consolidation Workpaper for Majority-Owned Subsidiary for Second Year


E(1) Income from Subsidiary 28,000 Dividends Declared 12,000 Investment in Stergis Company Stock 16,000 Eliminate income from subsidiary.


E(3) Common Stock--Stergis Company 100,000 Retained Earnings, January 1 70,000 Investment in Stergis Company Stock 136,000 Noncontrolling Interest 34,000 Eliminate beginning investment balance.


E5-22 (continued)

b. Proud Corporation and Stergis Company Consolidation Workpaper December 31, 20X4

Proud Stergis Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 230,000 140,000 370,000Income from Subsidiary 28,000 (1) 28,000 Credits 258,000 140,000 370,000Depreciation Expense 25,000 15,000 40,000Other Expenses 150,000 90,000 240,000Debits (175,000)(105,000) (280,000) 90,000Income to Noncon- trolling Interest (2) 7,000 (7,000)Net Income, carry forward 83,000 35,000 35,000 83,000

Ret. Earnings, Jan. 1 284,000 70,000 (3) 70,000 284,000Net income, from above 83,000 35,000 35,000 83,000 367,000 105,000 367,000Dividends Declared (50,000) (15,000) (1) 12,000 (2) 3,000 (50,000)Ret. Earnings, Dec. 31, carry forward 317,000 90,000 105,000 15,000 317,000

Current Assets 235,000 150,000 385,000Depreciable Assets 500,000 300,000 800,000Investment in Stergis Company Stock 152,000 (1) 16,000 (3)136,000 Debits 887,000 450,000 1,185,000

Accum. Depreciation 200,000 90,000 290,000Current Liabilities 70,000 50,000 120,000Long-Term Debt 100,000 120,000 220,000Common Stock Proud Corporation 200,000 200,000 Stergis Company 100,000 (3)100,000Retained Earnings, from above 317,000 90,000 105,000 15,000 317,000Noncontrolling Interest (2) 4,000 (3) 34,000 38,000Credits 887,000 450,000 205,000 205,000 1,185,000


E5-23 Preparation of Stockholders' Equity Section with Other Comprehensive Income

a. Consolidated net income: 20X8 20X9 Operating income of Tollway $120,000 $140,000 Proportionate share of Stem net income: $40,000 x .75 30,000 $60,000 x .75 45,000 Amortization of purchase differential: [$435,000 - ($500,000 x .75)] / 10 years (6,000) (6,000) Consolidated net income $144,000 $179,000

b. Comprehensive net income: 20X8 20X9 Consolidated net income $144,000 $179,000 Proportionate share of Other Comprehensive Income reported by Stem: ($50,000 - $40,000) x .75 7,500 ($65,000 - $60,000) x .75 3,750 Comprehensive income $151,500 $182,750

c. Consolidated stockholders' equity: 20X8 20X9 Common Stock $320,000 $320,000 Retained Earnings 504,000 613,000 Accumulated Other Comprehensive Income to Controlling Interest 7,500 11,250 Total Stockholders' Equity $831,500 $944,250


E5-24 Eliminating Entries for Subsidiary with Other Comprehensive Income

a. Journal entries recorded by Palmer Corp. in 20X8:

(1) Investment in Krown Corp. Stock 140,000 Cash 140,000 Record purchase of Krown Corp.

(2) Investment in Krown Corp. Stock 21,000 Income from Subsidiary 21,000 Record equity-method income.

(3) Cash 17,500 Investment in Krown Corp. Stock 17,500 Record dividends from subsidiary.

(4) Investment in Krown Corp. Stock 4,200 Other Comprehensive Income from Subsidiary (OCI) 4,200 Record Palmer's proportionate share of other comprehensive income of subsidiary.

b. Eliminating entries:

E(1) Income from Subsidiary 21,000 Dividends Declared 17,500 Investment in Krown Corp. Stock 3,500 Eliminate income from subsidiary.


E(3) Other Comprehensive Income from Subsidiary (OCI) 4,200 Investment in Krown Corp. Stock 4,200 Eliminate other comprehensive income from subsidiary.

E(4) Other Comprehensive Income to Noncontrolling Interest 1,800 Noncontrolling Interest 1,800 Assign other comprehensive income to noncontrolling interest.

E(5) Common Stock--Krown Corp. 120,000 Retained Earning--Krown Corp. 80,000 Investment in Krown Corp. Stock 140,000 Noncontrolling Interest 60,000 Eliminate beginning investment balance.


E5-25* Complex Assignment of Differential

a. Equity-method entries recorded by Holly during 20X5:

Investment in Brinker Common Stock 61,200 Income from Brinker, Inc. 61,200 Record equity-method income: $68,000 x .90

Income from Brinker, Inc. 91,500 Investment in Brinker Common Stock 91,500 Record write-off of differential.

Computation of differential write-off

Total differential $240,000 Assignment to identifiable assets and liabilities: Inventory $ 5,000 Land 75,000 Equipment 60,000 Discount on Notes Payable 50,000 Total (190,000) Goodwill $ 50,000

Write-off of differential: Inventory sold $ 5,000 Land sold 75,000 Depreciation of equipment ($60,000 / 15) 4,000 Amortization of discount on notes payable 7,500 Total write-off for 20X5 $ 91,500


E5-25* (continued)

b. Elimination entries:

Investment in Brinker Common Stock 30,300 Income from Brinker, Inc. 30,300

Income to Noncontrolling Interest 6,800 Noncontrolling Interest 6,800 $68,000 x .10

Common Stock--Brinker 500,000 Premium on Common Stock 100,000 Retained Earnings, January 1 120,000 Differential 240,000 Investment in Brinker Common Stock 888,000 Noncontrolling Interest 72,000 $72,000 = ($500,000 + $100,000 + $120,000) x .10

Cost of Goods Sold 5,000 Gain on Sale of Land 75,000 Equipment 60,000 Discount on Notes Payable 50,000 Goodwill 50,000 Differential 240,000

Depreciation Expense 4,000 Interest Expense 7,500 Accumulated Depreciation 4,000 Discount on Notes Payable 7,500

E5-26A Consolidation Using Cost-Method Accounting

a. Operating income of City Touring ($130,000 - $28,000) $102,000 Net income of Country Playgrounds 70,000 $172,000 Income to noncontrolling interest ($70,000 x .30) (21,000) Consolidated net income $151,000

b. Income to noncontrolling interest ($70,000 x .30) $ 21,000

c. The parent's retained earnings and its portion of undistributed subsidiary earnings since the date of purchase must be known in order to compute consolidated retained earnings.


E5-27A Computation of Consolidated Balances Using the Cost Method

a. Computation of Brush Company retained earnings at January 1, 20X5:

Retained earnings reported at January 1, 20X9 $230,000 Increase in retained earnings since date of acquisition ($21,000 / .30) (70,000) Retained earnings at January 1, 20X5 $160,000

b. Computation of consolidated retained earnings at January 1, 20X9:

Retained earnings reported by Cable Corporation $520,000 Proportionate share of undistributed earnings of Brush since acquisition ($70,000 x .70) 49,000 Amortization of purchase differential: Purchase price $220,000 Proportionate share of book value at acquisition ($280,000 x .70) (196,000) Purchase differential $ 24,000 Number of years amortized 10 Annual amortization $ 2,400 Number of years owned x 4 (9,600) Consolidated retained earnings $559,400

c. Consolidated net income for 20X9:

Net income reported by Cable $120,000 Proportionate share of undistributed earnings of Brush [($25,000 - $10,000) x .70] 10,500 Amortization of purchase differential (2,400) Consolidated net income $128,100

d. Consolidated retained earnings at December 31, 20X9:

Consolidated retained earnings at January 1, 20X9 $559,400 Consolidated net income 128,100 Consolidated dividends (50,000) Consolidated retained earnings $637,500


E5-28A Basic Cost-Method Workpaper


E(1) Dividend Income 10,000 Dividends Declared 10,000 Eliminate dividend income from subsidiary.

E(2) Common Stock--Shaw Corporation 100,000 Retained Earnings, January 1 50,000 Investment in Shaw Corporation Stock 150,000 Eliminate original investment balance.

b.Blake Corporation and Shaw CorporationConsolidation Workpaper

December 31, 20X3


Sales 200,000 120,000 320,000Dividend Income 10,000 (1) 10,000 Credits 210,000 120,000 320,000Depreciation Expense 25,000 15,000 40,000Other Expenses 105,000 75,000 180,000Debits (130,000) (90,000) (220,000)Net Income, carry forward 80,000 30,000 10,000 100,000 Ret. Earnings, Jan. 1 230,000 50,000 (2) 50,000 230,000Net Income, from above 80,000 30,000 10,000 100,000 310,000 80,000 330,000Dividends Declared (40,000) (10,000) (1) 10,000 (40,000)Ret. Earnings, Dec. 31, carry forward 270,000 70,000 60,000 10,000 290,000

Current Assets 145,000 105,000 250,000Deprec. Assets (net) 325,000 225,000 550,000Investment in Shaw Corporation Stock 150,000 (2)150,000 Debits 620,000 330,000 800,000



E5-29A Cost-Method Workpaper in Subsequent Period



E(2) Common Stock--Shaw Corporation 100,000 Retained Earnings, January 1 50,000 Investment in Shaw Corporation Stock 150,000 Eliminate original investment balance.


Blake Shaw Eliminations Consol- Item Corp. Corp. Debit Credit idated Sales 300,000 200,000 500,000Dividend Income 15,000 (1) 15,000 Credits 315,000 200,000 500,000Depreciation Expense 25,000 15,000 40,000Other Expenses 250,000 160,000 410,000Debits (275,000)(175,000) (450,000)Net Income, carry forward 40,000 25,000 15,000 50,000

Ret. Earnings, Jan. 1 270,000 70,000 (2) 50,000 290,000Net Income, from above 40,000 25,000 15,000 50,000 310,000 95,000 340,000Dividends Declared (20,000) (15,000) (1) 15,000 (20,000)Ret. Earnings, Dec. 31, carry forward 290,000 80,000 65,000 15,000 320,000

Current Assets 170,000 110,000 280,000Deprec. Assets (net) 300,000 210,000 510,000Investment in Shaw Corporation Stock 150,000 (2)150,000 Debits 620,000 320,000 790,000

Current Liabilities 30,000 20,000 50,000Long-Term Debt 100,000 120,000 220,000Common Stock Blake Corporation 200,000 200,000 Shaw Corporation 100,000 (2)100,000Retained Earnings, from above 290,000 80,000 65,000 15,000 320,000

Credits 620,000 320,000 165,000 165,000 790,000


E5-30A Cost-Method Consolidation for Majority-Owned Subsidiary




E(3) Common Stock--Knight Company 100,000 Retained Earnings, January 1 50,000 Investment in Knight Company Stock 120,000 Noncontrolling Interest 30,000 Eliminate original investment balance.

E(4) Retained Earnings--Knight Company 4,000 Noncontrolling Interest 4,000 Assign undistributed prior earnings of subsidiary to noncontrolling interest: ($70,000 - $50,000) x .20


E5-30A (continued)

b. Lintner Corporation and Knight Company Consolidation Workpaper December 31, 20X7

Lintner Knight Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 300,000 200,000 500,000Dividend Income 16,000 (1) 16,000 Credits 316,000 200,000 500,000Depreciation Expense 25,000 15,000 40,000Other Expenses 251,000 155,000 406,000Debits (276,000)(170,000) (446,000) 54,000Income to Noncon- trolling Interest (2) 6,000 (6,000)Net Income, carry forward 40,000 30,000 22,000 48,000

Ret. Earnings, Jan. 1 268,000 70,000 (3) 50,000 (4) 4,000 284,000Net Income, from above 40,000 30,000 22,000 48,000 308,000 100,000 332,000Dividends Declared (25,000) (20,000) (1) 16,000 (2) 4,000 (25,000)Ret. Earnings, Dec. 31, carry forward 283,000 80,000 76,000 20,000 307,000

Current Assets 183,000 80,000 263,000Depreciable Assets 500,000 300,000 800,000Investment in Knight Company Stock 120,000 (3)120,000 Debits 803,000 380,000 1,063,000

Accum. Depreciation 200,000 90,000 290,000Accounts Payable 120,000 110,000 230,000Common Stock Lintner Corporation 200,000 200,000 Knight Company 100,000 (3)100,000Retained Earnings, from above 283,000 80,000 76,000 20,000 307,000Noncontrolling Interest (2) 2,000 (3) 30,000 (4) 4,000 36,000Credits 803,000 380,000 176,000 176,000 1,063,000


E5-30A (continued)

c. Lintner Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X7

Current Assets $263,000Depreciable Assets $800,000 Less: Accumulated Depreciation (290,000) 510,000Total Assets $773,000

Accounts Payable $230,000Noncontrolling Interest 36,000Common Stock $200,000Retained Earnings 307,000 507,000Total Liabilities and Stockholders' Equity $773,000

Lintner Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X7

Sales $500,000Depreciation $ 40,000Other Expenses 406,000Total Expenses 446,000 $ 54,000Income to Noncontrolling Interest (6,000)Consolidated Net Income $ 48,000

Lintner Corporation and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X7



SOLUTIONS TO PROBLEMS

P5-31 Consolidated Balances [AICPA Adapted]

1. a $455,000 = $310,000 + $135,000 + $10,000

2. b Total assets reported by Purl $1,325,000 Deduct investment in Scott (390,000) Assets held other than investment in Scott $ 935,000 Total assets reported by Scott 415,000 Unamortized purchase differential: Amount paid by Purl $360,000 Book value of net assets at acquisition ($410,000 - $160,000) (250,000) Differential $110,000 Amortization of differential assigned to copyrights: ($100,000 / 10) (10,000) Differential at December 31, 20X0 100,000 Total assets $1,450,000

3. d The balance reported by Purl

4. b The net income reported by Purl (Purl uses the equity method in accounting for its investment in Scott)

5. b $100,000 / 10 years


P5-32 Ownership Balances

a. Total stockholders' equity of Eastland Company, December 31, 20X4 ($227,500 / .25) $910,000 Total stockholders' equity of Eastland Company at acquisition (800,000) Increase in retained earnings $110,000 Original balance in retained earnings 320,000 Balance in retained earnings December 31, 20X4 $430,000

b. Purchase price of Eastland shares $648,000 Increase in Eastland's retained earnings $110,000 Proportion of stock held by Penn Corporation x .75 82,500 Annual amortization of differential [$648,000 - ($800,000 x .75)] / 8 years $ 6,000 Number of years owned x 3 (18,000) Balance in investment account, December 31, 20X4 $712,500

c. Retained earnings of Penn Corporation at January 1, 20X2 $485,000 Income from separate operations $195,000 Dividends paid (90,000) 105,000 Earnings of Eastland since date of acquisition [$110,000 + ($20,000 x 3)] $170,000 Proportion of stock held by Penn x .75 Income recorded by Penn before amortization of purchase differential $127,500 Amortization of purchase differential ($6,000 x 3 years) (18,000) 109,500 Consolidated retained earnings, December 31, 20X4 $699,500


P5-33 Consolidated Income and Retained Earnings

a. Consolidated net income for 20X4:

Operating income of Allied $ 90,000 Net income of Bolt $30,000 Proportion of stock held by Allied x .80 24,000 Consolidated net income $114,000

b. Consolidated retained earnings, December 31, 20X4:

Because Allied Foundries uses the equity method in accounting for its ownership in Bolt Corporation, Allied's retained earnings fully reflect the income from its own operations and its proportionate share of Bolt's net income for each period. Thus, Allied's retained earnings and consolidated retained earnings are the same at December 31, 20X4.

Retained earnings of Allied Foundries $642,000 Reconciling items --- Consolidated retained earnings $642,000

c. Bolt Corporation's stockholders' equity, December 31, 20X4:

Common stock $100,000 Additional paid-in capital 40,000 Retained earnings 150,000 $290,000 Proportion of stock held by noncontrolling interest x .20 Noncontrolling interest $ 58,000

d. Consolidated Retained Earnings, January 1, 20X4a $548,000 Add: Consolidated Net Income 114,000 $662,000 Less: Dividends Declared (20,000) Consolidated Retained Earnings, December 31, 20X4 $642,000

a Consolidated balance is equal to parent company balance when parent uses equity-method reporting for investment in subsidiary.


P5-34 Income and Retained Earnings

a. Net income for 20X9: Quill North Operating income $ 90,000 $35,000 Income from subsidiary 24,500 - Net income $114,500 $35,000

b. Consolidated net income is equal to the $114,500 net income reported by Quill.

c. Retained earnings reported at December 31, 20X9:

Quill North Retained earnings, January 1, 20X9 $290,000 $40,000 Net income for 20X9 114,500 35,000 Dividends paid in 20X9 (30,000) (10,000) Retained earnings, December 31, 20X9 $374,500 $65,000

d. Consolidated retained earnings at December 31, 20X9, is equal to the $374,500 retained earnings balance reported by Quill.

e. When the cost method is used, the parent's proportionate share of the increase in retained earnings of the subsidiary subsequent to acquisition is not included in the parent's retained earnings. Thus, this amount must be added to the total retained earnings reported by the parent in arriving at consolidated retained earnings.


P5-35 Eliminating Entries for Consolidated Balance Sheet

a. The balance in the investment account is $421,000, computed as follows:

Purchase price $400,000 Proportionate share of increase in retained earnings [($395,000 - $310,000) x .60)] 51,000 Less: Amortization of differential: Amount paid $400,000 Book value of net assets ($550,000 x .60) (330,000) Differential $ 70,000 Amortization period 7 years Annual amortization $ 10,000 Number of years owned x 3 (30,000) Balance in investment account $421,000

b. Eliminating entries for balance sheet December 31, 20X9:

E(1) Common Stock--Doughboy Company 240,000 Retained Earnings 395,000 Differential 40,000 Investment in Doughboy Company Stock 421,000 Noncontrolling Interest 254,000 Eliminate investment balance.

E(2) Buildings and Equipment 70,000 Accumulated Depreciation 30,000 Differential 40,000 Assign differential.


P5-36 Consolidation Workpaper at End of First Year of Ownership


E(1) Income from Subsidiary 16,500 Dividends Declared 12,000 Investment in Best Company Stock 4,500 Eliminate income from subsidiary.


E(3) Common Stock--Best Company 60,000 Retained Earnings, January 1 40,000 Differential 21,000 Investment in Best Company Stock 96,000 Noncontrolling Interest 25,000 Eliminate beginning investment balance.

E(4) Buildings and Equipment 15,000 Goodwill 6,000 Differential 21,000 Assign beginning differential.

E(5) Depreciation Expense 1,500 Accumulated Depreciation 1,500 Amortize differential: $1,500 = $15,000 / 10 years

E(6) Goodwill Impairment Loss 3,500 Goodwill 3,500


P5-36 (continued)

b.

Power Corporation and Best CompanyConsolidation Workpaper

December 31, 20X8

Power Best Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 260,000 180,000 440,000Income from Subsidiary 16,500 (1) 16,500 Credits 276,500 180,000 440,000Cost of Goods Sold 125,000 110,000 235,000Wage Expense 42,000 27,000 69,000Depreciation Expense 25,000 10,000 (5) 1,500 36,500Interest Expense 12,000 4,000 16,000Other Expenses 13,500 5,000 18,500Goodwill Impairment Loss (6) 3,500 3,500Debits (217,500) (156,000) (378,500) 61,500Income to Noncon- trolling Interest (2) 6,000 (6,000)Net Income, carry forward 59,000 24,000 27,500 55,500

Ret. Earnings, Jan. 1 102,000 40,000 (3) 40,000 102,000Net Income, from above 59,000 24,000 27,500 55,500 161,000 64,000 157,500Dividends Declared (30,000) (16,000) (1) 12,000 (2) 4,000 (30,000)Ret. Earnings, Dec. 31, carry forward 131,000 48,000 67,500 16,000 127,500

Cash 47,500 21,000 68,500Accounts Receivable 70,000 12,000 82,000Inventory 90,000 25,000 115,000Land 30,000 15,000 45,000Buildings and Equipment 350,000 150,000 (4) 15,000 515,000Investment in Best Company Stock 100,500 (1) 4,500 (3) 96,000Differential (3) 21,000 (4) 21,000Goodwill (4) 6,000 (6) 3,500 2,500Debits 688,000 223,000 828,000


P5-36 (continued)


Accum. Depreciation 145,000 40,000 (5) 1,500 186,500Accounts Payable 45,000 16,000 61,000Wages Payable 17,000 9,000 26,000Notes Payable 150,000 50,000 200,000Common Stock Power Corporation 200,000 200,000 Best Company 60,000 (3) 60,000Retained Earnings, from above 131,000 48,000 67,500 16,000 127,500Noncontrolling Interest (2) 2,000 (3) 25,000 27,000Credits 688,000 223,000 169,500 169,500 828,000


P5-37 Consolidation Workpaper at End of Second Year of Ownership


E(1) Income from Subsidiary 25,500 Dividends Declared 15,000 Investment in Best Company Stock 10,500 Eliminate income from subsidiary.


E(3) Common Stock--Best Company 60,000 Retained Earnings, January 1 48,000 Differential 19,500 Investment in Best Company Stock 100,500 Noncontrolling Interest 27,000 Eliminate beginning investment balance.

E(4) Buildings and Equipment 15,000 Goodwill 2,500 Retained Earnings, January 1 3,500 Differential 19,500 Accumulated Depreciation 1,500 Assign beginning differential.

E(5) Depreciation Expense 1,500 Accumulated Depreciation 1,500 Amortize differential: $1,500 = $15,000 / 10 years


P5-37 (continued)

b.

Power Corporation and Best CompanyConsolidation Workpaper

December 31, 20X9


Sales 290,000 200,000 490,000Income from Subsidiary 25,500 (1) 25,500 Credits 315,500 200,000 490,000Cost of Goods Sold 145,000 114,000 259,000Wage Expense 35,000 20,000 55,000Depreciation Expense 25,000 10,000 (5) 1,500 36,500Interest Expense 12,000 4,000 16,000Other Expenses 23,000 16,000 39,000Debits (240,000) (164,000) (405,500) 84,500Income to Noncon- trolling Interest (2) 9,000 (9,000)Net Income, carry forward 75,500 36,000 36,000 75,500

Ret. Earnings, Jan. 1 131,000 48,000 (3) 48,000 127,500 (4) 3,500Net Income, from above 75,500 36,000 36,000 75,500 206,500 84,000 203,000Dividends Declared (30,000) (20,000) (1) 15,000 (2) 5,000 (30,000)Ret. Earnings, Dec. 31, carry forward 176,500 64,000 87,500 20,000 173,000

Cash 68,500 32,000 100,500Accounts Receivable 85,000 14,000 99,000Inventory 97,000 24,000 121,000Land 50,000 25,000 75,000Buildings and Equipment 350,000 150,000 (4) 15,000 515,000Investment in Best Company Stock 111,000 (1) 10,500 (3)100,500Differential (3) 19,500 (4) 19,500Goodwill (4) 2,500 2,500Debits 761,500 245,000 913,000


P5-37 (continued)


Accum. Depreciation 170,000 50,000 (4) 1,500 (5) 1,500 223,000Accounts Payable 51,000 15,000 66,000Wages Payable 14,000 6,000 20,000Notes Payable 150,000 50,000 200,000Common Stock Power Corporation 200,000 200,000 Best Company 60,000 (3) 60,000Retained Earnings, from above 176,500 64,000 87,500 20,000 173,000Noncontrolling Interest (2) 4,000 (3) 27,000 31,000Credits 761,500 245,000 184,500 184,500 913,000


P5-37 (continued)

c.

Power Corporation and SubsidiaryConsolidated Balance Sheet

December 31, 20X9

Cash $100,500Accounts Receivable 99,000Inventory 121,000Land 75,000Buildings and Equipment $515,000Less: Accumulated Depreciation (223,000) 292,000Goodwill 2,500Total Assets $690,000

Accounts Payable $ 66,000Wages Payable 20,000Notes Payable 200,000Noncontrolling Interest 31,000Common Stock $200,000Retained Earnings 173,000 373,000Total Liabilities and Stockholders' Equity $690,000

Power Corporation and SubsidiaryConsolidated Income StatementYear Ended December 31, 20X9

Sales $490,000Cost of Goods Sold $259,000Wage Expense 55,000Depreciation Expense 36,500Interest Expense 16,000Other Expenses 39,000Total Expenses (405,500) $ 84,500Income to Noncontrolling Interest (9,000)Consolidated Net Income $ 75,500

Power Corporation and SubsidiaryConsolidated Retained Earnings Statement

Year Ended December 31, 20X9



P5-38 Consolidation of Majority-Owned Subsidiary

Eliminating entries:

E(1) Income from Subsidiary 43,500 Dividends Declared 15,000 Investment in Terrier Corporation Stock 28,500 Eliminate income from subsidiary.


E(3) Common Stock--Terrier Corporation 40,000 Additional Paid-In Capital 35,000 Retained Earnings, January 1 75,000 Differential 10,500 Investment in Terrier Corporation Stock 123,000 Noncontrolling Interest 37,500 Eliminate beginning investment balance.

E(4) Buildings and Equipment 12,000 Differential 10,500 Accumulated Depreciation 1,500 Assign beginning differential.



P5-38 (continued)

a. Richards Company and Terrier Corporation Consolidation Workpaper December 31, 20X6

Richards Terrier Eliminations Consol- Item Company Corp. Debit Credit idated Sales 700,000 400,000 1,100,000Income from Subsidiary 43,500 (1) 43,500 Credits 743,500 400,000 1,100,000Cost of Goods Sold 500,000 250,000 750,000Wage Expense 45,000 35,000 80,000Depreciation Expense 25,000 15,000 (5) 1,500 41,500Other Expenses 30,000 40,000 70,000Debits (600,000)(340,000) (941,500) 158,500Income to Noncon- trolling Interest (2) 15,000 (15,000)Net Income, carry forward 143,500 60,000 60,000 143,500


Cash and Receivables 135,500 80,000 215,500Inventory 240,000 100,000 340,000Land 80,000 20,000 100,000Buildings and Equipment 500,000 150,000 (4) 12,000 662,000Investment in Terrier Corporation Stock 151,500 (1) 28,500 (3)123,000Differential (3) 10,500 (4) 10,500 Debits 1,107,000 350,000 1,317,500

Accum. Depreciation 155,000 75,000 (4) 1,500 (5) 1,500 233,000Accounts Payable 70,000 35,000 105,000Notes Payable 200,000 50,000 250,000Common Stock Richards Company 300,000 300,000 Terrier Corporation 40,000 (3) 40,000Additional Paid-In Capital 60,000 35,000 (3) 35,000 60,000Retained Earnings, from above 322,000 115,000 135,000 20,000 322,000Noncontrolling Interest (2) 10,000 (3) 37,500 47,500Credits 1,107,000 350,000 232,500 232,500 1,317,500


P5-38 (continued)

b. Richards Company and Subsidiary Consolidated Balance Sheet December 31, 20X6

Cash and Receivables $ 215,500Inventory 340,000Land 100,000Buildings and Equipment $662,000Less: Accumulated Depreciation (233,000) 429,000Total Assets $1,084,500

Accounts Payable $ 105,000Notes Payable 250,000Noncontrolling Interest 47,500Common Stock $300,000Additional Paid-In Capital 60,000Retained Earnings 322,000 682,000Total Liabilities and Stockholders' Equity $1,084,500

Richards Company and Subsidiary Consolidated Income Statement Year Ended December 31, 20X6

Sales $1,100,000Cost of Goods Sold $750,000Wage Expense 80,000Depreciation Expense 41,500Other Expenses 70,000Total Expenses 941,500 $ 158,500Income to Noncontrolling Interest (15,000)Consolidated Net Income $ 143,500

Richards Company and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X6

Retained Earnings, January 1, 20X6 $ 228,50020X6 Net Income 143,500 $ 372,000Dividends Paid in 20X6 (50,000)Retained Earnings, December 31, 20X6 $ 322,000


P5-39 Balance Sheet Consolidation [AICPA Adapted]

Case, Inc. and Frey, Inc. Consolidated Balance Sheet Workpaper December 31, 20X4

Case Frey Eliminations Consol- Item Inc. Inc. Debit Credit idated

Cash 825,000 330,000 1,155,000Accounts and Other Receivables 2,140,000 835,000 2,975,000Inventory 2,310,000 1,045,000 3,355,000Land 650,000 300,000 (2) 250,000 1,200,000Deprec. Assets (net) 4,575,000 1,980,000 6,555,000Investment in Frey, Inc. 2,680,000 (1)2,680,000Long-Term Investments and Other Assets 865,000 385,000 1,250,000Differential (1) 250,000 (2) 250,000 Total Debits 14,045,000 4,875,000 16,490,000Accounts Payable and Other Current Liabilities 2,465,000 1,145,000 3,610,000Long-Term Debt 1,900,000 1,300,000 3,200,000Common Stock, $25 Par 3,200,000 1,000,000 (1)1,000,000 3,200,000Additional Paid-In Capital 2,100,000 190,000 (1) 190,000 2,100,000Retained Earnings 4,380,000 1,240,000 (1)1,240,000 4,380,000Total Credits 14,045,000 4,875,000 2,930,000 2,930,000 16,490,000


P5-40 Consolidated Balance Sheet


E(1) Common Stock--Lake Corporation 100,000 Retained Earnings 120,000 Differential 32,000 Investment in Lake Corporation Stock 252,000 Eliminate investment balance.

E(2) Buildings and Equipment 40,000 Accumulated Depreciation 8,000 Differential 32,000 Assign purchase differential.

b. Thompson Company and Lake Corporation Consolidated Balance Sheet Workpaper December 31, 20X3

Thompson Lake Eliminations Consol- Item Co. Corp. Debit Credit idated

Cash 30,000 20,000 50,000Accounts Receivable 100,000 40,000 140,000Land 60,000 50,000 110,000Buildings and Equipment 500,000 350,000 (2) 40,000 890,000Investment in Lake Corporation 252,000 (1)252,000Differential (1) 32,000 (2) 32,000 Total Debits 942,000 460,000 1,190,000

Accum. Depreciation 230,000 75,000 (2) 8,000 313,000Accounts Payable 80,000 10,000 90,000Taxes Payable 40,000 70,000 110,000Notes Payable 100,000 85,000 185,000Common Stock 200,000 100,000 (1)100,000 200,000Retained Earnings 292,000 120,000 (1)120,000 292,000Total Credits 942,000 460,000 292,000 292,000 1,190,000


P5-41 Comprehensive Problem: Majority Ownership in Subsequent Period

a. Journal entries recorded by Thompson Corporation

(1) Investment in Lake Corporation Stock 32,000 Income from Subsidiary 32,000 Record equity-method income.

(2) Income from Subsidiary 4,000 Investment in Lake Corporation Stock 4,000 Amortize differential: $40,000 / 10 years

(3) Cash 12,000 Investment in Lake Corporation Stock 12,000 Record dividends from subsidiary.


E(1) Income from Subsidiary 28,000 Dividends Declared 12,000 Investment in Lake Corporation Stock 16,000 Eliminate income from subsidiary.

E(2) Common Stock--Lake Corporation 100,000 Retained Earnings, January 1 120,000 Differential 32,000 Investment in Lake Corporation Stock 252,000 Eliminate beginning investment balance.

E(3) Buildings and Equipment 40,000 Accumulated Depreciation 8,000 Differential 32,000 Assign purchase differential.


E(5) Accounts Payable 2,500 Accounts Receivable 2,500

Eliminate intercorporate receivable/payable.


P5-41 (continued)

c. Thompson Corporation and Lake Corporation Consolidation Workpaper December 31, 20X4 Thompson Lake Eliminations Consol- Item Co. Corp. Debit Credit idated

Service Revenue 610,000 240,000 850,000Income from Subsidiary 28,000 (1) 28,000 Credits 638,000 240,000 850,000Cost of Services Provided 470,000 130,000 600,000Depreciation Expense 35,000 18,000 (4) 4,000 57,000Other Expenses 57,000 60,000 117,000Debits (562,000)(208,000) (774,000)Net Income, carry forward 76,000 32,000 32,000 76,000

Ret. Earnings, Jan. 1 292,000 120,000 (2)120,000 292,000Net Income, from above 76,000 32,000 32,000 76,000 368,000 152,000 368,000Dividends Declared (30,000) (12,000) (1) 12,000 (30,000)Ret. Earnings, Dec. 31, carry forward 338,000 140,000 152,000 12,000 338,000

Cash 74,000 42,000 116,000Accounts Receivables 130,000 53,000 (5) 2,500 180,500Land 60,000 50,000 110,000Buildings and Equipment 500,000 350,000 (3) 40,000 890,000Investment in Lake Corporation Stock 268,000 (1) 16,000 (2)252,000Differential (2) 32,000 (3) 32,000 Debits 1,032,000 495,000 1,296,500

Accum. Depreciation 265,000 93,000 (3) 8,000 (4) 4,000 370,000Accounts Payable 71,000 17,000 (5) 2,500 85,500Taxes Payable 58,000 60,000 118,000Notes Payable 100,000 85,000 185,000Common Stock Thompson Company 200,000 200,000 Lake Corporation 100,000 (2)100,000Retained Earnings, from above 338,000 140,000 152,000 12,000 338,000Credits 1,032,000 495,000 326,500 326,500 1,296,500


P5-42 Comprehensive Problem: Majority-Owned Subsidiary

a. Journal entries recorded by Pillar Corporation:

(1) Investment in Stanley Wood Products Stock 24,000 Income from Subsidiary 24,000 Record equity-method income: $30,000 x .80

(2) Income from Subsidiary 4,000 Investment in Stanley Wood Products Stock 4,000 Amortize differential: $40,000 / 10 years

(3) Cash 8,000 Investment in Stanley Wood Products Stock 8,000 Record dividends from Stanley Wood Products: $10,000 x .80


E(1) Income from Subsidiary 20,000 Dividends Declared 8,000 Investment in Stanley Wood Products Stock 12,000 Eliminate income from subsidiary.


E(3) Common Stock--Stanley Wood Products 100,000 Retained Earnings, January 1 90,000 Differential 24,000 Investment in Stanley Wood Products Stock 176,000 Noncontrolling Interest 38,000 Eliminate beginning investment balance: $176,000 = [.80($100,000 + $90,000) + $24,000] $38,000 = [.20($100,000 +$90,000)]

E(4) Buildings and Equipment 40,000 Accumulated Depreciation 16,000 Differential 24,000 Assign beginning differential.


E(6) Accounts Payable 10,000 Cash and Receivables 10,000

Eliminate intercorporate receivable/payable.


P5-42 (continued)

c. Pillar Corporation and Stanley Wood Products Company Consolidation Workpaper December 31, 20X5 Pillar Stanley Eliminations Consol- Item Corp. Wood Debit Credit idated

Sales 200,000 100,000 300,000Income from Subsidiary 20,000 (1) 20,000 Credits 220,000 100,000 300,000Cost of Goods Sold 120,000 50,000 170,000Depreciation Expense 25,000 15,000 (5) 4,000 44,000Inventory Losses 15,000 5,000 20,000Debits (160,000) (70,000) (234,000) 66,000Income to Noncon- trolling Interest (2) 6,000 (6,000)Net Income, carry forward 60,000 30,000 30,000 60,000


Cash and Receivables 81,000 65,000 (6) 10,000 136,000Inventory 260,000 90,000 350,000Land 80,000 80,000 160,000Buildings and Equipment 500,000 150,000 (4) 40,000 690,000Investment in Stanley Wood Products Stock 188,000 (1) 12,000 (3)176,000Differential (3) 24,000 (4) 24,000 Debits 1,109,000 385,000 1,336,000

Accum. Depreciation 205,000 105,000 (4) 16,000 (5) 4,000 330,000Accounts Payable 60,000 20,000 (6) 10,000 70,000Notes Payable 200,000 50,000 250,000Common Stock Pillar Corporation 300,000 300,000 Stanley Wood Products 100,000 (3)100,000Retained Earnings, from above 344,000 110,000 120,000 10,000 344,000Noncontrolling Interest (2) 4,000 (3) 38,000 42,000Credits 1,109,000 385,000 294,000 294,000 1,336,000


P5-43 Comprehensive Problem: Differential Apportionment

a. Journal entries recorded by Bigelow Corporation:

(1) Investment in Granite Company Stock 173,000 Cash 173,000 Purchase of Granite Company stock.

(2) Investment in Granite Company Stock 48,000 Income from Subsidiary 48,000 Record equity-method income: $60,000 x .80

(3) Cash 16,000 Investment in Granite Company Stock 16,000 Record dividends from Granite Company: $20,000 x .80

(4) Income from Subsidiary 3,000 Investment in Granite Company Stock 3,000 Amortize differential assigned to depreciable assets: ($33,000 / 11 years)


P5-43 (continued)


E(1) Income from Subsidiary 45,000 Dividends Declared 16,000 Investment in Granite Company Stock 29,000 Eliminate income from subsidiary.


E(3) Common Stock--Granite Company 50,000 Retained Earnings, January 1 100,000 Differential 53,000 Investment in Granite Company Stock 173,000 Noncontrolling Interest 30,000 Eliminate beginning investment balance.

E(4) Goodwill 20,000 Buildings and Equipment 33,000 Differential 53,000 Assign beginning differential.

E(5) Depreciation Expense 3,000 Accumulated Depreciation 3,000 Amortize differential related to depreciable assets.

E(6) Accounts Payable 16,000 Accounts Receivable 16,000 Eliminate intercorporate receivable/payable.


P5-43 (continued)

c. Bigelow Corporation and Granite Company Consolidation Workpaper December 31, 20X7

Bigelow Granite Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 700,000 400,000 1,100,000Income from Subsidiary 45,000 (1) 45,000 Credits 745,000 400,000 1,100,000Cost of Goods Sold 500,000 250,000 750,000Depreciation Expense 25,000 15,000 (5) 3,000 43,000Other Expenses 75,000 75,000 150,000Debits (600,000)(340,000) (943,000) 157,000Income to Noncon- trolling Interest (2) 12,000 (12,000)Net Income, carry forward 145,000 60,000 60,000 145,000

Ret. Earnings, Jan. 1 290,000 100,000 (3)100,000 290,000Net Income, from above 145,000 60,000 60,000 145,000 435,000 160,000 435,000Dividends Declared (50,000) (20,000) (1) 16,000 (2) 4,000 (50,000)Ret. Earnings, Dec. 31, carry forward 385,000 140,000 160,000 20,000 385,000

Cash 38,000 25,000 63,000Accounts Receivable 50,000 55,000 (6) 16,000 89,000Inventory 240,000 100,000 340,000Land 80,000 20,000 100,000Buildings and Equipment 500,000 150,000 (4) 33,000 683,000Investment in Granite Company Stock 202,000 (1) 29,000 (3)173,000Differential (3) 53,000 (4) 53,000Goodwill (4) 20,000 20,000Debits 1,110,000 350,000 1,295,000

Accum. Depreciation 155,000 75,000 (5) 3,000 233,000Accounts Payable 70,000 35,000 (6) 16,000 89,000Mortgages Payable 200,000 50,000 250,000Common Stock Bigelow Corporation 300,000 300,000 Granite Company 50,000 (3) 50,000Retained Earnings, from above 385,000 140,000 160,000 20,000 385,000Noncontrolling Interest (2) 8,000 (3) 30,000 38,000Credits 1,110,000 350,000 332,000 332,000 1,295,000


P5-44 Comprehensive Problem: Differential Apportionment in Subsequent Period.

a. Journal entries recorded by Bigelow Corporation:

(1) Investment in Granite Company Stock 36,000 Income from Subsidiary 36,000 Record equity-method income: $45,000 x .80

(2) Cash 20,000 Investment in Granite Company Stock 20,000 Record dividends from Granite Company: $20,000 = $25,000 x .80

(3) Income from Subsidiary 3,000 Investment in Granite Company Stock 3,000 Amortize differential assigned to depreciable assets: ($33,000 / 11 years)


P5-44 (continued)


E(1) Income from Subsidiary 33,000 Dividends Declared 20,000 Investment in Granite Company Stock 13,000 Eliminate income from subsidiary.


E(3) Common Stock--Granite Company 50,000 Retained Earnings, January 1 140,000 Differential 50,000 Investment in Granite Company Stock 202,000 Noncontrolling Interest 38,000 Eliminate beginning investment balance.

E(4) Goodwill 20,000 Buildings and Equipment 33,000 Differential 50,000 Accumulated Depreciation 3,000 Assign beginning differential.

E(5) Depreciation Expense 3,000 Accumulated Depreciation 3,000 Amortize differential related to depreciable assets.

E(6) Goodwill Impairment Loss 14,000 Goodwill 14,000 Impairment of goodwill.

E(7) Accounts Payable 9,000 Accounts Receivable 9,000 Eliminate intercorporate receivable/payable.


P5-44 (continued)

c. Bigelow Corporation and Granite Company Consolidation Workpaper December 31, 20X8

Bigelow Granite Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 650,000 470,000 1,120,000Income from Subsidiary 33,000 (1) 33,000 Credits 683,000 470,000 1,120,000Cost of Goods Sold 490,000 310,000 800,000Depreciation Expense 25,000 15,000 (5) 3,000 43,000Goodwill Impairment Loss (6) 14,000 14,000Other Expenses 62,000 100,000 162,000Debits (577,000)(425,000) (1,019,000) 101,000Income to Noncon- trolling Interest (2) 9,000 (9,000)Net Income, carry forward 106,000 45,000 59,000 92,000


Cash 59,000 31,000 90,000Accounts Receivable 83,000 71,000 (7) 9,000 145,000Inventory 275,000 118,000 393,000Land 80,000 30,000 110,000Buildings and Equipment 500,000 150,000 (4) 33,000 683,000Investment in Granite Company Stock 215,000 (1) 13,000 (3)202,000Differential (3) 50,000 (4) 50,000Goodwill (4) 20,000 (6) 14,000 6,000Debits 1,212,000 400,000 1,427,000

Accum. Depreciation 180,000 90,000 (4) 3,000 (5) 3,000 276,000Accounts Payable 86,000 30,000 (7) 9,000 107,000Mortgages Payable 200,000 70,000 270,000Common Stock Bigelow Corporation 300,000 300,000 Granite Company 50,000 (3) 50,000Retained Earnings, from above 446,000 160,000 199,000 25,000 432,000Noncontrolling Interest (2) 4,000 (3) 38,000 42,000Credits 1,212,000 400,000 361,000 361,000 1,427,000


P5-45 Analyzing Consolidated Data

a. Proportion of stock held by Buckman Corporation:

Amount assigned to noncontrolling interest in consolidated balance sheet $ 68,000 Book value of Eckel Mining Company net assets 170,000

Proportion of stock held by noncontrolling interest ($68,000 / $170,000) .40 Proportion of stock held by Buckman (1.00 - .40) .60

b. The stock was purchased for an amount $20,000 in excess of book value.

Balance reported in Buckman's investment account $120,000 Net assets of Eckel Mining Company $170,000 Proportion of stock held by Buckman x .60 (102,000) Amount in excess of book value on December 31, 20X3 $ 18,000 Amortization per year ($18,000 / 9 years) 2,000 Patents on January 1, 20X3 $ 20,000

c. Income to noncontrolling interest $ 12,000 Proportion of stock held by noncontrolling interest .40 Income of Eckel Mining Company for 20X3 $ 30,000

d. 1. Noncontrolling interest, December 31, 20X3 $ 68,000 Eckel Mining's income for 20X3 $30,000 Eckel Mining's dividends for 20X3 (10,000) Increase in Eckel Mining's retained earnings $20,000 Proportion of stock held by noncontrolling interest x .40 (8,000) Noncontrolling interest, January 1, 20X3 $ 60,000

2. Balance in investment account on December 31, 20X3 $120,000 Eckel Mining's income for 20X3 $30,000 Proportion of stock held by Buckman x .60 $18,000 Less: Amortization of differential (2,000) Equity-method income $16,000 Less: Dividends received ($10,000 x .60) (6,000) Change in investment balance (10,000) Purchase price, January 1, 20X3 $110,000

e. Yes. The current liabilities of Buckman and Eckel Mining total $100,000 and the consolidated balance is $60,000. A $40,000 inter-corporate payable apparently exists.


P5-46 Subsidiary with Other Comprehensive Income in Year of Acquisition


E(1) Income from Subsidiary 15,000 Dividends Declared 9,000 Investment in Sparta Company Stock 6,000 Eliminate income from subsidiary.


E(3) Other Comprehensive Income from Subsidiary-- Unrealized Gain on Investments (OCI) 6,000 Investment in Sparta Company Stock 6,000 Eliminate other comprehensive income from subsidiary.


E(5) Common Stock--Sparta Company 100,000 Retained Earnings, January 1 60,000 Investment in Sparta Company Stock 96,000 Noncontrolling Interest 64,000 Eliminate beginning investment balance.


P5-46 (continued)

b.

Amber Corporation and Sparta CompanyConsolidation Workpaper

December 31, 20X8

Amber Sparta Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 220,000 148,000 368,000Income from Subsidiary 15,000 (1) 15,000 Credits 235,000 148,000 368,000Cost of Goods Sold 150,000 110,000 260,000Depreciation Expense 30,000 10,000 40,000Interest Expense 8,000 3,000 11,000Debits (188,000) (123,000) (311,000) 57,000Income to Noncon- trolling Interest (2) 10,000 (10,000)Net Income, carry forward 47,000 25,000 25,000 47,000


Cash 27,000 8,000 35,000Accounts Receivable 65,000 22,000 87,000Inventory 40,000 30,000 70,000Buildings and Equipment 500,000 235,000 735,000Investment in Row Company Securities 40,000 40,000Investment in Sparta Company Stock 108,000 (1) 6,000 (3) 6,000 (5) 96,000 Debits 740,000 335,000 967,000


P5-46 (continued)


Accum. Depreciation 140,000 85,000 225,000Accounts Payable 63,000 20,000 83,000Bonds Payable 100,000 50,000 150,000Common Stock Amber Corporation 200,000 200,000 Sparta Company 100,000 (5)100,000Retained Earnings, from above 231,000 70,000 85,000 15,000 231,000Accumulated Other Comprehensive income, from below 6,000 10,000 10,000 6,000Noncontrolling Interest (2) 4,000 (4) 4,000 (5) 64,000 72,000Credits 740,000 335,000 195,000 195,000 967,000

Other Comprehensive Income: OCI from Subsidiary-- Unrealized Gain on Investments 6,000 (3) 6,000 Unrealized Gain on Investments 10,000 10,000 Other Comprehensive Income to Noncon- trolling Interest (4) 4,000 (4,000)Accumulated Other Comprehensive Income, December 31, carry up 6,000 10,000 10,000 6,000


P5-46 (continued)

c.

Amber Corporation and SubsidiaryConsolidated Balance Sheet

December 31, 20X8

Cash $ 35,000Accounts Receivable 87,000Inventory 70,000Buildings and Equipment $735,000Less: Accumulated Depreciation (225,000) 510,000Investment in Marketable Securities 40,000Total Assets $742,000

Accounts Payable $ 83,000Bonds Payable 150,000Noncontrolling Interest 72,000Common Stock $200,000Retained Earnings 231,000Accumulated Other Comprehensive Income to Controlling Interest 6,000 437,000Total Liabilities and Stockholders' Equity $742,000

Amber Corporation and SubsidiaryConsolidated Income StatementYear Ended December 31, 20X8

Sales $368,000Cost of Goods Sold $260,000Depreciation Expense 40,000Interest Expense 11,000Total Expenses 311,000 $ 57,000Income to Noncontrolling Interest (10,000)Consolidated Net Income $ 47,000

Amber Corporation and SubsidiaryConsolidated Statement of Comprehensive Income

Year Ended December 31, 20X8

Net Income $ 47,000Other Comprehensive Income: Unrealized Gain on Investments Held by Subsidiary $10,000 Other Comprehensive Income to Noncontrolling Interest (4,000)Other Comprehensive Income to Controlling Interest 6,000Comprehensive Income $ 53,000


P5-47 Subsidiary with Other Comprehensive Income in Year Following Acquisition


E(1) Income from Subsidiary 18,000 Dividends Declared 12,000 Investment in Sparta Company Stock 6,000 Eliminate income from subsidiary.


E(3) Other Comprehensive Income from Subsidiary-- Unrealized Gain on Investments (OCI) 2,400 Investment in Sparta Company Stock 2,400 Eliminate other comprehensive income from subsidiary.


E(5) Common Stock--Sparta Company 100,000 Retained Earnings, January 1 70,000 Accumulated Other Comprehensive Income 10,000 Investment in Sparta Company Stock 108,000 Noncontrolling Interest 72,000

Eliminate beginning investment balance.


P5-47 (continued)

b.

Amber Corporation and Sparta CompanyConsolidation Workpaper

December 31, 20X9


Sales 250,000 140,000 390,000Income from Subsidiary 18,000 (1) 18,000 Credits 268,000 140,000 390,000Cost of Goods Sold 170,000 97,000 267,000Depreciation Expense 30,000 10,000 40,000Interest Expense 8,000 3,000 11,000Debits (208,000) (110,000) (318,000) 72,000Income to Noncon- trolling Interest (2) 12,000 (12,000)Net Income, carry forward 60,000 30,000 30,000 60,000


Cash 18,000 11,000 29,000Accounts Receivable 45,000 21,000 66,000Inventory 40,000 30,000 70,000Buildings and Equipment 585,000 257,000 842,000Investment in Row Company Securities 44,000 44,000Investment in Sparta Company Stock 116,400 (1) 6,000 (3) 2,400 (5)108,000 Debits 804,400 363,000 1,051,000


P5-47 (continued)


Accum. Depreciation 170,000 95,000 265,000Accounts Payable 75,000 24,000 99,000Bonds Payable 100,000 50,000 150,000Common Stock Amber Corporation 200,000 200,000 Sparta Company 100,000 (5)100,000Retained Earnings, from above 251,000 80,000 100,000 20,000 251,000Accumulated Other Comprehensive Income, from below 8,400 14,000 14,000 8,400Noncontrolling Interest (2) 4,000 (4) 1,600 (5) 72,000 77,600Credits 804,400 363,000 214,000 214,000 1,051,000

Other Comprehensive Income: OCI from Subsidiary-- Unrealized Gain on Investments 2,400 (3) 2,400 Unrealized Gain on Investments 4,000 4,000 Other Comprehensive Income to Noncon- controlling Interest (4) 1,600 (1,600) Accumulated Other Comprehensive Income, January 1 6,000 10,000 (5) 10,000 6,000Accumulated Other Comprehensive Income, December 31, carry up 8,400 14,000 14,000 8,400


P5-48A Computation of Balances when Cost Method Is Used

a. Investment in Spike Company, January 1, 20X9:

Common stock outstanding--Spike Company $200,000 Retained earnings--Spike Company 100,000 Book value of net assets $300,000 Proportion of ownership acquired x .70 Proportionate share of book value of net assets $210,000 Purchase differential 50,000 Purchase price and current carrying value $260,000

b. Pine Corporation net income for 20X9:

Income from Pine's separate operations $ 85,000 Dividend income ($30,000 x .70) 21,000 Net income reported by Pine Corporation $106,000

c. Consolidated net income for 20X9:

Income from Pine's separate operations $ 85,000 Net income reported by Spike $50,000 Proportion of ownership acquired by Pine x .70 Proportionate share of reported net income $35,000 Amortization of purchase differential ($50,000 / 10 years) (5,000) Income from subsidiary 30,000 Consolidated net income $115,000

d. Retained earnings reported by Pine at December 31, 20X9:

Retained earnings, January 1, 20X9 $500,000 Net income for 20X9 106,000 Total $606,000 Dividends paid in 20X9 (40,000) Retained earnings, December 31, 20X9 $566,000

e. Consolidated retained earnings, December 31, 20X9:

Retained earnings reported by Pine $566,000 Undistributed earnings of Spike Company: Retained earnings of Spike January 1, 20X9 $300,000 Retained earnings of Spike January 1, 20X3 (100,000) Increase in retained earnings $200,000 Undistributed net income for 20X9 ($50,000 - $30,000) 20,000 Total undistributed earnings $220,000 Proportion of ownership acquired by Pine x .70 Proportionate share of undistributed earnings 154,000 Amortization of purchase differential: ($50,000 / 10 years) x 7 years (35,000) Consolidated retained earnings December 31, 20X9 $685,000


P5-49A Cost-Method Workpaper with Differential



E(2) Common Stock--Star Company 150,000 Retained Earnings, January 1 50,000 Differential 20,000 Investment in Star Company Stock 220,000 Eliminate investment balance at date of acquisition.

E(3) Goodwill 20,000 Differential 20,000 Assign differential at date of acquisition.

E(4) Goodwill Impairment Loss 12,000 Goodwill 12,000 Record impairment of goodwill.


P5-49A (continued)

Light Corporation and Star CompanyConsolidated Workpaper

December 31, 20X5

Light Star Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 300,000 150,000 450,000Dividend Income 10,000 (1) 10,000 Credits 310,000 150,000 450,000Cost of Goods Sold 210,000 85,000 295,000Depreciation Expense 25,000 20,000 45,000Goodwill Impairment Loss (4) 12,000 12,000Other Expenses 23,000 25,000 48,000Debits (258,000) (130,000) (400,000)Net Income, carry forward 52,000 20,000 22,000 50,000

Ret. Earnings, Jan. 1 230,000 50,000 (2) 50,000 230,000Net Income, from above 52,000 20,000 22,000 50,000 282,000 70,000 280,000Dividends Declared (20,000) (10,000) (1) 10,000 (20,000)Ret. Earnings, Dec. 31, carry forward 262,000 60,000 72,000 10,000 260,000

Cash 37,000 20,000 57,000Accounts Receivable 50,000 30,000 80,000Inventory 70,000 60,000 130,000Buildings and Equipment 300,000 240,000 540,000Investment in Star Company Stock 220,000 (2)220,000Differential (2) 20,000 (3) 20,000Goodwill (3) 20,000 (4) 12,000 8,000Debits 677,000 350,000 815,000

Accum. Depreciation 105,000 65,000 170,000Accounts Payable 40,000 20,000 60,000Taxes Payable 70,000 55,000 125,000Common Stock Light Corporation 200,000 200,000 Star Company 150,000 (2)150,000Retained Earnings, from above 262,000 60,000 72,000 10,000 260,000Credits 677,000 350,000 262,000 262,000 815,000


P5-50A Cost-Method Consolidation in Subsequent Period



E(2) Common Stock--Star Company 150,000 Retained Earnings, January 1 50,000 Differential 20,000 Investment in Star Company Stock 220,000 Eliminate investment balance at date of acquisition.

E(3) Goodwill 8,000 Retained Earnings, January 1 12,000 Differential 20,000 Assign differential at beginning of year.


P5-50A (continued)

Light Corporation and Star CompanyConsolidated Workpaper

December 31, 20X6

Light Star Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 350,000 200,000 550,000Dividend Income 20,000 (1) 20,000 Credits 370,000 200,000 550,000Cost of Goods Sold 270,000 135,000 405,000Depreciation Expense 25,000 20,000 45,000Other Expenses 21,000 10,000 31,000Debits (316,000) (165,000) (481,000)Net Income, carry forward 54,000 35,000 20,000 69,000

Ret. Earnings, Jan. 1 262,000 60,000 (2) 50,000 (3) 12,000 260,000Net Income, from above 54,000 35,000 20,000 69,000 316,000 95,000 329,000Dividends Declared (20,000) (20,000) (1) 20,000 (20,000)Ret. Earnings, Dec. 31, carry forward 296,000 75,000 82,000 20,000 309,000

Cash 46,000 30,000 76,000Accounts Receivable 55,000 40,000 95,000Inventory 75,000 65,000 140,000Buildings and Equipment 300,000 240,000 540,000Investment in Star Company Stock 220,000 (2)220,000Differential (2) 20,000 (3) 20,000Goodwill (3) 8,000 8,000Debits 696,000 375,000 859,000

Accum. Depreciation 130,000 85,000 215,000Accounts Payable 20,000 30,000 50,000Taxes Payable 50,000 35,000 85,000Common Stock Light Corporation 200,000 200,000 Star Company 150,000 (2)150,000Retained Earnings, from above 296,000 75,000 82,000 20,000 309,000Credits 696,000 375,000 260,000 260,000 859,000


P5-51A Cost-Method Consolidation of Majority-Owned Subsidiary



E(2) Income to Noncontrolling Interest 12,000 Dividends Declared 4,000 Noncontrolling Interest 8,000 Assign income to noncontrolling interest: $12,000 = $60,000 x .20

E(3) Common Stock--Rapid Delivery 50,000 Retained Earnings, January 1 100,000 Investment in Rapid Delivery Stock 120,000 Noncontrolling Interest 30,000 Eliminate investment balance at date of acquisition.


P5-51A (continued)

Samuelson Company and Rapid Delivery Corporation Consolidation Workpaper December 31, 20X6

Samuelson Rapid Eliminations Consol- Item Company Delivery Debit Credit idated

Sales 700,000 400,000 1,100,000Dividend Income 16,000 (1) 16,000 Credits 716,000 400,000 1,100,000Cost of Goods Sold 500,000 250,000 750,000Depreciation Expense 25,000 15,000 40,000Wage Expense 45,000 35,000 80,000Other Expenses 30,000 40,000 70,000Debits (600,000)(340,000) (940,000) 160,000Income to Noncon- trolling Interest (2) 12,000 (12,000)Net Income, carry forward 116,000 60,000 28,000 148,000


Cash and Receivables 141,000 80,000 221,000Inventory 240,000 100,000 340,000Land 80,000 20,000 100,000Buildings and Equipment 500,000 150,000 650,000Investment in Rapid Delivery Stock 120,000 (3)120,000 Debits 1,081,000 350,000 1,311,000

Accum. Depreciation 155,000 75,000 230,000Accounts Payable 70,000 35,000 105,000Notes Payable 200,000 50,000 250,000Common Stock Samuelson Company 300,000 300,000 Rapid Delivery 50,000 (3) 50,000Retained Earnings, from above 356,000 140,000 128,000 20,000 388,000Noncontrolling Interest (2) 8,000 (3) 30,000 38,000Credits 1,081,000 350,000 178,000 178,000 1,311,000


P5-51A (continued)

Samuelson Company and Subsidiary Consolidated Balance Sheet December 31, 20X6

Cash and Receivables $ 221,000Inventory 340,000Land 100,000Buildings and Equipment $650,000 Less: Accumulated Depreciation (230,000) 420,000Total Assets $1,081,000

Accounts Payable $ 105,000Notes Payable 250,000Noncontrolling Interest 38,000Common Stock $300,000 Retained Earnings 388,000 688,000Total Liabilities and Stockholders' Equity $1,081,000

Samuelson Company and Subsidiary Consolidated Income Statement Year Ended December 31, 20X6

Sales $1,100,000Cost of Goods Sold $750,000Depreciation Expense 40,000Wage Expense 80,000Other Expenses 70,000Total Expenses 940,000 $ 160,000Income to Noncontrolling Interest (12,000)Consolidated Net Income $ 148,000

Samuelson Company and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X6

Retained Earnings, January 1, 20X6 $ 290,00020X6 Net Income 148,000 $ 438,000Dividends Paid in 20X6 (50,000)Retained Earnings, December 31, 20X6 $ 388,000


P5-52A Comprehensive Cost-Method Consolidation Problem

a. Journal entry recorded by Pillar Corporation:

Cash 8,000 Dividend Income 8,000




E(3) Common Stock--Stanley Wood Products 100,000 Retained Earnings, January 1 50,000 Differential 40,000 Investment in Stanley Wood Products Stock 160,000 Noncontrolling Interest 30,000 Eliminate investment balance at date of acquisition.

E(4) Retained Earnings, January 1 8,000 Noncontrolling Interest 8,000 Assign undistributed prior earnings of subsidiary to noncontrolling interest: ($90,000 - $50,000) x .20

E(5) Buildings and Equipment 40,000 Differential 40,000 Assign differential at date of acquisition.

E(6) Retained Earnings, January 1 16,000 Accumulated Depreciation 16,000 Enter differential amortization of prior years: ($40,000 / 10) x 4 years


E(8) Accounts Payable 10,000 Cash and Receivables 10,000 Eliminate intercorporate receivable/payable.


P5-52A (continued)

c. Pillar Corporation and Stanley Wood Products Company Consolidation Workpaper December 31, 20X5

Pillar Stanley Eliminations Consol- Item Corp. Wood Debit Credit idated

Sales 200,000 100,000 300,000Dividend Income 8,000 (1) 8,000 Credits 208,000 100,000 300,000Cost of Goods Sold 120,000 50,000 170,000Depreciation Expense 25,000 15,000 (7) 4,000 44,000Inventory Losses 15,000 5,000 20,000Debits (160,000) (70,000) (234,000) 66,000Income to Noncon- trolling Interest (2) 6,000 (6,000)Net Income, carry forward 48,000 30,000 18,000 60,000

Ret. Earnings, Jan. 1 298,000 90,000 (3) 50,000 (4) 8,000 (6) 16,000 314,000Net Income, from above 48,000 30,000 18,000 60,000 346,000 120,000 374,000Dividends Declared (30,000) (10,000) (1) 8,000 (2) 2,000 (30,000)Ret. Earnings, Dec. 31, carry forward 316,000 110,000 92,000 10,000 344,000

Cash and Receivables 81,000 65,000 (8) 10,000 136,000Inventory 260,000 90,000 350,000Land 80,000 80,000 160,000Buildings and Equipment 500,000 150,000 (5) 40,000 690,000Investment in Stanley Wood Products Stock 160,000 (3)160,000Differential (3) 40,000 (5) 40,000 Debits 1,081,000 385,000 1,336,000

Accum. Depreciation 205,000 105,000 (6) 16,000 (7) 4,000 330,000Accounts Payable 60,000 20,000 (8) 10,000 70,000Notes Payable 200,000 50,000 250,000Common Stock Pillar Corporation 300,000 300,000 Stanley Wood 100,000 (3)100,000Retained Earnings, from above 316,000 110,000 92,000 10,000 344,000Noncontrolling Interest (2) 4,000 (3) 30,000 (4) 8,000 42,000Credits 1,081,000 385,000 282,000 282,000 1,336,000


P5-53B Push-Down Accounting

a. Entry to record purchase of Lindy stock on books of Greenly:

Investment in Lindy Company Stock 935,000 Cash 935,000

b. Entry to record revaluation of assets on books of Lindy Company at date of combination:

Inventory 5,000 Land 85,000 Buildings 100,000 Equipment 70,000 Revaluation Capital 260,000

c. Investment elimination entry in consolidation workpaper prepared December 31, 20X6 (no other entries needed):

Common Stock--Lindy Company 100,000 Additional Paid-In Capital 400,000 Retained Earnings 175,000 Revaluation Capital 260,000 Investment in Lindy Company Stock 935,000

d. Equity-method entries on the books of Greenly during 20X7:

Cash 50,000 Investment in Lindy Company Stock 50,000 Record dividend from Lindy Company.

Investment in Lindy Company Stock 88,000 Income from Lindy Company 88,000 Record equity-method income.


P5-53B (continued)

e. Eliminating entries in consolidation workpaper prepared December 31, 20X7 (no other entries needed):

E(1) Income from Lindy Company 88,000 Dividends Declared 50,000 Investment in Lindy Company Stock 38,000

E(2) Common Stock--Lindy Company 100,000 Additional Paid-In Capital 400,000 Retained Earnings, January 1 175,000 Revaluation Capital 260,000 Investment in Lindy Company Stock 935,000

f. Eliminating entries in consolidation workpaper prepared December 31, 20X8 (no other entries needed):

E(1) Income from Lindy Company 90,000 Dividends Declared 50,000 Investment in Lindy Company Stock 40,000

E(2) Common Stock--Lindy Company 100,000 Additional Paid-In Capital 400,000 Retained Earnings, January 1 213,000 Revaluation Capital 260,000 Investment in Lindy Company Stock 973,000 $213,000 = $175,000 + $88,000 - $50,000

$973,000 = $935,000 + $88,000 - $50,000


CH05SMF

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