Solution Manual for Beams Chapter 8

Chapter 8

8-2Consolidations Changes in Ownership Interests

Chapter 88-3

Chapter 8CONSOLIDATIONS CHANGES IN OWNERSHIP INTERESTS

Answers to Questions1Preacquisition earnings and dividends are the earnings and dividends applicable to an investment interest prior to its acquisition during an accounting period. Assume that P purchases an 80 percent interest in S on July 1, 2009 and that S has earnings of $100,000 between January 1 and July 1, 2009 and pays $50,000 dividends on May 1, 2009. In this case, preacquisition earnings and dividends are $80,000 and $40,000, respectively. Historically, preacquisition earnings purchased were shown as a deduction on the income statement to arrive at consolidated net income. Under SFAS No. 160, this is no longer the case. Instead, the consolidated income statement should only report revenues, expenses, gains and losses subsequent to the combination date. For example, in a Mmarch 31 acquisition, the consolidated income statement would only include income of the subsidiary from April 1 through December 31. The FASB reasons that acquirers purchase assets and assume liabilities, based on their fair values. Acquirers do not purchase preacquisition earnings, although fair values of net assets should reflect earning power of the acquired firm.2Preacquisition earnings are not recorded by a parent company under the equity method because the investor only recognizes income subsequent to acquisition on the interest acquired. Historically, preacquisition earnings purchased were shown as a deduction on the income statement to arrive at consolidated net income. Under SFAS No. 160, this is no longer the case. Instead, the consolidated income statement should only report revenues, expenses, gains and losses subsequent to the combination date. For example, in a Mmarch 31 acquisition, the consolidated income statement would only include income of the subsidiary from April 1 through December 31.3Noncontrolling stockholders of Sub Company held a 20 percent interest during the first half year and a 10 percent interest during the last half year and at year-end. But noncontrolling interest share for the year and total noncontrolling interest at year-end are computed for the 10 percent interest held by noncontrolling stockholders throughout the year.4Preacquisition income is similar to noncontrolling interest share because it represents the income of a subsidiary attributable to stockholders outside the consolidated entity. But preacquisition income is not income of the noncontrolling stockholder group at the date of the financial statements. In fact, preacquisition income relates to a previous controlling stockholder group when the interest acquired exceeds 50 percent. In such a case, it seems improper to report this as a deduction in the consolidated income statement. Rather, the fair value of net assets acquired should reflect the acquirees earnings history.5Under FASB Statement No. 160, a gain or loss is only recorded when the sold interest results in deconsolidation of the subsidiary, i.e., the parent no longer holds a controlling interest. The gain or loss on the sale of an equity interest is the difference between the proceeds from the sale (the fair value) and the recorded book value of the interest sold, provided that the investment is accounted for as a one-line consolidation. If another method of accounting has been used, the investment account must be converted to the equity method so that any gain or loss on sale is the same as if a one-line consolidation had been used previously.When the parent maintains a controlling interest after the sale, the sale is treated as an equity transaction, with no gain or loss recognition. The parent debits cash or other consideration received in the sale, credits the investment account based on percent of carrying value sold, and records the difference as an adjustment to other paid-in capital.6Conceptually, the income applicable to an equity interest sold during an accounting period should be included in investment income and consolidated net income. In this case, the gain or loss on sale is computed on the basis of the book value of the interest at the time of sale, and income is assigned to the increased noncontrolling interest only after the date of sale. As a practical expedient, a beginning-of-the-period sale date can be used such that no income is recognized on the interest sold up to the time of sale, and the gain or loss is computed on the book value at the beginning of the period. When this expedient is used, income must be assigned to the increased noncontrolling interest for the entire year of sale. The combined investment income and gain or loss on sale are the same under both approaches provided that the assumptions (beginning of the year and time of sale) are followed consistently. As noted in question 5, gain or loss on the sale of the equity interest is only recognized when the subsidiary is donconsolidated. Other wise, the gain or loss is an adjustment to other paid-in capital.7Assuming that no gain or loss is recognized, no adjustment of the parents investment account is necessary when the subsidiary sells additional shares to outside parties at book value because the parents share of underlying book value does not change. If additional shares are sold above book values, the parents share of the underlying equity of the subsidiary increases. This increase is recorded by the parent company as follows:

Investment in subsidiary XX

Additional paid-in capital XX

If the subsidiary sells additional shares below book value, the parents interest is decreased and the parent company records decreases in its investment and additional paid-in capital accounts. In all three cases (book value, above book value, or below book value), the parent companys ownership percentage decreases from 80 percent (8,000 of 10,000 shares) to percent (8,000 of 12,000 shares).

No gain or loss is recognized, the change in underlying book value, adjusted for one-sixth [(80% %) SYMBOL 184 \f "Symbol" 80%] of any unamortized cost book value differential is reported as adjustment to additional paid-in capital, since the parent maintains its controlling interest. An alternative computation is to assume that the parent sold one-sixth of its interest for percent of the proceeds, the difference being the amount of adkustment to additional paid-in capital.

8The acquisition of the 2,000 shares directly from the subsidiary increases the parents percentage interest from 80 percent (8,000 of 10,000 shares) to 5/6 (10,000 of 12,000 shares, or 83 1/3%). The change in the interest held does not affect the way in which the parent company records its additional investment. The parent company in all cases increases its investment account by the amount of cash paid or other consideration given for the additional investment. It makes no difference if the purchase price is above or below book value.

9Treasury stock transactions by a subsidiary change the parent companys proportionate interest in the subsidiary. Any changes in the parents share of the underlying book value of the subsidiary require adjustments in the parent companys investment in subsidiary and additional paid-in capital accounts.

10Gains and losses to a parent company (or equity investor) do not result from the treasury stock transactions of its subsidiaries (or equity investees). Although the parents investment interest may increase or decrease from such transactions, the predominate view is that such changes are of a capital nature and should be accounted for by additional paid-in capital adjustments rather than by recorded gains and losses.

11Stock splits and stock dividends by a subsidiary do not affect the amounts that appear in the consolidated financial statements. But stock dividends by a subsidiary result in capitalization of subsidiary retained earnings and the amounts involved in eliminations for the subsidiarys stockholders equity accounts are affected.

SOLUTIONS TO EXERCISESSolution E8-1Allocation of Sweets net income:Controlling share of income

($100,000 SYMBOL 180 \f "Symbol" 70% SYMBOL 180 \f "Symbol" 1 year) + ($100,000 SYMBOL 180 \f "Symbol" 20% SYMBOL 180 \f "Symbol" 1/2 year)$ 80,000

Noncontrolling interest share ($100,000 SYMBOL 180 \f "Symbol" 10% SYMBOL 180 \f "Symbol" 1 year)$ 10,000

Preacquisition income ($100,000 SYMBOL 180 \f "Symbol" 20% SYMBOL 180 \f "Symbol" 1/2 year)$ 10,000

Note: This does not appear on the consolidated income statement. Companies only include subsidiary earnings subsequent to the acquisition date.

Allocation of Sweets dividends:

Dividends to Pie ($30,000 SYMBOL 180 \f "Symbol" 70%) + ($30,000 SYMBOL 180 \f "Symbol" 90%)$ 48,000

Noncontrolling interest ($60,000 SYMBOL 180 \f "Symbol" 10%)$ 6,000

Preacquisition interests ($30,000 SYMBOL 180 \f "Symbol" 20%)$ 6,000

Solution E8-21Income from Superstore for 2009:

60% interest SYMBOL 180 \f "Symbol" $240,000 SYMBOL 180 \f "Symbol" 1/3 year$ 48,000

2Preacquisition income:

Under SFAS No. 160, no preacquisition income appears on the consolidated income statement. The income statement only includes income of the subsidiary earned after the parent obtains its controlling interest. Control was established on September 1, when Pinnacles interest increased from 40% to 60%, so the consolidated income statement includes Superstore income of $80,000 ($240,000 x 1/3 of year).

3Noncontrolling interest share for 2009:

$80,000 SYMBOL 180 \f "Symbol" 40%$ 32,000

Solution E8-3 (amounts in thousands)

Entry to record sale of 15% interest:Cash 750

Investment in Swamp 660

Other paid-in capital 90

To record sale of 15% interest in Swamp.

No gain or loss on sale is recognized

since Peat maintains an 85% controlling

interest.

Entry to record investment income for 2009:Investment in Swamp($600 SYMBOL 180 \f "Symbol" 85%) 510

Income from Swamp 510

To record income from Swamp.

Check:Investment balance January 1, 2009$4,400

Less: Book value of interest sold (660)

Add: Income from Swamp 510

Investment balance December 31, 2009$4,250

Underlying equity ($4,600 SYMBOL 180 \f "Symbol" 85%)$3,910

Add: 85% of Goodwill * 340


* Note that implied total goodwill is $400 ($340 / 85%).Solution E8-4 (amounts in thousands)

1Gain on sale of 20% interest: No gain or loss is recognized since Pauley

maintains a 60% controlling interest.Beginning of the period sale assumptionSelling price$130

Book value of interest ($436 investment

account balance SYMBOL 180 \f "Symbol" 20%/80%) 109

Adjustment to other paid-in capital$ 21

Actual sale date assumption

Selling price$130

Book value of interest sold:

Beginning of the period balance$436

Add: Income ($150 SYMBOL 180 \f "Symbol" 1/3 year SYMBOL 180 \f "Symbol" 80%) 40

476

Interest sold 25% 119

Adjustment to increase additional paid-in capital$ 11

2Income from Savage

Beginning of the period sale assumptionIncome from Savage($150 SYMBOL 180 \f "Symbol" 60%)$ 90

Actual sale date assumption

January 1 to May 1:

Share of Savages income ($150 SYMBOL 180 \f "Symbol" 80% SYMBOL 180 \f "Symbol" 1/3 year)$ 40

May 1 to December 31:

Share of Savages income ($150 SYMBOL 180 \f "Symbol" 60% SYMBOL 180 \f "Symbol" 2/3 year) 60

Income from Savage$100

Solution E8-4 (continued)

3Investment in Savage December 31, 2009Beginning ofActual

Period SaleSale Date

AssumptionAssumption

Investment balance January 1$436$436

Book value of interest sold (109) (119)

Income from Savage 90 100

Dividends (48) (48)

Investment balance December 31, 2009$369$369

Solution E8-5(amounts in thousands)

1aFair value book value differential

Cost$1,274

Implied fair value of Stork ($1,274 / 70%)$1,820

Book value ($1,480 January 1 balance

+ $100 income for 5 months - $60 dividends in

January and April)(1,520)

Goodwill$ 300

1bIncome from Stork (Note: Only include earnings subsequent to the acquisition date).Income from Stork ($240,000 SYMBOL 180 \f "Symbol" 7/12 year SYMBOL 180 \f "Symbol" 70%)$ 98

1cInvestment in Stork at December 31

Investment cost$1,274

Add: Income from Stork 98

Deduct: Dividends ($60,000 SYMBOL 180 \f "Symbol" 70%) (42)

Investment in Stork December 31, 2009$1,330

2Consolidation working paper entries:

aIncome from Stork 98

Investment in Stork 56

Dividends 42

To eliminate income and dividends from Stork and adjust investment account to its cost on June 1.

bCommon stock, $10 par Stork 1,000

Retained earnings Stork 580

Goodwill 300

Investment in Stork 1,274

Noncontrolling interest 564

Dividends 42

To eliminate reciprocal investment and equity balances, record preacquisition income and beginning noncontrolling interest, and eliminate preacquisition dividends.

Solution E8-61Investment in Sower (in thousands)Investment balance December 31, 2009 ($9,000 SYMBOL 180 \f "Symbol" 80%)$ 7,200

Cost of new shares ($25 SYMBOL 180 \f "Symbol" 60,000 shares) 1,500

Investment in Sower after new investment$ 8,700

2Goodwill from new investment

Sowers stockholders equity after issuance

($9,000 + $1,500)$10,500

Petals ownership percentage

(480,000 + 60,000 shares)/660,000 shares .8182

Petals book value after issuance 8,591.1

Less: Petals book value before issuance (7,200)

Increase in book value from purchase

(book value acquired)$ 1,391.1

Cost of 60,000 shares$ 1,500

Book value acquired (1,391.1)

Goodwill from acquisition of new shares*$ 108.9

*This implies total goodwill is equal to $136,125.

Solution E8-71Sod issues 30,000 shares to Pod at $20 per share

Pods ownership interest before issuance: 176,000/220,000 shares = 80%

Pods ownership interest after issuance: 206,000/250,000 shares = 82.4%2Sod sells 30,000 shares to the public at $20 per share

Pods ownership interest after issuance: 176,000/250,000 shares = 70.4%

3Sod sells 30,000 shares to the public; no gain or loss recognized:

Investment in Sod 115,200

Additional paid-in capital 115,200

To record increase in investment in Sod computed as follows:

Book value before issuance ($3,200,000 SYMBOL 180 \f "Symbol" 80%)$2,560,000

Book value after issuance ($3,800,000 SYMBOL 180 \f "Symbol" 70.4%) 2,675,200

Additional paid-in capital$ 115,200

Solution E8-8Primetime buys shares1aPercentage ownership after additional investment:

700,000/1,000,000 = 70%

1bGoodwill from additional investment (in thousands):

Book value of interest after sale

$2,600 SYMBOL 180 \f "Symbol" 70%$1,820

Book value of interest before sale

$2,100 SYMBOL 180 \f "Symbol" 2/3 1,400

Book value of interest acquired 420

Cost of interest 500

Goodwill from additional investment *$ 80

*This implies total goodwill is now equal to $114,286.

Outsiders buy shares2aPercentage ownership after sale:

600,000/1,000,000 = 60%

2bChange in underlying book value of investment in Satellite:

Satellites underlying equity after sale$2,600,000

Primetimes interest 60%

Book value of Primetimes investment in Satellite

after the sale 1,560,000

Less: Book value before the sale 1,400,000

Increase in book value of investment$ 160,000

2cEntry to adjust investment account:

Investment in Satellite 160,000


Solution E8-9Preliminary computations of fair value book value differentials:

April 1, 2009 acquisition

Cost of 4,000 shares (20% interest) $ 64,000

Implied total fair value of Sum ($64,000 / 20%)$320,000

Book value of Sum on april 1 acquisition date:

Beginning stockholders equity$280,000

Add: Income for 3 months ($80,000 SYMBOL 180 \f "Symbol" year) 20,000

Stockholders equity April 1 300,000

Goodwill$ 20,000

July 1, 2010 acquisition

Cost of 8,000 shares (40% interest)$164,000

Implied total fair value of Sum ($164,000 / 40%)$410,000

Book value on July 1 acquisition date:

Beginning stockholders equity$360,000

Add: Income for 6 months ($80,000 SYMBOL 180 \f "Symbol" 1/2 year) 40,000

Less: Dividends May 1 (10,000)

Stockholders equity July 1 390,000

Goodwill (amount is unchanged by this transaction)$ 20,000

1Income from Sum

2009Income from Sum for 2009 ($80,000 SYMBOL 180 \f "Symbol" 20% SYMBOL 180 \f "Symbol" 3/4 year)$ 12,000

2010 Income from Sum for 2010

20% share of reported income ($80,000 SYMBOL 180 \f "Symbol" 20%)$ 16,000

40% share of reported income ($80,000 SYMBOL 180 \f "Symbol" 40% SYMBOL 180 \f "Symbol" 1/2 year) 16,000

Income from Sum$ 32,000

2Noncontrolling interest December 31, 2010 (($420,000 book value + $20,000 goodwill)SYMBOL 180 \f "Symbol" 40%)$176,000

3Preacquisition income (does not appear in come statement)Sum income$ 80,000

Time before acquisition 1/2

Percent acquired in 2010 40%

Preacquisition income ($80,000 SYMBOL 180 \f "Symbol" .5 SYMBOL 180 \f "Symbol" .4)$ 16,000

4Investment balance at December 31, 2010

Cost of 20% investment$ 64,000

Income from Sum for 2009 12,000

Cost of 40% investment 164,000

Income from Sum for 2010 32,000

Less: Dividends ($2,000 + $6,000) (8,000)

Investment in Sum$264,000

Check:

Share of Sums December 31, 2010 equity ($420,000 SYMBOL 180 \f "Symbol" 60%)$252,000

Add: 60% of $20,000 Goodwill 12,000

Investment in Sum$264,000

Solution E8-10Preliminary computationsInvestment cost July 1, 2010$675,000

Implied total fair value of Sandridge ($675,000 / 90%)$750,000

Less: Book value of Sandridge at acquisition:

Equity of Sandridge Mines December 31, 2009$700,000

Add: Income for 1/2 year 50,000

Equity of Sandridge Mines July 1, 2010 750,000

Excess (book value = underlying equity) 0

1Investment income from Sandridge MinesIncome from Sandridge 2010 ($100,000 SYMBOL 180 \f "Symbol" 1/2 year SYMBOL 180 \f "Symbol" 90%)$ 45,000

Income from Sandridge 2011:

January 1 to July 1 ($80,000 SYMBOL 180 \f "Symbol" 1/2 year SYMBOL 180 \f "Symbol" 90%)$ 36,000

July 1 to December 31 ($80,000 SYMBOL 180 \f "Symbol" 1/2 year SYMBOL 180 \f "Symbol" 80%) 32,000

$ 68,000

Investment in Sandridge Mines

Cost July 1, 2010$675,000

Add: Income from Sandridge 2010 45,000

Less: Dividends paid in December ($50,000 SYMBOL 180 \f "Symbol" 90%) (45,000)

Investment balance December 31, 2010 675,000

Less: Book value of 1/9 interest sold on July 1, 2011a (79,000)

Add: Income from Sandridge 2011 68,000

Less: Dividends paid in December ($30,000 SYMBOL 180 \f "Symbol" 80%) (24,000)


aSale of 10% interest July 1, 2011:

Equity of Sandridge Mines December 31, 2009$700,000

Add: Income less dividends 2010 50,000

Add: Income for 1/2 year 2011 40,000

Equity of Sandridge Mines July 1, 2011 790,000

Interest sold 10%

Underlying equity of interest sold$ 79,000

Gain on sale of 1/9 interest ($85,000 proceeds - $79,000)

Since Piccolo maintains a controlling interest, the gain is not recorded, but shown as an adjustment to additional paid-in capital.$ 6,000

Solution E8-10 (continued)

2Noncontrolling interest shareNoncontrolling interest share 2010:

($100,000 income SYMBOL 180 \f "Symbol" 10% interest)$ 10,000

Noncontrolling interest share 2011:

($80,000 SYMBOL 180 \f "Symbol" 1/2 year SYMBOL 180 \f "Symbol" 10%) + ($80,000 SYMBOL 180 \f "Symbol" 1/2 year SYMBOL 180 \f "Symbol" 20%)$ 12,000

Noncontrolling interest December 31, 2010

Equity of Sandridge Mines January 1$700,000

Add: Income less dividends for 2010 50,000

Equity of Sandridge Mines December 31 750,000

Noncontrolling interest percentage 10%

Noncontrolling interest December 31$ 75,000

Noncontrolling interest December 31, 2011

Equity of Sandridge Mines January 1$750,000

Add: Income less dividends for 2011 50,000

Equity of Sandridge Mines December 31 800,000


Noncontrolling interest December 31$160,000

Solution E8-11Preliminary computations:

Investment cost January 1, 2010$ 690,000

Implied total fair value of Sanyo ($690,000 / 75%) $ 920,000

Book value of Sanyo (800,000)

Excess fair value over book value = Goodwill$ 120,000

1Underlying book value December 31, 2010$1,000,000 equity SYMBOL 180 \f "Symbol" 75%$ 750,000

2Percentage ownership before purchase of additional shares

30,000 shares owned/40,000 shares outstanding = 75% interest

Percentage ownership after purchase of additional shares

40,000 shares owned/50,000 shares outstanding = 80% interest3Investment in Sanyo balance January 3, 2011Investment cost January 1, 2009$ 690,000

Add: Share of Sanyos income less dividends

for 2009 ($200,000 SYMBOL 180 \f "Symbol" 75%) 150,000

Investment in Sanyo December 31, 2009 840,000

Add: Additional investment January 3, 2011

(10,000 shares SYMBOL 180 \f "Symbol" $30) 300,000

Investment in Sanyo balance January 3, 2011$1,140,000

4Percentage ownership if shares sold to outside entities

30,000 shares owned/50,000 shares outstanding = 60% interest5Investment in Sanyo balance January 3, 2011Investment in Sanyo December 31, 2009

(see 3 above)$ 840,000

Add: Increase in book value from change in

ownership interest:

Book value after additional 10,000 shares

were issued ($1,300,000 equity SYMBOL 180 \f "Symbol" 60%)$780,000

Book value before additional 10,000 shares

were issued ($1,000,000 equity SYMBOL 180 \f "Symbol" 75%)(750,000) 30,000

Investment in Sanyo balance - January 3, 2011$ 870,000

Solution E8-12Preliminary computations:

Cost of additional investment (2,000 shares SYMBOL 180 \f "Symbol" $80)$160,000

Implied total fair value of Saton

$160,000 / (2,000/12,000)$960,000

Less: Book value of Saton after issuance 710,000

Excess fair value over book value$250,000

January 2, 2010Investment in Saton 160,000

Cash 160,000

To record purchase of additional 2,000 shares of Saton.

December 2010Cash 50,000

Investment in Saton 50,000

To record receipt of dividends ($60,000 SYMBOL 180 \f "Symbol" 10,000/12,000 shares).

December 31, 2010Investment in Saton 75,000

Income from Saton 75,000

To record income from Saton($90,000 SYMBOL 180 \f "Symbol" 10,000/12,000).

Solution E8-131Investment in Striper (in thousands)Cost$1,800

Add: 90% of $300 increase in equity since 2009 270

Investment in Striper January 1, 2011$2,070

2Entry on Patricks books (no gain or loss recognized)Investment in Striper 180

Additional paid-in capital 180

To recognize change in book value of investment from Stripers sale of additional shares, computed as follows:

Underlying equity after issuance ($2,400 SYMBOL 180 \f "Symbol" 75%)$1,800

Underlying equity before issuance ($1,800 SYMBOL 180 \f "Symbol" 90%)(1,620)

$ 180

SOLUTIONS TO PROBLEMS

Solution P8-1Preliminary computations (in thousands):

Cost of 40,000 shares July 1, 2009$620

Implied total fair value of Spindle ($620 / 80%)$775

Book value of Spindle ($550 + $50 income)(600)

Excess fair value over book value$175

Cost of 10,000 shares January 1, 2010$162

Book value after issuance ($762 SYMBOL 180 \f "Symbol" 5/6)$635

Book value before issuance ($600 SYMBOL 180 \f "Symbol" 80%)(480)(155)

Excess fair value over book value of 10,000 shares acquired$ 7

1Investment in Spindle December 31, 2009Investment cost$620

Add: Income from Spindle- $100 SYMBOL 180 \f "Symbol" 1/2 year SYMBOL 180 \f "Symbol" 80% 40

Less: Dividends ($50 SYMBOL 180 \f "Symbol" 80%) (40)

Investment in Spindle December 31, 2009$620

2Income from Spindle 2010

Share of Spindles income ($150 SYMBOL 180 \f "Symbol" 5/6)$125

3Investment in Spindle December 31, 2010Investment balance December 31, 2009$620

Add: Additional investment 162

Add: Income from Spindle 2010 125

Less: Dividends for 2010 ($60 SYMBOL 180 \f "Symbol" 5/6) (50)


Check:

Share of Spindles equity ($852 SYMBOL 180 \f "Symbol" 5/6)$710

Goodwill [ ($175 x 80%) + ($210 x (5/6 80%) ] 147


Solution P8-21Investment in Smithtown (in thousands)Underlying equity $26,000 SYMBOL 180 \f "Symbol" 80%$20,800

Goodwill (80%) 2,000

Investment in Smithtown January 1, 2011$22,800

2Percentage interest after stock issuance

Shares owned 960,000/1,600,000 outstanding shares = 60% interest3No gain or loss recognized on issuance of additional sharesInvestment in Smithtown 2,000

Other paid-in capital 2,000

To recognize change in ownership interest computed as: Underlying equity after sale ($38,000 SYMBOL 180 \f "Symbol" 60%) less underlying equity before sale of additional shares ($26,000 SYMBOL 180 \f "Symbol" 80%).

Solution P8-31Journal entry to record sale as of actual sale dateCash 120,000


Investment in Shawnee 121,500

To record sale of 1/9 of investment in Shawnee. Book value of interest sold is computed as follows:

Investment balance December 31, 2008$1,039,500

Add: Income from Shawnee for one-half year

($280,000 SYMBOL 180 \f "Symbol" 1/2 year SYMBOL 180 \f "Symbol" 90%) 126,000

Less: Dividends ($80,000 SYMBOL 180 \f "Symbol" 90%) (72,000)

Book value of investment on July 1, 2009$1,093,500

Book value of interest sold ($1,093,500/9)$ 121,500

2Journal entry to record sale as of January 1, 2009Cash 120,000


Investment in Shawnee 107,500

To record sale of 1/9 of investment in Shawnee. Book value of interest sold is computed as follows:

Investment balance December 31, 2008$1,039,500

Less: Dividends (72,000)

Book value adjusted for dividends$ 967,500

Book value of interest sold ($967,500/9)$ 107,500

3Reconciliation

Investment in

ShawneeActual Sale DateInvestment in

Shawnee

Beginning of YearSale Date

Balance January 1, 2009$1,039,500$1,039,500

Add: Income from Shawnee

January 1 July 1 126,000 112,000

July 1 December 31 112,000 1l2,000

Less: Dividends

First half-year (72,000) (72,000)

Last half-year (64,000) (64,000)

Less: Book value of interest sold (121,500) (107,500)

Balance December 31, 2009$1,020,000$1,020,000

Solution P8-4(in thousands)

Entries on Panamas books to reflect the change in ownership interest:

Option 1 Panama sells 30,000 shares of Shenandoah

Cash 1,500

Investment in Shenandoah 870


To record sale of 30,000 shares at $50 per share. No gain or loss is recognized since parent maintains a controlling interest.Option 2 Shenandoah issues and sells 40,000 shares to the public



To record adjustment in ownership computed as follows:

Book value after sale of 40,000 shares

($12,440 SYMBOL 180 \f "Symbol" 75%)$9,330

Book value before sale of 40,000 shares

($10,440 SYMBOL 180 \f "Symbol" 5/6)(8,700)

Increase in book value of investment from sale$ 630

Option 3 Shenandoah reissues 40,000 shares of treasury stock



To record adjustment in ownership computed the same as 2 above.

Consolidated Stockholders Equityat January 1, 2010

Option 1Option 2Option 3

Common stock$10,000$10,000$10,000

Additional paid-in capital 3,630 3,630 3,630

Retained earnings 7,000 7,000 7,000

Noncontrolling interesta 2,610 3,110 3,110

Total stockholders equity$23,240$23,740$23,740

aNoncontrolling interest under option 1: $10,440 SYMBOL 180 \f "Symbol" 25%

Noncontrolling interest under options 2 and 3: $12,440 SYMBOL 180 \f "Symbol" 25%

Solution P8-5Preliminary computations:

Cost of 9,000 shares (90% interest) January 1, 2009$ 810,000

Implied total fair value of Sala ($810,000 / 90%)$ 900,000

Book value of Sala ($500,000 + $300,000) (800,000)

Excess fair value over book value = Goodwill$ 100,000

1Investment balance December 31, 2009Cost January 1, 2009 (9,000 shares SYMBOL 180 \f "Symbol" $90)$ 810,000

Add: Share of Salas 2009 income ($50,000 SYMBOL 180 \f "Symbol" 90%) 45,000

Investment in Sala December 31$ 855,000

2 Goodwill at December 31, 2010(Pallo purchased additional shares) Goodwill from January 1, 2009 purchase$ 100,000

Goodwill from January 1, 2010 purchase:

Book value before purchase$ 850,000

Book value after purchase(1,350,000)

Book value acquired (500,000)

Cost of additional 5,000 shares 500,000

Goodwill from January 1, 2010$ 0

Goodwill at December 31, 2010$ 100,000

3Additional paid-in capital (outsider purchased additional shares)Book value after issuance ($1,350,000 SYMBOL 180 \f "Symbol" 60%)$ 810,000

Book value before issuance ($850,000 SYMBOL 180 \f "Symbol" 90%) (765,000)

Additional paid-in capital (gain is not recognized)$ 45,000

4Noncontrolling interest December 31, 2010 (outsider purchased shares)

Subsidiary equity January 1, 2009$ 800,000

Increase for 2009 50,000

Increase for 2010 70,000

Sale of additional shares 500,000

Book value$1,420,000

Goodwill 100,000

Fair value of Subsidiary equity December 31, 2010$1,520,000

Noncontrolling interest percentage 6,000/15,000 shares 40%

Noncontrolling interest December 31, 2010$ 608,000

Solution P8-61Investment in Stake December 31, 2010

Investment in Stake January 2, 2009$ 98,000

Increase for 2009 ($30,000 retained earnings increase SYMBOL 180 \f "Symbol" 70%) 21,000

Purchase of additional 20% interest June 30, 2010 37,000

Increase 2010:

($30,000 SYMBOL 180 \f "Symbol" 1/2 year SYMBOL 180 \f "Symbol" 70%) + ($30,000 SYMBOL 180 \f "Symbol" 1/2 year SYMBOL 180 \f "Symbol" 90%) 24,000

Dividends 2010: ($10,000 SYMBOL 180 \f "Symbol" 90%) (9,000)

Investment in Stake December 31, 2010$171,000

2Goodwill December 31, 2010January 2, 2009 purchase:

Cost of 70% interest$ 98,000

Implied fair value of Stake ($98,000 / 70%)$140,000

Less: Book value of Stake 120,000

Goodwill$ 20,000

June 30, 2010 purchase:

Cost of 20% interest$ 37,000

Implied fair value of Stake ($37,000 / 20%)$185,000

Less: Book value of Stake 165,000

Goodwill - December 31, 2010$ 20,000

3Consolidated net incomeSales$600,000

Cost of sales(400,000)

Expenses (70,000)

Consolidated net income 130,000

Noncontrolling interest share * 6,000

Controlling share of net income$124,000

*Noncontrolling share is 10% for full year plus 20% for year.

Alternative:

Posts reported income = Controlling share of net income$124,000

4Consolidated retained earnings December 31, 2010Beginning retained earnings$200,000

Add: Controlling share of Consolidated net income 2010 124,000

Less: Dividends (64,000)

Consolidated retained earnings ending$260,000

Alternative solution:

Posts reported ending retained earnings = Consolidated

retained earnings ending$260,000

5Noncontrolling interest December 31, 2010Equity of Stake December 31, 2010$170,000

Goodwill 20,000

Fair value of Stake$190,000


Noncontrolling interest December 31, 2010$ 19,000

Solution P8-71Percy Corporation and Subsidiary

Consolidated Income Statement

for the year ended December 31, 2010

(in thousands)

Sales$3,200

Cost of sales(1,900)

Gross profit 1,300

Depreciation expense (700)

Other expenses (150)

Consolidated net income 450

Noncontrolling interest share ($150,000 SYMBOL 180 \f "Symbol" 20%) + ($150,000 SYMBOL 180 \f "Symbol" 1/4 year SYMBOL 180 \f "Symbol" 10%) (33.75)

Controlling share of Consolidated net income$ 416.25

2Schedule to allocate Sawyers income and dividendsControl.Noncontrol.PreacquisitionTotal

Sawyers income70%$105,00020%$33,75$135,000

10% 11,250 15,000

Allocation$116,250$33,750$150,000

Dividends70%$ 56,00020%$16,000$ 72,000

10% 4,000$4,000 8,000

Allocation$ 60,000$16,000$4,000$ 80,000

Solution P8-8Preliminary computations

Cost October 1, 2009$ 82,400

Implied fair value of Sat ($82,400 / 80%)$103,000

Book value on Octobwer 1 acquisition date:

Book value on January 1, 2009$70,000

Add: Income January 1 to October 1

($24,000 SYMBOL 180 \f "Symbol" 3/4 year) 18,000

Deduct: Dividends March 15 (5,000)

Book value October 1 83,000

Goodwill$ 20,000

Income from Sat for 2009

Share of Sats net income ($24,000 SYMBOL 180 \f "Symbol" 1/4 year SYMBOL 180 \f "Symbol" 80%)$ 4,800

Less: Unrealized profit in Sats ending inventory (1,000)

Income from Sat$ 3,800

* Preacquisition income ($24,000 SYMBOL 180 \f "Symbol" 3/4 year SYMBOL 180 \f "Symbol" 80%)$14,400

* Preacquisition dividends ($5,000 SYMBOL 180 \f "Symbol" 80%)$ 4,000

* Noncontrolling interest share ($6,000 SYMBOL 180 \f "Symbol" 20%)$ 1,200

* Under SFAS No. 160, preacquisition earnings are not shown as a reduction of consolidated net income. Rather, we only include earnings and dividends subsequent to the acquisition date. Preacquistion amounts are disclosed in required pro-forma disclosures for acquisitions. The worksheet on the following page reflects these adjustments.

Solution P8-8 (continued)

Pop Corporation and SubsidiaryConsolidation Working Papers

for the year ended December 31, 2009PopSat 80%Adjustments and

EliminationsConsolidated

Statements

Income StatementSales$ 112,000$ 50,000a 12,000

c 37,500$ 112,500

Income from Sat 3,800b 3,800

Cost of sales 60,000* 20,000*d 1,000a 12,000

c 15,000 54,000*

Operating expenses 25,100* 6,000*c 4,500 26,600*

Consolidated net income 31,900

Noncontrolling int. sharef 1,200 1,200*

Controlling share of NI$ 30,700$ 24,000$ 30,700

Retained EarningsRetained earnings Pop$ 30,000$ 30,000

Retained earnings Sat$ 20,000e 20,000

Net income 30,700SYMBOL 252 \f "Wingdings" 24,000SYMBOL 252 \f "Wingdings" 30,700

Dividends 20,000* 10,000*b 4,000

c 5,000

f 1,000 20,000*

Retained earnings

December 31$ 40,700$ 34,000 $ 40,700

Balance SheetCash$ 5,100$ 7,000 $ 12,100

Accounts receivable 10,400 17,000 G 6,000 21,400

Note receivable 5,000 10,000 15,000

Inventories 30,000 16,000 d 1,000 45,000

Plant assets net 88,000 60,000 148,000

Investment in Sat 82,200 b 200

e 82,400

Goodwille 20,000 20,000

$ 220,700$ 110,000 $ 261,500

Accounts payable$ 15,000$ 16,000g 6,000$ 25,000

Notes payable 25,000 10,000 35,000

Capital stock 140,000 50,000e 50,000 140,000

Retained earnings 40,700SYMBOL 252 \f "Wingdings" 34,000SYMBOL 252 \f "Wingdings" 40,700

$ 220,700$ 110,000

Noncontrolling interest beginningc 13,000

e 7,600

Noncontrolling interest December 31f 200 20,800

$ 261,500

*Deduct

Solution P8-9Supporting computations:

Fair value book value differential

Investment cost$175,000

Implied total fair value of Sid ($175,000 / 70%)$250,000

Less: Book value of Sid ($250,000 equity on January 1 plus

$10,000 net income (1/4 year) less $10,000 dividends) 250,000

Fair value book value differential 0

Allocation of Sids reported net income

Parent company ($40,000 SYMBOL 180 \f "Symbol" 3/4 year SYMBOL 180 \f "Symbol" 70%)$ 21,000

Preacquisition income ($40,000 SYMBOL 180 \f "Symbol" 1/4 year SYMBOL 180 \f "Symbol" 70%) 7,000

Noncontrolling interest share ($40,000 SYMBOL 180 \f "Symbol" 1 year SYMBOL 180 \f "Symbol" 30%) 12,000

Sids net income$ 40,000

Pals income from Sid

Equity in Sids income$ 21,000

Constructive gain on parents bonds

Note that bonds payable has a book value of $105,400 on December 31, 2009. A half-year of premium amortization ($300) yields a book value of $105,700 at July 1, 2009.

( $105,700 book value on July 1 less $102,850 on December 31) 2,850

Recognition of constructive gain on separate books

($2,850 SYMBOL 180 \f "Symbol" 6/114 months) (150)

Gain on intercompany sale of equipment downstream

[$30,000 - ($36,000/2)] (12,000)

Piecemeal recognition of gain on equipment downstream

($12,000/3 years SYMBOL 180 \f "Symbol" 1/2 year) 2,000

Gain on intercompany sale of land upstream

($10,000 - $8,000 cost) SYMBOL 180 \f "Symbol" 70% (1,400)

Income from Sid$ 12,300


Worksheet entries in journal form

aIncome from Sid 12,300

Dividends - Sid 7,000

Investment in Sid common 5,300

Eliminate intercompany post-acquisition earnings and dividends and return Investment to beginning balance.

bSales * 37,500

Cost of sales * 27,500

Dividends Sid* 10,000

Retained earnings - Sid 50,000

Common stock - Sid200,000

Investment in Sid - common175,000

Noncontrolling interest 75,000

Eliminate preacquisition earnings and dividends. Eliminate Sids equity accounts, the investment account and establish beginning noncontrolling interest.

cGain on plan assets 12,000

Plan assets 12,000

Eliminate intercompany gain on sale of equipment.

dGain on plan assets 2,000

Plan assets 2,000

Eliminate intercompany gain on sale of land.

eInterest income 5,850

Interest expense 5,700

Gain on bond retirement 2,850

Investment in Pal bonds102,700

Bonds payable100,000

Premium on bonds 5,400

Record constructive retirement of bonds payable.

fInterest payable 6,000

Interest receivable 6,000

Eliminate reciprocal interest accounts.

gOther current liabilities 7,000

Other current assets 7,000

Eliminate reciprocal for unpaid intercompany dividends.

hNoncontrolling interest share 8,400

Dividends - Sid 3,000


Record noncontrolling interest share of earnings and post-acquisition dividends.

iPlan assets 2,000

Expenses 2,000

Eliminate excess depreciation on equipment.


Pal Corporation and SubsidiaryConsolidation Working Papers

for the year ended December 31, 2009PalSid 70%Adjustments and


Statements

Income StatementSales$ 287,100$ 150,000 b 37,500 $ 399,600

Income from Sid 12,300a 12,300

Gain on bondsa 2,850 2,850

Gain on plant assets 12,000 2,000c 12,000

d 2,000

Interest income 5,850e 5,850

Interest expense 11,400*e 5,700 5,700*

Expenses includes cost of

goods sold 200,000* 117,850*b 27,500i 2,000 288,350*

Consolidated NI 106,400

Noncontrolling int. shareh 8,400 8,400*

Controlling share of NI$ 100,000$ 40,000$ 100,000

Retained EarningsRetained earnings Pal$ 250,000 $ 250,000

Retained earnings Sid$ 50,000b 50,000


Dividends 50,000* 20,000*a 7,000

b 10,000

h 3,000 50,000*

Retained earnings

December 31$ 300,000$ 70,000 $ 300,000


Interest receivable 6,000 f 6,000

Inventories 140,000 60,000 200,000

Other current assets 110,000 20,000 g 7,000 123,000

Plant assets net 502,700 107,300i 2,000c 12,000

d 2,000 598,000

Investment Sid common 180,300 a 5,300

b 175,000

Investment Pal bonds 102,700e 102,700

$ 950,000$ 300,000 $ 942,000

Interest payable$ 6,000 f 6,000

Other current liabilities 38,600$ 30,000g 7,000$ 61,600

12% bonds payable 100,000e 100,000

Premium on bonds 5,400e 5,400

Common stock 500,000 200,000b 200,000 500,000


$ 950,000$ 300,000

Noncontrolling interest ($250,000 SYMBOL 180 \f "Symbol" 30%)b 75,000

Noncontrolling interest December 31

($268,000 SYMBOL 180 \f "Symbol" 30%)i 5,400 80,400

$ 942,000

Solution P8-10Supporting computations:

Investment cost of 70% interest$420,000

Implied total fair value of Sam ($420,000 / 70%)$600,000

Book value of Sam 500,000

Goodwill$100,000

Investment cost of 10% interest$ 67,500

Implied total fair value of Sam ($67,500 / 10%)$675,000

Book value of Sam:

Beginning equity January 1, 2010$550,000

Add: Income for 1/2 year 50,000

Less: June dividends (25,000)

Book value at July 1, 2010 575,000

Goodwill (unchanged)$100,000

Investment in Sam account:

Investment cost January 1, 2009$420,000

Add: 2009 share of retained earnings

increase ($50,000 SYMBOL 180 \f "Symbol" 70%)$ 35,000

Less: Unrealized profit in ending inventory (5,000)

Less: Unrealized gain on land (8,000) 22,000


Add: Investment cost of 10% interest 67,500

Add: Income from Sam for 2010

$100,000 SYMBOL 180 \f "Symbol" 70% interest SYMBOL 180 \f "Symbol" 1 year$ 70,000

$100,000 SYMBOL 180 \f "Symbol" 10% interest SYMBOL 180 \f "Symbol" 1/2 year 5,000

Add: Beginning inventory profits 5,000

Less: Ending inventory profits (6,000)

Less: Gain: intercompany sale machinery (40,000)

Add: Piecemeal recognition of gain

($40,000/5 SYMBOL 180 \f "Symbol" 1/2 year) 4,000 38,000

Less: Dividends from Sam

($25,000 SYMBOL 180 \f "Symbol" 70%) + ($25,000 SYMBOL 180 \f "Symbol" 80%) (37,500)



Poco Corporation and SubsidiaryConsolidation Working Papers


(in thousands)Poco80%

SamAdjustments and


Statements

Income StatementSales$ 900$ 500a 48$1,352

Income from Sam 38 f 38

Gain on machinery 40 d 40

Cost of sales 400* 300*c 6a 48

b 5 653*

Depreciation expense 90* 60*d 4 146*

Other expenses 160* 40* 200*

Consolidated net income 353

Noncontrolling int. shareh 25 25*

Controlling share of NI$ 328$ 100 $ 328

Retained EarningsRetained earnings Poco$ 155 $ 155

Retained earnings Sam $ 250g 250

Controlling share of NI 328SYMBOL 252 \f "Wingdings" 100SYMBOL 252 \f "Wingdings" 328

Dividends 200* 50*f 37.5

h 10

g 2.5 200*

Retained earnings

December 31$ 283$ 300$ 283

Balance SheetCash$ 20$ 80 $ 100

Accounts receivable 130 30i 25 135

Dividends receivable 20 j 20

Inventories 90 70 c 6 154

Other current items 20 80 100

Land 50 40 e 8 82

Buildings net 60 105 165

Machinery net 100 320 d 36 384

Investment in Sam 510 b 5

e 8g 522.5

f .5

Goodwillg 100 100

1,000$ 725 $1,220

Accounts payable$ 177$ 40i 25$ 192

Dividends payable 100 25j 20 105

Other liabilities 140 60 200

Capital stock, $10 par 300 300g 300 300

Retained earnings 283SYMBOL 252 \f "Wingdings" 300SYMBOL 252 \f "Wingdings" 283

$1,000$ 725

Noncontrolling interest, January 1g 125

Noncontrolling interest, December 31h 5 140

$1,220

*Deduct

Solution P8-11Preliminary computations:

Investment cost of 85% of Sly August 1, 2009$522,750

Implied fair value of Sly ($522,750 / 85%)$615,000

Book value August 1, 2009:

Capital stock$500,000

Retained earnings 100,000

Add: Income for 7 months 35,000

Less: Dividends for 1/2 year (20,000)

Stockholders equity August 1, 2009 615,000

Fair value book value differential

$ 0

Investment cost August 1, 2009$522,750

Equity in income $60,000 SYMBOL 180 \f "Symbol" 5/12 year SYMBOL 180 \f "Symbol" 85%$ 21,250

Less: Deferred inventory profit from

upstream sale $5,000 SYMBOL 180 \f "Symbol" 85% (4,250)

Less: Deferred profit from sale of

equipment $10,000 profit - ($2,000 SYMBOL 180 \f "Symbol" 1/4 year) (9,500)

Income from Sly 2009 7,500

Less: Dividends from Sly $20,000 SYMBOL 180 \f "Symbol" 85% (17,000)

Investment in Sly December 31, 2009$513,250

Noncontrolling interest share of post-acquisition income, adjusted for the inventory profit: ($25,000 - $5,000) SYMBOL 180 \f "Symbol" 15% = $3,000Preacquisition earnings ($35,000 SYMBOL 180 \f "Symbol" 85%) = $29,750

Under SFAS No. 160, pre-acquisition earnings and dividends are closed to retained earnings, and the consolidated income statement reports only post-acquisition earnings.

Working paper entries:

aSales 60,000

Cost of sales 60,000

To eliminate intercompany sales.

bCost of sales 5,000

Inventories 5,000

To defer unrealized inventory profits.

cSales 50,000


Plant assets net 10,000

To eliminate intercompany sale of inventory item to be used as equipment.

dPlant assets net 500

Operating expense 500

To record depreciation for 1/4 year on intercompany gain on plant asset.P8-11 (continued)

eIncome from Sly 7,500

Investment in Sly 9,500

Dividends 17,000

To eliminate income and dividends and return investment account to its beginning-of-the-period balance.

fCapital stock 500,000

Retained earnings 100,000

Investment in Sly 522,750


Sales * 233,333

Cost of sales * 145,833

Operating expenses * 52,500

Dividends * 20,000

To eliminate reciprocal equity and investment balances, and enter beginning noncontrolling interest (* adjusted for preacquisition earnings and dividends).

gDividends payable 17,000

Dividends receivable 17,000

To eliminate reciprocal dividends receivable and payable amounts.

hNoncontrolling Interest Share 3,000

Dividends 3,000

To enter Noncontrolling Interest share of subsidiary post-acquisition income and dividends.

Alternative to entry c:Sales 50,000



Plant assets net 10,000


Pak Corporation and SubsidiaryConsolidation Working Papers

for the year ended December 31, 2009PakSly 85%Adjustments and


Statements

Income StatementSales$ 910,000$ 400,000a 60,000

c 50,000

f 233,333$ 966,667

Income from Sly 7,500 e 7,500

Cost of sales 500,000* 250,000*b 5,000a 60,000

c 40,000

f 145,833 509,167*

Operating expense 200,000* 90,000*d 500

f 52,500 237,000*

Consolidated net income 220,,500*

Noncontrolling int. shareh 3,000 3,000*

Controlling share of NI $ 217,500$ 60,000 $ 217,500

Retained EarningsRetained earnings Pak$ 192,500$ 192,500

Retained earnings Sly$ 100,000f 100,000


Dividends 100,000* 40,000*e 17,000

f 20,000

h 3,000 100,000*

Retained earnings

December 31$ 310,000$ 120,000 $ 310,000


Dividends receivable 17,000 g 17,000

Accounts receivable 120,000 70,000 190,000

Inventories 300,000 150,000 b 5,000 445,000

Plant assets net 880,000 500,000d 500c 10,000 1,370,500

Investment in Sly 513,250e 9,500f 522,750

$1,864,000$ 730,000 $2,049,250

Accounts payable$ 154,000$ 90,000 $ 244,000

Dividends payable 20,000g 17,000 3,000

Capital stock 1,400,000 500,000f 500,000 1,400,000


$1,864,000$ 730,000

Noncontrolling interest January 1f 92,250

Noncontrolling interest December 31 92,250

$2,049,250

Solution P8-12Indirect MethodPoff Corporation and SubsidiaryConsolidated Statement of Cash Flows


Cash Flows from Operating Activities

Consolidated net income controlling share$300,000

Adjustments to reconcile net income to cash

provided by operating activities:

Noncontrolling interest share$ 22,000

Depreciation expense 528,000

Decrease in accounts receivable 2,500

Decrease in prepaid expenses 20,000

Decrease in accounts payable (203,500)

Increase in inventories (130,000)

Gain on sale of 10% interest * (5,700) 233,300

Net cash flows from operating activities 533,300

Cash Flows from Investing Activities

Purchase of equipment$(100,000)

Sale of 10% interest in subsidiary 72,700

Net cash flows from investing activities (27,300)

Cash Flows from Financing Activities

Cash paid on long-term note$(300,000)

Payment of cash dividends controlling (200,000)

Payment of cash dividends noncontrolling (10,000)

Net cash flows from financing activities(510,000)

Decrease in cash for 2010 (4,000)

Cash on hand January 1, 2010 50,500

Cash on hand December 31, 2010$ 46,500

* Note: Since Poff maintains a controlling interest in Sato, no gain or loss should have been recognized on sale of the 10 interest. Rather, this amount should appear as an increase in other paid-in capital. The net effect on the statement of cash flows is the same.


Poff Corporation and SubsidiaryWorking Papers for the Statement of Cash Flows (Indirect Method)


Reconciling ItemsCash FlowsCash FlowsCash Flows

YearsfromInvestingFinancing

ChangeDebitCreditOperationsActivitiesActivities

Asset Changes

Cash (4,000)

Accounts

receivable net (2,500)e 2,500

Inventories 130,000k 130,000

Prepaid expenses (20,000)l 20,000

Equipment 90,000h 10,000g 100,000

Accumulated

depreciation(498,000)f 500,000h 2,000

Land and buildings 0

Accumulated

depreciation (28,000)f 28,000

Total asset

changes(332,500)

Changes in Equities

Accounts payable(203,500)i 203,500

Dividends payable 0

Long-term note

payable(300,000)j 300,000

Common stock 0

Retained earnings 100,000a 300,000c 200,000

Noncontrol. int. 20% 71,000b 22,000d 10,000

h 59,000

Changes in

equities(332,500)

Consolidated net incomea 300,000 300,000

Noncontrolling int. shareb 22,000 22,000

Purchase of equipmentg 100,000(100,000)

Depreciation equipment

and buildingsf 528,000 528,000

Gain - sale of 10% subsidiary

Interesth 5,700 (5,700)

Decrease in accounts receivablee 2,500 2,500

Increase in inventoriesk 130,000(130,000)

Decrease in prepaid expensesl 20,000 20,000

Decrease in accounts payablei 203,500(203,500)

Cash paid on long-term notej 300,000(300,000)

Paid dividends controllingc 200,000(200,000)

Paid dividends noncontrol.d 10,000 (10,000)

Sale of 10% interest in

Subsidiaryh 72,700 72,700

1,890,7001,890,700

533,300 (27,300)(510,000)

Cash decrease for 2010 = $533,300 - $27,300 - $510,000 = $(4,000).

* Note: Since Poff maintains a controlling interest in Sato, no gain or loss should have been recognized on sale of the 10 interest. Rather, this amount should appear as an increase in other paid-in capital. The net effect on the statement of cash flows is the same. 2009 Pearson Education, Inc. publishing as Prentice Hall

8-1 2009 Pearson Education, Inc. publishing as Prentice Hall

2009 Pearson Education, Inc. publishing as Prentice Hall

Solution Manual for Beams Chapter 8

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