Ch03 Beams12ge SM

CHAPTER 3
AN INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS

Answers to Questions
1
A corporation becomes a subsidiary when another corporation either directly or indirectly acquires a
controlling financial interest (generally over 50 percent) of its outstanding voting stock.
Amounts assigned to identifiable assets and liabilities in excess of recorded amounts on the books of the
subsidiary are not recorded separately by the parent. Instead, the parent records the fair value/purchase
price of the interest acquired in an investment account. The assignment to identifiable asset and liability
accounts is made through working paper entries when the parent and subsidiary financial statements are
consolidated.
The land would be shown in the consolidated balance sheet at $100,000, its fair value, assuming that the
purchase price of the subsidiary is greater than the book value of the subsidiarys net assets. If the parent
had acquired an 80 percent interest and the implied fair value of the subsidiary was greater than the book
value of the subsidiarys net assets, the land would still appear in the consolidated balance sheet at
$100,000. Under GAAP, the noncontrolling interest is also reported based on fair values at the acquisition
date.
Parent and subsidiaries should maintain separate accounting record because legally they are separate
entities. However, in parent-subsidiary relationship, the parent has a control over the subsidiary. Thus
there is only one economic entity because all resources are under control of a single management, which is
the management of parent. Therefore, the separate accounting record should be consolidated for reporting
purposes.
A noncontrolling interest is the equity interest in a subsidiary that is owned by stockholders outside of the
affiliation structure. In other words, it is the equity interest in a subsidiary (recorded at fair value) that is
not held by the parent or subsidiaries of the parent.
Under GAAP, a subsidiary will not be consolidated if control does not rest with the majority owner, such
as in the case of a subsidiary in reorganization or bankruptcy, or when the subsidiary operates under severe
foreign exchange restrictions or other governmentally imposed uncertainties. Other conditions for not
consolidating a subsidiary are: (1) formation of joint ventures, (2) the acquisition of an asset or group of
assets that does not constitute a business, (3) combination between entities under common control and (4)
combination between not-for-profit entities or the acquisition of a for-profit business by a not-for-profit
entity.
Cash is not the only permissible options to finance the acquisition. Investor may also sell shares of
authorized but previously unissued common stock, issue preferred shares, sell debt securities (bonds), or
combine these possible options.
The amount of capital stock that appears in a consolidated balance sheet is the total par or stated value of
the outstanding capital stock of the parent.
All elimination entries are not recorded in a ledger because the purpose of the entries is to help the
process of consolidating the parent and subsidiary financial statement. These entries are fictitious and do
not need to be journalized or posted in either parent accounting records or subsidiary accounting records.
10
The parents investment in subsidiary does not appear in a consolidated balance sheet if the subsidiary is
consolidated. It would appear in the parents separate balance sheet under the heading investments or
other assets. Investments in unconsolidated subsidiaries are shown in consolidated balance sheets as
investments or other assets. They are accounted for under the equity method if the parent can exercise
significant influence over the subsidiary; otherwise, they are accounted for by the fair value / cost method.
Copyright 2015 Pearson Education Limited
3-2
An Introduction to Consolidated Financial Statements
11
Parents books:
Investment in subsidiary
Sales
Accounts receivable
Interest income
Dividends receivable
Advance to subsidiary
Reciprocal accounts on subsidiarys books:

Capital stock and retained earnings
Cost of Goods Sold
Accounts payable
Interest expense
Dividends payable
Advance from parent
12
Reciprocal accounts are eliminated in the process of preparing consolidated financial statements in order
to show the financial position and results of operations of the total economic entity that is under the
control of a single management team. Sales by a parent to a subsidiary are internal transactions from the
viewpoint of the economic entity and the same is true of interest income and interest expense and rent
income and rent expense arising from intercompany transactions. Similarly, receivables from and payables
to affiliates do not represent assets and liabilities of the economic entity for which consolidated financial
statements are prepared.
13
The stockholders equity of a parent under the equity method is the same as the consolidated stockholders
equity of a parent and its subsidiaries except for the noncontrolling interest.
14
No. The amounts that appear in the parents statement of retained earnings under the equity method and
the amounts that appear in the consolidated statement of retained earnings are identical, assuming that the
noncontrolling interest is included as a separate component of stockholders equity.
15
Income attributable to noncontrolling interest is not an expense, but rather it is an allocation of the total
income to the consolidated entity between controlling and noncontrolling stockholders. From the
viewpoint of the controlling interest (the stockholders of the parent), income attributable to noncontrolling
interest has the same effect on consolidated net income as an expense. This is because consolidated net
income is income to all stockholders. Alternatively, you can view total consolidated net income as being
allocated to the controlling and noncontrolling interests.
16
The computation of noncontrolling interest is comparable to the computation of retained earnings. It is

computed:
Noncontrolling interest beginning of the period
Add: Income attributable to noncontrolling
interest
Deduct: Noncontrolling interest dividends
Deduct: Noncontrolling interest of amortization of
excess of fair value over book value
Add: Noncontrolling interest of amortization of
excess of book value over fair value
Noncontrolling interest end of the period
XX
XX
(XX)
(XX)
XX
XX
17
It is acceptable to consolidate the annual financial statements of a parent and a subsidiary with different
fiscal periods, provided that the dates of closing are not more than three months apart. Any significant
developments that occur in the intervening three-month period should be disclosed in notes to the
financial statements. In the situation described, it is acceptable to consolidate the financial statements of
the subsidiary with an October 31 closing date with the financial statements of the parent with a
December 31 closing date.
18
The acquisition of shares from noncontrolling stockholders is not a business combination. It must be
accounted for as a treasury stock transaction if the acquirer is the controlling interest. It is not possible, by
definition, to acquire a controlling interest from noncontrolling stockholders.
SOLUTIONS TO EXERCISES
Chapter 3
3-3
Solution E3-1
Solution E3-2
1
2
3
4
5
1
2
3
4
5
6
7
b
c
d
d
a
d
b
d
d
a
b
c
Solution E3-3 [AICPA adapted]

1
Advance to Hill $75,000 + receivable from Ward $200,000 = $275,000
Zero, goodwill has an indeterminate life and is not amortized.
a
Pow accounts for Sap using the equity method, therefore,
consolidated retained earnings is equal to Pows retained earnings, or
$2,480,000.
d
On the consolidated balance sheet, intercompany receivables should
be zero.
Solution E3-4 (in thousands)

1
Implied fair value of San ($3,600 / 90%)

Less: Book value of San
Excess fair value over book value
Equipment undervalued
Goodwill at January 1, 2011
Goodwill at December 31, 2011 = Goodwill from consolidation
Since goodwill is not amortized
Consolidated net income

Pins reported net income
Less: Correction to income from San for
depreciation on excess allocated
to equipment [($120,000/3 years)x 90%]
Controlling share of consolidated net income
Noncontrolling share of consolidated net income:
($400,000 - $40,000 depreciation) x 10%
$4,000
(3,600)
$ 400
120
$ 280
$ 280
$1,960
(36)
$1,924
$36
1,924
$1,960

1.
Implied fair value of Matt Inc.

($1,400,000 / 70%)
Less: book value of Matt Inc.
Goodwill
$2,000,000
$1,500,000
$500,000
3-4
2. Noncontrolling interest at January 1

($2,000,000 x 30%)
Add: noncontrolling interest share ($600,000 x 30%)
Less: Dividends declared ($300,000 x 30%)
Noncontrolling interest at December 31
Check:
Investment in Matt Inc. at January 1
Add: controlling interest share ($600,000 x 70%)
Less: dividends declared ($300,000 x 70%)
Investment in Matt Inc. at December 31
$600,000
$180,000
$90,000
$690,000
$1,400,000
$420,000
$210,000
$1,610,000

($1,610,000 x 30% / 70%)
$690,000

1.Cost of acquiring Patricia NVs stocks [$45 x 10,000]
Implied fair value [$40,000 + $20,000 + $80,000 +
$280,000 -$40,000]
Goodwill
2.Journal entries to record push-down value:
Inventories (+A)
Plant assets (+A)
Accounts payable (-L)
Goodwill (+A)
Retained earnings (-SE)
Accounts receivable (-A)
Push-down capital (+SE)
$450,000
$380,000
$
70,000
30
50
10
70
200
10
350
Push-down capital in the balance sheet of Patricia NV is $350,000
Chapter 3
3-5
Solution E3-7
1. Sooseck Co Ltd net income
Percentage of ownership
Income allocated to controlling interest
$240,000
80%
$192,000
2. Controlling share of net income is equal to parents net income.

Yum Co Ltd separate net income
Income from Sooseck Co Ltd
Controlling share of net income
$350,000
$192,000
$542,000

1
Capital stock
The capital stock appearing in the consolidated balance sheet at
December 31, 2011 is $7,200, the capital stock of Pob,the parent
company.
Goodwill at December 31, 2011

Investment cost at January 2, 2011 (80% interest)
Implied total fair value of Sof ($2,800 / 80%)
Book value of Sof(100%)
Excess is considered goodwill since no other fair value
information is given.
$1,100
Consolidated retained earnings at December 31, 2011

Pobs retained earnings January 2 (equal to
beginning consolidated retained earnings
Add: Net income of Pob (equal to controlling share of
consolidated net income)
Less: Dividends declared by Pob
Consolidated retained earnings December 31
$2,800
$3,500
(2,400)
$3,200
1,200
(720)
$3,680
Noncontrolling interest at December 31, 2011

Capital stock and retained earnings of Sof on
January 2
Add: Sofs net income
Less: Dividends declared by Sof
Sofs stockholders equity December 31
Noncontrolling interest percentage
$2,400
360
(200)
2,560
20%
3-6
Noncontrolling interest at book value

Add: 20% Goodwill
Noncontrolling interest December 31
5
$ 512
220
$ 732
Dividends payable at December 31, 2011

Dividends payable to stockholders of Pob
Dividends payable to noncontrolling stockholders ($100
20%)
Dividends payable to stockholders outside the
Consolidated entity
$ 360
20
$ 380
Chapter 3
3-7

Pas Corporation and Subsidiary
Partial Balance Sheet
at December 31, 2011
Stockholders equity:
Capital stock, $10 par
Additional paid-in capital
Retained earnings
Equity of controlling stockholders
Noncontrolling interest
Total stockholders equity
$1,200
200
260
1,660
164
$1,824
Supporting computations
Computation of consolidated retained earnings:
Pass December 31, 2010 retained earnings
Add: Pass reported income for 2011
Less: Pass dividends
Consolidated retained earnings December 31, 2011
$ 140
220
(100)
$ 260
Computation of noncontrolling interest at December 31, 2011

Sals December 31, 2010 stockholders equity
Income less dividends for 2011 ($80 - $60)
Sals December 31, 2011 stockholders equity
Noncontrolling interest December 31, 2011
$800
20
820
20%
$164
3-8
Solution E3-10
Pek Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 2013
(in thousands)
Sales
Cost of goods sold
Gross profit
Deduct: Operating expenses
Deduct: Noncontrolling interest share
Controlling interest share
$8,400
4,400
4,000
2,220
1,780
58
$1,722
Investment cost January 1, 2011 (90% interest)
Implied total fair value of Slo ($3,240 / 90%)
Slos Book value acquired (100%)
Excess of fair value over book value
Excess allocated to:
Inventories (sold in 2011)
Equipment (4 years remaining useful life)
Goodwill
Operating expenses:
Combined operating expenses of Pek and Slo
Add: Depreciation on excess allocated to equipment
($80/4 years)
Consolidated operating expenses
$ 3,240
$ 3,600
(2,800)
$
800
$
$
120
80
600
800
$2,200
20
$2,220
Chapter 3
3-9
SOLUTIONS TO PROBLEMS
Solution P3-1
1
Pen Corporation and Subsidiary

Consolidated Balance Sheet
(in thousands)
Assets
Cash ($128 + $72)
Accounts receivable ($180 + $136 - $20)
Inventories ($572 + $224)
Equipment net ($1,520 + $700)
Total assets
Liabilities and Stockholders Equity
Liabilities:
Accounts payable ($160 + $132 - $20)
Common stock, $10 par
Retained earnings
Noncontrolling interest ($600 + $400) 20%
Total liabilities and stockholders equity
200
296
796
2,220
$3,512
272
1,840
1,200
200
$3,512
Consolidated net income for 2012

Pens separate income
Add: Income from Sut (80% x $360,000)
Add: Noncontrolling interest share (20% x $360,000)

Add: Suts net income
Less: Noncontrolling interest share (20% x $360,000)
680
288
968
72
$1,040
680
360
1,040
72
$ 968
3-10
Solution P3-2 (in thousands)

1
Schedule to allocate fair value/book value differential

Cost of investment in Set
Implied fair value of Set ($700 / 70%)
Book value of Set
Excess allocated:
Fair Value
Book Value
Inventories
($200
$120)
Land
($240
$200)
($360
$280)
Buildings net
($120
$160)
Equipment net
Other liabilities
($160
$200)
Allocated to identifiable net assets
Goodwill for the remainder
$ 700
$1,000
(440)
$ 560
Allocation
$ 80
40
80
(40)
40
200
360
$560
Par Corporation and Subsidiary

at January 1, 2011
Assets
Current assets:
Cash ($140 + $80)
Receivables net ($320 + $120)
Inventories ($280 + $120 + $80)
Property, plant and equipment:
Land ($400 + $200 + $40)
Buildings net ($440 + $280 + $80)
Equipment net ($320 + $160 - $40)
Goodwill (from consolidation)
Total assets
Liabilities and Stockholders Equity
Liabilities:
Accounts payable ($360 + $320)
Other liabilities ($40 + $200 - $40)
Capital stock
Retained earnings
Equity of controlling stockholders
Noncontrolling interest *
Total liabilities and stockholders equity
* 30% of implied fair value of $1,000 = $300.
$220
440
480
$640
800
440
680
200
$2,000
200
2,200
300
$1,140
1,880
360
$3,380
880
2,500
$3,380
Chapter 3
3-11

Schedule to allocate excess of investment fair value over book value:
TOBIAS AG AND ITS 90%-OWNED SUBSIDIARY
MARK AG (IN THOUSANDS)
Fair value (purchase price) of 90% interest
acquired
Implied fair value of sad ($8,100 /
90%)
Book value of Mark AG net assets
acquired
Inventories
Land
Buildings-net
Equipment-net
Notes payable
Bonds payable
Patents
$ 8,100
$ 9,000
$ 7,200
$ 1,800
Fair
Book
Value
Value
$ 2,000
$ 1,600
$ 4,000
$ 3,000
$ 2,500
$ 2,800
$ 4,000
$ 3,900
$ 2,000
$ 1,800
$ 2,000
$ 2,400
$ 100
$ 0
Total assigned to
identifiable net assets
Excess
Allocated
$ 400
$ 1,000
-$ 300
$ 100
-$ 200
$ 400
$ 100
$ 1,500
Remainder assigned to goodwill

Total excess of cost over book value
acquired
$ 300
$ 1,800

Noncontrolling interest of $260 (fair value) plus $1,040 (fair value of Pams
investment) equals total fair value of $1,300. Therefore, Pams interest is
80% ($1,040 / $1,300), and noncontrolling interest is 20% ($260 / $1,300).
Total fair value
Book value of Sap
$1,300
(1,040)
$ 260
Excess allocated to
Plant assets net
Goodwill
Total
Fair Value
$840
Book Value
$800
$
$
40
220
260
3-12
Solution P3-5
Pal Corporation and Subsidiary
(in thousands)
Assets
Current assets
Plant assets
Goodwill
$1,360
3,320
800
$5,480
Equities
Liabilities
Capital stock
Retained earnings
$2,640
1,200
1,640
$5,480
Sors net income ($1,600 - $1,200 - $200)
Less: Excess allocated to inventories that were sold in 2011
Less: Depreciation on excess allocated to plant
assets ($160 /4 years)
Income from Sor
200
(80)
(40)
80
Plant assets ($2,000 + $1,200 + $160 - $40)
$3,320
Pals retained earnings:

Beginning retained earnings
Add: Operating income
Add: Income from Sor
Deduct: Dividends
Retained earnings December 31, 2011
$1,360
400
80
(200)
$1,640
Chapter 3
3-13
Solution P3-6
1. Preliminary computations:
Fair value (purchase price) of 80% interest acquired
Implied fair value of David PLC [$2,080,000 / 80%]
David PLC stockholders equity on January 1
[$1,000,000 + $1,800,000 + $200,000 - $500,000]
Excess allocated to goodwill
$2,080,000
$2,600,000
$2,500,000
$
HARRISON PLC AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET WORKPAPERS
DECEMBER 31, 2014 (IN THOUSANDS)
Adjustments
and
Eliminations
Harrison
80 %David
Credit
PLC
PLC
Debits s
Assets
Cash
Accounts receivable
Equipment-net
Building-net
Land
Investment in David
PLC
Goodwill
$ 300
$ 400
$ 160
$ 1,000
$ 2,000
$ 1,600
$ 80
$ 200
c 100
b 160
$ 800
$ 1,000
$ 1,400
100,000
Consolidate
d Balance
Sheet
$ 380
$ 500
$ 1,800
$ 3,000
$ 3,000
$ 2,320
a 2320
a 100
Total assets
$ 7,780
$ 3,480
Liabilities and
Equity
Accounts payable
Dividends payable
Notes payable
Capital stock
Retained earnings
$ 500
$ 100
$ 1,000
$ 2,000
$ 4,180
$ 80
$ 200
$ 400
$ 1,000
$ 1,800
$ 100
$ 8,780
c 100
b 160
a 1000
a 1800
$ 480
$ 140
$ 1,400
$ 2,000
$ 4,180
$ 7,780
$ 3,480
Noncontrolling
interest
a 580
$ 580
Total liabilities and
stockholders' equity
$ 8,780
a. To eliminate reciprocal subsidiary investment and equity balances,
establish noncontrolling interest, and enter goodwill
b.To eliminate reciprocal dividends receivable and dividends payable
accounts.
c.To eliminate reciprocal accountss receivable and accountss payable
accounts.
3-14
Chapter 3
3-15

Preliminary computations
Cost of 80% investment January 3, 2011
Implied total fair value of Sle ($1,120 / 80%)
Book value of Sle
Excess fair value over book value on January 3 = Goodwill
1
2
$1,120
$1,400
(1,000)
$ 400
Noncontrolling interest share of income:

Sles net income $200 20% noncontrolling interest
$ 40
Current assets:
Combined current assets ($816 + $300)
Less: Dividends receivable ($40 80%)
Current assets
$1,116
(32)
$1,084
Income from Sle: None Investment income is eliminated in consolidation.
Capital stock: $2,000 Capital stock of the parent, Por Corporation.
Investment in Sle: None The investment account is eliminated.
$400
Controlling share of consolidated net income: Equals Pors

net income, or:
Consolidated sales
Less: Consolidated cost of goods sold
Less: Consolidated expenses
Less: Noncontrolling interest share
Controlling share
$ 2,400
(1,480)
(320)
$
600
(40)
$
560
Consolidated retained earnings December 31, 2011: $808 Equals Pors

beginning retained earnings.

Equal to Pors ending retained earnings:
Beginning retained earnings
Add: Controlling share of consolidated net income
Less: Pors dividends for 2012
Ending retained earnings
10

Sles capital stock and retained earnings
Add: Net income
Less: Dividends
Sles equity December 31, 2012 at fair value
Noncontrolling interest December 31, 2012 using book value
Add: Noncontrolling interest share of Goodwill
Noncontrolling interest December 31, 2012 at fair value
808
560
(240)
$1,128
$1,200
200
(100)
1,300
20%
$ 260
80
$ 340
3-16
Solution P3-8 [AICPA adapted]

Preliminary computations
Investment cost:
Saw (2,000 shares 80%) $280
Saw
Sun
448,000
Sun (6,000 shares 70%) $160
672,000
Implied total fair values:

Saw ($448,000 / 80%)
560,000
Sun ($672,000/ 70%)
960,000
Book value of stockholders equity

Saw
Sun
Excess fair value over book value at acquisition
(Goodwill)
1
280,000
480,000
280,000
480,000
a. Journal entries to account for investments

January 1, 2011 Acquisition of investments
Investment in Saw (80%)
Cash
To record acquisition of 1,600 shares of
Saw common stock at $280 per share.
Investment in Sun (70%)
Cash
448,000
448,000
672,000
672,000
To record acquisition of 4,200 shares of
Sun common stock at $160 per share.
b. During 2011 Dividends from subsidiaries
Cash
51,200
51,200
To record dividends received from Saw ($64,000 80%).
Cash
25,200
25,200
To record dividends received from Sun ($36,000 70%).
c. December 31, 2011 Share of income or loss
115,200
Income from Saw
115,200
To record investment income from Saw ($144,000 80%).
Loss from Sun
33,600
33,600
To record investment loss from Sun ($48,000 70%).
Chapter 3
3-17
Solution P3-8 (continued)

2
Noncontrolling interest December 31, 2011 *

Saw
$200,000
Common stock
Capital in excess of par
Retained earnings
Equity December 31
Noncontrolling interest December 31
Plus: Goodwill x 20%
$280,000 x 20%
$480,000 x 30%
Noncontrolling interest, December 31
160,000
360,000
20%
$ 72,000
Sun
$240,000
80,000
76,000
396,000
30%
$118,800
56,000
$128,000
144,000
$262,800
* Fair value equals book value.

3

Consolidated retained earnings is reported at $1,218,400, equal to the
retained earnings of Pod Corporation, the parent, at December 31, 2011.
Investment balance December 31, 2011:

Investment cost January 1
Saw
$448,000
Sun
$672,000
Add (deduct): Income (loss)

Deduct: Dividends received
Investment balances December 31
115,200
(51,200)
$512,000
(33,600)
(25,200)
$613,200
Check: Investment balances should be equal to the underlying book value

plus goodwill
Saw ($360,000 80%) + ($280,000 x 80%) = $512,000
Sun ($396,000 70%) + ($480,000 x 70%) = $613,200
After consolidation, the Investment balances are $0.
3-18
Solution P3-9
Preliminary computations (in thousands)
Cost of 90% investment January 1, 2011
Implied total fair value of Son ($14,400 / 90%)
Book value of Son
Excess fair value over book value on January 1
Allocation to equipment
Remainder is Goodwill
Additional annual depreciation on equipment ($3,200 / 8 years)
$14,400
$16,000
(10,800)
$ 5,200
$ 3,200
$ 2,000
$
400
Pan Corporation and Subsidiary

Consolidated Balance Sheet Working Papers
(in thousands)
Cash
Receivables net
Inventory
Land
Buildings net
Equipment net
Investment in Son
Goodwill
Total assets
Pan
$ 1,200
2,400
360
2,800
2,400
8,000
2,400
2,800
4,000
6,000
3,200
15,120
_______
$38,280
Accounts payable
$ 1,200
Dividends payable
2,000
Capital stock
28,000
Retained earnings
7,080
Noncontrolling interest _______
Total equities
a
b
90%
Son
800
1,600
$38,280
Adjustments and
Eliminations
Consolidated
Balance Sheet
$ 2,000
4,000
360
5,200
5,200
12,000
2,800
12,000
a 15,120
________
$ 14,800
2,400
400
8,000
4,000
________
2,000
2,000
$42,400
$ 14,800
b
a
a
360
8,000
4,000
_______
17,160
1,680
$ 3,600
2,040
28,000
7,080
1,680
17,160
$42,400
To eliminate reciprocal investment and equity accounts, enter unamortized excess

allocated to equipment, record goodwill, and enter noncontrolling interest (at
fair value).
To eliminate reciprocal dividends receivable and dividends payable amounts.
Chapter 3
3-19
Solution P3-10
1
Purchase price of investment in Sun (in thousands)

Underlying book value of investment in Sun:
Equity of Sun January 1, 2011
Add: Excess investment fair value over book value:
Goodwill at December 31, 2015
Fair value of Sun January 1, 2011
240
$1,120
Purchase price of 80% investment at fair value($1,120 x 80%)

2
Suns stockholders equity on December 31, 2014 (in thousands)

20% noncontrolling interest at fair value
$248
20% goodwill
(48)
20% noncontrolling interests equity at book value
$200
Total equity = Noncontrolling interests equity $200/20% = $1,000
Pans investment in Sun account balance at December 31, 2014

(in thousands)
Underlying book value in Sun December 31, 2014
$800
($1,000 80%)
Add: 80% of Goodwill December 31, 2014
(20% is attributable to the noncontrolling interest)
192
Investment in Sun December 31, 2014
$992
Alternative solution:
Investment cost January 1, 2011
Add: 80% of Suns increase since acquisition
($1,000 - $880) 80%
Investment in Sun December 31, 2014
$896
96
$992
Pans capital stock and retained earnings December 31, 2015

(in thousands)
Capital stock
$1,600
Retained earnings
$ 120
Amounts are equal to capital stock and retained earnings shown in the
consolidated balance sheet.
880
896
3-20
Solution P3-11
Cost of 70% investment in Stu
Implied fair of Stu($2,800 / 70%)
Book value of Stu (100%)
Excess
Excess allocated:
Inventories
Plant assets
Goodwill
Excess
$2,800
$4,000
3,200
$ 800
$
$
Investment balance at January 1, 2011

Share of Stus retained earnings increase ($240 70%)
Less: Amortization
70% of excess allocated to inventories (sold in 2011)
70% of excess allocated to plant assets ($320 /8 years)
Investment balance at December 31, 2011
80
320
400
800
$2,800
168
(56)
(28)
$2,884

30% of Stus book value at December 31 ($3,440 x 30%)
30% of Goodwill
30% Unamortized excess for plant assets
30% x ($320 - $40 amortization)
Noncontrolling at December 31 (fair value)
$1,032
120
84
$1,236
Pop Corporation and Subsidiary

Consolidated Balance Sheet Working Papers
(in thousands)
Pop
Cash
$
240
1,760
Accounts receivable net
Accounts receivable Pop
Inventories
Land
Plant assets net
Investment in Stu
Goodwill
Assets
Accounts payable
Account payable to Stu
Dividends payable
Long-term debt
Capital stock
Retained earnings
Noncontrolling interest
($4,120,000 30%)
70%
Stu
80
800
Adjustments and
Eliminations
40
28
2,000
400
2,800
1,280
600
1,400
2,884
______
$10,112
______
$ 4,200
280
400
b
c
40
28
40
28
Consolidated
Balance Sheet
$
320
2,560
3,280
1,000
4,480
a 2,884
$ 1,200
40
160
2,400
4,000
2,312
_______
_______
400
$12,040
320
40
400
2,000
1,440
$ 1,520
172
2,800
4,000
2,312
a 2,000
a 1,440
_______
a 1,236
1,236
Chapter 3
Equities
3-21
$10,112
$ 4,200
4,188
4,188
$12,040
3-22
Solution P3-12
80% Investment in Sam at cost January 1, 2011
Implied total fair value of Sam ($3,040 / 80%)
Sam book value
Excess fair value over book value recorded as goodwill
2011
2012
2013
Sam
Dividends
$160
200
240
$600
Sam
Net Income
$ 320
400
480
$1,200
$ 3,040
$ 3,800
3,600
$
200
80% of
Net Income
$256
320
384
$960
Sams dividends for 2012 ($160 / 80%)
200
Sams net income for 2012 ($320 / 80%)
400
Goodwill December 31, 2012
200
Noncontrolling interest share of income 2013

Sams income for 2013
($192 dividends received/80%) 2
Noncontrolling interest share
480
20%
96

Equity of Sam January 1, 2011
Add: Income for 2011, 2012 and 2013
Deduct: Dividends for 2011, 2012 and 2013
Equity book value of Sam December 31, 2013
Goodwill
Equity fair value of Sam December 31, 2013
$3,600
1,200
(600)
4,200
200
$4,400
20%
$ 880
Controlling share of consolidated net income for 2013

Add: Income from Sam
$1,120
384
$1,504
Pens net income

Sams net income
Less: Noncontrolling interest share ($480 x 20%)
$1,120
480
$1,600
96
$1,504

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CHAPTER 3

AN INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS

An Introduction to Consolidated Financial Statements

Reciprocal accounts on subsidiarys books:

The computation of noncontrolling interest is comparable to the computation of retained earnings. It is

Solution E3-3 [AICPA adapted]

Advance to Hill $75,000 + receivable from Ward $200,000 = $275,000

Zero, goodwill has an indeterminate life and is not amortized.

Solution E3-4 (in thousands)

Implied fair value of San ($3,600 / 90%)

Consolidated net income

Solution E3-5 (in thousands)

Implied fair value of Matt Inc.

An Introduction to Consolidated Financial Statements

2. Noncontrolling interest at January 1

Noncontrolling interest at December 31

Solution E3-6 (in thousands)

Push-down capital in the balance sheet of Patricia NV is $350,000

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2. Controlling share of net income is equal to parents net income.

Solution E3-8 (in thousands)

Goodwill at December 31, 2011

Consolidated retained earnings at December 31, 2011

Noncontrolling interest at December 31, 2011

An Introduction to Consolidated Financial Statements

Noncontrolling interest at book value

Dividends payable at December 31, 2011

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Solution E3-9 (in thousands)

Computation of noncontrolling interest at December 31, 2011

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An Introduction to Consolidated Financial Statements

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Pen Corporation and Subsidiary

Consolidated net income for 2012

Pens separate income

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An Introduction to Consolidated Financial Statements

Solution P3-2 (in thousands)

Schedule to allocate fair value/book value differential

Par Corporation and Subsidiary

* 30% of implied fair value of $1,000 = $300.

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Solution P3-3 (in thousands)

Remainder assigned to goodwill

Solution P3-4 (in thousands)

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An Introduction to Consolidated Financial Statements

Plant assets ($2,000 + $1,200 + $160 - $40)

Pals retained earnings:

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HARRISON PLC AND SUBSIDIARY

An Introduction to Consolidated Financial Statements

Copyright 2015 Pearson Education Limited

Solution P3-7 (in thousands)

Noncontrolling interest share of income:

Income from Sle: None Investment income is eliminated in consolidation.

Capital stock: $2,000 Capital stock of the parent, Por Corporation.

Investment in Sle: None The investment account is eliminated.

Excess of fair value over book value

Controlling share of consolidated net income: Equals Pors

Consolidated retained earnings December 31, 2011: $808 Equals Pors

Consolidated retained earnings December 31, 2012

Noncontrolling interest December 31, 2012