B. Woods Chapter 3

52
An Introduction to Consolidated Financial Statements

CHAPTER 3
AN INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS
Answers to Questions
1 A corporation becomes a subsidiar !"en anot"er corporation eit"er
direct# or indirect# ac$uires a ma%orit &o'er 5( percent) o* its outstandin+
'otin+ stoc,-
2 Amounts a##ocated to identi.ab#e assets and #iabi#ities in e/cess o* t"eir
recorded amounts on t"e boo,s o* t"e subsidiar are not recorded separate#
b t"e parent- Instead0 t"e parent compan records t"e purc"ase price o* t"e
interest ac$uired in an in'estment account- T"e a##ocation to identi.ab#e
asset and #iabi#it accounts is made t"rou+" !or,in+ paper entries !"en t"e
parent and subsidiar .nancia# statements are conso#idated-
3 T"e #and !ou#d be s"o!n in t"e conso#idated ba#ance s"eet at 12((0(((0 its
*air 'a#ue0 assumin+ t"at t"e purc"ase price is e$ua# to or +reater t"an t"e *air
'a#ue o* t"e interest ac$uired- I* t"e parent "ad ac$uired an 3( percent
interest and t"e purc"ase price !as e$ua# to or +reater t"an t"e *air 'a#ue o*
t"e interest ac$uired0 t"e #and !ou#d appear in t"e conso#idated ba#ance s"eet
at 1430(((- T"is amount consists o* t"e 14(0((( boo, 'a#ue p#us 3( percent
o* t"e 12(0((( e/cess o* *air 'a#ue o'er boo, 'a#ue o* t"e #and-
4 Parent company 5 a corporation t"at o!ns a ma%orit o* t"e outstandin+
'otin+ stoc, o* anot"er corporation &its subsidiar)-
Subsidiary company 5 a corporation t"at is contro##ed b a parent compan
t"at o!ns a ma%orit o* its outstandin+ 'otin+ stoc,0 eit"er direct# or
indirect#-
Afliated companies 5 companies t"at are contro##ed b a sin+#e
mana+ement team t"rou+" parent5subsidiar re#ations"ips- &A#t"ou+" t"e
term a6#iate is a snonm *or subsidiar0 t"e parent compan is inc#uded in
t"e tota# a6#iation structure-)
Associated companies 5 companies t"at are contro##ed t"rou+" parent5
subsidiar re#ations"ips or !"ose operations can be si+ni.cant# in7uenced
t"rou+" e$uit in'estments o* 2( percent to 5( percent-
58
5 A minorit interest is t"e e$uit interest in a subsidiar compan t"at is
o!ned b stoc,"o#ders outside o* t"e a6#iation structure- In ot"er !ords0 it is
t"e e$uit interest in a subsidiar t"at is not "e#d b t"e parent compan or
subsidiaries o* t"e parent compan-
6 Under t"e pro'isions o* FASB Statement No !"# 9Conso#idation o* A##
Ma%orit5o!ned Subsidiaries09 a subsidiar !i## not be conso#idated i* contro# is
temporar or i* contro# does not rest !it" t"e ma%orit o!ner0 suc" as in t"e
case o* a subsidiar in reor+ani:ation or ban,ruptc0 or !"en t"e subsidiar
operates under se'ere *orei+n e/c"an+e restrictions or ot"er +o'ernmenta##
imposed restrictions-
7 Conso#idated .nancia# statements are intended primari# *or t"e
stoc,"o#ders and creditors o* t"e parent compan0 accordin+ to ARB No $%-
8 T"e amount o* capita# stoc, t"at appears in a conso#idated ba#ance s"eet is
t"e tota# par or stated 'a#ue o* t"e outstandin+ capita# stoc, o* t"e parent
compan-
9 ;ood!i## *rom conso#idation ma appear in t"e +enera# #ed+er o* t"e
sur'i'in+ entit in a mer+er or conso#idation accounted *or as a purc"ase- <ut
+ood!i## *rom conso#idation !ou#d not appear in t"e +enera# #ed+er o* a parent
compan or its subsidiar- ;ood!i## is entered in conso#idation !or,in+ papers
!"en t"e reciproca# in'estment and e$uit amounts are e#iminated- =or,in+
paper entries a>ect conso#idated .nancia# statements0 but t"e are not
entered in an +enera# #ed+er-
10 T"e parent compan?s in'estment in subsidiar does not appear in a
conso#idated ba#ance s"eet i* t"e subsidiar is conso#idated- It !ou#d appear
in t"e parent compan?s separate ba#ance s"eet under t"e "eadin+
9in'estments9 or 9ot"er assets-9 In'estments in unconso#idated subsidiaries
are s"o!n in conso#idated ba#ance s"eets as in'estments or ot"er assets-
T"e are accounted *or under t"e e$uit met"od i* t"e parent can e/ercise
si+ni.cant in7uence o'er t"e subsidiar@ ot"er!ise0 t"e are accounted *or b
t"e cost met"od-
11 Parent&s boo's( Reciprocal accounts on subsidiary&s
boo's(
In'estment in subsidiar Capita# stoc, and retained earnin+s
Sa#es Aurc"ases
Accounts recei'ab#e Accounts paab#e
Interest income Interest e/pense
Di'idends recei'ab#e Di'idends paab#e
Ad'ance to subsidiar Ad'ance *rom parent
5B
C)apter 3
12 Reciproca# accounts are e#iminated in t"e process o* preparin+
conso#idated .nancia# statements in order to s"o! t"e .nancia# position and
resu#ts o* operations o* t"e tota# economic entit t"at is under t"e contro# o* a
sin+#e mana+ement team- Sa#es b a parent to a subsidiar are interna#
transactions *rom t"e 'ie!point o* t"e economic entit and t"e same is true o*
interest income and interest e/pense and rent income and rent e/pense
arisin+ *rom intercompan transactions- Simi#ar#0 recei'ab#es *rom and
paab#es to a6#iated companies do not represent assets and #iabi#ities o* t"e
economic entit *or !"ic" conso#idated .nancia# statements are prepared-
13 T"e stoc,"o#ders? e$uit o* a parent compan under t"e e$uit met"od is
t"e same as t"e conso#idated stoc,"o#ders? e$uit o* a parent compan and
its subsidiaries pro'ided t"at t"e minorit interest0 i* an0 is reported outside
o* t"e conso#idated stoc,"o#ders? e$uit- I* minorit interest is inc#uded in
conso#idated stoc,"o#ders? e$uit0 it represents t"e so#e di>erence bet!een
t"e parent compan?s stoc,"o#ders? e$uit under t"e e$uit met"od and
conso#idated stoc,"o#ders? e$uit-
14 No- T"e amounts t"at appear in t"e parent compan?s statement o*
retained earnin+s under t"e e$uit met"od and t"e amounts t"at appear in
t"e conso#idated statement o* retained earnin+s are identica#-
15 Minorit interest income is not an e/pense0 but rat"er it is an a##ocation o*
t"e tota# income to t"e conso#idated entit bet!een ma%orit and minorit
stoc,"o#ders- From t"e 'ie!point o* t"e ma%orit interest &t"e stoc,"o#ders o*
t"e parent compan)0 minorit interest income "as t"e same e>ect on
conso#idated net income as an ot"er e/pense- T"is is because conso#idated
net income is income to t"e parent compan stoc,"o#ders-
16 T"e computation o* minorit interest is comparab#e to t"e computation o*
retained earnin+s- It is computedC
Minorit interest be+innin+ o* t"e period DD
AddC Minorit interest income DD
DeductC Minorit interest di'idends 5DD
Minorit interest end o* t"e period DD
17 It is acceptab#e to conso#idated t"e annua# .nancia# statements o* a parent
compan and a subsidiar !it" di>erent .sca# periods0 pro'ided t"at t"e
dates o* c#osin+ are not more t"an t"ree mont"s apart- An si+ni.cant
de'e#opments t"at occur in t"e inter'enin+ t"ree5mont" period s"ou#d be
disc#osed in notes to t"e .nancia# statements- In t"e situation described0 it
is acceptab#e to conso#idate t"e .nancia# statements o* t"e subsidiar !it"
an October 82 c#osin+ date !it" t"e .nancia# statements o* t"e parent !it"
a December 82 c#osin+ date-
55
18 T"e ac$uisition o* s"ares "e#d b minorit stoc,"o#ders does not constitute
a business combination- It is not possib#e0 b de.nition0 to ac$uire a
contro##in+ interest *rom minorit stoc,"o#ders-
5E
C)apter 3
SOLUTIONS TO EXERCISES
Solution E3-1 Solution E3-2

1 b 1 d
2 c 2 b
3 d 3 d
4 d 4 d
5 b 5 a
6 a 6 d
7 c
Solution E3-3 [AICPA adapted]
1 c Consolidated current assets $146,000
Less: Apex's current assets 106,000!
Add: "ecei#able $ro% Apex &,000
'adir's current assets $ 4&,000
2 d (inorit) interest o$ $*+,100,*0- . $11/,000
3 c Ad#ance to 0ill $/+,000 1 recei#able $ro% 2ard $&00,000 . $&/+,000
4 a
5 a
34en accounts $or 56arp usin7 t6e e8uit) %et6od, t6ere$ore, consolidated
retained earnin7s is e8ual to 34en's retained earnin7s, or $1,&40,0009
6 d All interco%pan) recei#ables and pa)ables are eli%inated9
5F
Solution E3-4
1 :na%orti;ed 7ood4ill at <ece%ber *1, &00*
=ood4ill $ro% consolidation $ 1>,000
2 Consolidated net inco%e
Pinto's reported net inco%e $4?0,000
Less: Correction $or depreciation on excess allocated
to e8uip%ent $1&,000,* )ears! 4,000!
Consolidated net inco%e $4>6,000
Solution E3-5
1 $600,000, t6e di#idends o$ Pander%an
2 $**0,000, e8ual to $*00,000 di#idends pa)able o$ Pander%an plus $*0,000
di#idends pa)able to %inorit) interests o$ 5adis%an9
53
C)apter 3
Solution E3-6
Preliminary computation
Cost o$ 5lider stoc@ $1,&+0,000
Aair #alue ac8uired $1,000,000 x 100-! 1,000,000
=ood4ill $ &+0,000
1 Bournal entr) to record pus6 do4n #alues
In#entories $ &0,000
Land +0,000
Cuildin7sDnet 1+0,000
E8uip%entDnet >0,000
=ood4ill &+0,000
"etained earnin7s &10,000
'ote pa)able $ 10,000
Pus6Ddo4n capital /+0,000
2 Slider Corporation
Calance 56eet
Banuar) 1, &004
Assets
Cas6 $ /0,000
Accounts recei#able >0,000
In#entories 100,000
Land &00,000
Cuildin7sDnet +00,000
E8uip%entDnet *00,000
=ood4ill &+0,000
Fotal assets $1,+00,000
Liabilities
Accounts pa)able $ 100,000
'ote pa)able 1+0,000
Fotal liabilities &+0,000
Stockholders' equity
Capital stoc@ $ +00,000
Pus6Ddo4n capital /+0,000
Fotal stoc@6olders' e8uit) 1,&+0,000
Fotal liabilities and stoc@6olders' e8uit) $1,+00,000
54
Solution E3-7
1 a!ture Corporation and Su"!idiar#
Consolidated Inco%e 5tate%ent
$or t6e )ear &004
5ales $1,000,000 1 $400,000! $1,400,000
Less: Cost o$ sales $600,000 1 $&00,000! >00,000!
=ross pro$it 600,000
Less: <epreciation expense $+0,000 1 $40,000! ?0,000!
3t6er expenses $1??,000 1 $?0,000! &>?,000!
Fotal consolidated inco%e &&1,000
Less: (inorit) interest inco%e $/0,000 x *0-! &1,000!
Consolidated net inco%e $ &00,000
2 a!ture Corporation and Su"!idiar#
$or t6e )ear &004
5ales $1,000,000 1 $400,000! $1,400,000
Less: Cost o$ sales $600,000 1 $&00,000! >00,000!
=ross pro$it 600,000
Less: <epreciation expense $+0,000 1 $40,000 D $&,000! >>,000!
3t6er expenses $1??,000 1 $?0,000! &>?,000!
Fotal consolidated inco%e &&*,000
Less: (inorit) interest inco%e $/0,000 x *0-! &1,000!
Consolidated net inco%e $ &0&,000
Supporting computations
<epreciation o$ excess allocated to overvalued e8uip%ent:
$10,000,+ )ears . $&,000
E(
C)apter 3
Solution E3-$
1 Capital stoc@
F6e capital stoc@ appearin7 in t6e consolidated balance s6eet at <ece%ber *1,
&00* is $1,>00,000, t6e capital stoc@ o$ Poball, t6e parent co%pan)9
2 =ood4ill at <ece%ber *1, &00*
In#est%ent cost at Banuar) &, &00* $/00,000
Coo@ #alue ac8uired $600,000 x >0-! 4>0,000!
Excess considered 7ood4ill since no $air #alue
in$or%ation is 7i#en! $&&0,000
3 Consolidated retained earnin7s at <ece%ber *1, &00*
Poball's retained earnin7s Banuar) &, &00* e8ual to
be7innin7 consolidated retained earnin7s $>00,000
Add: 'et inco%e o$ Poball e8ual to consolidated net inco%e! *00,000
Less: <i#idends declared b) Poball 1>0,000!
Consolidated retained earnin7s <ece%ber *1, &00* $?&0,000
4 (inorit) interest at <ece%ber *1, &00*
Capital stoc@ and retained earnin7s o$ 5o$tcan on Banuar) &, &00* $600,000
Add: 5o$tcan's net inco%e ?0,000
Less: <i#idends declared b) 5o$tcan +0,000!
5o$tcan's stoc@6olders' e8uit) <ece%ber *1, &00* 640,000
(inorit) interest percenta7e &0-
(inorit) interest <ece%ber *1, &00* $1&>,000
5 <i#idends pa)able at <ece%ber *1, &00*
<i#idends pa)able to stoc@6olders o$ Poball $ ?0,000
<i#idends pa)able to %inorit) stoc@6olders $&+,000 x &0-! +,000
<i#idends pa)able to stoc@6olders outside t6e
consolidated entit) $ ?+,000
E2
Solution E3-%
a!&e# Corporation and Su"!idiar#
Partial Calance 56eet
at <ece%ber *1, &004
Stockholders' equity:
Capital stoc@, $10 par $*00,000
Additional paidDin capital +0,000
"etained earnin7s 6+,000
E8uit) o$ %aGorit) stoc@6olders 41+,000
(inorit) interestH 41,000
Fotal stoc@6olders' e8uit) $4+6,000
H5o%e students %a) not classi$) %inorit) interest as stoc@6olders' e8uit)9
Co%putation o$ consolidated retained earnin7s:
Pas@e)'s <ece%ber *1, &00* retained earnin7s $ *+,000
Add: Pas@e)'s reported inco%e $or &004 ++,000
Less: Pas@e)'s di#idends &+,000!
Consolidated retained earnin7s <ece%ber *1, &004 $ 6+,000
Co%putation o$ %inorit) interest at <ece%ber *1, &004:
5ala%'s <ece%ber *1, &00* stoc@6olders' e8uit) $&00,000
Inco%e less di#idends $or &004 $&0,000 D $1+,000! +,000
5ala%'s <ece%ber *1, &004 stoc@6olders' e8uit) &0+,000
(inorit) interest <ece%ber *1, &004 $ 41,000
E2
C)apter 3
Solution E3-1'
ee&o! Corporation and Su"!idiar#
$or t6e )ear ended <ece%ber *1, &00+
5ales $&,100,000
Cost o$ 7oods sold 1,100,000
=ross pro$it 1,000,000
<educt: 3peratin7 expenses +++,000
Fotal consolidated inco%e 44+,000
<educt: (inorit) interest inco%e 1+,000
Consolidated net inco%e $ 4*0,000
In#est%ent cost Banuar) &, &00* $>&0,000
Coo@ #alue ac8uired $/00,000 x ?0-! 6*0,000!
Excess cost o#er boo@ #alue ac8uired $1?0,000
Excess allocated to:
In#entories sold in &00*! $ *0,000
E8uip%ent 4 )ears re%ainin7 use li$e! &0,000
=ood4ill 140,000
Excess o$ cost o#er boo@ #alue ac8uired $1?0,000
3peratin7 expenses:
Co%bined operatin7 expenses o$ Pee@os and 5lo77er $++0,000
Add: <epreciation on excess allocated to
e8uip%ent $&0,000,4 )ears! +,000
Consolidated operatin7 expenses $+++,000
E8
SOLUTIONS TO RO(LE)S
Solution 3-1
1 enn#*ale Corporation and Su"!idiar#
Consolidated Calance 56eet
at <ece%ber *1, &00*
Assets
Cas6 $*&,000 1 $1>,000! $ +0,000
Accounts recei#able $4+,000 1 $*4,000 D $+,000! /4,000
In#entories $14*,000 1 $+6,000! 1??,000
E8uip%entDnet $*>0,000 1 $1/+,000! +++,000
Fotal assets $>/>,000
Liabilities and Stockholders' Equity
Liabilities:
Accounts pa)able $40,000 1 $**,000 D $+,000! $ 6>,000
5toc@6olders' e8uit):
Co%%on stoc@, $10 par 460,000
"etained earnin7s *00,000
(inorit) interest $1+0,000 1 $100,000! x &0- +0,000
Fotal liabilities and stoc@6olders' e8uit) $>/>,000
2 Consolidated net inco%e $or &004
Penne)#ale's separate inco%e $1/0,000
Add: Inco%e $ro% 5ut6erland 5ales $?0,000 x >0-! /&,000
Consolidated net inco%e $or &004 $&4&,000
EB
C)apter 3
Solution 3-2
1 5c6edule to allocate cost,boo@ #alue di$$erential
Cost o$ in#est%ent in 5ettin7 $1/>,000
Coo@ #alue ac8uired $110,000 x /0-! //,000!
Excess cost o#er boo@ #alue ac8uired $ 101,000
Excess allocated: Interest
Aair Ialue Coo@ Ialue Ac8uired Allocation
In#entories $+0,000 D $*0,000! x /0- $ 14,000
Land $60,000 D $+0,000! x /0- /,000
Cuildin7sDnet $?0,000 D $/0,000! x /0- 14,000
E8uip%entDnet $*0,000 D $40,000! x /0- /,000!
3t6er liabilities $40,000 D $+0,000! x /0- /,000
Allocated to identi$iable net assets *+,000
=ood4ill $or t6e re%ainder 66,000
Excess cost o#er boo@ #alue ac8uired $ 101,000
2 arlor Corporation and Su"!idiar#
at Banuar) 1, &00*
Assets
Current assets:
Cas6 $*&,000 1 $&0,000! $ +&,000
"ecei#ablesDnet $>0,000 1 $*0,000! 110,000
In#entories $/0,000 1 $*0,000 1 $14,000! 114,000 $&/6,000
Property, plant and equipment:
Land $100,000 1 $+0,000 1 $/,000! $1+/,000
Cuildin7sDnet $110,000 1 $/0,000 1 $14,000! 1?4,000
E8uip%entDnet $>0,000 1 $40,000 D $/,000! 11*,000 464,000
ood!ill "rom consolidation 66,000
Fotal assets $>06,000
Liabilities:
Accounts pa)able $?0,000 1 $>0,000! $1/0,000
3t6er liabilities $10,000 1 $+0,000 D $/,000! +*,000 $&&*,000
Capital stoc@ $+00,000
"etained earnin7s +0,000
E8uit) o$ %aGorit) stoc@6olders ++0,000
(inorit) interest **,000 +>*,000
Fotal liabilities and stoc@6olders' e8uit) $>06,000
E5
Solution 3-3
Cost o$ in#est%ent in 5o$tbac@ Coo@s Banuar) 1, &00* $&,/00,000
Coo@ #alue ac8uired $&,+00,000 x >0-! &,000,000
Excess cost o#er boo@ #alue ac8uired $ /00,000
5c6edule to Allocate CostDCoo@ Ialue <i$$erential
Aair Ialue Initial Ainal
D Coo@ Ialue Percent Allocation "eallocation Allocation
Current assets $ +00,000 >0- $ 400,000 $ DDD $ 400,000
E8uip%ent 1,000,000 >0 >00,000 */+,000! 4&+,000
3t6er plant assets 1&+,000! 1&+,000!
'e7ati#e 7ood4ill +00,000! +00,000 DDD
Excess cost o#er boo@ #alue ac8uired $/00,000 0 $/00,000
"eallocation o$ ne7ati#e 7ood4ill to plant assets:
E8uip%ent $*,000,000,$4,000,000 x $+00,000 . $*/+,000
3t6er plant assets $1,000,000,$4,000,000 x $+00,000 . $1&+,000
Solution 3-4
(inorit) interest o$ $+&,000 di#ided b) 5pec6t's $&60,000 stoc@6olders' e8uit)
s6o4s t6at t6e %inorit) interest percenta7e is &0-9 F6ere$ore, P6ar%'s
interest is >0-9
Cost o$ >0- interest in 5pec6t $&60,000
Coo@ #alue ac8uired $&60,000 x >0-! &0>,000!
Excess cost o#er boo@ #alue ac8uired $ +&,000
Interest
Aair Ialue D Coo@ Ialue x Ac8uired
Plant assetsDnet $&10,000 D $&00,000! >0- $ >,000
=ood4ill 44,000
Excess cost o#er boo@ #alue ac8uired $ +&,000
EE
C)apter 3
Solution 3-5
al+er Corporation and Su"!idiar#
Assets
Current assets $ *40,000
Plant assets >*0,000
=ood4ill &00,000
$1,*/0,000
Equities
Liabilities $ 660,000
Capital stoc@ *00,000
"etained earnin7s 410,000
$1,*/0,000
5orrel's net inco%e $400,000 D $*00,000 D $+0,000! $ +0,000
Less: Excess allocated to in#entories t6at 4ere sold in &00& &0,000!
Less: <epreciation on excess allocated to plant
assets $40,000,4 )ears! 10,000!
Inco%e $ro% 5orrel $ &0,000
Plant assets $+00,000 1 $*00,000 1 $40,000 D $10,000! $>*0,000
Pal%er's retained earnin7s:
Ce7innin7 retained earnin7s $*40,000
Add: 3peratin7 inco%e 100,000
Add: Inco%e $ro% 5orrel &0,000
<educt: <i#idends +0,000!
"etained earnin7s <ece%ber *1, &00* $410,000
EF
Solution 3-6
err# Corporation and Su"!idiar#
Consolidated Calance 56eet 2or@in7 Papers

J Perr) J 5i% J AdGust%ents and JConsolidated
Jper boo@s Jper boo@s J Eli%inations JCalance 56eet
J J J J
Cas6 J$ 4&,000J $ &0,000 J J $ 6&,000
J J J J
"ecei#ablesDnet J +0,000J 1*0,000 J b ?,000J 1/1,000
J J J J
In#entories J 400,000J +0,000 J J 4+0,000
J J J J
Land J 1+0,000J &00,000 J J *+0,000
J J J J
E8uip%entDnet J 600,000J 100,000 J J /00,000
J J J J
In#est%ent in 5i% J 40>,000J J a 40>,000J
J J J J
=ood4ill J J Ja 40,000 J 40,000
J J J J
Fotal assets J$1,6+0,000J $+00,000 J J $1,//*,000
J J J J
Accounts pa)able J$ 410,000J $ >0,000 J J $ 4?0,000
J J J J
<i#idends pa)able J 60,000J 10,000 Jb ?,000 J 61,000
J J J J
Capital stoc@ J 1,000,000J *00,000 Ja *00,000 J 1,000,000
J J J J
"etained earnin7s J 1>0,000J 110,000 Ja 110,000 J 1>0,000
J J J J
(inorit) interest J J J a 4&,000J 4&,000
J J J J
Fotal e8uities J$1,6+0,000J $+00,000 J J $1,//*,000
J J J J
a Fo eli%inate reciprocal in#est%ent and e8uit) accounts, record una%orti;ed
7ood4ill $40,000!, and enter t6e %inorit) interest $4&0,000 x 10-!9
b Fo eli%inate reciprocal di#idends recei#able included in recei#ablesDnet!
and di#idends pa)able a%ounts $10,000 di#idends x ?0-!9
E3
C)apter 3
Solution 3-7
Preliminary computations
Cost o$ in#est%ent Banuar) *, &00* $&>0,000
Coo@ #alue ac8uired $&+0,000 x >0-! &00,000!
Excess cost o#er boo@ #alue ac8uired Banuar) *, &00* $ >0,000
1 (inorit) interest inco%e:
5lender's net inco%e $+0,000 x &0- %inorit) interest $ 10,000
2 Current assets:
Co%bined current assets $&04,000 1 $/+,000! $&/?,000
Less: <i#idends recei#able $10,000 x >0-! >,000!
Current assets $&/1,000
3 Inco%e $ro% 5lender: 'one In#est%ent inco%e is eli%inated in
consolidation9
4 Capital stoc@: $+00,000 Capital stoc@ o$ t6e parent, Portl)
Corporation9
5 In#est%ent in 5lender: 'one F6e in#est%ent account is eli%inated9
6 Excess o$ cost o#er boo@ #alue ac8uired: $ >0,000
7 Consolidated net inco%e: E8uals Portl)'s net inco%e, or:
Consolidated sales $600,000
Less: Consolidated cost o$ 7oods sold */0,000!
Less: Consolidated expenses >0,000!
Less: (inorit) interest inco%e 10,000!
Consolidated net inco%e $140,000
$ Consolidated retained earnin7s <ece%ber *1, &00*: $&00,000 E8uals
Portl)'s be7innin7 retained earnin7s9
% Consolidated retained earnin7s <ece%ber *1, &004:
E8ual to Portl)'s endin7 retained earnin7s:
Ce7innin7 retained earnin7s $&00,000
Add: Consolidated net inco%e 140,000
Less: Portl)'s di#idends $or &004 60,000!
Endin7 retained earnin7s $&>0,000
1' (inorit) interest <ece%ber *1, &004:
5lender's capital stoc@ and retained earnin7s $*00,000
Add: 'et inco%e +0,000
Less: <i#idends &+,000!
5lender's e8uit) <ece%ber *1, &004 *&+,000
(inorit) interest <ece%ber *1, &004 $ 6+,000
E4
Solution 3-$ [AICPA adapted]
Preliminary computations (eado4 Ian
In#est%ent cost:
(eado4 1,000 s6ares x >0-! x $/0 $+6,000
Ian *,000 s6ares x /0-! x $40 $>4,000
Coo@ #alue ac8uired
(eado4 $/0,000 x >0-! +6,000
Ian $1&0,000 x /0-! >4,000
<i$$erence 0 0
1 Bournal entries to account $or in#est%ents
#anuary $, %&&' ( Acquisition o" investments
In#est%ent in (eado4 >0-! $+6,000
Cas6 $+6,000
Fo record ac8uisition o$ >00 s6ares o$ (eado4 co%%on stoc@ at $/0
a s6are9
In#est%ent in Ian /0-! $>4,000
Cas6 $>4,000
Fo record ac8uisition o$ &,100 s6ares o$ Ian co%%on stoc@ at $40
per s6are9
)uring %&&' ( )ividends "rom subsidiaries
Cas6 $1&,>00
In#est%ent in (eado4 >0-! $1&,>00
Fo record di#idends recei#ed $ro% (eado4 $16,000 x >0-!9
Cas6 $ 6,*00
In#est%ent in Ian /0-! $ 6,*00
Fo record di#idends recei#ed $ro% Ian $?,000 x /0-!9
)ecember '$, %&&' ( Share o" income or loss
In#est%ent in (eado4 >0-! $&>,>00
Inco%e $ro% (eado4 $&>,>00
Fo record in#est%ent inco%e $ro% (eado4 $*6,000 x >0-!9
Loss $ro% Ian $ >,400
In#est%ent in Ian /0-! $ >,400
Fo record in#est%ent loss $ro% Ian $1&,000 x /0-!9
F(
C)apter 3
Solution 3-$ continued!
2 (inorit) interest <ece%ber *1, &00*
(eado4 Ian
Co%%on stoc@ $+0,000 $60,000
Capital in excess o$ par &0,000
"etained earnin7s 40,000 1?,000
E8uit) <ece%ber *1, &00* ?0,000 ??,000
(inorit) interest percenta7e &0- *0-
(inorit) interest <ece%ber *1, &00* $1>,000 $&?,/00
3 Consolidated retained earnin7s <ece%ber *1, &00*
Consolidated retained earnin7s is reported at $*04,600, e8ual to t6e retained
earnin7s o$ Fodd Corporation, t6e parent, at <ece%ber *1, &00*9
4 In#est%ent balance <ece%ber *1, &00*:
(eado4 Ian
In#est%ent cost Banuar) 1, &00* $+6,000 $>4,000
Add deduct!: Inco%e loss! &>,>00 >,400!
<educt: <i#idends recei#ed 1&,>00! 6,*00!
In#est%ent balances <ece%ber *1, &00* $/&,000 $6?,*00
C6ec@: In#est%ent balances s6ould be e8ual to t6e underl)in7 boo@ #alue
(eado4 $?0,000 x >0- . $/&,000
Ian $??,000 x /0- . $6?,*00
F2
Solution 3-%
an!# Corporation and Su"!idiar#

J J ?0- J AdGust%ents and JConsolidated
J Pans) J 5no4drop J Eli%inations JCalance 56eet
J J J J
Cas6 J$ *00,000J$ &00,000J J $ +00,000
J J J J
"ecei#ablesDnet J 600,000J 400,000J J 1,000,000
J J J J
<i#idends recei#ableJ ?0,000J J b ?0,000J
J J J J
In#entor) J /00,000J 600,000J J 1,*00,000
J J J J
Land J 600,000J /00,000J J 1,*00,000
J J J J
Cuildin7sDnet J &,000,000J 1,000,000J J *,000,000
J J J J
E8uip%entDnet J 1,+00,000J >00,000Ja *00,000 J &,600,000
In#est%ent J J J J
in 5no4drop J *,&&0,000J J a *,&&0,000J
J J J J
=ood4ill J J Ja &&0,000 J &&0,000
J J J J
Fotal assets J$?,010,000J$*,/00,000J J $?,?&0,000
J J J J
Accounts pa)able J$ *00,000J$ 600,000J J $ ?00,000
J J J J
<i#idends pa)able J +00,000J 100,000Jb ?0,000 J +10,000
J J J J
Capital stoc@ J /,000,000J &,000,000Ja &,000,000 J /,000,000
J J J J
"etained earnin7s J 1,&10,000J 1,000,000Ja 1,000,000 J 1,&10,000
J J J J
(inorit) interest J J J a *00,000J *00,000
J J J J
Fotal e8uities J$?,010,000J$*,/00,000J J $?,?&0,000
J J J J
J J J J
a Fo eli%inate reciprocal in#est%ent and e8uit) accounts, enter una%orti;ed
excess allocated to e8uip%ent, record una%orti;ed 7ood4ill, and enter %inorit)
interest9
b Fo eli%inate reciprocal di#idends recei#able and di#idends pa)able a%ounts9
F2
C)apter 3
Solution 3-1'
1 Purc6ase price o$ in#est%ent in 5naploc@
:nderl)in7 boo@ #alue o$ in#est%ent in 5naploc@:
E8uit) o$ 5naploc@ Banuar) 1, &00* $&&0,000 x >0- ac8uired! $1/6,000
Add: Excess in#est%ent cost o#er boo@ #alue ac8uired:
=ood4ill at <ece%ber *1, &00/ $60,000

In#est%ent cost $&*6,000
2 5naploc@'s stoc@6olders' e8uit) on <ece%ber *1, &00/
&0- %inorit) interest's e8uit) . $+0,000
Fotal e8uit) . (inorit) interest's e8uit) $+0,000,&0- . $&+0,000
3 Pandora's in#est%ent in 5naploc@ account balance at <ece%ber *1, &00/
:nderl)in7 boo@ #alue in 5naploc@ <ece%ber *1, &00/
$&+0,000 x >0-! $&00,000
Add: =ood4ill <ece%ber *1, &00/ 60,000
In#est%ent in 5naploc@ <ece%ber *1, &00/ $&60,000
Alternati#e solution:
In#est%ent cost Banuar) 1, &00* $&*6,000
Add: >0- o$ 5naploc@'s increase since ac8uisition
$&+0,000 D $&&0,000! x >0- &4,000
In#est%ent in 5naploc@ <ece%ber *1, &00/ $&60,000
4 Pandora's capital stoc@ and retained earnin7s <ece%ber *1, &00/
Capital stoc@ $400,000
"etained earnin7s $ *0,000
A%ounts are e8ual to capital stoc@ and retained earnin7s s6o4n in t6e
consolidated balance s6eet9
F8
Solution 3-11
Cost o$ in#est%ent in 5tubb $6/0,000
Coo@ #alue ac8uired $>00,000 x /0-! +60,000
Excess $110,000
Excess allocated:
In#entories $&0,000 x /0- $ 14,000
Plant assets $>0,000 x /0- +6,000
=ood4ill 40,000
Excess $110,000
In#est%ent balance at Banuar) 1, &00* $6/0,000
56are o$ 5tubb's retained earnin7s increase $60,000 x /0-! 4&,000
Less: A%orti;ation
Excess allocated to in#entories sold in &00*! 14,000!
Excess allocated to plant assets $+6,000,> )ears! /,000!
In#est%ent balance at <ece%ber *1, &00* $6?1,000
ope Corporation and Su"!idiar#

J J /0- J AdGust%ents andJConsolidated
J Pope J 5tubb J Eli%inations JCalance 56eet
J J J J
Cas6 J$ 60,000J$ &0,000J J $ >0,000
Accounts J J J J
recei#ablesDnet J 440,000J &00,000J J 640,000
Account recei#able J J J J
$ro% Pope J J 10,000J b 10,000J
<i#idends recei#able J /,000J J c /,000J
In#entories J +00,000J *&0,000J J >&0,000
Land J 100,000J 1+0,000J J &+0,000
Plant assetsDnet J /00,000J *+0,000Ja 4?,000 J 1,0??,000
In#est%ent in 5tubb J 6?1,000J J a 6?1,000J
=ood4ill J J Ja 40,000 J 40,000
Assets J$&,4?>,000J$1,0+0,000J J $&,?&?,000
J J J J
Accounts pa)able J$ *00,000J$ >0,000J J $ *>0,000
Account pa)able J J J J
to 5tubb J 10,000J Jb 10,000 J
<i#idends pa)able J 40,000J 10,000Jc /,000 J 4*,000
Lon7Dter% debt J 600,000J 100,000J J /00,000
Capital stoc@ J 1,000,000J +00,000Ja +00,000 J 1,000,000
"etained earnin7s J +4>,000J *60,000Ja *60,000 J +4>,000
(inorit) interest J J J J
$>60,000 x *0-! J J J a &+>,000J &+>,000
E8uities J$&,4?>,000J$1,0+0,000J J $&,?&?,000
FB
C)apter 3
Solution 3-12
In#est%ent in 56asti at cost Banuar) 1, &00* $/60,000
Coo@ #alue ac8uired $?00,000 x >0-! /&0,000!
Excess cost o#er boo@ #alue allocated to 7ood4ill $ 40,000
56asti 56asti >0- o$
<i#idends 'et Inco%e 'et Inco%e
&00* $ 40,000 $ >0,000 $ 64,000
&004 +0,000 100,000 >0,000
&00+ 60,000 1&0,000 ?6,000
$1+0,000 $*00,000 $&40,000
1 56asti's di#idends $or &004 $40,000,>0-! $ +0,000
2 56asti's net inco%e $or &004 $+0,000 di#idends x &! $100,000
3 =ood4ill D <ece%ber *1, &004 $ 40,000
4 (inorit) interest expense D &00+
56asti's inco%e $or &006 $4>,000 di#idends recei#ed,>0-! x & $1&0,000
(inorit) interest expense $ &4,000
5 (inorit) interest <ece%ber *1, &00+
E8uit) o$ 56asti Banuar) 1, &00* $ ?00,000
Add: Inco%e $or &00*, &004 and &00+ *00,000
<educt: <i#idends $or &00*, &004 and &00+ 1+0,000!
E8uit) o$ 56asti <ece%ber *1, &00+ 1,0+0,000
(inorit) interest <ece%ber *1, &00+ $ &10,000
6 Consolidated net inco%e $or &00+
Pendleton's separate inco%e $&>0,000
Add: Inco%e $ro% 56asti ?6,000
Consolidated net inco%e $*/6,000
F5
Solution 3-13
In#est%ent in 5idne) cost! Banuar) &, &004 $*00,000
Coo@ #alue ac8uired $&+0,000 x >0-! &00,000!
Excess cost o#er boo@ #alue ac8uired $100,000
Cuildin7s $air #alue $1/0,000 D boo@ #alue $1+0,000! x >0- $ 16,000
"e%ainder to 7ood4ill >4,000
Excess cost o#er boo@ #alue ac8uired $100,000
art 1
a Fotal current assets
Cas6 $+0,000 1 $&0,000! $ /0,000
3t6er current assets $1+0,000 1 $>0,000! &*0,000
Fotal current assets $*00,000
" Plant and e8uip%ent net o$ depreciation
Land $*00,000 1 $+0,000! $*+0,000
Cuildin7sDnet $400,000 1 $1+0,000! ++0,000
Excess allocated to buildin7s 16,000
Plant and e8uip%entDnet $?16,000
, Co%%on stoc@
Par #alue o$ Pe)ton's stoc@ <ece%ber *1, &00* $600,000
Add: Par #alue o$ s6ares issued $or 5idne) 100,000
Co%%on stoc@ $/00,000
d Additional paidDin capital
Additional paidDin capital o$ Pe)ton <ece%ber *1, &00* $ 60,000
Add: Increase $ro% s6ares issued $ro% 5idne) &00,000
Additional paidDin capital $&60,000
e "etained earnin7s
Consolidated retained earnin7s . Pe)ton's retained
earnin7s <ece%ber *1, &00* $140,000
FE
C)apter 3
Solution 3-13 -,ontinued.
art 2
a Inco%e $ro% 5idne) D &004
56are o$ 5idne)'s inco%e $40,000 x >0-! $ *&,000
Less: <epreciation on excess D buildin7s $16,000,+ )ears! *,&00!
Inco%e $ro% 5idne) D &004 $ &>,>00
" In#est%ent in 5idne) <ece%ber *1, &004
Cost Banuar) &, &004 $*00,000
Add: Inco%e $ro% 5idne) &>,>00
Less: <i#idends $ro% 5idne) $&0,000 x >0-! 16,000!
In#est%ent in 5idne) <ece%ber *1, &004 $*1&,>00
, Consolidated net inco%e D &004
5eparate inco%e o$ Pe)ton D &004 $ ?0,000
Add: Inco%e $ro% 5idne) &>,>00
Consolidated net inco%e $11>,>00
d Consolidated retained earnin7s <ece%ber *1, &004
"etained earnin7s o$ Pe)ton <ece%ber *1, &00* $140,000
Add: Consolidated net inco%e &004 11>,>00
Less: Pe)ton's di#idends &004 +0,000!
Consolidated retained earnin7s <ece%ber *1, &004 $&0>,>00
e (inorit) interest <ece%ber *1, &004
E8uit) o$ 5idne) <ece%ber *1, &00* $&+0,000
Add: 'et inco%e D &004 40,000
Less: <i#idends D &004 &0,000!
E8uit) o$ 5idne) <ece%ber *1, &004 &/0,000
(inorit) interest <ece%ber *1, &004 $ +4,000

FF
Solution 3-14
1 5c6edule to allocate t6e in#est%ent costDboo@ #alue di$$erential:
In#est%ent cost Banuar) &, &00* $&,/60,000
Coo@ #alue o$ interest ac8uired $&,*00,000 x >0-! 1,>40,000!
Excess cost o#er boo@ #alue ac8uired $ ?&0,000
Excess allocated:
Interest
Aair Ialue D Coo@ Ialue x Ac8uired . Allocated
In#entories $ +00,000 $ 400,000 >0- $ >0,000
3t6er current assets &00,000 1+0,000 >0- 40,000
Land 600,000 +00,000 >0- >0,000
Cuildin7sDnet 1,>00,000 1,000,000 >0- 640,000
E8uip%entDnet 600,000 >00,000 >0- 160,000!
3t6er liabilities +60,000 610,000 >0- 40,000
"e%ainder to 7ood4ill &00,000
Excess cost o#er boo@ #alue ac8uired $?&0,000
=ood4ill c6ec@: In#est%ent cost $&,/60,000 D Aair #alue ac8uired $*,&00,000
x >0-! . =ood4ill $&00,000
F3
C)apter 3
Solution 3-14 continued!
2 ortland Corporation and Su"!idiar#
at Banuar) &, &00*
Assets
Current Assets:
Cas6 $&40,000 1 $60,000! $ *00,000
"ecei#ablesDnet $>00,000 1 $&00,000! 1,000,000
In#entories $1,100,000 1 $400,000 1 $>0,000! 1,+>0,000
3t6er current assets $?00,000 1 $1+0,000 1 $40,000! 1,0?0,000
Fotal current assets *,?/0,000
*i+ed Assets:
Land $*,100,000 1 $+00,000 1 $>0,000! $ *,6>0,000
Cuildin7sDnet $6,000,000 1 $1,000,000 1 $640,000! /,640,000
E8uip%entDnet $*,+00,000 1 $>00,000 D $160,000! 4,140,000
=ood4ill &00,000
Fotal $ixed assets 1+,660,000
Fotal assets $1?,6*0,000
Liabilities:
Accounts pa)able $400,000 1 $&00,000! $ 600,000
3t6er liabilities $1,+00,000 1 $610,000 D $40,000! &,0/0,000
Fotal liabilities &,6/0,000
Capital stoc@ $1+,000,000
"etained earnin7s 1,+00,000
(inorit) interest $&,*00,000 x &0-! 460,000
Fotal stoc@6olders' e8uit) 16,?60,000
Fotal liabilities and stoc@6olders' e8uit) $1?,6*0,000
F4
Solution 3-15
1 5c6edule to allocate t6e in#est%ent costDboo@ #alue di$$erential:
In#est%ent cost Banuar) &, &00* $1,660,000
Coo@ #alue o$ interest ac8uired 1,>40,000!
Excess boo@ #alue o#er cost $ 1>0,000!
Excess allocated:
Aair Ialue "eallocation
Less Interest Initial o$ 'e7ati#e Ainal
Coo@ Ialue Ac8uired Allocation =ood4illH Allocation
In#entories $ 100,000 >0- $ >0,000 $ >0,000
3t6er current assets +0,000 >0- 40,000 40,000
Land 100,000 >0- >0,000 $1>0,000! 100,000!
Cuildin7sDnet >00,000 >0- 640,000 +40,000! 100,000
E8uip%entDnet &00,000! >0- 160,000! 1>0,000! *40,000!
3t6er liabilities +0,000! >0- 40,000 40,000
Fotal allocated to identi$iable assets /&0,000 1>0,000!
'e7ati#e 7ood4ill ?00,000! ?00,000
Excess boo@ #alue o#er cost $1>0,000! $1>0,000!
H"eallocation o$ ne7ati#e 7ood4ill based on $air #alues:
Land $600,000,$*,000,000 x $?00,000 . $1>0,000
Cuildin7s $1,>00,000,$*,000,000 x $?00,000 . +40,000
E8uip%ent $600,000,$*,000,000 x $?00,000 . 1>0,000
$?00,000
3(
C)apter 3
Solution 3-15 continued!
2 ortland Corporation and Su"!idiar#
at Banuar) &, &00*
Assets
Current Assets:
Cas6 $1,*40,000 1 $60,000! $ 1,400,000
"ecei#ablesDnet $>00,000 1 $&00,000! 1,000,000
In#entories $1,100,000 1 $400,000 1 $>0,000! 1,+>0,000
3t6er current assets $?00,000 1 $1+0,000 1 $40,000! 1,0?0,000
Fotal current assets +,0/0,000
*i+ed Assets:
Land $*,100,000 1 $+00,000 D $100,000! $ *,+00,000
Cuildin7sDnet $6,000,000 1 $1,000,000 1 $100,000! /,100,000
E8uip%entDnet $*,+00,000 1 $>00,000 D $*40,000! *,?60,000
Fotal $ixed assets 14,+60,000
Fotal assets $1?,6*0,000
Liabilities:
Accounts pa)able $400,000 1 $&00,000! $ 600,000
3t6er liabilities $1,+00,000 1 $610,000 D $40,000! &,0/0,000
Fotal liabilities &,6/0,000
Capital stoc@ $1+,000,000
"etained earnin7s 1,+00,000
(inorit) interest $&,*00,000 x &0-! 460,000
Fotal stoc@6olders' e8uit) 16,?60,000
Fotal liabilities and stoc@6olders' e8uit) $1?,6*0,000

B. Woods Chapter 3

Enviado por

Dados do documento

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

B. Woods Chapter 3

Enviado por

Direitos autorais:

Formatos disponíveis

52

An Introduction to Consolidated Financial Statements

Você também pode gostar