1

Baker / Lembke / King

Consolidation
as of the Date
of Acquisition
Irwin/McGraw-

The McGraw-Hill
The McGraw-Hill
Companies,
Inc., 1999
Companies,

Consolidation Workpaper
Account Titles

Trial Balance Data

Parent
Subsidiary

Elimination Entries
Debits
Credits

Consolidated

Work flow

Irwin/McGraw-

The McGraw-Hill Companies, Inc., 1999

Balance Sheets Before Combination

Assets
Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment
Accumulated Depreciation
Total Assets
Liabilities and Stockholders Equity
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
Total Liabilities and Stockholders Equity
Irwin/McGraw-

$ 350,000
75,000
100,000
175,000
800,000
(400,000)

$ 50,000
50,000
60,000
40,000
600,000
(300,000)

$1,100,000

$500,000

$ 100,000
200,000
500,000
300,000
$1,100,000

$100,000
100,000
200,000
100,000
$500,000

The McGraw-Hill Companies, Inc., 1999

Balance Sheets Before Combination

Assets
Cash
$ 350,000
$ 50,000
Accounts Receivable
75,000
50,000
Investment cost
$300,00060,000
Inventory
100,000
Land Book value:
175,000
40,000
BuildingsCommon
and Equipment
800,000
600,000
stock--Special Foods $200,000
Accumulated
Depreciation
(400,000)
(300,000)
Retained
earnings--Special Foods 100,000
$300,000
Total Assets
$1,100,000
$500,000
Peerlesss
share Equity
x 1.00 (300,000)
Liabilities and
Stockholders
Difference
Accounts
Payablebetween cost and
$ 100,000
$100,000
book value
$
-0Bonds Payable
200,000
100,000
Common Stock
500,000
200,000
Retained Earnings
300,000
100,000
Total Liabilities and Stockholders Equity
$1,100,000
$500,000
Irwin/McGraw-

The McGraw-Hill Companies, Inc., 1999

Balance Sheets After Combination

Assets
Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment
Accumulated Depreciation
Investment in Special Foods Stock
Total Assets
Liabilities and Stockholders Equity
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
Total Liabilities and Stockholders Equity
Irwin/McGraw-

50,000
75,000
100,000
175,000
800,000
(400,000)
300,000
$1,100,000

$ 50,000
50,000
60,000
40,000
600,000
(300,000)
$500,000

$ 100,000
200,000
500,000
300,000
$1,100,000

$100,000
100,000
200,000
100,000
$500,000

The McGraw-Hill Companies, Inc., 1999

Purchase at Book Value

Account Titles

Trial Balance Data

Peerless
Spec. Fd.

Elimination Entries
Debits
Credits

Consolidated

Cash
50,000
Accounts Rec.
75,000
Inventory
l00,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 300,000
Total Debits
1,500,000

50,000
50,000
60,000
40,000
600,000

100,000
125,000
160,000
215,000
1,400,000

800,000

2,000,000

Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Total Credits
1,500,000

300,000
100,000
100,000
200,000
100,000
800,000

700,000
200,000
300,000
500,000
300,000
2,000,000

Irwin/McGraw-

The McGraw-Hill Companies, Inc., 1999

Purchase at Book Value

Account Titles

Trial Balance Data

Peerless
Spec. Fd.

Elimination Entries
Debits
Credits

Consolidated

Cash
50,000
Accounts Rec.
75,000
Inventory
l00,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 300,000
Total Debits
1,500,000

50,000
50,000
60,000
40,000
600,000
800,000

2,000,000

Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Total Credits
1,500,000

300,000
100,000
100,000
200,000
100,000
800,000

700,000
200,000
300,000
500,000
300,000
2,000,000

Irwin/McGraw-

100,000
125,000
160,000
215,000
1,400,000
300,000

200,000
100,000
300,000

300,000

The McGraw-Hill Companies, Inc., 1999

Purchase at Book Value

Account Titles

Trial Balance Data

Peerless
Spec. Fd.

Elimination Entries
Debits
Credits

Consolidated

Cash
50,000
Accounts Rec.
75,000
Inventory
l00,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 300,000
Total Debits
1,500,000

50,000
50,000
60,000
40,000
600,000
800,000

2,000,000

Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Total Credits
1,500,000

300,000
100,000
100,000
200,000
100,000
800,000

700,000
200,000
300,000
500,000
300,000
2,000,000

Irwin/McGraw-

100,000
125,000
160,000
215,000
1,400,000
300,000

200,000
100,000
300,000

300,000

The McGraw-Hill Companies, Inc., 1999

Purchase at Book Value

Common Stock--Special Foods 200,000

Retained Earnings
100,000
Investment in Special Foods
Stock
300,000
Irwin/McGraw-

The McGraw-Hill Companies, Inc., 1999

Purchase At More Than Book Value

10

Investment
$340,000
Investmentcost
cost
$340,000
Book
Bookvalue:
value:
Common
Commonstock--Special
stock--SpecialFoods
Foods $200,000
$200,000
Retained
Retainedearnings--Special
earnings--SpecialFoods
Foods 100,000
100,000
$300,000
$300,000
Peerlesss
xx 1.00
Peerlesssshare
share
1.00 (300,000)
(300,000)
Difference
Differencebetween
betweencost
costand
and
book
$$ 40,000
bookvalue
value
40,000

Irwin/McGraw-

The McGraw-Hill Companies, Inc., 1999

Purchase At More Than Book Value

11

Reasons the purchase price of a companys stock

might exceed the stocks book value...
Errors or omissions on the books of the

subsidiary
Excess of fair value over the book value
of the subsidiarys net identifiable assets
Existence of goodwill
Other reasons

Irwin/McGraw-

This
This one
one
should
should be
be
rare
rare

The McGraw-Hill Companies, Inc., 1999

Purchase At More Than Book Value

Account Titles

Trial Balance Data

Peerless
Spec. Fd.

Elimination Entries
Debits
Credits

12

Consolidated

Cash
10,000
Accounts Rec.
75,000
Inventory
l00,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 340,000
Differential
Total Debits
1,500,000

50,000
50,000
60,000
40,000
600,000
800,000

2,000,000

Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Total Credits
1,500,000

300,000
100,000
100,000
200,000
100,000
800,000

700,000
200,000
300,000
500,000
300,000

Irwin/McGraw-

60,000
125,000
160,000
255,000
1,400,000

40,000
40,000

200,000
100,000

340,000
40,000

The McGraw-Hill Companies, Inc., 1999

Purchase At More Than Book Value

Account Titles

Trial Balance Data

Peerless
Spec. Fd.

Elimination Entries
Debits
Credits

13

Consolidated

Cash
10,000
Accounts Rec.
75,000
Inventory
l00,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 340,000
Differential
Total Debits
1,500,000

50,000
50,000
60,000
40,000
600,000
800,000

2,000,000

Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Total Credits
1,500,000

300,000
100,000
100,000
200,000
100,000
800,000

700,000
200,000
300,000
500,000
300,000
2,000,000

Irwin/McGraw-

60,000
125,000
160,000
255,000
1,400,000

40,000
40,000

200,000
100,000
380,000

340,000
40,000

380,000

The McGraw-Hill Companies, Inc., 1999

Purchase At More Than Book Value

Account Titles

Trial Balance Data

Peerless
Spec. Fd.

Elimination Entries
Debits
Credits

14

Consolidated

Cash
10,000
Accounts Rec.
75,000
Inventory
l00,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 340,000
Differential
Total Debits
1,500,000

50,000
50,000
60,000
40,000
600,000
800,000

2,000,000

Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Total Credits
1,500,000

300,000
100,000
100,000
200,000
100,000
800,000

700,000
200,000
300,000
500,000
300,000
2,000,000

Irwin/McGraw-

60,000
125,000
160,000
255,000
1,400,000

40,000
40,000

200,000
100,000
380,000

340,000
40,000

380,000

The McGraw-Hill Companies, Inc., 1999

Purchase At More Than Book Value

15

Common Stock--Special Foods 200,000

Retained Earnings
100,000
Differential
40,000
Investment in Special Foods
Stock
340,000
Irwin/McGraw-

The McGraw-Hill Companies, Inc., 1999

Purchase At More Than Book Value

Land
Differential

Irwin/McGraw-

16

40,000
40,000

The McGraw-Hill Companies, Inc., 1999

Purchase At More Than Book Value

Account Titles

Trial Balance Data

Peerless
Spec. Fd.

Elimination Entries
Debits
Credits

17

Consolidated

Cash
10,000
Accounts Rec.
75,000
Inventory
l00,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 340,000
Differential
Total Debits
1,500,000

50,000
50,000
60,000
40,000
600,000
800,000

2,000,000

Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Total Credits
1,500,000

300,000
100,000
100,000
200,000
100,000
800,000

700,000
200,000
300,000
500,000
300,000
2,000,000

Irwin/McGraw-

60,000
125,000
160,000
255,000
1,400,000

40,000
40,000

200,000
100,000
380,000

340,000
40,000

380,000

The McGraw-Hill Companies, Inc., 1999

80 Percent Purchase at Book Value

18

Investment
$240,000
Investmentcost
cost
$240,000
Book
Bookvalue:
value:
Common
Commonstock--Special
stock--SpecialFoods
Foods $200,000
$200,000
Retained
Retainedearnings--Special
earnings--SpecialFoods
Foods 100,000
100,000
$300,000
$300,000
Peerlesss
xx .80
Peerlesssshare
share
.80 (240,000)
(240,000)
Differential
$$
-0Differential
-0-

Irwin/McGraw-

The McGraw-Hill Companies, Inc., 1999

80 Percent Purchase at Book Value

Account Titles

Trial Balance Data

Peerless
Spec. Fd.

Cash
110,000
Accounts Rec.
75,000
Inventory
l00,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 240,000
Total Debits
1,500,000

50,000
50,000
60,000
40,000
600,000

Accum. Depr.
Accounts Payable
Bonds Payable
Common Stock
Retained Earn.

300,000
100,000
100,000
200,000
100,000

Total Credits
Irwin/McGraw-

400,000
100,000
200,000
500,000
300,000
1,500,000

Elimination Entries
Debits
Credits

19

Consolidated

240,000
800,000

800,000

200,000
100,000
300,000

60,000
300,000

The McGraw-Hill Companies, Inc., 1999

80 Percent Purchase at Book Value

Account Titles

Trial Balance Data

Peerless
Spec. Fd.

Cash
110,000
Accounts Rec.
75,000
Inventory
l00,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 240,000
Total Debits
1,500,000

50,000
50,000
60,000
40,000
600,000

Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Noncont. Interest
Total Credits
1,500,000

300,000
100,000
100,000
200,000
100,000

Irwin/McGraw-

Elimination Entries
Debits
Credits

20

Consolidated

240,000
800,000

800,000

200,000
100,000
300,000

60,000
300,000

The McGraw-Hill Companies, Inc., 1999

80 Percent Purchase at Book Value

Account Titles

Trial Balance Data

Peerless
Spec. Fd.

Elimination Entries
Debits
Credits

21

Consolidated

Cash
110,000
Accounts Rec.
75,000
Inventory
l00,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 240,000
Total Debits
1,500,000

50,000
50,000
60,000
40,000
600,000
800,000

2,060,000

Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Noncont. Interest
Total Credits
1,500,000

300,000
100,000
100,000
200,000
100,000

700,000
200,000
300,000
500,000
300,000
60,000
2,060,000

Irwin/McGraw-

160,000
125,000
160,000
215,000
1,400,000
240,000

800,000

200,000
100,000
300,000

60,000
300,000

The McGraw-Hill Companies, Inc., 1999

80 Percent Purchase at Book Value

22

Common Stock--Special Foods 200,000

Retained Earnings
100,000
Investment in Special Foods
Stock
240,000
Noncontrolling Interest
60,000
Irwin/McGraw-

The McGraw-Hill Companies, Inc., 1999

23

Chapter Four

The
The
End
End

Irwin/McGraw-

The McGraw-Hill Companies, Inc., 1999