Chapter 7 Exercise 3 Pearson Company owns 90% of the ...
Chapter 7 Exercise 3 Pearson Company owns 90% of the outstanding common stock of Spring Company. On January 1,2011, Spring Company sold equipment to Pearson Company for $200,000. Spring Company had purchased the equipment for $300,000 on January 1, 2006, and had depreciated it using a 10% straight-line rate. The management of Pearson Company estimated that the equipment had a remaining useful life of five years on January 1, 2011. In 2012, Pearson Company reported $150,000 and Spring Company reported $100,000 in net income from their independent operations (sales to affiliates). A. Prepare a general journal form the workpaper entries relating to the intercompany sale of equipment that are necessary in the December 31, 2011, and December 31, 2012, consolidated financial statements workpapers. B. Calculate controlling interest in consolidated income for 2012.
Cost of equipment $ 300,000
Accumulated Depreciation ($300,000 × .10 × 5 years) 150,000
Book value 1/1 2011 150,000
Proceeds from sale 200,000
Gain on sale
Part A 2011
(1) Equipment ($300,000 - $200,000) 100,000
Gain on Sale of Equipment 50,000
Accumulated Depreciation($300,000)(5/10) 150,000
(2) Accumulated Depreciation – Equipment 10,000
Depreciation Expense ($50,000/5) 10,000
2012
(1) Equipment 100,000
Beginning Retained Earnings – Pearson (.9 × $50,000) 45,000
Noncontrolling Interest (.1 × $50,000) 5,000
Accumulated Depreciation – Equipment 150,000
(2) Accumulated Depreciation – Equipment 20,000
Depreciation Expense 10,000
Beginning Retained Earnings – Pearson (.9 × $10,000) 9,000
Noncontrolling Interest (.10 × $10,000) 1,000
Part B Controlling interest in Consolidated Net Income for 2012 = $150,000 + .9($100,000 + $10,000) = $249,000
Chapter 7 Exercise 7 On January 1, 2010, Price Company acquired an 80% interest in the common stock of Smith Company on the open market for $750,000, the book value at that date. On January 1,2011, Price Company purchased new equipment for $14,500 from Smith Company. The equipment cost $9,000 and had an estimate life of five years as of January 1, 2011. During 2012, Price Company had merchandise sales to Smith Company of $100,000; the merchandise was priced at 25% above Price Company’s cost. Smith Company still owes Price Company $17,500 on open account and has 20% of this merchandise in inventory at December 31, 2012. At the beginning of 2012, Smith Company had an inventory $25,000 of merchandise purchased in the previous period from Price Company. A. Prepare all workpaper entries necessary to eliminate the effects of the intercompany sales on the consolidated financial statements for the year ended December 31, 2012. B. Assume that Smith Company reports net income of $40,000 for the year ended December 31, 2012. Calculate the amount of noncontrolling interest to be deducted from consolidated income in the consolidated income statement for the year ended December 31, 2012.
Part A (1) Sales 100,000
Cost of Sales (Purchases) 100,000
(2) Accounts Payable 17,500
Accounts Receivable 17,500
(3) Cost of Sales (beginning inventory – income statement) 4,000
Inventory ($20,000 – ($20,000/1.25)) 4,000
(4) Beginning Retained Earnings – Price ($25,000 – ($25,000/1.25) 5,000
Cost of Sales (beginning inventory – income statement) 5,000
(5) Beginning Retained Earnings – Price ($5,500 × .8) 4,400
Noncontrolling Interest ($5,500 × .2) 1,100
Property Plant and Equipment 5,500
(6) Accumulated Depreciation 2,200
Depreciation Expense ($5,500/5) 1,100
Beginning Retained Earnings – Price ($1,100 × .8) 880
Noncontrolling Interest ($1,100 × .2) 220
Part B Noncontrolling Interest in Consolidated Income .2 × ($40,000 + $1,100) = $8,220
Chapter 7 Problem 14 Platt Company acquired an 80% interest in Sloane Company when the retained earnings of Sloane Company were $300,000. On January 1, 2011, Sloane Company recorded a $250,000 gain on the sale to Platt Company of equipment with a remaining life of five years. On January 1, 2012, Platt Company recorded a $180,000 gain on the sale to Sloane Company of equipment with a remaining life of six years. Sloane Company reported net income of $180,000 and declared dividends of 60,000 in 2012. It reported retained earnings of $520,000 on January 1, 2012, and $640,000 on December 31, 2012. Platt Company reported net income from independent operations of $400,000 in 2012 and retained earnings of $1,800,000 on December 31, 2012. A. Prepare in general journal form the entries necessary in the December 31, 2012, consolidated statements workpaper to eliminate the effects of the intercompany sales. B. Calculate controlling interest in consolidated net income for the year ended December 31, 2012. C. Calculate consolidated retained earnings on December 31, 2012. D. Calculate noncontrolling interest in consolidated income for the year ended December 31, 2012.
Part A.
(1) Gain on Sale of Equipment 180,000
Equipment (net) 180,000
To eliminate unrealized profit recorded on intercompany sale of
equipment and reduce the carrying value on date of sale.
(2) Beginning Retained Earnings - Platt Company
(.80 ( $250,000) 200,000
Noncontrolling Interest
(.20 ( $250,000) 50,000
Equipment 250,000
To reduce the controlling and noncontrolling interest for their share of unrealized intercompany profit on upstream sale at beginning of year, to restore equipment to its book value on date of intercompany sale.
(3) Accumulated Depreciation ($50,000 + $50,000 + $30,000) 130,000
Depreciation Expense ($50,000 + $30,000) 80,000
Beginning Retained Earnings - Platt Company (.8)($50,000) 40,000
Noncontrolling Interest (.2)($50,000) 10,000
To reverse amount of excess depreciation recorded during current year and to recognize an equivalent amount of intercompany profit as realized [($250,000/5) + ($180,000/6)]
Part B. Calculations of Controlling interest in Consolidated Net Income
For Year Ended December 31, 2012
Platt Company's net income from independent operations $ 400,000
Less unrealized intercompany profit on 2012
sale of equipment to Sloane Company (180,000)
Plus profit on 1/1/12 sale of equipment considered
realized in current year through depreciation 30,000
Platt Company's net income from independent
operations that has been realized in transactions
with third parties 250,000
Reported net income of Sloane Company $ 180,000
Plus profit on 1/1/11 sales of equipment considered
realized in current year through depreciation 50,000
Sloane Company's net income that has been realized
in transactions with third parties 230,000
Platt Company's share thereof ___80% 184,000
Controlling interest in consolidated net income $ 434,000
Part C. Calculation of 12/31/12 Consolidated Retained Earnings
Platt Company's retained earnings on 12/31/12 $ 1,800,000
Less the amount of Platt Company's retained
earnings that have not been realized in transactions
with third parties or through depreciation ($180,000 - $30,000) (150,000)
Platt Company's retained earnings that have been realized 1,650,000
in transactions with third parties or through depreciation
Increase in retained earnings of Sloane Company from
date of acquisition to 12/31/12 ($640,000 - $300,000) $ 340,000
Less unrealized profit included in Sloane's Company's
retained earnings on 12/31/12 ($250,000 - $50,000 - $50,000) (150,000)
Increase in reported retained earnings of Sloane Company
since acquisition that has been realized in transactions
with third parties 190,000
Platt Company's share thereof ___80% 152,000
Consolidated Retained Earnings 12/31/12 $ 1,802,000
Part D. Calculation of Noncontrolling Interest in the Consolidated Income
For the Year Ended December 31, 2012
Sloane Company reported net income $ 180,000
Plus amount of intercompany profit realized
through depreciation during current year 50,000
Amount included in consolidated income $ 230,000
Noncontrolling interest in consolidated income
(.20 ( $230,000) $ 46,000
Chapter 7 Problem 17 Padilla Company acquired 90% of the outstanding common stock of Sanchez Company on June 30, 2011, for $426,000. On that date, Sanchez Company had retained earnings in the amount of $60,000, and the fair value of its recorded assets and liabilities was equal to their book value. The excess of implied over fair value of the recorded net assets was attributed to an unrecorded manufacturing formula held by Sanchez Company, which had an expected remaining useful life of five years from June 30, 2011. Financial data for 2013 are presented here: Padilla Company Sanchez Company Sales $2,555,500 $1,120,000 Equity in Subsidiary Income 156,050 Total Revenue 2,711,550 1,120,000 Cost of Goods Sold 1,730,000 690,500 Expenses 654,500 251,000 Total Cost and Expense 2,384,500 941,500 Net Income 327,050 178,500 Retained Earnings 591,200 139,500 Net Income 327,050 178,500 Dividends Declared (100,000) (60,000) 12/32 Retained Earnings 818,250 258,000 Cash 119,500 132,500 Accounts Receivable 342,000 125,000 Inventory 362,000 201,000 Other Current Assets 40,500 13,000 Land 150,000 Investment in Sanchez Company 524,250 Property and Equipment 825,000 241,000 Accumulated Depreciation (207,000) (53,500) Total Assets 2,156,250 659,000 Accounts Payable 295,000 32,000 Other Liabilities 43,000 19,000 Capital Stock 1,000,000 300,000 Additional Paid-in-Capital 50,000 Retained Earnings 818,250 258,000 Total Liabilities and Equity 2,156,250 659,000 On December 31, 2011, Padilla Company sold equipment (with an original cost of $100,000 and accumulated depreciation of $50,000) to Sanchez Company fo
|Part A |
|Consolidated Statements Workpaper |
|For the Year Ended December 31, 2013 |
| | | | | | |
| |Company |Company | |Debit | |Credit |
|Company |Company | |Debit | |Credit |Interest |Balances | |Balance Sheet | | | | | | | | | |Cash |119,500 |132,500 | | | | | |252,000 | |Accounts Receivable |342,000 |125,000 | | |(7) |60,000 | |407,000 | |Inventory |362,000 |201,000 | | |(8) |10,500 | |552,500 | |Other Current Assets |40,500 |13,000 | | | | | |53,500 | |Investment in Sanchez Company |524,250 | |(2) |47,500 |(1) |102,050 | |0 | | | | |(4) |13,500 |(3) |9,500 | | | | | | |(5) |6,750 |(9) |497,550 | | | | | | |(11) |17,100 | | | | | |Difference between Implied and Book Value | | |(9) |63,333 |(10) |63,333 | |0 | |Land |150,000 | | | |(4) |15,000 | |135,000 | |Plant and Equipment |825,000 |241,000 |(2) |2,500 | | | |1,068,500 | |Accumulated Depreciation | (207,000) | (53,500) |(3) |19,000 |(2) |50,000 | | (291,500) | |Manufacturing Formula | | |(10) |63,333 |(11) |31,668 | |31,665 | | Total Assets |2,156,250 |659,000 | | | | | |2,208,665 | | | | | | | | | | | |Accounts Payable |295,000 |32,000 |(7) |60,000 | | | |267,000 | |Other Liabilities |43,000 |19,000 | | | | | |62,000 | |Capital stock | | | | | | | | | | Padilla Company |1,000,000 | | | | | | |1,000,000 | | Sanchez Company | |300,000 |(9) |300,000 | | | | | |Additional paid-in capital | | | | | | | | | | Sanchez Company | |50,000 |(9) |50,000 | | | | | |Retained Earnings from above |818,250 |258,000 | |693,717 | |446,000 |10,283 |818,250 | |Noncontrolling Interest in Net Assets | | |(4) |1,500 |(9) |55,283 |51,132 | | | | | |(5) |750 | | | | | | | | |(11) |1,901 | | |61,415 |61,415 | | Total Liabilities & Equity |2,156,250 |659,000 | |1,340,884 | |1,340,884 | |2,208,665 | |* Noncontrolling interest in income = .10 ( ($178,500 + $7,500 - $10,500 - $12,667) = $16,283
Intercompany Sale of Equipment
Accumulated Remaining
Cost Depreciation Carrying Value Life Depreciation
Original Cost $100,000 $50,000 $50,000 5 yr $10,000
Intercompany Selling Price 97,500 _______ 97,500 5 yr 19,500
Difference $ 2,500 $50,000 $47,500 $ 9,500
Explanations of workpaper entries
(1) Equity in Subsidiary Income 156,050
Investment in Sanchez Company 102,050
Dividends Declared (.90)($60,000) 54,000
To reverse the effect of parent company entries
during the year for subsidiary dividends and income
(2) Plant and Equipment ($100,000 - $97,500) 2,500
Investment in Sanchez Company ($50,000 - $2,500) 47,500
Accumulated Depreciation 50,000
To eliminate unrealized profit on intercompany sale of equipment and to
restore plant and equipment to its book value on the date of intercompany sale
(3) Accumulated Depreciation 19,000
Expenses (Depreciation expense) 9,500
Investment in Sanchez Company 9,500
To reverse excess depreciation recorded during 2013 (.20 × $47,500)
(4) Investment in Sanchez Company (.90 × $15,000) 13,500
Noncontrolling Interest (.10 × $15,000) 1,500
Land 15,000
To eliminate unrealized profit on intercompany sale of land (upstream sale)
(5) Investment in Sanchez Company (.90 × $7,500) 6,750
Noncontrolling Interest (.10 × $7,500) 750
Cost of Goods Sold 7,500
To eliminate intercompany profit in beginning inventory (upstream sale)
(6) Sales 375,000
Cost of Goods Sold (Purchases) 375,000
To eliminate intercompany sale
(7) Accounts Payable 60,000
Accounts Receivable 60,000
To eliminate intercompany payables and receivables
(8) Cost of Goods Sold (Ending Inventory – Income Statement) 10,500
Inventory 10,500
To eliminate unrealized profit in ending inventories
(9) Beginning Retained Earnings - Sanchez Co. 139,500
Capital Stock - Sanchez Co. 300,000
Additional Paid-in Capital - Sanchez Co. 50,000
Difference between Implied and Book Value 63,333
Investment in Sanchez ($426,000 + (($139,500 - $60,000) × .9) 497,550
Noncontrolling Interest [$47,333 + ($139,500 – $60,000) x .10] 55,283
To eliminate the investment account and create noncontrolling interest account
(10) Manufacturing Formula 63,333
Difference between Implied and Book Value 63,333
To allocate the difference between implied and book value
(11) Investment in Sanchez Company ($11,400 × 1.5) 17,100
Noncontrolling Interest ($1,267 x 1.5) 1,901
Expenses ($63,333/5) 12,667
Manufacturing Formula 31,668
To amortize the difference between implied and book value
Alternative to entries (10) and (11)
(10a) Investment in Sanchez Company ($11,400 × 1.5) 17,100
Noncontrolling Interest 1,901
Manufacturing Formula 31,665
Expenses ($63,333/5) 12,667
Difference between Implied and Book Value 63,333
To allocate and amortize the difference between implied and book value
($63,333/5) = $12,667; $63,333 - ($12,667 × 2.5) = $31,665
Part B. Padilla Company's retained earnings on 12/31/2013 $ 818,250
Consolidated retained earnings on 12/31/2013 $ 818,250
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