2. Push Corporation owns 80 percent of the stock of Shove Company, which was purchased at book value. Shove reports net income of $25,000, while Push reports earnings of $100,000, plus equity-method investment income of $20,000. Computation of Consolidated Net Income

3. Computation of Consolidated Net Income Additive Computation Separate operating income of Push $100,000 Net income of Shove $25,000 Push’s proportionate share x .80 20,000 Consolidated net income $120,000 Residual Computation Net income of Push $120,000 Less: Income from subsidiary (20,000 ) $100,000 Net income of Shove 25,000 $125,000 Less: Income to noncontrolling interest $25,000 x .20 (5,000 ) Consolidated net income $120,000

4. Consolidated Retained Earnings Push Shove Balance, January 1, 19X1 $400,000 $250,000 Net income, 19X1 120,000 25,000 Dividends declared in 19X1 (30,000 ) (10,000 ) Balance, December 31, 19X1 $490,000 $265,000 Consolidated retained earnings equals the parent’s retained earnings when the parent has used the equity method

5. Comprehensive Three-Part Workpaper Revenues Expenses Net Income Beginning RE Add: Net Income Ded: Dividends Ending RE Assets Liabilities Stockholders’ Eq.: Capital Stock Retained Earn. INCOME STATEMENT SECTION RETAINED EARNINGS SECTION BALANCE SHEET SECTION Trial Balance Data Elimination Entries Item Parent Subsidiary Debits Credits Consolidated

6. 19X1 Consolidation--100 Percent Ownership Peerless Special Eliminations Item Products Foods Debits Credits Consolidated Income from Subsidiary 50,000 Dividends Decl. (60,000) (30,000) Investment in Special Foods 320,000 Remove both the investment income reflected in the parent’s income statement and the parent’s portion of any dividends declared by the subsidiary.

7. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated Income from Subsidiary 50,000 50,000 Dividends Decl. (60,000) (30,000) 30,000 (60,000) Investment in Special Foods 320,000 20,000 19X1 Consolidation--100 Percent Ownership

8. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated Remove the intercorporate ownership claim and stockholders’ accounts of the subsidiary as of the beginning of the period. Retained Earnings, January 1 300,000 100,000 Investment in Special Foods 320,000 20,000 Common Stock 500,000 200,000 19X1 Consolidation--100 Percent Ownership

9. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated Retained Earnings, January 1 300,000 100,000 100,000 300,000 Investment in Special Foods 320,000 20,000 300,000 Common Stock 500,000 200,000 200,000 500,000 19X1 Consolidation--100 Percent Ownership

10. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated Income from Subsidiary 75,000 Dividends Declared (60,000) (40,000) Investment in Special Foods 355,000 19X2 Consolidation--100 Percent Ownership Remove both the investment income reflected in the parent’s income statement and the parent’s portion of any dividends declared by the subsidiary.

11. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated Income from Subsidiary 75,000 75,000 Dividends Declared (60,000) (40,000) 40,000 (60,000) Investment in Special Foods 355,000 35,000 19X2 Consolidation--100 Percent Ownership

12. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated The beginning balance in the investment account and the stockholders’ equity accounts of the subsidiary at the beginning of 19X2 need to be eliminated. Retained Earnings, January 1 430,000 120,000 Investment in Special Foods 355,000 35,000 Common Stock 500,000 200,000 19X2 Consolidation--100 Percent Ownership

13. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated Retained Earnings, January 1 430,000 120,000 120,000 430,000 Investment in Special Foods 355,000 35,000 320,000 Common Stock 500,000 200,000 200,000 500,000 19X2 Consolidation--100 Percent Ownership

14. 19X1 Consolidation--80 Percent Ownership Peerless Special Eliminations Item Products Foods Debits Credits Consolidated Peerless’s 80 percent share of Special Foods’ income and dividends is eliminated. Income from Subsidiary 40,000 Dividends Declared (60,000) (30,000) Investment in Special Foods 256,000

15. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated Income from Subsidiary 40,000 40,000 Dividends Declared (60,000) (30,000) 24,000 Investment in Special Foods 256,000 16,000 19X1 Consolidation--80 Percent Ownership

16. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated A separate entry establishes the amount of income allocated to noncontrolling shareholders and enters the increase in their claim on net assets of the subsidiary. Income to Non- controlling Int. Dividends Declared (60,000) (30,000) 24,000 Noncontrolling interest 19X1 Consolidation--80 Percent Ownership

17. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated Income to Non- controlling Int. 10,000 Dividends Declared (60,000) (30,000) 24,000 6,000 (60,000) Noncontrolling interest 4,000 19X1 Consolidation--80 Percent Ownership

18. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated An entry is required to eliminate the stockholders’ equity accounts of the subsidiary and the investment account balance shown at the beginning of the period. Retained Earnings, January 1 300,000 100,000 Investment in Special Foods 256,000 16,000 Noncontrolling interest 4,000 19X1 Consolidation--80 Percent Ownership

19. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated Retained Earnings, January 1 300,000 100,000 100,000 300,000 Investment in Special Foods 256,000 16,000 240,000 Noncontrolling interest 4,000 60,000 64,000 19X1 Consolidation--80 Percent Ownership

20. 19X2 Consolidation--80 Percent Ownership Peerless Special Eliminations Item Products Foods Debits Credits Consolidated An entry is required to remove the income that Peerless has recognized from Special Foods, Peerless’s share (80 percent) of Special Foods’ dividends, and the change in the investment account that occurred in 19X2. Income from Subsidiary 60,000 Dividends Declared (60,000) (40,000) Investment in Special Foods 284,000

21. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated Income from Subsidiary 60,000 60,000 Dividends Declared (60,000) (40,000) 32,000 Investment in Special Foods 284,000 28,000 19X2 Consolidation--80 Percent Ownership

22. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated An entry is needed to assign $15,000 of subsidiary income to the noncontrolling shareholders, based on subsidiary income of $75,000 and a 20 percent noncontrolling interest. Income to Non- controlling Int. Dividends Declared (60,000) (40,000) 32,000 Noncontrolling Interest 19X2 Consolidation--80 Percent Ownership

23. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated Income to Non- controlling Int. 15,000 (15,000) Dividends Declared (60,000) (40,000) 32,000 8,000 (60,000) Noncontrolling Interest 7,000 19X2 Consolidation--80 Percent Ownership

24. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated An entry is required to eliminate the stockholders’ equity accounts of the subsidiary and the investment account balance reported by the parent at the beginning of the year and to establish the amount of the noncontrolling interest’s claim on the net assets of the subsidiary at the beginning of the year. Retained Earnings, January 1 420,000 120,000 Investment in Special Foods 284,000 28,000 Common Stock 500,000 200,000 Noncontrolling Interest 7,000 19X2 Consolidation--80 Percent Ownership

25. Peerless Special Eliminations Item Products Foods Debits Credits Consolidated Retained Earnings, January 1 420,000 120,000 120,000 420,000 Investment in Special Foods 284,000 28,000 256,000 Common Stock 500,000 200,000 200,000 500,000 Noncontrolling Interest 7,000 64,000 71,000 19X2 Consolidation--80 Percent Ownership

26. The End Chapter Five