solusi manual advanced acc zy Chap005

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

CHAPTER 5
CONSOLIDATION OF LESS-THAN-WHOLLY OWNED SUBSIDIARIES
ANSWERS TO QUESTIONS
Q5-1 The noncontrolling interest is reported as a separate item in the stockholders’ equity
section of the balance sheet. Past practice often presented the noncontrolling interest
between long-term liabilities and stockholders’ equity.
Q5-2 The consolidated balance sheet always includes 100 percent of the subsidiary’s
assets and liabilities. When the parent holds less than 100 percent ownership of the
subsidiary, the noncontrolling interest’s claim on those net assets must be reported.
Q5-3 The income statement portion of the consolidation workpaper is expanded to include a
line for income assigned to the noncontrolling interest. This amount is deducted from
consolidated net income in computing income to the controlling interest. The balance sheet
portion of the workpaper also is expanded to include the claim of the noncontrolling
shareholders on the net assets of the subsidiary.
Q5-4 The balance assigned to the noncontrolling interest is based on the fair value of the
noncontrolling interest at the date of acquisition.
Q5-5 Consolidated retained earnings includes only amounts attributable to the shareholders
of the parent company. Thus, none of the retained earnings is assigned to the noncontrolling
interest.
Q5-6 One hundred percent of the fair value of the subsidiary’s assets is included.
Q5-7 The amount of goodwill at the date of acquisition is determined by deducting the fair
value of the net assets of the acquired company from the sum of the fair value of the
consideration given by the acquiring company and the fair value of the noncontrolling
interest.
The resulting goodwill must be apportioned between the controlling and
noncontrolling interest.
Under normal circumstances, goodwill apportioned to the
noncontrolling interest will equal the excess of the fair value of the noncontrolling interest
over its proportionate share of the fair value of the net assets of the acquired company.
Q5-8 Income assigned to the noncontrolling interest normally is a proportionate share of the
net income of the subsidiary.
Q5-9 Income assigned to noncontrolling shareholders is reported as a deduction from
consolidated net income in arriving at income assigned to the parent company shareholders.
Q5-10 Dividends paid to noncontrolling shareholders are eliminated in preparing the
consolidated statement of retained earnings. Only dividends paid to the parent company
shareholders are reported as dividends distributed to shareholders.

5-1


Q5-11 When the parent owns all the shares of a subsidiary (and the subsidiary has no other
publicly traded securities outstanding), it is free to decide whether it wishes to publish
separate statements for the subsidiary. In some cases creditors, regulatory boards, or other
interested parties may insist that such statements be produced. If the parent does not own
all the shares of the subsidiary, the subsidiary normally would be expected to publish
separate financial statements for distribution to the noncontrolling shareholders. In general,
the consolidated statements are published for use by parent company shareholders and are
likely to be of little use to shareholders of the subsidiary.
Q5-12 Other comprehensive income elements reported by the subsidiary must be included
in other comprehensive income in the consolidated financial statement. If the subsidiary is
not wholly owned, income assigned to the noncontrolling interest will include a proportionate
share of the subsidiary’s other comprehensive income.
Q5-13 The parent’s portion of the subsidiary’s other comprehensive income is included in
comprehensive income attributable to the controlling interest.
Q5-14 Prior to FASB 141R, the differential was computed as the difference between the fair
value of the consideration given in acquiring ownership of the subsidiary and the parent’s
portion of the book value of the subsidiary’s net assets.
Q5-15 Prior to FASB 141R, goodwill was reported as the difference between the fair value
of the consideration given in acquiring ownership of the subsidiary and the parent’s portion of
the fair value of the subsidiary’s net assets.
Q5-16 Prior to FASB 141R, consolidated net income was computed by deducting income to
noncontrolling interest from consolidated revenues less expenses.
Q5-17* The only effect of a negative balance in retained earnings is the need for a credit to
subsidiary retained earnings, rather than a debit to retained earnings, when the stockholders’
equity accounts of the subsidiary and the investment account of the parent are eliminated.
Q5-18* In the period in which the land is sold, the gain or loss recorded by the subsidiary
must be adjusted by the amount of the differential assigned to the land. When the differential
is assigned in the workpaper eliminating entries at the end of the period, a debit will be made
to the gain or loss on sale of land that came to the workpaper from the subsidiary’s books.
Q5-19A When the cost method is used, income reported by the parent and the resulting
balance in the investment account do not reflect undistributed earnings of the subsidiary
following the date of acquisition. Because these account balances are different under the
cost and equity methods, a different set of eliminating entries must be used. The major
change in eliminating entries when the cost method is adopted is that a portion of the
subsidiary retained earnings is carried forward to the consolidated total. The carryforward is
needed because the parent’s retained earnings does not include its portion of undistributed
subsidiary earnings following the acquisition, and therefore is less than consolidated retained
earnings.

5-2


SOLUTIONS TO CASES
C5-1 Consolidation Workpaper Preparation
a. If the parent company is using the equity method, the elimination of the income
recognized by the parent from the subsidiary generally should not be equal to a proportionate
share of the subsidiary’s dividends. If the parent has recognized only dividend income from
the subsidiary, it is using the cost method.
b. It should be possible to tell if the preparer has included the parent's share of the
subsidiary's reported income in computing consolidated net income. It is not possible to tell
from looking at the workpaper alone whether or not all the adjustments that should have
been made for amortization of the differential or to eliminate unrealized profits have been
properly treated in computing the consolidated net income.
c. If the parent paid more than its proportionate share of the fair value of the subsidiary’s net
assets, the eliminating entries relating to that subsidiary should show amounts assigned to
individual asset accounts for fair value adjustments and to goodwill when the investment
account balance is eliminated and any noncontrolling interest is established in the
workpaper. It should be relatively easy to determine if this has occurred by examining the
consolidation workpaper.
d. If the preparer has made a separate entry in the workpaper to eliminate the change in the
parent’s investment account during the period, the easiest way to ascertain the parent’s
subsidiary ownership percentage is to determine the percentage share of the subsidiary’s
dividends eliminated in that entry. Another approach might be to divide the total amount of
the parent’s subsidiary investment account eliminated in the workpaper by the sum of the
total parent’s investment account eliminated and the total amount of the noncontrolling
interest established in the workpaper through eliminating entries. However, this approach
assumes that the fair value of the consideration given by the parent when acquiring its
subsidiary interest and the fair value of the noncontrolling interest on that date were
proportional, which is usually, by not always, the case.

5-3


C5-2 Consolidated Income Presentation
MEMO
TO:

Treasurer
Standard Company

FROM:
RE:

, Accounting Staff
Allocation of Consolidated Income to Parent and Noncontrolling
Shareholders

FASB 160 specifies that consolidated net income reflects the income of the entire
consolidated entity and that consolidated net income must be allocated between the
controlling and noncontrolling interests. Earnings per share reported in the consolidated
income statement is based on the income allocated to the controlling interest only.
Consolidated net income increased by $34,000 from 20X4 to 20X5, an increase of 52
percent. However, consolidated net income allocated to the controlling interest increased by
$24,100 from 20X4 to 20X5, an increase of only 38 percent. The increase in the controlling
interest’s share of consolidated net income did not keep pace with the increase in sales
because nearly all of the sales increase was experienced by Jewel, which has a very low
profit margin. In addition the parent receives only 55 percent of the increased profits of the
subsidiary. Consolidated net income for the two years is computed and allocated as follows:
20X4
$160,000 (a)
(94,000)(c)
$ 66,000
(2,700)(e)
$ 63,300

Consolidated revenues
Operating costs
Consolidated net income
Income to noncontrolling shareholders
Income to controlling shareholders
(a)
(b)
(c)
(d)
(e)
(f)

$100,000 + $60,000
$120,000 + $280,000
($100,000 x .40) + ($60,000 x .90)
($120,000 x .40) + ($280,000 x .90)
($60,000 x .10 x .45)
($280,000 x .10 x .45)

Primary citations:
FASB 160
Secondary source:
ARB 51

5-4

20X5
$400,000 (b)
(300,000)(d)
$100,000
(12,600) (f)
$ 87,400


C5-3 Pro Rata Consolidation
MEMO
To:

Financial Vice-President
Rose Corporation

From:
Re:

, Senior Accountant
Pro Rata Consolidation of Joint Venture

This memo is in response to your request for additional information on the desirability of
using pro rata consolidation rather than equity method reporting for Rose Corporation’s
investment in its joint venture with Krome Company. The equity method is used by most
companies in reporting their investments in corporate joint ventures. [APB Opinion, Par. 16]
While APB 18 provides guidance for joint ventures that have issued common stock, it does
not provide guidance for ownership of noncorporate entities. Interpretation No. 2 to APB 18
suggests that the equity method would be appropriate for unincorporated entities as well.
[APB 18, Int. #2]
Assuming the joint venture with Krome Company is unincorporated, Rose owns an undivided
interest in each asset held by the joint venture and is liable for its share of each of its
liabilities and, under certain circumstances, the entire amount. In this case, it can be argued
pro rata consolidation provides a more accurate picture of Rose’s assets and liabilities,
although not all agree with this assertion. Pro rata consolidation is generally considered not
acceptable in this country, although it is a widely used industry practice in a few industries
such as oil and gas exploration and production. If the joint venture is incorporated, Rose
does not have a direct claim on the assets of the joint venture and Rose’s liability is sheltered
by the joint venture’s corporate structure. In this case, continued use of the equity method
appears to be appropriate.
Primary citations:
APB 18
APB 18, INT #2

5-5


C5-4 Elimination Procedures
a. The eliminating entries are recorded only in the consolidation workpaper and therefore do
not change the balances recorded on the company's books. Each time consolidated
statements are prepared the balances reported on the company's books serve as the starting
point. Thus, all the necessary eliminating entries must be entered in the consolidation
workpaper each time consolidated statements are prepared.
b. For acquisitions prior to the application of FASB 141R, the balance assigned to the
noncontrolling shareholders at the beginning of the period is based on the book value of the
net assets of the subsidiary at that date and is recorded in the workpaper in the entry to
eliminate the beginning stockholders' equity balances of the subsidiary and the beginning
investment account balance of the parent. For acquisitions after the effective date of FASB
141R, the noncontrolling interest at a point in time is equal to its fair value on the date of
combination, adjusted to date for a proportionate share of the undistributed earnings of the
subsidiary and the noncontrolling interest’s share of any write-off of differential. Another
approach to determining the noncontrolling interest at a point in time is to add the remaining
differential at that time to the subsidiary’s common stockholders’ equity and multiply the
result by the noncontrolling interest’s proportionate ownership interest in the subsidiary.
c. In the consolidation workpaper the ending balance assigned to noncontrolling interest is
derived by crediting noncontrolling interest for the starting balance, as indicated in the
preceding question, and then adding income assigned to the noncontrolling interest in the
consolidated income statement and deducting a pro rata portion of subsidiary dividends
declared during the period.
d. All the stockholders' equity account balances of the subsidiary must be eliminated each
time consolidated financial statements are prepared. Intercompany receivables and
payables, if any, must also be eliminated.
e. The "investment in subsidiary" and "income from subsidiary" accounts must be eliminated
each time consolidated financial statements are prepared. Intercompany receivables and
payables, if any, must also be eliminated.

5-6


C5-5 Changing Accounting Standards: Monsanto Company
1
a. Monsanto reported the income to noncontrolling (minority) shareholders of consolidated
subsidiaries as an expense in the continuing operations portion of its 2007 income
statement.
b. Monsanto reported the noncontrolling interest in consolidated subsidiaries in other
liabilities in its consolidated balance sheet.
c. In 2007, Monsanto’s treatment of its noncontrolling interest in its consolidated financial
statements, although theoretically objectionable, was considered acceptable. The
noncontrolling (minority) interest did not fit the definition of a liability, and its share of income
did not fit the definition of an expense. Nevertheless, prior to 2008 no authoritative
pronouncement prohibited the treatment exhibited by Monsanto. With the issuance of FASB
160, however, Monsanto’s 2007 treatment became unacceptable. The noncontrolling
interest is now required to be treated as an equity item, with the income attributed to the
noncontrolling interest treated as an allocation of consolidated net income.
d. Monsanto provided customer financing through a lender that was a special purpose entity.
Monsanto had no ownership interest in the special purpose entity but did consolidate it
because Monsanto effectively originated, guaranteed, and serviced the loans. Monsanto had
a 9-percent ownership interest in one variable interest entity and a 49-percent ownership
interest in another. Neither entity was consolidated because Monsanto was not the primary
beneficiary of either entity.

5-7


SOLUTIONS TO EXERCISES
E5-1 Multiple-Choice Questions on Consolidation Process
1. d
2. d
3. b
4. d [AICPA Adapted]

E5-2 Multiple-Choice Questions on Consolidation [AICPA Adapted]
1. b
2. c
3. a

$650,000 = $500,000 + $200,000 - $50,000

4. c

$95,000 = ($956,000 / .80) - $1,000,000 - $100,000

5. c

$251,000 = .20[($956,000 + $239,000) + ($190,000 - $5,000 - $125,000)]

5-8


E5-3 Eliminating Entries with Differential
a. Eliminating entries:
E(1) Common Stock – Amber Company
Retained Earnings
Differential
Investment in Amber Company Stock
Noncontrolling Interest

20,000
37,000
25,000

Computation of differential
Fair value of the consideration given by Game Corp.
Fair value of noncontrolling interest
Total fair value
Book value of Amber’s net assets ($85,000 - $28,000)
Differential
E(2) Inventory
Buildings and Equipment (net)
Differential
$5,000 = $25,000 - $20,000
$20,000 = $70,000 - $50,000

b.

49,200
32,800

$49,200
32,800
$82,000
(57,000)
$25,000
5,000
20,000

25,000

Journal entries used to record transactions, adjust account balances, and close
income and revenue accounts at the end of the period are recorded in the company's
books and change the reported balances. On the other hand, eliminating entries are
entered only in the consolidation workpaper to facilitate the preparation of consolidated
financial statements. As a result, they do not change the balances recorded in the
company's accounts and must be reentered each time a consolidation workpaper is
prepared.

5-9


E5-4 Computation of Consolidated Balances
a. Inventory

$140,000

b. Land

$ 60,000

c.

$550,000

Buildings and Equipment

d. Fair value of consideration given by Ford
Total fair value
Book value of Slim’s net assets
Fair value increment for:
Inventory
Land
Buildings and equipment (net)
Fair value of identifiable net assets
Goodwill

$450,000
20,000
(10,000)
70,000

$470,000
117,500
$587,500

(530,000)
$ 57,500

e. Investment in Slim Corporation: None would be reported;
the balance in the investment account is eliminated.
f.

Noncontrolling Interest ($587,500 x .20)

5-10

$117,500


E5-5 Balance Sheet Workpaper
Power Company and Pleasantdale Dairy
Consolidated Balance Sheet Workpaper
January 1, 20X7

Item
Cash and Receivables
Inventory
Land
Buildings and
Equipment (net)
Investment in
Pleasantdale Stock
Differential
Total Debits
Current Payables
Long-Term Liabilities
Common Stock
Power Company
Pleasantdale Dairy
Retained Earnings
Total Credits

PleasPower antdale
Company
Dairy
130,000
70,000
210,000
90,000
70,000
40,000
390,000

Adjustments and
Eliminations
Debit
Credit
(a)
900
(3) 8,900
(2) 20,000

220,000

270,000

610,000
(1) 20,000

1,070,000

420,000

80,000
200,000

40,000
100,000

(3)

390,000

60,000
220,000

(1) 60,000
(1)220,000

1,070,000

420,000

329,800

400,000

Consolidated
192,000
300,000
130,000

(1)270,000
(2) 20,000

8,900

1,232,000
111,100
300,000
400,000

(a)
900
(1) 30,000
329,800

390,900
30,000
1,232,000

Adjusting and eliminating entries:
(a) Cash and Receivables
Retained Earnings
Accrue interest earned by Power Company.
E(1) Common Stock – Pleasantdale Dairy
Retained Earnings
Differential
Investment in Pleasantdale Dairy Stock
Eliminate investment balance.
$20,000 = $270,000 + $30,000 - $280,000
E(2) Land
Differential
Assign differential.

900

60,000
220,000
20,000

20,000

E(3) Current Payables
Eliminate intercompany receivable/payable.

5-11

8,900

900

270,000
30,000

20,000

8,900

E5-6 Majority-Owned Subsidiary Acquired at Greater than Book Value
E(1) Common Stock – Down Corporation
Retained Earnings
Differential
Investment in Down Corporation Stock
Eliminate investment balance:
$21,000 = $102,200 + $43,800 - $125,000

40,000
85,000
21,000

E(2) Inventory
Differential

6,000
15,000

E(3) Accounts Payable
Accounts Receivable

12,500

Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e
5 - 12

102,200
43,800

21,000

12,500


E5-6 (continued)
Zenith Corporation and Down Corporation
December 31, 20X4

b.

Item

Zenith
Corp.

Down
Corp.

Cash
Accounts Receivable
Inventory
Land
Investment in Down
Corporation Stock
Differential
Total Debits

50,300 21,000
90,000 44,000
130,000 75,000
60,000 30,000
410,000 250,000

Accumulated Depreciation
Accounts Payable
Mortgage Payable
Common Stock
Zenith Corporation
Down Corporation
Retained Earnings
Total Credits

150,000 80,000
152,500 35,000
250,000 180,000

c.

102,200
842,500 420,000

80,000

Eliminations
Debit
Credit
(3) 12,500

(2) 6,000
(2) 15,000

(1)102,200
(2) 21,000

(1) 21,000

(1) 40,000
(1) 85,000

842,500 420,000

71,300
121,500
211,000
90,000
675,000

1,168,800
230,000
175,000
430,000
80,000

(3) 12,500

40,000
85,000

179,500

210,000

Consolidated

(1) 43,800
179,500

210,000
43,800
1,168,800

Zenith Corporation and Subsidiary
Consolidated Balance Sheet
December 31, 20X4
Cash
Accounts Receivable
Inventory
Land
Less: Accumulated Depreciation
Total Assets

$675,000
(230,000)

Accounts Payable
Mortgage Payable
Stockholders’ Equity:
Controlling Interest:
Common Stock
Retained Earnings
Total Controlling Interest
Total Stockholders’ Equity
Total Liabilities and Stockholders' Equity

5-13

$ 71,300
121,500
211,000
90,000
445,000
$938,800
$175,000
430,000

$ 80,000
210,000
$290,000
43,800

333,800
$938,800


E5-7 Consolidation with Minority Interest
Eliminating entries:
E(1) Common Stock – Dynamic Corporation
Retained Earnings
Differential
Investment in Dynamic Corporation Stock
$160,000 = $390,000 + $130,000 – ($120,000 +
$240,000)
$130,000 = $520,000 x .25

E(2) Buildings
Inventories
Goodwill
Differential
Assign differential:
$44,000 = $160,000 - $80,000 - $36,000

120,000
240,000
160,000

80,000
36,000
44,000

390,000
130,000

160,000

E5-8 Workpaper for Majority-Owned Subsidiary
a.

Eliminating entry:
E(1) Common Stock – Lowtide Builders
Retained Earnings
Investment in Lowtide Builders Stock

5-14

140,000
10,000

90,000
60,000


E5-8 (continued)
b.

Glitter Enterprises and Lowtide Builders
January 1, 20X5
Glitter
Enterprises

Lowtide
Builders

Inventory
Buildings and
Equipment (net)
Investment in
Lowtide Stock
Total Debits

80,000
150,000

30,000
350,000

110,000
500,000

430,000

80,000

510,000

90,000
750,000

460,000

Current Liabilities
Long-Term Debt
Common Stock
Glitter
Lowtide
Retained Earnings
Noncontrolling
Interest
Total Credits

100,000
400,000

110,000
200,000

c.

Glitter Enterprises and Subsidiary
January 1, 20X5

Item

200,000
50,000
750,000

Eliminations
Debit
Credit

(1) 90,000

1,120,000
210,000
600,000
200,000

140,000 (1)140,000
10,000 (1) 10,000
460,000

Consolidated

150,000

50,000
(1) 60,000
150,000

60,000
1,120,000

Inventory
Buildings and Equipment (net)
Total Assets

$ 110,000
500,000
510,000
$1,120,000

Current Liabilities
Long-Term Debt
Common Stock
Retained Earnings

$ 210,000
600,000

5-15

$200,000
50,000
$250,000
60,000

310,000
$1,120,000


E5-9 Multiple-Choice Questions on Balance Sheet Consolidation
1.

d

$215,000

=

$130,000 + $70,000 + ($85,000 - $70,000)

2.

c

$40,000

=

($150,500 + $64,500) - ($405,000 - $28,000 - $37,000
- $200,000) - $15,000 - $20,000

3.

b

$1,121,000

=

Total Assets of Power Corp.
Less: Investment in Silk Corp.
Book value of assets of Silk Corp.
Book value reported by Power and
Silk
Increase in inventory ($85,000 - $70,000)
Increase in land ($45,000 - $25,000)
Goodwill
Total assets reported

4.

d

$701,500

5.

d

$64,500

6.

d

7.

c

$ 791,500
(150,500)
$ 641,000
405,000
$1,046,000
15,000
20,000
40,000
$1,121,000

=

($61,500 + $95,000 + $280,000) + ($28,000 + $37,000
+ $200,000)

$205,000

=

The amount reported by Power Corporation

$419,500

=

($150,000 + $205,000) + $64,500

5-16


E5-10 Basic Consolidation Entries for Majority-Owned Subsidiary
a.

Journal entries recorded by Horrigan Corporation:
(1) Investment in Farmstead Company Stock
Cash
Record purchase of Farmstead Company Stock.
(2) Cash
Investment in Farmstead Company Stock
Record dividends from Farmstead Company.
(3) Investment in Farmstead Company Stock
Income from Subsidiary
Record equity-method income.

b.

210,000

3,500

14,000

210,000

3,500

14,000

E(1) Income from Subsidiary
Dividends Declared
Eliminate income from subsidiary.
E(2) Income to Noncontrolling Interest
Dividends Declared
Assign income to noncontrolling interest.
E(3) Common Stock — Farmstead Company
Retained Earnings, January 1

5-17

14,000

6,000

100,000
200,000

3,500
10,500

1,500
4,500

210,000
90,000


E5-11 Majority-Owned Subsidiary with Differential
a.

Journal entries recorded by West Corporation:
(1) Investment in Canton Corporation Stock
Cash
Record investment.
(2) Cash
Investment in Canton Corporation Stock
Record dividends from Canton Corporation:
$9,000 = $12,000 x .75
Record equity-method income:
$22,500 = $30,000 x .75
(4) Income from Subsidiary
Amortize differential assigned to equipment:
$3,000 = ($28,000 / 7 years) x .75

b.

133,500

9,000

22,500

3,000

133,500

9,000

22,500

3,000

Eliminating entries December 31, 20X3:
Dividends Declared
Dividends Declared
Assign income to noncontrolling interest:
$6,500 = ($30,000 - $4,000) x .25
$3,000 = $12,000 x .25

19,500

6,500

E(3) Common Stock — Canton Corporation
Differential
Eliminate beginning investment balance:
$28,000 = ($133,500 + $44,500) – $150,000

60,000
90,000
28,000

E(4) Equipment
Differential
Assign beginning differential.

28,000

E(5) Depreciation Expense
Amortize differential related to equipment:
$4,000 = $28,000 / 7 years

5-18

4,000

9,000
10,500

3,000
3,500

133,500
44,500

28,000

4,000


E5-12 Differential Assigned to Amortizable Asset
a.

b.

Lancaster Company’s common stock, January 1, 20X1
Lancaster Company’s retained earnings, January 1, 20X1
Book value of Lancaster’s net assets
Proportion of stock acquired
Book value of Lancaster's shares purchased
by Major Corporation
Excess of acquisition price over book value
Fair value of consideration given
Add: Share of Lancaster's net income ($60,000 x .90)
Less: Amortization of patents ($40,000 / 5) x .90
Dividends paid by Lancaster ($20,000 x .90)
Balance in investment account, December 31, 20X1

$120,000
380,000
$500,000
x
.90
$450,000
36,000
$486,000
54,000
(7,200)
(18,000)
$514,800

Eliminating entries, December 31, 20X1:
E(1)

Dividends Declared
Investment in Lancaster Company Stock
Eliminate income from subsidiary:
$46,800 = ($60,000 x .90) – ($8,000 x .90)

E(2)

Income to Noncontrolling Interest
Dividends Declared
$5,200 = ($60,000 - $8,000) x .10
$2,000 = $20,000 x .10

E(3)

Common Stock — Lancaster Company
Differential
Investment in Lancaster Company Stock
$40,000 = ($486,000 + $54,000) - $500,000

E(4)

Patents
Differential

E(5)

Amortization Expense
Patents
Amortize differential related to patents.

46,800

5,200

120,000
380,000
40,000

40,000

5-19

8,000

18,000
28,800

2,000
3,200

486,000
54,000

40,000

8,000


E5-13 Consolidation after One Year of Ownership
a.

Eliminating entries, January 1, 20X2:
E(1)

Common Stock — Lowe Corporation
Differential
Investment in Lowe Corporation Stock
Fair value of consideration given by Pioneer
Total fair value
Underlying book value
Differential

E(2)

b.

Buildings
Goodwill
Differential
$5,500 = $37,500 - $32,000

120,000
80,000
37,500

190,000
47,500

$190,000
47,500
237,500
(200,000)
$ 37,500
32,000
5,500

37,500

E(1)

Computation of income from subsidiary
Reported net income of Lowe
Amortization of differential assigned to
buildings ($32,000 / 8 years)
Income after amortization of differential
Income from subsidiary for 20X2

5-20

28,800

$40,000
(4,000)
$36,000
x
.80
$28,800

28,800


E5-13 (continued)
E(2)

$7,200 = ($40,000 - $4,000) x .20

7,200

E(3)

Differential
Eliminate beginning investment balance.

120,000
80,000
37,500

E(4)

E(5)

Buildings
Goodwill
Differential

32,000
5,500

Depreciation Expense
Amortize differential.

4,000

5-21

7,200

190,000
47,500

37,500

4,000


E5-14 Consolidation Following Three Years of Ownership
a.

Computation of increase in value of patents:
Fair value of consideration given by Knox
Total fair value
Book value of Conway stock
Excess of fair value over book value
Increase in value of land ($30,000 - $22,500)
Increase in value of equipment ($360,000 - $320,000)
Increase In value of patents

b.

E(1)

E(2)

c.

$277,500
185,000
$462,500
(400,000)
$ 62,500
(7,500)
(40,000)
$ 15,000

Common Stock — Conway Company
250,000
Retained Earnings
150,000
Differential
62,500
Investment in Conway Company Stock
$62,500 = ($277,500 + $185,000) – ($250,000 + $150,000)
Land
Equipment
Patents
Differential

7,500
40,000
15,000
62,500

Computation of investment account balance at January 1, 20X9:
Undistributed income since acquisition
($100,000 - $60,000) x .60
Amortization of differential assigned to:
Equipment ($40,000 / 8) x .60 x 2 years
Patents ($15,000 / 10) x .60 x 2 years
Account balance at January 1, 20X9

d.

277,500
185,000

$277,500
24,000
(6,000)
(1,800)
$293,700

Entries recorded by Knox during 20X9:
(1)

(2)

(3)

Cash
Record dividends from subsidiary.
Amortize differential:

5-22

6,000
6,000
18,000
18,000
3,900
3,900


$3,900 = [($40,000 / 8 years) x .60] +
[($15,000 / 10 years) x .60]

5-23


E5-14 (continued)
e.

E(1)

Dividends Declared
$14,100 = $18,000 - $3,900

E(2)

Dividends Declared
$9,400 = ($30,000 - $5,000 - $1,500) x .40

E(3)

Common Stock — Conway Company
Differential
$49,500 = $62,500 – ($5,000 x 2) – ($1,500 x 2)

E(4)

E(5)

Land
Patents
Differential
Assign beginning differential:
$12,000 = $15,000 – ($1,500 x 2)
Amortization Expense
Patents

14,100

9,400

250,000
190,000
49,500

7,500
40,000
12,000

5,000
1,500

5-24

6,000
8,100

4,000
5,400

293,700
195,800

49,500
10,000

5,000
1,500


E5-15 Consolidation Workpaper for Majority-Owned Subsidiary
a.

E(1)

Dividends Declared
Investment in Stergis Company Stock

24,000

E(2)

Dividends Declared

6,000

E(3)

Common Stock — Stergis Company

100,000
50,000

5-25

8,000
16,000

2,000
4,000

120,000
30,000


E5-15 (continued)
b.

Proud Corporation and Stergis Company
Consolidation Workpaper
December 31, 20X3
Item

Sales
Credits
Other Expenses
Debits
Consolidated Net Income
Income, carry forward
Ret. Earnings, Jan. 1
Income, from above

Proud
Corp.

Stergis
Co.

200,000
24,000
224,000
25,000
105,000
(130,000)

120,000

94,000

30,000

120,000
15,000
75,000
(90,000)

Eliminations
Debit
Credit

320,000

(1) 24,000

320,000
40,000
180,000
(220,000)
100,000

6,000
30,000

(6,000)
94,000

50,000 (3) 50,000
30,000
30,000
80,000
(10,000)

230,000
94,000
324,000

Dividends Declared

230,000
94,000
324,000
(40,000)

Ret. Earnings, Dec. 31,
carry forward

284,000

70,000

Current Assets
Depreciable Assets
Investment in Stergis
Company Stock

173,000
500,000

105,000
300,000

Debits

809,000

405,000

Accum. Depreciation
Current Liabilities
Long-Term Debt
Common Stock
Proud Corporation
Stergis Company
Retained Earnings,
from above

175,000
50,000
100,000

75,000
40,000
120,000

Credits

(2)

80,000

10,000

(1) 16,000
(3)120,000

(40,000)
284,000

1,078,000
250,000
90,000
220,000

100,000

(3)100,000

284,000

70,000

80,000

809,000

405,000

180,000

5-26

(1) 8,000
(2) 2,000

278,000
800,000

136,000

200,000

Consolidated

200,000
10,000
284,000
(2) 4,000
(3) 30,000
34,000
180,000 1,078,000

E5-15 (continued)
c.

Proud Corporation and Subsidiary
December 31, 20X3

Current Assets
Depreciable Assets
Total Assets
Current Liabilities
Long-Term Debt
Common Stock
Retained Earnings

$800,000
(250,000)

$278,000
550,000
$828,000
$ 90,000
220,000

$200,000
284,000
$484,000
34,000

518,000
$828,000

Consolidated Income Statement
Year Ended December 31, 20X3
Sales
Depreciation
Other Expenses
Total Expenses
Income to Controlling Interest

$ 40,000
180,000

$320,000
(220,000)
$100,000
(6,000)
$ 94,000

Consolidated Retained Earnings Statement
Retained Earnings, January 1, 20X3
Income to Controlling Interest, 20X3
Dividends Declared, 20X3
Retained Earnings, December 31, 20X3

$230,000
94,000
$324,000
(40,000)
$284,000

E5-16 Consolidation Workpaper for Majority-Owned Subsidiary for Second Year
a.

E(1)

Dividends Declared

28,000

E(2)

Dividends Declared

7,000

E(3)

Common Stock — Stergis Company

100,000
70,000

12,000
16,000

3,000
4,000

136,000
34,000

E5-16 (continued)
b.

Proud Corporation and Stergis Company
December 31, 20X4
Item

Sales
Credits
Other Expenses
Debits
Income, from above

Proud
Corp.

Stergis
Co.

Eliminations
Debit
Credit

230,000
140,000
28,000
(1) 28,000
258,000
140,000
25,000
15,000
150,000
90,000
(175,000) (105,000)

83,000

370,000
370,000
40,000
240,000
(280,000)
90,000

7,000
35,000

(7,000)
83,000

70,000 (3) 70,000
35,000
35,000
105,000
(15,000)

284,000
83,000
367,000

35,000

Dividends Declared

284,000
83,000
367,000
(50,000)

carry forward

317,000

90,000

Current Assets
Depreciable Assets
Investment in Stergis
Company Stock

235,000
500,000

150,000
300,000

Debits

887,000

450,000

Accum. Depreciation
Current Liabilities
Long-Term Debt
Common Stock
Proud Corporation
Stergis Company
Retained Earnings,
from above

200,000
70,000
100,000

90,000
50,000
120,000

Credits

(2)

105,000

(1) 12,000
(2) 3,000
15,000

(50,000)
317,000
385,000
800,000

152,000

200,000

Consolidated

(1) 16,000
(3)136,000

1,185,000
290,000
120,000
220,000

100,000

(3)100,000

317,000

90,000

105,000

887,000

450,000

205,000

200,000
15,000
317,000
(2) 4,000
(3) 34,000
38,000
205,000 1,185,000

E5-17 Preparation of Stockholders' Equity Section with Other Comprehensive
Income
a.

Consolidated net income:
Operating income of Broadmore
Net income of Stem
Amortization of differential ($580,000 - $500,000) / 10
Years
Consolidated net income
Comprehensive gain reported by Stem
Consolidated comprehensive income

b.

Comprehensive income attributable to controlling
interest:
Consolidated comprehensive income
Comprehensive income attributable to
Noncontrolling interest
($50,000 - $8,000) x .25
($65,000 - $8,000) x .25
Comprehensive income attributable to
controlling interest

c.

Consolidated stockholders' equity:
Common Stock
Retained Earnings
Accumulated Other Comprehensive Income

20X8
20X9
$120,000 $ 140,000
40,000
60,000
(8,000)
(8,000)
$152,000 $ 192,000
10,000
5,000
$162,000 $ 197,000

20X8
20X9
$162,000 $ 197,000
(10,500)

(14,250)

$151,500 $ 182,750

20X8

20X9

$320,000 $ 320,000
504,000
613,000
7,500
11,250
831,500
944,250
151,750
158,500
$983,250 $1,102,750

E5-18 Eliminating Entries for Subsidiary with Other Comprehensive Income
a.

Journal entries recorded by Palmer Corp. in 20X8:
(1)

(2)

Cash
Investment in Krown Corp. Stock
Record dividends from subsidiary.

17,500

(3)


21,000

(4)

b.

Cash
Record acquisition of Krown Corp. stock.

140,000

Other Comprehensive Income from
Subsidiary (OCI)
Record Palmer's proportionate share of
other comprehensive income of subsidiary.

140,000

17,500

21,000

4,200
4,200

E(1)

Dividends Declared

E(2)

Dividends Declared

E(3)

Other Comprehensive Income from
Subsidiary (OCI)
Eliminate other comprehensive income from
subsidiary.

E(4)

E(5)

Other Comprehensive Income to
Assign other comprehensive income to
Common Stock — Krown Corp.

21,000

9,000

4,200

1,800

120,000
80,000

17,500
3,500

7,500
1,500

4,200

1,800

140,000
60,000

E5-19 Majority-Owned Subsidiary with Differential – Prior Procedures
a.

Journal entries recorded by West Corporation:
Cash
Record investment.
(2) Cash
Record dividends from Canton Corporation:
$9,000 = $12,000 x .75
$22,500 = $30,000 x .75
(4) Income from Subsidiary
Amortize differential assigned to equipment:
$3,000 = [$133,500 - ($150,000 x .75)] / 7 years

b.

133,500

9,000

22,500

3,000

133,500

9,000

22,500

3,000

Eliminating entries December 31, 20X3:
Dividends Declared
Dividends Declared
$7,500 = $30,000 x .25
$3,000 = $12,000 x .25

19,500

7,500

E(3) Common Stock — Canton Corporation
Differential
$21,000 = $133,500 - ($90,000 + $60,000) x .75

60,000
90,000
21,000

E(4) Equipment
Differential

21,000

E(5) Depreciation Expense
Amortize differential related to equipment:
$3,000 = $21,000 / 7 years

3,000

9,000
10,500

3,000
4,500

133,500
37,500

21,000

3,000

E5-20 Consolidation after One Year of Ownership– Prior Procedures
a.

Eliminating entries, January 1, 20X2:
E(1)

Differential

120,000
80,000
30,000

190,000
40,000

Underlying book value ($200,000 x .80)
Differential
E(2)

b.

Goodwill
Differential
$25,600 = $32,000 x .80
$4,400 = $30,000 - $25,600

$190,000
(160,000)
$ 30,000
25,600
4,400

30,000

E(1)


28,800

Computation of income from subsidiary
Reported net income of Lowe
Income before amortizing differential
Amortization of differential assigned to
buildings and equipment ($25,600 / 8)
Income from subsidiary for 20X2

$40,000
x
.80
$32,000
(3,200)
$28,800

28,800

E5-20 (continued)
E(2)


8,000

E(3)

Differential

120,000
80,000
30,000

E(4)

E(5)

Goodwill
Differential

25,600
4,400


3,200

8,000

190,000
40,000

30,000

3,200

E5-21 Balance Sheet Workpaper– Prior Procedures
Power Company and Pleasantdale Dairy
January 1, 20X7

Item
Inventory
Land
Buildings and
Equipment (net)
Investment in
Pleasantdale Stock
Differential
Total Debits
Current Payables
Long-Term Liabilities
Common Stock
Power Company
Pleasantdale Dairy
Retained Earnings
Total Credits

PleasAdjustments and
Power antdale
Eliminations
Company Dairy
Debit
Credit
130,000 70,000 (a)
900 (3) 8,900
210,000 90,000
70,000 40,000 (2) 18,000
390,000 220,000
270,000
1,070,000 420,000

Consolidated
192,000
300,000
128,000
610,000

(1) 18,000

80,000 40,000 (3)
200,000 100,000

(1)270,000
(2) 18,000

8,900

111,100
300,000

400,000

60,000 (1) 60,000
390,000 220,000 (1)220,000
1,070,000 420,000

325,800

1,230,000

400,000
(a)
900
390,900
(1) 28,000
28,000
325,800 1,230,000

Adjusting and eliminating entries:
(a) Cash and Receivables
Retained Earnings
Accrue interest earned by Power Company.
E(1) Common Stock – Pleasantdale Dairy
Retained Earnings
Differential
Investment in Pleasantdale Dairy Stock
E(2) Land
Differential

900

60,000
220,000
18,000

18,000

8,900

900

270,000
28,000

18,000

8,900

E5-22* Consolidation of Subsidiary with Negative Retained Earnings
E(1) Common Stock — Strap Company
Additional Paid-In Capital
Differential
Retained Earnings
Investment in Strap Company Stock
$27,500 = ($138,000 / .80) - $145,000
$34,500 = ($138,000 / .80) x .20
E(2) Goodwill
Differential

100,000
75,000
27,500

27,500

30,000
138,000
34,500

27,500

E5-23* Complex Assignment of Differential
a.

Equity-method entries recorded by Worth during 20X5:
Investment in Brinker Common Stock
Income from Brinker Inc.
$135,000 = $150,000 x .90
Income from Brinker Inc.
Record write-off of differential.

135,000

82,350

135,000

82,350

Computation of differential write-off
Total differential
Assigned to identifiable assets and liabilities:
Inventory
Land
Equipment
Discount on Notes Payable
Total
Goodwill
Write-off of differential:
Inventory sold
Land sold
Depreciation of equipment ($60,000 / 15)
Amortization of discount on notes payable
Total write-off for 20X5
Ownership held by Worth
Reduction of investment income

$240,000
$ 5,000
75,000
60,000
50,000

(190,000)
$ 50,000
$ 5,000
75,000
4,000
7,500
$ 91,500
x
.90
$ 82,350

E5-23* (continued)
b.

Elimination entries:
Income from Brinker, Inc.

52,650

$5,850 = ($150,000 - $91,500) x .10

5,850

Common Stock — Brinker
Premium on Common Stock
Differential
$96,000 = $960,000 x .10

500,000
100,000
120,000
240,000

Cost of Goods Sold
Gain on Sale of Land
Equipment
Goodwill
Differential

5,000
75,000
60,000
50,000
50,000

Interest Expense

4,000
7,500

52,650

5,850

864,000
96,000

240,000

4,000
7,500

E5-24A Basic Cost-Method Workpaper
a.

E(1)

Dividend Income
Dividends Declared
Eliminate dividend income from subsidiary.

E(2)

Common Stock — Shaw Corporation
Investment in Shaw Corporation Stock
Eliminate original investment balance.

b.

10,000

100,000
50,000

10,000

150,000

Blake Corporation and Shaw Corporation
December 31, 20X3
Item

Sales
Dividend Income
Credits
Other Expenses
Debits
Income, from above
Dividends Declared
carry forward

Blake
Corp.

Shaw
Corp.

Eliminations
Debit
Credit

200,000 120,000
10,000
(1) 10,000
210,000 120,000
25,000
15,000
105,000
75,000
(130,000) (90,000)
80,000
30,000
10,000
230,000
80,000
310,000
(40,000)

50,000 (2) 50,000
30,000
10,000
80,000
(10,000)

270,000

70,000

Current Assets
Deprec. Assets (net)
Investment in Shaw
Corporation Stock
Debits

145,000
325,000

330,000

Current Liabilities
Long-Term Debt
Common Stock
Blake Corporation
Shaw Corporation
Retained Earnings,
from above
Credits

50,000
100,000

320,000
320,000
40,000
180,000
(220,000)
100,000

(1) 10,000

230,000
100,000
330,000
(40,000)

10,000

290,000

105,000
225,000

150,000
620,000

40,000
120,000

200,000
270,000
620,000

60,000

250,000
550,000
(2)150,000

800,000
90,000
220,000

100,000
70,000
330,000

60,000
160,000

200,000

(2)100,000

5-39

Consolidated

10,000
160,000

290,000
800,000

E5-25A Cost-Method Workpaper in Subsequent Period
E(1)

Dividend Income
Dividends Declared

E(2)

Common Stock – Shaw Corporation
Investment in Shaw Corporation Stock

b.

15,000

100,000
50,000

15,000

150,000

Blake Corporation and Shaw Corporation
December 31, 20X4
Item

Sales
Dividend Income
Credits
Other Expenses
Debits
Income, from above
Dividends Declared
carry forward

Blake
Corp.

Shaw
Corp.

Eliminations
Debit
Credit

300,000 200,000
15,000
(1) 15,000
315,000 200,000
25,000
15,000
250,000 160,000
(275,000) (175,000)
40,000
25,000
15,000
270,000
40,000
310,000
(20,000)

70,000 (2) 50,000
25,000
15,000
95,000
(15,000)

290,000

80,000

Current Assets
Investment in Shaw
Corporation Stock
Debits

170,000
300,000

320,000

Current Liabilities
Long-Term Debt
Common Stock
Blake Corporation
Shaw Corporation
Retained Earnings,
from above
Credits

30,000
100,000

500,000
500,000
40,000
410,000
(450,000)
50,000

(1) 15,000

290,000
50,000
340,000
(20,000)

15,000

320,000

110,000
210,000

150,000
620,000

20,000
120,000

200,000
290,000
620,000

65,000

280,000
510,000
(2)150,000

790,000
50,000
220,000

100,000
80,000
320,000

65,000
165,000

200,000

(2)100,000

5-40

Consolidated

15,000
165,000

320,000
790,000

E5-26A Cost-Method Consolidation for Majority-Owned Subsidiary
a.

E(1)

Dividend Income
Dividends Declared

E(2)

Dividends Declared

E(3)

Common Stock – Knight Company
Investment in Knight Company Stock

E(4)

Assign undistributed prior earnings of
subsidiary to noncontrolling interest:
($70,000 - $50,000) x .20

5-41

16,000

6,000

100,000
50,000

4,000

16,000

4,000
2,000

120,000
30,000

4,000

E5-26A (continued)
b.

Lintner Corporation and Knight Company
December 31, 20X7
Item

Sales
Dividend Income
Credits
Other Expenses
Debits

Lintner
Corp.

Knight
Co.

Eliminations
Debit
Credit

300,000
200,000
16,000
(1) 16,000
316,000
200,000
25,000
15,000
251,000
155,000
(276,000) (170,000)

40,000

30,000


268,000

70,000

Income, from above
Dividends Declared

40,000
308,000
(25,000)

30,000
100,000
(20,000)

carry forward

283,000

80,000

Current Assets
Investment in Knight
Company Stock
Debits

183,000
500,000

380,000

Accum. Depreciation
Accounts Payable
Common Stock
Lintner Corporation
Knight Company
Retained Earnings,
from above

200,000
120,000

90,000
110,000

Credits

500,000
40,000
406,000
(446,000)
54,000
(6,000)
48,000

80,000
300,000

120,000
803,000

500,000

(2) 6,000
22,000

200,000

(3) 50,000
(4) 4,000
22,000
(1) 16,000
(2) 4,000
76,000

20,000

284,000
48,000
332,000
(25,000)
307,000
263,000
800,000

(3)120,000

1,063,000
290,000
230,000

100,000

(3)100,000

283,000

80,000

76,000

803,000

380,000

176,000

5-42

Consolidated

200,000
20,000
307,000
(2) 2,000
(3) 30,000
(4) 4,000
36,000
176,000 1,063,000

E5-26A (continued)
c.

Lintner Corporation and Subsidiary
December 31, 20X7

Current Assets
Depreciable Assets
Total Assets

$263,000
$800,000
(290,000)

Accounts Payable
Common Stock
Retained Earnings

510,000
$773,000
$230,000

$200,000
307,000
$507,000
36,000
543,000
$773,000

Sales
Depreciation
Other Expenses
Total Expenses

$500,000
$ 40,000
406,000
(446,000)
$ 54,000
(6,000)
$ 48,000


$284,000
48,000
$332,000
(25,000)
$307,000


5-43

SOLUTIONS TO PROBLEMS
P5-27 Majority-Owned Subsidiary Acquired at Book Value
E(1) Common Stock – Darla Corporation
Retained Earnings
Investment in Darla Corporation Stock

40,000
85,000

Accounts Receivable

12,500

b.

87,500
37,500

12,500

Cameron Corporation and Darla Corporation
December 31, 20X4
Cameron
Corp.

Darla
Corp.

Cash
Accounts Receivable
Inventory
Land
Investment in Darla
Corporation Stock
Total Debits

65,000
90,000
130,000
60,000
410,000

21,000
44,000
75,000
30,000
250,000

87,500
842,500

420,000

Accounts Payable
Mortgage Payable
Common Stock
Cameron Corporation
Darla Corporation
Retained Earnings
Total Credits

150,000
152,500
250,000

80,000
35,000
180,000

(2) 12,500

210,000

40,000
85,000

(1) 40,000
(1) 85,000

842,500

420,000

137,500

Item

80,000

5-44

Eliminations
Debit
Credit
(2) 12,500

(1) 87,500

Consolidated
86,000
121,500
205,000
90,000
660,000
1,162,500
230,000
175,000
430,000
80,000

(1) 37,500
137,500

210,000
37,500
1,162,500

P5-27 (continued)
c.

Cameron Corporation and Subsidiary
December 31, 20X4
Cash
Accounts Receivable
Inventory
Land
Total Assets

$660,000
(230,000)

Accounts Payable
Mortgage Payable
Common Stock
Retained Earnings
Total Stockholder’s equity

$ 86,000
121,500
205,000
90,000
430,000
$932,500
$175,000
430,000

$ 80,000
210,000
$290,000
37,500

327,500
$932,500

P5-28 Majority-Owned Subsidiary Acquired at Greater than Book Value
Retained Earnings
Differential

40,000
85,000
21,000

E(2) Inventory
Differential

6,000
15,000

Accounts Receivable

12,500

5-45

102,200
43,800

21,000

12,500

P5-28 (continued)
Porter Corporation and Darla Corporation
December 31, 20X4

b.

Porter
Corp.

Item

Darla
Corp.

Cash
Accounts Receivable
Inventory
Land
Investment in Darla
Corporation Stock
Differential
Total Debits

50,300 21,000
90,000 44,000
130,000 75,000
60,000 30,000
410,000 250,000

Accounts Payable
Mortgage Payable
Common Stock
Cameron Corporation
Darla Corporation
Retained Earnings
Total Credits

150,000 80,000
152,500 35,000
250,000 180,000

c.

102,200
842,500 420,000

80,000

Eliminations
Debit
Credit

(2) 6,000

71,300
121,500
211,000
90,000
675,000

(3) 12,500

(2) 15,000
(1) 21,000

(1)102,200
(2) 21,000

1,168,800
230,000
175,000
430,000
80,000

(3) 12,500

40,000
85,000

(1) 40,000
(1) 85,000

842,500 420,000

179,500

210,000

Consolidated

(1) 43,800
179,500

210,000
43,800
1,168,800

Porter Corporation and Subsidiary
December 31, 20X4
Cash
Accounts Receivable
Inventory
Land
Total Assets
Accounts Payable
Mortgage Payable
Common Stock
Retained Earnings

5-46

$675,000
(230,000)

$ 71,300
121,500
211,000
90,000
445,000
$938,800
$175,000
430,000

$ 80,000
210,000
$290,000
43,800

333,800
$938,800

P5-29 Balance Sheet Consolidation of Majority-Owned Subsidiary
a.

Entry on Total Corporation's books to record purchase of Ticken Tie stock:
Investment in Ticken Tie Stock
Bonds Payable
Bond Premium

510,000

500,000
10,000

Note: The bonds go directly to the stockholders of Ticken Tie and are not
recorded on the books of Ticken Tie.
b. Eliminating entries:
E(1) Common Stock – Ticken Tie Company
Retained Earnings
Differential
Investment in Ticken Tie Stock
$202,000 = ($510,000 + $170,000) - $478,000
E(2) Inventory
Land
Patent
Goodwill
Differential

200,000
130,000
148,000
202,000

4,000
20,000
50,000
40,000
88,000

Receivables

5-47

6,500

510,000
170,000

202,000

6,500

P5-29 (continued)
c.

Total Corporation and Ticken Tie Company
January 2, 20X8
Item

Cash
Receivables
Inventory
Investment in
Ticken Tie Stock
Land
Patent
Goodwill
Differential
Total Assets
Allowance for Bad Debts
Accumulated
Depreciation
Current Payables
Bonds Payable
Bond Premium
Common Stock
Additional
Paid-In Capital
Retained Earnings
Total Liabilities
and Stockholders’ Equity

Total
Corp.

Ticken
Tie

Eliminations
Debit
Credit

12,000
41,000
86,000

9,000
31,000
68,000

510,000
55,000
960,000

50,000
670,000

1,664,000

828,000

2,000

1,000

411,000
38,000
700,000
10,000
300,000

220,000
29,000
100,000

(3)

200,000

(1)200,000

100,000
103,000

130,000
148,000

(1)130,000
(1)148,000

1,664,000

828,000

888,500

5-48

Consolidated

6,500

21,000
65,500
158,000

(1)510,000
(2) 20,000
(2) 50,000
(2) 40,000
(2) 88,000
(1)202,000 (2)202,000

125,000
1,680,000
40,000
88,000

(2)

4,000

(3)

2,177,500
3,000
631,000
60,500
800,000
10,000
300,000

6,500

(1)170,000

100,000
103,000
170,000

888,500

2,177,500

P5-29 (continued)
d.

Total Corporation and Subsidiary
January 2, 20X8
Cash
Receivables
Less: Allowance for Bad Debts
Inventory
Land
Patent
Goodwill
Total Assets

$

65,500
(3,000)

$1,680,000
(631,000)

Current Payables
Bonds Payable
Premium on Bonds Payable
Common Stock
Retained Earnings
Total Liabilities and
Stockholders' Equity

$ 800,000
10,000
$ 300,000
100,000
103,000
$ 503,000
170,000

$

21,000
62,500
158,000
125,000

1,049,000
40,000
88,000
$1,543,500
$

60,500
810,000

673,000
$1,543,500

5-49

P5-30 Incomplete Data
a.

$15,000

= ($115,000 + $46,000) - $146,000

b.

$65,000

= ($148,000 - $98,000) + $15,000

c.

Skyler: $24,000

= $380,000 - ($46,000 + $110,000
+ $75,000 + $125,000)
= $94,000 - $24,000

Blue: $70,000
d.

Fair value of Skyler
as a whole:
$200,000
10,000

Book value of Skyler shares
Differential assigned to inventory
($195,000 - $105,000 - $80,000)
Differential assigned to buildings and equipment
($780,000 - $400,000 - $340,000)
Differential assigned to goodwill
Fair value of Skyler

40,000
9,000
$259,000
e.

65 percent

=

1.00 – ($90,650 / $259,000)

f.

Capital Stock
Retained Earnings

=
=

$120,000
$115,000

.

5-50

P5-31 Income and Retained Earnings
a.

Net income for 20X9:
Quill
$ 90,000
24,500
$114,500

North
$35,000

Quill
$290,000
114,500
(30,000)
$374,500

Operating income
Income from subsidiary
Net income

North
$40,000
35,000
(10,000)
$65,000

$35,000

b. Consolidated net income is $125,000 ($90,000 + $35,000).
c. Retained earnings reported at December 31, 20X9:
Retained earnings, January 1, 20X9
Net income for 20X9
Dividends paid in 20X9
Retained earnings, December 31, 20X9

d. Consolidated retained earnings at December 31, 20X9, is equal to the $374,500 retained
earnings balance reported by Quill.
e. When the cost method is used, the parent's proportionate share of the increase in retained
earnings of the subsidiary subsequent to acquisition is not included in the parent's retained
earnings. Thus, this amount must be added to the total retained earnings reported by the
parent in arriving at consolidated retained earnings.

5-51

P5-32 Consolidation Workpaper at End of First Year of Ownership
E(1)

Dividends Declared
Investment in Best Company Stock
$16,500 = ($24,000 - $2,000) x .75

E(2)

Dividends Declared
$4,125 = ($24,000 - $2,000 - $5,500) x .25

4,125

E(3)

Common Stock — Best Company
Differential
$28,000 = ($96,000 + $32,000) - $100,000

60,000
40,000
28,000

Goodwill
Differential

20,000
8,000

E(4)

16,500

E(5)

Amortize differential related to buildings
and equipment:
$2,000 = $20,000 / 10 years

2,000

E(6)

Goodwill Impairment Loss
Goodwill
Write down goodwill for impairment.

5,500

5-52

12,000
4,500

4,000
125

96,000
32,000

28,000

2,000

5,500

P5-32 (continued)
b.

Power Corporation and Best Company
December 31, 20X8
Item

Sales
Credits
Cost of Goods Sold
Wage Expense
Interest Expense
Other Expenses
Debits

Power
Corp.

Best
Co.

260,000
16,500
276,500
125,000
42,000
25,000
12,000
13,500

180,000
180,000
110,000
27,000
10,000
4,000
5,000

(217,500) (156,000)

440,000
235,000
69,000
37,000
16,000
18,500
5,500
(381,000)
59,000

(5) 2,000
(6) 5,500

40,000
24,000
64,000
(16,000)

(3) 40,000
28,125

102,000
54,875
156,875

131,000

48,000

68,125

47,500
70,000
90,000
30,000
350,000

21,000
12,000
25,000
15,000
150,000

Dividends Declared

102,000
59,000
161,000
(30,000)

carry forward

Differential
Goodwill
Debits

440,000

(1) 16,500

(4,125)
54,875

24,000

Cash
Accounts Receivable
Inventory
Land
Investment in Best
Company Stock

Consolidated

(2) 4,125
28,125

59,000

Income, from above

Eliminations
Debit
Credit

(1) 12,000
(2) 4,000

223,000

5-53

(3) 28,000
(4) 8,000

126,875
68,500
82,000
115,000
45,000
520,000

(4) 20,000

100,500

688,000

16,000

(30,000)

(1) 4,500
(3) 96,000
(4) 28,000
(6) 5,500

2,500
833,000

P5-32 (continued)
Item

Power
Corp.

Accum. Depreciation
Accounts Payable
Wages Payable
Notes Payable
Common Stock
Power Corporation
Best Company
Retained Earnings,
from above
Noncontrolling
Interest

145,000
45,000
17,000
150,000

Credits

688,000

200,000
131,000

Best
Co.

Eliminations
Debit
Credit

40,000
16,000
9,000
50,000

(5) 2,000

Consolidated
187,000
61,000
26,000
200,000
200,000

60,000

(3) 60,000

48,000

68,125

16,000

126,875

184,125

(2)
125
(3) 32,000
184,125

32,125
833,000

223,000

5-54

P5-33 Consolidation Workpaper at End of Second Year of Ownership
E(1)

Dividends Declared
$25,500 = ($36,000 - $2,000) x .75

E(2)

Dividends Declared
$8,500 = ($36,000 - $2,000) x .25

E(3)

Differential
$52,125 = $48,000 + ($5,500 x .75)
$20,500 = $28,000 - $2,000 - $5,500
$32,125 = ($60,000 + $48,000 + $20,500) x .25

60,000
52,125
20,500

Goodwill
Differential

20,000
2,500

E(4)

E(5)

and equipment:
$2,000 = $20,000 / 10 years

5-55

25,500

8,500

2,000

15,000
10,500

5,000
3,500

100,500
32,125

20,500
2,000

2,000

P5-33 (continued)
b.

December 31, 20X9
Item

Sales
Credits
Cost of Goods Sold
Wage Expense
Interest Expense
Other Expenses
Debits

Power
Corp.

Best
Co.

290,000
200,000
25,500
315,500
200,000
145,000
114,000
35,000
20,000
25,000
10,000
12,000
4,000
23,000
16,000
(240,000) (164,000)

490,000
259,000
55,000
37,000
16,000
39,000
(406,000)
84,000

(5) 2,000

48,000
36,000
84,000
(20,000)

(3) 52,125
36,000

126,875
75,500
202,375

176,500

64,000

88,125

68,500
85,000
97,000
50,000
350,000

32,000
14,000
24,000
25,000
150,000

Dividends Declared

131,000
75,500
206,500
(30,000)

carry forward

Differential
Goodwill
Debits

490,000

(1) 25,500

(8,500)
75,500

36,000

Cash
Accounts Receivable
Inventory
Land
Investment in Best
Company Stock

Consolidated

(2) 8,500
36,000

75,500

Income, from above

Eliminations
Debit
Credit

(1) 15,000
(2) 5,000

245,000

5-56

(3) 20,500
(4) 2,500

172,375
100,500
99,000
121,000
75,000
520,000

(4) 20,000

111,000

761,500

20,000

(30,000)

(1) 10,500
(3)100,500
(4) 20,500

2,500
918,000

P5-33 (continued)
Power
Corp.

Best
Co.

Accum. Depreciation

170,000

50,000

Accounts Payable
Wages Payable
Notes Payable
Common Stock
Power Corporation
Best Company
Retained Earnings,
from above
Noncontrolling
Interest

51,000
14,000
150,000

15,000
6,000
50,000

Credits

761,500

Item

200,000
176,500

Eliminations
Debit
Credit
(4) 2,000
(5) 2,000

Consolidated
224,000
66,000
20,000
200,000
200,000

60,000

(3) 60,000

64,000

88,125

20,000

172,375

191,125

(2) 3,500
(3) 32,125
191,125

35,625
918,000

245,000

5-57

P5-33 (continued)
c.

Power Corporation and Subsidiary
December 31, 20X9

Cash
Accounts Receivable
Inventory
Land
Goodwill
Total Assets

$100,500
99,000
121,000
75,000
$520,000
(224,000)

Accounts Payable
Wages Payable
Notes Payable
Common Stock
Retained Earnings

296,000
2,500
$694,000
$ 66,000
20,000
200,000

$200,000
172,375
$372,375
35,625
408,000
$694,000

Sales
Cost of Goods Sold
Wage Expense
Interest Expense
Other Expenses
Total Expenses

$490,000
$259,000
55,000
37,000
16,000
39,000
(406,000)
$ 84,000
(8,500)
$ 75,500


$126,875
75,500
$202,375

5-58


(30,000)
$172,375

5-59

P5-34 Comprehensive Problem: Majority-Owned Subsidiary
a.

Journal entries recorded by Master Corporation:
(1)

Cash
Investment in Stanley Wood
Products Stock
Record dividends from Stanley Wood
Products: $10,000 x .80

(2)

Investment in Stanley Wood Products Stock
Record equity-method income: $30,000 x .80

(3)

Products Stock
($50,000 / 10 years) x .80
Computation of differential:
Fair value of consideration given by Master Corp.
Total fair value
Underlying book value
Differential at acquisition, January 1, 20X1

5-60

8,000
8,000

24,000

24,000

4,000
4,000

$160,000
40,000
$200,000
(150,000
)
$ 50,000

P5-34 (continued)
b.

E(1)

Dividends Declared
Products Stock

E(2)

Dividends Declared
$5,000 = ($30,000 - $5,000) x .20

E(3)

Common Stock — Stanley Wood Products
Differential
Products Stock
$30,000 = $50,000 – ($5,000 x 4 years)
$176,000 = .80($100,000 + $90,000 + $30,000)
$44,000 = .20($100,000 +$90,000 + 30,000)

20,000

12,000
5,000

2,000
3,000

100,000
90,000
30,000
176,000
44,000

E(4)

Differential

50,000

E(5)


5,000

E(6)

Accounts Payable
Eliminate intercorporate receivable/payable.

5-61

8,000

10,000

20,000
30,000

5,000

10,000

P5-34 (continued)
c.

Master Corporation and Stanley Wood Products Company
December 31, 20X5
Master
Corp.

Stanley
Wood

200,000
20,000
220,000
120,000
25,000
15,000
(160,000)

100,000
_______
100,000
50,000
15,000
5,000
(70,000)

60,000

30,000

Dividends Declared

314,000
60,000
374,000
(30,000)

carry forward

Item
Sales
Credits
Cost of Goods Sold
Inventory Losses
Debits
Income, from above

Inventory
Land
Investment in Stanley
Wood Products Stock
Differential
Debits

Eliminations
Debit
Credit

300,000

(1) 20,000

300,000
170,000
45,000
20,000
(235,000)
65,000

(5)

5,000

(2)

5,000
30,000

(5,000)
60,000

90,000
30,000
120,000
(10,000)

(3) 90,000
30,000

314,000
60,000
374,000

344,000

110,000

120,000

81,000
260,000
80,000
500,000

65,000
90,000
80,000
150,000

(1)
(2)

(3) 30,000

385,000

Accum. Depreciation

205,000

105,000

Accounts Payable
Notes Payable
Common Stock
Master Corporation
Stanley Wood Products
Retained Earnings,
from above

60,000
200,000

20,000
50,000

(6) 10,000

100,000

(3)100,000

344,000

110,000

120,000

1,109,000

385,000

310,000

5-62

(30,000)

10,000

344,000
136,000
350,000
160,000
700,000

(4) 50,000

188,000

300,000

8,000
2,000

(6) 10,000

1,109,000

Credits

Consolidated

(1) 12,000
(3)176,000
(4) 30,000
(4) 20,000
(5) 5,000

1,346,000
335,000
70,000
250,000
300,000

10,000
344,000
(2) 3,000
(3) 44,000
47,000
310,000 1,346,000

P5-35 Comprehensive Problem: Differential Apportionment
a.

Journal entries recorded by Mortar Corporation:
(1)

Investment in Granite Company Stock
Cash
Purchase of Granite Company stock.

(2)

Cash
Record dividends from Granite Company:
$20,000 x .80

16,000

(3)

$60,000 x .80

48,000

(4)

Amortize differential assigned to depreciable
assets: [($191,250 - $150,000) x .80] / 11 years

5-63

173,000

3,000

173,000

16,000

48,000

3,000

P5-35 (continued)
b.

E(1)

Dividends Declared

45,000

E(2)

Dividends Declared
$11,250 = [$60,000 – ($41,250 / 11)] x .20

11,250

E(3)

Common Stock — Granite Company
Differential
$66,250 = ($173,000 + $43,250) - $150,000

E(4)

Goodwill
Differential
Assign beginning differential:
$41,250 = $191,250 - $150,000
$25,000 = $66,250 - $41,250

50,000
100,000
66,250

25,000
41,250

E(5)

Amortize differential related to
depreciable assets: $41,250 / 11 years

E(6)

Accounts Payable
Accounts Receivable
Eliminate intercorporate
receivable/payable.

3,750

16,000

5-64

16,000
29,000

4,000
7,250

173,000
43,250

66,250

3,750

16,000

P5-35 (continued)
c.

Mortar Corporation and Granite Company
December 31, 20X7
Mortar
Corp.

Granite
Co.

700,000
45,000
745,000
500,000
25,000
75,000
(600,000)

400,000
400,000
250,000
15,000
75,000
(340,000)

145,000

60,000

Dividends Declared

290,000
145,000
435,000
(50,000)

carry forward

Item
Sales
Credits
Cost of Goods Sold
Other Expenses
Debits
Income, from above

Cash
Accounts Receivable
Inventory
Land
Investment in Granite
Company Stock
Differential
Goodwill
Debits
Accum. Depreciation
Accounts Payable
Mortgages Payable
Common Stock
Mortar Corporation
Granite Company
Retained Earnings,
from above
Credits

Eliminations
Debit
Credit

1,100,000

(1) 45,000
(5)

Consolidated

1,100,000
750,000
43,750
150,000
(943,750)
156,250

3,750

(2) 11,250
60,000

(11,250)
145,000

100,000
60,000
160,000
(20,000)

(3) 100,000
60,000

290,000
145,000
435,000

385,000

140,000

160,000

38,000
50,000
240,000
80,000
500,000

25,000
55,000
100,000
20,000
150,000

(1) 16,000
(2) 4,000

(6) 16,000
(4) 41,250

202,000
(3) 66,250
(4) 25,000

1,110,000

350,000

155,000
70,000
200,000

75,000
35,000
50,000

(6) 16,000

50,000

(3) 50,000

385,000

140,000

160,000

1,110,000

350,000

358,500

300,000

5-65

20,000

(1) 29,000
(3) 173,000
(4) 66,250

(5)

3,750

(50,000)
385,000
63,000
89,000
340,000
100,000
691,250

25,000
1,308,250
233,750
89,000
250,000
300,000

20,000
385,000
(2) 7,250
(3) 43,250
50,500
358,500 1,308,250

P5-36 Comprehensive Problem: Differential Apportionment in Subsequent
Period.
a.

Journal entries recorded by Mortar Corporation:
(1)

Cash
Record dividends from Granite Company:
$20,000 = $25,000 x .80

20,000

(2)

$45,000 x .80

36,000

(3)

Amortize differential assigned to
depreciable assets:
$3,000 = [($191,250 - $150,000) / 11 years] x .80

5-66

3,000

20,000

36,000

3,000

P5-36 (continued)
b.

E(1)

Dividends Declared

E(2)

Dividends Declared
$6,050 = ($45,000 - $3,750 - $11,000) x .20

E(3)

Common Stock — Granite Company
Differential
$66,250 Differential at acquisition
(3,750) Depreciation in 20X7
$62,500 Unamortized differential Jan. 1, 20X8

E(4)

33,000

6,050

50,000
140,000
62,500

Goodwill
Differential

25,000
41,250

E(5)

Amortize differential related to
depreciable assets.

3,750

E(6)

Goodwill
Impairment of goodwill.

11,000

E(7)

Accounts Payable
Accounts Receivable
Eliminate intercorporate
receivable/payable.

9,000

5-67

20,000
13,000

5,000
1,050

202,000
50,500

62,500
3,750

3,750

11,000

9,000

P5-36 (continued)
c.

Mortar Corporation and Granite Company
December 31, 20X8
Mortar
Corp.

Granite
Co.

650,000
33,000
683,000
490,000
25,000

470,000

62,000
(577,000)

100,000
(425,000)

106,000

45,000

Dividends Declared

385,000
106,000
491,000
(45,000)

carry forward

Item
Sales
Credits
Cost of Goods Sold
Other Expenses
Debits
Income, from above

Cash
Accounts Receivable
Inventory
Land
Investment in Granite
Company Stock
Differential
Goodwill
Debits

470,000
310,000
15,000

Eliminations
Debit
Credit

1,120,000

(1) 33,000

1,120,000
800,000
43,750
11,000
162,000
(1,016,750)
103,250

(5) 3,750
(6) 11,000

(2)

6,050
53,800

(6,050)
97,200

140,000
45,000
185,000
(25,000)

(3)140,000
53,800

385,000
97,200
482,200

446,000

160,000

193,800

59,000
83,000
275,000
80,000
500,000

31,000
71,000
118,000
30,000
150,000

(1) 20,000
(2) 5,000
25,000
(7)

9,000

(4) 41,250

215,000
(3) 62,500
(4) 25,000

1,212,000

400,000

Accum. Depreciation

180,000

90,000

Accounts Payable
Mortgages Payable
Common Stock
Mortar Corporation
Granite Company
Retained Earnings,
from above

86,000
200,000

30,000
70,000

(7) 9,000

50,000

446,000

160,000

193,800

1,212,000

400,000

381,550

(1) 13,000
(3)202,000
(4) 62,500
(6) 11,000

(3) 50,000

Credits

Consolidated

300,000

5-68

(4)
(5)

3,750
3,750

(45,000)
437,200
90,000
145,000
393,000
110,000
691,250

14,000
1,443,250
277,500
107,000
270,000
300,000

25,000
(2) 1,050
(3) 50,500
381,550

437,200
51,550
1,443,250

P5-37 Subsidiary with Other Comprehensive Income in Year of Acquisition
a.

E(1)

Dividends Declared
Investment in Sparta Company Stock

15,000

E(2)

Dividends Declared

10,000

E(3)

Other Comprehensive Income from Subsidiary —
Unrealized Gain on Investments (OCI)
Eliminate other comprehensive income
from subsidiary.

E(4)

E(5)

Common Stock — Sparta Company

5-69

6,000

4,000

100,000
60,000

9,000
6,000

6,000
4,000

6,000

4,000

96,000
64,000

P5-37 (continued)
b.

Amber Corporation and Sparta Company
December 31, 20X8
Amber
Corp.

Sparta
Co.

220,000
15,000
235,000
150,000
30,000
8,000
(188,000)

148,000
148,000
110,000
10,000
3,000
(123,000)

47,000

25,000

Dividends Declared

208,000
47,000
255,000
(24,000)

carry forward

Item
Sales
Credits
Cost of Goods Sold
Interest Expense
Debits

Eliminations
Debit
Credit

Consolidated
368,000

(1) 15,000

368,000
260,000
40,000
11,000
(311,000)
57,000

(2) 10,000
25,000

(10,000)
47,000

60,000
25,000
85,000
(15,000)

(5) 60,000
25,000

208,000
47,000
255,000

231,000

70,000

85,000

Cash
Accounts Receivable
Inventory
Investment in Row
Company Securities
Investment in Sparta
Company Stock

27,000
65,000
40,000
500,000

8,000
22,000
30,000
235,000

35,000
87,000
70,000
735,000

40,000

40,000

Debits

740,000

Income, from above

108,000
335,000

5-70

(1) 9,000
(2) 6,000
15,000

(1) 6,000
(3) 6,000
(5) 96,000

(24,000)
231,000

967,000

P5-37 (continued)
Amber
Corp.

Sparta
Co.

Accum. Depreciation
Accounts Payable
Bonds Payable
Common Stock
Amber Corporation
Sparta Company
Retained Earnings,
from above
Accumulated Other
Comprehensive Income,
from below
Noncontrolling
Interest

140,000
63,000
100,000

85,000
20,000
50,000

Credits

740,000

Item

Other Comprehensive
Income:
OCI from Subsidiary —
Unrealized Gain on
Investments
Unrealized Gain on
Investments
Other Comprehensive
Accumulated Other
December 31, carry up

200,000

Eliminations
Debit
Credit

225,000
83,000
150,000

100,000

231,000

70,000

85,000

6,000

10,000

200,000

(5)100,000

10,000

335,000

6,000

Consolidated

195,000

15,000

231,000
6,000

(2) 4,000
(4) 4,000
(5) 64,000
195,000

72,000
967,000

(3) 6,000
10,000

10,000
(4) 4,000

6,000

10,000

5-71

(4,000)

10,000

6,000

P5-37 (continued)
c.

Amber Corporation and Subsidiary
December 31, 20X8

Cash
Accounts Receivable
Inventory
Investment in Marketable Securities
Total Assets

$735,000
(225,000)

Accounts Payable
Bonds Payable
Common Stock
Retained Earnings

$ 35,000
87,000
70,000
510,000
40,000
$742,000
$ 83,000
150,000

$200,000
231,000
6,000
$437,000
72,000

509,000
$742,000

Sales
Cost of Goods Sold
Interest Expense
Total Expenses

$260,000
40,000
11,000

$368,000

(311,000)
$ 57,000
(10,000)
$ 47,000

Consolidated Statement of Comprehensive Income
Other Comprehensive Income:
Unrealized Gain on Investments Held by Subsidiary
Total Consolidated Comprehensive Income
Less: Comprehensive Income Attributable to
Comprehensive Income Attributable to Controlling
Interest

5-72

$57,000
10,000
$67,000
(14,000)
$53,000

P5-38 Subsidiary with Other Comprehensive Income in Year Following
Acquisition
a.

E(1)

Dividends Declared

18,000

E(2)

Dividends Declared

12,000

E(3)

Other Comprehensive Income from Subsidiary —
Unrealized Gain on Investments (OCI)
Eliminate other comprehensive income from
subsidiary.

E(4)

E(5)

Common Stock — Sparta Company

5-73

2,400

1,600

100,000
70,000
10,000

12,000
6,000

8,000
4,000

2,400

1,600

108,000
72,000

P5-38 (continued)
b.

Amber Corporation and Sparta Company
December 31, 20X9
Amber
Corp.

Sparta
Co.

250,000
18,000
268,000
170,000
30,000
8,000
(208,000)

140,000
140,000
97,000
10,000
3,000
(110,000)

60,000

30,000

Dividends Declared

231,000
60,000
291,000
(40,000)

carry forward

Item
Sales
Credits
Cost of Goods Sold
Interest Expense
Debits

Eliminations
Debit
Credit

Consolidated
390,000

(1) 18,000

390,000
267,000
40,000
11,000
(318,000)
72,000

(2) 12,000
30,000

(12,000)
60,000

70,000
30,000
100,000
(20,000)

(5) 70,000
30,000

231,000
60,000
291,000

251,000

80,000

100,000

Cash
Accounts Receivable
Inventory
Investment in Row
Company Securities
Investment in Sparta
Company Stock

18,000
45,000
40,000
585,000

11,000
21,000
30,000
257,000

29,000
66,000
70,000
842,000

44,000

44,000

Debits

804,400

Income, from above

116,400
363,000

5-74

(1) 12,000
(2) 8,000
20,000

(1) 6,000
(3) 2,400
(5)108,000

(40,000)
251,000

1,051,000

P5-38 (continued)
Item

Amber
Corp.

Sparta
Co.

Accum. Depreciation
Accounts Payable
Bonds Payable
Common Stock
Amber Corporation
Sparta Company
Retained Earnings,
from above
Accumulated Other
from below
Noncontrolling
Interest

170,000
75,000
100,000

Credits

804,400

Other Comprehensive
Income:
OCI from Subsidiary —
Unrealized Gain
on Investments
Unrealized Gain on
Investments
Other Comprehensive
Accumulated Other
Comprehensive
Income, January 1
Accumulated Other
Comprehensive Income
December 31, carry up

200,000

Eliminations
Debit
Credit

95,000
24,000
50,000

265,000
99,000
150,000

100,000

251,000

80,000

100,000

8,400

14,000

200,000

(5)100,000

14,000

363,000

2,400

Consolidated

214,000

(3)

20,000

251,000
8,400

(2) 4,000
(4) 1,600
(5) 72,000
214,000

77,600
1,051,000

2,400

4,000

4,000
(4)

1,600

(1,600)

6,000

10,000

(5) 10,000

6,000

8,400

14,000

14,000

8,400

5-75

P5-39 Income and Retained Earnings – Prior Procedures
a.

Net income for 20X9:
Quill
$ 90,000
24,500
$114,500

Operating income
Income from subsidiary
Net income

North
$35,000
$35,000

b. Consolidated net income is equal to the $114,500 net income reported by Quill.
c. Retained earnings reported at December 31, 20X9:
Quill
$290,000
114,500
(30,000)
$374,500

Retained earnings, January 1, 20X9
Net income for 20X9
Dividends paid in 20X9
Retained earnings, December 31, 20X9

North
$40,000
35,000
(10,000)
$65,000

d. Consolidated retained earnings at December 31, 20X9, is equal to the $374,500 retained
earnings balance reported by Quill.
e. When the cost method is used, the parent's proportionate share of the increase in retained
earnings of the subsidiary subsequent to acquisition is not included in the parent's retained
earnings. Thus, this amount must be added to the total retained earnings reported by the
parent in arriving at consolidated retained earnings.

5-76

P5-40 Majority-Owned Subsidiary Acquired at Greater than Book Value – Prior
Procedures
Retained Earnings
Differential
$14,700 = $102,200 - .70 x ($40,000 + $85,000)

40,000
85,000
14,700

E(2) Inventory
Differential

4,200
10,500

Accounts Receivable

12,500

5-77

102,200
37,500

14,700

12,500

P5-40 (continued)
Porter Corporation and Darla Corporation
December 31, 20X4

b.

Item

Porter
Corp.

Darla
Corp.

Eliminations
Debit
Credit

Cash
Accounts Receivable
Inventory
Land
Investment in Darla
Corporation Stock
Differential
Total Debits

50,300 21,000
90,000 44,000
130,000 75,000
60,000 30,000
410,000 250,000

Accounts Payable
Mortgage Payable
Common Stock
Porter Corporation
Darla Corporation
Retained Earnings
Total Credits

150,000 80,000
152,500 35,000
250,000 180,000

c.

Consolidated

Porter Corporation and Subsidiary
December 31, 20X4

102,200
842,500 420,000

80,000

(2) 4,200
(2) 10,500
(1) 14,700

(1) 40,000
(1) 85,000

842,500 420,000

166,900

Cash
Accounts Receivable
Inventory
Land
Total Assets

(1)102,200
(2) 14,700

(1) 37,500
166,900

$670,500
(230,000)

Accounts Payable
Mortgage Payable
Common Stock
Retained Earnings

5-78

71,300
121,500
209,200
90,000
670,500

1,162,500
230,000
175,000
430,000
80,000

(3) 12,500

40,000
85,000

210,000

(3) 12,500

210,000
37,500
1,162,500

$ 71,300
121,500
209,200
90,000
440,500
$932,500
$175,000
430,000

$ 80,000
210,000
290,000
37,500

327,500
$932,500

P5-41 Consolidation Workpaper at End of First Year of Ownership – Prior
Procedures
E(1)

Dividends Declared

E(2)

Dividends Declared

6,000

E(3)

Differential
$21,000 = $96,000 – (.75 x $100,000)

60,000
40,000
21,000

Goodwill
Differential

15,000
6,000

E(5)

$1,500 = $15,000 / 10 years

1,500

E(6)

Goodwill
Write down goodwill for impairment.

3,500

E(4)

5-79

16,500

12,000
4,500

4,000
2,000

96,000
25,000

21,000

1,500

3,500

P5-41 (continued)
b.

December 31, 20X8
Item

Sales
Credits
Cost of Goods Sold
Wage Expense
Interest Expense
Other Expenses
Debits

Power
Corp.

Best
Co.

260,000
16,500
276,500
125,000
42,000
25,000
12,000
13,500

180,000
180,000
110,000
27,000
10,000
4,000
5,000

(217,500) (156,000)

440,000
235,000
69,000
36,500
16,000
18,500
3,500
(378,500)
61,500

(5) 1,500
(6) 3,500

40,000
24,000
64,000
(16,000)

(3) 40,000
27,500

102,000
55,500
157,500

131,000

48,000

67,500

47,500
70,000
90,000
30,000
350,000

21,000
12,000
25,000
15,000
150,000

Dividends Declared

102,000
59,000
161,000
(30,000)

carry forward

Differential
Goodwill
Debits

440,000

(1) 16,500

(6,000)
55,500

24,000

Cash
Accounts Receivable
Inventory
Land
Investment in Best
Company Stock

Consolidated

(2) 6,000
27,500

59,000

Income, from above

Eliminations
Debit
Credit

(1) 12,000
(2) 4,000

223,000

5-80

(3) 21,000
(4) 6,000

127,500
68,500
82,000
115,000
45,000
515,000

(4) 15,000

100,500

688,000

16,000

(30,000)

(1) 4,500
(3) 96,000
(4) 21,000
(6) 3,500

2,500
828,000

P5-41 (continued)
Item

Power
Corp.

Accum. Depreciation
Accounts Payable
Wages Payable
Notes Payable
Common Stock
Power Corporation
Best Company
Retained Earnings,
from above
Noncontrolling
Interest

145,000
45,000
17,000
150,000

Credits

688,000

200,000
131,000

Best
Co.

Eliminations
Debit
Credit

40,000
16,000
9,000
50,000

(5) 1,500

Consolidated
186,500
61,000
26,000
200,000
200,000

60,000

(3) 60,000

48,000

67,500

16,000

127,500

169,500

(2) 2,000
(3) 25,000
169,500

27,000
828,000

223,000

5-81

P5-42 Consolidation Workpaper at End of Second Year of Ownership – Prior
Procedures
E(1)

Dividends Declared
$25,500 = ($36,000 - $2,000) x .75

E(2)

Dividends Declared
$9,000 = $36,000 x .25

E(3)

Differential
$51,500 = $48,000 + $3,500
$16,000 = $21,000 Original differential
(1,500) Amortization of differential
in 20X8
(3,500) Goodwill impaired in 20X8
$16,000 Differential at Jan. 1, 20X9
$27,000 = ($60,000 + $48,000) x .25

60,000
51,500
16,000

Goodwill
Differential

15,000
2,500

E(4)

E(5)

and equipment:
$1,500 = $15,000 / 10 years

5-82

25,500

9,000

1,500

15,000
10,500

5,000
4,000

100,500
27,000

16,000
1,500

1,500

P5-42 (continued)
b.

December 31, 20X9
Item

Sales
Credits
Cost of Goods Sold
Wage Expense
Interest Expense
Other Expenses
Debits

Power
Corp.

Best
Co.

290,000
200,000
25,500
315,500
200,000
145,000
114,000
35,000
20,000
25,000
10,000
12,000
4,000
23,000
16,000
(240,000) (164,000)

490,000
259,000
55,000
36,500
16,000
39,000
(405,500)
84,500

(5) 1,500

48,000
36,000
84,000
(20,000)

(3) 51,500
36,000

127,500
75,500
203,000

176,500

64,000

87,500

68,500
85,000
97,000
50,000
350,000

32,000
14,000
24,000
25,000
150,000

Dividends Declared

131,000
75,500
206,500
(30,000)

carry forward

Differential
Goodwill
Debits

490,000

(1) 25,500

(9,000)
75,500

36,000

Cash
Accounts Receivable
Inventory
Land
Investment in Best
Company Stock

Consolidated

(2) 9,000
36,000

75,500

Income, from above

Eliminations
Debit
Credit

(1) 15,000
(2) 5,000

245,000

5-83

(3) 16,000
(4) 2,500

173,000
100,500
99,000
121,000
75,000
515,000

(4) 15,000

111,000

761,500

20,000

(30,000)

(1) 10,500
(3)100,500
(4) 16,000

2,500
913,000

P5-42 (continued)
Power
Corp.

Best
Co.

Accum. Depreciation

170,000

50,000

Accounts Payable
Wages Payable
Notes Payable
Common Stock
Power Corporation
Best Company
Retained Earnings,
from above
Noncontrolling
Interest

51,000
14,000
150,000

15,000
6,000
50,000

Credits

761,500

Item

200,000
176,500

Eliminations
Debit
Credit
(4) 1,500
(5) 1,500

Consolidated
223,000
66,000
20,000
200,000
200,000

60,000

(3) 60,000

64,000

87,500

20,000

173,000

181,000

(2) 4,000
(3) 27,000
181,000

31,000
913,000

245,000

5-84

P5-42 (continued)
c.

December 31, 20X9

Cash
Accounts Receivable
Inventory
Land
Goodwill
Total Assets

$100,500
99,000
121,000
75,000
$515,000
(223,000)

Accounts Payable
Wages Payable
Notes Payable
Common Stock
Retained Earnings

292,000
2,500
$690,000
$ 66,000
20,000
200,000

$200,000
173,000
$373,000
31,000
404,000
$690,000

Sales
Cost of Goods Sold
Wage Expense
Interest Expense
Other Expenses
Total Expenses

$490,000
$259,000
55,000
36,500
16,000
39,000
(405,500)
$ 84,500
(9,000)
$ 75,500


$127,500
75,500
$203,000

5-85


(30,000)
$173,000

5-86

P5-43A Cost-Method Workpaper with Differential
E(1)

Dividend Income
Dividends Declared

10,000

E(2)

Common Stock — Star Company
Differential
Investment in Star Company Stock
Eliminate investment balance at date
of acquisition:
$20,000 = $220,000 - $150,000 - $50,000

150,000
50,000
20,000

E(3)

Goodwill
Differential
Assign differential at date of acquisition.

20,000

E(4)

Goodwill
Record impairment of goodwill.

12,000

5-87

10,000

220,000

20,000

12,000

P5-43A (continued)
Light Corporation and Star Company
Consolidated Workpaper
December 31, 20X5
Light
Corp.

Star
Co.

300,000
10,000
310,000
210,000
25,000

150,000

23,000
(258,000)
52,000

25,000
(130,000)
20,000

230,000
52,000
282,000
(20,000)

50,000
20,000
70,000
(10,000)

(2) 50,000
22,000

262,000

60,000

72,000

Cash
Accounts Receivable
Inventory
Investment in Star
Company Stock
Differential
Goodwill
Debits

37,000
50,000
70,000
300,000

20,000
30,000
60,000
240,000

677,000

350,000

Accum. Depreciation
Accounts Payable
Taxes Payable
Common Stock
Light Corporation
Star Company
Retained Earnings,
from above
Credits

105,000
40,000
70,000

65,000
20,000
55,000

Item
Sales
Dividend Income
Credits
Cost of Goods Sold
Other Expenses
Debits
Income, from above
Dividends Declared
carry forward

150,000
85,000
20,000

220,000

200,000
262,000
677,000

Eliminations
Debit
Credit

450,000

(1) 10,000

450,000
295,000
45,000
12,000
48,000
(400,000)
50,000

(4) 12,000
22,000

(1) 10,000

230,000
50,000
280,000
(20,000)

10,000

260,000
57,000
80,000
130,000
540,000

(2) 20,000
(3) 20,000

(2)220,000
(3) 20,000
(4) 12,000

8,000
815,000
170,000
60,000
125,000

150,000
60,000
350,000

72,000
262,000

200,000

(2)150,000

5-88

Consolidated

10,000
262,000

260,000
815,000

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