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35. On January 1, 20X1, Parent Company purchased 85% of the common stock, 8,500 shares, of Subsidiary
Company for $317,500. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings
of $50,000, $100,000, and $200,000 respectively. Any excess of cost over book value is due to goodwill.
On January 1, 20X2, Subsidiary purchased, from its noncontrolling shareholders, 1,000 shares of its common
stock, 10% of the stock outstanding on that date. The price paid was $44,000. The trial balances of Parent and
Sub as of 12/31/X2 are given below:
Trial Balances
12/31/X2
Parent
Sub
Inventory
$ 150,000
$ 100,000
Other Current Assets
340,553
247,000
Investment in Sub. Company
406,420
Land
80,000
50,000
Buildings and Equipment
420,000
250,000
Accumulated Depreciation
(200,000)
(80,000)
Current Liabilities
(100,000)
(60,000)
Long Term Liabilities
(250,000)
(100,000)
Common Stock – P Co.
(100,000)
Other Paid-in Capital – P Co.
(200,333)
Retained Earnings – P Co.
(400,000)
Common Stock – S Co.
(50,000)
Other Paid-in Capital – S Co.
(100,000)
Retained Earnings – S Co.
(250,000)
Net Sales
(650,000)
(340,000)
Cost of Goods Sold
370,000
180,000
Operating Expenses
170,000
100,000
Subsidiary Income
(56,640)
Dividends Declared – P Co.
20,000
Dividends Declared – S Co.
9,000
Treasury Stock
44,000
-0-
-0-
Required (round all amounts to whole dollars; round percentages to one decimal: XX.X%)
a.
Prepare the D&D schedule for the 1/1/X1 acquisition.
b.
Prepare a schedule to determine the change in Parent’s interest in Sub.
c.
Prepare the journal entry the parent needed to adjust its interest in Sub. (Note that it has already been included in the parent’s trial
balance.)
d.
Prepare, in journal form, all elimination entries necessary for the 12/31/X2 consolidation worksheet.
36. On January 1, 20X1, Parent Company purchased 85% of the common stock, 8,500 shares, of Subsidiary
Company for $317,500. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings
of $50,000, $100,000, and $200,000 respectively. Any excess of cost over book value is due to goodwill.
On January 1, 20X2, Subsidiary purchased, from its noncontrolling shareholders, 1,000 shares of its common
stock, 10% of the stock outstanding on that date. The price paid was $44,000.
Required (round all amounts to whole dollars; round percentages to one decimal: XX.X%)
a.
Prepare an analysis to determine Parent’s revised ownership interest following Sub’s treasury stock transaction.
b.
Complete the Figure 8-11 worksheet for consolidated financial statements for 20X2
37. On January 1, 20X1, Parent Company purchased 90% of the common stock of Sub-A Company for
$90,000. On this date, Sub-A had common stock, other paid-in capital, and retained earnings of $10,000,
$20,000, and $60,000 respectively.
On January 1, 20X2, Sub-A Company purchased 80% of the common stock of Sub-B Company for $64,000.
On this date, Sub-B Company had common stock, other paid-in capital, and retained earnings of $5,000,
$30,000, and $40,000 respectively.
Any excess of cost over book value on either purchase is due to a patent, to be amortized over ten years.
Both Parent and Sub-A have accounted for their investments using the simple equity method.
During 20X2, Sub-B sold merchandise to Sub-A for $20,000, of which one-fourth is still held by Sub-B on
December 31, 20X2. Sub-B's usual gross profit is 40%. During 20X3, Sub-B sold more goods to Sub-A for
$30,000, of which $10,000 is still on hand on December 31, 20X3.
Required:
Complete the Figure 8-9 worksheet for consolidated financial statements for 20X3.
Determination and Distribution of Excess Schedule for Sub-A:
Entity
Parent
NCI
Entity FV
100,000
90,000
10,000
Book value:
Common Stock ($10)
10,000
Paid-in Cap in Excess of Par
20,000
RE 1/1/X1
60,000
Book value:
90,000
81,000
9,000
Excess-attributable to patent
10,000
Determination and Distribution of Excess Schedule for Sub-B:
38. Paula Inc. purchased an 80% interest in the Sharon Co. for $480,000 on January 1, 20X1, when Sharon Co.
had the following stockholders' equity:
Common stock, $10 par
$200,000
Retained earnings
300,000
Total equity
$500,000
Any excess is attributable to goodwill.
On January 1, 20X3, Sharon Co. purchased a 10% interest in the Paula Inc. at a price equal to book value. Both firms maintain investments under the
cost method.
Required:
a.
Complete the Figure 8-11 partial worksheet for December 31, 20X3, assuming the use of the treasury stock method.
b.
Calculate the distribution of income for 20X3, assuming that internally generated net income is $50,000 for Paula and $20,000 for Sharon.
Figure 8-11
Paula Inc. and Sharon Co.
Consolidated Partial Worksheet
For the Year Ended December 31, 20X3
Trial Balance
Eliminations
and
Adjustment
s
Account Titles
Paula Inc.
Sharon Co.
Debit
Credit
Investment in Sharon Co.
480,000
Investment in Paula Inc.
80,000
Goodwill
Common Stock – Sharon Co.
(200,000)
Retained Earnings – Sharon Co.
(400,000)
Common Stock – Paula Inc.
(200,000)
Retained Earnings – Paula Inc.
(600,000)
Treasury Stock
Determination and Distribution of Excess Schedule:
Entity
Parent
NCI
Entity FV
600,000
480,000
120,000
Book value:
Common Stock ($10)
200,000
RE 1/1/X1
300,000
Book value:
500,000
400,000
100,000
Excess-attributable to goodwill
100,000
39. Two types of intercompany stock purchases significantly complicate the consolidation process. The first
occurs when the subsidiary issues added shares of stock in a public issue and the parent buys a portion of the
shares. The second occurs when the subsidiary purchases outstanding shares of the parent company.
Required:
a.
Discuss the current theoretical consolidation procedure for situations in which the parent buys a portion of the newly issued subsidiary
shares that is (1) equal to its existing ownership percentage, (2) greater than its existing ownership percentage, and (3) less than its existing
ownership percentage.
b.
Discuss the most widely supported, current theoretical consolidation procedures used when the subsidiary purchases outstanding common
stock shares of the parent.
