30. On 1/1/X1 Poncho acquired an 80% interest in Stroller for $560,000 when Stroller’s equity consisted of
$530,000 paid-in capital and $100,000 Retained Earnings. Any excess of purchase price over was attributed to
goodwill.
On January 1, 20X6, Stroller had the following stockholders’ equity:
Common stock ($20 par)
$180,000
Paid-in capital in excess of par
350,000
Retained earnings
220,000
Total stockholders’ equity
$750,000
On January 2, 20X6, Company S sold 1,000 additional shares to noncontrolling shareholders in a public offering for $50 per share. Stroller’s net
income for 20X6 was 80,000. Poncho uses the simple equity method to record its investment in Stroller.
Required:
a.
Prepare Poncho’s journal entry to adjust its Investment in Stroller account on January 2, 20X6. Assume that Poncho has $500,000
additional paid-in capital.
b.
Determine the carrying value of Poncho’s Investment in Stroller account on December 31, 20X6.
80%
20%
Entity
Parent
NCI
Entity FV
$700,000
$560,000
$140,000
Book value:
Common Stock
180,000
Paid-in Cap in Excess of Par
350,000
RE 1/1/X1
100,000
Book value:
630,000
504,000
126,000
Excess
70,000
56,000
14,000
Goodwill
70,000
Sub equity 1/1/X1
$630,000
Unamortized excess
70,000
Increase in RE (now $220,000)
120,000
Equity adjusted for fair value
$820,000
Sub equity prior to new issue
$820,000
$656,000
Issue 1,000 shares @ $50
50,000
Sub equity after new issue
$870,000
$626,400
Decrease in investment
$ 29,600
Paid-in Capital in Excess of Par
29,600
Investment in Stroller
29,600
*Sub’s outstanding shares before new issue
9,000
(180,000 / 20)
Sub issued
1,000
Sub outstanding after new issue
10,000
Parent holds 7,200 shares from its original investment
31. On January 1, 20X1, Parent Company purchased 9,000 shares of the common stock of Subsidiary Company
for $405,000. On this date, Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares
issued and outstanding. Other paid-in capital and retained earnings were $150,000 and $200,000 respectively.
On January 1, 20X1, any excess of cost over book value is due to a patent, to be amortized over 10 years.
Subsidiary’s net income and dividends for two years were:
20X1
20X2
Net income
$50,000
$80,000
Dividends
10,000
20,000
On January 1, 20X2, Subsidiary Company sold an additional 2,000 shares of common stock for $50 per share. Parent purchased 1,200 shares of the
new issue, and noncontrolling shareholders purchased the other 800.
For both 20X1 and 20X2, Parent Company has applied the simple equity method.
Required:
a.
Prepare a schedule that measures Parent’s change in interest ownership effective with Sub’s issuance of the 2,000 shares and Parent’s
acquisition of 1,200 of those shares.
b.
Prepare Parent’s journal entry to record its purchase of the 1,200 shares on 1/1/X2
c.
Prepare a schedule showing the 12/31/X2 balance of Parent’s Investment in Sub account
Sub share issued
10,000
10,000
New issue
–
2,000
Sub outstanding
10,000
12,000
Parent holds
9,000
10,200
Parent percentage
90.0%
85.0%
Sub equity 1/1/X2
440,000
440,000
New equity
100,000
Remaining FV adj
45,000
45,000
485,000
585,000
Parent percentage
90.0%
85.0%
Parent interest
436,500
497,250
Change in interest
60,750
Price paid
(60,000)
Increase(decrease) in parent’s equity
Investment in Subsidiary
60,750
Paid-in Capital in Excess of Par-Parent
750
Cash
60,000
32. On January 1, 20X1, Parent Company purchased 8,000 shares of the common stock of Subsidiary Company
for $350,000. On this date, Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares
issued and outstanding. Other paid-in capital and retained earnings were $150,000 and $200,000 respectively.
On January 1, 20X1, any excess of cost over book value is due to a patent, to be amortized over 15 years. Parent
Company uses the simple equity method to account for its investment in Sub.
Subsidiary’s net income and dividends for two years were:
20X1
20X2
Net income
$50,000
$90,000
Dividends
10,000
30,000
On January 1, 20X2, Subsidiary Company sold an additional 2,500 shares of common stock to noncontrolling shareholders for $50 per share.
In the last quarter of 20X2, Subsidiary Company sold goods to Parent Company for $40,000. Subsidiary’s usual gross profit on intercompany sales is
40%. On December 31, $7,500 of these goods are still in Parent’s ending inventory.
Required: Prepare the following items
a.
Determination and distribution schedule effective 1/1/X1
b.
Parent’s journal entry to record change in ownership interest due to Sub’s issuance of additional shares on 1/1/X2. Support with
schedule of Parent’s ownership interest before and after the 1/1/X2 issuance.
c.
All necessary elimination entries necessary to prepare the consolidating worksheet on 12/31/X2
80%
20%
Entity
Parent
NCI
Entity FV
437,500
350,000
87,500
Book value:
Common Stock
50,000
Paid-in capital in excess of par
150,000
RE 1/1/X1
200,000
Book value:
400,000
320,000
80,000
Excess
37,500
30,000
7,500
Patent
37,500
15 years
2,500 annual
Investment in Sub
4,000
Paid-in Capital in Excess of Par-Parent
4,000
33. On January 1, 20X1, Parent Company purchased 8,000 shares of the common stock of Subsidiary Company
for $350,000. On this date, Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares
issued and outstanding. Other paid-in capital and retained earnings were $150,000 and $200,000 respectively.
On January 1, 20X1, any excess of cost over book value is due to a patent, to be amortized over 15 years. Parent
Company uses the simple equity method to account for its investment in Sub.
Subsidiary’s net income and dividends for two years were:
20X1
20X2
Net income
$50,000
$90,000
Dividends
10,000
30,000
On January 1, 20X2, Subsidiary Company sold an additional 2,500 shares of common stock to noncontrolling shareholders for $50 per share.
In the last quarter of 20X2, Subsidiary Company sold goods to Parent Company for $40,000. Subsidiary’s usual gross profit on intercompany sales is
40%. On December 31, $7,500 of these goods are still in Parent’s ending inventory.
Required:
Complete the Figure 8-6 worksheet for consolidated financial statements for 20X2.
Figure 8-6
Trial Balance
Eliminations and
Parent
Sub.
Adjustment
s
Account Titles
Company
Company
Debit
Credit
Inventory, December 31
100,000
52,000
Other Current Assets
112,200
373,000
Investment in Sub. Company
424,400
Land
50,000
80,000
Buildings and Equipment
350,000
320,000
Accumulated Depreciation
(100,000)
(60,000)
Patent
Current Liabilities
(120,000)
(40,000)
Long-Term Liabilities
(200,000)
(100,000)
Common Stock – P Co.
(200,000)
Other Paid-in Capital – P Co.
(108,000)
Retained Earnings – P Co.
(201,000)
Common Stock – S Co.
(62,500)
Other Paid-in Capital – S Co.
(262,500)
Retained Earnings – S Co.
(240,000)
Net Sales
(520,000)
(450,000)
Cost of Goods Sold
300,000
260,000
Operating Expenses
120,000
100,000
Subsidiary Income
(57,600)
Dividends Declared – P Co.
50,000
Dividends Declared – S Co.
30,000
Consolidated Net Income
To NCI
To Controlling Interest
Total NCI
Ret. Earn. Contr. Int. 12-31
0
0
0
0
(continued)
Consol.
Control.
Consol.
Income
Retained
Balance
Account Titles
Statement
NCI
Earnings
Sheet
Inventory, December 31
Other Current Assets
Investment in Sub. Company
Land
Buildings and Equipment
Accumulated Depreciation
Patent
Current Liabilities
Long-Term Liabilities
Common Stock – P Co.
Other Paid-in Capital – P Co.
Retained Earnings – P Co.
Common Stock – S Co.
Other Paid-in Capital – S Co.
Retained Earnings – S Co.
Net Sales
Cost of Goods Sold
Operating Expenses
Subsidiary Income
Dividends Declared – P Co.
Dividends Declared – S Co.
Consolidated Net Income
To NCI
To Controlling Interest
Total NCI
Ret. Earn. Contr. Int. 12-31
0
0
0
0
D&D Schedule
1/1/X1
80%
20%
Entity
Parent
NCI
Entity FV
437,500
350,000
87,500
Book value:
Common Stock
50,000
Paid-in capital in excess of par
150,000
RE 1/1/X1
200,000
Book value:
400,000
320,000
80,000
Excess
37,500
30,000
7,500
Patent
37,500
15 years
2,500 annual
amortization
34. Parrot, Inc. purchased a 60% interest in Swallow Company on January 1, 20X1, for $204,000. Any excess
of cost was attributable to goodwill.
On January 1, 20X4, Swallow purchased 2,400 of its shares held by noncontrolling stockholders for $50 per
share. Swallow equity balances on various dates were as follows:
January 1,
December 31,
January 1,
20X1
20X3
20X5
Capital stock ($10 par)
$120,000
$120,000
$120,000
Paid-in capital in excess of par
60,000
60,000
60,000
Retained earnings
160,000
240,000
340,000
Treasury stock (at cost) *
(120,000)
*(2,400 x $50)
Parrot maintains its investment at cost; Swallow recorded the purchase of its shares as treasury stock at cost.
Required:
Prepare the necessary determination and distribution of excess schedules and all Figure 8-7 worksheet eliminations and adjustments on the following
partial worksheet prepared on December 31, 20X5:
Figure 8-7
Parrot and Swallow
Consolidated Partial Worksheet
For the Year Ended December 31, 20X5
Trial Balance
Eliminations
and
Adjustment
s
Account Titles
Parrot
Swallow
Debit
Credit
Investment in Swallow
204,000
Goodwill
Common Stock – S
(120,000)
Paid-in Cap in Excess of Par – S
(60,000)
Retained Earnings – S
(340,000)
Retained Earnings – P
(300,000)
Treasury Stock (at cost)
120,000
Determination and Distribution of Excess Schedule:
Entity
Parent
NCI
Entity FV
340,000
204,000
136,000
Book value:
Common Stock ($10)
120,000
Paid-in Cap in Excess of Par
60,000
RE 1/1/X1
160,000
Book value:
340,000
204,000
136,000
Excess
-0-