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27. (15 minutes) Consolidated figures with noncontrolling interest
Fair value of company (given) $60,000
Book value (10 ,000)
Fair value in excess of book value 50,000
Consolidated figures:
Net income attributable to noncontrolling interest
= 40% ($50,000 revenues less $26,500 expenses) = $9,400
28. (45 minutes) Noncontrolling interest in the presence of a control premium.
a. Goodwill allocation: Parflex NCI
Acquisition-date fair value $344,000 $36,000
Goodwill allocation $36,200 $1,800
b. Investment in Eagle
Initial value $344,000
Change in Eagle’s RE × 90%
($341,000 – $174,000) × 90% 150,300
-OR-
Investment in Eagle
Initial value $344,000
2013-2014 change in Eagle’s RE × 90%
($278,000 – $174,000) × 90% 93,600
Investment in Eagle 12/31/15 $488,900
Equity in Eagle’s earnings:
Eagles reported 2015 net income $90,000
Excess equipment amortization (2 ,000)
28. continued
c. December 31, 2015 Parflex Eagle Adjustments NCI
Consolidate
d
Sales (862,000) (366,000) (1,228,000)
Cost of goods sold 515,000 209,000 724,000
to Parflex Corporation (235,000)
Retained earnings, 1/1 (500,000) (278,000) S
278,00
0 (500,000)
Net income (above) (235,000) (90,000) (235,000)
Dividends declared 130,000 27,000 24,300 D 2,700 130,000
12,600
A
1
36,200
A
2
79,200 I
Property & equipment (net) 964,000 328,000 A1
14,00
0 2,000 E 1,304,000
Goodwill A2
38,00
0 38,000
NCI 1/1 42,800 S
1,400
A
1
1,800
A
2
(46,000
)
NCI 12/31
(52,100
) (52,100)
29. (25 Minutes) (Determine consolidated balances for a step acquisition).
a. Amsterdam fair value implied by price paid by Morey
$560,000 ÷ 70% = $800,000
b. Revaluation gain:
1/1 equity investment in Amsterdam (book value) $178,000
25% net income for 1st 6 months 8 ,750
c. Goodwill at 12/31:
Fair value of Amsterdam at 6/30 $800,000
Book value at 6/30 (700,000 + [70,000 ÷ 2]) 735 ,000
5% subsidiary net income from 6/30 to 12/31 1,750
5% subsidiary dividends (1 ,000)
Noncontrolling interest 12/31 $40 ,750
30. (30 Minutes) (Reporting the sale of a portion of an investment in a subsidiary.)
a. Posada records an accrual of $7,950 (see computation below) as "Equity
Income from Sold Shares of Sabathia" for the January 1, 2015 to
Sabathia fair value 1/1/13 ........................................... $1,200,000
Sabathia book value ................................................... (1 ,130,000)
Posada’s share of Sabathia’s net income accruing to shares sold:
Sabathia's net income................................................. $120,000
Excess patent fair value amortization....................... (14 ,000)
Sabathia's adjusted net income................................. 106,000
Posada’s income for shares sold ............................. $7 ,950
b. As long as control is maintained, the acquisition method considers
transactions in the stock of a subsidiary, whether purchases or sales, as
transactions in the equity of the consolidated entity.
Posada’s investment book value 10/1/15
Pre-sale investment book value—10/1/15................. $1 ,119,650
Computation of income effect—sale transaction
10/1/15 book value (above) ........................................ $1,119,650
Portion of investment sold (1,000/7,000 shares) ..... 1 /7
c. Because Posada continues to hold 6,000 shares of Sabathia, control is
31. (35 Minutes) (Consolidation entries and the effect of different investment
methods)
a. From the original fair value allocation, $30,000 is assigned based on the
fair value of the patent. With a 5-year remaining life, excess amortization
will be $6,000 per year.
Because the equity method is in use, no Entry *C is required.
Entry S
Common stock (Bandmor) ............................. 300,000
Retained earnings, 1/1/15 (Bandmor) ............ 268,000
and 2014 net income and dividends.)
Entry A
Patent ................................................................ 18,000
Goodwill ............................................................ 190,000
Entry I
Equity in Bandmor earnings .......................... 72,800
Investment in Bandmor ............................. 72,800
(To eliminate current intra-entity dividend transfers—70% of $60,000)
Entry E
Amortization expense...................................... 6,000
Patent........................................................... 6,000
(To recognize amortization for current year)
31. (continued)
b. If the initial value method had been applied, the parent would have
recorded only the subsidiary dividends declared as income rather than
an equity accrual. Therefore, Entry *C is needed to adjust the parent's
beginning retained earnings for 2015 to the equity method. During 2013
ENTRY *C
Investment in Bandmor .................................. 53,200
Retained earnings, 1/1/15 .......................... 53,200
c. If the partial equity method had been applied, only the excess
ENTRY *C
Retained earnings, 1/1/15 ............................... 8,400
Investment in Bandmor ............................. 8,400
d. Net income attributable to noncontrolling interest—2015
[($110,000 – 6,000) × 30%] .............................. $31 ,200
Noncontrolling interest (NCI) fair value January 1, 2013 $210,000
Adjustments to original basis:
Dividends to NCI......................................... (18 ,000) 13 ,200
Noncontrolling interest in Bandmor 12/31/15..... $246 ,000
–OR–
Worksheet adjustment S.......................................................... $170,400
Worksheet adjustment A.......................................................... 62,400
32. (45 Minutes) (Asks about several consolidated balances and consolidation
process. Includes the different accounting methods to record investment.)
a. Schedule 1—Fair Value Allocation and Excess Amortizations
Consideration transferred by Miller ......... $664,000
Noncontrolling interest fair value............. 166 ,000
Excess fair value assigned to buildings 80 ,000
20 years $4,000
Goodwill ...................................................... $150 ,000
indefinite........................................ -0-
Total........................................................ $4 ,000
c. Entry (S)
Common stock (Taylor) ........................................ 300,000
Entry (A)—no control premium
Buildings ................................................................ 80,000
Goodwill ................................................................. 150,000
Investment income ........................................... $52 ,800
(2) Partial equity method
Income accrual (80%) ............................................ $56 ,000
(3) Initial value method
Dividends received (80%) ...................................... $8 ,000
32. (continued)
e. (1) Equity method
Initial fair value paid................................................ $664,000
Income accrual 2013–2015 ($260,000 × 80%) ...... 208,000
f. Using the acquisition method, the allocation will be the total difference
($80,000) between the buildings' book value and fair value. Based on a
20 year remaining life, annual excess amortization is $4,000.
Miller book value—buildings .......................................... $800,000
Taylor book value—buildings ......................................... 300,000
g. Acquisition-date fair value allocated to goodwill
(see schedule 1 above) ............................................. $150 ,000
h. If the parent has been applying the equity method, the stockholders'
equity accounts on its books will already represent consolidated totals.
33. (20 Minutes) (A variety of consolidated balances-midyear acquisition)
Consideration transferred by Karson
(cash and contingent consideration)......... $1,360,000
Noncontrolling interest fair value .................. 340 ,000
Excess fair value assigned to specific Remaining Annual
excess
accounts based on fair value life amortizations
Trademarks ................................................... 150 ,000
5 years.............................................$30,000
Goodwill ........................................................ $100 ,000
indefinite........................................ -0-
Total ............................................................ $30 ,000
*Reilly book value, January 1
Dividends ................................................ (20 ,000)
Change during year .................................. $100 ,000
Change during first 6 months of year..... 50 ,000
Reilly book value, July 1 (acquisition date)...... $1 ,450,000
CONSOLIDATION TOTALS:
Sales (1) $1,050,000
Cost of goods sold (2) 540,000
(1) $800,000 Karson revenues plus $250,000 (post-acquisition subsidiary
revenue)
(2) $400,000 Karson COGS plus $140,000 (post-acquisition subsidiary
COGS)
Goodwill = $100,000 (the original allocation)
34. (25 Minutes) (A variety of consolidated questions and balances)
a. Nascent applies the initial value method because the original price of
b. Consideration transferred in acquisition. $414,000
Noncontrolling interest fair value............. 276 ,000
Excess fair value assigned to specific Remaining Annual
excess
accounts based on fair value life amortizations
Buildings................................................ 60,000
6 years.......................................$10,000
Equipment.............................................. (20,000)
c. If the equity method had been applied, the Investment Income account
would show the basic equity accrual less amortization: 60% of (the
amortization) = $45,000.
d. The initial value method recognizes neither the increase in the
subsidiary's book value nor the excess amortization expenses for prior
Increase in book value during prior years
($780,000 – $550,000)............................................................ $230,000
Less excess amortization .......................................................... (45,000)
Net increase in book value......................................................... $185,000
e. Consolidated net income and allocation
Revenues (add book values) $900,000
Expenses (add book values and excess amortization) (635 ,000)
34. (continued)
f. Consolidated buildings, 1/1/12 (subsidiary):
Book value.............................................................................. $300,000
Acquisition-date fair-value allocation ................................. 60 ,000
Consolidation figure ............................................................. $360 ,000
g. Consolidated buildings, 12/31/15:
Parent's book value .............................................................. $700,000
