25. (40 minutes) (Acquisition-date consolidated worksheet for a parent and a
variable interest entity)
Access Net
Adjust. & Elim.
Consolidated
IT Connect NCI Balances
Cash 61,000 41,000 102,000
equipment 916,000 336,000 1,252,000
Research and
development asset A1,960,000 1,960,000
Patent 191,000 191,000
Goodwill A 376,000 376,000
Retained earnings (423,000) (123,000) S 49,200 (73,800) (423,000)
Noncontrolling interest A 1,401,600 (1,401,600) (1,500,000)
Total liabilities and equity (4,024,000) (780,000) 2,401,600 2,401,600 (6,140,000)
Consideration transferred $1,000,000
Noncontrolling interest fair value 1,500,000
26. (25 Minutes) (Consolidation entry for three consecutive years to report effects
of intra-entity bond acquisition. Straight-line method used. Parent uses equity
method)
a. Book Value of Bonds Payable, January 1, 2013
Book value, January 1, 2011 ……………..………………………….... $1,050,000
Gain on Retirement of Bonds, January 1, 2013
Purchase price ($400,000 × 96%) ……………….….…..….…..…... $384,000
Book value of liability (computed above) ………………………… 416,000
Gain on retirement of bonds ………………………….…………….…. $ 32,000
Book Value of Bonds Payable, December 31, 2013
Book Value of Investment, December 31, 2013
Book value of investment, January 1, 2013 (purchase price) $384,000
Amortization for 2013 ($16,000 discount ÷ 8-yr. rem. life) . 2,000
Book value of investment, December 31, 2013 ………………… $386,000
Intra-entity Interest Balances for 2013
Interest income:
Cash collection ($400,000 × 9%) ……………..…….….…..…... $36,000
Amortization of discount for 2013 (above) .…..….…..….... 2,000
Intra-entity interest income …………..…………..….…..….…... $38,000
26.(continued)
CONSOLIDATION ENTRY B (2013)
Bonds Payable ………..………….…………………..…..….…. 400,000
Premium on Bonds Payable ……………………..….…..… 14,000
Interest Income …………………….……………..….…..….…. 38,000
debt.)
b. In 2014, because straight-line amortization is used, the interest accounts
remain unchanged at $38,000 and $34,000. However, the premium
associated with the bond payable as well as the discount on the
$28,000 credit to the investment account.
CONSOLIDATION ENTRY *B (2014)
Bonds Payable ………..………….………………………..….….... 400,000
Premium on Bonds Payable (net of $2,000 amort.) ……... 12,000
Interest Income …………………….…………………..….…..…... 38,000
c. As with part b, new premium and discount balances must be determined
and then removed. The adjustment made to the Investment in Hamilton
26.(continued)
CONSOLIDATION ENTRY *B (2015)
Bonds Payable …………………….……….….…..….…... 400,000
Premium on Bonds Payable ……………..….…..…... 10,000
Interest Income ………….………………..….….…..….… 38,000
balance of the original gain.)
27. (12 Minutes) (Determine consolidated income statement accounts after
acquisition of intra-entity bonds.)
Interest Expense To Be Eliminated = $84,000 × 11% = $9,240
Interest Income To Be Eliminated = $108,000 × 8% = $8,640
Loss To Be Recognized = $108,000 – $84,000 = $24,000
CONSOLIDATED TOTALS
Revenues and Interest Income = $1,051,360 (add the two book values and
eliminate interest income on intra-entity bond)
gains less consolidated operating and interest expense and losses)
28. (30 Minutes) (Consolidation entry for two years to report effects of intra-
entity bond acquisition. Effective rate method applied.)
a. Loss on Repurchase of Bond
Cost of acquisition ……………………..…..….….… $201,000
Interest Balances for 2013
Interest income:
$201,000 × 7% ………………….………………..… $14,070
Interest expense:
$152,000 (book value [above]) × 12% ...... $18,240
Investment in Bonds Balance, December 31, 2013
Bonds Payable Balance, December 31, 2013
Book value, 1/1/13 (above) ..….…..….…..….….. $152,000
Amortization of discount:
Entry B—12/31/13
Bonds Payable …………………….……………….….. 154,040
Interest Income ………….………….………..…..…... 14,070
b. Interest Balances for 2014 followed by 2015
Interest income: $198,870 (Investment in Bonds
balance for the year) × 7% (rounded)…………………... $13,921
28. (continued)
Investment in Bonds Balance, December 31, 2014
Book value, January 1, 2014 (part a) …………..…..….. $198,870
Amortization of premium:
Investment in Bonds balance, December 31, 2014.. $196,591
Bonds Payable Balance, December 31, 2014
Book value, January 1, 2014 (part a) …………..…..….. $154,040
Amortization of discount:
Cash interest ($180,000 × 9%) ……..….….…..….…. $16,200
Effective interest expense (above) ..…................ 18,485 2,285
Bonds payable balance, December 31, 2014 ……….. $156,325
Interest Balances for 2015
Investment in Bonds Balance, December 31, 2015
Book value, January 1, 2015 (above) ..….…..….…..... $196,591
Amortization of premium:
Cash interest ($180,000 × 9%) ……..….….…..….…. $16,200
Bonds Payable Balance, December 31, 2015
28. (continued)
Adjustment Needed to Investment in Zack for Bond Retirement Loss:
Loss on retirement of debt (part a) ………………..…………………….. $49,000
Amounts recognized in previous years:
Interest income: 2013 $(14,070)
2014 (13 ,921)
$(27,991)
Adjustment needed to Investment
in Zack to arrive at consolidated total ……….……..…..….….…. $40,266
Entry *B—12/31/15
Bonds Payable …………………….…………………………….. 158,884
Interest Income ………….………….……………………..….… 13,761
Many of the above amounts can also be determined using amortization tables as
shown below.
Investment in Bonds Amortization Table:
Interest Carrying
Cash Revenue Amortization Value
201,000
Intra-Entity Portion of Bonds Payable Amortization Table:
Interest Carrying
Cash Expense Amortization Value
152,000
29. (35 Minutes) (Consolidation procedures and balances related to intra-entity
bonds. Both straight-line and effective interest rate methods are used.)
a. Acquisition price of bonds …………….……………………..….…..….…..…. $283,550
Book value of bonds payable (see Schedule 1)
SCHEDULE 1—Book Value of Bonds Payable
Effective
Book Interest Cash Year-End
Date Value (12% Rate) Interest Amortization Book Value
2011 $435,763 $52,292 $50,000 $2,292 $438,055
b. Investment in Bloom Bonds
Purchase price—12/31/13………….………………..…..….. $283,550
Cash interest ($250,000 × 10%) …………………………… $25,000
Effective interest income ($283,550 × 8%) …………... 22,684
Cash interest ($500,000 × 10%) …………………………… $50,000
Effective interest expense ($443,497 × 12%) …….…. 53,220
Amortization ………..…………………….…….….…..…... 3,220
Bonds payable, 12/31/14 …………..………………………… $446,717
Although not required, the consolidation entry as of 12/31/14 is as follows. The
Entry *B (2014)
Bonds Payable ($446,717 × 50%) …………….………….. 223,359
Interest Income ………….………….……………………..….… 22,684
29.(continued)
c. Loss on Retirement of Bond
Because Bloom uses the straight-line method of amortization, the loss on
retirement must be computed again.
Original issue price—1/1/11…………….…………….….…..….…..….…. $435,763
Discount amortization (2011–2013) ([$64,237 ÷ 11] × 3 years). 17,519
Book value 12/31/13 ………..………….……………………..….…..….….... $453,282
Investment in Bloom Bonds
Purchase price—12/31/13 ……………………………….…………..….…... $283,550
Premium amortization (2014) ($33,550 ÷ 8) ……..……………………. (4 ,194)
Book value 12/31/14 ………..………….…………………….……….…... $279,356
Interest Income
Cash interest ($250,000 × 10%) ……………………….……………..….... $25,000
Bonds Payable
Original issue price 1/1/11………………………………….……….….….... $435,763
Discount amortization (2011–2014) [($64,237 ÷ 11) × 4 years] . 23,359
Interest Expense
Cash interest ($250,000 × 10%) ……………………….……………..….... $25,000
The reduction in retained earnings represents the loss only; no intra-entity
interest was recognized in the previous year because the purchase was made
on December 31.
Entry *B (2014)
Bonds Payable …………………….…………………………….. 229,561
Interest Income ………….………….……………………..….… 20,806
30.(8 Minutes) (Determine goodwill for an acquisition in which subsidiary has both
common stock and preferred stock)
Consideration transferred for common stock $1,600,000
Consideration transferred for preferred stock 630,000
Noncontrolling interest in common stock 400,000
31. (30 Minutes) (Consolidation entries with subsidiary cumulative preferred stock.)
a. The preferred shares are entitled to the specified cumulative dividend. Thus, the
b. Acquisition-Date Fair Value Allocation and Amortization
Consideration transferred ……………..……………………..….…..….…. $14,040,000
Noncontrolling interest fair value (preferred shares)…………….. 2,000,000
Acquisition-date fair value of Smith……………..………….……..….... 16,040,000
Investment in Smith Account, December 31, 2014
Consideration transferred, January 1, 2014 ……………..…..….….. $14,040,000
Equity accrual (income remaining for common stock
c. Consolidation Entries
Entry S and A combined
Preferred Stock (Smith) ………….………………….…..….. 2,000,000
Common Stock (Smith) ……………………………….……… 4,000,000
31. c. (continued)
Entry I Equity Income of Subsidiary .….…..….…..….….…. 289,000
Investment in Smith ………………..…..….…..…... 289,000
(To eliminate equity accrual made in connection with common stock
[$290,000] along with excess amortization recorded by parent.)
32. (30 Minutes) (Prepare consolidation entries for an acquisition where subsidiary
has outstanding preferred stock)
Consideration transferred for common stock $ 7,368,000
Consideration transferred for preferred stock 3,100,000
Noncontrolling interest in common stock 4,912,000
Acquisition-date fair value for Young $15,380,000
CONSOLIDATION ENTRIES
Entries S and A combined
Preferred Stock (Young) ……………..……..…..….…..….. 1,000,000
Common Stock (Young) ………………..……………………. 4,000,000
Retained Earnings (Young) ………………..….…..….…... 10,000,000
(To eliminate subsidiary stockholders’ equity, record excess acquisition-date
fair values, and record outside ownership of subsidiary’s preferred stock at
acquisition-date fair value)
32. (continued)
Entry I1
Dividend Income ………….………….…………………………. 80,000
Dividends Declared ………………………………….……. 80,000
(To offset intra-entity preferred stock dividends recognized as income by
parent— $1,000,000 par value × 8% dividend rate.)
Entry I2
Dividend Income ………….………….…………………………. 192,000
Dividends Declared ………………………………….……. 192,000