46.(40 Minutes) (Compute basic and diluted earnings per share. Subsidiary has
stock warrants outstanding and convertible debt.)
Basic EPS—Austin, Inc.
Consolidated net income to parent….…..…..…..…..…..… $284,000
Austin’s preferred dividends …………………………..………. (40 ,000)
Diluted EPS—Austin, Inc.
Subsidiary earnings and shares for Austin’s diluted EPS calculation:
Rio Grande net income after amortization……………..…. $105,000
Interest saved assuming conversion of bonds
(net of tax) ………..……………….……………………..…..…... 22 ,000
Net income applicable to diluted EPS ………..…..…..…... $127 ,000
Shares outstanding …………..…………………….…..…..…..… 30,000
Shares controlled by parent (24,000 plus 50% of incre-
ment created by warrants [or 1,250]) ..…..…..…........ 25,250
Portion owned by parent (25,250 ÷ 42,500) …………..….. 59.4% (rounded)
Net income applicable to parent—diluted EPS
Austin’s outstanding common shares ..…..…..…..…..…. 50,000
Assumed conversion of preferred stock
(10,000 × 2 shares) …………..…………….………..…..….... 20,000
Shares applicable to diluted EPS ……………….……………. 70,000
Diluted earnings per share ($275,438 ÷ 70,000) …..…..….... $3.93 (rounded)
47.(50 Minutes) (Determine consolidated totals. Subsidiary has preferred shares
outstanding that are equity instruments.)
Annual amortization $11,000
Ending Unrealized Gain
Ending inventory (at transfer price) ……………..………….. $18,000
Historical cost:
Recorded value………..………………..……………….………………..………… $30,000
Depreciation expense ($12,000 ÷ 4)………………………..…..………..… $3,000
Accumulated depreciation ($18,000 + $3,000)…….…..…..…..……… $21,000
47. (continued)
Paisley, Inc. and Skyler Corp.
Consolidation Worksheet
Year Ending December 31, 2014
Consolidation Entries Consolidated
Accounts Paisley, Inc. Skyler Corp. Debit Credit Totals
Sales…….…….…….…....…............….. (800,000) (400,000) (TI) 90,000 (1,110,000)
Cost of goods sold......…................ 528,000 260,000 (G) 6,000 (TI) 90,000 704,000
Retained earnings, 12/31............. (440 ,000) (160 ,000) (427 ,000)
Cash……………………………….………… 30,000 40,000 70,000
Accounts receivable……........…...... 300,000 100,000 (P) 28,000 372,000
Inventory…………………………………... 260,000 180,000 (G) 6,000 434,000
Investment in Skyler Corp….....…... 560,000 -0- (S) 450,000 -0-
Land, buildings, and equipment.... 680,000 500,000 (TA) 10,000 1,190,000
Accumulated depreciation............. (180,000) (90,000) (ED) 2,000 (TA) 18,000 (286,000)
Intangible Asset….…............…........ -0- -0- (A) 110,000 (E) 11,000 99 ,000
Total assets……........…..........….... 1 ,650,000 730 ,000 1 ,879,000
Accounts payable…..........…........... (140,000) (90,000) (P) 28,000 (202,000)
Total liab. and stockholders’ equity (1 ,650,000) (730 ,000) 715,000 715,000 (1 ,879,000)
47. (continued)
CONSOLIDATED TOTALS
Sales = $1,110,000 (add book values and eliminate intra-entity transfers)
Cost of Goods Sold = $704,000 (add book values, eliminate intra-entity
transfers, and eliminate ending unrealized gain [computed above])
subsidiary was not acquired until current year)
Dividends Declared = $60,000 (parent balance only)
Retained Earnings, 12/31 = $427,000 (consolidated beginning retained
earnings plus net income less dividends declared)
Cash = $70,000 (add book values)
Intangible Asset = $99,000 (original allocations less one year amortization)
Total Assets = $1,879,000 (summation of consolidated accounts)
Retained Earnings, 12/31 = $427,000 (computed above)
Total Liabilities and Equities = $1,879,000 (summation of consolidated
accounts)
47. (continued): Consolidation entries and explanations:
Entry S
Preferred Stock (Skyler)…..…….…….…….…….….…............ 100,000
Common Stock (Skyler)………….…….…......…..........…....... 200,000
Entry E
Amortization Expense…….…….…….…….…….............…..... 11,000
Intangible Asset….…….…….…….…….…............…......... 11,000
(To record current year’s amortization of intangible asset.)
Entry P
Accounts Payable……………………………………………….……. 28,000
Accounts Receivable…………………………………………… 28,000
(To eliminate intra-entity debt.)
Entry TA
Entry G
Cost of Goods Sold…..…….…….…….……...…............…...... 6,000
Inventory…………………………………………………………….. 6,000
(To defer unrealized intra-entity gain remaining at the end of the current year. Markup
is 33⅓% [30,000 gross profit ÷ 90,000 transfer price] indicating that the ending inventory of
18,000 contains an unrealized profit of 6,000 [18,000 × 33⅓%].)
Entry ED
Accumulated Depreciation………………………………………... 2,000
Depreciation Expense………………………………………….. 2,000
48. (30 minutes) (Consolidated Cash Flow Statement with current year business
combination)
Plaster Inc. and Subsidiary Stucco Company
Consolidated Statement of Cash Flows
For the year ended 12/31/14
CASH FLOW FROM OPERATING ACTIVITIES
Consolidated net income $274,000
Depreciation expense 187,500
Net cash flow provided by operating activities $363,850
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Stucco Company assets (net of cash acquired)
Net cash flow used in investing activities (856,000)
CASH FLOW FROM FINANCING ACTIVITIES
Net cash flow provided by financing activities $692 ,000
Increase in cash 1/1/14 to 12/31/14 $199,850
Excel Case–Intra-entity Bonds
Bonds with a stated rate of 11% sold to yield 12%
Eff. Yield
12% 1,000,000.00 0.32197 321,973.24
110,000.00 5.65022 621,524.53
943,497.77 56,502.23
2016 958,885.93 115,066.31 110,000.00 5,066.31
2017 963,952.24 115,674.27 110,000.00 5,674.27
Consolidated Worksheet Entry 12 /31/14
Bonds Payable 954,362.43
Interest Income 117,523.20
Loss on Retirement 0.00
Bonds retired by affiliate on 1/1/14 at 904,024.59
Eff. Yield
13% 1,000,000.00 0.37616 376,159.86
110,000.00 4.79877 527,864.73
904,024.59 95,975.41
2014 904,024.59 117,523.20 110,000.00 7,523.20
2015 911,547.79 118,501.21 110,000.00 8,501.21
2016 920,049.00 119,606.37 110,000.00 9,606.37
1,000,000.00 95,975.41
Financial Reporting Research and Analysis Case
The number of potential solutions is large. Searches in Lexis-Nexis, Edgar, etc. will
produce numerous examples of consolidations of VIEs. For example, Walt Disney
Company prepares a before and after disclosure of its consolidated VIEs Euro
Disney, Hong Kong Disneyland, and Shanghai Disney Resort as follows (9-29-12):
Before International International
Theme Parks Theme Parks
Consolidation and Adjustments
Cash and cash equivalents $2,839 $548 $ 3,387
Other current assets 10,066 256 10,322
Total current assets 12,905 804 13,709
Current portion of borrowings 3,614 -0- 3,614
Other current liabilities 8,742 457 9,199
Total current liabilities 12,356 457 12,813