25.(continued)
Entry E
Operating Expenses ………….………..………..………..….. 2,000
Equipment ………..………..………..………..………..…..….. 5,000
Franchise Contracts …………………..….…..….….….. 4,000
Cost of Goods Sold………….……….….…..….….….... 200,000
(To eliminate intra-entity inventory sales for the current year.)
Entry G
Cost of Goods Sold………….………..………..………….….. 18,000
Inventory……………………………..………..………….…...
Noncontrolling interest in Cuddy net income—common ......... $14 ,000
Noncontrolling Interest in Net Income of Wilson:
Reported operating income $130,000
Equity income of Cuddy ($70,000 × 40%)……………..….….…..…... 28,000
Excess amortization………….………..………..………..………..………….. (2,000)
25. (continued)
HOUSE CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidation Worksheet
December 31, 2014
Accounts House Wilson Cuddy Consolidation EntriesNoncontrollingConsolidated
Operating expenses 219,000 270,000 90,000 (E) 2,000 581,000
Income of Wilson Company (91,000) (I2) 91,000 -0-
Income of Cuddy Company (28 ,000) (28 ,000) (I1) 56,000 -0-
Net income (249 ,000) (158 ,000) (70 ,000)
Consolidated net income (322,000)
Retained earnings, 1/1/14:
—House Corporation (820,000) (*C) 11,200 (808,800)
—Wilson Company (590,000) (*G) 12,000 -0-
(S2)578,000
—Cuddy Company (150,000)(S1)150,000 -0-
Retained earnings, 12/31/14 (969 ,000) (652 ,000) (170 ,000) (971 ,800)
25. (continued)
Accounts House Wilson Cuddy Consolidation EntriesNoncontrollingConsolidated
Corp. Company Company Debit Credit Interest Balance
Cash and receivables 220,000 334,000 67,000 621,000
Inventory 390,200 320,000 103,000 (G) 18,000 795,200
(I1) 56,000
Buildings 385,000 320,000 144,000 (A) 54,000
(E) 3,000 900,000
Equipment 310,000 130,000 88,000 (E) 5,000
(A) 10,000 523,000
Total assets 2 ,421,000 1 ,532,000 418 ,000 3 ,503,200
Liabilities (632,000) (570,000) (98,000) (1,300,000)
Noncontrolling interest in Cuddy (S1) 60,000 (60,000)
Noncontrolling interest in Wilson (S2) 266,400
Noncontrolling interest in (A) 64,800 (331 ,200)
Total liabilities and equities (2 ,421,000) (1 ,532,000) (418 ,000) 1 ,916,400 1 ,916,400 (3 ,503,200)
Parentheses indicate a credit balance.
26. (20 Minutes) (Consolidation entries for a mutual holding business combination)
a. Acquisition Allocation and Amortization
Consideration transferred …………….………..………..…….. $420,000
Noncontrolling interest fair value ……………….….…..…... 280 ,000
Lowly’s business fair value……………………..….….…..…... 700,000
Investment in Lowly …………….………..………….….….... 117,000
Retained Earnings, 1/1/14 (Mighty) .…..….….….… 117,000
(To accrue income to parent during the previous years as measured by
increase in book value [$200,000 × 60%] and amortization expense of $3,000
[$5,000 × 60%] for the previous year.)
(To eliminate subsidiary stockholders’ equity accounts against investment
account and to recognize noncontrolling interest ownership.)
Entry S2
Treasury Stock ……………..………..…………………..……... 240,000
Investment in Mighty ………….……………..…..….….. 240,000
(To recognize unamortized portion of acquisition-date excess fair value.)
Entry E
Amortization Expense ………….…………………..………… 5,000
Trademarks ……………………..………..……………..…... 5,000
(To record trademarks amortization expense for 2014.)
27.(80 Minutes) (Prepare consolidation worksheet for a father-son-grandson
combination. Also asks about income taxes paid on both a separate
and a consolidated return)
a. Acquisition-Date Allocation and Amortization
The January 1, 2013 book values are determined by removing the 2013 income
from the January 1, 2014 book values (based on equity accounts).
Customer List……….………..…………………..………..…………. $ 50,000
Life …………………………..………..………..………..………..….….. 10 Years
Annual amortization ………….………..………….….….…..…... $ 5,000
Consideration transferred for Yarrow……………………….. $720,000
Noncontrolling interest fair value ……………….….…..…... 80,000
CONSOLIDATION ENTRIES
Entry *G
Retained Earnings, 1/1/14 (Stookey) ….…..….….….... 7,680
Cost of Goods Sold………….……….….…..….….….... 7,680
(To give effect to unrealized gross profit from 2013. Amount is calculated
based on normal 48% markup [found from Income Statement] multiplied by
$16,000 retained inventory [20% of $80,000])
Entry *C1
Investment in Stookey …………….…………….….….….… 85,856
Retained Earnings, 1/1/14 (Yarrow) ………….…….. 85,856
27.(continued)
Entry *C2
Investment in Yarrow ………………..………….….…..….… 217,670
Retained Earnings, 1/1/14 (Travers) …………..…... 217,670
(To recognize equity income accruing from Travers’ investment in Yarrow
$217,670 by the $3,600 [90% × $4,000] amortization applicable to 2013.)
Entry S1
Common Stock (Stookey) …………..………..…………….. 200,000
Retained Earnings, 1/1/14 (Stookey, as adjusted
by Entry *G) ………..………..……………….….….….…... 292,320
Entry S2
Common Stock (Yarrow) ……………….………..………..… 300,000
Retained Earnings, 1/1/14 (Yarrow, as adjusted
by Entry *C1) ……….………………..….….….…..….…... 685,856
Investment in Yarrow (90%) ………………………. 887,270
Customer List……….………..………………….…..….….…... 45,000
Investment in Stookey …………….………..…………... 36,000
Noncontrolling Interest in Stookey (20%) .......... 9,000
(To recognize January 1, 2014 unamortized portion of acquisition price
assigned to Stookey’s customer list.)
27. (continued)
Entry A2
Investment in Yarrow ………….………..……………..… 50,400
Noncontrolling Interest in Yarrow………..….…..…. 5,600
(To recognize January 1, 2014 unamortized portion of acquisition price
Entry E
Operating Expenses ………….………..…….…..….….….… 9,000
Entry Tl
Sales ………………..………..………..…………….….….…..….. 100,000
(To defer unrealized gross profit on ending inventory—$20,000 × 48%
markup.)
Noncontrolling Interest in Stookey’s Net Income
2014 Reported net income …………….………..………….…... $100,000
Customer list amortization ………….………….….…..….…... (5,000)
Noncontrolling Interest in Yarrow’s Net Income
2014 Reported net income …………….………..………….…... $200,000
Accrual of Stookey’s income (80% of $93,080
realized income [computed above]) …………….…..…. 74,464
27. (continued) TRAVERS COMPANY AND CONSOLIDATED SUBSIDIARIES
Consolidation Worksheet
December 31, 2014
Travers Yarrow Stookey Consolidation EntriesNoncontrollingConsolidated
Accounts Company Company Company Debit Credit Interest Balances
329 ,000
Separate company net income (320 ,000) (200 ,000) (100 ,000)
Consolidated net income (609,080)
Net income attributable to NCI (Yarrow) (27,046) 27,046
Net income attributable to NCI (Stookey) (18,616) 18 ,616
Stookey Company (300,000) (*G) 7,680
-0-
(S1) 292,320
Net Income (above) (320,000) (200,000) (100,000) (563,418)
Dividends declared 128 ,000 128 ,000
Retained earnings, 12/31/14 (892 ,000) (800 ,000)(400,000)
Investment in Stookey Company 344,000 (*C1) 85,856
(S1) 393,856 -0-
(A1) 36,000
Land, buildings, & equipment (net) 949,000 836,000520,000 2,305,000
Customer list (A1) 45,000
(S2) 300,000
(500,000)
Retained earnings, 12/31/14 (above) (892,000) (800,000) (400,000) (S1) 98,464 (1,353,088)
NCI interest in Stookey, 1/1/14 (A1) 9,000 (107,464)
(S2) 98,586
27.(continued)
b. Travers’ reported pre-tax income ……………..………..………..………..……. $320,000
Yarrow’s reported pre-tax income ………..………..………….….…..….….… 200,000
Dividend income (none collected) ………………..………..…………….….…. -0-
c. Stookey’s reported pre-tax income …………………………..….….…..….…. $100,000
(Unrealized gains are not deferred on a separate
tax return.)
Tax rate …….………..………..………..………..………..…………….….….….…..…. 45%
Income tax payable ………….…………………..……………..…..….….….…..…. $45,000
d. (1) Because Yarrow owns 80% of Stookey’s stock, intra-entity dividends are
2014 Unrealized gross profit taxed in 2014………..…..….….….…..….…. $9,600
2013 Unrealized gross profit taxed previously in 2013….….….…....... (7 ,680)
Increase in taxable income …………..…………………..………..………………. $1,920
Tax rate …….………..………..………..………..………..…………….….….….…..…. 45%
Deterred income tax asset …………..………..………..………..………………... $ 864
Income tax expense 2014…………………..………..………..………..…..…. $274,086
Because a single rate is used, income tax expense can also be computed by
taking consolidated net income (prior to noncontrolling interest reduction) of
$609,080 (part a.) and multiplying by the 45% tax rate to obtain $274,086.
Income tax expense—current ………..…..….….…..….….… 274,086