16–16
16–17
Dollar carrying value of payable at
January 1, 2015 ($140,000 – $2,000) $138,000
E16–20. Adjustments and eliminations for consolidation under acquisition
method
Requirement 1: The elimination entries that Alpha should make in its
consolidating worksheet are given below. The identifying letter for each
entry matches the key in the consolidating worksheet on the next page.
CR Noncontrolling interest $100,000
16–18
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Requirement 2:
Alpha
Beta
Eliminations
Consolidated
Dr
Balance Sheet
Assets
Current assets
$ 1,750,000
$ 500,000
$2,250,000
Fixed assets, net
5,000,000
1,625,000
$ 300,000 B
7,000,000
75,000 C
Investment in Beta
2,000,000
–
Goodwill
100,000 B
125,000
25,000 C
Total assets
$ 8,750,000
$ 2,125,000
$ 9,375,000
Liabilities
Liabilities
$ 250,000
$ 125,000
$ 375,000
Stockholders’ Equity
Common stock
7,000,000
1,500,000
1,500,000 A
7,000,000
Capital excess of par
500,000
0
500,000
Retained Earnings
1,000,000
500,000
500,000 A
1,000,000
Noncontrolling interest
500,000
Total Equity
8,500,000
2,000,000
9,000,000
Total Liabilities
and Equity
$ 8,750,000
$ 2,125,000
$ 2,500,000
$ 9,375,000
16–19
E16–21. Consolidated worksheet and balance sheet under acquisition method
Requirement 1:
The elimination entries that Chesapeake should make in its consolidated
worksheet are given below:
(A) DR Common Stock $ 400,000
interest in Deardon for 10% x $780,000 = $78,000.
(B) DR Current assets $45,000
DR Patent 67,500
DR Goodwill 45,000
CR PP&E 22,500
portion of the subsidiary current assets, patent, goodwill, PP&E, and long
term liabilities at fair value. The total excess to allocate is $108,000.
(C) DR Current assets $5,000
DR Patent 7,500
DR Goodwill 5,000
the consolidated balance sheet.
16–20
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Requirement 2:
Chesapeake
Deardon
Eliminations
Consolidated
Dr
Cr
Balance Sheet
Assets
Current assets
$ 500,000
$ 400,000
$ 45,000 B
$950,000
5,000 C
PP&E, net
800,000
800,000
$ 22,500 B
1,575,000
2,500 C
Patent
100,000
—
67,500 B
175,000
7,500 C
Investment in Deardon
810,000
702,000 A
–
108,000 B
Goodwill
45,000 B
50,000
5,000 C
Total assets
$ 2,210,000
$ 1,200,000
$ 2,750,000
Liabilities
Current liabilities
$ 400,000
$ 150,000
$ 550,000
Long term liabilities
500,000
270,000
$ 27,000 B
3,000 C
800,000
Total liabilities
900,000
420,000
1,350,000
Stockholders’ Equity
Common stock
900,000
400,000
400,000 A
900,000
Retained Earnings
410,000
380,000
380,000 A
410,000
Noncontrolling interest
78,000 A
90,000
12,000 C
Total Equity
1,310,000
780,000
1,400,000
Total Liabilities
and Equity
$ 2,210,000
$ 1,200,000
$ 955,000
$ 955,000
$ 2,750,000
16–21
E16–22. Financial asset denominated in a foreign currency
Requirement 1:
1/1/14
DR Investment in AFS Bond $6,500 (5,000 euros x $1.30 per euro)
Requirement 3:
The effects on 2014 income and 2014 OCI under U.S. GAAP and IFRS are:
16–22
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Education.
Financial Reporting and Analysis (6th Ed.)
Chapter 16 Solutions
Intercorporate Equity Investments
Problems
P16–1. Equity method accounting
Requirement 1:
Figland’s equity in Irene’s earnings (40% x $600,000) $240,000
Less:
P16–2. Recording fair value accounting for trading securities
Requirement 1:
Desired balance in Fair Value adjustment account at 12/31/13:
Cost $80,000
16–23
12/31/13 was determined as follows:
Cost of Co. B common stock $30,000
Fair value on 12/31/13 (25,000)
Unrealized loss included in 12/31/13 fair value adjustment 5,000
Portion of Co. B shares being sold 50%
Co. A Common $50,000 $55,000
Co. B Common 15,000 13,000
Co. C Preferred 20,000 25,000
$85,000 $93,000 $8,000 DR
Previous balance after adjusting for Co. B stock sale
Desired balance in Fair Value adjustment account:
12/31/15
Cost Fair Value
Co. A Common $50,000 $58,000
Co. B Common 15,000 10,000
Entry:
16–24
Requirement 5:
DR Cash $14,000
DR Realized loss on sale of available-for-sale
securities 1,000
P16-3. Consolidated balance sheet and income statement under acquisition
method.
Requirement 1:
The elimination entries that Pate should make in its consolidated
worksheet are given below:
16–25
assets (80% x $890,000 = $712,000) to value the controlling interest
portion of goodwill. The total excess to allocate is $188,000.
(C) DR Goodwill $47,000
CR Noncontrolling interest $47,000
16–26
Pate
Starmont
Eliminations
Consolidated
Dr
Cr
Balance Sheet
Assets
Current assets
$ 400,000
$ 300,000
$700,000
Long term assets
1,000,000
860,000
1,860,000
Investment in Starmont
900,000
$ 712,000 A
–
188,000 B
Goodwill
$ 188,000 B
235,000
47,000 C
Total assets
$ 2,300,000
$ 1,160,000
$ 2,795,000
Liabilities
Current liabilities
$ 300,000
$ 100,000
$ 400,000
Long term liabilities
900,000
170,000
1,070,000
Total liabilities
1,200,000
270,000
1,470,000
Stockholders’ Equity
Common stock
500,000
300,000
300,000 A
500,000
Retained Earnings
600,000
590,000
590,000 A
600,000
Noncontrolling interest
178,000 A
225,000
47,000 C
Total Equity
1, 100,000
890,000
1,325,000
Total Liabilities
and Equity
$ 2,300,000
$ 1,160,000
$ 1,125,000
$ 1,125,000
$ 2,795,000
16–27
Requirement 2:
Intra-entity Sale:
The intra-entity sale from Pate to Starmont needs to be eliminated to avoid
double counting of revenue and expense. Starmont has sold all of the
16–28
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Account
Pate
Starmont
Eliminations
Consolidated
Dr
Cr
Income Stmt.
Sales revenue
$ 1,500,000
$ 1,000,000
$100,000
$2,400,000
Cost of goods sold
900,000
650,000
$100,000
1,450,000
Gross profit
600,000
350,000
950,000
SG&A expenses
200,000
130,000
330,000
Operating income
400,000
220,000
620,000
Tax expense (35%)
140,000
77,000
217,000
Net income
260,000
143,000
403,000
Noncontrolling interest
in subsidiary income
28,600
Net income –
controlling interest
$ 260,000
$ 143,000
$ 374,400
16–29
P16-4. Equity method and fair value option
Requirement 1:
The determination of excess cost and its allocation is as follows:
($ in millions)
Cost of investment $250
Book value acquired ($500 x 30%) 150
Excess cost over book value acquired $100
Excess cost allocated to:
Depreciable assets ($700–$500) x 2/3 x 30% = $40
Land ($700–$500) x 1/3 x 30% = 20
Goodwill (remaining amount) 40
$100
2014 Journal entries:
January 1, 2011 – Initial acquisition
DR Investment in Delta Crating $250
CR Cash $250
million)
To record additional depreciation related to equity investment in Delta
DR Income from Delta $4
CR Investment in Delta Crating $4
(Excess of fair value over book value of Newyork’s investment in Delta
attributed to depreciable assets.)
16–30
2015 Journal entries:
To record equity in Delta’s net income
DR Investment in Delta Crating $24
CR Income from Delta $24
(To recognize 30% of Delta Crating Corp.’s total reported income of $80
million)
DR Cash $6
CR Investment in Delta Crating $6
(To reduce the investment account for dividends declared – 30% of $20
million.)
Requirement 2:
($ in millions)
Initial investment $250
Equity method income recognized in 2014 ($30–$4) 26
Dividends received in 2014 (9)
Investment balance at December 31, 2014 267
Equity method income recognized in 2015 ($24–$4) 20
Dividends received in 2015 (6)
Investment balance at December 31, 2015 $281
Requirement 3:
2014 Journal entries: