Chapter 03 – The Reporting Entity and Consolidation of Less-Than-Wholly-Owned Subsidiaries with no Differential
E3–10 Reporting for a Variable Interest Entity
Gamble Company
Consolidated Balance Sheet
Cash
$ 18,600,000(a)
Buildings and Equipment
$370,600,000(b)
Less: Accumulated Depreciation
(10,100,000)
360,500,000
Total Assets
$379,100,000
Accounts Payable
$ 5,000,000
Bonds Payable
20,300,000
Bank Notes Payable
140,000,000
Noncontrolling Interest
5,600,000
Common Stock
$103,000,000
Retained Earnings
105,200,000
208,200,000
Total Liabilities and Equities
$379,100,000
(a) $18,600,000
=
$3,000,000 + $5,600,000 + ($140,000,000 – $130,000,000)
(b) $370,600,000
=
$240,600,000 + $130,000,000
E3–11 Consolidation of a Variable Interest Entity
Teal Corporation
Consolidated Balance Sheet
$682,500(a)
$550,000(b)
22,500(c)
$15,000
95,000
110,000
$682,500
(a) $682,500
=
$500,000 + $190,000 – $7,500
(b) $550,000
=
$470,000 + $80,000
(c) $22,500
=
($500,000 – $470,000) x 0.75
E3-12 Computation of Subsidiary Net Income
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P3–19 Multiple-Choice Questions on Consolidated and Combined Financial Statements
1. d – While previously reported in the ‘mezzanine’ area between liabilities and equity, FASB
160 (ASC 810) makes it clear that NCI is an element of equity, not a liability.
2. c – Similar to consolidated statements, combined financial statements require the removal of
all intercompany loans and profits. Thus, neither amount is recorded in the combined
profits.
P3-20 Determining Net Income of Parent Company
Consolidated net income
$164,300
Income of subsidiary ($15,200 / 0.40)
(38,000)
Income from Tally’s operations
$126,300
P3-21 Consolidation of a Variable Interest Entity
Stern Corporation
Consolidated Balance Sheet
January 1, 20X4
Cash
$ 8,150,000
(a)
Accounts Receivable
$12,200,000
(b)
Less: Allowance for Uncollectibles
(610,000)
(c)
11,590,000
Other Assets
5,400,000
Total Assets
$25,140,000
Accounts Payable
$ 950,000
Notes Payable
7,500,000
Bonds Payable
9,800,000
Stockholders’ Equity:
Controlling Interest:
Common Stock
$ 700,000
Retained Earnings
6,150,000
Total Controlling Interest
$ 6,850,000
Noncontrolling Interest
40,000
Copyright © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized
for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted
on a website in whole or part.
P3-24 Parent Company and Consolidated Balances
a.
Balance in investment account, December 31, 20X7
$259,800
Cumulative earnings since acquisition
110,000
Cumulative dividends since acquisition
(46,000)
Total
$64,000
Proportion of stock held by True Corporation
x 0.75
Total Amount Debited to Investment Account
(48,000)
Purchase Amount
$211,800
b. $282,400 ($211,800 / 0.75) is the fair value of net assets on January 1, 20X5
c. $70,600 ($282,400 x 0.25) is the value assigned to the NCI shareholders on January 1,
20X5.
d. $86,600 = ($259,800 / 0.75) x 0.25 will be assigned to noncontrolling interest in the
consolidated balance sheet prepared at December 31, 20X7. Alternatively, this could be
calculated by adding the NCI’s portion of the cumulative earnings and dividends to the
balance of NCI shareholders at acquisition. $70,600 + (64,000 x .25) = $86,600.
P3-25 Indirect Ownership
.10
.60
Blue
3-30
P3-26 Consolidated Worksheet and Balance Sheet on the Acquisition Date (Equity
Method)
a.
Equity Method Entries on Peanut Co.’s Books:
Investment in Snoopy Co.
270,000
Cash
270,000
Record the initial investment in Snoopy Co.
b.
Book Value Calculations:
NCI
10%
+
Peanut
Co.
90%
=
Common
Stock
+
Retained
Earnings
Book value at
acquisition
30,000
270,000
200,000
100,000
Basic Consolidation Entry
Common stock
200,000
Retained earnings
100,000
Investment in Snoopy Co.
270,000
NCI in NA of Snoopy Co.
30,000
Optional accumulated depreciation consolidation entry
Accumulated depreciation
10,000
Building & equipment
10,000
Investment in
Snoopy Co.
Acquisition Price
270,000