Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-31
E4-22 Consolidation Worksheet with Differential
a.
Equity Method Entries on Kennelly Corp.’s Books:
Investment in Short Co.
180,000
Cash
180,000
Record the initial investment in Short Co.
Investment in Short Co.
30,000
Income from Short Co.
30,000
Record Kennelly Corp.’s 100% share of Short Co.’s 20X5 income
Cash
10,000
Investment in Short Co.
10,000
Record Kennelly Corp.’s 100% share of Short Co.’s 20X5
dividend
Income from Short Co.
5,000
Investment in Short Co.
5,000
Record amortization of excess acquisition price
Book Value Calculations:
Total Book
Value
=
Common
Stock
+
Retained
Earnings
Beginning book
value
150,000
100,000
50,000
+ Net Income
30,000
30,000
– Dividends
(10,000)
(10,000)
Ending book value
170,000
100,000
70,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
1/1/X5
Goodwill = 0
Identifiable
Excess = 30,000
$180,000
Initial
investment
in Short Co.
100%
Book value =
150,000
12/31/X5
Goodwill = 0
Identifiable
Excess = 25,000
$195,000
Net
investment in
Short Co.
100%
Book value =
170,000
Basic Consolidation Entry
Common Stock
100,000
Retained Earnings
50,000
Income from Short Co.
30,000
Dividends Declared
10,000
Investment in Short Co.
170,000
Excess Value (Differential) Calculations:
Total
=
Depreciable
Assets
+
Acc.
Depr.
Beginning balance
30,000
30,000
0
Changes
(5,000)
(5,000)
Ending balance
25,000
30,000
(5,000)
Amortized Excess Value Reclassification Entry:
Depreciation Expense
5,000
Income from Short Co.
5,000
Excess Value (Differential) Reclassification Entry:
Depreciable Assets
30,000
Accumulated Depreciation
5,000
Investment in Short Co.
25,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-33
Investment in
Income from
Short Co.
Short Co.
Acquisition
Price
180,000
100% Net
Income
30,000
30,000
100% Net
Income
10,000
100% Dividends
5,000
Excess Val. Amort.
5,000
Ending Balance
195,000
25,000
Ending Balance
170,000
Basic
30,000
25,000
Excess Reclass.
5,000
0
0
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-34
E4-22 (continued)
b.
Kennelly
Corp.
Short
Co.
Consolidation Entries
DR
CR
Consolidated
Income Statement
Sales
200,000
120,000
320,000
Less: Depreciation Expense
(25,000)
(15,000)
5,000
(45,000)
Less: Other Expenses
(105,000)
(75,000)
(180,000)
Income from Short Co.
25,000
30,000
5,000
0
Net Income
95,000
30,000
35,000
5,000
95,000
Statement of Retained Earning
Beginning Balance
230,000
50,000
50,000
230,000
Net Income
95,000
30,000
35,000
5,000
95,000
Less: Dividends Declared
(40,000)
(10,000)
10,000
(40,000)
Ending Balance
285,000
70,000
85,000
15,000
285,000
Balance Sheet
Cash
15,000
5,000
20,000
Accounts Receivable
30,000
40,000
70,000
Inventory
70,000
60,000
130,000
Depreciable Assets (net)
325,000
225,000
30,000
5,000
575,000
Investment in Short Co.
195,000
170,000
0
25,000
Total Assets
635,000
330,000
30,000
200,000
795,000
Accounts Payable
50,000
40,000
90,000
Notes Payable
100,000
120,000
220,000
Common Stock
200,000
100,000
100,000
200,000
Retained Earnings
285,000
70,000
85,000
15,000
285,000
Total Liabilities & Equity
635,000
330,000
185,000
15,000
795,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
E4-23 Consolidation Worksheet for Subsidiary
a.
Equity Method Entries on Land Corp.’s Books:
Investment in Growth Co.
170,000
Cash
170,000
Record the initial investment in Growth Co.
Investment in Growth Co.
35,000
Income from Growth Co.
35,000
Record Land Corp.’s 100% share of Growth Co.’s 20X4 income
Cash
15,000
Investment in Growth Co.
15,000
Record Land Corp.’s 100% share of Growth Co.’s 20X4 dividend
Book Value Calculations:
Total Book
Value
=
Common
Stock
+
Retained
Earnings
Beginning book value
170,000
100,000
70,000
+ Net Income
35,000
35,000
– Dividends
(15,000)
(15,000)
Ending book value
190,000
100,000
90,000
1/1/X4
Goodwill = 0
Identifiable
Excess = 0
$170,000
Initial
investment
in Growth
Co.
100%
Book value =
170,000
12/31/X4
Goodwill = 0
Identifiable
Excess = 0
$190,000
Net
investment in
Growth Co.
100%
Book value =
190,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-36
E4-23 (continued)
Basic Consolidation Entry
Common Stock
100,000
Retained Earnings
70,000
Income from Growth Co.
35,000
Dividends Declared
15,000
Investment in Growth Co.
190,000
Optional Accumulated Depreciation Consolidation Entry
Accumulated Depreciation
75,000
Building & Equipment
75,000
Investment in
Income from
Growth Co.
Growth Co.
Acquisition
Price
170,000
100% Net
Income
35,000
35,000
100% Net
Income
15,000
100% Dividends
Ending Balance
190,000
35,000
Ending Balance
190,000
Basic
35,000
0
0
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-37
E4-23 (continued)
b.
Land
Corp.
Growth
Co.
Consolidation
Entries
DR
CR
Consolidated
Income Statement
Sales
230,000
140,000
370,000
Less: Depreciation Expense
(25,000)
(15,000)
(40,000)
Less: Other Expenses
(150,000)
(90,000)
(240,000)
Income from Growth Co.
35,000
35,000
0
Net Income
90,000
35,000
35,000
0
90,000
Statement of Retained Earnings
Beginning Balance
318,000
70,000
70,000
318,000
Net Income
90,000
35,000
35,000
0
90,000
Less: Dividends Declared
(50,000)
(15,000)
15,000
(50,000)
Ending Balance
358,000
90,000
105,000
15,000
358,000
Balance Sheet
Current Assets
238,000
150,000
388,000
Depreciable Assets
500,000
300,000
75,000
725,000
Less: Accumulated Depreciation
(200,000)
(90,000)
75,000
(215,000)
Investment in Growth Co.
190,000
190,000
0
Total Assets
728,000
360,000
75,000
265,000
898,000
Current Liabilities
70,000
50,000
120,000
Long-Term Debt
100,000
120,000
220,000
Common Stock
200,000
100,000
100,000
200,000
Retained Earnings
358,000
90,000
105,000
15,000
358,000
Total Liabilities & Equity
728,000
360,000
205,000
15,000
898,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-38
E4–24A Push-Down Accounting
a. Entry to record acquisition of Louis stock on books of Jefferson:
Investment in Louis Corporation Stock
789,000
Cash
789,000
b. Entry to record revaluation of assets on books of Louis Corporation:
Land
15,000
Buildings
50,000
Equipment
20,000
Revaluation Capital
85,000
c. Investment consolidation entry in consolidation worksheet (no other entries needed):
Common Stock – Louis Corporation
200,000
Additional Paid-In Capital
425,000
Retained Earnings
79,000
Revaluation Capital
85,000
Investment in Louis Corporation Stock
789,000
Book Value Calculations:
Total
Book
Value
=
Common
Stock
+
Additional
Capital
+
Retained
Earnings
+
Revaluation
Capital
Book value at
acquisition
789,000
200,000
425,000
79,000
85,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
P4–25 Assignment of Differential in Worksheet
a.
Equity Method Entries on Teresa Corp.’s Books:
Investment in Sally Enterprises
290,000
Cash
290,000
Record the initial investment in Sally Enterprises
Book Value Calculations:
Total Book
Value
=
Common
Stock
+
Retained
Earnings
Book value at
acquisition
250,000
100,000
150,000
Basic Consolidation Entry
Common stock
100,000
Retained earnings
150,000
Investment in Sally Enterprises
Excess Value (Differential) Calculations:
Total
=
Buildings & Equipment
+
Goodwill
Balances
40,000
Excess value (differential) reclassification entry:
Buildings & Equipment
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-40
P4-25 (continued)
Optional Accumulated Depreciation Consolidation Entry
Accumulated depreciation
65,000
Building & equipment
65,000
Investment in
Sally Enterprises
Acquisition Price
290,000
250,000
Basic
40,000
Excess Reclass.
0
Teresa
Corp.
Sally
Enterprises
Consolidation Entries
DR
CR
Consolidated
Balance Sheet
Cash and Receivables
40,000
20,000
60,000
Inventory
95,000
40,000
135,000
Land
80,000
90,000
170,000
Buildings & Equipment
400,000
230,000
10,000
65,000
575,000
Less: Accumulated Depreciation
(175,000)
(65,000)
65,000
(175,000)
Investment in Sally Enterprises
290,000
250,000
0
40,000
Goodwill
30,000
30,000
Total Assets
730,000
315,000
105,000
355,000
795,000
Accounts Payable
60,000
15,000
75,000
Notes Payable
100,000
50,000
150,000
Common Stock
300,000
100,000
100,000
300,000
Retained Earnings
270,000
150,000
150,000
270,000
Total Liabilities & Equity
730,000
315,000
250,000
0
795,000