Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
P4-34 Consolidation Worksheet at End of Second Year of Ownership
a.
Equity Method Entries on Mill Corp.’s Books:
Investment in Roller Co.
36,000
Income from Roller Co.
36,000
Cash
20,000
Investment in Roller Co.
20,000
Income from Roller Co.
2,000
Investment in Roller Co.
2,000
Record amortization of excess acquisition price
Book Value Calculations:
Total Book
Value
=
Common
Stock
+
Retained
Earnings
Beginning book value
108,000
60,000
48,000
+ Net Income
36,000
36,000
– Dividends
(20,000)
(20,000)
Ending book value
124,000
60,000
64,000
1/1/X9
Goodwill = 2,500
Identifiable
Excess = 18,000
$128,500
Net
investment
in Roller
Co.
100%
Book value =
108,000
12/31/X9
Goodwill = 2,500
Identifiable
Excess = 16,000
$142,500
Net
investment in
Roller Co.
100%
Book value =
124,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-62
P4–34 (continued)
Basic Consolidation Entry
Common Stock
60,000
Retained Earnings
48,000
Income from Roller Co.
36,000
Dividends Declared
20,000
Investment in Roller Co.
124,000
Excess Value (Differential) Calculations:
Total
=
Buildings &
Equipment
+
Acc.
Depr.
+
Goodwill
Beginning balance
20,500
20,000
(2,000)
2,500
Changes
(2,000)
(2,000)
Ending balance
18,500
20,000
(4,000)
2,500
Amortized Excess Value Reclassification Entry:
Depreciation Expense
2,000
Income from Roller Co.
2,000
Excess Value (Differential) Reclassification Entry:
Buildings & Equipment
20,000
Goodwill
2,500
Accumulated Depreciation
4,000
Investment in Roller Co.
18,500
Optional accumulated depreciation consolidation entry
Accumulated Depreciation
30,000
Building & Equipment
30,000
Investment in
Income from
Roller Co.
Roller Co.
Beginning Balance
128,500
100% Net Income
36,000
36,000
100% Net Income
20,000
100% Dividends
2,000
Excess Val. Amort.
2,000
Ending Balance
142,500
34,000
Ending Balance
124,000
Basic
36,000
18,500
Excess Reclass.
2,000
0
0
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-63
P4–34 (continued)
b.
Mill
Corp.
Roller
Co.
Consolidation
Entries
DR
CR
Consolidated
Income Statement
Sales
290,000
200,000
490,000
Less: COGS
(145,000)
(114,000)
(259,000)
Less: Wage Expense
(35,000)
(20,000)
(55,000)
Less: Depreciation Expense
(25,000)
(10,000)
2,000
(37,000)
Less: Interest Expense
(12,000)
(4,000)
(16,000)
Less: Other Expenses
(23,000)
(16,000)
(39,000)
Income from Roller Co.
34,000
36,000
2,000
0
Net Income
84,000
36,000
38,000
2,000
84,000
Statement of Retained
Earnings
Beginning Balance
131,000
48,000
48,000
131,000
Net Income
84,000
36,000
38,000
2,000
84,000
Less: Dividends Declared
(30,000)
(20,000)
20,000
(30,000)
Ending Balance
185,000
64,000
86,000
22,000
185,000
Balance Sheet
Cash
45,500
32,000
77,500
Accounts Receivable
85,000
14,000
99,000
Inventory
97,000
24,000
121,000
Land
50,000
25,000
75,000
Buildings & Equipment
350,000
150,000
20,000
30,000
490,000
Less: Accumulated Depreciation
(170,000)
(50,000)
30,000
4,000
(194,000)
Investment in Roller Co.
142,500
124,000
0
18,500
Goodwill
2,500
2,500
Total Assets
600,000
195,000
52,500
176,500
671,000
Accounts Payable
51,000
15,000
66,000
Wages Payable
14,000
6,000
20,000
Notes Payable
150,000
50,000
200,000
Common Stock
200,000
60,000
60,000
200,000
Retained Earnings
185,000
64,000
86,000
22,000
185,000
Total Liabilities & Equity
600,000
195,000
146,000
22,000
671,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-64
P4–34 (continued)
c.
Mill Corporation and Subsidiary
Consolidated Balance Sheet
December 31, 20X9
Cash
$ 77,500
Accounts Receivable
99,000
Inventory
121,000
Land
75,000
Buildings and Equipment
$490,000
Less: Accumulated Depreciation
(194,000)
296,000
Goodwill
2,500
Total Assets
$671,000
Accounts Payable
$ 66,000
Wages Payable
20,000
Notes Payable
200,000
Common Stock
$200,000
Retained Earnings
185,000
385,000
Total Liabilities and Stockholders’ Equity
$671,000
Mill Corporation and Subsidiary
Consolidated Income Statement
Year Ended December 31, 20X9
Sales
$490,000
Cost of Goods Sold
$259,000
Wage Expense
55,000
Depreciation Expense
37,000
Interest Expense
16,000
Other Expenses
39,000
Total Expenses
(406,000)
Consolidated Net Income
$ 84,000
Mill Corporation and Subsidiary
Consolidated Retained Earnings Statement
Year Ended December 31, 20X9
Retained Earnings, January 1, 20X9
$131,000
20X9 Net Income
84,000
$215,000
Dividends Declared, 20X9
(30,000)
Retained Earnings, December 31, 20X9
$185,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-65
P4-35 Comprehensive Problem: Wholly Owned Subsidiary
a.
Equity Method Entries on Power Corp.’s Books:
Investment in Upland Products
30,000
Income from Upland Products
30,000
Record Power Corp.’s 100% share of Upland Products’ 20X5 income
Cash
10,000
Investment in Upland Products
10,000
Record Power Corp.’s 100% share of Upland Products‘ 20X5 dividend
Income from Upland Products
5,000
Investment in Upland Products
5,000
Record amortization of excess acquisition price
Basic Consolidation Entry
Common Stock
100,000
Retained Earnings
90,000
Income from Upland Products
30,000
Dividends Declared
10,000
Investment in Upland Products
210,000
Excess Value (Differential) Calculations:
Total
=
Buildings &
Equipment
+
Acc.
Depr.
Beginning balance
30,000
50,000
(20,000)
Changes
(5,000)
(5,000)
Ending balance
25,000
50,000
(25,000)
Amortized Excess Value Reclassification Entry:
Depreciation Expense
5,000
Income from Upland Products
5,000
Excess Value (Differential) Reclassification Entry:
Building
50,000
Accumulated Depreciation
25,000
Investment in Upland Products
25,000
Eliminate Intercompany Accounts:
Accounts Payable
10,000
Cash and Receivables
10,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-66
P4–35 (continued)
Optional Accumulated Depreciation Consolidation Entry
Accumulated Depreciation
10,000
Building & Equipment
10,000
c.
Power
Corp.
Upland
Products
Consolidation Entries
DR
CR
Consolidated
Income Statement
Sales
200,000
100,000
300,000
Less: COGS
(120,000)
(50,000)
(170,000)
Less: Depreciation Expense
(25,000)
(15,000)
5,000
(45,000)
Less: Inventory Losses
(15,000)
(5,000)
(20,000)
Income from Upland Products
25,000
30,000
5,000
0
Net Income
65,000
30,000
35,000
5,000
65,000
Statement of Retained Earnings
Beginning Balance
318,000
90,000
90,000
318,000
Net Income
65,000
30,000
35,000
5,000
65,000
Less: Dividends Declared
(30,000)
(10,000)
10,000
(30,000)
Ending Balance
353,000
110,000
125,000
15,000
353,000
Balance Sheet
Cash and Receivables
43,000
65,000
10,000
98,000
Inventory
260,000
90,000
350,000
Land
80,000
80,000
160,000
Buildings & Equipment
500,000
150,000
50,000
10,000
690,000
Less: Accumulated Depreciation
(205,000)
(105,000)
10,000
25,000
(325,000)
Investment in Upland Products
235,000
210,000
0
25,000
Goodwill
0
Total Assets
913,000
280,000
50,000
270,000
973,000
Accounts Payable
60,000
20,000
10,000
70,000
Notes Payable
200,000
50,000
250,000
Common Stock
300,000
100,000
100,000
300,000
Retained Earnings
353,000
110,000
125,000
15,000
353,000
Total Liabilities & Equity
913,000
280,000
235,000
15,000
973,000