Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
P4-36 Comprehensive Problem: Differential Apportionment
a.
Equity Method Entries on Jersey Corp.’s Books:
Investment in Lime Co.
203,000
Cash
203,000
Record the initial investment in Lime Co.
Investment in Lime Co.
60,000
Income from Lime Co.
60,000
Record Jersey Corp.’s 100% share of Lime Co.’s 20X7 income
Cash
20,000
Investment in Lime Co.
20,000
Record Jersey Corp.’s 100% share of Lime Co.’s 20X7 dividend
Income from Lime Co.
3,000
Investment in Lime Co.
3,000
Record amortization of excess acquisition price
Book Value Calculations:
Total Book
Value
=
Common
Stock
+
Retained
Earnings
Beginning book
value
150,000
50,000
100,000
+ Net Income
60,000
60,000
– Dividends
(20,000)
(20,000)
Ending book value
190,000
50,000
140,000
1/1/X7
Goodwill = 20,000
Identifiable
Excess = 33,000
$203,000
Initial
investment
in Lime Co.
100%
Book value =
150,000
12/31/X7
Goodwill = 20,000
Identifiable
Excess = 30,000
$240,000
Net
investment in
Lime Co.
100%
Book value =
190,000
4-68
P4–36 (continued)
Basic Consolidation Entry
Common Stock
50,000
Retained Earnings
100,000
Income from Lime Co.
60,000
Dividends Declared
20,000
Investment in Lime Co.
190,000
Excess Value (Differential) Calculations:
Total
=
Buildings &
Equipment
+
Acc.
Depr.
+
Goodwill
Beginning balance
53,000
33,000
0
20,000
Changes
(3,000)
(3,000)
0
Ending balance
50,000
33,000
(3,000)
20,000
Amortized Excess Value Reclassification Entry:
Depreciation Expense
3,000
Income from Lime Co.
3,000
Excess Value (Differential) Reclassification Entry:
Buildings & Equipment
33,000
Goodwill
20,000
Accumulated Depreciation
3,000
Investment in Lime Co.
50,000
Eliminate Intercompany Accounts:
Accounts Payable
16,000
Accounts Receivable
16,000
Optional Accumulated Depreciation Consolidation Entry
Accumulated depreciation
60,000
Building & Equipment
60,000
Investment in
Income from
Lime Co.
Lime Co.
Acquisition Price
203,000
100% Net Income
60,000
60,000
100% Net Income
20,000
100% Dividends
3,000
Excess Val. Amort.
3,000
Ending Balance
240,000
57,000
Ending Balance
190,000
Basic
60,000
50,000
Excess Reclass.
3,000
0
0
4-69
P4–36 (continued)
c.
Jersey
Corp.
Lime Co.
Consolidation
Entries
DR
CR
Consolidated
Income Statement
Sales
700,000
400,000
1,100,000
Less: COGS
(500,000)
(250,000)
(750,000)
Less: Depreciation Expense
(25,000)
(15,000)
3,000
(43,000)
Less: Other Expenses
(75,000)
(75,000)
(150,000)
Income from Lime Co.
57,000
60,000
3,000
0
Net Income
157,000
60,000
63,000
3,000
157,000
Statement of Retained
Earnings
Beginning Balance
290,000
100,000
100,000
290,000
Net Income
157,000
60,000
63,000
3,000
157,000
Less: Dividends Declared
(50,000)
(20,000)
20,000
(50,000)
Ending Balance
397,000
140,000
163,000
23,000
397,000
Balance Sheet
Cash
82,000
25,000
107,000
Accounts Receivable
50,000
55,000
16,000
89,000
Inventory
170,000
100,000
270,000
Land
80,000
20,000
100,000
Buildings & Equipment
500,000
150,000
33,000
60,000
623,000
Less: Accumulated Depreciation
(155,000)
(75,000)
60,000
3,000
(173,000)
Investment in Lime Co.
240,000
190,000
50,000
Goodwill
20,000
20,000
Total Assets
967,000
275,000
113,000
319,000
1,036,000
Accounts Payable
70,000
35,000
16,000
89,000
Mortgages Payable
200,000
50,000
250,000
Common Stock
300,000
50,000
50,000
300,000
Retained Earnings
397,000
140,000
163,000
23,000
397,000
Total Liabilities & Equity
967,000
275,000
229,000
23,000
1,036,000
4-70
P4-37 Push-Down Accounting
a.
Entry to record acquisition of Lindy stock on books of Greenly:
Investment in Lindy Company Stock
935,000
Cash
935,000
b.
Entry to record revaluation of assets on books of Lindy Company at date of
combination:
Inventory
5,000
Land
85,000
Buildings
100,000
Equipment
70,000
Revaluation Capital
260,000
Revalue assets to reflect fair values at date of combination.
c.
Investment consolidation entry in consolidation worksheet prepared December 31,
20X6 (no other entries needed):
Common Stock — Lindy Company
100,000
Additional Paid-In Capital
400,000
Retained Earnings
175,000
Revaluation Capital
260,000
Investment in Lindy Company Stock
935,000
d.
Equity-method entries on the books of Greenly during 20X7:
Cash
50,000
Investment in Lindy Company Stock
50,000
Record dividend from Lindy Company.
Investment in Lindy Company Stock
88,000
Income from Lindy Company
88,000
Record equity-method income.
4-71
P4-37 (continued)
e.
Consolidation entries in consolidation worksheet prepared December 31, 20X7
(no other entries needed):
Common Stock — Lindy Company
100,000
Additional Paid-In Capital
400,000
Retained Earnings, January 1
175,000
Revaluation Capital
260,000
Income from Lindy Company
88,000
Dividends Declared
50,000
Investment in Lindy Company Stock
973,000
Eliminate ending investment balance.
$973,000 = $935,000 + $88,000 – $50,000
f.
Consolidation entries in consolidation worksheet prepared December 31, 20X8 (no
other entries needed):
Common Stock — Lindy Company
100,000
Additional Paid-In Capital
400,000
Retained Earnings, January 1
213,000
Revaluation Capital
260,000
Income from Lindy Company
90,000
Dividends Declared
50,000
Investment in Lindy Company Stock
1,013,000
Eliminate ending investment balance.
$213,000 = $175,000 + $88,000 – $50,000
$1,013,000 = $973,000 + $90,000 – $50,000