CHAPTER 5
Q5-1 The noncontrolling interest is reported as a separate item in the stockholders’ equity
Q5-2 The consolidated balance sheet always includes 100 percent of the subsidiary’s assets
Q5-3 The income statement portion of the consolidation worksheet is expanded to include a
line for income assigned to the noncontrolling interest. This amount is deducted from
Q5-4 The balance assigned to the noncontrolling interest is based on the fair value of the
Q5-5 Consolidated retained earnings includes only amounts attributable to the shareholders of
interest.
Q5-6 One hundred percent of the fair value of the subsidiary’s assets is included.
Q5-7 The amount of goodwill at the date of acquisition is determined by deducting the fair
value of the net assets of the acquired company from the sum of the fair value of the
Q5-8 Income assigned to the noncontrolling interest normally is a proportionate share of the
Q5-9 Income assigned to noncontrolling shareholders is reported as a deduction from
Q5-10 Dividends paid to noncontrolling shareholders are eliminated in preparing the
consolidated statement of retained earnings as are those paid by the subsidiary to the parent.
5-2
Q5-11 A parent will discontinue consolidating a subsidiary when it can no longer exercise
control over it. Control might be lost for a number of reasons, such as: (1) the parent
Q5-12 Other comprehensive income elements reported by the subsidiary must be included in
Q5-13 The parent’s portion of the subsidiary’s other comprehensive income is included in
Q5-14A The only effect of a negative balance in retained earnings is the need for a credit to
Q5-15A In the period in which the land is sold, the gain or loss recorded by the subsidiary must
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
5-3
C5-1 Consolidation Worksheet Preparation
a. Yes. If the parent company is using the equity method, the elimination of the income
recognized by the parent from the subsidiary generally should not be equal to a proportionate
share of the subsidiary’s dividends. If the parent has recognized only dividend income from the
subsidiary, it is using the cost method.
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
5-4
C5-2 Consolidated Income Presentation
MEMO
TO: Treasurer
Standard Company
FROM: , Accounting Staff
RE: Allocation of Consolidated Income to Parent and Noncontrolling
addition the parent receives only 55 percent of the increased profits of the subsidiary.
Consolidated net income for the two years is computed and allocated as follows:
20X4
20X5
Consolidated revenues
$160,000
(a)
$400,000 (b)
Operating costs
(94,000)(c)
(300,000)(d)
Consolidated net income
$
66,000
$100,000
Income to noncontrolling shareholders
(2,700)(e)
(12,600)
(f)
Income to controlling shareholders
$
63,300
$ 87,400
(a)
$100,000 + $60,000
(b)
$120,000 + $280,000
(c)
($100,000 x .40) + ($60,000 x .90)
(d)
($120,000 x .40) + ($280,000 x .90)
(e)
($60,000 x .10 x .45)
(f)
($280,000 x .10 x .45)
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
5-5
C5-3 Pro Rata Consolidation
MEMO
To: Financial Vice-President
Rose Corporation
From: , Senior Accountant
Re: Pro Rata Consolidation of Joint Venture
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
5-6
C5-4 Consolidation Procedures
a. The consolidation entries are recorded only in the consolidation worksheet and therefore do
not change the balances recorded on the company’s books. Each time consolidated statements
are prepared the balances reported on the company’s books serve as the starting point. Thus,
all the necessary consolidation entries must be entered in the consolidation worksheet each
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
5-7
C5-5 Changing Accounting Standards: Monsanto Company
a. Monsanto reported the income to noncontrolling (minority) shareholders of consolidated
subsidiaries as an expense in the continuing operations portion of its 2007 income statement.
b. Monsanto reported the noncontrolling (minority) interest in consolidated subsidiaries in other
entity.
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
5-8
E5-1 Multiple-Choice Questions on Consolidation Process
1. d – Under the equity method, consolidated retained earnings will always equal the retained
earning balance of the acquiring company (A company) at the date of acquisition
regardless of the percentage owned. The retained earnings balance of the acquired
2. d – Because the consolidated balance sheet contains the assets of the parent company as
well as the assets of the subsidiary, total assets of the parent company will always be
less than total assets reported on the consolidated balance sheet.
3. b – The only amount included in the consolidated retained earnings balance is the retained
earnings balance from the parent’s books.
(a) Incorrect. Foreign subsidiaries are still required to be consolidated even if they are
4. d – The only accounts receivable from affiliates that will be eliminated from the consolidated
balance sheet are receivables from consolidated entities (Winn Corporation). Thus, the
receivable from any unconsolidated investees (Carr Corporation) would be reported on
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
5-9
(c) Incorrect. The only amounts that should be recorded on the consolidated balance
E5-2 Multiple-Choice Questions on Consolidation [AICPA Adapted]
1. b – Subsidiary dividends declared have no effect on consolidated retained earnings (because
the parent’s retained earnings appear as the consolidated retained earnings, but they do
2. c – The noncontrolling interest’s proportionate share of the subsidiary’s income is allocated
based on the percentage of ownership in the subsidiary held by the noncontrolling
shareholders.
3. a – $650,000 = $500,000 + $200,000 – $50,000
4. c – $95,000 = ($956,000 + $239,000) – $1,000,000 – $100,000
5. c – $251,000 = .20[($956,000 + $239,000) + ($190,000 – $5,000 – $125,000)]
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
E5-3 Consolidation entries with Differential
a.
Equity Method Entries on Game Corp.’s Books:
Investment in Amber Corp.
49,200
Cash
49,200
Record the initial investment in Amber Corp.
Book Value Calculations:
NCI
40%
+
Game Corp.
60%
=
Common
Stock
+
Retained
Earnings
Book value at
acquisition
22,800
34,200
20,000
37,000
Basic consolidation entry
Common Stock
20,000
Retained Earnings
37,000
Investment in Amber Corp.
NCI in NA of Amber Corp.
Excess Value (Differential) Calculations:
+
=
Inventory
+
Beginning balances
10,000
Excess Value (Differential) Reclassification Entry:
Inventory
Buildings & Equipment
20,000