Chapter 09 – CONSOLIDATION OWNERSHIP ISSUES
9-7
DESCRIPTIONS OF CASES, EXERCISES, AND PROBLEMS
C9-1
LO 9-1
15 min.
E
Effect of Subsidiary Preferred Stock
A number of things must be known about subsidiary preferred shares outstanding
before their impact on consolidated net income can be determined. This case
provides a convenient vehicle to discuss those features that are most significant.
C9-2
LO 9-2,
LO 9-3
30 min.
M
Consolidated Stockholders’ Equity: Theory vs. Practice
This case helps students understand how companies employ accounting practices
that are not necessarily in accordance with accounting theory or even current
standards. Students have to determine how Xerox reported the sale of stock of a
subsidiary prior to 2008, and how such sales must be reported under current
standards. They also have to identify how Occidental treats subsidiary preferred
stock, and how they should be reported in the consolidated financial statements.
C9-3
LO 9-3
30 min.
M
Sale of Subsidiary Shares
An entity sells part of its controlling shares. Students must prepare a memo
addressed to the president of finance presenting the alternative methods available
for recording the difference between the carrying value and the sales price of the
shares. The accountant’s recommendations should also be made and supported
with authoritative literature, including current FASB recommendations.
C9-4
LO 9-3
15 min.
M
Sale of Subsidiary Shares
Different financial statement effects occur when a parent sells shares of an
existing subsidiary to an affiliate rather than an unrelated party. The student is
asked to discuss those differences in this case.
C9-5
LO 9-4
15 min.
M
Reciprocal Ownership
In this case, the student is asked to identify the factors which should be
considered in deciding whether or not to purchase parent company or subsidiary
shares with excess cash held by the parent company and to determine which
action is likely to lead to the highest consolidated net income.
C9-6
LO 9-4
20 min.
M
Complex Organizational Structures
Complex organizational structures often present challenges for financial
reporting. Students must determine the types of entities included among the
subsidiaries of Atlas America, Inc. They should also determine how the company
reports its subsidiaries and interests in energy partnerships; the relationship
between some of its subsidiaries; and different management arrangements.
E9-1
LO 9-2
15 min.
Multiple-Choice Questions on Preferred Stock Ownership
Four multiple-choice questions cover the determination of income assigned to
noncontrolling interest and other consolidated totals when the parent owns only
common shares of the subsidiary and when the parent owns both common and
preferred shares of the subsidiary.
Chapter 09 – CONSOLIDATION OWNERSHIP ISSUES
9-8
E9-2
LO 9-4
15 min.
M
Multiple-Choice Questions on Multilevel Ownership
Five multiple-choice questions deal with a parent and its subsidiary which, in
turn, holds controlling ownership of another company. The questions focus
primarily on the computation of consolidated net income and income assigned to
noncontrolling interest.
E9-3
LO 9-2
15 min.
E
Acquisition of Preferred Shares
The consolidation entries to complete a consolidated balance sheet worksheet
immediately after the parent purchases preferred and common shares of the
subsidiary are required.
E9-4
LO 9-4
10 min.
E
Reciprocal Ownership [AICPA Adapted]
A subsidiary holds shares of parent company stock. The amount of subsidiary
and parent company dividends reported as dividends declared in the consolidated
financial statements must be determined.
E9-5
LO 9-2
10 min.
E
Subsidiary with Preferred Stock Outstanding
A company purchases majority ownership of the common shares and a portion of
the preferred shares of another company. Consolidation entries to prepare a
consolidated balance sheet immediately after the purchase of the shares are
required.
E9-6
LO 9-2
15 min.
E
Subsidiary with Preferred Stock Outstanding
A company purchases majority ownership of the common shares and a portion of
the preferred shares of another company. Subsidiary net income and dividends
for the year are given. Journal entries recorded during the year by the parent
related to its investment in the shares of common and preferred stock and
consolidation entries at the end of the year are required.
E9-7
LO 9-2
20 min.
M
Preferred Dividends and Call Premium
Consolidated net income, income assigned to noncontrolling interest, and other
items are computed after the parent company purchases a majority of both
subsidiary common and preferred shares. The preferred shares are cumulative
and callable and dividends are in arrears.
Chapter 09 – CONSOLIDATION OWNERSHIP ISSUES
9-9
E9-8
LO 9-4
15 min.
E
Multilevel Ownership
The combined ownership of the parent and its majority-owned subsidiary provide
controlling ownership of a third company. Operating income and dividends paid
are provided for each company. The amounts to be reported as consolidated net
income, income assigned to the noncontrolling interest, and dividends declared
must be computed.
E9-9
LO 9-4
20 min.
M
Consolidation Entries for Multilevel Ownership
A company acquires controlling ownership of another. Immediately thereafter,
the subsidiary acquires controlling ownership of a third company. Stockholders’
equity balances for all three companies at the date of acquisition and net income
and dividends for the current year are provided. Equity-method journal entries
recorded by the parent and its subsidiary, and all consolidation entries needed in
preparing consolidated financial statements at the end of the year are required.
E9-10
LO 9-4
20 min.
M
Reciprocal Ownership
Consolidated net income and income assigned to controlling interest is computed
under the treasury stock method when the subsidiary holds 30 percent of the
shares of the parent company.
E9-11
LO 9-4
25 min.
M
Wp
Consolidated Balance Sheet with Reciprocal Ownership
Using balance sheet information presented for the parent company and
subsidiary, a consolidated balance sheet worksheet and consolidated balance
sheet must be prepared. The treasury stock method is used to account for parent
company shares held by the subsidiary.
E9-12
LO 9-5
20 min.
M
Subsidiary Stock Dividend
Journal entries recorded by the parent and subsidiary at the time of a subsidiary
stock dividend, consolidation entries at the end of that period, and consolidation
entries for a consolidated balance sheet at the start of the following period are
required.
E9-13
LO 9-3
20 min.
M
Sale of Subsidiary Shares by Parent
A portion of the subsidiary’s shares held by the parent are sold to a nonaffiliate.
The balance in the investment account must be computed. Journal entries
prepared by the parent company to record the sale and consolidation entries
prepared for the consolidation worksheet at the end of the period are also
required.
E9-14
LO 9-3
25 min.
H
Purchase of Additional Shares from Nonaffiliate
Two years after purchasing controlling interest of a subsidiary, the parent
company purchases additional subsidiary shares from a nonaffiliate. The balance
in the investment account before and after the additional purchase must be
computed, and consolidation entries at the end of the year prepared.
Chapter 09 – CONSOLIDATION OWNERSHIP ISSUES
9–10
E9-15
LO 9-3
20 min.
M
Repurchase of Shares by Subsidiary from Nonaffiliate
A subsidiary purchases a portion of its shares from a nonaffiliate and holds them
as treasury shares. Students have to calculate the change in the book value of the
shares held by the parent. The entry to recognize the resulting change in the book
value of shares held by the parent is also required, along with the consolidation
entry needed to prepare a consolidated balance sheet immediately following the
treasury stock purchase.
E9-16
LO 9-3
20 min.
M
Sale of Shares by Subsidiary to Nonaffiliate
A subsidiary sells additional shares to a nonaffiliate. Students have to calculate
the change in the book value of the shares held by the parent. The entry to
recognize the change in the book value of the shares held by the parent and the
consolidation entry needed to prepare a consolidated balance sheet immediately
following the sale of stock are also required.
P9-17
LO 9-1,
LO 9-2
20 min.
M
Multiple-Choice Questions on Preferred Stock Ownership
Five multiple-choice questions cover the computation of consolidated net
income, income assigned to noncontrolling ownership, and several balances
reported in the consolidated balance sheet. The subsidiary has cumulative
preferred shares outstanding which are majority owned by the parent company.
P9-18
LO 9-4
25 min
M.
Multilevel Ownership with Differential
Differentials arise when the parent acquires ownership of a subsidiary and when
the subsidiary purchases ownership of a third company. Information on the
stockholders’ equity balances, operating income or net income, and dividend
payments of the two subsidiary companies is provided. Equity-method journal
entries recorded by the parent and its subsidiary and consolidation entries needed
to prepare consolidated financial statements at the end of the current year are
required.
P9-19
LO 9-5
15 min.
M
Subsidiary Stock Dividend
The consolidation entries following a subsidiary stock split, a small stock
dividend, and a large stock dividend are required.
P9-20
LO 9-2
20 min.
M
Subsidiary Preferred Stock Outstanding
Consolidation entries for both common stock and cumulative preferred stock are
required, and consolidated net income and income assigned to noncontrolling
interests must be computed. Preferred dividends are in arrears and none are
declared in the current period.
P9-21
LO 9-2
50 min.
H
Ownership of Subsidiary Preferred Stock
A parent company owns majority common stock in its subsidiary. It also
partially owns the subsidiary’s preferred stock. Students must determine a variety
of amounts relating to the preferred stock, the differential, noncontrolling
interest, and the income the parent had recognized, as information for preparing
consolidation entries.
Chapter 09 – CONSOLIDATION OWNERSHIP ISSUES
9–11
P9-22
LO 9-2
40 min.
M
Consolidation Worksheet with Subsidiary Preferred Stock
Consolidation entries and a consolidation worksheet are required. The parent
holds majority ownership of both common and preferred shares of the subsidiary.
P9-23
LO 9-3
30 min.
M
Subsidiary Stock Transactions
A subsidiary is planning to repurchase shares from either the parent or a
nonaffiliate. The change in book value of subsidiary shares held by the parent
must be computed and the consolidation entries at the end of the period prepared
under both options.
P9-24
LO 9-3
45 min.
M
Wp
Sale of Subsidiary Common Shares
Appropriate consolidation entries and a consolidation worksheet are required. A
portion of the subsidiary’s shares held by the parent are sold to a nonaffiliate at
the start of the period.
P9-25
LO 9-3
40 min.
H
Sale of Shares by Subsidiary to Nonaffiliate
A subsidiary sells additional shares to a nonaffiliate. Consolidation entries, a
consolidation worksheet, and a consolidated balance sheet are prepared
immediately after the sale of shares.
P9-26
LO 9-3
35 min.
H
Sale of Additional Shares to Parent
A subsidiary sells additional shares to the parent at above book value. The
differential is assigned to buildings and equipment. The consolidation entry and
consolidated balance sheet worksheet immediately following the purchase are
required.
P9-27
LO 9-4
25 min.
M
Complex Ownership Structure
A subsidiary has voting control of another company which, in turn, holds voting
common shares of the parent. Both the entity and treasury stock methods are to
be used to determine the amount of consolidated net income and income assigned
to noncontrolling interest.