978-0078025877 Chapter 9 Solution Manual Part 1

Chapter 9 – Consolidation Ownership Issues

Q9-1 Preferred stock of the subsidiary is eliminated in the consolidation process in a manner

comparable to that used in eliminating the common stock of the subsidiary. For preferred shares

held by the parent company, a proportionate share of subsidiary income and net assets

Q9-2 All preferred shares held by the parent are eliminated against the balance in the

Q9-3 Preferred dividends normally are deducted in arriving at income available to common

shareholders. When preferred dividends are paid by the subsidiary to shareholders other than

Q9-4 In the event the preferred shares are redeemed, the subsidiary must pay the call

premium and the net assets of the subsidiary will be reduced by the amount of the premium.

Q9-5 The parent will record the difference between the carrying value and the sale price of the

Q9-6 All common shareholders share equally in the net assets of a company. When a

Q9-7 Each purchase of additional shares should be examined to determine the difference

between the price paid and underlying book value. When an amount greater than book value is

paid directly to the subsidiary for the shares, the book value of the shares held by the

for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted

on a website in whole or part.

E9-1 Multiple-Choice Questions on Preferred Stock Ownership

1.

d –

$50,000 = $20,000 + $30,000

2.

c –

$29,000 = $20,000 + 0.30($30,000)

3.

b –

Only the retained earnings of the parent company is included.

4.

a –

The portion held by the parent is eliminated when the preferred investment is

eliminated, and the portion held by nonaffiliates is eliminated and included with the

balance reported as noncontrolling interest in the consolidated balance sheet.

E9-2 Multiple-Choice Questions on Multilevel Ownership

1.

b –

$188,000 = $100,000 + 0.80[$80,000 + (0.60 x $50,000)]

2.

b –

$20,000 = 0.40 x $50,000

3.

c –

$22,000 = 0.20 x [$80,000 + (0.60 x $50,000)]

4.

c –

$42,000 = (0.40 x $50,000) + {0.20 x [$80,000 + (0.60 x $50,000)]}

5.

b –

$2,400 = 0.80 x {0.60 x [($150,000 + $100,000 – $200,000) / 10 years)]}

E9-3 Acquisition of Preferred Shares

Basic Consolidation Entry:

Preferred Stock

100,000

Common Stock

50,000

Retained Earnings

150,000

Investment in Separate CS

140,000

Investment in Separate PS

60,000

NCI in NA of Separate

100,000