Chapter 9 – Consolidation Ownership Issues
E9-16 Sale of Shares by Subsidiary to Nonaffiliate
a.
Computation of change in book value of Schroeder Corporation shares held by
Browne Corporation:
Before
After
Sale
Sale
Common stock, $10 par value
$150,000
$ 200,000
Additional paid-in capital
50,000
400,000
Retained earnings
400,000
400,000
Total stockholders‘ equity of Schroeder
$600,000
$1,000,000
Proportion of stock¯ held by Browne
Corporation:
11,000 / 15,000
x 0.7333
11,000 / (15,000 + 5,000)
x .550
Book value of shares
$440,000
$ 550,000
Increase in book value of shares held by
Browne Corporation
$ 110,000
b.
Investment in Schroeder Stock
110,000
Additional Paid-In Capital
110,000
c.
NCI
26.7/45%
+
Browne
Corp.
73.3/55%
=
Common
Stock
+
Add.
Paid-In
Capital
+
Retained
Earnings
Beginning Book Value
160,000
440,000
150,000
50,000
400,000
New Shares
290,000
110,000
50,000
350,000
Ending Book Value
450,000
550,000
200,000
400,000
400,000
Basic Consolidation Entry:
Common Stock
200,000
Additional Paid-in Capital
400,000
Retained Earnings
400,000
Investment in Schroeder Corp.
550,000
NCI in NA of Schroeder Corp.
450,000
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P9-17 Multiple-Choice Questions on Preferred Stock Ownership
1.
d –
Book value of shares held by noncontrolling interest:
Preferred stock ($100,000 x 0.30)
$30,000
Common stock [($200,000 + $50,000) x 0.20]
50,000
Total book value
$80,000
2.
b –
Income to noncontrolling preferred shareholders
[($100,000 x 0.10) x 0.30]
$3,000
Income to noncontrolling common shareholders:
Reported net income of Upland Company
$30,000
Income to preferred shareholders
(10,000)
Income to common shareholders
$20,000
Proportion of common stock owned by
noncontrolling interest
x 0.20
4,000
Total income to noncontrolling interest
$7,000
3.
b –
Reported net income of Upland Company
$ 30,000
Operating income of Stacey Company
100,000
Consolidated net income
$130,000
Less: Income to noncontrolling interest
(7,000)
Income to controlling interest
$123,000
4.
c –
Controlling interest:
Common stock
$ 300,000
Retained earnings
350,000
Total controlling interest
$ 650,000
Noncontrolling interest: ($250,000 x 0.20) +
($100,000 x 0.30)
80,000
Total stockholders’ equity
$730,000
5.
a –
All preferred shares of the subsidiary are eliminated in preparing the
consolidated financial statements.
Chapter 9 – Consolidation Ownership Issues
P9–19 Subsidiary Stock Dividend
Alternative 1: Pound Manufacturing stock is split 2:1.
Book Value Calculations:
NCI
32%
+
Quick
Sales
68%
=
Common
Stock
+
Add.
Paid-In
Capital
+
Retained
Earnings
Beginning Book Value
144,000
306,000
100,000
70,000
280,000
-Stock Dividend
0
0
Ending Book Value
144,000
306,000
100,000
70,000
280,000
Book Value Calculations:
NCI 32%
Beginning Book Value
144,000
306,000
-Stock Dividend
40,000
Ending Book Value
144,000
Book Value Calculations:
Quick
68%
Add.
Capital
Beginning Book Value
144,000
306,000
100,000
70,000
-Stock Dividend
60,000
(75,000)*
Ending Book Value
144,000
306,000
115,000
130,000
Consolidated net income and income to controlling
Common Stock
115,000
Additional Paid-in Capital
130,000
Retained Earnings
205,000
Investment in Pound
306,000
NCI in NA of Pound
144,000
P9-20 Subsidiary Preferred Stock Outstanding
a.Calculation of Preferred/Common Equity
Preferred
Interest
Common
Interest
Preferred Stock
200,000
Common Stock
150,000
Retained Earnings*
32,000
168,000
Total
232,000
318,000
Emerald % interest
40% Preferred/70% Common
92,800
222,600
NCI % interest
60% Preferred/30% Common
139,200
95,400
*Preferred dividends are two years in arrears so that amount must be allocated to the preferred
shareholders from retained earnings.
Total NCI interest = 234,600 (139,200 Preferred interest + 95,400 Common interest)
Book Value Calculations:
NCI
60%/30%
+
Inv. PS
40%
+
Inv. CS
70%
=
Pref.
Stock
+
Com.
Stock
+
Ret.
Earn.
Book Value
234,600
92,800
222,600
200,000
150,000
200,000
Basic Consolidation Entry:
Preferred Stock
200,000
Common Stock
150,000
Retained Earnings
200,000
Investment in Pert Co. CS
222,600
Investment in Pert Co. PS
92,800
NCI in NA of Pert Co.
234,600
Chapter 9 – Consolidation Ownership Issues
[($34,000 – $16,000) x 0.30]
5,400
Income to noncontrolling interest
(15,000)
Income to controlling interest
$ 99,000
Alternate computation of income to controlling interest
Operating income of Emerald Corporation
$80,000
Income from preferred stock of Pert Company
($16,000 x 0.40)
6,400
Income from common stock of Pert Company
[($34,000 – $16,000) x 0.70]
12,600
Income to controlling interest
$99,000
P9-21 Ownership of Subsidiary Preferred Stock
a.
Preferred stockholders’ claim on net assets of Jacobs:
Liquidation value of preferred stock ($101 per share)
$202,000
20X6 dividends in arrears ($200,000 x 0.10)
20,000
Total preferred stockholder claim, December 31, 20X6
$222,000
b.
Book value of Jacobs common shares acquired by Presley:
Total Jacobs stockholders’ equity, December 31, 20X6
$3,155,000
Claim of preferred stockholders
(222,000)
Book value of Jacobs common stock
$2,933,000
Portion acquired by Presley
x 0.60
Book value of common shares acquired by Presley
$1,759,800
c.
Goodwill associated with acquisition of common shares:
Consideration given by Presley to acquire shares
$1,800,000
Fair value of noncontrolling interest in common shares
1,200,000
Total fair value
$3,000,000
Book value of common shares
(2,933,000)
Goodwill
$ 67,000
d.
Income to noncontrolling interest, 20X7:
Jacobs net income
$280,000
Less: impairment of goodwill
(26,000)
Less: 20X7 preferred dividends ($200,000 x 0.10)
(20,000)
Income accruing to common shareholders
$234,000
Noncontrolling common shareholders’ interest
x 0.40
Income to noncontrolling common shareholders
$ 93,600
Preferred dividends to noncontrolling
shareholders ($20,000 x 0.80)
16,000
Total income to noncontrolling shareholders
$109,600
e.
Presley’s income from investment in subsidiary common stock:
Jacobs net income
$280,000