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ization.
Solutions14-12
(8) Amortization Expense………………………………………. 4,000
Investment in Stock of Vogel Company…………… 4,000
Assets = Liabilities +
Shareholders’
Equity (Class.)
Vogel Company’s Books
Assets = Liabilities +
Shareholders’
Equity (Class.)
Assets = Liabilities +
Shareholders’
Equity (Class.)
(4) Accounts Payable ……………………………………………..16,000
Assets = Liabilities +
Shareholders’
Equity (Class.)
account.
14-13Solutions
a. (1) When Parent uses the equity method, it recognizes 80% of
the net income of Sub. When Parent prepares
consolidated financial
expenses, and net income of Sub and then subtracts the
20% noncontrolling interest share of net income. Thus, net
income is the same whether Parent uses the equity method
or consolidates Sub.
(2) Liabilities in the numerator increase by the amount
of
the liabilities of Sub. Assets in the denominator decrease
by the
Sub’s assets. In this case where there is no excess purchase
price, the denominator increases by the liabilities (=
assets of Sub minus shareholders’ equity) of Sub. Equal
increases in the numerator and denominator of a ratio that
1.0 result in an increase in the
b. (1) The Parent or investor’s share of Sub’s net income declines,
regardless of whether the amount appears on the single
line, Equity in Earnings of Sub, or on multiple revenue and
expense lines.
(2) Total assets decrease when using the equity meth
od
because the investor invests less. Total assets do not
decrease when preparing consolidated financial statements
because Parent eliminates its Investment in Sub account
(3) The liabilities of Sub do not appear on Parent’s balance
sheet when it uses the equity method, regardless of the
ownership percentage.
(4) Total liabilities do not change when preparing
consolidated
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ights reserved. No
d
is
t
r
ibution allowed without express
a
u
t
hor
ization.
Assets = Liabilities +
Shareholders’
Equity (Class.)
(6) Retained Earnings……………………………………………. 20,000
Assets = Liabilities +
Shareholders’
Equity (Class.)
14.23 (Alpha/Omega; working backward from data that has eliminate
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ights reserved. No
d
is
t
r
ibution allowed without express
a
u
t
hor
ization.
statements with Sub, it recognizes 100% of
the revenues,
financial statements because Parent consolidates 100% of
Sub’s liabilities, regardless of its ownership percentage.
14-15Solutions
14.25 b. continued.
(5) Shareholders’ equity decreases when using the equity
(6) Assets and liabilities do not change with the
© 2013 Cengage Learning. All
r
ights reserved. No
d
is
t
r
ibution allowed without express
a
u
t
hor
ization.
14.26 (Effect of errors on financial statements.)
Shareholders’
Assets Liabilities Equity
Net
Income
a. O/S
N
o
O/S
O/S
Solutions14-16
14.27 (Ely Company and Sims Company; preparing a consolidated
balance sheet.) (amounts in US$)
Asset
s
Ely
Sims
Company Company
Consolidated
Current
Li
ab
ili
t
i
e
s
………….….
$ 45,000 $ 40,000 $ 77,
50
0
Common
Stock
………….……....
50,000 10,000
50,00
0
Retained Earnings
………….….
10
5
,
00
0
5
0
,
00
0
10
5
, 00
Total Liabilities and
Shareholders’ Eq
ui
ty
…
$ 20
0
, 00
0 $
10
0
, 00
0
$
23
2
, 50
0
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ights reserved. No
d
is
t
r
ibution allowed without express
a
u
t
hor
ization.
2
, 50
0
Liabilities and Share-
holders’ Equity
Other Assets (Goodwill)………………………………………… 18,000
Assets = Liabilities +
Shareholders’
Equity (Class.)
Assets = Liabilities +
Shareholders’
Equity (Class.)
14-17Solutions
14.28 (Company P and Company S; preparing a consolidated balance
sheet.) (amounts in US$)
a. Company P Company S
Consolidated
Assets
Ca
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ights reserved. No
d
is
t
r
ibution allowed without express
a
u
t
hor
ization.
0
Liabilities and
Share- holders’
Equity
Accounts and Notes
0
Additional Paid-In
Retained
Property, Plant, and Eq
Investment in Company
0
Assets = Liabilities +
Shareholders’
Equity (Class.)
Solutions14-18
Assets = Liabilities +
Shareholders’
Equity (Class.)
–16,400 –16,400
IncSt ïƒ
RE
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r
ights reserved. No
d
is
t
r
ibution allowed without express
a
u
t
hor
ization.
To eliminate intercompany
note.
b. The unamortized excess acquisition cost on December 31,
2014, is
0
c. Acquisition Cost on January 1, 2013 ……………………………..$
710,000
0
14.29 (Peak Company and Valley Company; equity method and
consolidated financial statements.) (amounts in US$)
a. January 1
Investment in Valley Compa
n
y …………………………. 50,000
Ca
sh
……….…….…….…….……..…….…….…….…….… 50,000
Assets = Liabilities +
Shareholders’
Equity (Class.)
Accounts Payable
…………
Bonds
0
Common
Retained
4
,
00
0
5
1
,
00
0
11
4
, 00
Total Liabilities and
Shareholders’
Equity ………………..
..
$ 25
4
0 $ 11
1
$
December 31
Assets = Liabilities +
Shareholders’
Equity (Class.)
b. Peak
Valley
Company Company
Consolidated
Assets
Ca
sh
…………………………… $ 33,000 $ 6,000 $
1
, 00
0
$
30
1
, 00
0
Liabilities and Share- holders’
Equity
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ights reserved. No
d
is
t
r
ibution allowed without express
a
u
t
hor
ization.
a. (1) When Parent uses the equity method, it recognizes 80% of
the net income of Sub. When Parent prepares
consolidated financial
expenses, and net income of Sub and then subtracts the
20% noncontrolling interest share of net income. Thus, net
income is the same whether Parent uses the equity method
or consolidates Sub.
(2) Liabilities in the numerator increase by the amount
of
the liabilities of Sub. Assets in the denominator decrease
by the
Sub’s assets. In this case where there is no excess purchase
price, the denominator increases by the liabilities (=
assets of Sub minus shareholders’ equity) of Sub. Equal
increases in the numerator and denominator of a ratio that
1.0 result in an increase in the
b. (1) The Parent or investor’s share of Sub’s net income declines,
regardless of whether the amount appears on the single
line, Equity in Earnings of Sub, or on multiple revenue and
expense lines.
(2) Total assets decrease when using the equity meth
od
because the investor invests less. Total assets do not
decrease when preparing consolidated financial statements
because Parent eliminates its Investment in Sub account
(3) The liabilities of Sub do not appear on Parent’s balance
sheet when it uses the equity method, regardless of the
ownership percentage.
(4) Total liabilities do not change when preparing
consolidated
© 2013 Cengage Learning. All
r
ights reserved. No
d
is
t
r
ibution allowed without express
a
u
t
hor
ization.
Assets = Liabilities +
Shareholders’
Equity (Class.)
(6) Retained Earnings……………………………………………. 20,000
Assets = Liabilities +
Shareholders’
Equity (Class.)
14.23 (Alpha/Omega; working backward from data that has eliminate
© 2013 Cengage Learning. All
r
ights reserved. No
d
is
t
r
ibution allowed without express
a
u
t
hor
ization.
statements with Sub, it recognizes 100% of
the revenues,
financial statements because Parent consolidates 100% of
Sub’s liabilities, regardless of its ownership percentage.
14-15Solutions
14.25 b. continued.
(5) Shareholders’ equity decreases when using the equity
(6) Assets and liabilities do not change with the
© 2013 Cengage Learning. All
r
ights reserved. No
d
is
t
r
ibution allowed without express
a
u
t
hor
ization.
14.26 (Effect of errors on financial statements.)
Shareholders’
Assets Liabilities Equity
Net
Income
a. O/S
N
o
O/S
O/S
Solutions14-16
14.27 (Ely Company and Sims Company; preparing a consolidated
balance sheet.) (amounts in US$)
Asset
s
Ely
Sims
Company Company
Consolidated
Current
Li
ab
ili
t
i
e
s
………….….
$ 45,000 $ 40,000 $ 77,
50
0
Common
Stock
………….……....
50,000 10,000
50,00
0
Retained Earnings
………….….
10
5
,
00
0
5
0
,
00
0
10
5
, 00
Total Liabilities and
Shareholders’ Eq
ui
ty
…
$ 20
0
, 00
0 $
10
0
, 00
0
$
23
2
, 50
0
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r
ights reserved. No
d
is
t
r
ibution allowed without express
a
u
t
hor
ization.
2
, 50
0
Liabilities and Share-
holders’ Equity
Other Assets (Goodwill)………………………………………… 18,000
Assets = Liabilities +
Shareholders’
Equity (Class.)
Assets = Liabilities +
Shareholders’
Equity (Class.)
14-17Solutions
14.28 (Company P and Company S; preparing a consolidated balance
sheet.) (amounts in US$)
a. Company P Company S
Consolidated
Assets
Ca
© 2013 Cengage Learning. All
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ights reserved. No
d
is
t
r
ibution allowed without express
a
u
t
hor
ization.
0
Liabilities and
Share- holders’
Equity
Accounts and Notes
0
Additional Paid-In
Retained
Property, Plant, and Eq
Investment in Company
0
Assets = Liabilities +
Shareholders’
Equity (Class.)
Solutions14-18
Assets = Liabilities +
Shareholders’
Equity (Class.)
–16,400 –16,400
IncSt ïƒ
RE
© 2013 Cengage Learning. All
r
ights reserved. No
d
is
t
r
ibution allowed without express
a
u
t
hor
ization.
To eliminate intercompany
note.
b. The unamortized excess acquisition cost on December 31,
2014, is
0
c. Acquisition Cost on January 1, 2013 ……………………………..$
710,000
0
14.29 (Peak Company and Valley Company; equity method and
consolidated financial statements.) (amounts in US$)
a. January 1
Investment in Valley Compa
n
y …………………………. 50,000
Ca
sh
……….…….…….…….……..…….…….…….…….… 50,000
Assets = Liabilities +
Shareholders’
Equity (Class.)
Accounts Payable
…………
Bonds
0
Common
Retained
4
,
00
0
5
1
,
00
0
11
4
, 00
Total Liabilities and
Shareholders’
Equity ………………..
..
$ 25
4
0 $ 11
1
$
December 31
Assets = Liabilities +
Shareholders’
Equity (Class.)
b. Peak
Valley
Company Company
Consolidated
Assets
Ca
sh
…………………………… $ 33,000 $ 6,000 $
1
, 00
0
$
30
1
, 00
0
Liabilities and Share- holders’
Equity
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ights reserved. No
d
is
t
r
ibution allowed without express
a
u
t
hor
ization.