Student Name:
Class:
Consolidation Entries Consolidated
Accounts Patrick O’Brien Debit Credit Totals
(1,125,000)$ (520,000)$ (1,645,000) Correct!
300,000 228,000 528,000 Correct!
75,000 70,000
[E]
3,000 142,000 Correct!
25,000 –
[E]
15,000 40,000 Correct!
(210,000) –
[ I ]
210,000 – Correct!
(935,000)$ (222,000)$ (935,000) Correct!
(700,000)$ (250,000)$
[S]
250,000 (700,000) Correct!
(935,000) (222,000) (935,000) Correct!
[D]
Cash
Retained earnings, 12/31
Dividends declared
Receivables
Inventory
[D]
[S]
[A]
[A]
[A]
[E]
[E]
[A]
[A]
Trademarks
Customer relationships
Investment in O‘Brien
Equipment (net)
Goodwill
Total assets
Retained earnings
Instructor
Amortization expense
Income of O’Brien
Net income
Consolidation Worksheet
For Year Ending December 31
Depreciation expense
Problem 03-28
Revenues
McGraw-Hill
Part c. only
Cost of goods sold
Retained earnings, 1/1
Net income
(2,664,000)$ (628,000)$ 888,000 888,000 (2,800,000) Correct!
Correct! Correct!
Parentheses indicate a credit balance.
Total liabilities and equity
Retained earnings, 12/31
Total liabilities and equity
Total assets
Liabilities
Common stock
Cash
Receivables
Inventory
Investment in O’Brien
Trademarks
Goodwill
Customer relationships
Equipment (net)
Retained earnings, 1/1
Net income
Dividends paid
Retained earnings, 12/31
Amortization expense
Income from O‘Brien
Net income
Depreciation expense
Year-end Financial Statements
Customer relationships (5-year remaining life)
Trademarks (indefinite life)
Revenues
Cost of goods sold
Equipment (10-year remaining life)
Carrying amount of O‘Brien’s net assets
PATRICK CORPORATION
O’Brian Company outstanding common stock
acquired by Patrick Corporation
Cash paid by Patrick Corporation
Given Data P03-28:
O’Brien assets unrecorded or differences in valuation:
Student Name:
Class:
470,000$
(360,000)
110,000$
Correct!
Life
(years)
60,000$ 6
50,000 10
110,000$
Correct!
490,000$
(230,000)
260,000$
(60,000)
200,000$
Correct!
Aaron retained earnings, 1/1/18
Total
Trademark
-Conversion to initial value method for years prior to 2018
Correct!
5,000
15,000$
Excess amortization expenses
Increase since acquisition date
Retained earnings at acquisition date
prior to 2018
Conversion to equity method for years
Part a. Michael Company and Aaron Company
Aaron fair value
Royalty agreements
based on fair market value:
Assigned to specific accounts
Excess fair over book value
Book value of subsidiary
– Fair Value allocation and Annual Amortization
10,000$
Annual
Excess
Amortizations
McGraw-Hill
Instructor
Problem 03-29
Student Name:
Class:
McGraw-Hill
Instructor
Problem 03-29
Consolidation Entries Consolidated
Accounts Michael Aaron Debit Credit Totals
(610,000) (370,000) (980,000) Correct!
270,000 140,000 410,000 Correct!
115,000 80,000 [E] 15,000 210,000 Correct!
(5,000) –
[ I ]
5,000 – Correct!
(230,000) (150,000) (360,000) Correct!
(880,000) [C] 200,000 (1,080,000) Correct!
(490,000) [S] 490,000 – Correct!
(230,000) (150,000) (360,000) Correct!
90,000 5,000
[ I ]
5,000 90,000 Correct!
(1,020,000) (635,000) (1,350,000) Correct!
110,000 15,000 125,000 Correct!
380,000 220,000 600,000 Correct!
560,000 280,000 840,000 Correct!
470,000 – [C] 200,000 [S] 620,000 – Correct!
[A] 50,000
460,000 340,000 800,000 Correct!
920,000 380,000 [A] 20,000 [E] 10,000 1,310,000 Correct!
– – [A] 30,000 [E] 5,000 25,000 Correct!
2,900,000 1,235,000 3,700,000 Correct!
(2,900,000) (1,235,000) 890,000 890,000 (3,700,000) Correct!
Total liabilities and equity
Parentheses indicate a credit balance.
Retained earnings, 12/31
Preferred stock
Liabilities
Common stock
Additional paid-in capital
Part a. Consolidated Worksheet
For Year Ending December 31, 2018
Consolidation Worksheet
MICHAEL COMPANY AND CONSOLIDATED SUBSIDIARY
Dividend income
Amortization expense
Cash
Investment in Aaron Co.
Inventory
Receivables
Total assets
Trademark
Royalty agreements
Copyrights
Retained earnings, 12/31
Dividends declared
Net income
Cost of goods sold
Revenues
Retained earnings, 1/1
Net income
Student Name:
Class:
McGraw-Hill
Instructor
Problem 03-29
New
Account Balance
135,000$ Correct!
1,080,000 Correct!
800,000 Correct!
Consolidated figures are not affected by the investment method used by the parent.
The parent company balances would differ and changes would be required in the
worksheet entries. However, the figures to be reported do not depend on the
parent’s selection of a method.
No Entry *C is needed on the worksheet if the equity method is applied. Both the
investment account as well as the beginning retained earnings would be stated
appropriately. Entry I would have been used to eliminate the $135,000 Equity in
Earnings of Aaron from the parent’s income statement and from the Investment in
Aaron Co. account. Entry D would eliminate the $5,000 current year dividend from
Dividends Paid and the Investment in Aaron account balances.
Investment in Aaron
Retained earnings, 1/1/18
Equity in Earnings of Aaron
Part b. Equity method – What account balances would be altered
on Michael‘s financial statements?
consolidation figures to be reported by this combination.
Part d. Equity method – What changes would be created in the
Consolidation Worksheet?
consolidation entries in the December 31, 2015
Part c. Equity method – What changes would be necessary in the
100%
20,000$
23.50$
230,000$
360,000$
60,000$
6
50,000$
10
Michael Aaron
Company Company
12/31/2018 12/31/2018
(610,000)$ (370,000)$
270,000 140,000
115,000 80,000
(5,000) –
Retained earnings, 1/1/18
Cash
Dividends declared
Net income
Retained earnings, 12/31/18
Additional paid-in capital
Common stock
Preferred Stock
Liabilities
Royalty agreements
Copyrights
Investment in Aaron Company
Inventory
Receivables
Cost of goods sold
Revenues
Dividend income
Amortization expense
Michael Company’s $1 par common stock issued
acquired by Michael Company
Aaron Company outstanding common stock
Given Data P03-29:
MICHAEL COMPANY
Remaining life of Aaron‘s trademark – years
Fair value of Aaron‘s trademark
Remaining life of Aaron‘s royalty agreements – years
Aaron‘s royalty agreements undervalued by
Book value for Aaron at date of purchase
Aaron‘ reported retained earnings at date of purchase
Fair market value of Michael stock – per share
for acquisition – number of shares
Student Name:
Class:
Life Excess
(years) Amortizations
90,000$ –
50,000 10
60,000 indefinite
200,000$
Correct!
Balance
1,535,000$
640,000$
307,000$
–$
588,000$
1,417,000$
310,000$
1,695,000$
706,000$
Buildings
Land
Investment in Small
The parent’s asset is removed so that Small‘s individual asset and liability
accounts can be brought into the consolidation.
Both book balances are added together along with the acquisition-date
fair value allocation of $90,000.
Both book balances are added together.
Cost of goods sold
Revenues
b. Totals to be reported by business combination for year ending December 31, 2018
Account Name
Explanation
Both balances are added together.
McGraw-Hill
Instructor
a. How was $135,000 Equity in Income of Small balance computed?
Fair value allocations
–
5,000$
Correct!
Total
Goodwill
Equipment
Land
–$
5,000
Problem 03-30
Consolidated expenses are subtracted from consolidated revenues.
Current assets
Retained earnings, 12/31/18
Dividends declared
Both balances are added together.
The parent’s balance.
The parent number alone because the subsidiary‘s dividends are intra-
entity.
The parent’s balance at beginning of the year plus consolidated net
income less consolidated dividends declared.
Both book balances are added together while the $10,000 intra-entity
receivable is eliminated.
Both balances are added together along with excess equipment
depreciation.
The parent’s Equity in Income of Small balance is removed and replaced
with Small‘s individual revenue and expense accounts.
Depreciation expense
Retained earnings, 1/1/18
Net income
Equity in Income of Small
Student Name:
Class:
McGraw-Hill
Instructor
Problem 03-30
959,000$
60,000$
3,143,000$
1,198,000$
250,000$
1,695,000$
3,143,000$
Goodwill
Equipment
Retained earnings, 12/31/18
Common stock
Liabilities
Total assets
Total liabilities & equity
Computed above.
Summation of all consolidated liabilities and equity.
Both book balances are added plus the unamortized portion of the
acquisition-date fair value allocation.
Both balances are added together while the $10,000 intra-entity payable
is eliminated.
Represents the original price allocation
Summation of all consolidated assets.
Parent balance only.
Student Name:
Class:
McGraw-Hill
Instructor
Problem 03-30
Consolidation Entries Consolidated
Accounts Giant Small Debit Credit Totals
(1,175,000) (360,000) (1,535,000) Correct!
550,000 90,000 640,000 Correct!
172,000 130,000 [E] 5,000 307,000 Correct!
(135,000) –
[ I ]
135,000 – Correct!
(588,000) (140,000) (588,000) Correct!
(1,417,000) (620,000) [S] 620,000 (1,417,000) Correct!
(588,000) (140,000) (588,000) Correct!
310,000 110,000 [D] 110,000 310,000 Correct!
(1,695,000)$ (650,000)$ (1,695,000) Correct!
[ I ]
Investment in Small
Current assets
440,000 165,000 [A] 90,000 695,000 Correct!
304,000 419,000 723,000 Correct!
648,000 286,000 [A] 30,000 [E] 5,000 959,000 Correct!
– – [A] 60,000 60,000 Correct!
2,785,000 1,188,000 3,143,000 Correct!
(840,000) (368,000) [P] 10,000 (1,198,000) Correct!
(2,785,000) (1,188,000) 1,230,000 1,230,000 (3,143,000) Correct!
Retained earnings
Common stock
Total liabilities and equity
Account Debit Credit
Goodwill impairment loss 60,000
Investment in Small 60,000
Total assets
Goodwill
Equipment (net)
Buildings (net)
Net income
Depreciation expense
Costs of goods sold
Revenues
Retained earnings, 12/31
Dividends declared
Net income
Retained earnings, 1/1
Land
If all goodwill from the Small investment was determined to be impaired, Giant
would make the following journal entry on its books:
After this entry, the worksheet process would no longer require an adjustment in
Entry (A) to recognize goodwill. The impairment loss would simply carry over to the
consolidated income column. The impairment loss would be reported as a separate
line item in the operating section of the consolidated income statement.
Part c. Consolidated Worksheet
Part d.
Parentheses indicate a credit balance.
GIANT COMPANY
For Year Ending December 31, 2018
Consolidation Worksheet
GIANT COMPANY AND SMALL COMPANY
Liabilities
Equity income of Small
General Journal
100%
90,000$
50,000$
60,000$
10,000$
Giant Small
12/31/2018 12/31/2018
(1,175,000)$ (360,000)$
550,000 90,000
172,000 130,000
(135,000) –
(588,000)$ (140,000)$
(1,417,000)$ (620,000)$
(588,000) (140,000)
310,000 110,000
(1,695,000)$ (650,000)$
398,000$ 318,000$
995,000 –
440,000 165,000
304,000 419,000
648,000 286,000
– –
2,785,000$ 1,188,000$
(2,785,000)$ (1,188,000)$
Total liabilities and equity
Retained earnings
Common stock
Liabilities
Revenues
Retained earnings, 12/31/18
Dividends declared
Net income
Retained earnings, 1/1/18
Current assets
Net income
Equity in income of Small
Depreciation expense
Cost of goods sold
Portion of fair value price applied to equipment with 10-year life
Portion of fair value price applied to undervalued land
Small outstanding common stock purchased by Giant
Given Data P03-30:
Total assets
Goodwill
Equipment (net)
Buildings (net)
Land
Investment in Small
Amount Small owes Giant on December 31, 2018
Portion of unallocated fair value price allocated to goodwill
Student Name:
Class:
Life
Allocation (years)
20,000$ –
(30,000) 10
60,000 5
100,000 20
Balance Explanation
850,000$
380,000$
179,000$
5,000$
450,000$
75,000$
300,000$
50,000$
Buildings (net)
Add the two book values less the acquisition-date fair value allocation [a
$30,000 reduction] after removing 5 years of amortization totaling
5,000
Amortization expense
Total
Customer list
–
14,000$
Correct!
Parent company balance only.
Parent company balance only.
Current amortization for customer list recognized in acquisition.
Depreciation expense
Cost of goods sold
Revenues
Common stock
Customer list
Equipment (net)
The accounts are added and include the excess depreciation adjustment
of $9,000.
$100,000 original allocation less $25,000 (5 years of amortization).
The accounts of both companies are added together.
Add the two book values.
$15,000.
Add the two book values. The acquisition-date fair value allocation is
completely amortized at end of current year.
Additional paid-in capital
Instructor
a. Fair Value Allocation and Annual Amortization
Account Name
Amortizations
Excess
Annual
(3,000)$
12,000
Problem 03-32
McGraw-Hill
Equipment
Buildings
Land
Student Name:
Class:
Instructor
Problem 03-32
McGraw-Hill
Debit Credit
40,000 Correct!
160,000 Correct!
600,000 Correct!
800,000
20,000 Correct!
12,000 Correct!
80,000 Correct!
18,000
40,000 Correct!
40,000
5,000 Correct!
9,000 Correct!
3,000 Correct!
12,000
5,000
Investment income
Correct!
Correct!
Investment in Hill
Investment in Hill
Consolidation Entry I
(To remove intra-entity dividend declarations)
Consolidation Entry A
Investment in Hill
Consolidation Entry D
Depreciation expense
Amortization expense
Consolidation Entry E
Customer list (net)
Equipment (net)
Land
Dividends declared
(To recognize excess acquisition-date fair-value amortizations for the period)
[based on subsidiary’s income] less amortization for the year)
(To remove equity income recognized during year-equity method accrual
Customer list
Equipment
Buildings
Correct!
Correct!
Correct!
the consolidation method used?
Part b. Why can consolidated totals be determined without knowing
consolidation entries would be used?
Part c. If the equity method is used by the parent, what
Correct!
Buildings (net)
Investment in Hill
Retained earnings, 1/1
(To eliminate beginning stockholders’ equity of subsidiary)
Additional paid-in capital (Hill)
Common stock (Hill)
Consolidation Entry S
Account
General Journal
MERGARONITE COMPANY
The method used by the parent is only important in determining the parent’s
separate account balances (which are given here or are not needed) or
consolidation worksheet entries (which are not required in part a.).
Correct!
Mergaronite Hill
12/31/2018 12/31/2018
(600,000)$ (250,000)$
280,000 100,000
120,000 50,000
Not given NA
(900,000) (600,000)
130,000 40,000
200,000 690,000
300,000 90,000
500,000 140,000
200,000 250,000
(400,000) (310,000)
(300,000) (40,000)
(50,000) (160,000)
7,000
100$
20,000$
30,000$
60,000$
10
5
100,000$
20
Hill‘s buildings overvalued by
Hill‘s land undervalued by
Fair market value of Mergaronite stock – per share
Retained earnings, 1/1/18
Investment income
Mergaronite’s $10 par common stock issued
Equipment (net)
Buildings (net)
Land
for acquisition of Hill – number of shares
Additional paid-in capital
Common stock
Liabilities
Current assets
Remaining life of Hill’s customer list – years
Appraised value of Hill‘s customer list
Remaining life of equipment – years
Remaining life of buildings – years
Hill‘s equipment undervalued by
Dividends declared
Given Data P03-32:
Revenues
Depreciation expense
Cost of goods sold