Chapter 04 – Consolidated Financial Statements and Outside Ownership – Hoyle, Schaefer, Doupnik, 13e
Education.
33. (35 Minutes) (Consolidation entries and the effect of different investment
methods)
a. From the original fair value allocation, $30,000 is assigned based on the fair
value of the patent. With a 5-year remaining life, excess amortization will be
$6,000 per year.
Noncontrolling interest in Bandmor, 1/1/18 170,400
(To eliminate stockholders’ equity accounts of subsidiary and recognize
outside ownership. Retained earnings figure includes 2016 and 2017 net
income and dividends.)
Entry A
allocations. No control premium, so goodwill is allocated proportionately.
Patent has undergone two years amortization)
Entry I
Equity in Bandmor earnings ……………………. 72,800
Investment in Bandmor ………………………. 72,800
(To eliminate current intra-entity dividend transfers—70% of $60,000)
Entry E
Amortization expense ………………………………. 6,000
Patent ………………………………………………… 6,000
(To recognize amortization for current year)
Chapter 04 – Consolidated Financial Statements and Outside Ownership – Hoyle, Schaefer, Doupnik,
13e
4-22
Education.
33. (continued)
b. If the initial value method had been applied, the parent would have recorded
only the subsidiary dividends declared as income rather than an equity
accrual. Therefore, Entry *C is needed to adjust the parent’s beginning
retained earnings for 2018 to the equity method. During 2016 and 2017, the
($61,600 – $8,400).
ENTRY *C
Investment in Bandmor …………………………... 53,200
Retained earnings, 1/1/18 …………………… 53,200
c. If the partial equity method had been applied, only the excess amortization
Investment in Bandmor ………………………. 8,400
d. Net income attributable to noncontrolling interest—2018
[($110,000 – 6,000) × 30%] ……………………….. $31,200
Noncontrolling interest (NCI) fair value January 1, 2016 $210,000
Adjustments to original basis:
2018 Net income to noncontrolling interest ….. $31,200
Dividends to NCI …………………………..…….. (18,000) 13,200
Noncontrolling interest in Bandmor 12/31/18 …. $246,000
–OR–
Chapter 04 – Consolidated Financial Statements and Outside Ownership – Hoyle, Schaefer, Doupnik, 13e
4-23
34. (45 Minutes) (Asks about several consolidated balances and consolidation
process. Includes the different accounting methods to record investment.)
a. Schedule 1—Fair Value Allocation and Excess Amortizations
Consideration transferred by Miller ……… $664,000
Noncontrolling interest fair value …………. 166,000
Excess fair value assigned to buildings 80,000 20 years $4,000
Goodwill …………………………………………….. $150,000 indefinite -0-
Total ………………………………………………. $4,000
b. $150,000 (see schedule 1 above)
c. Entry (S)
Entry (A)—no control premium
Buildings …………………………………………………….. 80,000
Goodwill ……………………………………………………… 150,000
Investment in Taylor Company (80%) ………. 184,000
Noncontrolling interest in Taylor (20%) ……. 46,000
d. (1) Equity method
Income accrual (80%) ……………………………………. $56,000
Education.
Chapter 04 – Consolidated Financial Statements and Outside Ownership – Hoyle, Schaefer, Doupnik, 13e
Education.
35. (20 Minutes) (A variety of consolidated balances-midyear acquisition)
Consideration transferred by Karson
(cash and contingent consideration) ……… $1,360,000
Noncontrolling interest fair value …………….. 340,000
Reilly’ fair value (given)…………………………….. $1,700,000
Goodwill ………………………………………………. $100,000 indefinite -0-
Total …………………………………………………. $30,000
*Reilly book value, January 1
(Common stock + APIC + RE) …………………. $1,400,000
Increase in book value:
Reilly book value, July 1 (acquisition date)…… $1,450,000
CONSOLIDATION TOTALS:
▪ Sales (1) $1,050,000
▪ Cost of goods sold (2) 540,000
▪ Retained earnings, 1/1 = $1,400,000 (the parent’s balance because the
subsidiary was acquired during the current year)
Chapter 04 – Consolidated Financial Statements and Outside Ownership – Hoyle, Schaefer, Doupnik,
13e
4-26
Education.
36. (25 Minutes) (A variety of consolidated questions and balances)
a. Nascent applies the initial value method because the original price of
$414,000 is still in the Investment in Sea-Breeze account. In addition, the
Investment Income account is equal to 60 percent of the dividends declared
by the subsidiary during the year.
b. Consideration transferred in acquisition . $414,000
Noncontrolling interest fair value …………. 276,000
c. If the equity method had been applied, the Investment Income account would
show the basic equity accrual less amortization: 60% of (the subsidiary‘s net
income of $90,000 less $15,000 excess fair value amortization) = $45,000.
d. The initial value method recognizes neither the increase in the subsidiary‘s
book value nor the excess amortization expenses for prior years. At the
Parent’s share of consolidated retained earnings, 1/1/18 …… $811,000
e. Consolidated net income and allocation
▪ Revenues (add book values) $900,000
Chapter 04 – Consolidated Financial Statements and Outside Ownership – Hoyle, Schaefer, Doupnik, 13e
4-27
Education.
36. (continued)
f. Consolidated buildings, 1/1/16 (subsidiary):
Book value ………………………………………………………………….. $300,000
Acquisition-date fair-value allocation ………………………….. 60,000
Consolidation figure …………………………………………………… $360,000
g. Consolidated buildings, 12/31/18:
Parent’s book value ……………………………………………………. $700,000
Chapter 04 – Consolidated Financial Statements and Outside Ownership – Hoyle, Schaefer, Doupnik,
13e
Education.
37. (45 minutes) (Acquisition Method Consolidated Balances)
Adjustments
December 31, 2018
Paloma
San Marco
& Eliminations
NCI
Consolidated
Revenues
(1,843,000)
(675,000)
(2,518,000)
Cost of goods sold
1,100,000
322,000
1,422,000
Depreciation expense
125,000
120,000
245,000
Amortization expense
275,000
11,000
(E) 80,000
366,000
Interest expense
27,500
7,000
34,500
Equity in San Marco Income
(121,500)
(I)121,500
-0-
Separate company
net income
(437,000)
(215,000)
Consolidated net income
(450,500)
To noncontrolling interest
(13,500)
(13,500)
To Paloma Company
(437,000)
Retained Earnings 1/1
(2,625,000)
(395,000)
(S)395,000
(2,625,000)
Net Income
(437,000)
(215,000)
(437,000)
Dividends declared
350,000
25,000
(D) 22,500
2,500
350,000
Retained Earnings 12/31
(2,712,000)
(585,000)
(2,712,000)
Current Assets
1,204,000
430,000
1,634,000
Investment in San Marco
1,854,000
(D) 22,500
(S)769,500
(A)985,500
-0-
(I) 121,500
Customer base
-0-
-0-
(A)720,000
(E) 80,000
640,000
Buildings and Equipment
931,000
863,000
1,794,000
Copyrights
950,000
107,000
1,057,000
Goodwill
(A)375,000
375,000
Total Assets
4,939,000
1,400,000
5,500,000
Accounts Payable
(485,000)
(200,000)
(685,000)
Notes Payable
(542,000)
(155,000)
(697,000)
NCI in San Marco
(S) 85,500
(A)109,500
(195,000)
(206,000)
(206,000)
Common Stock
(900,000)
(400,000)
(S)400,000
(900,000)
Additional Paid-In Capital
(300,000)
(60,000)
(S) 60,000
(300,000)
Retained Earnings 12/31
(2,712,000)
(585,000)
(2,712,000)
Total Liab. and SE
(4,939,000)
(1,400,000)
2,174,000
2,174,000
(5,500,000)
Chapter 04 – Consolidated Financial Statements and Outside Ownership – Hoyle, Schaefer, Doupnik, 13e
37. (continued)
Controlling Noncontrolling
Interest Interest
Fair value at acquisition date $1,710,000 $190,000
Relative fair values of identifiable net assets
b. If the acquisition-date fair value of the noncontrolling interest was $167,500, both
goodwill (NCI portion) and the noncontrolling interest balance would be reduced
equally by $22,500 as follows:
Fair value of San Marco Company (1,710,000 + 167,500) $1,877,500
Carrying amount acquired 725,000
Excess fair value 1,152,500
to customer base 800,000
* NCI at beginning of year
Common stock-subsidiary $400,000
APIC-subsidiary 60,000
Retained earnings-subsidiary 1/1 395,000
Total $855,000
Controlling Noncontrolling
Interest Interest
Fair value at acquisition date $1,710,000 $167,500
Relative fair values of identifiable net assets
90% and 10% of $1,525,000 (acquisition date
Chapter 04 – Consolidated Financial Statements and Outside Ownership – Hoyle, Schaefer, Doupnik,
13e
38. (60 Minutes) (Consolidation worksheet and income statement with parent using
initial value method. Also consolidated balances with a control premium paid
by parent.)
a. Fair Value Allocation and Amortization
Consideration transferred by Holtz ……………. $576,000
accounts based on fair value: life amortizations
Building …………………………..………………….. 85,500 5 years $17,100
Trademark …………………………………………. 64,000 10 years 6,400
Goodwill ……………………………………………… $244,000 indefinite -0-
$23,500
Explanation of Consolidation Entries Found on Worksheet
Entry *C: Convert the parent’s 1/1/18 retained earnings balance from the initial
value method to the accrual basis.
Change in subsidiary RE from 1/1/17 to 1/1/18
($296,500 – $226,500) …………………………..………… $70,000
Excess amortization for 2017 …………………………..…. 23,500
Adjusted subsidiary RE increase………………………… $46,500
Percentage ownership by parent ………………………… 80%
4-31
38. a. (continued) HOLTZ CORPORATION AND DEVINE, INC.
Consolidation Worksheet
For Year Ending December 31, 2018
Holtz Devine Consolidation Entries Noncontrolling Consolidated
Accounts Corporation Inc. Debit Credit Interest Totals
Sales (641,000) (399,000) (1,040,000)
Cost of goods sold 198,000 176,000 374,000
Operating expenses 273,000 126,000 (E) 23,500 422,500
Dividend income (16,000) ___ _-0- (I) 16,000 -0-
Separate company net income (186,000) (97,000)
Retained earnings, 1/1 (762,000) (296,500) (S) 296,500 (*C) 37,200 (799,200)
Net income (above) (186,000) (97,000) (228,800)
Buildings and equipment (net) 887,000 335,000 (A) 68,400 (E) 17,100 1,273,300
Trademarks 149,000 236,000 (A) 57,600 (E) 6,400 436,200
Goodwill –0- -0- (A)244,000 244,000
Total assets 1,733,000 691,500 2,195,000
Liabilities (535,000) (218,000) (753,000)
Total liabilities and equities (1,733,000) (691,500) 843,200 843,200 (2,195,000)
Chapter 04 – Consolidated Financial Statements and Outside Ownership – Hoyle, Schaefer,
Doupnik, 13e
4-32
Education.
38. (continued)
b. HOLTZ CORPORATION AND DEVINE, INC.
Consolidated Income Statement
For Year Ending December 31, 2018
Sales $1,040,000
Cost of goods sold $374,000
Operating expenses 422,500
c. Consideration transferred by Holtz for 80% of Devine $576,000
Noncontrolling interest fair value ($4.76 × 20,000 shares) 95,200
Devine fair value $671,200
Fair value of Devine’s underlying net assets 476,000
acquisition-date fair value:
(S) Common stock-Devine 100,000
Retained earnings- Devine 1/1 296,500
Investment in Devine 317,200
Noncontrolling interest 79,300
(A1) Buildings and equipment (net) 68,400
Trademarks 57,600
Investment in Devine 100,800
Chapter 04 – Consolidated Financial Statements and Outside Ownership – Hoyle, Schaefer, Doupnik, 13e
4-33
Education.
39. (40 Minutes) (Determine consolidated balances.)
Acquisition-date subsidiary fair value (given) … $1,003,400
Book value of subsidiary (given) ………………….. (690,000)
Fair value in excess of book value ………………… $ 313,400
Allocations to specific accounts based on difference
between fair value and book value
Consolidated Totals:
▪ Revenues = $2,079,880 (add the two book values)
▪ Cost of goods sold = $1,206,000 (add the two book values)
▪ Depreciation expense = $283,200 (add the two book values less $2,400
excess adjustment)
▪ Amortization expense = $10,800 (add the two book values plus $4,700
Chapter 04 – Consolidated Financial Statements and Outside Ownership – Hoyle, Schaefer,
Doupnik, 13e
4-34
39. (continued)
▪ Retained earnings, 12/31 = $1,487,000 (consolidated balance on 1/1 plus net
income to Padre Co. less Padre’s dividends declared) or simply the
parent’s RE because parent employs the equity method.
▪ Additional paid-in capital = 450,000 (parent company balance)
▪ Retained earnings, 12/31 = $1,487,000 (computed above)
▪ Total liabilities and equities = $3,638,860
4-35
39. (continued)
Consolidation Entries Noncontrolling Consolidated
Accounts Padre Sierra Debit Credit Interest Totals
Revenues …………………………………….. (1,394,980) (684,900) (2,079,880)
Cost of goods sold ……………………….. 774,000 432,000 1,206,000
Consolidated net income ………………. (516,280)
NI to noncontrolling interest ………… (44,280) 44,280
NI to Padre Company …………………. (472,000)
Retained earnings 1/1 …………………… (1,275,000) (530,000) (S) 530,000 (1,275,000)
Net income (above) ……………………… (472,000) (226,000) (472,000)
………………………………………………. (A) 250,720 -0-
Land ……………………………………………. 360,000 65,000 (A) 225,000 650,000
Buildings and equipment (net) ………. 909,000 275,400 (E) 2,400 (A) 24,000 1,162,800
Total assets ……………………………. 3,053,000 1,221,000 3,638,860
Common stock ……………………………. (300,000) (100,000) (S) 100,000 (300,000)
Additional paid-in capital ………………. (450,000) (60,000) (S) 60,000 (450,000)
Retained earnings 12/31…. (above) … (1,487,000) (691,000) (1,487,000)
Total liab. and stockholders’ equity (3,053,000) (1,221,000) 1,265,920 1,265,920 (3,638,860)