Student Name:
Class:
372,000$
248,000
620,000$
(320,000)
300,000$ Annual
Correct! Life in Excess
Years
Amortizations
70,000 10 7,000$
45,000 15 3,000
185,000$ indefinite –
Correct! 10,000$
Correct!
372,000$
36,000$
(6,000)
(10,000) 20,000
28,000
(9,000)
411,000$
Correct!
60,000$
(10,000)
50,000$
60%
30,000$
10,000
(12,000)
28,000
Correct!
2017 2018
50,000 40,000
20% 30%
2017 ending inventory profit deferral
McIlroy’s equity in earnings of Stinson for 2018 (calculate below)
Stinson 2018 dividends declared to McIlroy
Investment account balance 12/31/18
McIlroy’s share of Stinson’s adjusted net income
2017 Intra-entity inventory profit recognized (calculate below)
2018 Intra-entity inventory profit deferred (calculate below)
McIlroy’s equity in earnings of Stinson
Stinson’s 2018 income
Excess fair value amortization
Adjusted net income
McIlroy’s percentage ownership
Fair value in excess of book value
Problem 05-31
McGraw-Hill
Instructor
Acquisition-date book value
Subsidiary fair value at acquisition-date
Noncontrolling interest fair value
a. Consideration transferred
Acquisition-date fair value allocation and excess amortizations
to patents
Excess fair value assignments
Intra-entity transfers remaining in inventory
Intra-entity profits (downstream)
Consideration transferred
Determination of Investment in Stinson account balance
to goodwill
to customer list
Increase in Stinson’s retained earnings
Excess fair value amortization
Gross profit rate
10,000 12,000
Correct! Correct!
Non-
controlling Consolidated
McIlroy Stinson Debit Credit Interest Totals
(700,000) (335,000) [TI] 160,000 (875,000) Correct!
460,000 205,000 [G] 12,000 [*G] 10,000 507,000 Correct!
[TI] 160,000
188,000 70,000 [E] 10,000 268,000 Correct!
(28,000) – [I] 28,000 – Correct!
(80,000) (60,000)
(100,000) Correct!
(20,000) 20,000 Correct!
(80,000) Correct!
220,000 86,000 306,000 Correct!
– 20,000 [A] 63,000 [E] 7,000 76,000 Correct!
[A] 42,000 [E] 3,000 39,000 Correct!
[A] 185,000 185,000 Correct!
1,420,000 585,000 1,862,000 Correct!
Retained earnings 12/31
Total liabilities and equities
Common stock
Noncontrolling interest 1/1
Liabilities
Net income
Retained earnings, 1/1
Investment in Stinson
Dividends declared
Retained earnings, 12/31
Cash and receivables
Inventory
Buildings (net)
Consolidation Worksheet
Year Ending December 31, 2015
Sales
Operating expenses
Equity in earnings of Stinson
Separate company net income
Cost of goods sold
To McIlroy, Inc.
b.
Equipment (net)
Consolidation Entries
Customer list
Patents (net)
Goodwill
Total assets
Consolidated net income
To noncontrolling interest
60%
372,000$
100,000$
220,000$
248,000$
70,000$
45,000$
Ending
Transfer Balance
McIlroy, Stinson,
Inc. Inc.
(700,000)$ (335,000)$
460,000 205,000
188,000 70,000
(28,000) –
(80,000)$ (60,000)$
(695,000)$ (280,000)$
(80,000) (60,000)
45,000 15,000
(730,000)$ (325,000)$
248,000$ 148,000$
233,000 129,000
411,000 –
Equipment (net)
Common stock
Retained earnings 12/31/18
Total liabilities and equities
Patents (net)
Total assets
Liabilities
Intra-entity inventory sales:
Individual financial statements as of December 31, 2018:
Given Data P05-31:
Stinson Company outstanding stock purchased
by McIlroy, Inc. on 1/1/17
Cash paid for Stinson stock
Stinson’s book value at time of purchase:
Common stock
Acquisition-date fair value of noncontrolling interest
Undervaluation of Stinson‘s patents (10-year remaining life)
Fair value of Stinson’s unrecorded customer list (15-year remaining life)
Sales
Cost of goods sold
Operating expenses
Net income
Retained earnings, 1/1/18
Net income
Dividends declared
Retained earnings
Retained earnings, 12/31/18
Cash and receivables
Inventory
Investment in Stinson
Equity in earnings in Stinson
Student Name:
Class:
230,000$
(70,000)
(40,000)
35,000
155,000$ Correct!
124,000$ Correct!
31,000$ Correct!
Non-
controlling Consolidated
Accounts Plymouth Sander Debit Credit Interest Totals
20,000 15,000 35,000 Correct!
(124,000) – [I] 124,000 – Correct!
(700,000) (230,000)
(731,000) Correct!
(31,000) 31,000 Correct!
(700,000) Correct!
(2,800,000) (345,000) [S] 310,000 (2,800,000) Correct!
Amortization expense
Depreciation expense
Revenues
Cost of goods sold
[*G]
35,000
(700,000) (230,000) (700,000) Correct!
200,000 25,000 [D] 20,000 5,000 200,000 Correct!
(3,300,000) (550,000) (3,300,000) Correct!
Investment in Sander
Inventory
Cash
[A] 348,000
[I] 124,000
1,025,000 863,000 1,888,000 Correct!
950,000 107,000 [A] 210,000 [E] 70,000 1,197,000 Correct!
[A] 225,000 225,000 Correct!
5,495,000 2,100,000 6,500,000 Correct!
Noncontrolling interest in Sander 12/31
Noncontrolling interest in Sander 1/1
Notes payable
Accounts payable
(900,000) (800,000) [S] 800,000 (900,000) Correct!
(300,000) (100,000) [S] 100,000 (300,000) Correct!
(3,300,000) (550,000) (3,300,000) Correct!
(5,495,000) (2,100,000)
2,234,000 2,234,000 (6,500,000)
Correct! Correct! Correct!
Problem 05-32
McGraw-Hill
Instructor
a. How was the balance in the Equity Earnings of Sander account determined?
To noncontrolling interest
Parentheses indicate a credit balance.
Retained earnings 12/31
Additional paid-in capital
Common stock
Eliminations
Adjustments and
December 31, 2018
Consolidation Worksheet
Retained earnings, 12/31
Total assets
Goodwill
Patents
Buildings and equipment
Dividends declared
Net Income
Retained earnings, 1/1
2018 net income reported by Sander
Total liabilities and equities
Interest expense
to Plymouth Corp.
to noncontrolling interest
Consolidated net income
Separate company net income
Equity in earnings of Sander
To controlling interest
Sander’s net income adjusted
Recognized gross profit for 1/1/18 intra-entity inventory
Deferred gross profit for 12/31/18 intra-entity inventory
Excess patent fair value amortization
80%
1,200,000$
925,000$
1,500,000$
350,000$
5
Year Sales Price Transfers
2016 125,000$ 80,000$ 25%
2017 220,000 125,000 28%
2018 300,000 160,000 25%
Plymouth Sander
(1,740,000)$ (950,000)$
820,000 500,000
104,000 85,000
220,000 120,000
20,000 15,000
(124,000) –
(700,000)$ (230,000)$
(2,800,000)$ (345,000)$
(700,000) (230,000)
Retained earnings 12/31/18
Additional paid-in capital
Common stock
Notes payable
Accounts payable
Patents
Buildings and equipment
Investment in Sander
Inventories
Accounts receivable
Cash
Dividends declared
Given Data P05-32:
Remaining life of patents (years)
Undervaluation of Sander’s patent account at time of purchase
Sander’s business fair value at time of purchase
Sander’s book value at time of purchase
Cash paid for Sander stock
by Plymouth Corp on 1/1/16
Sander Company outstanding stock purchased
Intra-entity inventory sales for past three years:
Net income
Retained earnings, 1/1/18
Cost of goods sold
Revenues
Separate financial statements as of December 31, 2018:
Net income
Equity in earnings of Sander
Interest expense
Amortization expense
Depreciation expense
Student Name:
Class:
Remaining Annual
Life in Excess
years Amort.
570,000$
380,000
950,000$
(850,000)
100,000$
100,000 20 5,000$ Correct!
–
Correct!
Consolidation entries:
*TL
Correct!
40,000 Correct!
*G
Correct!
10,000 Correct!
*C
Correct!
9,000 Correct!
S
Correct!
Correct!
Correct!
612,000 Correct!
408,000 Correct!
A
Correct!
57,000 Correct!
38,000 Correct!
To remove intra-entity gain on intra-entity downstream transfer of land made in 2017.
To recognize amount paid within acquisition price for the customer list.
To record adjustments for 2017 amortization ($3,000) and reduce parent’s equity accrual to mirror 60%
ownership ($6,000).
To defer intra-entity upstream Inventory gross profit from 2017 until 2018.
To remove stockholders’ equity accounts of Keller and recognize beginning noncontrolling interest.
Problem 05-35
McGraw-Hill
Instructor
Part A.
Entry
Fair value in excess of book value
Book value
Subsidiary fair value at acquisition-date
Noncontrolling interest fair value
610,000
Customer list
95,000
Common Stock (Keller
320,000
Additional Paid-in Capital
90,000
Retained Earnings, 1/1/18 (Keller)
Investment in Keller
Noncontrolling interest in Keller, 1/1/18
Land
10,000
Retained Earnings, 1/1/18 (Gibson)
9,000
Investment in Keller
Retained Earnings, 1/1/18 (Gibson)
40,000
Retained Earnings, 1/1/18 (Keller)
Cost of Goods Sold
Correct!
Correct!
Consideration transferred
Entry
Entry
Entry
Entry
Excess fair value assignment
to customer list
Investment in Keller
Noncontrolling interest in Keller, 1/1/18
I
Correct!
84,000 Correct!
D
Correct!
36,000 Correct!
E
Correct!
5,000 Correct!
P
Correct!
40,000 Correct!
TI
Correct!
200,000 Correct!
G
Correct!
12,000 Correct!
To defer 2018 intra-entity inventory gross profit in ending inventory.
To eliminate current year intra-entity inventory transfer
To eliminate intra-entity debt
To recognize current period excess amortization expense
To eliminate intra-entity dividend transfers
Entry
Entry
Entry
Entry
Entry
Entry
Cost of Goods Sold
12,000
Inventory
2018 intra-entity gross profit deferred
140,000$
(5,000)
10,000
(12,000)
133,000$
40%
53,200$
Correct!
Keller reported net income
Investment in Keller
36,000
To eliminate intra-entity income accrual
Net income attributable to n noncontrolling interest
Outside ownership percentage
Keller realized income 2018
Dividends Declared
40,000
5,000
200,000
Liabilities
Amortization Expense
Customer list
Sales
Cost of Goods Sold
Accounts Receivable
Equity in Earnings of Keller
84,000
Investment in Keller
Net income attributable to noncontrolling interest
Excess fair value amortization
2017 intra-entity gross profit recognized in 2018
Non-
controlling Consolidated
Accounts Gibson Keller Debit Credit Interest Totals
(800,000) (500,000) [TI] 200,000 (1,100,000) Correct!
500,000 300,000 [G] 12,000
[*G]
10,000 602,000 Correct!
[TI] 200,000
100,000 60,000 [E] 5,000 165,000 Correct!
(84,000) – [ I ] 84,000 – Correct!
(284,000) (140,000)
(333,000) Correct!
– – (53,200) 53,200 Correct!
(279,800) Correct!
(1,116,000)
[*TL]
40,000 (1,067,000) Correct!
[*C] 9,000
(620,000) [*G] 10,000
[S] 610,000 – Correct!
356,000 410,000 [P] 40,000 726,000 Correct!
440,000 320,000 [G] 12,000 748,000 Correct!
726,000 [D] 36,000 [*C] 9,000 – Correct!
[S] 612,000
[ I ] 84,000
[A] 57,000
Liabilities
Total assets
Customer list
Buildings and equipment (net)
Land
Dividends
Net Income
Cash
Retained earnings, 12/31
(610,000) (320,000) [S] 320,000 (610,000) Correct!
(90,000) [S] 90,000 – Correct!
(1,285,000) (700,000) (1,231,800) Correct!
[S] 408,000 (408,000) – Correct!
[A] 38,000 (38,000) – Correct!
Total liabilities and equity
NCI in Keller, 12/31
Correct! Correct! Correct!
Part b. How would the consolidation entries in requirement (a) have differed if Gibson had sold a building with a $600,000
book value (cost of $140,000) to Keller for $100,000 instead of land, as the problem reports?
If the intra-entity transfer had been a building rather than land, two adjustments to the consolidation entries would be needed. Entry *TL
would be changed and relabeled as Entry *TA and an Entry ED would be added to eliminate the overstatement of depreciation expense
for 2018. All other consolidation entries would be the same as shown in Part a. As a downstream transfer, entries *C and S are not
Operating expenses
To Gibson
To noncontrolling interest
Consolidated net income
NCI in Keller, 1/1
Noncontrolling interest in
Retained earnings, 1/1
Inventory
Accounts receivable
GIBSON AND KELLER
Retained earnings, 12/31
Additional paid-in capital
Common stock
Investment in Keller
– Keller
– Gibson
Separate company net income
Equity in earnings of Keller
Cost of goods sold
Sales
Consolidation Entries
Year Ending December 31, 2018
Consolidation Worksheet
60%
570,000$
380,000$
850,000$
100,000$
20
60,000$
100,000$
100,000$
150,000$
140,000$
140,000$
10
Price paid by Keller for Gibson building
Book value of building Gibson sold to Keller
Building sold to Keller instead of land
Part b. facts:
Amount Gibson owes Keller at end of 2018
Percentage of inventory not resold in period following transfer
Price paid by Gibson for 2018 intra-entity shipments
Gibson Keller
Company Company
(800,000)$ (500,000)$
500,000 300,000
100,000 60,000
(84,000) –
(284,000)$ (140,000)$
(1,116,000)$ (620,000)$
(284,000) (140,000)
115,000 60,000
(1,285,000)$ (700,000)$
177,000$ 90,000$
356,000 410,000
440,000 320,000
726,000 –
180,000 390,000
496,000 300,000
2,375,000$ 1,510,000$
(480,000)$ (400,000)$
(610,000) (320,000)
– (90,000)
(1,285,000) (700,000)
(2,375,000)$ (1,510,000)$
Given Data P05-35
Remaining life at date of transfer
Cost of building
Fair value of noncontrolling interest at acquisition
Various considerations given for acquisition
Gibson acquired interest in Keller 1/1/2017
Part a. facts:
Value assigned to Keller customer list
Keller’s book value
Cost of inventory shipped by Keller to Gibson in 2017
Price paid by Keller for Gibson’s land
Book value of land Gibson sold to Keller on 1/2/2017
Keller customer list – life for purposes of amortization
Cost of intra-entity shipments by Keller to Gibson in 2018
Price paid by Gibson for 2017 inventory
Accounts receivable
Total assets
Buildings and equipment (net)
Land
Investment in Keller
Total liabilities and equities
Retained earnings, 12/31/18
Additional paid-in capital
Common stock
Liabilities
Inventory
Operating expenses
Cost of goods sold
Sales
Dividends declared
Net income
Retained earnings, 1/1/18
Net income
Equity in earnings of Keller
Cash
Retained earnings, 12/31/18
