Chapter 05 – Consolidated Financial Statements – Intra-Entity Asset Transactions – Hoyle, Schaefer, Doupnik, 13e
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22. (continued)
E Amortization expense 12,000
23. (20 Minutes) (Consolidation entries for intra-entity equipment transfer.)
INDIVIDUAL RECORDS BASED ON TRANSFER PRICE
12/31/16 Equipment = $95,000
Gain on transfer = $45,000 ($95,000 – $50,000)
Depreciation expense = $19,000 ($95,000 ÷ 5 years)
Depreciation expense = $19,000
Accumulated depreciation = $57,000 (3 years)
CONSOLIDATED REPORTING BASED ON HISTORICAL COST
12/31/16 Equipment = $130,000
Depreciation expense = $10,000 ($50,000 ÷ 5 years)
Accumulated depreciation = $110,000 ($100,000 + $10,000)
Entry *TA Retained earnings, 1/1/18 (Padre) ………………………………… 27,000
Equipment ($130,000 – $95,000) …………………………………… 35,000
Accumulated depreciation ($100,000 – $38,000) ………. 62,000
To adjust to 1/1/18 balances for consolidated entity. Retained earnings
income is increased by $9,000 (current year portion of intra-entity gain).
Chapter 05 – Consolidated Financial Statements – Intra-Entity Asset Transactions – Hoyle, Schaefer, Doupnik, 13e
24. (20 Minutes) (Determine consolidated net income when an intra-entity transfer of
equipment occurs. Includes an outside ownership)
a. Net income—Ackerman …………………………………………………… $300,000
Net income—Brannigan …………………………………………………… 98,000
Excess amortization for unpatented technology ……………….. (4,000)
b. Net income calculated in (part a.) …………………………………….. $322,000
Net income attributable to noncontrolling interest:
Net income—Brannigan ………………………………….. $98,000
Excess amortization ……………………………………….. (4,000)
c. Net income calculated in (part a.) …………………………………….. $322,000
NI attributable to noncontrolling interest (see Schedule 1) … (2,200)
Consolidated net income to parent company ……………………. $319,800
Schedule 1: Net income attributable to noncontrolling interest (includes
upstream transfer)
Reported subsidiary net income ………………………………………. $98,000
Excess amortization ………………………………………………………... (4,000)
Defer intra-entity gain on equipment transfer …………………… (90,000)
d. Net income 2019—Ackerman …………………………………………… 320,000
Net income 2019—Brannigan ………………………………………….. 108,000
Excess amortization ………………………………………………………... (4,000)
5-23
25. (35 minutes) (Compute consolidated totals with transfers of both inventory and a
building.)
Excess Amortization Expenses
Equipment $60,000 ÷ 10 years = $ 6,000 per year
Franchises $80,000 ÷ 20 years = 4,000 per year
Annual excess amortizations $10,000
Intra-entity Gross Profit—Inventory, 1/1/18:
Gross profit ($80,000 – $48,000) ………………………………………. $32,000
Gross profit rate ($32,000 ÷ $80,000) ………………………………… 40%
Remaining inventory ………………………………………………………. $35,000
Impact of Intra-Entity Building Transfer:
12/31/17—Transfer price figures
Transfer price …………………………………………………………….. $50,000
Gain on transfer ($50,000 – $30,000) ……………………………. 20,000
Depreciation expense ($50,000 ÷ 5 years) ……………………. 10,000
Accumulated depreciation ………………………………………….. 10,000
5-24
25. (continued)
CONSOLIDATED BALANCES
▪ Sales = $1,008,000 (add the two book values and subtract $92,000 in intra–entity
transfers)
▪ Cost of Goods Sold = $566,500 (add the two book values and subtract $92,000 in
intra-entity purchases. Subtract $14,000 because of the previous year deferred intra–
entity gross profit and add $12,500 to defer the current year intra-entity gross profit in
ending inventory.)
Chapter 05 – Consolidated Financial Statements – Intra-Entity Asset Transactions – Hoyle, Schaefer, Doupnik, 13e
5-25
26. (35 Minutes) (Prepare consolidation entries for a consolidated entity with intra-
entity inventory and equipment transfers; includes an outside ownership.)
a. Entry *G
Retained earnings, 1/1/18 (Sledge) …………… 2,000
Cost of goods sold …………………………..…. 2,000
To remove intra-entity gross profit from beginning account balances. (40%
gross profit rate ($6,000 ÷ $15,000) × remaining inventory ($5,000).
Entry *TA
Equipment ……………………………………………….. 4,000
Investment in Sledge ……………………………….. 2,400
Accumulated depreciation ………………….. 6,400
Entry S
Common stock (Sledge) ……………………………………. 120,000
Retained earnings, 1/1/18 (adjusted) (Sledge) …….. 258,000
Investment in Sledge (80%) ………………………….. 302,400
Noncontrolling interest in Sledge, 1/1/18 (20%) 75,600
5-26
26. (continued)
Entry I
Equity in income of Sledge ……………………………….. 10,600
Investment in Sledge …………………………………… 10,600*
To remove parent’s equity method income.
*Subsidiary reported net income……………………………………………….. $20,000
Recognize upstream intra-entity gross profit in beg. inventory …. 2,000
Intra-entity inventory year-end 2017 (upstream) $5,000
Gross profit rate ($6,000 ÷ 15,000) .40
Intra-entity gross profit in 2018 beginning inventory $2,000
Defer upstream intra-entity gross profit in ending inventory……… (4,500)
Entry E
Depreciation expense ……………………………………….. 2,000
Amortization expense ……………………………………….. 3,000
Contracts ($60,000 ÷ 20 years) ……………………… 3,000
Buildings ($20,000 ÷ 10 years) ……………………… 2,000
To recognize 2018 excess amortizations.
Entry TI
Sales ………………………………………………………………… 20,000
Chapter 05 – Consolidated Financial Statements – Intra-Entity Asset Transactions – Hoyle, Schaefer, Doupnik, 13e
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26. (continued)
Entry ED
Accumulated depreciation …………………………..……. 600
b. Net income attributable to noncontrolling interest (2018)
Revenues ………………………………………………………………………… $130,000
Cost of goods sold ……………………………………………………….… (70,000)
Other expenses ………………………………………………………………. (40,000)
Excess acquisition-date fair value amortization ………………… (5,000)
Net income adjusted for amortization ………………………….. $15,000
Chapter 05 – Consolidated Financial Statements – Intra-Entity Asset Transactions – Hoyle, Schaefer, Doupnik, 13e
5-28
27. (65 Minutes) (Determine consolidation totals after answering a series of questions
about combination and intra-entity inventory transfers)
a. Consideration transferred ………………….. $342,000
Noncontrolling interest fair value …………. 38,000
Subsidiary fair value at acquisition-date 380,000
b. Because Brey sold inventory to Pitino, the transfers are upstream.
c. Gross profit on 2017 transfers ($135,000 – $81,000) ………….. $54,000
Gross profit percentage ($54,000 ÷ $135,000) …………………… 40%
Inventory remaining, 12/31/17 …………………………………………. $37,500
e. Pitino is applying the equity method because the $68,400 equals neither 90% of
Brey‘s reported net income nor 90% of the dividends declared by Brey.
Brey’s reported net income ……………………………………………… $90,000
Excess fair value amortization………………………………………….. (8,000)
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27. (continued)
g. Investment in Brey (consideration transferred) ……………………… $342,000
Net income of Brey
Reported 2016 ………………………………… $64,000
2017 …………………………………………. 80,000
2018 ………………………………………… 90,000
h. Entry S
Common stock (Brey) …………………………. 150,000
Retained earnings, 1/1/18 (Brey) (reduced by
1/1/18 intra-entity gross profit) ……………. 263,000
Investment in Brey (90%) ……………….. 371,700
Noncontrolling interest in Brey (10%) 41,300
i.
▪ Sales Revenues = $1,068,000 (total less $160,000 intra-entity sales)
▪ Cost of Goods Sold = $570,000 (add book values less $160,000 in intra-entity
purchases. Also, adjust for 2017 intra-entity gross profit in inventory [subtract
$15,000] and 2018 intra-entity gross profit in inventory [add $21,000])
Chapter 05 – Consolidated Financial Statements – Intra-Entity Asset Transactions – Hoyle, Schaefer, Doupnik, 13e
5-30
27. (continued) part i.
▪ Retained Earnings, 1/1 = $488,000 (parent equity method balance)
▪ Dividends Declared = $136,000 (parent balance only)
▪ Retained Earnings, 12/31 = $582,000 (consolidated beginning balance plus net
▪ Retained Earnings, 12/31 = $582,000 (see above)
▪ Total Liabilities and Stockholders’ Equity = $1,920,000 (summation)
Chapter 05 – Consolidated Financial Statements – Intra-Entity Asset Transactions – Hoyle, Schaefer, Doupnik, 13e
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29. (25 Minutes) (Computation of selected consolidation balances as affected by
upstream inventory transfers)
INTRA-ENTITY GROSS PROFIT, 12/31/17: (upstream transfer)
Intra-entity gross profit ($120,000 – $72,000) ……………………. $48,000
Inventory remaining at year’s end ……………………………………. 30%
CONSOLIDATED TOTALS
▪ Sales = $1,150,000 (combine amounts and eliminate intra-entity transfer)
▪ Cost of goods sold:
Proform’s COGS book value ……………………………………………. $535,000
ClipRite‘s COGS book value ……………………………………………. 400,000
Eliminate intra-entity transfers ………………………………………… (250,000)
Intangible amortization ……………………………………………….. (10,000)
2017 gross profit recognized in 2018 …………………………... 14,400
2018 gross profit deferred ………………………………………….. (5,000)
ClipRite adjusted net income for 2018 ………………………….. $99,400
Outside ownership …………………………………………………….. 30%
Net income attributable to noncontrolling interest ……………. $29,820
▪ Inventory = $985,000 (combine amounts and defer the $5,000 ending intra-entity
gross profit)
Chapter 05 – Consolidated Financial Statements – Intra-Entity Asset Transactions – Hoyle, Schaefer, Doupnik, 13e
30. (75 Minutes) (Determine consolidated balances after impact of upstream Inventory
transfers and downstream transfer of building. Parent uses initial value method.)
PRELIMINARY COMPUTATIONS
Consideration transferred ………………….. $657,000
Noncontrolling interest fair value …………. 73,000
Subsidiary fair value at acquisition-date 730,000
Book value ………………………………………….. (620,000)
Fair value in excess of book value ………. $110,000 Remaining Annual Excess
Excess fair value assignments Life Amortizations
to equipment ………………………………….. 20,000 4 yrs. $5,000
to liabilities …………………………..……….. 40,000 5 yrs. 8,000
Intra-entity gross profit in inventory, 12/31/17 ………………….. $ 8,700
Ending inventory intra-entity gross profit, 12/31/18 (Upstream)
Ending Inventory ($160,000 × 40%) ………………………………….. $64,000
Gross profit rate (given) ………………………………………………….. 20%
Intra-entity gross profit in inventory, 12/31/18 ………………….. $12,800
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30. (continued)
Adjustment to buildings to return to historical cost at 1/1/18
Consolidation
Transfer Price Historical Cost Adjustment
Buildings $25,000 $100,000 $75,000
Accumulated depreciation
(1/1/18 balance after 1
more year of depreciation) 5,000 92,000 87,000
Consolidated Totals
▪ Sales and other Income = $1,240,000 (add the two book values and eliminate
the intra-entity transfers)
▪ Cost of goods sold:
Moore’s book value …………………………………………………………. $500,000
Kirby’s book value ………………………………………………………….. 400,000
Eliminate intra-entity transfers ………………………………………… (160,000)
Outside ownership …………………………..………………………………….. 10%
Net income attributable to noncontrolling interest …………….. $ 1,790
▪ Consolidated net income = $220,900 (consolidated sales less consolidated cost
Chapter 05 – Consolidated Financial Statements – Intra-Entity Asset Transactions – Hoyle, Schaefer, Doupnik, 13e
30. (continued)
Noncontrolling interest 12/31/18 = $80,120 (10 percent of $691,300 adjusted beginning
book value [$700,000 less $8,700 deferral of intra-entity gross profit] plus $9,200
share of beginning unamortized excess fair value allocations plus $1,790 net
income share)
CONSOLIDATION ENTRIES
Entry *G
Retained earnings, 1/1/18 (Kirby) ………………….. 8,700
Cost of goods sold ………………………………….. 8,700
(To recognize 2017 deferred gross profit as income in 2018)
Entry *C
Investment in Kirby ………………………………………. 47,970
Retained earnings, 1/1/18 (Moore) ……………. 47,970
(To convert from initial value to equity method as follows:)
Increase in subsidiary’s book value during prior years
Conversion to equity method (full accrual) adjustment ……. $47,970
S Common stock (Kirby) …………………………………. 150,000
Retained earnings, 1/1/18 as adjusted (Kirby) …. 541,300
Investment in Kirby (90%) ………………………… 622,170
Noncontrolling interest in Kirby (10%) ……… 69,130
5-37
30. (continued)
A Liabilities …………………………..………………………… 32,000
Equipment …………………………………………………… 15,000
Equipment …………………………..…………………… 5,000
Brand names …………………………………………… 5,000
(To recognize excess amortization expenses for current year)
Tl Sales …………………………………………………………… 160,000
Cost of goods sold …………………………..……… 160,000
(To eliminate intra-entity transfers for 2018)
G Cost of goods sold ………………………………………. 12,800
