Student Name:
Class:
Consolidated
Access IT Net Connect Debit Credit NCI Balances
61,000 41,000 102,000
1,000,000 [S] 65,600
[A] 934,400 –
1,066,000 56,000 1,122,000
916,000 336,000 1,252,000
[A] 1,960,000 1,960,000
191,000 191,000
[A] 376,000 376,000
4,024,000 780,000 6,140,000
(941,000) (616,000) (1,557,000)
(2,660,000) (2,660,000)
(41,000) [S] 41,000 – –
(423,000) (123,000) [S] 123,000 – (423,000)
[S] 98,400 – –
Excess fair over book value
Research and development asset
Total liabilities and equity
Consideration transferred
Noncontrolling interest fair value
Acquisition-date fair value
Book value
Capitalized software
Consolidation Entries
Acquisition-date Consolidated Worksheet
Long-term debt
Common stock – Access IT
Common stock – Net Connect
Retained earnings
Noncontrolling interest
Communications equipment
Research and development asset
Patent
Goodwill
Total assets
Computer equipment
Problem 06-26
Cash
Investment in Net Connect
McGraw-Hill
Instructor
40%
1,000,000$
1,960,000$
1,500,000$
Access IT Net Connect
61,000$ 41,000$
1,000,000
981,000 156,000
1,066,000 56,000
916,000 336,000
– 191,000
4,024,000$ 780,000$
(941,000) (616,000)
(2,660,000)
(41,000)
(423,000) (123,000)
(4,024,000)$ (780,000)$
Long-term debt
Total assets
Patent
Communications equipment
Cash
Total liabilities and equity
Retained earnings
Common stock – Net Connect
Common stock – Access IT
Capitalized software
Investment in Net Connect
Computer equipment
Given Data P06-26:
Student Name:
Class:
Debit Credit
16,000
16,000
Debit Credit
24,000
24,000
Investment in Marmon
Additional paid-in capital
Additional paid-in capital
Investment in Marmon
Problem 06-42
Part b.
Account
McGraw-Hill
Instructor
Part a.
Account
General Journal
ALBUQUERQUE, INCORPORATED
16,000
600,000$
710,000$
150,000$
200,000$
230,000
370,000
800,000$
5,000
47$
–
4,000
33$
–
Shares purchased by Albuquerque
Issue price per share
Number of shares issued by Marmon
Part b.
Shares purchased by Albuquerque
Number of shares issued by Marmon
Part a.
Given Data P06-42:
Assessed fair value of noncontrolling interest
Marmon book value at acquisition date
Number of shares of Marmon Company acquired by
Issue price per share
Purchase price of shares
Albuquerque, Inc.
Total
Retained earnings
Additional paid-in capital
Common stock ($10 par value)
Marmon’s present stockholders‘ equity:
Student Name:
Class:
312,000$
208,000
520,000$ Correct!
300,000
220,000$
Annual
Life Excess
(years) Amortizations
90,000 12 7,500$
130,000$ 10 13,000
Correct! 20,500$
Correct!
*TL 7,000 «- Correct!
Correct!
7,000
*G 8,000 «– Correct!
Correct!
8,000
S100,000 «– Correct!
Correct!
292,000
235,200
156,800
A75,000
Correct!
104,000
107,400
71,600 «– Correct!
3,000 «– Correct!
2,400
Amortization expense
Investment in Herman
Dividends declared
Investment in Herman
(To eliminate intra-entity equity income accrual)
Problem 06-45
McGraw-Hill
Instructor
Retained earnings, 1/1/18 (Herman)
Common stock (Herman)
FRED, INC. AND HERMAN CORPORATION
Investment in Herman
(To eliminate intra-entity gain created by previous intra-entity transfer)
(To remove intra-entity inventory gross profit from prior year so it can be properly recognized in current year)
Patents
– Allocation of Acquisition-date Excess Fair Value
a. Consolidation entries
Land
Cost of goods sold
Investment in Herman
Retained earnings, 1/1/18
Customer list
Noncontrolling interest in Herman
Investment in Herman
Noncontrolling interest
(To eliminate Herman’s stockholders’ equity accounts and to record beginning of year balance for noncontrolling
interest)
(To recognize unamortized balances as of 1/1/18 of amounts allocated within original acquisition price)
Consideration transferred
Fair value in excess of book value
Book value acquired
Acquisition-date fair value
Noncontrolling interest fair value
Excess cost allocated to patents
based on fair value:
Total
Customer list
Student Name:
Class:
Problem 06-45
McGraw-Hill
Instructor
Correct!
7,500
13,000
Customer list
Patents
(To recognize current year amortization expense)
Student Name:
Class:
Problem 06-45
McGraw-Hill
Instructor
P60,000
Correct!
60,000 «– Correct!
B20,000 «– Correct!
Correct!
1,069
1,873
19,005
1,283
2,654
TI 120,000
Correct!
120,000 «– Correct!
G7,500 «– Correct!
Correct!
7,500
25,000$
(20,500)
8,000
(7,500)
5,000$
40%
2,000$
Correct!
228,400$
2,000
(1,600)
228,800$
Correct!
2,654$
1,873$
1,283 590
2,064$
Correct!
B20,000 «- Correct!
Correct!
733
1,901
2,064
19,306
1,264
Interest expense recorded on liability in 2018
Interest income recorded on investment in 2018
Interest income
Premium on bonds payable
Bonds payable
Required increase as of January 1, 2019
Herman’s reported income for 2018
Net income attributable to noncontrolling interest
Interest income
Premium on bonds payable
Bonds payable
Accounts payable
Noncontrolling interest ownership
(To defer intra-entity profits in ending inventory.
Investment in parent bonds
Interest expense
Noncontrolling interest, 12/31/18
Noncontrolling interest’s share of Herman’s dividends
Noncontrolling interest’s share of Herman’s net income
Noncontrolling interest, 1/1/18
Inventory
Accounts receivable
Cost of goods sold
Sales
Gain on retirement of bond
Cost of goods sold (or purchases)
(To remove intra-entity debt created by inventory transfers)
(To eliminate effect created by bond acquisition and recognize the related retirement gain)
(To eliminate intra-entity transfers made during current year)
Interest expense
Investment in Fred’s bonds
Investment in Herman
(To remove accounts pertaining to intra-entity bonds. “Investment in Herman” is adjusted here rather than retained
earnings because equity method is used and the gain is attributed to the parent.)
Original gain on retirement
Herman’s realized net income for 2018
2018 deferred intra-entity gross profit
2017 intra-entity gross profit recognized in 2018
Excess fair value amortization
b. Calculations
c. Consolidation worksheet adjustments – intra-entity bonds
Student Name:
Class:
Problem 06-45
McGraw-Hill
Instructor
(To remove accounts pertaining to intra-entity bonds. “Investment in Herman” is adjusted here rather than retained
earnings because equity method is used and the gain is attributed to the parent.)
60%
312,000$
300,000$
208,000$
90,000$
130,000$
10
Original Transfer Ending
Cost to Price Balance at
Year Herman to Fred Transfer Price
2016 80,000$ 100,000$ 20,000$
2017 100,000 125,000 40,000
2018 90,000 120,000 30,000
50%
15,000$
22,000$
20,000$
8%
21,386$
6%
18,732$
25,000$
300,000$
Common stock
Herman’s bond acquisition price based on effective rate of 10%
Effective yield of bonds
Intra-entity inventory transfers:
Herman Corporation common stock purchased by Fred, Inc.
Book value of land sold by Fred to Herman
2018 inventory transfers not paid for by Fred at year end
Cash interest rate of bonds purchased by Herman
Herman customer list acquisition-date fair value
Life of customer list in years
Fred’s book value of bond liability at repurchase date
Herman patents (12-year remaining life) were undervalued by
Fair value of noncontrolling interest
Book value of Herman’s assets and liabilities
Cash paid for stock purchase
Beginning retained earnings
Net income
Herman’s reported accounts for 2018:
Given P06-45:
Face value of Fred‘s bonds purchased by Herman
Sale price of land sold by Fred to Herman
Student Name:
Class:
AUSTIN, INC. AND RIO GRANDE CORPORATION
284,000$
(40,000)
244,000$ Correct!
50,000
4.88$ Correct!
105,000$
22,000
127,000$ Correct!
30,000
5,000
(2,500)
10,000
42,500 Correct!
25,250 Correct!
59.4% Correct!
42,500
25,250
59.4% Correct!
Portion owned by parent
Income applicable to parent – diluted EPS
200,000$
75,438
–
275,438$ Correct!
50,000
20,000
70,000 Correct!
3.93$ Correct!
Earnings applicable to diluted EPS
Diluted earnings per share
Shares applicable to diluted earnings per share
Assumed conversion of preferred stock
Austin‘s outstanding common shares
Shares controlled by parent
Preferred dividends
Net Income of Rio Grande to parent
Austin‘s separate net income
Austin‘s income and shares for diluted EPS calculation
Net income applicable to diluted earnings per share
Subsidiary shares applicable to diluted EPS
Austin‘s income and shares for diluted EPS calculation
Subsidiary shares applicable to diluted earnings per share
Shares controlled by parent
Portion owned by parent
Assumed conversion of bonds
Assumed treasury stock acquisition using proceeds from warrant conversion
Assumed conversion of warrants
Shares outstanding
Consolidated net income to parent
Interest saved assuming conversion of bonds (net of tax)
Rio Grande net income after amortization
Diluted earnings per share – Austin, Inc.
Basic earnings per share
Austin‘s preferred dividends
Austin‘s outstanding common shares
Earnings applicable to Austin’s basic EPS
Basic earnings per share – Austin, Inc.
Problem 06-48
McGraw-Hill
Instructor
Income Statements
Austin Rio Grande Consolidated
(700,000)$ (500,000)$ (1,200,000)$
400,000 300,000 700,000
100,000 70,000 195,000
(84,000)
(284,000)$ (130,000)$
(305,000)$
(21,000)
(284,000)$
25,000$
50,000
10,000
40,000$
2
30,000
5,000
10$
50%
20$
22,000$
10,000
Number of warrants held by Austin
Price of Rio Grande common stock throughout the year
Interest expense for Rio Grande convertible bonds
Rio Grande’s convertible bonds.
Equity in earnings of Rio Grande
Operating expenses
Consolidated net income attributable to Austin
Annual excess fair over book value amortization resulting
Noncontrolling interest in consolidated net income
Number of shares of subsidiary‘s common stock that can be exchanged for each of
from acquisition.
Austin common stock – number of shares
Austin preferred stock – number of shares
Annual dividend paid to preferred stockholders
Number of shares of Common stock for which one share of Preferred can be traded
Rio Grande common stock outstanding – number of shares
Rio Grande stock warrants outstanding
Cost to convert warrant to share of stock
Given P06-48:
Consolidated net income
Cost of goods sold
Revenues
Individual company net income
Student Name:
Class:
560,000$
450,000
110,000$
11,000$
Correct!
18,000$
33.3%
6,000$
Correct!
20,000$
5,000$
5,000$
8,000$
30,000
3,000
21,000
Paisley, Skyler Consolidated
Inc. Corp. Debit Credit Totals
(800,000) (400,000) [TI] 90,000 (1,110,000)
528,000 260,000 [G] 6,000 [TI] 90,000 704,000
180,000 130,000 [E] 11,000
[ED]
2,000 319,000
(8,000) –
[TA]
8,000 –
(100,000) (10,000) (87,000)
(400,000) (150,000) [S] 150,000 (400,000)
(100,000) (10,000) (87,000)
60,000 – 60,000
(440,000) (160,000) (427,000)
30,000 40,000 70,000
300,000 100,000 [P] 28,000 372,000
260,000 180,000 [G] 6,000 434,000
560,000 – [S] 450,000 –
[A] 110,000
680,000 500,000
[TA]
10,000 1,190,000
(180,000) (90,000)
[ED]
2,000
[TA]
18,000 (286,000)
– – [A] 110,000 [E] 11,000 99,000
1,650,000 730,000 1,879,000
(140,000) (90,000) [P] 28,000 (202,000)
(240,000) (180,000) (420,000)
– (100,000) [S] 100,000 –
(620,000) (200,000) [S] 200,000 (620,000)
(210,000) – (210,000)
(440,000) (160,000) (427,000)
1,650,000 730,000 715,000 715,000 1,879,000
Correct! Correct! Correct! Correct! Correct!
Retained earnings, 12/31
«- Correct!
Accumulated depreciation
Consolidated Worksheet
Consolidation Entries
Sales
Cost of goods sold
Expenses
Gain on sale of equipment
Year Ending December 31
«- Correct!
«- Correct!
Retained earnings, 1/1
Accounts
Net income
Dividends declared
Net income
Paisley, Inc. and Skyler Corp.
Recorded value
Depreciation expense
«- Correct!
«- Correct!
«- Correct!
«- Correct!
Gain on sale
Historical cost:
Investment in Skyler Corp.
Retained earnings, 12/31
Accounts payable
Long-term liabilities
Accumulated depreciation
Intangible assets
Land, buildings, and equipment
Additional paid-in capital
Total assets
Cash
Accounts receivable
Inventory
Excess fair value assigned to intangible assets (10-year life)
Annual amortization
Ending inventory (at transfer price)
Markup
Preferred stock
Common stock
Total liabilities and stockholders’ equity
Recorded value
Depreciation expense
Accumulated depreciation
Transfer price:
Problem 06-49
McGraw-Hill
Instructor
Calculation of consolidated totals:
Consideration transferred for common and preferred stock
Skyler’s book value
Ending Intra-entity Gross Profit
Effect of Intra-Entity Equipment Transfer:
Deferred gross profit in ending inventory
S 100,000
Correct!
200,000
150,000
A 110,000
Correct!
E 11,000
Correct!
P 28,000
Correct!
TA 10,000
Correct!
8,000
TI 90,000
Correct!
G 6,000
Correct!
ED 2,000
Correct!
Retained Earnings, 1/1
450,000
«- Correct!
Sales
2,000
110,000
18,000
90,000
«- Correct!
«- Correct!
«- Correct!
«- Correct!
«- Correct!
«- Correct!
«- Correct!
«- Correct!
«- Correct!
«- Correct!
«- Correct!
«- Correct!
Accumulated Depreciation
Equipment
Gain on Sale of Equipment
Accounts Payable
«- Correct!
«- Correct!
«- Correct!
«- Correct!
«- Correct!
«- Correct!
11,000
6,000
Cost of Goods Sold
Amortization Expense
Common Stock (Skyler)
a. Consolidation entries
Preferred Stock (Skyler)
Investment in Skyler Corp.
Investment in Skyler Corp.
Intangible Asset
Accounts Receivable
Accumulated Depreciation
Cost of Goods Sold
Intangible Asset
(To eliminate excess depreciation resulting from intra–entity gain of 8,000 on transfer of equipment. [see Entry TA]. Equipment is
being depreciated over a remaining life of four years.)
Inventory
Depreciation Expense
(To eliminate subsidiary stockholder‘s equity accounts.)
(To recognize excess fair value attributed to intangible asset.)
(To record current year’s amortization of intangible asset.)
(To eliminate intra-entity receivable and payable.)
(To eliminate effects as of 1/1 created by intra–entity transfer of equipment.)
(To eliminate intra-entity inventory transfers for the current year.)
(To defer intra-entity gain in inventory remaining at the end of the current year.)
28,000
100%
560,000$
180$
38$
10
90,000$
60,000$
18,000$
28,000$
20,000$
12,000$
30,000$
4
–$
Paisley, Skyler
(100,000)$ (10,000)$
Sales
Cost of goods sold
Expenses
Gain on sale of equipment
Net income
(400,000)$ (150,000)$
(100,000) (10,000)
60,000 –
(440,000)$ (160,000)$
30,000$ 40,000$
300,000 100,000
260,000 180,000
560,000 –
680,000 500,000
(180,000) (90,000)
1,650,000$ 730,000$
(140,000)$ (90,000)$
Long-term liabilities
Preferred stock
(620,000) (200,000)
(210,000) –
Retained earnings, 12/31
Total liabilities and equity
Investment in Skyler Corporation
Given Data P06-49:
For the Year Ending December 31
Financial Statements
Common stock
Retained earnings, 1/1
Net income
Cost of inventory Skyler sold to Paisley
Amount (at transfer price) not resold to outsiders by year end
Year-end amount Paisley owes Skyler for the last shipment of inventory
Price of equipment Paisley sold to Skyler
Dividends declared
Retained earnings, 12/31
Cash
Accounts receivable
Inventory
Land, buildings, and equipment
Accumulated depreciation
Total assets
Accounts payable
Additional paid-in capital
Amount Paisley paid for Skyler stock
by Paisley, Inc.
Percentage of Skyler Corporation outstanding stock acquired
Price per share paid for Skyler’s $100 par value preferred stock
Price per share paid for Skyler’s $20 par value common stock
Amortization of excess fair value of intangible assets in years
Amount of inventory Skyler sold to Paisley during the year
Book value of equipment Paisley sold to Skyler
Original cost of equipment Paisley sold to Skyler
Remaining life of equipment in years
Salvage value of equipment