Student Name:
Class:
60,000$
25%
48,000$ Correct!
12,000$ Correct!
90,000$
25%
72,000$ Correct!
18,000$ Correct!
Correct!
12,000 «- Correct!
Correct!
11,200 «- Correct!
«- Correct!
Correct!
«- Correct!
240,000 «- Correct!
60,000 «- Correct!
«- Correct!
Correct!
«- Correct!
621,600 «- Correct!
266,400 «- Correct!
«- Correct!
Correct!
«- Correct!
«- Correct!
10,000 «- Correct!
151,200 «- Correct!
64,800 «- Correct!
Instructor
Cost of Goods Sold
Investment in Wilson Company
Retained earnings, 1/1/18 (Wilson)
Common stock (Wilson)
Problem 07-25
McGraw-Hill
Investment in Cuddy Company
Noncontrolling interest in Cuddy Common Stk.
a. Consolidation entries
140,000
150,000
54,000
(To allocate excess payment made in connection with purchase of Wilson.
Franchise Contracts
32,000
578,000
310,000
*C
Goodwill
12,000
150,000
11,200
Buildings
Retained earnings, 1/1/18 (Cuddy)
Investment in Wilson
Noncontrolling interest in Wilson
Retained Earnings, 1/1/18 (Wilson)
Intra-entity gross profit
Cost
Markup
Transfer price
intra-entity gross profit
Cost
Markup
Transfer price
Investment in Wilson Company
Noncontrolling interest in Wilson
Equipment
Retained earnings, 1/1/18 (House)
Common stock (Cuddy)
A
S2
(To eliminate Wilson’s stockholders’ equity against corresponding investment balance and to recognize noncontrolling
interest.)
(To eliminate Cuddy’s stockholders’ equity against the corresponding investment balance and to recognize
noncontrolling interest in common stock.)
(To convert investment account from partial equity method to equity method.)
(To recognize income on intra-entity inventory transfers made in previous year but not resold until current year.)
*G
S1
Student Name:
Class:
Instructor
Problem 07-25
McGraw-Hill
Correct!
56,000 «- Correct!
Correct!
91,000 «- Correct!
Correct!
40,000 «- Correct!
Correct!
67,200 «- Correct!
«- Correct!
Correct!
«- Correct!
4,000 «- Correct!
3,000 «- Correct!
Correct!
200,000 «- Correct!
Correct!
18,000 «- Correct!
70,000$
20%
Noncontrolling interest in Cuddy net income
Correct!
Noncontrolling Interest in Net Income of Cuddy:
Inventory
91,000
67,200
200,000
Investment in Wilson
Dividends Declared (Cuddy)
Dividends Declared (Wilson)
Franchise Contracts
Buildings
5,000
28,000
Deferral of 2018 intra-entity gross profit
Recognition of 2017 gross profit
130,000$
Income of Cuddy Company
40,000
Operating Expenses
Income of Wilson
Sales and Other Revenues
Equipment
Investment in Cuddy
56,000
18,000
45,000$
30%
Cost of Goods Sold
150,000$
Noncontrolling interest in net income of Wilson
Outside ownership
Accrual based net income
(To eliminate intra-entity income accrued by both House and Wilson during the year.)
(18,000)
12,000
(2,000)
Cost of Goods Sold
Reported net income
Outside ownership
2,000
Investment in Wilson
Investment in Cuddy Company
(To defer intra-entity gross profit in ending inventory.)
(To eliminate intra-entity inventory sales for the current year.)
(To record 2018 amortization on excess payment made in connection with acquisition of Wilson Company.
(To eliminate effects of intra-entity dividend payments.)
(To eliminate effects of intra-entity dividend payments.)
(To eliminate intra-entity income accrued by House during the year.)
D2
G
E
Noncontrolling Interest in Net Income of Wilson
Correct!
Excess amortization
Equity income of Cuddy
Reported operational income
D1
TI
I2
I1
Student Name:
Class:
Instructor
Problem 07-25
McGraw-Hill
Non-
House Wilson Cuddy Consolidation Entries controlling Consolidated
Accounts Corporation Company Company Debit Credit Interest Balance
(900,000) (700,000) (300,000) (1,700,000) Correct!
[TI] 200,000
551,000 300,000 140,000 [G] 18,000 [*G] 12,000 797,000 Correct!
[TI] 200,000
219,000 270,000 90,000 [E] 2,000 581,000 Correct!
(91,000) – – [I2] 91,000 – Correct!
(28,000) (28,000) – [I1] 56,000 – Correct!
(249,000) (158,000) (70,000)
(322,000) Correct!
(45,000) 45,000 Correct!
(14,000) 14,000 Correct!
(263,000) Correct!
(820,000) [*C] 11,200 (808,800) Correct!
(590,000) [*G] 12,000 – Correct!
[S2] 578,000
(150,000) [S1] 150,000 – Correct!
(249,000) (158,000) (70,000) (263,000) Correct!
220,000 334,000 67,000 621,000 Correct!
390,200 320,000 103,000 [G] 18,000 795,200 Correct!
807,800 [D2] 67,200 [*C] 11,200 – Correct!
[S2] 621,600
[I2] 91,000
Equipment
Buildings
Investment in Cuddy Company
180,000 300,000 16,000 496,000 Correct!
[A] 140,000 140,000 Correct!
[A] 32,000 [E] 4,000 28,000 Correct!
2,421,000 1,532,000 418,000 3,503,200 Correct!
Noncontrolling interest in
subsidiary companies
Noncontrolling interest in Wilson
Noncontrolling interest in Cuddy
Liabilities
(820,000) (310,000) (150,000) [S1] 150,000 (820,000) Correct!
[S2] 310,000
(969,000) (652,000) (170,000) (971,800) Correct!
(2,421,000) (1,532,000) (418,000) 1,916,400 1,916,400 (3,503,200)
Correct! Correct! Correct!
–Cuddy Company
–Wilson Company
–House Corporation
Retained earnings, 12/31/18
Parentheses indicate a credit balance.
Total liabilities and equity
Retained earnings
Common stock
Total assets
Franchise Contracts
Goodwill
December 31, 2018
Consolidation Worksheet
HOUSE CORPORATION AND CONSOLIDATED SUBSIDIARIES
Land
Dividends declared
Net Income
–Cuddy Company
Investment in Wilson Company
Inventory
Cash and receivables
Net income attributable to
noncontrolling interest (Wilson)
Net income attributable to
Consolidated net income
Net Income
–Wilson Company
–House Corporation
Retained earnings, 1/1/18
noncontrolling interest (Cuddy)
Net income attributable to House Corporation
Income of Cuddy Company
Income of Wilson Company
Operating expenses
Cost of goods sold
Sales and other revenue
70%
707,000$
303,000
1,010,000$
790,000
220,000$
60,000$
(20,000)
40,000 80,000$
140,000$
25%
Intra-Entity
Year Purchases
2016 120,000$ 40,000$
2017 150,000 60,000
80%
240,000$
50%
200,000$
45%
Given P07-25:
To goodwill (indefinite life)
Financial Records for 2018
(at transfer price)
Inventory – End of Year
To franchises (10-year remaining life)
To equipment (4-year remaining life)
Retained Intra-Entity
Acquisition date fair value allocation schedule:
House Corporation purchased ownership in Wilson Company
Merchandise still held at year’s end
Additional inventory acquired by House from Wilson in 2018
Share House and Wilson each paid of purchase price
Total price of Cuddy shares
House and Wilson acquire outstanding stock of Cuddy Company
To buildings (20-year remaining life)
Excess fair value over book value
Wilson book value
Wilson business fair value
Fair value of the 30% noncontrolling interest
House regularly acquired inventory from Wilson at cost plus a markup of
Consideration transferred for 70% interest in Wilson
Assignments to adjust Wilson’s assets to fair value:
Given P07-25:
House Wilson Cuddy
Corporation Company Company
(900,000)$ (700,000)$ (300,000)$
551,000 300,000 140,000
219,000 270,000 90,000
(91,000) – –
(28,000) (28,000) –
(249,000)$ (158,000)$ (70,000)$
(820,000)$ (590,000)$ (150,000)$
(249,000) (158,000) (70,000)
100,000 96,000 50,000
(969,000)$ (652,000)$ (170,000)$
220,000$ 334,000$ 67,000$
390,200 320,000 103,000
807,800 – –
128,000 128,000 –
385,000 320,000 144,000
310,000 130,000 88,000
180,000 300,000 16,000
2,421,000$ 1,532,000$ 418,000$
(632,000)$ (570,000)$ (98,000)$
(820,000) (310,000) (150,000)
(969,000) (652,000) (170,000)
(2,421,000)$ (1,532,000)$ (418,000)$
Cash and receivables
Total liabilities and equity
Retained earnings, 12/31/18
Common stock
Liabilities
Total assets
Land
Equipment
Buildings
Investment in Cuddy Company
Investment in Wilson Company
Inventory
Sales and other revenues
Net income
Income of Cuddy Company
Income of Wilson Company
Operating expenses
Cost of goods sold
Retained earnings, 12/31/18
Dividends declared
Net income
Retained earnings, 1/1/18
Student Name:
Class:
344,000$
86,000
430,000$
(380,000)
50,000$
10
5,000$ Correct!
720,000$
80,000
800,000$
(740,000)
60,000$
15
4,000$ Correct!
Correct! 7,680 Correct!
Correct!
Correct! Correct!
393,856 Correct!
98,464 Correct!
Correct!
Correct! Correct!
887,270 Correct!
98,586 Correct!
Correct!
Correct! 36,000 Correct!
9,000 Correct!
A2
Investment in Yarrow
56,000
Noncontrolling Interest in Yarrow
(To recognize January 1, 2018 unamortized portion of acquisition price assigned to copyright.)
Correct!
Correct! 5,000 Correct!
4,000 Correct!
Investment in Stookey
217,670
85,856
Retained Earnings, 1/1/18 (Travers)
(To recognize equity income accruing from Yarrow‘s investment in Stookey during 2017.)
Retained Earnings, 1/1/18 (Yarrow)
Investment in Yarrow
E
A1
Noncontrolling interest in Yarrow
Investment in Stookey
Noncontrolling Interest in Stookey
300,000
(To eliminate stockholders’ equity accounts of subsidiary [Stookey] against corresponding balance in investment account and to
recognize noncontrolling interest ownership.)
S2
S1
Customer List
200,000
Retained earnings, 1/1/18 (Yarrow)
685,856
Investment in Yarrow
Investment in Stookey
Noncontrolling interest in Stookey
Problem 07-27
McGraw-Hill
Instructor
Acquisition -Date Allocation and Amortization
TRAVERS COMPANY AND CONSOLIDATED SUBSIDIARIES
Consolidation entries
Noncontrolling interest fair value
Consideration transferred for Stookey
Annual amortization
Life in years
Customer list
Stookey book value
Stookey business fair value
Yarrow book value
Yarrow business fair value
Noncontrolling interest fair value
Consideration transferred for Yarrow
Retained Earnings, 1/1/18 (Stookey)
7,680
(To give effect to intra-entity gross profit deferral from 2017.)
Cost of Goods Sold
Life in years
Copyright
Common stock (Stookey)
Retained earnings, 1/1/18 (Stookey)
Annual amortization
9,000
45,000
Operating Expense
*G
Common stock (Yarrow)
Customer list
(To eliminate stockholders’ equity accounts of subsidiary Yarrow against corresponding balance in investment account and to recognize
noncontrolling interest ownership.)
(To recognize January 1, 2018 unamortized portion of acquisition price assigned to Stookey’s customer list.)
(To recognize amortization expense for 2018 – $5,000 in connection with Tavers’ investment and $3,000 in connection with Yarrow‘s
investment.)
Copyright
292,320
Student Name:
Class:
Problem 07-27
McGraw-Hill
Instructor
Correct! 100,000 Correct!
Correct! 9,600 Correct!
Non-
Travers Yarrow Stookey Consolidation Entries controlling Consolidated
Accounts Company Company Company Debit Credit Interest Balances
(900,000) (600,000) (500,000) [TI] 100,000 (1,900,000) Correct!
480,000 320,000 260,000 [G] 9,600 [*G] 7,680 961,920 Correct!
[TI] 100,000
100,000 80,000 140,000 [E] 9,000 329,000 Correct!
(320,000) (200,000) (100,000)
(609,080) Correct!
– – – (27,046) 27,046 Correct!
– – – (18,616) 18,616 Correct!
(563,418) Correct!
(700,000)
[*C2]
217,670 (917,670) Correct!
(600,000) [S2] 685,856
[*C1]
85,856 – Correct!
(300,000) [*G] 7,680 – Correct!
[S1] 292,320
(320,000) (200,000) (100,000) (563,418) Correct!
[A2] 50,400
344,000 [*C1] 85,856 [S1] 393,856 – Correct!
[A1] 36,000
949,000 836,000 520,000 2,305,000 Correct!
[A1] 45,000 [E] 5,000 40,000 Correct!
[A2] 56,000 [E] 4,000 52,000 Correct!
Common stock
Total assets
[S2] 300,000
(892,000) (800,000) (400,000) [S1] 98,464 (1,353,088) Correct!
– – – [A1] 9,000 (107,464)
– – – [A2] 5,600 (104,186)
– – – (257,312) (257,312) Correct!
Total liabilities and equity
Current assets
Retained earnings, 12/31/18
Dividends declared
Investment in Yarrow Company
(5,000)
(4,000)
(9,600)
Correct!
74,464
270,464$
Correct!
200,000$
10%
27,046$
18,616$
Noncontrolling Interest in Stookey‘s Net Income
Deferral of 2018 intra-entity gross profit
Realization of 2017 deferred gross profit
Noncontrolling interest in subsidiaries
Noncontrolling interest in Yarrow, 1/1/18
Customer list
Land, buildings, & equipment (net)
Investment in Stookey Company
93,080$
December 31, 2018
Consolidation Worksheet
TRAVERS COMPANY AND CONSOLIDATED SUBSIDIARIES
20%
9,600
Sales
(To eliminate intra-entity inventory transfers made during 2018.)
7,680
100,000
100,000
G
TI
(To defer intra-entity gross profit on ending inventory.)
Cost of Goods Sold
Inventory
Cost of Goods Sold
NCI interest in Stookey, 1/1/18
Retained earnings, 12/31/18
Cost of goods sold
Sales and other revenues
Net income attributable to NCI (Stookey)
Net income attributable to NCI (Yarrow)
Consolidated net income
Separate company net income
Operating expenses
–Stookey Company
–Yarrow Company
–Travers Company
Retained earnings, 1/1/18
Net income attributable to Travers Company
Net Income
Noncontrolling interest in Yarrow’s net income
Outside ownership
Realized income – 2018
Accrual of Stookey’s income
Copyright amortization
2018 Reported net income
Noncontrolling Interest in Net Income of Yarrow
Customer list amortization
2018 Reported net income
Noncontrolling interest in Stookey’s net income
Outside ownership
Accrual-based net income 2018
Student Name:
Class:
Problem 07-27
McGraw-Hill
Instructor
320,000$
200,000
–
–
(9,000)
511,000$
45%
229,950$ Correct!
100,000$
45%
45,000$ Correct!
9,600$
(7,680)
1,920$
45%
864$
Correct!
229,950$
45,000
274,950$
(864)
274,086$
Correct!
Account Debit Credit
274,086 Correct!
864 Correct!
274,950 Correct!
b. Determine income taxes to be paid by Travers and Yarrow on a consolidated tax return for the year 2018.
Tax rate
Increase in taxable income
c. Determine income taxes to be paid by Stookey on a separate tax return for the year 2007.
d. Based on parts (b) and (c), what journal entry would be made by this combination to record 2007 income taxes?
Tax rate
Amortization expense
Intra-entity gains
Dividend income
Yarrow’s reported pre-tax income
Travers’ reported pre-tax income
Income Tax Payable
Deferred Income Tax-Asset
Income Tax Expense-Current
Travers and Yarrow-payable
Income tax expense:
Stookey’s reported pre-tax income
Income tax payable
Tax rate
Taxable income
2017 Intra-entity gross profit taxed previously in 2017
2018 Intra-entity gross profit taxed in 2018
Income tax expense 2018
Prepayment
Total taxes to be paid-2018
Stookey-payable
Income tax payable
Deterred income tax asset
90%
720,000$
80,000$
15 years
80%
344,000$
86,000$
10 years
40%
300,000$
160,000$
120,000$
80,000$
100,000$
20%
45%
Travers Yarrow Stookey
Company Company Company
12/31/2018 12/31/2018 12/31/2018
(900,000)$ (600,000)$ (500,000)$
480,000 320,000 260,000
100,000 80,000 140,000
(320,000)$ (200,000)$ (100,000)$
(700,000)$ (600,000)$ (300,000)$
(320,000) (200,000) (100,000)
128,000 – –
(892,000)$ (800,000)$ (400,000)$
444,000$ 380,000$ 280,000$
720,000 – –
– 344,000 –
949,000 836,000 520,000
2,113,000$ 1,560,000$ 800,000$
(721,000)$ (460,000)$ (200,000)$
(500,000) (300,000) (200,000)
(892,000) (800,000) (400,000)
(2,113,000)$ (1,560,000)$ (800,000)$
Given P07-27:
Effective tax rate for all companies
Portion of inventory carried into succeeding year
2018
2017
Inventory transferred to Yarrow since takeover:
Stookey Company
Yarrow Company
Travers Company
Acquisition cost paid by Travers
Reported income totals for 2017
Portion of operational earnings Travers pays as cash dividends
with a remaining life of:
Excess purchase price attributed to copyright
Assessed fair value of noncontrolling interest
Net income
in Yarrow Company
Travers Company purchased ownership
Total liabilities and equities
Retained earnings, 12/31/18
Common stock
Liabilities
Total assets
Land, buildings, and equipment (net)
Investment in Stookey Company
in Stookey Company
Yarrow Company purchased ownership
list to be amortized over years
Excess purchase price attributed to customer
Assessed fair value of noncontrolling interest
Investment in Yarrow Company
Current assets
Retained earnings, 12/31/18
Dividends declared
Retained earnings, 1/1/18
Net income
Operating expenses
Cost of goods sold
Sales
Acquisition cost paid by Yarrow