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SPECIAL APPENDIX 2
UNDERSTANDING THE ISSUES
1. (a) No equity investment would be shown in this case. The Primary Beneficiary could own
various debt or equity securities, but it is not required in order to consolidate.
2. It is based on a contractual agreement that could include interest on intercompany debt or
management fees.
Special Appendix 2—Exercises SA2–2
EXERCISES
EXERCISES SA2-1
Determination and distribution of excess schedule:
Fair value of equity …………………………….. $600,000
Less book value of equity ……………………. (80,000)
Excess of fair value over book value …….. 520,000
EXERCISES SA2-2
Income Distribution Schedule:
VIE Company Income Distribution
(A1) Depreciation adjustment …….. $20,000 Internally generated net
income ……………………………. $70,000
Adjusted income ……………………. $50,000
SA2–3 Special Appendix 2—Problems
PROBLEMS
PROBLEM SA2-1
Determination and distribution of excess schedule:
Fair value of equity …………………………….. $170,000
Less book value of equity ……………………. (80,000)
Excess of fair value over book value …….. 90,000
Special Appendix 2—Problems SA2–4
Primary Company and VIE Company
Consolidated Balance Sheet
December 31, 2015
Balance Sheets, Dec. 31, 2015 Eliminations Consolidated
Balance
Sheet Primary Company VIE Company Dr Cr NCI
Cash ………………………………………………….. 200,000 80,000 280,000
Accounts receivable ……………………………….. 400,000 400,000
Inventory ……………………………………………… 400,000 400,000
Loan receivable from VIE Co. …………………… 300,000 EL 300,000
Land …………………………………………………… 50,000 50,000
Retained earnings – Primary Co. ……………….. 570,000 (570,000)
Common stock, $1 par – VIE Co. ………………. 10,000 (10,000)
Paid in capital in excess of par – VIE Co.…….. 50,000 (50,000)
Paid-in Capital on Revaluation – VIE Co. …….. D 90,000 (90,000)
Retained earnings – VIE Co. …………………….. 20,000 (20,000)
SA2–5 Special Appendix 2—Problems
PROBLEM SA2-2
Determination and distribution of excess schedule:
Fair value of equity …………………………….. $170,000
Less book value of equity ……………………. (80,000)
Excess of fair value over book value …….. 90,000
Special Appendix 2—Problems SA2–6
Primary Company and VIE Company
Consolidated Trial Balance
December 31, 2016
Trial Balances, Dec. 31, 2016 Eliminations Income
Statement NCI
Controlling
Retained
Earnings
Consolidated
Balance
Sheet Primary Company VIE Company Dr Cr
Cash ………………………………………… 305,000 110,000 415,000
Accounts receivable ………………………… 425,000 425,000
Inventory …………………………………….. 425,000 425,000
Loan receivable from VIE Co. ……………… 300,000 EL 300,000
Retained earnings – Primary Co. …………… 570,000 (570,000)
Common stock, $1 par – VIE Co. ………….. 10,000 (10,000)
Paid in capital in excess of par – VIE Co. ….. 50,000 (50,000)
Paid-in capital on revaluation – VIE Co. ……. D 90,000 (90,000)
To NCI …………………………………… 9,000 (9,000)
To controlling interest ……………………. 116,000 (116,000)
NCI ………………………………………….. (179,000) (179,000)
Retained earnings, controlling interest,
SA2–7 Special Appendix 2—Problems
Income Distribution Schedule:
VIE Company Income Distribution
(A1) Depreciation adjustment …….. $5,000 Internally generated net
income ……………………………. $25,000
Adjusted income ……………………. $20,000
