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4–55 Ch. 4—Problems
Problem 4-13, Continued
(2) Amortization Schedule
Account adjustments Annual Current Prior
to be amortized Life Amount Year Years Total Key
Buildings 20 $ 5,000 $ 5,000 $ 5,000 $10,000 A1
Equipment 5 10,000 10,000 10,000 20,000 A2
Intercompany Fixed Asset Profit Deferral
Parent Sub
Original profit ……………………………………….. $40,000 $24,000
Year of sale………………………………………….. 1 2
Subsidiary Salmon Company Income Distribution
Unrealized profit in Internally generated net
ending inventory … (EI) $ 4,800 income ………………….. $ 29,500
Equipment gain ……….. (F1) 24,000 Realized profit in beginning
Parent Purple Company Income Distribution
Unrealized profit in ending Internally generated net
inventory ……………….. (EI) $ 4,200 income ………………….. $155,000
80% of Salmon adjusted Realized profit in beginning
Problem 4-13, Continued
Purple Company and Subsidiary Salmon Company
Consolidated Income Statement
For Year Ended December 31, 2016
Eliminations Consolidated Controlling Consolidated
Trial Balance
and Adjustments Income Retained Balance
Purple Salmon Dr. Cr. Statement NCI Earnings Sheet
Cash ………………………………………………………. 92,400 57,500 …………… …………… …………… …………… …………… 149,900
Accounts Receivable ……………………………….. 130,000 36,000 …………… (IA) 14,000 …………… ..…………. …………… 152,000
Buildings ………………………………………………… 800,000 150,000 (D1) 100,000 …………… …………… …………… …………… 1,050,000
Accumulated Depreciation ………………………… (250,000) (60,000) …………… (A1) 10,000 …………… .………….. …………… (320,000)
Equipment ………………………………………………. 210,000 220,000 (D2) 50,000 (F1) 64,000 …………… …………… …………… 416,000
Accumulated Depreciation ………………………… (115,000) (80,000) …………… (A2) 20,000 …………… .………….. …………… ……………
Common Stock—Purple …………………………… (100,000) ……………. …………… …………… …..………. …………… …………… (100,000)
Paid-In Capital in Excess of Par—Purple ……. (800,000) ……………. …………… …………… ………..…. …………… …………… (800,000)
Retained Earnings—Purple ………………………. (325,000) ……………. (A1–A2) 12,000 …………… …………… …………… …………… ……………
…………… ……………. (BI) 8,000 …………… …………… …………… …………… …..……….
Dividends Declared—Salmon ……………………. …………… 10,000 …………… (CY2) 8,000 …………… 2,000 …………… ……………
Dividends Declared—Purple ……………………… 20,000 ……………. …………… …………… …………… …………… 20,000 ……………
0
0 664,800 664,800 …………… …………… …………… ……………
Consolidated Net Income ………………………………………………………………………………………….………………………………………. (154,100) …………… …………… ……………
4–57 Ch. 4—Problems
Problem 4-13, Concluded
Eliminations and Adjustments:
(CY1) Current-year subsidiary income.
(CY2) Current-year dividend.
(EL) Eliminate controlling interest in subsidiary equity.
(D)/(NCI) Distribute excess and NCI adjustment.
(A) Amortize excess.
PROBLEM 4-14
(1) Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (80%) (20%)
Company fair value ……………………………………. $375,000* $300,000 $75,000
Fair value of net assets excluding goodwill …… 270,000** 216,000 54,000
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Price paid for investment …………. $375,000 $300,000 $ 75,000
Less book value of interest acquired:
Common stock …………………. $ 10,000
Paid-in capital in excess of par 90,000
Adjustment of identifiable accounts:
Worksheet Amorti-
Adjustment Key Periods zation
Buildings ……………………………… $100,000 debit D1 20 $ 5,000
4–59 Ch. 4—Problems
Problem 4-14, Continued
(2) Amortization Schedule
Year of consolidation 3
Account adjustments Annual Current Prior
to be amortized Life Amount Year Years Total Key
Buildings 20 $ 5,000 $ 5,000 $10,000 $15,000 A1
Intercompany Inventory Profit Deferral
Parent Parent Sub Sub Sub
Parent Amount % Profit Amount % Profit
Beginning $12,000 35% $4,200 $16,000 30% $4,800
Intercompany Fixed Asset Profit Deferral
Parent Sub
Original profit ……………………………………….. $40,000 $24,000
Year of sale………………………………………….. 1 2
Realized in prior years …………………………… 10,000 4,000
Subsidiary Salmon Company Income Distribution
Ending inventory profit … (EI) $ 7,000 Internally generated net
Amortizations …………….. (A1–A2) 15,000 income ……………………….. $80,000
Beginning inventory profit …… (BI) 4,800
Parent Purple Company Income Distribution
Unrealized profit in ending Internally generated net
inventory ……………… (EI) $4,000 income …………………………. $115,000
80% of Salmon adjusted income
Problem 4-14, Continued
Purple Company and Subsidiary Salmon Company
Consolidated Income Statement
For Year Ended December 31, 2017
Eliminations Consolidated Controlling Consolidated
Trial Balance
and Adjustments Income Retained Balance
Purple Salmon Dr. Cr. Statement NCI Earnings Sheet
Cash ………………………………………………………. 195,400 53,500 …………… …………… ..…………. ……….. …………… 248,900
…………… ……………. …………… (D) 172,000 …………… ……….. …………… ……..…….
Buildings ………………………………………………… 800,000 150,000 (D1) 100,000 …………… …………… ……….. …………… 1,050,000
Accumulated Depreciation ………………………… (280,000) (65,000) …………… (A1) 15,000 …………… .………. …………… (360,000)
Equipment ………………………………………………. 150,000 220,000 (D2) 50,000 (F1) 64,000 …………… .………. …………… 356,000
Accumulated Depreciation ………………………… (115,000) (103,000) …………… (A2) 30,000 …………… ……….. …………… ……………
Common Stock—Purple …………………………… (100,000) ……………. …………… …………… …..………. ……….. …………… (100,000)
Paid-In Capital in Excess of Par—Purple ……. (800,000) ……………. …………… …………… ………..…. ……….. …………… (800,000)
Retained Earnings—Purple ………………………. (510,000) ……………. (A1–A2) 24,000 …………… …………… ……….. …………… ……………
…………… ……………. (BI) 8,040 …………… …………… ……….. …………… ……………
Dividends Declared—Purple ……………………… 40,000 ……………. …………… …………… …………… ……….. 40,000 ……………
0
0 744,600 744,600 …………… ……….. …………… ……………
Consolidated Net Income ………………………………………………………………………………………….………………………………………. (187,000) ……….. …………… ……………
To NCI (see distribution schedule) ……………………………………………………………………………………………………………….…….. 13,360 (13,360) …………… ……………
4–61 Ch. 4—Problems
Problem 4-14, Concluded
(CY1) Current-year subsidiary income.
(CY2) Current-year dividend.
(EL) Eliminate controlling interest in subsidiary equity.
(D)/(NCI) Distribute excess and NCI adjustment.
(A) Amortize excess.
(IS) Eliminate intercompany sales during current period.
Ch. 4—Problems 4–62
APPENDIX PROBLEMS
PROBLEM 4A-1
Determination and Distribution of Excess Schedule
Company Parent
Implied Price NCI
Fair Value (100%) Value
Fair value of subsidiary ………………… $750,000 $750,000
Less book value of interest acquired:
Common stock ………………………. $400,000
Paid-in capital in excess of par … 80,000
Problem 4A-1, Continued
Arther Corporation and Subsidiary Trent, Inc.
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2018
Eliminations
Balance, January 1, 2018 …………….. (250,000) (206,000) (EL) 206,000 (CV) 50,000 ……………
……………. ……………. (A1) 18,000 …………… ……………
……………. ……………. (F1) 24,000 …………… (258,000)
Net Income ………………………………… (210,000) (190,000) ……………. …………… (337,000)
Goodwill …………………………………….. ……………. ……………. (D2) 60,000 …………… 60,000
Accounts Payable and Accrued
Expenses ………………………………… (670,000) (544,000) (IA) 75,000 …………… (1,139,000)
Common Stock ($10 par) …………….. (1,200,000) (400,000) (EL) 400,000 …………… (1,200,000)
Problem 4A-1, Concluded
Eliminations and Adjustments:
(CV) Convert to equity method as of January 1, 2018, 100% × $50,000 increase.
(CY2) Eliminate intercompany dividends.
(EL) Eliminate subsidiary equity against investment account.
(D) Distribute excess $54,000 to land, building, and equipment and $60,000 to goodwill.
(A1) Amortize excess applicable to machine for two prior years and current year.
(F2) Correct depreciation for intercompany profit, $4,000.
Subsidiary Trent, Inc. Income Distribution
Unrealized profit in ending Internally generated net
inventory…………………….. (EI) $18,000 income ………………………. $190,000
Parent Arther Corporation Income Distribution
Internally generated net
income ………………………. $170,000
100% × Trent adjusted income
4–65 Ch. 4—Problems
PROBLEM 4-A2
Peanut Company and Subsidiary Salt Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2016
Financial Eliminations
Statements
and Adjustments Consolidated
Peanut Salt Dr. Cr. NCI Balance
Income Statement:
Net Sales ………………………………. (600,000) (315,000) (IS) 40,000 …………. …………. (875,000)
Controlling Interest …………………………………………………………………………………………….…………………………………. (186,000)
Retained Earnings:
Retained Earnings, January 1,
2016—Peanut …………………….. (320,000) ……………. (A2) 5,000 ………….. …………. (285,000)
Balance, December 31, 2016 ………. (444,000) (235,000) …………. …………. (51,000) (411,000)
Consolidated Balance Sheet:
Inventory, December 31 ………….. 130,000 50,000 …………. (EI) 5,000 …………. 175,000
Other Current Assets ………………. 241,000 235,000 …………. …………. …………. 476,000
Current Liabilities ……………………. (150,000) (70,000) …………. ………….. …………. (220,000)
Bonds Payable ………………………. …………… (100,000) …………. ………….. …………. (100,000)
Other Long-Term Liabilities ……… (200,000) (50,000) …………. ………….. …………. (250,000)
Common Stock—Peanut …………. (200,000) ……………. …………. ………….. …………. (200,000)
Problem 4A-2, Continued
Eliminations and Adjustments:
(CY1) Eliminate the current-year subsidiary income recorded by the parent.
(CY2) Eliminate intercompany dividends.
(A2) Amortize the equipment write-up over four years, with $5,000 (80% × $6,250) for 2015
charged to the parent’s retained earnings and $1,250 to the subsidiary’s retained
earnings, and $6,250 for 2016 to operating expenses.
Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (80%) (20%)
Company fair value ………………………………………….. $250,000* $200,000 $50,000
4–67 Ch. 4—Problems
Problem 4A-2, Concluded
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Price paid for investment ……………… $250,000 $200,000 $ 50,000
Less book value of interest acquired:
Adjustment of identifiable accounts:
Worksheet Amorti-
Adjustment Key Periods zation
Inventory ……………………………………. $12,500 debit D1 1 $12,500
Equipment ………………………………….. 25,000 debit D2 4 6,250
Goodwill …………………………………….. 12,500 debit D3
Total adjustments …………………. $50,000
Subsidiary Salt Company Income Distribution
Ending inventory profit ……………. (EI) $5,000 Internally generated net
Amortizations ………………………… (A2) 6,250 income ………………………. $105,000
Parent Peanut Company Income Distribution
Internally generated net
income ……………………….. $100,000
Realized gain on equipment
Sale ……………………………. (F2) 3,000
CASE 4-1
To: Harvey Henderson
From: Student
Concerning: Cool Glass accounting issues
Harvey, you are a minority shareholder and can look only to the income statement of the sepa-
rate Henderson Window Company. You have no claim on the assets of the consolidated com-
pany. The controlling interest may well take actions that are wise for the consolidated controlling
interest, but they may not be in your best interest.
The price charged for glass is a direct part of Henderson’s cost of sales. A higher price reduces
Henderson income and thus the 30% of Henderson income available to Henderson sharehold-
ers. The higher price increases the income of Cool Glass, all the benefits of which go to Cool
Glass shareholders. In consolidation, the price charged is eliminated; only the purchases from
the outside and the sales to the outside remain in the consolidated statements. The distribution
