5–21 Ch. 5—Problems
Problem 5-5, Continued
Intercompany Inventory Profit Deferral
Parent Parent Parent Sub Sub Sub
Amount Percent Profit Amount Percent Profit
Beginning ………………………… $20,000 30% $6,000 — 0% —
Ending …………………………….. 25,000 30 7,500 — 0 —
Subsidiary Stark Company Income Distribution
Buildings depreciation …………….. $ 4,000 Internally generated net
Equipment depreciation ………….. 10,000 income …………………………….. $31,672
Parent Pontiac Company Income Distribution
Ending inventory profit ……………. $7,500 Internally generated net
income ………………………………. $57,845
Proof for Bond Retirement
Loss remaining at year-end:
Investment in bonds at December 31, 2016 ………………………… $103,180
Carrying value at December 31, 2016 ………………………………… 98,687 $4,493
Problem 5-5, Continued
Pontiac Company and Subsidiary Stark Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2016
Eliminations Consolidated Controlling Consolidated
Trial Balance
and Adjustments Income Retained Balance
Pontiac Stark Dr. Cr. Statement NCI Earnings Sheet
Cash ………………………………………………………. 49,150 61,031 ……….. ……….. ……….. ……….. ……….. 110,181
Investment in Stark Bonds ………………………… 103,180 ………… ……….. (B) 103,180 ……….. …..…… ……….. ………..
Buildings ………………………………………………… 500,000 250,000 (D1) 80,000 ……….. ……….. ……….. ……….. 830,000
Accumulated Depreciation ………………………… (330,000) (80,000) ……….. (A1) 12,000 ……….. ……….. ……….. (422,000)
Equipment ………………………………………………. 200,000 120,000 (D2) 50,000 ……….. ……….. ..……… ……….. 370,000
Paid-In Capital in Excess of Par—Pontiac …… (600,000) ………… ……….. ……….. ……….. ……….. ……….. (600,000)
Retained Earnings—Pontiac ……………………… (442,223) ………… (A1–A2) 22,400 ……….. ……….. ……….. ……….. ………..
……….. ………… (BI) 6,000 ……….. ……….. ……….. (409,330) ………..
……….. ………… (B) 4,493 ……….. ……….. ……….. ……….. ………..
Totals …………………………………………………. 0 0 766,396 766,396 ……….. ……….. ……….. ………..
Consolidated Net Income ………………………………………………………………………………………….………………………………………. (75,140) ……….. ……….. ………..
To NCI (see distribution schedule) ……………………………………………………………………………………………………………….…. 3,759 (3,759) ……….. ………..
To Controlling Interest (see distribution schedule)…………………………………………………………………………………………….. 71,381 ………… (71,381) ………..
Problem 5-5, 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 adjust NCI.
PROBLEM 5-6
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ………………… $500,000 $400,000 $100,000
Less book value of interest acquired:
Common stock ($1 par) …………… $ 10,000
Adjustment of identifiable accounts:
Worksheet Amortization
Adjustment Key Life per Year
Buildings ……………………………………. $130,000 debit D1 20 $ 6,500
Equipment ………………………………….. 50,000 debit D2 5 10,000
Problem 5-6, Continued
Account Adjustments Annual Current Prior
to Be Amortized Life Amount Year Years Total Key
Buildings …………………………. 20 $ 6,500 $ 6,500 $ 6,500 $13,000 (A1)
Intercompany Inventory Profit Deferral
Parent Parent Parent Sub Sub Sub
Amount Percent Profit Amount Percent Profit
Beginning ………………………… — 0% — $ 9,000 25% $2,250
Subsidiary Spartan Company Income Distribution
Amortizations ………………………… $16,500 Internally generated net
Ending inventory profit ……………. 3,000 income ………………………………. $27,324
Interest adjustment, bonds ………. 920 Beginning inventory profit …………. 2,250
Gain on bond retirement …………… 6,833
Parent Postman Company Income Distribution
Internally generated net
income ………………………………. $173,596
5–25 Ch. 5—Problems
Problem 5-6, Continued
Postman Company and Subsidiary Spartan Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2015
Eliminations Consolidated Controlling Consolidated
Trial Balance
and Adjustments Income Retained Balance
Postman Spartan Dr. Cr. Statement NCI Earnings Sheet
Cash ………………………………………………………. 144,486 99,347 ……….. ……….. ……….. ……….. ……….. 243,833
Investment in Spartan Bonds …………………….. 96,110 ………… ……….. (B) 96,110 ……….. ……….. ……….. ………..
Buildings ………………………………………………… 600,000 100,000 (D1) 130,000 ……….. ……….. ……….. ……….. 830,000
Accumulated Depreciation ………………………… (310,000) (40,000) ……….. (A1) 13,000 ……….. ……….. ……….. (363,000)
Equipment ………………………………………………. 150,000 80,000 (D2) 50,000 ……….. ……….. ……….. ……….. 280,000
Common Stock ($1 par)—Postman ……………. (100,000) ………… ……….. ……….. ……….. ……….. ……….. (100,000)
Paid-In Capital in Excess of Par—Postman …. (800,000) ………… ……….. ……….. ……….. ……….. ……….. (800,000)
Retained Earnings—Postman ……………………. (300,000) ………… (A1–A2) 13,200 ……….. ……….. …..…… ……….. ………..
……….. ………… (BI) 1,800 ……….. ……….. ……….. (285,000) ………..
Dividends Declared—Postman ………………….. 20,000 ………… ………… ………… ……….. ……….. 20,000 ………..
Totals …………………………………………………. 0 0 681,728 681,728 ………… ……….. ……….. ………..
Consolidated Net Income ………………………………………………………………………………………….………………………………………. (189,583) ……….. ……….. ………..
To NCI (see distribution schedule) ……………………………………………………………………………………………………………….…. 3,197 (3,197) ……….. ………..
Problem 5-6, Concluded
Eliminations and Adjustments:
(CY1) Current-year subsidiary income.
(CY2) Current-year dividend.
(EL) Eliminate controlling interest in subsidiary equity.
Proof for Bond Retirement
Gain remaining at year-end:
Carrying value at December 31, 2015 ………………………………… $102,023
Investment in bonds at December 31, 2015 ………………………… 96,110 $5,913
PROBLEM 5-7
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ………………… $500,000 $400,000 $100,000
Less book value of interest acquired:
Common stock ($1 par) …………… $ 10,000
Adjustment of identifiable accounts:
Worksheet Amortization
Adjustment Key Life per Year
Buildings ……………………………………. $130,000 debit D1 20 $ 6,500
Equipment ………………………………….. 50,000 debit D2 5 10,000
Account Adjustments Annual Current Prior
to Be Amortized Life Amount Year Years Total Key
Buildings …………………………. 20 $ 6,500 $ 6,500 $13,000 $19,500 (A1)
Problem 5-7, Continued
Intercompany Inventory Profit Deferral
Parent Parent Parent Sub Sub Sub
Amount Percent Profit Amount Percent Profit
Subsidiary Spartan Company Income Distribution
Amortizations ………………………… $16,500 Internally generated net
Ending inventory profit ……………. 2,500 income ………………………………. $17,348
Interest adjustment, bonds ………. 998 Beginning inventory profit …………. 3,000
Parent Postman Company Income Distribution
Internally generated net
income ………………………………. $178,650
5–29 Ch. 5—Problems
Problem 5-7, Continued
Postman Company and Subsidiary Spartan Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2016
Eliminations Consolidated Controlling Consolidated
Trial Balance
and Adjustments Income Retained Balance
Postman Spartan Dr. Cr. Statement NCI Earnings Sheet
Cash ………………………………………………………. 290,486 99,347 ……….. ……….. ……….. ……….. ……….. 389,833
Investment in Spartan Bonds …………………….. 96,760 ………… ……….. (B) 96,760 ……….. ……….. ……….. ………..
Buildings ……………………………………………….. 600,000 100,000 (D1) 130,000 ……….. ……….. ……….. ……….. 830,000
Accumulated Depreciation ………………………… (340,000) (45,000) ……….. (A1) 19,500 ……….. ……….. ……….. (404,500)
Equipment ………………………………………………. 150,000 80,000 (D2) 50,000 ……….. ……….. ……….. ……….. 280,000
Common Stock ($1 par)—Postman ……………. (100,000) ………… ……….. ……….. ……….. ……….. ……….. (100,000)
Paid-In Capital in Excess of Par—Postman …. (800,000) ………… ……….. ……….. ……….. ……….. ……….. (800,000)
Retained Earnings—Postman ……………………. (475,455) ………… (A1–A2) 26,400 ……….. ……….. …..…… ……….. ………..
……….. ………… (BI) 2,400 ……….. ……….. ……….. (451,385) ………..
Dividends Declared—Postman ………………….. 20,000 ………… ……….. ……….. ……….. ……….. 20,000 ………..
Totals …………………………………………………. 0 0 708,062 708,062 ……….. ……….. ……….. ………..
Consolidated Net Income ………………………………………………………………………………………….………………………………………. (179,000) ……….. ……….. ………..
To NCI (see distribution schedule) ……………………………………………………………………………………………………………….…. 70 (70) ……….. ………..
Problem 5-7, 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 adjust NCI.
Proof:
Gain remaining at year-end:
Carrying value at December 31, 2016 ………………………………… $101,675
Investment in bonds at December 31, 2016 ………………………… 96,760 $4,915
PROBLEM 5-8
(1) (a) $10,000 decrease in income. The $15,000 gain is eliminated. Depreciation expense is
reduced by ⅓ of the gain, $5,000.
(2) a – 1
b – 2 Elimination of the intercompany sale reduces cost of that asset.
c – 5
d – 2 50% of the bonds are treated as retired when consolidating.
PROBLEM 5-9
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (90%) (10%)
Fair value of subsidiary ………………… $750,000 $675,000 $ 75,000
Less book value of interest acquired:
Adjustment of identifiable accounts:
Worksheet Amortization
Adjustment Key Life per Year
Goodwill …………………………………….. $150,000 debit D
Subsidiary Sundown Company Income Distribution
Interest adjustment Internally generated net
($10,702 – $9,621) ……………. $1,081 income …………………………….. $8,758
Realized equipment gain ………… 2,000
Problem 5-9, Continued
Princess Company and Subsidiary Sundown Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2016
Eliminations Consolidated Controlling Consolidated
Trial Balance
and Adjustments Income Retained Balance
Princess Sundown Dr. Cr. Statement NCI Earnings Sheet
Inventory ………………………………………… 25,000 80,000 ………. (EI) 6,000 ……… ………. ………. 99,000
Equipment ………………………………………. 371,190 1,522,413 ………. (F1) 10,000 ……… ………. ………. 1,883,603
Bonds Payable (9%) ………………………… ………. (200,000) (B) 100,000 ………. ……… ………. ………. (100,000)
Discount on Bonds Payable ………………. ………. 6,345 ………. (B) 3,173 ……… ………. ………. 3,172
Common Stock ($10 par)—
Princess ………………………………………. (200,000) ………. ………. ………. ……… …..….. ………. (200,000)
Paid-In Capital in Excess of Par—
………. ………. (F1) 600 (NCI) 15,000 ……… (65,102) ………. ……….
Sales ……………………………………………… (300,000) (260,000) (IS) 50,000 ………. (510,000) …….... ………. ……….
Cost of Goods Sold ………………………….. 100,000 72,000 (EI) 6,000 (IS) 50,000 128,000 ………. ………. ……….
Interest Income ……………………………….. (10,702) ………. (B) 10,702 ………. ……… ………. ………. ……….
Other Expenses ………………………………. 150,000 160,000 ………. (F2) 2,000 308,000 ………. ………. ……….
Problem 5-9, Concluded
Eliminations and Adjustments:
(F1) Reduce machine to cost to consolidated entity. Unrecognized gain of $6,000 remain-
ing at beginning of year is split 90% to controlling retained earnings and 10% to NCI
retained earnings.
(F2) Reduce current-year depreciation expense due to sale of machine, $10,000 ÷ 5 years
= $2,000.
(B) Eliminate intercompany interest revenue and expense. Eliminate the balance in the
investment in bonds against the bonds payable. The gain on retirement at the start of
5–35 Ch. 5—Problems
PROBLEM 5-10
Paratec Corporation and Subsidiary Sym Corporation
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2018
Consolidated Controlling Consolidated
Trial Balance
Eliminations and Adjustments Income Retained Balance
Paratec Sym Dr. Cr. Statement Earnings Sheet
Cash …………………………………………. 190,000 40,000 …………. …………. …………. ………… 230,000
Accounts Receivable (net) …………… 738,350 142,000 …………. …………. …………. ………… 880,350
…………. ………… …………. (D) 50,000 …………. ………… …………
Land …………………………………………. 250,000 85,000 …………. …………. …………. ………… 335,000
Plant and Equipment …………………… 1,950,000 295,000 (CL2) 120,000 …………. …………. ………… 2,365,000
Accumulated Depreciation—
Plant and Equipment ……………….. (250,000) (60,000) …………. (CL2) 36,000 …………. ………… (346,000)
Equipment Under Operating Lease .. 120,000 ………… …………. (CL2) 120,000 …………. ………… …………
—Sym ……………………………………. …………. (310,000) (EL) 310,000 …………. …………. ………… …………
Sales ………………………………………… (4,720,000) (500,000) …………. …………. (5,220,000) ………… …………
Rental Income ……………………………. (12,000) ………… (CL1) 12,000 …………. …………. …….….. …………
Cost of Goods Sold …………………….. 3,068,000 300,000 …………. …………. 3,368,000 ………… …………
Rent Expense …………………………….. …………. 12,000 …………. (CL1) 12,000 …………. ………… …………
Problem 5-10, Concluded
Eliminations and Adjustments:
(CV) Convert to equity method as of January 1, 2018, 100% × ($310,000 – $150,000).
PROBLEM 5-11
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ………………… $562,500 $450,000 $112,500
Less book value of interest acquired:
Common stock ($1 par) …………… $ 10,000
Paid-in capital in excess of par … 190,000
Adjustment of identifiable accounts:
Worksheet Amortization
Adjustment Key Life per Year
Buildings ……………………………………. $100,000 debit D1 20 $5,000
Account Adjustments Annual Current Prior
to Be Amortized Life Amount Year Years Total Key
Problem 5-11, Continued
Intercompany Inventory Profit Deferral
Parent Parent Parent Sub Sub Sub
Amount Percent Profit Amount Percent Profit
Beginning ………………………… — 0% — $10,000 25% $2,500
Ending …………………………….. — 0 — 12,000 25 3,000
Subsidiary Simon Company Income Distribution
Ending inventory profit ……………. $3,000 Internally generated net
Amortization ………………………….. 5,000 income ………………………………. $40,804
Beginning inventory profit …………. 2,500
Problem 5-11, Continued
Press Company and Subsidiary Simon Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2016
Eliminations Consolidated Controlling Consolidated
Trial Balance
and Adjustments Income Retained Balance
Press Simon Dr. Cr. Statement NCI Earnings Sheet
Cash …………………………………………. 72,363 73,637 ……… ……… …….. ……… ……... 146,000
Minimum Lease Payments
Receivable ……………………………… 103,452 ……… ……… (CL2) 103,452 …….. ……… ……... ……..
Unearned Interest ………………………. (17,619) ……… (CL2) 17,619 ……… …….. ……… ……... ……..
Buildings …………………………………… 800,000 400,000 (D1) 100,000 ……… …….. ……… ……… 1,300,000
Accumulated Depreciation …………… (220,000) (220,000) ……… (A1) 10,000 …….. ……… ……… (450,000)
Discount (Premium) ……………………. ……… ……… ……… ……… …….. ……… ……… ……..
Obligation Under Capital Lease ……. ……… (76,637) (CL2) 76,637 ……… …….. ……… ……… ……..
Accrued Interest—Capital Lease ….. ……… (9,196) (CL2) 9,196 ……… …….. ……… ……… ……..
Common Stock ($1 par)—Simon ….. ……… (10,000) (EL) 8,000 ……… …….. (2,000) ……… ……..
Paid-In Capital in Excess of Par
5–39 Ch. 5—Problems
Problem 5-11, Continued
Press Company and Subsidiary Simon Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2016
(Concluded)
Eliminations Consolidated Controlling Consolidated
Trial Balance
and Adjustments Income Retained Balance
Press Simon Dr. Cr. Statement NCI Earnings Sheet
Common Stock ($1 par)—Press …… (100,000) ……… ……… ……… …….. ……… ……… (100,000)
Paid-In Capital in Excess of Par
Cost of Goods Sold …………………….. 450,000 240,000 ……… (IS) 40,000 …….. ……… ……… ……..
……… ……… (EI) 3,000 (BI) 2,500 650,500 ……… ……… ……..
Depreciation Expense—Buildings …. 30,000 10,000 (A1) 5,000 ……… 45,000 ……… ……… ……..
Depreciation Expense—Equipment 15,000 28,000 ……… ……… …….. ……… ……… ……..
……… ……… ……… ……… 43,000 ……… ……… ……..
Other Expenses …………………………. 140,000 72,000 ……… ……… 212,000 ……… ……… ……..
Interest Expense ………………………… ……… 9,196 ……… (CL1) 9,196 …….. ……… ……… ……..
Interest Revenue ………………………… (9,196) ……… (CL1) 9,196 ……… …….. ……… ……… ……..
Ch. 5—Problems 5–40
Problem 5-11, Concluded
Eliminations and Adjustments:
(CY1) Current-year subsidiary income.
(CY2) Current-year dividend.
(EL) Eliminate controlling interest in subsidiary equity.
(D)/(NCI) Distribute excess.
(A) Amortize excess.