6–21 Ch. 6—Problems
Problem 6-5, Concluded
Eliminations and Adjustments:
(IS) Eliminate intercompany sales.
(BI) Adjustment for beginning inventory profit:
Sold by Mercer (0.25 × $2,500) = $ 625
(F2) Reduce depreciation for profit on machine sale, $40,000 ÷ 5 = $8,000.
(A) Amortize $12,500 excess.
Subsidiary Mercer Company Income Distribution
Profit in ending inventory …… (EI) $ 750 Internally generated income … $40,000
Depreciation adjustment ……. (A) 12,500 Profit, beginning inventory ….. (BI) 625
Subsidiary tax schedule: Controlling NCI Total
(1) Total adjusted income …………………………….. $21,900 $5,475 $27,375*
(2) NCI share of asset adjustments ……………….. 2,500 2,500
Parent Dawn Corporation Income Distribution
Profit in ending inventory …… (EI) $1,680 Internally generated income … $120,000
Profit, beginning inventory ….. (BI) 800
Gain realized through use
of machine …………………… (F2) 8,000
PROBLEM 6-6
Determination and Distribution of Excess Schedule, Investment in Salty Company
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ………………… $337,500 $270,000 $ 67,500
Problem 6-6, Continued
Pepper Company and Subsidiary Salty Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2015
Eliminations Consolidated Controlling Consolidated
Trial Balance and Adjustments Income Retained Balance
Pepper Salty Dr. Cr. Statement NCI Earnings Sheet
Inventory, December 31 ……………………. 100,000 50,000 ………. (EI) 4,000 ……… ………. ………. 146,000
Land ………………………………………………. 240,000 100,000 ………. (F1) 10,000 ……… ………. ………. 330,000
Buildings and Equipment ………………….. 300,000 200,000 ………. ………. ……… ………. ………. 500,000
Accumulated Depreciation ………………… (80,000) (60,000) ………. ………. ……… ………. …….... (140,000)
Goodwill …………………………………………. ………. ………. (D) 37,500 ………. ……… ….…… ………. 37,500
Current Liabilities …………………………….. (150,000) (50,000) ………. ………. ……… ………. ………. (200,000)
Long-Term Liabilities ………………………… (200,000) (100,000) ………. ………. ……… ………. ………. (300,000)
Common Stock—Pepper ………………….. (100,000) ………. ………. ………. ……… ………. ………. (100,000)
Paid-In Capital in Excess of Par—Pepper (180,000) ………. ………. ………. ……… ………. ………. (180,000)
Retained Earnings—Pepper ……………… (320,000) ………. ………. ………. ……… ………. (320,000) ……….
Common Stock—Salty ……………………… ………. (50,000) (EL) 40,000 ………. ……… (10,000) ………. ……….
Gain on Sale of Land ……………………….. ………. (10,000) (F1) 10,000 ………. ……… ………. ………. ……….
Dividends Declared—Pepper …………….. 30,000 ………. ………. ………. ……… ………. 30,000 ..……..
Dividends Declared—Salty ……………….. ………. 10,000 ………. (CY2) 8,000 ……… 2,000 ………. ……….
Consolidated Income Before Tax ……….. ………. ………. ………. ………. (136,000) ………. …….… ……….
Provision for Income Taxes (30%) ……… ………. ………. (T) 40,800 ………. 40,800 ………. ………. .………
Income Taxes Payable ……………………… ………. ………. (DTL) 600 (T) 40,800 ……… ………. ………. (40,200)
DTL ……………………………………………….. ……….
………. ………. (DTL) 600 ……… ………. ………. (600)
0
0 430,900 430,900 ……… ………. ………. ……….
Consolidated Net Income ………………………………………………………………………………………….…………………… (95,200) ………. ………. ……….
Problem 6-6, Concluded
Subsidiary Salty Company Income Distribution
Gain on sale of land ………….. (F1) $10,000 Internally generated income …. $50,000
Adjusted income ………………… $40,000
Tax provision (30%) ……………. 12,000
Parent Pepper Company Income Distribution
Profit, ending inventory ……… (EI) $4,000 Internally generated income …. $100,000
Adjusted income ………………… $ 96,000
Eliminations and Adjustments:
(CY1) Eliminate the current-year subsidiary income against the investment account.
(CY2) Eliminate parent’s share of subsidiary’s dividends.
(EL) Eliminate 80% of the Salty Company equity balances at the beginning of the year
against the investment account.
(D)/(NCI) Allocate the $30,000 excess of cost and $7,500 NCI adjustment over book value to
goodwill.
(IS) Eliminate intercompany sales of $50,000.
6–25 Ch. 6—Problems
PROBLEM 6-7
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ………………… $1,112,500 $890,000 $222,500
Less book value of interest acquired:
Total equity ………………………………… 800,000 $800,000 $800,000
Adjustment of identifiable accounts:
Worksheet Amortization
Adjustment Key Life per Year
Buildings ……………………………………. $200,000 debit D1 20 $10,000
Goodwill …………………………………….. 112,500 debit D2
Total …………………………………….. $312,500
Account Adjustments Annual Current Prior
to Be Amortized Life Amount Year Years Total Key
Problem 6-7, Continued
Subsidiary Stark Company Income Distribution
Amortizations ………………………….. $10,000 Internally generated income …….. $ 60,000
Realized gain ………………………… 8,000
Adjusted income ……………………. $ 58,000
Subsidiary tax schedule: Controlling NCI Total
(2) NCI share of asset adjustments ($10,000
× 20%) ……………………………………………. 2,000 2,000
(4) Tax ………………………………………………………. $13,920 $ 4,080 $18,000
(5) Net of tax share of income (line 1 – line 4) … $32,480 $ 7,520 $40,000
Parent Pillar Company Income Distribution
Ending inventory profit ……………… $15,000 Internally generated net
income …………………………….. $100,000
Beginning inventory profit ……….. 20,000
Adjusted income ……………………. $105,000
Problem 6-7, Continued
Pillar Company and Subsidiary Stark Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2017
Eliminations Consolidated Controlling Consolidated
Trial Balance and Adjustments Income Retained Balance
Pillar Stark Dr. Cr. Statement NCI Earnings Sheet
Cash ………………………………………………. 208,600 380,000 ………. ………. ……… ………. .……… 588,600
Accounts Receivable ………………………… 130,000 150,000 ………. (IA) 8,000 ……… ………. ………. 272,000
………. ………. (F1) 16,000 ………. ……… ………. ………. ……….
………. ………. (F2) 8,000 ………. ……… ………. ………. (656,000)
Goodwill …………………………………………. ………. ………. (D2) 112,500 ………. ……… ..…….. ………. 112,500
Liabilities ………………………………………… (205,000) (150,000) (IA) 8,000 ………. ……… …….… ………. (347,000)
Deferred Tax Liability ……………………….. (3,600) ………. ………. (DTL) 1,800 ……… ………. .……… (5,400)
Common Stock—Stark ……………………… ………. (300,000) (EL) 240,000 ………. ……… (60,000) ………. ……….
Retained Earnings, January 1, 2017
Problem 6-7, Concluded
Pillar Company and Subsidiary Stark Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2017
(Concluded)
Eliminations Consolidated Controlling Consolidated
Trial Balance and Adjustments Income Retained Balance
Pillar Stark Dr. Cr. Statement NCI Earnings Sheet
………. ………. ………. ………. ……… ………. ………. ……….
Subsidiary Income ……………………………. (48,000) ………. (CY1) 48,000 ………. ……… ………. ………. ……….
Totals ………………………………………….. 0 0 ………. ………. ……… ………. ………. ……….
Consolidated Income Before Tax …………………………………………… ………. ………. (163,000) ….…… ………. ……….
Consolidated Tax Provision ………………………………………………….. (T) 49,500 ………. 49,500 ………. ………. ……….
Income Tax Payable ……………………………………………………………. (DTL) 1,800 (T) 49,500 ………
………. ………. (47,700)
Consolidated Net Income ……………………………………………………… ………. ………. (113,500) ………. ………. ……….
To NCI (see distribution schedule) ……………………………………… ………. ………. 7,520 (7,520) ………. ……….
6–29 Ch. 6—Problems
PROBLEM 6-8
(1) Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ………….. $625,000 $500,000 $125,000
Less book value of interest acquired:
Common stock …………………. $ 10,000
Paid-in capital in excess of par 190,000
Adjustment of identifiable accounts:
Worksheet Amortization
Adjustment Key Life per Year
Buildings ……………………………… $ 70,000 debit D1 20 $ 3,500
Equipment……………………………. 50,000 debit D2 5 10,000
(2) Worksheet and Support Schedules
Account Adjustments Annual Current Prior
to Be Amortized Life Amount Year Years Total Key
Buildings …………………… 20 $ 3,500 $ 3,500 $ 3,500 $ 7,000 (A1)
Intercompany Inventory Profit Deferral
Parent Parent Parent Sub Sub Sub
Amount Percent Profit Amount Percent Profit
Beginning ………………….. — 0% — $12,000 30% $3,600
Problem 6-8, Continued
Subsidiary Solar Company Income Distribution
Ending inventory profit ……………. $ 4,800 Internally generated income …….. $ 42,000
Amortizations ………………………… 13,500 Beginning inventory profit ………… 3,600
Adjusted income …………………….. $ 27,300
Tax provision …………………………. (12,000)
Subsidiary tax schedule: Controlling NCI Total
(1) Total adjusted income ……………………….. $21,840 $5,460 $27,300
(3) Taxable income ……………………………….. $21,840 $8,160 $27,300
(5) Net of tax share of income
Parent Parson Company Income Distribution
Internally generated income …….. $205,000
Realized gain …………………………. 6,000
Adjusted income …………………….. $211,000
Tax provision …………………………. (84,400)
6–31 Ch. 6—Problems
Problem 6-8, Continued
Parson Company and Subsidiary Solar Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2016
Eliminations Consolidated Controlling Consolidated
Trial Balance and Adjustments Income Retained Balance
Parson Solar Dr. Cr. Statement NCI Earnings Sheet
Cash ………………………………………………… 46,080 54,000 ………. ………. ……… ………. .……… 100,080
Accounts Receivable ………………………….. 150,600 90,000 ………. (IA) 6,000 ……… ………. ………. 234,600
Buildings ………………………………………….. 800,000 250,000 (D1) 70,000 ………. ……… ………. ………. 1,120,000
Accumulated Depreciation ………………….. (250,000) (70,000) ………. (A1) 7,000 ……… ………. …….... (327,000)
Equipment ………………………………………… 210,000 120,000 (D2) 50,000 (F1) 30,000 ……… ………. ..…….. 350,000
Accumulated Depreciation ………………….. (115,000) (90,000) ………. (A2) 20,000 ……… ………. …….… ……….
……………………………………………………. ………. ………. ………. ………. ……... (91,980) ………. ……….
Common Stock—Parson …………………….. (100,000) ………. ………. ………. ……… ………. ………. (100,000)
Paid-In Capital in Excess of Par—Parson (600,000) ………. ………. ………. ……… ………. ………. (600,000)
Retained Earnings—Parson ………………… (622,400) ………. (A1–A3) 10,800 ………. ……… ………. ..…….. ……….
Problem 6-8, Concluded
Parson Company and Subsidiary Solar Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2016
(Concluded)
Eliminations Consolidated Controlling Consolidated
Trial Balance and Adjustments Income Retained Balance
Parson Solar Dr. Cr. Statement NCI Earnings Sheet
Sales ……………………………………………….. (890,000) (350,000) (IS) 30,000 ………. (1,210,000) ….…… ………. ……….
Cost of Goods Sold ……………………………. 480,000 220,000 ………. (IS) 30,000 ……… ………. …..….. ……….
Interest Expense ……………………………….. ………. 8,000 ………. ………. 8,000 ………. …..….. ……….
Subsidiary Income ……………………………… (33,600) ………. (CY1) 33,600 ………. ……… ………. ………. ……….
Dividends Declared—Solar …………………. ………. 10,000 ………. (CY2) 8,000 ……… 2,000 ………. ……….
Dividends Declared—Parson ………………. 20,000 ………. ………. ………. ……… ………. 20,000 ……….
(EL) Eliminate controlling interest in subsidiary equity.
(D)/(NCI) Distribute excess and adjust NCI per D&D schedule.
(F1) Fixed asset profit at beginning of year.
(F2) Fixed asset profit realized.
6–33 Ch. 6—Problems
(1) Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ………….. $625,000 $500,000 $125,000
Less book value of interest acquired:
Common stock ………………….. $ 10,000
Paid-in capital in excess of par 190,000
Adjustment of identifiable accounts:
Worksheet Amortization
Adjustment Key Life per Year
Buildings ……………………………… $ 70,000 debit D1 20 $ 3,500
(2) Account Adjustments Annual Current Prior
to Be Amortized Life Amount Year Years Total Key
Buildings …………………… 20 $ 3,500 $ 3,500 $ 7,000 $10,500 (A1)
Intercompany Inventory Profit Deferral
Parent Parent Parent Sub Sub Sub
Amount Percent Profit Amount Percent Profit
Problem 6-9, Continued
Subsidiary Solar Company Income Distribution
Amortizations ………………………… $13,500 Internally generated income …….. $ 72,000
Ending inventory profit ……………. 3,000 Beginning inventory profit ………… 4,800
Equipment gain ……………………… 25,000 Realized gain …………………………. 5,000
Adjusted income …………………….. $ 40,300
Subsidiary tax schedule: Controlling NCI Total
(1) Total adjusted income ……………………….. $32,240 $ 8,060 $40,300
(3) Taxable income ……………………………….. $32,240 $10,760 $40,300
(5) Net of tax share of income
(line 1 – line 4) …………………………………. $19,344 $ 3,756 $23,100
Parent Parson Company Income Distribution
Ending inventory profit ………………. $6,000 Internally generated income …….. $159,000
Realized gain …………………………. 6,000
Adjusted income …………………….. $159,000
6–35 Ch. 6—Problems
Problem 6-9, Continued
Parson Company and Subsidiary Solar Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2016
Eliminations Consolidated Controlling Consolidated
Trial Balance and Adjustments Income Retained Balance
Parson Solar Dr. Cr. Statement NCI Earnings Sheet
Cash ………………………………………………. 49,760 80,000 ………. ………. ……… ………. ………. 129,760
Buildings ………………………………………… 900,000 250,000 (D1) 70,000 ………. ……… ………. ………. 1,220,000
Accumulated Depreciation ………………… (290,000) (80,000) ………. (A1) 10,500 ……… ………. ………. (380,500)
Equipment ………………………………………. 210,000 120,000 (D2) 50,000 (F1) 55,000 ……… ………. ….…… 325,000
Accumulated Depreciation ………………… (140,000) (100,000) ………. (A2) 30,000 ……… ………. …….... ……….
………. ………. (F1) 12,000 ………. ……… ………. ………. ……….
………. ………. (F2) 11,000 ………. ……… ………. ………. (247,000)
Goodwill …………………………………………. ………. ………. (D3) 135,000 ………. ……… ..…….. ………. 135,000
Accounts Payable ……………………………. (50,000) (40,000) (IA) 18,000 ………. ……… ………. …..….. (72,000)
Paid-In Capital in Excess of Par
—Parson …………………………………….. (600,000) ………. ………. ………. ……… …….... ………. (600,000)