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7–21 Ch. 7—Problems
Problem 7-2, Concluded
Eliminations and Adjustments:
(D1)/(NCI) Distribute the $35,000 excess cost and $15,000 NCI adjustment as required by
the determination and distribution of excess schedules to equipment and
(D2) Distribute excess on 20% investment. Eliminate NCI of $2,667 and debit James
Company’s Retained Earnings for $15,333.
(IS) Eliminate the intercompany sale and purchase.
(EI) Eliminate the $3,000 of gross profit in the ending inventory.
Subsidiary Craft Company Income Distribution
Ending inventory profit ............. (EI) $3,000 Internally generated net
Equipment depreciation ........... (A) 5,000 income ........................... $90,000
Adjusted net income ............ $82,000
PROBLEM 7-3
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (70%) (30%)
Price paid for investment ...................... $475,500 $325,500 $150,000*
Less book value of interest acquired:
Common stock ................................ $100,000
Adjustment of identifiable accounts:
Worksheet Amortization
Adjustment Key Life per Year
Gain on acquisition ............................... $ (24,500) credit D
*NCI value cannot be less than fair (equal to book) value of interest in net assets.
Analysis of September 30, 2017, purchase:
Price paid ....................................................................................... $105,000
Less interest acquired:
Common stock ....................................................................... $100,000
Eliminations and Adjustments:
(CY1) Eliminate the subsidiary income.
(CY2) Eliminate the intercompany dividends.
(LN) Eliminate the intercompany accounts resulting from the 12% note:
(1) Payment of installment and interest on December 31 was made by Stallward but
not received by Away.
(2) Balance on note.
(2) Eliminate profit in deferred charges, $16,500 × 1/3 = $5,500.
(IS) Eliminate intercompany sales of $60,000.
7–23 Ch. 7—Problems
Problem 7-3, Continued
(F1) Eliminate the gain on the sale of tools.
(F2) Adjust the depreciation on tools:
Subsidiary Stallward, Inc., Income Distribution
Unrealized profit on Internally generated net
engineering services .......... (S2) $5,500 income ............................... $48,000
Parent Away Company Income Distribution
Unrealized gain on sale Internally generated net
of tools ................................ (F1) $10,000 income ............................... $202,000
Unrealized profit in ending 70% interest in income of
inventory ............................. (EI) 2,500 Stallward for full year
(70% × $42,500) ................ 29,750
Problem 7-3, Continued
Away Company and Subsidiary Stallward, Inc.
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2017
Eliminations Consolidated Controlling Consolidated
Trial Balance
and Adjustments Income Retained Balance
Away Stallward Dr. Cr. Statement NCI Earnings Sheet
Cash .............................................................. 99,500 78,000 ................. ................. ................. ................. ................. 177,500
Investment in Stallward, Inc. ......................... 469,200 ................. (D) 24,500 (CY1) 43,200 ................. ................. ................. .................
................. ................. (CY2) 4,500 (EL) 450,000 ................. ................. ................. .................
................. ................. ................. (PI) 5,000 ................. ................. ................. .................
Property, Plant, and Equipment ..................... 1,250,000 500,000 ................. (F1) 10,000 ................. ................. ................. 1,740,000
Accumulated Depreciation ............................. (500,000) (150,000) (F2) 1,000 ................. ................. ................. ................. (649,000)
................. ................. (IS) 60,000 ................. ................. ................. ................. .................
................. ................. (F1) 10,000 ................. (2,440,000) ................. ................. .................
Subsidiary Income ......................................... (43,200) ................. (CY1) 43,200 ................. ................. ................. ................. .................
Interest Income .............................................. (3,000) ................. (LN3) 3,000 ................. ................. ................. ................. .................
Problem 7-3, Concluded
Away Company and Subsidiary Stallward, Inc.
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2017
(Concluded)
Eliminations Consolidated Controlling Consolidated
Trial Balance
and Adjustments Income Retained Balance
Away Stallward Dr. Cr. Statement NCI Earnings Sheet
Gain on Acquisition ........................................ ................. ................. ................. (D) 24,500 (24,500) ................. ................. .................
Dividends Declared ........................................ ................. 5,000 ................. (CY2) 4,500 ................. 500 ................. .................
PROBLEM 7-4
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (90%) (10%)
Fair value of subsidiary ........................ $560,000 $504,000 $ 56,000
Less book value of interest acquired:
Common stock ($5 par) .................. $100,000
Adjustment of identifiable accounts:
Worksheet Amortization
Adjustment Key Life per Year
Buildings .............................................. $ 60,000 debit D 20 $3,000
Entries of July 1, 2017:
Investment in Dower [10% × ($30,000 income – $10,000 dividends)
– (10% × $3,000 amortization × 1/2 year)] ................................. 1,850
Investment Income ................................................................ 1,850
Cash ................................................................................................. 100,000
Investment in Dower [(1/9 × $504,000) + $1,850 + $8,800] ....... 66,650
Paid-In Capital in Excess of Par—Carlos ................................... 33,350
To record sale of 10% interest.
Entries on December 31, 2017:
7–27 Ch. 7—Problems
Problem 7-4, Concluded
Investment in Dower (80% × $100,000 change) –
(80% × 4 years × $3,000 amortization) ...................................... 70,400
Retained Earnings ................................................................. 70,400
To convert the portion of the investment sold to equity by
PROBLEM 7-5
Adjustments for investment in preferred stock:
Investment in Channel Preferred Stock ........................................... 1,800
Subsidiary Income—Preferred Stock ......................................... 1,800
To record dividend preference for 2015.
Adjustments for investment in common stock:
From cost to fair value on January 1, 2013
Fair value, 1,000 shares ($140,000 purchase cost/5,000 shares) $28,000
Adjustment for 2013–2014:
Retained Earnings ........................................................................... 3,600
Investment in Channel Common Stock ...................................... 3,600
Net correction for equity adjustments on common:
2013–2014:
Failure to deduct preferred dividend claims from
net income to arrive at income available to
Problem 7-5, Concluded
Adjustment for sale of 10% interest:
Adjusted cost of shares, January 1, 2013, 1,000 shares × $28 .... $28,000
Share of income (10% × $75,000) ................................................ 7,500
Common dividends (10% × $5,000) .............................................. (500)
PROBLEM 7-6
Determination and Distribution of Excess Schedule, December 31, 2013
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ........................ $900,000 $720,000 $180,000
Less book value of interest acquired:
Common stock ($20 par) ................ $750,000
Adjustment of identifiable accounts:
Worksheet Amortization
Adjustment Key Life per Year
Building ................................................ $ 28,000 debit D1 20 $1,400
Goodwill ............................................... 88,000 debit D2
Total ............................................... $116,000
Problem 7-6, Continued
Marsha Corporation and Subsidiary Transam Corporation
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2016
Eliminations Consolidated Controlling Consolidated
Trial Balance
and Adjustments Income Retained Balance
Marsha Transam Dr. Cr. Statement NCI Earnings Sheet
Current Assets ............................................... 806,400 463,250 ................. ................. ................. ................. ................. 1,269,650
Accumulated Depreciation—Equipment ........ (400,000) (200,000) (F1) 5,000 ................. ................. ................. ................. (590,000)
................. ................. (F2) 5,000 ................. ................. ................. ................. .................
Goodwill ......................................................... ................. ................. (D2) 88,000 ................. ................. ................. ................. 88,000
Liabilities ........................................................ (800,000) (550,000) ................. ................. ................. ................. ................. (1,350,000)
Common Stock ($20 par)—Marsha ............... (2,000,000) ................. ................. ................. ................. ................. ................. (2,000,000)
Other Expenses ............................................. 650,000 320,000 (A1) 1,400 (F2) 5,000 966,400 ................. ................. .................
Dividends Declared ........................................ 200,000 50,750 ................. (CY) 21,400 ................. 29,350 200,000 .................
0
0 933,200 933,200 ................. ................. ................. .................
Consolidated Net Income ........................................................................................................................................ (378,600) ................. ................. .................
Problem 7-6, Continued
Eliminations and Adjustments:
(CV) Convert the investment to the equity method as of January 1:
Retained earnings applicable to common stock
on January 1, 2016 ($124,000 – $16,000 arrearage
for 2014 and 2015) ............................................................... $108,000
from the retained earnings of Transam Corporation, 2 years × $8,000.
(EL) Eliminate the parent’s 80% share of subsidiary common stock equity.
(D)/(NCI) Distribute the excess and NCI adjustment according to the determination and
distribution of excess schedule.
(D1) Building.
(A1) Adjust the depreciation on the building—two past years and one current year.
(F2) Reduce current depreciation by $5,000 for 1/5 of current gain on sale.
Problem 7-6, Concluded
Subsidiary Transam Corporation Income Distribution
Building depreciation ................ (A1) $1,400 Internally generated net
income ............................... $80,000
Less preferred claim to
NCI (2016 dividends) ......... 8,000
Adjusted income ...................... $70,600
Parent Marsha Corporation Income Distribution
Internally generated
income ............................... $295,000
Share of Transam adjusted
PROBLEM 7-7
(1)
Adjustment of investment account:
July 1, 2018
Implied fair value of 5,000 shares [($226,200/15,000 shares) × 5,000] ................ $ 75,400
(2) Supporting schedules for worksheet:
Determination and Distribution of Excess Schedule, July 31, 2018
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ........................ $377,000 $301,600* $ 75,400
Less book value of interest acquired:
Common stock ($10 par) ................ $250,000
Retained earnings .......................... 107,000
January 1–June 20 income ............ 20,000
January 2, 2018, Engine Corporation preferred, 250 shares:
Price paid ................................................................................... $7,000
Less interest acquired:
Preferred stock ................................................................... $ 50,000
Retained earnings, preferred stock,
Problem 7-7, Continued
January 2, 2018, Engine Corporation common, 14,000 shares (14,000 shares/20,000 shares =
70%):
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (70%) (30%)
Fair value of subsidiary ........................ $280,000 $196,000 $ 84,000
Less book value of interest acquired:
Common stock ($10 par) ................ $200,000
Problem 7-7, Continued
Titan Corporation and Subsidiaries Boat Corporation and Engine Corporation
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2018
6% Bonds .............................. 23,800 ................ ............... .............. (B) 23,800 ................. ............... ............... ................ .................
Common Stock ...................... 293,600 ................ ............... .............. ............. ................. ............... ............... ................ .................
................. ................ ............... (CY2) 24,000 (CY1a) 16,000 ................. ............... ............... ................ .................
................. ................ ............... .............. (PI) 16,000 ................. ............... ............... ................ .................
Dividends Payable ...................... (22,000) (30,000) ............... (DP) 24,000 ............. ................. ............... ............... ................ (28,000)
Preferred Stock ($20 par)—Titan (400,000) ............... ............... .............. ............. ................. ............... ............... ................ (400,000)
Common Stock ($10 par)—Titan (600,000) ............... ............... .............. ............. ................. ............... ............... ................ (600,000)
Retained Earnings—Titan ........... (154,600) ............... ............... .............. ............. ................. ............... ............... (154,600) .................
