7–35 Ch. 7—Problems
Problem 7-7, Continued
Titan Corporation and Subsidiaries Boat Corporation and Engine Corporation
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2018
(Concluded)
Eliminations Consolidated Controlling Consol.
Trial Balance
and Adjustments Income NCI NCI Retained Balance
Titan Boat Engine Dr. Cr. Statement Boat Engine Earnings Sheet
Retained Earnings (preferred)—
Engine …………………………….. …………….. ……………. …………… (PS2) 2,000 (PS1) 20,000 …………….. …………… (18,000) ……………. ……………..
Sales ……………………………………. (1,050,000) (500,000) (650,000) (IS) 22,400 …………. (2,177,600) …………… …………… ……………. ……………..
Subsidiary Income:
Common Stock—Boat ……….. (16,000) …………… …………… (CY1a) 16,000 …………. …………….. …………… …………… ……………. ……………..
Preferred Stock—Engine ……. (400) …………… …………… (PS) 400 …………. …………….. …………… …………… ……………. ……………..
Common Stock—Engine ……. (11,200) …………… …………… (CY1b) 11,200 …………. …………….. …………… …………… ……………. ……………..
Cost of Goods Sold ………………… 650,000 300,000 400,000 (EI) 6,400 (IS) 22,400 1,334,000 …………… …………… ……………. ……………..
Other Expenses …………………….. 358,500 160,000 230,000 ………….. (B) 750 747,750 …………… ..…………. ……………. ……………..
Dividends Declared ………………… 22,000 30,000 …………… ………….. (CY2) 24,000 …………….. 6,000 …………… 22,000 ……………..
Problem 7-7, Continued
Eliminations and Adjustments:
(CY1a) Eliminate the current year’s income from the investment in Boat Corporation.
(CY1b) Eliminate the current year’s income from investment in Engine Corporation—
Common Stock.
(PS2) Eliminate the parent’s 10% interest in preferred stock and Retained Earnings
(preferred)—Engine, against Investment in Engine Corporation—Preferred Stock.
Eliminate the income from Preferred Stock—Engine against investment.
(EL2) Eliminate the parent’s interest in Engine Corporation common stock. Retained
earnings applicable to common stock:
$200,000 = $80,000. Parent’s share 70% × $80,000 = $56,000.
Gain remaining at year-end:
Carrying value of bonds at December 31, 2018 …………. $25,000
Investment in bonds at December 31, 2018 ………………. 23,800 $1,200
Gain amortized during the year:
Interest revenue eliminated ($750 stated interest for half
Problem 7-7, Concluded
Subsidiary Boat Corporation Income Distribution
Interest adjustment Internally generated net
($1,050 – $750) ……………… (B) $ 300 income ……………………… $40,000
Unrealized profit in ending Gain on retirement of
Subsidiary Engine Corporation Income Distribution
Internally generated net
income …………………………. $20,000
Adjusted income …………………. $20,000
Less preferred interest:
NCI [90% × ($50,000/$250,000)
× $20,000]……………………….. 3,600
Controlling (10% × 1/5 ×
Parent Titan Corporation Income Distribution
Internally generated net
income …………………………. $44,600
80% × Boat Corporation
income for one-half year
PROBLEM 7-8
(1)
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (60%) (40%)
Fair value of subsidiary …………………… $185,000 $111,000 $ 74,000
Less book value of interest acquired:
Common stock ($10 par) ……………. $100,000
Paid-in capital in excess of par …… 20,000
Problem 7-8, Continued
Black Jack Corporation and Subsidiary Zeppo Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2018
Eliminations Consolidated Controlling Consolidated
Trial Balance
and Adjustments Income Retained Balance
Black Jack Zeppo Dr. Cr. Statement NCI Earnings Sheet
Cash …………………………………………………….. 30,400 10,000 …………….. …………….. …………….. …………….. …………….. 40,400
…………….. …………….. (F2) 1,000 …………….. …………….. …………….. …………..… (453,750)
Investment in Zeppo Preferred Stock ………… 56,000 …………….. …………….. (ELP) 56,000 …………..… …………….. …………….. ……………..
Investment in Zeppo Common Stock …………. 121,200 …………….. …………….. (CY1b) 3,600 …………….. …………….. …………….. ……………..
…………….. …………….. …………….. (ELC) 91,800 …………….. …………….. …………….. ……………..
…………….. …………….. …………….. (D) 25,800 …………….. …………….. …………..… ……………..
…………….. …………….. (ELC) 19,800 …………….. …………….. …………….. …………….. ……………..
…………….. …………….. (F1) 1,600 …………….. …………….. …………….. …………..… ……………..
…………….. …………….. (BI) 180 …………….. …………….. …………….. …………….. ……………..
…………….. …………….. (A) 2,150 …………….. …………….. …………….. …………..… ……………..
Problem 7-8, Continued
Black Jack Corporation and Subsidiary Zeppo Company
Worksheet for Consolidated Financial Statements
For Year Ended December 31, 2018
(Concluded)
Eliminations Consolidated Controlling Consolidated
Trial Balance
and Adjustments Income Retained Balance
Black Jack Zeppo Dr. Cr. Statement NCI Earnings Sheet
Subsidiary Income—Preferred ………………….. (4,000) …………….. (CY1a) 4,000 …………… ………….…. …………….. …………….. ……………..
Subsidiary Income—Common ………………….. (3,600) …………….. (CY1b) 3,600 …………… …………….. …………….. …………….. ……………..
7–41 Ch. 7—Problems
Problem 7-8, Continued
Eliminations and Adjustments:
(CY1a) Eliminate the entries made concerning the investment in preferred stock during
2018.
(PS) Distribute retained earnings at the beginning of the year; preferred share is
$4,000 × 2 years of arrearage.
(ELP) Eliminate the investment in preferred stock:
Adjustment to paid-in capital in excess of par resulting from retirement
of preferred stock on January 1, 2017:
Price paid ………………………………………………….. $ 56,000
Book value:
(ELC) Eliminate 60% of subsidiary equity against the investment in common stock.
This equity includes 60% of the January 1, 2018, retained earnings applicable to
common stock ($41,000 less $8,000 preferred claim).
(D)/(NCI) Distribute the excess of book value to plant asset (see schedule).
(A) Amortize the decrease in depreciation for one past year and for the current year.
(F1) Eliminate the gain on equipment sale ($5,000), less one year’s depreciation of
$1,000 at the beginning of the year.
(F2) Decrease depreciation for the current year.
(IS) Eliminate intercompany sales.
(IA) Eliminate intercompany trade debt.
(BI) Eliminate the beginning inventory profit:
Problem 7-8, Concluded
Subsidiary Zeppo Company Income Distribution
Unrealized gross profit Internally generated
in ending inventory ………… (EI) $ 600 income …………………………. $10,000
Depreciation adjustment ……… (A) 5,375 Realized gross profit in
beginning inventory …… (BI) 450
Realized profit on
equipment sale ……….. (F1) 1,000
Parent Black Jack Corporation Income Distribution
Unrealized gross profit Internally generated
in ending inventory ………… (EI) $2,000 income ………………………………. $40,000
Share of Zeppo common income
(2) Entries to record sale:
(a) Adjust investment for amortization of excess cost:
Retained Earnings ($5,375 × 2 years × 60% ownership) ……… 6,450
Investment in Zeppo Common Stock …………………………….. 6,450
7–43 Ch. 7—Problems
APPENIDIX PROBLEMS
PROBLEM 7A-1
Analysis of 30% purchase
September 1, 2019:
Price paid …………………………………………………………….. $100,000
Less interest acquired:
Equity, December 31, 2019 ……………………………… $252,000
Add dividends declared December 31 ………………. 40,000
Deduct income for last 4 months ………………………. (32,000)
Marley Corporation and Subsidiary Foster Corporation
Worksheet for Consolidated Balance Sheet
December 31, 2019
Eliminations Consolidated
Balance Sheet
and Adjustments Balance
Marley Foster Dr. Cr. NCI Sheet
Cash …………………………………. 167,250 101,000 (IA) 8,000 ………….. ……………. 276,250
Accounts Receivable …………… 170,450 72,000 …………. (IA) 8,000 ……………. 234,450
Notes Receivable ……………….. 87,500 28,000 …………. ………….. ……………. 115,500
Accounts Payable ………………. (222,000) (76,000) …………. ………….. ……………. (298,000)
Notes Payable ……………………. (79,000) (89,000) …………. ………….. ……………. (168,000)
Dividends Payable ……………… …………… (40,000) (CY) 36,000 ………….. ……………. (4,000)
Common Stock ($10 par)—
Marley ……………………………. (400,000) …………… …………. ………….. ……………. (400,000)
Common Stock ($10 par)—
Foster …………………………….. …………… (100,000) (EL) 90,000 ………….. (10,000) ……………
Ch. 7—Problems 7–44
Problem 7A-1, Concluded
Eliminations and Adjustments:
(CY) Eliminate intercompany dividends.
PROBLEM 7A-2
(1)
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (100%) (0%)
Fair value of subsidiary …………………… $2,600,000 $2,600,000 NA
Less book value of interest acquired:
Common stock ($25 par) ……………. $1,000,000
Paid-in capital in excess of par …… 190,000
Problem 7A-2, Continued
Book, Inc. and Subsidiary Cray, Inc.
Worksheet for Consolidated Balance Sheet
December 31, 2014
Eliminations Consolidated
Trial Balance
and Adjustments Balance
Book Cray Dr. Cr. Sheet
Cash ………………………………….. 825,000 330,000 …………….. …………….. 1,155,000
Accounts and Other Current
Investment in Cray, Inc. ……….. 2,860,000 ………………. …………….. (EL) 2,430,000 ………………
……………… ………………. …………….. (D) 430,000 ………………
Long-Term Investments and
Other Assets ……………………. 865,000 385,000 …………….. (B1) 320,000 930,000
Accounts Payable and Other
Current Liabilities ……………… (2,465,000) (1,145,000) (IA) 720,000 …………….. ………………
……………… ………………. (B2) 8,000 …………….. (2,882,000)
Eliminations and Adjustments:
(EL) Eliminate the parent’s investment in the subsidiary and the subsidiary equity
accounts.
(D) Distribute excess to goodwill.
(B1) Eliminate the intercompany long-term debt. There is no adjustment to retained
earnings because issue and repurchase of the bonds were at face value.
(B2) Eliminate the intercompany receivable and payable for interest bonds (1/2 year ×
10% × 1/2 interest period × $320,000).
Problem 7A-2, Concluded
(2) Book, Inc. and Subsidiary Cray, Inc.
Consolidated Statement of Retained Earnings
December 31, 2014:
PROBLEM 7A-3
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (90%) (10%)
Fair value of subsidiary …………………… $360,000 $324,000 $ 36,000
Less book value of interest acquired:
Adjustment of identifiable accounts:
Worksheet Amortization
Adjustment Key Life per Year
Land …………………………………………….. $ 20,000 debit D1
7–47 Ch. 7—Problems
Problem 7A-3, Continued
Press Company and Subsidiary Soap Company
Worksheet for Consolidated Balance Sheet
For Year Ended December 31, 2016
Eliminations Consolidated
Trial Balance
and Adjustments Balance Sheet
Press Soap Dr. Cr. NCI Dr. Cr.
Assets:
…………… …………… …………. (D) 81,000 …………. …………….. ……………..
Investment in Soap Bonds ………………………………………….. 59,225 …………… …………. (B2) 59,225 …………. …………….. ……………..
Land ………………………………………………………………………… 60,000 30,000 (D1) 20,000 ….……… …………. 110,000 ……………..
Buildings and Equipment …………………………………………….. 300,000 230,000 (L2) 111,332 …………. …………. …………….. ……………..
Other Current Liabilities ………………………………………………. 57,000 48,911 …………. …………. …………. …………….. 105,911
Lease Obligation Payable …………………………………………… …………… 71,332 (L1) 71,332 …….…… …………. …………….. ……………..
Bonds Payable ………………………………………………………….. 150,000 100,000 (B2) 60,000 …………. …………. …………….. 190,000
Premium on Bonds …………………………………………………….. …………… 1,550 (B2) 930 ……..….. …………. …………….. 620
Problem 7A-3, Concluded
Eliminations and Adjustments:
(EL) Eliminate 90% of the subsidiary equity accounts against the investment in subsidiary account.
(A) Depreciate the write-up to building for two years.
(EI) Eliminate the intercompany gross profit in the ending inventory.
(IA) Eliminate the intercompany receivable and payable.
(B2) Eliminate the bond investment against 60% of bonds payable and premium on bonds. The
(L1) Eliminate the lease payable (lease obligation payable plus lease interest payable) against the
lease receivable (minimum lease payments receivable less unearned interest income).
(L3) Reclassify the accumulated depreciation on the leased equipment.