Chap009 131230191204 Phpapp01

Chapter 09 - Consolidation Ownership Issues
CHAPTER 9
CONSOLIDATION OWNERSHIP ISSUES
ANSWERS TO QUESTIONS
Q9-1 Preferred stock of the subsidiary is eliminated in the consolidation process in a
manner comparable to that used in eliminating the common stock of the subsidiary. For
those preferred shares held by the parent company, a proportionate share of subsidiary
income and net assets assigned to the preferred shares is eliminated against the balance in
the parent's investment account. Subsidiary income and net assets assigned to preferred
shares not held by the parent are included as a part of the noncontrolling interest along with
the balances assigned to noncontrolling interest for common stock not held by the parent.
The claim of the preferred shareholders normally is computed before the common stock is
eliminated so that any priority claim associated with the preferred stock can be properly
recognized and assigned to the correct shareholder group.
Q9-2 All preferred shares held by the parent are eliminated against the balance in the
investment account. Those held by unrelated parties are included in the total assigned to
the noncontrolling interest.
Q9-3 Preferred dividends normally are deducted in arriving at income available to common
shareholders. When preferred dividends are paid by the subsidiary to shareholders other
than the parent, the income accruing to the common shares held by the parent company is
reduced. Therefore, they must be deducted to arrive at income available to the parent
company shareholders. No preferred dividends are deducted if the parent company owns
all the shares or if no dividends are declared and the preferred stock is noncumulative.
Q9-4 In the event the preferred shares are redeemed, the subsidiary must pay the call
premium and the net assets of the subsidiary will be reduced by the amount of the
premium. Because it is more conservative to assume the call premium will be paid, the
amount of the premium normally is added to the claim of the preferred shareholders and
deducted from the equity assigned to the common shareholders whenever consolidated
statements are prepared.
Q9-5 The fair value of the net assets of the subsidiary is computed by deducting the fair
value of the subsidiary's liabilities from the fair value of its assets. When the subsidiary has
preferred stock outstanding, the claims of the preferred shareholders, including dividends in
arrears and participation rights held by preferred shareholders, must be taken into
consideration in determining the fair value of net assets available to common shareholders.
These items, when deducted from the fair value of the identifiable assets of the acquired
company, will reduce the amount of net assets assigned to common stock and potentially
increase the amount reported as goodwill.
9-1
Q9-6 The parent may record the difference between the carrying value and the sale price
of the shares as either a gain on sale of investment or an adjustment to its additional paid-in
capital. No gain or loss on the sale of subsidiary shares should be reported in the
consolidated statements. If the parent records a gain on the sale, it should be eliminated in
the consolidation process and treated as a part of additional paid-in capital of the
consolidated entity.
Q9-7 All common shareholders should share equally in the net assets of a company.
When a subsidiary sells additional shares to a nonaffiliate at a price in excess of existing
book value, the effect will be to increase the net book value of all shareholders. Because it
is a capital transaction, no gain or loss is recognized on the sale.
Q9-8 Each purchase of additional shares should be examined to determine the difference
between the price paid and underlying book value. When an amount greater than book
value is paid directly to the subsidiary for the shares, the book value of the shares held by
the noncontrolling interest will increase. As a result, the increase in the parents claim on the
net assets of the subsidiary will be less than the amount paid. When consolidated
statements are prepared, additional paid-in capital or retained earnings (if the parent has no
additional paid-in capital) must be debited for the increase in the balance assigned to the
noncontrolling interest, thereby reducing the amount reported in the consolidated balance
sheet.
Q9-9 All the shares of the subsidiary are eliminated in preparing the consolidated
statements. Thus, treasury shares reported by the subsidiary are eliminated in the
consolidation workpaper. The effect of the retirement on the consolidated statements
depends on the price paid and whether the shares were purchased from the parent or from
a nonaffiliate.
Q9-10 Indirect ownership is a general term used whenever one company owns shares of
another company and that company holds ownership in a third company. Indirect control
occurs when a majority of the shares of a particular company are held by one or more
companies that are, in turn, under the control of another company. By exercising its control
over those companies the parent can exercise control of the company indirectly owned.
Q9-11 A reciprocal relationship exists if Subsidiary A and Subsidiary B hold ownership in
each other. If Subsidiary A records investment income based on the reported net income of
Subsidiary B and Subsidiary B records investment income based on the reported net
income of Subsidiary A, the sum of the reported net income totals for the two companies
may be substantially greater than the sum of the reported operating income totals for the
two companies. Parent company net income will be overstated if the impact of the
reciprocal relationship is ignored when the parent company records investment income on
its ownership in the two subsidiaries.
Q9-12 Under the treasury stock method the parent company shares that have been
purchased by a subsidiary are reported as treasury stock in the consolidated balance sheet.
The carrying value of the shares is the amount paid by the subsidiary when they were
purchased.
9-2
Q9-13 Consolidated net income will be reduced by $100,000. Income assigned to the
controlling interest will be reduced by $72,000 ($100,000 x .90 x .80) when the unrealized
profit of Tiny Corporation is eliminated. A total of $10,000 is treated as a reduction to the
income assigned to noncontrolling shareholders of Tiny Corporation ($100,000 x .10) and
$18,000 is a reduction of the income assigned to noncontrolling shareholders of Subsidiary
Company ($100,000 x .90 x .20).
Q9-14 All three companies should be included in the consolidated financial statements.
Slide Company should be consolidated with Bit Company because Bit holds majority
ownership of Slide. Bit Company, in turn, should be consolidated with Snapper Corporation
because Snapper holds majority ownership of Bit.
Q9-15 A subsidiary's stock dividend results in the capitalization of some portion of its
retained earnings. Such an action will have no effect on the consolidated financial
statements since the entire stockholders' equity section of the subsidiary is eliminated in
preparing the consolidation workpaper.
Q9-16 A 15 percent stock dividend is a small stock dividend and must be recorded by
capitalizing retained earnings equal to the market price per share of the stock times the
number of shares actually issued. As a result, retained earnings will decrease and the par
value of stock outstanding and additional paid-in capital will increase on the subsidiary's
books. There should be no change in the investment account balance reported by the
parent. Thus, the only change in the eliminating entries is the relative amount debited to
each of the three individual stockholders' equity accounts of the subsidiary.
Q9-17 When the parent or other affiliates own all the shares of all companies included in
the consolidation, the order in which the consolidation is completed may not be particularly
critical. On the other hand, when less than 100 percent ownership is held there is a much
greater chance of error in apportioning unrealized profits or other adjustments between
noncontrolling ownership and consolidated net income when some other sequence is used.
By starting the consolidation with the company furthest away from the parent, the
computation of income assigned to noncontrolling interest at each level can be most easily
accomplished.
9-3
SOLUTIONS TO CASES
C9-1 Effect of Subsidiary Preferred Stock
When a parent company does not own all the shares of a subsidiary, income assigned to
the noncontrolling interest includes (1) a portion of subsidiary preferred dividends and (2) a
portion of earnings available to common shareholders.
To determine the amount of income to assign to preferred and common shareholders of the
subsidiary, the controller needs to have the following information about the preferred stock:
1. The number of preferred shares outstanding and the number owned by the parent and
other affiliates.
2. The annual preferred dividend rate per share and whether the dividends are cumulative
or noncumulative.
3. If the dividends are noncumulative, the amount of preferred dividends declared during
the period, if any.
In this particular case the parent does not appear to own any of the subsidiary's preferred
shares. Once the controller determines the portion of subsidiary income assignable to
common shareholders, consolidated net income attributable to the controlling interest is
computed by adding the parent's pro rata share of this amount to the parent's income from
its own operations.
C9-2 Consolidated Stockholders Equity: Theory vs. Practice

a. Upon the sale of stock of a subsidiary, Xerox used to recognize a gain or loss in the
consolidated income statement equal to the companys proportionate share of the
corresponding increase or decrease in that subsidiarys equity. Under FASB 160, the sale of
subsidiary shares is viewed as an equity transaction and does not affect income. Instead,
the difference between the fair value of the consideration received and the change in the
amount of the noncontrolling interest is recognized as an adjustment to stockholders equity
(usually additional paid-in capital).
b. Occidental Petroleum has generally treated subsidiary preferred stock as a liability (the
amount is small). It should be reported as part of the noncontrolling interest.
9-4
C9-3 Sale of Subsidiary Shares

MEMO
To:
Robert Reader
Vice President of Finance
Book Corporation
From:
Re:
, CPA
Recognition of Gain on Sale of Subsidiary Shares
Previous accounting standards did not specifically address the issue of how to treat a sale
of subsidiary shares when the parent retained controlling ownership. However, a common
practice was to recognize a gain or loss on the sale of shares.
The FASBs recent issuance of FASB 160 makes clear that, from a consolidated
perspective, a parents sale of subsidiary shares while maintaining control is an equity
transaction. Accordingly, no gain or loss on the sale should be reported in the consolidated
income statement. Instead, equity should be adjusted by the difference between the
consideration received and the change in the parents subsidiary interest.
In the current situation, Books interest in Lance prior to its sale of Lance shares was
$360,000, an amount equal to 90 percent of Lances $400,000 book value. Immediately
following the sale of Lance shares, Books remaining 60 percent interest in Lance is
$240,000 ($400,000 x .60), a decrease of $120,000 ($360,000 - $240,000). The difference
between the proceeds received and the change in the book value of Books interest in
Lance is as follows:
Proceeds received ($5.60 x 30,000 shares)
Change in book value of interest ($360,000 - $240,000)
Required adjustment to equity
$168,000
120,000
$ 48,000
This $48,000 difference should be reported within equity in the consolidated balance sheet.
Although alternatives exist in terms of how to meet the FASBs reporting requirement, the
following entry to record the sale of shares on Books books would be consistent with the
FASBs requirement and probably the most efficient approach:
Cash
Investment in Lance Company Stock

Additional Paid-In Capital
168,000
120,000
48,000
The additional paid-in capital recorded on Books books would carry over to the
consolidated balance sheet and would be included in consolidated equity.
If Book elected to record a $48,000 gain on the sale of Lance shares instead of recognizing
additional paid-in capital as shown in the entry, that gain would have to be transferred to
additional paid-in capital in the preparation of consolidated financial statements.
Primary citation:
FASB 160
ARB 51 (as amended by FASB 160), Par. 33.
9-5
9-6
C9-4 Sale of Subsidiary Shares

(a) With a sale of shares to a nonaffiliate, net resources have been brought into the
consolidated entity and the noncontrolling shareholders have an additional claim. The
excess of the proceeds received from the sale over the change in the parents interest in
the subsidiary increases the amount of additional paid-in capital reported in the
consolidated balance sheet. A sale of subsidiary shares to a nonaffiliate also changes the
amount of income assigned to the noncontrolling interest in the consolidated income
statement and the amount of net assets assigned to the noncontrolling interest in the
consolidated balance sheet.
(b) When a parent sells shares of one subsidiary to another subsidiary, net resources to
the consolidated entity do not change. Any gain recorded by the parent must be eliminated
when the investment balance reported by the subsidiary is eliminated in preparing
consolidated financial statements. A change in the claim of the noncontrolling interest is
likely to occur if the subsidiary that purchases the shares is not wholly owned. As a result,
there may be some change in consolidated income and the balance sheet totals assigned
to noncontrolling interest.
C9-5 Reciprocal Ownership

A great many factors beyond the immediate impact on reported earnings may be important
in deciding on the use of the funds. Items such as the following should be considered:
1. Are the excess funds held by Thorson available only temporarily or are they not likely to
be needed in the foreseeable future?
2. Will there be any regulatory or taxation problems associated with one or more of the
alternatives?
3. Can shares of the companies be purchased in the desired quantities and at existing
market prices or are there potential difficulties associated with one or more alternatives?
4. Is it desirable to acquire more shares of either subsidiary since controlling ownership
already is in the hands of Strong Manufacturing?
5. Have the noncontrolling shareholders of either subsidiary been troublesome or caused
the parent to refrain from actions that it might otherwise have taken?
With the information given, it is difficult to determine which action will have the most
favorable impact on consolidated net income. The earnings of each company, the number
of shares outstanding, and the relative market prices of the shares each will have an effect.
In general, reported income is maximized by purchasing the shares with the lowest priceearnings ratio.
9-7
SOLUTIONS TO EXERCISES
E9-1 Multiple-Choice Questions on Preferred Stock Ownership
1.
$50,000 = $20,000 + $30,000
2.
$29,000 = $20,000 + .30($30,000)
3.
Only the retained earnings of the acquiring company is included.
4.
The portion held by the parent is eliminated when the preferred investment is
eliminated, and the portion held by nonaffiliates is eliminated and included with the
balance reported as noncontrolling interest in the consolidated balance sheet.
E9-2 Multiple-Choice Questions on Multilevel Ownership

1.
$188,000 = $100,000 + .80[$80,000 + .60($50,000)]
2.
$20,000 = .40($50,000)
3.
$22,000 = .20[$80,000 + .60($50,000)]
4.
$42,000 = .40($50,000) + .20[$80,000 + .60($50,000)]
5.
$2,400 = .80 x .60[($150,000 + $100,000 - $200,000) / 10 years)
E9-3 Acquisition of Preferred Shares

Eliminating entries:
E(1)
E(2)
Common Stock Separate Company

Retained Earnings
Investment in Separate Company Common
Stock
Noncontrolling Interest
Eliminate investment in common stock.
50,000
150,000
Preferred Stock Separate Company

Investment in Separate Company
Preferred Stock
Eliminate subsidiary preferred stock.
100,000
9-8
140,000
60,000
60,000
40,000
E9-4 Reciprocal Ownership [AICPA Adapted]

a.
None of Simba's dividends is reported in the consolidated statements. All of

Simba's dividends are eliminated in the consolidation process.
b.
Only 90 percent of Pride's dividends are included in the consolidated retained

earnings statement. The dividend payment on the 10 percent owned by Simba is
an intercorporate payment to an affiliate and must be eliminated in the
consolidation process.
E9-5 Subsidiary with Preferred Stock Outstanding

E(1)
E(2)
Common Stock Topple Company

Retained Earnings
Investment in Topple Common Stock
150,000
210,000
Preferred Stock Topple Company

Investment in Topple Preferred Stock
200,000
270,000
90,000
80,000
120,000
E9-6 Subsidiary with Preferred Stock Outstanding

a.
Entries recorded by Clayton Corporation:

(1)

Cash
Record purchase of Topple stock.
270,000
80,000
(2)
Cash
Record dividends from Topple:
$25,500 = ($50,000 - $16,000) x .75
(3)
Cash
Dividend Income
Record dividends on preferred stock
from Topple: $16,000 x .40
6,400
(4)

Income from Subsidiary
Record equity-method income:
$40,500 = ($70,000 - $16,000) x .75
40,500
9-9
25,500
350,000
25,500
6,400
40,500
E9-6 (continued)
b.
E(1)

Dividends Declared Common Stock
Eliminate income from subsidiary.
E(2)
Dividend Income Preferred

Dividends Declared Preferred
Eliminate dividend income from
subsidiary preferred.
E(3)
Income to Noncontrolling Interest

Dividends Declared Preferred Stock
Assign income to noncontrolling interest:
$23,100 = [($70,000 - $16,000) x .25] +
($16,000 x .60)
$9,600 = $16,000 x .60
$8,500 = ($50,000 - $16,000) x .25
$5,000 = $13,500 - $8,500
23,100
E(4)
Common Stock Topple Company

Retained Earnings, January 1
Eliminate beginning investment balance.
150,000
210,000
Preferred Stock Topple Company

200,000
E(5)
9-10
40,500
6,400
25,500
15,000
6,400
9,600
8,500
5,000
270,000
90,000
80,000
120,000
E9-7 Preferred Dividends and Call Premium

a.
Culbertson Company's contribution to 20X2 consolidated net income is equal to

its reported net income of $70,000.
b.
Income assigned to noncontrolling interest:

Preferred shares [.40($100,000 x .12)]
Common shares {.10[$70,000 - ($100,000 x .12)]}
Total income assigned to noncontrolling interest
c.
$ 4,800
5,800
$10,600
Retained earnings assignable to preferred shareholders:

Dividends in arrears [5 years x ($100,000 x .12)]
Call feature ($2 x 10,000 shares)
Total retained earnings assigned to preferred stock
d.
Book value of common shares:

Par value of common shares outstanding
Retained earnings balance
Less: Balance assigned to preferred shares
Book value of common shares
e.
$60,000
20,000
$80,000
$380,000
(80,000)
$300,000
300,000
$600,000
Total noncontrolling interest:

Preferred stock [.40($100,000 + $80,000)]
Common stock (.10 x $600,000)
Total noncontrolling interest
9-11
$
72,000
60,000
$132,000
E9-8 Multilevel Ownership

a.
Consolidated net income for 20X6 is $190,000 ($90,000 +

$40,000
+ $60,000)
b.
Income of $36,800 is assigned to the noncontrolling interest:

Income from Dally ($40,000 x .35)
Income from Latent [($60,000 + $16,000) x .30]
Total income assigned to noncontrolling interest
c.
Income of $153,200 is assigned to the controlling interest:

Consolidated net income
Less: Income assigned to noncontrolling interest
Income assigned to controlling interest
d.
$14,000
22,800
$36,800
Only the $45,000 of dividends paid by Grasper Corporation to its

shareholders will be reported as dividends declared in Graspers
20X6 consolidated retained earnings statement.
9-12
$190,000
(36,800)
$153,200
E9-9 Eliminating entries for Multilevel Ownership

a.
b.
c.
Journal entries recorded by Brown Corporation on its investment in Tann Company:

(1)
Investment in Tann Company Stock

Cash
Record purchase of Tann Company stock.
(2)
Cash
Record dividends from Tann Company:
$15,000 x .60
(3)

Income from Tann Company
$40,000 x .60
120,000
9,000
24,000
120,000
9,000
24,000
Journal entries recorded by Promise Enterprises on its investment in Brown

Corporation:
(1)
Investment in Brown Corporation Stock

Cash
Record purchase of Brown Corporation
stock.
(2)
Cash
Record dividends from Brown Corporation:
$50,000 x .90
(3)

Income from Brown Corporation
($120,000 + $24,000) x .90
315,000
45,000
129,600
315,000
45,000
129,600
E(1)
Income from Tann Company

Dividends Declared
Eliminate income from Tann Company.
24,000
E(2)

Dividends Declared
$16,000 = $40,000 x .40
$6,000 = $15,000 x .40
16,000
9-13
9,000
15,000
6,000
10,000
E9-9 (continued)
E(3)
Common Stock Tann Company

Eliminate investment in Tann Company
stock:
$120,000 = $200,000 x .60
$80,000 = $200,000 x .40
100,000
60,000
40,000
E(4)
Income from Brown Corporation

Dividends Declared
Eliminate income from Brown Corporation.
129,600
E(5)

Dividends Declared
Assign income to noncontrolling
shareholders of Brown Corporation:
$14,400 = ($120,000 + $24,000) x .10
$5,000 = $50,000 x .10
$9,400 = $14,400 - $5,000
E(6)
Common Stock Brown Corporation

Eliminate investment in Brown
Corporation stock:
$315,000 = $350,000 x .90
$35,000 = $350,000 x .10
9-14
14,400
150,000
60,000
140,000
120,000
80,000
45,000
84,600
5,000
9,400
315,000
35,000
E9-10 Reciprocal Ownership

Operating income of Grower Supply Corporation
Operating income of Schultz Company
Less: Income to noncontrolling interest:
($50,000 x .15)
Income to controlling interest
9-15
$112,000
50,000
$162,000
(7,500)
$154,500
E9-11 Consolidated Balance Sheet with Reciprocal Ownership

Talbott Company and Short Company
Consolidated Balance Sheet Workpaper
December 31, 20X9
Item
Cash
Accounts Receivable
Inventory
Buildings and
Equipment (net)
Investment in Short
Co. Common Stock
Investment in Talbott
Co. Common Stock
Treasury Stock
Debits
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
Credits
Talbott
Company
Short
Company
78,000
120,000
150,000
39,000
80,000
120,000
117,000
200,000
270,000
400,000
300,000
700,000
Eliminations
Credit
352,000
Consolidated
(1)352,000
61,000
(2) 61,000
1,100,000
600,000
90,000
400,000
300,000
310,000
60,000
100,000
200,000
240,000
(1)200,000
(1)240,000
1,100,000
600,000
501,000
E(1)
Common Stock Short Company
Retained Earnings
Investment in Short Company Common
Stock
E(2)
Debit
Treasury Stock
Investment in Talbott Company
Common Stock
9-16
(2) 61,000
(1) 88,000
501,000
61,000
1,348,000
150,000
500,000
300,000
310,000
88,000
1,348,000
200,000
240,000
352,000
88,000
61,000
61,000
E9-11 (continued)
Talbott Company and Subsidiary
Consolidated Balance Sheet
December 31, 20X9
Current Assets:
Cash
Accounts Receivable
Inventory
Noncurrent Assets:
Buildings and Equipment (net)
Total Assets
$117,000
200,000
270,000
587,000
700,000
$1,287,000
Current Liabilities:
Accounts Payable
Bonds Payable
Stockholders' Equity:
Controlling Interest:
Common Stock
Retained Earnings
Total Controlling Interest
Total Equity before Reduction for Treasury Shares
Less: Treasury Shares
Total Stockholders Equity
Total Liabilities and Stockholders' Equity
9-17
$ 150,000
500,000
$300,000
310,000
$610,000
88,000
$698,000
(61,000)
637,000
$1,287,000
E9-12 Subsidiary Stock Dividend

a.
Lake Company:
Stock Dividends Declared
Common Stock
40,000
40,000
Lindale Company: No entry required.

b.
c.
Eliminating entries, December 31, 20X3:

E(1)

Dividends Declared
Investment in Lake Company Stock
E(2)

Dividends Declared
E(3)
Common Stock Lake Company

Stock Dividends Declared
17,500
7,500
140,000
200,000
7,000
10,500
3,000
4,500
210,000
90,000
40,000
Eliminating entry, January 1, 20X4:

E(1)
Common Stock Lake Company

Retained Earnings
140,000
175,000
Lake Company retained earnings, December 31, 20X3:

Balance, December 31, 20X2
Add: Net income for 20X3
Less: Stock dividend in 20X3
Cash dividend paid in 20X3
Balance, December 31, 20X3
$200,000
25,000
(40,000)
(10,000)
$175,000
9-18
220,500
94,500
E9-13 Sale of Subsidiary Shares by Parent

a.
Investment in Acme Concrete, January 1, 20X5:

Purchase price
Acme net income in 20X3 and 20X4
Dividends paid by Acme in 20X3 and 20X4
Proportion of stock held by Stable
Balance prior to sale of shares
b.
$360,000
48,000
$408,000
Journal entry recorded by Stable Home Builders for sale of shares:

Cash
Investment in Acme Stock
Additional Paid-in Capital
$102,000 = $408,000 x 4,000 /
[($200,000 / $10) x .80]
c.
$100,000
(40,000)
$ 60,000
x
.80
120,000
102,000
18,000
E(1)

Dividends Declared
30,000
E(2)

Dividends Declared
20,000
E(3)
Common Stock Acme Concrete

Noncontrolling interest
200,000
310,000
12,000
18,000
8,000
12,000
306,000
204,000
E9-14 Purchase of Additional Shares from Nonaffiliate

a.
Purchase price, December 31, 20X7

Modern Products Company net income for 20X8
($230,000 + $20,000 - $200,000)
Proportion of stock held by Weal
Income from subsidiary
Dividend received from Modern Products Company
($20,000 x .60)
Balance in investment account, December 31, 20X8
9-19
$210,000
$50,000
x
.60
30,000
(12,000)
$228,000
E9-14 (continued)
b.

Purchase of additional shares on January 1, 20X9
Investment balance January 1, 20X9, after purchase
Modern Products Company net income for 20X9
($280,000 + $20,000 - $230,000)
Proportion of stock held by Weal
Less: Amortization of differential on stock
purchased January 1, 20X9: ($20,000 / 10
years)
Income from subsidiary
Dividend received from Modern Products
Company ($20,000 x .80)
c.
$228,000
96,000
$324,000
$70,000
x
.80
$56,000
(2,000)
54,000
(16,000)
$362,000
E(1)
Income from Modern Products Company

Dividends Declared
Investment in Modern Products
Company Stock
54,000
E(2)

Dividends Declared
$14,000 = $70,000 x .20
14,000
E(3)
Common Stock Modern Products Company

Differential
Investment in Modern Products
Company Stock
Eliminate beginning investment balance:
$20,000 = $96,000 ($380,000 x .20)
$76,000 = $380,000 x .20
E(4)
Patents
Amortization Expense
Differential
Assign differential and amortize for year:
$2,000 = $20,000 / 10 years
9-20
16,000
38,000
4,000
10,000
150,000
230,000
20,000
324,000
76,000
18,000
2,000
20,000
E9-15 Repurchase of Shares by Subsidiary from Nonaffiliate

a.
Book value of Quinn stock outstanding

Cost of treasury shares repurchased
Book value of remaining shares outstanding
Proportion of remaining shares held by
noncontrolling
Interest (2,000 / 8,000)
Adjusted book value of shares held
Book value of shares held before treasury stock
repurchase by Quinn ($500,000 x .20)
Reduction of noncontrolling interest
Consideration given by Quinn Manufacturing
Increase in equity attributable to parent
b.
Investment in Quinn Manufacturing Stock

c.
Common Stock Quinn Manufacturing

Investment in Quinn Stock
Treasury Shares
$312,000 = .75($500,000 - $84,000)
$104,000 = .25($500,000 - $84,000)
9-21
$500,000
(84,000)
$416,000
x
.25
$104,000
(200,000)
$ 96,000
(84,000)
$ 12,000
12,000
100,000
150,000
250,000
12,000
312,000
104,000
84,000
E9-16 Sale of Shares by Subsidiary to Nonaffiliate

a.
Computation of change in book value of Schroeder Corporation shares held by

Browne Corporation:
Common stock, $10 par value

Additional paid-in capital
Retained earnings
Total stockholders' equity of Schroeder
Proportion of stock held by Browne
Corporation:
11,000 / 15,000
11,000 / (15,000 + 5,000)
Book value of shares
Before
Sale
After
Sale
$150,000
50,000
400,000
$600,000
$ 200,000
400,000
400,000
$1,000,000
.733
$440,000
Increase in book value of shares held by

Browne Corporation
x
.550
$ 550,000
$ 110,000
b.
Investment in Schroeder Stock

110,000
c.
Common Stock Schroeder Corporation

Retained Earnings
Investment in Schroeder Stock
$450,000 = $1,000,000 x .45
200,000
400,000
400,000
9-22
110,000
550,000
450,000
SOLUTIONS TO PROBLEMS
P9-17 Multiple-Choice Questions on Preferred Stock Ownership
1.
Book value of shares held by noncontrolling interest:

Preferred stock ($100,000 x .30)
Common stock [($200,000 + $50,000) x .20]
Total book value
2.
Income to noncontrolling preferred

shareholders
[($100,000 x .10) x .30]
Income to noncontrolling common
shareholders:
Reported net income of Upland Company
Income to preferred shareholders
Income to common shareholders
Proportion of common stock owned by
noncontrolling interest
Total income to noncontrolling interest
3.
Reported net income of Upland Company

Operating income of Stacey Company
Less: Income to noncontrolling interest
4.
Controlling interest:
Common stock
Retained earnings
Total controlling interest
Noncontrolling interest: ($250,000 x .20) +
($100,000 x .30)
Total stockholders equity
5.
$30,000
50,000
$80,000
$3,000
$30,000
(10,000)
$20,000
x
.20
4,000
$7,000
$ 30,000
100,000
$130,000
(7,000)
$123,000
$ 300,000
350,000
$ 650,000
All preferred shares of the subsidiary are eliminated in preparing the

consolidated financial statements.
9-23
80,000
$730,000
P9-18 Multilevel Ownership with Differential

a.
b.
Journal entries recorded by Corn Corporation on its investment in Bark Company:

(1)
Investment in Bark Company Stock

Cash
Record purchase of Bark Company stock.
406,000
(2)
Cash
Record dividends from Bark Company:
$20,000 x .70
14,000
(3)

Income from Bark Company
$30,000 x .70
21,000
(4)

Amortize differential related to
buildings and equipment:
($30,000 / 10 years) x .70
2,100
406,000
14,000
21,000
2,100
Journal entries recorded by Purple Corporation on its investment in Corn

Corporation:
(1)
Cash
Investment in Corn Corporation Stock
Record dividends from Corn Corporation:
$25,000 x .80
20,000
(2)

Income from Corn Corporation
($60,000 + $18,900) x .80
63,120
(3)

trademark: ($50,000 / 5 years) x .80
9-24
8,000
20,000
63,120
8,000
P9-18 (continued)
c.
E(1)

Dividends Declared
Eliminate income from Bark Company.
E(2)

Dividends Declared
shareholders of Bark Company:
$8,100 = ($30,000 - $3,000) x .30
$6,000 = $20,000 x .30
$2,100 = $8,100 - $6,000
E(3)
Common Stock Bark Company

Differential
Eliminate investment in Bark Company
stock:
$30,000 = $406,000 + $174,000 - $550,000
18,900
8,100
250,000
300,000
30,000
E(4)
Buildings and Equipment

Differential
Assign beginning differential.
30,000
E(5)
Depreciation Expense
Accumulated Depreciation
buildings and equipment:
$30,000 / 10 years
3,000
E(6)

Dividends Declared
Eliminate income from Corn Corporation.
55,120
E(7)

Dividends Declared
shareholders of Corn Corporation:
$13,780 = ($60,000 + $18,900 - $10,000) x .
20
$5,000 = $25,000 x .20
$8,780 = $13,780 - $5,000
13,780
9-25
14,000
4,900
6,000
2,100
406,000
174,000
30,000
3,000
20,000
35,120
5,000
8,780
P9-18 (continued)
E(8)
Common Stock Corn Corporation

Differential
Eliminate investment in Corn
Corporation stock:
$270,000 = $200,000 + $35,000 + $35,000
$30,000 = $50,000 - $10,000 - $10,000
$560,000 = $520,000 + [($35,000 - $10,000)
x .80] x 2 years
$140,000 = $700,000 x .20
400,000
270,000
30,000
E(9)
Trademark
Differential
Assign beginning differential:
$50,000 - ($10,000 x 2 years)
30,000
E(10)
Amortization Expense
Trademark
trademark: $50,000 / 5 years
10,000
9-26
560,000
140,000
30,000
10,000
P9-19 Subsidiary Stock Dividend

Investment elimination entry, January 1, 20X8:
Alternative 1: Pound Manufacturing stock is split 2:1.
E(1)
Common Stock Pound Manufacturing

Retained Earnings
Investment in Pound Mfg. Stock
100,000
70,000
280,000
306,000
144,000
Alternative 2: A stock dividend of 4,000 shares is issued.

E(1)

Retained Earnings
140,000
70,000
240,000
306,000
144,000
Alternative 3: A stock dividend of 1,500 shares is issued.

E(1)

Retained Earnings
9-27
115,000
130,000
205,000
306,000
144,000
P9-20 Subsidiary Preferred Stock Outstanding

a.
b.
Eliminating entries, January 1, 20X5:

Preferred Stock Pert Company
Retained Earnings
Investment in Pert Preferred Stock
Eliminate preferred stock:
$32,000 = ($200,000 x .08) x 2 years
200,000
32,000
Common Stock Pert Company

Retained Earnings
Investment in Pert Common Stock
Eliminate common stock:
$168,000 = $200,000 - $32,000
150,000
168,000
Consolidated net income and income to controlling

interest:
Operating income of Emerald Corporation
Net income of Pert
Income to noncontrolling interest:
Income from preferred stock of Pert Company
($16,000 x .60)
Income from common stock of Pert Company
[($34,000 - $16,000) x .30]
Income to noncontrolling interest
Alternate computation of income to controlling interest
Operating income of Emerald Corporation
Income from preferred stock of Pert Company
($16,000 x .40)
Income from common stock of Pert Company
[($34,000 - $16,000) x .70]
9-28
92,800
139,200
222,600
95,400
$ 80,000
34,000
$114,000
$ 9,600
5,400
(15,000)
$ 99,000
$80,000
6,400
12,600
$99,000
P9-21 Ownership of Subsidiary Preferred Stock

a.
Preferred stockholders' claim on net assets of Jacobs:

Liquidation value of preferred stock ($101 per share)
20X6 dividends in arrears ($200,000 x .10)
Total preferred stockholder claim, December 31, 20X6
b.
Book value of Jacobs common shares acquired by Presley:

Total Jacobs stockholders' equity, December 31, 20X6
Claim of preferred stockholders
Book value of Jacobs common stock
Portion acquired by Presley
Book value of common shares acquired by Presley
c.
$1,800,000
1,200,000
$3,000,000
(2,933,000)
$ 67,000
Income to noncontrolling interest, 20X7:

Jacobs net income
Less: impairment of goodwill
Less: 20X7 preferred dividends ($200,000 x .10)
Income accruing to common shareholders
Noncontrolling common shareholders' interest
Income to noncontrolling common shareholders
Preferred dividends to noncontrolling
shareholders ($20,000 x .80)
Total income to noncontrolling shareholders
e.
$3,155,000
(222,000)
$2,933,000
x
.60
$1,759,800
Goodwill associated with acquisition of common shares:

Consideration given by Presley to acquire shares
Fair value of noncontrolling interest in common shares
Total fair value
Book value of common shares
Goodwill
d.
$202,000
20,000
$222,000
$280,000
(26,000)
(20,000)
$234,000
x
.40
$ 93,600
16,000
$109,600
Presley's income from investment in subsidiary common stock:

Jacobs net income
Less: 20X7 preferred dividends ($200,000 x .10)
Income accruing to common shareholders
Presley's proportionate share
Presley's share of income to common shareholders
Note: Basic equity method does not include adjustment for
Impairment of goodwill.
9-29
$280,000
(20,000)
$260,000
x
.60
$156,000
P9-21 (continued)
f.
Noncontrolling interest, December 31, 20X7:

Total amount assigned to noncontrolling interest:
Noncontrolling interest - common
Noncontrolling interest - preferred
Total noncontrolling interest
$1,289,600
161,600
$1,451,200
Assigned to noncontrolling interest - common

Jacobs stockholders' equity, January 1, 20X7
20X7 net income
Less: Preferred dividends
Less: Common dividends
Total Jacobs stockholders' equity, December 31, 20X7
Claim of preferred stockholders
Book value of Jacobs' common stock
Unimpaired goodwill at December 31, 20X7 ($67,000 - $26,000)
Total basis for common shareholders
Noncontrolling stockholders' interest
Noncontrolling interest common
$3,155,000
280,000
(40,000)
(10,000)
$3,385,000
(202,000)
$3,183,000
41,000
$3,224,000
x
.40
$1,289,600
Assigned to noncontrolling interest - preferred

Total Jacobs preferred stockholders' equity,
January 1, 20X7
Less: Dividends in arrears paid during 20X7
Jacobs preferred stockholders' equity,
December 31, 20X7
Noncontrolling stockholders' interest
Noncontrolling interest preferred
9-30
$222,000
(20,000)
$202,000
x
.80
$161,600
P9-21 (continued)
g.
E(1)

Dividends Declared Common
Investment in Jacobs Common Stock
E(2)
Dividend Income Preferred

Eliminate dividend income from subsidiary
preferred stock: $40,000 x .20
E(3)

Dividends Declared Common
$4,000 = $10,000 x .40
$32,000 = $40,000 x .80
E(4)
Common Stock Jacobs Jacuzzi

Additional Paid-In Capital Common
Premium on Preferred Stock
Goodwill
Investment in Jacobs Common Stock
Eliminate beginning investment in common
stock:
$3,000 = $5,000 - $2,000
$1,630,000 = $1,650,000 - $20,000
156,000
8,000
109,600
500,000
800,000
3,000 *
1,630,000 **
67,000
*Portion accruing to common shareholders

**Portion accruing to common shareholders after deducting
preferred dividends in arrears
9-31
6,000
150,000
8,000
4,000
32,000
73,600
1,800,000
1,200,000
P9-21 (continued)
E(5)
Goodwill Impairment Loss

Goodwill
Recognize goodwill impairment loss.
E(6)
Preferred Stock Jacobs Jacuzzi

Premium on Preferred Stock
Investment in Jacobs Preferred Stock
Retirement of Preferred Stock
Eliminate subsidiary preferred stock:
$2,000 = $5,000 - $3,000
$20,000 = $200,000 x .10
$2,400 = ($222,000 x .20) - $42,000
$177,600 = $222,000 x .8
26,000
200,000
2,000 *
20,000 **
26,000
42,000
2,400
177,600
*Portion representing call premium

**Portion relating to preferred dividends in arrears
P9-22 Consolidation Workpaper with Subsidiary Preferred Stock

a.
E(1)

Investment in White Common Stock
58,500
E(2)
Dividend Income
9,000
E(3)

12,500
E(4)
Common Stock White Corporation

Investment in White Common Stock
100,000
250,000
E(5)
Preferred Stock White Corporation

Investment in White Preferred Stock
200,000
E(6)
Dividends Payable
Dividends Receivable
9,000
9-32
9,000
49,500
9,000
6,000
1,000
5,500
315,000
35,000
120,000
80,000
9,000
P9-22 (continued)
b.
Brown Company and White Corporation

Consolidation Workpaper
December 31, 20X6
Brown
Item
Sales
Dividend Income
Credits
Cost of Goods Sold
Deprec. and Amort.
Other Expenses
Debits
Consolidated Net Income
Income, carry forward
Retained Earnings, Jan. 1
Income, from above
Dividends Declared
Preferred Stock
Common Stock
Ret. Earnings, Dec. 31,
carry forward
Cash
Accounts Receivable
Dividends Receivable
Inventory
Bldgs. and Equip. (net)
Investment in White Corp.:
Preferred Stock
Common Stock
Debits
Accounts Payable
Dividends Payable
Bonds Payable
Preferred Stock
Common Stock
Ret. Earnings, from above
Credits
Company
White
Corporatio
n
500,000
300,000
9,000
58,500
567,500
300,000
280,000
170,000
40,000
30,000
131,000
20,000
(451,000) (220,000)
116,500
80,000
435,000
116,500
551,500
250,000
80,000
330,000
Eliminations
Debit
(10,000)
491,500
305,000
58,000
80,000
9,000
100,000
360,000
100,000
120,000
100,000
70,000
15,000
300,000
800,000
450,000
70,000
151,000
(671,000)
129,000
(4) 250,000
80,000
435,000
116,500
551,500
(2)
(3)
(1)
(3)
330,000
(6)
9,000
6,000
9,000
1,000
(60,000)
25,000
491,500
9,000
(5) 120,000
(1) 49,500
(4) 315,000
(6)
9,000
200,000
491,500
200,000
100,000
305,000
(5) 200,000
(4) 100,000
330,000
1,091,500
690,000
639,000
9-33
800,000
(12,500)
116,500
120,000
364,500
690,000
idated
(3) 12,500
80,000
200,000
270,000
1,091,500
Credit
(2) 9,000
(1) 58,500
(15,000)
(60,000)
Consol-
158,000
200,000
300,000
630,000
1,288,000
170,000
6,000
300,000
200,000
25,000
491,500
(3) 5,500
(4) 35,000
(5) 80,000
120,500
639,000 1,288,000
P9-23 Subsidiary Stock Transactions

a.
(1)
(2)
Book value of Beta Company stock outstanding

Proportion of remaining shares held by noncontrolling
Interest (1,500 / 9,000)
Adjusted book value of shares held
repurchase by Beta Company ($500,000 x .25)
Reduction of noncontrolling interest
Consideration given by Beta Company
Decrease in equity attributable to parent
b.

Investment in Beta Company Stock
$45,000 x .833
E(2)

$45,000 x .167
E(3)
Common Stock Beta Company

Treasury Stock
(2)
(125,000)
$ 53,000
(68,000)
$ (15,000)
15,000
15,000
E(1)
(1)
x .1667
$ 72,000
Journal entry recorded by Apex Corporation:

Retained Earnings
(3)
$500,000
(68,000)
$432,000
37,500
37,500
7,500
7,500
100,000
80,000
320,000
Book value of Beta Company stock outstanding

Proportion of remaining shares held by noncontrolling
Interest (2,500 / 9,000)
Adjusted book value of shares held by noncontrolling
Interest
repurchase by Beta Company ($500,000 x .25)
Increase in equity attributable to parent
68,000
360,000
72,000
$500,000
(68,000)
$432,000
x
.2778
$120,000
(125,000)
$ 5,000
Journal entry recorded by Apex Corporation:

Cash
9-34
68,000
63,000
5,000
P9-23 (continued)
(3)
E(1)

$45,000 x .722
32,500
E(2)

$45,000 x .278
12,500
E(3)
Common Stock Beta Company

Treasury Stock
100,000
80,000
320,000
32,500
12,500
68,000
312,000
120,000
P9-24 Sale of Subsidiary Shares

a.
E(1)
Gain on Sale of ENC Company Stock

Eliminate gain on sale of ENC shares:
$60,000 - ($250,000 x .20)
10,000
E(2)

Dividends Declared
Investment in ENC Company Stock
Eliminate income from subsidiary:
$18,000 = .60($170,000 - $140,000)
18,000
E(3)

Dividends Declared
$12,000 = .40($170,000 - $140,000)
12,000
E(4)
Common Stock ENC Company

Investment in ENC Company Stock
9-35
100,000
20,000
130,000
10,000
6,000
12,000
4,000
8,000
150,000
100,000
P9-24 (continued)
b.
Penn Corporation and ENC Company

December 31, 20X4
Item
Sales
Gain on Sale of ENC
Company Stock
Credits
Cost of Goods Sold
Depreciation Expense
Other Expenses
Debits
Income, carry forward
Penn
Corp.
280,000
ENC
Company
170,000
10,000
18,000
_______
308,000
170,000
210,000
100,000
20,000
15,000
21,000
25,000
(251,000) (140,000)
320,000
47,000
367,000
362,000
150,000
170,000
30,000
70,000
120,000
35,000
50,000
100,000
65,000
120,000
220,000
650,000
230,000
880,000
Ret. Earnings, Dec. 31,

carry forward
Credits
450,000
310,000
35,000
46,000
(391,000)
59,000
(4)130,000
40,000
Dividends Declared
Accum. Depreciation
Accounts Payable
Bonds Payable
Common Stock
Additional Paid-In
Capital
Retained Earnings,
from above
(1) 10,000
(2) 18,000
130,000
30,000
160,000
(10,000)
320,000
57,000
377,000
(15,000)
Debits
450,000
(12,000)
47,000
30,000
Cash
Accounts Receivable
Inventory
Buildings and
Equipment
Investment in ENC
Company Stock
Consolidated
(3) 12,000
40,000
57,000
Retained Earnings,
January 1
Income, from above
Eliminations
Debit
Credit
(2)
(3)
162,000
10,000
(2) 12,000
(4) 150,000
1,032,000
415,000
170,000
50,000
200,000
200,000
95,000
20,000
30,000
100,000
(4)100,000
50,000
20,000
(4) 20,000
362,000
150,000
170,000
1,032,000
415,000
290,000
9-36
6,000
4,000
(15,000)
352,000
1,285,000
265,000
70,000
230,000
200,000
(1) 10,000
60,000
10,000
352,000
(3) 8,000
(4)100,000
108,000
290,000 1,285,000
P9-25 Sale of Shares by Subsidiary to Nonaffiliate

a.
E(1)
Common Stock Delta Corporation

240,000
190,000
Retained Earnings
350,000
Investment in Delta Corporation Stock
Eliminate investment in common stock:
$240,000 = $200,000 + ($10 x 4,000 shares)
$190,000 = $50,000 + [($45 - $10) x 4,000 shares]
$520,000 = $780,000 x (16,000 shares / 24,000 shares)
$260,000 = $780,000 x (8,000 shares / 24,000 shares)
520,000
260,000
Journal entry recorded by Craft Corporation:

Investment in Delta Corporation Stock
Book value of shares held by Craft:
After sale $780,000 x (16,000 / 24,000)
Before sale $600,000 x (16,000 / 20,000)
Increase in book value
b.
40,000
40,000
$520,000
(480,000)
$ 40,000
Craft Corporation and Delta Corporation

Consolidated Balance Sheet Workpaper
January 1, 20X3
Item
Cash
Accounts Receivable
Inventory
Buildings & Equipment
Investment in Delta
Corporation
Total Debits
Accumulated
Depreciation
Accounts Payable
Taxes Payable
Mortgages Payable
Common Stock
Additional Paid-In
Capital
Retained Earnings,
Noncontrolling
Interest
Total Credits
Craft
Corp.
Delta
Corp.
50,000
90,000
180,000
700,000
230,000
120,000
200,000
600,000
Eliminations
Debit
Credit
280,000
210,000
380,000
1,300,000
520,000
1,540,000 1,150,000
200,000
70,000
Consolidated
(1)520,000
240,000
(1)240,000
420,000
140,000
80,000
250,000
300,000
190,000
350,000
(1)190,000
(1)350,000
220,000
500,000
1,540,000 1,150,000
780,000
250,000
300,000
220,000
500,000
220,000
70,000
80,000
2,170,000
9-37
(1)260,000
780,000
260,000
2,170,000
P9-25 (continued)
c.
Craft Corporation and Subsidiary

Consolidated Balance Sheet
January 1, 20X3
Current Assets:
Cash
Accounts Receivable
Inventory
Noncurrent Assets:
Buildings and Equipment
Less: Accumulated Depreciation
Total Assets
280,000
210,000
380,000
$1,300,000
(420,000)
Current Liabilities:
Accounts Payable
Taxes Payable
Mortgages Payable
Stockholders Equity:
Controlling Interest:
Common Stock
Retained Earnings
Total Controlling Interest
Total Stockholders Equity
Total Liabilities and Stockholders' Equity
$ 140,000
80,000
$ 300,000
220,000
500,000
$1,020,000
260,000
9-38
870,000
880,000
$1,750,000
$ 220,000
250,000
1,280,000
$1,750,000
P9-26 Sale of Additional Shares to Parent

a.
Eliminating entry:
E(1)
Common Stock Tin Corporation

Retained Earnings
Investment in Tin Corporation
Eliminate investment balance:
$125,000 = $100,000 + (2,500 x $10)
$187,500 = computed below
Computation of debit to Additional Paid-In Capital
Balance reported by Tin Corporation prior to
sale of additional shares
Increase in paid-in capital from sale of shares
[$150,000 (2,500 x $10)]
Noncontrolling interest after sale of shares
($500,000 x .20)
Noncontrolling interest before sale of shares
($350,000 x .25)
Increase in book value of noncontrolling interest
Debit to additional paid-in capital
125,000
187,500
200,000
412,500
100,000
$ 50,000
125,000
$100,000
(87,500)
12,500
$187,500
Journal entry recorded by Tin Corporation:

Cash
Common Stock
150,000
25,000
125,000
Journal entry recorded by Lane Manufacturing:

Investment in Tin Corporation Stock
Cash
9-39
150,000
150,000
P9-26 (continued)
b.
Lane Manufacturing Company and Tin Corporation

January 2, 20X1
Item
Cash
Accounts Receivable
Inventory
Buildings and
Equipment
Investment in Tin
Corporation Stock
Debits
Accum. Depreciation
Accounts Payable
Bonds Payable
Common Stock
Additional Paid-In
Capital
Retained Earnings,
Noncontrolling
Interest
Total Credits
Lane
Corp.
Tin
Corp.
Eliminations
Debit
Credit
Consolidated
77,500
60,000
100,000
210,000
100,000
180,000
287,500
160,000
280,000
600,000
600,000
1,200,000
412,500
1,250,000 1,090,000
(1)412,500
1,927,500
150,000
50,000
400,000
200,000
240,000
50,000
300,000
125,000
(1)125,000
390,000
100,000
700,000
200,000
50,000
400,000
175,000
200,000
(1)187,500
(1)200,000
37,500
400,000
1,250,000 1,090,000
512,500
9-40
(1)100,000
512,500
100,000
1,927,500
P9-27 Complex Ownership Structure

The overall ownership structure can be diagrammed as follows:
Consolidated net income of $98,800First

is reported:
Boston
Operating income of First Boston

Operating income of Gulfside
Operating income of.80
Paddock
Total earnings available
Income to noncontrolling interests:
Paddock .40[$50,000 + .10($30,000)]
Gulfside
Gulfside
.20[$34,000 + .60($10,000)]
.60
9-41
$ 44,000
34,000
50,000
$128,000
.10
$21,200
Paddoc
8,000
k
(29,200)
$ 98,800

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Chapter 09 - Consolidation Ownership Issues

Chapter 09 - Consolidation Ownership Issues

Chapter 09 - Consolidation Ownership Issues

Chapter 09 - Consolidation Ownership Issues

C9-2 Consolidated Stockholders Equity: Theory vs. Practice

Chapter 09 - Consolidation Ownership Issues

C9-3 Sale of Subsidiary Shares

Investment in Lance Company Stock

Chapter 09 - Consolidation Ownership Issues

Chapter 09 - Consolidation Ownership Issues

C9-4 Sale of Subsidiary Shares

C9-5 Reciprocal Ownership

Chapter 09 - Consolidation Ownership Issues

$50,000 = $20,000 + $30,000

$29,000 = $20,000 + .30($30,000)

Only the retained earnings of the acquiring company is included.

E9-2 Multiple-Choice Questions on Multilevel Ownership

$188,000 = $100,000 + .80[$80,000 + .60($50,000)]

$22,000 = .20[$80,000 + .60($50,000)]

$42,000 = .40($50,000) + .20[$80,000 + .60($50,000)]

$2,400 = .80 x .60[($150,000 + $100,000 - $200,000) / 10 years)

E9-3 Acquisition of Preferred Shares

Common Stock Separate Company

Preferred Stock Separate Company

Chapter 09 - Consolidation Ownership Issues

E9-4 Reciprocal Ownership [AICPA Adapted]

None of Simba's dividends is reported in the consolidated statements. All of

Only 90 percent of Pride's dividends are included in the consolidated retained

E9-5 Subsidiary with Preferred Stock Outstanding

Common Stock Topple Company

Preferred Stock Topple Company

E9-6 Subsidiary with Preferred Stock Outstanding

Entries recorded by Clayton Corporation:

Investment in Topple Common Stock

Investment in Topple Common Stock

Chapter 09 - Consolidation Ownership Issues

Income from Subsidiary

Dividend Income Preferred

Income to Noncontrolling Interest

Common Stock Topple Company

Preferred Stock Topple Company

Chapter 09 - Consolidation Ownership Issues

E9-7 Preferred Dividends and Call Premium

Culbertson Company's contribution to 20X2 consolidated net income is equal to

Income assigned to noncontrolling interest:

Retained earnings assignable to preferred shareholders:

Book value of common shares:

Total noncontrolling interest:

Chapter 09 - Consolidation Ownership Issues

E9-8 Multilevel Ownership

Consolidated net income for 20X6 is $190,000 ($90,000 +

Income of $36,800 is assigned to the noncontrolling interest:

Income of $153,200 is assigned to the controlling interest:

Only the $45,000 of dividends paid by Grasper Corporation to its

Chapter 09 - Consolidation Ownership Issues

E9-9 Eliminating entries for Multilevel Ownership

Journal entries recorded by Brown Corporation on its investment in Tann Company:

Investment in Tann Company Stock

Investment in Tann Company Stock

Journal entries recorded by Promise Enterprises on its investment in Brown

Investment in Brown Corporation Stock

Investment in Brown Corporation Stock

Income from Tann Company