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850,000</p><p>Land
-0320,000</p><p>Plant and equipment
360,000
280,000</p><p> Total
assets
$ 1,780,000
$1,030,000</p><p> </p><p>Accounts payable
$ 132,000
$ 110,000
</p><p>Notes
payable
90,000
30,000</p><p>Capital stock
1,000,000
550,000</p><p>Retained earnings
558,000
340,000</p><p> Total liabilities and equity
$1,780,000
$1,030,000</p><p>d.
Prepare a consolidated financial statements work paper for the year ended December 31, 2012. Although no
goodwill impairment was reflected at the end of 2010 or 2011, the goodwill impairment test conducted at December 31, 2012 revealed
implied goodwill from Salem to be only $150,000. The impairment has not been recorded in the books of the parent. (Hint: You can infer the
method being used by the parent from the information in its trial balance.)</p><p>e.
Prepare a consolidated statement of financial
position and a consolidated income statement for the year ended December 31, 2012. Describe the effect on the consolidated balance if
Salem Company uses the LIFO cost flow assumption in pricing its inventory and there has been no decrease in ending inventories since
2010. Prepare an analytical calculation of consolidated retained earnings for the year ended December 31, 2012
Problem 5-6 Work paper Entries for Two Years and Sale Equipment in Year Two LO6 On January 1, 2011, Perini Company purchased an
85% interest in Silvas Company for $400,000. On this date, Silvas Company had common stock of $90,000 and retained earnings of
$210,000. An examination of Silvas Company's assets and liabilities revealed that there book value was equal to their fair value except for
the equipment.</p><p>
Book Value
Fair Value</p><p>Equipment
$360,000
</p><p>Accumulated depreciation
<u>(120,000)</u></p><p>
$240,000
$340,000</p><p> </p><p>The
equipment had an expected remaining life of six years and no salvage value. Straightline depreciation is used.</p><p>During 2011 and
2012, Perini Company reported net income from its own operations of $80,000 ND Paid dividends of $50,000 in each year. Silvas Company
had income of $40,000 each year and paid dividends of $30,000 on each December 31.</p><p>Accumulated depreciation is presented on a
separate row in the workpaper and in the consolidated financial statements.</p><p> Prepare eliminating entries for consolidated financial
statements workpaper for the year ended December 31, 2011, assuming:</p><p>1.
The cost method is used to account for the
investment.</p><p>2.
The partial equity method is used to account for the investment.</p><p>b.
On January 1, 2012, Silvas
Company sold all its equipment for $220,000. Prepare the eliminating entries for the consolidated financial statements workpaper for the
year ended December 31, 2012, assuming:</p><p>1.
The cost method is used to account for the investment.</p><p>2.
The partial
equity method is used to account for the investment
P5-4)
Part A
Computation and Allocation of Difference Schedule
Parent
Share
Purchase price and implied value
Less: Book value of equity acquired
Difference between implied and book value
Equipment
Land
Inventory
Balance
Goodwill
Balance
$850,000
504,000
346,000
(104,000)
(52,000)
(32,000)
158,000
(158,000)
-0-
NonControlling
Share
212,500
126,000
86,500
(26,000)
(13,000)
(8,000)
39,500
(39,500)
-0-
Entire
Value
1,062,500 *
630,000
432,500
(130,000)
(65,000)
(40,000)
197,500
(197,500)
-0-
*$850,000/.80
20,000
20,000
80,000
550,000
432,500
40,000
65,000
130,000
850,000
212,500
Goodwill
Difference between Implied and Book Value
To allocate the difference between implied and book value
(4) Depreciation Expense ($130,000/5)
Plant and Equipment
Cost Method Worksheet Entries Year 2011
197,500
432,500
26,000
26,000
60,000
28,000
60,000
28,000
155,000
550,000
432,500
32,000
8,000
65,000
130,000
197,500
910,000
227,500
432,500
20,800
5,200
26,000
52,000
80,000
20,000
60,000
80,000
550,000
432,500
40,000
65,000
130,000
197,500
850,000
212,500
432,500
26,000
26,000
88,000
28,000
60,000
155,000
550,000
432,500
910,000
227,500
32,000
8,000
65,000
130,000
197,500
432,500
20,800
5,200
26,000
52,000
27,200
20,000
7,200
80,000
550,000
432,500
850,000
212,500
40,000
65,000
130,000
197,500
432,500
26,000
26,000
67,200
28,000
39,200
155,000
550,000
432,500
32,000
8,000
65,000
130,000
197,500
910,000
227,500
432,500
20,800
5,200
26,000
52,000
Part D
Porter
Company
Income Statement
Sales
Dividend Income
Total Revenue
Cost of Goods Sold
Depreciation Expense
Impairment loss
Other Expenses
Total Cost and Expense
Net/Consolidated Income
Salem
Company
$1,100,000 $450,000
48,000
(2)
1,148,000 450,000
900,000 200,000
40,000
30,000 (4b)
(5)
60,000
50,000
1,000,000 280,000
148,000 170,000
$148,000 $170,000
$500,000
Salem Company
Net Income from Above
Dividends Declared:
Porter Company
Salem Company
12/31 Retained Earnings to Balance Sheet
Balance Sheet
Cash
Accounts Receivable
Eliminations
Debit
Credit
148,000
Noncontrolling Consolidated
Interest
Balances
$1,550,000
48,000
1,550,000
1,100,000
96,000
47,500
110,000
1,353,500
196,500
26,000
47,500
19,300
$19,300
$121,500
(4a)
(4b)
32,000
41,600
(1) $120,000
$546,400
19,300
(90,000)
(60,000)
$558,000 $340,000
Porter
Salem
Company Company
$70,000
$65,000
260,000
190,000
(19,300)
$177,200
177,200
(90,000)
(2)
$425,100
48,000
$168,000
Eliminations
Debit
Credit
(12,000)
$7,300
$633,600
Noncontrolling Consolidated
Interest
Balances
$135,000
$450,000
Inventory
240,000
175,000
Investment in Salem Company
850,000
(1)
Difference between Implied and Book Value
(3)
Land
320,000 (4a)
Plant and Equipment
360,000
280,000 (4a)
Goodwill
(4a)
Total Assets
$1,780,000 $1,030,000
$415,000
120,000 (3)
432,500 (4a)
65,000
130,000 (4b)
197,500 (5)
970,000
432,500
385,000
692,000
150,000
$2,227,000
78,000
47,500
Accounts Payable
$132,000 $110,000
Notes Payable
90,000
30,000
Common Stock:
Porter Company
1,000,000
Salem Company
550,000 (3) 550,000
Retained Earnings from above
558,000
340,000
425,100
168,000
1/1 Noncontrolling Interest in Net
(4a)
8,000 (3) 242,500 **
Assets
(4b)
10,400
12/31 Noncontrolling Interest in Net
Assets
Total Liabilities and Equity
$1,780,000 $1,030,000
$1,938,500
$1,938,500
* Noncontrolling Interest in Income =.2 $170,000 (.2 x $26,000) (.2 x $47,500) = $19,300
** $212,500 + ($230,000 $80,000) x .20 = $242,500
Explanations of workpaper entries are on the following page.
$242,000
120,000
1,000,000
7,300
224,100
633,600
$231,400
231,400
$2,227,000
$850,000
504,000
346,000
(104,000)
(52,000)
(32,000)
158,000
(158,000)
-0-
NonControlling
Share
212,500
126,000
86,500
(26,000)
(13,000)
(8,000)
39,500
(39,500)
-0-
Entire
Value
1,062,500
630,000
432,500
(130,000)
(65,000)
(40,000)
197,500
(197,500)
-0-
120,000
120,000
48,000
48,000
59
230,000
550,000
432,500
970,000
242,500
32,000
8,000
65,000
130,000
197,500
432,500
41,600
10,400
26,000
78,000
73,600
18,400
26,000
65,000
52,000
197,500
432,500
47,500
47,500
5 10
Part E
$1,550,000
1,100,000
450,000
$96,000
47,500
110,000
253,500
196,500
19,300
$177,200
$546,400
177,200
90,000
$633,600
$135,000
450,000
415,000
692,000
5 11
$1,000,000
723,600
Land
Goodwill
Total Assets
385,000
150,000
1,227,000
$2,227,000
$242,000
120,000
362,000
231,400
1,000,000
633,600
1,865,000
$2,227,000
Part F Ending inventory would be higher by $40,000 if LIFO is assumed because it would not have been sold. Beginning controlling
retained earnings and noncontrolling interest would also be $32,000 and $8,000 higher, because cost of goods sold in the year
of acquisition was lower.
Part G Porter Company's Retained Earnings on 12/31/12
Porter Company's Share of the Increase in Salem
Company's Retained Earnings from January 1, 2010 to December 31, 2012
($340,000 $80,000).8
Cumulative Effect to December 31, 2012 of the Allocation and Depreciation
of the Difference between Implied and Book value (Parents share)
Allocated to:
2010
2011
2012
Inventory
$32,000
$0
$0
Equipment
20,800
20,800
20,800
$52,800 $20,800 $20,800
Goodwill Impairment (2012)
5 12
$558,000
208,000
(94,400)
(38,000)
$633,600
P5-6)
Computation and Allocation of Difference Schedule
Parent
Share
Purchase price and implied value
Less: Book value of equity acquired
Difference between implied and book value
Equipment*
Less:Accumulated Depreciation*
Balance
Goodwill
Balance
NonControlling
Share
70,588
45,000
25,588
(13,500)
4,500
16,588
(16,588)
-0-
$400,000
255,000
145,000
(76,500)
25,500
94,000
(94,000)
-0-
Entire
Value
470,588 *
300,000
170,588
(90,000)
30,000
110,588
(110,588)
-0-
*$400,000/.85
*Schedule of Book Value and Fair Value on Date of Acquisition
Equipment
Accumulated Depreciation
Equipment (net)
Fair
Value
$450,000 1
150,000 2
$300,000
Book
Value
$360,000
120,000
$240,000
Fair Value
Minus Book Value
$90,000 3
30,000 4
$60,000
$300,000/($240/$360) = $450,000
$450,000($120/$360) = $150,000
5 13
$60,000/($240/$360) = $90,000
$90,000($120/$360) = $30,000
Annual
Amount
Amortization
$60,000/6 yr $10,000
110,588
0
$170,588
$10,000
Part A
Part 1 Cost Method
(1) Dividend Income ($30,0000.85)
Dividends Declared
25,500
25,500
210,000
90,000
170,588
10,000
90,000
110,588
400,000
70,588
40,000
170,588
90,000
110,588
30,000
5 14
170,588
Depreciation Expense
Accumulated Depreciation - Equipment
10,000
10,000
34,000
25,500
8,500
210,000
90,000
170,588
10,000
90,000
110,588
400,000
70,588
40,000
170,588
90,000
110,588
30,000
170,588
5 15
10,000
10,000
Part B
Part 1 Cost Method
Cost
Accumulated Depreciation
Undepreciated Basis
Sales Proceeds
Gain (Loss)
Silvas Company
$360,000
160,000
200,000
220,000
$ 20,000
Difference
$90,000
40,000
50,000
$50,000
Consolidated
$450,000
200,000
250,000
220,000
$(30,000)
8,500
8,500
25,500
25,500
8,500
5 16
Noncontrolling Interest
Gain on Disposal of Equipment
Loss on Disposal of Equipment
Goodwill
Difference between Implied and Book Value
To allocate and depreciate difference between Implied and book value
1,500
20,000
30,000
110,588
$50,000
170,588
$50,000
Part B
Part 2 Partial Equity Method
Cost
Accumulated Depreciation
Undepreciated Basis
Sales Proceeds
Gain (Loss)
Silvas Company
$360,000
160,000
200,000
220,000
$20,000
Difference
$90,000
40,000
50,000
$50,000
Consolidated
$450,000
200,000
250,000
220,000
$(30,000)
34,000
25,500
34,000
25,500
220,000
90,000
5 17
8,500
1,500
20,000
30,000
110,588
$50,000
5 18
170,588
$50,000