08 Fischer10e SM Ch08 Final

----------------------- Page 1-----------------------
CHAPTER 8
UNDERSTANDING THE ISSUES
1. The stock dividend will result in the follow(a) If the parent buys less than its current
ing entry being made by the subsidiary:
ownership percentage of shares, it will
increase its equity to the extent others
Retained Earnings
pay more than book value. The in(10,000 shares
crease will normally go to paid-in capi$60 per share) ............ 600,000
tal in excess of par.
Common Stock
($1 par, 10,000

(b) If the parent maintains its percentage,
shares $1)................
there is no impact other than an in-
10,000
Paid-In Capital in
crease in the investment account equal
Excess of Par
to the price paid. The parent will supply
($600,000, $10 par) .....
90% of the funds and will own 90% of
590,000
the equity provided by the new funds.

The parent need make no adjustment to its
investment account since there has been
(c) If the parent buys more than 90% of
no change in the total subsidiary equity.
the shares issued, it will adjust its investment based on the impact of the
When eliminating the investment in subsidsale. A sale at more than book value
iary account, the parent will now simply
will cause a reduction in the investeliminate its share of the revised (but equal
ment; a sale at less than book value
in total) subsidiary equity accounts.
will cause an increase in the invest-
2. The parents share in any equity increases

ment.
from the excess of the current book value
4.
Control, in this example, is a chain link
of
$40
per
share
($4,000,000/100,000
process. If A controls B and B, in turn,

shares) that the subsidiary receives. The
controls C, then all three are under comparent does not record as income the inmon ownership, and B and C are controlled
crease in equity that results. Rather, it is an
by A.
increase in the parents paid-in capital in
excess of par. The calculation in this case

In the distribution of Company Cs $10,000
would be as follows:
income, 40% (or $4,000) will flow to the
NCI of Company C, and 60% (or $6,000)
Equity after sale
will flow to Company B, the controlling in{(90,000 shares/120,000
terest. That $6,000 will flow as follows: 40%
shares = 75%)
(or $2,400) will flow to the NCI of Company
[$4,000,000 + ($50
B, and 60% (or $3,600) will flow to Compa 20,000 shares)]} ..............
$3,750,000
ny A, the controlling interest.

Equity prior to sale
(90% $4,000,000) ...........
he 2% holding in Company P shares,
3,600,000
Increase in equity interest .....

$
owned by Company S, is best treated as
150,000
treasury stock. This approach views the

3. The
subsidiary
is
selling
the
additional
subsidiary as the parents agent in purchasshares at $50 each, which is in excess of

ing parent company shares. As treasury
the current book value of $40 per share
stock, the 2,000 shares will not share in the
5.
($4,000,000/100,000 shares).
distribution of income and will not create a
separate excess of cost or book value.
417
----------------------- Page 2-----------------------
Ch. 8Exercises
EXERCISES
EXERCISE 8-1
(1) Retained Earnings (3,000 $35) ..............................................

.......
105,000
Common Stock ..........................................................
..................
30,000
Paid-In Capital in Excess of Par ......................................
............
75,000
To record stock dividend distributed on July 1, 20X1.
Lamp Company
Stockholders Equity
December 31, 20X1
Common stock ($10 par) ....................................................
....................
$330,000
Paid-in capital in excess of par ..........................................

....................
225,000
Retained earnings [$200,000 original balance +
$120,000 income $105,000 stock dividend
(33,000 share $0.50 = $16,500 cash dividend)] .........................
198,500
....
Total stockholders equity ..................................................

.....................
$753,500
(2) Memo: Investment in Lamp Company now includes 2,700 (30,000 90% 10%) additio
nal
shares for a total of 29,700 shares.
Cash ......................................................................
...........................
14,850
Investment in Lamp Company ............................................
14,850
.........
To record receipt of cash dividend (29,700 shares $0.50).
Investment in Lamp Company ................................................

.........
108,000
Subsidiary Income .....................................................
..................
108,000
To record 90% interest in Lamp Companys $120,000 net
income for 20X1.
(3) Subsidiary Income .........................................................
...................
108,000
Investment in Lamp Company ............................................
93,150
.........
Dividends, Lamp Company................................................

..........
14,850
To eliminate current-year entries to investment account.
Goodwill ..................................................................
.........................
250,000
Common Stock [($300,000 + $30,000) 90%] ................................

297,000
Paid-In Capital in Excess of Par [($150,000 + $75,000) 90%] ......
202,500
Retained Earnings [($200,000$105,000) 90%] .........................
85,500
Investment in Lamp Company (includes $225,000 from D&D) ....
810,000
Retained EarningsLamp Company (NCI adjustment) ..............
25,000
418
----------------------- Page 3-----------------------
Ch. 8Exercises
Exercise 8-1, Concluded
Determination and Distribution of Excess Schedule

Company
Parent
NCI
Price
Value
Implied
Fair Value
(90%)
(10%)
Fair value of subsidiary

$810,000
$ 90,000
$900,000
Less book value of interest acquired:

Common stock ($10 par)
Paid-in capital in excess of par
$300,000
150,000
Retained earnings
Total equity
$650,000
Interest acquired
90%
Book value
$585,000
200,000
$650,000
$650,000
10%
$ 65,000
Excess of fair value over book value

$225,000
$ 25,000
$250,000
Adjustment of identifiable accounts:
Worksheet
Adjustment
Key
Goodwill
$250,000
debit D
EXERCISE 8-2
Investment in Trail ............................................................

......................
57,750
Subsidiary Income .........................................................
...................
57,750
Calculation:
..
90% first 6 months income of $35,000 .......................................

$31,500
75%* second 6 months income of $35,000 ..................................
26,250
Total ..........................................................................
.............................
$57,750
Investment in Trail ............................................................

......................
32,250
Paid-In Capital in Excess of Par ..........................................
.............
32,250
Calculation:
Interest after sale
Trail, January 1, equity ..............................................
..................
$550,000
Income, first 6 months ................................................
.................
35,000
Sale of shares (2,000 $80) ............................................
...........
160,000
Total stockholders equity ..........................................
..............
$745,000
Interest ..............................................................
........................... 75%
$558,750
Interest prior to sale [($550,000 + $35,000) 90%] .........................
526,500
Increase in ownership interest ............................................
.............
$ 32,250
*(10,000 shares 90%)/(10,000 shares + 2,000 shares)
419
----------------------- Page 4-----------------------
Ch. 8Exercises
EXERCISE 8-3
Maintain
Interest
Increase
Interest
Decrease
Interest
Shares purchased by parent ..........................................

8,000
9,000
5,000
Total shares owned by parent after purchase ................
24,000
25,000
21,000
Total subsidiary shares outstanding after issue .............

30,000
30,000
30,000
Subsidiary equity after sale ($450,000 + $50,000

income + $50,000 goodwill + $400,000 sale) ...........
$950,000
$950,000
$950,000
Parents ownership percent after purchase ...................
80%
83.33%
70%
Parents new equity interest after purchase ...................

$760,000
$791,635
$665,000
Subsidiary equity prior to sale (after fair value adjustment)

($450,000 + $50,000 income + $50,000 goodwill) ...
$550,000
$550,000
Parents ownership percent before purchase ................
80%
80%
$550,000
80%
Parents equity interest before purchase .......................

$440,000
$440,000
$440,000
Price paid ($40 per share) .............................................
320,000
360,000
200,000
Total investment .............................................................
$760,000
$800,000
$640,000
Net adjustment ...............................................................
$
0
$ (8,365)
$ 25,000
Maintain ownership percentage interest:

Investment in Cat Company ................................................
..........
320,000
Cash .................................................................
........................
320,000
Increase ownership percentage interest:

..........
351,635
Retained EarningsTom Company (assumes no paid-in capital
in excess of par) ....................................................
...................
8,365
Cash .................................................................
........................
360,000
Decrease ownership percentage interest:

..........
225,000
Cash .................................................................
........................
200,000
Paid-In Capital in Excess of ParTom Company ....................
25,000
420
----------------------- Page 5-----------------------
Ch. 8Exercises
EXERCISE 8-4
Investment in Nolan ............................................................

................
81,360
Retained EarningsTarman ...................................................
81,360
......
To convert investment from cost to equity for income.
Income equity adjustment:

Jan. 1, 20X1 to Jan. 1, 20X3 increase in retained earning ($42,000 60%)
$25,200
Jan. 1, 20X3 to Jan. 1, 20X5 increase in retained earnings ($78,000 72%*)
56,160
Total ........................................................................
...................................
$81,360
*(60% 30,000 shares)/(30,000 5,000 treasury stock shares)
Retained EarningsTarman Company ..............................................

5,760
Investment in Nolan ......................................................
................
5,760
Adjustment for treasury stock purchase:

Equity after treasury stock purchase (72% $327,000) ............................
..
$235,440
Equity prior to treasury stock purchase (60% $402,000) .........................
.
241,200
Increase (decrease) in investment ..............................................
.................
$ (5,760)
Elimination:
Common StockNolan (72% $300,000 ..........................................
216,000
Paid-In Capital in Excess of ParNolan (72% $60,000) .................
43,200
Retained EarningsNolan (72% $120,000) ....................................

86,400
Investment in Nolan ($216,000* + $81,360 $5,760) ..................
291,600
..
Treasury Stock (at cost, 72% $75,000) ....................................

54,000
To eliminate the investments against the subsidiarys equity.
*60% 30,000 shares $12
421
----------------------- Page 6-----------------------
Ch. 8Exercises
EXERCISE 8-5
(1)
Company As Books
Company Bs Books
December 31, 20X1

4,000
Cash ........................................
Investment in B ........................
12
,000
Subsidiary IncomeB ..........
16,000
December 31, 20X2

4,000
Cash ........................................
Cash .............................
..............
,000
........
3,000
Investment in B ........................ 32
Investment in C ...................
12,000
Subsidiary IncomeC ..........
36,000
15,000
Income:
80% ($30,000 +
$15,000 from C).
December 31, 20X3

4,000
..............
,400
........
Cash ........................................
Cash .............................
3,000
Investment in B ........................ 42
Investment in C ...................
15,000
46,400
18,000
Income:
80% ($40,000 +
$18,000 from C).
(2)
Company As Books
Company Bs Books
December 31, 20X1

Investment in C ..................
.........
7,000
7,000
December 31, 20X2
Cash .............................
..............
3,500
Investment in C ...................
........
14,000
17,500
December 31, 20X3

4,500
..............
,400
........
Cash ........................................
Cash .............................
3,500
Investment in B ........................ 50
Investment in C ...................
17,500
54,900
21,000
Income:
90% ($40,000 +
$21,000 from C).
422
----------------------- Page 7-----------------------
Ch. 8Exercises
EXERCISE 8-6
(1)

Company
Parent
NCI
Price
Value
(60%)
(40%)
Implied
Fair Value
00,000
$2,520,000
$4,2
$1,680,000
Less book value interest acquired:

Common stock
400,00
0
100,000
1,
Retained earnings
000,000
2,
00,000
Total equity
$3,500,000
$3,5
$3,500,000
Interest acquired
60%
40%
Book value
$2,100,000
$1,400,000

$ 420,000
$ 280,000
700,00
Worksheet
Adjustment
Key
Company S-2 equipment
00
debit D1
Company S-1 building (40%)

0*
debit D2
Goodwill
00
debit D3
160,00
460,0
Total
80,0
700,00
*NCI of Company S-2 is also increased by $40,000.
(2) Eliminations and Adjustments:
Retained EarningsP ($12,000 80% 60%) ............................

5,760
Retained EarningsS-1 ($12,000 80% 40%) ........................
3,840
Retained EarningsS-2 ($12,000 20%) for S-2s NCI ..............
2,400
Accumulated Depreciation ..................................................
..........
3,000
Machine ...............................................................
.....................
15,000
To eliminate the remaining gain and restore machine value.
Accumulated Depreciation ..................................................

..........
3,000
Depreciation Expense ..................................................
.............
3,000
To recognize gain for current year.
423
----------------------- Page 8-----------------------
Ch. 8Exercises
EXERCI
SE 8-7
Companies
A, B, and C
Consolidated Incom
e Statement
For Year Ended Decembe
r 31, 20X5
Sales [($300,000 + $400,000 + $100,000)

intercompany sales of $75,000] ..........................................
$7
....
25,000
Cost of goods sold [$200,000 + $300,000 + $60,000

intercompany sales of $75,000 realized profit
in beginning inventory of $1,800 + unrealized profit
in ending inventory of ($6,000 + $720)] .................................
.
489,920
Gross profit ...................................................................
................
$
235,080
Expenses ($60,000 + $30,000 + $10,000 $4,000
depreciation adjustment for deferred gain on equipment) .......
96,000
Consolidated net income ........................................................
......
$
139,080
To NCICompany C ..........................................................
$
9,600
....
To NCICompany B ..........................................................
17,680
....
27,280
To controlling interest ........................................................

............
$
111,800
Subsidiary Company C Income Dis

tribution
Unrealized profit in ending

Internally generated net
inventory ..................................
income .....................................
$6,000
$
30,000
Adjusted net income ......................
24,000
NCI share ......................................
40%
NCI ................................................
9,600
Subsidiary Company B Income Dist

ribution*
Internally generated net income ....

70,000
60% Company C adjusted
income of $24,000 ...................
14,400
Gain realized through
depreciation .............................
4,000
88,400
NCI share ......................................
20%
NCI ................................................
17,680
*There is no impact shown for the ending inventory held by Company C since the g
ross profit was written down to
zero under LCM.
Parent Company A Income Dist

ribution
Unrealized profit in ending

inventory ..................................
income .....................................
80% Company B adjusted

income of $88,400 ...................
70,720
Realized profit in beginning
inventory ..................................
1,800
$72
$ 40,000
Controlling interest .........................
$111,800
424
----------------------- Page 9-----------------------
Ch. 8Exercises
EXERCISE 8-8

Company
Parent
NCI
Price
Value
(60%)
(40%)
Implied
Fair Value
$384,000
$256,000
$640,000

$200,000
100,000
Retained earnings
150,000
Remaining excess ($25,000
$5,000 amortization)
Total equity
$470,000
20,000
$470,000
$470,000
Interest acquired
60%
Book value
$282,000
40%
$188,000

$102,000
$ 68,000
$170,000
Amortization
Worksheet
Adjustment
per Year
Life
Key
Font inventory (80%)

$16,000
debit D1
$ 16,000*
Hartland equipment
6,000
debit D2
30,000
Goodwill
124,000
debit D3
Total
$170,000
*NCI of Font is also increased by $4,000.
EXERCISE 8-9
(1) Company Ns books:

Cash ..................................................................
.......................
2,000
Investment in Company O ...............................................
14,000
.........
Subsidiary Income (40% $40,000) ...................................
16,000
Company Ms books:
Cash ..................................................................
.......................
9,000
Investment in Company N ...............................................
86,400
.........
Subsidiary Income [90% ($90,000 + $16,000)] .................

95,400
Cash ..................................................................
.......................
1,000
Investment in Company O ...............................................
7,000
.........
.
Subsidiary Income (20% $40,000) ...................................

8,000
(2) Internally generated incomes ($200,000 + $90,000 + $40,000) ...

$330,000
Beginning inventory profit ................................................
..............
7,000
Ending inventory profit ...................................................
...............
(9,000)
Consolidated net income ...................................................
............
$328,000
NCICompany O ...........................................................
..........
$
15,400
NCICompany N ...........................................................
..........
10,490
25,890
To controlling interest ...............................................
................
$302,110
425
----------------------- Page 10-----------------------
Ch. 8Exercises
Exercise
8-9, Concluded
Subsidiary O Company Income

Distribution
Unrealized gross profit in

Internally generated income ..........
$40,000
6,000
ending inventory ......................

Realized gross profit in
beginning inventory ..................

4,500
Adjusted income ............................

$38,500
NCI share ......................................

40%
NCI ................................................
$15,400
Subsidiary N Company Income

Distribution
Unrealized gross profit in

Internally generated income ........
$ 90,000
$3,000

Share of O income
(40% $38,500) ....................
15,400
Realized gross profit in
beginning inventory ................
2,500
Adjusted income ..........................

$104,900
NCI share ....................................

10%
NCI ..............................................
$ 10,490
Parent Company M Income

Distribution

income .....................................
0
20% O adjusted income
$200,00
of $38,500 ................................
7,700
90% N adjusted income
of $104,900 ..............................
94,410
$302,110
426
----------------------- Page 11-----------------------
Ch. 8Exercises
EXERCISE 8-10
(1)

Company
Parent
NCI
Price
Value
ue
(60%)
(40%)
Implie
Fair Val
0,000
$348,000
$58
$232,000
$500
,000
Retained earnings
50,000
,000
Total equity
$550,000
$550
$550,000
Interest acquired
60%
40%
Book value
$330,000
30,000
$ 18,000
$220,000
$
$ 12,000
Amortization
per Year
Equipment
30,000
(2)
rporation
Worksheet
Life
Adjustment
Key
$
$1,500
20
debit D
Myles Corporation and Subsidiary Downer Co
Consolidated Income Sta

tement
For Year Ended December 31,
20X3
Sales ....................................................................
........................................
$1,
150,000
Less cost of goods sold ..................................................
..............................
840,0
00
Gross profit .............................................................
......................................
$
310,0
00
Less expenses (including equipment depreciation of $1,500) ...............
231,5
......
00
Consolidated net income ..................................................

............................
$
78,
500
To NCI .............................................................
.......................................
$
11,
400
To controlling interest ............................................
.................................
67,
100
Subsidiary Downer Corporation Income Distr

ibution
Equipment depreciation ................


NCI share ......................................
$1,500
$30,000
$28,500
40%
NCI ................................................
$11,400
Parent Myles Corporation Income Distri

bution

60% Downer income of $28,500
$50,000
17,100
$67,100
42
7
----------------------- Page 12-----------------------
Ch. 8Exercises
EXERCISE 8-11
(1)

Company
Parent
NCI
Price
Value
(60%)
(40%)
Implied
Fair Value
$348,000
$232,000
$580,000

$500,000
Retained earnings
Total equity
$550,000
50,000
$550,000
$550,000
Interest acquired
60%
Book value
$330,000
40%
$220,000

$ 18,000
$ 12,000
$ 30,000
Amortization
Worksheet
Adjustment
per Year
Equipment
$1,500
Life
Key
20
debit D
$30,000
(2) Excess of cost or book value due to swap

Equity after swap:
Subsidiary equity prior to swap ...........................
$600,000
Remaining excess ($30,000 2 yrs. $1,500

amortization)...................................................
27,000
$627,000
Market value of shares issued .........................................
150,000
.........
Total .............................................................
........................
$777,000
Ownership interest (40,000/60,000) ........................................
......
2/3
$518,000
Equity prior to swap:

Subsidiary equity prior to swap .......................................
..........
$627,000
Ownership interest (30,000/50,000) ....................................
60%
376,200
.....
Increase in interest ......................................................

..................
$141,800
Market value of shares issued .............................................
.........
150,000
Debit Myles retained earnings for decrease in equity ...................
$
8,200
428
----------------------- Page 13-----------------------
Ch. 8Problems
PROBLEMS
PROBLEM 8-1
Zee Corporation booked entries for adjustments to investment in Tomline Company:
20X1
(1)* December 31 Investment in Tomline (80% $40,000) .............
32,000
.............
Subsidiary Income ...........................

32,000
To record parents share of subsidiary
income.
(2)* Memo: All calculations are now based on 8,800 shares.

20X2
July 1
.............
Investment in Tomline (80% $25,000) .............

20,000
20,000
income for one-half year.
20X2
(3)* July 1
...........
.......
Investment in Tomline .............................

10,720
Paid-In Capital in Excess of Par ............
10,720
To adjust investment for subsidiary sal
e
of stock to noncontrolling interest.
20X2
(4)* December 31 Investment in Tomline ........................................
16,000
16,000
.............
To record 64% parent share of subsidiar

y
*Calculations are on page 431.
429
----------------------- Page 14-----------------------
Ch. 8Problems
Problem 8-1, Continue

d
Zee Corporation booked entries for adjustments to investment in Sandel Company:
20X1
(5)* July 1
.............
..............
Investment in Sandel .............................

9,000
Subsidiary Income ..........................
9,000
To record 60% parent share of subsidia
ry
20X1
(6)* July 1
.............
Investment in Sandel .............................

70,300
..
Retained Earnings (decrease in equity) ...........

3,700
......................
Cash .......................................
74,000
To record purchase of 3,700 additional
subsidiary shares.
20X1
(7)* December 31 Investment in Sandel .........................................
.
9,300
..............

9,300
To record 62% parent share of subsidia
ry
20X2
(8)*January 1
..............
.............
Retained Earnings ................................

10,335
Investment in Sandel .......................
10,335
To record decrease in equity due to
treasury stock purchase.
(9)* December 31 Investment in Sandel .........................................
28,933
28,933
..............

income.
*Calculations are on page 431.
430
----------------------- Page 15-----------------------
Ch. 8Problems
Pr
oblem 8-1, Concluded
Schedules to Determine Zee Corporati

ons Adjustments to Its Investment
Change in
Total
Total
Controlling
Change in
Parents
Controlling
Interest
Investment
Subsidiary
Equity
Subsidiary
Subsidiary
Shares
Equity
Parents
Share of
Shares
Equity
Tomline
January 1, 20X1, Balances .........

80%
...........
000
............
10,000
$220,000
8,000
$176,
20X1 Income ...............................

80
$40,000
,000 (1)
$32,000
10,000
260,000
8,000
208
December 31, 20X1, Stock Dividend

80
...........
,000
............
11,000
260,000
8,800
208
JanuaryJune 20X2, Income ......

80
25,000
00 (2)
20,000
11,000
285,000
8,800
228,0
July 1, 20X2, Stock Sale .............

64
88,000
,720* (3)
13,750
373,000
8,800
238
13,750
398,000
8,800
254,7
......................................... 10,720
JulyDecember 20X2, Income ....
64
25,000
20 (4)
16,000
Sandel
January 1, 20X1, Balances .........

60
...........
,000
............
30,000
400,000
18,000
240
JanuaryJune 20X1, Income ......

60
15,000
00 (5)
9,000
30,000
415,000
18,000
249,0
July 1, 20X1, Stock Sale .............

62
100,000
,300** (6)
35,000
515,000
21,700
319
35,000
530,000
21,700
328,6
30,000
440,000
21,700
318
......................................... 70,300
JulyDecember 20X1, Income ....
62
15,000
00 (7)
9,300
January 1, 20X2, Purchase of
Treasury Stock ......................
72.333
(90,000)
,265***(8)
(10,335)
20X2 Income ...............................
72.333
40,000
,198 (9)
28,933
30,000
480,000
21,700
347
*$373,000 64% = $238,720; balance after $238,720 balance before $228,000

= $10,720 increase.
**$515,000 62% = $319,300; balance after $319,300 balance before $249,000
= $70,300 increase.
$70,300 increase in investment $74,000 paid for new shares = $3,700 dec
rease in Zees equity.
***$440,000 72.333% = $318,265; balance after $318,265 balance before $328,
600 = $10,335 decrease.
431
----------------------- Page 16-----------------------
Ch. 8Problems
432
----------------------- Page 17-----------------------
Ch. 8Problems
PROBLEM 8-2
Bear Corporation purchase of Kelly Company Shares:

Company
rent
Pa
NCI
ice
Implied
Pr
Fair Value
(6
Value
0%)
(40%)

000
$150,000
$375,000
$225,

$200,000

Retained earnings
100,000
Total equity
$350,000
000
50,000
$350,000
$350,
Interest acquired
60%
40%
Book value
000
$140,000
$210,

,000
$ 10,000
$ 25,000
Worksheet
Adjustment
Key
Goodwill
$25,000
debit D
$ 15
Bear Corporation purchase of Samco Company Shares:

Company
rent
Pa
NCI
ice
Implied
Pr
Fair Value
(8
Value
0%)
(20%)

000
$ 62,500
$312,500
$250,

$200,000
Retained earnings
100,000
Total equity
$300,000
000
$300,000
$300,
Interest acquired
80%
20%
Book value
000
$ 60,000
$240,

,000
$
2,500
$ 12,500
Worksheet
Adjustment
Key
Goodwill
$12,500
debit D
433
$ 10
----------------------- Page 18-----------------------
Ch. 8Problems
Problem 8-2, Continued
*Entry to convert investment in Kelly Company to simple equity method as of Dece

mber 31,
20X3:
Investment in Kelly .....................................................

........
78,750
Additional Paid-In Capital in Excess of ParBear
Corporation ..........................................................
12,750
..........
Retained Earnings ................................................

91,500
......
*Entry to convert investment in Samco Company to simple equity method as of Dece

mber 31,
20X3:
.....
Investment in Samco .....................................................

78,500
Additional Paid-In Capital in Excess of ParBear
Corporation ..........................................................
9,000
..........
......
Retained Earnings ................................................

87,500
*Calculations are from the following two schedules.
434
----------------------- Page 19-----------------------
Ch. 8Problems
Schedules of Equity Adjustments f

or January 1, 20X1December 31, 20X3
Adjustments
Reflected
an Increase to
Controlling
Additional
in
Parents
Retained
Total
Share of
Increase in
Total
Paid-In Capital
Subsidiary
in Excess
Kelly Common Stock

Interest
Equity
Earnings
of Par
Subsidiary
Subsidiary
Subsidiary
Equity
January 1, 20X1, Balances ..................

60%
..............
$375,000*
.
............
............
Shares
Equity
Shares
Increase
Held by
Controlling
Parent
Investmen
20,000
12,000
$225,000 ............
JanuaryJune 20X1, Income ...............

60
$
25,000
400,000
$
15,000 $ 15,000
20,000
240,000
12,000
.............................................................
July 1, 20X1, Sale of stock ...................
60
100,000
500,000
60,000** ..........
............
25,000
July 20X1December 20X2, Income ...

60
85,000
,000
51,000 ............
25,000
351,000
15,000
25,000
15,000
December 31, 20X2, Cash dividend ....

60
(25,000)
15,000)
(15,000) ............
585,000
15,000
300,000
560,000
51
336,000
JanuaryJuly 20X3, Income .................

60
30,000
590,000
,000
18,000 ............
25,000
354,000
15,000
July 1, 20X3, Treasury stock purchase

75
(135,000)
12,750) ............
20,000
15,000
455,000
18
341,250***
............................................. $(12,750)
JulyDecember 20X3, Income .............
75
30,000
485,000
,500
22,500 ............
20,000
363,750
15,000
22
Total adjustments .........................................................

................................................................................
......................... $ 91,500 $(12,750)
*From D&D
**Required debit to investment account and credit to Cash for $60,000 to rec
ord additional purchase.
***After (75% $455,000 = $341,250) before $354,000 = $12,750 decrease in equi
ty.
435
----------------------- Page 20-----------------------
Ch. 8Problems
Problem 8-2, Concluded
Schedules of Equity Adjustments

for January 1, 20X1December 31, 20X3
Adjustments
Reflected
an Increase to
Controlling
Paid-In
Increase in
Capital
in
ng
nt
Parents
Retained
Subsidiary
in Excess
Samco Common Stock

Interest
Equity
Earnings
of Par
Total
Share of
Total
Subsidiary
Shares
Increase
Subsidiary
Held by
Subsidiary
Controlli
Shares
Equity
Parent
Investme
Equity
January 1, 20X1, Balances ..........

10,000
8,000
80%
..............
$312,500*
$250,000 ...........
..
............
............
Income, 20X1 ...............................
10,000
80
40,000
352,500
$32,000
$32,000 ............
282,000
December 31, 20X1, Stock dividend

80
..............
...
............
............
8,800
282,000 ..........
JanuarySeptember 20X2, Income

80
22,500
18,000
18,000 ............
October 1, 20X2, Sale of stock ....
11,000
352,500
8,000
11,000
375,000
8,800
300,000
15,000
9,000
60
(3,000)** .........
120,000
495,000
297,000
..................................... $(9,000)**
October 20X2December 20X3,
Income ......................................
15,000
60
62,500
557,500
37,500
37,500 ............
9,000
334,500
Total adjustments .........................................................

................................................................................
......................... $87,500 $(9,000)
*From D&D
**The investment has been increased by $6,000 (cost of the stock purchased by t
he parent), while the controlling share of equity has decreased by
$3,000. The total decrease of $9,000 is deducted from additional paid-in cap
ital in excess of par. The adjustment shown reduces the investment account (and additional paid-in capital in excess of par) to reconcile it with
the parents share of the subsidiary equity.
436
----------------------- Page 21-----------------------
Ch. 8Problems
PROBLEM 8-3

Company
nt
NCI
Pare
ce
Value
(20%)

0
$175,000
Implied
Pri
Fair Value
(80%
$875,000
$700,00

$200,000
400,000
Retained earnings
100,000
Total equity
$700,000
$700,000
$700,00
Interest acquired
80%
Book value
0
20%
$560,00
$140,000

0
$ 35,000
$175,000
$140,00

Amortizat
ion
Worksheet
Adjustment
ear
Building
00
Life
$ 60,000
20
per Y
Key
debit D1
Goodwill
115,000
debit D2
Total
$175,000
437
$3,0
----------------------- Page 22-----------------------
Ch. 8Problems
Pepka Company and Subsidiary Sheck Company

Worksheet for Consolidated Financial Statements
For Year Ended December 31, 20X4
Eliminations
Controlling
Consolidated
Consolidated
Trial Balance
and Adjustments
Income
Retained
Balance
Pepka
Cr.
Sheck
Statement
Dr.
NCI
Earnings
Sheet
Cash ...............................................................
179,040
55,000 ...............
.
................
.................
.................
...........
......
.......................................................... 234,040
Accounts Receivable (net) .............................
280,000
190,000 .............
................
.................
.................
......
.......................................................... 470,000
Inventory ........................................................
325,000
175,000 .............
.
...........
(EI)
............. 10,000 ...............
...........
......
.......................................................................
00
490,0
Investment in Sheck Company.......................

700,000 .............
(CVa)
64,000
(
EL)
659,200 ....
.................
...........
......
.................
............. .................
D)
112,000 ....
......
.................
.............
......
(CVb)
................
960
.................
.................
....
(
...........
8,160
.................
....
(adj)
...........
.................
.................
Property, Plant, and Equipment .....................

2,450,000
1,400,000
(D1)
0,000 ......
.................
.................
......
6
...........
....................................................... 3,910,000
Accumulated Depreciation .............................
(1,256,000)
(536,000) ...........
(A)
............... 9,000 ...............
......
...........
.......................................................................
1,000)
Goodwill .........................................................
............. .................
(D2)
115,000
................
.................
.................
......
(1,80
....
.
...........
.......................................................... 115,000
Liabilities ........................................................
(750,000)
(210,000) ...........
.
................
.................
.................
...........
......
....................................................... (960,000)
Common Stock ($10 par)Pepka .................
(1,500,000) .....
.................
..............
.................
.................
....
...
.............
.................................................... (1,500,000)
Paid-In Capital in Excess of ParPepka .......
........... .................
.................
8,160 ...............
.................
......
(CVb)
.............
....
........................................................... (8,160)
Retained EarningsPepka ............................
(375,000) ............
(A)
64,000 ......
.................
(434,200) ..
3,840 (CVa)
.......................................................................
....
............. .................
(adj)
960
.
................
.................
.................
...........
......
.................
Common Stock ($2 par)Sheck ....................
...........
(250,000)
(EL)
..........
.................
(90,000) ..............
......
160,000 .....
............
.......................................................................
Paid-In Capital in Excess of ParSheck .......
...........
(600,000)
(EL)
.........
.................
16,000) ..............
......
384,000 ......
.......... (2
.......................................................................
Retained EarningsSheck ............................
...........
(180,000)
(EL)
(NCI)
............. 63,000
....
(125,640) ..
......
115,200
.............
.......................................................................
............. .................
(A)
................
.................
......
.................
....
.
...........
2,160
.................
Sales ..............................................................
(1,600,000)
(750,000)
(IS)
2
00,000 ....
.............. (2,150,000) .......
.
.................
.......................................................................
Subsidiary Dividend Income ...........................
(23,040) ............
(CY)
............
.................
.................
......
.................
23,040 .....
...........
.......................................................................
438
----------------------- Page 23-----------------------
Ch.
8Problems
Cost of Goods Sold ........................................

1,120,000
450,000
(EI)
00 (IS)
200,000 ...............
.................
10,0
1,380,000 .
.......................................................................
Other Expenses .............................................
405,000
220,000
(A)
3,00
0 ........
........... 628,000 ................
.................
.......................................................................
Dividends Declared ........................................
45,000
36,000 ...............
(CY)
............. 23,040
12,960 ......
............................................................ 45,000
0
.
1,149,360 .
.................
0
.................
1,149,360
................
Consolidated Net Income ........................................................

................................................................................
(142,000) ..............
................
.
.................
To NCI (see distribution schedule) .............................................
.............................................................................
24,120
(24,120) ....
.................
To Controlling Interest (see distribution schedule) ............................
......................................................................
117,880 ...............
(117,880) ..
Total NCI ......................................................................
................................................................................
..................................
(442,800) ...............
(442,800)
Retained EarningsControlling Interest, December 31, 20X4 ........................
................................................................................
.....................
(507,0
80)
(507,080)
Totals .....................................................................
................................................................................
................................................................................
0
439
----------------------- Page 24-----------------------
Ch. 8Problems
Problem 8-3, Concl

uded
Eliminations and Adjustments:
(CVa)
ncome [80%
Convert the investment to the equity method for share of prior i

($180,000 $100,000)].
(CVb)
Convert the investment to the equity method for the result of th
e subsidiary stock sale:
Controlling interest in subsidiary equity after sale

(64% {$780,000 + $250,000 sale + $115,000 goodwill
+ [$60,000 ($3,000 2) = $54,000 building]}) ...............
$767,3
.....................
60
Controlling interest in subsidiary equity before sale

ding)]
9,200
[80% ($780,000 + $115,000 goodwill + $54,000 remaining buil

75
Net increase in paid-in capital in excess of parparent ..........

..................
$
8,160
(CY)
Eliminate intercompany dividends.
(EL)
%).
Eliminate parents share of subsidiary equity (80,000 125,000 = 64
(adj)
Adjust for change in parent amortization for prior years ($3,000
2 years 16% =
$960).
(D)/(NCI) Distribute $112,000 (64% $175,000) excess and $63,000 (36% $175,000) N
CI
adjustment according to the determination and distribution of ex
cess schedule.
(1) Building, $60,000 and (2) Goodwill, $115,000.
(A)
Amortize excess for current year and two prior years: Building =
$3,000 per year. Distribute to retained earnings, 64% controlling, 36% NCI.
(IS)
Eliminate intercompany sale of $200,000.
(EI)
Eliminate profit in ending inventory ($50,000 20% = $10,000).
Subsidiary Sheck Company Income Distri

bution
Profit in ending inventory ...............

Building amortization .....................
income .....................................
$10,000
3,000
$80,000
$67,000
NCI share ......................................
NCI ................................................
$24,120
36%
Parent Pepka Company Income Distrib

ution

income .....................................
$ 75,000
64% Sheck adjusted

income of $67,000 ...................
42,880
$117,880
440
----------------------- Page 25-----------------------
Ch. 8Problems
PROBLEM 8-4

Company
t
NCI
Value
(40%)

0
$104,000
Paren
Implied
Pric
Fair Value
(60%
$260,000
$156,00

50,000
Retained earnings
80,000
Total equity
$230,000
$100,000
$230,000
$230,00
Interest acquired
60%
40%
Book value
0
$ 92,000
00
$ 12,000
$138,00
$ 30,000
$ 18,0
Worksheet
Adjustment
Key
Goodwill
$ 30,000
debit D
441
----------------------- Page 26-----------------------
Ch. 8Problems
Mitta Corporation and Subsidiary Train Company

Eliminations
olling
Consolidated
Consolidated
Trial Balance
Contr
and Adjustments
Income
ined
Mitta
Cr.
nings
Reta
Balance
Train
Statement
Sheet
Dr.
NCI
Ear
Cash ...............................................................
106,200
63,500 ...............
.................
.................
.................
............
.....
.......................................................... 169,700
Accounts Receivable ......................................
113,600
60,000 ...............
.................
.................
.................
............
.....
.......................................................... 173,600
Inventory ........................................................
350,000
80,000 ...............
(EIa)
............... 2,000 ...............
............
.....
.......................................................................
,400
..............
............
.................
600
.................
.................
.................
.................
427
...
(EIb)
.....
Investment in Train Company ........................

......... 280,800 .............
.................
(CY1)
32,000 ......
.................
............
.................
..............
.................
.................
............
.................
4,320 ...............
.................
..............
(EL)
............
.................
(CY2)
231,680 ....
.................
6,400
.................
..
.....
...
(CV)
.....
...
.....
...
..............
............
.................
19,200 ...............
.................
.................
.................
Property, Plant, and Equipment .....................

1,800,000
360,000 .............
.................
.................
.................
............
(D)
.....
.....
....................................................... 2,160,000
(600,000)
(89,500) .............
.................
.................
.................
............
.....
....................................................... (689,500)
Goodwill .........................................................
..............
.................
(D)
30,000
.................
.................
.................
............
.................
...
.....
...
..............
.................
.................
.................
............
30,000
.................
.................
.....
Accounts Payable ..........................................

(180,000)
(64,000) .............
.................
.................
.................
............
.....
....................................................... (244,000)
Other Current Liabilities .................................
(26,000)
(8,000) ...............
.................
.................
.................
............
.....
......................................................... (34,000)
Bonds Payable ...............................................
(500,000) ............
.................
.................
.................
.................
............
.....
....................................................... (500,000)
Common Stock ($10 par)Mitta ....................
(1,000,000) .....
.................
.................
.................
.................
..........
.......
.................................................... (1,000,000)
Retained EarningsMitta ..............................
(212,600) ............
(CV)
................
.................
.................
..........
.................
4,320 .
.......
...
..............
.................
(BIa)
.................
.................
(205,628) ..
1,500
.................
..............
.................
(Blb)
.................
.................
............
.................
1,152
.................
...
Common Stock ($5 par)Train .....................

............
(125,000)
(EL)
..............
.................
......(45,000) ..............
.....
.....
80,000 ...
......
.......................................................................
Paid-In Capital in Excess of ParTrain .........
............
(125,000)
(EL)
..............
.................
......(45,000) ..............
.....
80,000 ...
......
.......................................................................
Retained EarningsTrain ..............................
............
(112,000)
(EL)
(NCI)
............. 10,800 ...............
..........
.................
.....
71,680
.......
.......................................................................
...
648
(50,472) .......
..............
.................
(BIb)
.................
.................
........
.................
Sales ..............................................................
(1,950,000)
(600,000)
(ISa)
30,000 ......
.................
.................
............
.................
.....
.......................................................................
442
----------------------- Page 27-----------------------
Ch. 8Problems
.....
............
.................
.................
.......
.................
(ISb)
20,000
(2,500,000)
..........
Subsidiary Income ..........................................

(32,000) ............
(CY1)
32,000
.................
.................
.................
..........
.......
.................

1,170,000
420,000
(EIa)
2,000 (BIa)
............... 1,500 ...............
.......
.................
..........
.......................................................................
............
.......
............
.......
............
.......
.................
(EIb)
30,000 ...............
.................
600
.................
.....
(ISa)
..........
.................
1,800 ...............
.................
.................
.................
.....
(BIb)
..........
.................
1,539,300 .
.....
(ISb)
..........
.................
20,000
.................
443
----------------------- Page 28-----------------------
Ch. 8Problems
Mit
ta Corporation and Subsidiary Train Company
Wor
ksheet for Consolidated Financial Statements
(Concluded)
Eliminations
Consolidat
ed
Controlling
lance
Consolidated
and Adjustments
Retained
Train
NCI
Dr.
Earnings
Trial Ba
Income
Balance
Mitta
Statemen
Cr.
Sheet
Other Expenses .............................................

630,000
130,000 .............
.................
........... 760,000 ................
.................
.......................................................................
Dividends Declared ........................................
10,000 ...............
(CY2)
....... 6,400
3,600 ........
50,000
........
............................................................ 50,000
0
.................
...
360,300
.................
0
360,300 .
.................

................................................................................
(200,700) ..............
.................
.................
To NCI (see distribution schedule) ..........................................
............................................................................
18,432
(18,432) ....
.................
To Controlling Interest (see distribution schedule) .........................
......................................................................
182,268 ...............
(182,268) ..
Total NCI ......................................................................
................................................................................
..................................
(155,304) ...............
(155,304)
................................................................................
.....................
(337,896)
(337,896)
Totals ......................................................................
................................................................................
................................................................................
...
0

(CV)
Conversion entry for stock sale:

Interest after sale [64% ($262,000 + $30,000 goodwill +
$100,000 proceeds)]
$250,880
Interest prior to sale [60% ($262,000 + $30,000 goodwill
)]
175,200
Increase/(Decrease)
$
75,680
Price paid (4,000 $20)
(80,000)
Total decrease in equity and investment
(4,320)
(CY1)
Eliminate the current-year entries for income.
(CY2)
Eliminate the current-year entries for dividends.
(EL)
Eliminate parents 64% share of subsidiary equity.
(D)/(NCI) Distribute original excess (64% $30,000) and NCI adjustment (3

6% $30,000).
(BIa)
Eliminate profit on Mittas goods in Trains beginning inven
tory
($6,000 25% = $1,500). Distribute to retained earnings.
(ISa)
Eliminate 20X3 sales of $30,000.
(EIa)
Eliminate profit on Mittas goods in Trains ending inventor
y ($8,000 25% = $2,000).
Sales from Train to Mitta:
(BIb)
Eliminate profit on Trains goods in Mittas beginning inven
tory ($6,000 30% = $1,800), allocate 64% and 36%.
444
----------------------- Page 29-----------------------
Ch. 8Problems
(ISb)
Eliminate 20X3 sales of $20,000.
(EIb)
Eliminate profit on Trains goods in Mittas ending inventory ($2,000
30% = $600).
445
----------------------- Page 30-----------------------
Ch. 8Problems
Problem 8
-4, Concluded
Subsidiary Train Company Income

Distribution
Unrealized profit in
$600

income .....................................
$50,000
Realized profit in
1,800

$51,200
NCI share ......................................
36%
NCI ................................................
$18,432
Parent Mitta Corporation Inco

me Distribution
2,000

income .....................................
64% Train adjusted

income of $51,200 ...................
32,768
Realized profit in
1,500
$
$150,000
$182,268
446
----------------------- Page 31-----------------------
Ch. 8Problems
PROBLEM 8-5
Investment in Webo Company, January 1, 20X1:

Company
ent
NCI
ice
Value
0%)
(20%)

000
$ 80,000
Implied
Pr
Fair Value
(8
$400,000

Retained earnings
Par
$250,000
150,000
$320,
000
Total equity
$400,000
$400,000
$400,
Interest acquired
80%
20%
Book value
,000
$320
$ 80,000

0
$
0
447
----------------------- Page 32-----------------------
Ch. 8Problems
Barns Company a
nd Subsidiaries Webo Company and Elcam Company
Consoli-
Consolidated
Eliminations
Controlling
dated
Trial B
alance
Income
and Adjustments
Retained
Barns
Balance
We
bo
Elcam
Statement
Dr.
NCI
Cr.
Earnings
Cash ................................................
26,000
165,200 ...............
.......
.................
.............
.............
Sheet
110,000
........
301,200
Accounts Receivable .......................
73,500
105,000 ...............
52,000 ......
.............
.............
85,000
(IA)
211,500
Inventories ......................................
163,000
150,000 ...............
15,000 ......
.............
.............
138,000
(EI)
436,000
Investment in Webo Company
Stock ..........................................
320,000 .......
......
.................
(CVW)
37,333
(ELW)
357,333 ....
.............
.............
.............
..
Investment in Elcam Company
Stock ..........................................
......
.................
................
44,000 ......
.............
.............
.
600,000 .......
(CVE)
..............
.................
....
.............
.................
................ (ELE)
556,000 ..............
.............
.............
..............
.
Investment in Elcam Company
Bonds ........................................
.................
148,000 ..............
................
(B)
148,000 ....
.............
.............
.............
..
Property, Plant, and Equipment ......
525,000
834,000 ................
2,000 ........
.............
.............
700,000
(F1)
2,057,000
Accumulated Depreciation ..............
(325,000)
(240,000)
.......
.................
.............
(402,000)
(F2)
.............
100 ..
(966,900)
Accounts Payable ...........................
(150,500)
(86,900) (IA)
.......
.................
.............
(202,000)
52,000
........
.............
(387,400)
Dividends Payable ..........................
.......
.................
...............
.......
.................
.............
.............
(12,000) .....
........
(12,000)
Bonds Payable ................................
......
(200,000)
(B)
0 ..
.................
.............
.............
(400,000) ......
150,00
(450,000)
Unamortized Bond Discount ...........
.................
.............
800
...............
(B)
600 .................
.............
.............
Capital StockBarns ......................
....
.................
...............
...... .................
.............
.............
....
200
(600,000) ........
..........
(600,000)
Capital StockWebo ......................
.................
(250,000) .............
(ELW)
222,222 ............
.... .................
.............
.............
...............
.............
.................
........ .................
..
.................
....
...............
........
(27,778) ..........
.............
Capital StockElcam .....................

.................
......
...........
(500,000)
(ELE)
400,000 ...........
..... .................
(100,000)
...............
Paid-In Capital in Excess of

ParBarns ................................
.................
...........
.................
...............
(CVE)
31,000 ..............
.............
.............
......
(31,000)
ParElcam ................................
.................
......
...........
(70,000)
(ELE)
56,000
..........
.....
.................
(14,000)
...............
Retained EarningsBarns ..............

(302,200) .........
...
.................
(CVE)
75,000
(CVW)
40,000 ......
.............
.............
...............
.................
....
2,667
........
(264,533) ...........
.............
................. (CVW)
.......
.................
.............
Retained EarningsWebo ..............

.................
(200,000) .............
(ELW)
177,778 ............
...
.................
.............
.............
...............
.................
....
.............
.................
...............
........
.......
.................
........ (22,222) ..........
.............
..
448
----------------------- Page 33-----------------------
Ch. 8Pr
oblems
Retained EarningsElcam .............

..............
(125,000)
...............
.................
...............
Dividends DeclaredBarns ............
..........
.................
...............
.................
24,000 ....
.................
...
100,000
(25,000)
(ELE)
24,000 ...
...............
.............
Dividends DeclaredWebo ............

22,500 ..............
(CY2)
20,000 ......
...............
.................
...............
2,500 ....
Dividends DeclaredElcam ...........

..............
10,000
(CY2)
8,000 ........
...............
.................
...............
2,000 ....
...
Treasury Stock (at cost) ..................

48,000 ..............
(ELW)
42,667 ......
...............
Gain on Sale of Equipment .............
............
.................
...............
.................
.
...............
.................
...............
5,333 ....
(2,000)
2,000
............
(F1)
.............
Sales ...............................................
(2,950,
000)
(1,550,000)
(1,750,000) (IS)
......... 385,000
.............
..........
(5,865,000) ....
...................................................
Interest Income on Bonds ...............
(13,000) .............
...............
.................
.
...............
.................
(B)
13,000
.............
............
Dividend Income .............................

............
.................
...............
.................
.
...............
(CY2)
.............
Cost of Goods Sold .........................

000
1,200,000
1,400,000
15,000(IS)
385,000 ...........
...............
(28,000)
28,000
............
2,500,
(EI)
4,730,000
...................................................
449
----------------------- Page 34-----------------------
Ch. 8Problems
Barns Company and

Subsidiaries Webo Company and Elcam Company
Wo
rksheet for Consolidated Financial Statements

(Concluded)
ConsoliEliminations
Controlling
dated
Consolidated
Trial Bala
nce
and Adjustments
Retained
Balance
Income
Barns
Elcam
Statement
NCI
Dr.
Earnings
Webo
Cr.
Sheet
Operating Expenses ........................

280,000
290,500 ...............
100
975,400
.............
405,000
(F2)
...............
Interest Expense .............................

2,500
16,400
...............
12,300
22,800 ..
.............
16,200
(B)
...............
Gain on Bond Retirement ................

........
,100
.................
(2,100) ..
0
1,716,100 .
.............
.................
...............
.............
.........
(B)
2
...............
0
1,716,100
.............
...............

................................................................................
............
(138,900) ..........
.............
...............
To NCI for both Webo and Elcam (see distribution schedule) ....................
........................................................................
17,844
(17,844)
...............
................................................................................
..
121,056 ...........
(121,056)
Total NCI ......................................................................
................................................................................
.............................................
(197,011) ..........
(197,011)
................................................................................
............................
(361,589)
(361,589)
Totals .....................................................................
................................................................................
................................................................................
.....
0
(CVW)
Convert investment in Webo to equity balance on January 1, 20X2,

80% ($50,000 Retained Earnings increase) ................
$
40,000
Treasury stock purchase:
Equity after sale [4,000/4,500 ($450,000 $48,000)]
$357,333
Equity before sale (80% $450,000) ........................
360,000
.
...............
7)
Decrease in equity .............................................

(2,66
....
Net change in investment account ...............................

$
37,333
(CVE)
:
Convert investment in Elcam to equity balance on January 1, 20X2
........
Change in retained earnings ....................................

$
(75,000)
Change in paid-in capital in excess of par:
.................
Interest prior to sale ....................................

$525,000
Interest after sale {8/10 [$525,000 + ($85 2,000 shares)]}
556,000
31,000
....
Net change to investment account ...............................

$
(44,000)
450
----------------------- Page 35-----------------------
Ch. 8Problems
Problem 8-5, Continu

ed
(CY2)
Eliminate intercompany dividends (4,000/4,500 $22,500 = $20,000
for Webo dividends and 80% $10,000 = $8,000 for Elcam dividends).
(ELW)
Eliminate 4,000/4,500 interest in Webo equity accounts, includi
ng treasury stock
against the investment account.
(ELE)
am account.
Eliminate 80% of Elcam equity accounts against investment in Elc
(B)
Eliminate intercompany interest income and expense. Eliminate b
alance of investment
in bonds against 75% of the bonds payable. The gain on retireme
nt as of the beginning of the year is calculated as follows:
Gain remaining at year-end:

Carrying value of bonds at December 31, 20X2
[($200,000 $800) 75%] ..........................

$149,400
......
Investment in bonds at December 31, 20X2 ...........

148,000
$
1,
400
Gain amortized during the year:
...........
Interest revenue eliminated ...........................

$
13,000
Interest expense eliminated {[($200,000
8%) + ($1,200/3)] 75%} ................................
12,300
700
......
..........
,100
(F1)
(F2)
Gain at January 1, 20X2.........................................

$
2
Eliminate gain on sale of equipment as of June 30, 20X2.

Reduce depreciation on equipment [1/2 ($2,000 10) = $100].
(IS)
Eliminate intercompany sales.
(EI)
Barns
Eliminate profit in ending inventory relating to sales made by

($60,000 25% = $15,000).
(IA)
Eliminate intercompany debt.
Subsidiary Elcam Company Income Distribu

tion
Interest adjustment
($13,000 $12,300) ................
Income .....................................
Gain on bonds retired ....................
$700
$43,100
2,100
$44,500
NCI share ......................................

NCI ................................................
20%
$ 8,900
451
----------------------- Page 36-----------------------
Ch. 8Problems
Problem
8-5, Concluded
Subsidiary Webo Company Income

Distribution

Income ...............................
$
80,500
Adjusted net income ................

80,500
NCI share ................................

11.11%
NCI ..........................................
8,944
Parent Barns Company Income

Distribution
,000

income ..................................
$ 30,800
Gain on equipment sale ................

2,000
80% Elcam adjusted
income of $44,500 ................
35,600
88.8888% Webo adjusted
income of $80,500 ................
71,556
Equipment gain realized .............
100
$15
Controlling interest ......................

$121,056
452
----------------------- Page 37-----------------------
Ch. 8Problems
PROBLEM 8-6
Marys investment in John on January 1, 20X2 (9,000 shares):

Company
Parent
NCI
Price
Value
Implied
Fair Value
(60%)
(40%)

04,000
$136,000
$340,000

$150,000
75,000
$2
Retained earnings
00,000
75,000
Total equity
$300,000
$300,000
$3
Interest acquired
60%
40%
Book value
80,000
$1
$120,000

24,000
$ 16,000
$ 40,000
Worksheet
Adjustment
Key
Goodwill
$40,000
debit D
Johns investment in Joan on January 1, 20X3 (5,000 shares):

Company
Parent
NCI
Price
Value
Implied
Fair Value
(50%)
(50%)

75,000
$ 75,000
$150,000
$100,000
Retained earnings
50,000
Total equity
$150,000
$150,000
150,000
Interest acquired
50%
50%
Book value
75,000
$
$ 75,000

0 $
0
453
----------------------- Page 38-----------------------
Ch. 8Problems
Marys investment in Joan on January 1, 20X4 (4,000 shares plus effective control
of 5,000
shares):

Company
Parent
NCI
Implied
Price
Value
(90%)
(10%)
Fair Value
$162,000*
$ 18,000
$180,000

$100,000
Retained earnings
Total equity
$180,000
Interest acquired
90%
Book value
$162,000
80,000
$180,000
$180,000
10%
$ 18,000

$
0
$
0
January 1, 20X4, market value per share of Joans stock:
$72,000 paid by Mary/4,000 shares acquired = $18 per share
Prior investment was adjusted as follows:

Original cost (Johns investment in Joan) ................................
$75,000
Equity income (50% $30,000 increase in
retained earnings) ...................................................
...........
15,000
Total .....................................................................
.................... $90,000
..
Fair value (5,000 shares $18) .............................................

$90,000
No further adjustment was required.
*4,000 shares acquired by Mary + 5,000 shares owned by John and controlled by Ma
ry = 9,000
total shares (90% of Joans controlling shares); 9,000 shares $18 market value per
share =
$162,000.
454
----------------------- Page 39-----------------------
Ch. 8Problems
Mary Company
and Subsidiaries John Company and Joan Company
ConsoliEliminations
Controlling
Consolidated
dated
Trial B
alance
and Adjustments
Retained
Income
Balance
Mary
ohn
Joan
Statement
Dr.
NCI
Cr.
Earnings
Cash ................................................
60,000
30,000
................
Sheet
62,500
........
.......
.................
.............
.............
152,500
Accounts Receivable .......................
55,000
30,000
................
3,000 ........
.............
.............
200,000
(IA)
282,000
Inventory .........................................
80,000
50,000
................
1,500 ........
.............
.............
360,000
(EI)
488,500
Investment in John Company ..........
......
.................
................
33,000 ......
.............
.............
270,000 .......
(CY1)
...............
.................
....
.............
.................
................ (EL1)
213,000 ..............
.............
.............
...............
.................
....
.............
.................
................ (D)
24,000 ..............
.............
.............
...............
Investment in Joan CompanyMary
.....
.................
................
14,000 ......
.............
.............
86,000 ........
(CY2)
...............
.................
....
.............
.................
................ (EL2)
72,000 ..............
.............
.............
...............
Investment in Joan CompanyJohn
.................
107,500 ..............
................
(CY3)
17,500 ......
.............
.............
...............
.................
....
.............
.................
................ (EL3)
90,000 ..............
.............
.............
...............
Property, Plant, and Equipment ......
850,000
350,000 ...............
10,000 ......
.............
.............
(377,500)
(121,800)
....... .................
.............
2,250,000
(F1)
3,440,000
(938,000)
(F2)
.............
2,000
(1,435,300)
Intangibles .......................................
.......
.................
...............
........ .................
.............
.............
15,000 ......
........
15,000
Goodwill ..........................................
.................
....
.............
................. (D)
40,000
........
........ .................
.............
.............
40,000
Accounts Payable ...........................
(61,000)
(22,000) (IA)
........ .................
.............
(215,500)
3,000
........
.............
(295,500)
Accrued Expenses ..........................
(4,000)
(1,200)
...............
........ .................
.............
.............
(12,000)
........
(17,200)
Bonds Payable ................................
(500,000)
(300,000)
(100,000) ..............
........
........ .................
.............
.............
(900,000)
Common Stock ($5 par)Mary .......
....
.................
...............
...... .................
.............
.............
(500,000) ........
..........
(500,000)
ParMary..................................
...
.................
...............
...... .................
.............
.............
(700,000) .........
..........
(700,000)
Retained EarningsMary ...............
....
.................
...............
...... .................
.............
Common Stock ($10 par)John .....
(150,000) .............
...... .................
(290,000) ........
..........
(290,000)
.................
90,000
..........
(60,000)
...............
(EL1)

ParJohn ..................................
(75,000) .............
(EL1)
.................
45,000
..........
......
.................
(30,000)
...............
455
----------------------- Page 40-----------------------
Ch. 8Problems
Retained EarningsJohn ...............

(130,000) .............
(NCI)
16,000 ......
...............
Common Stock ($10 par)Joan .....
...............
(100,000)
................ .................
...
...............
.................
(EL1)
78,000
(68,000)
.................
..
(EL2)
40,000
.............
..........
.................
50,000
(10,000)
.................
.................
(EL3)
................ .................
...............
Retained EarningsJoan ...............
...............
(80,000)
................ .................
...
...............
.................
..
(EL2)
32,000
.............
..........
.................
40,000
(8,000) .
.................
.................
(EL3)
................ .................
.
...............
Sales ...............................................
(1,800
,000)
(500,000)
(300,000)
(IS)
20,000 .....
.......... (2,580,000) ....
...............
...................................................
Gain on Sale of Equipment .............
.................
(10,000)
00
................ .................
.....
...............
Subsidiary IncomeMary ...............
...........
.................
................ .................
...
...............
.................
(F1)
10,0
.............
........
(CY1)
.............
(58,000) .
42,000
..........
.................
16,000
.............
........
.................
.................
(CY2)
................ .................
.....
...............
Subsidiary IncomeJohn ...............
(20,000) .............
................ .................
...
...............
.................
(CY3)
20,000
.............
..........
456
----------------------- Page 41-----------------------
Ch. 8Problems
Mary Company and S

ubsidiaries John Company and Joan Company
Work
sheet for Consolidated Financial Statements
(Concluded)
Consoli-
nsolidated
Eliminations
Controlling
dated
Co
Trial Balanc
e
Income
and Adjustments
Retained
Balance
Mary
Joan
Statement
NCI
Dr.
Earnings

350,000
180,000 (EI)
,000
1,681,500
.............
John
Cr.
Sheet
1,170,000
1,500
(IS)
...............
Other Expenses ..............................

525,000
100,000
90,000
................
(F2)
000
713,000
.............
...............
20
2,
Dividends Declared .........................

75,000 ...........
..
.................
................
...............
.................
.............
75,000 ....
5,000 ..............
000 ........
.............
.................
................
(CY1)
.............
...............
1
9,
.........
000 ........
.................
................
(CY2)
.............
...............
........
2,
5,000
.............
.................
.....
.................
..............
0
9,500 ....
0
.............
............... (CY3)
6,500 ....
...............
0
529,500
.............
...............
............
2,500
52

................................................................................
............
(185,500) ..........
.............
...............
To NCI (John and Joan) (see distribution schedule) .............................
..............................................................................
29,000
(29,000)
...............
................................................................................
..
156,500 ...........
(156,500) ...........
Total NCI ......................................................................
................................................................................
.............................................
(198,500) ..........
(198,500)
................................................................................
............................
(371,500)
(371,500)
Totals .....................................................................
................................................................................
................................................................................
.....
0

(CY1)
Eliminate current-year entries for Marys investment in
John. Income: $70,000 60% = $42,000.
(EL1)
Eliminate Marys interest in Johns equity.
(D)/(NCI)
Distribute the excess and NCI adjustment according to
the determination and distribution of excess schedule.
(CY2)
Eliminate current-year entries for Marys investment in
Joan, $40,000 40% = $16,000.
(EL2)
Eliminate Marys interest in Joans equity.
(CY3)
Eliminate current-year entries for Johns investment in
Joan, $40,000 50% = $20,000.
(EL3)
Eliminate Johns interest in Joans equity.
(F1)
Eliminate gain on sale of machine from Joan to Mary.
(F2)
Adjust depreciation on the machine for 20X4.
(IS)
Eliminate intercompany sale of goods from John to Joan
.
(EI)
Eliminate profit in ending inventory of goods sold by
John to Joan, $5,000 30% = $1,500.
(IA)
Eliminate intercompany payable and receivable due to s
ale.
457
----------------------- Page 42-----------------------
Ch. 8Problems
Problem 8
-6, Concluded
Subsidiary Joan Company Income

Distribution
Gain on sale of machine ...............

,000
$10
income .....................................
$40,000
Gain on machine realized
through use ..............................
2,000
Adjusted income ............................

$32,000
NCI share ......................................

10%
NCI ................................................
$ 3,200
Subsidiary John Company Income

Distribution
Gross profit in ending

inventory ..................................
$1,500
income .....................................
$50,000
50% Joan adjusted
income of $32,000 ...................
16,000
Adjusted income ............................

$64,500
NCI share ......................................
40%
NCI ................................................
$25,800
Parent Mary Company Income

Distribution

income .....................................
0
40% Joan adjusted
income of $32,000 ...................
12,800
60% John adjusted
$105,00
income of $64,500 ...................

38,700
$156,500
458
----------------------- Page 43-----------------------
Ch. 8Problems
PROBLEM 8-7
Shelby investment in Borner Company on January 1, 20X1:

Company
rent
NCI
rice
Value
90%)
(10%)
Pa
Implied
Fair Value
$670,000
$603
,000
$ 67,000

Common stock
$200,000
80,000
Retained earnings
,000
300,000
Total equity
$580,000
$580,000
$580
Interest acquired
90%
10%
Book value
,000
$522
$ 58,000

1,000
$ 9,000
$ 90,000
$ 8

Amorti
zation
Worksheet
Adjustment
Year
Life
Plant assets
5,000
per
Key
$ 50,000
10
debit D3
Goodwill
40,000
debit D4
Total
$ 90,000
DeNoma Company investment in Shelby Corporation on January 1, 20X3:
Determination and Distribution of Excess Sch

edule
Company
Parent
NCI
Implied
Price
Value
(60%)
(40%)
Fair Value
$ 750,000
$
$1,250,000
500,000

Common stock
500,000
150,000
Retained earnings
500,000
Plant asset depreciation (2 years

$5,000 90%)
Total equity
$1,141,000
(9,000)
$1,141,000
$1,141,000
Interest acquired
60%
Book value
$ 684,600
40%
$
456,400

$
65,400
$
43,600
109,000
Amortization
Worksheet
Adjustment
per Year
Plant assets
$
5,000
Life
Key
$
10
50,000
debit D1
Goodwill
59,000
debit D2
Total
109,000
459
----------------------- Page 44-----------------------
Ch. 8Problems
DeNoma Company
and Subsidiaries Shelby Corporation and Borner Company
ConsoliEliminations
Controlling
Consolidated
dated
Trial Balance
and Adjustments
Retained
Income
Balance
DeNoma
Shelby
Cr.
Sheet
Borner
Statement
Dr.
NCI
Earnings
Inventory .........................................
75,000
60,000
40,000
...............
(EI)
8,000 ........
.............
............
.
167,000
Other Current Assets ......................
2,000
390,000 ...............
................ .................
.............
.
900,000
............
1,292,000
Plant Assets ....................................
000
800,000
600,000 ...............
(F1)
15,000 ......
.............
.
2,685,000
................
................. (D1)
................ .................
.
...............
................
................. (D3)
................ .................
.
...............
1,200,
............
.................
.
50,000
.............
............
.................
.
50,000
.............
............

(300,000)
(200,000)
3,000 ......
.................
.............
.
(450,000)
(F1)
............
(974,000)
................
................. (F2)
(D3)
9,000 ........
.
...............
................
.
.................
11,000 ..............
...............
................
.
.................
10,000 ..............
...............
.................
.
3,000
.............
............
.................
.
................
(A3)
.............
............
.................
.
................
(A1)
.............
............
Investment in Shelby Corporation ...

............
.................
(CY1)
72,000 ......
.
...............
894,000 .
................
.............
............
................
.................
.
................
(EL1)
.............
............
.................
756,600 ..............
...............
................
.................
2)
65,400 ..............
.
...............
Investment in Borner Company .......
828,000 ..............
(Adj)
9,000 ........
.
...............
.................
.
................
(D1, D
.............
............
.................
................
.............
............
................
.
.................
45,000 ..............
...............
................
.
.................
702,000 ..............
...............
................
.................
4)
72,000 ..............
.
...............
.................
.
................
(CY2)
.............
............
.................
.
................
(EL2)
.............
............
.................
.
................
(D3, D
.............
............
Goodwill ..........................................
.................
.
................
................. (D2)
59,000
...............
.................
.............
............
.
99,000
................
................. (D4)
...............
.................
.
...............
Common StockDeNoma ..............
0) .....
.................
................ .................
.................
.
40,000
.............
............
(1,500,00
...............
.............
.............
(1,500,000)
Retained EarningsDeNoma .........
.........
.................
................ .................
(908,560)
................
................. (A1)
................ .................
.
...............
................
.................
................ .................
.
...............
................
................. (BI)
................ .................
.
...............
Common StockShelby .................
(500,000) .............
................
.................
..............
(F1)
.............
(922,000) ...
7,200
.................
.
3,000
.............
............
.................
.
...............
.............
............
.................
.
3,240
.............
............
.................
300,000
(200,000)
.
(EL1)

ParShelby ...............................
(150,000) .............
................ .................
...............
Retained EarningsShelby ............
(620,000) .............
(NCI1)
43,600 ......
..............
................
................. (EL1)
................ .................
.
...............
.................
90,000
(60,000)
(EL1)
.................
(Adj)
9,000
.............
(274,540)
.
.................
.
366,600
.............
............
460
----------------------- Page 45-----------------------
Ch. 8Probl
ems
.................
..
...............
.................
(A3)
4,500
................ .................
.............
.............
...............
.................
..
...............
.................
(A1)
2,000
................ .................
.............
.............
...............
.................
..
...............
.................
(BI)
2,160
................ .................
.............
.............
...............
.................
..
...............
.................
(F1)
4,800
................ .................
.............
.............
...............
Common StockBorner .................
.................
....
.............
...............
...............
(200,000)
.................
(EL2)
180,000 .
(20,000)

ParBorner ...............................
.............
(80,000)
................ .................
...............
.................
....
72,000
(8,000) ..
(EL2)
461
----------------------- Page 46-----------------------
Ch. 8Problems
DeNoma Company an
d Subsidiaries Shelby Corporation and Borner Company
(Concluded)
C
onsoli-
Consolidated
Eliminations
Controlling
dated
Tr
ial Balance
Income
and Adjustments
Retained
Balance
DeNoma
Shelby
Cr.
Sheet
Borner
Statement
Retained EarningsBorner ............

...............
(500,000)
2)
9,000 ........
..............
Dr.
NCI
Earnings
.................
..
(EL2)
450,000 (NCI
(56,900) ..........
.
................
................. (A3)
................ .................
.............
..............
................
................. (BI)
................ .................
.............
...............
.................
1,500
.............
.................
600
.............
Sales ...............................................
(900,000)
(700,000)
(600,000)
(IS)
125,000 ...
.......... (2,075,000) ....
...............
...................................................
425,000
400,000 (EI)
(IS)
125,000
1,272,000
...............
................
.................
6,000 ..............
570,000
8,000
.............
.................
............... (BI)
.............
.............
.
.
..............
Expenses ........................................
200,000
150,000 (A1)
(F2)
3,000
562,000
..............
................
................. (A3)
................ .................
.............
..............
...........
.................
(CY1)
................ .................
.............
..............
205,000
5,000
.............
.................
5,000
.............
.
.
.
(72,000) .
72,000
.............
.
.................
(45,000) .............
...............
.................
..............
0
(CY2)
.............
45,000
.............
.............
0
1,961,600
.............
0
1,961,600 .
..............
................................................................................
............
(241,000) ..........
.............
.
..............
To NCIBorner (see distribution schedule) ........................................
................................................................................
4,300
(4,300) ..
....
...........
To NCIShelby (see distribution schedule) ........................................
...............................................................................
44,680
(44,680)
....
...........
................................................................................
............
192,020 ...........
(192,020) .
..........
Total NCI ......................................................................
................................................................................
.............................................
(668,420) ..........
(668,420)
................................................................................
............................
(1,100,58
0)
(1,100,580)
Totals ....................................................................
................................................................................
................................................................................
......
0
462
----------------------- Page 47-----------------------
Ch. 8Problems
(Adj)
ngsShelby for
Adjust Investment in Borner Company and Retained Earni

20X1 and 20X2 amortizations of excesses.
(CY1)
of Shelby income.
Eliminate the entry made by DeNoma to record its share
(EL1)
ent) against investment
Eliminate 60% of Shelby equity balances (after adjustm

in Shelby.
(D1, D2)/NCI1)
t according to
Distribute the excess of cost over book value and NCI adjustmen
the determination and distribution of excess schedule
for Investment in Shelby

Corporation.
(A1)
Amortize the excess for the current and past years:
Depreciation:
Current
$5,000
(CY2)
Prior
Total
Shelby: $50,000 10 years ...........

$5,000
$10,000
Eliminate the entry made by Shelby to record its share
of Borner income.
(EL2)
vestment in Borner.
Eliminate 90% of the Borner equity balances against in
(D3, D4)/(NCI2) Distribute the remaining excesses and NCI adjustment [i.e., the
original excess
less the amount of the adjustment made in (Adj)].
(A3)
Amortize excess as follows:

Borner retained earnings, 3 years 10% $5,000 .....
$1,500
Shelby retained earnings, 1 year (2 years are in the
............
adjustment), 90% $5,000 ........................

4,500
.........................
Expense ..............................................
5,000
(IS)
le.
Eliminate the current-year intercompany merchandise sa
(BI)
nning inventory. The
Eliminate Borners gross profit contained in Shelbys begi

correction of Retained Earnings must be prorated betwe
en noncontrolling and
controlling interests:
$7,500 80% = $6,000
..............
Borner: 10% $6,000 ...................................

$
600
.......
Shelby: 40% 90% $6,000 ...............................

2,160
....
DeNoma: 60% 90% $6,000 ...............................

3,240
$6,000
(EI)
ending inventory,
Eliminate the intercompany profit contained in Shelbys

$10,000 80% = $8,000.
(F1)
reduce accumulated
Adjust to remove gain on intercompany sale of assets,

depreciation by the prior-year amortization of the gai
n, and reduce Shelbys

(40%) and DeNomas (60%) retained earnings by the gain r
emaining at the beginning of the year.
(F2)
s.
Recognize current-year gain through use of plant asset
463
----------------------- Page 48-----------------------
Ch. 8Problems
Problem
8-7, Concluded
Subsidiary Borner Company Income

Distribution
Ending inventory profit ..................

$8,000
Internally generated
Depreciation on excess .................
5,000
income .....................................
$50,000
Beginning inventory profit ..............
6,000
Adjusted income ............................

$43,000
NCI share ......................................
10%
NCI ................................................
$ 4,300
Subsidiary Shelby Corporation Inco

me Distribution
Depreciation on excess .................

$5,000
income .....................................
,000
Share of Borner income
(90% $43,000) ......................
38,700
Gain realized through plant
asset use .................................
3,000
$ 75
Adjusted income ............................
$111,700
NCI share ......................................

40%
NCI ................................................
$ 44
,680
Parent DeNoma Company Income D

istribution
income .....................................
$125,
000
Share of Shelby income
(60% $111,700) ....................
67,020
$192,020
464
----------------------- Page 49-----------------------
Ch. 8Problems
PROBLEM 8-8

Company
rent
NCI
rice
Value
0%)
(20%)

,000
$100,000
Pa
Implied
Fair Value
(8
$500,000
$400

Retained earnings
,000
Total equity
$410,000
$ 50,000
140,000
220,000
$410,000
$410
Interest acquired
80%
20%
Book value
,000
$ 82,000
2,000
$ 18,000
$328
$ 90,000
$ 7
Worksheet
Adjustment
Key
Goodwill
$ 90,000
debit D
465
----------------------- Page 50-----------------------
Ch. 8Problems
Pepe Company and Subsidiary Salida Company

Consolidated
Consolidated
Trial Balance
Eliminations
Controlling
and Adjustments
Income
Retained
Balance
Pepe
Cr.
Salida
Statement
Dr.
NCI
Earnings
Sheet
Inventory ........................................................
170,000
120,000 .............
(EI)
............... 4,000 ...............
......
...........
.......................................................................
00
Other Current Assets .....................................
216,000
256,000 .............
................
.................
.................
......
286,0
.
...........
.......................................................... 472,000
Investment in Salida Company.......................
400,000 .............
(CV)
(EL)
........... 360,000 ...............
......
.................
32,000
...........
.......................................................................
.................
.................
....
(D)
...........
Investment in Pepe Company ........................

.............
40,000
.................
TS)
40,000 ......
.................
......
.................
....
(
...........
.............
......
.................
72,000 ...............
.................
Land ...............................................................
80,000
70,000 ...............
.
................
.................
.................
...........
......
.......................................................... 150,000
Buildings and Equipment ...............................
400,000
280,000 .............
................
.................
.................
......
.
...........
.......................................................... 680,000
(180,000)
(90,000) .............
................
.................
.................
......
.
...........
....................................................... (270,000)
Goodwill .........................................................
....
............. .................
(D)
90,000
.
................
.................
.................
...........
......
............................................................ 90,000
Current Liabilities ...........................................
(98,000)
(74,000) .............
................
.................
.................
......
.
...........
....................................................... ( 172,000)
Long-Term Liabilities ......................................
(250,000)
(100,000) ...........
................
.................
.................
......
.
...........
....................................................... (350,000)
Common Stock ($10 par)Pepe ...................
(100,000) ............
.................
..............
.................
.................
....
...
.............
....................................................... ( 100,000)
Paid-In Capital in Excess of ParPepe .........
(200,000) ............
.................
..............
.................
.................
....
...
.............
....................................................... (200,000)
Retained EarningsPepe ..............................
(350,000) ............
.................
)
32,000 ......
.................
(382,000) ..
Common Stock ($10 par)Salida ..................
...........
(50,000)
(EL)
...........
.................
(10,000) ..............
(CV
......
40,000 ......
............
.......................................................................
Paid-In Capital in Excess of ParSalida .......
...........
(140,000)
(EL)
.........
.................
(28,000) ..............
......
112,000 ......
............
.......................................................................
Retained EarningsSalida ............................
...........
(260,000)
(EL)
(NCI)
............. 18,000
....
(70,000) ....
......
208,000
.............
.......................................................................
Net Sales .......................................................
(640,000)
(350,000)
(IS)
4
0,000 ......
.......... (950,000) .............
..
.................
.......................................................................
360,000
200,000
(EI)
,000
(IS)
40,000 ...............
.
.................
4
524,000 ...
.......................................................................
466
----------------------- Page 51-----------------------
Ch. 8Problems
Operating Expenses .......................................

160,000
90,000 ...............
.................
........... 250,000 ............
....
.................
.......................................................................
Dividend Income ............................................
(8,000)
(2,000)
(CY1) 8,000 ........
.........
.................
.................
..........
.......
.................
....
.............
.................
(CY2)
.................
.................
.......
.................
2,000
.................
..........
Dividends DeclaredPepe ............................

40,000 .............
.................
Y2)
2,000 ........
.................
38,000 ......
(C
Dividends DeclaredSalida ..........................

............
10,000
.................
.....
(C
Y1)
..
8,000 ........
.................
2,000 ......
Treasury Stock ...............................................

.............
.................
(TS)
40,000
.................
.................
.................
.......
....
..........
............................................................ 40,000
Total ...............................................................
0
0
576,000
576,000 ....
.................
..........
.......
.................
................................................................................
(176,000) ..............
..........
.......
.................
To NCI (see distribution schedule) .........................................
.............................................................................
12,000
(12,000) .
...
.................
To Controlling Interest (see distribution schedule) ........................
.......................................................................
164,000 ...............
(164,000) ..
Total NCI ......................................................................
................................................................................
..................................
(118,000) .............
..
(118,000)
................................................................................
.....................
(
508,000)
(508,000)
Totals .....................................................................
................................................................................
................................................................................
....
0
467
----------------------- Page 52-----------------------
Ch. 8Problems
Problem 8-8, Conc

luded

(CV)
Convert to the simple equity method as of January 1, 2
(CY1)
inst dividends declared
Eliminate the current-year dividend income of Pepe aga
0X2.
by Salida.
(EL)
the beginning of the
Eliminate 80% of the Salida Company equity balances at

year against the investment account.
(D)
and $18,000 NCI adjust-
Distribute the $72,000 excess of cost over book value

ment to Goodwill.
(IS)
(EI)
inventory of Salida.
Eliminate the intercompany sale and purchase.

Eliminate the intercompany gross profit in the ending
(CY2)
Eliminate the current-year dividend income of Salida a
gainst dividends declared
by Pepe.
(TS)
k account.
Transfer Investment in Pepe Company to a treasury stoc
Subsidiary Salida Company Income Distr

ibution
income .....................................
$60,000
NCI share ......................................
NCI ................................................
20%
$12,000
Parent Pepe Company Income Distri

bution

income .....................................
$4,000
$120,000
80% of Salida income ....................
468
----------------------- Page 53-----------------------
48,000
$164,000
Ch. 8Problems
PROBLEM 8-9

Company
arent
NCI
Price
Value
Implied
Fair Value
(80%)
(20%)

0,000
$100,000
$500,000
$40

$ 50,000

Retained earnings
0,000
140,000
220,000
Total equity
$410,000
$410,000
$41
Interest acquired
80%
20%
Book value
8,000
$32
$ 82,000

72,000
$ 18,000
$ 90,000
Worksheet
Adjustment
Key
Goodwill
$ 90,000
debit D1
469
----------------------- Page 54-----------------------
Ch. 8Problems
Pepe Company and Subsidiary Salida Company

Eliminations
Controlling
Consolidated
Consolidated
Trial Balance
and Adjustments
Income
Retained
Balance
Pepe
Cr.
Salida
Statement
Sheet
Dr.
NCI
Earnings
Inventory ........................................................
170,000
120,000 .............
(EI)
............... 4,000 ...............
............
.....
.......................................................................
00
Other Current Assets .....................................
216,000
296,000 .............
...............
.................
.................
.....
286,0
..
............
.......................................................... 512,000
Investment in Salida Company.......................
400,000 .............
(CV)
(EL)
........... 458,333 ...............
.....
.................
32,000
............
.......................................................................
100,000
.................
....
(D
............
.................
.................
....
(D2)
............
Investment in Pepe Company ........................

.............
100,000
.................
R)
100,000 ....
.................
.....
.................
....
(T
............
............. .................
1)
72,000 ......
.....
.................
.............
.....
.................
1,667 ...............
.................
(TR)
Land ...............................................................
80,000
70,000 ...............
..
...............
.................
.................
............
.....
.......................................................... 150,000
Buildings and Equipment ...............................
400,000
280,000 .............
...............
.................
.................
.....
..
............
.......................................................... 680,000
(180,000)
(90,000) .............
...............
.................
.................
.....
..
............
....................................................... (270,000)
Goodwill .........................................................
............. .................
(D1)
90,000
....
..
...............
.....
.................
.................
............
............................................................ 90,000
Current Liabilities ...........................................
(98,000)
(74,000) .............
...............
.................
.................
.....
..
............
....................................................... ( 172,000)
Long-Term Liabilities ......................................
(250,000)
(100,000) ...........
...............
.................
.................
.....
..
............
....................................................... (350,000)
Common Stock ($10 par)Pepe ...................
(100,000) ............
.................
.............
.................
.................
...
....
..............
....................................................... ( 100,000)
Paid-In Capital in Excess of ParPepe .........
(200,000) ............
(D2)
...........
.................
.................
...
1,667 ......
..............
....................................................... ( 198,333)
Retained Earnings, January 1Pepe ............
(350,000) ............
.................
)
32,000 ......
.................
(382,000) ..
Common Stock ($10 par)Salida ..................
...........
(60,000)
(EL)
..........
.................
10,000) ..............
(CV
......
50,000 .......
............(
.......................................................................
Paid-In Capital in Excess of ParSalida .......
...........
(230,000)
(EL)
.........
.................
38,333) ..............
......
191,666 ......
............(
.......................................................................
Retained Earnings, January 1Salida ..........
...........
(260,000)
(EL)
(NCI)
............. 18,000
...
(61,334) ....
......
216,667
..............
.......................................................................
Net Sales .......................................................
(640,000)
,000 ......
..
.................
(350,000)
(IS)
40
.......... (950,000) .............
.......................................................................
470
----------------------- Page 55-----------------------
Ch. 8Problems

360,000
200,000
(EI)
4,000
(IS)
40,000 ...............
..
.................
524,000 ..
.......................................................................
Operating Expenses .......................................
160,000
90,000 ...............
.................
........... 250,000 ............
....
.................
.......................................................................
Dividend Income ............................................
(8,000)
(2,000)
(CY2) 8,000 ........
.........
.................
.................
..........
.......
.................
....
.............
.................
(CY2)
.................
.................
.......
.................
2,000
.................
Dividends DeclaredPepe ............................

40,000 .............
.................
Y2)
2,000 ........
.................
38,000 ......
(CY2)
....
10,000
8,000 ........
.................
..........
(C
.................
Dividends DeclaredSalida ..........................
2,000 ....
.....
............
Total ...............................................................
0
0
736,000
736,000 ....
.................
..........
.......
.................
................................................................................
(176,000) ..............
..........
.......
.................
To NCI .....................................................................
................................................................................
............
10,000
(10,000) .
...
.................
To Controlling Interest ....................................................
................................................................................
.....
166,000 ...............
(166,000) ..
Total NCI ......................................................................
................................................................................
..................................
(117,667) .............
..
(117,667)
Total Controlling Retained Earnings ............................................
................................................................................
..........................................
(510,000)
(510,000)
Totals .....................................................................
................................................................................
................................................................................
....
0
471
----------------------- Page 56-----------------------
Ch. 8Problems
Problem 8-9, Conclu
ded
(CV)
ease in retained
Convert 80% interest to equity method, 80% $40,000 incr

earnings.
(TR)
Transfer investment in parent to investment in subsidia
(CY2)
Eliminate intercompany dividends paid by parent and sub
ry.
sidiary.
(EL)
Eliminate combined 5/6 ownership in subsidiary.
(D)/(NCI) Distribute excess to goodwill: (D1) is original goodwill; (D2)

is reduction in Pepe
paid-in capital in excess of par*.
(IS)
Eliminate intercompany merchandise sales.
(EI)
Eliminate intercompany profit in ending inventory.
*Analysis of Investment in Pepe:

Equity after swap:
........
Common stock ($10 par) ........................................

$ 60,000
.........
Paid-in capital in excess of par ..............................

230,000
.............
Retained earnings .............................................

260,000
......................
Total .................................................
$550,000
Ownership interest (5,000/6,000) ..............................
5/6
$458,333
.....
Equity prior to swap:

Total above ...................................................
$ 550,000
.................
.......
Less value of shares issued ...................................

(100,000)
......................
Total .................................................
$ 450,000
Ownership interest (4,000/5,000) ..............................
80%
360,000
....
Increase in equity ....................................................

...............
$ 98,333
Value of share exchanged ...............................................
100,000
......
........
1,667)
Increase (decrease) in equity .........................................

$
(
Subsidiary Salida Company Income Distri

bution

income .....................................
$ 60,000
NCI share ......................................

NCI ................................................
1/6
$ 10,000
Parent Pepe Company Income Distribu

tion

income .....................................
$4,000
$120,000
5/6 of Salida income ......................
50,000
$166,000
47
2
----------------------- Page 57-----------------------
Ch. 8Problems
PROBLEM 8-10

Company
Parent
NCI
Price
Value
Implied
Fair Value
(75%)
(25%)

$111,000*
$ 37,000
$148,000

$ 20,000
10,000
Retained earnings
112,000
Total equity
142,000
$142,000
Interest acquired
75%
Book value
106,500
$142,000
25%
$
$ 35,500

4,500
$
1,500
6,000
Worksheet
Adjustment
Key
Goodwill
6,000
debit D
*Last purchase at $51,800/1,400 shares = $37 per share. Fair value = 3,000 share
s $37 =
$111,000
Adjustment to fair value:

Fair value of prior purchase (1,600 shares $37) .......
$59,200
Cost ...........................................................................
...
48,000
Gain ...........................................................................
..
$11,200
473
----------------------- Page 58-----------------------
Ch. 8Problems
Heckert Company and Subsidiary Aker Company

Eliminations
Controlling
Consolidated
Consolidated
Trial Balance
and Adjustments
Income
Retained
Balance
H
eckert
Cr.
Aker
Statement
Dr.
NCI
Earnings
Sheet
Cash ...............................................................
38,100
29,050 ...............
.
................
.................
.................
...........
......
............................................................ 67,150
Marketable Securities .....................................
33,000
18,000 ...............
(TS)
............. 18,000 ...............
...........
......
.......................................................................
33,00
0
Trade Accounts Receivable ...........................
210,000
88,000 ...............
(IA)
............... 8,000 ...............
......
...........
.......................................................................
00
Allowance for Doubtful Accounts ....................
(6,800)
(2,300) ...............
................
.................
.................
......
290,0
.
...........
........................................................... (9,100)
Intercompany Receivables .............................
24,000 .............
.................
IA)
24,000 ......
.................
......
.................
(
...........
Inventories .....................................................
275,000
135,000 .............
(EI)
............... 5,400 ...............
......
...........
.......................................................................
00
Machinery and Equipment .............................
514,000
279,000 .............
(F1)
........... 800
.................
......
404,6
...........
.......................................................... 792,200
(298,200)
(196,700) ...........
................
.................
.................
......
.
...........
....................................................... (494,900)
Investment in Aker Company (at cost) ...........
99,800 .............
(Adj)
(EL)
........... 106,500 ...............
......
.................
11,200
...........
.......................................................................
.............
......
.................
4,500 ...............
.................
.................
.................
....
(D)
...........
Patents ...........................................................
35,000 .............
.................
.
................
.................
.................
...........
......
............................................................ 35,000
Goodwill .........................................................
....
.............
.................
(D)
6,000
.
................
.................
.................
...........
......
.............................................................. 6,000
Dividends Payable .........................................
(7,500) ............
(CY2) 750
................
.................
.................
......
(6,750)
.
...........
Trade Accounts Payable ................................

(195,500)
(174,050)
(IA)
4,000 ......
.................
.................
......
2
...........
....................................................... (345,550)
Intercompany Payables ..................................
(8,000) ............
(IA)
.............
.................
.................
......
.................
8,000 ....
...........
Common Stock ($10 par)Heckert ...............

(150,000) ............
.................
..............
.................
.................
....
...
.............
....................................................... ( 150,000)
Common Stock ($5 par)Aker ......................
...........
(22,000)
(EL)
...........
.................
. (5,500) ..............
......
16,500 ......
............
.......................................................................
Paid-In Capital in Excess of ParHeckert .....
(36,000) ............
.................
..............
.................
.................
....
...
.............
......................................................... (36,000)
Paid-In Capital in Excess of ParAker ..........
...........
(14,000)
(EL)
..........
.................
. (3,500) ..............
......
10,500 .......
............
.......................................................................
Retained EarningsHeckert ..........................
(378,000) ............
..............
.................
....
.................
.................
.................
...
.............
474
----------------------- Page 59-----------------------
Ch. 8Problems
....
.............
.................
.................
.................
(378,000) ..............
.................
.................
Retained EarningsAker ...............................

............
(106,000)
(EL)
(NCI)
............... 1,500
.....
(28,000) ....
.....
79,500
............
.......................................................................
Dividends DeclaredHeckert ........................
7,500 .............
.................
Y2)
750 ...........
.................
6,750 ........
Dividends DeclaredAker .............................
...........
4,000
.................
Y1)
3,000 ........
..
.................
(C
......
(C
1,000 ......
Sales and Services ........................................

(850,000)
(530,000)
(IS)
182,000 ....
.............. (1,198,000) ......
..
.................
.......................................................................
Dividend Income ............................................
(3,000) ............
(CY1)
3,000
.................
.................
.................
..........
.......
.................
Other Income .................................................
(9,000)
(3,700)
(F1)
800 ...........
............ (11,900) ...........
....
.................
.......................................................................
510,000
374,000
(EI)
5,400
(IS)
182,000 ...............
..
.................
707,400 ..
.......................................................................
Depreciation Expense ....................................
65,600
11,200 ...............
.................
............. 76,800 ...........
.....
.................
.......................................................................
Administrative and Selling Expenses .............
130,000
110,500 .............
.................
........... 240,500 ............
....
.................
.......................................................................
475
----------------------- Page 60-----------------------
Ch. 8Problems
Hecker
t Company and Subsidiary Aker Company
Worksh
eet for Consolidated Financial Statements
(Concluded)
Eliminations
Controlling
Consolidated
ce
Consolidated
Trial Balan
Income
and Adjustments
Retained
Balance
Aker
NCI
Dr.
Earnings
Cr.
Sheet
Heckert
Statement
Gain on investment ........................................ .................

.................
................. (Adj)
11,200
(11,200)
Treasury Stock (cost) .....................................
.............. (TS)
......
.................
.................
...
...........
18,000
.................
.................
............................................................ 18,000
0
.................
365,650
.................
0
365,650 ....
.................

................................................................................
(196,400) ..............
.................
.................
To NCI (see distribution schedule) ..........................................
............................................................................
10,750
(10,750) ....
.................
To Controlling Interest (see distribution schedule) .........................
......................................................................
185,
650 ...............
(185,650) ..
Total NCI ......................................................................
................................................................................
..................................
(46,750) ...............
(46,750)
................................................................................
.....................
(556,900)
(556,900)
Totals ......................................................................
................................................................................
................................................................................
...
0

(Adj)
Adjust investment account for gain on prior investment, $
(CY1)
Eliminate intercompany cash dividends.
11,200.
(CY2)
ed by Aker,
Eliminate intercompany dividends on shares of Heckert own

1,500 $0.50 = $750 against the dividends payable account.
(EL)
account.
Eliminate 75% of subsidiary equity against the investment
(D)/(NCI) Distribute excess and NCI adjustment to Goodwill, according to

the determination and distribution of excess schedule.
(TS)
Reclassify Akers investment in Heckert as treasury stock a
(F1)
Eliminate gain on machinery sale by Aker.
(IA)
Eliminate intercompany receivables and payables.
(IS)
Eliminate intercompany merchandise sales of $182,000.
t cost.
(EI)
Eliminate ending inventory profit on Aker sales to Hecker
t, 30% $18,000 = $5,400.
476
----------------------- Page 61-----------------------
C
h. 8Problems
Problem 8-1
0, Concluded
Subsidiary Aker Company Income D

istribution
Gain on sale of equipment ............

800
income .....................................
$ 8,000
5,400

Gain on investment in Heckert ......
11,200

$ 43,000
NCI share ......................................

25%
NCI ................................................
$ 10,750
Parent Heckert Company Income D

istribution
income .....................................
$153,400
75% Aker adjusted

income of $43,000 ...................
32,250
477
----------------------- Page 62-----------------------
$185,650

08 Fischer10e SM Ch08 Final

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----------------------- Page 1-----------------------

UNDERSTANDING THE ISSUES

($1 par, 10,000

the equity provided by the new funds.

2. The parents share in any equity increases

process. If A controls B and B, in turn,

excess of par. The calculation in this case

ny A, the controlling interest.

Increase in equity interest .....

treasury stock. This approach views the

subsidiary as the parents agent in purchasshares at $50 each, which is in excess of

separate excess of cost or book value.

(1) Retained Earnings (3,000 $35) ..............................................

Common stock ($10 par) ....................................................

Paid-in capital in excess of par ..........................................

Total stockholders equity ..................................................

To record receipt of cash dividend (29,700 shares $0.50).

Investment in Lamp Company ................................................

Dividends, Lamp Company................................................

Common Stock [($300,000 + $30,000) 90%] ................................

Exercise 8-1, Concluded

Determination and Distribution of Excess Schedule

Fair value of subsidiary

Less book value of interest acquired:

Excess of fair value over book value

Adjustment of identifiable accounts:

Investment in Trail ............................................................

90% first 6 months income of $35,000 .......................................

Investment in Trail ............................................................

*(10,000 shares 90%)/(10,000 shares + 2,000 shares)

Shares purchased by parent ..........................................

Total subsidiary shares outstanding after issue .............

Subsidiary equity after sale ($450,000 + $50,000

Parents ownership percent after purchase ...................

Parents new equity interest after purchase ...................

Subsidiary equity prior to sale (after fair value adjustment)

Parents ownership percent before purchase ................

Parents equity interest before purchase .......................

Maintain ownership percentage interest:

Increase ownership percentage interest:

Decrease ownership percentage interest:

----------------------- Page 5-----------------------

Investment in Nolan ............................................................

To convert investment from cost to equity for income.

Income equity adjustment:

*(60% 30,000 shares)/(30,000 5,000 treasury stock shares)

Retained EarningsTarman Company ..............................................

Adjustment for treasury stock purchase:

Retained EarningsNolan (72% $120,000) ....................................

Treasury Stock (at cost, 72% $75,000) ....................................

*60% 30,000 shares $12

December 31, 20X1

December 31, 20X2

December 31, 20X3

December 31, 20X1

December 31, 20X2

December 31, 20X3

Determination and Distribution of Excess Schedule

Less book value interest acquired:

Excess of fair value over book value

Adjustment of identifiable accounts:

Company S-1 building (40%)

*NCI of Company S-2 is also increased by $40,000.

(2) Eliminations and Adjustments: