06 Fischer10e SM Ch06 Final PDF

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CHAPTER 6
UNDERSTANDING THE ISSUES
1. (a) Investing activitiesPurchase of S Company ($800,000 $50,000) .................... $(750,000)

(b) Investing activitiesPurchase of S Company ($500,000 $50,000) .................... $(450,000)
Noncash financing activitiesIssuance of notes payable ..................................... 300,000
(c) Investing activitiesCash acquired in purchase of S Company ............................ $ 50,000
Noncash financing activitiesIssuance of stock.................................................... 800,000
2. Any amortizations of the $200,000 excess of cost over book value will need to be included in cash
operating activities as an adjustment to income. The means of purchasing S Company will not have
an effect on the consolidated statement of cash flows in subsequent years.
3. Determination and Distribution of Excess Schedule, Investment in Company S
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ..................... $800,000 $640,000 $160,000
Less book value of interest acquired:
Total equity ................................. 600,000 $600,000 $600,000
Interest acquired ........................ 80% 20%
Book value ........................................ $480,000 $120,000
Excess of fair value over book
value ........................................... $200,000 $160,000 $ 40,000
Adjustment of identifiable accounts:

Worksheet Amortization
Adjustment Key Life per Year
Goodwill ............................................ $200,000 debit D3
(a) Investing activitiesPurchase of S Company ($640,000 $50,000) .................... $(590,000)
Noncash financing activitiesNoncontrolling interest ........................................... 160,000
(b) Investing activitiesPurchase of S Company ($400,000 $50,000) .................... $(350,000)
Noncash financing activitiesIssuance of notes payable ..................................... 240,000
(c) Investing activitiesCash acquired in purchase of S Company ............................ $ 50,000
Noncash financing activitiesIssuance of stock.................................................... 640,000
4. (a) Consolidated basic EPS = ($200,000 + $60,000) 100,000 shares = $2.60
(b) Consolidated basic EPS = [$200,000 + (80% $60,000)] 100,000 shares = $2.48
5. (a) Consolidated DEPS = [$200,000 + (40,000 $1.43)] 100,000 shares = $2.57
Subsidiary DEPS = $60,000 (40,000 + 2,000) = $1.43
(b) Consolidated DEPS = [$200,000 + (40,000 $1.50)] (100,000 + 2,000) = $2.55
Subsidiary DEPS = $60,000 40,000 shares = $1.50
(c) Consolidated DEPS = [$200,000 + (40,000 $1.50)] (100,000 + 2,000) = $2.55
Subsidiary DEPS = $60,000 40,000 shares = $1.50
6. (a) Consolidated net income = ($100,000 + $40,000) 70% = $98,000
Distribution to NCI = ($40,000 20%) 70% = $5,600
Distribution to controlling interest = [$100,000 + ($40,000 80%)] 70% = $92,400
319
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(b) Consolidated net income = [($100,000 + $40,000) 70%] ($40,000 70% 80% 20%
30%) = $96,656
Distribution to NCI = ($40,000 20%) 70% = $5,600
Distribution to controlling interest = {[$100,000 + ($40,000 80%)] 70%} ($40,000 70%
80% 20% 30%) = $91,056
7. (a) Taxes would not be paid on this intercompany profit. Taxes are based on consolidated income
after the elimination of the profit.
(b) Taxes will have been paid on this intercompany profit. The taxes paid become a deferred tax
asset (DTA) and are amortized over the period of depreciation. The following adjustment is
needed in the period of sale:
Deferred Tax Asset ($50,000 30%) ................. 15,000
Provision for Income Tax ................................. 15,000
At each period-end, the DTA would be converted to a tax expense as follows:
Provision for Income Tax ($15,000 5) ............. 3,000
Deferred Tax Asset .......................................... 3,000
320
Ch. 6Exercises
EXERCISES
EXERCISE 6-1
Determination and Distribution of Excess Schedule, Investment in Rocket Company

Company Parent NCI
Implied Price Value
Common stock ............................ $200,000
Retained earnings ....................... 300,000
Total equity ............................ $500,000 $500,000 $500,000
Interest acquired ......................... 80% 20%
Book value ........................................ $400,000 $100,000
value............................................ $125,000 $100,000 $ 25,000

Goodwill ($625,000 fair
$500,000 book value).................. $125,000 debit D
321
Ch. 6Exercises
Exercise 6-1, Concluded
Batton Company and Subsidiary Rocket Company

Consolidated Statement of Cash Flows
For Year Ended December 31, 20X3
Cash flows from operating activities:
Consolidated net income ($145,000 + $10,000 NCI share) ....... $155,000
Adjustments to reconcile net income to net cash:
Depreciation expense* ......................................................... $120,000
Increase in inventory ($220,000 + $140,000 $454,000).... (94,000)
Increase in current liabilities [$284,000
($160,000 + $110,000)] ..................................................... 14,000
Total adjustments ........................................................... 40,000
Net cash provided by operating activities ....................... $195,000
Cash flows from investing activities:

Payment for purchase of Rocket Company,
net of cash acquired ............................................................. (480,000)
Cash flows from financing activities:

Sale of stock (5,000 shares $60) ............................................ $300,000
Dividend payments to controlling interests................................. (10,000)
Dividend payments to NCI ($5,000 20%) ................................ (1,000)
Net cash used in financing activities .................................... 289,000
Net increase in cash ........................................................................ $ 4,000
Cash at beginning of year ................................................................ 300,000
Cash at year-end ............................................................................. $304,000
*20X3 depreciation is equal to the difference between the sum of the December 31, 20X2, net
plant asset balances [$800,000 (parent) and $550,000 (subsidiary), or $1,350,000] and the
December 31, 20X3, consolidated net plant assets of $1,230,000.
Schedule of noncash investing activity:

Batton Company purchased 80% of the capital stock of Rocket Company for $500,000. In con-
junction with the acquisition, liabilities were assumed and a noncontrolling interest created as
follows:
Adjusted value of assets acquired ($710,000 book

value + $125,000 excess) .......................................................... $835,000
Cash paid ......................................................................................... 500,000
Balance ............................................................................................ $335,000
Liabilities assumed........................................................................... $210,000

Noncontrolling interest** .................................................................. $125,000
**This is the NCI at the beginning of the year (date of acquisition). Current-year charges to the
total NCI are included in the consolidated net income and the dividends paid.
322
Ch. 6Exercises
EXERCISE 6-2
Determination and Distribution of Excess Schedule, Investment in Panda Corporation

Company Parent NCI
Implied Price Value
Fair value of subsidiary ..................... $306,250 $245,000* $ 61,250
Common stock ($10 par)............. $150,000
Total equity ............................ $200,000 $200,000 $200,000
Book value ........................................ $160,000 $ 40,000
value............................................ $106,250 $ 85,000 $ 21,250

Equipment ......................................... $ 20,000 debit D1 4 $5,000
Goodwill ............................................ 86,250 debit D2
Total ............................................ $106,250
*(5,000 shares $18) + $155,000
323
Ch. 6Exercises
Exercise 6-2 Concluded
Duckworth Corporation and Subsidiary Panda Corporation

Consolidated net income............................................................ $ 103,200
Depreciation ($92,000 + $28,000 + $5,000 of
equipment excess) ............................................................ $ 125,000
Decrease in inventory .......................................................... 5,800
Increase in current liabilities ................................................. 5,000
Net cash provided by operating activities ........................................ $ 239,000

Cash payment for purchase of Panda Corporation,
net of cash acquired ............................................................. $(125,000)
Purchase of production equipment .................................................. (76,000)
Net cash used in investing activities ................................................ $(201,000)

Decrease in long-term debt ........................................................ (10,000)
Dividends paid:
By Duckworth Corporation ................................. $(30,000)
By Panda, to NCI ............................................... (3,000) (33,000)
Net cash used in financing activities ................................................ (43,000)
Net decrease in cash ....................................................................... $ (5,000)

Cash at year-end ............................................................................. $ 95,000

Company P acquired 80% of the common stock of Company S in exchange for $245,000. In
conjunction with the acquisition, liabilities were assumed and a noncontrolling interest was
created as follows:
Adjusted value of assets acquired ($270,000
book value + $106,250 excess) ................................................. $376,250
Cash payment .................................................................................. 155,000
Balance ............................................................................................ $221,250
Common stock issued...................................................................... $ 90,000
Liabilities assumed........................................................................... $ 70,000
Noncontrolling interest (see D&D schedule) .................................... $ 61,250
324
Ch. 6Exercises
EXERCISE 6-3
(1) None, goodwill is not amortized.
(2) The cash from shares sold to the NCI shareholders, $90,000 (1,000 shares $90), would
appear as cash flow in the financing activities section. The 1,000 shares purchased by the
parent would not appear in the cash flow statement.
(3) The bonds were held by parties outside the consolidated company. They are now retired by
the consolidated company. The $102,000 would appear as a cash outflow in the financing
activities section of the cash flow statement.
(4) This is a transaction within the consolidated company, and it would have no impact on the
consolidated statement of cash flows.
EXERCISE 6-4
Maria Company:
Provision for Income Tax ........................................................... 21,000
Income Tax Payable ............................................................ 21,000
30% $70,000 = $21,000.
Tuft Company:
Optional entry to record tax effect of subsidiary tax:
Subsidiary Investment Income ................................................... 16,800
Investment in Maria Company ............................................. 16,800
80% $21,000 tax.
Provision for Income Tax ........................................................... 33,000
Income Tax Payable ............................................................ 31,720
Deferred Tax Liability ........................................................... 1,280
Internally generated income .................................................................................... $110,000

Tax at 30% .............................................................................................................. $ 33,000
Less DTL on goodwill [0.30 ($64,000/15)] ........................................................... (1,280)
Tax currently payable .............................................................................................. $ 31,720
325
Ch. 6Exercises
EXERCISE 6-5
Deko Company and Subsidiary Farwell Company

Consolidated Income Statement
Sales (less $50,000 intercompany sales) .......................................................... $ 370,000
Cost of goods sold ($290,000 $50,000 intercompany sales $8,000
beginning inventory profit + $2,400 ending inventory profit) ........................ (234,400)
Expenses ($60,000 + $9,375 patent amortization from D&D $1,000
depreciation adjustment) .............................................................................. (68,375)
Income before taxes .......................................................................................... $ 67,225
Provision for income tax (see schedule) ............................................................ (20,730)
Consolidated net income ................................................................................... $ 46,495
Distributed to noncontrolling interest .................................................................. 309
Distributed to controlling interest........................................................................ $ 46,186

Company Parent NCI
Implied Price Value
Fair value of subsidiary ..................... $1,062,500 $850,000 $212,500
Total equity ............................ 968,750 $968,750 $968,750
Book value ........................................ $775,000 $193,750
value............................................ $ 93,750 $ 75,000 $ 18,750

Patent................................................ $93,750 debit D1 10 $9,375
Consolidated
Deko Farwell Dr. Cr. Income
Sales ......................... $(300,000) $(120,000) (IS)$50,000 $(370,0
Cost of goods sold .... 200,000 90,000 (IS) $50,000
(EI) 2,400 (BI) 8,000 234,400
Gain on machine ....... (5,000) (F1) 5,000 0
Expenses .................. 40,000 20,000 (F2) 1,000 59,000
Amortization of patent (A1) 9,375 9,375
Income before tax ..... $ (65,000) $(10,000) $ (67,225
Tax provision............. 20,730
Net income ................ $ (46,495)
To NCI....................... 309
To controlling ............ $ 46,186
326
Ch. 6Exercises
Exercise 6-5 Concluded
Tax provision:
Consolidated income before tax..................................... $67,225
Add nondeductible patent amortization on NCI.............. 1,875
Taxable income .............................................................. $69,100
Tax at 30% ..................................................................... $20,730
Subsidiary Farwell Company Income Distribution

Ending inventory ......................... $2,400 Internally generated income ...... $10,000
Patent amortization ..................... 9,375 Beginning inventory................... 8,000
Adjusted income........................ $ 6,225

Tax provision (see schedule) .... (2,4
Net income ................................ $ 3,795
NCI share (see schedule) ......... 309
Controlling share ....................... $ 3,486
Subsidiary tax schedule: Controlling NCI Total

(1) Total adjusted income................................... $4,980 $ 1,245 $6,225*
(2) NCI share of asset adjustments.................... 1,875 1,875
(3) Taxable income ............................................ $4,980 $ 3,120 $8,100
(4) Tax (30% of taxable income) ........................ $1,494 $ 936 $2,430
(5) Net of tax share of income (line 1 line 4) ... $3,486 $ 309 $3,795
*From subsidiarys IDS
Parent Deko Company Income Distribution

Machine gain............................... $5,000 Internally generated income ...... $ 65,000
Gain realized ............................. 1,000
Adjusted income........................ $ 61,000
Tax provision ($61,000 30%) (18,300)
Net of tax ................................... $ 42,700
Share of sub income (net of tax) 3,486
Controlling share ....................... $ 46,186
327
Ch. 6Exercises
EXERCISE 6-6
Dunker Company and Subsidiary Fennig Company

Consolidated Income Statement
Sales (less $50,000 intercompany sales) .......................................................... $ 370,000
Cost of goods sold ($290,000 $50,000 intercompany sales $8,000
beginning inventory profit + $2,400 ending inventory profit) ........................ (234,400)
Expenses ($60,000 + $9,375 patent amortization from D&D $1,000
depreciation adjustment) .............................................................................. (68,375)
Income before taxes .......................................................................................... $ 67,225
Provision for income tax (see schedule) ............................................................ (20,939)
Consolidated net income ................................................................................... $ 46,286
Distributed to noncontrolling interest .................................................................. 309
Distributed to controlling interest........................................................................ $ 45,977

Company Parent NCI
Implied Price Value
Total equity ............................ 968,750 $968,750 $968,750
Book value ........................................ $775,000 $193,750
value............................................ $ 93,750 $ 75,000 $ 18,750

Patent................................................ $93,750 debit D1 10 $9,375
Consolidated
Dunker Fennig Dr. Cr. Income
Sales ......................... $(300,000) $(120,000) (IS)$50,000 $(370,0
Cost of goods sold .... 200,000 90,000 (IS) $50,000
(EI) 2,400 (BI) 8,000 234,400
Gain on machine ....... (5,000) (F1) 5,000 0
Expenses .................. 40,000 20,000 (F2) 1,000 59,000
Amortization of patent (A1) 9,375 9,375
Income before tax ..... $ (65,000) $(10,000) $ (67,225
Tax provision............. 20,939
Net income ................ $ (46,286)
To NCI....................... 309
To controlling ............ $ 45,977
328
Ch. 6Exercises
Exercise 6-6, Concluded
Tax provision:
Add nondeductible patent amortization on NCI.............. 1,875
Taxable income .............................................................. $69,100
First tax at 30% .............................................................. $20,730
Second tax (from controlling IDS) .................................. 209
Total tax provision .......................................................... $20,939
Subsidiary Fennig Company Income Distribution

Ending inventory ......................... $2,400 Internally generated income ........ $10,000
Patent amortization ..................... 9,375 Beginning inventory..................... 8,000
Adjusted income.......................... $ 6,225

Tax provision (see schedule) ...... (2,430)
Net income .................................. $ 3,795
NCI share (see schedule) ........... 309
Controlling share ......................... $ 3,486

(1) Total adjusted income................................... $4,980 $ 1,245 $6,225*
(3) Taxable income ............................................ $4,980 $ 3,120 $8,100
(4) Tax (30% of taxable income) ........................ $1,494 $ 936 $2,430
(5) Net of tax share of income (line 1 line 4) ... $3,486 $ 309 $3,795
Parent Dunker Company Income Distribution

Machine gain............................... $5,000 Internally generated income ........ $ 65,000
Gain realized ............................... 1,000
Adjusted income.......................... $ 61,000

Tax provision ($61,000 30%) ... (18,300)
Net of tax adjusted income.......... 42,700
Share of sub income
(net of first tax) ...................... 3,486
Second tax (0.2 0.3 $3,486).. (209)
Controlling interest ...................... $ 45,977
329
Ch. 6Exercises
EXERCISE 6-7
Adjustment to January 1, 20X7, retained earnings:

Machine depreciation:
Retained EarningsCooper (1 yrs. $5,000 60%) ....... 4,500
Retained EarningsVarga (1 yrs. $5,000 40%) ......... 3,000
Accumulated DepreciationEquipment............................ 7,500
Machine sale:
Retained EarningsCooper ................................................ 2,400
Retained EarningsVarga .................................................. 1,600
Equipment ......................................................................... 4,000
Tax:
Deferred Tax Asset .............................................................. 2,651*
Retained EarningsCooper ............................................. 2,171*
Retained EarningsVarga................................................ 480*
*Increase in Deferred Tax Assets:
Total Controlling NCI
Gain on machine (net) ($4,000 30%) ..................................... $1,200 $ 720 $480
Secondary tax ($4,000 70% 60% 30% 20%)** ............. 101 101
Equipment depreciation ($4,500 parent share 30%).............. 1,350
1,350 .................................................................................
Total ..................................................................................... $2,651 $2,171$480
**100% 80% dividend exclusion
Adjustments to income:
Sales .......................................................................................... 15,000
Cost of Goods Sold .............................................................. 15,000
Cost of Goods Sold .................................................................... 600
Inventory .............................................................................. 600
Depreciation ExpenseMachine ............................................... 5,000
Accumulated DepreciationMachine .................................. 5,000
Accumulated DepreciationMachine ........................................ 1,000
Depreciation ExpenseMachine ......................................... 1,000
Tax:
Deferred Tax Asset** ................................................................. 755
Provision for Tax .................................................................. 755
**Increase in Deferred Tax Assets:
Total Controlling NCI
Machine gain realized (30% $1,000) ................................... $(300) $(180) $(120)
Secondary tax ($1,000 70% 60% 30% 20%) ............. (25) (25)
Inventory (30% $600) .......................................................... 180 180
Machine depreciation (30% $5,000 60%
parent share) ........................................................................ 900 900
Total .................................................................................. $ 755 $ 875 $(120)
330
Ch. 6Problems
PROBLEMS
PROBLEM 6-1
Determination and Distribution of Excess Schedule, Investment in Marcus Company

Company Parent NCI
Implied Price Value
Total equity ............................ 650,000 $650,000 $650,000
Book value ........................................ $520,000 $130,000
value............................................ $150,000 $120,000 $ 30,000

Goodwill ............................................ 125,000 debit D2
Total ............................................ $150,000
331
Ch. 6Problems
Problem 6-1, Concluded
Luis Company and Subsidiary Marcus Company

Consolidated net income ($262,000 + $15,000) ........................ $ 277,000
Depreciation expense ($1,282,000 $1,081,000) ............... $ 201,000
Increase in inventory ............................................................ (40,000)
Increase in accounts receivable ........................................... (100,000)
Increase in accounts payable ............................................... 83,000
Equity income from Charles Corporation in excess
of dividends* ...................................................................... (14,500)
Net cash provided by operating activities ............................. $ 406,500
Purchase of building................................................................... $(300,000)
Purchase of equipment .............................................................. (50,000)
Investment in Charles ................................................................ (230,000)
Net cash used in investing activities .................................... (580,000)
Proceeds of bond sale ............................................................... $ 300,000
Dividend payments to NCI ($15,000 20%) .............................. (3,000)
Net cash provided by financing activities ............................. 197,000
Cash at year-end ............................................................................. $ 39,500
*Equity income from the investment in Charles provides funds only to the extent of dividends
received. The excess equity income must be deducted from consolidated net income in deter-
mining funds provided by net income.
30% of reported Charles income (30% $80,000) ........................ $24,000
Less amortization of excess {[$230,000
($700,000 30%)]/10 years} ..................................................... 2,000
Equity income ................................................................................. $22,000
Less dividends received (30% $25,000) ..................................... 7,500
Noncash income............................................................................. $14,500
332
Ch. 6Problems
PROBLEM 6-2
Determination and Distribution of Excess Schedule, Investment in Rush Company

Company Parent NCI
Implied Price Value
Fair value of subsidiary ..................... $550,000 $495,000 $ 55,000
Common stock ($10 par)............. $150,000
Total equity ............................ $450,000 $450,000 $450,000
Book value ........................................ $405,000 $ 45,000
value............................................ $100,000 $ 90,000 $ 10,000

Goodwill ............................................ 80,000 debit D2
Total ............................................ $100,000
333
Ch. 6Problems
Billing Enterprises and Subsidiary Rush Corporation

Depreciation expense (includes amortization
of excess on equipment) ................................................ $ 72,400*
Decrease in accounts receivable ......................................... 54,000
Decrease in accounts payable ............................................. (17,000)
Net cash provided by operating activities ............................. $201,700
Payment for purchase of Rush Corporation, $95,000 cash net
of $60,000 cash acquired ..................................................... (35,000)
Sale of bonds ($500,000 increase $400,0000
issued to Rush) .................................................................... $ 100,000
Dividends paid to noncontrolling shareholders .......................... (1,000)
Decrease in long-term liabilities ................................................. (160,000) (61,000)
Net increase in cash................................................................... $105,700
Cash at beginning of year .......................................................... 82,000
Cash at year-end........................................................................ $187,700
*$870,000 Billing + $460,000 Rush + $20,000 adjustment for excess less current balance of
$1,277,600 = $72,400 depreciation.

Billing Enterprises acquired 90% of the capital stock of Rush Corporation for $495,000. In con-
junction with the acquisition, liabilities were assumed and a noncontrolling interest created as
follows:
Adjusted value of assets acquired ($615,000

book value + $100,000 excess) ................................................. $715,000
Cash paid ......................................................................................... 95,000
Balance ............................................................................................ $620,000
Bonds issued ................................................................................... $400,000
Liabilities assumed........................................................................... $ 165,000
Noncontrolling interest (see D&D schedule) .................................... $ 55,000
334
Ch. 6Problems
PROBLEM 6-3
Bush, Inc. and Subsidiary Dorr Corporation

Gain on sale of equipment ................................................... $ (6,000)
Depreciation expense .......................................................... 82,000
Increase in allowance for marketable securities .................. (11,000)
Decrease in accounts receivable ......................................... 22,000
Increase in inventory ............................................................ (70,000)
Increase in accounts payable ............................................... 121,000
Increase in deferred income tax ........................................... 12,000
Net cash provided by operating activities ............................. $ 384,000
Purchase of equipment .............................................................. $(127,000)
Sale of equipment ...................................................................... 40,000
Net cash used in investing activities .................................... (87,000)
Sale of treasury stock................................................................. $ 44,000
Dividend payments to NCI ......................................................... (15,000)
Payment on long-term note payable .......................................... (150,000)
Net cash used in financing activities .................................... (179,000)
Cash at year-end ............................................................................. $ 313,000
Schedule of noncash investing and financing activities:

Bush, Inc., issued 10,000 shares of its common stock for land with a fair value of $215,000 on
January 20, 20X6.
335
Ch. 6Problems

Bush, Inc. and Subsidiary Dorr Corporation
Worksheet for Analysis of Cash Flows: Indirect Method
Account Change Explanations
Debit Credit Debit Credit Balance
Marketable Equity Securities ........... 0 .......... .......... ......... 0
Allowance, Lower Cost or Market.... 11,000 .......... (9) 11,000 ......... 0
Accounts Receivable (net) .............. .......... 22,000 .......... (10) 22,000 0
Inventory ......................................... 70,000 .......... (12) 70,000 ......... 0
Land ................................................ 215,000 .......... (2) 215,000 ......... 0
Plant and Equipment ....................... 65,000 .......... (5) 127,000 (6) 62,000 0
Accumulated Depreciation .............. 54,000 (6) 28,000 (11) 82,000 0
Goodwill (net) .................................. .......... 0 .......... ......... 0
Current Portion, Long-Term Debt .... .......... 0 .......... ......... 0
Accounts Payable and Accrued
Liabilities .................................. .......... 121,000 .......... (13) 121,000 0
Note Payable, Long-Term ............... 150,000 .......... (14) 150,000 ......... 0
Deferred Income Taxes ................... .......... 12,000 .......... (8) 12,000 0
NCI .................................................. .......... 18,000 (7) 15,000 (1) 33,000 0
Common Stock ($10 par) ................ .......... 100,000 .......... (2) 100,000 0
Paid-In Capital in Excess of Par ...... .......... 123,000 .......... (2) 115,000
.......... .......... .......... (3) 8,000 0
Retained Earnings........................... 143,000 (4) 58,000 (1) 201,000 0
Treasury Stock (at cost) .................. ......... 36,000 .......... (3) 36,000 0
511,000 629,000 674,000 792,000
Net Change in Cash ........................ 118,000 0 118,000 0
Cash from Operations:
Net Income ...................................... .......... .......... (1) 234,000 .........
Gain on Equipment ......................... .......... .......... .......... (6) 6,000
Increase in Deferred Tax ................. .......... .......... (8) 12,000 .........
Decrease in AllowanceShort-Term
Marketable Securities .................. .......... .......... .......... (9) 11,000
Decrease in Accounts Receivable... .......... .......... (10) 22,000 .........
Depreciation Expense ..................... .......... .......... (11) 82,000 .........
Increase in Inventory ....................... .......... .......... .......... (12) 70,000
Increase in Accounts Payable ......... .......... .......... (13) 121,000 .........
.......... .......... 471,000 87,000
Net Cash from Operations .............. .......... .......... 384,000 .........
Cash from Investing:
Purchase Equipment ....................... .......... .......... .......... (5) 127,000
Sale of Equipment ........................... .......... .......... (6) 40,000 .........
Net Cash from Investing .................. .......... .......... .......... (87,000)
Cash from Financing:
Sale of Treasury Stock .................... .......... .......... (3) 44,000 .........
Pay Dividend ................................... .......... .......... .......... (4) 58,000
Subsidiary Dividend ........................ .......... .......... .......... (7) 15,000
Payment on Long-Term Note Payable .......... .......... .......... (14) 150,000
.......... .......... .......... 223,000
Net Cash from Financing ................ .......... .......... .......... 179,000
Net Cash Provided .......................... .......... .......... .......... 118,000
Schedule of noncash investing and financing activities:
Explanation Item Amount

Stock for land .................................. (2) 215,000
336
Ch. 6Problems
PROBLEM 6-4
Subsidiary calculations:
$56,000 $4,000 preferred dividends
BEPS = = $4.33
12,000
$52,000 + $4,000 preferred dividends
DEPS = = $4.12
12,000 + 1,600 a
a
Preferred stock is dilutive, $4,000 1,600 = $2.50
Shares = 800 preferred shares 2 shares of common
Consolidated calculations:
$55,000 $500 preferred dividends + (9,600 b $4.33)
BEPS =
20,000
$55,000 $500 + $41,568
=
20,000
= $4.80
b
12,000 Sunny shares 80% interest
$55,000 $500 preferred dividends + (10,560 c $4.12 Sunny DEPS)

DEPS =
20,000 + 245 d
$55,000 $500 + $43,507
=
20,000 + 245
= $4.84
c
9,600 common stock shares + 60% of 1,600 common shares assumed issued on conver-
sion of convertible preferred stock
d
Shares Total Shares Share
Quarter Dilutive Outstanding Acquired Adjustment
1 no
2 no
3 yes 3,000 $36,000 13 = 2,769 231
4 yes 3,000 $36,000 16 = 2,250 750
981
Average (for four quarters) = 245
337
Ch. 6Problems
PROBLEM 6-5

Company Parent NCI
Implied Price Value
Common stock ($2 par)............... $ 20,000
Paid-in capital in excess of par ... 50,000
Total equity ............................ $170,000 $170,000 $170,000
Book value ........................................ $136,000 $ 34,000
value............................................ $130,000 $104,000 $ 26,000

Goodwill ............................................ 110,000 debit D2
Total ............................................ $130,000
Eliminations Consolidated
and Income
Delta Morgan Adjustments Statement
Sales ..................................... $(1,000,000)$(600,000)(IS) $50,000 $(1,550,000)
Less cost of goods sold ........ 800,000 375,000 (IS) (50,000)
(BI) (1,425)
(EI) 2,430 1,126,005
Gross profit ........................... $ (423,995)
Expenses .............................. 80,000 185,000 (F2) (8,000)
(A) 2,500 259,500
Income before tax ................. $ (164,495)
Less provision for tax ........... 49,498
Consolidated net income ...... $ (114,997)
Less NCI ............................... (5,083)
Controlling interest ................ $ (109,914)
Tax provision:
Add, amortization applicable to NCI, 20% $2,500 ...... 500
Taxable income .............................................................. $164,995
Tax provision at 30%...................................................... $ 49,498
338
Ch. 6Problems
Problem 6-5 Concluded
Eliminations and Adjustments:

(IS) Eliminate intercompany sales.
(BI) Adjustment for beginning inventory profit:
Sold by Morgan (0.25 $2,500) = $ 625
Sold by Delta (0.40 $2,000) = 800
Total $1,425
(EI) Adjustment for ending inventory profit:
Sold by Morgan (0.25 $3,000) = $ 750
Sold by Delta (0.40 $4,200) = 1,680
Total $2,430
(F2) Reduce depreciation for profit on machine sale, $40,000 5 = $8,000.
(A) Amortize $2,500 excess.
Subsidiary Morgan Company Income Distribution

Profit in ending inventory ...... (EI) $ 750 Internally generated income ... $40,000
Depreciation adjustment ....... (A) 2,500 Profit, beginning inventory ..... (BI) 625
Adjusted income .................... $37,375

Tax provision (see schedule) 11,362
Net income ............................. $26,013
NCI share of income
(see schedule).................. $ 5,083

(1) Total adjusted income................................... $29,900 $7,475 $37,375*
(2) NCI share of asset adjustments.................... 500 500
(3) Taxable income ............................................ $29,900 $7,975 $37,875
(4) Tax ................................................................ $ 8,970 $2,392 $11,362
(5) Net of tax share of income (line 1 line 4) ... $20,930 $5,083 $26,013
Parent Delta Corporation Income Distribution

Profit in ending inventory ...... (EI) $1,680 Internally generated income ... $120,000
Profit, beginning inventory ..... (BI) 800
Gain realized through use
of machine........................ (F2) 8,000
Adjusted income .................... $127,120

Tax provision (30%) ............... 38,136
Net income ............................. $ 88,984
Share of sub net-of-tax income
(see schedule).................. 20,930
Controlling interest ................. $109,914
339
Ch. 6Problems
PROBLEM 6-6

Company Parent NCI
Implied Price Value
Total equity ............................ 300,000 $300,000 $300,000
Book value ........................................ $240,000 $ 60,000
value............................................ $ 37,500 $ 30,000 $ 7,500

Goodwill ............................................ $37,500 debit D
340
Ch. 6Problems
Problem 6-6, Continued
Pepper Company and Subsidiary Salty Company

Worksheet for Consolidated Financial Statements
Eliminations Consolidated Controlling Consolidated
Trial Balance and Adjustments Income Retained Balance
Pepper Salty Dr. Cr. Statement NCI Earnings Sheet
Inventory, December 31 ......................... 100,000 50,000 .......... (EI) 4,000 ......... .......... .......... 146,000
Other Current Assets ............................. 198,000 200,000 .......... .......... ......... .......... .......... 398,000
Investment in Salty Company ................ 302,000 .......... (CY2) 8,000(CY1) 40,000 ......... .......... .......... ..........
.......... .......... .......... (EL) 240,000 ......... .......... .......... ..........
.......... .......... .......... (D) 30,000 ......... .......... .......... ..........
Land ....................................................... 240,000 100,000 .......... (F1) 10,000 ......... .......... .......... 330,000
Buildings and Equipment ....................... 300,000 200,000 .......... .......... ......... .......... .......... 500,000
Accumulated Depreciation ..................... (80,000) (60,000) .......... .......... ......... .......... .......... (140,000)
Goodwill ................................................. .......... .......... (D) 37,500 .......... ......... .......... .......... 37,500
Current Liabilities ................................... (150,000) (50,000) .......... .......... ......... .......... .......... (200,000)
Long-Term Liabilities .............................. (200,000) (100,000) .......... .......... ......... .......... .......... (300,000)
Common StockPepper ....................... (100,000) .......... .......... .......... ......... .......... .......... (100,000)
Paid-In Capital in Excess of ParPepper (180,000) .......... .......... .......... ......... .......... .......... (180,000)
Retained EarningsPepper .................. (320,000) .......... .......... .......... ......... .......... (320,000) ..........
Common StockSalty ........................... .......... (50,000)(EL) 40,000 .......... ......... (10,000) .......... ..........
Paid-In Capital in Excess of ParSalty .......... (100,000)(EL) 80,000 .......... ......... (20,000) .......... ..........
Retained EarningsSalty ...................... .......... (150,000)(EL) 120,000(NCI) 7,500 ......... (37,500) .......... ..........
Sales ...................................................... (500,000) (300,000)(IS) 50,000 .......... (750,000) .......... .......... ..........
Cost of Goods Sold ................................ 300,000 180,000 (EI) 4,000 (IS) 50,000 434,000 .......... .......... ..........
Operating Expenses ............................... 100,000 80,000 .......... .......... 180,000 .......... .......... ..........
Subsidiary Income.................................. (40,000) .......... (CY1) 40,000 .......... ......... .......... .......... ..........
Gain on Sale of Land ............................. .......... (10,000)(F1) 10,000 .......... ......... .......... .......... ..........
Dividends DeclaredPepper ................. 30,000 .......... .......... .......... ......... .......... 30,000 ..........
Dividends DeclaredSalty .................... .......... 10,000 .......... (CY2) 8,000 ......... 2,000 .......... ..........
Consolidated Income Before Tax ........... .......... .......... .......... .......... (136,000) .......... .......... ..........
Provision for Income Taxes, 30%........... .......... .......... (T) 40,800 .......... 40,800 .......... .......... ..........
Income Taxes Payable........................... .......... .......... (DTL) 600 (T) 40,800 ......... .......... .......... (40,200)
DTL ........................................................ .......... .......... .......... (DTL) 600 ......... .......... .......... (600)
0 0 430,900 430,900 ......... .......... .......... ..........
Consolidated Net Income ............................................................................................................................... (95,200) .......... .......... ..........
To NCI (see distribution schedule) ............................................................................................................. 5,600 (5,600) .......... ..........
To Controlling Interest (see distribution schedule)...................................................................................... 89,600 .......... (89,600) ..........
Total NCI ............................................................................................................................................................................. (71,100) ........... (71,100)
Retained EarningsControlling Interest, December 31, 20X1 ................................................................................................................. (379,600) (379,600)
Totals .......................................................................................................................................................................................................................... 0
341
Ch. 6Problems
Subsidiary Salty Company Income Distribution

Gain on sale of land .............. (F1) $10,000 Internally generated income ........ $50,000
Adjusted income ......................... $40,000

Tax provision (30%) .................... 12,000
Net income .................................. $28,000
NCI share .................................... 20%
NCI .............................................. $ 5,600
Parent Pepper Company Income Distribution

Profit, ending inventory ......... (EI) $4,000 Internally generated income ........ $100,000
Adjusted income ......................... $ 96,000

Tax at 30% .................................. (28,8
80% Salty net income
of $28,000 ............................. 22,400
Controlling interest ...................... $ 89,600

(CY1) Eliminate the current-year subsidiary income against the investment account.
(CY2) Eliminate parents share of subsidiarys dividends.
(EL) Eliminate 80% of the Salty Company equity balances at the beginning of the year
against the investment account.
(D)/(NCI) Allocate the $30,000 excess of cost and $7,500 NCI adjustment over book value to
goodwill.
(IS) Eliminate intercompany sales of $50,000.
(EI) Eliminate the $4,000 of gross profit in the ending inventory.
(F1) Eliminate the $10,000 gain on the sale of land against the land account.
(T) Record 30% provision for income tax
(DTL) Goodwill amortization for tax is $30,000 15 years = $2,000.
Tax deferral, 30% = $600
342
Ch. 6Problems
PROBLEM 6-7

Company Parent NCI
Implied Price Value
Total equity ............................ 800,000 $800,000 $800,000
Book value ........................................ $640,000 $160,000
value............................................ $ 312,500 $250,000 $ 62,500

Buildings ........................................... $200,000 debit D1 20 $10,000
Goodwill ............................................ 112,500 debit D2
Total ............................................ $312,500
Account Adjustments Annual Current Prior

to Be Amortized Life Amount Year Years Total Key
Buildings ............................... 20 $10,000 $10,000 $20,000 $30,000
(A1)
Total amortizations .......... $10,000 $10,000 $20,000 $30,000
Intercompany Inventory Profit Deferral

Parent Parent Parent Sub Sub Sub
Amount Percent Profit Amount Percent Profit
Beginning .............................. $40,000 50% $20,000 0%
Ending ................................... 30,000 50 15,000 0
343
Ch. 6Problems
Subsidiary Stark Company Income Distribution

Amortizations ................................ $10,000 Internally generated income ........ $ 60,000
Realized gain .............................. 8,000
Adjusted income ......................... $ 58,000

Tax provision ............................... (18,0
Net income .................................. $ 40,000
NCI share (see schedule) ........... 7,520
Controlling share of ..................... $ 32,480

(1) Total adjusted income................................... $46,400 $ 11,600 $58,000
(3) Taxable income ............................................ $46,400 $ 13,600 $60,000
(4) Tax ................................................................ $13,920 $ 4,080 $18,000
(5) Net of tax share of income (line 1 line 4) ... $32,480 $ 7,520 $40,000
Parent Pillar Company Income Distribution

Ending inventory profit .................. $15,000 Internally generated net
income................................... $100,000
Beginning inventory profit ........... 20,000
Adjusted income ......................... $105,000

Tax provision ............................... (31,5
Net income .................................. $ 73,500
Controlling share of
subsidiary .............................. 32,480
Controlling interest ...................... $105,980
344
Ch. 6Problems
Pillar Company and Subsidiary Stark Company

Pillar Stark Dr. Cr. Statement NCI Earnings Sheet
Cash....................................................... 208,600 380,000 .......... .......... ......... .......... .......... 588,600
Accounts Receivable.............................. 130,000 150,000 .......... (IA) 8,000 ......... .......... .......... 272,000
Inventory ................................................ 120,000 80,000 .......... (EI) 15,000 ......... .......... .......... 185,000
Investment in Stark ................................ 1,098,000 ....... .......... (CY1) 48,000 .......... .......... ..........
.......... .......... .......... (EL) 800,000 ......... .......... .......... ..........
.......... .......... .......... (D) 250,000 ......... .......... .......... ..........
Plant and Equipment .............................. 600,000 900,000 (D1) 200,000 (F1) 40,000 ......... .......... .......... 1,660,000
Accumulated Depreciation ..................... (350,000) (300,000) .......... (A1) 30,000 ......... .......... .......... ..........
.......... .......... (F1) 16,000 .......... ......... .......... .......... ..........
.......... .......... (F2) 8,000 .......... ......... .......... .......... (656,000)
Goodwill .......... .......... (D2) 112,500 .......... ......... .......... .......... 112,500
Liabilities ................................................ (205,000) (150,000)(IA) 8,000 .......... ......... .......... .......... (347,000)
Deferred Tax Liability ............................. (3,600) .......... .......... (DTL) 1,800 ......... .......... .......... (5,400)
Common StockStark ........................... .......... (300,000)(EL) 240,000 .......... ......... (60,000) .......... ..........
Retained Earnings, January 1, 20X3
Stark ............................................... .......... (700,000)(EL) 560,000(NCI) 62,500 ......... .......... .......... ..........
.......... .......... (A1) 4,000 .......... ......... .......... .......... ..........
.......... .......... (F2) 4,800 .......... ......... (193,700) .......... ..........
Common StockPillar ........................... (500,000) .......... .......... .......... ......... .......... .......... (500,000)
Retained Earnings, January 1, 20X3
Pillar ................................................ (950,000) .......... (A1) 16,000 .......... ......... .......... .......... ..........
.......... .......... (BI) 20,000 .......... ......... .......... .......... ..........
.......... .......... (F1) 19,200 .......... ......... .......... (894,800) ..........
345
Ch. 6Problems
Pillar Company and Subsidiary Stark Company

Concluded
Pillar Stark Dr. Cr. Statement NCI Earnings Sheet
Sales ...................................................... (800,000) (550,000)(IS) 70,000 .......... (1,280,000)...... .......... ..........
Cost of Goods Sold ................................ 430,000 320,000 .......... (IS) 70,000 ......... .......... .......... ..........
........................................................... .......... .......... (EI) 15,000 (BI) 20,000 675,000 .......... .......... ..........
Depreciation Expense ............................ 60,000 50,000 (A1) 10,000 .......... ......... .......... .......... ..........
........................................................... .......... .......... .......... (F2) 8,000 112,000 .......... .......... ..........
Other Expenses ..................................... 210,000 120,000 .......... .......... 330,000 .......... .......... ..........
.......... .......... .......... .......... ......... .......... .......... ..........
Totals .................................................. 0 0 .......... .......... ......... .......... .......... ..........
Consolidated Income Before Tax ................................................... .......... .......... (163,000) .......... .......... ..........
Consolidated Tax Provision ........................................................... (T) 49,500 .......... 49,500 .......... .......... ..........
Income Tax Payable ...................................................................... (DTL) 1,800 (T) 49,500 ......... .......... .......... (47,700)
Consolidated Net Income ............................................................... .......... .......... (113,500) .......... .......... ..........
To NCI (see distribution schedule) ............................................. .......... .......... 7,520 (7,520) .......... ..........
To Controlling Interest (see distribution schedule)...................... .......... .......... 105,980 .......... (105,980) ..........
Total NCI ........................................................................................ .......... .......... (261,220) .......... (261,220
Retained EarningsControlling Interest, December 31, 20X3 ...... .......... .......... (1,000,780) (1,000,780)
Totals................................................................................... 1,402,800 1,402,800 0

(CY1) Current-year subsidiary income. (EI) Defer ending inventory profit.
(EL) Eliminate controlling interest in Sub equity. (F1) Fixed asset profit at beginning of year.
(D)/(NCI) Distribute excess and adjust NCI per D&D schedule. (F2) Fixed asset profit realized.
(A) Amortize excess. (T) Subsidiary share of tax from IDS plus parent share
(IS) Eliminate intercompany sales during current period. of tax from IDS.
(IA) Eliminate intercompany unpaid trade accounts. (DTL) Goodwill amortization for tax, [(80% $112,500)/15
(BI) Defer beginning inventory profit. 30% tax rate].
346
Ch. 6Problems
PROBLEM 6-8
(1) Determination and Distribution of Excess Schedule
Company Parent NCI

Implied Price Value
Fair value of subsidiary .............. $562,500 $450,000 $112,500
Common stock ...................... $ 10,000
Paid-in capital in excess of par 190,000
Retained earnings ................. 170,000
Total equity ...................... $370,000 $370,000 $370,000
Interest acquired ................... 80% 20%
Book value ................................. $296,000 $ 74,000
value ...................................... $192,500 $154,000 $ 38,500

Buildings .................................... $100,000 debit D1 20 $5,000
Equipment.................................. 50,000 debit D2 5 10,000
Goodwill ..................................... 42,500 debit D3
Total ...................................... $192,500
(2) Worksheet and Support Schedules
Account Adjustments Annual Current Prior

Buildings ........................ 20 $ 5,000 $ 5,000 $ 5,000
$10,000 .......................... (A1)
Equipment...................... 5 10,000 10,000 10,000 20,000
(A2)
Total amortizations .... $15,000 $15,000 $15,000 $30,000

Beginning ....................... 0% $12,000 30% $3,600
Ending ........................... 0 16,000 30 4,800
347
Ch. 6Problems
Problem 6-8 Continued
Subsidiary Sonar Company Income Distribution

Ending inventory profit ................ $ 4,800 Internally generated income ........ $ 42,000
Amortizations .............................. 15,000 Beginning inventory profit ............ 3,600
Adjusted income .......................... $ 25,800

Tax provision ............................... (11,5
Net income................................... $ 14,280
NCI share (see schedule) ............ 1,896
Controlling share.......................... $ 12,384

(1) Total adjusted income ............................. $20,640 $5,160 $25,800
(2) NCI share of asset adjustments .............. 3,000 3,000
(3) Taxable income ...................................... $20,640 $8,160 $28,800
(4) Tax .......................................................... $ 8,256 $3,264 $11,520
(5) Net of tax share of income
(line 1 line 4) ........................................ $12,384 $1,896 $14,280
Parent Penstar Company Income Distribution

Internally generated income ........ $205,000
Realized gain ............................... 8,000
Adjusted income .......................... $213,000

Tax provision ............................... (85,2
Net income................................... $127,800
subsidiary (net of tax)............. 12,384
Controlling interest ....................... $140,184
348
Ch. 6Problems
Penstar Company and Subsidiary Sonar Company

Penstar Sonar Dr. Cr. Statement NCI Earnings Sheet
Cash....................................................... 94,107 54,000 .......... .......... ......... .......... .......... 148,107
Inventory ................................................ 105,000 90,000 .......... (EI) 4,800 ......... .......... .......... 190,200
Land ....................................................... 100,000 150,000 .......... .......... ......... .......... .......... 250,000
Investment in Sonar ............................... 517,200 .......... .......... (CY1) 33,600 ......... .......... .......... ..........
.......... .......... (CY2) 8,000 .......... ......... .......... .......... ..........
.......... .......... .......... (EL) 337,600 ......... .......... .......... ..........
.......... .......... .......... (D) 154,000 ......... .......... .......... ..........
Buildings ................................................ 800,000 250,000 (D1) 100,000 .......... ......... .......... .......... 1,150,000
Accumulated Depreciation ..................... (250,000) (70,000) .......... (A1) 10,000 ......... .......... .......... (330,000)
Equipment .............................................. 210,000 120,000 (D2) 50,000 (F1) 40,000 ......... .......... .......... 340,000
.......... .......... (F1) 8,000 .......... ......... .......... .......... ..........
.......... .......... (F2) 8,000 .......... ......... .......... .......... (209,000)
Goodwill ................................................. .......... .......... (D3) 42,500 .......... ......... .......... .......... 42,500
Accounts Payable .................................. (70,000) (40,000)(IA) 6,000 .......... ......... .......... .......... (104,000)
Bonds Payable ....................................... .......... (100,000) .......... .......... ......... .......... .......... (100,000)
Deferred Tax Liability ............................. (907) .......... .......... (DTL) 907 ......... .......... .......... (1,814)
Common StockSonar ......................... .......... (10,000)(EL) 8,000 .......... ......... (2,000) .......... ..........
Paid-In Capital in Excess of ParSonar .......... (190,000)(EL) 152,000 .......... ......... (38,000) .......... ..........
Retained EarningsSonar .................... .......... (222,000)(EL) 177,600(NCI) 38,500 ......... .......... .......... ..........
.......... .......... (BI) 720 .......... ......... .......... .......... ..........
.......... .......... (A1A3) 3,000 .......... ......... .......... .......... ..........
.......... .......... .......... .......... ......... (79,180) .......... ..........
Common StockPenstar ....................... (100,000) .......... .......... .......... ......... .......... .......... (100,000)
Paid-In Capital in Excess of ParPenstar (600,000) .......... .......... .......... ......... .......... .......... (600,000)
Retained EarningsPenstar .................. (622,400) .......... (A1A3) 12,000 .......... ......... .......... .......... ..........
.......... .......... (BI) 2,880 .......... ......... .......... .......... ..........
.......... .......... (F1) 32,000 .......... ......... .......... (575,520) ..........
349
Ch. 6Problems

Concluded
Sales ...................................................... (890,000) (350,000)(IS) 30,000 .......... (1,210,000)...... .......... ..........
.......... .......... (EI) 4,800 (BI) 3,600 671,200 .......... .......... ..........
Depreciation ExpenseBuildings .......... 30,000 10,000 (A1) 5,000 .......... 45,000 .......... .......... ..........
Depreciation ExpenseEquipment ....... 25,000 10,000 (A2) 10,000 .......... ......... .......... .......... ..........
.......... .......... .......... (F2) 8,000 37,000 .......... .......... ..........
Other Expenses ..................................... 150,000 60,000 .......... .......... 210,000 .......... .......... ..........
Interest Expense .................................... .......... 8,000 .......... .......... 8,000 .......... .......... ..........
Dividends DeclaredSonar ................... .......... 10,000 .......... (CY2) 8,000 ......... 2,000 .......... ..........
Dividends DeclaredPenstar ................ 20,000 .......... .......... .......... ......... .......... 20,000 ..........
Totals .................................................. 0 0 .......... .......... ......... .......... .......... ..........
Income Tax Payable ...................................................................... (DTL) 907 (T) 96,720 ......... .......... .......... (95,813)
To NCI (see distribution schedule) ................................................. .......... .......... 1,896 (1,896) .......... ..........
To Controlling Interest (see distribution schedule) ......................... .......... .......... 140,184 .......... (140,184) ..........
Total NCI ........................................................................................ .......... .......... (119,076) .......... (119,076)
Retained EarningsControlling Interest, December 31, 20X2 ...... .......... .......... (695,704) (695,704)
Totals ...................................................................................... 791,727 791,727 0

(CY1) Current-year subsidiary income. (BI) Defer beginning inventory profit.
(CY2) Current-year dividend. (EI) Defer ending inventory profit.
(A) Amortize excess. (T) Taxation as consolidated firm.
(IS) Eliminate intercompany sales during current period. (DTL) Goodwill amortization for tax, $42,500/15 = $2,833.
(IA) Eliminate intercompany unpaid trade accounts. $2,833 80% 40% tax = $907.
350
Ch. 6Problems
PROBLEM 6-9

Company Parent NCI
Implied Price Value
Common stock ....................... $ 10,000
Retained earnings .................. 170,000
Total equity ......................... $370,000 $370,000 $370,000
Interest acquired..................... 80% 20%
Book value ................................. $296,000 $ 74,000
value ....................................... $192,500 $154,000 $ 38,500

Buildings .................................... $100,000 debit D1 20 $ 5,000
Goodwill ..................................... 42,500 debit D3
Total ...................................... $192,500
(2) Account Adjustments Annual Current Prior

Buildings ........................ 20 $ 5,000 $ 5,000 $10,000
$15,000 .......................... (A1)
Equipment...................... 5 10,000 10,000 20,000 30,000
(A2)

Beginning ....................... $ 0% $ $16,000 30% $4,800
Ending ........................... 15,000 40 6,000 10,000 30 3,000
351
Ch. 6Problems
Subsidiary Sonar Company Income Distribution

Amortizations .............................. $15,000 Internally generated income ........ $ 72,000
Ending inventory profit ................ 3,000 Beginning inventory profit ............ 4,800
Equipment gain ........................... 25,000 Realized gain ............................... 5,000
Adjusted income .......................... $ 38,800

Tax provision (see schedule) ....... (16,7
Net income................................... $ 22,080

(1) Total adjusted income ............................. $31,040 $ 7,760 $38,800
(3) Taxable income ...................................... $31,040 $10,760 $41,800
(4) Tax .......................................................... $12,416 $ 4,304 $16,720
(5) Net of tax share of income
(line 1 line 4) ........................................ $18,264 $3,456 $22,080
Parent Penstar Company Income Distribution

Ending inventory profit ................... $6,000 Internally generated income ........ $159,000
Realized gain ............................... 8,000
Adjusted income .......................... $161,000

Tax provision (40%) ..................... (64,4
Net income................................... $ 96,600
subsidiary (net of tax)............. 18,624
Controlling interest ....................... $115,224
352
Ch. 6Problems

Cash....................................................... 95,814 80,000 .......... .......... ......... .......... .......... 175,814
Inventory ................................................ 115,000 120,000 .......... (EI) 9,000 ......... .......... .......... 226,000
Land ....................................................... 100,000 150,000 .......... .......... ......... .......... .......... 250,000
Investment in Sonar ............................... 554,000 .......... .......... (CY1) 57,600 ......... .......... .......... ..........
.......... .......... (CY2) 8,000 .......... ......... .......... .......... ..........
.......... .......... .......... (EL) 350,400 ......... .......... .......... ..........
.......... .......... .......... (D) 154,000 ......... .......... .......... ..........
Buildings ................................................ 900,000 250,000 (D1) 100,000 .......... ......... .......... .......... 1,250,000
Equipment .............................................. 210,000 120,000 (D2) 50,000 (F1) 65,000 ......... .......... .......... 315,000
.......... .......... (F1) 16,000 .......... ......... .......... .......... ..........
.......... .......... (F2) 13,000 .......... ......... .......... .......... (241,000)
Goodwill ................................................. .......... .......... (D3) 42,500 .......... ......... .......... .......... 42,500
Bonds Payable ....................................... .......... (100,000) .......... .......... ......... .......... .......... (100,000)
Deferred Tax Liability ............................. (1,814) .......... .......... (DTL) 907 ......... .......... .......... (2,721)
Common StockSonar ......................... .......... (10,000)(EL) 8,000 .......... ......... (2,000) .......... ..........
Paid-In Capital in Excess of ParSonar .......... (190,000)(EL) 152,000 .......... ......... (38,000) .......... ..........
Retained EarningsSonar .................... .......... (238,000)(EL) 190,400(NCI) 38,500 ......... .......... .......... ..........
.......... .......... (BI) 960 .......... ......... .......... .......... ..........
.......... .......... (A1A2) 6,000 .......... ......... .......... .......... ..........
.......... .......... .......... .......... ......... (79,140) .......... ..........
Common StockPenstar ....................... (100,000) .......... .......... .......... ......... .......... .......... (100,000)
Paid-In Capital in Excess of Par
Penstar ........................................... (600,000) .......... .......... .......... ......... .......... .......... (600,000)
Retained EarningsPenstar .................. (747,000) .......... (A1A2) 24,000 .......... ......... .......... .......... ..........
.......... .......... (BI) 3,840 .......... ......... .......... .......... ..........
.......... .......... (F1) 24,000 .......... ......... .......... (695,160) ..........
353
Ch. 6Problems

Concluded
Sales ...................................................... (950,000) (400,000)(IS) 100,000 .......... (1,250,000)...... .......... ..........
.......... .......... (EI) 9,000 (BI) 4,800 704,200 .......... .......... ..........
Depreciation ExpenseBuildings ......... 40,000 10,000 (A1) 5,000 .......... 55,000 .......... .......... ..........
.......... .......... .......... (F2) 13,000 32,000 .......... .......... ..........
Other Expenses ..................................... 176,000 75,000 .......... .......... 251,000 .......... .......... ..........
Gain on Sale of Fixed Asset ................... .......... (25,000)(F1) 25,000 .......... ......... .......... .......... ..........
Dividends DeclaredSonar ................... .......... 10,000 .......... (CY2) 8,000 ......... 2,000 .......... ..........
Dividends DeclaredPenstar ................ 20,000 .......... .......... .......... ......... .......... 20,000 ..........
Totals .................................................. 0 0 .......... .......... ......... .......... .......... ..........
Income Tax Payable ...................................................................... (DTL) 907 (T) 81,120 ......... .......... .......... (80,213)
To NCI (see distribution schedule) ............................................. .......... .......... 3,456 (3,456) .......... ..........
To Controlling Interest (see distribution schedule)...................... .......... .......... 115,224 .......... (115,224) ..........
Total NCI ........................................................................................ .......... .......... (120,596) .......... (120,596)
Retained EarningsControlling Interest, December 31, 20X3 ...... .......... .......... (790,384) (790,384
Totals ...................................................................................... 945,327 945,327 0

(A) Amortize excess. (T) Taxation as consolidated firm.
(IS) Eliminate intercompany sales during current period. (DTL) Goodwill amortization for tax, $42,500/15 = $2,833
(IA) Eliminate intercompany unpaid trade accounts. $2,833 80% 40% tax = $907.
354
Ch. 6Problems
PROBLEM 6-10

Company Parent NCI
Implied Price Value
Total equity ............................ 422,000 $422,000 $422,000
Book value ........................................ $295,400 $126,600
value............................................ $ 78,000 $ 54,600 $ 23,400

Goodwill ............................................ $78,000 debit D

Beginning .............................. 0% $10,000 40% $4,000
Ending ................................... 0 20,000 40 8,000
Subsidiary Sunfish Company Income Distribution

Ending inventory profit .................. $8,000 Internally generated income ........ $ 80,000
Beginning inventory profit ........... 4,000
Adjusted income ......................... $ 76,000

Tax provision (30%) .................... (22,8
Net income .................................. $ 53,200
NCI share .................................... 15,960
Controlling share ......................... $ 37,240
355
Ch. 6Problems
Parent Pike Company Income Distribution

Realized gain .............................. 4,000
Adjusted income ......................... $104,000

Tax provision (30%) .................... (31,2
Net income .................................. $ 72,800
subsidiary (net of first tax) ..... 37,240
Second tax on subsidiary
income................................... (2,2
DTA/DTL adjustments:
To beginning retained earnings: Parent Sub
Subsidiary transactions:
Beginning inventory............................................ $ 4,000 $ 2,800 $ 1,200
Remaining fixed asset profit ...............................
Total ................................................................... $ 4,000 $ 2,800 $ 1,200
First tax .............................................................. $ 1,200 $ 840 $ 360
Second tax [20% 30% ($2,800 $840)] ...... $ 118 $ 118
Parent transactions:
Beginning inventory............................................ $
Remaining fixed asset profit ............................... 12,000 $12,000
Total ................................................................... $12,000 12,000
First tax .............................................................. 3,600 3,600
Increase (Decrease) in retained earnings and DTA . $ 4,918 $ 4,558 $ 360
To current year:
Beginning inventory............................................ $ (4,000) $ (2,800) $(1,200)
Ending inventory ................................................ 8,000 5,600 2,400
Fixed asset sale .................................................
Realized fixed asset ...........................................
Total ................................................................... $ 4,000 $ 2,800 $ 1,200
First tax .............................................................. $ 1,200 $ 840 $ 360
Second tax [20% 30% ($2,800 $840)] ...... $ 118 $ 118
Ending inventory ................................................
Fixed asset sale .................................................
Remaining fixed asset profit ............................... (4,000)
Total ................................................................... $ (4,000)
First tax .............................................................. $ (1,200) $ (1,200)
Increase (Decrease) in DTA .................................... $ 118 $ (242) $ 360
356
Ch. 6Problems
Pike Company and Subsidiary Sunfish Company

Pike Sunfish Dr. Cr. Statement NCI Earnings Sheet
Accounts Receivable.............................. 317,576 295,000 .......... .......... ......... .......... .......... 612,576
Inventory ................................................ 110,000 85,000 .......... (EI) 8,000 ......... .......... .......... 187,000
Land ....................................................... 150,000 90,000 .......... .......... ......... .......... .......... 240,000
Investment in Sunfish ............................. 387,800 .......... .......... (CY1) 39,200 ......... .......... .......... ..........
.......... .......... (CY2) 21,000 .......... ......... .......... .......... ..........
.......... .......... .......... (EL) 315,000 ......... .......... .......... ..........
.......... .......... .......... (D) 54,600 ......... .......... .......... ..........
Buildings ................................................ 200,000 200,000 .......... .......... ......... .......... .......... 400,000
Accumulated Depreciation ..................... (100,000) (50,000) .......... .......... ......... .......... .......... (150,000)
Equipment .............................................. 120,000 80,000 .......... (F1) 12,000 ......... .......... .......... 188,000
Accumulated Depreciation ..................... (35,000) (20,000) .......... .......... ......... .......... .......... ..........
.......... .......... .......... .......... ......... .......... .......... ..........
.......... .......... (F2) 4,000 .......... ......... .......... .......... (51,000)
Goodwill .......... .......... (D) 78,000 .......... ......... .......... .......... 78,000
Accounts Payable .................................. (120,000) (80,000) .......... .......... ......... .......... .......... (200,000)
Current Tax Liability ............................... (31,260) (24,000) .......... .......... ......... .......... .......... (55,260)
Bond Payable ......................................... (200,000) (100,000) .......... .......... ......... .......... .......... (300,000)
Discount (Premium) ............................... .......... .......... .......... .......... ......... .......... .......... ..........
............................................................... .......... .......... .......... .......... ......... .......... .......... ..........
Deferred Tax Liability ............................. (2,268) .......... (T1) 4,918 .......... ......... .......... .......... ..........
.......... .......... (T2) 118 .......... ......... .......... .......... 2,767
Common StockSunfish ....................... .......... (10,000)(EL) 7,000 .......... ......... (3,000) .......... ..........
Paid-In Capital in Excess of ParSunfish .......... (190,000)(EL) 133,000 .......... ......... (57,000) .......... ..........
Retained EarningsSunfish .................. .......... (250,000)(EL) 175,000(NCI) 23,400 ......... .......... .......... ..........
.......... .......... (BI) 1,200 (T1) 360 ......... .......... .......... ..........
.......... .......... .......... .......... ......... (97,560) .......... ..........
Common StockPike ............................ (100,000) .......... .......... .......... ......... .......... .......... (100,000)
Paid-In Capital in Excess of ParPike .. (200,000) .......... .......... .......... ......... .......... .......... (200,000)
Retained EarningsPike ....................... (450,000) .......... .......... .......... ......... .......... .......... ..........
.......... .......... (BI 2,800 (T1) 4,558 ......... .......... .......... ..........
.......... .......... (F1) 12,000 .......... ......... .......... (439,758) ..........
357
Ch. 6Problems
Pike Company and Subsidiary Sunfish Company

Concluded
Pike Sunfish Dr. Cr. Statement NCI Earnings Sheet
Sales ...................................................... (590,000) (370,000)(IS) 60,000 .......... (900,000) .......... .......... ..........
.......... .......... (EI) 8,000 (BI) 4,000 504,000 .......... .......... ..........
Depreciation ExpenseBuilding ............ 15,000 8,000 .......... .......... ......... .......... .......... ..........
Depreciation ExpenseEquipment ....... 20,000 12,000 .......... .......... ..... 23,800 .......... .......... ..........
.......... .......... .......... (F2) 4,000 28,000 .......... .......... ..........
Other Expenses ..................................... 115,000 50,000 .......... .......... 165,000 .......... .......... ..........
Interest Expense .................................... .......... .......... .......... .......... ......... .......... .......... ..........
.......... .......... .......... .......... ......... .......... .......... ..........
Provision for Tax .................................... 32,352 24,000 .......... (T2) 118 56,234 .......... .......... ..........
Dividends DeclaredSunfish................. .......... 30,000 .......... (CY2) 21,000 ......... 9,000 .......... ..........
Dividends DeclaredPike ..................... 60,000 .......... .......... .......... ......... .......... 60,000 ..........
Totals .................................................. 0 0 546,236 546,236 ......... .......... .......... ..........
To NCI (see distribution schedule) ................................................................................................................. 15,960 (15,960) .......... ..........
To Controlling Interest (see distribution schedule) ......................................................................................... 107,806 .......... (107,806) ..........
Total NCI ............................................................................................................................................................................. (164,520) .......... (164,520)
Retained EarningsControlling Interest, December 31, 20X2 ................................................................................................................. (487,563)* (487,563)
Totals .......................................................................................................................................................................................................................... 0
*Adjusted for rounding.

(CY1) Current-year subsidiary income. (F1) Fixed asset profit at beginning of year.
(CY2) Current-year dividend. (F2) Fixed asset profit realized.
(EL) Eliminate controlling interest in Sub equity. (T1) Deferred tax asset (liability) applicable to beginning
(D)/(NCI) Distribute excess and adjust NCI per D&D schedule. retained earnings.
(IS) Eliminate intercompany sales during current period. (T2) Deferred tax asset (liability) applicable to current
(BI) Defer beginning inventory profit. year.
(EI) Defer ending inventory profit.
358
Ch. 6Problems
PROBLEM 6-11

Company Parent NCI
Implied Price Value
Common stock ...................... $ 10,000
Retained earnings ................. 170,000
Total equity ...................... $370,000 $370,000 $370,000
Interest acquired ................... 80% 20%
Book value ................................. $296,000 $ 74,000
value ...................................... $192,500 $154,000 $ 38,500

Goodwill ..................................... 42,500 debit D3
Total ...................................... $192,500

Buildings ........................ 20 $ 5,000 $ 5,000 $ 5,000
$10,000 .......................... (A1)
Equipment...................... 5 10,000 10,000 10,000 20,000
(A2)

Beginning ....................... 0% $12,000 30% $3,600
Ending ........................... 0 16,000 30 4,800
359
Ch. 6Problems
Subsidiary Stock Company Income Distribution

Adjusted income .......................... $ 25,800

Net income................................... $ 14,280

(1) Total adjusted income ............................. $20,640 $5,160 $25,800
(3) Taxable income ...................................... $20,640 $8,160 $28,800
(4) Tax .......................................................... $ 8,256 $3,264 $11,520
(5) Net income .............................................. $12,384 $1,896 $14,280
Parent Penske Company Income Distribution

Realized gain .............................. 8,000
Adjusted income ......................... $213,000

Tax provision (40%) .................... (85,2
Net income .................................. $127,800
income................................... (991)
360
Ch. 6Problems
Beginning inventory............................................ $ 3,600 $ 2,880 $ 720
Amortizations (80%) ........................................... 12,000 12,000
Total ................................................................... $15,600 $14,880 $ 720
First tax .............................................................. $ 6,240 $ 5,952 $ 288
Second tax [20% 40% ($14,880 $5,952)] . $ 714 $ 714
Remaining fixed asset profit ............................... 32,000
Total ................................................................... $32,000
First tax .............................................................. 12,800 12,800
Total retained earnings adjustments ........................ $19,754 $19,466 $ 288
To current year:
Beginning inventory............................................ $ (3,600) $ (2,880) $(720)
Ending inventory ................................................ 4,800 3,840 960
Fixed asset sale .................................................
Realized fixed asset ...........................................
Amortizations (80%) ........................................... 12,000 12,000
Total ................................................................... $13,200 $12,960 $ 240
First tax .............................................................. $ 5,280 $ 5,184 $ 96
Second tax [20% 40% ($12,960 $5,184)] . $ 622 $ 622
Ending inventory ................................................
Fixed asset sale .................................................
Total ................................................................... $ (8,000)
First tax .............................................................. $ (3,200) $ (3,200)
Total adjustment to provision ................................... $ 2,702 $ 2,606 $ 96
361
Ch. 6Problems
Penske Company and Subsidiary Stock Company

Penske Stock Dr. Cr. Statement NCI Earnings Sheet
Cash....................................................... 92,400 53,200 .......... .......... ......... .......... .......... 145,600
Inventory ................................................ 105,000 90,000 .......... (EI) 4,800 ......... .......... .......... 190,200
Land ....................................................... 100,000 120,000 .......... .......... ......... .......... .......... 220,000
Investment in Stock ................................ 503,120 .......... .......... (CY1) 20,160 ......... .......... ..........
.......... .......... (CY2) 8,000 .......... ......... .......... ..........
.......... .......... .......... (EL) 336,960 ......... .......... ..........
.......... .......... .......... (D) 154,000 ......... .......... ..........
Buildings ................................................ 800,000 250,000 (D1) 100,000 .......... ......... .......... .......... 1,150,000
Equipment .............................................. 210,000 120,000 (D2) 50,000 (F1) 40,000 ......... .......... .......... 340,000
Accumulated Depreciation ..................... .......... (115,000) (90,000) .......... (A2) 20,000 ......... .......... ..........
.......... .......... (F1) 8,000 .......... ......... .......... ..........
.......... .......... (F2) 8,000 .......... ......... .......... .......... (209,000)
Goodwill ................................................. .......... 30,000 (D3) 42,500 .......... ......... .......... .......... 72,500
Bonds Payable ....................................... .......... (100,000) .......... .......... ......... .......... .......... (100,000)
Deferred Tax Liability ............................. (4,250) .......... (T1) 19,754 .......... ......... .......... ..........
.......... .......... (T2) 2,702 .......... ......... .......... .......... 18,206
Common StockStock .......................... .......... (10,000)(EL) 8,000 .......... ......... (2,000) ..........
Paid-In Capital in Excess of ParStock .......... (190,000)(EL) 152,000 .......... ......... (38,000) ..........
Retained EarningsStock ..................... .......... ..............(221,200)(EL) 176,960(NCI) 38,500 ......... .......... ..........
.......... .......... (BI) 720 (T1) 288 ......... .......... ..........
.......... .......... (A1A2) 3,000 .......... ......... .......... ..........
.......... .......... .......... .......... ......... (79,308) ..........
Common StockPenske ....................... (100,000) .......... .......... .......... ......... .......... .......... (100,000)
Paid-In Capital in Excess of Par
Penske ............................................ (600,000) .......... .......... .......... ......... .......... .......... (600,000)
Retained EarningsPenske .................. (617,683) .......... (A1A2) 12,000 .......... ......... .......... ..........
.......... .......... (BI) 2,880 (T1) 19,466 ......... .......... ..........
.......... .......... (F1) 32,000 .......... ......... .......... (590,269)
362
Ch. 6Problems

Concluded
Sales ...................................................... (890,000) (350,000)(IS) 30,000 .......... (1,210,000)...... ..........
Cost of Goods Sold ................................ 480,000 220,000 .......... (IS) 30,000 ......... .......... ..........
.......... .......... (EI) 4,800 (BI) 3,600 671,200 .......... ..........
Depreciation ExpenseBuildings .......... 30,000 10,000 (A1) 5,000 .......... 45,000 .......... ..........
Depreciation ExpenseEquipment ....... 25,000 10,000 (A2) 10,000 .......... ......... .......... ..........
.......... .......... .......... (F2) 8,000 37,000 .......... ..........
Other Expenses ..................................... 150,000 60,000 .......... .......... 210,000 .......... ..........
Interest Expense .................................... .......... 8,000 .......... .......... 8,000 .......... ..........
.......... .......... .......... .......... ......... .......... ..........
Provision for Income Tax ....................... 83,613 16,800 .......... (T2) 2,702 97,711 .......... ..........
Subsidiary Income.................................. (20,160) .......... (CY1) 20,160 .......... ......... .......... ..........
Dividends DeclaredStock ................... .......... 10,000 .......... (CY2) 8,000 ......... 2,000 ..........
Dividends DeclaredPenske................. 20,000 .......... .......... .......... ......... .......... 20,000
Totals .................................................. 0 0 702,476 702,476 ......... .......... ..........
Consolidated Net Income ............................................................................................................................... (141,089) .......... ..........
To NCI (see distribution schedule) ................................................................................................................. 1,896 (1,896) ..........
To Controlling Interest (see distribution schedule) ......................................................................................... 139,193 .......... (139,193)
Total NCI ............................................................................................................................................................................. (119,204) .......... (119,204)
Totals .......................................................................................................................................................................................................................... 0

(A) Amortize excess. (T1) Deferred tax asset (liability) applicable to beginning
(IS) Eliminate intercompany sales during current period. retained earnings.
(IA) Eliminate intercompany unpaid trade accounts. (T2) Deferred tax asset (liability) applicable to current
year.
363
Ch. 6Problems
PROBLEM 6-12

Company Parent NCI
Implied Price Value
Less book value interest acquired:
Common stock ....................... $ 10,000
Retained earnings .................. 170,000
Total equity ......................... $370,000 $370,000 $370,000
Interest acquired ........................ 80% 20%
Book value ................................. $296,000 $ 74,000
value ....................................... $192,500 $154,000 $ 38,500

Goodwill ..................................... 42,500 debit D3
Total ...................................... $192,500

Buildings ........................ 20 $ 5,000 $ 5,000 $10,000
$15,000 .......................... (A1)
Equipment...................... 5 10,000 10,000 20,000 30,000
(A2)

Beginning ....................... $ 0% $ $16,000 30% $4,800
Ending ........................... 15,000 40 6,000 10,000 30 3,000
364
Ch. 6Problems
Subsidiary Stock Company Income Distribution

Equipment gain ........................... 25,000 Realized gain ............................... 5,000
Adjusted income .......................... $ 38,800

Net income................................... $ 22,080

(1) Total adjusted income ............................. $31,040 $ 7,760 $38,800
(3) Taxable income ...................................... $31,040 $ 10,760 $41,800
(4) Tax .......................................................... $12,416 $ 4,304 $16,720
(5) Net income (line 1 line 4) ..................... $18,624 $ 3,456 $22,080
Parent Penske Company Income Distribution

Ending inventory profit .................. $6,000 Internally generated income ........ $159,000
Realized gain .............................. 8,000
Adjusted income ......................... $161,000

Tax provision (40%) .................... (64,4
Net income .................................. $ 96,600
income................................... (1,4
365
Ch. 6Problems
Beginning inventory............................................ $ 4,800 $ 3,840 $ 960
Amortizations (80%) ........................................... 24,000 24,000
Total ................................................................... $28,800 $27,840 $ 960
First tax .............................................................. $11,520 $11,136 $ 384
Second tax [20% 40% ($27,840 $11,136)] $ 1,336 $ 1,336
Remaining fixed asset profit ............................... 24,000
Total ................................................................... $24,000
First tax .............................................................. 9,600 9,600
Total RE adjustments............................................... $22,456 $22,072 $ 384
To current year:
Beginning inventory............................................ $ (4,800) $ (3,840) $ (960)
Ending inventory ................................................ 3,000 2,400 600
Fixed asset sale ................................................. 25,000 20,000 5,000
Realized fixed asset ........................................... (5,000) (4,000) $(1,000)
Amortizations (80%) ........................................... 12,000 12,000
Total ................................................................... $30,200 $26,560 $ 3,640
First tax .............................................................. $12,080 $10,624 $ 1,456
Second tax [20% 40% ($26,560 $10,624)] $ 1,275 $ 1,275
Ending inventory ................................................ 6,000
Fixed asset sale .................................................
Total ................................................................... $ (2,000)
First tax .............................................................. $ (800) $ (800)
Total adjustment to provision ................................... $12,555 $11,099 $1,456
366
Ch. 6Problems

Cash....................................................... 91,760 78,400 .......... .......... ......... .......... .......... 170,160
Inventory ................................................ 115,000 120,000 .......... (EI) 9,000 ......... .......... .......... 226,000
Land ....................................................... 100,000 120,000 .......... .......... ......... .......... .......... 220,000
Investment in Stock ................................ 529,680 .......... .......... (CY1) 34,560 ......... .......... .......... ..........
.......... .......... (CY2) 8,000 .......... ......... .......... .......... ..........
.......... .......... .......... (EL) 349,120 ......... .......... .......... ..........
.......... .......... .......... (D) 154,000 ......... .......... .......... ..........
Buildings ................................................ 900,000 250,000 (D1) 100,000 .......... ......... .......... .......... 1,250,000
Equipment .............................................. 210,000 120,000 (D2) 50,000 (F1) 65,000 ......... .......... .......... 315,000
.......... .......... (F1) 16,000 .......... ......... .......... .......... ..........
.......... .......... (F2) 13,000 .......... ......... .......... .......... (241,000)
Goodwill ................................................. .......... 30,000 (D3) 42,500 .......... ......... .......... .......... 72,500
Bonds Payable ....................................... .......... (100,000) .......... .......... ......... .......... .......... (100,000)
Deferred Tax Liability ............................. (6,375) .......... (T1) 22,456 .......... ......... .......... ..........
.......... .......... (T2) 12,555 .......... ......... .......... .......... 28,636
Common StockStock .......................... .......... (10,000)(EL) 8,000 .......... ......... (2,000) .......... ..........
Paid-In Capital in Excess of ParStock .......... (190,000)(EL) 152,000 .......... ......... (38,000) .......... ..........
Retained EarningsStock ..................... .......... (236,400)(EL) 189,120(NCI) 38,500 ......... .......... .......... ..........
.......... .......... (BI) 960 (T1) 384 ......... .......... .......... ..........
.......... .......... (A1A2) 6,000 .......... ......... .......... .......... ..........
.......... .......... .......... .......... ......... (79,204) .......... ..........
Common StockPenske ....................... (100,000) .......... .......... .......... ......... .......... .......... (100,000)
Paid-In Capital in Excess of ParPenske (600,000) .......... .......... .......... ......... .......... .......... (600,000)
Retained EarningsPenske .................. (739,230) .......... (A1A2) 24,000 .......... ......... .......... .......... ..........
.......... .......... (BI) 3,840 (T1) 22,072 ......... .......... .......... ..........
.......... .......... (F1) 24,000 .......... ......... .......... (709,462) ..........
367
Ch. 6Problems

Concluded
Sales ...................................................... (950,000) (400,000)(IS) 100,000 .......... (1,250,000)...... .......... ..........
.......... .......... (EI) 9,000 (BI) 4,800 704,200 .......... .......... ..........
Depreciation ExpenseBuildings .......... 40,000 10,000 (A1) 5,000 .......... 55,000 .......... .......... ..........
.......... .......... .......... (F2) 13,000 32,000 .......... .......... ..........
Other Expenses ..................................... 176,000 75,000 .......... .......... 251,000 .......... .......... ..........
Gain on Sale of Fixed Asset ................... .......... (25,000)(F1) 25,000 .......... ......... .......... .......... ..........
Provision for Income Taxes .................... 66,365 28,800 .......... (T2) 12,555 82,610 .......... .......... ..........
Dividends DeclaredStock ................... .......... 10,000 .......... (CY2) 8,000 ......... 2,000 .......... ..........
Dividends DeclaredPenske................. 20,000 .......... .......... .......... ......... .......... 20,000 ..........
Totals .................................................. 0 0 873,991 873,991 ......... .......... .......... ..........
To NCI (see distribution schedule) ............................................................................................................. 3,456 (3,456) .......... ..........
To Controlling Interest (see distribution schedule)...................................................................................... 113,734 .......... (113,734) ..........
NCI ...................................................................................................................................................................................... (120,660) .......... (120,660)
Totals .......................................................................................................................................................................................................................... 0
Eliminations and Adjustments: (BI) Defer beginning inventory profit.

(EI) Defer ending inventory profit.
(CY1) Current-year subsidiary income.
(F1) Fixed asset profit at beginning of year.
(CY2) Current-year dividend.
(F2) Fixed asset profit realized.
(EL) Eliminate controlling interest in Sub equity.
(T1) Deferred tax asset (liability) applicable to beginning
(D)/(NCI) Distribute excess and adjust NCI per D&D schedule.
retained earnings.
(A) Amortize excess.
(T2) Deferred tax asset (liability) applicable to current
(IS) Eliminate intercompany sales during current period.
year.
(IA) Eliminate intercompany unpaid trade accounts.
368

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UNDERSTANDING THE ISSUES

1. (a) Investing activitiesPurchase of S Company ($800,000 $50,000) .................... $(750,000)

Adjustment of identifiable accounts:

Determination and Distribution of Excess Schedule, Investment in Rocket Company

Adjustment of identifiable accounts:

Exercise 6-1, Concluded

Batton Company and Subsidiary Rocket Company

Cash flows from investing activities:

Cash flows from financing activities:

Schedule of noncash investing activity:

Adjusted value of assets acquired ($710,000 book

Liabilities assumed........................................................................... $210,000

Determination and Distribution of Excess Schedule, Investment in Panda Corporation

Adjustment of identifiable accounts:

Exercise 6-2 Concluded

Duckworth Corporation and Subsidiary Panda Corporation

Cash flows from investing activities:

Cash flows from financing activities:

Net decrease in cash ....................................................................... $ (5,000)

Schedule of noncash investing activity:

(1) None, goodwill is not amortized.

Internally generated income .................................................................................... $110,000

Deko Company and Subsidiary Farwell Company

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

Exercise 6-5 Concluded

Subsidiary Farwell Company Income Distribution

Adjusted income........................ $ 6,225

Subsidiary tax schedule: Controlling NCI Total

Parent Deko Company Income Distribution

Dunker Company and Subsidiary Fennig Company

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

Exercise 6-6, Concluded

Subsidiary Fennig Company Income Distribution

Adjusted income.......................... $ 6,225

Subsidiary tax schedule: Controlling NCI Total

Parent Dunker Company Income Distribution

Adjusted income.......................... $ 61,000

Adjustment to January 1, 20X7, retained earnings:

Determination and Distribution of Excess Schedule, Investment in Marcus Company

Adjustment of identifiable accounts:

Problem 6-1, Concluded

Luis Company and Subsidiary Marcus Company

Determination and Distribution of Excess Schedule, Investment in Rush Company

Adjustment of identifiable accounts:

Problem 6-2, Concluded

Billing Enterprises and Subsidiary Rush Corporation

Schedule of noncash investing activity:

Adjusted value of assets acquired ($615,000

Bush, Inc. and Subsidiary Dorr Corporation

Schedule of noncash investing and financing activities:

Problem 6-3, Concluded

Explanation Item Amount

$55,000 $500 preferred dividends + (10,560 c $4.12 Sunny DEPS)

Determination and Distribution of Excess Schedule, Investment in Rush Company

Adjustment of identifiable accounts:

Problem 6-5 Concluded

Eliminations and Adjustments:

Subsidiary Morgan Company Income Distribution

Adjusted income .................... $37,375

Subsidiary tax schedule: Controlling NCI Total