Chapter 8--Subsidiary Equit
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Chapter 8--Subsidiary Equit

Course Number: ACG 5205, Spring 2012

College/University: USF

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Chapter 8--Subsidiary Equity Transactions, Indirect Subsidiary Ownership, and Subsidiary Ownership Chapter 8--Subsidiary Equity Transactions, Indirect Subsidiary Ownership, and Subsidiary Ownership of Parent Shares of Parent Shares Student: ___________________________________________________________________________ 1. A parent company owns a 100% interest in a subsidiary. Recently, the subsidiary paid a 10%...

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8--Subsidiary Chapter Equity Transactions, Indirect Subsidiary Ownership, and Subsidiary Ownership Chapter 8--Subsidiary Equity Transactions, Indirect Subsidiary Ownership, and Subsidiary Ownership of Parent Shares of Parent Shares Student: ___________________________________________________________________________ 1. A parent company owns a 100% interest in a subsidiary. Recently, the subsidiary paid a 10% stock dividend. The dividend should be recorded on the books of the parent A. at the par value or stated value of the shares received. B. at the market value of the shares on the date of declaration. C. at the market value of the shares on the date of distribution. D. merely as a memo entry indicating that the cost of the original investment now is allocated to a greater number of shares. 2. Company P purchased a 80% interest in the Company S on January 1, 20X1, for $600,000. Any excess of cost is attributed to the Company's building with a 20-year life. The equity balances of Company S are as follows: Common stock, $10 par Other paid-in capital Retained earnings January 1, 20X1 $100,000 200,000 250,000 December 31, 20X4 $140,000 280,000 450,000 The only change in paid-in capital is a result of a 40% stock dividend paid in 20X3. The cost to simple equity conversion to bring the investment account to its December 31, 20X4, balance is ____. A. $30,000 B. $136,000 C. $160,000 D. $256,000 3. When the parent purchases some newly issued shares of a subsidiary, any adjustments resulting from the subsidiary stock sales should be made A. at the end of the current fiscal year when the worksheet is prepared. B. at the time of the sale when the equity method is used. C. at the time of the sale if the cost method is used. D. retroactively to the start of the current fiscal year. 4. On January 1, 20X1, Paris Ltd. paid $600,000 for its 75% interest in the Scott Company when Scott had total equity of $550,000. Any excess of cost over book value was attributed to equipment with a 10-year life. On January 1, 20X3, Scott Company had the following stockholders' equity: Common stock, $10 par Other paid-in capital Retained earnings $100,000 200,000 350,000 On January 2, 20X3, Scott Company sold 2,500 additional shares of stock for $90 each in a private offering to noncontrolling shareholders. As a result of this sale, which of the following changes would appear in the 20X3 consolidated statements? A. $7,500 gain B. $37,500 loss C. $7,500 increase in controlling paid-in capital D. $37,500 decrease in controlling paid-in capital 5. On January 1, 20X1, Paris Ltd. paid $600,000 for its 75% interest in the Scott Company when Scott had total equity of $550,000. Any excess of cost over book value was attributed to equipment with a 10-year life. On January 1, 20X3, Scott Company had the following stockholders' equity: Common stock, $10 par Other paid-in capital Retained earnings $100,000 200,000 350,000 On January 2, 20X3, Scott Company sold 2,500 additional shares of stock for $60 each in a private offering to noncontrolling shareholders. As a result of this sale, which of the following changes would appear in the 20X3 consolidated statements? A. $7,500 loss B. $37,500 loss C. $37,500 decrease in controlling paid-in capital D. $7,500 decrease in controlling paid-in capital 6. When a parent purchases a portion of the newly issued stock of its subsidiary and the parents percentage of ownership interest remains the same, A. any difference between the change in equity and the price paid is the excess of cost or book value attributable to the new block. B. any difference between the change in equity and the price paid is viewed as a gain or loss on the sale of an interest. C. any difference between the change in equity and the price paid is viewed as a change in paid-in capital or retained earnings. D. there will be no adjustment to parents paid-in capital 7. Company P owns 80% of the 10,000 outstanding common stock of Company S. If Company S issues 2,500 added shares of common stock, and Company P purchases some of the newly issued shares, which of the following statements is true? A. Other than recording the purchase, there is no adjustment to the controlling interest if the parent purchases all the shares issued. B. Other than recording the purchase, there is no adjustment to the controlling interest if the parent does not purchase any of the shares issued. C. Other than recording the purchase, there is no adjustment to the controlling interest if the parent purchases 80% of the shares issued. D. There is a new excess of cost over book value or excess of book value over cost if the parent purchases 80% of the newly issued shares. 8. When a parent purchases a portion of the newly issued stock of its subsidiary and the ownership interest increases, A. any difference between the change in equity and the price paid is the excess of cost or book value attributable to the new block. B. any difference between the change in equity and the price paid is viewed as a gain or loss on the sale of an interest. C. any difference between the change in equity and the price paid is viewed as a change in paid-in capital or retained earnings. D. there will be no adjustment. 9. On January 1, 20X1, Paul, Inc. acquired a 90% interest in Stephan Company. The $45,000 excess of purchase price (parents share only) was attributable to goodwill. On January 1, 20X3, Stephan Company had the following stockholders' equity: Common stock, $10 par Other paid-in capital Retained earnings $100,000 200,000 300,000 On January 2, 20X3, Stephan sold 2,000 additional shares in a private offering. Stephan issued the new shares for $80 per share; Paul, Inc. purchased all the shares. What is the journal entry that Paul will prepare to record this investment? A. Investment in Stephan Cash B. Investment in Stephan Paid-in Capital in Excess of Par-Paul Cash C. Investment in Stephan Paid-in Capital in Excess of Par-Paul Cash D. Investment in Stephan Paid-in Capital in Excess of Par-Paul Cash 160,000 160,000 156,692 3,308 160,000 157,527 2,473 160,000 160,000 2,829 157,171 10. When a parent purchases a portion of the newly issued stock of its subsidiary in a private offering and the ownership interest decreases, A. any difference between the change in equity and the price paid is the excess of cost or book value attributable to the new block. B. any difference between the change in equity and the price paid is viewed as a gain or loss on the sale of an interest. C. any difference between the change in equity and the price paid is viewed as a change in paid-in capital or retained earnings. D. there will be no adjustment. 11. On January 1, 20X1, Paul, Inc. acquired a 90% interest in Stephan Company. The $45,000 excess of purchase price (parents share only) was attributable to goodwill. On January 1, 20X3, Stephan Company had the following stockholders' equity: Common stock, $10 par Other paid-in capital Retained earnings $100,000 200,000 300,000 On January 2, 20X3, Stephan sold 2,000 additional shares in a private offering. Stephan issued the new shares for $70 per share; Paul, Inc. purchased 600 of the shares. As a result of this sale, there is a(n) A. gain on the consolidated income statement of $5,000. B. decrease in the controlling interest paid-in excess of $5,000. C. increase in the controlling interest paid-in capital in excess of par of $5,000 D. increase in the controlling interest Retained Earnings of $5,000 12. Pepper Company owns 60,000 of Salt Companys 100,000 outstanding shares. This year, Salt purchased 20,000 of its outstanding shares from the NCI for $70,000. Peppers interest after the treasury stock purchase is: A. 60%. B. 80%. C. 50%. D. 75%. 13. Pepper Company owned 60,000 of Salt Companys 100,000 outstanding shares. On January 2, 20X3, Salt purchased 20,000 of its outstanding shares from the NCI for $70,000. Pepper purchased its shares on January 1, 20X1, at which time the fair value of Salt exceeded its book value by $50,000. This difference was due to machinery that was undervalued and had a remaining life of 5 years. On December 31, 20X2, Salt Company had the following stockholders' equity: Common stock, $1 par Paid-in capital in excess of par Retained earnings $100,000 50,000 270,000 Assuming Pepper uses the equity method to account for its investment in Salt, the adjustment to the Peppers books would include: A. a credit to Retained Earnings B. a credit to Paid-in Capital in Excess of Par C. a credit to Investment of D. a debit to Paid-in Capital in Excess of Par 14. Pepper Company owned 60,000 of Salt Companys 100,000 outstanding shares. On January 2, 20X3, Salt purchased 20,000 of its outstanding shares from the NCI for $70,000. Pepper purchased its shares on January 1, 20X1, at which time the fair value of Salt exceeded its book value by $50,000. This difference was due to machinery that was undervalued and had a remaining life of 5 years. On December 31, 20X2, Salt Company had the following stockholders' equity: Common stock, $1 par Paid-in capital in excess of par Retained earnings $100,000 50,000 270,000 The amount of the adjustment to Peppers equity would be a: A. $15,000 increase B. $3,000 increase C. $10,500 increase D. $15,000 decrease 15. Consolidated statements for X, Y, and Z are proper if A. X owns 100% of the outstanding common stock of Y and 49% of Z; M owns 51% of Z. B. X owns 100% of the outstanding common stock of Y and 75% of Z; X bought the stock of Z one month before the statement date and sold it 6 weeks later. C. X owns 100% of the outstanding stock of Y; Y owns 75% of Z. D. There is no interrelation of financial control among X, Y, and Z; however, they are contemplating the joint purchase of 100% of the outstanding stock of D. 16. Apple Inc. owns a 90% interest in Banana Company. Banana Company, in turn, owns a 80% interest in Carrot Company. During 20X4, Carrot Company sold $50,000 of merchandise to Apple Inc. at a gross profit of 20%. Of this merchandise, $10,000 was still unsold by Apple Inc. at year end. The adjustment to the controlling interest in consolidated net income for 20X4 is ____. A. $560 B. $1,440 C. $1,600 D. $1,800 17. Apple Inc. purchased a 70% interest in the Banana Company for $490,000 on January 1, 20X3, when Banana Company had the following stockholders' equity: Common stock, $10 par Paid-in capital in excess of par Retained earnings $100,000 250,000 150,000 At the time of Apples purchase, Banana Company was an 80% owner of the Carrot Company. Also on that date, Carrot Company has a machine that has a market value in excess of book value of $20,000. There is no difference between book and market value for any Banana Company assets. The goodwill that would result from this purchase is ____. A. $184,000 B. $180,000 C. $140,000 D. $126,000 18. Able Company owns an 80% interest in Barns Company and a 20% interest in Carns Company. Barns owns a 40% interest in Carns Company. A. Carn will not be included in the consolidation process B. Carn will be included in the consolidation process; 20% of prior period amortizations will be distributed to Retained Earnings-Carns C. Carn will be included in the consolidation process; 40% of prior period amortizations will be distributed to Retained Earnings-Carns D. Carn will be included in the consolidation process; NCI will be allocated 6.4% of prior-period profits originated by Carns 19. Able Company owns an 80% interest in Barns Company and a 20% interest in Carns Company. Barns owns a 40% interest in Carns Company. The reported income of Carns is $20,000 for 20X4. Which of the following shows how it will be distributed? Controlling Interest A. $10,400 B. $ 2,000 C. $12,000 D. $10,400 Barns NonControlling $1,600 $8,000 $0 $9,600 Carns NonControlling $8,000 $8,000 $8,000 $0 20. Which of the following situations is viewed as the parent having treasury stock? A. A owns 80% of B, and B owns 70% of C. B. A owns 80% of B and 20% of C; B owns 70% of C. C. A owns 80% of B, and B owns 20% of A. D. None of the above. 21. When a subsidiary owns shares of the parent, the subsidiarys investment account A. should be accounted for using the equity method. B. is not eliminated so the subsidiarys investment in the parent is displayed on the balance sheet. C. is maintained at its original cost since the shares have no claim on income. D. may be accounted for using the cost, equity or sophisticated equity method. 22. When a subsidiary purchases shares of the parent, on a consolidated basis: A. a determination and distribution schedule must be completed to determine if goodwill is present. B. it is considered to be the parents purchase of treasury stock. C. an elimination entry must be made for the subsidiarys share of the parents income. D. None of the above is correct. 23. Plum Inc. acquired 90% of the capital stock of Sterling Co. on 1/1/X1 at a cost of $540,000. On this date Sterling had equipment (10-year life) carried at $200,000 under market and total equity amounting to $350,000. On 1/1/X1 Sterling acquired 5% (10,000 shares) of Plums outstanding common stock for $3 per share. Internally generated net income was $50,000 for Plum and $40,000 for Sterling. Consolidated net income for 20X2 is A. $90,000 B. $86,000 C. $83,500 D. $70,000 24. Plum Inc. acquired 90% of the capital stock of Sterling Co. on 1/1/X1 at a cost of $540,000. On this date Sterling had equipment (10-year life) carried at $200,000 under market and total equity amounting to $350,000. On 1/1/X1 Sterling acquired 5% (10,000 shares) of Plums outstanding common stock for $3 per share. Internally generated net income was $50,000 for Plum and $40,000 for Sterling. The noncontrolling interest in consolidated net income is A. $2,000 B. $18,000 C. $7,500 D. $6,800 25. Company P had 300,000 shares of common stock outstanding. It owned 80% of the outstanding common stock of S. S owned 20,000 shares of P common stock. In the consolidated balance sheet, Company P's outstanding common stock may be shown as A. 285,000 shares. B. 300,000 shares. C. 300,000 shares, less 20,000 shares of treasury stock. D. 300,000 shares, footnoted to indicate that S holds 20,000 shares. 26. A owns 80% of B and 20% of C. B owns 32% of C, and C owns 10% of A. Which interest will be considered NCI in the consolidated balance sheet? A. 20% of B and 48% of C B. 10% of A C. 10% of A and 48% of C D. There will not be a noncontrolling interest. 27. Manke Company owns a 90% interest in Neske Company. Neske, in turn, owns a 10% interest in Manke. Neske has 10,000 common stock shares outstanding, and Manke has 20,000 common stock shares outstanding. How many shares would each firm show as outstanding in the consolidated balance sheet, under the treasury stock method? A. Manke, 20,000 B. Manke, 20,000; Neske, 1,000 C. Manke, 18,000; Neske, 1,000 D. Manke, 18,000 28. On January 1, 20X1, Prism Company purchased 7,500 shares of the common stock of Sight Company for $495,000. On this date, Sight had 20,000 shares of $10 par common stock authorized, 10,000 shares issued and outstanding. Other paid-in capital and retained earnings were $200,000 and $300,000 respectively. On January 1, 20X1, any excess of cost over book value is due to a patent, to be amortized over 15 years. Sight's net income and dividends for two years were: Net income Dividends 20X1 $50,000 10,000 20X2 $80,000 20,000 In November 20X1, Sight Company declared a 10% stock dividend at a time when the market price of its common stock was $50 per share. The stock dividend was distributed on December 31, 20X1. For both 20X1 and 20X2, Prism Company has accounted for its investment in Sight Company using the simple equity method. During 20X1, Sight Company sold goods to Prism Company for $40,000, of which $10,000 was on hand on December 31, 20X1. During 20X2, Sight sold goods to Prism for $60,000 of which $15,000 was on hand on December 31, 20X2. Sight's gross profit on intercompany sales is 40%. Required: Complete the Figure 8-1 worksheet for consolidated financial statements for 20X2. Figure 8-1 Trial Balance Prism Eliminations and Sight Adjustment s Company Debit Credit 52,000 448,000 Account Titles Inventory, December 31 Other Current Assets Investment in Sight Company Company 100,000 167,000 570,000 Land Buildings and Equipment Accumulated Depreciation Patent 50,000 350,000 (100,000) 80,000 320,000 (60,000) Current Liabilities Long-Term Liabilities Common Stock P Co. Other Paid-in Capital P Co. Retained Earnings P Co. (120,000) (200,000) (300,000) (142,000) (265,000) (40,000) (100,000) Common Stock S Co. Other Paid-in Capital S Co. Retained Earnings S Co. (110,000) (240,000) (290,000) Net Sales Cost of Goods Sold (520,000) 300,000 (450,000) 260,000 Operating Expenses 120,000 110,000 Subsidiary Income Dividends Declared P Co. Dividends Declared S Co. (60,000) 50,000 20,000 Consolidated Net Income To NCI To Controlling Interest Total NCI Ret. Earn. Contr. Int. 12-31 0 (continued) 0 0 0 Account Titles Inventory, December 31 Other Current Assets Investment in Sight Company Land Buildings and Equipment Accumulated Depreciation Patent Current Liabilities Long-Term Liabilities Common Stock P Co. Other Paid-in Capital P Co. Retained Earnings P Co. Common Stock S Co. Other Paid-in Capital S Co. Retained Earnings S Co. Net Sales Cost of Goods Sold Operating Expenses Subsidiary Income Dividends Declared P Co. Dividends Declared S Co. Consolidated Net Income To NCI To Controlling Interest Total NCI Ret. Earn. Contr. Int. 12-31 Consol. Income Statement NCI Control. Retained Earnings Consol. Balance Sheet 29. On January 1, 20X1, Prism Company purchased 7,500 shares of the common stock of Sight Company for $495,000. On this date, Sight had 20,000 shares of $10 par common stock authorized, 10,000 shares issued and outstanding. Other paid-in capital and retained earnings were $200,000 and $300,000 respectively. On January 1, 20X1, any excess of cost over book value is due to a patent, to be amortized over 15 years. Sight's net income and dividends for two years were: Net income Dividends 20X1 $50,000 10,000 20X2 $80,000 20,000 In November 20X1, Sight Company declared a 10% stock dividend at a time when the market price of its common stock was $50 per share. The stock dividend was distributed on December 31, 20X1. For both 20X1 and 20X2, Prism Company has accounted for its investment in Sight using the cost method. During 20X1, Sight Company sold goods to Prism Company for $40,000, of which $10,000 was on hand on December 31, 20X1. During 20X2, Sight sold goods to Prism for $60,000 of which $15,000 was on hand on December 31, 20X2. Sight's gross profit on intercompany sales is 40%. Required: Complete the Figure 8-2 worksheet for consolidated financial statements for 20X2. Figure 8-2 Trial Balance Prism Eliminations and Sight Adjustment s Company Debit Credit 52,000 448,000 Account Titles Inventory, December 31 Other Current Assets Investment in Sight Company Company 100,000 114,000 495,000 Land Buildings and Equipment Accumulated Depreciation Patent 50,000 350,000 (100,000) 80,000 320,000 (60,000) Current Liabilities Long-Term Liabilities Common Stock P Co. Other Paid-in Capital P Co. Retained Earnings P Co. (120,000) (200,000) (300,000) (147,000) (176,000) (40,000) (100,000) Common Stock S Co. Other Paid-in Capital S Co. Retained Earnings S Co. (110,000) (240,000) (290,000) Net Sales Cost of Goods Sold (520,000) 300,000 (450,000) 260,000 Operating Expenses 120,000 110,000 Dividend Income Dividends Declared P Co. Dividends Declared S Co. (16,000) 50,000 20,000 Consolidated Net Income To NCI To Controlling Interest Total NCI Ret. Earn. Contr. Int. 12-31 0 (continued) 0 0 0 Account Titles Inventory, December 31 Other Current Assets Investment in Sight Company Consol. Income Statement 0 NCI Control. Retained Earnings Consol. Balance Sheet 0 0 0 Land Buildings and Equipment Accumulated Depreciation Patent Current Liabilities Long-Term Liabilities Common Stock P Co. Other Paid-in Capital P Co. Retained Earnings P Co. Common Stock S Co. Other Paid-in Capital S Co. Retained Earnings S Co. Net Sales Cost of Goods Sold Operating Expenses Dividend Income Dividends Declared P Co. Dividends Declared S Co. Consolidated Net Income To NCI To Controlling Interest Total NCI Ret. Earn. Contr. Int. 12-31 30. On 1/1/X1 Poncho acquired an 80% interest in Stroller for $560,000 when Strollers equity consisted of $530,000 paid-in capital and $100,000 Retained Earnings. Any excess of purchase price over was attributed to goodwill. On January 1, 20X6, Stroller had the following stockholders' equity: Common stock ($20 par) Paid-in capital in excess of par Retained earnings Total stockholders' equity $180,000 350,000 220,000 $750,000 On January 2, 20X6, Company S sold 1,000 additional shares to noncontrolling shareholders in a public offering for $50 per share. Strollers net income for 20X6 was 80,000. Poncho uses the simple equity method to record its investment in Stroller. Required: a. Prepare Ponchos journal entry to adjust its Investment in Stroller account on January 2, 20X6. Assume that Poncho has $500,000 additional paid-in capital. b. Determine the carrying value of Ponchos Investment in Stroller account on December 31, 20X6. 31. On January 1, 20X1, Parent Company purchased 9,000 shares of the common stock of Subsidiary Company for $405,000. On this date, Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares issued and outstanding. Other paid-in capital and retained earnings were $150,000 and $200,000 respectively. On January 1, 20X1, any excess of cost over book value is due to a patent, to be amortized over 10 years. Subsidiary's net income and dividends for two years were: Net income Dividends 20X1 $50,000 10,000 20X2 $80,000 20,000 On January 1, 20X2, Subsidiary Company sold an additional 2,000 shares of common stock for $50 per share. Parent purchased 1,200 shares of the new issue, and noncontrolling shareholders purchased the other 800. For both 20X1 and 20X2, Parent Company has applied the simple equity method. Required: a. b. c. Prepare a schedule that measures Parents change in interest ownership effective with Subs issuance of the 2,000 shares and Parents acquisition of 1,200 of those shares. Prepare Parents journal entry to record its purchase of the 1,200 shares on 1/1/X2 Prepare a schedule showing the 12/31/X2 balance of Parents Investment in Sub account 32. On January 1, 20X1, Parent Company purchased 8,000 shares of the common stock of Subsidiary Company for $350,000. On this date, Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares issued and outstanding. Other paid-in capital and retained earnings were $150,000 and $200,000 respectively. On January 1, 20X1, any excess of cost over book value is due to a patent, to be amortized over 15 years. Parent Company uses the simple equity method to account for its investment in Sub. Subsidiary's net income and dividends for two years were: Net income Dividends 20X1 $50,000 10,000 20X2 $90,000 30,000 On January 1, 20X2, Subsidiary Company sold an additional 2,500 shares of common stock to noncontrolling shareholders for $50 per share. In the last quarter of 20X2, Subsidiary Company sold goods to Parent Company for $40,000. Subsidiary's usual gross profit on intercompany sales is 40%. On December 31, $7,500 of these goods are still in Parent's ending inventory. Required: Prepare the following items a. Determination and distribution schedule effective 1/1/X1 b. Parents journal entry to record change in ownership interest due to Subs issuance of additional shares on 1/1/X2. Support with schedule of Parents ownership interest before and after the 1/1/X2 issuance. c. All necessary elimination entries necessary to prepare the consolidating worksheet on 12/31/X2 33. On January 1, 20X1, Parent Company purchased 8,000 shares of the common stock of Subsidiary Company for $350,000. On this date, Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares issued and outstanding. Other paid-in capital and retained earnings were $150,000 and $200,000 respectively. On January 1, 20X1, any excess of cost over book value is due to a patent, to be amortized over 15 years. Parent Company uses the simple equity method to account for its investment in Sub. Subsidiary's net income and dividends for two years were: Net income Dividends 20X1 $50,000 10,000 20X2 $90,000 30,000 On January 1, 20X2, Subsidiary Company sold an additional 2,500 shares of common stock to noncontrolling shareholders for $50 per share. In the last quarter of 20X2, Subsidiary Company sold goods to Parent Company for $40,000. Subsidiary's usual gross profit on intercompany sales is 40%. On December 31, $7,500 of these goods are still in Parent's ending inventory. Required: Complete the Figure 8-6 worksheet for consolidated financial statements for 20X2. Figure 8-6 Trial Balance Parent Eliminations and Sub. Adjustment s Company Debit Credit 52,000 373,000 Account Titles Inventory, December 31 Other Current Assets Investment in Sub. Company Company 100,000 112,200 424,400 Land Buildings and Equipment Accumulated Depreciation Patent 50,000 350,000 (100,000) 80,000 320,000 (60,000) Current Liabilities Long-Term Liabilities Common Stock P Co. Other Paid-in Capital P Co. Retained Earnings P Co. (120,000) (200,000) (200,000) (108,000) (201,000) (40,000) (100,000) Common Stock S Co. Other Paid-in Capital S Co. Retained Earnings S Co. (62,500) (262,500) (240,000) Net Sales Cost of Goods Sold Operating Expenses (520,000) 300,000 120,000 Subsidiary Income Dividends Declared P Co. Dividends Declared S Co. (450,000) 260,000 100,000 (57,600) 50,000 30,000 Consolidated Net Income To NCI To Controlling Interest Total NCI Ret. Earn. Contr. Int. 12-31 0 (continued) 0 0 0 Account Titles Inventory, December 31 Other Current Assets Investment in Sub. Company Consol. Income Statement 0 NCI Control. Retained Earnings Consol. Balance Sheet 0 0 0 Land Buildings and Equipment Accumulated Depreciation Patent Current Liabilities Long-Term Liabilities Common Stock P Co. Other Paid-in Capital P Co. Retained Earnings P Co. Common Stock S Co. Other Paid-in Capital S Co. Retained Earnings S Co. Net Sales Cost of Goods Sold Operating Expenses Subsidiary Income Dividends Declared P Co. Dividends Declared S Co. Consolidated Net Income To NCI To Controlling Interest Total NCI Ret. Earn. Contr. Int. 12-31 34. Parrot, Inc. purchased a 60% interest in Swallow Company on January 1, 20X1, for $204,000. Any excess of cost was attributable to goodwill. On January 1, 20X4, Swallow purchased 2,400 of its shares held by noncontrolling stockholders for $50 per share. Swallow equity balances on various dates were as follows: January 1, 20X1 $120,000 60,000 160,000 Capital stock ($10 par) Paid-in capital in excess of par Retained earnings Treasury stock (at cost) * *(2,400 x $50) December 31, 20X3 $120,000 60,000 240,000 January 1, 20X5 $120,000 60,000 340,000 (120,000) Parrot maintains its investment at cost; Swallow recorded the purchase of its shares as treasury stock at cost. Required: Prepare the necessary determination and distribution of excess schedules and all Figure 8-7 worksheet eliminations and adjustments on the following partial worksheet prepared on December 31, 20X5: Figure 8-7 Parrot and Swallow Consolidated Partial Worksheet For the Year Ended December 31, 20X5 Trial Balance Account Titles Investment in Swallow Goodwill Common Stock S Paid-in Cap in Excess of Par S Retained Earnings S Retained Earnings P Treasury Stock (at cost) Parrot 204,000 Eliminations Swallow (120,000) (60,000) (340,000) (300,000) 120,000 and Adjustment s Debit Credit 35. On January 1, 20X1, Parent Company purchased 85% of the common stock, 8,500 shares, of Subsidiary Company for $317,500. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $50,000, $100,000, and $200,000 respectively. Any excess of cost over book value is due to goodwill. On January 1, 20X2, Subsidiary purchased, from its noncontrolling shareholders, 1,000 shares of its common stock, 10% of the stock outstanding on that date. The price paid was $44,000. The trial balances of Parent and Sub as of 12/31/X2 are given below: Inventory Other Current Assets Investment in Sub. Company Land Buildings and Equipment Accumulated Depreciation Current Liabilities Long Term Liabilities Common Stock P Co. Other Paid-in Capital P Co. Retained Earnings P Co. Common Stock S Co. Other Paid-in Capital S Co. Retained Earnings S Co. Net Sales Cost of Goods Sold Operating Expenses Subsidiary Income Dividends Declared P Co. Dividends Declared S Co. Treasury Stock Trial Balances 12/31/X2 Parent $ 150,000 340,553 406,420 80,000 420,000 (200,000) (100,000) (250,000) (100,000) (200,333) (400,000) (50,000) (100,000) (250,000) (650,000) 370,000 170,000 (56,640) 20,000 9,000 -0- Sub $ 100,000 247,000 50,000 250,000 (80,000) (60,000) (100,000) (340,000) 180,000 100,000 44,000 -0- Required all (round amounts to whole dollars; round percentages to one decimal: XX.X%) a. Prepare the D&D schedule for the 1/1/X1 acquisition. b. Prepare a schedule to determine the change in Parents interest in Sub. c. Prepare the journal entry the parent needed to adjust its interest in Sub. (Note that it has already been included in the parents trial balance.) d. Prepare, in journal form, all elimination entries necessary for the 12/31/X2 consolidation worksheet. 36. On January 1, 20X1, Parent Company purchased 85% of the common stock, 8,500 shares, of Subsidiary Company for $317,500. On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $50,000, $100,000, and $200,000 respectively. Any excess of cost over book value is due to goodwill. On January 1, 20X2, Subsidiary purchased, from its noncontrolling shareholders, 1,000 shares of its common stock, 10% of the stock outstanding on that date. The price paid was $44,000. Required (round all amounts to whole dollars; round percentages to one decimal: XX.X%) a. b. Prepare an analysis to determine Parents revised ownership interest following Subs treasury stock transaction. Complete the Figure 8-11 worksheet for consolidated financial statements for 20X2 37. On January 1, 20X1, Parent Company purchased 90% of the common stock of Sub-A Company for $90,000. On this date, Sub-A had common stock, other paid-in capital, and retained earnings of $10,000, $20,000, and $60,000 respectively. On January 1, 20X2, Sub-A Company purchased 80% of the common stock of Sub-B Company for $64,000. On this date, Sub-B Company had common stock, other paid-in capital, and retained earnings of $5,000, $30,000, and $40,000 respectively. Any excess of cost over book value on either purchase is due to a patent, to be amortized over ten years. Both Parent and Sub-A have accounted for their investments using the simple equity method. During 20X2, Sub-B sold merchandise to Sub-A for $20,000, of which one-fourth is still held by Sub-B on December 31, 20X2. Sub-B's usual gross profit is 40%. During 20X3, Sub-B sold more goods to Sub-A for $30,000, of which $10,000 is still on hand on December 31, 20X3. Required: Complete the Figure 8-9 worksheet for consolidated financial statements for 20X3. 38. Paula Inc. purchased an 80% interest in the Sharon Co. for $480,000 on January 1, 20X1, when Sharon Co. had the following stockholders' equity: Common stock, $10 par Retained earnings Total equity $200,000 300,000 $500,000 Any excess is attributable to goodwill. On January 1, 20X3, Sharon Co. purchased a 10% interest in the Paula Inc. at a price equal to book value. Both firms maintain investments under the cost method. Required: a. Complete the Figure 8-11 partial worksheet for December 31, 20X3, assuming the use of the treasury stock method. b. Calculate the distribution of income for 20X3, assuming that internally generated net income is $50,000 for Paula and $20,000 for Sharon. Figure 8-11 Paula Inc. and Sharon Co. Consolidated Partial Worksheet For the Year Ended December 31, 20X3 Trial Balance Account Titles Investment in Sharon Co. Investment in Paula Inc. Goodwill Common Stock Sharon Co. Retained Earnings Sharon Co. Common Stock Paula Inc. Retained Earnings Paula Inc. Treasury Stock Paula Inc. 480,000 Eliminations Sharon Co. and Adjustment s Debit Credit 80,000 (200,000) (400,000) (200,000) (600,000) 39. Two types of intercompany stock purchases significantly complicate the consolidation process. The first occurs when the subsidiary issues added shares of stock in a public issue and the parent buys a portion of the shares. The second occurs when the subsidiary purchases outstanding shares of the parent company. Required: a. Discuss the current theoretical consolidation procedure for situations in which the parent buys a portion of the newly issued subsidiary shares that is (1) equal to its existing ownership percentage, (2) greater than its existing ownership percentage, and (3) less than its existing ownership percentage. b. Discuss the most widely supported, current theoretical consolidation procedures used when the subsidiary purchases outstanding common stock shares of the parent. Chapter 8--Subsidiary Equity Transactions, Indirect Subsidiary Ownership, and Subsidiary Ownership of Parent Shares Key 1. D 2. D 3. B 4. C 5. C 6. D 7. C 8. C 9. C 10. C 11. C 12. D 13. B 14. A 15. C 16. B 17. A 18. C 19. A 20. C 21. C 22. B 23. D 24. A 25. C 26. A 27. C 28. Determination and Distribution of Excess Schedule: Entity Entity FV 660,000 Book value: Common Stock ($10) 100,000 Paid-in Cap in Excess of Par 200,000 RE 1/1/X1 300,000 Book value: 600,000 Excess-attributable to patent 60,000 Parent 495,000 NCI 165,000 450,000 150,000 For the worksheet solution, please refer to Answer 8-1. Answer 8-1 Trial Balance Prism Account Titles Inventory, December 31 Other Current Assets Investment in Sight Company Company 100,000 167,000 570,000 Land Buildings and Equipment Accumulated Depreciation Patent 50,000 350,000 (100,000) Current Liabilities Long-Term Liabilities Common Stock P Co. Other Paid-in Capital P Co. Retained Earnings P Co. (120,000) (200,000) (300,000) (142,000) (265,000) Eliminations and Sight Adjustment s Company Debit Credit 52,000 448,000 EI 6,000 CY EL D 45,000 480,000 45,000 80,000 320,000 (60,000) D 60,000 A 8,000 3,000 3,000 82,500 180,000 217,500 1,000 1,000 60,000 6,000 D 15,000 BI IS 4,000 60,000 CY 15,000 (40,000) (100,000) Net Sales Cost of Goods Sold (520,000) 300,000 (450,000) 260,000 A BI EL EL EL BI A IS EI Operating Expenses 120,000 110,000 A 4,000 Subsidiary Income Dividends Declared P Co. Dividends Declared S Co. (60,000) 50,000 CY 60,000 Common Stock S Co. Other Paid-in Capital S Co. Retained Earnings S Co. (110,000) (240,000) (290,000) 20,000 Consolidated Net Income To NCI To Controlling Interest Total NCI Ret. Earn. Contr. Int. 12-31 0 (continued) 0 678,000 678,000 Account Titles Inventory, December 31 Other Current Assets Investment in Sight Company Consol. Income Statement NCI Control. Retained Earnings Consol. Balance Sheet 146,000 615,000 0 Land Buildings and Equipment Accumulated Depreciation Patent 130,000 670,000 (160,000) 52,000 Current Liabilities Long-Term Liabilities Common Stock P Co. Other Paid-in Capital P Co. Retained Earnings P Co. (160,000) (300,000) (300,000) (142,000) (259,000) Common Stock S Co. Other Paid-in Capital S Co. Retained Earnings S Co. (27,500) (60,000) (85,500) Net Sales Cost of Goods Sold (910,000) 502,000 Operating Expenses 234,000 Subsidiary Income Dividends Declared P Co. Dividends Declared S Co. 0 Consolidated Net Income To NCI To Controlling Interest Total NCI Ret. Earn. Contr. Int. 12-31 (174,000) 18,500 155,500 50,000 5,000 (18,500) (155,500) (186,500) (364,500) (186,500) (364,500) 0 Eliminations and Adjustments: CY Eliminate the current-year entries made in the investment account and in the Sight income account. EL Eliminate 75% of Sight Company equity balances at the beginning of the year against the investment account. D Distribute the $60,000 excess of cost over book value to the patent. A Amortize the patent over 15 years (60,000 / 15 = 4,000). Charge the 20X1 amortization to retained earnings of Prism and Sight and the 20X2 amortization to operating expenses. BI Recognize the intercompany gross profit in the beginning inventory of Prism. (10,000 x 40% = 4,000) IS Eliminate the intercompany sale and purchase of merchandise. EI Eliminate the intercompany gross profit in the ending inventory of Prism. (15,000 x 40% = 6,000) Subsidiary Company Income Distribution Schedule Deferred profit in ending inventory 1 year amortization of patent 6,000 4,000 Internally generated net income Realized profit in beginning inventory Adjusted income NCI Share NCI 80,000 4,000 74,000 25% 18,500 Internally generated net income 75% Sub's adjusted income Controlling interest 100,000 55,500 155,500 Parent Company Income Distribution Schedule 29. Determination and Distribution of Excess Schedule: Entity Entity FV 660,000 Book value: Common Stock ($10) 100,000 Paid-in Cap in Excess of Par 200,000 RE 1/1/X1 300,000 Book value: 600,000 Excess-attributable to patent 60,000 Parent 495,000 NCI 165,000 450,000 150,000 For the worksheet solution, please refer to Answer 8-2. Answer 8-2 Trial Balance Prism Account Titles Inventory, December 31 Other Current Assets Investment in Sight Company Company 100,000 114,000 495,000 Eliminations and Sight Adjustment s Company Debit Credit 52,000 448,000 CV 30,000 Land Buildings and Equipment Accumulated Depreciation Patent 50,000 350,000 (100,000) 80,000 320,000 (60,000) Current Liabilities Long-Term Liabilities Common Stock P Co. Other Paid-in Capital P Co. Retained Earnings P Co. (120,000) (200,000) (300,000) (147,000) (176,000) EI 6,000 EL D 480,000 45,000 D 60,000 A 8,000 3,000 3,000 82,500 180,000 217,500 1,000 1,000 60,000 6,000 CV 30,000 D 15,000 BI IS 4,000 60,000 CY 16,000 (40,000) (100,000) Net Sales Cost of Goods Sold (520,000) 300,000 (450,000) 260,000 A BI EL EL EL BI A IS EI Operating Expenses 120,000 110,000 A 4,000 Dividend Income Dividends Declared P Co. Dividends Declared S Co. (16,000) 50,000 CY 16,000 Common Stock S Co. Other Paid-in Capital S Co. Retained Earnings S Co. (110,000) (240,000) (290,000) 20,000 Consolidated Net Income To NCI To Controlling Interest Total NCI Ret. Earn. Contr. Int. 12-31 0 (continued) 0 664,000 664,000 Account Titles Inventory, December 31 Other Current Assets Investment in Sight Company Consol. Income Statement NCI Control. Retained Earnings Consol. Balance Sheet 146,000 562,000 0 Land Buildings and Equipment Accumulated Depreciation Patent 130,000 670,000 (160,000) 52,000 Current Liabilities Long-Term Liabilities Common Stock P Co. Other Paid-in Capital P Co. Retained Earnings P Co. (160,000) (300,000) (300,000) (147,000) (200,000) Common Stock S Co. Other Paid-in Capital S Co. Retained Earnings S Co. (27,500) (60,000) (85,500) Net Sales Cost of Goods Sold (910,000) 502,000 Operating Expenses 234,000 Dividend Income Dividends Declared P Co. Dividends Declared S Co. 0 Consolidated Net Income To NCI To Controlling Interest Total NCI Ret. Earn. Contr. Int. 12-31 (174,000) 18,500 155,500 50,000 4,000 (18,500) (155,500) (187,500) (305,500) (187,500) (305,500) 0 Eliminations and Adjustments: CV Convert to the simple equity method as of January 1, 20X2. Retained earnings, January 1, 20X2 (after stock dividend) $ 2 9 0, 0 0 0 Retained earnings, January 1, 20X1 3 0 0, 0 0 0 Change in retained earnings balance (decrease) Add back retained earnings capitalized as a result of the stock dividend ($50 1,000 shares) ( 1 0, 0 0 0 ) 5 0, 0 0 0 $ 4 0, 0 0 0 Ownership interest 7 5 % Simple equity conversion $ 3 0, 0 0 0 short-cut alternative calculation: Sub equity 1/1/X2 $ 6 4 0, 0 0 0 6 0 0, 0 0 0 4 75% = $30,000 0, 0 0 0 Sub equity 1//1X1 Net change CY Eliminate the current-year dividend income of Prism against dividends declared by Sight. EL Eliminate 75% of Sight Company equity balances at the beginning of the year against the investment account D Distribute the $60,000 excess of cost over book value to the patent. A Amortize the patent over 15 years. (60,000 / 15 = 4,000) Charge the 20X1 amortization to retained earnings of Prism and Sight; the 20X2 amortization to operating expenses. BI Recognize the intercompany gross profit in the beginning inventory of Prism. (10,000 x 40% = 4,000) IS Eliminate the intercompany sale and purchase of merchandise. EI Eliminate the intercompany gross profit in the ending inventory of Prism. (15,000 x 40% = 6,000) Subsidiary Company Income Distribution Schedule Deferred profit in ending inventory 1 year amortization of patent 6,000 4,000 Internally generated net income Realized profit in beginning inventory Adjusted income NCI Share NCI 80,000 4,000 74,000 25% 18,500 Internally generated net income 75% Sub's adjusted income Controlling interest 100,000 55,500 155,500 Parent Company Income Distribution Schedule 30. a. 1/1/X1 80% Parent $560,000 Entity FV Book value: Common Stock Paid-in Cap in Excess of Par RE 1/1/X1 Book value: Excess Goodwill 20% NCI $140,000 504,000 56,000 Entity $700,000 126,000 14,000 180,000 350,000 100,000 630,000 70,000 70,000 Sub equity 1/1/X1 Unamortized excess Increase in RE (now $220,000) Equity adjusted for fair value $630,000 70,000 120,000 $820,000 Sub equity prior to new issue Issue 1,000 shares @ $50 Sub equity after new issue Decrease in investment $820,000 50,000 $870,000 Journal entry: Paid-in Capital in Excess of Par Investment in Stroller $626,400 $ 29,600 9,000 1,000 10,000 $560,000 96,000 (29,600) 57,600 $684,000 31. a. Before and After schedule: Parent percentage Parent interest Change in interest Price paid Increase(decrease) in parents equity over price paid Ps 72%* 29,600 b. 12/31/X6 Investment in Stroller balance: Original balance 80% increase in Subs RE Decrease due to new issuance 72% of 20X6 net income Sub equity 1/1/X2 New equity Remaining FV adj $656,000 29,600 *Subs outstanding shares before new issue Sub issued Sub outstanding after new issue Parent holds 7,200 shares from its original investment Sub share issued New issue Sub outstanding Parent holds Parent percentage Ps 80% Before 10,000 10,000 9,000 90.0% After 10,000 2,000 12,000 10,200 85.0% 440,000 440,000 100,000 45,000 585,000 85.0% 497,250 45,000 485,000 90.0% 436,500 60,750 (60,000) 750 (180,000 / 20) (increase from $100,000 to $220,000) b. Parents journal entry to record acquisition of shares Investment in Subsidiary Paid-in Capital in Excess of Par-Parent Cash c. Investment in Sub account at 12/31/X2 1/1/X1 initial investment 20X1 90% sub income 20X1 90% dividends 1/1/X2 additional interest in sub 20X2 85% sub income 20X2 85% dividends 12/31/X2 balance 60,750 750 60,000 $405,000 45,000 (9,000) 60,750 68,000 (17,000) $552,750 32. a. D&D Schedule 1/1/X1 Entity 437,500 Entity FV Book value: Common Stock Paid-in capital in excess of par RE 1/1/X1 Book value: Excess Patent 50,000 150,000 200,000 400,000 37,500 37,500 b. Parents journal entry 1/1/X2 Investm 4,000 ent in Sub Paid-in 4,000 Capital in Excess of ParParent Sub shares Issued New issue Sub outstanding Parent holds Parent percentage Sub equity 1/1/X2 New equity Remaining FV adj* Parent percentage Parent interest Change in interest *$37,500 - (1 yr $2,500) Before 10,000 10,000 8,000 80.0% After 10,000 2,500 12,500 8,000 64.0% 440,000 440,000 125,000 35,000 600,000 64.0% 384,000 35,000 475,000 80.0% 380,000 4,000 80% Parent 350,000 20% NCI 87,500 320,000 30,000 15 years 80,000 7,500 2,500 annual amortization c. Eli min atio n entr ies for 12/3 1/X 2 cons olid atio n wor kshe et CY1 Invest 57,600 ment Revenu e (or Subsidi ary Income ) Invest ment in Sub 57,6 00 elimina te Parent s 20X2 investm ent revenu e CY2 Invest ment in Sub 19,2 00 Divide nd Declare d-Sub 19,2 00 elimina te 20X2 interco mpany dividen ds EL Comm on StockSub Paid-in Capital in Excess of ParSub 40,0 00 168, 000 Retaine d Earnin gs-Sub 153, 600 Invest ment in Sub 361, 600 elimina te 64% of subs equity against investm ent accoun t D Patent 37,5 00 Invest ment in Sub 24,0 00 Retaine d Earnin gs-Sub 13,5 00 recogni ze excess as attribut able to undervalued patent adj Retaine d Earnin gs-P 400 Invest ment in Sub 400 adjust amorti zation of excess from 80% interest to 64% interest A Retaine 1,600 d Earnin gs-P (64%) Reta 900 ined Earn ings -S (36 %) Ope 2,500 ratin g Exp ense (37, 500 / 15 = 2,50 0) Patent 5,00 0 recogni ze prior year and current year amorti zation of excess IS Sales 40,000 Revenu e Cost of 40,0 Goods 00 Sold elimina te 20X2 interco mpany sales of mercha ndise EI Cost of 3,000 Goods Sold (7,500 x 40%) Invento 3,00 ry 0 defer profit contain ed in ending interco mpany mercha ndise 33. D&D Schedule 1/1/X1 Entity 437,500 Entity FV Book value: Common Stock Paid-in capital in excess of par RE 1/1/X1 Book value: Excess Patent Sub shares Issued New issue Sub outstanding Parent holds Parent percentage Sub equity 1/1/X2 New equity Remaining FV adj* Parent percentage Parent interest Change in interest *$37,500 - (1 yr $2,500) 50,000 150,000 200,000 400,000 37,500 37,500 Before 10,000 10,000 8,000 80.0% After 10,000 2,500 12,500 8,000 64.0% 440,000 440,000 125,000 35,000 600,000 64.0% 384,000 35,000 475,000 80.0% 380,000 4,000 80% Parent 350,000 20% NCI 87,500 320,000 30,000 15 years 80,000 7,500 2,500 annual amortization For the worksheet solution, please refer to Answer 8-6. Answer 8-6 Trial Balance Parent Account Titles Inventory, December 31 Other Current Assets Investment in Sub. Company Company 100,000 112,200 424,400 Eliminations and Sub. Adjustment s Company Debit Credit 52,000 373,000 CY2 19,200 Land Buildings and Equipment Accumulated Depreciation Patent 50,000 350,000 (100,000) 80,000 320,000 (60,000) Current Liabilities Long-Term Liabilities Common Stock P Co. Other Paid-in Capital P Co. Retained Earnings P Co. (120,000) (200,000) (200,000) (108,000) (201,000) EI 3,000 CY1 EL D adj 57,600 361,600 24,000 400 D Common Stock S Co. Other Paid-in Capital S Co. Retained Earnings S Co. (520,000) 300,000 120,000 Subsidiary Income Dividends Declared P Co. Dividends Declared S Co. A 5,000 A adj EL EL EL A IS EI A 1,600 400 40,000 168,000 153,600 900 40,000 3,000 2,500 D 13,500 IS 40,000 CY1 57,600 CY2 19,200 (40,000) (100,000) (62,500) (262,500) (240,000) Net Sales Cost of Goods Sold Operating Expenses 37,500 (450,000) 260,000 100,000 (57,600) 50,000 30,000 Consolidated Net Income To NCI To Controlling Interest Total NCI Ret. Earn. Contr. Int. 12-31 0 (continued) 0 524,300 524,300 Account Titles Inventory, December 31 Other Current Assets Investment in Sub. Company Consol. Income Statement NCI Control. Retained Earnings Consol. Balance Sheet 149,000 485,200 0 Land Buildings and Equipment Accumulated Depreciation Patent 130,000 670,000 (160,000) 32,500 Current Liabilities Long-Term Liabilities Common Stock P Co. Other Paid-in Capital P Co. Retained Earnings P Co. (160,000) (300,000) (200,000) (108,000) (199,000) Common Stock S Co. Other Paid-in Capital S Co. Retained Earnings S Co. (22,500) (94,500) (99,000) Net Sales Cost of Goods Sold Operating Expenses (930,000) 523,000 222,500 Subsidiary Income Dividends Declared P Co. Dividends Declared S Co. 0 Consolidated Net Income To NCI To Controlling Interest Total NCI Ret. Earn. Contr. Int. 12-31 (184,500) 30,420 154,080 50,000 10,800 (30,420) (154,080) (235,620) (303,080) (235,620) (303,080) 0 Eliminations and Adjustments: CY1 & CY2 Eliminate the current-year entries made in the investment account and in the subsidiary income account. EL Eliminate 64% of Subsidiary Company equity balances at the beginning of the year against the investment account. D Distribute the $37,500 excess of cost over book value to the patent. A Amortize the patent over 15 years. (37,500 / 15 = 2,500) Charge the 20X1 amortization to retained earnings of Parent (64%) and Sub (36%); the 20X2 amortization to operating expenses. adj Adjust parents retained earnings for the change in amortization from prior year (80%) to current year (64%) IS Eliminate the intercompany sale and purchase of merchandise. EI Eliminate the intercompany gross profit in the ending inventory of Parent. (7,500 x 40% = 3,000) Subsidiary Company Income Distribution Schedule Deferred profit in ending inventory Amortize 1 year on patent 3,000 2,500 Internally generated net income 90,000 Adjusted income NCI Share NCI 84,500 36% 30,420 Internally generated net income 64% Sub's adjusted income Controlling interest 100,000 54,080 154,080 Parent Company Income Distribution Schedule 34. Determination and Distribution of Excess Schedule: Entity Entity FV 340,000 Book value: Common Stock ($10) 120,000 Paid-in Cap in Excess of Par 60,000 RE 1/1/X1 160,000 Book value: 340,000 Excess -0- Parent 204,000 NCI 136,000 204,000 136,000 Purchase of treasury shares results in parent having a 75% interest. [12,000 x 60% = 7,200; 7,200 / (12,000 - 2,400) = 75%] For the worksheet solution, please refer to Answer 8-7. Answer 8-7 Parrot and Swallow Consolidated Partial Worksheet For the Year Ended December 31, 20X5 Trial Balance Account Titles Investment in Swallow Goodwill Common Stock S Paid-in Cap in Excess of Par S Retained Earnings S Retained Earnings P Treasury Stock (at cost) Parrot 204,000 Eliminations Swallow (120,000) (60,000) (340,000) (300,000) 120,000 and Adjustment s Debit Credit CV1 123,000 EL EL EL CV2 90,000 45,000 255,000 27,000 EL CV2 300,000 27,000 CV1 EL 123,000 90,000 Eliminations and Adjustments: CV1 Convert to Simple Equity method investment balance as of 1/1/X5 [(240,000 - 160,000) 60% + (340,000 - 240,000) 75%] CV2 Recognize the change in parent interest of $27,000: Before: $420,000 60% = $252,000; After: $300,000 75% = $225,000 EL Eliminate the 75% investment against Company S equity including Subs Treasury Stock 35. a. D&D schedule: Entity FV Book value: Common Stock Paid-in Capital in Excess of Par RE 1/1/X1 Book value: Excess (Goodwill) Entity 373,529 85% Parent 317,500 15% NCI 56,029 50,000 100,000 200,000 350,000 23,529 297,500 20,000 52,500 3,529 b. Schedule to determine the change in Parents interest in Sub: Before After Sub shares Issued 10,000 10,000 Treasury stock (1,000) Sub outstanding 10,000 9,000 Parent holds 8,500 8,500 Parent percentage 85.0% 94.4% Sub equity 1/1/X2 Treasury stock Remaining FV adj Parent percentage Parent interest Change in interest 400,000 (44,000) 23,529 423,529 85.0% 360,000 (1,725) 400,000 23,529 379,529 94.4% 358,275 c. Prepare all journal entries for Parent for the year ended 12/31/X2: Other 1,725 Paid-in Capital in excess of Par Parent Investm ent in Sub to record change in parent interest in sub as a result of Subs acquisition of its stock from NCI owners 1,725 d. Prepare, in journal form, all elimination entries necessary for the 12/31/X2 consolidation worksheet: CY Subsi 5 diary 6, Inco 6 me 4 0 Divid 8, ends 4 Decla 9 red 6 Sub Inves 4 tment 8, in 1 Sub 4 4 resto re Inves tment in Sub acco unt to its begin ning of year balan ce; elimi nate inter comp any divid ends EL Com 4 mon 7, Stock 2 Sub 0 0 Other 9 Paid- 4, in 4 Capit 0 al 0 Sub Retai 2 ned 3 Earni 6, ngs 0 Sub 0 0 Inves 3 tment 3 in 6, Sub 0 6 4 Treas 4 ury 1, Stock 5 3 6 elimi nate 94.4 % of Subs equit y inclu ding treas ury stock D Good 2 will 3, 5 2 9 Inves 2 tment 2, in 2 Sub 1 2 Retai 1, ned 3 Earni 1 ngs 7 Sub distri bute good will to contr ollin g and nonc ontro lling inter est base d on inter est perce ntage s as chan ged by treas ury stock trans actio n 36. a. Schedule to determine the change in Parents interest in Sub: Sub shares Issued T stock Sub outstanding Parent holds Parent percentage Sub equity 1/1/X2 Treasury stock Remaining FV adj Parent percentage Parent interest Change in interest Before 10,000 10,000 8,500 85.0% 400,000 (44,000) 23,529 423,529 85.0% 360,000 (1,725) After 10,000 (1,000) 9,000 8,500 94.4% 400,000 23,529 379,529 94.4% 358,275 Determination and Distribution of Excess Schedule: Entity Entity FV 373,529 Book value: Common Stock ($10) 50,000 Paid-in Cap in Excess of Par 100,000 RE 1/1/X1 200,000 Book value: 350,000 Excess-attributable to goodwill 23,529 CY: EL: D: Parent 317,500 NCI 56,029 297,500 52,500 Eliminate the current year entries in the investment account and intercompany dividends Eliminate 94.4% of Subs equity including treasury stock Distribute goodwill to controlling and noncontrolling interest based on interest percentages as altered by treasury stock transaction Distribution schedules (not required) Subsidiary Company Income Distribution Schedule Internally generated net income NCI Share NCI 60,000 5.6% 3,360 Internally generated net income 94.4% Sub's adjusted income Controlling interest 110,000 56,640 166,640 Parent Company Income Distribution Schedule 37. Determination and Distribution of Excess Schedule for Sub-A: Entity Entity FV 100,000 Book value: Common Stock ($10) 10,000 Paid-in Cap in Excess of Par 20,000 RE 1/1/X1 60,000 Book value: 90,000 Excess-attributable to patent 10,000 Parent 90,000 81,000 NCI 10,000 9,000 Determination and Distribution of Excess Schedule for Sub-B: Entity Entity FV 80,000 Book value: Common Stock ($10) 5,000 Paid-in Cap in Excess of Par 30,000 RE 1/1/X1 40,000 Book value: 75,000 Excess-attributable to patent 5,000 Parent 64,000 NCI 16,000 60,000 15,000 For the worksheet solution, please refer to Answer 8-9. Eliminations and Adjustments: CY1 Eliminate the current-year entries made in the Parents investment account and in the Sub-A income and dividends declared accounts. EL1 Eliminate 90% of Sub-A Company equity balances at the beginning of the year against the Parents investment account. D1 Distribute the $10,000 excess of cost over book value to the patent. A1 Amortize Sub As patent over 10 years (10,000 / 10 - 1,000), with $2,000 for 20X1 and 20X2 charged to Parent and Sub As retained earnings and $1,000 for 20X3 to operating expenses. CY2 Eliminate the current-year entries made in Sub As investment account and in the Sub-B income and dividends accounts. EL2 Eliminate 80% of Sub-B Company equity balances at the beginning of the year against Sub As investment account. D2 Distribute the $5,000 excess of cost over book value to the patent. A2 Amortize the patent over 10 years (5,000 / 10 = 500), with $500 for 20X2 charged 72% RE-Parent, 8% RE-Sub A, and 20% RE-Sub B and $500 for 20X3 to operating expenses. BI Recognize the $2,000 intercompany gross profit in the beginning inventory and allocate 72% RE-Parent, 8% RE-Sub A, and 20% RE-Sub B. (20,000 / 4 x 40%) IS Eliminate the intercompany sales and purchases. EI Defer the intercompany gross profit in the ending inventory. (10,000 x 40% = 4,000) Income distribution schedule Internally generated net income Amortize B's patent Recognize profit in Beg Inv Defer profit in End Inventory Adjusted income --- Sub B Amortize A's patent Adjusted income --- Sub A Controlling interest net income Sub B 12,500 (500) 2,000 (4,000) 10,000 38. Determination and Distribution of Excess Schedule: Entity Entity FV 600,000 Book value: Common Stock ($10) 200,000 RE 1/1/X1 300,000 Book value: 500,000 Excess-attributable to goodwill 100,000 NCI-B 2,000 Sub A 20,000 8,000 (1,000) 27,000 Parent 480,000 NCI 120,000 400,000 100,000 NCI-A Parent 30,000 2,700 24,300 54,300 a. For the worksheet solution, please refer to Answer 8-11. Answer 8-11 Paula Inc. and Sharon Co. Consolidated Partial Worksheet For the Year Ended December 31, 20X3 Trial Balance Account Titles Investment in Sharon Co. Investment in Paula Inc. Goodwill Common Stock Sharon Co. Retained Earnings Sharon Co. Common Stock Paula Inc. Retained Earnings Paula Inc. Treasury Stock Paula Inc. 480,000 Eliminations Sharon Co. and Adjustment s Debit Credit CV 80,000 (200,000) (400,000) D EL EL 100,000 160,000 320,000 TS Elimination s and Adjustment s: CV Convert investment in Sharon Co. to the equity method, 80% of ($400,000 $300,000). EL Eliminate the investment in Sharon Co. against Sharon Co. equity. D Distribute the excess according to the D&D schedule. TS Restate Investment in Paula as treasury stock Controlling interest: $50,000 $66,000 (80% $20,000) Noncontroll 4,000 ing interest: 20% $20,000 Consolidate $70,000 d net income: D 20,000 80,000 80,000 (200,000) (600,000) 740,000 b. 480,000 80,000 80,000 CV 80,000 EL D TS 740,000 39. a. The parent's investment account increases, but the increase is equal to the change in the parent's equity in the subsidiary. Thus, there is no added excess of cost or book value, and there is no equity adjustment. (2) That portion of the purchase that exceeds the shares needed to maintain the existing ownership percentage constitutes a new block of stock that requires a new determination and distribution of excess schedule for the added interest. There will be separate amortization of excess on the new block. (3) b. (1) In effect, the parent's investment mitigates the impact on its portion of subsidiary equity. The equity interest prior to the issuance plus the price paid for the added interest is compared to the equity interest after the issuance. If there is an increase, paid-in capital in excess of par increases. If there is a decrease, paid-in capital in excess of par decreases. The most popular view of a mutual holding is that the subsidiar y is purchasi ng the shares of the parent as an agent of the parent. This is a reasonab le view since the subsidiar y is controlle d by the parent. The shares purchase d are treated as treasury shares. As such, these shares do not receive any share of consolid ated income.

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USF - ACG - 5205
Chapter 9-The International Accounting EnvironmentChapter 9-The InternationalAccounting EnvironmentStudent: _1. A U.S. company purchases medical lab equipment from a Japanese company. The Japanese companyrequires payment in Japanese yen. In this tran
USF - ACG - 5205
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USF - ACG - 5205
Chapter 14-Partnerships: Ownership Changes and LiquidationsChapter 14-Partnerships: Ownership Changes and LiquidationsStudent: _1. Changes in partnership ownership are presumed to be arm's length transactions that may require which of thefollowing act
USF - ACG - 5205
Chapter15-Governmental Accounting: The General Fund and theAccount GroupsChapter 15-Governmental Accounting: The General Fund and the Account GroupsStudent: _1. A primary distinction between the flow of resources through a business enterprise and thr
USF - ACG - 5205
Chapter 16-Governmental Accounting: Other Governmental Funds, Proprietary Funds, and FiduciaryChapter 16-Governmental Accounting: OtherGovernmental Funds, Proprietary Funds, and Fiduciary FundsFundsStudent: _1. Which of the following activities would
USF - ACG - 5205
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USF - ACG - 5205
Chapter 18-Accounting for Private Not-for-Profit OrganizationsChapter 18-Accounting for Private Not-for-Profit OrganizationsStudent: _1. Which of the following is not a required characteristic of a private not-for-profit organization per thedefinition
USF - ACG - 5205
Chapter 19-Accounting for Not-for-Profit Colleges and Universities and Health CareChapter 19-Accounting for Not-for-Profit Collegesand Universities and Health Care OrganizationsOrganizationsStudent: _1. With the adoption of GASB statement #35 in 1999
USF - ACG - 5205
Chapter 20-Estates and Trusts: Their Nature and the Accountant's RoleChapter 20-Estates and Trusts: Their Nature and the Accountant's RoleStudent: _1. In an intestate distribution, personal property is distributedA. under the laws of the state where t
USF - ACG - 5205
Chapter 21-Debt Restructuring, Corporate Reorganizations, andLiquidationsChapter 21-Debt Restructuring, Corporate Reorganizations, and LiquidationsStudent: _1. Which of the following is an illustration of an action that can be taken to help a troubled
USF - ACG - 5205
Module-Derivatives and Related Accounting IssuesModule-Derivatives andRelated Accounting IssuesStudent: _1. Which of the following statements is true?A. The ability to settle the derivative by actually buying or selling the related asset is referred
USF - ACG - 5205
Special Appendix-Equity Method for Unconsolidated InvestmentsSpecial Appendix-Equity Method for Unconsolidated InvestmentsStudent: _1. Per the FASB, all but the following are characteristics of an influential investment:A. Representation on the board
USF - ACG - 4123
ACG 4123Practice Questions Test 11. How should the balances of progress billings and construction in progress be shownat reporting dates prior to the completion of a long-term contract?A. Progress billings as deferred income, construction in progress
USF - ACG - 4123
ACG 4123Practice Questions Test 21. An employers accounting for a single-employer defined benefit pension plan is basedon thefundamental assumption that such a plan is part of an employees compensationincurred whentheA. Defined pension benefit beco
USF - ACG - 4123
ACG 4123Solutions Practice Questions Test 3Chapters 22-241.2.3.4.5.6.7.8.9.10.11.12.13.BBABDDDDDABDDSupporting computations:3. A change in the estimated life of machinery is a change in estimate, with the newestimate used in
USF - ACG - 4123
ACG 4123Solutions Practice Questions Test 1Questio Answenr1D2C3D4B5D6C7C8C9C10 D11 A12 C13 D14 A15 B16 C17 B18 C19 C20 D11. CIP accumulates all constructions expenses and gross profit recognized while theproject is completed. The
USF - ACG - 4123
ACG 4123Solutions Practice Questions Test 2Question12345678910111213141516AnswerDCBBDDAABACCBDAB6. Beginning PBO balance $144,000 + Service cost 36,000 + Interest cost ($144,000 10%) 14,400 - Benefits paid (30,000) =
USF - ACG - 4123
ACG 4123Practice Questions Test 3Chapters 22-241. For which of the following justified changes should previously issued financial statements beadjusted to report the effects of a newly adopted accounting principle as if the new principlehad always be
USF - ACG - 4123
CHAPTER 18Revenue RecognitionANSWERS TO QUESTIONS1.A series of highly publicized cases of companies recognizing revenue prematurely has causedthe SEC to increase its enforcement actions in this area. In some of these cases, significantadjustments to
USF - ACG - 4123
CHAPTER 19Accounting for Income TaxesASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)BriefQuestions ExercisesTopicsExercisesConceptsProblems for Analysis1. Reconcile pretax financialincome with taxable income.1, 131, 2, 3, 4, 5,12, 18, 20, 211, 2,
USF - ACG - 4123
CHAPTER 20Accounting for Pensions and Postretirement BenefitsASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)Topics1. Basic definitions andconcepts related topension plans.BriefQuestions Exercises Exercises1, 2, 3, 4,5, 6, 7,8, 9, 12,24, 302. Works
USF - ACG - 4123
CHAPTER 21Accounting for LeasesASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)BriefExercisesTopicsQuestions*1.Rationale for leasing.1, 2, 4*2.Lessees; classificationof leases; accounting bylessees.3, 5, 7,8, 14*3.Disclosure of leases.19*4.L
USF - ACG - 4123
CHAPTER 22Accounting Changes and Error AnalysisASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)TopicsQuestions1.Differences between change inprinciple, change in estimate,change in entity, errors.2, 4, 6, 7,8, 9, 12, 13,15, 212.BriefExercisesExer
USF - ACG - 4123
CHAPTER 23Statement of Cash FlowsASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)TopicsQuestionsBriefExercisesExercisesConceptsProblems for Analysis1.Format, objectivespurpose, and sourceof statement.1, 2, 7,8, 122.Classifying investing,financ
USF - ACG - 4123
CHAPTER 24Full Disclosure in Financial ReportingASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)BriefExercisesQuestions* 1.The disclosure principle; typeof disclosure.2, 3* 2.Role of notes that accompanyfinancial statements.1, 4, 51, 2* 3.Subseq
USF - ACG - 4123
On January 1, Year 1, A company buys Z company for $350,000 cash. A balance sheetshowing the book values and fair values of Z Company is presented below.A.B.C.Prepare the entry for the purchase of Z.If A company paid legal fees of $2,000 to an indep
USF - ACG - 4123
USF - ACG - 4123
ACCOUNTING FOR FOREIGN CURRENCY FINANCIAL STATEMENTSAND TRANSLATION OF FOREIGN CURRENCY TRANSACTIONSSFAS No. 52 - Foreign Currency TranslationFOREIGN STATEMENTSThe financial statements of a foreign entity must be expressed inU.S. dollars before conso
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IntermediateAccounting20-1Prepared byCoby HarmonUniversity of California, Santa Barbara20Accounting for Pensions andPostretirement BenefitsIntermediateAccounting14thEdition20-2Kieso,Weygandt,andWarfieldChapter 20Chapter 20Assessment Tasks 1
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INTERMEDIATE FINANCIALACCOUNTING III ACG 4123-Section 601Syllabus-Fall Semester2012Instructor:Office:Office Phone:Fax:E-mail:Classroom:Time:Dr. Mara T. Cabn-GarcaDAV 108B727-873-4561727-873-4192caban@usfsp.eduDAV 104Mondays 2:00-4:50 P.M.
Utah State - MGT - 3800
Leadership Assignment #11Steve JobsSteve Jobs is an excellent example of leadership in the business world. Despite manydifficulties, he managed to lead his company, Apple, to be one of the most successful businessesin the world. His personal innovatio
Utah State - MGT - 3800
Leadership Assignment #12My Best SelfTo find out how others view me when Im at my best self I asked my sister, sister-in-law,and a good friend and neighbor. Their answers werent much of a surprise to me, but they werequite different based on two main
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Jonathan WhitleyBook ReportLeadership 3800Leadership Analysis of A Song of Ice and FireGeorge R.R. Martin has recently been acclaimed as a premiere fantasy author in todaysworld. His series has captured the attention of thousands of readers. The seri
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Assignment #1Our group first began by defining the basic definition of a leader. Michael started off bystating that a leader is someone who has the ability to influence in a direction. I thought it wasimportant to note that leadership requires a direct
Utah State - MGT - 3800
Leadership Assignment #2In my own life as I attempt to develop leadership skills for use in business management,it is fitting that others leadership roles have played such a major part in my life. Leadership is thepower to influence, and one of the mos
Utah State - MGT - 3800
Leadership Assignment #2In President Obamas speech, many leadership techniques were demonstrated. But what Isaw first in President Obama was path-goal leadership combined with achievement-orientedmotivation. He demonstrated this by appealing to the int
Utah State - MGT - 3800
Leadership Assignment #4Interview with Cameron MadsenFor this assignment I interviewed one of my best friends Cameron Madsen. Cameron hasbeen my neighbor and friend for the vast majority of my life. Although I grew up with Cameron,he is a year older t
Utah State - MGT - 3800
Leadership Assignment #5Worst LeaderLast fall I enrolled in a class taught by the worst leader I have ever encountered. Theclass was here at Utah State University so I wont mention the teachers name. However, tounderstand why this teacher was such a p
Utah State - MGT - 3800
Leadership Assignment #7Who to Fire?When it comes to making hard decisions, I believe that a rational approach must be taken.Often times people only look at the short-term effects or the path of least resistance. But to trulymake a good decision, you
Utah State - MGT - 3800
Leadership Assignment #10Remember the Titans?In the film Remember the Titans you can find many examples of leadership. The moviegives great examples of transformational leadership as the characters come to accept each othersleadership. Ill briefly dis
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The Power of ReferenceBy Ryan Archibald, Michael Eggli, Erick Walton, Brian Weller, and Jon WhitleyIntroductionA leader can be defined as an individual who influences others towards theattainment of a common goal. While the definition may be simple, i
UC Davis - ETX - 101
UC Davis - ETX - 101
UC Davis - ETX - 101
UC Davis - ETX - 101
Pest Management SciencePest Manag Sci 61:331355 (2005)DOI: 10.1002/ps.1000A risk assessment of atrazine use in California:human health and ecological aspectsDerek W Gammon, Charles N Aldous, Wesley C Carr Jr, James R Sanbornand Keith F PfeiferCalif
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UC Davis - ETX - 101
UC Davis - ETX - 101
UC Davis - ETX - 101
UC Davis - ETX - 101
UC Davis - ETX - 101
Dr. E. GoldUNIVERSITY OF CALIFORNIA, DAVISHuman Epidemiology Study Designs: A Population-Based ReproductiveStudy in the Semiconductor IndustryOctober 28, 2011I. IntroductionA. Definition of EpidemiologyThe study of the distribution or patterns of d
UC Davis - ETX - 101
UC Davis - ETX - 101
UC Davis - ETX - 101
UC Davis - ETX - 101
UC Davis - ETX - 101
Developmental ToxicityETX 101:Principles of Environmental ToxicologyOctober 26, 2011Danica E. DeGroot, Pre-Ph.D.dedegroot@ucdavis.eduOverviewPart I: IntroductionA. DefinitionsB. Historical Background ThalidomideC. Increasing Concern Regarding De
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UC Davis - ETX - 101
Toxic Chemicals, Health Scares & the InternetToxicThe internet & email are tremendously useful resources! The internet allows increased global access to a wide variety of information about things we often know little or nothing about. The internet ea
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How Much Contamination?Wildlife Toxicology:An OverviewMike Ziccardi, DVM PhDWildlife Health Center, UCDmhziccardi@ucdavis.edu 7.3 billion pounds of toxic chemicals released into theair, land, water and underground (1998) 26,774 chemical and oil sp