Concept explainers
a
Introduction: When asset held by the subsidiary are with differential, both the equity method income and consolidated net income is affected as the proportion of differential is included in parents books as part of the investment in the subsidiary. When the asset is sold it must be written off by the parent in consolidation.
The consolidation entries needed to prepare consolidation
a
Explanation of Solution
Consolidation entries
Particulars | Debit $ | Credit $ |
Investment in S Corporation | 102,200 | |
Cash | 102,200 | |
(Recorded initial investment in S Corp) | ||
Elimination entries: | ||
Common stock | 40,000 | |
85,000 | ||
Investment in S Corporation | 87,500 | |
Non-controlling interest in net assets of S | 37,500 | |
(Elimination of beginning investment in S by reversal) | ||
Inventory | 6,000 | |
Buildings & equipment | 15,000 | |
Investment in S Corporation | 14,700 | |
Non-controlling interest in net assets of S | 6,300 | |
(Reclassification of differential in assets) | ||
Accounts payable | 12,500 | |
| 12,500 | |
(Intercompany receivable and payable eliminated) | ||
80,000 | ||
Building and equipment | 80,000 | |
(Depreciation on building and equipment recorded) |
- Initial investment recognized by debit entry in investment account
- Beginning investment in S Eliminated by reversal
- Excess differential reclassification
- Intercompany receivable and payable eliminated by setoff
- Accumulated depreciation recognized
b
Introduction: When asset held by the subsidiary are with differential, both the equity method income and consolidated net income is affected as the proportion of differential is included in parents books as part of the investment in the subsidiary. When the asset is sold it must be written off by the parent in consolidation.
The consolidated worksheet for December 31, 20X4.
b
Answer to Problem 5.29P
Net assets and liability/equity as per worksheet $938,800
Explanation of Solution
P and S
Consolidated balance sheet worksheet
December 31, 20X4
Elimination | |||||
P $ | S $ | Debit $ | Credit $ | Consolidation $ | |
Cash | 50,300 | 21,000 | 71,300 | ||
Accounts receivable | 90,000 | 44,000 | 12,500 | 121,500 | |
Inventory | 130,000 | 75,000 | 6,000 | 211,000 | |
Land | 60,000 | 30,000 | 90,000 | ||
Buildings and equipment | 410,000 | 250,000 | 15,000 | 80,000 | 595,000 |
Less: Accumulated depreciation | (150,000) | (80,000) | 80,000 | (150,000) | |
Investment in S Corp | 102,200 | 87,500 | |||
14,700 | |||||
Total Assets | 692,500 | 340,000 | 101,000 | 194,700 | 938,800 |
Accounts payable | 152,500 | 35,000 | 12,500 | 175,000 | |
Mortgage payable | 250,000 | 180,000 | 430,000 | ||
Common stock | 80,000 | 40,000 | 40,000 | 80,000 | |
Retained earnings | 210,000 | 85,000 | 85,000 | 210,000 | |
Non-controlling in net assets S | 37,500 | ||||
6,300 | 43,800 | ||||
Total Liabilities & Equity | 692,500 | 340,000 | 101,000 | 194,700 | 938,800 |
c
Introduction: When asset held by the subsidiary are with differential, both the equity method income and consolidated net income is affected as the proportion of differential is included in parents books as part of the investment in the subsidiary. When the asset is sold it must be written off by the parent in consolidation.
The consolidated balance sheet for December 31, 20X4
c
Answer to Problem 5.29P
Net assets and liability/equity as per worksheet $938,800
Explanation of Solution
P and S
Consolidated balance sheet
December 31, 20X4
$ | $ | |
Cash | 71,300 | |
Accounts receivable | 121,500 | |
Inventory | 211,000 | |
Land | 90,000 | |
Buildings and equipment | 595,000 | |
Less: Accumulated depreciation | (150,000) | |
445,000 | ||
Total Assets | 938,800 | |
Accounts payable | 175,000 | |
Mortgage payable | 430,000 | |
Common stock | 80,000 | |
Retained earnings | 210,000 | |
Total controlling interest | 290,000 | |
Non-controlling in net assets S | 43,800 | |
Total stockholders’ equity | 333,800 | |
Total Liabilities & Equity | 938,800 |
Want to see more full solutions like this?
Chapter 5 Solutions
Advanced Financial Accounting
- ABC Corporation acquired 70 percent of XYZ Corporation on August 1 for P420,000. On that date, XYZ Corporation had the following book values and market values. What is the amount of purchase differential recognized on the acquisition date consolidated balance sheet with respect to plant assets.arrow_forwardOn January 1, 20X1, Par Inc acquires 85.77% of Sub Corp for $211,625 in cash. Immediately before the acquisition, the book value of Sub's identifiable net assets was $143,426 with a fair value of $161,060, while the book value of Par's net assets was $282,155. What will be the amount of total shareholders' equity on the consolidated balance sheet immediately after the acquisition if the fair-value-enterprise (FVE) method is used? $309,334 b. $333,129 c. $301,402 d. $317,265 e. $325,197arrow_forwardABC Corporation acquired 70 percent of XYZ Corporation on August 1 for P420,000. On that date, XYZ Corporation had the following book values and market values. What is the amount of non-controlling interest on the acquisition date consolidated balance sheet?arrow_forward
- ABC Corporation acquired 70 percent of XYZ Corporation on August 1 for P420,000. On that date, XYZ Corporation had the following book values and market values. What is the amount of non-controlling interest on the acquisition date consolidated balance sheet? In good accounting form, please. Thank you! <33arrow_forwardMidStrata Corporation acquired 75% of the voting shares of Atoom Company on January 1, 20X1. The fair value ofthe non-controlling interest at acquisition was equal to its proportionate share of the fair value of the net assets ofAtoom. The full amount of the differential at acquisition was attributable to buildings and equipment, which had aremaining useful life of eight years. Financial statement data for the two companies and the consolidated entity atDecember 31, 20X6, are as follows:MIDSTRATA CORPORATION AND ATOOM COMPANYBalance Sheet DataDecember 31, 20X6Item MidStrata Corporation Atoom Company Consolidated EntityCash $ 67,000 $ 45,000 $ 112,000Account Receivable ? 55,000 145,000Inventory 125,000 90,000 211,000Buildings & Equipment 400,000 240,000 680,000Less: Accumulated Depreciation (180,000) (110,000) (?)Investment in Atoom Company ?Total Assets $ ? $320,000 $Accounts Payable $ 86,000 $ 20,000 $ 89,000Other Payables ? 8,000 ?Notes Payable 250,000 120,000 370,000Common Stock…arrow_forwardABC Corporation acquired 80 percent of XYZ Corporation on August 1 for P500,000. On that date, XYZ Corporation had the following book values and market values. What is the amount of non controlling interest on the acquisition date consolidated balance sheet?arrow_forward
- Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $97,300. At that date, the fair value of the noncontrolling interest was $41,700. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Item Phone Corporation Smart Corporation Cash $ 58,300 $ 22,000 Accounts Receivable 109,000 49,000 Inventory 144,000 79,000 Land 73,000 36,000 Buildings & Equipment 426,000 266,000 Less: Accumulated Depreciation (166,000) (75,000) Investment in Smart Corporation 97,300 Total Assets $ 741,600 $ 377,000 Accounts Payable $ 142,500 $ 26,000 Mortgage Payable 331,100 233,000 Common Stock 68,000 39,000 Retained Earnings 200,000 79,000 Total Liabilities & Stockholders’ Equity $ 741,600 $ 377,000 At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of…arrow_forwardOn January 1, 20x1, Pine Corp acquired 75% interest in Sine Inc. for P2,400,000. On that date Sine Ordinary share and Retained earnings were P2,000,000 and P1,000,000. The non-controlling interest on the date of acquisition was P800,000. The assets and liabilities of Sine’s book values approximates their fair values except for the inventories and equipment which were undervalued by P30,000 and P50,000, respectively. The equipment has a remaining estimated life of five years. On October 1, 20x1, Sine Inc. sold equipment to Pine Corp. costing P300,000 with accumulated depreciation of P120,000 for P200,000. The remaining useful life of equipment was 4 years. In year 20x1, the goodwill is impaired by P5,000. On April 30, 20x2, Pine Corp. sold equipment to Sine Inc, costing P500,000 with accumulated depreciation P100,000 for P300,000. The remaining estimated life of equipment was five years. The following information were extracted from the separate financial statements of Pine and Sine for…arrow_forwardPhone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $98,000. At that date, the fair value of the noncontrolling interest was $42,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Item Phone Corporation Smart Corporation Cash $ 52,300 $ 39,000 Accounts Receivable 99,000 59,000 Inventory 136,000 92,000 Land 66,000 49,000 Buildings & Equipment 417,000 268,000 Less: Accumulated Depreciation (151,000) (73,000) Investment in Smart Corporation 98,000 Total Assets $ 717,300 $ 434,000 Accounts Payable $ 141,500 $ 27,000 Mortgage Payable 300,800 288,000 Common Stock 72,000 40,000 Retained Earnings 203,000 79,000 Total Liabilities & Stockholders’ Equity $ 717,300 $ 434,000 At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of…arrow_forward
- Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $97,300. At that date, the fair value of the noncontrolling interest was $41,700. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Item Phone Corporation Smart Corporation Cash $ 58,300 $ 22,000 Accounts Receivable 109,000 49,000 Inventory 144,000 79,000 Land 73,000 36,000 Buildings & Equipment 426,000 266,000 Less: Accumulated Depreciation (166,000) (75,000) Investment in Smart Corporation 97,300 Total Assets $ 741,600 $ 377,000 Accounts Payable $ 142,500 $ 26,000 Mortgage Payable 331,100 233,000 Common Stock 68,000 39,000 Retained Earnings 200,000 79,000 Total Liabilities & Stockholders’ Equity $ 741,600 $ 377,000 At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of…arrow_forwardPhone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $98,000. At that date, the fair value of the noncontrolling interest was $42,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Item Phone Corporation Smart Corporation Cash $ 52,300 $ 39,000 Accounts Receivable 99,000 59,000 Inventory 136,000 92,000 Land 66,000 49,000 Buildings & Equipment 417,000 268,000 Less: Accumulated Depreciation (151,000) (73,000) Investment in Smart Corporation 98,000 Total Assets $ 717,300 $ 434,000 Accounts Payable $ 141,500 $ 27,000 Mortgage Payable 300,800 288,000 Common Stock 72,000 40,000 Retained Earnings 203,000 79,000 Total Liabilities & Stockholders’ Equity $ 717,300 $ 434,000 At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of…arrow_forwardPretzel Corporation acquired 100 percent of Stick Company’s outstanding shares on January 1, 20X7. Balance sheet data for the two companies immediately after the purchase follow: As indicated in the parent company balance sheet, Pretzel purchased $59,000 of Stick’s bonds from the subsidiary at par value immediately after it acquired the stock. An analysis of intercompany receivables and payables also indicates that the subsidiary owes the parent $8,000. On the date of combination, the book values and fair values of Stick’s assets and liabilities were the same. Record the basic consolidation entryarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education