Advanced Financial Accounting
Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 7, Problem 7.32P
To determine

Consolidated entries:These entries are used in consolidation worksheet to adjust the totals of the individual account balances of the separate consolidating companies.Consolidation entries appear only in the consolidation worksheet and do not affect the books of separate companies. These worksheet entries are sometime called as elimination entries. The intercompany transactions between consolidating companies may be recorded in separate accounts to facilitate the later elimination of intercompany transactions.

Requirement 1

Consolidation entries needed to prepare consolidation worksheet for the year 20X6.

Expert Solution
Check Mark

Answer to Problem 7.32P

Eliminating entries for December 31 20X6

    DebitCredit
    1. Eliminating income from subsidiary
    Income from subsidiary32,000
    Dividends declared4,000
    Investment in S company stock28,000
    2. Assign income to non-controlling interest
    Income to non-controlling interest4,400
    Dividends declared1,000
    Non-controlling interest3,400
    ($40,000 − 18,000) x 0.20 = 4,400
    3. Eliminate beginning investment balance
    Common stock S company100,000
    Retained earnings January 1105,000
    Differential50,000
    Investment in S company stock204,000
    Non-controlling interest51,000
    4. Assign differential to goodwill
    Goodwill50,000
    Differential50,000
    5. Recognizing impairment of goodwill
    Goodwill impairment loss18,000
    Goodwill18,000
    6. Eliminating unrealized gain on land
    Retained earnings January 18,000
    Non-controlling interest2,000
    Land10,000
    7. Eliminating intercompany sale of equipment
    Buildings and equipment5,000
    Gain on sale of equipment20,000
    Depreciation and amortization expenses2,000
    Accumulated depreciation23,000
    8. Eliminating intercompany receivable and payable
    Account payable7,000
    Accounts receivable7,000

Explanation of Solution

  1. As all the intercompany transactions are eliminated, income from subsidiary is also eliminated.
  2. Income to non-controlling interest fair value was 40,000 assigned to non-controlling interest (40,000 − 18,000) x .20 =4,400
  3. Beginning investment balance is eliminated by assigning it to investment in S company and non-controlling interest.
  4. Goodwill is assigned to differential.
  5. Impairment loss on goodwill is recognized by crediting it to goodwill account.
  6. Unrealized gain on sale of land is eliminated by debiting to retained earnings.
  7. Elimination of intercompany sale of equipment is carried out and depreciation expenses are adjusted as follows:
  8. Depreciation expenses adjustment:
    Depreciation recorded $70,000 / 10 years7,000
    Depreciation required $75,000 / 15 years(5,000)
    Required decrease$2,000
    Accumulated depreciation adjustment:
    Required balance $5,000 x 6 years$30,000
    Balance recorded $7,000 x 1 year(7,000)
    Required increase$23,000
  9. Intercompany accounts receivable and payable has been eliminated by setoff entry.

b

To determine

Consolidated entries:These entries are used in consolidation worksheet to adjust the totals of the individual account balances of the separate consolidating companies.Consolidation entries appear only in the consolidation worksheet and do not affect the books of separate companies. These worksheet entries are sometime called as elimination entries. The intercompany transactions between consolidating companies may be recorded in separate accounts to facilitate the later elimination of intercompany transactions.

Requirement 2

Preparation of consolidation worksheet for December 31 20X6.

b

Expert Solution
Check Mark

Answer to Problem 7.32P

Consolidated net income and Net assets of P & S Company’s is $79,600 and 980,000 respectively.

Explanation of Solution

P & S COMPANY’S

Consolidated worksheet

December 31 20X7

    Elimination
    PSDebit CreditConsolidated
    Sales240,000120,000360,000
    Gain on sale of equipment20,00020,000
    Income from subsidiary32,00032,000
    Less : cost of goods sold(140,000)(60,000)(200,000)
    Depreciation(25,000)(15,000)2,000(38,000)
    Goodwill impairment18,000(18,000)
    Other expenses(15,000)(5,000)(20,000)
    Consolidated net income84,000
    NCI in net income4,400(4,400)
    Net income112,00040,00074,4002,00079,600
    Retained earnings:
    Retained earnings Jan 1338,000105,000105,000
    8,000
    Dividends(30,000)(5,000)4,000
    1,000(30,000)
    Retained earnings Dec 31420,000140,000187,4007,000379,600
    Balance sheet:
    Cash and receivable113,00035,0007,000141,000
    Inventory260,00090,000350,000
    Land80,00080,00010,000150,000
    Buildings and equipment500,000150,0005,000655,000
    Less: Accu depreciation(205,000)(45,000)23,000(273,000)
    Investment in S company232,00028,000
    204,000
    Differential50,00050,000
    Goodwill50,00018,00032,000
    Net Assets980,000310,000105,000313,0001,055,000
    Accounts payable60,00020,0007,00073,000
    Bonds payable200,00050,000250,000
    Common stock300,000100,000100,000300,000
    Retained earnings Dec 31420,000140,000187,4007,000379,600
    Non-controlling interest2,0003,400
    51,00052,400
    Liabilities and Equity980,000310,000196,40061,4001,055,000

c

To determine

Consolidated entries:These entries are used in consolidation worksheet to adjust the totals of the individual account balances of the separate consolidating companies.Consolidation entries appear only in the consolidation worksheet and do not affect the books of separate companies. These worksheet entries are sometime called as elimination entries. The intercompany transactions between consolidating companies may be recorded in separate accounts to facilitate the later elimination of intercompany transactions.

Requirement 3

Preparation of consolidation balance sheet income statement and retained earnings statement for December 31 20X6.

c

Expert Solution
Check Mark

Answer to Problem 7.32P

Eliminating entries for December 31 20X6.

Explanation of Solution

P &S COMPANY’S

Consolidated balance sheet

December 31 20X6.

    $$
    Assets
    Cash and receivables141,000
    Inventory350,000
    Land150,000
    Buildings and equipment’s655,000
    Less: Accumulated depreciation(273,000)382,000
    Goodwill32,000
    Total Assets1,055,000
    Accounts payable73,000
    Bonds payable250,000
    Stockholders’ Equity:
    Controlling interest
    Common stock300,000
    Retained earnings379,600
    Total controlling interest679,600
    Total Non-controlling interest52,400
    Total stockholder’s equity732,000
    Total Liability and equity1,055,000

P &S COMPANY’S

Consolidated income statement

December 31 20X6.

    $$
    Sales360,000
    Less: Cost of goods sold200,000
    Depreciation and amortization expenses38,000
    Goodwill impairment loss18,000
    (276,000)
    Consolidated net income84,000
    Less income to non-controlling interest(4,400)
    Income to controlling interest79,600

P &S COMPANY’S

Consolidated retained earnings

December 31 20X6.

    $
    Retained earnings January 1 20X6330,000
    Income to controlling interest 20X679,600
    409,600
    Dividends declared 20X6(30,000)
    Retained earnings December 31 20X6379,600

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Advanced Financial Accounting

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