ADV.FIN.ACCT. CONNECT+PROCTORIO PLUS
ADV.FIN.ACCT. CONNECT+PROCTORIO PLUS
12th Edition
ISBN: 9781266379017
Author: Christensen
Publisher: INTER MCG
Question
Book Icon
Chapter 10, Problem 10.27P
To determine

Consolidation following acquisition:when a company purchases another company’s common stock, the subsidiary is viewed as being part of the consolidated entity only from the time stock is acquired. When a subsidiary is acquired during a fiscal period rather than at the beginning or at the end, the results of the subsidiary’s operations are included in the consolidated statements only for the portion of the year that the parent owned the stock. The subsidiary’s revenues, expenses, gains and losses for the portion of the fiscal period prior to acquisition is excluded from the consolidated financial statements.

the journal entries recorded by P during 20X2 related to investment in S.

Expert Solution
Check Mark

Answer to Problem 10.27P

    Debit $Credit $
    1. Record purchase of S company stock
    Investment in S company stock247,500
    Common stock80,000
    Additional Paid-in capital167,500
    2. Record dividends received from S
    Cash9,000
    Investment in S company stock9,000
    3. Record equity method income
    Investment in S company stock13,500
    Income from Subsidiary13,500

Explanation of Solution

  1. Investment in S’s common stock is recorded by debiting to investment account and credit common stock $80,000 = $10 x 8,000 shares, additional paid in capital $247,500 - $80,000 = $167,500.
  2. Dividends from S company recorded $10,000 x .90 = $9,000.
  3. Equity method income is recognized $15,000 x .90 = $13,500.

b.

To determine

Consolidation following acquisition: when a company purchases another company’s common stock, the subsidiary is viewed as being part of the consolidated entity only from the time stock is acquired. When a subsidiary is acquired during a fiscal period rather than at the beginning or at the end, the results of the subsidiary’s operations are included in the consolidated statements only for the portion of the year that the parent owned the stock. The subsidiary’s revenues, expenses, gains and losses for the portion of the fiscal period prior to acquisition is excluded from the consolidated financial statements.

The consolidation entries for December 31, 20X2.

b.

Expert Solution
Check Mark

Answer to Problem 10.27P

    DebitCredit
    1. Eliminate income from subsidiary
    Income from Subsidiary13,500
    Dividends declared9,000
    Investment in S company common stock4,500
    2. Assignment of income to non-controlling interest:
    Income to non-controlling interest1,500
    Dividends declared1,000
    Non-controlling interest500
    3. Eliminate beginning investment:
    Common stock − S company150,000
    Retained earnings, January 1100,000
    Sales205,000
    Cost of goods sold126,000
    Depreciation expenses16,000
    Dividends declared18,000
    Investment in S company common stock247,000
    Non-controlling interest27,500

Explanation of Solution

  1. Income from subsidiary is eliminated by debiting and credit investment and dividends.
  2. Income assigned to non-controlling interest
  3. $1,500 = $15,000 x .10

    $1,000 = $10,000 x .10

  4. Beginning investment eliminated by reversal entry.

c.

To determine

Consolidation following acquisition: when a company purchases another company’s common stock, the subsidiary is viewed as being part of the consolidated entity only from the time stock is acquired. When a subsidiary is acquired during a fiscal period rather than at the beginning or at the end, the results of the subsidiary’s operations are included in the consolidated statements only for the portion of the year that the parent owned the stock. The subsidiary’s revenues, expenses, gains and losses for the portion of the fiscal period prior to acquisition is excluded from the consolidated financial statements.

The consolidation entries for December 31, 20X2.

c.

Expert Solution
Check Mark

Answer to Problem 10.27P

Consolidated work sheet total for 20X2 $1,285,000.

Explanation of Solution

    Eliminations
    PSDebitCreditConsolidation
    Sales390,000250,000205,000435,000
    Income from subsidiary13,50013,500
    403,500250,000435,000
    Less: Cost of goods sold(305,000)(145,000)126,000(324,000)
    Less: Depreciation expense(25,000)(20,000)16,000(29,000)
    Less: Other expenses(14,000)(25,000)18,000(21,000)
    Consolidated net income59,50060,00061,000
    Income from NCI1,500(1,500)
    Controlling interest in net income59,50060,000220,000160,00059,500
    Statement of Retained earnings:
    Retained earnings January 1135,000100,000100,000135,000
    Net income59,50060,000220,000160,00059,500
    Less: dividends declared(40,000)(30,000)9,000
    1,000
    20,000(40,000)
    Retained earnings Dec 31154,500130,000320,000190,000154,500
    Balance sheet
    Cash 85,00050,000135,000
    Accounts receivable100,00060,000160,000
    Inventory150,000100,000250,000
    Buildings and equipment400,000340,000740,000
    Investment in S stock252,0004,500
    247,500
    Total assets987,000550,0001,285,000
    Accumulated depreciation105,00065,000170,000
    Accounts payable40,00050,00090,000
    Taxes payable70,00055,000125,000
    Bonds payable250,000100,000350,000
    Common stock200,000150,000150,000200,000
    Additional paid-in capital167,500167,500
    Retained earnings 154,500130,000320,000190,000154,500
    Non-controlling interest500
    27,50028,000
    Liabilities and Equity987,000550,000470,000470,0001,285,000

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Harvey Company increased its ownership in Washington Company from 70% to 90% by the purchase of additional shares of the Washington’s outstanding stock from noncontrolling shareholders for a purchase price of $300,000. Immediately prior to the transaction, Harvey’s consolidated balance sheet included a noncontrolling interest balance of $1,000,000.The journal entry by Harvey to record the purchase includes: Select one: A. Cash credit, $333,333 B. APIC credit, $300,000 C. APIC credit, $333,333 D. APIC credit, $33,333
Peace Computer Corporation acquired 75 percent of Symbol Software Company’s stock on January 2, 20X3, by issuing bonds with a par value of $85,250 and a fair value of $102,750 in exchange for the shares. Summarized balance sheet data presented for the companies just before the acquisition follow:   Peace Computer Corporation Symbol Software Company Book Value Fair Value Book Value Fair Value Cash $ 216,000 $ 216,000 $ 62,000 $ 62,000 Other Assets 406,000 406,000 137,000 137,000 Total Debits $ 622,000   $ 199,000   Current Liabilities $ 82,000 82,000 $ 62,000 62,000 Common Stock 290,000   62,000   Retained Earnings 250,000   75,000   Total Credits $ 622,000   $ 199,000   Required: Prepare a consolidated balance sheet immediately following the acquisition.
1. Matray acquired 16,000 ordinary shares of Petros on 1 April 20X9. On 31 December 20X8Petros’s accounts showed a share premium of $4,000 and retained earnings of $15,000. The fairmarket value of non-controlling interest at acquisition was $7,000.Below are the statements of financial position for the two companies as at 31 December 20X9:Matray PetrosNon-current assets:Property, plant and equipment 39,000 33,000Investment in Petros 50,000Current assets 78,000 40,000Total assets 167,000 73,000Equity and liabilitiesEquityOrdinary shares of: $1 each 100,000: 50c each 10,000Share premium 7,000 4,000Retained earnings 40,000 39,000Current liabilities 20,000 20,000Total equity and liabilities 167,000 73,000Required:Prepare the consolidated statement of financial position of Matray as at 31 December 20X9. Assumeprofits have accrued evenly throughout the year

Chapter 10 Solutions

ADV.FIN.ACCT. CONNECT+PROCTORIO PLUS

Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education