Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Question
Chapter 5, Problem 5.11E
a
To determine
Introduction: The consolidation procedure used in the second year and the subsequent year is similar to that of the first. The equity method is used to evaluate the investment in the subsidiary. In order to determine consolidation entries, the change in the parent’s investment in the second or subsequent year is determined. Any differential arising is recognized and all the intercompany transactions are eliminated.
The entries by P during 20X2 on its books for its investment in S using equity method,
a
Expert Solution
Explanation of Solution
Equity method entries in P’s books
| Particulars | Debit $ | Credit $ |
| Investment in S corporation | 190,000 | |
| Cash | 190,000 | |
| (Initial investment in S Corporation recorded) | ||
| Common stock | 120,000 | |
| 80,000 | ||
| Investment in S Corporation | 160,000 | |
| Non-controlling interest in Net assets of S | 40,000 | |
| (Elimination of beginning investment in S) | ||
| Buildings | 32,000 | |
| 5,500 | ||
| Investment in S Corporation | 30,000 | |
| Non-controlling interest in Net assets of S | 7,500 | |
| (Excess differential reclassified) |
- Cash paid for purchase of investment in S corporation $190,000
- Elimination of investment in S
- Amortization of excess acquisition cost
Controlling interest on income from S recognized
b
To determine
Introduction: The consolidation procedure used in the second year and the subsequent year is similar to that of the first. The equity method is used to evaluate the investment in the subsidiary. In order to determine consolidation entries, the change in the parent’s investment in the second or subsequent year is determined. Any differential arising is recognized and all the intercompany transactions are eliminated.
The consolidation entries needed at December 31, 20X3.
b
Expert Solution
Explanation of Solution
Elimination entries
| Particulars | Debit $ | Credit $ |
| Investment in S corporation | 190,000 | |
| Cash | 190,000 | |
| (Initial investment in S Corporation recorded) | ||
| Investment in S corporation | 32,000 | |
| Income from S corporation | 32,000 | |
| (Income from subsidiary S for 20X2 recognized) | ||
| Income from S corporation | 3,200 | |
| Investment in S corporation | 3,200 | |
| (Amortization of excess acquisition price) | ||
| Common stock | 120,000 | |
| Retained earnings | 80,000 | |
| Income from S Corporation | 32,000 | |
| Non-controlling interest in net income of S Corporation | 8,000 | |
| Investment in S Corporation | 192,000 | |
| Non-controlling in net assets of S corporation | 48,000 | |
| (Elimination of investment in S corporation by reversal) | ||
| 4,000 | ||
| Income from S Corporation | 3,200 | |
| Non-controlling interest in net income of S Corporation | 800 | |
| (Amortization of differential in building) | ||
| Buildings | 32,000 | |
| Goodwill | 5,500 | |
| | 4,000 | |
| Investment in S Corporation | 26,800 | |
| Non-controlling interest in net assets of S | `6,700 | |
| (Excess differential reclassified) |
- Cash paid for purchase of investment in S corporation $190,000
- Controlling interest on income from S recognized
- Amortization of excess acquisition cost
- Elimination of investment in S Corporation
- Amortization of differential in buildings
- Excess differential reclassification
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Chapter 5 Solutions
Advanced Financial Accounting
Ch. 5 - Where is the balance assigned to the...Ch. 5 - Why must a noncontrolling interest be reported in...Ch. 5 - Prob. 5.3QCh. 5 - Prob. 5.4QCh. 5 - Prob. 5.5QCh. 5 - Prob. 5.6QCh. 5 - Prob. 5.7QCh. 5 - Prob. 5.8QCh. 5 - Prob. 5.9QCh. 5 - Prob. 5.10Q
Ch. 5 - Under what Circumstances would a parent company...Ch. 5 - Prob. 5.12QCh. 5 - Prob. 5.13QCh. 5 - Prob. 5.14AQCh. 5 - Prob. 5.15AQCh. 5 - Consolidation Worksheet Preparation The newest...Ch. 5 - Prob. 5.2CCh. 5 - Prob. 5.3CCh. 5 - Prob. 5.4CCh. 5 - Prob. 5.5CCh. 5 - Prob. 5.1.1ECh. 5 - Prob. 5.1.2ECh. 5 - Prob. 5.1.3ECh. 5 - Prob. 5.1.4ECh. 5 - Prob. 5.2.1ECh. 5 - Prob. 5.2.2ECh. 5 - Prob. 5.2.3ECh. 5 - Prob. 5.2.4ECh. 5 - Prob. 5.2.5ECh. 5 - Prob. 5.3ECh. 5 - Prob. 5.4ECh. 5 - Balance Sheet Worksheet Problem Company owns 90...Ch. 5 - Prob. 5.6ECh. 5 - Prob. 5.7ECh. 5 - Prob. 5.8.1ECh. 5 - Prob. 5.8.2ECh. 5 - Prob. 5.8.3ECh. 5 - Prob. 5.8.4ECh. 5 - Prob. 5.8.5ECh. 5 - Prob. 5.8.6ECh. 5 - Prob. 5.8.7ECh. 5 - Prob. 5.9ECh. 5 - Prob. 5.10ECh. 5 - Prob. 5.11ECh. 5 - Prob. 5.12ECh. 5 - Prob. 5.13ECh. 5 - Prob. 5.14ECh. 5 - Prob. 5.15ECh. 5 - Prob. 5.16ECh. 5 - Prob. 5.17AECh. 5 - Prob. 5.18AECh. 5 - Prob. 5.19PCh. 5 - Prob. 5.20PCh. 5 - Prob. 5.21.1PCh. 5 - Multiple-Choice Questions on Applying the Equity...Ch. 5 - Prob. 5.21.3PCh. 5 - Prob. 5.21.4PCh. 5 - Prob. 5.22PCh. 5 - Computation of Account Balances Pencil Company...Ch. 5 - Prob. 5.24PCh. 5 - Equity Entries with Differential On January 1,...Ch. 5 - Equity Entries with Differential Plug Corporation...Ch. 5 - Prob. 5.27PCh. 5 - Prob. 5.28PCh. 5 - Prob. 5.29P
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