Introduction: Consolidated income statement is the combination of income, revenue and expenses of holding companies and its subsidiaries depicting the overall scenario of the aggregate of the company as a whole.
Toprepare:The worksheet necessary to produce the consolidated financial statements for postman Company and its subsidiary Company S for the year ended December 31, 2017,and alsoto include the determination and distribution of excess and income distribution schedules.
Explanation of Solution
Following is the determination and distribution of excess schedule
Particulars | Company-implied fair value ($) | Parent price (80%) ($) | Non-controlling interest value (20%) ($) |
Fair value of subsidiary (a) | 562,500 | 450,000 | 112,500 (Equation − 1) |
Less: Book value of interest acquired | |||
Common stock ($1 par) | 10,000 | ||
Paid-in capital in excess of par | 190,000 | ||
190,000 | |||
Total Equity (b) | 390,000 | 390,000 | 390,000 |
Interest acquired | 80% | 20% | |
Book value | 312,000 | 78,000 | |
Excess of fair value over book value (a-b = c) | 172,000 | 138,000 | 34,500 |
Adjustments of identifiable accounts:
Adjustments of identifiable accounts | Adjustment ($) | Life | Amortization per year ($) | Worksheet Key |
Buildings | 100,000 | 20 | 5,000 | Debit D1 |
72,500 | Debit D2 | |||
Total Amortizations | 172,500 |
Adjustments of accounts to be amortized:
Accounts Adjustments to be Amortized | Life (Years) | Annual Amount ($) | Current year ($) | Prior Years ($) | Total | Key |
Buildings | 20 | 5,000 | 5,000 | 5,000 | 10,000 | A1 |
Total Amortizations | 5,000 | 5,000 | 5,000 | 10,000 |
Following is the computation of intercompany inventory profit:
Particulars | Parent Amount | Parent % | Parent Profit ($) | Sub Amount ($) | Sub Percent | Sub Profit ($) |
Beginning | - | 0% | - | 12,000 | 25% | 3,000 |
Ending | - | 0% | - | 8,000 | 25% | 2,500 |
Following is the computationof income distribution of subsidiary of S Company:
Particulars | Amount ($) | Particulars | Amount ($) |
Amortizations
Ending Inventory profit | 5,000
2,500 | Internally Generated Net Income
Beginning Inventory Profit Adjusted Income Non-Controlling interests share Non-controlling Interest | 22,504
3,000 18,504 20% 3,701 |
Following is the computation of income distribution of parent P Company:
Particulars | Amount ($) | Particulars | Amount ($) |
Internally Generated Income
Adjusted Income Share (S Company) (80% of $18,504) Realized gain Total | 152,496
28,243 3,000 170,299 |
Worksheet:
Particulars | Elimination and Adjustments | Consolidated B/S ($) | NCI ($) | Controlling R/E ($) | Consolidated B/S ($) | |||
P ($) | S ($) | Debit ($) | Credit ($) | |||||
Cash | 1,40,000 | 99347 | 218274 | |||||
87000 | 78274 | 7000 | 135000 | |||||
Inventory | 170000 | 66000 | 2000 | 234000 | ||||
Land | 168726 | 100000 | 268726 | |||||
Investment in S Co. | 516646 | 18003 | ||||||
- | (8000) | |||||||
- | 368643 | |||||||
- | 138000 | |||||||
Minimum lease payment received | 80089 | 80089 | ||||||
Unearned Interest | (10123) | 10123 | ||||||
Buildings | 800000 | 400000 | 100000 | 1300000 | ||||
(250000) | (220000) | 15000 | (495000) | |||||
Equipment | 150000 | 100000 | 15000 | 335000 | ||||
100000 | ||||||||
Accumulated Depreciation | (150000) | (60000) | ||||||
3000 | ||||||||
3000 | ||||||||
36000 | (195000) | |||||||
Equipment - Capital lease | 100000 | 100000 | ||||||
Accumulated Depreciation - Capital Lease | (36000) | 36000 | ||||||
Goodwill | 72500 | (72500) | ||||||
Accounts Payable | (60000) | (30000) | 7000 | (83000) | ||||
Bonds Payable | ||||||||
Discount (Premium) | ||||||||
Obligation under capital lease | (624700 | 62470 | ||||||
Accrued Interest - Capital lease | (7496) | 7496 | 2000 | (451385) | ||||
Common stock ($1 par) − SCo. | (10000) | 8000 | 38000 | |||||
Paid-in capital in excess of par, SCo. | 190000 | 152000 | ||||||
Retained Earnings, SCo. | (260804) | 208643 | ||||||
600 | 34500 | |||||||
Retained Earnings, P. Co. | (636839) | 8000 | ||||||
2400 | (614439) | |||||||
12000 | ||||||||
Sales | (900000) | (400000) | 35000 | (1315000) | ||||
COGS | (550000) | 290000 | 35000 | |||||
2000 | 3000 | 804000 | ||||||
Depreciation - Buildings | 30000 | 10000 | 5000 | 45000 | ||||
Depreciation - Equipment | 15000 | 28000 | 3000 | 40000 | ||||
Other Expenses | 160000 | 92000 | 252000 | |||||
Interest Expense | 7496 | 7496 | ||||||
Interest Revenue | (7496) | 7496 | ||||||
Subsidiary Income | (18003) | 18003 | (178930) | |||||
Dividend Declared − SCo. | 10000 | 8000 | 2000 | |||||
Dividend Declared − PCo. | 20000 | 20000 | ||||||
Total | 0 | 0 | 870731 | 870731 | ||||
Consolidated Net Income | (174000) | |||||||
Non-Controlling interest | 3701 | 3701 | ||||||
Controlling interest | 170299 | (170299) | ||||||
Total Non-Controlling interest | 125762 | (125762) | ||||||
Retained Earnings | (764738) | (764738) | ||||||
Totals | 0 |
Eliminations and Adjustments are made in the following:
- Current-year subsidiary income.
- Current-year dividend.
- Eliminate controlling interest in subsidiary equity.
- Distribute excess.
- Eliminate intercompany sales during the current period.
- Eliminate intercompany unpaid trade accounts.
- Defer beginning inventory profit.
- Defer ending inventory profit.
- Fixed asset profit at the beginning of the year
- Fixed Asset profit realized.
- Intercompany interest on capital lease.
- Eliminate obligation under capital lease plus accrued interest against minimum lease payments receivable and unearned interest.
- Reclassify leased asset as owned asset.
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