Chapter 5, Problem 5.37P

a.

To determine

Introduction: Journal entry is a systematic method of recording transactions as and when they occur. It is a summary of transactions divided into the debit and credit items that are recorded chronologically. It is an act of keeping and recording all the transactions occurring in the business.

Eliminating entries needed to prepare consolidated financial statements for 20X8

Explanation of Solution

Journal entries (equity method)

S. no	Date	Particulars	Debit	Credit
1		Investment in S	$96,000
		Cash		$96,000
		(To record the initial investment in S Co.)
2		Investment in S	$15,000
		Income from S		$15,000
		(To record A Co’s. 60% share of S Co’s. income)
3		Cash	$9,000
		Investment in S		$9,000
		(To record A Co’s 60% share of Co’s Dividend)
4		Investment in S	$6,000
		Other comprehensive income from S		$6,000
		(To record share of increase in value of securities held by S Co.)

Basic elimination entry

S. no	Date	Particulars	Debit	Credit
1		Common stock	$100,000
		Retained earnings	$60,000
		Income from S	$15,000
		NCI in NI of S	$10,000
		Dividends declared		$15,000
		Investment in S		$102,000
		NCI in NA of S		$68,000
		(To eliminate the investment beginning balance)

Other comprehensive income entry:

S. no	Date	Particulars	Debit	Credit
1		OCI from S	$6,000
		OCI of the NCI	$4,000
		Investment in S		$6,000
		NCI in NA of S		$4,000
		(To eliminate the other comprehensive income to NCI)

Working notes:

Book value calculations:

	NCI 40%	+	AC 60%	=	Common stock	+	Retained earnings
Original book value	64,000		96,000		100,000		60,000
Add: Net income	10,000		15,000				25,000
Less: Dividends	(6,000)		(9,000)				(15,000)
Ending book value	68,000		102,000		100,000		70,000

1. Recording the initial investment in S.
2. Recording A’s 60% share of S company’s 20X8 income.
3. Recording A’s 60% share of S company’s 20X8 dividend.
4. Recording share of increase in value of securities held by S.

b.

To determine

Introduction: A consolidated worksheet is used to prepare the consolidated financial statements of the parent company and its subsidiary. It reflects the individual values of the parent and the subsidiary and then one consolidated figure for both the entities.

Three part consolidation worksheet for 20X8

Answer to Problem 5.37P

The consolidated controlling interest in net income is $47,000

The consolidated retained earnings as on December 31, 20X8 is $231,000

The total consolidated assets are $742,000

The total consolidated liabilities and equities are $742,000

Explanation of Solution

Consolidated Work paper as on December 31, 20X8

Particulars	A	S	Eliminations		Consolidated
Income statement			Debit	Credit
Sales	$220,000	$148,000			$368,000
Less:
Cost of goods sold	($150,000)	($110,000)			($260,000)
Depreciation expense	($30,000)	($10,000)			($40,000)
Income from S	$15,000		$15,000		0
Consolidated net income	$47,000	$25,000	$15,000		$57,000
NCI in net income			$10,000		($10,000)
Controlling interest in net income	$47,000	$25,000	$25,000		$47,000
Statement of Retained Earnings
Retained earnings Jan 1	$208,000	$60,000	$60,000		$208,000
Income, from above	$47,000	$25,000	$25,000		$47,000
Dividends declared	($24,000)	($15,000)		$15,000	($24,000)
Retained earnings as on Dec 1 carried forward	$231,000	$70,000	$85,000	$15,000	$231,000
Balance Sheet
Cash	$27,000	$8,000			$35,000
Accounts receivable	$65,000	$22,000			$87,000
Inventory	$40,000	$30,000			$70,000
Buildings and equipment	$500,000	$235,000		$75,000	($660,000)
Less: accumulated depreciation	($140,000)	($85,000)	$75,000		($150,000)
Investment in R’s stock		$40,000			$40,000
Investment in S’s stock	$108,000			$102,000
				$6,000
Total assets	$600,000	$250,000	$75,000	$183,000	$742,000
Accounts payable	$63,000	$20,000			$83,000
bonds payable	$100,000	$50,000			$150,000
Common stock:	$200,000	$100,000	$100,000		$200,000
Retained earnings from above	$231,000	$70,000	$85,000	$15,000	$231,000
Accumulated OCI	$6,000	$10,000	$10,000		$6,000
NCI in NA of S				$68,000
				$4,000	$72,000
Total liabilities and equities	$600,000	$250,000	$195,000	$87,000	$742,000
Other comprehensive income
Other comprehensive income from S	$6,000		$6,000
Unrealized gain on investments		$10,000			$10,000
Other comprehensive income to NCI			$4,000		$4,000
Accumulated other comprehensive income as on December 31, 20X8	$6,000	$10,000	$10,000	0	$6,000

c.

To determine

Introduction: A consolidated worksheet is used to prepare the consolidated financial statements of the parent company and its subsidiary. It reflects the individual values of the parent and the subsidiary and then one consolidated figure for both the entities.

To prepare: Consolidated balance sheet, income statement, and statement of comprehensive income for 20X8

Answer to Problem 5.37P

The total amount of assets and liabilities as on December 31, 20X8 is $742,000

Income to controlling interest is $47,000

Income to non-controlling interest is $10,000

Comprehensive income attributable to non-controlling interest is $14,000

Comprehensive income attributable to controlling interest is $53,000

Explanation of Solution

Consolidated Balance Sheetas on December 31, 20X8
Assets:	Amount	Amount
Cash		$35,000
Accounts receivable		$87,000
Inventory		$70,000
Buildings and equipment	$660,000
Less: accumulated depreciation	($150,000)	$510,000
Investment in marketable securities		$40,000
Total assets		$742,000
Liabilities:
Accounts payable		$83,000
Bonds payable		$150,000
Stockholder’s equity
Controlling interest:
Common stock	$200,000
Retained earnings	$231,000
Accumulated other comprehensive income	$6,000
Total controlling interest	$437,000
Non-controlling interest	$72,000
Total stockholder’s equity		$509,000
Total liabilities and stockholder’s equity		$742,000

Consolidated Income Statementas on December 31, 20X8
Particulars	Amount	Amount
Sales		$368,000
Cost of goods sold	$260,000
Depreciation expense	$40,000
Interest expense	$11,000
Total expenses		($311,000)
Consolidated net income		$57,000
Income to non-controlling interest		($10,000)
Income to controlling interest		$47,000

Consolidated Statement of Comprehensive Income as on December 31, 20X8
Particulars	Amount	Amount
Consolidated net income		$57,000
Other comprehensive income:
Unrealized gain on investments held by subsidiary		$10,000
Total consolidated comprehensive income		$67,000
Less: comprehensive income attributable to non-controlling interest		($14,000)
Comprehensive income attributable to controlling interest		$53,000