Chapter 6, Problem 68P

To determine

Prepare the consolidation entries and a consolidation worksheet for the year ended Dec

31, 2016.

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] Beg. Retained Earnings (P)		$\$92,430$
	Investment in Subsidiary			$\$92,430$
	[C] Equity Income from Subsidiary		$\$24,960$
	Income attributable to NCI		$\$37,380$
	Dividends-Subsidiary (common)			$\$31,200$
	Non-controlling Interest			$\$31,140$
	[E]  BOY Common Stock (S)		$\$120,000$
	APIC		$\$240,000$
	BOY Retained Earnings (S)		$\$420,000$
	Investment in Subsidiary @ BOY			$\$624,000$
	Non-controlling Interest @ BOY			$\$156,000$
	[Ibond]  Bond Payable net		$\$1,179,781$
	Interest Income		$\$48,900$
	BOY Investment in Subsidiary		$\$63,630$
	Investment in Bonds (net)			$\$1,222,201$
	Interest Expense			$\$70,110$

Table (1)

An income statement that combines a parent company's revenue, expenses, and income, with its subsidiaries is known as consolidated income statement which provides an overall view of the corporation as a whole, rather than its individual parts.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies. A party outside the economic unit embodied in the consolidated financial statements does not retain the equity of the shareholders of the subsidiary, and therefore should not be included in the consolidated shareholders' equities.

The consolidated worksheet for the year ended December 31, 2016 is shown below:

Income Statement		Parent		Subsidiary		Dr		Cr		Consolidated
Sales		$11,400,000		$1,080,000						$12,480,000
Cost of goods sold		(8,160,000)		(660,000)						(8,820,000)
Gross Profit		3,240,000		420,000						3,660,000
Operating and Other Expenses		(1,980,000)		(282,000)						(2,262,000)
Bond Interest Income				(48,900)	[Ibond]	48,900				0
Bond Interest Expense		(70,110)					[Ibond]	70,110		0
Total Expenses		(2,050,110)		(233,100)						(2,262,000)
Equity Income from Subsidiary		24,960			[C]	24,960
Consolidated net Income		$1,214,850		$186,900						1,398,000
Income attributable to NCI					[C]	37,380				(37,380)
Income attributable to Controlling Interest		$1,214,850		$186,900						$1,360,620
Statement of Retained Earnings
Beginning Retained Earnings-Parent		$6,038,430			[ADJ]	92,430				$5,946,000
Beginning Retained Earnings-Subsidiary				$420,000	[E]	420,000				0
Income attributable to Controlling Interest		1,214,850		186,900						1,360,920
Dividends declared		(960,000)		(31,200)			[C]	30,000		(960,000)
Ending retained Earnings		$6,293,280		$575,700						$6,346,620
Balance Sheet
Assets
Cash		$1,060,261		$331,149						$1,391,410
Accounts receivable		1,800,000		480,000						2,280,000
Inventories		3,000,000		720,000						3,720,000
Investment in subsidiary		652,800			[Ibond]	63,630	[ADJ]	92,430		0
							[E]	624,000
							[Ibond]	1,222,201
Investment in bond (net)				1,222,201						0
PPE, net		10,800,000		1,236,000						12,036,000
Total Assets		$17,313,061		$3,989,350						19,427,410
Liabilities and Stockholder's Equity
Accounts payable		$1,020,000		$540,000						$1,560,000
Other Current liabilities		1,200,000		600,000						1,800,000
Bond Payable (net)		1,179,781			[Ibond]	1,179,781				-
Other long-term liabilities		1,680,000		1,913,650						3,593,650
Common stock		1,020,000		120,000	[E]	120,000				1,020,000
APIC		4,920,000		240,000	[E]	240,000				4,920,000
Retained Earnings		6,293,280		575,700						6,346,620
Non-controlling interest							[C]	31,140		187,140
							[E]	156,000
Total liabilities and equity		$17,313,061		$3,989,350		$2,227,081		$2,227,081		$19,427,410