Chapter 6, Problem 68P

To determine

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

31, 2019.

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)		$\$134,625$
	Investment in Subsidiary			$\$134,625$
	[C] Equity Income from Subsidiary		$\$42,500$
	Income attributable to NCI		$\$21,375$
	Dividends-Subsidiary (common)			$\$50,000$
	Non-controlling Interest			$\$13,875$
	[E]  BOY Common Stock (S)		$\$100,000$
	APIC		$\$200,000$
	BOY Retained Earnings (S)		$\$237,500$
	Investment in Subsidiary @ BOY			$\$456,875$
	Non-controlling Interest @ BOY			$\$80,625$
	[Ibond]  Bond Payable net		$\$496,000$
	Interest Income		$\$27,500$
	BOY Investment in Subsidiary		$\$13,500$
	Investment in Bonds (net)			$\$505,000$
	Interest Expense			$\$32,000$

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, 2019 is shown below:

Income Statement		Parent		Subsidiary		Dr		Cr		Consolidated
Sales		$9,500,000		$900,000						$10,400,000
Cost of goods sold		(6,800,000)		(550,000)						(7,350,000)
Gross Profit		2,700,000		350,000						3,050,000
Operating and Other Expenses		(1,650,000)		(235,000)						(1,885,000)
Bond Interest Income				(27,500)	[Ibond]	27,500				0
Bond Interest Expense		(32,000)					[Ibond]	32,000		0
Total Expenses		(1,682,000)		(207,500)						(1,885,000)
Equity Income from Subsidiary		42,500			[C]	42,500
Consolidated net Income		$1,060,500		$142,500						1,165,000
Income attributable to NCI					[C]	21,375				(21,375)
Income attributable to Controlling Interest		$1,060,500		$142,500						$1,143,625
Statement of Retained Earnings
Beginning Retained Earnings-Parent		$1,501,500			[ADJ]	134,625				$1,366,875
Beginning Retained Earnings-Subsidiary				$237,500	[E]	237,500				0
Income attributable to Controlling Interest		1,060,500		142,500						1,143,625
Dividends declared		(400,000)		(50,000)			[C]	50,000		(400,000)
Ending retained Earnings		$2,162,000		$330,000						$2,110,500
Balance Sheet
Assets
Cash		$880,000		$275,000						$1,155,000
Accounts receivable		900,000		400,000						1,300,000
Inventories		1,500,000		600,000						2,100,000
Investment in subsidiary		578,000			[Ibond]	13,500	[ADJ]	134,625		0
							[E]	456,875
							[Ibond]	505,000
Investment in bond (net)				505,000						0
PPE, net		4,000,000		800,000						4,800,000
Total Assets		$7,858,000		$2,580,000						$9,355,000
Liabilities and Stockholder's Equity
Accounts payable		$850,000		$540,000						$1,300,000
Other Current liabilities		1,000,000		600,000						1,500,000
Bond Payable (net)		496,000			[Ibond]	496,000				-
Other long-term liabilities		1,400,000		1,913,650						2,400,000
Common stock		850,000		120,000	[E]	100,000				850,000
APIC		1,100,000		240,000	[E]	200,000				1,100,000
Retained Earnings		2,162,000		575,700						2,100,500
Non-controlling interest							[C]	13,875		94,500
							[E]	80,625
Total liabilities and equity		$7,858,000		$2,580,000		$1,273,000		$1,273,000		$9,355,000