EBK ADVANCED FINANCIAL ACCOUNTING
EBK ADVANCED FINANCIAL ACCOUNTING
11th Edition
ISBN: 8220102796096
Author: Christensen
Publisher: YUZU
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Chapter 7, Problem 7.32P

a

To determine

Concept introduction: Consolidated entries are passed to adjust individual company accounts for the purpose of consolidation. These entries do not affect consolidating companies but appear only in the consolidation worksheet. These worksheet entries are also called elimination entries. The intercompany transactions between consolidating companies will be recorded in separate accounts to allow the elimination of intercompany transactions at the end of every year.

Consolidation entries needed to prepare consolidation worksheet for the year 20X6.

a

Expert Solution
Check Mark

Explanation of Solution

Eliminating entries for December 31 20X6

    ParticularsDebit Credit
    1. Eliminating income from subsidiary
    Income from subsidiary$32,000
    Dividends declared$4,000
    Investment in L company stock$28,000
    (Income from subsidiary eliminated by reversal)
    2. Assign income to non-controlling interest
    Income to non-controlling interest$4,400
    Dividends declared$1,000
    Non-controlling interest$3,400
    ($40,000$18,000)×0.20=4,400
    (Income assigned to non-controlling interest)
    3. Eliminate beginning investment balance
    Common stock L company$100,000
    Retained earnings January 1$105,000
    Differential$50,000
    Investment in L company stock$204,000
    Non-controlling interest$51,000
    (Beginning investment in L eliminated by reversal)
    4. Assign differential to goodwill
    Goodwill$50,000
    Differential$50,000
    (Differential assigned to goodwill)
    5. Recognizing impairment of goodwill
    Goodwill impairment loss$18,000
    Goodwill$18,000
    (Loss on impairment of goodwill eliminated)
    6. Eliminating unrealized gain on land
    Retained earnings January 1$8,000
    Non-controlling interest$2,000
    Land$10,000
    (Unrealized gain on land is eliminated)
    7. Eliminating intercompany sale of equipment
    Buildings and equipment$5,000
    Gain on sale of equipment$20,000
    Depreciation and amortization expenses$2,000
    Accumulated depreciation$23,000
    (Intercompany sale of buildings and equipment eliminated by reversal)
    8. Eliminating intercompany receivable and payable
    Account payable$7,000
    Accounts receivable$7,000
    (Intercompany receivable and payable eliminated by setoff)
  1. As all the intercompany transactions are eliminated income from subsidiary is also eliminated.
  2. Income to non-controlling interest fair value was 40,000 assigned to non-controlling interest (40,000$18,000)×.20=$4,400
  3. Beginning investment balance is eliminated by assigning it to investment in S company and non-controlling interest.
  4. Goodwill is assigned to differential.
  5. Impairment loss on goodwill is recognized by crediting it to goodwill account.
  6. Unrealized gain on sale of land is eliminated by debiting to retained earnings.
  7. Elimination of intercompany sale of equipment is carried out and depreciation expenses are adjusted as follow:
    • Depreciation expenses adjustment:
      Depreciation recorded ($70,000/10 years)$7,000
      Depreciation required ($75,000/15 years)($5,000)
      Required decrease$2,000
      Accumulated depreciation adjustment:
      Required balance ($5,000×6 years)$30,000
      Balance recorded ($7,000×1 year)($7,000)
      Required increase$23,000
  8. Intercompany accounts receivable and payable has been eliminated by setoff entry.

b

To determine

Concept introduction: Consolidated entries are passed to adjust individual company accounts for the purpose of consolidation. These entries do not affect consolidating companies but appear only in the consolidation worksheet. These worksheet entries are also called elimination entries. The intercompany transactions between consolidating companies will be recorded in separate accounts to allow the elimination of intercompany transactions at the end of every year.

Preparation of consolidation worksheet for December 31 20X6.

b

Expert Solution
Check Mark

Answer to Problem 7.32P

Consolidated net income and net assets of P & L Company’s is $79,600 and $980,000 respectively.

Explanation of Solution

P & L COMPANY’S

Consolidated Worksheet

December 31 20X7

    Elimination
    P$L$Debit$Credit$Consolidated $
    Sales240,000120,000360,000
    Gain on sale of equipment20,00020,000
    Income from subsidiary32,00032,000
    Less : cost of goods sold(140,000)(60,000)(200,000)
    Depreciation(25,000)(15,000)2,000(38,000)
    Goodwill impairment18,000(18,000)
    Other expenses(15,000)(5,000)(20,000)
    Consolidated net income84,000
    Non-controlling interest in net income4,400(4,400)
    Net income112,00040,00074,4002,00079,600
    Retained earnings:
    Retained earnings Jan 1338,000105,000105,000
    8,000
    Dividends(30,000)(5,000)4,000
    1,000(30,000)
    Retained earnings Dec 31420,000140,000187,4007,000379,600
    Balance sheet:
    Cash and receivable113,00035,0007,000141,000
    Inventory260,00090,000350,000
    Land80,00080,00010,000150,000
    Buildings and equipment500,000150,0005,000655,000
    Less: Accumulated depreciation(205,000)(45,000)23,000(273,000)
    Investment in S Company232,00028,000
    204,000
    Differential50,00050,000
    Goodwill50,00018,00032,000
    Net Assets980,000310,000105,000313,0001,055,000
    Accounts payable60,00020,0007,00073,000
    Bonds payable200,00050,000250,000
    Common stock300,000100,000100,000300,000
    Retained earnings Dec 31420,000140,000187,4007,000379,600
    Non-controlling interest2,0003,400
    51,00052,400
    Liabilities and Equity980,000310,000196,40061,4001,055,000

c

To determine

Concept introduction: Consolidated entries are passed to adjust individual company accounts for the purpose of consolidation. These entries do not affect consolidating companies but appear only in the consolidation worksheet. These worksheet entries are also called elimination entries. The intercompany transactions between consolidating companies will be recorded in separate accounts to allow the elimination of intercompany transactions at the end of every year.

Preparation of consolidation balance sheet income statement and retained earnings statement for December 31 20X6.

c

Expert Solution
Check Mark

Explanation of Solution

P & L COMPANY’S

Consolidated Balance Sheet

December 31 20X6

    $$
    Assets
    Cash and receivables141,000
    Inventory350,000
    Land150,000
    Buildings and equipment’s655,000
    Less: Accumulated depreciation(273,000)382,000
    Goodwill32,000
    Total Assets1,055,000
    Accounts payable73,000
    Bonds payable250,000
    Stockholders’ Equity:
    Controlling interest
    Common stock300,000
    Retained earnings379,600
    Total controlling interest679,600
    Total non-controlling interest52,400
    Total stockholder’s equity732,000
    Total Liability and Equity1,055,000

P & L COMPANY’S

Consolidated Income Statement

December 31 20X6

    $$
    Sales360,000
    Less: Cost of goods sold200,000
    Depreciation and amortization expenses38,000
    Goodwill impairment loss18,000
    (276,000)
    Consolidated net income84,000
    Less income to non-controlling interest(4,400)
    Income to controlling interest79,600

P & L COMPANY’S

Consolidated Retained Earnings

December 31 20X6

    $
    Retained earnings January 1 20X6330,000
    Income to controlling interest 20X679,600
    409,600
    Dividends declared 20X6(30,000)
    Retained earnings December 31 20X6379,600

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EBK ADVANCED FINANCIAL ACCOUNTING

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