Concept explainers
Consolidated entries:These entries are used in consolidation worksheet to adjust the totals of the individual account balances of the separate consolidating companies.Consolidation entries appear only in the consolidation worksheet and do not affect the books of separate companies. These worksheet entries are sometime called as elimination entries. The intercompany transactions between consolidating companies may be recorded in separate accounts to facilitate the later elimination of intercompany transactions.
Requirement 1
Consolidation entries needed to prepare consolidation worksheet for the year 20X6.
Answer to Problem 7.32P
Eliminating entries for December 31 20X6
Debit | Credit | |
1. Eliminating income from subsidiary | ||
Income from subsidiary | 32,000 | |
Dividends declared | 4,000 | |
Investment in S company stock | 28,000 | |
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) x 0.20 = 4,400 | ||
3. Eliminate beginning investment balance | ||
Common stock S company | 100,000 | |
| 105,000 | |
Differential | 50,000 | |
Investment in S company stock | 204,000 | |
Non-controlling interest | 51,000 | |
4. Assign differential to | ||
Goodwill | 50,000 | |
Differential | 50,000 | |
5. Recognizing impairment of goodwill | ||
Goodwill impairment loss | 18,000 | |
Goodwill | 18,000 | |
6. Eliminating unrealized gain on land | ||
Retained earnings January 1 | 8,000 | |
Non-controlling interest | 2,000 | |
Land | 10,000 | |
7. Eliminating intercompany sale of equipment | ||
Buildings and equipment | 5,000 | |
Gain on sale of equipment | 20,000 | |
| 2,000 | |
| 23,000 | |
8. Eliminating intercompany receivable and payable | ||
Account payable | 7,000 | |
Accounts receivable | 7,000 |
Explanation of Solution
- As all the intercompany transactions are eliminated, income from subsidiary is also eliminated.
- Income to non-controlling interest fair value was 40,000 assigned to non-controlling interest (40,000 − 18,000) x .20 =4,400
- Beginning investment balance is eliminated by assigning it to investment in S company and non-controlling interest.
- Goodwill is assigned to differential.
- Impairment loss on goodwill is recognized by crediting it to goodwill account.
- Unrealized gain on sale of land is eliminated by debiting to retained earnings.
- Elimination of intercompany sale of equipment is carried out and depreciation expenses are adjusted as follows:
- Intercompany accounts receivable and payable has been eliminated by setoff entry.
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 x 6 years | $30,000 |
Balance recorded $7,000 x 1 year | (7,000) |
Required increase | $23,000 |
b
Consolidated entries:These entries are used in consolidation worksheet to adjust the totals of the individual account balances of the separate consolidating companies.Consolidation entries appear only in the consolidation worksheet and do not affect the books of separate companies. These worksheet entries are sometime called as elimination entries. The intercompany transactions between consolidating companies may be recorded in separate accounts to facilitate the later elimination of intercompany transactions.
Requirement 2
Preparation of consolidation worksheet for December 31 20X6.
b
Answer to Problem 7.32P
Consolidated net income and Net assets of P & S Company’s is $79,600 and 980,000 respectively.
Explanation of Solution
P & S COMPANY’S
Consolidated worksheet
December 31 20X7
Elimination | |||||
P | S | Debit | Credit | Consolidated | |
Sales | 240,000 | 120,000 | 360,000 | ||
Gain on sale of equipment | 20,000 | 20,000 | |||
Income from subsidiary | 32,000 | 32,000 | |||
Less : cost of goods sold | (140,000) | (60,000) | (200,000) | ||
Depreciation | (25,000) | (15,000) | 2,000 | (38,000) | |
Goodwill impairment | 18,000 | (18,000) | |||
Other expenses | (15,000) | (5,000) | (20,000) | ||
Consolidated net income | 84,000 | ||||
NCI in net income | 4,400 | (4,400) | |||
Net income | 112,000 | 40,000 | 74,400 | 2,000 | 79,600 |
Retained earnings: | |||||
Retained earnings Jan 1 | 338,000 | 105,000 | 105,000 | ||
8,000 | |||||
Dividends | (30,000) | (5,000) | 4,000 | ||
1,000 | (30,000) | ||||
Retained earnings Dec 31 | 420,000 | 140,000 | 187,400 | 7,000 | 379,600 |
Balance sheet: | |||||
Cash and receivable | 113,000 | 35,000 | 7,000 | 141,000 | |
Inventory | 260,000 | 90,000 | 350,000 | ||
Land | 80,000 | 80,000 | 10,000 | 150,000 | |
Buildings and equipment | 500,000 | 150,000 | 5,000 | 655,000 | |
Less: Accu depreciation | (205,000) | (45,000) | 23,000 | (273,000) | |
Investment in S company | 232,000 | 28,000 | |||
204,000 | |||||
Differential | 50,000 | 50,000 | |||
Goodwill | 50,000 | 18,000 | 32,000 | ||
Net Assets | 980,000 | 310,000 | 105,000 | 313,000 | 1,055,000 |
Accounts payable | 60,000 | 20,000 | 7,000 | 73,000 | |
Bonds payable | 200,000 | 50,000 | 250,000 | ||
Common stock | 300,000 | 100,000 | 100,000 | 300,000 | |
Retained earnings Dec 31 | 420,000 | 140,000 | 187,400 | 7,000 | 379,600 |
Non-controlling interest | 2,000 | 3,400 | |||
51,000 | 52,400 | ||||
Liabilities and Equity | 980,000 | 310,000 | 196,400 | 61,400 | 1,055,000 |
c
Consolidated entries:These entries are used in consolidation worksheet to adjust the totals of the individual account balances of the separate consolidating companies.Consolidation entries appear only in the consolidation worksheet and do not affect the books of separate companies. These worksheet entries are sometime called as elimination entries. The intercompany transactions between consolidating companies may be recorded in separate accounts to facilitate the later elimination of intercompany transactions.
Requirement 3
Preparation of consolidation balance sheet income statement and retained earnings statement for December 31 20X6.
c
Answer to Problem 7.32P
Eliminating entries for December 31 20X6.
Explanation of Solution
P &S COMPANY’S
Consolidated balance sheet
December 31 20X6.
$ | $ | |
Assets | ||
Cash and receivables | 141,000 | |
Inventory | 350,000 | |
Land | 150,000 | |
Buildings and equipment’s | 655,000 | |
Less: Accumulated depreciation | (273,000) | 382,000 |
Goodwill | 32,000 | |
Total Assets | 1,055,000 | |
Accounts payable | 73,000 | |
Bonds payable | 250,000 | |
Controlling interest | ||
Common stock | 300,000 | |
Retained earnings | 379,600 | |
Total controlling interest | 679,600 | |
Total Non-controlling interest | 52,400 | |
Total stockholder’s equity | 732,000 | |
Total Liability and equity | 1,055,000 |
P &S COMPANY’S
Consolidated income statement
December 31 20X6.
$ | $ | |
Sales | 360,000 | |
Less: Cost of goods sold | 200,000 | |
Depreciation and amortization expenses | 38,000 | |
Goodwill impairment loss | 18,000 | |
(276,000) | ||
Consolidated net income | 84,000 | |
Less income to non-controlling interest | (4,400) | |
Income to controlling interest | 79,600 |
P &S COMPANY’S
Consolidated retained earnings
December 31 20X6.
$ | |
Retained earnings January 1 20X6 | 330,000 |
Income to controlling interest 20X6 | 79,600 |
409,600 | |
Dividends declared 20X6 | (30,000) |
Retained earnings December 31 20X6 | 379,600 |
Want to see more full solutions like this?
Chapter 7 Solutions
ADVANCED FINANCIAL ACCT(LL)-W/CODE
- Consolidated Statement of financial position : Johnson PLC acquires 80 percent of Steven PLC for $2,080,000 on January 1, 2020. The book values of Steven PLC’s assets and liabilities are equal to the fair values which equals $2,500,000. Steven PLC reports net income of $500,000 during the year. Dividends of $200,000 are declared by Steven PLC on December 5. These dividends are to be paid next year. The balance sheets of Johnson PLC and Steven PLC at December 31, 2020 are as follows: Johnson PLC accounts payable includes $100,000 owed to Steven PLC. Required: 1-Prepare consolidated balance sheet workpapers for Johnson PLC and Subsidiary at December 31, 2020. 2-Prepare the elimination entries for the group at December 31, 2020.arrow_forwardX Company purchased a (100%) controlling interest in Y Company by issuing $2,000,000 worth of common shares. The business combination agreement has an earnout clause that states the following: X Company would pay 10% of any earnings in excess of $750,000 to Y's shareholders in the first year following the acquisition. On acquisition date, X's shares had a market value of $80 per share.Required:a) Assuming that Y's net income in the first year following the acquisition was $950,000, prepare any journal entries (for X Company) that are necessary to reflect Y's results under IFRS 3 Business Combinations.b) Assuming that the agreement called for Y's shareholders to be compensated with 1,250 shares for any decline in X's share price, what journal entries would be required under IFRS 3, if the market value of X's shares dropped to $64 within the year?arrow_forwardPurse Corporation acquired 70 percent of Scarf Corporation’s ownership on January 1, 20X8, for $140,000. At that date, Scarf reported capital stock outstanding of $120,000 and retained earnings of $80,000, and the fair value of the noncontrolling interest was equal to 30 percent of the book value of Scarf. During 20X8, Scarf reported net income of $30,000 and comprehensive income of $36,000 and paid dividends of $25,000. Required: Present all consolidation entries needed at December 31, 20X8, to prepare a complete set of consolidated financial statements for Purse Corporation and its subsidiary.arrow_forward
- Penny Manufacturing Company acquired 75 percent of Saul Corporation stock at underlying book value. At the date of acquisition, the fair value of the noncontrolling interest was equal to 25 percent of Saul’s book value. The balance sheets of the two companies for January 1, 20X1, are as follows: On January 2, 20X1, Penny purchased an additional 2,500 shares of common stock directly from Saul for $150,000. Required:a. Prepare the consolidation entry needed to complete a consolidated balance sheet worksheet immediately following the issuance of additional shares to Penny. b. Prepare a consolidated balance sheet worksheet immediately following the issuance of additional shares to Penny.arrow_forwardDate of Acquisition Consolidation Eliminating Entries, Bargain Purchase Peregrine Company acquired 80 percent of Sparrow Company’s common stock for $20,000,000 in cash; fees paid to an outside firm to estimate the earning power of Sparrow and the fair values of its properties amounted to $2,500,000. Sparrow’s equity consisted of $3,000,000 in capital stock, $25,000,000 in retained earnings, $1,500,000 in accumulated other comprehensive loss, and $500,000 in treasury stock. Book values of Sparrow’s identifiable assets and liabilities approximated their fair values except as noted below: Book value Fair value Land $1,000,000 $300,000 Other plant assets, net 6,000,000 4,000,000 Identifiable intangible assets -- 3,000,000 Assume that the fair values above have been carefully evaluated for accuracy. The fair value of the noncontrolling interest is estimated to be $4,000,000 at the date of acquisition. Required a. Calculate the gain on acquisition and prepare Peregrine’s acquisition entry.…arrow_forwardHarvey Company increased its ownership in Washington Company from 70% to 90% by the purchase of additional shares of the Washington’s outstanding stock from noncontrolling shareholders for a purchase price of $300,000. Immediately prior to the transaction, Harvey’s consolidated balance sheet included a noncontrolling interest balance of $1,000,000.The journal entry by Harvey to record the purchase includes: Select one: A. Cash credit, $333,333 B. APIC credit, $300,000 C. APIC credit, $333,333 D. APIC credit, $33,333arrow_forward
- Plumber Corporation owns 60 percent of Socket Corporation’s voting common stock. On December 31, 20X4, Plumber paid Socket $234,000 for dump trucks Socket had purchased on January 1, 20X2. Both companies use straight-line depreciation. The consolidation entry included in preparing consolidated financial statements at December 31, 20X4, was Consolidation Worksheet Entry Debit Credit Trucks 21,000 Gain on Sale of Trucks 30,000 Accumulated Depreciation 51,000 a)What amount did Socket pay to purchase the trucks on January 1, 20X2? b)What was the economic life of the trucks on January 1, 20X2? c)Prepare the worksheet consolidation entry needed in preparing the consolidated financial statements at December 31, 20X5. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to whole dollar.arrow_forwardConsolidating Eliminating Entries, Date of Acquisition: U.S. GAAP and IFRS Plummer Corporation acquired 90 percent of Softek Technologies’ voting stock by issuing 200,000 shares of $1 par common stock with a fair value of $100,000,000. In addition, Plummer paid $2,000,000 in cash to the consultants and accountants who advised in the acquisition. Softek’s shareholders’ equity at the date of acquisition is as follows: Common stock $400,000 Additional paid-in capital 20,000,000 Retained deficit (10,000,000) Accumulated other comprehensive loss (1,000,000) Treasury stock (500,000) Total $8,900,000 Softek's assets and liabilities were carried at fair value except as noted below: Book Value Fair Value Plant assets, net $12,000,000 $6,000,000 Trademarks -- 2,000,000 Customer lists -- 3,000,000 The fair value of the noncontrolling interest is estimated to be $9,000,000 at the date of acquisition.arrow_forwardExercises: Lion Inc. purchases 30% of Zombie Corp for P500,000. At the end of the year, Zombie Corp reports a net income of P100,000 and a dividend of P50,000 to its shareholders. Requirement: Prepare all the necessary journals entries. Dr Cr Acquisition Share in P/L or OCI Dividend Distributionarrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningFinancial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning