Concept explainers
Introduction:
Multilevel ownership and control: A company may establish multiple corporate levels using which it can carry out diversified operations, i.e. a company may have a number of subsidiaries performing different activities for example one of the subsidiaries may be a retailer, one may be distributer. But when consolidated statements are prepared, the parent can include companies having only direct parental control and ownership, all the indirect investment can be reported indirectly using representative investment. The consolidation process will become complex because additional ownership levels are included. The elimination of intercompany transactions is carried out at each level of ownership.
The amount reported as consolidated net income and income assigned to controlling interest.
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Chapter 9 Solutions
ADVANCED FINANCIAL ACCOUNTING IA
- A Parent Company owns 100 percent of its Subsidiary. During 2021, the Parent company reports net income (by itself, without any investment income from its Subsidiary) of $1,840,000 and the subsidiary reports net income of $736,000. The parent had a bond payable outstanding on December 31, 2021, with a carrying value equal to $1,545,600. The Subsidiary acquired the bond on December 31, 2021, for $1,453,600. During 2021, the Parent reported interest expense (related to the bond) of $128,800 while the Subsidiary reported no interest income (related to the bond). What is consolidated net income for the year ended December 31, 2021? b. $2,668,000 d. $2,796,800arrow_forwardP Inc. owns S Corp. For the current year, P reports net income (without consideration of its investment in S) of $185,000, and the subsidiary reports $105,000. The parent had a bond payable outstanding on January 1 with a carrying amount of $209,000. The subsidiary acquired the bond on that date for $196,000. During the current year, P reported interest expense of $18,000 while S reported interest income of $19,000 both related to the intra-entity bond payable. What is consolidated net income?arrow_forwardParent Corporation acquired 80% of the outstanding shares of Subsidiary Company on June 1, 2021 for P3,517,500. Subsidiary Company’s stockholder’s equity components at the end of this year are as follows: Ordinary shares, P100 par, P1,500,000, Share premium P675,000 and Retained Earnings P1,335,000. Non-controlling interest is measured at fair value and the fair value is P705,000. The assets of Subsidiary Company were fairly valued, except for inventories, which are overstated by P66,000, and equipment, which was understated by P90,000. Remaining useful life of equipment is 4 years. Stockholder’s equity of Parent Corporation on January 1, 2021 is composed of Ordinary shares P4,500,000, Share premium P1,050,000, Retained Earnings P3,150,000. Goodwill, if any, should be written down by P85,350 at year end. Net Income for the first year of parent is P450,000 and the net income of Subsidiary Company from the date of acquisition is P255,000. Dividends declared at the end of the year…arrow_forward
- Eduardo, a large entity, owns 50% and 20% of Letecia Corporation’s ordinary and preference shares, respectively. Letecia’s shares outstanding at December 31, 2021 follow: Ordinary share, P5,000,000 10% non-cumulative preference share, P1,200,000 Letecia reported net income of P750,000 for the year ended December 31, 2021. What amount should Eduardo report as total revenue related to its investment in Letecia Company for the year ended December 31, 2021?arrow_forwardHouse Plc owns 80% of the issued share capital of Window Plc and 25% of the issued share capital of Door Plc. The revenues for the year are as follows:House Plc GH¢1,500,000Window Plc GH¢1,000,000Door Plc GH¢160,000What amount for revenue should appear in the consolidated statement of profit or loss for the year?arrow_forwardParent owned 5,000 shares (80%) of the outstanding 20%, $50 par, peferred stock and 70% of the outstanding common stock of Sub. Assuming there are no excess amortization or intra-entity transactions, and Sub reports net income of $330,000, what is the noncontrolling interest in the subsidiary's income? Would the following be correct? 5,000 * $50 = $250,000 $330,000 - $250,000 = $80,000 $80,000 * 70% = $56,000 5,000 * 20% = $1,000 $56,000 * 30% = $16,800 Noncontrolling interest in subsidiary's income = $17,800arrow_forward
- Company P owns 90% of Company S’s shares. Assume Company S then purchases 2% of Company P’s outstanding shares of common stock. When consolidating, what happens to the 2% holding in the consolidated financial statements?arrow_forward3. Set out below are the draft income statements of P and its subsidiary S for the year ended 31 December 20X7. On the 1 January 20X6 P purchased 75% of the ordinary shares in S. Revenue Cost of sales and expenses Gross profit Operating expenses Profit from operations Finance costs Profit before taxation Tax Profit for the year P $000 300 (180) 120 (47) 73 73 (25) 48 S $000 150 (70) 80 P values non-controlling interest using the fair value method. (23) 57 (2) 55 (16) 39 During the year S sold goods to P for $20,000, making a mark up of one third. Only 20% of these goods were sold before the end of the year, the rest were still in inventory. Prepare the consolidated income statement for the year ended 31 December 20X7arrow_forwardS co. is owned 85% by its parent P co., 10% by Reb and 5% by Cindy. Assume that each shareholder has a stockholder's basis of $10,000. S co. is completely liquidated pursuant to $ 332. S co. distrmbutes its assets as follows: S co.'s recognized gain or s/h's s/h's To Amount recognized gain or basis in property rec P co. Inventory: FMV $170,000e Basis $130,000 Reb Capital asset: FMV $20,000 Basis $14,000 Cindy Inventory: FMV $6,000 Basis $8,000 Determine with regard to the distributions: (1) S co.'s recognized gain or loss, and (2) P co., Reb and Cindy's recognized gain or loss and basis in the assets received, -arrow_forward
- The Elf Co. acquired a 60% interest in the Pea Co. when Pea's equity comprised share capital of P100,000 and retained earnings of P150,000. Pea's current statement of financial position shows share capital of P100,000, a revaluation reserve of P75,000 and retained earnings of P300,000. Under IAS 27, Consolidated and Separate Financial Statements, what amount in respect of the non-controlling interest should be included in Elf Co.'s consolidated statement of financial position?arrow_forwardIce Co. owns 75% interest in Fire Co. On acquisition date, the carrying amount of Fire Co.’s net identifiable assets was P240,000, equal to the fair value. Non-controlling interest was measured using the proportionate share method.In 20x1, Fire Co. declared P100,000 dividends. Selected information on the entities on December 31, 20x1 is shown below: Ice Co. Fire Co.Statement of financial position accounts: Share capital 800,000 200,000Retained earnings 280,000 120,000Total equity 1,080,000 320,000Statement of profit and loss accountsRevenues 640,000 260,000Expenses (240,000) (128,000)Dividend income…arrow_forwardPARENT Corporation acquired 80% of the outstanding shares of SUBSIDIARY Company on June 1, 2022 for P3,517,500. SUBSIDIARY Company’s stockholder’s equity components at the end of this year are as follows; Ordinary shares, P100 par, P1,500,000. Share premium P675,000 and Retained Earnings P1,335,000. Non-controlling interest is measured at fair value and the fair value is P705,000. The assets of SUBSIDIARY were fairly valued, except for inventories, which are overstated by P66,000 and equipment, which was understated by P90,000. Remaining useful life of equipment is 4 years. Stockholder’s equity of PARENT on January 1, 2022 is composed of Ordinary shares P4,500,000, Share premium P1,050,000, Retained Earnings P3,150,000. Goodwill, if any, should be written down by P85,350 at year-end. Net Income for the first year of parent is P450,000 and the net income of subsidiary from the date of acquisition is P255,000. Dividends declared at the end of the year amounted to P120,000 and P90,000 for…arrow_forward