Loose Leaf For Advanced Financial Accounting
12th Edition
ISBN: 9781260165111
Author: Christensen, Theodore E., COTTRELL, David
Publisher: McGraw-Hill Education
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Chapter 9, Problem 9.18P
To determine
Multilevel ownership and control:if a company establish multiple corporate levels through which they carryout diversified operations, i.e., a company may have a number of subsidiaries one of which is a retailer. When consolidated statements are prepared, they include companies in which the parent has only indirect investment along with direct ownership. The complexity of consolidation process increases as additional ownership levels are included. The amount of income and net assets assigned to controlling and non-controlling interest, and unrealized
The
Expert Solution
Answer to Problem 9.18P
| Debit | Credit | |
| 1. To record purchase of C company stock | ||
| Investment in C company stock | 406,000 | |
| Cash | 406,000 | |
| 2. To record receipt of dividends from C | ||
| Cash | 14,000 | |
| Investment in C company | 14,000 | |
| 3. Investment in C company stock equity method | ||
| Investment in C company stock | 21,000 | |
| Income in C company stock | 21,000 | |
| 4. Amortization of differential related to building and equipment | ||
| Income from C company | 2,100 | |
| Investment in C company stock | 2,100 |
Explanation of Solution
- When investment is purchased investment account is created and debited with the amount of investment and payment of cash is credited.
- Receipt of cash dividends debited to cash account and credited to Investment account.
- Equity method is recorded as a proportion of share in net income of $30,000 as $30,000 x .70 = $21,000
- Amortization of differential to building and equipment ($30,000 / 10 years) x.70 = $2,100. Debited to income from CCompany and credited to investment account.
To determine
Multilevel ownership and control:if a company establish multiple corporate levels through which they carryout diversified operations, i.e. a company may have a number of subsidiaries one of which is a retailer. When consolidated statements are prepared, they include companies in which the parent has only indirect investment along with direct ownership. The complexity of consolidation process increases as additional ownership levels are included. The amount of income and net assets assigned to controlling and non-controlling interest, and unrealized profit and losses to be eliminated, must be determined at each level of ownership.
The journal entries recorded by A for its investment in B during 20X3.
Expert Solution
Answer to Problem 9.18P
| Debit | Credit | |
| 1. To record dividends from B corporation | ||
| Cash | 20,000 | |
| Investment in B corporation Stock | 20,000 | |
| 2. Record equity method income | ||
| Investment in B corporation Stock | 63,120 | |
| Income from B corporation | 63,120 | |
| 3. Amortization of differential related to trademark | ||
| Income from B corporation | 8,000 | |
| Investment in B corporation stock | 8,000 |
Explanation of Solution
- Receipt of dividends from B is debited to Cash account and credited to investment account $20,000 = $25,000 x .80
- Recording of equity method income of $63,120 = ($60,000 + 18,900) x .80. Debited to investment account and credited to income from B corporation account.
- Amortization of differential related to trademark ($50,000 /5 years ) .80 is debited to income from B and credited to Investment in B corporation stock.
To determine
Multilevel ownership and control:if a company establish multiple corporate levels through which they carryout diversified operations, i.e. a company may have a number of subsidiaries one of which is a retailer. When consolidated statements are prepared, they include companies in which the parent has only indirect investment along with direct ownership. The complexity of consolidation process increases as additional ownership levels are included. The amount of income and net assets assigned to controlling and non-controlling interest, and unrealized profit and losses to be eliminated, must be determined at each level of ownership.
Requirement 3
The income assigned to controlling interest for 20X6.
Expert Solution
Answer to Problem 9.18P
| Debit | Credit | |
| 1. Elimination of income from C company | ||
| Income from C company | 18,900 | |
| Dividends declared | 14,000 | |
| Investment in C company stock | 4,900 | |
| 2. Assign income to non-controlling interest | ||
| Income to non-controlling interest | 8,100 | |
| Dividends declared | 6,000 | |
| Non-controlling interest | 2,100 | |
| 3. Eliminate beginning investment in C company | ||
| Common stock C company | 250,000 | |
| 300,000 | ||
| Differential | 30,000 | |
| Investment in C company | 406,000 | |
| Non-controlling interest | 174,000 | |
| 4. Assign the beginning differential | ||
| Buildings and equipment | 30,000 | |
| Differential | 30,000 | |
| 5. Amortize differential related to buildings and equipment | ||
| 3,000 | ||
| Accumulated depreciation | 3,000 | |
| 6. Eliminate income from B corporation | ||
| Income from B corporation | 55,120 | |
| Dividends Declared | 20,000 | |
| Investment in B corporation stock | 35,120 | |
| 7. Assign income to non-controlling interest of B corporation | ||
| Income to non-controlling interest | 13,780 | |
| Dividends declared | 5,000 | |
| Non-controlling interest | 8,780 | |
| 8. Eliminate beginning investment in B corporation stock | ||
| Common stock B corporation | 400,000 | |
| Retained earnings January 1 | 270,000 | |
| Differential | 30,000 | |
| Investment in B corporation stock | 560,000 | |
| Non-controlling interest | 140,000 | |
| 9. Assign beginning differential trademark | ||
| Trademark | 30,000 | |
| Differential | 30,000 | |
| 10.Amortize differential related to trademark | ||
| Amortization expense | 10,000 | |
| Trademark | 10,000 |
Explanation of Solution
- Income from Ccompany is eliminated by debiting it and credit dividends and investment in C company stock.
- Income to non-controlling interest $8,100 = ($30,000 − 3,000) x .30 is debited, dividends $6,000 ($20,000 x.30) and Non-controlling interest of $2,100 ($8,100 − 6,000) is credited to eliminate income to non-controlling interest.
- Beginning investment in C company is eliminated by debiting common stock in C company as well as retained earnings on January 1and differential $30,000 = ($406,000 + $174,000 - $550,000) and credit investment in C company stock and non-controlling interest
- Differential is assigned to building and equipment by debit it and credit differential.
- Amortization of differential related to buildings and equipment $30,000 / 10 years
- Income from BCorporation is debited to eliminate it and investment in BCorporation is credited.
- Assignment of income to non-controlling interest $13,780 = ($60,000 + 18,900 - $10,000) x .20 is debited. Dividends $5,000 = $25,000 x.20 and non-controlling interest $8,780 = $13,780 - $5,000 is credited.
- Elimination of investment in B corporation common stock, retained earnings $270,000 ( $200,000 + $35,000 + $35,000) and differential $30,00 ( $50,000 -$10,000 - $10,000) is debited and investment in C corporation of $560,000 ($520,000 + [( $35,000 - $10,000) x .80] x 2 years and non-controlling interest of $140,000 ($700,000 x .20) is credited.
- Differential of $30,000 ($50,000 − ($10,000 x 2 years) is assigned to trademark by debit it and credit of differential.
- Amortization of differential on trademark $10,000 ($50,000 / 5 years) is debited to amortization expenses and credit to trademark.
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Pop Corporation acquired 70 percent of Soda Company's voting common shares on January 1, 20X2, for $108,500. At that date, the noncontrolling interest had a fair value of $46,500 and Soda reported $70,000 of common stock outstanding and retained earnings of $30,000. The differential is assigned to buildings and equipment, which had a fair value $20,000 higher than book value and a remaining 10-year life, and to patents, which had a fair value $35,000 higher than book value and a remaining life of five years at the date of the business combination. Trial balances for the companies as of December 31, 20X3, are as follows:
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$
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165,000
35,000
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80,000
40,000
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Pop Corporation acquired 70 percent of Soda Company's voting common shares on January 1, 20X2, for $108,500. At that date, the noncontrolling interest had a fair value of $46,500 and Soda reported $70,000 of common stock outstanding and retained earnings of $30,000. The differential is assigned to buildings and equipment, which had a fair value $20,000 higher than book value and a remaining 10-year life, and to patents, which had a fair value $35,000 higher than book value and a remaining life of five years at the date of the business combination. Trial balances for the companies as of December 31, 20X3, are as follows:
Pop Corporation
Soda Company
Item
Debit
Credit
Debit
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$
15,400
$
21,600
Inventory
165,000
35,000
Land
80,000
40,000
Buildings & Equipment
340,000
260,000
Investment in Soda Company…
Pop Corporation acquired 70 percent of Soda Company's voting common shares on January 1, 20X2, for $108,500. At that date, the noncontrolling interest had a fair value of $46,500 and Soda reported $70,000 of common stock outstanding and retained earnings of $30,000. The differential is assigned to buildings and equipment, which had a fair value $20,000 higher than book value and a remaining 10-year life, and to patents, which had a fair value $35,000 higher than book value and a remaining life of five years at the date of the business combination. Trial balances for the companies as of December 31, 20X3, are as follows:
Pop Corporation
Soda Company
Item
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Debit
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Cash & Accounts Receivable
$
15,400
$
21,600
Inventory
165,000
35,000
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80,000
40,000
Buildings & Equipment
340,000
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Investment in Soda Company…
Chapter 9 Solutions
Loose Leaf For Advanced Financial Accounting
Ch. 9 - Prob. 9.1QCh. 9 - Prob. 9.2QCh. 9 - Prob. 9.3QCh. 9 - Prob. 9.4QCh. 9 - Prob. 9.5QCh. 9 - Prob. 9.6QCh. 9 - Prob. 9.7QCh. 9 - Prob. 9.8QCh. 9 - Prob. 9.9QCh. 9 - Prob. 9.10Q
Ch. 9 - Prob. 9.11QCh. 9 - Prob. 9.12QCh. 9 - Prob. 9.13QCh. 9 - Prob. 9.14QCh. 9 - Prob. 9.15QCh. 9 - Prob. 9.16QCh. 9 - Prob. 9.1CCh. 9 - Prob. 9.2CCh. 9 - Prob. 9.3CCh. 9 - Prob. 9.4CCh. 9 - Prob. 9.5CCh. 9 - Prob. 9.1.1ECh. 9 - Prob. 9.1.2ECh. 9 - Prob. 9.1.3ECh. 9 - Prob. 9.1.4ECh. 9 - Prob. 9.2.1ECh. 9 - Prob. 9.2.2ECh. 9 - Prob. 9.2.3ECh. 9 - Prob. 9.2.4ECh. 9 - Prob. 9.2.5ECh. 9 - Prob. 9.3ECh. 9 - Prob. 9.4ECh. 9 - Prob. 9.5ECh. 9 - Prob. 9.6ECh. 9 - Prob. 9.7ECh. 9 - Prob. 9.8ECh. 9 - Prob. 9.9ECh. 9 - Prob. 9.10ECh. 9 - Prob. 9.11ECh. 9 - Subsidiary Stock Dividend Stake Company reported...Ch. 9 - Prob. 9.13ECh. 9 - Prob. 9.14ECh. 9 - Prob. 9.15ECh. 9 - Prob. 9.16ECh. 9 - Prob. 9.17.1PCh. 9 - Prob. 9.17.2PCh. 9 - Prob. 9.17.3PCh. 9 - Prob. 9.17.4PCh. 9 - Prob. 9.17.5PCh. 9 - Prob. 9.18PCh. 9 - Prob. 9.19PCh. 9 - Prob. 9.20PCh. 9 - Prob. 9.21PCh. 9 - Prob. 9.22PCh. 9 - Prob. 9.23PCh. 9 - Prob. 9.24PCh. 9 - Prob. 9.25PCh. 9 - Prob. 9.26PCh. 9 - Prob. 9.27P
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