Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Question
Chapter 9, Problem 9.22P
To determine
Subsidiary
During the preparation of consolidated financial statements, the amount of subsidiary shareholders’ equity accruing to preferred shareholders must be determined before dealing with elimination of the intercompany common stock ownership. If the parent holds some of the subsidiary preferred stock, its portion of stock interest is eliminated. Any portion of subsidiary preferred stock interest not held by parent is assigned to non-controlling interest.
The preparation of consolidation entries needed to complete worksheet for 20X6.
Expert Solution
Answer to Problem 9.22P
| Debit | Credit | |
| 1. Eliminate income from subsidiary | ||
| Income from subsidiary | 58,700 | |
| Dividends declared | 9,000 | |
| Investment in W common stock | 49,500 | |
| 2. Elimination of dividends | ||
| Dividends income | 9,000 | |
| Dividends declared preferred stock | 9,000 | |
| 3. Eliminate income to Non-controlling interest | ||
| Income to Non-controlling interest | 12,500 | |
| Dividends declared − preferred stock | 6,000 | |
| Dividends declared- common stock | 1,000 | |
| Non-controlling interest | 5,500 | |
| 4. Eliminate opening balance if investment | ||
| Common stock − S corporation | 100,000 | |
| 250,000 | ||
| Investment in S common stock | 315,000 | |
| Non-controlling interest | 35,000 | |
| 5. Eliminate preferred stock | ||
| Preferred stock − S corporation | 200,000 | |
| Investment in W preferred stock | 120,000 | |
| Non-controlling interest | 80,000 | |
| Dividends payable and receivable elimination | ||
| Dividends payable | 9,000 | |
| Dividends receivable | 9,000 |
Explanation of Solution
- Income from subsidiary is eliminated by debit income for subsidiary and credit investment in S and dividends are declared.
- Dividends income from preferred stock is eliminated by debit entry in dividend income and credit dividends are declared.
- Eliminate income from non-controlling interest by reverse entry of debit income from non-controlling interest and credit Dividends declared accounts and non-controlling interest.
- Eliminate opening balance in common stock by debit S’s common stock and credit investment and non-controlling interest account.
- Preferred stock is eliminated by debiting it and credit of investment and non-controlling interest.
- Dividends receivable and payable is eliminated by setoff entry and reversal.
To determine
Subsidiary preferred stock outstanding: many companies have more than one type of outstanding stock and each type of security serves a particular purpose. Subsidiary preferred shareholders have claim on the net assets of the subsidiary, and special attention must be given to that claim in the preparation of consolidated financial statements.
During the preparation of consolidated financial statements, the amount of subsidiary shareholders’ equity accruing to preferred shareholders must be determined before dealing with elimination of the intercompany common stock ownership. If the parent holds some of the subsidiary preferred stock, its portion of stock interest is eliminated. Any portion of subsidiary preferred stock interest not held by parent is assigned to non-controlling interest.
The preparation of consolidation worksheet as of December 31 20X6.
Expert Solution
Answer to Problem 9.22P
Explanation of Solution
P and S companies
Consolidation worksheet
December 31, 20X6
| Eliminations | |||||
| P | S | Debit | Credit | Consolidation | |
| Sales | 500,000 | 300,000 | 800,000 | ||
| Dividend income | 9,000 | 9,000 | |||
| Income from subsidiary | 58,500 | 58,500 | |||
| Total sales | 567,500 | 300,00 | 800,000 | ||
| Less COGS | (280,000) | (170,000) | (450,000) | ||
| Less | (40,000) | (30,000) | (70,000) | ||
| Other expenses | (131,000) | (20,000) | (151,000) | ||
| Consolidated net income | 116,500 | 80,000 | 67,500 | 129,000 | |
| Income to NCI | 12,500 | (12,500) | |||
| Controlling interest | 116,500 | 80,000 | 80,000 | 116,500 | |
| Retained earnings: | |||||
| Balance | 435,000 | 250,000 | 250,000 | 435,000 | |
| Net income | 116,500 | 80,000 | 80,000 | 116,500 | |
| Less dividends | |||||
| Preferred | (15,000) | 9,000 | |||
| 6,000 | |||||
| Common stock | (60,000) | (10,000) | 9,000 | ||
| 1,000 | (60,000) | ||||
| Ending balance | 491,500 | 305,000 | 330,000 | 25,000 | 491,500 |
| Balance sheet | |||||
| Cash | 58,000 | 100,000 | 158,000 | ||
| Accounts receivable | 80,000 | 120,000 | 200,000 | ||
| Dividends receivable | 9,000 | 9,000 | |||
| Inventory | 100,000 | 200,000 | 300,000 | ||
| Buildings and equipment | 360,000 | 270,000 | 630,000 | ||
| Investment in S | |||||
| Preferred stock | 120,000 | 120,000 | |||
| Common stock | 364,500 | 49,500 | |||
| 315,000 | |||||
| Total Assets | 1,091,500 | 690,000 | 1,288,000 | ||
| Accounts payable | 100,000 | 700,000 | 170,000 | ||
| Dividends payable | 15,000 | 9,000 | 6,000 | ||
| Bonds payable | 300,000 | 300,000 | |||
| Preferred stock | 200,000 | 200,000 | |||
| Common stock | 200,000 | 100,000 | 100,000 | 200,000 | |
| Retained earnings | 491,500 | 305,000 | 330,000 | 25,000 | 491,500 |
| 5,500 | |||||
| 35,000 | |||||
| 80,000 | 120,500 | ||||
| Total liability and equity | 1,091,500 | 690,000 | 639,000 | 639,000 | 1,288,000 |
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Chapter 9 Solutions
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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