EBK ADVANCED FINANCIAL ACCOUNTING
EBK ADVANCED FINANCIAL ACCOUNTING
11th Edition
ISBN: 8220102796096
Author: Christensen
Publisher: YUZU
Question
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Chapter 9, Problem 9.24P

aJournal entries to record investment

To determine

Sale of subsidiary common shares:when parent sells subsidiary shares, a gain or loss normally occurs and is recorded on the seller’s books, which needed to be recognized in consolidated net income. Under ASE 810, changes in a parent’s ownership interest in a subsidiary while the parent retains control require an adjustment to the amount assigned to the non-controlling interest to reflect its change in ownership in subsidiary. Any difference in fair value of the controlling interest results in an adjustment to the stockholders equity attributable to the controlling interest, through a adjustment to additional paid-in capital.

Requirement 1

The consolidation entries needed to complete work sheet for 20X4.

aJournal entries to record investment

Expert Solution
Check Mark

Answer to Problem 9.24P

    DebitCredit
    1. Eliminate gain on sale of ENC shares
    Gain on sale of ENC company stock10,000
    Additional paid-in capital10,000
    2. Eliminate income from subsidiary
    Income from subsidiary18,000
    Dividends declared9,000
    Investment in ENC stock12,000
    3. Assign income to non-controlling interest
    Income to non-controlling interest12,000
    Dividends declared4,000
    Non-controlling interest8,000
    4. Eliminate investment in common stock
    Common stock ENC company100,000
    Additional paid-in capital20,000
    Retained earnings January 1130,000
    Investment in ENC company stock150,000
    Non-controlling interest100,000

Explanation of Solution

  1. Gain on sale of common stock is eliminated by debiting to gain on sale and credit of additional paid-in capital.
  2. Income from subsidiary is eliminated by reversing the transaction by debiting it and credit of investment in company stock
  3. Income assigned to non-controlling interest is recognized by debit to income assigned to non-controlling interest and credit to dividends declared and non-controlling interest
  4. To eliminate investment in common stock, common stock in ENC and additional paid in capital is debited and investment in ENC stock and non-controlling interest is credited.

bconsolidation worksheet.

To determine

Sale of subsidiary common shares:when parent sells subsidiary shares, a gain or loss normally occurs and is recorded on the seller’s books, which needed to be recognized in consolidated net income. Under ASE 810, changes in a parent’s ownership interest in a subsidiary while the parent retains control require an adjustment to the amount assigned to the non-controlling interest to reflect its change in ownership in subsidiary. Any difference in fair value of the controlling interest results in an adjustment to the stockholders equity attributable to the controlling interest, through a adjustment to additional paid-in capital.

Requirement 2

The preparation of consolidation worksheet for 20X4.

bconsolidation worksheet.

Expert Solution
Check Mark

Answer to Problem 9.24P

Balance of liability and equity in consolidation worksheet 20X4 $1,000,000

Explanation of Solution

P and ENC Company

Consolidation worksheet

December 31, 20X4

    elimination
    PENCDebitCreditConsolidation
    Sales280,000170,000450,000
    Gain on sale of E stock10,00010,000
    Income from subsidiary18,00018,000
    Net sales308,000170,00028,000450,000
    Less: cost of sales(210,000)(100,000)(310,000)
    Depreciation expense(20,000)(15,000)(35,000)
    Other expense(21,000)(25,000)(46,000)
    Income to NCI12,000(12,000)
    Net income57,00030,00040,00047,000
    Retained earnings:
    Balance January 1320,000130,000130,000320,000
    Net income57,00030,00040,00047,000
    Less dividends declared(15,000)(10,000)6,000
    4,000(15,000)
    Ending balance362,000150,000170,00010,000352,000
    Balance sheet
    Cash30,00035,00065,000
    Accounts receivable70,00050,000120,000
    Inventory120,000100,000220,000
    Buildings and equipment650,000230,000880,000
    Less depreciation(170,000)(95,000)(265,000)
    Total Assets862,000320,0001,020,000
    Accounts payable50,00020,00070,000
    Bonds payable200,00030,000230,000
    Common stock200,000100,000100,000200,000
    Additional paid in cap50,00020,00020,00010,00060,000
    Retained earnings362,000150,000170,00010,000352,000
    NCI8,000
    100,000108,000
    Liability and equity862,000320,0001,020,000

cconsolidation entries

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.

cconsolidation entries

Expert Solution
Check Mark

Answer to Problem 9.24P

    DebitCredit
    1. Elimination of income from B company
    Income from B company18,900
    Dividends declared14,000
    Investment in B company stock4,900
    2. Assign income to non-controlling interest
    Income to non-controlling interest8,100
    Dividends declared6,000
    Non-controlling interest2,100
    3. Eliminate beginning investment in B company
    Common stock B company250,000
    Retained earnings January 1300,000
    Differential30,000
    Investment in B company406,000
    Non-controlling interest174,000
    4. Assign the beginning differential
    Buildings and equipment30,000
    Differential30,000
    5. Amortize differential related to buildings and equipment
    Depreciation expense3,000
    Accumulated depreciation3,000
    6. Eliminate income from C corporation
    Income from C corporation55,120
    Dividends Declared20,000
    Investment in C corporation stock35,120
    7. Assign income to non-controlling interest of C corporation
    Income to non-controlling interest13,780
    Dividends declared5,000
    Non-controlling interest8,780
    8. Eliminate beginning investment in C corporation stock
    Common stock C corporation400,000
    Retained earnings January 1270,000
    Differential30,000
    Investment in C corporation stock560,000
    Non-controlling interest140,000
    9. Assign beginning differential trademark
    Trademark30,000
    Differential30,000
    10. Amortize differential related to trademark
    Amortization expense10,000
    Trademark10,000

Explanation of Solution

  1. Income from B company is eliminated by debiting it and credit dividends and investment in B company stock
  2. 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.
  3. Beginning investment in B company is eliminated by debiting common stock in B company as well as retained earnings on January 1and differential $30,000 = ($406,000 + $174,000 - $550,000) and credit investment in B company stock and non-controlling interest
  4. Differential is assigned to building and equipment by debit it and credit differential.
  5. Amortization of differential related to buildings and equipment $30,000 / 10 years
  6. Income from C Corporation is debited to eliminate it and investment in C corporation is credited.
  7. 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.
  8. Elimination of investment in C 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
  9. Differential of $30,000 ($50,000 − ($10,000 x 2 years) is assigned to trademark by debit it and credit of differential.
  10. Amortization of differential on trademark $10,000 ($50,000 / 5 years) is debited to amortization expenses and credit to trademark.

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