EBK ADVANCED FINANCIAL ACCOUNTING
11th Edition
ISBN: 8220102796096
Author: Christensen
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 9.6E
a.
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
a.
Expert Solution
Answer to Problem 9.6E
| Particulars | Debit $ | Credit $ |
| To record purchase of T stock | ||
| Investment in T common stock | 270,000 | |
| Investment in T preferred stock | 80,000 | |
| Cash | 350,000 | |
| (paid cash on purchase of T’s stock) | ||
| To record common stock dividends from T | ||
| Cash | 25,500 | |
| Investment in T Common stock | 25,500 | |
| (Received cash on account of dividends from T) | ||
| To record preferred dividends form T | ||
| Cash | 6,400 | |
| Dividend income | 6,400 | |
| (Received cash on dividends on T’s preferred stock) | ||
| To record equity method income | ||
| Investment in T common stock | 40,500 | |
| Income from subsidiary | 40,500 | |
| (Equity method income recognized on T’s stock) |
Explanation of Solution
- C’s investment in T Corporation is debited to investment accounts and payment of cash is credited.
- Receipt of stock dividends :
- Receipt of Preferred dividends:
- Investment in T common stock Net income = $70,000
Dividends paid = $50,000
Preferred dividends
Common stock dividends = $34,000
C’ share of stock dividends
Preferred dividends
C’s share =
Preferred dividends = $16,000 = $54,000
Investment in T commons stock
b.
To determine
Subsidiary preferred stock outstanding: many companies have more than one type of outstanding stock, each type of security serves 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 elimination entries needed to prepare consolidated financial statement for C Corporation for December 31, 20X6.
b.
Expert Solution
Answer to Problem 9.6E
| Particulars | Debit $ | Credit $ |
| Elimination of income from subsidiary | ||
| Income from subsidiary | 40,500 | |
| Dividends declared common stock | 25,500 | |
| Investment in T common stock | 15,000 | |
| (Income from subsidiary eliminated) | ||
| To eliminate dividend income form subsidiary | ||
| Dividends income − preferred | 6,400 | |
| Dividends declared − preferred | 6,400 | |
| (dividends income from subsidiary eliminated) | ||
| Assign income from non-controlling interest | ||
| Income to Non-controlling interest | 23,100 | |
| Dividends declared − preferred stock | 9,600 | |
| Dividends declared − common stock | 8,500 | |
| Non-controlling interest | 5,000 | |
| (Income assigned to non-controlling interest) | ||
| Eliminate beginning investment balance | ||
| Common stock − T company | 150,000 | |
| 210,000 | ||
| Investment in T common stock | 270,000 | |
| Non-controlling interest | 90,000 | |
| (beginning investment balance in T’s common stock eliminated) | ||
| Eliminate subsidiary preferred stock | ||
| Preferred stock − T company | 200,000 | |
| Investment in T preferred stock | 80,000 | |
| Non-controlling interest | 120,000 | |
| (Investment in subsidiary preferred stock eliminated) |
Explanation of Solution
- Eliminate income from subsidiary Net income = $70,000
- Dividend income on preferred stock is eliminated by setoff against dividends declared
- Income from non-controlling interest
- Eliminate beginning balance by debiting common stock and retained earnings
- Elimination of subsidiary preferred stock by debit entry and investment in T preferred stock and non-controlling interest is credited.
Preferred dividends = $16,000
= $54,000
Investment in T commons stock
Receipt of stock dividends:
Dividends paid = $50,000
Preferred dividends ($200,000 x 0.08) =($16,000)
Common stock dividends = $34,000
C’ share of stock dividends
Income from subsidiary is eliminated by debit entry and dividends form common stock and investment in T is credited
Non-controlling interest
Investment in T preferred stock is given as $80,000 and remaining balance of $120,000 is non-controlling interest
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
unc.4
On January 1, Allen Corporation purchased 30% of the 30,000 outstanding common shares of Towne Corporation at $17 per share as a long-term investment. On the date of purchase, the book value and the fair value of the net assets of Towne Corporation were equal. During the year, Towne Corporation reported net income of $24,000 and declared and paid dividends of $8,000. As of December 31, common shares of Towne Corporation were trading at $20 per share.
Please Indicate the amount of income that would be reported on the income statement and the investment balance on the year-end balance sheet under requirement (a) and requirement (b).
B Co acquired 100% of the voting common shares of SCo, by issuing bonds with a par value and fair value of $75,000. Immediately prior to the acquisition, B reported total assets of $250,000, liabilities of $140,000, and stockholders' equity of $110,000. At that date, S reported total assets of $200,000, liabilities of $125,000, and stockholders' equity of $75,000 Based on the preceding information, what amount of total assets did � report in its balance sheet immediately after the acquisition? Select one: a. 325,000 b. 450,000 c. 375,000 d. 250,000
Answer..
On January 1, 20X7, Phillips Corporation acquired 35 percent of the outstanding shares of Shell Corporation for $100,000 cash. Shell Company reported net income of $175,000 and paid dividends of $25,000 for both 20X7 and 20X8. The fair value of shares held by Phillips was $310,000 and $325,000 on December 31, 20X7 and 20X8 respectively.Based on the preceding information, what amount will be reported by Phillips as its basis in the Shell investment for 20X7, if it used the equity method of accounting?
Group of answer choices
$122,500
$161,250
$100,000
$152,500
Chapter 9 Solutions
EBK 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 - Multiple-Choice Questions on Preferred Stock...Ch. 9 - Prob. 9.1.3ECh. 9 - Multiple-Choice Questions on Preferred Stock...Ch. 9 - Prob. 9.2.1ECh. 9 - Prob. 9.2.2ECh. 9 - Prob. 9.2.3ECh. 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 Lake Company reported...Ch. 9 - Prob. 9.13ECh. 9 - Prob. 9.14ECh. 9 - Prob. 9.15ECh. 9 - Prob. 9.16ECh. 9 - Multiple-Choice Questions on Preferred Stock...Ch. 9 - Prob. 9.17.2PCh. 9 - Multiple-Choice Questions on Preferred Stock...Ch. 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
Knowledge Booster
Similar questions
- 1. Matray acquired 16,000 ordinary shares of Petros on 1 April 20X9. On 31 December 20X8Petros’s accounts showed a share premium of $4,000 and retained earnings of $15,000. The fairmarket value of non-controlling interest at acquisition was $7,000.Below are the statements of financial position for the two companies as at 31 December 20X9:Matray PetrosNon-current assets:Property, plant and equipment 39,000 33,000Investment in Petros 50,000Current assets 78,000 40,000Total assets 167,000 73,000Equity and liabilitiesEquityOrdinary shares of: $1 each 100,000: 50c each 10,000Share premium 7,000 4,000Retained earnings 40,000 39,000Current liabilities 20,000 20,000Total equity and liabilities 167,000 73,000Required:Prepare the consolidated statement of financial position of Matray as at 31 December 20X9. Assumeprofits have accrued evenly throughout the yeararrow_forwardPeel Corporation purchased 60 percent of Split Products Company's shares on December 31, 20X7, for $216,000. At that date, the fair value of the noncontrolling interest was $144,000. On January 1, 20X9, Peel purchased an additional 20 percent of Split's common stock for $97,000. Summarized balance sheets for Split on the dates indicated are as follows: Assets Cash Accounts Receivable Inventory Buildings & Equipment (net) Total Assets Liabilities & Equities Accounts Payable Bonds Payable Common Stock Retained Earnings Total Liabilities & Equities 20X7 $ 49,000 51,000 72,000 370,000 $542,000 December 31 20X8 Balance in investment account $ 79,000 91,000 102,000 350,000 $622,000 20X9 $ 99,000 121,000 162,000 330,000 $712,000 $ 77,000 $127,000 $167,000 105,000 105,000 105,000 155,000 155,000 155,000 205,000 235,000 285,000 $542,000 $622,000 $712,000 Split paid dividends of $22,000 in each of the three years. Peel uses the equity method in accounting for its investment in Split and…arrow_forwardEntity A acquired sixty per cent of the issued equity shares of entity B by exchanging three shares in entity A for every two shares acquired in entity B. At that date, entity B had issued equity capital of one hundred thousand shares. At the date of acquisition, the fair value of an equity share in entity A was $3.50 and the fair value of an equity share in entity B was $2.00. The nominal value per share of both entities was $1.00 per share. What was the fair value of consideration paid by entity A to gain control of entity B?arrow_forward
- Peanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Snoopy Company. Snoopy Company reported shares outstanding of $350,000 and retained earnings of $100,000. During 20X8, Snoopy Company reported net income of $60,000 and paid dividends of $3,000. In 20X9, Snoopy Company reported net income of $90,000 and paid dividends of $15,000. The following transactions occurred between Peanut Company and Snoopy Company in 20X8 and 20X9:Snoopy Co. sold equipment to Peanut Co. for a $42,000 gain on December 31, 20X8. Snoopy Co. had originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31, 20X8. At the time of the purchase, Peanut Co. estimated that the equipment still had a seven-year remaining useful life.Peanut sold land costing $90,000 to Snoopy Company on June 28, 20X9, for…arrow_forwardBeta Company acquired 100% of the voting common shares of Standard Video Corporation, by issuing bonds with a par value and fair value of $150,000. Immediately prior to the acquisition, Beta reported total assets of $500,000, liabilities of $280,000, and stockholders' equity of $220,000. At that date, Standard Video reported total assets of $400,000, liabilities of $250,000, and stockholders' equity of $150,000 Based on the preceding information, what amount of stockholders' equity was reported in the consolidated balance sheet immediately after acquisition? Select one: a. 350,000 b. 220,000 c. 370,000 d. 150,000arrow_forwardAt 1 January 20X4 Yogi acquired 80% of the share capital of Bear for $1,400,000. At that date the share capital of Bear consisted of 600,000 ordinary shares of 50c each and its reserves were $50,000. The fair value of the non-controlling interest was valued at $525,000 at the date of acquisition. In the consolidated statement of financial position of Yogi and its subsidiary Bear at 31 December 20X8, what amount should appear for goodwill?arrow_forward
- Pizza Corporation purchased 100 percent of the common stock of Slice Corporation on January 1, 20X2, by issuing 49,000 shares of its $6 par value common stock. The market price of Pizza’s shares at the date of issue was $26. Slice reported net assets with a book value of $1,197,000 on that date. The amount paid in excess of the book value of Slice’s net assets was attributed to the increased value of patents held by Slice with a remaining useful life of 7 years. Slice reported net income of $69,000, paid dividends of $24,000 in 20X2, reported a net loss of $57,000, and paid dividends of $14,000 in 20X3. Required: Assuming that Pizza Corporation uses the equity method in accounting for its investment in Slice Corporation, prepare all journal entries for Pizza for 20X2 and 20X3.arrow_forwardOn July 1, 20X1, Pushway Corporation issued 100,000 shares of common stock in exchange for all of Stroker Company’s common stock. The Pushway stock issued had a market value of $500,000 on the date of the exchange. Following are the July 1, 20X1, pre-acquisition balance sheets of Pushway and Stroker, plus fair value information for Stroker’s assets and liabilities. Stroker Pushway Book Value Fair Value Assets Current assets $ 300,000 $ 100,000 $ 100,000 Long-term assets 600,000 400,000 470,000 Total assets $ 900,000 $ 500,000 $ 570,000 Liabilities Current liabilities $ 200,000 $ 50,000 $ 50,000 Long-term liabilities 250,000 100,000 120,000 Total liabilities 450,000 150,000 $ 170,000 Stockholders' equity Common stock 300,000 250,000 Retained earnings 150,000 100,000 Total stockholders' equity 450,000 350,000…arrow_forwardOn 1 January 20XO Alpha Co purchased 90,000 ordinary $1 shares in Beta Co for $270,000. At that date Beta Co's retained earnings amounted to $90,000 and the fair values of Beta Co's assets at acquisition were equal to their book values. Three years later, on 31 December 20X2, the statements of financial position of the two companies were: Alpha Co Beta Co Sundry net assets Shares in Beta 230,000 180,000 410,000 260,000 260,000 Share capital Ordinary shares of $1 each Retained earnings 200,000 100,000 210,000 410,000 160,000 260,000 The share capital of Beta Co has remained unchanged since 1 January 20X0. The fair value of the non- controlling interest at acquisition was $42,000. Required: a. What amount should appear in the group's consolidated statement of financial position at 31 December 20X2 for goodwill? b. What amount should appear in the group's consolidated statement of financial position at 31 December 20X2 for non-controlling interest? c. What amount should appear in the…arrow_forward
- On 1 January 20X0 Alpha Co purchased 90,000 ordinary $1 shares in Beta Co for $270,000. At that date Beta Co's retained earnings amounted to $90,000 and the fair values of Beta Co's assets at acquisition were equal to their book values. Three years later, on 31 December 20X2, the statements of financial position of the two companies were: Alpha Co Beta Co $ $ Sundry net assets 230,000 260,000 Shares in Beto 180,000 - Share capital Ordinary shares of $1 each 200,000…arrow_forwardDC Company purchased 100% of the outstanding common shares of FA Company on December 31, 20X3 for $570,000. At that date, FA had $260,000 of outstanding common stock and retained earnings of $200,000. It was agreed that the net assets were fairly valued except that the fair value of the capital assets exceeded their net book value by $36,000 and the carrying value of the inventory exceeded its fair value by $24,000. The capital assets had a remaining useful life of 6 years as of the acquisition date and have no salvage value. Inventory turns over 2 times a year. In the FMV increment amortization elimination entries for the year ended December 31, 20x4, what is the dollar value of the adjustment that should be made to amortization expense for the difference in the capital asset valuation?arrow_forwardOn July 1, 20X1, Pushway Corporation issued 100,000 shares of common stock in exchange for all of Stroker Company’s common stock. The Pushway stock issued had a market value of $500,000 on the date of the exchange. Following are the July 1, 20X1, pre-acquisition balance sheets of Pushway and Stroker, plus fair value information for Stroker’s assets and liabilities. Stroker Pushway Book Value Fair Value Assets Current assets $ 300,000 $ 100,000 $ 100,000 Long-term assets 600,000 400,000 470,000 Total assets $ 900,000 $ 500,000 $ 570,000 Liabilities Current liabilities $ 200,000 $ 50,000 $ 50,000 Long-term liabilities 250,000 100,000 120,000 Total liabilities 450,000 150,000 $ 170,000 Stockholders' equity Common stock 300,000 250,000 Retained earnings 150,000 100,000 Total stockholders' equity 450,000 350,000…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education