Concept explainers
(a)
Introduction: Consolidation is the process of combining financial results of various subsidiaries with the financial results of parent company. It is used only when parent company holds more than 50% of share of subsidiary company.
The
(a)
Explanation of Solution
Journal entries recorded by B company for its investment in C company is as follows:
Date | Particulars | Debit ($) | Credit ($) |
January 1, 20X3 | Investment in C company's stock | 120,000 | |
To cash | 120,000 | ||
(Recording entry for purchase of stock of C company by B company) | |||
December 31, 20X3 | Cash | 9000 | |
To Investment in C company's stock ($15000*60%) | 9000 | ||
(Recording entry for receiving dividend from C company) | |||
December 31, 20X3 | Investment in C company's stock | 24,000 | |
To Income from C company ($40,000*60%) | 24,000 | ||
(Recording entry for receiving income from C company on investment) |
(b)
Introduction: Consolidation is the process of combining financial results of various subsidiaries with the financial results of parent company. It is used only when parent company holds more than 50% of share of subsidiary company.
The journal entries recorded by A company for its investment in B company.
(b)
Explanation of Solution
Journal entries recorded by A company for its investment in B company is as follows:
Date | Particulars | Debit ($) | Credit ($) |
January 1, 20X3 | Investment in B company's stock | 315,000 | |
To cash | 315,000 | ||
(Recording entry for purchase of stock of B company by A company) | |||
December 31, 20X3 | Cash | 45,000 | |
To Investment in B company's stock ($50000*90%) | 45,000 | ||
(Recording entry for receiving dividend from B company) | |||
December 31, 20X3 | Investment in B company's stock | 129,600 | |
To Income from B company ($120,000+$24000) *90%) | 129,600 | ||
(Recording entry for receiving income from C company on investment) |
(c)
Introduction: Consolidation is the process of combining financial results of various subsidiaries with the financial results of parent company. It is used only when parent company holds more than 50% of share of subsidiary company.
The consolidated entries related to B company’s investment in C company and A company’s investment in B company.
(c)
Explanation of Solution
Consolidated entries related to B company’s investment in C company is as follows:
Date | Particulars | Debit ($) | Credit ($) |
December 31, 20X3 | Common stock | 100,000 | |
Additional capital | 60,000 | ||
Retained earnings | 40,000 | ||
Income from C company | 24,000 | ||
Non-controlling interest of C company | 16,000 | ||
To Dividend declared | 15,000 | ||
To Investment in C company | 135,000 | ||
Non-controlling interest in Net asset of C company | 90,000 | ||
(Consolidated entry of investment in C company by B company) |
Working Note:
Particulars | NCI 40% | B company 60% | = | Common Stock + | Additional Paid-In Capital + | Retained Earnings |
Original book value | $80,000 | $1,20,000 | = | $1,00,000 | $60,000 | $40,000 |
+ Net Income | $16,000 | $24,000 | = | $40,000 | ||
- Dividends | ($6,000.00) | ($9,000) | = | ($15,000) | ||
Ending book value | $90,000 | $1,35,000 | = | $1,00,000 | $60,000 | $65,000 |
Consolidated journal entries related to A company’s investment in B company is as follows:
Date | Particulars | Debit ($) | Credit ($) |
December 31, 20X3 | Common stock | 150000 | |
Additional capital | 60000 | ||
Retained earnings | 140000 | ||
Income from C company | 129600 | ||
Non-controlling interest of B company | 14400 | ||
To Dividend declared | 50000 | ||
To Investment in B company | 399600 | ||
Non-controlling interest in Net asset of B company | 44400 | ||
(Consolidated entry of investment in B company by A company) |
Working note:
Particulars | NCI 10% | A company 90% | = | Common Stock + | Additional Paid-In Capital + | Retained Earnings |
Original book value | $35,000 | $3,15,000 | = | $1,50,000 | $60,000 | $1,40,000 |
+ Net Income | $14,400 | $1,29,600 | = | $1,44,000 | ||
- Dividends | ($5,000.00) | ($45,000) | = | ($50,000) | ||
Ending book value | $44,400 | $3,99,600 | = | $1,50,000 | $60,000 | $2,34,000 |
Want to see more full solutions like this?
Chapter 9 Solutions
ADVANCED FINANCIAL ACCOUNTING-ACCESS
- Penny Manufacturing Company acquired 75 percent of Saul Corporation stock at underlying book value. At the date of acquisition, the fair value of the noncontrolling interest was equal to 25 percent of Saul’s book value. The balance sheets of the two companies for January 1, 20X1, are as follows: On January 2, 20X1, Penny purchased an additional 2,500 shares of common stock directly from Saul for $150,000. Required:a. Prepare the consolidation entry needed to complete a consolidated balance sheet worksheet immediately following the issuance of additional shares to Penny. b. Prepare a consolidated balance sheet worksheet immediately following the issuance of additional shares to Penny.arrow_forwardAlmond acquires 80% of the share capital of Cashew on 1 August 20X6 and is preparing its group financial statements for the year ended 31 December 20X6. How will Cashew's results be included in the consolidated statement of financial position at 31 December 20X6? a. 80% of Cashew's assets and liabilities, time apportioned for the 4 months from 1 August 20X6 to 31 December 20X6 b. 80% of Cashew's assets and liabilities at 31 December 20X6 C. 100% of Cashew's assets and liabilities at 31 December 20X6 С. d. 100% of Cashew's assets and liabilities, time apportioned for the 4 months from 1 August 20X6 to 31 December 20X6arrow_forwardP Company purchases 80% of the outstanding shares of S Company for P9,000,000. The carrying value of S Company's net assets at the time of acquisition was P6,000,000 and had a fair value of P8,000,000. WHAT IS THE AMOUNT OF THE: a. Goodwill arising from the consolidation if the 100,000, P50 par value shares of the subsidiary are currently selling at 90/share. b. Assume Parent purchased 80% of Subsidiary shares for P6,300,000; determine the goodwill arising from the consolidation if the non-controlling interest is stated at fair value of P2,000,000.arrow_forward
- Parent Company purchases 80% of the outstanding shares of Subsidiary Company for P9,000,000. The carrying value of Subsidiary Company’s net assets at the time of acquisition was P6,000,000 and had a fair value of P8,000,000. Determine the following: 6. Goodwill arising from the consolidation if the 100,000, P50 par value shares of the subsidiary are currently selling at 90/share.7. Assume Parent purchased 80% of Subsidiary shares for P6,300,000; determine the goodwill arising from the consolidation if the non-controlling interest is stated at fair value of P2,000,000.arrow_forwardPhone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $97,300. At that date, the fair value of the noncontrolling interest was $41,700. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Item Phone Corporation Smart Corporation Cash $ 58,300 $ 22,000 Accounts Receivable 109,000 49,000 Inventory 144,000 79,000 Land 73,000 36,000 Buildings & Equipment 426,000 266,000 Less: Accumulated Depreciation (166,000) (75,000) Investment in Smart Corporation 97,300 Total Assets $ 741,600 $ 377,000 Accounts Payable $ 142,500 $ 26,000 Mortgage Payable 331,100 233,000 Common Stock 68,000 39,000 Retained Earnings 200,000 79,000 Total Liabilities & Stockholders’ Equity $ 741,600 $ 377,000 At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of…arrow_forwardPhone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $97,300. At that date, the fair value of the noncontrolling interest was $41,700. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Item Phone Corporation Smart Corporation Cash $ 58,300 $ 22,000 Accounts Receivable 109,000 49,000 Inventory 144,000 79,000 Land 73,000 36,000 Buildings & Equipment 426,000 266,000 Less: Accumulated Depreciation (166,000) (75,000) Investment in Smart Corporation 97,300 Total Assets $ 741,600 $ 377,000 Accounts Payable $ 142,500 $ 26,000 Mortgage Payable 331,100 233,000 Common Stock 68,000 39,000 Retained Earnings 200,000 79,000 Total Liabilities & Stockholders’ Equity $ 741,600 $ 377,000 At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of…arrow_forward
- Date of Acquisition Consolidation Eliminating Entries, Bargain Purchase Peregrine Company acquired 80 percent of Sparrow Company’s common stock for $20,000,000 in cash; fees paid to an outside firm to estimate the earning power of Sparrow and the fair values of its properties amounted to $2,500,000. Sparrow’s equity consisted of $3,000,000 in capital stock, $25,000,000 in retained earnings, $1,500,000 in accumulated other comprehensive loss, and $500,000 in treasury stock. Book values of Sparrow’s identifiable assets and liabilities approximated their fair values except as noted below: Book value Fair value Land $1,000,000 $300,000 Other plant assets, net 6,000,000 4,000,000 Identifiable intangible assets -- 3,000,000 Assume that the fair values above have been carefully evaluated for accuracy. The fair value of the noncontrolling interest is estimated to be $4,000,000 at the date of acquisition. Required a. Calculate the gain on acquisition and prepare Peregrine’s acquisition entry.…arrow_forwardPhone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $98,000. At that date, the fair value of the noncontrolling interest was $42,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Item Phone Corporation Smart Corporation Cash $ 52,300 $ 39,000 Accounts Receivable 99,000 59,000 Inventory 136,000 92,000 Land 66,000 49,000 Buildings & Equipment 417,000 268,000 Less: Accumulated Depreciation (151,000) (73,000) Investment in Smart Corporation 98,000 Total Assets $ 717,300 $ 434,000 Accounts Payable $ 141,500 $ 27,000 Mortgage Payable 300,800 288,000 Common Stock 72,000 40,000 Retained Earnings 203,000 79,000 Total Liabilities & Stockholders’ Equity $ 717,300 $ 434,000 At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of…arrow_forwardPisa Company acquired 75 percent of Siena Company on January 1, 20X3, for $712,500. The fair value of the noncontrolling interest was equal to 25 percent of book value. On the date of acquisition, Siena had common stock outstanding of $300,000 and a balance in retained earnings of $650,000. During 20X3, Siena purchased inventory for $35,000 and sold it to Pisa for $50,000. Of this amount, Pisa reported $20,000 in ending inventory in 20X3 and later sold it in 20X4. In 20X4, Pisa sold inventory it had purchased for $40,000 to Siena for $60,000. Siena sold $45,000 of this inventory in 20X4. Income and dividend information for Siena for 20X3 and 20X4 are as follows: Year Net Income Dividends 20X3 $ 150,000 $ 40,000 20X4 $ 200,000 $ 50,000 Pisa Company uses the fully adjusted equity method. Required: Present the worksheet consolidation entries necessary to prepare consolidated financial statements for 20X3. Present the worksheet consolidation entries necessary to prepare…arrow_forward
- Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $98,000. At that date, the fair value of the noncontrolling interest was $42,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Item Phone Corporation Smart Corporation Cash $ 52,300 $ 39,000 Accounts Receivable 99,000 59,000 Inventory 136,000 92,000 Land 66,000 49,000 Buildings & Equipment 417,000 268,000 Less: Accumulated Depreciation (151,000) (73,000) Investment in Smart Corporation 98,000 Total Assets $ 717,300 $ 434,000 Accounts Payable $ 141,500 $ 27,000 Mortgage Payable 300,800 288,000 Common Stock 72,000 40,000 Retained Earnings 203,000 79,000 Total Liabilities & Stockholders’ Equity $ 717,300 $ 434,000 At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of…arrow_forwardParent Company purchases 80% of the outstanding shares of Subsidiary Company for P9,000,000. The carrying value of Subsidiary Company’s net assets at the time of acquisition was P6,000,000 and had a fair value of P8,000,000. Determine the GOODWILL arising from the consolidation if the 100,000, P50 par value shares of the subsidiary are currently selling at 90 per share.arrow_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
- Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning