04 fischer10e sm ch04 final

8/13/2019 04 Fischer10e SM Ch04 Final

1/79

CHAPTER 4

UNDERSTANDING THE ISSUES

1. The intercompany sale will cause bothsales and costs of goods sold to beoverstated by $40,000 on the consolidatedincome statement. The amount remainingin ending inventory will cause cost of goodssold to be understated by $2,500 (!4 "$0,000# on the consolidated incomestatement and inventory to be overstatedby $2,500 (!4 " $0,000# on theconsolidated balance sheet.

2. ebit %ales and credit &ost of 'oods %oldfor $40,000. ebit &ost of 'oods %old andcredit nventory for $2,500 (!4 " $0,000#.

3. 20) 20)2*& $ 0 $ 400 ($2,000 " 20+#&ontrolling

nterest 0 5,00 -$4,000 ($2,000 " /0+#

Total profit $ 0 $ ,000

4. &ompany % has reali1ed a $50,000 profithowever, it is not immediate. The profit willbe reali1ed over the 53year life of the asset.&ompany % will reali1e the profit byreducing consolidated depreciationepense by $0,000 ($50,000 5 years#each year for 5 years. *& will reali1e$2,000 (20+ " $0,000# each year.

5. 20) 20)2 20)67eali1ed gain by

reducing depre3ciation epense-($0,000 8 $40,000# 5 years $4,000 $4,000$4,000

9alance of gain at

time of sale/,000

6. 20) 20)2 20)6:rofit recorded

by &ompany % $40,000; $0,000;; $ 0:rofit recorded

by consolidatedfirm 0 05,000,500epreciation Bpense........................................................ >,500


8/79

&h. 4ABercises

EXERCISE 4-6

n 20)2, only a $4,000 loss can be recogni1ed for the sale of the machinery on the consolidatedincome statement. This is the amount of the impairment (CK 8 9K#. The remaining $5,000 lossmust be deferred. This loss is deferred in the year of the intercompany sale. uring eachfollowing year of use, the asset and accumulated depreciation accounts are adGusted to reflect

the $0,000 fair value, with an additional entry for the $,000 of incremental depreciation.

@n ecember 6, 20)2, $5,000 of the $=,000 recorded loss should be eliminated.Oachine..................................................................................... 5,000

Joss on %ale of Oachine...................................................... 5,000

epreciation for the year is also restatedIepreciation Bpense................................................................ ,000

Fccumulated epreciation................................................... ,000

20)6 BntryIJoss on %ale of Oachine (remaining unrecogni1ed

loss at end of second year#;................................................ 6,000epreciation Bpense (adGustment for current year#.................. ,000

7etained BarningsA?ilton ($5,000 originalunrecogni1ed loss less one yearNs amorti1ation#............... 4,000

To record increase in depreciation epenseand increase in loss to the consolidatedcompany on sale of machine.

;Fdded to the subsidiaryNs recorded loss of $,000 results in a total loss of$4,000 to the consolidated entity to be recogni1ed in 20)6.


9/79

EXERCISE 4-7

(# 7evenue from &ompleted &ontracts........................................ 5,000BLuipment.......................................................................... 5,000

To eliminate intercompany profit on the first completedmachine and to reduce eLuipment cost to the

consolidated entity.

Fccumulated epreciationABLuipment................................... ,500epreciation Bpense........................................................ ,500

To reduce depreciation epense and accumulateddepreciation for one3half year to depreciation basedon cost of the machine to the consolidated entity.

9illings on Jong3Term &ontracts.............................................. 0,000Fsset Ender &onstruction........................................................ 2,000

&onstruction in :rogress.................................................... >2,000To eliminate double counting of construction costsand asset under construction (second machine#.

&ontracts :ayable.................................................................... 6,000&ontracts 7eceivable......................................................... 6,000

To eliminate intercompany debt.

(2# Bssuman defers the $5,000 profit on the completed machine and recogni1es the $,500reali1ed portion through the use of the machine for one3half year. *o profit is recogni1ed onthe uncompleted contract.


10/79

&h. 4ABercises

EXERCISE 4-8

:arentNs entryI:lant Fsset Ender &onstruction................................................. 50,000

&ontracts :ayable............................................................... 50,000

%ubsidiaryNs entriesI&onstruction in :rogress........................................................... 20,000

:ayables (to outsiders#........................................................ 20,000

&onstruction in :rogress (25+ marHup on cost#;...................... 60,000Barned ncome on Jong3Term &ontracts............................. 60,000

&ontracts 7eceivable................................................................ 50,0009illings on &onstruction in :rogress.................................... 50,000

;($250,000 contract price 8 $200,000 estimated cost# " 0+ completed

Bliminations and Trial 9alance FdGustments

:lum Fpple r. &r.

:lant Fsset Ender &onstruction........ 50,000 (JT6# 60,000&ontracts 7eceivable........................ 50,000 (JT# 50,0009illings on &onstruction

in :rogress.................................. (50,000# (JT6# 50,000&onstruction in :rogress................... 50,000 (JT6# 20,000

(JT2# 60,000Barned ncome on Jong3Term

&ontracts..................................... (60,000#; (JT2# 60,000&ontracts :ayable............................. (50,000# (JT# 50,000:ayables (to outsiders#..................... (20,000#

;0+ " estimated profit of $50,000

Bliminations and FdGustmentsI(JT# Bliminate intercompany debt.(JT2# Bliminate the income recorded on long3term contracts and remove profit from

&onstruction in :rogress.(JT6# Bliminate balance of &onstruction in :rogress and 9illings on &onstruction in :rogress

and reduce :lant Fsset Ender &onstruction for the amount billed in ecess of cost.


11/79

EXERCISE 4-9

&onsolidatedncome

arH Jight Bliminations %tatement

%ales....................................................... (>00,000# (2/0,000# (C# 0,000 (=20,000#&ost of goods sold.................................. 450,000 =0,000 (C# (50,000# 5=0,000@ther epenses...................................... /0,000 >0,000 (C2a# (2,000#

(C2b# (4,000# 244,000@ther income.......................................... (20,000# (20,000 #&onsolidated net income........................ (0,000#istributed to *&................................... (,200 #istributed to controlling interest............. (04,/00#

Bliminations and FdGustmentsI(C# Bliminate the gain on the intercompany machine sale. The machine account is credited

for the $0,000 gain.

(C2a# 7educe Oachine epreciation Bpense to reflect depreciation based on theconsolidated booH value of the asset ($0,000 profit 5 years Q $2,000 per year#. Thedebit is to Fccumulated epreciation.

(C2b# 7educe 9uilding epreciation Bpense to reflect depreciation based on the consolidatedbooH value of the asset ($/0,000 profit 20 years Q $4,000 per year#. The debit is to

Fccumulated epreciation.

%ubsidiary Jight &ompany ncome istribution

Enreali1ed gain on sale nternally generated netof machine....................... (C# $0,000 income.............................. $20,000

7eali1ed gain through use

of machine........................ (C2a# 2,000

FdGusted income..................... $2,000*& share............................... " 0+*&......................................... $ ,200

:arent arH &ompany ncome istribution

nternally generated netincome................................. $ =0,000

'ain reali1ed on use of buildingsold to subsidiary................. (C2b# 4,000

=0+ " Jight adGustedincome of $2,000............... 0,/00

&ontrolling interest.................... $04,/00


12/79

&h. 4ABercises

EXERCISE 4-10

20)

%ubsidiary %andbar &ompany ncome istribution

Enreali1ed profit in ending nternally generated net

inventory (40+ " $5,000#....... $,000 income..................................... $250,000

FdGusted income............................ $244,000*& share...................................... " 20+*&................................................ $ 4/,/00

:arent :eninsula &ompany ncome istribution

'ain on sale of real nternally generated netestate....................................... $200,000 income..................................... $520,000

7eali1ed gain on use ofsold real estate-(/0+ " $200,000#!20......... .... /,000

/0+ " %andbar adGustedincome of $244,000................. =5,200

&ontrolling interest......................... $526,200

20)2

%ubsidiary %andbar &ompany ncome istribution

Enreali1ed profit in ending nternally generated netinventory (40+ " $20,000#....... $/,000 income..................................... $265,000

7eali1ed profit in beginninginventory.................................. ,000

FdGusted income............................ $266,000*& share...................................... " 20+*&................................................ $ 4,00

:arent :eninsula &ompany ncome istribution

nternally generated netincome..................................... $640,000

7eali1ed gain on use ofsold real estate........................ /,000

/0+ " %andbar adGustedincome of $266,000................. /,400

&ontrolling interest......................... $564,400


13/79

EXERCISE 4-11

(# %aratoga Pindsor

*otes 7eceivable........... 50,000 &ash................................... 50,000&ash........................... 50,000 *otes :ayable................ 50,000

To record receipt To record receiptof note on Oay , of cash on Oay ,20)6. 20)6.

Fccrued nterest............. nterest Bpense ............... 2,0007eceivable.................. 2,000; Fccrued nterestnterest 7evenue........ 2,000 :ayable........................ 2,000

Dear3end interest Dear3end interestaccrual. accrual.

;$50,000 " + " /!2

(2# BliminationsI

J* *otes :ayable................................................................ 50,000Fccrued nterest :ayable............................................... 2,000

*otes 7eceivable....................................................... 50,000Fccrued nterest 7eceivable...................................... 2,000

To eliminate intercompany note and accruedinterest applicable to the note.

J*2 nterest 7evenue............................................................ 2,000nterest Bpense........................................................ 2,000

To eliminate intercompany interest revenueand epense.


14/79

&h. 4ABercises

EXERCISE 4-12

(# %aratoga

Oay *otes 7eceivable................................................................. 50,000&ash................................................................................ 50,000

To record receipt of note.Muly Fccrued nterest 7eceivable................................................ 500

nterest 7evenue............................................................. 500To accrue interest for 2 months(+ " $50,000 " 2!2#.

Muly nterest Bpense (loss on discounting#................................ ,066&ash.................................................................................... 4=,4>

*otes 7eceivable............................................................ 50,000Fccrued nterest 7eceivable............................................ 500

To record proceeds of discounting note at /+.(%ee schedule of computation of proceeds.#

PindsorFpr. &ash.................................................................................... 50,000

*otes :ayable................................................................. 50,000To record receipt of cash.

Mune 60 nterest Bpense.................................................................. 2,000nterest :ayable.............................................................. 2,000

To record year3end accrual (+ " $50,000 " /!2#.

&omputation of :roceeds:rincipal of note....................................................................... $50,000nterest due at maturity, + " $50,000..................................... 6,000Total maturity value.................................................................. $56,000Jess maturity value multiplied by /+ discount ratefor 0!2 of period.................................................................... 6,566*et proceeds of note................................................................ $4=,4>

(2# BliminationsI

J* *otes 7eceivable iscounted........................................ 50,000*otes 7eceivable....................................................... 50,000

To eliminate intercompany note and reclassifythe discounted note receivable as a notepayable at its face value.

J*2 nterest 7evenue............................................................ 500nterest Bpense........................................................ 500

To eliminate intercompany interest prior to thediscounting.


15/79

&h. 4A:roblems

PROBLEMS

PROBLEM 4-1

:laid &orporation and %ubsidiary %olid &ompanyPorHsheet for &onsolidated Cinancial %tatements

Cor Dear Bnded ecember 6, 20)

Bliminations &onsolidated &ontrolling &onsolidated

Trial 9alance and FdGustments ncome 7etained 9alance :laid %olid r. &r. %tatement Barnings %heet

&ash........................................................ /0,000 >0,000 .................. .................. .................. .................. =/0,000Fccounts 7eceivable............................... 425,000 65,000 .................. (F# 25,000 .................. .................. >5,000nventory................................................. 00,000 2>5,000 .................. (B# 60,000 .................. .................. /45,000:roperty, :lant, and BLuipment (net#...... 4,000,000 2,600,000 (# 400,000 (F# 40,000 .................. .................. ,0,000nvestment in %olid &ompany......... ... ... .. 6,40,000 .................. .................. (&D# 20,000 .................. .................. ..................

.................. .................. .................. (BJ# 2,/00,000 .................. .................. ..................

.................. .................. .................. (# 400,000 .................. .................. ..................Fccounts :ayable.................... ....... ........ (65,000# (00,000# (F# 25,000 .................. .................. .................. (0,000#&ommon %tocH ($0 par#A:laid.... ... ... .. (,000,000# .................. .................. .................. .................. .................. (,000,000#:aid3n &apital in Bcess of :arA:laid. . (,500,000# .................. .................. .................. .................. .................. (,500,000#7etained BarningsA:laid....................... (5,500,000# .................. .................. .................. .................. (5,500,000# ..................

&ommon %tocH ($0 par#A%olid.... ... ... .. .................. (400,000# (BJ# 400,000 .................. .................. .................. ..................:aid3n &apital in Bcess of :arA%olid. . .................. (200,000# (BJ# 200,000 .................. .................. .................. ..................7etained BarningsA%olid..... .... ... .. .. .. ... .. ...... ..... ..... .. (2,200,000# (BJ# 2,200,000 .. ..... ..... ..... . ... ..... ..... ..... .... ..... ...... ... ...... ..... ..... ..%ales..... ..... ..... ..... ..... ..... ..... .. .. .. .. .. .. .. .. .. .. (2,000,000# (,000,000# (%# 400,000 .. ..... ..... ..... . (2,00,000# .... ..... ...... ... ...... ..... ..... ..&ost of 'oods %old................................. >,000,000 >50,000 (B# 60,000 (%# 400,000 >,6/0,000 .................. ..................@ther Bpenses...................................... 4,000,000 40,000 (F# 40,000 .................. 4,0/0,000 .................. ..................%ubsidiary ncome................................... (20,000# .................. (&D# 20,000 .................. .................. .................. ..................

0 0 6,=05,000 6,=05,000 .................. .................. ..................&onsolidated *et ncome.................................................................................................................................................. (,40,000 # (,40,000# ... .. .. .. .. .. .. .. .7etained BarningsA&ontrolling nterest, ecember 6, 20).................................................................................................................. (,40,000# (,40,000 #

0


16/79

&h. 4A:roblems

:roblem 43, &oncluded

D!"#$%&!$'% &%( D$)!"$*+!$'% ', E)) S/(+C'#&% P&"%! NCII#$( P"$ &+

&$" &+ 100 0

Cair value of subsidiary..................... $6,200,000 $6,200,000 *!FJess booH value of interest acLuiredI

Total eLuity................................. 2,/00,000 $2,/00,000nterest acLuired......................... 00+

9ooH value........................................ 2,/00,000Bcess of cost over booH value......... $ 400,000 $ 400,000

A(+)!#%! ', $(%!$,$&* &'+%!):'";)/! A#'"!$-

A(+)!#%!


17/79

&h. 4A:roblems

PROBLEM 4-2

(# 9ater &orporation and %ubsidiary &rayon &ompanyPorHsheet for &onsolidated Cinancial %tatements

Cor Dear Bnded Oarch 6, 20)6

Bliminations &onsolidated &ontrolling &onsolidated Trial 9alance and FdGustments ncome 7etained 9alance9ater &rayon r. &r. %tatement *& Barnings %heet

&ash............................................................. 2,200 44,600 ................ ................ ................ ................ ............... 20,500Fccounts 7eceivable (net#........................... 2=0,000 =>,000 ................ (F:# 0,000 ................ ................ ............... ................

................ ................ ................ (F%# 5,000 ................ ................ ............... 6>2,000nventory...................................................... 60,000 /0,000 ................ (B:# ,620 ................ ................ ............... ................

................ ................ ................ (B%# >50 ................ ................ ............... 6/>,=60nvestment in &rayon &ompany.................. 425,000 ................ (&K# 62,000 (BJ# 652,000 ................ ................ ............... ................

................ ................ ................ (# 05,000 ................ ................ ............... ................Jand............................................................. ,0/,000 50,000 ................ ................ ................ ................ ............... ,26,0009uilding and BLuipment............................... ,/50,000 400,000 ................ ................ ................ ................ ............... 2,250,000

Fccumulated epreciation........................... (=40,000# (20,000# ................ ................ ................ ................ ............... (,50,000#'oodwill....................................................... 0,000 ................ (# 6,250 ................ ................ ................ ............... =,250

Fccounts :ayable........................................ (242,200# (0,600# (F:# 0,000 ................ ................ ................ ............... ................................ ................ (F%# 5,000 ................ ................ ................ ............... (666,500#

9onds :ayable............................................. (400,000# ................ ................ ................ ................ ................ ............... (400,000#&ommon %tocHA9ater.............................. (250,000# ................ ................ ................ ................ ................ ............... (250,000#:aid3n &apital in Bcess of :arA9ater.... (,250,000# ................ ................ ................ ................ ................ ............... (,250,000#7etained Barnings, Fpril , 20)2A9ater. . (,05,000# ................ (&K# 62,000 ................ ................ ............... ................

................ ................ (9:# ,650 ................ ................ ................ ............... ................

................ ................ (9%# 50 ................ ................ ................ (,65,0=0# ................&ommon %tocHA&rayon............................. ................ (200,000# (BJ# 0,000 ................ ................ (40,000# ............... ................:aid3n &apital in Bcess of :arA&rayon... ................ (00,000# (BJ# /0,000 ................ ................ (20,000# ............... ................7etained Barnings, Fpril , 20)2A&rayon ................ (40,000# (BJ# 2,000 (* 2,250 ................ ................ ............... ................

................ ................ (9%# 40 ................ ................ (54,0# ............... ................%ales............................................................ (//0,000# (60,000# (%:# 62,000 ................ ................ ................ ............... ................

................ ................ (%%# 60,000 ................ (,44/,000# ................ ............... ................ividend ncome ( from & rayon & ompany#. . (24,000# ................ (&D2# 24,000 ................ ................ ................ ............... ................&ost of 'oods %old...................................... >04,000 504,000 (B:# ,620 (9:# ,650 ................ ................ ............... ................

................ ................ (B%# >50 (%:# 62,000 ................ ................ ............... ................

................ ................ ................ (9%# >00 ................ ................ ............... ................

................ ................ ................ (%%# 60,000 ,4,020 ................ ............... ................@ther Bpenses........................................... 60,000 /,000 ................ ................ 2,000 ................ ............... ................iv idends eclared.. .. .. .. .. ... .. .. .. .. .. .. .. .. ... .. .. .. 25,000 60,000 . .. .. .. .. .. .. .. . (&D2# 24,000 .. .. .. .. .. .. .. .. ,000 25,000 .. .. .. .. .. .. .. ..

0 0 20,6>0 20,6>0 ................ ............... ................&onsolidated *et ncome....................................................................................................................................................... =0,=/0 ................ ............... ................

To *& (see distribution schedule#......................................................................................................................................... /,==0 (/,==0# ................ ................To &ontrolling nterest (see distribution schedule#................................................................................................................. /,==0 ................ (/,==0# ................Total *&......................................................................................................................................................................................................... (>,00# ................ (>,00#7etained BarningsA&ontrolling nterest, Oarch 6, 20)6..................................................................................................................................................... (,=2,0/0# (,=2,0/0#

0


18/79

&h. 4A:roblems

:roblem 432, &ontinued

Bliminations and FdGustmentsI(&K# &onvert to eLuity methodI

&hange in eLuity " /0+ Q $40,000 " /0+ Q $62,000.(&D2# Bliminate intercompany dividends.

(BJ# Bliminate parentNs share of subsidiary eLuity.(#!(* istribute ecess and *& adGustment to goodwill, according to determination

and distribution of ecess schedule.(9:# Bliminate intercompany profit from beginning inventory on sales from 9ater to

&rayon, $=,000 " 5+ Q $,650.(%:# Bliminate sales from 9ater to &rayon from Fpril 20)28Oarch 20)6 ($62,000#.(B:# Bliminate intercompany profit from ending inventory on sales from 9ater to

&rayon, $,000 " 22+ Q $,620.(F:# Bliminate intercompany trade balances on sales from 9ater to &rayon.(9%# Bliminate intercompany profit from beginning inventory on sales from &rayon to

9ater, $6,500 " 20+ Q $>00.(%%# Bliminate sales from &rayon to 9ater.

(B%# Bliminate intercompany profit from ending inventory on sales from &rayon to9ater, $6,000 " 25+ Q $>50.

(F%# Bliminate intercompany trade balances on sales from &rayon to 9ater.

C'#&% P&"%! NCII#$( P"$ &+

&+ A%&)$) S/(+ &$" &+ 80 20

&ompany fair value........................................... $56,250 $425,000 $0,250Cair value of net assets ecluding goodwill....... 400,000 620,000 /0,000'oodwill............................................................ $6,250 $05,000 $ 2,250

9ased on the above information, the following R schedule is preparedID!"#$%&!$'% &%( D$)!"$*+!$'% ', E)) S/(+

C'#&% P&"%! NCII#$( P"$ &+

&$" &+ 80 20

Cair value of subsidiary.............. $56,250 $425,000 $0,250Jess booH value of interest acLuiredI

Total eLuity............................. 400,000 $400,000 $400,000nterest acLuired..................... /0+ 20+

9ooH value of interest................ $620,000 $ /0,000Bcess of cost over booH value. $6,250 $05,000 $ 2,250

A(+)!#%! ', $(%!$,$&* &'+%!):'";)/!

A(+)!#%!


19/79

&h. 4A:roblems


%ubsidiary &rayon &ompany ncome istribution

Enreali1ed profit in ending nternally generated netinventory........................... $>50 income................................. $45,000

7eali1ed profit in beginninginventory.............................. >00

FdGusted income........................ $44,=50*& share.................................. " 20+*&............................................ $ /,==0

:arent 9ater &orporation ncome istribution

Enreali1ed profit in ending nternally generated netinventory........................... $,620 income................................ $4,000

7eali1ed profit in beginninginventory............................. ,650

/0+ " &rayon adGustedincome of $44,=50............... 65,=0

&ontrolling interest.................... $/,==0

(2# 9ater &orporation and %ubsidiary &rayon &ompany&onsolidated ncome %tatementCor Dear Bnded Oarch 6, 20)6

%ales........................................................................................ $,44/,000&ost of goods sold................................................................... ,4,020'ross profit.............................................................................. $ 60,=/0Bpenses................................................................................. 2,000&onsolidated net income.......................................................... $ =0,=/0istributed to *&..................................................................... /,==0istributed to controlling interest.............................................. $ /,==0


20/79

&h. 4A:roblems

PROBLEM 4-3

C'#&% P&"%! NCII#$( P"$ &+

&+ A%&)$) S/(+ &$" &+ 70 30

&ompany fair value;.......................................... $500,000 $650,000 $50,000

Cair value of net assets ecluding goodwill;;.. .. 420,000 2=4,000 2,000'oodwill............................................................ $ /0,000 $ 5,000 $ 24,000

;$650,000!>0+;;$22,000 booH value $50,000 $5/,000

D!"#$%&!$'% &%( D$)!"$*+!$'% ', E)) S/(+C'#&% P&"%! NCII#$( P"$ &+

&$" &+ 70 30

:rice paid for investment........... $500,000 $650,000 $50,000Jess booH value of interest acLuiredI

&ommon stocH....................... $ 0,000:aid3in capital in ecess of par =0,0007etained earnings.................. 2,000

Total eLuity......................... $22,000 $22,000 $22,000nterest acLuired..................... >0+ 60+

9ooH value................................. 4/,400 6,00Bcess of cost over booH value. $2//,000 $20,00 $ /,400

A(+)!#%! ', $(%!$,$&* &'+%!):'";)/! A#'"!$-

A(+)!#%!


21/79

&h. 4A:roblems


A#'"!$=&!$'% S/(+

A'+%! &(+)!#%!) A%%+& C+""%! P"$'" !' * '"!$=( L$, A#'+%! >&" >&") T'!& ,500 $ >,500 $ >,500 $5,000 F

BLuipment 5 ,00 ,00 ,00 26,200 F2Total amorti1ations $=,00 $=,00 $=,00 $6/,200

I%!"'#&% I%?%!'" P"',$! D,""&

P&"%! P&"%! P&"%! S+* S+* S+* A#'+%! P"',$! A#'+%! P"',$!9eginning A 0+ A $/,000 25+ $2,000Bnding A 0+ A ,000 60+ ,/00

%ubsidiary %naHe &ompany ncome istribution

Enreali1ed profit in ending nternally generated netinventory.............................. $ ,/00 income................................. $20,000

Fmorti1ations............................. =,00 7eali1ed profit in beginninginventory.............................. 2,000

FdGusted income........................ $ ,00*& share.................................. 60+&ontrolling share....................... $ 660

:arent :anther &orporation ncome istribution

nternally generated netincome.................................. $5,000

>0+ of %naHe adGusted incomeof $,00.............................. >>0

&ontrolling interest..................... $5,>>0


22/79

&h. 4A:roblems


(2# :anther &orporation and %ubsidiary %naHe &orporation&onsolidated ncome %tatement

Cor Dear Bnded ecember 6, 20)2

Bliminations &onsolidated &ontrolling &onsolidated Trial 9alance and FdGustments ncome 7etained 9alance

:anther %naHe r. &r. %tatement *& Barnings %heet

&ash................................................................. ,000 62,000 ............ ............ ............ ............ ............ 24/,000Fccounts 7eceivable....................................... =0,000 45,000 ............ (F# ,000 ............ ............ ............ 2=,000nventory.......................................................... 20,000 5,000 ............ (B# ,/00 ............ ............ ............ >4,200Jand................................................................. 00,000 0,000 ............ ............ ............ ............ ............ 0,000

nvestment in %naHe &orporation.................... 6>/,000 ............ ............ (&D# 4,000 ............ ............ ............ ........................ ............ (&D2# >,000 ............ ............ ............ ............ ........................ ............ ............ (BJ# =,400 ............ ............ ............ ........................ ............ ............ (# 20,00 ............ ............ ............ ............

9uildings.......................................................... /00,000 200,000 (# 50,000 ............ ............ ............ ............ ,50,000Fccumulated epreciation............................... (220,000# (5,000# ............ (F# 5,000 ............ ............ ............ (600,000#BLuipment........................................................ 50,000 >2,000 (2# 5/,000 ............ ............ ............ ............ 2/0,000

Fccumulated epreciation............................... (=0,000# (4,000# ............ (F2# 26,200 ............ ............ ............ (5=,200#'oodwill........................................................... ............ ............ (6# /0,000 ............ ............ ............ ............ /0,000

Fccounts :ayable............................................ (0,000# (02,000# (F# ,000 ............ ............ ............ ............ (5,000#9onds :ayable................................................. ............ (00,000# ............ ............ ............ ............ ............ (00,000#&ommon %tocHA%naHe.................................. ............ (0,000# (BJ# >,000 ............ ............ (6,000# ............ ............:aid3n &apital in Bcess of :arA%naHe........ ............ (=0,000# (BJ# 6,000 ............ ............ (2>,000# ............ ............7etained Barnings, Man. A%naHe................. ............ (42,000# (BJ# ==,400 (* /,400 ............ ............ ............ ............

............ ............ (F32# 5,>60 ............ ............ ............ ............ ............

............ ............ (9# 00 ............ ............ (22,>0# ............ ............&ommon %tocHA:anther................................ (00,000# ............ ............ ............ ............ ............ ............ (00,000#:aid3n &apital in Bcess of :arA:anther...... (/00,000# ............ ............ ............ ............ ............ ............ (/00,000#7etained Barnings, Man. A:anther............... (625,000# ............ (F32# 6,6>0 ............ ............ ............ ............ ............

............ ............ (9# ,400 ............ ............ ............ ............ ............

............ ............ ............ ............ ............ ............ (60,260# ............%ales................................................................ (/00,000# (650,000# (%# 60,000 ............ (,20,000# ............ ............ ............&ost of 'oods %old.......................................... 450,000 20/,500 ............ (%# 60,000 ............ ............ ............ ............

............ ............ (B# ,/00 (9# 2,000 2/,600 ............ ............ ............epreciation BpenseA9uildings................... 60,000 >,500 (F# >,500 ............ 45,000 ............ ............ ............epreciation BpenseABLuipment................. 5,000 /,000 (F2# ,00 ............ 64,00 ............ ............ ............@ther Bpenses............................................... 40,000 =/,000 ............ ............ 26/,000 ............ ............ ............nterest Bpense.............................................. ............ /,000 ............ ............ /,000 ............ ............ ............%ubsidiary ncome........................................... (4,000# ............ (&D# 4,000 ............ ............ ............ ............ ............ividends eclaredA%naHe............................ ............ 0,000 ............ (&D2# >,000 ............ 6,000 ............ ............ividends eclaredA:anther......................... 20,000 ............ ............ ............ ............ ............ 20,000 ............

0 0 55,400 55,400 ............ ............ ............ ............&onsolidated *et ncome....................................................................................................................................................... (,00# ............ ............ ............

To *& (see distribution schedule#.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 660 (660# ... .. .. .. .. . . .. .. .. .. .. .To &ontrolling nterest (see distribution schedule#................................................................................................................. (5,>>0# ............ (5,>>0# ............Total *&......................................................................................................................................................................................................... (50,000# ............. (50,000#7etained BarningsA&ontrolling nterest, ecember 6, 20)2.............................................................................................................................................. (45,000# (45,000#

0


23/79

&h. 4A:roblems


Bliminations and FdGustmentsI(&D# &urrent3year subsidiary income.(&D2# &urrent3year dividend.(BJ# Bliminate controlling interest in %ub eLuity.

(!* istribute ecess and *& adGustment.(F# Fmorti1e ecess.(%# Bliminate intercompany sales during current period.(F# Bliminate intercompany unpaid trade accounts.(9# efer beginning inventory profit.(B# efer ending inventory profit.


24/79

&h. 4A:roblems

PROBLEM 4-4

C'#&% P&"%! NCII#$( P"$ &+

&+ A%&)$) S/(+ &$" &+ 70 30

&ompany fair value........................................... $500,000 $650,000 $50,000Cair value of net assets ecluding goodwill;;.. .. 420,000 2=4,000 2,000'oodwill............................................................ $ /0,000 $ 5,000 $ 24,000

;$650,000!>0+;;$22,000 booH value $50,000 $5/,000

D!"#$%&!$'% &%( D$)!"$*+!$'% ', E)) S/(+

C'#&% P&"%! NCII#$( P"$ &+

&$" &+ 70 30

:rice paid for investment........... $500,000 $650,000 $50,000

Jess booH value of interest acLuiredI&ommon stocH....................... $ 0,000:aid3in capital in ecess of par =0,0007etained earnings.................. 2,000

Total eLuity......................... $22,000 $22,000 $22,000nterest acLuired..................... >0+ 60+

9ooH value of interest................ $4/,400 $ 6,00Bcess of cost over booH value $2//,000 $20,00 $ /,400

A(+)!#%! ', $(%!$,$&* &'+%!):'";)/! A#'"!$-

A(+)!#%!


25/79

&h. 4A:roblems


A#'"!$=&!$'% S/(+

A'+%! &(+)!#%!) A%%+& C+""%! P"$'" !' * '"!$=( L$, A#'+%! >&" >&") T'!& ,500 $ >,500 $ >,500 $5,000 FBLuipment 5 ,00 ,00 ,00 26,200 F2Total amorti1ations $=,00 $=,00 $=,00 $6/,200

I%!"'#&% I%?%!'" P"',$! D,""&

P&"%! P&"%! P&"%! S+* S+* S+* A#'+%! P"',$! A#'+%! P"',$!9eginning $5,000 40+ $,000 $0,000 25+ $2,000Bnding 22,000 65+ >,>00 ,000 60+ ,/00

%ubsidiary %naHe &orporation ncome istribution

Enreali1ed profit in ending nternally generated netinventory.............................. $ ,/00 income................................. $20,000

Fmorti1ations............................. =,00 7eali1ed profit in beginninginventory.............................. 2,500

FdGusted income........................ $ ,00*& share.................................. 60+*&............................................ $ 4/0

:arent :anther &orporation ncome istribution

Enreali1ed profit in ending nternally generated netinventory.............................. $>,>00 income................................. $5,000

>0+ of %naHe adGusted incomeof $,00.............................. ,20

7eali1ed profit in beginninginventory.............................. ,000

&ontrolling interest..................... $4,420


26/79

&h. 4A:roblems


(2# :anther &orporation and %ubsidiary %naHe &orporation&onsolidated ncome %tatement



:anther %naHe r. &r. %tatement *& Barnings %heet

&ash................................................................. ,000 62,000 ................ ............ ............ ............ ............ 24/,000Fccounts 7eceivable....................................... =0,000 45,000 ................ (F# 26,000 ............ ............ ............ 2,000nventory.......................................................... 20,000 5,000 ................ (B# =,500 ............ ............ ............ ,500Jand................................................................. 00,000 0,000 ................ ............ ............ ............ ............ 0,000nvestment in %naHe &orporation.................... 6>/,000 ............ ................ (&D# 4,000 ............ ............ ............ ............

............ ............ (&D2# >,000 ............ ............ ............ ............ ............

............ ............ ............ (BJ# =,400 ............ ............ ............ ............

............ ............ ............ (# 20,00 ............ ............ ............ ............9uildings.......................................................... /00,000 200,000 (# 50,000 ............ ............ ............ ............ ,50,000

Fccumulated epreciation............................... (220,000# (5,000# ............ (F# 5,000 ............ ............ ............ (600,000#BLuipment........................................................ 50,000 >2,000 (2# 5/,000 ............ ............ ............ ............ 2/0,000

Fccumulated epreciation............................... (=0,000# (4,000# ............ (F2# 26,200 ............ ............ ............ (5=,200#'oodwill........................................................... ............ ............ (6# /0,000 ............ ............ ............ ............ /0,000

Fccounts :ayable............................................ (0,000# (02,000# (F# 26,000 ............ ............ ............ ............ (6=,000#9onds :ayable................................................. ............ (00,000# ............ ............ ............ ............ ............ (00,000#iscount (premium#......................................... ............ ............ ............ ............ ............ ............ ............ ............&ommon %tocHA%naHe.................................. ............ (0,000# (BJ# >,000 ............ ............ (6,000# ............ ............:aid3n &apital in Bcess of :arA%naHe........ ............ (=0,000# (BJ# 6,000 ............ ............ (2>,000# ............ ............7etained BarningsA%naHe............................. ................ (42,000# (BJ# ==,400 (* /,400 ............ ............ ............ ............

............ ............ (F32# 5,>60 ............ ............ ............ ............ ............

............ ............ (9# >50 ............ ............ (22,520# ............ ............&ommon %tocHA:anther................................ (00,000# ............ ............ ............ ............ ............ ............ (00,000#:aid3n &apital in Bcess of :arA:anther...... (/00,000# ............ ............ ............ ............ ............ ............ (/00,000#7etained BarningsA:anther........................... (625,000# ............ (F32# 6,6>0 ............ ............ ............ ............ ............

............ ............ (9# >,>50 ............ ............ ............ ............ ............

............ ............ ............ ............ ............ ............ (606,//0# ............

%ales................................................................ (/00,000# (650,000# (%# 00,000 ............ (,050,000# ............ ............ ............&ost of 'oods %old.......................................... 450,000 20/,500 ............ (%# 00,000 ............ ............ ............ ............

............ ............ (B# =,500 (9# /,500 55=,500 ............ ............ ............epreciation BpenseA9uildings................... 60,000 >,500 (F# >,500 ............ 45,000 ............ ............ ............epreciation BpenseABLuipment................. 5,000 /,000 (F2# ,00 ............ 64,00 ............ ............ ............@ther Bpenses............................................... 40,000 =/,000 ............ ............ 26/,000 ............ ............ ............nterest Bpense.............................................. ............ /,000 ............ ............ /,000 ............ ............ ............%ubsidiary ncome........................................... (4,000# ............ (&D# 4,000 ............ ............ ............ ............ ............ividends eclaredA%naHe............................ ............ 0,000 ............ (&D2# >,000 ............ 6,000 ............ ............ividends eclaredA:anther......................... 20,000 ............ ............ ............ ............ ............ 20,000 ............

0 0 5>,00 5>,00 ............ ............ ............ ............&onsolidated *et ncome....................................................................................................................................................... (4,=00# ............ ............ ............

To *& (see distribution schedule#.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 4/0 (4/0# ... .. .. .. .. . . .. .. .. .. .. .To &ontrolling nterest (see distribution schedule#................................................................................................................. 4,420 ............ (4,420# ............Total *&......................................................................................................................................................................................................... (50,000# ............. (50,000#7etained BarningsA&ontrolling nterest, ecember 6, 20)2.............................................................................................................................................. (44/,600# (44/,600#

0


27/79

&h. 4A:roblems



(!* istribute ecess and *& adGustment.(F# Fmorti1e ecess.(%# Bliminate intercompany sales during current period ($0,000 $40,000#.(F# Bliminate intercompany unpaid trade accounts.(9# efer beginning inventory profit.(B# efer ending inventory profit.


28/79

&h. 4A:roblems

PROBLEM 4-5

:rice paid for investment in MenHo &ompany stocHIMenHo &ompany stocH outstanding ($450,000 $5 par#............ =0,000 shares@wnership interest..................................................................... " /0+%hares acLuired........................................................................ >2,000

%ilvio &orporation shares issued (>2,000 6#........................... 24,000OarHet value of shares.............................................................. " $40:rice paid for /0+ interest......................................................... $=0,000

C'#&% P&"%! NCII#$( P"$ &+

&+ A%&)$) S/(+ &$" &+ 80 20

&ompany fair value.................................................. $,200,000; $=0,000 $240,000Cair value of net assets ecluding goodwill.............. ,0>5,000 ;; /0,000 25,000'oodwill................................................................... $ 25,000 $00,000 $ 25,000

;$=0,000!/0+;;$,000,000 eLuity $>5,000 adGustment

9ased on the above information, the following R schedule is preparedI

D!"#$%&!$'% &%( D$)!"$*+!$'% ', E)) S/(+

C'#&% P&"%! NCII#$( P"$ &+

&$" &+ 80 20

Cair value of subsidiary..................... $,200,000 $ =0,000 $ 240,000Jess booH value of interest acLuiredI

Total eLuity................................. ,000,000 $,000,000 $,000,000

nterest acLuired......................... /0+ 20+9ooH value of interest....................... $ /00,000 $ 200,000Bcess of cost over booH value......... $ 200,000 $ 0,000 $ 40,000

A(+)!#%! ', $(%!$,$&* &'+%!)

:'";)/!A(+)!#%! 5,000 debit 'oodwill............................................ 25,000 debit 2

Total adGustments........................ $200,000


29/79

&h. 4A:roblems


%ilvio &orporation and %ubsidiary MenHo &ompanyPorHsheet for &onsolidated Cinancial %tatements



%ilvio MenHo r. &r. %tatement *& Barnings %heet

&ash............................................................... 40,000 205,200 .............. .............. .............. .............. .............. 645,200Fccounts 7eceivable.................................. .... 2/5,000 0,000 .......... .... ........... ... .......... .... ........... ... .......... .... 6=5,000nterest 7eceivable......................................... ,500 .............. .............. (J*2# 200 .............. .............. .............. ,600

*otes 7eceivable........................................... 50,000 .............. .............. (J*# 0,000 .............. .............. .............. 40,000nventory......................................................... 4>0,000 0,000 .............. (B# 6,500 .............. .............. .............. 2,500Jand............................................................... 650,000 600,000 (# >5,000 .............. .............. .............. .............. >25,000epreciable Cied Fssets............................... ,0,000 /0,000 .............. .............. .............. .............. .............. ,=20,000Fccumulated epreciation................. ........ .... (500,000# (200,000# .......... .... ........... ... .......... .... ........... ... .......... .... (>00,000#ntangibles...................................................... 0,000 .............. .............. .............. .............. .............. .............. 0,000nvestment in MenHo &ompany... ..... .. .. .. .. ... .. .. ,2/,000 .. .. .. .. .. .. .. .. .. .. .. .. .. .. (&D# //,000 ... .. .. .. .. .. . .... ... .. .. .. . ... .. .. .. .. .. . .... ... .. .. .. .

.............. .............. .............. (BJ# //0,000 .............. .............. .............. ..............

.............. .............. .............. (# 0,000 .............. .............. .............. ..............'oodwi ll ..... ...... ..... ..... ..... ..... ..... ..... ..... ..... ... .. .. .... .. .. .. .. .. .. .. .. .. .. .. .. (2# 25,000 .... ... .. .. .. . ... .. .. .. .. .. . .... ... .. .. .. . ... .. .. .. .. .. . 25,000Fccounts :ayable ....................................... ... (,500# (>5,000# (J*# 0,000 ........... ... .......... .... ........... ... .......... .... (>>,500#nterest :ayable............................................. .............. (200# (J*2# 200 .............. .............. .............. .............. ..............&ommon %tocHA%ilvio................................... (400,000# .............. .............. .............. .............. .............. .............. (400,000#:aid3n &apital in Bcess of :arA%ilvio......... ( ,265,000# .............. .............. .............. .............. .............. .............. (,265,000#7etained B arnings, M anuary , 20)6A%ilvio (=5/,500# .............. .............. .............. .............. .............. .............. ..............

.............. .............. (9# >,500 .............. .............. .............. (=5,000# ..............&ommon %tocHAMenHo.................................. .............. (450,000# (BJ# 60,000 .............. .............. (=0,000# .............. ..............:aid3n &apital in Bcess of :arAMenHo........ .............. (/0,000# (BJ# 44,000 .............. .............. (6,000# .............. ..............7etained Barnings, M anuary , 20)6AMenHo .............. (4>0,000# (BJ# 6>,000 (* 40,000 .............. (64,000# .............. ..............

Treasury %tocH (at cost#................................. 65,000 .............. .............. .............. .............. .............. .............. 65,000%ales............................................................... (,020,000# (500,000# (%# 40,000 (,6/0,000# .............. .............. ..............nterest ncome............................................... (,500# .............. (J*2# 200 .............. (,600# .............. .............. ..............%ubsidiary ncome ..... ..... ..... ..... ..... ..... .. .. .. .. .. . (//,000# .. .. .. .. .. .. .. (&D# //,000 .... ... .. .. .. . ... .. .. .. .. .. . .... ... .. .. .. . ... .. .. .. .. .. . .... ... .. .. .. .&ost of 'oods %old........................................ >05,000 600,000 (B# 6,500 (9# ... ..>,500 .............. .............. .............. ..............

.............. .............. .............. (%# . 40,000 /,000 ............. .............. ..............@ther Bpenses.............................................. 200,000 =0,000 .............. (J*2# 200 2/=,/00 .............. .............. ..............

0 0 ,62=,400 ,62=,400 ... .. .. .. .. .. . .... ... .. .. .. . ... .. .. .. .. .. . .... ... .. .. .. .&onsolidated *et ncome.................................................................................................................................... (260,500 # .............. .............. ..............To *& (see distribution schedule#...................................................................................................................... 22,000 (22,000# .............. ..............To &ontrolling nterest (see distribution schedule#.............................................................................................. 20/,500 .............. (20/,500# ..............Total *&................................................................................................................................................................................... (2/2,000# .............. (2/2,000#7etained BarningsA&ontrolling nterest, ecember 6, 20)6...................................... .............................. ............................... ............ ....... (,5=,500# (,5=,500#

0


30/79

&h. 4A:roblems


Bliminations and FdGustmentsI(&D# Bliminate the entry recording the parentNs share of the subsidiaryNs net income.(BJ# Bliminate the parentNs (/0+# share of MenHo &ompany eLuity against the investment.(#!(* istribute ecess and *& adGustment according to the determination and distribution

schedule.(9# Bliminate the intercompany profit of $>,500 (60+ " $25,000# from beginning

inventory.(%# Bliminate intercompany sales of $40,000.(B# Bliminate intercompany profit remaining after write3down of ending inventory,$2/,000

balance after write3down 8 ($65,000 " >0+ Q $24,500 sellerNs cost# Q $6,500remaining profit.

(J*# Bliminate intercompany note.(J*2# Bliminate the intercompany interest on note, accrued receivable, and accrued payable

(2+ " 4!2 " !2 " $0,000#.

%ubsidiary MenHo &ompany ncome istribution

nternally generated netincome..................................... $0,000

FdGusted income............................ $0,000*& share...................................... " 20+*&................................................ $ 22,000

:arent %ilvio &orporation ncome istribution

Enreali1ed profit in ending nternally generated netinventory.................................. $6,500 income..................................... $,500

/0+ " MenHo adGustedincome of $0,000................. //,000

7eali1ed profit on beginninginventory.................................. >,500

&ontrolling interest......................... $20/,500


31/79

&h. 4A:roblems

PROBLEM 4-6

:arcel &orporation and %ubsidiary %acH &orporationPorHsheet for &onsolidated Cinancial %tatements

Cor Dear Bnded Fugust 6, 20)6


:arcel %acH r. &r. %tatement *& Barnings %heet

&ash............................................................... 20,000 50,000 .............. .............. .............. .............. .............. >0,000Fccounts 7eceivable (net#................. ........ .... 5,000 /,000 ........... ... .......... .... .......... .... .......... .... .......... .... 66,000*otes 7eceivable........................................... .............. 0,000 .............. .............. .............. .............. .............. 0,000nventory, Fugust 6, 20)6............................ >5,000 64,000 .............. .............. .............. .............. .............. 20=,000

nvestment in %acH &orporation..................... 2>,440 .............. (&D2# 5,00 (&D# 26,040 .............. .............. .............. ............................ .............. .............. (BJ# 200,000 .............. .............. .............. ..............:lant and BLuipment...................................... ==0,>00 2=5,000 .............. (C%# =,000 .............. .............. .............. ,26,>00

.............. .............. .............. (C:# 6,000 .............. .............. .............. ..............Fccumulated epreciation................. ........ .... (>0,000# (/5,000# (C%# 6,000 .......... .... .......... .... .......... .... .......... .... .......... ....

.............. .............. (C2%# 6,000 .............. .............. .............. .............. (242,>00#

.............. .............. (C2:# ,600 .............. .............. .............. .............. ..............@ther Fssets................................................... 2/,000 .............. .............. .............. .............. .............. .............. 2/,000Fccounts :ayable ....................................... ... (/0,000# (50,200# ........... ... .......... .... .......... .... .......... .... .......... .... (60,200#*otes :ayable................................................ (25,000# .............. .............. .............. .............. .............. .............. (25,000#9onds :ayable............................................... (600,000# .............. .............. .............. .............. .............. .............. (600,000#&ommon %tocH ($0 par#A:arcel................. (2=0,000# .............. .............. .............. .............. .............. .............. (2=0,000#:aid3n &apital in Bcess of :arA:arcel....... (0,000# .............. .............. .............. .............. .............. .............. (0,000#7etained Barnings, %eptember , 20)2A

:arcel.......................................................... (4=/,/50# .............. (C%# 4,/00 .............. .............. .............. (4=4,050# ..............&ommon %tocH ($0 par#A%acH.................... .............. (>0,000# (BJ# 5,000 .............. .............. (4,000# .............. ..............:aid3n &apital in Bcess of :arA%acH......... .............. (2,000# (BJ# 4=,00 .............. .............. (2,400# .............. ..............7etained Barnings, %eptember , 20)2A%acH .............. (/,000# (BJ# =4,400 .............. .............. (22,400# .............. ..............

.............. .............. (C%# ,200 .............. .............. .............. .............. ..............%ales............................................................... (=20,000# (240,000# .............. .............. (,0,000# .............. .............. ..............&ost of 'oods %old........................................ 5=/,000 62,000 .............. .............. >60,000 .............. .............. ..............%elling and 'eneral Bpense......................... 0/,000 /0,000 .............. (C2%# 6,000 >/,>00 .............. .............. ..............

.............. .............. .............. (C2:# ,600 .............. .............. .............. ..............%ubsidiary ncome.......................................... (26,040# (&D# 26,040 .............. .............. .............. .............. ..............nterest ncome............................................... .............. (/00# .............. .............. (/00# .............. .............. ..............nterest Bpense............................................ 6>,>50 .............. .............. .............. 6>,>50 .............. .............. ..............'ain on %ale of BLuipment............................ (6,000# (C:# 6,000 .............. .............. .............. .............. ..............iv idends eclared... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . =0,000 >,000 ... .. .. .. .. .. . (&D2# 5,00 ... .. .. .. .. .. . ,400 =0,000 ... .. .. .. .. .. .

0 0 . 60=,=40 . 60=,=40 .............. .............. .............. ..............&onsolidated *et ncome....................................................................................................................................... (24,650# .............. .............. ..............To *& (see distribution schedule#......................................................................................................................... ,60 (,60# .............. ..............To &ontrolling nterest (see distribution schedule#................................................................................................. 20>,==0 .............. (20>,==0# ..............Total *&...................................................................................................................................................................................... (56,>0# .............. (56,>0#7etained BarningsA&ontrolling nterest, Fugust 6, 20)6............................................................................................................................... (2,040# (2,040#

0


32/79

&h. 4A:roblems


%ubsidiary %acH &orporation ncome istribution

nternally generated netincome.................................. $2/,/00

20)6 amorti1ation ofdeferred gain on 20)sale of trucH.......................... (C2%# 6,000

FdGusted income......................... $6,/00*& share................................... " 20+*&............................................. $ ,60

:arent :arcel &orporation ncome istribution20)6 deferred gain on nternally generated net

sale of eLuipment............ (C:# $6,000 income.................................. $26=,25020)6 amorti1ation of the

deferred gain........................ (C2:# ,600/0+ " %acH adGusted

income of $6,/00................ 25,440

&ontrolling interest..................... $20>,==0

Bliminations and FdGustmentsI(&D# Bliminate the entry recording the parentNs share of the subsidiary net income.(&D2# Bliminate the parentNs share of %acHNs dividends declared.(BJ# Bliminate the investment in %acH and the parentNs share (/0+# of the subsidiary eLuity

balances.(C%# Bliminate the prior3year intercompany gain ($4,000 8 $5,000 Q $=,000# less the $6,000

reali1ed gain. FdGust the asset and the accumulated depreciation.(C2%# FdGust current3year depreciation epense and accumulated depreciation for the

intercompany trucH sale effect ($=,000 6 Q $6,000#.(C:# Bliminate the current3period intercompany gain on the sale of the eLuipment and re3

establish its net booH value by reducing the account by $6,000.(C2:# FdGust current3year depreciation epense and accumulated depreciation for the

intercompany sale of eLuipment effect ($6,000 0 Q $,600#.


33/79

&h. 4A:roblems

PROBLEM 4-7

C'#&% P&"%! NCII#$( P"$ &+

&+ A%&)$) S/(+ &$" &+ 80 20

&ompany fair value;.......................................... $550,000 $440,000 $0,000Cair value of net assets ecluding goodwill....... 650,000 ;; 2/0,000 >0,000'oodwill............................................................ $200,000 $0,000 $ 40,000

;$440,000!/0+;;$22,000 $00,000 $6/,000

D!"#$%&!$'% &%( D$)!"$*+!$'% ', E)) S/(+

C'#&% P&"%! NCII#$( P"$ &+

&$" &+ 80 20

:rice paid for investment............. $550,000 $440,000 $0,000Jess booH value of interest acLuiredI

&ommon stocH...................... $ 0,000:aid3in capital in ecess of par =0,0007etained earnings................. 2,000

Total eLuity...................... $22,000 $22,000 $22,000nterest acLuired.................... /0+ 20+

9ooH value of interest.................. $=,00 $ 42,400Bcess of cost over booH value... $66/,000 $2>0,400 $ >,00

A(+)!#%! ', $(%!$,$&* &'+%!):'";)/! A#'"!$-

A(+)!#%!


34/79

&h. 4A:roblems

:roblem 43>, &ontinued

A#'"!$=&!$'% S/(+

A'+%! &(+)!#%!) A%%+& C+""%! P"$'" !' * '"!$=( L$, A#'+%! >&" >&") T'!& ,00 >,00 >,00 5,200 F2Total amorti1ations $2,00 $2,00 $2,00 $25,200

I%!"'#&% I%?%!'" P"',$! D,""&

P&"%! P&"%! P&"%! S+* S+* S+* A#'+%! P"',$! A#'+%! P"',$!9eginning A 0+ A $2,000 25+ $6,000Bnding A 0+ A /,000 60+ 5,400

I%!"'#&% $( A))! P"',$! D,""&P&"%! S+*

@riginal profit............................................... $20,000 ADear of sale................................................. 2 A7eali1ed in prior years................................ A A9alance, start of year.................................. 20,000 A7eali1ed in current year.............................. 4,000 A

%ubsidiary %andra &ompany ncome istribution

Enreali1ed profit in ending nternally generated netinventory.............................. $ 5,400 income................................. $20,000

Fmorti1ations............................. 2,00 7eali1ed profit in beginninginventory.............................. 6,000

FdGusted income........................ $ 5,000*& share.................................. 20+*&............................................ $4,000


BLuipment gain.......................... $20,000 nternally generated netincome................................. $5,000

/0+ of %andra adGusted incomeof $5,000.............................. 4,000

7eali1ed gain on eLuipment. .. .. . 4,000

&ontrolling interest..................... $56,000


35/79

&h. 4A:roblems

:roblem 43>, &ontinued

(2# :olHa &ompany and %ubsidiary %andra &ompany&onsolidated ncome %tatement



:olHa %andra r. &r. %tatement *& Barnings %heet&ash................................................................. 24,000 62,000 ................ ................ ................ ................ ................ 5,000

Fccounts 7eceivable....................................... =0,000 45,000 ................ (F# 20,000 ................ ................ ................ 5,000nventory.......................................................... 20,000 5,000 ................ (B# 5,400 ................ ................ ................ >0,00Jand................................................................. 00,000 0,000 ................ ................ ................ ................ ................ 0,000nvestment in %andra....................................... 4>2,000 ........ ........ ................ (&D# ,000 ........ ........ ............... . ........ ........ ............ ....

................ ................ (&D2# /,000 ................ ................ ................ ................ ................

................ ................ ................ (BJ# =6,00 ................ ................ ................ ................

................ ................ ................ (# 2>0,400 ................ ................ ................ ................9uildings.......................................................... /00,000 200,000 (# 00,000 ................ ................ ................ ................ ,00,000

Fccumulated epreciation............................... (220,000# (5,000# ................ (F# 0,000 ................ ................ ................ (2=5,000#BLuipment........................................................ 50,000 >2,000 (2# 6/,000 (C# 20,000 ................ ................ ................ 240,000

Fccumulated epreciation............................... (=0,000# (4,000# ................ (F2# 5,200 ................ ................ ................ ................................ ................ (C2# 4,000 ................ ................ ................ ................ (4>,200#

'oodwill.................................................. ......... ............... . ........ ........ (6# 200,000 ............... . ........ ........ ............... . ........ ........ 200,000Fccounts :ayable............................................ (0,000# (02,000# (F# 20,000 ................ ................ ................ ................ (42,000#9onds :ayable................................................. ............ (00,000# ................ ................ ................ ................ ................ (00,000#&ommon %tocHA%andra................................. ............ (0,000# (BJ# /,000 ................ ................ (2,000# ................ ................:aid3n &apital in Bcess of :arA%andra....... ............ (=0,000# (BJ# >2,000 ................ ................ (/,000# ................ ................7etained BarningsA%andra............................ ............ (42,000# (BJ# 6,00 (* >,00 ................ ................ ................ ................

................ ................ (9# 00 ................ ................ ................ ................ ................

................ ................ ................ ................ ................ (=2,//0# ................ ................

................ ................ (F32# 2,520 ................ ................ ................ ................ ................&ommon %tocHA:olHa.................................... (00,000# ................ ................ ................ ................ ................ ................ (00,000#:aid3n &apital in Bcess of :arA:olHa......... (/00,000# ................ ................ ................ ................ ................ ................ (/00,000#7etained BarningsA:olHa................ ............. . (625,000# ........ ........ (F32# 0,0/0 ............... . ........ ........ ............... . ........ ........ ............ ....

................ ................ (9# 2,400 ................ ................ ................ ................ ................

................ ................ ................ ................ ................ ................ (62,520# ................%ales...................................................... .......... (/00,000# (650,000# (%# >5,000 ............... . (,0>5,000# ............... . ........ ........ ............ ....

&ost of 'oods %old ......................................... 450,000 20/,500 ................ (%# >5,000 ................ ................ ................ ................................ ................ (B# 5,400 (9# 6,000 5/5,=00 ................ ................ ................

epreciation BpenseA9uildings................... 60,000 >,500 (F# 5,000 ................ 42,500 ................ ................ ................epreciation BpenseABLuipment................. 5,000 /,000 (F2# >,00 ................ ................ ................ ................ ................

................ ................ ................ (C2# 4,000 2,00 ................ ................ ................@ther Bpenses .............................................. 0,000 =/,000 ................ ................ 25/,000 ................ ................ ................nterest Bpense ............................................. ................ /,000 ................ ................ /,000 ................ ................ ................'ain on %ale of Cied Fsset............................ (20,000# ................ (C# 20,000 ................ ................ ................ ................ ................%ubsidiary ncome .......................... ............. ... (,000# ........ ........ (&D# ,000 ............... . ........ ........ ............... . ........ ........ ............ ....ividends eclaredA%andra ......................... ................ 0,000 ................ (&D2# /,000 ................ 2,000 ................ ................ividends eclaredA:olHa... .. .. .. .. .. .. .. .. .. .. .. .. .. 20,000 ... .. .. .. .. .. .. . ................ ................ ................ ................ 20,000 ................

0 0 >0/,200 >0/,200 ... .. .. .. .. .. .. . . .. .. .. .. .. .. .. . . .. .. .. .. .. .. .. . . .. .. .. .. .. .. .. .&onsolidated *et ncome....................................................................................................................................................... (54,000# ................ ................ ................To *& (see distribution schedule#......................................................................................................................................... ,000 (,000# ................ ................


36/79

&h. 4A:roblems

To &ontrolling nterest (see distribution schedule#................................................................................................................. 56,000 ................ (56,000# ................Total *&......................................................................................................................................................................................................... (,//0# ................ (,//0#7etained BarningsA&ontrolling nterest, ecember 6, 20)2.............................................................................................................................................. (445,520# (445,520#

0


37/79

&h. 4A:roblems

:roblem 43>, &oncluded


(#!(* istribute ecess and *& adGustment.(F# Fmorti1e ecess.(%# Bliminate intercompany sales during current period.(F# Bliminate intercompany unpaid trade accounts.(9# efer beginning inventory profit.(B# efer ending inventory profit.(C# Cied asset profit at beginning of year.(C2# Cied asset profit reali1ed.


38/79

&h. 4A:roblems

PROBLEM 4-8

C'#&% P&"%! NCII#$( P"$ &+

&+ A%&)$) S/(+ &$" &+ 80 20

&ompany fair value;.......................................... $550,000 $440,000 $0,000

Cair value of net assets ecluding goodwill....... 650,000 ;; 2/0,000 >0,000'oodwill............................................................ $200,000 $0,000 $ 40,000

;$440,000!/0+;;$22,000 $00,000 $6/,000

D!"#$%&!$'% &%( D$)!"$*+!$'% ', E)) S/(+

C'#&% P&"%! NCII#$( P"$ &+

&$" &+ 80 20

:rice paid for investment............. $550,000 $440,000 $0,000Jess booH value of interest acLuiredI

&ommon stocH...................... $ 0,000:aid3in capital in ecess of par =0,0007etained earnings................. 2,000

Total eLuity...................... $22,000 $22,000 $22,000nterest acLuired.................... /0+ 20+

9ooH value of interest.................. $=,00 $ 42,400Bcess of cost over booH value... $66/,000 $2>0,400 $ >,00

A(+)!#%! ', $(%!$,$&* &'+%!):'";)/! A#'"!$-

A(+)!#%!


39/79

&h. 4A:roblems

:roblem 43/, &ontinued

A#'"!$=&!$'% S/(+

A'+%! &(+)!#%!) A%%+& C+""%! P"$'" !' * '"!$=( L$, A#'+%! >&" >&") T'!& ,00 >,00 >,00 5,200 F2Total amorti1ations $2,00 $2,00 $2,00 $25,200

I%!"'#&% I%?%!'" P"',$! D,""&

P&"%! P&"%! P&"%! S+* S+* S+* A#'+%! P"',$! A#'+%! P"',$!9eginning $20,000 60+ $,000 A 0+ ABnding 25,000 60+ >,500 A 0+ A

I%!"'#&% $( A))! P"',$! D,""&P&"%! S+*

@riginal profit............................................... A $60,000

Dear of sale7eali1ed in prior years................................ A 5,0009alance, start of year.................................. A $25,0007eali1ed in current year.............................. A $ 5,000


Fmorti1ations................................. $2,00 nternally generated netincome..................................... $20,000

7eali1ed gain on eLuipment.. .... ... . 5,000

FdGusted income............................ $2,400*& share...................................... 20+*&................................................ $ 2,4/0

:arent :olHa &ompany ncome istribution

Enreali1ed profit in ending nternally generated netinventory.................................. $ >,500 income..................................... $5,000

/0+ of %andra adGusted incomeof $2,400................................ =,=20

7eali1ed profit in beginninginventory.................................. ,000

&ontrolling interest......................... $>6,420,00


40/79

&h. 4A:roblems

:roblem 43/, &ontinued

(2# :olHa &ompany and %ubsidiary %andra &ompany&onsolidated ncome %tatement



:olHa %andra r. &r. %tatement *& Barnings %heet&ash................................................................. 24,000 62,000 ................ ................ ................ ................ ................ 5,000

Fccounts 7eceivable....................................... =0,000 45,000 ................ (F# 5,000 ................ ................ ................ 20,000nventory.......................................................... 20,000 5,000 ................ (B# >,500 ................ ................ ................ /,500Jand................................................................. 00,000 0,000 ................ ................ ................ ................ ................ 0,000nvestment in %andra....................................... 4>2,000 ........ ........ ................ (&D# ,000 ........ ........ ............... . ........ ........ ............ ....

................ ................ (&D2# /,000 ................ ................ ................ ................ ................

................ ................ ................ (BJ# =6,00 ................ ................ ................ ................

................ ................ ................ (# 2>0,400 ................ ................ ................ ................9uildings.......................................................... /00,000 200,000 (# 00,000 ................ ................ ................ ................ ,00,000

Fccumulated epreciation............................... (220,000# (5,000# ................ (F# 0,000 ................ ................ ................ (2=5,000#BLuipment........................................................ 50,000 >2,000 (2# 6/,000 (C# 60,000 ................ ................ ................ 260,000

Fccumulated epreciation............................... (=0,000# (4,000# ................ (F2# 5,200 ................ ................ ................ ................................ ................ (C# 5,000 ................ ................ ................ ................ ................................ ................ (C2# 5,000 ................ ................ ................ ................ (4,200#

'oodwill.................................................. ......... ............... . ........ ........ (6# 200,000 ............... . ........ ........ ............... . ........ ........ 200,000Fccounts :ayable............................................ (0,000# (02,000# (F# 5,000 ................ ................ ................ ................ (4>,000#9onds :ayable................................................. ............ (00,000# ................ ................ ................ ................ ................ (00,000#&ommon %tocHA%andra................................. ............ (0,000# (BJ# /,000 ................ ................ (2,000# ................ ................:aid3n &apital in Bcess of :arA%andra....... ............ (=0,000# (BJ# >2,000 ................ ................ (/,000# ................ ................7etained BarningsA%andra............................ ............ (42,000# (BJ# 6,00 (* >,00 ................ ................ ................ ................

................ ................ (C# 5,000 ................ ................ ................ ................ ................

................ ................ ................ ................ ................ (//,4/0# ................ ................

................ ................ (F32# 2,520 ................ ................ ................ ................ ................&ommon %tocHA:olHa.................................... (00,000# ................ ................ ................ ................ ................ ................ (00,000#:aid3n &apital in Bcess of :arA:olHa......... (/00,000# ................ ................ ................ ................ ................ ................ (/00,000#7etained BarningsA:olHa................ ............. . (625,000# ........ ........ (F32# 0,0/0 ............... . ........ ........ ............... . ........ ........ ............ ....

................ ................ (9# ,000 ................ ................ ................ ................ ................

................ ................ (C# 20,000 ................ ................ ................ (2//,=20# ................%ales...................................................... .......... (/00,000# (650,000# (%# 00,000 ............... . (,050,000# ............... . ........ ........ ............ ....&ost of 'oods %old ......................................... 450,000 20/,500 ................ (%# 00,000 ................ ................ ................ ................

................ ................ (B# >,500 (9# ,000 50,000 ................ ................ ................epreciation BpenseA9uildings................... 60,000 >,500 (F# 5,000 ................ 42,500 ................ ................ ................epreciation BpenseABLuipment................. 5,000 /,000 (F2# >,00 ................ ................ ................ ................ ................

................ ................ ................ (C2# 5,000 25,00 ................ ................ ................@ther Bpenses............................................... 0,000 =/,000 ................ ................ 25/,000 ................ ................ ................nterest Bpense ............................................. ................ /,000 ................ ................ /,000 ................ ................ ................'ain on %ale of Cied Fsset............................ (20,000# ................ ................ ................ (20,000# ................ ................ ................%ubsidiary ncome .......................... ............. ... (,000# ........ ........ (&D# ,000 ............... . ........ ........ ............... . ........ ........ ............ ....ividends eclaredA%andra ......................... ................ 0,000 ................ (&D2# /,000 ................ 2,000 ................ ................ividends eclaredA:olHa... .. .. .. .. .. .. .. .. .. .. .. .. .. 20,000 ... .. .. .. .. .. .. . ................ ................ ................ ................ 20,000 ................

0 0 >44,600 >44,600 ... .. .. .. .. .. .. . . .. .. .. .. .. .. .. . . .. .. .. .. .. .. .. . . .. .. .. .. .. .. .. .&onsolidated *et ncome....................................................................................................................................................... (>5,=00# ................ ................ ................To *&

04 fischer10e sm ch04 final

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