Chapter 6

E6-9 Transfer of Depreciable Asset at Beginning of Yeara. Eliminating entry, December 31, 20X5

Truck 55,000 Gain on Sale of Truck 35,000 Depreciation Expense 5,000 Accumulated Depreciation 85,000

Accumulated depreciation adjustment: Required [($300,000 / 10 years) x 4 years] $120,000 Reported [($245,000 / 7 years) x 1 year] (35,000) Required increase $ 85,000

b. Eliminating entry, December 31, 20X6: Truck 55,000 Retained Earnings, January 1 30,000 Depreciation Expense 5,000 Accumulated Depreciation 80,000

Accumulated depreciation adjustment:Required [($300,000 / 10 years) x 5 years] $150,000Reported [($245,000 / 7 years) x 2 years] (70,000Required increase $ 80,000

P6-32 Preparation of Consolidated Balance Sheeta. Consolidated balance sheet workpaper:

Lofton Company and Temple Corporation Consolidated Balance Sheet Workpaper December 31, 20X6 Lofton Temple Eliminations Consol- Item Company Corp. Debit Credit idated Cash and Accounts Receivable 101,000 20,000 121,000Inventory 80,000 40,000 120,000Land 150,000 90,000 (2) 10,000 250,000Buildings and Equipment 400,000 300,000 (3) 9,000 709,000Investment in Temple Corporation Stock 150,000 (1)150,000 Debits 881,000 450,000 1,200,000

Accum. Depreciation 135,000 85,000 (3) 24,000 244,000Accounts Payable 90,000 25,000 115,000Notes Payable 200,000 90,000 290,000Common Stock 100,000 200,000 (1)200,000 100,000Retained Earnings 356,000 50,000 (1) 50,000 (2) 6,000 (3) 15,000 347,000Noncontrolling Interest (1)100,000 (2) 4,000 104,000Credits 881,000 450,000 284,000 284,000 1,200,000

Eliminating entries: E(1) Common Stock__Temple Corporation 200,000 Retained Earnings 50,000 Investment in Temple Corporation Stock 150,000 Noncontrolling Interest 100,000 Eliminate investment account balance.

E(2) Land 10,000 Retained Earnings 6,000 Noncontrolling Interest 4,000 Eliminate unrealized loss on sale of land.

E(3) Buildings and Equipment 9,000 Retained Earnings 15,000 Accumulated Depreciation 24,000 Eliminate unrealized gain on sale of equipment. Accumulated depreciation adjustment: Required [($100,000 / 10 years) x 5 years] $50,000 Recorded [($91,000 / 7 years) x 2 years] (26,000) Required increase $24,000

Gain recorded by Temple Corporation, January 1, 20X5 $21,000 Realized in 20X5 and 20X6 ($3,000 x 2 years) (6,000) Unrealized balance, December 31, 20X6 $15,000

b. Consolidated balance sheet:

Lofton Company and Subsidiary Consolidated Balance Sheet December 31, 20X6

Cash and Accounts Receivable $121,000 Inventory 120,000 Land 250,000 Buildings and Equipment $709,000 Less: Accumulated Depreciation (244,000) 465,000 Total Assets $956,000

Accounts Payable $115,000 Notes Payable 290,000 Noncontrolling Interest 104,000 Common Stock $100,000 Retained Earnings 347,000 447,000

Total Liabilities and Stockholders' Equity $956,000

P6-36 Intercorporate Sale of Land and Depreciable Asset

a. Unamortized purchase differential, January 1, 20X5:

Purchase price $154,500 Common stock outstanding at acquisition $100,000 Retained earnings at acquisition 85,000 Book value of net assets at acquisition $185,000 Proportion of ownership acquired x .70 Net book value acquired (129,500) Purchase differential at acquisition $ 25,000 Amortization of differential: Buildings and equipment [($25,000 x .70) / 10 years] x 2 years (3,500) Copyright ($7,500 / 5 years) x 2 years (3,000) Unamortized purchase differential $ 18,500

b. Reconciliation between book value and investment balance at December 31, 20X5:

Underlying book value of Morris Company stock: Common stock outstanding $100,000 Retained earnings, January 1, 20X5 100,000 Net income for 20X5 30,000 Dividends paid in 20X5 ( 5,000) Net book value $225,000 Proportion of ownership held by Champion x .70 Net book value of ownership held by Champion $157,500 Unamortized purchase differential: Buildings and equipment ($17,500 x 7/10 years) 12,250 Copyright ($7,500 x 2/5 years) 3,000 Investment in Morris Company stock $172,750

c. Eliminating entries:

E(1) Income from Subsidiary 17,750 Dividends Declared 3,500 Investment in Morris Company Stock 14,250 Eliminate income from subsidiary: $17,750 = ($30,000 x .70) - $1,750 - $1,500 $3,500 = $5,000 x .70

E(2) Income to Noncontrolling Interest 6,480 Dividends Declared 1,500 Noncontrolling Interest 4,980 Assign income to noncontrolling interest: $6,480 = ($30,000 - $9,600 + $1,200) x .30 $1,500 = $5,000 x .30

E(3) Common stock__Morris Company 100,000 Retained Earnings, January 1 100,000 Differential 18,500 Investment in Morris Company Stock 158,500 Noncontrolling Interest 60,000 Eliminate beginning investment balance.

E(4) Buildings and Equipment 17,500 Copyright 4,500 Accumulated Depreciation 3,500 Differential 18,500 Assign beginning differential.

E(5) Depreciation Expense 1,750 Amortization Expense 1,500 Accumulated Depreciation 1,750 Copyright 1,500 Amortize differential.

E(6) Retained Earnings 11,000 Land 11,000 Eliminate unrealized gain on land.

E(7) Equipment 8,400 Gain on Sale of Equipment 9,600 Depreciation Expense 1,200 Accumulated Depreciation 16,800 Eliminate intercorporate sale of equipment: $8,400 = $100,000 - $91,600 $9,600 = $91,600 - ($100,000 - $18,000) $1,200 = ($81,600 / 8 years) - ($90,000 / 10 years) $16,800 = ($9,000 x 3 years) - ($10,200 x 1 year)

d. Champion Corporation and Morris CompanyConsolidation Workpaper

December 31, 20X5 Champion Morris Eliminations Consol- Item Corp. Co. Debit Credit idated Sales 450,000 190,400 640,400Other Income 28,250 28,250Gain on Sale of Equipment 9,600 (7) 9,600Income from Subsidiary 17,750 (1) 17,750 Credits 496,000 200,000 668,650Cost of Goods Sold 375,000 110,000 485,000Depreciation Expense 25,000 10,000 (5) 1,750 (7) 1,200 35,550Interest Expense 24,000 33,000 57,000Other Expenses 28,000 17,000 45,000Amortization Expense (5) 1,500 1,500Debits (452,000) (170,000) (624,050) 44,600Income to Noncon- trolling Interest (2) 6,480 (6,480)Net Income, carry forward 44,000 30,000 37,080 1,200 38,120Ret. Earnings, Jan. 1 178,000 100,000 (3)100,000 (6) 11,000 167,000Net Income, from above 44,000 30,000 37,080 1,200 38,120 222,000 130,000 205,120Dividends Declared (30,000) (5,000) (1) 3,500 (2) 1,500 (30,000)Ret. Earnings, Dec. 31, carry forward 192,000 125,000 148,080 6,200 175,120Cash 20,250 58,000 78,250Accounts Receivable 65,000 70,000 135,000Interest and Other Receivables 30,000 10,000 40,000Inventory 150,000 180,000 330,000Land 80,000 60,000 (6) 11,000 129,000Buildings and Equipment 315,000 240,000 (4) 17,500 (7) 8,400 580,900 Bond Discount 15,000 15,000Investment in Morris Company Stock 172,750 (1) 14,250 (3)158,500Differential (3) 18,500 (4) 18,500Copyright (4) 4,500 (5) 1,500 3,000Debits 833,000 633,000 1,311,150Accum. Depreciation Buildings and Equip. 120,000 60,000 (4) 3,500 (5) 1,750 (7) 16,800 202,050Accounts Payable 61,000 28,000 89,000Other Payables 30,000 20,000 50,000Bonds Payable 250,000 300,000 550,000Common Stock Champion Corporation 150,000 150,000 Morris Company 100,000 (3)100,000Additional Paid-In Capital 30,000 30,000Retained Earnings, from above 192,000 125,000 148,080 6,200 175,120Noncontrolling Interest (2) 4,980 (3) 60,000 64,980Credits 833,000 633,000 296,980 296,980 1,311,150

Chapter 7

E7-8 Inventory Transfer between Parent and Subsidiary

a. Karlow Corporation reported cost of goods sold of $820,000 ($82 x 10,000 desks) and Draw Company reported cost of goods sold of $658,000 ($94 x 7,000 desks).

b. Cost of goods sold for the consolidated entity is $574,000 ($82 x 7,000 desks).

c. Eliminating entry:

E(1) Sales 940,000 Cost of Goods Sold 904,000 Inventory 36,000

d. Eliminating entry:

E(1) Retained Earnings, January 1 36,000 Cost of Goods Sold 36,000

e. Eliminating entry:

E(1) Retained Earnings, January 1 21,600 Noncontrolling Interest 14,400

Cost of Goods Sold 36,000

P7-34 Comprehensive Worksheet Problem__Perpetual Inventories

a. Basic equity-method entries for 20X7:

(1) Investment in Sharp Company Stock 32,000 Income from Subsidiary 32,000 Record equity-method income: $40,000 x .80

(2) Cash 20,000 Investment in Sharp Company Stock 20,000 Record dividend from Sharp Company: $25,000 x .80

(3) Income from Subsidiary 4,000 Investment in Sharp Company Stock 4,000 Amortize differential: $40,000 / 10 years

b. Eliminating entries, December 31, 20X7:

E(1) Income from Subsidiary 28,000 Dividends Declared 20,000 Investment in Sharp Company Stock 8,000 Eliminate income from subsidiary: $28,000 = $32,000 - $4,000

E(2) Income to Noncontrolling Interest 7,600 Dividends Declared 5,000 Noncontrolling Interest 2,600 Assign income to noncontrolling interest: $7,600 = ($40,000 + $8,000 - $10,000) x .20

E(3) Common Stock__Sharp Company 100,000 Additional Paid-In Capital 20,000 Retained Earnings, January 1 215,000 Differential 28,000

Investment in Sharp Company Stock 296,000 Noncontrolling Interest 67,000 Eliminate beginning investment balance.

E(4) Buildings and Equipment 40,000 Depreciation Expense 4,000 Accumulated Depreciation 16,000 Differential 28,000 Assign differential: $16,000 = ($40,000 / 10 years) x 4 years

E(5) Retained Earnings, January 1 6,400 Noncontrolling Interest 1,600 Cost of Goods Sold 8,000 Eliminate beginning inventory profit of Sharp Company.

E(6) Retained Earnings, January 1 2,000 Cost of Goods Sold 2,000 Eliminate beginning inventory profit of Randall Corporation.

E(7) Sales 45,000 Cost of Goods Sold 35,000 Inventory 10,000 Eliminate intercompany sale of inventory by Sharp Company.

E(8) Sales 12,000 Cost of Goods Sold 9,000 Inventory 3,000 Eliminate intercompany sale of inventory by Randall Corporation.

E(9) Buildings and Equipment 25,000 Retained Earnings, January 1 17,500 Depreciation Expense 2,500 Accumulated Depreciation 40,000 Eliminate intercorporate sale of equipment. Depreciation expense adjustment: Depreciation recorded ($50,000 / 8 years) $ 6,250 Depreciation required ($75,000 / 20 years) (3,750) Required decrease $ 2,500

Accumulated depreciation adjustment: Required balance ($3,750 x 14 years) $52,500 Balance recorded ($6,250 x 2 years) (12,500) Required increase $40,000

E(10) Accounts Payable 10,000 Accounts Receivable 10,000 Eliminate intercorporate receivable/payable.

c. Randall Corporation and Sharp Company Consolidation Workpaper December 31, 20X7 Randall Sharp Eliminations Consol- Item Corp. Co. Debit Credit idated Sales 500,000 250,000 (7) 45,000 (8) 12,000 693,000Other Income 20,400 30,000 50,400Income from Subsidiary 28,000 (1) 28,000 Credits 548,400 280,000 743,400Cost of Goods Sold 416,000 202,000 (5) 8,000 (6) 2,000 (7) 35,000 (8) 9,000 564,000Deprec. and Amortization 30,000 20,000 (4) 4,000 (9) 2,500 51,500Other Expenses 24,000 18,000 42,000Debits (470,000)(240,000) (657,500) 85,900Income to Noncon- trolling Interest (2) 7,600 (7,600)Net Income, carry forward 78,400 40,000 96,600 56,500 78,300Ret. Earnings, Jan. 1 345,900 215,000 (3)215,000 (5) 6,400 (6) 2,000 (9) 17,500 320,000Net Income, from above 78,400 40,000 96,600 56,500 78,300 424,300 255,000 398,300Dividends Declared (50,000) (25,000) (1) 20,000 (2) 5,000 (50,000)Ret. Earnings, Dec. 31, carry forward 374,300 230,000 337,500 81,500 348,300Cash 130,300 10,000 140,300Accounts Receivable 80,000 70,000 (10) 10,000 140,000Inventory 170,000 110,000 (7) 10,000 (8) 3,000 267,000Buildings and Equipment 600,000 400,000 (4) 40,000 (9) 25,000 1,065,000Investment in Sharp Company Stock 304,000 (1) 8,000 (3)296,000Differential (3) 28,000 (4) 28,000 Debits 1,284,300 590,000 1,612,300

Accum. Depreciation 310,000 120,000 (4) 16,000 (9) 40,000 486,000Accounts Payable 100,000 15,200 (10)10,000 105,200Bonds Payable 300,000 100,000 400,000Bond Premium 4,800 4,800Common Stock 200,000 100,000 (3)100,000 200,000Additional Paid-In Capital 20,000 (3) 20,000Retained Earnings, from above 374,300 230,000 337,500 81,500 348,300Noncontrolling Interest (5) 1,600 (2) 2,600 (3) 67,000 68,000Credits 1,284,300 590,000 562,100 562,100 1,612,300

d. Randall Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X7

Cash $ 140,300Accounts Receivable 140,000Inventory 267,000Total Current Assets $ 547,300Buildings and Equipment $1,065,000Less: Accumulated Depreciation (486,000) 579,000Total Assets $1,126,300

Accounts Payable $ 105,200Bonds Payable $400,000 Bond Premium 4,800 404,800Noncontrolling Interest 68,000Common Stock $200,000 Retained Earnings 348,300 548,300Total Liabilities and Stockholders' Equity $1,126,300

Randall Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X7

Sales $693,000Other Income 50,400 $743,400Cost of Goods Sold $564,000Depreciation and Amortization Expense 51,500Other Expenses 42,000 657,500 $ 85,900Noncontrolling Interest (7,600)Consolidated Net Income $ 78,300

Randall Corporation and Subsidiary Consolidated Statement of Retained Earnings Year Ended December 31, 20X7

Retained Earnings, January 1, 20X7 $320,000Consolidated Net Income 78,300 $398,300Less: Dividends Paid in 20X7 (50,000)

Retained Earnings, December 31, 20X7 $348,300

P7-36A Fully Adjusted Equity Method

a. Adjusted trial balance: Randall Corporation Sharp Company Item Debit Credit Debit Credit Cash $ 130,300 $ 10,000Accounts Receivable 80,000 70,000Inventory 170,000 110,000Buildings and Equipment 600,000 400,000Investment in Sharp Company Stock 278,000Cost of Goods Sold 416,000 202,000Depreciation and Amortization 30,000 20,000Other Expenses 24,000 18,000Dividends Declared 50,000 25,000Accumulated Depreciation $ 310,000 $120,000Accounts Payable 100,000 15,200Bonds Payable 300,000 100,000Bond Premium 4,800Common Stock 200,000 100,000Additional Paid-In Capital 20,000Retained Earnings 320,000 215,000Sales 500,000 250,000Other Income 20,400 30,000Income from Subsidiary 27,900 $1,778,300 $1,778,300 $855,000 $855,000

b. Fully adjusted equity-method entries for 20X7: (1) Investment in Sharp Company Stock 32,000 Income from Subsidiary 32,000 Record equity-method income: $40,000 x .80 (2) Cash 20,000 Investment in Sharp Company Stock 20,000 Record dividends from Sharp Company:$25,000 x .80

(3) Income from Subsidiary 4,000 Investment in Sharp Company Stock 4,000 Amortize purchase differential: $40,000 / 10 years

(4) Investment in Sharp Company Stock 6,400 Income from Subsidiary 6,400 Recognize deferred profit on upstream sale of inventory: $8,000 x .80

(5) Investment in Sharp Company Stock 2,000 Income from Subsidiary 2,000 Recognize deferred profit on downstream sale of inventory.

(6) Income from Subsidiary 8,000 Investment in Sharp Company Stock 8,000 Remove unrealized profit on upstream sale of inventory: $10,000 x .80

(7) Income from Subsidiary 3,000 Investment in Sharp Company Stock 3,000 Remove unrealized profit on downstream sale of inventory. (8) Investment in Sharp Company Stock 2,500 Income from Subsidiary 2,500 Recognize portion of gain on sale of equipment: $20,000 / 8 years

c. Eliminating entries, December 31, 20X7: E(1) Income from Subsidiary 27,900 Dividends Declared 20,000 Investment in Sharp Company Stock 7,900 Eliminate income from subsidiary. E(2) Income to Noncontrolling Interest 7,600 Dividends Declared 5,000 Noncontrolling Interest 2,600 Assign income to noncontrolling interest: $7,600 = ($40,000 + $8,000 - $10,000) x .20 E(3) Common Stock__Sharp Company 100,000 Additional Paid-In Capital 20,000 Retained Earnings, January 1 215,000 Differential 28,000 Investment in Sharp Company Stock 296,000 Noncontrolling Interest 67,000 Eliminate beginning investment balance. E(4) Buildings and Equipment 40,000 Depreciation Expense 4,000 Accumulated Depreciation 16,000 Differential 28,000 Assign differential:$16,000 = ($40,000 / 10 years) x 4 years E(5) Investment in Sharp Company Stock 6,400 Noncontrolling Interest 1,600 Cost of Goods Sold 8,000 Eliminate beginning inventory profit of Sharp Company.

E(6) Investment in Sharp Company Stock 2,000 Cost of Goods Sold 2,000 Eliminate beginning inventory profit of Randall Corporation. E(7) Sales 45,000 Cost of Goods Sold 35,000 Inventory 10,000 Eliminate intercompany sale of inventory by Sharp Company.

E(8) Sales 12,000 Cost of Goods Sold 9,000 Inventory 3,000 Eliminate intercompany sale of inventory by Randall Corporation.

E(9) Buildings and Equipment 25,000 Investment in Sharp Company Stock 17,500 Depreciation Expense 2,500 Accumulated Depreciation 40,000 Eliminate intercorporate sale of equipment.

Depreciation expense adjustment: Depreciation recorded ($50,000 / 8 years) $6,250 Depreciation required ($75,000 / 20 years) (3,750) Required decrease $2,500

Accumulated depreciation adjustment: Required balance ($3,750 x 14 years) $52,500 Balance recorded ($6,250 x 2 years) (12,500) Required increase $40,000 E(10) Accounts Payable 10,000 Accounts Receivable 10,000 Eliminate intercorporate receivables.

d. Randall Corporation and Sharp CompanyConsolidation Workpaper

December 31, 20X7 Randall Sharp Eliminations Consol- Item Corp. Co. Debit Credit idated

Sales 500,000 250,000 (7) 45,000 (8) 12,000 693,000Other Income 20,400 30,000 50,400Income from Subsidiary 27,900 (1) 27,900 Credits 548,300 280,000 743,400Cost of Goods Sold 416,000 202,000 (5) 8,000 (6) 2,000 (7) 35,000 (8) 9,000 564,000Deprec. & Amortization 30,000 20,000 (4) 4,000 (9) 2,500 51,500Other Expenses 24,000 18,000 42,000Debits (470,000)(240,000) (657,500) 85,900Income to Noncon- trolling Interest (2) 7,600 (7,600)Net Income, carry forward 78,300 40,000 96,500 56,500 78,300

Ret. Earnings, Jan. 1 320,000 215,000 (3)215,000 320,000Net Income, from above 78,300 40,000 96,500 56,500 78,300 398,300 255,000 398,300Dividends Declared (50,000) (25,000) (1) 20,000 (2) 5,000 (50,000)Ret. Earnings, Dec. 31, carry forward 348,300 230,000 311,500 81,500 348,300

Cash 130,300 10,000 140,300Accounts Receivable 80,000 70,000 (10) 10,000 140,000Inventory 170,000 110,000 (7) 10,000 (8) 3,000 267,000Buildings and Equipment 600,000 400,000 (4) 40,000 (9) 25,000 1,065,000Investment in Sharp Company Stock 278,000 (5) 6,400 (1) 7,900 (6) 2,000 (3)296,000 (9) 17,500Differential (3) 28,000 (4) 28,000 Debits 1,258,300 590,000 1,612,300

Accum. Depreciation 310,000 120,000 (4) 16,000 (9) 40,000 486,000Accounts Payable 100,000 15,200 (10)10,000 105,200Bonds Payable 300,000 100,000 400,000Bond Premium 4,800 4,800Common Stock 200,000 100,000 (3)100,000 200,000Additional Paid-In Capital 20,000 (3) 20,000Retained Earnings, from above 348,300 230,000 311,500 81,500 348,300Noncontrolling Interest (5) 1,600 (2) 2,600 (3) 67,000 68,000Credits 1,258,300 590,000 562,000 562,000 1,612,300

Chapter 9E9-10 Reciprocal Ownership

Treasury stock method: Operating income of Grower Supply Corporation $112,000 Operating income of Schultz Company 50,000 $162,000 Less: Income assigned to noncontrolling interest .15[$50,000 + .30($70,000)] (10,650) Consolidated net income $151,350

Entity approach: [GS = Grower Supply net income and SC = Schultz net income] Basic equations GS = $112,000 + .85 SC SC = $50,000 + .30 GS

Solution by substitution GS = $112,000 + .85($50,000 + .30 GS) GS = $112,000 + $42,500 + .255 GS GS = $154,500 + .255 GS .745 GS = $154,500 GS = $207,383

and SC = $50,000 + .30($207,383) SC = $50,000 + $62,215 SC = $112,215

Consolidated net income = $207,383 x .70 = $145,168

Income to noncontrolling interest = $112,215 x .15 = $16,832

P9-24 Sale of Subsidiary Shares

a. Eliminating entries: E(1) Gain on Sale of ENC Company Stock 10,000 Additional Paid-In Capital 10,000 Eliminate gain on sale of ENC shares: $60,000 - ($250,000 x .20)

E(2) Income from Subsidiary 18,000 Dividends Declared 6,000 Investment in ENC Company Stock 12,000 Eliminate income from subsidiary: $18,000 = .60($170,000 - $140,000)

E(3) Income to Noncontrolling Interest 12,000 Dividends Declared 4,000 Noncontrolling Interest 8,000 Assign income to noncontrolling interest: $12,000 = .40($170,000 - $140,000)

E(4) Common Stock__ENC Company 100,000 Additional Paid-In Capital 20,000 Retained Earnings, January 1 130,000 Investment in ENC Company Stock 150,000 Noncontrolling Interest 100,000 Eliminate investment in common stock.

b. Penn Corporation and ENC Company Consolidation Workpaper December 31, 20X4 Penn ENC Eliminations Consol- Item Corp. Company Debit Credit idated Sales 280,000 170,000 450,000Gain on Sale of ENC Company Stock 10,000 (1) 10,000Income from Subsidiary 18,000 (2) 18,000 Credits 308,000 170,000 450,000Cost of Goods Sold 210,000 100,000 310,000Depreciation Expense 20,000 15,000 35,000Other Expenses 21,000 25,000 46,000Debits (251,000)(140,000) (391,000) 59,000Income to Noncon- trolling Interest (3) 12,000 (12,000)Net Income, carry forward 57,000 30,000 40,000 47,000

Retained Earnings, January 1 320,000 130,000 (4)130,000 320,000Net Income, from above 57,000 30,000 40,000 47,000 377,000 160,000 367,000Dividends Declared (15,000) (10,000) (2) 6,000 (3) 4,000 (15,000)Ret. Earnings, Dec. 31, carry forward 362,000 150,000 170,000 10,000 352,000

Cash 30,000 35,000 65,000Accounts Receivable 70,000 50,000 120,000Inventory 120,000 100,000 220,000Buildings and Equipment 650,000 230,000 880,000Investment in ENC Company Stock 162,000 (2) 12,000 (4)150,000 Debits 1,032,000 415,000 1,285,000

Accum. Depreciation 170,000 95,000 265,000Accounts Payable 50,000 20,000 70,000Bonds Payable 200,000 30,000 230,000Common Stock 200,000 100,000 (4)100,000 200,000Additional Paid-In Capital 50,000 20,000 (4) 20,000 (1) 10,000 60,000Retained Earnings, from above 362,000 150,000 170,000 10,000 352,000Noncontrolling Interest (3) 8,000 (4)100,000 108,000

Credits 1,032,000 415,000 290,000 290,000 1,285,000

P9-18 Multilevel Ownership with Purchase Differential

a. Journal entries recorded by Corn Corporation on its investment in Bark Company:

(1) Investment in Bark Company Stock 405,000 Cash 405,000 Record purchase of Bark Company stock.

(2) Investment in Bark Company Stock 21,000 Income from Bark Company 21,000 Record equity-method income: $30,000 x .70

(3) Cash 14,000 Investment in Bark Company Stock 14,000 Record dividends from Bark Company: $20,000 x .70

(4) Income from Bark Company 2,000 Investment in Bark Company Stock 2,000 Amortize differential related to buildings and equipment: $20,000/10 years

b. Journal entries recorded by Purple Corporation on its investment in Corn Corporation:

(1) Investment in Corn Corporation Stock 63,200 Income from Corn Corporation 63,200 Record equity-method income:($60,000 + $19,000) x .80

(2) Cash 20,000 Investment in Corn Corporation Stock 20,000 Record dividends from Corn Corporation: $25,000 x .80

(3) Income from Corn Corporation 8,000 Investment in Corn Corporation Stock 8,000 Amortize differential related to trademark: $40,000 / 5 years

c. Eliminating entries:

E(1) Income from Bark Company 19,000 Dividends Declared 14,000 Investment in Bark Company Stock 5,000 Eliminate income from Bark Company.

E(2) Income to Noncontrolling Interest 9,000 Dividends Declared 6,000 Noncontrolling Interest 3,000 Assign income to noncontrolling shareholders of Bark Company: $9,000 = $30,000 x .30 $6,000 = $20,000 x .30 $3,000 = $9,000 - $6,000

E(3) Common Stock__Bark Company 250,000 Retained Earnings, January 1 300,000 Differential 20,000 Investment in Bark Company Stock 405,000 Noncontrolling Interest 165,000 Eliminate investment in Bark Company stock: $20,000 = $405,000 - ($550,000 x .70) $405,000 = Purchase price $165,000 = $550,000 x .30

E(4) Buildings and Equipment 20,000 Differential 20,000 Assign beginning differential.

E(5) Depreciation Expense 2,000 Accumulated Depreciation 2,000 Amortize differential related to buildings and equipment: $20,000/10 years

E(6) Income from Corn Corporation 55,200 Dividends Declared 20,000 Investment in Corn Corporation Stock 35,200 Eliminate income from Corn Corporation.

E(7) Income to Noncontrolling Interest 15,800 Dividends Declared 5,000 Noncontrolling Interest 10,800 Assign income to noncontrolling shareholders of Corn Corporation: $15,800 = ($60,000 + $19,000) x .20 $5,000 = $25,000 x .20 $10,800 = $15,800 - $5,000

E(8) Common Stock__Corn Corporation 400,000 Retained Earnings, January 1 270,000 Differential 24,000 Investment in Corn Corporation Stock 560,000 Noncontrolling Interest 134,000 Eliminate investment in Corn Corporation stock: $270,000 = $200,000 + $35,000 + $35,000 $24,000 = $40,000 - $8,000 - $8,000 $560,000 = $520,000 + [($60,000 - $25,000)x .80 - $8,000] x 2 years $134,000 = ($400,000 + $270,000) x .20

E(9) Trademark 24,000 Differential 24,000 Assign beginning differential: $40,000 - ($8,000 x 2 years)

E(10) Amortization Expense 8,000 Trademark 8,000 Amortize differential related to trademark: $40,000 / 5 years