To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter Test Bank CONSOLIDATIONS - CHANGES IN OWNERSHIP INTERESTS Multiple Choice Questions LO1 Which of the following is correct? The direct sale additional shares to the parent company from a subsidiary a decreases the parent’s interest and decreases noncontrolling shareholders’ interest b decreases the parent’s interest and increases noncontrolling shareholders’ interest c increases the parent’s interest and increases noncontrolling shareholders’ interest d increases the parent’s interest and decreases noncontrolling shareholders’ interest of the the the the Use the following information in answering questions and On December 31, 2006, Giant-Petrel Corporation’s Investment in Penguin Corporation account had a balance of $525,000 The balance consisted of 80% of Penguin’s $600,000 stockholders’ equity on that date and $45,000 of goodwill On January 2, 2007, Penguin increased its outstanding common stock from 15,000 to 18,000 shares LO1 Assume that Penguin sold the additional 3,000 shares directly to Giant-Petrel for $150,000 on January 2, 2007 Giant-Petrel’s percentage ownership in Penguin immediately after the purchase of the additional stock is a b c d 66-2/3% 80% 83-1/3% 86-2/3% ©2009 Pearson Education, Inc publishing as Prentice Hall 8-1 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 Assume that Penguin sold the additional 3,000 shares to outside interests for $150,000 on January 2, 2007 Giant-Petrel’s percentage ownership immediately after the sale of stock would be a b c d 66-2/3% 75% 80% 83-1/3% Use the following information in answering questions and Bristlebird Corporation purchased an 80% interest in Underbrush Corporation on July 1, 2005 at its book value, and on January 1, 2006 its Investment in Underbrush account was $300,000, equal to its book value Underbrush’s net income for 2006 was $99,000; no dividends were declared On March 1, 2006, Bristlebird reduced its interest in Underbrush by selling a 20% interest, one-fourth of its investment, for $84,000 LO1 If Bristlebird uses a “beginning-of-the-year” sale assumption, its gain on sale and income from Underbrush for 2006 will be a b c d LO1 Gain on Sale $5,700 $5,700 $9,000 $9,000 Income from Underbrush $59,400 $62,700 $59,400 $62,700 If Bristlebird uses the “actual-sale-date” sales assumption, its gain on the sale and income from Underbrush for 2006 will be: a b c d Gain on Sale $21,360 $21,360 $26,640 $26,640 Income from Underbrush $59,400 $62,700 $59,400 $62,700 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-2 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 On January 1, 2006, Finch Corporation owned a 90% interest in Nest Corporation at which time the Investment in Nest account had a balance of $350,000, which was 90% of Nest’s $370,000 in stockholders’ equity and $17,000 of goodwill During 2006, Nest had income of $35,000 and paid dividends of $3,000 on June and another $3,000 on November On May 1, 2006, Finch sold one-fifth of its interest in Nest for $92,000 If the “beginning-of-the-period” sales assumption is used, the balance in the Investment in Nest account on December 31, 2006 is a b c d LO1 $300,300 $300,880 $304,480 $306,100 On January 1, 2006, Finch Corporation owned a 90% interest in Nest Corporation at which time the Investment in Nest account had a balance of $350,000, which was 90% of Nest’s $370,000 in stockholders’ equity and $17,000 of goodwill During 2006, Nest had income of $35,000 and paid dividends of $3,000 on June and another $3,000 on November What would be the balance in the Investment in Nest account on December 31, 2006 if Finch sold one-ninth of its interest in Nest on May 1, 2006 for $47,000 and the “beginning-of-the-period” sales assumption is used? a b c d $333,333 $334,311 $336,333 $336,711 Use the following information for questions and Button-quail Corporation owned a 70% interest in Savannah Corporation on December 31, 2006, and Button-quail’s Investment in Savannah account had a balance of $3,900,000 Savannah’s stockholders’ equity on this date was as follows: Capital stock, $10 par value Retained Earnings Total Stockholders’ Equity $ $ 3,000,000 2,400,000 5,400,000 On January 1, 2007, Savannah issues 80,000 new shares of common stock to Button-quail for $16 each ©2009 Pearson Education, Inc publishing as Prentice Hall 8-3 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 What is Button-quail’s percentage ownership in Savannah after Savannah issues its stock to Button-quail? a b c d LO1 76.32% 80.43% 82.57% 83.43% Assuming that Savannah has no fixed assets, what is the amount of goodwill associated with the issuance of shares to Buttonquail? a b c d $38,176 $40,232 $41,302 $41,732 Use the following information for questions 10, and 11 Great Frigatebird Corporation acquired a 90% interest in Slipstream Corporation at its $810,000 book value on December 31, 2005 A summary of the stockholders’ equity for Slipstream at the end of 2005 and 2006 is as follows: 12/31/05 12/31/06 Capital stock, $10 par $ 600,000 $ 600,000 Additional paid-in capital 30,000 30,000 Retained Earnings 270,000 420,000 Total stockholders’ equity $ 900,000 $ 1,050,000 On January 1, 2007, Slipstream sold 10,000 new shares of its $10 par value common stock for $45 per share LO1 10 If Slipstream sold the additional shares to the general public, Great Frigatebird’s Investment in Slipstream account after the sale would be a b c d $945,000 $1,157,100 $1,225,000 $1,245,000 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-4 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 11 If Slipstream sold the additional shares directly to Great Frigatebird, Great Frigatebird’s Investment in Slipstream account after the sale would be a b c d LO2 12 $1,350,000 $1,395,000 $1,425,000 $1,500,000 Which of the following is correct about the treatment of preacquisition earnings on consolidated financial statements? I Exclude the subsidiary sales and expenses acquisition from consolidated sales and expenses prior to II Include the subsidiary sales and expenses prior to acquisition and deduct preacquisition income as a separate item a b c d LO1 13 I only II only I or II Neither I nor II If a parent company and outside investors purchase shares of a subsidiary in relation to existing stock ownership (ratably) a there will be no adjustment to additional paid-in capital regardless whether the stock is sold above or below book value b the transaction will requirement an investment account adjustment c the transaction will require the elimination of a gain if it was conducted at economic arm's length d the transaction will require the elimination of a loss if it was conducted at economic arm's length ©2009 Pearson Education, Inc publishing as Prentice Hall 8-5 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO2 14 Heron Corporation acquired 40% of WatersEdge Inc.’s common stock for $400,000 book value on January 1, 2006 when WatersEdge equity consisted of $500,000 capital stock and $500,000 retained earnings On September 1, 2006 Heron bought an additional 30% interest in WatersEdge for $210,000 In both cases, Watersedge book value equaled the fair value WatersEdge had income of $120,000 earned evenly through 2006 and paid dividends quarterly of $25,000 The consolidated income statement of Heron Corporation and Subsidiary for the year 2006 should show pre-acquisition income of: a b c d $ 5,333 $ 8,000 $32,000 $56,000 Use the following information to answer questions 15 through 18 Bowerbird Corporation purchased a 70% interest in Stage Corporation on June 1, 2006 at a purchase price of $390,400 On this date, Stage’s book values were equal to its fair values except for an unrecorded copyright, and its stockholders’ equity consisted of $290,000 of Common Stock and $210,000 of Retained Earnings All costbook differentials were attributed to the copyright, which had an estimated economic life of ten years During 2006, Stage earned $120,000 of net income earned uniformly throughout the year and paid $6,000 of dividends on March and another $6,000 on September LO2 15 Minority interest income for 2006 is a b c d $36,000 $32,400 $61,200 $50,000 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-6 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO2 16 Preacquisition income for 2006 is a b c d LO2 17 The value of the copyright that is included Investment in Stage account on June 1, 2006 is a b c d LO2 18 $50,000 $35,000 $44,000 $36,000 in Bowerbird’ $ 2,600 $ 5,400 $ 9,600 $10,400 The amortization expense recorded for the copyright in 2006 is: a b c d $315 $560 $815 $960 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-7 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO3 19 The acquisition of treasury stock by a subsidiary above book value a decreases decreases b decreases increases c increases decreases d increases increases LO3 20 the the the the the the the the parent’s share of parent’s ownership parent’s share of parent’s ownership parent’s share of parent’s ownership parent’s share of parent’s ownership subsidiary percentage subsidiary percentage subsidiary percentage subsidiary percentage book value and book value and book value and book value and A stock dividend by a subsidiary causes a b c d the the the any parent company parent company parent company noncontrolling investment account investment account investment account interest equity to to decrease to remain the same to decrease increase ©2009 Pearson Education, Inc publishing as Prentice Hall 8-8 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 Exercise At December 31, 2004, the stockholders’ equity of Goshawk Corporation and its 80%-owned subsidiary, Treetop Corporation, are as follows: Common stock, $10 par value Retained earnings Totals $ $ Goshawk 20,000 8,000 28,000 $ $ Treetop 12,000 6,000 18,000 Goshawk’s investment in Treetop’s account balance is equal to the Treetop book value Treetop Corporation issued 225 additional shares of common stock directly to Goshawk on January 1, 2005 at $18 per share Required: Compute the following: Compute the balance in Goshawk’s Investment in Treetop account on January 1, 2005 after the new investment is recorded Determine the goodwill (if any) from Goshawk’s new investment in the 225 Treetop shares LO1 Exercise At the beginning of 2006, Starling Corporation held an 80% interest in Twig Corporation The investment account balance was $900,000, consisting of 80% of Twig’s $1,095,000 of net assets and $24,000 of goodwill During 2006, Twig uniformly earned $234,000 and paid dividends of $37,500 on April and again on October On August 1, 2006, Starling sold 30% of its investment in Twig for $262,500, thereby reducing its interest in Twig to 56% Required: Compute assumption: the following using the actual sales Gain or loss on sale Income from Twig for 2006 Noncontrolling interest for 2006 LO1 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-9 date To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise At the beginning of 2006, Flycatcher Corporation held a 60% interest in Lichen Corporation The investment account balance was $2,100,000, consisting of 60% of Lichen’s $3,226,666 of net assets and $164,000 of goodwill During 2006, Lichen earned $300,000 and paid dividends of $110,000 on November On October 1, 2006, Flycatcher sold 10% of its investment in Lichen for $364,000, thereby reducing its interest in Lichen to 54% Required: Compute assumption: the following using the actual sales date Gain or loss on sale Income from Lichen for 2006 Noncontrolling interest expense for 2006 LO1 Exercise At December 31, 2005 year-end, Lapwing Corporation’s investment in Openground Inc was 200,000 consisting of 80% of Openground’s $250,000 stockholders’ equity on that date On April 1, 2006, Lapwing sold 20% interest (one-fourth of its holdings) in Openground for $65,000 During 2006, Openground had net income of $75,000 and on July 1, 2006, Openground paid dividends of $40,000 Required: Record the journal entries before year-end 2006 assuming the equity method ©2009 Pearson Education, Inc publishing as Prentice Hall 8-10 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Swift Corporation and Subsidiary Consolidation Working Papers for the year ended December 31, 2006 Weather Eliminations Swift Front Debit Credit Noncntl INCOME STATEMENT Net Sales $ 60,000 $34,000 Income from 4,800 Weather Front Gain on sale of Equipment 1,500 Cost of sales ( 27,000) ( 16,000) Depreciation ( 5,000) ( 3,000) Other expenses ( 12,100) ( 5,000) Noncntl expense Net income 22,200 10,000 Retained Earnings 10,100 17,000 Add: Net income 22,200 10,000 Dividends ( 12,000) ( 4,000) Retained Earnings 12/31 $ 20,300 $23,000 BALANCE SHEET Cash 2,300 7,000 Net Receivables 7,000 5,000 Dividends Rec 800 Inventories 7,000 5,000 Plant assets-net 22,000 43,000 Investment in Weather Front 41,200 TOTAL ASSETS $ LIAB & EQUITY Accounts payable Dividends Payable Common stock Retained Earnings Noncontrolling Interest TOTAL LIAB & $ EQUITIES 80,300 $60,000 17,000 6,000 3,000 40,000 1,000 30,000 20,300 23,000 80,300 $60,000 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-16 Consolidated To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO2 Exercise On September 1, 2006, Warbler Corporation acquired an 80% interest in Reed Corporation for $700,000 Reed’s stockholders’ equity at January 1, 2006 consisted of $200,000 of Common Stock and $600,000 of Retained Earnings The book values of its assets and liabilities were equal to their respective fair values on this date All excess purchase cost was attributed to goodwill During 2006, Reed uniformly earned $78,000 and paid dividends of $9,000 on each of four dates: February 1, June 1, August 1, and December Required: Compute the following: Warbler’s income from Reed for 2006 Preacquisition income that will appear on the consolidated income statement of Warbler Corporation and Subsidiary for 2006 Minority interest income for 2006 LO3 Exercise 10 At January 1, 2005, the stockholders’ equity of Raven Corporation and its 60%-owned subsidiary, Trunk Corporation, are as follows: Common stock, $10 par value Retained earnings Totals $ $ Raven 700,000 800,000 1,500,000 $ $ Trunk 400,000 50,000 450,000 Trunk’s net income for 2005 was $40,000 Raven’s Investment in Trunk account balance on December 31, 2005 was equal to its underlying equity on December 31, 2005 Trunk Corporation issued 10,000 additional shares of common stock directly to Raven on January 1, 2006 at $12 per share Required: Compute the following: Compute the balance in Raven’s Investment in Trunk account on January 1, 2006 after its purchase of the additional Trunk shares Calculate any positive or negative goodwill Raven’s investment in the 10,000 Trunk shares stemming ©2009 Pearson Education, Inc publishing as Prentice Hall 8-17 from To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Solutions Multiple Choice Questions d c (15,000 shares/18,000 shares) = 83.33% a (12,000 shares/18,000 shares) = 66.67% c Selling price Book value of interest sold $300,000 x (20%/80%) = Gain on sale Income from Underbrush $99,000 x (80% - 20%) = b Selling price Book value of interest sold: Beginning balance Income for months $99,000 x 1/6 x 80% = Adjusted book value Percentage of interest sold Book value applied Gain on sale Income from Jan – Mar Mar – Dec Income from b $ $ 84,000 $ 75,000 9,000 $ 59,400 84,000 $ 62,640 21,360 300,000 13,200 313,200 20% 62,640 Underbrush: $16,500 x 80% = 31 $82,500 x 60% = Underbrush $ Selling price Book value of interest sold: ($350,000 x 20%) Gain on sale Finch’s share of Nest’s Income: $35,000 x (90%-18%) = Finch’s Investment account balance at December 31, 2006: Jan 1, 2006 balance $ $ $ 13,200 49,500 62,700 $ 92,000 $ 70,000 22,000 $ 25,200 350,000 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-18 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Less: Book value of interest sold Plus: Income from Nest Less: Dividends $6,000 x 72% Investment account balance at 12/31/2006 b ( 70,000 ) 25,200 4,320 ) ( Selling price Book value of interest sold: ($350,000 x 1/9) Gain on sale Finch’s share of Nest’s Income: $35,000 x (90%-10%) = Finch’s Investment account balance at December 31, 2006: Jan 1, 2006 balance Less: Book value of interest sold Plus: Income from Nest Less: Dividends $6,000 x 80% Investment account balance at 12/31/2006 a a $ $ 47,000 $ 38,889 8,111 $ 28,000 38,889 ) 28,000 4,800 ) ( Savannah’s equity after the issuance of the new shares ($5,400,000 + $1,280,000) Button-quail’s ownership percentage Button-quail’s share of Savannah’s equity now Button-quail’s previous share of Savannah’s equity ($5,400,000 x 70%) Savannah’s equity acquired in the purchase Amount spent to acquire stock Goodwill purchased 300,880 350,000 ( (210,000 shares + 80,000 shares)/380,000 shares $ $ = 76.32% $ 6,680,000 76.32% $ 5,098,176 3,780,000 $ $ 1,318,176 1,280,000 38,176 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-19 334,311 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 10 11 b b Slipstream’s stockholders’ equity prior to the stock issuance Plus: Capital received from new stock issued New stockholders’ equity Great Frigatebird’s ownership percentage Great Frigatebird’s adjusted investment in Slipstream Investment balance at 12/31/2006 ($1,050,000 x 90%) Additional investment (10,000 Shares x $45) Investment account balance $ 1,050,000 $ 450,000 1,500,000 77.14% $ 1,157,100 $ 945,000 $ 450,000 1,395,000 $ 32,000 12 b 13 a 14 c $120,000 net income x 2/3 year x 40% 15 a $120,000 x 30% = $ 36,000 16 b ($120,000/12 months) x months x 70% $ 35,000 17 c Cost of 70% interest Book value of interest Acquired: January balance Add: months of income Less: Dividends paid before June Total book value at 6/1 Majority percentage Book value of interest Acquired Copyright value 18 b $ 500,000 50,000 ( 6,000 ) 544,000 70% $ 390,400 $ 380,800 9,600 From Question 17: ($9,600/120 months) x months ©2009 Pearson Education, Inc publishing as Prentice Hall 8-20 560 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 19 b 20 b Exercise Requirement Cost of investment ($18,000 x 80%) Plus: Purchase of 225 Treetop shares at $18 on January 1, 2005 Investment account balance` Requirement Treetop’s stockholders’ equity at January 1, 2005 Plus: Additional capital from the shares issued Total stockholders’ equity after issuance of the new shares Goshawk’s percentage (960 + 225)/1425 = Goshawk’s share of Treetop’s equity after issuance Goshawk’s share of Treetop’s equity before stock issuance Equity acquired in the purchase Cost of interest acquired Positive goodwill $ 14,400 $ 4,050 17,450 $ 18,000 4,050 $ 22,050 83% $ 18,302 $ 14,400 4,702 4,050 652 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-21 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise Preliminary computations Investment balance, January Income from Twig ($234,000 x 7/12 x 80%) Less: April dividends ($37,500 x 80%) Book value at July 31, 2006 $ 900,000 109,200 ( 30,000 ) $ 979,200 $ 262,500 $ ( 293,760 31,260 ) $ 109,200 Requirement Proceeds from sale Book value of interest sold ($979,200 x 30%) Loss on sale Requirement Income from Twig from Jan through July 31 (from above) $109,200 Income from August – December 31 ($234,000 x 5/12 x 56%) 54,600 Income from Twig for 2006 $ 163,800 Requirement Noncontrolling interest expense: Jan to Jul 31 ($234,000 x 7/12 x 20%) Aug to Dec 31 ($234,000 x 5/12 x 44%) Noncontrolling interest expense $ 27,300 $ 42,900 70,200 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-22 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise Preliminary computations Investment balance, January Income from Lichen ($300,000 x 9/12 x 60%) Book value at September 30, 2006 Requirement Proceeds from sale Book value of interest sold ($1,965,000 x 10%) Gain on sale $ 2,100,000 135,000 $ 2,235,000 $ 364,000 $ 223,500 140,500 $ 135,000 Requirement Income from Lichen from Jan through September 30 (from above) Income from October 1–December 31 ($300,000 x 3/12 x 54%) 40,500 Income from Lichen for 2006 $ 175,500 Requirement Noncontrolling interest expense: Jan to Sep 30 ($300,000 x 9/12 x 40%) Oct to Dec 31 ($300,000 x 3/12 x 46%) Noncontrolling interest $ 90,000 $ 34,500 124,500 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-23 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise Requirement April Investment in Openground Income from Openground Debit Cash Investment in Openground Gain from sale of investment in Openground 18,750 18,750 65,000 43,750 21,250 July Cash Investment in Openground 24,000 December 31 Investment in Openground Income from Openground 33,750 Selling price Book value of interest sold: Beginning balance Income for months $75,000 x 1/4 x 80% = Adjusted book value Percentage of interest sold Book value applied Gain on sale Credit 24,000 33,750 $ $ 65,000 $ 43,750 21,250 200,000 18,750 218,750 20% 43,750 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-24 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise Preliminary computations: Purchase 1: Purchase price Book value at April 1st: Stockholders’ equity at January Plus: Income through March Total book value Interest acquired Book value of interest acquired $ $ $ 400,000 36,000 436,000 25% 109,000 Goodwill Purchase 2: Purchase price Stockholders’ equity at January Income through June 30 Total book value Interest acquired Book value of interest acquired $ $ 109,000 $ $ 11,000 $ $ 236,400 400,000 72,000 472,000 45% 212,400 Goodwill 212,400 $ Requirement Gouldian’s income from Termite Mound: $144,000 x 9/12 x 25% $144,000 x 6/12 x 45% $ 27,000 32,400 Income from Termite Mound $ 59,400 Requirement Minority interest income: $144,000 x 30% = $ 43,200 120,000 24,000 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-25 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise Catbird Corporation and Subsidiary Consolidation Working Papers for the year ended December 31, 2006 Eliminations Catbird Bug Debit Credit INCOME STATEMENT Net Sales Income from Bug Gain on sale of equipment Cost of sales Depreciation Other expenses Preacquisition income Net income Retained Earnings Add: Net income Dividends Preacquisition dividends Retained Earnings 12/31 BALANCE SHEET Cash Receivables Inventories Equipment-net Investment in Bug Goodwill TOTAL ASSETS LIAB & EQUITY Accounts and notes payable Capital stock Paid-in capital Retained Earnings Noncontrolling interest TOTAL LIAB & EQUITY $ 500,000 Min Int $170,000 21,000 Consolidated $670,000 c $ 21,000 10,000 a (230,000) ( 90,000) (113,000) ( 30,000) ( 30,000) ( 10,000) 10,000 d 10,000 ( 10,000) 158,000 75,000 50,000 d 158,000 40,000 ( 30,000) ( 20,000) 50,000 75,000 158,000 ( 30,000) 158,000 b $ 1,000 40,000 c 15,000 d 5,000 (320,000) (142,000) ( 40,000) $ 203,000 $70,000 $203,000 47,000 80,000 120,000 80,000 30,000 50,000 90,000 80,000 77,000 125,000 210,000 151,000 b 246,000 d $ 573,000 $250,000 140,000 200,000 30,000 35,000 100,000 45,000 203,000 70,000 573,000 $250,000 e d d e 5,000 1,000 a c d 40,000 10,000 6,000 240,000 5,000 100,000 45,000 $ 40,000 $603,000 170,000 200,000 30,000 203,000 $603,000 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-26 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise Swallow Corporation and Subsidiary Consolidation Working Papers for the year ended December 31, 2006 Eliminations Swallow Gully Debit Credit INCOME STATEMENT Net Sales $ 80,000 $40,000 Income from 6,500 Gully Gain on sale of equipment 2,000 Cost of sales ( 40,000) ( 15,000) Depreciation ( 11,000) ( 4,000) Other expenses ( 12,500) ( 6,000) Preacquisition income Net income 25,000 15,000 Retained Earnings 60,000 20,000 Add: Net income 25,000 15,000 Dividends ( 10,000) ( 6,000) Retained Earnings 12/31 $ 75,000 $29,000 19,000 10,000 10,500 5,000 20,000 16,000 8,000 14,000 5,000 15,000 Min Int a $ 10,000 d 6,500 Consolidated $110,000 c b 2,000 1,500 a $ e 5,000 e 20,000 10,000 ( 46,500) ( 15,000) ( 18,500) ( 5,000) 25,000 60,000 25,000 d e 3,000 3,000 ( 10,000) $75,000 BALANCE SHEET Receivables-net Inventories Other assets Land Buildings-net Investment in Gully Equipment-net TOTAL ASSETS $ f b 5,000 1,500 d e c 3,500 62,000 2,000 30,000 16,500 24,500 10,000 35,000 65,500 40,000 170,000 22,000 $80,000 16,000 19,000 60,000 10,000 1,000 40,000 75,000 29,000 75,000 170,000 $80,000 $176,000 60,000 $176,000 EQUITIES Accounts payable Other debt Common stock Retained Earnings Minority interest TOTAL EQUITIES $ f 5,000 e 40,000 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-27 21,000 20,000 60,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise Swift Corporation and Subsidiary Consolidation Working Papers for the year ended December 31, 2006 Eliminations Swift Weather Debit Credit Front INCOME STATEMENT Net Sales Income from Weather Front Gain on sale of Equipment Cost of sales Depreciation Other expenses Noncntl expense Net income Retained Earnings Add: Net income Dividends Retained Earnings 12/31 BALANCE SHEET Cash Net Receivables Dividends Rec Inventories Plant assets-net Investment in Weather Front Goodwill TOTAL ASSETS LIAB & EQUITY Accounts payable Dividends Payable Common stock Retained Earnings Noncntl Interest January Noncntl Interest December 31 TOTAL LIAB & EQUITY $ 60,000 4,800 $34,000 a $ 12,000 e 4,800 1,500 c ( 27,000) ( 16,000) b ( 5,000) ( 3,000) ( 12,100) ( 5,000) 22,200 20,300 $23,000 2,300 7,000 800 7,000 22,000 7,000 5,000 5,000 43,000 1,500 2,000 a $ 12,000 d 300 17,000 e 3,200( ( 33,000) ( 7,700) ( 17,100) $ 2,000 ( 2,000) 22,200 10,100 22,200 800) ( 12,000) $20,300 f h g b 300 c e f 2,000 d 41,200 $ Consolidated $82,000 10,000 10,100 17,000 f 22,200 10,000 ( 12,000) ( 4,000) $ Noncntl 9,300 11,000 1,000 800 2,000 1,500 1,600 39,600 10,000 63,800 2,000 $96,100 80,300 $60,000 17,000 6,000 h 1,000 22,000 3,000 40,000 1,000 30,000 g f 800 30,000 3,200 40,000 20,300 23,000 20,300 f 9,400 9,400 10,600 $ 80,300 $60,000 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-28 10,600 $96,100 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise Cost of investment Book value acquired: Stockholders’ equity, Jan Income Jan – Aug 31 ($78,000/12 months x months) Preacquisition dividends Book value at September Interest acquired $ $ ( 700,000 800,000 52,000 27,000 ) 825,000 80% 660,000 Goodwill $ 40,000 Requirement Income from Reed Share of Reeds’s net income ($78,000 x 1/3 x 80%) $ 20,800 Requirement Preacquisition income ($78,000 x 80% x 2/3) or ($6,500 x months x 80%) $ 41,600 Requirement Minority interest income ($78,000 x 20%) $ 15,600 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-29 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 10 Requirement Cost of investment ($450,000 x 60%) Share of Trunk’s income for 2005 ($40,000 x 60%) Investment in Trunk balance at December 31, 2005 Plus: Purchase of 10,000 Trunk shares at $12 on January 1, 2006 Investment account balance` Requirement Trunk’s stockholders’ equity at January 1, 2006 ($450,000 + $40,000 of 2005 net income) Plus: Additional capital from the shares issued Total stockholders’ equity after issuance of the new shares Raven’s percentage (24,000 + 10,000)/50,000 = Raven’s share of Trunk’s equity after issuance Raven’s share of Trunk’s equity before stock issuance Equity acquired in the purchase Cost of interest acquired Goodwill $ 270,000 24,000 294,000 $ 120,000 414,000 $ 490,000 120,000 $ 610,000 68% $ 414,800 $ 294,000 120,800 120,000 800 ©2009 Pearson Education, Inc publishing as Prentice Hall 8-30 ... 8-7 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO3 19 The acquisition of treasury stock by a subsidiary above book value a decreases decreases... Education, Inc publishing as Prentice Hall 8-2 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 On January 1, 2006, Finch Corporation owned... Education, Inc publishing as Prentice Hall 8-3 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 What is Button-quail’s percentage ownership