Solution manual advanced accounting 4e jeter ch04

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER Note: The letter A or B indicated for a question, exercise, or problem means that the question, exercise, or problem relates to a chapter appendix ANSWERS TO QUESTIONS Nonconsolidated subsidiaries are expected to be relatively rare In those situations where a subsidiary is not consolidated, the investment in the subsidiary should be reported in the consolidated statement of financial position at cost, along with other long-term investments A liquidating dividend is a return of investment rather than a return on investment Consequently, the amount of a liquidating dividend should be credited to the investment account rather than to dividend income when the cost method is used, whereas regular dividends are recorded as dividend income under the cost method If the equity method is used, all dividends are credited to the investment account When the parent company uses the cost method, the workpaper elimination of intercompany dividends is made by a debit to Dividend Income and a credit to Dividends Declared This elimination prevents the double counting of income since the subsidiary's individual revenue and expense items are combined with the parent company's in the determination of consolidated net income When the parent company uses the equity method, the workpaper elimination for intercompany dividends is made by a debit to the investment account and a credit to Dividends Declared When the parent company uses the cost method, dividends received are recorded as dividend income When the parent company uses the partial equity method, the parent company recognizes equity income on its books equal to its ownership percentage times the investee company‟s reported net income When the parent company uses the complete equity method, the parent recognizes income similar to the partial equity method, but adjusts the equity income for additional charges or credits when the purchase price differs from the fair value of the investee company‟s net assets, and for intercompany profits (addressed in chapters and 7) Consolidated net income consists of the parent company's net income from independent operations plus (minus) any income (loss) earned (incurred) by its subsidiaries during the period, adjusted for any intercompany transactions during the period and for any excess depreciation or amortization implied by a purchase price in excess of book values Consolidated retained earnings consist of the parent company's retained earnings from its independent operations plus (minus) the parent company's share of the increase (decrease) in its subsidiaries' retained earnings from the date of acquisition Investment in S Company 1/1 Retained Earnings, P Company 80% ($461,430 - $16,250)] 356,144 356,144 This adjustment recognizes that P Company's share of S Company's undistributed profits from the date of acquisition to the beginning of the current year is properly a part of beginning-of-year 4-1 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com consolidated retained earnings It also enhances the elimination of the investment account This entry is only needed if the parent company uses the cost method If the equity method is used, the parent‟s retained earnings already reflect the undistributed earnings of the subsidiary The noncontrolling interest column accumulates the noncontrolling stockholders' share of subsidiary income, less their share of excess depreciation or amortization implied by fair value adjustments (addressed in detail in chapter 5), dividends (as a reduction), and the beginning noncontrolling interest in equity carried forward from the previous period The method used to record the investment on the books of the parent company (cost method, partial equity method, or complete equity method) has no effect on the consolidated financial statements Only the workpaper elimination procedures are affected The two methods for treating the preacquisition revenue and expense items of a subsidiary purchased during a fiscal year are (1) including the revenue and expense items of the subsidiary for the entire period with a deduction at the bottom of the consolidated income statement for the net income earned prior to acquisition (this is the preferred method), and (2) including in the consolidated income statement only the subsidiary's revenue earned and expenses incurred subsequent to the date of purchase 10 (a) Readers of consolidated financial statements will be unable to evaluate the financial position and results of operations (neither of which is shown separately from the parent's) of the subsidiaries (b) Because consolidated assets are not generally available to meet the claims of the creditors of a subsidiary, creditors will have to look to the financial statements of the debtor (subsidiary) corporation Similarly, the creditors of the parent company are most interested in only the assets of the parent company, although large creditors are likely to gain control over or have indirect access to the assets of subsidiaries in the case of parent company default (c) Because consolidated financial statements are a composite, it is impossible to distinguish a financially weak subsidiary from financially strong ones (d) Ratio analyses based on consolidated data are not reliable guides, especially when the related group produces a conglomerate of unrelated product lines and services (e) Consolidated financial statements often not disclose data about subsidiaries that are not consolidated (f) A reader of consolidated financial statements cannot assume that a certain amount of unrestricted consolidated retained earnings will be available for dividends Data on the ability of the individual subsidiaries to pay dividends are frequently unavailable 11 A consolidated statement of cash flows contains two adjustments that result from the existence of a noncontrolling interest: (1) an adjustment for the noncontrolling interest in net income or loss of the subsidiary in the determination of net cash flow from operating activities, and (2) subsidiary dividend payments to the noncontrolling stockholders must be included with parent company dividends paid in determining cash paid as dividends because the entire amount of the 4-2 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com noncontrolling interest in net income (loss) is added back (deducted) in determining net cash flows from operating activities 12 Potential voting rights refer to the rights associated with potentially dilutive securities such as convertible bonds or stocks, or stock options, rights, or warrants that are currently exercisable These are considered under international standards in determining the applicability of the equity method for investments where the investor may be considered to have significant influence They are generally not considered under U.S GAAP International standards (IFRS) refer to investments that are accounted for under the equity method as “investments in associates.” 13B No The recognition and display of a deferred tax asset or deferred tax liability relating to the assignment of the difference between implied value and book value is necessary without regard to whether the affiliates file consolidated income tax returns or separate income tax returns 14B An assumption must be made as to whether the undistributed income will be realized in a future dividend distribution or as a result of the sale of the subsidiary This is necessary because the calculation of the tax consequences differs depending on the assumption made Dividend distributions are subject to a dividends received exclusion, whereas gains or losses on disposal are not In addition, gains or losses on disposal may be taxed at different tax rates than dividend distributions Although capital gains are currently taxed at the same rates as ordinary income, the rates have been different in the past and may be again in the future 15B The amounts calculated under these two approaches would be different (1) if the affiliates had different marginal tax rates, (2) if the affiliates were in different tax jurisdictions, or (3) when expected future tax rates differ from the tax rate used in determining the tax paid or accrued by the selling affiliate 16B When the affiliates file separate returns, two types of temporary differences may arise: Deferred income tax consequences that arise in the consolidated financial statements because of undistributed subsidiary income, and Deferred income tax consequences that arise in the consolidated financial statements because of the elimination of unrealized intercompany profit ANSWERS TO BUSINESS ETHICS CASE Surreptitiously installing spyware on computers can be an unethical practice (the word surreptitious implies that the customer is unaware of the activity) The programs run in the background and can significantly slow down the computer’s operating performance Sometimes these programs are used to pass on the consumer browsing history and may leak personal information to the advertising firm 4-3 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ANSWERS TO FINANCIAL STATEMENT ANALYSIS EXERCISE A GE uses the equity method to account for the investment in GECS The investment account on GE‟s books has a balance of $50,815 and $54,292 for the years 2005 and 2004 respectively Notice that the balance in the investment account equals the same ending balance for stockholders‟ equity for GECS for the same years Thus the investment account changes exactly by the same amount that the equity accounts change Because GE owns 100% of GECS (and created this subsidiary), the equity method is the only method that would keep these two amounts equal In essence, the parent‟s investment account mirrors the activity in the subsidiary‟s equity B The 2005 consolidated balances for assets and liabilities are $673,342 and $555,934, which differ from the balances for GE‟s assets and liabilities of $189,759 and $74,599 On the other hand, the 2005 consolidated balance for equity equals the equity balance for GE‟s equity at $109,354 On GE‟s books, the assets and liabilities of GECS are recorded at net in the investment account (i.e the investment account represents the net assets of GECS) When the firm prepares consolidated financial statements, the investment account is eliminated and the individual assets and liabilities of GECS are added While some consolidated amounts are simply the sum of GE‟s and GECS‟s individual accounts (such as inventories), other accounts not simple add across (such as short-term borrowings, receivables, and payables) One reason these accounts may not add across is due to the elimination of intercompany transactions The equity accounts of GECS disappear altogether in the consolidated totals C None of this minority interest is related to GE‟s investment in GECS since GE owns 100% Under the new exposure drafts, minority interest will also be recorded at fair value In the past, the minority interest was maintained at historical cost The new exposure draft does not require previously recorded minority interest to be adjusted to fair value D The current presentation that GE uses is very informative because you have financial statements for each segment (GE and GECS separated) This allows the user to see the nature of the types of accounts that GECS is involved in, as well as their magnitude (financing receivables and long-term borrowings, for example) In addition, it is crucial that the reader is able to see the accounts for the consolidated entity For instance, if GE simply used the equity method to record GECS, it would appear that GE is only responsible for $74,599 of liabilities (see GE‟s unconsolidated columns), when in reality, GECS has debt of $487,542 This debt is reflected in the consolidated columns GECS's debt is not recorded as a line item on GE's books if the equity method is used and consolidation does not occur It would be considered 'off balance sheet' debt If undisclosed, this might be viewed in some respects as similar to the type of off-balance sheet debt in some of the partnerships that got Enron into so much trouble 4-4 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Answers to Exercises Exercise 4-1 Part A – Cost Method 2009 Investment in Song Company Cash Cash Dividend Income (.8 $25,000) 2010 Cash Dividend Income (.8 $50,000) 387,000 387,000 20,000 20,000 40,000 2011 Cash Investment in Song Company (.8 (liquidating dividend) 40,000 28,000 $35,000) Part B – Partial Equity Method 2009 Investment in Song Company Cash 28,000 387,000 387,000 Investment in Song Company Equity Income (.8 $63,500) 50,800 Cash Investment in Song Company 20,000 50,800 20,000 2010 Investment in Song Company Equity Income (.8 $52,500) 42,000 42,000 Cash Investment in Song Company 40,000 40,000 2011 Equity Loss (.8 x $55,000) Investment in Song Company Cash Investment in Song Company (.8 44,000 44,000 28,000 $35,000) 4-5 28,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 4-1 (continued) Part C – Complete Equity Method Parent Share Cost of investment Book value acquired($475,000 x 80) Difference between Implied and Book value Allocated to undervalued depreciable assets Balance Noncontrolling Entire Share Value 387,000 380,000 7,000 (7,000) -0- 96,750 95,000 1,750 (1,750) -0- 483,750 * 475,000 8,750 (8,750) -0- * $387,000/.80 Amortization per year Parent ($7,000/10) = $700 2009 Investment in Song Company Cash 387,000 387,000 Investment in Song Company Equity Income (.8 $63,500) 50,800 Equity Income ($7,000/10) Investment in Song Company 700 Cash Investment in Song Company 20,000 50,800 700 20,000 2010 Investment in Song Company Equity Income (.8 $52,500) 42,000 42,000 Equity Income ($7,000/10) Investment in Song Company 700 Cash Investment in Song Company 40,000 700 40,000 2011 Equity Loss (.8 x $55,000) Investment in Song Company 44,000 44,000 Equity Income ($7,000/10) Investment in Song Company Cash Investment in Song Company (.8 700 700 28,000 $35,000) 4-6 28,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 4-2 Workpaper entries 12/31/13 – Cost Method Investment in Salt Company Retained Earnings 1/1 - Park Company To establish reciprocity (.90 ($160,000 – $50,000)) 99,000 99,000 Dividend Income Dividends Declared - Salt Company 9,000 9,000 Common Stock - Salt Company 450,000 Retained Earnings 1/1/13 - Salt Company 160,000 Land 16,667 Investment in Salt Company ($465,000 + $99,000) Noncontrolling Interest ($51,667 + 10 x ($160,000 – $50,000) 564,000 62,667 Computation and Allocation of Difference between Implied and Book Value Acquired Parent Share Purchase price and implied value Less: Book value of equity acquired: Difference between implied and book value Allocated to undervalued land Balance *$465,000/.90 465,000 450,000 15,000 (15,000) -0- NonControlling Share 51,667 50,000 1,667 (1,667) -0- Entire Value 516,667 * 500,000 16,667 (16,667) -0- Exercise 4-3 Workpaper entries 12/31/17 – Equity Method The balance in the investment account at the beginning of the year is $532,000, which is computed as: [$494,000 + (.95 x ($160,000 – $120,000))] = $532,000 Common Stock - Succo Company Other Contributed Capital - Succo Company Retained Earnings 1/1/17 - Succo Company Investment in Succo Company Noncontrolling Interest* 300,000 100,000 160,000 532,000 28,000 * $520,000 x 05 + (.05 x ($160,000 - $120,000)) = 28,000 Equity Income ($40,000)(.95) Dividends Declared ($19,000)(.95) Investment in Succo Company 38,000 18,050 19,950 In this instance, the partial and complete equity methods result in the same entries because the amount paid for the acquisition of Succo is exactly 95% of Succo‟s book value Thus, there are no asset adjustments and no excess amortization or depreciation to consider The equity income under the complete equity method is the same as under the partial equity method (95% of reported income of Succo) 4-7 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 4-4 Parent Share Purchase price and implied value Less: Book value of equity acquired: Difference between implied and book value Goodwill Balance 310,000 293,250 16,750 (16,750) -0- NonControlling Share 54,706 51,750 2,956 (2,956) -0- Entire Value 364,706 * 345,000 19,706 (19,706) -0- * $310,000/.85 Part A – Workpaper entries 12/31/12 - Equity Method Investment in Serena Company Dividends Declared - Serena Company (.85)($12,000) Equity Loss (.85)($10,000 loss) 18,700 Common Stock - Serena Company Other Contributed Capital - Serena Company Retained Earnings 1/1/12 - Serena Company Difference between Implied and Book Value (Goodwill) Investment in Serena Company ($310,000 – $6,375*) Noncontrolling Interest 240,000 55,000 42,500 19,706 10,200 8,500 a 303,625 53,581 * [($50,000 - $42,500) x 85] = 6,375; ** $54,706 - [($50,000 - $42,500) x 15] = $53,581 a $42,500 = $20,500 at year-end plus 2012 loss of $10,000 plus 2012 dividends of $12,000 Goodwill Difference between Implied and Book Value 19,706 19,706 The partial equity and the complete equity methods result in the same entries because the excess of the cost over fair value of net assets is allocated to goodwill, a non-amortizable asset If any of this excess is allocated to depreciable assets or intangible assets with limited lives (subject to amortization), additional expenses will be recorded under the complete equity method Part B – Workpaper entries 12/31/12 - Cost Method Retained Earnings 1/1 - Poco Company Investment in Serena Company To establish reciprocity (.85 ($50,000 – $42,500)) Investment in Serena Company Dividends Declared - Serena Company 6,375 6,375 10,200 10,200 Common Stock - Serena Company Other Contributed Capital - Serena Company Retained Earnings 1/1/12 - Serena Company Difference between Implied and Book Value Investment in Serena Company ($310,000 – $6,375) Noncontrolling Interest 4-8 240,000 55,000 42,500 19,706 303,625 53,581 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 4-4 (continued) Goodwill Difference between Implied and Book Value 19,706 19,706 Exercise 4-5 Workpaper Entries and Noncontrolling Interest Cost of investment Less: excess cost allocated to land Book value acquired (90%) $ 650,000 20,000 $ 630,000 Total stockholders‟ equity - Set Company ($630,000/.90) Less: Retained earnings, 1/1/09 Common stock, Set Company, 1/1/09 700,000 190,000 $ 510,000 Computation and Allocation of Difference between Implied and Book Value Acquired Parent Share Purchase price and implied value Less: Book value of equity acquired: Difference between implied and book value Goodwill Balance $650,000 630,000 20,000 (20,000) -0- NonControlling Share 72,222 70,000 2,222 (2,222) -0- Entire Value 722,222 * 700,000 22,222 (22,222) -0- * $650,000/.90 Part A Eliminating entries – cost method Dividend Income (.90)($50,000) Dividends Declared - Set Company Common Stock - Set Company ($700,000 – $190,000) Retained Earnings 1/1/09 - Set Company Difference between Implied and Book Value Investment in Salt Company Noncontrolling Interest Land 45,000 45,000 510,000 190,000 22,222 650,000 72,222 22,222 Difference between Implied and Book Value 22,222 Part B Eliminating entries – equity method Equity Income (.90)($132,000) 118,800 Dividends Declared - Set Company (.90)($50,000) Investment in Set Company 45,000 73,800 Common Stock - Set Company Retained Earnings 1/1/09 - Set Company Difference between Implied and Book Value Investment in Salt Company Noncontrolling Interest 4-9 510,000 190,000 22,222 650,000 72,222 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 4-5 (continued) Land 22,222 Difference between Implied and Book Value 22,222 Part C Noncontrolling Interest $72,222 + (.1 $132,000) - (.1 $50,000) = $80,422 The noncontrolling interest will be the same regardless of the method used to account for the investment on Plate Company‟s books Exercise 4-6 Journal and Workpaper Entries - Equity Method Part A Journal Entries Investment in Sales Cash 350,000 350,000 Investment in Sales ($148,000)(.85) Equity in Subsidiary Income 125,800 125,800 Cash ($50,000)(.85) Investment in Sales 42,500 42,500 Part B Workpaper Entries Equity in Subsidiary Income Dividends Declared - Sales Investment in Sales 125,800 42,500 83,300 Common Stock - Sales 100,000 Other Contributed Capital – Sales 40,000 Retained Earnings 1/1 – Sales 140,000 Difference between Implied and Book Value 131,765 Investment in Sales Noncontrolling Interest Goodwill 131,765 Difference between Implied and Book Value 350,000 61,765 131,765 Computation and Allocation of Difference between Implied and Book Value Acquired Parent Share Purchase price and implied value Less: Book value of equity acquired: Difference between implied and book value Goodwill Balance 350,000 238,000 112,000 (112,000) -0- * $350,000/.85 - 10 NonEntire Controlling Value Share 61,765 411,765 * 42,000 280,000 19,765 131,765 (19,765) (131,765) -0-0- To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-12 Part A - 2010 Parker Company and Subsidiary Consolidated Statements Workpaper Workpaper - Equity Method For the Year Ended December 31, 2010 Parker Company Income Statement Sales Equity in Subsidiary Income Total Revenue Cost of Goods Sold Operating Expenses Total Cost and Expense Net Income Noncontrolling Interest Net Income to Retained Earnings Retained Earnings Statement Retained Earnings 1/1 Parker Company Sid Company Net Income from above Dividends Declared Parker Company Sid Company Retained Earnings 12/31 300,000 18,000 318,000 150,000 35,000 185,000 133,000 95,000 133,000 20,000 133,000 Noncontrolling Consolidated Interest Balance 395,000 (1) 18,000 95,000 60,000 15,000 75,000 20,000 2,000 * 2,000 18,000 168,000 Difference b/w Implied & Book Value Plant and Equipment Land Total 110,000 48,500 473,000 20,000 15,000 395,000 210,000 50,000 260,000 135,000 (2,000) 133,000 55,000 25,000 (2) 25,000 20,000 18,000 2,000 (20,000) 65,000 40,000 25,000 184,500 133,000 (20,000) (15,000) 30,000 (1) 13,500 43,000 13,500 (1,500) 500 35,000 30,000 15,000 168,000 100,000 70,000 40,000 (1) 4,500 (2) 180,000 (2) 35,000 (3) 35,000 85,000 45,000 (3) 35,000 210,000 195,000 128,500 533,500 15,000 25,000 35,000 40,000 200,000 200,000 120,000 (2) 120,000 70,000 168,000 473,000 *($20,000 Eliminating Entries Dr Cr 55,000 Balance Sheet Cash Accounts Receivable Inventory 12/31 Investment in Sid Company Accounts Payable Other Liabilities Common Stock Parker Company Sid Company Other Contributed Capital Parker Company Sid Company Retained Earnings from above Noncontrolling Interest 1/1 Noncontrolling Interest 12/31 Sid Company 70,000 20,000 (2) 20,000 30,000 43,000 210,000 10) = $2,000 - 46 253,000 13,500 (2) 20,000 253,000 500 20,000 20,500 168,000 20,500 533,500 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-12 (continued) (1) To eliminate intercompany dividends and income (2) To eliminate investment in Sid Company and create noncontrolling interest account (3) To allocate the difference between implied and book value Computation and Allocation of Difference between Implied and Book Value Acquired Parent Share Purchase price and implied value Less: Book value of equity acquired: Difference between implied and book value Undervalued land Balance 180,000 148,500 31,500 (31,500) -0- *$180,000/.90 - 47 NonControlling Share 20,000 16,500 3,500 (3,500) -0- Entire Value 200,000 * 165,000 35,000 (35,000) -0- To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-12 (continued) Part B - 2011 Parker Company and Subsidiary Consolidated Statements Workpaper For the Year Ended December 31, 2011 Parker Sid Company Company Income Statement Sales Equity in Subsidiary Income Total Revenue Cost of Goods Sold Operating Expenses Total Cost and Expense Net Income Noncontrolling Interest Net Income to Retained Earnings Retained Earnings Statement Retained Earnings 1/1 Parker Company Sid Company Net Income from above Dividends Declared Parker Company Sid Company Retained Earnings 12/31 260,000 22,500 282,500 160,000 35,000 195,000 87,500 110,000 87,500 25,000 87,500 (1) 22,500 110,000 65,000 20,000 85,000 25,000 2,500 * 2,500 22,500 235,500 Difference b/w Implied & Book Value Plant and Equipment Land Total 125,000 48,500 537,000 16,500 15,000 370,000 225,000 55,000 280,000 90,000 (2,500) 87,500 168,000 30,000 (2) 30,000 25,000 22,500 2,500 (20,000) 70,000 60,000 40,000 193,500 * ($25,000 370,000 168,000 Balance Sheet Cash Accounts Receivable Inventory 12/31 Investment in Sid Company Accounts Payable Other Liabilities Common Stock: Parker Company Sid Company Other Contributed Capital Parker Company Sid Company Retained Earnings from above Noncontrolling Interest 1/1 Noncontrolling Interest 12/31 Eliminating Entries Noncontrolling Consolidated Interest Balance Dr Cr 87,500 (20,000) (15,000) 40,000 (1) 52,500 13,500 13,500 (1,500) 1,000 20,000 35,000 30,000 235,500 90,000 95,000 70,000 (1) 9,000 (2) 184,500 (2) 35,000 (3) 35,000 90,000 45,000 (3) 35,000 220,000 215,000 128,500 598,500 16,000 24,000 32,500 39,000 200,000 200,000 120,000 (2) 120,000 70,000 235,500 70,000 20,000 (2) 20,000 40,000 52,500 (2) 13,500 20,500 1,000 ** 20,500 21,500 537,000 220,000 262,500 262,500 10) = $2,500; ** $20,000 + [($30,000 – $25,000) x 10] = $20,500 (1) To eliminate intercompany dividends and income (2) To eliminate investment in Sid company and create noncontrolling interest account (3) To allocate the difference between implied and book value - 48 235,500 21,500 598,500 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-13 Workpaper - Equity Method Income Statement Sales Equity in Subsidiary Income Interest Income Total Revenue Cost of Goods Sold Operating Expenses Total Cost and Expense Net Income Noncontrolling Interest Net Income to Retained Earnings Retained Earnings Statement Retained Earnings 1/1 Pledge Company Stom Company Net Income from above Dividends Declared Pledge Company Stom Company Retained Earnings 12/31 Balance Sheet Cash and Marketable Securities Accounts Receivable Inventory 12/31 Investment in Stom Difference b/w Implied & Book Value Plant and Equipment Land Total Accounts Payable Accrued Expenses Notes Payable Common Stock: Pledge Company Stom Company Other Contributed Capital Pledge Company Stom Company Treasury Stock Retained Earnings from above Noncontrolling Interest 1/1 Noncontrolling Interest 12/31 Total Pledge Company and Subsidiary Consolidated Statements Workpaper For the Year Ended December 31, 2012 Pledge Stom Eliminating Entries Noncontroll- Consolidated Company Company ing Interest Balance Dr Cr 880,000 340,000 1,220,000 74,400 (1) 74,400 6,600 3,000 (3) 6,600 3,000 961,000 343,000 1,223,000 460,000 185,000 645,000 225,000 65,000 (3) 6,600 283,400 685,000 250,000 928,400 276,000 93,000 294,600 18,600 * (18,600) 276,000 93,000 81,000 6,600 18,600 276,000 550,000 276,000 550,000 320,000 (5) 320,000 93,000 81,000 6,600 18,600 (50,000) (50,000) 776,000 (30,000) 383,000 184,600 182,000 72,000 180,000 214,000 478,400 276,000 (1) 401,000 24,000 30,600 (6,000) 12,600 776,000 256,600 (2) (4) 55,000 6,600 (1) (5) (5) 55,000 (6) 50,400 428,000 55,000 300,400 426,000 212,000 309,000 85,000 1,453,000 301,000 75,000 (6) 55,000 840,000 610,000 215,000 1,808,000 96,000 31,000 100,000 79,000 18,000 (4) 6,600 200,000 (2) 55,000 175,000 42,400 245,000 300,000 300,000 100,000 (5) 100,000 150,000 150,000 80,000 (5) 80,000 (20,000) (5) 776,000 383,000 401,000 (5) 1,453,000 840,000 - 49 752,600 20,000 30,600 107,000 752,600 12,600 ** 107,000 119,600 776,000 119,600 1,808,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-13 (continued) * $93,000 20 = $18,600 ** $75,000 + [($320,000 – $160,000) x 20) = $107,000 (1) To eliminate intercompany dividends and income (2) To eliminate intercompany note receivables and payables (3) To eliminate intercompany interest expense and income (4) To eliminate intercompany interest receivables and payables (5) To eliminate investment in Stom company and create noncontrolling interest account (6) To allocate the difference between Implied and Book Value Computation and Allocation of Difference between Implied and Book Value Acquired Parent Share Purchase price and implied value Less: Book value of equity acquired: Difference between implied and book value Undervalued land Balance 300,000 256,000 44,000 (44,000) -0- *$300,000/.80 - 50 NonControlling Share 75,000 64,000 11,000 (11,000) -0- Entire Value 375,000 * 320,000 55,000 (55,000) -0- To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-14 Punca Company and Subsidiary Consolidated Statements Workpaper Workpaper - Interim basis, Cost Method For the Year Ended December 31, 2010 Punca Surrano Company Company Income Statement Sales Dividend Income Total Revenue Cost of Goods Sold Other Expenses Total Cost and Expense Net Income Net Income Purchased Noncontrolling Interest* Net Income to Retained Earnings Retained Earnings Statement Retained Earnings 1/1 Punca Company Surrano Company Net Income from above Dividends Declared Punca Company Surrano Company Retained Earnings 12/31 Balance Sheet Current Assets Investment in Surrano Difference b/w Implied & Book Value Plant and Equipment Total Accounts and Notes Payable Dividends Payable Common Stock: Punca Company Surrano Company Other Contributed Capital Punca Company Surrano Company Treasury Stock Retained Earnings from above Noncontrolling Interest 1/1 Noncontrolling Interest 12/31 Total Eliminating Entries Dr Cr Noncontroll Consolidated ing Balance Interest 2,100,000 1,300,000 42,500 6,000 (1) 42,500 2,142,500 1,306,000 1,540,000 759,000 415,000 250,000 1,955,000 1,009,000 187,500 297,000 (3) 148,500 187,500 297,000 22,275 22,275 191,000 355,000 187,500 3,400,000 6,000 3,406,000 2,299,000 665,000 2,964,000 442,000 (148,500) (22,275) 271,225 355,000 241,000 (3) 241,000 297,000 191,000 22,275 271,225 (7,500) 14,775 626,225 542,500 150,000 590,000 (50,000) 488,000 180,000 (1) 432,000 42,500 42,500 (2) (3) (3) 62,618 (4) 42,500 590,000 62,618 287,500 1,250,000 1,990,000 750,000 (4) 62,618 930,000 2,062,618 2,350,118 277,500 150,000 50,000 (2) 42,500 427,500 7,500 270,000 270,000 40,000 (3) 40,000 900,000 542,500 1,990,000 900,000 250,000 (3) 250,000 (48,000) (3) 488,000 432,000 (3) 930,000 *$148,500 x 15 = $22,275 - 51 889,736 48,000 42,500 104,118 889,736 14,775 104,118 118,893 626,225 118,893 2,350,118 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-14 (continued) (1) To eliminate intercompany dividends (2) To eliminate intercompany dividends receivable and payable (3) To eliminate investment in Surrano company and create noncontrolling interest account (4) To allocate the difference between implied and book value Computation and Allocation of Difference between Implied and Book Value Acquired Parent Share Purchase price and implied value Less: Book value of equity acquired: Equity ($531,000 - $48,000) Subsidiary Income purchased (6/12)($297,000) Total book value Difference between implied and book value Undervalued land Balance 590,000 NonControlling Share 104,118 410,550 72,450 483,000 126,225 536,775 53,225 (53,225) -0- 22,275 94,725 9,393 (9,393) -0- 148,500 631,500 62,618 (62,618) -0- *$590,000/.85 - 52 Entire Value 694,118 * To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-15 Worksheet - Cost Method Punca Company and Subsidiary Consolidated Statements Workpaper For the Year Ended December 31, 2010 Punca Surrano Company Company Income Statement Sales Dividend Income Total Revenue Cost of Goods Sold Other Expenses Total Cost and Expense Net Income Noncontrolling Interest* Net Income to Retained Earnings Retained Earnings Statement Retained Earnings Punca Company 1/1 Surrano Company 7/1 Net Income from above Dividends Declared Punca Company 1/1 Surrano Company 7/1 Retained Earnings 12/31 Balance Sheet Current Assets Investment in Surrano Difference b/w Implied & Book Value Plant and Equipment Total Accounts and Notes Payable Dividends Payable Common Stock: Punca Company 1/1 Surrano Company 7/1 Other Contributed Capital Punca Company 1/1 Surrano Company 7/1 Treasury Stock Retained Earnings from above Noncontrolling Interest 1/1 Noncontrolling Interest 12/31 Total 2,100,000 42,500 2,142,500 1,540,000 415,000 1,955,000 187,500 187,500 Eliminating Entries Noncontrolling Consolidated Interest Balance Dr Cr 650,000 3,000 (1) 42,500 653,000 379,500 125,000 504,500 148,500 148,500 22,275 22,275 42,500 355,000 187,500 2,750,000 3,000 2,753,000 1,919,500 540,000 2,459,500 293,500 (22,275) 271,225 355,000 389,500 (3) 389,500 148,500 42,500 22,275 271,225 (7,500) 14,775 626,225 542,500 150,000 590,000 (50,000) 488,000 180,000 432,000 (1) 42,500 42,500 (2) 42,500 (3) 590,000 (3) 62,618 (4) 62,618 287,500 1,250,000 1,990,000 750,000 (4) 62,618 930,000 2,062,618 2,350,118 277,500 150,000 50,000 (2) 42,500 427,500 7,500 270,000 270,000 40,000 (3) 40,000 900,000 542,500 1,990,000 900,000 250,000 (3) 250,000 (48,000) (3) 48,000 488,000 432,000 42,500 (3) 104,118 930,000 *$148,500 x 15 = $22,275 - 53 889,736 889,736 14,775 104,118 118,893 626,225 118,893 2,350,118 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-15 (continued) (1) To eliminate intercompany dividends (2) To eliminate intercompany dividends receivable and payable (3) To eliminate investment in Surrano company and create noncontrolling interest account (4) To allocate the difference between implied and book value Computation and Allocation of Difference between Implied and Book Value Acquired Parent Share Purchase price and implied value Less: Book value of equity acquired: Equity ($531,000 - $48,000) Subsidiary Income purchased (6/12)($297,000) Total book value Difference between implied and book value Undervalued land Balance 590,000 NonControlling Share 104,118 410,550 72,450 483,000 126,225 536,775 53,225 (53,225) -0- 22,275 94,725 9,393 (9,393) -0- 148,500 631,500 62,618 (62,618) -0- *$590,000/.85 - 54 Entire Value 694,118 * To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-16 Workpaper - Interim Basis, Partial Equity Method Pillow Company and Subsidiary Consolidated Statements Workpaper For the Year Ended December 31, 2009 Pillow Satin Company Company Income Statement Sales Equity in Subsidiary Income Total Revenue Cost of Goods Sold Other Expenses Total Cost and Expense Net Income Net Income Purchased Noncontrolling Interest * Net Income to Retained Earnings Retained Earnings Statement Retained Earnings 1/1 Pillow Company Satin Company Net Income from above Dividends Declared Pillow Company Satin Company Retained Earnings 12/31 Balance Sheet Current Assets Investment in Satin Difference b/w Implied & Book Value Plant and Equipment Total Accounts and Notes Payable Dividends Payable Common Stock: Pillow Company Satin Company Other Contributed Capital Pillow Company Satin Company Treasury Stock Retained Earnings from above Noncontrolling Interest 1/1 Noncontrolling Interest 12/31 Total * ($150,000 10) = $15,000 **$52,667 - $5,000 = $47,667 1,940,000 90,000 2,030,000 1,261,000 484,000 1,745,000 285,000 Eliminating Entries Dr Cr Noncontrolling Consolidated Interest Balance 976,000 2,916,000 (1) 90,000 976,000 584,000 242,000 826,000 150,000 (3) 45,000 285,000 150,000 15,000 15,000 135,000 315,360 285,000 2,916,000 1,845,000 726,000 2,571,000 345,000 (45,000) (15,000) 285,000 315,360 209,200 (3) 209,200 150,000 135,000 15,000 285,000 (6,000 ) 9,000 600,360 600,360 390,600 510,000 (60,000 ) 299,200 179,200 (3) 1,334,000 2,234,600 270,240 562,000 (4) 741,200 (1) 344,200 (2) (3) (1) 9,467 (4) 54,000 54,000 54,000 474,000 36,000 9,467 515,800 9,467 1,905,467 2,421,267 124,000 60,000 (2) 54,000 394,240 6,000 1,000,000 1,000,000 200,000 (3) 200,000 364,000 600,360 2,234,600 364,000 90,000 (3) 90,000 (32,000 ) (3) 299,200 344,200 (3) 741,200 - 55 707,134 32,000 54,000 47,667 ** 707,134 9,000 47,667 56,667 600,360 56,667 2,421,267 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-16 (continued) (1) To eliminate intercompany dividends and income (2) To eliminate intercompany receivables and payables (3) To eliminate investment in Satin Company and create noncontrolling interest account (4) To allocate the difference between implied and book value Computation and Allocation of Difference between Implied and Book Value Acquired Parent Share Purchase price and implied value Less: Book value of equity acquired: Equity ($499,200 - $32,000) Subsidiary Income purchased (4/12)($150,000) Total book value Difference between implied and book value Undervalued land Balance 474,000 NonControlling Share 52,667 420,480 46,720 467,200 45,000 465,480 8,520 (8,520) -0- 5,000 51,720 947 (947) -0- 50,000 517,200 9,467 (9,467) -0- $474,000/.90 - 56 Entire Value 526,667 * To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-17 Pillow Company and Subsidiary Consolidated Statements Workpaper Workpaper - Partial Equity Method For the Year Ended December 31, 2009 Pillow Satin Company Company Income Statement Sales Equity in Subsidiary Income Total Revenue Cost of Goods Sold Other Expenses Total Cost and Expense Net Income Noncontrolling Interest ($10,000 10) Net Income to Retained Earnings 1,940,000 90,000 2,030,000 1,261,000 484,000 1,745,000 285,000 650,666 285,000 100,000 Eliminating Entries Noncontrolling Consolidated Dr Cr Interest Balance 2,590,666 (1) 90,000 650,666 389,333 161,333 550,666 100,000 Pillow Satin Company Company Retained Earnings Statement Retained Earnings 1/1 Pillow Company Satin Company Net Income from above Dividends Declared Pillow Company Satin Company Retained Earnings 12/31 Balance Sheet Current Assets Investment in Satin Difference b/w Implied & Book Value Plant and Equipment Total Accounts and Notes Payable Dividends Payable Common Stock Pillow Company Satin Company Other Contributed Capital Pillow Company Satin Company Treasury Stock Retained Earnings from above Noncontrolling Interest 1/1 Noncontrolling Interest 12/31 Total *$52,667 + $4,000 = $56,667 10,000 10,000 90,000 Eliminating Entries Noncontrolling Consolidated Dr Cr Interest Balance 315,360 285,000 2,590,666 1,650,333 645,333 2,295,666 295,000 (10,000) 285,000 315,360 259,200 (3) 259,200 100,000 90,000 10,000 285,000 (6,000) 4,000 600,360 600,360 390,600 510,000 (60,000) 299,200 349,200 179,200 (3) 1,334,000 2,234,600 270,240 562,000 (4) 741,200 (1) 54,000 54,000 (2) 54,000 (3) 474,000 (1) 36,000 9,467 (4) 9,467 515,800 9,467 1,905,467 2,421,267 124,000 60,000 (2) 54,000 394,240 6,000 1,000,000 1,000,000 200,000 (3) 200,000 364,000 364,000 90,000 (3) 90,000 (32,000) (3) 32,000 600,360 299,200 349,200 54,000 (3) 52,667 2,234,600 741,200 - 57 712,134 712,134 * 4,000 52,667 56,667 600,360 56,667 2,421,267 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-17 (continued) (1) To eliminate intercompany dividends (2) To eliminate intercompany receivables and payables (3) To eliminate investment in Satin Company and create noncontrolling interest account (4) To allocate the difference between implied and book value Computation and Allocation of Difference between Implied and Book Value Acquired Parent Share Purchase price and implied value Less: Book value of equity acquired: Equity ($499,200 - $32,000) Subsidiary Income purchased (4/12)($150,000) Total book value Difference between implied and book value Undervalued land Balance 474,000 NonControlling Share 52,667 420,480 46,720 467,200 45,000 465,480 8,520 (8,520) -0- 5,000 51,720 947 (947) -0- 50,000 517,200 9,467 (9,467) -0- *$474,000/.90 - 58 Entire Value 526,667 * To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-18 Consolidated Statement of Cash Flows - Indirect Method P Company and Subsidiary Consolidated Statement of Cash Flows For the Year Ended December 31, 2011 Cash flows from operating activities: Consolidated net income $330,000 Adjustments to convert consolidated net income to net cash flow from operating activities Depreciation expense Increase in accounts receivable Increase in inventories Decrease in accounts payable Increase in accrued payable Net cash flow from operating activities 95,000 (110,000) (20,000) (232,000) 60,000 Cash flows from investing activities: Purchases of plant assets (207,000) 123,000 (545,000) Cash flows from financing activities: Proceeds from the issuance of bonds Proceeds from the issuance of common stock * Cash dividends paid ** Net cash flow from financing activities Decrease in cash * ($600,000 + $275,000) – ($450,000 + $225,000) = $200,000 ** ($60,000 + ($40,000 20)) = $68,000 - 59 240,000 200,000 (68,000) 372,000 ($50,000) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 4-19 Parks Company and Subsidiary Consolidated Statement of Cash Flows – Direct Method For the Year Ended December 31, 2012 Cash flows from operating activities: Cash received from customers (1) Cash received from investment income Total cash provided by operating activities Less cash paid for: Merchandise purchases (2) Operating expenses (3) Net cash flow from operating activities $274,000 4,500 $278,500 $159,000 83,000 Cash flows from investing activities: Purchase of plant assets (4) 242,000 $36,500 (33,000) Cash flows from financing activities: Proceeds from the issuance of common stock Retirement of bonds payable Cash dividends paid (5) Net cash flow from financing activities Increase in cash $ 87,500 (50,000) (20,300) 17,200 $20,700 (1) Accrual basis sales Plus: beginning accounts receivable Less: ending accounts receivable Cash received from customers $239,000 90,000 (55,000) $274,000 (2) Accrual basis cost of goods sold Less: beginning inventory Plus: ending inventory Plus: beginning accounts payable Less: ending accounts payable Cash paid for merchandise purchases $104,000 (92,000) 126,000 88,500 (67,500) $159,000 (3) Operating expenses Plus: beginning accrued expenses Less: ending accrued expenses Cash paid for operating expenses $72,000 41,000 (30,000) $83,000 (4) Increase in property, plant, and equipment Add: Depreciation Cash paid for purchases of plant assets $6,000 27,000 $33,000 (5) Beginning retained earnings Plus: consolidated net income Total Less: ending retained earnings Dividends paid by Parks Company Plus: dividends paid by SCR, Inc to noncontrolling interest ($8,000 Cash paid for dividends - 60 10) $112,500 37,500 150,000 130,500 19,500 800 $20,300 ...To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com consolidated retained earnings... determining cash paid as dividends because the entire amount of the 4-2 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com noncontrolling interest in net... history and may leak personal information to the advertising firm 4-3 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ANSWERS TO FINANCIAL STATEMENT