THÔNG TIN TÀI LIỆU
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER ANSWERS TO QUESTIONS Constructive retirement refers to the purchase of an affiliate's outstanding bonds from outsiders From a consolidated entity viewpoint, the consolidated entity has retired its outstanding debt, and is thus treated as an early extinguishment of debt The difference between the carrying value of the bonds and the purchase price to the purchasing affiliate is the constructive gain or loss on bond retirement The gain or loss is composed of two elements: (1) the discount or premium on the books of the issuer, and (2) the discount or premium paid by the purchaser Discounts and/or premiums on the books of the two affiliates will be subsequently amortized to income The cumulative effect on income of the amortization of the discount or premium by the two affiliates is equal to the constructive gain or loss The allocation of a gain or loss would be made to each affiliate based on whether the affiliate paid or issued the bonds for more or less than book value or par value A discount (premium) to the issuer would be allocated to the issuing company as a loss (gain), whereas a discount (premium) to the purchasing affiliate would be a gain (loss) The sum of the two is the total constructive gain or loss Support for allocating the total gain or loss to the issuing company is based on the contention that the purchasing affiliate is acting as an agent for the issuing company Since both companies are under the control of the management of the parent company, the bonds could be transferred to the issuing company Thus, the purchase is in substance a retirement by the issuing company The noncontrolling interest is affected by the portion of the constructive gain or loss allocated to the subsidiary Because the loss is recognized in the consolidated income statement in the year the bonds are purchased, a discount or premium amortization related to bonds that is made subsequent to the purchase is added back or is subtracted from the subsidiary's reported income Such adjustments will increase or decrease the noncontrolling interest in the income of the subsidiary a Investor Company Purchase price Par value Constructive gain $338,000 350,000 $ 12,000 b Investee Company Carrying value Par value Constructive gain $360,000 350,000 $ 10,000 The outside party (the maker of the note) is primarily liable; and Affiliate Y, who discounted the note with an outside party, is contingently liable for it Stock dividends are viewed as a distribution of the earliest earnings accumulated in the retained earnings account The retained earnings balance at the date of acquisition is reduced since the issuance of a stock dividend is viewed as a distribution of the earliest earnings accumulated 9-1 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 10 A memorandum entry is required to recognize the number of shares received since a dividend in stock is not considered income to the recipient 11 In the year of declaration, one additional elimination entry is required to eliminate the effects of the dividend In subsequent periods the amounts of this entry are combined with the investment elimination entry 12 Preferred stock of a controlled corporation held by others not in the controlled group represents noncontrolling interest in the controlled corporation The rights of these shareholders depend on the stock's preference; possibilities are an interest in net assets, earnings, and retained earnings of the controlled corporation 13 Excess of cost over book value is debited to Other Contributed Capital or to Retained Earnings; excess of book value acquired over cost is credited to Other Contributed Capital 14 The preferred stock's cumulative preference would increase the net loss allocable to the common stockholders SOLUTIONS TO BUSINESS ETHICS CASE The responsibility of the management of the company is to present accurately the financial statements to the shareholders and investors Accordingly if an error is detected in the books, it should be rectified as soon as it is discovered so that shareholders and investors are not misled Intercompany sales are eliminated in the consolidating process Failure to so is a material omission, particularly when the inventories in question have not been sold to outsiders but remain in the inventories of the consolidated entity You should not succumb to the pressure exerted by the manager of the subsidiary SOLUTIONS TO EXERCISES Exercise 9-1 Part A Part B Cost of bond investment Par value Unamortized discount ($60,000 (16/20)) Carrying value of bonds Percent of bonds purchased Carrying value of bonds purchased Total constructive loss $820,000 $1,000,000 48,000 952,000 80 761,600 $58,400 Pacelli Company Salez Company Carrying value of bonds purchased $761,600 Par value 800,000 Constructive loss $ 38,400 Cost of bond investment Par value of bonds purchased Constructive loss 9-2 $820,000 800,000 $ 20,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Part C June 30 and December 31, 2012 Pacelli Company Interest Expense (10%)(1/2)($1,000,000) Cash 50,000 50,000 Interest Expense Discount on Bonds Payable $60,000 / 20 interest periods = $3,000 3,000 3,000 Salez Company Cash Interest Income ($800,000)(1/2)(10%) 40,000 40,000 Interest Income Investment in Pacelli Company Bonds $20,000 premium /16 periods = $1,250 1,250 1,250 Part D Note: We have provided solutions assuming the use of any of the three methods Since the schedules start with the same reported income of Pacelli under all three methods, this results in three different consolidated net income numbers 2011 Partial Complete Cost Method Equity Method Equity Method $260,000 $260,000 $260,000 48,000 112,000 Reported net income - Pacelli Less: Dividend income ($60,000)(.80) Less: Equity Income ($140,000)(.80) Less: Adjusted Equity Income ($112,000-38,400-(80% of 20,000)) Net income from independent operations - Pacelli 212,000 Less: Constructive loss on bond retirement 38,400 Pacelli's contribution to consolidated income 173,600 Reported net income of Salez $140,000 Less: Constructive loss on bond retirement 20,000 Salez's contribution to consolidated income 120,000 80 96,000 Controlling interest in consolidated net income $269,600 Noncontrolling interest in consolidated income ($120,000 20) $24,000 9-3 148,000 38,400 109,600 57,600 202,400 38,400 164,000 96,000 $205,600 96,000 $260,000 $24,000 $24,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 9-1 (continued) Partial Complete Cost Method Equity Method Equity Method $280,000 $280,000 $280,000 48,000 152,000 2012 Reported net income - Pacelli Less: Dividend income ($60,000)(.80) Less: Equity income ($190,000)(.80) Less: Adjusted Equity income ($152,000 + $4,800 + (.80 $ Net income from independent operations - Pacelli 232,000 Add: Constructive loss recorded* 4,800 Pacelli's contribution to consolidated income 236,800 Reported net income of Salez $190,000 Add: Constructive loss recorded** 2,500 Salez's contribution to consolidated income 192,500 0.80 154,000 Controlling interest in consolidated net income $390,800 Noncontrolling interest in consolidated income ($192,500 20) $38,500 128,000 4,800 132,800 158,800 121,200 4,800 126,000 154,000 $286,800 154,000 $280,000 $38,500 $38,500 *($3,000 80) = $4,800 or constructive loss divided by years = $38,400/8 years = $4,800 ** Constructive loss divided by years = $20,000/8 = $2,500 Exercise 9-2 December 31, 2011 Cost and Partial Equity 38,400 38,400 Loss on Constructive Retirement of Bonds Discount on Bonds Payable Loss on Constructive Retirement of Bonds Investment in Pacelli Company Bonds 20,000 Bonds Payable Investment in Pacelli Company Bonds 800,000 Complete Equity 38,400 38,400 20,000 20,000 20,000 800,000 800,000 800,000 December 31, 2012 Beginning Retained Earnings - Pacelli Company Discount on Bonds Payable 38,400 38,400 Investment in Salez Discount on Bonds Payable Discount on Bonds Payable Interest Expense (($3,000 + $3,000) 38,400 38,400 4,800 80) 4,800 4,800 9-4 4,800 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 9-2 (continued) Cost and Partial Equity 16,000 4,000 20,000 Beginning Retained Earnings - Pacelli Noncontrolling Interest Investment in Pacelli Company Bonds Investment in Salez Noncontrolling Interest Investment in Pacelli Company Bonds 16,000 4,000 20,000 Investment in Pacelli Company Bonds Interest Income ($1,250 + $1,250) Interest Income Interest Expense Nominal interest of $100,000 Complete Equity 2,500 2,500 2,500 80,000 2,500 80,000 80,000 80,000 80 = $80,000 Bonds Payable Investment in Pacelli Company 800,000 800,000 800,000 800,000 December 31, 2013 Cost and Partial Equity 38,400 38,400 Beginning Retained Earnings - Pacelli Discount on Bonds Payable Discount on Bonds Payable Beginning Retained Earnings - Pacelli Interest Expense (($3,000 + $3,000) 80) 9,600 4,800 4,800 Investment in Salez Discount on Bonds Payable Discount on Bonds Payable Investment in Salez Interest Expense (($3,000 + $3,000) Complete Equity 38,400 38,400 9,600 4,800 4,800 80) Beginning Retained Earnings - Pacelli –Noncontrolling Interest Investment in Pacelli Company Bonds 16,000 4,000 Investment in Pacelli Company Bonds Beginning Retained Earnings - Pacelli Noncontrolling Interest Interest Income ($1,250 + $1,250) 5,000 20,000 2,000 500 2,500 9-5 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 9-2 (continued) Cost and Partial Equity Investment in Salez Noncontrolling Interest Investment in Pacelli Company Bonds Complete Equity 16,000 4,000 20,000 Investment in Pacelli Company Bonds Investment in Salez Noncontrolling Interest Interest Income ($1,250 + $1,250) Interest Income Interest Expense Nominal interest of $100,000 5,000 2,000 500 2,500 80,000 80,000 80,000 80,000 80 = $80,000 Bonds Payable Investment in Pacelli Company 800,000 800,000 800,000 800,000 Exercise 9-3 Part A Cost of bond investment ($510,000 90) Par value Unamortized premium ($42,500 ) Carrying value of bonds Percent of bonds purchased (510/850) Carrying value of bonds purchased Total constructive gain Part B Fairfield Company Cost of bond investment Par value Constructive gain $459,000 $850,000 34,000 884,000 60 530,400 $71,400 $459,000 510,000 $ 51,000 Weber Company Carrying value of bonds purchased Par value Constructive gain $530,400 510,000 $ 20,400 Part C June 30 and December 31, 2012 Fairfield Company Cash ($510,000 10 ) 12 25,500 Interest Income 25,500 Investment in Weber Company Bonds Interest Income $51,000 / periods = $6,375 6,375 6,375 9-6 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 9-3 (continued) Weber Company Interest Expense Cash ($850,000 42,500 10 ) 12 42,500 Premium on Bonds Interest Expense $34,000 / periods = $4,250 4,250 4,250 Part D Note: We have provided solutions assuming the use of any of the three methods Since the schedules start with the same reported income of Fairfield under all three methods, this results in three different consolidated net income numbers 2011 Reported net income - Fairfield Less: Dividend income ($60,000 90) Less: Equity income ($190,000)(.90) Less: Adjusted Equity income (171,000+51,000 + 9(20,400)) Net income from independent operations – Fairfield Add: Constructive gain on bond retirement Fairfield's contribution to consolidated income Reported net income - Weber $190,000 Add: Constructive gain on bond retirement 20,400 Weber's contribution to consolidated income 210,400 90 Controlling interest in consolidated net income Noncontrolling interest in consolidated income ($210,400 10) 9-7 Partial Complete Cost Method Equity Method Equity Method $275,000 $275,000 $275,000 54,000 171,000 221,000 51,000 272,000 104,000 51,000 155,000 240,360 34,640 51,000 85,640 189,360 $461,360 189,360 $344,360 189,360 $275,000 $21,040 $21,040 $21,040 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 9-3 (continued) 2012 Reported net income - Fairfield Less: Dividend income ($80,000 90) Less Equity income ($225,000)(.90) Less: Adjusted Equity income ($202,500 - $12,750 - (.9)5,100) Net income from independent operations - Fairfield Less: Constructive gain recorded* Fairfield's contribution to consolidated income Reported net income - Weber $225,000 Less: Constructive gain recorded** 5,100 Weber's contribution to consolidated income 219,900 90 Controlling interest in consolidated net income Partial Complete Cost Method Equity Method Equity Method $350,000 $350,000 $350,000 72,000 202,500 278,000 12,750 265,250 147,500 12,750 134,750 185,160 164,840 12,750 152,090 197,910 $463,160 197,910 $332,660 197,910 $350,000 $21,990 $21,990 $21,990 Noncontrolling interest in consolidated income ($219,900 10) * $6,375 = $12,750 or $51,000/4 periods = $12,750 **$4,250 60 = $2,550; $2,550 = $5,100 Exercise 9-4 December 31, 2011 Premium on Bonds Payable ($34,000 60) Constructive Gain on Bond Retirement Cost and Partial Equity 20,400 20,400 Investment in Weber Company Bonds Constructive Gain on Bond Retirement 51,000 Bonds Payable Investment in Weber Company Bonds 510,000 Complete Equity 20,400 20,400 51,000 51,000 510,000 510,000 9-8 51,000 510,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 9-4 (continued) December 31, 2012 Investment in Weber Co Bonds Beginning Retained Earnings - Fairfield Cost and Partial Equity 51,000 51,000 Investment in Weber Co Bonds Investment in Weber Co Stock 51,000 51,000 Interest Income ($6,375 Investment in Weber Company Bonds 12,750 Premium on Bonds Payable Beginning Retained Earnings - Fairfield Noncontrolling Interest 20,400 12,750 12,750 12,750 18,360 2,040 Premium on Bonds Payable Investment in Weber Co Stock Noncontrolling Interest 20,400 18,360 2,040 Interest Expense (($4,250 2) 60) Premium on Bonds Payable 5,100 5,100 5,100 Interest Income Interest Expense Bonds Payable Investment in Weber Company Bonds Complete Equity 51,000 5,100 51,000 51,000 510,000 510,000 510,000 9-9 51,000 510,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 9-4 (continued) December 31, 2013 Investment in Weber Co Bonds Beginning Retained Earnings - Fairfield Cost and Partial Equity 51,000 51,000 Investment in Weber Co Bonds Investment in Weber Co Stock 51,000 51,000 Beginning Retained Earnings – Fairfield Interest Income ($6,375 Investment in Weber Company Bonds 12,750 12,750 12,750 25,500 Investment in Weber Co Stock Interest Income ($6,375 Investment in Weber Company Bonds 12,750 12,750 12,750 25,500 Premium on Bonds Payable Beginning Retained Earnings - Fairfield Noncontrolling Interest 20,400 18,360 2,040 Premium on Bonds Payable Investment in Weber Co Stock Noncontrolling Interest 20,400 18,360 2,040 Beginning Retained Earnings – Fairfield Noncontrolling Interest Interest Expense (($4,250 2) 60) Premium on Bonds Payable 4,590 510 5,100 10,200 Investment in Weber Co Stock Noncontrolling Interest Interest Expense (($4,250 2) 60) Premium on Bonds Payable 4,590 510 5,100 10,200 Interest Income Interest Expense Bonds Payable Investment in Weber Company Bonds Complete Equity 51,000 51,000 51,000 510,000 510,000 510,000 - 10 51,000 510,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-8 (continued) Part B Income Statement Sales Dividend Income Total Revenue Cost of Goods Sold PARSON INDUSTRIES AND SUBSIDIARY Consolidated Statements Workpaper For the Year Ended December 31, 2017 Parson Succo Industries Company 404,000 300,000 4,000 408,000 300,000 200,000 160,000 Operating Expenses Income Taxes Net/Consolidated Income Noncontrolling Interest in Consolidated Income Preferred Stock ($15,000 1.00) Common Stock ($41,375* 20) Net Income to Retained Earnings Retained Earnings Statement 1/1 Retained Earnings - Parson Industries 36,400 50,000 40,200 276,600 131,400 27,000 237,000 63,000 131,400 Net Income from above Dividends Declared Parson Industries Succo Company Preferred Stock Common Stock 12/31 Retained Earnings to Balance Sheet 131,400 (6) 4,167 (4) (11) 6,000 625 Noncontrolling Interest (5) 100,000 (7) 2,500 261,667 93,025 (4) (7) (10) (11) 114,792 102,500 2,400 2,500 5,000 3,500 (1) 24,000 (3) 24,000 34,000 73,000 (9) 73,000 63,000 114,792 15,000 8,275 23,275 * ($63,000 - $6,000 loss - $625 depreciation) - $15,000 - 48 (23,275) 158,833 192,000 34,000 102,500 23,275 (65,000) 223,800 Consolidated Balances 604,000 604,000 67,200 421,892 182,108 63,000 157,400 Succo Company Preferred Stock Common Stock Eliminations Dr Cr (5) 100,000 (8) 4,000 158,833 (65,000) (45,000) (5,000) 120,000 (8) 201,192 4,000 154,500 (45,000) (1,000) 11,275 285,833 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-8 (continued) Balance Sheet Cash and Receivables Inventories Land Buildings and Equipment Accumulated Depreciation Investment in Succo Company Goodwill Difference between Implied and Book Value Total Assets Current Liabilities Bonds Payable Preferred Stock - Succo Company Common Stock Parson Industries, $10 par Succo Company, $10 par Other Contributed Capital Parson Industries Succo Company Retained Earnings from above 1/1 Noncontrolling interest in Net Assets 12/31 Noncontrolling interest in Net Assets Total Liabilities and Equity Parson Industries Succo Company Eliminations Dr Cr Noncontrolling Consolidated Interest Balances 396,800 200,000 300,000 697,000 205,000 (2) 10,000 170,000 (6) 4,167 120,000 (10) 6,250 245,000 (3) 50,000 (10) 12,500 (100,000) (70,000) (3) 20,000 (4) 9,000 (11) 5,000 300,000 (1) 24,000 (9) 324,000 (10) 57,000 (9) 82,000 (10) 82,000 1,793,800 670,000 370,000 400,000 100,000 (2) 10,000 100,000 100,000 591,800 365,833 426,250 1,004,500 (204,000) 57,000 2,241,383 460,000 500,000 100,000 600,000 600,000 200,000 (9) 200,000 200,000 223,800 200,000 50,000 (9) 50,000 120,000 201,192 (4) 600 (10) 1,250 (11) 875 1,793,800 670,000 - 49 695,667 154,500 (3) 6,000 (9) 81,000 695,667 11,275 84,275 285,833 195,550 195,550 2,241,383 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-8 (continued) Explanations of workpaper entries (1) Investment in Succo Company 1/1 Retained Earnings - Parson Industries To establish reciprocity (convert to equity), (($73,000 - $43,000) 80 = $24,000) (2) Current Liabilities (Accounts Payable) Cash and Receivables (Accounts Receivables) To eliminate intercompany receivable and payable 24,000 24,000 10,000 10,000 (3) Buildings and Equipment 50,000 1/1 Retained Earnings - Parson Industries ($30,000 80) 1/1 Noncontrolling Interest Accumulated Depreciation To eliminate unrealized loss on intercompany sale of equipment and to restate property and equipment at original cost to Succo Company (4) 1/1 Retained Earnings - Parson Industries ($3,000 80) 1/1 Noncontrolling interest Operating expenses (depreciation expense) ($80,000 $50,000)/5 Accumulated Depreciation To adjust depreciation recorded during the current and prior years (5) Sales 24,000 6,000 20,000 2,400 600 6,000 9,000 100,000 Cost of Goods Sold (purchases) To eliminate intercompany sales 100,000 (6) Cost of Goods Sold (Ending Inventory – Income Statement) Inventory (Balance Sheet) ($25,000 $25,000/1.20) To eliminate unrealized intercompany profit in ending inventory 4,167 (7) 1/1 Retained Earnings Parson Industries Cost of Goods Sold ($15,000 $15,000/1.20) To recognize profit realized during the year 2,500 (8) Dividend Income Dividends declared To eliminate intercompany dividends 4,000 4,167 2,500 4,000 (9) 1/1 Retained Earnings – Succo- Common Stock 73,000 Common Stock – Succo 200,000 Other Contributed Capital – Succo 50,000 Difference between Implied and Book Value 82,000 Investment in Succo Company 324,000 Noncontrolling interest account [$75,000 + ($73,000 - $43,000) x 2] 81,000 To eliminate the investment account and create noncontrolling interest account - 50 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-8 (continued) (10)Buildings and Equipment Land Goodwill 1/1 Retained Earnings Parson Industries Noncontrolling interest Difference between Implied and Book Value To allocate the difference between implied and book value (11) 1/1 Retained Earnings - Parson Industries* Noncontrolling interest* Operating Expense (Depreciation) Accumulated Depreciation To depreciate the difference between implied and book value 12,500 6,250 57,000 5,000 1,250 82,000 3,500 875 625 5,000 * $625 x x = $3,500; $625 x x = $875 Supporting Computations: (3)(4) Loss on sale of equipment - $80,000 - $50,000 = $30,000; Loss recognized per year $6,000 $6,000 = $3,000 recognized last year $25,000 (6) = $20,833; gross profit $4,167 1.20 $15,000 (7) = $12,500; gross profit $2,500 1.20 (10), (11) Allocation of difference 2010 2011-16 Equipment $12,500/20 $625 $3,750 Inventories 6,250 6,250 Land 6,250 Goodwill 57,000 Total $82,000 $6,875 $3,750 - 51 2017 $625 $625 Unamortized $7,500 6,250 57,000 $70,750 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-8 (continued) Part C Reported net income - Parson Industries Less: Dividend income $131,400 4,000 127,400 2,500 (4,167) 125,733 Add: Realized gross profit in beginning inventory Less: Unrealized gross profit in ending inventory Parson's contribution to consolidated income Reported net income - Succo Company Less: Amortization of difference Less: Recorded loss on upstream sale of fixed asset Succo Company's realized reported income Less: Net income allocated to preferred stockholders Net income allocated to common stockholders Parson Industries' interest Controlling interest in consolidated net income - 52 $63,000 (625) (6,000) 56,375 15,000 41,375 80 33,100 $158,833 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-9 Part A Computation and Allocation of Difference between Implied and Book Value Acquired Parent Share Purchase price and implied value Less: Book value of equity acquired: Common Stock Other Contributed Capital Retained Earnings Difference between implied and book value Equipment Inventories Land Balance Goodwill Balance $300,000 160,000 40,000 34,400 65,600 (10,000) (5,000) (5,000) 45,600 (45,600) -0- a Allocation of Retained Earnings: Retained Earnings balance, date of purchase Allocation of Preferred Stock Call premium Dividends in arrears Allocation to common stock - 53 NonControlling Share 75,000 Entire Value 375,000 40,000 10,000 5,600 16,400 (2,500) (1,250) (1,250) 11,400 (11,400) -0- 200,000 50,000 43,000a 82,000 (12,500) (6,250) (6,250) 57,000 (57,000) -0– $62,000 $4,000 15,000 19,000 $43,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-9 (continued) Part B Income Statement Sales Equity in Subsidiary Income Cost of Goods Sold Operating Expenses Parson Succo Industries Company 404,000 300,000 31,433 435,433 300,000 200,000 160,000 36,400 50,000 Income Taxes Total Expenses Net/Consolidated Income Noncontrolling Interest in Cons Income Preferred Stock ($15,000 X 1.00) Common Stock ($41,372 X 20) Net Income to Retained Earnings Retained Earnings Statement 1/1 Retained Earnings Parson Industries Succo Company Preferred Stock Common Stock 40,200 276,600 158,833 27,000 237,000 63,000 Net Income from above Dividends Declared Parson Industries Succo Company Preferred Stock Common Stock 12/31 Retained Earnings to Balance Sheet 158,833 158,833 Eliminations Dr (4) 100,000 (7) 31,433 (5) 4,167 (3) (10) 6,000 625 Cr Noncontrolling Interest (4) 100,000 (6) 2,500 93,025 67,200 421,892 182,108 63,000 142,225 102,500 15,000 8,275 23,275 192,000 (23,275) 158,833 192,000 34,000 73,000 63,000 34,000 (8) 73,000 142,225 102,500 23,275 (65,000) 285,833 Consolidated Balances 604,000 604,000 261,667 158,833 (65,000) (45,000) (5,000) 120,000 - 54 (7) 215,225 4,000 106,500 (45,000) (1,000) 11,275 285,833 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-9 (continued) Balance Sheet Cash and Receivables Inventories Land Buildings and Equipment Accumulated Depreciation Investment in Succo Company Goodwill Difference between Implied & Book Value Total Assets Current Liabilities Bonds Payable Preferred Stock - Succo Company Common Stock Parson Industries, $10 par Succo Company, $10 par Other Contributed Capital Parson Industries Succo Company Retained Earnings from above 1/1 Noncontrolling Interest in Net Assets 12/31 Noncontrolling Interest in Net Assets Total Liabilities and Equity Parson Succo Industries Company 396,800 205,000 200,000 170,000 300,000 120,000 697,000 245,000 (100,000) Eliminations Dr (1) (5) (9) (2) (9) 6,250 50,000 12,500 (70,000) 362,033 _ _ 1,855,833 670,000 370,000 100,000 400,000 100,000 100,000 Cr 10,000 4,167 Noncontrol Interest (3) (6) (9) (10) (9) (8) 2,400 2,500 5,000 3,500 57,000 82,000 (1) 10,000 (2) 20,000 (3) 9,000 (10) 5,000 (7) 27,433 (8) 324,000 (2) 24,000 (9) 82,000 (204,000) 57,000 2,241,383 460,000 500,000 100,000 600,000 600,000 200,000 (8) 200,000 200,000 285,833 200,000 50,000 120,000 (8) 50,000 215,225 (3) 600 (9) 1,250 (10) 875 106,500 (2) 6,000 (8) 81,000 11,275 84,275 195,550 1,855,833 Consolidated Balances 591,800 365,833 426,250 1,004,500 670,000 - 55 699,100 699,100 285,833 195,550 2,241,383 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-9 (continued) Explanations of workpaper entries (1) Current Liabilities (accounts payable) Cash and Receivables (Accounts Receivables) To eliminate intercompany receivable and payable 10,000 10,000 (2) Buildings and Equipment 50,000 Investment in Succo Company ($30,000 80) 1/1 Noncontrolling Interest Accumulated Depreciation To eliminate unrealized loss on intercompany sale of equipment and to restate property and equipment at original cost to Succo Company (3) Investment in Succo Company ($3,000 80) 2,400 1/1 Noncontrolling Interest 600 Operating Expenses (Depreciation Expense) 6,000 Accumulated Depreciation To adjust depreciation recorded during the current and prior years (4) Sales 24,000 6,000 20,000 9,000 100,000 Cost of Goods Sold (Purchases) To eliminate intercompany sales 100,000 (5) Cost of Goods Sold (Ending Inventory – Income Statement) 4,167 Inventory (Balance Sheet) ($25,000 – ($25,000/1.20)) To eliminate unrealized intercompany profit in ending inventory 4,167 (6) Investment in Succo Company Cost of Goods Sold ($15,000 – ($15,000/1.20)) To recognize profit realized during the year 2,500 2,500 (7) Equity in Subsidiary Income 31,433 Dividends Declared Investment in Succo Company To reverse the effect of parent company entries during the year for subsidiary dividend and income 4,000 27,433 (8) 1/1 Retained Earnings – Succo- Common Stock 73,000 Common Stock – Succos 200,000 Other Contributed Capital – Succo 50,000 Difference between Implied and Book Value 82,000 Investment in Succo Company 324,000 Noncontrolling interest account [$75,000 + ($73,000 - $43,000) x 2] 81,000 To eliminate the investment account and create noncontrolling interest account - 56 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-9 (continued) (9) Buildings and Equipment 12,500 Land 6,250 Goodwill 57,000 Investment in Succo Company 5,000 Noncontrolling interest 1,250 Difference between Implied and Book Value To allocate the difference between implied and book value (10) Investment in Succo Company ($625 x x ) 3,500 Noncontrolling interest ($625 x x ) 875 Operating Expense (depreciation) 625 Accumulated Depreciation To depreciate the difference between implied and book value 82,000 5,000 Supporting Computations: (2)(3) Loss on sale of equipment - $80,000 - $50,000 = $30,000; Loss recognized per year $6,000 $6,000 = $3,000 recognized last year $25,000 (5) = $20,833; gross profit $4,167 1.20 $15,000 (6) = $12,500; gross profit $2,500 1.20 (9), (10) Allocation of difference 2010 2011-16 Equipment $12,500/20 $625 $3,750 Inventories 6,250 6,250 Land 6,250 Goodwill 57,000 Total $82,000 $6,875 $3,750 - 57 2017 $625 $625 Unamortized $7,500 6,250 57,000 $70,750 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-9 (continued) Part C Reported net income - Parson Industries Less: Dividend income $131,400 4,000 127,400 2,500 (4,167) 125,733 Add: Realized gross profit in beginning inventory Less: Unrealized gross profit in ending inventory Parson's contribution to consolidated income Reported net income - Succo Company Less: Amortization of difference Less: Recorded loss on upstream sale of fixed asset Succo Company's realized reported income Less: Net income allocated to preferred stockholders Net income allocated to common stockholders Parson Industries' interest Controlling interest in consolidated net income - 58 $63,000 (625) (6,000) 56,375 15,000 41,375 80 33,100 $158,833 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-10 Part A Prezo Company Purchase price of bonds Par value of bonds ($400,000 × 0.60) Constructive loss $247,071 240,000 $ 7,071 Satz Company Bonds Payable Unamortized premium ($9,000 + $1,500) Carrying value - 7/1/2011 Carrying value of bonds retired Par value Constructive gain - 59 $400,000 24,008 424,008 ×.60 254,405 240,000 $ 14,405 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-10 (continued) Part B PREZO COMPANY AND SUBSIDIARY Consolidated Statements Workpaper For the Year Ended December 31, 2011 Prezo Company Income Statement Sales Dividend Income Other Income Gain on Constructive Retirement of Bonds Loss on Constructive Retirement of Bonds Total Revenue Expenses Net/Consolidated Income Noncontrolling Interest in Consolidated Income ($400,000 + $14,405- $1,824) × 0.20 Net Income to Retained Earnings Retained Earnings Statement 1/1 Retained Earnings: Prezo Company Satz Company Net Income from above Dividends Declared: Prezo Company Satz Company 12/31 Retained Earnings to Balance Sheet Salz Company Eliminations Dr Cr 2,680,000 1,860,000 120,000 (7) 120,000 266,000 120,000 (5) 7,200 Noncontrolling Consolidated Interest Balances 4,540,000 (2) 882 374,882 14,405 (7,071) 4,927,016 4,252,624 674,392 (3) 14,405 (1) 7,071 3,066,000 1,980,000 2,678,000 1,580,000(4) 1,824 (5) 7,200 388,000 400,000 388,000 400,000 _ 136,095 22,487 82,516 82,516 480,000 388,000 480,000 300,000 (8) 300,000 400,000 136,095 22,487 82,516 (250,000) 618,000 - 60 (82,516) 591,876 591,876 (250,000) (150,000) 550,000 436,095 (7) 120,000 142,487 (30,000) 52,516 821,876 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-10 (continued) Balance Sheet Current Assets Investment in Satz Company Common Stock Investment in Satz Co Bonds Other Assets Total Assets Bonds Payable Premium on Bonds Payable Other Liabilities Common Stock Prezo Company Satz Company Retained Earnings from above Noncontrolling Interest in Net Assets Total Liabilities and Equity Prezo Company Salz Company 920,000 880,000 246,189 2,326,411 4,372,600 Dr Eliminations Cr Noncontrolling Consolidated Interest Balances 580,000 1,500,000 (8) 880,000 (2) 882 (1) 7,071 (6) 240,000 1,320,000 1,900,000 400,000 (6) 240,000 20,968 (3) 14,405 (4) 1,454,600 129,032 3,646,411 5,146,411 700,000 860,000 8,387 1,583,632 1,824 1,600,000 618,000 4,372,600 - 61 1,600,000 800,000 (8) 800,000 550,000 440,895 142,487 (8) 220,000 1,900,000 1,491,382 1,491,382 52,516 220,000 272,516 821,876 272,516 5,146,411 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 9-10 (continued) Explanations of workpaper entries (1) Constructive Loss on Bond Retirement 7,071 Investment in Satz Company Bonds To recognize constructive loss and adjust the bond investment to par value (2) Investment in Satz Company Bonds Interest Income To adjust interest income for the loss recorded this period 7,071 882 882 (3) Premium on Bonds Payable 14,405 Constructive Gain on Bond Retirement To recognize constructive gain and adjust the intercompany bonds to par value (4) Interest Expense ($3,040 × 0.60) Premium on Bonds Payable To adjust interest expense for the gain recorded this period 1,824 (5) Interest Income ($240,000 × 0.10 × (6/12)) × 0.60 Interest Expense To eliminate intercompany interest 7,200 14,405 1,824 7,200 (6) Bonds Payable Investment in Satz Company Bonds To eliminate intercompany bond investment and liability 240,000 (7) Dividend Income Dividends Declared To eliminate intercompany dividends 120,000 240,000 120,000 (8) Beginning Retained Earnings – Satz 300,000 Common Stock – Satz 800,000 Investment in Satz Company Common Stock 880,000 Noncontrolling interest 220,000 To eliminate investment account and create noncontrolling interest account Part C Income of Prezo from independent operations ($388,000 - $120,000) Less: Constructive loss on bond retirement Add: Portion of constructive loss recorded this period Prezo's contribution to combined income Reported net income of Satz $400,000 Add: Constructive gain on bond retirement 14,405 Less: Portion of constructive gain recorded this period (1,824) Satz's contribution to consolidated income 412,581 Prezo’s percentage × 0.80 Controlling interest in consolidated net income - 62 $268,000 (7,071) 882 261,811 330,065 $591,876 ... 294 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 9-12 (continued) Part D Note: We have provided solutions assuming the use of any of... 80,000 80,000 80,000 - 25 80,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTIONS TO PROBLEMS Problem 9-1 Case $512,000 3,600 508,400 514,000... consolidated entity You should not succumb to the pressure exerted by the manager of the subsidiary SOLUTIONS TO EXERCISES Exercise 9-1 Part A Part B Cost of bond investment Par value Unamortized
Ngày đăng: 20/01/2018, 11:23
Xem thêm: