Solution manual advanced accounting 10e by fischer taylor CH03

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER UNDERSTANDING THE ISSUES (a) Subsidiary Income = $30,000 Investment in Subsidiary ($400,000 + $30,000 – $5,000) = $425,000 (b) Subsidiary Income ($30,000 – $5,000) = $25,000 Investment in Subsidiary ($400,000 + $25,000 – $5,000) = $420,000 (c) Subsidiary Income = $0 Dividend Income = $5,000 Investment in Subsidiary = $400,000 by fair value adjustments on the acquisition date The NCI share of consolidated net income has, in the past, been shown as an expense That is no longer allowed It is to be shown as a distribution of consolidated net income The $80,000 excess attributed to the controlling interest means that the patent is adjusted by $100,000 ($80,000/80%) (a) Parent net income for 20X1 $140,000 Subsidiary net income in 20X1 ($60,000 ì ẵ year) 30,000 Amortization of excess for 20X1 ($100,000 ÷ 10 × ½ year) (5,000) Consolidated net income $165,000 (b) NCI share of net income = 1/2 × ($60,000 – $10,000) × 20% = $5,000 Date alignment means adjusting the investment account to reflect the same date as the subsidiary equity accounts so that their balances reflect the same point in time (a) Simple equity method—The subsidiary’s equity accounts reflect beginningof-year balances, yet the investment account reflects an end-of-year balance During the consolidation process, the subsidiary income and the parent’s share of the subsidiary’s declared dividends are closed to the investment account to return it to its beginning-ofyear balance (b) Sophisticated equity method—The subsidiary’s equity accounts reflect beginning-of-year balances, yet the investment account reflects an end-ofyear balance During the consolidation process, the subsidiary income and the parent’s share of the subsidiary’s declared dividends are closed to the investment account to return it to its beginning-of-year balance (c) Cost method—The subsidiary’s equity accounts reflect beginning-of-year balances, yet the investment account reflects the balance on the date of acquisition Therefore, the investment account is converted to its simple equity balance at the beginning of the period to create date alignment In 20X1, consolidated net income would be reduced by $20,000 as a result of the inventory and equipment The inventory would increase cost of goods sold by $10,000 ($60,000 – $50,000) The equipment would increase depreciation expense by $10,000 [($150,000 – $100,000) ÷ years] In 20X2, consolidated net income would be reduced by $10,000 as a result of the equipment The equipment would increase depreciation expense by $10,000 [($150,000 – $100,000) ÷ years] The total noncontrolling interest will consist of 20% of the subsidiary’s common stock, paid-in capital in excess of par, retained earnings, dividends declared, and internally generated income The NCI is shown, in total, as a subdivision of equity on the consolidated balance sheet Consolidated net income could exceed the sum of the separately calculated net incomes of the parent and subsidiary This would occur if the fair value of the subsidiary’s net assets were less than their book value, resulting in a markdown of assets The amortization of this markdown would decrease expense; therefore, consolidated net income is increased The noncontrolling share of consolidated net income is the outside ownership share of the subsidiary’s internally generated income as adjusted for amortizations created 79 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Exercises EXERCISES EXERCISE 3-1 Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary Less book value of interest acquired: Common stock ($5 par) Paid-in capital in excess of par Retained earnings Total equity Interest acquired Book value Excess of fair value over book value Parent Price (80%) $450,000* $360,000 $ 50,000 100,000 150,000 $300,000 NCI Value (20%) $90,000 $300,000 80% $240,000 $300,000 20% $ 60,000 $150,000 $120,000 $ 30,000 Adjustment Worksheet Key Adjustment of identifiable accounts: Equipment Goodwill Total $ Life 25,000 debit D1 125,000 debit D2 $150,000 Amortization per Year $5,000 *$360,000/80% = $450,000 (a) Event 20X1 Subsidiary income of $60,000 reported to parent Investment in Hill Company Subsidiary Income 48,000 Dividends of $10,000 paid by Hill Cash Investment in Hill Company 8,000 20X2 Subsidiary income of $40,000 reported to parent Investment in Hill Company Subsidiary Income 32,000 Dividends of $10,000 paid by Hill Cash Investment in Hill Company 8,000 Simple Equity Method 80 48,000 8,000 32,000 8,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Exercises Exercise 3-1, Concluded (b) Event 20X1 Subsidiary income of ($60,000 – $5,000 amortization) × 80% reported to parent Investment in Hill Company Subsidiary Income 44,000 Dividends of $10,000 paid by Hill Cash Investment in Hill Company 8,000 Investment in Hill Company Subsidiary Income 28,000 Cash Investment in Hill Company 8,000 20X2 Subsidiary income of ($40,000 – $5,000 amortization) × 80% reported to parent Dividends of $10,000 paid by Hill Sophisticated Equity Method 44,000 8,000 28,000 8,000 (c) Event 20X1 Subsidiary income of $60,000 reported to parent Cost Method No entry Dividends of $10,000 paid by Hill Cash Dividend Income 20X2 Subsidiary income of $40,000 reported to parent No entry Dividends of $10,000 paid by Hill Cash Dividend Income 81 8,000 8,000 8,000 8,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Exercises EXERCISE 3-2 Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary Less book value of interest acquired: Common stock ($5 par) Paid-in capital in excess of par Retained earnings Total equity Interest acquired Book value Excess of fair value over book value Parent Price (75%) $616,667* $462,500 $ 50,000 150,000 200,000 $400,000 NCI Value (25%) $154,167 $400,000 75% $300,000 $400,000 25% $100,000 $216,667 $162,500 $ 54,167 Adjustment Worksheet Key Adjustment of identifiable accounts: Inventory ($50,000 fair – $40,000 book value) Buildings and equipment ($300,000 fair – $200,000 book value) Patent ($50,000 fair – $30,000 fair value) Goodwill Total $ Life Amortization per Year 10,000 debit D1 100,000 debit D2 20 $5,000 20,000 debit D3 86,667 debit D4 $216,667 10 2,000 *$463,500/75% = $616,667 (a) Simple equity + (75% × Increase in Retained Earnings of $78,000*) Balance $462,500 58,500** $521,000 (b) Sophisticated equity + (75% × Increase in Retained Earnings of $78,000*) – 20X4 Amortization of Excess 75% × ($10,000 Inventory + $5,000 Buildings and Equipment + $2,000 Patent) – 20X5 Amortization of Excess 75% × ($5,000 Buildings and Equipment + $2,000 Patent) Balance $462,500 58,500** (c) Cost *Shaw’s ending retained earnings, December 31, 20X5 – Shaw’s beginning retained earnings, January 1, 20X4 Increase in retained earnings **Or 75% × ($70,000 – $20,000 + $48,000 – $20,000) $462,500 $278,000 200,000 $ 78,000 82 (12,750) (5,250) $503,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Exercises EXERCISE 3-3 (1) Determination and Distribution of Excess Schedule Company Parent Implied Price Fair Value (80%) Fair value of subsidiary Less book value of interest acquired: Common stock ($10 par) Retained earnings Total equity Interest acquired Book value Excess of fair value over book value $312,500* $250,000 $100,000 150,000 $250,000 $ 62,500 NCI Value (20%) $ 62,500 $250,000 80% $200,000 $250,000 20% $ 50,000 $ 50,000 $ 12,500 Adjustment of identifiable accounts: Adjustment Fixed assets Total Worksheet Key $62,500 $62,500 Life debit D Amortization per Year 10 $6,250 *$250,000/80% = $312,500 (2) (CY1) (CY2) (EL) (D) (A) Subsidiary Income Investment in Sultan Company To eliminate parent’s share of subsidiary earnings for the current year 20,000 Investment in Sultan Company ($5,000 × 80%) Dividends Declared To eliminate parent’s share of dividends for the current year 4,000 Common Stock—Sultan ($100,000 × 80%) Retained Earnings—Sultan ($150,000 × 80%) Investment in Sultan Company To eliminate pro rata share of the beginning-ofyear Sultan equity balances 80,000 120,000 Depreciable Fixed Assets Investment in Sultan Company Retained Earnings—Sultan (NCI adjustment) To distribute excess per determination and distribution of excess schedule 62,500 Depreciation Expense Accumulated Depreciation To amortize excess for the current year 6,250 83 20,000 4,000 200,000 50,000 12,500 6,250 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Exercises Exercise 3–3, Continued (3) Pepper Company and Sultan Company Consolidated Income Statement For Year Ended December 31, 20X1 Sales Less expenses (add $6,250 adjustment) Consolidated net income $ $250,000 191,250 58,750 Distributed to noncontrolling interest Distributed to controlling interest $ 3,750 55,000 Subsidiary Sultan Company Income Distribution Depreciation adjustment $6,250 Internally generated net income $25,000 Adjusted income NCI share NCI $18,750 × 20% $ 3,750 Parent Pepper Company Income Distribution Internally generated net income 80% × Sultan adjusted income of $18,750 Controlling interest (4) $40,000 15,000 $55,000 Pepper Company and Subsidiary Sultan Company Consolidated Statement of Retained Earnings For the Year Ended December 31, 20X1 Retained earnings, January 1, 20X1 Consolidated net income Dividends declared Retained earnings, December 31, 20X1 84 Noncontrolling Interest $30,000 3,750 (1,000) $32,750 Controlling Retained Earnings $200,000 55,000 $255,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Exercises Exercise 3–3, Concluded (5) Pepper Company and Subsidiary Sultan Company Consolidated Balance Sheet December 31, 20X1 Assets Current assets Depreciable fixed assets Less accumulated depreciation Total assets Liabilities and Stockholders’ Equity Current liabilities Stockholders’ equity: Noncontrolling interest Controlling interest: Common stock ($10 par) Retained earnings Total liabilities and stockholders’ equity $190,000 a $662,500 132,250b 530,250 $720,250 $100,000 65,250c $300,000 255,000 555,000 $720,250 a $400,000 + $200,000 + $62,500 = $662,500 $106,000 + $20,000 + 6,250 = $132,250 c ($100,000 x 20%) + $32,750 retained earnings + $12,500 NCI adjustment = $65,250 b EXERCISE 3-4 (1) (CY1) (CY2) (EL) (D) (A) Subsidiary Income Investment in Sultan Company To eliminate parent’s share of subsidiary earnings for the current year 12,000 Investment in Sultan Company Dividends Declared To eliminate parent’s share of dividends for the current year 8,000 Common Stock—Sultan Retained Earnings—Sultan ($170,000 × 80%) Investment in Sultan Company To eliminate pro rata share of the beginning-ofyear Sultan equity balances 80,000 136,000 Depreciable Fixed Assets Investment in Sultan Company Retained Earnings—Sultan (NCI adjustment) To distribute excess per determination and distribution of excess schedule 62,500 Depreciation Expense Retained Earnings—Pepper (80% × $6,250) Retained Earnings—Sultan (20% × $6,250) Accumulated Depreciation (2 years × $6,250) To amortize excess for the prior and current years 6,250 5,000 1,250 85 12,000 8,000 216,000 50,000 12,500 12,500 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Exercises Exercise 3–4, Concluded (2) Pepper Company and Sultan Company Consolidated Income Statement For Year Ended December 31, 20X2 Sales Less expenses (add $6,250 adjustment) Consolidated net income $ $300,000 251,250 48,750 Distributed to noncontrolling interest Distributed to controlling interest $ 1,750 47,000 Subsidiary Sultan Company Income Distribution Depreciation adjustment (A) 6,250 Internally generated net income $15,000 Adjusted income NCI share NCI $ 8,750 × 20% $ 1,750 Parent Pepper Company Income Distribution Internally generated net income 80% × Sultan adjusted income of $8,750 Controlling interest 86 $40,000 7,000 $47,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Exercises EXERCISE 3-5 (1) Same as Exercise 3, part (1) (2) (CY1) (CY2) (EL) (D) (A) Subsidiary Income Investment in Sultan Company 15,000 Investment in Sultan Company Dividends Declared 4,000 Common Stock—Sultan Retained Earnings—Sultan Investment in Sultan Company 80,000 120,000 Depreciable Fixed Assets Investment in Sultan Company Retained Earnings—Sultan (NCI adjustment) To distribute excess per determination and distribution of excess schedule 62,500 Depreciation Expense Accumulated Depreciation To amortize excess for the current year 6,250 15,000 4,000 200,000 50,000 12,500 6,250 (3) Same as Exercise 3, part (3) (4) Same as Exercise 3, part (4) (5) Same as Exercise 3, part (5) EXERCISE 3-6 (1) (CY1) (CY2) (EL) (D) (A) Subsidiary Income Investment in Sultan Company 7,000 Investment in Sultan Company Dividends Declared 8,000 Common Stock—Sultan Retained Earnings—Sultan Investment in Sultan Company 80,000 136,000 Depreciable Fixed Assets Investment in Sultan Company Retained Earnings—Sultan (NCI adjustment) To distribute excess per determination and distribution of excess schedule Amounts are 9/10 of original amounts since year has been amortized 56,250 Depreciation Expense Accumulated Depreciation To amortize excess for the current year 6,250 (2) Same as Exercise 4, part (2) 87 7,000 8,000 216,000 45,000 11,250 6,250 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Exercises EXERCISE 3-7 (1) Same as Exercise 3, part (1) (2) (CY2) (EL) (D) (A) Dividend Income Dividends Declared To eliminate parent’s share of subsidiary dividends for the current year 4,000 Common Stock—Sultan Retained Earnings—Sultan Investment in Sultan Company To eliminate pro rata share of the beginning-ofyear Sultan equity balances 80,000 120,000 Depreciable Fixed Assets Investment in Sultan Company Retained Earnings—Sultan (NCI adjustment) To distribute excess per determination and distribution of excess schedule 62,500 Depreciation Expense Accumulated Depreciation To amortize excess for the current year 6,250 (3) Same as Exercise 3, part (3) (4) Same as Exercise 3, part (4) (5) Same as Exercise 3, part (5) 88 4,000 200,000 50,000 12,500 6,250 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems Problem 3A-2, Concluded Subsidiary Kohl International Income Distribution Internally generated net loss Building depreciation Equipment depreciation $20,000 3,000 8,000 Adjusted loss NCI share NCI $31,000 × 20% $ 6,200 Parent Booker Enterprises Income Distribution 80% × Kohl adjusted loss of $31,000 $24,800 163 Internally generated net income $155,000 Controlling interest $130,200 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems PROBLEM 3A-3 Company Implied Fair Value Value Analysis Schedule Company fair value Fair value of net assets excluding goodwill Goodwill $ Parent Price (90%) $800,000 730,000* 70,000 $ NCI Value (10%) $720,000 657,000 63,000 $ $80,000 73,000 7,000 *Equity of $550,000 + $180,000 adjustments Based on the above information, the following D&D schedule is prepared: Determination and Distribution of Excess Schedule Company Implied Fair Value Parent Price (90%) NCI Value (10%) $720,000 $ 80,000 $550,000 90% $495,000 $550,000 10% $ 55,000 $250,000 $225,000 $ 25,000 Adjustment Worksheet Key Fair value of subsidiary Less book value of interest acquired: Common stock ($10 par) Retained earnings Total equity Interest acquired Book value Excess of fair value over book value $800,000 $350,000 200,000 $550,000 Adjustment of identifiable accounts: Building Goodwill Total Account Adjustments Subject to amortization: Building Total amortizations Life $180,000 debit D1 70,000 debit D2 $250,000 Life Annual Amount 20 Current Year $9,000 $9,000 Controlling retained earnings adjustment NCI retained earnings adjustment 20 Prior Years $9,000 $9,000 $8,100 900 164 Amortization per Year $9,000 Total $9,000 $9,000 Key $18,000 $18,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems Problem 3A-3, Continued Harvard Company and Subsidiary Bart Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X2 Financial Statements Harvard Bart Income Statement: Sales Cost of Goods Sold Operating Expenses Depreciation Expense Dividend Income Net Income Consolidated Net Income Noncontrolling Interest (see distribution schedule) Controlling Interest (see distribution schedule) Retained Earnings Statement: Retained Earnings, Jan 1, 20X2—Harvard Retained Earnings, Jan 1, 20X2—Bart Net Income (carrydown) Dividends Declared Retained Earnings, Dec 31, 20X2 Noncontrolling Interest in Retained Earnings, Dec 31, 20X2 Controlling Interest in Retained Earnings, Dec 31, 20X2 Eliminations and Adjustments Dr Cr (580,000) (280,000) 285,000 155,000 140,000 55,000 72,000 30,000(A) (9,000) (CY2) (92,000) (40,000) 9,000 9,000 Noncontrolling Interest Consolidated (860,000) 440,000 195,000 111,000 (114,000 (3,100) (110,900) (484,000) (CV) 108,000 (A) 8,100 (583,900) (320,000)(EL) 288,000(NCI) 25,000 (56,100) (A) 900 (92,000) (40,000) (3,100) (110,900) 20,000 10,000 (CY2) 9,000 1,000 20,000 (556,000) (350,000) 165 (58,200) (674,800) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems Problem 3A-3, Continued Harvard Company and Subsidiary Bart Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X2 Concluded Financial Statements Harvard Bart Balance Sheet: Cash Inventory Land Building Accumulated Depr.—Building Equipment Accumulated Depr.—Equipment Investment in Bart Company Goodwill Current Liabilities Bonds Payable Common Stock—Harvard Paid-In Capital in Excess of Par—Harvard Common Stock—Bart Retained Earnings (carrydown) Retained Earnings—Controlling Interest, Dec 31, 20X2 Retained Earnings—Bart (NCI) Dec 31, 20X2 Total NCI Total 330,000 260,000 99,000 800,000 (380,000) 340,000 (190,000) 720,000 (123,000) (800,000) Eliminations and Adjustments Dr Cr 170,000 340,000 150,000 500,000(D1) (360,000) 250,000 (90,000) (CV) (D2) (60,000) (200,000) Consolidated 18,000 603,000 225,000 (500,000) (350,000)(EL) 315,000 (556,000) (350,000) (500,000) (35,000) 0 988,000 988,000 166 180,000 (A) 108,000 (EL) (D) 70,000 Noncontrolling Interest 500,000 600,000 249,000 1,480,000 (758,000) 590,000 (280,000) 70,000 (183,000) (200,000) (800,000) (674,800) (58,200) (93,200) (93,200) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems Problem 3A-3, Concluded Eliminations and Adjustments: (CV) Convert from the cost to the equity method as of January 1, 20X2 [90% × ($320,000 – $200,000)] (CY2) Eliminate the 90% ownership portion of the subsidiary dividends (EL) Eliminate the 90% ownership portion of the subsidiary equity accounts against the investment (D)/(NCI) Distribute the excess cost and NCI adjustment as follows, in accordance with the determination and distribution of excess schedule: (D1) Increase Building by $180,000 (D2) Increase Goodwill by $70,000 (A) Record amortizations resulting from the revaluations of entry Record $9,000 annual increase in building depreciation for current and prior years See amortization schedule Subsidiary Bart Company Income Distribution Building depreciation $9,000 Internally generated net income $40,000 Adjusted income NCI share NCI $31,000 × 10% $ 3,100 Parent Harvard Company Income Distribution Internally generated net income $ 83,000 90% × Bart adjusted income of $31,000 27,900 Controlling interest $110,900 PROBLEM 3B-1 Entry to record investment: Investment in Jones Common Stock Paid-In Capital in Excess of Par 167 720,000 100,000 620,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems Problem 3B-1 Concluded Company Implied Fair Value Value Analysis Schedule Company fair value Fair value of net assets excluding goodwill Goodwill Parent Price (90%) $800,000 679,000* $121,000 NCI Value (10%) $720,000 611,100 $108,900 $80,000 67,900 $12,100 *Equity of $500,000 + $170,000 asset adjustments – $51,000 DTL ($170,000 × 30%) + $60,000 ($200,000 × 30%) tax loss carryover Based on the above information, the following D&D schedule is prepared: Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary Less book value of interest acquired: Common stock ($10 par) Paid-in capital in excess of par Retained earnings Total equity Interest acquired Book value Excess of fair value over book value Parent Price (90%) NCI Value (10%) $720,000 $ 80,000 $500,000 90% $450,000 $500,000 10% $ 50,000 $300,000 $270,000 $ 30,000 Adjustment Worksheet Key $800,000 $100,000 150,000 250,000 $500,000 Adjustment of identifiable accounts: Inventory ($200,000 fair – $150,000 book value) Depreciable fixed assets ($500,000 fair – $400,000 book value) Investment in marketable securities ($170,000 – $150,000 book value) DTL on above adjustments ($170,000 × 30%) Current deferred tax expense ($40,000 × 30%) Noncurrent deferred tax expense ($160,000 × 30%) Goodwill Total $ Life Amortization per Year 50,000 debit D1 100,000 debit D2 20,000 debit D3 (51,000)credit tD1-3 12,000 debit D4 48,000 debit D5 121,000 debit D6 $300,000 168 20 5,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems PROBLEM 3B-2 Company Implied Fair Value Value Analysis Schedule Company fair value Fair value of net assets excluding goodwill 1,981,600 Goodwill Parent Price (80%) $3,000,000 2,477,000* NCI Value (20%) $2,400,000 $600,000 495,400 $ 523,000 $ 418,400 *Equity of $1,847,000 + $900,000 asset adjustments – $270,000 ($900,000 × 30%) DTL Based on the above information, the following D&D schedule is prepared: Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary Less book value of interest acquired: Common stock ($100 par) Retained earnings Total equity Interest acquired Book value Excess of fair value over book value $3,000,000 Parent Price (80%) NCI Value (20%) $2,400,000 $ 600,000 $1,847,000 80% $1,477,600 $1,847,000 20% $ 369,400 $1,153,000 $ 922,400 $ 230,600 Adjustment Worksheet Key Life 900,000 debit D1 20 $45,000 (270,000) credit 1t 523,000 debit D2 $1,153,000 20 (13,500) $1,000,000 847,000 $1,847,000 Adjustment of identifiable accounts: Depreciable fixed assets ($3,000,000 fair – $2,100,000 book value) DTL on above adjustment ($900,000 × 30%) Goodwill Total $ 169 Amortization per Year $104,60 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems Problem 3B-2, Continued Tip Company and Subsidiary Kord Company Worksheet for Consolidated Balance Sheet December 31, 20X6 Financial Statements Cash Accounts Receivable Inventory Prepayments Depreciable Fixed Assets (net) Investment in Kord Eliminations Nonand Adjustments controlling Tip Kord Dr Cr Interest 1,200,000 50,000 2,400,000 300,000 11,200,000 1,500,000 422,000 47,000 18,978,000 2,100,000 (D1) 900,000 2,400,000 (EL) 1,477,600 (D) 922,400 (D2) 523,000 (7,200,000) (1,750,000) (1,615,000) (400,000) (D1t) 270,000 (10,000,000) (17,785,000) (1,000,000) (EL) 800,000 Consolidated 1,250,000 2,700,000 12,700, 469,000 21,978, 523,000 (8,950,0 (2,015,000) (270,00 (10,000 (17,785 Goodwill Payables Accruals Deferred Tax Liability Common Stock ($100 par)—Tip Retained Earnings—Tip Common Stock ($100 par)—Kord (200,000) Retained Earnings—Kord (847,000)(EL) 677,600 (NCI) 230,600 (400,000) Total 0 2,900,600 2,900,600 Total NCI (600,000) Eliminations and Adjustments: (CY) N/A because worksheet is prepared on the same day as consolidation (EL) Elimination of 80% of the subsidiary equity against the investment (D)/(NCI) Distribute the balance of the investment account, $922,400 and the $230,600 NCI adjustment, to the specific subsidiary accounts to the determination and distribution of excess schedule: (D1) Increase depreciable fixed assets by $900,000 (D1t) Record a deferred tax liability of $270,000 relating to the increase in depreciable fixed assets (D2) Record goodwill of $523,000 170 (600,00 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems 171 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems Problem 3B-2, Concluded Tip Company and Subsidiary Kord Company Consolidated Balance Sheet December 31, 20X6 Assets Current assets: Cash Accounts receivable Inventory Prepayments $ Depreciable fixed assets Goodwill Total assets 1,250,000 2,700,000 12,700,000 469,000 $21,978,000 523,000 $17,119,000 22,501,000 $39,620,000 Liabilities and Stockholders’ Equity Payables Accruals Deferred tax liability Total liabilities Stockholders’ equity: Noncontrolling interest Controlling interest: Common stock ($100 par) Retained earnings Total liabilities and stockholders’ equity 172 $ 8,950,000 2,015,000 270,000 $11,235,000 600,000 $10,000,000 17,785,000 27,785, $39,620,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems PROBLEM 3B-3 (1) Company Implied Fair Value Value Analysis Schedule Company fair value Fair value of net assets excluding goodwill Goodwill $700,000 430,000* $270,000 Parent Price (90%) NCI Value (10%) $630,000 387,000 $243,000 $70,000 43,000 $27,000 *Equity of $300,000 + $100,000 asset adjustments – $30,000 ($100,000 × 30%) DTL + $60,000 ($200,000 × 30%) tax loss carryover Based on the above information, the following D&D schedule is prepared: Determination and Distribution of Excess Schedule Company Parent Implied Price Fair Value (90%) Fair value of subsidiary Less book value of interest acquired: Common stock ($50 par) Retained earnings Total equity Interest acquired Book value Excess of fair value over book value NCI Value (10%) $700,000 $630,000 $ 70,000 $200,000 100,000 $300,000 $300,000 90% $270,000 $300,000 10% $ 30,000 $400,000 $360,000 $ 40,000 Adjustment of identifiable accounts: Worksheet Key Life $100,000 debit D1 (30,000)credit D1t 10 10 Adjustment Building and equipment DTL on above adjustment Current deferred tax expense ($40,000 × 30%) Noncurrent deferred tax expense ($160,000 × 30%) Goodwill Total 12,000 debit D2 48,000 debit D3 270,000 debit D4 $400,000 173 Amortization per Year $10,000 (3,000) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems Problem 3B-3, Continued (2) Current Assets Land Building and Equipment (net) Investment in Dorn Corporation Campton Corporation and Subsidiary Dorn Corporation Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X1 Trial Balance Campton Dorn 150,000 100,000 400,000 100,000 900,000 240,000(D1) 642,600 (D3) (D4) (3,000) (12,000) (130,000) (100,000) (A1t) Eliminations Consolidated and Adjustments Income Dr Cr Statement 100,000(A1) 10,000 (CY1) 12,600 (EL) 270,000 (D) 360,000 48,000 270,000 3,000(D1t) 30,000 NCI Controlling Consolidated Retained Balance Earnings Sheet 250,000 500,000 48,000 270,000 (15,000) (230,000) Noncurrent Deferred Tax Expense Goodwill Current Tax Liability Other Current Liabilities Deferred Tax Liability Common Stock ($5 par)— Campton (500,000) Paid-In Capital in Excess of Par— Campton (750,000) Retained Earnings, Jan 1, 20X1— Campton (650,000) (650,000) Common Stock ($50 par)—Dorn (200,000)(EL) 180,000 (20,000) Retained Earnings, Jan 1, 20X1— Dorn (100,000)(EL) 90,000(NCI) 40,000 (50,000) Sales (309,000) (170,000) (479,000) Subsidiary Income (12,600) (CY1) 12,600 Cost of Goods Sold 170,000 80,000 250,000 Expenses 89,000 50,000(A1) 10,000 149,000 Provision for Tax 3,000 12,000 (D2) 12,000 (A1t) 3,000 24,000 Total 0 725,600 725,600 Consolidated Net Income (56,000) To NCI (see distribution schedule) 900 (900) To Controlling Interest (see distribution schedule) 55,100 (55,100) Total NCI (70,900) 174 1,230,00 (27,000) (500,000 (750,000 (70,900) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems Retained Earnings—Controlling Interest, December 31, 20X1 (705,100) (705,100) 175 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems Problem 3B-3, Continued Subsidiary Dorn Corporation Income Distribution Equipment depreciation (A1) $10,000 Consumed deferred tax asset (D3) $12,000 Internally generated income before tax $40,0 Adjusted net income before tax Provision for tax (30%) $30,0 (9,0 Adjusted net income NCI share NCI $ 9,000 × 10% $ 900 Parent Campton Corporation Income Distribution Internally generated net income 90% × Dorn adjusted income of $9,000 Controlling interest $47,000 8,100 $55,100 Eliminations and Adjustments: (CY1) Eliminate current-year investment entries (EL) Eliminate the 90% ownership portion of the subsidiary equity accounts against the investment (D)/(NCI) Distribute the excess cost and NCI adjustment in accordance with the determination and distribution of excess schedule: (D1) Increase building and equipment by $100,000 (D1t) Record a $30,000 deferred tax liability relating to the increase in building and equipment (D2) Increase the provision for tax by the current deferred tax expense by $12,000 (D3) Record a noncurrent deferred tax expense (asset) of $48,000 for the portion of the tax loss carryover to be used in future years (D4) Record goodwill of $270,000 (A1) Record $10,000 annual increase in Building and Equipment depreciation for current year (A1t) Reduce provision for tax by 30% of the increase in Depreciation Expense, $3,000 176 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 3—Problems Problem 3B-3, Continued (3) Campton Corporation and Subsidiary Dorn Corporation Consolidated Income Statement For Year Ended December 31, 20X1 Sales Cost of goods sold Gross profit Expenses Consolidated net income before tax Provision for tax (30%) Consolidated net income To noncontrolling interest To controlling interest $479,000 250,000 $229,000 149,000 80,000 (24,000) 56,000 900 55,100 $ $ $ Campton Corporation and Subsidiary Dorn Corporation Retained Earnings Statement For Year Ended December 31, 20X1 NCI Controlling $10,000 $650,000 900 55,100 $10,900 $705,100 Retained earnings, January 1, 20X1 Add net income Balance, December 31, 20X1 Campton Corporation and Subsidiary Dorn Corporation Consolidated Balance Sheet December 31, 20X1 Assets Current assets Property, plant, and equipment: Land Building and equipment (net) Goodwill Noncurrent deferred tax expense Total assets $ $ 500,000 1,230,000 250,000 1,730,000 270,000 48,000 $2,298,000 Liabilities and Stockholders’ Equity Liabilities: Current liabilities Current tax liability Deferred tax liability Total liabilities Stockholders’ equity: NCI Controlling interest: Common stock ($5 par) Paid-in capital in excess of par Retained earnings Total liabilities and stockholders’ equity 177 $ 230,000 15,000 27,000 $ 272,000 70,900 $ 500,000 750,000 705,100 1,955,1 $2,298,000 ... paid by Hill Cash Investment in Hill Company 8,000 20X2 Subsidiary income of $40,000 reported to parent Investment in Hill Company Subsidiary Income 32,000 Dividends of $10,000 paid by. .. $10,000 paid by Hill Sophisticated Equity Method 44,000 8,000 28,000 8,000 (c) Event 20X1 Subsidiary income of $60,000 reported to parent Cost Method No entry Dividends of $10,000 paid by Hill Cash... reported to parent No entry Dividends of $10,000 paid by Hill Cash Dividend Income 81 8,000 8,000 8,000 8,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com