Solution manual advanced accounting 10e by fischer taylor CH06

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER UNDERSTANDING THE ISSUES (a) Investing activities—Purchase of S Company ($800,000 – $50,000) (b) Investing activities—Purchase of S Company ($500,000 – $50,000) Noncash financing activities—Issuance of notes payable (c) Investing activities—Cash acquired in purchase of S Company Noncash financing activities—Issuance of stock $ $(750,000) $(450,000) 300,000 50,000 800,000 Any amortizations of the $200,000 excess of cost over book value will need to be included in cash– operating activities as an adjustment to income The means of purchasing S Company will not have an effect on the consolidated statement of cash flows in subsequent years Determination and Distribution of Excess Schedule, Investment in Company S Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary Less book value of interest acquired: Total equity Interest acquired Book value Excess of fair value over book value Parent Price (80%) NCI Value (20%) $800,000 $640,000 $160,000 600,000 $600,000 80% $480,000 $600,000 20% $120,000 $200,000 $160,000 $ 40,000 Adjustment of identifiable accounts: Goodwill Adjustment $200,000 Worksheet Key debit D3 Life Amortization per Year (a) Investing activities—Purchase of S Company ($640,000 – $50,000) Noncash financing activities—Noncontrolling interest (b) Investing activities—Purchase of S Company ($400,000 – $50,000) Noncash financing activities—Issuance of notes payable Noncash financing activities—Noncontrolling interest (c) Investing activities—Cash acquired in purchase of S Company Noncash financing activities—Issuance of stock Noncash financing activities—Noncontrolling interest (a) Consolidated basic EPS = ($200,000 + $60,000) ÷ 100,000 shares = $2.60 (b) Consolidated basic EPS = [$200,000 + (80% ì $60,000)] ữ 100,000 shares = $2.48 (a) Consolidated DEPS = [$200,000 + (40,000 ì $1.43)] ữ 100,000 shares = $2.57 Subsidiary DEPS = $60,000 ÷ (40,000 + 2,000) = $1.43 (b) Consolidated DEPS = [$200,000 + (40,000 × $1.50)] ÷ (100,000 + 2,000) = $2.55 Subsidiary DEPS = $60,000 ÷ 40,000 shares = $1.50 (c) Consolidated DEPS = [$200,000 + (40,000 ì $1.50)] ữ (100,000 + 2,000) = $2.55 Subsidiary DEPS = $60,000 ÷ 40,000 shares = $1.50 (a) Consolidated net income = ($100,000 + $40,000) × 70% = $98,000 Distribution to NCI = ($40,000 × 20%) × 70% = $5,600 Distribution to controlling interest = [$100,000 + ($40,000 × 80%)] × 70% = $92,400 319 $ $(590,000) 160,000 $(350,000) 240,000 160,000 50,000 640,000 160,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com (b) Consolidated net income = [($100,000 + $40,000) × 70%] – ($40,000 × 70% × 80% × 20% × 30%) = $96,656 Distribution to NCI = ($40,000 × 20%) × 70% = $5,600 Distribution to controlling interest = {[$100,000 + ($40,000 × 80%)] × 70%} – ($40,000 × 70% × 80% × 20% × 30%) = $91,056 (a) Taxes would not be paid on this intercompany profit Taxes are based on consolidated income after the elimination of the profit (b) Taxes will have been paid on this intercompany profit The taxes paid become a deferred tax asset (DTA) and are amortized over the period of depreciation The following adjustment is needed in the period of sale: Deferred Tax Asset ($50,000 × 30%) Provision for Income Tax 15,000 15,000 At each period-end, the DTA would be converted to a tax expense as follows: Provision for Income Tax ($15,000 ÷ 5) Deferred Tax Asset 320 3,000 3,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Exercises EXERCISES EXERCISE 6-1 Determination and Distribution of Excess Schedule, Investment in Rocket Company Company Parent NCI Implied Price Value Fair Value (80%) (20%) Fair value of subsidiary $625,000 $500,000 $125,000 Less book value of interest acquired: Common stock $200,000 Retained earnings 300,000 Total equity $500,000 $500,000 $500,000 Interest acquired 80% 20% Book value $400,000 $100,000 Excess of fair value over book value $125,000 $100,000 $ 25,000 Adjustment of identifiable accounts: Adjustment Goodwill ($625,000 fair – $500,000 book value) Worksheet Key $125,000 321 debit D Life Amortization per Year To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Exercises Exercise 6-1, Concluded Batton Company and Subsidiary Rocket Company Consolidated Statement of Cash Flows For Year Ended December 31, 20X3 Cash flows from operating activities: Consolidated net income ($145,000 + $10,000 NCI share) Adjustments to reconcile net income to net cash: Depreciation expense* Increase in inventory ($220,000 + $140,000 – $454,000) Increase in current liabilities [$284,000 – ($160,000 + $110,000)] Total adjustments Net cash provided by operating activities $155,000 $120,000 (94,000) 14,000 40,000 $195,000 Cash flows from investing activities: Payment for purchase of Rocket Company, net of cash acquired Cash flows from financing activities: Sale of stock (5,000 shares × $60) Dividend payments to controlling interests Dividend payments to NCI ($5,000 × 20%) Net cash used in financing activities Net increase in cash Cash at beginning of year Cash at year-end (480,000) $300,000 (10,000) (1,000) $ 289,000 4,000 300,000 $304,000 *20X3 depreciation is equal to the difference between the sum of the December 31, 20X2, net plant asset balances [$800,000 (parent) and $550,000 (subsidiary), or $1,350,000] and the December 31, 20X3, consolidated net plant assets of $1,230,000 Schedule of noncash investing activity: Batton Company purchased 80% of the capital stock of Rocket Company for $500,000 In conjunction with the acquisition, liabilities were assumed and a noncontrolling interest created as follows: Adjusted value of assets acquired ($710,000 book value + $125,000 excess) $835,000 Cash paid 500,000 Balance $335,000 Liabilities assumed $210,000 Noncontrolling interest** $125,000 **This is the NCI at the beginning of the year (date of acquisition) Current-year charges to the total NCI are included in the consolidated net income and the dividends paid 322 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Exercises EXERCISE 6-2 Determination and Distribution of Excess Schedule, Investment in Panda Corporation Company Parent NCI Implied Price Value Fair Value (80%) (20%) Fair value of subsidiary $306,250 $245,000* $ 61,250 Less book value of interest acquired: Common stock ($10 par) $150,000 Retained earnings 50,000 Total equity $200,000 $200,000 $200,000 Interest acquired 80% 20% Book value $160,000 $ 40,000 Excess of fair value over book value $106,250 $ 85,000 $ 21,250 Adjustment of identifiable accounts: Equipment Goodwill Total Worksheet Adjustment Key $ 20,000 debit D1 86,250 debit D2 $106,250 *(5,000 shares × $18) + $155,000 323 Life Amortization per Year $5,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Exercises Exercise 6-2 Concluded Duckworth Corporation and Subsidiary Panda Corporation Consolidated Statement of Cash Flows For Year Ended December 31, 20X3 Cash flows from operating activities: Consolidated net income Adjustments to reconcile net income to net cash: Depreciation ($92,000 + $28,000 + $5,000 of equipment excess) Decrease in inventory Increase in current liabilities Total adjustments Net cash provided by operating activities $ Cash flows from investing activities: Cash payment for purchase of Panda Corporation, net of cash acquired Purchase of production equipment Net cash used in investing activities $ 103,200 $ 135,800 239,000 125,000 5,800 5,000 $(125,000) (76,000) $(201,000) Cash flows from financing activities: Decrease in long-term debt Dividends paid: By Duckworth Corporation $(30,000) By Panda, to NCI (3,000) Net cash used in financing activities (10,000) (33,000) (43,000) Net decrease in cash Cash at beginning of year Cash at year-end $ $ Schedule of noncash investing activity: Company P acquired 80% of the common stock of Company S in exchange for $245,000 In conjunction with the acquisition, liabilities were assumed and a noncontrolling interest was created as follows: Adjusted value of assets acquired ($270,000 book value + $106,250 excess) $376,250 Cash payment 155,000 Balance $221,250 Common stock issued $ 90,000 Liabilities assumed $ 70,000 Noncontrolling interest (see D&D schedule) $ 61,250 324 (5,000) 100,000 95,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Exercises EXERCISE 6-3 (1) None, goodwill is not amortized (2) The cash from shares sold to the NCI shareholders, $90,000 (1,000 shares × $90), would appear as cash flow in the financing activities section The 1,000 shares purchased by the parent would not appear in the cash flow statement (3) The bonds were held by parties outside the consolidated company They are now retired by the consolidated company The $102,000 would appear as a cash outflow in the financing activities section of the cash flow statement (4) This is a transaction within the consolidated company, and it would have no impact on the consolidated statement of cash flows EXERCISE 6-4 Maria Company: Provision for Income Tax Income Tax Payable 30% × $70,000 = $21,000 21,000 21,000 Tuft Company: Optional entry to record tax effect of subsidiary tax: Subsidiary Investment Income Investment in Maria Company 80% × $21,000 tax Provision for Income Tax Income Tax Payable Deferred Tax Liability 16,800 16,800 33,000 Internally generated income Tax at 30% Less DTL on goodwill [0.30 × ($64,000/15)] Tax currently payable 325 31,720 1,280 $ $ $110,000 33,000 (1,280) 31,720 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Exercises EXERCISE 6-5 Deko Company and Subsidiary Farwell Company Consolidated Income Statement For Year Ended December 31, 20X9 Sales (less $50,000 intercompany sales) Cost of goods sold ($290,000 – $50,000 intercompany sales – $8,000 beginning inventory profit + $2,400 ending inventory profit) Expenses ($60,000 + $9,375 patent amortization from D&D – $1,000 depreciation adjustment) Income before taxes Provision for income tax (see schedule) Consolidated net income Distributed to noncontrolling interest Distributed to controlling interest Determination and Distribution of Excess Schedule Company Parent Implied Price Fair Value (80%) Fair value of subsidiary $1,062,500 $850,000 Less book value of interest acquired: Total equity 968,750 $968,750 Interest acquired 80% Book value $775,000 Excess of fair value over book value $ 93,750 $ 75,000 $ 370,000 (234,400) (68,375) 67,225 (20,730) $ 46,495 309 $ 46,186 $ NCI Value (20%) $212,500 $968,750 20% $193,750 $ 18,750 Adjustment of identifiable accounts: Patent Sales Cost of goods sold Gain on machine Expenses Amortization of patent Income before tax Tax provision Net income To NCI To controlling Worksheet Key Adjustment $93,750 debit D1 Life 10 Amortization per Year $9,375 Deko Farwell Dr Cr $(300,000) $(120,000) (IS)$50,000 200,000 90,000 (IS) (EI) 2,400 (BI) (5,000) (F1) 5,000 40,000 20,000 (F2) (A1) 9,375 $ (65,000) $(10,000) Consolidated Income $(370,0 $50,000 8,000 1,000 $ $ 326 $ 20,730 (46,495) 309 46,186 234,400 59,000 9,375 (67,225 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Exercises Exercise 6-5 Concluded Tax provision: Consolidated income before tax Add nondeductible patent amortization on NCI Taxable income Tax at 30% $67,225 1,875 $69,100 $20,730 Subsidiary Farwell Company Income Distribution Ending inventory Patent amortization $2,400 9,375 Internally generated income Beginning inventory $10,000 8,000 Adjusted income Tax provision (see schedule) Net income NCI share (see schedule) Controlling share $ 6,225 (2,4 $ 3,795 309 $ 3,486 Subsidiary tax schedule: (1) Total adjusted income (2) NCI share of asset adjustments (3) Taxable income (4) Tax (30% of taxable income) (5) Net of tax share of income (line – line 4) Controlling $4,980 $ $4,980 $1,494 $3,486 $ $ $ NCI 1,245 1,875 3,120 936 309 Total $6,225* 1,875 $8,100 $2,430 $3,795 *From subsidiary’s IDS Parent Deko Company Income Distribution Machine gain $5,000 Internally generated income Gain realized $ 65,000 1,000 Adjusted income Tax provision ($61,000 × 30%) Net of tax Share of sub income (net of tax) Controlling share $ 61,000 (18,300) $ 42,700 3,486 $ 46,186 327 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Exercises EXERCISE 6-6 Dunker Company and Subsidiary Fennig Company Consolidated Income Statement For Year Ended December 31, 20X9 Sales (less $50,000 intercompany sales) Cost of goods sold ($290,000 – $50,000 intercompany sales – $8,000 beginning inventory profit + $2,400 ending inventory profit) Expenses ($60,000 + $9,375 patent amortization from D&D – $1,000 depreciation adjustment) Income before taxes Provision for income tax (see schedule) Consolidated net income Distributed to noncontrolling interest Distributed to controlling interest Determination and Distribution of Excess Schedule Company Parent Implied Price Fair Value (80%) Fair value of subsidiary $1,062,500 $850,000 Less book value of interest acquired: Total equity 968,750 $968,750 Interest acquired 80% Book value $775,000 Excess of fair value over book value $ 93,750 $ 75,000 $ 370,000 (234,400) (68,375) 67,225 (20,939) $ 46,286 309 $ 45,977 $ NCI Value (20%) $212,500 $968,750 20% $193,750 $ 18,750 Adjustment of identifiable accounts: Patent Dunker $(300,000) 200,000 Sales Cost of goods sold Gain on machine Expenses Amortization of patent Income before tax Tax provision Net income To NCI To controlling Worksheet Key Adjustment $93,750 debit D1 (5,000) 40,000 $ (65,000) Life 10 Amortization per Year $9,375 Fennig Dr Cr $(120,000) (IS)$50,000 90,000 (IS) (EI) 2,400 (BI) (F1) 5,000 20,000 (F2) (A1) 9,375 $(10,000) Consolidated Income $(370,0 $50,000 8,000 1,000 $ $ 328 $ 20,939 (46,286) 309 45,977 234,400 59,000 9,375 (67,225 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems Problem 6-9 Concluded Penstar Company and Subsidiary Sonar Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X2 Concluded Trial Balance Penstar Sonar Sales (950,000) (400,000)(IS) Cost of Goods Sold 550,000 250,000 (EI) Depreciation Expense—Buildings 40,000 10,000 (A1) Depreciation Expense—Equipment 25,000 10,000 (A2) Other Expenses 176,000 75,000 Interest Expense 8,000 Gain on Sale of Fixed Asset (25,000)(F1) Subsidiary Income (57,600) (CY1) Dividends Declared—Sonar 10,000 Dividends Declared—Penstar 20,000 Totals 0 Consolidated Income Before Tax Consolidated Tax Provision (T) Income Tax Payable (DTL) Consolidated Net Income To NCI (see distribution schedule) To Controlling Interest (see distribution schedule) Total NCI Retained Earnings—Controlling Interest, December 31, 20X3 Totals Eliminations Consolidated Controlling Consolidated and Adjustments Income Retained Balance Dr Cr Statement NCI Earnings Sheet 100,000 (1,250,000) (IS) 100,000 9,000 (BI) 4,800 704,200 5,000 55,000 10,000 (F2) 13,000 32,000 251,000 8,000 25,000 57,600 (CY2) 8,000 2,000 20,000 (199,800) 81,120 81,120 (80,213) 907 (T) 81,120 (118,680) (3,456) 3,456 115,224 (115,224) (120,596) (120,596) (790,384) (790,384 945,327 945,327 Eliminations and Adjustments: (CY1) (CY2) (EL) (D)/(NCI) (A) (IS) (IA) (BI) (EI) (F1) (F2) (T) (DTL) Current-year subsidiary income Current-year dividend Eliminate controlling interest in Sub equity Distribute excess and adjust NCI per D&D schedule Amortize excess Eliminate intercompany sales during current period Eliminate intercompany unpaid trade accounts 354 Defer beginning inventory profit Defer ending inventory profit Fixed asset profit at beginning of year Fixed asset profit realized Taxation as consolidated firm Goodwill amortization for tax, $42,500/15 = $2,833 $2,833 × 80% × 40% tax = $907 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems PROBLEM 6-10 Determination and Distribution of Excess Schedule Company Parent Implied Price Fair Value (70%) Fair value of subsidiary $500,000 $350,000 Less book value of interest acquired: $422,000 Total equity 422,000 Interest acquired 70% Book value $295,400 Excess of fair value over book $ 54,600 value $ 78,000 NCI Value (30%) $150,000 $422,000 30% $126,600 $ 23,400 Adjustment of identifiable accounts: Goodwill Worksheet Adjustment Key $78,000 debit D Intercompany Inventory Profit Deferral Parent Parent Parent Sub Amount Percent Profit Amount Beginning Ending — — 0% — — Amortization per Year Life Sub Sub Percent Profit $10,000 20,000 40% 40 $4,000 8,000 Subsidiary Sunfish Company Income Distribution Ending inventory profit $8,000 Internally generated income Beginning inventory profit $ 80,000 4,000 Adjusted income Tax provision (30%) Net income NCI share Controlling share $ 76,000 (22,8 $ 53,200 15,960 $ 37,240 355 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems Problem 6-10 Continued Parent Pike Company Income Distribution Internally generated income Realized gain $100,000 4,000 Adjusted income Tax provision (30%) Net income Controlling share of subsidiary (net of first tax) Second tax on subsidiary income Controlling interest $104,000 (31,2 $ 72,800 DTA/DTL adjustments: To beginning retained earnings: Subsidiary transactions: Beginning inventory Remaining fixed asset profit Total First tax Second tax [20% × 30% × ($2,800 – $840)] Parent transactions: Beginning inventory Remaining fixed asset profit Total First tax Increase (Decrease) in retained earnings and DTA To current year: Subsidiary transactions: Beginning inventory Ending inventory Fixed asset sale Realized fixed asset Total First tax Second tax [20% × 30% × ($2,800 – $840)] Parent transactions: Beginning inventory Ending inventory Fixed asset sale Remaining fixed asset profit Total First tax Increase (Decrease) in DTA 356 Parent $ $ $ $ $ $ $ $ $ $ $ $ $ $ 4,000 — 4,000 1,200 118 37,240 (2,2 $107,806 Sub $ $ $ 2,800 — 2,800 840 118 — 12,000 $12,000 3,600 4,918 $ $12,000 12,000 3,600 4,558 (4,000) 8,000 — — 4,000 1,200 118 $ $ $ $ $ — — — (4,000) (4,000) (1,200) $ 118 $ $ $ $ 1,200 — 1,200 360 $ 360 (2,800) 5,600 2,800 840 118 $(1,200) 2,400 $ $ (1,200) (242) $ 1,200 360 360 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems Problem 6-10 Continued Pike Company and Subsidiary Sunfish Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X2 Accounts Receivable Inventory Land Investment in Sunfish Buildings Accumulated Depreciation Equipment Accumulated Depreciation Goodwill Accounts Payable Current Tax Liability Bond Payable Discount (Premium) Deferred Tax Liability Common Stock—Sunfish Paid-In Capital in Excess of Par—Sunfish Retained Earnings—Sunfish Common Stock—Pike Paid-In Capital in Excess of Par—Pike Retained Earnings—Pike Trial Balance Pike Sunfish 317,576 295,000 110,000 85,000 150,000 90,000 387,800 (CY2) 200,000 200,000 (100,000) (50,000) 120,000 80,000 (35,000) (20,000) (F2) (D) (120,000) (80,000) (31,260) (24,000) (200,000) (100,000) (2,268) (T1) (T2) (10,000)(EL) (190,000)(EL) (250,000)(EL) (BI) (100,000) (200,000) (450,000) (BI (F1) Eliminations Consolidated and Adjustments Income Dr Cr Statement (EI) 8,000 (CY1) 39,200 21,000 (EL) 315,000 (D) 54,600 (F1) 12,000 4,000 78,000 4,918 118 7,000 133,000 175,000(NCI) 23,400 1,200 (T1) 360 2,800 (T1) 4,558 12,000 357 Controlling Consolidated Retained Balance NCI Earnings Sheet 612,576 187,000 240,000 400,000 (150,000) 188,000 (51,000) 78,000 (200,000) (55,260) (300,000) 2,767 (3,000) (57,000) (97,560) (100,000) (200,000) (439,758) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems Problem 6-10 Concluded Pike Company and Subsidiary Sunfish Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X2 Concluded Eliminations Consolidated Controlling Consolidated Trial Balance and Adjustments Income Retained Balance Pike Sunfish Dr Cr Statement NCI Earnings Sheet Sales (590,000) (370,000)(IS) 60,000 (900,000) Cost of Goods Sold 340,000 220,000 (IS) 60,000 (EI) 8,000 (BI) 4,000 504,000 Depreciation Expense—Building 15,000 8,000 Depreciation Expense—Equipment 20,000 12,000 23,800 (F2) 4,000 28,000 Other Expenses 115,000 50,000 165,000 Interest Expense Provision for Tax 32,352 24,000 (T2) 118 56,234 Subsidiary Income (39,200) (CY1) 39,200 Dividends Declared—Sunfish 30,000 (CY2) 21,000 9,000 Dividends Declared—Pike 60,000 60,000 546,236 546,236 Totals Consolidated Net Income (123,766) (15,960) To NCI (see distribution schedule) 15,960 To Controlling Interest (see distribution schedule) 107,806 (107,806) (164,520) Total NCI (164,520) Retained Earnings—Controlling Interest, December 31, 20X2 (487,563)* (487,563) Totals *Adjusted for rounding Eliminations and Adjustments: (CY1) (CY2) (EL) (D)/(NCI) (IS) (BI) (EI) (F1) (F2) (T1) Current-year subsidiary income Current-year dividend Eliminate controlling interest in Sub equity Distribute excess and adjust NCI per D&D schedule Eliminate intercompany sales during current period Defer beginning inventory profit Defer ending inventory profit (T2) 358 Fixed asset profit at beginning of year Fixed asset profit realized Deferred tax asset (liability) applicable to beginning retained earnings Deferred tax asset (liability) applicable to current year To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems PROBLEM 6-11 (1) Determination and Distribution of Excess Schedule Company Parent Implied Price Fair Value (80%) Fair value of subsidiary $562,500 $450,000 Less book value of interest acquired: Common stock $ 10,000 Paid-in capital in excess of par 190,000 Retained earnings 170,000 Total equity $370,000 $370,000 Interest acquired 80% Book value $296,000 Excess of fair value over book value $192,500 $154,000 NCI Value (20%) $112,500 $370,000 20% $ 74,000 $ 38,500 Adjustment of identifiable accounts: Worksheet Adjustment Key $100,000 debit D1 50,000 debit D2 42,500 debit D3 $192,500 Buildings Equipment Goodwill Total (2) Account Adjustments to Be Amortized Buildings $10,000 Equipment (A2) Total amortizations Life Annual Amount 20 $ (A1) Current Year 5,000 $ 10,000 $15,000 Life 20 Prior Years Total 5,000 $ 10,000 $15,000 — — 0% 359 — — Key 5,000 10,000 20,000 $15,000 Intercompany Inventory Profit Deferral Parent Parent Parent Sub Amount Percent Profit Amount Beginning Ending Amortization per Year $ 5,000 10,000 $12,000 16,000 $30,000 Sub Sub Percent Profit 30% 30 $3,600 4,800 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems Problem 6-11 Continued Subsidiary Stock Company Income Distribution Amortizations Ending inventory profit $15,000 4,800 Subsidiary tax schedule: (1) Total adjusted income (2) NCI share of asset adjustments (3) Taxable income (4) Tax (5) Net income Internally generated income Beginning inventory profit $ 42,000 3,600 Adjusted income Tax provision (see schedule) Net income NCI share (see schedule) Controlling share $ 25,800 (11,5 $ 14,280 1,896 $ 12,384 Controlling $20,640 $ $20,640 8,256 $12,384 NCI $5,160 3,000 $8,160 $3,264 $1,896 Total $25,800 3,000 $28,800 $11,520 $14,280 Parent Penske Company Income Distribution Internally generated income Realized gain $205,000 8,000 Adjusted income Tax provision (40%) Net income Controlling share of subsidiary (net of first tax) Second tax on subsidiary income Controlling interest $213,000 (85,2 $127,800 360 12,384 (991) $139,193 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems Problem 6-11 Continued DTA/DTL adjustments: To beginning retained earnings: Subsidiary transactions: Beginning inventory Remaining fixed asset profit Amortizations (80%) Total First tax Second tax [20% × 40% × ($14,880 – $5,952)] Parent transactions: Beginning inventory Remaining fixed asset profit Total First tax Total retained earnings adjustments To current year: Subsidiary transactions: Beginning inventory Ending inventory Fixed asset sale Realized fixed asset Amortizations (80%) Total First tax Second tax [20% × 40% × ($12,960 – $5,184)] Parent transactions: Beginning inventory Ending inventory Fixed asset sale Remaining fixed asset profit Total First tax Total adjustment to provision 361 Parent $ $ $ $ $ $ $ $ $ $ $ Sub 3,600 $ — 12,000 $15,600 6,240 $ 714 $ 2,880 — 12,000 $14,880 5,952 714 — 32,000 $32,000 12,800 $19,754 12,800 $19,466 (3,600) 4,800 — — 12,000 $13,200 5,280 622 $ (2,880) 3,840 12,000 $12,960 $ 5,184 $ 622 — — — (8,000) (8,000) (3,200) $ 2,702 $ (3,200) 2,606 $ 720 — $ 720 $ 288 $ 288 $(720) 960 $ 240 $ 96 $ 96 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems Problem 6-11 Continued Penske Company and Subsidiary Stock Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X2 Trial Balance Penske Stock Cash 92,400 53,200 Accounts Receivable 150,600 90,000 Inventory 105,000 90,000 Land 100,000 120,000 Investment in Stock 503,120 (CY2) Buildings 800,000 250,000 (D1) Accumulated Depreciation (250,000) (70,000) Equipment 210,000 120,000 (D2) Accumulated Depreciation (115,000) (90,000) (F1) (F2) Goodwill 30,000 (D3) Accounts Payable (70,000) (40,000)(IA) Current Tax Liability (82,640) (16,800) Bonds Payable (100,000) Deferred Tax Liability (4,250) (T1) (T2) Common Stock—Stock (10,000)(EL) Paid-In Capital in Excess of Par—Stock (190,000)(EL) Retained Earnings—Stock (221,200)(EL) (BI) (A1–A2) Common Stock—Penske (100,000) Paid-In Capital in Excess of Par —Penske (600,000) Retained Earnings—Penske (617,683) (A1–A2) (BI) (F1) Eliminations Consolidated and Adjustments Income Dr Cr Statement (IA) 6,000 (EI) 4,800 (CY1) 20,160 8,000 (EL) 336,960 (D) 154,000 100,000 (A1) 10,000 50,000 (F1) 40,000 (A2) 20,000 8,000 8,000 42,500 6,000 19,754 2,702 8,000 152,000 176,960(NCI) 38,500 720 (T1) 288 3,000 Controlling Retained NCI Earnings (2,000) (38,000) (79,308) 12,000 2,880 (T1) 32,000 362 19,466 Consolidated Balance Sheet 145,600 234,600 190,200 220,000 (590,269) 1,150,000 (330,000) 340,000 (209,000) 72,500 (104,000) (99,440) (100,000) 18,206 (100,000) (600,000) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems Problem 6-11 Concluded Penske Company and Subsidiary Stock Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X2 Concluded Eliminations Consolidated Controlling Consolidated Trial Balance and Adjustments Income Retained Balance Penske Stock Dr Cr Statement NCI Earnings Sheet Sales (890,000) (350,000)(IS) 30,000 (1,210,000) Cost of Goods Sold 480,000 220,000 (IS) 30,000 (EI) 4,800 (BI) 3,600 671,200 Depreciation Expense—Buildings 30,000 10,000 (A1) 5,000 45,000 Depreciation Expense—Equipment 25,000 10,000 (A2) 10,000 (F2) 8,000 37,000 Other Expenses 150,000 60,000 210,000 Interest Expense 8,000 8,000 Provision for Income Tax 83,613 16,800 (T2) 2,702 97,711 Subsidiary Income (20,160) (CY1) 20,160 Dividends Declared—Stock 10,000 (CY2) 8,000 2,000 Dividends Declared—Penske 20,000 20,000 702,476 702,476 Totals Consolidated Net Income (141,089) (1,896) To NCI (see distribution schedule) 1,896 To Controlling Interest (see distribution schedule) 139,193 (139,193) (119,204) Total NCI (119,204) Retained Earnings—Controlling Interest, December 31, 20X2 (709,462) (709,462) Totals Eliminations and Adjustments: (CY1) (CY2) (EL) (D)/(NCI) (A) (IS) (IA) (BI) (EI) (F1) (F2) (T1) Current-year subsidiary income Current-year dividend Eliminate controlling interest in Sub equity Distribute excess and adjust NCI per D&D schedule Amortize excess Eliminate intercompany sales during current period Eliminate intercompany unpaid trade accounts (T2) 363 Defer beginning inventory profit Defer ending inventory profit Fixed asset profit at beginning of year Fixed asset profit realized Deferred tax asset (liability) applicable to beginning retained earnings Deferred tax asset (liability) applicable to current year To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems PROBLEM 6-12 (1) Determination and Distribution of Excess Schedule Company Parent Implied Price Fair Value (80%) Fair value of subsidiary $562,500 $450,000 Less book value interest acquired: Common stock $ 10,000 Paid-in capital in excess of par 190,000 Retained earnings 170,000 $370,000 Total equity $370,000 Interest acquired 80% Book value $296,000 Excess of fair value over book value $192,500 $154,000 NCI Value (20%) $112,500 $370,000 20% $ 74,000 $ 38,500 Adjustment of identifiable accounts: Buildings Equipment Goodwill Total (2) Account Adjustments to Be Amortized Buildings $15,000 Equipment (A2) Total amortizations Worksheet Adjustment Key $100,000 debit D1 50,000 debit D2 42,500 debit D3 $192,500 Life Annual Amount 20 $ (A1) Current Year 5,000 10,000 $15,000 Life 20 Prior Years $ Total 5,000 10,000 $15,000 — 0% 15,000 40 364 $ — 6,000 Key $10,000 20,000 30,000 $30,000 Intercompany Inventory Profit Deferral Parent Parent Parent Sub Amount Percent Profit Amount Beginning $ Ending Amortization per Year $ 5,000 10,000 $16,000 10,000 $45,000 Sub Sub Percent Profit 30% 30 $4,800 3,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems Problem 6-12 Continued Subsidiary Stock Company Income Distribution Amortizations Ending inventory profit Equipment gain $15,000 3,000 25,000 Subsidiary tax schedule: (1) Total adjusted income (2) NCI share of asset adjustments (3) Taxable income (4) Tax (5) Net income (line – line 4) Internally generated income Beginning inventory profit Realized gain $ 72,000 4,800 5,000 Adjusted income Tax provision (see schedule) Net income NCI share (see schedule) Controlling share $ 38,800 (16,7 $ 22,080 3,456 $ 18,624 NCI Controlling $31,040 $ $31,040 $12,416 $18,624 $ $ $ 7,760 3,000 10,760 4,304 3,456 Total $38,800 3,000 $41,800 $16,720 $22,080 Parent Penske Company Income Distribution Ending inventory profit $6,000 Internally generated income Realized gain $159,000 8,000 Adjusted income Tax provision (40%) Net income Controlling share of subsidiary (net of first tax) Second tax on subsidiary income Controlling interest $161,000 (64,4 $ 96,600 365 18,624 (1,4 $113,734 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems Problem 6-12 Continued DTA/DTL adjustments: To beginning retained earnings: Subsidiary transactions: Beginning inventory Remaining fixed asset profit Amortizations (80%) Total First tax Second tax [20% × 40% × ($27,840 – $11,136)] Parent transactions: Beginning inventory Remaining fixed asset profit Total First tax Total RE adjustments To current year: Subsidiary transactions: Beginning inventory Ending inventory Fixed asset sale Realized fixed asset Amortizations (80%) Total First tax Second tax [20% × 40% × ($26,560 – $10,624)] Parent transactions: Beginning inventory Ending inventory Fixed asset sale Remaining fixed asset profit Total First tax Total adjustment to provision 366 Parent $ $ $ $ $ $ $ $ Sub 4,800 $ — 24,000 $28,800 $11,520 1,336 $ 3,840 — 24,000 $27,840 $11,136 1,336 — 24,000 $24,000 9,600 $22,456 9,600 $22,072 $ 960 — $ 960 $ 384 $ 384 (4,800) $ (3,840) $ (960) 3,000 2,400 600 25,000 20,000 5,000 (5,000) (4,000) $(1,000) 12,000 12,000 $ 3,640 $30,200 $26,560 $12,080 $10,624 $ 1,456 1,275 $ 1,275 — 6,000 — (8,000) (2,000) $ (800) $12,555 (800) $11,099 $1,456 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems Problem 6-12 Continued Penske Company and Subsidiary Stock Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X3 Trial Balance Penske Stock Cash 91,760 78,400 Accounts Receivable 150,600 100,000 Inventory 115,000 120,000 Land 100,000 120,000 Investment in Stock 529,680 (CY2) Buildings 900,000 250,000 (D1) Accumulated Depreciation (290,000) (80,000) Equipment 210,000 120,000 (D2) Accumulated Depreciation (140,000) (100,000) (F1) (F2) Goodwill 30,000 (D3) Accounts Payable (50,000) (40,000)(IA) Current Tax Liability (64,240) (28,800) Bonds Payable (100,000) Deferred Tax Liability (6,375) (T1) (T2) Common Stock—Stock (10,000)(EL) Paid-In Capital in Excess of Par—Stock (190,000)(EL) Retained Earnings—Stock (236,400)(EL) (BI) (A1–A2) Common Stock—Penske (100,000) Paid-In Capital in Excess of Par—Penske (600,000) Retained Earnings—Penske (739,230) (A1–A2) (BI) (F1) Eliminations Consolidated and Adjustments Income Dr Cr Statement (IA) 18,000 (EI) 9,000 (CY1) 34,560 8,000 (EL) 349,120 (D) 154,000 100,000 (A1) 15,000 50,000 (F1) 65,000 (A2) 30,000 16,000 13,000 42,500 18,000 22,456 12,555 8,000 152,000 189,120(NCI) 38,500 960 (T1) 384 6,000 24,000 3,840 (T1) 22,072 24,000 367 Controlling Consolidated Retained Balance NCI Earnings Sheet 170,160 232,600 226,000 220,000 1,250,000 (385,000) 315,000 (241,000) 72,500 (72,000) (93,040) (100,000) 28,636 (2,000) (38,000) (79,204) (100,000) (600,000) (709,462) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 6—Problems Problem 6-12 Concluded Penske Company and Subsidiary Stock Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X3 Concluded Eliminations Consolidated Controlling Consolidated Trial Balance and Adjustments Income Retained Balance Penske Stock Dr Cr Statement NCI Earnings Sheet Sales (950,000) (400,000)(IS) 100,000 (1,250,000) Cost of Goods Sold 550,000 250,000 (IS) 100,000 (EI) 9,000 (BI) 4,800 704,200 Depreciation Expense—Buildings 40,000 10,000 (A1) 5,000 55,000 Depreciation Expense—Equipment 25,000 10,000 (A2) 10,000 (F2) 13,000 32,000 Other Expenses 176,000 75,000 251,000 Interest Expense 8,000 8,000 Gain on Sale of Fixed Asset (25,000)(F1) 25,000 Provision for Income Taxes 66,365 28,800 (T2) 12,555 82,610 Subsidiary Income (34,560) (CY1) 34,560 Dividends Declared—Stock 10,000 (CY2) 8,000 2,000 Dividends Declared—Penske 20,000 20,000 873,991 873,991 Totals Consolidated Net Income (117,190) (3,456) To NCI (see distribution schedule) 3,456 To Controlling Interest (see distribution schedule) 113,734 (113,734) (120,660) NCI (120,660) Retained Earnings—Controlling Interest, December 31, 20X3 (803,196) (803,196) Totals Eliminations and Adjustments: (CY1) (CY2) (EL) (D)/(NCI) (A) (IS) (IA) (BI) (EI) (F1) (F2) (T1) Current-year subsidiary income Current-year dividend Eliminate controlling interest in Sub equity Distribute excess and adjust NCI per D&D schedule Amortize excess Eliminate intercompany sales during current period Eliminate intercompany unpaid trade accounts (T2) 368 Defer beginning inventory profit Defer ending inventory profit Fixed asset profit at beginning of year Fixed asset profit realized Deferred tax asset (liability) applicable to beginning retained earnings Deferred tax asset (liability) applicable to current year ... profit: Sold by Morgan (0.25 × $2,500) = $ 625 Sold by Delta (0.40 × $2,000) = 800 Total $1,425 (EI) Adjustment for ending inventory profit: Sold by Morgan (0.25 × $3,000) = $ 750 Sold by Delta (0.40... 1,000 shares purchased by the parent would not appear in the cash flow statement (3) The bonds were held by parties outside the consolidated company They are now retired by the consolidated company... from financing activities: Decrease in long-term debt Dividends paid: By Duckworth Corporation $(30,000) By Panda, to NCI (3,000) Net cash used in financing activities (10,000)