Solution manual advanced accounting 10e by fischer taylor CH07

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER UNDERSTANDING THE ISSUES Equity prior to sale of new shares Equity gained by sale Total equity after sale Parent interest Parent equity Price paid Excess of cost over book value Excess will likely be attributed to goodwill × $200,000 600,000 $800,000 60% $480,000 600,000 $120,000 Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary $625,000 Less book value of interest acquired: Total equity 450,000 Interest acquired Book value Excess of fair value over book value $175,000 Parent Price (80%) $500,000 NCI Value (20%) $125,000 $450,000 80% $360,000 $140,000 $450,000 20% $ 90,000 $ 35,000 Amortization per Year Life Adjustment of identifiable accounts: Adjustment Equipment $175,000 $ 17,500 Worksheet Key 10 20X6: Parent income Subsidiary income Equipment depreciation Total income Income purchased [1/2 year × 0.10 × ($50,000 – $17,500 amortization)] Consolidated net income NCI [10% × ($50,000 – $17,500 amortization)] Controlling: Internally generated 80% × × ($50,000 – $17,500) 10% × 1/2 × ($50,000 – $17,500) Total controlling interest 369 $120,000 50,000 (17,500) $152,500 (1,625) $150,875 $ 3,250 $120,000 $26,000 1,625 27,625 $147,625 debit D To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary $1,000,000 Less book value of interest acquired: 900,000 Total equity Interest acquired Book value Excess of fair value over book value $ 100,000 Parent Price (80%) $800,000 NCI Value (20%) $200,000 $900,000 80% $720,000 $ 80,000 $900,000 20% $180,000 $ 20,000 Amortization per Year Life Adjustment of identifiable accounts: Adjustment Equipment $100,000 $ 10,000 Worksheet Key 10 debit D 20X5: Cost of investment Equity increase: Equity at July 1, 20X5, with 1/2 year income Equity at January 1, 20X1 Increase Interest Equipment depreciation ($10,000 × 4.5 × 80%) Adjusted cost $ $ × Sale of 8,000 shares a Gain on sale of investment (could be discontinued operation): Sale price ($150 × 8,000) $ 1,200,000 Adjusted cost (1,084,000) Gain $ 116,000 b There will be no consolidated statements c The parent will report investment income (perhaps gain on discontinued operations): Income for months $ 100,000 Equipment depreciation (1/2 × 80% × $10,000) (4,000) Income $ 96,000 370 800,000 $1,300,000 900,000 400,000 80% 320,000 (36,000) $1,084,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Sale of 2,000 shares a Increase in paid-in equity on sale of investment: Sale price ($150 × 2,000) Adjusted cost (1/4 × $1,084,000) Equity increase b Consolidated statements are prepared as follows: Parent income Subsidiary income ($200,000 – $10,000 depreciation) Consolidated net income NCI: (20% × × $190,000) (20% × 1/2 × $190,000) Total NCI interest Controlling: Internally generated Subsidiary: (60% × × $190,000) (20% × 1/2 × $190,000) Total controlling interest c $ $ $150,000 190,000 $340,000 $ $ Not applicable Sale of 6,000 shares a Gain on sale of investment (would not be discontinued operation): Sale price ($150 × 6,000) $ 900,000 Adjusted cost (3/4 × $1,084,000) (813,000) Gain $ 87,000 b There will be no consolidated statements c The parent will report investment income under the equity method Amount Period Interest Income $190,000 × 1/2 × 60% $57,000 190,000 × × 20% 38,000 Total $95,000 371 300,000 (271,000) 29,000 38,000 19,000 57,000 $150,000 114,000 19,000 $283,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary $1,750,000 Less book value of interest acquired: Common stock ($1 par) $ 100,000 Paid-in capital in excess of par 900,000 Retained earnings 500,000 Preferred dividends in arrears (12,000) Total equity $1,488,000 Interest acquired Book value Excess of fair value over book value $ 262,000 Parent Price (80%) $1,400,000 NCI Value (20%) $350,000 $1,488,000 80% $1,190,400 $ 209,600 $1,488,000 20% $ 297,600 $ 52,400 Adjustment of identifiable accounts: Goodwill Worksheet Key debit D Adjustment $ 262,000 Parent income Subsidiary income Consolidated net income NCI (20% × $68,000) NCI preferred (6% × $200,000) Controlling {$120,000 + [0.80 × ($80,000 – $12,000)]} $ $ $13,600 12,000 $ $ 120,000 80,000 200,000 25,600 174,400 Income would be as follows if Company P owns 1/2 of preferred stock: Parent income Subsidiary income Consolidated net income NCI [20% × ($80,000 – $12,000)] NCI preferred (6% × $100,000) Controlling {$120,000 + [0.80 × ($80,000 – $12,000)] + (6% × $100,000)} 372 $ $ $13,600 6,000 $ $ 120,000 80,000 200,000 19,600 180,400 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Exercises EXERCISES EXERCISE 7-1 Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary $2,000,000 Less book value of interest acquired: Common stock ($5 par) $ 100,000 Retained earnings 360,000 New proceeds 1,200,000 Total equity $1,660,000 Interest acquired Book value Excess of fair value over book value $ 340,000 Parent Price (60%) $1,200,000 NCI Value (40%) $ 800,000 $1,660,000 60% $ 996,000 $ 204,000 $1,660,000 40% $ 664,000 $ 136,000 Adjustment of identifiable accounts: Building Goodwill Adjustment $200,000 140,000 Total $340,000 Amortization per Year 10,000 Life 20 Worksheet Key debit D1 debit D2 People Corporation and Subsidiary Sample Corporation Consolidated Balance Sheet January 2, 20X4 Assets Current assets ($600,000 + $100,000 + $1,200,000) Goodwill Long-lived assets: Land Property, plant, and equipment (add $200,000) Total assets $1,900,000 140,000 $ 210,000 1,300,000 1,510,0 $3,550,000 Liabilities and Stockholders’ Equity Current liabilities Bonds payable Stockholders’ equity: NCI [(40% × $1,660,000) + $136,000] Common stock ($5 par) Retained earnings Total liabilities and stockholders’ equity 373 $ 350,000 1,200,000 800,000 $ 400,000 800,000 1,200,0 $3,550,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Exercises EXERCISE 7-2 Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary $250,000 Less book value of interest acquired: Common stock ($10 par) $100,000 Retained earnings 20,000 Total equity $120,000 Interest acquired Book value Excess of fair value over book value $130,000 Parent Price (60%) $150,000 NCI Value (40%) $100,000 $120,000 60% $ 72,000 $ 78,000 $120,000 40% $ 48,000 $ 52,000 Adjustment of identifiable accounts: Equipment Adjustment $130,000 Amortization per Year $ 13,000 Life 10 Worksheet Key debit D Analysis of 20% Interest, January 1, 20X3 Price paid for additional investment in Hardwood Less interest acquired: Common stock ($10 par) Retained earnings Total stockholders’ equity Interest acquired Excess Equipment adjustment (8 remaining years × $13,000 × 20%) Parent paid-in capital in excess of par from stock retirement 374 $ × $100,000 50,000 $150,000 20% $ $ 40,000 30,000 10,000 (20,800) 10,800 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Exercises Exercise 7-2, Concluded Barker Corporation and Subsidiary Hardwood Company Consolidated Balance Sheet December 31, 20X5 Assets Current assets Long-lived assets: Property, plant, and equipmenta Total assets a $740,000 + $240,000 + $130,000 – (5 × $13,000 amortization) Liabilities and Stockholders’ Equity Current liabilities Stockholders’ equity: NCIb Common stock ($10 par) Paid-in capital in excess of par from stock retirement Retained earningsc Total liabilities and stockholders’ equity b 20% × $220,000 $ 44,000 + 40% interest [40% × ($50,000 – $20,000)] 12,000 + 20% interest [20% × ($120,000 – $50,000)] 14,000 – (20% × years × $13,000 amortization) (13,000) Total NCI balance $ 57,000 c Conversion: 60% interest [60% × ($120,000 – $20,000)] = 20% interest [20% × ($120,000 – $50,000)] = Share of retained earnings Amortizations: years × 60% × $13,000 years × 80% × $13,000 Net adjustment Parent retained earnings balance, December 31, 20X5 Total 375 $ $ 60,000 14,000 74,000 $ (15,600) (31,200) 27,200 300,000 $327,200 $ 350,000 1,045,000 $1,395,000 $ 500,000 57,000 $500,000 10,800 327,200 838,000 $1,395,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Exercises EXERCISE 7-3 Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary $465,000 Less book value of interest acquired: Common stock ($10 par) $100,000 Retained earnings 250,000 Total equity $350,000 Interest acquired Book value Excess of fair value over book value $115,000 Parent Price (90%) $418,500 NCI Value (10%) $ 46,500 $350,000 90% $315,000 $103,500 $350,000 10% $ 35,000 $ 11,500 Adjustment of identifiable accounts: Equipment Adjustment $115,000 Amortization per Year $ 5,750 Life 20 Worksheet Key debit D Entries Investment in Venus Company Retained Earnings* Investment Income** To convert the investment to the equity method This includes 10% interest that is to be adjusted to sophisticated equity balance 195,300 Cash Investment in Venus Company [8/9 × ($418,500 cost + $195,300 adjustment)] Gain on Sale of Investment To record the sale of the 8,000 shares of Venus stock 700,000 137,475 57,825 545,600 154,400 Adjustments to the investment account: *Retained earnings account = 90% × $170,000 change in retained earnings – years of equipment depreciation (3 × 90% × $5,750) = $137,475 **Investment income = 90% × ($70,000 – $5,750 equipment depreciation) = $57,825 376 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Exercises EXERCISE 7-4 Entries on Carpenter’s books, January 1, 20X6: Investment in Hinckley Company Retained Earnings—Carpenter To adjust investment to equity for shares sold Remaining shares may remain at cost, because they will be consolidated 2,960 Cash Investment in Hinckley Company Paid-In Capital in Excess of Par—Carpenter To record sale of shares Investment eliminated = [(2,000 ữ 40,000) ì $160,000 original cost] plus $2,960 equity adjustment 40,000 Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary $200,000 Less book value of interest acquired: Total equity 150,000 Interest acquired Book value Excess of fair value over book value $ 50,000 2,960 10,960 29,040 Parent Price (80%) $160,000 NCI Value (20%) $ 40,000 $150,000 80% $120,000 $ 40,000 $150,000 20% $ 30,000 $ 10,000 Adjustment of identifiable accounts: Machine Goodwill Adjustment $ 20,000 30,000 Total $ 50,000 Amortization per Year $ 4,000 Equity adjustment: Income Amortization of excess (4 years × $4,000) Dividends Interest sold (2,000 ÷ 50,000) 377 Life Worksheet Key debit D1 debit D2 $110,000 (16,000) (20,000) $ 74,000 × 4% $ 2,960 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Exercises EXERCISE 7-5 (1) Retained Earnings (3 × 80% × $5,000) Investment in Brown Corporation To adjust for building depreciation to December 31, 20X7 12,000 12,000 Investment in Brown Corporation Investment Income To adjust current year’s share of income and investment account for one-half of the year’s building depreciation [(80% × $35,000) – (1/2 × 80% × $5,000)] 26,000 Cash Investment in Brown Corporation* Gain on Sale of Subsidiary To record the sale and the gain on the 24,000 shares of Brown stock 850,000 26,000 828,000 22,000 *($814,000 – $12,000 + $26,000) (2) Retained Earnings (3 × 80% × $5,000) Investment in Brown Corporation To adjust for building depreciation to December 31, 20X7 Investment in Brown Corporation Investment Income To adjust one-half of current year’s share of income for the first half of the year and one-half of the year’s building depreciation, {1/2 × [(80% × $35,000) – (1/2 × 80% × $5,000)]} 12,000 12,000 13,000 13,000 Note: A sophisticated equity adjustment for the other half of the investment will be necessary at year-end Cash Investment in Brown Corporation* Gain on Sale of Investment To record the sale and the gain on the 12,000 shares of Brown stock *[1/2 × ($814,000 – $12,000)] + $13,000 378 425,000 414,000 11,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems PROBLEM 7-8 (1) Determination and Distribution of Excess Schedule Company Parent Implied Price Fair Value (60%) Fair value of subsidiary $185,000 $111,000 Less book value of interest acquired: Common stock ($10 par) $100,000 Paid-in capital in excess of par 20,000 Retained earnings Preferred arrearage (2 years × $4,000) Total equity Interest acquired Book value Excess of fair value over book value NCI Value (40%) $ 74,000 30,000 (8,000) $142,000 $ 43,000 $142,000 60% $ 85,200 $ 25,800 $142,000 40% $ 56,800 $ 17,200 Adjustment of identifiable accounts: Equipment Amortization Adjustment per Year $ 43,000 $ 5,375 411 Life Worksheet Key debit D To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems Problem 7-8, Continued Black Jack Corporation and Subsidiary Zeppo Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X8 Trial Balance Black Jack Zeppo Eliminations and Adjustments Dr Cash 30,400 10,000 40,400 Accounts Receivable (net) 80,000 76,000 148,000 Inventories 230,000 44,000 271,400 Other Current Assets 20,000 8,000 28,000 Property, Plant, and Equipment 1,450,000 122,000 (D) 1,610,000 (F1) Accumulated Depreciation (420,000) (25,000) (F1) (F2) 1,000 (453,750) Investment in Zeppo Preferred Stock 56,000 Investment in Zeppo Common Stock 121,200 (ELC) (D) Liabilities (350,000) (18,000) (IA) (360,000) Common Stock—Black Jack (1,000,000) .(1,000,000) Paid-In Capital in Excess of Par—Black Jack (ELP) (2,000) Retained Earnings—Black Jack (195,000) (A) 3,225 (F1) 2,400 (BI) 1,070 Preferred Stock ($100 par)—Zeppo (50,000) (ELP) 50,000 Common Stock ($10 par)—Zeppo (100,000) (ELC) 60,000 Paid-In Capital in Excess of Par—Zeppo (20,000) (ELC) 12,000 Retained Earnings (preferred)—Zeppo (ELP) 8,000 Retained Earnings—Zeppo (41,000) (PS) 8,000 412 Cr Consolidated Income Statement NCI Controlling Retained Earnings (IA) 8,000 (EI) 2,600 43,000 5,000 (A) 10,750 1,000 56,000 3,600 91,800 25,800 8,000 2,000 (ELP) (CY1b) (PS) (NCI) 8,000 17,200 (40,000) (8,000) (26,470) Consolidated Balance Sheet (188,305) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems Sales Cost of Goods Sold Other Expenses Dividends Declared (420,000) 300,000 80,000 25,000 (ELC) (F1) (BI) (A) (96,000) 19,800 1,600 180 2,150 (IS) 28,000 60,000 (EI) 2,600 (IS) 28,000 (BI) 26,000 (A) 4,000 413 5,375 1,250 (F2) (488,000) 333,350 1,000 (CY1a) 4,000 110,375 25,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems Problem 7-8, Continued Black Jack Corporation and Subsidiary Zeppo Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X8 (Concluded) Trial Balance Black Jack Zeppo Eliminations and Adjustments Dr Subsidiary Income—Preferred Subsidiary Income—Common Cr Consolidated Income Statement NCI Controlling Retained Earnings Consolidated Balance Sheet (4,000) (CY1a) 4,000 (CY1b) 3,600 (3,600) 0 265,000 265,000 Consolidated Net Income (44,275) To NCI (see distribution schedule) 590 (590) (43,685) To Controlling Interest (see distribution schedule) 43,685 Total NCI (75,060) (75,060) Retained Earnings—Controlling Interest, December 31, 20X8 (206,990) (206,990) Totals 414 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems Problem 7-8, Continued Eliminations and Adjustments: (CY1a) Eliminate the entries made concerning the investment in preferred stock during 20X8 (CY1b) Eliminate the entries made concerning the investment in common stock during 20X8 (PS) Distribute retained earnings at the beginning of the year; preferred share is $4,000 × years of arrearage (ELP) Eliminate the investment in preferred stock: Adjustment to paid-in capital in excess of par resulting from retirement of preferred stock on January 1, 20X7: Price paid Book value: Par $ 50,000 Dividend arrearage 8,000 Gain to paid-in capital in excess of par (ELC) $ 56,000 58,000 $ 2,000 Eliminate 60% of subsidiary equity against the investment in common stock This equity includes 60% of the January 1, 20X8, retained earnings applicable to common stock ($41,000 less $8,000 preferred claim) (D)/(NCI) Distribute the excess of book value to plant asset (see schedule) (A) Amortize the decrease in depreciation for one past year and for the current year (F1) Eliminate the gain on equipment sale ($5,000), less one year’s depreciation of $1,000 at the beginning of the year (F2) Decrease depreciation for the current year (IS) Eliminate intercompany sales (IA) Eliminate intercompany trade debt (BI) Eliminate the beginning inventory profit: Black Jack Corporation, $800, deduct from controlling retained earnings Zeppo Company, $450, allocate 40% to NCI and 60% to controlling retained earnings (BI) (Parent seller) $2,800 – ($2,800/1.4) = $800 profit (BI) (Subsidiary seller) $1,200 – ($1,200/1.6) = $450 profit (EI) Eliminate profit in ending inventory: Black Jack, $2,000; Zeppo, $600 (EI) (Parent seller) $7,000 – ($7,000/1.4) = $2,000 profit (EI) (Subsidiary seller) $1,600 – ($1,600/1.6) = $600 profit 415 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems Problem 7-8, Concluded Subsidiary Zeppo Company Income Distribution Unrealized gross profit in ending inventory (EI) Depreciation adjustment (A) Internally generated $ 600 income 5,375 Realized gross profit in beginning inventory (BI) Realized profit on equipment sale (F1) Adjusted income Less preferred share NCI share NCI $10,000 450 1,000 $5,475 4,000 $1,475 × 40% $ 590 Parent Black Jack Corporation Income Distribution Unrealized gross profit in ending inventory (EI) Internally generated $2,000 income Share of Zeppo common income (60% × $1,475)) Realized gross profit in beginning inventory (BI) Subsidiary preferred income Controlling interest $40,000 885 800 4,000 $43,685 (2) Entries to record sale: (a) Adjust investment for amortization of excess cost: Retained Earnings ($5,375 × years × 60% ownership) Investment in Zeppo Common Stock (b) Adjust the investment account for unrealized profit on inventory sales, 60% × $600: Retained Earnings Investment in Zeppo Common Stock (c) To record the sale: Cash Investment in Zeppo Common Stock* Gain on Sale of Subsidiary Interest 6,450 6,450 360 360 130,000 114,390 15,610 *Equity balance on December 31, 20X8 [$121,200 – ($6,450 + $360)] Note: The gain on the sale and subsidiary income on the common stock would be shown in the discontinued segment section of the income statement for 20X8 416 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems APPENIDIX PROBLEMS PROBLEM 7A-1 Analysis of 30% purchase September 1, 20X9: Price paid Less interest acquired: Equity, December 31, 20X9 Add dividends declared December 31 Deduct income for last months Total stockholders’ equity, Sept 1, 20X9 Interest acquired Debit Moot retained earnings $92,000 × $252,000 40,000 (32,000) $260,000 30% 78,000 $14,000 Moot Corporation and Subsidiary Ferrel Corporation Worksheet for Consolidated Balance Sheet December 31, 20X9 Eliminations and Adjustments Dr Cr Balance Sheet Moot Ferrel Cash 167,250 276,250 Accounts Receivable 178,450 242,450 Notes Receivable 87,500 115,500 Dividends Receivable 36,000 Inventories 122,000 184,000 Property, Plant, and Equipment 487,000 725,000 Accumulated Depreciation (117,000) (180,650) Investment in Ferrel Corporation 240,800 101,000 (IA) 8,000 72,000 (IA) 8,000 28,000 (CY) 36,000 68,000 (EI) 6,000 252,000 (F) 14,000 (64,000) (F) Accounts Payable (222,000) (76,000) (298,000) Notes Payable (79,000) (89,000) (168,000) Dividends Payable (40,000) (CY) (4,000) Common Stock ($10 par)— Moot (400,000) (400,000) Common Stock ($10 par)— Ferrel (100,000) (EL) 417 NCI Consolidated Balance Sheet (D) 350 (EL) 226,800 14,000 36,000 90,000 (10,000) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems Retained Earnings—Moot (501,000) (D) 14,000 (EI) 6,000 (467,350) Retained Earnings—Ferrel (F) 13,650 (152,000) (EL) 136,800 304,800 (15,200) 304,800 NCI (25,200) (25,200) Totals 418 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems Problem 7A-1, Concluded Eliminations and Adjustments: (CY) Eliminate intercompany dividends (EL) Eliminate the pro rata equity at year-end (D) Adjust parent retained earnings for excess cost on 30% investment (EI) Eliminate the ending inventory profit by Moot, 20% × $30,000 = $6,000 (F) Equipment profit, $14,000 ÷ 10 years = $1,400 per year Amortize to date, $1,400 × 1/4 = $350 (IA) $8,000 payment in transit PROBLEM 7A-2 (1) Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary $2,600,000 Less book value of interest acquired: Common stock ($25 par) $1,000,000 Paid-in capital in excess of par 190,000 Retained earnings 980,000 Total equity $2,170,000 Interest acquired Book value Excess of fair value over book value $ 430,000 Parent Price (100%) $2,600,000 NCI Value (0%) N/A $2,170,000 100% $2,170,000 $ 430,000 Adjustment of identifiable accounts: Goodwill Adjustment $ 430,000 419 Worksheet Key debit D To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems Problem 7A-2, Continued Book, Inc and Subsidiary Cray, Inc Worksheet for Consolidated Balance Sheet December 31, 20X4 Eliminations and Adjustments Dr Cr Trial Balance Book Cray Cash 1,155,000 Accounts and Other Current Receivables 825,000 2,140,000 2,247,000 Inventories 2,310,000 3,265,000 Land 650,000 950,000 Depreciable Assets (net) 4,575,000 6,555,000 Goodwill 430,000 Investment in Cray, Inc 2,860,000 Long-Term Investments and Other Assets 930,000 Accounts Payable and Other Current Liabilities Totals 835,000 (IA) (B2) (EI) 300,000 1,980,000 (D) 430,000 (EL) (D) 430,000 (B1) 720,000 (B2) (1,900,000) (1,300,000) (B1) 320,000 (3,200,000) (1,000,000) (EL) 1,000,000 (3,260,000) (190,000) (EL) 190,000 (3,400,000) (1,240,000) (EL) 1,240,000 (EI) Eliminations and Adjustments: 420 90,000 90,000 2,430,000 (1,145,000) (IA) 8,000 720,000 8,000 1,045,000 385,000 (2,465,000) (2,882,000) Long-Term Debt (2,880,000) Common Stock ($25 par) (3,200,000) Additional Paid-In Capital in Excess of Par (3,260,000) Retained Earnings (3,310,000) 330,000 865,000 Consolidated Balance Sheet 3,998,000 320,000 3,998,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems (EL) Eliminate the parent’s investment in the subsidiary and the subsidiary equity accounts (D) Distribute excess to goodwill (B1) Eliminate the intercompany long-term debt There is no adjustment to retained earnings because issue and repurchase of the bonds were at face value (B2) Eliminate the intercompany receivable and payable for interest bonds (1/2 year × 10% × 1/2 interest period × $320,000) (EI) Eliminate the unearned gross profit in Cray’s ending inventory, $180,000 × 1/2 = $90,000 (IA) Eliminate the intercompany receivable and payable for the full price of $720,000 421 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems Problem 7A-2, Concluded (2) Book, Inc and Subsidiary Cray, Inc Consolidated Statement of Retained Earnings December 31, 20X4: Balance, January 1, 20X4 Consolidated net income ($890,000 + $260,000 – $90,000 inventory profit) Dividends declared: Book Balance, December 31, 20X4 $2,506,000 1,060,000 (256,000) $3,310,000 PROBLEM 7A-3 Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary $360,000 Less book value of interest acquired: Total equity 270,000 Interest acquired Book value $ 90,000 Excess of fair value over book value Parent Price (90%) $324,000 NCI Value (10%) $ 36,000 $270,000 90% $243,000 $ 81,000 $270,000 10% $ 27,000 $ 9,000 Adjustment of identifiable accounts: Land Building Goodwill Adjustment $ 20,000 40,000 30,000 Total $ 90,000 422 Amortization per Year $ 2,000 Life 20 Worksheet Key debit D1 debit D2 debit D3 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems Problem 7A-3, Continued Press Company and Subsidiary Soap Company Worksheet for Consolidated Balance Sheet For Year Ended December 31, 20X2 Eliminations and Adjustments Trial Balance Press Soap Assets: Accounts Receivable Bond Interest Receivable Minimum Lease Payments Receivable Unearned Interest Income Inventory Other Current Assets Investment in Soap Company Investment in Soap Bonds Land Buildings and Equipment Accumulated Depreciation—Buildings and Equipment Goodwill Totals Liabilities and Equity: Accounts Payable 140,000 Bond Interest Payable 1,000 Lease Interest Payable Other Current Liabilities 105,911 Lease Obligation Payable Cr NCI 65,000 50,000 (IA) 1,500 80,000 (2,961) 86,000 (L1) 80,000 (BI) (L1) 2,961 (EI) 60,236 183,668 351,000 59,225 60,000 30,000 (D1) 300,000 230,000 (100,000) 189,000 Equipment Under Capital Lease Accumulated Depreciation—Equipment Under Lease Dr 111,332 (35,000) 960,000 78,000 (L2) (D2) 40,000 (50,000) 160,000 243,904 270,000 81,000 (B2) 59,225 20,000 110,000 111,332 (A) 681,332 4,000 (L3) (L2) 35,000 111,332 8,000 1,500 5,707 71,332 70,000 30,000 (IA) 2,500 57,000 5,707 (L1) 48,911 423 1,500 80,000 6,000 (L3) (D3) 600,000 71,332 107,000 8,000 (EL) (D) Consolidated Balance Sheet Dr Cr (BI) (L1) 35,000 30,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems Bonds Payable 190,000 Premium on Bonds 620 Common Stock—Press 200,000 Other Paid-In Capital in Excess of Par—Press 150,000 Retained Earnings—Press 317,535 150,000 100,000 1,550 (B2) (B2) 930 60,000 200,000 150,000 325,000 (A) 3,600 (B2) 1,535 90,000 (EL) 10,000 Common Stock—Soap Other Paid-In Capital in Excess of Par—Soap 70,000 (EL) 63,000 7,000 Retained Earnings—Soap 130,000 (EL) 117,000 (NCI) 9,000 21,170 NCI Totals 1,332,236 (EI) 100,000 960,000 424 (EI) (A) 5,400 600 400 600,000 (B2) 170 666,762 38,170 666,762 38,170 1,332,236 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 7—Problems Problem 7A-3, Concluded Eliminations and Adjustments: (EL) Eliminate 90% of the subsidiary equity accounts against the investment in subsidiary account (D)/(NCI) Distribute the excess of cost over book value and NCI adjustment to net assets as required by the determination and distribution of excess schedule (A) Depreciate the write-up to building for two years (EI) Eliminate the intercompany gross profit in the ending inventory (IA) Eliminate the intercompany receivable and payable (BI) Eliminate the bond interest receivable against 60% of bond interest payable (B2) Eliminate the bond investment against 60% of bonds payable and premium on bonds The resulting gain of $1,705 is allocated 90% and 10% to retained earnings of parent and subsidiary, respectively (L1) Eliminate the lease payable (lease obligation payable plus lease interest payable) against the lease receivable (minimum lease payments receivable less unearned interest income) (L2) Reclassify the leased equipment (L3) Reclassify the accumulated depreciation on the leased equipment 425 ... from the 12% note: (1) Payment of installment and interest on December 31 was made by Stallward but not received by Away (2) Balance on note (3) Interest income and expense (S) (1) Eliminate intercompany... 800,000 $1,300,000 900,000 400,000 80% 320,000 (36,000) $1,084,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Sale of 2,000 shares a Increase... (271,000) 29,000 38,000 19,000 57,000 $150,000 114,000 19,000 $283,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Determination and Distribution