Solution manual advanced accounting 10e by fischer taylor CH08

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER UNDERSTANDING THE ISSUES The stock dividend will result in the following entry being made by the subsidiary: (a) If the parent buys less than its current ownership percentage of shares, it will increase its equity to the extent others pay more than book value The increase will normally go to paid-in capital in excess of par Retained Earnings (10,000 shares × $60 per share) 600,000 Common Stock ($1 par, 10,000 shares × $1) 10,000 Paid-In Capital in Excess of Par ($600,000, $10 par) 590,000 (b) If the parent maintains its percentage, there is no impact other than an increase in the investment account equal to the price paid The parent will supply 90% of the funds and will own 90% of the equity provided by the new funds The parent need make no adjustment to its investment account since there has been no change in the total subsidiary equity (c) If the parent buys more than 90% of the shares issued, it will adjust its investment based on the impact of the sale A sale at more than book value will cause a reduction in the investment; a sale at less than book value will cause an increase in the investment When eliminating the investment in subsidiary account, the parent will now simply eliminate its share of the revised (but equal in total) subsidiary equity accounts The parent’s share in any equity increases from the excess of the current book value of $40 per share ($4,000,000/100,000 shares) that the subsidiary receives The parent does not record as income the increase in equity that results Rather, it is an increase in the parent’s paid-in capital in excess of par The calculation in this case would be as follows: Equity after sale {(90,000 shares/120,000 shares = 75%) × [$4,000,000 + ($50 × 20,000 shares)]} Equity prior to sale (90% × $4,000,000) Increase in equity interest Control, in this example, is a “chain link” process If A controls B and B, in turn, controls C, then all three are under common ownership, and B and C are controlled by A In the distribution of Company C’s $10,000 income, 40% (or $4,000) will flow to the NCI of Company C, and 60% (or $6,000) will flow to Company B, the controlling interest That $6,000 will flow as follows: 40% (or $2,400) will flow to the NCI of Company B, and 60% (or $3,600) will flow to Company A, the controlling interest $3,750,000 $ 3,600,000 150,000 The 2% holding in Company P shares, owned by Company S, is best treated as treasury stock This approach views the subsidiary as the parent’s agent in purchasing parent company shares As treasury stock, the 2,000 shares will not share in the distribution of income and will not create a separate excess of cost or book value The subsidiary is selling the additional shares at $50 each, which is in excess of the current book value of $40 per share ($4,000,000/100,000 shares) 417 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Exercises EXERCISES EXERCISE 8-1 (1) Retained Earnings (3,000 × $35) Common Stock Paid-In Capital in Excess of Par To record stock dividend distributed on July 1, 20X1 105,000 30,000 75,000 Lamp Company Stockholders’ Equity December 31, 20X1 Common stock ($10 par) Paid-in capital in excess of par Retained earnings [$200,000 original balance + $120,000 income – $105,000 stock dividend – (33,000 share × $0.50 = $16,500 cash dividend)] Total stockholders’ equity $330,000 225,000 198,500 $753,500 (2) Memo: Investment in Lamp Company now includes 2,700 (30,000 × 90% × 10%) additional shares for a total of 29,700 shares Cash Investment in Lamp Company To record receipt of cash dividend (29,700 shares × $0.50) 14,850 Investment in Lamp Company Subsidiary Income To record 90% interest in Lamp Company’s $120,000 net income for 20X1 (3) Subsidiary Income Investment in Lamp Company Dividends, Lamp Company To eliminate current-year entries to investment account 108,000 Goodwill Common Stock [($300,000 + $30,000) × 90%] Paid-In Capital in Excess of Par [($150,000 + $75,000) × 90%] Retained Earnings [($200,000—$105,000) × 90%] Investment in Lamp Company (includes $225,000 from D&D) Retained Earnings—Lamp Company (NCI adjustment) 250,000 297,000 202,500 85,500 418 14,850 108,000 108,000 93,150 14,850 810,000 25,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Exercises Exercise 8-1, Concluded Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary $900,000 Less book value of interest acquired: Common stock ($10 par) $300,000 Paid-in capital in excess of par 150,000 Retained earnings 200,000 Total equity $650,000 Interest acquired Book value Excess of fair value over book value $250,000 Parent Price (90%) $810,000 NCI Value (10%) $ 90,000 $650,000 90% $585,000 $225,000 $650,000 10% $ 65,000 $ 25,000 Adjustment of identifiable accounts: Goodwill Worksheet Key debit D Adjustment $250,000 EXERCISE 8-2 Investment in Trail Subsidiary Income 57,750 57,750 Calculation: 90% × first months’ income of $35,000 75%* × second months’ income of $35,000 Total Investment in Trail Paid-In Capital in Excess of Par Calculation: Interest after sale Trail, January 1, equity Income, first months Sale of shares (2,000 × $80) Total stockholders’ equity Interest Interest prior to sale [($550,000 + $35,000) × 90%] Increase in ownership interest *(10,000 shares × 90%)/(10,000 shares + 2,000 shares) 419 $31,500 26,250 $57,750 32,250 32,250 $550,000 35,000 160,000 $745,000 × 75% $558,750 526,500 $ 32,250 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Exercises EXERCISE 8-3 Shares purchased by parent Total shares owned by parent after purchase Total subsidiary shares outstanding after issue Maintain Interest 8,000 24,000 30,000 Increase Interest 9,000 25,000 30,000 Decrease Interest 5,000 21,000 30,000 Subsidiary equity after sale ($450,000 + $50,000 income + $50,000 goodwill + $400,000 sale) $950,000 $950,000 $950,000 Parent’s ownership percent after purchase Parent’s new equity interest after purchase × 80% $760,000 × 83.33% $791,635 × 70% $665,000 Subsidiary equity prior to sale (after fair value adjustment) ($450,000 + $50,000 income + $50,000 goodwill) $550,000 $550,000 $550,000 Parent’s ownership percent before purchase Parent’s equity interest before purchase Price paid ($40 per share) Total investment Net adjustment × 80% $440,000 360,000 $800,000 $ (8,365) × 80% $440,000 200,000 $640,000 $ 25,000 × 80% $440,000 320,000 $760,000 $ Maintain ownership percentage interest: Investment in Cat Company Cash Increase ownership percentage interest: Investment in Cat Company Retained Earnings—Tom Company (assumes no paid-in capital in excess of par) Cash Decrease ownership percentage interest: Investment in Cat Company Cash Paid-In Capital in Excess of Par—Tom Company 420 320,000 320,000 351,635 8,365 360,000 225,000 200,000 25,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Exercises EXERCISE 8-4 Investment in Nolan Retained Earnings—Tarman To convert investment from cost to equity for income 81,360 81,360 Income equity adjustment: Jan 1, 20X1 to Jan 1, 20X3 increase in retained earning ($42,000 × 60%) Jan 1, 20X3 to Jan 1, 20X5 increase in retained earnings ($78,000 × 72%*) Total $25,200 56,160 $81,360 *(60% × 30,000 shares)/(30,000 – 5,000 treasury stock shares) Retained Earnings—Tarman Company Investment in Nolan 5,760 5,760 Adjustment for treasury stock purchase: Equity after treasury stock purchase (72% × $327,000) Equity prior to treasury stock purchase (60% × $402,000) Increase (decrease) in investment Elimination: Common Stock—Nolan (72% × $300,000 Paid-In Capital in Excess of Par—Nolan (72% × $60,000) Retained Earnings—Nolan (72% × $120,000) Investment in Nolan ($216,000* + $81,360 – $5,760) Treasury Stock (at cost, 72% × $75,000) To eliminate the investments against the subsidiary’s equity *60% × 30,000 shares × $12 421 $235,440 241,200 $ (5,760) 216,000 43,200 86,400 291,600 54,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Exercises EXERCISE 8-5 (1) Company A’s Books December 31, 20X1 Cash 4,000 Investment in B 12,000 Subsidiary Income—B December 31, 20X2 Cash 4,000 Investment in B 32,000 Subsidiary Income—B Income: 80% × ($30,000 + $15,000 from C) December 31, 20X3 Cash 4,000 Investment in B 42,400 Subsidiary Income—B Income: 80% × ($40,000 + $18,000 from C) Company B’s Books 16,000 3,000 12,000 36,000 Cash Investment in C Subsidiary Income—C 3,000 15,000 46,400 Cash Investment in C Subsidiary Income—C 15,000 18,000 (2) Company A’s Books Company B’s Books December 31, 20X1 December 31, 20X2 December 31, 20X3 Cash 4,500 Investment in B 50,400 Subsidiary Income—B Income: 90% × ($40,000 + $21,000 from C) 54,900 422 Investment in C Subsidiary Income—C 7,000 Cash Investment in C Subsidiary Income—C 3,500 14,000 Cash Investment in C Subsidiary Income—C 3,500 17,500 7,000 17,500 21,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Exercises EXERCISE 8-6 (1) Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary $4,200,000 Less book value interest acquired: Common stock $ 400,000 Paid-in capital in excess of par 1,100,000 Retained earnings 2,000,000 Total equity $3,500,000 Interest acquired Book value Excess of fair value over book value $ 700,000 Parent NCI Price Value (60%) (40%) $2,520,000 $1,680,000 $3,500,000 $3,500,000 60% 40% $2,100,000 $1,400,000 $ 420,000 $ 280,000 Adjustment of identifiable accounts: Company S-2 equipment Company S-1 building (40%) Goodwill Total Worksheet Key debit D1 debit D2 debit D3 Adjustment $ 80,000 160,000* 460,000 $ 700,000 *NCI of Company S-2 is also increased by $40,000 (2) Eliminations and Adjustments: Retained Earnings—P ($12,000 × 80% × 60%) Retained Earnings—S-1 ($12,000 × 80% × 40%) Retained Earnings—S-2 ($12,000 × 20%) for S-2’s NCI Accumulated Depreciation Machine To eliminate the remaining gain and restore machine value 5,760 3,840 2,400 3,000 Accumulated Depreciation Depreciation Expense To recognize gain for current year 3,000 423 15,000 3,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Exercises EXERCISE 8-7 Companies A, B, and C Consolidated Income Statement For Year Ended December 31, 20X5 Sales [($300,000 + $400,000 + $100,000) – intercompany sales of $75,000] Cost of goods sold [$200,000 + $300,000 + $60,000 – intercompany sales of $75,000 – realized profit in beginning inventory of $1,800 + unrealized profit in ending inventory of ($6,000 + $720)] Gross profit Expenses ($60,000 + $30,000 + $10,000 – $4,000 depreciation adjustment for deferred gain on equipment) Consolidated net income To NCI—Company C To NCI—Company B To controlling interest $725,000 489,920 $235,080 96,000 $139,080 $ 9,600 17,680 27,280 $111,800 Subsidiary Company C Income Distribution Unrealized profit in ending inventory $6,000 Internally generated net income $30,000 Adjusted net income NCI share NCI $24,000 × 40% $ 9,600 Subsidiary Company B Income Distribution* Internally generated net income 60% × Company C adjusted income of $24,000 Gain realized through depreciation $70,000 Adjusted net income NCI share NCI $88,400 × 20% $17,680 14,400 4,000 *There is no impact shown for the ending inventory held by Company C since the gross profit was written down to zero under LCM Parent Company A Income Distribution Unrealized profit in ending inventory $720 Internally generated net income $ 40,000 80% × Company B adjusted income of $88,400 70,720 Realized profit in beginning inventory 1,800 Controlling interest $111,800 424 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Exercises EXERCISE 8-8 Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary $640,000 Less book value of interest acquired: Common stock ($5 par) $200,000 Paid-in capital in excess of par 100,000 Retained earnings 150,000 Remaining excess ($25,000 – $5,000 amortization) 20,000 Total equity $470,000 Interest acquired Book value Excess of fair value over book value $170,000 Parent Price (60%) $384,000 NCI Value (40%) $256,000 $470,000 60% $282,000 $102,000 $470,000 40% $188,000 $ 68,000 Adjustment of identifiable accounts: Adjustment $ 16,000* 30,000 124,000 $170,000 Font inventory (80%) Hartland equipment Goodwill Total Amortization per Year $16,000 6,000 Life Worksheet Key debit D1 debit D2 debit D3 *NCI of Font is also increased by $4,000 EXERCISE 8-9 (1) Company N’s books: Cash Investment in Company O Subsidiary Income (40% × $40,000) 2,000 14,000 16,000 Company M’s books: Cash Investment in Company N Subsidiary Income [90% × ($90,000 + $16,000)] Cash Investment in Company O Subsidiary Income (20% × $40,000) 9,000 86,400 95,400 1,000 7,000 8,000 (2) Internally generated incomes ($200,000 + $90,000 + $40,000) Beginning inventory profit Ending inventory profit Consolidated net income NCI—Company O NCI—Company N To controlling interest 425 $330,000 7,000 (9,000) $328,000 $ 15,400 10,490 25,890 $302,110 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Exercises Exercise 8-9, Concluded Subsidiary O Company Income Distribution Unrealized gross profit in ending inventory Internally generated income $6,000 Realized gross profit in beginning inventory $40,000 Adjusted income NCI share NCI $38,500 × 40% $15,400 4,500 Subsidiary N Company Income Distribution Unrealized gross profit in ending inventory Internally generated income $3,000 Share of O income (40% × $38,500) Realized gross profit in beginning inventory $ 90,000 Adjusted income NCI share NCI $104,900 × 10% $ 10,490 15,400 2,500 Parent Company M Income Distribution Internally generated net income $200,000 20% × O adjusted income of $38,500 7,700 90% × N adjusted income of $104,900 94,410 Controlling interest $302,110 426 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems Problem 8-7, Concluded Subsidiary Borner Company Income Distribution Ending inventory profit Depreciation on excess $8,000 Internally generated 5,000 income Beginning inventory profit $50,000 6,000 Adjusted income NCI share NCI $43,000 × 10% $ 4,300 Subsidiary Shelby Corporation Income Distribution Depreciation on excess $5,000 Internally generated income $ 75,000 Share of Borner income (90% × $43,000) 38,700 Gain realized through plant asset use 3,000 Adjusted income $111,700 NCI share × 40% NCI $ 44,680 Parent DeNoma Company Income Distribution Internally generated income $125,000 Share of Shelby income (60% × $111,700) 67,020 Controlling interest $192,020 464 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems PROBLEM 8-8 Determination and Distribution of Excess Schedule Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary $500,000 Less book value of interest acquired: Common stock ($10 par) $ 50,000 Paid-in capital in excess of par 140,000 Retained earnings 220,000 Total equity $410,000 Interest acquired Book value Excess of fair value over book value $ 90,000 Parent Price (80%) $400,000 NCI Value (20%) $100,000 $410,000 80% $328,000 $ 72,000 $410,000 20% $ 82,000 $ 18,000 Adjustment of identifiable accounts: Goodwill Adjustment $ 90,000 465 Worksheet Key debit D To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems Problem 8-8, Continued Pepe Company and Subsidiary Salida Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X2 Trial Balance Pepe Salida Eliminations and Adjustments Dr Cr Consolidated Income Statement NCI Controlling Retained Earnings Consolidated Balance Sheet Inventory 170,000 120,000 (EI) 4,000 286,000 Other Current Assets 216,000 256,000 472,000 Investment in Salida Company 400,000 (CV) 32,000 (EL) 360,000 (D) 72,000 Investment in Pepe Company 40,000 (TS) 40,000 Land 80,000 70,000 150,000 Buildings and Equipment 400,000 280,000 680,000 Accumulated Depreciation (180,000) (90,000) (270,000) Goodwill (D) 90,000 90,000 Current Liabilities (98,000) (74,000) (172,000) Long-Term Liabilities (250,000) (100,000) (350,000) Common Stock ($10 par)—Pepe (100,000) (100,000) Paid-In Capital in Excess of Par—Pepe (200,000) (200,000) Retained Earnings—Pepe (350,000) (CV) 32,000 (382,000) Common Stock ($10 par)—Salida (50,000) (EL) 40,000 (10,000) Paid-In Capital in Excess of Par—Salida (140,000) (EL) 112,000 (28,000) Retained Earnings—Salida (260,000) (EL) 208,000 (NCI) 18,000 (70,000) Net Sales (640,000) (350,000) (IS) 40,000 (950,000) Cost of Goods Sold 360,000 200,000 (EI) 4,000 (IS) 40,000 524,000 466 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems Operating Expenses Dividend Income 160,000 90,000 (8,000) (2,000) (CY1) 8,000 (CY2) 2,000 40,000 10,000 (TS) 40,000 (CY2) (CY1) 2,000 8,000 250,000 38,000 Dividends Declared—Pepe Dividends Declared—Salida 2,000 Treasury Stock 40,000 Total 0 576,000 576,000 Consolidated Net Income (176,000) To NCI (see distribution schedule) 12,000 (12,000) (164,000) To Controlling Interest (see distribution schedule) 164,000 Total NCI (118,000) (118,000) Retained Earnings—Controlling Interest, December 31, 20X2 (508,000) (508,000) Totals 467 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems Problem 8-8, Concluded Eliminations and Adjustments: (CV) Convert to the simple equity method as of January 1, 20X2 (CY1) Eliminate the current-year dividend income of Pepe against dividends declared by Salida (EL) Eliminate 80% of the Salida Company equity balances at the beginning of the year against the investment account (D) Distribute the $72,000 excess of cost over book value and $18,000 NCI adjustment to Goodwill (IS) Eliminate the intercompany sale and purchase (EI) Eliminate the intercompany gross profit in the ending inventory of Salida (CY2) Eliminate the current-year dividend income of Salida against dividends declared by Pepe (TS) Transfer Investment in Pepe Company to a treasury stock account Subsidiary Salida Company Income Distribution Internally generated net income NCI share NCI $60,000 × 20% $12,000 Parent Pepe Company Income Distribution Ending inventory profit $4,000 Internally generated net income $120,000 80% of Salida income 48,000 Controlling interest $164,000 468 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems PROBLEM 8-9 Determination and Distribution of Excess Schedule Company Implied Fair Value Fair value of subsidiary $500,000 Less book value of interest acquired: Common stock ($10 par) $ 50,000 Paid-in capital in excess of par 140,000 Retained earnings 220,000 Total equity $410,000 Interest acquired Book value Excess of fair value over book value $ 90,000 Parent Price (80%) $400,000 NCI Value (20%) $100,000 $410,000 80% $328,000 $ 72,000 $410,000 20% $ 82,000 $ 18,000 Adjustment of identifiable accounts: Goodwill Adjustment $ 90,000 469 Worksheet Key debit D1 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems Problem 8-9, Continued Pepe Company and Subsidiary Salida Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X2 Trial Balance Pepe Salida Eliminations and Adjustments Dr Cr Consolidated Income Statement NCI Controlling Retained Earnings Consolidated Balance Sheet Inventory 170,000 120,000 (EI) 4,000 286,000 Other Current Assets 216,000 296,000 512,000 Investment in Salida Company 400,000 (CV) 32,000 (EL) 458,333 (TR) 100,000 (D1) 72,000 (D2) 1,667 Investment in Pepe Company 100,000 (TR) 100,000 Land 80,000 70,000 150,000 Buildings and Equipment 400,000 280,000 680,000 Accumulated Depreciation (180,000) (90,000) (270,000) Goodwill (D1) 90,000 90,000 Current Liabilities (98,000) (74,000) (172,000) Long-Term Liabilities (250,000) (100,000) (350,000) Common Stock ($10 par)—Pepe (100,000) (100,000) Paid-In Capital in Excess of Par—Pepe (200,000) (D2) 1,667 (198,333) Retained Earnings, January 1—Pepe (350,000) (CV) 32,000 (382,000) Common Stock ($10 par)—Salida (60,000) (EL) 50,000 (10,000) Paid-In Capital in Excess of Par—Salida (230,000) (EL) 191,666 (38,333) Retained Earnings, January 1—Salida (260,000) (EL) 216,667 (NCI) 18,000 (61,334) Net Sales (640,000) (350,000) (IS) 40,000 (950,000) 470 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems Cost of Goods Sold Operating Expenses Dividend Income 360,000 200,000 (EI) 4,000 (IS) 160,000 90,000 40,000 524,000 250,000 (8,000) (2,000) (CY2) 8,000 (CY2) 2,000 Dividends Declared—Pepe 40,000 (CY2) 2,000 38,000 10,000 (CY2) 8,000 2,000 Dividends Declared—Salida Total 0 736,000 736,000 Consolidated Net Income (176,000) To NCI 10,000 (10,000) (166,000) To Controlling Interest 166,000 Total NCI (117,667) (117,667) Total Controlling Retained Earnings (510,000) (510,000) Totals 471 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems Problem 8-9, Concluded Eliminations and Adjustments: (CV) Convert 80% interest to equity method, 80% × $40,000 increase in retained earnings (TR) Transfer investment in parent to investment in subsidiary (CY2) Eliminate intercompany dividends paid by parent and subsidiary (EL) Eliminate combined 5/6 ownership in subsidiary (D)/(NCI) Distribute excess to goodwill: (D1) is original goodwill; (D2) is reduction in Pepe paid-in capital in excess of par* (IS) Eliminate intercompany merchandise sales (EI) Eliminate intercompany profit in ending inventory *Analysis of Investment in Pepe: Equity after swap: Common stock ($10 par) Paid-in capital in excess of par Retained earnings Total Ownership interest (5,000/6,000) Equity prior to swap: Total above Less value of shares issued Total Ownership interest (4,000/5,000) Increase in equity Value of share exchanged Increase (decrease) in equity $ 60,000 230,000 260,000 $550,000 × 5/6 $ 550,000 (100,000) $ 450,000 × 80% $458,333 360,000 $ 98,333 100,000 $ (1,667) Subsidiary Salida Company Income Distribution Internally generated net income $ 60,000 NCI share × 1/6 NCI $ 10,000 Parent Pepe Company Income Distribution Ending inventory profit $4,000 Internally generated net income $120,000 5/6 of Salida income 50,000 Controlling interest $166,000 472 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems PROBLEM 8-10 Determination and Distribution of Excess Schedule Company Parent Implied Price Fair Value (75%) Fair value of subsidiary $148,000 $111,000* Less book value of interest acquired: Common stock ($5 par) $ 20,000 Paid-in capital in excess of par 10,000 Retained earnings 112,000 Total equity $142,000 $142,000 Interest acquired 75% Book value $106,500 Excess of fair value over book value $ 6,000 $ 4,500 NCI Value (25%) $ 37,000 $142,000 25% $ 35,500 $ 1,500 Adjustment of identifiable accounts: Goodwill Worksheet Key debit D Adjustment $ 6,000 *Last purchase at $51,800/1,400 shares = $37 per share Fair value = 3,000 shares × $37 = $111,000 Adjustment to fair value: Fair value of prior purchase (1,600 shares × $37) Cost Gain 473 $59,200 48,000 $11,200 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems Problem 8-10, Continued Heckert Company and Subsidiary Aker Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X3 Trial Balance Heckert Aker Eliminations and Adjustments Dr Cr Consolidated Income Statement NCI Cash 38,100 29,050 67,150 Marketable Securities 33,000 18,000 (TS) 18,000 33,000 Trade Accounts Receivable 210,000 88,000 (IA) 8,000 290,000 Allowance for Doubtful Accounts (6,800) (2,300) (9,100) Intercompany Receivables 24,000 (IA) 24,000 Inventories 275,000 135,000 (EI) 5,400 404,600 Machinery and Equipment 514,000 279,000 (F1) 800 792,200 Accumulated Depreciation (298,200) (196,700) (494,900) Investment in Aker Company (at cost) 99,800 (Adj) 11,200 (EL) 106,500 (D) 4,500 Patents 35,000 35,000 Goodwill (D) 6,000 6,000 Dividends Payable (7,500) (CY2) 750 Trade Accounts Payable (195,500) (174,050) (IA) 24,000 (345,550) Intercompany Payables (8,000) (IA) 8,000 Common Stock ($10 par)—Heckert (150,000) (150,000) Common Stock ($5 par)—Aker (22,000) (EL) 16,500 Paid-In Capital in Excess of Par—Heckert (36,000) (36,000) Paid-In Capital in Excess of Par—Aker (14,000) (EL) 10,500 Retained Earnings—Heckert (378,000) 474 Controlling Retained Earnings Consolidated Balance Sheet (6,750) (5,500) (3,500) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems Retained Earnings—Aker Dividends Declared—Heckert Dividends Declared—Aker Sales and Services Dividend Income Other Income Cost of Goods Sold Depreciation Expense Administrative and Selling Expenses (106,000) (EL) (NCI) 1,500 (CY2) (CY1) 182,000 750 3,000 (CY1) 3,000 (3,700) (F1) 800 374,000 (EI) 5,400 (IS) 65,600 11,200 130,000 110,500 79,500 7,500 4,000 (850,000) (530,000) (IS) (3,000) (9,000) 510,000 475 (378,000) (28,000) 1,000 (1,198,000) 6,750 (11,900) 182,000 707,400 76,800 240,500 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems Problem 8-10, Continued Heckert Company and Subsidiary Aker Company Worksheet for Consolidated Financial Statements For Year Ended December 31, 20X3 (Concluded) Trial Balance Heckert Aker Gain on investment Treasury Stock (cost) 18,000 Eliminations and Adjustments Dr Cr (Adj) (TS) 18,000 Consolidated Income Statement 11,200 NCI Controlling Retained Earnings (11,200) Consolidated Balance Sheet 0 365,650 365,650 Consolidated Net Income (196,400) (10,750) To NCI (see distribution schedule) 10,750 To Controlling Interest (see distribution schedule) 185,650 (185,650) Total NCI (46,750) (46,750) Retained Earnings—Controlling Interest, December 31, 20X3 (556,900) (556,900) Totals Eliminations and Adjustments: (Adj) Adjust investment account for gain on prior investment, $11,200 (CY1) Eliminate intercompany cash dividends (CY2) Eliminate intercompany dividends on shares of Heckert owned by Aker, 1,500 × $0.50 = $750 against the dividends payable account (EL) Eliminate 75% of subsidiary equity against the investment account (D)/(NCI) Distribute excess and NCI adjustment to Goodwill, according to the determination and distribution of excess schedule (TS) Reclassify Aker’s investment in Heckert as treasury stock at cost (F1) Eliminate gain on machinery sale by Aker (IA) Eliminate intercompany receivables and payables (IS) Eliminate intercompany merchandise sales of $182,000 (EI) Eliminate ending inventory profit on Aker sales to Heckert, 30% × $18,000 = $5,400 476 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems Problem 8-10, Concluded Subsidiary Aker Company Income Distribution Gain on sale of equipment Unrealized profit in ending inventory $ 800 Internally generated net income 5,400 Gain on investment in Heckert $ 8,000 11,200 Adjusted net income NCI share NCI $ 43,000 × 25% $ 10,750 Parent Heckert Company Income Distribution Internally generated net income $153,400 75% × Aker adjusted income of $43,000 32,250 Controlling interest $185,650 477 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ... download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Exercises EXERCISE 8-3 Shares purchased by parent Total shares owned by parent after purchase... *From D&D **The investment has been increased by $6,000 (cost of the stock purchased by the parent), while the controlling share of equity has decreased by $3,000 The total decrease of $9,000 is... 28,933 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ch 8—Problems 432 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com