chapter 3 - 12thedition

8/10/2019 Chapter 3 - 12thEDITION

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CHAPTER 3

AN INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS

Answers to Questions

1 A corporation becomes a subsidiary when another corporation either directly or indirectly acquires acontrolling financial interest (generally over 50 percent) of its outstanding voting stock.

2 Amounts assigned to identifiable assets and liabilities in excess of recorded amounts on the books of thesubsidiary are not recorded separately by the parent. Instead, the parent records the fair value/purchase

price of the interest acquired in an investment account. The assignment to identifiable asset and liabilityaccounts is made through working paper entries when the parent and subsidiary financial statements areconsolidated.

3 The land would be shown in the consolidated balance sheet at $100,000, its fair value, assuming that the purchase price of the subsidiary is greater than the book value of the subsidiarys net assets. If the parent

had acquired an 80 percent interest and the implied fair value of the subsidiary was greater than the bookvalue of the subsidiarys net assets, the land would still appear in the consolidated balance sheet at$100,000. Under GAAP, the noncontrolling interest is also reported based on fair values at the acquisitiondate.

4 Parent company a corporation that owns a controlling interest in the outstanding voting stock of anothercorporation (its subsidiary).Subsidiary company a corporation that is controlled by a parent that owns a controlling interest in itsoutstanding voting stock, either directly or indirectly.

Affiliates companies that are controlled by a single management team through parent-subsidiaryrelationships. (Although the term affiliate is a synonym for subsidiary, the parent is included in the totalaffiliation structure.) In many annual reports, the term includes all investments accounted for by the equitymethod.

Associates companies that are controlled through parent-subsidiary relationships or whose operations can be significantly influenced through equity investments of 20 percent to 50 percent.

5 A noncontrolling interest is the equity interest in a subsidiary that is owned by stockholders outside of theaffiliation structure. In other words, it is the equity interest in a subsidiary (recorded at fair value) that is notheld by the parent or subsidiaries of the parent.

6 Under GAAP, a subsidiary will not be consolidated if control does not rest with the majority owner, such asin the case of a subsidiary in reorganization or bankruptcy, or when the subsidiary operates under severeforeign exchange restrictions or other governmentally imposed uncertainties. Other conditions for notconsolidating a subsidiary are: (1) formation of joint ventures, (2) the acquisition of an asset or group ofassets that does not constitute a business, (3) combination between entities under common control and (4)combination between not-for-profit entities or the acquisition of a for-profit business by a not-for-profitentity.

7 Consolidated financial statements are intended primarily for the stockholders and creditors of the parent,according to GAAP.

8 The amount of capital stock that appears in a consolidated balance sheet is the total par or stated value ofthe outstanding capital stock of the parent.

9 Goodwill from consolidation may appear in the general ledger of the surviving entity in a merger orconsolidation accounted for as an acquisition. But goodwill from consolidation would not appear in the


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general ledger of a parent or its subsidiary. Goodwill is entered in consolidation working papers when thereciprocal investment and equity amounts are eliminated. Working paper entries affect consolidatedfinancial statements, but they are not entered in any general ledger.

10 The parents investment in su bsidiary does not appear in a consolidated balance sheet if the subsidiary isconsolidated. It would appear in the parents separate balance sheet under the heading investments orother assets. Investments in unconsolidated subsidiaries are shown in co nsolidated balance sheets asinvestments or other assets. They are accounted for under the equity method if the parent can exercisesignificant influence over the subsidiary; otherwise, they are accounted for by the fair value / cost method.

11 Parents b ooks: Reciprocal accounts on subsidiarys books: Investment in subsidiary Capital stock and retained earningsSales Cost of Goods SoldAccounts receivable Accounts payableInterest income Interest expenseDividends receivable Dividends payableAdvance to subsidiary Advance from parent

12 Reciprocal accounts are eliminated in the process of preparing consolidated financial statements in order toshow the financial position and results of operations of the total economic entity that is under the control ofa single management team. Sales by a parent to a subsidiary are internal transactions from the viewpoint ofthe economic entity and the same is true of interest income and interest expense and rent income and rentexpense arising from intercompany transactions. Similarly, receivables from and payables to affiliates donot represent assets and liabilities of the economic entity for which consolidated financial statements are

prepared.

13 The stockholders equity of a parent under the equity method is the same as the consolidated stockholdersequity of a parent and its subsidiaries except for the noncontrolling interest.

14 No. The amounts that appear in the parents statement of retained earnings under the equity method and theamounts that appear in the consolidated statement of retained earnings are identical, assuming that thenoncontrolling interest is included as a separate component of stockholders equity.

15 Income attributable to noncontrolling interest is not an expense, but rather it is an allocation of the totalincome to the consolidated entity between controlling and noncontrolling stockholders. From the viewpointof the controlling interest (the stockholders of the parent), income attributable to noncontrolling interest hasthe same effect on consolidated net income as an expense. This is because consolidated net income isincome to all stockholders. Alternatively, you can view total consolidated net income as being allocated tothe controlling and noncontrolling interests.

16 The computation of noncontrolling interest is comparable to the computation of retained earnings. It iscomputed:

Noncontrolling interest beginning of the period XXAdd: Income attributable to noncontrolling interest XXDeduct: Noncontrolling interest dividends (XX)

Deduct: Noncontrolling interest of amortization ofexcess of fair value over book valueAdd: Noncontrolling interest of amortization ofexcess of book value over fair value

(XX)

XX Noncontrolling interest end of the period XX

17 It is acceptable to consolidate the annual financial statements of a parent and a subsidiary with differentfiscal periods, provided that the dates of closing are not more than three months apart. Any significantdevelopments that occur in the intervening three-month period should be disclosed in notes to the financialstatements. In the situation described, it is acceptable to consolidate the financial statements of the


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subsidiary with an October 31 closing date with the financial statements of the parent with a December 31closing date.

18 The acquisition of shares from noncontrolling stockholders is not a business combination. It must beaccounted for as a treasury stock transaction if the acquirer is the controlling interest. It is not possible, bydefinition, to acquire a controlling interest from noncontrolling stockholders.

SOLUTIONS TO EXERCISES

Solution E3-1 Solution E3-2

1 b 1 d2 c 2 b3 d 3 d4 d 4 d5 a 5 a

6 b7 c

Solution E3-3 [AICPA adapted]

1 c Advance to Hill $75,000 + receivable from Ward $200,000 =$275,000

2 a Zero, goodwill has an indeterminate life and is not amortized.

3 a Pow accounts for Sap using the equity method, therefore,consolidated retained earnings is equ al to Pows retained earnings, or$2,480,000.

4 d On the consolidated balance sheet, intercompany receivables

should be zero.

Solution E3-4 (in thousands)

1 Implied fair value of San ($3,600 / 90%) $4,000Less: Book value of San (3,600)Excess fair value over book value $ 400Equipment undervalued 120Goodwill at January 1, 2011 $ 280Goodwill at December 31, 2011 = Goodwill from consolidation $ 280Since goodwill is not amortized

2 Consolidated net income

Pins reported net income $1,960Less: Correction to income from San for

depreciation on excess allocatedto equipment [($120,000/3 years)x 90%] (36)

Controlling share of consolidated net income $1,924

Noncontrolling share of consolidated net income:($400,000 - $40,000 depreciation) x 10% $36Controlling share of consolidated net income 1,924


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Consolidated net income $1,960


1 $2,400, the dividends of Pan

2 $1,320, equal to $1,200 dividends payable of Pan plus $120 (30% of$400) dividends payable to noncontrolling interests of Sad.


Preliminary computation Cost of Sli stock (Fair value) $5,000Fair value of Slis identifiable net assets 4,000

Goodwill $1,000

1 Journal entry to record push down values

Inventories 80

Land 200Buildings net 600Equipment net 320Goodwill 1,000Retained earnings 840

Note payable 40Push-down capital 3,000

2 Sli Corporation Balance Sheet

January 1, 2011(in thousands)

Assets

Cash $ 280Accounts receivable 320Inventories 400Land 800Buildings net 2,000Equipment net 1,200Goodwill 1,000

Total assets $6,000

Liabilities Accounts payable $ 400Note payable 600

Total liabilities 1,000

Stockholders equity Capital stock $2,000Push-down capital 3,000

Total stockholders equity 5,000Total liabilities and stockholders equity $6,000


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Solution E3-7

1 Pas Corporation and Subsidiary Consolidated Income Statement

for the year 2012(in thousands)

Sales ($4,000 + $1,600) $5,600Less: Cost of sales ($2,400 + $800) (3,200)

Gross profit 2,400Less: Depreciation expense ($200 + $160) (360)

Other expenses ($796 + $360) (1,156)

Consolidated net income 884Less: Noncontrolling interest share ($280 30%) (84)

Controlling interest share of cnsolidated net income $ 800

2 Pas Corporation and Subsidiary Consolidated Income Statement

for the year 2012(in thousands)

Sales ($4,000 + $1,600) $5,600Less: Cost of sales ($2,400 + $800) (3,200)

Gross profit 2,400Less: Depreciation expense ($200 + $160 - $24) (336)

Other expenses ($796 + $360) (1,156)

Consolidated net income 908Less: Noncontrolling interest share

[($280 30%)+ ($24 depreciation x 30%)] (91.2)Controlling interest share of consolidated net income $ 816.8

Supporting computations Depreciation of excess allocated to overvalued equipment:

$120/5 years = $24


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1 Capital stock

The capital stock appearing in the consolidated balance sheet atDecember 31, 2011 is $7,200, the capital stock of Pob,the parentcompany.

2 Goodwill at December 31, 2011

Investment cost at January 2, 2011 (80% interest) $2,800Implied total fair value of Sof ($2,800 / 80%) $3,500Book value of Sof(100%) (2,400)Excess is considered goodwill since no other fair valueinformation is given. $1,100

3 Consolidated retained earnings at December 31, 2011

Pobs retained earnings January 2 (equal tobeginning consolidated retained earnings $3,200

Add: Net income of Pob (equal to controlling share ofconsolidated net income) 1,200Less: Dividends declared by Pob (720)

Consolidated retained earnings December 31 $3,680

4 Noncontrolling interest at December 31, 2011

Capital stock and retained earnings of Sof onJanuary 2 $2,400

Add: Sofs net income 360Less: Dividends declared by Sof (200)

Sofs stockholders equity December 31 2,560Noncontrolling interest percentage 20%Noncontrolling interest at book valueAdd: 20% GoodwillNoncontrolling interest December 31

$ 512220

$ 732

5 Dividends payable at December 31, 2011

Dividends payable to stockholders of Pob $ 360Dividends payable to noncontrolling stockholders ($100 20%) 20Dividends payable to stockholders outside the

Consolidated entity $ 380


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Pas Corporation and Subsidiary Partial Balance Sheetat December 31, 2011

Stockholders equity: Capital stock, $10 par $1,200Additional paid-in capital 200Retained earnings 260

Equity of controlling stockholders 1,660Noncontrolling interest 164

Total stockholders equity $1,824

Supporting computations Computation of consolidated retained earnings:Pass December 31, 2010 retained earnings $ 140Add: Pass reported income for 2011 220Less: Pass dividends (100)

Consolidated retained earnings December 31, 2011 $ 260

Computation of noncontrolling interest at December 31, 2011Sals December 31, 2010 stockholders equity $800Income less dividends for 2011 ($80 - $60) 20Sals December 31, 2011 stockholders equity 820Noncontrolling interest percentage 20%Noncontrolling interest December 31, 2011 $164


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Solution E3-10

Pek Corporation and Subsidiary Consolidated Income Statement

for the year ended December 31, 2013(in thousands)

Sales $8,400Cost of goods sold 4,400

Gross profit 4,000Deduct: Operating expenses 2,220

Consolidated net income 1,780Deduct: Noncontrolling interest share 58

Controlling interest share $1,722

Supporting computations

Investment cost January 1, 2011 (90% interest) $ 3,240Implied total fair value of Slo ($3,240 / 90%) $ 3,600Slos Book value acquired (100%) (2,800)

Excess of fair value over book value $ 800

Excess allocated to:Inventories (sold in 2011) $ 120Equipment (4 years remaining useful life) 80Goodwill 600

Excess of fair value over book value $ 800

Operating expenses:Combined operating expenses of Pek and Slo $2,200Add: Depreciation on excess allocated to equipment

($80/4 years) 20Consolidated operating expenses $2,220


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SOLUTIONS TO PROBLEMS

Solution P3-1

1 Pen Corporation and Subsidiary Consolidated Balance Sheet

at December 31, 2011(in thousands)

Assets Cash ($128 + $72) $ 200Accounts receivable ($180 + $136 - $20) 296Inventories ($572 + $224) 796Equipment net ($1,520 + $700) 2,220

Total assets $3,512

Liabilities and Stockholders Equity Liabilities:Accounts payable ($160 + $132 - $20) $ 272Stockholders equity:

Common stock, $10 par 1,840Retained earnings 1,200Noncontrolling interest ($600 + $400) 20% 200

Total liabilities and stockholders equity $3,512

2 Consolidated net income for 2012

Pens separate income $ 680Add: Income from Sut (80% x $360,000) 288

Controlling interest share 968Add: Noncontrolling interest share (20% x $360,000) 72Consolidated net income $1,040

Pens separate income $ 680Add: Suts net income 360

Consolidated net income 1,040Less: Noncontrolling interest share (20% x $360,000) 72Controlling share of consolidated net income $ 968


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Solution P3-2 (in thousands)

1 Schedule to allocate fair value/book value differential

Cost of investment in Set $ 700Implied fair value of Set ($700 / 70%) $1,000Book value of Set (440)

Excess fair value over book value $ 560Excess allocated:

Fair Value Book Value AllocationInventories ($200 - $120) $ 80Land ($240 - $200) 40Buildings net ($360 - $280) 80Equipment net ($120 - $160) (40)Other liabilities ($160 - $200) 40

Allocated to identifiable net assets 200Goodwill for the remainder 360

Excess fair value over book value $560

2 Par Corporation and Subsidiary Consolidated Balance Sheet

at January 1, 2011

Assets Current assets: Cash ($140 + $80) $220Receivables net ($320 + $120) 440Inventories ($280 + $120 + $80) 480 $1,140

Property, plant and equipment: Land ($400 + $200 + $40) $640Buildings net ($440 + $280 + $80) 800

Equipment net ($320 + $160 - $40) 440 1,880Goodwill (from consolidation) 360Total assets $3,380

Liabilities and Stockholders Equity Liabilities: Accounts payable ($360 + $320) $ 680Other liabilities ($40 + $200 - $40) 200 $ 880

Stockholders equity: Capital stock $2,000Retained earnings 200

Equity of controlling stockholders 2,200Noncontrolling interest * 300 2,500

Total liabilities and stockholders equity $3,380

* 30% of implied fair value of $1,000 = $300.


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Cost of investment in Sof January 1, 2011 $10,800Implied fair value of Sof ($10,800 / 80%) $13,500Book value of Sof 10,000

Excess of fair value over book value $ 3,500

Schedule to Allocate Fair Value Book Value Differential

Fair Value- Book Value Allocation

Current assets $2,000 $2,000Equipment 4,000 4,000

Bargain purchasegain*

(2,500)

Excess fair value over book value $3,500

*After recognizing acquired assets and liabilities at fair values, we areleft with a negative excess of $2,500. Under GAAP, this difference is

recorded as a gain in the consolidated income statement in the year ofacquisition. The gain is attributable entirely to the controlling interest,and is recorded on the parents books by a debit to the Investment accountand a credit to a Gain from Bargain Purchase account. An alternativecalculation of this amount takes the difference between the fair values ofthe net assets ($16,000) and their fair value implied by the acquisitionprice ($13,500), which equals $2,500.


Noncontrolling interest of $260 (fair value) plus $1,040 (fair value of Pamsinvestment) equals total fair value of $1,300. Therefore, Pams interest is80% ($1,040 / $1,300), and noncontrolling interest is 20% ($260 / $1,300).

Total fair value $1,300Book value of Sap (1,040)Excess fair value over book value $ 260

Excess allocated to

Fair Value - Book ValuePlant assets net $840 - $800 $ 40Goodwill 220

Total $ 260


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Solution P3-5

Pal Corporation and Subsidiary Consolidated Balance Sheet


Assets Current assets $1,360Plant assets 3,320Goodwill 800

$5,480Equities Liabilities $2,640Capital stock 1,200Retained earnings 1,640

$5,480

Supporting computations Sors net income ($1,600 - $1,200 - $200) $ 200Less: Excess allocated to inventories that were sold in 2011 (80)

Less: Depreciation on excess allocated to plantassets ($160 /4 years) (40)Income from Sor $ 80

Plant assets ($2,000 + $1,200 + $160 - $40) $3,320

Pals retained earnings: Beginning retained earnings $1,360Add: Operating income 400Add: Income from Sor 80Deduct: Dividends (200)Retained earnings December 31, 2011 $1,640


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Solution P3-6

Per Corporation and Subsidiary Consolidated Balance Sheet Working Papers


Perper books

Simper books

Adjustments andEliminations

ConsolidatedBalance Sheet

Cash $ 168 $ 80 $ 248

Receivables net 200 520 b 36 684Inventories 1,400 200 1,600Land 600 800 1,400

Equipment net 2,400 400 2,800Investment in Sim 1,836 a 1,836Goodwill ______ ______ a 400 400

Total assets $6,604 $2,000 $7,132

Accounts payable $1,640 $ 320 $1,960Dividends payable 240 40 b 36 244

Capital stock 4,000 1,200 a 1,200 4,000Retained earnings 724 440 a 440 724Noncontrolling interest ______ ______ _______ a 204 204

Total equities $6,604 $2,000 2,076 2,076 $7,132

a To eliminate reciprocal investment and equity accounts, record goodwill ($400), andenter noncontrolling interest [($1,640 equity + $400 goodwill) 10%)].

b To eliminate reciprocal dividends receivable (included in receivables net) anddividends payable amounts ($40 dividends 90%).


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Preliminary computations Cost of 80% investment January 3, 2011 $1,120Implied total fair value of Sle ($1,120 / 80%) $1,400Book value of Sle (1,000)

Excess fair value over book value on January 3 = Goodwill $ 400

1 Noncontrolling interest share of income:Sles net income $200 20% noncontrolling interest $ 40

2 Current assets:Combined current assets ($816 + $300) $1,116Less: Dividends receivable ($40 80%) (32)

Current assets $1,084

3 Income from Sle: None Investment income is eliminated in consolidation.

4 Capital stock: $2,000 Capital stock of the parent, Por Corporation.

5 Investment in Sle: None The investment account is eliminated.

6 Excess of fair value over book value $400

7 Controlling share of consolidated net income: Equals Porsnet income, or:Consolidated sales $ 2,400Less: Consolidated cost of goods sold (1,480)Less: Consolidated expenses (320)Consolidated net income $ 600Less: Noncontrolling interest share (40)

Controlling share $ 560

8 Consolidated retained earnings December 31, 2011: $808 Equals Porsbeginning retained earnings.

9 Consolidated retained earnings December 31, 2012Equal to Pors ending retained earnings: Beginning retained earnings $ 808Add: Controlling share of consolidated net income 560Less: Pors dividends for 2012 (240)

Ending retained earnings $1,128

10 Noncontrolling interest December 31, 2012Sles capital stock and retained earnings $1,200Add: Net income 200Less: Dividends (100)Sles equity December 31, 2012 at fair value 1,300Noncontrolling interest percentage 20%Noncontrolling interest December 31, 2012 using book value $ 260Add: Noncontrolling interest share of Goodwill 80Noncontrolling interest December 31, 2012 at fair value $ 340


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Solution P3-8 [AICPA adapted]

Preliminary computations Saw SunInvestment cost:

Saw (2,000 shares 80%) $280448,000

Sun (6,000 shares 70%) $160672,000

Implied total fair values:Saw ($448,000 / 80%)

560,000Sun ($672,000/ 70%) 960,000

Book value of stockholders equity Saw 280,000Sun 480,000

Excess fair value over book value at acquisition(Goodwill) 280,000 480,000

1 a. Journal entries to account for investments

January 1, 2011 Acquisition of investments Investment in Saw (80%) 448,000

Cash 448,000To record acquisition of 1,600 shares of

Saw common stock at $280 per share.Investment in Sun (70%) 672,000

Cash672,000

To record acquisition of 4,200 shares ofSun common stock at $160 per share.

b. During 2011 Dividends from subsidiaries Cash 51,200

Investment in Saw (80%) 51,200To record dividends received from Saw ($64,000 80%).Cash 25,200

Investment in Sun (70%) 25,200To record dividends received from Sun ($36,000 70%).

c. December 31, 2011 Share of income or loss Investment in Saw (80%) 115,200

Income from Saw 115,200To record investment income from Saw ($144,000 80%).

Loss from Sun 33,600Investment in Sun (70%) 33,600To record investment loss from Sun ($48,000 70%).


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Solution P3-8 (continued)

2 Noncontrolling interest December 31, 2011 * Saw Sun

Common stock $200,000 $240,000Capital in excess of par 80,000Retained earnings 160,000 76,000Equity December 31 360,000 396,000Noncontrolling interest percentage 20% 30%

Noncontrolling interest December 31 $ 72,000 $118,800Plus: Goodwill x 20%$280,000 x 20% 56,000$480,000 x 30% 144,000

Noncontrolling interest, December 31 $128,000 $262,800

* Fair value equals book value.

3 Consolidated retained earnings December 31, 2011

Consolidated retained earnings is reported at $1,218,400, equal to the

retained earnings of Pod Corporation, the parent, at December 31, 2011.

4 Investment balance December 31, 2011: Saw Sun

Investment cost January 1 $448,000 $672,000

Add (deduct): Income (loss) 115,200 (33,600)Deduct: Dividends received (51,200) (25,200)

Investment balances December 31 $512,000 $613,200

Check: Investment balances should be equal to the underlying book valueplus goodwill

Saw ($360,000 80%) + ($280,000 x 80%) = $512,000Sun ($396,000 70%) + ($480,000 x 70%) = $613,200

After consolidation, the Investment balances are $0.


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Solution P3-9

Preliminary computations (in thousands) Cost of 90% investment January 1, 2011 $14,400Implied total fair value of Son ($14,400 / 90%) $16,000Book value of Son (10,800)

Excess fair value over book value on January 1 $ 5,200Allocation to equipment $ 3,200Remainder is Goodwill $ 2,000Additional annual depreciation on equipment ($3,200 / 8 years) $ 400

Pan Corporation and Subsidiary Consolidated Balance Sheet Working Papers


Pan90%Son



Cash $ 1,200 $ 800 $ 2,000

Receivables net 2,400 1,600 4,000

Dividends receivable 360 b 360Inventory 2,800 2,400 5,200Land 2,400 2,800 5,200

Buildings net 8,000 4,000 12,000

Equipment net 6,000 3,200 a 2,800 12,000Investment in Son 15,120 a 15,120Goodwill _______ ________ a 2,000 2,000

Total assets $38,280 $ 14,800 $42,400

Accounts payable $ 1,200 $ 2,400 $ 3,600Dividends payable 2,000 400 b 360 2,040Capital stock 28,000 8,000 a 8,000 28,000

Retained earnings 7,080 4,000 a 4,000 7,080Noncontrolling interest _______ ________ _______ a 1,680 1,680

Total equities $38,280 $ 14,800 17,160 17,160 $42,400

a To eliminate reciprocal investment and equity accounts, enter unamortized excessallocated to equipment, record goodwill, and enter noncontrolling interest (at fairvalue).

b To eliminate reciprocal dividends receivable and dividends payable amounts.


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Solution P3-10

1 Purchase price of investment in Sun (in thousands)

Underlying book value of investment in Sun:Equity of Sun January 1, 2011 $ 880Add: Excess investment fair value over book value:

Goodwill at December 31, 2015 240Fair value of Sun January 1, 2011 $1,120

Purchase price of 80% investment at fair value($1,120 x80%)

$ 896

2 Suns stockholders equity on December 31, 2014 (in thousands)

20% noncontrolling interest at fair value $24820% goodwill (48)20% noncontrolling interests equity at book value $200Total equity = Noncontrolling interests equity $200/20% = $1,000

3 Pans investment in Sun account balance at December 31, 2014 (in thousands)Underlying book value in Sun December 31, 2014

($1,000 80%) $800Add: 80% of Goodwill December 31, 2014

(20% is attributable to the noncontrolling interest) 192Investment in Sun December 31, 2014 $992

Alternative solution:Investment cost January 1, 2011 $896Add: 80% of Suns increase since acquisition

($1,000 - $880) 80% 96Investment in Sun December 31, 2014 $992

4 Pans capital stock and retained earnings December 31, 2015 (in thousands)Capital stock $1,600Retained earnings $ 120

Amounts are equal to capital stock and retained earnings shown in theconsolidated balance sheet.


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Solution P3-11

Preliminary computations (in thousands) Cost of 70% investment in Stu $2,800Implied fair of Stu($2,800 / 70%) $4,000Book value of Stu (100%) 3,200

Excess $ 800Excess allocated:

Inventories $ 80Plant assets 320Goodwill 400Excess $ 800

Investment balance at January 1, 2011 $2,800Share of Stus retained earnings increase ($240 70%) 168Less: Amortization

70% of excess allocated to inventories (sold in 2011) (56)70% of excess allocated to plant assets ($320 /8 years) (28)

Investment balance at December 31, 2011 $2,884

Noncontrolling interest at December 3130% of Stus book value at December 31 ($3,440 x 30%) $1,03230% of Goodwill 12030% Unamortized excess for plant assets

30% x ($320 - $40 amortization) 84Noncontrolling at December 31 (fair value) $1,236

Pop Corporation and Subsidiary Consolidated Balance Sheet Working Papers


Pop70%Stu



Cash $ 240 $ 80 $ 320

Accounts receivable net 1,760 800 2,560

Accounts receivable Pop 40 b 40Dividends receivable 28 c 28Inventories 2,000 1,280 3,280Land 400 600 1,000

Plant assets net 2,800 1,400 A 280 4,480Investment in Stu 2,884 a 2,884Goodwill ______ ______ a 400 400

Assets $10,112 $ 4,200 $12,040

Accounts payable $ 1,200 $ 320 $ 1,520Account payable to Stu 40 b 40Dividends payable 160 40 c 28 172Long-term debt 2,400 400 2,800Capital stock 4,000 2,000 a 2,000 4,000Retained earnings 2,312 1,440 a 1,440 2,312Noncontrolling interest

($4,120,000 30%) _______ _______ _______ a 1,236 1,236

Equities $10,112 $ 4,200 4,188 4,188 $12,040


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Solution P3-12

Preliminary computations (in thousands) 80% Investment in Sam at cost January 1, 2011 $ 3,040Implied total fair value of Sam ($3,040 / 80%) $ 3,800Sam book value 3,600

Excess fair value over book value recorded as goodwill $ 200

SamDividends

SamNet Income

80% ofNet Income

2011 $160 $ 320 $2562012 200 400 3202013 240 480 384

$600 $1,200 $960

1 Sams dividends for 2012 ($160 / 80%) $ 200

2 Sams net income for 2012 ($320 / 80%) $ 400

3 Goodwill December 31, 2012 $ 200

4 Noncontrolling interest share of income 2013Sams income for 2013

($192 dividends received/80%) 2 $ 480Noncontrolling interest percentage 20%

Noncontrolling interest share $ 96

5 Noncontrolling interest December 31, 2013Equity of Sam January 1, 2011 $3,600Add: Income for 2011, 2012 and 2013 1,200Deduct: Dividends for 2011, 2012 and 2013 (600)Equity book value of Sam December 31, 2013 4,200Goodwill 200

Equity fair value of Sam December 31, 2013 $4,400Noncontrolling interest percentage 20%Noncontrolling interest December 31, 2013 $ 880

6 Controlling share of consolidated net income for 2013Pens separate income $1,120Add: Income from Sam 384

Controlling share of consolidated net income $1,504

Pens net income $1,120Sams net income 480Consolidated net income $1,600Less: Noncontrolling interest share ($480 x 20%) 96Controlling interest share $1,504

chapter 3 - 12thedition

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