Download - Chapter 07 XLSol
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Student Name: Instructor
Class: McGraw-Hill/Irwin
Problem 07-25
Calculation of deferred gains in beginning and ending inventory:
Beginning unrealized gain (Wilson)January 1, 2011 Inventory Balance
Transfer price 60,000$Markup 25%Cost 48,000$ Correct!Unrealized gain 12,000$ Correct!
Ending unrealized gain (Wilson)December 31, 2011 Inventory Balance
Transfer price 90,000$Markup 25%Cost 72,000$ Correct!Unrealized gain 18,000$ Correct!
a. Consolidation entries
*G
Correct! 12,000(To recognizeincome on intercompany inventory transfers madek in previous year
but not resold until current year.)
*C
Correct! 11,200(To convert investment account from partial equity method to equity method.)
S1
Correct!
240,000
60,000(To eliminate Cuddy's stockholders' equity against the corresponding investment balance
and to recognize noncontrolling interest on common stock.)
S2
Correct!
621,600266,400
(To eliminate Wilson's stockholders' equity against corresponding investment balance
and to recognize noncontrolling interest.)
A
Correct!
10,000151,20064,800
(To allocate excess payment made in connection with purchase of Wilson.
I1
Correct! 56,000(To eliminate intercompany income accrued by both House and Wilson during
the year.)
I2
Correct! 91,000(To eliminate intercompany income accrued by House during the year.)
D1
Correct! 40,000(To eliminate effects of intercompany dividend payments.)
Income of Wilson Company 91,000Investment in Wilson Company
Investment in Cuddy Company 40,000
Dividends Paid
EquipmentInvestment in Wilson CompanyNoncontrolling interest in Wilson Company
Income of Cuddy Company 56,000Investment in Cuddy Company
Buildings 54,000Franchise Contracts 32,000Goodwill 140,000
Common stock (Wilson) 310,000Retained earnings, 1/1/11 (Wilosn) 578,000Investment in Wilson CompanyNoncontrolling interest in Wilson
Common stock (Cuddy) 150,000Retained earnings, 1/1/11 (Cuddy) 150,000Investment in Cuddy Company
Noncontrolling interest in Cuddy Common Stk.
Retained Earnings, 1/1/11 (Wilson) 12,000Cost of Goods Sold
Retained earnings, 1/1/11 (House) 11,200Investment in Wilson Company
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Student Name: Instructor
Class: McGraw-Hill/Irwin
Problem 07-25
D2
Correct! 67,200(To eliminate effects of intercompany dividend payments.)
ECorrect!
4,0003,000
(To record 2011 amortization on excess payment made in connection with acquisition
of Wildon Company.
TI
Correct! 200,000(To eliminate intercompany inventory sales for the current year.)
G
Correct! 18,000(To defer unrealized gain in ending inventory.)
Noncontrolling Interest in Net Income of Cuddy's
Reported net income 70,000$Outside ownership 20%Noncontrolling interest in Cuddy income - common ######
Correct!
Noncontrolling Interest in Net Income of Wilson
Reported operational incomeEquity income of CuddyExcess amortizationRecognition of 2010 gainDeferral of 2011 unrealized gain
Realized incomeOutside ownershipNoncontrolling interest in net income of Wilson
Non-
House Wilson Cuddy controlling Consolid
Accounts Corporation Company Company Debit Credit Interest Tota
Sales and other revenue (900,000) (700,000) (300,000) (1,700
[TI] 200,000
Cost of goods sold 551,000 300,000 140,000 [G] 18,000 [*G] 12,000 797[TI] 200,000
Operating expenses 219,000 270,000 90,000 [E] 2,000 581
Income of Wilson Company (91,000) - - [I2] 91,000
Income of Cuddy Company (28,000) (28,000) - [I1] 56,000
Net Income (249,000) (158,000) (70,000)
Consolidated net income (322
Noncontrolling interest in (45,000) 45
Wilson net income
Noncontrolling interest in (14,000) 14
Cuddy net income
To House Corporation (263
HOUSE CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidation Worksheet
December 31, 2011
Consolidation Entries
12,000$(18,000)$
150,00030%
45,000$Correct!
Cost of Goods Sold 18,000Inventory
130,00028,000$(2,000)
Franchise ContractsBuildings
Sales and Other Revenues 200,000Cost of Goods Sold
Investment in Wilson Company 67,200Dividends Paid (Wilson)
Operating Expenses 2,000Equipment 5,000
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Student Name: Instructor
Class: McGraw-Hill/Irwin
Problem 07-25
Retained earnings, 1/1/11
--House Corporation (820,000) [*C] 11,200
--Wilson Company (590,000) [*G] 12,000
[S2] 578,000--Cuddy Company (150,000) [S1] 150,000
Net Income (249,000) (158,000) (70,000)
Dividends paid
--House Corporation 100,000
--Wilson Company 96,000 [D2] 67,200 28
--Cuddy Company 50,000 [D1] 40,000 10
Retained earnings, 12/31/07 (969,000) (652,000) (170,000)
Cash and receivables 220,000 334,000 67,000
Inventory 390,200 320,000 103,000 [G] 18,000
Investment in Wildon Company 807,800 [D2] 67,200 [*C] 11,200
[S2] 621,600
[I2] 91,000
[A] 151,200
Investment in Cuddy Company 128,000 128,000 [D1] 40,000 [S1] 240,000
[I1] 56,000
Buildings 385,000 320,000 144,000 [A] 54,000 [E] 3,000
Equipment 310,000 130,000 88,000 [E] 5,000 [A] 10,000
Land 180,000 300,000 16,000
Goodwill [A] 140,000
Franchise Contracts [A] 32,000 [E] 4,000
Total assets 2,421,000 1,532,000 418,000
Liabilities (632,000) (570,000) (98,000)
Noncontrolling interest in Cuddy [S1] 60,000 (60,
Noncontrolling interest in Wilson [S2] 266,400
[A] 64,800 (331,
Noncontrolling interest in 411
subsidiary companies
Common stock (820,000) (310,000) (150,000) [S1] 150,000
[S2] 310,000
Retained earnings (969,000) (652,000) (170,000)
Total liabilities and equity (2,421,000) (1,532,000) (418,000)
Parentheses indicate a credit balance.
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Given P07-25:
House Corporation purchased ownership 70%in Wilson Company
Acquisition date fair value allocation schedule:
Consideration transferred for 70% interest in Wilson 707,000$Fair value of the 30% noncontrollong interest 303,000Wilson business fair value 1,010,000$Wilson book value 790,000Excess fair value over book value 220,000$Assignments to adjust Wilson't assets to fair value:
To buildings (20-year life) 60,000$To equipment (4-year life) (20,000)To franchises (10-year life) 40,000 80,000$To goodwill (indefinite life) 140,000$
Wilson net income during 2009 and 2010 160,000$Wilson paid dividends during 2009 and 2010 50,000House regularly acquired inventory from 25%
Wilson at cost plus markup
Intercompany Retained IntercompanyYear Purchases Inventory - End of Year 2009 120,000$ 40,000$2010 150,000 60,000
House and Wilson acquire outstanding stock of Cuddy Company 80%Total price of Cuddy shares 240,000$Share House and Wilson paid of purchase price 50%
Additional inventory acquired from Wilson in 2007 200,000$Merchandise still held at year's end 45%
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Given P07-25:
House Wilson CuddyCorporation Company Company12/31/2011 12/31/2011 12/31/2011
Sales and other revenues (900,000)$ (700,000)$ (300,000)$
Cost of goods sold 551,000 300,000 140,000Operating expenses 219,000 270,000 90,000Income of Wilson Company (91,000) - -Income of Cuddy Company (28,000) (28,000) -Net income (249,000)$ (158,000)$ (70,000)$
Retained earnings, 1/1/11 (820,000)$ (590,000)$ (150,000)$Net income (249,000) (158,000) (70,000)Dividends paid 100,000 96,000 50,000
Retained earnings, 12/31/11 (969,000)$ (652,000)$ (170,000)$
Cash and receivables 220,000$ 334,000$ 67,000$Inventory 390,200 320,000 103,000Investment in Wilson Company 807,800 - -Investment in Cuddy Company 128,000 128,000 -Buildings 385,000 320,000 144,000Equipment 310,000 130,000 88,000Land 180,000 300,000 16,000
Total assets 2,421,000$ 1,532,000$ 418,000$Liabilities (632,000)$ (570,000)$ (98,000)$
Common stock (820,000) (310,000) (150,000)Retained earnings, 12/31/11 (969,000) (652,000) (170,000)
Total liabilities and equity (2,421,000)$ (1,532,000)$ (418,000)$
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Student Name: Instructor
Class: McGraw-Hill/Irwin
Problem 07-27
TRAVERS COMPANY AND CONSOLIDATED SUBSIDIARIES
Acquisition -Date Allocation and Amortization
Consideration transferred for Stookey 344,000$Noncontrolling interest fair value 86,000
Stookey business fair value 430,000$
Stookey book value (380,000)
Customer list 50,000$
Life in years 10
Annual amortization 5,000$ Correct!
Consideration transferred for Yarrow 720,000$
Noncontrolling interest fair value 80,000
Yarrow business fair value 800,000$
Yarrow book value (740,000)
Copyright 60,000$
Life in years 15
Annual amortization 4,000$ Correct!
Consolidation entries
*G
Correct! 7,68(To giver effect to unrealized gain from 2009.)
*C1
Correct! 85,85(To recognize equity income accruing from Yarrow's investment in Stookey during 2009.)
*C2
Correct! 217,67(To recognize equity income accruing from Travers' investment in Yarrow during 2009.)
S1
Correct!
393,8598,46
(To eliminate stockholders' equity accounts of subsidiary against corresponding balance
in investment account and to recognize noncontrolling interest ownership.)
S2
Correct!
887,2798,58
(To eliminate stockholders' equity accounts of subsidiary Yarrow against corresponding balance
in investment account and to recognize noncontrolling interest ownership.)
A1
Correct! 36,00Noncontrolling Interest in Stookey 9,00
(To recognize January 1, 2010 unamortized portion of acquisition price assigned to Stookey's
customer list.)
A2
Correct! 50,40Noncontrolling Interest in Yarrow 5,60
(To recognize January 1, 2010 unamortized portion of acquisition price assigned to copyright
E
Correct! 5,00Copyright 4 00
Operating Expense 9,000Customer list
Customer List 45,000Investment in Stookey
Copyright 56,000Investment in Yarrow
Common stock (Yarrow) 300,000Retained earnings, 1/1/10 (Yarrow) 685,856Investment in YarrowNoncontrolling interest in Yarrow
Common stock (Stookey) 200,000Retained earnings, 1/1/10 (Stookey) 292,320Investment in StookeyNoncontrolling interest in Stookey
Investment in Stookey 85,856Retained Earnings, 1/1/10 (Yarrow)
Investment in Yarrow 217,670
Retained Earnings, 1/1/10 (Travers)
Retained Earnings, 1/1/10 (Stookey) 7,680Cost of Goods Sold
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Student Name: Instructor
Class: McGraw-Hill/Ir
Problem 07-27
TI
Correct!
(To eliminate intercompany inventory transfers made during 2010.)
G
Correct!
(To defer unrealized gain in ending inventory.)
Noncontrolling Interest in Stookey's Net Income
2010 Reported net income
Customer list amortization
Realization of 2009 deferred income
Deferral of 2010 unrealized gain
Realized income - 2010
Outside ownership
Noncontrolling interest in Stookey's net income
Noncontrolling Interest in Net Income of Yarrow
2010 Reported net income
Copyright
Accrual of Stookey's income
Realized income - 2010
Outside ownership
Noncontrolling interest in Yarrow's net income
Travers Yarrow Stookey
Accounts Company Company Company Debit Credit
Sales and other revenues (900,000) (600,000) (500,000) [TI] 100,000
Cost of goods sold 480,000 320,000 260,000 [G] 9,600 [*G] 7,68
[TI] 100,00
Operating expenses 100,000 80,000 140,000 [E] 9,000
Separate company net income (320,000) (200,000) (100,000)
Consolidated net income
Noncontrolling interest in - - -
Yarrow's net income
Noncontrolling interest in - - -
Stookey's net income
Net income
Retained earnings, 1/1/10
--Travers Company (700,000) [*C2] 217,67
--Yarrow Company (600,000) [S2] 685,856 [*C1] 85,85
--Stookey Company (300,000) [*G] 7,680
[S1] 292,320
Net Income (320,000) (200,000) (100,000)
Dividends paid 128,000
Retained earnings, 12/31/10 (892,000) (800,000) (400,000)
Current assets 444,000 380,000 280,000 [G] 9,60
Investment in Yarrow Company 720,000 [*C2] 217,670 [S2] 887,27
[A2] 50,40
I t t i St k C 344 000 [*C1] 85 856 [S1] 393 85
TRAVERS COMPANY AND CONSOLIDATED SUBSIDIARIES
Consolidation WorksheetDecember 31, 2010
Consolidation Entries
(4,000)
74,464
270,464
10%
27,046$
Correct!
(9,600)
93,080$
20%
18,616$
Correct!
200,000$
Cost of Goods Sold 9,60Inventory
100,000$
(5,000)
7,680
Sales 100,00Cost of Goods Sold
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Student Name: Instructor
Class: McGraw-Hill/Irwin
Problem 07-27
b. Determine income taxes to be paid by Travers and Yarrow on a consolidated tax return for the year 2010.
Travers' reported income 320,000$
Yarrow's reported income 200,000
Dividend income -Intercompany gains -
Amortization expense (9,000)
Taxable income 511,000$
Tax rate 45%
Income tax payable 229,950$ Correct!
c. Determine income taxes to be paid by Stookey on a separate tax return for the year 2007.
Stookey's reported income 100,000$
Tax rate 45%
Income tax payable 45,000$ Correct!
d. Based on parts (b) and (c), what journal entry would be made by this combination to record 2007 income taxes?
2010 Unrealized gain taxed in 2010 9,600$
2009 Unrealized gain taxed previously in 2009 (7,680)
Increase in taxable income 1,920$
Tax rate 45%
Deterred income tax asset 864$
Correct!
Income tax expense:
Travers and Yarrow-payable 229,950$
Stookey-payable 45,000
Total taxes to be paid-2010 274,950$
Prepayment (864)
Income tax expense 2010 274,086$
Correct!Account Debit Credit
Income Tax Expense-Current 274,086
Deferred Income Tax-Asset 864
Income Tax Payable 274,950
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Given P07-27:
Travers Company purchased ownership 90%in Yarrow Company
Acquisition cost paid by Travers 720,000$Assessed fair value of noncontrolling interest 180,000$
Excess purchase price attributed to customerlist to be amortized over years 15$ years
Yarrow Company purchased ownership 80%in Stookey Company
Acquisition cost paid by Yarrow 344,000$Assessed fair value of noncontrolling interest 86,000$Excess purchase price attributed to copyright
with a remaining life of: 10$ yearsPortion of operational earnings Travers pays as cash dividends 40%Reported income totals for 2009
Travers Company 300,000$Yarrow Company 160,000Stookey Company 120,000
Inventory transferred to Yarrow since takeover:2009 80,0002010 $100,000
Portion of inventory carried into succeeding year 20%
Effective tax rate for all companies 45%
Travers Yarrow StookeyCompany Company Company
12/31/2010 12/31/2010 12/31/2010Sales (900,000)$ (600,000)$ (500,000)$Cost of goods sold 480,000 320,000 260,000Operating expenses 100,000 80,000 140,000
Net income (320,000)$ (200,000)$ (100,000)$
Retained earnings, 1/1/10 (700,000)$ (600,000)$ (300,000)$Net income (320,000) (200,000) (100,000)Dividends paid 128,000 - -
Retained earnings, 12/31/10 (892,000)$ (800,000)$ (400,000)$
Current assets 444,000$ 380,000$ 280,000$Investment in Yarrow Company 720,000 - -Investment in Stookey Company - 344,000 -Land, buildings, and equipment (net) 949,000 836,000 520,000Total assets 2,113,000$ 1,560,000$ 800,000$
Liabilities (721,000) (460,000) (200,000)Common stock (500,000) (300,000) (200,000)
Retained earnings, 12/31/10 (892,000) (800,000) (400,000)Total liabilities and equities (2,113,000)$ (1,560,000)$ (800,000)$