Pizza Hut and Starbucks

COMPUTATIONS:
Investment in Starbucks
Cash
Share capital
Balance

1,000,000
1,000,000
2,000,000

Non-controlling interest
Share capital
Par value
No. of shares
NCI %
Shares of NCI
FV per share
Balance

1,000,000
25
40,000
35%
14,000
65
910,000

Goodwill
Investment
NCI
Excess of FV over BV
Inventory
Equipment
Land
Bonds payable
Book value of NA
Share capital
Share premium
Retained earnings
Goodwill

Inventory
2009
2010
2011

no effect
50,000.00
50,000.00

understated CGS
understated Loss on obsolescence

Equipment
Excess Dep'n
1-Jan-09
31-Dec-09
31-Dec-10
31-Dec-11

(2,000,000)
(910,000) (2,910,000)

100,000
200,000
250,000
(249,776)

1,000,000
800,000
500,000

300,224

2,300,000
309,776

Land
2009
2010
2011

Excess A.Dep

57,142.86
40,816.33
29,154.52

57,142.86
97,959.18
127,113.70

Dep'n Rate

0.29

no effect
no effect
250,000.00

overstated Gain on sale

Bonds payable
@ BV (12%, discount)
Interest paid Interest expense
1-Jan-09
31-Dec-09
150,000.00
160,818.36
31-Dec-10
150,000.00
162,116.56
31-Dec-11
150,000.00
163,570.55
@ FV 9%, premium)
Interest paid Interest expense
1-Jan-09
31-Dec-09
150,000.00
143,093.61
31-Dec-10
150,000.00
142,472.03
31-Dec-11
150,000.00
141,794.52
Effect:
2009
2010
2011

17,724.75
19,644.53
21,776.03

Excess of FV
200,000.00
142,857.14
102,040.82
72,886.30

Amortization
10,818.36
12,116.56
13,570.55

Amortization
(6,906.39)
(7,527.97)
(8,205.48)

CV
1,340,153.00
1,350,971.36
1,363,087.92
1,376,658.47

CV
1,589,929.00
1,583,022.61
1,575,494.64
1,567,289.16

overstated Int. expense, disc to prem amort.

Pizza Hut and Starbucks

NET INCOME
2009
Unadjusted subsidiary NI
WPEEs:
Depreciation expense (under)
Interest expense (over)
Adjusted subsidiary NI
Parent NI
Consolidated Net Income
2010
Unadjusted subsidiary NI
WPEEs:
Cost of goods sold
Depreciation expense (under)
Interest expense (over)
Adjusted subsidiary NI

RETAINED EARNINGS
2009
(500,000.00)
57,142.86
(17,724.75)

(925,000.00)
50,000.00
40,816.33
(19,644.53)

Unadjusted parent NI
WPEE:
Dividend income (intercompany)
Adjusted parent NI

Unadjusted parent NI
WPEE:
Dividend income (intercompany)
Adjusted parent NI
Consolidated Net Income

71,171.80
(853,828.20)
(825,000.00)
78,000.00
(747,000.00)

Consolidated Net Income

2011
Unadjusted subsidiary NI
WPEEs:
Loss on obsolescence
Depreciation expense (under)
Gain on sale of land (over)
Interest expense (over)
Adjusted subsidiary NI

39,418.11
(460,581.89)
(700,000.00)
(1,160,581.89)

(1,600,828.20)

(785,000.00)
50,000.00
29,154.52
250,000.00
(21,776.03)

307,378.49
(477,621.51)

Beginning balance
Net income
WPEEs:
Initial
Depreciation expense
Interest expense
Unadjusted subs. NI
Ending bal
2010
Net income
Dividends
WPEEs:
Cost of goods sold
Depreciation expense
Interest expense
Unadjusted subs. NI
Intercompany dividends
Ending bal
2011
Net income
Dividends
WPEEs:
Loss on obsolescence
Depreciation expense
Gain on sale of land
Interest expense
Unadjusted subs. NI
Intercompany dividends
Ending bal

(885,000.00)

Alternative solution:

78,000.00
(807,000.00)

Beginning balance
Adjusted NI:
2009
2010

(1,284,621.51)

2011
Allocation of NI:
2009
2010
2011
Dividends:
2010
2011
WPEEs:
Initial
Dividends
Ending balance

Parent
Subsidiary
(1,000,000.00) (500,000.00)
(700,000.00) (500,000.00)

NCI
(910,000.00)

500,000.00
37,142.86
(11,521.09)
(325,000.00)
(1,999,378.23)

500,000.00
-

20,000.00
(6,203.66)
(175,000.00)
(1,071,203.66)

(825,000.00) (925,000.00)
120,000.00
120,000.00
32,500.00
26,530.61
(12,768.94)
(601,250.00) 925,000.00
78,000.00 (120,000.00)
(3,181,366.56)
-

17,500.00
14,285.71
(6,875.58)
(323,750.00)
42,000.00
(1,328,043.53)

(885,000.00) (785,000.00)
120,000.00
120,000.00
32,500.00
18,950.44
162,500.00
(14,154.42)
(510,250.00) 785,000.00
78,000.00 (120,000.00)
(4,178,820.55)
-

17,500.00
10,204.08
87,500.00
(7,621.61)
(274,750.00)
42,000.00
(1,453,211.06)

Parent
Subsidiary
(1,000,000.00) (500,000.00)

NCI
(910,000.00)

(700,000.00) (460,581.89)
(747,000.00) (853,828.20)
(807,000.00) (477,621.51)
(299,378.23)
(554,988.33)
(310,453.98)

460,581.89
853,828.20
477,621.51

120,000.00
120,000.00

120,000.00
120,000.00

500,000.00
(240,000.00)
(4,178,820.55)
-

(161,203.66)
(298,839.87)
(167,167.53)

84,000.00
(1,453,211.06)

Pizza Hut and Starbucks

WPEEs:
At date of acquisition
DR. Inventory
Land
Equipment
Goodwill
Share capital
Share premium
R/E, beg
CR. Investment in Starbucks
NCI
B/P

100,000.00
250,000.00
200,000.00
309,776.00
1,000,000.00
800,000.00
500,000.00
2,000,000.00
910,000.00
249,776.00

2009 transactions
DR. R/E, beg
NCI
CR. Accum. dep'n

37,142.86
20,000.00

DR. B/P

17,724.75

2010 transactions
DR. R/E, beg
NCI
CR. Inventory

175,000.00

32,500.00
17,500.00

19,644.53

DR. Gain on sale of land

CR. Land
DR. B/P

*equipment
40,816.33

CR. R/E, beg

NCI

DR. Depreciation expense

CR. Accum. Dep'n

*inventory
50,000.00

DR. B/P

2011
DR. Loss on obsolescence
CR. Inventory

*allocate NCI's share on unadj NI

175,000.00

26,530.61
14,285.71

DR. R/E, beg

NCI
CR. R/E, beg

*bonds payable
11,521.09
6,203.66

DR. R/E, beg

NCI
CR. Accum. dep'n

DR. R/E, beg

CR. NCI

*equipment
57,142.86

CR. R/E, beg

NCI
DR. R/E, beg
CR. NCI

*derecognize Investment account and recognize NCI

*bonds payable
12,768.94
6,875.58

323,750.00

*allocate NCI's share on unadj NI

323,750.00

78,000.00
42,000.00

*eliminate effects of intercompany dividends

120,000.00

50,000.00

*inventory
50,000.00

29,154.52

*equipment
29,154.52

250,000.00

*land
250,000.00

21,776.03
CR. Interest expense

DR. Dividend income

NCI
CR. Dividends

*bonds payable
21,776.03

78,000.00
42,000.00

*eliminate effects of intercompany dividends

120,000.00