Advance Financial Accounting CH 5 Consolidation of Less Than Wholly Owned Subsidiaries

Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries
CHAPTER 5
CONSOLIDATION OF LESS-THAN-WHOLLY OWNED SUBSIDIARIES
ANSWERS TO QUESTIONS
Q5-1 The noncontrolling interest is reported as a separate item in the stockholders’ equity

section of the balance sheet. Past practice often presented the noncontrolling interest
between long-term liabilities and stockholders’ equity.
Q5-2 The consolidated balance sheet always includes 100 percent of the subsidiary’s
assets and liabilities. When the parent holds less than 100 percent ownership of the
subsidiary, the noncontrolling interest’s claim on those net assets must be reported.
Q5-3 The income statement portion of the consolidation workpaper is expanded to include a

line for income assigned to the noncontrolling interest. This amount is deducted from
consolidated net income in computing income to the controlling interest. The balance sheet
portion of the workpaper also is expanded to include the claim of the noncontrolling
shareholders on the net assets of the subsidiary.
Q5-4 The balance assigned to the noncontrolling interest is based on the fair value of the
noncontrolling interest at the date of acquisition.
Q5-5 Consolidated retained earnings includes only amounts attributable to the shareholders

of the parent company. Thus, none of the retained earnings is assigned to the noncontrolling
interest.
Q5-6 One hundred percent of the fair value of the subsidiary’s assets is included.
Q5-7 The amount of goodwill at the date of acquisition is determined by deducting the fair
value of the net assets of the acquired company from the sum of the fair value of the
consideration given by the acquiring company and the fair value of the noncontrolling
interest. The resulting goodwill must be apportioned between the controlling and
noncontrolling interest. Under normal circumstances, goodwill apportioned to the
noncontrolling interest will equal the excess of the fair value of the noncontrolling interest
over its proportionate share of the fair value of the net assets of the acquired company.
Q5-8 Income assigned to the noncontrolling interest normally is a proportionate share of the

net income of the subsidiary.
Q5-9 Income assigned to noncontrolling shareholders is reported as a deduction from

consolidated net income in arriving at income assigned to the parent company shareholders.
Q5-10 Dividends paid to noncontrolling shareholders are eliminated in preparing the

consolidated statement of retained earnings. Only dividends paid to the parent company
shareholders are reported as dividends distributed to shareholders.
5-1
Q5-11 When the parent owns all the shares of a subsidiary (and the subsidiary has no other
publicly traded securities outstanding), it is free to decide whether it wishes to publish
separate statements for the subsidiary. In some cases creditors, regulatory boards, or other
interested parties may insist that such statements be produced. If the parent does not own
all the shares of the subsidiary, the subsidiary normally would be expected to publish
separate financial statements for distribution to the noncontrolling shareholders. In general,
the consolidated statements are published for use by parent company shareholders and are
likely to be of little use to shareholders of the subsidiary.
Q5-12 Other comprehensive income elements reported by the subsidiary must be included

in other comprehensive income in the consolidated financial statement. If the subsidiary is
not wholly owned, income assigned to the noncontrolling interest will include a proportionate
share of the subsidiary’s other comprehensive income.
Q5-13 The parent’s portion of the subsidiary’s other comprehensive income is included in

comprehensive income attributable to the controlling interest.
Q5-14 Prior to FASB 141R, the differential was computed as the difference between the fair
value of the consideration given in acquiring ownership of the subsidiary and the parent’s
portion of the book value of the subsidiary’s net assets.
Q5-15 Prior to FASB 141R, goodwill was reported as the difference between the fair value
of the consideration given in acquiring ownership of the subsidiary and the parent’s portion of
the fair value of the subsidiary’s net assets.
Q5-16 Prior to FASB 141R, consolidated net income was computed by deducting income to
noncontrolling interest from consolidated revenues less expenses.
Q5-17* The only effect of a negative balance in retained earnings is the need for a credit to
subsidiary retained earnings, rather than a debit to retained earnings, when the stockholders’
equity accounts of the subsidiary and the investment account of the parent are eliminated.
Q5-18* In the period in which the land is sold, the gain or loss recorded by the subsidiary
must be adjusted by the amount of the differential assigned to the land. When the differential
is assigned in the workpaper eliminating entries at the end of the period, a debit will be made
to the gain or loss on sale of land that came to the workpaper from the subsidiary’s books.
Q5-19A When the cost method is used, income reported by the parent and the resulting
balance in the investment account do not reflect undistributed earnings of the subsidiary
following the date of acquisition. Because these account balances are different under the
cost and equity methods, a different set of eliminating entries must be used. The major
change in eliminating entries when the cost method is adopted is that a portion of the
subsidiary retained earnings is carried forward to the consolidated total. The carryforward is
needed because the parent’s retained earnings does not include its portion of undistributed
subsidiary earnings following the acquisition, and therefore is less than consolidated retained
earnings.
5-2
SOLUTIONS TO CASES
C5-1 Consolidation Workpaper Preparation
a. If the parent company is using the equity method, the elimination of the income
recognized by the parent from the subsidiary generally should not be equal to a proportionate
share of the subsidiary’s dividends. If the parent has recognized only dividend income from
the subsidiary, it is using the cost method.
b. It should be possible to tell if the preparer has included the parent's share of the
subsidiary's reported income in computing consolidated net income. It is not possible to tell
from looking at the workpaper alone whether or not all the adjustments that should have
been made for amortization of the differential or to eliminate unrealized profits have been
properly treated in computing the consolidated net income.
c. If the parent paid more than its proportionate share of the fair value of the subsidiary’s net
assets, the eliminating entries relating to that subsidiary should show amounts assigned to
individual asset accounts for fair value adjustments and to goodwill when the investment
account balance is eliminated and any noncontrolling interest is established in the
workpaper. It should be relatively easy to determine if this has occurred by examining the
consolidation workpaper.
d. If the preparer has made a separate entry in the workpaper to eliminate the change in the
parent’s investment account during the period, the easiest way to ascertain the parent’s
subsidiary ownership percentage is to determine the percentage share of the subsidiary’s
dividends eliminated in that entry. Another approach might be to divide the total amount of
the parent’s subsidiary investment account eliminated in the workpaper by the sum of the
total parent’s investment account eliminated and the total amount of the noncontrolling
interest established in the workpaper through eliminating entries. However, this approach
assumes that the fair value of the consideration given by the parent when acquiring its
subsidiary interest and the fair value of the noncontrolling interest on that date were
proportional, which is usually, by not always, the case.
5-3
C5-2 Consolidated Income Presentation
MEMO
TO: Treasurer
Standard Company
FROM: , Accounting Staff
RE: Allocation of Consolidated Income to Parent and Noncontrolling

Shareholders
FASB 160 specifies that consolidated net income reflects the income of the entire
consolidated entity and that consolidated net income must be allocated between the
controlling and noncontrolling interests. Earnings per share reported in the consolidated
income statement is based on the income allocated to the controlling interest only.
Consolidated net income increased by $34,000 from 20X4 to 20X5, an increase of 52

percent. However, consolidated net income allocated to the controlling interest increased by
$24,100 from 20X4 to 20X5, an increase of only 38 percent. The increase in the controlling
interest’s share of consolidated net income did not keep pace with the increase in sales
because nearly all of the sales increase was experienced by Jewel, which has a very low
profit margin. In addition the parent receives only 55 percent of the increased profits of the
subsidiary. Consolidated net income for the two years is computed and allocated as follows:
20X4 20X5
Consolidated revenues $160,000 (a) $400,000 (b)
Operating costs (94,000)(c) (300,000)(d)
Consolidated net income $ 66,000 $100,000
Income to noncontrolling shareholders (2,700)(e) (12,600) (f)
Income to controlling shareholders $ 63,300 $ 87,400
(a) $100,000 + $60,000

(b) $120,000 + $280,000
(c) ($100,000 x .40) + ($60,000 x .90)
(d) ($120,000 x .40) + ($280,000 x .90)
(e) ($60,000 x .10 x .45)
(f) ($280,000 x .10 x .45)
Primary citations:
FASB 160
Secondary source:
ARB 51
5-4
C5-3 Pro Rata Consolidation
MEMO
To: Financial Vice-President

Rose Corporation
From: , Senior Accountant
Re: Pro Rata Consolidation of Joint Venture
This memo is in response to your request for additional information on the desirability of
using pro rata consolidation rather than equity method reporting for Rose Corporation’s
investment in its joint venture with Krome Company. The equity method is used by most
companies in reporting their investments in corporate joint ventures. [APB Opinion, Par. 16]
While APB 18 provides guidance for joint ventures that have issued common stock, it does
not provide guidance for ownership of noncorporate entities. Interpretation No. 2 to APB 18
suggests that the equity method would be appropriate for unincorporated entities as well.
[APB 18, Int. #2]
Assuming the joint venture with Krome Company is unincorporated, Rose owns an undivided
interest in each asset held by the joint venture and is liable for its share of each of its
liabilities and, under certain circumstances, the entire amount. In this case, it can be argued
pro rata consolidation provides a more accurate picture of Rose’s assets and liabilities,
although not all agree with this assertion. Pro rata consolidation is generally considered not
acceptable in this country, although it is a widely used industry practice in a few industries
such as oil and gas exploration and production. If the joint venture is incorporated, Rose
does not have a direct claim on the assets of the joint venture and Rose’s liability is sheltered
by the joint venture’s corporate structure. In this case, continued use of the equity method
appears to be appropriate.
Primary citations:
APB 18
APB 18, INT #2
5-5
C5-4 Elimination Procedures
a. The eliminating entries are recorded only in the consolidation workpaper and therefore do
not change the balances recorded on the company's books. Each time consolidated
statements are prepared the balances reported on the company's books serve as the starting
point. Thus, all the necessary eliminating entries must be entered in the consolidation
workpaper each time consolidated statements are prepared.
b. For acquisitions prior to the application of FASB 141R, the balance assigned to the
noncontrolling shareholders at the beginning of the period is based on the book value of the
net assets of the subsidiary at that date and is recorded in the workpaper in the entry to
eliminate the beginning stockholders' equity balances of the subsidiary and the beginning
investment account balance of the parent. For acquisitions after the effective date of FASB
141R, the noncontrolling interest at a point in time is equal to its fair value on the date of
combination, adjusted to date for a proportionate share of the undistributed earnings of the
subsidiary and the noncontrolling interest’s share of any write-off of differential. Another
approach to determining the noncontrolling interest at a point in time is to add the remaining
differential at that time to the subsidiary’s common stockholders’ equity and multiply the
result by the noncontrolling interest’s proportionate ownership interest in the subsidiary.
c. In the consolidation workpaper the ending balance assigned to noncontrolling interest is
derived by crediting noncontrolling interest for the starting balance, as indicated in the
preceding question, and then adding income assigned to the noncontrolling interest in the
consolidated income statement and deducting a pro rata portion of subsidiary dividends
declared during the period.
d. All the stockholders' equity account balances of the subsidiary must be eliminated each
time consolidated financial statements are prepared. Intercompany receivables and
payables, if any, must also be eliminated.
e. The "investment in subsidiary" and "income from subsidiary" accounts must be eliminated
each time consolidated financial statements are prepared. Intercompany receivables and
payables, if any, must also be eliminated.
5-6
C5-5 Changing Accounting Standards: Monsanto Company
a. Monsanto reported the income to noncontrolling (minority) shareholders of consolidated

subsidiaries as an expense in the continuing operations portion of its 2007 income
statement.
b. Monsanto reported the noncontrolling interest in consolidated subsidiaries in other

liabilities in its consolidated balance sheet.
c. In 2007, Monsanto’s treatment of its noncontrolling interest in its consolidated financial

statements, although theoretically objectionable, was considered acceptable. The
noncontrolling (minority) interest did not fit the definition of a liability, and its share of income
did not fit the definition of an expense. Nevertheless, prior to 2008 no authoritative
pronouncement prohibited the treatment exhibited by Monsanto. With the issuance of FASB
160, however, Monsanto’s 2007 treatment became unacceptable. The noncontrolling
interest is now required to be treated as an equity item, with the income attributed to the
noncontrolling interest treated as an allocation of consolidated net income.
d. Monsanto provided customer financing through a lender that was a special purpose entity.
Monsanto had no ownership interest in the special purpose entity but did consolidate it
because Monsanto effectively originated, guaranteed, and serviced the loans. Monsanto had
a 9-percent ownership interest in one variable interest entity and a 49-percent ownership
interest in another. Neither entity was consolidated because Monsanto was not the primary
beneficiary of either entity.
5-7
SOLUTIONS TO EXERCISES
E5-1 Multiple-Choice Questions on Consolidation Process
1. d
2. d
3. b
4. d [AICPA Adapted]
E5-2 Multiple-Choice Questions on Consolidation [AICPA Adapted]
1. b
2. c
3. a $650,000 = $500,000 + $200,000 - $50,000
4. c $95,000 = ($956,000 / .80) - $1,000,000 - $100,000
5. c $251,000 = .20[($956,000 + $239,000) + ($190,000 - $5,000 - $125,000)]
5-8
E5-3 Eliminating Entries with Differential
a. Eliminating entries:
E(1) Common Stock – Amber Company 20,000

Retained Earnings 37,000
Differential 25,000
Investment in Amber Company Stock 49,200
Noncontrolling Interest 32,800
Computation of differential
Fair value of the consideration given by Game Corp. $49,200
Fair value of noncontrolling interest 32,800
Total fair value $82,000
Book value of Amber’s net assets ($85,000 - $28,000) (57,000)
Differential $25,000
E(2) Inventory 5,000

Buildings and Equipment (net) 20,000
Differential 25,000
$5,000 = $25,000 - $20,000
$20,000 = $70,000 - $50,000
b. Journal entries used to record transactions, adjust account balances, and close
income and revenue accounts at the end of the period are recorded in the company's
books and change the reported balances. On the other hand, eliminating entries are
entered only in the consolidation workpaper to facilitate the preparation of consolidated
financial statements. As a result, they do not change the balances recorded in the
company's accounts and must be reentered each time a consolidation workpaper is
prepared.
5-9
E5-4 Computation of Consolidated Balances
a. Inventory $140,000
b. Land $ 60,000
c. Buildings and Equipment $550,000
d. Fair value of consideration given by Ford $470,000

Book value of Slim’s net assets $450,000
Fair value increment for:
Inventory 20,000
Land (10,000)
Buildings and equipment (net) 70,000
Fair value of identifiable net assets (530,000)
Goodwill $ 57,500
e. Investment in Slim Corporation: None would be reported;

the balance in the investment account is eliminated.
f. Noncontrolling Interest ($587,500 x .20) $117,500
5-10
E5-5 Balance Sheet Workpaper
Power Company and Pleasantdale Dairy

Consolidated Balance Sheet Workpaper
January 1, 20X7
Pleas- Adjustments and

Power antdale Eliminations Consol-
Item Company Dairy Debit Credit idated
Cash and Receivables 130,000 70,000 (a) 900 (3) 8,900 192,000
Inventory 210,000 90,000 300,000
Land 70,000 40,000 (2) 20,000 130,000
Buildings and
Equipment (net) 390,000 220,000 610,000
Investment in
Pleasantdale Stock 270,000 (1)270,000
Differential (1) 20,000 (2) 20,000
Total Debits 1,070,000 420,000 1,232,000
Current Payables 80,000 40,000 (3) 8,900 111,100

Long-Term Liabilities 200,000 100,000 300,000
Common Stock
Power Company 400,000 400,000
Pleasantdale Dairy 60,000 (1) 60,000
Retained Earnings 390,000 220,000 (1)220,000 (a) 900 390,900
Noncontrolling Interest (1) 30,000 30,000
Total Credits 1,070,000 420,000 329,800 329,800 1,232,000
Adjusting and eliminating entries:
(a) Cash and Receivables 900

Retained Earnings 900
Accrue interest earned by Power Company.
E(1) Common Stock – Pleasantdale Dairy 60,000

Differential 20,000
Investment in Pleasantdale Dairy Stock 270,000
Eliminate investment balance.
$20,000 = $270,000 + $30,000 - $280,000
E(2) Land 20,000

Differential 20,000
Assign differential.
E(3) Current Payables 8,900

Cash and Receivables 8,900
Eliminate intercompany receivable/payable.
5-11
Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e
5 - 12
E5-6 Majority-Owned Subsidiary Acquired at Greater than Book Value
E(1) Common Stock – Down Corporation 40,000

Differential 21,000
Investment in Down Corporation Stock 102,200
Eliminate investment balance:
$21,000 = $102,200 + $43,800 - $125,000

Buildings and Equipment 15,000
Differential 21,000
E(3) Accounts Payable 12,500

Accounts Receivable 12,500
5-13
E5-6 (continued)
b. Zenith Corporation and Down Corporation

December 31, 20X4
Zenith Down Eliminations Consol-

Item Corp. Corp. Debit Credit idated
Cash 50,300 21,000 71,300

Accounts Receivable 90,000 44,000 (3) 12,500 121,500
Inventory 130,000 75,000 (2) 6,000 211,000
Land 60,000 30,000 90,000
Buildings and Equipment 410,000 250,000 (2) 15,000 675,000
Investment in Down
Corporation Stock 102,200 (1)102,200
Differential (1) 21,000 (2) 21,000
Total Debits 842,500 420,000 1,168,800
Accumulated Depreciation 150,000 80,000 230,000

Accounts Payable 152,500 35,000 (3) 12,500 175,000
Mortgage Payable 250,000 180,000 430,000
Common Stock 80,000
Zenith Corporation 80,000
Down Corporation 40,000 (1) 40,000
Retained Earnings 210,000 85,000 (1) 85,000 210,000
Total Credits 842,500 420,000 179,500 179,500 1,168,800
c. Zenith Corporation and Subsidiary

Consolidated Balance Sheet
December 31, 20X4
Cash $ 71,300
Inventory 211,000
Land 90,000
Buildings and Equipment $675,000
Less: Accumulated Depreciation (230,000) 445,000
Total Assets $938,800
Accounts Payable $175,000

Mortgage Payable 430,000
Stockholders’ Equity:
Controlling Interest:
Common Stock $ 80,000
Total Controlling Interest $290,000
Total Stockholders’ Equity 333,800
Total Liabilities and Stockholders' Equity $938,800
5-14
E5-7 Consolidation with Minority Interest
Eliminating entries:
E(1) Common Stock – Dynamic Corporation 120,000

Differential 160,000
Investment in Dynamic Corporation Stock 390,000
$160,000 = $390,000 + $130,000 – ($120,000 +
$240,000)
$130,000 = $520,000 x .25
E(2) Buildings 80,000

Inventories 36,000
Goodwill 44,000
Assign differential:
$44,000 = $160,000 - $80,000 - $36,000
E5-8 Workpaper for Majority-Owned Subsidiary
a. Eliminating entry:
E(1) Common Stock – Lowtide Builders 140,000

Investment in Lowtide Builders Stock 90,000
5-15
E5-8 (continued)
b. Glitter Enterprises and Lowtide Builders

January 1, 20X5
Glitter
Enter- Lowtide Eliminations Consol-
Item prises Builders Debit Credit idated
Cash and Receivables 80,000 30,000 110,000

Inventory 150,000 350,000 500,000
Buildings and
Equipment (net) 430,000 80,000 510,000
Investment in
Lowtide Stock 90,000 (1) 90,000
Total Debits 750,000 460,000 1,120,000
Current Liabilities 100,000 110,000 210,000

Long-Term Debt 400,000 200,000 600,000
Common Stock
Glitter 200,000 200,000
Lowtide 140,000 (1)140,000
Noncontrolling
Interest (1) 60,000 60,000
Total Credits 750,000 460,000 150,000 150,000 1,120,000
c. Glitter Enterprises and Subsidiary

January 1, 20X5
Cash and Receivables $ 110,000

Inventory 500,000
Buildings and Equipment (net) 510,000
Total Assets $1,120,000
Current Liabilities $ 210,000

Long-Term Debt 600,000
Common Stock $200,000
Total Liabilities and Stockholders' Equity $1,120,000
5-16
E5-9 Multiple-Choice Questions on Balance Sheet Consolidation
1. d $215,000 = $130,000 + $70,000 + ($85,000 - $70,000)
2. c $40,000 = ($150,500 + $64,500) - ($405,000 - $28,000 - $37,000

- $200,000) - $15,000 - $20,000
3. b $1,121,000 = Total Assets of Power Corp. $ 791,500

Less: Investment in Silk Corp. (150,500)
$ 641,000
Book value of assets of Silk Corp. 405,000
Book value reported by Power and
Silk $1,046,000
Increase in inventory ($85,000 - $70,000) 15,000
Increase in land ($45,000 - $25,000) 20,000
Goodwill 40,000
Total assets reported $1,121,000
4. d $701,500 = ($61,500 + $95,000 + $280,000) + ($28,000 + $37,000

+ $200,000)
5. d $64,500
6. d $205,000 = The amount reported by Power Corporation
7. c $419,500 = ($150,000 + $205,000) + $64,500
5-17
E5-10 Basic Consolidation Entries for Majority-Owned Subsidiary
a. Journal entries recorded by Horrigan Corporation:
(1) Investment in Farmstead Company Stock 210,000

Cash 210,000
Record purchase of Farmstead Company Stock.
(2) Cash 3,500

Investment in Farmstead Company Stock 3,500
Record dividends from Farmstead Company.
(3) Investment in Farmstead Company Stock 14,000

Income from Subsidiary 14,000
Record equity-method income.
b. Eliminating entries:
E(1) Income from Subsidiary 14,000

Dividends Declared 3,500
Eliminate income from subsidiary.
E(2) Income to Noncontrolling Interest 6,000

Assign income to noncontrolling interest.
E(3) Common Stock — Farmstead Company 100,000

Retained Earnings, January 1 200,000
5-18
E5-11 Majority-Owned Subsidiary with Differential
a. Journal entries recorded by West Corporation:
(1) Investment in Canton Corporation Stock 133,500

Cash 133,500
Record investment.
(2) Cash 9,000

Investment in Canton Corporation Stock 9,000
Record dividends from Canton Corporation:
$9,000 = $12,000 x .75

Record equity-method income:
$22,500 = $30,000 x .75
(4) Income from Subsidiary 3,000

Amortize differential assigned to equipment:
$3,000 = ($28,000 / 7 years) x .75
b. Eliminating entries December 31, 20X3:


Assign income to noncontrolling interest:
$6,500 = ($30,000 - $4,000) x .25
$3,000 = $12,000 x .25
E(3) Common Stock — Canton Corporation 60,000

Differential 28,000
Eliminate beginning investment balance:
$28,000 = ($133,500 + $44,500) – $150,000
E(4) Equipment 28,000

Differential 28,000
Assign beginning differential.
E(5) Depreciation Expense 4,000

Accumulated Depreciation 4,000
Amortize differential related to equipment:
$4,000 = $28,000 / 7 years
5-19
5-20
E5-12 Differential Assigned to Amortizable Asset
a. Lancaster Company’s common stock, January 1, 20X1 $120,000

Lancaster Company’s retained earnings, January 1, 20X1 380,000
Book value of Lancaster’s net assets $500,000
Proportion of stock acquired x .90
Book value of Lancaster's shares purchased
by Major Corporation $450,000
Excess of acquisition price over book value 36,000
Fair value of consideration given $486,000
Add: Share of Lancaster's net income ($60,000 x .90) 54,000
Less: Amortization of patents ($40,000 / 5) x .90 (7,200)
Dividends paid by Lancaster ($20,000 x .90) (18,000)
Balance in investment account, December 31, 20X1 $514,800
b. Eliminating entries, December 31, 20X1:

Investment in Lancaster Company Stock 28,800
Eliminate income from subsidiary:
$46,800 = ($60,000 x .90) – ($8,000 x .90)

$5,200 = ($60,000 - $8,000) x .10
$2,000 = $20,000 x .10
E(3) Common Stock — Lancaster Company 120,000

Differential 40,000
Investment in Lancaster Company Stock 486,000
$40,000 = ($486,000 + $54,000) - $500,000
E(4) Patents 40,000

Differential 40,000
E(5) Amortization Expense 8,000

Patents 8,000
Amortize differential related to patents.
5-21
E5-13 Consolidation after One Year of Ownership
a. Eliminating entries, January 1, 20X2:
E(1) Common Stock — Lowe Corporation 120,000

Differential 37,500
Investment in Lowe Corporation Stock 190,000
Fair value of consideration given by Pioneer $190,000
Total fair value 237,500
Underlying book value (200,000)
Differential $ 37,500

Goodwill 5,500
Differential 37,500
$5,500 = $37,500 - $32,000

Computation of income from subsidiary

Reported net income of Lowe $40,000
Amortization of differential assigned to
buildings ($32,000 / 8 years) (4,000)
Income after amortization of differential $36,000
Income from subsidiary for 20X2 $28,800
5-22
E5-13 (continued)

$7,200 = ($40,000 - $4,000) x .20

Differential 37,500
Eliminate beginning investment balance.

Goodwill 5,500
Differential 37,500

Amortize differential.
5-23
E5-14 Consolidation Following Three Years of Ownership
a. Computation of increase in value of patents:
Fair value of consideration given by Knox $277,500

Book value of Conway stock (400,000)
Excess of fair value over book value $ 62,500
Increase in value of land ($30,000 - $22,500) (7,500)
Increase in value of equipment ($360,000 - $320,000) (40,000)
Increase In value of patents $ 15,000
b. E(1) Common Stock — Conway Company 250,000

Differential 62,500
Investment in Conway Company Stock 277,500
$62,500 = ($277,500 + $185,000) – ($250,000 + $150,000)
E(2) Land 7,500

Equipment 40,000
Patents 15,000
Differential 62,500
c. Computation of investment account balance at January 1, 20X9:

Undistributed income since acquisition
($100,000 - $60,000) x .60 24,000
Amortization of differential assigned to:
Equipment ($40,000 / 8) x .60 x 2 years (6,000)
Patents ($15,000 / 10) x .60 x 2 years (1,800)
Account balance at January 1, 20X9 $293,700
d. Entries recorded by Knox during 20X9:
(1) Cash 6,000

Record dividends from subsidiary.
(2) Investment in Conway Company Stock 18,000


Amortize differential:
$3,900 = [($40,000 / 8 years) x .60] +
[($15,000 / 10 years) x .60]
E5-14 (continued)
e. Eliminating entries:

$14,100 = $18,000 - $3,900

$9,400 = ($30,000 - $5,000 - $1,500) x .40
E(3) Common Stock — Conway Company 250,000

Differential 49,500
$49,500 = $62,500 – ($5,000 x 2) – ($1,500 x 2)
E(4) Land 7,500

Patents 12,000
Differential 49,500
Assign beginning differential:
$12,000 = $15,000 – ($1,500 x 2)

Amortization Expense 1,500
Patents 1,500
E5-15 Consolidation Workpaper for Majority-Owned Subsidiary

Investment in Stergis Company Stock 16,000

E(3) Common Stock — Stergis Company 100,000

E5-15 (continued)
b. Proud Corporation and Stergis Company

Consolidation Workpaper
December 31, 20X3
Proud Stergis Eliminations Consol-

Item Corp. Co. Debit Credit idated
Sales 200,000 120,000 320,000

Income from Subsidiary 24,000 (1) 24,000
Credits 224,000 120,000 320,000
Depreciation Expense 25,000 15,000 40,000
Other Expenses 105,000 75,000 180,000
Debits (130,000) (90,000) (220,000)
Consolidated Net Income 100,000
Income to Noncon-
trolling Interest (2) 6,000 (6,000)
Income, carry forward 94,000 30,000 30,000 94,000
Ret. Earnings, Jan. 1 230,000 50,000 (3) 50,000 230,000

Income, from above 94,000 30,000 30,000 94,000
324,000 80,000 324,000
Dividends Declared (40,000) (10,000) (1) 8,000
(2) 2,000 (40,000)
Ret. Earnings, Dec. 31,
carry forward 284,000 70,000 80,000 10,000 284,000
Current Assets 173,000 105,000 278,000

Depreciable Assets 500,000 300,000 800,000
Investment in Stergis
Company Stock 136,000 (1) 16,000
(3)120,000
Debits 809,000 405,000 1,078,000
Accum. Depreciation 175,000 75,000 250,000

Long-Term Debt 100,000 120,000 220,000
Common Stock
Proud Corporation 200,000 200,000
Stergis Company 100,000 (3)100,000
Retained Earnings,
from above 284,000 70,000 80,000 10,000 284,000
Noncontrolling Interest (2) 4,000
(3) 30,000 34,000
Credits 809,000 405,000 180,000 180,000 1,078,000
E5-15 (continued)
c. Proud Corporation and Subsidiary

December 31, 20X3
Current Assets $278,000

Depreciable Assets $800,000
Current Liabilities $ 90,000

Long-Term Debt 220,000
Proud Corporation and Subsidiary

Consolidated Income Statement
Year Ended December 31, 20X3
Sales $320,000
Depreciation $ 40,000
Other Expenses 180,000
Total Expenses (220,000)
Consolidated Net Income $100,000
Income to Noncontrolling Interest (6,000)
Income to Controlling Interest $ 94,000
Proud Corporation and Subsidiary

Consolidated Retained Earnings Statement
Retained Earnings, January 1, 20X3 $230,000

Income to Controlling Interest, 20X3 94,000
$324,000
Dividends Declared, 20X3 (40,000)
Retained Earnings, December 31, 20X3 $284,000
E5-16 Consolidation Workpaper for Majority-Owned Subsidiary for Second Year


E(3) Common Stock — Stergis Company 100,000

E5-16 (continued)
b. Proud Corporation and Stergis Company

December 31, 20X4
Proud Stergis Eliminations Consol-

Sales 230,000 140,000 370,000

Credits 258,000 140,000 370,000
Other Expenses 150,000 90,000 240,000
Debits (175,000) (105,000) (280,000)
Income to Noncon-
Ret. Earnings, Jan. 1 284,000 70,000 (3) 70,000 284,000

367,000 105,000 367,000
(2) 3,000 (50,000)
carry forward 317,000 90,000 105,000 15,000 317,000
Current Assets 235,000 150,000 385,000

Depreciable Assets 500,000 300,000 800,000
Investment in Stergis
Company Stock 152,000 (1) 16,000
(3)136,000
Debits 887,000 450,000 1,185,000

Long-Term Debt 100,000 120,000 220,000
Common Stock
Proud Corporation 200,000 200,000
Stergis Company 100,000 (3)100,000
Retained Earnings,
from above 317,000 90,000 105,000 15,000 317,000
(3) 34,000 38,000
Credits 887,000 450,000 205,000 205,000 1,185,000
E5-17 Preparation of Stockholders' Equity Section with Other Comprehensive
Income
a. Consolidated net income:

20X8 20X9
Operating income of Broadmore $120,000 $ 140,000
Net income of Stem 40,000 60,000
Amortization of differential ($580,000 - $500,000) / 10
Years (8,000) (8,000)
Consolidated net income $152,000 $ 192,000
Comprehensive gain reported by Stem 10,000 5,000
Consolidated comprehensive income $162,000 $ 197,000
b. Comprehensive income attributable to controlling

interest:
20X8 20X9
Consolidated comprehensive income $162,000 $ 197,000
Comprehensive income attributable to
Noncontrolling interest
($50,000 - $8,000) x .25 (10,500)
($65,000 - $8,000) x .25 (14,250)
Comprehensive income attributable to
controlling interest $151,500 $ 182,750
c. Consolidated stockholders' equity:

20X8 20X9
Common Stock $320,000 $ 320,000
Retained Earnings 504,000 613,000
Accumulated Other Comprehensive Income 7,500 11,250
Total Controlling Interest 831,500 944,250
Noncontrolling Interest 151,750 158,500
Total Stockholders’ Equity $983,250 $1,102,750
E5-18 Eliminating Entries for Subsidiary with Other Comprehensive Income
a. Journal entries recorded by Palmer Corp. in 20X8:
(1) Investment in Krown Corp. Stock 140,000

Cash 140,000
Record acquisition of Krown Corp. stock.
(2) Cash 17,500

Investment in Krown Corp. Stock 17,500
Record dividends from subsidiary.


Other Comprehensive Income from
Subsidiary (OCI) 4,200
Record Palmer's proportionate share of
other comprehensive income of subsidiary.


E(3) Other Comprehensive Income from

Subsidiary (OCI) 4,200
Eliminate other comprehensive income from
subsidiary.
E(4) Other Comprehensive Income to

Assign other comprehensive income to
noncontrolling interest.
E(5) Common Stock — Krown Corp. 120,000

E5-19 Majority-Owned Subsidiary with Differential – Prior Procedures
a. Journal entries recorded by West Corporation:

Cash 133,500
Record investment.
(2) Cash 9,000

Record dividends from Canton Corporation:
$9,000 = $12,000 x .75

$22,500 = $30,000 x .75

Amortize differential assigned to equipment:
$3,000 = [$133,500 - ($150,000 x .75)] / 7 years
b. Eliminating entries December 31, 20X3:


$7,500 = $30,000 x .25
$3,000 = $12,000 x .25
E(3) Common Stock — Canton Corporation 60,000

Differential 21,000
$21,000 = $133,500 - ($90,000 + $60,000) x .75
E(4) Equipment 21,000

Differential 21,000

Amortize differential related to equipment:
$3,000 = $21,000 / 7 years
E5-20 Consolidation after One Year of Ownership– Prior Procedures
a. Eliminating entries, January 1, 20X2:

Differential 30,000

Underlying book value ($200,000 x .80) (160,000)
Differential $ 30,000
E(2) Buildings and Equipment 25,600

Goodwill 4,400
Differential 30,000
$25,600 = $32,000 x .80
$4,400 = $30,000 - $25,600

Computation of income from subsidiary
Reported net income of Lowe $40,000

Income before amortizing differential $32,000
Amortization of differential assigned to
buildings and equipment ($25,600 / 8) (3,200)
Income from subsidiary for 20X2 $28,800
E5-20 (continued)


Differential 30,000

Goodwill 4,400
Differential 30,000

E5-21 Balance Sheet Workpaper– Prior Procedures
Power Company and Pleasantdale Dairy

January 1, 20X7
Pleas- Adjustments and

Power antdale Eliminations Consol-
Item Company Dairy Debit Credit idated
Cash and Receivables 130,000 70,000 (a) 900 (3) 8,900 192,000
Inventory 210,000 90,000 300,000
Land 70,000 40,000 (2) 18,000 128,000
Buildings and
Equipment (net) 390,000 220,000 610,000
Investment in
Pleasantdale Stock 270,000 (1)270,000
Differential (1) 18,000 (2) 18,000
Total Debits 1,070,000 420,000 1,230,000

Long-Term Liabilities 200,000 100,000 300,000
Common Stock
Power Company 400,000 400,000
Pleasantdale Dairy 60,000 (1) 60,000
Retained Earnings 390,000 220,000 (1)220,000 (a) 900 390,900
Total Credits 1,070,000 420,000 325,800 325,800 1,230,000
Adjusting and eliminating entries:
(a) Cash and Receivables 900

Retained Earnings 900
Accrue interest earned by Power Company.
E(1) Common Stock – Pleasantdale Dairy 60,000

Differential 18,000
Investment in Pleasantdale Dairy Stock 270,000
E(2) Land 18,000

Differential 18,000

E5-22* Consolidation of Subsidiary with Negative Retained Earnings
E(1) Common Stock — Strap Company 100,000

Additional Paid-In Capital 75,000
Differential 27,500
Investment in Strap Company Stock 138,000
$27,500 = ($138,000 / .80) - $145,000
$34,500 = ($138,000 / .80) x .20
E(2) Goodwill 27,500

Differential 27,500
E5-23* Complex Assignment of Differential
a. Equity-method entries recorded by Worth during 20X5:
Investment in Brinker Common Stock 135,000

Income from Brinker Inc. 135,000
$135,000 = $150,000 x .90
Income from Brinker Inc. 82,350

Record write-off of differential.
Computation of differential write-off
Total differential $240,000

Assigned to identifiable assets and liabilities:
Inventory $ 5,000
Land 75,000
Equipment 60,000
Discount on Notes Payable 50,000
Total (190,000)
Goodwill $ 50,000
Write-off of differential:
Inventory sold $ 5,000
Land sold 75,000
Depreciation of equipment ($60,000 / 15) 4,000
Amortization of discount on notes payable 7,500
Total write-off for 20X5 $ 91,500
Ownership held by Worth x .90
Reduction of investment income $ 82,350
E5-23* (continued)
b. Elimination entries:
Income from Brinker, Inc. 52,650

Income to Noncontrolling Interest 5,850

$5,850 = ($150,000 - $91,500) x .10
Common Stock — Brinker 500,000

Premium on Common Stock 100,000
$96,000 = $960,000 x .10
Cost of Goods Sold 5,000

Gain on Sale of Land 75,000
Equipment 60,000
Goodwill 50,000
Depreciation Expense 4,000

Interest Expense 7,500
5-45
E5-24A Basic Cost-Method Workpaper
E(1) Dividend Income 10,000

Eliminate dividend income from subsidiary.
E(2) Common Stock — Shaw Corporation 100,000

Investment in Shaw Corporation Stock 150,000
Eliminate original investment balance.
b. Blake Corporation and Shaw Corporation

December 31, 20X3
Blake Shaw Eliminations Consol-

Sales 200,000 120,000 320,000

Dividend Income 10,000 (1) 10,000
Credits 210,000 120,000 320,000
Other Expenses 105,000 75,000 180,000
Debits (130,000) (90,000) (220,000)
Ret. Earnings, Jan. 1 230,000 50,000 (2) 50,000 230,000

310,000 80,000 330,000
Dividends Declared (40,000) (10,000) (1) 10,000 (40,000)
carry forward 270,000 70,000 60,000 10,000 290,000
Current Assets 145,000 105,000 250,000

Deprec. Assets (net) 325,000 225,000 550,000
Investment in Shaw
Debits 620,000 330,000 800,000

Long-Term Debt 100,000 120,000 220,000
Common Stock
Blake Corporation 200,000 200,000
Shaw Corporation 100,000 (2)100,000
Retained Earnings,
from above 270,000 70,000 60,000 10,000 290,000
Credits 620,000 330,000 160,000 160,000 800,000
5-46
E5-25A Cost-Method Workpaper in Subsequent Period

E(2) Common Stock – Shaw Corporation 100,000

Investment in Shaw Corporation Stock 150,000
b. Blake Corporation and Shaw Corporation

December 31, 20X4
Blake Shaw Eliminations Consol-

Sales 300,000 200,000 500,000

Credits 315,000 200,000 500,000
Other Expenses 250,000 160,000 410,000
Debits (275,000) (175,000) (450,000)
Ret. Earnings, Jan. 1 270,000 70,000 (2) 50,000 290,000

310,000 95,000 340,000
carry forward 290,000 80,000 65,000 15,000 320,000
Current Assets 170,000 110,000 280,000

Investment in Shaw
Debits 620,000 320,000 790,000

Long-Term Debt 100,000 120,000 220,000
Common Stock
Blake Corporation 200,000 200,000
Shaw Corporation 100,000 (2)100,000
Retained Earnings,
from above 290,000 80,000 65,000 15,000 320,000
Credits 620,000 320,000 165,000 165,000 790,000
5-47
E5-26A Cost-Method Consolidation for Majority-Owned Subsidiary


E(3) Common Stock – Knight Company 100,000

Investment in Knight Company Stock 120,000
E(4) Retained Earnings, January 1 4,000

Assign undistributed prior earnings of
subsidiary to noncontrolling interest:
($70,000 - $50,000) x .20
5-48
5-49
E5-26A (continued)
b. Lintner Corporation and Knight Company

December 31, 20X7
Lintner Knight Eliminations Consol-

Sales 300,000 200,000 500,000

Credits 316,000 200,000 500,000
Other Expenses 251,000 155,000 406,000
Debits (276,000) (170,000) (446,000)
Income to Noncon-
Ret. Earnings, Jan. 1 268,000 70,000 (3) 50,000

(4) 4,000 284,000
308,000 100,000 332,000
(2) 4,000 (25,000)
carry forward 283,000 80,000 76,000 20,000 307,000
Current Assets 183,000 80,000 263,000

Investment in Knight
Company Stock 120,000 (3)120,000
Debits 803,000 380,000 1,063,000

Accounts Payable 120,000 110,000 230,000
Common Stock
Lintner Corporation 200,000 200,000
Knight Company 100,000 (3)100,000
Retained Earnings,
from above 283,000 80,000 76,000 20,000 307,000
(3) 30,000
(4) 4,000 36,000
Credits 803,000 380,000 176,000 176,000 1,063,000
5-50
5-51
E5-26A (continued)
c. Lintner Corporation and Subsidiary

December 31, 20X7
Current Assets $263,000

Depreciable Assets $800,000

Lintner Corporation and Subsidiary

Sales $500,000
Depreciation $ 40,000
Consolidated Net Income $ 54,000
Lintner Corporation and Subsidiary


$332,000
Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e
5 - 52
5-53
SOLUTIONS TO PROBLEMS
P5-27 Majority-Owned Subsidiary Acquired at Book Value
E(1) Common Stock – Darla Corporation 40,000

Investment in Darla Corporation Stock 87,500

b. Cameron Corporation and Darla Corporation

December 31, 20X4
Cameron Darla Eliminations Consol-

Cash 65,000 21,000 86,000

Inventory 130,000 75,000 205,000
Land 60,000 30,000 90,000
Buildings and Equipment 410,000 250,000 660,000
Investment in Darla
Corporation Stock 87,500 (1) 87,500
Total Debits 842,500 420,000 1,162,500

Common Stock
Cameron Corporation 80,000 80,000
Darla Corporation 40,000 (1) 40,000
Total Credits 842,500 420,000 137,500 137,500 1,162,500
5-54
P5-27 (continued)
c. Cameron Corporation and Subsidiary

December 31, 20X4
Cash $ 86,000
Inventory 205,000
Land 90,000

Total Stockholder’s equity 327,500
P5-28 Majority-Owned Subsidiary Acquired at Greater than Book Value

Differential 21,000

Differential 21,000

5-55
P5-28 (continued)
b. Porter Corporation and Darla Corporation

December 31, 20X4
Porter Darla Eliminations Consol-

Cash 50,300 21,000 71,300

Inventory 130,000 75,000 (2) 6,000 211,000
Land 60,000 30,000 90,000
Investment in Darla
Differential (1) 21,000 (2) 21,000
Total Debits 842,500 420,000 1,168,800

Common Stock 80,000
Cameron Corporation 80,000
Total Credits 842,500 420,000 179,500 179,500 1,168,800
c. Porter Corporation and Subsidiary

December 31, 20X4
Cash $ 71,300
Inventory 211,000
Land 90,000

5-56
P5-29 Balance Sheet Consolidation of Majority-Owned Subsidiary
a. Entry on Total Corporation's books to record purchase of Ticken Tie stock:
Investment in Ticken Tie Stock 510,000

Bonds Payable 500,000
Bond Premium 10,000
Note: The bonds go directly to the stockholders of Ticken Tie and are not
recorded on the books of Ticken Tie.
E(1) Common Stock – Ticken Tie Company 200,000

Investment in Ticken Tie Stock 510,000
$202,000 = ($510,000 + $170,000) - $478,000

Land 20,000
Patent 40,000
Goodwill 88,000

Receivables 6,500
5-57
P5-29 (continued)
c. Total Corporation and Ticken Tie Company

January 2, 20X8
Total Ticken Eliminations Consol-

Item Corp. Tie Debit Credit idated
Cash 12,000 9,000 21,000

Receivables 41,000 31,000 (3) 6,500 65,500
Inventory 86,000 68,000 (2) 4,000 158,000
Investment in
Ticken Tie Stock 510,000 (1)510,000
Land 55,000 50,000 (2) 20,000 125,000
Buildings and Equipment 960,000 670,000 (2) 50,000 1,680,000
Patent (2) 40,000 40,000
Goodwill (2) 88,000 88,000
Differential (1)202,000 (2)202,000
Total Assets 1,664,000 828,000 2,177,500
Allowance for Bad Debts 2,000 1,000 3,000

Accumulated
Depreciation 411,000 220,000 631,000
Bonds Payable 700,000 100,000 800,000
Bond Premium 10,000 10,000
Common Stock 300,000 200,000 (1)200,000 300,000
Additional
Paid-In Capital 100,000 130,000 (1)130,000 100,000
Retained Earnings 103,000 148,000 (1)148,000 103,000
Noncontrolling Interest (1)170,000 170,000
Total Liabilities
and Stockholders’ Equity 1,664,000 828,000 888,500 888,500 2,177,500
5-58
5-59
P5-29 (continued)
d. Total Corporation and Subsidiary

January 2, 20X8
Cash $ 21,000
Receivables $ 65,500
Less: Allowance for Bad Debts (3,000) 62,500
Inventory 158,000
Land 125,000
Buildings and Equipment $1,680,000
Less: Accumulated Depreciation (631,000) 1,049,000
Patent 40,000
Goodwill 88,000
Current Payables $ 60,500

Bonds Payable $ 800,000
Premium on Bonds Payable 10,000 810,000
Total Controlling Interest $ 503,000
Total Liabilities and
Stockholders' Equity $1,543,500
5-60
5-61
P5-30 Incomplete Data
a. $15,000 = ($115,000 + $46,000) - $146,000
b. $65,000 = ($148,000 - $98,000) + $15,000
c. Skyler: $24,000 = $380,000 - ($46,000 + $110,000

+ $75,000 + $125,000)
Blue: $70,000 = $94,000 - $24,000
d. Fair value of Skyler

as a whole:
$200,000 Book value of Skyler shares
10,000 Differential assigned to inventory
($195,000 - $105,000 - $80,000)
40,000 Differential assigned to buildings and equipment
($780,000 - $400,000 - $340,000)
9,000 Differential assigned to goodwill
$259,000 Fair value of Skyler
e. 65 percent = 1.00 – ($90,650 / $259,000)
f. Capital Stock = $120,000

Retained Earnings = $115,000
.
5-62
5-63
P5-31 Income and Retained Earnings
a. Net income for 20X9:
Quill North
Operating income $ 90,000 $35,000
Income from subsidiary 24,500
Net income $114,500 $35,000
b. Consolidated net income is $125,000 ($90,000 + $35,000).
c. Retained earnings reported at December 31, 20X9:
Quill North
Retained earnings, January 1, 20X9 $290,000 $40,000
Net income for 20X9 114,500 35,000
Dividends paid in 20X9 (30,000) (10,000)
Retained earnings, December 31, 20X9 $374,500 $65,000
d. Consolidated retained earnings at December 31, 20X9, is equal to the $374,500 retained
earnings balance reported by Quill.
e. When the cost method is used, the parent's proportionate share of the increase in retained
earnings of the subsidiary subsequent to acquisition is not included in the parent's retained
earnings. Thus, this amount must be added to the total retained earnings reported by the
parent in arriving at consolidated retained earnings.
5-64
P5-32 Consolidation Workpaper at End of First Year of Ownership

Investment in Best Company Stock 4,500
$16,500 = ($24,000 - $2,000) x .75

Noncontrolling Interest 125
$4,125 = ($24,000 - $2,000 - $5,500) x .25
E(3) Common Stock — Best Company 60,000

Differential 28,000
$28,000 = ($96,000 + $32,000) - $100,000

Goodwill 8,000
Differential 28,000

Amortize differential related to buildings
and equipment:
$2,000 = $20,000 / 10 years
E(6) Goodwill Impairment Loss 5,500

Goodwill 5,500
Write down goodwill for impairment.
5-65
P5-32 (continued)
b. Power Corporation and Best Company

December 31, 20X8
Power Best Eliminations Consol-

Sales 260,000 180,000 440,000

Credits 276,500 180,000 440,000
Cost of Goods Sold 125,000 110,000 235,000
Wage Expense 42,000 27,000 69,000
Depreciation Expense 25,000 10,000 (5) 2,000 37,000
Interest Expense 12,000 4,000 16,000
Other Expenses 13,500 5,000 18,500
Goodwill Impairment Loss (6) 5,500 5,500
Debits (217,500) (156,000) (381,000)
Income to Noncon-
Ret. Earnings, Jan. 1 102,000 40,000 (3) 40,000 102,000

161,000 64,000 156,875
(2) 4,000 (30,000)
carry forward 131,000 48,000 68,125 16,000 126,875
Cash 47,500 21,000 68,500

Accounts Receivable 70,000 12,000 82,000
Inventory 90,000 25,000 115,000
Land 30,000 15,000 45,000
Investment in Best
Company Stock 100,500 (1) 4,500
(3) 96,000
Differential (3) 28,000 (4) 28,000
Goodwill (4) 8,000 (6) 5,500 2,500
Debits 688,000 223,000 833,000
5-66
P5-32 (continued)

Accum. Depreciation 145,000 40,000 (5) 2,000 187,000

Wages Payable 17,000 9,000 26,000
Notes Payable 150,000 50,000 200,000
Common Stock
Power Corporation 200,000 200,000
Best Company 60,000 (3) 60,000
Retained Earnings,
from above 131,000 48,000 68,125 16,000 126,875
Noncontrolling
Interest (2) 125
(3) 32,000 32,125
Credits 688,000 223,000 184,125 184,125 833,000
5-67
5-68
P5-33 Consolidation Workpaper at End of Second Year of Ownership

$25,500 = ($36,000 - $2,000) x .75

$8,500 = ($36,000 - $2,000) x .25

Differential 20,500
$52,125 = $48,000 + ($5,500 x .75)
$20,500 = $28,000 - $2,000 - $5,500
$32,125 = ($60,000 + $48,000 + $20,500) x .25

Goodwill 2,500
Differential 20,500

and equipment:
$2,000 = $20,000 / 10 years
McGraw-Hill/Irwin
69 © The McGraw-Hill Companies, Inc., 2005
5-70
P5-33 (continued)

December 31, 20X9

Sales 290,000 200,000 490,000

Credits 315,500 200,000 490,000
Wage Expense 35,000 20,000 55,000
Other Expenses 23,000 16,000 39,000
Debits (240,000) (164,000) (406,000)
Income to Noncon-
Ret. Earnings, Jan. 1 131,000 48,000 (3) 52,125 126,875

206,500 84,000 202,375
(2) 5,000 (30,000)
carry forward 176,500 64,000 88,125 20,000 172,375
Cash 68,500 32,000 100,500

Inventory 97,000 24,000 121,000
Land 50,000 25,000 75,000
Investment in Best
Company Stock 111,000 (1) 10,500
(3)100,500
Differential (3) 20,500 (4) 20,500
Goodwill (4) 2,500 2,500
Debits 761,500 245,000 918,000
5-71
P5-33 (continued)

Accum. Depreciation 170,000 50,000 (4) 2,000

(5) 2,000 224,000
Wages Payable 14,000 6,000 20,000
Notes Payable 150,000 50,000 200,000
Common Stock
Best Company 60,000 (3) 60,000
Retained Earnings,
from above 176,500 64,000 88,125 20,000 172,375
Noncontrolling
Interest (2) 3,500
(3) 32,125 35,625
Credits 761,500 245,000 191,125 191,125 918,000
5-72
5-73
P5-33 (continued)
c. Power Corporation and Subsidiary

December 31, 20X9
Cash $100,500
Inventory 121,000
Land 75,000
Goodwill 2,500
Accounts Payable $ 66,000

Wages Payable 20,000
Notes Payable 200,000
Power Corporation and Subsidiary

Sales $490,000
Cost of Goods Sold $259,000
Wage Expense 55,000


$202,375
5-74
5-75
P5-34 Comprehensive Problem: Majority-Owned Subsidiary
a. Journal entries recorded by Master Corporation:
(1) Cash 8,000

Investment in Stanley Wood
Products Stock 8,000
Record dividends from Stanley Wood
Products: $10,000 x .80
(2) Investment in Stanley Wood Products Stock 24,000

Record equity-method income: $30,000 x .80

($50,000 / 10 years) x .80
Computation of differential:
Fair value of consideration given by Master Corp. $160,000
Underlying book value (150,000
)
Differential at acquisition, January 1, 20X1 $ 50,000
5-76
P5-34 (continued)


$5,000 = ($30,000 - $5,000) x .20
E(3) Common Stock — Stanley Wood Products 100,000

Differential 30,000
$30,000 = $50,000 – ($5,000 x 4 years)
$176,000 = .80($100,000 + $90,000 + $30,000)
$44,000 = .20($100,000 +$90,000 + 30,000)

Differential 30,000


Eliminate intercorporate receivable/payable.
5-77
5-78
P5-34 (continued)
c. Master Corporation and Stanley Wood Products Company

December 31, 20X5
Master Stanley Eliminations Consol-

Item Corp. Wood Debit Credit idated
Sales 200,000 100,000 300,000
Income from Subsidiary 20,000 _______ (1) 20,000
Credits 220,000 100,000 300,000
Inventory Losses 15,000 5,000 20,000
Debits (160,000) (70,000) (235,000)
Income to Noncon-
Ret. Earnings, Jan. 1 314,000 90,000 (3) 90,000 314,000

374,000 120,000 374,000
(2) 2,000 (30,000)
carry forward 344,000 110,000 120,000 10,000 344,000
Cash and Receivables 81,000 65,000 (6) 10,000 136,000

Inventory 260,000 90,000 350,000
Land 80,000 80,000 160,000
Investment in Stanley
Wood Products Stock 188,000 (1) 12,000
(3)176,000
Differential (3) 30,000 (4) 30,000
Debits 1,109,000 385,000 1,346,000

(5) 5,000 335,000
Notes Payable 200,000 50,000 250,000
Common Stock
Master Corporation 300,000 300,000
Stanley Wood Products 100,000 (3)100,000
Retained Earnings,
from above 344,000 110,000 120,000 10,000 344,000
(3) 44,000 47,000
Credits 1,109,000 385,000 310,000 310,000 1,346,000
5-79
P5-35 Comprehensive Problem: Differential Apportionment
a. Journal entries recorded by Mortar Corporation:
(1) Investment in Granite Company Stock 173,000

Cash 173,000
Purchase of Granite Company stock.
(2) Cash 16,000

Investment in Granite Company Stock 16,000
Record dividends from Granite Company:
$20,000 x .80

$60,000 x .80

Amortize differential assigned to depreciable
assets: [($191,250 - $150,000) x .80] / 11 years
5-80
P5-35 (continued)


$11,250 = [$60,000 – ($41,250 / 11)] x .20
E(3) Common Stock — Granite Company 50,000

Differential 66,250
$66,250 = ($173,000 + $43,250) - $150,000

Differential 66,250
Assign beginning differential:
$41,250 = $191,250 - $150,000
$25,000 = $66,250 - $41,250

Amortize differential related to
depreciable assets: $41,250 / 11 years

Eliminate intercorporate
receivable/payable.
5-81
P5-35 (continued)
c. Mortar Corporation and Granite Company

December 31, 20X7
Mortar Granite Eliminations Consol-

Sales 700,000 400,000 1,100,000
Credits 745,000 400,000 1,100,000
Other Expenses 75,000 75,000 150,000
Debits (600,000) (340,000) (943,750)
Income to Noncon-
Ret. Earnings, Jan. 1 290,000 100,000 (3) 100,000 290,000

435,000 160,000 435,000
(2) 4,000 (50,000)
carry forward 385,000 140,000 160,000 20,000 385,000
Cash 38,000 25,000 63,000

Inventory 240,000 100,000 340,000
Land 80,000 20,000 100,000
Investment in Granite
Company Stock 202,000 (1) 29,000
(3) 173,000
Differential (3) 66,250 (4) 66,250
Goodwill (4) 25,000 25,000
Debits 1,110,000 350,000 1,308,250

Mortgages Payable 200,000 50,000 250,000
Common Stock
Mortar Corporation 300,000 300,000
Granite Company 50,000 (3) 50,000
Retained Earnings,
from above 385,000 140,000 160,000 20,000 385,000
(3) 43,250 50,500
Credits 1,110,000 350,000 358,500 358,500 1,308,250
5-82
5-83
P5-36 Comprehensive Problem: Differential Apportionment in Subsequent
Period.
a. Journal entries recorded by Mortar Corporation:
(1) Cash 20,000

Record dividends from Granite Company:
$20,000 = $25,000 x .80

$45,000 x .80

Amortize differential assigned to
depreciable assets:
$3,000 = [($191,250 - $150,000) / 11 years] x .80
P5-36 (continued)


$6,050 = ($45,000 - $3,750 - $11,000) x .20
E(3) Common Stock — Granite Company 50,000

Differential 62,500
$66,250 Differential at acquisition
(3,750) Depreciation in 20X7
$62,500 Unamortized differential Jan. 1, 20X8

Differential 62,500

Amortize differential related to
depreciable assets.

Goodwill 11,000
Impairment of goodwill.

receivable/payable.
P5-36 (continued)
c. Mortar Corporation and Granite Company

December 31, 20X8
Mortar Granite Eliminations Consol-

Sales 650,000 470,000 1,120,000
Credits 683,000 470,000 1,120,000
Other Expenses 62,000 100,000 162,000
Debits (577,000) (425,000) (1,016,750)
Income to Noncon-
Ret. Earnings, Jan. 1 385,000 140,000 (3)140,000 385,000
491,000 185,000 482,200
(2) 5,000 (45,000)
carry forward 446,000 160,000 193,800 25,000 437,200
Cash 59,000 31,000 90,000
Inventory 275,000 118,000 393,000
Land 80,000 30,000 110,000
Investment in Granite
Company Stock 215,000 (1) 13,000
(3)202,000
Differential (3) 62,500 (4) 62,500
Goodwill (4) 25,000 (6) 11,000 14,000
Debits 1,212,000 400,000 1,443,250
(5) 3,750 277,500
Mortgages Payable 200,000 70,000 270,000
Common Stock
Mortar Corporation 300,000 300,000
Granite Company 50,000 (3) 50,000
Retained Earnings,
from above 446,000 160,000 193,800 25,000 437,200
(3) 50,500 51,550
Credits 1,212,000 400,000 381,550 381,550 1,443,250
P5-37 Subsidiary with Other Comprehensive Income in Year of Acquisition

Investment in Sparta Company Stock 6,000

E(3) Other Comprehensive Income from Subsidiary —

Unrealized Gain on Investments (OCI) 6,000
Eliminate other comprehensive income
from subsidiary.

E(5) Common Stock — Sparta Company 100,000

P5-37 (continued)
b. Amber Corporation and Sparta Company

December 31, 20X8
Amber Sparta Eliminations Consol-

Sales 220,000 148,000 368,000

Credits 235,000 148,000 368,000
Debits (188,000) (123,000) (311,000)
Income to Noncon-
Ret. Earnings, Jan. 1 208,000 60,000 (5) 60,000 208,000

255,000 85,000 255,000
(2) 6,000 (24,000)
carry forward 231,000 70,000 85,000 15,000 231,000
Cash 27,000 8,000 35,000

Inventory 40,000 30,000 70,000
Investment in Row
Company Securities 40,000 40,000
Investment in Sparta
Company Stock 108,000 (1) 6,000
(3) 6,000
(5) 96,000
Debits 740,000 335,000 967,000
P5-37 (continued)


Bonds Payable 100,000 50,000 150,000
Common Stock
Amber Corporation 200,000 200,000
Sparta Company 100,000 (5)100,000
Retained Earnings,
from above 231,000 70,000 85,000 15,000 231,000
Accumulated Other
Comprehensive Income,
from below 6,000 10,000 10,000 6,000
Noncontrolling
Interest (2) 4,000
(4) 4,000
(5) 64,000 72,000
Credits 740,000 335,000 195,000 195,000 967,000
Other Comprehensive
Income:
OCI from Subsidiary —
Unrealized Gain on
Investments 6,000 (3) 6,000
Unrealized Gain on
Investments 10,000 10,000
Other Comprehensive
Income to Noncon-
Accumulated Other
December 31, carry up 6,000 10,000 10,000 6,000
P5-37 (continued)
c. Amber Corporation and Subsidiary

December 31, 20X8
Cash $ 35,000
Inventory 70,000
Investment in Marketable Securities 40,000

Bonds Payable 150,000
Accumulated Other Comprehensive Income 6,000
Amber Corporation and Subsidiary

Sales $368,000
Amber Corporation and Subsidiary

Consolidated Statement of Comprehensive Income
Consolidated Net Income $57,000

Other Comprehensive Income:
Unrealized Gain on Investments Held by Subsidiary 10,000
Total Consolidated Comprehensive Income $67,000
Less: Comprehensive Income Attributable to
Noncontrolling Interest (14,000)
Comprehensive Income Attributable to Controlling
Interest $53,000
P5-38 Subsidiary with Other Comprehensive Income in Year Following
Acquisition


E(3) Other Comprehensive Income from Subsidiary —

Unrealized Gain on Investments (OCI) 2,400
Eliminate other comprehensive income from
subsidiary.

E(5) Common Stock — Sparta Company 100,000

Accumulated Other Comprehensive Income 10,000
P5-38 (continued)
b. Amber Corporation and Sparta Company

December 31, 20X9

Sales 250,000 140,000 390,000

Credits 268,000 140,000 390,000
Debits (208,000) (110,000) (318,000)
Income to Noncon-
Ret. Earnings, Jan. 1 231,000 70,000 (5) 70,000 231,000

291,000 100,000 291,000
(2) 8,000 (40,000)
carry forward 251,000 80,000 100,000 20,000 251,000
Cash 18,000 11,000 29,000

Inventory 40,000 30,000 70,000
Investment in Row
Company Securities 44,000 44,000
Investment in Sparta
Company Stock 116,400 (1) 6,000
(3) 2,400
(5)108,000
Debits 804,400 363,000 1,051,000
5-95
5-96
P5-38 (continued)


Bonds Payable 100,000 50,000 150,000
Common Stock
Amber Corporation 200,000 200,000
Sparta Company 100,000 (5)100,000
Retained Earnings,
from above 251,000 80,000 100,000 20,000 251,000
Accumulated Other
from below 8,400 14,000 14,000 8,400
Noncontrolling
Interest (2) 4,000
(4) 1,600
(5) 72,000 77,600
Credits 804,400 363,000 214,000 214,000 1,051,000
Other Comprehensive
Income:
OCI from Subsidiary —
Unrealized Gain
on Investments 2,400 (3) 2,400
Unrealized Gain on
Investments 4,000 4,000
Other Comprehensive
Income to Noncon-
Accumulated Other
Comprehensive
Income, January 1 6,000 10,000 (5) 10,000 6,000
Accumulated Other
Comprehensive Income
December 31, carry up 8,400 14,000 14,000 8,400
5-97
5-98
P5-39 Income and Retained Earnings – Prior Procedures
a. Net income for 20X9:
Quill North
Operating income $ 90,000 $35,000
Income from subsidiary 24,500 -
Net income $114,500 $35,000
b. Consolidated net income is equal to the $114,500 net income reported by Quill.
c. Retained earnings reported at December 31, 20X9:
Quill North
Retained earnings, January 1, 20X9 $290,000 $40,000
Net income for 20X9 114,500 35,000
Dividends paid in 20X9 (30,000) (10,000)
Retained earnings, December 31, 20X9 $374,500 $65,000
d. Consolidated retained earnings at December 31, 20X9, is equal to the $374,500 retained
earnings balance reported by Quill.
e. When the cost method is used, the parent's proportionate share of the increase in retained
earnings of the subsidiary subsequent to acquisition is not included in the parent's retained
earnings. Thus, this amount must be added to the total retained earnings reported by the
parent in arriving at consolidated retained earnings.
5-99
P5-40 Majority-Owned Subsidiary Acquired at Greater than Book Value – Prior
Procedures

Differential 14,700
$14,700 = $102,200 - .70 x ($40,000 + $85,000)

Differential 14,700

5-100
P5-40 (continued)
b. Porter Corporation and Darla Corporation

December 31, 20X4
Porter Darla Eliminations Consol-

Cash 50,300 21,000 71,300
Inventory 130,000 75,000 (2) 4,200 209,200
Land 60,000 30,000 90,000
Investment in Darla
Differential (1) 14,700 (2) 14,700
Total Debits 842,500 420,000 1,162,500

Common Stock 80,000
Porter Corporation 80,000
Total Credits 842,500 420,000 166,900 166,900 1,162,500
c. Porter Corporation and Subsidiary

December 31, 20X4
Cash $ 71,300
Inventory 209,200
Land 90,000

Total Controlling Interest 290,000
5-101
5-102
P5-41 Consolidation Workpaper at End of First Year of Ownership – Prior
Procedures



Differential 21,000
$21,000 = $96,000 – (.75 x $100,000)

Goodwill 6,000
Differential 21,000

$1,500 = $15,000 / 10 years

Goodwill 3,500
Write down goodwill for impairment.
5-103
5-104
P5-41 (continued)

December 31, 20X8

Sales 260,000 180,000 440,000

Credits 276,500 180,000 440,000
Wage Expense 42,000 27,000 69,000
Other Expenses 13,500 5,000 18,500
Debits (217,500) (156,000) (378,500)
61,500
Income to Noncon-
Ret. Earnings, Jan. 1 102,000 40,000 (3) 40,000 102,000

161,000 64,000 157,500
(2) 4,000 (30,000)
carry forward 131,000 48,000 67,500 16,000 127,500
Cash 47,500 21,000 68,500

Inventory 90,000 25,000 115,000
Land 30,000 15,000 45,000
Investment in Best
Company Stock 100,500 (1) 4,500
(3) 96,000
Differential (3) 21,000 (4) 21,000
Goodwill (4) 6,000 (6) 3,500 2,500
Debits 688,000 223,000 828,000
5-105
P5-41 (continued)


Wages Payable 17,000 9,000 26,000
Notes Payable 150,000 50,000 200,000
Common Stock
Best Company 60,000 (3) 60,000
Retained Earnings,
from above 131,000 48,000 67,500 16,000 127,500
Noncontrolling
Interest (2) 2,000
(3) 25,000 27,000
Credits 688,000 223,000 169,500 169,500 828,000
5-106
5-107
P5-42 Consolidation Workpaper at End of Second Year of Ownership – Prior
Procedures

$25,500 = ($36,000 - $2,000) x .75

$9,000 = $36,000 x .25

Differential 16,000
$51,500 = $48,000 + $3,500
$16,000 = $21,000 Original differential
(1,500) Amortization of differential
in 20X8
(3,500) Goodwill impaired in 20X8
$16,000 Differential at Jan. 1, 20X9
$27,000 = ($60,000 + $48,000) x .25

Goodwill 2,500
Differential 16,000

and equipment:
$1,500 = $15,000 / 10 years
McGraw-Hill/Irwin
108 © The McGraw-Hill Companies, Inc., 2005
5-109
P5-42 (continued)

December 31, 20X9

Sales 290,000 200,000 490,000

Credits 315,500 200,000 490,000
Wage Expense 35,000 20,000 55,000
Other Expenses 23,000 16,000 39,000
Debits (240,000) (164,000) (405,500)
84,500
Income to Noncon-
Ret. Earnings, Jan. 1 131,000 48,000 (3) 51,500 127,500

206,500 84,000 203,000
(2) 5,000 (30,000)
carry forward 176,500 64,000 87,500 20,000 173,000
Cash 68,500 32,000 100,500

Inventory 97,000 24,000 121,000
Land 50,000 25,000 75,000
Investment in Best
Company Stock 111,000 (1) 10,500
(3)100,500
Differential (3) 16,000 (4) 16,000
Goodwill (4) 2,500 2,500
Debits 761,500 245,000 913,000
5-110
P5-42 (continued)


(5) 1,500 223,000
Wages Payable 14,000 6,000 20,000
Notes Payable 150,000 50,000 200,000
Common Stock
Best Company 60,000 (3) 60,000
Retained Earnings,
from above 176,500 64,000 87,500 20,000 173,000
Noncontrolling
Interest (2) 4,000
(3) 27,000 31,000
Credits 761,500 245,000 181,000 181,000 913,000
5-111
5-112
P5-42 (continued)
c. Power Corporation and Subsidiary

December 31, 20X9
Cash $100,500
Inventory 121,000
Land 75,000
Goodwill 2,500

Wages Payable 20,000

Sales $490,000
Wage Expense 55,000
$ 84,500


$203,000
5-113
5-114
P5-43A Cost-Method Workpaper with Differential

E(2) Common Stock — Star Company 150,000

Differential 20,000
Investment in Star Company Stock 220,000
Eliminate investment balance at date
of acquisition:
$20,000 = $220,000 - $150,000 - $50,000

Differential 20,000
Assign differential at date of acquisition.

Goodwill 12,000
Record impairment of goodwill.
5-115
5-116
P5-43A (continued)
Light Corporation and Star Company

Consolidated Workpaper
December 31, 20X5
Light Star Eliminations Consol-

Sales 300,000 150,000 450,000

Credits 310,000 150,000 450,000
Other Expenses 23,000 25,000 48,000
Debits (258,000) (130,000) (400,000)
Ret. Earnings, Jan. 1 230,000 50,000 (2) 50,000 230,000

282,000 70,000 280,000
carry forward 262,000 60,000 72,000 10,000 260,000
Cash 37,000 20,000 57,000

Inventory 70,000 60,000 130,000
Investment in Star
Company Stock 220,000 (2)220,000
Differential (2) 20,000 (3) 20,000
Goodwill (3) 20,000 (4) 12,000 8,000
Debits 677,000 350,000 815,000

Taxes Payable 70,000 55,000 125,000
Common Stock
Light Corporation 200,000 200,000
Star Company 150,000 (2)150,000
Retained Earnings,
from above 262,000 60,000 72,000 10,000 260,000
Credits 677,000 350,000 262,000 262,000 815,000
5-117
P5-44A Cost-Method Consolidation in Subsequent Period

E(2) Common Stock — Star Company 150,000

Differential 8,000
Investment in Star Company Stock 220,000
of acquisition:
$62,000 = $50,000 + $12,000 (goodwill impairment)
$8,000 = $20,000 - $12,000
E(3) Goodwill 8,000

Differential 8,000
Assign differential at beginning of year.
5-118
P5-44A (continued)
Light Corporation and Star Company

Consolidated Workpaper
December 31, 20X6
Light Star Eliminations Consol-

Sales 350,000 200,000 550,000

Credits 370,000 200,000 550,000
Other Expenses 21,000 10,000 31,000
Debits (316,000) (165,000) (481,000)
Ret. Earnings, Jan. 1 262,000 60,000 (2) 62,000 260,000

316,000 95,000 329,000
carry forward 296,000 75,000 82,000 20,000 309,000
Cash 46,000 30,000 76,000

Inventory 75,000 65,000 140,000
Investment in Star
Company Stock 220,000 (2)220,000
Differential (2) 8,000 (3) 8,000
Goodwill (3) 8,000 8,000
Debits 696,000 375,000 859,000

Taxes Payable 50,000 35,000 85,000
Common Stock
Light Corporation 200,000 200,000
Star Company 150,000 (2)150,000
Retained Earnings,
from above 296,000 75,000 82,000 20,000 309,000
Credits 696,000 375,000 248,000 248,000 859,000
5-119
5-120
P5-45A Cost-Method Consolidation of Majority-Owned Subsidiary


$12,000 = $60,000 x .20
E(3) Common Stock — Rapid Delivery 50,000

Investment in Rapid Delivery Stock 120,000
of acquisition.
5-121
P5-45A (continued)
Samuelson Company and Rapid Delivery Corporation

December 31, 20X6
Samuelson Rapid Eliminations Consol-

Item Company Delivery Debit Credit idated
Sales 700,000 400,000 1,100,000

Credits 716,000 400,000 1,100,000
Wage Expenses 45,000 35,000 80,000
Other Expenses 30,000 40,000 70,000
Debits (600,000) (340,000) (940,000)
Income to Noncon-
Ret. Earnings, Jan. 1 290,000 100,000 (3)100,000 290,000

406,000 160,000 438,000
(2) 4,000 (50,000)
carry forward 356,000 140,000 128,000 20,000 388,000
Cash and Receivables 141,000 80,000 221,000

Inventory 240,000 100,000 340,000
Land 80,000 20,000 100,000
Investment in Rapid
Delivery Stock 120,000 (3)120,000
Debits 1,081,000 350,000 1,311,000

Notes Payable 200,000 50,000 250,000
Common Stock
Samuelson Company 300,000 300,000
Rapid Delivery 50,000 (3) 50,000
Retained Earnings,
from above 356,000 140,000 128,000 20,000 388,000
Noncontrolling
Interest (2) 8,000
(3) 30,000 38,000
Credits 1,081,000 350,000 178,000 178,000 1,311,000
5-122
P5-45A (continued)
Samuelson Company and Subsidiary

December 31, 20X6
Cash and Receivables $ 221,000

Inventory 340,000
Land 100,000

Retained Earnings, 388,000
Total Liabilities and Stockholders' Equity $1,081,000

Sales $1,100,000
Wage Expense 80,000

Retained Earnings, January 1, 20X6 $ 290,000

$ 438,000
Retained Earnings, December 31, 20X6 $ 388,000
5-123
P5-46A Comprehensive Cost-Method Consolidation Problem
a. Journal entry recorded by Master Corporation:
Cash 8,000
Dividend Income 8,000


$5,000 = [$30,000 – ($50,000 / 10 years)] x .20
E(3) Common Stock — Stanley Wood Products 100,000

Differential 50,000
of acquisition.

Assign undistributed prior earnings of
subsidiary to noncontrolling interest:
($90,000 - $50,000) x .20

Differential 50,000
Assign differential at date of
acquisition.

Enter differential amortization of prior
years: ($50,000 / 10) x 4 years


receivable/payable.
5-124
P5-46A (continued)
c. Master Corporation and Stanley Wood Products Company

December 31, 20X5
Master Stanley Eliminations Consol-

Item Corp. Wood Debit Credit idated
Sales 200,000 100,000 300,000
Credits 208,000 100,000 300,000
Inventory Losses 15,000 5,000 20,000
Debits (160,000) (70,000) (235,000)
Income to Noncon-
Ret. Earnings, Jan. 1 298,000 90,000 (3) 50,000
(4) 8,000
(6) 16,000 314,000
346,000 120,000 374,000
(2) 2,000 (30,000)
carry forward 316,000 110,000 92,000 10,000 344,000
Cash and Receivables 81,000 65,000 (8) 10,000 136,000
Inventory 260,000 90,000 350,000
Land 80,000 80,000 160,000
Investment in Stanley
Wood Products Stock 160,000 (3)160,000
Differential (3) 50,000 (5) 50,000
Debits 1,081,000 385,000 1,346,000
(7) 5,000 335,000
Notes Payable 200,000 50,000 250,000
Common Stock
Master Corporation 300,000 300,000
Stanley Wood 100,000 (3)100,000
Retained Earnings,
from above 316,000 110,000 92,000 10,000 344,000
Noncontrolling Interest (6) 4,000 (2) 3,000
(3) 40,000
(4) 8,000 47,000
Credits 1,081,000 385,000 306,000 306,000 1,346,000
5-125

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Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries

CONSOLIDATION OF LESS-THAN-WHOLLY OWNED SUBSIDIARIES

Q5-1 The noncontrolling interest is reported as a separate item in the stockholders’ equity

Q5-3 The income statement portion of the consolidation workpaper is expanded to include a

Q5-5 Consolidated retained earnings includes only amounts attributable to the shareholders

Q5-8 Income assigned to the noncontrolling interest normally is a proportionate share of the

Q5-9 Income assigned to noncontrolling shareholders is reported as a deduction from

Q5-10 Dividends paid to noncontrolling shareholders are eliminated in preparing the

Q5-12 Other comprehensive income elements reported by the subsidiary must be included

Q5-13 The parent’s portion of the subsidiary’s other comprehensive income is included in

C5-1 Consolidation Workpaper Preparation

C5-2 Consolidated Income Presentation

FROM: , Accounting Staff

RE: Allocation of Consolidated Income to Parent and Noncontrolling

Consolidated net income increased by $34,000 from 20X4 to 20X5, an increase of 52

(a) $100,000 + $60,000

C5-3 Pro Rata Consolidation

To: Financial Vice-President

From: , Senior Accountant

Re: Pro Rata Consolidation of Joint Venture

C5-4 Elimination Procedures

C5-5 Changing Accounting Standards: Monsanto Company

a. Monsanto reported the income to noncontrolling (minority) shareholders of consolidated

b. Monsanto reported the noncontrolling interest in consolidated subsidiaries in other

c. In 2007, Monsanto’s treatment of its noncontrolling interest in its consolidated financial

E5-1 Multiple-Choice Questions on Consolidation Process

E5-2 Multiple-Choice Questions on Consolidation [AICPA Adapted]

3. a $650,000 = $500,000 + $200,000 - $50,000

4. c $95,000 = ($956,000 / .80) - $1,000,000 - $100,000

5. c $251,000 = .20[($956,000 + $239,000) + ($190,000 - $5,000 - $125,000)]

E5-3 Eliminating Entries with Differential

E(1) Common Stock – Amber Company 20,000

E(2) Inventory 5,000

E5-4 Computation of Consolidated Balances

c. Buildings and Equipment $550,000

d. Fair value of consideration given by Ford $470,000

e. Investment in Slim Corporation: None would be reported;

f. Noncontrolling Interest ($587,500 x .20) $117,500

E5-5 Balance Sheet Workpaper

Power Company and Pleasantdale Dairy

Pleas- Adjustments and

Current Payables 80,000 40,000 (3) 8,900 111,100

Adjusting and eliminating entries:

(a) Cash and Receivables 900

E(1) Common Stock – Pleasantdale Dairy 60,000

E(2) Land 20,000

E(3) Current Payables 8,900

E5-6 Majority-Owned Subsidiary Acquired at Greater than Book Value

E(1) Common Stock – Down Corporation 40,000

E(2) Inventory 6,000

E(3) Accounts Payable 12,500

b. Zenith Corporation and Down Corporation

Zenith Down Eliminations Consol-

Cash 50,300 21,000 71,300

Accumulated Depreciation 150,000 80,000 230,000

c. Zenith Corporation and Subsidiary

Accounts Payable $175,000

E5-7 Consolidation with Minority Interest