Solutions Manual - Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e

CHAPTER 8
INTERCOMPANY INDEBTEDNESS
ANSWERS TO QUESTIONS
Q8-1 A gain or loss on bond retirement is reported by the consolidated entity whenever
(a) one of the companies purchases its own bonds from a nonaffiliate at an amount other
than book value, or (b) a company within the consolidated entity purchases the bonds of
an affiliate from a nonaffiliate at an amount other than book value.
Q8-2 A constructive retirement occurs when the bonds of a company included in the
consolidated entity are purchased by another company included within the consolidated
entity. Although the debtor still considers the bonds as outstanding, and the investor
views the bonds as an investment, they are constructively retired for consolidation
purposes. If bonds are actually retired, the debtor purchases its own bonds from a
nonaffiliate and they are no longer outstanding.
Q8-3 When bonds sold to an affiliate at par value are not eliminated, bonds payable
and bond investment are misstated in the balance sheet accounts and interest income
and interest expense are misstated in the income statement accounts. There is also a
premium or discount account to be eliminated when the bonds are not issued at par
value. Unless interest is paid at year-end, there is likely to be some amount of interest
receivable and interest payable to be eliminated as well.
Q8-4 Both the bond investment and interest income reported by the purchaser will be
improperly included. Interest expense, bonds payable, and any premium or discount
recorded on the books of the debtor also will be improperly included. In addition, the
constructive gain or loss on bond retirement will be omitted if no eliminating entries are
recorded in connection with the purchase.
Q8-5 If the focus is placed on the legal entity, only bonds actually reacquired by the
debtor will be treated as retired. This treatment can lead to incorrect reports for the
consolidated entity in two dimensions. If a company were to repurchase bonds from an
affiliate, any retirement gain or loss reported by the debtor is not a gain or loss to the
economic entity and must be eliminated in preparing consolidated statements. Moreover,
although a purchase of debt of any of the other companies in the consolidated entity will
not be recognized as a retirement by the debtor, when emphasis is placed on the
economic entity the purchase must serve as a basis for recognition of a bond retirement
for the consolidated entity.
Q8-6 The difference in treatment is due to the effect of the transactions on the
consolidated entity. In the case of land sold to another affiliate, a gain has been recorded
that is not a gain from the viewpoint of the consolidated entity. Thus, it must be
eliminated in the consolidation process. On the other hand, in a bond repurchase the
buyer simply records an investment in bonds and the debtor makes no special entries
because of the purchase by an affiliate. Neither company records the effect of the
transaction on the economic entity. Thus, in the consolidation process an entry must be
made to show the gain on bond retirement that has occurred from the viewpoint of the
economic entity.
Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e
8-1
Chapter 8
Q8-7 When there has been a direct sale to an affiliate, the interest income recorded by
the purchaser should equal the interest expense recorded by the seller and the two
items should have no net effect on reported income. The eliminating entries do not
change consolidated net income in this case, but they will result in a more appropriate
statement of the relevant income and expense categories in the consolidated income
statement.
Q8-8 Whenever a loss on bond retirement has been reported in a prior period, the
affiliate that purchased the bonds paid more than the book value of the debt shown by
the debtor. As a result, each period the interest income recorded by the buyer will be
less than the interest expense reported by the debtor. When the two income statement
accounts are eliminated in the consolidation process, the effect will be to increase
consolidated net income. Because the full amount of the loss was recognized for
consolidated purposes in the year in which the bonds were purchased by the affiliate,
the effect of the elimination process in each of the periods that follow should be to
increase consolidated income.
Q8-9 The difference between the carrying value of the debt on the debtor's books and
the carrying value of the investment on the purchaser's books indicates the amount of
unrecognized gain or loss at the end of the period. To determine the amount of the gain
or loss on retirement at the start of the period, the difference between interest income
recorded by the purchaser on the bond that has been purchased and interest expense
recorded by the debtor during the period is added to the difference between carrying
values at the end of the period.
Q8-10 Interest income and interest expense must be eliminated and a loss on bond
retirement established in the elimination process. Because the loss is attributed to the
subsidiary in this case, consolidated net income will decrease in proportion to the share
of common stock held by the parent.
Q8-11 A constructive gain will be included in the consolidated income statement in this
case and consolidated net income will increase by the full amount of the gain since it is
assigned to the parent company.
Q8-12 A direct placement of subsidiary bonds with the parent should have no effect on
consolidated income or on income assigned to the noncontrolling shareholders.
Q8-13 When subsidiary bonds are purchased from a nonaffiliate by the parent and there
is a constructive gain or loss for consolidated purposes, the gain or loss is assigned to
the subsidiary and included in computing income to the noncontrolling shareholders.
Q8-14 Interest income recorded by the subsidiary and interest expense recorded by the
parent should be equal in the direct placement case. When the subsidiary purchases
parent company bonds from a nonaffiliate, interest income and interest expense will not
be the same unless the bonds are purchased from the nonaffiliate at an amount equal to
the liability reported by the parent.
Q8-15 A gain on constructive bond retirement recorded in a prior period means the
bonds were purchased for less than book value and the interest income recorded by the
subsidiary each period will be greater than the interest expense recorded by the parent.
Consolidated net income for the current period will decrease by the full amount of the
difference between interest income and interest expense as these amounts are
eliminated in preparing the consolidated statements.
8-2
Chapter 8
Q8-16 A constructive loss recorded on the subsidiary's bonds in a prior period means
that the interest income recorded by the parent is less than the interest expense
recorded by the subsidiary in each of the following periods and that consolidated net
income will increase when interest income and expense are eliminated. Income
assigned to the noncontrolling interest will be based on the reported net income of the
subsidiary plus the difference between interest income and interest expense each period
following the retirement. As a result, the amount assigned will be greater than if the bond
had not been constructively retired.
Q8-17 On the date the parent sells the bonds to a nonaffiliate they are issued for the
first time from a consolidated perspective. While the parent will record a gain or loss on
sale of the bonds on its books, none is recognized from a consolidated viewpoint. The
difference between the sale price received by the parent and par value is a premium or
discount. Each period there will be a need to establish the correct amount for the
premium or discount account and to adjust interest expense recorded by the subsidiary
to bring the reported amounts into conformity with the sale price to the nonaffiliate.
Q8-18 The retirement gain or loss reported by the subsidiary when it repurchases the
bonds held by the parent must be eliminated in the consolidation process. From the
viewpoint of the consolidated entity the bonds were retired at the point they were
purchased by the parent and a gain or loss should have been recognized at that point.
8-3
Chapter 8
SOLUTIONS TO CASES
C8-1 Recognition of Retirement Gains and Losses
a. When PT Fania purchases the bonds it will establish an investment account on its
books and PT Buana will establish a bond liability and discount account on its books. No
entry is made by PT Citra. When PT Citra purchases the bonds, PT Citra will record an
investment and PT Fania will remove the balance in the investment account and record
a gain on the sale. PT Buana will make no entry. When PT Buana retires the issue, PT
Buana will remove its liability and unamortized discount and record a loss on bond
retirement. PT Citra will remove the bond investment account and record a loss on sale
of bonds. PT Fania will make no entry.
b. A constructive loss on bond retirement will be reported by the consolidated entity at

the time PT Citra purchases the bonds from PT Fania. The exact amount of the loss
cannot be ascertained without knowing the maturity date of the bonds, the date of initial
sale, and the date of purchase by PT Citra.
c. The initial sale of bonds by PT Buana is treated as a normal transaction with no need
for an adjustment to income assigned to the noncontrolling shareholders. Income
assigned to noncontrolling share-holders will be reduced by a proportionate share of the
loss reported in the consolidated income statement in the period in which PT Citra
purchases the bonds from PT Fania. In the years before the bonds are retired by PT
Buana, income assigned to the noncontrolling interest will be greater than a pro rata
portion of the reported net income of PT Buana. In the period in which the bonds are
retired by PT Buana, reported net income of PT Buana must be adjusted to remove its
loss on bond retirement before assigning income to the noncontrolling interest. No
adjustment will be made in the years following the repurchase by PT Buana.
8-4
Chapter 8
C8-2 Borrowing by Variable Interest Entities
MEMO
To: President
PT Hindia
From: , Accounting Staff
Re: Consolidation of Joint Venture
PT Hindia and Bank Makmur established a joint venture which borrowed

Rp30,000,000,000 and built a new production facility. That facility is now leased to PT
Hindia on a 10-year operating lease. PT Hindia currently reports the annual lease
payment as an operating expense and in the notes to its financial statements must
report a contingent liability for its guarantee of the debt of the joint venture. I have been
asked to review the current financial reporting standards and determine whether PT
Hindia’s current reporting is appropriate.
The circumstances surrounding the creation of the joint venture and the lease
arrangement with PT Hindia appear to point to the need for PT Hindia to consolidate the
joint venture with its own operations. Although Bank Makmur holds 100 percent of the
equity of the joint venture, it has contributed less than 1 percent of the total assets of the
joint venture (Rp200,000,000 of equity versus Rp30,000,000,000 of total borrowings).
Under normal circumstances, less than a 10 percent investment in the entity’s total
assets is considered insufficient to permit the entity to finance its activities. [FASB INT.
46, Par 9]
In this situation, PT Hindia has guaranteed the Rp30,000,000,000 borrowed by the joint
venture and has guaranteed a 20 percent annual return on the equity investment of
Bank Makmur. These conditions will result in PT Hindia absorbing any losses incurred
by the joint venture and establish PT Hindia as the primary beneficiary of the entity. The
FASB requires consolidation by the entity that will absorb a majority of the entity’s
expected losses if they occur. [FASB INT. 46, Par. 14]
Consolidation of the joint venture will result in including the production facility among PT
Hindia’s assets and the debt as part of its long-term liabilities. The claim on the net
assets of the joint venture held by Bank Makmur will be reported as part of
noncontrolling interest. PT Hindia’s consolidated income statement will not include the
lease payment as an operating expense, but will include depreciation expense on the
production facility and interest expense for the interest payment made on the borrowing
of the joint venture.
Primary citation:
FASB INT. 46
8-5
Chapter 8
Case 8-3 Subsidiary Bond Holdings
MEMO
To: Financial Vice-President

PT Faria
From: , Ak.
Re: Investment in Bonds Issued by Subsidiary
The consolidated financial statements of PT Faria should include both PT Maskara and
PT Elyasa. The purpose of the consolidated statements is to present the financial
position and results of operations for a parent and one or more subsidiaries as if the
individual entities actually were a single company or entity. [ARB 51, Par. 1]
When one subsidiary purchases the bonds of another, the investment reported by the
purchasing affiliate and the liability reported by the debtor must be eliminated and a gain
or loss reported on the difference between the purchase price and the carrying value of
the debt at the time of purchase.
In preparing PT Faria’s consolidated statements at December 31, 20X4, the following

eliminating entry should have been included in the workpaper:
E(1) Bonds Payable 400,000,000

Loss on Bond Retirement 24,000,000
Investment in PT Maskara Bonds 424,000,000
The Rp24,000,000 loss should have been included in the consolidated income
statement, leading to a reduction of Rp15,600,000 (Rp24,000,000 x .65) of consolidated
net income and Rp8,400,000 (Rp24,000,000 x .35) of income assigned to noncontrolling
shareholders. This error should be corrected by restating the financial statements of the
consolidated entity for 20X4.
While omission of the eliminating entry resulted in incorrect financial statements for the
consolidated entity, it should have no impact on the financial statements of the individual
subsidiaries. Assuming (1) the bonds had 15 years remaining until maturity when
purchased by PT Elyasa and pay 8 percent interest annually, (2) straight-line
amortization of the premium paid by PT Elyasa is appropriate, and (3) the consolidated
financial statements as of December 31, 20X4, are corrected, the eliminating entry at
December 31, 20X5, will be:
8-6
Chapter 8
C8-3 (continued)

Interest Income 30,400,000 (a)
Retained Earnings 15,600,000
Noncontrolling Interest 8,400,000
Investment in PT Maskara Bonds 422,400,000 (b)
Interest Expense 32,000,000 (c)
(a) (Rp400,000,000 x .08) - (Rp24,000,000/15 years)

(b) Rp424,000,000 - (Rp24,000,000/15 years)
(c) Rp400,000,000 x .08
Primary citation:
ARB 51, Par. 6
C8-4 Interest Income and Expense
a. PT Sindoro apparently paid more than par value for the bonds and is amortizing the
premium against interest income over the life of the bonds. Thus, the cash received is
greater than the amount of interest income recorded.
b. With the information given, the following appears to be true:
(1) PT Sindoro apparently paid less than underlying book value to purchase the
bonds of the subsidiary if there is a constructive gain on bond retirement included in
the 20X3 consolidated income statement. Since PT Sindoro paid par value for the
bonds, they must have been sold at a premium by the subsidiary.
(2) Because the bonds were sold at a premium, interest expense recorded by the
subsidiary will be less than the annual interest payment made to the parent.
(3) Interest income recorded each period by PT Sindoro will exceed interest
expense recorded by the subsidiary. When the two balances are eliminated, the
effect will be to reduce both consolidated net income and the income assigned to
noncontrolling shareholders.
8-7
Chapter 8
C8-5 Intercompany Debt
Answers to this case can be found in the SEC Form 10-K filed by Hershey Foods and its
annual report.
a. When intercompany loans are made between affiliates in different countries, the
problem of changing currency exchange rates may arise, especially if any of the loans
are denominated in a currency that rapidly changes in value against the dollar. Hershey
Foods and many other companies in the same situation hedge their intercompany
receivables/payables through foreign currency forward contracts and swaps.
b. Hershey's intercompany receivables/payables appear to come primarily from

intercompany purchases and sales of goods.
8-8
Chapter 8
SOLUTIONS TO EXERCISES
E8-1 Bond Sale from Parent to Subsidiary
a. Journal entries recorded by PT Hanoman:
January 1, 20X2
Investment in PT Laksmana Bonds 156,000,000
Cash 156,000,000
July 1, 20X2
Cash 4,500,000
Interest Income 4,200,000
Investment in PT Laksmana Bonds 300,000
December 31, 20X2
Interest Receivable 4,500,000

Investment in PT Laksmana Bonds 300,000
b. Journal entries recorded by PT Laksmana:
January 1, 20X2
Cash 156,000,000
Bonds Payable 150,000,000
Bond Premium 6,000,000
July 1, 20X2
Interest Expense 4,200,000
Bond Premium 300,000
Cash 4,500,000
December 31, 20X2

Interest Payable 4,500,000
c. Eliminating entries, December 31, 20X2:
E(1) Bonds payable 150,000,000

Premium on Bonds Payable 5,400,000
Interest income 8,400,000
Investment in PT Laksmana Bonds 155,400,000
Interest expense 8,400,000
Eliminate intercorporate bond holdings.
E(2) Interest payable 4,500,000

Interest receivable 4,500,000
Eliminate intercompany receivable/payable.
8-9
Chapter 8
E8-2 Computation of Transfer Price
a. Rp105,000,000 = Rp100,000,000 par value + (Rp250,000 x 20 periods) premium
b. Rp103,500,000 = Rp105,000,000 - (Rp250,000 x 6 periods)
c. Eliminating entries:

Investment in PT Nalendra Bonds 103,500,000
E(2) Interest Payable 6,000,000

E8-3 Bond Sale at Discount
a. Rp16,800,000 = [(Rp600,000,000 x .08) + (Rp12,000,000 / 5 years)] x 1/3
b. Journal entries recorded by PT Widura:
January 1, 20X4
Cash 16,000,000
July 1, 20X4
Cash 16,000,000
Investment in PT Cantrika Bonds 800,000
Rp800 = (Rp400,000 - Rp392,000)/(5 x 2)
December 31, 20X4

Investment in PT Cantrika Bonds 800,000

Investment in PT Cantrika Bonds 395,200,000
Bond Discount 4,800,000
Rp33,600,000 = Rp16,000,000 + Rp16,000,000 + Rp800,000 + Rp800,000
Rp395,000,000 = Rp392,000,000 + (Rp800,000 x 4)
Rp4,800,000 = Rp8,000,000 - (Rp800,000 x 4)

8 - 10
Chapter 8
E8-4 Evaluation of Intercorporate Bond Holdings
a. The bonds were originally sold at a discount. PT Selomoyo purchased the bonds at
par value and a constructive loss was reported.
b. The annual interest payment received by PT Selomoyo will be less than the interest
expense recorded by the subsidiary. When bonds are sold at a discount, the issue
price of the bonds is adjusted downward because the annual interest payment is
less than is needed to issue the bonds at par value.
c. In 20X6, consolidated net income was decreased as a result of the loss on

constructive retirement of bonds. Each period following the purchase, the amount of
interest expense recorded by the subsidiary will exceed the interest income
recorded by the parent. When these two amounts are eliminated, consolidated net
income will be increased. Thus, consolidated net income for 20X7 will be increased.
E8-5 Multiple-Choice Questions
1. a A constructive gain of Rp100,000,000 is included in consolidated net income for

the period ended March 31, 20X8, and consolidated retained earnings at March
31, 20X8. Because the bonds of the parent are constructively retired, there is no
effect on the amounts assigned to the noncontrolling interest. [AICPA Adapted]
2. a The loss on bond retirement will result in a reduction in consolidated retained

earnings. [AICPA Adapted]
3. b Rp4,700,000 = (Rp50,000,000 x .10) - (Rp3,000,000 / 10 years)
4. a Rp4,000,000 = (Rp50,000,000 x .10) - (Rp8,000,000 / 8 years)
5. c Rp5,600,000 loss = Rp58,000,000 purchase price

- [Rp53,000,000 - (Rp3,000,000 / 10 years) x 2 years]
6. a Operating income of PT kencana Rp40,000,000

Net income of PT Grahita 20,000,000
Rp60,000,000
Less: Loss on bond retirement (5,600,000)
Recognition during 20X6
(Rp4,700,000 - Rp4,000,000) 700,000
Income to noncontrolling interest
(Rp20,000,000 x .40) (8,000,000)
Consolidated net income Rp47,100,000
8 - 11
Chapter 8
E8-6 Multiple-Choice Questions
1. a Rp14,000,000 = [(Rp300,000,000 x .09) - (Rp60,000,000 / 10 years)]

x (Rp200,000,000 / Rp300,000,000)
2. c Rp12,000,000 = [Rp120,000,000 - (Rp20,000,000 / 10 years) x 2 years] -

Rp104,000,000
3. b Net income of PT Simba Rp30,000,000

Unrecognized portion of gain
on bond retirement (Rp12,000,000 - Rp1,500,000) 10,500,000
Rp40,500,000
Proportion of stock held by
noncontrolling interest x .20
Income to noncontrolling interest Rp 8,100,000
E8-7 Constructive Retirement at End of Year
a. Eliminating entries, December 31, 20X5:

Investment in PT Arjuna Bonds 397,000,000
Gain on Bond Retirement 12,000,000
Rp9,000,000 = [(Rp400,000,000 x 1.03) - Rp400,000,000] x 15/20
Rp12,000,000 = Rp9,000,000 + Rp400,000,000 - Rp397,000,000

b. Eliminating entries, December 31, 20X6:

Retained Earnings, January 1 7,200,000
Noncontrolling Interests 4,800,000
Rp8,400,000 = Rp9,000,000 - [Rp9,000,000 / (15 x 2)] x 2
Rp36,200,000 = Rp36,000,000 + [Rp3,000,000 / (15 x 2)] x 2
Rp397,200,000 = Rp397,000,000 + (Rp100,000 x 2)
Rp35,400,000 = Rp36,000,000 - (Rp300,000 x 2)
Rp7,200,000 = Rp12,000,000 x .60
Rp4,800,000 = Rp12,000,000 x .40

8 - 12
Chapter 8
E8-8 Constructive Retirement at Beginning of Year

Rp9,000,000 = [(Rp400,000,000 x 1.03) - Rp400,000,000] x 15/20
Rp36,200,000 = Rp36,000,000 + [(Rp400,000,000 - Rp396,800,000)/(16 x
2)] x 2
Rp397,000,000 = Rp396,800,000 + (Rp100,000 x 2)
Rp35,400,000 = Rp36,000,000 - (Rp300,000 x 2)
Rp12,800,000 = [(Rp400,000,000 x 1.03) - Rp400,000,000]
x 16/20 + (Rp400,000,000 - Rp396,800,000)


Noncontrolling Interests 4,800,000

8 - 13
Chapter 8
E8-9 Retirement of Bonds Sold at a Discount
Elimination of bond investment at December 31, 20X8:

Loss on Constructive Bond Retirement 2,730,000
Investment in Bonds 297,120,000
Discount on Bonds Payable 5,400,000
Eliminate intercorporate bond holdings:
Rp21,240,000 = Rp21,000,000 + [(Rp300,000,000 - Rp296,880,000) / 13 years]
Rp2,730,000 = Rp296,880,000 - Rp294,150,000 (computed below)
Rp297,120,000 = Rp296,880,000 + [(Rp300,000,000 - Rp296,880,000) / 13 years]
Rp21,450,000 = Rp21,000,000 + (Rp9,000,000 / 20 years)
Rp5,400,000 = (Rp9,000,000 / 20 years) x 12 years
Computation of book value of liability at constructive retirement
Sale price of bonds (Rp300,000,000 x .97) Rp291,000,000

Amortization of discount
[(Rp300,000,000 - Rp291,000,000) / 20 years] x 7 3,150,000
years
Book value of liability at January 1, 20X8 Rp294,150,000
E8-10 Loss on Constructive Retirement
Eliminating entries, December 31, 20X8:

Investment in PT Arwana Bonds 106,000,000

8 - 14
Chapter 8
E8-11 Determining the Amount of Retirement Gain or Loss
a. Par value of bonds outstanding Rp200,000,000

Annual interest rate x .12
Interest payment Rp 24,000,000
Amortization of bond premium
(Rp15,000,000 x 2 bonds) / 5 years (6,000,000)
Interest charge for full year Rp 18,000,000
Less: Interest on bond purchased by PT Ornama
[(Rp18,000,000 x 1/2) x (4 months / 12 months)] (3,000,000)
Interest expense included in consolidated
income statement Rp 15,000,000
b. Sale price of bonds, January 1, 20X1 Rp115,000,000

Amortization of premium [(Rp15,000,000 / 5) x 2 2/3 years] (8,000,000)
Book value at time of purchase Rp107,000,000
Purchase price (100,000,000)
Gain on bond retirement Rp 7,000,000

Investment in PT Dharmala Bonds 100,000,000

8 - 15
Chapter 8
E8-12 Evaluation of Bond Retirement
a. No gain or loss will be reported by PT Bedaya.
b. A gain of Rp13,000,000 will be reported:
Book value of liability reported by PT Bedaya:

Par value of bonds outstanding Rp200,000,000
Unamortized premium
Rp8,000,000 - [(Rp8,000,000 / 10 years) x 3.5 years] 5,200,000
Book value of debt Rp205,200,000
Amount paid by Parent (192,200,000)
c. Consolidated net income for 20X6 will increase by Rp8,400,000:

Adjustment for excess of interest income
over interest expense:
Interest income Rp(11,600,000)
Interest expense 10,600,000 (1,000,000)
Net increase Rp 12,000,000
Proportion of ownership held by Parent Company x .70
Increase in consolidated net income Rp 8,400,000
d. Eliminating entries, December 31, 20X6:

Investment in PT Bedaya Bonds 192,800,000
Rp11,600,000 = [Rp22,000,000 + (Rp7,800,000 / 6.5 years)] / 2
Rp192,800,000 = Rp192,200,000 + [(Rp7,800,000 / 6.5 years) / 2]
Rp10,600,000 = (Rp22,000,000 - Rp800,000) / 2

8 - 16
Chapter 8
E8-12 (continued)
e. Eliminating entries, December 31, 20X7:

Investment in PT Bedaya Bonds 194,000,000
Rp23,200,000 = Rp22,000,000 + (Rp7,800,000 / 6.5 years)
Rp194,000,000 = Rp192,800,000 + (Rp7,800,000 / 6.5 years)
Rp21,200,000 = Rp22,000,000 - (Rp8,000,000 / 10 years)
Rp8,400,000 = (Rp13,000,000 - Rp1,000,000) x .70
Rp3,600,000 = (Rp13,000,000 - Rp1,000,000) x .30

f. Income assigned to noncontrolling interest in 20X7 is Rp14,400,000:
Net income reported by PT Bedaya Rp 50,000,000

Interest expense 21,200,000 (2,000,000)
Realized net income Rp 48,000,000
Proportion of ownership held x .30
Income assigned to noncontrolling interest Rp 14,400,000
8 - 17
Chapter 8
E8-13 Elimination of Intercorporate Bond Holdings

Constructive Loss on Bond Retirement 1,400,000
Investment in PT Subali Bonds 104,200,000
Rp3,000,000 = Rp5,000,000 - (Rp500,000 x 4 years)
Rp11,300,000 = Rp12,000,000 - (Rp4,900,000 / 7 years)
Rp1,400,000 = Rp104,900,000 - (Rp105,000,000 - Rp1,500,000)
Rp104,200,000 = Rp104,900,000 - (Rp4,900,000 / 7 years)
Rp11,500,000 = Rp12,000,000 - (Rp5,000,000 / 10 years)

b. Income assigned to noncontrolling interest in 20X8 is Rp6,580,000:
Net income reported by PT Subali Rp 20,000,000

Constructive loss on bond retirement (1,400,000)
Adjustment for excess of interest expense
over interest income:
Interest expense Rp11,500,000
Interest income (11,300,000) 200,000
Realized net income Rp 18,800,000
Proportion of ownership held x .35

Retained Earnings, January 1 780,000
Noncontrolling Interest 420,000
Investment in PT Subali Bonds 103,500,000
Rp2,500,000 = Rp3,000,000 - Rp500,000
Rp11,300,000 = Rp12,000,000 - (Rp4,900,000 / 7 years)
Rp780,000 = (Rp1,400,000 - Rp200,000) x .65
Rp420,000 = (Rp1,400,000 - Rp200,000) x .35
Rp103,500,000 = Rp104,200,000 - Rp700,000
Rp11,500,000 = Rp12,000,000 - (Rp5,000,000 / 10 years)

8 - 18
Chapter 8
SOLUTIONS TO PROBLEMS
P8-14 Consolidation Workpaper with Sale of Bonds to Subsidiary
a. Entries recorded by PT Purwaka on its investment in PT Triana:
Cash 6,000,000
Investment in PT Triana Stock 6,000,000
Record dividends from PT Triana:
Rp10,000,000 x .60

Income from Subsidiary 18,000,000
Record equity-method income:
Rp30,000,000 x .60
b. Entry recorded by PT Purwaka on its bonds payable:

Cash 6,400,000
Record interest payment:
Rp400,000 = (Rp82,000,000 - Rp80,000,000) /
5 years
c. Entry recorded by PT Triana on bond investment:
Cash 6,400,000
Investment in PT Purwaka Bonds 400,000
8 - 19
Chapter 8
P8-14 (continued)
E(1) Income from Subsidiary 18,000,000

Dividends Declared 6,000,000
Eliminate income from subsidiary.
E(2) Income to Noncontrolling Interest 12,000,000

Assign income to noncontrolling interest:
Rp12,000,000 = Rp30,000,000 x .40
E(3) Common Stock — PT Triana 100,000,000

Eliminate beginning investment balance:
Rp90,000,000 = Rp102,000,000 -
Rp12,000,000
Rp60,000,000 = (Rp100,000,000 +
Rp50,000,000) x .40
E(4) Bonds payable 80,000,000

Interest income 6,000,000
Investment in PT Purwaka Bonds 81,200,000
Interest expense 6,000,000
Rp1,200,000 = (Rp82,000,000 - Rp80,000,000)
x 3/5
Rp81,200,000 = (Rp82,000,000 - Rp800,000)
8 - 20
Chapter 8
P8-14 (continued)
e. PT Purwaka and PT Triana
Consolidation Workpaper
December 31, 20X2
PT
Purwaka PT Triana Eliminations Consol-
Item ______ ________ Debit Credit idated
Sales 200,000,000 114,000,000 314,000,000
Interest Income 6,000,000 (4)6,000,000
Income from Subsidiary 18,000,000 (1)18,000,000
Credits 218,000,000 120,000,000 314,000,000
Cost of Goods Sold 99,800,000 61,000,000 160,800,000
Depreciation Expense 25,000,000 15,000,000 40,000,000
Interest Expense 6,000,000 14,000,000 (4)6,000,000 14,000,000
Debits (130,800,000) (90,000,000) (214,800,000)
99,200,000
Income to Noncon-
trolling Interest (2)12,000,000 (12,000,000)
Net Income,
carry forward 87,200,000 30,000,000 36,000,000 6,000,000 87,200,000
Retained Earnings, Jan. 1 230,000,000 50,000,000 (3)50,000,000 230,000,000
Net Income, from above 87,200,000 30,000,000 36,000,000 6,000,000 87,200,000
317,200,000 80,000,000 317,200,000
Dividends Declared (40,000,000) (10,000,000) (1)6,000,000
(2)4,000,000 (40,000,000)
Retained Earnings, Dec.
31,
carry forward 277,200,000 70,000,000 86,000,000 16,000,000 277,200,000
Cash and Accounts
Receivable 80,200,000 40,000,000 120,200,000
Inventory 120,000,000 65,000,000 185,000,000
Buildings and Equipment 500,000,000 300,000,000 800,000,000
Investment in PT Triana
Corporation Stock 102,000,000 (1)12,000,000
(3)90,000,000
Investment in PT Purwaka
Company Bonds 81,200,000 (4)81,200,000
Debits 802,200,000 486,200,000 1,105,200,000
Accum. Depreciation 175,000,000 75,000,000 250,000,000
Accounts Payable 68,800,000 41,200,000 110,000,000
Bonds Payable 80,000,000 200,000,000 (4)80,000,000 200,000,000
Bond Premium 1,200,000 (4)1,200,000
Common Stock
PT Purwaka 200,000,000 200,000,000
PT Triana 100,000,000 (3)100,000,000
Retained Earnings,
from above 277,200,000 70,000,000 86,000,000 16,000,000 277,200,000
Noncontrolling
Interest (2) 8,000,000
(3)60 000,000 68,000,000
Credits 802,200,000 486,200,000 267,200,000 267,200,000 1,105,200,000
8 - 21
Chapter 8
P8-15 Consolidation Workpaper with Sale of Bonds to Parent
a. Entries recorded by PT PT Megariaria on its investment in PT Turangga:
Cash 18,000,000
Investment in PT Turangga Stock 18,000,000
Record dividends from Temple:
Rp20,000,000 x .90

Rp25,000,000 x .90
b. Entry recorded by PT PT Megariaria on its investment in PT Turangga bonds:
Cash 6,000,000
Investment in PT Turangga Bonds 800,000
Rp800,000 = (Rp104,000,000 - Rp100,000,000)
/ 5 years
c. Entry recorded by PT Turangga on its bonds payable:

Cash 6,000,000
8 - 22
Chapter 8
P8-15 (continued)


Rp2,500,000 = Rp25,000,000 x .10
E(3) Common Stock — PT Turangga 80,000,000

Rp117,000,000 = Rp121,500,000 -
Rp4,500,000
Rp13,000,000 = (Rp80,000,000 +
Rp50,000,000) x .10

Investment in PT Turangga Bonds 101,600,000
Rp1,600,000 = Rp4,000,000 x 2/5
Rp101,600,000 = Rp104,000,000 -
(Rp4,000,000 x 3/5)
8 - 23
Chapter 8
P8-15 (continued)
e. PT PT Megariaria and PT Turangga

December 31, 20X4
PT Megaria PT Turangga Eliminations Consol

Item ________ _______ Debit Credit idated
Sales 140,000,000 125,000,000 265,000,00
Interest Income 5,200,000 (4) 5,200,000
Credits 167,700,000 125,000,000 265,000,00
Debits (122,000,000) (100,000,000) (216,800,00
48,200,00
Income to Noncon-
trolling Interest (2) 2,500,000 (2,500,00
Net Income,
carry forward 45,700,000 25,000,000 30,200,000 5,200,000 45,700,00
Retained Earnings, Jan. 1 242,000,000 50,000,000 (3)50,000,000 242,000,00
287,700,000 75,000,000 287,700,00
(2) 2,000,000 (30,000,00
Retained Earnings, Dec.
31,
carry forward 257,700,000 55,000,000 80,200,000 25,200,000 257,700,00
Cash and Receivables 22,000,000 36,600,000 58,600,00
Inventory 165,000,000 75,000,000 240,000,00
Investment in PT Turangga
Company Stock 121,500,000 (1) 4,500,000
(3)117,000,000
Investment in PT Turangga
Company Bonds 101,600,000 (4)101,600,000
Debits 810,100,000 351,600,000 938,600,00
Current Payables 92,400,000 35,000,000 127,400,00
Bonds Payable 200,000,000 100,000,000 (4)100,000,000 200,000,00
Bond Premium 1,600,000 (4) 1,600,000
Common Stock
PT PT Megariaria 120,000,000 120,000,00
PT Turangga 80,000,000 (3) 80,000,000
Retained Earnings,
from above 257,700,000 55,000,000 80,200,000 25,200,000 257,700,00
Noncontrolling
Interest (2) 500,000
(3) 13,000,000 13,500,00
Credits 810,100,000 351,600,000 261,800,000 261,800,000 938,600,00
8 - 24
Chapter 8
P8-16 Direct Sale of Bonds to Parent
a. Journal entries recorded by PT Emaria:
January 1, 20X3
Cash 2,000,000
Receive interest on bond investment.
July 1, 20X3
Cash 2,000,000
Investment in PT Vyasa Bonds 250,000
Record receipt of bond interest:
Rp250,000 = Rp5,000,000 / (10 years x 2)
December 31, 20X3

Cash 7,000,000
Investment in PT Vyasa Stock 7,000,000
Record dividends for PT Vyasa:
Rp7,000,000 = Rp10,000,000 x .70
Interest Receivable (Current Receivables) 2,000,000

Investment in PT Vyasa Bonds 250,000
Accrue interest income at year-end.

Rp21,000,000 = Rp30,000,000 x .70

Record amortization of differential:
Rp3,000,000 = Rp45,000,000 / 15 years
b. Journal entries recorded by PT Vyasa:
January 1, 20X3
Interest Payable 4,000,000
Cash 4,000,000
Rp4,000,000 = Rp100,000,000 x (.08 / 2)
July 1, 20X3
Discount on Bonds Payable 500,000
Cash 4,000,000
Semiannual payment of interest:
Rp500,000 = Rp10,000,000 / 20 semiannual
payments
8 - 25
Chapter 8
P8-16 (continued)
December 31, 20X3
Interest Payable (Current Liabilities) 4,000,000
Accrue interest expense at year-end.
c. Elimination entries, December 31, 20X3:


Rp9,000,000 = Rp30,000,000 x .30
E(3) Common Stock — PT Vyasa 50,000,000

Differential 39,000,000
Rp39,000,000 = Rp45,000,000 - (Rp3,000,000 x 2 years)
Rp144,000,000 = .70(Rp50,000,000 + Rp100,000,000) + Rp39,000,000
Rp45,000,000 = .30(Rp50,000,000 + Rp100,000,000)
E(4) Land, Buildings and Equipment (net) 36,000,000

Operating Expenses 3,000,000
Assign differential and record
amortization for period.

Investment in PT Vyasa Bonds 46,500,000
Rp46,500,000 = Rp45,000,000 + (Rp250,000 x 6 periods)
Rp3,500,000 = Rp7,000,000 / 2
E(6) Interest Payable (Current Liabilities) 2,000,000

Interest Receivable (Current Receivables) 2,000,000
E(7) Retained Earnings, January 1 5,600,000

Land, Buildings and Equipment (net) 8,000,000
Eliminate profit on intercompany sale of land.
8 - 26
Chapter 8
P8-16 (continued)
d. PT Emaria and PT Vyasa

December 31, 20X3
PT Emaria PT Vyasa Eliminations Consol-
Item _______ __________ Debit Credit idated
Sales 300,000,000 200,000,000 500,000,000
Interest Income 4,500,000 (5)4,500,000
Credits 322,500,000 200,000,000 500,000,000
Operating Expenses 198,500,000 161,000,000 (4) 3,000,000 362,500,000
Debits (225,500,000) (170,000,000) (394,000,000)
106,000,000
Income to Noncon-
trolling Interest (2) 9,000,000 (9,000,000)
Net Income,
carry forward 97,000,000 30,000,000 34,500,000 4,500,000 97,000,000
Retained Earnings, Jan. 244,000,000 100,000,000 (3)100,000,000
1
(7) 5,600,000 238,400,000
341,000,000 130,000,000 335,400,000
(2)3,000,000 (60,000,000)
Ret. Earnings, Dec. 31,
carry forward 281,000,000 120,000,000 140,100,000 14,500,000 275,400,000
Cash and Current
Receivables 24,500,000 46,000,000 (6)2,000,000 68,500,000
Inventory 170,000,000 70,000,000 240,000,000
Land, Buildings and
Equipment (net) 320,000,000 180,000,000 (4) 36,000,000 (7)8,000,000 528,000,000
Discount on Bonds
Payable 7,000,000 (5)3,500,000 3,500,000
Investment in Vincent
Company Bonds 46,500,000 (5)46,500,000
Investment in Vincent
Company Stock 155,000,000 (1)11,000,000
(3)144,000,000
Differential (3) 39,000,000 (4) 39,000,000
Debits 716,000,000 303,000,000 840,000,000
Current Liabilities 35,000,000 33,000,000 (6) 2,000,000 66,000,000
Bonds Payable 300,000,000 100,000,000 (5) 50,000,000 350,000,000
Common Stock 100,000,000 50,000,000 (3) 50,000,000 100,000,000
Retained Earnings,
from above 281,000,000 120,000,000 140,100,000 14,500,000 275,400,000
Noncontrolling Interest (7) 2,400,000 (2) 6,000,000
(3) 45,000,000 48,600,000
Credits 716,000,000 303,000,000 319,500,000 319,500,000 840,000,000
8 - 27
Chapter 8
P8-17 Information Provided in Eliminating Entry
a. PT Riana is the parent company. In the eliminating entry, noncontrolling interest is credited
with a portion of the constructive gain on bond retirement.
b. PT Riana holds 75 percent ownership of Girinda [Rp4,200,000 / (Rp4,200,000 +
Rp1,400,000)].
c. Amount paid to acquire bonds:
Investment in Girinda bonds, December 31, 20X7 Rp198,200,000
Amortization of discount following purchase
[(Rp200,000,000 - Rp198,200,000) / 3 years] x 2.5 years (1,500,000)
Purchase price paid by PT Riana Rp196,700,000
d. A gain of Rp7,700,000 was reported:
Book value of liability reported by Girinda:
Unamortized premium
Rp8,000,000 - [(Rp8,000,000 / 10 years) x 4.5 years] 4,400,000
Book value of debt Rp204,400,000
Purchase price paid by PT Riana (196,700,000)
e. Consolidated net for 20X7 after adjustment for bond retirement:
Amount reported without adjustment Rp 70,000,000
Income expense 17,200,000
Rp( 1,400,000)
Proportion of ownership held by PT Riana x .75 (1,050,000)
Consolidated net income Rp 68,950,000
f. Income assigned to the noncontrolling interest will decrease by Rp350,000

(Rp1,400,000 x .25) as a result of the eliminating
entry.
g. Eliminating entry prepared at December 31, 20X8:
Investment in Girinda Corporation Bonds 198,800,000
Eliminate intercompany bond holdings:
Rp18,600,000 = (Rp200,000,000 x .09) + (Rp1,800,000 / 3 years)
Rp198,800,000 = Rp198,200,000 + (Rp1,800,000 / 3 years)
Rp17,200,000 = (Rp200,000,000 x .09) - (Rp2,400,000 / 3 years)
Rp3,150,000 = [Rp7,700,000 - (Rp1,400,000 x 2.5 years)] x .75
Rp1,050,000 = [Rp7,700,000 - (Rp1,400,000 x 2.5 years)] x .25
8 - 28
Chapter 8
P8-18 Prior Retirement of Bonds
a. Amount paid by PT Amarta for bonds:
Reported balance, December 31, 20X6 Rp102,400,000

Amortization of premium during 20X6
(Rp2,400,000 / 6 years) 400,000
Purchase price Rp102,800,000
b. Interest Expense 9,500,000

Cash 9,000,000
Annual payment of interest:
Rp9,500,000 = [Rp9,000,000 +
(Rp3,000,000 / 6 years)]
c. Cash 9,000,000
Investment in PT Bunisora Bonds 400,000
Annual receipt of interest:
Rp8,600,000 = [Rp9,000,000 -
(Rp2,400,000 / 6 years)]
d. Bonds Payable 100,000,000

Investment in PT Bunisora Bonds 102,800,000
Rp6,300 = Rp102,800 - [Rp97,000 -
(Rp3,000 / 6 years)]
Rp102,800 = computed above
Rp3,500 = [Rp3,000 + (Rp3,000 / 6
years)]
e. Consolidated net income for 20X5 and 20X6:
20X5 20X6
Operating income reported by PT Amarta Rp120,000,000 Rp150,000,000
PT Amarta's proportionate share of:
Net income reported by PT Bunisora 51,000,000 68,000,000
Loss on bond retirement (Rp6,300,000 x .85) (5,355,000)
(Rp9,500,000) over interest income
(Rp8,600,000)
recorded in 20X6 (Rp900,000 x .85) 765,000
Consolidated net income Rp165,645,000 Rp218,765,000
8 - 29
Chapter 8
P8-19 Incomplete Data
a. Purchase price of bonds:
Balance reported in bond investment account in

excess of par value, December 31, 20X4
(Rp109,000,000 - Rp100,000,000) Rp9,000,000
Amount amortized per year (Rp9,000,000 / 6 years) 1,500,000
Premium at date of purchase Rp10,500,000
Par value 100,000,000
Purchase price Rp110,500,000
b. Carrying amount of liability on date of purchase:
Bond premium, December 31, 20X4 Rp 6,000,000

Amount amortized per year (Rp6,000,000 / 6 years) 1,000,000
Bond premium, January 1, 20X4 Rp 7,000,000
Par value 100,000,000
Carrying amount of liability, January 1, 20X4 Rp107,000,000
c. Income to noncontrolling interest in 20X5:
Reported net income of PT Candrika Rp 30,000,000

over interest income recorded in 20X5 500,000
Rp 30,500,000
Proportion of stock held by noncontrolling interest x .30
Excess of interest expense over interest income

Interest expense:
(Rp100,000,000 x .12) - Rp11,000,000
(Rp10,000,000 / 10)
Interest income:
(Rp100,000,000 x .12) – (10,500,000)
(Rp10,500,000 / 7)
Excess Rp 500,000
8 - 30
Chapter 8
P8-20 Balance Sheet Eliminations
E(1) Common Stock — PT Sannaha Company 100,000,000

Investment in PT Sannaha Stock 216,000,000
Eliminate balance in investment account.
E(2) Retained Earnings 12,000,000

Inventory 12,000,000
Eliminate unrealized inventory profit
on downstream sale:
Rp12,000,000 = Rp42,000,000 -
(Rp42,000,000 / 1.40)
E(3) Retained Earnings 4,800,000

Inventory 6,000,000
Eliminate unrealized inventory profit
on upstream sale:
Rp6,000,000 = Rp26,000,000 -
(Rp26,000,000 / 1.30)

Investment in PT Sannaha Bonds 101,500,000
Unrecognized portion of gain at December 31, 20X4:

Bond liability (Rp300,000,000 + Rp112,000,000
Rp36,000,000) / 3
Bond investment (101,500,000)
Unrecognized portion of gain Rp10,500,000
PT Pitaloka x .80
Gain assigned to PT Pitaloka Rp 8,400,000
Gain assigned to noncontrolling
interest (10,500,000 x .20) Rp 2,100,000
E(5) Interest Payable (Accounts Payable) 4,000,000

Interest Receivable (Cash and
Receivables) 4,000,000
8 - 31
Chapter 8
P8-20 (continued)
b. PT Pitaloka and PT Sannaha Company

Consolidated Balance Sheet Workpaper
December 31, 20X4
PT PT
Pitaloka Sannaha Eliminations Consol-
Item ______ _____ Debit Credit idated
Cash and Receivables 122,500,000 124,000,000 (5)4,000,000 242,500,000

Inventory 200,000,000 150,000,000 (2)12,000,000
(3) 6,000,000 332,000,000
Buildings and Equipment
(net) 320,000,000 360,000,000 680,000,000
Investment in:
PT Sannaha Bonds 101,500,000 (4)101,500,000
PT Sannaha Stock 216,000,000 (1)216,000,000
Total Debits 960,000,000 634,000,000 1,254,500,000
Accounts Payable 40,000,000 28,000,000 (5)4,000,000 64,000,000

Bonds Payable 400,000,000 300,000,000 (4)100,000,000 600,000,000
Bond Premium 36,000,000 (4) 12,000,000 24,000,000
Common Stock 200,000,000 100,000,000 (1)100,000,000 200,000,000
Retained Earnings 320,000,000 170,000,000 (1)170,000,000 (4) 8,400,000
(2) 12,000,000
(3) 4,800,000 311,600,000
(4) 2,100,000 54,900,000
Total Credits 960,000,000 634,000,000 404,000,000 404,000,000 1,254,500,000
c. PT Pitaloka and Subsidiary

Consolidated Balance Sheet
December 31, 20X4
Cash and Receivables Rp 242,500,000

Buildings and Equipment (net) 680,000,000
Total Assets Rp1,254,500,000
Accounts Payable Rp 64,000,000

Bonds Payable Rp600,000,000
Bond Premium 24,000,000 624,000,000
Common Stock Rp200,000,000
Retained Earnings 311,600,000 511,600,000
Total Equities Rp1,254,500,000
8 - 32
Chapter 8
P8-21 Computations Relating to Bond Purchase from Nonaffiliate
a. Balance reported, December 31, 20X4 Rp105,600,000

Amortization of premium during 20X4:
Annual amortization (Rp5,600,000 / 7 years) Rp800,000
Portion of year held x .75
Amortized in 20X4 600,000
Purchase price of bonds Rp106,200,000
b. Carrying value of liability at date of acquisition:

Carrying value at year-end Rp107,000,000
Premium amortized between date of purchase
and December 31, 20X4 (Rp1,000,000 x .75) 750,000
Carrying value at acquisition Rp107,750,000
Gain on constructive retirement Rp 1,550,000

Investment in PT Brilian Bonds 105,600,000

Elimination of interest income:

Interest income at nominal rate
(Rp100,000,000 x .10) Rp10,000,000
Annual amortization of premium by PT (800,000)
Pesona
Annual interest income recorded by PT Rp 9,200,000
Pesona
Portion of year held by PT Pesona x .75
Interest income for 20X4
Rp 6,900,000
Elimination of interest expense:

Interest expense at nominal rate
(Rp100,000,000 x .10) Rp10,000,000
Annual amortization of premium by PT
Brilian
(Rp10,000,000 / 10 years) (1,000,000)
Annual interest expense recorded by PT Rp 9,000,000
Brilian
Portion of year held by PT Pesona x .75
Interest expense eliminated Rp 6,750,000
8 - 33
Chapter 8
P8-22 Computations following Parent's Acquisition of Subsidiary Bonds
a. Book value of bonds purchased by PT Mutiara:
Balance reported, December 31, 20X5 Rp111,250,000

Amortization of premium in 20X4 and 20X5
(Rp11,250,000 / 3 years) x 2 years 7,500,000
Balance at date of purchase Rp118,750,000
Proportion of bonds purchased by PT Mutiara x .40
Book value of bonds purchased Rp47,500,000
Amount paid by PT Mutiara to purchase bonds:
Bond investment, December 31, 20X5 Rp42,400,000

Amortization of premium in 20X4 and 20X5
(Rp2,400,000 / 3 years) x 2 years 1,600,000
b. Bonds Payable 40,000,000

Investment in PT Oase Bonds 42,400,000
Rp4,500,000 = Rp11,250,000 x .40
Rp3,200,000 = (Rp40,000,000 x .10) -
Rp800,000
Rp2,500,000 = (Rp40,000,000 x .10) -
(Rp3,750,000 x .40)
Rp2,240,000 = (Rp3,500,000 -
Rp700,000) x .80
Rp560,000 = (Rp3,500,000 - Rp700,000)
x .20
c. Retained earnings of PT Mutiara Rp500,000,000

Unrecognized gain on bond retirement:
Gain at date of repurchase Rp3,500,000
Interest differential recognized
[(Rp3,200,000 - Rp2,500,000) x 2 years] (1,400,000)
Unrecognized balance Rp2,100,000
Proportion of stock held by PT Mutiara x .80
1,680,000
Consolidated retained earnings Rp501,680,000
8 - 34
Chapter 8
P8-23 Consolidation Workpaper — Year of Retirement
a. Elimination Entries (not required):

Investment in PT Briana 12,000,000
Eliminate income from subsidiary:
Rp18,000,000 = Rp30,000,000 x .60

Rp14,960,000 = (Rp30,000,000 +
Rp7,000,000 + Rp400,000) x .40
E(3) Common Stock – PT Briana 100,000,000

Investment in PT Briana Stock 90,000,000
Eliminate beginning investment balance.

Investment in PT Briana Bonds 50,000,000
Rp7,000,000 = Rp28,000,000 / 4

Operating Expenses 400,000
Depreciable Assets (net) 5,200,000
Eliminate unrealized gain on upstream
sale of building:
Rp3,360,000 = [Rp6,000,000 -
(Rp6,000,000 / 15)] x .60
Rp2,240,000 = [Rp6,000,000 -
(Rp6,000,000 / 15)] x .40
Rp400,000 = (Rp30,000,000 / 15) -
(Rp40,000,000 / 25)
Rp5,200,000 = [Rp30,000,000 -
(Rp2,000,000 x 2)]
- [Rp40,000,000 - (Rp1,600,000 x
12)]
8 - 35
Chapter 8
P8-23 (continued)
PT Tiara and PT Briana

December 31, 20X3
PT Tiara PT Briana Eliminations Consol-

Item ______ ________ Debit Credit idated
Sales 400,000,000 200,000,000 600,000,000

Gain on Bond (4)7,000,000 7,000,000
Retirement
Credits 418,000,000 200,000,000 607,000,000
Interest Expense 20,000,000 20,000,000 40,000,000
Operating Expenses 302,200,000 150,000,000 (5) 400,000 451,800,000
Debits (322,200,000) (170,000,000) (491,800,000)
115,200,000
Income to Noncon-
Net Income,
carry forward 95,800,000 30,000,000 32,960,000 7,400,000 100,240,000
Ret. Earnings, Jan. 1 150,000,000 50,000,000 (3)50,000,000

(5) 3,360,000 146,640,000
245,800,000 80,000,000 246,880,000
(2)4,000,000 (40,000,000)
carry forward 205,800,000 70,000,000 86,320,000 17,400,000 206,880,000
Cash 68,000,000 55,000,000 123,000,000

Accounts Receivable 100,000,000 75,000,000 175,000,000
Inventory 120,000,000 110,000,000 230,000,000
Depreciable Assets (net) 360,000,000 210,000,000 (5)5,200,000 564,800,000
Investment in:
PT Briana Bonds 50,000,000 (4)50,000,000
PT Briana Stock 102,000,000 (1)12,000,000
(3)90,000,000
Debits 800,000,000 450,000,000 1,092,800,000

Bonds Payable 200,000,000 200,000,000 (4)50,000,000 350,000,000
Bond Premium 28,000,000 (4) 7,000,000 21,000,000
Common Stock 300,000,000 100,000,000 (3)100,000,000 300,000,000
Retained Earnings,
from above 205,800,000 70,000,000 86,320,000 17,400,000 206,880,000
Noncontrolling Interest (5) 2,240,000 (2)10,960,000
(3)60,000,000 68,720,000
Credits 800,000,000 450,000,000 245,560,000 245,560,000 1,092,800,000
8 - 36
Chapter 8
P8-23 (continued)
b. PT Tiara and Subsidiary

December 31, 20X3
Cash Rp123,000,000
Accounts Receivable 175,000,000
Total Current Assets Rp528,000,000
Depreciable Assets (net) 564,800,000
Total Assets Rp1,092,800,000

Bonds Payable Rp350,000,000
Bond Premium 21,000,000 371,000,000
Total Liabilities and Stockholders' Equity Rp1,092,800,000
PT Tiara and Subsidiary

Consolidated Income Statement
Year Ended December 31, 20X3
Sales Rp600,000,000
Total Revenue Rp607,000,000
Interest Expense Rp 40,000,000
Operating Expenses 451,800,000
Total Expenses (491,800,000)
Rp115,200,000
Income to Noncontrolling Interest (14,960,000)
Consolidated Net Income Rp100,240,000
PT Tiara and Subsidiary

Consolidated Statement of Retained Earnings
Retained Earnings, January 1, 20X3 Rp146,640,000

20X3 Net Income 100,240,000
Rp246,880,000
Less: Dividends Paid in 20X3 (40,000,000)
Retained Earnings, December 31, 20X3 Rp206,880,000
8 - 37
Chapter 8
P8-24 Consolidation Workpaper — Year after Retirement
a. PT Bianglala and PT Singgalang

December 31, 20X4
PT Bianglala PT Singgalang Eliminations Cons

Item _______ ___________ Debit Credit idate
Sales 450,000,000 250,000,000 700,000,0

Interest Income 8,000,000 (4)8,000,000
Credits 488,000,000 250,000,000 700,000,0
Other Expenses 368,600,000 182,000,000 550,600,0
Debits (388,600,000) (200,000,000) (579,600,0
120,400,0
Income to Noncon-
trolling Interest (2)20,400,000 (20,400,0
Net Income,
carry forward 99,400,000 50,000,000 58,400,000 9,000,000 100,000,0
Ret. Earnings, Jan. 1 214,200,000 70,000,000 (3)70,000,000

(4) 4,200,000 210,000,0
313,600,000 120,000,000 310,000,0
(2)4,000,000 (40,000,0
carry forward 273,600,000 110,000,000 132,600,000 19,000,000 270,000,0
Cash 61,600,000 20,000,000 81,600,0

Inventory 120,000,000 110,000,000 230,000,0
Other Assets 340,000,000 250,000,000 590,000,0
Investment in Stone
Container Bonds 106,000,000 (4)106,000,000
Investment in Stone
Container Stock 126,000,000 (1) 24,000,000
(3)102,000,000
Debits 853,600,000 460,000,000 1,081,600,0

Bonds Payable 200,000,000 200,000,000 (4)100,000,000 300,000,0
Common Stock 300,000,000 100,000,000 (3)100,000,000 300,000,0
Retained Earnings,
from above 273,600,000 110,000,000 132,600,000 19,000,000 270,000,0
(3) 68,000,000 81,600,0
Credits 853,600,000 460,000,000 335,400,000 335,400,000 1,081,600,0
8 - 38
Chapter 8
P8-24 (continued)
Income from Subsidiary for 20X4:
Reported net income of PT Singgalang Rp50,000,000

Proportion of stock held by Bennett x .60
Income from Subsidiary Rp30,000,000
Income to Noncontrolling Interest:
Reported net income of PT Singgalang Rp50,000,000

Amortization of loss on bond retirement:
Carrying value of bond investment Rp106,000,000
Par value of debt (100,000,000)
Unamortized premium paid by Bennett Rp 6,000,000
Number of years until maturity ÷ 6
Amortization of premium annually 1,000,000
Realized net income of PT Singgalang Rp51,000,000
Proportion of stock held by noncontrolling
Interest x .40
Income to Noncontrolling Interest Rp20,400,000
8 - 39
Chapter 8
P8-24 (continued)
b. PT Bianglala and Subsidiary

December 31, 20X4
Cash Rp 81,600,000
Accounts Receivable 180,000,000
Total Current Assets Rp 491,600,000
Other Assets 590,000,000
Total Asset Rp1,081,600,000

Total Liabilities and Stockholders’ Equity Rp1,081,600,000
PT Bianglala and Subsidiary

Consolidated Income Statement
December 31, 20X4
Sales Rp700,000,000
Interest Expense Rp 29,000,000
Other Expenses 550,600,000
Total Expenses (579,600,000)
Rp120,400,000
Income to Noncontrolling Interest (20,400,000)
Consolidated Net Income Rp100,000,000
PT Bianglala and Subsidiary

Consolidated Statement of Retained Earnings
Retained Earnings, January 1, 20X4 Rp210,000,000

20X4 Net Income 100,000,000
Rp310,000,000
Less: Dividends Paid in 20X4 (40,000,000)
Retained Earnings, December 31, 20X4 Rp270,000,000
8 - 40
Chapter 8
P8-25 Intercorporate Inventory and Debt Transfers
a. Consolidated cost of goods sold for 20X7:

Amount reported by PT Lembayung Rp620,000,000
Amount reported by PT Aster 240,000,000
Adjustment for unrealized profit in
beginning inventory sold in 20X7 (15,000,000)
Adjustment for inventory purchased from
subsidiary and resold during 20X7:
CGS recorded by PT Lembayung Rp40,000,00
CGS recorded by PT Aster (Rp60,000 - 33,000,000
Rp27,000)
Total recorded Rp73,000,00
CGS based on PT Lembayung's cost
[Rp40,000 x (Rp33,000 / Rp60,000)] (22,000,000)
Required adjustment (51,000,000)
Cost of goods sold Rp794,000,000
b. Consolidated inventory baPT Lembayung:
Amount reported by PT Lembayung Rp167,000,000

Amount reported by PT Aster 120,000,000
Total inventory reported Rp287,000,000
Unrealized profit in ending inventory held by
PT Aster [Rp20,000 x (Rp27,000 / Rp60,000)] (9,000,000)
Consolidated baPT Lembayung Rp278,000,000
c. Entry to record interest expense for PT Aster:

Cash 16,000,000
Computation of interest expense

Par value of bonds issued Rp200,000,000
Stated interest rate x .08
Annual interest payment Rp 16,000,000
Annual amortization of premium (Rp4,800,000 / (800,000)
6 years)
Interest expense for 20X7 Rp 15,200,000
8 - 41
Chapter 8
P8-25 (continued)
d. Entry to record interest income for PT Lembayung:
Cash 6,400,000
Investment in PT Aster Bonds 200,000
Computation of interest income

Annual payment received (Rp80,000,000 x .08) Rp6,400,000
Amortization of discount
[(Rp80,000,000 - Rp78,400,000) / 8 years] 200,000
Interest income for 20X7 Rp6,600,000
e. Income assigned to noncontrolling interest:
Net income reported by PT Aster Rp48,000,000

Adjustment for realization of profit on inventory
sold to PT Lembayung in 20X6 15,000,000
Adjustment for realization of constructive gain on
bond retirement (Rp4,160,000 / 8 years) (520,000)
Realized net income of PT Aster for 20X7 Rp62,480,000
Proportion of ownership held by noncontrolling

Interest x .25
Income assigned to noncontrolling interest Rp15,620,000
Computation of constructive gain on bond retirement

0
Bond premium, December 31, 20X7 Rp4,800,000
Remaining years’ to maturity ÷ 6
Amortization per year Rp 800,000
Years’ to maturity at purchase x 8
Premium, December 31, 20X5
6,400,000
Book value of bonds Rp206,400,
000
Proportion purchased x .40
Book value of bonds purchased Rp
82,560,000
Purchase price
(78,400,000
)
Constructive gain Rp
4,160,000
f. Eliminating entries:

Investment in PT Aster Stock 18,000,000
8 - 42
Chapter 8

Rp15,620,000 = (Rp48,000,000 +
Rp15,000,000 - Rp520,000) x .25
P8-25 (continued)
E(3) Common Stock — PT Aster 50,000,000

Investment in PT Aster Stock 165,000,000
Eliminate beginning investment baPT
Lembayung.

Cost of Goods Sold 15,000,000
Eliminate beginning inventory profit
of PT Aster:
Rp11,250,000 = Rp15,000,000 x .75
Rp3,750,000 = Rp15,000,000 x .25
E(5) Sales 60,000,000

Inventory 9,000,000
Eliminate intercompany sale of inventory
by PT Lembayung.

Investment on PT Aster Bonds 78,800,000
Rp6,600,000 = (Rp80,000,000 x .08) + (Rp1,600,000 / 8
years)
Rp78,800,000 = Rp78,400,000 + [(Rp1,600,000 / 8 years)
x 2 years]
Rp6,080,000 = (Rp80,000,000 x .08) - (Rp3,200,000 / 10
years)
Rp2,730,000 = (Rp4,160,000 - Rp520,000) x .75
Rp910,000 = (Rp4,160,000 - Rp520,000) x .25
8 - 43
Chapter 8
P8-25 (continued)
g. PT Lembayung and PT Aster

December 31, 20X7
PT
Lembayung PT Aster Eliminations Consol-
Item Corp. Co. Debit Credit idated
Sales 750,000,000 320,000,000 (5)60,000,000 1,010,000,000

Interest and Other
Income 16,000,000 5,000,000 (6) 6,600,000 14,400,000
Credits 802,000,000 325,000,000 1,024,400,000
Cost of Goods Sold 620,000,000 240,000,000 (4)15,000,000
(5)51,000,000 794,000,000
Interest and Other
Expenses 35,000,000 22,000,000 (6) 6,080,000 50,920,000
Debits (700,000,000) (277,000,000) (904,920,000)
119,480,000
Income to Noncon-
Net Income,
carry forward 102,000,000 48,000,000 118,220,000 72,080,000 103,860,000
Ret. Earnings, Jan. 1 291,700,000 170,000,000 (3)170,000,000 (6) 2,730,000

(4) 11,250,000 283,180,000
393,700,000 218,000,000 387,040,000
(2) 6,000,000 (50,000,000)
carry forward 343,700,000 194,000,000 299,470,000 98,810,000 337,040,000
Cash 37,900,000 48,800,000 86,700,000

Other Receivables 30,000,000 15,000,000 45,000,000
Inventory 167,000,000 120,000,000 (5) 9,000,000 278,000,000
Land 90,000,000 40,000,000 130,000,000
Investment in PT Aster
Company Bonds 78,800,000 (6)78,800,000
Investment in PT Aster
Company Stock 183,000,000 (1)18,000,000
(3)165,000
Debits 1,196,700,000 578,800,000 1,504,700,000
8 - 44
Chapter 8
P8-25 (continued)
PT Lembayung PT Aster Eliminations Consol-

Item __________ _____ Debit Credit idated

Other Payables 40,000,000 20,000,000 60,000,000
Bonds Payable 250,000,000 200,000,000 (6)80,000,000 370,000,000
Bond Premium 4,800,000 (6) 1,920,000 2,880,000
Common Stock
PT Lembayung 250,000,000 250,000,000
PT Aster 50,000,000 (3)50,000,000
Additional Paid-In
Capital 40,000,000 40,000,000
Retained Earnings,
from above 343,700,000 194,000,000 299,470,000 98,810,000 337,040,000
Noncontrolling
Interest (4) 3,750,000 (2)9,620,000
(3)55,000,000
(6) 910,000 61,780,000
Credits 1,196,700,000 578,800,000 435,140,000 435,140,000 1,504,700,000
8 - 45
Chapter 8
P8-26 Intercorporate Bond Holdings and Other Transfers

Investment in PT Sekar Stock 15,000,000

Rp7,650,000 = (Rp30,000,000 + Rp600,000)
x .25
E(3) Common Stock – PT Sekar 30,000,000

Additional Paid-In Capital – PT Sekar 20,000,000
Investment in PT Sekar Stock 150,000,000
E(4) Buildings and Equipment 60,000,000

Depreciation Expense 1,500,000
Accumulated Depreciation 73,500,000
Eliminate unrealized profit on buildings:
Rp60,000,000 = Rp125,000,000 -
Rp65,000,000
Rp15,000,000 = Rp65,000,000 -
(Rp125,000,000 - Rp75,000,000)
Rp1,500,000 = (Rp65,000,000 / 10 years) - (Rp125,000,000 / 25 years)
Rp73,500,000 = (Rp5,000,000 x 16 years) - (Rp6,500,000 x 1 year)

Land 13,000,000
Eliminate unrealized profit on land.
8 - 46
P8-26 (continued)

Investment in PT Sekar Bonds 42,400,000
Bond Discount 1,200,000
Rp3,600,000 = (Rp40,000,000 x .10) -
(Rp2,800,000 / 7 years)
Rp3,150,000 = (Rp42,800,000 -
Rp38,600,000) x .75
Rp1,050,000 = (Rp42,800,000 -
Rp38,600,000) x .25
Rp42,400,000 = Rp42,800,000 -
(Rp2,800,000 / 7 years)
Rp4,200,000 = (Rp40,000,000 x .10) +
(Rp2,000,000 / 10 years)
Rp1,200,000 = (Rp2,000,000 / 10 years) x 6
years
E(7) Interest and Other Payables 2,000,000

Interest and Other Receivables 2,000,000
Eliminate intercompany interest
receivable/payable.
8 - 47
P8-26 (continued)
b. PT Pontana and PT Sekar

December 31, 20X8
PT Pontana PT Sekar Eliminations Consol

Item __________ ________ Debit Credit idated
Sales 450,000,000 250,000,000 700,000,00

Interest Income 18,500,000 (6) 3,600,000 14,900,000
Credits 491,000,000 250,000,000 714,900,000
Other Operating 50,000,000 40,000,000 90,000,00
Expenses
Depreciation Expense 35,000,000 24,000,000 (4)1,500,000 57,500,00
Miscellaneous Expenses 11,900,000 9,500,000 21,400,00
Debits (405,900,000) (220,000,000) (620,200,00
94,700,00
Income to Noncon-
trolling Interest (2) 7,650,000 (7,650,00
Net Income,
carry forward 85,100,000 30,000,000 33,750,000 5,700,000 87,050,00
Ret. Earnings, Jan. 1 250,400,000 150,000,000 (3)150,000,000

(4) 15,000,000
(5) 9,750,000
(6) 3,150,000 222,500,00
335,500,000 180,000,000 309,550,00
(2)2,500,000 (30,000,00
carry forward 305,500,000 170,000,000 211,650,000 15,700,000 279,550,00
Cash 53,100,000 47,000,000 100,100,00

Interest and Other
Receivables 45,000,000 10,000,000 (7)2,000,000 53,000,00
Inventory 140,000,000 50,000,000 190,000,00
Land 50,000,000 22,000,000 (5)13,000,000 59,000,00
Buildings and Equipment 400,000,000 240,000,000 (4) 60,000,000 700,000,00
Investment in PT Sekar
Company Stock 165,000,000 (1)15,000,000
(3)150,000,000
Company Bonds 42,400,000 (6) 42,400,000
Investment in Tin Co.
Bonds 134,000,000 134,000,00
Bond Discount 3,000,000 (6) 1,200,000 1,800,00
Debits 1,205,500,000 437,000,000 1,478,900,00
8 - 48
P8-26 (continued)
PT Pontana PT Sekar Eliminations Consol-

Item _________ _____ Debit Credit idated
Accum. Depreciation 185,000,000 94,000,000 (4)73,500,000 352,500,000

Interest & Other 45,000,000 12,000,000 (7)2,000,000 55,000,000
Payables
Bonds Payable 300,000,000 100,000,000 (6)40,000,000 360,000,000
Common Stock
PT Pontana 150,000,000 150,000,000
PT Sekar 30,000,000 (3)30,000,000
Additional Paid-In
Capital 155,000,000 20,000,000 (3)20,000,000 155,000,000
Retained Earnings,
from above 305,500,000 170,000,000 211,650,000 15,700,000 279,550,000
Noncontrolling
Interest (5) 3,250,000 (2) 5,150,000
(6) 1,050,000 (3)50,000,000 50,850,000
Credits 1,205,500,000 437,000,000 367,950,000 367,950,000 1,478,900,000
8 - 49
P8-27 Comprehensive Multiple-Choice Questions
1. b Rp374,000,000 [Rp200,000,000 + Rp180,000,000 - .30(Rp70,000,000 -

Rp50,000,000)]
2. b Rp294,000,000 [Rp220,000,000 + Rp140,000,000 - Rp2,000,000 -

(Rp70,000,000 - Rp6,000,000)]
3. a Rp7,400,000 [(Rp100,000,000 x .09) - (Rp6,400,000 premium / 4 years)]
4. b Rp32,000,000 [Rp24,000,000 + (Rp16,000,000 / 2)]
5. b Rp29,700,000 Differential assigned to buildings and equipment:

[Rp24,000,000 - (Rp24,000,000 / 10 Rp19,200,000
years) x 2 years]
Differential assigned to goodwill 10,500,000
Unamortized balance, January 1, 20X6 Rp29,700,000
6. c Rp82,400,000 [Rp50,000,000 + Rp30,000,000 +

Rp2,400,000]
7. b Rp3,000,000 Purchase price

[Rp106,400,000 + (Rp6,400,000 / 4 Rp108,000,000
years)]
Book value [Rp100,000,000 +
Rp4,000,000 +
(Rp4,000,000 / 4 years)] (105,000,000)
Loss on bond retirement Rp 3,000,000
8. a Rp6,720,000 Reported net income of PT Gunasakti Rp40,000,000

Add: Inventory profits of prior period
realized in 20X6 2,000,000
Less: Unrealized inventory profits of
20X6 (6,000,000)
Less: Loss on bond retirement,
January 1, 20X6 (3,000,000)
Add: Interest differential in 20X6 600,000
Realized income of PT Gunasakti Rp33,600,000
9. b Rp63,320,000 Par value of shares outstanding Rp200,000,000

Retained earnings, December 31, 20X6 125,000,000
Less: Unrealized inventory profit (6,000,000)
Unrecorded portion of bond
retirement loss (Rp3,000,000 - (2,400,000)
Rp600,000)
Rp316,600,000
Assigned to noncontrolling interest Rp 63,320,000
10. b Rp3,000,000 [Rp10,500,000 - Rp7,500,000]

8 - 50
P8-28 Comprehensive Problem: Intercorporate Transfers
a. Differential as of January 1, 20X7:
Original purchase price for PT Sejahtera shares Rp1,150,000,000

Book value of shares purchased: Rp1,200,000,000 x .90 (1,080,000,000)
Differential at December 31, 20X6 Rp 70,000,000
b. Computation of balance in investment account, January 1, 20X7:
PT Sejahtera stockholders' equity, January 1, 20X7:

Common stock Rp 500,000,000
Premium on common stock 280,000,000
Retained earnings 470,000,000
Stockholders' equity, January 1, 20X7 Rp1,250,000,000
PT Berkah's ownership share x .90
Book value of shares held by PT Berkah Rp1,125,000,000
Remaining differential at January 1, 20X7 70,000,000
Balance in Investment in PT Sejahtera Stock account,
January 1, 20X7 Rp1,195,000,000
Computation of balance in investment account, December 31, 20X7:

(not required)

January 1, 20X7 Rp1,195,000,000
Add: Income from subsidiary, 20X7 90,000,000
Less: Dividends received (Rp40,000,000 x .90) (36,000,000)
December 31, 20X7 Rp1,249,000,000
c. Gain on constructive retirement of PT Sejahtera's bonds:
Original proceeds from issuance of PT Sejahtera bonds Rp1,010,000,000

Premium amortized to January 2, 20X7:
(Rp10,000,000 / 10) x 6 (6,000,000)
Book value of bonds at constructive retirement Rp1,004,000,000
Price paid for PT Sejahtera bonds by PT Berkah (980,000,000)
Gain on constructive retirement of PT Sejahtera's bonds Rp 24,000,000
d. Income to noncontrolling interest, 20X7:
PT Sejahtera's 20X7 net income Rp100,000,000

Add: 20X6 intercompany profit realized in 20X7 4,500,000
Constructive gain on retirement of bonds 24,000,000
Less: Unrealized intercompany profit on 20X7 transfer (5,400,000)
Portion of constructive gain on bond retirement
recognized currently by separate affiliates
(Rp24,000,000 / 4 years) (6,000,000)
Subsidiary income to be apportioned Rp117,100,000
Noncontrolling interest's proportionate share x .10
Income to noncontrolling interest Rp 11,710,000
8 - 51
P8-28 (continued)
e. Total noncontrolling interest, December 31, 20X6:
PT Sejahtera's stockholders' equity, December 31, 20X6 Rp1,250,000,000

Unrealized profit on intercompany sale of inventory (4,500,000)
PT Sejahtera's realized equity, December 31, 20X6 Rp1,245,500,000
Noncontrolling interest's proportionate share x .10
Total noncontrolling interest, December 31, 20X6 Rp 124,550,000
f. Elimination entries:

Investment in PT Sejahtera Stock 54,000,000

Rp11,710,000 = [Rp100,000,000 +
(Rp24,000,000 - Rp6,000,000)
+ Rp4,500,000 - Rp5,400,000] x
.10
E(3) Common Stock — PT Sejahtera 500,000,000

Premium on Common Stock 280,000,000
Investment in PT Sejahtera Stock 1,195,000,000
Rp70,000,000 = Rp1,150,000,000 -
(Rp500,000,000 + Rp280,000,000 +
Rp420,000,000) x .90
Rp1,195,000,000 = Rp1,249,000,000 - Rp54,000,000
Rp125,000,000 = (Rp500,000,000 + Rp280,000,000 +
Rp470,000,000) x .10
E(4) Land 30,000,000

Goodwill 40,000,000
Assign differential.
E(5) Goodwill Impairment Loss 25,000,000

Goodwill 25,000,000
Recognize impairment of goodwill.

Investment in PT Berkah Bonds 200,000,000
Eliminate intercompany holdings of PT
Berkah
bonds.
8 - 52
8 - 53
P8-28 (continued)
E(7) Other Income 20,000,000

Other Expenses 20,000,000
Eliminate interest on intercompany
holdings of PT Berkah bonds:
Rp200,000,000 x .10
E(8) Current Payables 5,000,000

Current Receivables 5,000,000
Eliminate accrued interest on intercompany
holdings of PT Berkah bonds:
(Rp200,000,000 x .10) / 4
E(9) Bonds Payable 1,000,000,000

Other Income (Interest) 125,000,000
Investment in PT Sejahtera Bonds 985,000,000
Gain on Retirement of Bonds 24,000,000
Other Expenses (Interest) 119,000,000
Eliminate intercompany holdings of
PT Sejahtera bonds:
Rp125,000,000 = (Rp1,000,000,000 x .12)
+ Rp5,000,000
Rp24,000,000 = Rp1,004,000,000 -
Rp980,000,000
Rp119,000,000 = (Rp1,000,000,000 x .12) -
Rp1,000,000

Eliminate beginning inventory profit:
Rp4,050,000 = Rp4,500,000 x .90
Rp450,000 = Rp4,500,000 x .10
Rp4,500,000 = Rp15,000,000 x .30
E(11) Sales 78,000,000

Inventory 5,400,000
Eliminate upstream intercompany sale of
inventory:
Rp72,600,000 = (Rp78,000,000 -
Rp18,000,000)
+ (Rp18,000,000 x .70)
Rp5,400,000 = Rp18,000,000 x .30
E(12) Current Payables 9,000,000

Current Receivables 9,000,000
Eliminate intercompany dividend owed:
Rp10,000,000 x .90
8 - 54
P8-28 (continued)
g. PT Berkah and PT Sejahtera
December 31, 20X7
Eliminations Consol-
Item PT Berkah PT Sejahtera Debit Credit idated
Sales 790,000,000 (11)78,000,000 3,813,000,000
3,101,000,000
Income from Subsidiary 90,000,000 (1) 90,000,000
Other Income 135,000,000 31,000,000 (7) 20,000,000
(9)125,000,000 21,000,000
Gain on Retirement of
Bonds (9)24,000,000 24,000,000
Credits 3,326,000,000 821,000,000 3,858,000,000
Cost of Goods Sold 2,009,000,000 430,000,000 (10)4,500,000
(11)72,600,000 2,361,900,000
Deprec. and Amortization 195,000,000 85,000,000 280,000,000
Goodwill Impairment Loss (5) 25,000,000 25,000,000
Other Expenses 643,000,000 206,000,000 (7) 20,000,000
(9)119,000,000 710,000,000
Debits (2,847,000,000) (721,000,000) (3,376,900,000)
481,100,000
Income to NCI (2) 11,710,000 (11,710,000)
Net Income 479,000,000 100,000,000 349,710,000 240,100,000 469,390,000
Ret. Earnings, Jan. 1 3,033,000,000 470,000,000 (3)470,000,000
(10) 4,050,000 3,028,950,000
3,512,000,000 570,000,000 3,498,340,000
Dividends Declared (50,000,000) (40,000,000) (1) 36,000,000
(2) 4,000 (50,000)
Ret. Earnings, Dec. 31, 3,462,000,000 530,000,000 823,760,000 280,100,000 3,448,340,000
Cash 41,500,000 29,000,000 70,500,000
Current Receivables 112,500,000 85,100,000 (8) 5,000,000
(12) 9,000,000 183,600,000
Inventory 301,000,000 348,900,000 (11) 5,400,000 644,500,000
Invest. in PT Sejahtera Stock 1,249,000,000 (1) 54,000,000
(3)1,195,000,000
Invest. in PT Sejahtera Bonds 985,000,000 (9) 985,000,000
Invest. in PT Berkah Bonds 200,000,000 (6) 200,000,000
Land 1,231,000,000 513,000,000 (4) 30,000,000 1,774,000,000
Buildings and Equipment 2,750,000,000 1,835,000,000 4,585,000,000
Goodwill (4) 40,000,000 (5) 25,000,000 15,000,000
Differential (3) 70,000,000 (4) 70,000,000
Debits 6,670,000,000 3,011,000,000 7,272,600,000
Accum. Depreciation 1,210,000,000 619,000,000 1,829,000,000
Current Payables 98,000,000 79,000,000 (8) 5,000,000
(12) 9,000,000 163,000
Bonds Payable 200,000,000 1,000,000,000 (6)200,000,000
(9)1,000,000,000
Premium on Bonds Payable 3,000,000 (9) 3,000,000
Common Stock 1,000,000,000 500,000,000 (3) 500,000,000 1,000,000,000
Premium on Common Stock 700,000,000 280,000,000 (3) 280,000,000 700,000,000
Retained Earnings 3,462,000,000 530,000,000 823,760,000 280,100,000 3,448,340,000
Noncontrolling Interest (10) 450,000 (2) 7,710,000
(3) 125,000,000 132,260,000
Credits 6,670,000,000 3,011,000,000 2,961,210,000 2,961,210,000 7,272,600,000
8 - 55
P8-29A Fully Adjusted Equity Method
a. Adjusted trial balance:
PT Bianglala PT Sinar
Item Debit Credit Debit Credit
Cash Rp61,600,000 Rp20,000,000

Accounts Receivable 100,000,000 80,000,000
Inventory 120,000,000 110,000,000
Other Assets 340,000,000 250,000,000
Investment in Stone
Container
Bonds 106,000,000
Investment in Stone
Container
Stock 122,400,000
Interest Expense 20,000,000 18,000,000
Other Expenses 368,600,000 182,000,000
Dividends Declared 40,000,000 10,000,000
Accounts Payable Rp80,000,000 Rp 50,000,000
Bonds Payable 200,000,000 200,000,000
Common Stock 300,000,000 100,000,000
Sales 450,000,000 250,000,000
Total Rp1,278,600,000 Rp1,278,600,000 Rp670,000,000 Rp670,000,000
b. Journal entries recorded by PT Bianglala:
(1) Cash 6,000,000

Investment in PT Sinar Stock 6,000,000
Record dividend from PT Sinar:
Rp10,000,000 x .60
(2) Investment in PT Sinar Stock 30,000,000

Rp50,000,000 x .60
8 - 56
P8-29A (continued)
(3) Investment in PT Sinar Stock 600,000

Income from Subsidiary 600,000
Adjust for portion of loss on
constructive retirement recognized:
(Rp7,000,000 / 7 years) x .60
Computation of 20X3 constructive loss on bond retirement
Bond investment, December 31, 20X4 Rp106,000,000

Amortization of premium in 20X4:
Interest income based on par value Rp 9,000,000
Interest income recorded by PT (8,000,000)
Bianglala
Amortization of premium 1,000,000
Purchase price paid by PT Bianglala,
December 31, 20X3 Rp107,000,000
Bond liability reported by Stone
Container, December 31, 20X3 (100,000,000)
Constructive loss on bond retirement Rp 7,000,000


Rp20,400,000 = (Rp50,000,000 + Rp1,000,000) x .40
E(3) Common Stock – PT Sinar 100,000,000


Investment in PT Sinar Bonds 106,000,000
Rp4,200,000 = Rp7,000,000 constructive loss x .60
Rp2,800,000 = Rp7,000,000 constructive loss x .40
8 - 57
P8-29A (continued)
d. PT Bianglala and PT Sinar

December 31, 20X4
PT Bianglala PT Sinar Eliminations Consol-

Item ________ __________ Debit Credit idated
Sales 450,000,000 250,000,000 700,000,000

Interest Income 8,000,000 (4)8,000,000
Credits 488,600,000 250,000,000 700,000,000
Other Expenses 368,600,000 182,000,000 550,600,000
Debits (388,600,000) (200,000,000) (579,600,000)
120,400,000
Income to Noncon-
Net Income,
carry forward 100,000,000 50,000,000 59,000,000 9,000,000 100,000,000
Ret. Earnings, Jan. 1 210,000,000 70,000,000 (3)70,000,000 210,000,000

310,000,000 120,000,000 310,000,000
(2)4,000,000 (40,000,000)
carry forward 270,000,000 110,000,000 129,000,000 19,000,000 270,000,000
Cash 61,600,000 20,000,000 81,600,000

Inventory 120,000,000 110,000,000 230,000,000
Other Assets 340,000,000 250,000,000 590,000,000
Investment in PT Sinar
Bonds 106,000,000 (4)106,000,000
Investment in PT SInar
Stock 122,400,000 (4) 4,200,000 (1) 24,600,000
(3)102,000,000
Debits 850,000,000 460,000,000 1,081,600,000

Bonds Payable 200,000,000 200,000,000 (4)100,000,000 300,000,000
Common Stock 300,000,000 100,000,000 (3)100,000,000 300,000,000
Retained Earnings,
from above 270,000,000 110,000,000 129,000,000 19,000,000 270,000,000
(3) 68,000,000 81,600,000
Credits 850,000,000 460,000,000 336,000,000 336,000,000 1,081,600,000
8 - 58
P8-30A Cost Method
a. Journal entry recorded by PT Bianglala:
Cash 6,000,000
Dividend Income 6,000,000
Record dividend from Stone Container:
Rp10,000,000 x .60
E(1) Dividend Income 6,000,000

Eliminate dividend income from
subsidiary.

Rp20,400,000 = (Rp50,000,000 +
Rp1,000,000) x .40
E(3) Common Stock – Stone Container 100,000,000

Investment in Stone Container Stock 75,000,000
Eliminate investment balance
at date of acquisition:
Rp75,000,000 = (Rp100,000,000 +
Rp25,000,000) x .60

Assign undistributed prior earnings of
subsidiary to noncontrolling interest:
(Rp70,000,000 - Rp25,000,000) x .40

Investment in Stone Container Bonds 106,000,000
Rp4,200,000 = Rp7,000,000 constructive loss
x .60
Rp2,800,000 = Rp7,000,000 constructive loss
x .40
8 - 59
P8-30A (continued)
Computation of 20X3 constructive loss on bond retirement
PT Bianglala's Bond investment, December 31, 20X4 Rp106,000,000

Amortization of premium in 20X4:
Interest income based on par value Rp9,000,000
Interest income recorded by PT Bianglala (8,000,000)
Amortization of premium 1,000,000
Purchase price paid by PT Bianglala,
December 31, 20X3 Rp107,000,000
Bond liability reported by PT Sinar
December 31, 20X3 (100,000,000)
Constructive loss on bond retirement Rp 7,000,000
8 - 60
P8-30A (continued)
c. PT Bianglala and PT Sinar

December 31, 20X4
PT Bianglala PT SInar Eliminations Consol-

Item ________ _________ Debit Credit idated
Sales 450,000,000 250,000,000 700,000,000

Interest Income 8,000,000 (5)8,000,000
Dividend Income 6,000,000 (1)6,000,000
Credits 464,000,000 250,000,000 700,000,000
Other Expenses 368,600,000 182,000,000 550,600,000
Debits (388,600,000) (200,000,000) (579,600,000)
120,400,000
Income to Noncon-
Net Income,
carry forward 75,400,000 50,000,000 34,400,000 9,000,000 100,000,000
Ret. Earnings, Jan. 1 187,200,000 70,000,000 (3)25,000,000

(4)18,000,000
(5) 4,200,000 210,000,000
262,600,000 120,000,000 310,000,000
(2)4,000,000 (40,000,000)
carry forward 222,600,000 110,000,000 81,600,000 19,000,000 270,000,000
Cash 61,600,000 20,000,000 81,600,000

Inventory 120,000,000 110,000,000 230,000,000
Other Assets 340,000,000 250,000,000 590,000,000
Bonds 106,000,000 (5)106,000,000
Stock 75,000,000 (3) 75,000,000
Debits 802,600,000 460,000,000 1,081,600,000

Bonds Payable 200,000,000 200,000,000 (5)100,000,000 300,000,000
Common Stock 300,000,000 100,000,000 (3)100,000,000 300,000,000
Retained Earnings,
from above 222,600,000 110,000,000 81,600,000 19,000,000 270,000,000
(3) 50,000,000
(4) 18,000,000 81,600,000
Credits 802,600,000 460,000,000 284,400,000 284,400,000 1,081,600,000
8 - 61

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CHAPTER 8

Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e

Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e

Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e

C8-1 Recognition of Retirement Gains and Losses

b. A constructive loss on bond retirement will be reported by the consolidated entity at

Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e

C8-2 Borrowing by Variable Interest Entities

From: , Accounting Staff

Re: Consolidation of Joint Venture

PT Hindia and Bank Makmur established a joint venture which borrowed

Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e

Case 8-3 Subsidiary Bond Holdings

To: Financial Vice-President

Re: Investment in Bonds Issued by Subsidiary

In preparing PT Faria’s consolidated statements at December 31, 20X4, the following

E(1) Bonds Payable 400,000,000

Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e

E(2) Bonds Payable 400,000,000

(a) (Rp400,000,000 x .08) - (Rp24,000,000/15 years)

C8-4 Interest Income and Expense

b. With the information given, the following appears to be true:

Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e

C8-5 Intercompany Debt

b. Hershey's intercompany receivables/payables appear to come primarily from

Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e

E8-1 Bond Sale from Parent to Subsidiary

a. Journal entries recorded by PT Hanoman:

December 31, 20X2

Interest Receivable 4,500,000

b. Journal entries recorded by PT Laksmana:

December 31, 20X2

c. Eliminating entries, December 31, 20X2:

E(1) Bonds payable 150,000,000

E(2) Interest payable 4,500,000

Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e

E8-2 Computation of Transfer Price

a. Rp105,000,000 = Rp100,000,000 par value + (Rp250,000 x 20 periods) premium

b. Rp103,500,000 = Rp105,000,000 - (Rp250,000 x 6 periods)

E(1) Bonds Payable 100,000,000

E(2) Interest Payable 6,000,000

E8-3 Bond Sale at Discount

a. Rp16,800,000 = [(Rp600,000,000 x .08) + (Rp12,000,000 / 5 years)] x 1/3

b. Journal entries recorded by PT Widura:

December 31, 20X4

c. Eliminating entries, December 31, 20X4:

E(1) Bonds Payable 400,000,000

E(2) Interest Payable 16,000,000

Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e

E8-4 Evaluation of Intercorporate Bond Holdings

c. In 20X6, consolidated net income was decreased as a result of the loss on

E8-5 Multiple-Choice Questions

1. a A constructive gain of Rp100,000,000 is included in consolidated net income for

2. a The loss on bond retirement will result in a reduction in consolidated retained

3. b Rp4,700,000 = (Rp50,000,000 x .10) - (Rp3,000,000 / 10 years)

4. a Rp4,000,000 = (Rp50,000,000 x .10) - (Rp8,000,000 / 8 years)

5. c Rp5,600,000 loss = Rp58,000,000 purchase price