Solutions To Exercises and Problems Exercises E5.1 Combination and Consolidation, Date of Acquisition (See Related E3.1)

CHAPTER 5
SOLUTIONS TO EXERCISES AND PROBLEMS
EXERCISES
E5.1 Combination and Consolidation, Date of Acquisition (see related E3.1)
a. Calculation of goodwill:
Acquisition cost $ 27,000,000
Fair value of noncontrolling interest 2,750,000
Total fair value 29,750,000
Book value of Simon 14,000,000
Goodwill $ 15,750,000
Allocation of goodwill between controlling and noncontrolling interest:

Total goodwill $ 15,750,000
Progressive’s goodwill: $27,000,000 – 90%(14,000,000) 14,400,000
Goodwill to noncontrolling interest $ 1,350,000
b.
Consolidation Working Paper (in thousands)
Accounts Taken From Eliminations
Books
Consolidated
Progressive Simon Dr Cr Balances
Total assets $ 100,000 $ 20,000 $ 120,000
Investment in Simon 27,000 12,600 (E)
14,400 (R) --
Goodwill (R)15,750 _15,750
Total assets $ 127,000 $ 20,000 $ 135,750
Total liabilities $ 20,000 $ 6,000 $ 26,000

Common stock 10,270 3,000 (E) 3,000 10,270
Additional paid-in capital 66,730 7,000 (E) 7,000 66,730
Retained earnings 30,000 4,000 (E) 4,000 30,000
Noncontrolling interest 1,400 (E)
1,350 (R) 2,750
Total liabilities and equity $ 127,000 $ 20,000 $ 29,750 $ 29,750 $ 135,750
Note: Progressive’s balance sheet above reflects the following acquisition entry (in thousands):
Investment in Simon 27,000
Common stock 270
Additional paid-in capital 26,730
©Cambridge Business Publishers, 2010

Solutions Manual, Chapter 5 1
c.
Consolidated Balance Sheet, January 1, 2011 (in thousands)
Assets
Total assets $ 120,000
Goodwill 15,750
Liabilities and stockholders’ equity
Total liabilities $ 26,000
Stockholders’ equity
Progressive’s stockholders’ equity:
Common stock 10,270
Retained earnings 30,000
Total Progressive’s stockholders’ equity 107,000
Noncontrolling interest 2,750
Total stockholders’ equity 109,750
Total liabilities and stockholders’ equity $ 135,750
E5.2 Date of Acquisition Consolidation with In-Process R&D
Book value of Saylor $ 6,000,000
Fair value – book value:
Land 500,000
IPR&D 1,000,000 7,500,000
Goodwill $ 4,500,000

Pennant’s goodwill: $10,000,000 – 80%(7,500,000) 4,000,000
Goodwill to noncontrolling interest $ 500,000
b. Consolidated Financial Statement Working Paper
(E)
Stockholders’
equity – Saylor 6,000,000
Investment in Saylor (80%) 4,800,000
Noncontrolling interest in Saylor (20%) 1,200,000
©Cambridge Business Publishers,

20102 100 Advanced Accounting, 1st
(R)
Land 500,000
IPR&D 1,000,000
Goodwill 4,500,000
Investment in Saylor (1) 5,200,000
Noncontrolling interest in Saylor (2) 800,000
(1) 80% x (500,000 + 1,000,000) + 4,000,000
(2) 20% x (500,000 + 1,000,000) + 500,000
E5.3 Date of Acquisition Consolidation, Bargain Purchase
a.
Total 26,000,000
Book value of Sparrow $ 25,000,000
Land (800,000)
Other plant assets 2,000,000
Investments 1,500,000
Long-term debt (700,000)
Fair value of identifiable net assets 27,000,000
Gain on acquisition $ (1,000,000)
Peregrine’s acquisition entry:
Investment in Sparrow 23,000,000

Merger expenses 3,000,000
Cash 25,000,000
Gain on acquisition 1,000,000
b. Consolidated Financial Statement Working Paper
(E)
Stockholders’ equity –
Sparrow 25,000,000
Investment in Sparrow (80%) 20,000,000
Noncontrolling interest in
Sparrow (20%) 5,000,000

(R)
Other plant assets, net 2,000,000
Investments 1,500,000
Sparrow (1) 1,000,000
Land 800,000
Long-term debt 700,000
Investment in Sparrow (2) 3,000,000
(1) $5,000,000 – 4,000,000
(2) $23,000,000 – 20,000,000
E5.4 Consolidated Balance Sheet, Date of Acquisition, with Goodwill: U.S. GAAP and
IFRS
Acquisition cost [($3,000,000 + (200,000 x $80)) $ 19,000,000
Book value of Powerline $ 4,500,000
Current assets 500,000
Plant and equipment 6,000,000
Brand names 2,000,000 13,000,000

Microsoft’s goodwill: $19,000,000 – 90%(13,000,000) 7,300,000
Goodwill to noncontrolling interest $ 500,000

b.
Books
Consolidated
Microsoft Powerline Dr Cr Balances
Current assets $ 7,000 $ 2,000 (R) 500 $ 9,500
Plant and equipment, net 35,000 7,000 (R) 6,000 48,000
Investment in Powerline 19,000 4,050 (E)
14,950 (R) --
Brand names (R) 2,000 2,000
Goodwill (R) 7,800 7,800
Total assets $ 61,000 $ 9,000 $ 67,300
Current liabilities $ 5,000 $ 1,500 $ 6,500

Long-term liabilities 20,000 3,000 23,000
Common stock, par value 5,000 100 (E) 100 5,000
Noncontrolling interest 450 (E)
1,350 (R) 1,800
Note 1: Microsoft’s balance sheet above reflects the following acquisition entry (in thousands):
Investment in Powerline 19,000
Cash 3,000
Common stock 2,000
Note 2: The $14,950,000 credit to investment in entry (R) = 90% (500,000 + 6,000,000
+ 2,000,000) + 7,300,000 (goodwill).
The $1,350,000 credit to noncontrolling interest in entry (R) = 10% (500,000 +

6,000,000 + 2,000,000) + 500,000 (goodwill).
c.
Calculation of goodwill:
90% x fair value of identifiable net assets 90% x $13,000,000 11,700,000

Books
Consolidated
Microsoft Powerline Dr Cr Balances
Current assets $ 7,000 $ 2,000 (R) 500 $ 9,500
Plant and equipment, net 35,000 7,000 (R) 6,000 48,000
Investment in Powerline 19,000 4,050 (E)
14,950 (R) --
Brand names (R) 2,000 2,000
Goodwill (R) 7,300 7,300
Total assets $ 61,000 $ 9,000 $ 66,800

Long-term liabilities 20,000 3,000 23,000
Common stock, par value 5,000 100 (E) 100 5,000
850 (R) 1,300
Note: The IFRS alternative valuation method attributes no goodwill to the noncontrolling
interest.
E5.5 Consolidation Eliminating Entries, Date of Acquisition: U.S. GAAP and IFRS
(amounts in thousands)
a.
Perma’s acquisition entry:
Investment in Seismic 14,000
Merger expenses 400
Cash 400
Common stock, par value 2,000

Consolidation eliminating entries:
(E)
Common stock 200
Accumulated OCI 500
Treasury stock 700
Noncontrolling interest in 900
Seismic
(R)
Plant assets, net 3,000
Trademarks 1,000
Customer lists 800
Long-term debt 100
Goodwill (1) 1,700
Investment in Seismic (2) 5,900
Seismic (3) 700
(1) ($14,000 + $1,600) – ($9,000 + $3,000 + $1,000 + $800 + $100) = $15,600 – $13,900
(2) 90% x ($3,000 + $1,000 + $800 + $100) + ($14,000 – 90% x $13,900)
(3) 10% x $4,900 + [$1,700 – ($14,000 – 90% x $13,900)]
b. Consolidation eliminating entries:

(E)
Common stock 200
Accumulated OCI 500
Treasury stock 700
Seismic 900
(R)
Trademarks 1,000
Customer lists 800
Long-term debt 100
Goodwill (4) 1,490
Seismic (5) 490
(4) $14,000 – 90% x $13,900

(5) 10% x ($3,000 + $1,000 + $800 + $100)
Note: The IFRS alternative valuation method attributes no goodwill to the noncontrolling
interest.
E5.6 Consolidation at End of First Year (see related E4.3)
a. Calculation of goodwill is as follows:

Acquisition cost ($10,000,000 + $300,000) $ 10,300,000
Total 16,800,000
Book value of Saddlestone $ 7,200,000
Identifiable intangibles 2,000,000 9,200,000

Peak’s goodwill: $10,300,000 – 60%($9,200,000) 4,780,000
Goodwill to noncontrolling interest $ 2,820,000
b. 2011 equity in net income and noncontrolling interest in net income:

Noncontrolling
Total Equity in NI interest in NI
Saddlestone’s reported net income $ 3,000,000 $ 1,800,000 $ 1,200,000
Revaluation writeoff:
Identifiable intangibles $2,000,000/5 (400,000) (240,000) (160,000)
$ 2,600,000 $ 1,560,000 $ 1,040,000
c. Consolidation working paper eliminating entries for 2011:

(C)
Equity in net income of S 1,560,000
Dividends – Saddlestone 600,000
Investment in Saddlestone 960,000
(E)
Stockholders’ equity—
Saddlestone, 1/1 7,200,000
Investment in Saddlestone 4,320,000
Saddlestone 2,880,000

(R)
Identifiable intangibles 2,000,000
Goodwill 7,600,000
Investment in Saddlestone
(1) 5,980,000
Saddlestone (2) 3,620,000
(1) 60% x $2,000,000 + $4,780,000
(2) 40% x $2,000,000 + $2,820,000
(O)
Amortization expense 400,000
Identifiable intangibles 400,000
(N)
income of Saddlestone 1,040,000
Dividends – Saddlestone 400,000
Saddlestone 640,000
E5.7 Consolidation Two Years after Acquisition
(all numbers in thousands)
a.
Calculation of 2012 equity in net income and noncontrolling interest in net income:
Noncontrolling
Silver Nugget’s reported NI for 2012
($100,000 – $80,000 – $14,000 = $6,000) $ 6,000 $ 4,800 $ 1,200
Revaluation write-off:
Identifiable intangibles ($20,000/5) (4,000) (3,200) (800)
$ 2,000 $ 1,600 $ 400

b.
Consolidation Working Paper, December 31, 2012
Trial Balances Taken Eliminations
From Books
Dr (Cr)
Mirror Silver Consolidated
Resorts Nugget Dr Cr Balances
Current assets $ 35,000 $ 5,000 $ 40,000
Plant and equipment, net 215,700 140,000 355,700
Intangibles 350,000 51,000 (R) 16,000 4,000 (O) 413,000
Investment in Silver Nugget 86,400 -- 400 (C)
17,200 (E)
68,800 (R) --
Goodwill (R) 68,000 68,000
Current liabilities (50,000) (20,000) (70,000)
Long-term debt (600,000) (150,000) (750,000)
Common stock (500) (100) (E) 100 (500)
Additional paid-in capital (6,000) (5,500) (E) 5,500 (6,000)
Retained earnings, Jan. 1 (25,000) (17,500) (E) 17,500 (25,000)
Treasury stock 4,000 1,600 1,600 (E) 4,000
Noncontrolling interest 4,300 (E) (19,600)
15,200 (R)
100 (N)
Dividends 2,000 1,500 1,200 (C) 2,000
300 (N)
Sales revenue (800,000) (100,000) (900,000)
Equity in income of Silver
Nugget (1,600) -- (C) 1,600 --
Cost of goods sold 650,000 80,000 730,000
Operating expenses 140,000 14,000 (O) 4,000 158,000
Noncontrolling interest in NI -- -- (N) 400 400
$ -0- $ -0- $ 113,100 $ 113,100 $ -0-

E5.8 Consolidation after Several Years
a.
Paulin’s acquisition cost $ 1,800,000
Fair value of noncontrolling interest 600,000
Total 2,400,000
Fair value of identifiable net assets:
1,850,000 – 10,000 + 20,000 + 100,000 + 40,000 2,000,000
Goodwill $ 400,000
Paulin’s share of goodwill = $1,800,000 – 75%($2,000,000) = $300,000

Noncontrolling interest’s share of goodwill = $100,000
b.
Noncontrolling
Investment interest
January 2007 balance $ 1,800,000 $ 600,000
Change in Stevan’s retained earnings, 2007-2012:
(1,550,000 – 1,000,000), divided 75:25 412,500 137,500
Writeoff of Stevan’s identifiable net asset
revaluations, 2007-2012: (-10,000 + 20,000 + 60,000
+ 40,000), divided 75:25 (82,500) (27,500)
Goodwill impairment, 2007-2012:
(400,000 – 250,000), divided 75:25 (112,500) (37,500)
Balance, end of 2012 $ 2,017,500 $ 672,500
c.
(E)
Stockholders’
equity-Stevan 2,400,000
Investment in Stevan 1,800,000
Noncontrolling interest in Stevan 600,000
(R)
Equipment, net (1) 40,000
Goodwill 250,000
Investment in Stevan (2) 217,500
Noncontrolling interest in Stevan (3) 72,500
(1) $100,000 – (6/10) x $100,000
(2) 75% x ($40,000 + $250,000)
(3) 25% x ($40,000 + $250,000)

E5.9 Consolidated Cash Flow from Operations
Consolidated net income ($15,000,000 + $5,000,000) $20,000,000

+ Consolidated depreciation expense 3,000,000
+ Amortization of previously unrecognized identifiable intangibles 1,400,000
- Amortization of premium created when revaluing LT debt (80,000)
- 40% of undistributed equity method income (.4 x $1,700,000) (680,000)
+ Decrease in noncash current operating assets 2,800,000
- Decrease in current operating liabilities (2,100,000)
Cash flow from operating activities $24,340,000
Note: The $8,000,000 net income reported by the 75%-owned subsidiary is already included in
consolidated income, and is therefore not separately reported.
E5.10 Consolidated Cash Flow from Operations
Consolidated net income (1) $ 981,600

+ Consolidated depreciation expense (2) 180,000
+ Consolidated amortization expense (3) 25,000
+ Goodwill impairment loss 30,000
- Undistributed equity investment income (4) (18,000)
Cash flow from operating activities $ 1,198,600
(1) Calculation of equity in net income:

P’s share of reported income 80% x $200,000 $ 160,000
P’s share of revaluation write-offs:
Depreciation (1,600)
Amortization (8,000)
Goodwill impairment loss (24,000)
Equity in net income $ 126,400
Calculation of consolidated net income:

Parent’s reported income $ 950,000
Subsidiary’s reported income 200,000
Less equity in net income of subsidiary (126,400)
Less revaluation writeoffs:
Depreciation (2,000)
Amortization (10,000)
Consolidated net income $ 981,600
(2) $150,000 + $28,000 + $2,000

(3) $15,000 + $10,000
(4) $45,000 - $27,000

E5.11 Consolidation at Date of Acquisition, IFRS
(in millions)
Acquisition cost € 67
Less 49% fair value of identifiable net assets 49% x (22.5) (11)
Goodwill € 78
Noncontrolling interests = 51% x €(22.5) = €(11.5)
b.
(E)
Investment in ASTAR 10
Noncontrolling interest 10.5
Stockholders’ equity-ASTAR 20.5
(R)
Noncurrent financial assets 2
Goodwill 78
Noncontrolling interests 1
Intangible assets 4
Investment in ASTAR 77
E5.12 Consolidation Worksheet, Date of Acquisition and One Year Later, IFRS
(in millions)
Acquisition cost € 787
Fair value of identifiable net assets:
Book value € (118)
Revaluations:
Customer lists 150
Trade name 25
Assumed liabilities (484)
Deferred tax assets, net 123
Total fair value of identifiable net assets (304)
Vivendi’s share x 85% (258)
Goodwill € 1,045
Noncontrolling interests = 15% x (304) = €(46)

b.
(E)
Investment in TPS 100
Noncontrolling interest 18
Stockholders’ equity-TPS 118
(R)
Goodwill 1,045
Customer lists 150
Trade name 25
Assumed liabilities 484
c. Calculation of equity in net loss of TPS and noncontrolling interest in TPS income is as
follows:
Noncontrolling
Equity in NL interest in NI
TPS’ reported income for 2007 € 68.00 €12.00
Revaluation write-offs:
Customer lists (€150/5) (25.50) (4.50)
Goodwill impairment (100.00) --
Trade name impairment (4.25) (0.75)
€ (61.75) € 6.75
(C)
Investment in TPS 61.75
Equity in net loss of TPS 61.75
(E)
Stockholders’ equity-TPS 118
(R)
Goodwill 1,045
Customer lists 150
Trade name 25
Assumed liabilities 484

(O)
Amortization expense 30
Impairment losses 105
Customer lists 30
Goodwill 100
Trade name 5
(N)
Noncontrolling interest in NI 6.75
Noncontrolling interest 6.75

PROBLEMS
P5.1 Consolidation Working Paper, Date of Acquisition

(all numbers in millions)
Acquisition cost $ 1,200
Fair value of noncontrolling interest _375
Total fair value 1,575
Book value of Bagota $ 500
Property, plant and equipment (200)
Patents and trademarks 45
Customer-related intangibles 30
Long-term liabilities 25 _400
Goodwill $ 1,175

Total goodwill $ 1,175
Hershey’s goodwill: $1,200 – 75%(400) 900
Goodwill to noncontrolling interest $ 275
b.
Consolidation Working Paper (in millions)
Books
Consolidated
Hershey Bagota Dr Cr Balances
Current assets $ 1,500 $ 325 $ 1,825
PP&E, net 1,600 600 200 (R) 2,000
Investment in Bagota 1,200 -- 375 (E)
825 (R) --
Patents and trademarks 1,300 75 (R) 45 1,420
Customer-related intangs -- (R) 30 30
Goodwill (R) 1,175 1,175
Total assets $ 5,600 $ 1,000 $ 6,450
Current liabilities $ 1,600 $ 100 $ 1,700
Long-term liabilities 1,900 400 (R) 25 2,275
Common stock, par value 300 10 (E) 10 300
Additional paid-in capital 1,950 200 (E) 200 1,950
Retained earnings 3,900 300 (E) 300 3,900
Treasury stock (4,000) -- (4,000)
Accumulated OCI (50) (10) 10 (E) (50)
250 (R) 375

c.
Consolidated Balance Sheet, July 1, 2011
Assets
Current assets $ 1,825
Property, plant and equipment, net 2,000
Goodwill 1,175
Other intangibles 1,450
Current liabilities $ 1,700
Long-term liabilities 2,275
Total liabilities 3,975
Hershey’s stockholders’ equity:
Common stock 300
Treasury stock (4,000)
Accumulated other comprehensive loss (50)
Total Hershey stockholders’ equity 2,100
P5.2 Consolidated Balance Sheet Working Paper, Date of Acquisition, Bargain Purchase
(see related P3.4)
a. (amounts in millions)
Fair value of noncontrolling interest 200
Total $ 1,200
Book value of Saxon $ 1,295
Inventory 100
Long-term marketable securities (50)
Land 245
Buildings and equipment, net 300
Long-term debt 110
Fair value of identifiable net assets 2,000
Gain on acquisition $ (800)

Paxon’s acquisition entry:
Investment in Saxon 1,800
Cash 1,000
Gain on acquisition 800
b.
Consolidation Working Paper (in millions)
Books
Consolidated
Paxon Saxon Dr Cr Balances
Cash and receivables $ 1,860 $ 720 $ 2,580
Inventory 1,700 900 (R) 100 2,700
Marketable securities -- 300 50 (R) 250
Investment in Saxon 1,800 1,036 (E) --
764 (R)
Land 650 175 (R) 245 1,070
Buildings and equipment 3,400 600 (R) 300 4,300
Accumulated depreciation (1,000) -- (1,000)
Total assets $ 8,410 $ 2,695 $ 9,900
Long-term debt 2,000 400 (R) 110 2,290
Common stock, par value 500 100 (E) 100 500
Additional paid-in capital 1,200 350 (E) 350 1,200
Retained earnings 3,210 845 (E) 845 3,210
Noncontrolling interest -- -- (R) 59 259 (E) 200
Note: In journal entry form, the eliminating entries are:

(E)
Common stock, par value 100
Additional paid-in capital 350
Retained earnings 845
Investment in Saxon 1,036
(R)
Inventory 100
Land 245
Buildings and equipment 300
Long-term debt 110
Marketable securities 50
Investment in Saxon 764

The adjustment to noncontrolling interest brings its balance to fair value at the acquisition date.
The adjustment to the investment eliminates the remaining balance.
c.
Consolidated Balance Sheet, December 31, 2012 (amounts in millions)
Assets
Cash and receivables $ 2,580
Inventory 2,700
Current assets 5,280
Long-term marketable securities 250
Land 1,070
Buildings and equipment, net of $1,000 accumulated depreciation 3,300
Long-term debt 2,290
Total liabilities 4,790
Paxon stockholders’ equity:
Common stock 500
Total Paxon stockholders’ equity 4,910
P5.3 Consolidation Eliminating Entries, Date of Acquisition
(all amounts in thousands)

a.
Investment in Stark 7,600
Merger expenses 250
Cash 7,250
Earnings contingency liability 600
b. Consolidation working paper eliminating entries:
(E)
Common stock 1,000
Investment in Stark 3,750

(R)
Inventories 500
Intangibles 200
In-process research and
development 1,000
Goodwill (1) 3,730
Noncurrent liabilities 300
Cash and receivables 100
Plant assets, net 200
Lawsuit liability 380
Investment in Stark (2) 3,850
Noncontrolling interest (3) 1,200
(1) Calculation of goodwill:

Book value of Stark $ 5,000
Cash and receivables (100)
Inventories 500
Plant assets, net (200)
Intangibles 200
Noncurrent liabilities 300
IPR&D 1,000
Lawsuit liability (380) 6,320
Goodwill $ 3,730

Penn’s goodwill: $7,600 – 75%(6,320) 2,860
(2) $7,600 – 3,750, or 75% x (6,320 – 5,000) + 2,860.

(3) $2,450 – 1,250, or 25% x (6,320 – 5,000) + 870.

P5.4 Consolidated Working Paper One Year after Acquisition, Bargain Purchase
(see related P4.4)
(all amounts in millions)
a. Calculation of gain on acquisition:

1,800
Book value ($100 + 350 + 845) $ 1,295
Excess of fair value over book value:
Inventory 100
Marketable securities (50)
Land 245
Buildings and equipment 300
Long-term debt (discount) 110 2,000
Gain on acquisition $ (200)
b.
Noncontrolling
Saxon’s reported net income for 2013
($10,000 + 10 – 8,000 – 40 – 25 – 1,600 =
$345) $ 345 $ 310.5 $ 34.5
Revaluation writeoffs:
Inventory (100) (90) (10)
Marketable securities 50 45 5
Buildings and equipment ($300/20) (15) (13.5) (1.5)
Long-term debt ($110/5) (22) (19.8) (2.2)
$ 258 $ 232.2 $ 25.8

c.
Trial Balances Taken Eliminations
From Books
Dr (Cr)
Consolidated
Inventory 2,260 940 (R) 100 100 (O-1) 3,200
Marketable securities -- -- (O-2) 50 50 (R) --
Investment in Saxon 1,962.2 -- 142.2 (C) --
1,165.5 (E)
654.5 (R)
Land 650 300 (R) 245 1,195
Buildings and equipment, net 3,600 1,150 (R) 300 15 (O-3) 5,035
Long-term debt (5,000) (450) (R) 110 22 (O-4) (5,362)
Common stock (500) (100) (E) 100 (500)
Additional paid-in capital (1,200) (350) (E) 350 (1,200)
Retained earnings, Jan. 1 (2,410) (845) (E) 845 (2,410)
Noncontrolling interest -- -- 129.5 (E) (195.8)
50.5 (R)
15.8 (N)
Dividends 500 100 90 (C) 500
10 (N)
Sales revenue (30,000) (10,000) (40,000)
Equity in income of Saxon (232.2) -- (C) 232.2 --
Gain on sale of securities -- (10) 50 (O-2) (60)
Gain on acquisition (200) -- (200)
Cost of goods sold 26,000 8,000 (O-1) 100 34,100
Depreciation expense 300 40 (O-3) 15 355
Interest expense 250 25 (O-4) 22 297
Other operating expenses 2,770 1,600 4,370
Noncontrolling interest in NI -- -- (N) 25.8 25.8
$ -0- $ -0- $ 2,495 $ 2,495 $ -0-

P5.5 Consolidated Working Paper Two Years after Acquisition, Bargain Purchase
(see related P5.4)
(all amounts in millions)
a.
Equity in Noncontrolling
Total NI interest in NI
Saxon’s reported net income for 2014
($12,000 – 9,500 – 60 – 40 – 2,200 = $200) $ 200 $ 180 $ 20
Buildings and equipment ($300/20) (15) (13.5) (1.5)
Long-term debt ($110/5) (22) (19.8) (2.2)
$ 163 $ 146.7 $ 16.3
Note: Inventory (FIFO) and marketable securities revaluations were realized through sale in
2013.
b.
Trial Balances Eliminations
Taken From Books
Dr (Cr)
Consolidated
Inventory 2,500 950 3,450
Investment in Saxon 2,063.9 -- 101.7 (C) --
1,386 (E)
576.2 (R)
Land 650 250 (R) 245 1,145
Buildings and equipment, net 5,905 1,440 (R) 285 15 (O-1) 7,615
Long-term debt (6,000) (800) (R) 88 22 (O-2) (6,734)
Common stock (500) (100) (E) 100 (500)
Additional paid-in capital (1,200) (350) (E) 350 (1,200)
Retained earnings, Jan. 1 (3,022.2) (1,090) (E) 1,090 (3,022.2)
Noncontrolling interest -- -- 154 (E) (207.1)
41.8 (R)
11.3 (N)
Dividends 500 50 45 (C) 500
5 (N)
Sales revenue (35,000) (12,000) (47,000)
Equity in income of Saxon (146.7) -- (C) 146.7 --
Depreciation expense 450 60 (O-1) 15 525
Interest expense 300 40 (O-2) 22 362
Other operating expenses 3,000 2,200 5,200
Noncontrolling interest in NI -- -- (N) 16.3 16.3
$ -0- $ -0- $ 2,358 $ 2,358 $ -0-

P5.6 Consolidation Working Paper, Second Year Following Acquisition
(amounts in millions)

Acquisition cost $ 600
Total 825
Book value of S $ 580
Identifiable intangibles 100 680
Goodwill $ 145

Total goodwill $ 145
Harrah’s goodwill: $600 – 70% x $680 124
b. Calculation of 2008 equity in net loss and noncontrolling interest in net loss:
Total NL interest in NL
Emerald Safari Resort reported income
($2,200 + 300 + 200 – 1,670 – 1,000 = $30) $ 30 $ 21 $ 9
Identifiable intangibles ( 8) (5.6) (2.4)
Goodwill (145) (124) (21)
$ (123) $ (108.6) $ (14.4)

c.
Taken From Books
Dr (Cr)
Emerald
Safari Consolidated
Harrah’s Resort Dr Cr Balances
Current assets $ 1,400 $ 200 $ 1,600
Land, buildings, riverboats and 17,696.2 2,549 20,245.2
equipment, net
Intangible assets 2,500 800 (R) 95 8 (O) 3,387
Investment in Emerald 515.2 -- (C) 112.1 436.8 (E) --
190.5 (R)
Goodwill -- -- (R) 145 145 (O) --
Current liabilities (1,500) (300) (1,800)
Long-term liabilities (14,000) (2,600) (16,600)
Common stock (20) (4) (E) 4 (20)
Capital surplus (5,500) (320) (E) 320 (5,500)
Retained earnings, Jan. 1 (900) (300) (E) 300 (900)
Noncontrolling interest -- -- (N) 15.9 187.2 (E) (220.8)
49.5 (R)
Dividends 100 5 3.5 (C) 100

1.5 (N)
Casino revenues (6,600) (2,200) (8,800)
Food and beverage revenues (1,400) (300) (1,700)
Rooms revenues (1,000) (200) (1,200)
Equity in net loss of Emerald 108.6 -- 108.6 (C) --
Direct casino, food and beverage, 7,200 1,670 8,870
rooms expenses
General and administrative expenses 1,400 1,000 2,400
Amortization expense (O) 8 8
Goodwill impairment loss (O) 145 145
Noncontrolling interest in net loss -- -- 14.4 (N) (14.4)
$ -0- $ -0- $ 1,145 $ 1,145 $ -0-

P5.7 Equity Method and Eliminating Entries Three Years after Acquisition (see related
P4.2)
a. Calculation of equity in net income and noncontrolling interest in net income for 2012:
Total NI interest in NI
Sea Coast’s reported net income for 2012 $ 130,000 $ 117,000 $ 13,000
Plant assets ($100,000)/10 10,000 9,000 1,000
Identifiable intangibles $300,000/20 (1) (15,000) (13,500) (1,500)
$ 125,000 $ 112,500 $ 12,500
(1) $300,000 = $1,800,000 + 200,000 – (1,400,000 + 400,000 – 100,000)
b. Calculation of investment balance at December 31, 2012:

Investment in Sea Coast, December 31, 2009 $1,800,000
90% x Sea Coast’s reported income, 2010-2012 360,000
90% x Sea Coast’s reported dividends, 2010-2012
(60% of reported income) (216,000)
Revaluation writeoffs, 2010-2012:
Plant assets [($100,000)/10] x 3 x 90% 27,000
Identifiable intangibles ($300,000/20) x 3 x 90% (40,500)
Investment in Sea Coast, December 31, 2012 $1,930,500
Note: Under LIFO and increasing inventory, the revalued inventory is assumed to still be on
hand.
c. Calculation of noncontrolling interest balance at December 31, 2012:

Fair value of noncontrolling interest, December 31, 2009 $200,000
10% x Sea Coast’s reported income, 2010-2012 40,000
10% x Sea Coast’s reported dividends, 2010-2012 (60% of reported (24,000)
income)
Revaluation writeoffs, 2010-2012:
Plant assets [($100,000)/10] x 3 x 10% 3,000
Identifiable intangibles ($300,000/20) x 3 x 10% (4,500)
Noncontrolling interest in Sea Coast, December 31, 2012 $214,500

d. Consolidation working paper eliminating entries for 2012:
(C)
Equity in net income of Sea Coast 112,500
Dividends – Sea Coast
(.6 x $130,000 x 90%) 70,200
Investment in Sea
Coast 42,300
(E)
Stockholders’ equity—Sea Coast, 1/1 1,508,000
Investment in Sea
Coast 1,357,200
Noncontrolling interest
in Sea Coast 150,800
Sea Coast’s stockholders’ equity, January 1, 2012 = $1,400,000 + (1 - .6)(400,000 – 130,000) =
$1,508,000.
(R)
Inventory 400,000
Investment in Sea
Coast 531,000
in Sea Coast 59,000
Revaluations at January 1, 2012 = original revaluations less writeoffs for 2010 and 2011.
(O)
Amortization expense 15,000
Depreciation expense 10,000
(N)
Noncontrolling interest in NI of Sea
Coast 12,500
Dividends – Sea Coast
(.6 x $130,000 x 10%) 7,800
in Sea Coast 4,700

P5.8 Consolidation Working Paper after Several Years
(amounts in thousands)
Book value of Piedmont $ 23,000
Fair value – book value of franchise rights 15,000 38,000
Goodwill $ 22,000

Coca-Cola Consolidated’s goodwill: $50,000 – 75%(38,000) 21,500
b. Calculation of equity in net loss and noncontrolling interest in net loss for 2010:
Total NL interest in NL
Piedmont’s reported net income for 2010
(1) $ 3,000 $ 2,250 $ 750
Revaluation write-offs:
Franchise rights impairment (3,000) (2,250) (750)
Goodwill impairment ($4,000 in the
21.5:.5 ratio from a. above) (4,000) (3,909) (91)
$ (4,000) $ (3,909) $ (91)
(1) $3,000 = $300,000 – (175,000 + 114,000 + 8,000)
c. Calculation of investment balance at December 31, 2010:

Investment in Piedmont, January 1, 2003 $ 50,000
75% x Piedmont reported income less dividends, 2003-2009 (1) 5,850
75% x Revaluation write-offs for franchise rights, 2003-2009 (1,500)
Equity in net loss, 2010 (3,909)
Investment in Piedmont, December 31, 2010 $ 50,441
(1) Change in book value 2003-2009 of $7,800 (= $30,800 – $23,000) is attributed to

accumulated income less dividends, since the stock accounts did not change; $30,800 =
$1,000 + $12,000 + $18,000 – $200.

d.
Taken From Books
Dr (Cr)
Coca-Cola Consolidated
Consolidated Piedmont Dr Cr Balances
Current assets $ 160,000 $ 30,000 $ 190,000
Property, plant & equipment, net 250,000 233,800 483,800
Franchise rights, net 485,650 -- (R) 13,000 3,000 (O) 495,650
Investment in Piedmont 50,441 -- (C) 3,909 23,100 (E) --
31,250 (R)
Goodwill -- -- (R) 22,000 4,000 (O) 18,000
Long-term debt (700,000) (210,000) (910,000)
Common stock (12,000) (1,000) (E) 1,000 (12,000)
Additional paid-in capital (100,000) (12,000) (E) 12,000 (100,000)
Accumulated other 12,000 -- 12,000
comprehensive loss
Treasury stock 30,000 200 200 (E) 30,000
Noncontrolling interest -- -- (N) 91 7,700 (E) (11,359)
3,750 (R)
Dividends 2,000 -- 2,000
Net sales (1,200,000) (300,000) (1,500,000)
Equity in loss of Piedmont 3,909 -- 3,909 (C) --
Cost of sales 760,000 175,000 935,000
Selling, delivery and 400,000 114,000 514,000
administrative expenses
Amortization expense 500 -- (O) 3,000 3,500
Interest expense 28,000 8,000 36,000
Goodwill impairment loss -- -- (O) 4,000 4,000
Noncontrolling interest in NI -- -- 91 (N) (91)
$ -0- $ -0- $ 77,000 $77,000 $ -0-

e.
Consolidated Income Statement and Statement of Retained Earnings,
Year Ended December 31, 2010
Net sales $ 1,500,000
Cost of sales (935,000)
Gross profit 565,000
Selling, delivery and administrative expenses (514,000)
Amortization expense (3,500)
Interest expense (36,000)
Consolidated net income 7,500
Plus: Net loss attributable to noncontrolling interest 91
Net income attributable to Coca-Cola Consolidated 7,591
Plus retained earnings, January 1 50,500
Less dividends _(2,000)
Retained earnings, December 31 $ 56,091
Consolidated Balance Sheet, December 31, 2010

Assets
Current assets $ 190,000
Property, plant and equipment, net 483,800
Franchise rights, net 495,650
Goodwill 18,000
Total assets $ 1,187,450
Long-term liabilities 910,000
Total liabilities 1,050,000
Coca-Cola Consolidated stockholders’ equity:
Common stock 12,000
Treasury stock (30,000)
Accumulated other comprehensive loss (12,000)
Total Coca-Cola Consolidated stockholders’ equity 126,091
Total liabilities and stockholders’ equity $ 1,187,450

P5.9 Consolidated Statement of Cash Flows
Sunny Valley Resort and Subsidiary

Consolidated Statement of Cash Flows
For the year 2012
Cash from operating activities
Consolidated net income ($400,000 + $24,000) (1) $ 424,000
Add (subtract) items not affecting cash:
Depreciation expense $ 350,000
Goodwill impairment loss 30,000
Loss on retirement of plant assets (2) 50,000 430,000
Changes in current assets and liabilities:
Increase in other current assets (400,000)
Decrease in current liabilities (268,000) (668,000)
Net cash from operating activities 186,000
Cash from investing activities
Acquisition of plant assets (3) (300,000)
Cash from financing activities
Increase in noncurrent liabilities 100,000
Dividends paid to controlling stockholders (70,000)
Dividends paid to noncontrolling stockholders (16,000) 14,000
Net decrease in cash (100,000)
Plus cash balance, January 1 700,000
Cash balance, December 31 $ 600,000
(1) Noncontrolling interest in net income = $120,000 x 20%

(2) $1,600,000 + 350,000 – 1,500,000 = $450,000 accumulated depreciation on plant assets
scrapped; $500,000 – 450,000 = $50,000 loss on retirement of plant assets.
(3) X = cost of plant assets acquired; $4,200,000 + X – 500,000 = $4,000,000; X = $300,000.

P5.10 Consolidated Statement of Cash Flows
Prime Casinos and Saratoga International Hotels

Consolidated Statement of Cash Flows
For the Year ended December 31, 2013
(in millions)
Cash from operating activities:
Consolidated net income $ 612
Add (subtract) items not affecting cash from operations:
Depreciation expense $ 250
Goodwill impairment loss 25
Loss on sale of plant assets 10 285
Changes in current assets and liabilities:
Increase in other current assets (100)
Increase in current liabilities 250 150
Net cash from operating activities 1,047
Cash from investing activities:
Sale of plant assets (1) 15
Acquisition of plant assets (675) (660)
Cash from financing activities:
Increase in long-term liabilities 150
Issuance of capital stock 200
Dividends paid to majority stockholders (435)
Dividends paid to noncontrolling interest (2) (2) (87)
Net increase in cash 300
Plus cash balance, January 1, 2013 200
Cash balance, December 31, 2013 $ 500
(1) Cost of plant assets sold = $2,500 + $675 - $3,100 = $75

Accumulated depreciation on plant assets sold = $800 + $250 - $1,000 = $50
Cash received from sale of plant assets = $75 - $50 - $10 = $15
(2) $150 + 12 – 160 = $2

P5.11 Consolidation Two Years after Acquisition, IFRS
(all dollar amounts in millions)

Acquisition cost € 4,000
Book value of Monaco € 1,000
Revaluations:
Inventory (100)
Property, plant and equipment 400
Identifiable intangibles 300
x 80% 1,280
Goodwill € 2,720
b. Calculation of equity in net income and noncontrolling interest in net income for 2010:
Noncontrolling
Monaco’s reported net income for 2010 (1) € 600 € 480 € 120
Property, plant and equipment $400/10 (40) (32) (8)
Identifiable intangibles $300/3 (100) (80) (20)
Goodwill (200) (200) --
€ 260 € 168 € 92
(1) $600 = $3,500 – (2,500 + 400)

c.
Taken From Books
Dr (Cr)
Consolidated
Rendezvous Monaco Dr Cr Balances
Current assets € 500 € 900 € 1,400
Property, plant and equipment, net 3,000 2,000 (R) 360 40 (O) 5,320
Investment in Monaco 4,316 -- 128 (C)
1,120 (E)
3,068 (R) --
Identifiable intangibles -- 200 (R) 200 100 (O) 300
Goodwill -- -- (R) 2,620 200 (O) 2,420
Liabilities (4,648) (1,150) (5,798)
Capital stock (1,500) (800) (E) 800 (1,500)
Retained earnings, Jan. 1 (1,000) (600) (E) 600 (1,000)
Noncontrolling interest -- -- 280 (E)
112 (R)
82 (N) (474)
Dividends -- 50 40 (C)
10 (N) --
Sales revenue (5,000) (3,500) (8,500)
Equity in net income of Monaco (168) -- (C) 168 --
Cost of sales 4,200 2,500 6,700
Goodwill impairment loss -- -- (O) 200 200
Administrative and other operating (O) 40
expenses 300 400 (O) 100 840
Noncontrolling interest in NI -- -- (N) 92 92
€ -0- € -0- € 5,180 € 5,180 € -0-

P5.12 Consolidation Several Years after Acquisition, IFRS
(dollar amounts in thousands)

Acquisition cost € 120,000
Book value of Wholesome € 74,000
Revaluations:
Plant and equipment (15,000)
Long-term debt (4,000)
x 75% 60,000
Goodwill € 60,000
b. Calculation of equity in net income and noncontrolling interest in net income for 2010:
Noncontrolling
Wholesome’s reported net income for 2010
(1) € 5,000 € 3,750 € 1,250
Property, plant and equipment
(€15,000/10) 1,500 1,125 375
Identifiable intangibles (€25,000/10) (2,500) (1,875) (625)
Goodwill (1,000) (1,000) --
€ 3,000 € 2,000 € 1,000
(1) €5,000 = €140,000 – (65,000 + 70,000)

c.
Taken From Books
Dr (Cr)
Consolidated
Orchid Wholesome Dr Cr Balances
Current assets € 35,000 € 20,000 € 55,000
Property, plant and equipment, net 260,500 192,000 (O) 1,500 9,000 (R) 445,000
Investment in Wholesome 133,500 -- 2,000 (C)
69,000 (E)
62,500 (R) --
Identifiable intangibles 100,000 10,000 (R) 15,000 2,500 (O) 122,500
Goodwill -- -- (R) 58,000 1,000 (O) 57,000
Long-term debt (350,000) (100,000) (450,000)
Capital stock (80,000) (54,000) (E) 54,000 (80,000)
Noncontrolling interest -- -- 23,000 (E)
1,500 (R)
1,000 (N) (25,500)
Sales revenue (400,000) (140,000) (540,000)
Equity in net income of Wholesome (2,000) -- (C) 2,000 --
Goodwill impairment loss -- -- (O) 1,000 1,000
Other operating expenses 143,000 70,000 (O) 2,500 1,500 (O) 214,000
Noncontrolling interest in NI -- -- (N) 1,000 1,000
€ -0- € -0- € 173,000 €173,000 € -0-


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Solutions To Exercises and Problems Exercises E5.1 Combination and Consolidation, Date of Acquisition (See Related E3.1)

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CHAPTER 5

SOLUTIONS TO EXERCISES AND PROBLEMS

E5.1 Combination and Consolidation, Date of Acquisition (see related E3.1)

Allocation of goodwill between controlling and noncontrolling interest:

Total liabilities $ 20,000 $ 6,000 $ 26,000

©Cambridge Business Publishers, 2010

E5.2 Date of Acquisition Consolidation with In-Process R&D

Allocation of goodwill between controlling and noncontrolling interest:

b. Consolidated Financial Statement Working Paper

©Cambridge Business Publishers,

E5.3 Date of Acquisition Consolidation, Bargain Purchase

Peregrine’s acquisition entry:

Investment in Sparrow 23,000,000

b. Consolidated Financial Statement Working Paper

©Cambridge Business Publishers, 2010

Allocation of goodwill between controlling and noncontrolling interest:

©Cambridge Business Publishers,

Current liabilities $ 5,000 $ 1,500 $ 6,500

The $1,350,000 credit to noncontrolling interest in entry (R) = 10% (500,000 +

©Cambridge Business Publishers, 2010

Current liabilities $ 5,000 $ 1,500 $ 6,500

©Cambridge Business Publishers,

b. Consolidation eliminating entries:

©Cambridge Business Publishers, 2010

E5.6 Consolidation at End of First Year (see related E4.3)

a. Calculation of goodwill is as follows:

Allocation of goodwill between controlling and noncontrolling interest:

b. 2011 equity in net income and noncontrolling interest in net income:

c. Consolidation working paper eliminating entries for 2011:

©Cambridge Business Publishers,

E5.7 Consolidation Two Years after Acquisition

(all numbers in thousands)

©Cambridge Business Publishers, 2010

©Cambridge Business Publishers,

Paulin’s share of goodwill = $1,800,000 – 75%($2,000,000) = $300,000

©Cambridge Business Publishers, 2010

Consolidated net income ($15,000,000 + $5,000,000) $20,000,000

E5.10 Consolidated Cash Flow from Operations

Consolidated net income (1) $ 981,600

(1) Calculation of equity in net income:

Calculation of consolidated net income:

(2) $150,000 + $28,000 + $2,000

©Cambridge Business Publishers,

Noncontrolling interests = 51% x €(22.5) = €(11.5)

Noncontrolling interests = 15% x (304) = €(46)

©Cambridge Business Publishers, 2010

©Cambridge Business Publishers,

©Cambridge Business Publishers, 2010

P5.1 Consolidation Working Paper, Date of Acquisition

Allocation of goodwill between controlling and noncontrolling interest:

©Cambridge Business Publishers,

©Cambridge Business Publishers, 2010

Note: In journal entry form, the eliminating entries are:

©Cambridge Business Publishers,

P5.3 Consolidation Eliminating Entries, Date of Acquisition

(all amounts in thousands)

b. Consolidation working paper eliminating entries:

©Cambridge Business Publishers, 2010