Consolidation Following Acquisition: Irwin/Mcgraw-Hill

1
Baker / Lembke / King
5
Consolidation
Following
Acquisition
Irwin/McGraw-Hill © The McGraw-Hill

© The McGraw-Hill
Companies,
Companies,
Inc., 1999 Inc., 1999
2
Computation of Consolidated Net Income
Push
Push Corporation
Corporation owns
owns 80
80 percent
percent of
of the
the
stock
stock of
of Shove
Shove Company,
Company, which
which was
was
purchased
purchased at at book
book value.
value. Shove
Shove reports
reports net
net
income
income ofof $25,000,
$25,000, while
while Push
Push reports
reports
earnings
earnings ofof $100,000,
$100,000, plus
plus equity-method
equity-method
investment
investment income
income of
of $20,000.
$20,000.
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

3
Computation of Consolidated Net Income
Additive Computation
Separate operating income of Push $100,000
Net income of Shove $25,000
Push’s proportionate share x .80 20,000
Consolidated net income $120,000
Residual Computation
Net income of Push $120,000
Less: Income from subsidiary (20,000) $100,000
Net income of Shove 25,000
$125,000
Less: Income to noncontrolling interest $25,000
x .20 (5,000)
Consolidated net income $120,000

4
Consolidated Retained Earnings
Push Shove
Balance, January 1, 19X1 $400,000 $250,000
Net income, 19X1 120,000 25,000
Dividends declared in 19X1 (30,000) (10,000)
Balance, December 31, 19X1 $490,000 $265,000
Consolidated retained earnings equals

the parent’s retained earnings when the
parent has used the equity method
5
Comprehensive Three-Part Workpaper
Trial Balance Data Elimination Entries

Item Parent Subsidiary Debits Credits Consolidated
Revenues
Expenses
Net Income INCOME STATEMENT SECTION
Beginning RE
Add: Net Income
Ded: Dividends
Ending RE RETAINED EARNINGS SECTION
Assets
Liabilities
Stockholders’ Eq.:
Capital Stock
Retained Earn. BALANCE SHEET SECTION

6
19X1 Consolidation--100 Percent Ownership
Peerless Special Eliminations

Item Products Foods Debits Credits Consolidated
Income from
Subsidiary 50,000
Dividends Decl. (60,000) (30,000)
Investment in
Special Foods 320,000
Remove
Removebothboththe
theinvestment
investmentincome
incomereflected
reflectedin in
the
theparent’s
parent’s income
incomestatement
statementand
andthe theparent’s
parent’s
portion
portion of
ofany
anydividends
dividends declared
declared by
by the
the subsidiary.
subsidiary.
7

Income from
Subsidiary 50,000 50,000
Dividends Decl. (60,000) (30,000) 30,000 (60,000)
Investment in
Special Foods 320,000 20,000

8

Retained Earnings,
January 1 300,000 100,000
Investment in
Common Stock 500,000 200,000
Remove
Removethe
theintercorporate
intercorporateownership
ownershipclaim
claimand
and stockholders’
stockholders’
accounts
accountsof
ofthe
thesubsidiary
subsidiaryas
asof
ofthe
thebeginning
beginningof
ofthe
theperiod.
period.
9

Retained Earnings,
January 1 300,000 100,000 100,000 300,000
Investment in
300,000
Common Stock 500,000 200,000 200,000 500,000

10

Income from
Subsidiary 75,000
Dividends
Declared (60,000) (40,000)
Investment in
Remove
Removebothboththe
theinvestment
investmentincome
incomereflected
reflectedin in
the
theparent’s
parent’s income
incomestatement
statementand
andthe theparent’s
parent’s
portion
portion of
ofany
anydividends
dividends declared
declared by
by the
the subsidiary.
subsidiary.
11

Income from
Dividends
Declared (60,000) (40,000) 40,000 (60,000)
Investment in

12

Retained Earnings,
January 1 430,000 120,000
Investment in
Common Stock 500,000 200,000
The
Thebeginning
beginningbalance
balancein
inthe
theinvestment
investmentaccount
accountand and
the
thestockholders’
stockholders’equity
equityaccounts
accountsofofthe
thesubsidiary
subsidiaryatat
the
the beginning
beginningof
of19X2
19X2 need
need to
to be
be eliminated.
eliminated.
13

Retained Earnings,
January 1 430,000 120,000 120,000 430,000
Investment in
320,000
Common Stock 500,000 200,000 200,000 500,000

14

Income from
Subsidiary 40,000
Dividends
Declared (60,000) (30,000)
Investment in
Peerless’s
Peerless’s80
80percent
percentshare
shareofofSpecial
SpecialFoods’
Foods’
income
incomeand
anddividends
dividendsisiseliminated.
eliminated.
15

Income from
Dividends
Declared (60,000) (30,000) 24,000
Investment in

16

Income to Non-
controlling Int.
Dividends
Declared (60,000) (30,000) 24,000
Noncontrolling
interest
AAseparate
separateentry
entryestablishes
establishesthe
theamount
amountof ofincome
income
allocated
allocatedto
tononcontrolling
noncontrollingshareholders
shareholdersand andenters
enters
the
theincrease
increasein
intheir
theirclaim
claimon
onnet
netassets
assets of
ofthe
thesubsidiary.
© The McGraw-Hill subsidiary.
Irwin/McGraw-Hill Companies, Inc., 1999
17

Income to Non-
controlling Int. 10,000
Dividends
Declared (60,000) (30,000) 24,000
6,000 (60,000)
Noncontrolling
interest 4,000

18

Retained Earnings,
January 1 300,000 100,000
Investment in
Noncontrolling
interest 4,000
An
Anentry
entryisisrequired
requiredto
toeliminate
eliminatethe
thestockholders’
stockholders’equity equity
accounts
accountsof ofthe
thesubsidiary
subsidiaryand
andthe
theinvestment
investmentaccount account
balance shown at the beginning ofMcGraw-Hill
the
theperiod.
Irwin/McGraw-Hill balance shown at the beginning © Theof period.
Companies, Inc., 1999
19

Retained Earnings,
January 1 300,000 100,000 100,000 300,000
Investment in
240,000
Noncontrolling
interest 4,000
60,000 64,000

20

Income from
Subsidiary 60,000
Dividends
Declared (60,000) (40,000)
Investment in
An
Anentry
entryisisrequired
requiredto
toremove
removethe
theincome
incomethat thatPeerless
Peerless
has
hasrecognized
recognizedfrom
fromSpecial
SpecialFoods,
Foods,Peerless’s
Peerless’sshare share(80 (80
percent)
percent)of ofSpecial
SpecialFoods’
Foods’dividends,
dividends,and andthethechange
change
in the investment account that occurred
Irwin/McGraw-Hillin the investment account that occurred
inin19X2.
© The McGraw-Hill 19X2. Inc., 1999
Companies,
21

Income from
Dividends
Declared (60,000) (40,000) 32,000
Investment in

22

Income to Non-
controlling Int.
Dividends
Declared (60,000) (40,000) 32,000
Noncontrolling
Interest
An
Anentry
entryisisneeded
neededto
toassign
assign$15,000
$15,000of
ofsubsidiary
subsidiaryincomeincometo to
the
thenoncontrolling
noncontrollingshareholders,
shareholders,based
basedononsubsidiary
subsidiaryincome income
of
of$75,000
$75,000and
andaa20
20percent
percent noncontrolling
noncontrolling interest.
interest.
23

Income to Non-
controlling Int. 15,000 (15,000)
Dividends
Declared (60,000) (40,000) 32,000
8,000 (60,000)
Noncontrolling
Interest 7,000

24

Retained Earnings,
January 1 420,000 120,000
Investment in
Common Stock 500,000 200,000

Noncontrolling
Interest 7,000
AnAnentry
entryisisrequired
requiredtotoeliminate
eliminatethethestockholders’
stockholders’equity equity
accounts
accountsof ofthe
thesubsidiary
subsidiaryandandthe
theinvestment
investmentaccount
accountbalancebalance
reported
reportedby
bythetheparent
parentatatthe
thebeginning
beginningof ofthe
theyear
yearandandto to
establish
establishthe
theamount
amountof ofthe
thenoncontrolling
noncontrollinginterest’s
interest’sclaimclaimon on
the
thenet
netassets
Irwin/McGraw-Hill assetsof ofthe
thesubsidiary
subsidiaryatatthe
the©beginning
beginning
The
of
ofthe
theyear.
McGraw-Hill Companies, year.
Inc., 1999
25

Retained Earnings,
January 1 420,000 120,000 120,000 420,000
Investment in
256,000
Common Stock 500,000 200,000 200,000 500,000
Noncontrolling
Interest 7,000
64,000 71,000

26
Chapter Five
The
The
End
End

Consolidation Following Acquisition: Irwin/Mcgraw-Hill

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1

Baker / Lembke / King

Irwin/McGraw-Hill © The McGraw-Hill

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

Consolidated retained earnings equals

Trial Balance Data Elimination Entries

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

Peerless Special Eliminations

Dividends Decl. (60,000) (30,000)

Peerless Special Eliminations

Dividends Decl. (60,000) (30,000) 30,000 (60,000)

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

Peerless Special Eliminations

Common Stock 500,000 200,000

Peerless Special Eliminations

Common Stock 500,000 200,000 200,000 500,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

Peerless Special Eliminations

Peerless Special Eliminations

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

Peerless Special Eliminations

Common Stock 500,000 200,000

Peerless Special Eliminations

Common Stock 500,000 200,000 200,000 500,000

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

Peerless Special Eliminations

Peerless Special Eliminations

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

Peerless Special Eliminations

Peerless Special Eliminations

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

Peerless Special Eliminations

Peerless Special Eliminations

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

Peerless Special Eliminations

Peerless Special Eliminations

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

Peerless Special Eliminations

Peerless Special Eliminations

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

Peerless Special Eliminations

Common Stock 500,000 200,000

Peerless Special Eliminations

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

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