Student Name: Instructor Class: McGraw-Hill/Irwin Problem 06-39 ALBUQUERQUE, INCORPORATED General Journal Part a.

Account Investment in Marmon Additional paid-in capital Part b. Account Additional paid-in capital Investment in Marmon

Debit 16,000

Credit 16,000

Debit 24,000

Credit 24,000

Given Data P06-39 Number of shares of Marmon acquired by Albuquerque, Inc. Purchase price of shares Marmon book value at acquisition date Assessed fair value of noncontrolling interest Marmon's present stockholders' equity: Common stock ($10 par value) Additional paid-in capital Retained earnings Total Part a. Number of shares issued by Marmon Issue price per share Shares purchased by Albuquerque Part b. Number of shares issued by Marmon Issue price per share Shares purchased by Albuquerque

$ $ $

16,000 600,000 710,000 150,000

200,000 230,000 370,000 800,000

5,000 47 -

4,000 33 -

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 06-42 FRED, INC. AND HERMAN CORPORATION - Allocation of Acquisition-date Excess Fair Value Consideration transferred Noncontrolling interest fair value Acquisition-date fair value Book value acquired Fair value in excess of book value $ $ $ 312,000 208,000 520,000 300,000 220,000

Correct!

Excess cost allocated to accounts based on fair value: Patents 90,000 Customer list $ 130,000 Total Correct!

Annual Life Excess (years) Amortizations 12 $ 7,500 10 13,000 $ 20,500 Correct!

a. Consolidation entries *TL

Correct!

Investment in Herman Land

7,000 7,000

(To eliminate unrealized gain created by previous intra-entity transfer)

*G
Correct!

Retained earnings, 1/1/11 Cost of goods sold

8,000 8,000

(To remove unrealized inventory gain from prior year so it can be realized in current year)

S
Correct!

Common stock (Herman) Retained earnings, 1/1/11 (Herman) Investment in Herman Noncontrolling interest in Herman

100,000 292,000 235,200 156,800

(To eliminate Herman's stockholders' equity accounts and record beginning year balance for noncontrolling interest)

A
Correct!

Patents Customer list Investment in Herman Noncontrolling interest

75,000 104,000 107,400 71,600

(To recognize unamortized balances as of 1/1/11 of amounts allocated within original acquisition price)

I
Correct!

Equity income of Herman Investment in Herman

3,000 3,000

(To eliminate intra-entity equity income accrual

D
Correct!

Investment in Herman Dividends paid

2,400 2,400

(To eliminate intra-entity dividend payments)

E
Correct!

Amortization expense Patents Customer list

20,500 7,500 13,000

(To record current year amortization expense)

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 06-42 P

Correct!

Accounts payable Accounts receivable

60,000 60,000

(To remove intra-entity debt created by inventory transfers)

B
Correct!

Bonds payable Premium on bonds payable Interest income Investment in parent bonds Interest expense Gain on retirement of bond

20,000 1,069 1,873 19,005 1,283 2,654

(To eliminate intra-entity balances created by acquisition of bond and to recognize the related retirement gain)

TI
Correct!

Sales Cost of goods sold (or purchases)

120,000 120,000

(To eliminate intra-entity transfers made during year)

G
Correct!

Cost of goods sold Inventory

7,500 7,500

(To defer recognition of inventory transfer gains until subsequent year)

b. Calculations Herman's reported income for 2011 Excess fair value amortization 2010 unrealized gain recognized in 2011 2011 unrealized gain Herman's realized income for 2011 Noncontrolling interest ownership Noncontrolling interest's share of subsidiary's income Noncontrolling interest, 1/1/11 Noncontrolling interest's share of Herman's income Noncontrolling interest's share of Herman's dividends Noncontrolling interest, 12/31/11 $ 25,000 (20,500) 8,000 (7,500) 5,000 40% 2,000 Correct! 228,400 2,000 (1,600) 228,800 Correct!

$ $ $

c. Consolidation worksheet adjustments - intra-entity bonds Original gain on retirement Interest income recorded on investment 2011 Interest expense recorded on liability in 2011 Required increase as of January 1, 2012 B
Correct!

$ $ 1,873 1,283 $ 20,000 733 1,901

2,654 590 2,064 Correct!

Bonds payable Premium on bonds payable Interest income Investment in Herman Investment in parent bonds Interest expense

2,064 19,306 1,264

(To remove accounts pertaining to intra-entity bonds. "Investment in Herman" is adjusted here rather than retained earnings because equity method is used)

Given P06-42: Herman Corporation common stock purchased by Fred, Inc. Cash paid for stock purchase Book value of Herman's assets and liabilities Fair value of noncontrolling interest Herman patents (12-year remaining life) were undervalued by Customer list acquisition date fair value Life of customer list in years Intra-entity transfers: Original Cost to Herman $ 80,000 100,000 90,000 Transfer Ending Price Balance at to Fred Transfer Price $ 100,000 $ 20,000 125,000 40,000 120,000 30,000 50% 15,000 22,000 20,000 8% 21,386 6% 18,732 25,000 300,000 4,000 100,000 60% 312,000 300,000 208,000 90,000 130,000 10

$ $ $ $ $

Year 2009 2010 2011

2011 inventory transfers not paid for by Fred at year end Book value of land sold by Fred to Herman Sale price of land sold by Fred to Herman Face value of Fred's bonds purchased by Herman Cash interest rate of bonds purchased by Herman Fred's book value of bond liability at repurchase date Effective yield of bonds Herman's bond acquisition price based on effective rate of 10% Herman's reported accounts for 2011: Net income Beginning retained earnings Dividends paid Common stock

$ $ $ $ $ $ $ $ $

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 06-45 AUSTIN, INC. AND RIO GRANDE CORPORATION Basic earnings per share - business combination Austin's separate income Net effect of intra-entity profit deferral and recognition (COGS difference) Rio Grande's separate income less amortization (operating expense difference) Less: noncontrolling interest in consolidated income Consolidated net income to parent Austin's preferred dividends Earnings applicable to basic EPS Austin's outstanding common shares Basic earnings per share Diluted earnings per share - subsidiary (Rio Grande) Net income after amortization Interest saved assuming conversion of bonds (net of taxes) Income applicable to diluted earnings per share Shares outstanding Assumed conversion of warrants Assumed acquisition of treasury stock with proceeds of conversion Assumed conversion of bonds Shares applicable to diluted earnings per share Diluted earnings per share - subsidiary $ $

$ $

200,000 5,000 105,000 (21,000) 289,000 (40,000) 249,000 50,000 4.98

Correct!

Correct!

$ $

105,000 22,000 127,000 30,000 5,000 (2,500) 10,000 42,500 2.99

Correct!

Correct! Correct!

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 06-45 Income applicable to parent - Diluted earnings per share Shares used in diluted earnings per share computation Shares controlled by parent Portion owned by parent Income applicable to parent - diluted EPS Diluted earnings per share - business combination Austin's separate income Net effect of intra-entity profit deferral and recognition (COGS difference) Income of Rio Grande to parent Preferred stock dividends Earnings applicable to diluted EPS Austin's outstanding common shares Assumed conversion of preferred stock Shares applicable to diluted earnings per share Diluted earnings per share $ $ 200,000 5,000 75,438 280,438 50,000 20,000 70,000 4.01 $

42,500 25,250 59.4% 75,438

Correct! Correct!

Correct!

Correct! Correct!

Given P06-45: Income Statements Austin Rio Grande Consolidated (700,000) $ (500,000) $ (1,000,000) 400,000 300,000 495,000 100,000 70,000 195,000 (89,000) $ (289,000) $ (130,000) $ (310,000) $ 21,000 (289,000)

Revenues Cost of goods sold Operating expenses Equity in earnings of Rio Grande Individual company net income Consolidated net income Noncontrolling interest in Rio Grande's income Net income attributable to Austin Annual excess fair over book value amortization resulting from acquisition. Austin common stock - number of shares Austin preferred stock - number of shares Annual dividend paid to preferred stockholders Rio Grande common stock - number of shares Rio Grande stock warrants outstanding Cost to convert warrant to share of stock Number of warrants held by Austin Price of Rio Grande common stock Interest expense for Rio Grande convertible bonds Number of shares of common stock that can be exchanged for by convertible bonds

$ $ $

25,000 50,000 10,000 40,000 30,000 5,000 10 50% 20 22,000 10,000