Chap 006

Chapter 06 - Intercorporate Transfers of Services And Noncurrent Assets
CHAPTER 6
INTERCORPORATE TRANSFERS OF SERVICES AND NONCURRENT ASSETS
ANSWERS TO QUESTIONS
Q6-1 Profits on intercorporate sales generally are considered to be realized when the
affiliate that has purchased the item sells it to a nonaffiliate. For depreciable or amortizable
items that are used by the affiliate in its operations, profits are considered to be realized as
the purchaser depreciates or amortizes the asset.
Q6-2 An upstream sale occurs when a subsidiary sells an item to the parent company. If the
asset is not resold before the end of the period, the parent is the company holding the asset
and any unrealized profits are recorded on the books of the subsidiary.
Q6-3 If the purchaser records the services received as an expense, both revenues and
expenses will be overstated in the consolidated income statement in the period in which the
intercorporate services are provided. In the event the services are capitalized by the
purchaser, the cost of the asset will be overstated, depreciation expense and accumulated
depreciation will be overstated if the services are assigned to a depreciable asset, and
service revenue will be overstated.
Q6-4 a! "nrealized profit on an intercorporate sale generally is included in the reported net
income of the seller.
b! All unrealized profit on current#period intercorporate sales must be excluded from
consolidated net income until realized through resale to a nonaffiliate.
Q6-5 Profits on intercompany sales are included in consolidated net income in the period in
which the items are sold to a nonaffiliate. If there are unrealized profits on the books of one of
the companies at the start of the period and the item is sold to a nonaffiliate during the
current period, the intercompany profit is included in the computation of consolidated net
income for the current period.
Q6-6 $he profits continue to be unrealized in this case and therefore must be eliminated
from both the beginning and ending asset and retained earnings balances when consolidated
statements are prepared. $here should be no income statement effect for the current period.
Q6-7 A downstream sale is a sale from the parent to one of its subsidiaries. If the asset is
not resold before the end of the period, the subsidiary is the company holding the asset at
year#end and any unrealized profits are recorded on the books of the parent company.
6-1
Q6-8 $he entire balance of unrealized profits is eliminated in all cases. %hile the direction
of the sale will affect the allocation of unrealized profits between companies, it does not
change the total amount of profit eliminated.
Q6-9 &onsolidated net income is reduced by the amount of unrealized profits assigned to
the shareholders of the parent company. %hen a downstream sale occurs, all the profit is on
the parent's books and consolidated net income is reduced by the full amount of any
unrealized profit. (n the other hand, when an upstream sale occurs, all the intercorporate
profit is recorded on the books of the subsidiary and the amount of income assigned to both
the parent company shareholders and the noncontrolling shareholders is reduced by a
proportionate amount of any unrealized profit.
Q6-10 $he amount of intercorporate profit realized in the current period from prior years'
sales to the parent is added to the reported net income of the subsidiary in computing
income assigned to the noncontrolling interest.
Q6-11 Income assigned to noncontrolling interest for the current period will be less than a
proportionate share of the reported net income of the subsidiary. In determining the amount
of income to be assigned to the noncontrolling interest in the consolidated income statement,
the net income reported by the subsidiary must be ad)usted to exclude any unrealized gain
recorded during the period on the sale of depreciable assets to the parent. (n the other
hand, if an unrealized loss had been recorded, the basis used in assigning income to the
noncontrolling interest would be greater than the reported net income of the subsidiary. *uch
ad)ustments must be made to assure that the income assigned to noncontrolling interest is
based on the contribution of the subsidiary to consolidated net income rather than the
amount the subsidiary may have reported as net income.
Q6-12 All other factors being e+ual, the income assigned to noncontrolling interest will be
larger if the sale occurs at the start of the current period. *ome part of the gain will be
considered realized in the current period as the parent depreciates the asset if the sale
occurs before year#end. ,one of the gain will be considered realized in the period of transfer
if the sale occurs at year#end.
Q6-13 As in all other cases, income from the subsidiary recorded on the parent's books
must be eliminated in preparing the consolidated income statement and an appropriate
amount of subsidiary net income must be assigned to the noncontrolling interest if the parent
owns less than -.. percent of the subsidiary's stock. $he gain recorded on the parent's
books also must be eliminated.
6-2
Q6-14 /epreciation expense recorded by the subsidiary is overstated from the viewpoint of
the consolidated entity when the subsidiary pays the parent more than book value for the
asset at the start of the period. As a result, an eliminating entry is needed to reduce
depreciation expense and accumulated depreciation by the amount of excess depreciation
recorded during 0.12.
Q6-15 Following an intercorporate sale of a depreciable asset, the eliminating entries should
ad)ust the balance in the asset account to reflect the original purchase price to the first owner
and accumulated depreciation should be ad)usted to reflect the balance that would be
reported if the asset were still held by the first owner. In the case of an intercorporate sale of
an intangible asset, only the unamortized balance normally is reported and an eliminating
entry is needed to ad)ust the carrying value to that which would be reported if the asset were
still held by the first owner.
Q6-16 Profit on an intercorporate sale of land is considered realized at the time the
purchaser sells the land to a nonaffiliate. Profit on e+uipment normally is considered realized
as the asset is used and depreciated on the books of the purchaser. 3+uipment typically is
considered to be used up in the production process and therefore is charged to expense over
its remaining economic life, while land is not.
Q6-17 A portion of the profit is considered realized each period as the asset is depreciated
by the purchaser. $hus, the net amount considered unrealized decreases each period and a
smaller debit to beginning retained earnings is needed.
Q6-18A $he balance in the investment account will depend on which method the parent uses
to account for its investment in the subsidiary. If the parent uses a! the cost method or b!
the basic e+uity method, no ad)ustments are made on the parent company's books for
unrealized intercompany profits and the balance in the investment account will be the same
as if there were no unrealized profits. If the parent uses c! the fully#ad)usted e+uity method,
the balance in the investment account will be reduced by the full amount of the unrealized
profit when the profit is on the parent's books and by a proportionate share of the unrealized
profit when it is on the subsidiary's books.
6-3
SOLUTIONS TO CASES
C6-1 Co!"#$o% o& E'$($%)#$o% Po"!*+!,
434(
$o5 &ontroller
Plug &orporation
From5 , &PA
6e5 3limination of Intercompany Profit on 3+uipment
$his memo is in response to our review of the elimination procedures used in preparing the
consolidated statements for Plug &orporation at /ecember 2-, 0.10. 7ou have correctly
identified the need to eliminate the effects of the intercorporate sale of e+uipment. In
preparing your consolidated statements, all intercompany balances and transactions should
be eliminated. 8AR- 51, Par. 9:
7our eliminating entry recorded at /ecember 2-, 0.10, was5
3-! 3+uipment -;.,...
<oss on *ale of 3+uipment -;.,...
$his entry correctly eliminates the =-;.,... loss recorded by &oy >anuary -, 0.10, on the
sale of e+uipment to Plug and adds =-;.,... to the e+uipment account. ?y adding back
=-;.,... to e+uipment, the balance is ad)usted to =-,...,... =@;.,... A =-;.,...!. $his
represents the carrying value of the e+uipment on &oyBs books at the time of sale but does
not reflect the purchase price paid by &oy =-,0..,...! or the accumulated depreciation at
the time of sale =0..,...!. 4oreover, eliminating entry 3-! understates depreciation
expense for the year. $he correct eliminating entry at /ecember 2-, 0.10, is5
30! 3+uipment 2;.,...
/epreciation 3xpense -;,...
Accumulated /epreciation 0-;,...
<oss on *ale of 3+uipment -;.,...
6-4
C6-1 continued!
A debit of =2;.,... to e+uipment is re+uired to raise the balance from =@;.,... recorded by
Plug to =-,0..,..., the initial purchase price to the consolidated entity. /epreciation expense
must be increased by =-;,... from =@;,... =@;.,...C-. years! recorded by Plug to
=-..,... =-,0..,...C-0 years! based on the initial purchase price. Accumulated
depreciation must be credited by =0-;,... to ad)ust from the =@;,... 8=@;,...C-. years! x
- year: reported by Plug to =2..,... 8=-,0..,...C-0 years! x 2 years:. As previously noted,
the =-;.,... loss recorded by &oy must be eliminated. If the amounts included in eliminating
entry 30! are omitted, consolidated net income for 0.10 and the retained earnings balance
at /ecember 2-, 0.10, will be overstated and the balances for e+uipment and accumulated
depreciation will be understated.
Primary citation:
A6? ;-, Par. 9
C6-2 E'$($%)#$o% o& I%#!"o.o)#! S!/$"!,
434(
$o5 &hief Accountant
/ream &orporation
From5 , &PA
6e5 3limination of <egal *ervices Provided by Parent &ompany
$his memo is in response to our discussion regarding the elimination of intercompany
services in preparing consolidated financial statements for /ream &orporation. It is my
understanding that at present /ream &orporation does not eliminate such services. In
preparing consolidated financial statements all intercompany balances and transactions
should be eliminated. 8AR- 51, Par. 9:
$he legal services provided by /ream &orporation to &lassic &ompany and Plain &ompany
are intercompany transactions that should be eliminated. If the revenues recorded by the
parent are e+ual to the expenses recorded by the subsidiaries and both are properly
recorded, elimination of these transactions will have no impact on reported net income but
will reduce consolidated revenues and expenses by e+ual amounts. Financial statement
readers will receive a more accurate picture of operations of the consolidated entity if the
appropriate amounts are reported. $he legal services provided to &lassic &ompany in 0.12
should be eliminated with the following entry5
3-! <egal *ervices 6evenue @.,...
<egal *ervices 3xpense @.,...
6-5
Chapter 06 - Intercorporate Transfers of Services and Noncurrent Assets
$he information on intercorporate services provided to Plain &ompany indicates that an
additional ad)ustment is needed in the consolidation process. Although Plain &ompany
recorded its =-;.,... payment to the parent as a legal expense, it should have been
recorded as an investment in land to be used in future development of its strip mine. $his
error should be corrected on the books of Plain &ompany. If it is not, the eliminating entry
prepared at /ecember 2-, 0.12, should include an ad)ustment to reflect the appropriate
investment in land and would be recorded as5
30! <egal *ervices 6evenue -;.,...
<and -..,...
<egal *ervices 3xpense -;.,...
%age and *alary 3xpense -..,...
&are must be taken to capitalize only the cost of legal services in this case. $he
eliminating entry should contain a debit of =-..,... =-;.,...C-.;.! to land since /ream
&orporation bills its services to the subsidiaries at -;. percent of the cost of services
provided. Dad Plain &ompany debited land for its =-;.,... payment to /ream, the
eliminating entry at /ecember 2-, 0.12, would have been5
32! <egal *ervices 6evenue -;.,...
<and ;.,...
%age and *alary 3xpense -..,...
,o eliminating entry would be re+uired at /ecember 2-, 0.1E, on the legal services
provided to &lassic &ompany in 0.12. $he conditions of the intercorporate transfer of
services to Plain &ompany re+uire an eliminating entry at /ecember 2-, 0.1E, and in
following years, as long as Plain &ompany owns the strip mine. $he entry at /ecember
2-, 0.1E, would be5
3E! <and -..,...
6etained 3arnings -..,...
Dad Plain &ompany debited land for its =-;.,... payment to /ream in 0.12, the
eliminating entry at /ecember 2-, 0.1E, would re+uire a =;.,... debit to retained
earnings and a =;.,... credit to land.
Primary citation:
A6? ;-, Par. 9
6-6
C6-3 No%"o%#o''$%0 I%#!!,#
a. %hen there are no unrealized profits on the subsidiary's books, a pro rata portion of
the reported net income of the subsidiary is assigned to the noncontrolling interest,
ad)usted for the noncontrolling interestBs share of any amortization or write#off of
differential.
b. %hen there are no unrealized profits on the subsidiary's books, the noncontrolling
interest is reported in the consolidated balance sheet at an amount e+ual to a pro rata
portion of the book value of the net assets of the subsidiary plus the noncontrolling
interestBs share of any remaining differential.
c. $he effect of unrealized intercompany profits depends on which company has recorded
the profits. $hose recorded on the books of the parent do not affect the income assigned
to the noncontrolling interest. %hen subsidiary net income includes unrealized
intercompany profits, the portion of consolidated net income assigned to the
noncontrolling interest is reduced by its portion of the unrealized profit in the period of the
intercorporate sale.
-! (n a sale of land, the intercompany profit remains unrealized until the land is sold to a
nonaffiliate. %hen the land is resold, the profit is added to the reported net income of the
subsidiary in computing the portion of consolidated net income assigned to the
noncontrolling interest.
0! (n an intercorporate sale of a depreciable asset, a portion of the intercompany profit is
considered realized each period as the purchaser depreciates the asset. $hus, in the
period of the intercorporate sale, the ad)ustment to subsidiary net income for unrealized
profits is based on the gain or loss less any portion considered realized before the end of
the period. 3ach period thereafter, a portion of the profit or loss is considered realized and
treated as an ad)ustment to subsidiary income in determining the portion of consolidated
net income assigned to the noncontrolling interest.
d. ,oncontrolling shareholders of a subsidiary generally will not gain a great deal of
useful information from the consolidated financial statements. $heir primary focus must
continue to be on the income, assets, and liabilities of the subsidiary in which they hold
direct ownership. In the event there are a number of transactions with the parent or other
affiliates, the success of the operations of the entire economic entity may provide
information useful to the noncontrolling shareholders. /ebt guarantees or other
assurances by the parent may also lead to an examination of the parent company and
consolidated statements.
6-7
C6-4 I%#!"o(.)%1 S)'! o& S!/$"!,
a. %hen preparing consolidated financial statements, *chwartz's revenue from the sale
of services to /iamond and /iamond's expenses associated with the services ac+uired
from *chwartz must be eliminated. $he expenses related to the )anitorial and
maintenance activities that will be reported in the consolidated income statement will be
the actual salary and associated costs incurred by *chwartz to provide the services to
/iamond. $he eliminations have no effect on consolidated net income because revenues
and expenses of e+ual amount are eliminated in the preparation of the consolidated
financial statements.
b. Intercompany profits from the sale of services to an affiliate normally are considered
realized at the time the services are provided. 6ealization of intercompany profits on
services normally is considered to occur as the services are consumed, and services such
as maintenance and repair services normally are considered to be consumed by the
purchasing affiliate at the time received.
C6-5 I%#!"o(.)%1 Po&$#,
Answers can be found in the companies' -.#F filings with the *3& and in their annual
reports. ,ote that financial statements are often included in the Form -.#F by reference to
the companyBs annual report. In such cases, the financial statements are often shown in a
separate exhibit rather than in Item @ of the Form -.#F.
a. &entury $elephone 3nterprises, Inc. www.centurytel.com!, and its subsidiaries bill one
another for services and materials provided in such amounts as to provide a reasonable
return on investment. %hen preparing consolidated financial statements, the company
eliminates intercompany profits on transactions with unregulated subsidiaries, but profits
on transactions with regulated subsidiaries are not eliminated, as permitted by FAS-
S#)#!(!%# No2 71. $his statement is applicable because phone companies are regulated
as public utilities.
b. Gerizon www.verizon.com! eliminates all intercompany profits. It discontinued the use
of regulatory accounting as provided by FAS- 71 in -HHE and now no longer applies the
provisions of FAS- 71.
c. All of Darley#/avidsonBs www.harleydavidson.com! intercompany transactions are
eliminated except some occurring between the 4otorcycles and Financial *ervices
segments. *ome interest and fees recognized as income by Financial *ervices and
expense by 4otorcycles are not eliminated. $his leads to higher finance income and
higher expenses, but net income is unaffected.
6-
SOLUTIONS TO E3ERCISES
E6-1 4+'#$.'!-C5o$"! Q+!,#$o%, o% I%#!"o(.)%1 T)%,&!,
6AICPA A*).#!*7
-. c
0. d
2. b
E. a
;. b /epreciation expense recorded by Pirn =E.,...
/epreciation expense recorded by *croll -.,...
$otal depreciation reported =;.,...
Ad)ustment for excess depreciation charged
by *croll as a result of increase in
carrying value of e+uipment due to gain
on intercompany sale =-0,... C E years! 2,...!
/epreciation for consolidated statements =EI,...
E6-2 4+'#$.'!-C5o$"! Q+!,#$o%, o% I%#!"o(.)%1 T)%,)"#$o%,
-. d %hen only retained earnings is debited, and not the noncontrolling interest, a
gain has been recorded in a prior period on the parent's books.
0. a $he costs incurred by ?ottom to develop the e+uipment are research and
development costs and must be expensed as they are incurred FAS-
S#)#!(!%# No2 2, par. -0!. $ransfer to another legal entity does not cause a
change in accounting treatment within the economic entity.
2. b $he =2H,... paid to Jold &ompany will be charged to depreciation expense
by $op &orporation over the remaining 2 years of ownership. As a result, $op
&orporation will debit depreciation expense for =-2,... each year. Jold
&ompany had charged =-9,... to accumulated depreciation in 0 years, for an
annual rate of =@,.... /epreciation expense therefore must be reduced by
=;,... =-2,... # =@,...! in preparing the consolidated statements.
E. a $<F &orporation will record the purchase at =2H,..., the amount it paid. Jold
&ompany had the e+uipment recorded at =E.,...K thus, a debit of =-,... will
raise the e+uipment balance back to its original cost from the viewpoint of the
consolidated entity.
6-!
E6-2 continued!
;. b 6eported net income of Jold &ompany = E;,...
6eported gain on sale of e+uipment =-;,...
Intercompany profit realized in 0.19 ;,...! -.,...!
6ealized net income of Jold &ompany = 2;,...
Proportion of stock held by
noncontrolling interest x .E.
Income assigned to noncontrolling interests = -E,...
9. c (perating income reported by $op &orporation = @;,...
,et income reported by Jold &ompany E;,...
=-2.,...
<ess5 "nrealized gain on sale of e+uipment
=-;,... # =;,...! -.,...!
&onsolidated net income =-0.,...
E6-3 E'$($%)#$o% E%#$!, &o L)%* T)%,&!
a. 3liminating entry, /ecember 2-, 0.1E5
3-! Jain on *ale of <and -.,...
<and -.,...
3liminating entry, /ecember 2-, 0.1;5
3-! 6etained 3arnings, >anuary - -.,...
<and -.,...
b. 3liminating entry, /ecember 2-, 0.1E5
3-! Jain on *ale of <and -.,...
<and -.,...
3liminating entry, /ecember 2-, 0.1;5
3-! 6etained 3arnings, >anuary - 9,...
,oncontrolling Interest E,...
<and -.,...
6-10
E6-4 I%#!"o(.)%1 S!/$"!,
a. &onsolidated net income will not change.
b. (ne hundred percent of the intercompany services must always be eliminated. $hus, a
change in the level of ownership of the subsidiary will not have an impact on the
amount eliminated or on consolidated net income.
c. =2@,... L =I.,... # =20,...
E6-5 E'$($%)#$o% E%#$!, &o I%#!"o(.)%1 S!/$"!,
$wo eliminating entries are re+uired5
3-! /elivery *ervice 6evenue I9,...
/elivery *ervice 3xpense I9,...
30! Accounts Payable -@,...
Accounts 6eceivable -@,...
E6-6 E'$($%)#$o% E%#$!, &o D!.!"$)8'! A,,!# T)%,&!9 :!)-E%* S)'!
a. 3liminating entry, /ecember 2-, 0.19
3-! $ruck ;,...
Jain on *ale of $ruck -.,...
Accumulated /epreciation -;,...
b. 3liminating entry, /ecember 2-, 0.1I5
3-! $ruck ;,...
6etained 3arnings, >anuary - -.,...
/epreciation 3xpense -,...
Accumulated /epreciation -E,...
Accumulated depreciation ad)ustment5
6e+uired 8=E;,... C -; years! x 9 years: =-@,...
6ecorded 8=E.,... C -. years! x - year: E,...!
6e+uired increase =-E,...
6-11
E6-7 T)%,&! o& L)%*
3-! Jain on *ale of <and E;,...
<and E;,...
3liminating entry, /ecember 2-, 0.125
3-! 6etained 3arnings, >anuary - 2-,;..
,oncontrolling Interest -2,;..
<and E;,...
b. 3liminating entries, /ecember 2-, 0.12 and 0.1E5
3-! 6etained 3arnings, >anuary - 2.,...
<and 2.,...
E6-8 T)%,&! o& D!.!"$)8'! A,,!# )# :!)-E%*
a. 3liminating entry, /ecember 2-, 0.1;5
3-! $ruck H.,...
Jain on *ale of $ruck 2.,...
Accumulated /epreciation -0.,...
&omputation of gain on sale of truck5
Price paid by 4innow =0-.,...
&ost of truck to Frazer =2..,...
Accumulated depreciation
=2..,... C -. years! x E years -0.,...! -@.,...!
Jain on sale of truck = 2.,...
b. 3liminating entry, /ecember 2-, 0.195
3-! $ruck H.,...
6etained 3arnings, >anuary - 2.,...
/epreciation 3xpense ;,...
Accumulated /epreciation --;,...
6e+uired 8=2..,... C -. years! x ; years: =-;.,...
6ecorded 8=0-.,... C 9 years! x - year: 2;,...!
6e+uired increase =--;,...
6-12
E6-9 T)%,&! o& D!.!"$)8'! A,,!# )# -!0$%%$%0 o& :!)
a. 3liminating entry, /ecember 2-, 0.1;5
3-! $ruck ;;,...
Jain on *ale of $ruck 2;,...
Accumulated /epreciation @;,...
&omputation of gain on sale of truck5
Price paid by 4innow =0E;,...
&ost of truck to Frazer =2..,...
=2..,... C -. years! x 2 years H.,...! 0-.,...!
Jain on sale of truck = 2;,...
6e+uired 8=2..,... C -. years! x E years: =-0.,...
6eported 8=0E;,... C I years! x - year: 2;,...!
6e+uired increase = @;,...
b. 3liminating entry, /ecember 2-, 0.195
3-! $ruck ;;,...
6etained 3arnings 2.,...
Accumulated /epreciation @.,...
6e+uired 8=2..,... C -. years! x ; years: =-;.,...
6eported 8=0E;,... C I years! x 0 years: I.,...!
6e+uired increase = @.,...
E6-10 S)'! o& E;+$.(!%# #o S+8,$*$)1 $% C+!%# P!$o*
a. >ournal entry to record sale5
&ash @E,...
Accumulated /epreciation @.,...
3+uipment -;.,...
Jain on *ale of 3+uipment -E,...
6ecord the sale of e+uipment5
=@E,... L =-;.,... # =@.,... A =-E,...
=@.,... L =-;.,... C -; years! x @ years
6-13
E6-10 continued!
b. >ournal entry to record purchase5
3+uipment @E,...
&ash @E,...
>ournal entry to record depreciation expense5
/epreciation 3xpense -0,...
Accumulated /epreciation -0,...
c. 3liminating entry at /ecember 2-, 0.1I, to eliminate intercompany sale of
e+uipment5
3-! 3+uipment 99,...
Jain on *ale of 3+uipment -E,...
/epreciation 3xpense 0,...
Accumulated /epreciation I@,...
3liminate unrealized profit on e+uipment.
Ad)ustment to e+uipment
Amount paid by %ainwrite to ac+uire building =-;.,...
Amount paid by <ance on intercompany sale @E,...!
Ad)ustment to buildings and e+uipment = 99,...
Ad)ustment to depreciation expense
/epreciation expense recorded by <ance
&orporation =@E,... C I years! = -0,...
/epreciation expense recorded by %ainwrite
&orporation =-;.,... C -; years! -.,...!
Ad)ustment to depreciation expense = 0,...
Ad)ustment to accumulated depreciation
Amount re+uired =-.,... x H years! = H.,...
Amount reported by <ance =-0,... x - year! -0,...!
6e+uired ad)ustment = I@,...
d. 3liminating entry at >anuary -, 0.1@, to eliminate intercompany sale of e+uipment
and prepare a consolidated balance sheet only5
3-! 3+uipment 99,...
6etained 3arnings -0,...
Accumulated /epreciation I@,...
6-14
E6-11 U.,#!)( S)'! o& E;+$.(!%# $% P$o P!$o*
a. &onsolidated net income for 0.1@5
(perating income reported by ?aywatch =-..,...
,et income reported by $ubberware =E.,...
Amount of gain realized in 0.1@
=2.,... C -0 years! 0,;..
6ealized net income of $ubberware E0,;..
&onsolidated net income =-E0,;..
b. &onsolidated net income for 0.1@ would be unchanged.
6-15
E6-11 continued!
c. 3liminating entry, /ecember 2-, 0.1@5
3-! ?uildings and 3+uipment 2.,...
,oncontrolling Interest ;,...
/epreciation 3xpense 0,;..
Accumulated /epreciation ;0,;..
3liminate unrealized profit on building.
Ad)ustment to buildings and e+uipment
Amount paid by $ubberware to ac+uire building =2..,...
Amount paid by ?aywatch on intercompany sale 0I.,...!
Ad)ustment to buildings and e+uipment = 2.,...
Ad)ustment to retained earnings, >anuary -, 0.1@
"nrealized gain recorded >anuary -, 0.19 = 2.,...
Amount realized following intercompany sale
=0,;.. x 0! ;,...!
"nrealized gain, >anuary -, 0.1@ = 0;,...
Proportion of ownership held by ?aywatch x .@.
6e+uired ad)ustment = 0.,...
Ad)ustment to ,oncontrolling interest, >anuary -, 0.1@
"nrealized gain at >anuary -, 0.1@ = 0;,...
Proportion of ownership held by noncontrolling
interest x .0.
6e+uired ad)ustment = ;,...
/epreciation expense recorded by ?aywatch
Industries =0I.,... C -0 years! = 00,;..
/epreciation expense recorded by $ubberware
&orporation =2..,... C -; years! 0.,...!
Ad)ustment to depreciation expense = 0,;..
Amount re+uired =0.,... x 9 years! =-0.,...
Amount reported by ?aywatch =00,;.. x 2 years! 9I,;..!
6e+uired ad)ustment = ;0,;..
6-16
E6-12 E'$($%)#$o% E%#$!, &o 4$*1!) D!.!"$)8'! A,,!# T)%,&!
3-! 3+uipment 0,...
Jain on *ale of 3+uipment -.,;..
/epreciation 3xpense
Accumulated /epreciation -,;..
--,...
Purchase price paid by parent =2.,...
Purchase price paid by subsidiary 0@,...!
6e+uired increase = 0,...
Purchase price paid by subsidiary =0@,...
Purchase price paid by parent =2.,...
<ess5 Accumulated /epreciation
=;,... x 0 -C0 years! -0,;..!
?ook value at time of sale -I,;..!
Jain on sale of e+uipment =-.,;..
/epreciation recorded by subsidiary
=0@,...C2 M years! x M year =E,...
/epreciation recorded by parent 32.,...C9
years! x M year 0@,...!
6e+uired decrease = -,;..
6e+uired 8=2.,... C 9 years! x 2 years: =-;,...
6ecorded 8=0@,... C 2 -C0 years! x -C0 year: E,...!
6e+uired increase =--,...
b. 3liminating entry, /ecember 2-, 0.1E5
3-! 3+uipment 0,...
6etained 3arnings, >anuary - H,...
Accumulated /epreciation @,...
"nrealized gain, >uly -, 0.12 =-.,;..
6ealized in 0.12 -,;..!
"nrealized balance, >anuary -, 0.1E = H,...
6e+uired 8=2.,... C 9 years! x E years: =0.,...
6ecorded 8=0@,... C 2 -C0 years! x - -C0 years: -0,...!
6e+uired increase = @,...
6-17
E6-13 Co%,o'$*)#!* N!# I%"o(! Co(.+#)#$o%
a. /ownstream sale of land5
0.1E 0.1;
GerryBs separate operating income = H.,... =--.,...
<ess5 "nrealized gain on sale of land 0;,...!
GerryBs realized operating income = 9;,... =--.,...
*pawnBs realized net income 9.,... E.,...
&onsolidated net income =-0;,... =-;.,...
Income to noncontrolling interest5
=9.,... x .0;! -;,...!
=E.,... 1 .0;! -.,...!
Income to controlling interest =--.,... =-E.,...
b. "pstream sale of land5
0.1E 0.1;
GerryBs separate operating income = H.,... =--.,...
*pawnBs net income =9.,...
<ess5 "nrealized gain on sale of land 0;,...!
*pawnBs realized net income 2;,... E.,...
&onsolidated net income =-0;,... =-;.,...
Income to noncontrolling interest5
=2;,... x .0;! @,I;.!
=E.,... x .0;! -.,...!
Income to controlling interest =--9,0;. =-E.,...
6-1
E6-14 E'$($%)#$o% E%#$!, &o I%#!"o(.)%1 T)%,&!,
a. (perating income of Jrand /elivery =9;,...
,et income of Acme 6eal 3state &ompany =E.,...
<ess5 "nrealized profit on land sale 0;,...!
AcmeBs realized net income -;,...
&onsolidated net income =@.,...
b. >ournal entries recorded by *peedy /elivery5
-! &ash @,...
Investment in Acme 6eal 3state *tock @,...
6ecord dividends from Acme 6eal 3state5
=-.,... x .@.
0! Investment in Acme 6eal 3state *tock 20,...
Income from *ubsidiary 20,...
6ecord e+uity#method income5
=E.,... x .@.
c. 3liminating entries5
3-! Income from *ubsidiary 20,...
/ividends /eclared @,...
Investment in Acme 6eal 3state *tock 0E,...
3liminate income from subsidiary.
30! Income to ,oncontrolling Interest 2,...
/ividends /eclared 0,...
,oncontrolling Interest -,...
Assign income to noncontrolling interest5
=2,... L =E.,... # =0;,...! x .0.
32! &ommon *tock N Acme 6eal 3state &ompany 2..,...
6etained 3arnings, >anuary - -..,...
Investment in Acme 6eal 3state *tock 20.,...
,oncontrolling Interest @.,...
3liminate beginning investment balance.
3E! Jain on *ale of <and 0;,...
<and 0;,...
3liminate unrealized gain on land.
3;! *ervice 6evenue -;,...
/elivery 3xpense -;,...
3liminate courier services performed by
*peedy /elivery *ervice.
6-1!
E6-15 S)'! o& -+$'*$%0 #o P)!%# $% P$o P!$o*
a. $urner will record annual depreciation expense of =0;,...
=2..,... C -0 years!.
b. *plit would have recorded annual depreciation expense of =0.,...
=E..,... C 0. years!.
c. 3liminating entry, /ecember 2-, 0.1H5
3-! ?uildings and 3+uipment -..,...
6etained 3arnings, >anuary - E0,...
,oncontrolling Interest -@,...
Accumulated /epreciation -;;,...
3liminate unrealized profit on building.
Amount paid by *plit to ac+uire building =E..,...
Amount paid by $urner on intercompany sale 2..,...!
Ad)ustment to buildings and e+uipment =-..,...
Ad)ustment to retained earnings, >anuary -, 0.1H
"nrealized gain, /ecember 2-, 0.1@
8=2..,... # =E..,... # =-9.,...!: = 9.,...
Proportion of ownership held by $urner x .I.
6e+uired ad)ustment = E0,...
Ad)ustment to ,oncontrolling interest, >anuary -, 0.1H
"nrealized gain, /ecember 2-, 0.1@ = 9.,...
Proportion of ownership held by
noncontrolling interest x .2.
6e+uired ad)ustment = -@,...
/epreciation expense recorded by $urner
&ompany =2..,... C -0 years! = 0;,...
/epreciation expense recorded by *plit
&ompany =E..,... C 0. years! 0.,...!
Ad)ustment to depreciation expense = ;,...
Amount re+uired =0.,... x H years! =-@.,...
Amount reported by $urner =0;,... x - year! 0;,...!
6e+uired ad)ustment =-;;,...
6-20
E6-15 continued!
d. Income assigned to noncontrolling interest for 0.1H5
,et income reported by *plit &ompany = E.,...
Amount of gain realized in 0.1H =9.,... C -0 years! ;,...
6ealized net income for 0.1H = E;,...
interest x .2.
Income assigned to noncontrolling interest = -2,;..
e. Amount assigned to noncontrolling interest in 0.1H consolidated
balance sheet5
*plit &ompany net assets, >anuary -, 0.1H
=2;.,... # =-;.,...! =0..,...
,et income for 0.1H E.,...
/ividends paid in 0.1H -;,...!
"nrealized profit on sale of building to $urner &ompany
=9.,... # =;,...! ;;,...!
6ealized book value /ecember 2-, 0.1H =-I.,...
interest x .2.
Amount assigned to noncontrolling interest in
/ecember 2-, 0.1H, consolidated balance sheet = ;-,...
E6-16 I%#!"o(.)%1 S)'! )# ) Lo,,
a. &onsolidated net income for 0.1@ will be greater than Parent &ompany's income
from operations plus *unway's reported net income. $he eliminating entries at
/ecember 2-, 0.1@, will result in an increase of =-9,... to consolidated net income.
b. As a result of purchasing the e+uipment at less than Parent's book value,
depreciation expense reported by *unway will be =0,... =-9,... C @ years! below
the amount that would have been recorded by Parent. $hus, depreciation expense
must be increased by =0,... when eliminating entries are prepared at /ecember 2-,
0.1H. &onsolidated net income will be decreased by the full amount of the =0,...
increase in depreciation expense.
6-21
E6-17 E'$($%)#$%0 E%#$!, Fo''o<$%0 I%#!"o(.)%1 S)'! )# ) Lo,,
a. 3liminating entry, /ecember 2-, 0.1I5
3-! ?uildings and 3+uipment -;9,...
<oss on *ale of ?uilding 29,...
3liminate unrealized loss on building.
b. &onsolidated net income and income to controlling
interest for 0.1I5
(perating income reported by ?rown =-0;,...
,et income reported by $ransom = -;,...
Add5 <oss on sale of building 29,...
6ealized net income of $ransom ;-,...
&onsolidated net income =-I9,...
Income to noncontrolling interest =;-,... x .2.! -;,2..!
Income to controlling interest =-9.,I..
c. 3liminating entry, /ecember 2-, 0.1@5
3-! ?uildings and 3+uipment -;9,...
/epreciation 3xpense E,...
Accumulated /epreciation -0E,...
6etained 3arnings, >anuary - 0;,0..
,oncontrolling Interest -.,@..
3liminate unrealized loss on building.
Amount paid by $ransom to ac+uire building =2..,...
Amount paid by ?rown on intercompany sale -EE,...!
Ad)ustment to buildings and e+uipment =-;9,...
/epreciation expense recorded by $ransom
&ompany =2..,... C -; years! = 0.,...
/epreciation expense recorded by ?rown
&orporation =-EE,... C H years! -9,...!
Ad)ustment to depreciation expense = E,...
Amount re+uired =0.,... x I years! =-E.,...
Amount reported by ?rown =-9,... x - year! -9,...!
6e+uired ad)ustment =-0E,...
6-22
E6-17 continued!
Ad)ustment to retained earnings, >anuary -, 0.1@
"nrealized loss recorded, /ecember 2-, 0.1I =29,...
Proportion of ownership held by ?rown x .I.
6e+uired ad)ustment =0;,0..
Ad)ustment to ,oncontrolling interest, >anuary -, 0.1@
"nrealized loss recorded, /ecember 2-, 0.1I =29,...
Interest x .2.
6e+uired ad)ustment =-.,@..
d. &onsolidated net income and income assigned to
controlling interest in 0.1@5
(perating income reported by ?rown =-;.,...
,et income reported by $ransom =E.,...
Ad)ustment for loss on sale of building E,...!
6ealized net income of $ransom 29,...
&onsolidated net income =-@9,...
Income assigned to noncontrolling interest
=29,... x .2.! -.,@..!
Income assigned to controlling interest =-I;,0..
6-23
E6-18 4+'#$.'! T)%,&!, o& A,,!#
a. =-E;,...
b. ,o gain or loss should be reported.
c. *wanson &orporation operating income =-;.,...
*ullivan &orporation net income =-0.,...
<oss on sale of land =-E;,... # =-2.,...! -;,...
6ealized net income of *ullivan &orporation =-2;,...
Proportion of stock held by *wanson x .@. -.@,...
Folder &ompany net income = 9.,...
Jain on sale of land =-@.,... # =-2.,...! ;.,...!
6ealized net income of Folder &ompany = -.,...
Proportion of stock held by *wanson x .I. I,...
&layton &orporation net income = @.,...
Jain on sale of land =0E.,... # =-@.,...! 9.,...!
6ealized net income of &layton &orporation = 0.,...
Proportion of stock held by *wanson x .H. -@,...
Income assigned to controlling interest =0@2,...
Alternate &omputation5
*wanson &orporation operating income =-;.,...
*ullivan &orporation net income -0.,...
Folder &ompany net income 9.,...
&layton &orporation net income @.,...
&ombined income =E-.,...
"nrealized loss recorded by *ullivan &orp. = -;,...!
"nrealized gain recorded by Folder &ompany ;.,...
"nrealized gain recorded by &layton &orp. 9.,... H;,...!
6ealized income available to all shareholders =2-;,...
Income assigned to noncontrolling interest5
*ullivan &orp. =-0.,... A =-;,...! x .0. = 0I,...
Folder &ompany =9.,... # =;.,...! x .2. 2,...
&layton &orp. =@.,... # =9.,...! x .-. 0,... 20,...!
Income assigned to controlling interest =0@2,...
d. 3liminating entry5
3-! Jain on *ale of <and --.,...
<oss on *ale of <and -;,...
<and H;,...
3liminate gains and loss on land transfer5
=--.,... L =;.,... A =9.,...
=H;,... L =--.,... # =-;,...
6-24
E6-19 E'$($%)#$o% E%#1 $% P!$o* o& T)%,&!
a. =2..,... L =0I9,... A =0E,...
b. -; years L =2..,... C =9.,... C 2 years!
c. 3-! $rucks 0E,...
6etained 3arnings, >anuary - 0-,9..
,oncontrolling Interest -E,E..
Accumulated /epreciation ;I,...
3liminate unrealized gain on trucks5
=0-,9.. L =29,... x .9.
=-E,E.. L =29,... x .E.
=;I,... L =0.,... x E years! # =02,...
x - year!
6-25
E6-20 E'$($%)#$o% E%#1 Co(.+#)#$o%
3-! 3+uipment H.,...
Jain on *ale of 3+uipment 9.,...
Accumulated /epreciation -EE,...
/epreciation expense ad)ustment5
6ecorded =29.,... C -. years! = 29,...
6e+uired 8=E;.,... # =-;.,...! C -. years: 2.,...!
6e+uired decrease = 9,...
Accumulated depreciation, >anuary -, 0.19 =-;.,...
0.19 depreciation re+uired 2.,...
6e+uired balance =-@.,...
0.19 depreciation recorded 29,...!
6e+uired increase =-EE,...
b. 3liminating entry, /ecember 2-, 0.1I5
3-! 3+uipment H.,...
6etained 3arnings, >anuary - 2I,@..
,oncontrolling Interest -9,0..
Accumulated /epreciation -2@,...
6etained earnings ad)ustment5
"nrealized profit, >anuary -, 0.19 = 9.,...
6ealized in 0.19 9,...!
"nrealized profit, >anuary -, 0.1I = ;E,...
Proportion of stock held by *tern x .I.
*hare of unrealized profit = 2I,@..
Accumulated depreciation, >anuary -, 0.19 =-;.,...
/epreciation based on historical cost
8=2..,... C -. years! x 0: 9.,...
6e+uired balance =0-.,...
/epreciation recorded 8=29.,... C -.! x 0: I0,...!
6e+uired increase =-2@,...
6-26
E6-21 U,$%0 #5! E'$($%)#$%0 E%#1 #o D!#!($%! A""o+%# -)')%"!,
a. Pastel owns H. percent =H,E;. C =H,E;. A =-,.;.! of the stock of *omber
&orporation.
b. $he subsidiary was the owner. $he sale was from the subsidiary to the parent, as
evidenced by the debit to noncontrolling interest in the eliminating entry.
c. Intercompany transfer price5
Amount paid by *omber &orporation =-0.,...
Increase to buildings and e+uipment
in eliminating entry ;2,;..!
Amount paid by Pastel to *omber for e+uipment = 99,;..
d. Income assigned to noncontrolling interest for 0.1H5
,et income reported by *omber = 0;,...
Amount of gain realized in 0.1H =-.,;.. C I years! -,;..
6ealized net income for 0.1H = 09,;..
interest x .-.
Income assigned to noncontrolling interest = 0,9;.
e. $otal depreciation expense of =00,;.. =-;,... A =H,... # =-,;..! will be reported
by the consolidated entity for 0.1H.
f. 3liminating entries at /ecember 2-, 0.1H5
3-! Income from *ubsidiary 00,;..
/ividends /eclared ;,E..
Investment in *omber &orporation *tock -I,-..
3liminate income from subsidiary5
=00,;.. L =0;,... x .H.
=;,E.. L =9,... x .H.
30! Income to ,oncontrolling Interest 0,9;.
/ividends /eclared 9..
,oncontrolling Interest 0,.;.
=0,9;. L =0;,... A =-,;..! x .-.
=9.. L =9,... x .-.
32! &ommon *tock N *omber &orporation 2..,...
6etained 3arnings, >anuary - 0..,...
Investment in *omber &orporation *tock E;.,...
,oncontrolling Interest ;.,...
6-27
E6-21 continued!
3E! ?uildings and 3+uipment ;2,;..
6etained 3arnings, >anuary - H,E;.
,oncontrolling Interest -,.;.
Accumulated /epreciation 9E,...
3liminate unrealized gain on upstream
sale of e+uipment.
3;! Accumulated /epreciation -,;..
/epreciation 3xpense -,;..
3liminate excess depreciation.
E6-22 I%#!"o(.)%1 S)'! o& S!/$"!,
a. 3liminating entries, 0.1E5
3-! &onsulting 6evenue -2@,I..
&onsulting Fees 3xpense -2@,I..
3liminate intercompany revenue and expense.
30! Accounts Payable 9,9..
Accounts 6eceivable 9,9..
3liminate intercompany receivableCpayable.
b. &onsolidated net income and income to controlling
interest for 0.1E5
,orgaard's separate operating income =0,2E0,...
?line's net income 92-,...
&onsolidated net income 0,HI2,...
Income to noncontrolling interest =92-,... x .0;! -;I,I;.!
Income to controlling interest =0,@-;,0;.
6-2
E6-23A F+''1 A*=+,#!* E;+$#1 4!#5o* )%* Co,# 4!#5o*
a. Fully Ad)usted e+uity#method )ournal entries, 0.1E5
-! &ash -2,...
Investment in $G *ales &ompany *tock -2,...
6ecord dividends from $G *ales &ompany5
=0.,... x .9;
0! Investment in $G *ales &ompany *tock E;,;..
Income from *ubsidiary E;,;..
6ecord e+uity#method income5 =I.,... x .9;
2! Income from *ubsidiary --,...
Investment in $G *ales &ompany *tock --,...
6emove unrealized gain on sale of land.
E! Investment in $G *ales &ompany *tock ;,0..
Income from *ubsidiary ;,0..
6ecognize portion of gain on sale of
e+uipment5 =@,... x .9;
3liminating entries, /ecember 2-, 0.1E5
3-! Income from *ubsidiary 2H,I..
/ividends /eclared -2,...
Investment in $G *ales &ompany *tock 09,I..
30! Income to ,oncontrolling Interest 0I,2..
/ividends /eclared I,...
,oncontrolling Interest 0.,2..
=0I,2.. L =I.,... A =@,...! x .2;
32! &ommon *tock N $G *ales &ompany 2..,...
6etained 3arnings, >anuary - -E;,...
Investment in $G *ales &ompany *tock 0@H,0;.
,oncontrolling Interest -;;,I;.
3E! Jain on *ale of <and --,...
<and --,...
3;! Investment in $G *ales &ompany *tock 09,...
,oncontrolling Interest -E,...
3+uipment E.,...
sale of e+uipment.
6-2!
E6-23A continued!
39! Accumulated /epreciation @,...
/epreciation 3xpense @,...
b. &ost#method )ournal entry recorded by ,ewtime Products5
-! &ash -2,...
/ividend Income -2,...
6ecord dividend income from $G *ales
&ompany.
&ost#method eliminating entries, /ecember 2-, 0.1E5
3-! /ividend Income -2,...
/ividends /eclared -2,...
3liminate dividend income from subsidiary.
30! Income to ,oncontrolling Interest 0I,2..
,oncontrolling Interest 0.,2..
=0I,2.. L =I.,... A =@,...! x .2;
32! &ommon *tock N $G *ales &ompany 2..,...
Investment in $G *ales &ompany *tock 09.,...
,oncontrolling Interest -E.,...
3liminate investment balance at date of
ac+uisition.
3E! 6etained 3arnings, >anuary - -;,I;.
,oncontrolling Interest -;,I;.
Assign undistributed prior earnings of
subsidiary to noncontrolling interest5
=E;,... x .2;
3;! Jain on *ale of <and --,...
<and --,...
39! 6etained 3arnings, >anuary - 09,...
,oncontrolling Interest -E,...
3+uipment E.,...
sale of e+uipment.
3I! Accumulated /epreciation @,...
/epreciation 3xpense @,...
6-30
SOLUTIONS TO PRO-LE4S
P6-24 Co(.+#)#$o% o& Co%,o'$*)#!* N!# I%"o(!
a. *eparate operating income of Petime &orporation =2E,...
6eported net income of "nited Jrain &ompany =-H,...
"nrealized profit of sale of land I,...!
6ealized income for 0.1E =-0,...
Amortization of differential =-.,... C -. years! -,...!
=--,...
Proportion of ownership held by Petime x .H.
Income attributable to controlling interest H,H..
Income to controlling interest =E2,H..
b. *eparate operating income of Petime &orporation =2E,...
6eported net income by "nited Jrain &ompany =-H,...
Amortization of differential =-.,... C -. years! -,...!
=-@,...
Proportion of stock held by Petime x .H.
Income attributable to controlling interest -9,0..
"nrealized profit on sale of land I,...!
Income to controlling interest =E2,0..
6eported income will decrease by =I... In the upstream case the unrealized profit
=I,...! is apportioned to both ma)ority =9,2..! and noncontrolling =I..!
shareholders. In the downstream case, it is apportioned entirely to the ma)ority
shareholders =I,...!.
P6-25 S+8,$*$)1 N!# I%"o(!
a. $oll &orporationBs reported net income for 0.1E was =HE,E..5
Income assigned to noncontrolling shareholders =-I,;..
Add5 "nrealized profit on building =0.,... x .0;! ;,...
Amortization of differential =E,E.. x .0;! -,-.
.
Income assigned to noncontrolling interest before
ad)ustment
=02,9..
Proportion of stock held by noncontrolling interest O .0;
6eported income of $oll =HE,E..
&omputation of annual amortization5
Fair value of consideration given by ?old =2E@,...
Fair value of noncontrolling interest --9,...
$otal fair value =E9E,...
?ook value of $ollBs assets5
&ommon stock =-;.,...
6etained earnings 0I.,...
$otal book value E0.,...!
/ifferential paid by ?old = EE,...
,umber of years in amortization period O -.
Annual amortization =E,E..
6-31
P6-25 continued!
b. &onsolidated net income for 0.1E is =2.E,...5
?old &orporationBs operating income =02E,...
$oll &orporationBs net income HE,E..
Amortization of differential =EE,... C -. years! E,E..!
"nrealized profit on building 0.,...!
&onsolidated net income =2.E,...
c. Income assigned to controlling interest is =0@9,;..5
&onsolidated net income =2.E,...
Income assigned to noncontrolling interest -I,;..!
Income assigned to controlling interest =0@9,;..
Alternate computation5
(perating income of ?old =02E,...
Income from $oll5
,et income of $oll =HE,E..
"nrealized profit on building 0.,...!
Amortization of differential E,E..!
6ealized income =I.,...
Portion of ownership held x .I; ;0,;..
Income to controlling interest =0@9,;..
6-32
P6-26 T)%,&! o& A,,!# &o( O%! S+8,$*$)1 #o A%o#5!
?ugle &ook Products &onsolidated
&orporation &orporation 3ntity
/epreciation expense = ### = 2,... = 0,...
Fixed assets N %arehouse ### E;,... E.,...
Accumulated depreciation ### 2,... -0,...
Jain on sale of warehouse -;,... ### ###
P6-27 Co%,o'$*)#!* E'$($%)#$%0 E%#1
a. 4aster paid 6akel =E9.,... =9..,... # =-E.,...!.
b. Accumulated deprecation at >anuary -, 0.1I, was =-9@,..., computed as follows5
Purchase price paid by 6akel =9..,...
Amount paid by 4aster =E9.,...
Jain recorded by 6akel 0@,...!
?ook value at date of sale E20,...!
Accumulated depreciation at date of sale =-9@,...
c. Annual depreciation expense recorded by 6akel was =0@,...
=-9@,...C9 years!.
d. $he estimated residual value was =E.,..., computed as follows5
Purchase price paid by 6akel =9..,...
Amount to be depreciated by 6akel =0@,... x 0. years! ;9.,...!
3stimated residual value = E.,...
e. 4aster &orporation recorded depreciation expense of =2.,... in 0.1I 8=E9.,... #
=E.,...! C -E years!.
f. 6eported net income of 6akel = @.,...
"nrealized gain on sale of building =0@,... # =0,...! 09,...!
= ;E,...
Proportion of stock held by noncontrolling interest x .E.
Income assigned to noncontrolling interest = 0-,9..
g. 6eported net income of 6akel = 9;,...
Portion of gain on sale of building realized in 0.1@ 0,...
= 9I,...
Proportion of stock held by noncontrolling interest x .E.
Income assigned to noncontrolling interest = 09,@..
6-33
P6-28 4+'#$.'!-C5o$"! Q+!,#$o%,
-. d
0. c
2. a
E. a
;. d
P6-29 I%#!"o(.)%1 S!/$"!, Po/$*!* #o S+8,$*$)1
$he eliminating entry at /ecember 2-, 0.1E, would be5
*ervice 6evenue --.,...
?uilding 2.,...
%age 3xpense @.,...
$he eliminating entries at /ecember 2-, 0.1;, would be5
6etained 3arnings 2.,...
?uilding 2.,...
Accumulated /epreciation -,0..
/epreciation 3xpense -,0..
P6-30 Co%,o'$*)#!* N!# I%"o(! <$#5 I%#!"o.o)#! T)%,&!,
a. 3ntry to record intercompany transfer of e+uipment, 0.195
&ash 0E.,...
Accumulated /epreciation -E.,...
3+uipment 2;.,...
6ecord sale of e+uipment to *ubsidence
4ining5
=-E.,... L =2;.,... C -. years! x E years
6-34
P6-30 continued!
b. 0.1I eliminating entries related to intercorporate transfers5
3-! <and 9.,...
<oss on *ale of <and 9.,...
3liminate unrealized loss on land5
=9.,... L =;9.,... # =;..,...
30! 3+uipment --.,...
6etained 3arnings, >anuary - 0;,...
3liminate unrealized profit on e+uipment5
=--.,... L =2;.,... # =0E.,...
=0;,... L =2.,... # =;,...
=-2.,... L =2;,... x 9! # =E.,... x 0!
=;,... L =E.,... # =2;,...
c. *ubsidence 4ining's 0.1I net income was =H.,...5
*ubsidence 4ining's income to noncontrolling
shareholders = 2H,...
,oncontrolling interest's share of subsidiary income O .2.
*ubsidence 4ining's income before ad)ustment =-2.,...
Add5 Amortization of differential5
=0..,... C -. years! 0.,...
<ess5 "nrealized loss on intercompany sale of land 9.,...!
*ubsidence 4ining's 0.1I net income = H.,...
d. ?owerBs operating income was =@09,...5
&onsolidated net income =H9-,...
<ess5 Income to noncontrolling interest 2H,...!
Income assigned to controlling interest =H00,...
Income from *ubsidence 4ining5
6eported net income = H.,...
"nrealized loss on land 9.,...
Amortization of differential =0..,... C -. years! 0.,...!
6ealized income =-2.,...
Portion of ownership held x .I.
?owerBs share = H-,...
6ealized profit on e+uipment =2.,... C 9 years! ;,... H9,...!
?owerBs 0.1I income from its separate operations =@09,...
6-35
P6-31 Co(.+#)#$o% o& R!#)$%!* E)%$%0, &o''o<$%0 4+'#$.'! T)%,&!,
&onsolidated retained earnings, >anuary -, 0.1@5
Jreat &ompanyBs retained earnings, >anuary - =E;.,...
"nrealized profit on land =-9,... x .@.! -0,@..!
"nrealized profit on depreciable assets
8=00,... # =0,0.. x 0!: -I,9..!
&onsolidated retained earnings =E-H,9..
&onsolidated retained earnings, /ecember 2-, 0.1@5

&onsolidated retained earnings, >anuary - =E-H,9..
Jreat &ompanyBs operating income for 0.1@ =9;,...
<ess5 /ividends paid in 0.1@ E;,...!
Increase in retained earnings from JreatBs operations 0.,...
4eagerBs net income for 0.1@ = 2.,...
<ess5 Amortization of differential assigned to e+uipment5
=20;,... # =0H.,...! C -. years 2,;..!
Impairment of goodwill -I,;..!
6ealized income = H,...
Proportion of ownership held x .@. I,0..
6ealization of gain on sale of building
=00,... C -. years! 0,0..
&onsolidated retained earnings =EEH,...
Alternate computation of retained earnings balance5
Jreat &ompanyBs retained earnings, >anuary - =E;.,...
(perating income for 0.1@ 9;,...
/ividends paid in 0.1@ E;,...!
Investment income from 4eager &ompany for 0.1@5
4eager's net income =2.,...
Proportion of ownership held x .@.
Proportionate share of 4eagerBs reported net income 0E,...
Amortization of differential assigned to e+uipment5
8=20;,... # =0H.,...! x .@.: C -. years 0,@..!
Joodwill impairment loss =-I,;.. x .@.! -E,...!
Jreat &ompanyBs retained earnings =EII,0..
"nrealized profit on land =-9,... x .@.! -0,@..!
"nrealized profit on depreciable assets
8=00,... # =0,0.. x 2!: -;,E..!
&onsolidated retained earnings =EEH,...
6-36
P6-32 P!.))#$o% o& Co%,o'$*)#!* -)')%"! S5!!#
a. &onsolidated balance sheet workpaper5
<ofton &ompany and $emple &orporation
&onsolidated ?alance *heet %orkpaper
/ecember 2-, 0.19
<ofton $emple 3liminations &onsol#
Item &ompany &orp. /ebit &redit idated
&ash and Accounts
6eceivable -.-,... 0.,... -0-,...
Inventory @.,... E.,... -0.,...
<and -;.,... H.,... 0! -.,... 0;.,...
?uildings and 3+uipment E..,... 2..,... 2! H,... I.H,...
Investment in $emple
&orporation *tock -;.,... -!-;.,...
/ebits @@-,... E;.,... -,0..,...
Accum. /epreciation -2;,... @;,... 2! 0E,... 0EE,...
Accounts Payable H.,... 0;,... --;,...
,otes Payable 0..,... H.,... 0H.,...
&ommon *tock -..,... 0..,... -!0..,... -..,...
6etained 3arnings, 2;9,... ;.,... -! ;.,... 0! 9,...
2! -;,... 2EI,...
,oncontrolling Interest -!-..,...
0! E,... -.E,...
&redits @@-,... E;.,... 0@E,... 0@E,... -,0..,...
6-37
P6-32 continued!
3liminating entries5
3-! &ommon *tock N $emple &orporation 0..,...
6etained 3arnings ;.,...
Investment in $emple &orporation *tock -;.,...
,oncontrolling Interest -..,...
3liminate investment account balance.
30! <and -.,...
6etained 3arnings 9,...
,oncontrolling Interest E,...
3liminate unrealized loss on sale of land.
32! ?uildings and 3+uipment H,...
6etained 3arnings -;,...
Accumulated /epreciation 0E,...
3liminate unrealized gain on sale of
e+uipment.
6e+uired 8=-..,... C -. years! x ; years: = ;.,...
6ecorded 8=H-,... C I years! x 0 years: 09,...!
6e+uired increase = 0E,...
Jain recorded by $emple &orporation,
>anuary -, 0.1; = 0-,...
6ealized in 0.1; and 0.19 =2,... x 0 years! 9,...!
"nrealized balance, /ecember 2-, 0.19 = -;,...
6-3
P6-32 continued!
b. &onsolidated balance sheet5
<ofton &ompany and *ubsidiary
&onsolidated ?alance *heet
/ecember 2-, 0.19
&ash and Accounts 6eceivable =-0-,...
Inventory -0.,...
<and 0;.,...
?uildings and 3+uipment =I.H,...
<ess5 Accumulated /epreciation 0EE,...! E9;,...
$otal Assets =H;9,...
Accounts Payable =--;,...
,otes Payable 0H.,...
*tockholdersB 3+uity5
&ontrolling Interest5
&ommon *tock =-..,...
6etained 3arnings 2EI,...
$otal &ontrolling Interest =EEI,...
,oncontrolling interest -.E,...
$otal *tockholdersB 3+uity ;;-,...
$otal <iabilities and *tockholders' 3+uity =H;9,...
6-3!
P6-33 Co%,o'$*)#$o% Wo>.).! <$#5 I%#!"o(.)%1 T)%,&!,
a. 3liminating entries5
3-! Income from *ubsidiary -H,;..
/ividends /eclared 2,0;.
Investment in ?lank &orp. *tock -9,0;.
=-H,;.. L =2.,... x .9;
=2,0;. L =;,... x .9;
30! Income to ,oncontrolling Interest 9,09;
/ividends /eclared -,I;.
,oncontrolling Interest E,;-;
=9,09; L =2.,... # =-2,0.. A =-,-..! x .2;
=-,I;. L =;,... x .2;
32! &ommon *tock N ?lank &orporation 9.,...
6etained 3arnings, >anuary - @;,...
Investment in ?lank &orp. *tock HE,0;.
,oncontrolling Interest ;.,I;.
3liminate beginning investment balance5
=@;,... L =--.,... # =2.,... # =;,...!
=HE,0;. L =--.,;.. # =-9,0;.
=;.,I;.L =--.,... A =9.,... # =0;,...! x .2;
3E! *ales and *ervice 6evenue 0E,...
(ther 3xpenses 0E,...
3liminate intercompany services.
3;! Jain on *ale of <and E,...
<and E,...
3liminate gain on sale of land to
?lank &orporation.
39! Jain on *ale of ?uilding -2,0..
/epreciation 3xpense -,-..
?uildings and 3+uipment net! -0,-..
3liminate gain on sale of building to
4ist &ompany.
6-40
P6-33 continued!
b. 4ist &ompany and ?lank &orporation
&onsolidation %orkpaper
/ecember 2-, 0.1E
4ist ?lank 3liminations &onsol#
Item &ompany &orp. /ebit &redit idated
*ales and *ervice
6evenue 0@9,;.. -0@,;.. E! 0E,... 2H-,...
Jain on *ale of <and E,... ;! E,...
Jain on *ale of
?uilding -2,0.. 9! -2,0..
Income from *ubsidiary -H,;.. -! -H,;..
&redits 2-.,... -E-,I.. 2H-,...
&ost of Joods *old -9.,... I;,... 02;,...
/epreciation 3xpense 00,... -H,... 9! -,-.. 2H,H..
(ther 3xpenses I9,... -I,I.. E! 0E,... 9H,I..
/ebits 0;@,...! ---,I..! 2EE,9..!
&onsolidated ,et Income E9,E..
Income to ,oncon#
trolling Interest 0! 9,09; 9,09;!
Income, carry forward ;0,... 2.,... 99,H9; 0;,-.. E.,-2;
6et. 3arnings, >an. - -H@,... @;,... 2! @;,... -H@,...
Income, from above ;0,... 2.,... 99,H9; 0;,-.. E.,-2;
0;.,... --;,... 02@,-2;
/ividends /eclared 0;,...! ;,...! -! 2,0;.
0! -,I;. 0;,...!
6et. 3arnings, /ec. 2-,
carry forward 00;,... --.,... -;-,H9; 2.,-.. 0-2,-2;
&ash 20,;.. 00,... ;E,;..
Accounts 6eceivable 90,... 2I,... HH,...
Inventory H;,... I-,... -99,...
<and E.,... -;,... ;! E,... ;-,...
?uildings and 3+uipment
net! 0..,... -0;,... 9! -0,-.. 2-0,H..
Investment in ?lank
&orporation *tock --.,;.. -! -9,0;.
2! HE,0;.
/ebits ;E.,... 0I.,... 9@2,E..
Accounts Payable 2;,... 0.,... ;;,...
?onds Payable -@.,... @.,... 09.,...
&ommon *tock -..,... 9.,... 2! 9.,... -..,...
6etained 3arnings,
from above 00;,... --.,... -;-,H9; 2.,-.. 0-2,-2;
,oncontrolling Interest 0! E,;-;
2! ;.,I;. ;;,09;
&redits ;E.,... 0I.,... 0--,H9; 0--,H9; 9@2,E..
6-41
P6-33 continued!
c. 4ist &ompany and *ubsidiary
/ecember 2-, 0.1E
&ash = ;E,;..
Accounts 6eceivable HH,...
Inventory -99,...
<and ;-,...
?uildings and 3+uipment net! 2-0,H..
$otal Assets =9@2,E..
Accounts Payable = ;;,...
?onds Payable 09.,...
&ommon *tock =-..,...
6etained 3arnings 0-2,-2;
$otal &ontrolling Interest =2-2,-2;
,oncontrolling Interest ;;,09;
$otal *tockholdersB 3+uity 29@,E..
$otal <iabilities and *tockholders' 3+uity =9@2,E..
4ist &ompany and *ubsidiary
&onsolidated Income *tatement
7ear 3nded /ecember 2-, 0.1E
*ales =2H-,...
&ost of Joods *old =02;,...
/epreciation 3xpense 2H,H..
(ther 3xpenses 9H,I..
$otal 3xpenses 2EE,9..!
&onsolidated ,et Income = E9,E..
Income to ,oncontrolling Interest 9,09;!
Income to &ontrolling Interest = E.,-2;
4ist &ompany and *ubsidiary
&onsolidated 6etained 3arnings *tatement
7ear 3nded /ecember 2-, 0.1E
6etained 3arnings, >anuary -, 0.1E =-H@,...
Income to &ontrolling Interest, 0.1E E.,-2;
=02@,-2;
/ividends /eclared, 0.1E 0;,...!
6etained 3arnings, /ecember 2-, 0.1E =0-2,-2;
6-42
P6-34 Co%,o'$*)#$o% Wo>.).! $% :!) o& I%#!"o(.)%1 T)%,&!
a. 3liminating entries, /ecember 2-, 0.195
/ividends /eclared E,...
Investment in <ane &ompany *tock 0@,...
30! Income to ,oncontrolling Interest E,E..
/ividends /eclared -,...
,oncontrolling Interest 2,E..
=E,E.. L =E.,... # =-@,...! x .0.
32! &ommon *tock N <ane &ompany -..,...
6etained 3arnings, >anuary - -.;,...
/ifferential ;.,...
Investment in <ane &ompany *tock 0.E,...
,oncontrolling Interest ;-,...
3E! Joodwill ;.,...
/ifferential ;.,...
Assign differential to goodwill.
3;! Joodwill Impairment <oss -@,...
Joodwill -@,...
6ecognize impairment of goodwill.
39! 6etained 3arnings, >anuary - @,...
,oncontrolling Interest 0,...
<and -.,...
3I! ?uildings and 3+uipment ;,...
/epreciation and Amortization 3xpense 0,...
Accumulated /epreciation 02,...
3liminate intercorporate sale
of e+uipment.
/epreciation expense ad)ustment5
/epreciation recorded =I.,... C -. years! = I,...
/epreciation re+uired =I;,... C -; years! ;,...!
6e+uired decrease = 0,...
6e+uired balance =;,... x 9 years! =2.,...
?alance recorded =I,... x - year! I,...!
6e+uired increase =02,...
3@! Accounts Payable I,...
Accounts 6eceivable I,...
3liminate intercorporate
receivableCpayable.
6-43
P6-34 continued!
b. Prime &ompany and <ane &ompany
/ecember 2-, 0.19
Prime <ane 3liminations &onsol#
Item &ompany &ompany /ebit &redit idated
*ales 0E.,... -0.,... 29.,...
Jain on *ale of 3+uip. 0.,... I! 0.,...
Income from *ubsidiary 20,... -! 20,...
&redits 0H0,... -0.,... 29.,...
&ost of Joods *old -E.,... 9.,... 0..,...
/eprec. P Amortization 0;,... -;,... I! 0,... 2@,...
Joodwill Impairment <oss ;! -@,... -@,...
(ther 3xpenses -;,... ;,... 0.,...
/ebits -@.,...! @.,...! 0I9,...!
&onsolidated ,et Income @E,...
Income to ,oncon#
trolling Interest 0! E,E.. E,E..!
Income, carry forward --0,... E.,... IE,E.. 0,... IH,9..
6et. 3arnings, >an. - 22@,... -.;,... 2!-.;,...
9! @,... 22.,...
Income, from above --0,... E.,... IE,E.. 0,... IH,9..
E;.,... -E;,... E.H,9..
/ividends /eclared 2.,...! ;,...! -! E,...
0! -,... 2.,...!
carry forward E0.,... -E.,... -@I,E.. I,... 2IH,9..
&ash and 6eceivables --2,... 2;,... @! I,... -E-,...
Inventory 09.,... H.,... 2;.,...
<and @.,... @.,... 9! -.,... -;.,...
?uildings and 3+uipment ;..,... -;.,... I! ;,... 9;;,...
Investment in <ane
&ompany *tock 020,... -! 0@,...
2!0.E,...
/ifferential 2! ;.,... E! ;.,...
Joodwill E! ;.,... ;! -@,... 20,...
/ebits -,-@;,... 2;;,... -,20@,...
Accum. /epreciation 0.;,... E;,... I! 02,... 0I2,...
Accounts Payable 9.,... 0.,... @! I,... I2,...
?onds Payable 0..,... ;.,... 0;.,...
&ommon *tock 2..,... -..,... 2!-..,... 2..,...
6etained 3arnings,
from above E0.,... -E.,... -@I,E.. I,... 2IH,9..
,oncontrolling Interest 9! 0,... 0! 2,E..
2! ;-,... ;0,E..
&redits -,-@;,... 2;;,... E.-,E.. E.-,E.. -,20@,...
6-44
P6-34 continued!
c. Prime &ompany and *ubsidiary
/ecember 2-, 0.19
&ash and 6eceivables = -E-,...
Inventory 2;.,...
<and -;.,...
?uildings and 3+uipment =9;;,...
<ess5 Accumulated /epreciation 0I2,...! 2@0,...
Joodwill 20,...
$otal Assets =-,.;;,...
Accounts Payable = I2,...
?onds Payable 0;.,...
&ommon *tock =2..,...
6etained 3arnings 2IH,9..
$otal &ontrolling Interest =9IH,9..
$otal ,oncontrolling Interest ;0,E..
$otal *tockholdersB 3+uity I20,...
$otal <iabilities and *tockholders' 3+uity =-,.;;,...
Prime &ompany and *ubsidiary
&onsolidated Income *tatement
7ear 3nded /ecember 2-, 0.19
*ales = 29.,...
&ost of Joods *old =0..,...
/epreciation and Amortization 3xpense 2@,...
Joodwill Impairment <oss -@,...
(ther 3xpenses 0.,...
$otal 3xpenses 0I9,...!
&onsolidated ,et Income = @E,...
Income to ,oncontrolling Interest E,E..!
Income to &ontrolling Interest = IH,9..
Prime &ompany and *ubsidiary
&onsolidated 6etained 3arnings *tatement
7ear 3nded /ecember 2-, 0.19
6etained 3arnings, >anuary -, 0.19 = 22.,...
Income to &ontrolling Interest, 0.19 IH,9..
= E.H,9..
/ividends /eclared, 0.19 2.,...!
6etained 3arnings, /ecember 2-, 0.19 = 2IH,9..
6-45
P6-35 I%#!"o.o)#! S)'!, $% P$o :!),
a. 3liminating entries, /ecember 2-, 0.1@5
3-! Income from *ubsidiary 0-,...
/ividends /eclared @,...
Investment in *kate &ompany *tock -2,...
30! Income to ,oncontrolling Interest ;,0;.
,oncontrolling Interest 2,0;.
=;,0;. L =2.,... # =0,;.. # =-,0;.! x .0.
32! &ommon *tock N *kate &ompany 2.,...
Additional Paid#In &apital N *kate &ompany 0.,...
6etained 3arnings, >anuary - -;.,...
/ifferential 92,I;.
Investment in *kate &ompany *tock 0--,...
,oncontrolling Interest ;0,I;.
=92,I;. L =I;,... Q 8=;.,... C 0. years!
A =0;,... C 0. years!: x 2 years
3E! Patents E0,;..
?uildings and 3+uipment 0;,...
Accumulated /epreciation 2,I;.
/ifferential 92,I;.
Assign differential5
=E0,;.. L =;.,... # 8=;.,... C 0. years!
x 2 years:
=2,I;. L =0;,... C 0. years! x 2 years
3;! Amortization 3xpense 0,;..
/epreciation 3xpense -,0;.
Patents 0,;..
Accumulated /epreciation -,0;.
Amortize differential.
39! ?uildings and 3+uipment 9.,...
6etained 3arnings, >anuary - -;,...
/epreciation 3xpense -,;..
Accumulated /epreciation I2,;..
3liminate unrealized profit on buildings5
=9.,... L =-0;,... # =9;,...
=-;,... L =9;,... # =-0;,... # =I;,...!
= -,;.. L =9;,... C -. years! #
=-0;,... C 0; years!
=I2,;.. L =;,... x -9 years! # =9,;..
x - year!
6-46
P6-35 continued!
3I! 6etained 3arnings, >anuary - -.,E..
,oncontrolling Interest 0,9..
<and -2,...
3liminate unrealized profit on land.
6-47
P6-35 continued!
b. Pond &orporation and *kate &ompany
/ecember 2-, 0.1@
Pond *kate 3liminations &onsol#
Item &orp. &o. /ebit &redit idated
*ales E;.,... 0;.,... I..,...
Income from *ubsidiary 0-,... -! 0-,...
Interest Income -E,H.. -E,H..
&redits E@;,H.. 0;.,... I-E,H..
&ost of Joods *old 0@;,... -29,... E0-,...
(ther (perating 3xpenses ;.,... E.,... H.,...
/epreciation 3xpense 2;,... 0E,... ;! -,0;. 9! -,;.. ;@,I;.
Interest 3xpense 0E,... -.,;.. 2E,;..
4iscellaneous 3xpenses --,H.. H,;.. 0-,E..
Amortization 3xpense ;! 0,;.. 0,;..
/ebits E.;,H..! 00.,...! 90@,-;.!
&onsolidated ,et Income @9,I;.
Income to ,oncon#
trolling Interest 0! ;,0;. ;,0;.!
Income, carry forward @.,... 2.,... 2.,... -,;.. @-,;..
6et. 3arnings, >an. - 0E-,E.. -;.,... 2!-;.,...
9! -;,...
I! -.,E.. 0-9,...
,et Income, from above @.,... 2.,... 2.,... -,;.. @-,;..
20-,E.. -@.,... 0HI,;..
/ividends /eclared 2.,...! -.,...! -! @,...
0! 0,... 2.,...!
carry forward 0H-,E.. -I.,... 0.;,E.. --,;.. 09I,;..
&ash 9@,E.. EI,... --;,E..
Accounts 6eceivable -2.,... 9;,... -H;,...
Interest and
(ther 6eceivables E;,... -.,... ;;,...
Inventory -E.,... ;.,... -H.,...
<and ;.,... 00,... I! -2,... ;H,...
?uildings and 3+uipment E..,... 0E.,... E! 0;,...
9! 9.,... I0;,...
Investment in *kate
&ompany *tock 00E,... -! -2,...
2!0--,...
Investment in $in &o.
?onds -2E,... -2E,...
?ond /iscount 2,... 2,...
/ifferential 2! 92,I;. E! 92,I;.
Patents E! E0,;.. ;! 0,;.. E.,...
/ebits -,-H-,E.. E2I,... -,;-9,E..
6-4
P6-35 continued!
Pond *kate 3liminations &onsol#
Accum. /epreciation -@;,... HE,... E! 2,I;.
;! -,0;.
9! I2,;.. 2;I,;..
Accounts Payable 9;,... --,... I9,...
Interest and
(ther Payables E;,... -0,... ;I,...
?onds Payable 2..,... -..,... E..,...
&ommon *tock
Pond &orporation -;.,... -;.,...
*kate &ompany 2.,... 2! 2.,...
Additional Paid#In
&apital -;;,... 0.,... 2! 0.,... -;;,...
6etained 3arnings,
from above 0H-,E.. -I.,... 0.;,E.. --,;.. 09I,;..
,oncontrolling
Interest I! 0,9.. 0! 2,0;.
2! ;0,I;. ;2,E..
&redits -,-H-,E.. E2I,... EEH,0;. EEH,0;. -,;-9,E..
6-4!
P6-36 I%#!"o.o)#! S)'! o& L)%* )%* D!.!"$)8'! A,,!#
a. Income assigned to noncontrolling interest5
,et income of 4orris = 2.,...
Jain on sale of e+uipment to parent =H,9..
Jain realized prior to 0.1; -,0..! @,E..!
Amortization of differential5
?uildings and e+uipment =0;,... C -. years! 0,;..!
&opyright =-I,... C ; years! 2,E..!
6ealized income =-;,I..
Portion of ownership held x .2.
Income to noncontrolling interest = E,I-.
Jain on sale of e+uipment to parent5
*ale price to $opp =H-,9..
Purchase price =-..,...
8=-..,... # =-.,...!C-. years: x 0 years -@,...! @0,...!
Jain on sale = H,9..
b. 6econciliation between book value and investment balance at /ecember
2-, 0.1;5
"nderlying book value of 4orris &ompany stock5
&ommon stock outstanding =-..,...
6etained earnings, >anuary -, 0.1; -..,...
,et income for 0.1; 2.,...
/ividends paid in 0.1; ;,...!
,et book value =00;,...
Portion of ownership held by $opp x .I.
,et book value of ownership held by $opp =-;I,;..
"namortized differential5
?uildings and e+uipment 8=0;,... x IC-. years! x .I.: -0,0;.
&opyright 8=-I,... x 0C; years! x .I.: E,I9.
Investment in 4orris &ompany stock =-IE,;-.
c. 3liminating entries5
3-! Income from *ubsidiary -9,@I.
/ividends /eclared 2,;..
Investment in 4orris &ompany *tock -2,2I.
=-9,@I. L =2.,... x .I.! # =-,I;. # =0,2@.
=2,;.. L =;,... x .I.
30! Income to ,oncontrolling Interest E,I-.
/ividends /eclared -,;..
,oncontrolling Interest 2,0-.
Assign income to noncontrolling interest.

6-50
P6-36 continued!
32! &ommon *tock N 4orris &ompany -..,...
/ifferential 2.,0..
Investment in 4orris &ompany *tock -9-,-E.
,oncontrolling Interest 9H,.9.
=2.,0.. L =0;,... x @C-.! A =-I,... x 2C;!
3E! ?uildings and 3+uipment 0;,...
&opyright -.,0..
Accumulated /epreciation ;,...
/ifferential 2.,0..
Assign beginning differential.
3;! /epreciation 3xpense 0,;..
Amortization 3xpense 2,E..
Accumulated /epreciation 0,;..
&opyright 2,E..
Amortize differential.
39! 6etained 3arnings, >anuary - --,...
<and --,...
3I! 3+uipment @,E..
Jain on *ale of 3+uipment H,9..
/epreciation 3xpense -,0..
Accumulated /epreciation -9,@..
3liminate intercorporate sale of e+uipment5
=@,E.. L =-..,... # =H-,9..
=H,9.. L =H-,9.. # =-..,... # =-@,...!
=-,0.. L =@-,9.. C @ years!
# =H.,... C -. years!
=-9,@.. L =H,... x 2 years!
# =-.,0.. x - year!
6-51
P6-36 continued!
d. $opp &orporation and 4orris &ompany
/ecember 2-, 0.1;
$opp 4orris 3liminations &onsol#
*ales E;.,... -H.,E.. 9E.,E..
(ther Income 0@,0;. 0@,0;.
Jain on *ale of
3+uipment H,9.. I! H,9..
Income from *ubsidiary -9,@I. -! -9,@I.
&redits EH;,-0. 0..,... 99@,9;.
&ost of Joods *old 2I;,... --.,... E@;,...
/epreciation 3xpense 0;,... -.,... ;! 0,;.. I! -,0.. 29,2..
Interest 3xpense 0E,... 22,... ;I,...
(ther 3xpenses 0@,... -I,... E;,...
Amortization 3xpense ;! 2,E.. 2,E..
/ebits E;0,...! -I.,...! 909,I..!
&onsolidated ,et Income E-,H;.
Income to ,oncon#
trolling Interest 0! E,I-. E,I-.!
Income, carry forward E2,-0. 2.,... 2I,.@. -,0.. 2I,0E.
6et. 3arnings, >an. - -I9,0E. -..,... 2!-..,...
9! --,... -9;,0E.
Income, from above E2,-0. 2.,... 2I,.@. -,0.. 2I,0E.
0-H,29. -2.,... 0.0,E@.
/ividends /eclared 2.,...! ;,...! -! 2,;..
0! -,;.. 2.,...!
carry forward -@H,29. -0;,... -E@,.@. 9,0.. -I0,E@.
&ash -;,@;. ;@,... I2,@;.
Accounts 6eceivable 9;,... I.,... -2;,...
Interest and
(ther 6eceivables 2.,... -.,... E.,...
Inventory -;.,... -@.,... 22.,...
<and @.,... 9.,... 9! --,... -0H,...
?uildings and 3+uipment 2-;,... 0E.,... E! 0;,...
I! @,E.. ;@@,E..
?ond /iscount -;,... -;,...
Investment in 4orris
&ompany *tock -IE,;-. -! -2,2I.
2!-9-,-E.
/ifferential 2! 2.,0.. E! 2.,0..
&opyrights E! -.,0.. ;! 2,E.. 9,@..
/ebits @2.,29. 922,... -,2-@,.;.
6-52
P6-36 continued!
$opp 4orris 3liminations &onsol#
Accum. /epreciation
?uildings and 3+uip. -0.,... 9.,... E! ;,...
;! 0,;..
I! -9,@.. 0.E,2..
Accounts Payable 9-,... 0@,... @H,...
(ther Payables 2.,... 0.,... ;.,...
?onds Payable 0;.,... 2..,... ;;.,...
&ommon *tock
$opp &orporation -;.,... -;.,...
4orris &ompany -..,... 2!-..,...
Additional Paid#In
&apital 2.,... 2.,...
6etained 3arnings,
from above -@H,29. -0;,... -E@,.@. 9,0.. -I0,E@.
,oncontrolling
Interest 0! 2,0-.
2! 9H,.9. I0,0I.
&redits @2.,29. 922,... 20-,@@. 20-,@@. -,2-@,.;.
P6-37 Co%,o'$*)#$o% Wo>.).! $% :!) &o''o<$%0 I%#!"o(.)%1 T)%,&!
a. 6econciliation of underlying book value and balance in investment account5
,et book value reported by <ane &ompany
&ommon stock outstanding =-..,...
6etained earnings balance, >anuary -, 0.1I =-E.,...
,et income for 0.1I E;,...
/ividends paid in 0.1I 2;,...!
6etained earnings balance, /ecember 2-, 0.1I -;.,...
=0;.,...
Proportion of stock held by Prime &ompany x .@.
=0..,...
Add5 Joodwill ;.,... x .@.! E.,...
?alance in investment account =0E.,...
6-53
P6-37 continued!
b. 3liminating entries, /ecember 2-, 0.1I5
/ividends /eclared 0@,...
Investment in <ane &ompany *tock @,...
30! Income to ,oncontrolling Interest H,...
=H,... L =E;,... x .0.
6etained 3arnings, >anuary - -E.,...
/ifferential ;.,...
Investment in <ane &ompany *tock 020,...
,oncontrolling Interest ;@,...
=;.,... L =-9.,... A =E.,...! Q =;.,... A
=-..,...!
=020,... L =0E.,... # =@,...
=;@,... L =-..,... A =-E.,... A =;.,...! x .0.
3E! Joodwill 0;,...
/ifferential ;.,...
3;! 6etained 3arnings, >anuary - @,...
<and -.,...
39! ?uildings and 3+uipment ;,...
6etained 3arnings, >anuary - -@,...
Accumulated /epreciation 0-,...
6e+uired balance =;,... x I years! = 2;,...
?alance recorded =I,... x 0 years! -E,...!
6e+uired increase = 0-,...
3I! Accounts Payable E,...
Accounts 6eceivable E,...
receivableCpayable.
6-54
P6-37 continued!
b. Prime &ompany and <ane &ompany
/ecember 2-, 0.1I
*ales 0;.,... -;.,... E..,...
Income from *ubsidiary 29,... -! 29,...
&redits 0@9,... -;.,... E..,...
&ost of Joods *old -9.,... @.,... 0E.,...
/eprec. and Amortization 0;,... -;,... 9! 0,... 2@,...
(ther 3xpenses 0.,... -.,... 2.,...
/ebits 0.;,...! -.;,...! 2.@,...!
&onsolidated ,et Income H0,...
Income to ,oncon#
trolling Interest 0! H,... H,...!
Income, carry forward @-,... E;,... E;,... 0,... @2,...
6et. 3arnings, >an. - E0.,... -E.,... 2! -E.,...
E! 0.,...
;! @,...
9! -@,... 2IE,...
Income, from above @-,... E;,... E;,... 0,... @2,...
;.-,... -@;,... E;I,...
/ividends /eclared 9.,...! 2;,...! -! 0@,...
0! I,... 9.,...!
carry forward EE-,... -;.,... 02-,... 2I,... 2HI,...
&ash and 6eceivables -;-,... ;;,... I! E,... 0.0,...
Inventory 0E.,... -..,... 2E.,...
<and -..,... @.,... ;! -.,... -I.,...
?uildings and 3+uipment ;..,... -;.,... 9! ;,... 9;;,...
Investment in <ane
&ompany *tock 0E.,... -! @,...
2!020,...
/ifferential 2! ;.,... E! ;.,...
Joodwill E! 0;,... 0;,...
/ebits -,02-,... 2@;,... -,2H0,...
Accum. /epreciation 02.,... 9.,... 9! 0-,... 2--,...
Accounts Payable 9.,... 0;,... I! E,... @-,...
?onds Payable 0..,... ;.,... 0;.,...
&ommon *tock 2..,... -..,... 2!-..,... 2..,...
6etained 3arnings,
from above EE-,... -;.,... 02-,... 2I,... 2HI,...
,oncontrolling Interest E! ;,... 0! 0,...
;! 0,... 2! ;@,... ;2,...
&redits -,02-,... 2@;,... E00,... E00,... -,2H0,...
6-55
P6-38 I%"o(.'!#! D)#)
a! =-..,...
b! =-E.,...
c! =0;.,... L =;H2,... # =2E2,...
d! =-..,... L =-09,... # =2;,...! A 8=0;,... A =@;,...! # =-.-,...:
e! =E,;.. L 8=-.9,0.. A =I.,@..! # =;.,... A =I.,... A =2.,...!: C 9 years
f! Investment in *hadow &ompany *tock5
=-.9,0.. Purchase price, >anuary -, 0.1E
2.,... "ndistributed earnings from >anuary -, 0.1E,
to >anuary -, 0.1I 8=@.,... # =2.,...! x .9.:
9,... "ndistributed income for 0.1I =-.,... x .9.!
-.,@..! Amortization of differential
8=0I,... C 9 years! x E years: x .9.
=-2-,E.. ?alance in investment account at /ecember 2-, 0.1I
g! =I,... L =I.,... A =H.,...! # =-;2,...
h! =#.#
i! =;-.,... L =2E;,... A =-;.,... A =9.,... # =E;,...!
)! =0I@,... L =-@.,... A =@.,... A 8=9.,... C ; years! x E years:
# 8=E;,... C 2 years! x 0 years!
k! &onsolidated retained earnings at >anuary -, 0.1I5
=2IH,E.. 6etained earnings reported by 4ound &orporation
4ound's share of unrealized profit on sale of
e+uipment
=H,... Jain recorded5 8=E;,... # =9.,... x 2 C ;!:
2,...! Amortized in 0.195 =H,... C 2!
=9,... "namortized gain
x .9. 4ound's proportionate share
2,9..! =2,9.. 6eduction of 4oundBs retained earnings
=2I;,@.. &onsolidated retained earnings
l! Income to noncontrolling shareholders5
= 2.,... *hadow's 0.1I net income =0;.,... # =-H;,...
# =-.,... # =-;,...!
2,... 6ealized profit on 0.19 sale of e+uipment to 4ound
E,;..! Amortization of differential
= 0@,;.. 6ealized net income
x .E.
= --,E.. Income to noncontrolling shareholders
6-56
P6-39 I%#!"o(.)%1 S)'! o& E;+$.(!%# )# ) Lo,, $% P$o P!$o*
a. 3liminating entries5
3-! Income from *ubsidiary ;E,...
/ividends /eclared -@,...
Investment in ?lock &orporation *tock 29,...
30! Income to ,oncontrolling Interest ;,I..
,oncontrolling Interest 2,I..
=;,I.. L =9.,... # =2,...! x .-.
32! &ommon *tock N ?lock &orporation ;.,...
6etained 3arnings, >anuary - -;.,...
Investment in ?lock &orporation *tock -@.,...
,oncontrolling Interest 0.,...
3E! ?uildings and 3+uipment E0,...
6etained 3arnings, >anuary - -9,0..
,oncontrolling Interest -,@..
Accumulated /epreciation 0I,...
3liminate intercorporate sale of e+uipment.
/epreciation based on original cost
=H.,... C -. years! = H,...
/epreciation based on intercompany sale
price =E@,... C @ years! 9,...!
Ad)ustment to depreciation expense = 2,...
Ad)ustment to retained earnings
?ook value of e+uipment at time of sale
8=H.,... # =H,... x 0 years!: =I0,...
Intercompany sale price E@,...!
<oss recorded by ?lock on sale =0E,...
Partial realization of loss
8=H,... # =9,...! x 0 years: 9,...!
<oss not yet realized for consolidated
statement purposes =-@,...
Foster's proportionate share x .H.
Ad)ustment to retained earnings =-9,0..
6-57
P6-39 continued!
Ad)ustment to noncontrolling interest
<oss not yet realized for consolidated
statement purposes =-@,...
interest x .-.
Ad)ustment to noncontrolling interest = -,@..
Accumulated depreciation based on original
cost 8=H.,... C -. years! x ; years: =E;,...
Accumulated depreciation recorded by Foster
8=E@,... C @ years! x 2 years: -@,...!
Ad)ustment to accumulated depreciation =0I,...
6-5
P6-39 continued!
b. Foster &ompany and ?lock &orporation
/ecember 2-, 0.1H
Foster ?lock 3liminations &onsol#
Item &o. &orp. /ebit &redit idated
*ales 9@.,... 2@;,... -,.9;,...
(ther Income 09,... -;,... E-,...
Income from *ubsidiary ;E,... -! ;E,...
&redits I9.,... E..,... -,-.9,...
&ost of Joods *old ;..,... 0;.,... I;.,...
/epreciation 3xpense E;,... -;,... E! 2,... 92,...
(ther 3xpenses H;,... I;,... -I.,...
/ebits 9E.,...! 2E.,...! H@2,...!
&onsolidated ,et Income -02,...
Income to ,oncon#
trolling Interest 0! ;,I.. ;,I..!
Income, carry forward -0.,... 9.,... 90,I.. --I,2..
6et. 3arnings, >an. - 02;,... -;.,... 2!-;.,... E! -9,0.. 0;-,0..
Income, from above -0.,... 9.,... 90,I.. --I,2..
2;;,... 0-.,... 29@,;..
/ividends /eclared E.,...! 0.,...! -! -@,...
0! 0,... E.,...!
carry forward 2-;,... -H.,... 0-0,I.. 29,0.. 20@,;..
&ash @0,... 20,E.. --E,E..
Accounts 6eceivable @.,... H.,... -I.,...
(ther 6eceivables E.,... -.,... ;.,...
Inventory 0..,... -2.,... 22.,...
<and @.,... 9.,... -E.,...
?uildings and 3+uipment ;..,... 0;.,... E! E0,... IH0,...
Investment in ?lock
&orporation *tock 0-9,... -! 29,...
2!-@.,...
/ebits -,-H@,... ;I0,E.. -,;H9,E..
6-5!
P6-39 continued!
Foster ?lock 3liminations &onsol#
Item &o. &orp. /ebit &redit idated
Accum. /epreciation -;;,... I;,... E! 0I,... 0;I,...
Accounts Payable 92,... 2;,... H@,...
(ther Payables H;,... 0.,... --;,...
?onds Payable 0;.,... 0..,... E;.,...
?ond Premium 0,E.. 0,E..
&ommon *tock
Foster &ompany 0-.,... 0-.,...
?lock &orporation ;.,... 2! ;.,...
Additional Paid#In
&apital --.,... --.,...
6etained 3arnings,
from above 2-;,... -H.,... 0-0,I.. 29,0.. 20@,;..
,oncontrolling
Interest 0! 2,I..
2! 0.,...
E! -,@.. 0;,;..
&redits -,-H@,... ;I0,E.. 2.E,I.. 2.E,I.. -,;H9,E..
6-60
P6-40 Co(.!5!%,$/! Po8'!(9 I%#!"o.o)#! T)%,&!,
a. &omputation of differential as of >anuary -, 0.1@5
(riginal differential at /ecember 2-, 0.1- = -;.,...
<ess5 Portion written off for sale of inventory 2.,...!
6emaining differential, >anuary -, 0.1@ = -0.,...
b. Gerification of balance in Investment in *chmid *tock
account5
*chmid retained earnings, >anuary -, 0.1@ =-,E..,...
*chmid net income, 0.1@5
*ales =H@;,...
&ost of goods sold ;0;,...!
/epreciation and amortization @@,...!
(ther expenses 00I,...!
(ther income loss! 2;,...!
,et income --.,...
*chmid dividends, 0.1@ 0.,...!
*chmid retained earnings, /ecember 2-, 0.1@ =-,EH.,...
*chmid stockholders' e+uity5
&ommon stock =-,...,...
Additional paid#in capital -,2;.,...
6etained earnings, /ecember 2-, 0.1@ -,EH.,...
*tockholders' e+uity, /ecember 2-, 0.1@ =2,@E.,...
6ossman's ownership share x .I;
?ook value of shares held by 6ossman =0,@@.,...
6emaining differential at >anuary -, 0.1@
=-0.,... x .I;! H.,...
?alance in Investment in *chmid *tock
account, /ecember 2-, 0.1@ =0,HI.,...
c. 3limination entries5
3-! Income from *ubsidiary @0,;..
/ividends /eclared -;,...
Investment in *chmid *tock 9I,;..
30! Income to ,oncontrolling Interest 29,;..
/ividends /eclared ;,...
,oncontrolling Interest 2-,;..
=29,;.. L 8=--.,... A =E.,...
# =E.,... C -.!: x .0;
6-61
P6-40 continued!
32! &ommon *tock N *chmid -,...,...
Additional Paid#In &apital -,2;.,...
6etained 3arnings, >anuary - -,E..,...
/ifferential -0.,...
Investment in *chmid *tock 0,H.0,;..
,oncontrolling Interest H9I,;..
=0,H.0,;.. L =0,HI.,... # =9I,;..
=H9I,;.. L =-,...,... A =-,2;.,...
A =-,E..,... A =-0.,...! x .0;
3E! <and ;9,...
Joodwill 9E,...
/ifferential -0.,...
Assign differential.
3;! 6etained 3arnings, >anuary - 02,...
<and 02,...
39! ?uildings and 3+uipment -@;,...
/epreciation and Amortization E,...
Accumulated /epreciation -EH,...
(ther Income
<oss on *ale of 3+uipment! E.,...
3liminate unrealized loss on e+uipment5
=-@;,... L =E2;,... # =0;.,...
=E,... L =E2;,... C -;! # =0;.,... C -.!
=-EH,... L 8=E2;,... C -;! x ;: A =E,...
=E.,... L =0H.,... # =0;.,...
3I! (ther Income @.,...
(ther 3xpenses @.,...
3liminate intercompany sale of services.
3@! &urrent Payables 0.,...
&urrent 6eceivables 0.,...
3liminate intercompany receivableCpayable.
3H! &urrent Payables 2,I;.
&urrent 6eceivables 2,I;.
3liminate intercompany dividend owed5
=;,... x .I;
6-62
P6-40 continued!
d. 6ossman &orporation and *chmid /istributors Inc.
/ecember 2-, 0.1@
3liminations &onsol#
Item 6ossman *chmid /ebit &redit idated
*ales E,@.-,... H@;,... ;,I@9,...
Income from *ubsidiary @0,;.. -! @0,;..
(ther Income <oss! H.,... 2;,...! I! @.,... 9! E.,... -;,...
&redits E,HI2,;.. H;.,... ;,@.-,...
&ost of Joods *old 0,-H2,... ;0;,... 0,I-@,...
/epreciation
and Amortization 0.0,... @@,... 9! E,... 0HE,...
(ther 3xpenses -,2@-,... 00I,... I! @.,... -,;0@,...
/ebits 2,II9,...! @E.,...! E,;E.,...!
&onsolidated ,et Income -,09-,...
Income to ,oncon#
trolling Interest 0! 29,;.. 29,;..!
Income, carry forward -,-HI,;.. --.,... 0.2,... -0.,... -,00E,;..
6etained 3arnings,
>an. - -,EHI,@.. -,E..,... 2!-,E..,...
;! 02,... -,EIE,@..
Income, from above -,-HI,;.. --.,... 0.2,... -0.,... -,00E,;..
0,9H;,2.. -,;-.,... 0,9HH,2..
/ividends /eclared ;.,...! 0.,...! -! -;,...
0! ;,... ;.,...!
6etained 3arnings,
/ec. 2-, carry forward 0,9E;,2.. -,EH.,... -,909,... -E.,... 0,9EH,2..
6-63
P6-40 continued!
3liminations &onsol#
Item 6ossman *chmid /ebit &redit idated
&ash ;.,I.. 2@,... @@,I..
&urrent 6eceivables -.-,@.. @H,E.. @! 0.,...
H! 2,I;. -9I,E;.
Inventory 0@9,... 0-@,H.. ;.E,H..
Investment in *chmid
*tock 0,HI.,... -! 9I,;..
2!0,H.0,;..
<and E..,... -,0..,... E! ;9,... ;! 02,... -,922,...
?uildings
and 3+uipment 0,E..,... 0,HH.,... 9! -@;,... ;,;I;,...
Joodwill E! 9E,... 9E,...
/ifferential 2! -0.,... E! -0.,...
/ebits 9,0.@,;.. E,;29,2.. @,.22,.;.
Accumulated
/epreciation -,-.;,... E0.,... 9! -EH,... -,9IE,...
&urrent Payables @9,0.. I9,2.. @! 0.,...
H! 2,I;. -2@,I;.
?onds Payable -,...,... 0..,... -,0..,...
&ommon *tock
6ossman &orporation -..,... -..,...
*chmid /istributors -,...,... 2!-,...,...
Additional Paid#In
&apital -,0I0,... -,2;.,... 2!-,2;.,... -,0I0,...
6etained 3arnings,
from above 0,9E;,2.. -,EH.,... -,909,... -E.,... 0,9EH,2..
,oncontrolling Interest 0! 2-,;..
2! H9I,;.. HHH,...
&redits 9,0.@,;.. E,;29,2.. E,E0E,I;. E,E0E,I;. @,.22,.;.
6-64
P6-41A F+''1 A*=+,#!* E;+$#1 4!#5o*
a. Ad)usted trial balance5
Prime &ompany <ane &ompany
Item /ebit &redit /ebit &redit
&ash and Accounts 6eceivable = -;-,... = ;;,...
Inventory 0E.,... -..,...
<and -..,... @.,...
?uildings and 3+uipment ;..,... -;.,...
Investment in <ane &ompany
*tock 0-9,...
&ost of Joods *old -9.,... @.,...
/epreciation and Amortization 0;,... -;,...
(ther 3xpenses 0.,... -.,...
/ividends /eclared 9.,... 2;,...
Accumulated /epreciation = 02.,... = 9.,...
Accounts Payable 9.,... 0;,...
?onds Payable 0..,... ;.,...
&ommon *tock 2..,... -..,...
6etained 3arnings 2HE,... -E.,...
*ales 0;.,... -;.,...
Income from *ubsidiary 2@,...
$otal =-,EI0,... =-,EI0,... =;0;,... =;0;,...
b. >ournal entries recorded by Prime &ompany5
-! &ash 0@,...
Investment in <ane &ompany *tock 0@,...
6ecord dividend from <ane &ompany5
=2;,... x .@.
0! Investment in <ane &ompany *tock 29,...
6ecord e+uity#method income5
=E;,... x .@.
2! Investment in <ane &ompany *tock 0,...
6ecognize portion of gain on sale of
e+uipment5 =0.,... C -. years
6-65
P6-41A continued!
c. 3liminating entries, /ecember 2-, 0.1I5
3-! Income from *ubsidiary 2@,...
Investment in <ane &ompany *tock -.,...
=H,... L =E;,... x .0.
6etained 3arnings, >anuary - -E.,...
/ifferential ;.,...
Investment in <ane &ompany *tock 020,...
,oncontrolling Interest ;@,...
=;.,... L =-9.,... A =E.,...! Q =;.,... A
=-..,...!
=020,... L =0E.,... # =@,...
=;@,... L =-..,... A =-E.,... A =;.,...! x
.0.
3E! Joodwill 0;,...
/ifferential ;.,...
3;! Investment in <ane &ompany *tock @,...
<and -.,...
39! ?uildings and 3+uipment ;,...
Investment in <ane &ompany *tock -@,...
6e+uired balance =;,... x I years! =2;,...
?alance recorded =I,... x 0 years! -E,...!
6e+uired increase =0-,...
3I! Accounts Payable E,...
receivableCpayable.
6-66
6-67
P6-41A continued!
d. Prime &ompany and <ane &ompany
/ecember 2-, 0.1I
*ales 0;.,... -;.,... E..,...
Income from *ubsidiary 2@,... -! 2@,...
&redits 0@@,... -;.,... E..,...
&ost of Joods *old -9.,... @.,... 0E.,...
/eprec. and Amortization 0;,... -;,... 9! 0,... 2@,...
(ther 3xpenses 0.,... -.,... 2.,...
/ebits 0.;,...! -.;,...! 2.@,...!
Income to ,oncon#
Income, carry forward @2,... E;,... EI,... 0,... @2,...
6et. 3arnings, >an. - 2HE,... -E.,... 2! -E.,... 2IE,...
E! 0.,...
Income, from above @2,... E;,... EI,... 0,... @2,...
EII,... -@;,... E;I,...
0! I,... 9.,...!
carry forward E-I,... -;.,... 0.I,... 2I,... 2HI,...
&ash and 6eceivables -;-,... ;;,... I! E,... 0.0,...
Inventory 0E.,... -..,... 2E.,...
<and -..,... @.,... ;! -.,... -I.,...
?uildings and 3+uipment ;..,... -;.,... 9! ;,... 9;;,...
Investment in <ane
&ompany *tock 0-9,... ;! @,... -! -.,...
9! -@,... 2! 020,...
/ifferential 2! ;.,... E! ;.,...
Joodwill E! 0;,... 0;,...
/ebits -,0.I,... 2@;,... -,2H0,...
Accum. /epreciation 02.,... 9.,... 9! 0-,... 2--,...
Accounts Payable 9.,... 0;,... I! E,... @-,...
?onds Payable 0..,... ;.,... 0;.,...
&ommon *tock 2..,... -..,... 2!-..,... 2..,...
6etained 3arnings,
from above E-I,... -;.,... 0.I,... 2I,... 2HI,...
,oncontrolling Interest E! ;,... 0! 0,...
;! 0,... 2! ;@,... ;2,...
&redits -,0.I,... 2@;,... E0E,... E0E,... -,2H0,...
6-6
P6-42A Co,# 4!#5o*
a. >ournal entry recorded by Prime &ompany5
&ash 0@,...
/ividend Income 0@,...
6ecord dividend from <ane &ompany.
b. 3liminating entries, /ecember 2-, 0.1I5
3-! /ividend Income 0@,...
3liminate dividend income from
subsidiary.
=H,... L =E;,... x .0.
6etained 3arnings, >anuary - ;.,...
/ifferential ;.,...
Investment in <ane &ompany *tock -9.,...
,oncontrolling Interest E.,...
3liminate investment balance at date
of ac+uisition5
=;.,... L =-9.,... A =E.,...! Q =-..,... A
=;.,...!
=E.,... L =-..,... A =;.,... A =;.,...! x
.0.
3E! 6etained 3arnings, >anuary - -@,...
,oncontrolling Interest -@,...
Assign undistributed prior earnings of
subsidiary to noncontrolling interest5
=-E.,... # =;.,...! x .0.
3;! Joodwill 0;,...
/ifferential ;.,...
Assign differential at beginning of
period.
6-6!
P6-42A continued!
39! 6etained 3arnings, >anuary - @,...
<and -.,...
3I! ?uildings and 3+uipment ;,...
6etained 3arnings, >anuary - -@,...
3@! Accounts Payable E,...
3liminate intercorporate receivableCpayable.
6-70
P6-42A continued!
c. Prime &ompany and <ane &ompany
/ecember 2-, 0.1I
*ales 0;.,... -;.,... E..,...
/ividend Income 0@,... -! 0@,...
&redits 0I@,... -;.,... E..,...
&ost of Joods *old -9.,... @.,... 0E.,...
/eprec. and Amortization 0;,... -;,... I! 0,... 2@,...
(ther 3xpenses 0.,... -.,... 2.,...
/ebits 0.;,...! -.;,...! 2.@,...!
Income to ,oncon#
Income, carry forward I2,... E;,... 2I,... 0,... @2,...
6et. 3arnings, >an. - 2E@,... -E.,... 2! ;.,...
E! -@,...
;! 0.,...
9! @,...
I! -@,... 2IE,...
Income, from above I2,... E;,... 2I,... 0,... @2,...
E0-,... -@;,... E;I,...
0! I,... 9.,...!
carry forward 29-,... -;.,... -;-,... 2I,... 2HI,...
&ash and 6eceivables -;-,... ;;,... @! E,... 0.0,...
Inventory 0E.,... -..,... 2E.,...
<and -..,... @.,... 9! -.,... -I.,...
?uildings and 3+uipment ;..,... -;.,... I! ;,... 9;;,...
Investment in <ane
&ompany *tock -9.,... 2!-9.,...
/ifferential 2! ;.,... ;! ;.,...
Joodwill ;! 0;,... 0;,...
/ebits -,-;-,... 2@;,... -,2H0,...
Accum. /epreciation 02.,... 9.,... I! 0-,... 2--,...
Accounts Payable 9.,... 0;,... @! E,... @-,...
?onds Payable 0..,... ;.,... 0;.,...
&ommon *tock 2..,... -..,... 2!-..,... 2..,...
6etained 3arnings,
from above 29-,... -;.,... -;-,... 2I,... 2HI,...
,oncontrolling Interest ;! ;,... 0! 0,...
9! 0,... 2! E.,...
E! -@,... ;2,...
&redits -,-;-,... 2@;,... 2E0,... 2E0,... -,2H0,...
6-71

Chap 006

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chap 006

Uploaded by

Copyright:

Available Formats

Chapter 06 - Intercorporate Transfers of Services And Noncurrent Assets

You might also like