08 Fischer10e SM Ch08 Final

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CHAPTER 8
UNDERSTANDING THE ISSUES
1. The stock dividend will result in the follow- (a) If the parent buys less than its current
ing entry being made by the subsidiary: ownership percentage of shares, it will
increase its equity to the extent others
Retained Earnings
pay more than book value. The in-
(10,000 shares
crease will normally go to paid-in capi-
$60 per share) ............ 600,000
tal in excess of par.
Common Stock
($1 par, 10,000 (b) If the parent maintains its percentage,
shares $1)................ 10,000 there is no impact other than an in-
Paid-In Capital in crease in the investment account equal
Excess of Par to the price paid. The parent will supply
($600,000, $10 par) ..... 590,000 90% of the funds and will own 90% of
the equity provided by the new funds.
The parent need make no adjustment to its
investment account since there has been (c) If the parent buys more than 90% of
no change in the total subsidiary equity. the shares issued, it will adjust its in-
vestment based on the impact of the
When eliminating the investment in subsid-
sale. A sale at more than book value
iary account, the parent will now simply
will cause a reduction in the invest-
eliminate its share of the revised (but equal
ment; a sale at less than book value
in total) subsidiary equity accounts.
will cause an increase in the invest-
2. The parents share in any equity increases ment.
from the excess of the current book value
4. Control, in this example, is a chain link
of $40 per share ($4,000,000/100,000
process. If A controls B and B, in turn,
shares) that the subsidiary receives. The
controls C, then all three are under com-
parent does not record as income the in-
mon ownership, and B and C are controlled
crease in equity that results. Rather, it is an
by A.
increase in the parents paid-in capital in
excess of par. The calculation in this case In the distribution of Company Cs $10,000
would be as follows: income, 40% (or $4,000) will flow to the
NCI of Company C, and 60% (or $6,000)
Equity after sale
will flow to Company B, the controlling in-
{(90,000 shares/120,000
terest. That $6,000 will flow as follows: 40%
shares = 75%)
(or $2,400) will flow to the NCI of Company
[$4,000,000 + ($50
B, and 60% (or $3,600) will flow to Compa-
20,000 shares)]} .............. $3,750,000
ny A, the controlling interest.
Equity prior to sale
(90% $4,000,000) ........... 3,600,000 5. The 2% holding in Company P shares,
Increase in equity interest ..... $ 150,000 owned by Company S, is best treated as
treasury stock. This approach views the
3. The subsidiary is selling the additional
subsidiary as the parents agent in purchas-
shares at $50 each, which is in excess of
ing parent company shares. As treasury
the current book value of $40 per share
stock, the 2,000 shares will not share in the
($4,000,000/100,000 shares).
distribution of income and will not create a
separate excess of cost or book value.
417
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Ch. 8Exercises
EXERCISES
EXERCISE 8-1
(1) Retained Earnings (3,000 $35) ..................................................... 105,000

Common Stock ............................................................................ 30,000
Paid-In Capital in Excess of Par .................................................. 75,000
To record stock dividend distributed on July 1, 20X1.
Lamp Company
Stockholders Equity
December 31, 20X1
Common stock ($10 par)........................................................................ $330,000
Paid-in capital in excess of par .............................................................. 225,000
Retained earnings [$200,000 original balance +
$120,000 income $105,000 stock dividend
(33,000 share $0.50 = $16,500 cash dividend)] ............................. 198,500
Total stockholders equity....................................................................... $753,500
(2) Memo: Investment in Lamp Company now includes 2,700 (30,000 90% 10%) additional
shares for a total of 29,700 shares.
Cash ................................................................................................. 14,850

Investment in Lamp Company ..................................................... 14,850
To record receipt of cash dividend (29,700 shares $0.50).
Investment in Lamp Company ......................................................... 108,000
Subsidiary Income ....................................................................... 108,000
To record 90% interest in Lamp Companys $120,000 net
income for 20X1.
(3) Subsidiary Income............................................................................ 108,000
Investment in Lamp Company ..................................................... 93,150
Dividends, Lamp Company.......................................................... 14,850
To eliminate current-year entries to investment account.
Goodwill ........................................................................................... 250,000

Common Stock [($300,000 + $30,000) 90%] ................................ 297,000
Paid-In Capital in Excess of Par [($150,000 + $75,000) 90%] ...... 202,500
Retained Earnings [($200,000$105,000) 90%] ......................... 85,500
Investment in Lamp Company (includes $225,000 from D&D) .... 810,000
Retained EarningsLamp Company (NCI adjustment) .............. 25,000
418
Ch. 8Exercises
Exercise 8-1, Concluded
Determination and Distribution of Excess Schedule

Company Parent NCI
Implied Price Value
Fair Value (90%) (10%)
Fair value of subsidiary $900,000 $810,000 $ 90,000
Less book value of interest acquired:
Common stock ($10 par) $300,000
Paid-in capital in excess of par 150,000
Retained earnings 200,000
Total equity $650,000 $650,000 $650,000
Interest acquired 90% 10%
Book value $585,000 $ 65,000
Excess of fair value over book value $250,000 $225,000 $ 25,000
Adjustment of identifiable accounts:

Worksheet
Adjustment Key
Goodwill $250,000 debit D
EXERCISE 8-2
Investment in Trail .................................................................................. 57,750

Subsidiary Income............................................................................ 57,750
Calculation:
90% first 6 months income of $35,000 ......................................... $31,500
75%* second 6 months income of $35,000 .................................. 26,250
Total ....................................................................................................... $57,750
Investment in Trail .................................................................................. 32,250

Paid-In Capital in Excess of Par....................................................... 32,250
Calculation:
Interest after sale
Trail, January 1, equity ................................................................ $550,000
Income, first 6 months ................................................................. 35,000
Sale of shares (2,000 $80) ....................................................... 160,000
Total stockholders equity ........................................................ $745,000
Interest ......................................................................................... 75% $558,750
Interest prior to sale [($550,000 + $35,000) 90%]......................... 526,500
Increase in ownership interest ......................................................... $ 32,250
*(10,000 shares 90%)/(10,000 shares + 2,000 shares)
419
Ch. 8Exercises
EXERCISE 8-3
Maintain Increase Decrease

Interest Interest Interest
Shares purchased by parent .......................................... 8,000 9,000 5,000
Total shares owned by parent after purchase................ 24,000 25,000 21,000
Total subsidiary shares outstanding after issue ............. 30,000 30,000 30,000
Subsidiary equity after sale ($450,000 + $50,000
income + $50,000 goodwill + $400,000 sale)........... $950,000 $950,000 $950,000
Parents ownership percent after purchase ................... 80% 83.33% 70%
Parents new equity interest after purchase ................... $760,000 $791,635 $665,000
Subsidiary equity prior to sale (after fair value adjustment)
($450,000 + $50,000 income + $50,000 goodwill) ... $550,000 $550,000 $550,000
Parents ownership percent before purchase ................ 80% 80% 80%
Parents equity interest before purchase ....................... $440,000 $440,000 $440,000
Price paid ($40 per share) ............................................. 320,000 360,000 200,000
Total investment ............................................................. $760,000 $800,000 $640,000
Net adjustment ............................................................... $ 0 $ (8,365) $ 25,000
Maintain ownership percentage interest:

Investment in Cat Company .......................................................... 320,000
Cash ......................................................................................... 320,000
Increase ownership percentage interest:

Retained EarningsTom Company (assumes no paid-in capital
in excess of par) ....................................................................... 8,365
Cash ......................................................................................... 360,000
Decrease ownership percentage interest:

Cash ......................................................................................... 200,000
Paid-In Capital in Excess of ParTom Company .................... 25,000
420
Ch. 8Exercises
EXERCISE 8-4
Investment in Nolan ............................................................................ 81,360

Retained EarningsTarman......................................................... 81,360
To convert investment from cost to equity for income.
Income equity adjustment:
Jan. 1, 20X1 to Jan. 1, 20X3 increase in retained earning ($42,000 60%) $25,200
Jan. 1, 20X3 to Jan. 1, 20X5 increase in retained earnings ($78,000 72%*) 56,160
Total ........................................................................................................... $81,360
*(60% 30,000 shares)/(30,000 5,000 treasury stock shares)
Retained EarningsTarman Company .............................................. 5,760

Investment in Nolan ...................................................................... 5,760
Adjustment for treasury stock purchase:

Equity after treasury stock purchase (72% $327,000) .............................. $235,440
Equity prior to treasury stock purchase (60% $402,000) .......................... 241,200
Increase (decrease) in investment ............................................................... $ (5,760)
Elimination:
Common StockNolan (72% $300,000 .......................................... 216,000
Paid-In Capital in Excess of ParNolan (72% $60,000) ................. 43,200
Retained EarningsNolan (72% $120,000) .................................... 86,400
Investment in Nolan ($216,000* + $81,360 $5,760) .................. 291,600
Treasury Stock (at cost, 72% $75,000) ...................................... 54,000
To eliminate the investments against the subsidiarys equity.
*60% 30,000 shares $12
421
Ch. 8Exercises
EXERCISE 8-5
(1)
Company As Books Company Bs Books
December 31, 20X1 Cash ........................................ 4,000
Investment in B ........................ 12,000
Subsidiary IncomeB .......... 16,000
December 31, 20X2 Cash ........................................ 4,000 Cash ........................................... 3,000
Investment in B ........................ 32,000 Investment in C........................... 12,000
Subsidiary IncomeB .......... 36,000 Subsidiary IncomeC .......... 15,000
Income:
80% ($30,000 +
$15,000 from C).
Income:
80% ($40,000 +
$18,000 from C).
(2)
Company As Books Company Bs Books
December 31, 20X1 Investment in C........................... 7,000
Subsidiary IncomeC .......... 7,000
December 31, 20X2 Cash ........................................... 3,500
Investment in C........................... 14,000
Subsidiary IncomeC .......... 17,500
Income:
90% ($40,000 +
$21,000 from C).
422
Ch. 8Exercises
EXERCISE 8-6
(1)

Company Parent NCI
Implied Price Value
Fair value of subsidiary $4,200,000 $2,520,000 $1,680,000
Less book value interest acquired:
Common stock $ 400,000
Paid-in capital in excess of par 1,100,000
Retained earnings 2,000,000
Total equity $3,500,000 $3,500,000 $3,500,000
Book value $2,100,000 $1,400,000
Excess of fair value over book value $ 700,000 $ 420,000 $ 280,000

Worksheet
Adjustment Key
Company S-2 equipment $ 80,000 debit D1
Company S-1 building (40%) 160,000* debit D2
Goodwill 460,000 debit D3
Total $ 700,000
*NCI of Company S-2 is also increased by $40,000.
(2) Eliminations and Adjustments:

Retained EarningsP ($12,000 80% 60%)............................ 5,760
Retained EarningsS-1 ($12,000 80% 40%) ........................ 3,840
Retained EarningsS-2 ($12,000 20%) for S-2s NCI .............. 2,400
Accumulated Depreciation ............................................................ 3,000
Machine .................................................................................... 15,000
To eliminate the remaining gain and restore machine value.
Accumulated Depreciation ............................................................ 3,000

Depreciation Expense............................................................... 3,000
To recognize gain for current year.
423
Ch. 8Exercises
EXERCISE 8-7
Companies A, B, and C
Consolidated Income Statement
For Year Ended December 31, 20X5
Sales [($300,000 + $400,000 + $100,000)
intercompany sales of $75,000] .............................................. $725,000
Cost of goods sold [$200,000 + $300,000 + $60,000
intercompany sales of $75,000 realized profit
in beginning inventory of $1,800 + unrealized profit
in ending inventory of ($6,000 + $720)] .................................. 489,920
Gross profit ................................................................................... $235,080
Expenses ($60,000 + $30,000 + $10,000 $4,000
depreciation adjustment for deferred gain on equipment)....... 96,000
Consolidated net income .............................................................. $139,080
To NCICompany C .............................................................. $ 9,600
To NCICompany B .............................................................. 17,680 27,280
To controlling interest.................................................................... $111,800
Subsidiary Company C Income Distribution

Unrealized profit in ending Internally generated net
inventory .................................. $6,000 income ..................................... $30,000
Adjusted net income ...................... $24,000

NCI share ...................................... 40%
NCI ................................................ $ 9,600
Subsidiary Company B Income Distribution*

Internally generated net income .... $70,000
60% Company C adjusted
income of $24,000 ................... 14,400
Gain realized through
depreciation ............................. 4,000

NCI share ...................................... 20%
NCI ................................................ $17,680
*There is no impact shown for the ending inventory held by Company C since the gross profit was written down to
zero under LCM.
Parent Company A Income Distribution

Unrealized profit in ending Internally generated net
inventory .................................. $720 income ..................................... $ 40,000
80% Company B adjusted
income of $88,400 ................... 70,720
Realized profit in beginning
inventory .................................. 1,800
Controlling interest......................... $111,800
424
Ch. 8Exercises
EXERCISE 8-8

Company Parent NCI
Implied Price Value
Fair value of subsidiary $640,000 $384,000 $256,000
Remaining excess ($25,000
$5,000 amortization) 20,000
Total equity $470,000 $470,000 $470,000
Book value $282,000 $188,000

Amortization Worksheet
Adjustment per Year Life Key
Font inventory (80%) $ 16,000* $16,000 1 debit D1
Hartland equipment 30,000 6,000 5 debit D2
Total $170,000
*NCI of Font is also increased by $4,000.
EXERCISE 8-9
(1) Company Ns books:

Cash ......................................................................................... 2,000
Investment in Company O ........................................................ 14,000
Subsidiary Income (40% $40,000) .................................... 16,000
Company Ms books:
Cash ......................................................................................... 9,000
Investment in Company N ........................................................ 86,400
Subsidiary Income [90% ($90,000 + $16,000)] ................. 95,400
Cash ......................................................................................... 1,000
Investment in Company O ........................................................ 7,000
Subsidiary Income (20% $40,000) .................................... 8,000
(2) Internally generated incomes ($200,000 + $90,000 + $40,000) ... $330,000

Beginning inventory profit.............................................................. 7,000
Ending inventory profit .................................................................. (9,000)
Consolidated net income............................................................... $328,000
NCICompany O ..................................................................... $ 15,400
NCICompany N ..................................................................... 10,490 25,890
To controlling interest ............................................................... $302,110
425
Ch. 8Exercises
Exercise 8-9, Concluded
Subsidiary O Company Income Distribution

Unrealized gross profit in Internally generated income .......... $40,000
ending inventory ...................... $6,000 Realized gross profit in
beginning inventory.................. 4,500
Adjusted income ............................ $38,500

NCI share ...................................... 40%
NCI ................................................ $15,400
Subsidiary N Company Income Distribution

Unrealized gross profit in Internally generated income ........ $ 90,000
ending inventory ...................... $3,000 Share of O income
(40% $38,500) .................... 15,400
Realized gross profit in
beginning inventory................ 2,500
Adjusted income .......................... $104,900

NCI share .................................... 10%
NCI .............................................. $ 10,490
Parent Company M Income Distribution

Internally generated net
income ..................................... $200,000
20% O adjusted income
of $38,500 ................................ 7,700
90% N adjusted income
of $104,900 .............................. 94,410
426
Ch. 8Exercises
EXERCISE 8-10
(1)

Company Parent NCI
Implied Price Value
Total equity $550,000 $550,000 $550,000
Book value $330,000 $220,000

Equipment $30,000 $1,500 20 debit D
(2) Myles Corporation and Subsidiary Downer Corporation

Consolidated Income Statement
Sales ............................................................................................................ $1,150,000

Less cost of goods sold................................................................................ 840,000
Gross profit................................................................................................... $ 310,000
Less expenses (including equipment depreciation of $1,500) ..................... 231,500
Consolidated net income.............................................................................. $ 78,500
To NCI .................................................................................................... $ 11,400
To controlling interest ............................................................................. 67,100
Subsidiary Downer Corporation Income Distribution

Equipment depreciation ................ $1,500 Internally generated net income .... $30,000

NCI share ...................................... 40%
NCI ................................................ $11,400
Parent Myles Corporation Income Distribution

Internally generated net income .... $50,000
60% Downer income of $28,500 17,100
427
Ch. 8Exercises
EXERCISE 8-11
(1)

Company Parent NCI
Implied Price Value
Total equity $550,000 $550,000 $550,000
Book value $330,000 $220,000

Equipment $30,000 $1,500 20 debit D
(2) Excess of cost or book value due to swap

Equity after swap:
Subsidiary equity prior to swap ........................... $600,000
Remaining excess ($30,000 2 yrs. $1,500
amortization)................................................... 27,000 $627,000
Market value of shares issued .................................................. 150,000
Total ..................................................................................... $777,000
Ownership interest (40,000/60,000) .............................................. 2/3 $518,000
Equity prior to swap:

Subsidiary equity prior to swap ................................................. $627,000
Ownership interest (30,000/50,000) ......................................... 60% 376,200
Increase in interest ........................................................................ $141,800
Market value of shares issued ...................................................... 150,000
Debit Myles retained earnings for decrease in equity ................... $ 8,200
428
Ch. 8Problems
PROBLEMS
PROBLEM 8-1
Zee Corporation booked entries for adjustments to investment in Tomline Company:

20X1
(1)*December 31 Investment in Tomline (80% $40,000) ............. 32,000
Subsidiary Income ........................................ 32,000
To record parents share of subsidiary
income.
(2)*Memo: All calculations are now based on 8,800 shares.
20X2
July 1 Investment in Tomline (80% $25,000) ............. 20,000
income for one-half year.
20X2
(3)*July 1 Investment in Tomline ........................................ 10,720
Paid-In Capital in Excess of Par ................... 10,720
To adjust investment for subsidiary sale
of stock to noncontrolling interest.
20X2
(4)*December 31 Investment in Tomline ........................................ 16,000
To record 64% parent share of subsidiary
*Calculations are on page 431.
429
Ch. 8Problems
Problem 8-1, Continued
Zee Corporation booked entries for adjustments to investment in Sandel Company:

20X1
(5)*July 1 Investment in Sandel .......................................... 9,000
20X1
(6)*July 1 Investment in Sandel .......................................... 70,300
Retained Earnings (decrease in equity) ............. 3,700
Cash ............................................................. 74,000
To record purchase of 3,700 additional
subsidiary shares.
20X1
(7)*December 31 Investment in Sandel .......................................... 9,300
20X2
(8)*January 1 Retained Earnings .............................................. 10,335

Investment in Sandel .................................... 10,335
To record decrease in equity due to
treasury stock purchase.
(9)*December 31 Investment in Sandel .......................................... 28,933

income.
*Calculations are on page 431.
430
Ch. 8Problems
Problem 8-1, Concluded
Schedules to Determine Zee Corporations Adjustments to Its Investment

Total Change in Total Controlling Change in
Subsidiary Parents Parents Subsidiary Subsidiary Share of Controlling
Shares Shares Interest Equity Equity Equity Investment
Tomline
January 1, 20X1, Balances ......... 10,000 8,000 80% ........... $220,000 $176,000 ............
20X1 Income ............................... 10,000 8,000 80 $40,000 260,000 208,000 (1) $32,000
December 31, 20X1, Stock Dividend 11,000 8,800 80 ........... 260,000 208,000 ............
JanuaryJune 20X2, Income ...... 11,000 8,800 80 25,000 285,000 228,000 (2) 20,000
July 1, 20X2, Stock Sale ............. 13,750 8,800 64 88,000 373,000 238,720* (3)
......................................... 10,720
JulyDecember 20X2, Income .... 13,750 8,800 64 25,000 398,000 254,720 (4) 16,000
Sandel
January 1, 20X1, Balances ......... 30,000 18,000 60 ........... 400,000 240,000 ............
JanuaryJune 20X1, Income ...... 30,000 18,000 60 15,000 415,000 249,000 (5) 9,000
July 1, 20X1, Stock Sale ............. 35,000 21,700 62 100,000 515,000 319,300** (6)
......................................... 70,300
JulyDecember 20X1, Income .... 35,000 21,700 62 15,000 530,000 328,600 (7) 9,300
January 1, 20X2, Purchase of
Treasury Stock ...................... 30,000 21,700 72.333 (90,000) 440,000 318,265***(8)
(10,335)
20X2 Income ............................... 30,000 21,700 72.333 40,000 480,000 347,198 (9) 28,933
*$373,000 64% = $238,720; balance after $238,720 balance before $228,000 = $10,720 increase.
**$515,000 62% = $319,300; balance after $319,300 balance before $249,000 = $70,300 increase.
$70,300 increase in investment $74,000 paid for new shares = $3,700 decrease in Zees equity.
***$440,000 72.333% = $318,265; balance after $318,265 balance before $328,600 = $10,335 decrease.
431
Ch. 8Problems
432
Ch. 8Problems
PROBLEM 8-2
Bear Corporation purchase of Kelly Company Shares:

Company Parent NCI
Implied Price Value
Total equity $350,000 $350,000 $350,000
Book value $210,000 $140,000

Worksheet
Adjustment Key
Bear Corporation purchase of Samco Company Shares:

Company Parent NCI
Implied Price Value
Total equity $300,000 $300,000 $300,000
Book value $240,000 $ 60,000

Worksheet
Adjustment Key
433
Ch. 8Problems
*Entry to convert investment in Kelly Company to simple equity method as of December 31,
20X3:
Investment in Kelly ............................................................. 78,750

Additional Paid-In Capital in Excess of ParBear
Corporation .................................................................... 12,750
Retained Earnings ...................................................... 91,500
*Entry to convert investment in Samco Company to simple equity method as of December 31,
20X3:
Investment in Samco.......................................................... 78,500

Additional Paid-In Capital in Excess of ParBear
Corporation .................................................................... 9,000
Retained Earnings ...................................................... 87,500
*Calculations are from the following two schedules.
434
Ch. 8Problems
Schedules of Equity Adjustments for January 1, 20X1December 31, 20X3

Adjustments
Reflected
an Increase to
Controlling Additional
Total Shares Increase in Total Share of Increase in Paid-In Capital
Subsidiary Held by Parents Subsidiary Subsidiary Subsidiary Controlling Retained in Excess
Kelly Common Stock Shares Parent Interest Equity Equity Equity Investment
Earnings of Par
January 1, 20X1, Balances .................. 20,000 12,000 60% .............. $375,000* $225,000 ............. ............ ............
JanuaryJune 20X1, Income ............... 20,000 12,000 60 $ 25,000 400,000 240,000 $ 15,000 $ 15,000
.............................................................
July 1, 20X1, Sale of stock ................... 25,000 15,000 60 100,000 500,000 300,000 60,000** .......... ............
July 20X1December 20X2, Income ... 25,000 15,000 60 85,000 585,000 351,000 51,000 51,000 ............
December 31, 20X2, Cash dividend .... 25,000 15,000 60 (25,000) 560,000 336,000 (15,000) (15,000) ............
JanuaryJuly 20X3, Income ................. 25,000 15,000 60 30,000 590,000 354,000 18,000 18,000 ............
July 1, 20X3, Treasury stock purchase 20,000 15,000 75 (135,000) 455,000 341,250*** (12,750) ............
............................................. $(12,750)
JulyDecember 20X3, Income ............. 20,000 15,000 75 30,000 485,000 363,750 22,500 22,500 ............
Total adjustments .................................................................................................................................................................. $ 91,500 $(12,750)
*From D&D
**Required debit to investment account and credit to Cash for $60,000 to record additional purchase.
***After (75% $455,000 = $341,250) before $354,000 = $12,750 decrease in equity.
435
Ch. 8Problems
Schedules of Equity Adjustments for January 1, 20X1December 31, 20X3

Adjustments
Reflected
an Increase to
Controlling Paid-In
Total Shares Increase in Total Share of Increase in Capital
Subsidiary Held by Parents Subsidiary Subsidiary Subsidiary Controlling Retained in Excess
Samco Common Stock Shares Parent Interest Equity Equity Equity Investment Earnings of Par
January 1, 20X1, Balances .......... 10,000 8,000 80% .............. $312,500* $250,000 ............. ............ ............
Income, 20X1 ............................... 10,000 8,000 80 40,000 352,500 282,000 $32,000 $32,000 ............
December 31, 20X1, Stock dividend 11,000 8,800 80 .............. 352,500 282,000 ............. ............ ............
JanuarySeptember 20X2, Income 11,000 8,800 80 22,500 375,000 300,000 18,000 18,000 ............
October 1, 20X2, Sale of stock .... 15,000 9,000 60 120,000 495,000 297,000 (3,000)** .........
..................................... $(9,000)**
October 20X2December 20X3,
Income ...................................... 15,000 9,000 60 62,500 557,500 334,500 37,500 37,500 ............
Total adjustments .................................................................................................................................................................. $87,500 $(9,000)
*From D&D
**The investment has been increased by $6,000 (cost of the stock purchased by the parent), while the controlling share of equity has decreased by
$3,000. The total decrease of $9,000 is deducted from additional paid-in capital in excess of par. The adjustment shown reduces the investment ac-
count (and additional paid-in capital in excess of par) to reconcile it with the parents share of the subsidiary equity.
436
Ch. 8Problems
PROBLEM 8-3

Company Parent NCI
Implied Price Value
Total equity $700,000 $700,000 $700,000
Book value $560,000 $140,000

Building $ 60,000 $3,000 20 debit D1
Total $175,000
437
Ch. 8Problems
Pepka Company and Subsidiary Sheck Company

Worksheet for Consolidated Financial Statements
Eliminations Consolidated Controlling Consolidated

Trial Balance and Adjustments Income Retained Balance
Pepka Sheck Dr. Cr. Statement NCI Earnings Sheet
Cash............................................................... 179,040 55,000 ............... ................. ................. ................. .................
..........................................................234,040
Accounts Receivable (net) ............................. 280,000 190,000 ............. ................. ................. ................. .................
..........................................................470,000
Inventory ........................................................ 325,000 175,000 ............. (EI) ............. 10,000 ............... .................
....................................................................... 490,000
Investment in Sheck Company....................... 700,000 ............. (CVa) 64,000 (EL) 659,200 .... ................. ................. .................
................. ................. (CVb) 8,160 (D) 112,000 .... ................. ................. .................
................. ................ ................. (adj) 960 ................. ................. ................. .................
Property, Plant, and Equipment ..................... 2,450,000 1,400,000 (D1) 60,000 ...... ................. ................. .................
....................................................... 3,910,000
Accumulated Depreciation ............................. (1,256,000) (536,000) ........... (A) ............... 9,000 ............... .................
....................................................................... (1,801,000)
Goodwill ......................................................... ................. ................. (D2) 115,000 ................. ................. ................. .................
..........................................................115,000
Liabilities ........................................................ (750,000) (210,000) ........... ................. ................. ................. .................
....................................................... (960,000)
Common Stock ($10 par)Pepka ................. (1,500,000) ..... ................. ................. ................. ................. .................
.................................................... (1,500,000)
Paid-In Capital in Excess of ParPepka ....... ................. ................. ................. (CVb) 8,160 ............... ................. .................
........................................................... (8,160)
Retained EarningsPepka ............................ (375,000) ............ (A) 3,840 (CVa) 64,000 ...... ................. (434,200) ..
....................................................................... ................. ................. (adj) 960 ................. ................. ................. ................. .................
Common Stock ($2 par)Sheck.................... ................. (250,000) (EL) 160,000 ............... ................. ............(90,000) ..............
.......................................................................
Paid-In Capital in Excess of ParSheck ....... ................. (600,000) (EL) 384,000 ............... ................. ..........(216,000) ..............
.......................................................................
Retained EarningsSheck ............................ ................. (180,000) (EL) 115,200 (NCI) ............. 63,000 ................. (125,640) ..
.......................................................................
................. ................. (A) 2,160 ................. ................. ................. ................. .................
Sales .............................................................. (1,600,000) (750,000) (IS) 200,000 .... .............. (2,150,000) ........ .................
.......................................................................
Subsidiary Dividend Income ........................... (23,040) ............ (CY) 23,040 ................. ................. ................. ................. .................
.......................................................................
438
Ch. 8Problems
Cost of Goods Sold ........................................ 1,120,000 450,000 (EI) 10,000 (IS) 200,000 ............... 1,380,000 . .................
.......................................................................
Other Expenses ............................................. 405,000 220,000 (A) 3,000 ........ ........... 628,000 ................ .................
.......................................................................
Dividends Declared ........................................ 45,000 36,000 ............... (CY) ............. 23,040 12,960 ......
............................................................45,000
0 0 1,149,360 1,149,360 . ................. ................. .................
Consolidated Net Income ........................................................................................................................................ (142,000) .............. ................. .................
To NCI (see distribution schedule) .......................................................................................................................... 24,120 (24,120) .... .................
To Controlling Interest (see distribution schedule) .................................................................................................. 117,880 ............... (117,880) ..
Total NCI ........................................................................................................................................................................................ (442,800) ...............
(442,800)
Retained EarningsControlling Interest, December 31, 20X4 ............................................................................................................................. (507,080)
(507,080)
Totals ..................................................................................................................................................................................................................................... 0
439
Ch. 8Problems
Eliminations and Adjustments:

(CVa) Convert the investment to the equity method for share of prior income [80%
($180,000 $100,000)].
(CVb) Convert the investment to the equity method for the result of the subsidiary stock sale:
Controlling interest in subsidiary equity after sale
(64% {$780,000 + $250,000 sale + $115,000 goodwill
+ [$60,000 ($3,000 2) = $54,000 building]}) .................................... $767,360
Controlling interest in subsidiary equity before sale
[80% ($780,000 + $115,000 goodwill + $54,000 remaining building)] 759,200
Net increase in paid-in capital in excess of parparent ............................ $ 8,160
(CY) Eliminate intercompany dividends.
(EL) Eliminate parents share of subsidiary equity (80,000 125,000 = 64%).
(adj) Adjust for change in parent amortization for prior years ($3,000 2 years 16% =
$960).
(D)/(NCI) Distribute $112,000 (64% $175,000) excess and $63,000 (36% $175,000) NCI
adjustment according to the determination and distribution of excess schedule.
(1) Building, $60,000 and (2) Goodwill, $115,000.
(A) Amortize excess for current year and two prior years: Building = $3,000 per year. Dis-
tribute to retained earnings, 64% controlling, 36% NCI.
(IS) Eliminate intercompany sale of $200,000.
(EI) Eliminate profit in ending inventory ($50,000 20% = $10,000).
Subsidiary Sheck Company Income Distribution

Profit in ending inventory ............... $10,000 Internally generated net
Building amortization ..................... 3,000 income ..................................... $80,000

NCI share ...................................... 36%
NCI ................................................ $24,120
Parent Pepka Company Income Distribution

income ..................................... $ 75,000
64% Sheck adjusted
income of $67,000 ................... 42,880
440
Ch. 8Problems
PROBLEM 8-4

Company Parent NCI
Implied Price Value
Total equity $230,000 $230,000 $230,000
Book value $138,000 $ 92,000

Worksheet
Adjustment Key
Goodwill $ 30,000 debit D
441
Ch. 8Problems
Mitta Corporation and Subsidiary Train Company

Mitta Train Dr. Cr. Statement NCI Earnings Sheet
Cash............................................................... 106,200 63,500 ............... ................. ................. ................. .................
..........................................................169,700
Accounts Receivable...................................... 113,600 60,000 ............... ................. ................. ................. .................
..........................................................173,600
Inventory ........................................................ 350,000 80,000 ............... (EIa) ............... 2,000 ............... .................
....................................................................... 427,400
................. ................. ................. (EIb) 600 ................. ................. ................. .................
Investment in Train Company ........................ ........... 280,800 ............. ................. (CY1) 32,000 ...... ................. ................. .................
................. ................. ................. (CV) 4,320 ............... ................. ................. .................
................. ................. (CY2) 6,400 (EL) 231,680 .... ................. ................. .................
................. ................. ................. (D) 19,200 ............... ................. ................. .................
Property, Plant, and Equipment ..................... 1,800,000 360,000 ............. ................. ................. ................. .................
....................................................... 2,160,000
Accumulated Depreciation ............................. (600,000) (89,500) ............. ................. ................. ................. .................
....................................................... (689,500)
Goodwill ......................................................... ................. ................. (D) 30,000 ................. ................. ................. ................. .................
................. ................. ................. ................. ................. ................. ................. 30,000
Accounts Payable .......................................... (180,000) (64,000) ............. ................. ................. ................. .................
....................................................... (244,000)
Other Current Liabilities ................................. (26,000) (8,000) ............... ................. ................. ................. .................
......................................................... (34,000)
Bonds Payable ............................................... (500,000) ............ ................. ................. ................. ................. .................
....................................................... (500,000)
Common Stock ($10 par)Mitta .................... (1,000,000) ..... ................. ................. ................. ................. .................
.................................................... (1,000,000)
Retained EarningsMitta .............................. (212,600) ............ (CV) 4,320 ................. ................. ................. ................. .................
................. ................. (BIa) 1,500 ................. ................. ................. (205,628) ..
................. ................. (Blb) 1,152 ................. ................. ................. ................. .................
Common Stock ($5 par)Train ..................... ................. (125,000) (EL) 80,000 ................. ................. ............(45,000) ..............
.......................................................................
Paid-In Capital in Excess of ParTrain ......... ................. (125,000) (EL) 80,000 ................. ................. ............(45,000) ..............
.......................................................................
Retained EarningsTrain .............................. ................. (112,000) (EL) 71,680 (NCI) ............. 10,800 ............... ................. .................
.......................................................................
................. ................. (BIb) 648 ................. ................. (50,472) ............... .................
Sales .............................................................. (1,950,000) (600,000) (ISa) 30,000 ...... ................. ................. ................. .................
.......................................................................
442
Ch. 8Problems
................. ................. (ISb) 20,000 ................. (2,500,000) ................. .................
Subsidiary Income.......................................... (32,000) ............ (CY1) 32,000 ................. ................. ................. ................. .................
Cost of Goods Sold ........................................ 1,170,000 420,000 (EIa) 2,000 (BIa) ............... 1,500 ............... ................. .................
.......................................................................
................. ................. (EIb) 600 (ISa) 30,000 ............... ................. ................. .................
................. ................. ................. (BIb) 1,800 ............... ................. ................. .................
................. ................. ................. (ISb) 20,000 1,539,300 . ................. .................
443
Ch. 8Problems
Mitta Corporation and Subsidiary Train Company

(Concluded)
Mitta Train Dr. Cr. Statement NCI Earnings Sheet
Other Expenses ............................................. 630,000 130,000 ............. ................. ........... 760,000 ................ .................
.......................................................................
Dividends Declared ........................................ 50,000 10,000 ............... (CY2) ............... 6,400 3,600 ........
............................................................50,000
0 0 360,300 360,300 .... ................. ................. .................
To NCI (see distribution schedule) ...................................................................................................................... 18,432 (18,432) .... .................
To Controlling Interest (see distribution schedule)............................................................................................... 182,268 ............... (182,268) ..
Total NCI ........................................................................................................................................................................................ (155,304) ...............
(155,304)
(337,896)
Totals ......................................................................................................................................................................................................................................... 0

(CV) Conversion entry for stock sale:
Interest after sale [64% ($262,000 + $30,000 goodwill + $100,000 proceeds)] $250,880
Interest prior to sale [60% ($262,000 + $30,000 goodwill)] 175,200
Increase/(Decrease) $ 75,680
Price paid (4,000 $20) (80,000)
Total decrease in equity and investment $ (4,320)
(CY1) Eliminate the current-year entries for income.
(CY2) Eliminate the current-year entries for dividends.
(EL) Eliminate parents 64% share of subsidiary equity.
(D)/(NCI) Distribute original excess (64% $30,000) and NCI adjustment (36% $30,000).
(BIa) Eliminate profit on Mittas goods in Trains beginning inventory
($6,000 25% = $1,500). Distribute to retained earnings.
(ISa) Eliminate 20X3 sales of $30,000.
(EIa) Eliminate profit on Mittas goods in Trains ending inventory ($8,000 25% = $2,000).
Sales from Train to Mitta:
(BIb) Eliminate profit on Trains goods in Mittas beginning inventory ($6,000 30% = $1,800), allocate 64% and 36%.
444
Ch. 8Problems
(ISb) Eliminate 20X3 sales of $20,000.

(EIb) Eliminate profit on Trains goods in Mittas ending inventory ($2,000 30% = $600).
445
Ch. 8Problems
Subsidiary Train Company Income Distribution

Unrealized profit in Internally generated net
ending inventory ...................... $600 income ..................................... $50,000
Realized profit in

NCI share ...................................... 36%
NCI ................................................ $18,432
Parent Mitta Corporation Income Distribution

ending inventory ...................... $2,000 income ..................................... $150,000
64% Train adjusted
income of $51,200 ................... 32,768
Realized profit in
446
Ch. 8Problems
PROBLEM 8-5
Investment in Webo Company, January 1, 20X1:

Company Parent NCI
Implied Price Value
Total equity $400,000 $400,000 $400,000
Book value $320,000 $ 80,000
Excess of fair value over book value $ 0 $ 0 $ 0
447
Ch. 8Problems
Barns Company and Subsidiaries Webo Company and Elcam Company

Consoli-
Eliminations Consolidated Controlling dated
Barns Webo Elcam Dr. Cr. Statement NCI Earnings Sheet
Cash................................................ 110,000 26,000 165,200 ............... ............... ................. ............. .............
301,200
Accounts Receivable....................... 85,000 73,500 105,000 ............... (IA) 52,000 ...... ............. .............
211,500
Inventories ...................................... 138,000 163,000 150,000 ............... (EI) 15,000 ...... ............. .............
436,000
Investment in Webo Company
Stock .......................................... 320,000 ............. ................. (CVW) 37,333 (ELW) 357,333 .... ............. ............. ...............
Investment in Elcam Company
Stock .......................................... 600,000 ............. ................. ................ (CVE) 44,000 ...... ............. ............. ...............
................. ................. ................. ................ (ELE) 556,000 .............. ............. ............. ...............
Investment in Elcam Company
Bonds ........................................ ................. 148,000 .............. ................ (B) 148,000 .... ............. ............. ...............
Property, Plant, and Equipment ...... 700,000 525,000 834,000 ................ (F1) 2,000 ........ ............. .............
2,057,000
Accumulated Depreciation .............. (402,000) (325,000) (240,000) (F2) 100 ......... ................. ............. .............
(966,900)
Accounts Payable ........................... (202,000) (150,500) (86,900) (IA) 52,000 ............... ................. ............. .............
(387,400)
Dividends Payable .......................... (12,000) ............ ................. ............... ............... ................. ............. .............
(12,000)
Bonds Payable ................................ (400,000) ............ (200,000) (B) 150,000 .. ................. ............. .............
(450,000)
Unamortized Bond Discount ........... ................. ................. 800 ............... (B) 600 ................. ............. ............. 200
Capital StockBarns ...................... (600,000) ............ ................. ............... ................ ................. ............. .............
(600,000)
Capital StockWebo ...................... ................. (250,000) ............. (ELW) 222,222 ................ ................. ............. ............. ...............
................. ................. ................. ............... ................ ................. (27,778) .......... ...............
Capital StockElcam ..................... ................. ................. (500,000) (ELE) 400,000 ................ ................. (100,000) ...............
Paid-In Capital in Excess of

ParBarns ................................ ................. ................. ................. ............... (CVE) 31,000 .............. ............. .............
(31,000)
ParElcam................................ ................. ................. (70,000) (ELE) 56,000 ............... ................. (14,000) ...............
Retained EarningsBarns .............. (302,200) ............ ................. (CVE) 75,000 (CVW) 40,000 ...... ............. ............. ...............
................. ................. ................. (CVW) 2,667 ............... ................. ............. (264,533) ...........
Retained EarningsWebo .............. ................. (200,000) ............. (ELW) 177,778 ............... ................. ............. ............. ...............
................. ................. ................. ............... ............... ................. ........ (22,222) .......... ...............
448
Ch. 8Problems
Retained EarningsElcam ............. ................. ................. (125,000) (ELE) 100,000 ............... ................. (25,000) ...............
Dividends DeclaredBarns ............ 24,000 ............. ................. ............... ............... ................. ............. 24,000 ....
Dividends DeclaredWebo ............ ................. 22,500 .............. ............... (CY2) 20,000 ...... 2,500 .... ...............
Dividends DeclaredElcam ........... ................. ................. 10,000 ............... (CY2) 8,000 ........ 2,000 .... ...............
Treasury Stock (at cost) .................. ................. 48,000 .............. ............... (ELW) 42,667 ...... 5,333 .... ...............
Gain on Sale of Equipment ............. (2,000) ............ ................. (F1) 2,000 ............... ................. ............. ............. ...............
Sales ............................................... (2,950,000) (1,550,000) (1,750,000) (IS) ......... 385,000 ............. .......... (5,865,000) ....
...................................................
Interest Income on Bonds ............... ................. (13,000) ............. (B) 13,000 ............... ................. ............. ............. ...............
Dividend Income ............................. (28,000) ............ ................. (CY2) 28,000 ............... ................. ............. ............. ...............
Cost of Goods Sold ......................... 2,500,000 1,200,000 1,400,000 (EI) 15,000(IS) 385,000 ........... 4,730,000 ...............
...................................................
449
Ch. 8Problems
Barns Company and Subsidiaries Webo Company and Elcam Company

(Concluded)
Consoli-
Barns Webo Elcam Dr. Cr. Statement NCI Earnings Sheet
Operating Expenses ........................ 405,000 280,000 290,500 ............... (F2) 100 975,400 ............. ...............
Interest Expense ............................. 16,200 2,500 16,400 ............... (B) 12,300 22,800 .. ............. ...............
Gain on Bond Retirement ................ ................. ................. ................. ............... (B) 2,100 (2,100).. ............. ...............
0 0 0 1,716,100 1,716,100 . ............. ............. ...............
Consolidated Net Income .................................................................................................................................................... (138,900) .......... ............. ...............
To NCI for both Webo and Elcam (see distribution schedule) ............................................................................................ 17,844 (17,844) ...............
To Controlling Interest (see distribution schedule) .............................................................................................................. 121,056 ........... (121,056)
Total NCI ................................................................................................................................................................................................... (197,011) ..........
(197,011)
Retained EarningsControlling Interest, December 31, 20X2 .................................................................................................................................... (361,589)
(361,589)
Totals .......................................................................................................................................................................................................................................... 0

(CVW) Convert investment in Webo to equity balance on January 1, 20X2,
80% ($50,000 Retained Earnings increase) ................ $ 40,000
Treasury stock purchase:
Equity after sale [4,000/4,500 ($450,000 $48,000)] $357,333
Equity before sale (80% $450,000) ......................... 360,000
Decrease in equity............................................................ (2,667)
Net change in investment account ................................... $ 37,333
(CVE) Convert investment in Elcam to equity balance on January 1, 20X2:
Change in retained earnings ............................................ $ (75,000)
Change in paid-in capital in excess of par:
Interest prior to sale..................................................... $525,000
Interest after sale {8/10 [$525,000 + ($85 2,000 shares)]} 556,000 31,000
Net change to investment account ................................... $ (44,000)
450
Ch. 8Problems
(CY2) Eliminate intercompany dividends (4,000/4,500 $22,500 = $20,000 for Webo divi-
dends and 80% $10,000 = $8,000 for Elcam dividends).
(ELW) Eliminate 4,000/4,500 interest in Webo equity accounts, including treasury stock
against the investment account.
(ELE) Eliminate 80% of Elcam equity accounts against investment in Elcam account.
(B) Eliminate intercompany interest income and expense. Eliminate balance of investment
in bonds against 75% of the bonds payable. The gain on retirement as of the begin-
ning of the year is calculated as follows:
Gain remaining at year-end:
Carrying value of bonds at December 31, 20X2
[($200,000 $800) 75%] ................................ $149,400
Investment in bonds at December 31, 20X2 ........... 148,000 $ 1,400
Gain amortized during the year:
Interest revenue eliminated ...................................... $ 13,000
Interest expense eliminated {[($200,000
8%) + ($1,200/3)] 75%} ...................................... 12,300 700
Gain at January 1, 20X2................................................... $ 2,100
(F1) Eliminate gain on sale of equipment as of June 30, 20X2.

(F2) Reduce depreciation on equipment [1/2 ($2,000 10) = $100].
(IS) Eliminate intercompany sales.
(EI) Eliminate profit in ending inventory relating to sales made by Barns
($60,000 25% = $15,000).
(IA) Eliminate intercompany debt.
Subsidiary Elcam Company Income Distribution

Interest adjustment Internally generated net
($13,000 $12,300) ................ $700 Income ..................................... $43,100
Gain on bonds retired .................... 2,100

NCI share ...................................... 20%
NCI ................................................ $ 8,900
451
Ch. 8Problems
Subsidiary Webo Company Income Distribution

Income ............................... $ 80,500
Adjusted net income ................ $ 80,500

NCI share ................................ 11.11%
NCI .......................................... $ 8,944
Parent Barns Company Income Distribution

ending inventory ...................... $15,000 income .................................. $ 30,800
Gain on equipment sale ................ 2,000 80% Elcam adjusted
income of $44,500 ................ 35,600
88.8888% Webo adjusted
income of $80,500 ................ 71,556
Equipment gain realized ............. 100
Controlling interest...................... $121,056
452
Ch. 8Problems
PROBLEM 8-6
Marys investment in John on January 1, 20X2 (9,000 shares):

Company Parent NCI
Implied Price Value
Total equity $300,000 $300,000 $300,000
Book value $180,000 $120,000

Worksheet
Adjustment Key
Johns investment in Joan on January 1, 20X3 (5,000 shares):

Company Parent NCI
Implied Price Value
Fair value of subsidiary $150,000 $ 75,000 $ 75,000
Total equity $150,000 $150,000 $150,000
Book value $ 75,000 $ 75,000
453
Ch. 8Problems
Marys investment in Joan on January 1, 20X4 (4,000 shares plus effective control of 5,000
shares):

Company Parent NCI
Implied Price Value
Fair value of subsidiary $180,000 $162,000* $ 18,000
Total equity $180,000 $180,000 $180,000
Book value $162,000 $ 18,000
January 1, 20X4, market value per share of Joans stock:

$72,000 paid by Mary/4,000 shares acquired = $18 per share
Prior investment was adjusted as follows:
Original cost (Johns investment in Joan) ................................ $75,000
Equity income (50% $30,000 increase in
retained earnings) .............................................................. 15,000
Total ......................................................................................... $90,000
Fair value (5,000 shares $18) ............................................... $90,000
No further adjustment was required.
*4,000 shares acquired by Mary + 5,000 shares owned by John and controlled by Mary = 9,000
total shares (90% of Joans controlling shares); 9,000 shares $18 market value per share =
$162,000.
454
Ch. 8Problems
Mary Company and Subsidiaries John Company and Joan Company

Consoli-
Mary John Joan Dr. Cr. Statement NCI Earnings Sheet
Cash................................................ 62,500 60,000 30,000 ................ ............... ................. ............. .............
152,500
Accounts Receivable....................... 200,000 55,000 30,000 ................ (IA) 3,000 ........ ............. .............
282,000
Inventory ......................................... 360,000 80,000 50,000 ................ (EI) 1,500 ........ ............. .............
488,500
Investment in John Company .......... 270,000 ............. ................. ................ (CY1) 33,000 ...... ............. ............. ...............
................. ................. ................. ................ (EL1) 213,000 .............. ............. ............. ...............
................. ................. ................. ................ (D) 24,000 .............. ............. ............. ...............
Investment in Joan CompanyMary 86,000 ............. ................. ................ (CY2) 14,000 ...... ............. ............. ...............
................. ................. ................. ................ (EL2) 72,000 .............. ............. ............. ...............
Investment in Joan CompanyJohn ................. 107,500 .............. ................ (CY3) 17,500 ...... ............. ............. ...............
................. ................. ................. ................ (EL3) 90,000 .............. ............. ............. ...............
Property, Plant, and Equipment ...... 2,250,000 850,000 350,000 ............... (F1) 10,000 ...... ............. ............. 3,440,000
Accumulated Depreciation .............. (938,000) (377,500) (121,800) (F2) 2,000 ....... ................. ............. .............
(1,435,300)
Intangibles ....................................... 15,000 ............. ................. ............... ................ ................. ............. .............
15,000
Goodwill .......................................... ................. ................. ................. (D) 40,000 ................ ................. ............. .............
40,000
Accounts Payable ........................... (215,500) (61,000) (22,000) (IA) 3,000 ................ ................. ............. .............
(295,500)
Accrued Expenses .......................... (12,000) (4,000) (1,200) ............... ................ ................. ............. .............
(17,200)
Bonds Payable ................................ (500,000) (300,000) (100,000) .............. ................ ................. ............. .............
(900,000)
Common Stock ($5 par)Mary....... (500,000) ............ ................. ............... ................ ................. ............. .............
(500,000)
ParMary.................................. (700,000) ............ ................. ............... ................ ................. ............. .............
(700,000)
Retained EarningsMary ............... (290,000) ............ ................. ............... ................ ................. ............. (290,000)
Common Stock ($10 par)John ..... ................. (150,000) ............. (EL1) 90,000 ................ ................. (60,000) ...............
ParJohn .................................. ................. (75,000) ............. (EL1) 45,000 ................ ................. (30,000) ...............
455
Ch. 8Problems
Retained EarningsJohn ............... ................. (130,000) ............. (EL1) 78,000 (NCI) 16,000 ...... (68,000) ...............
Common Stock ($10 par)Joan ..... ................. ................. (100,000) (EL2) 40,000 ................ ................. ............. ............. ...............
................. ................. ................. (EL3) 50,000 ................ ................. (10,000) ...............
Retained EarningsJoan ............... ................. ................. (80,000) (EL2) 32,000 ................ ................. ............. ............. ...............
................. ................. ................. (EL3) 40,000 ................ ................. (8,000) .. ...............
Sales ............................................... (1,800,000) (500,000) (300,000) (IS) 20,000 ..... .......... (2,580,000).... ...............
...................................................
Gain on Sale of Equipment ............. ................. ................. (10,000) (F1) 10,000 ................ ................. ............. ............. ...............
Subsidiary IncomeMary ............... (58,000) ............ ................. (CY1) 42,000 ................ ................. ............. ............. ...............
................. ................. ................. (CY2) 16,000 ................ ................. ............. ............. ...............
Subsidiary IncomeJohn ............... ................. (20,000) ............. (CY3) 20,000 ................ ................. ............. ............. ...............
456
Ch. 8Problems
Mary Company and Subsidiaries John Company and Joan Company

(Concluded)
Consoli-
Mary John Joan Dr. Cr. Statement NCI Earnings Sheet
Cost of Goods Sold ......................... 1,170,000 350,000 180,000 (EI) 1,500 (IS) 20,000 1,681,500 ............. ...............
Other Expenses .............................. 525,000 100,000 90,000 ................ (F2) 2,000 713,000 ............. ...............
Dividends Declared ......................... 75,000 ............. ................. ................ ............... ................. ............. 75,000 ....
................. 15,000 .............. ................ (CY1) 9,000 ........ ............. ............. ...............
................. ................. 5,000 ................ (CY2) 2,000 ........ ............. ............. ...............
................. ................. ................. ............... (CY3) 2,500 .............. 6,500 .... ...............
0 0 0 529,500 529,500 .... ............. ............. ...............
To NCI (John and Joan) (see distribution schedule) ........................................................................................................... 29,000 (29,000) ...............
To Controlling Interest (see distribution schedule) .............................................................................................................. 156,500 ........... (156,500) ...........
Total NCI ................................................................................................................................................................................................... (198,500) ..........
(198,500)
Retained EarningsControlling Interest, December 31, 20X4 .................................................................................................................................... (371,500) (371,500)
Totals .......................................................................................................................................................................................................................................... 0

(CY1) Eliminate current-year entries for Marys investment in John. Income: $70,000 60% = $42,000.
(EL1) Eliminate Marys interest in Johns equity.
(D)/(NCI) Distribute the excess and NCI adjustment according to the determination and distribution of excess schedule.
(CY2) Eliminate current-year entries for Marys investment in Joan, $40,000 40% = $16,000.
(EL2) Eliminate Marys interest in Joans equity.
(CY3) Eliminate current-year entries for Johns investment in Joan, $40,000 50% = $20,000.
(EL3) Eliminate Johns interest in Joans equity.
(F1) Eliminate gain on sale of machine from Joan to Mary.
(F2) Adjust depreciation on the machine for 20X4.
(IS) Eliminate intercompany sale of goods from John to Joan.
(EI) Eliminate profit in ending inventory of goods sold by John to Joan, $5,000 30% = $1,500.
(IA) Eliminate intercompany payable and receivable due to sale.
457
Ch. 8Problems
Subsidiary Joan Company Income Distribution

Gain on sale of machine ............... $10,000 Internally generated net
income ..................................... $40,000
Gain on machine realized
through use .............................. 2,000
Adjusted income ............................ $32,000

NCI share ...................................... 10%
NCI ................................................ $ 3,200
Subsidiary John Company Income Distribution

Gross profit in ending Internally generated net
inventory .................................. $1,500 income ..................................... $50,000
50% Joan adjusted
income of $32,000 ................... 16,000
Adjusted income ............................ $64,500

NCI share ...................................... 40%
NCI ................................................ $25,800
Parent Mary Company Income Distribution

income ..................................... $105,000
40% Joan adjusted
income of $32,000 ................... 12,800
60% John adjusted
income of $64,500 ................... 38,700
458
Ch. 8Problems
PROBLEM 8-7
Shelby investment in Borner Company on January 1, 20X1:

Company Parent NCI
Implied Price Value
Common stock $200,000
Total equity $580,000 $580,000 $580,000
Book value $522,000 $ 58,000

Plant assets $ 50,000 $ 5,000 10 debit D3
Total $ 90,000
DeNoma Company investment in Shelby Corporation on January 1, 20X3:

Company Parent NCI
Implied Price Value
Fair value of subsidiary $1,250,000 $ 750,000 $ 500,000
Common stock $ 500,000
Plant asset depreciation (2 years
$5,000 90%) (9,000)
Total equity $1,141,000 $1,141,000 $1,141,000
Book value $ 684,600 $ 456,400

Plant assets $ 50,000 $ 5,000 10 debit D1
Total $ 109,000
459
Ch. 8Problems
DeNoma Company and Subsidiaries Shelby Corporation and Borner Company

Consoli-
DeNoma Shelby Borner Dr. Cr. Statement NCI Earnings Sheet
Inventory ......................................... 75,000 60,000 40,000 ............... (EI) 8,000 ........ ............. .............
167,000
Other Current Assets ...................... 900,000 2,000 390,000 ............... ................ ................. ............. .............
1,292,000
Plant Assets .................................... 1,200,000 800,000 600,000 ............... (F1) 15,000 ...... ............. ............. 2,685,000
................. ................. ................. (D1) 50,000 ................ ................. ............. ............. ...............
................. ................. ................. (D3) 50,000 ................ ................. ............. ............. ...............
Accumulated Depreciation .............. (450,000) (300,000) (200,000) (F1) 3,000 ...... ................. ............. .............
(974,000)
................. ................. ................. (F2) 3,000 (D3) 9,000 ........ ............. ............. ...............
................. ................. ................. ................ (A3) 11,000 .............. ............. ............. ...............
................. ................. ................. ................ (A1) 10,000 .............. ............. ............. ...............
Investment in Shelby Corporation ... 894,000 ............. ................. ................ (CY1) 72,000 ...... ............. ............. ...............
................. ................. ................. ................ (EL1) 756,600 .............. ............. ............. ...............
................. ................. ................. ................ (D1, D2) 65,400 .............. ............. ............. ...............
Investment in Borner Company ....... ................. 828,000 .............. ................ (Adj) 9,000 ........ ............. ............. ...............
................. ................. ................. ................ (CY2) 45,000 .............. ............. ............. ...............
................. ................. ................. ................ (EL2) 702,000 .............. ............. ............. ...............
................. ................. ................. ................ (D3, D4) 72,000 .............. ............. ............. ...............
Goodwill .......................................... ................. ................. ................. (D2) 59,000 ............... ................. ............. .............
99,000
................. ................. ................. (D4) 40,000 ............... ................. ............. ............. ...............
Common StockDeNoma .............. (1,500,000) ..... ................. ............... ................ ................. ............. .............
(1,500,000)
Retained EarningsDeNoma ......... (922,000) ............ ................. (F1) 7,200 ................ ................. ............. (908,560)
................. ................. ................. (A1) 3,000 ................ ................. ............. ............. ...............
................. ................. ................. ............... ................ ................. ............. ............. ...............
................. ................. ................. (BI) 3,240 ................ ................. ............. ............. ...............
Common StockShelby ................. ................. (500,000) ............. (EL1) 300,000 ................ ................. (200,000) ...............

ParShelby............................... ................. (150,000) ............. (EL1) 90,000 ................ ................. (60,000) ...............
Retained EarningsShelby ............ ................. (620,000) ............. (Adj) 9,000 (NCI1) 43,600 ...... ............. (274,540) ...............
................. ................. ................. (EL1) 366,600 ................ ................. ............. ............. ...............
460
Ch. 8Problems
................. ................. ................. (A3) 4,500 ................ ................. ............. ............. ...............
................. ................. ................. (A1) 2,000 ................ ................. ............. ............. ...............
................. ................. ................. (BI) 2,160 ................ ................. ............. ............. ...............
................. ................. ................. (F1) 4,800 ................ ................. ............. ............. ...............
Common StockBorner ................. ................. ................. (200,000) (EL2) 180,000 ................ ................. (20,000) ...............
ParBorner ............................... ................. ................. (80,000) (EL2) 72,000 ................ ................. (8,000) .. ...............
461
Ch. 8Problems
DeNoma Company and Subsidiaries Shelby Corporation and Borner Company

(Concluded)
Consoli-
DeNoma Shelby Borner Dr. Cr. Statement NCI Earnings Sheet
Retained EarningsBorner ............ ................. ................. (500,000) (EL2) 450,000 (NCI2) 9,000 ........ (56,900) .......... ...............
................. ................. ................. (A3) 1,500 ................ ................. ............. ............. ...............
................. ................. ................. (BI) 600 ................ ................. ............. ............. ...............
Sales ............................................... (900,000) (700,000) (600,000) (IS) 125,000 ... .......... (2,075,000).... ...............
...................................................
Cost of Goods Sold ......................... 570,000 425,000 400,000 (EI) 8,000 (IS) 125,000 1,272,000 ............. ...............
................. ................. ................. ............... (BI) 6,000 .............. ............. ............. ...............
Expenses ........................................ 205,000 200,000 150,000 (A1) 5,000 (F2) 3,000 562,000 ............. ...............
................. ................. ................. (A3) 5,000 ................ ................. ............. ............. ...............
Subsidiary Income........................... (72,000) ............ ................. (CY1) 72,000 ................ ................. ............. ............. ...............
................. (45,000) ............. (CY2) 45,000 ............... ................. ............. ............. ...............
0 0 0 1,961,600 1,961,600 . ............. ............. ...............
To NCIBorner (see distribution schedule) ........................................................................................................................ 4,300 (4,300) .. ...............
To NCIShelby (see distribution schedule) ....................................................................................................................... 44,680 (44,680) ...............
Consolidated Net Income .................................................................................................................................................... 192,020 ........... (192,020) ...........
Total NCI ................................................................................................................................................................................................... (668,420) ..........
(668,420)
Retained EarningsControlling Interest, December 31, 20X4 .................................................................................................................................... (1,100,580)
(1,100,580)
Totals .......................................................................................................................................................................................................................................... 0
462
Ch. 8Problems

(Adj) Adjust Investment in Borner Company and Retained EarningsShelby for
20X1 and 20X2 amortizations of excesses.
(CY1) Eliminate the entry made by DeNoma to record its share of Shelby income.
(EL1) Eliminate 60% of Shelby equity balances (after adjustment) against investment
in Shelby.
(D1, D2)/NCI1) Distribute the excess of cost over book value and NCI adjustment according to
the determination and distribution of excess schedule for Investment in Shelby
Corporation.
(A1) Amortize the excess for the current and past years:
Depreciation: Current Prior Total
Shelby: $50,000 10 years ........... $5,000 $5,000 $10,000
(CY2) Eliminate the entry made by Shelby to record its share of Borner income.
(EL2) Eliminate 90% of the Borner equity balances against investment in Borner.
(D3, D4)/(NCI2) Distribute the remaining excesses and NCI adjustment [i.e., the original excess
less the amount of the adjustment made in (Adj)].
(A3) Amortize excess as follows:
Borner retained earnings, 3 years 10% $5,000 ..... $1,500
Shelby retained earnings, 1 year (2 years are in the
adjustment), 90% $5,000.................................... 4,500
Expense....................................................................... 5,000
(IS) Eliminate the current-year intercompany merchandise sale.
(BI) Eliminate Borners gross profit contained in Shelbys beginning inventory. The
correction of Retained Earnings must be prorated between noncontrolling and
controlling interests:
$7,500 80% = $6,000
Borner: 10% $6,000 ................................................. $ 600
Shelby: 40% 90% $6,000 ...................................... 2,160
DeNoma: 60% 90% $6,000 ................................... 3,240
$6,000
(EI) Eliminate the intercompany profit contained in Shelbys ending inventory,
$10,000 80% = $8,000.
(F1) Adjust to remove gain on intercompany sale of assets, reduce accumulated
depreciation by the prior-year amortization of the gain, and reduce Shelbys
(40%) and DeNomas (60%) retained earnings by the gain remaining at the be-
ginning of the year.
(F2) Recognize current-year gain through use of plant assets.
463
Ch. 8Problems
Subsidiary Borner Company Income Distribution

Ending inventory profit .................. $8,000 Internally generated
Depreciation on excess ................. 5,000 income ..................................... $50,000
Beginning inventory profit .............. 6,000
Adjusted income ............................ $43,000

NCI share ...................................... 10%
NCI ................................................ $ 4,300
Subsidiary Shelby Corporation Income Distribution

Depreciation on excess ................. $5,000 Internally generated
income ..................................... $ 75,000
Share of Borner income
(90% $43,000) ...................... 38,700
Gain realized through plant
asset use ................................. 3,000
Adjusted income ............................ $111,700

NCI share ...................................... 40%
NCI ................................................ $ 44,680
Parent DeNoma Company Income Distribution

Internally generated
income ..................................... $125,000
Share of Shelby income
(60% $111,700) .................... 67,020
464
Ch. 8Problems
PROBLEM 8-8

Company Parent NCI
Implied Price Value
Common stock ($10 par) $ 50,000
Total equity $410,000 $410,000 $410,000
Book value $328,000 $ 82,000

Worksheet
Adjustment Key
465
Ch. 8Problems
Pepe Company and Subsidiary Salida Company


Pepe Salida Dr. Cr. Statement NCI Earnings Sheet
Inventory ........................................................ 170,000 120,000 ............. (EI) ............... 4,000 ............... .................
....................................................................... 286,000
Other Current Assets ..................................... 216,000 256,000 ............. ................. ................. ................. .................
..........................................................472,000
Investment in Salida Company....................... 400,000 ............. (CV) 32,000 (EL) ........... 360,000 ............... ................. .................
.......................................................................
................. ................. ................. (D) 72,000 ............... ................. ................. .................
Investment in Pepe Company ........................ ................. 40,000 ................. (TS) 40,000 ...... ................. ................. .................
Land ............................................................... 80,000 70,000 ............... ................. ................. ................. .................
..........................................................150,000
Buildings and Equipment ............................... 400,000 280,000 ............. ................. ................. ................. .................
..........................................................680,000
....................................................... (270,000)
Goodwill ......................................................... ................. ................. (D) 90,000 ................. ................. ................. .................
............................................................90,000
Current Liabilities ........................................... (98,000) (74,000) ............. ................. ................. ................. .................
....................................................... (172,000)
Long-Term Liabilities ...................................... (250,000) (100,000) ........... ................. ................. ................. .................
....................................................... (350,000)
Common Stock ($10 par)Pepe ................... (100,000) ............ ................. ................. ................. ................. .................
....................................................... (100,000)
Paid-In Capital in Excess of ParPepe ......... (200,000) ............ ................. ................. ................. ................. .................
....................................................... (200,000)
Retained EarningsPepe .............................. (350,000) ............ ................. (CV) 32,000 ...... ................. (382,000) ..
Common Stock ($10 par)Salida.................. ................. (50,000) (EL) 40,000 ................. ................. ............(10,000) ..............
.......................................................................
Paid-In Capital in Excess of ParSalida ....... ................. (140,000) (EL) 112,000 ............... ................. ............(28,000) ..............
.......................................................................
Retained EarningsSalida ............................ ................. (260,000) (EL) 208,000 (NCI) ............. 18,000 ................. (70,000) ....
.......................................................................
Net Sales ....................................................... (640,000) (350,000) (IS) 40,000 ...... .......... (950,000) ............... .................
.......................................................................
Cost of Goods Sold ........................................ 360,000 200,000 (EI) 4,000 (IS) 40,000 ............... 524,000 .... .................
.......................................................................
466
Ch. 8Problems
Operating Expenses ....................................... 160,000 90,000 ............... ................. ........... 250,000 ................ .................
.......................................................................
Dividend Income ............................................ (8,000) (2,000) (CY1) 8,000 ................. ................. ................. ................. .................
................. ................. (CY2) 2,000 ................. ................. ................. ................. .................
Dividends DeclaredPepe ............................ 40,000 ............. ................. (CY2) 2,000 ........ ................. 38,000 ......
Dividends DeclaredSalida .......................... ................. 10,000 ................. (CY1) 8,000 ........ 2,000 ........ .................
Treasury Stock ............................................... ................. ................. (TS) 40,000 ................. ................. ................. .................
............................................................40,000
Total ............................................................... 0 0 576,000 576,000 .... ................. ................. .................
Total NCI ........................................................................................................................................................................................ (118,000) ...............
(118,000)
(508,000)
Totals ......................................................................................................................................................................................................................................... 0
467
Ch. 8Problems

(CV) Convert to the simple equity method as of January 1, 20X2.
(CY1) Eliminate the current-year dividend income of Pepe against dividends declared
by Salida.
(EL) Eliminate 80% of the Salida Company equity balances at the beginning of the
year against the investment account.
(D) Distribute the $72,000 excess of cost over book value and $18,000 NCI adjust-
ment to Goodwill.
(IS) Eliminate the intercompany sale and purchase.
(EI) Eliminate the intercompany gross profit in the ending inventory of Salida.
(CY2) Eliminate the current-year dividend income of Salida against dividends declared
by Pepe.
(TS) Transfer Investment in Pepe Company to a treasury stock account.
Subsidiary Salida Company Income Distribution

income ..................................... $60,000
NCI share ...................................... 20%
NCI ................................................ $12,000
Parent Pepe Company Income Distribution

Ending inventory profit .................. $4,000 Internally generated net
income ..................................... $120,000
80% of Salida income .................... 48,000
468
Ch. 8Problems
PROBLEM 8-9

Company Parent NCI
Implied Price Value
Total equity $410,000 $410,000 $410,000
Book value $328,000 $ 82,000

Worksheet
Adjustment Key
Goodwill $ 90,000 debit D1
469
Ch. 8Problems
Pepe Company and Subsidiary Salida Company


Pepe Salida Dr. Cr. Statement NCI Earnings Sheet
Inventory ........................................................ 170,000 120,000 ............. (EI) ............... 4,000 ............... .................
....................................................................... 286,000
Other Current Assets ..................................... 216,000 296,000 ............. ................. ................. ................. .................
..........................................................512,000
Investment in Salida Company....................... 400,000 ............. (CV) 32,000 (EL) ........... 458,333 ............... ................. .................
.......................................................................
................. ................. (TR) 100,000 (D1) 72,000 ...... ................. ................. .................
................. ................. ................. (D2) 1,667 ............... ................. ................. .................
Investment in Pepe Company ........................ ................. 100,000 ................. (TR) 100,000 .... ................. ................. .................
Land ............................................................... 80,000 70,000 ............... ................. ................. ................. .................
..........................................................150,000
Buildings and Equipment ............................... 400,000 280,000 ............. ................. ................. ................. .................
..........................................................680,000
....................................................... (270,000)
Goodwill ......................................................... ................. ................. (D1) 90,000 ................. ................. ................. .................
............................................................90,000
Current Liabilities ........................................... (98,000) (74,000) ............. ................. ................. ................. .................
....................................................... (172,000)
Long-Term Liabilities ...................................... (250,000) (100,000) ........... ................. ................. ................. .................
....................................................... (350,000)
Common Stock ($10 par)Pepe ................... (100,000) ............ ................. ................. ................. ................. .................
....................................................... (100,000)
Paid-In Capital in Excess of ParPepe ......... (200,000) ............ (D2) 1,667 ................. ................. ................. .................
....................................................... (198,333)
Retained Earnings, January 1Pepe ............ (350,000) ............ ................. (CV) 32,000 ...... ................. (382,000) ..
Common Stock ($10 par)Salida.................. ................. (60,000) (EL) 50,000 ................. ................. ............(10,000) ..............
.......................................................................
Paid-In Capital in Excess of ParSalida ....... ................. (230,000) (EL) 191,666 ............... ................. ............(38,333) ..............
.......................................................................
Retained Earnings, January 1Salida .......... ................. (260,000) (EL) 216,667 (NCI) ............. 18,000 ................. (61,334) ....
.......................................................................
Net Sales ....................................................... (640,000) (350,000) (IS) 40,000 ...... .......... (950,000) ............... .................
.......................................................................
470
Ch. 8Problems
.......................................................................
Operating Expenses ....................................... 160,000 90,000 ............... ................. ........... 250,000 ................ .................
.......................................................................
Dividend Income ............................................ (8,000) (2,000) (CY2) 8,000 ................. ................. ................. ................. .................
................. ................. (CY2) 2,000 ................. ................. ................. ................. .................
Dividends DeclaredPepe ............................ 40,000 ............. ................. (CY2) 2,000 ........ ................. 38,000 ......
Dividends DeclaredSalida .......................... ................. 10,000 ................. (CY2) 8,000 ........ 2,000 ........ .................
Total ............................................................... 0 0 736,000 736,000 .... ................. ................. .................
To NCI ................................................................................................................................................................. 10,000 (10,000) .... .................
To Controlling Interest ......................................................................................................................................... 166,000 ............... (166,000) ..
Total NCI ........................................................................................................................................................................................ (117,667) ...............
(117,667)
Total Controlling Retained Earnings...................................................................................................................................................................... (510,000)
(510,000)
Totals ......................................................................................................................................................................................................................................... 0
471
Ch. 8Problems
(CV) Convert 80% interest to equity method, 80% $40,000 increase in retained
earnings.
(TR) Transfer investment in parent to investment in subsidiary.
(CY2) Eliminate intercompany dividends paid by parent and subsidiary.
(EL) Eliminate combined 5/6 ownership in subsidiary.
(D)/(NCI) Distribute excess to goodwill: (D1) is original goodwill; (D2) is reduction in Pepe
paid-in capital in excess of par*.
(IS) Eliminate intercompany merchandise sales.
(EI) Eliminate intercompany profit in ending inventory.
*Analysis of Investment in Pepe:

Equity after swap:
Common stock ($10 par) ................................................ $ 60,000
Paid-in capital in excess of par....................................... 230,000
Retained earnings .......................................................... 260,000
Total ....................................................................... $550,000
Ownership interest (5,000/6,000) ................................... 5/6 $458,333
Equity prior to swap:

Total above .................................................................... $ 550,000
Less value of shares issued .......................................... (100,000)
Total ....................................................................... $ 450,000
Ownership interest (4,000/5,000) .................................. 80% 360,000
Increase in equity ................................................................... $ 98,333
Value of share exchanged ..................................................... 100,000
Increase (decrease) in equity ................................................. $ (1,667)
Subsidiary Salida Company Income Distribution

income ..................................... $ 60,000
NCI share ...................................... 1/6
NCI ................................................ $ 10,000
Parent Pepe Company Income Distribution

Ending inventory profit .................. $4,000 Internally generated net
income ..................................... $120,000
5/6 of Salida income ...................... 50,000
472
Ch. 8Problems
PROBLEM 8-10

Company Parent NCI
Implied Price Value
Fair value of subsidiary $148,000 $111,000* $ 37,000
Total equity $142,000 $142,000 $142,000
Book value $106,500 $ 35,500

Worksheet
Adjustment Key
*Last purchase at $51,800/1,400 shares = $37 per share. Fair value = 3,000 shares $37 =
$111,000
Adjustment to fair value:

Fair value of prior purchase (1,600 shares $37) ....... $59,200
Cost.............................................................................. 48,000
Gain ............................................................................. $11,200
473
Ch. 8Problems
Heckert Company and Subsidiary Aker Company


Heckert Aker Dr. Cr. Statement NCI Earnings Sheet
Cash............................................................... 38,100 29,050 ............... ................. ................. ................. .................
............................................................67,150
Marketable Securities ..................................... 33,000 18,000 ............... (TS) ............. 18,000 ............... .................
....................................................................... 33,000
Trade Accounts Receivable ........................... 210,000 88,000 ............... (IA) ............... 8,000 ............... .................
....................................................................... 290,000
Allowance for Doubtful Accounts.................... (6,800) (2,300) ............... ................. ................. ................. .................
........................................................... (9,100)
Intercompany Receivables ............................. 24,000 ............. ................. (IA) 24,000 ...... ................. ................. .................
Inventories ..................................................... 275,000 135,000 ............. (EI) ............... 5,400 ............... .................
....................................................................... 404,600
Machinery and Equipment ............................. 514,000 279,000 ............. (F1) ........... 800 ................. .................
..........................................................792,200
Accumulated Depreciation ............................. (298,200) (196,700) ........... ................. ................. ................. .................
....................................................... (494,900)
Investment in Aker Company (at cost) ........... 99,800 ............. (Adj) 11,200 (EL) ........... 106,500 ............... ................. .................
.......................................................................
................. ................. ................. (D) 4,500 ............... ................. ................. .................
Patents ........................................................... 35,000 ............. ................. ................. ................. ................. .................
............................................................35,000
Goodwill ......................................................... ................. ................. (D) 6,000 ................. ................. ................. .................
..............................................................6,000
Dividends Payable ......................................... (7,500) ............ (CY2) 750 ................. ................. ................. ................. (6,750)
Trade Accounts Payable ................................ (195,500) (174,050) (IA) 24,000 ...... ................. ................. .................
....................................................... (345,550)
Intercompany Payables .................................. (8,000) ............ (IA) 8,000 ................. ................. ................. ................. .................
Common Stock ($10 par)Heckert ............... (150,000) ............ ................. ................. ................. ................. .................
....................................................... (150,000)
Common Stock ($5 par)Aker ...................... ................. (22,000) (EL) 16,500 ................. ................. ............. (5,500) ..............
.......................................................................
Paid-In Capital in Excess of ParHeckert ..... (36,000) ............ ................. ................. ................. ................. .................
......................................................... (36,000)
Paid-In Capital in Excess of ParAker .......... ................. (14,000) (EL) 10,500 ................. ................. ............. (3,500) ..............
.......................................................................
Retained EarningsHeckert .......................... (378,000) ............ ................. ................. ................. ................. ................. .................
474
Ch. 8Problems
................. ................. ................. ................. ................. ................. (378,000) ..............

Retained EarningsAker ............................... ................. (106,000) (EL) 79,500 (NCI) ............... 1,500 ................. (28,000) ....
.......................................................................
Dividends DeclaredHeckert ........................ 7,500 ............. ................. (CY2) 750 ........... ................. 6,750 ........
Dividends DeclaredAker ............................. ................. 4,000 ................. (CY1) 3,000 ........ 1,000 ........ .................
Sales and Services ........................................ (850,000) (530,000) (IS) 182,000 .... .............. (1,198,000) ........ .................
.......................................................................
Dividend Income ............................................ (3,000) ............ (CY1) 3,000 ................. ................. ................. ................. .................
Other Income ................................................. (9,000) (3,700) (F1) 800 ........... ............ (11,900) ............... .................
.......................................................................
.......................................................................
Depreciation Expense .................................... 65,600 11,200 ............... ................. ............. 76,800 ................ .................
.......................................................................
Administrative and Selling Expenses ............. 130,000 110,500 ............. ................. ........... 240,500 ................ .................
.......................................................................
475
Ch. 8Problems
Heckert Company and Subsidiary Aker Company

(Concluded)

Heckert Aker Dr. Cr. Statement NCI Earnings Sheet
Gain on investment ........................................ ................. ................. ................. (Adj) 11,200 (11,200)
Treasury Stock (cost) ..................................... ................. ................. (TS) 18,000 ................. ................. ................. .................
............................................................18,000
0 0 365,650 365,650 .... ................. ................. .................
Total NCI ........................................................................................................................................................................................ (46,750) ...............
(46,750)
(556,900)
Totals ......................................................................................................................................................................................................................................... 0

(Adj) Adjust investment account for gain on prior investment, $11,200.
(CY1) Eliminate intercompany cash dividends.
(CY2) Eliminate intercompany dividends on shares of Heckert owned by Aker,
1,500 $0.50 = $750 against the dividends payable account.
(EL) Eliminate 75% of subsidiary equity against the investment account.
(D)/(NCI) Distribute excess and NCI adjustment to Goodwill, according to the determination and distribution of excess schedule.
(TS) Reclassify Akers investment in Heckert as treasury stock at cost.
(F1) Eliminate gain on machinery sale by Aker.
(IA) Eliminate intercompany receivables and payables.
(IS) Eliminate intercompany merchandise sales of $182,000.
(EI) Eliminate ending inventory profit on Aker sales to Heckert, 30% $18,000 = $5,400.
476
Ch. 8Problems
Subsidiary Aker Company Income Distribution

Gain on sale of equipment ............ $ 800 Internally generated net
Unrealized profit in income ..................................... $ 8,000
ending inventory ...................... 5,400 Gain on investment in Heckert ...... 11,200
Adjusted net income ...................... $ 43,000

NCI share ...................................... 25%
NCI ................................................ $ 10,750
Parent Heckert Company Income Distribution

income ..................................... $153,400
75% Aker adjusted
income of $43,000 ................... 32,250
477

08 Fischer10e SM Ch08 Final

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UNDERSTANDING THE ISSUES

(1) Retained Earnings (3,000 $35) ..................................................... 105,000

Cash ................................................................................................. 14,850

Goodwill ........................................................................................... 250,000

Exercise 8-1, Concluded

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

Investment in Trail .................................................................................. 57,750

Investment in Trail .................................................................................. 32,250

*(10,000 shares 90%)/(10,000 shares + 2,000 shares)

Maintain Increase Decrease

Maintain ownership percentage interest:

Increase ownership percentage interest:

Decrease ownership percentage interest:

Investment in Nolan ............................................................................ 81,360

*(60% 30,000 shares)/(30,000 5,000 treasury stock shares)

Retained EarningsTarman Company .............................................. 5,760

Adjustment for treasury stock purchase:

*60% 30,000 shares $12

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

(2) Eliminations and Adjustments:

Accumulated Depreciation ............................................................ 3,000

Subsidiary Company C Income Distribution

Adjusted net income ...................... $24,000

Subsidiary Company B Income Distribution*

Adjusted net income ...................... $88,400

Parent Company A Income Distribution

Controlling interest......................... $111,800

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

(1) Company Ns books:

(2) Internally generated incomes ($200,000 + $90,000 + $40,000) ... $330,000

Exercise 8-9, Concluded

Subsidiary O Company Income Distribution

Adjusted income ............................ $38,500

Subsidiary N Company Income Distribution

Adjusted income .......................... $104,900

Parent Company M Income Distribution

Controlling interest......................... $302,110

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

(2) Myles Corporation and Subsidiary Downer Corporation

Sales ............................................................................................................ $1,150,000

Subsidiary Downer Corporation Income Distribution

Adjusted net income ...................... $28,500

Parent Myles Corporation Income Distribution

Controlling interest......................... $67,100

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

(2) Excess of cost or book value due to swap

Equity prior to swap:

Zee Corporation booked entries for adjustments to investment in Tomline Company:

Problem 8-1, Continued

Zee Corporation booked entries for adjustments to investment in Sandel Company:

(8)*January 1 Retained Earnings .............................................. 10,335

(9)*December 31 Investment in Sandel .......................................... 28,933

Problem 8-1, Concluded

Schedules to Determine Zee Corporations Adjustments to Its Investment

Bear Corporation purchase of Kelly Company Shares:

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

Bear Corporation purchase of Samco Company Shares: