Advanced Financial Accounting
Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
Question
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Chapter 10, Problem 10.27P
To determine

Consolidation following acquisition:when a company purchases another company’s common stock, the subsidiary is viewed as being part of the consolidated entity only from the time stock is acquired. When a subsidiary is acquired during a fiscal period rather than at the beginning or at the end, the results of the subsidiary’s operations are included in the consolidated statements only for the portion of the year that the parent owned the stock. The subsidiary’s revenues, expenses, gains and losses for the portion of the fiscal period prior to acquisition is excluded from the consolidated financial statements.

the journal entries recorded by P during 20X2 related to investment in S.

Expert Solution
Check Mark

Answer to Problem 10.27P

    Debit $Credit $
    1. Record purchase of S company stock
    Investment in S company stock247,500
    Common stock80,000
    Additional Paid-in capital167,500
    2. Record dividends received from S
    Cash9,000
    Investment in S company stock9,000
    3. Record equity method income
    Investment in S company stock13,500
    Income from Subsidiary13,500

Explanation of Solution

  1. Investment in S’s common stock is recorded by debiting to investment account and credit common stock $80,000 = $10 x 8,000 shares, additional paid in capital $247,500 - $80,000 = $167,500.
  2. Dividends from S company recorded $10,000 x .90 = $9,000.
  3. Equity method income is recognized $15,000 x .90 = $13,500.

b.

To determine

Consolidation following acquisition: when a company purchases another company’s common stock, the subsidiary is viewed as being part of the consolidated entity only from the time stock is acquired. When a subsidiary is acquired during a fiscal period rather than at the beginning or at the end, the results of the subsidiary’s operations are included in the consolidated statements only for the portion of the year that the parent owned the stock. The subsidiary’s revenues, expenses, gains and losses for the portion of the fiscal period prior to acquisition is excluded from the consolidated financial statements.

The consolidation entries for December 31, 20X2.

b.

Expert Solution
Check Mark

Answer to Problem 10.27P

    DebitCredit
    1. Eliminate income from subsidiary
    Income from Subsidiary13,500
    Dividends declared9,000
    Investment in S company common stock4,500
    2. Assignment of income to non-controlling interest:
    Income to non-controlling interest1,500
    Dividends declared1,000
    Non-controlling interest500
    3. Eliminate beginning investment:
    Common stock − S company150,000
    Retained earnings, January 1100,000
    Sales205,000
    Cost of goods sold126,000
    Depreciation expenses16,000
    Dividends declared18,000
    Investment in S company common stock247,000
    Non-controlling interest27,500

Explanation of Solution

  1. Income from subsidiary is eliminated by debiting and credit investment and dividends.
  2. Income assigned to non-controlling interest
  3. $1,500 = $15,000 x .10

    $1,000 = $10,000 x .10

  4. Beginning investment eliminated by reversal entry.

c.

To determine

Consolidation following acquisition: when a company purchases another company’s common stock, the subsidiary is viewed as being part of the consolidated entity only from the time stock is acquired. When a subsidiary is acquired during a fiscal period rather than at the beginning or at the end, the results of the subsidiary’s operations are included in the consolidated statements only for the portion of the year that the parent owned the stock. The subsidiary’s revenues, expenses, gains and losses for the portion of the fiscal period prior to acquisition is excluded from the consolidated financial statements.

The consolidation entries for December 31, 20X2.

c.

Expert Solution
Check Mark

Answer to Problem 10.27P

Consolidated work sheet total for 20X2 $1,285,000.

Explanation of Solution

    Eliminations
    PSDebitCreditConsolidation
    Sales390,000250,000205,000435,000
    Income from subsidiary13,50013,500
    403,500250,000435,000
    Less: Cost of goods sold(305,000)(145,000)126,000(324,000)
    Less: Depreciation expense(25,000)(20,000)16,000(29,000)
    Less: Other expenses(14,000)(25,000)18,000(21,000)
    Consolidated net income59,50060,00061,000
    Income from NCI1,500(1,500)
    Controlling interest in net income59,50060,000220,000160,00059,500
    Statement of Retained earnings:
    Retained earnings January 1135,000100,000100,000135,000
    Net income59,50060,000220,000160,00059,500
    Less: dividends declared(40,000)(30,000)9,000
    1,000
    20,000(40,000)
    Retained earnings Dec 31154,500130,000320,000190,000154,500
    Balance sheet
    Cash 85,00050,000135,000
    Accounts receivable100,00060,000160,000
    Inventory150,000100,000250,000
    Buildings and equipment400,000340,000740,000
    Investment in S stock252,0004,500
    247,500
    Total assets987,000550,0001,285,000
    Accumulated depreciation105,00065,000170,000
    Accounts payable40,00050,00090,000
    Taxes payable70,00055,000125,000
    Bonds payable250,000100,000350,000
    Common stock200,000150,000150,000200,000
    Additional paid-in capital167,500167,500
    Retained earnings 154,500130,000320,000190,000154,500
    Non-controlling interest500
    27,50028,000
    Liabilities and Equity987,000550,000470,000470,0001,285,000

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Advanced Financial Accounting

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