ADVANCED FIN. ACCT. LL W/ACCESS>CUSTOM<
12th Edition
ISBN: 9781265074623
Author: Christensen
Publisher: MCG CUSTOM
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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
Expert Solution
Answer to Problem 10.27P
| Debit $ | Credit $ | |
| 1. Record purchase of S company stock | ||
| Investment in S company stock | 247,500 | |
| Common stock | 80,000 | |
| Additional Paid-in capital | 167,500 | |
| 2. Record dividends received from S | ||
| Cash | 9,000 | |
| Investment in S company stock | 9,000 | |
| 3. Record equity method income | ||
| Investment in S company stock | 13,500 | |
| Income from Subsidiary | 13,500 |
Explanation of Solution
- 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.
- Dividends from S company recorded $10,000 x .90 = $9,000.
- 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
Answer to Problem 10.27P
| Debit | Credit | |
| 1. Eliminate income from subsidiary | ||
| Income from Subsidiary | 13,500 | |
| Dividends declared | 9,000 | |
| Investment in S company common stock | 4,500 | |
| 2. Assignment of income to non-controlling interest: | ||
| Income to non-controlling interest | 1,500 | |
| Dividends declared | 1,000 | |
| Non-controlling interest | 500 | |
| 3. Eliminate beginning investment: | ||
| Common stock − S company | 150,000 | |
| 100,000 | ||
| Sales | 205,000 | |
| Cost of goods sold | 126,000 | |
| | 16,000 | |
| Dividends declared | 18,000 | |
| Investment in S company common stock | 247,000 | |
| Non-controlling interest | 27,500 |
Explanation of Solution
- Income from subsidiary is eliminated by debiting and credit investment and dividends.
- Income assigned to non-controlling interest $1,500 = $15,000 x .10
- Beginning investment eliminated by reversal entry.
$1,000 = $10,000 x .10
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
Answer to Problem 10.27P
Consolidated work sheet total for 20X2 $1,285,000.
Explanation of Solution
| Eliminations | |||||
| P | S | Debit | Credit | Consolidation | |
| Sales | 390,000 | 250,000 | 205,000 | 435,000 | |
| Income from subsidiary | 13,500 | 13,500 | |||
| 403,500 | 250,000 | 435,000 | |||
| 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 income | 59,500 | 60,000 | 61,000 | ||
| Income from NCI | 1,500 | (1,500) | |||
| Controlling interest in net income | 59,500 | 60,000 | 220,000 | 160,000 | 59,500 |
| Statement of Retained earnings: | |||||
| Retained earnings January 1 | 135,000 | 100,000 | 100,000 | 135,000 | |
| Net income | 59,500 | 60,000 | 220,000 | 160,000 | 59,500 |
| Less: dividends declared | (40,000) | (30,000) | 9,000 | ||
| 1,000 | |||||
| 20,000 | (40,000) | ||||
| Retained earnings Dec 31 | 154,500 | 130,000 | 320,000 | 190,000 | 154,500 |
| Cash | 85,000 | 50,000 | 135,000 | ||
| 100,000 | 60,000 | 160,000 | |||
| Inventory | 150,000 | 100,000 | 250,000 | ||
| Buildings and equipment | 400,000 | 340,000 | 740,000 | ||
| Investment in S stock | 252,000 | 4,500 | |||
| 247,500 | |||||
| Total assets | 987,000 | 550,000 | 1,285,000 | ||
| 105,000 | 65,000 | 170,000 | |||
| Accounts payable | 40,000 | 50,000 | 90,000 | ||
| Taxes payable | 70,000 | 55,000 | 125,000 | ||
| Bonds payable | 250,000 | 100,000 | 350,000 | ||
| Common stock | 200,000 | 150,000 | 150,000 | 200,000 | |
| Additional paid-in capital | 167,500 | 167,500 | |||
| Retained earnings | 154,500 | 130,000 | 320,000 | 190,000 | 154,500 |
| Non-controlling interest | 500 | ||||
| 27,500 | 28,000 | ||||
| Liabilities and Equity | 987,000 | 550,000 | 470,000 | 470,000 | 1,285,000 |
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