Equity method: The equity method dkeeps the record of the parent’s ownership interest that is multiplied by the reported net income of the subsidiary. This income will be added to parent’s investment account and the deduction in this method will be of the parent’s ownership interest multiplied by the reported losses of the subsidiary and parent’s ownership interest multiplied by the declared dividends of the subsidiary. All together equals the equity-adjusted balance. Cost method: The cost method basically retains the original cost of acquisition balance in the subsidiary account. As the income is earned by the subsidiary, no adjustments would be made. To calculate : The preparation of Fast Cool company and its subsidiary Fast Air company consolidated worksheet with supporting of schedule of amortisation and income.

Question

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Answer 1

Question

Chapter 3, Problem 3.18.2P

To determine

Equity method:

The equity method dkeeps the record of the parent’s ownership interest that is multiplied by the reported net income of the subsidiary. This income will be added to parent’s investment account and the deduction in this method will be of the parent’s ownership interest multiplied by the reported losses of the subsidiary and parent’s ownership interest multiplied by the declared dividends of the subsidiary. All together equals the equity-adjusted balance.

Cost method:

The cost method basically retains the original cost of acquisition balance in the subsidiary account. As the income is earned by the subsidiary, no adjustments would be made.

To calculate:

The preparation of Fast Cool company and its subsidiary Fast Air company consolidated worksheet with supporting of schedule of amortisation and income.

Expert Solution & Answer

Explanation of Solution

Fast Cool has acquired 80% common stock of Fast Air for this, Fast cool issued 35,000 share of its fair value $20 per stock.

To calculate and prepare determination and distribution of excess schedule some adjustment needs to be performed. Thus, these adjustments are in various steps:-

Step 1: Calculate total amortization amount

Particulars	Life	Fair Value	Book Value	Annual Amount	Current Year	Prior Year	Total
Inventory	1	$65,000	$60,000	$5,000	-	$5,000	$5,000
Building	20	$5,00,000	$4,00,000	$7,500	$7,500	$7,500	$15,000
Equipment	5	$1,00,000	$1,50,000	($4,000)	($4,000)	($4,000)	($8,000)
Patent	5	$50,000	$40,000	$2,000	$2,000	$2,000	$4,000
Mortgage Payable	5	$2,05,000	($1,000)	($1,000)	($1,000)	($1,000)	($2,000)
Purchase Contract	2	$10,000	-	$5,000	$5,000	$5,000	$10,000
Total Amortization		-	-	$9,500	$9,500	$9,500	$19,000

After calculating amortization, Step 2 will be calculating internally generated net income for Fast Cool and Fast Air Company.

As per the information given in the question Fast Air sales $5,00,000 , cost of goods sold is $2,60,000 , Depreciation of building and equipment is $17,500 and $24,000 ,Other expenses $1,15,000 and Interest expenses $16,000 .

Now, calculation of internally generated net income is as follows:

Net Income=Sales−( Cost of goods sold+Depreciation of building +Depreciation of equipment+Operating Expenses)=$5,00,000−($2,60,000+$17,500+$24,000+$1,15,000+$16,000)=$67,500

Fast Air Company Income Distribution

Internally Generated Net Income(A)	Amortization for current year (B)	Adjusted income=(A)-(B)	Non-Controlling Interest Profit Share in Subsidiary (20%)	Controlling Interest Share(80%)
$67,500	$9,500	$58,000	$11,600	$,46,400

Calculation of internally generated net income:

As per the information given in the question Fast Cool sales $7,00,000 , cost of goods sold is $3,80,000 , Depreciation of building and equipment is $10,000 and $7,000 , other expenses being $50,000 .

Now, calculate internally generated net income,

Net Income=Sales−( Cost of goods sold+Depreciation of building +Depreciation of equipment+Other Expenses)=$7,00,000−($3,80,000+$10,000+$7,000+$50,000)=$2,53,000

Fast Air Company Income Distribution

Internally Generated Net Income	Non-Controlling Interest Profit Share in Subsidiary (20%)	Controlling Interest Share(80%)
$2,53,000	$46,400	$2,99,400

Step 3:

Fast Cool Company and Fast Air Company Worksheet for Consolidated Financial Statement

For year ended December 2016.

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Controlling Interest Retained Earning	Consolidated
Particulars	Fast Cool	Fast Air	Debit	Credit	Non- Controlling Interest	Controlling Interest Retained Earning	Consolidated
Income Statement
Net Sales	($7,00,000)	($5,00,000)	-	-	-	-	($12,00,000)
Cost of Goods Sold	$3,80,000	$2,60,000	-	-	-	-	$6,40,000
Depreciation of Building	$10,000	$17,500	$7,500	-	-	-	$35,000
Depreciation of equipment	$7,000	$24,000	-	$4,000	-	-	$27,000
Interest Expense	-	$16,000	-	$1,000	-	-	$15,000
Other Expenses	$50,000	$1,15,000	$2,000	-	-	-	$1,72,000
	-	-	$5,000	-	-	-	-
Subsidiary Income	($54,000)	-	$54,000	-	-	-	-
Dividend Declared- Fast Cool	$20,000	-	-	-	-	-	$20,000
Dividend Declared- Fast Air	-	$10,000	-	$8,000	$2,000	-	-
Net Income	($2,87,000)	($57,500)	-	-	-		-
Consolidated Income	-	-	-	-	-	-	($3,11,000)
NCI (see income distribution schedule)	-	-	-	-	$11,600	-	($11,600)
Controlling Interest (see income distribution schedule)	-	-	-	-	-	$2,99,400	($2,99,400)
Consolidated Balance Sheet:
Inventory, December 2016	$1,20,000	$95,000	-	-	-	-	$2,15,000
Cash	$3,92,000	$99,000	-	-	-	-	$4,91,000
Account Receivable	$2,00,000	$1,20,000	-	-	-	-	$3,20,000
Investment in Fast Air	$7,76,000	-	(2) $8,000	(1) $54,000	-	-	-
	-	-	-	(3) $4,14,000	-	-	-
	-	-	-	(4) $3,16,000	-	-	$17,50,000
Land	$60,000	$50,000	(4) $50,000	-	-	-	$1,60,000
Buildings	$12,00,000	$4,00,000	(4) $1,50,000	-	-	-	$17,50,000
Accumulated Depreciation	($2,00,000)	($85,000)	-	(5) $15,000	-	-	($3,00,000)
Equipment	$1,40,000	$1,50,000	-	(4) $20,000	-	-	$2,70,000
Accumulated Depreciation	($80,000)	($78,000)	(5) $8,000	-	-	-	($1,50,000)
Patent	-	$24,000	(4) $10,000	$4,000	-	-	$30,000
Purchase Contract	-	-	$10,000	$10,000	-	-	-
Goodwill	-	$50,000	(4) $1,95,000	-	-	-	$2,45,000
Current Liabilities	($1,50,000)	($50,000)	-	-	-	-	($2,00,000)
Bond Payable	-	($2,00,000)	-	-	-	-	($2,00,000)
Discount (premium)	-	-	-	(4) $5,000	-	-	-
	-	-	(5) $2,000	-	-	-	($3,000)
Common Stock-Fast Cool	($95,000)	-	-	-	-	-	($95,000)
Paid in capital in excess of Par- Fast Cool	($14,05,000)	-	-	-	-	-	($14,05,000)
Retained Earnings-December 31,2016-Fast Cool	($6,71,000)	-	(4) $4,000	-	-	-	($7,38,200)
	-	-	(5) $7,600	-	-	($6,66,000)	-
Common Stock- Fast Air	-	($1,00,000)	(3) ($80,000)	-	($20,000)	-	-
Paid in capital in excess of Par- Fast Air	-	($2,00,000)	(3) ($1,60,000)	-	($40,000)	-	-
Retained Earnings-December 31,2016-Fast Air	-	($2,17,500)	(3) $1,74,000	$79,000	$1,19,600	-	($7,38,200)
	-	-	$1,000	-	-	-	-
	-	-	$1,900	-	-	-	-
Total NCI	-	-	-	-	($1,89,200)	-	($1,89,200)
Retained Earnings- Controlling Interest, December 31, 2016	-	-	-	-	-	($9,38,800)	($9,38,800)
	-	-	-	-	-	-	$0

Working Notes:

Current year Subsidiary income has been considered.
Dividend Declared in current year.
Elimination of controlling interest in subsidiary equity.
Made adjustment as per the determination and distribution schedule.
Amortization Adjustment has been made.

Consolidated non-controlling interest is $2,99,400 , total controlling interest is $9,38,800 and retained earnings is $1,89,200 .

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Consolidation after Several Years On January 1, 2016, Adams Corporation acquired all of the stock of Baker Company. The fair value of Adams’ shares used in the exchange was $37,500,000. At the time of acquisition, the book value of Baker’s shareholders’ equity was $5,000,000, and the book value of Baker’s building (25-year life) exceeded its fair value by $1,000,000. From the date of acquisition to December 31, 2021, Baker had cumulative net income of $1,300,000. For 2022, Baker reported net income of $300,000. Adams uses the complete equity method to account for its investment in Baker. There is no goodwill impairment loss for the period 2016 through 2021, but there is impairment loss of $100,000 in 2022. Baker declared no dividends during the period 2016–2022. Required Prepare the working paper eliminating entries necessary to consolidate the financial statements of Adams and Baker at December 31, 2022. Enter numerical answers using all zeros (do not abbreviate in thousands or in…

Answer 2

Question

Chapter 3, Problem 3.18.2P

To determine

Equity method:

The equity method dkeeps the record of the parent’s ownership interest that is multiplied by the reported net income of the subsidiary. This income will be added to parent’s investment account and the deduction in this method will be of the parent’s ownership interest multiplied by the reported losses of the subsidiary and parent’s ownership interest multiplied by the declared dividends of the subsidiary. All together equals the equity-adjusted balance.

Cost method:

The cost method basically retains the original cost of acquisition balance in the subsidiary account. As the income is earned by the subsidiary, no adjustments would be made.

To calculate:

The preparation of Fast Cool company and its subsidiary Fast Air company consolidated worksheet with supporting of schedule of amortisation and income.

Expert Solution & Answer

Explanation of Solution

Fast Cool has acquired 80% common stock of Fast Air for this, Fast cool issued 35,000 share of its fair value $20 per stock.

To calculate and prepare determination and distribution of excess schedule some adjustment needs to be performed. Thus, these adjustments are in various steps:-

Step 1: Calculate total amortization amount

Particulars	Life	Fair Value	Book Value	Annual Amount	Current Year	Prior Year	Total
Inventory	1	$65,000	$60,000	$5,000	-	$5,000	$5,000
Building	20	$5,00,000	$4,00,000	$7,500	$7,500	$7,500	$15,000
Equipment	5	$1,00,000	$1,50,000	($4,000)	($4,000)	($4,000)	($8,000)
Patent	5	$50,000	$40,000	$2,000	$2,000	$2,000	$4,000
Mortgage Payable	5	$2,05,000	($1,000)	($1,000)	($1,000)	($1,000)	($2,000)
Purchase Contract	2	$10,000	-	$5,000	$5,000	$5,000	$10,000
Total Amortization		-	-	$9,500	$9,500	$9,500	$19,000

After calculating amortization, Step 2 will be calculating internally generated net income for Fast Cool and Fast Air Company.

As per the information given in the question Fast Air sales $5,00,000 , cost of goods sold is $2,60,000 , Depreciation of building and equipment is $17,500 and $24,000 ,Other expenses $1,15,000 and Interest expenses $16,000 .

Now, calculation of internally generated net income is as follows:

Net Income=Sales−( Cost of goods sold+Depreciation of building +Depreciation of equipment+Operating Expenses)=$5,00,000−($2,60,000+$17,500+$24,000+$1,15,000+$16,000)=$67,500

Fast Air Company Income Distribution

Internally Generated Net Income(A)	Amortization for current year (B)	Adjusted income=(A)-(B)	Non-Controlling Interest Profit Share in Subsidiary (20%)	Controlling Interest Share(80%)
$67,500	$9,500	$58,000	$11,600	$,46,400

Calculation of internally generated net income:

As per the information given in the question Fast Cool sales $7,00,000 , cost of goods sold is $3,80,000 , Depreciation of building and equipment is $10,000 and $7,000 , other expenses being $50,000 .

Now, calculate internally generated net income,

Net Income=Sales−( Cost of goods sold+Depreciation of building +Depreciation of equipment+Other Expenses)=$7,00,000−($3,80,000+$10,000+$7,000+$50,000)=$2,53,000

Fast Air Company Income Distribution

Internally Generated Net Income	Non-Controlling Interest Profit Share in Subsidiary (20%)	Controlling Interest Share(80%)
$2,53,000	$46,400	$2,99,400

Step 3:

Fast Cool Company and Fast Air Company Worksheet for Consolidated Financial Statement

For year ended December 2016.

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Controlling Interest Retained Earning	Consolidated
Particulars	Fast Cool	Fast Air	Debit	Credit	Non- Controlling Interest	Controlling Interest Retained Earning	Consolidated
Income Statement
Net Sales	($7,00,000)	($5,00,000)	-	-	-	-	($12,00,000)
Cost of Goods Sold	$3,80,000	$2,60,000	-	-	-	-	$6,40,000
Depreciation of Building	$10,000	$17,500	$7,500	-	-	-	$35,000
Depreciation of equipment	$7,000	$24,000	-	$4,000	-	-	$27,000
Interest Expense	-	$16,000	-	$1,000	-	-	$15,000
Other Expenses	$50,000	$1,15,000	$2,000	-	-	-	$1,72,000
	-	-	$5,000	-	-	-	-
Subsidiary Income	($54,000)	-	$54,000	-	-	-	-
Dividend Declared- Fast Cool	$20,000	-	-	-	-	-	$20,000
Dividend Declared- Fast Air	-	$10,000	-	$8,000	$2,000	-	-
Net Income	($2,87,000)	($57,500)	-	-	-		-
Consolidated Income	-	-	-	-	-	-	($3,11,000)
NCI (see income distribution schedule)	-	-	-	-	$11,600	-	($11,600)
Controlling Interest (see income distribution schedule)	-	-	-	-	-	$2,99,400	($2,99,400)
Consolidated Balance Sheet:
Inventory, December 2016	$1,20,000	$95,000	-	-	-	-	$2,15,000
Cash	$3,92,000	$99,000	-	-	-	-	$4,91,000
Account Receivable	$2,00,000	$1,20,000	-	-	-	-	$3,20,000
Investment in Fast Air	$7,76,000	-	(2) $8,000	(1) $54,000	-	-	-
	-	-	-	(3) $4,14,000	-	-	-
	-	-	-	(4) $3,16,000	-	-	$17,50,000
Land	$60,000	$50,000	(4) $50,000	-	-	-	$1,60,000
Buildings	$12,00,000	$4,00,000	(4) $1,50,000	-	-	-	$17,50,000
Accumulated Depreciation	($2,00,000)	($85,000)	-	(5) $15,000	-	-	($3,00,000)
Equipment	$1,40,000	$1,50,000	-	(4) $20,000	-	-	$2,70,000
Accumulated Depreciation	($80,000)	($78,000)	(5) $8,000	-	-	-	($1,50,000)
Patent	-	$24,000	(4) $10,000	$4,000	-	-	$30,000
Purchase Contract	-	-	$10,000	$10,000	-	-	-
Goodwill	-	$50,000	(4) $1,95,000	-	-	-	$2,45,000
Current Liabilities	($1,50,000)	($50,000)	-	-	-	-	($2,00,000)
Bond Payable	-	($2,00,000)	-	-	-	-	($2,00,000)
Discount (premium)	-	-	-	(4) $5,000	-	-	-
	-	-	(5) $2,000	-	-	-	($3,000)
Common Stock-Fast Cool	($95,000)	-	-	-	-	-	($95,000)
Paid in capital in excess of Par- Fast Cool	($14,05,000)	-	-	-	-	-	($14,05,000)
Retained Earnings-December 31,2016-Fast Cool	($6,71,000)	-	(4) $4,000	-	-	-	($7,38,200)
	-	-	(5) $7,600	-	-	($6,66,000)	-
Common Stock- Fast Air	-	($1,00,000)	(3) ($80,000)	-	($20,000)	-	-
Paid in capital in excess of Par- Fast Air	-	($2,00,000)	(3) ($1,60,000)	-	($40,000)	-	-
Retained Earnings-December 31,2016-Fast Air	-	($2,17,500)	(3) $1,74,000	$79,000	$1,19,600	-	($7,38,200)
	-	-	$1,000	-	-	-	-
	-	-	$1,900	-	-	-	-
Total NCI	-	-	-	-	($1,89,200)	-	($1,89,200)
Retained Earnings- Controlling Interest, December 31, 2016	-	-	-	-	-	($9,38,800)	($9,38,800)
	-	-	-	-	-	-	$0

Working Notes:

Current year Subsidiary income has been considered.
Dividend Declared in current year.
Elimination of controlling interest in subsidiary equity.
Made adjustment as per the determination and distribution schedule.
Amortization Adjustment has been made.

Consolidated non-controlling interest is $2,99,400 , total controlling interest is $9,38,800 and retained earnings is $1,89,200 .

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Answer 3

Question

Chapter 3, Problem 3.18.2P

To determine

Equity method:

The equity method dkeeps the record of the parent’s ownership interest that is multiplied by the reported net income of the subsidiary. This income will be added to parent’s investment account and the deduction in this method will be of the parent’s ownership interest multiplied by the reported losses of the subsidiary and parent’s ownership interest multiplied by the declared dividends of the subsidiary. All together equals the equity-adjusted balance.

Cost method:

The cost method basically retains the original cost of acquisition balance in the subsidiary account. As the income is earned by the subsidiary, no adjustments would be made.

To calculate:

The preparation of Fast Cool company and its subsidiary Fast Air company consolidated worksheet with supporting of schedule of amortisation and income.

Expert Solution & Answer

Explanation of Solution

Fast Cool has acquired 80% common stock of Fast Air for this, Fast cool issued 35,000 share of its fair value $20 per stock.

To calculate and prepare determination and distribution of excess schedule some adjustment needs to be performed. Thus, these adjustments are in various steps:-

Step 1: Calculate total amortization amount

Particulars	Life	Fair Value	Book Value	Annual Amount	Current Year	Prior Year	Total
Inventory	1	$65,000	$60,000	$5,000	-	$5,000	$5,000
Building	20	$5,00,000	$4,00,000	$7,500	$7,500	$7,500	$15,000
Equipment	5	$1,00,000	$1,50,000	($4,000)	($4,000)	($4,000)	($8,000)
Patent	5	$50,000	$40,000	$2,000	$2,000	$2,000	$4,000
Mortgage Payable	5	$2,05,000	($1,000)	($1,000)	($1,000)	($1,000)	($2,000)
Purchase Contract	2	$10,000	-	$5,000	$5,000	$5,000	$10,000
Total Amortization		-	-	$9,500	$9,500	$9,500	$19,000

After calculating amortization, Step 2 will be calculating internally generated net income for Fast Cool and Fast Air Company.

As per the information given in the question Fast Air sales $5,00,000 , cost of goods sold is $2,60,000 , Depreciation of building and equipment is $17,500 and $24,000 ,Other expenses $1,15,000 and Interest expenses $16,000 .

Now, calculation of internally generated net income is as follows:

Net Income=Sales−( Cost of goods sold+Depreciation of building +Depreciation of equipment+Operating Expenses)=$5,00,000−($2,60,000+$17,500+$24,000+$1,15,000+$16,000)=$67,500

Fast Air Company Income Distribution

Internally Generated Net Income(A)	Amortization for current year (B)	Adjusted income=(A)-(B)	Non-Controlling Interest Profit Share in Subsidiary (20%)	Controlling Interest Share(80%)
$67,500	$9,500	$58,000	$11,600	$,46,400

Calculation of internally generated net income:

As per the information given in the question Fast Cool sales $7,00,000 , cost of goods sold is $3,80,000 , Depreciation of building and equipment is $10,000 and $7,000 , other expenses being $50,000 .

Now, calculate internally generated net income,

Net Income=Sales−( Cost of goods sold+Depreciation of building +Depreciation of equipment+Other Expenses)=$7,00,000−($3,80,000+$10,000+$7,000+$50,000)=$2,53,000

Fast Air Company Income Distribution

Internally Generated Net Income	Non-Controlling Interest Profit Share in Subsidiary (20%)	Controlling Interest Share(80%)
$2,53,000	$46,400	$2,99,400

Step 3:

Fast Cool Company and Fast Air Company Worksheet for Consolidated Financial Statement

For year ended December 2016.

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Controlling Interest Retained Earning	Consolidated
Particulars	Fast Cool	Fast Air	Debit	Credit	Non- Controlling Interest	Controlling Interest Retained Earning	Consolidated
Income Statement
Net Sales	($7,00,000)	($5,00,000)	-	-	-	-	($12,00,000)
Cost of Goods Sold	$3,80,000	$2,60,000	-	-	-	-	$6,40,000
Depreciation of Building	$10,000	$17,500	$7,500	-	-	-	$35,000
Depreciation of equipment	$7,000	$24,000	-	$4,000	-	-	$27,000
Interest Expense	-	$16,000	-	$1,000	-	-	$15,000
Other Expenses	$50,000	$1,15,000	$2,000	-	-	-	$1,72,000
	-	-	$5,000	-	-	-	-
Subsidiary Income	($54,000)	-	$54,000	-	-	-	-
Dividend Declared- Fast Cool	$20,000	-	-	-	-	-	$20,000
Dividend Declared- Fast Air	-	$10,000	-	$8,000	$2,000	-	-
Net Income	($2,87,000)	($57,500)	-	-	-		-
Consolidated Income	-	-	-	-	-	-	($3,11,000)
NCI (see income distribution schedule)	-	-	-	-	$11,600	-	($11,600)
Controlling Interest (see income distribution schedule)	-	-	-	-	-	$2,99,400	($2,99,400)
Consolidated Balance Sheet:
Inventory, December 2016	$1,20,000	$95,000	-	-	-	-	$2,15,000
Cash	$3,92,000	$99,000	-	-	-	-	$4,91,000
Account Receivable	$2,00,000	$1,20,000	-	-	-	-	$3,20,000
Investment in Fast Air	$7,76,000	-	(2) $8,000	(1) $54,000	-	-	-
	-	-	-	(3) $4,14,000	-	-	-
	-	-	-	(4) $3,16,000	-	-	$17,50,000
Land	$60,000	$50,000	(4) $50,000	-	-	-	$1,60,000
Buildings	$12,00,000	$4,00,000	(4) $1,50,000	-	-	-	$17,50,000
Accumulated Depreciation	($2,00,000)	($85,000)	-	(5) $15,000	-	-	($3,00,000)
Equipment	$1,40,000	$1,50,000	-	(4) $20,000	-	-	$2,70,000
Accumulated Depreciation	($80,000)	($78,000)	(5) $8,000	-	-	-	($1,50,000)
Patent	-	$24,000	(4) $10,000	$4,000	-	-	$30,000
Purchase Contract	-	-	$10,000	$10,000	-	-	-
Goodwill	-	$50,000	(4) $1,95,000	-	-	-	$2,45,000
Current Liabilities	($1,50,000)	($50,000)	-	-	-	-	($2,00,000)
Bond Payable	-	($2,00,000)	-	-	-	-	($2,00,000)
Discount (premium)	-	-	-	(4) $5,000	-	-	-
	-	-	(5) $2,000	-	-	-	($3,000)
Common Stock-Fast Cool	($95,000)	-	-	-	-	-	($95,000)
Paid in capital in excess of Par- Fast Cool	($14,05,000)	-	-	-	-	-	($14,05,000)
Retained Earnings-December 31,2016-Fast Cool	($6,71,000)	-	(4) $4,000	-	-	-	($7,38,200)
	-	-	(5) $7,600	-	-	($6,66,000)	-
Common Stock- Fast Air	-	($1,00,000)	(3) ($80,000)	-	($20,000)	-	-
Paid in capital in excess of Par- Fast Air	-	($2,00,000)	(3) ($1,60,000)	-	($40,000)	-	-
Retained Earnings-December 31,2016-Fast Air	-	($2,17,500)	(3) $1,74,000	$79,000	$1,19,600	-	($7,38,200)
	-	-	$1,000	-	-	-	-
	-	-	$1,900	-	-	-	-
Total NCI	-	-	-	-	($1,89,200)	-	($1,89,200)
Retained Earnings- Controlling Interest, December 31, 2016	-	-	-	-	-	($9,38,800)	($9,38,800)
	-	-	-	-	-	-	$0

Working Notes:

Current year Subsidiary income has been considered.
Dividend Declared in current year.
Elimination of controlling interest in subsidiary equity.
Made adjustment as per the determination and distribution schedule.
Amortization Adjustment has been made.

Consolidated non-controlling interest is $2,99,400 , total controlling interest is $9,38,800 and retained earnings is $1,89,200 .

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Answer 4

Question

Chapter 3, Problem 3.18.2P

To determine

Equity method:

The equity method dkeeps the record of the parent’s ownership interest that is multiplied by the reported net income of the subsidiary. This income will be added to parent’s investment account and the deduction in this method will be of the parent’s ownership interest multiplied by the reported losses of the subsidiary and parent’s ownership interest multiplied by the declared dividends of the subsidiary. All together equals the equity-adjusted balance.

Cost method:

The cost method basically retains the original cost of acquisition balance in the subsidiary account. As the income is earned by the subsidiary, no adjustments would be made.

To calculate:

The preparation of Fast Cool company and its subsidiary Fast Air company consolidated worksheet with supporting of schedule of amortisation and income.

Expert Solution & Answer

Explanation of Solution

Fast Cool has acquired 80% common stock of Fast Air for this, Fast cool issued 35,000 share of its fair value $20 per stock.

To calculate and prepare determination and distribution of excess schedule some adjustment needs to be performed. Thus, these adjustments are in various steps:-

Step 1: Calculate total amortization amount

Particulars	Life	Fair Value	Book Value	Annual Amount	Current Year	Prior Year	Total
Inventory	1	$65,000	$60,000	$5,000	-	$5,000	$5,000
Building	20	$5,00,000	$4,00,000	$7,500	$7,500	$7,500	$15,000
Equipment	5	$1,00,000	$1,50,000	($4,000)	($4,000)	($4,000)	($8,000)
Patent	5	$50,000	$40,000	$2,000	$2,000	$2,000	$4,000
Mortgage Payable	5	$2,05,000	($1,000)	($1,000)	($1,000)	($1,000)	($2,000)
Purchase Contract	2	$10,000	-	$5,000	$5,000	$5,000	$10,000
Total Amortization		-	-	$9,500	$9,500	$9,500	$19,000

After calculating amortization, Step 2 will be calculating internally generated net income for Fast Cool and Fast Air Company.

As per the information given in the question Fast Air sales $5,00,000 , cost of goods sold is $2,60,000 , Depreciation of building and equipment is $17,500 and $24,000 ,Other expenses $1,15,000 and Interest expenses $16,000 .

Now, calculation of internally generated net income is as follows:

Net Income=Sales−( Cost of goods sold+Depreciation of building +Depreciation of equipment+Operating Expenses)=$5,00,000−($2,60,000+$17,500+$24,000+$1,15,000+$16,000)=$67,500

Fast Air Company Income Distribution

Internally Generated Net Income(A)	Amortization for current year (B)	Adjusted income=(A)-(B)	Non-Controlling Interest Profit Share in Subsidiary (20%)	Controlling Interest Share(80%)
$67,500	$9,500	$58,000	$11,600	$,46,400

Calculation of internally generated net income:

As per the information given in the question Fast Cool sales $7,00,000 , cost of goods sold is $3,80,000 , Depreciation of building and equipment is $10,000 and $7,000 , other expenses being $50,000 .

Now, calculate internally generated net income,

Net Income=Sales−( Cost of goods sold+Depreciation of building +Depreciation of equipment+Other Expenses)=$7,00,000−($3,80,000+$10,000+$7,000+$50,000)=$2,53,000

Fast Air Company Income Distribution

Internally Generated Net Income	Non-Controlling Interest Profit Share in Subsidiary (20%)	Controlling Interest Share(80%)
$2,53,000	$46,400	$2,99,400

Step 3:

Fast Cool Company and Fast Air Company Worksheet for Consolidated Financial Statement

For year ended December 2016.

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Controlling Interest Retained Earning	Consolidated
Particulars	Fast Cool	Fast Air	Debit	Credit	Non- Controlling Interest	Controlling Interest Retained Earning	Consolidated
Income Statement
Net Sales	($7,00,000)	($5,00,000)	-	-	-	-	($12,00,000)
Cost of Goods Sold	$3,80,000	$2,60,000	-	-	-	-	$6,40,000
Depreciation of Building	$10,000	$17,500	$7,500	-	-	-	$35,000
Depreciation of equipment	$7,000	$24,000	-	$4,000	-	-	$27,000
Interest Expense	-	$16,000	-	$1,000	-	-	$15,000
Other Expenses	$50,000	$1,15,000	$2,000	-	-	-	$1,72,000
	-	-	$5,000	-	-	-	-
Subsidiary Income	($54,000)	-	$54,000	-	-	-	-
Dividend Declared- Fast Cool	$20,000	-	-	-	-	-	$20,000
Dividend Declared- Fast Air	-	$10,000	-	$8,000	$2,000	-	-
Net Income	($2,87,000)	($57,500)	-	-	-		-
Consolidated Income	-	-	-	-	-	-	($3,11,000)
NCI (see income distribution schedule)	-	-	-	-	$11,600	-	($11,600)
Controlling Interest (see income distribution schedule)	-	-	-	-	-	$2,99,400	($2,99,400)
Consolidated Balance Sheet:
Inventory, December 2016	$1,20,000	$95,000	-	-	-	-	$2,15,000
Cash	$3,92,000	$99,000	-	-	-	-	$4,91,000
Account Receivable	$2,00,000	$1,20,000	-	-	-	-	$3,20,000
Investment in Fast Air	$7,76,000	-	(2) $8,000	(1) $54,000	-	-	-
	-	-	-	(3) $4,14,000	-	-	-
	-	-	-	(4) $3,16,000	-	-	$17,50,000
Land	$60,000	$50,000	(4) $50,000	-	-	-	$1,60,000
Buildings	$12,00,000	$4,00,000	(4) $1,50,000	-	-	-	$17,50,000
Accumulated Depreciation	($2,00,000)	($85,000)	-	(5) $15,000	-	-	($3,00,000)
Equipment	$1,40,000	$1,50,000	-	(4) $20,000	-	-	$2,70,000
Accumulated Depreciation	($80,000)	($78,000)	(5) $8,000	-	-	-	($1,50,000)
Patent	-	$24,000	(4) $10,000	$4,000	-	-	$30,000
Purchase Contract	-	-	$10,000	$10,000	-	-	-
Goodwill	-	$50,000	(4) $1,95,000	-	-	-	$2,45,000
Current Liabilities	($1,50,000)	($50,000)	-	-	-	-	($2,00,000)
Bond Payable	-	($2,00,000)	-	-	-	-	($2,00,000)
Discount (premium)	-	-	-	(4) $5,000	-	-	-
	-	-	(5) $2,000	-	-	-	($3,000)
Common Stock-Fast Cool	($95,000)	-	-	-	-	-	($95,000)
Paid in capital in excess of Par- Fast Cool	($14,05,000)	-	-	-	-	-	($14,05,000)
Retained Earnings-December 31,2016-Fast Cool	($6,71,000)	-	(4) $4,000	-	-	-	($7,38,200)
	-	-	(5) $7,600	-	-	($6,66,000)	-
Common Stock- Fast Air	-	($1,00,000)	(3) ($80,000)	-	($20,000)	-	-
Paid in capital in excess of Par- Fast Air	-	($2,00,000)	(3) ($1,60,000)	-	($40,000)	-	-
Retained Earnings-December 31,2016-Fast Air	-	($2,17,500)	(3) $1,74,000	$79,000	$1,19,600	-	($7,38,200)
	-	-	$1,000	-	-	-	-
	-	-	$1,900	-	-	-	-
Total NCI	-	-	-	-	($1,89,200)	-	($1,89,200)
Retained Earnings- Controlling Interest, December 31, 2016	-	-	-	-	-	($9,38,800)	($9,38,800)
	-	-	-	-	-	-	$0

Working Notes:

Current year Subsidiary income has been considered.
Dividend Declared in current year.
Elimination of controlling interest in subsidiary equity.
Made adjustment as per the determination and distribution schedule.
Amortization Adjustment has been made.

Consolidated non-controlling interest is $2,99,400 , total controlling interest is $9,38,800 and retained earnings is $1,89,200 .

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Answer 5

Chapter 3, Problem 3.18.2P

To determine

Equity method:

The equity method dkeeps the record of the parent’s ownership interest that is multiplied by the reported net income of the subsidiary. This income will be added to parent’s investment account and the deduction in this method will be of the parent’s ownership interest multiplied by the reported losses of the subsidiary and parent’s ownership interest multiplied by the declared dividends of the subsidiary. All together equals the equity-adjusted balance.

Cost method:

The cost method basically retains the original cost of acquisition balance in the subsidiary account. As the income is earned by the subsidiary, no adjustments would be made.

To calculate:

The preparation of Fast Cool company and its subsidiary Fast Air company consolidated worksheet with supporting of schedule of amortisation and income.

Expert Solution & Answer

Explanation of Solution

Fast Cool has acquired 80% common stock of Fast Air for this, Fast cool issued 35,000 share of its fair value $20 per stock.

To calculate and prepare determination and distribution of excess schedule some adjustment needs to be performed. Thus, these adjustments are in various steps:-

Step 1: Calculate total amortization amount

Particulars	Life	Fair Value	Book Value	Annual Amount	Current Year	Prior Year	Total
Inventory	1	$65,000	$60,000	$5,000	-	$5,000	$5,000
Building	20	$5,00,000	$4,00,000	$7,500	$7,500	$7,500	$15,000
Equipment	5	$1,00,000	$1,50,000	($4,000)	($4,000)	($4,000)	($8,000)
Patent	5	$50,000	$40,000	$2,000	$2,000	$2,000	$4,000
Mortgage Payable	5	$2,05,000	($1,000)	($1,000)	($1,000)	($1,000)	($2,000)
Purchase Contract	2	$10,000	-	$5,000	$5,000	$5,000	$10,000
Total Amortization		-	-	$9,500	$9,500	$9,500	$19,000

After calculating amortization, Step 2 will be calculating internally generated net income for Fast Cool and Fast Air Company.

As per the information given in the question Fast Air sales $5,00,000 , cost of goods sold is $2,60,000 , Depreciation of building and equipment is $17,500 and $24,000 ,Other expenses $1,15,000 and Interest expenses $16,000 .

Now, calculation of internally generated net income is as follows:

Net Income=Sales−( Cost of goods sold+Depreciation of building +Depreciation of equipment+Operating Expenses)=$5,00,000−($2,60,000+$17,500+$24,000+$1,15,000+$16,000)=$67,500

Fast Air Company Income Distribution

Internally Generated Net Income(A)	Amortization for current year (B)	Adjusted income=(A)-(B)	Non-Controlling Interest Profit Share in Subsidiary (20%)	Controlling Interest Share(80%)
$67,500	$9,500	$58,000	$11,600	$,46,400

Calculation of internally generated net income:

As per the information given in the question Fast Cool sales $7,00,000 , cost of goods sold is $3,80,000 , Depreciation of building and equipment is $10,000 and $7,000 , other expenses being $50,000 .

Now, calculate internally generated net income,

Net Income=Sales−( Cost of goods sold+Depreciation of building +Depreciation of equipment+Other Expenses)=$7,00,000−($3,80,000+$10,000+$7,000+$50,000)=$2,53,000

Fast Air Company Income Distribution

Internally Generated Net Income	Non-Controlling Interest Profit Share in Subsidiary (20%)	Controlling Interest Share(80%)
$2,53,000	$46,400	$2,99,400

Step 3:

Fast Cool Company and Fast Air Company Worksheet for Consolidated Financial Statement

For year ended December 2016.

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Controlling Interest Retained Earning	Consolidated
Particulars	Fast Cool	Fast Air	Debit	Credit	Non- Controlling Interest	Controlling Interest Retained Earning	Consolidated
Income Statement
Net Sales	($7,00,000)	($5,00,000)	-	-	-	-	($12,00,000)
Cost of Goods Sold	$3,80,000	$2,60,000	-	-	-	-	$6,40,000
Depreciation of Building	$10,000	$17,500	$7,500	-	-	-	$35,000
Depreciation of equipment	$7,000	$24,000	-	$4,000	-	-	$27,000
Interest Expense	-	$16,000	-	$1,000	-	-	$15,000
Other Expenses	$50,000	$1,15,000	$2,000	-	-	-	$1,72,000
	-	-	$5,000	-	-	-	-
Subsidiary Income	($54,000)	-	$54,000	-	-	-	-
Dividend Declared- Fast Cool	$20,000	-	-	-	-	-	$20,000
Dividend Declared- Fast Air	-	$10,000	-	$8,000	$2,000	-	-
Net Income	($2,87,000)	($57,500)	-	-	-		-
Consolidated Income	-	-	-	-	-	-	($3,11,000)
NCI (see income distribution schedule)	-	-	-	-	$11,600	-	($11,600)
Controlling Interest (see income distribution schedule)	-	-	-	-	-	$2,99,400	($2,99,400)
Consolidated Balance Sheet:
Inventory, December 2016	$1,20,000	$95,000	-	-	-	-	$2,15,000
Cash	$3,92,000	$99,000	-	-	-	-	$4,91,000
Account Receivable	$2,00,000	$1,20,000	-	-	-	-	$3,20,000
Investment in Fast Air	$7,76,000	-	(2) $8,000	(1) $54,000	-	-	-
	-	-	-	(3) $4,14,000	-	-	-
	-	-	-	(4) $3,16,000	-	-	$17,50,000
Land	$60,000	$50,000	(4) $50,000	-	-	-	$1,60,000
Buildings	$12,00,000	$4,00,000	(4) $1,50,000	-	-	-	$17,50,000
Accumulated Depreciation	($2,00,000)	($85,000)	-	(5) $15,000	-	-	($3,00,000)
Equipment	$1,40,000	$1,50,000	-	(4) $20,000	-	-	$2,70,000
Accumulated Depreciation	($80,000)	($78,000)	(5) $8,000	-	-	-	($1,50,000)
Patent	-	$24,000	(4) $10,000	$4,000	-	-	$30,000
Purchase Contract	-	-	$10,000	$10,000	-	-	-
Goodwill	-	$50,000	(4) $1,95,000	-	-	-	$2,45,000
Current Liabilities	($1,50,000)	($50,000)	-	-	-	-	($2,00,000)
Bond Payable	-	($2,00,000)	-	-	-	-	($2,00,000)
Discount (premium)	-	-	-	(4) $5,000	-	-	-
	-	-	(5) $2,000	-	-	-	($3,000)
Common Stock-Fast Cool	($95,000)	-	-	-	-	-	($95,000)
Paid in capital in excess of Par- Fast Cool	($14,05,000)	-	-	-	-	-	($14,05,000)
Retained Earnings-December 31,2016-Fast Cool	($6,71,000)	-	(4) $4,000	-	-	-	($7,38,200)
	-	-	(5) $7,600	-	-	($6,66,000)	-
Common Stock- Fast Air	-	($1,00,000)	(3) ($80,000)	-	($20,000)	-	-
Paid in capital in excess of Par- Fast Air	-	($2,00,000)	(3) ($1,60,000)	-	($40,000)	-	-
Retained Earnings-December 31,2016-Fast Air	-	($2,17,500)	(3) $1,74,000	$79,000	$1,19,600	-	($7,38,200)
	-	-	$1,000	-	-	-	-
	-	-	$1,900	-	-	-	-
Total NCI	-	-	-	-	($1,89,200)	-	($1,89,200)
Retained Earnings- Controlling Interest, December 31, 2016	-	-	-	-	-	($9,38,800)	($9,38,800)
	-	-	-	-	-	-	$0

Working Notes:

Current year Subsidiary income has been considered.
Dividend Declared in current year.
Elimination of controlling interest in subsidiary equity.
Made adjustment as per the determination and distribution schedule.
Amortization Adjustment has been made.

Consolidated non-controlling interest is $2,99,400 , total controlling interest is $9,38,800 and retained earnings is $1,89,200 .

Answer 6

Chapter 3, Problem 3.18.2P

To determine

Equity method:

The equity method dkeeps the record of the parent’s ownership interest that is multiplied by the reported net income of the subsidiary. This income will be added to parent’s investment account and the deduction in this method will be of the parent’s ownership interest multiplied by the reported losses of the subsidiary and parent’s ownership interest multiplied by the declared dividends of the subsidiary. All together equals the equity-adjusted balance.

Cost method:

The cost method basically retains the original cost of acquisition balance in the subsidiary account. As the income is earned by the subsidiary, no adjustments would be made.

To calculate:

The preparation of Fast Cool company and its subsidiary Fast Air company consolidated worksheet with supporting of schedule of amortisation and income.

Expert Solution & Answer

Explanation of Solution

Fast Cool has acquired 80% common stock of Fast Air for this, Fast cool issued 35,000 share of its fair value $20 per stock.

To calculate and prepare determination and distribution of excess schedule some adjustment needs to be performed. Thus, these adjustments are in various steps:-

Step 1: Calculate total amortization amount

Particulars	Life	Fair Value	Book Value	Annual Amount	Current Year	Prior Year	Total
Inventory	1	$65,000	$60,000	$5,000	-	$5,000	$5,000
Building	20	$5,00,000	$4,00,000	$7,500	$7,500	$7,500	$15,000
Equipment	5	$1,00,000	$1,50,000	($4,000)	($4,000)	($4,000)	($8,000)
Patent	5	$50,000	$40,000	$2,000	$2,000	$2,000	$4,000
Mortgage Payable	5	$2,05,000	($1,000)	($1,000)	($1,000)	($1,000)	($2,000)
Purchase Contract	2	$10,000	-	$5,000	$5,000	$5,000	$10,000
Total Amortization		-	-	$9,500	$9,500	$9,500	$19,000

After calculating amortization, Step 2 will be calculating internally generated net income for Fast Cool and Fast Air Company.

As per the information given in the question Fast Air sales $5,00,000 , cost of goods sold is $2,60,000 , Depreciation of building and equipment is $17,500 and $24,000 ,Other expenses $1,15,000 and Interest expenses $16,000 .

Now, calculation of internally generated net income is as follows:

Net Income=Sales−( Cost of goods sold+Depreciation of building +Depreciation of equipment+Operating Expenses)=$5,00,000−($2,60,000+$17,500+$24,000+$1,15,000+$16,000)=$67,500

Fast Air Company Income Distribution

Internally Generated Net Income(A)	Amortization for current year (B)	Adjusted income=(A)-(B)	Non-Controlling Interest Profit Share in Subsidiary (20%)	Controlling Interest Share(80%)
$67,500	$9,500	$58,000	$11,600	$,46,400

Calculation of internally generated net income:

As per the information given in the question Fast Cool sales $7,00,000 , cost of goods sold is $3,80,000 , Depreciation of building and equipment is $10,000 and $7,000 , other expenses being $50,000 .

Now, calculate internally generated net income,

Net Income=Sales−( Cost of goods sold+Depreciation of building +Depreciation of equipment+Other Expenses)=$7,00,000−($3,80,000+$10,000+$7,000+$50,000)=$2,53,000

Fast Air Company Income Distribution

Internally Generated Net Income	Non-Controlling Interest Profit Share in Subsidiary (20%)	Controlling Interest Share(80%)
$2,53,000	$46,400	$2,99,400

Step 3:

Fast Cool Company and Fast Air Company Worksheet for Consolidated Financial Statement

For year ended December 2016.

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Controlling Interest Retained Earning	Consolidated
Particulars	Fast Cool	Fast Air	Debit	Credit	Non- Controlling Interest	Controlling Interest Retained Earning	Consolidated
Income Statement
Net Sales	($7,00,000)	($5,00,000)	-	-	-	-	($12,00,000)
Cost of Goods Sold	$3,80,000	$2,60,000	-	-	-	-	$6,40,000
Depreciation of Building	$10,000	$17,500	$7,500	-	-	-	$35,000
Depreciation of equipment	$7,000	$24,000	-	$4,000	-	-	$27,000
Interest Expense	-	$16,000	-	$1,000	-	-	$15,000
Other Expenses	$50,000	$1,15,000	$2,000	-	-	-	$1,72,000
	-	-	$5,000	-	-	-	-
Subsidiary Income	($54,000)	-	$54,000	-	-	-	-
Dividend Declared- Fast Cool	$20,000	-	-	-	-	-	$20,000
Dividend Declared- Fast Air	-	$10,000	-	$8,000	$2,000	-	-
Net Income	($2,87,000)	($57,500)	-	-	-		-
Consolidated Income	-	-	-	-	-	-	($3,11,000)
NCI (see income distribution schedule)	-	-	-	-	$11,600	-	($11,600)
Controlling Interest (see income distribution schedule)	-	-	-	-	-	$2,99,400	($2,99,400)
Consolidated Balance Sheet:
Inventory, December 2016	$1,20,000	$95,000	-	-	-	-	$2,15,000
Cash	$3,92,000	$99,000	-	-	-	-	$4,91,000
Account Receivable	$2,00,000	$1,20,000	-	-	-	-	$3,20,000
Investment in Fast Air	$7,76,000	-	(2) $8,000	(1) $54,000	-	-	-
	-	-	-	(3) $4,14,000	-	-	-
	-	-	-	(4) $3,16,000	-	-	$17,50,000
Land	$60,000	$50,000	(4) $50,000	-	-	-	$1,60,000
Buildings	$12,00,000	$4,00,000	(4) $1,50,000	-	-	-	$17,50,000
Accumulated Depreciation	($2,00,000)	($85,000)	-	(5) $15,000	-	-	($3,00,000)
Equipment	$1,40,000	$1,50,000	-	(4) $20,000	-	-	$2,70,000
Accumulated Depreciation	($80,000)	($78,000)	(5) $8,000	-	-	-	($1,50,000)
Patent	-	$24,000	(4) $10,000	$4,000	-	-	$30,000
Purchase Contract	-	-	$10,000	$10,000	-	-	-
Goodwill	-	$50,000	(4) $1,95,000	-	-	-	$2,45,000
Current Liabilities	($1,50,000)	($50,000)	-	-	-	-	($2,00,000)
Bond Payable	-	($2,00,000)	-	-	-	-	($2,00,000)
Discount (premium)	-	-	-	(4) $5,000	-	-	-
	-	-	(5) $2,000	-	-	-	($3,000)
Common Stock-Fast Cool	($95,000)	-	-	-	-	-	($95,000)
Paid in capital in excess of Par- Fast Cool	($14,05,000)	-	-	-	-	-	($14,05,000)
Retained Earnings-December 31,2016-Fast Cool	($6,71,000)	-	(4) $4,000	-	-	-	($7,38,200)
	-	-	(5) $7,600	-	-	($6,66,000)	-
Common Stock- Fast Air	-	($1,00,000)	(3) ($80,000)	-	($20,000)	-	-
Paid in capital in excess of Par- Fast Air	-	($2,00,000)	(3) ($1,60,000)	-	($40,000)	-	-
Retained Earnings-December 31,2016-Fast Air	-	($2,17,500)	(3) $1,74,000	$79,000	$1,19,600	-	($7,38,200)
	-	-	$1,000	-	-	-	-
	-	-	$1,900	-	-	-	-
Total NCI	-	-	-	-	($1,89,200)	-	($1,89,200)
Retained Earnings- Controlling Interest, December 31, 2016	-	-	-	-	-	($9,38,800)	($9,38,800)
	-	-	-	-	-	-	$0

Working Notes:

Current year Subsidiary income has been considered.
Dividend Declared in current year.
Elimination of controlling interest in subsidiary equity.
Made adjustment as per the determination and distribution schedule.
Amortization Adjustment has been made.

Consolidated non-controlling interest is $2,99,400 , total controlling interest is $9,38,800 and retained earnings is $1,89,200 .

Answer 7

Chapter 3, Problem 3.18.2P

To determine

Equity method:

The equity method dkeeps the record of the parent’s ownership interest that is multiplied by the reported net income of the subsidiary. This income will be added to parent’s investment account and the deduction in this method will be of the parent’s ownership interest multiplied by the reported losses of the subsidiary and parent’s ownership interest multiplied by the declared dividends of the subsidiary. All together equals the equity-adjusted balance.

Cost method:

The cost method basically retains the original cost of acquisition balance in the subsidiary account. As the income is earned by the subsidiary, no adjustments would be made.

To calculate:

The preparation of Fast Cool company and its subsidiary Fast Air company consolidated worksheet with supporting of schedule of amortisation and income.

Answer 8

Expert Solution & Answer

Explanation of Solution

Fast Cool has acquired 80% common stock of Fast Air for this, Fast cool issued 35,000 share of its fair value $20 per stock.

To calculate and prepare determination and distribution of excess schedule some adjustment needs to be performed. Thus, these adjustments are in various steps:-

Step 1: Calculate total amortization amount

Particulars	Life	Fair Value	Book Value	Annual Amount	Current Year	Prior Year	Total
Inventory	1	$65,000	$60,000	$5,000	-	$5,000	$5,000
Building	20	$5,00,000	$4,00,000	$7,500	$7,500	$7,500	$15,000
Equipment	5	$1,00,000	$1,50,000	($4,000)	($4,000)	($4,000)	($8,000)
Patent	5	$50,000	$40,000	$2,000	$2,000	$2,000	$4,000
Mortgage Payable	5	$2,05,000	($1,000)	($1,000)	($1,000)	($1,000)	($2,000)
Purchase Contract	2	$10,000	-	$5,000	$5,000	$5,000	$10,000
Total Amortization		-	-	$9,500	$9,500	$9,500	$19,000

After calculating amortization, Step 2 will be calculating internally generated net income for Fast Cool and Fast Air Company.

As per the information given in the question Fast Air sales $5,00,000 , cost of goods sold is $2,60,000 , Depreciation of building and equipment is $17,500 and $24,000 ,Other expenses $1,15,000 and Interest expenses $16,000 .

Now, calculation of internally generated net income is as follows:

Net Income=Sales−( Cost of goods sold+Depreciation of building +Depreciation of equipment+Operating Expenses)=$5,00,000−($2,60,000+$17,500+$24,000+$1,15,000+$16,000)=$67,500

Fast Air Company Income Distribution

Internally Generated Net Income(A)	Amortization for current year (B)	Adjusted income=(A)-(B)	Non-Controlling Interest Profit Share in Subsidiary (20%)	Controlling Interest Share(80%)
$67,500	$9,500	$58,000	$11,600	$,46,400

Calculation of internally generated net income:

As per the information given in the question Fast Cool sales $7,00,000 , cost of goods sold is $3,80,000 , Depreciation of building and equipment is $10,000 and $7,000 , other expenses being $50,000 .

Now, calculate internally generated net income,

Net Income=Sales−( Cost of goods sold+Depreciation of building +Depreciation of equipment+Other Expenses)=$7,00,000−($3,80,000+$10,000+$7,000+$50,000)=$2,53,000

Fast Air Company Income Distribution

Internally Generated Net Income	Non-Controlling Interest Profit Share in Subsidiary (20%)	Controlling Interest Share(80%)
$2,53,000	$46,400	$2,99,400

Step 3:

Fast Cool Company and Fast Air Company Worksheet for Consolidated Financial Statement

For year ended December 2016.

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Controlling Interest Retained Earning	Consolidated
Particulars	Fast Cool	Fast Air	Debit	Credit	Non- Controlling Interest	Controlling Interest Retained Earning	Consolidated
Income Statement
Net Sales	($7,00,000)	($5,00,000)	-	-	-	-	($12,00,000)
Cost of Goods Sold	$3,80,000	$2,60,000	-	-	-	-	$6,40,000
Depreciation of Building	$10,000	$17,500	$7,500	-	-	-	$35,000
Depreciation of equipment	$7,000	$24,000	-	$4,000	-	-	$27,000
Interest Expense	-	$16,000	-	$1,000	-	-	$15,000
Other Expenses	$50,000	$1,15,000	$2,000	-	-	-	$1,72,000
	-	-	$5,000	-	-	-	-
Subsidiary Income	($54,000)	-	$54,000	-	-	-	-
Dividend Declared- Fast Cool	$20,000	-	-	-	-	-	$20,000
Dividend Declared- Fast Air	-	$10,000	-	$8,000	$2,000	-	-
Net Income	($2,87,000)	($57,500)	-	-	-		-
Consolidated Income	-	-	-	-	-	-	($3,11,000)
NCI (see income distribution schedule)	-	-	-	-	$11,600	-	($11,600)
Controlling Interest (see income distribution schedule)	-	-	-	-	-	$2,99,400	($2,99,400)
Consolidated Balance Sheet:
Inventory, December 2016	$1,20,000	$95,000	-	-	-	-	$2,15,000
Cash	$3,92,000	$99,000	-	-	-	-	$4,91,000
Account Receivable	$2,00,000	$1,20,000	-	-	-	-	$3,20,000
Investment in Fast Air	$7,76,000	-	(2) $8,000	(1) $54,000	-	-	-
	-	-	-	(3) $4,14,000	-	-	-
	-	-	-	(4) $3,16,000	-	-	$17,50,000
Land	$60,000	$50,000	(4) $50,000	-	-	-	$1,60,000
Buildings	$12,00,000	$4,00,000	(4) $1,50,000	-	-	-	$17,50,000
Accumulated Depreciation	($2,00,000)	($85,000)	-	(5) $15,000	-	-	($3,00,000)
Equipment	$1,40,000	$1,50,000	-	(4) $20,000	-	-	$2,70,000
Accumulated Depreciation	($80,000)	($78,000)	(5) $8,000	-	-	-	($1,50,000)
Patent	-	$24,000	(4) $10,000	$4,000	-	-	$30,000
Purchase Contract	-	-	$10,000	$10,000	-	-	-
Goodwill	-	$50,000	(4) $1,95,000	-	-	-	$2,45,000
Current Liabilities	($1,50,000)	($50,000)	-	-	-	-	($2,00,000)
Bond Payable	-	($2,00,000)	-	-	-	-	($2,00,000)
Discount (premium)	-	-	-	(4) $5,000	-	-	-
	-	-	(5) $2,000	-	-	-	($3,000)
Common Stock-Fast Cool	($95,000)	-	-	-	-	-	($95,000)
Paid in capital in excess of Par- Fast Cool	($14,05,000)	-	-	-	-	-	($14,05,000)
Retained Earnings-December 31,2016-Fast Cool	($6,71,000)	-	(4) $4,000	-	-	-	($7,38,200)
	-	-	(5) $7,600	-	-	($6,66,000)	-
Common Stock- Fast Air	-	($1,00,000)	(3) ($80,000)	-	($20,000)	-	-
Paid in capital in excess of Par- Fast Air	-	($2,00,000)	(3) ($1,60,000)	-	($40,000)	-	-
Retained Earnings-December 31,2016-Fast Air	-	($2,17,500)	(3) $1,74,000	$79,000	$1,19,600	-	($7,38,200)
	-	-	$1,000	-	-	-	-
	-	-	$1,900	-	-	-	-
Total NCI	-	-	-	-	($1,89,200)	-	($1,89,200)
Retained Earnings- Controlling Interest, December 31, 2016	-	-	-	-	-	($9,38,800)	($9,38,800)
	-	-	-	-	-	-	$0