Equity method: The equity method basically keeps 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 the 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 consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

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Answer 1

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 3, Problem 3A.1.2AP

To determine

Equity method:

The equity method basically keeps 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 the 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 consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

Expert Solution & Answer

Answer to Problem 3A.1.2AP

P Company’s subsidiary S company has fair value of $400,000 , goodwill of $80,000 .

Explanation of Solution

The P Company purchased 80% common stock of S company for $320,000 . On the date inventory has been valued $10,000 more than cost as well as building valued $30,000 more than book value which has remaining life of 10 years so that will be depreciated by the straight line method.

Through all the information given in the question, prepare determination and distribution of excess schedule.

Step 1 - Calculation of Goodwill.

Value Analysis Schedule	Company Implied Fair Value	Parent Price (80%)	Non-Controlling Interest (20%)
Fair value of subsidiary	$400,000	$320,000	$80,000
Fair value of net assets excluding Goodwill	$340,000	$272,000	$68,000
Goodwill	$60,000	$48,000	$12,000

Step 2 - Schedule for Determination and Distribution Excess Schedule.

Particulars	Company implied fair value	Parent price (80%)	Non-Controlling Interest (20%)
Fair value of subsidiary (a)	$400,000	$320,000	$80,000
Book value of interest acquired:
Common stock	$50,000
Paid in capital in excess of par	$100,000
Retained Earning	$150,000
Total Equity	$300,000	$300,000	$300,000
Interest Acquired		(80%)	(20%)
Book Value(b)	$300,000	$240,000	$60,000
Excess of fair value over book value (a)-(b)=(c)	$100,000	$80,000	$20,000
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Inventory	$10,000	-	-	A 1
Building	$30,000	10	$3,000	A 2
Goodwill (refer to equation (2))	$60,000	-	-	A 3
Total	$100,000

This represent non-controlling interest portion of excess of fair value over book.

Step 3 : Calculation of Internally generated net income:

S Company income=Sales-(Cost of goods sold +Operating Expenses)=$450,000−($260,000+$100,000)=$90,000

S Company income distribution:

Particulars	Amount	Particular	Amount
Amortization	$2,500	Internally generated net income	$90,000
		Adjusted income before tax	$87,500
		Non-Controlling interest profit share in subsidiary (20%)	$17,500
		Controlling interest share (80%)	$70,000

P Company income=Sales-(Cost of goods sold +Operating Expenses)=$520,000−($300,000+$120,000)=$100,000

P Company income distribution.

Particular	Amount
Internally generated net income	$100,000
Non Controlling interest profit share in subsidiary	$70,000
Controlling interest share	$170,000

Step 4 : Consolidated worksheet of Paro company and Solar Company, for the year ended December 31,2016 .

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Consolidated
Particulars	Fast Cool	Fast Air	Debit	Credit	Non- Controlling Interest	Consolidated
Income Statement
Net Sales	($520,000)	($450,000)	-	-	-	($970,000)
Cost of Goods Sold	$300,000	$260,000	-	-	-	$560,000
Other Expenses	$120,000	$100,000	(4)$3,000	-	-	$223,000
Subsidiary Income	($72,000)	-	(1)$72,000	-	-	-
Net Income	($172,000)	($90,000)	-	-	-	-
Consolidated Income	-	-	-	-	-	($187,000)
NCI (see income distribution schedule)	-	-	-	-	($17,500)	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	($170,000)
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- P	($214,000)	-	(3)$8,000	-	-	$204,000
			(4)$2,000		($52,500)
Balance, January 1,2016- S		($190,000)	(2)$152,000	-	-	-
Net Income (from Above)	($172,000)	($90,000)			($17,500)	($170,000)
Dividend Declared	$50,000	$30,000		(1)$24,000	(1)$6,000	$50,000
Balance, December 31, 2016	($336,000)	($250,000)	-	-	$64,000	$324,000
Consolidated Balance Sheet:
Inventory, December 2016	$100,000	$50,000	-	-	-	$150,000
Other current assets	$148,000	$180,000	-	-	-	$328,000
Investment in S	$388,000	-	(1)$24,000	(1)$72,000	-	-
	-	-	-	(2)$272,000	-	-
	-	-	-	(3)$68,000	-	-
Land	$50,000	$50,000	-	-	-	$100,000
Buildings and Equipment	$350,000	$320,000	(3)$25,000	-	-	$695,000
Goodwill	-	-	(3)$50,000	-	-	$50,000
Other Intangible	$20,000	-	-	-	-	$20,000
Patent	-	$24,000	(4) $10,000	$4,000	-	$30,000
Current Liabilities	($120,000)	($40,000)	-	-	-	($160,000)
Bond Payable	-	($100,000)	-	-	-	($100,000)
Other Long Term liabilities	($200,000)	-	-	-	-	($200,000)
Common Stock-P	($200,000)	-	-	-	-	($200,000)
Paid in capital in excess of Par- P	($100,000)	-	-	-	-	($100,000)
Common Stock- S	-	($50,000)	(2)$40,000	-	($10,000)	-
Paid in capital in excess of Par- Solar	-	($100,000)	(2)($80,000)	-	($20,000)	-
Retained Earnings-December 31,2016-	($336,000)	($250,000)	-	-	-	-
Retained EarningsNon Controlling Interest, December 31, 2016	-	-	-	-	($64,000)	-
Retained Earning Controlling Interest, December 31, 2016	-	-	-	-	-	($324,000)
Total NCI	-	-	-	-	$94,000	$94,000
Totals	$0	$0	$458,000	$458,000	$0	$0

Conclusion:

P Company’s subsidiary S Company has fair value of $400,000 and goodwill of $60,000 . The retained earnings for controlling interest is $324,000 and non-controlling interest is $64,000 .

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Answer 2

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 3, Problem 3A.1.2AP

To determine

Equity method:

The equity method basically keeps 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 the 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 consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

Expert Solution & Answer

Answer to Problem 3A.1.2AP

P Company’s subsidiary S company has fair value of $400,000 , goodwill of $80,000 .

Explanation of Solution

The P Company purchased 80% common stock of S company for $320,000 . On the date inventory has been valued $10,000 more than cost as well as building valued $30,000 more than book value which has remaining life of 10 years so that will be depreciated by the straight line method.

Through all the information given in the question, prepare determination and distribution of excess schedule.

Step 1 - Calculation of Goodwill.

Value Analysis Schedule	Company Implied Fair Value	Parent Price (80%)	Non-Controlling Interest (20%)
Fair value of subsidiary	$400,000	$320,000	$80,000
Fair value of net assets excluding Goodwill	$340,000	$272,000	$68,000
Goodwill	$60,000	$48,000	$12,000

Step 2 - Schedule for Determination and Distribution Excess Schedule.

Particulars	Company implied fair value	Parent price (80%)	Non-Controlling Interest (20%)
Fair value of subsidiary (a)	$400,000	$320,000	$80,000
Book value of interest acquired:
Common stock	$50,000
Paid in capital in excess of par	$100,000
Retained Earning	$150,000
Total Equity	$300,000	$300,000	$300,000
Interest Acquired		(80%)	(20%)
Book Value(b)	$300,000	$240,000	$60,000
Excess of fair value over book value (a)-(b)=(c)	$100,000	$80,000	$20,000
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Inventory	$10,000	-	-	A 1
Building	$30,000	10	$3,000	A 2
Goodwill (refer to equation (2))	$60,000	-	-	A 3
Total	$100,000

This represent non-controlling interest portion of excess of fair value over book.

Step 3 : Calculation of Internally generated net income:

S Company income=Sales-(Cost of goods sold +Operating Expenses)=$450,000−($260,000+$100,000)=$90,000

S Company income distribution:

Particulars	Amount	Particular	Amount
Amortization	$2,500	Internally generated net income	$90,000
		Adjusted income before tax	$87,500
		Non-Controlling interest profit share in subsidiary (20%)	$17,500
		Controlling interest share (80%)	$70,000

P Company income=Sales-(Cost of goods sold +Operating Expenses)=$520,000−($300,000+$120,000)=$100,000

P Company income distribution.

Particular	Amount
Internally generated net income	$100,000
Non Controlling interest profit share in subsidiary	$70,000
Controlling interest share	$170,000

Step 4 : Consolidated worksheet of Paro company and Solar Company, for the year ended December 31,2016 .

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Consolidated
Particulars	Fast Cool	Fast Air	Debit	Credit	Non- Controlling Interest	Consolidated
Income Statement
Net Sales	($520,000)	($450,000)	-	-	-	($970,000)
Cost of Goods Sold	$300,000	$260,000	-	-	-	$560,000
Other Expenses	$120,000	$100,000	(4)$3,000	-	-	$223,000
Subsidiary Income	($72,000)	-	(1)$72,000	-	-	-
Net Income	($172,000)	($90,000)	-	-	-	-
Consolidated Income	-	-	-	-	-	($187,000)
NCI (see income distribution schedule)	-	-	-	-	($17,500)	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	($170,000)
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- P	($214,000)	-	(3)$8,000	-	-	$204,000
			(4)$2,000		($52,500)
Balance, January 1,2016- S		($190,000)	(2)$152,000	-	-	-
Net Income (from Above)	($172,000)	($90,000)			($17,500)	($170,000)
Dividend Declared	$50,000	$30,000		(1)$24,000	(1)$6,000	$50,000
Balance, December 31, 2016	($336,000)	($250,000)	-	-	$64,000	$324,000
Consolidated Balance Sheet:
Inventory, December 2016	$100,000	$50,000	-	-	-	$150,000
Other current assets	$148,000	$180,000	-	-	-	$328,000
Investment in S	$388,000	-	(1)$24,000	(1)$72,000	-	-
	-	-	-	(2)$272,000	-	-
	-	-	-	(3)$68,000	-	-
Land	$50,000	$50,000	-	-	-	$100,000
Buildings and Equipment	$350,000	$320,000	(3)$25,000	-	-	$695,000
Goodwill	-	-	(3)$50,000	-	-	$50,000
Other Intangible	$20,000	-	-	-	-	$20,000
Patent	-	$24,000	(4) $10,000	$4,000	-	$30,000
Current Liabilities	($120,000)	($40,000)	-	-	-	($160,000)
Bond Payable	-	($100,000)	-	-	-	($100,000)
Other Long Term liabilities	($200,000)	-	-	-	-	($200,000)
Common Stock-P	($200,000)	-	-	-	-	($200,000)
Paid in capital in excess of Par- P	($100,000)	-	-	-	-	($100,000)
Common Stock- S	-	($50,000)	(2)$40,000	-	($10,000)	-
Paid in capital in excess of Par- Solar	-	($100,000)	(2)($80,000)	-	($20,000)	-
Retained Earnings-December 31,2016-	($336,000)	($250,000)	-	-	-	-
Retained EarningsNon Controlling Interest, December 31, 2016	-	-	-	-	($64,000)	-
Retained Earning Controlling Interest, December 31, 2016	-	-	-	-	-	($324,000)
Total NCI	-	-	-	-	$94,000	$94,000
Totals	$0	$0	$458,000	$458,000	$0	$0

Conclusion:

P Company’s subsidiary S Company has fair value of $400,000 and goodwill of $60,000 . The retained earnings for controlling interest is $324,000 and non-controlling interest is $64,000 .

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Answer 3

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 3, Problem 3A.1.2AP

To determine

Equity method:

The equity method basically keeps 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 the 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 consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

Expert Solution & Answer

Answer to Problem 3A.1.2AP

P Company’s subsidiary S company has fair value of $400,000 , goodwill of $80,000 .

Explanation of Solution

The P Company purchased 80% common stock of S company for $320,000 . On the date inventory has been valued $10,000 more than cost as well as building valued $30,000 more than book value which has remaining life of 10 years so that will be depreciated by the straight line method.

Through all the information given in the question, prepare determination and distribution of excess schedule.

Step 1 - Calculation of Goodwill.

Value Analysis Schedule	Company Implied Fair Value	Parent Price (80%)	Non-Controlling Interest (20%)
Fair value of subsidiary	$400,000	$320,000	$80,000
Fair value of net assets excluding Goodwill	$340,000	$272,000	$68,000
Goodwill	$60,000	$48,000	$12,000

Step 2 - Schedule for Determination and Distribution Excess Schedule.

Particulars	Company implied fair value	Parent price (80%)	Non-Controlling Interest (20%)
Fair value of subsidiary (a)	$400,000	$320,000	$80,000
Book value of interest acquired:
Common stock	$50,000
Paid in capital in excess of par	$100,000
Retained Earning	$150,000
Total Equity	$300,000	$300,000	$300,000
Interest Acquired		(80%)	(20%)
Book Value(b)	$300,000	$240,000	$60,000
Excess of fair value over book value (a)-(b)=(c)	$100,000	$80,000	$20,000
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Inventory	$10,000	-	-	A 1
Building	$30,000	10	$3,000	A 2
Goodwill (refer to equation (2))	$60,000	-	-	A 3
Total	$100,000

This represent non-controlling interest portion of excess of fair value over book.

Step 3 : Calculation of Internally generated net income:

S Company income=Sales-(Cost of goods sold +Operating Expenses)=$450,000−($260,000+$100,000)=$90,000

S Company income distribution:

Particulars	Amount	Particular	Amount
Amortization	$2,500	Internally generated net income	$90,000
		Adjusted income before tax	$87,500
		Non-Controlling interest profit share in subsidiary (20%)	$17,500
		Controlling interest share (80%)	$70,000

P Company income=Sales-(Cost of goods sold +Operating Expenses)=$520,000−($300,000+$120,000)=$100,000

P Company income distribution.

Particular	Amount
Internally generated net income	$100,000
Non Controlling interest profit share in subsidiary	$70,000
Controlling interest share	$170,000

Step 4 : Consolidated worksheet of Paro company and Solar Company, for the year ended December 31,2016 .

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Consolidated
Particulars	Fast Cool	Fast Air	Debit	Credit	Non- Controlling Interest	Consolidated
Income Statement
Net Sales	($520,000)	($450,000)	-	-	-	($970,000)
Cost of Goods Sold	$300,000	$260,000	-	-	-	$560,000
Other Expenses	$120,000	$100,000	(4)$3,000	-	-	$223,000
Subsidiary Income	($72,000)	-	(1)$72,000	-	-	-
Net Income	($172,000)	($90,000)	-	-	-	-
Consolidated Income	-	-	-	-	-	($187,000)
NCI (see income distribution schedule)	-	-	-	-	($17,500)	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	($170,000)
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- P	($214,000)	-	(3)$8,000	-	-	$204,000
			(4)$2,000		($52,500)
Balance, January 1,2016- S		($190,000)	(2)$152,000	-	-	-
Net Income (from Above)	($172,000)	($90,000)			($17,500)	($170,000)
Dividend Declared	$50,000	$30,000		(1)$24,000	(1)$6,000	$50,000
Balance, December 31, 2016	($336,000)	($250,000)	-	-	$64,000	$324,000
Consolidated Balance Sheet:
Inventory, December 2016	$100,000	$50,000	-	-	-	$150,000
Other current assets	$148,000	$180,000	-	-	-	$328,000
Investment in S	$388,000	-	(1)$24,000	(1)$72,000	-	-
	-	-	-	(2)$272,000	-	-
	-	-	-	(3)$68,000	-	-
Land	$50,000	$50,000	-	-	-	$100,000
Buildings and Equipment	$350,000	$320,000	(3)$25,000	-	-	$695,000
Goodwill	-	-	(3)$50,000	-	-	$50,000
Other Intangible	$20,000	-	-	-	-	$20,000
Patent	-	$24,000	(4) $10,000	$4,000	-	$30,000
Current Liabilities	($120,000)	($40,000)	-	-	-	($160,000)
Bond Payable	-	($100,000)	-	-	-	($100,000)
Other Long Term liabilities	($200,000)	-	-	-	-	($200,000)
Common Stock-P	($200,000)	-	-	-	-	($200,000)
Paid in capital in excess of Par- P	($100,000)	-	-	-	-	($100,000)
Common Stock- S	-	($50,000)	(2)$40,000	-	($10,000)	-
Paid in capital in excess of Par- Solar	-	($100,000)	(2)($80,000)	-	($20,000)	-
Retained Earnings-December 31,2016-	($336,000)	($250,000)	-	-	-	-
Retained EarningsNon Controlling Interest, December 31, 2016	-	-	-	-	($64,000)	-
Retained Earning Controlling Interest, December 31, 2016	-	-	-	-	-	($324,000)
Total NCI	-	-	-	-	$94,000	$94,000
Totals	$0	$0	$458,000	$458,000	$0	$0

Conclusion:

P Company’s subsidiary S Company has fair value of $400,000 and goodwill of $60,000 . The retained earnings for controlling interest is $324,000 and non-controlling interest is $64,000 .

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Answer 4

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 3, Problem 3A.1.2AP

To determine

Equity method:

The equity method basically keeps 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 the 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 consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

Expert Solution & Answer

Answer to Problem 3A.1.2AP

P Company’s subsidiary S company has fair value of $400,000 , goodwill of $80,000 .

Explanation of Solution

The P Company purchased 80% common stock of S company for $320,000 . On the date inventory has been valued $10,000 more than cost as well as building valued $30,000 more than book value which has remaining life of 10 years so that will be depreciated by the straight line method.

Through all the information given in the question, prepare determination and distribution of excess schedule.

Step 1 - Calculation of Goodwill.

Value Analysis Schedule	Company Implied Fair Value	Parent Price (80%)	Non-Controlling Interest (20%)
Fair value of subsidiary	$400,000	$320,000	$80,000
Fair value of net assets excluding Goodwill	$340,000	$272,000	$68,000
Goodwill	$60,000	$48,000	$12,000

Step 2 - Schedule for Determination and Distribution Excess Schedule.

Particulars	Company implied fair value	Parent price (80%)	Non-Controlling Interest (20%)
Fair value of subsidiary (a)	$400,000	$320,000	$80,000
Book value of interest acquired:
Common stock	$50,000
Paid in capital in excess of par	$100,000
Retained Earning	$150,000
Total Equity	$300,000	$300,000	$300,000
Interest Acquired		(80%)	(20%)
Book Value(b)	$300,000	$240,000	$60,000
Excess of fair value over book value (a)-(b)=(c)	$100,000	$80,000	$20,000
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Inventory	$10,000	-	-	A 1
Building	$30,000	10	$3,000	A 2
Goodwill (refer to equation (2))	$60,000	-	-	A 3
Total	$100,000

This represent non-controlling interest portion of excess of fair value over book.

Step 3 : Calculation of Internally generated net income:

S Company income=Sales-(Cost of goods sold +Operating Expenses)=$450,000−($260,000+$100,000)=$90,000

S Company income distribution:

Particulars	Amount	Particular	Amount
Amortization	$2,500	Internally generated net income	$90,000
		Adjusted income before tax	$87,500
		Non-Controlling interest profit share in subsidiary (20%)	$17,500
		Controlling interest share (80%)	$70,000

P Company income=Sales-(Cost of goods sold +Operating Expenses)=$520,000−($300,000+$120,000)=$100,000

P Company income distribution.

Particular	Amount
Internally generated net income	$100,000
Non Controlling interest profit share in subsidiary	$70,000
Controlling interest share	$170,000

Step 4 : Consolidated worksheet of Paro company and Solar Company, for the year ended December 31,2016 .

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Consolidated
Particulars	Fast Cool	Fast Air	Debit	Credit	Non- Controlling Interest	Consolidated
Income Statement
Net Sales	($520,000)	($450,000)	-	-	-	($970,000)
Cost of Goods Sold	$300,000	$260,000	-	-	-	$560,000
Other Expenses	$120,000	$100,000	(4)$3,000	-	-	$223,000
Subsidiary Income	($72,000)	-	(1)$72,000	-	-	-
Net Income	($172,000)	($90,000)	-	-	-	-
Consolidated Income	-	-	-	-	-	($187,000)
NCI (see income distribution schedule)	-	-	-	-	($17,500)	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	($170,000)
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- P	($214,000)	-	(3)$8,000	-	-	$204,000
			(4)$2,000		($52,500)
Balance, January 1,2016- S		($190,000)	(2)$152,000	-	-	-
Net Income (from Above)	($172,000)	($90,000)			($17,500)	($170,000)
Dividend Declared	$50,000	$30,000		(1)$24,000	(1)$6,000	$50,000
Balance, December 31, 2016	($336,000)	($250,000)	-	-	$64,000	$324,000
Consolidated Balance Sheet:
Inventory, December 2016	$100,000	$50,000	-	-	-	$150,000
Other current assets	$148,000	$180,000	-	-	-	$328,000
Investment in S	$388,000	-	(1)$24,000	(1)$72,000	-	-
	-	-	-	(2)$272,000	-	-
	-	-	-	(3)$68,000	-	-
Land	$50,000	$50,000	-	-	-	$100,000
Buildings and Equipment	$350,000	$320,000	(3)$25,000	-	-	$695,000
Goodwill	-	-	(3)$50,000	-	-	$50,000
Other Intangible	$20,000	-	-	-	-	$20,000
Patent	-	$24,000	(4) $10,000	$4,000	-	$30,000
Current Liabilities	($120,000)	($40,000)	-	-	-	($160,000)
Bond Payable	-	($100,000)	-	-	-	($100,000)
Other Long Term liabilities	($200,000)	-	-	-	-	($200,000)
Common Stock-P	($200,000)	-	-	-	-	($200,000)
Paid in capital in excess of Par- P	($100,000)	-	-	-	-	($100,000)
Common Stock- S	-	($50,000)	(2)$40,000	-	($10,000)	-
Paid in capital in excess of Par- Solar	-	($100,000)	(2)($80,000)	-	($20,000)	-
Retained Earnings-December 31,2016-	($336,000)	($250,000)	-	-	-	-
Retained EarningsNon Controlling Interest, December 31, 2016	-	-	-	-	($64,000)	-
Retained Earning Controlling Interest, December 31, 2016	-	-	-	-	-	($324,000)
Total NCI	-	-	-	-	$94,000	$94,000
Totals	$0	$0	$458,000	$458,000	$0	$0

Conclusion:

P Company’s subsidiary S Company has fair value of $400,000 and goodwill of $60,000 . The retained earnings for controlling interest is $324,000 and non-controlling interest is $64,000 .

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Answer 5

Chapter 3, Problem 3A.1.2AP

To determine

Equity method:

The equity method basically keeps 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 the 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 consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

Expert Solution & Answer

Answer to Problem 3A.1.2AP

P Company’s subsidiary S company has fair value of $400,000 , goodwill of $80,000 .

Explanation of Solution

The P Company purchased 80% common stock of S company for $320,000 . On the date inventory has been valued $10,000 more than cost as well as building valued $30,000 more than book value which has remaining life of 10 years so that will be depreciated by the straight line method.

Through all the information given in the question, prepare determination and distribution of excess schedule.

Step 1 - Calculation of Goodwill.

Value Analysis Schedule	Company Implied Fair Value	Parent Price (80%)	Non-Controlling Interest (20%)
Fair value of subsidiary	$400,000	$320,000	$80,000
Fair value of net assets excluding Goodwill	$340,000	$272,000	$68,000
Goodwill	$60,000	$48,000	$12,000

Step 2 - Schedule for Determination and Distribution Excess Schedule.

Particulars	Company implied fair value	Parent price (80%)	Non-Controlling Interest (20%)
Fair value of subsidiary (a)	$400,000	$320,000	$80,000
Book value of interest acquired:
Common stock	$50,000
Paid in capital in excess of par	$100,000
Retained Earning	$150,000
Total Equity	$300,000	$300,000	$300,000
Interest Acquired		(80%)	(20%)
Book Value(b)	$300,000	$240,000	$60,000
Excess of fair value over book value (a)-(b)=(c)	$100,000	$80,000	$20,000
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Inventory	$10,000	-	-	A 1
Building	$30,000	10	$3,000	A 2
Goodwill (refer to equation (2))	$60,000	-	-	A 3
Total	$100,000

This represent non-controlling interest portion of excess of fair value over book.

Step 3 : Calculation of Internally generated net income:

S Company income=Sales-(Cost of goods sold +Operating Expenses)=$450,000−($260,000+$100,000)=$90,000

S Company income distribution:

Particulars	Amount	Particular	Amount
Amortization	$2,500	Internally generated net income	$90,000
		Adjusted income before tax	$87,500
		Non-Controlling interest profit share in subsidiary (20%)	$17,500
		Controlling interest share (80%)	$70,000

P Company income=Sales-(Cost of goods sold +Operating Expenses)=$520,000−($300,000+$120,000)=$100,000

P Company income distribution.

Particular	Amount
Internally generated net income	$100,000
Non Controlling interest profit share in subsidiary	$70,000
Controlling interest share	$170,000

Step 4 : Consolidated worksheet of Paro company and Solar Company, for the year ended December 31,2016 .

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Consolidated
Particulars	Fast Cool	Fast Air	Debit	Credit	Non- Controlling Interest	Consolidated
Income Statement
Net Sales	($520,000)	($450,000)	-	-	-	($970,000)
Cost of Goods Sold	$300,000	$260,000	-	-	-	$560,000
Other Expenses	$120,000	$100,000	(4)$3,000	-	-	$223,000
Subsidiary Income	($72,000)	-	(1)$72,000	-	-	-
Net Income	($172,000)	($90,000)	-	-	-	-
Consolidated Income	-	-	-	-	-	($187,000)
NCI (see income distribution schedule)	-	-	-	-	($17,500)	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	($170,000)
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- P	($214,000)	-	(3)$8,000	-	-	$204,000
			(4)$2,000		($52,500)
Balance, January 1,2016- S		($190,000)	(2)$152,000	-	-	-
Net Income (from Above)	($172,000)	($90,000)			($17,500)	($170,000)
Dividend Declared	$50,000	$30,000		(1)$24,000	(1)$6,000	$50,000
Balance, December 31, 2016	($336,000)	($250,000)	-	-	$64,000	$324,000
Consolidated Balance Sheet:
Inventory, December 2016	$100,000	$50,000	-	-	-	$150,000
Other current assets	$148,000	$180,000	-	-	-	$328,000
Investment in S	$388,000	-	(1)$24,000	(1)$72,000	-	-
	-	-	-	(2)$272,000	-	-
	-	-	-	(3)$68,000	-	-
Land	$50,000	$50,000	-	-	-	$100,000
Buildings and Equipment	$350,000	$320,000	(3)$25,000	-	-	$695,000
Goodwill	-	-	(3)$50,000	-	-	$50,000
Other Intangible	$20,000	-	-	-	-	$20,000
Patent	-	$24,000	(4) $10,000	$4,000	-	$30,000
Current Liabilities	($120,000)	($40,000)	-	-	-	($160,000)
Bond Payable	-	($100,000)	-	-	-	($100,000)
Other Long Term liabilities	($200,000)	-	-	-	-	($200,000)
Common Stock-P	($200,000)	-	-	-	-	($200,000)
Paid in capital in excess of Par- P	($100,000)	-	-	-	-	($100,000)
Common Stock- S	-	($50,000)	(2)$40,000	-	($10,000)	-
Paid in capital in excess of Par- Solar	-	($100,000)	(2)($80,000)	-	($20,000)	-
Retained Earnings-December 31,2016-	($336,000)	($250,000)	-	-	-	-
Retained EarningsNon Controlling Interest, December 31, 2016	-	-	-	-	($64,000)	-
Retained Earning Controlling Interest, December 31, 2016	-	-	-	-	-	($324,000)
Total NCI	-	-	-	-	$94,000	$94,000
Totals	$0	$0	$458,000	$458,000	$0	$0

Conclusion:

P Company’s subsidiary S Company has fair value of $400,000 and goodwill of $60,000 . The retained earnings for controlling interest is $324,000 and non-controlling interest is $64,000 .

Answer 6

Chapter 3, Problem 3A.1.2AP

To determine

Equity method:

The equity method basically keeps 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 the 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 consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

Expert Solution & Answer

Answer to Problem 3A.1.2AP

P Company’s subsidiary S company has fair value of $400,000 , goodwill of $80,000 .

Explanation of Solution

The P Company purchased 80% common stock of S company for $320,000 . On the date inventory has been valued $10,000 more than cost as well as building valued $30,000 more than book value which has remaining life of 10 years so that will be depreciated by the straight line method.

Through all the information given in the question, prepare determination and distribution of excess schedule.

Step 1 - Calculation of Goodwill.

Value Analysis Schedule	Company Implied Fair Value	Parent Price (80%)	Non-Controlling Interest (20%)
Fair value of subsidiary	$400,000	$320,000	$80,000
Fair value of net assets excluding Goodwill	$340,000	$272,000	$68,000
Goodwill	$60,000	$48,000	$12,000

Step 2 - Schedule for Determination and Distribution Excess Schedule.

Particulars	Company implied fair value	Parent price (80%)	Non-Controlling Interest (20%)
Fair value of subsidiary (a)	$400,000	$320,000	$80,000
Book value of interest acquired:
Common stock	$50,000
Paid in capital in excess of par	$100,000
Retained Earning	$150,000
Total Equity	$300,000	$300,000	$300,000
Interest Acquired		(80%)	(20%)
Book Value(b)	$300,000	$240,000	$60,000
Excess of fair value over book value (a)-(b)=(c)	$100,000	$80,000	$20,000
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Inventory	$10,000	-	-	A 1
Building	$30,000	10	$3,000	A 2
Goodwill (refer to equation (2))	$60,000	-	-	A 3
Total	$100,000

This represent non-controlling interest portion of excess of fair value over book.

Step 3 : Calculation of Internally generated net income:

S Company income=Sales-(Cost of goods sold +Operating Expenses)=$450,000−($260,000+$100,000)=$90,000

S Company income distribution:

Particulars	Amount	Particular	Amount
Amortization	$2,500	Internally generated net income	$90,000
		Adjusted income before tax	$87,500
		Non-Controlling interest profit share in subsidiary (20%)	$17,500
		Controlling interest share (80%)	$70,000

P Company income=Sales-(Cost of goods sold +Operating Expenses)=$520,000−($300,000+$120,000)=$100,000

P Company income distribution.

Particular	Amount
Internally generated net income	$100,000
Non Controlling interest profit share in subsidiary	$70,000
Controlling interest share	$170,000

Step 4 : Consolidated worksheet of Paro company and Solar Company, for the year ended December 31,2016 .

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Consolidated
Particulars	Fast Cool	Fast Air	Debit	Credit	Non- Controlling Interest	Consolidated
Income Statement
Net Sales	($520,000)	($450,000)	-	-	-	($970,000)
Cost of Goods Sold	$300,000	$260,000	-	-	-	$560,000
Other Expenses	$120,000	$100,000	(4)$3,000	-	-	$223,000
Subsidiary Income	($72,000)	-	(1)$72,000	-	-	-
Net Income	($172,000)	($90,000)	-	-	-	-
Consolidated Income	-	-	-	-	-	($187,000)
NCI (see income distribution schedule)	-	-	-	-	($17,500)	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	($170,000)
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- P	($214,000)	-	(3)$8,000	-	-	$204,000
			(4)$2,000		($52,500)
Balance, January 1,2016- S		($190,000)	(2)$152,000	-	-	-
Net Income (from Above)	($172,000)	($90,000)			($17,500)	($170,000)
Dividend Declared	$50,000	$30,000		(1)$24,000	(1)$6,000	$50,000
Balance, December 31, 2016	($336,000)	($250,000)	-	-	$64,000	$324,000
Consolidated Balance Sheet:
Inventory, December 2016	$100,000	$50,000	-	-	-	$150,000
Other current assets	$148,000	$180,000	-	-	-	$328,000
Investment in S	$388,000	-	(1)$24,000	(1)$72,000	-	-
	-	-	-	(2)$272,000	-	-
	-	-	-	(3)$68,000	-	-
Land	$50,000	$50,000	-	-	-	$100,000
Buildings and Equipment	$350,000	$320,000	(3)$25,000	-	-	$695,000
Goodwill	-	-	(3)$50,000	-	-	$50,000
Other Intangible	$20,000	-	-	-	-	$20,000
Patent	-	$24,000	(4) $10,000	$4,000	-	$30,000
Current Liabilities	($120,000)	($40,000)	-	-	-	($160,000)
Bond Payable	-	($100,000)	-	-	-	($100,000)
Other Long Term liabilities	($200,000)	-	-	-	-	($200,000)
Common Stock-P	($200,000)	-	-	-	-	($200,000)
Paid in capital in excess of Par- P	($100,000)	-	-	-	-	($100,000)
Common Stock- S	-	($50,000)	(2)$40,000	-	($10,000)	-
Paid in capital in excess of Par- Solar	-	($100,000)	(2)($80,000)	-	($20,000)	-
Retained Earnings-December 31,2016-	($336,000)	($250,000)	-	-	-	-
Retained EarningsNon Controlling Interest, December 31, 2016	-	-	-	-	($64,000)	-
Retained Earning Controlling Interest, December 31, 2016	-	-	-	-	-	($324,000)
Total NCI	-	-	-	-	$94,000	$94,000
Totals	$0	$0	$458,000	$458,000	$0	$0

Conclusion:

P Company’s subsidiary S Company has fair value of $400,000 and goodwill of $60,000 . The retained earnings for controlling interest is $324,000 and non-controlling interest is $64,000 .

Answer 7

Chapter 3, Problem 3A.1.2AP

To determine

Equity method:

The equity method basically keeps 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 the 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 consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

Answer 8

Expert Solution & Answer

Answer to Problem 3A.1.2AP

P Company’s subsidiary S company has fair value of $400,000 , goodwill of $80,000 .

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

The P Company purchased 80% common stock of S company for $320,000 . On the date inventory has been valued $10,000 more than cost as well as building valued $30,000 more than book value which has remaining life of 10 years so that will be depreciated by the straight line method.

Through all the information given in the question, prepare determination and distribution of excess schedule.

Step 1 - Calculation of Goodwill.

Value Analysis Schedule	Company Implied Fair Value	Parent Price (80%)	Non-Controlling Interest (20%)
Fair value of subsidiary	$400,000	$320,000	$80,000
Fair value of net assets excluding Goodwill	$340,000	$272,000	$68,000
Goodwill	$60,000	$48,000	$12,000

Step 2 - Schedule for Determination and Distribution Excess Schedule.

Particulars	Company implied fair value	Parent price (80%)	Non-Controlling Interest (20%)
Fair value of subsidiary (a)	$400,000	$320,000	$80,000
Book value of interest acquired:
Common stock	$50,000
Paid in capital in excess of par	$100,000
Retained Earning	$150,000
Total Equity	$300,000	$300,000	$300,000
Interest Acquired		(80%)	(20%)
Book Value(b)	$300,000	$240,000	$60,000
Excess of fair value over book value (a)-(b)=(c)	$100,000	$80,000	$20,000
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Inventory	$10,000	-	-	A 1
Building	$30,000	10	$3,000	A 2
Goodwill (refer to equation (2))	$60,000	-	-	A 3
Total	$100,000

This represent non-controlling interest portion of excess of fair value over book.

Step 3 : Calculation of Internally generated net income:

S Company income=Sales-(Cost of goods sold +Operating Expenses)=$450,000−($260,000+$100,000)=$90,000

S Company income distribution:

Particulars	Amount	Particular	Amount
Amortization	$2,500	Internally generated net income	$90,000
		Adjusted income before tax	$87,500
		Non-Controlling interest profit share in subsidiary (20%)	$17,500
		Controlling interest share (80%)	$70,000

P Company income=Sales-(Cost of goods sold +Operating Expenses)=$520,000−($300,000+$120,000)=$100,000

P Company income distribution.

Particular	Amount
Internally generated net income	$100,000
Non Controlling interest profit share in subsidiary	$70,000
Controlling interest share	$170,000

Step 4 : Consolidated worksheet of Paro company and Solar Company, for the year ended December 31,2016 .

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Consolidated
Particulars	Fast Cool	Fast Air	Debit	Credit	Non- Controlling Interest	Consolidated
Income Statement
Net Sales	($520,000)	($450,000)	-	-	-	($970,000)
Cost of Goods Sold	$300,000	$260,000	-	-	-	$560,000
Other Expenses	$120,000	$100,000	(4)$3,000	-	-	$223,000
Subsidiary Income	($72,000)	-	(1)$72,000	-	-	-
Net Income	($172,000)	($90,000)	-	-	-	-
Consolidated Income	-	-	-	-	-	($187,000)
NCI (see income distribution schedule)	-	-	-	-	($17,500)	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	($170,000)
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- P	($214,000)	-	(3)$8,000	-	-	$204,000
			(4)$2,000		($52,500)
Balance, January 1,2016- S		($190,000)	(2)$152,000	-	-	-
Net Income (from Above)	($172,000)	($90,000)			($17,500)	($170,000)
Dividend Declared	$50,000	$30,000		(1)$24,000	(1)$6,000	$50,000
Balance, December 31, 2016	($336,000)	($250,000)	-	-	$64,000	$324,000
Consolidated Balance Sheet:
Inventory, December 2016	$100,000	$50,000	-	-	-	$150,000
Other current assets	$148,000	$180,000	-	-	-	$328,000
Investment in S	$388,000	-	(1)$24,000	(1)$72,000	-	-
	-	-	-	(2)$272,000	-	-
	-	-	-	(3)$68,000	-	-
Land	$50,000	$50,000	-	-	-	$100,000
Buildings and Equipment	$350,000	$320,000	(3)$25,000	-	-	$695,000
Goodwill	-	-	(3)$50,000	-	-	$50,000
Other Intangible	$20,000	-	-	-	-	$20,000
Patent	-	$24,000	(4) $10,000	$4,000	-	$30,000
Current Liabilities	($120,000)	($40,000)	-	-	-	($160,000)
Bond Payable	-	($100,000)	-	-	-	($100,000)
Other Long Term liabilities	($200,000)	-	-	-	-	($200,000)
Common Stock-P	($200,000)	-	-	-	-	($200,000)
Paid in capital in excess of Par- P	($100,000)	-	-	-	-	($100,000)
Common Stock- S	-	($50,000)	(2)$40,000	-	($10,000)	-
Paid in capital in excess of Par- Solar	-	($100,000)	(2)($80,000)	-	($20,000)	-
Retained Earnings-December 31,2016-	($336,000)	($250,000)	-	-	-	-
Retained EarningsNon Controlling Interest, December 31, 2016	-	-	-	-	($64,000)	-
Retained Earning Controlling Interest, December 31, 2016	-	-	-	-	-	($324,000)
Total NCI	-	-	-	-	$94,000	$94,000
Totals	$0	$0	$458,000	$458,000	$0	$0

Conclusion:

P Company’s subsidiary S Company has fair value of $400,000 and goodwill of $60,000 . The retained earnings for controlling interest is $324,000 and non-controlling interest is $64,000 .

Answer 12

Ch. 3 - Prob. 1UTI Ch. 3 - Prob. 2UTI Ch. 3 - Prob. 3UTI Ch. 3 - Prob. 4UTI Ch. 3 - Prob. 5UTI Ch. 3 - Prob. 6UTI Ch. 3 - Prob. 7UTI Ch. 3 - Prob. 1E Ch. 3 - Prob. 2E Ch. 3 - Prob. 3.1E

Concept explainers

Answer to Problem 3A.1.2AP

Explanation of Solution

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Chapter 3 Solutions