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 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 prepare : The 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.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 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 prepare: The consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

Expert Solution & Answer

Explanation of Solution

The B Company purchased 80% common stock of K Company for $8,50,000 .

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

Fair value of net assets excluding Goodwill

= Stock holder's equity+ equipment+ land+ buidling =$750,000+$80,000+$20,000+$60,000=$910,000

Step 1 - Calculation of Goodwill

Value Analysis Schedule	Company Implied Fair Value	Parent Price (80%)	Non Controlling Interest (20%)
Fair value of subsidiary	$10,40,000	$8,50,000	$1,90,000
Fair value of net assets excluding Goodwill	$9,10,000	$7,28,000	$1,82,000
Goodwill	$1,30,000	$1,22,000	$8,000

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)	$10,40,000	$8,50,000	$1,90,000
Book value of interest acquired:
Common stock	$1,50,000
Paid in capital in excess of par	$2,00,000
Retained Earning	$4,00,000
Total Equity	$7,50,000	$7,50,000	$7,50,000
Interest Acquired		(80%)	(20%)
Book Value(b)	$7,50,000	$6,00,000	$1,50,000
Excess of fair value over book value (a)-(b)=(c)	$2,90,000	$2,50,000	$40,000
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Land	$20,000	-	-	A 1
Equipment	$80,000	10	$8,000	A 2
Building	$60,000	20	$3,000	A 3
Goodwill (refer to equation (2))	$1,30,000	-	-
Total	$2,90,000

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

Step 3: Amortization Statement

Account adjustment	Life	Annual amount	Current year	Prior year	Total
Equipment	10	$8,000	$8,000	$16,000	$24,000
Building	20	$3,000	$3,000	$6,000	$9,000
		$11,000	$11,000	$22,000	$33,000

Step 4: Calculation of Internally generated net income:

Kohlenberg Company loss=Internally generated loss+Depreciation=$20,000+($3,000+$8,000)=$31,000

Solar Company income distribution

Particular	Amount
Internally generated net loss	$20,000
Adjusted income before tax	$33,000
Non Controlling interest profit share in subsidiary (20%)	$6,200
Controlling interest share (80%)	$24,800

Baker Company income distribution

Particular	Amount
Internally generated net income	$1,55,000
Adjusted loss of K ($31,000×80%)	$24,800
Controlling interest share	$1,30,200

Step 5 : 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	($6,50,000)	($3,20,000)	-	-	-	($9,70,000)
Cost of Goods Sold	$2,60,000	$2,40,000	-	-	-	$5,00,000
Operating Expenses	$1,70,000	$70,000	(4)$11,000	-	-	$2,40,000
Depreciation	$65,000	$30,000		(1)$16,000		$1,06,000
Subsidiary Income	$16,000	-		-	-	-
Net Income	($1,39,000)	($20,000)	-	-	-	-
Consolidated Income	-	-	-	-	-	($1,24,000)
NCI (see income distribution schedule)	-	-	-	-	($6,200)	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	($1,30,200)
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- Baker	($6,25,000)	-	(4)$17,600	-	-	($6,07,400)
Balance, January 1,2016- Kohlenberg		($4,60,000)	(2)$3,68,000	(3)$40,000	($1,27,600)	-
	-	-	(4)$4,400	-	-	-
Net Income (from Above)	($1,39,000)	($20,000)	-	(1)$8,000	$6,200	($1,30,200)
Dividend Declared	-	$10,000	-	-	$2,000	-
Balance, December 31, 2016	($7,64,000)	($4,30,000)	-	-	-	-
NCI in retained earning December 31,2016					$1,19,400	$7,37,600
Consolidated Balance Sheet:
Inventory, December 2016	$1,35,000	$4,00,000	-	-	-	$5,35,000
Cash	$2,88,000	$1,70,000	-	-	-	$4,58,000
Investment in K	$8,74,000	-	(1)$16,000	(2)$6,48,000	-	-
	-	-	(1)$8,000	(3)$2,50,000	-	-
Land	$1,45,000	$1,50,000	(3)$20,000		-	$3,15,000
Buildings and Equipment	$7,70,000	$3,00,000	(3)$1,40,000	(4)$33,000	-	$11,77,000
Goodwill	-	-	(3)$1,30,000	-	-	$1,30,000
Current Liabilities	($2,48,000)	($40,000)	-	-	-	($2,88,000)
Bond Payable	-	($2,00,000)	-	-	-	($2,00,000)
Common Stock-Baker	($12,00,000)	-	-	-	-	($12,00,000)
Common Stock- K	-	($1,50,000)	(2)$1,20,000	-	($10,000)	-
Paid in capital in excess of Par- K	-	($2,00,000)	(2)($1,60,000)	-	($20,000)	-
Retained Earnings-December 31,2016-	($7,64,000)	($4,30,000)	-	-	-	-
Retained EarningNon Controlling Interest, December 31, 2016	-	-	-	-	($1,19,400)	-
Retained Earning Controlling Interest, December 31, 2016	-	-	-	-	-	($7,37,600)
Total NCI	-	-	-	-	$1,89,400	$1,89,400
Totals	$0	$0	$9,95,000	$9,95,000	$0	$0

Conclusion:

K Company has fair value of $10,40,000 , goodwill of $1,30,000 , retained earning for controlling interest is $7,37,600 and non-controlling interest is $1,19,400 .

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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.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 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 prepare: The consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

Expert Solution & Answer

Explanation of Solution

The B Company purchased 80% common stock of K Company for $8,50,000 .

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

Fair value of net assets excluding Goodwill

= Stock holder's equity+ equipment+ land+ buidling =$750,000+$80,000+$20,000+$60,000=$910,000

Step 1 - Calculation of Goodwill

Value Analysis Schedule	Company Implied Fair Value	Parent Price (80%)	Non Controlling Interest (20%)
Fair value of subsidiary	$10,40,000	$8,50,000	$1,90,000
Fair value of net assets excluding Goodwill	$9,10,000	$7,28,000	$1,82,000
Goodwill	$1,30,000	$1,22,000	$8,000

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)	$10,40,000	$8,50,000	$1,90,000
Book value of interest acquired:
Common stock	$1,50,000
Paid in capital in excess of par	$2,00,000
Retained Earning	$4,00,000
Total Equity	$7,50,000	$7,50,000	$7,50,000
Interest Acquired		(80%)	(20%)
Book Value(b)	$7,50,000	$6,00,000	$1,50,000
Excess of fair value over book value (a)-(b)=(c)	$2,90,000	$2,50,000	$40,000
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Land	$20,000	-	-	A 1
Equipment	$80,000	10	$8,000	A 2
Building	$60,000	20	$3,000	A 3
Goodwill (refer to equation (2))	$1,30,000	-	-
Total	$2,90,000

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

Step 3: Amortization Statement

Account adjustment	Life	Annual amount	Current year	Prior year	Total
Equipment	10	$8,000	$8,000	$16,000	$24,000
Building	20	$3,000	$3,000	$6,000	$9,000
		$11,000	$11,000	$22,000	$33,000

Step 4: Calculation of Internally generated net income:

Kohlenberg Company loss=Internally generated loss+Depreciation=$20,000+($3,000+$8,000)=$31,000

Solar Company income distribution

Particular	Amount
Internally generated net loss	$20,000
Adjusted income before tax	$33,000
Non Controlling interest profit share in subsidiary (20%)	$6,200
Controlling interest share (80%)	$24,800

Baker Company income distribution

Particular	Amount
Internally generated net income	$1,55,000
Adjusted loss of K ($31,000×80%)	$24,800
Controlling interest share	$1,30,200

Step 5 : 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	($6,50,000)	($3,20,000)	-	-	-	($9,70,000)
Cost of Goods Sold	$2,60,000	$2,40,000	-	-	-	$5,00,000
Operating Expenses	$1,70,000	$70,000	(4)$11,000	-	-	$2,40,000
Depreciation	$65,000	$30,000		(1)$16,000		$1,06,000
Subsidiary Income	$16,000	-		-	-	-
Net Income	($1,39,000)	($20,000)	-	-	-	-
Consolidated Income	-	-	-	-	-	($1,24,000)
NCI (see income distribution schedule)	-	-	-	-	($6,200)	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	($1,30,200)
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- Baker	($6,25,000)	-	(4)$17,600	-	-	($6,07,400)
Balance, January 1,2016- Kohlenberg		($4,60,000)	(2)$3,68,000	(3)$40,000	($1,27,600)	-
	-	-	(4)$4,400	-	-	-
Net Income (from Above)	($1,39,000)	($20,000)	-	(1)$8,000	$6,200	($1,30,200)
Dividend Declared	-	$10,000	-	-	$2,000	-
Balance, December 31, 2016	($7,64,000)	($4,30,000)	-	-	-	-
NCI in retained earning December 31,2016					$1,19,400	$7,37,600
Consolidated Balance Sheet:
Inventory, December 2016	$1,35,000	$4,00,000	-	-	-	$5,35,000
Cash	$2,88,000	$1,70,000	-	-	-	$4,58,000
Investment in K	$8,74,000	-	(1)$16,000	(2)$6,48,000	-	-
	-	-	(1)$8,000	(3)$2,50,000	-	-
Land	$1,45,000	$1,50,000	(3)$20,000		-	$3,15,000
Buildings and Equipment	$7,70,000	$3,00,000	(3)$1,40,000	(4)$33,000	-	$11,77,000
Goodwill	-	-	(3)$1,30,000	-	-	$1,30,000
Current Liabilities	($2,48,000)	($40,000)	-	-	-	($2,88,000)
Bond Payable	-	($2,00,000)	-	-	-	($2,00,000)
Common Stock-Baker	($12,00,000)	-	-	-	-	($12,00,000)
Common Stock- K	-	($1,50,000)	(2)$1,20,000	-	($10,000)	-
Paid in capital in excess of Par- K	-	($2,00,000)	(2)($1,60,000)	-	($20,000)	-
Retained Earnings-December 31,2016-	($7,64,000)	($4,30,000)	-	-	-	-
Retained EarningNon Controlling Interest, December 31, 2016	-	-	-	-	($1,19,400)	-
Retained Earning Controlling Interest, December 31, 2016	-	-	-	-	-	($7,37,600)
Total NCI	-	-	-	-	$1,89,400	$1,89,400
Totals	$0	$0	$9,95,000	$9,95,000	$0	$0

Conclusion:

K Company has fair value of $10,40,000 , goodwill of $1,30,000 , retained earning for controlling interest is $7,37,600 and non-controlling interest is $1,19,400 .

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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.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 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 prepare: The consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

Expert Solution & Answer

Explanation of Solution

The B Company purchased 80% common stock of K Company for $8,50,000 .

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

Fair value of net assets excluding Goodwill

= Stock holder's equity+ equipment+ land+ buidling =$750,000+$80,000+$20,000+$60,000=$910,000

Step 1 - Calculation of Goodwill

Value Analysis Schedule	Company Implied Fair Value	Parent Price (80%)	Non Controlling Interest (20%)
Fair value of subsidiary	$10,40,000	$8,50,000	$1,90,000
Fair value of net assets excluding Goodwill	$9,10,000	$7,28,000	$1,82,000
Goodwill	$1,30,000	$1,22,000	$8,000

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)	$10,40,000	$8,50,000	$1,90,000
Book value of interest acquired:
Common stock	$1,50,000
Paid in capital in excess of par	$2,00,000
Retained Earning	$4,00,000
Total Equity	$7,50,000	$7,50,000	$7,50,000
Interest Acquired		(80%)	(20%)
Book Value(b)	$7,50,000	$6,00,000	$1,50,000
Excess of fair value over book value (a)-(b)=(c)	$2,90,000	$2,50,000	$40,000
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Land	$20,000	-	-	A 1
Equipment	$80,000	10	$8,000	A 2
Building	$60,000	20	$3,000	A 3
Goodwill (refer to equation (2))	$1,30,000	-	-
Total	$2,90,000

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

Step 3: Amortization Statement

Account adjustment	Life	Annual amount	Current year	Prior year	Total
Equipment	10	$8,000	$8,000	$16,000	$24,000
Building	20	$3,000	$3,000	$6,000	$9,000
		$11,000	$11,000	$22,000	$33,000

Step 4: Calculation of Internally generated net income:

Kohlenberg Company loss=Internally generated loss+Depreciation=$20,000+($3,000+$8,000)=$31,000

Solar Company income distribution

Particular	Amount
Internally generated net loss	$20,000
Adjusted income before tax	$33,000
Non Controlling interest profit share in subsidiary (20%)	$6,200
Controlling interest share (80%)	$24,800

Baker Company income distribution

Particular	Amount
Internally generated net income	$1,55,000
Adjusted loss of K ($31,000×80%)	$24,800
Controlling interest share	$1,30,200

Step 5 : 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	($6,50,000)	($3,20,000)	-	-	-	($9,70,000)
Cost of Goods Sold	$2,60,000	$2,40,000	-	-	-	$5,00,000
Operating Expenses	$1,70,000	$70,000	(4)$11,000	-	-	$2,40,000
Depreciation	$65,000	$30,000		(1)$16,000		$1,06,000
Subsidiary Income	$16,000	-		-	-	-
Net Income	($1,39,000)	($20,000)	-	-	-	-
Consolidated Income	-	-	-	-	-	($1,24,000)
NCI (see income distribution schedule)	-	-	-	-	($6,200)	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	($1,30,200)
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- Baker	($6,25,000)	-	(4)$17,600	-	-	($6,07,400)
Balance, January 1,2016- Kohlenberg		($4,60,000)	(2)$3,68,000	(3)$40,000	($1,27,600)	-
	-	-	(4)$4,400	-	-	-
Net Income (from Above)	($1,39,000)	($20,000)	-	(1)$8,000	$6,200	($1,30,200)
Dividend Declared	-	$10,000	-	-	$2,000	-
Balance, December 31, 2016	($7,64,000)	($4,30,000)	-	-	-	-
NCI in retained earning December 31,2016					$1,19,400	$7,37,600
Consolidated Balance Sheet:
Inventory, December 2016	$1,35,000	$4,00,000	-	-	-	$5,35,000
Cash	$2,88,000	$1,70,000	-	-	-	$4,58,000
Investment in K	$8,74,000	-	(1)$16,000	(2)$6,48,000	-	-
	-	-	(1)$8,000	(3)$2,50,000	-	-
Land	$1,45,000	$1,50,000	(3)$20,000		-	$3,15,000
Buildings and Equipment	$7,70,000	$3,00,000	(3)$1,40,000	(4)$33,000	-	$11,77,000
Goodwill	-	-	(3)$1,30,000	-	-	$1,30,000
Current Liabilities	($2,48,000)	($40,000)	-	-	-	($2,88,000)
Bond Payable	-	($2,00,000)	-	-	-	($2,00,000)
Common Stock-Baker	($12,00,000)	-	-	-	-	($12,00,000)
Common Stock- K	-	($1,50,000)	(2)$1,20,000	-	($10,000)	-
Paid in capital in excess of Par- K	-	($2,00,000)	(2)($1,60,000)	-	($20,000)	-
Retained Earnings-December 31,2016-	($7,64,000)	($4,30,000)	-	-	-	-
Retained EarningNon Controlling Interest, December 31, 2016	-	-	-	-	($1,19,400)	-
Retained Earning Controlling Interest, December 31, 2016	-	-	-	-	-	($7,37,600)
Total NCI	-	-	-	-	$1,89,400	$1,89,400
Totals	$0	$0	$9,95,000	$9,95,000	$0	$0

Conclusion:

K Company has fair value of $10,40,000 , goodwill of $1,30,000 , retained earning for controlling interest is $7,37,600 and non-controlling interest is $1,19,400 .

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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.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 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 prepare: The consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

Expert Solution & Answer

Explanation of Solution

The B Company purchased 80% common stock of K Company for $8,50,000 .

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

Fair value of net assets excluding Goodwill

= Stock holder's equity+ equipment+ land+ buidling =$750,000+$80,000+$20,000+$60,000=$910,000

Step 1 - Calculation of Goodwill

Value Analysis Schedule	Company Implied Fair Value	Parent Price (80%)	Non Controlling Interest (20%)
Fair value of subsidiary	$10,40,000	$8,50,000	$1,90,000
Fair value of net assets excluding Goodwill	$9,10,000	$7,28,000	$1,82,000
Goodwill	$1,30,000	$1,22,000	$8,000

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)	$10,40,000	$8,50,000	$1,90,000
Book value of interest acquired:
Common stock	$1,50,000
Paid in capital in excess of par	$2,00,000
Retained Earning	$4,00,000
Total Equity	$7,50,000	$7,50,000	$7,50,000
Interest Acquired		(80%)	(20%)
Book Value(b)	$7,50,000	$6,00,000	$1,50,000
Excess of fair value over book value (a)-(b)=(c)	$2,90,000	$2,50,000	$40,000
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Land	$20,000	-	-	A 1
Equipment	$80,000	10	$8,000	A 2
Building	$60,000	20	$3,000	A 3
Goodwill (refer to equation (2))	$1,30,000	-	-
Total	$2,90,000

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

Step 3: Amortization Statement

Account adjustment	Life	Annual amount	Current year	Prior year	Total
Equipment	10	$8,000	$8,000	$16,000	$24,000
Building	20	$3,000	$3,000	$6,000	$9,000
		$11,000	$11,000	$22,000	$33,000

Step 4: Calculation of Internally generated net income:

Kohlenberg Company loss=Internally generated loss+Depreciation=$20,000+($3,000+$8,000)=$31,000

Solar Company income distribution

Particular	Amount
Internally generated net loss	$20,000
Adjusted income before tax	$33,000
Non Controlling interest profit share in subsidiary (20%)	$6,200
Controlling interest share (80%)	$24,800

Baker Company income distribution

Particular	Amount
Internally generated net income	$1,55,000
Adjusted loss of K ($31,000×80%)	$24,800
Controlling interest share	$1,30,200

Step 5 : 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	($6,50,000)	($3,20,000)	-	-	-	($9,70,000)
Cost of Goods Sold	$2,60,000	$2,40,000	-	-	-	$5,00,000
Operating Expenses	$1,70,000	$70,000	(4)$11,000	-	-	$2,40,000
Depreciation	$65,000	$30,000		(1)$16,000		$1,06,000
Subsidiary Income	$16,000	-		-	-	-
Net Income	($1,39,000)	($20,000)	-	-	-	-
Consolidated Income	-	-	-	-	-	($1,24,000)
NCI (see income distribution schedule)	-	-	-	-	($6,200)	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	($1,30,200)
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- Baker	($6,25,000)	-	(4)$17,600	-	-	($6,07,400)
Balance, January 1,2016- Kohlenberg		($4,60,000)	(2)$3,68,000	(3)$40,000	($1,27,600)	-
	-	-	(4)$4,400	-	-	-
Net Income (from Above)	($1,39,000)	($20,000)	-	(1)$8,000	$6,200	($1,30,200)
Dividend Declared	-	$10,000	-	-	$2,000	-
Balance, December 31, 2016	($7,64,000)	($4,30,000)	-	-	-	-
NCI in retained earning December 31,2016					$1,19,400	$7,37,600
Consolidated Balance Sheet:
Inventory, December 2016	$1,35,000	$4,00,000	-	-	-	$5,35,000
Cash	$2,88,000	$1,70,000	-	-	-	$4,58,000
Investment in K	$8,74,000	-	(1)$16,000	(2)$6,48,000	-	-
	-	-	(1)$8,000	(3)$2,50,000	-	-
Land	$1,45,000	$1,50,000	(3)$20,000		-	$3,15,000
Buildings and Equipment	$7,70,000	$3,00,000	(3)$1,40,000	(4)$33,000	-	$11,77,000
Goodwill	-	-	(3)$1,30,000	-	-	$1,30,000
Current Liabilities	($2,48,000)	($40,000)	-	-	-	($2,88,000)
Bond Payable	-	($2,00,000)	-	-	-	($2,00,000)
Common Stock-Baker	($12,00,000)	-	-	-	-	($12,00,000)
Common Stock- K	-	($1,50,000)	(2)$1,20,000	-	($10,000)	-
Paid in capital in excess of Par- K	-	($2,00,000)	(2)($1,60,000)	-	($20,000)	-
Retained Earnings-December 31,2016-	($7,64,000)	($4,30,000)	-	-	-	-
Retained EarningNon Controlling Interest, December 31, 2016	-	-	-	-	($1,19,400)	-
Retained Earning Controlling Interest, December 31, 2016	-	-	-	-	-	($7,37,600)
Total NCI	-	-	-	-	$1,89,400	$1,89,400
Totals	$0	$0	$9,95,000	$9,95,000	$0	$0

Conclusion:

K Company has fair value of $10,40,000 , goodwill of $1,30,000 , retained earning for controlling interest is $7,37,600 and non-controlling interest is $1,19,400 .

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Answer 5

Chapter 3, Problem 3A.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 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 prepare: The consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

Expert Solution & Answer

Explanation of Solution

The B Company purchased 80% common stock of K Company for $8,50,000 .

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

Fair value of net assets excluding Goodwill

= Stock holder's equity+ equipment+ land+ buidling =$750,000+$80,000+$20,000+$60,000=$910,000

Step 1 - Calculation of Goodwill

Value Analysis Schedule	Company Implied Fair Value	Parent Price (80%)	Non Controlling Interest (20%)
Fair value of subsidiary	$10,40,000	$8,50,000	$1,90,000
Fair value of net assets excluding Goodwill	$9,10,000	$7,28,000	$1,82,000
Goodwill	$1,30,000	$1,22,000	$8,000

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)	$10,40,000	$8,50,000	$1,90,000
Book value of interest acquired:
Common stock	$1,50,000
Paid in capital in excess of par	$2,00,000
Retained Earning	$4,00,000
Total Equity	$7,50,000	$7,50,000	$7,50,000
Interest Acquired		(80%)	(20%)
Book Value(b)	$7,50,000	$6,00,000	$1,50,000
Excess of fair value over book value (a)-(b)=(c)	$2,90,000	$2,50,000	$40,000
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Land	$20,000	-	-	A 1
Equipment	$80,000	10	$8,000	A 2
Building	$60,000	20	$3,000	A 3
Goodwill (refer to equation (2))	$1,30,000	-	-
Total	$2,90,000

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

Step 3: Amortization Statement

Account adjustment	Life	Annual amount	Current year	Prior year	Total
Equipment	10	$8,000	$8,000	$16,000	$24,000
Building	20	$3,000	$3,000	$6,000	$9,000
		$11,000	$11,000	$22,000	$33,000

Step 4: Calculation of Internally generated net income:

Kohlenberg Company loss=Internally generated loss+Depreciation=$20,000+($3,000+$8,000)=$31,000

Solar Company income distribution

Particular	Amount
Internally generated net loss	$20,000
Adjusted income before tax	$33,000
Non Controlling interest profit share in subsidiary (20%)	$6,200
Controlling interest share (80%)	$24,800

Baker Company income distribution

Particular	Amount
Internally generated net income	$1,55,000
Adjusted loss of K ($31,000×80%)	$24,800
Controlling interest share	$1,30,200

Step 5 : 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	($6,50,000)	($3,20,000)	-	-	-	($9,70,000)
Cost of Goods Sold	$2,60,000	$2,40,000	-	-	-	$5,00,000
Operating Expenses	$1,70,000	$70,000	(4)$11,000	-	-	$2,40,000
Depreciation	$65,000	$30,000		(1)$16,000		$1,06,000
Subsidiary Income	$16,000	-		-	-	-
Net Income	($1,39,000)	($20,000)	-	-	-	-
Consolidated Income	-	-	-	-	-	($1,24,000)
NCI (see income distribution schedule)	-	-	-	-	($6,200)	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	($1,30,200)
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- Baker	($6,25,000)	-	(4)$17,600	-	-	($6,07,400)
Balance, January 1,2016- Kohlenberg		($4,60,000)	(2)$3,68,000	(3)$40,000	($1,27,600)	-
	-	-	(4)$4,400	-	-	-
Net Income (from Above)	($1,39,000)	($20,000)	-	(1)$8,000	$6,200	($1,30,200)
Dividend Declared	-	$10,000	-	-	$2,000	-
Balance, December 31, 2016	($7,64,000)	($4,30,000)	-	-	-	-
NCI in retained earning December 31,2016					$1,19,400	$7,37,600
Consolidated Balance Sheet:
Inventory, December 2016	$1,35,000	$4,00,000	-	-	-	$5,35,000
Cash	$2,88,000	$1,70,000	-	-	-	$4,58,000
Investment in K	$8,74,000	-	(1)$16,000	(2)$6,48,000	-	-
	-	-	(1)$8,000	(3)$2,50,000	-	-
Land	$1,45,000	$1,50,000	(3)$20,000		-	$3,15,000
Buildings and Equipment	$7,70,000	$3,00,000	(3)$1,40,000	(4)$33,000	-	$11,77,000
Goodwill	-	-	(3)$1,30,000	-	-	$1,30,000
Current Liabilities	($2,48,000)	($40,000)	-	-	-	($2,88,000)
Bond Payable	-	($2,00,000)	-	-	-	($2,00,000)
Common Stock-Baker	($12,00,000)	-	-	-	-	($12,00,000)
Common Stock- K	-	($1,50,000)	(2)$1,20,000	-	($10,000)	-
Paid in capital in excess of Par- K	-	($2,00,000)	(2)($1,60,000)	-	($20,000)	-
Retained Earnings-December 31,2016-	($7,64,000)	($4,30,000)	-	-	-	-
Retained EarningNon Controlling Interest, December 31, 2016	-	-	-	-	($1,19,400)	-
Retained Earning Controlling Interest, December 31, 2016	-	-	-	-	-	($7,37,600)
Total NCI	-	-	-	-	$1,89,400	$1,89,400
Totals	$0	$0	$9,95,000	$9,95,000	$0	$0

Conclusion:

K Company has fair value of $10,40,000 , goodwill of $1,30,000 , retained earning for controlling interest is $7,37,600 and non-controlling interest is $1,19,400 .

Answer 6

Chapter 3, Problem 3A.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 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 prepare: The consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

Expert Solution & Answer

Explanation of Solution

The B Company purchased 80% common stock of K Company for $8,50,000 .

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

Fair value of net assets excluding Goodwill

= Stock holder's equity+ equipment+ land+ buidling =$750,000+$80,000+$20,000+$60,000=$910,000

Step 1 - Calculation of Goodwill

Value Analysis Schedule	Company Implied Fair Value	Parent Price (80%)	Non Controlling Interest (20%)
Fair value of subsidiary	$10,40,000	$8,50,000	$1,90,000
Fair value of net assets excluding Goodwill	$9,10,000	$7,28,000	$1,82,000
Goodwill	$1,30,000	$1,22,000	$8,000

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)	$10,40,000	$8,50,000	$1,90,000
Book value of interest acquired:
Common stock	$1,50,000
Paid in capital in excess of par	$2,00,000
Retained Earning	$4,00,000
Total Equity	$7,50,000	$7,50,000	$7,50,000
Interest Acquired		(80%)	(20%)
Book Value(b)	$7,50,000	$6,00,000	$1,50,000
Excess of fair value over book value (a)-(b)=(c)	$2,90,000	$2,50,000	$40,000
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Land	$20,000	-	-	A 1
Equipment	$80,000	10	$8,000	A 2
Building	$60,000	20	$3,000	A 3
Goodwill (refer to equation (2))	$1,30,000	-	-
Total	$2,90,000

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

Step 3: Amortization Statement

Account adjustment	Life	Annual amount	Current year	Prior year	Total
Equipment	10	$8,000	$8,000	$16,000	$24,000
Building	20	$3,000	$3,000	$6,000	$9,000
		$11,000	$11,000	$22,000	$33,000

Step 4: Calculation of Internally generated net income:

Kohlenberg Company loss=Internally generated loss+Depreciation=$20,000+($3,000+$8,000)=$31,000

Solar Company income distribution

Particular	Amount
Internally generated net loss	$20,000
Adjusted income before tax	$33,000
Non Controlling interest profit share in subsidiary (20%)	$6,200
Controlling interest share (80%)	$24,800

Baker Company income distribution

Particular	Amount
Internally generated net income	$1,55,000
Adjusted loss of K ($31,000×80%)	$24,800
Controlling interest share	$1,30,200

Step 5 : 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	($6,50,000)	($3,20,000)	-	-	-	($9,70,000)
Cost of Goods Sold	$2,60,000	$2,40,000	-	-	-	$5,00,000
Operating Expenses	$1,70,000	$70,000	(4)$11,000	-	-	$2,40,000
Depreciation	$65,000	$30,000		(1)$16,000		$1,06,000
Subsidiary Income	$16,000	-		-	-	-
Net Income	($1,39,000)	($20,000)	-	-	-	-
Consolidated Income	-	-	-	-	-	($1,24,000)
NCI (see income distribution schedule)	-	-	-	-	($6,200)	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	($1,30,200)
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- Baker	($6,25,000)	-	(4)$17,600	-	-	($6,07,400)
Balance, January 1,2016- Kohlenberg		($4,60,000)	(2)$3,68,000	(3)$40,000	($1,27,600)	-
	-	-	(4)$4,400	-	-	-
Net Income (from Above)	($1,39,000)	($20,000)	-	(1)$8,000	$6,200	($1,30,200)
Dividend Declared	-	$10,000	-	-	$2,000	-
Balance, December 31, 2016	($7,64,000)	($4,30,000)	-	-	-	-
NCI in retained earning December 31,2016					$1,19,400	$7,37,600
Consolidated Balance Sheet:
Inventory, December 2016	$1,35,000	$4,00,000	-	-	-	$5,35,000
Cash	$2,88,000	$1,70,000	-	-	-	$4,58,000
Investment in K	$8,74,000	-	(1)$16,000	(2)$6,48,000	-	-
	-	-	(1)$8,000	(3)$2,50,000	-	-
Land	$1,45,000	$1,50,000	(3)$20,000		-	$3,15,000
Buildings and Equipment	$7,70,000	$3,00,000	(3)$1,40,000	(4)$33,000	-	$11,77,000
Goodwill	-	-	(3)$1,30,000	-	-	$1,30,000
Current Liabilities	($2,48,000)	($40,000)	-	-	-	($2,88,000)
Bond Payable	-	($2,00,000)	-	-	-	($2,00,000)
Common Stock-Baker	($12,00,000)	-	-	-	-	($12,00,000)
Common Stock- K	-	($1,50,000)	(2)$1,20,000	-	($10,000)	-
Paid in capital in excess of Par- K	-	($2,00,000)	(2)($1,60,000)	-	($20,000)	-
Retained Earnings-December 31,2016-	($7,64,000)	($4,30,000)	-	-	-	-
Retained EarningNon Controlling Interest, December 31, 2016	-	-	-	-	($1,19,400)	-
Retained Earning Controlling Interest, December 31, 2016	-	-	-	-	-	($7,37,600)
Total NCI	-	-	-	-	$1,89,400	$1,89,400
Totals	$0	$0	$9,95,000	$9,95,000	$0	$0

Conclusion:

K Company has fair value of $10,40,000 , goodwill of $1,30,000 , retained earning for controlling interest is $7,37,600 and non-controlling interest is $1,19,400 .

Answer 7

Chapter 3, Problem 3A.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 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 prepare: The consolidation worksheet with the notes of determination and distribution of excess schedule with the help of information provided.

Answer 8

Expert Solution & Answer

Explanation of Solution

The B Company purchased 80% common stock of K Company for $8,50,000 .

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

Fair value of net assets excluding Goodwill

= Stock holder's equity+ equipment+ land+ buidling =$750,000+$80,000+$20,000+$60,000=$910,000

Step 1 - Calculation of Goodwill

Value Analysis Schedule	Company Implied Fair Value	Parent Price (80%)	Non Controlling Interest (20%)
Fair value of subsidiary	$10,40,000	$8,50,000	$1,90,000
Fair value of net assets excluding Goodwill	$9,10,000	$7,28,000	$1,82,000
Goodwill	$1,30,000	$1,22,000	$8,000

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)	$10,40,000	$8,50,000	$1,90,000
Book value of interest acquired:
Common stock	$1,50,000
Paid in capital in excess of par	$2,00,000
Retained Earning	$4,00,000
Total Equity	$7,50,000	$7,50,000	$7,50,000
Interest Acquired		(80%)	(20%)
Book Value(b)	$7,50,000	$6,00,000	$1,50,000
Excess of fair value over book value (a)-(b)=(c)	$2,90,000	$2,50,000	$40,000
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Land	$20,000	-	-	A 1
Equipment	$80,000	10	$8,000	A 2
Building	$60,000	20	$3,000	A 3
Goodwill (refer to equation (2))	$1,30,000	-	-
Total	$2,90,000

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

Step 3: Amortization Statement

Account adjustment	Life	Annual amount	Current year	Prior year	Total
Equipment	10	$8,000	$8,000	$16,000	$24,000
Building	20	$3,000	$3,000	$6,000	$9,000
		$11,000	$11,000	$22,000	$33,000

Step 4: Calculation of Internally generated net income:

Kohlenberg Company loss=Internally generated loss+Depreciation=$20,000+($3,000+$8,000)=$31,000

Solar Company income distribution

Particular	Amount
Internally generated net loss	$20,000
Adjusted income before tax	$33,000
Non Controlling interest profit share in subsidiary (20%)	$6,200
Controlling interest share (80%)	$24,800

Baker Company income distribution

Particular	Amount
Internally generated net income	$1,55,000
Adjusted loss of K ($31,000×80%)	$24,800
Controlling interest share	$1,30,200

Step 5 : 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	($6,50,000)	($3,20,000)	-	-	-	($9,70,000)
Cost of Goods Sold	$2,60,000	$2,40,000	-	-	-	$5,00,000
Operating Expenses	$1,70,000	$70,000	(4)$11,000	-	-	$2,40,000
Depreciation	$65,000	$30,000		(1)$16,000		$1,06,000
Subsidiary Income	$16,000	-		-	-	-
Net Income	($1,39,000)	($20,000)	-	-	-	-
Consolidated Income	-	-	-	-	-	($1,24,000)
NCI (see income distribution schedule)	-	-	-	-	($6,200)	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	($1,30,200)
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- Baker	($6,25,000)	-	(4)$17,600	-	-	($6,07,400)
Balance, January 1,2016- Kohlenberg		($4,60,000)	(2)$3,68,000	(3)$40,000	($1,27,600)	-
	-	-	(4)$4,400	-	-	-
Net Income (from Above)	($1,39,000)	($20,000)	-	(1)$8,000	$6,200	($1,30,200)
Dividend Declared	-	$10,000	-	-	$2,000	-
Balance, December 31, 2016	($7,64,000)	($4,30,000)	-	-	-	-
NCI in retained earning December 31,2016					$1,19,400	$7,37,600
Consolidated Balance Sheet:
Inventory, December 2016	$1,35,000	$4,00,000	-	-	-	$5,35,000
Cash	$2,88,000	$1,70,000	-	-	-	$4,58,000
Investment in K	$8,74,000	-	(1)$16,000	(2)$6,48,000	-	-
	-	-	(1)$8,000	(3)$2,50,000	-	-
Land	$1,45,000	$1,50,000	(3)$20,000		-	$3,15,000
Buildings and Equipment	$7,70,000	$3,00,000	(3)$1,40,000	(4)$33,000	-	$11,77,000
Goodwill	-	-	(3)$1,30,000	-	-	$1,30,000
Current Liabilities	($2,48,000)	($40,000)	-	-	-	($2,88,000)
Bond Payable	-	($2,00,000)	-	-	-	($2,00,000)
Common Stock-Baker	($12,00,000)	-	-	-	-	($12,00,000)
Common Stock- K	-	($1,50,000)	(2)$1,20,000	-	($10,000)	-
Paid in capital in excess of Par- K	-	($2,00,000)	(2)($1,60,000)	-	($20,000)	-
Retained Earnings-December 31,2016-	($7,64,000)	($4,30,000)	-	-	-	-
Retained EarningNon Controlling Interest, December 31, 2016	-	-	-	-	($1,19,400)	-
Retained Earning Controlling Interest, December 31, 2016	-	-	-	-	-	($7,37,600)
Total NCI	-	-	-	-	$1,89,400	$1,89,400
Totals	$0	$0	$9,95,000	$9,95,000	$0	$0

Conclusion:

K Company has fair value of $10,40,000 , goodwill of $1,30,000 , retained earning for controlling interest is $7,37,600 and non-controlling interest is $1,19,400 .