ADVANCED FINANCIAL ACCOUNTING IA
ADVANCED FINANCIAL ACCOUNTING IA
12th Edition
ISBN: 9781260545081
Author: Christensen
Publisher: MCG
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Chapter 5, Problem 5.11E

a

To determine

Introduction: The consolidation procedure used in the second year and the subsequent year is similar to that of the first. The equity method is used to evaluate the investment in the subsidiary. In order to determine consolidation entries, the change in the parent’s investment in the second or subsequent year is determined. Any differential arising is recognized and all the intercompany transactions are eliminated.

The entries by P during 20X2 on its books for its investment in S using equity method,

a

Expert Solution
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Explanation of Solution

Equity method entries in P’s books

    ParticularsDebit $Credit $
    Investment in S corporation190,000
    Cash190,000
    (Initial investment in S Corporation recorded)
    Common stock120,000
    Retained earnings80,000
    Investment in S Corporation160,000
    Non-controlling interest in Net assets of S40,000
    (Elimination of beginning investment in S)
    Buildings32,000
    Goodwill5,500
    Investment in S Corporation30,000
    Non-controlling interest in Net assets of S 7,500
    (Excess differential reclassified)
  1. Cash paid for purchase of investment in S corporation $190,000
  2. Elimination of investment in S
  3. Controlling interest on income from S recognized InvestmentinSCorporation:$160,000=$200,000×.80

      Non-controlling interestin net assets of S:$80,000=$200,000×.20

  4. Amortization of excess acquisition cost
  5.   P’s share of amortized value of patient :$3,200=($32,000/8years)×.80

b

To determine

Introduction: The consolidation procedure used in the second year and the subsequent year is similar to that of the first. The equity method is used to evaluate the investment in the subsidiary. In order to determine consolidation entries, the change in the parent’s investment in the second or subsequent year is determined. Any differential arising is recognized and all the intercompany transactions are eliminated.

The consolidation entries needed at December 31, 20X3.

b

Expert Solution
Check Mark

Explanation of Solution

Elimination entries

    ParticularsDebit $Credit $
    Investment in S corporation190,000
    Cash190,000
    (Initial investment in S Corporation recorded)
    Investment in S corporation32,000
    Income from S corporation32,000
    (Income from subsidiary S for 20X2 recognized)
    Income from S corporation3,200
    Investment in S corporation3,200
    (Amortization of excess acquisition price)
    Common stock120,000
    Retained earnings80,000
    Income from S Corporation32,000
    Non-controlling interest in net income of S Corporation8,000
    Investment in S Corporation192,000
    Non-controlling in net assets of S corporation48,000
    (Elimination of investment in S corporation by reversal)
    Depreciation expenses4,000
    Income from S Corporation3,200
    Non-controlling interest in net income of S Corporation800
    (Amortization of differential in building)
    Buildings32,000
    Goodwill5,500
    Accumulated depreciation4,000
    Investment in S Corporation26,800
    Non-controlling interest in net assets of S `6,700
    (Excess differential reclassified)
  1. Cash paid for purchase of investment in S corporation $190,000
  2. Controlling interest on income from S recognized $32,000=$40,000×.80
  3. Amortization of excess acquisition cost
  4.   P’s share of amortized value of patient :$3,200=($32,000/8years)×.80

  5. Elimination of investment in S Corporation
  6.   Income from S: $32,000 = $40,000×.80

      Non-controlling interest in net income of S: $8,000 = $40,000×.20

      Investment in S corporation: $192,000 =($120,000 + 80,000+ $40,000)×.80

      Non-controlling interest in net assets of S: $48,000 =($120,000 + 80,000+ $40,000)×.20

  7. Amortization of differential in buildings
  8.   Depreciationof building: $4,000 =$32,0008years

      Credited to Income from S corporation: $3,200 = $4,000×.80

      Non-controlling interest in net income of S: $800 = $4,000×.20

  9. Excess differential reclassification
  10.   Goodwill: $5,500 = $37,500$32,000

      Credited to investment in S : $26,800 = ($37,500 - $4,000)×.80

      Non-controlling interest net assets of S : $6,700 = ($37,500 - $4,000)×.20

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Chapter 5 Solutions

ADVANCED FINANCIAL ACCOUNTING IA

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