Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 5, Problem 5.13E
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 consolidation entries required as of December 31, 20X3.
a
Expert Solution
Explanation of Solution
Consolidation entries as on December 31, 20X3
| Particulars | Debit $ | Credit $ |
| Investment in S Company | 120,000 | |
| Cash | 120,000 | |
| (Initial investment in S recognized) | ||
| Investment in S Company | 24,000 | |
| Income from S Company | 24,000 | |
| (Income from S Company recognized) | ||
| Cash | 8,000 | |
| Investment in S Company | 8,000 | |
| (Received share of dividends from S) | ||
| Common stock | 100,000 | |
| 50,000 | ||
| Income from S Company | 24,000 | |
| Non-controlling interest in net income of S | 6,000 | |
| Dividends declared | 10,000 | |
| Investment in S company | 136,000 | |
| Non-controlling interest in net assets of S company | 34,000 | |
| (Investment in S company eliminated by reversal) | ||
| 60,000 | ||
| | 60,000 | |
| (Accumulated depreciation for the year recognized) |
- Initial investment in S Company recognized
- Income from Subsidiary S recognized given as $24,000
- Dividends from S
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 work sheet for the year December 31, 20X3.
b
Expert Solution
Answer to Problem 5.13E
Consolidated net income is $100,000
Retained earnings ending are $284,000
Total assets are $828,000
Explanation of Solution
P and S
Consolidation work sheet
For the year ended December 31, 20X3
| Elimination | |||||
| P $ | S $ | Debit $ | Credit $ | Consolidated $ | |
| Income statement | |||||
| Sales | 200,000 | 120,000 | 320,000 | ||
| Less: Depreciation expenses | (25,000) | (15,000) | (40,000) | ||
| Other expenses | (105,000) | (75,000) | (180,000) | ||
| Income from S | 24,000 | 24,000 | 0 | ||
| Consolidated net income | 94,000 | 30,000 | 24,000 | 100,000 | |
| Non-controlling interest in net income | 6,000 | (6,000) | |||
| Controlling interest in net income | 94,000 | 30,000 | 30,000 | 0 | 94,000 |
| Statement of retained earnings: | |||||
| Beginning balance | 230,000 | 50,000 | 50,000 | 230,000 | |
| Net income current year | 94,000 | 30,000 | 30,000 | 0 | 94,000 |
| Less: dividends | (40,000) | (10,000) | 10,000 | (40,000) | |
| Retained earnings ending | 284,000 | 70,000 | 80,000 | 10,000 | 284,000 |
| Current assets | 173,000 | 105,000 | 278,000 | ||
| Assets | 500,000 | 300,000 | 60,000 | 740,000 | |
| Less: Accumulated depreciation | (175,000) | (75,000) | 60,000 | (190,000) | |
| Total assets | 634,000 | 330,000 | 60,000 | 196,000 | 828,000 |
| Current liabilities | 50,000 | 40,000 | 90,000 | ||
| Long term debts | 100,000 | 120,000 | 220,000 | ||
| Common stock | 200,000 | 100,000 | 100,000 | 200,000 | |
| Retained earnings | 284,000 | 70,000 | 80,000 | 10,000 | 284,000 |
| Non-controlling interest in net assets of S | 34,000 | 34,000 | |||
| Total liabilities & equity | 634,000 | 330,000 | 180,000 | 44,000 | 828,000 |
c
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 balance sheet, income statement and retained earnings statement for 20X3
c
Expert Solution
Explanation of Solution
P and S
Consolidated balance sheet
December 31, 20X3
| $ | ||
| Current Assets | 278,000 | |
| Depreciable assets | 740,000 | |
| Less: Accumulated depreciation | (190,000) | 550,000 |
| Total Assets | 828,000 | |
| Current liabilities | 90,000 | |
| Long term debts | 220,000 | |
| Controlling interest: | ||
| Common stock | 200,000 | |
| Retained earnings | 284,000 | |
| Total controlling interest | 484,000 | |
| Non-controlling interest | 34,000 | |
| Total stockholders’ equity | 518,000 | |
| Total liabilities and stockholders’ equity | 828,000 |
Income statement for the year:
P and S
Consolidated income statement
Year ended December 31, 20X3
| $ | ||
| Sales | 320,000 | |
| Less: Depreciation | $40,000 | |
| Other expenses | 180,000 | |
| Total expenses | (220,000) | |
| Consolidated net income | 100,000 | |
| Income to non-controlling interest | (6,000) | |
| Income to controlling interest | 94,000 |
Consolidated retained earnings statement:
P and S
Consolidated retained earnings statement
Year ended December 31, 20X3
| $ | |
| Retained earnings January 1, 20X3 | 230,000 |
| Income to controlling interest, 20X3 | 94,000 |
| 324,000 | |
| Dividends declared | (40,000) |
| Retained earnings December 31, 20X3 | 284,000 |
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Chapter 5 Solutions
Advanced Financial Accounting
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