
a.
Introduction:
Eliminating entries needed to prepare consolidated financial statements for 20X8
a.

Explanation of Solution
Journal entries (equity method)
S. no | Date | Particulars | Debit | Credit |
1 | Investment in S | $96,000 | ||
Cash | $96,000 | |||
(To record the initial investment in S Co.) | ||||
2 | Investment in S | $15,000 | ||
Income from S | $15,000 | |||
(To record A Co’s. 60% share of S Co’s. income) | ||||
3 | Cash | $9,000 | ||
Investment in S | $9,000 | |||
(To record A Co’s 60% share of Co’s Dividend) | ||||
4 | Investment in S | $6,000 | ||
Other comprehensive income from S | $6,000 | |||
(To record share of increase in value of securities held by S Co.) |
Basic elimination entry
S. no | Date | Particulars | Debit | Credit |
1 | Common stock | $100,000 | ||
$60,000 | ||||
Income from S | $15,000 | |||
NCI in NI of S | $10,000 | |||
Dividends declared | $15,000 | |||
Investment in S | $102,000 | |||
NCI in NA of S | $68,000 | |||
(To eliminate the investment beginning balance) |
Other comprehensive income entry:
S. no | Date | Particulars | Debit | Credit |
1 | OCI from S | $6,000 | ||
OCI of the NCI | $4,000 | |||
Investment in S | $6,000 | |||
NCI in NA of S | $4,000 | |||
(To eliminate the other comprehensive income to NCI) |
Working notes:
Book value calculations:
NCI 40% | + | AC 60% | = | Common stock | + | Retained earnings | |
Original book value | 64,000 | 96,000 | 100,000 | 60,000 | |||
Add: Net income | 10,000 | 15,000 | 25,000 | ||||
Less: Dividends | (6,000) | (9,000) | (15,000) | ||||
Ending book value | 68,000 | 102,000 | 100,000 | 70,000 | |||
- Recording the initial investment in S.
- Recording A’s 60% share of S company’s 20X8 income.
- Recording A’s 60% share of S company’s 20X8 dividend.
- Recording share of increase in value of securities held by S.
b.
Introduction: A consolidated worksheet is used to prepare the consolidated financial statements of the parent company and its subsidiary. It reflects the individual values of the parent and the subsidiary and then one consolidated figure for both the entities.
Three part consolidation worksheet for 20X8
b.

Answer to Problem 5.37P
The consolidated controlling interest in net income is $47,000
The consolidated retained earnings as on December 31, 20X8 is $231,000
The total consolidated assets are $742,000
The total consolidated liabilities and equities are $742,000
Explanation of Solution
Consolidated Work paper as on December 31, 20X8
Particulars | A | S | Eliminations | Consolidated | |
Income statement | Debit | Credit | |||
Sales | $220,000 | $148,000 | $368,000 | ||
Less: | |||||
Cost of goods sold | ($150,000) | ($110,000) | ($260,000) | ||
($30,000) | ($10,000) | ($40,000) | |||
Income from S | $15,000 | $15,000 | 0 | ||
Consolidated net income | $47,000 | $25,000 | $15,000 | $57,000 | |
NCI in net income | $10,000 | ($10,000) | |||
Controlling interest in net income | $47,000 | $25,000 | $25,000 | $47,000 | |
Statement of Retained Earnings | |||||
Retained earnings Jan 1 | $208,000 | $60,000 | $60,000 | $208,000 | |
Income, from above | $47,000 | $25,000 | $25,000 | $47,000 | |
Dividends declared | ($24,000) | ($15,000) | $15,000 | ($24,000) | |
Retained earnings as on Dec 1 carried forward | $231,000 | $70,000 | $85,000 | $15,000 | $231,000 |
Cash | $27,000 | $8,000 | $35,000 | ||
$65,000 | $22,000 | $87,000 | |||
Inventory | $40,000 | $30,000 | $70,000 | ||
Buildings and equipment | $500,000 | $235,000 | $75,000 | ($660,000) | |
Less: | ($140,000) | ($85,000) | $75,000 | ($150,000) | |
Investment in R’s stock | $40,000 | $40,000 | |||
Investment in S’s stock | $108,000 | $102,000 | |||
$6,000 | |||||
Total assets | $600,000 | $250,000 | $75,000 | $183,000 | $742,000 |
Accounts payable | $63,000 | $20,000 | $83,000 | ||
bonds payable | $100,000 | $50,000 | $150,000 | ||
Common stock: | $200,000 | $100,000 | $100,000 | $200,000 | |
Retained earnings from above | $231,000 | $70,000 | $85,000 | $15,000 | $231,000 |
Accumulated OCI | $6,000 | $10,000 | $10,000 | $6,000 | |
NCI in NA of S | $68,000 | ||||
$4,000 | $72,000 | ||||
Total liabilities and equities | $600,000 | $250,000 | $195,000 | $87,000 | $742,000 |
Other comprehensive income | |||||
Other comprehensive income from S | $6,000 | $6,000 | |||
Unrealized gain on investments | $10,000 | $10,000 | |||
Other comprehensive income to NCI | $4,000 | $4,000 | |||
Accumulated other comprehensive income as on December 31, 20X8 | $6,000 | $10,000 | $10,000 | 0 | $6,000 |
c.
Introduction: A consolidated worksheet is used to prepare the consolidated financial statements of the parent company and its subsidiary. It reflects the individual values of the parent and the subsidiary and then one consolidated figure for both the entities.
To prepare: Consolidated balance sheet, income statement, and statement of comprehensive income for 20X8
c.

Answer to Problem 5.37P
The total amount of assets and liabilities as on December 31, 20X8 is $742,000
Income to controlling interest is $47,000
Income to non-controlling interest is $10,000
Comprehensive income attributable to non-controlling interest is $14,000
Comprehensive income attributable to controlling interest is $53,000
Explanation of Solution
Consolidated Balance Sheetas on December 31, 20X8 | ||
Assets: | Amount | Amount |
Cash | $35,000 | |
Accounts receivable | $87,000 | |
Inventory | $70,000 | |
Buildings and equipment | $660,000 | |
Less: accumulated depreciation | ($150,000) | $510,000 |
Investment in marketable securities | $40,000 | |
Total assets | $742,000 | |
Liabilities: | ||
Accounts payable | $83,000 | |
Bonds payable | $150,000 | |
Controlling interest: | ||
Common stock | $200,000 | |
Retained earnings | $231,000 | |
Accumulated other comprehensive income | $6,000 | |
Total controlling interest | $437,000 | |
Non-controlling interest | $72,000 | |
Total stockholder’s equity | $509,000 | |
Total liabilities and stockholder’s equity | $742,000 |
Consolidated Income Statementas on December 31, 20X8 | ||
Particulars | Amount | Amount |
Sales | $368,000 | |
Cost of goods sold | $260,000 | |
Depreciation expense | $40,000 | |
Interest expense | $11,000 | |
Total expenses | ($311,000) | |
Consolidated net income | $57,000 | |
Income to non-controlling interest | ($10,000) | |
Income to controlling interest | $47,000 |
Consolidated Statement of Comprehensive Income as on December 31, 20X8 | ||
Particulars | Amount | Amount |
Consolidated net income | $57,000 | |
Other comprehensive income: | ||
Unrealized gain on investments held by subsidiary | $10,000 | |
Total consolidated comprehensive income | $67,000 | |
Less: comprehensive income attributable to non-controlling interest | ($14,000) | |
Comprehensive income attributable to controlling interest | $53,000 |
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