Disaggregate and document the AAP 100 percent activity, the AAP controlling interest and the AAP controlling interest, and the AAP non-controlling interest.

Question

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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 5, Problem 56P

a.

To determine

Disaggregate and document the AAP 100 percent activity, the AAP controlling interest

and the AAP controlling interest, and the AAP non-controlling interest.

a.

Expert Solution

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

An acquisition premium is the distinction between the actual price paid to purchase a business and the pre-acquisition approximately real value of the acquired firm. It's often recorded on the balance sheet as "goodwill."

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest, is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

	Unamort		Unamort		Unamort		Unamort
	AAP	2013	AAP	2014	AAP	2015	AAP	2016
100%	1/1/2013	Amort	12/31/2013	Amort	12/31/2014	Amort	12/31/2015	Amort
Patent	180,000	18,000	162,000	18,000	144,000	18,000	126,000	18,000
Goodwill	300,000	0	300,000	0	300,000	0	300,000	0
	480,000	18,000	462,000	18,000	444,000	18,000	426,000	18,000
p%
Patent	144,000	14,400	129,600	14,400	115,200	14,400	100,800	14,400
Goodwill	240,000	0	240,000	0	240,000	0	240,000	0
	384,000	14,400	369,600	14,400	355,200	14,400	340,800	14,400
nci%
Patent	36,000	3,600	32,400	3,600	28,800	3,600	25,200	3,600
Goodwill	60,000	0	60,000	0	60,000	0	60,000	0
	96,000	3,600	92,400	3,600	88,800	3,600	85,200	3,600


	Unamort		Unamort		Unamort		Unamort
	AAP	2017	AAP	2018	AAP	2019	AAP
100%	12/31/2016	Amort	12/31/2017	Amort	12/31/2018	Amort	12/31/2019
Patent	108,000	18,000	90,000	18,000	72,000	18,000	54,000
Goodwill	300,000	0	300,000	0	300,000	0	300,000
	408,000	18,000	390,000	18,000	372,000	18,000	354,000
p%
Patent	86,400	14,400	72,000	14,400	57,600	14,400	43,200
Goodwill	240,000	0	240,000	0	240,000	0	240,000
	326,400	14,400	312,000	14,400	297,600	14,400	283,200
nci%
Patent	21,600	3,600	18,000	3,600	14,400	3,600	10,800
Goodwill	60,000	0	60,000	0	60,000	0	60,000
	81,600	3,600	78,000	3,600	74,400	3,600	70,800

b.

To determine

Calculate and organize the profits and losses on intercompany transactions and balances.

b.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The transactions between inter-companies are between a parent company and its subsidiaries or other related entities. If the parent company sells inventory to the related entity, this problem may become more complex.


	Downstream	Upstream
Intercompany profit on 1/1/19	0	28,000
Intercompany profit on 12/31/19	0	37,500

c.

To determine

Compute the starting and ending balances of the pre-consolidation Equity Investment

account starting with the equity of the subsidiary 's stockholders.

c.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept of consolidation in the context of financial

accounting often refers to the consolidation of financial statements in which all

subsidiaries report under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

	Equity Investment account at 1/1/19:
	p% x book value of the net assets of subsidiary	992,000
	Add: unamortized (p%) AAP	297,600
	Less: p% of upstream deferred intercompany profits	(22,400)
		1,267,200

	Equity Investment account at 12/31/19:
	p% x book value of the net assets of subsidiary	1,120,000
	Add: unamortized (p%) AAP	283,200
	Less: p% of upstream deferred intercompany profits	(30,000)
		1,373,200

d.

To determine

Reconstruction of the pre-consolidation activities of the parent Equity Investment T-

account for the year of consolidation.

d.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept of consolidation in the context of financial

accounting often refers to the consolidation of financial statements in which all

subsidiaries report under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

Equity Investment
Equity Investment at 1/1/19	1,267,200
p% Net Income	160,000	32,000	p% Dividends
p% BOY U-s inventory profits	22,400	14,400	p% AAP Amortization
		30,000	p% EOY U-S inventory profits
Equity Investment at 12/31/19	1,373,200

e.

To determine

Calculate the owners' equity attributable to the starting and ending of non-controlling

interest balances beginning with the owners ' equity of the subsidiary.

e.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

	Non-controlling interest at 1/1/19:
	nci% of book value of the net assets of subsidiary	248,000
	Add: nci% unamortized AAP	74,400
	Less: nci% of upstream deferred intercompany profits	(5,600)
		316,800

	Non-controlling interest at 12/31/19:
	nci% of book value of the net assets of subsidiary	280,000
	Add: nci% unamortized AAP	70,800
	Less: nci% of upstream deferred intercompany profits	(7,500)
		343,300

f.

To determine

Calculate consolidated net income, controlling interest net income and non-controlling

interest net income.

f.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

Consolidated net income is the sum of the parent's net income excluding any subsidiary

income recognized in its individual financial statements plus the net income of its

subsidiaries determined after excluding unrealized inventory gain, intra-group income,

etc.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

	Parent's stand-alone net income	200,000
	Subsidiary's stand-alone net income	200,000
	Plus: 100% realized upstream deferred profits	28,000
	Less: 100% unrealized upstream deferred profits	(37,500)
	Less: 100% AAP amortization	(18,000)
	Consolidated net income	372,500


	Parent's stand-alone net income	200,000
	p% of subsidiary's stand-alone net income	160,000
	Plus: p% realized upstream deferred profits	22,400
	Less: p% unrealized upstream deferred profits	(30,000)
	Less: p% AAP amortization	(14,400)
	Consolidated net income attributable to the controlling interest	338,000


	nci% of subsidiary's stand-alone net income	40,000
	Plus: nci% realized upstream deferred profits	5,600
	Less: nci% unrealized upstream deferred profits	(7,500)
	Less: nci% AAP amortization	(3,600)
	Consolidated net income attributable to the noncontrolling interest	34,500

g.

To determine

Complete the C-E-A-D-I consolidation entries and execute the consolidation worksheet.

g.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies. A party outside the economic unit embodied in the consolidated financial statements does not retain the equity of the shareholders of the subsidiary, and therefore should not be included in the consolidated shareholders' equities.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Equity investment income		$138,000
	Consol. NI attributable to NCI		$34,500
	Dividends			$40,000
	Equity investment			$106,000
	Non-controlling interest			$26,500
	(Eliminates the change in the investment account of AAP adjusted changes in SE(S))

	[E] Common Stock (S) @ BOY		$100,000
	APIC (S) @BOY		$200,000
	Retained Earnings (S) @BOY		$940,000
	Equity Investment @BOY			$992,000
	Non-controlling interest (@BOY)			$248,000
	(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account)

	[A] Patent, net @ BOY (100% AAP)		$72,000
	Goodwill, net @ BOY (100% AAP)		$300,000
	Equity Investment @ BOY (AAP)			$297,600
	Non-controlling interest			$74,400
	(Allocates beginning-of-year 100% AAP to the controlling and non-controlling interests by eliminating the remaining investment account and establishing the BOY AAP for nci%)

	[D Operating expenses (for 100% AAP amort.)		$18,000
	Patent, net (for 100% AAP amort.)			$18,000
	(To record depreciation and amortization expense for the AAP assets)

	[I_cogs] Equity investment		$22,400
	Non-controlling interest @BOY		$5,600
	Cost of goods sold			$28,000
	(Recognition of deferred gain on inventory sale and proration between parent and subsidiary)

	[I_sales] Sales		$600,000
	Cost of goods sold			$600,000
	(Elimination of 100% of all intercompany transactions)

	[I_cogs] Cost of goods sold		$37,500
	Inventory			$37,500
	(Deferral of gross profit on this year inventory sales)

	[I_pay] Accounts payable		$140,000
	Accounts receivable			$140,000
	(Elimination of intercompany receivable and payable)

The consolidated spreadsheet is shown below:

	Parent	Subsidiary		Dr	Cr		Consol

Income Statement:
Sales	6,700,000	2,500,000	[I_sales]	600,000			8,600,000
Cost of Goods sold	(4,500,000)	(1,500,000)	[I_cogs]	37,500	600,000	[I_sales]	(5,409,500)
					28,000	[I_cogs]
Gross profit	2,200,000	1,000,000					3,190,500
Income (loss) from subsidiary	138,000		[C]	138,000			0
Operating expenses	(2,000,000)	(800,000)	[D]	18,000			(2,818,000)
Net Income	338,000	200,000					372,500
Consolidated NI attrib to NCI			[C]	34,500			(34,500)
Consolidated NI attrib to CI							338,000

Statement of Ret Earnings:
BOY retained earnings	2,035,200	940,000	[E]	940,000			2,035,200
Net income	338,000	200,000					338,000
Dividends	(200,000)	(40,000)			40,000	[C]	(200,000)
EOY retained earnings	2,173,200	1,100,000					2,173,200

Balance Sheet:
Cash	500,000	400,000					900,000
Accounts receivable	700,000	600,000			140,000	[I_pay]	1,160,000
Inventory	900,000	800,000			37,500	[I_cogs]	1,662,500
Equity investment	1,373,200		[I_cogs]	22,400	106,000	[C]	0
					992,000	[E]
					297,600	[A]
PPE, net	4,000,000	1,000,000					5,000,000
Patent			[A]	72,000	18,000	[D]	54,000
Goodwill			[A]	300,000			300,000
	7,473,200	2,800,000					9,076,500

Current liabilities	800,000	500,000	[I_pay]	140,000			1,160,000
Long-term liabilities	3,000,000	900,000					3,900,000
Common stock	500,000	100,000	[E]	100,000			500,000
APIC	1,000,000	200,000	[E]	200,000			1,000,000
Retained earnings	2,173,200	1,100,000					2,173,200
Non-controlling interest			[I_cogs]	5,600	26,500	[C]	343,300
					248,000	[E]
					74,400	[A]
	7,473,200	2,800,000		2,608,000	2,608,000		9,076,500

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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 5, Problem 56P

a.

To determine

Disaggregate and document the AAP 100 percent activity, the AAP controlling interest

and the AAP controlling interest, and the AAP non-controlling interest.

a.

Expert Solution

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

An acquisition premium is the distinction between the actual price paid to purchase a business and the pre-acquisition approximately real value of the acquired firm. It's often recorded on the balance sheet as "goodwill."

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest, is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

	Unamort		Unamort		Unamort		Unamort
	AAP	2013	AAP	2014	AAP	2015	AAP	2016
100%	1/1/2013	Amort	12/31/2013	Amort	12/31/2014	Amort	12/31/2015	Amort
Patent	180,000	18,000	162,000	18,000	144,000	18,000	126,000	18,000
Goodwill	300,000	0	300,000	0	300,000	0	300,000	0
	480,000	18,000	462,000	18,000	444,000	18,000	426,000	18,000
p%
Patent	144,000	14,400	129,600	14,400	115,200	14,400	100,800	14,400
Goodwill	240,000	0	240,000	0	240,000	0	240,000	0
	384,000	14,400	369,600	14,400	355,200	14,400	340,800	14,400
nci%
Patent	36,000	3,600	32,400	3,600	28,800	3,600	25,200	3,600
Goodwill	60,000	0	60,000	0	60,000	0	60,000	0
	96,000	3,600	92,400	3,600	88,800	3,600	85,200	3,600


	Unamort		Unamort		Unamort		Unamort
	AAP	2017	AAP	2018	AAP	2019	AAP
100%	12/31/2016	Amort	12/31/2017	Amort	12/31/2018	Amort	12/31/2019
Patent	108,000	18,000	90,000	18,000	72,000	18,000	54,000
Goodwill	300,000	0	300,000	0	300,000	0	300,000
	408,000	18,000	390,000	18,000	372,000	18,000	354,000
p%
Patent	86,400	14,400	72,000	14,400	57,600	14,400	43,200
Goodwill	240,000	0	240,000	0	240,000	0	240,000
	326,400	14,400	312,000	14,400	297,600	14,400	283,200
nci%
Patent	21,600	3,600	18,000	3,600	14,400	3,600	10,800
Goodwill	60,000	0	60,000	0	60,000	0	60,000
	81,600	3,600	78,000	3,600	74,400	3,600	70,800

b.

To determine

Calculate and organize the profits and losses on intercompany transactions and balances.

b.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The transactions between inter-companies are between a parent company and its subsidiaries or other related entities. If the parent company sells inventory to the related entity, this problem may become more complex.


	Downstream	Upstream
Intercompany profit on 1/1/19	0	28,000
Intercompany profit on 12/31/19	0	37,500

c.

To determine

Compute the starting and ending balances of the pre-consolidation Equity Investment

account starting with the equity of the subsidiary 's stockholders.

c.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept of consolidation in the context of financial

accounting often refers to the consolidation of financial statements in which all

subsidiaries report under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

	Equity Investment account at 1/1/19:
	p% x book value of the net assets of subsidiary	992,000
	Add: unamortized (p%) AAP	297,600
	Less: p% of upstream deferred intercompany profits	(22,400)
		1,267,200

	Equity Investment account at 12/31/19:
	p% x book value of the net assets of subsidiary	1,120,000
	Add: unamortized (p%) AAP	283,200
	Less: p% of upstream deferred intercompany profits	(30,000)
		1,373,200

d.

To determine

Reconstruction of the pre-consolidation activities of the parent Equity Investment T-

account for the year of consolidation.

d.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept of consolidation in the context of financial

accounting often refers to the consolidation of financial statements in which all

subsidiaries report under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

Equity Investment
Equity Investment at 1/1/19	1,267,200
p% Net Income	160,000	32,000	p% Dividends
p% BOY U-s inventory profits	22,400	14,400	p% AAP Amortization
		30,000	p% EOY U-S inventory profits
Equity Investment at 12/31/19	1,373,200

e.

To determine

Calculate the owners' equity attributable to the starting and ending of non-controlling

interest balances beginning with the owners ' equity of the subsidiary.

e.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

	Non-controlling interest at 1/1/19:
	nci% of book value of the net assets of subsidiary	248,000
	Add: nci% unamortized AAP	74,400
	Less: nci% of upstream deferred intercompany profits	(5,600)
		316,800

	Non-controlling interest at 12/31/19:
	nci% of book value of the net assets of subsidiary	280,000
	Add: nci% unamortized AAP	70,800
	Less: nci% of upstream deferred intercompany profits	(7,500)
		343,300

f.

To determine

Calculate consolidated net income, controlling interest net income and non-controlling

interest net income.

f.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

Consolidated net income is the sum of the parent's net income excluding any subsidiary

income recognized in its individual financial statements plus the net income of its

subsidiaries determined after excluding unrealized inventory gain, intra-group income,

etc.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

	Parent's stand-alone net income	200,000
	Subsidiary's stand-alone net income	200,000
	Plus: 100% realized upstream deferred profits	28,000
	Less: 100% unrealized upstream deferred profits	(37,500)
	Less: 100% AAP amortization	(18,000)
	Consolidated net income	372,500


	Parent's stand-alone net income	200,000
	p% of subsidiary's stand-alone net income	160,000
	Plus: p% realized upstream deferred profits	22,400
	Less: p% unrealized upstream deferred profits	(30,000)
	Less: p% AAP amortization	(14,400)
	Consolidated net income attributable to the controlling interest	338,000


	nci% of subsidiary's stand-alone net income	40,000
	Plus: nci% realized upstream deferred profits	5,600
	Less: nci% unrealized upstream deferred profits	(7,500)
	Less: nci% AAP amortization	(3,600)
	Consolidated net income attributable to the noncontrolling interest	34,500

g.

To determine

Complete the C-E-A-D-I consolidation entries and execute the consolidation worksheet.

g.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies. A party outside the economic unit embodied in the consolidated financial statements does not retain the equity of the shareholders of the subsidiary, and therefore should not be included in the consolidated shareholders' equities.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Equity investment income		$138,000
	Consol. NI attributable to NCI		$34,500
	Dividends			$40,000
	Equity investment			$106,000
	Non-controlling interest			$26,500
	(Eliminates the change in the investment account of AAP adjusted changes in SE(S))

	[E] Common Stock (S) @ BOY		$100,000
	APIC (S) @BOY		$200,000
	Retained Earnings (S) @BOY		$940,000
	Equity Investment @BOY			$992,000
	Non-controlling interest (@BOY)			$248,000
	(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account)

	[A] Patent, net @ BOY (100% AAP)		$72,000
	Goodwill, net @ BOY (100% AAP)		$300,000
	Equity Investment @ BOY (AAP)			$297,600
	Non-controlling interest			$74,400
	(Allocates beginning-of-year 100% AAP to the controlling and non-controlling interests by eliminating the remaining investment account and establishing the BOY AAP for nci%)

	[D Operating expenses (for 100% AAP amort.)		$18,000
	Patent, net (for 100% AAP amort.)			$18,000
	(To record depreciation and amortization expense for the AAP assets)

	[I_cogs] Equity investment		$22,400
	Non-controlling interest @BOY		$5,600
	Cost of goods sold			$28,000
	(Recognition of deferred gain on inventory sale and proration between parent and subsidiary)

	[I_sales] Sales		$600,000
	Cost of goods sold			$600,000
	(Elimination of 100% of all intercompany transactions)

	[I_cogs] Cost of goods sold		$37,500
	Inventory			$37,500
	(Deferral of gross profit on this year inventory sales)

	[I_pay] Accounts payable		$140,000
	Accounts receivable			$140,000
	(Elimination of intercompany receivable and payable)

The consolidated spreadsheet is shown below:

	Parent	Subsidiary		Dr	Cr		Consol

Income Statement:
Sales	6,700,000	2,500,000	[I_sales]	600,000			8,600,000
Cost of Goods sold	(4,500,000)	(1,500,000)	[I_cogs]	37,500	600,000	[I_sales]	(5,409,500)
					28,000	[I_cogs]
Gross profit	2,200,000	1,000,000					3,190,500
Income (loss) from subsidiary	138,000		[C]	138,000			0
Operating expenses	(2,000,000)	(800,000)	[D]	18,000			(2,818,000)
Net Income	338,000	200,000					372,500
Consolidated NI attrib to NCI			[C]	34,500			(34,500)
Consolidated NI attrib to CI							338,000

Statement of Ret Earnings:
BOY retained earnings	2,035,200	940,000	[E]	940,000			2,035,200
Net income	338,000	200,000					338,000
Dividends	(200,000)	(40,000)			40,000	[C]	(200,000)
EOY retained earnings	2,173,200	1,100,000					2,173,200

Balance Sheet:
Cash	500,000	400,000					900,000
Accounts receivable	700,000	600,000			140,000	[I_pay]	1,160,000
Inventory	900,000	800,000			37,500	[I_cogs]	1,662,500
Equity investment	1,373,200		[I_cogs]	22,400	106,000	[C]	0
					992,000	[E]
					297,600	[A]
PPE, net	4,000,000	1,000,000					5,000,000
Patent			[A]	72,000	18,000	[D]	54,000
Goodwill			[A]	300,000			300,000
	7,473,200	2,800,000					9,076,500

Current liabilities	800,000	500,000	[I_pay]	140,000			1,160,000
Long-term liabilities	3,000,000	900,000					3,900,000
Common stock	500,000	100,000	[E]	100,000			500,000
APIC	1,000,000	200,000	[E]	200,000			1,000,000
Retained earnings	2,173,200	1,100,000					2,173,200
Non-controlling interest			[I_cogs]	5,600	26,500	[C]	343,300
					248,000	[E]
					74,400	[A]
	7,473,200	2,800,000		2,608,000	2,608,000		9,076,500

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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 5, Problem 56P

a.

To determine

Disaggregate and document the AAP 100 percent activity, the AAP controlling interest

and the AAP controlling interest, and the AAP non-controlling interest.

a.

Expert Solution

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

An acquisition premium is the distinction between the actual price paid to purchase a business and the pre-acquisition approximately real value of the acquired firm. It's often recorded on the balance sheet as "goodwill."

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest, is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

	Unamort		Unamort		Unamort		Unamort
	AAP	2013	AAP	2014	AAP	2015	AAP	2016
100%	1/1/2013	Amort	12/31/2013	Amort	12/31/2014	Amort	12/31/2015	Amort
Patent	180,000	18,000	162,000	18,000	144,000	18,000	126,000	18,000
Goodwill	300,000	0	300,000	0	300,000	0	300,000	0
	480,000	18,000	462,000	18,000	444,000	18,000	426,000	18,000
p%
Patent	144,000	14,400	129,600	14,400	115,200	14,400	100,800	14,400
Goodwill	240,000	0	240,000	0	240,000	0	240,000	0
	384,000	14,400	369,600	14,400	355,200	14,400	340,800	14,400
nci%
Patent	36,000	3,600	32,400	3,600	28,800	3,600	25,200	3,600
Goodwill	60,000	0	60,000	0	60,000	0	60,000	0
	96,000	3,600	92,400	3,600	88,800	3,600	85,200	3,600


	Unamort		Unamort		Unamort		Unamort
	AAP	2017	AAP	2018	AAP	2019	AAP
100%	12/31/2016	Amort	12/31/2017	Amort	12/31/2018	Amort	12/31/2019
Patent	108,000	18,000	90,000	18,000	72,000	18,000	54,000
Goodwill	300,000	0	300,000	0	300,000	0	300,000
	408,000	18,000	390,000	18,000	372,000	18,000	354,000
p%
Patent	86,400	14,400	72,000	14,400	57,600	14,400	43,200
Goodwill	240,000	0	240,000	0	240,000	0	240,000
	326,400	14,400	312,000	14,400	297,600	14,400	283,200
nci%
Patent	21,600	3,600	18,000	3,600	14,400	3,600	10,800
Goodwill	60,000	0	60,000	0	60,000	0	60,000
	81,600	3,600	78,000	3,600	74,400	3,600	70,800

b.

To determine

Calculate and organize the profits and losses on intercompany transactions and balances.

b.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The transactions between inter-companies are between a parent company and its subsidiaries or other related entities. If the parent company sells inventory to the related entity, this problem may become more complex.


	Downstream	Upstream
Intercompany profit on 1/1/19	0	28,000
Intercompany profit on 12/31/19	0	37,500

c.

To determine

Compute the starting and ending balances of the pre-consolidation Equity Investment

account starting with the equity of the subsidiary 's stockholders.

c.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept of consolidation in the context of financial

accounting often refers to the consolidation of financial statements in which all

subsidiaries report under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

	Equity Investment account at 1/1/19:
	p% x book value of the net assets of subsidiary	992,000
	Add: unamortized (p%) AAP	297,600
	Less: p% of upstream deferred intercompany profits	(22,400)
		1,267,200

	Equity Investment account at 12/31/19:
	p% x book value of the net assets of subsidiary	1,120,000
	Add: unamortized (p%) AAP	283,200
	Less: p% of upstream deferred intercompany profits	(30,000)
		1,373,200

d.

To determine

Reconstruction of the pre-consolidation activities of the parent Equity Investment T-

account for the year of consolidation.

d.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept of consolidation in the context of financial

accounting often refers to the consolidation of financial statements in which all

subsidiaries report under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

Equity Investment
Equity Investment at 1/1/19	1,267,200
p% Net Income	160,000	32,000	p% Dividends
p% BOY U-s inventory profits	22,400	14,400	p% AAP Amortization
		30,000	p% EOY U-S inventory profits
Equity Investment at 12/31/19	1,373,200

e.

To determine

Calculate the owners' equity attributable to the starting and ending of non-controlling

interest balances beginning with the owners ' equity of the subsidiary.

e.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

	Non-controlling interest at 1/1/19:
	nci% of book value of the net assets of subsidiary	248,000
	Add: nci% unamortized AAP	74,400
	Less: nci% of upstream deferred intercompany profits	(5,600)
		316,800

	Non-controlling interest at 12/31/19:
	nci% of book value of the net assets of subsidiary	280,000
	Add: nci% unamortized AAP	70,800
	Less: nci% of upstream deferred intercompany profits	(7,500)
		343,300

f.

To determine

Calculate consolidated net income, controlling interest net income and non-controlling

interest net income.

f.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

Consolidated net income is the sum of the parent's net income excluding any subsidiary

income recognized in its individual financial statements plus the net income of its

subsidiaries determined after excluding unrealized inventory gain, intra-group income,

etc.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

	Parent's stand-alone net income	200,000
	Subsidiary's stand-alone net income	200,000
	Plus: 100% realized upstream deferred profits	28,000
	Less: 100% unrealized upstream deferred profits	(37,500)
	Less: 100% AAP amortization	(18,000)
	Consolidated net income	372,500


	Parent's stand-alone net income	200,000
	p% of subsidiary's stand-alone net income	160,000
	Plus: p% realized upstream deferred profits	22,400
	Less: p% unrealized upstream deferred profits	(30,000)
	Less: p% AAP amortization	(14,400)
	Consolidated net income attributable to the controlling interest	338,000


	nci% of subsidiary's stand-alone net income	40,000
	Plus: nci% realized upstream deferred profits	5,600
	Less: nci% unrealized upstream deferred profits	(7,500)
	Less: nci% AAP amortization	(3,600)
	Consolidated net income attributable to the noncontrolling interest	34,500

g.

To determine

Complete the C-E-A-D-I consolidation entries and execute the consolidation worksheet.

g.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies. A party outside the economic unit embodied in the consolidated financial statements does not retain the equity of the shareholders of the subsidiary, and therefore should not be included in the consolidated shareholders' equities.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Equity investment income		$138,000
	Consol. NI attributable to NCI		$34,500
	Dividends			$40,000
	Equity investment			$106,000
	Non-controlling interest			$26,500
	(Eliminates the change in the investment account of AAP adjusted changes in SE(S))

	[E] Common Stock (S) @ BOY		$100,000
	APIC (S) @BOY		$200,000
	Retained Earnings (S) @BOY		$940,000
	Equity Investment @BOY			$992,000
	Non-controlling interest (@BOY)			$248,000
	(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account)

	[A] Patent, net @ BOY (100% AAP)		$72,000
	Goodwill, net @ BOY (100% AAP)		$300,000
	Equity Investment @ BOY (AAP)			$297,600
	Non-controlling interest			$74,400
	(Allocates beginning-of-year 100% AAP to the controlling and non-controlling interests by eliminating the remaining investment account and establishing the BOY AAP for nci%)

	[D Operating expenses (for 100% AAP amort.)		$18,000
	Patent, net (for 100% AAP amort.)			$18,000
	(To record depreciation and amortization expense for the AAP assets)

	[I_cogs] Equity investment		$22,400
	Non-controlling interest @BOY		$5,600
	Cost of goods sold			$28,000
	(Recognition of deferred gain on inventory sale and proration between parent and subsidiary)

	[I_sales] Sales		$600,000
	Cost of goods sold			$600,000
	(Elimination of 100% of all intercompany transactions)

	[I_cogs] Cost of goods sold		$37,500
	Inventory			$37,500
	(Deferral of gross profit on this year inventory sales)

	[I_pay] Accounts payable		$140,000
	Accounts receivable			$140,000
	(Elimination of intercompany receivable and payable)

The consolidated spreadsheet is shown below:

	Parent	Subsidiary		Dr	Cr		Consol

Income Statement:
Sales	6,700,000	2,500,000	[I_sales]	600,000			8,600,000
Cost of Goods sold	(4,500,000)	(1,500,000)	[I_cogs]	37,500	600,000	[I_sales]	(5,409,500)
					28,000	[I_cogs]
Gross profit	2,200,000	1,000,000					3,190,500
Income (loss) from subsidiary	138,000		[C]	138,000			0
Operating expenses	(2,000,000)	(800,000)	[D]	18,000			(2,818,000)
Net Income	338,000	200,000					372,500
Consolidated NI attrib to NCI			[C]	34,500			(34,500)
Consolidated NI attrib to CI							338,000

Statement of Ret Earnings:
BOY retained earnings	2,035,200	940,000	[E]	940,000			2,035,200
Net income	338,000	200,000					338,000
Dividends	(200,000)	(40,000)			40,000	[C]	(200,000)
EOY retained earnings	2,173,200	1,100,000					2,173,200

Balance Sheet:
Cash	500,000	400,000					900,000
Accounts receivable	700,000	600,000			140,000	[I_pay]	1,160,000
Inventory	900,000	800,000			37,500	[I_cogs]	1,662,500
Equity investment	1,373,200		[I_cogs]	22,400	106,000	[C]	0
					992,000	[E]
					297,600	[A]
PPE, net	4,000,000	1,000,000					5,000,000
Patent			[A]	72,000	18,000	[D]	54,000
Goodwill			[A]	300,000			300,000
	7,473,200	2,800,000					9,076,500

Current liabilities	800,000	500,000	[I_pay]	140,000			1,160,000
Long-term liabilities	3,000,000	900,000					3,900,000
Common stock	500,000	100,000	[E]	100,000			500,000
APIC	1,000,000	200,000	[E]	200,000			1,000,000
Retained earnings	2,173,200	1,100,000					2,173,200
Non-controlling interest			[I_cogs]	5,600	26,500	[C]	343,300
					248,000	[E]
					74,400	[A]
	7,473,200	2,800,000		2,608,000	2,608,000		9,076,500

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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 5, Problem 56P

a.

To determine

Disaggregate and document the AAP 100 percent activity, the AAP controlling interest

and the AAP controlling interest, and the AAP non-controlling interest.

a.

Expert Solution

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

An acquisition premium is the distinction between the actual price paid to purchase a business and the pre-acquisition approximately real value of the acquired firm. It's often recorded on the balance sheet as "goodwill."

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest, is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

	Unamort		Unamort		Unamort		Unamort
	AAP	2013	AAP	2014	AAP	2015	AAP	2016
100%	1/1/2013	Amort	12/31/2013	Amort	12/31/2014	Amort	12/31/2015	Amort
Patent	180,000	18,000	162,000	18,000	144,000	18,000	126,000	18,000
Goodwill	300,000	0	300,000	0	300,000	0	300,000	0
	480,000	18,000	462,000	18,000	444,000	18,000	426,000	18,000
p%
Patent	144,000	14,400	129,600	14,400	115,200	14,400	100,800	14,400
Goodwill	240,000	0	240,000	0	240,000	0	240,000	0
	384,000	14,400	369,600	14,400	355,200	14,400	340,800	14,400
nci%
Patent	36,000	3,600	32,400	3,600	28,800	3,600	25,200	3,600
Goodwill	60,000	0	60,000	0	60,000	0	60,000	0
	96,000	3,600	92,400	3,600	88,800	3,600	85,200	3,600


	Unamort		Unamort		Unamort		Unamort
	AAP	2017	AAP	2018	AAP	2019	AAP
100%	12/31/2016	Amort	12/31/2017	Amort	12/31/2018	Amort	12/31/2019
Patent	108,000	18,000	90,000	18,000	72,000	18,000	54,000
Goodwill	300,000	0	300,000	0	300,000	0	300,000
	408,000	18,000	390,000	18,000	372,000	18,000	354,000
p%
Patent	86,400	14,400	72,000	14,400	57,600	14,400	43,200
Goodwill	240,000	0	240,000	0	240,000	0	240,000
	326,400	14,400	312,000	14,400	297,600	14,400	283,200
nci%
Patent	21,600	3,600	18,000	3,600	14,400	3,600	10,800
Goodwill	60,000	0	60,000	0	60,000	0	60,000
	81,600	3,600	78,000	3,600	74,400	3,600	70,800

b.

To determine

Calculate and organize the profits and losses on intercompany transactions and balances.

b.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The transactions between inter-companies are between a parent company and its subsidiaries or other related entities. If the parent company sells inventory to the related entity, this problem may become more complex.


	Downstream	Upstream
Intercompany profit on 1/1/19	0	28,000
Intercompany profit on 12/31/19	0	37,500

c.

To determine

Compute the starting and ending balances of the pre-consolidation Equity Investment

account starting with the equity of the subsidiary 's stockholders.

c.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept of consolidation in the context of financial

accounting often refers to the consolidation of financial statements in which all

subsidiaries report under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

	Equity Investment account at 1/1/19:
	p% x book value of the net assets of subsidiary	992,000
	Add: unamortized (p%) AAP	297,600
	Less: p% of upstream deferred intercompany profits	(22,400)
		1,267,200

	Equity Investment account at 12/31/19:
	p% x book value of the net assets of subsidiary	1,120,000
	Add: unamortized (p%) AAP	283,200
	Less: p% of upstream deferred intercompany profits	(30,000)
		1,373,200

d.

To determine

Reconstruction of the pre-consolidation activities of the parent Equity Investment T-

account for the year of consolidation.

d.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept of consolidation in the context of financial

accounting often refers to the consolidation of financial statements in which all

subsidiaries report under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

Equity Investment
Equity Investment at 1/1/19	1,267,200
p% Net Income	160,000	32,000	p% Dividends
p% BOY U-s inventory profits	22,400	14,400	p% AAP Amortization
		30,000	p% EOY U-S inventory profits
Equity Investment at 12/31/19	1,373,200

e.

To determine

Calculate the owners' equity attributable to the starting and ending of non-controlling

interest balances beginning with the owners ' equity of the subsidiary.

e.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

	Non-controlling interest at 1/1/19:
	nci% of book value of the net assets of subsidiary	248,000
	Add: nci% unamortized AAP	74,400
	Less: nci% of upstream deferred intercompany profits	(5,600)
		316,800

	Non-controlling interest at 12/31/19:
	nci% of book value of the net assets of subsidiary	280,000
	Add: nci% unamortized AAP	70,800
	Less: nci% of upstream deferred intercompany profits	(7,500)
		343,300

f.

To determine

Calculate consolidated net income, controlling interest net income and non-controlling

interest net income.

f.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

Consolidated net income is the sum of the parent's net income excluding any subsidiary

income recognized in its individual financial statements plus the net income of its

subsidiaries determined after excluding unrealized inventory gain, intra-group income,

etc.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

	Parent's stand-alone net income	200,000
	Subsidiary's stand-alone net income	200,000
	Plus: 100% realized upstream deferred profits	28,000
	Less: 100% unrealized upstream deferred profits	(37,500)
	Less: 100% AAP amortization	(18,000)
	Consolidated net income	372,500


	Parent's stand-alone net income	200,000
	p% of subsidiary's stand-alone net income	160,000
	Plus: p% realized upstream deferred profits	22,400
	Less: p% unrealized upstream deferred profits	(30,000)
	Less: p% AAP amortization	(14,400)
	Consolidated net income attributable to the controlling interest	338,000


	nci% of subsidiary's stand-alone net income	40,000
	Plus: nci% realized upstream deferred profits	5,600
	Less: nci% unrealized upstream deferred profits	(7,500)
	Less: nci% AAP amortization	(3,600)
	Consolidated net income attributable to the noncontrolling interest	34,500

g.

To determine

Complete the C-E-A-D-I consolidation entries and execute the consolidation worksheet.

g.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies. A party outside the economic unit embodied in the consolidated financial statements does not retain the equity of the shareholders of the subsidiary, and therefore should not be included in the consolidated shareholders' equities.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Equity investment income		$138,000
	Consol. NI attributable to NCI		$34,500
	Dividends			$40,000
	Equity investment			$106,000
	Non-controlling interest			$26,500
	(Eliminates the change in the investment account of AAP adjusted changes in SE(S))

	[E] Common Stock (S) @ BOY		$100,000
	APIC (S) @BOY		$200,000
	Retained Earnings (S) @BOY		$940,000
	Equity Investment @BOY			$992,000
	Non-controlling interest (@BOY)			$248,000
	(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account)

	[A] Patent, net @ BOY (100% AAP)		$72,000
	Goodwill, net @ BOY (100% AAP)		$300,000
	Equity Investment @ BOY (AAP)			$297,600
	Non-controlling interest			$74,400
	(Allocates beginning-of-year 100% AAP to the controlling and non-controlling interests by eliminating the remaining investment account and establishing the BOY AAP for nci%)

	[D Operating expenses (for 100% AAP amort.)		$18,000
	Patent, net (for 100% AAP amort.)			$18,000
	(To record depreciation and amortization expense for the AAP assets)

	[I_cogs] Equity investment		$22,400
	Non-controlling interest @BOY		$5,600
	Cost of goods sold			$28,000
	(Recognition of deferred gain on inventory sale and proration between parent and subsidiary)

	[I_sales] Sales		$600,000
	Cost of goods sold			$600,000
	(Elimination of 100% of all intercompany transactions)

	[I_cogs] Cost of goods sold		$37,500
	Inventory			$37,500
	(Deferral of gross profit on this year inventory sales)

	[I_pay] Accounts payable		$140,000
	Accounts receivable			$140,000
	(Elimination of intercompany receivable and payable)

The consolidated spreadsheet is shown below:

	Parent	Subsidiary		Dr	Cr		Consol

Income Statement:
Sales	6,700,000	2,500,000	[I_sales]	600,000			8,600,000
Cost of Goods sold	(4,500,000)	(1,500,000)	[I_cogs]	37,500	600,000	[I_sales]	(5,409,500)
					28,000	[I_cogs]
Gross profit	2,200,000	1,000,000					3,190,500
Income (loss) from subsidiary	138,000		[C]	138,000			0
Operating expenses	(2,000,000)	(800,000)	[D]	18,000			(2,818,000)
Net Income	338,000	200,000					372,500
Consolidated NI attrib to NCI			[C]	34,500			(34,500)
Consolidated NI attrib to CI							338,000

Statement of Ret Earnings:
BOY retained earnings	2,035,200	940,000	[E]	940,000			2,035,200
Net income	338,000	200,000					338,000
Dividends	(200,000)	(40,000)			40,000	[C]	(200,000)
EOY retained earnings	2,173,200	1,100,000					2,173,200

Balance Sheet:
Cash	500,000	400,000					900,000
Accounts receivable	700,000	600,000			140,000	[I_pay]	1,160,000
Inventory	900,000	800,000			37,500	[I_cogs]	1,662,500
Equity investment	1,373,200		[I_cogs]	22,400	106,000	[C]	0
					992,000	[E]
					297,600	[A]
PPE, net	4,000,000	1,000,000					5,000,000
Patent			[A]	72,000	18,000	[D]	54,000
Goodwill			[A]	300,000			300,000
	7,473,200	2,800,000					9,076,500

Current liabilities	800,000	500,000	[I_pay]	140,000			1,160,000
Long-term liabilities	3,000,000	900,000					3,900,000
Common stock	500,000	100,000	[E]	100,000			500,000
APIC	1,000,000	200,000	[E]	200,000			1,000,000
Retained earnings	2,173,200	1,100,000					2,173,200
Non-controlling interest			[I_cogs]	5,600	26,500	[C]	343,300
					248,000	[E]
					74,400	[A]
	7,473,200	2,800,000		2,608,000	2,608,000		9,076,500

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Answer 5

Chapter 5, Problem 56P

a.

To determine

Disaggregate and document the AAP 100 percent activity, the AAP controlling interest

and the AAP controlling interest, and the AAP non-controlling interest.

a.

Expert Solution

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

An acquisition premium is the distinction between the actual price paid to purchase a business and the pre-acquisition approximately real value of the acquired firm. It's often recorded on the balance sheet as "goodwill."

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest, is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

	Unamort		Unamort		Unamort		Unamort
	AAP	2013	AAP	2014	AAP	2015	AAP	2016
100%	1/1/2013	Amort	12/31/2013	Amort	12/31/2014	Amort	12/31/2015	Amort
Patent	180,000	18,000	162,000	18,000	144,000	18,000	126,000	18,000
Goodwill	300,000	0	300,000	0	300,000	0	300,000	0
	480,000	18,000	462,000	18,000	444,000	18,000	426,000	18,000
p%
Patent	144,000	14,400	129,600	14,400	115,200	14,400	100,800	14,400
Goodwill	240,000	0	240,000	0	240,000	0	240,000	0
	384,000	14,400	369,600	14,400	355,200	14,400	340,800	14,400
nci%
Patent	36,000	3,600	32,400	3,600	28,800	3,600	25,200	3,600
Goodwill	60,000	0	60,000	0	60,000	0	60,000	0
	96,000	3,600	92,400	3,600	88,800	3,600	85,200	3,600


	Unamort		Unamort		Unamort		Unamort
	AAP	2017	AAP	2018	AAP	2019	AAP
100%	12/31/2016	Amort	12/31/2017	Amort	12/31/2018	Amort	12/31/2019
Patent	108,000	18,000	90,000	18,000	72,000	18,000	54,000
Goodwill	300,000	0	300,000	0	300,000	0	300,000
	408,000	18,000	390,000	18,000	372,000	18,000	354,000
p%
Patent	86,400	14,400	72,000	14,400	57,600	14,400	43,200
Goodwill	240,000	0	240,000	0	240,000	0	240,000
	326,400	14,400	312,000	14,400	297,600	14,400	283,200
nci%
Patent	21,600	3,600	18,000	3,600	14,400	3,600	10,800
Goodwill	60,000	0	60,000	0	60,000	0	60,000
	81,600	3,600	78,000	3,600	74,400	3,600	70,800

b.

To determine

Calculate and organize the profits and losses on intercompany transactions and balances.

b.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The transactions between inter-companies are between a parent company and its subsidiaries or other related entities. If the parent company sells inventory to the related entity, this problem may become more complex.


	Downstream	Upstream
Intercompany profit on 1/1/19	0	28,000
Intercompany profit on 12/31/19	0	37,500

c.

To determine

Compute the starting and ending balances of the pre-consolidation Equity Investment

account starting with the equity of the subsidiary 's stockholders.

c.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept of consolidation in the context of financial

accounting often refers to the consolidation of financial statements in which all

subsidiaries report under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

	Equity Investment account at 1/1/19:
	p% x book value of the net assets of subsidiary	992,000
	Add: unamortized (p%) AAP	297,600
	Less: p% of upstream deferred intercompany profits	(22,400)
		1,267,200

	Equity Investment account at 12/31/19:
	p% x book value of the net assets of subsidiary	1,120,000
	Add: unamortized (p%) AAP	283,200
	Less: p% of upstream deferred intercompany profits	(30,000)
		1,373,200

d.

To determine

Reconstruction of the pre-consolidation activities of the parent Equity Investment T-

account for the year of consolidation.

d.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept of consolidation in the context of financial

accounting often refers to the consolidation of financial statements in which all

subsidiaries report under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

Equity Investment
Equity Investment at 1/1/19	1,267,200
p% Net Income	160,000	32,000	p% Dividends
p% BOY U-s inventory profits	22,400	14,400	p% AAP Amortization
		30,000	p% EOY U-S inventory profits
Equity Investment at 12/31/19	1,373,200

e.

To determine

Calculate the owners' equity attributable to the starting and ending of non-controlling

interest balances beginning with the owners ' equity of the subsidiary.

e.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

	Non-controlling interest at 1/1/19:
	nci% of book value of the net assets of subsidiary	248,000
	Add: nci% unamortized AAP	74,400
	Less: nci% of upstream deferred intercompany profits	(5,600)
		316,800

	Non-controlling interest at 12/31/19:
	nci% of book value of the net assets of subsidiary	280,000
	Add: nci% unamortized AAP	70,800
	Less: nci% of upstream deferred intercompany profits	(7,500)
		343,300

f.

To determine

Calculate consolidated net income, controlling interest net income and non-controlling

interest net income.

f.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

Consolidated net income is the sum of the parent's net income excluding any subsidiary

income recognized in its individual financial statements plus the net income of its

subsidiaries determined after excluding unrealized inventory gain, intra-group income,

etc.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

	Parent's stand-alone net income	200,000
	Subsidiary's stand-alone net income	200,000
	Plus: 100% realized upstream deferred profits	28,000
	Less: 100% unrealized upstream deferred profits	(37,500)
	Less: 100% AAP amortization	(18,000)
	Consolidated net income	372,500


	Parent's stand-alone net income	200,000
	p% of subsidiary's stand-alone net income	160,000
	Plus: p% realized upstream deferred profits	22,400
	Less: p% unrealized upstream deferred profits	(30,000)
	Less: p% AAP amortization	(14,400)
	Consolidated net income attributable to the controlling interest	338,000


	nci% of subsidiary's stand-alone net income	40,000
	Plus: nci% realized upstream deferred profits	5,600
	Less: nci% unrealized upstream deferred profits	(7,500)
	Less: nci% AAP amortization	(3,600)
	Consolidated net income attributable to the noncontrolling interest	34,500

g.

To determine

Complete the C-E-A-D-I consolidation entries and execute the consolidation worksheet.

g.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies. A party outside the economic unit embodied in the consolidated financial statements does not retain the equity of the shareholders of the subsidiary, and therefore should not be included in the consolidated shareholders' equities.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Equity investment income		$138,000
	Consol. NI attributable to NCI		$34,500
	Dividends			$40,000
	Equity investment			$106,000
	Non-controlling interest			$26,500
	(Eliminates the change in the investment account of AAP adjusted changes in SE(S))

	[E] Common Stock (S) @ BOY		$100,000
	APIC (S) @BOY		$200,000
	Retained Earnings (S) @BOY		$940,000
	Equity Investment @BOY			$992,000
	Non-controlling interest (@BOY)			$248,000
	(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account)

	[A] Patent, net @ BOY (100% AAP)		$72,000
	Goodwill, net @ BOY (100% AAP)		$300,000
	Equity Investment @ BOY (AAP)			$297,600
	Non-controlling interest			$74,400
	(Allocates beginning-of-year 100% AAP to the controlling and non-controlling interests by eliminating the remaining investment account and establishing the BOY AAP for nci%)

	[D Operating expenses (for 100% AAP amort.)		$18,000
	Patent, net (for 100% AAP amort.)			$18,000
	(To record depreciation and amortization expense for the AAP assets)

	[I_cogs] Equity investment		$22,400
	Non-controlling interest @BOY		$5,600
	Cost of goods sold			$28,000
	(Recognition of deferred gain on inventory sale and proration between parent and subsidiary)

	[I_sales] Sales		$600,000
	Cost of goods sold			$600,000
	(Elimination of 100% of all intercompany transactions)

	[I_cogs] Cost of goods sold		$37,500
	Inventory			$37,500
	(Deferral of gross profit on this year inventory sales)

	[I_pay] Accounts payable		$140,000
	Accounts receivable			$140,000
	(Elimination of intercompany receivable and payable)

The consolidated spreadsheet is shown below:

	Parent	Subsidiary		Dr	Cr		Consol

Income Statement:
Sales	6,700,000	2,500,000	[I_sales]	600,000			8,600,000
Cost of Goods sold	(4,500,000)	(1,500,000)	[I_cogs]	37,500	600,000	[I_sales]	(5,409,500)
					28,000	[I_cogs]
Gross profit	2,200,000	1,000,000					3,190,500
Income (loss) from subsidiary	138,000		[C]	138,000			0
Operating expenses	(2,000,000)	(800,000)	[D]	18,000			(2,818,000)
Net Income	338,000	200,000					372,500
Consolidated NI attrib to NCI			[C]	34,500			(34,500)
Consolidated NI attrib to CI							338,000

Statement of Ret Earnings:
BOY retained earnings	2,035,200	940,000	[E]	940,000			2,035,200
Net income	338,000	200,000					338,000
Dividends	(200,000)	(40,000)			40,000	[C]	(200,000)
EOY retained earnings	2,173,200	1,100,000					2,173,200

Balance Sheet:
Cash	500,000	400,000					900,000
Accounts receivable	700,000	600,000			140,000	[I_pay]	1,160,000
Inventory	900,000	800,000			37,500	[I_cogs]	1,662,500
Equity investment	1,373,200		[I_cogs]	22,400	106,000	[C]	0
					992,000	[E]
					297,600	[A]
PPE, net	4,000,000	1,000,000					5,000,000
Patent			[A]	72,000	18,000	[D]	54,000
Goodwill			[A]	300,000			300,000
	7,473,200	2,800,000					9,076,500

Current liabilities	800,000	500,000	[I_pay]	140,000			1,160,000
Long-term liabilities	3,000,000	900,000					3,900,000
Common stock	500,000	100,000	[E]	100,000			500,000
APIC	1,000,000	200,000	[E]	200,000			1,000,000
Retained earnings	2,173,200	1,100,000					2,173,200
Non-controlling interest			[I_cogs]	5,600	26,500	[C]	343,300
					248,000	[E]
					74,400	[A]
	7,473,200	2,800,000		2,608,000	2,608,000		9,076,500

Answer 6

Chapter 5, Problem 56P

a.

To determine

Disaggregate and document the AAP 100 percent activity, the AAP controlling interest

and the AAP controlling interest, and the AAP non-controlling interest.

a.

Expert Solution

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

An acquisition premium is the distinction between the actual price paid to purchase a business and the pre-acquisition approximately real value of the acquired firm. It's often recorded on the balance sheet as "goodwill."

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest, is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

	Unamort		Unamort		Unamort		Unamort
	AAP	2013	AAP	2014	AAP	2015	AAP	2016
100%	1/1/2013	Amort	12/31/2013	Amort	12/31/2014	Amort	12/31/2015	Amort
Patent	180,000	18,000	162,000	18,000	144,000	18,000	126,000	18,000
Goodwill	300,000	0	300,000	0	300,000	0	300,000	0
	480,000	18,000	462,000	18,000	444,000	18,000	426,000	18,000
p%
Patent	144,000	14,400	129,600	14,400	115,200	14,400	100,800	14,400
Goodwill	240,000	0	240,000	0	240,000	0	240,000	0
	384,000	14,400	369,600	14,400	355,200	14,400	340,800	14,400
nci%
Patent	36,000	3,600	32,400	3,600	28,800	3,600	25,200	3,600
Goodwill	60,000	0	60,000	0	60,000	0	60,000	0
	96,000	3,600	92,400	3,600	88,800	3,600	85,200	3,600


	Unamort		Unamort		Unamort		Unamort
	AAP	2017	AAP	2018	AAP	2019	AAP
100%	12/31/2016	Amort	12/31/2017	Amort	12/31/2018	Amort	12/31/2019
Patent	108,000	18,000	90,000	18,000	72,000	18,000	54,000
Goodwill	300,000	0	300,000	0	300,000	0	300,000
	408,000	18,000	390,000	18,000	372,000	18,000	354,000
p%
Patent	86,400	14,400	72,000	14,400	57,600	14,400	43,200
Goodwill	240,000	0	240,000	0	240,000	0	240,000
	326,400	14,400	312,000	14,400	297,600	14,400	283,200
nci%
Patent	21,600	3,600	18,000	3,600	14,400	3,600	10,800
Goodwill	60,000	0	60,000	0	60,000	0	60,000
	81,600	3,600	78,000	3,600	74,400	3,600	70,800

Answer 7

Chapter 5, Problem 56P

a.

To determine

Disaggregate and document the AAP 100 percent activity, the AAP controlling interest

and the AAP controlling interest, and the AAP non-controlling interest.

Answer 8

a.

Expert Solution

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

An acquisition premium is the distinction between the actual price paid to purchase a business and the pre-acquisition approximately real value of the acquired firm. It's often recorded on the balance sheet as "goodwill."

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest, is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

	Unamort		Unamort		Unamort		Unamort
	AAP	2013	AAP	2014	AAP	2015	AAP	2016
100%	1/1/2013	Amort	12/31/2013	Amort	12/31/2014	Amort	12/31/2015	Amort
Patent	180,000	18,000	162,000	18,000	144,000	18,000	126,000	18,000
Goodwill	300,000	0	300,000	0	300,000	0	300,000	0
	480,000	18,000	462,000	18,000	444,000	18,000	426,000	18,000
p%
Patent	144,000	14,400	129,600	14,400	115,200	14,400	100,800	14,400
Goodwill	240,000	0	240,000	0	240,000	0	240,000	0
	384,000	14,400	369,600	14,400	355,200	14,400	340,800	14,400
nci%
Patent	36,000	3,600	32,400	3,600	28,800	3,600	25,200	3,600
Goodwill	60,000	0	60,000	0	60,000	0	60,000	0
	96,000	3,600	92,400	3,600	88,800	3,600	85,200	3,600


	Unamort		Unamort		Unamort		Unamort
	AAP	2017	AAP	2018	AAP	2019	AAP
100%	12/31/2016	Amort	12/31/2017	Amort	12/31/2018	Amort	12/31/2019
Patent	108,000	18,000	90,000	18,000	72,000	18,000	54,000
Goodwill	300,000	0	300,000	0	300,000	0	300,000
	408,000	18,000	390,000	18,000	372,000	18,000	354,000
p%
Patent	86,400	14,400	72,000	14,400	57,600	14,400	43,200
Goodwill	240,000	0	240,000	0	240,000	0	240,000
	326,400	14,400	312,000	14,400	297,600	14,400	283,200
nci%
Patent	21,600	3,600	18,000	3,600	14,400	3,600	10,800
Goodwill	60,000	0	60,000	0	60,000	0	60,000
	81,600	3,600	78,000	3,600	74,400	3,600	70,800

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

b.

To determine

Calculate and organize the profits and losses on intercompany transactions and balances.

b.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The transactions between inter-companies are between a parent company and its subsidiaries or other related entities. If the parent company sells inventory to the related entity, this problem may become more complex.


	Downstream	Upstream
Intercompany profit on 1/1/19	0	28,000
Intercompany profit on 12/31/19	0	37,500

Answer 13

b.

To determine

Calculate and organize the profits and losses on intercompany transactions and balances.

Answer 14

b.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The transactions between inter-companies are between a parent company and its subsidiaries or other related entities. If the parent company sells inventory to the related entity, this problem may become more complex.


	Downstream	Upstream
Intercompany profit on 1/1/19	0	28,000
Intercompany profit on 12/31/19	0	37,500

Answer 15

b.

Expert Solution

Answer 16

b.

Expert Solution

Answer 17

Expert Solution

Answer 18

c.

To determine

Compute the starting and ending balances of the pre-consolidation Equity Investment

account starting with the equity of the subsidiary 's stockholders.

c.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept of consolidation in the context of financial

accounting often refers to the consolidation of financial statements in which all

subsidiaries report under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

	Equity Investment account at 1/1/19:
	p% x book value of the net assets of subsidiary	992,000
	Add: unamortized (p%) AAP	297,600
	Less: p% of upstream deferred intercompany profits	(22,400)
		1,267,200

	Equity Investment account at 12/31/19:
	p% x book value of the net assets of subsidiary	1,120,000
	Add: unamortized (p%) AAP	283,200
	Less: p% of upstream deferred intercompany profits	(30,000)
		1,373,200

Answer 19

c.

To determine

Compute the starting and ending balances of the pre-consolidation Equity Investment

account starting with the equity of the subsidiary 's stockholders.

Answer 20

c.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept of consolidation in the context of financial

accounting often refers to the consolidation of financial statements in which all

subsidiaries report under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

	Equity Investment account at 1/1/19:
	p% x book value of the net assets of subsidiary	992,000
	Add: unamortized (p%) AAP	297,600
	Less: p% of upstream deferred intercompany profits	(22,400)
		1,267,200

	Equity Investment account at 12/31/19:
	p% x book value of the net assets of subsidiary	1,120,000
	Add: unamortized (p%) AAP	283,200
	Less: p% of upstream deferred intercompany profits	(30,000)
		1,373,200

Answer 21

c.

Expert Solution

Answer 22

c.

Expert Solution

Answer 23

Expert Solution

Answer 24

d.

To determine

Reconstruction of the pre-consolidation activities of the parent Equity Investment T-

account for the year of consolidation.

d.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept of consolidation in the context of financial

accounting often refers to the consolidation of financial statements in which all

subsidiaries report under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

Equity Investment
Equity Investment at 1/1/19	1,267,200
p% Net Income	160,000	32,000	p% Dividends
p% BOY U-s inventory profits	22,400	14,400	p% AAP Amortization
		30,000	p% EOY U-S inventory profits
Equity Investment at 12/31/19	1,373,200

Answer 25

d.

To determine

Reconstruction of the pre-consolidation activities of the parent Equity Investment T-

account for the year of consolidation.

Answer 26

d.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept of consolidation in the context of financial

accounting often refers to the consolidation of financial statements in which all

subsidiaries report under the umbrella of a parent company.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

Equity Investment
Equity Investment at 1/1/19	1,267,200
p% Net Income	160,000	32,000	p% Dividends
p% BOY U-s inventory profits	22,400	14,400	p% AAP Amortization
		30,000	p% EOY U-S inventory profits
Equity Investment at 12/31/19	1,373,200

Answer 27

d.

Expert Solution

Answer 28

d.

Expert Solution

Answer 29

Expert Solution

Answer 30

e.

To determine

Calculate the owners' equity attributable to the starting and ending of non-controlling

interest balances beginning with the owners ' equity of the subsidiary.

e.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

	Non-controlling interest at 1/1/19:
	nci% of book value of the net assets of subsidiary	248,000
	Add: nci% unamortized AAP	74,400
	Less: nci% of upstream deferred intercompany profits	(5,600)
		316,800

	Non-controlling interest at 12/31/19:
	nci% of book value of the net assets of subsidiary	280,000
	Add: nci% unamortized AAP	70,800
	Less: nci% of upstream deferred intercompany profits	(7,500)
		343,300

Answer 31

e.

To determine

Calculate the owners' equity attributable to the starting and ending of non-controlling

interest balances beginning with the owners ' equity of the subsidiary.

Answer 32

e.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

	Non-controlling interest at 1/1/19:
	nci% of book value of the net assets of subsidiary	248,000
	Add: nci% unamortized AAP	74,400
	Less: nci% of upstream deferred intercompany profits	(5,600)
		316,800

	Non-controlling interest at 12/31/19:
	nci% of book value of the net assets of subsidiary	280,000
	Add: nci% unamortized AAP	70,800
	Less: nci% of upstream deferred intercompany profits	(7,500)
		343,300

Answer 33

e.

Expert Solution

Answer 34

e.

Expert Solution

Answer 35

Expert Solution

Answer 36

f.

To determine

Calculate consolidated net income, controlling interest net income and non-controlling

interest net income.

f.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

Consolidated net income is the sum of the parent's net income excluding any subsidiary

income recognized in its individual financial statements plus the net income of its

subsidiaries determined after excluding unrealized inventory gain, intra-group income,

etc.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

	Parent's stand-alone net income	200,000
	Subsidiary's stand-alone net income	200,000
	Plus: 100% realized upstream deferred profits	28,000
	Less: 100% unrealized upstream deferred profits	(37,500)
	Less: 100% AAP amortization	(18,000)
	Consolidated net income	372,500


	Parent's stand-alone net income	200,000
	p% of subsidiary's stand-alone net income	160,000
	Plus: p% realized upstream deferred profits	22,400
	Less: p% unrealized upstream deferred profits	(30,000)
	Less: p% AAP amortization	(14,400)
	Consolidated net income attributable to the controlling interest	338,000


	nci% of subsidiary's stand-alone net income	40,000
	Plus: nci% realized upstream deferred profits	5,600
	Less: nci% unrealized upstream deferred profits	(7,500)
	Less: nci% AAP amortization	(3,600)
	Consolidated net income attributable to the noncontrolling interest	34,500

Answer 37

f.

To determine

Calculate consolidated net income, controlling interest net income and non-controlling

interest net income.

Answer 38

f.

Expert Solution

Explanation of Solution

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

Consolidated net income is the sum of the parent's net income excluding any subsidiary

income recognized in its individual financial statements plus the net income of its

subsidiaries determined after excluding unrealized inventory gain, intra-group income,

etc.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

	Parent's stand-alone net income	200,000
	Subsidiary's stand-alone net income	200,000
	Plus: 100% realized upstream deferred profits	28,000
	Less: 100% unrealized upstream deferred profits	(37,500)
	Less: 100% AAP amortization	(18,000)
	Consolidated net income	372,500


	Parent's stand-alone net income	200,000
	p% of subsidiary's stand-alone net income	160,000
	Plus: p% realized upstream deferred profits	22,400
	Less: p% unrealized upstream deferred profits	(30,000)
	Less: p% AAP amortization	(14,400)
	Consolidated net income attributable to the controlling interest	338,000


	nci% of subsidiary's stand-alone net income	40,000
	Plus: nci% realized upstream deferred profits	5,600
	Less: nci% unrealized upstream deferred profits	(7,500)
	Less: nci% AAP amortization	(3,600)
	Consolidated net income attributable to the noncontrolling interest	34,500

Answer 39

f.

Expert Solution

Answer 40

f.

Expert Solution

Answer 41

Expert Solution

Answer 42

g.

To determine

Complete the C-E-A-D-I consolidation entries and execute the consolidation worksheet.

g.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies. A party outside the economic unit embodied in the consolidated financial statements does not retain the equity of the shareholders of the subsidiary, and therefore should not be included in the consolidated shareholders' equities.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Equity investment income		$138,000
	Consol. NI attributable to NCI		$34,500
	Dividends			$40,000
	Equity investment			$106,000
	Non-controlling interest			$26,500
	(Eliminates the change in the investment account of AAP adjusted changes in SE(S))

	[E] Common Stock (S) @ BOY		$100,000
	APIC (S) @BOY		$200,000
	Retained Earnings (S) @BOY		$940,000
	Equity Investment @BOY			$992,000
	Non-controlling interest (@BOY)			$248,000
	(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account)

	[A] Patent, net @ BOY (100% AAP)		$72,000
	Goodwill, net @ BOY (100% AAP)		$300,000
	Equity Investment @ BOY (AAP)			$297,600
	Non-controlling interest			$74,400
	(Allocates beginning-of-year 100% AAP to the controlling and non-controlling interests by eliminating the remaining investment account and establishing the BOY AAP for nci%)

	[D Operating expenses (for 100% AAP amort.)		$18,000
	Patent, net (for 100% AAP amort.)			$18,000
	(To record depreciation and amortization expense for the AAP assets)

	[I_cogs] Equity investment		$22,400
	Non-controlling interest @BOY		$5,600
	Cost of goods sold			$28,000
	(Recognition of deferred gain on inventory sale and proration between parent and subsidiary)

	[I_sales] Sales		$600,000
	Cost of goods sold			$600,000
	(Elimination of 100% of all intercompany transactions)

	[I_cogs] Cost of goods sold		$37,500
	Inventory			$37,500
	(Deferral of gross profit on this year inventory sales)

	[I_pay] Accounts payable		$140,000
	Accounts receivable			$140,000
	(Elimination of intercompany receivable and payable)

The consolidated spreadsheet is shown below:

	Parent	Subsidiary		Dr	Cr		Consol

Income Statement:
Sales	6,700,000	2,500,000	[I_sales]	600,000			8,600,000
Cost of Goods sold	(4,500,000)	(1,500,000)	[I_cogs]	37,500	600,000	[I_sales]	(5,409,500)
					28,000	[I_cogs]
Gross profit	2,200,000	1,000,000					3,190,500
Income (loss) from subsidiary	138,000		[C]	138,000			0
Operating expenses	(2,000,000)	(800,000)	[D]	18,000			(2,818,000)
Net Income	338,000	200,000					372,500
Consolidated NI attrib to NCI			[C]	34,500			(34,500)
Consolidated NI attrib to CI							338,000

Statement of Ret Earnings:
BOY retained earnings	2,035,200	940,000	[E]	940,000			2,035,200
Net income	338,000	200,000					338,000
Dividends	(200,000)	(40,000)			40,000	[C]	(200,000)
EOY retained earnings	2,173,200	1,100,000					2,173,200

Balance Sheet:
Cash	500,000	400,000					900,000
Accounts receivable	700,000	600,000			140,000	[I_pay]	1,160,000
Inventory	900,000	800,000			37,500	[I_cogs]	1,662,500
Equity investment	1,373,200		[I_cogs]	22,400	106,000	[C]	0
					992,000	[E]
					297,600	[A]
PPE, net	4,000,000	1,000,000					5,000,000
Patent			[A]	72,000	18,000	[D]	54,000
Goodwill			[A]	300,000			300,000
	7,473,200	2,800,000					9,076,500

Current liabilities	800,000	500,000	[I_pay]	140,000			1,160,000
Long-term liabilities	3,000,000	900,000					3,900,000
Common stock	500,000	100,000	[E]	100,000			500,000
APIC	1,000,000	200,000	[E]	200,000			1,000,000
Retained earnings	2,173,200	1,100,000					2,173,200
Non-controlling interest			[I_cogs]	5,600	26,500	[C]	343,300
					248,000	[E]
					74,400	[A]
	7,473,200	2,800,000		2,608,000	2,608,000		9,076,500

Answer 43

g.

To determine

Complete the C-E-A-D-I consolidation entries and execute the consolidation worksheet.

Answer 44

g.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies. A party outside the economic unit embodied in the consolidated financial statements does not retain the equity of the shareholders of the subsidiary, and therefore should not be included in the consolidated shareholders' equities.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[C] Equity investment income		$138,000
	Consol. NI attributable to NCI		$34,500
	Dividends			$40,000
	Equity investment			$106,000
	Non-controlling interest			$26,500
	(Eliminates the change in the investment account of AAP adjusted changes in SE(S))

	[E] Common Stock (S) @ BOY		$100,000
	APIC (S) @BOY		$200,000
	Retained Earnings (S) @BOY		$940,000
	Equity Investment @BOY			$992,000
	Non-controlling interest (@BOY)			$248,000
	(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account)

	[A] Patent, net @ BOY (100% AAP)		$72,000
	Goodwill, net @ BOY (100% AAP)		$300,000
	Equity Investment @ BOY (AAP)			$297,600
	Non-controlling interest			$74,400
	(Allocates beginning-of-year 100% AAP to the controlling and non-controlling interests by eliminating the remaining investment account and establishing the BOY AAP for nci%)

	[D Operating expenses (for 100% AAP amort.)		$18,000
	Patent, net (for 100% AAP amort.)			$18,000
	(To record depreciation and amortization expense for the AAP assets)

	[I_cogs] Equity investment		$22,400
	Non-controlling interest @BOY		$5,600
	Cost of goods sold			$28,000
	(Recognition of deferred gain on inventory sale and proration between parent and subsidiary)

	[I_sales] Sales		$600,000
	Cost of goods sold			$600,000
	(Elimination of 100% of all intercompany transactions)

	[I_cogs] Cost of goods sold		$37,500
	Inventory			$37,500
	(Deferral of gross profit on this year inventory sales)

	[I_pay] Accounts payable		$140,000
	Accounts receivable			$140,000
	(Elimination of intercompany receivable and payable)

The consolidated spreadsheet is shown below:

	Parent	Subsidiary		Dr	Cr		Consol

Income Statement:
Sales	6,700,000	2,500,000	[I_sales]	600,000			8,600,000
Cost of Goods sold	(4,500,000)	(1,500,000)	[I_cogs]	37,500	600,000	[I_sales]	(5,409,500)
					28,000	[I_cogs]
Gross profit	2,200,000	1,000,000					3,190,500
Income (loss) from subsidiary	138,000		[C]	138,000			0
Operating expenses	(2,000,000)	(800,000)	[D]	18,000			(2,818,000)
Net Income	338,000	200,000					372,500
Consolidated NI attrib to NCI			[C]	34,500			(34,500)
Consolidated NI attrib to CI							338,000

Statement of Ret Earnings:
BOY retained earnings	2,035,200	940,000	[E]	940,000			2,035,200
Net income	338,000	200,000					338,000
Dividends	(200,000)	(40,000)			40,000	[C]	(200,000)
EOY retained earnings	2,173,200	1,100,000					2,173,200

Balance Sheet:
Cash	500,000	400,000					900,000
Accounts receivable	700,000	600,000			140,000	[I_pay]	1,160,000
Inventory	900,000	800,000			37,500	[I_cogs]	1,662,500
Equity investment	1,373,200		[I_cogs]	22,400	106,000	[C]	0
					992,000	[E]
					297,600	[A]
PPE, net	4,000,000	1,000,000					5,000,000
Patent			[A]	72,000	18,000	[D]	54,000
Goodwill			[A]	300,000			300,000
	7,473,200	2,800,000					9,076,500

Current liabilities	800,000	500,000	[I_pay]	140,000			1,160,000
Long-term liabilities	3,000,000	900,000					3,900,000
Common stock	500,000	100,000	[E]	100,000			500,000
APIC	1,000,000	200,000	[E]	200,000			1,000,000
Retained earnings	2,173,200	1,100,000					2,173,200
Non-controlling interest			[I_cogs]	5,600	26,500	[C]	343,300
					248,000	[E]
					74,400	[A]
	7,473,200	2,800,000		2,608,000	2,608,000		9,076,500

Answer 45

g.

Expert Solution

Answer 46

g.

Expert Solution

Answer 47

Expert Solution

Answer 48

Ch. 5 - Prob. 1Q Ch. 5 - Prob. 2Q Ch. 5 - Prob. 3Q Ch. 5 - Prob. 4Q Ch. 5 - Prob. 5Q Ch. 5 - Prob. 6Q Ch. 5 - Prob. 7Q Ch. 5 - Prob. 8Q Ch. 5 - Prob. 9Q Ch. 5 - Prob. 10Q

Disaggregate and document the AAP 100 percent activity, the AAP controlling interest and the AAP controlling interest, and the AAP non-controlling interest.

Disaggregate and document the AAP 100 percent activity, the AAP controlling interest and the AAP controlling interest, and the AAP non-controlling interest.

Explanation of Solution

Calculate and organize the profits and losses on intercompany transactions and balances.

Explanation of Solution

Compute the starting and ending balances of the pre-consolidation Equity Investment account starting with the equity of the subsidiary 's stockholders.

Explanation of Solution

Reconstruction of the pre-consolidation activities of the parent Equity Investment T- account for the year of consolidation.

Explanation of Solution

Calculate the owners' equity attributable to the starting and ending of non-controlling interest balances beginning with the owners ' equity of the subsidiary.

Explanation of Solution

Calculate consolidated net income, controlling interest net income and non-controlling interest net income.

Explanation of Solution

Complete the C-E-A-D-I consolidation entries and execute the consolidation worksheet.

Explanation of Solution

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Chapter 5 Solutions

Disaggregate and document the AAP 100 percent activity, the AAP controlling interest

and the AAP controlling interest, and the AAP non-controlling interest.

Compute the starting and ending balances of the pre-consolidation Equity Investment

account starting with the equity of the subsidiary 's stockholders.

Reconstruction of the pre-consolidation activities of the parent Equity Investment T-

account for the year of consolidation.

Calculate the owners' equity attributable to the starting and ending of non-controlling

interest balances beginning with the owners ' equity of the subsidiary.

Calculate consolidated net income, controlling interest net income and non-controlling

interest net income.