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

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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 58P

a.

To determine

Disaggregate and document the AAP 100 percent activity, 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	2009	AAP	2010	AAP	2011	AAP	2012
100%	1/1/2009	Amort	12/31/2009	Amort	12/31/2010	Amort	12/31/2011	Amort
PPE, net	300,000	20,000	280,000	20,000	260,000	20,000	240,000	20,000
Patent	200,000	20,000	180,000	20,000	160,000	20,000	140,000	20,000
Goodwill	400,000	0	400,000	0	400,000	0	400,000	0
	900,000	40,000	860,000	40,000	820,000	40,000	780,000	40,000

80%
PPE, net	240,000	16,000	218,700	16,000	208,000	16,000	192,000	16,000
Patent	160,000	16,000	144,000	16,000	128,000	16,000	112,000	16,000
Goodwill	320,000	0	320,000	0	320,000	0	320,000	0
	720,000	32,000	688,000	32,000	656,000	32,000	624,000	32,000

20%
PPE, net	60,000	4,000	56,000	4,000	52,000	4,000	48,000	4,000
Patent	40,000	4,000	36,000	4,000	52,000	4,000	28,000	4,000
Goodwill	80,000	0	80,000	0	80,000	0	80,000	0
	180,000	8,000	172,000	5,400	164,000	8,000	156,000	8,000

	Unamort		Unamort		Unamort		Unamort		Unamort
	AAP	2013	AAP	2014	AAP	2015	AAP	2016	AAP
100%	12/31/2012	Amort	12/31/2013	Amort	12/31/2014	Amort	12/31/2015	Amort	12/31/2016
PPE, net	220,000	20,000	200,000	20,000	180,000	20,000	160,000	20,000	140,000
Patent	120,000	20,000	100,000	20,000	80,000	20,000	60,000	20,000	40,000
Goodwill	400,000	0	400,000	0	400,000	0	400,000	0	400,000
	740,000	40,000	700,000	40,000	660,000	40,000	620,000	40,000	580,000

80%
PPE, net	176,000	16,000	160,000	16,000	144,000	16,000	128,000	16,000	112,000
Patent	96,000	16,000	80,000	16,000	64,000	16,000	48,000	16,000	32,000
Goodwill	320,000	0	320,000	0	320,000	0	320,000	0	320,000
	592,000	32,000	560,000	32,000	528,000	32,000	496,000	32,000	464,000

20%
PPE, net	44,000	4,000	40,000	4,000	36,000	4,000	32,000	4,000	28,000
Patent	24,000	4,000	20,000	4,000	16,000	4,0000	12,000	4,000	8,000
Goodwill	80,000	0	80,000	0	80,000	0	80,000	0	80,000
	148,000	8,000	140,000	8,000	132,000	8,000	124,000	8,000	116,000

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 1/1/16	37,500	0
Intercompany profit on 12/31/16	30,000	0

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 1/1/16:
	80% x book value of the net assets of subsidiary	904,000
	Add: unamortized (80%) AAP	496,000
	Less: 100% of downstream deferred intercompany profits	(37,500)
	Less: 80% of upstream deferred intercompany profits	0
		1,362,500

	Equity Investment account at 12/31/16:
	80% x book value of the net assets of subsidiary	920,000
	Add: unamortized (p%) AAP	464,000
	Less: 100% of downstream deferred intercompany profits	(30,000)
	Less: 80% of upstream deferred intercompany profits	0
		1,354,000

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 1/1/16	1,362,500
80% Net Income	80,000	64,000	80% Dividends
100% BOY D-S inventory profits	37,500	32,000	80% AAP Amortization
		30,000	100% EOY D-S inventory profits
Equity Investment at 12/31/16	1,354,000

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 1/1/16:
	20% of book value of the net assets of subsidiary	226,000
	Add: 20% unamortized AAP	124,000
		350,000

	Non-controlling interest at 12/31/16:
	20% of book value of the net assets of subsidiary	230,000
	Add: 20% unamortized AAP	116,000
		346,000

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	600,000
	Plus: 100% realized downstream deferred profits	37,500
	Less: 100% unrealized downstream deferred profits	(30,000)
	Parent's adjusted stand-alone net income	607,500

	Subsidiary's stand-alone net income	100,000
	Less: 100% AAP amortization	(40,000)
	Subsidiary's adjusted stand-alone net income	60,000
	Consolidated net income	667,500

	Parent's stand-alone net income	600,000
	Plus: 100% realized downstream deferred profits	37,500
	Less: 100% unrealized downstream deferred profits	(30,000)
	Parent's adjusted stand-alone net income	607,500

	80% of subsidiary's stand-alone net income	80,000
	Less: 80% AAP amortization	(32,000)
	80% of subsidiary's stand-alone net income	48,000
	Consolidated net income attributable to the controlling interest	655,500

	20% of subsidiary's stand-alone net income	20,000
	Less: 20% AAP amortization	(8,000)
	Consolidated net income attributable to the non-controlling interest	12,000

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 income		$55,500
	Consol. NI attributable to NCI		$12,000
	Equity investment		$8,500
	Non-controlling interest		$4,000
	Dividends			$80,000
	(Eliminates the change in the investment account of AAP adjusted changes in SE(S))

	[E] Common Stock (S) @ BOY		$100,000
	APIC (S) @BOY		$430,000
	Retained Earnings (S) @BOY		$600,000
	Equity Investment @BOY			$904,000
	Non-controlling interest (@BOY)			$226,000
	(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account)

	[A] PPE, net @ BOY (100% AAP)		$160,000
	Patent, net @ BOY (100% AAP)		$60,000
	Goodwill @ BOY (100% AAP)		$400,000
	Equity Investment @ BOY (AAP)			$496,000
	Non-controlling interest			$124,000
	(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.)		$40,000
	PPE, net (for 100% AAP amort.)			$20,000
	Patent, net @ BOY (100% AAP)			$20,000
	(To record depreciation and amortization expense for the AAP assets)

	[I_cogs] Equity investment		$37,500
	Cost of goods sold			$37,500
	(Recognition of deferred gain on inventory sale and proration between parent and subsidiary)

	[I_sales] Sales		$400,000
	Cost of goods sold			$400,000
	(Elimination of 100% of all intercompany transactions)

	[I_cogs] Cost of goods sold		$30,000
	Inventory			$30,000
	(Deferral of gross profit on this year inventory sales)

	[I_pay] Accounts payable		$50,000
	Accounts receivable			$50,000
	(Elimination of intercompany receivable and payable)

The consolidated spreadsheet is shown below:

	Parent	Subsidiary		Dr	Cr		Consol
Income Statement:
Sales	6,000,000	1,000,000	[I_sales]	400,000			6,600,000
Cost of Goods sold	(4,500,000)	(600,000)	[I_cogs]	30,000	400,000	[I_sales]	(4,692,500)
					37,500	[I_cogs]
Gross profit	1,350,000	400,000					1,907,500
Income (loss) from subsidiary	55,500		[C]	55,500			0
Operating expenses	(900,000)	(300,000)	[D]	40,000			(1,240,000)
Net Income	655,500	100,000					667,500
Consolidated NI attrib to NCI			[C]	12,000			(12,000)
Consolidated NI attrib to CI							556,200

Statement of Ret Earnings:
BOY retained earnings	2,000,000	600,000	[E]	600,000			2,000,000
Net income	655,500	100,000					655,500
Dividends	(200,000)	(80,000)			80,000	[C]	(200,000)
EOY retained earnings	2,455,500	620,000					2,455,500

Balance Sheet:
Cash	500,000	50,000					550,000
Accounts receivable	750,000	300,000			50,000	[I_pay]	1,000,000
Inventory	1,000,000	400,000			30,000	[I_cogs]	1,370,000
Equity investment	1,354,000		[C]	8,500			0
			[I_cogs]	37,500	904,000	[E]
					496,000	[A]
PPE, net	3,000,000	1,000,000	[A]	160,000	20,000	[D]	4,140,000
Patent			[A]	60,000	20,000	[D]	40,000
Goodwill			[A]	400,000			400,000
	6,604,000	1,750,000					7,500,000

Current liabilities	648,500	100,000	[I_pay]	50,000			698,500
Long-term liabilities	2,000,000	500,000					2,500,000
Common stock	500,000	100,000	[E]	100,000			500,000
APIC	1,000,000	430,000	[E]	430,000			1,000,000
Retained earnings	2,455,500	620,000					2,455,500
Non-controlling interest			[C]	4,000	226,000	[E]	346,000
					124,000	[A]
	6,604,000	1,750,000		2,387,500	2,387,500		7,500,000

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Soln

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 58P

a.

To determine

Disaggregate and document the AAP 100 percent activity, 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	2009	AAP	2010	AAP	2011	AAP	2012
100%	1/1/2009	Amort	12/31/2009	Amort	12/31/2010	Amort	12/31/2011	Amort
PPE, net	300,000	20,000	280,000	20,000	260,000	20,000	240,000	20,000
Patent	200,000	20,000	180,000	20,000	160,000	20,000	140,000	20,000
Goodwill	400,000	0	400,000	0	400,000	0	400,000	0
	900,000	40,000	860,000	40,000	820,000	40,000	780,000	40,000

80%
PPE, net	240,000	16,000	218,700	16,000	208,000	16,000	192,000	16,000
Patent	160,000	16,000	144,000	16,000	128,000	16,000	112,000	16,000
Goodwill	320,000	0	320,000	0	320,000	0	320,000	0
	720,000	32,000	688,000	32,000	656,000	32,000	624,000	32,000

20%
PPE, net	60,000	4,000	56,000	4,000	52,000	4,000	48,000	4,000
Patent	40,000	4,000	36,000	4,000	52,000	4,000	28,000	4,000
Goodwill	80,000	0	80,000	0	80,000	0	80,000	0
	180,000	8,000	172,000	5,400	164,000	8,000	156,000	8,000

	Unamort		Unamort		Unamort		Unamort		Unamort
	AAP	2013	AAP	2014	AAP	2015	AAP	2016	AAP
100%	12/31/2012	Amort	12/31/2013	Amort	12/31/2014	Amort	12/31/2015	Amort	12/31/2016
PPE, net	220,000	20,000	200,000	20,000	180,000	20,000	160,000	20,000	140,000
Patent	120,000	20,000	100,000	20,000	80,000	20,000	60,000	20,000	40,000
Goodwill	400,000	0	400,000	0	400,000	0	400,000	0	400,000
	740,000	40,000	700,000	40,000	660,000	40,000	620,000	40,000	580,000

80%
PPE, net	176,000	16,000	160,000	16,000	144,000	16,000	128,000	16,000	112,000
Patent	96,000	16,000	80,000	16,000	64,000	16,000	48,000	16,000	32,000
Goodwill	320,000	0	320,000	0	320,000	0	320,000	0	320,000
	592,000	32,000	560,000	32,000	528,000	32,000	496,000	32,000	464,000

20%
PPE, net	44,000	4,000	40,000	4,000	36,000	4,000	32,000	4,000	28,000
Patent	24,000	4,000	20,000	4,000	16,000	4,0000	12,000	4,000	8,000
Goodwill	80,000	0	80,000	0	80,000	0	80,000	0	80,000
	148,000	8,000	140,000	8,000	132,000	8,000	124,000	8,000	116,000

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 1/1/16	37,500	0
Intercompany profit on 12/31/16	30,000	0

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 1/1/16:
	80% x book value of the net assets of subsidiary	904,000
	Add: unamortized (80%) AAP	496,000
	Less: 100% of downstream deferred intercompany profits	(37,500)
	Less: 80% of upstream deferred intercompany profits	0
		1,362,500

	Equity Investment account at 12/31/16:
	80% x book value of the net assets of subsidiary	920,000
	Add: unamortized (p%) AAP	464,000
	Less: 100% of downstream deferred intercompany profits	(30,000)
	Less: 80% of upstream deferred intercompany profits	0
		1,354,000

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 1/1/16	1,362,500
80% Net Income	80,000	64,000	80% Dividends
100% BOY D-S inventory profits	37,500	32,000	80% AAP Amortization
		30,000	100% EOY D-S inventory profits
Equity Investment at 12/31/16	1,354,000

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 1/1/16:
	20% of book value of the net assets of subsidiary	226,000
	Add: 20% unamortized AAP	124,000
		350,000

	Non-controlling interest at 12/31/16:
	20% of book value of the net assets of subsidiary	230,000
	Add: 20% unamortized AAP	116,000
		346,000

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	600,000
	Plus: 100% realized downstream deferred profits	37,500
	Less: 100% unrealized downstream deferred profits	(30,000)
	Parent's adjusted stand-alone net income	607,500

	Subsidiary's stand-alone net income	100,000
	Less: 100% AAP amortization	(40,000)
	Subsidiary's adjusted stand-alone net income	60,000
	Consolidated net income	667,500

	Parent's stand-alone net income	600,000
	Plus: 100% realized downstream deferred profits	37,500
	Less: 100% unrealized downstream deferred profits	(30,000)
	Parent's adjusted stand-alone net income	607,500

	80% of subsidiary's stand-alone net income	80,000
	Less: 80% AAP amortization	(32,000)
	80% of subsidiary's stand-alone net income	48,000
	Consolidated net income attributable to the controlling interest	655,500

	20% of subsidiary's stand-alone net income	20,000
	Less: 20% AAP amortization	(8,000)
	Consolidated net income attributable to the non-controlling interest	12,000

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 income		$55,500
	Consol. NI attributable to NCI		$12,000
	Equity investment		$8,500
	Non-controlling interest		$4,000
	Dividends			$80,000
	(Eliminates the change in the investment account of AAP adjusted changes in SE(S))

	[E] Common Stock (S) @ BOY		$100,000
	APIC (S) @BOY		$430,000
	Retained Earnings (S) @BOY		$600,000
	Equity Investment @BOY			$904,000
	Non-controlling interest (@BOY)			$226,000
	(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account)

	[A] PPE, net @ BOY (100% AAP)		$160,000
	Patent, net @ BOY (100% AAP)		$60,000
	Goodwill @ BOY (100% AAP)		$400,000
	Equity Investment @ BOY (AAP)			$496,000
	Non-controlling interest			$124,000
	(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.)		$40,000
	PPE, net (for 100% AAP amort.)			$20,000
	Patent, net @ BOY (100% AAP)			$20,000
	(To record depreciation and amortization expense for the AAP assets)

	[I_cogs] Equity investment		$37,500
	Cost of goods sold			$37,500
	(Recognition of deferred gain on inventory sale and proration between parent and subsidiary)

	[I_sales] Sales		$400,000
	Cost of goods sold			$400,000
	(Elimination of 100% of all intercompany transactions)

	[I_cogs] Cost of goods sold		$30,000
	Inventory			$30,000
	(Deferral of gross profit on this year inventory sales)

	[I_pay] Accounts payable		$50,000
	Accounts receivable			$50,000
	(Elimination of intercompany receivable and payable)

The consolidated spreadsheet is shown below:

	Parent	Subsidiary		Dr	Cr		Consol
Income Statement:
Sales	6,000,000	1,000,000	[I_sales]	400,000			6,600,000
Cost of Goods sold	(4,500,000)	(600,000)	[I_cogs]	30,000	400,000	[I_sales]	(4,692,500)
					37,500	[I_cogs]
Gross profit	1,350,000	400,000					1,907,500
Income (loss) from subsidiary	55,500		[C]	55,500			0
Operating expenses	(900,000)	(300,000)	[D]	40,000			(1,240,000)
Net Income	655,500	100,000					667,500
Consolidated NI attrib to NCI			[C]	12,000			(12,000)
Consolidated NI attrib to CI							556,200

Statement of Ret Earnings:
BOY retained earnings	2,000,000	600,000	[E]	600,000			2,000,000
Net income	655,500	100,000					655,500
Dividends	(200,000)	(80,000)			80,000	[C]	(200,000)
EOY retained earnings	2,455,500	620,000					2,455,500

Balance Sheet:
Cash	500,000	50,000					550,000
Accounts receivable	750,000	300,000			50,000	[I_pay]	1,000,000
Inventory	1,000,000	400,000			30,000	[I_cogs]	1,370,000
Equity investment	1,354,000		[C]	8,500			0
			[I_cogs]	37,500	904,000	[E]
					496,000	[A]
PPE, net	3,000,000	1,000,000	[A]	160,000	20,000	[D]	4,140,000
Patent			[A]	60,000	20,000	[D]	40,000
Goodwill			[A]	400,000			400,000
	6,604,000	1,750,000					7,500,000

Current liabilities	648,500	100,000	[I_pay]	50,000			698,500
Long-term liabilities	2,000,000	500,000					2,500,000
Common stock	500,000	100,000	[E]	100,000			500,000
APIC	1,000,000	430,000	[E]	430,000			1,000,000
Retained earnings	2,455,500	620,000					2,455,500
Non-controlling interest			[C]	4,000	226,000	[E]	346,000
					124,000	[A]
	6,604,000	1,750,000		2,387,500	2,387,500		7,500,000

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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 58P

a.

To determine

Disaggregate and document the AAP 100 percent activity, 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	2009	AAP	2010	AAP	2011	AAP	2012
100%	1/1/2009	Amort	12/31/2009	Amort	12/31/2010	Amort	12/31/2011	Amort
PPE, net	300,000	20,000	280,000	20,000	260,000	20,000	240,000	20,000
Patent	200,000	20,000	180,000	20,000	160,000	20,000	140,000	20,000
Goodwill	400,000	0	400,000	0	400,000	0	400,000	0
	900,000	40,000	860,000	40,000	820,000	40,000	780,000	40,000

80%
PPE, net	240,000	16,000	218,700	16,000	208,000	16,000	192,000	16,000
Patent	160,000	16,000	144,000	16,000	128,000	16,000	112,000	16,000
Goodwill	320,000	0	320,000	0	320,000	0	320,000	0
	720,000	32,000	688,000	32,000	656,000	32,000	624,000	32,000

20%
PPE, net	60,000	4,000	56,000	4,000	52,000	4,000	48,000	4,000
Patent	40,000	4,000	36,000	4,000	52,000	4,000	28,000	4,000
Goodwill	80,000	0	80,000	0	80,000	0	80,000	0
	180,000	8,000	172,000	5,400	164,000	8,000	156,000	8,000

	Unamort		Unamort		Unamort		Unamort		Unamort
	AAP	2013	AAP	2014	AAP	2015	AAP	2016	AAP
100%	12/31/2012	Amort	12/31/2013	Amort	12/31/2014	Amort	12/31/2015	Amort	12/31/2016
PPE, net	220,000	20,000	200,000	20,000	180,000	20,000	160,000	20,000	140,000
Patent	120,000	20,000	100,000	20,000	80,000	20,000	60,000	20,000	40,000
Goodwill	400,000	0	400,000	0	400,000	0	400,000	0	400,000
	740,000	40,000	700,000	40,000	660,000	40,000	620,000	40,000	580,000

80%
PPE, net	176,000	16,000	160,000	16,000	144,000	16,000	128,000	16,000	112,000
Patent	96,000	16,000	80,000	16,000	64,000	16,000	48,000	16,000	32,000
Goodwill	320,000	0	320,000	0	320,000	0	320,000	0	320,000
	592,000	32,000	560,000	32,000	528,000	32,000	496,000	32,000	464,000

20%
PPE, net	44,000	4,000	40,000	4,000	36,000	4,000	32,000	4,000	28,000
Patent	24,000	4,000	20,000	4,000	16,000	4,0000	12,000	4,000	8,000
Goodwill	80,000	0	80,000	0	80,000	0	80,000	0	80,000
	148,000	8,000	140,000	8,000	132,000	8,000	124,000	8,000	116,000

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 1/1/16	37,500	0
Intercompany profit on 12/31/16	30,000	0

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 1/1/16:
	80% x book value of the net assets of subsidiary	904,000
	Add: unamortized (80%) AAP	496,000
	Less: 100% of downstream deferred intercompany profits	(37,500)
	Less: 80% of upstream deferred intercompany profits	0
		1,362,500

	Equity Investment account at 12/31/16:
	80% x book value of the net assets of subsidiary	920,000
	Add: unamortized (p%) AAP	464,000
	Less: 100% of downstream deferred intercompany profits	(30,000)
	Less: 80% of upstream deferred intercompany profits	0
		1,354,000

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 1/1/16	1,362,500
80% Net Income	80,000	64,000	80% Dividends
100% BOY D-S inventory profits	37,500	32,000	80% AAP Amortization
		30,000	100% EOY D-S inventory profits
Equity Investment at 12/31/16	1,354,000

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 1/1/16:
	20% of book value of the net assets of subsidiary	226,000
	Add: 20% unamortized AAP	124,000
		350,000

	Non-controlling interest at 12/31/16:
	20% of book value of the net assets of subsidiary	230,000
	Add: 20% unamortized AAP	116,000
		346,000

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	600,000
	Plus: 100% realized downstream deferred profits	37,500
	Less: 100% unrealized downstream deferred profits	(30,000)
	Parent's adjusted stand-alone net income	607,500

	Subsidiary's stand-alone net income	100,000
	Less: 100% AAP amortization	(40,000)
	Subsidiary's adjusted stand-alone net income	60,000
	Consolidated net income	667,500

	Parent's stand-alone net income	600,000
	Plus: 100% realized downstream deferred profits	37,500
	Less: 100% unrealized downstream deferred profits	(30,000)
	Parent's adjusted stand-alone net income	607,500

	80% of subsidiary's stand-alone net income	80,000
	Less: 80% AAP amortization	(32,000)
	80% of subsidiary's stand-alone net income	48,000
	Consolidated net income attributable to the controlling interest	655,500

	20% of subsidiary's stand-alone net income	20,000
	Less: 20% AAP amortization	(8,000)
	Consolidated net income attributable to the non-controlling interest	12,000

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 income		$55,500
	Consol. NI attributable to NCI		$12,000
	Equity investment		$8,500
	Non-controlling interest		$4,000
	Dividends			$80,000
	(Eliminates the change in the investment account of AAP adjusted changes in SE(S))

	[E] Common Stock (S) @ BOY		$100,000
	APIC (S) @BOY		$430,000
	Retained Earnings (S) @BOY		$600,000
	Equity Investment @BOY			$904,000
	Non-controlling interest (@BOY)			$226,000
	(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account)

	[A] PPE, net @ BOY (100% AAP)		$160,000
	Patent, net @ BOY (100% AAP)		$60,000
	Goodwill @ BOY (100% AAP)		$400,000
	Equity Investment @ BOY (AAP)			$496,000
	Non-controlling interest			$124,000
	(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.)		$40,000
	PPE, net (for 100% AAP amort.)			$20,000
	Patent, net @ BOY (100% AAP)			$20,000
	(To record depreciation and amortization expense for the AAP assets)

	[I_cogs] Equity investment		$37,500
	Cost of goods sold			$37,500
	(Recognition of deferred gain on inventory sale and proration between parent and subsidiary)

	[I_sales] Sales		$400,000
	Cost of goods sold			$400,000
	(Elimination of 100% of all intercompany transactions)

	[I_cogs] Cost of goods sold		$30,000
	Inventory			$30,000
	(Deferral of gross profit on this year inventory sales)

	[I_pay] Accounts payable		$50,000
	Accounts receivable			$50,000
	(Elimination of intercompany receivable and payable)

The consolidated spreadsheet is shown below:

	Parent	Subsidiary		Dr	Cr		Consol
Income Statement:
Sales	6,000,000	1,000,000	[I_sales]	400,000			6,600,000
Cost of Goods sold	(4,500,000)	(600,000)	[I_cogs]	30,000	400,000	[I_sales]	(4,692,500)
					37,500	[I_cogs]
Gross profit	1,350,000	400,000					1,907,500
Income (loss) from subsidiary	55,500		[C]	55,500			0
Operating expenses	(900,000)	(300,000)	[D]	40,000			(1,240,000)
Net Income	655,500	100,000					667,500
Consolidated NI attrib to NCI			[C]	12,000			(12,000)
Consolidated NI attrib to CI							556,200

Statement of Ret Earnings:
BOY retained earnings	2,000,000	600,000	[E]	600,000			2,000,000
Net income	655,500	100,000					655,500
Dividends	(200,000)	(80,000)			80,000	[C]	(200,000)
EOY retained earnings	2,455,500	620,000					2,455,500

Balance Sheet:
Cash	500,000	50,000					550,000
Accounts receivable	750,000	300,000			50,000	[I_pay]	1,000,000
Inventory	1,000,000	400,000			30,000	[I_cogs]	1,370,000
Equity investment	1,354,000		[C]	8,500			0
			[I_cogs]	37,500	904,000	[E]
					496,000	[A]
PPE, net	3,000,000	1,000,000	[A]	160,000	20,000	[D]	4,140,000
Patent			[A]	60,000	20,000	[D]	40,000
Goodwill			[A]	400,000			400,000
	6,604,000	1,750,000					7,500,000

Current liabilities	648,500	100,000	[I_pay]	50,000			698,500
Long-term liabilities	2,000,000	500,000					2,500,000
Common stock	500,000	100,000	[E]	100,000			500,000
APIC	1,000,000	430,000	[E]	430,000			1,000,000
Retained earnings	2,455,500	620,000					2,455,500
Non-controlling interest			[C]	4,000	226,000	[E]	346,000
					124,000	[A]
	6,604,000	1,750,000		2,387,500	2,387,500		7,500,000

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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 58P

a.

To determine

Disaggregate and document the AAP 100 percent activity, 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	2009	AAP	2010	AAP	2011	AAP	2012
100%	1/1/2009	Amort	12/31/2009	Amort	12/31/2010	Amort	12/31/2011	Amort
PPE, net	300,000	20,000	280,000	20,000	260,000	20,000	240,000	20,000
Patent	200,000	20,000	180,000	20,000	160,000	20,000	140,000	20,000
Goodwill	400,000	0	400,000	0	400,000	0	400,000	0
	900,000	40,000	860,000	40,000	820,000	40,000	780,000	40,000

80%
PPE, net	240,000	16,000	218,700	16,000	208,000	16,000	192,000	16,000
Patent	160,000	16,000	144,000	16,000	128,000	16,000	112,000	16,000
Goodwill	320,000	0	320,000	0	320,000	0	320,000	0
	720,000	32,000	688,000	32,000	656,000	32,000	624,000	32,000

20%
PPE, net	60,000	4,000	56,000	4,000	52,000	4,000	48,000	4,000
Patent	40,000	4,000	36,000	4,000	52,000	4,000	28,000	4,000
Goodwill	80,000	0	80,000	0	80,000	0	80,000	0
	180,000	8,000	172,000	5,400	164,000	8,000	156,000	8,000

	Unamort		Unamort		Unamort		Unamort		Unamort
	AAP	2013	AAP	2014	AAP	2015	AAP	2016	AAP
100%	12/31/2012	Amort	12/31/2013	Amort	12/31/2014	Amort	12/31/2015	Amort	12/31/2016
PPE, net	220,000	20,000	200,000	20,000	180,000	20,000	160,000	20,000	140,000
Patent	120,000	20,000	100,000	20,000	80,000	20,000	60,000	20,000	40,000
Goodwill	400,000	0	400,000	0	400,000	0	400,000	0	400,000
	740,000	40,000	700,000	40,000	660,000	40,000	620,000	40,000	580,000

80%
PPE, net	176,000	16,000	160,000	16,000	144,000	16,000	128,000	16,000	112,000
Patent	96,000	16,000	80,000	16,000	64,000	16,000	48,000	16,000	32,000
Goodwill	320,000	0	320,000	0	320,000	0	320,000	0	320,000
	592,000	32,000	560,000	32,000	528,000	32,000	496,000	32,000	464,000

20%
PPE, net	44,000	4,000	40,000	4,000	36,000	4,000	32,000	4,000	28,000
Patent	24,000	4,000	20,000	4,000	16,000	4,0000	12,000	4,000	8,000
Goodwill	80,000	0	80,000	0	80,000	0	80,000	0	80,000
	148,000	8,000	140,000	8,000	132,000	8,000	124,000	8,000	116,000

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 1/1/16	37,500	0
Intercompany profit on 12/31/16	30,000	0

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 1/1/16:
	80% x book value of the net assets of subsidiary	904,000
	Add: unamortized (80%) AAP	496,000
	Less: 100% of downstream deferred intercompany profits	(37,500)
	Less: 80% of upstream deferred intercompany profits	0
		1,362,500

	Equity Investment account at 12/31/16:
	80% x book value of the net assets of subsidiary	920,000
	Add: unamortized (p%) AAP	464,000
	Less: 100% of downstream deferred intercompany profits	(30,000)
	Less: 80% of upstream deferred intercompany profits	0
		1,354,000

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 1/1/16	1,362,500
80% Net Income	80,000	64,000	80% Dividends
100% BOY D-S inventory profits	37,500	32,000	80% AAP Amortization
		30,000	100% EOY D-S inventory profits
Equity Investment at 12/31/16	1,354,000

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 1/1/16:
	20% of book value of the net assets of subsidiary	226,000
	Add: 20% unamortized AAP	124,000
		350,000

	Non-controlling interest at 12/31/16:
	20% of book value of the net assets of subsidiary	230,000
	Add: 20% unamortized AAP	116,000
		346,000

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	600,000
	Plus: 100% realized downstream deferred profits	37,500
	Less: 100% unrealized downstream deferred profits	(30,000)
	Parent's adjusted stand-alone net income	607,500

	Subsidiary's stand-alone net income	100,000
	Less: 100% AAP amortization	(40,000)
	Subsidiary's adjusted stand-alone net income	60,000
	Consolidated net income	667,500

	Parent's stand-alone net income	600,000
	Plus: 100% realized downstream deferred profits	37,500
	Less: 100% unrealized downstream deferred profits	(30,000)
	Parent's adjusted stand-alone net income	607,500

	80% of subsidiary's stand-alone net income	80,000
	Less: 80% AAP amortization	(32,000)
	80% of subsidiary's stand-alone net income	48,000
	Consolidated net income attributable to the controlling interest	655,500

	20% of subsidiary's stand-alone net income	20,000
	Less: 20% AAP amortization	(8,000)
	Consolidated net income attributable to the non-controlling interest	12,000

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 income		$55,500
	Consol. NI attributable to NCI		$12,000
	Equity investment		$8,500
	Non-controlling interest		$4,000
	Dividends			$80,000
	(Eliminates the change in the investment account of AAP adjusted changes in SE(S))

	[E] Common Stock (S) @ BOY		$100,000
	APIC (S) @BOY		$430,000
	Retained Earnings (S) @BOY		$600,000
	Equity Investment @BOY			$904,000
	Non-controlling interest (@BOY)			$226,000
	(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account)

	[A] PPE, net @ BOY (100% AAP)		$160,000
	Patent, net @ BOY (100% AAP)		$60,000
	Goodwill @ BOY (100% AAP)		$400,000
	Equity Investment @ BOY (AAP)			$496,000
	Non-controlling interest			$124,000
	(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.)		$40,000
	PPE, net (for 100% AAP amort.)			$20,000
	Patent, net @ BOY (100% AAP)			$20,000
	(To record depreciation and amortization expense for the AAP assets)

	[I_cogs] Equity investment		$37,500
	Cost of goods sold			$37,500
	(Recognition of deferred gain on inventory sale and proration between parent and subsidiary)

	[I_sales] Sales		$400,000
	Cost of goods sold			$400,000
	(Elimination of 100% of all intercompany transactions)

	[I_cogs] Cost of goods sold		$30,000
	Inventory			$30,000
	(Deferral of gross profit on this year inventory sales)

	[I_pay] Accounts payable		$50,000
	Accounts receivable			$50,000
	(Elimination of intercompany receivable and payable)

The consolidated spreadsheet is shown below:

	Parent	Subsidiary		Dr	Cr		Consol
Income Statement:
Sales	6,000,000	1,000,000	[I_sales]	400,000			6,600,000
Cost of Goods sold	(4,500,000)	(600,000)	[I_cogs]	30,000	400,000	[I_sales]	(4,692,500)
					37,500	[I_cogs]
Gross profit	1,350,000	400,000					1,907,500
Income (loss) from subsidiary	55,500		[C]	55,500			0
Operating expenses	(900,000)	(300,000)	[D]	40,000			(1,240,000)
Net Income	655,500	100,000					667,500
Consolidated NI attrib to NCI			[C]	12,000			(12,000)
Consolidated NI attrib to CI							556,200

Statement of Ret Earnings:
BOY retained earnings	2,000,000	600,000	[E]	600,000			2,000,000
Net income	655,500	100,000					655,500
Dividends	(200,000)	(80,000)			80,000	[C]	(200,000)
EOY retained earnings	2,455,500	620,000					2,455,500

Balance Sheet:
Cash	500,000	50,000					550,000
Accounts receivable	750,000	300,000			50,000	[I_pay]	1,000,000
Inventory	1,000,000	400,000			30,000	[I_cogs]	1,370,000
Equity investment	1,354,000		[C]	8,500			0
			[I_cogs]	37,500	904,000	[E]
					496,000	[A]
PPE, net	3,000,000	1,000,000	[A]	160,000	20,000	[D]	4,140,000
Patent			[A]	60,000	20,000	[D]	40,000
Goodwill			[A]	400,000			400,000
	6,604,000	1,750,000					7,500,000

Current liabilities	648,500	100,000	[I_pay]	50,000			698,500
Long-term liabilities	2,000,000	500,000					2,500,000
Common stock	500,000	100,000	[E]	100,000			500,000
APIC	1,000,000	430,000	[E]	430,000			1,000,000
Retained earnings	2,455,500	620,000					2,455,500
Non-controlling interest			[C]	4,000	226,000	[E]	346,000
					124,000	[A]
	6,604,000	1,750,000		2,387,500	2,387,500		7,500,000

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Answer 5

Chapter 5, Problem 58P

a.

To determine

Disaggregate and document the AAP 100 percent activity, 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	2009	AAP	2010	AAP	2011	AAP	2012
100%	1/1/2009	Amort	12/31/2009	Amort	12/31/2010	Amort	12/31/2011	Amort
PPE, net	300,000	20,000	280,000	20,000	260,000	20,000	240,000	20,000
Patent	200,000	20,000	180,000	20,000	160,000	20,000	140,000	20,000
Goodwill	400,000	0	400,000	0	400,000	0	400,000	0
	900,000	40,000	860,000	40,000	820,000	40,000	780,000	40,000

80%
PPE, net	240,000	16,000	218,700	16,000	208,000	16,000	192,000	16,000
Patent	160,000	16,000	144,000	16,000	128,000	16,000	112,000	16,000
Goodwill	320,000	0	320,000	0	320,000	0	320,000	0
	720,000	32,000	688,000	32,000	656,000	32,000	624,000	32,000

20%
PPE, net	60,000	4,000	56,000	4,000	52,000	4,000	48,000	4,000
Patent	40,000	4,000	36,000	4,000	52,000	4,000	28,000	4,000
Goodwill	80,000	0	80,000	0	80,000	0	80,000	0
	180,000	8,000	172,000	5,400	164,000	8,000	156,000	8,000

	Unamort		Unamort		Unamort		Unamort		Unamort
	AAP	2013	AAP	2014	AAP	2015	AAP	2016	AAP
100%	12/31/2012	Amort	12/31/2013	Amort	12/31/2014	Amort	12/31/2015	Amort	12/31/2016
PPE, net	220,000	20,000	200,000	20,000	180,000	20,000	160,000	20,000	140,000
Patent	120,000	20,000	100,000	20,000	80,000	20,000	60,000	20,000	40,000
Goodwill	400,000	0	400,000	0	400,000	0	400,000	0	400,000
	740,000	40,000	700,000	40,000	660,000	40,000	620,000	40,000	580,000

80%
PPE, net	176,000	16,000	160,000	16,000	144,000	16,000	128,000	16,000	112,000
Patent	96,000	16,000	80,000	16,000	64,000	16,000	48,000	16,000	32,000
Goodwill	320,000	0	320,000	0	320,000	0	320,000	0	320,000
	592,000	32,000	560,000	32,000	528,000	32,000	496,000	32,000	464,000

20%
PPE, net	44,000	4,000	40,000	4,000	36,000	4,000	32,000	4,000	28,000
Patent	24,000	4,000	20,000	4,000	16,000	4,0000	12,000	4,000	8,000
Goodwill	80,000	0	80,000	0	80,000	0	80,000	0	80,000
	148,000	8,000	140,000	8,000	132,000	8,000	124,000	8,000	116,000

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 1/1/16	37,500	0
Intercompany profit on 12/31/16	30,000	0

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 1/1/16:
	80% x book value of the net assets of subsidiary	904,000
	Add: unamortized (80%) AAP	496,000
	Less: 100% of downstream deferred intercompany profits	(37,500)
	Less: 80% of upstream deferred intercompany profits	0
		1,362,500

	Equity Investment account at 12/31/16:
	80% x book value of the net assets of subsidiary	920,000
	Add: unamortized (p%) AAP	464,000
	Less: 100% of downstream deferred intercompany profits	(30,000)
	Less: 80% of upstream deferred intercompany profits	0
		1,354,000

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 1/1/16	1,362,500
80% Net Income	80,000	64,000	80% Dividends
100% BOY D-S inventory profits	37,500	32,000	80% AAP Amortization
		30,000	100% EOY D-S inventory profits
Equity Investment at 12/31/16	1,354,000

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 1/1/16:
	20% of book value of the net assets of subsidiary	226,000
	Add: 20% unamortized AAP	124,000
		350,000

	Non-controlling interest at 12/31/16:
	20% of book value of the net assets of subsidiary	230,000
	Add: 20% unamortized AAP	116,000
		346,000

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	600,000
	Plus: 100% realized downstream deferred profits	37,500
	Less: 100% unrealized downstream deferred profits	(30,000)
	Parent's adjusted stand-alone net income	607,500

	Subsidiary's stand-alone net income	100,000
	Less: 100% AAP amortization	(40,000)
	Subsidiary's adjusted stand-alone net income	60,000
	Consolidated net income	667,500

	Parent's stand-alone net income	600,000
	Plus: 100% realized downstream deferred profits	37,500
	Less: 100% unrealized downstream deferred profits	(30,000)
	Parent's adjusted stand-alone net income	607,500

	80% of subsidiary's stand-alone net income	80,000
	Less: 80% AAP amortization	(32,000)
	80% of subsidiary's stand-alone net income	48,000
	Consolidated net income attributable to the controlling interest	655,500

	20% of subsidiary's stand-alone net income	20,000
	Less: 20% AAP amortization	(8,000)
	Consolidated net income attributable to the non-controlling interest	12,000

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 income		$55,500
	Consol. NI attributable to NCI		$12,000
	Equity investment		$8,500
	Non-controlling interest		$4,000
	Dividends			$80,000
	(Eliminates the change in the investment account of AAP adjusted changes in SE(S))

	[E] Common Stock (S) @ BOY		$100,000
	APIC (S) @BOY		$430,000
	Retained Earnings (S) @BOY		$600,000
	Equity Investment @BOY			$904,000
	Non-controlling interest (@BOY)			$226,000
	(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account)

	[A] PPE, net @ BOY (100% AAP)		$160,000
	Patent, net @ BOY (100% AAP)		$60,000
	Goodwill @ BOY (100% AAP)		$400,000
	Equity Investment @ BOY (AAP)			$496,000
	Non-controlling interest			$124,000
	(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.)		$40,000
	PPE, net (for 100% AAP amort.)			$20,000
	Patent, net @ BOY (100% AAP)			$20,000
	(To record depreciation and amortization expense for the AAP assets)

	[I_cogs] Equity investment		$37,500
	Cost of goods sold			$37,500
	(Recognition of deferred gain on inventory sale and proration between parent and subsidiary)

	[I_sales] Sales		$400,000
	Cost of goods sold			$400,000
	(Elimination of 100% of all intercompany transactions)

	[I_cogs] Cost of goods sold		$30,000
	Inventory			$30,000
	(Deferral of gross profit on this year inventory sales)

	[I_pay] Accounts payable		$50,000
	Accounts receivable			$50,000
	(Elimination of intercompany receivable and payable)

The consolidated spreadsheet is shown below:

	Parent	Subsidiary		Dr	Cr		Consol
Income Statement:
Sales	6,000,000	1,000,000	[I_sales]	400,000			6,600,000
Cost of Goods sold	(4,500,000)	(600,000)	[I_cogs]	30,000	400,000	[I_sales]	(4,692,500)
					37,500	[I_cogs]
Gross profit	1,350,000	400,000					1,907,500
Income (loss) from subsidiary	55,500		[C]	55,500			0
Operating expenses	(900,000)	(300,000)	[D]	40,000			(1,240,000)
Net Income	655,500	100,000					667,500
Consolidated NI attrib to NCI			[C]	12,000			(12,000)
Consolidated NI attrib to CI							556,200

Statement of Ret Earnings:
BOY retained earnings	2,000,000	600,000	[E]	600,000			2,000,000
Net income	655,500	100,000					655,500
Dividends	(200,000)	(80,000)			80,000	[C]	(200,000)
EOY retained earnings	2,455,500	620,000					2,455,500

Balance Sheet:
Cash	500,000	50,000					550,000
Accounts receivable	750,000	300,000			50,000	[I_pay]	1,000,000
Inventory	1,000,000	400,000			30,000	[I_cogs]	1,370,000
Equity investment	1,354,000		[C]	8,500			0
			[I_cogs]	37,500	904,000	[E]
					496,000	[A]
PPE, net	3,000,000	1,000,000	[A]	160,000	20,000	[D]	4,140,000
Patent			[A]	60,000	20,000	[D]	40,000
Goodwill			[A]	400,000			400,000
	6,604,000	1,750,000					7,500,000

Current liabilities	648,500	100,000	[I_pay]	50,000			698,500
Long-term liabilities	2,000,000	500,000					2,500,000
Common stock	500,000	100,000	[E]	100,000			500,000
APIC	1,000,000	430,000	[E]	430,000			1,000,000
Retained earnings	2,455,500	620,000					2,455,500
Non-controlling interest			[C]	4,000	226,000	[E]	346,000
					124,000	[A]
	6,604,000	1,750,000		2,387,500	2,387,500		7,500,000

Answer 6

Chapter 5, Problem 58P

a.

To determine

Disaggregate and document the AAP 100 percent activity, 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	2009	AAP	2010	AAP	2011	AAP	2012
100%	1/1/2009	Amort	12/31/2009	Amort	12/31/2010	Amort	12/31/2011	Amort
PPE, net	300,000	20,000	280,000	20,000	260,000	20,000	240,000	20,000
Patent	200,000	20,000	180,000	20,000	160,000	20,000	140,000	20,000
Goodwill	400,000	0	400,000	0	400,000	0	400,000	0
	900,000	40,000	860,000	40,000	820,000	40,000	780,000	40,000

80%
PPE, net	240,000	16,000	218,700	16,000	208,000	16,000	192,000	16,000
Patent	160,000	16,000	144,000	16,000	128,000	16,000	112,000	16,000
Goodwill	320,000	0	320,000	0	320,000	0	320,000	0
	720,000	32,000	688,000	32,000	656,000	32,000	624,000	32,000

20%
PPE, net	60,000	4,000	56,000	4,000	52,000	4,000	48,000	4,000
Patent	40,000	4,000	36,000	4,000	52,000	4,000	28,000	4,000
Goodwill	80,000	0	80,000	0	80,000	0	80,000	0
	180,000	8,000	172,000	5,400	164,000	8,000	156,000	8,000

	Unamort		Unamort		Unamort		Unamort		Unamort
	AAP	2013	AAP	2014	AAP	2015	AAP	2016	AAP
100%	12/31/2012	Amort	12/31/2013	Amort	12/31/2014	Amort	12/31/2015	Amort	12/31/2016
PPE, net	220,000	20,000	200,000	20,000	180,000	20,000	160,000	20,000	140,000
Patent	120,000	20,000	100,000	20,000	80,000	20,000	60,000	20,000	40,000
Goodwill	400,000	0	400,000	0	400,000	0	400,000	0	400,000
	740,000	40,000	700,000	40,000	660,000	40,000	620,000	40,000	580,000

80%
PPE, net	176,000	16,000	160,000	16,000	144,000	16,000	128,000	16,000	112,000
Patent	96,000	16,000	80,000	16,000	64,000	16,000	48,000	16,000	32,000
Goodwill	320,000	0	320,000	0	320,000	0	320,000	0	320,000
	592,000	32,000	560,000	32,000	528,000	32,000	496,000	32,000	464,000

20%
PPE, net	44,000	4,000	40,000	4,000	36,000	4,000	32,000	4,000	28,000
Patent	24,000	4,000	20,000	4,000	16,000	4,0000	12,000	4,000	8,000
Goodwill	80,000	0	80,000	0	80,000	0	80,000	0	80,000
	148,000	8,000	140,000	8,000	132,000	8,000	124,000	8,000	116,000

Answer 7

Chapter 5, Problem 58P

a.

To determine

Disaggregate and document the AAP 100 percent activity, 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	2009	AAP	2010	AAP	2011	AAP	2012
100%	1/1/2009	Amort	12/31/2009	Amort	12/31/2010	Amort	12/31/2011	Amort
PPE, net	300,000	20,000	280,000	20,000	260,000	20,000	240,000	20,000
Patent	200,000	20,000	180,000	20,000	160,000	20,000	140,000	20,000
Goodwill	400,000	0	400,000	0	400,000	0	400,000	0
	900,000	40,000	860,000	40,000	820,000	40,000	780,000	40,000

80%
PPE, net	240,000	16,000	218,700	16,000	208,000	16,000	192,000	16,000
Patent	160,000	16,000	144,000	16,000	128,000	16,000	112,000	16,000
Goodwill	320,000	0	320,000	0	320,000	0	320,000	0
	720,000	32,000	688,000	32,000	656,000	32,000	624,000	32,000

20%
PPE, net	60,000	4,000	56,000	4,000	52,000	4,000	48,000	4,000
Patent	40,000	4,000	36,000	4,000	52,000	4,000	28,000	4,000
Goodwill	80,000	0	80,000	0	80,000	0	80,000	0
	180,000	8,000	172,000	5,400	164,000	8,000	156,000	8,000

	Unamort		Unamort		Unamort		Unamort		Unamort
	AAP	2013	AAP	2014	AAP	2015	AAP	2016	AAP
100%	12/31/2012	Amort	12/31/2013	Amort	12/31/2014	Amort	12/31/2015	Amort	12/31/2016
PPE, net	220,000	20,000	200,000	20,000	180,000	20,000	160,000	20,000	140,000
Patent	120,000	20,000	100,000	20,000	80,000	20,000	60,000	20,000	40,000
Goodwill	400,000	0	400,000	0	400,000	0	400,000	0	400,000
	740,000	40,000	700,000	40,000	660,000	40,000	620,000	40,000	580,000

80%
PPE, net	176,000	16,000	160,000	16,000	144,000	16,000	128,000	16,000	112,000
Patent	96,000	16,000	80,000	16,000	64,000	16,000	48,000	16,000	32,000
Goodwill	320,000	0	320,000	0	320,000	0	320,000	0	320,000
	592,000	32,000	560,000	32,000	528,000	32,000	496,000	32,000	464,000

20%
PPE, net	44,000	4,000	40,000	4,000	36,000	4,000	32,000	4,000	28,000
Patent	24,000	4,000	20,000	4,000	16,000	4,0000	12,000	4,000	8,000
Goodwill	80,000	0	80,000	0	80,000	0	80,000	0	80,000
	148,000	8,000	140,000	8,000	132,000	8,000	124,000	8,000	116,000

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 1/1/16	37,500	0
Intercompany profit on 12/31/16	30,000	0

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 1/1/16	37,500	0
Intercompany profit on 12/31/16	30,000	0

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 1/1/16:
	80% x book value of the net assets of subsidiary	904,000
	Add: unamortized (80%) AAP	496,000
	Less: 100% of downstream deferred intercompany profits	(37,500)
	Less: 80% of upstream deferred intercompany profits	0
		1,362,500

	Equity Investment account at 12/31/16:
	80% x book value of the net assets of subsidiary	920,000
	Add: unamortized (p%) AAP	464,000
	Less: 100% of downstream deferred intercompany profits	(30,000)
	Less: 80% of upstream deferred intercompany profits	0
		1,354,000

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 1/1/16:
	80% x book value of the net assets of subsidiary	904,000
	Add: unamortized (80%) AAP	496,000
	Less: 100% of downstream deferred intercompany profits	(37,500)
	Less: 80% of upstream deferred intercompany profits	0
		1,362,500

	Equity Investment account at 12/31/16:
	80% x book value of the net assets of subsidiary	920,000
	Add: unamortized (p%) AAP	464,000
	Less: 100% of downstream deferred intercompany profits	(30,000)
	Less: 80% of upstream deferred intercompany profits	0
		1,354,000

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 1/1/16	1,362,500
80% Net Income	80,000	64,000	80% Dividends
100% BOY D-S inventory profits	37,500	32,000	80% AAP Amortization
		30,000	100% EOY D-S inventory profits
Equity Investment at 12/31/16	1,354,000

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 1/1/16	1,362,500
80% Net Income	80,000	64,000	80% Dividends
100% BOY D-S inventory profits	37,500	32,000	80% AAP Amortization
		30,000	100% EOY D-S inventory profits
Equity Investment at 12/31/16	1,354,000

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 1/1/16:
	20% of book value of the net assets of subsidiary	226,000
	Add: 20% unamortized AAP	124,000
		350,000

	Non-controlling interest at 12/31/16:
	20% of book value of the net assets of subsidiary	230,000
	Add: 20% unamortized AAP	116,000
		346,000

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 1/1/16:
	20% of book value of the net assets of subsidiary	226,000
	Add: 20% unamortized AAP	124,000
		350,000

	Non-controlling interest at 12/31/16:
	20% of book value of the net assets of subsidiary	230,000
	Add: 20% unamortized AAP	116,000
		346,000

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	600,000
	Plus: 100% realized downstream deferred profits	37,500
	Less: 100% unrealized downstream deferred profits	(30,000)
	Parent's adjusted stand-alone net income	607,500

	Subsidiary's stand-alone net income	100,000
	Less: 100% AAP amortization	(40,000)
	Subsidiary's adjusted stand-alone net income	60,000
	Consolidated net income	667,500

	Parent's stand-alone net income	600,000
	Plus: 100% realized downstream deferred profits	37,500
	Less: 100% unrealized downstream deferred profits	(30,000)
	Parent's adjusted stand-alone net income	607,500

	80% of subsidiary's stand-alone net income	80,000
	Less: 80% AAP amortization	(32,000)
	80% of subsidiary's stand-alone net income	48,000
	Consolidated net income attributable to the controlling interest	655,500

	20% of subsidiary's stand-alone net income	20,000
	Less: 20% AAP amortization	(8,000)
	Consolidated net income attributable to the non-controlling interest	12,000

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	600,000
	Plus: 100% realized downstream deferred profits	37,500
	Less: 100% unrealized downstream deferred profits	(30,000)
	Parent's adjusted stand-alone net income	607,500

	Subsidiary's stand-alone net income	100,000
	Less: 100% AAP amortization	(40,000)
	Subsidiary's adjusted stand-alone net income	60,000
	Consolidated net income	667,500

	Parent's stand-alone net income	600,000
	Plus: 100% realized downstream deferred profits	37,500
	Less: 100% unrealized downstream deferred profits	(30,000)
	Parent's adjusted stand-alone net income	607,500

	80% of subsidiary's stand-alone net income	80,000
	Less: 80% AAP amortization	(32,000)
	80% of subsidiary's stand-alone net income	48,000
	Consolidated net income attributable to the controlling interest	655,500

	20% of subsidiary's stand-alone net income	20,000
	Less: 20% AAP amortization	(8,000)
	Consolidated net income attributable to the non-controlling interest	12,000

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 income		$55,500
	Consol. NI attributable to NCI		$12,000
	Equity investment		$8,500
	Non-controlling interest		$4,000
	Dividends			$80,000
	(Eliminates the change in the investment account of AAP adjusted changes in SE(S))

	[E] Common Stock (S) @ BOY		$100,000
	APIC (S) @BOY		$430,000
	Retained Earnings (S) @BOY		$600,000
	Equity Investment @BOY			$904,000
	Non-controlling interest (@BOY)			$226,000
	(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account)

	[A] PPE, net @ BOY (100% AAP)		$160,000
	Patent, net @ BOY (100% AAP)		$60,000
	Goodwill @ BOY (100% AAP)		$400,000
	Equity Investment @ BOY (AAP)			$496,000
	Non-controlling interest			$124,000
	(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.)		$40,000
	PPE, net (for 100% AAP amort.)			$20,000
	Patent, net @ BOY (100% AAP)			$20,000
	(To record depreciation and amortization expense for the AAP assets)

	[I_cogs] Equity investment		$37,500
	Cost of goods sold			$37,500
	(Recognition of deferred gain on inventory sale and proration between parent and subsidiary)

	[I_sales] Sales		$400,000
	Cost of goods sold			$400,000
	(Elimination of 100% of all intercompany transactions)

	[I_cogs] Cost of goods sold		$30,000
	Inventory			$30,000
	(Deferral of gross profit on this year inventory sales)

	[I_pay] Accounts payable		$50,000
	Accounts receivable			$50,000
	(Elimination of intercompany receivable and payable)

The consolidated spreadsheet is shown below:

	Parent	Subsidiary		Dr	Cr		Consol
Income Statement:
Sales	6,000,000	1,000,000	[I_sales]	400,000			6,600,000
Cost of Goods sold	(4,500,000)	(600,000)	[I_cogs]	30,000	400,000	[I_sales]	(4,692,500)
					37,500	[I_cogs]
Gross profit	1,350,000	400,000					1,907,500
Income (loss) from subsidiary	55,500		[C]	55,500			0
Operating expenses	(900,000)	(300,000)	[D]	40,000			(1,240,000)
Net Income	655,500	100,000					667,500
Consolidated NI attrib to NCI			[C]	12,000			(12,000)
Consolidated NI attrib to CI							556,200

Statement of Ret Earnings:
BOY retained earnings	2,000,000	600,000	[E]	600,000			2,000,000
Net income	655,500	100,000					655,500
Dividends	(200,000)	(80,000)			80,000	[C]	(200,000)
EOY retained earnings	2,455,500	620,000					2,455,500

Balance Sheet:
Cash	500,000	50,000					550,000
Accounts receivable	750,000	300,000			50,000	[I_pay]	1,000,000
Inventory	1,000,000	400,000			30,000	[I_cogs]	1,370,000
Equity investment	1,354,000		[C]	8,500			0
			[I_cogs]	37,500	904,000	[E]
					496,000	[A]
PPE, net	3,000,000	1,000,000	[A]	160,000	20,000	[D]	4,140,000
Patent			[A]	60,000	20,000	[D]	40,000
Goodwill			[A]	400,000			400,000
	6,604,000	1,750,000					7,500,000

Current liabilities	648,500	100,000	[I_pay]	50,000			698,500
Long-term liabilities	2,000,000	500,000					2,500,000
Common stock	500,000	100,000	[E]	100,000			500,000
APIC	1,000,000	430,000	[E]	430,000			1,000,000
Retained earnings	2,455,500	620,000					2,455,500
Non-controlling interest			[C]	4,000	226,000	[E]	346,000
					124,000	[A]
	6,604,000	1,750,000		2,387,500	2,387,500		7,500,000

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 income		$55,500
	Consol. NI attributable to NCI		$12,000
	Equity investment		$8,500
	Non-controlling interest		$4,000
	Dividends			$80,000
	(Eliminates the change in the investment account of AAP adjusted changes in SE(S))

	[E] Common Stock (S) @ BOY		$100,000
	APIC (S) @BOY		$430,000
	Retained Earnings (S) @BOY		$600,000
	Equity Investment @BOY			$904,000
	Non-controlling interest (@BOY)			$226,000
	(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account)

	[A] PPE, net @ BOY (100% AAP)		$160,000
	Patent, net @ BOY (100% AAP)		$60,000
	Goodwill @ BOY (100% AAP)		$400,000
	Equity Investment @ BOY (AAP)			$496,000
	Non-controlling interest			$124,000
	(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.)		$40,000
	PPE, net (for 100% AAP amort.)			$20,000
	Patent, net @ BOY (100% AAP)			$20,000
	(To record depreciation and amortization expense for the AAP assets)

	[I_cogs] Equity investment		$37,500
	Cost of goods sold			$37,500
	(Recognition of deferred gain on inventory sale and proration between parent and subsidiary)

	[I_sales] Sales		$400,000
	Cost of goods sold			$400,000
	(Elimination of 100% of all intercompany transactions)

	[I_cogs] Cost of goods sold		$30,000
	Inventory			$30,000
	(Deferral of gross profit on this year inventory sales)

	[I_pay] Accounts payable		$50,000
	Accounts receivable			$50,000
	(Elimination of intercompany receivable and payable)

The consolidated spreadsheet is shown below:

	Parent	Subsidiary		Dr	Cr		Consol
Income Statement:
Sales	6,000,000	1,000,000	[I_sales]	400,000			6,600,000
Cost of Goods sold	(4,500,000)	(600,000)	[I_cogs]	30,000	400,000	[I_sales]	(4,692,500)
					37,500	[I_cogs]
Gross profit	1,350,000	400,000					1,907,500
Income (loss) from subsidiary	55,500		[C]	55,500			0
Operating expenses	(900,000)	(300,000)	[D]	40,000			(1,240,000)
Net Income	655,500	100,000					667,500
Consolidated NI attrib to NCI			[C]	12,000			(12,000)
Consolidated NI attrib to CI							556,200

Statement of Ret Earnings:
BOY retained earnings	2,000,000	600,000	[E]	600,000			2,000,000
Net income	655,500	100,000					655,500
Dividends	(200,000)	(80,000)			80,000	[C]	(200,000)
EOY retained earnings	2,455,500	620,000					2,455,500

Balance Sheet:
Cash	500,000	50,000					550,000
Accounts receivable	750,000	300,000			50,000	[I_pay]	1,000,000
Inventory	1,000,000	400,000			30,000	[I_cogs]	1,370,000
Equity investment	1,354,000		[C]	8,500			0
			[I_cogs]	37,500	904,000	[E]
					496,000	[A]
PPE, net	3,000,000	1,000,000	[A]	160,000	20,000	[D]	4,140,000
Patent			[A]	60,000	20,000	[D]	40,000
Goodwill			[A]	400,000			400,000
	6,604,000	1,750,000					7,500,000

Current liabilities	648,500	100,000	[I_pay]	50,000			698,500
Long-term liabilities	2,000,000	500,000					2,500,000
Common stock	500,000	100,000	[E]	100,000			500,000
APIC	1,000,000	430,000	[E]	430,000			1,000,000
Retained earnings	2,455,500	620,000					2,455,500
Non-controlling interest			[C]	4,000	226,000	[E]	346,000
					124,000	[A]
	6,604,000	1,750,000		2,387,500	2,387,500		7,500,000

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 non-controlling interest.

Disaggregate and document the AAP 100 percent activity, 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 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.