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Concept explainers
a.
Identify the consolidation worksheet adjustments which would have been required as of January 1, 2013, to eliminate the subsidiary’s common and preferred stocks.
a.
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Explanation of Solution
The consolidation worksheet adjustments which would have been required as of January 1, 2013, to eliminate the subsidiary’s common and preferred stocks:
Entry S and Entry A | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit | Credit |
01/01/2013 | Common stock | $ 100,000 | ||
| $ 200,000 | |||
| $ 450,000 | |||
Franchises | $ 40,000 | |||
Non controlling interest in Company L | $ 552,800 | |||
Investment in Company L(Common Stock) | $ 65,000 | |||
Investment in Company L (Preferred Stock) | $ 172,200 | |||
(being stock of subsidiary eliminated and excess fair value on date of acquisition recorded)) |
Table: (1)
Working note:
Computation of excess of book value over fair value:
Particulars | Amount | |
Consideration transferred for common stock | $ 552,800 | |
Consideration transferred for preferred stock | $ 65,000 | |
Non-controlling interest in common stock | $ 138,200 | |
Non-controlling interest in preferred stock | $ 34,000 | |
Company L’s acquisition-date fair value | $ 790,000 | |
Book value of Company L | $ 750,000 | |
Excess assigned to franchises | $ 40,000 |
Table: (2)
b.
Identify the consolidation worksheet adjustments which would have been required as of December 31, 2013, to account for Company M’s purchase of Company L’s bonds.
b.
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Explanation of Solution
The consolidation worksheet adjustments which would have been required as of December 31, 2013, to account for Company M’s purchase of Company L’s bonds:
Entry B | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit | Credit |
12/31/2013 | Bond payable | $ 50,000 | ||
Loss on Retirement of Bonds | $ 9,135 | |||
Interest Income | $ 4,265 | |||
Investment in Bonds | $ 52,575 | |||
Interest expense | $ 6,185 | |||
Discount on Bonds Payable | $ 4,640 | |||
(being the intra-entity bonds recognized) |
Table: (3)
Working note:
Computation of Bonds Payable as on December 31, 2013 | |
Particulars | Amount |
Carrying amount of Bonds payable | $ 44,175 |
Amortization of premium: | |
Cash interest | $ 5,000 |
Interest income | $ 6,185 |
Bonds Payable as on December 31, 2013 | $ 45,360 |
Table: (4)
Computation of Investment in Bonds as on December 31, 2013 | |
Particulars | Amount |
Carrying amount | $ 53,310 |
Amortization of premium: | |
Cash interest | $ 5,000 |
Interest income | $ 4,265 |
Investment in Bonds as on December 31, 2013 | $ 52,575 |
Table: (5)
c.
Identify the consolidation worksheet adjustments which would have been required as of December 31, 2013, to account for the intra-entity sale of fixed assets.
c.
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Explanation of Solution
The consolidation worksheet adjustments which would have been required as of December 31, 2013, to account for the intra-entity sale of fixed assets:
Entry TA | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit | Credit |
12/31/2013 | Gain on transfer of fixed assets | $ 80,000 | ||
| $ 8,000 | |||
| $ 52,000 | |||
Fixed assets | $ 20,000 | |||
(Being excess depreciation eliminated) |
Table: (6)
d.
Calculate the consolidated balance for each of the following accounts:
- Franchises
- Fixed Assets
- Accumulated Depreciation
- Expenses
d.
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Explanation of Solution
Computation of consolidated balance for franchises:
Particulars | Amount |
Original allocation to franchises (given) | $ 40,000 |
Amortization at $1,000/ per year (2013 and 2014) | $ (2,000) |
Consolidated franchises as on 12/31/14 | $ 38,000 |
Table: (7)
Computation of consolidated balance for fixed assets:
Particulars | Amount |
Fixed assets of Company M | $ 1,100,000 |
Fixed assets of Company L | $ 800,000 |
Reduction necessitated by intra-entity sale | $ (20,000) |
Consolidated fixed assets as on 12/31/14 | $ 1,880,000 |
Table: (8)
Computation of consolidated balance for Accumulated depreciation:
Particulars | Amount |
Accumulated Depreciation of Company M | $ 300,000 |
Accumulated Depreciation of Company L | $ 200,000 |
Increase due to intra-entity sale | $ 44,000 |
Consolidated Accumulated Depreciation as on 12/31/14 | $ 544,000 |
Table: (9)
Computation of consolidated balance for expenses:
Particulars | Amount |
Expenses of Company M | $ 220,000 |
Expenses of Company L | $ 120,000 |
Recognition of amortization | $ 1,000 |
Intra-entity interest expense eliminated | $ (6,350) |
Excess depreciation eliminated | $ (8,000) |
Consolidated Expenses as on 12/31/2014 | $ 326,650 |
Table: (10)
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