Chapter 6, Problem 6.24P

a.

To determine

Introduction: Investment refers to the purchase of assets or an item that is not consumed immediately but is used in the future for the creation of wealth. Investment generates income for the future years or appreciates in value giving certain economic benefits to the holder.

Balance in investment account to be reported by P.

Answer to Problem 6.24P

Balance in investment account as on December 31, 20X5 is $1,305,000.

Explanation of Solution

Investment balance

Particulars	Amount
Proportionate share of T’s net assets $\left(\$1,400,000\times 0.90\right)$	$1,260,000
Proportionate share of 20X5 net income $\left(\$90,000\times 0.90\right)$	$81,000
Proportionate share of other comprehensive income $\left(\$20,000\times 0.90\right)$	$18,000
Proportionate share of dividend received $\left(\$60,000\times 0.90\right)$	($54,000)
Balance in investment account	$1,305,000

b.

To determine

Introduction: Investment refers to the purchase of assets or an item that is not consumed immediately but is used in the future for the creation of wealth. Investment generates income for the future years or appreciates in value giving certain economic benefits to the holder.

Investment income reported by P on its investments in T

Answer to Problem 6.24P

Investment income for 20X5 is $81,000.

Explanation of Solution

Investment income

Particulars	Amount
Net income reported by T	$90,000
Proportion of ownership held by P	0.90
Investment income in 20X5	$81,000

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c.

To determine

Introduction: A non-controlling interest refers to an ownership position in which the shareholders hold less than 50 percent of the total shares in the company and have no control over its decisions.

The amount to be reported in the consolidated income statement as income assigned to non-controlling interest

Answer to Problem 6.24P

The income assigned to non- controlling interest is $8,200.

Explanation of Solution

Income assigned to non-controlling interest

Particulars	Amount
Reported net income of T	$90,000
20X4 inventory profits realized in 20X5 $\left(\$15,000\times 0.40\right)$	$6,000
20X5 unrealized inventory profits $\$30,000-\left[\$30,000\times \left(\$48,000/\$90,000\right)\right]$	($14,000)
Realized net income	$82,000
Proportion of ownership held by non-controlling interest	0.10
Income assigned to non-controlling interest	$8,200

(d)

To determine

Introduction: A non-controlling interest refers to an ownership position in which the shareholders hold less than 50 percent of the total shares in the company and have no control over its decisions.

The amount to be reported in the consolidated balance sheet as income assigned to non-controlling interest.

Answer to Problem 6.24P

The income assigned to non- controlling interest is $143,600

Explanation of Solution

Income assigned to non-controlling interest

Particulars	Amount
Net assets reported by T	$1,400,000
Net income for 20X5	$90,000
Dividend paid in 20X5	($60,000)
Book value as on December 31	$1,430,000
Adjustment for unrealized profit in inventory sold	($14,000)
Other comprehensive income	$20,000
Adjusted net assets as on December 31, 20X5	$1,436,000
Proportion of ownership held by non − controlling interest	0.10
Income assigned to non-controlling interest	$143,600

e.

To determine

Introduction: Inventory refers to the goods that a business holds with the ultimate goal of resale. It includes only the finished goods or unfinished goods to be ultimately used in the production process. It is classified as a current asset in the balance sheet of the company.

The amount reported as inventory in consolidated balance sheet.

Answer to Problem 6.24P

The amount to be reported in the consolidated balance sheet as inventory is $204,000.

Explanation of Solution

Inventory to be reported in consolidated balance sheet

Particulars	Amount	Amount
Inventory held by P	$120,000
Less: unrealized profit	($14,000)	$106,000
Inventory held by T	$100,000
Less: unrealized profit $\$6,000-\left[\$6,000\times \left(\$24,000/\$36,000\right)\right]$	($2,000)	$98,000
Inventory		$204,000

f.

To determine

Introduction: Consolidated net income is the sum total of the income of the parent company and its subsidiary. It combines the expenses, revenues and income of the parent and subsidiary company into one single account.

The amount reported as consolidated net income.

Answer to Problem 6.24P

The amount to be reported as consolidated net income is $328,000

Explanation of Solution

Consolidated net income

Particulars	Amount
Operating income of P	$240,000
Net income of T	$90,000
Total unadjusted income	$330,000
20X4 inventory profits realized in 20X5 $(\$6,000+\$8,000)$	$14,000
Unrealized inventory profits on 20X5 sales $\left(\$14,000+\$2,000\right)$	$16,000
Consolidated net income	$328,000

g.

To determine

Introduction: Journal entry is a systematic method of recording transactions as and when they occur. It is a summary of transactions divided into the debit and credit items that are recorded chronologically. It is an act of keeping and recording all the transactions occurring in the business.

Consolidation entries required to prepare three part consolidated worksheet

Explanation of Solution

Journal entries

S. no	Date	Particulars	Debit	Credit
1		Income from subsidiary	$81,000
		Dividends declared		$54,000
		Investment in T’s stock		$27,000
		(To eliminate income from subsidiary)
2		Income to non-controlling interest	$8,200
		Dividends declared		$6,000
		Non-controlling interest		$2,200
		(To assign income to non-controlling interest)
3		Other comprehensive income from subsidiary	$18,000
		Investment in T’s stock		$18,000
		(To eliminate other comprehensive income from subsidiary)
4		Other comprehensive income to non- controlling interest	$2,000
		Non-controlling interest		$2,000
		(To assign other comprehensive income to non-controlling interest)
5		Common stock- T	$400,000
		Additional paid in capital	$200,000
		Retained earnings as on Jan 1	$790,000
		Accumulated comprehensive income	$10,000
		Investment in T’s stock		$1,260,000
		Non-controlling interest		$140,000
		(To eliminate beginning investment balance)
6		Retained earnings as on January 1	$5,400
		Non-controlling interest	$600
		Cost of goods sold		$6,000
		(To eliminate beginning inventory profit of T co.)
7		Retained earnings as on January 1	$8,000
		Cost of goods sold		$8,000
		(To eliminate beginning inventory profit of P co.)
8		Sales	$36,000
		Inventory		$2,000
		Cost of goods sold		$34,000
		(To eliminate inter-company sale of inventory by P co.)
9		Sales	$90,000
		Inventory		$14,000
		Cost of goods sold		$76,000
		(To eliminate inter-company sale of inventory by T co.)

1. Eliminating income from subsidiary
2. Assigning income to non-controlling interest
3. Eliminating other comprehensive income from subsidiary
4. Assigning other comprehensive income to non- controlling interest
5. Eliminating beginning investment balance
6. Eliminating beginning inventory profit of T
7. Eliminating beginning inventory profit of P
8. Eliminating intercompany sale of inventory by P
9. Eliminating intercompany sale of inventory by T