Chapter 7, Problem 29P

To determine

Develop the worksheet entries necessary to derive the given reported balances.

Explanation of Solution

The worksheet entries necessary to derive the given reported balances:

Entry G
Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Retained earnings of Company D as on 01/01/18		15,000
	Cost of goods sold			15,000
	(being opening unrealized gross profit eliminated)
Entry *C1
Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Retained earnings of Company D as on 01/01/18		7,000
	Investment in Company O			7,000
	(being amortization expense of 2017 recorded)
Entry *C2
Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Retained earnings of Company A as on 01/01/18		27,600
	Investment in Company D			27,600
	(being excess amortization expense and deferral of inventory recorded)
Entry S1
Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Common stock of Company O		100,000
	Retained earnings of Company O as on 01/01/2018		100,000
	Investment in Company O			140,000
	Non controlling interest			60,000
	(being controlling and non-controlling interest recorded)
Entry S2
Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Common stock of Company D		120,000
	Retained earnings of Company D as on 01/01/2018		378,000
	Investment in Company D			398,400
	Non controlling interest			99,600
	(being controlling and non-controlling interest recorded)
Entry A
Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Copyrights		22,500
	Investment in Company D			90,000
	Investment in Company O			77,000
	Non controlling interest in Company D			22,500
	Non controlling interest in Company O			33,000
	(being assets transferred to controlling and non-controlling interest)
Entry I1
Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Investment income		144,000
	Investment in Company D			144,000
	(being intra-entity equity income eliminated)
Entry I2
Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Investment income		49,000
	Investment in Company O			49,000
	(being intra-entity equity income eliminated)
Entry D1
Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Investment in Company D		32,000
	Dividend expense			32,000
	(being intra-entity dividend expense eliminated)
Entry D2
Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Investment in Company O		35,000
	Dividend expense			35,000
	(being intra-entity dividend expense eliminated)
Entry E
Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Operating expenses		16,250
	Copyrights			16,250
	(being amortization expense of current year recorded)
Entry TI
Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Sales		200,000
	Cost of goods sold			200,000
	(being intra-entity sale eliminated)
Entry G
Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Cost of goods sold		22,000
	Inventory			22,000
	(being unrealized gross profit on ending inventory eliminated)

Table: (1)

Working note:

Computation of Net income attributable to non-controlling interest:

Particulars	Amount
Non-controlling Interest in Company O's Income:
Reported income	$    70,000
Excess fair value amortization	$  (10,000)
Accrual-based income	$    60,000
Outside ownership	30%
Net income attributable to non-controlling interest	$    18,000

Table: (2)

Computation of Non-controlling Interest in Company D's Net Income:

Particulars	Amount
Non-controlling Interest in Company D's Net Income:
Reported operating income	$         131,000
Equity income investment in Company O $\left(70\%\times \$60,000\right)$	$           42,000
Amortization expense	$           (6,250)
2017 intra-entity inventory gross profit deferral	$           15,000
2018 intra-entity inventory gross profit deferral	$         (22,000)
Accrual-based income of Company D (2018)	$         159,750
Outside ownership	20%
Net income attributable to non-controlling interest	$           31,950

Table: (3)

Computation of Non-controlling interest in Company D as on 12/31/18:

Particulars	Amount
Non-controlling interest in Company D Company
Non-controlling interest as on 01/01/18	$    99,600
Non-controlling interest as on 01/01/18	$    22,500
Non-controlling interest in Company D’s income	$    31,950
Dividends declared to non-controlling interest
$\left(\$40,000\times 20\%\right)$	$    (8,000)
Non-controlling interest in Company D as on 12/31/18	$  146,050

Table: (4)

Computation of Non-controlling interest in Company O as on 12/31/18:

Particulars	Amount
Non-controlling interest in Omega Company
Non-controlling interest as on 01/01/18	$    60,000
Non-controlling interest in Company O’s income	$    18,000
Non-controlling interest as on 01/01/18	$    33,000
Dividends declared to non-controlling interest $\left(\$50,000\times 30\%\right)$	$  (15,000)
Non-controlling interest in Company O as on 12/31/18	$    96,000

Table: (5)

Computation of amount to be adjusted in entry *C2:

Particulars	Amount
Excess amortization from Company D acquisition
$\left(80\%\times \$6,250\times 2\text{ years}\right)$	$    10,000
Company D's share of excess amortization from Company O acquisition
$\left(80\%\times \left[70\%\times \$10,000\right]\times 1\text{ year}\right)$	$      5,600
Inventory profit deferral at 1/1/18 $\left(80\%\times \$15,000\right)$	$    12,000
*C2 adjustment	$    27,600

Table: (6)