Advanced Financial Accounting
11th Edition
ISBN: 9780078025877
Author: Theodore E. Christensen, David M Cottrell, Cassy JH Budd Advanced Financial Accounting
Publisher: McGraw-Hill Education
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Chapter 7, Problem 7.40AP
a
To determine
Modified equity method and cost method: When investments were accounted for using the modified equity method, the proportionate share of subsidiary income and dividends are recorded in the same manner as under the fully adjusted equity method. However, the share of unrealized profits from intercompany transactions does not differ, instead, these unrealized gains or losses are removed from the parent’s
The consolidation entries needed to prepare full set of consolidated financial statement.
a
Expert Solution
Explanation of Solution
1. Elimination entries
| Particulars | Debit $ | Credit $ |
| Common stock | 60,000 | |
| Retained earnings | 85,000 | |
| Income from B Corporation | 19,500 | |
| NCI in net income of B Corporation | 6,265 | |
| Dividends declared | 5,000 | |
| Investment in B Corporation | 110,500 | |
| NCI in net assets of B Corporation | 55,265 | |
| (Elimination of beginning investment in B) | ||
| Gain on sale of land | 4,000 | |
| Land | 4,000 | |
| (Gain on sale of land eliminated) | ||
| Gain on sale of building | 13,200 | |
| | 1,100 | |
| Building and equipment | 12,100 | |
| (Gain on sale of building recognized) | ||
| Sales | 24,000 | |
| Other expenses | 24,000 | |
| (Intercompany sales of service eliminated) |
Elimination entries
1. Beginning investment eliminated by reversal
| Ending Balance in retained earnings | $110,000 |
| Less: Income ($30,000 - $5,000 Dividends) | (25,000) |
| Beginning retained earnings | $85,000 |
Income from S
Non-controlling interest in net income
Investment in S company
NCI in net assets of B Corporation
2. Gain on sale of land eliminated
3. Gain on building recognized, Depreciation
4. Intercompany sale of service eliminated by setoff
b
To determine
Modified equity method and cost method: When investments were accounted for using the modified equity method, the proportionate share of subsidiary income and dividends are recorded in the same manner as under the fully adjusted equity method. However, the share of unrealized profits from intercompany transactions does not differ, instead, these unrealized gains or losses are removed from the parent’s retained earnings in the period after the intercompany sale, and in that case, the parent’s net income is usually not equal to the amount of consolidated net income allocated to the controlling interest.
The three part consolidation worksheet for December 31 20X4
b
Expert Solution
Answer to Problem 7.40AP
Balances as per consolidation work sheet 20X7
Retained earnings $213,135
Total assets $683,400
Explanation of Solution
M and subsidiary
Consolidation worksheet
As of December 31, 20X7
| elimination | |||||
| Items | M $ | B $ | Debit $ | Credit $ | Consolidation $ |
| Sales | 286,500 | 128,500 | 24,000 | 391,000 | |
| Gain on sale of Land | 4,000 | 4,000 | |||
| Gain on sale of building | 13,200 | 13,200 | |||
| Less: | |||||
| Cost of goods sold | (160,000) | (75,000) | (235,000) | ||
| Depreciation | (22,000) | (19,000) | 1,100 | (39,900) | |
| Other expenses | (76,000) | (17,700) | 24,000 | (69,700) | |
| Income from B Corp | 19,500 | 19,500 | |||
| Consolidated net income | 46,400 | ||||
| NCI in net income | 6,265 | (6,265) | |||
| Controlling interest in NI | 52,000 | 30,000 | 66,965 | 25,100 | 40,135 |
| Retained earnings Jan 1 | 198,000 | 85,000 | 85,000 | 198,000 | |
| Net income | 52,000 | 30,000 | 66,965 | 25,100 | 40,135 |
| Less dividends declared | (25,000) | (5,000) | (5,000) | (25,000) | |
| Retained earnings Dec, 31 | 225,000 | 110,000 | 151,965 | 30,100 | 213,135 |
| Cash | 32,500 | 22,000 | 54,500 | ||
| 62,000 | 37,000 | 99,000 | |||
| Inventory | 95,000 | 71,000 | 166,000 | ||
| Land | 40,000 | 15,000 | 4,000 | 51,000 | |
| Buildings and equipment | 200,000 | 125,000 | 12,100 | 312,900 | |
| Investment in B Corp | 110,500 | 110,500 | |||
| Total assets | 540,000 | 270,000 | 0 | 126,600 | 683,400 |
| Accounts payable | 35,000 | 20,000 | 55,000 | ||
| Bonds payable | 180,000 | 80,000 | 260,000 | ||
| Common stock | 100,000 | 60,000 | 60,000 | 100,000 | |
| Retained earnings | 225,000 | 110,000 | 151,965 | 30,100 | 213,135 |
| NCI in Net assets of B | 55,265 | ||||
| Total liabilities & equity | 540,000 | 270,000 | 211,965 | 85,365 | 683,400 |
c
To determine
Modified equity method and cost method: When investments were accounted for using the modified equity method, the proportionate share of subsidiary income and dividends are recorded in the same manner as under the fully adjusted equity method. However, the share of unrealized profits from intercompany transactions does not differ, instead, these unrealized gains or losses are removed from the parent’s retained earnings in the period after the intercompany sale, and in that case, the parent’s net income is usually not equal to the amount of consolidated net income allocated to the controlling interest.
The consolidated
c
Expert Solution
Answer to Problem 7.40AP
Balances as per consolidated statement:
Balance sheet totals $683,400
Consolidated net income $46,400
Retained earnings December 31, 20X4 $213,135
Explanation of Solution
M Company and Subsidiary
Consolidated balance sheet
December 31m 20X4
| Amount $ | Amount $ | |
| Cash | 54,500 | |
| Accounts receivable | 99,000 | |
| Inventory | 166,000 | |
| Land | 51,000 | |
| Building and equipment | 312,900 | |
| Total assets | 683,400 | |
| Accounts payable | 55,000 | |
| Bonds payable | 260,000 | |
| Controlling interest: | ||
| Common stock | 100,000 | |
| Retained earnings | 213,135 | |
| Total controlling interest | 313,135 | |
| Non-controlling interest | 55,265 | |
| Total stockholders’ equity | 368,400 | |
| Total liabilities and Stockholders’ equity | 683,400 |
M Company and Subsidiary
Consolidated income statement
December 31m 20X4
| Amount $ | Amount $ | |
| Sales | 391,000 | |
| Less: Cost of goods sold | 235,000 | |
| Depreciation expense | 39,900 | |
| Other expenses | 69,700 | |
| Total Expenses | (344,600) | |
| Consolidated net income | 46,400 | |
| Income to non-controlling interest | (6,265) | |
| Income to controlling interest | 40,135 |
M Company and Subsidiary
Consolidated retained earnings statement
December 31m 20X4
| Items | Amount $ |
| Retained earnings January 1 20X4 | 198,000 |
| Income to controlling interest 20X4 | 40,135 |
| 238,135 | |
| Dividends declared | (25,000) |
| Retained earnings December 31, 20X4 | 213,135 |
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Students have asked these similar questions
2) On January 1, 20X5, Peery Company acquired 100 percent of Standard Company's
common shares at underlying book value. Peery uses the equity method in accounting for its
ownership of Standard. On December 31, 20X5, the trial balances of the two companies are as
follows:
Item
Current Assets
Depreciable Assets
Investment in Standard
Company
Other Expenses
Depreciation Expense
Dividends Declared
Accumulated Depreciation
Current Liabilities
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Common Stock
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$ 238,000
300,000
100,000
90,000
30,000
32,000
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$ 120,000
50,000
120,000
100,000
175,000
200,000
25,000
Standard Company
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Credit
$ 95,000
170,000
70,000
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10,000
$ 790,000 $ 790,000 $362,000
$ 85,000
30,000
50,000
50,000
35,000
112,000
$362,000
Required:
1. Prepare the consolidation entries needed as of December 31, 20X5, to complete a
consolidation worksheet.
2. Prepare a three-part consolidation worksheet as of December 31, 20X5.
Please finish this problem
R E Q U I R E D:Determine the amounts that would appear in the consolidated financial statements of PamCorporation and Sam for each of the following:
4. Consolidated retained earnings at December 31, 2019 5. Consolidated net income for 2019 6. Non-controlling interest at December 31, 2018
Chapter 7 Solutions
Advanced Financial Accounting
Ch. 7 - Prob. 7.1QCh. 7 - Prob. 7.2QCh. 7 - Prob. 7.3QCh. 7 - Prob. 7.4QCh. 7 - Prob. 7.5QCh. 7 - Prob. 7.6QCh. 7 - Prob. 7.7QCh. 7 - Prob. 7.8QCh. 7 - Prob. 7.9QCh. 7 - Prob. 7.10Q
Ch. 7 - Prob. 7.11QCh. 7 - Prob. 7.12QCh. 7 - Prob. 7.13QCh. 7 - Prob. 7.14QCh. 7 - Prob. 7.15QCh. 7 - Prob. 7.16QCh. 7 - Prob. 7.17QCh. 7 - Prob. 7.18AQCh. 7 - Prob. 7.1CCh. 7 - Prob. 7.2CCh. 7 - Prob. 7.3CCh. 7 - Prob. 7.4CCh. 7 - Prob. 7.5CCh. 7 - Prob. 7.1.1ECh. 7 - Prob. 7.1.2ECh. 7 - Prob. 7.1.3ECh. 7 - Prob. 7.1.4ECh. 7 - Prob. 7.1.5ECh. 7 - Prob. 7.2.1ECh. 7 - Prob. 7.2.2ECh. 7 - Prob. 7.2.3ECh. 7 - Prob. 7.2.4ECh. 7 - Prob. 7.2.5ECh. 7 - Prob. 7.2.6ECh. 7 - Prob. 7.3ECh. 7 - Prob. 7.4ECh. 7 - Prob. 7.5ECh. 7 - Prob. 7.6ECh. 7 - Prob. 7.7ECh. 7 - Prob. 7.8ECh. 7 - Prob. 7.9ECh. 7 - Prob. 7.10ECh. 7 - Prob. 7.11ECh. 7 - Prob. 7.12ECh. 7 - Prob. 7.13ECh. 7 - Prob. 7.14ECh. 7 - Prob. 7.15ECh. 7 - Prob. 7.16ECh. 7 - Prob. 7.17ECh. 7 - Prob. 7.18ECh. 7 - Prob. 7.19ECh. 7 - Prob. 7.20ECh. 7 - Prob. 7.21ECh. 7 - Prob. 7.22ECh. 7 - Prob. 7.23AECh. 7 - Computation of Consolidated Net Income Petime...Ch. 7 - Prob. 7.25PCh. 7 - Prob. 7.26PCh. 7 - Prob. 7.27PCh. 7 - Prob. 7.28.1PCh. 7 - Prob. 7.28.2PCh. 7 - Prob. 7.28.3PCh. 7 - Prob. 7.28.4PCh. 7 - Prob. 7.29PCh. 7 - Prob. 7.30PCh. 7 - Prob. 7.31PCh. 7 - Prob. 7.32PCh. 7 - Prob. 7.33PCh. 7 - Prob. 7.34PCh. 7 - Prob. 7.35PCh. 7 - Prob. 7.36PCh. 7 - Prob. 7.37PCh. 7 - Prob. 7.38PCh. 7 - Prob. 7.39APCh. 7 - Prob. 7.40APCh. 7 - Modified Equity Method Using the data in P7-33, on...Ch. 7 - Prob. 7.42AP
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