ADVANCED FINANCIAL ACCOUNTING IA
ADVANCED FINANCIAL ACCOUNTING IA
12th Edition
ISBN: 9781260545081
Author: Christensen
Publisher: MCG
Question
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Chapter 8, Problem 8.26P

a

To determine

Introduction: When an affiliate of the issuer later acquires bonds from an unrelated party, the bonds are retired at the time of purchase. The bonds are not held outside the consolidated entity once another company within the consolidated entity purchases them, it must be treated as repurchase by the debtor. The acquisition of an affiliate’s bonds by another company within affiliated entities is referred to as constructive retirement. Although bonds are not actually retired.

The consolidation entries needed for December 31, 20X8

a

Expert Solution
Check Mark

Explanation of Solution

    Debit $Credit $
    1. Eliminate income from subsidiary
    Income from subsidiary22,500
    Dividends declared7,500
    Investment in S company stock15,000
    (Income from subsidiary eliminated by reversal)
    2. Assign income to non-controlling interest
    Income to non-controlling interest7,650
    Dividends declared2,500
    Non-controlling interest5,150
    (Income assigned to non-controlling interest)
    3. Eliminate beginning investment balance
    Common stock S company30,000
    Additional Paid-in capital20,000
    Retained earnings January 1 150,000
    Investment in S company stock150,000
    Non-controlling interest50,000
    (Beginning investment in S company stock eliminated)
    4. Eliminate unrealized profit on buildings
    Buildings and equipment60,000
    Retained earnings, January 115,000
    Depreciation expenses1,500
    Accumulated depreciation73,500
    (Unrealized profit on buildings eliminated)
    5. Eliminate unrealized profit on land
    Retained earnings, January 19,750
    Non-controlling interest3,250
    Land13,000
    (Unrealized profit on land eliminated)
    6. Eliminate intercompany bond holdings
    Bonds payable40,000
    Interest income3,600
    Retained earnings, January 13,150
    Non-controlling interest1,050
    Investment in S company bonds42,400
    Interest expenses4,200
    Bond discount1,200
    (Intercompany bond holdings eliminated)
    7. Eliminate intercompany receivables and payables
    Interest and other payables2,000
    Interest and other receivables2,000
    (Intercompany receivables and payables eliminated by setoff)
  1. Income from subsidiary is eliminated by reverse entry
  2. Income from subsidiary $22,500($30,000 × .75) dividends $7,500($10,000 × .75)
  3. Assignment of income to non-controlling interest by debit $7,650 = ($30,000 + 600) ×.25 and credit Dividends $2,500 = ($10,000 × .25) and non-controlling interest.
  4. Eliminate beginning investment by reverse entry by debit in common stock, additional paid-in capital and retained earnings and credit investment in S $150,000 = ($200,000 ×.75) and Non-controlling interest $50,000 =($200,000×.25)
  5. Unrealized profit on building is eliminated building and equipment $60,000 =($125,000 - $65,000)
  6. Retained earnings $15,000 = ($65,000 –($125,000 - $75,000) , Depreciation expense $1,500 = ($65,000 /10 years)($125,000 /25 years)

    Accumulated depreciation $73,500 = ($5,000 ×16 years) – ( 6,500)

  7. Unrealized profit on sale of land $13,000 = ($35,000 - $22,000)
  8. RetainedEarningsJanuary$9,750 =( $13,000 ×.75) and

    Non-controlling interest$3,250($13,000×.25)

  9. Intercompany bond investment eliminated by reverse entry.
  10. Interestincome$3,600 =($40,000 ×.10) –(2,800 /7 years)

    Retained earnings$3,150 =($42,800 –38,600)×.75

    Non-controlling interest$1,050 =($42,800 – 38,600)×.25 ,

    Investment in S company stock $42,400 = ($42,800 –($2,800/7 years),

    Interest expense$4,200=($40,000×.10) + (2,000/10 years) ,

    Bond discount. Bond discount$1,200 =( 2,000/10 years)×.6 years

  11. Intercompany receivables and payables eliminated by setoff entry.

b

To determine

Introduction: When an affiliate of the issuer later acquires bonds from an unrelated party, the bonds are retired at the time of purchase. The bonds are not held outside the consolidated entity once another company within the consolidated entity purchases them, it must be treated as repurchase by the debtor. The acquisition of an affiliate’s bonds by another company within affiliated entities is referred to as constructive retirement. Although bonds are not actually retired.

The preparation of consolidation worksheet for 20X8

b

Expert Solution
Check Mark

Answer to Problem 8.26P

Consolidated retained earnings for December 31, 20X8 $279,550 and total assets, liabilities and equity $1,478,900

Explanation of Solution

P and Subsidiary

Consolidation work sheet

December 31 20X8

    Eliminations
    P $S $Debit $Credit $Consolidations $
    Sales450,000250,000700,000
    Income from subsidiary22,50022,500
    Interest income18,5003,60014,900
    Less: cost of goods sold(285,000)(136,000)(421,000)
    Operating expenses(50,000)(40,000)(90,000)
    Depreciation expenses(35,000)(24,000)1,500(57,500)
    Interest expenses(24,000)(10,500)4,200(30,300)
    Miscellaneous expenses(11,900)(9,500)(21,400)
    Consolidated net income94,700
    Income to NCI7,650(7,650)
    Net income 85,10030,00033,7505,70087,050
    Retained earnings January 1250,400150,000150,000
    15,000
    9,750
    3,150222,500
    Net income 85,10030,00033,7505,70087,050
    Less dividends declared(30,000)(10,000)7,500
    2,500(30,000)
    Retained earnings December305,500170,000211,65015,700279,550
    Cash53,10047,000100,100
    Accounts receivable176,00065,000241,000
    Interest and other receivables45,00010,0002,00053,000
    Inventory140,00050,000190,000
    Land50,00022,00013,00059,000
    Buildings and equipment400,000240,00060,000700,000
    Investments:
    S company stocks165,00015,000
    150,000
    S company bonds42,40042,400
    T company bonds134,000134,000
    Bond discount3,0001,2001,800
    1,205,500437,0001,478,900
    Depreciation accumulated185,00094,00073,500352,500
    Accounts payable65,00011,00076,000
    Interest and other payables45,00012,0002,00055,000
    Bonds payable300,000100,00040,000360,000
    Common stock
    P Corporation150,000150,000
    S company30,00030,000
    Additional paid-in capital155,00020,00020,000155,000
    Retained earnings305,500170,000211,65015,700279,550
    Non-controlling interest3,2505,150
    1,05050,00050,850
    1,205,500437,000367,950367,9501,478,900

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Chapter 8 Solutions

ADVANCED FINANCIAL ACCOUNTING IA

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