Chapter 9, Problem 9.24P

aJournal entries to record investment

To determine

Sale of subsidiary common shares:when parent sells subsidiary shares, a gain or loss normally occurs and is recorded on the seller’s books, which needed to be recognized in consolidated net income. Under ASE 810, changes in a parent’s ownership interest in a subsidiary while the parent retains control require an adjustment to the amount assigned to the non-controlling interest to reflect its change in ownership in subsidiary. Any difference in fair value of the controlling interest results in an adjustment to the stockholders equity attributable to the controlling interest, through a adjustment to additional paid-in capital.

Requirement 1

The consolidation entries needed to complete work sheet for 20X4.

Answer to Problem 9.24P

	Debit	Credit
1. Eliminate gain on sale of ENC shares
Gain on sale of ENC company stock	10,000
Additional paid-in capital		10,000
2. Eliminate income from subsidiary
Income from subsidiary	18,000
Dividends declared		9,000
Investment in ENC stock		12,000
3. Assign income to non-controlling interest
Income to non-controlling interest	12,000
Dividends declared		4,000
Non-controlling interest		8,000
4. Eliminate investment in common stock
Common stock ENC company	100,000
Additional paid-in capital	20,000
Retained earnings January 1	130,000
Investment in ENC company stock		150,000
Non-controlling interest		100,000

Explanation of Solution

1. Gain on sale of common stock is eliminated by debiting to gain on sale and credit of additional paid-in capital.
2. Income from subsidiary is eliminated by reversing the transaction by debiting it and credit of investment in company stock
3. Income assigned to non-controlling interest is recognized by debit to income assigned to non-controlling interest and credit to dividends declared and non-controlling interest
4. To eliminate investment in common stock, common stock in ENC and additional paid in capital is debited and investment in ENC stock and non-controlling interest is credited.

bconsolidation worksheet.

To determine

Sale of subsidiary common shares:when parent sells subsidiary shares, a gain or loss normally occurs and is recorded on the seller’s books, which needed to be recognized in consolidated net income. Under ASE 810, changes in a parent’s ownership interest in a subsidiary while the parent retains control require an adjustment to the amount assigned to the non-controlling interest to reflect its change in ownership in subsidiary. Any difference in fair value of the controlling interest results in an adjustment to the stockholders equity attributable to the controlling interest, through a adjustment to additional paid-in capital.

Requirement 2

The preparation of consolidation worksheet for 20X4.

Answer to Problem 9.24P

Balance of liability and equity in consolidation worksheet 20X4 $1,000,000

Explanation of Solution

P and ENC Company

Consolidation worksheet

December 31, 20X4

			elimination
	P	ENC	Debit	Credit	Consolidation
Sales	280,000	170,000			450,000
Gain on sale of E stock	10,000		10,000
Income from subsidiary	18,000		18,000
Net sales	308,000	170,000	28,000		450,000
Less: cost of sales	(210,000)	(100,000)			(310,000)
Depreciation expense	(20,000)	(15,000)			(35,000)
Other expense	(21,000)	(25,000)			(46,000)
Income to NCI			12,000		(12,000)
Net income	57,000	30,000	40,000		47,000
Retained earnings:
Balance January 1	320,000	130,000	130,000		320,000
Net income	57,000	30,000	40,000		47,000
Less dividends declared	(15,000)	(10,000)		6,000
				4,000	(15,000)
Ending balance	362,000	150,000	170,000	10,000	352,000
Balance sheet
Cash	30,000	35,000			65,000
Accounts receivable	70,000	50,000			120,000
Inventory	120,000	100,000			220,000
Buildings and equipment	650,000	230,000			880,000
Less depreciation	(170,000)	(95,000)			(265,000)
Total Assets	862,000	320,000			1,020,000
Accounts payable	50,000	20,000			70,000
Bonds payable	200,000	30,000			230,000
Common stock	200,000	100,000	100,000		200,000
Additional paid in cap	50,000	20,000	20,000	10,000	60,000
Retained earnings	362,000	150,000	170,000	10,000	352,000
NCI				8,000
				100,000	108,000
Liability and equity	862,000	320,000			1,020,000

cconsolidation entries

To determine

Multilevel ownership and control:if a company establish multiple corporate levels through which they carryout diversified operations, i.e. a company may have a number of subsidiaries one of which is a retailer. When consolidated statements are prepared, they include companies in which the parent has only indirect investment along with direct ownership. The complexity of consolidation process increases as additional ownership levels are included. The amount of income and net assets assigned to controlling and non-controlling interest, and unrealized profit and losses to be eliminated, must be determined at each level of ownership.

Requirement 3

The income assigned to controlling interest for 20X6.

Answer to Problem 9.24P

	Debit	Credit
1. Elimination of income from B company
Income from B company	18,900
Dividends declared		14,000
Investment in B company stock		4,900
2. Assign income to non-controlling interest
Income to non-controlling interest	8,100
Dividends declared		6,000
Non-controlling interest		2,100
3. Eliminate beginning investment in B company
Common stock B company	250,000
Retained earnings January 1	300,000
Differential	30,000
Investment in B company		406,000
Non-controlling interest		174,000
4. Assign the beginning differential
Buildings and equipment	30,000
Differential		30,000
5. Amortize differential related to buildings and equipment
Depreciation expense	3,000
Accumulated depreciation		3,000
6. Eliminate income from C corporation
Income from C corporation	55,120
Dividends Declared		20,000
Investment in C corporation stock		35,120
7. Assign income to non-controlling interest of C corporation
Income to non-controlling interest	13,780
Dividends declared		5,000
Non-controlling interest		8,780
8. Eliminate beginning investment in C corporation stock
Common stock C corporation	400,000
Retained earnings January 1	270,000
Differential	30,000
Investment in C corporation stock		560,000
Non-controlling interest		140,000
9. Assign beginning differential trademark
Trademark	30,000
Differential		30,000
10. Amortize differential related to trademark
Amortization expense	10,000
Trademark		10,000

Explanation of Solution

1. Income from B company is eliminated by debiting it and credit dividends and investment in B company stock
2. Income to non-controlling interest $8,100 = ($30,000 − 3,000) x .30 is debited, dividends $6,000 ($20,000 x.30) and Non-controlling interest of $2,100 ($8,100 − 6,000) is credited to eliminate income to non-controlling interest.
3. Beginning investment in B company is eliminated by debiting common stock in B company as well as retained earnings on January 1and differential $30,000 = ($406,000 + $174,000 - $550,000) and credit investment in B company stock and non-controlling interest
4. Differential is assigned to building and equipment by debit it and credit differential.
5. Amortization of differential related to buildings and equipment $30,000 / 10 years
6. Income from C Corporation is debited to eliminate it and investment in C corporation is credited.
7. Assignment of income to non-controlling interest $13,780 =($60,000 + 18,900 - $10,000) x .20 is debited. Dividends $5,000 = $25,000 x.20 and non-controlling interest $8,780 = $13,780 - $5,000 is credited.
8. Elimination of investment in C corporation common stock, retained earnings $270,000 ( $200,000 + $35,000 + $35,000) and differential $30,00 ( $50,000 -$10,000 - $10,000) is debited and investment in C corporation of $560,000 ($520,000 + [( $35,000 - $10,000) x .80] x 2 years and non-controlling interest of $140,000 ($700,000 x .20) is credited
9. Differential of $30,000 ($50,000 − ($10,000 x 2 years) is assigned to trademark by debit it and credit of differential.
10. Amortization of differential on trademark $10,000 ($50,000 / 5 years) is debited to amortization expenses and credit to trademark.