Chapter 9, Problem 9.24P

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 needs 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 an adjustment to additional paid-in capital.

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

Answer to Problem 9.24P

	Debit	Credit
1. Eliminate gain on sale of S shares
Gain on sale of S 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 S 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 S company	100,000
Additional paid-in capital	20,000
Retained earnings January 1	130,000
Investment in S 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 S and additional paid in capital is debited and investment in S stock and non-controlling interest is credited.

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 needs 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 an adjustment to additional paid-in capital.

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 S Company

Consolidation worksheet

December 31, 20X4

			elimination
	P	S	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