Chapter 4 Test Bank CONSOLIDATION TECHNIQUES AND PROCEDURES
Multiple Choice Questions LO1 1.
Which of the following will be debited account when the equity method is used? a. b. c. d.
LO1 2.
Investee net losses. Investee net profits. Investee declaration of dividends. Depreciation of excess purchase investee equipment.
to
cost
the
Investment
attributable
to
A parent company uses the equity method to account for its wholly-owned subsidiary. The company correctly uses this method and has fully reflected all items of subsidiary gain, loss, income, deductions, and dividends. If the parent company is preparing the consolidation working papers, which of the following will be a correct working paper procedure for the Investment account? a. A debit for a subsidiary loss and a credit for dividends received. b. A credit for subsidiary income and a debit for dividends received. c. A debit for subsidiary dividends received and a credit for a subsidiary loss. d. A credit for a subsidiary loss and a credit for dividends received.
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LO1 3.
A parent corporation owns 55% of the outstanding voting common stock of one domestic subsidiary, but does not control the subsidiary because it is in bankruptcy. Which of the following statements is correct? a. The parent corporation must still prepare consolidated financial statements for the economic entity. b. The parent corporation must stop using the equity method of accounting for the subsidiary and start using the cost method. c. The parent company may continue to use the equity method but the subsidiary cannot be consolidated. d. The parent company would suspend the operation of the Investment account until notified by the bankruptcy court that the subsidiary has emerged from bankruptcy.
LO1 Use the following information to answer questions 4 through 9. On January 1, 2005, Finch Corporation purchased 75% of the common stock of Grass Co. Separate balance sheet data for the companies at the combination date are given below:
Cash Accounts Receivable Inventory Land Plant assets Accum. Depreciation Investment in Lapp Total assets
$
Accounts payable Capital stock Retained earnings Total liabilities & equities
$
( $
$
Finch 24,000 144,000 132,000 68,000 700,000 240,000 ) 392,000 1,230,000
(
Grass 206,000 26,000 38,000 32,000 300,000 60,000 )
$
542,000
$
142,000 300,000 100,000 542,000
$
206,000 800,000 224,000 1,230,000
$
At the date of combination, the book values of Grass’s net assets were equal to the fair value except for Grass’s inventory, which had a fair value of $60,000. Determine below what the consolidated balance would be for each of the requested accounts.
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4.
What amount of Inventory will be reported? a. b. c. d.
5.
What amount of Goodwill will be reported? a. b. c. d.
6.
$ 69,333. $100,000. $130,666. $150,000.
What is the amount of consolidated Retained Earnings? a. b. c. d.
9.
$206,000. $261,000. $302,500. $348,000.
What is the reported amount for the minority interest? a. b. c. d.
8.
$10,500. $20,000. $42,000. $75,500.
What amount of total liabilities will be reported? a. b. c. d.
7.
$170,000. $169,000. $186,500. $192,000.
$224,000. $299,000. $324,000. $346,666.
What is the amount of total assets? a. b. c. d.
$1,244,500. $1,380,000. $1,472,000. $1,762,000.
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LO2 10.
Bird Corporation has several subsidiaries that are included in its consolidated financial statements and several other investments in corporations that are not consolidated. In its year-end trial balance, the following intercompany balances appear. Ostrich Corporation is the unconsolidated company; the rest are consolidated. Due from Pheasant Corporation Due from Turkey Corporation Cash advance to Skylark Company Cash advance to Starling Current receivable from Ostrich
$ 25,000 5,000 8,000 15,000 10,000
What amount should Bird report as intercompany receivables on its consolidated balance sheet? a. b. c. d. LO3 11.
$0. $10,000. $30,000. $63,000.
The majority of errors in consolidated statements a. result because the Investment in Subsidiary account on the parent’s books and the subsidiary equity accounts on the subsidiary’s books are reciprocal. b. have conceptual problems from the minority interest representation of the equity investment in consolidated net assets by stockholders outside the affiliation structure. c. involve the amortization of book/market differences. d. appear when the consolidated balance sheet does not balance.
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LO3 12.
At the beginning of 2005, Starling Inc. acquired an 80% interest in Orchard Corporation when the book values of identifiable net assets equaled their fair values. On December 26, 2005, Orchard declared dividends of $50,000, and the dividends were unpaid at year-end. Starling had not recorded the dividend receivable at December 31. A consolidated working paper entry is necessary to a. enter $50,000 dividends receivable in the consolidated balance sheet. b. enter $40,000 dividends receivable in the consolidated balance sheet. c. reduce the dividends payable account by $40,000 in the consolidated balance sheet. d. eliminate the dividend payable account from the consolidated balance sheet.
LO3 13.
A parent company uses the equity method to account for its wholly-owned subsidiary, but has applied it incorrectly. In each of the past four full years, the company adjusted the Investment account when it received dividends from the subsidiary but did not adjust the account for any of the subsidiary’s profits. The subsidiary had four years of profits and paid yearly dividends in amounts that were less than reported net incomes. Which one of the following statements is correct if the parent company discovered its mistake at the end of the fourth year, and is now preparing consolidation working papers? a. The parent company's Retained Earnings will be increased by the cumulative total of four years of subsidiary profits. b. The parent company's Retained Earnings will be increased by the cumulative total of the first three years of subsidiary profit, and the Subsidiary Income account will be increased by the profit for the current year. c. The parent company's Subsidiary Income account will be increased by the cumulative total of four years of subsidiary profits. d. A prior period adjustment must be recorded for the cumulative effect of four years of accounting errors.
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LO4 14.
Pigeon Corporation acquired a 60% interest in Home Company on January 1, 2005, for $70,000 cash when Home had Capital Stock of $60,000 and Retained Earnings of $40,000. All excess purchase cost was attributable to equipment with a 10-year (straight-line) life. Home suffered a $10,000 net loss in 2005 and paid no dividends. At year-end 2005, Home owed Pigeon $12,000 on account. Pigeon’s separate income for 2005 was $150,000. Consolidated net income for 2005 was a. b. c. d.
LO4 15.
$135,800. $136,800. $143,000. $144,000.
On consolidated working papers, a subsidiary’s income has a. to be reduced from beginning retained earnings. b. to be completely eliminated. c. to have an allocation between the noncontrolling interest share and the parent’s share (which is eliminated). d. only an entry in the parent company's general ledger.
LO4 16.
LO5 17.
Which one of the following will increase consolidated retained earnings? a. An increase in the value of goodwill subsequent to the parent's date of acquisition. b. The amortization of a $10,000 excess in the fair value of a note payable over its recorded book value. c. The depreciation of a $10,000 excess in the fair value of equipment over its recorded book value. d. The sale of inventory by a subsidiary that had a $10,000 excess in fair value over recorded book value on the parent's date of acquisition. In contrast with single entity organizations, consolidated financial statements include which of the following in the calculation of cash flows from operating activities under the direct method? a. b. c. d.
The change in the balance sheet of the investee account. Noncontrolling interest dividends. Noncontrolling interest income expense. Cash dividends from equity investees.
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LO5 18.
In contrast with single entity organizations, consolidated financial statements include which of the following in the calculation of cash flows from operating activities under the indirect method? a. b. c. d.
LO5 19.
In contrast with single entity organizations, in preparing consolidated financial statements which of the following is a subtraction in the calculation of cash flows from operating activities under the indirect method? a. b. c. d.
LO6 20. new
The change in the balance sheet of the investee account. Noncontrolling interest dividends. Noncontrolling interest income expense. Cash dividends from equity investees.
The change in the balance sheet of the investee account. Noncontrolling interest dividends. Noncontrolling interest income expense. Undistributed income of equity investees.
Which of the following would be used if the trial balance approach is followed? a. b. c. d.
Post-closing trial balances. Adjusted trial balances. Unadjusted trial balances. All of the above are used equally.
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LO1 Exercise 1 Parrot Corporation acquired 80% of Hollow Co. on January 1, 2005 for $24,000 cash when Hollow’s stockholders’ equity consisted of $10,000 of Common Stock and $3,000 of Retained Earnings. The difference between the price paid by Parrot and the underlying equity acquired in Hollow was allocated solely to a patent amortized over 10 years. The separate company statements for Parrot and Hollow appear in the first two columns of the partially completed consolidation working papers. Required: Complete the consolidation working papers for Parrot and Hollow for the year 2005.
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Parrot Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Parrot Hollow Debit Credit INCOME STATEMENT Sales
$
Income of Hollow Cost of Sales Other Expenses Net income Retained Earnings 1/1 Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash Accounts Receivable-net Inventories
20,000
NonCntl.
$15,000
3,680 ( (
( $
9,200) ( 2,300) (
4,700) 4,000)
12,180
6,300
11,000
3,000
12,180
6,300
3,000) (
2,000)
20,180
$ 7,300
2,000
1,900
12,000
5,500
14,000
8,000
27,000
42,000
60,000
43,000
Patent Land Equipment and Buildings-net Investment in Hollow Co. TOTAL ASSETS LIAB. & EQUITY Accounts payable Capital Stock Retained Earnings 1/1 Noncontrol. Interest
26,080 $ 141,080 $100,400 90,900
83,100
30,000
10,000
20,180
7,300
12/31 Noncontrol. Interest Earnings $ TOTAL LIAB. & EQUITY 141,080 $100,400 ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-9
Consolidated
LO2 Exercise 2 Cuckoo Company acquired all the voting stock of Perch Corporation on January 1, 2004 for $70,000 when Perch had Capital Stock of $50,000 and Retained Earnings of $8,000. The excess of cost over book value was allocated $3,000 to inventories that were sold in 2004, $4,000 to equipment with a 4-year remaining useful life under the straight-line method, and the remainder to goodwill. Financial statements for Cuckoo and Perch at the end of the fiscal year ended December 31, 2005 (two years after acquisition), appear in the first two columns of the partially completed consolidation working papers. Cuckoo has accounted for its investment in Slim using an incomplete equity method of accounting. Required: Complete the Subsidiary.
consolidation
working
papers
for
Cuckoo
Company
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and
Cuckoo Company and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Cuckoo Perch Debit Credit INCOME STATEMENT Sales $ 206,000 Income from Perch 12,000
$ 60,000
Cost of Sales
(150,000) ( 30,000)
Other expenses
( 38,000) ( 18,000)
Net income Cuckoo Retained Earnings 1/1 Perch Retained Earnings Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Other current assets
30,000
12,000
24,000 10,000 $
30,000
( 20,000) (
$ 12,000
$
34,000
4,000) $ 18,000
14,000
7,000
Inventories
21,000
15,000
Land Equipment and Buildings-net Investment in Perch Corp.
11,000
6,000
64,000
55,000
TOTAL ASSETS LIAB. & EQUITY Liabilities Capital Stock Retained Earnings TOTAL LIAB. & EQUITY
NonCntl
80,000 $ 190,000
$ 83,000
56,000
15,000
100,000
50,000
34,000
18,000
190,000
83,000
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Consolidated
LO2 Exercise 3 Owl Corporation acquired 90% of the voting stock of Hunt Corporation on January 1, 2004 for $7,000 when Hunt had Capital Stock of $5,000 and Retained Earnings of $1,500. The excess of cost over book value was allocated $150 to inventories that were sold in 2004, $200 to undervalued land, $400 to undervalued equipment with a remaining useful life of 5 years under the straight-line method, and the remainder to goodwill. Financial statements for Owl and Hunt Corporations at the end of the fiscal year ended December 31, 2005 appear in the first two columns of the partially completed consolidation working papers. Owl has accounted for its investment in Hunt using the equity method of accounting. Owl Corporation owed Hunt Corporation $100 on open account at the end of the year. Dividends receivable in the amount of $450 payable from Hunt to Owl is included in Owl’s net receivables. Required: Complete the consolidation working papers for Owl Corporation and Subsidiary.
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Owl Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Owl Hunt Debit Credit INCOME STATEMENT Sales $ Income from Hunt
10,000
$ 6,500
1,270
Cost of Sales Depreciation expense
(
4,000) (
3,300)
(
1,000) (
1,000)
Other expenses
(
1,800) (
700)
Net income Retained Earnings 1/1 Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash
( $
4,470
1,500
2,510
2,000
4,470
1,500
2,000) (
1,000)
4,980
$ 2,500
1,440
1,900
Receivables-net
1,550
600
Inventories
1,500
1,200
Land Equipment and Buildings-net Investment in Hunt Corporation TOTAL ASSETS $ LIAB. & EQUITY Accounts payable Dividends payable
1,000
600
7,500
5,700
7,590 20,580
$10,000
3,000
2,000
1,000
500
11,600
5,000
4,980 20,580
2,500 $10,000
Capital Stock Retained Earnings LIAB. & EQUITY
NonCntl
$
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Consolidated
LO3 Exercise 4 Koel Corporation acquired all the voting stock of Rain Company for $500,000 on January 1, 2005 when Rain had Capital Stock of $300,000 and Retained Earnings of $150,000. Rain’s assets and liabilities were fairly valued except for the plant assets. The entire cost-book differential is allocated to plant assets and is fully depreciated on a straight-line basis over a 10-year period. During 2005, Koel borrowed $25,000 on a short-term non-interestbearing note from Rain, and on December 31, 2005, Koel mailed a check to Rain to settle the note. Rain deposited the check on January 5, 2006, but receipt of payment of the note was not reflected in Rain’s December 31, 2005 balance sheet. Required: Complete the consolidation working papers.
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Koel Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Koel Rain Debit Credit INCOME STATEMENT Sales $ 500,000 Income from Rain 135,000
$400,000
Cost of Sales
(350,000) (200,000)
Other expenses
(100,000) (60,000)
Net income
185,000
Koel Retained Earnings 1/1 Rain Retained Earnings Add: Net income Less: Dividends Retained Earnings 12/31
150,000 $ 185,000
$140,000 (70,000)
$ 485,000
$220,000
25,000 210,000
300,000
200,000
425,000
565,000 $
Capital Stock Retained Earnings TOTAL EQUITIES
140,000
300,000
BALANCE SHEET Note Receivable from Koel Other current assets Plant assetsnet Investment in Rain Company TOTAL ASSETS EQUITIES Liabilities
NonCntl
$
975,000
$750,000
290,000
230,000
200,000
300,000
485,000
220,000
975,000
$750,000
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Balance Sheet
LO4 Exercise 5 Owl Corporation acquired 90% of Barn Corporation on January 1, 2005 for $72,000 cash when Barn’s stockholders’ equity consisted of $30,000 of Common Stock and $30,000 of Retained Earnings. The difference between the price paid by Owl and the underlying equity acquired in Barn was allocated to a plant asset with a remaining 10year straight-line life that was overvalued by $5,000. The remainder was attributable to goodwill. The separate company statements for Owl and Barn appear in the first two columns of the partially completed consolidation working papers. Required: Complete the consolidation working papers for Owl and Barn for the year 2005.
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Owl Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Owl Barn Debit Credit INCOME STATEMENT Sales $ Income of Barn Cost of Sales Depreciation Expense Other Expenses Net income Retained Earnings 1/1 Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash Accounts Receivable-net
60,000
$22,000
3,510 ( 13,000) (
9,500)
(
2,000) (
3,000)
( 23,000) (
6,100)
25,510
3,400
25,000
30,000
25,510
3,400
( 15,000) (
3,000)
35,510
$30,400
26,520
7,000
22,000
10,000
20,000
14,000
Land 27,000 Equipment and 70,000 Buildings-net Investment in 72,810 Barn Corporation TOTAL ASSETS $ 238,330 LIAB. & EQUITY Accounts payable 32,820 Capital Stock 170,000 Retained Earnings 35,510 Noncontrolling Interest $ TOTAL LIAB. & EQUITY 238,330
42,000
Inventories
$
38,000 $111,000 50,600 30,000 30,400
$111,000
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Min Int
Consolidated
LO4 Exercise 6 Lorikeet Company has the following information collected in order to do make a cash flow statement and uses the direct format for Cash Flow from Operations. The annual report year end is December 31, 2005. Noncontrolling Interest Dividends Dividends Received from Equity Investees Cash Paid to Employees Cash Paid for Other Operating Activities Cash Paid for Interest Expense Cash Proceeds from the Sale of Equipment Cash Paid to Suppliers Cash Received from Customers
$20,000 17,000 37,000 34,000 22,300 70,000 192,700 412,600
Required: 1. Prepare the Cash Flow for Operations part of the cash flow statement for Lorikeet. LO4 Exercise 7 Bronzewing Company has the following information collected in order to do make a cash flow statement and uses the indirect format for Cash Flow from Operations. The annual report year end is December 31, 2005. Noncontrolling Interest Dividends Undistributed Income of Equity Investees Depreciation Expense Consolidated Net Income Increase in Accounts Payable Amortization of Patent Decrease in Accounts Receivable Increase in Inventories Gain on sale of equipment Noncontrolling Interest Expense
$17,000 7,500 65,000 175,000 15,000 13,000 48,000 27,500 45,000 17,000
Required: 1. Prepare the Cash Flow for Operations part of the cash flow statement for Bronzewing.
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LO6 Exercise 8 Swift Corporation paid $88,500 for a 70% interest in Cave Corporation on January 1, 2005, when Cave’s Capital Stock was $70,000 and its Retained Earnings $30,000. The fair values of Cave's identifiable assets and liabilities were the same as the recorded book values on the acquisition date. Trial balances at the end of the year on December 31, 2005 are given below:
Cash Accounts Receivable Inventory Investment in Cave Cost of Goods Sold Operating Expenses Dividends
$
$ Liabilities Capital stock, $10 par value Additional Paid-in Capital Retained Earnings Sales Revenue Dividend Income
$
$
Swift Inc. 4,500 $ 25,000 100,000 88,500 60,000 22,000 15,000 315,000 $ 47,000 $ 100,000 10,000 31,000 120,000 7,000 315,000 $
Cave Inc. 20,000 30,000 80,000 40,000 37,000 10,000 217,000 27,000 70,000 30,000 90,000 217,000
During 2005, Swift made only two journal entries with respect to its investment in Cave. On January 1, 2005, it debited the Investment in Cave account for $88,500 and on November 1, 2005, it credited Dividend Income for $7,000. Required: 1. Prepare a consolidated income statement and a statement of retained earnings for Swift and Subsidiary for the year ended December 31, 2005. 2. Prepare a consolidated balance sheet for Swift and Subsidiary as of December 31, 2005.
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LO6 Exercise 9 Emu Corporation paid $77,000 for a 60% interest in Chick Inc. on January 1, 2005, when Chick’s Capital Stock was $80,000 and its Retained Earnings $20,000. The fair values of Chick's identifiable assets and liabilities were the same as the recorded book values on the acquisition date. Trial balances at the end of the year on December 31, 2005 are given below:
Cash Accounts Receivable Inventory Investment in Cave Cost of Goods Sold Operating Expenses Dividends
$
$ Liabilities Capital stock, $10 par value Additional Paid-in Capital Retained Earnings Sales Revenue Dividend Income
$
$
Emu Inc. 4,500 $ 25,000 100,000 77,000 71,500 22,000 15,000 315,000 $
Chick Inc. 20,000 30,000 70,000
47,000 $ 100,000 11,000 31,000 120,000 6,000 315,000 $
27,000 80,000
50,000 37,000 10,000 217,000
20,000 90,000 217,000
During 2005, Emu made only two journal entries with respect to its investment in Chick. On January 1, 2005, it debited the Investment in Chick account for $77,000 and on November 1, 2005, it credited Dividend Income for $6,000. Required: 1. Prepare a consolidated income statement and a statement of retained earnings for Emu and Subsidiary for the year ended December 31, 2005. 2. Prepare a consolidated balance sheet for Emu and Subsidiary as of December 31, 2005.
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SOLUTIONS Multiple Choice Questions 1
b
2
d
3
c
4
c
Parent’s inventory of $132,000 plus subsidiary’s book value of inventory of $38,000 plus 75% of the excess of the fair value over the book value = $132,000+$38,000+(75%)x($22,000) = $186,500
5
d
Purchase price minus 75% of Grass’s underlying book value - $16,500 of excess cost over book value allocated to inventory (see 9) = $392,000 – (75%)x(400,000) - $16,500 = $75,500
6
d
Just add the liability amounts together
7
b
(25%)x($400,000) = $100,000
8
a
The parent’s Retained Earnings is the amount of consolidated Retained Earnings
c
Cash Accounts Receivable Inventory $132,000+$38,000+ $16,500= Land Plant assets-net Goodwill Total assets
9
10
b
11
d
12
c
13
b
$230,000 170,000 186,500 100,000 700,000 75,500 $1,472,000
Intercompany receivables and payables from unconsolidated subsidiaries would not be eliminated.
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14
c
15
c
16
b
17
d
18
c
19
d
20
b
Pigeon’s separate income Less: 60% of Home’s $10,000 loss = Less: Equipment depreciation $10,000/ 10 years = Consolidated net income
$
150,000
(
6,000 )
( $
1,000 ) 143,000
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Exercise 1 Parrot Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Parrot Hollow Debit Credit INCOME STATEMENT Sales
20,000
$
Income of Hollow
$ 35,000 a
(
9,200) (
4,700)
(
2,300) (
4,000) c
$ 3,680 (
13,900)
(
7,660)
$1,260 (
1,260)
1,360
Minority Income Net income Retained Earnings 1/1 Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash Accounts Receivable-net
( $
Inventories
12,180
6,300
11,000
3,000
12,180
6,300
3,000) (
$ 12,180 b
a
$ 1,600 (
400)
$ 7,300
$ 20,180
2,000
1,900
12,000
5,500
17,500
14,000
8,000
22,000
$
27,000
42,000
60,000
43,000
13,600
c
1,360
3,900
12,240 69,000 103,000
a b
2,080 24,000
141,080
$100,400
$227,640
90,900
83,100
$174,000
30,000
10,000
20,180
7,300
b
10,000
30,000 20,180 b
2,600
2,600 3,460
$
3,000
20,180
26,080 $
11,000 12,180
b
TOTAL ASSETS LIB. & EQUITY Accounts payable Capital Stock Retained Earnings 1/1 Noncontrol. Interest 12/31 Noncontrol. Interest TOTAL LIAB. & EQUITY
3,000
2,000)
Patent Land Equipment and Buildings-net Investment in Hollow Co.
Consolidated
$ 15,000
3,680
Cost of Sales Other Expenses
NonCntl.
141,080
$100,400
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3,460 $227,640
Exercise 2 Cuckoo Company and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations
INCOME STATEMENT Sales Income from Perch
Cuckoo
Perch
$ 206,000
$60,000
12,000
Cost of Sales
(150,000) ( 38,000)
( 18,000)
Net income Cuckoo Retained Earnings 1/1 Perch Retained Earnings Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash
30,000
12,000
24,000 10,000 30,000
( 20,000) $
Credit
$266,000 a b
$ 1,000 11,000
d
1,000
( 30,000)
Other expenses
$
Debit
Balance Sheet
( 180,000) (
57,000) 29,000
a
4,000
c
10,000
20,000
$12,000 (
29,000
4,000)
b $( 4,000)
(
20,000)
34,000
$18,000
$ 29,000
14,000
7,000
21,000
Inventories
21,000
15,000
36,000
Land Equipment and Buildings-net Investment in Perch Corporation
11,000
6,000
17,000
64,000
55,000
Capital Stock Retained Earnings TOTAL LIAB. & EQUITY
3,000
c
5,000
80,000
Goodwill TOTAL ASSETS LIAB. & EQUITY Liabilities
c
$
$
d a b c
1,000 5,000 7,000 68,000
121,000
5,000
190,000
$83,000
$200,000
56,000
15,000
71,000
100,000
50,000
34,000
18,000
29,000
190,000
$83,000
$200,000
c
50,000
100,000
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Exercise 3
INCOME STATEMENT Sales
$
Income from Hunt
Owl Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Owl Hunt Debit Credit
Balance Sheet
10,000
$16,500
$6,500
1,270
a $1,270
Cost of Sales Depreciation expense
(
4,000)
(
3,300)
(
1,000)
(
1,000)
Other expenses
(
1,800)
(
700)
c
4,470
1,500
Retained Earnings Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash
2,510
2,000
4,470
2,500
(
2,000)
(
$ 2,500
1,440
1,900
Receivables-net
1,550
600
Inventories Goodwill
1,500
1,200
Land Equipment and Buildings-net Investment in Hunt Corporation TOTAL ASSETS
1,000
$
LIAB. & EQUITY Accounts payable Dividends payable Capital Stock Retained earnings Noncntl. interest 1/1 Noncntl. interest 12/31
LIAB. & EQUITY
(
2,080)
(
2,500)
$(150) (
150) 4,470
b
2,000
2,510 4,470
1,000)
4,980
$
7,300)
80
Minority income Net income
(
a
$ 900
(100) (
$4,980 d e
$3,340
100 450
1,600
b
400
2,700 400
600
b
200
1,800
7,500
5,700
b
320
8,490 21,480
$10,000
3,000 1,000
2,000 500
d e
100 450
11,600
5,000
b
5,000
5,880
3,500
c a b
13,440
80 1,270 7,220
$ 23,280 $
4,980 700
700 850
21,480
4,900 1,050 11,600
b $
2,000)
$10,000
©2009 Pearson Education, Inc. publishing as Prentice Hall 4-25
750 $ 23,280
Exercise 4 Koel Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Koel Rain Debit Credit INCOME STATEMENT Sales Income from Rain
$
500,000
$400,000
135,000 (350,000)
(200,000)
Other expenses
(100,000)
( 60,000)
185,000
140,000
Koel Retained Earnings 1/1 Rain Retained Earnings Add: Net income Less: Dividends Retained Earnings 12/31
$135,000 (550,000)
d
5,000
(165,000) 185,000
300,000
300,000 150,000
$
185,000
c
150,000
$140,000
185,000
( 70,000) $
BALANCE SHEET Note Receivable from Koel Other current assets Plant assetsnet Investment in Rain Company TOTAL ASSETS
$900,000 b
Cost of Sales
Net income
Balance Sheet
485,000
b
$220,000
$485,000
25,000 210,000 200,000
300,000
a c
25,000 50,000
a
25,000
d
5,000
b c
65,000 500,000
$535,000
425,000
670,000
565,000 $
$70,000
975,000
$750,000
$1,205,000
290,000
230,000
520,000
Capital Stock Retained Earnings
200,000
300,000
485,000
220,000
485,000
TOTAL LIAB & EQUITY $
975,000
$750,000
$1,205,000
LIAB & EQUITY Liabilities
c
300,000
200,000
©2009 Pearson Education, Inc. publishing as Prentice Hall 4-26
Exercise 5 Owl Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Min Owl Barn Int Debit Credit INCOME STATEMENT Sales
$
Income from Barn
60,000
$ 22,000
3,510
Cost of Sales Depreciation Expense Other Expenses
$ 82,000 a
(
13,000)
(
9,500)
(
2,000)
(
3,000)
(
23,000)
(
6,100)
$ 3,510
d
$
450
Minority Income Net income Retained Earnings 1/1 Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash Accounts Receivable-net
$ 340
( $
Inventories
25,510
3,400
25,000
30,000
25,510
3,400
15,000)
(
b
22,500)
(
4,550)
(
29,100)
(
340)
30,000
25,000 25,510 a
2,700
$(
300) (
15,000)
35,510
$30,400
$ 35,510
26,520
7,000
33,520
22,000
10,000
32,000
20,000
14,000
34,000 b
TOTAL ASSETS EQUITIES Accounts payable Capital Stock Retained Earnings 1/1 Minority Interest 12/31 Minority Interest Earnings TOTAL EQUITIES
(
25,510
3,000)
Goodwill Land Equipment and Buildings-net Investment in Barn Corporation
Consolidated
27,000
42,000
70,000
38,000
22,500
22,500 69,000
c
450
b b
4,500 72,000
a
810
103,950
72,810 $
238,330
$111,000
294,970
32,820
50,600
83,420
170,000
30,000
170,000
35,510
30,400
35,510 b
6,000
6,000 6,040
$
238,330
$111,000
©2009 Pearson Education, Inc. publishing as Prentice Hall 4-27
6,040 $294,970
Preliminary computations Investment cost on January 1, 19X4 Less: Book value acquired = (90%)x($60,000) = Excess cost over book value acquired = Excess allocated to: Overvalued equipment ($5,000) x (90%)= Remainder to goodwill Excess cost over book value Income from Barn Corporation: Equity in Barn’s net income (90%)x(3,400)= Depreciation “savings” on equipment $4,500/10 yrs = Income from Barn Investment in Barn account: Initial investment cost Plus: Income from Barn Less: Dividends (3,000)x(90%)= Investment in Barn at December 31
Exercise 6 Lorikeet Company and Subsidiary Consolidated Cash Flows for the Year Ended December 31,2005 Cash Flows from Operating Activities Cash Received from Customers Dividends Received from Equity Investees Less Cash Paid to Suppliers Cash Paid to Employees Cash Paid for Other Operating Activities Cash Paid for Interest Expense Net cash flows from operating activities
$
72,000 54,000 18,000
$
$( $
4,500) 22,500 18,000
$
3,060
$
450 1,260
$ ( $
72,000 3,510 2,700) 72,810
Statement
of
$412,600 17,000 $192,700 37,000 34,000 22,300
©2009 Pearson Education, Inc. publishing as Prentice Hall 4-28
(286,000) $143,600
Exercise 7 Bronzewing Company and Subsidiary Consolidated Cash Flows for the Year Ended December 31,2005
Statement
Cash Flows from Operating Activities Consolidated Net Income Adjustments to reconcile net income to cash Noncontrolling Interest Expense Undistributed Income of Equity Investees Depreciation Expense Increase in Accounts Payable Amortization of Patent Decrease in Accounts Receivable Increase in Inventories Gain on sale of equipment Net cash flows from operating activities
of
$175,000
(
( (
$17,000 7,500 ) 65,000 15,000 13,000 48,000 27,500 ) 45,000 )
78,000 253,000
Exercise 8 Requirement 1 Swift and Subsidiary Corporation Consolidated Income Statement for the year ended December 31, 2005 Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Minority Interest Income Total Expenses and Minority Income Consolidated Net Income Retained Earnings, January 1, 2005 Dividends Retained Earnings, December 31, 2005
$ $
59,000 3,900
$
©2009 Pearson Education, Inc. publishing as Prentice Hall 4-29
210,000 100,000 110,000 62,900 47,100 31,000 ( 15,000) 63,100
Requirement 2 Swift and Subsidiary Corporation Consolidated Balance Sheet December 31, 2005 Assets Cash Accounts Receivable Inventory Goodwill Total Assets Equities Liabilities Capital Stock Additional Paid-in Capital Retained Earnings Minority Interest Total Liabilities and Equities
$
$
$
$
24,500 55,000 180,000 18,500 278,000
74,000 100,000 10,000 63,100 30,900 278,000
Minority Interest Calculation: $30,000 Beginning equity + $3,900 Net income - $3,000 Dividends = $30,900 Exercise 9 Requirement 1 Emu and Subsidiary Corporation Consolidated Income Statement for the year ended December 31, 2005 Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Minority Interest Income Total Expenses and Minority Income Consolidated Net Income Retained Earnings, January 1, 2005 Dividends Retained Earnings, December 31, 2005
$ $ 59,000 1,200
$
210,000 121,500 88,500 60,200 28,300 31,000 ( 15,000) 44,300
©2009 Pearson Education, Inc. publishing as Prentice Hall 4-30
Requirement 2 Emu and Subsidiary Corporation Consolidated Balance Sheet December 31, 2005 Assets Cash Accounts Receivable Inventory Goodwill Total Assets Equities Liabilities Capital Stock Additional Paid-in Capital Retained Earnings Minority Interest Total Liabilities and Equities
$
$
$
$
24,500 55,000 170,000 17,000 266,500
74,000 100,000 11,000 44,300 37,200 266,500
Minority Interest Calculation: $40,000 Beginning equity + $1,200 Net income - $4,000 Dividends = $37,200
©2009 Pearson Education, Inc. publishing as Prentice Hall 4-31
