EXERCISE 4-2: Park Company purchased 90% of the stock of Sat Company on !anuary "# 2009# for $4 $4## an amount e'ua to $" (n e)cess of the *ook +aue of e'u(ty ac'u(red, h(s e)cess payment reates to an under+auat(on of Sat Company.s and, and, /n the date of purchase# Sat Company.s reta(ned earn(ns *aance 1as $&0#000,, he rema(nder of the stockhoders. $&0#000 e'u(ty cons(sts of no-par common stock, ur(n 20"3# Sat Company decared d(+(dends (n the amount of $"0#000# $"0#000# and reported net (ncome of $40#000,, he reta(ned earn(ns *aance of Sat $40#000 Company on ecem*er 3"# 20"2# 20"2 # 1as $"0#000, $"0#000, Park Company uses the cost method to record (ts (n+estment, Re'u(red:
Computat(on and 5ocat(on of (6erence *et1een Imp(ed and 7ook 8aue 5c'u(red Parent onEnt(re ShareContro(n8aue Share Purch urchas ase e pr(c pr(ce e and and (mp (mp(ed (ed +au +aue e
4 4 000 0 &"# &"#; ;
&"# &"# ; <
=ess: 7ook +aue of e'u(ty ac'u(red:4&0#000&0#000&00#000 (6erence >(mp(ed and *ook +aue?""#;"#; 5ocated to under+aued and >"?>"#;?>"#;? 7aance
-0-
-0-
-0-
E'u(ty ac'u(red *y the parent company 4&0#000 E'u(ty ac'u(red for the 1hoe company &00#000 Common stock @@@@@@ >4&0#000? RE, "A" >B(+en? &0#000
"-In+estment (n Sat Company 99#000 Reta(ned Earn(ns "A" - Park Company 99#000 o esta*(sh rec(proc(ty >,90 > >$"0#000 D $&0#000??
2-(+(dend Income 9#000 (+(dends ecared >$"0000<,90? 9#000 3-Common Stock >4&-"&? 4&0#000 Reta(ned Earn(ns "A"A"3 "0#000 =and "#; In+estment >$4 $99#000? &4#000 CI >$&"#; ""#000? 2#;
EXERCISE 4-3: 5t the *e(nn(n of 2009# Pres(d(o Company purchased 9&% of the common stock of Succo Company for $494#000, /n that date# Succo Company.s stockhoders. e'u(ty cons(sted of the foo1(n: Common stock $300#000 /ther contr(*uted cap(ta "00#000 Reta(ned earn(ns "A"A2009 "20#000 ota $&20#000 ur(n 20";# Succo Company reported net (ncome of $40#000 and d(str(*uted d(+(dends (n the amount of $"9#000, Succo Company.s reta(ned earn(ns *aance at the end of 20" amounted to $"0#000, Pres(d(o Company uses the e'u(ty method, Re'u(red:
E'u(ty Income >$40#000?>,9&? 3F#000 In+estment (n Succo Company 3F#000 In+estment (n Succo Company "F0&0 (+(dends ecared >$"9#000? >,9&? "F#0&0
he *aance (n the (n+estment account at the *e(nn(n of the year (s $&32#000# 1h(ch (s computed as:G$494#000 >,9& ) >$"0#000 D $"20#000??H $&32#000
Common Stock 300#000 /ther Contr(*uted Cap(ta "00#000 Reta(ned Earn(ns "A"A"; "0#000 In+estment >494#000 3F#000? &32#000 oncontro(n Interest <
2F#000
< $&20#000 ) ,0& >,0& ) >$"0#000 - $"20#000?? 2F#000
In this instance, the part(a and compete e'u(ty methods resut (n the same entr(es *ecause the amount pa(d for the ac'u(s(t(on of Succo (s e)acty 9&% of Succo.s *ook +aue. Thus, there are no asset adjustments and no excess amortization or depreciation to consider. The equity income under the complete equity method is the same as under the partial equity method (95% of
EXERCISE 4-4: Poco Company purchased F&% of the outstand(n common stock of Serena Company on ecem*er 3"# 2009# for $3"0#000 cash, /n that date# Serena Company.s stockhoders. e'u(ty cons(sted of the foo1(n: Common stock $240#000 /ther contr(*uted cap(ta & Reta(ned earn(ns "A"A2009 &0#000 $34 ur(n 20"2# Serena Company d(str(*uted a d(+(dend (n the amount of $"2#000 and at year end reported a net oss of $"0#000, ur(n the t(me that Poco Company has hed (ts (n+estment (n Serena Company# Serena Company.s reta(ned earn(ns *aance has decreased $29#&00 to a net *aance of $20#&00 after cos(n on ecem*er 3"# 20"2, Serena Company d(d not decare or d(str(*ute any d(+(dends (n 20"0 or 20"", he d(6erence *et1een *ook +aue and the +aue (mp(ed *y the purchase pr(ce reates to ood1(, Re'u(red !
Part 5 D Jorkpaper entr(es "2A3"A"2 - E'u(ty Kethod In+estment (n Serena Company >,F&?<>$"2#000? "0200 (+(dends decared "0200
In+estment (n Serena Company >,F&?<>$"0#000 oss? F&00 E'u(ty oss F&00
7, 5ssume that Poco Company uses the cost method, Prepare (n enera ourna form the entr(es needed (n the preparat(on of a conso(dated statements 1orkpaper onParent ecem*er 3"# 20"2, on- Ent(re ShareContro(n 8aue Share Purchase pr(ce and (mp(ed +aue 3"0#000&4#;0 34#;0 < =ess: 7ook +aue of e'u(ty ac'u(red: (6erence I8 L 78
34
"#;&0 2#9&"9#;0
Bood1( 7aance
293#2&0&"#;&0
>"#;&0?>2#9&? -0-
-0-
-0-
>"9#;0?
Common Stock 240#000 /ther Contr(*uted Cap(ta Reta(ned Earn(ns "A"A"2
& 42#&00
a
(6erence >I8L78? "9#;0 In+estment (n S >$3"0#000 D $#3;& 303#2& CI >&4;0-""2&? &3#&F" $42#&00 $20#&00 at year-end pus 20"2 oss of $"0#000 pus 20"2 d(+(dends of $"2#000 G>$&0#000 - $42#&00? ) ,F&H #3;& G>$&0#000 - $42#&00? ) ,"&H ""2& a
•
•
Bood1( "9#;0 (6erence >I8L78? "9#;0
•
he part(a e'u(ty and the compete e'u(ty methods resut (n the same entr(es *ecause the e)cess of the cost o+er fa(r +aue of net assets (s aocated to ood1(# a nonamort(Ma*e asset, If any of th(s e)cess (s aocated to deprec(a*e assets or (ntan(*e assets 1(th (m(ted (+es >su*ect to amort(Mat(on?# add(t(ona e)penses 1( *e recorded under the compete e'u(ty method,
Part 7 # $orpaper entries &')&*9 + ost -ethod Nnder Cost method# *efore e(m(nat(on of the (n+estment account# a 1orkpaper entry (s made to the (n+estment account and P Company.s *e(nn(n reta(ned earn(ns to recon(Me P.s share of the cumuat(+e und(str(*uted (ncome or oss of S Company from the date of ac'u(s(t(on to the *e(nn(n of the current year as foo1s:
etained /arnin0s && + 1oco ompany 2,)35 In4estment in Serena ompany 2,)35 To estalish reciprocity (.65 ( (75*,*** # 78',5**
In4estment in Serena ompany (.65(7&',*** :i4idends :eclared + Serena ompany &*,'**
&*,'**
(In the normal position, the entry ;ill e from cash to di4idends income, ut ecause of the loss occurred in the year '*&'. the entry ;ill e from cash to in4estment.
Common Stock 240#000 /ther Contr(*uted Cap(ta & Reta(ned Earn(ns "A"A"2 42#&00 (6erence >I8L78? "9#;0 In+estment >$3"0#000 D $#3;&? 303#2& CI >&4;0-""2&? &3#&F"
Bood1( "9#;0 (6erence >I8L78? "9#;0
EXERCISE 4-&: /n !anuary "# 2009# Pate Company purchased a 90% (nterest (n the common stock of Set Company for $&0#000# an amount $20#000 (n e)cess of the *ook +aue of e'u(ty ac'u(red, he e)cess reates to the understatement of Set Company.s and hod(ns, E)cerpts from the conso(dated reta(ned earn(ns sect(on of the conso(dated statements 1orkpaper for the year ended ecem*er 3"# 2009# foo1: Set Company Consolidated Balances "A"A09 reta(ned earn(ns "90#000 FF0#000 et (ncome from a*o+e "32#000 420#000 (+(dends decared >&0#000? >FF#000? "2A3"A09 reta(ned earn(ns 2;2#000 "#2"2#000 Set Company.s stockhoder.s e'u(ty (s composed of
5, Jorkpaper Entr(es: Cost of (n+estment $ &0#000 =ess: e)cess cost aocated to and 20#000 7ook +aue ac'u(red >90%? $ 30#000 ota stockhoders. e'u(ty >$30#000A,90? ;00#000 =ess: Reta(ned earn(ns "A"A09 "90#000 Computat(on and 5ocat(on of (6erence *et1een Imp(ed and 7ook Common stock "A"A09 $ &"0#000 8aue 5c'u(red
Parent on- Ent(re ShareContro(n 8aue Share Purchase pr(ce and (mp(ed +aue $&0#000 ;2#222 < =ess: 7ook +aue of e'u(ty ac'u(red: 30#000 ;0#000 (6erence >I8L78?: 20#000 2#222 22#222 Bood1( >20#000? >22#222? 7aance -0-0-0-
;22#222 ;00#000 >2#222?
Part 5: E(m(nat(n entr(es D cost method (+(dend Income >,90?>$&0#000?4 (+(dends ecared - Set Company 4 Common Stock >$;00#000 D $"90#000? &"0#000 Reta(ned Earn(ns "A"A09 "90#000 (6erence >I7L78? 22#222 In+estment (n Sat Company &0#000 oncontro(n Interest ;2#222 =and
22#222
7, Prepare the e(m(nat(n entr(es re'u(red for the preparat(on of a conso(dated statements 1orkpaper on ecem*er 3"# 2009# assum(n the use of the e'u(ty method,
E'u(ty Income ""FF00 In+estment >,90?>$"32#000?
4
""FF00
In+estment d(+(dends decared >,90?>$&0#000?
4
Common Stock - Set Company &"0#000 Reta(ned Earn(ns "A"A0 - Set Company "90#000 (6erence >I8L78? 22#222
=and (6erence >I8L78?
22#222 22#222
C, eterm(ne the tota noncontro(n (nterest that 1( *e reported on the conso(dated *aance sheet on ecem*er 3"# 2009, Oo1 does the noncontro(n (nterest d(6er *et1een the cost method and the e'u(ty method@ "- $;2#222 >," > $"32#000? - >," > $&0#000? F0#422 2- he noncontro(n (nterest 1( *e the same reardess of the method used to account for the (n+estment on Pate Company.s *ooks,
EXERCISE 4-F : /n Kay "# 20"0# Peters Company purchased F0% of the common stock of Sm(th Company for $&0#000, 5dd(t(ona data concern(n these t1o compan(es for the years 20"0 and 20"" are: 2010 2011 Peters Smith Peters Smith Common stock $"00#000 $2 $"00#000 $2 /ther contr(*uted cap(ta 40#000 "0#000 40#000 "0#000 Reta(ned earn(ns# "A" F0#000 "0#000 "29#000 &3#000 et (ncome >oss? 4#000 4 3;#&00 >? Cash d(+(dends >""A30? " 2#000 0 5ny d(6erence *et1een *ook +aue and the +aue (mp(ed *y the purchase pr(ce reates to Sm(th Company.s and, Peters Company uses the cost method to record (ts (n+estment, Re'u(red:
Part 5: Jorkpaper Entr(es 20"0 (+(dend Income >,F0 > $2#000? "#00 (+(dends ecared - Sm(th Company "#00 Common Stock D Sm(th 2 /ther Contr(*uted Cap(ta D Sm(th "0#000 Reta(ned Earn(ns "A"A"0 - Sm(th "0#000 (6erence *et1een Imp(ed and 7ook 8aue 2#&00 Su*s(d(ary Income Purchased < " In+estment (n Sm(th Company &0#000
Computat(on and 5ocat(on of (6erence *et1een Imp(ed and 7ook 8aue 5c'u(red Parent on- Ent(re ShareContro(n 8aue Share Purchase pr(ce and (mp(ed +aue &0#000"2#&00 2#&00 < =ess: 7ook +aue of e'u(ty ac'u(red: E'u(ty 3#000 9#000 4 Su*s(d(ary Income purchased<<"2#0003#000 " ota *ook +aue 4F#000"2#0000#000 (6erence >I8L78? 2#000 &00 2#&00 Bood1( >2#000? >&00? >2#&00? 7aance -0-0-0-
<$&0#000A,F0 <4A"2< $4? "
20"" Est(mated Reta(ned Earn(ns of Sm(th on date of ac'u(s(t(on<< Reta(ned earn(ns# "A"A20"0 $ "0#000 Sm(th earn(ns to "A&A20"0 >4A"2?>$4 from net (ncome? " Reta(ned earn(ns# "A&A20"0 $ 2
In+estment (n Sm(th 22#400 Reta(ned Earn(ns "A" Peters 22#400 o esta*(sh rec(proc(ty >,F0 > >$&3#000 D $2< Common Stock - Sm(th 2 /ther Contr(*uted Cap(ta - Sm(th Reta(ned Earn(ns "A"A"" D Sm(th =and
"0#000 &3#000
EXERCISE 4-9:
E)erc(se 4-9 Jorkpaper Entr(es - Cost Kethod 20"0 (+(dend Income >,F0?>$2#000? "#00 (+(dends ecared - Sm(th Company "#00 Common Stock D Sm(th 2 /ther Contr(*uted Cap(ta D Sm(th "0#000 Reta(ned Earn(ns &A"A0; D Sm(th < 2 (6erence *et1een Imp(ed and 7ook 8aue 2#&00 In+estment (n Sm(th Company &0#000 oncontro(n Interest "2#&00 =and
2#&00