Solution Advanced Accounting 11ed Chp4

Chapter 4

CONSOLIDATION TECHNIQUES AND PROCEDURES Answers to Questions

1

Under the equity method, a parent amortizes patents from its subsidiary investments by adjusting its subsidiary investment and income accounts. Since patents and patent amortization accounts are not recorded on the parent’s books, they are created for consolidated statement purposes through workpaper entries.

2

Noncontrolling interest share is entered in the consolidation workpapers by preparing a workpaper adjusting entry in which noncontrolling interest share is debited, noncontrolling interest’s share of dividends is credited and noncontrolling interest is credited. The noncontrolling interest share (debit) is carried to the consolidated income statement as a deduction, and the credit to noncontrolling interest for noncontrolling interest share is added to the beginning noncontrolling interest. The noncontrolling interest share is calculated based on the subsidiary’s reported net income adjusted to reflect fair value through the amortization of the excess of fair value over book value. This is the approach illustrated throughout this text.

3

Workpaper procedures for the investment in subsidiary, income from subsidiary, and subsidiary equity accounts are alike in regard to the objectives of consolidation. Regardless of the configuration of the workpaper entries, the final result of adjustments for these items is to eliminate them through workpaper entries. In other words, the investment in subsidiary, income from subsidiary, and the capital stock, additional paid-in capital, retained earnings, and other stockholders’ equity accounts of the subsidiary never appear in consolidated financial statements.

4

When the parent does not amortize fair value/book value differentials on its separate books, the parent’s income from subsidiary and investment in subsidiary accounts are overstated in the year of acquisition. In subsequent years, the income from the subsidiary, investment in subsidiary, and parent’s beginning retained earnings will be overstated. (This assumes that the asset is undervalued).The error may be corrected in the workpapers with the following entries: Year of acquisition Income from subsidiary Investment in subsidiary Subsequent year Income from subsidiary Retained earnings — parent Investment in subsidiary

XXX XXX XXX XXX XXX

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Consolidation Techniques and Procedures

4-2

By entering a correcting entry, all other workpaper entries are the same as if the parent provided for amortization on its separate books. If the errors are not corrected through the workpaper entries suggested above, the entry to eliminate the income from subsidiary in the year of acquisition is prepared in the usual manner without further complications because neither the beginning investment nor retained earnings accounts are affected by the omission. In subsequent years the entry to eliminate income from subsidiary and dividends from subsidiary will have to be changed to correct the beginning-of-the-period retained earnings as follows: Income from subsidiary Retained earnings — parent Dividends (subsidiary) Investment in subsidiary

XXX XXX XXX XXX

5

No. Workpaper adjustments are not entered in the general ledger of the parent or any other entity. They are used in the preparation of consolidated financial statements for a conceptual entity for which there are no formal accounting records.

6

Workpapers are tools of the accountant that facilitate the consolidation of parent and subsidiary financial statements. Given the tools available, the accountant should select those that are most convenient in the circumstances. If financial statements are to be consolidated, the financial statement approach is the appropriate tool. The trial balance approach is most convenient when the data are presented in the form of a trial balance. The accountant needs to be familiar with both approaches to perform the work as efficiently as possible.

7

Workpaper adjustment and elimination entries as illustrated in this text are exactly the same when the trial balance approach is used as when the financial statement approach is used. This is possible through a check-off system that nullifies the closing process when the financial statement approach is used.

8

The retained earnings of the parent will equal consolidated retained earnings if the equity method of accounting has been correctly applied. In consolidating the financial statements of affiliated companies, the beginning retained earnings of the parent are used as beginning consolidated retained earnings. If the equity method has not been correctly applied, parent beginning retained earnings will not equal beginning consolidated retained earnings. In this case, retained earnings of the parent are adjusted to a correct equity basis in order to establish the correct amount of beginning consolidated consolidated retained earnings. Thus, workpaper adjustments to beginning retained earnings of the parent are needed whenever the beginning retained earnings of the parent do not correctly reflect the equity method.

9

The noncontroling interest that appears in the consolidated balance sheet can be checked by first adjusting the equity of the subsidiary on the consolidated balance sheet date to fair value (i.e., adjusting for any unamortized excess of fair value over book value) and then multiplying by the noncontrolling interest percentage. Consolidated retained earnings at a balance sheet date can be checked by comparing the amount with the parent’s retained earnings on the same date. If consolidated retained earnings and parent retained earnings are not equal, either consolidated retained earnings have been computed incorrectly, or parent retained earnings do not reflect a correct correct equity method of accounting.

10

Consolidated assets and liabilities are reported for all equity holders—noncontrolling holders—noncontrolling as well as controlling. Therefore, the change in net assets from operations for a period results from noncontrolling interest share and controlling interest share.

11

A change in cash relates to all interests in the consolidated entity. This difference is one of many inconsistencies in the concepts underlying consolidated financial statements. Consider, for example, the error that could result from dividing cash provided by operations by outstanding parent shares to compute cash flow per share.

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Chapter 4

4-3

SOLUTIONS TO EXERCISES Solution E4-1 d 1 c 2 a 3 d 4 b 5

6 7 8 9 10

d b b a b

Solution E4-2 Preliminary computations (in thousands)

I nvest nvest ment ent cost J anua anuarr y 2 I mpl i ed t ot al f ai r val val ue of Sal ( $600 / 80%) Less: Book ook val val ue Excess xcess f ai r val val ue over over book ook val val ue Excess allocated to: I nven vent or y Remai nder nder t o good goodw wi l l Excess xcess f ai r val val ue over over book ook val val ue 1



20% noncon cont r ol l i ng i nt er est

5

$ 23

Noncontrolling interest December 31

Sal ’ s equ equi t y book ook val val ue Add: dd: Unam namor t i zed excess excess ( Goodw oodwi l l ) Sal ’ s equi t y f ai r val ue 20% noncon cont r ol l i ng i nt er est 4

$140 ( 25) $115 $115 $ 92

Noncontrolling interest share

Sal Sal ’ s adj adj ust ed i ncom ncome $115 $115 3

$ 25 225 225 $250

Income from Sal

Sal ’ s r epor epor t ed net i ncome Less: Less: Exce xcess al l oca ocat ed t o i nven vent or y ( sol sol d i n 2011) Sal Sal adj adj ust ed i ncom ncome Pan’ Pan’ s 80% 80% shar e 2

$600 $600 $750 ( 500) $250

$520 225 225 $745 $149

Investment in Sal December 31

I nvest nvest ment ent cost J anua anuarr y 2 Add: I ncome f r om Sal ( gi ven ven) * Less: Di vi dend ends ( $120  80%) I nvest ment i n Sal December 31 * Assum Assumes t hi s i s based based on Sal ’ s adj adj ust ed i ncome

$600 $600 100 (96) $604 $604

Consol onsol i dat dat ed net net i ncom ncome Noncon cont r ol l i ng i nt er est sha shar e Cont r ol l i ng i nt er est sha shar e equal s P Pa ar ent NI under equi t y met hod. hod.

$383 $383.. 4 $ 23 $360 $360.. 4

©2011 Pea Pear son Educat cat i on, on, I nc. publ i shi ng as Pr ent i ce Hal l


4-4

Solution E4-3 1 $700 $700,, 000 000

( $300 $300,, 000 000 + $440 $440,, 000 000 - $40, $40, 000 000 i nt er company) pany)

Preliminary computations for 2 and 3

2

3

I nvest nvest ment ent cost on J anua anuarr y 1, 2011 2011 I mpl i ed t ot al f ai r val val ue of Sar ( $28, 000 / 70%) Book ook val val ue of Sar Sar Exce xcess al l ocat cat ed ent i r el y t o Goodwi l l

$28, $28, 000 000 $40, 000 30, 30, 000 000 $10, 000

Pim’s separate income for 2013

$24, $24, 000 000 ( 700) $23, 300 + ( 300) $23, $23, 000 000 $28, $28, 000 000

Loss Loss f r om i nvest vest ment i n Sar ( $1, 000  70%) Cont ont r ol l i ng shar shar e of consol consol i dat ed net i ncom come Noncon oncontt r ol l i ng sha shar e Consol onsol i dat dat ed net net i ncom ncome I nvest nvest ment ent cost J anua anuarr y 1, 2011 2011 Add: Shar e of of i ncome l ess di vi dend ends 201 2011 — 2013 ( $1, 400 i ncome - $1, 000 di vi dends) ends)  70% I nvest ment bal ance December 31, 31, 2013 2013

280 $28, $28, 280

Solution E4-4 Preliminary computations

I nvest nvest ment ent cost I mpl i ed t ot al f ai r val val ue of Si n ( $580, 000 / 80%) Book val ue Tot al excess f ai r val ue over book val ue

$580 $580,, 000 000 $725, 000 600, 600, 000 000 $125, $125, 000

Excess allocated to:

Equi pment ( 5- yea year l i f e) Pat Pat ent s ( 10- year year amort i zat i on per i od) od) Tot al excess f ai r val ue over book val ue

$ 50, 000 75, 000 $125, $125, 000

Income from Sin

Si n’ s Less: Less: Less: Less: Si n’ s 1a

r epor epor t ed net net i ncom ncome Depr eci at i on of excess xcess al l ocat ocat ed t o equi pment ent Amor t i zat zat i on of pat ent s adj adj ust ed i ncom ncome I ncom ncome f r om Si n ( 80% 80%)

2011 $120 $120,, 000 000 ( 10, 000) ( 7, 500) $102 $102,, 500 500 $ 82, 82, 000 000

Consolidated net income for 2011

Pen Pen’ s ne net i ncome = con cont r ol l i ng shar shar e of con consol i dat ed net i ncome under under equi equi t y met hod Add: Noncon cont r ol l i ng i nt er est sha shar e Consol onsol i dat dat ed net net i ncom ncome 1b



80%)

Noncontrolling interest share — 2011

( $102 $102,, 500 500 adj adj ust ed i ncom ncome 1d

$340 $340,, 000 000 20, 500 $360 $360,, 500 500

Investment in Sin December 31, 2011

Cost J anua anuarr y 1 Add: I ncome f r om Si n — 2011 Less: Less: Di vi dends f r om Si n — 2011 2011 ( $80, $80, 000 000 I nvest nvest ment ent i n Si n December ber 31 1c

2012 $150 $150,, 000 000 ( 10, 000) ( 7, 500) $132 $132,, 500 500 $106 $106,, 000 000

20%)



$580 $580,, 000 000 82, 82, 000 000 ( 64, 000) $598 $598,, 000 000 $ 20, 500 500

Noncontrolling interest December 31, 2012

Si n’ s equi t y book ook val val ue at acq acqui si t i on dat e Add: dd: I ncom ncome l ess di vi dend dends s f or 2011 2011 and and 2012 2012 ( see not not e) Si n’ s equi equi t y book book val ue at Decem ecember ber 31, 31, 2012 2012 Unamor t i z ed excess at December 31, 2012 2012

$600, 000 100, 100, 000 000 700, 700, 000 000 90, 90, 000

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Chapter 4

4-5

Si n’ s equi t y f ai r val ue at December 31, 2012 Noncont r ol l i ng i nt er est per cent age Noncont r ol l i ng i nt erest December 31, 2012

$790, 000 20% $158, 000

Solution E4-4 (continued)

Not e: Si n’ s i ncome l ess di vi dends: 2011 Net I ncome 2011 Di vi dends 2012 Net I ncome 2012 Di vi dends Tot al

$ 120, 000 ( 80, 000) 150, 000 ( 90, 000) $ 100, 000

Solution E4-5 1 2 3 4 5

c a b c d

Solution E4-6 Pat Corporation and Subsidiary

Par t i al Consol i dat ed Cash Fl ows St at ement f or t he year ended December 31, Cash Flows from Operating Activities

Cont r ol l i ng i nt er est shar e of consol i dat ed net i ncome

$100, 000

Adjustments to reconcile net income to cash provided by operating act ivities:

Noncont r ol l i ng i nt er est shar e Undi st r i but ed i ncome of equi t y i nvest ees Loss on sal e of l and Depr eci at i on expense Pat ent s amort i zat i on I ncr ease i n account s r ecei vabl e I ncrease i n i nvent or i es Decr ease i n account s payabl e

$ 50, 000 ( 5, 000) 100, 000 120, 000 16, 000 ( 105, 000) ( 45, 000) ( 20, 000)

Net cash flows from operating activities

111, 000 $211, 000

Solution E4-7 Pro Corporation and Subsidiary

Par t i al Consol i dat ed Cash Fl ows St at ement f or t he year ended December 31, Cash Flows from Operating Activities

Cash r ecei Di vi dends Less: Cash pai d Cash pai d Cash pai d Cash pai d

ved f r om cust omer s r ecei ved f r om equi t y i nvest ees t o suppl i er s t o empl oyees f or ot her operat i ng i t ems f or i nt erest expense

Net cash flows from operating activities

$322, 500 7, 000 $182, 500 27, 000 23, 500 12, 000

245, 000 $ 84, 500

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4-6

SOLUTIONS TO PROBLEMS Solution P4-1 ( i n t housands of $) Preliminary computations

I nvest ment i n Sen ( 75%) J anuar y 1, 2011 I mpl i ed f ai r val ue of Sen ( $2, 400 / 75%) Book val ue of Sen Tot al excess of f ai r val ue over book val ue Excess al l ocat ed: 10% t o i nvent or i es ( sol d i n 2011) 40% t o pl ant asset s ( usef ul l i f e 8 year s) 50% t o goodwi l l Tot al excess of f ai r val ue over book val ue 1

Goodwi l l at December 31, 2015 ( not amor t i zed)

2

Noncontrolling interest share for 2015

Net i ncome ( $1, 000 sal es - $600 expenses) Less: Amort i zat i on of excess Pl ant asset s ( $320 / 8 yr s. ) Adj ust ed Sen i ncome 25% Shar e 3

400

$

400

$ $

( 40) 360 90

$1, 670 $1, 670 1, 085 ( 500) $2, 255 $5, 000 ( 3, 825) 1, 175 ( 90) $1, 085


Sen’ s st ockhol der s’ equi t y at book val ue Unamort i zed excess af t er f our years: I nvent ory Pl ant asset s ( $320 - $160) Goodwi l l Sen’ s st ockhol der s’ equi t y at f ai r val ue 25% Sen’ s st ockhol der s’ equi t y at f ai r val ue 7

$

Consolidated net income for 2015

Consol i dat ed sal es Less: Consol i dat ed expenses ( $3, 785 + $40 depr eci at i on) Tot al consol i dat ed i ncome Less: Noncont r ol l i ng i nt er est shar e Cont r ol l i ng shar e of consol i dat ed net i ncome f or 2015 6

$

80 320 400 800

Consolidated retained earnings December 31, 2015

Pea’ s r et ai ned ear ni ngs December 31, 2014 Add: Pea’ s net i ncome f or 2015 Less: Pea’ s di vi dends f or 2015 Consol i dat ed r et ai ned ear ni ngs December 31 5

$

Consolidated retained earnings December 31, 2014

Equal t o Pea’ s December 31, 2014 r et ai ned ear ni ngs Si nce t hi s a tr i al bal ance, r epor t ed r et ai ned ear ni ngs equal s begi nni ng of 2015 r et ai ned ear ni ngs. 4

$2, 400 $3, 200 ( 2, 400) $ 800

$2, 400 0 160 400 $2, 960 $ 740


Sen’ s st ockhol der s’ equi t y at book val ue Unamort i zed excess af t er f i ve years: I nvent ory Pl ant asset s ( $320 - $200) Goodwi l l Sen’ s st ockhol der s’ equi t y at f ai r val ue

$2, 600 0 120 400 $3, 120

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Chapter 4

4-7

25% Sen’ s st ockhol der s’ equi t y at f ai r val ue

$


780


4-8

Solution P4-2 Pal Corporation and Subsidiary

1

Consol i dat i on Wor kpaper s f or t he year ended December 31, 2011 ( i n t housands) 80% Sal

Pal

Adj ust ment s and El i mi nat i ons

Consol i dat ed St at ement s

Income Statement

$ 620 Sal es I ncome f r om Sal 21 Cost of goods sol d 400* Oper at i ng expenses 154* Consol i dat ed NI Noncont r ol . i nt er est shar e ( $1530, 000



$ 200 a 21 130* 40*

530* 194* $ 96 c

30%)

Cont r ol l i ng share

$ 820

$

87

$

9*

9

30

$

87

Retained Earnings

Ret ai ned ear ni ngs — Pal

$ 130 $

Ret ai ned earni ngs — Sal Net i ncome

87 60*

Di vi dends Ret ai ned ear ni ngs December 31

$ 130 22

b 22 87

30 20*

a 14 c 6

60*

$ 157

$

32

$ 157

$

$

30 60 40 70

$ 121 180 88 310

Balance Sheet

Cash Recei vabl es — net I nvent or i es PP&E — net I nvest ment i n Sal

Account s payabl e Ot her l i abi l i t i es Capi t al st ock Ot her pai d- i n capi t al Ret ai ned earni ngs

91 120 48 240 98

a 7 b 91

$ 597

$ 200

$ 699

$

$

$

60 40 300 40 157

$ 597

36 24 100 8

b100 b 8

32 $ 200

Noncont r ol l i ng i nt erest J anuary 1 Noncont r ol l i ng i nt er est December 31 160 *

96 64 300 40 157

b 39 c 3 160

42 $ 699

Deduct

Workpaper entries

a b c

To el i mi nate i ncome f r om Sal and di vi dends r ecei ved f r omSal and adj ust t he i nvest ment i n Sal account t o i t s begi nni ng of t he per i od bal ance. To el i mi nat e r eci pr ocal i nvest ment i n Sal and equi t y amount s of Sal and t o ent er begi nni ng noncont r ol l i ng i nt er est . To ent er noncont r ol l i ng i nt er est share of subsi di ary i ncome and di vi dends.


Chapter 4

4-9

Solution P4-2 ( cont i nued) 2

Pal Corporation and Subsidiary

Consol i dat ed I ncome St at ement f or t he year ended December 31, 2011 ( i n t housands) Sal es Less: Cost of goods sol d Gr oss pr of i t Oper at i ng expenses Consol i dat ed net i ncome Less: Noncont r ol l i ng i nt er est shar e Cont r ol l i ng shar e of consol i dat ed net i ncome

$820 530 290 194 96 9 $ 87


Consol i dat ed Ret ai ned Ear ni ngs St at ement f or t he year ended December 31, 2011 Consol i dat ed r et ai ned ear ni ngs J anuar y 1 Add: Cont r ol l i ng shar e of onsol i dat ed net i ncome Less: Di vi dends of Pal Consol i dat ed r et ai ned ear ni ngs December 31

$130 87 ( 60) $157


Consol i dat ed Bal ance Sheet at December 31, 2011 Assets

Cur r ent asset s: Cash Recei vabl es — net I nvent or i es Pl ant asset s — net Tot al ass et s

$121 180 88

$389 310 $699

Liabilities and Stockholders’ Equity

Li abi l i t i es: Account s payabl e Ot her l i abi l i t i es St ockhol der s’ equi t y: Capi t al st ock, $10 par Ot her pai d- i n capi t al Consol i dat ed r et ai ned ear ni ngs Add: Noncont r ol l i ng i nt er est Tot al l i abi l i t i es and st ockhol der s’ equi t y

$ 96 64 $300 40 157 497 42

$160

539 $699



4-10

Solution P4-3 Pan Corporation and Subsidiary

Consol i dat i on Wor kpapers f or t he year ended December 31, 2011 ( i n t housands) Pan


Saf 75%

Consol i dated St at ement s

Income Statement

Sal es I ncome f r om Saf Cost of sal es Ot her expenses Consol i dat ed Net I ncome Noncont r ol l i ng shar e Cont r ol l i ng shar e of NI

$800 27. 6 500* 194*

$200

$1, 000 a

100* 52*

27. 6

c

11. 2

f

9. 2 $

600* 257. 2* 142. 8 9. 2* 133. 6

$

360

$ $133. 6

$ 48

Retained Earnings

Ret ai ned earni ngs — Pan Ret ai ned earni ngs — Saf Cont r ol l i ng shar e of NI Di vi dends Ret ai ned earni ngs December 31

$360 $ 68 133. 6 100*

b

68 133. 6

48 32*

a f

24 8

100*

$393. 6

$ 84

$

393. 6

$

$ 30 40

$

136 212

Balance Sheet

Cash Account s r ecei vabl e Di vi dends r ecei vabl e f r om Saf I nvent or i es Not e r ecei vabl e f r om Pan Land Bui l di ngs — net Equi pment — net I nvest ment i n Saf

106 172 12 190 130 340 260 363. 6

e 20 10 60 160 100

Pat ent s

210 d

10 190 500 360

b

Account s payabl e Not e payabl e t o Saf Di vi dends payabl e Capi t al st ock, $10 par Ret ai ned earni ngs

12

$1, 573. 6

$420

100. 8 $1, 708. 8

$

$ 20

$

170 10

1, 000 393. 6 $1, 573. 6 Noncont r ol l i ng i nt er est J anuary 1 Noncont r ol l i ng i nt erest December 31

16 300 84 $420

d e b

112

a 3. 6 b 360 c 11. 2

10 12 300

550

190

4 1, 000 393. 6 b 120 f 1. 2 550

121. 2 $1, 708. 8

*Deduct


Chapter 4

4-11

Solution P4-3 ( cont i nued) Supporting Calculations Saf’s value at acquisition

Book val ue at December 31, 2011 Less: 2011 Net i ncome Add: 2011 Di vi dends Book val ue on J anuar y 1, 2011 Fai r val ue of pat ent s Saf ’ s f ai r val ue on J anuar y 1, 2011

$384 ( 48) 32 $368 112 $480

Pur chase pr i ce ( f ai r val ue) of Pan’ s 75% shar e Noncont r ol l i ng i nt erest ( 25%)

$360 $120

Pat ent s have a ten- year l i f e, so amor t i zat i on i s $11, 200 per year . Saf’s Adjusted Income

Saf ’ s net i ncome Less: Amort i zat i on of Pat ent s Saf ’ s adj ust ed i ncome Pan’ s 75% shar e Noncont r ol l i ng i nt er est 25% shar e

$ 48 ( 11. 2) $ 36. 8 $ 27. 6 $ 9. 2



4-12

Solution P4-4 Pal Corporation and Subsidiary

Consol i dat i on Wor kpapers f or t he year ended December 31, 2011 ( i n t housands) Pal


Sun 75%


Income Statement

Sal es I ncome f r om Sun Cost of sal es Ot her expenses Consol i dat ed NI Noncont r ol l i ng shar e Cont r ol l i ng shar e of NI

$800 36 500* 194*

$200

$1, 000 a

36

100* 52* $ c

$142

12

$ 48

$

600* 246* 154 12* 142

Retained Earnings

Ret ai ned earni ngs — Pal Ret ai ned earni ngs — Sun Cont r ol l i ng shar e of NI Di vi dends

$360

$360 $ 68

142 100*

Ret ai ned ear ni ngs – Dec 31 $402

b

68 142

48 32*

a c

24 8

100*

$ 84

$402

$ 30 40

$

Balance Sheet

Cash Account s r ecei vabl e Di vi dends r ecei vabl e f r om Sun I nvent or i es Note r ecei vabl e f r om Pal Land

$

118 160 12 190

Bui l di ngs — net Equi pment — net I nvest ment i n Sun

e

130 340

20 10 60 160

260

100

d

10 190 500 360

a 12 b 360 b 112

112

$1, 582

$420

$1, 720

$

$ 20

$

170 10

1, 000 402 $1, 582

16 300

d 10 e 12 b 300

190

4 1, 000 402

84 $420

Noncont r ol l i ng i nt er est J anuary 1 Noncont r ol l i ng i nt er est December 31 550 *

12 210

372

Goodwi l l

Account s payabl e Not e payabl e t o Sun Di vi dends payabl e Capi t al st ock, $10 par Ret ai ned earni ngs

148 200

b 120 c 4 550

124 $1, 720

Deduct


Chapter 4

4-13

Solution P4-4( cont i nued) Supporting Calculations Sun’s value at acquisition:

Book Less: Add: Book

val ue at December 31, 2011 2011 Net i ncome 2011 Di vi dends val ue on J anuar y 1, 2011

Pur chase pr i ce of Pal ’ s 75% shar e I mpl i ed f ai r val ue of Sun ( $360 / 75%) Sun’ s book val ue Excess al l ocat ed t o Goodwi l l Noncont r ol l i ng i nt erest ( 25% x $480)

$384 ( 48) 32 $368 $360 $480 368 $112 $120

Sun’sAdjusted Income

Saf ’ s net i ncome Less: Amor t i zat i on of Goodwi l l Sun’ s adj ust ed i ncome Pal ’ s 75% shar e Noncont r ol l i ng i nt er est 25% shar e

$48 ( 0) $48 $36 $12

Solution P4-5 Preliminary computations Allocation of excess fair value over book value

Cost of 70% i nt er est J anuar y 1 I mpl i ed f ai r val ue of Sul ( $490, 000 / 70%) Book val ue of Sul Excess f ai r val ue over book val ue Noncont r ol l i ng i nt er est – 30% of f ai r val ue at acqui si t i on

$490, 000 $700, 000 ( 600, 000) $100, 000 $210, 000

Excess allocated

Under val ued i nvent or y i t ems sol d i n 2011 Under val ued bui l di ngs ( 7 year l i f e) Under val ued equi pment ( 3 year l i f e) Pat ent s Remai nder t o Goodwi l l Excess f ai r val ue over book val ue

$

5, 000 14, 000 21, 000 40, 000 20, 000 $100, 000

Calculation of income from Sul

Sul ’ s net i ncome Less: Under val ued i nvent ori es sol d i n 2011 Less: Addi t i onal Depr eci at i on on bui l di ng ( $14, 000/ 7 year s) Less: Addi t i onal Depr eci at i on on equi pment ( $21, 000/ 3 years) Less: Pat ent amor t i zat i on ( $40, 000/ 40 year s) Sul ’ s adj ust ed i ncome Par ’ s 70% cont r ol l i ng i nt er est shar e Noncont r ol l i ng i nt er est ’ s 30% shar e

$100, 000 ( 5, 000) ( 2, 000) ( 7, 000) ( 1, 000) $ 85, 000 $ 59, 500 $ 25, 500



4-14

Solution P4-5 ( cont i nued) Workpaper entries for 2011

a

b

c

d e f g h i

I ncome f r om Sul Di vi dends ( Sul ) I nvest ment i n Sul Capi t al st ock ( Sul ) Ret ai ned ear ni ngs ( Sul ) J anuar y 1 Unamor t i zed excess I nvest ment i n Sul Noncont r ol l i ng i nt er est J anuar y 1 Cost of sal es ( f or i nvent or y i t ems) Bui l di ngs — net Equi pment — net Pat ent s Goodwi l l Unamor t i zed excess

59, 500 35, 000 24, 500 500, 000 100, 000 100, 000 490, 000 210, 000 5, 000 14, 000 21, 000 40, 000 20, 000 100, 000

Depr eci at i on expense Bui l di ngs — net

2, 000

Depr eci at i on expense Equi pment — net

7, 000

Ot her expenses Pat ent s

1, 000

2, 000 7, 000 1, 000

Account s payabl e Account s r ecei vabl e

10, 000

Di vi dends payabl e Di vi dends r ecei vabl e

14, 000

Noncont r ol l i ng I nt er est Shar e Di vi dends — Sul Noncont r ol l i ng I nt er est

25, 500

10, 000 14, 000


15, 000 10, 500

Chapter 4

4-15

Solution P4-5 ( cont i nued) Par Corporation and Subsidiary

Consol i dat i on Wor kpapers f or t he year ended December 31, 2011 ( i n t housands) Par


Sul 70%

Consol i dated St at ement s

Income Statement

Sal es I ncome f r om Sul Cost of sal es Depr eci at i on expense Ot her expenses Consol i dat ed NI Noncont r ol l i ng share Cont r ol l i ng shar e of NI

$

800 59. 5 300* 154*

$ 700 400* 60*

160*

140*

$1, 500 a c d e f i

$

245. 5

$

300

59. 5 5 2 7 1

705* 223*

$

301* 271 25. 5*

$

245. 5

$

300

25. 5

$ 100

Retained Earnings

Ret ai ned ear ni ngs — Par

$ 100

Ret ai ned ear ni ngs — Sul Net i ncome

245. 5 200*

Di vi dends Ret ai ned ear ni ngs – Dec 31 $

b 100 245. 5

100 50*

a i

35 15

200*

345. 5

$ 150

$

345. 5

86 100 14 150 70 50 140

$

$

146 160

Balance Sheet

Cash Account s r ecei vabl e Di vi dends r ecei vabl e I nvent or i es Ot her cur r ent asset s Land

$

Bui l di ngs — net

570

Equi pment — net I nvest ment i n Sul

60 70

c

14

d

2

250 100 150 312

330

c

21

e

7

914

514. 5 c 40 c 20 b 100 $1, 694. 5

$ 850

$

$

200 100 49 1, 000 345. 5

$1, 694. 5

85 20 95 500

a 24. 5 b 490 f 1

39 20

c 100 $2, 091

g h

10 14

$

275 106 144 1, 000 345. 5

b 500

150 $ 850

Noncont r ol l i ng i nt erest J anuary 1 Noncont r ol l i ng i nt erest December 31 919 *

10 14

100 30 100 160

Pat ent s Goodwi l l Unamor t i zed excess

Account s payabl e Di vi dends payabl e Ot her l i abi l i t i es Capi t al st ock, $10 par Ret ai ned earni ngs

g h

b 210 i 10. 5 919

220. 5 $2, 091

Deduct



4-16

Solution P4-6 Supporting computations

Owner shi p per cent age 13, 500/ 15, 000 shar es = 90% I nvest ment cost ( 13, 500 shar es  $15) I mpl i ed f ai r val ue of Syn ( $202, 500 / 90%) Book val ue of Syn Excess f ai r val ue over book val ue

$202, 500 $225, 000 165, 000 $ 60, 000

Excess allocated to

Land Remai nder t o pat ent s Excess f ai r val ue over book val ue

$ 20, 000 40, 000 $ 60, 000

Income from Syn

Syn’ s r epor t ed net i ncome Less: Pat ent amor t i zat i on Syn’ s adj ust ed i ncome

$ 24, 000 ( 4, 000) $ 20, 000

Pen’ s shar e of Syn’ s i ncome ( 90%) Noncont r ol l i ng i nt er est shar e ( 10%)

$ 18, 000 $ 2, 000

Investment in Syn December 31, 2012

Cost J anuar y 1, 2011 Pen’ s shar e of t he change i n Syn’ s r et ai ned ear ni ngs ( $42, 000 - $15, 000)  90% Less: Pen’ s share ( 90%) of Pat ent amort i zat i on f or 2 year s I nvest ment i n Syn December 31

$202, 500 24, 300 ( 7, 200) $219, 600


Chapter 4

4-17

Solution P4-6 ( cont i nued) Pen Corporation and Subsidiary

Consol i dat i on Wor kpapers f or t he year ended December 31, 2012 ( i n t housands) Pen


90% Syn


Income Statement

Sal es I ncome f r om Syn Cost of sal es Ot her expenses Consol i dat ed NI Noncont r ol l i ng shar e Cont r ol l i ng shar e of NI

$ 400 18 250* 100. 6*

$

67. 4

$ 100

$ 500 a

50* 26*

$

18

c

4

g

2

300* 130. 6* $ 69. 4 2 *

24

$

67. 4

Retained Earnings

Ret ai ned ear ni ngs — Pen

$ 177

$ 177 $

Ret ai ned ear ni ngs — Syn Net i ncome

67. 4 50*

Di vi dends

Ret ai ned ear ni ngs – Dec 31 $ 194. 4

34

b

34 67. 4

24 16*

a g

14. 4 1. 6

50*

$

42

$ 194. 4

$

15 20

$

Balance Sheet

Cash Account s r ecei vabl e Di vi dends r ecei vabl e- - Syn I nvent or i es

$

Not e recei vabl e — Pen I nvest ment i n Syn

f d

10 5

Bui l di ngs — net Equi pment — net Pat ent s

e

30 80

130

50

b

$ 784. 8

$ 210

$

$

194. 4 $ 784. 8

10 8 150

20

36

c

4

32 $ 810

f 5 e 5 d 7. 2 b 150

$

90. 4 .8 500 194. 4

42 $ 210

Noncont r ol l i ng i nt erest J anuary 1 Noncont r ol l i ng i nt erest December 31 281. 2 *

115 250 180

b

500

5

a 3. 6 b 216

65 170

85. 4 5

5 7. 2

33 95 105

219. 6

Land

Account s payabl e Not e payabl e t o Syn Di vi dends payabl e Capi t al st ock Ret ai ned earni ngs

18 80 7. 2 95

b 24 g .4 281. 2

24. 4 $ 810

Deduct



4-18

Solution P4-7 Preliminary computations Allocation of excess fair value over book value

Cost of 70% i nt er est J anuar y 1 I mpl i ed f ai r val ue of Sol ( $490, 000 / 70%) Book val ue of Sol Excess f ai r val ue over book val ue

$490, 000 $700, 000 ( 600, 000) $100, 000

Excess allocated

Under val ued i nvent or y i t ems sol d i n 2011 Under val ued bui l di ngs ( 7 year l i f e) Under val ued equi pment ( 3 year l i f e) Remai nder t o goodwi l l Excess f ai r val ue over book val ue

$

5, 000 14, 000 21, 000 60, 000 $100, 000

Calculation of income from Sol

Sol ’ s r epor t ed net i ncome Less: Underval ued i nvent ori es sol d i n 2011 Less: Depr eci at i on on bui l di ng ( $14, 000/ 7 year s) Less: Depr eci at i on on equi pment ( $21, 000/ 3 year s) Adj ust ed i ncome f r om Soul Par ’ s 70% cont r ol l i ng shar e 30% Noncont r ol l i ng i nt er est shar e

$100, 000 ( 5, 000) ( 2, 000) ( 7, 000) $ 86, 000 $ 60, 200 $ 25, 800

Workpaper entries for 2011

a

b

c

d e f

g h

I ncome f r om Sol Di vi dends ( Sol ) I nvest ment i n Sol Capi t al st ock ( Sol ) Ret ai ned ear ni ngs ( Sol ) - J anuar y 1 Unamor t i zed excess I nvest ment i n Sol Noncont r ol l i ng i nt er est - J anuar y 1 Cost of sal es ( f or i nvent or y i t ems) Bui l di ngs — net Equi pment — net Goodwi l l Unamor t i zed excess

60, 200 35, 000 25, 200 500, 000 100, 000 100, 000 490, 000 20, 000 5, 000 14, 000 21, 000 60, 000 100, 000

Depr eci at i on expense Bui l di ngs — net

2, 000

Depr eci at i on expense Equi pment — net

7, 000

2, 000 7, 000

Noncont r ol l i ng I nt er est Shar e Di vi dends — Sol Noncont r ol l i ng I nt er est

25, 800

Account s payabl e Account s r ecei vabl e

10, 000

Di vi dends payabl e Di vi dends r ecei vabl e

14, 000

15, 000 10, 800 10, 000


14, 000

Chapter 4

4-19

Solution P4-7 ( cont i nued) Par Corporation and Subsidiary

Consol i dat i on Wor kpapers f or t he year ended December 31, 2011 ( i n t housands) Par


Sol 70%


Income Statement

Sal es I ncome f r om Sol Gai n on equi pment Cost of sal es Depr eci at i on expense Ot her expenses Consol i dat ed NI Noncont r ol l i ng share Cont r ol l i ng shar e of NI

$

800 60. 2 10 300* 155*

$ 700

$1, 500 a

400* 60*

160*

c d e

255. 2

$

300

10 705* 224*

5 2 7

140* f

$

60. 2

$

300* 281 25. 8*

$

255. 2

$

300

25. 8

$ 100

Retained Earnings

Ret ai ned ear ni ngs — Par

$ 100

Ret ai ned ear ni ngs — Sol Cont r ol l i ng shar e of NI

255. 2 200*


b 100 255. 2

100 50*

a f

35 15

200*

355. 2

$ 150

$

355. 2

96 100 14 150 70 50 140

$

$

156 160

Balance Sheet

Cash Account s r ecei vabl e Di vi dends r ecei vabl e I nvent or i es Ot her cur r ent asset s Land

$

Bui l di ngs — net

570

Equi pment — net I nvest ment i n Sol

60 70

c

14

d

2

250 100 150 312

330

c

21

e

7

914

515. 2

a 25. 2 b 490 c 60 b 100

$1, 705. 2

$ 850

$

$

200 100 50 1, 000 355. 2

$1, 705. 2

85 20 95 500

60 c 100 $2, 102

g h

10 14

$

275 106 145 1, 000 355. 2

b 500

150 $ 850

Noncont r ol l i ng i nt erest J anuary 1 Noncont r ol l i ng i nt erest December 31 919 *

10 14

100 30 100 160

Goodwi l l Unamor t i zed excess Account s payabl e Di vi dends payabl e Ot her l i abi l i t i es Capi t al st ock, $10 par Ret ai ned earni ngs

g h

b 210 f 10. 8 919

220. 8 $2, 102

Deduct



4-20


Owner shi p per cent age

13, 500/ 15, 000 shar es = 90% $202, 500 $225, 000 165, 000 $ 60, 000

I nvest ment cost ( 13, 500 shar es  $15) I mpl i ed f ai r val ue of Son ( $202, 500 / 90%) Book val ue of Son Excess f ai r val ue over book val ue Excess allocated to

Land Remai nder t o goodwi l l Excess f ai r val ue over book val ue

$ 20, 000 40, 000 $ 60, 000

Income from Son

Pun’ s cont r ol l i ng shar e of Son’ s i ncome ( $24, 000



90%)

$ 21, 600

Investment in Son December 31, 2012

Cost J anuar y 1, 2011 Pun’ s shar e of t he change i n Son’ s r et ai ned ear ni ngs ( $42, 000 - $15, 000)  90% I nvest ment i n Son December 31 Noncont r ol l i ng i nt er est at December 31, 2012 ( 10% of f ai r val ue) ( ( $225, 000 + $42, 000 - $15, 000) x 10%)

$202, 500 24, 300 $226, 800 $ 25, 200


Chapter 4

4-21

Solution P4-8 ( cont i nued) Pun Corporation and Subsidiary

Consol i dat i on Wor kpapers f or t he year ended December 31, 2012 ( i n t housands) Pun


90% Son


Income Statement

Sal es I ncome f r om Son Cost of sal es Expenses Consol i dat ed NI Noncont r ol l i ng share Cont r ol l i ng shar e of NI

$ 400 21. 6 250* 100. 6*

$ 100

$ a

21. 6

50* 26* $ c

$

71

$

500

2. 4

24

300* 126. 6* 73. 4 2. 4*

$

71

$

181

Retained Earnings

Ret ai ned ear ni ngs — Pun

$ 181 $

Ret ai ned ear ni ngs — Son Cont r ol l i ng shar e of NI

71 50*

Di vi dends

Ret ai ned ear ni ngs – Dec 31 $ 202

34

b

34 71

24 16*

a c

14. 4 1. 6

50*

$

42

$

202

$

15 20

$

33 95

Balance Sheet

Cash Account s r ecei vabl e Di vi dends r ecei vabl e I nvent or i es

$

Not e recei vabl e — Pun I nvest ment i n Son

10 5

Bui l di ngs — net Equi pment — net Goodwi l l

30 80

130

50

b

$ 792

$ 210

$

$

202 $ 792

5

10 8 150

20

115 250

40

40

f 5 e 5 d 7. 2 b 150

$

818

$

90 .8 500 202

42 $ 210

Noncont r ol l i ng i nt erest J anuary 1 Noncont r ol l i ng i nt erest December 31 285. 2 *

e

180 b

500

5 7. 2

a 7. 2 b 219. 6

65 170

85 5

f d

105

226. 8

Land

Account s payabl e Not e payabl e t o Son Di vi dends payabl e Capi t al st ock Ret ai ned earni ngs

18 80 7. 2 95

b 24. 4 c .8 285. 2

$

Deduct


25. 2 818


4-22

Solution P4-9 Pas Corporation and Subsidiary

Consol i dat i on Wor kpapers f or t he year ended December 31, 2011 ( i n t housands) Pas


80% Sel


Income Statement

Sal es I ncome f r om Sel Cost of sal es Depr eci at i on expense Ot her expenses Consol i dat ed NI Noncont r ol l i ng share Cont r ol l i ng shar e of NI

$ 200 17 80* 40* 25. 5*

$

71. 5

$

75

$ 110 40* 20* 10*

$

$ 310 a b d g

17 12. 5 5 1. 25

c

4. 25

132. 5* 65* 36. 75* $ 75. 75 4. 25*

40

$

71. 5

$

75

Retained Earnings

Ret ai ned earni ngs — Pas

$

Ret ai ned earni ngs — Sel Cont r ol l i ng shar e of NI

71. 5 40*

Di vi dends


50

b

50 71. 5

40 20*

a c

16 4

40*

$

70

$ 106. 5

$

30 40

$

Balance Sheet

$

Cash Tr ade r ecei vabl es — net Di vi dends r ecei vabl e I nvent or i es Land Bui l di ngs — net Equi pment — net I nvest ment i n Sel

29. 5 28 8 40 15 65

30 30 70

200

100

b

b

Account s payabl e Di vi dends payabl e Ot her l i abi l i t i es Capi t al st ock Ret ai ned earni ngs

$ 596. 5

$ 300

$

$

40 100 50 300 106. 5

$ 596. 5

50 10 20 150

f

8

25

d

25

a 1 b 210 g 1. 25

5

320

23. 75 $ 717. 25

e f

4 8

$

b 150

70

86 102 70 300 106. 5

$ 300

Noncont r ol l i ng i nt er est J anuary 1 Noncont r ol l i ng i nt erest December 31 302 *

4

70 45 135

211

Pat ent s

e

59. 5 64

b 52. 5 c . 25 302

52. 75 $ 717. 25

Deduct


Chapter 4

4-23

Solution P4-9 ( cont i nued) Supporting computations

I nvest ment cost J anuar y 1, 2011 I mpl i ed f ai r val ue of Sel ( $210, 000 / 80%) Book val ue of Sel Excess f ai r val ue over book val ue Excess al l ocat ed: Under val ued i nvent or y Under val ued equi pment Remai nder t o pat ent s Excess f ai r val ue over book val ue

$210, 000 $262, 500 200, 000 $ 62, 500 $ 12, 500 25, 000 25, 000 $ 62, 500



4-24

Solution P4-10 Pik Corporation and Subsidiary

Consol i dat i on Wor kpapers f or t he year ended December 31, 2011 ( i n t housands) 80% Sel

Pi k



Income Statement

Sal es I ncome f r om Sel Cost of sal es Depr eci at i on expense Ot her expenses Consol i dat ed NI Noncont r ol l i ng share Cont r ol l i ng shar e of NI

$ 200 18 80* 40* 25. 5*

$ 110 40* 20* 10*

$ a b d

18 12. 5 5 $

c $

72. 5

$

75

$

4. 5

40

310 132. 5* 65* 35. 5* 77 4. 5*

$

72. 5

$

75

Retained Earnings

Ret ai ned earni ngs — Pi k

$

Ret ai ned earni ngs — Sel Cont r ol l i ng shar e of NI

72. 5 40*

Di vi dends


50

b

50 72. 5

40 20*

a c

16 4

40*

$

70

$

107. 5

$

30 40

$

59. 5 64

Balance Sheet

$

Cash Tr ade r ecei vabl es — net Di vi dends r ecei vabl e I nvent or i es Land Bui l di ngs — net Equi pment — net I nvest ment i n Sel

29. 5 28 8 40 15 65

30 30 70

200

100

b

$ 597. 5

$ 300

$

$

107. 5 $ 597. 5

25

8

d

5

320

50 10 20 150

25

e f

25

4 8

$

718. 5

$

86 102 70 300 107. 5

b 150

70 $ 300

Noncont r ol l i ng i nt er est J anuary 1 Noncont r ol l i ng i nt erest December 31 302 *

f

a 2 b 210 b

40 100 50 300

4

70 45 135

212

Goodwi l l


e

b 52. 5 c .5 302

$

Deduct


53 718. 5

Chapter 4

4-25

Solution P4-10 ( cont i nued) Supporting computations

I nvest ment cost J anuar y 1, 2011 I mpl i ed f ai r val ue of Sel ( $210, 000 / 80%) Book val ue of Sel Excess f ai r val ue over book val ue Excess al l ocat ed: Under val ued i nvent or y Under val ued equi pment Remai nder t o goodwi l l Excess f ai r val ue over book val ue

$210, 000 $262, 500 200, 000 $ 62, 500 $ 12, 500 25, 000 25, 000 $ 62, 500

Income from Sel

Sel ’ s r epor t ed Less amor t i zat i I nvent or y Depr eci at i on Sel ’ s adj ust ed

net i ncome on of excess f ai r val ue: ( $25, 000 / 5 year s) i ncome

Pi k’ s 80% cont r ol l i ng shar e 20% Noncont r ol l i ng i nt er est shar e

$ 40, 000 ( 12, 500) ( 5, 000) $ 22, 500 $ 18, 000 $ 4, 500



4-26


I nvest ment cost December 31, 2011 I mpl i ed f ai r val ue of St u ( $170, 000 / 80%) Book val ue of St u Excess f ai r val ue over book val ue

I nvent or i es Pl ant asset s — net Pat ent s

Al l oc at i on of Excess $ 8, 750 22, 500 31, 250 $62, 500

$170, 000 $212, 500 150, 000 $ 62, 500

Amor t i zat i on 2012 — 2015 $ 8, 750 10, 000 25, 000 $43, 750

Unamor t i zed Excess December 31, 2015 $ --12, 500 6, 250 $18, 750

Pil Corporation and Subsidiary

Consol i dat ed Bal ance Sheet Wor kpaper s on December 31, 2015 Pi l


St u 80%

Consol i dat ed Bal ance Sheet

Assets

Cash Tr ade r ecei vabl es Di vi dends r ecei vabl e Advance t o St u I nvent or i es Pl ant asset s — net I nvest ment i n St u Pat ent s Unamor t i zed excess Tot al ass et s

$ 41, 000 60, 000 8, 000 25, 000 125, 000 300, 000

$ 35, 000 55, 000

35, 000 175, 000

c d e b

5, 000 8, 000 25, 000

160, 000 487, 500

12, 500

191, 000

$ 76, 000 110, 000

a 191, 000 b a

$750, 000

$300, 000

$ 50, 000

$ 45, 000 10, 000 25, 000 100, 000 120, 000

6, 250 18, 750 b

6, 250 18, 750 $839, 750

Equities

Account s payabl e Di vi dends payabl e Advance f r om Pi l Capi t al st ock Ret ai ned ear ni ngs Noncont r ol l i ng i nt er est Tot al equi t i es

400, 000 300, 000

c 5, 000 d 8, 000 e 25, 000 a 100, 000 a 120, 000

$ 90, 000 2, 000

a $750, 000

$300, 000

400, 000 300, 000 47, 750 47, 750 $839, 750


Chapter 4

4-27

Solution P4-12 Preliminary computations

I nvest ment cost I mpl i ed f ai r val ue Sci ( $480, 000 / 80%) Book val ue of Sci Excess f ai r val ue over book val ue

$480, 000 $600, 000 450, 000 $150, 000

Allocation of differential

Pl ant asset s Goodwi l l Excess f ai r val ue over book val ue

$100, 000 50, 000 $150, 000

Amortization

Pl ant asset s $100, 000/ 4 year s = $25, 000 per year Investment account balance at December 31, 2012

Under l yi ng book val ue Add: Unamort i zed excess al l ocat ed t o pl ant asset s ( $100, 000 - $50, 000 depr eci at i on) Add: Unamor t i zed goodwi l l Fai r val ue of Sci at December 31 I nvest ment account bal ance at December 31 ( 80%) Noncont r ol l i ng i nt er est at December 31 ( 20%)

$580, 000 50, 000 50, 000 $680, 000 $544, 000 $136, 000

The i nvest ment account bal ance i s over st at ed at $560, 000 f or t he $16, 000 di vi dend r ecei vabl e.



4-28

Solution P4-12 ( cont i nued) Pat Corporation and Subsidiary

Consol i dat i on Wor kpapers f or t he year ended December 31, 2012 ( i n t housands) Pat


Sci 80%


Income Statement

Sal es I ncome f r om Sci Cost of sal es Oper at i ng expense Consol i dat ed NI Noncont r ol l i ng share Cont r ol l i ng shar e of NI

$1, 800 76 1, 200* 380*

$

296

$ 600

$2, 400 c

300* 180*

76

e

25

f

19

1, 500* 585* $ 315 19*

$ 120

$

296

$

244

Retained Earnings

Ret ai ned earni ngs — Pat

$ 244 $

Ret ai ned earni ngs — Sc i Cont r ol l i ng shar e of NI

296 200*

Di vi dends

Ret ai ned ear ni ngs – Dec 31 $ 340

100

d 100 296

120 40*

c f

32 8

$ 180

200* $

340

$

82 82 284

Balance Sheet

Cash Account s r ecei vabl e I nvent or i es Advance t o Sci Ot her cur r ent asset s Land

$

Pl ant asset s — net I nvest ment i n Sci

12 52 164 40 160 320 680

$

30 40 120 10 60 460

d

40

75

560

Di vi dends r ecei vabl e Goodwi l l


a

b d $1, 988

$ 720

$

$

48

200 1, 400 340 $1, 988

30 20 90 400

16 50

10

a

40

e

25

170 380 1, 190

b 16 c 44 d 500 g 16 50 $2, 238

h g

10 16

$

68 4 290 1, 400 340

d 400

180 $ 720

Noncont r ol l i ng i nt er est J anuary 1 Noncont r ol l i ng i nt er est December 31 827 *

h

d 125 f 11 827

136 $2, 238

Deduct


Chapter 4

4-29


I nvest ment cost J anuar y 1, 2011 I mpl i ed f ai r val ue of Ski ( $80, 000 / 80%) Book val ue of Ski Excess f ai r val ue over book val ue

$ 80, 000 $100, 000 90, 000 $ 10, 000

Excess allocated to

I nvent ory ( sol d i n 2011) Equi pment ( 4- year r emai ni ng use l i f e) I nt angi bl e asset s ( 40- year amor t i zat i on per i od) Excess f ai r val ue over book val ue

$ 1, 000 4, 000 5, 000 $10, 000

Income from Ski for 2011

Ski ’ s net i ncome Less: Excess al l ocat ed t o i nvent or i es Less: Amort i zat i on of excess al l ocat ed t o equi pment ( $4, 000/ 4 year s) Less: Amort i zat i on of i nt angi bl es ( $5, 000/ 40 year s) Ski ’ s adj ust ed i ncome f or 2011

$ 15, 000 ( 1, 000)

Pl y’ s 80% cont r ol l i ng i nt er est shar e Noncont r ol l i ng i nt erest shar e f or 2011 ( 20%)

$ 10, 300 $ 2, 575

( 1, 000) ( 125) $ 12, 875

Income from Ski for 2012

Ski ’ s net i ncome Less: Amort i zat i on of excess al l ocat ed t o equi pment ( $4, 000/ 4 year s) Less: Amort i zat i on of i nt angi bl es ( $5, 000/ 40 year s) Ski ’ s adj ust ed i ncome f or 2012

$ 20, 000

Pl y’ s 80% cont r ol l i ng i nt er est shar e Noncont r ol l i ng i nt erest shar e f or 2012 ( 20%)

$ 15, 100 $ 3, 775

( 1, 000) ( 125) $ 18, 875

Not e: Si nce t he pr i or year ’ s i ncome i s not af f ect ed by t he cur r ent year ’ s er r or of omi ssi on, t he workpaper s f or 2012 ar e easi er t o pr epar e wi t hout an addi t i onal conver si on- t o- equi t y ent r y.



4-30

Solution P4-13 ( cont i nued) Ply Corporation and Subsidiary

Consol i dat i on Wor kpapers f or t he year ended December 31, 2011 Pl y


Ski 80%


Income Statement

Sal es I ncome f r om Ski Cost of sal es Oper at i ng expenses Consol i dat ed NI Noncont r ol l i ng share Cont r ol l i ng shar e of NI

$ 160, 000 $ 10, 300 105, 000* 35, 000*

80, 000

$ 240, 000

a 10, 300 35, 000* b 1, 000 30, 000* c 1, 000 d 125 f

$

30, 300

$

70, 000

$

141, 000* 66, 125* $

32, 875 2, 575*

$

30, 300

$

70, 000

2, 575

15, 000

Retained Earnings

Ret ai ned earni ngs — Pl y

$

Ret ai ned earni ngs — Ski Cont r ol l i ng shar e of NI

30, 300 10, 000*


30, 000

b 30, 000 30, 300

15, 000 5, 000*

a f

4, 000 1, 000

10, 000*

90, 300

$

40, 000

$

90, 300

24, 700 25, 000

$

15, 000 20, 000

$

39, 700 45, 000

Balance Sheet

$

Cash Tr ade r ecei vabl es — net Di vi dends r ecei vabl e I nvent or i es

4, 000 40, 000 100, 000

Pl ant & equi pment — net I nvest ment i n Ski

0 30, 000 55, 000

e b

b

Account s payabl e Di vi dends payabl e Capi t al st ock Ot her pai d- i n capi t al Ret ai ned earni ngs

4, 000

c

1, 000

70, 000 158, 000

5, 000

a 6, 300 b 80, 000 d 125

4, 875

86, 300

I nt angi bl es $ 280, 000

$ 120, 000

$ 317, 575

$

$

$

20, 700 9, 000 100, 000 60, 000 90, 300

$ 280, 000

15, 000 5, 000 40, 000 20, 000

e 4, 000 b 40, 000 b 20, 000

40, 000

35, 700 10, 000 100, 000 60, 000 90, 300

$ 120, 000

Noncont r ol l i ng i nt er est J anuary 1 Noncont r ol l i ng i nt erest December 31 118, 000 *

4, 000

b 20, 000 f 1, 575 118, 000

21, 575 $ 317, 575

Deduct


Chapter 4

4-31

Solution P4-13 ( cont i nued) Ply Corporation and Subsidiary

Consol i dat i on Wor kpapers f or t he year ended December 31, 2012 Pl y


Ski 80%


Income Statement

Sal es I ncome f r om Ski Cost of sal es Oper at i ng expenses Consol i dat ed NI Noncont r ol l i ng share Cont r ol l i ng shar e of NI

$ 170, 000 $ 16, 000 110, 000* 30, 000*

90, 000

$ 260, 000 a 16, 000

35, 000* 35, 000* c d f

$

46, 000

$

90, 300

$

145, 000* 66, 125*

1, 000 125 $

48, 875 3, 775*

$

45, 100

$

90, 300

3, 775

20, 000

Retained Earnings

Ret ai ned ear ni ngs — Pl y

$

Ret ai ned ear ni ngs — Ski Cont r ol l i ng shar e of NI

46, 000 15, 000*

Di vi dends

Ret ai ned ear ni ngs – Dec 31 $ 121, 300

40, 000

b 40, 000 45, 100

20, 000 10, 000*

a f

8, 000 2, 000

15, 000*

$

50, 000

$ 120, 400

$

20, 000 30, 000

$

Balance Sheet

$

Cash Tr ade r ecei vabl es — net Di vi dends r ecei vabl e I nvent or i es

26, 700 45, 000 4, 000 40, 000 95, 000

Pl ant & equi pment — net I nvest ment i n Ski

e 30, 000 60, 000

b

3, 000

c

1, 000

4, 875

a 8, 000 b 86, 300 d 125

4, 750

$ 305, 000

$ 140, 000

$ 353, 450

$

$

$

17, 700 6, 000 100, 000 60, 000 121, 300

$ 305, 000

25, 000 5, 000 40, 000 20, 000

e 4, 000 b 40, 000 b 20, 000

50, 000

42, 700 7, 000 100, 000 60, 000 120, 400

$ 140, 000

Noncont r ol l i ng i nt erest J anuary 1 Noncont r ol l i ng i nt erest December 31

b 21, 575 f 1, 775 132, 775

*

4, 000 70, 000 157, 000

94, 300

I nt angi bl e asset s Account s payabl e Di vi dends payabl e Capi t al st ock Ot her pai d- i n capi t al Ret ai ned earni ngs

b

46, 700 75, 000

132, 775

23, 350 $ 353, 450

Deduct



4-32

Solution P4-14 Preliminary computations

I nvest ment cost I mpl i ed f ai r val ue of Si m ( $99, 000 / 90%) Book val ue of Si m Excess f ai r val ue over book val ue

$ 99, 000 $110, 000 80, 000 $ 30, 000

Excess al l ocat ed to: I nvent or i es ( sol d i n 2011) Pat ent s ( 10- year r emai ni ng usef ul l i f e) Excess f ai r val ue over book val ue

$ 10, 000 20, 000 $ 30, 000

1

Analysis of investment in Sim account

Fai r val ue of Si m J anuary 5, 2011 Add: Change i n ret ai ned ear ni ngs f r om J anuar y 5, 2011 t o December 31, 2013 Less: Amort i zat i on of excess Al l ocat ed t o i nvent ori es and amort i zed i n 2011 Al l ocat ed t o pat ent s and amor t i zed over 10 year s ( $20, 000/ 10 years)  3 year s Fai r val ue at December 31, 2013 Add: I ncome f r om Si m f or 2014 Less: Di vi dends i n 2014 Fai r val ue at December 31, 2014

( 6, 000) 144, 000 18, 000 ( 10, 000) $152, 000

I nvest ment I nvest ment Noncont r ol l Noncont r ol l

$129, 600 $136, 800 $ 14, 400 $ 15, 200

i i i i

n Si n Si ng i ng i

m on December 31, 2013 ( 90% f ai r m on December 31, 2014 ( 90% f ai r nt er est on Dec. 31, 2013 ( 10% f ai nt er est on Dec. 31, 2014 ( 10% f ai

val ue) val ue) r val ue) r val ue)

$110, 000 50, 000 ( 10, 000)


Chapter 4

4-33

Solution P4-14 ( cont i nued) Pep Company and Subsidiary

Consol i dat i on Wor kpapers f or t he year ended December 31, 2014 Pep


Si m

I ncome St at ement

Ret ai ned Ear ni ngs

Bal ance Sheet

Debits

$ 11, 000 $ 15, 000 Cash Account s r ecei vabl e 15, 000 25, 000 Pl ant asset s 220, 000 180, 000 I nvest ment i n Si m 136, 800 Pat ent s b 14, 000 Cost of goods sol d 50, 000 30, 000 Oper at i ng expenses 25, 000 40, 000 c 2, 000 Di vi dends 20, 000 10, 000

$ 26, 000 40, 000 400, 000 a 7, 200 b 129, 600 c 2, 000

12, 000 $ 80, 000* 67, 000*

a d

9, 000 1, 000

$ 20, 000*

$477, 800 $300, 000

$478, 000

Credits

Accumul at ed depr eci at i on Li abi l i t i es Capi t al st ock Pai d- i n- excess Ret ai ned ear ni ngs Sal es I ncome f r om Si m

$ 90, 000 $ 50, 000 80, 000 30, 000 100, 000 60, 000 b 60, 000 20, 000 71, 600 70, 000 b 70, 000 100, 000 90, 000 16, 200 a 16, 200

140, 000 110, 000 100, 000 20, 000 71, 600 190, 000

$477, 800 $300, 000 Noncont r ol l i Noncont r ol l i ( $18, 000 adj Cont r ol l i ng

ng i nt erest Dec 31, 2013 ng i nt er est shar e . i nc. x 10%) shar e of NI

b d

14, 400

1, 800

1, 800* $ 41, 200

Consol i dated r etai ned ear ni ngs

41, 200 $ 92, 800

Noncont r ol l i ng i nt erest Dec 31, 2014 164, 000

d 800 164, 000

92, 800 15, 200 $478, 000

*

Deduct

a

To el i mi nat e i ncome f r om subsi di ary and di vi dends r ecei ved and r educe t he i nvest ment account t o i t s begi nni ng- of - t he- per i od bal ance. To el i mi nate r eci pr ocal i nvest ment and subsi di ary equi t y amount s, est abl i sh begi nni ng noncont r ol l i ng i nt erest , and adj ust patent s f or t he unamort i zed excess as of t he begi nni ng of t he peri od. To amort i ze excess al l ocated t o patent s f or 2014. To ent er noncont r ol l i ng i nt erest shar e of subsi di ar y i ncome and di vi dends.

b c d



4-34

Solution P4-15 1

Journal entries on Peg’s books January 1, 2011

I nvest ment i n Sup ( 90%) 18, 000 Cash 18, 000 To r ecor d pur chase of 90% of Sup’ s st ock f or cash. July 1, 2011

I nvest ment i n El l ( 25%) 7, 000 Cash 7, 000 To r ecor d pur chase of 25% of El l ’ s st ock f or cash. November 2011

Cash

2, 700 I nvest ment i n Sup ( 90%) 2, 700 To r ecor d r ecei pt of 90% of Sup’ s $3, 000 di vi dends.

November 2011

Cash

1, 250 I nvest ment i n El l ( 25%) 1, 250 To r ecor d r ecei pt of 25% of El l ’ s $5, 000 di vi dends.

December 31, 2011

I nvest ment i n Sup ( 90%) 4, 500 I ncome f r om Sup To r ecor d Shar e of Sup’ s r epor t ed i ncome ( $28, 000 - $23, 000)  90%

4, 500

December 31, 2011

I nvest ment i n El l ( 25%) 700 I ncome f r om El l To r ecor d i nvest ment i ncome f r om El l f or 20119 comput ed as: Share of El l ’ s r epor t ed i ncome $ 750 ( $30, 000- $24, 000) 1/ 2 year  25% Less: Amor t i zat i on of excess [ $7, 000 – ( $24, 000  25%) ] (50)  10 year s  1/ 2 year $ 700


700

Chapter 4

4-35


Peg’s separate company financial statements

Peg Corporation

I ncome St at ement f or t he year ended December 31, 2011 Revenues

Sal es I ncome f r om Sup I ncome f r om El l Tot al r evenue

$100, 000 4, 500 700 $105, 200

Costs and expenses

Cost of sal es Ot her expenses Tot al cost s and expenses Net i ncome

$ 60, 000 25, 000 85, 000 $ 20, 200

Peg Corporation

Ret ai ned Ear ni ngs St at ement f or t he year ended December 31, 2011 Ret ai ned ear ni ngs J anuar y 1 Add: Net i ncome Deduct : Di vi dends Ret ai ned ear ni ngs December 31

$ 20, 000 20, 200 ( 10, 000) $ 30, 200

Peg Corporation

Bal ance Sheet at December 31, 2011 Assets

Cur r ent asset s: Cash Ot her cur r ent asset s Pl ant asset s — net I nvest ment s: I nvest ment i n Sup ( 90%) I nvest ment i n El l ( 25%)

$ 18, 950 40, 000

$ 58, 950 120, 000

$ 19, 800 6, 450

Tot al ass et s

26, 250 $205, 200

Liabilities and stockholders’ equity

Cur r ent l i abi l i t i es St ockhol der s’ equi t y: Capi t al st ock Ret ai ned ear ni ngs December 31 Tot al l i abi l i t i es and st ockhol der s’ equi t y

$ 25, 000 $150, 000 30, 200

180, 200 $205, 200



4-36


Consol i dat i on wor kpaper s — t r i al bal ance f or mat Peg Corporation and Subsidiary

Consol i dat i on Wor kpapers f or t he year ended December 31, 2011 Peg

90% Sup


I ncome Ret ai ned St at ement Ear ni ngs

Bal ance Sheet

Debits

$ 18, 950 $ 4, 000 Cash Ot her cur r ent asset s 40, 000 11, 000 120, 000 14, 000 Pl ant asset s — net I nvest ment i n Sup I nvest ment i n El l Cost of sal es Ot her expenses Di vi dends Tot al debi t s

19, 800 6, 450 60, 000 25, 000 10, 000

$ 22, 950 51, 000 134, 000 a 1, 800 b 18, 000 6, 450

16, 000 7, 000 3, 000

$ 76, 000* 32, 000* a d

2, 700 300*

$ 10, 000*

$300, 200 $55, 000

$214, 400

$ 25, 000 $ 7, 000 150, 000 18, 000 b 18, 000 20, 000 2, 000 b 2, 000 100, 000 28, 000 4, 500 a 4, 500 700

$ 32, 000 150, 000

Credits

Cur r ent l i abi l i t i es Capi t al st ock Ret ai ned ear ni ngs Sal es I ncome f r om Sup I ncome f r om El l Tot al cr edi t s

20, 000 128, 000 700

$300, 200 $55, 000

Noncont r ol l i ng i nt erest - J anuar y 1

b

2, 000

Noncont r ol l i ng i nt er est shar e $5, 000  10% Cont r ol l i ng shar e of NI

d

500

500* $ 20, 200

Consol i dated ret ai ned ear ni ngs Noncont r ol l i ng i nt er est December 31

20, 200 $ 30, 200

d

200


30, 200 2, 200 $214, 400

Chapter 4

4-37


Consolidated financial statements Peg Corporation and Subsidiary

Consol i dat ed I ncome St at ement f or t he year ended December 31, 2011 Revenues

Sal es I ncome f r om El l ( equi t y met hod) Tot al r evenues

$128, 000 700 $128, 700

Costs and expenses

Cost of sal es Ot her expenses Tot al cost s and expenses Tot al consol i dat ed i ncome Less: Noncont r ol l i ng i nt er est shar e

$ 76, 000 32, 000 108, 000 20, 700 500 $ 20, 200

Cont r ol l i ng shar e of NI Peg Corporation and Subsidiary

Consol i dat ed Ret ai ned Ear ni ngs St at ement f or t he year ended December 31, 2011 Consol i dat ed r et ai ned ear ni ngs J anuar y 1 Add: Cont r ol l i ng share of NI Deduct : Di vi dends Consol i dat ed r et ai ned ear ni ngs December 31

$ 20, 000 20, 200 ( 10, 000) $ 30, 200

Peg Corporation and Subsidiary

Consol i dat ed Bal ance Sheet at December 31, 2011 Assets

Cur r ent asset s: Cash Ot her cur r ent asset s Pl ant asset s — net I nvest ment s and ot her asset s: I nvest ment i n El l Tot al ass et s

$

22, 950 51, 000

$ 73, 950 134, 000 6, 450 $214, 400

Liabilities and stockholders’ equity

Cur r ent l i abi l i t i es St ockhol der s’ equi t y: Capi t al st ock $150, 000 Consol i dat ed r et ai ned ear ni ngs 30, 200 Noncont r ol l i ng i nt er est 2, 200 Tot al l i abi l i t i es and st ockhol der s’ equi t y

$ 32, 000

182, 400 $214, 400

Solution P4-16 Partial consolidated statement of cash flows using the direct method Pil Corporation and Subsidiaries

Par t i al Consol i dat ed St at ement of Cash Fl ows f or t he cur r ent year Cash Flows from Operating Activities

Cash r ecei ved f r om cust omer s Di vi dends f r om equi t y i nvest ees I nt er est r ecei ved f r om shor t - t er m l oan Cash pai d f or ot her expenses Cash pai d t o suppl i er s Net cash f l ow f r om oper at i ng act i vi t i es

$1, 600, 000 40, 000 5, 000 ( 450, 000) ( 630, 000) $ 565, 000



4-38

Solution P4-17 Direct Method Pes Corporation and Subsidiary

Consol i dat ed St at ement of Cash Fl ows f or t he year ended December 31, 2011 Cash Flows from Operating Activities

Cash r ecei ved f r om cust omer s Cash pai d t o suppl i er s Cash pai d f or operat i ng expenses Net cash f l ows f r om oper at i ng act i vi t i es

$670, 000 ( $348, 000) ( 157, 500)

( 505, 500) 164, 500

Cash Flows from Investing Activities

Pur chase of pl ant and equi pment Net cash f l ows f r om i nvest i ng act i vi t i es

( 125, 000) ( 125, 000)

Cash Flows from Financing Activities

Payment of cash di vi dends — c ont r o l l i ng Payment of cash di vi dends — noncont r ol l i ng Payment of l ong- t er m l i abi l i t i es Net cash f l ows f r om f i nanci ng act i vi t i es Decr ease i n cash f or t he year Cash on J anuar y 1 Cash on December 31

( 36, 000) ( 2, 000) ( 11, 000) ( 49, 000) ( 9, 500) 65, 000 $ 55, 500

Reconciliation of net income to cash provided by operating activities

Cont r ol l i ng share of NI

Adj ust ment s t o r econci l e net i ncome t o cash pr ovi ded by oper at i ng act i vi t i es: Noncont r ol l i ng i nt er est shar e Depr eci at i on expense Pat ent s amort i zat i on I ncr ease i n account s payabl e I ncr ease i n account s r ecei vabl e I ncrease i n i nvent or i es I ncr ease i n ot her cur r ent asset s Net cash f l ows f r om oper at i ng act i vi t i es

$130, 000 $

5, 000 51, 000 500 22, 000 ( 5, 000) ( 20, 000) ( 19, 000)

34, 500 $164, 500


Chapter 4

4-39

Solution P4-17

( cont i nued)

Indirect Method Pes Corporation and Subsidiary



$130, 000

Adj ust ment s t o reconci l e net i ncome t o net cash f r o m oper at i ng ac t i vi t i es : Noncont r ol l i ng shar e of NI $5000 Depr eci at i on Pat ent s amort i zat i on I ncr ease i n account s r ecei vabl e I ncrease i n i nvent or i es I ncr ease i n ot her cur r ent asset s I ncr ease i n account s payabl e Net cash f l ows f r om oper at i ng act i vi t i es

$ 51, 000 500 ( 5, 000) ( 20, 000) ( 19, 000) 22, 000

34, 500 164, 500


Pur chase of pl ant and equi pment Net cash f l ows f r om i nvest i ng act i vi t i es

( 125, 000) ( 125, 000)


Payment of cash di vi dends — c ont r o l l i ng Payment of cash di vi dends — noncont r ol l i ng Payment of l ong- t er m l i abi l i t i es Net cash f l ows f r om f i nanci ng act i vi t i es Decr ease i n cash f or t he year Cash on J anuar y 1 Cash on December 31

( 36, 000) ( 2, 000) ( 11, 000) ( 49, 000) ( 9, 500) 65, 000 $ 55, 500

Note: The cash flows from investing activities and cash flows from financing activities sections of the statement of cash flows are the same under the direct and indirect method.



4-40

Solution P4-18 [ AI CPA] Indirect Method Puh, Inc. and Subsidiary

St at ement of Cash Fl ows (Indirect Method) f or t he year ended December 31, 2011 Cash Flows from Operating Activities


Adj ust ment s t o r econci l e net i ncome t o cash pr ovi ded by oper at i ng act i vi t i es: Noncont r ol l i ng i nt er est shar e Depr eci at i on expense Pat ent s amort i zat i on Decr ease i n account s r ecei vabl e I ncr ease i n account s payabl e I ncr ease i n def err ed i ncome t axes I ncrease i n i nvent or i es Gai n on mar ket abl e equi t y secur i t i es Gai n on sal e of equi pment Net cash f l ows f r om oper at i ng act i vi t i es

$ 198, 000 $

33, 000 82, 000 3, 000 22, 000 121, 000 12, 000 ( 70, 000) ( 11, 000) ( 6, 000)

186, 000 384, 000


Pur chase of equi pment Pr oceeds f r om sal e of equi pment Net cash f l ows f r om i nvest i ng act i vi t i es

$( 127, 000) 40, 000 ( 87, 000)


Cash r ecei ved f r om sal e of t r easur y st ock Payment of cash di vi dends — c ont r o l l i ng Payment of cash di vi dends — noncont r ol l i ng Payment on l ong- t er m not e Net cash f l ows f r om f i nanci ng act i vi t i es I ncr ease i n cash f or t he year Cash on J anuar y 1 Cash on December 31

44, 000 ( 58, 000) ( 15, 000) ( 150, 000) ( 179, 000) 118, 000 195, 000 $ 313, 000

Li st i ng of non- cash i nvest i ng and f i nanci ng acti vi t i es: I ssued common st ock i n exchange f or l and wi t h a f ai r val ue of $215, 000.


Chapter 4

4-41

Solution P4-18 ( cont i nued) Indirect Method Puh, Inc. and Subsidiary

Wor kpaper s f or t he St at ement of Cash Fl ows (Indirect Method) f or t he year ended December 31, 2011 Year ’ s Change

Reconci l i ng I t ems Debi t Cr e di t

Cash Fl ow Fr om Oper a t i ons

Cash Fl ow I nvest i ng Ac t i vi t i es

Cash Fl ow Fi nanci ng Ac t i vi t i es

Asset Changes

Cash Al l owance t o r educe MES Account s r ecei vabl e — net I nvent ori es Land* Pl ant and equi pment Accumul ated depr eci ati on Pat ent s — net Tot al ass et changes

118, 000 11, 000 ( 2 2, 000) 70, 000 215, 000 65, 000 ( 54, 000) ( 3, 000)

e f

11, 000

22, 000

k 62, 000 l 82, 000 m 3, 000

g 70, 000 h 215, 000 j 127, 000 k 28, 000

400, 000

Changes in Equities

Account s & accr ued payabl e Not e payabl e l ong- t er m Def er r ed i ncome t axes Nonc ont r ol l i ng i nt er e s t i n Sto Common st ock, $10 par * Addi t i onal pai d- i n capi t al Ret ai ned earni ngs Tr easur y st ock at cos t Tot al changes i n equi t i es

121, 000 ( 150, 000) 12, 000 18, 000 100, 000 123, 000 140, 000 36, 000

n 121, 000 o 150, 000 p b

12, 000 33, 000

h 100, 000 h 115, 000 i 8, 000 a 198, 000 i 36, 000

d

15, 000

c

58, 000

400, 000

Cont r ol l i ng shar e of NI Noncont r ol l i ng i nt erest share Gai n on MES Pur chase of equi pment Sal e of equi pment Gai n on equi pment Depr eci at i on expense Payment on l ong- t er m not e Amort i zati on of patent s Decrease i n r ecei vabl es I ncr ease i n i nvent ori es I ncr ease i n account s payabl e I ncrease i n def err ed i ncome t axes Proceeds f r omt r easury st ock

a 198, 000 b 33, 000 e 11, 000 j 127, 000 k

k

40, 000

l

82, 000

6, 000

198, 000 33, 000 ( 11, 000) ( 127, 000) 40, 000 ( 6, 000) 82, 000

o 150, 000

( 150, 000) m 3, 000 f 22, 000

g

70, 000 n 121, 000 p 12, 000 i 44, 000

3, 000 22, 000 ( 70, 000) 121, 000 12, 000

Payment of di vi dends — c ont r o l l i ng

c

58, 000

44, 000 ( 58, 000)

Payment of di vi dends — noncont r ol l i ng

d

15, 000

( 15, 000)

1, 229, 000

1, 229, 000 384, 000

( 87, 000)

Cash i ncrease f or t he year = $384, 000 – $87, 000 – $179, 000 = $118, 000. * Non- cash i t em: Pur chased $215, 000 l and t hr ough common st ock i ssuance.


( 179, 000)


4-42

Solution P4-19 Indirect Method



Cont r ol l i ng shar e of NI Adj ust ment s t o r econci l e net i ncome t o cash pr ovi ded by oper at i ng act i vi t i es: Noncont r ol l i ng i nt er est shar e Depr eci at i on expense Pat ent s amort i zat i on I ncr ease i n account s payabl e I ncome l ess di vi dends — equi t y i nvest ee I ncr ease i n account s r ecei vabl e Net cash f l ows f r om oper at i ng act i vi t i es

$ 500, 000

$

40, 000 200, 000 10, 000 17, 000 ( 30, 000) ( 210, 000)

27, 000 527, 000


Pur chase of equi pment Net cash f l ows f r om i nvest i ng act i vi t i es

$( 500, 000) ( 500, 000)


Cash r ecei ved f r om l ong- t er m not e Payment of cash di vi dends — c ont r o l l i ng Payment of cash di vi dends — noncont r ol l i ng Net cash f l ows f r om f i nanci ng act i vi t i es I ncr ease i n cash f or t he year Cash on J anuar y 1 Cash on December 31

$ 200, 000 ( 137, 000) ( 20, 000) 43, 000 70, 000 360, 000 $ 430, 000


Chapter 4

4-43

Solution P4-19 ( cont i nued) Indirect Method


Wor kpaper s f or t he St at ement of Cash Fl ows ( I ndi r ect Met hod) f or t he year ended December 31, 2011

Year ’ s Change

Reconci l i ng I t ems Debi t Cr e di t

Cash Fl ows Fr om Oper a t i ons

Cash Fl ows I nvest i ng Ac t i vi t i es

Cash Fl ows Fi nanci ng Ac t i vi t i es

Asset Changes

Cash

$

Accounts r ecei vabl e — net I nvent or i es Pl ant & equi pment — net Equi t y i nvest ment s Pat ent s Tot al ass et changes

70, 000 210, 000

e 210, 000

0 300, 000

f 200, 000

g 500, 000

30, 000 ( 10, 000)

l h

m 60, 000

30, 000 10, 000

$ 600, 000

Changes in Equities

Account s payabl e $ 17, 000 Di vi dends payabl e 13, 000 Long- t erm not e payabl e 200, 000 Common st oc k 0 Ot her pai d- i n capi t al 0 Ret ai ned earni ngs 350, 000 Noncont r ol . i nter est 20% 20, 000 Changes i n equi t i es $ 600, 000 Cont r ol l i ng shar e of NI Noncont r ol l i ng i nt erest share Pur chase of pl ant & equi pment Depr eci ati on — pl ant & equi pment Amort i zat i on of pat ent s I ncr ease i n account s r ecei vabl e I ncome l ess di vi dends f r om i nvest ees I ncrease i n account s payabl e Recei ved cash f r oml ong- t erm not e Payment of di vi dends — c ont r o l l i ng

i 17, 000 k 13, 000 j 200, 000

a 500, 000 b 40, 000

c 150, 000 d 20, 000

a 500, 000 b 40, 000

$ 500, 000 40, 000

f 200, 000

200, 000

g 500, 000

$( 500, 000) h

10, 000

10, 000 ( 210, 000)

l 30, 000 i 17, 000 j 200, 000 k 13, 000

( 30, 000) 17, 000 0

e 210, 000 m 60, 000

c 150, 000

Payment of di vi dends — nonc ont r o l l i ng d 20, 000 1, 950, 000

$ 200, 000 ( 137, 000) ( 20, 000)

1, 950, 000

$ 527, 000

$( 500, 000)

Cash i ncrease f or t he year = $527, 000 – $500, 000 + $43, 000 = $70, 000.


$

43, 000


4-44

Solution P4-19 ( cont i nued) Direct Method



Cash Cash Cash Cash Net cash f l

r ecei ved f r om cust omers r ecei ved f r om equi t y i nvest ees pai d t o suppl i er s pai d f or operat i ng expenses ows f r om oper at i ng act i vi t i es

$2, 390, 000 30, 000 ( $1, 433, 000) ( 460, 000) ( 1, 893, 000) 527, 000


Pur chase of equi pment Net cash f l ows f r om i nvest i ng act i vi t i es

$ ( 500, 000) ( 500, 000)


Cash r ecei ved f r om l ong- t er m not e Payment of cash di vi dends — c ont r o l l i ng Payment of cash di vi dends — noncont r ol l i ng Net cash f l ows f r om f i nanci ng act i vi t i es I ncr ease i n cash f or t he year Cash on J anuar y 1 Cash on December 31

$

200, 000 ( 137, 000) ( 20, 000)

$

43, 000 70, 000 360, 000 430, 000

$

500, 000

$

27, 000 527, 000

Reconciliation of net income to cash provided by operating activities

Cont r ol l i ng share of NI Adj ust ment s t o r econci l e net i ncome t o cash pr ovi ded by oper at i ng act i vi t i es: Noncont r ol l i ng i nt er est shar e I ncome l ess di vi dends — equi t y i nvest ee Depr eci at i on expense Pat ent s amort i zat i on I ncr ease i n account s payabl e I ncr ease i n account s r ecei vabl e Net cash f l ows f r om oper at i ng act i vi t i es

$

40, 000 ( 30, 000) 200, 000 10, 000 17, 000 ( 210, 000)


Solution Advanced Accounting 11ed Chp4

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