Chapter 8
CONSOLIDATIONS — CHANGES IN OWNERSHIP INTERESTS Answers to Questions 1
Preacquisition Preacquisition earnings and dividends dividends are te earnings and dividends dividends a!!"ica#"e a!!"ica#"e to an invest$ent interest !rior to its acquisition during an accounting !eriod% Assu$e tat P !urcases an &' !ercent interest in S on (u") *+ ,''- and tat S as earnings o. /*''+''' #et0een (anuar) * and (u") *+ ,''- and !a)s /1'+''' dividends on 2a) *+ ,''-% In tis case+ !reacquisition earnings and dividends are /&'+''' and /3'+'''+ res!ective")% Historica"")+ !reacquisition earnings !urcased 0ere so0n as a deduction on te inco$e state$ent to arrive at conso"idated net inco$e% 4nder SFAS No. 160 + tis is no "onger te case% Instead+ te conso"idated inco$e state$ent sou"d on") re!ort revenues+ e5!enses+ gains and "osses su#sequent to te co$#ination date% 6or e5a$!"e+ in a 2$arc 7* acquisition+ te conso"idated inco$e state$ent 0ou"d on") on") inc"ude inc"ude inco$e inco$e o. te su# su#sid sidiar) iar) .ro$ A!ri" * troug troug Dece$# Dece$#er er 7*% Te 6AS8 AS8 reason reasonss tat acquirers !urcase assets and assu$e "ia#i"ities+ #ased on teir .air va"ues% Acquirers do not 9!urcase: !reacquisition earnings+ a"toug .air va"ues o. net assets sou"d re."ect earning !o0er o. te acquired .ir
%$2
Preacquisition Preacquisition earnings are not recorded #) a !arent co$!an) co$!an) under te equit) $etod #ecause #ecause te investor investor on") recogni;e recogni;ess inco$e inco$e su# su#se seque quent nt to acquis acquisitio ition n on te interest interest acquire acquired% d% Histor Historica ica"") "")++ !reacquisition earnings !urcased 0ere so0n as a deduction on te inco$e state$ent to arrive at conso"idate conso"idated d net inco$e% inco$e% 4nder SFAS No. 160+ tis is no "onger "onger te case% case% Instead+ Instead+ te conso" conso"idat idated ed inco$e state$ent sou"d on") re!ort revenues+ e5!enses+ gains and "osses su#sequent to te co$#ination date% 6or e5a$!"e+ in a 2$arc 7* acquisition+ te conso"idated inco$e state$ent 0ou"d on") inc"ude inco$e o. te su#sidiar) .ro$ A!ri" * troug Dece$#er 7*%
3
Noncontro""ing stoc<o"ders o. Su# Co$!an) e"d a ,' !ercent interest during te .irst a". )ear and a *' !ercent interest during te "ast a". )ear and at )ear=end% )ear=end% 8ut noncontro""ing interest sare .or te )ear and and tota" tota" nonc noncon ontro tro""i ""ing ng inter interes estt at )ear )ear=e =end nd are are co$! co$!ute uted d .or .or te *' !erc !ercen entt inter interes estt e"d e"d #) noncontro""ing stoc<o"ders trougout te )ear%
4
Preacquisition inco$e is si$i"ar to noncontro""ing interest sare #ecause it re!resents te inco$e o. a su#sidiar) attri#uta#"e to stoc<o"ders outside te conso"idated entit)% 8ut !reacquisition inco$e is not inco$e inco$e o. te nonc noncont ontro ro""in ""ing g stoc< stoc<o o"d "der er grou grou! ! at te date date o. te .inan .inancia cia"" state state$e $ents nts%% In .act .act++ !reacquisition inco$e re"ates to a !revious contro""ing stoc<o"der grou! 0en te interest acquired e5ceeds 1' !ercent% In suc a case+ it see$s i$!ro!er to re!ort tis as a deduction in te conso"idated inco$e state$ent% Rater+ te .air va"ue o. net assets acquired sou"d re."ect te acquiree>s earnings istor)%
5
4nder 4nder 6AS8 AS8 State$e State$ent nt No% *?'+ a gain or "oss "oss is on") recorded recorded 0en te so"d interes interestt resu"ts resu"ts in deconso"idation o. te su#sidiar)+ i%e%+ te !arent no "onger o"ds a contro""ing interest% Te gain or "oss on te sa"e o. an equit) interest is te di..erence #et0een te !roceeds .ro$ te sa"e @te .air va"ue and te recorded #oo< va"ue o. te interest so"d+ !rovided tat te invest$ent is accounted .or as a one="ine conso"idation% I. anoter $etod o. accounting as #een used+ te invest$ent account $ust #e converted to te equit) $etod so tat an) gain or "oss on sa"e is te sa$e as i. a one="ine conso"idation ad #een used !revious")% Wen te !arent $aintains a contro""ing interest a.ter te sa"e+ te sa"e is treated as an equit) transaction+ transaction+ 0it no gain or "oss recognition% Te !arent de#its cas or oter consideration received in te sa"e+ credits te invest$e invest$ent nt account account #ased #ased on !ercen !ercentt o. carr)ing carr)ing va"ue va"ue so"d+ so"d+ and record recordss te di..e di..eren rence ce as an adBust$ent to oter !aid=in ca!ita"%
6
Conce!tua"")+ te inco$e a!!"ica#"e to an equit) interest so"d during an accounting !eriod sou"d #e inc"uded in invest$ent inco$e and conso"idated net inco$e% In tis case+ te gain or "oss on sa"e is co$!uted on te #asis o. te #oo< va"ue o. te interest at te ti$e o. sa"e+ and inco$e is assigned to te ,''- Pearson Education+ Inc% !u#"ising as Prentice Ha"" &=*
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8-2
increased noncontro""ing interest on") a.ter te date o. sa"e% As a !ractica" e5!edient+ a #eginning=o.=te= !eriod sa"e date can #e used suc tat no inco$e i nco$e is recogni;ed on te interest so"d u! to te ti$e o. sa"e+ and te gain or "oss is co$!uted on te #oo< va"ue at te #eginning o. te !eriod% Wen tis e5!edient is used+ inco$e $ust #e assigned to te increased noncontro""ing interest .or te entire )ear o. sa"e% Te co$#ined invest$ent inco$e and gain or "oss on sa"e are te sa$e under #ot a!!roaces !rovided tat te assu$!tions @#eginning o. te )ear and ti$e o. sa"e are .o""o0ed consistent")% As noted in question 1+ gain or "oss on te sa"e o. te equit) interest is on") recogni;ed recogni;ed 0en t e su#sidiar) su#sidiar) is donconso"id donconso"idated% ated% Oter 0ise+ te gain or "oss is an adBust$ent to oter !aid=in ca!ita"% 7
Assu$ing tat no gain Assu$ing gain or "oss is recog recogni;e ni;ed+ d+ no adBust$e adBust$ent nt o. te !arent> !arent>ss invest$ invest$ent ent accoun accountt is necessar) 0en te su#sidiar) se""s additiona" sares to outside !arties at #oo< va"ue #ecause te !arent>s sare o. under")ing #oo< va"ue does not cange% I. additiona" sares are so"d a#ove #oo< va"ues+ te !arent>s sare o. te under")ing un der")ing equit) o. te su#sidiar) increases% Tis increase is recorded #) te ! arent co$!an) as .o""o0s Invest$ent in su#sidiar) Additiona" !aid=in ca!ita"
I. te su#sidiar) se""s additiona" sares #e"o0 #oo< va"ue+ te !arent>s interest is decreased and te !arent co$!an) records decreases in its invest$ent and additiona" !aid=in ca!ita" accounts% In a"" tree cases @#oo< va"ue+ a#ove #oo< va"ue+ or #e"o0 #e"o0 #oo< va"ue+ te !arent co$!an)>s co$!an)>s o0nersi! , !ercentage decreases .ro$ &' !ercent @&+''' o. *'+''' sares to ?? 7 !ercent @&+''' o. *,+''' sares% No gain or "oss is i s recogni;ed+ te cange in i n under")ing #oo< va"ue+ adBusted .or one=si5t F@&' ÷ &' o. an) una$orti;ed cost #oo< va"ue di..erentia" is re!orted as adBust$ent to additiona" !aid=in ca!ita"+ since te !arent !a rent $ai ntains its contro""i ng interest% in terest% An a"ternative co$!utation is to assu$e , tat te !arent so"d one=si5t one=si5t o. its interes interestt .or ?? 7 !ercent o. te !roceeds+ te di..erence #eing te a$ount o. ad
8
Te acquisition o. te ,+''' sares direct") .ro$ te su#sidiar) increases te !arent>s !ercentage interest .ro$ &' !ercent @&+''' o. *'+''' sares to 1J? @*'+''' o. *,+''' sares+ or &7 *J7% Te cange in te interest e"d does not a..ect te 0a) in 0ic te !arent co$!an) records its additiona" invest$ent% Te !arent co$!an) in a"" cases increases its invest$ent account #) te a$ount o. cas !aid or oter consideration given .or te additiona" invest$ent% It $a
9
Treasur) stoc< transactions #) a su#sidiar) cange te !arent co$!an)>s !ro!ortionate interest in te su#sidiar) su#s idiar)%% An) canges in te !arent>s !arent>s sare o. t e under")ing #oo #oo< < va"ue o. te su#sidiar) require adBust$ents in te !arent co$!an)>s invest$ent in su#sidiar) and additiona" !aid=in ca!ita" accounts%
10
Gains Gains and "osses "osses to a !arent !arent co$!an) co$!an) @or equit) equit) investor investor do not resu"t .ro$ .ro$ te treasur treasur) ) stoc< stoc< transacti transactions ons o. its su# su#sid sidiari iaries es @or equit) equit) investe investees es% % A"toug A"toug te !arent> !arent>ss invest$e invest$ent nt interest interest $a) increase or decrease .ro$ suc transactions+ te !redo$inate vie0 is tat suc canges are o. a ca!ita" nature and sou"d #e accounted .or #) additiona" !aid=in ca!ita" adBust$ents rater tan #) recorded gains and "osses%
11
Stoc< s!"its and stoc< dividends #) a su#sidiar) do not a..ect te a$ounts tat a!!ear in te conso"idated .inancia" state$ents% 8ut stoc< dividends #) a su#sidiar) resu"t in ca!ita"i;ation o. su#sidiar) retained earnings and te a$ounts invo"ved in e"i$inations .or te su#sidiar)>s stoc<o"ders> equit) accounts are a..ected%
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8-2
increased noncontro""ing interest on") a.ter te date o. sa"e% As a !ractica" e5!edient+ a #eginning=o.=te= !eriod sa"e date can #e used suc tat no inco$e i nco$e is recogni;ed on te interest so"d u! to te ti$e o. sa"e+ and te gain or "oss is co$!uted on te #oo< va"ue at te #eginning o. te !eriod% Wen tis e5!edient is used+ inco$e $ust #e assigned to te increased noncontro""ing interest .or te entire )ear o. sa"e% Te co$#ined invest$ent inco$e and gain or "oss on sa"e are te sa$e under #ot a!!roaces !rovided tat te assu$!tions @#eginning o. te )ear and ti$e o. sa"e are .o""o0ed consistent")% As noted in question 1+ gain or "oss on te sa"e o. te equit) interest is on") recogni;ed recogni;ed 0en t e su#sidiar) su#sidiar) is donconso"id donconso"idated% ated% Oter 0ise+ te gain or "oss is an adBust$ent to oter !aid=in ca!ita"% 7
Assu$ing tat no gain Assu$ing gain or "oss is recog recogni;e ni;ed+ d+ no adBust$e adBust$ent nt o. te !arent> !arent>ss invest$ invest$ent ent accoun accountt is necessar) 0en te su#sidiar) se""s additiona" sares to outside !arties at #oo< va"ue #ecause te !arent>s sare o. under")ing #oo< va"ue does not cange% I. additiona" sares are so"d a#ove #oo< va"ues+ te !arent>s sare o. te under")ing un der")ing equit) o. te su#sidiar) increases% Tis increase is recorded #) te ! arent co$!an) as .o""o0s Invest$ent in su#sidiar) Additiona" !aid=in ca!ita"
I. te su#sidiar) se""s additiona" sares #e"o0 #oo< va"ue+ te !arent>s interest is decreased and te !arent co$!an) records decreases in its invest$ent and additiona" !aid=in ca!ita" accounts% In a"" tree cases @#oo< va"ue+ a#ove #oo< va"ue+ or #e"o0 #e"o0 #oo< va"ue+ te !arent co$!an)>s co$!an)>s o0nersi! , !ercentage decreases .ro$ &' !ercent @&+''' o. *'+''' sares to ?? 7 !ercent @&+''' o. *,+''' sares% No gain or "oss is i s recogni;ed+ te cange in i n under")ing #oo< va"ue+ adBusted .or one=si5t F@&' ÷ &' o. an) una$orti;ed cost #oo< va"ue di..erentia" is re!orted as adBust$ent to additiona" !aid=in ca!ita"+ since te !arent !a rent $ai ntains its contro""i ng interest% in terest% An a"ternative co$!utation is to assu$e , tat te !arent so"d one=si5t one=si5t o. its interes interestt .or ?? 7 !ercent o. te !roceeds+ te di..erence #eing te a$ount o. ad
8
Te acquisition o. te ,+''' sares direct") .ro$ te su#sidiar) increases te !arent>s !ercentage interest .ro$ &' !ercent @&+''' o. *'+''' sares to 1J? @*'+''' o. *,+''' sares+ or &7 *J7% Te cange in te interest e"d does not a..ect te 0a) in 0ic te !arent co$!an) records its additiona" invest$ent% Te !arent co$!an) in a"" cases increases its invest$ent account #) te a$ount o. cas !aid or oter consideration given .or te additiona" invest$ent% It $a
9
Treasur) stoc< transactions #) a su#sidiar) cange te !arent co$!an)>s !ro!ortionate interest in te su#sidiar) su#s idiar)%% An) canges in te !arent>s !arent>s sare o. t e under")ing #oo #oo< < va"ue o. te su#sidiar) require adBust$ents in te !arent co$!an)>s invest$ent in su#sidiar) and additiona" !aid=in ca!ita" accounts%
10
Gains Gains and "osses "osses to a !arent !arent co$!an) co$!an) @or equit) equit) investor investor do not resu"t .ro$ .ro$ te treasur treasur) ) stoc< stoc< transacti transactions ons o. its su# su#sid sidiari iaries es @or equit) equit) investe investees es% % A"toug A"toug te !arent> !arent>ss invest$e invest$ent nt interest interest $a) increase or decrease .ro$ suc transactions+ te !redo$inate vie0 is tat suc canges are o. a ca!ita" nature and sou"d #e accounted .or #) additiona" !aid=in ca!ita" adBust$ents rater tan #) recorded gains and "osses%
11
Stoc< s!"its and stoc< dividends #) a su#sidiar) do not a..ect te a$ounts tat a!!ear in te conso"idated .inancia" state$ents% 8ut stoc< dividends #) a su#sidiar) resu"t in ca!ita"i;ation o. su#sidiar) retained earnings and te a$ounts invo"ved in e"i$inations .or te su#sidiar)>s stoc<o"ders> equit) accounts are a..ected%
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Chapter 8
8-3
SOLUTIONS TO EXERCISES Solution E8-1 Allocation of Sweet’s net income:
Controlling share of income (!00,000
"0#
×
! $ear% & (!00,000
×
)oncontrolling interest share (!00,000
!'2 $ear%
0,000
! $ear%
!0,000
20#
×
!0#
×
×
×
Preac*uisition income (!00,000 × 20# × !'2 $ear% )ote+ his does not appear on the consolidated income statement. Companies onl$ include subsidiar$ earnings subse*uent to the ac*uisition date.
!0,000
Allocation of Sweet’s dividends:
-iidends to Pie (/0,000
×
"0#% & (/0,000
)oncontrolling interest (10,000
90#%
×
!0#%
×
Preac*uisition interests (/0,000
20#%
×
,000
1,000
1,000
Solution E8-2 1
Income from uperstore for 2009+ 10# interest
20,000
×
!'/ $ear
×
,000
2
Preac*uisition income+ 3nder 45 )o. !10, no preac*uisition income appears on the consolidated income statement. he income statement onl$ includes income of the subsidiar$ earned after the parent obtains its controlling interest. Control 6as established on eptember !, 6hen Pinnacle7s interest increased from 0# to 10#, so the consolidated income statement includes uperstore income of 0,000 (20,000 8 !'/ of $ear%.
3
)oncontrolling interest share for 2009+ 0,000
0#
×
/2,000
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8-4
Solution E8-3 (amounts in thousands% Entry to record sale of 15% interest: Cash Inestment in 6amp :ther paid;in capital o record sale of !# interest in 6amp. No gain or loss on sale is recognized since Peat maintains an 85% controlling interest.
"0 110 90
Entry to record investment income for !!":
Inestment in 6amp(100 × #% Income from 6amp o record income from 6amp.
!0 !0
#$ec: Inestment balance
oo? alue of interest sold 5dd+ Income from 6amp Inestment balance -ecember /!, 2009
3nderl$ing e*uit$ (,100 × #% 5dd+ # of @ood6ill A Inestment balance -ecember /!, 2009 A )ote that implied total good6ill is 00 (/0 ' #%.
,00 (110% !0 ,20 /,9!0 /0 ,20
Solution E8-4 (amounts in thousands% @ain on sale of 20# interest+ )o gain or loss is recogniBed since Paule$ maintains a 10# controlling interest. &eginning of t$e 'eriod sale ass(m'tion elling price !/0 >oo? alue of interest (/1 inestment !09 account balance × 20#'0#% 1
5dustment to other paid;in capital
2!
Act(al sale date ass(m'tion elling price >oo? alue of interest sold+ >eginning of the period balance
5dd+ Income (!0
×
!'/ $ear
×
!/0
0#%
Interest sold 5dustment to increase additional paid;in capital Income from aage 2 &eginning of t$e 'eriod sale ass(m'tion Income from aage(!0 × 10#% Act(al sale date ass(m'tion
/1 0 "1 2#
!!9 !!
90
0#
×
!'/ $ear%
0
10#
×
2'/ $ear%
10
hare of aage7s income (!0 Da$ ! to -ecember /!+
×
hare of aage7s income (!0 Income from aage
×
!00
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Chapter 8
8-5
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Consolidations — Changes in Ownership Interests
8-6
Solution E8-4 (continued% 3
Inestment in aage -ecember /!, 2009 >eginning of Period ale 5ssumption /1 (!09% 90 (% /19
Inestment balance oo? alue of interest sold Income from aage -iidends Inestment balance -ecember /!, 2009
5ctual ale -ate 5ssumption /1 (!!9% !00 (% /19
Solution E8-5 (amounts in thousands% 1a
4air alue — boo? alue differential Cost Implied fair alue of tor? (!,2" ' "0#% >oo? alue (!,0
1b
"'!2 $ear
×
×
"0#%
9
Inestment in tor? at -ecember /! Inestment cost 5dd+ Income from tor? -educt+ -iidends (10,000 × "0#% Inestment in tor? -ecember /!, 2009
2
(!,20% /00
Income from tor? ()ote+ :nl$ include earnings subse*uent to the ac*uisition date%. Income from tor? (20,000
1c
!,2" !,20
!,2" 9 (2% !,//0
Consolidation 6or?ing paper entries+ a
Income from tor? 9 Inestment in tor? 1 -iidends 2 o eliminate income and diidends from tor? and adust inestment account to its cost on
b
!,000 Common stoc?, !0 par — tor? 0 etained earnings — tor? @ood6ill /00 Inestment in tor? !,2" )oncontrolling interest 1 -iidends 2 o eliminate reciprocal inestment and e*uit$ balances, record preac*uisition income and beginning noncontrolling interest, and eliminate preac*uisition diidends. © 2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8
8-7
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Consolidations — Changes in Ownership Interests
8-8
Solution E8-6 Inestment in o6er (in thousands%
1
Inestment balance -ecember /!, 2009 (9,000
×
0#%
Cost of ne6 shares (2 × 10,000 shares% Inestment in o6er after ne6 inestment
",200 !,00 ,"00
@ood6ill from ne6 inestment
2
o6er7s stoc?holders7 e*uit$ after issuance (9,000 & !,00% Petal7s o6nership percentage (0,000 & 10,000 shares%'110,000 shares Petal7s boo? alue after issuance =ess+ Petal7s boo? alue before issuance Increase in boo? alue from purchase (boo? alue ac*uired%
!0,00 .!2 ,9!.! (",200% !,/9!.!
Cost of 10,000 shares >oo? alue ac*uired @ood6ill from ac*uisition of ne6 sharesA A
!,00 (!,/9!.!% !0.9
his implies total good6ill is e*ual to !/1,!2.
Solution E8-7 1
od issues /0,000 shares to Pod at 20 per share Pod7s o6nership interest before issuance+ !"1,000'220,000 shares F 0# Pod7s o6nership interest after issuance+ 201,000'20,000 shares F 2.#
2
od sells /0,000 shares to the public at 20 per share Pod7s o6nership interest after issuance+ !"1,000'20,000 shares F "0.#
3
od sells /0,000 shares to the publicG no gain or loss recogniBed+ Inestment in od !!,200 5dditional paid;in capital !!,200 o record increase in inestment in od computed as follo6s+ >oo? alue before issuance (/,200,000
×
0#%
2,10,000
>oo? alue after issuance (/,00,000 5dditional paid;in capital
"0.#%
2,1",200
×
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!!,200
Chapter 8
8-9
Solution E8-8 Primetime )(ys s$ares
Percentage o6nership after additional inestment+
1a
"00,000'!,000,000 F "0# @ood6ill from additional inestment (in thousands%+
1b
>oo? alue of interest after sale
A
2,100 × "0# >oo? alue of interest before sale
!,20
2,!00 × 2'/ >oo? alue of interest ac*uired Cost of interest @ood6ill from additional inestment A
!,00
20 00 0
his implies total good6ill is no6 e*ual to !!,21.
*(tsiders )(y s$ares
2a
Percentage o6nership after sale+ 100,000'!,000,000 F 10#
2b
Change in underl$ing boo? alue of inestment in atellite+ atellite7s underl$ing e*uit$ after sale Primetime7s interest >oo? alue of Primetime7s inestment in atellite after the sale =ess+ >oo? alue before the sale Increase in boo? alue of inestment
2c
2,100,000 10# !,10,000 !,00,000 !10,000
Entr$ to adust inestment account+ Inestment in atellite 5dditional paid;in capital
!10,000 !10,000
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Consolidations — Changes in Ownership Interests
8-10
Solution E8-9 Preliminar$ computations of fair alue — boo? alue differentials+ A'ril 1+ !!" ac,(isition Cost of ,000 shares (20# interest% 1,000 Implied total fair alue of um (1,000 ' 20#% /20,000 >oo? alue of um on april ! ac*uisition date+ >eginning stoc?holders7 e*uit$ 20,000 20,000 5dd+ Income for / months (0,000 × $ear% toc?holders7 e*uit$ 5pril ! @ood6ill
/00,000 20,000
-(ly 1+ !1! ac,(isition Cost of ,000 shares (0# interest% Implied total fair alue of um (!1,000 ' 0#% >oo? alue on eginning stoc?holders7 e*uit$
!1,000 !0,000
5dd+ Income for 1 months (0,000 × !'2 $ear% =ess+ -iidends Da$ ! toc?holders7 e*uit$
/10,000 0,000 (!0,000% /90,000 20,000
Income from um !!"
Income from um for 2009 (0,000
20#
×
×
!2,000
/' $ear%
!1! Income from um for 20!0
2
20# share of reported income (0,000
×
0# share of reported income (0,000 Income from um
×
!1,000
20#% 0#
×
!'2 $ear%
/2,000
)oncontrolling interest -ecember /!, 20!0 !"1,000
((20,000 boo? alue & 20,000 good6ill%× 0#% 3
Preac*uisition income (does not appear in come statement% um income ime before ac*uisition Percent ac*uired in 20!0 Preac*uisition income (0,000
4
!1,000
×
.
0,000 !'2 0# !1,000
.%
×
Inestment balance at -ecember /!, 20!0 Cost of 20# inestment Income from um for 2009 Cost of 0# inestment Income from um for 20!0 =ess+ -iidends (2,000 & 1,000% Inestment in um
1,000 !2,000 !1,000 /2,000 (,000% 21,000
Chec?+ hare of um7s -ecember /!, 20!0 e*uit$ (20,000 5dd+ 10# of 20,000 @ood6ill
×
10#%
22,000 !2,000
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Chapter 8
Inestment in um
8-11
21,000
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Consolidations — Changes in Ownership Interests
8-12
Solution E8-1 !"#li$ina"% co$&utation' Inestment cost
1",000
Implied total fair alue of andridge (1",000 ' 90#% =ess+ >oo? alue of andridge at ac*uisition+ E*uit$ of andridge Dines -ecember /!, 2009 "00,000 5dd+ Income for !'2 $ear 0,000 E*uit$ of andridge Dines
%$"0,000
1
"0,000 0
nvestment income from Sandridge /ines
Income from andridge — 20!0 (!00,000
!'2 $ear
×
×
90#%
,000
Income from andridge — 20!!+
×
!'2 $ear
×
90#%
×
!'2 $ear
×
0#%
/1,000 /2,000 1,000
Inestment in andridge Dines Cost
90#%
×
1",000 ,000 (,000%
Inestment balance -ecember /!, 20!0
1",000
=ess+ >oo? alue of !'9 interest sold on
a
0#%
×
("9,000% 1,000 (2,000%
Inestment balance -ecember /!, 20!!
10,000
ale of !0# interest
"00,000 0,000 0,000 "90,000 !0#
3nderl$ing e*uit$ of interest sold
"9,000
@ain on sale of !'9 interest (,000 proceeds ; "9,000% ince Piccolo maintains a controlling interest, the gain is not recorded, but sho6n as an adustment to additional paid; in capital.
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1,000
Chapter 8
8-13
Solution E8-1 (continued% 2
Noncontrolling interest s$are
)oncontrolling interest share — 20!0+ (!00,000 income
!0,000
!0# interest%
×
)oncontrolling interest share — 20!!+ (0,000
×
!'2 $ear
!0#% & (0,000
×
×
!'2 $ear
20#%
×
Noncontrolling interest 0ecem)er 1+ !1! E*uit$ of andridge Dines
)oncontrolling interest -ecember /! Noncontrolling interest 0ecem)er 1+ !11 E*uit$ of andridge Dines
)oncontrolling interest -ecember /!
!2,000
"00,000 0,000 "0,000 !0# ",000
"0,000 0,000 00,000 20# !10,000
Solution E8-11 Preliminar$ computations+ Inestment cost
Implied total fair alue of an$o (190,000 ' "#% >oo? alue of an$o E8cess fair alue oer boo? alue F @ood6ill 1
920,000 (00,000% !20,000
2nderlying )oo val(e 0ecem)er 1+ !1!
!,000,000 e*uit$ 2
190,000
"#
×
"0,000
Percentage owners$i' )efore '(rc$ase of additional s$ares
/0,000 shares o6ned'0,000 shares outstanding F "# interest Percentage o6nership after purchase of additional shares 0,000 shares o6ned'0,000 shares outstanding F 0# interest 3
nvestment in Sanyo )alance -an(ary + !11
Inestment cost
190,000
for 2009 (200,000 × "#% Inestment in an$o -ecember /!, 2009 5dd+ 5dditional inestment —
!0,000
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0,000
8-14
Consolidations — Changes in Ownership Interests
(!0,000 shares × /0% Inestment in an$o balance
/00,000
!,!0,000
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Chapter 8
4
8-15
Percentage owners$i' if s$ares sold to o(tside entities
/0,000 shares o6ned'0,000 shares outstanding F 10# interest 5
nvestment in Sanyo )alance -an(ary + !11
Inestment in an$o -ecember /!, 2009 (see / aboe% 5dd+ Increase in boo? alue from change in o6nership interest+ >oo? alue after additional !0,000 shares
6ere issued (!,/00,000 e*uit$ × 10#% >oo? alue before additional !0,000 shares
"0,000
6ere issued (!,000,000 e*uit$ × "#% Inestment in an$o balance ;
("0,000%
0,000
/0,000
"0,000
Solution E8-12 Preliminary com'(tations:
Cost of additional inestment (2,000 shares
!10,000
0%
×
Implied total fair alue of aton !10,000 ' (2,000'!2,000% =ess+ >oo? alue of aton after issuance E8cess fair alue oer boo? alue
910,000 "!0,000 20,000
-an(ary + !1! Inestment in aton !10,000 Cash !10,000 o record purchase of additional 2,000 shares of aton. 0ecem)er !1! Cash
0,000 Inestment in aton
0,000
o record receipt of diidends (10,000 0ecem)er 1+ !1! Inestment in aton Income from aton
o record income from aton(90,000
!0,000'!2,000 shares%.
×
",000 ",000 !0,000'!2,000%.
×
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Consolidations — Changes in Ownership Interests
8-16
Solution E8-13 1
2
nvestment in Stri'er 3in t$o(sands4 Cost 5dd+ 90# of /00 increase in e*uit$ since 2009 Inestment in triper
!,00 2"0 2,0"0
Entry on Patric’s )oos 3no gain or loss recognized4
Inestment in triper !0 5dditional paid;in capital !0 o recogniBe change in boo? alue of inestment from triper7s sale of additional shares, computed as follo6s+ !,00 3nderl$ing e*uit$ after issuance (2,00 × "#% 3nderl$ing e*uit$ before issuance (!,00
90#%
×
(!,120%
!0
SOLUTIONS TO !RO(LE)S Solution !8-1 Preliminary com'(tations 3in t$o(sands4: Cost of 0,000 shares
120
Implied total fair alue of pindle (120 ' 0#% >oo? alue of pindle (0 & 0 income% E8cess fair alue oer boo? alue
"" (100% !"
Cost of !0,000 shares oo? alue after issuance ("12
×
!12 1/
'1%
>oo? alue before issuance (100 × 0#% E8cess fair alue oer boo? alue of !0,000 shares ac*uired 1
nvestment in S'indle — 0ecem)er 1+ !!" Inestment cost
5dd+ Income from pindle; !00
×
!'2 $ear
0#
×
=ess+ -iidends (0 × 0#% Inestment in pindle -ecember /!, 2009 2
(!%
"
120 0 (0% 120
ncome from S'indle — !1!
hare of pindle7s income (!0 3
(0%
×
'1%
nvestment in S'indle — 0ecem)er 1+ !1! Inestment balance -ecember /!, 2009 5dd+ 5dditional inestment 5dd+ Income from pindle — 20!0
=ess+ -iidends for 20!0 (10 × '1% Inestment in pindle -ecember /!, 20!0
!2
120 !12 !2 (0% "
Chec?+ hare of pindle7s e*uit$ (2 × '1% @ood6ill (!" 8 0#% & (2!0 8 ('1 J 0#% K
"!0 !"
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Chapter 8
Inestment in pindle -ecember /!, 20!0
8-17
"
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Consolidations — Changes in Ownership Interests
8-18
Solution !8-2 1
nvestment in Smit$town 3in t$o(sands4
3nderl$ing e*uit$ 21,000 × 0# @ood6ill (0#% Inestment in mithto6n
20,00 2,000 22,00
2
Percentage interest after stoc iss(ance hares o6ned 910,000'!,100,000 outstanding shares F 10# interest
3
No gain or loss recognized on iss(ance of additional s$ares Inestment in mithto6n 2,000 :ther paid;in capital 2,000 o recogniBe change in o6nership interest computed as+ 3nderl$ing
e*uit$ after sale (/,000
10#% less underl$ing e*uit$ before
×
sale of additional shares (21,000
×
0#%.
Solution !8-3 1
-o(rnal entry to record sale as of act(al sale date Cash !20,000 5dditional paid;in capital !,00 Inestment in ha6nee !2!,00 o record sale of !'9 of inestment in ha6nee. >oo? alue of interest sold is computed as follo6s+
Inestment balance -ecember /!, 200 5dd+ Income from ha6nee for one;half $ear (20,000
×
!'2 $ear
90#%
×
=ess+ -iidends (0,000 × 90#% >oo? alue of inestment on oo? alue of interest sold (!,09/,00'9% 2
!21,000
("2,000%
!,09/,00 !2!,00
-o(rnal entry to record sale as of -an(ary 1+ !!" Cash !20,000 5dditional paid;in capital !2,00 Inestment in ha6nee !0",00 o record sale of !'9 of inestment in ha6nee. >oo? alue of interest sold is computed as follo6s+
Inestment balance -ecember /!, 200 =ess+ -iidends >oo? alue adusted for diidends >oo? alue of interest sold (91",00'9% 3
!,0/9,00
!,0/9,00 ("2,000% 91",00 !0",00
econciliation
>alance
Inestment in ha6nee 5ctual ale -ate !,0/9,00
!21,000 !!2,000
Inestment in ha6nee >eginning of Lear ale -ate !,0/9,00 !!2,000 !l2,000
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Chapter 8
4irst half;$ear =ast half;$ear =ess+ >oo? alue of interest sold >alance -ecember /!, 2009
8-19
("2,000% (1,000% (!2!,00% !,020,000
("2,000% (1,000% (!0",00% !,020,000
Solution !8-4 (in thousands% Entries on Panama7s boo?s to reflect the change in o6nership interest+ :ption ! Panama sells /0,000 shares of henandoah Cash
!,00 Inestment in henandoah "0 5dditional paid;in capital 1/0 o record sale of /0,000 shares at 0 per share. )o gain or loss is recogniBed since parent maintains a controlling interest.
:ption 2 henandoah issues and sells 0,000 shares to the public Inestment in henandoah 5dditional paid;in capital
1/0 1/0
o record adustment in o6nership computed as follo6s+ >oo? alue after sale of 0,000 shares (!2,0 × "#% >oo? alue before sale of 0,000 shares
9,//0
(!0,0 × '1% Increase in boo? alue of inestment from sale
(,"00%
1/0
:ption / henandoah reissues 0,000 shares of treasur$ stoc? Inestment in henandoah 1/0 5dditional paid;in capital 1/0 o record adustment in o6nership computed the same as 2 aboe.
Con'oli*at#* Stoc+,ol*#"' E.uit% at
Common stoc? 5dditional paid;in capital etained earnings )oncontrolling interesta otal stoc?holders7 e*uit$ a
:ption !
:ption 2
:ption /
!0,000 /,1/0 ",000 2,1!0 2/,20
!0,000 /,1/0 ",000 /,!!0 2/,"0
!0,000 /,1/0 ",000 /,!!0 2/,"0
)oncontrolling interest under option !+ !0,0 × 2# )oncontrolling interest under options 2 and /+ !2,0
×
2#
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Consolidations — Changes in Ownership Interests
8-20
Solution !8-5 Preliminary com'(tations: Cost of 9,000 shares (90# interest%
Implied total fair alue of ala (!0,000 ' 90#% >oo? alue of ala (00,000 & /00,000% E8cess fair alue oer boo? alue F @ood6ill 1
900,000 (00,000% !00,000
nvestment )alance 0ecem)er 1+ !!"
Cost
×
90%
5dd+ hare of ala7s 2009 income (0,000 Inestment in ala -ecember /! 2
90#%
×
!0,000
,000
,000
!00,000
!00,000
0,000 (!,/0,000% (00,000% 00,000 0
Additional 'aid7in ca'ital 3o(tsider '(rc$ased additional s$ares4
>oo? alue after issuance (!,/0,000
10#%
×
>oo? alue before issuance (0,000 × 90#% 5dditional paid;in capital (gain is not recogniBed% 4
6oodwill at 0ecem)er 1+ !1!3Pallo '(rc$ased additional s$ares%
@ood6ill from oo? alue before purchase >oo? alue after purchase >oo? alue ac*uired Cost of additional ,000 shares @ood6ill from
!0,000
!0,000
("1,000%
,000
Noncontrolling interest 0ecem)er 1+ !1! 3o(tsider '(rc$ased s$ares4
ubsidiar$ e*uit$ oo? alue @ood6ill 4air alue of ubsidiar$ e*uit$ -ecember /!, 20!0 )oncontrolling interest percentage 1,000'!,000 shares )oncontrolling interest -ecember /!, 20!0
00,000 0,000 "0,000 00,000 !,20,000 !00,000 !,20,000
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0# 10,000
Chapter 8
8-21
Solution !8-6 1
nvestment in Stae 0ecem)er 1+ !1! Inestment in ta?e
9,000 Increase for 2009 (/0,000 retained earnings increase × "0#% 2!,000 Purchase of additional 20# interest
-iidends 20!0+ (!0,000 × 90#% Inestment in ta?e -ecember /!, 20!0 2
6oodwill 0ecem)er 1+ !1!
Implied fair alue of ta?e (9,000 ' "0#% =ess+ >oo? alue of ta?e @ood6ill oo? alue of ta?e @ood6ill ; -ecember /!, 20!0 3
A
4
5
!"!,000
9,000 !0,000 !20,000 20,000
/",000 !,000 !1,000 20,000
#onsolidated net income ales Cost of sales E8penses Consolidated net income )oncontrolling interest share A Controlling share of net income
100,000 (00,000% ("0,000% !/0,000 1,000 !2,000
)oncontrolling share is !0# for full $ear plus 20# for M $ear. 5lternatie+ Post7s reported income F Controlling share of net income
!2,000
#onsolidated retained earnings 0ecem)er 1+ !1! >eginning retained earnings 5dd+ Controlling share of Consolidated net income — 20!0 =ess+ -iidends Consolidated retained earnings — ending 5lternatie solution+ Post7s reported ending retained earnings F Consolidated retained earnings — ending
200,000 !2,000 (1,000% 210,000
210,000
Noncontrolling interest 0ecem)er 1+ !1!
E*uit$ of ta?e -ecember /!, 20!0 @ood6ill 4air alue of ta?e )oncontrolling interest percentage )oncontrolling interest -ecember /!, 20!0
!"0,000 20,000 !90,000 !0# !9,000
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Consolidations — Changes in Ownership Interests
8-22
Solution !8-7 1
!#"c% Co"&o"ation an* Sub'i*ia"% Consolidated Income tatement for the $ear ended -ecember /!, 20!0 (in thousands% ales Cost of sales @ross profit -epreciation e8pense :ther e8penses Consolidated net income )oncontrolling interest share (!0,000
/,200 (!,900% !,/00 ("00% (!0% 0 (//."%
20#% &
×
(!0,000 × !' $ear × !0#% Controlling share of Consolidated net income 2
Sc$ed(le to allocate Sawyer’s income and dividends )oncontrol. Preac*uisition Control.
a6$er7s income
"0# !0#
5llocation -iidends
"0# !0#
5llocation
!0,000 !!,20 !!1,20
20#
1,000 ,000 10,000
20#
//,"
otal !/,000 !,000 !0,000
//,"0 !1,000 !1,000
!1.2
"2,000 ,000 0,000
,000 ,000
Solution !8-8 Preliminary com'(tations Cost :ctober !, 2009
2,00
Implied fair alue of at (2,00 ' 0#% >oo? alue on :ctob6er ! ac*uisition date+ >oo? alue on
!0/,000 "0,000 !,000
(2,000 × /' $ear% -educt+ -iidends Darch ! >oo? alue :ctober ! @ood6ill
(,000% /,000 20,000
Income from at for 2009 hare of at7s net income (2,000 × !' $ear × 0#% =ess+ 3nrealiBed profit in at7s ending inentor$ Income from at
,00
A Preac*uisition income (2,000
!,00
×
/' $ear
A Preac*uisition diidends (,000
×
0#%
×
A )oncontrolling interest share (1,000
×
20#%
0#%
(!,000% /,00
,000 !,200
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Chapter 8
8-23
A 3nder 45 )o. !10, preac*uisition earnings are not sho6n as a reduction of consolidated net income. ather, 6e onl$ include earnings and diidends subse*uent to the ac*uisition date. Preac*uistion amounts are disclosed in re*uired pro;forma disclosures for ac*uisitions. he 6or?sheet on the follo6ing page reflects these adustments.
Solution !8-8 (continued% !o& Co"&o"ation an* Sub'i*ia"% Consolidation Nor?ing Papers for the $ear ended -ecember /!, 2009
Pop
5dustments and Eliminations
at 0#
Consolidated tatements
ncome Statement
ales
!!2,000
0,000
a !2,000
!!2,00
c /",00 Income from at
/,00
Cost of sales
10,000A
b
/,00
20,000A d
!,000
a !2,000
,000A
c !,000 :perating e8penses
2,!00A
1,000A
c
,00
21,100A
Consolidated net income
/!,900
)oncontrolling int. share
f
Controlling share of )I
/0,"00
!,200
!,200A
2,000
/0,"00
/0,000
/0,"00
etained Earnings
etained earnings — Pop
/0,000
etained earnings — at
20,00 0
)et income
/0,"00ü
2,000ü
-iidends
20,000A
!0,000A
e 20,0 00 b
,000
c
,000
f
!,000
20,000A
etained earnings -ecember /!
0,"00
/,000
0,"00
,!00
",000
!2,!00
&alance S$eet
Cash 5ccounts receiable
!0,00
!",000
,000
!0,000
Inentories
/0,000
!1,000
Plant assets — net
,000
10,000
Inestment in at
2,200
)ote receiable
@
1,000
2!,00 !,000
d
!,000
,000 !,000
b
200 e 2,00
@ood6ill
e 20,000
5ccounts pa$able
220,"00
!!0,000
!,000
!1,000
)otes pa$able
2,000
!0,000
Capital stoc?
!0,000
0,000
g
1,000
20,000
21!,00
2,000 /,000
e 0,000
!0,000
© 2009 Pearson Education, Inc. publishing as Prentice Hall
Consolidations — Changes in Ownership Interests
8-24
0,"00ü
etained earnings
220,"00
)oncontrolling interest — beginning )oncontrolling interest -ecember /!
/,000 ü
!!0,000 c !/,000 e
",100
f
200
20,00
A
0,"00
21!,00
-educt
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Chapter 8
8-25
Solution !8-9 S(''orting com'(tations:
4air alue — boo? alue differential Inestment cost
!",000
Implied total fair alue of id (!",000 ' "0#% =ess+ >oo? alue of id (20,000 e*uit$ on
20,000 20,000 0
Allocation of Sid’s re'orted net income
Parent compan$ (0,000
/' $ear
×
Preac*uisition income (0,000
×
×
2!,000
"0#%
!' $ear
)oncontrolling interest share (0,000
"0#%
×
! $ear
×
/0#%
×
id7s net income
",000
!2,000 0,000
Pal’s income from Sid
E*uit$ in id7s income
2!,000
Constructie gain on parent7s bonds )ote that bonds pa$able has a boo? alue of !0,00 on -ecember /!, 2009. 5 half;$ear of premium amortiBation (/00% $ields a boo? alue of !0,"00 at
2,0
ecognition of constructie gain on separate boo?s (2,0
1'!! months%
×
@ain on intercompan$ sale of e*uipment — do6nstream /0,000 ; (/1,000'2%K
(!0%
(!2,000%
Piecemeal recognition of gain on e*uipment — do6nstream (!2,000'/ $ears
!'2 $ear%
×
2,000
@ain on intercompan$ sale of land — upstream (!0,000 ; ,000 cost% Income from id
×
"0#
(!,00% !2,/00
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Consolidations — Changes in Ownership Interests
8-26
Solution !8-9 /continu#*0 ors$eet entries in 9o(rnal form
a
b
c
d
e
f
g
h
i
Income from id !2,/00 -iidends ; id Inestment in id common Eliminate intercompan$ post;ac*uisition earnings and diidends and return Inestment to beginning balance. ales A /",00 Cost of sales A -iidends J idA etained earnings ; id 0,000 Common stoc? ; id 200,000 Inestment in id ; common )oncontrolling interest Eliminate preac*uisition earnings and diidends. Eliminate id7s e*uit$ accounts, the inestment account and establish beginning noncontrolling interest. @ain on plan assets !2,000 Plan assets Eliminate intercompan$ gain on sale of e*uipment. @ain on plan assets 2,000 Plan assets Eliminate intercompan$ gain on sale of land. Interest income ,0 Interest e8pense @ain on bond retirement Inestment in Pal bonds >onds pa$able !00,000 Premium on bonds ,00 ecord constructie retirement of bonds pa$able. Interest pa$able 1,000 Interest receiable Eliminate reciprocal interest accounts. :ther current liabilities ",000 :ther current assets Eliminate reciprocal for unpaid intercompan$ diidends. )oncontrolling interest share ,00 -iidends ; id )oncontrolling interest ecord noncontrolling interest share of earnings and post;ac*uisition diidends. Plan assets 2,000 E8penses Eliminate e8cess depreciation on e*uipment.
",000 ,/00
2",00 !0,000
!",000 ",000
!2,000
2,000
,"00 2,0 !02,"00
1,000
",000
/,000 ,00
2,000
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Chapter 8
8-27
Solution !8-9 (continued% !al Co"&o"ation an* Sub'i*ia"% Consolidation Nor?ing Papers for the $ear ended -ecember /!, 2009
Pal
5dustments and Eliminations
id "0#
Consolidated tatements
ncome Statement
ales
Income from id
2",!00
!0,000
!2,/00
b
/",00
a
!2,/00
@ain on bonds @ain on plant assets
!2,000
2,000
Interest income
,0
Interest e8pense E8penses — includes cost of goods sold
c
!2,000
d
2,000
e
,0
!!,00A
200,000A
!!",0A
a
2,0
2,0
e
,"00
,"00A
b
2",00
i
2,000
2,/0A
Consolidated )I
!01,00
)oncontrolling int. share Controlling share of )I
/99,100
h
!00,000
20,000
0,000
0,000
0,000ü
,00
,00A
!00,000
20,000
!00,000
etained Earnings
etained earnings — Pal etained earnings — id
!00,000ü
)et income -iidends
0,000A
b
0,000
20,000A
a
",000
b
!0,000
h
/,000
0,000A
etained earnings -ecember /!
/00,000
"0,000
!",000
,000
/00,000
2!,000
&alance S$eet
Cash Interest receiable
1,000
Inentories
!0,000
10,000
:ther current assets
!!0,000
20,000
Plant assets — net
02,"00
!0",/00
Inestment — id common
f
1,000
g
",000
c
!2,000
d
2,000
a
,/00
200,000 i
2,000
!0,/00
!2/,000 9,000
b !",000 Inestment — Pal bonds
!02,"00
Interest pa$able
90,000
:ther current liabilities
/00,000
/0,000
1,000 /,100
!2# bonds pa$able
!00,000
Premium on bonds
00,000
etained earnings
/00,000ü
90,000
/0#%
×
1,000
g
",000
e
Common stoc?
)oncontrolling interest (20,000
f
92,000
1!,100
e !00,000
,00
e !02,"00
200,000
,00
b 200,000
00,000
"0,000ü
/00,000
/00,000 b
",000
i
,00
)oncontrolling interest -ecember /! (21,000
/0#%
×
0,00
92,000
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Consolidations — Changes in Ownership Interests
8-28
Solution !8-1 S(''orting com'(tations:
Inestment cost of "0# interest
20,000
Implied total fair alue of am (20,000 ' "0#% >oo? alue of am @ood6ill
100,000 00,000 !00,000
Inestment cost of !0# interest
1",00
Implied total fair alue of am (1",00 ' !0#% >oo? alue of am+ >eginning e*uit$ oo? alue at
1",000 0,000 0,000 (2,000% ",000 !00,000
Inestment in am account+ Inestment cost
×
"0# interest
! $ear
×
!00,000 × !0# interest × !'2 $ear 5dd+ >eginning inentor$ profits =ess+ Ending inentor$ profits =ess+ @ain+ intercompan$ sale machiner$ 5dd+ Piecemeal recognition of gain (0,000' × !'2 $ear% =ess+ -iidends from am (2,000 × "0#% & (2,000 × 0#% Inestment balance -ecember /!, 20!0
20,000 /,000 (,000% (,000%
22,000 2,000 1",00
"0,000
,000 ,000 (1,000% (0,000% ,000
/,000 (/",00% !0,000
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Chapter 8
8-29
Solution !8-1 (continued% !oco Co"&o"ation an* Sub'i*ia"% Consolidation Nor?ing Papers for the $ear ended -ecember /!, 20!0 (in thousands% 0# am
Poco
5dustments and Eliminations
Consolidated tatements
ncome Statement
ales
900
00
a
Income from am
/
f
/
@ain on machiner$
0
d
0
c
1
Cost of sales
00A
-epreciation e8pense :ther e8penses
/00A
90A
10A
!10A
0A
!,/2
a
b
1/A
d
!1A 200A
Consolidated net income
//
)oncontrolling int. share Controlling share of )I
h
/2
!
!00
20
2
2A
/2
!
/2
etained Earnings
etained earnings — Poco etained earnings — am Controlling share of )I
/2ü
!00ü
-iidends
200A
0A
g 20 f
/".
h
!0
g
2.
200A
etained earnings -ecember /!
2/
/00
20
0
2/
!00
&alance S$eet
Cash
5ccounts receiable
!/0
/0
-iidends receiable
20
Inentories
90
"0
:ther current items
20
0
=and
0
0
>uildings — net
10
!0
Dachiner$ — net
!00
/20
Inestment in am
!0
@ood6ill
i
2
20
c
1
e
!/ ! !00 2 !1
d
/1
b
g 22.
e
f
/
.
g !00 !,000
5ccounts pa$able
!""
"2
0
i
2
20
-iidends pa$able
!00
2
:ther liabilities
!0
10
Capital stoc?, !0 par
/00
/00
etained earnings
2/ü
/00ü
!,000
!00 !,220
!92 !0 200
g /00
/00 2/
"2
)oncontrolling interest,
g !2
)oncontrolling interest, -ecember /!
h
!0 !,220
A
-educt
© 2009 Pearson Education, Inc. publishing as Prentice Hall
Consolidations — Changes in Ownership Interests
8-30
Solution !8-11 Preliminar$ computations+ Inestment cost of # of l$ 5ugust !, 2009
22,"0
Implied fair alue of l$ (22,"0 ' #% >oo? alue 5ugust !, 2009+ Capital stoc? etained earnings 5dd+ Income for " months =ess+ -iidends for !'2 $ear toc?holders7 e*uit$ 5ugust !, 2009 4air alue J boo? alue differential
1!,000 00,000 !00,000 /,000 (20,000%
Inestment cost 5ugust !, 2009 E*uit$ in income 10,000 × '!2 $ear =ess+ -eferred inentor$ profit from
22,"0 ×
#
2!,20 (,20%
upstream sale ,000 × # =ess+ -eferred profit from sale of e*uipment !0,000 profit ; (2,000 Income from l$ 2009
1!,000 0
×
!' $ear%
(9,00% ",00 (!",000%
=ess+ -iidends from l$ 20,000 × # Inestment in l$ -ecember /!, 2009
!/,20
)oncontrolling interest share of post;ac*uisition income, adusted for the
inentor$ profit+ (2,000 ; ,000%
×
!# F /,000
Preac*uisition earnings (/,000 × #% F 29,"0 3nder 45 )o. !10, pre;ac*uisition earnings and diidends are closed to retained earnings, and the consolidated income statement reports onl$ post; ac*uisition earnings. oring 'a'er entries:
a
ales
10,000 Cost of sales o eliminate intercompan$ sales.
b
Cost of sales Inentories o defer unrealiBed inentor$ profits.
10,000
,000 ,000
c
ales
0,000 Cost of sales 0,000 !0,000 Plant assets — net o eliminate intercompan$ sale of inentor$ item to be used as e*uipment.
d
00 Plant assets — net :perating e8pense 00 o record depreciation for !' $ear on intercompan$ gain on plant asset. © 2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8
8-31
!8-11 (continued% e
Income from l$ ",00 Inestment in l$ 9,00 -iidends !",000 o eliminate income and diidends and return inestment account to its beginning;of;the;period balance.
f
Capital stoc? 00,000 etained earnings !00,000 Inestment in l$ 22,"0 )oncontrolling interest 92,20 ales A 2//,/// Cost of sales A !,// :perating e8penses A 2,00 -iidends A 20,000 o eliminate reciprocal e*uit$ and inestment balances, and enter beginning noncontrolling interest (A adusted for preac*uisition earnings and diidends%.
g
-iidends pa$able !",000 -iidends receiable !",000 o eliminate reciprocal diidends receiable and pa$able amounts.
h
)oncontrolling Interest hare /,000 -iidends /,000 o enter )oncontrolling Interest share of subsidiar$ post; ac*uisition income and diidends.
Alternative to entry c: ales Cost of sales
Cost of sales Plant assets — net
0,000 0,000 !0,000 !0,000
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Consolidations — Changes in Ownership Interests
8-32
Solution !8-11 (continued% !a+ Co"&o"ation an* Sub'i*ia"% Consolidation Nor?ing Papers for the $ear ended -ecember /!, 2009
Pa?
5dustments and Eliminations
l$ #
Consolidated tatements
ncome Statement
ales
9!0,000
00,000
a
10,000
c
0,000
f 2//,/// Income from l$
",00
Cost of sales
00,000A
:perating e8pense
200,000A
e
",00
20,000A b
,000
90,000A
a
10,000
c
0,000
f !,//
09,!1"A
d
2/",000A
f
00 2,00
Consolidated net income
220,,00A
)oncontrolling int. share Controlling share of )I
911,11"
h
2!",00
!92,00
/,000
/,000A
10,000
2!",00
!92,00
2!",00
etained Earnings
etained earnings — Pa?
etained earnings — l$
!00,000
)et income
2!",00ü
10,000 ü
-iidends
!00,000A
0,000A
f !00,000 e
!",000
f
20,000
h
/,000
!00,000A
etained earnings -ecember /!
/!0,000
!20,000
/!0,000
//,"0
!0,000
/,"0
&alance S$eet
Cash -iidends receiable
!",000
g
5ccounts receiable
!20,000
"0,000
Inentories
/00,000
!0,000
Plant assets — net
0,000
00,000
Inestment in l$
!/,20
5ccounts pa$able
!,1,000
"/0,000
90,000
!,000
-iidends pa$able Capital stoc? etained earnings
20,000 !,00,000
00,000
/!0,000ü !,1,000
)oncontrolling interest
!",000 !90,000
d
00
e
9,00
b
,000
,000
c
!0,000
!,/"0,00
f 22,"0 2,09,20
g
2,000
!",000
/,000
f 00,000
!,00,000
!20,000 ü
/!0,000
"/0,000 f
92,20
)oncontrolling interest -ecember /!
92,20 2,09,20
© 2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8
© 2009 Pearson Education, Inc. publishing as Prentice Hall
8-33
Consolidations — Changes in Ownership Interests
8-34
Solution !8-12 ndirect /et$od
!o Co"&o"ation an* Sub'i*ia"% Consolidated tatement of Cash 4lo6s for the $ear ended -ecember /!, 20!0 Cash 4lo6s from :perating 5ctiities Consolidated net income J controlling share 5dustments to reconcile net income to cash proided b$ operating actiities+ )oncontrolling interest share -epreciation e8pense -ecrease in accounts receiable -ecrease in prepaid e8penses -ecrease in accounts pa$able Increase in inentories @ain on sale of !0# interest A
/00,000
22,000 2,000 2,00 20,000 (20/,00% (!/0,000% (,"00%
)et cash flo6s from operating actiities Cash 4lo6s from Inesting 5ctiities Purchase of e*uipment ale of !0# interest in subsidiar$
//,/00
(!00,000% "2,"00
)et cash flo6s from inesting actiities Cash 4lo6s from 4inancing 5ctiities Cash paid on long;term note Pa$ment of cash diidends — controlling Pa$ment of cash diidends — n oncontrolling )et cash flo6s from financing actiities -ecrease in cash for 20!0 Cash on hand
2//,/00
(2",/00%
(/00,000% (200,000% (!0,000% (!0,000% (,000% 0,00 1,00
Note: Since Poff maintains a controlling interest in Sato+ no gain or loss s$o(ld $ave )een recognized on sale of t$e 1! interest. at$er+ t$is amo(nt s$o(ld a''ear as an increase in ot$er 'aid7in ca'ital. ;$e net effect on t$e statement of cas$ flows is t$e same.
© 2009 Pearson Education, Inc. publishing as Prentice Hall
Chapter 8
8-35
Solution !8-12 (continued% !o Co"&o"ation an* Sub'i*ia"% Nor?ing Papers for the tatement of Cash 4lo6s (Indirect Dethod% for the $ear ended -ecember /!, 20!0 econciling Items Lear7s Change
-ebit
Credit
Cash 4lo6s from :perations
Cash 4lo6s Inesting 5ctiities
Cash 4lo6s 4inancing 5ctiities
Asset #$anges
Cash
(,000%
5ccounts (2,00% e
receiable — net Inentories
!/0,000
Prepaid e8penses
(20,000% l
E*uipment
90,000
5ccumulated
2,00 ? !/0,000
h
20,000 !0,000 g !00,000
(9,000% f 00,000 h
2,000
depreciation =and and buildings 5ccumulated
0 (2,000% f
2,000
depreciation otal asset changes
(//2,00%
#$anges in E,(ities
5ccounts pa$able
(20/,00%
-iidends pa$able =ong;term note
i 20/,00
0 (/00,000%
/00,000
pa$able Common stoc? etained earnings
0 !00,000
)oncontrol. int. 20# "!, 000
a /00,000 c 200,000 b
2 2, 00 0 d
h
9,000
!0, 00 0
Changes in e*uities
(//2,00%
Consolidated net income
a /00,000
)oncontrolling int. share
b
Purchase of e*uipment
22,000
/00,000 22,000
g !00,000
(!00,000%
-epreciation — e*uipment and buildings
f 2,000
2,000
@ain ; sale of !0# subsidiar$ Interest
h
,"00
-ecrease in accounts receiable Increase in inentories
(,"00% e
2,00
? !/0,000
-ecrease in prepaid e8penses
2,00 (!/0,000%
l
20,000
20,000
-ecrease in accounts pa$able
i 20/,00
Cash paid on long;term note
/00,000
(20/,00% (/00,000%
Paid diidends — controlling
c 200,000
(200,000%
Paid diidends —n oncontrol.
d
!0,000
(!0,000%
ale of !0# interest in ubsidiar$
h
"2,"00
"2,"00
!,90,"00 !,90,"00 //,/00
(2",/00%
(!0,000%
© 2009 Pearson Education, Inc. publishing as Prentice Hall