Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Question
Chapter 4, Problem 4.35P
(a)
To determine
Introduction: Consolidated worksheet is used to prepare the consolidated financial statements of the parent company and its subsidiary. It reflects the individual values of the parent and the subsidiary, the eliminated values and finally the one consolidated figures
(a)
Expert Solution
Explanation of Solution
Journal entries
| Particulars | Debit | Credit |
| Investment in S | $ 30,000 | |
| Income from S | $ 30,000 | |
| (To record P' share of S' income.) | ||
| Cash | $ 10,000 | |
| Investment in S | $ 10,000 | |
| (To record dividend from S'.) | ||
| Income from S | $ 5,000 | |
| Investment in S | $ 5,000 | |
| (Torecord the amortization of excess value acquired.) |
Working Note:
| Calculation of Net Income of S' for the year 20X5 | ||
| Sales | $ 100,000 | |
| Less: | ||
| Cost of goods sold | $ 50,000 | |
| $ 15,000 | ||
| Inventory losses | $ 5,000 | $ 70,000 |
| Net Income | $ 30,000 | |
(b)
To determine
Introduction: Consolidated worksheet is used to prepare the consolidated financial statements of the parent company and its subsidiary. It reflects the individual values of the parent and the subsidiary, the eliminated values and finally the one consolidated figures
Consolidation entries to prepare consolidation financial statements.
(b)
Expert Solution
Answer to Problem 4.35P
Consolidation Entries
| S. No. | Particulars | Debit | Credit |
| 1 | Income from S | $ 25,000 | |
| Dividend declared | $ 10,000 | ||
| Investment in S | $ 15,000 | ||
| (To eliminate the income from subsidiary.) | |||
| 2 | Common stock- S | $ 100,000 | |
| Retained earning | $ 90,000 | ||
| Investment in S | $ 190,000 | ||
| (To eliminate the investment.) | |||
| Building and equipment | $ 50,000 | ||
| Investment in S | $ 30,000 | ||
| | $ 20,000 | ||
| (To record the excess value of building and equipment and accumulated depreciation.) | |||
| 3 | Depreciation expense | $ 5,000 | |
| Accumulated depreciation | $ 5,000 | ||
| (To record amortization of excess value.) | |||
| 4 | Accounts payable | $ 10,000 | |
| Cash and Receivable | $ 10,000 | ||
| (To eliminate the inter-corporate receivable and payable.) |
Explanation of Solution
| Calculation of | ||
| Consideration paid by P | $ 200,000 | |
| Less: | ||
| Common Stock | $ 100,000 | |
| $ 50,000 | $ 150,000 | |
| Excess of Fair value over Book value | $ 50,000 | |
| Allocation of Excess value to specified accounts | ||
| Building and equipment | $ 50,000 | |
| So, all the excess value allocated to Building and equipment, hence no Goodwill | ||
| Calculation of Depreciation of Excess value allotted to Building and equipment | ||
| Building and equipment | $ 50,000 | |
| Life | 10 Years | |
| Depreciation per year | $ 5,000 | |
| Total Accumulated Depreciation 4 year ($5,000*4) | $ 20,000 | |
(c)
To determine
Introduction: Consolidated worksheet is used to prepare the consolidated financial statements of the parent company and its subsidiary. It reflects the individual values of the parent and the subsidiary, the eliminated values and finally the one consolidated figures
To prepare: Three part consolidation work paper for 20X5.
(c)
Expert Solution
Explanation of Solution
| Consolidated Work paper as on December 31, 20X5 | |||||
| Particulars | P | S | Eliminations | Consolidated | |
| Income statement | Debit | Credit | |||
| Sales | $ 200,000 | $ 100,000 | $ 300,000 | ||
| Less: | |||||
| Cost of goods sold | $(120,000) | $ (50,000) | $(170,000) | ||
| Depreciation expense | $ (25,000) | $ (15,000) | $ 5,000 | $ (45,000) | |
| Inventory losses | $ (15,000) | $ (5,000) | $ (20,000) | ||
| Income from S' | $ 25,000 | $ 25,000 | |||
| Net income | $ 65,000 | $ 30,000 | $ 65,000 | ||
| Statement of Retained Earnings | |||||
| Beginning balance | $ 318,000 | $ 90,000 | $ 90,000 | $ 318,000 | |
| Income, from above | $ 65,000 | $ 65,000 | |||
| Dividends declared | $ (30,000) | $ (10,000) | $(10,000) | $ (30,000) | |
| Ending balance | $ 353,000 | $ 80,000 | $ 90,000 | $(10,000) | $ 353,000 |
| Balance Sheet | |||||
| Assets | |||||
| Cash and Receivables | $ 43,000 | $ 65,000 | $ 10,000 | $ 98,000 | |
| Inventory | $ 260,000 | $ 90,000 | $ 350,000 | ||
| Land | $ 80,000 | $ 80,000 | $ 160,000 | ||
| Buildings and equipment | $ 500,000 | $ 150,000 | $ 50,000 | $ 700,000 | |
| Less: Accumulated Depreciation | $(205,000) | $(105,000) | $ 20,000 | ||
| Less: Depreciation for the year | $ 5,000 | $ (335,000) | |||
| Investment in S's stock | $ 235,000 | $235,000 | |||
| Goodwill | - | ||||
| Total assets | $ 913,000 | $ 280,000 | $ 973,000 | ||
| Liabilities | |||||
| Accounts payable | $ 60,000 | $ 20,000 | $ 10,000 | $ 70,000 | |
| Notes payable | $ 200,000 | $ 50,000 | $ 250,000 | ||
| Common stock: | $ 300,000 | $ 100,000 | $100,000 | $ 300,000 | |
| Retained earnings from above | $ 353,000 | $ 110,000 | $110,000 | $ 353,000 | |
| Total liabilities and equities | $ 913,000 | $ 280,000 | $ 973,000 | ||
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Advanced Financial Accounting
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