Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 5, Problem 5.18AE
a
To determine
Introduction: When asset held by the subsidiary are with differential, both the equity method income and consolidated net income is affected, as the proportion of differential is included in parents books as part of the investment in the subsidiary; when the asset is sold it must be written off by a parent, in consolidation.
The entries recorded during 20X5 with respect to investment in S.
a
Expert Solution
Explanation of Solution
Entries related to investment in subsidiary
| particulars | Debit $ | Credit $ |
| Investment in S Inc. | 864,000 | |
| Cash | 864,000 | |
| (Initial investment in S Inc. recognized) | ||
| Investment in S Inc. | 135,000 | |
| Income from S Inc. | 135,000 | |
| (Controlling interest in S income for 20X5 recorded) | ||
| Income from S Inc. | 82,350 | |
| Investment in S Inc. | 82,350 | |
| (Amortization of excess acquisition price recognized) |
- Initial investment in S recorded
- Income from subsidiary S recognized
- Amortization of excess acquisition price Excess differential calculation
| Differential on Inventory | $5,000 |
| Excess value of land | $75,000 |
| Differential on notes payable | $7,500 |
| $4,000 | |
| Excess value | $91,500 |
Amortization of excess acquisition debited to income from S and Credited to investment in S Inc.
b
To determine
Introduction: When asset held by the subsidiary are with differential, both the equity method income and consolidated net income is affected, as the proportion of differential is included in parents books as part of the investment in the subsidiary; when the asset is sold it must be written off by a parent, in consolidation.
The consolidation entries for the year 20X5.
b
Expert Solution
Explanation of Solution
| Particulars | Debit $ | Credit $ |
| Common stock | 500,000 | |
| Premium on common stock | 100,000 | |
| 120,000 | ||
| Income from S Inc. | 135,000 | |
| Non-controlling interest in net income of S | 15,000 | |
| Investment in S Inc. | 783,000 | |
| Non-controlling interest in net assets of S | 87,000 | |
| (Elimination of beginning investment in S) | ||
| Cost of goods sold | 5,000 | |
| Gain on sale of land | 75,000 | |
| Interest expense | 7,500 | |
| Depreciation expense | 4,000 | |
| Income from S Inc. | 82,350 | |
| Non-controlling interest in net income of S | 9,150 | |
| (Amortization of excess value into income of subsidiary) | ||
| Equipment | 60,000 | |
| Discount on note payable | 42,500 | |
| 50,000 | ||
| | 4,000 | |
| Investment in S Inc. | 133,650 | |
| Non-controlling interest in net assets of S | 14,850 | |
| (Reclassification and recognition of excess value) |
- Elimination of beginning investment in S
- Amortization of excess value in net income of subsidiary Excess differential calculation
- Reclassification of excess value in net assets
| Differential on Inventory assigned to cost of sale | $5,000 |
| Excess value of land( gain on sale of land) | $75,000 |
| Interest expense | $7,500 |
| Depreciation | $4,000 |
| Excess value | $91,500 |
Amortization of excess acquisition debited to income from S and Credited to investment in S Inc.
Computation of goodwill:
| Differential given | $240,000 |
| Less: Excess on inventory | ($5,000) |
| Land | (75,000) |
| Equipment | (60,000) |
| Discount on note payable | (50,000) |
| Goodwill | $50,000 |
Amount credited to Investment in S
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Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $98,000. At that date, the fair value of the noncontrolling interest was $42,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
Item
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59,000
Inventory
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Investment in Smart Corporation
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$ 434,000
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$ 27,000
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288,000
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40,000
Retained Earnings
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Total Liabilities & Stockholders’ Equity
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At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of…
Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $98,000. At that date, the fair value of the noncontrolling interest was $42,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
Item
Phone Corporation
Smart Corporation
Cash
$ 52,300
$ 39,000
Accounts Receivable
99,000
59,000
Inventory
136,000
92,000
Land
66,000
49,000
Buildings & Equipment
417,000
268,000
Less: Accumulated Depreciation
(151,000)
(73,000)
Investment in Smart Corporation
98,000
Total Assets
$ 717,300
$ 434,000
Accounts Payable
$ 141,500
$ 27,000
Mortgage Payable
300,800
288,000
Common Stock
72,000
40,000
Retained Earnings
203,000
79,000
Total Liabilities & Stockholders’ Equity
$ 717,300
$ 434,000
At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of…
Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $98,000. At that date, the fair value of the noncontrolling interest was $42,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
Item
Phone Corporation
Smart Corporation
Cash
$ 52,300
$ 39,000
Accounts Receivable
99,000
59,000
Inventory
136,000
92,000
Land
66,000
49,000
Buildings & Equipment
417,000
268,000
Less: Accumulated Depreciation
(151,000)
(73,000)
Investment in Smart Corporation
98,000
Total Assets
$ 717,300
$ 434,000
Accounts Payable
$ 141,500
$ 27,000
Mortgage Payable
300,800
288,000
Common Stock
72,000
40,000
Retained Earnings
203,000
79,000
Total Liabilities & Stockholders’ Equity
$ 717,300
$ 434,000
At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of…
Chapter 5 Solutions
Advanced Financial Accounting
Ch. 5 - Where is the balance assigned to the...Ch. 5 - Why must a noncontrolling interest be reported in...Ch. 5 - Prob. 5.3QCh. 5 - Prob. 5.4QCh. 5 - Prob. 5.5QCh. 5 - Prob. 5.6QCh. 5 - Prob. 5.7QCh. 5 - Prob. 5.8QCh. 5 - Prob. 5.9QCh. 5 - Prob. 5.10Q
Ch. 5 - Under what Circumstances would a parent company...Ch. 5 - Prob. 5.12QCh. 5 - Prob. 5.13QCh. 5 - Prob. 5.14AQCh. 5 - Prob. 5.15AQCh. 5 - Consolidation Worksheet Preparation The newest...Ch. 5 - Prob. 5.2CCh. 5 - Prob. 5.3CCh. 5 - Prob. 5.4CCh. 5 - Prob. 5.5CCh. 5 - Prob. 5.1.1ECh. 5 - Prob. 5.1.2ECh. 5 - Prob. 5.1.3ECh. 5 - Prob. 5.1.4ECh. 5 - Prob. 5.2.1ECh. 5 - Prob. 5.2.2ECh. 5 - Prob. 5.2.3ECh. 5 - Prob. 5.2.4ECh. 5 - Prob. 5.2.5ECh. 5 - Prob. 5.3ECh. 5 - Prob. 5.4ECh. 5 - Balance Sheet Worksheet Problem Company owns 90...Ch. 5 - Prob. 5.6ECh. 5 - Prob. 5.7ECh. 5 - Prob. 5.8.1ECh. 5 - Prob. 5.8.2ECh. 5 - Prob. 5.8.3ECh. 5 - Prob. 5.8.4ECh. 5 - Prob. 5.8.5ECh. 5 - Prob. 5.8.6ECh. 5 - Prob. 5.8.7ECh. 5 - Prob. 5.9ECh. 5 - Prob. 5.10ECh. 5 - Prob. 5.11ECh. 5 - Prob. 5.12ECh. 5 - Prob. 5.13ECh. 5 - Prob. 5.14ECh. 5 - Prob. 5.15ECh. 5 - Prob. 5.16ECh. 5 - Prob. 5.17AECh. 5 - Prob. 5.18AECh. 5 - Prob. 5.19PCh. 5 - Prob. 5.20PCh. 5 - Prob. 5.21.1PCh. 5 - Multiple-Choice Questions on Applying the Equity...Ch. 5 - Prob. 5.21.3PCh. 5 - Prob. 5.21.4PCh. 5 - Prob. 5.22PCh. 5 - Computation of Account Balances Pencil Company...Ch. 5 - Prob. 5.24PCh. 5 - Equity Entries with Differential On January 1,...Ch. 5 - Equity Entries with Differential Plug Corporation...Ch. 5 - Prob. 5.27PCh. 5 - Prob. 5.28PCh. 5 - Prob. 5.29P
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