Concept explainers
Consolidated entries:These entries are used in consolidation worksheet to adjust the totals of the individual account balances of the separate consolidating companies.Consolidation entries appear only in the consolidation worksheet and do not affect the books of separate companies. These worksheet entries are sometime called as elimination entries. The intercompany transactions between consolidating companies may be recorded in separate accounts to facilitate the later elimination of intercompany transactions.
Requirement 1
Consolidation entries needed to prepare consolidation worksheet for the year 20X6.
Answer to Problem 7.32P
Eliminating entries for December 31 20X6
Debit | Credit | |
1. Eliminating income from subsidiary | ||
Income from subsidiary | 32,000 | |
Dividends declared | 4,000 | |
Investment in S company stock | 28,000 | |
2. Assign income to non-controlling interest | ||
Income to non-controlling interest | 4,400 | |
Dividends declared | 1,000 | |
Non-controlling interest | 3,400 | |
($40,000 − 18,000) x 0.20 = 4,400 | ||
3. Eliminate beginning investment balance | ||
Common stock S company | 100,000 | |
| 105,000 | |
Differential | 50,000 | |
Investment in S company stock | 204,000 | |
Non-controlling interest | 51,000 | |
4. Assign differential to | ||
Goodwill | 50,000 | |
Differential | 50,000 | |
5. Recognizing impairment of goodwill | ||
Goodwill impairment loss | 18,000 | |
Goodwill | 18,000 | |
6. Eliminating unrealized gain on land | ||
Retained earnings January 1 | 8,000 | |
Non-controlling interest | 2,000 | |
Land | 10,000 | |
7. Eliminating intercompany sale of equipment | ||
Buildings and equipment | 5,000 | |
Gain on sale of equipment | 20,000 | |
| 2,000 | |
| 23,000 | |
8. Eliminating intercompany receivable and payable | ||
Account payable | 7,000 | |
| 7,000 |
Explanation of Solution
- As all the intercompany transactions are eliminated, income from subsidiary is also eliminated.
- Income to non-controlling interest fair value was 40,000 assigned to non-controlling interest (40,000 − 18,000) x .20 =4,400
- Beginning investment balance is eliminated by assigning it to investment in S company and non-controlling interest.
- Goodwill is assigned to differential.
- Impairment loss on goodwill is recognized by crediting it to goodwill account.
- Unrealized gain on sale of land is eliminated by debiting to retained earnings.
- Elimination of intercompany sale of equipment is carried out and depreciation expenses are adjusted as follows:
- Intercompany accounts receivable and payable has been eliminated by setoff entry.
Depreciation expenses adjustment: | |
Depreciation recorded $70,000 / 10 years | 7,000 |
Depreciation required $75,000 / 15 years | (5,000) |
Required decrease | $2,000 |
Accumulated depreciation adjustment: | |
Required balance $5,000 x 6 years | $30,000 |
Balance recorded $7,000 x 1 year | (7,000) |
Required increase | $23,000 |
b
Consolidated entries:These entries are used in consolidation worksheet to adjust the totals of the individual account balances of the separate consolidating companies.Consolidation entries appear only in the consolidation worksheet and do not affect the books of separate companies. These worksheet entries are sometime called as elimination entries. The intercompany transactions between consolidating companies may be recorded in separate accounts to facilitate the later elimination of intercompany transactions.
Requirement 2
Preparation of consolidation worksheet for December 31 20X6.
b
Answer to Problem 7.32P
Consolidated net income and Net assets of P & S Company’s is $79,600 and 980,000 respectively.
Explanation of Solution
P & S COMPANY’S
Consolidated worksheet
December 31 20X7
Elimination | |||||
P | S | Debit | Credit | Consolidated | |
Sales | 240,000 | 120,000 | 360,000 | ||
Gain on sale of equipment | 20,000 | 20,000 | |||
Income from subsidiary | 32,000 | 32,000 | |||
Less : cost of goods sold | (140,000) | (60,000) | (200,000) | ||
Depreciation | (25,000) | (15,000) | 2,000 | (38,000) | |
Goodwill impairment | 18,000 | (18,000) | |||
Other expenses | (15,000) | (5,000) | (20,000) | ||
Consolidated net income | 84,000 | ||||
NCI in net income | 4,400 | (4,400) | |||
Net income | 112,000 | 40,000 | 74,400 | 2,000 | 79,600 |
Retained earnings: | |||||
Retained earnings Jan 1 | 338,000 | 105,000 | 105,000 | ||
8,000 | |||||
Dividends | (30,000) | (5,000) | 4,000 | ||
1,000 | (30,000) | ||||
Retained earnings Dec 31 | 420,000 | 140,000 | 187,400 | 7,000 | 379,600 |
Balance sheet: | |||||
Cash and receivable | 113,000 | 35,000 | 7,000 | 141,000 | |
Inventory | 260,000 | 90,000 | 350,000 | ||
Land | 80,000 | 80,000 | 10,000 | 150,000 | |
Buildings and equipment | 500,000 | 150,000 | 5,000 | 655,000 | |
Less: Accu depreciation | (205,000) | (45,000) | 23,000 | (273,000) | |
Investment in S company | 232,000 | 28,000 | |||
204,000 | |||||
Differential | 50,000 | 50,000 | |||
Goodwill | 50,000 | 18,000 | 32,000 | ||
Net Assets | 980,000 | 310,000 | 105,000 | 313,000 | 1,055,000 |
Accounts payable | 60,000 | 20,000 | 7,000 | 73,000 | |
Bonds payable | 200,000 | 50,000 | 250,000 | ||
Common stock | 300,000 | 100,000 | 100,000 | 300,000 | |
Retained earnings Dec 31 | 420,000 | 140,000 | 187,400 | 7,000 | 379,600 |
Non-controlling interest | 2,000 | 3,400 | |||
51,000 | 52,400 | ||||
Liabilities and Equity | 980,000 | 310,000 | 196,400 | 61,400 | 1,055,000 |
c
Consolidated entries:These entries are used in consolidation worksheet to adjust the totals of the individual account balances of the separate consolidating companies.Consolidation entries appear only in the consolidation worksheet and do not affect the books of separate companies. These worksheet entries are sometime called as elimination entries. The intercompany transactions between consolidating companies may be recorded in separate accounts to facilitate the later elimination of intercompany transactions.
Requirement 3
Preparation of consolidation balance sheet income statement and retained earnings statement for December 31 20X6.
c
Answer to Problem 7.32P
Eliminating entries for December 31 20X6.
Explanation of Solution
P &S COMPANY’S
Consolidated balance sheet
December 31 20X6.
$ | $ | |
Assets | ||
Cash and receivables | 141,000 | |
Inventory | 350,000 | |
Land | 150,000 | |
Buildings and equipment’s | 655,000 | |
Less: Accumulated depreciation | (273,000) | 382,000 |
Goodwill | 32,000 | |
Total Assets | 1,055,000 | |
Accounts payable | 73,000 | |
Bonds payable | 250,000 | |
Controlling interest | ||
Common stock | 300,000 | |
Retained earnings | 379,600 | |
Total controlling interest | 679,600 | |
Total Non-controlling interest | 52,400 | |
Total stockholder’s equity | 732,000 | |
Total Liability and equity | 1,055,000 |
P &S COMPANY’S
Consolidated income statement
December 31 20X6.
$ | $ | |
Sales | 360,000 | |
Less: Cost of goods sold | 200,000 | |
Depreciation and amortization expenses | 38,000 | |
Goodwill impairment loss | 18,000 | |
(276,000) | ||
Consolidated net income | 84,000 | |
Less income to non-controlling interest | (4,400) | |
Income to controlling interest | 79,600 |
P &S COMPANY’S
Consolidated retained earnings
December 31 20X6.
$ | |
Retained earnings January 1 20X6 | 330,000 |
Income to controlling interest 20X6 | 79,600 |
409,600 | |
Dividends declared 20X6 | (30,000) |
Retained earnings December 31 20X6 | 379,600 |
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