Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 9, Problem 9.24P
To determine
Sale of subsidiary common shares:When parent sells subsidiary shares, a gain or loss normally occurs and is recorded on the seller’s books, which needs to be recognized in consolidated net income. Under ASE 810, changes in a parent’s ownership interest in a subsidiary while the parent retains control require an adjustment to the amount assigned to the non-controlling interest to reflect its change in ownership in subsidiary. Any difference in fair value of the controlling interest results in an adjustment to the
The consolidation entries needed to complete work sheet for 20X4.
Expert Solution
Answer to Problem 9.24P
| Debit | Credit | |
| 1. Eliminate gain on sale of S shares | ||
| Gain on sale of S company stock | 10,000 | |
| Additional paid-in capital | 10,000 | |
| 2. Eliminate income from subsidiary | ||
| Income from subsidiary | 18,000 | |
| Dividends declared | 9,000 | |
| Investment in S stock | 12,000 | |
| 3. Assign income to non-controlling interest | ||
| Income to non-controlling interest | 12,000 | |
| Dividends declared | 4,000 | |
| Non-controlling interest | 8,000 | |
| 4. Eliminate investment in common stock | ||
| Common stock S company | 100,000 | |
| Additional paid-in capital | 20,000 | |
| 130,000 | ||
| Investment in S company stock | 150,000 | |
| Non-controlling interest | 100,000 |
Explanation of Solution
- Gain on sale of common stock is eliminated by debiting to gain on sale and credit of additional paid-in capital.
- Income from subsidiary is eliminated by reversing the transaction by debiting it and credit of investment in company stock
- Income assigned to non-controlling interest is recognized by debit to income assigned to non-controlling interest and credit to dividends declared and non-controlling interest.
- To eliminate investment in common stock, common stock in S and additional paid in capital is debited and investment in S stock and non-controlling interest is credited.
To determine
Sale of subsidiary common shares:When parent sells subsidiary shares, a gain or loss normally occurs and is recorded on the seller’s books, which needs to be recognized in consolidated net income. Under ASE 810, changes in a parent’s ownership interest in a subsidiary while the parent retains control require an adjustment to the amount assigned to the non-controlling interest to reflect its change in ownership in subsidiary. Any difference in fair value of the controlling interest results in an adjustment to the stockholders equity attributable to the controlling interest, through an adjustment to additional paid-in capital.
The preparation of consolidation worksheet for 20X4.
Expert Solution
Answer to Problem 9.24P
Balance of liability and equity in consolidation worksheet 20X4 $1,000,000.
Explanation of Solution
P and S Company
Consolidation worksheet
December 31, 20X4
| elimination | |||||
| P | S | Debit | Credit | Consolidation | |
| Sales | 280,000 | 170,000 | 450,000 | ||
| Gain on sale of E stock | 10,000 | 10,000 | |||
| Income from subsidiary | 18,000 | 18,000 | |||
| Net sales | 308,000 | 170,000 | 28,000 | 450,000 | |
| Less: cost of sales | (210,000) | (100,000) | (310,000) | ||
| Depreciation expense | (20,000) | (15,000) | (35,000) | ||
| Other expense | (21,000) | (25,000) | (46,000) | ||
| Income to NCI | 12,000 | (12,000) | |||
| Net income | 57,000 | 30,000 | 40,000 | 47,000 | |
| Retained earnings: | |||||
| Balance January 1 | 320,000 | 130,000 | 130,000 | 320,000 | |
| Net income | 57,000 | 30,000 | 40,000 | 47,000 | |
| Less dividends declared | (15,000) | (10,000) | 6,000 | ||
| 4,000 | (15,000) | ||||
| Ending balance | 362,000 | 150,000 | 170,000 | 10,000 | 352,000 |
| Balance sheet | |||||
| Cash | 30,000 | 35,000 | 65,000 | ||
| 70,000 | 50,000 | 120,000 | |||
| Inventory | 120,000 | 100,000 | 220,000 | ||
| Buildings and equipment | 650,000 | 230,000 | 880,000 | ||
| Less depreciation | (170,000) | (95,000) | (265,000) | ||
| Total Assets | 862,000 | 320,000 | 1,020,000 | ||
| Accounts payable | 50,000 | 20,000 | 70,000 | ||
| Bonds payable | 200,000 | 30,000 | 230,000 | ||
| Common stock | 200,000 | 100,000 | 100,000 | 200,000 | |
| Additional paid in cap | 50,000 | 20,000 | 20,000 | 10,000 | 60,000 |
| Retained earnings | 362,000 | 150,000 | 170,000 | 10,000 | 352,000 |
| NCI | 8,000 | ||||
| 100,000 | 108,000 | ||||
| Liability and equity | 862,000 | 320,000 | 1,020,000 | ||
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
unc.4
On January 1, Allen Corporation purchased 30% of the 30,000 outstanding common shares of Towne Corporation at $17 per share as a long-term investment. On the date of purchase, the book value and the fair value of the net assets of Towne Corporation were equal. During the year, Towne Corporation reported net income of $24,000 and declared and paid dividends of $8,000. As of December 31, common shares of Towne Corporation were trading at $20 per share.
Please Indicate the amount of income that would be reported on the income statement and the investment balance on the year-end balance sheet under requirement (a) and requirement (b).
1. Matray acquired 16,000 ordinary shares of Petros on 1 April 20X9. On 31 December 20X8Petros’s accounts showed a share premium of $4,000 and retained earnings of $15,000. The fairmarket value of non-controlling interest at acquisition was $7,000.Below are the statements of financial position for the two companies as at 31 December 20X9:Matray PetrosNon-current assets:Property, plant and equipment 39,000 33,000Investment in Petros 50,000Current assets 78,000 40,000Total assets 167,000 73,000Equity and liabilitiesEquityOrdinary shares of: $1 each 100,000: 50c each 10,000Share premium 7,000 4,000Retained earnings 40,000 39,000Current liabilities 20,000 20,000Total equity and liabilities 167,000 73,000Required:Prepare the consolidated statement of financial position of Matray as at 31 December 20X9. Assumeprofits have accrued evenly throughout the year
es
Penn Corporation purchased 80 percent ownership of State Company on January 1, 20X2. at underlying book value. At that date, the
fair value of the noncontrolling Interest was equal to 20 percent of the book value of State. On January 1, 20X4, Penn sold 2,000
shares of State's stock for $65,000 to Nonaffiliated Company and recorded a $10,000 Increase in additional pald-in capital. Trial
balances for the companies on December 31, 20X4, contain the following data:
Cash
Accounts Receivable
Inventory
Buildings and Equipment
Investment in State Company
Cost of Goods Sold
Depreciation Expense
Other Expenses
Dividends Declared
Accumulated Depreciation
Accounts Payable
Bonds Payable
Connon Stock ($10 par)
Additional Paid-In Capital
Retained Earnings
Sales
Income from State
Total
Penn Corporation
Debit
$ 36,000
79,000
122,000
660,000
187,200
205,000
20,000
22,000
22,000
Credit
State Company
Credit
Debit
$ 41,000
59,000
102,000
270,000
95,000
15,000
26,000
17,000
$167,000
163,000
165,000…
Chapter 9 Solutions
Advanced Financial Accounting
Ch. 9 - Prob. 9.1QCh. 9 - Prob. 9.2QCh. 9 - Prob. 9.3QCh. 9 - Prob. 9.4QCh. 9 - Prob. 9.5QCh. 9 - Prob. 9.6QCh. 9 - Prob. 9.7QCh. 9 - Prob. 9.8QCh. 9 - Prob. 9.9QCh. 9 - Prob. 9.10Q
Ch. 9 - Prob. 9.11QCh. 9 - Prob. 9.12QCh. 9 - Prob. 9.13QCh. 9 - Prob. 9.14QCh. 9 - Prob. 9.15QCh. 9 - Prob. 9.16QCh. 9 - Prob. 9.1CCh. 9 - Prob. 9.2CCh. 9 - Prob. 9.3CCh. 9 - Prob. 9.4CCh. 9 - Prob. 9.5CCh. 9 - Prob. 9.1.1ECh. 9 - Prob. 9.1.2ECh. 9 - Prob. 9.1.3ECh. 9 - Prob. 9.1.4ECh. 9 - Prob. 9.2.1ECh. 9 - Prob. 9.2.2ECh. 9 - Prob. 9.2.3ECh. 9 - Prob. 9.2.4ECh. 9 - Prob. 9.2.5ECh. 9 - Prob. 9.3ECh. 9 - Prob. 9.4ECh. 9 - Prob. 9.5ECh. 9 - Prob. 9.6ECh. 9 - Prob. 9.7ECh. 9 - Prob. 9.8ECh. 9 - Prob. 9.9ECh. 9 - Prob. 9.10ECh. 9 - Prob. 9.11ECh. 9 - Subsidiary Stock Dividend Stake Company reported...Ch. 9 - Prob. 9.13ECh. 9 - Prob. 9.14ECh. 9 - Prob. 9.15ECh. 9 - Prob. 9.16ECh. 9 - Prob. 9.17.1PCh. 9 - Prob. 9.17.2PCh. 9 - Prob. 9.17.3PCh. 9 - Prob. 9.17.4PCh. 9 - Prob. 9.17.5PCh. 9 - Prob. 9.18PCh. 9 - Prob. 9.19PCh. 9 - Prob. 9.20PCh. 9 - Prob. 9.21PCh. 9 - Prob. 9.22PCh. 9 - Prob. 9.23PCh. 9 - Prob. 9.24PCh. 9 - Prob. 9.25PCh. 9 - Prob. 9.26PCh. 9 - Prob. 9.27P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- On 1 January 20X0 Alpha Co purchased 90,000 ordinary $1 shares in Beta Co for $270,000. At that date Beta Co's retained earnings amounted to $90,000 and the fair values of Beta Co's assets at acquisition were equal to their book values. Three years later, on 31 December 20X2, the statements of financial position of the two companies were: Alpha Co Beta Co $ $ Sundry net assets 230,000 260,000 Shares in Beto 180,000 - Share capital Ordinary shares of $1 each 200,000…arrow_forwardOn 1 January 20X0 Alpha Co purchased 90,000 ordinary $1 shares in Beta Co for $270,000. At that date Beta Co's retained earnings amounted to $90,000 and the fair values of Beta Co's assets at acquisition were equal to their book values. Three years later, on 31 December 20X2, the statements of financial position of the two companies were: Alpha Co Beta Co $ $ Sundry net assets 230,000 260,000 Shares in Beto 180,000 - Share capital Ordinary shares of $1 each 200,000…arrow_forwardPeanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Snoopy Company. Snoopy Company reported shares outstanding of $350,000 and retained earnings of $100,000. During 20X8, Snoopy Company reported net income of $60,000 and paid dividends of $3,000. In 20X9, Snoopy Company reported net income of $90,000 and paid dividends of $15,000. The following transactions occurred between Peanut Company and Snoopy Company in 20X8 and 20X9:Snoopy Co. sold equipment to Peanut Co. for a $42,000 gain on December 31, 20X8. Snoopy Co. had originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31, 20X8. At the time of the purchase, Peanut Co. estimated that the equipment still had a seven-year remaining useful life.Peanut sold land costing $90,000 to Snoopy Company on June 28, 20X9, for…arrow_forward
- On January 1, 20X5, Peery Company acquired 100 percent of Standard Company's common shares at underlying book value. Peery uses the equity method in accounting for its ownership of Standard. On December 31, 20X5, the trial balances of the two companies are as follows: Item Peery Company Standard Company Debit Credit Debit Credit Current Assets $ 238,000 $ 95,000 Depreciable Assets 300,000 170,000 Investment in Standard Company 100,000 Other Expenses 90,000 70,000 Depreciation Expense 30,000 17,000 Dividends Declared 32,000 10,000 Accumulated Depreciation $ 120,000 $ 85,000 Current Liabilities 50,000 30,000 Long-Term Debt 120,000 50,000 Common Stock 100,000 50,000 Retained Earnings 175,000 35,000 Sales 200,000 112,000 Income from Standard Company 25,000 $ 790,000 $ 790,000 $ 362,000 $ 362,000 Required: Prepare the consolidation entries needed as of December 31, 20X5, to complete a…arrow_forwardGant Company purchased 30 percent of the outstanding shares of Temp Company for $76,000 on January 1, 20X6. The following results are reported for Temp Company: Net income Dividends paid Fair value of shares held by Gant: January 1 December 31 a. Carries the investment at fair value. b. Uses the equity method. Required A Required B 20X6 $ 47,000 14,000 76,000 95,000 Income from investment Balance in investment Required: Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant's investment in Temp at the end of each year assuming that Gant uses the following options in accounting for its investment in Temp: Complete this question by entering your answers in the tabs below. 20X6 20X7 $ 42,000 30,000 95,000 92,000 20X7 Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant's investment in Temp at the end of each year assuming that Gant uses the equity method in accounting…arrow_forwardGant Company purchased 30 percent of the outstanding shares of Temp Company for $76,000 on January 1, 20X6. The following results are reported for Temp Company: Net income Dividends paid Fair value of shares held by Gant: January 1 December 31 a. Carries the investment at fair value. b. Uses the equity method. Required A Required B 20X6 $ 47,000 14,000 Required: Gant Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant's investment in Temp at the end of each year assuming that Gant uses the following options in accounting for its investment in Temp: Complete this question by entering your answers in the tabs below. Income from investment Balance in investment 76,000 95,000 20X6 20X7 $ 42,000 30,000 95,000 92,000 20X7arrow_forward
- Paste Corporation acquired 70 percent of Stick Company's stock on January 1, 20X9, for $105,000. At that date, the fair value of the noncontrolling interest was equal to 30 percent of the book value of Stick Company. The companies reported the following stockholders’ equity balances immediately after the acquisition: Paste Corporation Stick Company Common Stock $ 120,000 $ 30,000 Additional Paid-in Capital 230,000 80,000 Retained Earnings 290,000 40,000 Total $ 640,000 $ 150,000 Paste and Stick reported 20X9 operating incomes of $90,000 and $35,000 and dividend payments of $30,000 and $10,000, respectively. Required: Compute the amount reported as net income by each company for 20X9, assuming Paste uses equity-method accounting for its investment in Stick. Compute consolidated net income for 20X9.arrow_forwardPaste Corporation acquired 70 percent of Stick Company's stock on January 1, 20X9, for $105,000. At that date, the fair value of the noncontrolling interest was equal to 30 percent of the book value of Stick Company. The companies reported the following stockholders’ equity balances immediately after the acquisition: Paste Corporation Stick Company Common Stock $ 120,000 $ 30,000 Additional Paid-in Capital 230,000 80,000 Retained Earnings 290,000 40,000 Total $ 640,000 $ 150,000 Paste and Stick reported 20X9 operating incomes of $90,000 and $35,000 and dividend payments of $30,000 and $10,000, respectively. Compute the reported balance in retained earnings at December 31, 20X9, for both companies. Compute consolidated retained earnings at December 31, 20X9.arrow_forwardPatriots Co. purchases 80 percent of Seahawk Company on January 1, 20X1, when Patriots’ retained earnings balance is $725,000 and Seahawks' is $200,000. During 20X1, Seahawk reports $80,000 of net income and declares $10,000 of dividends. Patriots reports $425,000 of operating income and included its share of equity-method income from its 80 percent interest in Seahawk in its net income; Patriots declares dividends of $80,000. What is Controlling Interest's share of Consolidated Income for 20X1? Group of answer choices $404,000 $16,000 $425,000 $489,000arrow_forward
- 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…arrow_forwardPhone 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…arrow_forwardGant Company purchased 30 percent of the outstanding shares of Temp Company for $87,000 on January 1, 20X6. The following results are reported for Temp Company: Net income Dividends paid Fair value of shares held by Gant: January 1 December 31 a. Carries the investment at fair value. b. Uses the equity method. 20X6 $ 43,000 14,000 Income from investment Balance in investment S $ 87,000 106,000 Required: Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant's investment in Temp at the end of each year assuming that Gant uses the following options in accounting for its investment in Temp: Complete this question by entering your answers in the tabs below. 20X7 $ 38,000 28,000 20X6 106,000 103,000 20X7 (800) $ 39,400 95,700 $ 109,000 Answer is complete but not entirely correct. Required A Required B Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant's investment in…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education