Professional Documents
Culture Documents
of
the
the
the
the
LO1
2.
66-2/3%.
80%.
83-1/3%.
86-2/3%
LO1
3.
66-2/3%.
75%.
80%.
83-1/3%.
LO1
5.
Gain on Sale
$5,700
$5,700
$9,000
$9,000
Gain on Sale
$21,360
$21,360
$26,640
$26,640
LO1
6.
LO1
7.
$300,300.
$300,880.
$304,480.
$306,100.
$333,333.
$334,311.
$336,333.
$336,711.
$
$
3,000,000
2,400,000
5,400,000
LO1
8.
LO1
9.
76.32%.
80.43%.
82.57%.
83.43%.
$38,176.
$40,232.
$41,302.
$41,732.
$945,000.
$1,157,100.
$1,225,000.
$1,245,000.
LO1
11.
LO2
12.
$1,350,000.
$1,395,000.
$1,425,000.
$1,500,000.
prior
to
LO1
13.
a.
b.
c.
d.
I only.
II only.
I or II.
Neither I nor II.
LO2
14.
$ 5,333.
$ 8,000.
$32,000.
$56,000.
$36,000.
$32,400.
$61,200.
$50,000.
LO2
16.
LO2
17.
LO2
18.
$50,000.
$35,000.
$44,000.
$36,000.
in
Bowerbird
$ 2,600.
$ 5,400.
$ 9,600.
$10,400.
$315.
$560.
$815.
$960.
LO3
19.
LO3
20.
the
the
the
the
the
the
the
the
parents
parents
parents
parents
parents
parents
parents
parents
share of
ownership
share of
ownership
share of
ownership
share of
ownership
subsidiary book
percentage.
subsidiary book
percentage.
subsidiary book
percentage.
subsidiary book
percentage.
value and
value and
value and
value and
the
the
the
any
parent company
parent company
parent company
noncontrolling
investment account
investment account
investment account
interest equity to
to decrease.
to remain the same.
to decrease.
increase.
LO1
Exercise 1
At December 31, 2004, the stockholders equity of Goshawk Corporation
and its 80%-owned subsidiary, Treetop Corporation, are as follows:
Common stock, $10 par value
Retained earnings
Totals
$
$
Goshawk
20,000
8,000
28,000
$
$
Treetop
12,000
6,000
18,000
the
following
using
the
actual
sales
date
Exercise 3
At the beginning of 2006, Flycatcher Corporation held a 60% interest
in Lichen Corporation. The investment account balance was $2,100,000,
consisting of 60% of Lichens $3,226,666 of net assets and $164,000
of goodwill.
During 2006, Lichen earned $300,000 and paid dividends of $110,000 on
November 1. On October 1, 2006, Flycatcher sold 10% of its investment
in Lichen for $364,000, thereby reducing its interest in Lichen to
54%.
Required: Compute
assumption:
the
following
using
the
actual
sales
date
LO1
Exercise 5
On April 1, 2006, Gouldian Corporation paid $120,000 for a 25%
interest in Termite Mound Corporation. On July 1, 2006, Gouldian
acquired an additional 45% (based on the January 1, 2006 number of
Termite Mound shares outstanding) for $236,400. Termite Mounds
stockholders equity on January 1, 2006 consisted of $300,000 of $10
par value Common Stock and $100,000 of Retained Earnings. Termite
Mounds net income for 2006 was $144,000 earned uniformly throughout
the year.
Required: Calculate each of the following amounts:
1. Gouldians income from Termite Mound for 2006.
2. The amount of minority interest income that will appear on the
consolidated income statement of Gouldian and Subsidiary for
2006.
LO2
Exercise 6
Catbird Corporation paid $240,000 on April 1, 2006 for all of the
common stock of Bug Corporation in a business acquisition. Bugs
stockholders equity at April 1 consisted of the $195,000 January 1,
2006 stockholders equity of Bug plus first quarter income less
dividends. Dividends are paid quarterly. Any excess cost over book
value acquired is goodwill with a 10-year amortization period.
Additional information:
1. Catbird sold equipment with a 5-year remaining useful life to
Bug on July 1, 2006 for a gain of $10,000.
2. Bugs accounts payable balance at December 31 includes $5,000
due to Catbird from the sale of equipment.
3. Catbird accounts for its investment in Bug using the equity
method as a one-line consolidation.
Required:
Complete the working papers to consolidate the financial statements
of Catbird and Bug Corporations for the year 2006.
$ 500,000
Noncntl
$170,000
21,000
10,000
(230,000) ( 90,000)
(113,000) ( 30,000)
( 30,000) ( 10,000)
158,000
40,000
75,000
50,000
158,000
40,000
( 30,000) ( 20,000)
$ 203,000
$70,000
47,000
80,000
120,000
80,000
30,000
50,000
90,000
80,000
246,000
$ 573,000
$250,000
140,000
200,000
30,000
35,000
100,000
45,000
203,000
70,000
573,000
$250,000
Consolidated
LO2
Exercise 7
Swallow
Corporation
paid
$62,000
to
acquire
100%
of
Gully
Corporations outstanding voting common stock at book value on May 1,
2006. The stockholders equity of Gully on January 1, 2006 consisted
of $40,000 Capital Stock and $20,000 Retained Earnings. Gullys total
dividends for 2006 were $6,000, paid equally on April 1 and October
1. Gullys net income was earned uniformly throughout 2006.
During 2006, Swallow made sales of $10,000 to Gully at a gross profit
of $3,000. One-half of this merchandise was inventoried by Gully at
year-end, and one-half of the 2006 intercompany sales were unpaid at
year-end 2006.
Swallow sold equipment with a ten-year remaining useful life to Gully
at a $2,000 gain on December 31, 2006. The straight-line depreciation
method is used.
Financial statements of Swallow and Gully Corporations
appear in the first two columns of the partially
consolidation working papers.
for 2006
completed
Required:
Complete the working papers for Swallow Corporation and Subsidiary
for the year 2006.
80,000
6,500
Noncontl
$40,000
2,000
( 40,000) ( 15,000)
( 11,000) ( 4,000)
( 12,500) ( 6,000)
25,000
15,000
60,000
20,000
25,000
15,000
( 10,000) ( 6,000)
$
75,000
$29,000
19,000
10,000
10,500
5,000
20,000
16,000
8,000
14,000
5,000
15,000
65,500
40,000
$ 170,000
22,000
$80,000
16,000
19,000
60,000
10,000
1,000
40,000
75,000
29,000
170,000
$80,000
Consolidated
LO2
Exercise 8
Swift Corporation paid $40,000 cash for an 80% interest in the voting
common stock of Weather Front Corporation on July 1, 2005, when
Weather Fronts stockholders equity consisted of $30,000 of $10 par
common stock and $15,000 retained earnings. The excess cost over the
book value of the investment was assigned $2,000 to undervalued
inventory items that were sold in 2005, with the remaining excess
being assigned to goodwill. During the last half of 2005, Weather
Front reported $4,000 net income and declared dividends of $2,000,
and Swift reported income from Weather Front of $1,100.
There were no intercompany sales during the last half of 2005, but
during 2006 Swift sold inventory items that cost $8,000 to Weather
Front for $12,000. Half of these inventory items were included in
Weather Front Corporations Inventory at December 31, 2006, with
$1,000 unpaid by Weather Front at December 31, 2006.
On January 5, 2006, Swift sold a plant asset with a book value of
$2,500 and a remaining useful life of 5 years to Weather Front for
$4,000. Weather Front Corporation owned the plant asset at year-end.
40,000
1,200
1,600 )
39,600
4,800
3,200 )
41,200
Required:
Complete the working papers at the end of the year December 31, 2006
that are given below.
60,000
4,800
Noncntl
$34,000
1,500
27,000) ( 16,000)
5,000) ( 3,000)
12,100) ( 5,000)
22,200
10,000
10,100
17,000
22,200
10,000
12,000) ( 4,000)
20,300
$23,000
2,300
7,000
800
7,000
22,000
7,000
5,000
5,000
43,000
41,200
80,300
$60,000
17,000
6,000
3,000
40,000
1,000
30,000
20,300
23,000
80,300
$60,000
Consolidated
LO2
Exercise 9
On September 1, 2006, Warbler Corporation acquired an 80% interest in
Reed Corporation for $700,000. Reeds stockholders equity at January
1, 2006 consisted of $200,000 of Common Stock and $600,000 of
Retained Earnings. The book values of its assets and liabilities were
equal to their respective fair values on this date. All excess
purchase cost was attributed to goodwill.
During 2006, Reed uniformly earned $78,000 and paid dividends of
$9,000 on each of four dates: February 1, June 1, August 1, and
December 1.
Required: Compute the following:
1. Warblers income from Reed for 2006.
2. Preacquisition income that will appear on the consolidated
income statement of Warbler Corporation and Subsidiary for 2006.
3. Minority interest income for 2006.
LO3
Exercise 10
At January 1, 2005, the stockholders equity of Raven Corporation and
its 60%-owned subsidiary, Trunk Corporation, are as follows:
Common stock, $10 par value
Retained earnings
Totals
$
$
Raven
700,000
800,000
1,500,000
$
$
Trunk
400,000
50,000
450,000
Trunks net income for 2005 was $40,000. Ravens Investment in Trunk
account balance on December 31, 2005 was equal to its underlying
equity on December 31, 2005. Trunk Corporation issued 10,000
additional shares of common stock directly to Raven on January 1,
2006 at $12 per share.
Required: Compute the following:
1. Compute the balance in Ravens Investment in Trunk account on
January 1, 2006 after its purchase of the additional Trunk
shares.
2. Calculate any positive or negative goodwill
Ravens investment in the 10,000 Trunk shares.
stemming
from
Solutions
Multiple Choice Questions
1
83.33%
66.67%
Selling price
Book value of interest sold
$300,000 x (20%/80%) =
Gain on sale
Income from Underbrush
$99,000 x (80% - 20%) =
Selling price
Book value of interest sold:
Beginning balance
Income for 2 months
$99,000 x 1/6 x 80% =
Adjusted book value
Percentage of interest sold
Book value applied
Gain on sale
Income from
Jan 1 Mar
Mar 1 Dec
Income from
6
84,000
75,000
9,000
59,400
84,000
62,640
21,360
300,000
13,200
313,200
20%
62,640
Underbrush:
1 $16,500 x 80% =
31 $82,500 x 60% =
Underbrush
Selling price
Book value of interest sold:
($350,000 x 20%)
Gain on sale
Finchs share of Nests
Income: $35,000 x (90%-18%) =
Finchs Investment account
balance at December 31, 2006:
Jan 1, 2006 balance
13,200
49,500
62,700
92,000
70,000
22,000
25,200
350,000
70,000 )
25,200
4,320 )
Selling price
Book value of interest sold:
($350,000 x 1/9)
Gain on sale
Finchs share of Nests
Income: $35,000 x (90%-10%) =
Finchs Investment account
balance at December 31, 2006:
Jan 1, 2006 balance
Less: Book value of interest
sold
Plus: Income from Nest
Less: Dividends $6,000 x 80%
Investment account balance at
12/31/2006
47,000
38,889
8,111
28,000
38,889 )
28,000
4,800 )
300,880
350,000
$
=
76.32%
6,680,000
76.32%
$ 5,098,176
3,780,000
$
$
1,318,176
1,280,000
38,176
334,311
10
11
1,050,000
450,000
1,500,000
77.14%
1,157,100
945,000
450,000
1,395,000
32,000
12
13
14
15
$120,000 x 30% =
36,000
16
35,000
17
18
500,000
50,000
6,000 )
544,000
70%
390,400
380,800
9,600
560
19
20
Exercise 1
Requirement 1
Cost of investment ($18,000 x 80%)
Plus: Purchase of 225 Treetop
shares at $18 on January 1, 2005
Investment account balance`
Requirement 2
Treetops stockholders equity at
January 1, 2005
Plus: Additional capital from the
shares issued
Total stockholders equity after
issuance of the new shares
Goshawks percentage
(960 + 225)/1425 =
Goshawks share of Treetops
equity after issuance
Goshawks share of Treetops
equity before stock issuance
Equity acquired in the purchase
Cost of interest acquired
Positive goodwill
14,400
4,050
17,450
18,000
4,050
22,050
83%
18,302
14,400
4,702
4,050
652
Exercise 2
Preliminary computations
Investment balance, January 1
Income from Twig ($234,000 x 7/12
x 80%)
Less: April 1 dividends ($37,500 x
80%)
Book value at July 31, 2006
900,000
109,200
(
30,000 )
979,200
262,500
$ (
293,760
31,260 )
109,200
Requirement 1
Proceeds from sale
Book value of interest sold
($979,200 x 30%)
Loss on sale
Requirement
Income from
through
$109,200
Income from
($234,000 x
2
Twig from Jan 1
July 31 (from above)
August 1 December 31
5/12 x 56%)
54,600
163,800
Requirement 3
Noncontrolling interest expense:
Jan 1 to Jul 31 ($234,000 x 7/12 x
20%)
Aug 1 to Dec 31 ($234,000 x 5/12 x
44%)
Noncontrolling interest expense
27,300
42,900
70,200
Exercise 3
Preliminary computations
Investment balance, January 1
Income from Lichen ($300,000 x
9/12 x 60%)
Book value at September 30, 2006
Requirement 1
Proceeds from sale
Book value of interest sold
($1,965,000 x 10%)
Gain on sale
Requirement 2
Income from Lichen from Jan 1
through September 30 (from above)
2,100,000
135,000
2,235,000
364,000
223,500
140,500
135,000
40,500
175,500
Requirement 3
Noncontrolling interest expense:
Jan 1 to Sep 30 ($300,000 x 9/12 x
40%)
Oct 1 to Dec 31 ($300,000 x 3/12 x
46%)
Noncontrolling interest
90,000
34,500
124,500
Exercise 4
Requirement
April 1
Investment in Openground
Income from Openground
Debit
Cash
Investment in Openground
Gain from sale of investment in
Openground
18,750
18,750
65,000
43,750
21,250
July 1
Cash
Investment in Openground
24,000
December 31
Investment in Openground
Income from Openground
33,750
Selling price
Book value of interest sold:
Beginning balance
Income for 3 months
$75,000 x 1/4 x 80% =
Adjusted book value
Percentage of interest sold
Book value applied
Gain on sale
Credit
24,000
33,750
65,000
43,750
21,250
200,000
18,750
218,750
20%
43,750
Exercise 5
Preliminary computations:
Purchase 1:
Purchase price
Book value at April 1st:
Stockholders equity at January 1
Plus: Income through March
Total book value
Interest acquired
Book value of interest acquired
$
$
400,000
36,000
436,000
25%
109,000
Goodwill
Purchase 2:
Purchase price
Stockholders equity at January 1
Income through June 30
Total book value
Interest acquired
Book value of interest acquired
400,000
72,000
472,000
45%
212,400
Goodwill
109,000
$ $
11,000
$ $
236,400
212,400
$
Requirement 1
Gouldians income from Termite
Mound:
$144,000 x 9/12 x 25%
$144,000 x 6/12 x 45%
27,000
32,400
59,400
Requirement 2
Minority interest income:
$144,000 x 30% =
43,200
120,000
24,000
Exercise 6
Catbird Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2006
Eliminations
Catbird
Bug
Debit
Credit
INCOME STATEMENT
Net Sales
Income from
Bug
Gain on sale of
equipment
Cost of sales
Depreciation
Other expenses
Preacquisition
income
Net income
Retained
Earnings
Add: Net income
Dividends
Preacquisition
dividends
Retained
Earnings 12/31
BALANCE SHEET
Cash
Receivables
Inventories
Equipment-net
Investment in
Bug
Goodwill
TOTAL ASSETS
LIAB. & EQUITY
Accounts and
notes payable
Capital stock
Paid-in capital
Retained
Earnings
Noncontrolling
interest
TOTAL LIAB. &
EQUITY
$ 500,000
Min
Int
$170,000
21,000
Consolidated
$670,000
c $ 21,000
10,000
a
(230,000) ( 90,000)
(113,000) ( 30,000)
( 30,000) ( 10,000)
10,000
10,000
( 10,000)
158,000
75,000
50,000 d
158,000
40,000
( 30,000) ( 20,000)
50,000
75,000
158,000
( 30,000)
158,000
1,000
40,000
15,000
5,000
(320,000)
(142,000)
( 40,000)
$ 203,000
$70,000
$203,000
47,000
80,000
120,000
80,000
30,000
50,000
90,000
80,000
77,000
125,000
210,000
151,000
246,000
d
$ 573,000
$250,000
140,000
200,000
30,000
35,000
100,000
45,000
203,000
70,000
573,000
$250,000
e
d
d
5,000
1,000 a
c
d
40,000
10,000
6,000
240,000
5,000
100,000
45,000
40,000
$603,000
170,000
200,000
30,000
203,000
$603,000
Exercise 7
Swallow Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2006
Eliminations
Swallow
Gully
Debit
Credit
INCOME STATEMENT
Net Sales
$
Income from
Gully
Gain on sale of
equipment
Cost of sales
(
Depreciation
(
Other expenses
(
Preacquisition
income
Net income
Retained
Earnings
Add: Net income
Dividends
(
Retained
Earnings 12/31
80,000
6,500
$40,000
a $ 10,000
d
6,500
2,000
c
40,000) ( 15,000) b
11,000) ( 4,000)
12,500) ( 6,000)
5,000
60,000
20,000 e
25,000
15,000
10,000) ( 6,000)
20,000
10,000
$29,000
19,000
10,000
10,500
5,000
20,000
16,000
8,000
14,000
5,000
15,000
( 46,500)
( 15,000)
( 18,500)
(
15,000
75,000
Consolidated
$110,000
2,000
1,500 a $
e
25,000
Min
Int
5,000)
25,000
60,000
25,000
d
e
3,000
3,000
( 10,000)
$75,000
BALANCE SHEET
Receivables-net
Inventories
Other assets
Land
Buildings-net
Investment in
Gully
Equipment-net
TOTAL ASSETS
f
b
5,000
1,500
d
e
c
3,500
62,000
2,000
30,000
16,500
24,500
10,000
35,000
65,500
40,000
$ 170,000
22,000
$80,000
16,000
19,000
60,000
10,000
1,000
40,000
75,000
29,000
75,000
$ 170,000
$80,000
$176,000
60,000
$176,000
EQUITIES
Accounts payable
Other debt
Common stock
Retained
Earnings
Minority
interest
TOTAL EQUITIES
5,000
40,000
21,000
20,000
60,000
Exercise 8
INCOME STATEMENT
Net Sales
Income from
Weather Front
Gain on sale of
Equipment
Cost of sales
Depreciation
Other expenses
Noncntl. expense
Net income
Retained
Earnings
Add: Net income
Dividends
Retained
Earnings 12/31
BALANCE SHEET
Cash
Net Receivables
Dividends Rec
Inventories
Plant assets-net
Investment in
Weather Front
Goodwill
TOTAL ASSETS
LIAB & EQUITY
Accounts payable
Dividends
Payable
Common stock
Retained
Earnings
Noncntl Interest
January 1
Noncntl Interest
December 31
TOTAL LIAB. &
EQUITY
60,000
4,800
$34,000
a $ 12,000
e
4,800
1,500
c
( 27,000) ( 16,000) b
( 5,000) ( 3,000)
( 12,100) ( 5,000)
22,200
20,300
$23,000
2,300
7,000
800
7,000
22,000
7,000
5,000
1,500
2,000 a $ 12,000
d
300
( 33,000)
( 7,700)
( 17,100)
$ 2,000 ( 2,000)
22,200
17,000
e
3,200(
10,100
22,200
800) ( 12,000)
$20,300
9,300
11,000
h
g
b
300 c
e
f
2,000
6,000
1,000
22,000
3,000
40,000
1,000
30,000
g
f
800
30,000
3,200
40,000
20,300
23,000
5,000
43,000
41,200
$
80,300
$60,000
17,000
1,000
800
2,000
1,500
1,600
39,600
10,000
63,800
2,000
$96,100
20,300
f
9,400
9,400
10,600
Consolidated
$82,000
10,000
10,100
17,000 f
22,200
10,000
( 12,000) ( 4,000)
$
Noncntl.
80,300
$60,000
10,600
$96,100
Exercise 9
Cost of investment
Book value acquired:
Stockholders equity, Jan 1
Income Jan 1 Aug 31
($78,000/12 months x 8 months)
Preacquisition dividends
Book value at September 1
Interest acquired
$
$
(
700,000
800,000
52,000
27,000 )
825,000
80%
660,000
Goodwill
40,000
Requirement 1
Income from Reed
Share of Reedss net income
($78,000 x 1/3 x 80%)
20,800
Requirement 2
Preacquisition income
($78,000 x 80% x 2/3) or
($6,500 x 8 months x 80%)
41,600
Requirement 3
Minority interest income
($78,000 x 20%)
15,600
Exercise 10
Requirement 1
Cost of investment ($450,000 x
60%)
Share of Trunks income for 2005
($40,000 x 60%)
Investment in Trunk balance at
December 31, 2005
Plus: Purchase of 10,000 Trunk
shares at $12 on January 1, 2006
Investment account balance`
Requirement 2
Trunks stockholders equity at
January 1, 2006 ($450,000 +
$40,000 of 2005 net income)
Plus: Additional capital from the
shares issued
Total stockholders equity after
issuance of the new shares
Ravens percentage
(24,000 + 10,000)/50,000 =
Ravens share of Trunks equity
after issuance
Ravens share of Trunks equity
before stock issuance
Equity acquired in the purchase
Cost of interest acquired
Goodwill
270,000
24,000
294,000
120,000
414,000
490,000
120,000
610,000
68%
414,800
294,000
120,800
120,000
800