New Monthly Enterprises Survey. Issue 21. (01.2024) Ukrainian Business in War...
P7 32
1. P7-32 Consolidation Worksheet in Year of Intercompany Transfer
Note: In converting this problem from the modified to the fully adjusted equity method, we
failed to deduct the $8,000 deferred gain from the land sale in 2005 from the beginning
balance of the investment and retained earnings accounts. If you complete the problem
based on the numbers given in the trial balance in the text, the investment account will not
be fully eliminated. In order to correct this problem, please reduce the Investment in Lane
Company Stock and Retained Earnings of Prime Company by 8,000. Adjusted balances in
the trial balance:
Investment in Lane Company Stock = 191,600
Retained Earnings = 322,000
a. These calculations are based on the corrected numbers
Equity Method Entries on Prime Co.'s Books:
Investment in Lane Co. 40,000
Income from Lane Co. 40,000
Record Prime Co.'s 80% share of Lane Co.'s 20X6 income
Cash 4,000
Investment in Lane Co. 4,000
Record Prime Co.'s 80% share of Lane Co.'s 20X6 dividend
Income from Lane Co. 14,400
Investment in Lane Co. 14,400
Record amortization of excess acquisition price
Income from Lane Co. 20,000
Investment in Lane Co. 20,000
Defer unrealized gain on Equipment
Investment in Lane Co. 2,000
Income from Lane Co. 2,000
Reverse the deferred gain
Book Value Calculations:
NCI + Prime Co. = Common + Retained
20% 80% Stock Earnings
Original book value 39,000 156,000 100,000 95,000
+ Net Income 10,000 40,000 50,000
- Dividends (1,000) (4,000) (5,000)
Ending book value 48,000 192,000 100,000 140,000
2. Deferred Gain Calculations:
Prime
Co.'s
Total = share + NCI's share
Downstream Asset (20,000) (20,000)
Extra Depreciation 2,000 2,000 0
Total (18,000) (18,000) 0
P7-32 (continued)
Basic elimination entry
Common stock 100,000 ← Original amount invested (100%)
Retained earnings 95,000 ← Beginning balance in RE
Income from Lane Co. 22,000 ← Prime’s share of NI - Def. Gain
NCI in NI of Lane Co. 10,000 ← NCI share of Lane Co.'s NI
Dividends declared 5,000 ← 100% of Lane Co.'s dividends
Investment in Lane Co. 174,000 ← Prime's share of BV - Def. Gain
NCI in NA of Lane Co. 48,000 ← NCI share of BV of net assets
Excess Value (Differential) Calculations:
NCI
20% + Prime Co. 80% = Goodwill
Beginning balance 10,000 40,000 50,000
Changes (3,600) (14,400) (18,000)
Ending balance 6,400 25,600 32,000
Amortized excess value reclassification entry:
Goodwill impairment loss 18,000
Income from Lane Co. 14,400
NCI in NI of Lane Co. 3,600
Excess value (differential) reclassification entry:
Goodwill 32,000
Investment in Lane Co. 25,600
NCI in NA of Lane Co. 6,400
Eliminate intercompany accounts:
Accounts Payable 7,000
Cash and Accounts Receivable 7,000
3. Eliminate gain on purchase of land
Investment in Lane Co. 8,000
NCI in NI of Lane Co. 2,000
Land 10,000
Accumulated
Equipment Depreciation
Lane Co. 70,000 Actual 7,000
5,000 2,000 25,000
Prime Co. 75,000 "As If" 30,000
Eliminate the gain on Equipment and correct asset's basis:
Gain on sale 20,000
Equipment 5,000
Accumulated Depreciation 25,000
Accumulated Depreciation 2,000
Depreciation Expense 2,000
P7-32 (continued)
Investment in Income from
Lane Co. Lane Co.
Beginning Balance 188,000
80% Net Income 40,000 40,000 80% Net Income
4,000 80% Dividends
14,400 Excess Val. Amort. 14,400
Realize Def. Gain 2,000 20,000 Defer Equipment Gain 20,000 2,000 Realize Def. Gain
Ending Balance 191,600 7,600 Ending Balance
174,000 Basic 22,000
Land Adjustment 8,000 25,600 Excess Reclass. 14,400
0 0
4. b. This worksheet is based on the corrected numbers:
Elimination Entries
Prime Co. Lane Co. DR CR Consolidated
Income Statement
Sales 240,000 130,000 370,000
Gain on Sale of Equipment 20,000 20,000 0
Less: COGS (140,000) (60,000) (200,000)
Less: Depr.&Amort. Expense (25,000) (15,000) 2,000 (38,000)
Less: Other Expenses (15,000) (5,000) (20,000)
Less: Goodwill Impairment Loss 18,000 (18,000)
Income from Lane Co. 7,600 22,000 14,400 0
Consolidated Net Income 87,600 50,000 60,000 16,400 94,000
NCI in Net Income 10,000 3,600 (6,400)
Controlling Interest in NI 87,600 50,000 70,000 20,000 87,600
Statement of Retained Earnings
Beginning Balance 322,000 95,000 95,000 322,000
Net Income 87,600 50,000 70,000 20,000 87,600
Less: Dividends Declared (30,000) (5,000) 5,000 (30,000)
165,00
Ending Balance 379,600 140,000 0 25,000 379,600
Balance Sheet
Cash and Accounts 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 & Equipment 500,000 150,000 5,000 655,000
Less: Accumulated
Depreciation (205,000) (45,000) 2,000 25,000 (273,000)
174,00
Investment in Lane Co. 191,600 8,000 0 0
25,600
Goodwill 32,000 32,000
241,60
Total Assets 939,600 310,000 47,000 0 1,055,000
Accounts Payable 60,000 20,000 7,000 73,000
Bonds Payable 200,000 50,000 250,000
100,00
Common Stock 300,000 100,000 0 300,000
165,00
Retained Earnings 379,600 140,000 0 25,000 379,600
NCI in NA of Lane Co. 2,000 48,000 52,400
6,400
274,00
Total Liabilities & Equity 939,600 310,000 0 79,400 1,055,000
5. P7-32 (continued)
These financial statements are based on the corrected numbers:
c. Prime Company and Subsidiary
Consolidated Balance Sheet
December 31, 20X6
Cash and Receivables $ 141,000
Inventory 350,000
Land 150,000
Buildings and Equipment $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
Stockholders’ Equity:
Controlling Interest:
Common Stock $300,000
Retained Earnings 379,600
Total Controlling Interest $679,600
Total Noncontrolling Interest 52,400
Total Stockholders’ Equity 732,000
Total Liabilities and Stockholders' Equity $1,055,000
6. Prime Company and Subsidiary
Consolidated Income Statement
Year Ended December 31, 20X6
Sales $ 370,000
Cost of Goods Sold $200,000
Depreciation and Amortization Expense 38,000
Goodwill Impairment Loss 18,000
Other Expenses 20,000
Total Expenses (276,000)
Consolidated Net Income $ 94,000
Income to Noncontrolling Interest (6,400)
Income to Controlling Interest $ 87,600
Prime Company and Subsidiary
Consolidated Retained Earnings Statement
Year Ended December 31, 20X6
Retained Earnings, January 1, 20X6 $ 322,000
Income to Controlling Interest, 20X6 87,600
$ 409,600
Dividends Declared, 20X6 (30,000)
Retained Earnings, December 31, 20X6 $ 379,600
7. P7-32 (continued)
b. This worksheet is based on the uncorrected numbers:
Prime Lane Elimination Entries
Co. Co. DR CR Consolidated
Income Statement
Sales 240,000 130,000 370,000
Gain on Sale of Equipment 20,000 20,000 0
(140,000
Less: COGS ) (60,000) (200,000)
Less: Depr.&Amort. Expense (25,000) (15,000) 2,000 (38,000)
Less: Other Expenses (15,000) (5,000) (20,000)
Less: Goodwill Impairment Loss 18,000 (18,000)
Income from Lane Co. 7,600 22,000 14,400 0
Consolidated Net Income 87,600 50,000 60,000 16,400 94,000
NCI in Net Income 10,000 3,600 (6,400)
Controlling Interest in NI 87,600 50,000 70,000 20,000 87,600
Statement of Retained Earnings
Beginning Balance 330,000 95,000 95,000 330,000
Net Income 87,600 50,000 70,000 20,000 87,600
Less: Dividends Declared (30,000) (5,000) 5,000 (30,000)
165,00
Ending Balance 387,600 140,000 0 25,000 387,600
Balance Sheet
Cash and Accounts 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 & Equipment 500,000 150,000 5,000 655,000
Less: Accumulated (205,000
Depreciation ) (45,000) 2,000 25,000 (273,000)
174,00
Investment in Lane Co. 199,600 8,000 0 8,000
25,600
Goodwill 32,000 32,000
241,60
Total Assets 947,600 310,000 47,000 0 1,063,000
Accounts Payable 60,000 20,000 7,000 73,000
Bonds Payable 200,000 50,000 250,000
100,00
Common Stock 300,000 100,000 0 300,000
165,00
Retained Earnings 387,600 140,000 0 25,000 387,600
NCI in NA of Lane Co. 2,000 48,000 52,400
6,400
274,00
Total Liabilities & Equity 947,600 310,000 0 79,400 1,063,000
8. P7-32 (continued)
These financial statements are based on the uncorrected numbers:
c. Prime Company and Subsidiary
Consolidated Balance Sheet
December 31, 20X6
Cash and Receivables $ 141,000
Inventory 350,000
Land 150,000
Buildings and Equipment $655,000
Less: Accumulated Depreciation (273,000) 382,000
Investment in Lane Co. 8,000
Goodwill 32,000
Total Assets $1,063,000
Accounts Payable $ 73,000
Bonds Payable 250,000
Stockholders’ Equity:
Controlling Interest:
Common Stock $300,000
Retained Earnings 387,600
Total Controlling Interest $687,600
Total Noncontrolling Interest 52,400
Total Stockholders’ Equity 740,000
Total Liabilities and Stockholders' Equity $1,063,000
9. Prime Company and Subsidiary
Consolidated Income Statement
Year Ended December 31, 20X6
Sales $ 370,000
Cost of Goods Sold $200,000
Depreciation and Amortization Expense 38,000
Goodwill Impairment Loss 18,000
Other Expenses 20,000
Total Expenses (276,000)
Consolidated Net Income $ 94,000
Income to Noncontrolling Interest (6,400)
Income to Controlling Interest $ 87,600
Prime Company and Subsidiary
Consolidated Retained Earnings Statement
Year Ended December 31, 20X6
Retained Earnings, January 1, 20X6 $ 330,000
Income to Controlling Interest, 20X6 87,600
$ 417,600
Dividends Declared, 20X6 (30,000)
Retained Earnings, December 31, 20X6 $ 387,600