CH 08

Consolidations Changes in
Ownership Interests
Chapter 8
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
8-1
Learning Objective 1
Prepare consolidated statements
when parent companys ownership
percentage increases or decreases
during the reporting period.
8-2
Preacquisition Earnings
Preacquisition earnings or purchased income
is income that was earned by the subsidiary
(in the accounting period of the acquisition)
prior to the acquisition.
Patter Corporation purchases a 90% interest in
Sissy Company on April 1, 2006, for $213,750.
8-3
Income
Sales
Cost of sales and expenses
Net income
$25,000 $75,000 $100,000

12,500 37,500
50,000
$12,500 $37,500 $ 50,000
Dividends
$10,000 $15,000 $ 25,000
1/1-4/1
4/1-12/31 1/1-12/31
8-4
Stockholders Equity Jan. 1
Capital stock
$200,000
Retained earnings
35,000
Stockholders equity $235,000
April 1
$200,000
37,500
$237,500
Dec. 31
$200,000
60,000
$260,000
What is the book value acquired by Patter?

$237,500 90% = $213,750 purchase price
8-5
Sales (last three quarters of 2006)

Expenses (last three quarters)
Minority interest (last three quarters)
Effect on consolidated net income
$75,000
(37,500)
(3,750)
$33,750
8-6
Sales (full year)

Expenses (full year)
Preacquisition income
Minority interest
Effect on consolidated net income
$100,000
(50,000)
(11,250)
(5,000)
$ 33,750
8-7
Preacquisition Dividends
$25,000
$10,000
$15,000
Preacquisition dividends are eliminated

in the consolidation process.
8-8
Preacquisition Dividends
Cash
13,500
Cash
13,500
Investment
13,500
Investment in
in Sissy
Sissy
13,500
To
Torecord
record dividends
dividends received
received
$15,000
$15,000 90%
90% == 13,500
13,500
8-9
Consolidation
12/31/2006
Patters Investment
213,750
33,750 13,500
234,000
Dividends
8 - 10
Working Papers December 31,

2006
Income Statement
Sales
Income from Sissy
Expenses
Minority interest expense
($50,000 10%)
Preacquisition income
Net income
Retained earnings Patter
Retained earnings Sissy
Add: Net income
Dividends
Retained earnings 12/31/06
Adjustments/ ConsolPatter Sissy Eliminations idated

$300
$100
$400
33.75
a 33.75
(200)
(50)
(250)
c 5.00
b 11.25
$133.75 $ 50
$266.25
$ 35 b 35
133.75 50
(100)
(25)
$300
$ 60
(5)
(11.25)
$133.75
$266.25
a 13.5
b 9.0
c 2.5
133.75
(100)
$300
8 - 11

2006
Balance Sheet
Patter Sissy
Adjustments/
Eliminations
Other assets
$566 $260
Investment in Sissy 234
Capital stock
Retained earnings
Minority interest
Consolidated
$826
a 20.25
b 213.75
$800 $260
$500 $200 b 200
300
60
$800 $260
$826
500
300
b 23.50
c 2.50
26
$826
8 - 12
Apply consolidation procedures to
interim (midyear) acquisitions.
8 - 13
Piecemeal Acquisitions
Poca
Poca Corporation
Corporation acquires
acquires aa 90%
90% interest
interest in
in Sark
Sark
Corporation
Corporation in
in aa series
series of
of separate
separate stock
stock purchases
purchases
between
between July1,
July1, 2003,
2003, and
and October
October 1,
1, 2005.
2005.
8 - 14
Date
Interest acquired
Investment cost
Equity January 1
Income for year
Equity at acquisition
Equity December 31
7/1/03 4/1/04 10/1/05

20%
40%
30%
$ 30 $ 74 $ 81
100
150
190
50
40
40
125
160
220
150
190
230
8 - 15
What is the initial goodwill from
each of the three acquisitions?
$125 20% = $25
$30 $25 = $5
$160 40% = $64
$74 $64 = $10
8 - 16
$220 30% = $66
$81 $66 = $15
At December 31, 2005, Pocas investment
in Sark account balance is $237,000.
This consists of $185,000 total
cost plus income of $52,000.
8 - 17
Working Paper Entries: 2005
a Income from Sark

27,000
Investment in Sark
27,000
To eliminate investment income and return
investment account to its beginning-of-theperiod balance plus the $81,000 new investment
8 - 18

b Preacquisition Income
9,000
Retained Earnings Sark
90,000
Capital Stock Sark
100,000
Goodwill
30,000
Investment in Sark
210,000
Minority Interest
19,000
To eliminate investment in Sark and Sarks equity
balances, and enter preacquisition income, goodwill,
and beginning-of-the-period minority interest
8 - 19
c Minority Interest Expense

4,000
Minority Interest
4,000
To record minority interest in Sarks net income
8 - 20
Sale of Ownership Interests

Sergio Corporation is a 90%-owned
subsidiary of Pablo Corporation.
January 1, 2007: Pablos investment
in Sergio equals $288,000.
Sergios stockholders equity on this
date consists of $200,000 capital stock
and $100,000 retained earnings.
8 - 21

Did Pablo acquire goodwill?
$300,000 90% = $270,000

$288,000 $270,000 = $18,000
8 - 22
During 2007, Sergio reports income of $36,000.

Sergio pays dividends of $20,000 on July 1.
8 - 23
Sale of Interest at the Beginning

of the Period
Pablo sells a 10% interest in Sergio
(one-ninth of its holdings) on
January 1, 2007 for $40,000.
$288,000 9 = $32,000
$18,000 9 = $2,000
8 - 24
Sale of Interest at the Beginning

of the Period
12/31/2007
Cash
40,000
16,000
Pablos Investment
288,000 32,000
28,800 16,000
268,800
Gain
8,000
Dividends
Income from S
28,800
8 - 25

a Income from Sergio
28,800
Dividends Sergio
16,000
Investment in Sergio
12,800
To eliminate income and dividends from
Sergio and return the investment account
to its beginning-of-the-period balance
after the sale of the 10% interest
8 - 26

b Capital Stock Sergio
200,000
Retained Earnings Sergio 100,000
Goodwill
16,000
256,000
Minority Interest (20%)
60,000
To eliminate reciprocal investment and equity
balances, and to record goodwill and
beginning minority interest
8 - 27
c Minority Interest Expense

7,200
Dividends
4,000
Minority Interest
3,200
To enter minority interest share of subsidiary
income and dividends
8 - 28

2007
Adjustments/ ConsolPablo Sergio Eliminations idated

$600
$136
$736
28.8
a 28.8
8
8
(508.8) (100)
(608.8)
Income Statement
Sales
Income from Sergio
Gain on sale
Expenses
Minority interest expense
($36,000 10%)
Net income
$128
Retained earnings Pablo $210
Retained earnings Sergio
Add: Net income
128
Dividends
(80)
Retained earnings 12/31/07 $258
$ 36
7.2
$100 b 100
36
(20)
$116
(7.2)
$128
$210
a 16
c 4
128
(80)
$258
8 - 29

2007
Balance Sheet
Other assets
Pablo Sergio
$639.2 $350
268.8
Goodwill
Liabilities
Capital stock
Retained earnings
Minority interest
Adjustments/
Eliminations
a 12.8
b 256
b 16
$908
$150
500
258
$908
Consolidated
$ 989.2
16
$1,005.2
$ 184
500
258
$350
$ 34
200 b 200
116
$350
b 60
c 3.2
63.2
$1,005.2
8 - 30
Sale of Interest During an

Accounting Period
Main issues
Obtain proper book value for shares sold.
Calculate the remainder for unamortized
components of the investment account.
8 - 31

Accounting Period
Pablo sells the 10% interest in Sergio
on April 1, 2007, for $40,000.
The sale may be recorded as of April 1

or, as an expedient, as of January 1.
8 - 32

Accounting Period
Assume the sale is recorded on April 1, 2007.
Selling price of 10% interest
$40,000
Less: Book value of interest sold:
Investment balance January 1 $288,000
Equity in income
$36,000 1/4 year 90%
8,100
Portion of investment sold
$296,100
1/9
32,900
Gain
$ 7,100
8 - 33

Accounting Period
$36,000 1/4 year 90% = $ 8,100

$36,000 3/4 year 80% = 21,600
$29,700
$29,700 $16,000 = $13,700
8 - 34

Accounting Period
12/31/2007
Cash
40,000
16,000
Pablos Investment
288,000 32,900
8,100 16,000
21,600
268,800
Gain
7,100
Dividends
Income from S
8,100
21,600
8 - 35
Changes in Ownership Interests

from
Subsidiary Stock Transactions
Subsidiary stock issuances provide
a means of expanding operations
through external financing.
8 - 36
Sale of Additional Shares

by a Subsidiary
Purdy
Purdy Corporation
Corporation owns
owns an
an 80%
80% interest
interest
in
in Stroh
Stroh Corporation.
Corporation.
Purdys
Purdys investment
investment in
in Stroh
Stroh isis $180,000
$180,000 on
on
January
January 1,
1, 2007,
2007, equal
equal to
to 80%
80% of
of Strohs
Strohs $200,000
$200,000
stockholders
stockholdersequity
equity plus
plus $20,000
$20,000 goodwill.
goodwill.
8 - 37

by a Subsidiary
$200,000
$200,000 80%
80% == $160,000
$160,000
$160,000
$160,000 $20
$20 == 8,000
8,000 shares
shares
8 - 38

by a Subsidiary
Capital
Capital stock,
stock, $10
$10 par
par
Additional
Additional paid-in
paid-in capital
capital
Retained
Retained earnings
earnings
Total
Total shareholders
shareholdersequity
equity
$100,000
$100,000
60,000
60,000
40,000
40,000
$200,000
$200,000
8 - 39
Subsidiary Sells Shares to Parent

Stroh
Stroh sells
sells an
an additional
additional 2,000
2,000 shares
shares to
to Purdy
Purdy at
at
book
book value
value of
of $20
$20 per
per share
share on
on January
January 2,
2, 2007.
2007.
January
January 11 before
before sale:
sale: 8,000
8,000 10,000
10,000 == 80%
80%
January
January 22 after
after sale:
sale: 10,000
10,000 12,000
12,000 == 83
831/3
1/3%
%
8 - 40

January 1 January 2
Before Sale After Sale
Strohs
Strohsstockholders
stockholdersequity
equity
Purdys
Purdysinterest
interest
Purdys
Purdysequity
equity in
in Stroh
Stroh
Goodwill
Goodwill
Investment
Investment in
in Stroh
Stroh balance
balance
$200,000
$200,000
80%
80%
$160,000
$160,000
20,000
20,000
$180,000
$180,000
$240,000
$240,000
83
831/3
1/3%
%
$200,000
$200,000
20,000
20,000
$220,000
$220,000
8 - 41

IfIf Stroh
Stroh sells
sells the
the additional
additional shares
shares at
at $35
$35 per
per share
share..
Price
Price paid
paid by
by Purdy
Purdy (2,000
(2,000 $35)
$35)
Book
Book value
value acquired:
acquired:
Underlying
Underlying book
book value
value after
after purchase
purchase
($200,000
$225,000
($200,000 ++ $70,000)
$70,000) 83
831/3
1/3%
%
$225,000
Underlying
Underlying book
book value
value before
before purchase
purchase
($200,000
160,000
($200,000 80%)
80%)
160,000
Book
Book value
value acquired
acquired
Excess
Excess cost
cost over
over book
book value
value
$70,000
$70,000
65,000
65,000
$$ 5,000
5,000
8 - 42
Subsidiary Sells Shares

to Outside Entity
Strohs
Strohsstockholders
stockholdersequity
equity
Purdys
Purdysinterest
interest
Purdys
Purdysequity
equity in
in Stroh
Stroh
after
after issuance
issuance
Purdys
Purdysequity
equity in
in Stroh
Stroh
before
before issuance
issuance
Increase
Increase in
in Purdys
Purdys
equity
equity in
in Stroh
Stroh
Sale at $20
Sale at $35
$240,000
$270,000
$240,000
$270,000
66
66
662/3
2/3%
%
662/3
2/3%
%
$160,000
$160,000
$180,000
$180,000
160,000
160,000
160,000
160,000
00
$$ 20,000
20,000
8 - 43
Record subsidiary/investee stock
issuances and treasury
stock transactions.
8 - 44
Treasury Stock Transactions

by a Subsidiary
The acquisition of treasury stock by a
subsidiary decreases subsidiary equity
and subsidiary shares outstanding.
If the subsidiary acquires treasury stock
from minority shareholders at book
value, no change in the parents share
in the subsidiary equity results.
8 - 45

by a Subsidiary
Shelly is an 80% subsidiary of Pointer Corporation.
Shelly has 10,000 shares of common stock
outstanding at December 31, 2007.
On January 1, 2008, Shelly purchased 400
shares of its own stock from minority stockholders.
8 - 46

by a Subsidiary
Shellys equity before purchase
of 400 shares of treasury stock
Capital
Capital stock,
stock, $10
$10 par
par
Retained
Retained earnings
earnings
Total
Total equity
equity
Pointers
Pointers share
share of
of Shellys
Shellys
book
book value
value (80%)
(80%)
$100,000
$100,000
100,000
100,000
$200,000
$200,000
$160,000
$160,000
8 - 47

by a Subsidiary
400 shares
Capital stock
Retained earnings
Total
Less: Treasury stock
Total equity
Pointers interest
Pointers share of
Shellys book value
@$20
@$30
@$15
$100,000 $100,000 $100,000
100,000 100,000 100,000
$200,000 $200,000 $200,000
8,000
12,000
6,000
$192,000 $188,000 $194,000
5/6
5/6
5/6
$160,000 $156,667 $161,667
8 - 48
End of Chapter 8
8 - 49

CH 08

Încărcat de

Informații document

Titlu original

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

CH 08

Încărcat de

Drepturi de autor:

Formate disponibile

Consolidations Changes in

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

$25,000 $75,000 $100,000

$10,000 $15,000 $ 25,000

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

What is the book value acquired by Patter?

Sales (last three quarters of 2006)

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Sales (full year)

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Preacquisition dividends are eliminated

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Working Papers December 31,

Adjustments/ ConsolPatter Sissy Eliminations idated

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Working Papers December 31,

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

7/1/03 4/1/04 10/1/05

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Working Paper Entries: 2005

a Income from Sark

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Working Paper Entries: 2005

Working Paper Entries: 2005

c Minority Interest Expense

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Sale of Ownership Interests

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Sale of Ownership Interests

$300,000 90% = $270,000

Sale of Ownership Interests

During 2007, Sergio reports income of $36,000.

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Sale of Interest at the Beginning

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Sale of Interest at the Beginning

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Working Paper Entries: 2007

Working Paper Entries: 2007

Working Paper Entries: 2007

c Minority Interest Expense

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Working Papers December 31,

Adjustments/ ConsolPablo Sergio Eliminations idated

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Working Papers December 31,

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Sale of Interest During an

Sale of Interest During an

The sale may be recorded as of April 1

Sale of Interest During an

Sale of Interest During an

$36,000 1/4 year 90% = $ 8,100

Sale of Interest During an

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Changes in Ownership Interests

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn

Sale of Additional Shares

Sale of Additional Shares

2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn