85

Chapter 4

Chapter 4
Electronic Supplement Solutions
W-1 The method used by a parent company in accounting for its subsidiary
can be determined by examining the separate financial statements of the
parent company and the subsidiary. If the cost method is used, the parent
company will report dividend income from the subsidiary and the investment
account will be stated at original cost. If the equity method is used, the
parent company will report investment income from the subsidiary, and the
investment account will reflect subsidiary income since acquisition. When the
equity method is used but the difference between investment cost and book
value acquired has not been amortized on the parent company's books, the
difference between the investment balance and underlying book value at any
statement date will reflect the difference between the investment cost and
underlying book value at the time of acquisition.
W-2 When the cost method is used, reciprocity between the investment
account balance and the underlying subsidiary equity is established by
adjusting the parent company's investment and retained earnings accounts
for the parent's share of the change in subsidiary retained earnings between
the dates the subsidiary was acquired and the beginning of the current year.

86

Consolidation Techniques and Procedures

W-3
1

Cost method
Cash

$30,000
Dividend income

$30,000

To record receipt of dividends ($40,000 x 75%).

2

Cost method

Investment cost January 1, 2005

Less: Dividends in excess of earnings ($30,000 - $10,000) x 75%

$300,000
(15,000)

Investment account balance - cost method

3

$285,000

Equity method
Investment in SBrain
Income from SBrain

$45,000
$45,000

To record share of SBrain's net income ($60,000 x 75%).

Cash

$30,000
Investment in SBrain

$30,000

To record receipt of dividends ($40,000 x 75%).

4

Investment balance under equity method

Investment cost
Add: Share of income for 2005 and 2006 ($70,000 x 75%)
Less: Share of dividends for 2005 and 2006 ($70,000 x 75%)
Investment in SBrain balance December 31, 2006
5

$300,000
52,500
(52,500)
$300,000

Consolidated net income

Pinky's separate income

Add: Investment income
Consolidated net income

$ 90,000
45,000
$134,000

87

Chapter 4

W-4
1

[AICPA adapted]
a

Investment cost
Add: Excess of book value acquired over cost
Book value of 80% interest acquired

$145,000
7,000
$152,000

Book value of 100% interest ($152,000 80%)

$190,000

There is no way to determine the components of the subsidiary's stockholders'

equity from the information given.
3

The minority interest represents 20% of the current stockholders' equity of

the subsidiary. Thus, total stockholders' equity must be $29,200 20%, or
$146,000.
4

There is no way to determine the components of the subsidiary's stockholders'

equity from the information given.
5

c
Consolidated

Parent

Subsidiary

Current assets
Current liabilities

$363,000
150,000

$218,000
83,000

$145,000
67,000

Working capital

$213,000

$135,000

$ 78,000

88

Consolidation Techniques and Procedures

W-5
Cost method
1a

Investment balance December 31, 2003 (original cost)

1b

Consolidated net income under cost method

Net income of Photronic

Less: Dividend income from Silicon ($25,000 x 80%)
Separate income of Photronic
Add: Photronic's share of Silicon's income ($60,000 x 80%)
Consolidated net income

$160,000

$120,000
(20,000)
100,000
48,000
$148,000

Equity method
2a

Investment in Silicon December 31, 2003

Cost January 1, 2003

Add: Income from Silicon
48,000
Less: Dividends from Silicon

$160,000

Investment in Silicon under equity method

$188,000

2b

Consolidated net income (equal to Phototronic's income)

$120,000

2c

Minority interest December 31, 2003

Silicon's equity January 1, 2003

Add: Net income
Deduct: Dividends
Silicon's equity at December 31, 2003
Minority interest percentage
Minority interest December 31, 2003

(20,000)

$200,000
60,000
(25,000)
235,000
20%
$ 47,000

89

Chapter 4

W-6
1

Pane Company
Balance Sheet
at December 31, 2003

Assets
Cash
Accounts receivable
Other assets
Investment in Sizzle
Total assets

2,500
15,000
120,000
88,000

$225,500

Liabilities and Stockholders' Equity

Liabilities
$ 80,000
Stockholders' equity:
Capital stock
$100,000
Paid-in excess
10,000
Retained earnings
35,500
145,500
Total equities
$225,500

Pane Company and Subsidiary

Consolidated Income Statement
for the year ended December 31, 2003
Sales
Cost of goods sold
Gross profit
Operating expenses
Total consolidated net income
Less: Minority interest incomeb
Consolidated net income

Minority interest income is 20% of Sizzle's $20,000 income.

Pane Company and Subsidiary

Consolidated Balance Sheet
at December 31, 2003

Assets
Cash
Accounts receivable
Other assets
Goodwilla

$ 17,500
40,000
220,000
8,000

Total assets

$285,500

$190,000
80,000
110,000
65,000
45,000
4,000
$ 41,000

Liabilities and Stockholders' Equity

Liabilities
$110,000
Stockholders' equity:
Capital stock
$100,000
Paid-in excess
10,000
Retained earningsb
43,500
Minority interestc
22,000
175,500
Total equities
$285,500

(Cost $88,000 - book value acquired $80,000)

Retained earnings-Pane January 1, 2003 of $22,500 plus consolidated net
income of $41,000 less dividends of Pane of $20,000.
c
Minority interest January 1, 2003 of $20,000 plus minority interest income
of $4,000 less minority interest dividends of $2,000.
b

90

Consolidation Techniques and Procedures

W-7
Prim Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2003
|
|
|
Adjustments and
|Consolidated
|
Prim
| Stan 100% |
Eliminations
| Statements
|
|
|
|
|
Income Statement
|
|
|
|
|
Sales
|$1,900,000 |$1,000,000 |
|
| $2,900,000
Income from Stan
|
200,000 |
|c
200,000|
|
Cost of sales
|
800,000*|
400,000*|
|
| 1,200,000*
Depreciation expense |
200,000*|
100,000*|
|
|
300,000*
Interest expense
|
200,000*|
|
|
|
200,000*
Operating expenses
|
400,000*|
300,000*|
|
|
700,000*
Net income
|$ 500,000 |$ 200,000 |
|
| $ 500,000
|
|
|
|
|
Retained Earnings
|
|
|
|
|
Retained earnings-Prim|$1,300,000 |
|
|
| $1,300,000
Retained earnings-Stan|
|$ 400,000 |d
400,000|
|
Net income
|
500,000 | 200,000 |
|
|
500,000
Dividends
|
400,000*|
150,000*|
|c
150,000|
400,000*
Retained earnings
|
|
|
|
|
December 31, 20X8
|$1,400,000 |$ 450,000 |
|
| $1,400,000
|
|
|
|
|
Balance Sheet
|
|
|
|
|
Cash
|$ 150,000 |$
60,000 |a
10,000|
| $ 220,000
Receivables -net
|
350,000 |
140,000 |
|a
10,000|
480,000
Inventories
| 1,000,000 |
150,000 |
|
| 1,150,000
Land
|
600,000 |
100,000 |
|
|
700,000
Buildings -net
| 1,500,000 |
500,000 |
|
| 2,000,000
Equipment -net
| 1,900,000 |
800,000 |
|
| 2,700,000
Investment in Stan
| 1,500,000 |
|
|b
50,000|
|
|
|
|c
50,000|
|
|
|
|d 1,400,000|
Dividends receivable |
|
|b
50,000|e
50,000|
|$7,000,000 |$1,750,000 |
|
| $7,250,000
|
|
|
|
|
Accounts payable
|$ 400,000 |$ 250,000 |
|
| $ 650,000
Dividends payable
|
100,000 |
50,000 |e
50,000|
|
100,000
Bond interest payable |
100,000 |
|
|
|
100,000
10% bonds payable
| 2,000,000 |
|
|
| 2,000,000
Common stock $10 par | 2,500,000 | 1,000,000 |d 1,000,000|
| 2,500,000
Other paid -in capital |
500,000 |
|
|
|
500,000
Retained earnings
| 1,400,000 | 450,000 |
|
| 1,400,000
|$7,000,000 |$1,750,000 |
|
| $7,250,000
|
|
|
|
|
*Deduct

91

Chapter 4

W-8
Preliminary computations
Investment cost
Book value acquired ($100,000 x 70%)
Excess cost over book value acquired

$100,000
70,000
$ 30,000

Excess allocated to:

Inventories (sold in 2006)
Patents (amortized over 10 years at $2,000 per year)
Excess cost over book value acquired

$ 10,000
20,000
$ 30,000

Conversion to equity method

Retained
Earnings-Phil

Investment
in Simm

Prior-year effect
Excess allocated to inventory
Patent amortization 2006 and 2007

$(10,000)
(4,000)

$(10,000)
(4,000)

Current-year effect
Patent amortization
Adjustment

$(14,000)

(2,000)
$(16,000)

Income
from Simm

$(2,000)
$(2,000)

Working paper entries in journal form

a

Income from Simm

Retained earnings-Phil
Investment in Simm

2,000
14,000
$ 16,000

To correct investment income, the investment in Simm account and

retained earnings for amortization of cost-book value
differentials.
b

Income from Simm

Dividends
Investment in Simm

$ 19,000
$ 14,000
5,000

To eliminate income and dividends from Simm and return the

investment account to its beginning-of-the-period balance.
c

Retained earnings-Simm
$ 40,000
Capital stock-Simm
80,000
Patents
16,000
Investment in Simm
Minority interest December 31, 2007

$100,000
36,000

To eliminate reciprocal equity and investment balances, establish

beginning minority interest, and enter unamortized patents.
d

Other expenses
Patents

2,000
$

2,000

To enter current patent amortization.

e

Minority Interest Expense

Dividends-Simm
Minority Interest

$ 9,000
$ 6,000
3,000

92

Consolidation Techniques and Procedures

To enter minority interest share of subsidiary income and

dividends

93

Chapter 4

W-8

(continued)

Conversion to equity as first working paper entry:

Phil Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2008
___________________________________________________________________________
|
|
| Adjustments and |Consolidated
| Pitt
|Simm 80% |
Eliminations
|Statements__
|
|
|
|
|
Income Statement
|
|
|
|
|
Sales
|$500,000 |$100,000 |
|
|$600,000
Income from Simm
| 21,000 |
|a
2,000|
|
|
|
|b 19,000|
|
Cost of sales
| 240,000*| 40,000*|
|
| 280,000*
Other expenses
| 174,000*| 30,000*|d
2,000|
| 206,000*
Minority expense
|
|
|e
9,000|
|
9,000*
Net income
|$107,000 |$ 30,000 |
|
|$105,000
|
|
|
|
|
Retained Earnings
|
|
|
|
|
Retained earnings -Phil|$110,000 |
|a 14,000|
|$ 96,000
Retained earnings -Simm|
|$ 40,000 |c 40,000|
|
Net income
| 107,000 | 30,000 |
|
105,000
Dividends
| 70,000*| 20,000*|
|b 14,000|
|e 6,000 | 70,000*
Retained earnings
|
|
|
|
|
December 31, 2008
|$147,000 |$ 50,000 |
|
|$131,000
|
|
|
|
|
Balance Sheet
|
|
|
|
|
Cash
|$ 56,000 |$ 30,000 |
|
|$ 86,000
Accounts receivable
| 40,000 | 20,000 |
|
| 60,000
Inventories
| 60,000 | 15,000 |
|
| 75,000
Plant assets -net
| 220,000 | 105,000 |
|
| 325,000
Investment in Simm
| 121,000 |
|
|a 16,000|
|
|
|
|b
5,000|
|
|
|
|c 100,000|
Patents
|
|
|c 16,000|d
2,000| 14,000
|$497,000 |$170,000 |
|
|$560,000
|
|
|
|
|
Accounts payable
|$ 50,000 |$ 40,000 |
|
|$ 90,000
Capital stock
| 300,000 | 80,000 |c 80,000 |
| 300,000
Retained earnings
| 147,000 | 50,000 |
|
| 131,000
|$497,000 |$170,000 |
|
|
Minority interest January 1, 2008
|
|c 36,000|
Minority interest December 31, 2008
|
|e
3,000| 39,000
|
|
|$560,000
|
|
|
|
*Deduct

94
W-8

Consolidation Techniques and Procedures

(continued)

Alternative solution - no initial conversion to equity

Working paper entries in journal form
a

Income from Simm

Dividends
Investment in Simm

$ 21,000
$ 14,000
7,000

To establish reciprocity as of the beginning of the period. [This

entry eliminates the investment increase for 2008 as it was
reported in Phil's books against the dividends received from Simm,
and credits the investment account for the difference. The
investment account balance is now the beginning-of-the-period
balance.]
b

Retained earnings-Phil
Capital stock-Simm
Retained earnings-Simm
Patents
Investment in Simm
Minority interest January 1, 2008

$ 10,000
80,000
40,000
20,000
$114,000
36,000

To eliminate reciprocal investment and equity amounts, establish

beginning minority interest, enter the original patents, and
charge Pitt's retained earnings for the excess allocated to
inventories.
c

Retained earnings-Phil
Other expenses
Patents

4,000
2,000
$

6,000

To enter the current year's patent amortization and charge Phil's

retained earnings for patent amortization for 2006 and 2007.
d

Minority Interest Expense

Dividends-Simm
Minority Interest

$ 9,000
$ 6,000
3,000

To enter minority interest share of subsidiary income and

dividends

95

Chapter 4

W-8

(continued)

Alternative solution - no initial conversion to equity

Phil Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2008
___________________________________________________________________________
|
|
| Adjustments and |Consolidated
| Pitt
|Simm 80% |
Eliminations
|Statements__
|
|
|
|
|
Income Statement
|
|
|
|
|
Sales
|$500,000 |$100,000 |
|
| $600,000
Income from Simm
| 21,000 |
|a 21,000|
|
Cost of sales
| 240,000*| 40,000*|
|
|
280,000*
Other expenses
| 174,000*| 30,000*|c
2,000|
|
206,000*
Minority expense
|
|
|d
9,000|
|
9,000*
Net income
|$107,000 |$ 30,000 |
|
| $105,000
|
|
|
|
|
Retained Earnings
|
|
|
|
|
Retained earnings-Phil|$110,000 |
|b 10,000|
|
|
|
|c
4,000|
| $ 96,000
Retained earnings -Simm|
|$ 40,000 |b 40,000|
|
Net income
| 107,000 | 30,000 |
|
|
105,000
Dividends
| 70,000*| 20,000*|
|a 14,000|
|d
6,000|
70,000*
Retained earnings
|
|
|
|
|
December 31, 20X8
|$147,000 |$ 50,000 |
|
| $131,000
|
|
|
|
|
Balance Sheet
|
|
|
|
|
Cash
|$ 56,000 |$ 30,000 |
|
| $ 86,000
Accounts receivable
| 40,000 | 20,000 |
|
|
60,000
Inventories
| 60,000 | 15,000 |
|
|
75,000
Plant assets -net
| 220,000 | 105,000 |
|
|
325,000
Investment in Simm
| 121,000 |
|
|a
7,000|
|
|
|
|b 114,000|
Patents
|
|
|b 20,000|c
6,000|
14,000
|$497,000 |$170,000 |
|
| $560,000
|
|
|
|
|
Accounts payable
|$ 50,000 |$ 40,000 |
|
| $ 90,000
Capital stock
| 300,000 | 80,000 |b 80,000|
|
300,000
Retained earnings
| 147,000 | 50,000 |
|
|
131,000
|$497,000 |$170,000 |
|
|
Minority interest January 1, 2008
|
|b 36,000|
Minority interest December 31, 2008
|
|d
3,000|
39,000
|
|
| $560,000
|
|
|
|
*Deduct

96

Consolidation Techniques and Procedures

W-9
Supporting computations
Investment cost January 1, 2005
Book value acquired ($225,000 x 60%)
Excess cost over book value

$200,000
135,000
$ 65,000

Excess allocated to:

Machinery ($50,000 undervaluation x 60%)
Remainder to patents
Excess cost over book value

$ 30,000
35,000
$ 65,000

Machinery $30,000/4 years

Patents $35,000/10 years

Amortization
2005
2006
$7,500
$7,500
3,500
3,500

Unamortized at
December 31, 2006
$15,000
28,000

Consolidated net income:

Puff's separate income ($116,000 - $6,000 dividends from Scot)
Add: Income from Scot ($60,000 x 60%) - $11,000 amortization
Consolidated net income

$110,000
25,000
$135,000

Investment in Scot (equity basis):

Investment cost January 1, 2005
Share of retained earnings increase for 2005
($50,000 - $25,000) x 60%
Less: Amortization for 2005

$200,000
15,000
(11,000)

Investment in Scot December 31, 2005*

204,000

Share of Scot's income for 2006 ($60,000 x 60%)

Less: Amortization for 2006
Less: Dividends for 2006 ($20,000 x 60%)

36,000
(11,000)
(12,000)

Investment in Scot December 31, 2006 (under the equity method)

$217,000

*On December 31, 2005 the investment in Scot is $204,000 on an equity basis
and $200,000 on the cost basis. The $4,000 difference is the result of
applying the cost rather than the equity method in 2005. A working paper
entry for $4,000 is needed to increase the investment in Scot and the
beginning retained earnings of Puff to an equity basis. This working paper
entry adjusts Puff's beginning retained earnings of $112,000 to $116,000, the
correct amount of beginning consolidated retained earnings.

97

Chapter 4

W-9

(continued)

Working paper entries in general journal form:

a

Dividends receivable
Dividends from Scot

6,000
$

6,000

Error correction -- dividends declared but not recorded by Puff.

b

Dividends from Scot

Dividends

$ 12,000
$ 12,000

Error correction from using the cost method.

c

Investment in Scot
Retained earnings-Puff

4,000
$

4,000

To record equity in retained earnings increase of $15,000 from

2005 less $7,500 depreciation and less $3,500 patent amortization.
d

Retained earnings-Scot
Capital stock-Scot
Plant and equipment-net
Patents
Investment in Scot
Minority interest

$ 50,000
200,000
22,500
31,500
$204,000
100,000

To eliminate reciprocal equity and investment balances and enter

patents, excess allocated to plant and equipment, and beginning
minority interest.
e

Operating expenses
Plant and equipment-net

7,500
$

7,500

To record depreciation on excess allocated to plant and equipment.

f

Operating expenses
Patents

3,500
$

3,500

To record amortization on excess allocated to patents.

g

Dividends payable
Dividends receivable

6,000
$

6,000

5,000

To eliminate reciprocal balances.

h

Accounts payable
Accounts receivable

5,000

To eliminate reciprocal balances.

i

Minority Interest Expense

Dividends-Scot
Minority Interest

$ 24,000
$ 8,000
16,000

To enter minority interest share of subsidiary income and

dividends

98

Consolidation Techniques and Procedures

99

Chapter 4

W-9

(continued)
Puff Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2006

|
|
| Adjustments and |Consolidated
| Puff
|Scot 80% |
Eliminations
| Statements
Income Statement
|
|
|
|
|
Net sales
|$900,000 |$300,000 |
|
| $1,200,000
Dividends from Scot
|
6,000 |
|b 12,000|a
6,000|
Cost of goods sold
| 600,000*| 150,000*|
|
|
750,000*
Operating expenses
| 190,000*| 90,000*|e
7,500|
|
|
|
|f
3,500|
|
291,000*
Minority expense
|
|
|i 24,000|
|
24,000*
Net income
|$116,000 |$ 60,000 |
|
| $ 135,000
|
|
|
|
|
Retained Earnings
|
|
|
|
|
Retained earnings -Puff|$112,000 |
|
|c
4,000| $ 116,000
Retained earnings -Scot|
|$ 50,000 |d 50,000|
|
Net income
| 116,000 | 60,000 |
|
|
135,000
Dividends
| 100,000*| 20,000*|
|b 12,000|
|i
8,000|
100,000*
Retained earnings
|
|
|
|
|
December 31, 20X6
|$128,000 |$ 90,000 |
|
|$ 151,000
|
|
|
|
|
Balance Sheet
|
|
|
|
|
Cash
| 26,000 | 15,000 |
|
|$
41,000
Accounts receivable
| 26,000 | 20,000 |
|h
5,000|
41,000
Inventories
| 82,000 | 60,000 |
|
|
142,000
Other current assets | 80,000 |
5,000 |
|
|
85,000
Land
| 160,000 | 30,000 |
|
|
190,000
Plant and
|
|
|
|
|
equipment -net
| 340,000 | 230,000 |d 22,500|e
7,500|
585,000
Investment in Scot
| 200,000 |
|c
4,000|d 204,000|
Dividends receivable |
|
|a
6,000|g
6,000|
Patents
|
|
|d 31,500|f
3,500|
28,000
|$914,000 |$360,000 |
|
|$1,112,000
|
|
|
|
|
Accounts payable
|$ 24,000 |$ 15,000 |h
5,000|
|$
34,000
Dividends payable
|
| 10,000 |g
6,000|
|
4,000
Other liabilities
| 62,000 | 45,000 |
|
|
107,000
Capital stock
| 700,000 | 200,000 |d 200,000|
|
700,000
Retained earnings
| 128,000 | 90,000 |
|
|
151,000
|$914,000 |$360,000 |
|
|
Minority interest January 1, 2006
|
|d 100,000|
Minority interest December 31,2006
|
|i 16,000|
116,000
|
|
|$1,112,000
|
|
|
|
*Deduct

100

Consolidation Techniques and Procedures

W-10
Preliminary computations
Cost-book value differential:
Investment cost July 1, 2003
Book value acquired ($71,000 x 95%)
Excess cost over book value acquired

$102,450
67,450
$ 35,000

Allocation and amortization schedule:

Plant and equipment (5-year life)
Patents (amortized over 10 years)

Allocation
$15,000
20,000
$35,000

Minority interest expense

Amortization
2003 - 2005
$ 9,000
6,000
$15,000

Unamortized
June 30, 2006
$ 6,000
14,000
$20,000

($62,000 x 5%)

3,100

Pappa Bee's income from Sue Bee:

Share of reported income ($62,000 x 95%)
Less: Amortization for year
Income from Sue Bee

$ 58,900
5,000
$ 53,900

Consolidated net income:

Pappa Bee's separate income ($115,000 - $57,000 dividend income)
Add: Income from Sue Bee
Consolidated net income

$ 58,000
53,900
$111,900

Cost-to-Equity Conversion Schedule

Retained
Earnings
in Sue
from Sue
Prior years' effect
95% of Sue Bee's change in
retained earnings
($81,000 - $21,000 x 95%)
$57,000
Amortization of excess:
Plant and equipment
Patents

(9,000)
(6,000)

Current year's effect

Reclassify dividend income
as a decrease in the
investment account

Investment
Income

Income

$57,000
(9,000)
(6,000)

(57,000)

Equity in Sue Bee's reported

income

58,900

Less:

(5,000)

Amortization
$42,000

Dividend

$38,900

$(57,000)
$58,900
(5,000)
$53,900

$(57,000)

101

Chapter 4

W-10 (continued)
a

Dividend income
Investment in Sue Bee
Retained earnings-Pappa Bee
Income from Sue Bee

$ 57,000
38,900
$ 42,000
53,900

To convert Pappa Bee's investment from cost to equity as explained

in the conversion to equity schedule.
b

Income from Sue Bee

Investment in Sue Bee
Dividends

$ 53,900
3,100
$ 57,000

To eliminate income and dividends and return the investment

account to its beginning-of-the-period balance.
c

Retained earnings-Sue Bee

Unamortized excess
Capital stock-Sue Bee
Investment in Sue Bee
Minority interest

$ 81,000
20,000
50,000
$144,450
6,550

To eliminate reciprocal equity and investment balances, and enter

the unamortized excess and beginning minority interest.
d

Plant and equipment

Patents
Accumulated depreciation
Unamortized excess

$ 15,000
14,000
$

9,000
20,000

To allocate the unamortized excess as of June 30, 2006.

e

Other expenses
Accumulated depreciation
Patents

5,000
$

3,000
2,000

To enter current amortization of excess.

f

Note payable-8%
Note receivable

$100,000
$100,000

To eliminate reciprocal note receivable and payable amounts.

g

Interest payable
Interest receivable

4,000
$

4,000

To eliminate reciprocal interest receivable and payable amounts.

h

Interest income
Interest expense

8,000
$

8,000

To eliminate reciprocal interest income and expense amounts.

i

Dividends payable
Dividends receivable

$ 14,250
$ 14,250

To eliminate reciprocal dividends receivable and payable amounts.

j

Minority Interest Expense

$ 3,100

102

Consolidation Techniques and Procedures

Dividends-Scot
Minority Interest

$ 3,000
100

To enter minority interest share of subsidiary income and

dividends

103

Chapter 4

W-10

(continued)
Pappa Bee Industries and Subsidiary
Consolidation Working Papers
for the year ended June 30, 2007

|
|
| Adjustments and |Consolidated
|Pappa Bee| Sue Bee |
Eliminations
| Statements
|
|
|
|
|
Income Statement
|
|
|
|
|
Sales
|$500,000 |$250,000 |
|
| $750,000
Dividend income
| 57,000 |
|a 57,000|
|
Income from Sue Bee
|
|
|b 53,900|a 53,900|
Interest income
|
8,000 |
|h
8,000|
|
Cost of sales
| 300,000*| 120,000*|
|
|
420,000*
Interest expense
|
|
8,000*|
|h 8,000 |
Other expenses
| 150,000*| 60,000*|e 5,000 |
|
215,000*
Minority expense
|
|
|j 3,100 |
|
3,100*
Net income
|$115,000 |$ 62,000 |
|
| $111,900
|
|
|
|
|
Retained Earnings
|
|
|
|
|
Retained earnings
|
|
|
|
|
-Pappa Bee
|$148,000 |
|
|a 42,000
$190,000
-Sue Bee
|
|$ 81,000 |c 81,000 |
|
Net income
| 115,000 | 62,000 |
|
|
111,900
Dividends
| 50,000*| 60,000*|
|b 57,000|
|j 3,000 |
50,000*
Retained earnings
|
|
|
|
|
June 30, 20X5
|$213,000 |$ 83,000 |
|
| $251,900
|
|
|
|
|
Balance Sheet
|
|
|
|
|
Cash
|$ 69,300 |$ 22,000 |
|
| $ 91,300
Accounts receivable
| 60,000 | 30,000 |
|
|
90,000
Interest receivable
|
4,000 |
|
|g
4,000|
Dividends receivable | 14,250 |
|
|i 14,250|
Other assets
| 100,000 | 75,000 |
|
|
175,000
Plant and equipment
| 300,000 | 200,000 |d 15,000|
|
515,000
Accumulated
|
|
|
|d
9,000|
depreciation
| 72,000*| 50,000*|
|e
3,000|
134,000*
Investment in Sue Bee | 102,450 |
|a 38,900|c 144,450|
|
|
|b
3,100|
|
Note receivable
| 100,000 |
|
|f 100,000|
Patents
|
|
|d 14,000|e
2,000|
12,000
Unamortized excess
|
|
|c 20,000|d 20,000|
|$678,000 |$277,000 |
|
| $749,300
|
|
|
|
|
Accounts payable
|$ 40,000 |$ 25,000 |
|
| $ 65,000
Dividends payable
| 25,000 | 15,000 |i 14,250|
|
25,750
Interest payable
|
|
4,000 |g
4,000|
|
Note payable -8%
|
| 100,000 |f 100,000|
|
Capital stock
| 400,000 | 50,000 |c 50,000|
|
400,000
Retained earnings
| 213,000 | 83,000 |
|
|
251,900
|$678,000 |$277,000 |
|
|
Minority interest June 30, 2006
|
|c
6,550|
Minority interest June 30, 2007
|
|j
100|
6,650
|
|
| $749,300
|
|
|
*Deduct