CH 5 HW Solutions-1

CHAPTER 5
SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS

MULTIPLE CHOICE QUESTIONS
1.
b
Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value
Plant and equipment revaluation
Identifiable intangibles
Fair value of identifiable net assets
Goodwill
$13,000,000
(25,000,000)
40,000,000
28,000,000
$ 70,000,000
Allocation of goodwill between controlling and noncontrolling interest:

Total goodwill
$ 70,000,000
Pomegranates goodwill: $91,700,000 90%(28,000,000)
66,500,000
Goodwill to noncontrolling interest
$ 3,500,000
Goodwill is allocated 95% to the controlling interest and 5% to the noncontrolling
interest.
(R)
Goodwill
40,000,000
70,000,000
Plant and equipment

Investment in Starfruit (1)
Noncontrolling interest in
Starfruit (2)
(1) 90% x (40,000,000 - 25,000,000) + 66,500,000
(2) 10% x (40,000,000 - 25,000,000) + 3,500,000
Solutions Manual, Chapter 5
25,000,000
80,000,000
5,000,000
Cambridge Business Publishers, 2013

1
2.
c
(R)
Goodwill
24,000,000
68,000,000
Plant and equipment

Starfruit (2)
(1) 90% x (24,000,000 - 20,000,000) + 95% x (70,000,000 2,000,000)
(2) 10% x (24,000,000 - 20,000,000) + 5% x (70,000,000 2,000,000)
3.
3,800,000
b
Starfruit net income
Revaluation write-offs:
Plant and equipment depreciation
Identifiable intangibles amortization
Goodwill impairment loss
4.
20,000,000
68,200,000
Equity in net income

$ 6,750,000
NCI in net income

$750,000
2,250,000
(7,200,000)
(475,000)
$ 1,325,000
250,000
(800,000)
(25,000)
$ 175,000
c
10% x $28,000,000.
5.
c
Same calculation as in question 3, except the noncontrolling interest does not share in the
goodwill impairment loss.

2
Edition
Advanced Accounting, 2nd
6.
d
(E)
Stockholders equity
13,000,000
Investment in Starfruit
Starfruit
(R)
(1)
(2)
11,700,000
1,300,000
40,000,000
Plant and equipment

25,000,000
14,300,000
Starfruit (2)
700,000
Investment in Starfruit balance on Pomegranates books is $26,000,000 (=
20,000,000 cost + 6,000,000 gain on acquisition). Elimination of the investment
in (R) is the remainder of the investment balance, after elimination E.
The credit to noncontrolling interest in (R) brings the noncontrolling interest to
fair value, after elimination (E).
7.
a
There is no goodwill when the acquisition is a bargain purchase.
8.
9.
10.

3
EXERCISES
E5.1
Combination and Consolidation, Date of Acquisition (see related E3.1)
a.
Acquisition cost
Total fair value
Book value of Sylvan
Goodwill
$ 43,200,000
4,250,000
47,450,000
17,000,000
$ 30,450,000

Total goodwill
$ 30,450,000
Princecrafts goodwill: $43,200,000 90%(17,000,000)
27,900,000
$ 2,550,000
b.
Consolidation Working Paper (in thousands)
Accounts Taken From
Books
Princecraft
Sylvan
Total other assets

Investment in Sylvan
$ 150,000
43,200
$ 25,000
Goodwill
Total assets
______
$ 193,200
______
$ 25,000
Total liabilities
Common stock
Additional paid-in capital
Retained earnings
Noncontrolling interest
Total liabilities and equity
30,000
15,360
87,840
60,000
______
$ 193,200
Eliminations
Dr
Cr
15,300 (E)
27,900 (R)
8,000
5,000
10,000
2,000
______
$ 25,000
(R) 30,450
Consolidate
d
Balances
$ 175,000
-_30,450
$ 205,450
$
(E) 5,000
(E) 10,000
(E) 2,000
1,700 (E)
______
2,550 (R)
$ 47,450 $47,450
38,000
15,360
87,840
60,000
__4,250
$ 205,450
Note: Princecrafts balance sheet above reflects the following acquisition entry (in thousands):
Investment in Sylvan
43,200
Common stock

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Edition
360
42,840
c.
Consolidated Balance Sheet, January 1, 2013 (in thousands)
Assets
Total assets
Goodwill
Total assets
Liabilities and stockholders equity
Total liabilities
Stockholders equity
Princecrafts stockholders equity:
Common stock
Retained earnings
Total Princecrafts stockholders equity
Total stockholders equity
Total liabilities and stockholders equity
E5.2
a.
$ 175,000
30,450
$ 205,450
$
38,000
15,360
87,840
60,000
163,200
4,250
167,450
$ 205,450
Date of Acquisition Consolidation with In-Process R&D

Acquisition cost
Total fair value
Book value of Saylor
Fair value book value:
Land
IPR&D
Goodwill
$ 10,000,000
2,000,000
12,000,000
$ 6,000,000
500,000
1,000,000
$

Total goodwill
Pennants goodwill: $10,000,000 80%(7,500,000)
$
$
7,500,000
4,500,000
4,500,000
4,000,000
500,000

5
b.
Consolidated Financial Statement Working Paper

(E)
Stockholders
equity Saylor
6,000,000
Investment in Saylor (80%)
Noncontrolling interest in Saylor (20%)
(R)
Land
IPR&D
Goodwill
4,800,000
1,200,000
500,000
1,000,000
4,500,000
Investment in Saylor (1)

Noncontrolling interest in Saylor (2)
(1) 80% x (500,000 + 1,000,000) + 4,000,000
(2) 20% x (500,000 + 1,000,000) + 500,000
E5.3
5,200,000
800,000
Date of Acquisition Consolidation, Bargain Purchase
a.
Acquisition cost
Total
Book value of Sparrow
Land
Other plant assets
Investments
Long-term debt
Gain on acquisition
$ 22,000,000
4,000,000
26,000,000
$ 25,000,000
(800,000)
2,000,000
1,500,000
(700,000)
27,000,000
$ (1,000,000)
Peregrines acquisition entry:

Investment in Sparrow
Merger expenses
23,000,000
3,000,000
Cash
Gain on acquisition

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Edition
25,000,000
1,000,000
b.
Consolidated Financial Statement Working Paper

(E)
Stockholders equity
Sparrow
25,000,000
Investment in Sparrow (80%)
Sparrow (20%)
(R)
Other plant assets, net
Investments
Sparrow (1)
20,000,000
5,000,000
2,000,000
1,500,000
1,000,000
Land
Long-term debt
Investment in Sparrow (2)
800,000
700,000
3,000,000
(1) $5,000,000 4,000,000

(2) $23,000,000 20,000,000
E5.4
a.
Consolidated Balance Sheet, Date of Acquisition: U.S. GAAP and IFRS

Acquisition cost [($3,000,000 + (200,000 x $80))
Total fair value
Book value of Powerline
Current assets
Plant and equipment
Brand names
Goodwill
$ 19,000,000
1,800,000
20,800,000
$ 4,500,000
500,000
6,000,000
2,000,000
$
13,000,000
7,800,000

Total goodwill
$ 7,800,000
Microsofts goodwill: $19,000,000 90%(13,000,000)
7,300,000
$
500,000

7
b.
Accounts Taken From
Books
Microsoft
Current assets
Plant and equipment, net
Investment in Powerline
Brand names
Goodwill
Total assets
Current liabilities
Long-term liabilities
Common stock, par value
Retained earnings
7,000
35,000
19,000
Powerline
$
Consolidate
d
Balances
$ 9,500
48,000
Cr
4,050 (E)
14,950 (R)
______
$ 9,000
______
$ 61,000
Dr
2,000 (R) 500

7,000 (R) 6,000
______
$ 61,000
5,000
20,000
5,000
20,000
11,000
Eliminations
1,500
3,000
100
1,400
3,000
______
$ 9,000
-2,000
__7,800
$ 67,300
(R) 2,000
(R) 7,800
6,500
23,000
5,000
20,000
11,000
(E) 100
(E) 1,400
(E) 3,000
450 (E)
______
1,350 (R)
$ 20,800 $ 20,800
__1,800
$ 67,300
Note 1: Microsofts balance sheet above reflects the following acquisition entry (in thousands):
19,000
Cash
Common stock
Note 2:
3,000
2,000
14,000
The $14,950,000 credit to investment in entry (R) = 90% (500,000 + 6,000,000 +

2,000,000) + 7,300,000 (goodwill).
The $1,350,000 credit to noncontrolling interest in entry (R) = 10% (500,000 +
6,000,000 + 2,000,000) + 500,000 (goodwill).
c.
Acquisition cost
90% x fair value of identifiable net assets
Goodwill

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Edition
90% x $13,000,000
$ 19,000,000
11,700,000
$ 7,300,000

Accounts Taken From
Books
Microsoft
Current assets
Brand names
Goodwill
Total assets
Current liabilities
Retained earnings
7,000
35,000
19,000
Powerline
$
Dr
Cr
2,000 (R) 500

7,000 (R) 6,000
4,050 (E)
14,950 (R)
______
$ 61,000
______
$ 9,000
5,000
20,000
5,000
20,000
11,000
_____
61,000
_____
$ 9,000
Eliminations
1,500
3,000
100
1,400
3,000
(R) 2,000
(R) 7,300
Consolidate
d
Balances
$ 9,500
48,000
-2,000
__7,300
$ 66,800
$
(E) 100
(E) 1,400
(E) 3,000
450 (E)
______
__850 (R)
$ 20,300 $ 20,300
6,500
23,000
5,000
20,000
11,000
__1,300
$ 66,800
Note: The IFRS alternative valuation method attributes no goodwill to the noncontrolling
interest.

9
E5.5
Consolidation Eliminating Entries, Date of Acquisition: U.S. GAAP and IFRS
(amounts in thousands)
a.
Plummers acquisition entry:

Investment in Softek
Merger expenses
25,000
500
Cash
500
4,000
21,000
Consolidation eliminating entries:

(E)
Common stock
Retained earnings
Accumulated OCI
Treasury stock
Noncontrolling interest in Softek
200
8,000
5,000
800
400
10,800
1,200
(R)
Trademarks
Customer lists
Goodwill (1)
1,500
1,000
16,100
Plant assets, net

3,000
Long-term debt
100
Investment in Softek (2)
14,200
(3)
1,300
(1) ($25,000 + $2,500) ($12,000 $3,000 + $1,500 + $1,000 $100) = $27,500
$11,400
(2) 90% x ($1,500 + $1,000 $3,000 $100) + ($25,000 90% x $11,400)
(3) 10% x ($1,500 + $1,000 $3,000 $100) + [$16,100 ($25,000 90% x $11,400)]

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Edition
b.
Consolidation eliminating entries:

(E)
Common stock
Retained earnings
200
8,000
5,000
Accumulated OCI
Treasury stock
(R)
Trademarks
Customer lists
Goodwill (4)
Softek (5)
800
400
10,800
1,200
1,500
1,000
14,740
60
Plant assets, net

Long-term debt
3,000
100
14,200
(4) $25,000 (90% x $11,400)

(5) 10% x ($1,500 + $1,000 $3,000 $100)
Note: The IFRS alternative valuation method attributes no goodwill to the noncontrolling
interest.
E5.6
Consolidation at End of First Year (see related E4.3)
a.
Calculation of goodwill is as follows:

Acquisition cost ($10,000,000 + $300,000)
Total
Book value of Saddlestone
Goodwill
$ 10,300,000
6,500,000
16,800,000
$ 7,200,000
2,000,000

Total goodwill
Peaks goodwill: $10,300,000 60%($9,200,000)
9,200,000
$ 7,600,000
$ 7,600,000
4,780,000
$ 2,820,000

11
b.
2013 equity in net income and noncontrolling interest in net income:

Saddlestones reported net income
Revaluation writeoff:
Identifiable intangibles $2,000,000/5
c.
Total
$ 3,000,000
Equity in NI
$ 1,800,000
Noncontrolling
interest in NI
$ 1,200,000
(400,000)
$ 2,600,000
(240,000)
$ 1,560,000
(160,000)
$ 1,040,000
Consolidation working paper eliminating entries for 2013:

(C)
Equity in net income of S
Dividends Saddlestone
Investment in Saddlestone
(E)
Stockholders equity
Saddlestone, 1/1
1,560,000
600,000
960,000
7,200,000
Saddlestone
(R)
Goodwill
4,320,000
2,880,000
2,000,000
7,600,000
(1)
Saddlestone (2)
(1) 60% x $2,000,000 + $4,780,000
(2) 40% x $2,000,000 + $2,820,000
(O)
Amortization expense
5,980,000
3,620,000
400,000
(N)
income of Saddlestone
1,040,000
Dividends Saddlestone
Saddlestone

12
Edition
400,000
400,000
640,000
E5.7
Consolidation Two Years after Acquisition
(all numbers in thousands)

a.
Calculation of 2014 equity in net income and noncontrolling interest in net income:
Noncontrolling
Total
Equity in NI interest in NI
Silver Nuggets reported NI for 2014
($100,000 $80,000 $14,000 =
$6,000)
$ 6,000
$
4,800
$ 1,200
Revaluation write-off:
Identifiable intangibles ($20,000/5)
(4,000)
(3,200)
(800)
$ 2,000
$
1,600
$
400
b.
Consolidation Working Paper, December 31, 2014
Trial Balances Taken
From Books
Dr (Cr)
Current assets
Intangibles
Investment in Silver Nugget
Goodwill
Current liabilities
Long-term debt
Common stock
Retained earnings, Jan. 1
Treasury stock
Dividends
Sales revenue
Equity in income of Silver
Nugget
Cost of goods sold
Operating expenses
Noncontrolling interest in NI
Mirror
Resorts
Silver
Nugget
$ 35,000
215,700
350,000
86,400
5,000
140,000
51,000
--
Eliminations
Consolidated
Dr
Cr
$
(R) 16,000
4,000 (O)
400 (C)
17,200 (E)
68,800 (R)
(R) 68,000
(50,000)
(600,000)
(500)
(6,000)
(25,000)
4,000
(20,000)
(150,000)
(100)
(5,500)
(17,500)
1,600
2,000
1,500
(800,000)
(100,000)
(1,600)
650,000
140,000
-$
-0-
-80,000
14,000
-$
-0-
Balances
(E) 100
(E) 5,500
(E) 17,500
1,600 (E)
4,300 (E)
15,200 (R)
100 (N)
1,200 (C)
300 (N)
40,000
355,700
413,000
-68,000
(70,000)
(750,000)
(500)
(6,000)
(25,000)
4,000
(19,600)
2,000
(900,000)
(C) 1,600
(O) 4,000
(N) 400
$ 113,100
_______
113,100
-730,000
158,000
400
$
-0-

13
E5.8
Consolidation after Several Years
a.
Paramounts acquisition cost
Total
Fair value of identifiable net assets:
1,500,000 100,000 200,000 400,000 + 200,000
Goodwill
$ 2,910,000
790,000
3,700,000
1,000,000
$ 2,700,000
Paramounts share of goodwill = $2,910,000 75%($1,000,000) = $2,160,000 (80%)

Noncontrolling interests share of goodwill = $540,000 (20%)
b.
January 2009 balance
Change in Suns retained earnings, 2009-2014:
(1,800,000 800,000), divided 75:25
Write-off of Suns identifiable net asset
revaluations, 2009-2014: (100,000 + 200,000 +
240,000 200,000), divided 75:25
Goodwill impairment, 2009-2014:
(2,700,000 2,000,000), divided 80:20
Balance, end of 2014
c.
(E)
Stockholders
equity-Sun
Investment
$ 2,910,000
Noncontrolling
interest
$
790,000
750,000
250,000
255,000
85,000
(560,000)
$ 3,355,000
(140,000)
985,000
2,500,000
Investment in Sun
Noncontrolling interest in Sun
(R)
Goodwill
Equipment, net (1)
Investment in Sun (2)
Noncontrolling interest in Sun (3)
(1) $400,000 (6/10) x $400,000
(2) (80% x 2,000,000) (75% x 160,000)
(3) (20% x 2,000,000) (25% x 160,000)

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Edition
1,875,000
625,000
2,000,000
160,000
1,480,000
360,000
E5.9
Consolidated Cash Flow from Operations

Consolidated net income ($15,000,000 + $5,000,000)
+ Consolidated depreciation expense
+ Amortization of previously unrecognized identifiable intangibles
- Amortization of premium created when revaluing LT debt
- 40% of undistributed equity method income (.4 x $1,700,000)
+ Decrease in noncash current operating assets
- Decrease in current operating liabilities
Cash flow from operating activities
$20,000,000
3,000,000
1,400,000
(80,000)
(680,000)
2,800,000
(2,100,000)
$24,340,000
Note: The $8,000,000 net income reported by the 75%-owned subsidiary is already
included in consolidated income, and is therefore not separately reported.
E5.10 Consolidated Cash Flow from Operations
Consolidated net income (1)
+ Consolidated depreciation expense (2)
+ Consolidated amortization expense (3)
+ Goodwill impairment loss
- Undistributed equity investment income (4)
Cash flow from operating activities
(1)
Calculation of equity in net income:
Ps share of reported income 80% x $240,000
Ps share of revaluation write-offs:
Depreciation
Amortization
Equity in net income
Calculation of consolidated net income:
Parents reported income
Subsidiarys reported income
Less equity in net income of subsidiary
Less revaluation writeoffs:
Depreciation
Amortization
Consolidated net income
(2)
(3)
(4)
$ 1,036,400
216,000
65,000
40,000
(25,000)
$ 1,332,400
$
192,000
(2,400)
(12,000)
(32,000)
145,600
$ 1,000,000
240,000
(145,600)
(3,000)
(15,000)
(40,000)
$ 1,036,400
$175,000 + $38,000 + $3,000

$50,000 + $15,000
$60,000 - $35,000

15
E5.11 Consolidation at Date of Acquisition, IFRS

(in millions)
a.
Acquisition cost
Less 49% fair value of identifiable net assets
Goodwill
67
(11)
78
49% x (22.5)
Noncontrolling interests = 51% x (22.5) = (11.5)

b.
(E)
Investment in ASTAR
10
10.5
Stockholders equity-ASTAR
20.5
(R)
Noncurrent financial assets
Goodwill
Noncontrolling interests
2
78
1
Intangible assets
Investment in ASTAR
E5.12
4
77
Consolidation Worksheet, Date of Acquisition and One Year Later,

IFRS
(in millions)
a.
Acquisition cost
Book value
Revaluations:
Customer lists
Trade name
Assumed liabilities
Deferred tax assets, net
Total fair value of identifiable net assets
Vivendis share
Goodwill
787
(118)
150
25
(484)
123
(304)
x 85%
(258)
1,045
Noncontrolling interests = 15% x (304) = (46)

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Edition
b.
(E)
Investment in TPS
100
18
Stockholders equity-TPS
(R)
Goodwill
Customer lists
Trade name
118
1,045
150
25
123
28
Assumed liabilities
Investment in TPS
c.
484
887
Calculation of equity in net loss of TPS and noncontrolling interest in TPS income is as
follows:
Noncontrolling
Equity in NL
interest in NI
TPS reported income for 2007
68.00
12.00
Customer lists (150/5)
(25.50)
(4.50)
Goodwill impairment
(100.00)
-Trade name impairment
(4.25)
(0.75)
(61.75)
6.75
(C)
Investment in TPS
61.75
Equity in net loss of TPS
(E)
Investment in TPS
61.75
100
18
Stockholders equity-TPS
(R)
Goodwill
Customer lists
Trade name
1,045
150
25
123
28
Assumed liabilities
Investment in TPS
118
484
887

17
(O)
Impairment losses
30
105
Customer lists
Goodwill
Trade name
30
100
5
(N)
6.75
6.75
E5.13 Consolidation at Acquisition Date, IFRS

(in millions)
a.
Acquisition cost
Total fair value of Sotelma
Book value
Revaluations:
License
Customer bases
Deferred tax
Total fair value of identifiable net assets
Goodwill
278
208
486
35
24
2
(3)
58
428
Goodwill to controlling interests = 278 (51% x 58) = 248

Goodwill to noncontrolling interests = 428 - 248 = 180
b.
Maroc Telecom paid a premium to purchase a controlling interest in Sotelma. Marocs

acquisition cost of 278 implies a full price of 278/.51 = 545, and a noncontrolling
interest value of 545 x 49% = 267. However, the fair value of the noncontrolling
interest is only 208.

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Edition
c.
(E)
Stockholders equity-Sotelma
35
Investment in Sotelma
(R)
License
Customer bases
Goodwill
24
2
428
Deferred tax
Investment in Sotelma
260 = (51% x 23) + 248; 191 = (49% x 23) + 180.
d.
18
17
3
260
191
Noncontrolling interest = 49% x 58 = 28

19
PROBLEMS
P5.1 Consolidation Working Paper, Date of Acquisition
(all numbers in millions)
a.
Acquisition cost
Total fair value
Book value of Bagota
Property, plant and equipment
Patents and trademarks
Customer-related intangibles
Goodwill
$ 1,200
_375
1,575
$ 500
(200)
45
30
__25

Total goodwill
Hersheys goodwill: $1,200 75%(400)
_400
$ 1,175
$ 1,175
900
$ 275
b.
Consolidation Working Paper (in millions)
Accounts Taken From Books
Current assets
PP&E, net
Investment in Bagota
Patents and trademarks
Customer-related intangs
Goodwill
Total assets
Current liabilities
Retained earnings
Treasury stock
Accumulated OCI
Hershey
$ 1,500
1,600
1,200
Bagota
$ 325
600
--
1,300
-_____
$ 5,600
$ 1,600
1,900
300
1,950
3,900
(4,000)
(50)
_____
$ 1,000
$ 100
400
10
200
300
-(10)
_____
$ 5,600
_____
$ 1,000

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Edition
75
Eliminations
Dr
Cr
200 (R)
375 (E)
825 (R)
(R)
45
(R)
30
(R) 1,175
(R)
(E)
(E)
(E)
25
10
200
300
_____
$ 1,785
10 (E)
125 (E)
250 (R)
$ 1,785
Consolidated
Balances
$ 1,825
2,000
-1,420
30
1,175
$ 6,450
$ 1,700
2,275
300
1,950
3,900
(4,000)
(50)
375
$ 6,450
c.
Consolidated Balance Sheet, July 1, 2013
Assets
Current assets
Property, plant and equipment, net
Goodwill
Other intangibles
Total assets
Current liabilities
Total liabilities
Stockholders equity
Hersheys stockholders equity:
Common stock
Retained earnings
Treasury stock
Accumulated other comprehensive loss
Total Hershey stockholders equity
$
$
1,825
2,000
1,175
1,450
6,450
1,700
2,275
3,975
300
1,950
3,900
(4,000)
(50)
2,100
375
2,475
$ 6,450
P5.2
Consolidated Balance Sheet Working Paper, Date of Acquisition, Bargain Purchase

(see related P3.4)
a.
(amounts in millions)
Acquisition cost
Total
Book value of Saxon
Inventory
Long-term marketable securities
Land
Buildings and equipment, net
Long-term debt
Gain on acquisition
Paxons acquisition entry:
Investment in Saxon
$ 1,295
100
(50)
245
300
110
2,000
$ (800)
1,800
Cash
Gain on acquisition
$ 1,000
200
$ 1,200
1,000
800
21
b.
Consolidation Working Paper (in millions)
Accounts Taken From Books
Cash and receivables

Inventory
Marketable securities
Investment in Saxon
Paxon
$ 1,860
1,700
-1,800
Land
Buildings and equipment
Accumulated depreciation
Total assets
Current liabilities
Long-term debt
Retained earnings
650
3,400
(1,000)
$ 8,410
$ 1,500
2,000
500
1,200
3,210
-$ 8,410
Eliminations
Saxon
$ 720
900
300
175
600
-$ 2,695
$ 1,000
400
100
350
845
-$ 2,695
Dr
Cr
(R) 100
50 (R)
1,036 (E)
764 (R)
(R) 245
(R) 300
(R) 110
(E) 100
(E) 350
(E) 845
(R) 59
259 (E)
$ 2,109 $ 2,109
Consolidated
Balances
$ 2,580
2,700
250
-1,070
4,300
(1,000)
$ 9,900
$ 2,500
2,290
500
1,200
3,210
200
$ 9,900
Note: In journal entry form, the eliminating entries are:

(E)
Retained earnings
100
350
845
Investment in Saxon
(R)
Inventory
Land
Long-term debt
1,036
259
100
245
300
110
59
Investment in Saxon
50
764
The adjustment to noncontrolling interest brings its balance to fair value at the acquisition
date. The adjustment to the investment eliminates the remaining balance.

22
Edition
c.
Consolidated Balance Sheet, December 31, 2012 (amounts in millions)
Assets
Inventory
Current assets
Long-term marketable securities
Land
Buildings and equipment, net of $1,000 accumulated depreciation
Total assets
Current liabilities
Long-term debt
Total liabilities
Stockholders equity
Paxon stockholders equity:
Common stock
Retained earnings
Total Paxon stockholders equity
P5.3
2,580
2,700
5,280
250
1,070
3,300
$ 9,900
$
500
1,200
3,210
4,910
200
5,110
$ 9,900
Consolidation Eliminating Entries, Date of Acquisition
(all amounts in thousands)

a.
Investment in Summer
Merger expenses
8,800
300
Cash
Earnings contingency liability
b.
2,500
2,290
4,790
8,300
800
Consolidation working paper eliminating entries:

(E)
Common stock
Retained earnings
500
3,000
Investment in Summer
2,625
875

23
(R)
In-process research and
development
Goodwill (1)
Noncurrent liabilities
1,500
9,300
100
Inventories
Plant assets, net
Intangibles
Lawsuit liability
Investment in Summer (2)
Noncontrolling interest (3)
(1) Calculation of goodwill:

Acquisition cost
Total fair value
Book value of Summer
Inventories
Plant assets, net
Intangibles
Noncurrent liabilities
IPR&D
Lawsuit liability
Goodwill
200
500
1,000
1,000
400
6,175
1,625
$ 8,800
2,500
11,300
$ 3,500
(200)
(500)
(1,000)
(1,000)
100
1,500
(400)

Total goodwill
Placers goodwill: $8,800 75%(2,000)
(2)
(3)
2,000
$ 9,300
$ 9,300
7,300
$ 2,000
75% x ($100 + 1,500 200 500 1,000 1,000 400) + 7,300.

25% x ($100 + 1,500 200 500 1,000 1,000 400) + 2,000.

24
Edition
P5.4
Consolidated Working Paper One Year after Acquisition, Bargain Purchase (see
related P4.4)
(all amounts in millions)

a.
Calculation of gain on acquisition:

Acquisition cost
$ 1,620
180
1,800
Book value ($100 + 350 + 845)

Excess of fair value over book value:
Inventory
Land
Long-term debt (discount)
Gain on acquisition
$ 1,295
100
(50)
245
300
110
2,000
$ (200)
b.
Total
Saxons reported net income for
2013 ($10,000 + 10 8,000 40
25 1,600 = $345)
Revaluation writeoffs:
Inventory
($300/20)
Long-term debt ($110/5)
$ 345
Equity in NI
Noncontrolling
interest in NI
$ 310.5
$ 34.5
(100)
50
(15)
(90)
45
(13.5)
(10)
5
(1.5)
(22)
$ 258
(19.8)
$ 232.2
(2.2)
$ 25.8

25
c.
Trial Balances Taken
From Books
Dr (Cr)
Eliminations
Consolidated
Paxon
Inventory
Investment in Saxon
Land
Current liabilities
Long-term debt
Common stock
Dividends
Sales revenue
Equity in income of Saxon
Gain on sale of securities
Cost of goods sold
Depreciation expense
Interest expense
Other operating expenses
3,270
2,260
-1,962.2
650
3,600
(2,020)
(5,000)
(500)
(1,200)
(2,610)
-500
(30,000)
(232.2)
-26,000
300
250
2,770
____-$
-0-

26
Edition
Saxon
$
800
940
--300
1,150
(1,200)
(450)
(100)
(350)
(845)
--
Dr
(R) 100
(O-2) 50
(R) 245
(R) 300
(R) 110
(E) 100
(E) 350
(E) 845
100 (O-1)
50 (R)
142.2 (C)
1,165.5 (E)
654.5 (R)
15 (O-3)
22 (O-4)
129.5 (E)
50.5 (R)
15.8 (N)
90 (C)
10 (N)
100
(10,000)
-(10)
8,000
40
25
1,600
____-$
-0-
Balances
Cr
(C) 232.2
50 (O-2)
(O-1) 100
(O-3) 15
(O-4) 22
(N) 25.8
$ 2,495
_______
$ 2,495
$ 4,070
3,200
--1,195
5,035
(3,220)
(5,362)
(500)
(1,200)
(2,610)
(195.8)
500
(40,000)
-(60)
34,100
355
297
4,370
__25.8
$ -0-
P5.5
Consolidated Working Paper Two Years after Acquisition, Bargain Purchase (see
related P5.4)
(all amounts in millions)

a.
Equity in
NI
Total
Saxons reported net income for 2014
($12,000 9,500 60 40 2,200 =
$200)
Buildings and equipment ($300/20)
Long-term debt ($110/5)
$ 200
180
Noncontrolling
interest in NI
$
20
(15)
(13.5)
(1.5)
(22)
(19.8)
(2.2)
$ 163
$ 146.7
$ 16.3
Note: Inventory (FIFO) and marketable securities revaluations were realized through sale in
2013.
b.
Trial Balances
Taken From Books
Dr (Cr)
Eliminations
Consolidated
Paxon
Inventory
Investment in Saxon
$ 3,000
2,500
2,063.9
Land
Current liabilities
Long-term debt
Common stock
650
5,905
(2,500)
(6,000)
(500)
(1,200)
(3,022.2)
--
Dividends
Sales revenue
Equity in income of Saxon
Cost of goods sold
Interest expense
500
(35,000)
(146.7)
30,000
450
300
3,000
___-$ -0-
Saxon
$
Dr
Cr
850
950
-250
1,440
(1,000)
(800)
(100)
(350)
(1,090)
--
$
101.7 (C)
1,386 (E)
576.2 (R)
(R) 245
(R) 285
(R) 88
(E) 100
(E) 350
(E) 1,090
15 (O-1)
22 (O-2)
154 (E)
41.8 (R)
11.3 (N)
45 (C)
5 (N)
50
(12,000)
-9,500
60
40
2,200
___-$ -0-
Balances
(C) 146.7
(O-1) 15
(O-2) 22
$
(N) 16.3
2,358
_______
$ 2,358
3,850
3,450
-1,145
7,615
(3,500)
(6,734)
(500)
(1,200)
(3,022.2)
(207.1)
500
(47,000)
-39,500
525
362
5,200
___16.3
$ -0-

27
P5.6
Consolidation Working Paper, Second Year Following Acquisition
(amounts in millions)
a.

Acquisition cost
Total
Book value of S
Goodwill
$ 600
225
825
$ 580
100
680
$ 145

Total goodwill
Harrahs goodwill: $600 70% x $680
b.
$ 145
124
$ 21
Calculation of 2008 equity in net loss and noncontrolling interest in net loss:
Total
Emerald Safari Resort reported income
($2,200 + 300 + 200 1,670 1,000 = $30)
Goodwill

28
Edition
30
( 8)
(145)
$ (123)
Equity in
NL
$
21
(5.6)
(124)
$ (108.6)
Noncontrolling
interest in NL
$
9
(2.4)
(21)
$ (14.4)
c.
Trial Balances
Taken From Books
Dr (Cr)
Current assets
Land, buildings, riverboats and
equipment, net
Intangible assets
Investment in Emerald
Harrahs
Emerald
Safari
Resort
1,400
17,696.2
2,500
515.2
Goodwill
Current liabilities
Common stock
Capital surplus
-(300)
(2,600)
(4)
(320)
(300)
--
100
Casino revenues
Food and beverage revenues
Rooms revenues
Equity in net loss of Emerald
Direct casino, food and beverage,
rooms expenses
General and administrative expenses
Noncontrolling interest in net loss
$
Dr
(2,200)
(300)
(200)
-1,670
1,400
1,000
Cr
--0-
Balances
$
(R) 95
(C) 112.1
(R) 145
(E)
4
(E) 320
(E) 300
(N) 15.9
(6,600)
(1,400)
(1,000)
108.6
7,200
--0-
Consolidated
200
2,549
800
--
-(1,500)
(14,000)
(20)
(5,500)
(900)
--
Dividends
Eliminations
8 (O)
436.8 (E)
190.5 (R)
145 (O)
3,387
--(1,800)
(16,600)
(20)
(5,500)
(900)
(220.8)
187.2 (E)
49.5 (R)
3.5 (C)
1.5 (N)
100
(8,800)
(1,700)
(1,200)
-8,870
108.6 (C)
(O) 8
(O) 145
_____
$ 1,145
14.4 (N)
$ 1,145
1,600
20,245.2
2,400
8
145
(14.4)
-0-

29
P5.7
Equity Method and Eliminating Entries Three Years after Acquisition (see related
P4.2)
a.
Calculation of equity in net income and noncontrolling interest in net income for 2014:
Sunset Coasts reported net income for

2014
Plant assets ($1,000,000)/10
Identifiable intangibles $3,600,000/20
(1)
(1)
b.
Total
Equity in
NI
$ 200,000
$ 180,000
100,000
(180,000)
90,000
(162,000)
Noncontrolling
interest in NI
$ 20,000
10,000
(18,000)
$ 120,000
$ 108,000
$ 12,000
$3,600,000 = $3,150,000 + 350,000 (1,400,000 500,000 1,000,000)
Calculation of investment balance at December 31, 2014:

Investment in Sunset Coast, December 31, 2011
90% x Sunset Coasts reported income, 2012-2014
90% x Sunset Coasts reported dividends, 2012-2014
(50% of reported income)
Revaluation writeoffs, 2012-2014:
Plant assets [($1,000,000)/10] x 3 x 90%
Identifiable intangibles ($3,600,000/20) x 3 x 90%
Investment in Sunset Coast, December 31, 2014
$3,150,000
765,000
(382,500)
270,000
(486,000)
$3,316,500
Note: Under LIFO and increasing inventory, the revalued inventory is assumed to still be
on hand.
c.
Calculation of noncontrolling interest balance at December 31, 2014:

Fair value of noncontrolling interest, December 31, 2011
10% x Sunset Coasts reported income, 2012-2014
10% x Sunset Coasts reported dividends, 2012-2014 (50% of
reported income)
Revaluation writeoffs, 2012-2014:
Plant assets [($1,000,000)/10] x 3 x 10%
Identifiable intangibles ($3,600,000/20) x 3 x 10%
Noncontrolling interest in Sunset Coast, December 31, 2014

30
Edition
$350,000
85,000
(42,500)
30,000
(54,000)
$368,500
d.
Consolidation working paper eliminating entries for 2014:

(C)
Equity in net income of Sunset Coast
108,000
DividendsSunset Coast
(.5 x $200,000 x 90%)
Investment in Sunset
Coast
90,000
18,000
(E)
Stockholders equitySunset Coast,
1/1
1,725,000
Coast
1,552,500
in Sunset Coast
172,500
Sunset Coasts stockholders equity, January 1, 2014 = $1,400,000 + (1 - .5)(850,000
200,000) = $1,725,000.
(R)
3,240,000
Inventory
500,000
Plant assets, net
800,000
Coast
1,746,000
in Sunset Coast
194,000
Revaluations at January 1, 2014 = original revaluations less writeoffs for 2012 and 2013.
(O)
Plant assets, net
100,000
180,000
(N)
Noncontrolling interest in NI of
Sunset Coast
12,000
Dividends Sunset Coast
(.5 x $200,000 x 10%)
Sunset Coast
100,000
180,000
10,000
2,000

31
P5.8
Consolidation Working Paper after Several Years
(amounts in thousands)
a.
Acquisition cost
Total fair value
Book value of Piedmont
Fair value book value of franchise rights
Goodwill
$ 70,000
15,000
85,000
$ 25,000
5,000
30,000
$ 55,000

Total goodwill
$ 55,000
Coca-Cola Consolidateds goodwill: $70,000 75%(30,000)
47,500
$ 7,500
b.
Calculation of equity in net loss and noncontrolling interest in net loss for 2012:
Equity
Noncontrolling
Total
in NL
interest in NL
Piedmonts reported net income for
2012 (1)
$ 3,000
$ 2,250
$ 750
Franchise rights impairment
(2,500)
(1,875)
(625)
Goodwill impairment (47.5: 7.5 ratio)
(6,000)
(5,182)
__(818)
$ (5,500)
$ (4,807)
$ (693)
(1)
$3,000 = $300,000 (175,000 + 114,000 + 8,000)
c.
Calculation of investment balance at December 31, 2012:

Investment in Piedmont, January 1, 2003
75% x Piedmont reported income less dividends, 2003-2011 (1)
75% x Revaluation write-offs for franchise rights, 2003-2011
Equity in net loss, 2012
Investment in Piedmont, December 31, 2012
$ 70,000
4,350
(750)
(4,807)
$ 68,793
(1) Change in book value 2003-2011 of $5,800 (= $30,800 $25,000) is attributed to

accumulated income less dividends, since the stock accounts did not change; $30,800
= $1,000 + $12,000 + $18,000 $200.

32
Edition
d.
Trial Balances
Taken From Books
Dr (Cr)
Current assets
Property, plant & equipment, net
Franchise rights, net
Investment in Piedmont
Piedmont
$ 160,000
250,000
466,400
68,793
$ 30,000
233,800
---
-(120,000)
(700,000)
(12,000)
(100,000)
(50,500)
12,000
-(20,000)
(210,000)
(1,000)
(12,000)
(18,000)
--
30,000
--
200
--
2,000
(1,200,000)
4,807
760,000
400,000
-(300,000)
-175,000
114,000
500
28,000
-___ --0-
-8,000
-___--0-
Consolidated
Coca-Cola
Consolidated
Goodwill
Current liabilities
Long-term debt
Common stock
Accumulated other
comprehensive loss
Treasury stock
Dividends
Net sales
Equity in loss of Piedmont
Cost of sales
Selling, delivery and
administrative expenses
Interest expense
Eliminations
Dr
Cr
(R) 4,000
(C) 4,807
(R) 55,000
2,500 (O)
23,100 (E)
50,500 (R)
6,000 (O)
(E) 1,000
(E) 12,000
(E) 18,000
(N)
693
200 (E)
7,700 (E)
8,500 (R)
4,807 (C)
(O) 2,500
(O) 6,000
_____
$ 104,000
__693 (N)
$104,000
Balances
$ 190,000
483,800
467,900
-49,000
(140,000)
(910,000)
(12,000)
(100,000)
(50,500)
12,000
30,000
(15,507)
2,000
(1,500,000)
-935,000
514,000
3,000
36,000
6,000
(693)
$
-0-

33
e.
Consolidated Income Statement and Statement of Retained Earnings,
Year Ended December 31, 2012
Net sales
$ 1,500,000
Cost of sales
(935,000)
Gross profit
565,000
Selling, delivery and administrative expenses
(514,000)
(3,000)
Interest expense
(36,000)
(6,000)
6,000
Plus: Net loss attributable to noncontrolling interest
___693
Net income attributable to Coca-Cola Consolidated
6,693
Plus retained earnings, January 1
50,500
Less dividends
_(2,000)
Retained earnings, December 31
$
55,193
Consolidated Balance Sheet, December 31, 2012
Assets
Current assets
Franchise rights, net
Goodwill
Total assets
Current liabilities
Total liabilities
Stockholders equity
Coca-Cola Consolidated stockholders equity:
Common stock
Retained earnings
Treasury stock
Accumulated other comprehensive loss
Total Coca-Cola Consolidated stockholders equity

34
Edition
190,000
483,800
467,900
49,000
$ 1,190,700
$
140,000
910,000
1,050,000
12,000
100,000
55,193
(30,000)
(12,000)
125,193
15,507
140,700
$ 1,190,700
P5.9
Consolidated Statement of Cash Flows

Sunny Valley Resort and Subsidiary
For the year 2012
Cash from operating activities
Consolidated net income ($400,000 + $24,000) (1)
Add (subtract) items not affecting cash:
$ 350,000
30,000
Loss on retirement of plant assets (2)
50,000
Changes in current assets and liabilities:
Increase in other current assets
(400,000)
Decrease in current liabilities
(268,000)
Net cash from operating activities
Cash from investing activities
Acquisition of plant assets (3)
Cash from financing activities
Increase in noncurrent liabilities
100,000
Dividends paid to controlling stockholders
(70,000)
Dividends paid to noncontrolling stockholders
(16,000)
Net decrease in cash
Plus cash balance, January 1
Cash balance, December 31
$ 424,000
430,000
(668,000)
186,000
(300,000)
14,000
(100,000)
700,000
$ 600,000
(1) Noncontrolling interest in net income = $120,000 x 20%

(2) $1,600,000 + 350,000 1,500,000 = $450,000 accumulated depreciation on plant
assets scrapped; $500,000 450,000 = $50,000 loss on retirement of plant assets.
(3) X = cost of plant assets acquired; $4,200,000 + X 500,000 = $4,000,000; X =
$300,000.

35
P5.10 Consolidated Statement of Cash Flows

Prime Casinos and Saratoga International Hotels
For the Year ended December 31, 2013
(in millions)
Cash from operating activities:
Add (subtract) items not affecting cash from operations:
Loss on sale of plant assets
Changes in current assets and liabilities:
Increase in other current assets
Increase in current liabilities
Net cash from operating activities
Cash from investing activities:
Sale of plant assets (1)
Acquisition of plant assets
Cash from financing activities:
Increase in long-term liabilities
Issuance of capital stock
Dividends paid to majority stockholders
Dividends paid to noncontrolling interest (2)
Net increase in cash
Plus cash balance, January 1, 2013
Cash balance, December 31, 2013
$ 612
$ 250
25
10
(100)
250
15
(675)
150
200
(435)
(2)
285
150
1,047
(660)
(87)
300
200
$ 500
(1) Cost of plant assets sold = $2,500 + $675 - $3,100 = $75

Accumulated depreciation on plant assets sold = $800 + $250 - $1,000 = $50
Cash received from sale of plant assets = $75 - $50 - $10 = $15
(2) $150 + 12 160 = $2

36
Edition
P5.11 Consolidation Two Years after Acquisition, IFRS

(all dollar amounts in millions)
a.

Acquisition cost
Book value of Monaco
Revaluations:
Inventory
Goodwill
b.
4,000
1,000
(100)
400
300
1,600
x 80%
1,280
2,720
Equity
Noncontrolling
Total
in NI
interest in NI
Monacos reported net income for 2013 (1) 600
480
120
Property, plant and equipment $400/10
(40)
(32)
(8)
Identifiable intangibles $300/3
(100)
(80)
(20)
Goodwill
(200)
(200)
__- 260
168
92
(1) $600 = $3,500 (2,500 + 400)

37
c.
Trial Balances
Taken From Books
Dr (Cr)
Rendezvous
Current assets
Investment in Monaco
Goodwill
Liabilities
Capital stock
Monaco
900
2,000
--
--(4,648)
(1,500)
(1,000)
--
Dividends
200
-(1,150)
(800)
(600)
--
--
Sales revenue
Equity in net income of Monaco
Cost of sales
Administrative and other operating
expenses

38
Edition
500
3,000
4,316
Eliminations
Dr
Cr
(R) 360
(R) 200
(R) 2,620
(E)
(E)
800
600
280 (E)
112 (R)
82 (N)
40 (C)
10 (N)
50
(5,000)
(168)
4,200
--
(3,500)
-2,500
--
300
--0-
400
--0-
40 (O)
128 (C)
1,120 (E)
3,068 (R)
100 (O)
200 (O)
(C)
168
(O) 200
(O)
40
(O) 100
(N) __92
____
5,180 5,180
Consolidated
Balances
1,400
5,320
-300
2,420
(5,798)
(1,500)
(1,000)
(474)
-(8,500)
-6,700
200
840
92
-0-
P5.12 Consolidation Several Years after Acquisition, IFRS

(dollar amounts in thousands)
a.

Acquisition cost
Book value of Hearty
Revaluations:
Plant and equipment
Long-term debt
Goodwill
b.
150,000
70,000
(50,000)
40,000
2,000
62,000
x 75%
46,500
103,500
Noncontrolling
Total
Equity in NI
interest in NI
Heartys reported net income for 2014
(1)
15,000
11,250
3,750
(50,000/10)
5,000
3,750
1,250
Identifiable intangibles (40,000/10)
(4,000)
(3,000)
(1,000)
Goodwill
(750)
(750)
- 15,250
11,250
4,000
(1) 15,000 = 140,000 (80,000 + 45,000)

39
c.
Trial Balances
Taken From Books
Dr (Cr)
Current assets
Investment in Hearty
Lily
35,000
226,500
Hearty
20,000
202,000
176,750
--
100,000
10,000
--
--
(30,000)
(350,000)
(80,000)
(60,000)
--
(25,000)
(100,000)
(54,000)
(38,000)
--
Goodwill
Current liabilities
Long-term debt
Capital stock
Sales revenue
Equity in net income of Hearty
Cost of goods sold

Eliminations
(400,000)
(11,250)
250,000
-143,000
-
-0-

40
Edition
(140,000)
-80,000
-45,000
-
-0-
Dr
Cr
Consolidated
Balances
(O)
5,000
30,000
(R)
11,250 (C)
69,000 (E)
96,500
(R)
(R) 4,000 (O)
24,000
(R)
750 (O)
101,000
(E) 54,000
(E) 38,000
(R) 1,500 23,000 (E)
4,000 (N)
(C) 11,250
(O)
750
(O) 4,000 5,000 (O)
(N) 4,000 ______
243,500 243,500
55,000
403,500
-130,000
100,250
(55,000)
(450,000)
(80,000)
(60,000)
(25,500)
(540,000)
-330,000
750
187,000
4,000
-0-
P5.13 Noncontrolling Interest in Comprehensive Income

a.
Vodafones 45 percent noncontrolling interest in net income is $7,668, implying that

Verizon Wireless total net income (adjusted for revaluation write-offs) was $17,040 (=
$7668/.45).
Since consolidated income is $10,217, Verizons separate results are a loss of $6,823 (=
$10,217 - $17,040).
b.
Verizon Wireless reported a net loss in OCI for 2010, but Verizon Communications
reported a net gain in OCI. Verizon Wireless total OCI loss for 2010 must have been $78
(= $35/.45), and Verizons share is $43. Consolidated OCI for 2010 is a gain of $2,363.
Therefore Verizons separate OCI for 2010 is a gain of $2,441 (= $2,363 + $78).
c.
(N)
income of Verizon Wireless
7,668
other comprehensive loss of
Verizon Wireless
Dividends Verizon
Wireless
Verizon Wireless
35
2,051
5,582

41

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CHAPTER 5

SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS

Allocation of goodwill between controlling and noncontrolling interest:

Plant and equipment

Solutions Manual, Chapter 5

Cambridge Business Publishers, 2013

Plant and equipment

Equity in net income

NCI in net income

Cambridge Business Publishers, 2013

Advanced Accounting, 2nd

Plant and equipment

Solutions Manual, Chapter 5

Cambridge Business Publishers, 2013

Combination and Consolidation, Date of Acquisition (see related E3.1)

Allocation of goodwill between controlling and noncontrolling interest:

Total other assets

Total liabilities and equity

Cambridge Business Publishers, 2013

Advanced Accounting, 2nd

Date of Acquisition Consolidation with In-Process R&D

Allocation of goodwill between controlling and noncontrolling interest:

Solutions Manual, Chapter 5

Cambridge Business Publishers, 2013

Consolidated Financial Statement Working Paper

Investment in Saylor (1)

Date of Acquisition Consolidation, Bargain Purchase

Peregrines acquisition entry:

Cambridge Business Publishers, 2013

Advanced Accounting, 2nd

Consolidated Financial Statement Working Paper

(1) $5,000,000 4,000,000

Consolidated Balance Sheet, Date of Acquisition: U.S. GAAP and IFRS

Allocation of goodwill between controlling and noncontrolling interest:

Solutions Manual, Chapter 5

Cambridge Business Publishers, 2013

2,000 (R) 500

The $14,950,000 credit to investment in entry (R) = 90% (500,000 + 6,000,000 +

Cambridge Business Publishers, 2013

Advanced Accounting, 2nd

Consolidation Working Paper (in thousands)

2,000 (R) 500

Solutions Manual, Chapter 5

Cambridge Business Publishers, 2013

Consolidation Eliminating Entries, Date of Acquisition: U.S. GAAP and IFRS

Plummers acquisition entry:

Consolidation eliminating entries:

Plant assets, net

Cambridge Business Publishers, 2013

Advanced Accounting, 2nd

Consolidation eliminating entries:

Plant assets, net

(4) $25,000 (90% x $11,400)

Consolidation at End of First Year (see related E4.3)

Calculation of goodwill is as follows:

Allocation of goodwill between controlling and noncontrolling interest:

Solutions Manual, Chapter 5

Cambridge Business Publishers, 2013

2013 equity in net income and noncontrolling interest in net income:

Consolidation working paper eliminating entries for 2013:

Cambridge Business Publishers, 2013

Advanced Accounting, 2nd

Consolidation Two Years after Acquisition