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2.
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary $625,000 $500,000 $125,000
Less book value of interest acquired:
Total equity 450,000 $450,000 $450,000
Interest acquired 80% 20%
Book value $360,000 $ 90,000
Excess of fair value over book value $175,000 $140,000 $ 35,000
20X6:
Parent income.......................................................... $120,000
Subsidiary income.................................................... 50,000
Equipment depreciation............................................ (17,500)
Total income............................................................. $152,500
Income purchased [1/2 year 0.10 ($50,000
$17,500 amortization)]........................................ (1,625)
Consolidated net income.......................................... $150,875
NCI [10% ($50,000 $17,500 amortization)]......... $ 3,250
Controlling:
Internally generated........................................... $120,000
80% 1 ($50,000 $17,500).......................... $26,000
10% 1/2 ($50,000 $17,500)....................... 1,625 27,625
Total controlling interest............................................ $147,625
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3.
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary $1,000,000 $800,000 $200,000
Less book value of interest acquired:
Total equity 900,000 $900,000 $900,000
Interest acquired 80% 20%
Book value $720,000 $180,000
Excess of fair value over book value $ 100,000 $ 80,000 $ 20,000
20X5:
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Sale of 2,000 shares
a. Increase in paid-in equity on sale of investment:
Sale price ($150 2,000)...................................................... $ 300,000
Adjusted cost (1/4 $1,084,000)........................................... (271,000)
Equity increase...................................................................... $ 29,000
b. Consolidated statements are prepared as follows:
Parent income....................................................................... $150,000
Subsidiary income ($200,000 $10,000 depreciation).......... 190,000
Consolidated net income....................................................... $340,000
NCI:
(20% 1 $190,000)..................................................... $ 38,000
(20% 1/2 $190,000).................................................. 19,000
Total NCI interest................................................................... $ 57,000
Controlling:
Internally generated........................................................ $150,000
Subsidiary:
(60% 1 $190,000)..................................................... 114,000
(20% 1/2 $190,000).................................................. 19,000
Total controlling interest......................................................... $283,000
c. Not applicable
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4.
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary $1,750,000 $1,400,000 $350,000
Less book value of interest acquired:
Common stock ($1 par) $ 100,000
Paid-in capital in excess of par 900,000
Retained earnings 500,000
Preferred dividends in arrears (12,000)
Total equity $1,488,000 $1,488,000 $1,488,000
Interest acquired 80% 20%
Book value $1,190,400 $ 297,600
Excess of fair value over book value $ 262,000 $ 209,600 $ 52,400
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Ch. 7Exercises
EXERCISES
EXERCISE 7-1
Assets
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Ch. 7Exercises
EXERCISE 7-2
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Ch. 7Exercises
c
Conversion:
60% interest [60% ($120,000 $20,000)] = $ 60,000
20% interest [20% ($120,000 $50,000)] = 14,000
Share of retained earnings $ 74,000
Amortizations:
2 years 60% $13,000 (15,600)
3 years 80% $13,000 (31,200)
Net adjustment $ 27,200
Parent retained earnings balance,
December 31, 20X5 300,000
Total $327,200
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Ch. 7Exercises
EXERCISE 7-3
Entries
Investment in Venus Company........................................................ 195,300
Retained Earnings*.................................................................... 137,475
Investment Income**................................................................. 57,825
To convert the investment to the equity method. This includes
10% interest that is to be adjusted to sophisticated equity balance.
Cash................................................................................................ 700,000
Investment in Venus Company [8/9 ($418,500 cost +
$195,300 adjustment)]........................................................... 545,600
Gain on Sale of Investment....................................................... 154,400
To record the sale of the 8,000 shares of Venus stock.
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EXERCISE 7-4
Cash................................................................................................ 40,000
Investment in Hinckley Company............................................... 10,960
Paid-In Capital in Excess of ParCarpenter............................. 29,040
To record sale of shares. Investment eliminated =
[(2,000 40,000) $160,000 original cost] plus
$2,960 equity adjustment.
Equity adjustment:
Income....................................................................................... $110,000
Amortization of excess (4 years $4,000)................................. (16,000)
Dividends................................................................................... (20,000)
$ 74,000
Interest sold (2,000 50,000) 4%
$ 2,960
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EXERCISE 7-5
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(3) Only the 20% portion sold (25% of the investment) needs adjustment; the remaining 60% of
the investment) will be adjusted at year-end when consolidated statements are prepared.
Retained Earnings [(3 80% $5,000)* 1/4]......................... 3,000
Investment in Brown Corporation.......................................... 3,000
To adjust for building depreciation to December 31, 20X7.
Investment in Brown Corporation............................................... 6,500
Investment Income................................................................ 6,500
To adjust 25% of the current years share of income
for the first half of the year and 25% of the one-half
years building depreciation,
{1/4 [(80% $35,000) (1/2 80% $5,000)]}.
Cash.......................................................................................... 212,500
Investment in Brown Corporation*......................................... 207,000
Paid-In Capital in Excess of Par............................................ 5,500
To record the sale and the gain on the 6,000 shares of
Brown stock.
*[(1/4 $814,000) $3,000 + $6,500].
EXERCISE 7-6
(1)
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Ch. 7Exercises
(2)
(3)
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Ch. 7Exercises
EXERCISE 7-7
(1)
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary $875,000 $700,000 $175,000
Less book value of interest acquired:
Common stock ($20 par) $800,000
Retained earnings 100,000
Preferred dividends in arrears (40,000)
Total equity $860,000 $860,000 $860,000
Interest acquired 80% 20%
Book value $688,000 $172,000
Excess of fair value over book value $ 15,000 $ 12,000 $ 3,000
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EXERCISE 7-8
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Entries:
Investment in Kim Company Common Stock............................. 14,400
Retained EarningsZigler.................................................... 14,400
To adjust investment to equity.
Common StockKim Company ($300,000 80%)................... 240,000
Retained EarningsKim Company (80% $146,000
applicable to common stock)................................................. 116,800
Goodwill..................................................................................... 97,000
Investment in Kim Company Common Stock........................ 434,400
NCI........................................................................................ 19,400
To eliminate investment, adjust NCI, and record goodwill.
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Ch. 7Problems
PROBLEMS
PROBLEM 7-1
(1)
Price paid.................................................................................. $70,000
Less interest acquired:
Common stock ($10 par)..................................................... $ 75,000
Retained earnings................................................................ 85,000
Total stockholders equity............................................... $160,000
Interest acquired.................................................................. 20% 32,000
Excess....................................................................................... $38,000
Equipment adjustment {[$105,000 (2 years $10,500)]
20%}................................................................................ 16,800
Debit parent retained earnings.................................................. $21,200
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PROBLEM 7-2
(1)
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (70%) (30%)
Fair value of subsidiary $350,000 $245,000 $105,000
Less book value of interest acquired:
Common stock $ 50,000
Other paid-in capital in excess of
par 100,000
Retained earnings 150,000
Total equity $300,000 $300,000 $300,000
Interest acquired 70% 30%
Book value $210,000 $ 90,000
Excess of fair value over book value $ 50,000 $ 35,000 $ 15,000
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PROBLEM 7-3
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PROBLEM 7-4
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PROBLEM 7-5
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PROBLEM 7-6
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PROBLEM 7-7
(1)
July 1, 20X8
Implied fair value of 5,000 shares [($226,200/15,000 shares) 5,000]................ $75,400
Book value ($71,400 + $12,000 $9,000)........................................................... 74,400
Unrealized gain.................................................................................................... $ 1,000
Correcting entry:
Investment in Boat Corporation.......................................................... 1,000
Unrealized Gain on Investment................................................... 1,000
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Ch. 7Problems
January 2, 20X8, Engine Corporation common, 14,000 shares (14,000 shares/20,000 shares =
70%):
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PROBLEM 7-8
(1)
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (60%) (40%)
Fair value of subsidiary $185,000 $111,000 $ 74,000
Less book value of interest acquired:
Common stock ($10 par) $100,000
Paid-in capital in excess of par 20,000
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Ch. 7Problems
(ELC) Eliminate 60% of subsidiary equity against the investment in common stock.
This equity includes 60% of the January 1, 20X8, retained earnings applicable to
common stock ($41,000 less $8,000 preferred claim).
(D)/(NCI) Distribute the excess of book value to plant asset (see schedule).
(A) Amortize the decrease in depreciation for one past year and for the current year.
(F1) Eliminate the gain on equipment sale ($5,000), less one years depreciation of
$1,000 at the beginning of the year.
(F2) Decrease depreciation for the current year.
(IS) Eliminate intercompany sales.
(IA) Eliminate intercompany trade debt.
(BI) Eliminate the beginning inventory profit:
Black Jack Corporation, $800, deduct from controlling retained earnings.
Zeppo Company, $450, allocate 40% to NCI and 60% to controlling retained
earnings.
(BI) (Parent seller) $2,800 ($2,800/1.4) = $800 profit
(BI) (Subsidiary seller) $1,200 ($1,200/1.6) = $450 profit
(EI) Eliminate profit in ending inventory: Black Jack, $2,000; Zeppo, $600.
(EI) (Parent seller) $7,000 ($7,000/1.4) = $2,000 profit.
(EI) (Subsidiary seller) $1,600 ($1,600/1.6) = $600 profit
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APPENIDIX PROBLEMS
PROBLEM 7A-1
Eliminations Consolidated
Balance Sheet and Adjustments Balance
Moot Ferrel Dr. Cr. NCI Sheet
Cash....................................... 167,250 101,000 (IA) 8,000 .............. ................ 276,250
Accounts Receivable.............. 178,450 72,000 .............. (IA) 8,000 ................ 242,450
Notes Receivable.................... 87,500 28,000 .............. .............. ................ 115,500
Dividends Receivable............. 36,000 ................ .............. (CY) 36,000 ................ ................
Inventories.............................. 122,000 68,000 .............. (EI) 6,000 ................ 184,000
Property, Plant, and
Equipment........................... 487,000 252,000 .............. (F) 14,000 ................ 725,000
Accumulated Depreciation...... (117,000) (64,000) (F) 350 .............. ................ (180,650)
Investment in Ferrel
Corporation.......................... 240,800 ................ .............. (EL) 226,800 ................ ................
................ ................ .............. (D) 14,000 ................ ................
Accounts Payable................... (222,000) (76,000) .............. .............. ................ (298,000)
Notes Payable......................... (79,000) (89,000) .............. .............. ................ (168,000)
Dividends Payable.................. ................ (40,000) (CY) 36,000 .............. ................ (4,000)
Common Stock ($10 par)
Moot..................................... (400,000) ................ .............. .............. ................ (400,000)
Common Stock ($10 par)
Ferrel................................... ................ (100,000) (EL) 90,000 .............. (10,000) ................
Retained EarningsMoot....... (501,000) ................ (D) 14,000 .............. ................ ................
................ ................ (EI) 6,000 .............. ................ ................
................ ................ (F) 13,650 .............. ................ (467,350)
Retained EarningsFerrel..... ................ (152,000) (EL) 136,800 .............. (15,200) ................
0 0 304,800 304,800 ................ ................
NCI....................................................................................................................................... (25,200) (25,200)
Totals.................................................................................................................................................... 0
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Ch. 7Problems
PROBLEM 7A-2
(1)
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (100%) (0%)
Fair value of subsidiary $2,600,000 $2,600,000 N/A
Less book value of interest acquired:
Common stock ($25 par) $1,000,000
Paid-in capital in excess of par 190,000
Retained earnings 980,000
Total equity $2,170,000 $2,170,000
Interest acquired 100%
Book value $2,170,000
Excess of fair value over book value $ 430,000 $ 430,000
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PROBLEM 7A-3
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