Fundamentals of Advanced Accounting
Fundamentals of Advanced Accounting
7th Edition
ISBN: 9781259722639
Author: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
Publisher: McGraw-Hill Education
Question
Book Icon
Chapter 5, Problem 27P

a.

To determine

Find the annual amortization resulting from the acquisition-date fair-value allocations.

a.

Expert Solution
Check Mark

Explanation of Solution

ParticularsAmount  
Consideration paid $          342,000  
Fair value of non-controlling interest $            38,000  
Fair value on date of acquisition $          380,000  
Book value of the subsidiary $         (326,000)  
Excess fair value over book value $            54,000  
  Remaining lifeAnnual amortization
Building $            18,0009 years $           2,000
Patented technology $            36,0006 years $           6,000
Total $            54,000  $           8,000

Table: (1)

b.

To determine

Identify whether the intra-entity transfers are upstream or downstream.

b.

Expert Solution
Check Mark

Explanation of Solution

Company B has transferred goods to Company P which implies that it is an upstream transfer because goods are transferred from the subsidiary to the parent.

c.

To determine

Find the intra-entity gross profit in inventory existed as of January 1, 2018.

c.

Expert Solution
Check Mark

Explanation of Solution

Computation of unrealized gross profit:

ParticularsAmount
Intra-entity gross profit percentage ($135,000$81,000$135,000×100)40%
Inventory unsold at year end$ 37,500
Unrealized gross profit as on January 1, 2018 $   15,000

Table: (2)

d.

To determine

Find the intra-entity gross profit in inventory existed as of December 31, 2018.

d.

Expert Solution
Check Mark

Explanation of Solution

Computation of unrealized gross profit:

ParticularsAmount
Intra-entity gross profit percentage ($160,000$92,800$160,000×100)42%
Inventory unsold at year end$ 37,500
Unrealized gross profit as on December 31, 2018 $   21,000

Table: (3)

e.

To determine

Find the amounts which make up the $68,400 Equity Earnings of Company B account balance for 2018.

e.

Expert Solution
Check Mark

Explanation of Solution

Computation of the amounts which make up the $68,400 Equity Earnings of Company B account balance for 2018:

ParticularsAmount
Reported income of Subsidiary $            90,000
Add: Unrealized gross profit of 2017 $            15,000
Less: Unrealized gross profit of 2018 $           (21,000)
Less: Amortization of patented technology $             (6,000)
Less: Excess amortization of building $             (2,000)
Adjusted income of subsidiary $            76,000
Percent of ownership of controlling interest90%
Equity in earnings of Company B $            68,400

Table: (4)

f.

To determine

Find the net income attributable to the non-controlling interest for 2018.

f.

Expert Solution
Check Mark

Explanation of Solution

Computation of the net income attributable to the non-controlling interest for 2018:

ParticularsAmount
Reported income of Subsidiary $            90,000
Add: Unrealized gross profit of 2017 $            15,000
Less: Unrealized gross profit of 2018 $           (21,000)
Less: Amortization of patented technology $             (6,000)
Less: Excess amortization of building $             (2,000)
Adjusted income of subsidiary $            76,000
Percent of ownership of controlling interest10%
Equity in earnings of Company B $              7,600

Table: (5)

g.

To determine

Find the amounts which make up the $450,000 Investment in Company B account balance as of December 31, 2018.

g.

Expert Solution
Check Mark

Explanation of Solution

Computation of the amounts which make up the $450,000 Investment in Company B account balance as of December 31, 2018:

Particulars Amount
 Investment purchased $          342,000
 Reported net income of 2016 $            64,000
 Less: Amortization of patented technology $             (6,000)
 Add: Excess depreciation of building $             (2,000)
 Deferred profit of 2016 $           (10,000)
 Adjusted net income of year 2017 $            46,000
 Percent of ownership of controlling interest90%
 Net income attributable to controlling interest $            41,400
 Equity in earnings of Company B $            41,400
 Share of Company P in dividends $           (17,100)
 Balance as on 31/12/2016 $          366,300
 Reported income of Company B $            80,000
 Less: Amortization of patented technology $             (6,000)
 Add: Excess depreciation of building $             (2,000)
 Deferred profit of 2016 recognized $            10,000
 Deferred profit of 2017 $           (15,000)
 Adjusted net income of year 2017 $            67,000
 Percent of ownership of controlling interest90%
 Net income attributable to controlling interest $            60,300
 Equity in earnings of Company B $            60,300
 Share of Company P in dividends $           (20,700)
 Balance as on 31/12/2017 $          405,900
 Reported income of Company B $            90,000
 Less: Amortization of patented technology $             (6,000)
 Add: Excess depreciation of building $             (2,000)
 Deferred profit of 2017 recognized $            15,000
 Deferred profit of 2018 $           (21,000)
 Adjusted net income of year 2018 $            76,000
 Percent of ownership of controlling interest90%
 Net income attributable to controlling interest $            68,400
 Equity in earnings of Company B $            68,400
 Share of Company P in dividends $           (24,300)
 Balance as on 31/12/2018 $          450,000

Table: (6)

h.

To determine

Prepare the 2018 worksheet entry to eliminate the subsidiary’s beginning owners’ equity balances.

h.

Expert Solution
Check Mark

Explanation of Solution

The worksheet entry to eliminate the subsidiary’s beginning owners’ equity balances:

Entry S
DateAccounts Title and ExplanationPost Ref.Debit ($)Credit ($)
  Common stock  $          150,000 
  Retained earnings on 01/01/2017  $          263,000 
  Investment in Company B   $      371,700
  Non controlling interest   $        41,300
  (being controlling and non-controlling interest recorded)   

Table: (7)

i.

To determine

Determine the consolidation balances for these two companies.

i.

Expert Solution
Check Mark

Explanation of Solution

The consolidation balances for these two companies are as follows:

Company P and Company B
 Consolidation Worksheet
 Year ending December 31, 2018
 Income statement Company P Company B Debit Credit Non-controlling interest Consolidated Balances
 Revenues $     (862,000) $   (366,000) $   160,000   $      (1,068,000)
 Cost of goods sold $      515,000 $    209,000 $     21,000 $          15,000  $          570,000
     $        160,000  
 Operating expense $      185,400 $      67,000 $       8,000   $          260,400
 Equity in income of Company B $       (68,400)  $     68,400   $                      -
 Net income $     (230,000) $     (90,000)    
 Consolidated net income      $         (237,600)
 Share of non-controlling interest in net income     $     (7,600) $              7,600
 Share of controlling interest in net income      $         (230,000)
       
 Balance Sheet      
 Cash $      146,000 $      98,000  $          16,000  $          228,000
 Inventory $      255,000 $    136,000  $          21,000  $          370,000
 Investment in Company B $      450,000     
 Building and equipment $      964,000 $    328,000 $     18,000 $            6,000  $       1,304,000
 Patented technology   $     36,000 $          18,000  $            18,000
 Total assets $   1,815,000 $    562,000    $       1,920,000
       
 Liabilities $     (718,000) $     (71,000) $     16,000   $         (773,000)
 Common stock $     (515,000) $   (150,000)    $         (515,000)
 Retained earnings $     (582,000) $   (341,000)    $         (582,000)
 Non-controlling interest in Company B      $           (50,000)
 Total liabilities and equity $  (1,815,000) $   (562,000)    $       1,920,000

Table: (8)

Working note:

Statement of retained earningsCompany PCompany BDebitCreditNon-controlling interestConsolidated Balances
Retained earnings on 01/01 $     (488,000) $   (278,000) $     15,000   $         (488,000)
    $  (263,000)   
Net Income $     (230,000) $     (90,000)    $         (230,000)
Dividends declared $      136,000 $      27,000  $          24,300 $      2,700 $          136,000
Retained earnings on 31/12 $     (582,000) $   (341,000)    $         (582,000)

Table: (9)

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education