Solution P5-5 Pane Corporation and Subsidiary Consolidation Working Papers for the year ended December 31, 2010 (in thousands) Adjustments and

Transcription

1 Solution P5-3 1 Inventories appearing in consolidated balance sheet at December 31, 2010 Beginning inventory Potter ($60,000 - $4,000a) $ 56,000 Beginning inventory Scan ($38,750 - $7,750b) 31,000 Beginning inventory Tray ($24,000-0) 24,000 Inventories December 31 $111,000 Intercompany profit: a Potter: Inventory acquired intercompany ($60,000 40%) $ 24,000 Cost of intercompany inventory ($24,000/1.2) (20,000) Unrealized profit in Potter's inventory $ 4,000 b Scan: Inventory acquired intercompany ($38, %) $ 38,750 Cost of intercompany inventory ($38,750/1.25) (31,000) Unrealized profit in Scan's inventory $ 7,750 2 Inventories appearing in consolidated balance sheet at December 31, 2011 Ending inventory Potter ($54,000 - $4,500c) $ 49,500 Ending inventory Scan ($31,250 - $6,250d) 25,000 Ending inventory Tray ($36,000-0) 36,000 Inventories December 31 $110,500 Intercompany profit: c Potter: Inventory acquired intercompany ($54,000 50%) $ 27,000 Cost of intercompany inventory ($27,000/1.2) (22,500) Unrealized profit in Potter's inventory $ 4,500 d Scan: Inventory acquired intercompany ($31, %) $ 31,250 Cost of intercompany inventory ($31,250/1.25) (25,000) Unrealized profit in Scan's inventory $ 6,250

2 Solution P5-4 1 Plier's income from Stuff % of Stuff's net income $ 300,000 $ 337,500 $ 262,500 Unrealized profit in December 31, 2009 inventory (downstream) ($200,000 1/2) 100% (100,000) 100,000 Unrealized profit in December 31, 2010 inventory (upstream) $100,000 75% (75,000) 75,000 Plier's income from Stuff $ 200,000 $ 362,500 $ 337,500 2 Plier's net income Plier's separate income $1,800,000 $1,700,000 $2,000,000 Add: Income from Stuff 200, , ,500 Plier's net income $2,000,000 $2,062,500 $2,337,500 3 Consolidated net income Separate incomes of Plier and Stuff combined $2,200,000 $2,150,000 $2,350,000 Unrealized profit in December 31, 2009 inventory (100,000) 100,000 Unrealized profit in December 31, 2010 inventory (100,000) 100,000 Total consolidated income 2,100,000 2,150,000 2,450,000 Less: Noncontrolling interest share 2009 $400,000 25% (100,000) 2010 ($450,000 - $100,000) 25% (87,500) 2011 ($350,000 + $100,000) 25% (112,500) Controlling share of net income $2,000,000 $2,062,500 $2,337,500

3 Solution P5-5 Pane Corporation and Subsidiary Consolidation Working Papers for the year ended December 31, 2010 (in thousands) Adjustments and Pane 100% Seal Eliminations Consolidated Statements Income Statement Sales $ 800 $ 400 a 120 $1,080 Income from Seal 102 d 102 Cost of sales 400* 200* b 12 a * c 20 Depreciation expense 110* 40* 150* Other expenses 192* 60* f 6 258* Net income $ 200 $ 100 $ 200 Retained Earnings Retained earnings Pane $ Retained earnings Seal $ 380 e 380 Net income Dividends 100* 50* d * Retained earnings December 31 $ 700 $ 430 $ 700 Balance Sheet Cash $ 54 $ 37 $ 91 Receivables net g Inventories b Other assets Land Buildings net Equipment net Investment in Seal 736 c 20 d 52 e 704 Patents e 24 f 6 18 $1,800 $ 867 $1,920 Accounts payable $ 160 $ 47 g 17 $ 190 Other liabilities Common stock, $10 par e Retained earnings $1,800 $ 867 $1,920 Supporting computations Unrealized profit in beginning inventory ($40,000 1/2) = $20,000 Unrealized profit in ending inventory ($48,000 1/4) = $12,000 Seal's income of $100,000 plus $20,000 profit in beginning inventory, less $12,000 profit in ending inventory, and less $6,000 patents amortization equals $102,000 income from Seal.

4 Solution P5-6 Patty Corporation and Subsidiary Consolidation Working Papers for the year ended December 31, 2010 (in thousands) Adjustments and Patty Sue 75% Eliminations Consolidated Statements Income Statement Sales $ 600 $ 400 a 130 $ 870 Income from Sue d Cost of sales 270* 210* b 20 a * c 10 Operating expenses 145* 40* 185* Consolidated net income $ 325 Noncontrolling int.share f * Controlling share of NI $ $ 150 $ Retained Earnings Retained earnings Patty $ $ Retained earnings Sue $ 90 e 90 Controlling share of NI Dividends 150* 50* d 37.5 f * Retained earnings December 31 $ 320 $ 190 $ 320 Balance Sheet Cash $ 85 $ 30 $ 115 Accounts receivable g Dividends receivable 15 h 15 Inventories b Land Buildings net Equipment net Investment in Sue 385 c 10 d 65 e 330 Goodwill e $1,220 $ 500 $1,485 Accounts payable $ 225 $ 100 g 15 $ 310 Dividends payable h Other liabilities Common stock, $10 par e Retained earnings $1,220 $ 500 Noncontrolling interest January 1 e 110 Noncontrolling interest December 31 f $1,485 * Deduct Supporting computations Investment in Sue at January 1, 2010 $300,000 Implied fair value of Sue ($300,000 / 75%) $400,000 Book value of Sue 200,000 Goodwill $200,000

5 Solution P6-2 Preliminary computations NOTE: Since Pal paid a price $45,000 in excess of book value for its 90% share, the implied total excess of fair value over book is $50,000 ($45,000 / 90%). Computation of income from Sim: Share of Sim s reported income ($40,000.9) $36,000 Add: Realization of deferred profits in beginning inventory 5,000 Less: Unrealized profits in ending inventory (4,000) Less: Unrealized profit on intercompany sale of equipment ($30,000 - $21,000) (9,000) Add: Piecemeal recognition of deferred profit in equipment ($9,000/3 years) 3,000 Income from Sim $31,000 Consolidation working paper entries A Cash 2,000 Accounts receivable 2,000 To record cash in transit from Sim on account. B Sales 20,000 Cost of sales 20,000 To eliminate intercompany purchases and sales. C Investment in Sim 5,000 Cost of sales 5,000 To recognize previously deferred profit from beginning inventory. D Cost of sales 4,000 Inventory 4,000 To defer unrealized profit from ending inventory. E Investment in Sim 3,000 Land 3,000 To reduce land to its cost basis and adjust the investment account to establish reciprocity with Sim s beginning of the period equity accounts. F Gain on sale of equipment 9,000 Equipment net 9,000 To eliminate gain on intercompany sale of equipment and reduce equipment to a cost basis.

6 g Equipment net 3,000 Operating expenses 3,000 To eliminate current year s depreciation of unrealized gain. h Income from Sim 31,000 Dividends Sim 18,000 Investment in Sim 13,000 To eliminate income and dividends from Sim and return investment account to its beginning of the period balance. i Retained earnings Sim 70,000 Capital stock Sim 50,000 Goodwill 50,000 Investment in Sim 153,000 Noncontrolling interest January 1 17,000 To eliminate reciprocal investment and equity amounts, establish beginning noncontrolling interest, and enter beginning-of-the-period fair value book value differential (goodwill). j Noncontrolling Interest Share 4,000 Dividends Sim 2,000 Noncontrolling Interest 2,000 To record Noncontrolling interest share of subsidiary income and dividends. k Dividends payable 9,000 Dividends receivable 9,000 To eliminate reciprocal receivables and payables.

7 Solution P6-2 (continued) Pal Corporation and Subsidiary Consolidation Working Papers for the year ended December 31, 2010 (in thousands) Adjustments and Pal Sim 90% Eliminations Income Statement Sales $ 300 $ 100 b 20 $ 380 Income from Sim 31 h 31 Gain on equipment 9 f 9 Cost of sales 140* 50* d 4 b 20 c 5 169* Operating expenses 60* 10* g 3 67* Consolidated NI 144 Noncontrolling share j 4 4* Controlling share of NI $ 140 $ 40 $ 140 Consolidated Statements Retained Earnings Retained earnings Pal $ 157 $ 157 Retained earnings Sim $ 70 i 70 Controlling share of NI Dividends 60* 20* h 18 j 2 60* Retained earnings December 31 $ 237 $ 90 $ 237 Balance Sheet Cash $ 100 $ 17 a 2 $ 119 Accounts receivable a Dividends receivable 9 k 9 Inventories 20 8 d 4 24 Land e 3 52 Buildings net Equipment net g 3 f Investment in Sim 158 c 5 e 3 h 13 i 153 Goodwill i $ 717 $ 200 $ 787 Accounts payable $ 98 $ 30 $ 128 Dividends payable k 9 16 Other liabilities Capital stock i Retained earnings $ 717 $ 200 Noncontrolling interest January 1 i 17 Noncontrolling interest December 31 j 2 19 * Deduct $ 787

8 Solution P6-5 Preliminary computations Cost January 1, 2009 $270,000 Add: Income from Stor for 2009 Equity in income ($40,000 90%) $36,000 Less: Patent amortize. ($60,000/10 years)x 90% (5,400) Less: Unrealized inventory profit (10,000) Less: Unrealized profit on machinery (selling price $35,000 - book value $28,000) (7,000) Add: Piecemeal recognition of profit on machinery ($7,000/3.5 years.5 year) 1,000 Income from Stor for ,600 Less: Dividends $10,000 90% (9,000) Investment balance January 1, ,600 Add: Income from Stor for 2010 Equity in income ($50,000 90%) $45,000 Less: Patent amortization (90%) (5,400) Add: Unrealized profit in beginning inventory 10,000 Less: Unrealized profit in ending inventory (12,000) Add: Piecemeal recognition of profit on machinery ($7,000/3.5 years) 2,000 Less: Gain on sale of land (5,000) Income from Stor for ,600 Less: Dividends ($20,000 90%) (18,000) Investment balance December 31, 2010 $292,200 Noncontrolling interest share of Stor s income (10%) Stor s reported net income $40,000 $50,000 Less: Patent amortization (6,000) (6,000) Stor s adjusted income $34,000 $44,000 10% Noncontrollling interest share $ 3,400 $ 4,400

9 Solution P6-5 (continued) Pall Corporation and Subsidiary Consolidation Working Papers for the Year Ended December 31, 2010 Adjustments and Eliminations Consolidated Statements Pall Stor 90% Income Statement Sales $ 450,000 $ 190,000 a 72,000 $ 568,000 Income from Stor 34,600 f 34,600 Gain on land 5,000 e 5,000 Cost of sales (200,000) (100,000) c 12,000 a 72,000 b 10,000 (230,000) Operating expense (113,000) (40,000) h 6,000 d 2,000 (157,000) Consolidated NI 181,000 Noncontrolling share k 4,400 (4,400) Controlling share of NI $ 176,600 $ 50,000 $ 176,600 Retained Earnings Retained earnings Pall $ 200,000 $ 200,000 Retained earnings Stor $ 120,000 g 120,000 Controlling share of NI 176,600 50, ,600 Dividends (150,000) (20,000) f 18,000 k 2,000 (150,000) Retained earnings December 31 $ 226,600 $ 150,000 $ 226,600 Balance Sheet Cash $ 136,400 $ 14,000 $ 150,400 Accounts receivable 180, ,000 i 10, ,000 Dividends receivable 18,000 j 18,000 Inventories 60,000 36,000 c 12,000 84,000 Land 100,000 30,000 e 5, ,000 Buildings net 280,000 80, ,000 Machinery net 330, ,000 d 4, ,000 Investment in Stor 292,200 b 10,000 d 6,000 f 16,600 g 291,600 Patents g 54,000 h 6,000 48,000 Total assets $1,396,600 $ 400,000 $1,503,400 Accounts payable $ 200,000 $ 50,000 i 10,000 $ 240,000 Dividends payable 30,000 20,000 j 18,000 32,000 Other liabilities 140,000 30, ,000 Capital stock 800, ,000 g 150, ,000 Retained earnings 226, , ,600 Total equities $1,396,600 $ 400,000 Noncontrolling interest January 1 g 32,400 Noncontrolling interest December 31 k 2,400 34,800 $1,503,400

10 Solution P6-9 Preliminary computations Investment cost January 1, 2009 $108,000 Implied fair value of Spin ($108,000 / 80%) $135,000 Book value of Spin (110,000) Excess fair value over book value allocated to patent $ 25,000 Patent amortization: $25,000/10 years $ 2,500 Reconciliation of investment income: Spin s reported income $ 50,000 Less: Patent amortization (2,500) Less: Unrealized profit in ending inventory (1,000) Add: Unrealized profit in beginning inventory 2,000 Add: Piecemeal recognition of deferred profit on plant assets ($20,000 / 5 years) 4,000 Spin s adjusted income $ 52,500 Park s 80% controlling share $ 42,000 20% Noncontrolling interest share $ 10,500

11 Park Corporation and Subsidiary Consolidation Working Papers for the year ended December 31, 2012 Adjustments and Eliminations Consolidated Statements Park Spin 80% Income Statement Sales $ 650,000 $ 120,000 a 8,000 $ 762,000 Income from Spin 42,000 e 42,000 Cost of sales 390,000* 40,000* b 1,000 a 8, ,000* c 2,000 Other expenses 170,000* 30,000* g 2,500 d 4, ,500* Consolidated NI 142,500 Noncontrolling share i 10,500 10,500* Controlling share of NI $ 132,000 $ 50,000 $ 132,000 Retained Earnings Retained earnings Park $ 95,600 $ 95,600 Retained earnings Spin $ 20,000 f 20,000 Controlling share of NI 132,000 50, ,000 Dividends 70,000* 20,000* e 16,000 i 4,000 70,000* Retained earnings December 31 $ 157,600 $ 50,000 $ 157,600 Balance Sheet Cash $ 58,000 $ 20,000 $ 78,000 Accounts receivable 40,000 20,000 h 4,000 56,000 Inventories 60,000 35,000 b 1,000 94,000 Plant assets 290, ,000 d 20, ,000 Accumulated depreciation 70,000* 100,000* d 8, ,000* Investment in Spin 121,600 c 1,600 e 26,000 d 12,800 f 110,000 Patent f 17,500 g 2,500 15,000 $ 499,600 $ 180,000 $ 556,000 Accounts payable $ 42,000 $ 30,000 h 4,000 $ 68,000 Capital stock 300, ,000 f 100, ,000 Retained earnings 157,600 50, ,600 $ 499,600 $ 180,000 Noncontrolling interest January 1 c 400 f 27,500 d 3,200 Noncontrolling interest December 31 i 6,500 30,400 $ 556,000 * Deduct