11 AKL

Chapter 11SOLUTIONS TO EXERCISES

Solution E11-1

1 A 5 B2 A 6 C3 C 7 D4 A

Solution E11-2

1 B 4 D2 B 5 C3 D

Solution E11-3

1 cTotal value of Smith implied by purchase price ($720,000/.8)

$900,000

Noncontrolling interest percentage 20 %Noncontrolling interest $180,000

2 aOnly the parent’s percentage of unrealized profits from upstream sales is eliminated under parent company theory.

3 bSubsidiary’s income of $200,000 ´ 10% noncontrolling interest

$ 20,000

Less: Patent amortization ($70,000/10 years ´ 10%) (700 )Noncontrolling interest share $ 19,300

© 2009 Pearson Education, Inc. publishing as Prentice Hall11-1

11-2 Consolidation Theories, Push-down Accounting, and Corporate Joint Ventures

Solution E11-3 (continued)

4 aImplied fair value — $840,000 = patents at acquisitionBook value of 100% of identifiable net assets $840,000Add: Patents at acquisition ($54,000/90%) 60,000 Total implied value 900,000Percent acquired 80 %Purchase price under entity theory $720,000

5 bPurchase price — ($840,000 ´ 80%) = patents at acquisitionBook value $840,000 ´ 80% = underlying equity $672,000Add: Patents at acquisition ($54,000/90%) 60,000 Purchase price (traditional theory) $732,000

Solution E11-4

1 GoodwillParent company theoryCost of investment in Staff $ 500,000Fair value acquired ($400,000 ´ 80%) 320,000 Goodwill $ 180,000Entity theoryImplied value based on purchase price ($500,000/.8) $ 625,000Fair value of Staff’s net assets 400,000 Goodwill $ 225,000

2 Noncontrolling interestParent company theoryBook value of Staff’s net assets $ 260,000Noncontrolling interest percentage 20 %Noncontrolling interest $ 52,000Entity theoryTotal valuation of Staff $ 625,000Noncontrolling interest percentage 20% Noncontrolling interest $ 125,000

3 Total assetsParent company theory

Pond Staff Adjustment Total Current assets $ 20,000 $ 50,000 $ 40,000 ´ 80% $ 102,000Plant assets — net 480,000 250,000 110,000 ´ 80% 818,000Goodwill 180,000

$500,000 $300,000 $1,100,000

Entity theoryCurrent assets $ 20,000 $ 50,000 $ 40,000 ´ 100% $ 110,000Plant assets — net 480,000 250,000 110,000 ´ 100% 840,000Goodwill 225,000

$500,000 $300,000 $1,175,000

© 2009 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 11-3

Solution E11-5

Preliminary computationsParent company theoryCost of 80% interest $300,000Fair value acquired ($350,000 ´ 80%) 280,000 Goodwill $ 20,000

Entity theoryImplied total value ($300,000 cost ÷ 80%) $375,000Fair value of Shelly’s net identifiable assets 350,000 Goodwill $ 25,000

1 Consolidated net income and noncontrolling interest share for 2009: Parent EntityCompany Theory Theory

Combined separate incomes $550,000 $550,000Depreciation on excess allocated to equipment: $75,000 excess ´ 80% acquired ÷ 5 years (12,000) $75,000 excess ÷ 5 years (15,000) Total consolidated income 538,000 535,000Less: Noncontrolling interest share $50,000 ´ 20% (10,000) ($50,000 -15,000) ´ 20% (7,000 )Controlling interest share of NI $528,000 $528,000

2 Goodwill at December 31, 2009: $ 20,000 $ 25,000



Solution E11-6

Preliminary computation

Interest acquired in Stahl: 72,000 shares ¸ 80,000 shares = 90%

1 Stahl’s net assets under entity theory

Implied value from purchase price: $1,800,000/90% interest $2,000,000

2 Goodwill

a Entity theoryImplied value $2,000,000Less: Fair value and book value of net assets 1,710,000 Goodwill $ 290,000

b Parent company theoryCost of 90% interest $1,800,000Fair values of net assets acquired ($1,710,000 ´ 90%) 1,539,000 Goodwill $ 261,000

c Contemporary theory (same as entity theory) $ 290,000

3 Investment income from Stahl

Income from Stahl ($80,000 ´ 1/2 year ´ 90% interest) $ 36,000

4 Noncontrolling interest under entity theory

Imputed value of Stahl at July 1, 2009 $2,000,000Add: Income for 1/2 year 40,000

2,040,000Noncontrolling percentage 10 %Noncontrolling interest $ 204,000

Alternatively, $200,000 noncontrolling interest at July 1, plus $4,000 share of reported income = $204,000


Chapter 11 11-5

Solution E11-7

1 Parent company theory

Combined separate incomes of Palumbo and Seal $800,000Less: Palumbo’s share of unrealized profits from upstream inventory sales ($30,000 ´ 80%) (24,000)Less: Noncontrolling interest share ($300,000 ´ 20%) (60,000 )Consolidated net income $716,000

2 Entity theory

Combined separate incomes $800,000Less: Unrealized profits from upstream sales (30,000 )Total consolidated income $770,000

Income allocated to controlling stockholders ($500,000 + [$270,000 ´ 80%]) $716,000

Income allocated to noncontrolling stockholders ($300,000 - $30,000) ´ 20% $ 54,000

Solution E11-8 Parent

Traditional Company Entity Theory Theory Theory

Combined separate incomes $180,000 $180,000 $180,000Less: Unrealized inventory profits from downstream sales ($60,000 - $30,000) ´ 50% (15,000) (15,000) (15,000)Less: Unrealized profit on upstream sale of land ($96,000 - $70,000) ´ 100% (26,000) (26,000) ($96,000 - $70,000) ´ 80% (20,800)Less: Noncontrolling interest share ($60,000 - $26,000) ´ 20% (6,800) $60,000 ´ 20% (12,000 )Controlling share of net income $132,200 $132,200

Total consolidated income $139,000 Allocated to controlling stockholders $132,200 Allocated to noncontrolling Stockholders ($60,000 - $26,000) ´ 20% $ 6,800



Solution E11-9 [Push-down accounting]

1 Push down under parent company theoryRetained earnings 800,000Inventories 90,000Land 450,000Buildings — net 270,000Goodwill 360,000

Equipment 180,000Other liabilities 90,000Push down equity 1,700,000

To record revaluation of 90% of the net assets and elimination of retained earnings as a result of a business combination with Pioneer Corporation. Push down equity = ($600,000 fair value — book value differential ´ 90%) + $360,000 goodwill + $800,000 retained earnings.

2 Push down under entity theoryRetained earnings 800,000Inventories 100,000Land 500,000Buildings — net 300,000Goodwill 400,000

Equipment — net 200,000Other liabilities 100,000Push down equity 1,800,000

To record revaluation of 100% of the net assets and elimination of retained earnings as a result of a business combination with Pioneer. Push down equity = $600,000 fair value — book value differential + $400,000 goodwill + $800,000 retained earnings.

Solution E11-10

Each of the investments should be accounted for by the equity method as a one-line consolidation because the joint venture agreement requires consent of each venturer for important decisions. Thus, each venturer is able to exercise significant influence over its joint venture investment irrespective of ownership interest.

The 40 percent venturer:Income from Sun-Belt ($500,000 ´ 40%) $ 200,000Investment in Sun-Belt ($8,500,000 ´ 40%) $3,400,000

The 15 percent venturerIncome from Sun-Belt ($500,000 ´ 15%) $ 75,000Investment in Sun-Belt ($8,500,000 ´ 15%) $1,275,000

Solution E11-11

In general, VIE accounting follows normal consolidation principles. Under that approach, the noncontrolling interest share would be 90% of VIE earnings, or $450,000. However, the intercompany fees must be allocated to the primary beneficiary, not to noncontrolling interests. Therefore, in this case, noncontrolling interest share would be 90% of $460,000, or $414,000.


Chapter 11 11-7



Solution E11-12

As primary beneficiary, Paxel must include Polo in its consolidated financial staements. Additionally, Paxel must make the following disclosures: (a) the nature, purpose, size, and activities of the variable interest entity, (b) the carrying amount and classification of consolidated assets that are collateral for the variable interest entity’s obligations, and (c) lack of recourse if creditors (or beneficial interest holders) of a consolidated variable interest entity have no recourse to the general credit of the primary beneficiary.

Darden will not consolidate Polo, since they are not the primary beneficiary. As in traditional consolidations, only one firm consolidates a subsidiary. However, since Darden has a significant interest in Polo, they must disclose: (a) the nature of its involvement with the variable interest entity and when that involvement began, (b) the nature, purpose, size, and activities of the variable interest entity, and (c) the enterprise’s maximum exposure to loss as a result of its involvement with the variable interest entity.

Solution E11-13

According to FIN 46(R), if an enterprise absorbs a majority of a variable interest entity’s expected losses and another receives a majority of expected residual returns, the enterprise absorbing the losses is the primary beneficiary and must consolidate the variable interest entity. The contractual arrangement makes Laura the primary beneficiary.


Chapter 11 11-9

SOLUTION TO PROBLEMS

Solution P11-1

Picody Corporation and SubsidiaryComparative Consolidated Balance Sheets

at December 31, 2010

ParentCompany Theory Entity Theory

AssetsCash $ 52,000 $ 52,000Receivables — net 300,000 300,000Inventories 450,000 450,000Plant assets — neta 1,998,000 2,010,000Patentsb 64,000 80,000

Total assets $2,864,000 $2,892,000

LiabilitiesAccounts payable $ 304,000 $ 304,000Other liabilities 500,000 500,000Noncontrolling interestc 160,000

Total liabilities 964,000 804,000 Capital stock 1,000,000 1,000,000Retained earnings 900,000 900,000Noncontrolling interestd 0 188,000

Total stockholders’ equity 1,900,000 2,088,000 Total liabilities and stockholders’ equity $2,864,000 $2,892,000

a Parent company theory: Combined plant assets of $1,950,000 + ($80,000 ´ 3/5 undepreciated excess)Entity theory: Combined plant assets of $1,950,000 + ($100,000 ´ 3/5 undepreciated excess)

b Parent company theory: $80,000 patents - $16,000 amortizationEntity theory: $100,000 patents - $20,000 amortization

c Parent company theory: Noncontrolling interest equals Scone’s equity of $800,000 ´ 20%

d Entity theory: [Scone’s equity of $800,000 + ($60,000 undepreciated plant assets + $80,000 unamortized patents)] ´ 20%



Solution P11-2

Preliminary computationImplied value of Pisces based on purchase price ($160,000/.8) $200,000Book value 170,000 Excess to undervalued equipment $ 30,000

1 Pisces Corporation and SubsidiaryConsolidated Income Statement

for the year ended December 31, 2009

Sales $600,000Less: Cost of sales 380,000

Gross profit 220,000Other expenses $ 80,000Depreciationa 79,500 159,500

Total consolidated net income $ 60,500

Allocation of income to:Noncontrolling interestb $ 4,100

Controlling interest $ 56,400

a $75,000 depreciation - $500 piecemeal recognition of gain on equipment through depreciation + ($30,000 excess ¸ 6 years) excess depreciation

b ($30,000 reported income - $5,000 unrealized gain on equipment + $500 piecemeal recognition of gain on equipment - $5,000 excess depreciation) ´ 20% interest

2 Pisces Corporation and SubsidiaryConsolidated Balance Sheet


AssetsCurrent assets $241,600Plant and equipment — net ($595,000 - $199,500 + 25,000) 420,500 Total assets $662,100

Liabilities and equityLiabilities $150,000Capital stock 300,000Retained earningsa 170,000Noncontrolling interestb 42,100 Total liabilities and stockholders’ equity $662,100

a Pisces beginning retained earnings $163,600 + Pisces net income $56,400 - Pisces dividends of $50,000

b ($190,000 stockholders’ equity + $25,000 excess - $4,500 unrealized gain on equipment) ´ 20%

Check: $40,000 beginning noncontrolling interest + $4,100 noncontrolling interest share - $2,000 noncontrolling interest dividends = $42,100


Chapter 11 11-11

Solution P11-3

Parent company theory1a Income from Sign for 2009 ($90,000 ´ 70%) $ 63,000

1b Goodwill at December 31, 2009 $ 70,000($595,000 cost - $525,000 fair value)

1c Consolidated net income for 2009

Palace’s separate income $300,000Add: Income from Sign 63,000 $363,000

1d Noncontrolling interest share for 2009

Net income of Sign of $90,000 ´ 30% $ 27,000

1e Noncontrolling interest December 31, 2009

Sign’s stockholders’ equity $790,000 ´ 30% $237,000

Entity theory

2a Income from Sign for 2009 ($90,000 ´ 70%) $ 63,000

2b Goodwill at December 31, 2009

Imputed value ($595,000/70%) $850,000Fair value of Sign’s net assets 750,000 Goodwill $100,000

2c Total consolidated income for 2009

Income to controlling stockholders ($300,000 + $63,000) $363,000Add: Noncontrolling interest share ($90,000 ´ 30%) 27,000 Total consolidated income $390,000

2d Noncontrolling interest share (computed in 2c above) $ 27,000

2e Noncontrolling interest at December 31, 2009

(Book equity $790,000 + $100,000 goodwill) ´ 30% $267,000



Solution P11-4

Preliminary computationsParent company theoryInvestment in Smedley $224,000Fair value of 80% interest acquired ($240,000 ´ 80%) 192,000 Goodwill $ 32,000

Entity TheoryImplied value of Smedley ($224,000/.8) $280,000Fair value of identifiable net assets 240,000 Goodwill $ 40,000

Pierre used an incomplete equity method in accounting for its investment in Smedley. It ignored the intercompany upstream sales of inventory. Income from Smedley on an equity basis would be:Share of Smedley’s income ($50,000 ´ .8) $ 40,000Less: Unrealized profits in ending inventory from upstream sale ($8,000 ´ 50% ´ 80%) (3,200) Income from Smedley $ 36,800

Pierre Corporation and SubsidiaryComparative Consolidated Income Statements


ParentTraditional Company Entity Theory Theory Theory

Sales $1,000,000 $1,000,000 $1,000,000Less: Cost of sales (575,000 ) (575,000 ) (575,000 )

Gross profit 425,000 425,000 425,000

Expenses (200,000) (200,000) (200,000)

Less: Unrealized profit on upstream sale of inventory ($23,000 - $15,000) ´ 50% ´ 100% (4,000) (4,000) ($23,000 - $15,000) ´ 50% ´ 80% (3,200)Noncontrolling interest share ($50,000 - $4,000) ´ 20% (9,200) $50,000 ´ 20% (10,000 )Consolidated net income $ 211,800 $ 211,800Total consolidated income $ 221,000

Allocated to controlling Stockholders $ 211,800Allocated to noncontrolling Stockholders ($50,000 - $4,000) ´ 20% $ 9,200


Chapter 11 11-13

Solution P11-4 (continued)

Pierre Corporation and SubsidiaryComparative Statements of Retained Earnings


Parent Traditional Company Entity Theory Theory Theory

Retained earnings December 31, 2009 $360,000 $360,000 $ 360,000Add: Consolidated net income 211,800 211,800Add: Net income to controlling stockholders

211,800

571,800 571,800 571,800Less: Dividends to controlling stockholders

(120,000 ) (120,000 ) (120,000 )

Retained earnings December 31, 2010 $ 451,800 $ 451,800 $ 451,800

Pierre Corporation and SubsidiaryComparative Consolidated Balance Sheets


Parent Traditional Company Entity Theory Theory Theory

AssetsCash $ 110,800 $ 110,800 $ 110,800Accounts receivable 120,000 120,000 120,000Inventory 196,000 196,800 196,000Land 280,000 280,000 280,000Buildings — net 840,000 840,000 840,000Goodwill 32,000 32,000 40,000

Total assets $1,578,800 $1,579,600 $1,586,800

LiabilitiesAccounts payable $ 275,800 $ 275,800 $ 275,800Noncontrolling interest 52,000

Total liabilities 275,800 327,800 275,800

Stockholders’ equityCapital stock 800,000 800,000 800,000Retained earnings 451,800 451,800 451,800Noncontrolling interest 51,200 59,200

Total stockholders’ equity 1,303,000 1,251,800 1,311,000 Total equities $1,578,800 $1,579,600 $1,586,800



Solution P11-5

Packard Corporation and SubsidiaryComparative Balance Sheets


Traditional Entity Theory Theory

AssetsCash $ 70,000 $ 70,000Receivables — net 110,000 110,000Inventories 120,000 120,000Plant assets — net 300,000 300,000Goodwill 40,000 50,000

Total assets $640,000 $650,000

LiabilitiesAccounts payable $ 95,000 $ 95,000Other liabilities 25,000 25,000

Total liabilities 120,000 120,000

Stockholders’ equityCapital stock 300,000 300,000Retained earnings 194,000 194,000Noncontrolling interest ($150,000 - $20,000) ´ 20% 26,000 ($150,000 + $50,000 - $20,000) ´ 20% 36,000

Total stockholders’ equity 520,000 530,000 Total equities $640,000 $650,000

Supporting computations Traditional Entity Theory Theory

Cost or imputed value $128,000 $160,000Book value of 80% 88,000Book value of 100% 110,000 Goodwill $ 40,000 $ 50,000

Investment cost $128,000Add: 80% of retained earnings increase ($50,000 - $10,000) ´ 80% 32,000Less: 80% of $20,000 unrealized profits (16,000 )Investment balance $144,000


Chapter 11 11-15

Solution P11-6 [AICPA adapted]

1 X carries its investment in Y on a cost basis. This is evidenced by the appearance of dividend revenue in X Company’s income statement and by the absence of income from subsidiary.

2 X holds 1,400 shares of Y. X Company’s percentage ownership is 70%, as determined by the relationship of X Company’s dividend revenues and Y Company’s dividends paid ($11,200/$16,000). Y has 2,000 outstanding shares ($200,000/$100) and X holds 70% of these, or 1,400 shares.

3 Y Company’s retained earnings at acquisition were $100,000.

Imputed value of Y ($245,000 cost/70%) $ 350,000Less: Patents (applicable to 100%) (50,000 )Book value and fair value of Y’s identifiable net assets 300,000Less: Capital stock (200,000 )Retained earnings $ 100,000

4 The nonrecurring loss is a constructive loss on the purchase of X bonds by Y Company.

Working paper entry:Mortgage bonds payable (5%) 100,000Loss on retirement of X bonds 3,000

X bonds owned 103,000To eliminate intercompany bond investment and bonds payable and to recognize a loss on the constructive retirement of X bonds.

5 Intercompany sales X to Y are $240,000 computed as follows:

Combined sales ($600,000 + $400,000) $1,000,000Less: Consolidated sales 760,000 Intercompany sales $ 240,000

6 Yes, there are other intercompany debts:Intercompany

Combined Consolidated Balances Cash and receivables $143,000 $97,400 $ 45,600Current payables 93,000 53,000 40,000Dividends payable 18,000 12,400 5,600

Y Company owes X Company $40,000 on intercompany purchases and X Company owes Y Company $5,600 dividends.



Solution P11-6 (continued)

7 Adjustment to determine consolidated cost of goods sold:

Consolidated Cost of Goods SoldCombined cost of goods sold

$640,000 $240,000 Intercompany purchases

Unrealized profit in ending inventory 8,000 5,000

Unrealized profit in beginning inventory

403,000 ü To balance$648,000 $648,000

Consolidated cost of goods sold $403,000

Unrealized profit in ending inventory is equal to the combined less consolidated inventories ($130,000 - $122,000).Unrealized profit in beginning inventory is plugged as follows: ($640,000 + $8,000) - ($240,000 + $403,000) = $5,000

8 Noncontrolling interest share of $8,700 is computed as follows:

Net income of Y $ 34,000Less: Patent amortization ($50,000/10 years) 5,000 Adjusted income of Y 29,000Noncontrolling interest percentage 30 %Noncontrolling interest share $ 8,700

9 Noncontrolling interest of $117,000 at the balance sheet date is computed:

Stockholders’ equity of Y Company $360,000Add: Unamortized patents 30,000 Equity of Y plus unamortized patents 390,000Noncontrolling interest percentage 30 %Noncontrolling interest on balance sheet date $117,000

10 Consolidated retained earnings

Retained earnings of X end of year $200,000Add: X’s share of increase in Y’s retained earnings since acquisition ($160,000 - $100,000) ´ 70% 42,000Less: Unrealized profit in Y’s ending inventory (8,000)Less: X’s patent amortization since acquisition $20,000 ´ 70% (14,000)Less: Loss on constructive retirement of X’s bonds (3,000 )Consolidated retained earnings — end of year $217,000


Chapter 11 11-17

Solution P11-7

1 Entry on Splash’s books at acquisition

Inventories 20,000Land 25,000Buildings — net 50,000Other liabilities 10,000Goodwill 20,000Retained earnings 90,000

Equipment — net 15,000Push-down capital 200,000

To push down fair value — book value differentials.

2 Splash CorporationBalance Sheet

at January 1, 2010AssetsCash $ 30,000Accounts receivable — net 70,000Inventories 80,000

Total current assets $180,000Land $ 75,000Buildings — net 150,000Equipment — net 75,000

Total plant assets 300,000Goodwill 20,000

Total assets $500,000

Liabilities And Stockholders’ EquityAccounts payable $ 40,000Other liabilities 60,000

Total liabilities $100,000Capital stock $200,000Push-down capital 200,000

Total stockholders’ equity 400,000 Total liabilities and stockholders’ Equity $500,000

3 If Splash reports net income of $90,000 under the new push-down system for the calendar year 2010, Played’s income from Splash will also be $90,000 under a one-line consolidation.



Solution P11-8

1 Parent company theoryPreliminary computation:Cost of 80% interest in Sanue $3,000,000Book value acquired ($2,000,000 ´ 80%) 1,600,000

Excess cost over book value acquired $1,400,000Excess allocated to:Inventories $1,600,000 ´ 80% $1,280,000Equipment — net $(500,000) ´ 80% (400,000)Goodwill for the remainder 520,000

Excess fair value over book value acquired $1,400,000

Entry on Sanue’s books to reflect 80% push down:Inventories 1,280,000Goodwill 520,000Retained earnings 1,200,000

Equipment — net 400,000Push-down capital 2,600,000

2 Entity theoryPreliminary computation:Implied value of net assets ($3,000,000/.8) $3,750,000Book value of net assets 2,000,000

Total excess $1,750,000Excess allocated to:Inventories $1,600,000Equipment — net (500,000)Goodwill for remainder 650,000

Total excess $1,750,000

Entry on Sanue’s books to reflect 100% push down:Inventories 1,600,000Goodwill 650,000Retained earnings 1,200,000

Equipment 500,000Push-down capital 2,950,000

3 Noncontrolling interest (Parent company theory)

Sanue’s stockholders’ equity $2,000,000 ´ 20% $ 400,000

4 Noncontrolling interest (Entity theory)

Capital stock $ 800,000Push-down capital 2,950,000 Stockholders’ equity 3,750,000Noncontrolling interest percentage 20 %Noncontrolling interest $ 750,000


Chapter 11 11-19

Solution P11-9

1 Push down under parent company theory

Buildings — net 18,000Equipment — net 27,000Goodwill 36,000Retained earnings 20,000

Inventories 9,000Push-down capital 92,000

To record revaluation of 90% of net assets and elimination of retained earnings as a result of a business combination with Power Corporation.

2 Push down under entity theory

Buildings — net 20,000Equipment — net 30,000Goodwill 40,000Retained earnings 20,000

Inventories 10,000Push-down capital 100,000

To record revaluation of net assets imputed from purchase price of 90% interest acquired by Power Corporation.

3 Swing CorporationComparative Balance Sheets

at January 1, 2010

Parent Company Theory Entity TheoryAssetsCash $ 20,000 $ 20,000Accounts receivable — net 50,000 50,000Inventories 31,000 30,000Land 15,000 15,000Buildings — net 48,000 50,000Equipment — net 97,000 100,000Goodwill 36,000 40,000

Total assets $297,000 $305,000

Liabilities and stockholders’ equityAccounts payable $ 45,000 $ 45,000Other liabilities 60,000 60,000Capital stock 100,000 100,000Push-down capital 92,000 100,000Retained earnings 0 0

Total equities $297,000 $305,000



Solution P11-10

a Power Corporation and SubsidiaryConsolidation Working Papers

for the year ended December 31, 2010Push down 90% — parent company theory

Power90%

SwingAdjustments andEliminations

ConsolidatedStatements

Income StatementSales $ 310,800 $ 110,000 $ 420,800

Income from Swing 37,800 b 37,800

Cost of sales 140,000* 33,000* 173,000*

Depreciation expense 29,000* 24,200* 53,200*

Other operating expenses 45,000* 11,000* 56,000*

Consolidated NI $ 138,000

Noncontrolling share e 4,000 4,000*

Controlling share of NI $ 134,600 $ 41,800 $ 134,600

Retained Earnings

Retained earnings — Power

$ 147,000 $ 147,000

Retained earnings — Swing

$ 0

Controlling share of NI 134,600ü 41,800ü 134,600

Dividends 60,000* 10,000* b 9,000e 1,000 60,000*

Retained earnings December 31 $ 221,600 $ 31,800 $ 221,600

Balance SheetCash $ 63,800 $ 27,000 a 8,000 $ 98,800

Accounts receivable — net

90,000 40,000 a 8,000 122,000

Dividends receivable 9,000 d 9,000

Inventories 20,000 35,000 55,000

Land 40,000 15,000 55,000

Buildings — net 140,000 43,200 183,200

Equipment — net 165,000 77,600 242,600

Investment in Swing 208,800 b 28,800c 180,000

Goodwill 36,000 36,000

$ 736,600 $ 273,800 $ 792,600

Accounts payable $ 125,000 $ 20,000 $ 145,000

Dividends payable 15,000 10,000 d 9,000 16,000

Other liabilities 75,000 20,000 95,000

Capital stock 300,000 100,000 c 100,000 300,000

Push-down capital 92,000 c 92,000

Retained earnings 221,600ü 31,800ü 221,600


Chapter 11 11-21

$ 736,600 $ 273,800

Noncontrolling interest January 1 c 12,000

Noncontrolling interest December 31 e 3,000 15,000

$ 792,600* Deduct



Solution P11-10 (continued)b Power Corporation and Subsidiary

Consolidation Working Papersfor the year ended December 31, 2010

Push down 100% — entity theory

Power90%

SwingAdjustments andEliminations


Income StatementSales $ 310,800 $ 110,000 $ 420,800

Income from Swing 37,800 b 37,800

Cost of sales 140,000* 32,000* 172,000*

Depreciation expense 29,000* 25,000* 54,000*

Other operating expenses 45,000* 11,000* 56,000*

Consolidated NI $ 138,800

Noncontrolling share e 4,200 4,200*

Controlling share of NI $ 134,600 $ 42,000 $ 134,600

Retained Earnings

Retained earnings — Power

$ 147,000 $ 147,000

Retained earnings — Swing

$ 0

Controlling share of NI 134,600ü 42,000ü 134,600

Dividends 60,000* 10,000* b 9,000e 1,000 60,000*

Retained earnings December 31 $ 221,600 $ 32,000 $ 221,600

Balance SheetCash $ 63,800 $ 27,000 a 8,000 $ 98,800

Accounts receivable — net

90,000 40,000 a 8,000 122,000

Dividends receivable 9,000 d 9,000

Inventories 20,000 35,000 55,000

Land 40,000 15,000 55,000

Buildings — net 140,000 45,000 185,000

Equipment — net 165,000 80,000 245,000

Investment in Swing 208,800 b 28,800c 180,000

Goodwill 40,000 40,000

$ 736,600 $ 282,000 $ 800,800

Accounts payable $ 125,000 $ 20,000 $ 145,000

Dividends payable 15,000 10,000 d 9,000 16,000

Other liabilities 75,000 20,000 95,000

Capital stock 300,000 100,000 c 100,000 300,000

Push-down capital 100,000 c 100,000

Retained earnings 221,600ü 32,000ü 221,600

$ 736,600 $ 282,000


Chapter 11 11-23

Noncontrolling interest January 1 c 20,000

Noncontrolling interest December 31 e 3,200 23,200

$ 800,800* Deduct



Solution P11-11

Pepper Corporation and SubsidiaryProportionate Consolidation Working Papers


Pepper Jerry 40%Adjustments andEliminations


Income StatementSales $ 800,000 $ 300,000 b 180,000 $ 920,000

Income from Jerry 20,000 a 20,000

Cost of sales 400,000* 150,000* b 90,000 460,000*

Depreciation expense 100,000* 40,000* b 24,000 116,000*

Other expenses 120,000* 60,000* b 36,000 144,000*

Net income $ 200,000 $ 50,000 $ 200,000

Retained Earnings

Retained earnings — Pepper $ 300,000 $ 300,000

Venture equity — Jerry $ 250,000 b 250,000

Net income 200,000ü 50,000ü 200,000

Dividends 100,000* 100,000*

Retained earnings/ Venture equity $ 400,000 $ 300,000 $ 400,000

Balance SheetCash $ 100,000 $ 50,000 b 30,000 $ 120,000

Receivables — net 130,000 30,000 b 18,000 142,000

Inventories 110,000 40,000 b 24,000 126,000

Land 140,000 60,000 b 36,000 164,000

Buildings — net 200,000 100,000 b 60,000 240,000

Equipment — net 300,000 180,000 b 108,000 372,000

Investment in Jerry 120,000 a 20,000b 100,000

$1,100,000 $ 460,000 $1,164,000

Accounts payable $ 120,000 $ 100,000 b 60,000 $ 160,000

Other liabilities 80,000 60,000 b 36,000 104,000

Common stock, $10 par 500,000 500,000

Retained earnings 400,000ü 400,000

Venture equity — Jerry 300,000ü

$1,100,000 $ 460,000 $1,164,000* Deduct


Documents

11 AKL