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Chapter 09 - Consolidation Ownership Issues

CHAPTER 9

CONSOLIDATION OWNERSHIP ISSUES

ANSWERS TO QUESTIONS

Q9-1 Preferred stock of the subsidiary is eliminated in the consolidation process in amanner comparable to that used in eliminating the common stock of the subsidiary. For those preferred shares held by the parent company, a proportionate share of subsidiaryincome and net assets assigned to the preferred shares is eliminated against the balance inthe parent's investment account. Subsidiary income and net assets assigned to preferredshares not held by the parent are included as a part of the noncontrolling interest along withthe balances assigned to noncontrolling interest for common stock not held by the parent.The claim of the preferred shareholders normally is computed before the common stock iseliminated so that any priority claim associated with the preferred stock can be properlyrecognized and assigned to the correct shareholder group.

Q9-2 ll preferred shares held by the parent are eliminated against the balance in theinvestment account. Those held by unrelated parties are included in the total assigned tothe noncontrolling interest.

Q9-3 Preferred dividends normally are deducted in arriving at income available to commonshareholders. !hen preferred dividends are paid by the subsidiary to shareholders other than the parent, the income accruing to the common shares held by the parent company isreduced. Therefore, they must be deducted to arrive at income available to the parentcompany shareholders. "o preferred dividends are deducted if the parent company ownsall the shares or if no dividends are declared and the preferred stock is noncumulative.

Q9-4 #n the event the preferred shares are redeemed, the subsidiary must pay the callpremium and the net assets of the subsidiary will be reduced by the amount of thepremium. $ecause it is more conservative to assume the call premium will be paid, theamount of the premium normally is added to the claim of the preferred shareholders anddeducted from the e%uity assigned to the common shareholders whenever consolidatedstatements are prepared.

Q9-5 The fair value of the net assets of the subsidiary is computed by deducting the fair value of the subsidiary's liabilities from the fair value of its assets. !hen the subsidiary haspreferred stock outstanding, the claims of the preferred shareholders, including dividends inarrears and participation rights held by preferred shareholders, must be taken intoconsideration in determining the fair value of net assets available to common shareholders.These items, when deducted from the fair value of the identifiable assets of the ac%uired

company, will reduce the amount of net assets assigned to common stock and potentiallyincrease the amount reported as goodwill.

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Q9-6 The parent may record the difference between the carrying value and the sale priceof the shares as either a gain on sale of investment or an ad&ustment to its additional paidincapital. "o gain or loss on the sale of subsidiary shares should be reported in theconsolidated statements. #f the parent records a gain on the sale, it should be eliminated inthe consolidation process and treated as a part of additional paidin capital of theconsolidated entity.

Q9-7 ll common shareholders should share e%ually in the net assets of a company.!hen a subsidiary sells additional shares to a nonaffiliate at a price in e(cess of e(istingbook value, the effect will be to increase the net book value of all shareholders. $ecause itis a capital transaction, no gain or loss is recognized on the sale.

Q9-8 )ach purchase of additional shares should be e(amined to determine the differencebetween the price paid and underlying book value. !hen an amount greater than bookvalue is paid directly to the subsidiary for the shares, the book value of the shares held bythe noncontrolling interest will increase. s a result, the increase in the parent*s claim on thenet assets of the subsidiary will be less than the amount paid. !hen consolidatedstatements are prepared, additional paidin capital or retained earnings +if the parent has noadditional paidin capital must be debited for the increase in the balance assigned to the

noncontrolling interest, thereby reducing the amount reported in the consolidated balancesheet.

Q9-9 ll the shares of the subsidiary are eliminated in preparing the consolidatedstatements. Thus, treasury shares reported by the subsidiary are eliminated in theconsolidation workpaper. The effect of the retirement on the consolidated statementsdepends on the price paid and whether the shares were purchased from the parent or froma nonaffiliate.

Q9-10 #ndirect ownership is a general term used whenever one company owns shares of another company and that company holds ownership in a third company. #ndirect controloccurs when a ma&ority of the shares of a particular company are held by one or morecompanies that are, in turn, under the control of another company. $y e(ercising its controlover those companies the parent can e(ercise control of the company indirectly owned.

Q9-11 reciprocal relationship e(ists if Subsidiary and Subsidiary $ hold ownership ineach other. #f Subsidiary records investment income based on the reported net income of Subsidiary $ and Subsidiary $ records investment income based on the reported netincome of Subsidiary , the sum of the reported net income totals for the two companiesmay be substantially greater than the sum of the reported operating income totals for thetwo companies. Parent company net income will be overstated if the impact of thereciprocal relationship is ignored when the parent company records investment income onits ownership in the two subsidiaries.

Q9-12 -nder the treasury stock method the parent company shares that have been

purchased by a subsidiary are reported as treasury stock in the consolidated balance sheet.The carrying value of the shares is the amount paid by the subsidiary when they werepurchased.

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Q9-13 onsolidated net income will be reduced by /011,111. #ncome assigned to thecontrolling interest will be reduced by /23,111 +/011,111 ( .41 ( .51 when the unrealizedprofit of Tiny orporation is eliminated. total of /01,111 is treated as a reduction to theincome assigned to noncontrolling shareholders of Tiny orporation +/011,111 ( .01 and/05,111 is a reduction of the income assigned to noncontrolling shareholders of Subsidiaryompany +/011,111 ( .41 ( .31.

Q9-14 ll three companies should be included in the consolidated financial statements.Slide ompany should be consolidated with $it ompany because $it holds ma&orityownership of Slide. $it ompany, in turn, should be consolidated with Snapper orporationbecause Snapper holds ma&ority ownership of $it.

Q9-15 subsidiary's stock dividend results in the capitalization of some portion of itsretained earnings. Such an action will have no effect on the consolidated financialstatements since the entire stockholders' e%uity section of the subsidiary is eliminated inpreparing the consolidation workpaper.

Q9-16 06 percent stock dividend is a small stock dividend and must be recorded bycapitalizing retained earnings e%ual to the market price per share of the stock times the

number of shares actually issued. s a result, retained earnings will decrease and the par value of stock outstanding and additional paidin capital will increase on the subsidiary'sbooks. There should be no change in the investment account balance reported by theparent. Thus, the only change in the eliminating entries is the relative amount debited toeach of the three individual stockholders' e%uity accounts of the subsidiary.

Q9-17 !hen the parent or other affiliates own all the shares of all companies included inthe consolidation, the order in which the consolidation is completed may not be particularlycritical. 7n the other hand, when less than 011 percent ownership is held there is a muchgreater chance of error in apportioning unrealized profits or other ad&ustments betweennoncontrolling ownership and consolidated net income when some other se%uence is used.$y starting the consolidation with the company furthest away from the parent, thecomputation of income assigned to noncontrolling interest at each level can be most easilyaccomplished.

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SOLUTIONS TO CASES

C9-1 Effec !f S"#$%&%'() P(efe((e& S!c*

!hen a parent company does not own all the shares of a subsidiary, income assigned tothe noncontrolling interest includes +0 a portion of subsidiary preferred dividends and +3 a

portion of earnings available to common shareholders.

To determine the amount of income to assign to preferred and common shareholders of thesubsidiary, the controller needs to have the following information about the preferred stock8

0. The number of preferred shares outstanding and the number owned by the parent andother affiliates.

3. The annual preferred dividend rate per share and whether the dividends are cumulativeor noncumulative.

9. #f the dividends are noncumulative, the amount of preferred dividends declared duringthe period, if any.

#n this particular case the parent does not appear to own any of the subsidiary's preferredshares. 7nce the controller determines the portion of subsidiary income assignable tocommon shareholders, consolidated net income attributable to the controlling interest iscomputed by adding the parent's pro rata share of this amount to the parent's income fromits own operations.

C9-2 C!+$!,%&'e& S!c*!,&e($. E/"%) Te!() $ P('c%ce

a. -pon the sale of stock of a subsidiary, :ero( used to recognize a gain or loss in theconsolidated income statement e%ual to the company*s proportionate share of thecorresponding increase or decrease in that subsidiary*s e%uity. -nder AS 160, the sale of subsidiary shares is viewed as an e%uity transaction and does not affect income. #nstead,the difference between the fair value of the consideration received and the change in theamount of the noncontrolling interest is recognized as an ad&ustment to stockholders* e%uity+usually additional paidin capital.

b. 7ccidental Petroleum has generally treated subsidiary preferred stock as a liability +theamount is small. #t should be reported as part of the noncontrolling interest.

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C9-3 S',e !f S"#$%&%'() S'(e$

;);7

To8 <obert <eader =ice President of Finance

$ook orporation

From8 , P

<e8 <ecognition of >ain on Sale of Subsidiary Shares

Previous accounting standards did not specifically address the issue of how to treat a saleof subsidiary shares when the parent retained controlling ownership. ?owever, a commonpractice was to recognize a gain or loss on the sale of shares.

The FS$*s recent issuance of AS 160 makes clear that, from a consolidatedperspective, a parent*s sale of subsidiary shares while maintaining control is an e%uity

transaction. ccordingly, no gain or loss on the sale should be reported in the consolidatedincome statement. #nstead, e%uity should be ad&usted by the difference between theconsideration received and the change in the parent*s subsidiary interest.

#n the current situation, $ook*s interest in @ance prior to its sale of @ance shares was/9A1,111, an amount e%ual to 41 percent of @ance*s /B11,111 book value. #mmediatelyfollowing the sale of @ance shares, $ook*s remaining A1 percent interest in @ance is/3B1,111 +/B11,111 ( .A1, a decrease of /031,111 +/9A1,111 /3B1,111. The differencebetween the proceeds received and the change in the book value of $ook*s interest in@ance is as follows8

Proceeds received +/6.A1 ( 91,111 shares /0A5,111hange in book value of interest +/9A1,111 /3B1,111 031,111<e%uired ad&ustment to e%uity / B5,111

This /B5,111 difference should be reported within e%uity in the consolidated balance sheet. lthough alternatives e(ist in terms of how to meet the FS$*s reporting re%uirement, thefollowing entry to record the sale of shares on $ook*s books would be consistent with theFS$*s re%uirement and probably the most efficient approach8

ash 0A5,111#nvestment in @ance ompany Stock 031,111

dditional Paid#n apital B5,111

The additional paidin capital recorded on $ook*s books would carry over to the

consolidated balance sheet and would be included in consolidated e%uity.#f $ook elected to record a /B5,111 gain on the sale of @ance shares instead of recognizingadditional paidin capital as shown in the entry, that gain would have to be transferred toadditional paidin capital in the preparation of consolidated financial statements.

Primary citation:FS$ 0A1

<$ 60 +as amended by FS$ 0A1, Par. 99.

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C9-4 S',e !f S"#$%&%'() S'(e$

+a !ith a sale of shares to a nonaffiliate, net resources have been brought into theconsolidated entity and the noncontrolling shareholders have an additional claim. Thee(cess of the proceeds received from the sale over the change in the parent*s interest inthe subsidiary increases the amount of additional paidin capital reported in the

consolidated balance sheet. sale of subsidiary shares to a nonaffiliate also changes theamount of income assigned to the noncontrolling interest in the consolidated incomestatement and the amount of net assets assigned to the noncontrolling interest in theconsolidated balance sheet.

+b !hen a parent sells shares of one subsidiary to another subsidiary, net resources tothe consolidated entity do not change. ny gain recorded by the parent must be eliminatedwhen the investment balance reported by the subsidiary is eliminated in preparingconsolidated financial statements. change in the claim of the noncontrolling interest islikely to occur if the subsidiary that purchases the shares is not wholly owned. s a result,there may be some change in consolidated income and the balance sheet totals assignedto noncontrolling interest.

C9-5 Rec%(!c', O+e($%

great many factors beyond the immediate impact on reported earnings may be importantin deciding on the use of the funds. #tems such as the following should be considered8

0. re the e(cess funds held by Thorson available only temporarily or are they not likely tobe needed in the foreseeable futureC

3. !ill there be any regulatory or ta(ation problems associated with one or more of thealternativesC

9. an shares of the companies be purchased in the desired %uantities and at e(istingmarket prices or are there potential difficulties associated with one or more alternativesC

B. #s it desirable to ac%uire more shares of either subsidiary since controlling ownershipalready is in the hands of Strong ;anufacturingC

6. ?ave the noncontrolling shareholders of either subsidiary been troublesome or causedthe parent to refrain from actions that it might otherwise have takenC

!ith the information given, it is difficult to determine which action will have the mostfavorable impact on consolidated net income. The earnings of each company, the number of shares outstanding, and the relative market prices of the shares each will have an effect.#n general, reported income is ma(imized by purchasing the shares with the lowest priceearnings ratio.

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SOLUTIONS TO EERCISES

E9-1 ",%,e-C!%ce Q"e$%!+$ !+ P(efe((e& S!c* O+e($%

0. d /61,111 D /31,111 E /91,111

3. c /34,111 D /31,111 E .91+/91,111

9. b 7nly the retained earnings of the ac%uiring company is included.

B. a The portion held by the parent is eliminated when the preferred investment iseliminated, and the portion held by nonaffiliates is eliminated and included with thebalance reported as noncontrolling interest in the consolidated balance sheet.

E9-2 ",%,e-C!%ce Q"e$%!+$ !+ ",%,ee, O+e($%

0. b /055,111 D /011,111 E .51/51,111 E .A1+/61,111G

3. b /31,111 D .B1+/61,111

9. c /33,111 D .31/51,111 E .A1+/61,111G

B. c /B3,111 D .B1+/61,111 E .31/51,111 E .A1+/61,111G

6. b /3,B11 D .51 ( .A1+/061,111 E /011,111 /311,111 H 01 years

E9-3 Ac/"%$%%!+ !f P(efe((e& S'(e$

)liminating entries8

)+0 ommon Stock I Separate ompany 61,111<etained )arnings 061,111 #nvestment in Separate ompany ommon Stock 0B1,111 "oncontrolling #nterest A1,111 )liminate investment in common stock.

)+3 Preferred Stock I Separate ompany 011,111

#nvestment in Separate ompany Preferred Stock A1,111 "oncontrolling #nterest B1,111 )liminate subsidiary preferred stock.

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E9-4 Rec%(!c', O+e($% AICPA A&'e&:

a. "one of Simba's dividends is reported in the consolidated statements. ll ofSimba's dividends are eliminated in the consolidation process.

b. 7nly 41 percent of Pride's dividends are included in the consolidated retained

earnings statement. The dividend payment on the 01 percent owned by Simba isan intercorporate payment to an affiliate and must be eliminated in theconsolidation process.

E9-5 S"#$%&%'() % P(efe((e& S!c* O"$'+&%+;

)liminating entries8

)+0 ommon Stock I Topple ompany 061,111<etained )arnings 301,111 #nvestment in Topple ommon Stock 321,111

"oncontrolling #nterest 41,111 )liminate investment in common stock.

)+3 Preferred Stock I Topple ompany 311,111 #nvestment in Topple Preferred Stock 51,111 "oncontrolling #nterest 031,111 )liminate subsidiary preferred stock.

E9-6 S"#$%&%'() % P(efe((e& S!c* O"$'+&%+;

a. )ntries recorded by layton orporation8

+0 #nvestment in Topple ommon Stock 321,111#nvestment in Topple Preferred Stock 51,111 ash 961,111 <ecord purchase of Topple stock.

+3 ash 36,611 #nvestment in Topple ommon Stock 36,611 <ecord dividends from Topple8 /36,611 D +/61,111 /0A,111 ( .26

+9 ash A,B11

Jividend #ncome A,B11 <ecord dividends on preferred stock from Topple8 /0A,111 ( .B1

+B #nvestment in Topple ommon Stock B1,611 #ncome from Subsidiary B1,611 <ecord e%uitymethod income8 /B1,611 D +/21,111 /0A,111 ( .26

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E9-6 +continued

b. )liminating entries8

)+0 #ncome from Subsidiary B1,611

Jividends Jeclared I ommon Stock 36,611 #nvestment in Topple ommon Stock 06,111 )liminate income from subsidiary.

)+3 Jividend #ncome I Preferred A,B11 Jividends Jeclared I Preferred A,B11 )liminate dividend income from subsidiary preferred.

)+9 #ncome to "oncontrolling #nterest 39,011 Jividends Jeclared I Preferred Stock 4,A11 Jividends Jeclared I ommon Stock 5,611 "oncontrolling #nterest 6,111

ssign income to noncontrolling interest8 /39,011 D +/21,111 /0A,111 ( .36G E +/0A,111 ( .A1 /4,A11 D /0A,111 ( .A1 /5,611 D +/61,111 /0A,111 ( .36 /6,111 D /09,611 /5,611

)+B ommon Stock I Topple ompany 061,111<etained )arnings, Kanuary 0 301,111 #nvestment in Topple ommon Stock 321,111 "oncontrolling #nterest 41,111 )liminate beginning investment balance.

)+6 Preferred Stock I Topple ompany 311,111 #nvestment in Topple Preferred Stock 51,111 "oncontrolling #nterest 031,111 )liminate subsidiary preferred stock.

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E9-7 P(efe((e& D%%&e+&$ '+& C',, P(e<%"<

a. ulbertson ompany's contribution to 31:3 consolidated net income is e%ual toits reported net income of /21,111.

b. #ncome assigned to noncontrolling interest8

Preferred shares .B1+/011,111 ( .03G / B,511ommon shares L.01/21,111 +/011,111 ( .03GM 6,511Total income assigned to noncontrolling interest /01,A11

c. <etained earnings assignable to preferred shareholders8

Jividends in arrears 6 years ( +/011,111 ( .03G /A1,111all feature +/3 ( 01,111 shares 31,111Total retained earnings assigned to preferred stock /51,111

d. $ook value of common shares8

Par value of common shares outstanding /911,111<etained earnings balance /951,111@ess8 $alance assigned to preferred shares +51,111 911,111$ook value of common shares /A11,111

e. Total noncontrolling interest8

Preferred stock .B1+/011,111 E /51,111G /23,111

ommon stock +.01 ( /A11,111 A1,111Total noncontrolling interest /093,111

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E9-8 ",%,ee, O+e($%

a. onsolidated net income for 31:A is /041,111 +/41,111 E/B1,111 E /A1,111

b. #ncome of /9A,511 is assigned to the noncontrolling interest8

#ncome from Jally +/B1,111 ( .96 /0B,111#ncome from @atent +/A1,111 E /0A,111 ( .91G 33,511Total income assigned to noncontrolling interest /9A,511

c. #ncome of /069,311 is assigned to the controlling interest8

onsolidated net income /041,111@ess8 #ncome assigned to noncontrolling interest +9A,511#ncome assigned to controlling interest /069,311

d. 7nly the /B6,111 of dividends paid by >rasper orporation to itsshareholders will be reported as dividends declared in >rasper*s31:A consolidated retained earnings statement.

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E9-9 E,%<%+'%+; e+(%e$ f!( ",%,ee, O+e($%

a. Kournal entries recorded by $rown orporation on its investment in Tann ompany8

+0 #nvestment in Tann ompany Stock 031,111 ash 031,111

<ecord purchase of Tann ompany stock.

+3 ash 4,111 #nvestment in Tann ompany Stock 4,111 <ecord dividends from Tann ompany8 /06,111 ( .A1

+9 #nvestment in Tann ompany Stock 3B,111 #ncome from Tann ompany 3B,111 <ecord e%uitymethod income8 /B1,111 ( .A1

b. Kournal entries recorded by Promise )nterprises on its investment in $rown

orporation8

+0 #nvestment in $rown orporation Stock 906,111 ash 906,111 <ecord purchase of $rown orporation stock.

+3 ash B6,111 #nvestment in $rown orporation Stock B6,111 <ecord dividends from $rown orporation8 /61,111 ( .41

+9 #nvestment in $rown orporation Stock 034,A11 #ncome from $rown orporation 034,A11 <ecord e%uitymethod income8 +/031,111 E /3B,111 ( .41

c. )liminating entries8

)+0 #ncome from Tann ompany 3B,111 Jividends Jeclared 4,111 #nvestment in Tann ompany Stock 06,111 )liminate income from Tann ompany.

)+3 #ncome to "oncontrolling #nterest 0A,111

Jividends Jeclared A,111 "oncontrolling #nterest 01,111 ssign income to noncontrolling interest8 /0A,111 D /B1,111 ( .B1 /A,111 D /06,111 ( .B1

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E9-9 +continued

)+9 ommon Stock I Tann ompany 011,111 dditional Paid#n apital A1,111<etained )arnings, Kanuary 0 B1,111 #nvestment in Tann ompany Stock 031,111

"oncontrolling #nterest 51,111 )liminate investment in Tann ompany stock8 /031,111 D /311,111 ( .A1 /51,111 D /311,111 ( .B1

)+B #ncome from $rown orporation 034,A11 Jividends Jeclared B6,111 #nvestment in $rown orporation Stock 5B,A11 )liminate income from $rown orporation.

)+6 #ncome to "oncontrolling #nterest 0B,B11 Jividends Jeclared 6,111

"oncontrolling #nterest 4,B11 ssign income to noncontrolling shareholders of $rown orporation8 /0B,B11 D +/031,111 E /3B,111 ( .01 /6,111 D /61,111 ( .01 /4,B11 D /0B,B11 /6,111

)+A ommon Stock I $rown orporation 061,111 dditional Paid#n apital A1,111<etained )arnings, Kanuary 0 0B1,111 #nvestment in $rown orporation Stock 906,111 "oncontrolling #nterest 96,111 )liminate investment in $rown orporation stock8 /906,111 D /961,111 ( .41 /96,111 D /961,111 ( .01

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E9-11 C!+$!,%&'e& ','+ce See % Rec%(!c', O+e($%

Talbott ompany and Short ompanyonsolidated $alance Sheet !orkpaper

Jecember 90, 31:4

Talbott Short )liminations onsol#tem ompany ompany Jebit redit idated

ash 25,111 94,111 002,111 ccounts <eceivable 031,111 51,111 311,111#nventory 061,111 031,111 321,111$uildings and )%uipment +net B11,111 911,111 211,111#nvestment in Short o. ommon Stock 963,111 +0963,111#nvestment in Talbott o. ommon Stock A0,111 +3 A0,111Treasury Stock +3 A0,111 A0,111Jebits 0,011,111 A11,111 0,9B5,111

ccounts Payable 41,111 A1,111 061,111$onds Payable B11,111 011,111 611,111ommon Stock 911,111 311,111 +0311,111 911,111<etained )arnings 901,111 3B1,111 +03B1,111 901,111"oncontrolling #nterest +0 55,111 55,111redits 0,011,111 A11,111 610,111 610,111 0,9B5,111

)liminating entries8)+0 ommon Stock I Short ompany 311,111

<etained )arnings 3B1,111 #nvestment in Short ompany ommon Stock 963,111 "oncontrolling #nterest 55,111

)+3 Treasury Stock A0,111 #nvestment in Talbott ompany ommon Stock A0,111

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E9-11 +continued

Talbott ompany and Subsidiaryonsolidated $alance Sheet

Jecember 90, 31:4

urrent ssets8 ash /002,111 ccounts <eceivable 311,111#nventory 321,111 / 652,111

"oncurrent ssets8 $uildings and )%uipment +net 211,111Total ssets /0,352,111

urrent @iabilities8 ccounts Payable / 061,111$onds Payable 611,111Stockholders' )%uity8

ontrolling #nterest8 ommon Stock /911,111

<etained )arnings 901,111Total ontrolling #nterest /A01,111"oncontrolling #nterest 55,111Total )%uity before <eduction for Treasury Shares /A45,111@ess8 Treasury Shares +A0,111

Total Stockholders* )%uity A92,111Total @iabilities and Stockholders' )%uity /0,352,111

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E9-12 S"#$%&%'() S!c* D%%&e+&

a. @ake ompany8Stock Jividends Jeclared B1,111

ommon Stock B1,111

@indale ompany8 "o entry re%uired.

b. )liminating entries, Jecember 90, 31:98

)+0 #ncome from Subsidiary 02,611Jividends Jeclared 2,111

#nvestment in @ake ompany Stock 01,611

)+3 #ncome to "oncontrolling #nterest 2,611Jividends Jeclared 9,111

"oncontrolling #nterest B,611

)+9 ommon Stock I @ake ompany 0B1,111<etained )arnings, Kanuary 0 311,111

#nvestment in @ake ompany Stock 301,111 "oncontrolling #nterest 41,111 Stock Jividends Jeclared B1,111

c. )liminating entry, Kanuary 0, 31:B8

)+0 ommon Stock I @ake ompany 0B1,111<etained )arnings 026,111

#nvestment in @ake ompany Stock 331,611 "oncontrolling #nterest 4B,611

@ake ompany retained earnings, Jecember 90, 31:98

$alance, Jecember 90, 31:3 /311,111 dd8 "et income for 31:9 36,111@ess8 Stock dividend in 31:9 +B1,111 ash dividend paid in 31:9 +01,111$alance, Jecember 90, 31:9 /026,111

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E9-13 S',e !f S"#$%&%'() S'(e$ #) P'(e+

a. #nvestment in cme oncrete, Kanuary 0, 31:68 Purchase price /9A1,111

cme net income in 31:9 and 31:B /011,111Jividends paid by cme in 31:9 and 31:B +B1,111

/ A1,111Proportion of stock held by Stable ( .51 B5,111$alance prior to sale of shares /B15,111

b. Kournal entry recorded by Stable ?ome $uilders for sale of shares8

ash 031,111#nvestment in cme Stock 013,111

dditional Paidin apital 05,111/013,111 D /B15,111 ( B,111 H+/311,111 H /01 ( .51G


)+0 #ncome from Subsidiary 91,111Jividends Jeclared 03,111#nvestment in cme Stock 05,111

)+3 #ncome to "oncontrolling #nterest 31,111Jividends Jeclared 5,111"oncontrolling #nterest 03,111

)+9 ommon Stock I cme oncrete 311,111<etained )arnings, Kanuary 0 901,111

#nvestment in cme Stock 91A,111"oncontrolling interest 31B,111

E9-14 P"(c'$e !f A&&%%!+', S'(e$ f(!< N!+'ff%,%'e

a. Purchase price, Jecember 90, 31:2 /301,111;odern Products ompany net income for 31:5 +/391,111 E /31,111 /311,111 /61,111Proportion of stock held by !eal ( .A1#ncome from subsidiary 91,111

Jividend received from ;odern Products ompany +/31,111 ( .A1 +03,111$alance in investment account, Jecember 90, 31:5 /335,111

9-19

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E9-14 +continued

b. $alance in investment account, Jecember 90, 31:5 /335,111Purchase of additional shares on Kanuary 0, 31:4 4A,111#nvestment balance Kanuary 0, 31:4, after purchase /93B,111;odern Products ompany net income for 31:4

+/351,111 E /31,111 /391,111 /21,111Proportion of stock held by !eal ( .51/6A,111

@ess8 mortization of differential on stock purchased Kanuary 0, 31:48 +/31,111 H 01years

+3,111

#ncome from subsidiary 6B,111Jividend received from ;odern Products ompany +/31,111 ( .51 +0A,111$alance in investment account, Jecember 90, 31:4 /9A3,111


)+0 #ncome from ;odern Products ompany 6B,111Jividends Jeclared 0A,111#nvestment in ;odern Products

ompany Stock 95,111)liminate income from subsidiary.

)+3 #ncome to "oncontrolling #nterest 0B,111Jividends Jeclared B,111"oncontrolling #nterest 01,111

ssign income to noncontrolling interest8 /0B,111 D /21,111 ( .31

)+9 ommon Stock I ;odern Products ompany 061,111<etained )arnings, Kanuary 0 391,111Jifferential 31,111

#nvestment in ;odern Products ompany Stock 93B,111

"oncontrolling #nterest 2A,111)liminate beginning investment balance8/31,111 D /4A,111 N +/951,111 ( .31

/2A,111 D /951,111 ( .31

)+B Patents 05,111 mortization )(pense 3,111

Jifferential 31,111 ssign differential and amortize for year8/3,111 D /31,111 H 01 years

9-20

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E9-15 Re"(c'$e !f S'(e$ #) S"#$%&%'() f(!< N!+'ff%,%'e

a. $ook value of Ouinn stock outstanding /611,111ost of treasury shares repurchased +5B,111$ook value of remaining shares outstanding /B0A,111Proportion of remaining shares held by

noncontrolling#nterest +3,111 H 5,111 ( .36 d&usted book value of shares held /01B,111$ook value of shares held before treasury stock repurchase by Ouinn +/611,111 ( .31 +311,111<eduction of noncontrolling interest / 4A,111onsideration given by Ouinn ;anufacturing +5B,111#ncrease in e%uity attributable to parent / 03,111

b. #nvestment in Ouinn ;anufacturing Stock 03,111 dditional Paid#n apital 03,111

c. ommon Stock I Ouinn ;anufacturing 011,111 dditional Paid#n apital 061,111<etained )arnings, Kanuary 0 361,111 #nvestment in Ouinn Stock 903,111

"oncontrolling #nterest 01B,111Treasury Shares 5B,111

/903,111 D .26+/611,111 /5B,111 /01B,111 D .36+/611,111 /5B,111

9-21

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E9-16 S',e !f S'(e$ #) S"#$%&%'() ! N!+'ff%,%'e

a. omputation of change in book value of Schroeder orporation shares held by$rowne orporation8

$efore fter

Sale Sale

ommon stock, /01 par value /061,111 / 311,111 dditional paidin capital 61,111 B11,111<etained earnings B11,111 B11,111Total stockholders' e%uity of Schroeder /A11,111 /0,111,111Proportion of stock held by $rowne orporation8 00,111 H 06,111 ( .299 00,111 H +06,111 E 6,111 ( .661$ook value of shares /BB1,111 / 661,111

#ncrease in book value of shares held by

$rowne orporation / 001,111

b. #nvestment in Schroeder Stock 001,111 dditional Paid#n apital 001,111

c. ommon Stock I Schroeder orporation 311,111 dditional Paid#n apital B11,111<etained )arnings B11,111 #nvestment in Schroeder Stock 661,111 "oncontrolling #nterest B61,111 /B61,111 D /0,111,111 ( .B6

9-22

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SOLUTIONS TO PROLES

P9-17 ",%,e-C!%ce Q"e$%!+$ !+ P(efe((e& S!c* O+e($%

0. d $ook value of shares held by noncontrolling interest8Preferred stock +/011,111 ( .91 /91,111

ommon stock +/311,111 E /61,111 ( .31G 61,111Total book value /51,111

3. b #ncome to noncontrolling preferredshareholders +/011,111 ( .01 ( .91G /9,111#ncome to noncontrolling commonshareholders8 <eported net income of -pland ompany /91,111

#ncome to preferred shareholders +01,111 #ncome to common shareholders /31,111

Proportion of common stock owned by

noncontrolling interest ( .31 B,111Total income to noncontrolling interest /2,111

9. b <eported net income of -pland ompany / 91,1117perating income of Stacey ompany 011,111onsolidated net income /091,111@ess8 #ncome to noncontrolling interest +2,111#ncome to controlling interest /039,111

B. c ontrolling interest8 ommon stock / 911,111

<etained earnings 961,111Total controlling interest / A61,111"oncontrolling interest8 +/361,111 ( .31 E

+/011,111 ( .91 51,111Total stockholders* e%uity /291,111

6. a ll preferred shares of the subsidiary are eliminated in preparing theconsolidated financial statements.

9-23

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P9-18 ",%,ee, O+e($% % D%ffe(e+%',

a. Kournal entries recorded by orn orporation on its investment in $ark ompany8

+0 #nvestment in $ark ompany Stock B1A,111 ash B1A,111

<ecord purchase of $ark ompany stock.

+3 ash 0B,111 #nvestment in $ark ompany Stock 0B,111 <ecord dividends from $ark ompany8 /31,111 ( .21

+9 #nvestment in $ark ompany Stock 30,111 #ncome from $ark ompany 30,111 <ecord e%uitymethod income8 /91,111 ( .21

+B #ncome from $ark ompany 3,011

#nvestment in $ark ompany Stock 3,011 mortize differential related to buildings and e%uipment8 +/91,111 H 01 years ( .21

b. Kournal entries recorded by Purple orporation on its investment in ornorporation8

+0 ash 31,111 #nvestment in orn orporation Stock 31,111 <ecord dividends from orn orporation8 /36,111 ( .51

+3 #nvestment in orn orporation Stock A9,031 #ncome from orn orporation A9,031 <ecord e%uitymethod income8 +/A1,111 E /05,411 ( .51

+9 #ncome from orn orporation 5,111 #nvestment in orn orporation Stock 5,111 mortize differential related to trademark8 +/61,111 H 6 years ( .51

9-24

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P9-18 +continued


)+0 #ncome from $ark ompany 05,411 Jividends Jeclared 0B,111

#nvestment in $ark ompany Stock B,411 )liminate income from $ark ompany.

)+3 #ncome to "oncontrolling #nterest 5,011 Jividends Jeclared A,111 "oncontrolling #nterest 3,011 ssign income to noncontrolling shareholders of $ark ompany8 /5,011 D +/91,111 /9,111 ( .91 /A,111 D /31,111 ( .91 /3,011 D /5,011 /A,111

)+9 ommon Stock I $ark ompany 361,111

<etained )arnings, Kanuary 0 911,111Jifferential 91,111 #nvestment in $ark ompany Stock B1A,111 "oncontrolling #nterest 02B,111 )liminate investment in $ark ompany stock8 /91,111 D /B1A,111 E /02B,111 /661,111

)+B $uildings and )%uipment 91,111 Jifferential 91,111 ssign beginning differential.

)+6 Jepreciation )(pense 9,111 ccumulated Jepreciation 9,111 mortize differential related to buildings and e%uipment8 /91,111 H 01 years

)+A #ncome from orn orporation 66,031 Jividends Jeclared 31,111 #nvestment in orn orporation Stock 96,031 )liminate income from orn orporation.

)+2 #ncome to "oncontrolling #nterest 09,251 Jividends Jeclared 6,111

"oncontrolling #nterest 5,251 ssign income to noncontrolling shareholders of orn orporation8 /09,251 D +/A1,111 E /05,411 /01,111 ( .31 /6,111 D /36,111 ( .31 /5,251 D /09,251 /6,111

9-25

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P9-18 +continued

)+5 ommon Stock I orn orporation B11,111<etained )arnings, Kanuary 0 321,111Jifferential 91,111 #nvestment in orn orporation Stock 6A1,111

"oncontrolling #nterest 0B1,111 )liminate investment in orn orporation stock8 /321,111 D /311,111 E /96,111 E /96,111 /91,111 D /61,111 /01,111 /01,111 /6A1,111 D /631,111 E +/96,111 /01,111 ( .51G ( 3 years /0B1,111 D /211,111 ( .31

)+4 Trademark 91,111 Jifferential 91,111 ssign beginning differential8 /61,111 +/01,111 ( 3 years

)+01 mortization )(pense 01,111 Trademark 01,111 mortize differential related to trademark8 /61,111 H 6 years

9-26

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P9-19 S"#$%&%'() S!c* D%%&e+&

#nvestment elimination entry, Kanuary 0, 31:58

lternative 08 Pound ;anufacturing stock is split 380.

)+0 ommon Stock I Pound ;anufacturing 011,111 dditional Paid#n apital 21,111<etained )arnings 351,111 #nvestment in Pound ;fg. Stock 91A,111 "oncontrolling #nterest 0BB,111

lternative 38 stock dividend of B,111 shares is issued.

)+0 ommon Stock I Pound ;anufacturing 0B1,111 dditional Paid#n apital 21,111<etained )arnings 3B1,111 #nvestment in Pound ;fg. Stock 91A,111 "oncontrolling #nterest 0BB,111

lternative 98 stock dividend of 0,611 shares is issued.

)+0 ommon Stock I Pound ;anufacturing 006,111 dditional Paid#n apital 091,111<etained )arnings 316,111 #nvestment in Pound ;fg. Stock 91A,111 "oncontrolling #nterest 0BB,111

9-27

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P9-20 S"#$%&%'() P(efe((e& S!c* O"$'+&%+;

a. )liminating entries, Kanuary 0, 31:68

Preferred Stock I Pert ompany 311,111<etained )arnings 93,111

#nvestment in Pert Preferred Stock 43,511"oncontrolling #nterest 094,311)liminate preferred stock8

/93,111 D +/311,111 ( .15 ( 3 years

ommon Stock I Pert ompany 061,111<etained )arnings 0A5,111 #nvestment in Pert ommon Stock 333,A11

"oncontrolling #nterest 46,B11)liminate common stock8

/0A5,111 D /311,111 /93,111

b. onsolidated net income and income to controllinginterest8 7perating income of )merald orporation / 51,111

"et income of Pert 9B,111onsolidated net income /00B,111#ncome to noncontrolling interest8

#ncome from preferred stock of Pert ompany +/0A,111 ( .A1 / 4,A11 #ncome from common stock of Pert ompany +/9B,111 /0A,111 ( .91G 6,B11 #ncome to noncontrolling interest +06,111 #ncome to controlling interest / 44,111

lternate computation of income to controlling interest 7perating income of )merald orporation /51,111

#ncome from preferred stock of Pert ompany +/0A,111 ( .B1 A,B11

#ncome from common stock of Pert ompany +/9B,111 /0A,111 ( .21G 03,A11

#ncome to controlling interest /44,111

9-28

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P9-21 O+e($% !f S"#$%&%'() P(efe((e& S!c*

a. Preferred stockholders' claim on net assets of Kacobs8

@i%uidation value of preferred stock +/010 per share /313,11131:A dividends in arrears +/311,111 ( .01 31,111

Total preferred stockholder claim, Jecember 90, 31:A /333,111

b. $ook value of Kacobs common shares ac%uired by Presley8

Total Kacobs stockholders' e%uity, Jecember 90, 31:A /9,066,111laim of preferred stockholders +333,111$ook value of Kacobs common stock /3,499,111Portion ac%uired by Presley ( .A1$ook value of common shares ac%uired by Presley /0,264,511

c. >oodwill associated with ac%uisition of common shares8

onsideration given by Presley to ac%uire shares /0,511,111

Fair value of noncontrolling interest in common shares 0,311,111Total fair value /9,111,111$ook value of common shares +3,499,111>oodwill / A2,111

d. #ncome to noncontrolling interest, 31:28

Kacobs net income /351,111@ess8 impairment of goodwill +3A,111@ess8 31:2 preferred dividends +/311,111 ( .01 +31,111#ncome accruing to common shareholders /39B,111"oncontrolling common shareholders' interest ( .B1#ncome to noncontrolling common shareholders / 49,A11Preferred dividends to noncontrolling shareholders +/31,111 ( .51 0A,111Total income to noncontrolling shareholders /014,A11

e. Presley's income from investment in subsidiary common stock8

Kacobs net income /351,111@ess8 31:2 preferred dividends +/311,111 ( .01 +31,111#ncome accruing to common shareholders /3A1,111Presley's proportionate share ( .A1Presley's share of income to common shareholders /06A,111

"ote8 $asic e%uity method does not include ad&ustment for #mpairment of goodwill.

9-29

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P9-21 +continued

f. "oncontrolling interest, Jecember 90, 31:28

Total amount assigned to noncontrolling interest8"oncontrolling interest common /0,354,A11

"oncontrolling interest preferred 0A0,A11Total noncontrolling interest /0,B60,311

ssigned to noncontrolling interest commonKacobs stockholders' e%uity, Kanuary 0, 31:2 /9,066,11131:2 net income 351,111@ess8 Preferred dividends +B1,111@ess8 ommon dividends +01,111Total Kacobs stockholders' e%uity, Jecember 90, 31:2 /9,956,111laim of preferred stockholders +313,111$ook value of Kacobs' common stock /9,059,111-nimpaired goodwill at Jecember 90, 31:2 +/A2,111 /3A,111 B0,111Total basis for common shareholders /9,33B,111

"oncontrolling stockholders' interest ( .B1"oncontrolling interest I common /0,354,A11

ssigned to noncontrolling interest preferredTotal Kacobs preferred stockholders' e%uity, Kanuary 0, 31:2 /333,111@ess8 Jividends in arrears paid during 31:2 +31,111Kacobs preferred stockholders' e%uity, Jecember 90, 31:2 /313,111"oncontrolling stockholders' interest ( .51"oncontrolling interest I preferred /0A0,A11

9-30

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P9-21 +continued

g. )liminating entries8

)+0 #ncome from Subsidiary 06A,111

Jividends Jeclared I ommon A,111#nvestment in Kacobs ommon Stock 061,111

)liminate income from subsidiary.

)+3 Jividend #ncome I Preferred 5,111 Jividends Jeclared I Preferred 5,111

)liminate dividend income from subsidiary preferred stock8 /B1,111 ( .31

)+9 #ncome to "oncontrolling #nterest 014,A11 Jividends Jeclared I ommon B,111

Jividends Jeclared I Preferred 93,111"oncontrolling #nterest 29,A11

ssign income to noncontrolling interest8 /B,111 D /01,111 ( .B1 /93,111 D /B1,111 ( .51

)+B ommon Stock I Kacobs Kacuzzi 611,111 dditional Paid#n apital I ommon 511,111Premium on Preferred Stock 9,111 <etained )arnings, Kanuary 0 0,A91,111 >oodwill A2,111 #nvestment in Kacobs ommon Stock 0,511,111

"oncontrolling #nterest 0,311,111)liminate beginning investment in common

stock8 /9,111 D /6,111 /3,111 /0,A91,111 D /0,A61,111 /31,111

Portion accruing to common shareholders

Portion accruing to common shareholders after deducting preferred dividends in arrears

9-31

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P9-21 +continued

)+6 >oodwill #mpairment @oss 3A,111 >oodwill 3A,111 <ecognize goodwill impairment loss.

)+A Preferred Stock I Kacobs Kacuzzi 311,111Premium on Preferred Stock 3,111 <etained )arnings, Kanuary 0 31,111 #nvestment in Kacobs Preferred Stock B3,111 dditional Paid#n apital I <etirement of Preferred Stock 3,B11 "oncontrolling #nterest 022,A11 )liminate subsidiary preferred stock8 /3,111 D /6,111 /9,111 /31,111 D /311,111 ( .01 /3,B11 D +/333,111 ( .31 /B3,111 /022,A11 D /333,111 ( .5

Portion representing call premium

Portion relating to preferred dividends in arrears

P9-22 C!+$!,%&'%!+ W!(*'e( % S"#$%&%'() P(efe((e& S!c*

a. )liminating entries8

)+0 #ncome from Subsidiary 65,611 Jividends Jeclared I ommon Stock 4,111 #nvestment in !hite ommon Stock B4,611

)+3 Jividend #ncome 4,111 Jividends Jeclared I Preferred Stock 4,111

)+9 #ncome to "oncontrolling #nterest 03,611 Jividends Jeclared I Preferred Stock A,111 Jividends Jeclared I ommon Stock 0,111 "oncontrolling #nterest 6,611

)+B ommon Stock I !hite orporation 011,111<etained )arnings, Kanuary 0 361,111 #nvestment in !hite ommon Stock 906,111

"oncontrolling #nterest 96,111)+6 Preferred Stock I !hite orporation 311,111

#nvestment in !hite Preferred Stock 031,111 "oncontrolling #nterest 51,111

)+A Jividends Payable 4,111 Jividends <eceivable 4,111

9-32

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P9-22 +continued

b. $rown ompany and !hite orporationonsolidation !orkpaper

Jecember 90, 31:A

$rown !hite )liminations onsol

#tem ompanyorporatio

n Jebit redit idated

Sales 611,111 911,111 511,111Jividend #ncome 4,111 +3 4,111#ncome from Subsidiary 65,611 +0 65,611redits 6A2,611 911,111 511,111ost of >oods Sold 351,111 021,111 B61,111Jeprec. and mort. B1,111 91,111 21,1117ther )(penses 090,111 31,111 060,111Jebits +B60,111 +331,111 +A20,111onsolidated "et #ncome 034,111#ncome to "oncon

trolling #nterest +9 03,611 +03,611#ncome, carry forward 00A,611 51,111 51,111 00A,611

<etained )arnings, Kan. 0 B96,111 361,111 +B 361,111 B96,111#ncome, from above 00A,611 51,111 51,111 00A,611

660,611 991,111 660,611Jividends Jeclared Preferred Stock +06,111 +3 4,111

+9 A,111 ommon Stock +A1,111 +01,111 +0 4,111

+9 0,111 +A1,111<et. )arnings, Jec. 90, carry forward B40,611 916,111 991,111 36,111 B40,611

ash 65,111 011,111 065,111 ccounts <eceivable 51,111 031,111 311,111Jividends <eceivable 4,111 +A 4,111#nventory 011,111 311,111 911,111$ldgs. and )%uip. +net 9A1,111 321,111 A91,111#nvestment in !hite orp.8 Preferred Stock 031,111 +6 031,111 ommon Stock 9AB,611 +0 B4,611

+B 906,111Jebits 0,140,611 A41,111 0,355,111

ccounts Payable 011,111 21,111 021,111

Jividends Payable 06,111 +A 4,111 A,111$onds Payable 911,111 911,111Preferred Stock 311,111 +6 311,111ommon Stock 311,111 011,111 +B 011,111 311,111<et. )arnings, from above B40,611 916,111 991,111 36,111 B40,611"oncontrolling #nterest +9 6,611

+B 96,111 +6 51,111 031,611

redits 0,140,611 A41,111 A94,111 A94,111 0,355,111

9-33

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P9-23 S"#$%&%'() S!c* T('+$'c%!+$

a. +0 $ook value of $eta ompany stock outstanding /611,111ost of treasury shares repurchased +A5,111$ook value of remaining shares outstanding /B93,111Proportion of remaining shares held by noncontrolling

#nterest +0,611 H 4,111 ( .0AA2 d&usted book value of shares held / 23,111$ook value of shares held before treasury stock repurchase by $eta ompany +/611,111 ( .36 +036,111<eduction of noncontrolling interest / 69,111onsideration given by $eta ompany +A5,111Jecrease in e%uity attributable to parent / +06,111

+3 Kournal entry recorded by pe( orporation8

<etained )arnings 06,111 #nvestment in $eta ompany Stock 06,111

+9 )liminating entries8

)+0 #ncome from Subsidiary 92,611 #nvestment in $eta ompany Stock 92,611

/B6,111 ( .599

)+3 #ncome to "oncontrolling #nterest 2,611 "oncontrolling #nterest 2,611

/B6,111 ( .0A2

)+9 ommon Stock I $eta ompany 011,111 dditional Paid#n apital 51,111<etained )arnings, Kanuary 0 931,111 Treasury Stock A5,111

#nvestment in $eta ompany Stock 9A1,111"oncontrolling #nterest 23,111

b. +0 $ook value of $eta ompany stock outstanding /611,111ost of treasury shares repurchased +A5,111$ook value of remaining shares outstanding /B93,111Proportion of remaining shares held by noncontrolling #nterest +3,611 H 4,111 ( .3225

d&usted book value of shares held by noncontrolling #nterest /031,111$ook value of shares held before treasury stock

repurchase by $eta ompany +/611,111 ( .36 +036,111#ncrease in e%uity attributable to parent / 6,111

+3 Kournal entry recorded by pe( orporation8

ash A5,111 #nvestment in $eta ompany Stock A9,111

dditional Paid#n apital 6,111

9-34

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P9-23 +continued

+9 )liminating entries8

)+0 #ncome from Subsidiary 93,611

#nvestment in $eta ompany Stock 93,611 /B6,111 ( .233

)+3 #ncome to "oncontrolling #nterest 03,611 "oncontrolling #nterest 03,611 /B6,111 ( .325

)+9 ommon Stock I $eta ompany 011,111 dditional Paid#n apital 51,111<etained )arnings, Kanuary 0 931,111 Treasury Stock A5,111 #nvestment in $eta ompany Stock 903,111 "oncontrolling #nterest 031,111

P9-24 S',e !f S"#$%&%'() S'(e$

a. )liminating entries8

)+0 >ain on Sale of )" ompany Stock 01,111 dditional Paid#n apital 01,111 )liminate gain on sale of )" shares8 /A1,111 +/361,111 ( .31

)+3 #ncome from Subsidiary 05,111 Jividends Jeclared A,111 #nvestment in )" ompany Stock 03,111 )liminate income from subsidiary8 /05,111 D .A1+/021,111 /0B1,111

)+9 #ncome to "oncontrolling #nterest 03,111 Jividends Jeclared B,111 "oncontrolling #nterest 5,111 ssign income to noncontrolling interest8 /03,111 D .B1+/021,111 /0B1,111

)+B ommon Stock I )" ompany 011,111

dditional Paid#n apital 31,111<etained )arnings, Kanuary 0 091,111 #nvestment in )" ompany Stock 061,111 "oncontrolling #nterest 011,111 )liminate investment in common stock.

9-35

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P9-24 +continued

b. Penn orporation and )" ompanyonsolidation !orkpaper

Jecember 90, 31:B

Penn )" )liminations onsol

#tem orp. ompany Jebit redit idated

Sales 351,111 021,111 B61,111>ain on Sale of )" ompany Stock 01,111 +0 01,111#ncome from Subsidiary 05,111 QQQQQQQ +3 05,111redits 915,111 021,111 B61,111ost of >oods Sold 301,111 011,111 901,111Jepreciation )(pense 31,111 06,111 96,1117ther )(penses 30,111 36,111 BA,111Jebits +360,111 +0B1,111 +940,111onsolidated net income 64,111#ncome to "oncon

trolling #nterest +9 03,111 +03,111#ncome, carry forward 62,111 91,111 B1,111 B2,111

<etained )arnings, Kanuary 0 931,111 091,111 +B091,111 931,111#ncome, from above 62,111 91,111 B1,111 B2,111

922,111 0A1,111 9A2,111Jividends Jeclared +06,111 +01,111 +3 A,111

+9 B,111 +06,111<et. )arnings, Jec. 90, carry forward 9A3,111 061,111 021,111 01,111 963,111

ash 91,111 96,111 A6,111

ccounts <eceivable 21,111 61,111 031,111#nventory 031,111 011,111 331,111$uildings and)%uipment A61,111 391,111 551,111

#nvestment in )" ompany Stock 0A3,111 +3 03,111

+B 061,111Jebits 0,193,111 B06,111 0,356,111

ccum. Jepreciation 021,111 46,111 3A6,111 ccounts Payable 61,111 31,111 21,111$onds Payable 311,111 91,111 391,111ommon Stock 311,111 011,111 +B011,111 311,111

dditional Paid#n apital 61,111 31,111 +B 31,111 +0 01,111 A1,111<etained )arnings, from above 9A3,111 061,111 021,111 01,111 963,111"oncontrolling #nterest +9 5,111

+B011,111 015,111redits 0,193,111 B06,111 341,111 341,111 0,356,111

9-36

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P9-25 S',e !f S'(e$ #) S"#$%&%'() ! N!+'ff%,%'e

a. )+0 ommon Stock I Jelta orporation 3B1,111 dditional Paid#n apital 041,111<etained )arnings 961,111

#nvestment in Jelta orporation Stock 631,111

"oncontrolling #nterest 3A1,111 )liminate investment in common stock8 /3B1,111 D /311,111 E +/01 ( B,111 shares /041,111 D /61,111 E +/B6 /01 ( B,111 sharesG /631,111 D /251,111 ( +0A,111 shares H 3B,111 shares /3A1,111 D /251,111 ( +5,111 shares H 3B,111 shares

Kournal entry recorded by raft orporation8

#nvestment in Jelta orporation Stock B1,111 dditional Paid#n apital B1,111

$ook value of shares held by raft8 fter sale /251,111 ( +0A,111 H 3B,111 /631,111

$efore sale /A11,111 ( +0A,111 H 31,111 +B51,111 #ncrease in book value / B1,111

b. raft orporation and Jelta orporationonsolidated $alance Sheet !orkpaper

Kanuary 0, 31:9

raft Jelta )liminations onsol#tem orp. orp. Jebit redit idated

ash 61,111 391,111 351,111 ccounts <eceivable 41,111 031,111 301,111#nventory 051,111 311,111 951,111$uildings R )%uipment 211,111 A11,111 0,911,111#nvestment in Jelta orporation 631,111 +0631,111Total Jebits 0,6B1,111 0,061,111 3,021,111

ccumulated Jepreciation 311,111 331,111 B31,111

ccounts Payable 21,111 21,111 0B1,111Ta(es Payable 51,111 51,111;ortgages Payable 361,111 361,111

ommon Stock 911,111 3B1,111 +03B1,111 911,111 dditional Paid#n apital 331,111 041,111 +0041,111 331,111<etained )arnings, 611,111 961,111 +0961,111 611,111"oncontrolling#nterest +03A1,111 3A1,111

Total redits 0,6B1,111 0,061,111 251,111 251,111 3,021,111

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P9-25 +continued

c. raft orporation and Subsidiaryonsolidated $alance Sheet

Kanuary 0, 31:9

urrent ssets8 ash / 351,111

ccounts <eceivable 301,111#nventory 951,111 / 521,111

"oncurrent ssets8 $uildings and )%uipment /0,911,111

@ess8 ccumulated Jepreciation +B31,111 551,111Total ssets /0,261,111

urrent @iabilities8

ccounts Payable / 0B1,111Ta(es Payable 51,111 / 331,111

;ortgages Payable 361,111Stockholders* )%uity8 ontrolling #nterest8 ommon Stock / 911,111

dditional Paid#n apital 331,111<etained )arnings 611,111

Total ontrolling #nterest /0,131,111"oncontrolling #nterest 3A1,111

Total Stockholders* )%uity 0,351,111Total @iabilities and Stockholders' )%uity /0,261,111

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P9-26 S',e !f A&&%%!+', S'(e$ ! P'(e+

a. )liminating entry8

)+0 ommon Stock I Tin orporation 036,111 dditional Paid#n apital 052,611

<etained )arnings 311,111 #nvestment in Tin orporation B03,611 "oncontrolling #nterest 011,111 )liminate investment balance8 /036,111 D /011,111 E +3,611 ( /01 /052,611 D computed below

omputation of debit to dditional Paid#n apital$alance reported by Tin orporation prior to sale of additional shares / 61,111#ncrease in paidin capital from sale of shares

/061,111 N +3,611 ( /01G 036,111"oncontrolling interest after sale of shares

+/611,111 ( .31 /011,111"oncontrolling interest before sale of shares +/961,111 ( .36 +52,611#ncrease in book value of noncontrolling interest 03,611Jebit to additional paidin capital /052,611

Kournal entry recorded by Tin orporation8

ash 061,111 ommon Stock 36,111 dditional Paid#n apital 036,111

Kournal entry recorded by @ane ;anufacturing8

#nvestment in Tin orporation Stock 061,111 ash 061,111

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P9-26 +continued

b. @ane ;anufacturing ompany and Tin orporationonsolidation !orkpaper

Kanuary 3, 31:0

@ane Tin )liminations onsol#tem orp. orp. Jebit redit idated

ash 22,611 301,111 352,611 ccounts <eceivable A1,111 011,111 0A1,111#nventory 011,111 051,111 351,111$uildings and )%uipment A11,111 A11,111 0,311,111#nvestment in Tin orporation Stock B03,611 +0B03,611Jebits 0,361,111 0,141,111 0,432,611

ccum. Jepreciation 061,111 3B1,111 941,111 ccounts Payable 61,111 61,111 011,111$onds Payable B11,111 911,111 211,111ommon Stock 311,111 036,111 +0036,111 311,111

dditional Paid#n apital 61,111 026,111 +0052,611 92,611<etained )arnings, B11,111 311,111 +0311,111 B11,111"oncontrolling#nterest +0011,111 011,111

Total redits 0,361,111 0,141,111 603,611 603,611 0,432,611

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P9-27 C!<,e= O+e($% S("c"(e

The overall ownership structure can be diagrammed as follows8

onsolidated net income of /45,511 is reported8

7perating income of First $oston / BB,1117perating income of >ulfside 9B,1117perating income of Paddock 61,111Total earnings available /035,111#ncome to noncontrolling interests8 Paddock .B1/61,111 E .01+/91,111G /30,311 >ulfside .31/9B,111 E .A1+/01,111G 5,111 +34,311onsolidated net income / 45,511

First$oston

Paddock

>ulfside .60

.80 .10

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