CHAPTER 5
SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS
MULTIPLE CHOICE QUESTIONS
1.
b
Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value
Plant and equipment revaluation
Identifiable intangibles
Fair value of identifiable net assets
Goodwill
$13,000,000
(25,000,000)
40,000,000
28,000,000
$ 70,000,000
Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
$ 70,000,000
Pomegranate’s goodwill: $91,700,000 – 90%(28,000,000)
66,500,000
Goodwill to noncontrolling interest
$ 3,500,000
Goodwill is allocated 95% to the controlling interest and 5% to the noncontrolling
interest.
(R)
Identifiable intangibles
Goodwill
40,000,000
70,000,000
Plant and equipment
Investment in Starfruit (1)
Noncontrolling interest in
Starfruit (2)
(1) 90% x (40,000,000 - 25,000,000) + 66,500,000
(2) 10% x (40,000,000 - 25,000,000) + 3,500,000
Solutions Manual, Chapter 5
25,000,000
80,000,000
5,000,000
©Cambridge Business Publishers, 2013
1
2.
c
(R)
Identifiable intangibles
Goodwill
24,000,000
68,000,000
Plant and equipment
Investment in Starfruit (1)
Noncontrolling interest in
Starfruit (2)
(1) 90% x (24,000,000 - 20,000,000) + 95% x (70,000,000 – 2,000,000)
(2) 10% x (24,000,000 - 20,000,000) + 5% x (70,000,000 – 2,000,000)
3.
3,800,000
b
Starfruit net income
Revaluation write-offs:
Plant and equipment depreciation
Identifiable intangibles amortization
Goodwill impairment loss
4.
20,000,000
68,200,000
Equity in net income
$ 6,750,000
NCI in net income
$750,000
2,250,000
(7,200,000)
(475,000)
$ 1,325,000
250,000
(800,000)
(25,000)
$ 175,000
c
10% x $28,000,000.
5.
c
Same calculation as in question 3, except the noncontrolling interest does not share in the
goodwill impairment loss.
©Cambridge Business Publishers, 2013
2
Advanced Accounting, 2nd Edition
6.
d
(E)
Stockholders’ equity
13,000,000
Investment in Starfruit
Noncontrolling interest in
Starfruit
(R)
Identifiable intangibles
(1)
(2)
11,700,000
1,300,000
40,000,000
Plant and equipment
25,000,000
Investment in Starfruit (1)
14,300,000
Noncontrolling interest in
Starfruit (2)
700,000
Investment in Starfruit balance on Pomegranate’s books is $26,000,000 (=
20,000,000 cost + 6,000,000 gain on acquisition). Elimination of the investment
in (R) is the remainder of the investment balance, after elimination E.
The credit to noncontrolling interest in (R) brings the noncontrolling interest to
fair value, after elimination (E).
7.
a
There is no goodwill when the acquisition is a bargain purchase.
8.
d
9.
b
10.
a
Solutions Manual, Chapter 5
©Cambridge Business Publishers, 2013
3
EXERCISES
E5.1
Combination and Consolidation, Date of Acquisition (see related E3.1)
a.
Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value of Sylvan
Goodwill
$ 43,200,000
4,250,000
47,450,000
17,000,000
$ 30,450,000
Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
Princecraft’s goodwill: $43,200,000 – 90%(17,000,000)
Goodwill to noncontrolling interest
$ 30,450,000
27,900,000
$ 2,550,000
b.
Consolidation Working Paper (in thousands)
Accounts Taken From
Books
Total other assets
Investment in Sylvan
Princecraft
$ 150,000
43,200
Sylvan
$ 25,000
______
$ 193,200
______
$ 25,000
Total liabilities
Common stock
Additional paid-in capital
Retained earnings
Noncontrolling interest
$
$
Total liabilities and equity
______
$ 193,200
Dr
Cr
15,300 (E)
27,900 (R)
Goodwill
Total assets
30,000
15,360
87,840
60,000
Eliminations
8,000
5,000
10,000
2,000
______
$ 25,000
(R) 30,450
Consolidated
Balances
$ 175,000
-_30,450
$ 205,450
$
(E) 5,000
(E) 10,000
(E) 2,000
1,700 (E)
______
2,550 (R)
$ 47,450 $47,450
38,000
15,360
87,840
60,000
__4,250
$ 205,450
Note: Princecraft’s balance sheet above reflects the following acquisition entry (in thousands):
Investment in Sylvan
43,200
Common stock
Additional paid-in capital
©Cambridge Business Publishers, 2013
4
360
42,840
Advanced Accounting, 2nd Edition
c.
Consolidated Balance Sheet, January 1, 2013 (in thousands)
Assets
Total assets
Goodwill
Total assets
Liabilities and stockholders’ equity
Total liabilities
Stockholders’ equity
Princecraft’s stockholders’ equity:
Common stock
Additional paid-in capital
Retained earnings
Total Princecraft’s stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
E5.2
Date of Acquisition Consolidation with In-Process R&D
a.
Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value of Saylor
Fair value – book value:
Land
IPR&D
Goodwill
$
38,000
15,360
87,840
60,000
163,200
4,250
167,450
$ 205,450
$ 10,000,000
2,000,000
12,000,000
$ 6,000,000
500,000
1,000,000
$
Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
Pennant’s goodwill: $10,000,000 – 80%(7,500,000)
Goodwill to noncontrolling interest
Solutions Manual, Chapter 5
$ 175,000
30,450
$ 205,450
$
$
7,500,000
4,500,000
4,500,000
4,000,000
500,000
©Cambridge Business Publishers, 2013
5
b.
Consolidated Financial Statement Working Paper
(E)
Stockholders’
equity – Saylor
6,000,000
Investment in Saylor (80%)
Noncontrolling interest in Saylor (20%)
(R)
Land
IPR&D
Goodwill
4,800,000
1,200,000
500,000
1,000,000
4,500,000
Investment in Saylor (1)
Noncontrolling interest in Saylor (2)
(1) 80% x (500,000 + 1,000,000) + 4,000,000
(2) 20% x (500,000 + 1,000,000) + 500,000
E5.3
5,200,000
800,000
Date of Acquisition Consolidation, Bargain Purchase
a.
Acquisition cost
Fair value of noncontrolling interest
Total
Book value of Sparrow
Fair value – book value:
Land
Other plant assets
Investments
Long-term debt
Fair value of identifiable net assets
Gain on acquisition
$ 22,000,000
4,000,000
26,000,000
$ 25,000,000
(800,000)
2,000,000
1,500,000
(700,000)
27,000,000
$ (1,000,000)
Peregrine’s acquisition entry:
Investment in Sparrow
Merger expenses
23,000,000
3,000,000
Cash
Gain on acquisition
©Cambridge Business Publishers, 2013
6
25,000,000
1,000,000
Advanced Accounting, 2nd Edition
b.
Consolidated Financial Statement Working Paper
(E)
Stockholders’ equity –
Sparrow
25,000,000
Investment in Sparrow (80%)
Noncontrolling interest in
Sparrow (20%)
(R)
Other plant assets, net
Investments
Noncontrolling interest in
Sparrow (1)
20,000,000
5,000,000
2,000,000
1,500,000
1,000,000
Land
Long-term debt
Investment in Sparrow (2)
800,000
700,000
3,000,000
(1) $5,000,000 – 4,000,000
(2) $23,000,000 – 20,000,000
E5.4
Consolidated Balance Sheet, Date of Acquisition: U.S. GAAP and IFRS
a.
Calculation of goodwill:
Acquisition cost [($3,000,000 + (200,000 x $80))
Fair value of noncontrolling interest
Total fair value
Book value of Powerline
Fair value – book value:
Current assets
Plant and equipment
Brand names
Goodwill
$ 19,000,000
1,800,000
20,800,000
$ 4,500,000
500,000
6,000,000
2,000,000
Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
Microsoft’s goodwill: $19,000,000 – 90%(13,000,000)
Goodwill to noncontrolling interest
Solutions Manual, Chapter 5
13,000,000
$ 7,800,000
$
$
7,800,000
7,300,000
500,000
©Cambridge Business Publishers, 2013
7
b.
Consolidation Working Paper (in thousands)
Accounts Taken From
Books
Current assets
Plant and equipment, net
Investment in Powerline
Brand names
Goodwill
Total assets
Current liabilities
Long-term liabilities
Common stock, par value
Additional paid-in capital
Retained earnings
Noncontrolling interest
Eliminations
Microsoft Powerline
Dr
$
7,000 $ 2,000 (R) 500
35,000
7,000 (R) 6,000
19,000
$
$
Total liabilities and equity
______
61,000
5,000
20,000
5,000
20,000
11,000
______
$ 61,000
$
$
$
______
9,000
1,500
3,000
100
1,400
3,000
______
9,000
Consolidated
Balances
$ 9,500
48,000
Cr
4,050 (E)
14,950 (R)
-2,000
__7,800
$ 67,300
(R) 2,000
(R) 7,800
$
6,500
23,000
5,000
20,000
11,000
(E) 100
(E) 1,400
(E) 3,000
450 (E)
______
1,350 (R)
$ 20,800 $ 20,800
__1,800
$ 67,300
Note 1: Microsoft’s balance sheet above reflects the following acquisition entry (in thousands):
Investment in Powerline
19,000
Cash
Common stock
Additional paid-in capital
Note 2:
3,000
2,000
14,000
The $14,950,000 credit to investment in entry (R) = 90% (500,000 + 6,000,000 +
2,000,000) + 7,300,000 (goodwill).
The $1,350,000 credit to noncontrolling interest in entry (R) = 10% (500,000 +
6,000,000 + 2,000,000) + 500,000 (goodwill).
c.
Calculation of goodwill:
Acquisition cost
90% x fair value of identifiable net assets
Goodwill
©Cambridge Business Publishers, 2013
8
90% x $13,000,000
$ 19,000,000
11,700,000
$ 7,300,000
Advanced Accounting, 2nd Edition
Consolidation Working Paper (in thousands)
Accounts Taken From
Books
Current assets
Plant and equipment, net
Investment in Powerline
Brand names
Goodwill
Total assets
Eliminations
Microsoft Powerline
Dr
$
7,000 $ 2,000 (R) 500
35,000
7,000 (R) 6,000
19,000
$
Current liabilities
Long-term liabilities
Common stock, par value
Additional paid-in capital
Retained earnings
Noncontrolling interest
$
Total liabilities and equity
$
______
61,000
5,000
20,000
5,000
20,000
11,000
_____
61,000
$
$
______
9,000
1,500
3,000
100
1,400
3,000
_____
$ 9,000
Cr
4,050 (E)
14,950 (R)
(R) 2,000
(R) 7,300
Consolidated
Balances
$ 9,500
48,000
-2,000
__7,300
$ 66,800
$
(E) 100
(E) 1,400
(E) 3,000
450 (E)
______
__850 (R)
$ 20,300 $ 20,300
6,500
23,000
5,000
20,000
11,000
__1,300
$ 66,800
Note: The IFRS alternative valuation method attributes no goodwill to the noncontrolling
interest.
Solutions Manual, Chapter 5
©Cambridge Business Publishers, 2013
9
E5.5
Consolidation Eliminating Entries, Date of Acquisition: U.S. GAAP and IFRS
(amounts in thousands)
a.
Plummer’s acquisition entry:
Investment in Softek
Merger expenses
25,000
500
Cash
Common stock, par value
Additional paid-in capital
500
4,000
21,000
Consolidation eliminating entries:
(E)
Common stock
Additional paid-in capital
Retained earnings
200
8,000
5,000
Accumulated OCI
Treasury stock
Investment in Softek
Noncontrolling interest in Softek
800
400
10,800
1,200
(R)
Trademarks
Customer lists
Goodwill (1)
1,500
1,000
16,100
Plant assets, net
3,000
Long-term debt
100
Investment in Softek (2)
14,200
Noncontrolling interest in Softek
(3)
1,300
(1) ($25,000 + $2,500) – ($12,000 – $3,000 + $1,500 + $1,000 – $100) = $27,500 –
$11,400
(2) 90% x ($1,500 + $1,000 – $3,000 – $100) + ($25,000 – 90% x $11,400)
(3) 10% x ($1,500 + $1,000 – $3,000 – $100) + [$16,100 – ($25,000 – 90% x $11,400)]
©Cambridge Business Publishers, 2013
10
Advanced Accounting, 2nd Edition
b.
Consolidation eliminating entries:
(E)
Common stock
Additional paid-in capital
Retained earnings
200
8,000
5,000
Accumulated OCI
Treasury stock
Investment in Softek
Noncontrolling interest in Softek
(R)
Trademarks
Customer lists
Goodwill (4)
Noncontrolling interest in
Softek (5)
800
400
10,800
1,200
1,500
1,000
14,740
60
Plant assets, net
Long-term debt
Investment in Softek
3,000
100
14,200
(4) $25,000 – (90% x $11,400)
(5) 10% x ($1,500 + $1,000 – $3,000 – $100)
Note: The IFRS alternative valuation method attributes no goodwill to the noncontrolling
interest.
E5.6
Consolidation at End of First Year (see related E4.3)
a.
Calculation of goodwill is as follows:
Acquisition cost ($10,000,000 + $300,000)
Fair value of noncontrolling interest
Total
Book value of Saddlestone
Identifiable intangibles
Goodwill
$ 10,300,000
6,500,000
16,800,000
$ 7,200,000
2,000,000
Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
Peak’s goodwill: $10,300,000 – 60%($9,200,000)
Goodwill to noncontrolling interest
Solutions Manual, Chapter 5
9,200,000
$ 7,600,000
$ 7,600,000
4,780,000
$ 2,820,000
©Cambridge Business Publishers, 2013
11
b.
2013 equity in net income and noncontrolling interest in net income:
Saddlestone’s reported net income
Revaluation writeoff:
Identifiable intangibles $2,000,000/5
c.
Total
$ 3,000,000
(400,000)
$ 2,600,000
Consolidation working paper eliminating entries for 2013:
(C)
Equity in net income of S
Dividends – Saddlestone
Investment in Saddlestone
(E)
Stockholders’ equity—
Saddlestone, 1/1
Equity in NI
$ 1,800,000
Noncontrolling
interest in NI
$ 1,200,000
(240,000)
$ 1,560,000
1,560,000
600,000
960,000
7,200,000
Investment in Saddlestone
Noncontrolling interest in
Saddlestone
(R)
Identifiable intangibles
Goodwill
4,320,000
2,880,000
2,000,000
7,600,000
Investment in Saddlestone
(1)
Noncontrolling interest in
Saddlestone (2)
(1) 60% x $2,000,000 + $4,780,000
(2) 40% x $2,000,000 + $2,820,000
(O)
Amortization expense
5,980,000
3,620,000
400,000
Identifiable intangibles
(N)
Noncontrolling interest in
income of Saddlestone
400,000
1,040,000
Dividends – Saddlestone
Noncontrolling interest in
Saddlestone
©Cambridge Business Publishers, 2013
12
(160,000)
$ 1,040,000
400,000
640,000
Advanced Accounting, 2nd Edition
E5.7Consolidation Two Years after Acquisition
(all numbers in thousands)
a.
Calculation of 2014 equity in net income and noncontrolling interest in net income:
Noncontrolling
Total
Equity in NI interest in NI
Silver Nugget’s reported NI for 2014
($100,000 – $80,000 – $14,000 =
$6,000)
$ 6,000
$
4,800
$ 1,200
Revaluation write-off:
Identifiable intangibles ($20,000/5)
(4,000)
(3,200)
(800)
$ 2,000
$
1,600
$
400
b.
Consolidation Working Paper, December 31, 2014
Trial Balances Taken
From Books
Dr (Cr)
Current assets
Plant and equipment, net
Intangibles
Investment in Silver Nugget
Goodwill
Current liabilities
Long-term debt
Common stock
Additional paid-in capital
Retained earnings, Jan. 1
Treasury stock
Noncontrolling interest
Dividends
Sales revenue
Equity in income of Silver
Nugget
Cost of goods sold
Operating expenses
Noncontrolling interest in NI
Solutions Manual, Chapter 5
Mirror
Resorts
Silver
Nugget
$ 35,000
215,700
350,000
86,400
$
5,000
140,000
51,000
--
Eliminations
Consolidated
Dr
Cr
$
(R) 16,000
4,000 (O)
400 (C)
17,200 (E)
68,800 (R)
(R) 68,000
(50,000)
(600,000)
(500)
(6,000)
(25,000)
4,000
2,000
(20,000)
(150,000)
(100)
(5,500)
(17,500)
1,600
(E) 100
(E) 5,500
(E) 17,500
1,600 (E)
4,300 (E)
15,200 (R)
100 (N)
1,200 (C)
300 (N)
1,500
(800,000)
(100,000)
(1,600)
650,000
140,000
-$
-0-
-80,000
14,000
-$
-0-
Balances
40,000
355,700
413,000
-68,000
(70,000)
(750,000)
(500)
(6,000)
(25,000)
4,000
(19,600)
2,000
(900,000)
(C) 1,600
(O) 4,000
(N) 400
$ 113,100
$
_______
113,100
-730,000
158,000
400
$
-0-
©Cambridge Business Publishers, 2013
13
E5.8
Consolidation after Several Years
a.
Paramount’s acquisition cost
Fair value of noncontrolling interest
Total
Fair value of identifiable net assets:
1,500,000 – 100,000 – 200,000 – 400,000 + 200,000
Goodwill
$ 2,910,000
790,000
3,700,000
1,000,000
$ 2,700,000
Paramount’s share of goodwill = $2,910,000 – 75%($1,000,000) = $2,160,000 (80%)
Noncontrolling interest’s share of goodwill = $540,000 (20%)
b.
January 2009 balance
Change in Sun’s retained earnings, 2009-2014:
(1,800,000 – 800,000), divided 75:25
Write-off of Sun’s identifiable net asset
revaluations, 2009-2014: (100,000 + 200,000 +
240,000 – 200,000), divided 75:25
Goodwill impairment, 2009-2014:
(2,700,000 – 2,000,000), divided 80:20
Balance, end of 2014
c.
(E)
Stockholders’
equity-Sun
Investment
$ 2,910,000
Noncontrolling
interest
$
790,000
750,000
250,000
255,000
85,000
(560,000)
$ 3,355,000
$
(140,000)
985,000
2,400,000
Investment in Sun
Noncontrolling interest in Sun
(R)
Goodwill
Equipment, net (1)
Investment in Sun (2)
Noncontrolling interest in Sun (3)
(1) $400,000 – (6/10) x $400,000
(2) (80% x 2,000,000) – (75% x 160,000)
(3) (20% x 2,000,000) – (25% x 160,000)
©Cambridge Business Publishers, 2013
14
1,800,000
600,000
2,000,000
160,000
1,480,000
360,000
Advanced Accounting, 2nd Edition
E5.9
Consolidated Cash Flow from Operations
Consolidated net income ($15,000,000 + $5,000,000)
+ Consolidated depreciation expense
+ Amortization of previously unrecognized identifiable intangibles
- Amortization of premium created when revaluing LT debt
- 40% of undistributed equity method income (.4 x $1,700,000)
+ Decrease in noncash current operating assets
- Decrease in current operating liabilities
Cash flow from operating activities
$20,000,000
3,000,000
1,400,000
(80,000)
(680,000)
2,800,000
(2,100,000)
$24,340,000
Note: The $8,000,000 net income reported by the 75%-owned subsidiary is already
included in consolidated income, and is therefore not separately reported.
E5.10 Consolidated Cash Flow from Operations
Consolidated net income (1)
+ Consolidated depreciation expense (2)
+ Consolidated amortization expense (3)
+ Goodwill impairment loss
- Undistributed equity investment income (4)
Cash flow from operating activities
(1) Calculation of equity in net income:
P’s share of reported income 80% x $240,000
P’s share of revaluation write-offs:
Depreciation
Amortization
Goodwill impairment loss
Equity in net income
Calculation of consolidated net income:
Parent’s reported income
Subsidiary’s reported income
Less equity in net income of subsidiary
Less revaluation writeoffs:
Depreciation
Amortization
Goodwill impairment loss
Consolidated net income
$ 1,036,400
216,000
65,000
40,000
(25,000)
$ 1,332,400
$
192,000
$
(2,400)
(12,000)
(32,000)
145,600
$ 1,000,000
240,000
(145,600)
(3,000)
(15,000)
(40,000)
$ 1,036,400
(2) $175,000 + $38,000 + $3,000
(3) $50,000 + $15,000
(4) $60,000 - $35,000
Solutions Manual, Chapter 5
©Cambridge Business Publishers, 2013
15
E5.11 Consolidation at Date of Acquisition, IFRS
(in millions)
a.
Calculation of goodwill:
Acquisition cost
Less 49% fair value of identifiable net assets
Goodwill
49% x (22.5)
€ 67
(11)
€ 78
Noncontrolling interests = 51% x €(22.5) = €(11.5)
b.
(E)
Investment in ASTAR
Noncontrolling interest
10
10.5
Stockholders’ equity-ASTAR
20.5
(R)
Noncurrent financial assets
Goodwill
Noncontrolling interests
2
78
1
Intangible assets
Investment in ASTAR
4
77
E5.12 Consolidation Worksheet, Date of Acquisition and One Year Later, IFRS
(in millions)
a.
Calculation of goodwill:
Acquisition cost
Fair value of identifiable net assets:
Book value
Revaluations:
Customer lists
Trade name
Assumed liabilities
Deferred tax assets, net
Total fair value of identifiable net assets
Vivendi’s share
Goodwill
€ 787
€ (118)
150
25
(484)
123
(304)
x 85%
(258)
€ 1,045
Noncontrolling interests = 15% x (304) = €(46)
©Cambridge Business Publishers, 2013
16
Advanced Accounting, 2nd Edition
b.
(E)
Investment in TPS
Noncontrolling interest
100
18
Stockholders’ equity-TPS
(R)
Goodwill
Customer lists
Trade name
Deferred tax assets, net
Noncontrolling interest
118
1,045
150
25
123
28
Assumed liabilities
Investment in TPS
c.
484
887
Calculation of equity in net loss of TPS and noncontrolling interest in TPS income is as
follows:
Noncontrolling
Equity in NL
interest in NI
TPS’ reported income for 2007
€ 68.00
€12.00
Revaluation write-offs:
Customer lists (€150/5)
(25.50)
(4.50)
Goodwill impairment
(100.00)
-Trade name impairment
(4.25)
(0.75)
€ (61.75)
€ 6.75
(C)
Investment in TPS
61.75
Equity in net loss of TPS
(E)
Investment in TPS
Noncontrolling interest
61.75
100
18
Stockholders’ equity-TPS
(R)
Goodwill
Customer lists
Trade name
Deferred tax assets, net
Noncontrolling interest
1,045
150
25
123
28
Assumed liabilities
Investment in TPS
Solutions Manual, Chapter 5
118
484
887
©Cambridge Business Publishers, 2013
17
(O)
Amortization expense
Impairment losses
30
105
Customer lists
Goodwill
Trade name
30
100
5
(N)
Noncontrolling interest in NI
6.75
Noncontrolling interest
6.75
E5.13 Consolidation at Acquisition Date, IFRS
(in millions)
a.
Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value of Sotelma
Fair value of identifiable net assets:
Book value
Revaluations:
License
Customer bases
Deferred tax
Total fair value of identifiable net assets
Goodwill
€ 278
208
486
€
35
24
2
(3)
58
€ 428
Goodwill to controlling interests = €278 – (51% x 58) = €248
Goodwill to noncontrolling interests = €428 - €248 = €180
b.
Maroc Telecom paid a premium to purchase a controlling interest in Sotelma. Maroc’s
acquisition cost of €278 implies a full price of €278/.51 = €545, and a noncontrolling
interest value of €545 x 49% = €267. However, the fair value of the noncontrolling
interest is only €208.
©Cambridge Business Publishers, 2013
18
Advanced Accounting, 2nd Edition
c.
(E)
Stockholders’ equity-Sotelma
35
Investment in Sotelma
Noncontrolling interest
(R)
License
Customer bases
Goodwill
24
2
428
Deferred tax
Investment in Sotelma
Noncontrolling interest
€260 = (51% x €23) + €248; €191 = (49% x €23) + €180.
d.
18
17
3
260
191
Noncontrolling interest = 49% x €58 = €28
Solutions Manual, Chapter 5
©Cambridge Business Publishers, 2013
19
PROBLEMS
P5.1 Consolidation Working Paper, Date of Acquisition
(all numbers in millions)
a.
Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value of Bagota
Fair value – book value:
Property, plant and equipment
Patents and trademarks
Customer-related intangibles
Long-term liabilities
Goodwill
$ 1,200
_375
1,575
$ 500
(200)
45
30
__25
Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
Hershey’s goodwill: $1,200 – 75%(400)
Goodwill to noncontrolling interest
_400
$ 1,175
$ 1,175
900
$ 275
b.
Consolidation Working Paper (in millions)
Accounts Taken From Books
Current assets
PP&E, net
Investment in Bagota
Patents and trademarks
Customer-related intangs
Goodwill
Total assets
Current liabilities
Long-term liabilities
Common stock, par value
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated OCI
Noncontrolling interest
Total liabilities and
equity
Hershey
$ 1,500
1,600
1,200
Bagota
$ 325
600
--
1,300
-_____
$ 5,600
$ 1,600
1,900
300
1,950
3,900
(4,000)
(50)
_____
$ 1,000
$ 100
400
10
200
300
-(10)
_____
$ 5,600
_____
$ 1,000
©Cambridge Business Publishers, 2013
20
75
Eliminations
Dr
Cr
200 (R)
375 (E)
825 (R)
(R) 45
(R) 30
(R) 1,175
(R) 25
(E)
10
(E) 200
(E) 300
_____
$ 1,785
10 (E)
125 (E)
250 (R)
$ 1,785
Consolidated
Balances
$ 1,825
2,000
-1,420
30
1,175
$ 6,450
$ 1,700
2,275
300
1,950
3,900
(4,000)
(50)
375
$ 6,450
Advanced Accounting, 2nd Edition
c.
Consolidated Balance Sheet, July 1, 2013
Assets
Current assets
Property, plant and equipment, net
Goodwill
Other intangibles
Total assets
Liabilities and stockholders’ equity
Current liabilities
Long-term liabilities
Total liabilities
Stockholders’ equity
Hershey’s stockholders’ equity:
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive loss
Total Hershey stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
1,825
2,000
1,175
1,450
6,450
1,700
2,275
3,975
300
1,950
3,900
(4,000)
(50)
2,100
375
2,475
$ 6,450
P5.2
Consolidated Balance Sheet Working Paper, Date of Acquisition, Bargain Purchase
(see related P3.4)
a.
(amounts in millions)
Acquisition cost
Fair value of noncontrolling interest
Total
Book value of Saxon
Fair value – book value:
Inventory
Long-term marketable securities
Land
Buildings and equipment, net
Long-term debt
Fair value of identifiable net assets
Gain on acquisition
Paxon’s acquisition entry:
Investment in Saxon
$ 1,295
100
(50)
245
300
110
2,000
$ (800)
1,800
Cash
Gain on acquisition
Solutions Manual, Chapter 5
$ 1,000
200
$ 1,200
1,000
800
©Cambridge Business Publishers, 2013
21
b.
Consolidation Working Paper (in millions)
Accounts Taken From Books
Cash and receivables
Inventory
Marketable securities
Investment in Saxon
Paxon
$ 1,860
1,700
-1,800
Land
Buildings and equipment
Accumulated depreciation
Total assets
Current liabilities
Long-term debt
Common stock, par value
Additional paid-in capital
Retained earnings
Noncontrolling interest
Total liabilities and equity
650
3,400
(1,000)
$ 8,410
$ 1,500
2,000
500
1,200
3,210
-$ 8,410
Saxon
$ 720
900
300
175
600
-$ 2,695
$ 1,000
400
100
350
845
-$ 2,695
Eliminations
Dr
Cr
(R) 100
50 (R)
1,036 (E)
764 (R)
(R) 245
(R) 300
(R) 110
(E) 100
(E) 350
(E) 845
(R) 59
259 (E)
$ 2,109 $ 2,109
Consolidated
Balances
$ 2,580
2,700
250
-1,070
4,300
(1,000)
$ 9,900
$ 2,500
2,290
500
1,200
3,210
200
$ 9,900
Note: In journal entry form, the eliminating entries are:
(E)
Common stock, par value
Additional paid-in capital
Retained earnings
100
350
845
Investment in Saxon
Noncontrolling interest
(R)
Inventory
Land
Buildings and equipment
Long-term debt
Noncontrolling interest
1,036
259
100
245
300
110
59
Marketable securities
Investment in Saxon
50
764
The adjustment to noncontrolling interest brings its balance to fair value at the acquisition
date. The adjustment to the investment eliminates the remaining balance.
©Cambridge Business Publishers, 2013
22
Advanced Accounting, 2nd Edition
c.
Consolidated Balance Sheet, December 31, 2012 (amounts in millions)
Assets
Cash and receivables
Inventory
Current assets
Long-term marketable securities
Land
Buildings and equipment, net of $1,000 accumulated depreciation
Total assets
Liabilities and stockholders’ equity
Current liabilities
Long-term debt
Total liabilities
Stockholders’ equity
Paxon stockholders’ equity:
Common stock
Additional paid-in capital
Retained earnings
Total Paxon stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
P5.3
$
$
$
$
2,500
2,290
4,790
500
1,200
3,210
4,910
200
5,110
9,900
Consolidation Eliminating Entries, Date of Acquisition
(all amounts in thousands)
a.
Investment in Summer
Merger expenses
8,800
300
Cash
Earnings contingency liability
b.
2,580
2,700
5,280
250
1,070
3,300
9,900
8,300
800
Consolidation working paper eliminating entries:
(E)
Common stock
Retained earnings
500
3,000
Investment in Summer
Noncontrolling interest
Solutions Manual, Chapter 5
2,625
875
©Cambridge Business Publishers, 2013
23
(R)
In-process research and
development
Goodwill (1)
Noncurrent liabilities
1,500
9,300
100
Cash and receivables
Inventories
Plant assets, net
Intangibles
Lawsuit liability
Investment in Summer (2)
Noncontrolling interest (3)
(1) Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value of Summer
Fair value – book value:
Cash and receivables
Inventories
Plant assets, net
Intangibles
Noncurrent liabilities
IPR&D
Lawsuit liability
Goodwill
200
500
1,000
1,000
400
6,175
1,625
$ 8,800
2,500
11,300
$ 3,500
(200)
(500)
(1,000)
(1,000)
100
1,500
(400)
Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
Placer’s goodwill: $8,800 – 75%(2,000)
Goodwill to noncontrolling interest
2,000
$ 9,300
$ 9,300
7,300
$ 2,000
(2) 75% x ($100 + 1,500 – 200 – 500 – 1,000 – 1,000 – 400) + 7,300.
(3) 25% x ($100 + 1,500 – 200 – 500 – 1,000 – 1,000 – 400) + 2,000.
©Cambridge Business Publishers, 2013
24
Advanced Accounting, 2nd Edition
P5.4
Consolidated Working Paper One Year after Acquisition, Bargain Purchase (see
related P4.4)
(all amounts in millions)
a.
Calculation of gain on acquisition:
Acquisition cost
Fair value of noncontrolling interest
$ 1,620
180
1,800
Book value ($100 + 350 + 845)
Excess of fair value over book value:
Inventory
Marketable securities
Land
Buildings and equipment
Long-term debt (discount)
Gain on acquisition
$ 1,295
100
(50)
245
300
110
2,000
$ (200)
b.
Total
Saxon’s reported net income for
2013 ($10,000 + 10 – 8,000 – 40 –
25 – 1,600 = $345)
Revaluation writeoffs:
Inventory
Marketable securities
Buildings and equipment ($300/20)
Long-term debt ($110/5)
Solutions Manual, Chapter 5
Equity in NI
Noncontrolling
interest in NI
$ 345
$ 310.5
$ 34.5
(100)
50
(15)
(22)
$ 258
(90)
45
(13.5)
(19.8)
$ 232.2
(10)
5
(1.5)
(2.2)
$ 25.8
©Cambridge Business Publishers, 2013
25
c.
Consolidation Working Paper, December 31, 2013
Trial Balances Taken
From Books
Dr (Cr)
Eliminations
Consolidated
Paxon
Cash and receivables
Inventory
Marketable securities
Investment in Saxon
Land
Buildings and equipment, net
Current liabilities
Long-term debt
Common stock
Additional paid-in capital
Retained earnings, Jan. 1
Noncontrolling interest
Dividends
Sales revenue
Equity in income of Saxon
Gain on sale of securities
Gain on acquisition
Cost of goods sold
Depreciation expense
Interest expense
Other operating expenses
Noncontrolling interest in NI
$
3,270
2,260
-1,962.2
650
3,600
(2,020)
(5,000)
(500)
(1,200)
(2,410)
--
500
(30,000)
(232.2)
-(200)
26,000
300
250
2,770
____-$
-0-
©Cambridge Business Publishers, 2013
26
Saxon
$
Dr
800
940
---
(R) 100
(O-2) 50
300
1,150
(1,200)
(450)
(100)
(350)
(845)
--
Cr
100 (O-1)
50 (R)
142.2 (C)
1,165.5 (E)
654.5 (R)
(R) 245
(R) 300
15 (O-3)
(R) 110
(E) 100
(E) 350
(E) 845
22 (O-4)
129.5 (E)
50.5 (R)
15.8 (N)
90 (C)
10 (N)
100
(10,000)
-(10)
-8,000
40
25
1,600
____-$
-0-
(C) 232.2
50 (O-2)
(O-1) 100
(O-3) 15
(O-4) 22
$
(N) 25.8
2,495
_______
2,495
$
Balances
$ 4,070
3,200
---
1,195
5,035
(3,220)
(5,362)
(500)
(1,200)
(2,410)
(195.8)
500
(40,000)
-(60)
(200)
34,100
355
297
4,370
__25.8
$ -0-
Advanced Accounting, 2nd Edition
P5.5
Consolidated Working Paper Two Years after Acquisition, Bargain Purchase (see
related P5.4)
(all amounts in millions)
a.
Equity in
NI
Total
Saxon’s reported net income for 2014
($12,000 – 9,500 – 60 – 40 – 2,200 =
$200)
Revaluation writeoffs:
Buildings and equipment ($300/20)
Long-term debt ($110/5)
$ 200
$
180
Noncontrolling
interest in NI
$
20
(15)
(13.5)
(1.5)
(22)
(19.8)
(2.2)
$ 163
$ 146.7
$ 16.3
Note: Inventory (FIFO) and marketable securities revaluations were realized through sale in
2013.
b.
Consolidation Working Paper, December 31, 2014
Trial Balances
Taken From Books
Dr (Cr)
Eliminations
Consolidated
Paxon
Cash and receivables
Inventory
Investment in Saxon
$ 3,000
2,500
2,063.9
Land
Buildings and equipment, net
Current liabilities
Long-term debt
Common stock
Additional paid-in capital
Retained earnings, Jan. 1
Noncontrolling interest
650
5,905
(2,500)
(6,000)
(500)
(1,200)
(3,022.2)
--
Dividends
Sales revenue
Equity in income of Saxon
Cost of goods sold
Depreciation expense
Interest expense
Other operating expenses
Noncontrolling interest in NI
Solutions Manual, Chapter 5
500
(35,000)
(146.7)
30,000
450
300
3,000
___-$ -0-
Saxon
$
Dr
Cr
850
950
--
250
1,440
(1,000)
(800)
(100)
(350)
(1,090)
--
$
101.7 (C)
1,386 (E)
576.2 (R)
(R) 245
(R) 285
15 (O-1)
(R) 88
(E) 100
(E) 350
(E) 1,090
22 (O-2)
154 (E)
41.8 (R)
11.3 (N)
45 (C)
5 (N)
50
(12,000)
-9,500
60
40
2,200
___-$ -0-
Balances
(C) 146.7
(O-1) 15
(O-2) 22
$
(N) 16.3
2,358
_______
2,358
$
3,850
3,450
--
1,145
7,615
(3,500)
(6,734)
(500)
(1,200)
(3,022.2)
(207.1)
500
(47,000)
-39,500
525
362
5,200
___16.3
$ -0-
©Cambridge Business Publishers, 2013
27
P5.6
Consolidation Working Paper, Second Year Following Acquisition
(amounts in millions)
a.
Calculation of goodwill is as follows:
Acquisition cost
Fair value of noncontrolling interest
Total
Book value of S
Identifiable intangibles
Goodwill
$ 600
225
825
$ 580
100
680
$ 145
Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
Harrah’s goodwill: $600 – 70% x $680
Goodwill to noncontrolling interest
b.
$ 145
124
$ 21
Calculation of 2008 equity in net loss and noncontrolling interest in net loss:
Total
Emerald Safari Resort reported income
($2,200 + 300 + 200 – 1,670 – 1,000 = $30)
Revaluation writeoffs:
Identifiable intangibles
Goodwill
©Cambridge Business Publishers, 2013
28
$
30
( 8)
(145)
$ (123)
Equity in
NL
$
21
(5.6)
(124)
$ (108.6)
Noncontrolling
interest in NL
$
9
(2.4)
(21)
$ (14.4)
Advanced Accounting, 2nd Edition
c.
Consolidation Working Paper, December 31, 2008
Trial Balances
Taken From Books
Dr (Cr)
Current assets
Land, buildings, riverboats and
equipment, net
Intangible assets
Investment in Emerald
Goodwill
Current liabilities
Long-term liabilities
Common stock
Capital surplus
Retained earnings, Jan. 1
Noncontrolling interest
Harrah’s
Emerald
Safari
Resort
$
$
1,400
17,696.2
2,500
515.2
Dividends
Casino revenues
Food and beverage revenues
Rooms revenues
Equity in net loss of Emerald
Direct casino, food and beverage,
rooms expenses
General and administrative expenses
Amortization expense
Goodwill impairment loss
Noncontrolling interest in net loss
$
Solutions Manual, Chapter 5
-(300)
(2,600)
(4)
(320)
(300)
--
100
5
(6,600)
(1,400)
(1,000)
108.6
7,200
(2,200)
(300)
(200)
-1,670
1,400
1,000
--0-
$
Consolidated
Dr
Cr
200
2,549
800
--
-(1,500)
(14,000)
(20)
(5,500)
(900)
--
Eliminations
--0-
Balances
$
(R) 95
(C) 112.1
(R)
145
(E)
4
(E) 320
(E) 300
(N) 15.9
8 (O)
436.8 (E)
190.5 (R)
145 (O)
3,387
--(1,800)
(16,600)
(20)
(5,500)
(900)
(220.8)
187.2 (E)
49.5 (R)
3.5 (C)
1.5 (N)
100
(8,800)
(1,700)
(1,200)
-8,870
108.6 (C)
(O) 8
(O) 145
_____
14.4 (N)
$ 1,145 $ 1,145
1,600
20,245.2
$
2,400
8
145
(14.4)
-0-
©Cambridge Business Publishers, 2013
29
P5.7
Equity Method and Eliminating Entries Three Years after Acquisition (see related
P4.2)
a.
Calculation of equity in net income and noncontrolling interest in net income for 2014:
Sunset Coast’s reported net income for
2014
Revaluation writeoffs:
Plant assets ($1,000,000)/10
Identifiable intangibles $3,600,000/20
(1)
Total
Equity in
NI
$ 200,000
$ 180,000
100,000
(180,000)
Noncontrolling
interest in NI
$ 20,000
90,000
(162,000)
10,000
(18,000)
$ 120,000
$ 108,000
(1) $3,600,000 = $3,150,000 + 350,000 – (1,400,000 – 500,000 – 1,000,000)
b.
$ 12,000
Calculation of investment balance at December 31, 2014:
Investment in Sunset Coast, December 31, 2011
90% x Sunset Coast’s reported income, 2012-2014
90% x Sunset Coast’s reported dividends, 2012-2014
(50% of reported income)
Revaluation writeoffs, 2012-2014:
Plant assets [($1,000,000)/10] x 3 x 90%
Identifiable intangibles ($3,600,000/20) x 3 x 90%
Investment in Sunset Coast, December 31, 2014
$3,150,000
765,000
(382,500)
270,000
(486,000)
$3,316,500
Note: Under LIFO and increasing inventory, the revalued inventory is assumed to still be
on hand.
c.
Calculation of noncontrolling interest balance at December 31, 2014:
Fair value of noncontrolling interest, December 31, 2011
10% x Sunset Coast’s reported income, 2012-2014
10% x Sunset Coast’s reported dividends, 2012-2014 (50% of
reported income)
Revaluation writeoffs, 2012-2014:
Plant assets [($1,000,000)/10] x 3 x 10%
Identifiable intangibles ($3,600,000/20) x 3 x 10%
Noncontrolling interest in Sunset Coast, December 31, 2014
©Cambridge Business Publishers, 2013
30
$350,000
85,000
(42,500)
30,000
(54,000)
$368,500
Advanced Accounting, 2nd Edition
d.
Consolidation working paper eliminating entries for 2014:
(C)
Equity in net income of Sunset Coast
108,000
Dividends–Sunset Coast
(.5 x $200,000 x 90%)
Investment in Sunset
Coast
90,000
18,000
(E)
Stockholders’ equity—Sunset Coast,
1/1
1,725,000
Investment in Sunset
Coast
1,552,500
Noncontrolling interest
in Sunset Coast
172,500
Sunset Coast’s stockholders’ equity, January 1, 2014 = $1,400,000 + (1 - .5)(850,000 –
200,000) = $1,725,000.
(R)
Identifiable intangibles
3,240,000
Inventory
500,000
Plant assets, net
800,000
Investment in Sunset
Coast
1,746,000
Noncontrolling interest
in Sunset Coast
194,000
Revaluations at January 1, 2014 = original revaluations less writeoffs for 2012 and 2013.
(O)
Plant assets, net
Amortization expense
100,000
180,000
Depreciation expense
Identifiable intangibles
(N)
Noncontrolling interest in NI of
Sunset Coast
12,000
Dividends – Sunset Coast
(.5 x $200,000 x 10%)
Noncontrolling interest in
Sunset Coast
Solutions Manual, Chapter 5
100,000
180,000
10,000
2,000
©Cambridge Business Publishers, 2013
31
P5.8
Consolidation Working Paper after Several Years
(amounts in thousands)
a.
Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value of Piedmont
Fair value – book value of franchise rights
Goodwill
$ 70,000
15,000
85,000
$ 25,000
5,000
Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
Coca-Cola Consolidated’s goodwill: $70,000 – 75%(30,000)
Goodwill to noncontrolling interest
30,000
$ 55,000
$ 55,000
47,500
$ 7,500
b.
Calculation of equity in net loss and noncontrolling interest in net loss for 2012:
Equity
Noncontrolling
Total
in NL
interest in NL
Piedmont’s reported net income for
2012 (1)
$ 3,000
$ 2,250
$ 750
Revaluation write-offs:
Franchise rights impairment
(2,500)
(1,875)
(625)
Goodwill impairment (47.5: 7.5 ratio)
(6,000)
(5,182)
__(818)
$ (5,500)
$ (4,807)
$ (693)
(1) $3,000 = $300,000 – (175,000 + 114,000 + 8,000)
c.
Calculation of investment balance at December 31, 2012:
Investment in Piedmont, January 1, 2003
75% x Piedmont reported income less dividends, 2003-2011 (1)
75% x Revaluation write-offs for franchise rights, 2003-2011
Equity in net loss, 2012
Investment in Piedmont, December 31, 2012
$ 70,000
4,350
(750)
(4,807)
$ 68,793
(1) Change in book value 2003-2011 of $5,800 (= $30,800 – $25,000) is attributed to
accumulated income less dividends, since the stock accounts did not change; $30,800
= $1,000 + $12,000 + $18,000 – $200.
©Cambridge Business Publishers, 2013
32
Advanced Accounting, 2nd Edition
d.
Consolidation Working Paper, December 31, 2012
Trial Balances
Taken From Books
Dr (Cr)
Current assets
Property, plant & equipment, net
Franchise rights, net
Investment in Piedmont
Goodwill
Current liabilities
Long-term debt
Common stock
Additional paid-in capital
Retained earnings, Jan. 1
Accumulated other
comprehensive loss
Treasury stock
Noncontrolling interest
Dividends
Net sales
Equity in loss of Piedmont
Cost of sales
Selling, delivery and
administrative expenses
Amortization expense
Interest expense
Goodwill impairment loss
Noncontrolling interest in NI
Solutions Manual, Chapter 5
Eliminations
Consolidated
Coca-Cola
Consolidated
Piedmont
$ 160,000
250,000
466,400
68,793
$ 30,000
233,800
---
-(120,000)
(700,000)
(12,000)
(100,000)
(50,500)
12,000
-(20,000)
(210,000)
(1,000)
(12,000)
(18,000)
--
30,000
--
200
--
2,000
(1,200,000)
4,807
760,000
400,000
-(300,000)
-175,000
114,000
500
28,000
-___ -$
-0-
-8,000
-___--0-
$
Dr
Cr
Balances
$
(R) 4,000
(C) 4,807
(R) 55,000
2,500 (O)
23,100 (E)
50,500 (R)
6,000 (O)
(E) 1,000
(E) 12,000
(E) 18,000
(N)
693
200 (E)
7,700 (E)
8,500 (R)
4,807 (C)
(O) 2,500
(O) 6,000
_____
__693 (N)
$ 104,000 $104,000
190,000
483,800
467,900
-49,000
(140,000)
(910,000)
(12,000)
(100,000)
(50,500)
12,000
30,000
(15,507)
2,000
(1,500,000)
-935,000
514,000
3,000
36,000
6,000
(693)
$
-0-
©Cambridge Business Publishers, 2013
33
e.
Consolidated Income Statement and Statement of Retained Earnings,
Year Ended December 31, 2012
Net sales
$ 1,500,000
Cost of sales
(935,000)
Gross profit
565,000
Selling, delivery and administrative expenses
(514,000)
Amortization expense
(3,000)
Interest expense
(36,000)
Goodwill impairment loss
(6,000)
Consolidated net income
6,000
Plus: Net loss attributable to noncontrolling interest
___693
Net income attributable to Coca-Cola Consolidated
6,693
Plus retained earnings, January 1
50,500
Less dividends
_(2,000)
Retained earnings, December 31
$
55,193
Consolidated Balance Sheet, December 31, 2012
Assets
Current assets
Property, plant and equipment, net
Franchise rights, net
Goodwill
Total assets
Liabilities and stockholders’ equity
Current liabilities
Long-term liabilities
Total liabilities
Stockholders’ equity
Coca-Cola Consolidated stockholders’ equity:
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive loss
Total Coca-Cola Consolidated stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
©Cambridge Business Publishers, 2013
34
$
190,000
483,800
467,900
49,000
$ 1,190,700
$
140,000
910,000
1,050,000
12,000
100,000
55,193
(30,000)
(12,000)
125,193
15,507
140,700
$ 1,190,700
Advanced Accounting, 2nd Edition
P5.9
Consolidated Statement of Cash Flows
Sunny Valley Resort and Subsidiary
Consolidated Statement of Cash Flows
For the year 2012
Cash from operating activities
Consolidated net income ($400,000 + $24,000) (1)
Add (subtract) items not affecting cash:
Depreciation expense
$ 350,000
Goodwill impairment loss
30,000
Loss on retirement of plant assets (2)
50,000
Changes in current assets and liabilities:
Increase in other current assets
(400,000)
Decrease in current liabilities
(268,000)
Net cash from operating activities
Cash from investing activities
Acquisition of plant assets (3)
Cash from financing activities
Increase in noncurrent liabilities
100,000
Dividends paid to controlling stockholders
(70,000)
Dividends paid to noncontrolling stockholders
(16,000)
Net decrease in cash
Plus cash balance, January 1
Cash balance, December 31
$ 424,000
430,000
(668,000)
186,000
(300,000)
14,000
(100,000)
700,000
$ 600,000
(1) Noncontrolling interest in net income = $120,000 x 20%
(2) $1,600,000 + 350,000 – 1,500,000 = $450,000 accumulated depreciation on plant
assets scrapped; $500,000 – 450,000 = $50,000 loss on retirement of plant assets.
(3) X = cost of plant assets acquired; $4,200,000 + X – 500,000 = $4,000,000; X =
$300,000.
Solutions Manual, Chapter 5
©Cambridge Business Publishers, 2013
35
P5.10 Consolidated Statement of Cash Flows
Prime Casinos and Saratoga International Hotels
Consolidated Statement of Cash Flows
For the Year ended December 31, 2013
(in millions)
Cash from operating activities:
Consolidated net income
Add (subtract) items not affecting cash from operations:
Depreciation expense
Goodwill impairment loss
Loss on sale of plant assets
Changes in current assets and liabilities:
Increase in other current assets
Increase in current liabilities
Net cash from operating activities
Cash from investing activities:
Sale of plant assets (1)
Acquisition of plant assets
Cash from financing activities:
Increase in long-term liabilities
Issuance of capital stock
Dividends paid to majority stockholders
Dividends paid to noncontrolling interest (2)
Net increase in cash
Plus cash balance, January 1, 2013
Cash balance, December 31, 2013
$ 612
$ 250
25
10
285
(100)
250
150
1,047
15
(675)
(660)
150
200
(435)
(2)
$
(87)
300
200
500
(1) Cost of plant assets sold = $2,500 + $675 - $3,100 = $75
Accumulated depreciation on plant assets sold = $800 + $250 - $1,000 = $50
Cash received from sale of plant assets = $75 - $50 - $10 = $15
(2) $150 + 12 – 160 = $2
©Cambridge Business Publishers, 2013
36
Advanced Accounting, 2nd Edition
P5.11 Consolidation Two Years after Acquisition, IFRS
(all dollar amounts in millions)
a.
Calculation of goodwill is as follows:
Acquisition cost
Book value of Monaco
Revaluations:
Inventory
Property, plant and equipment
Identifiable intangibles
Fair value of identifiable net assets
Goodwill
b.
€ 4,000
€ 1,000
(100)
400
300
1,600
x 80%
1,280
€ 2,720
Calculation of equity in net income and noncontrolling interest in net income for 2013:
Equity
Noncontrolling
Total
in NI
interest in NI
Monaco’s reported net income for 2013 (1) € 600
€ 480
€ 120
Revaluation writeoffs:
Property, plant and equipment $400/10
(40)
(32)
(8)
Identifiable intangibles $300/3
(100)
(80)
(20)
Goodwill
(200)
(200)
__-€ 260
€ 168
€
92
(1) $600 = $3,500 – (2,500 + 400)
Solutions Manual, Chapter 5
©Cambridge Business Publishers, 2013
37
c.
Consolidation Working Paper, December 31, 2013
Trial Balances
Taken From Books
Dr (Cr)
Rendezvous
Current assets
Property, plant and equipment, net
Investment in Monaco
€
Identifiable intangibles
Goodwill
Liabilities
Capital stock
Retained earnings, Jan. 1
Noncontrolling interest
Monaco
€
900
2,000
--
--(4,648)
(1,500)
(1,000)
--
Dividends
200
-(1,150)
(800)
(600)
--
--
Sales revenue
Equity in net income of Monaco
Cost of sales
Goodwill impairment loss
Administrative and other operating
expenses
Noncontrolling interest in NI
€
©Cambridge Business Publishers, 2013
38
500
3,000
4,316
Eliminations
Dr
Cr
(R) 360
(R) 200
(R) 2,620
(E)
(E)
(3,500)
-2,500
--
300
--0-
400
--0-
€
-300
2,420
(5,798)
(1,500)
(1,000)
800
600
280 (E)
112 (R)
82 (N)
40 (C)
10 (N)
50
(5,000)
(168)
4,200
--
40 (O)
128 (C)
1,120 (E)
3,068 (R)
100 (O)
200 (O)
Consolidated
Balances
€ 1,400
5,320
(474)
-(8,500)
-6,700
200
(C) 168
(O) 200
(O)
40
(O) 100
(N) __92
____
€
5,180 € 5,180
€
Advanced Accounting, 2nd Edition
840
92
-0-
P5.12 Consolidation Several Years after Acquisition, IFRS
(dollar amounts in thousands)
a.
Calculation of goodwill is as follows:
Acquisition cost
Book value of Hearty
Revaluations:
Plant and equipment
Identifiable intangibles
Long-term debt
Fair value of identifiable net assets
Goodwill
b.
€ 150,000
€ 70,000
(50,000)
40,000
2,000
62,000
x 75%
46,500
€ 103,500
Calculation of equity in net income and noncontrolling interest in net income for 2014:
Noncontrolling
Total
Equity in NI
interest in NI
Hearty’s reported net income for 2014
(1)
€ 15,000
€ 11,250
€ 3,750
Revaluation writeoffs:
Property, plant and equipment
(€50,000/10)
5,000
3,750
1,250
Identifiable intangibles (€40,000/10)
(4,000)
(3,000)
(1,000)
Goodwill
(750)
(750)
-€ 15,250
€ 11,250
€ 4,000
(1) €15,000 = €140,000 – (80,000 + 45,000)
Solutions Manual, Chapter 5
©Cambridge Business Publishers, 2013
39
c.
Consolidation Working Paper, December 31, 2014
Trial Balances
Taken From Books
Dr (Cr)
Current assets
Property, plant and equipment, net
Investment in Hearty
Identifiable intangibles
Goodwill
Current liabilities
Long-term debt
Capital stock
Retained earnings, Jan. 1
Noncontrolling interest
Sales revenue
Equity in net income of Hearty
Cost of goods sold
Goodwill impairment loss
Other operating expenses
Noncontrolling interest in NI
Lily
€ 35,000
226,500
176,750
100,000
-(30,000)
(350,000)
(80,000)
(60,000)
-(400,000)
(11,250)
250,000
-143,000
-€
-0-
©Cambridge Business Publishers, 2013
40
Hearty
€ 20,000
202,000
--
Eliminations
Dr
Cr
Consolidated
Balances
€
(O) 5,000 30,000 (R)
11,250 (C)
69,000 (E)
96,500 (R)
(R) 24,000 4,000 (O)
(R) 101,000
750 (O)
10,000
-(25,000)
(100,000)
(54,000) (E) 54,000
(38,000) (E) 38,000
-- (R) 1,500 23,000 (E)
4,000 (N)
(140,000)
-- (C) 11,250
80,000
-- (O)
750
45,000 (O) 4,000 5,000 (O)
-- (N) 4,000 ______
€
-0€243,500 €243,500
55,000
403,500
-130,000
100,250
(55,000)
(450,000)
(80,000)
(60,000)
(25,500)
(540,000)
-330,000
750
187,000
4,000
€
-0-
Advanced Accounting, 2nd Edition
P5.13 Noncontrolling Interest in Comprehensive Income
a.
Vodafone’s 45 percent noncontrolling interest in net income is $7,668, implying that
Verizon Wireless’ total net income (adjusted for revaluation write-offs) was $17,040 (=
$7668/.45).
Since consolidated income is $10,217, Verizon’s separate results are a loss of $6,823 (=
$10,217 - $17,040).
b.
Verizon Wireless reported a net loss in OCI for 2010, but Verizon Communications
reported a net gain in OCI. Verizon Wireless’ total OCI loss for 2010 must have been
$78 (= $35/.45), and Verizon’s share is $43. Consolidated OCI for 2010 is a gain of
$2,363. Therefore Verizon’s separate OCI for 2010 is a gain of $2,441 (= $2,363 + $78).
c.
(N)
Noncontrolling interest in
income of Verizon Wireless
7,668
Noncontrolling interest in
other comprehensive loss of
Verizon Wireless
Dividends – Verizon
Wireless
Noncontrolling interest in
Verizon Wireless
Solutions Manual, Chapter 5
35
2,051
5,582
©Cambridge Business Publishers, 2013
41