Consolid – Other. Issues - 1
CONSOLIDATED STATEMENTS
General Concepts
 Same GAAP as separate
statements
 Only external transactions
 Specific consolidation mechanics
depend on Parent’s accounting for
investment in subsidiary
Consolid – Other. Issues - 2
CONSOLIDATION MECHANICS
 Consolidation workpapers
– No “set of books” for consolidated
entity
– Each party maintains their own books
 Eliminating entries
– Necessary to eliminate “intercompany
items”
– Appear only on consolidation
workpapers
Consolid – Other. Issues - 3
INVESTMENT ELIMINATION
 Investment account (Parent’s books)
vs. Stockholders’ equity (Subsidiary’s
books)
 Treatment of the differential
– Cost of the investment
– FMV of subsidiary’s net assets (% acquired)
– Book value of subsidiary’s net assets
(% acquired)
Consolid – Other. Issues - 4
INVESTMENT ELIMINATION
Continued
 Positive differential (Cost vs. Book
value)
– Errors or omissions on subsidiary’s books
– Excess of FMV over book value of
subsidiary’s net assets
– Existence of goodwill
 Negative differential (Cost vs. Book
value)
– Errors or omissions on subsidiary’s books
– Excess of book value over FMV of
subsidiary’s net assets
– Bargain purchase or “negative goodwill”
Consolid – Other. Issues - 5
INVESTMENT ELIMINATION
Continued
Treatment of noncontrolling interest
Cost vs. Equity methods on Parent’s books
Intercompany receivables and payables
Valuation accounts at acquisition
– Accumulated depreciation
– Allowance for change in FMV of investment
securities
– Allowance for uncollectible accounts
– Discount or premium on bonds payable
 Negative Retained earnings of subsidiary at
acquisition
 Other stockholders’ equity accounts
– Accounts accruing to common stock




Consolidation Workpaper
Account Titles
Trial Balance Data
Parent
Subsidiary
Consolid – Other. Issues - 6
Elimination Entries
Debits
Credits
Work flow
Consolidated
100% Purchase at Book Value
Account Titles
Consolid – Other. Issues - 7
Trial Balance Data
Elimination Entries
Peerless Spec. Foods Debits
Credits
Consolidated
Cash
50,000
Accounts Rec.
75,000
Inventory
100,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 300,000
Total Debits
1,500,000
50,000
50,000
60,000
40,000
600,000
100,000
125,000
160,000
215,000
1,400,000
800,000
2,000,000
Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Total Credits
1,500,000
300,000
100,000
100,000
200,000 (2)200,000
100,000 (2)100,000
800,000 300,000
700,000
200,000
300,000
500,000
300,000
2,000,000
(2) 300,000
300,000
100% Purchase at Book Value
Account Titles
Consolid – Other. Issues - 8
Trial Balance Data
Elimination Entries
Peerless Spec. Foods Debits
Credits
Consolidated
Cash
50,000
Accounts Rec.
75,000
Inventory
100,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 300,000
Total Debits
1,500,000
50,000
50,000
60,000
40,000
600,000
100,000
125,000
160,000
215,000
1,400,000
800,000
2,000,000
Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Total Credits
1,500,000
300,000
100,000
100,000
200,000
100,000
800,000
700,000
200,000
300,000
500,000
300,000
2,000,000
300,000
200,000
100,000
300,000
300,000
Purchase – Above Book Value
Account Titles
Consolid – Other. Issues - 9
Trial Balance Data
Elimination Entries
Peerless Spec. Foods Debits
Credits
Cash
10,000
Accounts Rec.
75,000
Inventory
100,000
Land
175,000
Bldg. and Equip.
800,000
Inv. in Sp. Foods
340,000
Differential
Total Debits
1,500,000
50,000
50,000
60,000
40,000
600,000
Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Total Credits
1,500,000
300,000
100,000
100,000
200,000 (4)200,000
100,000 (4)100,000
800,000
(4) 340,000
(4) 40,000
800,000
Consolidated
Purchase – Above Book Value
Account Titles
Consolid – Other. Issues - 10
Trial Balance Data
Elimination Entries
Peerless Spec. Foods Debits
Credits
Cash
10,000
Accounts Rec.
75,000
Inventory
100,000
Land
175,000
Bldg. and Equip.
800,000
Inv. in Sp. Foods
340,000
Differential
Total Debits
1,500,000
50,000
50,000
60,000
40,000
600,000
Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Total Credits
1,500,000
300,000
100,000
100,000
200,000 (4)200,000
100,000 (4)100,000
800,000
380,000
(5) 40,000
(4) 340,000
(4) 40,000 (5) 40,000
800,000
380,000
Consolidated
Purchase – Above Book Value
Account Titles
Consolid – Other. Issues - 11
Trial Balance Data
Elimination Entries
Peerless Spec. Foods Debits
Credits
Consolidated
60,000
125,000
160,000
255,000
1,400,000
Cash
10,000
Accounts Rec.
75,000
Inventory
100,000
Land
175,000
Bldg. and Equip.
800,000
Inv. in Sp. Foods
340,000
Differential
Total Debits
1,500,000
50,000
50,000
60,000
40,000
600,000
800,000
2,000,000
Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Total Credits
1,500,000
300,000
100,000
100,000
200,000 (4)200,000
100,000 (4)100,000
800,000
380,000
700,000
200,000
300,000
500,000
300,000
2,000,000
(5) 40,000
(4) 340,000
(4) 40,000 (5) 40,000
380,000
Comprehensive Three-Part Workpaper
Item
Trial Balance Data
Parent
Subsidiary
Consolid – Other. Issues - 12
Elimination Entries
Debits
Credits
Credit Accounts:
Revenues
Gains
Debit Accounts:
INCOME STATEMENT SECTION
Contra Revenues
Expenses
Losses
Net Income
Beginning Retained
Earnings
Add: Net Income
RETAINED EARNINGS SECTION
Deduct: Dividends
Ending Retained
Earnings
to Balance Sheet section
Consolidated
Comprehensive Three-Part Workpaper
Item
Debit Accounts:
Assets
Contra Liabilities
Credit Accounts:
Contra Assets
Liabilities
Stockholders’
Equity:
Capital Stock
Paid-in Capital
Retained
Earnings
Trial Balance Data
Parent
Subsidiary
Consolid – Other. Issues - 13
Elimination Entries
Debits
Credits
BALANCE SHEET SECTION
From Retained
Earnings Statement
section
Consolidated
Consolid – Other. Issues - 14
ELIMINATING ENTRIES
First Subsequent Period
(Equity Method)
 Impact of current equity method entries
– Ignore any impairment of goodwill
 Assignment of income to noncontrolling interest
 Investment account – Stockholders’ equity of subsidiary
–
–
–
–
–
Including identification of noncontrolling interest
Identification of differential
Allocation of differential
Depreciation/amortization of appropriate differentials
Impairment of goodwill
Consolid – Other. Issues - 15
ELIMINATING ENTRIES
Further Subsequent Period
(Equity Method)
 Impact of current equity method entries
– Ignore impairment of goodwill
 Assignment of income to noncontrolling interest
 Investment account – Stockholders’ equity of subsidiary
– Retained earnings of subsidiary at BEGINNING of current
year
– Including identification of noncontrolling interest
– Identification of REMAINING differential
– Allocation of REMAINING differential
• Including appropriate valuation accounts
– Depreciation/amortization of appropriate differentials
– Impairment of goodwill
Consolid – Other. Issues - 16
20X1 Consolidation--100 Percent Ownership
P
100%
S
Investment cost
$300,000
Book value:
Common stock--Special Foods
$200,000
Retained earnings--Special Foods 100,000
$300,000
Peerless’s share
x 1.00 -300,000
Differential
$
-0-
January 1, 20X1
(1) Investment in Special Foods Stock
300,000
Cash
Record purchase of Special Foods stock.
300,000
20X1 Consolidation--100 Percent Ownership
Common Stock, January 1, 20X1
Retained Earnings, January 1, 20X1
20X1:
Separate Operating Income, Peerless
Net Income, Special Foods
Dividends
20X2:
Separate Operating Income, Peerless
Net Income, Special Foods
Dividends
Consolid – Other. Issues - 17
Peerless
Products
Special
Foods
$500,000
300,000
$200,000
100,000
140,000
60,000
50,000
30,000
160,000
60,000
75,000
40,000
20X1 Consolidation--100 Percent Ownership
Consolid – Other. Issues - 18
Peerless records its 20X1 income and dividends from
Special Foods under the equity method with the following
entries:
(2) Investment in Special Foods Stock
Income from Subsidiary
Record equity-method income.
50,000
50,000
(3) Cash
30,000
Investment in Special Foods Stock
$50,000 x 1.00 30,000
Record dividends from Special Foods.
$30,000 x 1.00
20X1 Consolidation--100 Percent Ownership
Trial Balance Data
Parent
Subsidiary
Item
Income from
Subsidiary
50,000
Dividends Declared
(60,000)
Investment in Special
Foods Stock
320,000
Elimination Entries
Debits
Credits
(4)
(30,000)
Consolid – Other. Issues - 19
Consolidated
50,000
(4)
30,000
(4)
20,000
Remove both the investment income reflected in
the parent’s income statement and the parent’s
portion of any dividends declared by the subsidiary.
(60,000)
Consolid – Other. Issues - 20
20X1 Consolidation--100 Percent Ownership
Item
Income from
Subsidiary
Trial Balance Data
Parent
Subsidiary
50,000
Retained Earnings,
January 1
Dividends Declared
300,000
(60,000)
Investment in Special
Foods Stock
320,000
Common Stock
500,000
Elimination Entries
Debits
Credits
(4)
100,000
(30,000)
Consolidated
50,000
(5) 100,000
(4)
30,000
300,000
(60,000)
(4) 20,000
(5) 300,000
200,000
(5)
200,000
500,000
Remove the intercorporate ownership claim and stockholders’
accounts of the subsidiary as of the beginning of the period.
20X2 Consolidation--100 Percent Ownership
Consolid – Other. Issues - 21
Peerless records its 20X2 income and dividends from
Special Foods under the equity method with the following
entries:
(6) Investment in Special Foods Stock
Income from Subsidiary
Record equity-method income.
75,000
75,000
(7) Cash
40,000
$75,000 x 1.00 40,000
Investment in Special Foods Stock
Record dividends from Special Foods.
$40,000 x 1.00
Consolid – Other. Issues - 22
20X2 Consolidation--100 Percent Ownership
Item
Income from
Subsidiary
Trial Balance Data
Parent
Subsidiary
75,000
Retained Earnings,
January 1
Dividends Declared
430,000
(60,000)
Investment in Special
Foods Stock
355,000
Elimination Entries
Debits
Credits
(8)
120,000
(40,000)
Consolidated
75,000
(8)
40,000
(8)
35,000
(60,000)
Remove the intercorporate ownership claim and stockholders’
accounts of the subsidiary recorded during the period.
Consolid – Other. Issues - 23
20X2 Consolidation--100 Percent Ownership
Trial Balance Data
Parent
Subsidiary
Item
Income from
Subsidiary
75,000
Retained Earnings,
January 1
Dividends Declared
430,000
(60,000)
Investment in Special
Foods Stock
355,000
Common Stock
500,000
Elimination Entries
Debits
Credits
(8)
120,000
(40,000)
Consolidated
75,000
(9) 120,000
(8)
40,000
430,000
(60,000 )
35,000
(9) 320,000
(8)
200,000
(9)
200,000
500,000
Eliminate the beginning balance in the investment
account and the stockholders’ equity accounts of the
subsidiary at the beginning of 20X2.
Consolid – Other. Issues - 24
ELIMINATING ENTRIES
First Subsequent Period
(Cost Method)
 Impact of current cost method entries
 Assignment of income to noncontrolling interest
 Investment account – Stockholders’ equity of subsidiary
–
–
–
–
–
Including identification of noncontrolling interest
Identification of differential
Allocation of differential
Depreciation/amortization of appropriate differentials
Impairment of goodwill
Consolid – Other. Issues - 25
ELIMINATING ENTRIES
Further Subsequent Period
(Cost Method)
 Impact of current cost method entries
 Assignment of income to noncontrolling interest
 Investment account – Stockholders’ equity of subsidiary
–
–
–
–
Retained earnings of subsidiary at ACQUISITION
Including identification of noncontrolling interest
Identification of REMAINING differential
Allocation of REMAINING differential
• Including appropriate valuation accounts
– Depreciation/amortization of appropriate differentials
– Impairment of goodwill
 Assign undistributed PRIOR earnings of subsidiary to
noncontrolling interest
20X1 Consolidation--80 Percent Ownership
P
80%
S
Consolid – Other. Issues - 26
Investment cost
$240,000
Book value:
Common stock--Special Foods $200,000
Retained earnings--Special Foods 100,000
$300,000
Peerless’s share
x .80 -240,000
Differential
$
-0-
20%
NCI
January 1, 20X1 entry:
(10) Investment in Special Foods Stock
240,000
Cash
Record purchase of Special Foods stock.
240,000
Consolid – Other. Issues - 27
80
80Percent
PercentPurchase
PurchaseatatBook
BookValue
Value
Account Titles
Trial Balance Data
Peerless Spec. Fd.
Cash
110,000
Accounts Rec.
75,000
Inventory
100,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 240,000
Total Debits
1,500,000
Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Nonctrl. Interest
Total Credits
1,500,000
Elimination Entries
Debits
Credits
50,000
50,000
60,000
40,000
600,000
240,000
800,000
300,000
100,000
100,000
200,000
100,000
200,000
100,000
60,000
800,000
Consolidated
Consolid – Other. Issues - 28
80 Percent Purchase at Book Value
Account Titles
Trial Balance Data
Peerless Spec. Fd.
Cash
110,000
Accounts Rec.
75,000
Inventory
100,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 240,000
Total Debits
1,500,000
Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Nonctrl. Interest
Total Credits
1,500,000
Elimination Entries
Debits
Credits
50,000
50,000
60,000
40,000
600,000
240,000
800,000
300,000
100,000
100,000
200,000
100,000
800,000
200,000
100,000
300,000
60,000
300,000
Consolidated
Consolid – Other. Issues - 29
80 Percent Purchase at Book Value
Account Titles
Trial Balance Data
Peerless Spec. Fd.
Cash
110,000
Accounts Rec.
75,000
Inventory
100,000
Land
175,000
Bldg. and Equip. 800,000
Inv. in Sp. Foods 240,000
Total Debits
1,500,000
Accum. Depr.
400,000
Accounts Payable 100,000
Bonds Payable
200,000
Common Stock
500,000
Retained Earn.
300,000
Nonctrl. Interest
Total Credits
1,500,000
Elimination Entries
Debits
Credits
Consolidated
160,000
125,000
160,000
215,000
1,400,000
50,000
50,000
60,000
40,000
600,000
240,000
800,000
300,000
100,000
100,000
200,000
100,000
800,000
200,000
100,000
300,000
60,000
300,000
2,060,000
700,000
200,000
300,000
500,000
300,000
60,000
2,060,000
Consolid – Other. Issues - 30
20X1 Consolidation--80 Percent Ownership
Item
Income from
Subsidiary
Peerless
Products
Special
Foods
40,000
Dividends
Declared
(60,000)
Investment in
Special Foods
256,000
Eliminations
Debits
Credits
Consolidated
(13) 40,000
(30,000 )
(13) 24,000
(13)
16,000
Peerless’s 80 percent share of Special Foods’
income and dividends is eliminated.
Consolid – Other. Issues - 31
20X1 Consolidation--80 Percent Ownership
Item
Peerless
Products
Special
Foods
Income to Non. controlling Int.
Dividends
Declared
Noncontrolling
interest
Eliminations
Debits
Credits
(14)
(60,000)
(30,000)
10,000
Consolidated
(10,000)
(13) 24,000
(14)
6,000
(14)
4,000
(60,000)
A separate entry establishes the amount of income
allocated to noncontrolling shareholders and enters
the increase in their claim on net assets of the subsidiary.
Consolid – Other. Issues - 32
20X1 Consolidation--80 Percent Ownership
Item
Peerless
Products
Retained Earnings,
January 1
300,000
Investment in
Special Foods
256,000
Common Stock
500,000
Noncontrolling
interest
Special
Foods
100,000
Eliminations
Debits
Credits
(15) 100,000
Consolidated
300000
16,000
(15) 240,000
(14)
200,000
(15)
200,000
500,000
(14)
(15)
4,000
60,000
64,000
An entry is required to eliminate the stockholders’ equity
accounts of the subsidiary and the investment account
balance shown at the beginning of the period.
Second Year of Ownership--20X2
Consolid – Other. Issues - 33
Peerless earns separate operating income
of $160,000 and pays dividends of
$60,000. In 20X2, Special Foods reports
net income of $75,000 and pays
dividends of $40,000.
20X2 Consolidation--80 Percent Ownership
(16) Investment in Special Foods Stock
Income from Subsidiary
Record equity-method income.
Consolid – Other. Issues - 34
60,000
60,000
$75,000 x .80
(17) Cash
Investment in Special Foods Stock
Record dividends from Special Foods.
32,000
32,000
$40,000 x .80
Consolid – Other. Issues - 35
20X2 Consolidation--80 Percent Ownership
Item
Income from
Subsidiary
Peerless
Products
Special
Foods
60,000
Dividends
Declared
(60,000 )
Investment in
Special Foods
284,000
Eliminations
Debits
Credits
(18)
(40,000)
Consolidated
60,000
(18)
32,000
(18)
28,000
An entry is required to remove the income that Peerless
has recognized from Special Foods, Peerless’s share (80
percent) of Special Foods’ dividends, and the change
in the investment account that occurred in 20X2.
20X2 Consolidation--80 Percent Ownership
Item
Peerless
Products
Special
Foods
Consolid – Other. Issues - 36
Eliminations
Debits
Credits
Consolidated
Income to Noncontrolling Int.
Dividends
Declared
(60,000)
(40,000)
(18) 32,000
Noncontrolling
Interest
An entry is needed to assign $15,000 of subsidiary income to
the noncontrolling shareholders, based on subsidiary income
of $75,000 and a 20 percent noncontrolling interest.
Consolid – Other. Issues - 37
20X2 Consolidation--80 Percent Ownership
Item
Peerless
Products
Special
Foods
Income to Noncontrolling Int.
Dividends
Declared
Noncontrolling
Interest
Eliminations
Debits
Credits
(19) 15,000
(60,000)
(40,000)
Consolidated
(15,000)
(18) 32,000
(19)
8,000
(19)
7,000
(60,000)
An entry is needed to assign $15,000 of subsidiary income to
the noncontrolling shareholders, based on subsidiary income
of $75,000 and a 20 percent noncontrolling interest.
Consolid – Other. Issues - 38
20X2 Consolidation--80 Percent Ownership
Item
Peerless
Products
Retained Earnings,
January 1
420,000
Investment in
Special Foods
284,000
Common Stock
Noncontrolling
Interest
500,000
Special
Foods
Eliminations
Debits
Credits
Consolidated
120,000
(18)
28,000
(19)
7,000
200,000
An entry is required to eliminate the stockholders’ equity
accounts of the subsidiary and the investment account balance
reported by the parent at the beginning of the year and to
establish the amount of the noncontrolling interest’s claim on
the net assets of the subsidiary at the beginning of the year.
Consolid – Other. Issues - 39
20X2 Consolidation--80 Percent Ownership
Item
Peerless
Products
Retained Earnings,
January 1
420,000
Investment in
Special Foods
284,000
Common Stock
Noncontrolling
Interest
500,000
Special
Foods
120,000
Eliminations
Debits
Credits
(20) 120,000
Consolidated
420,000
28,000
(20) 256,000
(18)
200,000
(20) 200,000
500,000
(19)
(20)
7,000
64,000
71,000
An entry is required to eliminate the stockholders’ equity
accounts of the subsidiary and the investment account balance
reported by the parent at the beginning of the year and to
establish the amount of the noncontrolling interest’s claim on
the net assets of the subsidiary at the beginning of the year.
Purchase at More Than Book Value
P
80%
S
20%
NCI
Consolid – Other. Issues - 40
Investment cost
$310,000
Book value:
Common stock--Special Foods $200,000
Retained earnings--Special Foods 100,000
$300,000
Peerless’s share
x .80 -240,000
Differential
$ 70,000
Peerless Products purchases 80 percent of
the common stock of Special Foods on
January 1, 20X1, for $310,000.
Purchase at More Than Book Value
Cost of investment
$310,000
Fair value of net
identifiable assets
$300,000
Total differential
$70,000
Book value of net
identifiable assets
(80%) $240,000
Consolid – Other. Issues - 41
Excess of cost over
fair value of net
identifiable assets
(80%) $10,000
Excess of fair value
over book value of
net identifiable
assets (80%)
$60,000
Consolid – Other. Issues - 42
Purchase at More Than Book Value
The entry to record Peerless Products purchasing Special
Foods stock on January 1, 20X1 is:
(21) Investment in Special Foods Stock
Cash
Record purchase of Special Foods
stock.
310,000
310,000
Purchase at More Than Book Value
Consolid – Other. Issues - 43
In 20X1, Peerless Products earns income of $140,000 and
pays dividends of $60,000. Special Foods reports net income
of $50,000 and pays dividends of $30,000.
(22) Investment in Special Foods Stock
Income from Subsidiary
Record equity method income:
$50,000 x .80
40,000
(23) Cash
24,000
Investment in Special Foods Stock
Record dividends from Special Foods:
$30,000 x .80
40,000
24,000
Purchase at More Than Book Value
Consolid – Other. Issues - 44
Entries are needed on Peerless’s books to recognize the writeoff of the differential:
(24) Income from Subsidiary
Investment in Special Foods Stock
Adjust income for differential related
to inventory sold: $5,000 x .80
4,000
(25) Income from Subsidiary
Investment in Special Foods Stock
Amortize differential related to
buildings and equipment.
4,800
4,000
4,800
Consolid – Other. Issues - 45
20X1 Consolidation--80 Percent Ownership
Peerless
Products
Item
Income from
. Subsidiary
Special
Foods
31,200
Dividends
Declared
(60,000)
Investment in
Special Foods
Stock
317,200
Eliminations
Debits
Credits
(26)
(30,000)
Consolidated
31,200
(26)
24,000
(26)
7,200
An entry is required to eliminate the subsidiary income.
Consolid – Other. Issues - 46
20X1 Consolidation--80 Percent Ownership
Item
Peerless
Products
Special
Foods
Income from
Noncontrolling
Interest
Dividends
Declared
Noncontrolling
Interest
Eliminations
Debits
Credits
(27)
(60,000)
(30,000)
Consolidated
10,000
(27)
24,000
6,000
(27)
4,000
(26)
(60,000)
An entry is required to eliminate the subsidiary dividends.
Consolid – Other. Issues - 47
20X1 Consolidation--80 Percent Ownership
Item
Peerless
Products
Retained Earnings,
January 1
300,000
Investment in
Special Foods
Stock
Special
Foods
100,000
(28)
100,000
317,200
300,000
7,200
(28) 310,000
(28)
500,000
Consolidated
(26)
Differential
Common Stock
Noncontrolling
Interest
Eliminations
Debits
Credits
200,000
70,000
(28) 200,000
500,000
(27)
(28)
4,000
60,000
64,000
An entry is required to eliminate the subsidiary dividends.
20X1 Consolidation--80 Percent Ownership
Peerless
Products
Item
Cost of Goods
Sold
Land
Buildings and
Equipment
Goodwill
Differential
Special
Foods
Consolid – Other. Issues - 48
Eliminations
Debits
Credits
Consolidated
170,000
115,000
(29)
4,000
289,000
175,000
40,000
(29)
8,000
223,000
800,000
600,000
(29) 48,000
1,448,000
(29) 10,000
(28)
70,000
(29) 70,000
An entry is needed to assign beginning differential.
Consolid – Other. Issues - 49
20X1 Consolidation--80 Percent Ownership
Peerless
Products
Item
Depreciation
50,000
Special
Foods
20,000
Goodwill Impairment Loss
Goodwill
Eliminations
Debits
Credits
(30)
4,800
74,800
(31)
2,500
2,500
(29)
Accumulated
Depreciation
450,000
320,000
Consolidated
10,000
(31)
2,500
7,500
(30)
4,800
774,800
Entries are necessary to amortize the differential related
to buildings and equipment and to write down the
differential related to goodwill.
Consolidated Net Income, 20X1
Consolid – Other. Issues - 50
Consolidated net income, 20X1:
Peerless’s separate operating income
Peerless’s share of Special Foods net income:
$50,000 x .80
Write-off of differential related to inventory sold
during 20X1
Amortization of differential related to buildings and
equipment
Goodwill impairment loss
Consolidated net income, 20X1
$140,000
40,000
- 4,000
- 4,800
-2,500
$168,700
Consolid – Other. Issues - 51
Consolidated Retained Earnings, 20X1
Consolidated retained earnings, December 31, 20X1:
Peerless’s retained earnings on date of combination,
January 1, 20X1
Peerless’s separate operating income, 20X1
Peerless’ share of Special Foods’ 20X1 net income:
$50,000 x .80
Write-off of differential related to inventory sold
Amortization of differential related to buildings and
equipment
Goodwill impairment loss
Dividends declared by Peerless, 20X1
Consolidated retained earnings, December 31, 20X1
$300,000
140,000
40,000
- 4,000
-4,800
- 2,500
- 60,000
$408,700
Second Year of Ownership, 20X2
Consolid – Other. Issues - 52
Entries are needed on Peerless’s books during 20X2:
(32) Investment in Special Foods Stock
60,000
Income from Subsidiary
Record equity-method income:
$75,000 x .80
(33) Cash
32,000
Investment in Special Foods Stock
Record dividends from Special Foods:
$40,000 x .80
(34) Income from Subsidiary
4,800
Investment in Special Foods Stock
Amortize differential related to buildings
and equipment.
60,000
32,000
4,800
Consolid – Other. Issues - 53
20X2 Consolidation--80 Percent Ownership
Peerless
Products
Item
Income from
Subsidiary
Special
Foods
55,200
Dividends
Declared
(60,000)
Investment in
Special Foods
Stock
340,400
Eliminations
Debits
Credits
(35)
(40,000)
Consolidated
55,200
(35)
32,000
(35)
23,200
An entry is required to eliminate the subsidiary income.
Consolid – Other. Issues - 54
20X2 Consolidation--80 Percent Ownership
Item
Peerless
Products
Special
Foods
Income to Noncontrolling Int.
Dividends
Declared
Noncontrolling
Interest
Eliminations
Debits
Credits
(36) 15,000
(60,000)
(40,000)
Consolidated
(15,000)
(35) 32,000
(36)
8,000
(36)
7,000
(60,000)
An entry is needed to assign $15,000 of subsidiary income to
the noncontrolling shareholders, based on subsidiary income
of $75,000 and a 20 percent noncontrolling interest.
Consolid – Other. Issues - 55
20X2 Consolidation--80 Percent Ownership
Item
Peerless
Products
Retained Earnings,
January 1
411,200
Investment in
Special Foods
Special
Foods
120,000
23,200
(37) 317,200
(35)
(37)
500,000
Consolidated
(37) 120,000
340,400
Differential
Common Stock
Noncontrolling
Interest
Eliminations
Debits
Credits
200,000
61,200
(37) 200,000
500,000
(36)
(37)
7,000
64,000
71,000
An entry is required to eliminate the beginning investment balance.
Consolid – Other. Issues - 56
20X2 Consolidation--80 Percent Ownership
Peerless
Products
Item
Land
Buildings and
Equipment
Special
Foods
175,000
40,000
800,000
600,000
Eliminations
Debits
Credits
Consolidated
8,000
223,000
(38) 48,000
1,448,000
(38)
(38) 10,000
Goodwill
Differential
(37) 61,200
Accumulated
Depreciation
500,000
340,000
(38) 61,200
(38)
4,800
An entry is required to assign beginning differential.
Consolid – Other. Issues - 57
20X2 Consolidation--80 Percent Ownership
Item
Depreciation and
Amortization
Peerless
Products
Special
Foods
50,000
20,000
Retained Earnings,
January 1
411,200
120,000
Goodwill
Accumulated
Depreciation
500,000
340,000
Eliminations
Debits
Credits
(39)
4,800
Consolidated
74,800
(37)120,000
(40)
2,500
(38)
10,000
408,700
(40)
2,500
7,500
(38)
4,800
4,800
849,600
(39)
Entries are necessary to show the amortization of the differential.
Consolidated Net Income, 20X2
Consolidated net income, 20X2:
Peerless’s separate operating income
Peerless’s share of Special Foods net income:
$75,000 x .80
Amortization of buildings and equipment
Consolidated net income, 20X2
Consolid – Other. Issues - 58
$160,000
60,000
- 4,800
$215,200
Consolidated Retained Earnings, 20X2
Consolid – Other. Issues - 59
Consolidated retained earnings, December 31, 20X2:
Consolidated retained earnings, December 31, 20X1
Peerless’s separate operating income, 20X2
Peerless’ share of Special Foods’ 20X2 net income:
$75,000 x .80
Amortization of differential in 20X2
Dividends declared by Peerless, 20X2
Consolidated retained earnings, December 31, 20X2
$408,700
160,000
60,000
- 4,800
- 60,000
$563,900
Consolid – Other. Issues - 60
Computation of Consolidated Net Income
Push Corporation owns 80 percent of the
stock of Shove Company, which was
purchased at book value. During 20X1,
Shove reports net income of $25,000, while
Push reports earnings of $100,000, plus
equity-method investment income of $20,000.
Computation of Consolidated Net Income
Additive Computation
Separate operating income of Push
Net income of Shove
Push’s proportionate share
Consolidated net income
Residual Computation
Net income of Push
Less: Income from subsidiary
Net income of Shove
Less: Income to noncontrolling interest
Consolidated net income
Consolid – Other. Issues - 61
$100,000
$25,000
x
.80
$120,000
- 20,000
$25,000
x
.20
20,000
$120,000
$100,000
25,000
$125,000
- 5,000
$120,000
Consolidated Retained Earnings
Consolid – Other. Issues - 62
On January 1, 20X1, Push has a retained
earnings balance of $400,000, and Shove has
a retained earnings balance of $250,000.
During 20X1, Push reports net income of
$100,000 and equity-method income from
Shove of $20,000; Push declares dividends of
$30,000. Shove reports net income of
$25,000 and declares dividends of $10,000.
Consolid – Other. Issues - 63
Consolidated Retained Earnings
Push
Balance, January 1, 20X1
Shove
$400,000
$250,000
Net income, 20X1
120,000
25,000
Dividends declared in 20X1
- 30,000
- 10,000
Balance, December 31, 20X1
$490,000
$265,000
Consolidated retained earnings equals
the parent’s retained earnings when the
parent uses the equity method
Consolidated Retained Earnings
Consolid – Other. Issues - 64
When the parent does not account for its
subsidiary investment using the equity
method, consolidated retained earnings is
determined by adding the parent’s
retained earnings from its own operations
and the parent’s share of the subsidiary’s
net income from the date of acquisition.
Consolid – Other. Issues - 65
PUSH-DOWN ACCOUNTING
 Revaluing assets and liabilities of
subsidiary directly on its books
 An SEC requirement
 Applied essentially to whollyowned subsidiaries
Consolid – Other. Issues - 66
CONSOLIDATED NET INCOME
 Parent’s income from own
separate operations +
 Net income from each subsidiary
 Adjusted for differential write-off
Consolid – Other. Issues - 67
INCOME TO NCI
 Subsidiary’s net income
 Less adjustments for differential
 X NCI%
Consolid – Other. Issues - 68
NONCONTROLLING INTEREST
(Consolidated Balance Sheet)
 Subsidiary’s stockholders’ equity
(date of combination) +
 Cumulative subsidiary net income +/ Differential (date of combination) net of
cumulative adjustments
 Less Subsidiary’s cumulative dividends
 X NCI%
Consolid – Other. Issues - 69
CONSOLIDATED RETAINED
EARNINGS
 Parent’s retained earnings from separate
operations (date of combination) +
 Parent’s share of subsidiary’s cumulative net
income since acquisition (sub’s income less
adjustment for differential) –
 Parent’s cumulative dividends since date of the
combination