Mata kuliah : F0074 - Akuntansi Keuangan Lanjutan II Tahun : 2010 Accounting for Specific Industries – Bank Accounting Pertemuan 11-12 Preacquisition Earnings Preacquisition earnings or purchased income is income that was earned by the subsidiary (in the accounting period of the acquisition) prior to the acquisition. Patter Corporation purchases a 90% interest in Sissy Company on April 1, 2006, for $213,750. Preacquisition Earnings Income Sales Cost of sales and expenses Net income $25,000 $75,000 $100,000 12,500 37,500 50,000 $12,500 $37,500 $ 50,000 Dividends $10,000 $15,000 $ 25,000 1/1-4/1 4/1-12/31 1/1-12/31 Preacquisition Earnings Stockholders’ Equity Jan. 1 Capital stock $200,000 Retained earnings 35,000 Stockholders’ equity $235,000 April 1 $200,000 37,500 $237,500 Dec. 31 $200,000 60,000 $260,000 What is the book value acquired by Patter? $237,500 × 90% = $213,750 purchase price Preacquisition Earnings Sales (last three quarters of 2006) Expenses (last three quarters) Minority interest (last three quarters) Effect on consolidated net income $75,000 (37,500) (3,750) $33,750 Preacquisition Earnings Sales (full year) Expenses (full year) Preacquisition income Minority interest Effect on consolidated net income $100,000 (50,000) (11,250) (5,000) $ 33,750 Preacquisition Dividends $25,000 $10,000 $15,000 Preacquisition dividends are eliminated in the consolidation process. Preacquisition Dividends Cash 13,500 Investment in Sissy 13,500 To record dividends received $15,000 × 90% = 13,500 Consolidation 12/31/2006 Patter’s Investment 213,750 33,750 13,500 234,000 Dividends Working Papers December 31, 2006 Income Statement Sales Income from Sissy Expenses Minority interest expense ($50,000 × 10%) Preacquisition income Net income Retained earnings – Patter Retained earnings – Sissy Add: Net income Dividends Retained earnings 12/31/06 Adjustments/ ConsolPatter Sissy Eliminations idated $300 $100 $400 33.75 a 33.75 (200) (50) (250) c 5.00 b 11.25 $133.75 $ 50 $266.25 $ 35 b 35 133.75 50 (100) (25) $300 $ 60 (5) (11.25) $133.75 $266.25 a 13.5 b 9.0 c 2.5 133.75 (100) $300 Working Papers December 31, 2006 Balance Sheet Patter Sissy Adjustments/ Eliminations Other assets $566 $260 Investment in Sissy 234 Capital stock Retained earnings Minority interest Consolidated $826 a 20.25 b 213.75 $800 $260 $500 $200 b 200 300 60 $800 $260 $826 500 300 b 23.50 c 2.50 26 $826 Learning Objective 2 Apply consolidation procedures to interim (midyear) acquisitions. Piecemeal Acquisitions Poca Corporation acquires a 90% interest in Sark Corporation in a series of separate stock purchases between July1, 2003, and October 1, 2005. Piecemeal Acquisitions Date Interest acquired Investment cost Equity January 1 Income for year Equity at acquisition Equity December 31 7/1/03 4/1/04 10/1/05 20% 40% 30% $ 30 $ 74 $ 81 100 150 190 50 40 40 125 160 220 150 190 230 Piecemeal Acquisitions What is the initial goodwill from each of the three acquisitions? $125 × 20% = $25 $30 – $25 = $5 $160× 40% = $64 $74 – $64 = $10 Piecemeal Acquisitions $220 × 30% = $66 $81 – $66 = $15 At December 31, 2005, Poca’s investment in Sark account balance is $237,000. This consists of $185,000 total cost plus income of $52,000. Working Paper Entries: 2005 a Income from Sark 27,000 Investment in Sark 27,000 To eliminate investment income and return investment account to its beginning-of-theperiod balance plus the $81,000 new investment Working Paper Entries: 2005 b Preacquisition Income 9,000 Retained Earnings – Sark 90,000 Capital Stock – Sark 100,000 Goodwill 30,000 Investment in Sark 210,000 Minority Interest 19,000 To eliminate investment in Sark and Sark’s equity balances, and enter preacquisition income, goodwill, and beginning-of-the-period minority interest Working Paper Entries: 2005 c Minority Interest Expense 4,000 Minority Interest 4,000 To record minority interest in Sark’s net income Sale of Ownership Interests • Sergio Corporation is a 90%-owned subsidiary of Pablo Corporation. • January 1, 2007: Pablo’s investment in Sergio equals $288,000. • Sergio’s stockholders’ equity on this date consists of $200,000 capital stock and $100,000 retained earnings. Sale of Ownership Interests Did Pablo acquire goodwill? $300,000 × 90% = $270,000 $288,000 – $270,000 = $18,000 Sale of Ownership Interests • During 2007, Sergio reports income of $36,000. • Sergio pays dividends of $20,000 on July 1. Sale of Interest at the Beginning of the Period Pablo sells a 10% interest in Sergio (one-ninth of its holdings) on January 1, 2007 for $40,000. $288,000 ÷ 9 = $32,000 $18,000 ÷ 9 = $2,000 Sale of Interest at the Beginning of the Period Pablo’s Investment 288,000 32,000 Dividends 28,800 16,000 268,800 12/31/2007 Cash 40,000 16,000 Gain 8,000 Income from S 28,800 Working Paper Entries: 2007 a Income from Sergio 28,800 Dividends – Sergio 16,000 Investment in Sergio 12,800 To eliminate income and dividends from Sergio and return the investment account to its beginning-of-the-period balance after the sale of the 10% interest Working Paper Entries: 2007 b Capital Stock – Sergio 200,000 Retained Earnings – Sergio 100,000 Goodwill 16,000 Investment in Sergio 256,000 Minority Interest (20%) 60,000 To eliminate reciprocal investment and equity balances, and to record goodwill and beginning minority interest Working Paper Entries: 2007 c Minority Interest Expense 7,200 Dividends 4,000 Minority Interest 3,200 To enter minority interest share of subsidiary income and dividends Working Papers December 31, 2007 Adjustments/ ConsolPablo Sergio Eliminations idated $600 $136 $736 28.8 a 28.8 8 8 (508.8) (100) (608.8) Income Statement Sales Income from Sergio Gain on sale Expenses Minority interest expense ($36,000 × 10%) Net income $128 Retained earnings – Pablo $210 Retained earnings – Sergio Add: Net income 128 Dividends (80) Retained earnings 12/31/07 $258 c 7.2 (7.2) $128 $210 $ 36 $100 b 100 36 (20) $116 128 a 16 c 4 (80) $258 Working Papers December 31, 2007 Balance Sheet Other assets Investment in Sergio Pablo Sergio $639.2 $350 268.8 Goodwill Liabilities Capital stock Retained earnings Minority interest Adjustments/ Eliminations a 12.8 b 256 b 16 $908 $150 500 258 $908 Consolidated $ 989.2 16 $1,005.2 $ 184 500 258 $350 $ 34 200 b 200 116 $350 b 60 c 3.2 63.2 $1,005.2 Sale of Interest During an Accounting Period Main issues Obtain proper book value for shares sold. Calculate the remainder for unamortized components of the investment account. Sale of Interest During an Accounting Period Pablo sells the 10% interest in Sergio on April 1, 2007, for $40,000. The sale may be recorded as of April 1 or, as an expedient, as of January 1. Sale of Interest During an Accounting Period Assume the sale is recorded on April 1, 2007. Selling price of 10% interest Less: Book value of interest sold: Investment balance January 1 Equity in income $36,000 × 1/4 year × 90% Portion of investment sold $40,000 $288,000 8,100 $296,100 × 1/9 Gain 32,900 $ 7,100 Sale of Interest During an Accounting Period $36,000 × 1/4 year × 90% = $ 8,100 $36,000 × 3/4 year × 80% = 21,600 $29,700 $29,700 – $16,000 = $13,700 Sale of Interest During an Accounting Period 12/31/2007 Cash 40,000 16,000 Pablo’s Investment 288,000 32,900 8,100 16,000 21,600 268,800 Gain 7,100 Dividends Income from S 8,100 21,600 Changes in Ownership Interests from Subsidiary Stock Transactions Subsidiary stock issuances provide a means of expanding operations through external financing. Sale of Additional Shares by a Subsidiary Purdy Corporation owns an 80% interest in Stroh Corporation. Purdy’s investment in Stroh is $180,000 on January 1, 2007, equal to 80% of Stroh’s $200,000 stockholders’ equity plus $20,000 goodwill. Sale of Additional Shares by a Subsidiary $200,000 × 80% = $160,000 $160,000 ÷ $20 = 8,000 shares Sale of Additional Shares by a Subsidiary Capital stock, $10 par Additional paid-in capital Retained earnings Total shareholders’ equity $100,000 60,000 40,000 $200,000 Subsidiary Sells Shares to Parent Stroh sells an additional 2,000 shares to Purdy at book value of $20 per share on January 2, 2007. January 1 before sale: 8,000 ÷ 10,000 = 80% January 2 after sale: 10,000 ÷ 12,000 = 831/3% Subsidiary Sells Shares to Parent January 1 January 2 Before Sale After Sale Stroh’s stockholders’ equity Purdy’s interest Purdy’s equity in Stroh Goodwill Investment in Stroh balance $200,000 $240,000 80% 831/3% $160,000 $200,000 20,000 20,000 $180,000 $220,000 Subsidiary Sells Shares to Parent If Stroh sells the additional shares at $35 per share. Price paid by Purdy (2,000 × $35) Book value acquired: Underlying book value after purchase ($200,000 + $70,000) × 831/3% Underlying book value before purchase ($200,000 × 80%) Book value acquired Excess cost over book value $70,000 $225,000 160,000 65,000 $ 5,000 Subsidiary Sells Shares to Outside Entity Sale at $20 Stroh’s stockholders’ equity Purdy’s interest Purdy’s equity in Stroh after issuance Purdy’s equity in Stroh before issuance Increase in Purdy’s equity in Stroh Sale at $35 $240,000 $270,000 662/3% 662/3% $160,000 $180,000 160,000 160,000 0 $ 20,000 Record subsidiary/investee stock issuances and treasury stock transactions. Treasury Stock Transactions by a Subsidiary The acquisition of treasury stock by a subsidiary decreases subsidiary equity and subsidiary shares outstanding. If the subsidiary acquires treasury stock from minority shareholders at book value, no change in the parent’s share in the subsidiary equity results. Treasury Stock Transactions by a Subsidiary Shelly is an 80% subsidiary of Pointer Corporation. Shelly has 10,000 shares of common stock outstanding at December 31, 2007. On January 1, 2008, Shelly purchased 400 shares of its own stock from minority stockholders. Treasury Stock Transactions by a Subsidiary Shelly’s equity before purchase of 400 shares of treasury stock Capital stock, $10 par Retained earnings Total equity Pointer’s share of Shelly’s book value (80%) $100,000 100,000 $200,000 $160,000 Treasury Stock Transactions by a Subsidiary 400 shares Capital stock Retained earnings Total Less: Treasury stock Total equity Pointer’s interest Pointer’s share of Shelly’s book value @$20 @$30 @$15 $100,000 $100,000 $100,000 100,000 100,000 100,000 $200,000 $200,000 $200,000 8,000 12,000 6,000 $192,000 $188,000 $194,000 5/6 5/6 5/6 $160,000 $156,667 $161,667