EXERCISE 4-2:
Park Company purchased 90% of the stock of Salt Company on
January 1, 2009, for $465,000 , an amount equal to $15,000 in excess of the book value of equity acquired. This excess payment relates to an undervaluation of Salt Company’s land . On the date of purchase, Salt Company’s retained earnings balance was
$50,000 . The remainder of the stockholders’ equity consists of nopar common stock. During 2013, Salt Company declared dividends in the amount of $10,000 , and reported net income of $40,000 .
The retained earnings balance of Salt Company on December 31,
2012 , was $160,000 .
Park Company uses the cost method to record its investment.
Required:
Prepare in general journal form the workpaper entries that would be made in the preparation of a consolidated statements workpaper on December 31, 2013 .

Computation and Allocation of Difference between Implied and Book Value Acquired
Parent NonEntire
Share Controlling Value
Share
Purchase price and implied value 465,000 51,667 516,667 *
Less: Book value of equity acquired: 450,000 50,000 500,000
Difference (implied and book value)
Allocated to undervalued land
Balance
15,000
(15,000)
- 0 -
1,667
(1,667)
- 0 -
16,667
(16,667)
- 0 -
Equity acquired by the parent company 450,000
Equity acquired for the whole company 500,000
Common stock ?????? (450,000)
RE. 1/1 (Given) 50,000

1 -Investment in Salt Company
Retained Earnings 1/1 - Park Company
To establish reciprocity (.90 ( ($160,000 – $50,000))
99,000
99,000
2 -Dividend Income
Dividends Declared ($10000*.90)
9,000
9,000
3 -Common Stock (465-15)
Retained Earnings 1/1/13
Land
450,000
160,000
16,667
Investment ($465,000 + $99,000) 564,000
NCI ($51,667 +11,000) 62,667

EXERCISE 4-3:
At the beginning of 2009, Presidio Company purchased 95% of the common stock of Succo Company for $494,000 . On that date, Succo
Company’s stockholders’ equity consisted of the following:
Common stock $300,000
Other contributed capital 100,000
Retained earnings 1/1/2009
Total
120,000
$520,000
During 2017, Succo Company reported net income of $40,000 and distributed dividends in the amount of $19,000 .
Succo Company’s retained earnings balance at the end of 2016 amounted to
$ 160,000 . Presidio Company uses the equity method .
Required:
Prepare in general journal form the workpaper entries necessary in the compilation of consolidated financial statements on December
31, 2017 . Explain why the partial and complete equity methods would result in the same entries in this instance.

The balance in the investment account at the beginning of the year is $532,000, which is computed as:[$494,000 + (.95 x ($160,000 –
$120,000))] = $532,000
Common Stock
Other Contributed Capital
Retained Earnings 1/1/17
Investment (494,000 + 38,000)
Noncontrolling Interest *
300,000
100,000
160,000
532,000
28,000
* $520,000 x .05 + (.05 x ($160,000 - $120,000)) = 28,000

EXERCISE 4-4: Poco Company purchased 85% of the outstanding common stock of Serena Company on December 31, 2009, for $310,000 cash . On that date, Serena Company’s stockholders’ equity consisted of the following:
Common stock $240,000
Other contributed capital
Retained earnings 1/1/2009
55,000
50,000
$345,000
During 2012, Serena Company distributed a dividend in the amount of
$12,000 and at year end reported a net loss of $10,000 . During the time that
Poco Company has held its investment in Serena Company, Serena
Company’s retained earnings balance has decreased $29,500 to a net balance of $20,500 after closing on December 31, 2012 .
Serena Company did not declare or distribute any dividends in 2010 or 2011 .
The difference between book value and the value implied by the purchase price relates to goodwill.
Required:
A. Assume that Poco Company uses the equity method . Prepare in general journal form the entries needed in the preparation of a consolidated statements workpaper on December 31, 2012 . Explain why the partial and complete equity methods would result in the same entries in this instance.

Investment in Serena Company (.85)*($12,000) 10200
Dividends declared 10200
Investment in Serena Company (.85)*($10,000 loss) 8500
Equity loss 8500

Parent NonEntire
Share Controlling Value
Share
Purchase price and implied value 310,000 54,706 364,706 *
Less: Book value of equity acquired: 293,250 51,750 345,000
Difference IV & BV
Goodwill
Balance
16,750
(16,750)
- 0 -
2,956
(2,956) (19,706)
- 0 -
19,706
- 0 -

Common Stock
Other Contributed Capital
Retained Earnings 1/1/12
240,000
55,000
42,500 a
Difference (IV&BV) 19,706
Investment in S ($310,000 – $6,375*) 303,625
NCI (54706-1125) 53,581 a $42,500 = $20,500 at year-end plus 2012 loss of $10,000 plus 2012 dividends of
$12,000
• [($50,000 - $42,500) x .85] = 6,375
• [($50,000 - $42,500) x .15] = 1125

• The partial equity and the complete equity methods result in the same entries because the excess of the cost over fair value of net assets is allocated to goodwill, a nonamortizable asset. If any of this excess is allocated to depreciable assets or intangible assets with limited lives
(subject to amortization), additional expenses will be recorded under the complete equity method.

Part B – Workpaper entries 12/31/09 - Cost Method
Under Cost method, before elimination of the investment account, a workpaper entry is made to the investment account and P Company’s beginning retained earnings to recognize P’s share of the cumulative undistributed income or loss of S
Company from the date of acquisition to the beginning of the current year as follows:
Retained Earnings 1/1 - Poco Company 6,375
Investment in Serena Company 6,375
To establish reciprocity (.85 ( ($50,000 – $42,500))
Investment in Serena Company (.85)*($12,000)
Dividends Declared - Serena Company
10,200
10,200
(In the normal position, the entry will be from cash to dividends income, but because of the loss occurred in the year 2012. the entry will be from cash to investment.)

EXERCISE 4-5:
On January 1, 2009, Plate Company purchased a 90% interest in the common stock of Set Company for $650,000 , an amount $20,000 in excess of the book value of equity acquired. The excess relates to the understatement of Set
Company’s land holdings.
Excerpts from the consolidated retained earnings section of the consolidated statements workpaper for the year ended December 31, 2009, follow:
Set Company Consolidated Balances
1/1/09 retained earnings
Net income from above
Dividends declared
12/31/09 retained earnings
190,000 880,000
132,000 420,000
(50,000) (88,000)
272,000 1,212,000
Set Company’s stockholder’s equity is composed of common stock and retained earnings only.
Required:
A. Prepare the eliminating entries required for the preparation of a consolidated statements workpaper on December 31, 2009, assuming the use of the cost method.

A. Workpaper Entries:
Cost of investment
Less: excess cost allocated to land
Book value acquired (90%)
$ 650,000
20,000
$ 630,000
Total stockholders’ equity ($630,000/.90)
Less: Retained earnings 1/1/09
Common stock 1/1/09
700,000
190,000
$ 510,000
Computation and Allocation of Difference between Implied and Book Value Acquired
Parent NonEntire
Share Controlling Value
Share
Purchase price and implied value $650,000 72,222 722,222 *
Less: Book value of equity acquired: 630,000 70,000 700,000
Difference (IV&BV):
Goodwill
Balance
20,000
(20,000)
- 0 -
2,222
(2,222)
- 0 -
22,222
(22,222)
- 0 -

Part A: Eliminating entries – cost method
Dividend Income (.90)($50,000) 45,000
Dividends Declared - Set Company
Common Stock ($700,000 – $190,000)
Retained Earnings 1/1/09
Difference (IB&BV)
Investment in Salt Company
Noncontrolling Interest
Land 22,222
Difference (IV&BV) 22,222
510,000
190,000
22,222
650,000
72,222
45,000

B.
Prepare the eliminating entries required for the preparation of a consolidated statements workpaper on December 31, 2009, assuming the use of the equity method.
Equity Income
Investment (.90)($132,000)
118800
118800
Investment dividends declared (.90)($50,000)
45,000
45,000
Common Stock - Set Company 510,000
Retained Earnings 1/1/06 - Set Company 190,000
Difference (IV&BV)
Investment in Salt Company
22,222
Noncontrolling Interest
650,000
72,222

Land
Difference (IV&BV)
22,222
22,222
C.
Determine the total noncontrolling interest that will be reported on the consolidated balance sheet on December 31,
2009. How does the noncontrolling interest differ between the cost method and the equity method?
1- $72,222 + (.1 ( $132,000) - (.1 ( $50,000) = 80,422
2- The noncontrolling interest will be the same regardless of the method used to account for the investment on Plate Company’s books.

EXERCISE 4-8 :
On May 1, 2010 , Peters Company purchased 80% of the common stock of Smith Comp any for $50,000 . Additional data concerning these two companies for the years 2010 and 2011 are:
2010 2011
Peters Smith Peters Smith
Common stock $100,000 $25,000
Other contributed capital 40,000 10,000
$100,000 $25,000
40,000 10,000
Retained earnings, 1/1
Net income (loss)
80,000 10,000 129,000 53,000
64,000 45,000 37,500 (5,000)
Cash dividends (11/30) 15,000 2,000 5,000 —0—
Any difference between book value and the value implied by the purchase price relates to
Smith Company’s land . Peters Company uses the cost method to record its investment.
Required:
A.
Prepare the workpaper entries that would be made on a consolidated statements workpaper for the years ended December 31, 2010 and 2011 for Peters Company and its subsidiary, assuming that Smith Company’s income is earned evenly throughout the year.
(Use the full-year reporting alternative.)
B. Calculate consolidated net income and consolidated retained earnings for 2010 and
2011.

Part A: Workpaper Entries
2010
Dividend Income (.80 ( $2,000) 1,600
Dividends Declared - Smith Company 1,600
Common Stock – Smith 25,000
Other Contributed Capital – Smith 10,000
Retained Earnings 1/1/10 - Smith 10,000
Difference between Implied and Book Value 2,500
Subsidiary Income Purchased * 15,000
Investment in Smith Company
Noncontrolling Interest
50,000
12,500
Land
Difference (IV&BV)
2,500
2,500

Computation and Allocation of Difference between Implied and Book Value Acquired
Parent NonEntire
Share Controlling Value
Share
Purchase price and implied value 50,000 12,500 62,500 *
Less: Book value of equity acquired:
Equity 36,000 9,000 45,000
Subsidiary Income purchased**12,000 3,000 15,000
Total book value
Difference (IV&BV)
48,000 12,000 60,000
2,000 500 2,500
Goodwill
Balance
(2,000) (500) (2,500)
- 0 - 0 - 0 -
*$50,000/.80
**Subsidiary Income Purchased (4/12* $45,000) = 15,000

2011
Estimated Retained Earnings of Smith on date of acquisition**
Retained earnings, 1/1/2010
Smith earnings to 1/5/2010 = (4/12)($45,000 from net income)
Retained earnings, 1/5/2010
Investment in Smith
Retained Earnings 1/1 Peters
22,400
22,400
To establish reciprocity (.80 ( ($53,000 – $25,000**)
$ 10,000
15,000
$ 25,000
Common Stock - Smith
Other Contributed Capital - Smith
Retained Earnings 1/1/11 – Smith
Land
Investment ($50,000 + $22,400)
Noncontrolling Interest (12500+5600)
25,000
10,000
53,000
2,500
72,400
18,100

EXERCISE 4-9:
Using the data presented in Exercise 4-8, prepare workpaper elimination entries for 2010 assuming use of the partial-year reporting alternative.

Exercise 4-9
Workpaper Entries - Cost Method
2010
Dividend Income (.80)($2,000) 1,600
Dividends Declared - Smith Company
Common Stock – Smith
Other Contributed Capital – Smith
25,000
10,000
Retained Earnings 5/1/07 – Smith * 25,000
Difference between Implied and Book Value
Investment in Smith Company
Noncontrolling Interest
2,500
50,000
12,500
Land 2,500
Difference (IV&BV) 2,500
1,600