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Leah Pasternak

Advanced Accounting ACC401



Chapter 4: Consolidated Financial Statements After Acquisition / Homework Submission


Exercise 4-2

Workpaper entries 12/31/13 Cost Method

Investment in Salt Co 99,000
Retained Earnings 1/1 - Park Co 99,000
($160,000 $50,000)*.90)

Dividend Income 9,000
Dividends Declared Salt Co 9,000

Parent Non- Entire
Share Controlling Value

Purchase price and implied value 465,000 51,667 516,667
Less: Book value: 450,000 50,000 500,000
Difference between IV and BV 15,000 1,667 16,667
Allocated to undervalued land (15,000) (1,667) (16,667)
Balance 0 0 0

Common Stock - Salt Co 450,000
Retained Earnings 1/1/13 - Salt Co 160,000
Land 16,667
Investment in Salt Co ($465,000 + $99,000) 564,000
Non-controlling Interest ($51,667 + .10 x ($160,000 $50,000) 62,667

Exercise 4-3
Workpaper entries 12/31/17 Equity Method

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 - Succo Company 300,000
Other Contributed Capital - Succo Company 100,000
Retained Earnings 1/1/17 - Succo Company 160,000
Investment in Succo Company 532,000
Noncontrolling Interest 28,000
$520,000 x .05 + (.05 x ($160,000 - $120,000)) = 28,000

Equity Income ($40,000)(.95) 38,000

Dividends Declared ($19,000)(.95) 18,050
Investment in Succo Company 19,950

Exercise 4-6

Journal and Workpaper Entries - Equity Method

Part A - Journal Entries

Investment in Sales 350,000
Cash 350,000

Investment in Sales ($148,000)(.85) 125,800
Equity in Subsidiary Income 125,800

Cash ($50,000)(.85) 42,500
Investment in Sales 42,500

Part B - Workpaper Entries

Equity in Subsidiary Income 125,800
Dividends Declared - Sales 42,500
Investment in Sales 83,300

Common Stock - Sales 100,000
Other Contributed Capital Sales 40,000
Retained Earnings 1/1 Sales 140,000
Difference between Implied and Book Value 131,765
Investment in Sales 350,000
Noncontrolling Interest 61,765

Goodwill 131,765
Difference between Implied and Book Value 131,765

Computation and Allocation of Difference between Implied and Book Value Acquired

Parent Non- Entire
Share Controlling Value

Purchase price and implied value 350,000 61,765 411,765*
Less: Book value of equity acquired: 238,000 42,000 280,000
Difference between implied and book value 112,000 19,765 131,765
Goodwill (112,000) (19,765) (131,765)
Balance - 0 - - 0 - - 0 -

* $350,000/.85

Problem 4-18

Consolidated Statement of Cash Flows - Indirect Method
P Company and Subsidiary
Consolidated Statement of Cash Flows
For the Year Ended December 31, 2011

Cash flows from operating activities:
Consolidated net income $330,000
Adjustments to convert consolidated net income to net cash flow from
operating activities
Depreciation expense 95,000
Increase in accounts receivable (110,000)
Increase in inventories (20,000)
Decrease in accounts payable (232,000)
Increase in accrued payable 60,000 (207000)

Net cash flow from operating activities 123,000

Cash flows from investing activities:
Purchases of plant assets (545,000)

Cash flows from financing activities:
Proceeds from the issuance of bonds 240,000
Proceeds from the issuance of common stock 200,000
Cash dividends paid (68,000)
Net cash flow from financing activities 372,000
Decrease in cash ($50,000)

Problem 4-19
Parks Company and Subsidiary
Consolidated Statement of Cash Flows Direct Method
For the Year Ended December 31, 2012

Cash flows from operating activities:
Cash received from customers (1) $274,000
Cash received from investment income 4,500
Total cash provided by operating activities $278,500
Less cash paid for:
Merchandise purchases (2) $159,000
Operating expenses (3) 83,000 242,000
Net cash flow from operating activities $36,500

Cash flows from investing activities:
Purchase of plant assets (4) (33,000)

Cash flows from financing activities:
Proceeds from the issuance of common stock $ 87,500

Retirement of bonds payable (50,000)
Cash dividends paid (5) (20,300)

Net cash flow from financing activities 17,200
Increase in cash $20,700

(1)Accrual basis sales $239,000
Plus: beginning accounts receivable 90,000
Less: ending accounts receivable (55,000 )
Cash received from customers $274,000

(2)Accrual basis cost of goods sold $104,000
Less: beginning inventory (92,000)
Plus: ending inventory 126,000
Plus: beginning accounts payable 88,500
Less: ending accounts payable (67,500 )
Cash paid for merchandise purchases $159,000

(3)Operating expenses $72,000
Plus: beginning accrued expenses 41,000
Less: ending accrued expenses (30,000 )
Cash paid for operating expenses $83,000

(4)Increase in property, plant, and equipment $6,000
Add: Depreciation 27,000
Cash paid for purchases of plant assets $33,000

(5)Beginning retained earnings $112,500
Plus: consolidated net income 37,500
Total 150,000
Less: ending retained earnings 130,500
Dividends paid by Parks Company 19,500
Plus: dividends paid by SCR, Inc. to noncontrolling interest 800
Cash paid for dividends $20,300