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Ch.

3—Problems

PROBLEMS
PROBLEM 3-1
(1)
Group
Total

Ownership
Portion

Cumulative
Total

$ (80,000)
800,000

$ (64,000)
640,000

$ (64,000)
576,000

Zone Analysis
Priority accounts..........................
Nonpriority accounts...................

Price Analysis
Price...............................................................................
Assign to priority accounts.............................................
Assign to nonpriority accounts.......................................
Goodwill.........................................................................

$740,000
(64,000) full value
640,000 full value
164,000

Determination and Distribution of Excess Schedule
Price paid for investment........................
Less book value interest acquired:
Common stock..................................
Paid-in capital in excess of par.........
Retained earnings.............................
Total equity..................................
Interest acquired...............................
Excess of cost over book value (debit). . .
Adjustments:
Land..................................................
Buildings...........................................
Goodwill............................................
Extraordinary gain.............................
Total adjustments........................

$740,000
$100,000
200,000
250,000
$550,000
×
80%

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440,000
$300,000
Amortization
$ 56,000
80,000
164,000

$300,000

— debit D1
20 debit D2
debit D3

$4,000

96

Ch. 3—Problems

Problem 3-1, Continued
(2) Investment Entries:
Event

Simple Equity Method

20X1
Subsidiary income of
$60,000 reported to parent

Investment in Saul Company ...............
Subsidiary Income.............................

48,000

Dividends of $10,000 paid
by Saul

Cash.....................................................
Investment in Saul Company.............

8,000

20X2
Subsidiary income of
$45,000 reported to parent

Investment in Saul Company................
Subsidiary Income.............................

36,000

Dividends of $10,000 paid
by Saul

Cash.....................................................
Investment in Saul Company.............

8,000

Event

Sophisticated Equity Method

20X1
Subsidiary income of
$60,000 reported to parent

Investment in Saul Company*...............
Subsidiary Income.............................

44,000

Dividends of $10,000
paid by Saul

Cash.....................................................
Investment in Saul Company.............

8,000

20X2
Subsidiary income of
$45,000 reported to parent

Investment in Saul Company*...............
Subsidiary Income.............................

32,000

Dividends of $10,000
paid by Saul

Cash.....................................................
Investment in Saul Company.............

8,000

48,000
8,000

36,000
8,000

44,000
8,000

32,000
8,000

*Amortization of building excess deducted ($4,000).
Event

Cost Method

20X1
Subsidiary income of
$60,000 reported to parent

No entry

Dividends of $10,000
paid by Saul

Cash.....................................................
Dividend Income................................

20X2
Subsidiary income of
$45,000 reported to parent

No entry

Dividends of $10,000
paid by Saul

Cash.....................................................
Dividend Income................................

© 2008 Thomson South-Western. All rights reserved.

8,000
8,000

8,000
8,000

97

Ch. 3—Problems

Problem 3-1, Continued
(3) Elimination Entries:
Event
20X1
Eliminate current-year
entries

Simple Equity Method
CY1

Subsidiary Income...............................
Investment in Saul............................

48,000

Investment in Saul...............................
Dividends Declared..........................

8,000

Common Stock....................................
Paid-In Capital in Excess of Par..........
Retained Earnings...............................
Investment in Saul............................

80,000
160,000
200,000

D1
D2
D3
D

Land....................................................
Building...............................................
Goodwill..............................................
Investment in Saul............................

56,000
80,000
164,000

A2
A2

Depreciation Expense.........................
Accumulated Depreciation................

4,000

CY1

Subsidiary Income...............................
Investment in Saul............................

36,000

Investment in Saul...............................
Dividends Declared..........................

8,000

Common Stock....................................
Paid-In Capital in Excess of Par..........
Retained Earnings...............................
Investment in Saul............................

80,000
160,000
240,000

Land....................................................
Building...............................................
Goodwill..............................................
Investment in Saul............................

56,000
80,000
164,000

A2–A3 Retained Earnings—Peter...................
A2
Depreciation Expense.........................
A2
Accumulated Depreciation................

4,000
4,000

CY2
Eliminate investment
as of Jan. 1

Distribute excess

Amortize excess

20X2
Eliminate current-year
entries

EL

CY2
Eliminate investment
as of Jan. 1

Distribute excess

Amortize excess

EL

D1
D2
D3
D

© 2008 Thomson South-Western. All rights reserved.

48,000
8,000

440,000

300,000
4,000

36,000
8,000

480,000

300,000

8,000

98

Ch. 3—Problems

Problem 3-1, Continued
Event
20X1
Eliminate current-year
entries

Sophisticated Equity Method
CY1

Subsidiary Income...............................
Investment in Saul............................

44,000

Investment in Saul...............................
Dividends Declared..........................

8,000

Common Stock....................................
Paid-In Capital in Excess of Par..........
Retained Earnings...............................
Investment in Saul............................

80,000
160,000
200,000

D1
D2
D3
D

Land....................................................
Building...............................................
Goodwill..............................................
Investment in Saul............................

56,000
80,000
164,000

A2
A2

Depreciation Expense.........................
Accumulated Depreciation................

4,000

CY1

Subsidiary Income...............................
Investment in Saul............................

32,000

Investment in Saul...............................
Dividends Declared..........................

8,000

Common Stock....................................
Paid-In Capital in Excess of Par..........
Retained Earnings...............................
Investment in Saul............................

80,000
160,000
240,000

D1
D2
D3
D

Land....................................................
Building (net)*......................................
Goodwill..............................................
Investment in Saul............................

56,000
76,000
164,000

A2
A2

Depreciation Expense.........................
Accumulated Depreciation................

4,000

CY2
Eliminate investment
as of Jan. 1

Distribute excess

Amortize excess

20X2
Eliminate current-year
entries

EL

CY2
Eliminate investment
as of Jan. 1

Distribute excess

Amortize excess

EL

44,000
8,000

440,000

300,000
4,000

32,000
8,000

480,000

296,000
4,000

*(80,000 – 4,000)

© 2008 Thomson South-Western. All rights reserved.

99

. 4.. Paid-In Capital in Excess of Par..... Building..........................................000 200......... Investment in Saul................................000 300..............000 8........................... 56..............................000 40..................000 480..........000 EL Eliminate current-year entries CY2 Eliminate investment as of Jan..................000 4...................000 300................................000 164.. Goodwill......000 D1 D2 D3 D Land............. Investment in Saul........ 56............... 8......... Dividends Declared....... A2 Accumulated Depreciation...................000 164..000 Dividend Income...........................000 A2–A3 Retained Earnings—Peter...........000 240.......... 4... Paid-In Capital in Excess of Par.............. Retained Earnings.......000 Land.........000 8............ 80................000 160...........................000 440...................................000 Common Stock....... 40...................... Retained Earnings—Peter...000 80.. Retained Earnings...Ch.... 80................... 8................. 1 EL Distribute excess Amortize excess D1 D2 D3 D © 2008 Thomson South-Western. Investment in Saul.000 160.......... 3—Problems Problem 3-1.................................... 8..... Investment in Saul.....................000 4...............000 Common Stock............ All rights reserved.............. Dividends Declared............... A2 Depreciation Expense........................................... 1 Distribute excess Amortize excess 20X2 Equity conversion Cost Method CY2 Dividend Income.....000 80..............................000 CV Investment in Saul.... Goodwill.....000 A2 A2 Depreciation Expense.... Concluded Event 20X1 Eliminate current-year entries Eliminate investment as of Jan. Accumulated Depreciation...... Building......................000 100 ....................

Equity in 20X2 income........... Share of dividends received—20X1.... Equity in 20X1 income......................... Retained earnings.............................. .....000 Amortization $ 8...................000 net income 80% of $20.000 40............000 16.....Ch........................000 $ 68....000 1 debit D1 10 debit D2 debit D3 $2............................................000 24.. Total adjustments......................000 (2) 48..............000 $ 68...............................000 150........................................................................ ........000) 72......000 dividends 80% of $30............................... All rights reserved.................................................. Adjustments: Inventory..................000 (16.........000 × 80% Entries under the simple equity method: Investment in Soll................................ Total equity... Goodwill..............000 (1) 20X2 Credit Debit 72............ $308...... Investment in Soll.........................000 20X1 Debit 48.... Soll Income..... © 2008 Thomson South-Western....000 (3) Credit 72....................... Other paid-in capital..................... Share of dividends received—20X2...................000 48...................... (1) (2) (3) (4) 240...................................................000 24.... Buildings..........000 80% of $60........000) $388...................................................... Cash... Extraordinary gain.........................000 net income 80% of $90....... Less book value interest acquired: Common stock............ Interest acquired..........000 $300.......000 20.....000 (24.................. Total...000 100...........................000 (4) 16.........000 dividends (3) Balance in Investment in Soll Company: Cost... 3—Problems PROBLEM 3-2 (1) Determination and Distribution of Excess Schedule Price paid for investment.............................................................000 101 ........................... (2) $308... Excess of cost over book value (debit)...............000 $ 50.......................

........................... 388...... ........................ Retained Earnings—Peres....... (120............... Accumulated Depreciation....................... .................... ..... 222........000) . ..............000 .000) (60....... 6...... ... 120..................... ...........000 (160..................... ................000 ...................... ........................................ Common Stock—Soll.... Common Stock—Peres.............000 . (72.000) ... 20... ............000) (40................................ ..........................................................................000 ................................................................................................. ...... ................. Buildings and Equipment...... 20X2............................... ....000) ........ ...............................................Ch................. ............................................000 ...... ................000) 40.........................................000) 0 .. ..... .......000) (324............. NCI 100.......... Continued (4) Peres Company and Soll Company Worksheet for Consolidated Financial Statements For Year Ended December 31........... Total NCI.................................... ............ Other Paid-In Capital—Peres................................... ....................................... .......................... ......... Current Liabilities....000 .............................................................................. (CY2) 24......... ..........................000) ......000) (EL) 80....000) Retained Earnings—Controlling Interest............... (100................ ....................................000) ...................... (190..000 ..... ..000) Net Sales. ........ Consolidated Net Income...................... ....... (50. . All rights reserved...... 20X2 Trial Balance Peres Soll Eliminations and Adjustments Dr. ...............000 ................. ................ (970. ........... (324................ ...... ................ ..000 440. ............. .........000) ................ 3—Problems Problem 3-2........................................................................................................ Other Long-Term Liabilities.... .................... .............000 (D2) 20............... Operating Expenses....................... 560................ Cost of Goods Sold....... .......... (20................. ....... .............000 (A) 2........................... ......000) .......... 50............ (D) 68.. (A) 2...........000 .....000) (100.......... Investment in Soll......................... .... ....... ...... ..........000) ....... 300.........................000 (CY1) 72...................................... ............ . ......000) .......... 0 0 440......................................................000 20... (100.............000 ....................................... 148.000 260.......000) ... ........000) (EL) 152... . .................................... Other Intangibles........000) To Controlling Interest (see distribution schedule).................................... (188.............. 50.................................................. .. (CY2) 24........... 50...............000 (164..... ................................................................ (170........ 350.........000) 150... ................000 50................................. ............................. .................... ..........................000 ...... (204... ...................... (D3) 40. ........... .000 320.. .... Goodwill............................ (38.................000 690................................................. (80..................... Cr....... ....... ...................... . ......................... ..000 Total....................................................... (CY1) 72.....000) (200....000 ......... (D1) 8............000) (200..................................................000 180........... ................................. ............................000 .......................................................000) .............. (EL) 272. (214................000 328......................000) ... (10........................................ 102 Controlling Retained Earnings Consol............ .000 ....................000 ...000) (EL) 40...................................... ... ............ ............ ..................................000) (100..000) (450. (A) 4. Land................................ ........ ......... .................. ........... .. 18................... .......................................... ............... (100.............................000) ............ 30......000) ........................ ................. 100.............................................000 ........000 .000 ......................000 .... .......................... ................... ..... Bonds Payable..... .............................. Dividends Declared—Peres.............000 ............................... ....... ........................ December 31.............. . . Dividends Declared—Soll........ ............000 (18................................... ............. .............. (200............... (200.....................000 50.. ............................................... To Noncontrolling Interest (see distribution schedule).................................................. ......000 ............... ......................................................... © 2008 Thomson South-Western........... (80..........000 .000) Other Paid-In Capital—Soll............. .......000 ................................000 ....... ... ....... ......................................... ......000) Retained Earnings—Soll..... ..............000 100...... ......................... (520................................................. ....................................... Balance Sheet .000 ..... .. Subsidiary Income.......................... (100...................................... December 31...........000 ... Consolidated Income Statement Inventory................................ Other Current Assets....... ....000 ......... ................. .... ... ..000 ......................... 170......

........000 103 .... NCI....000 72.. $40. retained earnings of Peres Company... $90.... 20X2. (D2) Buildings................... Controlling interest.. retained earnings of Peres Company......... © 2008 Thomson South-Western.. $20................000 Peres Company Building depreciation........ (EL) Eliminate the pro rata share of Soll Company equity balances at the beginning of the year against the investment account.... allocate the $8..................... 20X2.......000..Ch.000 write-up to the January 1.... 80% × Soll adjusted net income......... Income Distribution Schedules Soll Company Internally generated net income...............000.000 Internally generated net income. 3—Problems Problem 3-2. (A) Cumulatively depreciate the write-up to Buildings over 10 years....000 × 20% $18... $100................. NCI share.... All rights reserved...........000 excess cost as required by the Determination and Distribution of Excess Schedule... (D1) Because FIFO is used for inventory........ (D3) Goodwill... $2........ Concluded Eliminations and Adjustments: (CY) Eliminate the current-year entries made in the investment account and in the subsidiary income account... Charge the 20X2 Depreciation to Operating Expenses....... (D) Distribute the $68..........000 Adjusted income........ $90............000 $170..................... Charge the 20X1 Depreciation against January 1...

............. 3—Problems PROBLEM 3-3 (1) Determination and Distribution of Excess Schedule Price paid for investment..... Total adjustments...000 Investment in Soll....................................................000 (4) 24..........000 150....000 – $24........................ Goodwill.................. Total equity.................000 = $376....... Interest acquired................... 16..............000 write-off of inventory and $2.........Ch...................000 (3) 24...........000 (3) Balance in Investment in Soll Company: $308........000 (1) 80% of $60............... (1) Soll Income.... ....................000 + $38. Other paid-in capital......000 net income less $2................000 dividends (4) 80% of $30......000 40...........000 $ 50..........000 20X2 Credit Debit 70... Buildings...000 (2) Entries under the sophisticated equity method: 20X1 Debit 38.......000 1 debit D1 10 debit D2 debit D3 $2. Retained earnings..000 ($8..000 × 80% 240..............000 (extra depreciation) (3) 80% of $20.......................... Adjustments: Inventory.000 extra depreciation) (2) 80% of $90................................000 + $70.. 38.......... 104 ...000 – $16....000 20....000 $300.......000 Cash......000 $ 68................... Less book value interest acquired: Common stock........000 100....000 dividends Credit (2) 70..................000 Amortization $ 8.................................. Excess of cost over book value (debit). 16............000 $ 68..000 Investment in Soll........ .000 net income less $10... $308..... Extraordinary gain. All rights reserved..000 © 2008 Thomson South-Western...........

.... .. ...000 (D2) 18.......................................... ......... .....000 ............. ..................................... ............. ................... ...000 ....... 50.......... ................. 0 0 426......... .........000) .....................000 100.... ........ .........................................000) . .......000) Retained Earnings—Soll.................... ... ......... Cost of Goods Sold......000 ............................... ..... Cr................. (A) 2.......................... (170.................. (80......................................................000 180............. ............................ All rights reserved..................................... (100..................... (50...... Continued (4) Peres Company and Soll Company Worksheet for Consolidated Financial Statements For Year Ended December 31...... 120.................................000 426.000) (EL) 152.................... 222.000 ..... ............... Consolidated Income Statement Inventory................... ..............000) (EL) 80................................ ........000 320.................000 ........000) .. .... ..... .... ........................................ Total NCI..................000) (100..000 328........ Dividends Declared—Soll........ (CY2) 24................. (100............. ..................000) .... ..................................000 ...............................................................000 ............ .... ................. Buildings and Equipment...... (204......................................000) 40.................. ....... (520.......... ...........000 20............................ (200.........................000 .....................................000 (A) 2.. ..... ..... 6. (120.000) .............................................................. ..............................................................................................000) (60.................... .. .............000 .....000) ............................000 .............................. .........................................000) 0 ...................................... ... ............. 18....... . 148....... (200........ Retained Earnings—Peres...... Other Intangibles..... .............. ..... ..................000) (EL) 40. .........................000) (200. ............................................. (D3) 40...000) (450..................................................................Ch...... (EL) 272........000) ............. ................. ......... (100............. 20X2 Trial Balance Peres Soll Eliminations and Adjustments Dr................................................... Investment in Soll.... Other Long-Term Liabilities... To Noncontrolling Interest (see distribution schedule)...................... Accumulated Depreciation........000 260................ Consolidated Net Income.......................................... .................. .....000) .............000) ........000 ............000) To Controlling Interest (see distribution schedule)...... .......................................... ................... (38............000 (160.... .......... 300.......................... Other Paid-In Capital—Peres................000 ............. ............. ............... (204................... (970............ 170............ December 31. ................... (20.................... Common Stock—Soll.........................................000 ........... 105 Controlling Retained Earnings Consol...................000 .......000) Other Paid-In Capital—Soll.................................................. Common Stock—Peres.............................000 Total........... ......................000) (100...................................... 350.... .......000) 150..... ........ (188.............................. 560.. Current Liabilities..000 .................. Other Current Assets... ...................... (CY1) 70..... 50................................... ........................ .............. ........................................................ .................... ................ . (10.. ...................000) ........... . © 2008 Thomson South-Western............ ................. .................................................................................000) (324............... ..............................................000 ............000 ........................... 50............ .......... . ....... ..................000) (200..................000 ....... Land......000 688. (190..................000 .. .......... .................................. ............000 50....... NCI 100. .................. Operating Expenses..000 (CY1) 70.... (D) 58...000) Net Sales...................................... ..........000 50................. ..................................000 (18...... .. Subsidiary Income............... (CY2) 24...000 ....... ......... December 31.......................................................... .................................................. Goodwill.....................000) ...............000 .. ........ 30... ......... 100. .................................................................. .................... ......................................... (70............ ....... (324.................000 ... ............. ..........000 ................................ 376..000 (162..... .......................... ....... ........................... Bonds Payable.................... ............ (100. ......... ........ ......000 .................. ... Dividends Declared—Peres.. ....000) ...... 20. .... .............................000) .................................000 .......... ............................................. Balance Sheet .................. ............. ......................................................... .......000 ................. (80........000) ....... 3—Problems Problem 3-3............................ 20X2.......................................... .................000) Retained Earnings—Controlling Interest....000) (40..........

...000 to Operating Expenses for extra depreciation)..................... $90... $2.........Ch.. (EL) Eliminate the pro rata share of Soll Company equity balances at the beginning of the year against the investment account....... depreciate the write-up to Buildings over 10 years.... NCI...000 72.... Concluded Eliminations and Adjustments: (CY) Eliminate the current-year entries made in the investment account and in the subsidiary income account............000 Adjusted income...... 80% × Soll adjusted net income..... © 2008 Thomson South-Western...........000.... All rights reserved......000 $ 170...................000 Peres Company Building depreciation......... (A2) Charge the 20X2 Depreciation against Operating Expenses............ (D) Distribute the $58....... Income Distribution Schedules Soll Company Internally generated net income.000 106 . (A) For 20X2 only..... $90.......000 less 20X1 charges of $8.........................000............. Controlling interest..... (D3) Goodwill for $40...... 3—Problems Problem 3-3.000 × 20% $18............ NCI share...... (D2) Buildings for $18.000 to Cost of Goods Sold for inventory and $2................ $100.............000 Internally generated net income.......000 remaining excess of cost over book value ($68..

......................................................000 $260.... 20X3......................... December 31.............. Retained earnings......000 35......... January 1.......... 20X3 Revenue....... Excess of cost over book value (debit)........000 135...................................................................000 Chango Company and Subsidiary Lhasa Inc........... January 1......................... 3—Problems PROBLEM 3-4 (1) Determination and Distribution of Excess Schedule Price paid for investment.... 20X3.......... Retained Earnings Statement For Year Ended December 31............... Chango Company............. Adjustments: Goodwill................000 $260......000 107 ...................000 $ 50..............................000 $ 50..........000 × 100% 200.......................................... $670....... © 2008 Thomson South-Western.............000 15.000 50........ Consolidated Income Statement For Year Ended December 31...........000 — $260............. 20X3.......................... Extraordinary gain.........000 $200.......................................... .Ch...... $230.000 620................................. Expenses..................... Less dividends declared....... Adjusted balance................................................................ Balance......... Add consolidated net income.............................. All rights reserved........ ...................................000 (10.......................... Interest acquired........... Total equity.............. Total adjustments............................................. Consolidated net income........................................... 20X3 Retained earnings.....000) $305......... (2) $460.. Paid-in capital in excess of par.....000 $265. Adjustments: Cost to equity conversion.............. Less book value interest acquired: Common stock....000 Chango Company and Subsidiary Lhasa Inc....................

125. Retained earnings...............................................................................................................000 (475................000 full value — 108 ...............................000) full value 270..................... 3—Problems Problem 3-4.................................... Nonpriority accounts.... Paid-in capital in excess of par.......... Total assets..... Group Total Ownership Portion Cumulative Total $ (50.......................................................................... $ 660................................690.000 (50..000 $2......... © 2008 Thomson South-Western..................................................................000 PROBLEM 3-5 (1) Zone Analysis Priority accounts...........................000) 1.............................................................................. All rights reserved..........000 305.............................. Stockholders’ equity: Common stock..000 $ (50.... 20X3 Assets Current assets................. Assign to nonpriority accounts..................000 Liabilities and Stockholders’ Equity Liabilities..................................000 260.......... Concluded Chango Company and Subsidiary Lhasa Inc................000) 270........565.......................................... Goodwill.....690..............000 1............................000 Price Analysis Price....000 $2.000 1......................... Goodwill................ Total liabilities and stockholders’ equity.Ch.................. Depreciable fixed assets........................ Assign to priority accounts.............. Accumulated depreciation..........000) 270....................040.......000 $2..........000 $ 220......000 $ (50...000) 220........................... Consolidated Balance Sheet December 31.245........ $1.......................770........................ $220....

.. Total equity.... Continued Determination and Distribution of Excess Schedule Price paid for investment.......000 50.........000 100. .... Excess of cost over book value (debit)...000 $ (30....... Less book value interest acquired: Common stock............................ Interest acquired..............000) — — $ (30.. All rights reserved..................... 3—Problems Problem 3-5...Ch....... 250..000 $250.......... Goodwill.................000 $ 30...... Adjustments: Buildings.....000) 109 ............ Total adjustments........... Retained earnings.....000 × 100% © 2008 Thomson South-Western......... Paid-in capital in excess of par......................000 $100.... Extraordinary gain....... ............................................ $220.......................000) Amortization 10 credit D $(3..............................

.000) (300.........000 10.......000 ......... Paid-In Capital in Excess of Par—Bell...................................000 30.....................000) ......... 60.............. ...... ............................................... (100......................000 ................. Retained Earnings—Bell.............. ...................... ........... Common Stock ($10 par)—Stockdon................. .... ........................................................000 .................................................................. (100......000 143............................................................... ............... .....000 ............. . Accounts Payable........................ Land..................... ........000) .................................... Consolidated Income Statement NCI Cash....... .... ......................... ..... 0 0 283.... 155........000 ........... (255.................................000 120............ ............. (300.................................................... (250.............. ......000) 0 ................ ..... ....... 3—Problems Problem 3-5.....000) . (405........ .. .....000 ............................. ........................ .....................000 .......000) (EL) 50... Investment in Stockdon Corporation. .......................................... .000 (A) 3......... ......................... (615..... ........................... Buildings (net)...... ..................................... .......... .......................................... Retained Earnings—Stockdon................... ....................... ............. ................ ........000) (EL) 100............................... ......................... (43............ (50............. (A) 3......000) (210............... 5...... Common Stock ($3 par)—Bell.........................000 ... Inventory. 5.000 .......000 52.....................................................................000 ...................... ........ .... (210. Cr.. .............000 ..................000) 323.............000) ........................ ................. 120..............000 35................. (293.................................... ... Sales............. . ... Continued (2) Bell Corporation and Subsidiary Stockdon Corporation Worksheet for Consolidated Financial Statements For Year Ended December 31...................... (255.............. 180.....................000) ........ . .. Balance Sheet ...... ..........................000 ............ ........ Cost of Goods Sold..... ...... ..................000 240.....000) (293......... . ............. .. December 31..................................................................................................... Dividends Declared. .....................000 ......... ....000) (180........... .................... Retained Earnings—Controlling Interest....................................000) ........................................... 20X7... (D) 30.. ..000 (EL) 250.000) .... Total.......................... . 120..................000) ...................000 ... .000) ...... 45..........................000 283...............Ch............................. (180.............................. .............. ..........000 ............000 (D) 30.................. ..000 90....... 110 Controlling Retained Earnings Consol...........................000) (40...000) (EL) 100... Consolidated Income............. 600.......... ................... ............................ 220.. All rights reserved....000 735......... (43... ............................................... 20X7 Trial Balance Bell Stockdon Eliminations and Adjustments Dr................ ... ...........000 162.........................000 ............. © 2008 Thomson South-Western........ Paid-In Capital in Excess of Par—Stockdon..........000 .............. .................. Other Expenses...

........000 90..000) $ 43.......................................... Less dividends declared........... Stockholders’ equity: Common stock.... (3) Bell Corporation and Subsidiary Stockdon Corporation Consolidated Income Statement For Year Ended December 31.......Ch......................... Retained earnings................... 20X7 Assets Current assets: Cash............................................388..............................................................000 735...000 180....................................................................... 3—Problems Problem 3-5............................................................. Other expenses..................................................000 as a result of the amortization resulting from the excess adjustment resulting from Entry 2........000 $ 413.........................000) $ 95..... Buildings............................................. plant...........................000 773. Cost of goods sold.......................... $ 250............................. and equipment: Land.........000) $293.............................................000 $240..000 (155.... 20X7.............................000 $1......388............................ December 31....................................000 (52............................................................. 20X7........ © 2008 Thomson South-Western... Balance..................................................000 111 ......................... Liabilities and Stockholders’ Equity Current liabilities............ Add distribution of income................. $323......000 $1........ Concluded Eliminations and Adjustments: (EL) Eliminate 100% of the subsidiary’s January 20X7..... equity balances against the balance of the investment account............................. Total assets.............................................................000 293...................................................... Total liabilities and stockholders’ equity....................000 $ 615...................................... 20X7 Retained earnings... $255.......... January 1................................................................................. Inventory......................... Property............000 975.............................................000 $300...........000 (5...............................000 Bell Corporation and Subsidiary Stockdon Corporation Consolidated Balance Sheet December 31........................ Paid-in capital in excess of par................000 43... (A) Reduce the buildings account by $3...... Gross profit...................000 Bell Corporation and Subsidiary Stockdon Corporation Retained Earnings Statement For Year Ended December 31......................................................... All rights reserved.......................................... 20X7 Revenues..... Consolidated net income...... (D) Distribute excess of Stockdon book value over cost of investment according to the Determination and Distribution of Excess Schedule.....................

............. Excess of cost over book value (debit).....................000 $ (72..000) 260............. All rights reserved......... Nonpriority accounts.000 $ 32... ....000 82....000) $195...............................................000 $ (72.........Ch............... .. Less book value interest acquired: Common stock.................. Assign to priority accounts................ Assign to nonpriority accounts...... 156................................. Retained earnings................000 Amortization 10 debit D1 $3..... 3—Problems PROBLEM 3-6 (1) Group Total Ownership Portion Cumulative Total $ (90.....................000 Zone Analysis Priority accounts.............................000 full value 82. Goodwill.........................................000 120...... Total equity........ $270...................................... Goodwill......... $270............000 — $114.... Adjustments: Buildings....000 $114.......... Interest acquired.........000 $100..... Total adjustments................. Paid-in capital in excess of par..................... Price Analysis Price.................................................000) 188.........000) 325...............................000 (25...000) full value 260...........200 debit D2 112 ..000 Determination and Distribution of Excess Schedule Price paid for investment...........000 (72.. Extraordinary gain.000 × 80% © 2008 Thomson South-Western...................

..... 229.................... (480................. Accumulated Depreciation—Buildings..................000 115....000 Sales.....................000 Total..................................000 (CY1) 20...................................200 .......................... ....................000 .........000 45...........000 972..... .. ........000) ................... ............................. ..000) .................. ....... ................ Land....................000) Retained Earnings—Controlling Interest.................. Buildings................ ..... ...000 (453............................... Investment in Scully..............000 ................ . .. (EL) 12...... .............000) ................... ....... Balance Sheet ... ..... ..... ......... (20.................................... Dividends Declared...................... ..000 ... .......... ................... Cost of Goods Sold.................... . Subsidiary Income.....................000 .. (503......................... ..........000 ........ Total NCI.................................... 0 0 320..................................................... Consolidated Net Income................................. ................. ............... ...... Cr................ ...000 ............ Jan.........800 .................................. ........... ............................ Goodwill... (24. ...... ........................ ............ 77......... (A) 3...................................... ............... ............. ...................... .........................................................000) (EL) 80......................................... ..... .. 20X2 Trial Balance Prescott Scully Eliminations and Adjustments Dr........ (D) 114.... ... ..................................... ..................... ............................ ......................... (499.............200 ................... ... 15............................. Liabilities........................................... 20X2......... Common Stock—Scully.................. ............ (567.. (175....... 20X2—Prescott.000 ...................... 294................ ................................................ ............................ .. 1...000) Paid-In Capital in Excess of Par—Scully.... ......... ..................................................000) ................. 590....600) 295............ 1..............400 320.... (EL) 164.............. ........................... ......................................... ... .... ....... ................000 350..................................................................................... .................. .......................................................... ...... 113 Controlling Retained Earnings Consol... ..........000 (D1) 32......000 ...........000) (EL) 96. 179...........................................000 .................................. (100............... 20X2—Scully........... .......... Jan...000 75..................200 ................Ch............ 150.000) (120........................................................... (D2) 82........000) (133...800) ................................................................................. 10......................................................... (CY1) 20.........800) .......000) ........ ...................... © 2008 Thomson South-Western............. NCI 180................. . (A) 6........................................ ............... 168................................................................. 3—Problems Problem 3-6..........................................000 ..000 ..400) ..................... 10...800) ......000 .000 ...............................000) To Controlling Interest (see distribution schedule)....... (45....000) (182.............. (CY2) 4...... ... .... .......................... ........ (77. ............600) 0 ..................... ....................000 5............................. (20....... ....... ........000 .................. (82..400 ..000 (308........ .............. 5........ (CY2) 4................. (360....................... Common Stock—Prescott.. ......000 .. Retained Earnings..000 (5.....000 ................................................... Expenses..... ............................ All rights reserved....000) ............000) .............. (120..........000 50.................. (A) 3............000) (567. 82.... 120........... ......................000 .....400 ...................................000 ......................................... ................000 ................... ................ .....000) .......................... .000) Retained Earnings.............................................. .......... ...... 3................ .................................. Consolidated Income Statement Current Assets............... (200............ ......... Continued (2) Prescott Company and Subsidiary Scully Company Worksheet for Consolidated Financial Statements For Year Ended December 31.. .... (265. .............................. .......000 225.....000) (200............... To Noncontrolling Interest (see distribution schedule)....... ................ December 31. (45......... ........................................... 1............

..... (D2) Increase Goodwill $82... Controlling interest................................................................800 114 ............. Subsidiary Scully Company Income Distribution Internally generated net income................................ 20X2 Sales. Expenses....................................... Distributed to controlling interest.. Consolidated net income.............................200 annual increase in building depreciation for current and prior years........ (A) Record $3......................Ch. $25........................................................000 Parent Prescott Company Income Distribution Buildings depreciation.....800 5.............. NCI share........000 × 20% $ 5............................................ Continued Eliminations and Adjustments: (CY1) Eliminate the subsidiary income against the investment account........000 20............. All rights reserved...............................................200 Internally generated net income.. (D) Distribute the excess cost as follows.............................. 80% × Scully adjusted income of $25......................... $25...........000 $251...................... Cost of goods sold................................................... (EL) Eliminate the 80% ownership portion of the subsidiary equity accounts against the investment........... NCI.............................................................................. $480. (CY2) Eliminate the 80% ownership portion of the subsidiary dividends. 3—Problems Problem 3-6............... © 2008 Thomson South-Western................... (3) $61.........................000 $77...............000 Adjusted income....000.000 $ 77...... in accordance with the Determination and Distribution of Excess Schedule: (D1) Increase buildings by $32...000..............000 168...800 Prescott Company and Subsidiary Scully Company Consolidated Income Statement For Year Ended December 31............................................ $3........................000 229...... Gross profit..........200 $ 82.....000... Distributed to noncontrolling interest...

...............600 Liabilities and Stockholders’ Equity Liabilities.. 20X2 Retained earnings.......600 $1.... 20X1................................................................................................................................................ Add distribution of net income.. Retained earnings..........000 45...................................000) $567..................................... 20X2 Assets Current assets....................000 $1.........................................600 743.................800 (10... Controlling interest: Common stock ($10 par)............000 $200... Concluded Prescott Company and Subsidiary Scully Company Retained Earnings Statement For Year Ended December 31.................... Total liabilities and stockholders’ equity..... Stockholders’ equity: NCI..........................................Ch.................400) 518........................ 3—Problems Problem 3-6....................... December 31...000 $ 972......... Accumulated depreciation........... January 1. $ 308.000 (453......................................600 82......... and equipment: Land............ Less dividends declared..................................... Property....... Goodwill.............................120..........................800 77......................120... © 2008 Thomson South-Western.... Buildings..600 767........................................... Total assets........600 Prescott Company and Subsidiary Scully Company Consolidated Balance Sheet December 31............ plant............ All rights reserved..600 115 ...................................................... $ 295... $499... Balance......000 $225............000 567........... 20X1...

.......200 $111.... 1 to May 1..............................................000 40..................000 116 .............. 3—Problems PROBLEM 3-7 (1) Determination and Distribution of Excess Schedule Price paid for investment.... Total adjustments.......... 163.800 5 debit D1 20 debit D2 debit D3 Amortization $1..........000 $150........ Extraordinary gain.....000 × 80% © 2008 Thomson South-Western............. Goodwill.... Jan.............. Excess of cost over book value (debit)........ Income of Summer................Ch......... Buildings......800 $ 8. All rights reserved...............600 2........... Retained earnings..........................000 4... Less book value interest acquired: Common stock............... .................... $275.............................. Total equity.... ...... Interest acquired..000 $204..800 — $111...000 50............... Adjustments: Equipment...000 63....

.............................................. ............. .. ....000 400... ...................000 (D2) 40. 0 0 288... ................... ............................ 32...........400) To Controlling Interest (see distribution schedule)......................... © 2008 Thomson South-Western....... 225..................................... (400.................. .. .............. .. Common Stock ($5 par)—Summer................. (42. ........... (A1) 1........ .....................000) . .......... Total........................................................................... ..................000) 608................... Dividends Declared.....................................600) . . 3..... December 31.......000 . ....... Subsidiary Income.............................. ............ . ...................... (CY1) 9.......... ...................................................................................................... (32. .......... (251...... Balance Sheet .................. 284............ . ...........000 ........ 20X1....... (D) 111............. (35................................. (9.............. Accumulated Depreciation—Buildings........................ ...... ............................600 ......................... 210......................... ............................ ...............................................................600) ...........200 ............... ..............................000 .............................................. 117 Controlling Retained Earnings Consol................................ ............................................ All rights reserved.......400 (2...........000 ............000 90.....000) (120........ .... ... ....... ... (150.... .. ........................................................... ............................................. (42.......................800 ............................ ........000 .................. ................000 48.000) . ...000) .......... ........ ... Continued (2) Jeter Corporation and Subsidiary Summer Company Worksheet for Consolidated Financial Statements For Year Ended December 31... (A1) 1........... To Noncontrolling Interest (see distribution schedule)................600 ............ 220..................................... . ..........400) Retained Earnings—Controlling Interest............................000) ......................600) .. Equipment..... ............................ (EL) 3..................................600 ....000) ...000 ......... (EL) 163...............000) (EL) 40........ .. (A2) 2............ ..........200 288.......................... . Liabilities...... ...................... ....... 10........................................................ (100..................................................... Other Expenses.......200 .....................................................................600) ............................ (251.... (580............600 250..................................... 10.................................... NCI 296........................... Retained Earnings—Jeter..... Buildings...................... Cr.............................. .................. ... ................... .............Ch........................000) (50...... ......................................... ..........000 (152...000) (150............. ........................ Land....... ...............200) ........ ...000 ... (480...........800 (630............................. 63..................................... (CY1) 9...................... ..................... ............. .......... Goodwill... 160......000 135.... . .......... ...... (115...........................000) (EL) 120... (274.......... Total NCI................000 ................................ ................... .................................................... .. Paid-In Capital in Excess of Par—Jeter........ (30. ......200 .......000) Purchased Income............................................................. (460........... Consolidated Net Income....... ............... (D3) 63.......... ..............................200 ......... ............ .......... 450....400) 0 ....000) (40. ........000) Retained Earnings—Summer................................800) .........................000 ....................................... 3—Problems Problem 3-7.......... 261............ Sales.................................... .....................................................................600 97................................ ..600 .................................................................................. ....000) (400.. Common Stock ($100 par)—Jeter..600 ............. Cost of Goods Sold........... ...................... .................... ...................................... Investment in Summer Company............000 .................... . ...... ............. (40.... ......................... ..000 60........ ...............................400) 393. .......... (10............ 20X1 Trial Balance Jeter Summer Eliminations and Adjustments Dr.... 280..... ..............000 (D1) 8....... ..... .... ..... ..............000) ..................................................000 ............800 ............................ .........000 (176..........................800 ....400) (274........ Consolidated Income Statement Cash....... ................000) .. ................. Accumulated Depreciation—Equipment.000) (60.....000 150.... (50...................................000 ...................000) ....... ..............................600 ........................ ..................000 (A2) 2.......... ............................ 2...

All rights reserved................ $ 30.....600 Internally generated net income.......................... To noncontrolling interest...... Gross profit......................... Consolidated net income..000 ÷ 5 years) for the current year.. (D3) Record goodwill of $63.......400 $ 32......000 (last 8 months)........400 3....................... 3—Problems Problem 3-7........ $580............................400 $ 32.................. $ 12......................... Controlling interest... Net income earned by outside interests................................... NCI.............000....................................................... Other expenses.....800 118 ......................600 $ 38.. Continued Subsidiary Summer Company Income Distribution Internally generated net income... (D) Distribute the excess as determined by the Determination and Distribution of Excess Schedule: (D1) Increase equipment by $8............000 Adjusted income.................000 261..... (3) Jeter Corporation and Subsidiary Summer Company Consolidated Income Statement For Year Ended December 31.....000 $300.............................. $ 12...... Record amortizations resulting from the asset and liability revaluations of Entry 3: (A1) Amortize equipment for $1... 80% × Summer adjusted income of $12. NCI share........000 ÷ 20 years) for the current year.800 Eliminations and Adjustments: (CY1) Eliminate parent’s current-year entry for subsidiary income.............Ch.....................................000 × 20% $ 2....................................................... combined............... 20X1 Revenues..................400 Parent Jeter Company Income Distribution Buildings depreciation............. Cost of goods sold............. (EL) Eliminate the pro rata share of Summer Company equity balances and purchased income............................................................ To controlling interest........................................800...000 6.000 (A1) 1..............600 ($8..... (A2) Amortize buildings for $2.....................200 $ 35....................................000 ($40............................. © 2008 Thomson South-Western. Net income of Jeter and Summer... (A2) $2................................................. Equipment depreciation.....200 2....................000.................... (D2) Increase buildings by $40..........000 280.....................................

..... Concluded Jeter Corporation and Subsidiary Summer Company Consolidated Retained Earnings Statement For Year Ended December 31..... Stockholders’ equity: NCI............... Controlling interest: Common stock...................... Retained earnings.000 40........................................................................800 Liabilities and Stockholders’ Equity Current liabilities...........400 714............................... $251................................................................... Balance........................................800 *Includes both buildings and equipment depreciation...400 $1.............................................................................400 63.................Ch...... $ 630........... Paid-in capital in excess of par.................................................................................................................. Goodwill... $ 393..000 400...... 119 ............000 (328.. Equipment....... plant.................... Less dividends declared............ Total liabilities and stockholders’ equity........000 274..........000 608............................. and equipment: Land.......... All rights reserved.................................................................................................800 (10................................000 42..................................... 3—Problems Problem 3-7....................800 $1..... end of year................................................................................... beginning of year................................................................. 20X1 Retained earnings... Property............. © 2008 Thomson South-Western......... Less accumulated depreciation*............ 20X1 Assets Current assets: Cash........................................................................ Buildings..............600 $ 250.......600 32........600) 929..........386..........................................................................................................400 $400. Add distribution of income....400 Jeter Corporation and Subsidiary Summer Company Consolidated Balance Sheet For Year Ended December 31........ Total assets...........................386.000) $274....................

...000 annual increase in Patents depreciation for the current and past two years...............700..... — Total adjustments.. All rights reserved.........000 Total equity...000 for inventory sold.... $1. ..... 120...000 Patents.....) (CY2) Eliminate intercompany dividends.................... (A2) Record $5.... (D2) Increase Equipment $40.. ($580..............000 8...................................... 300.................000 Amortization debit D1 8 debit D2 10 debit D3 debit D4 $5.. (EL) Eliminate subsidiary equities.........000 Excess of cost over book value (debit). (D) Distribute the excess cost as given by the Determination and Distribution of Excess Schedule: (D1) Decrease parent’s Retained Earnings by $8.....000 Extraordinary gain.......... 120 ....000 January 1............ × 80% 1.............. $ 248... 400.. 20X7 – $400.......000.....000 Retained earnings.... $ 248.Ch.......000 Buildings.......608........................ 20X7.000 annual increase in Equipment depreciation for the current and past two years.000 January 1...............000  80% = $144... 20X5 = $180.... $ 8.... 80......... (A3) Record $8................... © 2008 Thomson South-Western....................... $1......... $1.000... .......000.000 Paid-in capital in excess of par... 40.......000 Interest acquired............000 Adjustments: Inventory.............360.. (D4) Increase Goodwill $120... (A) Record amortizations resulting from the revaluations: (A1) No amortizations necessary....000 Less book value interest acquired: Common stock......000 Eliminations and Adjustments: (CV) Convert from cost to the equity method as of January 1.000...... (D3) Increase Patents $80..........000 Goodwill.. 3—Problems PROBLEM 3-8 (1) Determination and Distribution of Excess Schedule Price paid for investment..000.

. All rights reserved...000 Parent Detner International Income Distribution Equipment depreciation..000......... $155................ 80% × Hughes adjusted income of $155............ $155.. 3—Problems Problem 3-8... Continued Subsidiary Hughes Company Income Distribution Internally generated net income........... $185.....000 8........... © 2008 Thomson South-Western...........................000 Adjusted income........ $5.000 Internally generated net income...............000 121 .............000 124...................................... NCI............000 $ 296...........Ch......................000 × 20% $ 31......... Patent depreciation.................... NCI share........... Controlling interest..............

.... .................................200............................................... 120.................. .............................................................. ...................................000 ... 50..... .............330. ................................................. (CV) 144...................000 .......... ..................200....................000 (D3) 80.......................000 (A3) 24................000) ............000 (CV) 144...... Common Stock—Detner ($5 par)............................................................... ....... ................... 6. ...... . ..000 ...... ...........................................000 (EL) 1.....................000) Retained Earnings—Hughes............... (D) 248.........504......................611...............365... ............... 31...............................000 .......... 1............................... (116....................... .......Ch....................................................................... ................000) ................................. 250.......... ..........000) (EL) 240........000 730............... Other Expenses............... Investment in Hughes Company. ........... (24........... 363.......... .............000 .........000 2......... ...000) Retained Earnings—Controlling Interest.000 2......... December 31..000) (425...................................................... (CY2) 24................... Equipment (net)............ (D4) 120......... 0 0 1....000) ........ ............. (658.. NCI 624.000) 0 ............. ............ 1.... .......000) Paid-In Capital in Excess of Par—Hughes........000) (1.350..............255.................................. .000 .......... Accounts Payable... 1.. ........ ........................ Patents.....000) .... 100.. .................. (401......................................... All rights reserved... Cost of Goods Sold.................000) (1.129...............................959............... ......000) (EL) 800........... (2.............................000 .. ............... (1.... ............. (1.......................... Consolidated Income Statement Current Assets......... ..........000 ...000 30...000 ......... ... .......... ............................ (D1) 8.... ................... 20X7..000 ........ ................000... 20X7 Trial Balance Detner Hughes Eliminations and Adjustments Dr.......... ..... 640............... 50...... (1............................................... ..... (1................................000 ............ ......000 .............. . Consolidated Net Income....000 (D2) 40.......000) ..... ................. ...... ..000 ................ 20X7.. .....611................. .... Paid-In Capital in Excess of Par—Detner....................................................................000 35.......000) .... ......................................................... © 2008 Thomson South-Western..000 ............. (905. .... (327................ ............ (200.................. (A3) 8................................................................000...... ........................................... ......................... ..... Dividends Declared. .............................................. ..... Other Assets................... ............. Concluded (2) Detner International and Subsidiary Hughes Company Worksheet for Consolidated Financial Statements For Year Ended December 31. ... Retained Earnings—Detner.... . ... ..000) 1.....................................000 .....000) ........ .................................. (1.................620......000.............................................. ......... (296...... ........ (1...........................................................000 .....000 ............. ..000) ...... ...... ........000 100..............................608...... (401........................ ..........................000 1................000 (31................. .. (300......................... .....000 (A2) 5........... . .......................000 ........000) (EL) 464.000 940............... ............................................. ............000 ........ ........... Cr........000 ........ 20X7........000) (2........000 ............... ..285......... ..959....................... ............................... ....... .................................... .. 122 Controlling Retained Earnings Consol.....000 .....................................000 ................. ...000 Total..................................................... ............. ........... Jan......... ............. ............ . 1......000 .................... ............... Goodwill.000 (863........ ....... 296. Balance Sheet .... Dividend Income.....000) To Controlling Interest (see distribution schedule).................... 3—Problems Problem 3-8............................ ....... ........... ..................000) (205..000 505............ .000) .................000 170............... To Noncontrolling Interest (see distribution schedule)...........000) .................................................. (60............... Jan..............000) Sales.................... ................................................ ........... (580........ Common Stock—Hughes...000 (A2) 15......... . Total NCI......................... ............000 191......................................... (CY2) 24.. .............. 1..................................................... ...............000 ... (A2–A3) 26........................... .................. .000) ............ 470..........320.......... .

000 96................000 Zone Analysis Priority accounts........... 212...................000 Retained earnings..000 434........000 (30............. Total nonpriority assets........................000 Paid-in capital in excess of par.....000 186....... 212.000 3 Acquired Company’s Balance Sheet before Purchase Priority assets: Accounts receivable............000 123 .. Nonpriority assets: Land.............................. Total assets........... Inventory.....000) full value 550........ Year of consolidation (1 = year of purchase).... Buildings.000 402......000 full value 66.000 620.000 Bonds payable..........................000 40............................000) 550........................... 100% $500......................000 Total equity............000 72......000 — 300........... All rights reserved.....000 90...000 5 550.000 1 1 150. Total priority assets............... 100............... Book Value Fair Value 32... Nonpriority accounts........... Equipment..............Ch........... 90... © 2008 Thomson South-Western........................000 Group Total Ownership Portion Cumulative Total $(116.................000 70......................000) 330..000 $(116..... Book Value Life Fair Value Current liabilities.............. $ 500...........000) 100..... Accumulated depreciation....................... Price paid (including direct acquisition costs)..000 20 100...................000 32........ $1 par.. 90........000) 550..........000 (50................000 38........000 Value of net assets......000 (116...... Goodwill...................................000 Price Analysis Price......... 3—Problems PROBLEM 3-9 (1) Equity Method Worksheet Common information: Ownership interest.............. 190..............000 Total liabilities.......................000 Life 1 5 Stockholders’ equity: Common stock..... Existing goodwill............000 250.......000) 434............. Accumulated depreciation..............000 60....000 $(116................. 112..... Assign to priority accounts............ 10................................ Assign to nonpriority accounts..

......................... Land.............000 30..... Accounts payable................................................. Inventory..... Goodwill................ All rights reserved....... Buildings....... Equipment..............000 4..................000 $ 10......000 1 credit D1 — 5 20 5 debit D2 debit D3 debit D4 debit D5 debit D6 $ 800 5...............................................................................000 66.... Interest acquired. Total adjustments....... Less book value interest acquired: Common stock............................................................ Allocated to: Accounts receivable.........000 $288.....000 124 .. $500........ Paid-in capital in excess of par................................000 $212.................... 212...............................................Ch...........000 112..............................000) — 90.. 3—Problems Problem 3-9... Retained earnings............ Bonds payable...................... Excess of cost over book value (debit).............000 90.....000 100........000 × 100% © 2008 Thomson South-Western........... Total equity.000 6..............................000 $288...... Continued Determination and Distribution of Excess Schedule Price paid for investment.............000 Amortization — $ (2.......

....... Buildings depreciation.............000 35. Buildings...... 1 $ (2.......000 $188.......800 Prior Years Total Key $ (2.. Equipment depreciation....... $35............. Total amortizations.......................... Continued (2) Amortization Schedules Year of Consolidation 3 Account Adjustments Life Annual Amount Inventory.Ch......000) D1 1.....200 125 .000 6.......600 10.600 2..........000 6.. $165.........000 18...... Subject to amortization: Bonds payable.000 Adjusted income..000 Current Year $ — 800 5....................000 12......... Equipment...000 $23........400 15.. Controlling interest............. 3—Problems Problem 3-9.................000) 5 20 5 800 5...................000 $11................... All rights reserved.. Controlling share of subsidiary (100% × Sailair adjusted income).000 Parent Pcraft Income Distribution Bonds amortization.... © 2008 Thomson South-Western.000 $35......000 Internally generated net income............ $35.000) $ (2................000 6.....400 A3 A4 A5 Subsidiary Sailair Income Distribution Internally generated net income............ $ 800 5................................

..................................................... .....000 .............................................. 3—Problems Problem 3-9.................... Paid-In Capital in Excess of Par—Pcraft................................... .... .. .....000 (72.................. ... (350............200..............000 ...........................000) 280............ (10.000 90................. Bonds Payable.000) © 2008 Thomson South-Western.... (35........ ........000 (A5) 6..................... .............................. ............................................. ................. ............... Inventory............................................... ..... Interest Expense............................................ ..................... ......000 ................ (100.......... .................. .....000) ......000 68... ....... ......................................... .........000 8... .000) .......... .....000 (180..................... ................000) (182............000 595....... ..................... (EL) 10. ........................................ Cost of Goods Sold......000 (EL) 90............. ........................... ........ (800...........................000 (220.......... ... .................. .............. (CY1) 35..000) 100............................... . ................................... ................. ............... 80............000 ........................000 ...... .......................... Equipment....000 50.........000 (80.... .000 (162....... 800............................................... ................. ....... ..000 8.................................. ................000 250.............................. . ...... Paid-In Capital in Excess of Par—Sailair........... Buildings.................. ............... 60.............................. ............... Retained Earnings—Sailair.... Retained Earnings—Pcraft..................... .000) (90...............000 (90. ..........000) 450.... ....... .... (A4) 15.........000) (100..................000 ......000 ....000 . ....... ............... ........... ..000 206.......... ....... ..........000) 66............................. (D3) 4.... All rights reserved........................000) ..............000 ....... (A4) 5.............000) 660............000 (EL) 182..................... Other Expenses..............000) .....................................................000 ................... ......... .... . Balance Sheet .......000) (900........ Continued Worksheet Year of Consolidation Trial Balance Pcraft Sailair Cash....................... (D5) 30.................................................................................... ... ............... ................ ................. .................................. ......... ................. (A5) 18............................................. ............ 3 Eliminations and Adjustments Dr..400 ....... .........................600 ........................... .......... . ...... ...................... .......... ............. (1................................................ ......... .........000 ......................... .......... ....000 30..................................... Common Stock—Sailair............. . ...................... ................. ..000 14.......... Depreciation Expense—Equipment............ ............. Investment in Sailair.............. Discount (premium)............................... ....... ............................................... ..... ....... ....000 (315.........000) ............... .... ............000 60....................... .......... .000 .................. Consolidated Net Income ........... ......600 . Sales........... .. (D1) 2.......................000) .............................................Ch.150............... (363............ Accumulated Depreciation.... ..................000 208..... ..........000 ..........000 (D) 288.000 .... ............................................... ...... ......................................................................... . ..... ........000) 210......... ..................................................................... ...............000) (385................. Land....... (EL) 282................ .... ........... .. .................. ................................. ......................... (A3) 800 (CY1) 35. Depreciation Expense—Buildings............................................... Common Stock—Pcraft........... ................................................. .......... ............. ......... ..000 140................. ........................ .......................... ...............................000 ...........000 86......... ....................... .........000 15... ....................... Accounts Receivable............................. (100..... .... (CY2) 10...........000 55. ... ........... (D6) 66........................................................... ..... ........... (D2) 90...................... Subsidiary Income............000 35..000 ..... .... (60.. (D4) 100........... .... 140.. ...400) ................. 1................................ Cr............................... ....................... (102................... .......000) (100........................000) ..... ................. ...... 300................ (A3–A5) 23.........000 ...........................000 ................ (A3) 2..........800 ......................... ...................... ...................000 120....... ........... .................. Goodwill......... Accumulated Depreciation............................... . .................... 1.000) . Current Liabilities...000) (900................000 ... ................... ..............000) 150.........000 100........000 145..... 126 NCI Controlling Retained Earnings Consol...... ..000 15.............. ........... .............. ... ...... ..........

.......................600) 0 ......... (531.. ......................... 0 0 652............................................ Controlling Share..................400 652..................................... Totals.... .000 ......... (531............................ .......200) ............... .................................................................................................... .............. 20................................................. (188.............................Ch.......... ......................................... Consolidated Net Income............... .......... Balance Sheet . 188...................000 ......................................... (A) Amortize excess...... .................. Cr...............................................200 .......................................................... ........ ..................................................................................................................................................................................... NCI............... ........ ........... Eliminations and Adjustments: (CY1) Eliminate current-year subsidiary income..600) ............... ................. ................. (D) Distribute excess.................................................000 .. Dividends Declared—Pcraft........................................400 ................... ................................................... 3—Problems Problem 3-9..... .................. Concluded Worksheet Year of Consolidation (Concluded) Trial Balance Pcraft Sailair 3 Eliminations and Adjustments Dr............ (CY2) 10. Controlling Retained Earnings............................. (CY2) Current-year dividend...... (EL) Eliminate controlling interest in Sub equity.. © 2008 Thomson South-Western.................................................... All rights reserved........... 10. ...... 127 Controlling Retained Earnings Consol....... 20........................................................................... NCI Share...................................000 ................200) . .................................. (188........... Consolidated Net Income NCI Dividends Declared—Sailair.................

....................000 40..000 402.Ch.............. $ 500.000 Group Total Ownership Portion Cumulative Total $(116....... All rights reserved.... 190...................000 full value 66........... Book Value Life Fair Value Current liabilities......................000 (30........ 90..........000 72.000) 550. Price paid (including direct acquisition costs)...... © 2008 Thomson South-Western........000 250............. Goodwill..... Extraordinary gain... 212...........................000 $(116....... Nonpriority assets: Land........ 90............................................000) 434........... Accumulated depreciation..... Nonpriority accounts....... Equipment....... 212........... Accumulated depreciation..... 10..........000 Price Analysis Price.......................000 3 Acquired Company’s Balance Sheet before Purchase Priority assets: Accounts receivable. Buildings. Total nonpriority assets........ Assign to nonpriority accounts.000 434......000 Life 1 5 Stockholders’ equity: Common stock.000 Bonds payable...................... Inventory......................... Year of consolidation (1 = year of purchase)..000 5 550..........000) 100....000 $(116..............000 (50.............. Total assets....................000 300... 100% $500.000 — 20 100.......................000 38............... 112........000) 330....................... Existing goodwill...................000 620...............000 90.000) 550...........................000 Zone Analysis Priority accounts........ Assign to priority accounts..........000 150.................................000 Value of net assets.......000 — 128 ..............................000 186....000 96..... 3—Problems PROBLEM 3-10 (1) Cost Method Worksheet Common information: Ownership interest.. $1 par..............000 32........... Book Value Fair Value 32..................000 Paid-in capital in excess of par...........................000 Total liabilities..000 (116..000 Retained earnings.........000 70.......000) full value 550..... Total priority assets..................................000 1 1 60......... 100............000 Total equity.........................................................

.. Paid-in capital in excess of par........................................... Inventory.............................................000 Amortization — $ (2..................................... Accounts payable........................ 212.. Interest acquired.....................000 $288.......000 112...Ch.................... Total adjustments....... Goodwill..000 30...... Less book value interest acquired: Common stock........... Buildings............... Land.................................000 × 100% © 2008 Thomson South-Western.......... Excess of cost over book value (debit)..........000 100.............................. Equipment..........000 $288................................................... 3—Problems Problem 3-10........... Bonds payable.............................. Total equity.... $500... Adjustments: Accounts receivable............................... All rights reserved.............000 $ 10.000 6.......... Retained earnings...000) 90................000 66.....................000 $212............000 — 4...............................................000 129 .... Continued Determination and Distribution of Excess Schedule Price paid for investment....000 90.......000 1 — credit D1 debit D2 5 20 5 debit D3 debit D4 debit D5 debit D10 $ 800 5.......

....000 6.......000 6. Equipment depreciation........000 Parent Pcraft Income Distribution Bonds amortization.......... 3—Problems Problem 3-10..000 6.........600 10... 1 $ (2......... All rights reserved...Ch....... Subject to amortization: Bonds payable......000 $11........000 18.. Controlling interest..000) 5 20 5 800 5........000 $188................. Total amortizations......000 Adjusted income.............400 15......000 $23.....................................000) $ (2.....400 A3 A4 A5 Subsidiary Sailair Income Distribution Internally generated net income..000) D1 1.....000 35................................... 130 ......000 12. © 2008 Thomson South-Western...... $ 800 5....000 Current Year $ — 800 5....... Controlling share of subsidiary (100% × Sailair adjusted income)........ Buildings.... Building depreciation..600 2....... $165................ $35...................................000 Internally generated net income......200 Problem 3-10 continues on page 132.......... Continued (2) Amortization Schedules Year of Consolidation 3 Account Adjustments Life Annual Amount Inventory..000 $35.. $35...800 Prior Years Total Key $ (2... Equipment........

................000 ...... Accounts Receivable.400) ................... .................... Retained Earnings—Pcraft...... .... ....000) .... . Buildings..................... ................. (100........000) © 2008 Thomson South-Western.................000 (180.................................000 30.. ...... .................... Paid-In Capital in Excess of Par—Pcraft............... Continued Worksheet Year of Consolidation Trial Balance Pcraft Sailair Cash... ......................... .... ....... ... ...............................400 ............................................................... (D4) 100........000) ............000 (220. 132 NCI Controlling Retained Earnings Consol.............. ... .000) 280..... .........000 145....................... ..... ............... .......... ..... .............000 (EL) 182....................................................... ........................ ...000 (D) 288... (102.................................. ....................... ...... (A5) 18....... ......... ................................000 206....................600 ............................ .... ............................................. ......... ...................... Investment in Sailair........... ....000 500........... . (D3) 4.... 1........... ............... (10...000) (182.. ......... ................................ (D5) 30.. .............................................. ..000) 450...... .. (A4) 5..................................... ......800 ....000) (90...........000 .............................................................................. .............................................................. ................................................................................... .....000) ... (A3–A5) 23..000 120..... (D6) 66. ....... Dividend Income... ....... ... Other Expenses... Paid-In Capital in Excess of Par—Sailair............000 ........000 (CV) 70....000) 660............. .......................................000 (EL) 90.. .. .. ......000 .............. ..... ..............................................000) 210..... Interest Expense...............000 .......................... .......... (800......000 86...............000 (D1) 2................. ........ ......... ............. Consolidated Net Income ......Ch........000 ................................ .. .......... ............................................ (1...000) ...........000 .................................................... ............................... 140.000 ................ Inventory.. ...... Discount (premium).................. Equipment................... .......... ... ... ....... ...... .. ...... ... ............. .................. Accumulated Depreciation...000 208.................. 3 Eliminations and Adjustments Dr............... ................................................ .................................................. 1.................000 .................... ..............000) ...............000 68. ... ............. Depreciation Expense—Equipment............................. ...................... ............. .................................... ................. ...000) ..............000 ...........000 ....... (363................ (60................... ................. ...... ....... (100. 60.......000 90........000) .....000) 66....... Common Stock—Sailair............................................... .000 .......... ...................... . (A3) 2................................................. ............000) (315................................... Common Stock—Pcraft.....000 (315..... .... 800.....000) (900... (EL) 282..............................................000 ......... ...... ...........000 60........ Sales. Current Liabilities.......................... ............................................ ...................................................000) 150..................................... ............................. (10..................... ................... Cr..........000 (A5) 6.................................................................. .......... 80...000 50............... .... Cost of Goods Sold..............000) (100...000 ....... Depreciation Expense—Buildings......................... ...000 35...................000 15...................... ................................ (EL) 10...................... ............600 .......................... Balance Sheet ............000 8........................ .................. ... (350......... ................................000 55............000) ......................... Land.... ..000 8.............200....000 140..........000 100....................... ... (D2) 90............. Bonds Payable........ ............. Accumulated Depreciation....... ............... ..000 250. 300...........000) (100..................... ... (A4) 15.......................... .......000 (80....150............................000 15...................... .......... ................000 (162..........................................000 .. .....................................000) (900....000) 100...................... ... Retained Earnings—Sailair.. ..................000 .....000 ..... ....... ...... Goodwill.................. ....................... All rights reserved... ...................................... ................................... ............ .............. .000 (72..... ............................................. .................. ............. .. .....000 14.. ..... .. .... ....... ................. (CV) 70........ 3—Problems Problem 3-10.... (A3) 800 (CY2) 10.............. .......000 (90......................... .............................................. ... ............. .......

..................... 133 Controlling Retained Earnings Consol................... 20..................... ............................................................................................................................................................. Concluded Worksheet Year of Consolidation (Concluded) Trial Balance Pcraft Sailair 3 Eliminations and Adjustments Dr............... NCI.... Controlling Retained Earnings..............................200) ... 0 0 687.......... ........................... All rights reserved.............. (188............. Controlling Share...... 10.................................... (531................................................... .... (D) Distribute excess.................................. © 2008 Thomson South-Western.. ................................. (CY2) Current-year dividend...600) 0 ....................................................000 .................................................... .400 687....... (531...................................................................................................400 . 100%  ($182............600) ....................... Consolidated Net Income NCI Dividends Declared—Sailair....000 – $112................ 3—Problems Problem 3-10......................................... Balance Sheet ....... (A) Amortize excess....000 ........................................................... (CY2) 10........................................................................200 ..............................Ch.......... ............. ....................... ............. ..............000)....................... ............... ... 20.. ........... Cr........ (EL) Eliminate controlling interest in Sub equity............................................................... NCI Share................... Eliminations and Adjustments: (CV) Convert to equity method........................................200) .. Totals... ..........................000 .... Dividends Declared—Pcraft........000 ............. ................................... .............. Consolidated Net Income............................ ............ 188....... (188....................... ....................... ...................

........000 Paid-in capital in excess of par................000 72................ Accumulated depreciation........ All rights reserved............ Inventory.......... © 2008 Thomson South-Western......................... 70% $400...........200 134 .................................200) 303........000 300...................................... Total priority assets................... Assign to nonpriority accounts...............................000 Total liabilities.... Book Value Life Fair Value Current liabilities...............................000 $ (81..... $1 par....000 1 Acquired Company’s Balance Sheet before Purchase Priority assets: Accounts receivable.. 212. Equipment.000) 100.000 full value 96.............200) 385..............................................000 Retained earnings......000 96...................... Total assets.... $400..000 90...............000 — 20 100...................... Nonpriority accounts...... 212.....000 40............200) full value 385............ Year of consolidation (1 = year of purchase)...000 $ (81......000 Group Total Ownership Portion Cumulative Total $(116............................Ch...........000 Life 1 5 Stockholders’ equity: Common stock.......... Accumulated depreciation... 90...........000 434..............000) 330..000 250......... 112... Assign to priority accounts....................000 (30....................000 186...........000) 550........ 100...000 Value of net assets.... 3—Problems PROBLEM 3-11 (1) Cost Method Worksheet Common information: Ownership interest....800 Price Analysis Price............ 90...............000 Zone Analysis Priority accounts.................000 32.................. Existing goodwill..........000 5 550......... Nonpriority assets: Land................. 10.....000 Total equity...... Buildings...000 620..000 Bonds payable........ Price paid (including direct acquisition costs)........000 150............000 38....... Book Value Fair Value 32..........000 402........... 190..000 (81.000 (50.. Total nonpriority assets........000 1 1 60........ Goodwill......000 70...........

..000 96......... Interest acquired............. Less book value interest acquired: Common stock... Paid-in capital in excess of par..000 $ 10......................400) 63...... 148..................................000 112......................Ch.........000 $212..000 21.....................600 Amortization $ — (1.................................................................000 — 2... Continued Determination and Distribution of Excess Schedule Price paid for investment.............500 4. Buildings........................... Accounts payable....................... Retained earnings............200 135 ........800 70......... Equipment.. Total adjustments..600 1 — credit D1 debit D2 5 20 5 debit D3 debit D4 debit D5 debit D6 $ 560 3...... Excess of cost over book value (debit).000 90................................................... Bonds payable......200 $251................. Land................. 3—Problems Problem 3-11......... Total equity................. $400... All rights reserved.....400 $251..................000 × 70% © 2008 Thomson South-Western........................................................................ Inventory................... Adjustments: Accounts receivable... Goodwill...........................................................

.............200 $ 8......................................000.........260 A3 A4 A5 Subsidiary Sailair Income Distribution Internally generated net income....000 1...................... 136 ...940 Problem 3-11 continues on page 138. Building depreciation.............Ch...................400) $(1.....000 × 30% $ 10..................... $ 560 3...... $ 34.........500 4.... Inventory adjustment.500 4....................... Buildings..400) D1 560 3..................800 $201..260 560 3...............500 4............... NCI.......................... 3—Problems Problem 3-11........................ 70% × Sailair adjusted income of $34.............000 Adjusted income. 1 $(1.. All rights reserved.... Equipment depreciation.200 Internally generated net income. $ 34..200 Current Year Prior Years Total Key $(1.......... Continued (2) Amortization Schedules Year of Consolidation 1 Account Adjustments Life Annual Amount Inventory............400) 5 20 5 560 3..... Controlling interest....... Subject to amortization: Bonds payable.............. Total amortizations.. $185.200 $ 8.................... © 2008 Thomson South-Western........... NCI share....500 4...........400 23............200 Parent Pcraft Income Distribution Bonds amortization.......... Equipment......

............................. ........... Accumulated Depreciation.................. ........... .......... ..............000 90............000) ... ........... .........................400 ..................000) (33....................... ................ (100......000 .... .......................... (7.... .....................000) (300....... . .......... ....................000) (100.......000 54.................. Balance Sheet ........................... Retained Earnings—Sailair...............................000) (100........ ..... Cost of Goods Sold..............000 100........ ....... ........ .500 33.....................Ch...............................000 ........................000 142........................... 31.......... .............................. (D2) 63........... Accumulated Depreciation. ........................ ...................... Depreciation Expense—Equipment................... ............................ ....... .......200 174.............................................000) (900.................000) ....... Interest Expense.............................................. (100...000 ..................... ....................800 ..............200 ....000 8........................ 2....500 ......000 30..............000 (EL) 63.. . 1... 1 Eliminations and Adjustments Dr........000) 180... .................................... 3........ ................................................... ..................................... Goodwill..... ........... .... Common Stock—Pcraft.. (D4) 70.... .................................. ........ ........... ............................ .................. .. ............. ...................................... (EL) 7...000 (EL) 78..............................................000) (112... (1........... 4. ..................... ................000 (60...000 (263............................... ... ............................ .......... .... All rights reserved.. ....... Bonds Payable... .................... . .... (D6) 96. ............ 208.......................................... ................... 148...................... Continued Worksheet Year of Consolidation Trial Balance Pcraft Sailair Cash............. (10......000 .000 (EL) (D) (A4) (A5) (A3) (D1) ...... ......... ....... ................ Investment in Sailair.......... .......... Current Liabilities..000 8...... .......................................... ........ ................. ...... .............................................. ...200 (138..... Retained Earnings—Pcraft............... ........................................... .............. (D5) 21.................................120................... ...............000 400....560 ................ Inventory.... ....000) ......................... 3—Problems Problem 3-11....... ... (3.......... .. .......................................... ..............200) 96. . .................... ........ Accounts Receivable......................... Consolidated Net Income ..............000) ...............400 ...... ....500) 271..............000 35............................. ...........000 115...000) 150. .............................000 (75..........000) .......... (A4) 3... 250...................000 ................. (88.........000) .000) © 2008 Thomson South-Western.... .............................000) 578. .............................................. ......... ............................ ...........000) .................................. 1.............. .......... Cr...000 52.....................................600) ........................... ....000 14......................... .. .................... .................................. ...................... Equipment.000) .....................000 120...000 (123. Land.........................000 80...................................000) (27................................. (D3) 2.................... .............. ............... ...........000) ......... Buildings..............................................000 223..000 (44.................... ..............200 ........... ............................ (750.......... Depreciation Expense—Buildings.. ...........................600 .... 560 .....................600 43......................... . ................. ....050................000) (90....................................... . (A3) 560 (CY2) 7................... ........................000) (900.......... ....................000 .................... ......400 251............000 ....000) 100.......... ........... ..................................240 ................................ ......... 800...................000 ........... ............. ................................ Other Expenses.. Sales.......... 177........ .... .......... . ..........................................000) 400.. ............... ........ .............. .....500 (A5) 4........ Paid-In Capital in Excess of Par—Pcraft...........000 (200..............200 . .................... .. ................ (300.......... ...................................... ................................ (300..................................... ..... .. . ..000 60.......................000 15..... Discount (premium)............ Paid-In Capital in Excess of Par—Sailair... 138 NCI Controlling Retained Earnings Consol.... .................................................... (50. .........000 10................. ........ ............ Dividend Income................ Common Stock—Sailair... .. ............................. ........ ................ ........ ..

........................................................................................................................... (70... (CY2) 7.................940) ...940) 0 ........ .......................... .............. NCI.......800) (481........ Eliminations and Adjustments: (CY2) Current-year dividend......................... ................ Consolidated Net Income NCI Dividends Declared—Sailair..................................................940) ................... Cr......000 ......660 ............................. Balance Sheet ......200) Controlling Share.. 3—Problems Problem 3-11....................................... .............................................................. Totals.................................. NCI Share........................................................... (70..................................................Ch........................ All rights reserved... 0 0 416............................... (A) Amortize excess... 20. .................... (212.................800) Controlling Retained Earnings.......................... ........................................... Consolidated Net Income.................................................. ................660 416....................................000 Dividends Declared—Pcraft........................ 10.. ......................... ....................... 3........................200 (10............... ...... (481............................. 10..... © 2008 Thomson South-Western....140) ............................................. ...................940 ................................................................. 201..................... (EL) Eliminate controlling interest in Sub equity....... (201...... (D) Distribute excess...................000 ..... 139 Controlling Retained Earnings Consol..............000 ....... ............. 20......................................................000 ............. .......................... Concluded Worksheet Year of Consolidation (Concluded) Trial Balance Pcraft Sailair 1 Eliminations and Adjustments Dr..................

....................000 full value 96.000 3 Acquired Company’s Balance Sheet before Purchase Priority assets: Accounts receivable.......... Year of consolidation (1 = year of purchase)......... 212.......000 Retained earnings.....000 $ (81.. 3—Problems PROBLEM 3-12 (1) Cost Method Worksheet Common information: Ownership interest................................... Assign to priority accounts.000) 330.200) full value 385....................000) 550.....000 150.... Existing goodwill................................................... Inventory..... All rights reserved.... $400..... Buildings... 90.....................000 38.000 Zone Analysis Priority accounts.. $1 par................................000 Life 1 5 Stockholders’ equity: Common stock........000 Value of net assets..... Nonpriority accounts................000 70.....000 (81............. 70% $400.......................................................................000 Total liabilities............... 100.. 212...000 250.... Book Value Life Fair Value Current liabilities...... 90................................Ch...... 190.......................800 Price Analysis Price. Goodwill.........................................000 32.......200) 385......000 72.....000 402.......000 300..........................000 (50. 112.. Accumulated depreciation.. Accumulated depreciation.... Book Value Fair Value 32.....000 5 550........ © 2008 Thomson South-Western... Total assets.000 90.......... Nonpriority assets: Land..... Price paid (including direct acquisition costs)............ Total nonpriority assets..........................000 1 1 60.... Assign to nonpriority accounts...000 620......000 Group Total Ownership Portion Cumulative Total $(116...............000 Bonds payable......000 434....................000 96....... Equipment.......200) 303.....000) 100..............................000 Paid-in capital in excess of par.......... Total priority assets.......000 40.............000 186...............000 $ (81... 10..........000 Total equity................000 — 20 100..................200 140 .000 (30......

.....000 $ 10........... Less book value interest acquired: Common stock............................ Land.............200 141 ............000 — 2. Continued Determination and Distribution of Excess Schedule Price paid for investment.................. 3—Problems Problem 3-12.................................000 90..........000 112.....200 $251..............................600 Amortization $ — (1................... Excess of cost over book value (debit).......... Paid-in capital in excess of par. Bonds payable.. All rights reserved................000 $212.800 70...........000 × 70% © 2008 Thomson South-Western........... Total adjustments..... Adjustments: Accounts receivable...... Total equity.................................400 $251.....Ch.... Accounts payable....... Equipment................................................................ $400....................... Interest acquired.500 4.........600 1 — credit D1 debit D2 5 20 5 debit D3 debit D4 debit D5 debit D10 $ 560 3.......................... Retained earnings...................000 96...........400) 63. Goodwill................... Buildings........................................................ 148......... Inventory.....................................000 21.........................................

..... Equipment depreciation............ © 2008 Thomson South-Western.........240 Problem 3-12 continues on page 144.400) $ (1...... Life Annual Amount Current Year Prior Years Total Key 1 $(1..........000 Adjusted income.... $ 560 3........... Buildings.............. Subject to amortization: Bonds payable...... 142 ..........000 × 30% $10........................... 3—Problems Problem 3-12.... $35...500 12...500 Parent Pcraft Income Distribution Bonds amortization...............................500 4..................................000............. $165........................ Buildings depreciation....500 4....400 $16.. Total amortizations....... All rights reserved............200 560 3.......Ch......200 Internally generated net income.260 1.........780 A3 A4 A5 Subsidiary Sailair Income Distribution Internally generated net income.........................400) $ — $ (1...000 8...500 $181......... NCI.....600 $24..........200 $ 8............ $35...... Equipment....520 1....000 24. NCI share.......................400) D1 5 20 5 560 3...... 70% × Sailair adjusted income of $35....680 10......... Controlling interest.. Continued (2) Amortization Schedules Year of Consolidation 3 Account Adjustments To Be Amortized Inventory...120 7...............500 4....

........................................ . .......................... .............................................000) .......... Paid-In Capital in Excess of Par—Sailair................................................. ....... ............ (A4) 10........ ............ Accounts Receivable.... (CV) 49........000 (90.. (60....000) (182.............. (A3–A5) 16....... ...... 60. Current Liabilities........ .......000 206...... .............. .............. .....................000 68.... ..................................... ............................. Retained Earnings—Sailair... .. ...........000 400.. ..... Land.... . Buildings. (100...........................500) 271.......... ..600) ...................... .....000 .000 . .......000) (315................000) ...................... .......... . .......... ............ ............... .. ........... ......... ............................................000) (100......................... Sales......................................000 .. ....................... ..... .... ........................... ... 3 Eliminations and Adjustments Dr.. .... . .................. .........000 8...........000) (27..........000 15......... ....................................... ....... Cost of Goods Sold.................. .................... .... ................................... ........400 .........000) .......... 144 NCI Controlling Retained Earnings Consol.000 120............................................... (D5) 21.................... ....000) © 2008 Thomson South-Western..000) (100. 237......000 48..............000) ...... ................................000 140....................... .................. ..................120 ...............................000 8..... (D3) 2........000 (EL) 127........... ....500 (A5) 4......170.. ..................... ......................................... ............ ... .........150. ......................... .........600 . .................. .. (EL) 7... Consolidated Net Income ................ ... Paid-In Capital in Excess of Par—Pcraft.............000) (900..........................................400 .................................. .. ............. ...................000 14................ ............................. 3—Problems Problem 3-12..... .........520 ....................................................................................................... ............................. (100................. .. ..680 ............................000 ............................................................. (D4) 70........... Cr......... ...........................400 (D) 251....................000 (EL) 63..... (A3) 1......................................... ............... ..................................... ........ ..............000 .000 (D1) 1........ Goodwill.............................200 208.............................. (350..000 86... 1.....000) ......... ............000 (310. ......560 .....000) ................................. ..000 90.... .. .....200 (162.......... Accumulated Depreciation.................... ........... .................. ........... .......................000) 210...... ......... ......... Common Stock—Sailair..... (10.............. ...................... ........ (800..... ............................... ..........000 .......... .........................000 55...... .......... ....000 (174.............................. ................... ........000 ................. (348.. ............... .... Equipment............ ................... ......000 (72........ ................... . .000 ...................000) ................................ .......000) ................... ... (D2) 63.. (A5) 12.................200 .... ..........000 30........ .......500 33.000 (CV) 49................ ... 300.................... .. ................... ........................................................000) (90................................000 (80................... (1.................. ............ 800..........................600) 96. (D6) 96....................500 .....................200 .......... ...........................................000) 150................. (102... .......................000 145...................................... 1..... All rights reserved..000) 660................000) 450.........................000) (54............... (7....................... Accumulated Depreciation................................000 60............................... Investment in Sailair....880) ...... Discount (premium).................. . Common Stock—Pcraft........................ ..................................000 .......... Inventory....................... 177........................ (EL) 197......... (3...... (A3) 560 (CY2) 7............ .................. .. .......000 223.................Ch........ ..800 ........ Retained Earnings—Pcraft........... .............................. .......... .... ...... . ............ ........... Other Expenses...................... ........... Dividend Income.................................. Continued Worksheet Year of Consolidation Trial Balance Pcraft Sailair Cash...................................................... ............. ... ..... ....... .............................600 ........ . Balance Sheet .............................000 100.. Interest Expense................... Depreciation Expense—Buildings..................................000) (900..................000 15.. (A4) 3............. ..000) 100....... ........................... ............000 (220............................... Depreciation Expense—Equipment................................................ Bonds Payable....................

...180 531.................. ............000 ................................ (EL) Eliminate controlling interest in Sub equity..... (191.......120) 0 .........................240 .....120) .740) ........................... 145 Controlling Retained Earnings Consol...................Ch....... 0 0 531............. (510................ (D) Distribute excess..... Balance Sheet .....................................................................000 Dividends Declared—Pcraft........................................ All rights reserved................................ 20....... (CY2) Current-year dividend............ ............................................. ............ .........500 (10...... Eliminations and Adjustments: (CV) Convert to equity method....................... Consolidated Net Income NCI Dividends Declared—Sailair.................... (CY2) 7...............100) Controlling Retained Earnings.................................................... Totals...........................................................................000 .... NCI Share... .... ...................................... ...............................................000 – $112.................................... (A) Amortize excess........................ 20..................... (181..................... 3—Problems Problem 3-12... Concluded Worksheet Year of Consolidation (Concluded) Trial Balance Pcraft Sailair 3 Eliminations and Adjustments Dr........................... ............240) ....................................... NCI............... (92........................................................180 ............100) (510........ Cr............ .......... 181.......................000 .................................... ............................ (92........ ................ 3............000)...............000 ..................................................... Consolidated Net Income............... .................... © 2008 Thomson South-Western........... 10..............................................500) Controlling Share......................... 10............... 70%  ($182...................................... ..........

...........000 3 Acquired Company’s Balance Sheet before Purchase Priority assets: Accounts receivable.. Year of consolidation (1 = year of purchase).....000) 550............. 212.....Ch......................000 Total liabilities. All rights reserved.... © 2008 Thomson South-Western.000 32.....000 Paid-in capital in excess of par.............. Price paid (including direct acquisition costs)............... Goodwill. Total nonpriority assets.....000) full value 550........... 100...........000 Total equity..000) 100..... 212......................000 250............ Nonpriority accounts...000 Group Total Ownership Portion Cumulative Total $(116....000 434.......................000 150..................000 90..............................000 300........... Accumulated depreciation...................000) 550............000 402.............000 Life 1 5 Stockholders’ equity: Common stock.......... 3—Problems PROBLEM 3-13 (1) Sophisticated Equity Method Worksheet Common information: Ownership interest.000 Price Analysis Price........................ Equipment...... Nonpriority assets: Land......................000 full value 66...000 620.. 90........000 (30.............000 146 ..000 (50................ 112....... $1 par..000 96..................................... 100% $500............000 5 550....000 38.................................... Assign to priority accounts.000 — 20 100..........000 (116...000 Retained earnings.... 190............ Inventory.. Book Value Fair Value 32........000 1 1 60..............000 40............................................000 $(116...000 Value of net assets.........000 Bonds payable.............. 90..................000 70........000 72......... Assign to nonpriority accounts................. Total priority assets.......000 $(116............. Existing goodwill.....000 Zone Analysis Priority accounts.. $ 500.......................000) 434...... Buildings........ 10...000 186........000) 330........... Book Value Life Fair Value Current liabilities................................... Accumulated depreciation................. Total assets........

................000 $288. All rights reserved............... Bonds payable........................................ Paid-in capital in excess of par...Ch........ 3—Problems Problem 3-13..............000 147 ..................................000 Amortization $ — (2............... Buildings.....000 66.000 112..................................000 6........................................ Total adjustments....................... Equipment...... Accounts payable............................................ Adjustments: Accounts receivable..... Excess of cost over book value (debit)................................. Interest acquired..............000 30....... Continued Determination and Distribution of Excess Schedule Price paid for investment.................000 $288.... $500............ Less book value interest acquired: Common stock.000 — 4......... Inventory..........000 100............000 $ 10........ 212.............000 1 — credit D1 debit D2 5 20 5 debit D3 debit D4 debit D5 debit D6 $ 800 5.......................000 $212............. Retained earnings...............................000 × 100% © 2008 Thomson South-Western..............................................000) 90.............. Total equity... Land..........000 90.................... Goodwill.........

....... Controlling share of subsidiary (100% × Sailair adjusted income).................. $ 800 5...........000 Adjusted income.. $165. Equipment............000 $188... Buildings depreciation.600 2..200 Problem 3-13 continues on page 150...........000) $ (2.....000 $23...600 10. Buildings................... 1 $(2................000 12...000) D1 1........000 Parent Pcraft Income Distribution Bonds amortization.............000 6...... $35.......000 6.....400 A3 A4 A5 Subsidiary Sailair Income Distribution Internally generated net income....000) 5 20 5 800 5.................... © 2008 Thomson South-Western......000 Current Year $ — 800 5............000 $11..000 $35......................... Total amortizations........ 3—Problems Problem 3-13... Subject to amortization: Bonds payable........ 148 ......800 Prior Years Total Key $ (2... Controlling interest........ Equipment depreciation................000 Internally generated net income........000 18..Ch.... Continued (2) Amortization Schedules Year of Consolidation 3 Account Adjustments Life Annual Amount Inventory.............. All rights reserved....400 15........000 6............. $35.......000 35........

.400) .....000) (100...................... .................000) ....... . Equipment.... .... Accounts Receivable......... ..... ..........000 140.. Interest Expense........... Buildings.............000 250.......... .... ......................................... ... ..........000 (A5) 6. ........ ....000 35...... ............... ............... 150 NCI Controlling Retained Earnings Consol.......... ... (D4) 10........................................ 66. ........................................................ ..................... 140................. .000) ......000 55.............. ......................... ........... ..000 208....... Other Expenses.. ..... Sales.. ........................... .000) ......000 ........ (D2) 90.......... ........... (D3) 1................................................... ....................................... (EL) 282............................ (CY1) 23.................................... Investment in Sailair............ (10........ ... (EL) 10.. ..........000) (182.................................... ....000) ...................... .................600 ............ ........... .. ............ .....000 206.......................000 15.. . ........................... ........ (100.. (A4) 5...000 .............. ...... ..Ch..000 ............................... Accumulated Depreciation...........................................................................................................................................400) .................... ....................200 ....... . ... Continued Worksheet Year of Consolidation Trial Balance Pcraft Sailair Cash...... ......... 100...............000 561........................ (23. ............. ........ ......... 280...000 30.................. Depreciation Expense—Equipment....................000 .... . ........ .......000 90.000 . .... ..... ..... .............. ....................... .000 (A5) 6......... Discount (premium)..........000) ... (D5) 30....... ......... ....................................... ......................... Paid-In Capital in Excess of Par—Pcraft.. ................................... ........................................000 (162......000 14......... (350..................... 3 Eliminations and Adjustments Dr. 3—Problems Problem 3-13...............000 (72............. 800....................................................................................... .. .......................000 15... 1................... .... ............000) ...... ..............................000) (900.. Retained Earnings—Sailair........................000 ...... ......................................... ................................................... ..... . Common Stock—Pcraft............ 60.......... ........ ................... ..000 (180................... ........ ........... .................................................400 ............... .................. ................................ ............. .... Inventory.... .....000 ... ............. ..000 (EL) 90................ ...................000) ........ (CY2) 10............ .................. ....000 50...... Cr.. ............200 ............................000 (315..........................800 .... ....... ....000 (D) 266.............. 300. 150...................... ................ ................. All rights reserved.......................................................................................... ..................... ....000 (80............................... .000) (363..... ........000 .............................................................. (100................................................................. ....... .. ... . ........................ ............. (D4) 100......................................................................................... Common Stock—Sailair............600 ...................................................... ...200....... ... (800........ ............000 (220............................................................................000 .................... ..000 86........................ 1.............. .000) (100..000 60...000 ......................... (A3) 800 (CY1) 23..........000) (900.......... ................................ ..... ........ ..................... (D5) 12....... ......................000) 210.............. ........ (1...................... Goodwill......... Land...... . ........... .... ...................................... . (102...... ............................ ..000 ...........................000) (90......................000) . .......................................... Accumulated Depreciation.. 80.........000 (A4) 5.... .... ....000) 660........000 ...............000 120..000) .............. .........000 (EL) 182... ....... ................ Current Liabilities........................................................................................... Bonds Payable.... .......... ...... ..................000 8.............................................. Subsidiary Income....... ........................ ............ ..000) .....................................000 145.................... ....000 100..........................000 ....000 8..........000 (90...................................................000) 450.. ...................... ............ ....... . (D3) 4....000) ................ Balance Sheet ............. Depreciation Expense—Buildings... Retained Earnings—Pcraft......... ............ ..................... ....200) © 2008 Thomson South-Western............................ ..... .... ...........600 (A3) 800 ............................... (D6) 66... ....... .... .............................. Consolidated Net Income ........................................ Paid-In Capital in Excess of Par—Sailair. Cost of Goods Sold................ .................................. ....000 ........... .................................................000 68.......150.......................... (363............. ................. (60.........

.................. 10............... (531..800................................... ................................... (D) Distribute excess.............................................................................. ......... Dividends Declared—Pcraft............................................ 20......... ....................................... .............................................................................................200 . .............................................600) ..... © 2008 Thomson South-Western...000 617....................... (188................................... (531......... ............. 20.600) 0 ......................... Cr......... 0 0 617................000 .................................200) ......... Controlling Share... Balance Sheet ......... ................................................................................... (CY2) Current-year dividend.......... net of prior two years’ amortizations of excess............................................. Consolidated Net Income..................................................................... ......................... All rights reserved.... (CY2) 10.......... (188..... .................................... Totals.........................000 .... NCI......... Controlling Retained Earnings...................................................................................................................000 ......................... 151 Controlling Retained Earnings Consol.................................. .... ................ Consolidated Net Income NCI Dividends Declared—Sailair........ ................Ch............ ........... ................ Eliminations and Adjustments: (CY1) Eliminate current-year subsidiary income net of amortizations of excess of $11..... 188.......................... Concluded Worksheet Year of Consolidation (Concluded) Trial Balance Pcraft Sailair 3 Eliminations and Adjustments Dr................. ..... (A) Amortize excess for current year only...........000 ........200) ..........................................000 ... 3—Problems Problem 3-13........................ ........ .................. (EL) Eliminate controlling interest in Sub equity................................................................ NCI Share.................................

................000 560.......................... $ 800..........000 152 .............. 40.................Ch........ Total assets...........000 235....000 Price Analysis Price..............000 100...............000 760.......................................... 50... Retained earnings..000 (30.000 30..... Assign to nonpriority accounts........000 40.. Production backlog...000) 150.000 630...................000 105..............................000 50...000 710......................................000 865............... All rights reserved.................. 3—Problems PROBLEM 3-14 (1) Equity Method Worksheet Common information: Ownership interest.. Patent (net)........... Buildings..... © 2008 Thomson South-Western........... 60.....000 $(130..000 1 Acquired Company’s Balance Sheet before Purchase Book Value Fair Value Priority assets: Accounts receivable............................000 180......000 480.......... 30.....000 50..000 Value of net assets..............................000 500......................000 Mortgage payable............. Nonpriority accounts........000) 760...................000) 760......000 Total liabilities......... Year of consolidation (1 = year of purchase)...000 Nonpriority assets: Land...000 205............ Equipment. 100.................. Accumulated depreciation.000) 630.................... $1 par.................000 400...000 Life 1 5 — 20 5 5 2 Stockholders’ equity: Common stock.. 230.......... Total equity..... 480........000 65....................000) full value 760..........................................000 Total priority assets...........000 $(130..000 Zone Analysis Priority accounts... Assign to priority accounts.......000 10................000 100.000) 40............. Paid-in capital in excess of par.............000 (50....... Book Value Life 1 1 Fair Value Current liabilities...000 (130...... 100% $800............... 100... Accumulated depreciation.................................000 full value 170....000 200......... Price paid (including direct acquisition costs)..000 Inventory........... Existing goodwill.....000 Group Total Ownership Portion Cumulative Total $(130....... Goodwill................ 200.... Total nonpriority assets......

......Ch.......................000 5...................... Production backlog.......000 $320. Buildings.....000) 2.. Continued Determination and Distribution of Excess Schedule Price paid for investment...................000 $480................. All rights reserved.....................................................000 (20....000 1 — debit D1 debit D2 5 20 5 5 2 credit D3 debit D4 credit D5 debit D6 debit D7 debit D8 $(1............... Mortgage payable.............. Adjustments: Accounts receivable..000 120.000 Amortization $ — 5... 3—Problems Problem 3-14......000 50............. Interest acquired.......... Retained earnings........................ Land.000) 7......... Goodwill.....................................000 180............... Total equity.......000 200...................... Equipment.............................000) 150........... Total adjustments........................................................................000 $320............ Paid-in capital in excess of par........................000 — (5..... Patent (net). Less book value interest acquired: Common stock...... Excess of cost over book value (debit).......................... $800................................................000) 10......000 × 100% © 2008 Thomson South-Western. Accounts payable..............000 10......................000 $100...........................000 153 ....................500 (4.......... Inventory.... 480...............

... 154 .000 47............ Controlling interest..........................000 4............. Buildings..........000 D1 (1.000 $ 9...000 5 20 5 5 2 (1.............. 1 $ 5.... Production backlog............000 Current Year Prior Years Total Key $ 5......500 (4........... © 2008 Thomson South-Western.500 Parent Fast Cool Income Distribution Inventory adjustment.500 Adjusted income.......... Total amortizations.. Mortgage amortization...500 (4.500 (4....................... $47..................000) 2.000 Problem 3-14 continues on page 156........ Equipment..000 Internally generated net income.....500 (1.....000) 7...000 5... Equipment depreciation...................500 2............................000 5...... Controlling share of subsidiary (100% × HD Air adjusted income)................. All rights reserved......... Production backlog adjustment.................. $253..000 $ 5....000 5.. 3—Problems Problem 3-14..000 5..........000) 2.....000) 2..........500 A3 A4 A5 A6 A7 Subsidiary HD Air Income Distribution Internally generated net income................000) 7...... $5.Ch.. $47........ Patent (net).........000 $286.......... Buildings depreciation...... Subject to amortization: Mortgage payable.....000 $ 9.....500 1. Continued (2) Amortization Schedules Year of Consolidation 1 Account Adjustments Life Annual Amount Inventory.........000) 7.000 7...... Patent amortization.....

...................... ......... ..... ........ ..................000) Paid-In Capital in Excess of Par—Fast Cool...... ............................000 170.....................200........... ...............................000) 595...........000 Accumulated Depreciation....100...000 (EL) 200.............. ... . .000 .......... Buildings...............................................000 ........................................ (A3) 1... .... 184.................................. ....................000) (200......................... ...........................000 (40............... ............... (1....................... ....... ....000 156 NCI Controlling Retained Earnings Consol.......... 37.000 (D) 320..000 ... ................000) (1....................................000 60.... Common Stock—HD Air.......... .... ............................. ....... (400. (CY1) 47......................................... ......... .000) (180.....................000 .................... .......000 Accumulated Depreciation......... ............... Common Stock—Fast Cool..................................000 .. .... ... ......... Balance Sheet . .............. ..................... .....................000) (200...................... ...............000) .............. 1........ ..........................000) (200. 140.... .. .......... .. ............................ ............... ................. ...000 ............ ..000 50..........................................500 . (D2) 50..................... ...................... (A6) 2.................... Paid-In Capital in Excess of Par—HD Air.... ................ ......000 ..................... .. 3—Problems Problem 3-14.............. ............................................. .000) ...... .................. ....................000 85..... .. Sales....... .........................000) ..000) Cost of Goods Sold..................................................... .................. .. Cr......... Accounts Receivable........ ... .................... . . Land.... ............................ ......................................500 ........ 7....... All rights reserved....000 170...... ..................000) ......000 60................. ......................000) 32....000) 270........ (100.......000) ................ (400.............. 50........ .000 . 147.. (D8) 120.......................... ...............................................500 (D5) 20.000 (A7) 5.. .............. (4........................... Production Backlog............000 70... .....000) ....................... .....000 ..000 ................. ........................500. ................000 .................... .........000 ....................... .....................000 . Goodwill.......... ..................................... ... ............. .... .. (D4) 150............000) Patent (net).................000 (54.............. .... ......................000 ......................... ................. .......................... .............................000 ........ Investment in HD Air............. Current Liabilities.................................... .... ...000 Depreciation Expense—Buildings........................ 50....................... ......... (D1) 5. .. .......... (D3) 5.................................. (A6) 2... (A7) 5...................................................... ......... . .. ... ............. ............................................ ........ (68....................................... © 2008 Thomson South-Western.....................000 Depreciation Expense—Equipment.......................... (1.......000 ......................000) Equipment..............000 ............... ...... ............. .........000 35................... (100.......... .......... (CY2 10.........................000 . .......................... 380............. .............................. ..................... ............................................... ....................... .... Continued Worksheet Year of Consolidation Trial Balance Fast Cool HD Air Cash..........000 17........................... ....000 27......................... 142........................... . ...... 400.............. .................000 Other Expenses..... ....................................... . . ........ (400..................... ....000 210.. ......................... ................ .. .................... ........ .......... ...............................................500 ... .....000 (118................................000) Retained Earnings—Fast Cool.....................000 (251........ ...................... Inventory................ 1 Eliminations and Adjustments Dr..................000 (EL) 100.............750......Ch.... (A5) 4....... ...............000 100....000 .................. .............. (EL) 480.......... ............... (100...... ............000 837.....000 (67.......................000 (120...000 (A4) 7................... .........500 24........... .................................................... 10............................. .............000) ...................... . ... ... (80... Consolidated Net Income ... .. ............ ...... .................................. Discount (premium)............000 (D6) 10..................000) Mortgage Payable................. (A5) 4...000 (EL) 180..... ................................ .............. .................................................................. .......................... (A4) 7...................................... ........000 ............................... ....................................................... .....000 ........................................ ..... (D7) 10......000) .. Retained Earnings—HD Air................. . ...... ..............000) 210......... 5..............500............ .................... (700.................000 160.......................... 40...... ........................000 150.... ........................................ 1............... ............................... ........ ...... ..... .....................500) 150... . .......... .................... (176... ...... ..........

.. .................................................... © 2008 Thomson South-Western................................................................. 16............................ ........... (47................................................................... .............................. .... ............................................. 10................................................................ 157 Controlling Retained Earnings Consol....... All rights reserved................. Consolidated Net Income Interest Expense.......000 .............................................. (286................... (D11) ................................................... ..... (EL) Eliminate controlling interest in Sub equity............. . ........................ Balance Sheet ............000 ..........................................................000) ..................................... Dividends Declared—HD Air.. (CY1) 47.....000 .................................. Controlling Retained Earnings......... Eliminations and Adjustments: (CY1) Current-year subsidiary income................................................... .... ..... ....... Controlling Share............................................ (CY2) Current-year dividend................. (D) Distribute excess.............. ..............000 ........ ............................................................ .............. ........................000 902............ (666.................................. Cr............................... ............ 3—Problems Problem 3-14................ . (A) Amortize excess.............................. Totals........................ NCI .............. NCI............... ...................................000 ..................................... ........................................................................................ 20..............000) .. 286....000 15.................. .....................000) 0 ...................................................... ..... . (666................... .............. .............................. 0 0 902....................................... .. ................................... .................... Concluded Worksheet Year of Consolidation (Concluded) Trial Balance Fast Cool HD Air 1 Eliminations and Adjustments Dr..000) .. NCI Share..... .....................000 .................................................................Ch..500) ..... ............... .. 20.............500 .......... (CY2) 10..................000 ................ (286.... Subsidiary Income........... Dividends Declared—Fast Cool................................. (A3) 1.................000 ............................... Consolidated Net Income.....

Patent (net).... 230.........................000 400. Goodwill.. Existing goodwill........ All rights reserved..........000 Zone Analysis Priority accounts..................................000 200... Total nonpriority assets...........000 $(130......................... 40..... 480........000 2 Acquired Company’s Balance Sheet before Purchase Book Value Fair Value Priority assets: Accounts receivable..........000) 630..000) 760....000 105..............................000 Total priority assets......................................000 235.......... Paid-in capital in excess of par.........000 (130.. $ 800........ 100% $800.. Buildings....000 50.......000 Total liabilities................000 158 .........000 10..000 630...000 Nonpriority assets: Land..000 560..............................000 180. Accumulated depreciation......... 60...000) 40......000 100........000 710... Production backlog..000 40..... 50.....000) full value 760.............................000 30............ 100......... Nonpriority accounts........000 Value of net assets.. $1 par...................................000 65............000 Life 1 5 — 20 5 5 2 Stockholders’ equity: Common stock. Year of consolidation (1 = year of purchase)........... © 2008 Thomson South-Western..... Assign to priority accounts............................000 100.........000 760...........000 Mortgage payable.................. Assign to nonpriority accounts.......... 200....................000) 150..000 Price Analysis Price........ Retained earnings......... 30.................................000 (50........000 Inventory...............000 500..................... Book Value Life 1 1 Fair Value Current liabilities.............. 100........ Total assets..000 full value 170.... 3—Problems PROBLEM 3-15 (1) Equity Method Worksheet Common information: Ownership interest.............. Total equity................... Accumulated depreciation..............000 Group Total Ownership Portion Cumulative Total $(130........ Equipment.........000 50..........000 865............................000 $(130.000 480........000) 760...................000 205...Ch......................000 (30....... Price paid (including direct acquisition costs).........

....... Paid-in capital in excess of par...................000 200............ Land............... 3—Problems Problem 3-15....... Total adjustments.......000) 7...............000 × 100% © 2008 Thomson South-Western.................000 — (5............................ Inventory.. Adjustments: Accounts receivable.................... Retained earnings. Patent (net)........ 480....000 120..000 180....000 10............ All rights reserved..........Ch...............000 5...................... Equipment.................000) 2.........000) 150................................ Production backlog.......... Continued Determination and Distribution of Excess Schedule Price paid for investment.................000 1 — debit D1 debit D2 5 20 5 5 2 credit D3 debit D4 credit D5 debit D6 debit D7 debit D8 $(1.............................. Buildings.....000 159 ....................................................000) 10... Goodwill......................... $800....................... Accounts payable......000 $320..500 (4..............000 $320....... Interest acquired.......................... Excess of cost over book value (debit)......000 50........................................000 Amortization $ — 5......... Less book value interest acquired: Common stock.............................000 (20............... Total equity...............000 $480.................. Mortgage payable....................000 $100..................................

........500 (2..... Equipment depreciation. Buildings..000) 2................ $67.000 $ 19..... Patent (net).........000) 7.... Controlling share of subsidiary (100% × HD Air adjusted income)....000) 7......500 2.....000 A3 A4 A5 A6 A7 Subsidiary HD Air Income Distribution Internally generated net income..........................000 5. Patent amortization...........000 $ 5...... Production backlog..500 Adjusted income.............000 10..000 5...... 1 $ 5.... © 2008 Thomson South-Western........000) 15.....000 Internally generated net income...000) 4.000 $ 9..000 5..... Controlling interest..... Subject to amortization: Mortgage payable........... $253....... Mortgage amortization.....000 $311... $7.000 (8..........................................000 67.....000 Current Year $(1........ All rights reserved..................000 $ 9.. 3—Problems Problem 3-15.....000) 2..........Ch... Equipment.....000 Problem 3-15 continues on page 162......000) 7...........500 (4......500 Prior Years Total Key $ 5. Production backlog adjustment......500 (4............ 160 ...000) 2.........000 5.500 (4.. Continued (2) Amortization Schedules Year of Consolidation 2 Account Adjustments Life Annual Amount Inventory..................... $67..500 1.000 4....... Total amortizations......500 Parent Fast Cool Income Distribution Buildings depreciation...........000 D1 (1.000 5 20 5 5 2 (1.......

.... ........000 35.... .......500 (D) 320......... .............. ..................................... ............... ........... (CY1) 67...... ................. (100...........000 120..............................................000 200...... (EL) 517.......000 27.... .....000 895.000) .. ............. ..... ................................ .... (100................................. ..... ......... (A7) 10..............000) 270.......500...... (D3) 5........................... ..000) Cost of Goods Sold.................. .............000 ...................... . ................. ....000) (200. 140................................... .......000 Consolidated Net Income .................... ...000) ........................................ ...................................000 .............500 .......... ............. . (100... ................ ...000) Equipment.......... ............. .......................000) Patent (net)...... ................000 .................................................. (A6) 4........................... ...........................000) (200....000 .......000 162 NCI Controlling Retained Earnings Consol.............. ........... ... (200. . ........................000 (200.................................. 50............................................... ......... . . ................................................. .. ............................ .............................................000 Depreciation Expense—Buildings. ............................... . (1...................000 160...........000 Depreciation Expense—Equipment............................................ ... (666...................... .. (3.000 ............... ..... (A5) 4...... ......................................000 60.......000 ..............................000) .....000 .............000) ......... .......................................000) 260..000 17..............000 (150...... 1. ..................000) (200...000 © 2008 Thomson South-Western...... ........... .............................................. ....000 Accumulated Depreciation............................... ... ................... .......... ............ .......... ..... Sales...... ................................. ............................. ............................................................ .. . ... . (D7) 10.................. (D8) 120.... ...000 95...... Retained Earnings—HD Air......... All rights reserved...... 400.. Production Backlog..... . ...... Discount (premium)...000 .................................................. ........... ..................500.000 Accumulated Depreciation....................000 ..000 (D5) 20......... (D1) 5................... ...... ..........500 24.000 (78............. Accounts Receivable.000 (300.................................................... (680..000 (EL) 100.................... (A5) 8. Common Stock—HD Air..... 1............... .... ...... ......................000) (1.............................................................000) Retained Earnings—Fast Cool.............................................. .............. ...............200... ...... ...... .. (150................... ................ Paid-In Capital in Excess of Par—HD Air..............000) ..........000 215..000 120..... (80................... (A3) 2....Ch................... ...............................000) 150..... .......... (700.............. ..... ....000 2 Eliminations and Adjustments Dr............................................................. .... 495...............................................000 (EL) 200................... .............................. 30.............................. ............................ ........... .............................................. 99...000 (A3–A7) 9...000 (D6) 10...000 50................. ..500 . Investment in HD Air... ............... ..... ... .....................................000 (50...................000 . .............. .................................... . .................. ................................... .................. .. (D2) 50..................... .... ....................... .. ....000) 24... ..........750............. (D4) 150......................................... ....................... .......................000 . .................................. ..... Continued Worksheet Year of Consolidation Trial Balance Fast Cool HD Air Cash.............500 ..500) .......... Common Stock—Fast Cool.................... .... ......... Cr........ 10............. Land.. ............. ......................................................... 396.....................000 ................................... .................. ..................... ......000 (EL) 217...... ............................... ........... ............................. Current Liabilities..... 7...000) Paid-In Capital in Excess of Par—Fast Cool.............. .............. ......................000 ...... ..................... 170........ ...............500) .........000 320..........................000) (217............................................................................................................ .... (500............ . ..... ..... ...000 ...................000 ..........500 ..........200................ ..............................000) Mortgage Payable..................................................... ...... Balance Sheet ............................... (CY2) 10... ............ Buildings......... (1... ........... . .. ..................000) ..... 380............. .... .. ..................... .....000 (85............................................ ...... .. ............. ... Goodwill. .................................... ........ .......... ................................. .......... ... (A4) 15. ...... ........................ .. 3—Problems Problem 3-15.....000 ...................... .............................000) 640....................... ..... Inventory... .................... (A4) 7.........

............. ......... . Dividends Declared—HD Air.....000 ....... .... ..... 0 0 974................... NCI Share..............000) ................. ... 10.........000 . ....... ......... ............... ........................................ (311....................... ...... ........................... ................................................ 16..000 .................................................................. Concluded Worksheet Year of Consolidation (Concluded) Trial Balance Fast Cool HD Air 2 Eliminations and Adjustments Dr............. Controlling Retained Earnings................................................................................................................... 20. (CY2) Current-year dividend................................................................................................................... ........000) ..000 974.......................................................... ...000 ........... Cr............................... All rights reserved............................. (A7) 5............................................................. 311............ (957.......... ................... Controlling Share.............. (EL) Eliminate controlling interest in Sub equity....... ...................................................................000 ..................000 .. Balance Sheet .........................................000 ........................ 20............................ (D) Distribute excess. .. .......... ................................................................................................... Eliminations and Adjustments: (CY1) Current-year subsidiary income.............. ................................. 172................................................................. ............................................... NCI... ... (CY2) 10....... (CY1) 67....................................................000 ... © 2008 Thomson South-Western....... (311................... (957........ ........000 (A6) 2............................... (A3) 1............ .............................000) 0 ......000 ...........000) ..............000 15............................500) ..............000 ............................................ ....................................... Interest Expense.............. Totals....... ......................... .......... Dividends Declared—Fast Cool... ........................................ Subsidiary Income...000 ........ 163 Controlling Retained Earnings Consol................... ...000 115.......... ....... Consolidated Net Income Other Expenses....Ch.................. (67......... 3—Problems Problem 3-15............................... NCI 50............... . Consolidated Net Income....500 ................................. (A) Amortize excess............................................................ ..............

Buildings..000 Inventory.. $ 500...000 Price Analysis Price...000 Group Total Ownership Portion Cumulative Total $(130..............000 50...000) 630...000 630..................... 100. 100..................000 (50....000 200...........................000 235................... Total equity....... 60..............000 Total priority assets...... Goodwill.000 710.000 865......................................000 50.....000) 150..000 560. Accumulated depreciation..000 100.................... Existing goodwill.............. Nonpriority accounts..........000 500.... Price paid (including direct acquisition costs)..............................000 Nonpriority assets: Land.......... 480................ Equipment...........000 Life 1 5 — 20 5 5 2 Stockholders’ equity: Common stock...........000 Total liabilities......... 100% $500.. Total nonpriority assets...............000 10..........000) 760.000 allocate — 164 ....................... Year of consolidation (1 = year of purchase)...........000 40.000 180.......................... Accumulated depreciation........................ 40................................ Book Value Life 1 1 Fair Value Current liabilities........ 200...... Total assets.......... $1 par.... 3—Problems PROBLEM 3-16 (1) Equity Method Worksheet Common information: Ownership interest...........000 Zone Analysis Priority accounts......000 100........000) 40..000) 760.............000 105.................... © 2008 Thomson South-Western.................................... 30............................................000) full value 630............. Patent (net)......000 Mortgage payable............... Paid-in capital in excess of par..............000 480..000 (30...................................000 $(130......................000 $(130....000 Value of net assets. Assign to nonpriority accounts............... Assign to priority accounts............... 230......000 205.... All rights reserved..000 400................Ch......000 760.....000 65...... Production backlog................... 50....000 (130......... Retained earnings.000 30......000 2 Acquired Company’s Balance Sheet before Purchase Book Value Fair Value Priority assets: Accounts receivable.........

.....421) 289 4....... Goodwill*............289 (50....000 × 100% 480..................... Excess of cost over book value (debit).... Paid-in capital in excess of par...........000 1 — debit D1 debit D2 5 20 5 5 2 credit D3 debit D4 credit D5 debit D6 debit D7 credit D8 $(1............................ Mortgage payable......................000) 64...... Land....... © 2008 Thomson South-Western...000 Amortization $ — 5.................. Continued Determination and Distribution of Excess Schedule Price paid for investment...... Production backlog....................... Retained earnings......Ch....000) $ 20........ Total adjustments...000.............................000 $480........ 165 ....................................000 32..................144..... Less book value interest acquired: Common stock......... 3—Problems Problem 3-16....... Accounts payable.... Patent (net)..........................000) 3..........................105) 1....000 180.... Adjustments: Accounts receivable................ **Year 1 $4................447 8........... Buildings...................................................000 $100....145............ Equipment... Interest acquired.................................224 (7............. Total equity.........................895 — (5. All rights reserved.............000 $ 20............. Year 2 $4..........000 200....................... $500........ Inventory...............474 (37.............................145** *Reduce existing goodwill by $50........................

.....289 $ (1............. Controlling interest.... Total amortizations.........................144 Internally generated net income. Patent amortization.... 1 $ 5.......144 $ (764) Prior Years Total Key $ 5.........224 289 4...... $67..........................842) 578 8..421 $321... Controlling share of subsidiary (100% × HD Air adjusted income)..............145 $ (763) (2.....500 Adjusted income... Patent (net)....224 (7........ $253..224 (7...421) 289 4.. Equipment depreciation.................000) 3..000) 6.. Buildings........527) A3 A4 A5 A6 A7 Subsidiary HD Air Income Distribution Internally generated net income.448 (14. 3—Problems Problem 3-16......500 1........... 166 ....... $3..Ch...... Production backlog adjustment......................000 7............264 Problem 3-16 continues on page 168.........000) 3...................224 (7. Production backlog.... © 2008 Thomson South-Western....... Mortgage amortization...................421) 289 4.145 Current Year $(1............000 67.. Subject to amortization: Mortgage payable....000 $ 5........ Equipment......... All rights reserved...000) 3.......500 Parent Fast Cool Income Distribution Buildings depreciation........000 D1 (1......... $67.000 5 20 5 5 2 (1................... Continued (2) Amortization Schedules Year of Consolidation 2 Account Adjustments Life Annual Amount Inventory....421) 289 4........

...... .......................... ....000 ..000) (217........................ ......Ch..000 ........ ....664....................000 50......... ................ ............................000) (200....... .....289 (D8) 50............... ...215................. (A7) 8............................. .......................... ......000 30............ ....................... .. .... ..................................... (A5) 7.........000 120... ....... ............................... (D1) 5.200........... ........ .................. (D4) 64................ ................................. Land...................................... ... .............. 7...................... .... (200.....................000 Accumulated Depreciation............ (CY1) 67............ .............579 168 NCI Controlling Retained Earnings Consol.......................000 ........................... .......000 ..................................... ...........224 . .... ....... ...........000 (EL) 100................ .............. All rights reserved....... Retained Earnings—HD Air.... Discount (premium)....... ...................... ...................... . Inventory.. ............................ 3—Problems Problem 3-16....000 ........ ..................................... (A6) 578 ........ Common Stock—HD Air..........000 Depreciation Expense—Equipment....105 ....000) (200.............. .................. ............... .....500) .....000 (78........... ............447 ... ............ ......500 .... ... ......215......................... .................... ........................................... ..000 ..... Current Liabilities... ..... ......263) .......................................................... ........................448 (D5) 37......000 95....... ............ ........ .000 120...... ...... (100.. ................ .............000 ......................000 200........... (700........... ........ ..000) Retained Earnings—Fast Cool...................... . ....000) 24...... .............................. ................. ...................... ............... ................... ............................000 Depreciation Expense—Buildings.........500 24......... .. 24................................... ....................................000) Cost of Goods Sold...... ............... ..............000) ................................. 495.. ...... .. (85.......... ....000 60.. (676.000 (EL) 200....... ... (200............... . ............... 10..................... .......... ...... 400........ .........000) 640................. (A4) 6.......... .................... ......... Continued Worksheet Year of Consolidation Trial Balance Fast Cool HD Air Cash. Investment in HD Air....000) Patent (net)................... 50.............. ................................ Cr....... Accounts Receivable..................................................000 17................. ................................................ (A5) 14.............................. ........ ....... .............. ................................................ .................. (500............................ (EL) 517................................ ........ ................... .. .................................... .......... .........000) .............. Goodwill....... .895 (143.......... (80....000 142.. (A4) 3................................................... ...................................................................... Sales.......289 . Paid-In Capital in Excess of Par—HD Air...........474 291..... ...........895 .......................... ......000) 260... . ... .............000) .................... ............ ....... . . ...................000) (1..........000) 150.................000) Mortgage Payable............ ............... ..................... ......................... ...................000 © 2008 Thomson South-Western....... ..... (D2) 32.000 320.................000 215.........................000 Accumulated Depreciation. ...............500 (D) 20.............................842 (D6) 1....................... 140......000 2 Eliminations and Adjustments Dr...000 595....................................... ........ Production Backlog........... ...... ........................ .......895 .... ............. .............. Common Stock—Fast Cool.......................... ........... ..............421 Consolidated Net Income ......... Buildings...................................... ......................... (A3) 2........ ......... ...... (3........................................ ... ............................................. . .... .. ............... ....................................................... (CY2) 10...................000) Equipment................... 1.. 1................................. (150...... .......................200....... ........000) .......000) (200.................................................. .......... ................................ 396................. ........ ......................000 (EL) 217............ ......... 380....................................................................... .......000 ......... ........ 99. .... .............158) ..........................................724 23...000 (85................................................. (A3–A7) 763 .......... ....... .......................................... ............. ......... ........................................................... ............ (D3) 5.................... ...........448 252.500) ............474 ...............500 ...... ........... ............ ............... ........ ........... .......... .........869 . (1........... (85......000 (50...........................................................000) Paid-In Capital in Excess of Par—Fast Cool............................ ......................................... ................ .... Balance Sheet .. (1.... (D7) 8............... (680........................... ...............................

....................................000 115..............604 ........ .......264) ................... . (977..... ............................................... ...... Dividends Declared—HD Air............ .... ..............000 ........................500) .... ........................................................................................ (CY2) Current-year dividend......................................... ........................................... Consolidated Net Income Other Expenses................ ...................................................... ...... Eliminations and Adjustments: (CY1) Current-year subsidiary income........................................Ch.......................... NCI 50...... Balance Sheet ..... (D) Distribute excess. (977................................. .........604 731.......... 0 0 731.......... ............000 .... ............. Cr..... .... (67................................................... .... ....................... ...............000 ................................. (A) Amortize excess........................527) .............000 (A6) 289 ........................... (EL) Eliminate controlling interest in Sub equity................................... 20........................ (321...................264) .......................... ............. (A7) 4.................................................. (CY2) 10................................................ All rights reserved........000 ............. ......................... ............. .................... Concluded Worksheet Year of Consolidation (Concluded) Trial Balance Fast Cool HD Air 2 Eliminations and Adjustments Dr................................... Consolidated Net Income........................ .......... ............................... Controlling Retained Earnings............000 15........ Subsidiary Income.............. Dividends Declared—Fast Cool............................... 16......................................... .. 169..............144 .... ............................. .............................. NCI Share........................................000 ....................... (321................................................. (A3) 1................................... Controlling Share.....................264 ................. ....... ............ 321......................000 ... 20... ...............................................................433 ....... .............................500 ......................................... ....... Interest Expense. (CY1) 67............................. © 2008 Thomson South-Western.............527) 0 ........... ................. 3—Problems Problem 3-16.................................. 169 Controlling Retained Earnings Consol......... 10......... Totals................................................................. NCI......................

..................000 170 ......000 630. Assign to priority accounts........................ 230....000 10................... Book Value Life 1 1 Fair Value Current liabilities..........000) 504.000 40.............................000 235......000 480.000 200...................... Assign to nonpriority accounts........ 100...................................................... Total assets........... Accumulated depreciation.000 50.......000) full value 608...........000) 608................... Production backlog......... © 2008 Thomson South-Western...... Equipment.000 Nonpriority assets: Land.....000 760..... 40....000 560.. 50........... $1 par.............. Existing goodwill..........000 (50..000 Life 1 5 — 20 5 5 2 Stockholders’ equity: Common stock................. Price paid (including direct acquisition costs). Nonpriority accounts.......... 200.....000 865..000 Inventory... Goodwill........000 Mortgage payable.....................000 205.................... Accumulated depreciation......... 100.000 1 Acquired Company’s Balance Sheet before Purchase Book Value Fair Value Priority assets: Accounts receivable........000) 760...................... 480.000 Zone Analysis Priority accounts...000 (104. Buildings..........................000 (30..................................... 30.................000) 150...............000 full value 196.....................000 $(104.... All rights reserved.................. Total nonpriority assets................. Total equity. Paid-in capital in excess of par..............000 710. 3—Problems PROBLEM 3-17 (1) Equity Method Worksheet Common information: Ownership interest......000 180............... Patent (net).....000) 40..000 $(104................. Retained earnings...000 Total liabilities....................000 65........000 100............ Year of consolidation (1 = year of purchase)........000 500.......... 80% $700....................... $ 700..000 Group Total Ownership Portion Cumulative Total $(130..Ch............................000 50. 60.......................................000 30...000 Total priority assets.....000 100...........000 400........000 Price Analysis Price.........000 105..................000 Value of net assets..

................................... Accounts payable.........000 180.......000 × 80% © 2008 Thomson South-Western......... Excess of cost over book value (debit)................................ $700......................................................................000 Amortization $ — 4.................... Patent (net)................ Retained earnings.............Ch....... Total adjustments.........000 200.000) 120....600 4...... Inventory.000 $316.....000 (16........000 156......................................................................................000 171 .................................................. Less book value interest acquired: Common stock................000 8............................000 40..... Production backlog... Goodwill... Paid-in capital in excess of par...................000 (3................... Total equity....... 384.. Mortgage payable............. Adjustments: Accounts receivable............. 3—Problems Problem 3-17...200) 1...................................... Land....... Continued Determination and Distribution of Excess Schedule Price paid for investment...............000 1 — debit D1 debit D2 5 20 5 5 2 credit D3 debit D4 credit D5 debit D6 debit D7 debit D8 $ (800) 6.....000 $100..........000 $316.......... Interest acquired....000 — (4.............. All rights reserved..........000 $480. Buildings.................................. Equipment.............000) 8..........

........500 × 20% $ 9. 1 $ 4......000 (3....... $47...................000 800 3..000 $ 7..000 5 20 5 5 2 (800) 6..000 $ 7...............500 Parent Fast Cool Income Distribution Inventory adjustment..................... Equipment................... Patent amortization......000 (3.. Total amortizations....... $4...600 A3 A4 A5 A6 A7 Subsidiary HD Air Income Distribution Internally generated net income.......000 1.......Ch.......................................600 (800) 6.000 D1 (800) 6. NCI share..............200 $279.. © 2008 Thomson South-Western..................600 4.................................... $253....600 4........... $47....500...........000 (3...................................000 Current Year Prior Years Total Key $ 4...... Continued (2) Amortization Schedules Year of Consolidation 1 Account Adjustments Life Annual Amount Inventory........................ Equipment depreciation.. Controlling interest.....200) 1........ Mortgage amortization..000 38.................. Production backlog adjustment...... NCI.. Subject to amortization: Mortgage payable. Buildings......... 172 .200) 1... Production backlog..000 $ 4........... Patent (net).600 4............200) 1.........400 Problem 3-17 continues on page 174........... All rights reserved.......500 Adjusted income......600 4000 Internally generated net income.......000 6... 80% × HD Air adjusted income of $47......................... 3—Problems Problem 3-17.... Buildings depreciation......

....................................... 38.................................. ...................... 140................ .......200 (D6) 8..........................000 (67..............000) (200................. (D3) 4.. Buildings...................................................... ........000 . ................ .......................000 ....000) (1..... .................. .... .................. .......... ...000 . . Investment in HD Air....... ................. 50........... ................................................................... .......................000) ..........000 ..... ........ (CY2) 8................Ch........... ...................000 ................................................................................................................. (A3) 800 (EL) 80.... 37............. ................... .. Production Backlog.......................000 (EL) 160.......... .............................. .. .......... (A4) 6.............................................. 182..............000) ................000) .................. ......... .........200 Consolidated Net Income ..........................000) (36......... ........ ......600 ......................... .000 (249......... (400.. (400......500 27.... .......000 (54..... (700.......000 ...................000) Cost of Goods Sold.......................000 Depreciation Expense—Buildings.... (95.. .................................... ....... .. .....000 17......000) Paid-In Capital in Excess of Par—Fast Cool............400 .. (EL) 384....... ...... ....... ..... (D4) 120.......................000 (EL) 144.......... (176.. .................... ...800 174 NCI Controlling Retained Earnings Consol........................................ .....................000 ........................................................... (20...........000) (40....... ..................... ..................... ...000 (118............ (1...000 © 2008 Thomson South-Western........ ........... Paid-In Capital in Excess of Par—HD Air................. ........... ...............000 ... (A5) 3..................... ... (3....................................... ................. .......................... .....000 ..........000 33.... (A6) 1..........405...............000 60...................... . .......... ........ .... Continued Worksheet Year of Consolidation Trial Balance Fast Cool HD Air Cash............ (68........................................ (80................ (D2) 40....... ..... ....... 1........................................................ ......................................................... ..000 (D5) 16..... ..................... ....000 (40...............................100..... ............................................................................................... .........720..... . ..................... ....000) 594............. Goodwill. Land.................... ..................... .......000 ......................................... ..... ............ . ... ... ..... Common Stock—Fast Cool...... ............................. ........... ............................... ....... .......500) 274............. Sales............. ..... ....... .... 10.. Discount (premium)....500) 150................... ................................. ........................500 24...... 145................. ........................... ......... .............. . ......000 ........000 206.. ..........000 ................... 3—Problems Problem 3-17....... ................ ........000) Mortgage Payable.... ......................................... ......000 (120..000 (D) 316.......... .... ..................... (D8) 156................ Inventory......... 380.......... ............................................ 7.... (D7) 8........................... ..................................000) .............000 150.. . ........000 70....... ...000 . Accounts Receivable...... ...... ................. 4...................000 150.. (A7) 4..........000 50. (100. ................................. ................... (400................. (D1) 4... ..000 ....................... ........ ........... ...000) 32................ .. ............................ ......... .....405..... 400................................000 1 Eliminations and Adjustments Dr.. ...........000 60. Cr..........000) .... .......................000) Patent (net).......000) (200. ....................... .000) 210.............. .......000 730......................200... .............................................................................. .....000 210... ............................. Current Liabilities.............................................. ..... ............... .. ...000 .......... ... .......................... Balance Sheet .............. ...... .........................................................000 100...............................800) ........200) .... .......... ........ All rights reserved........................... (A5) 3.......000) Retained Earnings—Fast Cool. .................................. ........... ............. Retained Earnings—HD Air........ Common Stock—HD Air.000 Accumulated Depreciation..........000 .. ........... ... .. ............... ..... ...000) ..... . .... (1...000 ......000) (200....................... ................ 1...000 Depreciation Expense—Equipment..................... ........ ...............................................000 170.........000 (A4) 6..000 Accumulated Depreciation..........................000) Equipment.................... (CY1) 38...............................000) (180................. .......... ....................................................... ........................... ....................... (95.................................. ......................000) .....

Ch. 3—Problems

Problem 3-17, Concluded
Worksheet
Year of Consolidation
(Concluded)
Trial Balance
Fast Cool
HD Air

1

Eliminations
and Adjustments
Dr.
Cr.

Consolidated
Net
Income

Other Expenses..............................................

NCI

50,000
85,000 (A6)
1,600
.................. ..................
.................
.................. .................. (A7)
4,000
..................
140,600 .................
Interest Expense............................................ ..................
16,000
................. (A3)
800
15,200 .................
.................. ..................
.................. (D11) .................. ..................
.................
Subsidiary Income..........................................
(38,000) .................. (CY1)
38,000
.................. ..................
.................
Dividends Declared—HD Air.......................... ..................
10,000
.................. (CY2)
8,000 ..................
2,000
Dividends Declared—Fast Cool.....................
20,000 ..................
..................
..................
..................
.................
Totals...........................................................
0
0
781,600
781,600 ..................
.................
Consolidated Net Income.........................................................................................................................................
(288,900) .................
NCI Share.................................................................................................................................................................
9,500
(9,500)
Controlling Share......................................................................................................................................................
279,400 .................
NCI...................................................................................................................................................................................................
(103,500)
Controlling Retained Earnings.................................................................................................................................................................................

Eliminations and Adjustments:
(CY1) Current-year subsidiary income.
(CY2) Current-year dividend.
(EL)
Eliminate controlling interest in Sub equity.
(D)
Distribute excess.
(A)
Amortize excess.

© 2008 Thomson South-Western. All rights reserved.

175

Controlling
Retained
Earnings

Consol.
Balance
Sheet

..................
..................
..................
..................
..................
..................
20,000
..................
..................
..................
(279,400)
..................
(659,400)

..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
(103,500)
(659,400)
0

Ch. 3—Problems

PROBLEM 3-18
(1)

Equity Method Worksheet

Common information:
Ownership interest.................................................................
Price paid (including direct acquisition costs).........................
Year of consolidation (1 = year of purchase)..........................

80%
$700,000
2

Acquired Company’s Balance Sheet before Purchase
Book
Value

Fair
Value

Priority assets:
Accounts receivable.................... 40,000 40,000
Inventory..................................... 60,000 65,000
Total priority assets................ 100,000 105,000
Nonpriority assets:
Land............................................
Buildings......................................
Accumulated depreciation...........
Equipment...................................
Accumulated depreciation...........
Patent (net).................................
Production backlog......................
Total nonpriority assets.........
Existing goodwill..........................
Total assets................................

50,000 100,000
400,000 500,000
(50,000)
150,000 100,000
(30,000)
40,000 50,000
10,000
560,000 760,000
50,000
710,000 865,000

Zone Analysis
Priority accounts...............................
Nonpriority accounts.........................

Book
Value

Life
1
1

Fair
Value

Current liabilities.......... 30,000 30,000
Mortgage payable........ 200,000 205,000
Total liabilities......... 230,000 235,000

Life
1
5


20
5
5
2

Stockholders’ equity:
Common stock, $1 par.
Paid-in capital in
excess of par............
Retained earnings.......
Total equity...............

100,000
200,000
180,000
480,000

Value of net assets.... 480,000 630,000

Group
Total

Ownership
Portion

Cumulative
Total

$(130,000)
760,000

$(104,000)
608,000

$(104,000)
504,000

Price Analysis
Price....................................................................................
Assign to priority accounts...................................................
Assign to nonpriority accounts.............................................
Goodwill...............................................................................

© 2008 Thomson South-Western. All rights reserved.

$ 700,000
(104,000) full value
608,000 full value
196,000

176

Ch. 3—Problems

Problem 3-18, Continued
Determination and Distribution of Excess Schedule
Price paid for investment..............................
Less book value interest acquired:
Common stock........................................
Paid-in capital in excess of par...............
Retained earnings...................................
Total equity........................................
Interest acquired.....................................
Excess of cost over book value (debit).........
Adjustments:
Accounts receivable................................
Inventory.................................................
Land.......................................................
Accounts payable...................................
Mortgage payable...................................
Buildings.................................................
Equipment..............................................
Patent (net).............................................
Production backlog.................................
Goodwill..................................................
Total adjustments..............................

$700,000
$100,000
200,000
180,000
$480,000
×
80%

© 2008 Thomson South-Western. All rights reserved.

384,000
$316,000
Amortization
$


4,000
40,000

(4,000)
120,000
(16,000)
8,000
8,000
156,000
$316,000

1

debit D1
debit D2

5
20
5
5
2

credit D3
debit D4
credit D5
debit D6
debit D7
debit D8

$ (800)
6,000
(3,200)
1,600
4,000

177

Ch. 3—Problems

Problem 3-18, Continued
(2)

Amortization Schedules
Year of Consolidation
2
Account Adjustments

Life

Annual
Amount

Inventory...............................
Subject to amortization:
Mortgage payable.............
Buildings...........................
Equipment.........................
Patent (net).......................
Production backlog...........
Total amortizations......

1

$ 4,000

5
20
5
5
2

(800)
6,000
(3,200)
1,600
4,000

Current
Year

$ (800)
6,000
(3,200)
1,600
4,000
$ 7,600

Prior
Years

Total

Key

$ 4,000

$ 4,000

D1

(800)
6,000
(3,200)
1,600
4,000
$ 7,600

(1,600)
12,000
(6,400)
3,200
8,000
$ 15,200

A3
A4
A5
A6
A7

Subsidiary HD Air Income Distribution
Internally generated net
income...................................

$67,500

Adjusted income..........................
NCI share....................................
NCI..............................................

$67,500
× 20%
$13,500

Parent Fast Cool Income Distribution
Buildings depreciation.......................
Patent amortization...........................
Production backlog adjustment.........

$6,000
1,600
4,000

Internally generated net
income...................................
80% × HD Air adjusted
income of $67,500.................
Mortgage amortization................
Equipment depreciation..............
Controlling interest......................

$253,000
54,000
800
3,200
$299,400

Problem 3-18 continues on page 180.

© 2008 Thomson South-Western. All rights reserved.

178

. ........................... (100...... 3—Problems Problem 3-18............................................ .000) (200. ..... ................................................................400) ............. (D7) 8.......... ..... ...Ch....................... .............000 (D5) 16................. ... . ....................................000) Patent (net).................000 215.........000 ... Discount (premium).....................000) ........000 ....... .... . 1.. ................... ............000 Depreciation Expense—Buildings.000 (297... . ..... ..................................................................... .....................000 60......... ............... (20..............000 200............. .................................. ......................000) (200...... .. ... ................. (A3) 1.. (A4) 12................................. Investment in HD Air........................ ................................................... 400............................. Goodwill. .......................000) (1........ ... .......... ... ....... ................................. .500) .....000 95......000 (151......000 120....... .......... (D1) 4............. Common Stock—Fast Cool................. ........000 ... ..........................800 180 NCI Controlling Retained Earnings Consol............. ....................... ............ .......... ................. ................. ... (150..................................000 2 Eliminations and Adjustments Dr.... 392...................000) Equipment....... ......... . ......... ................. Inventory. .................................................. . .............................000 .....................000 17.........000 ....... Buildings.... (700................ ............... .... ............... (CY1) 54..... .... ............500 27....................................... (D2) 40.................... Common Stock—HD Air........ ............... ..................................... . (D8) 156.. ........................................ ......000 ...... .........000 Accumulated Depreciation......................000 Depreciation Expense—Equipment............000) 274...... ..... ..000 33.......... (A5) 3........ ....... Sales............000) 24... .................... .000) .....000 ...................... (1.200............................................. ...000) 260............. . (EL) 414......... (1..........000 (EL) 160............. ....... ....... ...... 28... ....... ........ .......... ............................. .500 24. (D3) 4....000 (EL) 174.................600 ........................... ....... ................... (200.........000 ........... .................................... (A4) 6........................ 140. ..... (80..... 99......... (D4) 120.000) 640................000 . .... .............000 ....... ........................................ ....000 Accumulated Depreciation.. ... 206........ ...................... ... 1................. ........ .......................................................... ... .................................. (671... ................. .000) (43... ............ ... ....... 7......................................... (95... (A5) 6...... ...................000) 150.... (A6) 3. .......... . ...............000 150........................................ .........000 ..000 (50.......000 50......... .................................. ................................ .000) (217................... . ................ (659.....800 .............. ........... .......................................................... ..................... Balance Sheet .................... (95. .....................000) Cost of Goods Sold.......000 ........... ..................... .......... .........................................................000 (A3–A7) 7............................... Paid-In Capital in Excess of Par—HD Air....... Production Backlog......... Cr...... (2........... Land........................... ................. ............720.........................000) Mortgage Payable..........000 320......... ..........................................................000 120... .. ........ ........................... ......... Current Liabilities........... 380...................... All rights reserved.. 491......................................000 .................................................................................... ............................................................................................ (500.000 (85........... .. ........... ............................. ............................................................................... 10... ................. Continued Worksheet Year of Consolidation Trial Balance Fast Cool HD Air Cash.........000 .................................000 (D) 316.........600 (EL) 80...000 .000) (200.000 (200............000) Retained Earnings—Fast Cool..... ................................ Accounts Receivable................................... ............. . ................... .000 © 2008 Thomson South-Western.... 50... ....................... .. ..................... (A7) 8...000) Paid-In Capital in Excess of Par—Fast Cool.......................... ........................... ..........................000 ........500) ... Retained Earnings—HD Air.....600) ........................................200 Consolidated Net Income ......405......................... ...........................000 ......................... ................................000 (78...............000) (40.....................................400 (D6) 8........... ..... . ........ ..........000) .................. . ..............................405....200 ... (CY2) 8........200.................... .............. ...............400) ..... .......... . ................. ....... .........................000) ................ .....000 776.... ....................... ................ ........

...................900) .600 .000) Controlling Retained Earnings...........000 ..... Subsidiary Income.........800) .. 10............... .. ........... Totals........ Balance Sheet ......... ................................................................................................000 Dividends Declared—Fast Cool.. (938.................. ....................................500 (13..................000 ......... 0 0 839............. . ................ Dividends Declared—HD Air............. ...Ch....... .................. (299................................................. (EL) Eliminate controlling interest in Sub equity................................000 ............................................ ...... ..........................400 ......................................200 ....800) 0 ........................................... (A3) 800 15.................................... (312...................... ......000 115.............. ........ (CY1) 54..... Interest Expense......................................... ........ .........................000) (938.............................. 299.................................................................................................................... Cr............................200 839....................... ...... 13............................000 (A6) 1........ .................... Eliminations and Adjustments: (CY1) Current-year subsidiary income....... (CY2) 8...... (D) Distribute excess........................200 ..... 20..................... 170..... .......................... .................................. .. (CY2) Current-year dividend........................................................000 ................000 ............ 20.....000 .............................. Consolidated Net Income.......................................................... ...... NCI 50............... 16........ Concluded Worksheet Year of Consolidation (Concluded) Trial Balance Fast Cool HD Air 2 Eliminations and Adjustments Dr......................................... All rights reserved....................................... .... . (115........................... Consolidated Net Income Other Expenses...................... NCI Share..............500) Controlling Share................................ ........................ 3—Problems Problem 3-18.... NCI........000 ......... .......................................000) ................................. 181 Controlling Retained Earnings Consol.............. 2............. ....................... (54...... ....................... (115.... ................................... © 2008 Thomson South-Western.. ............................................ (A) Amortize excess.........400) .....600 ......................................................... (A7) 4....................

.900 © 2008 Thomson South-Western. Deferred tax liability.......................000 150.......000 188...............000 (27........500) 18........................ Assign to priority accounts..000 $100............000 $188... All rights reserved.....................................000 250..957) $188..900 ÷ 70%)...........................100 611.......000 debit D1 credit D1t debit D2 credit D2t debit D3 debit D4 debit D5 credit D5t debit D6 $269. Less book value interest acquired: Common stock........ Deferred tax liability.......................................................... 100...000 $350...........................................................400) 10.................................................... Goodwill (net of deferred tax liability).... $800.............. Investment in marketable securities..........000 Group Total Ownership Portion Cumulative Total $209...........000) 188........................ 800.........................100 423................................ Current deferred tax expense... $800.............. Deferred tax liability...................000 Price Analysis Price..... Retained earnings...900 — $350...................000 (5.000 700.................... Excess of cost over book value (debit)..900 full value full value Determination and Distribution of Excess Schedule Price paid for investment...................... Common Stock......... Total equity.. Paid-in capital in excess of par.................................................................................000 × 90% 450.................. Interest acquired...... Total adjustments...............000 $500.000 470...................000 188......... Extraordinary gain............... Adjustments: Inventory........... Nonpriority accounts......200 90..100 423............................... Paid-In Capital in Excess of Par...... Goodwill (net of deferred tax liability). Deferred tax liability........... 182 .................800 43.........857 (80.100 Zone Analysis Priority accounts (net of liabilities).... Depreciable fixed assets..............000 $ 45............ Net goodwill................ Noncurrent deferred tax expense. Assign to nonpriority accounts................................................000 (13.............................................PROBLEM 3A-1 Entry to record investment: Investment in Joshua.................. Goodwill ($188.......... 30%........................000 $188.......

.000) Goodwill (net of deferred tax liability) 418.......... $ 720.............981.......... Assign to nonpriority accounts......... Assign to priority accounts............600 Price Analysis Price.. (179..........000 full value 418.000 Deferred tax liability............................000 $ (202........................ $ 922...184..................................... Nonpriority accounts (net of DTL)...600 Excess of cost over book value (debit)........000 Interest acquired..............Ch........ 847......000 $ (202......400...400) full value 2........................ Goodwill (net of deferred tax liability)..........400) 1...400 Determination and Distribution of Excess Schedule Price paid for investment.000 Paid-in capital in excess of par... 183 ................................ $ 418..400 debit D1 credit D1t debit D2 Goodwill ($418................ — Retained earnings........................400 © 2008 Thomson South-Western.......................400 Extraordinary gain...... 3—Problems PROBLEM 3A-2 Zone Analysis Priority accounts (net of liabilities).....400........... All rights reserved.........400 Adjustments: Depreciable fixed assets.. $ 597.......... 30%.............184............000....................477.... Group Total Ownership Portion Cumulative Total $ (253.......................................................................847......714 Deferred tax liability. (216........ $2........ $2..000) 2..........400) 2..... $ 922.........730.................314) Net goodwill............................. $1...................000 Less book value interest acquired: Common stock.......... $1................ — Total adjustments...........................400 ÷ 70%)...... × 80% 1.......000 (202..000 Total equity....

(D2) 597.......... (D) 922................................... (1.......... Cash.... . ......... (8..... Accruals. (369.....714............................000 .................... ........000) ... ...........000 2.........000 ....000) (400..........314 Common Stock—Tip............... (D1T) Record a deferred tax liability of $216..... (1........ (17.......750........950..........314 relating to the goodwill.978. © 2008 Thomson South-Western...... Prepayments... ..............000 .......... (847............000 relating to the increase in depreciable fixed assets.................... (2.................. ................314 2.. 2...400) (369............... 469..795.......... Inventory...... (10....................... 2..... (D2) Record goodwill of $597................ 597..............................000 . (395..................... ..................000 ....... ......... . (17............................. Investment in Kim................... to the specific subsidiary accounts to the Determination and Distribution of Excess Schedule: (D1) Increase depreciable fixed assets by $720..798....... Continued Tip Company and Subsidiary Kim Company Worksheet for Consolidated Balance Sheet December 31..714 ...................000 ....000 47...........200.....200................................. 11............ Common Stock—Kim............... 20X6 Financial Statements controllingConsoliTip Kim Eliminations and Adjustments Dr.....000 ..000 ..000) ...............000 1............400.700..200.......................... ..... All rights reserved.... 1......................... 1.015.400.........................................000) (1... ....... Accounts Receivable... (EL) 1...... (D2T) 179...000) . (7.. 2........ .000... (D) Distribute the balance of the investment account.................. .......400 Goodwill........................714 .................... ......000 300...600 ........ .................. Total...........................000) (EL) 677....... $922.. Deferred Tax Liability................000) .................. ... (169............000) ............ .....000) (200........ 18... .......... Cr...... Payables. NonInterest dated ..........314 Total NCI... .................... 184 ....000 ....600 ..........000) .................... ....000 .....250..............................100...................... 21........................000) ........000 ... Retained Earnings—Tip..000........ . 0 0 2.400..... ... .......... (D2T) Record a deferred tax liability of $179....................... .......... 422................... ....................000.. 12....... .....................000................. .................................700....... ...............000 (D1) 720. (D1T) 216.....795.. (10..........785............314) ...................615....... ......000 50..000) .....400) 0 Eliminations and Adjustments: (CY) N/A because worksheet is prepared on the same day as consolidation....000 .......... Retained Earnings—Kim....... .Problem 3A-2.............. (EL) Elimination of 80% of the subsidiary equity against the investment.......477.......000) (EL) 800................... Depreciable Fixed Assets (net).............000 .....400) ................500..............785......

............700.....700.Ch..........................798....................000.................................................................. Total liabilities..............314 369............... Controlling interest: Common stock................................000 $21.............................. Equipment................................................................................. $ 1....................................000 $39...............000 2.............................000 2........................ Retained earnings..................................395....000 395.....000 27... Liabilities and Stockholders’ Equity Payables......................................... Deferred tax liability.....714 $ 8.......................................950.... Goodwill.......................... Accounts receivable.....................119.......................................... Total assets............................... Prepayments................................714 $39.................................................015...........................785.....................000 12..........................................714 $17.....................000 22.......000 17........................714 185 ..................................................785...........................314 $11........ All rights reserved.................... 20X6 Assets Current assets: Cash.................................. Inventory.... Stockholders’ equity: Noncontrolling interest............................................400 $10..................000 469........360..................... 3—Problems Problem 3A-2..........................................................514...... Concluded Tip Company and Subsidiary Kim Company Consolidated Balance Sheet December 31..... © 2008 Thomson South-Western... Accruals...................................000 597................250........ Total liabilities and stockholders’ equity.......514......................