Consolidated Financial Statements (Part 2) : Problem 1: Multiple Choice - Theory

Chapter 5
Consolidated Financial Statements (Part 2)
PROBLEM 1: MULTIPLE CHOICE - THEORY

1. A 6. B
2. C 7. B
3. A 8. B
4. A 9. C
5. B 10. A
PROBLEM 2: FOR CLASSROOM DISCUSSION
1. Solutions:
Requirement (a):
Sales of Parent 1,000,000
Sales of Subsidiary 700,000
Less: Intercompany sales during the year (38,000 +
40,000) (78,000)
Consolidated sales 1,622,000
Requirement (b):
The unrealized profits in ending inventory are computed as follows:
Downstream Upstream Total
Sale price of intercompany sale 38,000
Cost of intercompany sale (20,000)
Profit from intercompany sale 18,000 8,000a
Multiply by: Unsold portion as of yr.-
end (9.5/38) 3/4
6,00
Unrealized gross profit 4,500 10,500
0
a
(40,000 x 20%) = 8,000
Cost of sales of Parent 400,000

Cost of sales of Subsidiary 350,000
Less: Intercompany sales during the yr. (38,000 + (78,000
40,000) )
Add: Unrealized profit in ending inventory 10,500
1
Less: Realized profit in beginning inventory -
Add: Depreciation of FVA on inventory -
682,50
Consolidated cost of sales 0
Requirement (c):
Ending inventory of Parent 300,000

Ending inventory of Subsidiary 80,000
Less: Unrealized profit in ending inventory (10,500)
Consolidated ending inventory 369,500
2. Solutions:
Requirement (a):
Historical cost 120,000
Accumulated dep'n. 1/1/x1 (72,000)
Depreciation based on historical cost (12,000)
Carrying amount 36,000
The solution above is based on the notion that it is as if the intercompany

sale never happened.
Requirement (b):
Equipment - net (Bright Co.) 400,000
Equipment - net (Dull Co.) 190,000
Unamortized deferred gain (see Step 1 below) (9,000)
Consolidated equipment - net 581,000
OR
Equipment - net (Bright Co.) 400,000

Equipment - net (Dull Co.) 190,000
Carrying amount of equipment sold in Dull's books (45,000)
Carrying amount of equipment sold in Bright's books if the
sale never happened 36,000
Requirement (c):
Depreciation expense (Bright Co.) 40,000
Depreciation expense (Dull Co.) 12,000
Amortization of the deferred gain
2
(12,000 gain on sale ÷ 4 years) (3,000)
Consolidated depreciation expense 49,000
OR
Depreciation expense (Bright Co.) 40,000
Depreciation expense (Dull Co.) 12,000
Depreciation in Dull's books (60,000 ÷ 4 yrs.) (15,000)
Depreciation in Bright's books if the sale never happened
(120,000 ÷ 10 yrs.) 12,000
Step 1: Analysis of effects of intercompany transaction

The intercompany sale is downstream because the seller is the
parent (Bright Co.).
The unamortized balance of the deferred gain is computed as follows:

Deferred gain on sale - Jan. 1, 20x1 [60K – (120K -
72K)] 12,000
Multiply by: (3 yrs. remaining as of Dec. 31, 20x1 over 4 yrs.) 3/4
Deferred gain on sale - Dec. 31, 20x1 9,000
Step 2: Analysis of net assets

Acquisition Consolidation Net
Dull Co.
date date change
Total net assets at carrying amounts 160,000 210,000
Fair value adjustments at acquisition
date - -
Subsequent depreciation of FVA NIL -
Unrealized profits (Upstream only) NIL -
Subsidiary's net assets at fair value 160,000 210,000 50,000
Step 3: Goodwill computation

Consideration transferred 180,000
Non-controlling interest in the acquiree (160K x 25%) 40,000
Previously held equity interest in the acquire -
Total 220,000
Fair value of net identifiable assets acquired (160,000)
Goodwill 60,000
Step 4: Non-controlling interest in net assets

3
Dull's net assets at fair value – Dec. 31, 20x1 (Step 2) 210,000
Multiply by: NCI percentage 25%
Total 52,500
Add: Goodwill to NCI net of accumulated impairment losses - *
Non-controlling interest in net assets – Dec. 31,
20x1 52,500
*No goodwill is attributed to NCI because NCI is measured at proportionate share.
Step 5: Consolidated retained earnings
Bright's retained earnings – Dec. 31, 20x1 110,000
Consolidation adjustments:
Bright's share in the net change in Dull's net assets
(a)
37,500
Unamortized deferred gain (Downstream only) - (Step
1) (9,000)
Gain or loss on extinguishment of bonds -
Impairment loss on goodwill attributable to
Parent -
28,50
Net consolidation adjustments 0
Consolidated retained earnings – Dec. 31,
20x1 138,500
(a)
Net change in Dull’s net assets (Step 2) of ₱50,000 x 75% = ₱37,500.
Step 6: Consolidated profit or loss

Subsidiar
Parent y Consolidated
Profits before adjustments 240,000 50,000 290,000
Unamortized def. gain - (Step (9,000
1) ) ( - ) (9,000)
Dividend income from ( -
subsidiary ) N/A ( - )
Gain or loss on extinguishment ( -
of bonds ) ( - ) ( - )
Net consolidation (9,000
adjustments ) ( - ) (9,000)
231,00
Profits before FVA 0 50,000 281,000
( -
Depreciation of FVA ) ( - ) ( - )
( -
Impairment loss on goodwill ) ( - ) ( - )
Consolidated profit 231,000 50,000 281,000
4
Step 7: Profit or loss attributable to owners of parent and NCI
Owners Consoli-
of parent NCI dated
Bright's profit before FVA (Step 6) 231,000 N/A 231,000
Share in Dull’s profit before FVA (c) 37,500 12,500 50,000
Depreciation of FVA ( - ) ( - ) ( - )
Share in impairment loss on goodwill ( - ) ( - ) ( - )
Totals 268,500 12,500 281,000
(c)
Shares in Dull’s profit before FVA (Step 6): (50,000 x 75%); (50,000 x 25%)
Requirement (d):
Consolidated
ASSETS
Investment in subsidiary (at cost) - eliminated -
Equipment - net (Requirement 'b') 581,000
Other assets (200,000 + 45,000) 245,000
Goodwill (Step 3) 60,000
TOTAL ASSETS 886,000
LIABILITIES AND EQUITY

Liabilities (70,000 + 25,000) 95,000
Share capital (Bright's only) 600,000
Retained earnings (Step 5) 138,500
Equity attributable to owners of the parent 738,500
Non-controlling interest (Step 4) 52,500
Total equity 791,000
TOTAL LIABILITIES AND EQUITY 886,000
Consolidated
Revenues (300,000 + 80,000) 380,000
Depreciation expense (Requirement 'c') (49,000)
Other expenses (32,000 + 18,000) (50,000)
Gain on sale of equipment (eliminated) -
Profit for the year 281,000
Profit attributable to owners of the parent (Step 7) 268,50

5
0
12,50
Profit attributable to NCI (Step 7)
0
281,00
Profit for the year
0
3. Solutions:
The dividends declared by the subsidiary are allocated as follows:
Total dividends declared ₱100,000
Allocation:
Owners of the parent (100,000 x 75%) 75,000
Non-controlling interest (100,000 x 25%) 25,000
As allocated
₱100,000

Subsidiary date date change
Net assets at carrying amts. 240,000 320,000
date - -
80,00
Subsidiary's net assets at fair value 240,000 320,000 0

We can leave out this step because the information is insufficient.

Sub.'s net assets at fair value – Dec. 31, 20x1 (Step 2) 320,000
Total 80,000
Add: Goodwill to NCI net of accumulated impairment losses -
20x1 80,000
6
Parent's retained earnings – Dec. 31, 20x1 280,000
Parent's sh. in the net change in Sub.'s net assets
(a)
60,000
Unrealized profits (Downstream only) -
Parent -
60,00
20x1 340,000
(a)
₱80,000 Net change in subsidiary’s assets (Step 2) x 75%
The dividends received from the subsidiary are not separately

adjusted in the formula above because their effect is automatically
eliminated by including only the parent’s share in the net change in
the subsidiary’s net assets.

Subsidiar
Unrealized profits - - -
Dividend income from (75,000
subsidiary ) N/A (75,000)
Gain or loss on extinguishment
of bonds - - -
adjustments ) - (75,000)
400,00
( -
7
( -

Owners Consoli-
of parent NCI dated
Parent's profit before FVA (Step 6) 400,000 N/A 400,000
Share in Sub.’s profit before FVA (c) 99,000 33,000 132,000
Depreciation of FVA (Step 6) ( - ) ( - ) ( - )
Totals 499,000 33,000 532,000
(c)
Shares in Sub.’s profit before FVA (Step 6) – (132,000 x 75%);
(132,000 x 25%)
SUMMARY OF ANSWERS TO REQUIREMENTS:

a. NCI in the net assets = 80,000 (Step 4)
b. Consolidated retained earnings = 340,000 (Step 5)
c. Consolidated profit = 532,000 (Step 6)
Attributable to owners of parent = 499,000 (Step 7)
Attributable to NCI = 33,000 (Step 7)
4. Solutions:
Requirement (a): Gain (loss) on extinguishment of bonds
The gain or loss on the extinguishment of bonds is computed as:

Acquisition cost of bonds (assumed retirement price) 250,000
Carrying amount of bonds payable (300,000)
Gain on extinguishment of bonds 50,000
Requirement (b): Consolidated total bonds payable

Bonds payable (at face amount) - issued by Parent 300,000
Portion acquired by Subsidiary
(300,000)
Consolidated total bonds payable -

8
Net assets at carrying amounts 200,000 270,000
date - -
70,00

Consideration transferred (cost of investment in sub.) 180,000
Total 230,000
Goodwill 30,000

Total 67,500
20x1 67,500

Parent's share in the net change in Sub.'s net assets
(a)
52,500
Gain on extinguishment of bonds (Step 1) 50,000
Parent -
102,50
20x1 242,500
(a)
Net change in Subsidiary’s net assets (Step 2) of ₱70,000 x 75% = ₱52,500.
9
Subsidiar
( -
Unrealized profits ) ( - ) ( - )
Gain on extinguishment of
bonds 50,000 ( - ) 50,000
Net consolidation
adjustments 50,000 ( - ) 50,000
130,00
( -
( -

Owners Consoli-
of parent NCI dated
Totals 145,000 5,000 150,000
(c)
Shares in Sub.’s profit before FVA (Step 6): (20,000 x 75%); (20,000 x 25%)
Requirement (c): Consolidated financial statements

Consolidated
ASSETS
Investment in bonds - eliminated -
Other assets (500,000 + 50,000) 550,000

Accounts payable (40,000 + 30,000) 70,000
Bonds payable (at face amount) - eliminated -
Total liabilities 70,000
200,000
Share capital (Parent only)
10
Equity attributable to owners of parent 442,500
NCI in net assets (Step 4) 67,500

Consolidate
d
Revenues (300,000 + 120,000) 420,000
Operating expenses (217,000 + 100,000) (317,000)
(3,000
Interest expense (3,000* + 0)
)
Gain on extinguishment of bonds (Step 1) 50,000

5,00
0
*The interest expense is not eliminated because the interest expense

was paid to unrelated parties, the previous holder of the bonds (i.e.,
the bonds were acquired by the subsidiary only at year-end.
SUMMARY OF ANSWERS TO REQUIREMENTS

a. Gain (loss) on extinguishment of bonds = 50,000 gain (Step 1)
b. Consolidated bonds payable = 0 (Step 1)
c. Consolidated financial statements (See above)
PROBLEM 3: EXERCISES
1. Solutions:
Requirement (a):
Sales of Parent 1,000,000
Sales of Subsidiary 700,000
Less: Intercompany sales during the year (16K* +
60K) (76,000)
Consolidated sales 1,624,000
* (12,000 ÷ 75%) = 16,000
Requirement (b):
The unrealized profits in ending inventory are computed as follows:
Downstream Upstream Total
Sale price of intercompany sale 16,000
11
Cost of intercompany sale (12,000)
Profit from intercompany sale 4,000 10,000a
Multiply by: Unsold portion as of yr.-
end ½ 1/4
2,50
Unrealized gross profit 2,000 4,500
0
a
(60,000 ÷ 120%) x 20% = 10,000

Less: Intercompany sales during the yr. (16,000 + (76,000
60,000) )
Add: Unrealized profit in ending inventory 4,500
Add: Depreciation of FVA on inventory (Step 2) -
678,50
Requirement (c):
Ending inventory of Parent 300,000

Ending inventory of Subsidiary 80,000
Less: Unrealized profit in ending inventory (4,500)
2. Solutions:
Requirement (a):
Historical cost 144,000
Accumulated dep'n. 1/1/x1 (86,400)
Depreciation based on historical cost (14,400)
Carrying amount 43,200
The solution above is based on the notion that it is as if the intercompany

sale never happened.
Requirement (b):
Equipment - net (Day Co.) 480,000
Equipment - net (Night Co.) 228,000
Unamortized deferred gain (see Step 1 below) (10,800)
OR
Equipment - net (Day Co.) 480,000
Equipment - net (Night Co.) 228,000
12
(54,000
Carrying amount of equipment sold in Night's books )
Carrying amount of equipment sold in Day's books if the
43,200
sale never happened
Requirement (c):
Depreciation expense (Day Co.) 48,000
Depreciation expense (Night Co.) 14,400
Amortization of the deferred gain
(3,600)
(12,000 gain on sale ÷ 4 years)
OR
Depreciation expense (Day Co.) 48,000
Depreciation expense (Night Co.) 14,400
Depreciation in Night's books (72,000 ÷ 4 yrs.) (18,000)
Depreciation in Day's books if the sale never happened
14,400
(144,000 ÷ 10 yrs.)

The intercompany sale is downstream because the seller is the
parent (Day Co.).
The unamortized balance of the deferred gain is computed as follows:

Deferred gain on sale - Jan. 1, 20x1 [72K – (144K –
86.4K)] 14,400
Multiply by: (3 yrs. remaining as of Dec. 31, 20x1 over 4 yrs.) 3/4
Deferred gain on sale - Dec. 31, 20x1 10,800

Night Co.
date date change
Total net assets at carrying amounts 192,000 252,000
date - -

Consideration transferred 216,000
13
Total 264,000
Goodwill 72,000

Night's net assets at fair value – Dec. 31, 20x1 (Step 2) 252,000
Total 63,000
Add: Goodwill to NCI net of accumulated impairment losses - *
20x1 63,000
*No goodwill is attributed to NCI because NCI is measured at proportionate share.

Day's retained earnings – Dec. 31, 20x1 132,000
Day's share in the net change in Night's net assets
(a)
45,000
Unamortized deferred gain (Downstream only) - (Step (10,800
1) )
Parent -
34,20
20x1 166,200
(a)
Net change in Night’s net assets (Step 2) of ₱60,000 x 75% = ₱45,000.

Subsidiar
Unamortized def. gain - (Step (10,800
1) ) ( - ) (10,800)
Gain or loss on extinguishment ( -
of bonds ) ( - ) ( - )
14
adjustments ) ( - ) (10,800)
277,20
( -
( -

Owners Consoli-
of parent NCI dated
Day's profit before FVA (Step 6) 277,200 N/A 277,200
Share in Night’s profit before FVA (c) 45,000 15,000 60,000
Totals 322,200 15,000 337,200
(c)
Shares in Night’s profit before FVA (Step 6): (60,000 x 75%); (60,000 x 25%)
Requirement (d):
Consolidated
ASSETS
Equipment - net (Requirement 'b') 697,200
Other assets (240,000 + 54,000) 294,000
TOTAL ASSETS 1,063,200

Liabilities (84,000 + 30,000) 114,000
Share capital (Day's only) 720,000
Non-controlling interest (Step 4) 63,000
TOTAL LIABILITIES AND EQUITY 1,063,200
Consolidated
Revenues (360,000 + 96,000) 456,000
Depreciation expense (Requirement 'c') (58,800)
Other expenses (38,400 + 21,600) (60,000)
Gain on sale of equipment (eliminated) -
15
322,20
Profit attributable to owners of the parent (Step 7)
0
15,00
0
337,20
Profit for the year
0
3. Solutions:
The dividends declared by the subsidiary are allocated as follows:
Total dividends declared ₱150,000
Allocation:
Owners of the parent (150,000 x 75%) 112,500
Non-controlling interest (150,000 x 25%) 37,500
As allocated
₱150,000

Net assets at carrying amts. 360,000 480,000
date - -

We can leave out this step because the information is insufficient.

Total 120,000
20x1 120,000
16
Parent's sh. in the net change in Sub.'s net assets
(a)
90,000
Parent -
90,00
20x1 510,000
(a)
₱120,000 Net change in subsidiary’s assets (Step 2) x 75%

Subsidiar
Unrealized profits - - -
Dividend income from
subsidiary (112,500) N/A (112,500)
Gain or loss on extinguishment
of bonds - - -
Net consolidation
adjustments (112,500) - (112,500)
600,00
( -
( -

Owners Consoli-
of parent NCI dated
Depreciation of FVA (Step 6) ( - ) ( - ) ( - )
Totals 748,500 49,500 798,000
17
(c)
Shares in Sub.’s profit before FVA (Step 6) – (198,000 x 75%);
(198,000 x 25%)
SUMMARY OF ANSWERS TO REQUIREMENTS:

a. NCI in the net assets = 120,000 (Step 4)
b. Consolidated retained earnings = 510,000 (Step 5)
c. Consolidated profit = 798,000 (Step 6)
Attributable to owners of parent = 748,500 (Step 7)
Attributable to NCI = 49,500 (Step 7)
4. Solutions:
Requirement (a): Gain (loss) on extinguishment of bonds

The gain or loss on the extinguishment of bonds is computed as:
Acquisition cost of bonds (assumed retirement price) 320,000

Carrying amount of bonds payable (300,000)
Loss on extinguishment of bonds
( 20,000)
Requirement (b): Consolidated total bonds payable

Bonds payable (at face amount) - issued by Parent 300,000
Portion acquired by Subsidiary
(300,000)
Consolidated total bonds payable -

Net assets at carrying amounts 208,000 234,000

date - -
26,00

Consideration transferred (cost of investment in sub.) 234,000
18
Total 286,000
Goodwill 78,000

Total 58,500
20x1 58,500

Parent's share in the net change in Sub.'s net assets
(a)
19,500
Gain on extinguishment of bonds (Step 1) (20,000)
Parent -
Net consolidation adjustments (500)
20x1 181,500
(a)
Net change in Subsidiary’s net assets (Step 2) of ₱26,000 x 75% = ₱19,500.

Subsidiar
( -
Unrealized profits ) ( - ) ( - )
Loss on extinguishment of (20,000
bonds ) ( - ) (20,000)
adjustments ) ( - ) (20,000)
Profits before FVA 84,900 26,000 110,900
Depreciation of FVA ( - ( - ) ( - )
19
)
( -

Owners Consoli-
of parent NCI dated
Totals 104,400 6,500 110,900
(c)
Shares in Sub.’s profit before FVA (Step 6): (26,000 x 75%); (26,000 x 25%)
Requirement (c): Consolidated financial statements

Consolidated
ASSETS
Investment in bonds - eliminated -
Other assets (650,000 + 64,000) 714,000

Accounts payable (52,000 + 150,000) 202,000
Bonds payable (at face amount) - eliminated -
Total liabilities 202,000
Share capital (Parent only) 350,000
NCI in net assets (Step 4) 58,500
Consolidated
Revenues (390,000 + 156,000) 546,000
Operating expenses (282,100 + 130,000)
(412,100)
Interest expense (3,000 + 0)
(3,000)
Loss on extinguishment of bonds (Step 1)
(20,000)
20
6,500
SUMMARY OF ANSWERS TO REQUIREMENTS

a. Gain (loss) on extinguishment of bonds = (20,000) loss (Step 1)
b. Consolidated bonds payable = 0 (Step 1)
c. Consolidated financial statements (See above)
PROBLEM 4: MULTIPLE CHOICE: COMPUTATIONAL

1. D
Solution:
Sales by Parent 400,000
Sales by Subsidiary 280,000
Less: Intercompany sales during the year
(squeeze) (64,000)
Consolidated sales 616,000
2. A
Solution:
Less: Intercompany sales during the yr. (see prev. (64,000
sol’n) )
Add: Unrealized profit in ending inventory (squeeze) 6,000
462,00
3. C
Solution:
(250,000
Less: Intercompany sales during the yr. )
Add: Unrealized profit in ending inventory -*
Consolidated cost of sales 500,000
21
*All the inventory were sold to third parties during the year.
4. C
Solution:
Ending inventory of Banks Co. (175,000 + 60,000) 235,000
Ending inventory of Lamm Co. 250,000
Less: Unrealized profit in EI (50,000 x
60,000/200,000) (15,000)
5. B
Solution:
Kidd's net assets at fair value – Dec. 31, 1994 (180K –
60K) 120,000
Total 30,000
1994 30,000
6. B – the common stock of the parent
7. B – same as parent dividends paid, since dividends paid by sub (Kidd)

are 100% eliminated in consolidation.
 Interco. dividends paid by Kidd to Pare (5,000 x .75 = 3,750) should
be eliminated.
 The dividends paid to the non-controlling shareholders (5,000 x .25
= 1,250) would decrease their non-controlling interest.
8. D
Solution:
Saul's net assets at fair value – 12/31/20x9 (6M+ 550K– 6,385,00
165K) 0
1,277,00
Total 0
Add: Goodwill to NCI net of accumulated impairment losses* 50,000
1,327,00
Non-controlling interest in net assets – 12/31/20x9 0
*Goodwill to NCI is computed as follows:
22
Consideration transferred (cost of investment in sub.) xx
Previously held equity interest in the acquiree -
Total xx
Less: Parent's proportionate share in the net assets of
subsidiary (xx x 80%) (xx)
Goodwill attrib. to owners of parent - acquisition date xx
Less: Parent's share in goodwill impairment -
Goodwill attrib. to owners of parent xx
Fair value of NCI [(5,000,000 ÷ 80%) x 20%] 1,250,000

Less: NCI's proportionate share in net assets
(1,200,000)
of subsidiary (6,000,000 x 20%)
Goodwill attributable to NCI - acquisition date 50,000
Less: NCI's share in goodwill impairment -
Goodwill attributable to NCI – current year 50,000
Goodwill, net – current year xx
9. C
Solution:
Total consolidated current assets before elimination 320,000
Unrealized profit on purchases from Kent (48K x
60/240) (12,000)
Consolidated current assets 308,000
No elimination is made on the transaction with Dean because Clark does not
control Dean, and therefore, Dean is not consolidated.
10. A
Solution:
The gain or loss on the extinguishment of the bonds is computed as follows:

Carrying amount 1,075,000
Settlement amount 975,000
Gain on extinguishment 100,000
The gain pertains to the owners of the parent only because the issuer of the
bonds is the parent. Therefore, the transaction does not affect NCI.
23
24

Consolidated Financial Statements (Part 2) : Problem 1: Multiple Choice - Theory

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Consolidated Financial Statements (Part 2) : Problem 1: Multiple Choice - Theory

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Chapter 5

Consolidated Financial Statements (Part 2)

PROBLEM 1: MULTIPLE CHOICE - THEORY

PROBLEM 2: FOR CLASSROOM DISCUSSION

Cost of sales of Parent 400,000

Ending inventory of Parent 300,000

The solution above is based on the notion that it is as if the intercompany

Equipment - net (Bright Co.) 400,000

Step 1: Analysis of effects of intercompany transaction

The unamortized balance of the deferred gain is computed as follows:

Step 2: Analysis of net assets

Step 3: Goodwill computation

Step 4: Non-controlling interest in net assets

Step 6: Consolidated profit or loss

LIABILITIES AND EQUITY

Profit attributable to owners of the parent (Step 7) 268,50

Step 2: Analysis of net assets

Step 3: Goodwill computation

Step 4: Non-controlling interest in net assets

The dividends received from the subsidiary are not separately

Step 6: Consolidated profit or loss

Step 7: Profit or loss attributable to owners of parent and NCI

SUMMARY OF ANSWERS TO REQUIREMENTS:

Requirement (a): Gain (loss) on extinguishment of bonds

The gain or loss on the extinguishment of bonds is computed as:

Requirement (b): Consolidated total bonds payable

Step 2: Analysis of net assets

Step 3: Goodwill computation

Step 4: Non-controlling interest in net assets

Step 5: Consolidated retained earnings

Step 7: Profit or loss attributable to owners of parent and NCI

Requirement (c): Consolidated financial statements

LIABILITIES AND EQUITY

TOTAL LIABILITIES AND EQUITY 580,000

Profit attributable to owners of the parent (Step 7) 145,000

*The interest expense is not eliminated because the interest expense

SUMMARY OF ANSWERS TO REQUIREMENTS

* (12,000 ÷ 75%) = 16,000

Cost of sales of Parent 400,000

Ending inventory of Parent 300,000

The solution above is based on the notion that it is as if the intercompany

Step 1: Analysis of effects of intercompany transaction

The unamortized balance of the deferred gain is computed as follows:

Step 2: Analysis of net assets

Step 3: Goodwill computation

Step 4: Non-controlling interest in net assets

Step 5: Consolidated retained earnings

Step 6: Consolidated profit or loss

Step 7: Profit or loss attributable to owners of parent and NCI

LIABILITIES AND EQUITY

Step 2: Analysis of net assets

Step 3: Goodwill computation

Step 4: Non-controlling interest in net assets

Step 6: Consolidated profit or loss

Step 7: Profit or loss attributable to owners of parent and NCI

SUMMARY OF ANSWERS TO REQUIREMENTS:

Requirement (a): Gain (loss) on extinguishment of bonds

Acquisition cost of bonds (assumed retirement price) 320,000

Requirement (b): Consolidated total bonds payable

Step 2: Analysis of net assets

Net assets at carrying amounts 208,000 234,000

Step 3: Goodwill computation

Step 4: Non-controlling interest in net assets