Problem 1 P Company

Total Parent NCI

80% 20%
Company fair value 465,000 372,000 93,000
FV of net assets 450,000 360,000 90,000
Goodwill 15,000 12,000 3,000

CS 240,000
Retained Earnings 120,000
Book value 360,000 amortization amortization
Over/under valuation life 2014 2015
Inventory (under) (6,000) (6,000)
land (under) (7,200)
Equipment (under) (96,000) 8 (12,000) (12,000)
Bldg -over 24,000 4 6,000 6,000
Bonds payable (4,800) 4 (1,200.0) (1,200.0)
(90,000) (13,200) (7,200)
Fair value of net assets 450,000

impairment of goodwil -2014 -full goodwill 3,750 100%

impairment of goodwil -2014 -partial 3,000 80%
impairment(NCI) 750 20%

Intercompany sale of equipment

1. date of sale- 4/1/14. Downstream seller-parent

Selling Price 90,000

Cost 120,000
Accum.depr 45,000 75,000
Gain 15,000

annual realized gain 15000/5 depreciation 3,000

realized gain 2014 3000/12x9 depreciation 2,250

2. date of sale - 1/2/14 upstream seller-subsidiary

Selling Price 60,000

Cost 72,000
Accum.depr 43,200 28,800
Gain 31,200

annual realized gain 31200/8 depreciation 3,900

realized gain 2014 depreciation 3,900

Elimination entry Effects of intercompany sale of equipment

2014 DS sale
Equipment 30,000
Gain on sale 15,000
 Accum. Depreciation 45,000

Accum depreciation 2250

Depreciation 2250

2014 upstream sale

Equipment 72T-60T 12,000
Gain on sale 31,200
Accum. Depreciation 43,200

Accum depreciation 3,900

Depreciation 3,900

2015 DS sale
Equipment 30,000
RE,Jan.1 15,000
Accum. Depreciation 45,000

Accum depreciation 2250+3000 5,250

Depreciation 3,000
RE-1/1/15 (prior year) 2,250

2015 upstream sale

Equipment 72T-60T 12,000
RE-parent 1/1/15. 31200x80% 24,960
NCI 31200x20% 6,240
Accum. Depreciation 36,960

Accum depreciation 7,800

Depreciation 3,900
RE-1/1/15-prior year 3900x80% 3,120
NCI 3900x20% 780

Requirement No.1 Balances on Jan 1, 2014.

a. Consolidated Retained Earnings, Jan. 1, 2014

Retained Earnings -parent 360,000

b. Noncontrolling interest (partial) 1/1/14. 90,000

Noncontrolling interest (full goodwill) 1/1/14. 93,000

c. Consolidated Stockholder's Equity, 1/1/14. Partial Full

Goodwill Goodwill
Common stock 600,000 600,000
Retained Earnings 360,000 360,000
NCI 90,000 93,000
Consolidated SHE 1,050,000 1,053,000

d. Cost of Equipment, accum. Depr. And net book value, 1/1/14.

 P Co S Co. Consolidated
Equipment 240,000 180,000 420,000
Less: Accum. Depr. 135,000 96,000 231,000
Net book value 105,000 84,000 189,000

Requirement No.2 Balances for Dec. 31, 2014 & Dec. 31, 2015

December 31, 2014 December 31, 2015

Consolidated Partial Goodwill Full Goodwill Partial Goodwill Full Goodwill
Cash 322,800 322,800 367,200 367,200
Accounts Receivable 150,000 150,000 276,000 276,000
Inventory 210,000 210,000 324,000 324,000
Land 265,200 265,200 265,200 265,200
Equipment(net) 232,950 232,950 206,850 206,850
Building(net) 549,000 549,000 492,000 492,000
Investment in Son - - - -
Goodwill 9,000 11,250 9,000 11,250
Total Asset 1,738,950 1,741,200 1,940,250 1,942,500
Accounts payable 193,800 193,800 193,800 193,800
Bonds Payable 356,400 356,400 357,600 357,600
Total liabilities 550,200 550,200 551,400 551,400
Common stock 600,000 600,000 600,000 600,000
Retained Earnings 495,810 495,810 688,170 688,170
Controlling Interest 1,095,810 1,095,810 1,288,170 1,288,170
Noncontrolling Interest 92,940 95,190 100,680 102,930
Stockholders' Equity 1,188,750 1,191,000 1,388,850 1,391,100
Total Liabilities and SHE 1,738,950 1,741,200 1,940,250 1,942,500

Consolidated Net Income 2014 Partial Goodwill approach

Parent Subsidiary Consolidated
Sales 480,000 240,000
Cost of sales (204,000) (138,000)
depreciation (60,000) (24,000)
other expenses (48,000) (18,000)
Operating income 168,000 60,000
Gain on sale of equipt 15,000 31,200
Total net income 183,000 91,200
Adjustments:
Amortization (13,200)
Unrealized gain-DS (15,000)
Unrealized gain-US (31,200)
Realized gain-DS 2250
Realized gain-US 3,900
goodwill impairment-partia (3,000)
Adjusted net income 167,250 50,700 217,950 CNI-partial
NCI in net income 20% 10,140 10,140 NCI in NI
CNI-Parent (controlling interest in CNI) 207,810 CNI-parent
Consolidated Net Income 2014 Full Goodwill approach
Parent Subsidiary Consolidated
Sales 480,000 240,000
Cost of sales (204,000) (138,000)
depreciation (60,000) (24,000)
other expenses (48,000) (18,000)
Operating income 168,000 60,000
Gain on sale of equipt 15,000 31,200
Total net income 183,000 91,200
Adjustments:
Amortization (13,200)
Unrealized gain-DS (15,000)
Unrealized gain-US (31,200)
Realized gain-DS 2250
Realized gain-US 3,900
goodwill impairment-full (3,750)
Adjusted net income 166,500 50,700 217,200 CNI
NCI in net income 20% 10,140
less: NCI share in impairment (750) 9,390 NCI in NI
CNI-Parent (controlling interest in CNI) 207,810 CNI-parent

Consolidated Net Income 2015 Partial/Full Goodwill approach

Parent Subsidiary Consolidated
Sales 540,000 360,000
Cost of sales (216,000) (192,000)
depreciation (60,000) (24,000)
other expenses (72,000) (54,000)
Operating income 192,000 90,000
Gain on sale of equipt
Total net income 192,000 90,000
Adjustments:
Amortization (7,200)
Unrealized gain-DS -
Unrealized gain-US -
Realized gain-DS 3000
Realized gain-US 3,900
goodwill impairment
Adjusted net income 195,000 86,700 281,700 CNI
NCI in net income 20% 17,340 17,340 NCI in NI
CNI-Parent (controlling interest in CNI) 264,360 CNI-parent

Consolidated Retained Earnings 2014 2015

Retained Earnings,Jan.1,2014 360,000 360,000
Consolidated NI-2014 207,810 207,810
Consolidated NI-2015 264,360
Div. paid-2014-parent (72,000) (72,000)
Div. paid-2015-parent (72,000)
Consolidated Retained Earnings 495,810 688,170

alternative solution for 2015.

Retained Earnings,parent 499800+230400-72000 658,200
Unrealized gain -DS (date of sale) 15,000
Realized 2014 2,250
2015 3,000 5,250 (9,750)
Adj. Retained Earnings-parent Dec.31, 2015 648,450
Share of parent in Sub.'s increase in RE
Retained Earnings-1/1/14 120,000
Retained Earnings-12/31/15 217,200
Increase 97,200
amortization-2014 (13,200)
amortization-2015 (7,200)
UG-US 31200-7800 (23,400) (43,800)
53,400
controlling interest 80% -
Total 42,720
Impairment of goodwill (3,000) 39,720
Consolidated Retained Earnings,Dec. 31, 2015. 688,170

Non-controlling Interest
2,014 2,015
Book Value of subsidiary, Jan.1, 2014. 360,000 360,000
Net income-2014 60000+31200 91,200 91,200
Net income-2015 90,000
Fair value adjustment 90,000 90,000
amortization-2014 (13,200) (13,200)
amortization-2015 (7,200)
Unrealized gain-US-2014 31200-3900 (27,300)
Unrealized gain-US-2015 31200-7800 (23,400)
Div. paid-2014 (36,000) (36,000)
Div. paid-2015 (48,000)
Fair value of subsidiary 464,700 503,400
20% 20%
NCI, partial goodwill 92,940 100,680
NCI share in full godwill 3000-750 2,250 2,250
NCI, full goodwill 95,190 102,930

Non-controlling Interest alternative computation

2,014 2,015
NCI, beginning, partial goodwill 90,000 92,940
NCI in net income 10,140 17,340
dividends 36000x20%) (48000x20%) (7,200) (9,600)
NCI, end-partial 92,940 100,680
NCI share in full godwill 3000-750 2,250 2,250
NCI, full goodwill 95,190 102,930

Consolidated Stockholder's Equity(partial goodwill approach)

2014 2015
Common stock,parent 600,000 600,000
Consolidated Retained Earnings 495,810 688,170
NCI,partial 92,940 100,680
Consolidated SHE 1,188,750 1,388,850

Consolidated Stockholder's Equity(Full goodwill approach)

2014 2015
Common stock,parent 600,000 600,000
Consolidated Retained Earnings 495,810 688,170
NCI full 95,190 102,930
Consolidated SHE 1,191,000 1,391,100

Cost of Equipment, Accu.depr & Book Value 2014

Equipment Accum.depr Net Book Value
Parent 240,000 135,000
Subsidiary 180,000 96,000
sub-total 420,000 231,000
fair value adj. (96,000)
Accum.amortization 12,000
Inter-com. sale-elim 30T+12T 42,000
Accumdepr.-elim-US 43200-3900 39,300
Accum. Depr.Elim-DS 45T-2250 42,750
462,000 229,050 232,950

Cost of Equipment, Accu.depr & Book Value 2015

Equipment Accum.depr Net Book Value
Parent 240,000 150,000
Subsidiary 180,000 102,000
sub-total 420,000 252,000
fair value adj. (96,000)
Accum.amortization 12000x2 24,000
Inter-com. sale-elim 30T+12T 42,000
Accumdepr.-elim-US 43200-7800 35,400
Accum. Depr.Elim-DS 45T-5250 39,750
462,000 255,150 206,850

232800 90000
90000 60000
120000 90000
210000 48000
240000 180000
720000 540000
372000
204000 138000
60000 24000
48000 18000
72000 36000
2368800 1224000

135000 96000
405000 288000
105000 88800
240000 120000
 600000 240000
360000 120000
480000 240000
15000 31200
28800
2368800 1224000

265200 102000
180000 96000
216000 108000
210000 48000
240000 180000
720000 540000
372000
216000 192000
60000 24000
72000 54000
72000 48000
2623200 1392000
150000 102000
450000 306000
105000 88800
240000 120000
600000 240000
499800 175200
540000 360000
38400
2623200 1392000