Davyn Muhammad Farrell

041911333141
AKL

P9-1

Polly and Subsidiaries

Income Allocation Schedule
For the year 2014

Polly Sally Jolly Wally

Separate earnings $450,000 $ 250,000 $100,000 $50,000
Add: Realized profit from sale of land $ 10,000 $ 5,000
Less: Unrealized profit from sale of land $ (15,000) _$(10,000)

Separate realized earnings $450,000 $ 235,000 $100,000 $ 45,000

Alllocate Wally's income
50% to Jolly $ 22,500 $(22,500)
10% to Sally $ 4,500 $( 4,500)
30% to Polly $ 13,500 $(13,500)
Allocate Jolly’s income
70% to Sally $122,500
$ 85,750 $(85,750)
Allocate Sal’s income $ 325,250
80% to Polly $260,200 $(260,200)
Patent (40,000)

Controlling share of net income $723,700

Noncontrolling interest share $ 65,050 $ 36,750 $ 4,500

P9-2

1 Sea’s books

Investment in Toy (70%) 588,000

Cash 588,000
To record purchase of a 70% interest in Toy Corporation.

Cash 28,000
Investment in Toy (70%) 28,000
To record dividends received from Toy ($40,000  70%).

Investment in Toy (70%) 70,000

Income from Toy 70,000
To record investment income computed as follows:
Share of Toy’s net income ($120,000  70%) $ 84,000
Less: Unrealized profit from upstream sale of
inventory items ($20,000  70%) (14,000)
$ 70,000

Pot’s books

Cash 96,000
 Investment in Sea (80%) 96,000
To record dividends received from Sea ($120,000  80%).

Investment in Sea (80%) 176,000

Income from Sea 176,000
To record investment income computed as follows:

Share of Toy’s net income

($200,000 + $70,000)  80% $216,000
Less: Unrealized gain on land sold to Toy (40,000)
$176,000
P9-2

2 Schedule of income allocation

Pot Sea Toy
Separate earnings $600,000 $200,000 $120,000
Less: Unrealized profits (40,000) (20,000)

Separate realized earnings 560,000 200,000 100,000

Allocate Toy’s realized earnings
to Sea ($100,000  70%) 70,000 (70,000)

Sea’s net income 270,000

Allocate Sea’s net income to
Pot ($270,000  80%) 216,000 (216,000)

Pot’s net income and

Controlling share of net income $776,000 _________
Noncontrolling interest share $ 54,000 $ 30,000

Check: Realized earnings ($560,000 + $200,000 + $100,000) $860,000

Less: Noncontrolling interest share (54,000+30,000) (84,000)
Controlling share of net income $776,000

3 Schedule of assets and equities at December 31, 2012

Pot Sea Toy

Assets $ 3,696,000 $ 920,000 $1,080,000

Investment in Sea (80%) 880,000
Investment in Toy (70%) ___________ 630,000 __________
Total assets $ 4,576,000 $1,550,000 $1,080,000

Liabilities $ 600,000 $ 400,000 $ 200,000

Capital stock 2,400,000 800,000 600,000
Retained earnings 1,576,000 350,000 280,000
Total liabilities and equity $ 4,576,000 $1,550,000 $1,080,000

Note: Pot’s assets other than investments consist of $3,200,000 assets at the beginning of the year, plus
separate earnings of $600,000 and dividend income of $96,000, less dividends paid of $200,000.
Sea’s assets other than investments consist of $1,400,000 assets at the beginning of the period,
plus separate earnings of $200,000 and dividend income of $28,000, less investment cost of $588,000 and
dividends paid of $120,000.
P9-3

Preliminary computations

Check on consolidated net income

Pen Sir Tip Total
Net income as stated $184,500 $90,000 $25,000 $299,500
Less: Investment income (84,500) (10,000) (94,500)
Separate income 100,000 80,000 25,000 205,000
Add: Unrealized profit in
beginning inventory 8,000 8,000
Less: Unrealized profit in
ending inventory _________ ________ (20,000) (20,000)
Separate realized incomes 108,000 80,000 5,000 193,000
Allocate Tip’s income
50% to Pen 2,500 (2,500)
40% to Sir 2,000 (2,000)
Sir’s net income 82,000
Allocate Sir’s income 9
80% to Pen 65,600 (65,600)
Less: Depreciation on excess
allocated to plant and
Equipment (5,000) ( 1,250) (6,250)
Total income of consolidated
Entity _________ $186,750
Controlling share of NI $171,100 _________ ________ 171,100
Noncontrolling int. share $ 15,150 $ 500 15,650
$186,750

Investment in Sir (80%) $ 420,000

Implied total fair value of Sir ($420,000 / 80%) $ 525,000

Book value of Sir (500,000)
Excess of fair value over book value $ 25,000

Excess allocated to equipment with a four year lfe

Amortization ($25,000 / 4 yrs) $ 6,250

Investment in Tip (50%) $ 75,000

Implied total fair value of Tip ($75,000 / 50%) $ 150,000

Book value of Sir (120,000)
Excess of fair value over book value – Goodwill $ 30,000
P9-3
Pen Corporation and Subsidiaries
Consolidation Working Papers
for the year ended December 31, 2011

Adjustments and Consolidated

Pen Sir Tip Eliminations Statements
Income Statement
Sales $500,000 $300,000 $100,000 h 50,000 $ 850,000
Income from Sir 72,000 d 72,000
Income from Tip 12,500 10,000 a 22,500
Cost of sales 240,000* 150,000* 60,000* i 20,000 g 8,000
h 50,000 412,000*
Other expenses 160,000* 70,000* 15,000* f 6,250 251,250*
Noncont.int.share — Sir c 15,150 15,150*
Noncont.int.share — Tip c 500 500*
Cont. share of net inc. $184,500 $ 90,000 $ 25,000 $ 171,100

Retained Earnings
Retained earnings — Pen $115,500 f 12,500

g 8,000 $ 95,000
Retained earnings — Sir 160,000 e 160,000

Retained earnings — Tip 45,000 b 45,000

Cont. share of net inc. 184,500✓ 90,000✓ 25,000✓ 171,100

Dividends 80,000* 40,000* 10,000* a 9,000
c 9,000
d 32,000 80,000*
Retained earnings
December 31 $220,000 $210,000 $ 60,000 $ 186,100

Balance Sheet
Cash $ 67,000 $ 36,000 $ 10,000 $ 113,000
Accounts receivable 70,000 50,000 20,000 j 10,000 130,000
Inventories 110,000 75,000 35,000 i 20,000 200,000
Plant and
equipment — net 140,000 425,000 115,000 e 25,000 f 18,750 686,250
Investment in d 40,000
Sir 80% 508,000 e 468,000
Investment in 95,000 a 7,500
Tip 50% b 87,500
Investment in 74,000 a 6,000
Tip 40% b 68,000
Goodwill ________ ________ ________ b 30,000 30,000
$990,000 $660,000 $180,000 $1,159,250

Accounts payable $ 70,000 $ 40,000 $ 15,000 j 10,000 $ 115,000

Other liabilities 100,000 10,000 5,000 115,000
Capital stock 600,000 400,000 100,000 b 100,000
e 400,000 600,000
Retained earnings 220,000✓ 210,000✓ 60,000✓ 186,100
$990,000 $660,000 $180,000
Noncontrolling interest — Sir (beginning) e 117,000
Noncontrolling interest — Tip (beginning) b 19,500
Noncontrolling interest December 31 _________ c 6,650 143,150
976,900 976,900 $1,159,250
* Deduct
E9-7

1 a
Separate income of Tar $400,000
Direct noncontrolling interest X 30%
$120,000

2 a
Separate income = net income of Van $240,000
Noncontrolling interest (direct) X 20%
$ 48,000

3 c
Total separate incomes $2,130,000
Less: Controlling Share of Consolidated net income
Pan $1,240,000  100% $1,240,000
Sin $350,000  90% 315,000
Tar $400,000  90%  70% 252,000
Win $(100,000)  90%  60% (54,000)
Van $240,000  90%  80% 172,800 (1,925,800)
Total noncontrolling interest share $ 204,200

Alternative solution
Sin $350,000  10% $ 35,000
Tar $400,000  37% 148,000
Won $(100,000)  46% (46,000)
Van $240,000  28% 67,200
Total noncontrolling interest share $ 204,200

4 a
[See computations for question 3]

5 d
Net income of Sin
Separate income $ 350,000
Add: 70% of Tar’s $400,000 280,000
Deduct: 60% of Won’s $(100,000) (60,000)
Add: 80% of Van’s $240,000 192,000
Net income of Sin $ 762,000
Pan’s interest 90%
Investment increase 685,800
Less: Dividends received from Sin ($200,000  90%) (180,000)
Net increase $ 505,800
E9-11

1 b

2 b

3 d

4 c

Supporting computations

A = Pin’s income on a consolidated basis

B = Son’s income on a consolidated basis
C = Tin’s income on a consolidated basis

A = $190,000 + .8B + .7C

B = $170,000 + .15C
C = $230,000 + .25A

Solve for A
A = $190,000 + .8[$170,000 + .15($230,000 + .25A)] + .7($230,000 + .25A)
A = $190,000 + $136,000 + $27,600 + .03A + $161,000 + .175A
A = $514,600 + .205A
.795A = $514,600
A = $647,295.59

Determine C
C = $230,000 + .25($647,295.59)
C = $391,823.90

Determine B
B = $170,000 + .15($391,823.90)
B = $228,773.58

Allocate income to controlling share of consolidated net income and noncontrolling interest

Controlling Share of Consolidated net income ($647,295.59  75%) $485,471.69

Noncontrolling interest — Son ($228,773.58  20%) 45,754.72
Noncontrolling interest — Tin ($391,823.90  15%) 58,773.59
Total consolidated income $590,000.00
E9-13

1 Treasury stock approach

Investment in Sat balance December 31, 2011
Investment balance December 31, 2010 $245,700
Add: Income from Sat 26,900
Less: Dividends received from Sat(70% x $30,000) (21,000)
Add: Dividends paid to Sat 6,000
Investment in Sat December 31, 2011 $257,600

Supporting computations
Computation of income from Sat:
Sat’s separate income $ 50,000
Add: Sat’s dividend income from Pug 6,000
Sat’s net income 56,000
Pug’s ownership interest 70%
Pug’s equity in Sat’s income 39,200
Less: Dividends paid to Sat ($60,000  10%) (6,000)
Less: Excess amortization ($9,000 x 70%) (6,300)
Income from Sat $ 26,900

2 Conventional approach
Pug’s net income and consolidated net income

P = ($120,000 + .7S) - $6,300

S = $50,000 + .1P

P = $120,000 + .7($50,000 + .1P) - $6,300

P = $120,000 + $35,000 + .07P - $6,300
.93P = $148,700
P = $159,892

S = $50,000 + .1($159,892)
S = $65,989

Pug’s net income and controlling share

($159,892  90%) $143,903
Noncontrolling interest share ($65,989  30%) 19,797
Total income $163,700

Income from Sat

Controlling Share of Consolidated net income $143,903
Less: Pug’s separate income 120,000
Income from Sat $ 23,903

Or alternatively,
($65,989  70%) - ($159,892  10%) - $6,300 excess $ 23,903

Investment in Sat December 31, 2011

Investment in Sat December 31, 2010 $245,700
Add: Income from Sat 23,903
Less: Dividends from Sat (21,000)
Investment in Sat December 31, 2011 $248,603