Chapter 7 In-Class Practice

Year ended December 31, 2015

Income Statements

Sales
Other revenues
Less: Expenses:
Cost of Goods Sold:
Depreciation Expense
Other Expenses
Income Tax Expense
Net Income

Retained Earnings Statements

Balance, January 1, 2015
Net Income
Less: Dividends
Retained Earnings

Balance Sheet
Cash
Accounts Receivable
Inventory
Investment in SAINT Inc.
Equipment (net)
Trademark
Land
Total Assets

Current Liabilities
Bonds Payable
Common Shares
Retained Earnings
Total Liabilities and Equity

For 2015:
Calculate the acquisition differential, goodwill and NCI at acquisition.
Cost of 60% of Saint
Implied 100% value
Carrying amount

Acquisition differential
Allocation:
Trademark
Inventory
Balance: goodwill

NCI at acquisition: 40% X $700,000=

Prepare the amortization schedule of the acquisition differential.

Trademark
Inventory
Goodwill
Total

Intercompany transactions and realized/unrealized profit/gain

Intercompany transactions:
Dividend from S to P: $50,000X60%=
Intercompany sale of inventory upstream:
Unpaid invoice in 2015 on sale of inventory:

Realized and unrealized profit:

Upstream ending inventory Unrealized

in 2015 (30,000-20,000)X70%
Downstream opening inventory
Realized in 2015
Unrealized in 2014 (60,000-40,000)X40%

Downstream gain on equipment

70,000-40,000
Depreciation 2015 (realized)
Unrealized balance
Upstream gain on land
Realized in 2015
Unrealized in 2014
53,000-47,000

Calculate the consolidated net income for 2015

PAINT net income
Less: dividend from SAINT
Add: realized after-tax downstream gain on opening inventory
Less: unrealized after-tax downstream gain on sale of equipment
Adjusted PAINT net income
SAINT net income

Less: amortization of acquisition differential

Add: realized after-tax upstream gain on land
Less: unrealized after-tax profit upstream ending inventory
Adjusted SAINT net income
Consolidated net income

Attributable to:
PAINT: 331,300+140,400X60%
NCI: 140,400X40%

Calculate the consolidated retained earnings OPENING

PAINT R/E opening 1/1/2015
Less: unrealized after-tax downstream inventory in 2014
Adjusted PAINT R/E, 1/1/2015
SAINT R/E opening, 1/1/2015
R/E at acquisition
Increase since acquisition
Less: accumulated amortization of acquisition differential
Less: unrealized after-tax gain on upstream sale of land
Adjusted SAINT R/E opening, 1/1/2015

PAINT ownership

Consolidated R/E opening, 1/1/2015

Calculate the consolidated retained earnings ENDING

PAINT R/E 12/31/2015

Less: Unrealized after-tax downstream gain on sale of equipment

Adjusted PAINT R/E, 12/31/2015

SAINT R/E, 12/31/2015
R/E at acquisition
Increase since acquisition
Less: accumulated amortization of acquisition differential
Less: unrealized after-tax profit upstream ending inventory
Adjusted SAINT R/E, 12/31/2015

PAINT ownership
Consolidated R/E, 12/31/2015

Calculate NCI 12/31/2015

NCI at acquisition

NCI increase (B) in step 7

NCI ownership
NCI 12/31/2015

Alternative method:

SAINT common shares

SAINT R/E 12/31/2015
Add: unamortized acquisition differential
Less: unrealized after-tax profit upstream ending inventory
Total

NCI ownership
NCI 12/31/2015

Prepare the consolidated financial statements. Show all supporting calculations.

PAINT
Consolidated Income Statement
2015
Sales $947,000+$525,000-30,000sale
Other revenues $83,000+$60,000-30,000 div +6,000land-30,000equip
Less: Expenses
Cost of Goods Sold: $310,000+$256,000-30,000sale+7,000-8,000open inv
Depreciation Expense $28,000+$14,000-7,500deprn equp +4,000acq diff amor

Other Expenses $92,000+$40,000

Income Tax Expense $230,000+$130,000+3,200open inv+2,400land-2,800
-12,000equip+3,000deprn

Consolidate Net Income

Attributable to:
PAINT:
SAINT:

PAINT
Consolidated Statement of Retained Earnings
12/31/2015
Balance, January 1, 2015
Net Income
Less: Dividends
Retained Earnings

PAINT
Consolidated Balance Sheet 12/31/2015

Cash $110,000+$120,000
Accounts Receivable $103,000+$120,000-30,000
Inventory $105,000+$140,000-7,000
Investment in SAINT Inc.
Equipment (net) $325,000+$260,000-30,000+7,500
Trademark 0+$205,000+24,000unamortized acq diff
Land 0+$20,000
Deferred Tax Asset 0+0+2,800+12,000-3,000
Goodwill 0+0+95,000
Total Assets
Current Liabilities $180,000+$150,000-30,000
Bonds Payable $140,000+$100,000
Common Shares
Retained Earnings
NCI
Total Liabilities and Equity
PAINT Inc. SAINT Inc.
$947,000 $525,000
$83,000 $60,000

$310,000 $256,000
$28,000 $14,000
$92,000 $40,000
$230,000 $130,000
$370,000 $145,000

$133,000 $300,000
$370,000 $145,000
($60,000) ($50,000)
$443,000 $395,000

PAINT Inc . SAINT Inc.

$110,000 $120,000
$103,000 $120,000
$105,000 $140,000
$420,000 -
$325,000 $260,000
- $205,000
- $20,000
$1,063,000 $865,000

$180,000 $150,000
$140,000 $100,000
$300,000 $220,000
$443,000 $395,000
$1,063,000 $865,000

$420,000
420,000/60% $700,000
Common stock
220,000
R/E 480,000
260,000
220,000
 40,000
20,000
160,000

$280,000

1/1 2012 2012-2014 12/31 2014 2015 12/31 2015

40,000 12,000 28,000 4,000 24,000

20,000 20,000 0 0
160,000 2,000 158,000 158,000
220,000 34,000 186,000 4,000 182,000

30,000
30,000 (reduce sales and COGS)
30,000 (reduce A/R and A/P)

Before Tax Tax 40% After Tax

7,000 2,800 4,200

8,000 3,200 4,800

30,000 12,000 18,000

(7,500) (3,000) (4,500)

22,500 9,000 13,500
6,000 2,400 3,600

$370,000
(30,000)
4,800
(13,500)
 331,300
145,000.00

(4,000.00)
3,600.00
(4,200.00)
140,400
471,700

$415,540
$56,160

$133,000
(4,800)
128,200
300,000.00
(260,000.00)
40,000.00
(34,000.00)
(3,600.00)
2,400.00

    X60% 1,440
129,640

443000

-13500

429,500
395,000
(260,000)
135,000
(38,000)
(4,200)
92,800

    X60% 55,680
 485,180

280,000

92,800
X 40%  37,120
317,120

220,000
395,000
182,000
(4,200)
792,800.00

40%
317,120

$1,442,000
89,000
1,531,000
535,000
38,500

132,000
353,800
1,059,300
471,700

$415,540
$56,160

$129,640
 $415,540
($60,000)
$485,180

$230,000
193,000
238,000
-
562,500
229,000
20,000
11,800
158,000
$1,642,300
300,000
240,000
300,000
485,180
317,120
$1,642,300
Income Statements
PAINT Inc. SAINT Inc. Dr.
Cash $110,000 $120,000
Accounts Receivable $103,000 $120,000
Inventory $105,000 $140,000
Investment in SAINT Inc. $420,000 0
Equipment (net) $325,000 $260,000
Trademark 0 $205,000 $24,000
Goodwill $95,000
Acquisition Differencial $182,000
Land 0 $20,000
$1,063,000 $865,000

Current Liabilities $180,000 $150,000 $30,000

Bonds Payable $140,000 $100,000
Common Shares $300,000 $220,000 $220,000
NCI
Balance, January 1, 2018 $133,000 $300,000 $30,000
Less: Dividends ($60,000) ($50,000)
Sales $947,000 $525,000 $30,000
Other revenues $83,000 $60,000
Cost of Goods Sold: -$310,000 -$256,000 $7,000
Depreciation Expense -$28,000 -$14,000
Other Expenses -$92,000 -$40,000
Income Tax Expense -$230,000 -$130,000
$1,063,000 $865,000
Cr. Consolidation
$230,000
30000 $193,000
7000 $238,000
420000 $0
22550 $562,450
$229,000
$95,000
182000 $0
$20,000
$1,567,450

$300,000
$240,000
$300,000
$0
$403,000
-$110,000
$1,442,000
$143,000
38000 -$535,000
-$42,000
-$132,000
-$360,000
$1,649,000