Rifda Amalia

041911333165
AKL 1
A1-SP

Solution E7-1

1 Cost paid to retire 1/2 of Lenka SA’s bonds $550,000

Book value of bonds retired $400,000
(($1,000,000 - $200,000) × 0.5)
Constructive loss on bond retirement $140,000

80% of Petr SA’s net income (80% × $500,000) $400,000

Constructive loss on bond retirement ($140,000)
Piecemeal recognition of constructive loss $28,000
($140,000/5)
Income from Petr SA $288,000

2 Noncontrolling interest share:

20% of Petr SA’s net income (20% × $500,000) $100,000

Solution E7-2

1 Book value of Albert NL’s bonds at January 1, 2014 $2,200,000

Amortization of bonds for 1 year ($200,000/10) ($20,000)
Book value of Albert NL’s bonds at December 31, 2014 $2,180,000

10 percent bonds payable that should be reported:

80% of book value of Albert NL’s bonds $1,774,000
(80% × $2,180,000)

2 Investment in Albert NL is a reciprocal account. Thus it should not be reported on the

consolidated financial statements.

3 Total interest expense for the year $180,000

(($2,000,000 × 10%) – ($200,000/10))

Interest expense that should be reported:

80% of total interest expense (80% × $180,000) $144,000

4 There is no interest income that should be reported because the interest income is the
result of constructive retirement.

Solution E7-3

1 Cost paid to retire 20% of Noa DD’s bonds $185,000

Book value of bonds retired (20% × $800,000) $160,000
Constructive loss on bond retirement $25,000
 90% of Noa DD net income (90% × $400,000) $360,000
90% of Constructive loss on bond retirement ($22,500)
(90% × $25,000)
90% of piecemeal recognition of constructive loss $4,500
(90% × $25,000/5)
Income from Noa DD $342,000

2 10% of Noa DD net income (10% × $400,000) $40,000

10% of Constructive loss on bond retirement ($2,500)
(10% × $25,000)
10% of piecemeal recognition of constructive loss $500
(10% × $25,000/5)
Noncontrolling interest share $38,000

Check:
Noncontrolling interest share:
Income from Noa DD × 10%/90% $38,000

Solution E7-4

1 Controlling Share of Consolidated net income (in thousands)

Pop’s separate income $3,200

Add: Income from Son
Share of Son’s income
($2,000 80%) $1,600
Less: Loss on bonds constructively
retired
Book value
($4,000 - $160) 40% $1,536
Cost to Son 1,600 (64)
Add: Piecemeal recognition of loss
($64,000/4 years) 16 1,552
Controlling Share of Consolidated net $4,752
income

2 Noncontrolling interest share

Son’s reported income

$2,000 20% $ 400

Solution E7-11

Preliminary computations:

Book value of Sun bonds on January 1, 2017 $1,000,000

Purchase price paid by Pam 783,000
 Gain on constructive retirement of Sun’s bonds $ 217,000

Amortization of gain on bonds ($217,000/7 years) $ 31,000

Computation of noncontrolling interest share:

Share of Sun’s reported income ($140,000 20%) $ 28,000
Add: Share of constructive gain ($217,000 20%) 43,400
Less: Piecemeal recognition of constructive gain ($31,000 20%) (6,200)
Noncontrolling interest share $ 65,200

Pam Corporation and Subsidiary

Consolidated Income Statement
for the year ended December 31, 2017
(in thousands)

Sales $1,800
Less: Cost of sales 950

Gross profit 850

Add: Gain from constructive retirement of Sun’s bonds 217
Less: Operating expenses 400
Consolidated net income $ 667
Less: Noncontrolling interest share 65.2
Controlling interest share of NI $ 601.8

Solution P7-3

Income from Sun for 2016:

Share of reported income of Sun ($400,000 75%) $ 300,000

Add: Unrealized profit in beginning inventory of Sun 48,000
Less: Unrealized profit in ending inventory of Sun (60,000)
Add: Piecemeal recognition of gain on sale of equipment
to Pam ($96,000/6 years) 75% 12,000
Less: Unrealized gain on sale of land to Sun (40,000)
Less: Unrealized gain on sale of building to Sun less
piecemeal recognition through depreciation ($80,000 - $4,000) (76,000)
Add: Gain on constructive retirement of Pam’s bonds
($400,000 - $376,000) 24,000
Income from Sun $ 208,000

Investment in Sun at December 31, 2016:

Underlying equity in Sun ($2,080,000 75%) $1,560,000

Less: Unrealized profit in Sun’s ending inventory (60,000)
Less: Unrealized gain on equipment sold to Pam
 ($96,000 - $48,000 recognized) 75% (36,000)
Less: Unrealized gain on sale of land to Sun (40,000)
Less: Unrealized gain on sale of building to
Sun ($80,000 - $4,000 recognized) (76,000)
Add: Gain on constructive retirement of Pam’s bonds 24,000
Investment in Sun December 31 $1,372,000

Noncontrolling interest share:

Net income of Sun $400,000

Add: Piecemeal recognition of gain on equipment ($96,000/6 years) 16,000
Sun’s realized income 416,000
Noncontrolling interest percentage 25%
Noncontrolling interest share $104,000

Pam Corporation and Subsidiary

Consolidation Working Paper
for the year ended December 31, 2016
(in thousands)
Adjustments and Consolidated
Pam Sun 75% Eliminations Statements
Income Statement
Sales $ 2,520 $ 2,000 b 200 $4,320
Gain on land 40 l 40
Gain on building 80 f 80
Income from Sun 208 h 208
Gain on bonds g 24 24
Cost of sales 1,400* 1,200* d 60 b 200
c 48 2,412*
Depreciation expense 304* 160* e 16
f 4 444*
Interest expense 80* 80*
Other expenses 184* 240* 424*
Consolidated NI 984
Noncontrolling int. share k 104 104*
Controlling share of NI $ 880 $ 400 $ 880
Retained Earnings
Retained earnings — Pam $ 600 $ 600
Retained earnings — Sun $ 400 i 400
Controlling share of NI 880✔ 400✔ 880
Dividends 640* 320* h 240
k 80 640*
Retained earnings, Dec. 31 $ 840 $ 480 $ 840
Balance Sheet
Cash $ 108 $ 324 a 40 $ 472
Bond interest receivable 20 j 20
Other receivables 160 120 a 40 240
Inventories 320 200 d 60 460
Land 360 280 l 40 600
Buildings — net 600 720 f 76 1,244
Equipment — net 560 360 e 48 872
Investment in Sun stock 1,372 c 48 i 1,500
e 48
h 32
Investment in Pam bonds _______ 376 g 376 ______
$ 3,480 $ 2,400 $3,888
Accounts payable $ 200 $ 320 $ 520
Bond interest payable 40 j 20 20
10% bonds payable 800 g 400 400
Common stock 1,600 1,600 i 1,600 1,600
Retained earnings 840✔ 480✔ 840
$ 3,480 $ 2,400
Noncontrolling interest January 1 e 16 i 500
Noncontrolling interest December 31 _______ k 24 508
3,296 3,296 $3,888
*Deduct