Intercompany sale of PPE

Problem 2:
Requirement: January 1, 20x4
a. Consolidated Retained earnings 360,000
b. Non-controlling Interest 93,000
c. Consolidated Stockholder's equity
(600,000 + 360,000 + 93,000) 1,053,000

Requirement 2: Partial Goodwill Full Goodwill

20X4 20X5 20X4 20X5
Cash 322,800 367,200 322,800 367,200
Accounts Receivables 150,000 276,000 150,000 276,000
Inventory 210,000 324,000 210,000 324,000
Land 265,200 265,200 265,200 265,200
Equipment (net) 232,950 206,850 232,950 206,850
Buildings (net) 549,000 492,000 549,000 492,000
Investment in Son 0 0 0 0
Goodwill 9,000 9,000 11,250 11,250
Total Assets 1,738,950 1,940,250 1,741,200 1,942,500
Accounts Payable 193,800 193,800 193,800 193,800
Bonds payable 356,400 357,600 356,400 357,600
Total liabilities 550,200 551,400 550,200 551,400
Common stock/ OS 600,000 600,000 600,000 600,000
Retained earnings/ Acc. P&L 495,810 688,170 495,810 688,170
Sales 720,000 900,000 720,000 900,000
COGS 348,000 408,000 348,000 408,000
Gross Profit 372,000 492,000 372,000 492,000
Expenses, including GW impairment 154,050 210,000 154,800 210,300
Investment income 0 0 0 0
Controlling Interest in NI 207,810 264,360 207,840 264,360
NCI on NI 10,140 17,340 9,360 17,340
Net income 217,950 282,000 217,200 281,700
Common stock/ OS 600,000 600,000 600,000 600,000
RE/ Acc. P&L 495,810 688,170 495,810 688,170
CI 1,095,810 1,288,170 1,095,810 1,288,170
NCI 92,940 100,680 95,190 102,930
Stockholder's equity 1,188,750 1,388,850 1,191,000 1,391,100
Liabilities and Stockholder's Equity 1,738,950 1,940,250 1,741,200 1,942,500
Total 82,800 13,200 7,200

Consideration transferred (80%) 372,000

FV of NCI (20%) 93,000
FV of Subsidiary (100%) 465,000
Less: BV of stockholder's equity of Son (360,000*100%): 360,000
 Allocated Excess 105,000
Add (deduct): (90,000*100%) 90,000
Positive excess: Full Goodwill 15,000

Value % of Total
Goodwill applicable to parent 12,000 80%
Goodwill applicable to NCI 3,000 20%
Total (full) goodwill 15,000 100%

Goodwill impairment allocation Value Percent

Goodwill impairment loss attributable to parent or contro 3,000 80%
Goodwill applicable to NCI 750 20%
Goodwill impairment loss based on 100% FV or Full Goo 3,750 100%

Unrealized Remaining
Date of Sale Seller Selling Price Book Value Gain on Sale Life
4/1/20x4 Perfect 90,000 75,000 15,000 5
1/2/20x4 Son 60,000 28,800 31,200 8

P Co. S Co.
Sales 480,000 240,000
COGS 204,000 138,000
GP 276,000 102,000
Less
Depreciation Exp. 60,000 24,000
Other exp. 48,000 18,000
168,000 60,000
Add. Gain in sale of equipment 15,000 31,200
Net income from seperate op 183,000 91,200
Add: Investment Income 24,810 -
Net Income 207,810 91,200

First year after Acquisition

Parent Company - Equity Method
1 to record the Investment in S Company 372,000
acquisition Cash

2 to record dividends Cash 28800

from S Investment in S Company

3 share in net income Investment in S Company 72960

of S Investment Income
 4 Investment Income 13560
Investment in S Investment in S Company

5 Downstream - Investment Income 15000

Unrealized Gain Investment in S Company

6 Upstream - Investment Income 24960

Unrealized Gain Investment in S Company

7 Downstream - Investment in S Company 2,250

Realized Gain Investment Income

8 Upstream - Investment in S Company 3,120

Realized Gain Investment Income

Investment balance and investment income in the book of P Company

Investment in S
Cost 1/1/x4 372,000 28,800 Dividends

Amortization
NI of Son 72960 13560 & Impairment
Unrealized
Realized gain - gain -
downstream 2250 15,000 downstream
Unrealized
Realized gain - gain -
upstream 3120 24,960 upstream
Balance 12/31/20x4 368,010

Investment Income
Amortization &
Impairment 13560 72960 NI of Son

Unrealized gain - Realized gain -

downstream 15,000 2250 downstream
Unrealized gain - Realized gain -
upstream 24,960 3120 upstream
24,810 Balance 12/31/20x4

Consolidation Workpaper - First year Acquisition

E1 Common Stock 240,000
Retained Earnings 120,000
 Investment in S 288,000
NCI 72,000

E2 Inventory 6,000
Acc. Dep. - Equipment 96,000
Acc. Dep. - Building 192,000
Land 7,200
Discount on Bonds Payable 4,800
Good will 12,000
Building 216,000
NCI 18000
Investment in S 84,000

E3 COGS 6,000
Depreciation expense 6,000
Acc. Dep. - Building 6,000
Interest expense 1,200
Goodwill impairment loss 3,000
Inventory 6,000
Acc. Dep. - Equipment 12,000
Discount on bonds payable 1,200
Goodwill 3,000

E4 Investment income 24,810

Investment in S 3,990
NCI 7200
Dividends paid 36,000

Investment in S Investmen

Amortization
28,800 Dividends & Impairment

Unrealized
Amortization gain -
NI of Son 72960 13560 & Impairment downstream
Unrealized Unrealized
Realized gain - gain - gain -
downstream 2250 15,000 downstream upstream
Unrealized
Realized gain - gain -
upstream 3120 24,960 upstream
3,990

E5 Gain on sale of equipment 15,000

Equipment 30,000
 Accumulated Depreciation 45,000

E6 Gain on sale of equipment 31200

Equipment 12000
Accumulated Depreciation 43200

E7 Accumulated Depreciation 2,250

Depreciation Expense 2,250

E8 Accumulated Depreciation 3,900

Depreciation Expense 3,900

E9 NCINI
NI

Net Income of S 91,200

Unrealized gain on sale of equipment (Upstream) -31200
Realized gain on sale of equipment (Upstream) 3900
S Realized Net Income 63,900
Less: Amortization of all. excess 13200
50,700
Multiplied by: NCI % 0.2
NCINI - Partial goodwill 10140

Requirement 6: Consolidated Paper

Worksheet for Consolidated Financial Statements, December 31, 20x4.
Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)

Income statement Perfect Son Dr. Cr.

Sales 480,000 240,000
Gain on sale of equipment 15,000 31,200 15,000
31,200
Investment income 24,810 24,810
Total Revenue 519,810 271,200
COGS 204,000 138,000 6,000
Depreciation expense 60,000 24,000 6,000 2,250
3,900
Interest expense 0 1,200
Other expense 48,000 18,000
Goodwill impairment loss 0 3,000
Total Cost and expenses 312,000 180,000
Net Income 207,810 91,200
NCI in Net Income - S 0 0 10,140
Net income to RE 207,810 91,200

Statement of retained Earnings

Retained earnings, 1/1
P Company 360,000
S Company 120,000 120,000
Net income from above 207,810 91,200
Total 567,810 211,200
Dividends
P Company 72,000
S Company 36,000 36,000
Retained earnings, 12/31 495,810 175,200

Balance Sheet
Cash 232,800 90,000
Accounts Receivables 90,000 60,000
Inventory 120,000 90,000 6,000 6,000
Land 210,000 48,000 7,200
Equipment (net) 240,000 180,000 30,000
12,000
Buildings (net) 720,000 540,000 216,000
Discount on bonds payable 4,800 1,200
Goodwill 12,000 3,000
Investment in Son 368,010 3,990 288,000
84,000
TOTAL 1,980,810 1,008,000

Accumulated depreciation - equipment 135,000 96,000 96,000 12,000

2,250 45,000
3,900 43,200

Accumulated depreciation - building 405,000 288,000 192,000

6,000
Accounts Payable 105,000 88,800
Bonds payable 240,000 120,000
Common stock/ OS 600,000
Common stock/ OS 240,000 240,000
Retained earnings/ Acc. P&L 495,810 175,200
NCI 7,200 72,000
18,000
10,140
TOTAL 1,980,810 1,008,000
Worksheet for Consolidated Financial Statements, December 31, 20x5.
Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (2nd Year after Acquisition)

Income statement Perfect Son Dr. Cr.

Sales 540,000 360,000
Investment income 72,360 0 72,360
Total Revenue 612,360 360,000
COGS 216,000 192,000 24,810
Depreciation expense 60,000 24,000 6,000 3,000
3,900
Interest expense 1,200
Other expense 72,000 54,000
Goodwill impairment loss 0 0
Total Cost and expenses 348,000 270,000
Net Income 264,360 90,000
NCI in Net Income - S 0 0 17,340
Net income to RE 264,360 90,000

Statement of retained Earnings

Retained earnings, 1/1
P Company 495,810
S Company 175,200 175,200
Net income from above 264,360 90,000
Total 760,170 265,200
Dividends
P Company 72,000
S Company 48,000 48,000
Retained earnings, 12/31 688,170 217,200

Balance Sheet
Cash 265,200 102,000
Accounts Receivables 180,000 96,000
Inventory 216,000 108,000
Land 210,000 48,000 7,200
Equipment (net) 240,000 180,000 30,000
12,000
Buildings (net) 720,000 540,000 216,000
Discount on bonds payable 3,600 1,200
Goodwill 9,000
Investment in Son 401,970 15,000 332,160
24,960 70,440
33,960
2,250
TOTAL 2,233,170 1,074,000
Accumulated depreciation - equipment 150,000 102,000 84,000 12,000
5,250 45,000
7,800 43,200

Accumulated depreciation - building 450,000 306,000 198,000

6,000
Accounts Payable 105,000 88,800
Bonds payable 240,000 120,000
Common stock/ OS 600,000
Common stock/ OS 240,000 240,000
Retained earnings/ Acc. P&L 688,170 217,200
NCI 9,600 83,040 100,680
6240 15,360
780
17,340
Total 2,233,170 1,074,000
Realized gain -
depreciation 20x4
3000/year 2250
3900/year 3900

372,000

28800

72960
13560

15000

24960

2,250

3,120
Investment Income

13560 72960 NI of Son

Realized
gain -
downstrea
15,000 2250 m
Realized
gain -
24,960 3120 upstream
24,810
Consolidated
720,000

0
720,000
348,000
83,850

1,200
66,000
3,000
502,050
 217,950
10,140
207,810

360,000

207,810
567,810

72,000

495,810

322,800
150,000
210,000
265,200
462,000

1,044,000
3,600
9,000

0
2,466,600

229,050

495,000
193,800
360,000
600,000

495,810

92,940
2,466,600
Consolidated
900,000
0
900,000
408,000
83,100

1,200
126,000
0
618,300
281,700
17,340
264,360

495,810

264,360
760,170

72,000

688,170

367,200
276,000
324,000
265,200
462,000

1,044,000
2,400
9,000

2,749,800
 255,150

552,000

193,800
360,000
600,000

688,170

2,749,800
Requirement 3: Journal entries

20x4: First Year after Acquisition

Parent Company Cost Model Entry

Entry 1 Investment in Son 372,000

Cash 372,000
*to record acquisition

Entry 2 Cash 28,800

Investment in Son (36,000*80%) 28,800
*record dividends from S

Entry 3 Investment in Son 72,960

Investment income (91,000*80%) 72,960
*Record share in net income of subsidiary.

Entry 4 Investment income (13,200*80%) + 3000 13,560

Investment in Son 13,560
*Record amort. of all. excess of inventory, ...

Entry 5 Investment income 15,000

Investment in Son 15,000
*To adjust investment income for downstream sales - unrealized gain on
sale inventory of S.
Entry 6 Investment Income (31,200*80%) 24,960
Investment in Son 24,960
*To adjust investment income for upstream sales - unrealized gain on sale

Entry 7 Investment in S 2,250

Investment income (2250*100%) 2,250
*to adjust investment income in downstream sale - realized gain on sale

Entry 8 Investment in S 3,120

Investment income (3900*80%) 3,120

Requirement 4: schedule of allocated excess

20x4
FV of Subsidiary (100%)
Consideration transferred (80%) 372,000
NCI given 93,000 465,000
Less: BV of stockholder's equity of Son:
Common Stock (240,000*100%) 240,000
RE (120,000*100%) 120,000 360,000
 Allocated Excess 105,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (6,000*100%) 6,000
Increase in land (7,200*100%) 7,200
Increase in equipment (96,000*100%) 96,000
Decrease in building (24,000*100%) -24,000
Decrease in bonds payable (4,800*100%) 4,800 90,000
Positive excess: Partial Goodwill 15,000

Requirement 5: Eliminating Entries:

First year after acquisition (20X4) 2nd year acquisition (20X5)
Entry 1 Common stock - Son 240,000 Entry 1 Common stock - Son
Retained earnings 120,000 Retained earnings
Investment in Son 288,000
NCI 72,000

Entry 2 Inventory 6,000 Entry 2

Accumulated depreciation - equipment 96,000 Accumulated depreciation
Accumulated depreciation - building 192,000 Accumulated depreciation
Land 7,200 Land
Discount on bonds payable 4,800 Discount on bonds payable
Goodwill 15,000 Goodwill (15000 - 3,750)
Buildings 216,000
NCI (90,000*20%) + 3,000 21,000
Investment in Son 84,000

Entry 3 COGS 6,000 Entry 3

Depreciation expense 6,000 Depreciation expense
Accumulated depreciation - buildings 6,000 Accumulated depreciation
Interest expense 1,200 Interest expense
Goodwill impairment loss 3,750
Inventory 6,000
Accumulated depreciation - equipment 12,000
Discount on bonds payable 1,200
Goodwill 3,750

Entry 4 Investment income 24,810 Entry 4 Investment income

Investment in Son company 3,990 NCI (48,000*20%)
NCI (36,000*20%) 7,200
Dividend paid - Son 36,000

Investment in Son Investment Income

NI 72,960 28,800 dividends Amortizatio 13,560 72,960 NI of Son
2,250 13,560 amortization Ug 15,000 2,250
3,120 15,000 UG UG 24,960 3,120
24,960 UG
 3,990 Bal. 12/31 24,810 Bal. 12/31

Entry 5 Gain on sale of equipment 15,000 Entry 5 Investment in S

Equipment 30,000 Equipment
Accumulated depreciation - equipment 45,000

Entry 6 Gain on sale of equipment 31,200 Entry 6 Investment in S

Equipment 12,000 NCI
Accumulated depreciation - equipment 45000 Equipment

Entry 7 Accumulated depreciation 2,250 Entry 7 Accumulated depreciation

Depreciation expense 2,250

Entry 8 Accumulated depreciation 3,900

Depreciation expense 3,900 Entry 8 Accumulated depreciation

Entry 9 NCI of NI subsidiary 9,390

NCI 9,390

NI on Subsidiary 91,200 NI on Subsidiary

Unrealized gain (upstream) -31,200 Realized gain (upstream)
Realized gain (upstream) 3,900 S company realized income seperate
S company realized income seperate 63,900 Less: Amortization
Less: Amortization 13,200
50,700 Multiplied by:
Multiplied by: 20% NCI on NI'
NCI on NI' 10,140 Less: NCI on impairment
Less: NCI on impairment 750 NCI on NI
NCI on NI 9,390

Requirement 6: Consolidated Paper

Worksheet for Consolidated Financial Statements, December 31, 20x4.
Equity Method (FUll-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)

Income statement Perfect Son Dr. Cr. Consolidated

Sales 480,000 240,000 720,000
Gain on sale of equipment 15,000 31,200 15,000
31,200
Investment income 24,810 24,810 0
Total Revenue 519,810 271,200 720,000
COGS 204,000 138,000 6,000 348,000
Depreciation expense 60,000 24,000 6,000 2,250 83,850
3,900
Interest expense 0 1,200 1,200
Other expense 48,000 18,000 66,000
Goodwill impairment loss 0 3,750 3,750
Total Cost and expenses 312,000 180,000 502,800
Net Income 207,810 91,200 217,200
NCI in Net Income - S 0 0 9,360 9,360
Net income to RE 207,810 91,200 207,840

Statement of retained Earnings

Retained earnings, 1/1
P Company 360,000 360,000
S Company 120,000 120,000
Net income from above 207,810 91,200 207,810
Total 567,810 211,200 567,810
Dividends
P Company 72,000 72,000
S Company 36,000 36,000
Retained earnings, 12/31 495,810 175,200 495,810

Balance Sheet
Cash 232,800 90,000 322,800
Accounts Receivables 90,000 60,000 150,000
Inventory 120,000 90,000 6,000 6,000 210,000
Land 210,000 48,000 7,200 265,200
Equipment (net) 240,000 180,000 30,000 462,000
12,000
Buildings (net) 720,000 540,000 216,000 1,044,000
Discount on bonds payable 4,800 1,200 3,600
Goodwill 15,000 3,750 11,250
Investment in Son 368,010 3,990 288,000
84,000 0
TOTAL 1,980,810 1,008,000 2,468,850

Accumulated depreciation - equipment 135,000 96,000 96,000 12,000 229,050

2,250 45,000
3,900 43,200

Accumulated depreciation - building 405,000 288,000 192,000

6,000 495,000
Accounts Payable 105,000 88,800 193,800
Bonds payable 240,000 120,000 360,000
Common stock/ OS 600,000 600,000
Common stock/ OS 240,000 240,000
Retained earnings/ Acc. P&L 495,810 175,200 495,810
NCI 7,200 72,000
21,000
9,390 95,190
TOTAL 1,980,810 1,008,000 2,468,850
Worksheet for Consolidated Financial Statements, December 31, 20x5.
Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (2nd Year after Acquisition)

Income statement Perfect Son Dr. Cr. Consolidated

Sales 540,000 360,000 900,000
Investment income 72,360 0 72,360 0
Total Revenue 612,360 360,000 900,000
COGS 216,000 192,000 24,810 408,000
Depreciation expense 60,000 24,000 6,000 3,000 83,100
3,900
Interest expense 1,200 1,200
Other expense 72,000 54,000 126,000
Goodwill impairment loss 0 0 0
Total Cost and expenses 348,000 270,000 618,300
Net Income 264,360 90,000 281,700
NCI in Net Income - S 0 0 17,340 17,340
Net income to RE 264,360 90,000 264,360

Statement of retained Earnings

Retained earnings, 1/1
P Company 495,810 495,810
S Company 175,200 175,200
Net income from above 264,360 90,000 264,360
Total 760,170 265,200 760,170
Dividends
P Company 72,000 72,000
S Company 48,000 48,000
Retained earnings, 12/31 688,170 217,200 688,170

Balance Sheet
Cash 265,200 102,000 367,200
Accounts Receivables 180,000 96,000 276,000
Inventory 216,000 108,000 324,000
Land 210,000 48,000 7,200 265,200
Equipment (net) 240,000 180,000 30,000 462,000
12,000
Buildings (net) 720,000 540,000 216,000 1,044,000
Discount on bonds payable 3,600 1,200 2,400
Goodwill 11,250 11,250
Investment in Son 401,970 15,000 332,160
24,960 70,440
33,960
 2,250
3120
TOTAL 2,233,170 1,074,000 2,752,050

Accumulated depreciation - equipment 150,000 102,000 84,000 12,000 255,150

5,250 45,000
7,800 43,200

Accumulated depreciation - building 450,000 306,000 198,000 552,000

6,000
Accounts Payable 105,000 88,800 193,800
Bonds payable 240,000 120,000 360,000
Common stock/ OS 600,000 600,000
Common stock/ OS 240,000 240,000
Retained earnings/ Acc. P&L 688,170 217,200 688,170
NCI 9,600 83,040 102,930
6240 17,610
780
17,340
TOTAL 2,233,170 1,074,000 2,752,050
 20X5: 2nd year Acquisition
Parent Company Equity Model Entry

Entry 1

Entry 2 Cash (48.000*80%) 38,400

Investment in Son 38,400

Entry 3 Investment in Son 72,000

Investment income (90,000*80%) 72,000

Entry 4 Investment income (7,200*80%) 5,760

Investment in Son 5,760

Entry 5 Investment in Son 3,000

Investment income 3,000

Entry 6 Investment in S(3,900*80%) 3,120

Investment income 3,120
cquisition (20X5)
Common stock - Son 240,000
Retained earnings 175,200
Investment in Son (415,200*80%) 332,160
NCI (415,200*20%) 83,040

Accumulated depreciation - equipment (96, 84,000

Accumulated depreciation - building (192,0 198,000
7,200
Discount on bonds payable (4,800-1,200) 3,600
Goodwill (15000 - 3,750) 11,250
Buildings 216,000
NCI (90,000-13,200*20%) + 3000 - (3750*2 17,610
Investment in Son 70,440

Depreciation expense 6,000

Accumulated depreciation - buildings 6,000
Interest expense 1,200
Accumulated depreciation - equipment 12,000
Discount on bonds payable 1,200

Investment income 72,360

NCI (48,000*20%) 9,600
Investment in Son 33,960
Dividend paid - Son 48,000
Investment in S 15000 Entry 9 NCI in NI
30,000 NCI
Accumulated depreciation - equipment 45,000

Investment in S 24,960
6,240
12,000
Accumulated depreciation - equipment 43,200

Accumulated depreciation - equipment (96, 5,250

Depreciation expense 3,000
Investment in S 2,250

Accumulated depreciation - equipment 7,800

Depreciation expense 3,900
Investment in S 3,120
NCI 780

90,000
ain (upstream) 3,900
realized income seperate 93,900
7,200
86,700
20%
17,340
n impairment 0
17,340

Consolidated
17,340
17,340
Problem IV

Requirement 1
Eliminating Entries, Dec. 31, 20x8
Selling Price 245,000
Cost of truck 300,000
Accumulated Depreciation 90000 210,000
Gain on sale of truck 35,000

Accumulated Depreciation Adjustment

Required 120000
Reported 35000
Required Increase 85000

Truck 55,000
Gain on sale 35,000
Depreciation Expense 5000
Accumulated Depreciation 85000

Eliminating Entries, Dec. 31, 20x9

Accumulated Depreciation Adjustment
Required 150000
Reported 70000
Required Increase 80000

Truck 55,000
Gain on sale 10,000
Depreciation Expense 5000
Accumulated Depreciation 80000
Problem V

Requirement 1
Eliminating Entries, Dec. 31, 20x8
Selling Price 210,000
Cost of truck 300,000
Accumulated Depreciation 120000 180,000
Gain on sale of truck 30,000

Truck 90,000
Gain on sale 30,000
Accumulated Depreciation 120000

Eliminating Entries, Dec. 31, 20x9

Accumulated Depreciation Adjustment
Required 150000
Reported 35000
Required Increase 115000

Truck 90,000
Retained Earnings 30,000
Depreciation Expense 5,000
Accumulated Depreciation 115000
Problem XI

Requirement 1.
December 31, 20x4
The consolidated net income will increased by P16,000
Requirement 2.
December 31, 20x5
The consolidated net income will decreased by P2,000