Chapter 5 Solution

Problem 5-1
Part A
(a)
Carrying amount of assets of CGU $2,094
Recoverable amount of assets of CGU 1,860
Total impairment loss 234
Allocated to goodwill 234
Allocated to other assets $ 0
(b)
Tangible assets, net $1,164
Recognized intangible assets, net 510
Internally developed patent 0
Goodwill (420 – 234) 186
Total $1,860
Part B
(a)
Carrying amount of assets of CGU $2,094
Recoverable amount of assets of CGU 1,450
Total impairment loss 644
Assigned to goodwill 420
Assigned to other assets on a proportionate basis as follows: $224
% Before Loss After
Tangible assets, net 69.5 $1,164 $156 $1,008
Recognized intangible assets, net 30.5 510 68 442
Total 100.0 $1,674 $224 $1,450
(b)
Goodwill (420 – 420) 0
Total $1,450
Part C
Goodwill 106
Total $1,860
When allocating the acquisition cost at the date of acquisition, identifiable net assets are measured
at fair value and any amount paid over the fair value of identifiable net assets is allocated to
goodwill. Fair value accounting is used for identifiable assets.
When checking for impairment at any reporting date subsequent to the date of acquisition, the
assets are reported at the lesser of carrying amount and recoverable amount. In most cases,
identifiable assets are reported at a historical cost-based amount. Fair values of the identifiable
assets are ignored.
Problem 5-2
Cost of 70% investment $770,000
Implied cost of 100% investment 1,100,000
Carrying amount of Small’s net assets = Carrying amount of Small’s shareholders’ equity
Ordinary shares $560,000
Retained earnings 260,000
820,000
Acquisition differential – Jan. 1, Year 6 $280,000
Allocated:
Inventory 71,000
Patents (90,000) (19,000)
Balance – goodwill $299,000
Balance Balance
Jan. 1 Changes Dec. 31
Year 6 Yr 6 & 7 Year 8 Year 8
Inventory $71,000 $(71,000)
Patents (90,000) 36,000 $ 18,000 $ (36,000)
Goodwill 299,000 0 (20,900) 278,100
$280,000 $(35,000) $(2,900) $242,100
PART A
Year 6 Year 7 Year 8
Investment in Small 770,000
Cash 770,000
Cash 28,700 18,200 39,200
Dividend income 28,700 18,200 39,200
PART B
(i) Goodwill (299,000 – 20,900) $278,100
(ii) Small’s ordinary shares $560,000
Small’s retained earnings (260,000 + 144,000 – 41,000 –
51,000 – 26,000 + 106,000 – 56,000) 336,000
896,000
Undepleted acquisition differential 242,100
$1,138,100
NCI’s share (30%) $341,430
(iii) Large’s retained earnings $660,000
Small’s retained earnings (260,000 + 144,000 – 41,000 -
51,000 – 26,000) 286,000
Small’s retained earnings, date of acquisition 260,000
Change since acquisition 26,000
Less: cumulative changes to acquisition differential (35,000)
Adjusted change since acquisition (9,000)
Large’s share (70%) (6,300)
Consolidated retained earnings $653,700
(iv) Large’s profit $360,000

Less: dividends from Small (56,000 x 70%) (39,200)
320,800
Small’s profit $106,000
Less: changes to acquisition differential (2,900)
$103,100
Large’s share (70%) 72,170
Consolidated profit attributable to Large’s shareholders $392,970
(v) NCI on income statement (103,100 x 30%) $30,930
PART C
(i) Year 6 Year 7 Year 8
Investment in Small 770,000
Cash 770,000
Investment in Small (70% x Small’s profit) 100,800 (35,700) 74,200
Investment income 100,800 (35,700) 74,200
Cash (70% x Small’s dividends) 28,700 18,200 39,200
Investment in Small 28,700 18,200 39,200
Investment income (70% x changes to AD) 37,100 (12,600) 2,030
Investment in Small 37,100 (12,600) 2,030
(ii) Investment in Small under cost method $770,000

Small’s retained earnings, end of year $336,000
Small’s retained earnings, date of acquisition 260,000
Less: cumulative changes to acquisition differential (37,900)
$38,100
Large’s share (70%) 26,670
Investment in Small under equity method $796,670
Problem 5-3
Cost of 70% investment 84,000
Implied cost of 100% investment 120,000
Carrying amount of Petite’s net assets = Carrying amount of Petite’s shareholders’ equity
Petite Common shares 35,000
60,000
Acquisition differential – Jan. 1, Year 2 60,000
Allocated:
Inventory 10,000
Equipment 20,000 30,000
Balance - goodwill 30,000
Non-controlling interest (30% x 120,000) 36,000 (1)
Balance Balance
Jan. 1 Changes Dec. 31
Year 2 Yrs 2 to 5 Year 6 Year 6
Inventory 10,000 -10,000
Equipment 20,000 -8,000 -2,000 10,000
Goodwill 30,000 0 -2,000 28,000
60,000 -18,000 -4,000 38,000
(a)
Inventory (150,000 + 80,000) 230,000
Equipment, net (326,000 + 160,000 + 10,000) 496,000
Goodwill 28,000
Gros’s retained earnings 270,000

Petite’s retained earnings 50,000
Petite’s retained earnings, date of acquisition 25,000
Less: cumulative amortization of acquisition differential 22,000
3,000
Gros’s share (70%) 2,100
Consolidated retained earnings 272,100
Non-controlling interest on balance sheet (Method 1)

Petite’s common shares 35,000
85,000
123,000
NCI’s share (30%) 36,900
Non-controlling interest on balance sheet (Method 2)

Non-controlling interest – date of acquisition (1) 36,000
Petite’s retained earnings, date of acquisition 25,000
Less: cumulative changes to acquisition differential 22,000
3,000
NCI’s share (30%) 900
Non-controlling interest –December 31, Year 6 36,900
Cost of goods purchased (500,000 + 450,000) 950,000
Change in inventory (20,000 + 12,000) 32,000
Amortization expense (35,000 + 20,000 + 2,000) 57,000
Non-controlling interest on income statement

Petite’s net income 48,000
Less: amortization of acquisition differential 4,000
44,000
NCI’s share (30%) 13,200
Net income
Gros’s net income 90,000
Less: dividends from Petite (10,000 x 70%) (7,000)
83,000
Petite’s net income 48,000
Less: changes to acquisition differential 4,000
44,000
Consolidated net income 127,000
Dividends paid 30,000

(b) If goodwill at December 31, Year 6 was $8,000 rather than $28,000, then:
(i) Consolidated net income attributable to Gros’s shareholders would decrease by $14,000
(70% x (28,000 – 8,000))
(ii) Consolidated retained earnings would decrease by $14,000 (70% x (28,000 – 8,000))
(iii) Non-controlling interest in net income would decrease by $6,000 (30% x (28,000 –
8,000))
Problem 5-4
(a)
Non-controlling interest 280,000 / (600,000 + 800,000) = 20%
Therefore, Corner owns 80% of Brook.
(b)
Net income of Brook – Year 4 140,000
80%
112,000
Net loss of Corner – Year 4 (60,000)
Consolidated net income attributable to Corner’s shareholders – Year 4 52,000
(c)
Consolidated retained earnings – Dec. 31, Year 4 180,000
Consolidated net income – Year 4 52,000
Corner's retained earnings Dec. 31, Year 3 (equity) 128,000
(d)
640,000 / 80% is shareholders' equity of Brook 800,000
Common shares – Brook 600,000
Retained earnings – Brook – date of acquisition 200,000
Problem 5-5
Implied cost of 100% investment 760,000
Carrying amount of Silk’s net assets = Carrying amount of Silk’s shareholders’ equity
Silk Common shares 500,000
600,000
Acquisition differential – Dec. 31, Year 1 160,000
Allocated:
Inventory 70,000
Balance – patents 90,000
Non-controlling interest (15% x 760,000) 114,000 (a)
Balance Balance
Dec. 31 Changes Dec. 31
Year 1 Year 2 Year 3 Year 3
Inventory 70,000 -70,000
Patents 90,000 -9,000 -9,000 72,000
160,000 -79,000 -9,000 72,000
(a)
Non-controlling interest in profit
Year 2 15%  (30,000 – 79,000) (7,350)

Year 3 15%  (52,000 – 9,000) 6,450
(b)
Year 2 Year 3
Profit (loss) Pen 28,000 (45,000)
Dividends from Silk
Year 2 0
Year 3 (85%  15,000) (12,750)
28,000 (57,750)
Share of Silk’s profit
85%  (30,000 – 79,000) (41,650)
85%  (52,000 – 9,000) _ 36,550_
Consolidated profit (loss) attributable to Pen’s shareholders (13,650) (21,200)
(c)
Retained earnings Pen – Dec. 31, Year 3 (cost method) 91,000
Retained earnings Silk – Dec. 31, Year 3
(100,000 + 30,000 + 52,000 – 15,000) 167,000
Acquisition retained earnings 100,000
Increase since acquisition 67,000
Less: changes to acq. diff. to date (79,000 + 9,000) 88,000
Adjusted increase since acquisition (21,000) (a)
85% (17,850)
Consolidated retained earnings – Dec. 31, Year 3 73,150
(d)
Method 1:
Silk – Common shares 500,000
Retained earnings Dec. 31, Year 3 167,000
667,000
739,000
15%
Non-controlling interest – Dec. 31, Year 3 110,850
Method 2:
Non-controlling interest – date of acquisition (a) 114,000
(100,000 + 30,000 + 52,000 – 15,000) 167,000
(21,000)
NCI’s share 15% (3,150)
(e)
Cost of investment 646,000
(100,000 + 30,000 + 52,000 – 15,000) 167,000
(21,000)
85% (17,850)
Invest. account – equity method as at Dec. 31, Year 3 628,150
(f)
See changes to acq. Diff. schedule above.
Alternative calculation:
Invest. account – equity Dec. 31, Year 3 628,150

Implied value of 100% (628,150 / 85%) 739,000
Silk – Common shares 500,000
667,000
Balance undepleted acq. diff. – Patents 72,000
Problem 5-6
The following answers were determined using the 2017 financial statements of Empire
Company Limited and are in millions of dollars:
(a) As per note 3(b), Goodwill arising on acquisition is recognized as an asset and
represents the excess of acquisition cost over the fair value of the Company’s share of
the identifiable net assets of the acquiree at the date of the acquisition. Therefore,
Empire is using the identifiable net assets method of consolidation to value the non-
controlling interest at the date of acquisition.
(b) As per note 1, the consolidated financial statements include subsidiary companies and
certain enterprises considered structured entities (“SEs”), where control is achieved on a
basis other than through ownership of a majority of voting rights. As per note 3(a), SEs
are entities controlled by the Company which were designed so that voting or similar
rights are not the dominant factor in deciding who controls the entity. SEs are
consolidated if, based on an evaluation of the substance of its relationship with the
Company, the Company concludes that it controls the SE. SEs controlled by the
Company were established under terms that impose strict limitations on the decision
making powers of the SEs management and that results in the Company receiving the
majority of the benefits related to the SEs operations and net assets, being exposed to
the majority of risks incident to the SEs activities, and retaining the majority of the
residual or ownership risks related to the SEs or their assets.
(c) Non-controlling interest is 1.6% (58.5 / 3,702.7) of shareholders’ equity as per the
consolidated balance sheet. Approximately 8.1% (14 / 172.5) of the company’s net
earnings is attributable to non-controlling interest as per the consolidated statement of
earnings.
(d) As per note 11, the portion of additions to intangible assets arising from acquisitions was
12.7% (3.5 / [3.5 + 24.1]) and the portion arising from direct purchases was 87.3%.
(e) The goodwill impairment loss for 2016 was $2,878.5 million and $.9 million for 2017 as
per note 12. The primary reasons for the loss in 2016, as per note 12, operational
challenges the Company had experienced under the Safeway banner, the outcome of
the property and equipment impairment test, and the overall challenging economic
climate mainly in the Alberta and Saskatchewan markets.
(f) As per note 12, management determined the recoverable amount of the CGUs based on
VIU calculations which require the use of certain key assumptions. VIU was calculated
from cash flow projections for five years using financial data from the Company’s most
up-to-date internal forecasts and budgets that were formally approved by management.
The key assumptions used in the forecasts were cash flows for the first five years,
growth rate beyond five years, pre-tax discount rate and operating margins,
(g) The performance bonuses will be reduced in 2016 due to the immediate effect of the
impairment loss on net income. However, the performance bonuses in future years may
be improved because there is less goodwill to be written down.
(h) The discount rates incorporate the risk associated with future cash flows; the higher the
uncertainty of future cash flows, the higher the discount rate. When the discount rates
increase, the present value of future cash flows decrease, which would cause a
decrease in the recoverable amount of the goodwill and thus the recognition of an
impairment loss.
(i) Goodwill, goodwill impairment losses and non-controlling interest would be higher under
the fair value enterprise method because they include the non-controlling interest’s
share of the subsidiary’s goodwill. Net income would have been lower due to a larger
goodwill impairment loss. Equity would also be higher because NCI is higher. It is likely
that the impact on the numerator would be more substantial than the impact on the
denominator to cause an overall reduction in the return on total shareholders’ equity.
Problem 5-7
Grant NCI
Cost of 80% Interest in Lee 70,000

Fair value of NCI’s Interest in Lee (7 x 2,000 shares) 14,000
Carrying amount of Lee’s net assets = Carrying amount of Lee’s shareholders’ equity
Common shares 25,000
55,000
Shareholders’ interest 44,000 11,000
Acquisition differential 26,000 3,000
Allocated:
FV – CA
Inventory 5,000 4,000 1,000
Patent 10,000 8,000 2,000
Goodwill 14,000 -0-
Bal Changes Bal

Jan. 1/Yr4 To Dec. 31/Yr6 Yr7 Dec.31/Yr7
Inventory 5,000 -5,000
Patent 10,000 -6,000 -2,000 2,000
Goodwill* 14,000 -4,000 10,000
29,000 -11,000 -6,000 12,000
* all pertaining to Grant’s 80% ownership
(a)
Calculation of consolidated retained earnings – Dec 31, Year 7

Retained earnings – Grant 300,000
Retained earnings – Lee 65,000
Acquisition 30,000
Increase 35,000
80% 28,000
Less: Changes to acq. diff.
[(11,000 + 2,000) x 80% + 4,000] (14,400)
313,600
Calculation of Year 7 net income attributable to Grant’s Shareholders
Net income Grant 230,000
Net income Lee 23,000
Grant’s % interest 80%
18,400
Less: Grant’s share of changes to acq. diff.
(2,000 x 80% + 4,000) 5,600
12,800
242,800
(b) Grant Corporation
Consolidated Income Statement

Year ended December 31, Year 7
Sales (900,000 + 360,000) 1,260,000
Cost of goods sold (340,000 + 240,000) 580,000
Gross margin 680,000
Distribution expense (30,000 + 25,000 + 2,000) 57,000
Other expenses (180,000 + 56,000 + 4,000) 240,000
Income taxes (120,000 + 16,000) 136,000
Total 433,000
Net income 247,000
Attributable to:
Grant’s shareholders 242,800
Non-controlling interest [20% x (23,000 – 2,000)] 4,200
247,000
Grant Corporation
Consolidated Balance Sheet – December 31, Year 6
Cash (5,000 + 18,000) 23,000
Accounts receivable (185,000 + 82,000 – 30,000) 237,000
Inventory (310,000 + 100,000) 410,000
Equipment (230,000 + 205,000) 435,000
Patent (0 + 2,000 + 2,000) 4,000
Goodwill 10,000
1,119,000
Accounts payable (190,000 + 195,000 – 30,000) 355,000
Other accrued liabilities (60,000 + 50,000) 110,000
Income taxes payable (80,000 + 72,000) 152,000

Non-controlling interest (Note 1) 18,400
incursion. 1,119,000
Note 1:
Non-controlling interest (Method 1)
Lee’s shareholders’ equity 90,000
Undepleted acquisition differential on identifiable net assets 2,000
92,000
NCI’s share @20% 18,400
Non-controlling interest (Method 2)
NCI, date of acquisition (7 x 2,000 shares) 14,000
Change in Lee’s retained earnings (a) 35,000
Changes to acq. diff. on identifiable net assets 13,000
22,000
NCI’s share at 20% 4,400

Problem 5-8
(a)
Cost of investment $914,000
Fazli’s shareholders’ equity
Retained earnings 200,000 684,000
Acquisition differential – Jan. 1, Year 4 230,000
Allocated:
Investment in bonds 12,988
Balance Balance
Jan. 1 Changes in Dec. 31
Year 4 Year 4 Year 5 Year 5
Investment in bonds $12,988 $-2,351 $-2,468 $8,169 (a)
Goodwill 217,012 -17,012 0 200,000 (b)
$230,000 $-19,363 $-2,468 $208,169
(b)
Investment in bonds (0 + 300,000 + (a) 8,169) 308,169
Goodwill (b) 200,000
(c) Cost Equity
Investment income = dividends paid 42,000
Income reported by Fazli 134,000
Changes to acquisition differential (a) (2,468)
131,532
Investment in Fazli = acquisition cost 914,000

Acquisition cost 914,000
Income reported by Fazli for Year 4 80,000
Changes to acquisition differential for Year 4 (19,363)
Dividends received in Year 4 (30,000)
Income reported by Fazli for Year 5 134,000
Changes to acquisition differential for Year 5 (2,468)
Dividends received in Year 5 (42,000)
Balance, end of Year 5 1,034,169
(d) The reported consolidated balances are not affected by the parent’s method of accounting
for its investment. Thus, consolidated expenses of $1,384,000 ($674,000 + $710,000) are
the same regardless of whether the cost method or equity method is used by Cyrus. The
amortization of the premium on investment in bonds would be an adjustment to investment
revenue not expenses.
(e) The reported consolidated balance of $308,169 as calculated in (b) is not affected by the
parent’s method of accounting for its investment.
(f) Cost Equity
Retained earnings, January 1, Year 5, cost method 814,000
Parent’s retained earnings, January 1, Year 5, cost method 814,000
Subsidiary’s change in retained earnings since acquisition
(250,000 – 200,000) x parent’s share of 100% 50,000
Cumulative changes to acquisition differential (Year 4) (19,363)
Parent’s retained earnings, January 1, Year 5, equity method 844,637
(g)
Consolidated retained earnings at January 1, Year 5 are $844,637. It is equal to the parent’s
retained earnings under the equity method as calculated in (f). It is not affected by the method
used by the parent to account for its investment in the subsidiary for internal record keeping.
Problem 5-9
(a)
Implied value of 100% 152,600
Carrying amount of Little’s net assets = Carrying amount of Little’s shareholders’ equity
– July 1, Year 5
86,400
Acquisition differential 66,200
Allocated: FV – CA
Government contract 50,000
Equipment (21,600)
28,400
Balance – goodwill 37,800
Balance Changes to Balance

July 1 year ending June 30
Year 5 June 30, Year 6 Year 6
Equipment (8 years) –21,600 2,700 –18,900
Government contract (5 years)50,000 -10,000 40,000
Goodwill 37,800 -17,800 20,000
66,200 -25,100 41,100
The government contract should be recognized as an identifiable asset because it can meet the
separability test. It can be sold separately and provides future economic benefits.
(b) Calculation of consolidated net income attributable to Big’s shareholders – Year 6

Income of Big 109,620
Less: dividends from Little (13,500  80%) 10,800
98,820
Income of Little 39,420
Less: changes to acquisition differential 25,100
14,320
80% 11,456
110,276
Big
for the Year Ended June 30, Year 6
Sales (270,000 + 162,000) 432,000

Cost of sales (140,100 + 94,380) 234,480
Misc. expense (31,080 + 28,200 – 2,700 + 10,000) 66,580
Goodwill impairment loss 17,800
318,860
Net income 113,140
Attributable to:
Big’s shareholders 110,276
Non-controlling interest [20%  (39,420 – 25,100)] 2,864

113,140
Big
Consolidated Retained Earnings Statement
for the Year Ended June 30, Year 6
Balance July 1, Year 5 459,000
Net income 110,276
569,276
Dividends 32,400
Balance June 30, Year 6 536,876
Calculation of non-controlling interest – June 30, Year 6
Little – Common shares 54,000

112,320
153,420
20%
30,684
Big
Consolidated Balance Sheet
June 30, Year 6
Miscellaneous assets (835,940 + 128,820) 964,760

Equipment (162,000 + 95,600 - 21,600 – 20,000) 216,000
Accumulated depreciation (60,000 + 50,000 - 20,000 - 2,700) (87,300)
Government contract 40,000
Goodwill 20,000
1,153,460
Liabilities (253,800 + 62,100) $315,900

Non-controlling interest 30,684
1,153,460
(c) Changes in non-controlling interest
Bal. July 1, Year 5 [20%  (86,400 + 66,200)] 30,520

Allocation of entity net income 2,864
33,384
Dividends (20%  13,500) 2,700
Balance June 30, Year 6 30,684
(d)
Total Parent NCI
100% 80% 20%
Total value of Little at date of acquisition 147,080 122,080 25,000
Carrying amount of Little’s net assets 86,400 69,120 17,280
Acquisition differential 60,680 52,960 7,720
Fair value excess for identifiable assets 28,400 22,720 5,680
Balance – goodwill, date of acquisition 32,280 30,240 2,040
Goodwill impairment for the year 12,280 11,504* 776
Goodwill, June 30, Year 6 20,000 18,736 1,264
* 12,280 x (30,240 / 32,280)
Problem 5-10
Cost of 80% of Storm $350,000
Implied value of 100% $437,500
Carrying amount of Storm’s net assets
= Carrying amount of Storm’s shareholders’ equity
304,000
Acquisition differential $133,500
Plant assets $44,000
Trademarks 36,000 80,000
Goodwill $53,500
Bal Changes Bal
Dec. 31/Yr2 to Dec.31/Yr5 Yr6 Yr6 Dec. 31/Yr6
Amort Impairment
Plant assets $44,000 $-16,500 $ -5,500 $22,000
Trademarks 36,000 -9,000 -3,000 $-9,650 14,350
Goodwill 53,500 ----- ----- -3,500 50,000
$133,500 $-25,500 $-8,500 $-13,150 $86,350
Calculation of consolidated profit attributable to Palm’s shareholders

Palm profit $108,000
Less: Dividend income (80% x 24,000) 19,200
88,800
Storm profit $62,000
Changes to acq. diff. (-8,500 – 13,150) -21,650
40,350
80% 32,280
$121,080
(a) Palm Inc.

Year ended December 31, Year 6
Sales (910,000 + 555,000) $1,465,000

Interest income (38,000 – 19,200 + 6,000) 24,800
1,489,800
Cost of goods sold (658,000 + 380,000) 1,038,000
Selling expenses (26,000 + 39,000 + 8,500) 73,500
Other expenses (156,000 + 80,000 + 13,150) 249,150
1,360,650
Profit $129,150
Attributable to:
Palm’s shareholders $121,080
Non-controlling interest [20% x (62,000 – 8,500 – 13,150)] 8,070
$129,150
Calc. of consolidated retained earnings December 31, Year 6

Palm retained earnings Dec. 31, Year 6 $150,000
Storm retained earnings Dec. 31, Year 6 $190,000
Less: Acquisition retained earnings 64,000
Increase 126,000
Less: Changes to acq. diff. to Dec. 31, Year 6 -47,150
Adjusted change since acquisition 78,850
80% 63,080 (a)
$213,080
Palm Inc.
Consolidated Statement of Financial Position
December 31, Year 6
Plant assets (270,000 + 200,000 + 22,000) $492,000

Trademarks 14,350
Goodwill 50,000
Investments (86,000 + 26,000) 112,000
Notes receivable 14,000
Inventory (140,000 + 220,000) 360,000
Accounts receivable (92,000 + 180,000) 272,000
Cash (24,000 + 34,000) 58,000
$1,372,350

Non-controlling interest [20% x (430,000 + 86,350)] 103,270
Notes payable (150,000 + 120,000) 270,000
Other current liabilities (14,000 + 54,000) 68,000
Accounts payable (108,000 + 70,000) 178,000
$1,372,350
(b) If none of the acquisition differential had been allocated to trademarks, the schedule to
amortize the acquisition differential would have been as follows:
Bal Changes Bal
Dec. 31/Yr2 to Dec.31/Yr5 Yr6 Dec. 31/Yr6
Plant assets $44,000 $-16,500 $-5,500 $22,000
Goodwill 89,500 0 -39,500 50,000
$133,500 $-16,500 $-45,000 $72,000
(i) The return on equity would decrease because net income would decrease by $23,350
(($39,500 - $13,150) + ($5,500 - $8,500)) i.e., the change in the acquisition differential
for Year 6 and total shareholders’ equity would only decrease by $14,350 ($86,350 -
$72,000) i.e., the change in undepleted acquisition differential at the end of the year.
(ii) The debt to equity ratio would increase because debt would not change but total
shareholders’ equity would decrease.
Problem 5-11
Cost of 80% investment – July 1, Year 4 543,840
Implied value of 100% investment 679,800
Carrying amount of Bondi’s net assets
Assets 936,000
Liabilities 307,200
628,800
Accounts receivable 24,004
Inventory 48,000
Plant assets (90,000)
Bonds payable 13,466 (4,530)
Balance – goodwill 55,530
Bond Carrying
Cash Interest Premium Amount
Date Paid Expense Amortization of Bonds
July 1/ Year 4 $186,534
Dec 31/ Year 4 $6,0001 $7,4612 $1,4613 187,9954
June 30, Year 5 6,000 7,520 1,520 189,515
Dec 31/ Year 5 6,000 7,580 1,580 191,095
June 30, Year 6 6,000 7,644 1,644 192,739
Dec 31/ Year 6 6,000 7,710 1,710 194,449
1 2
$200,000 x 6% x 6/12 = $6,000 $186,534 x 4% = $7,461
3
$7,461 – $6,000 = $1,461 4
$186,534 + $1,461 = $187,995
Balance Changes Balance

July 1 Dec. 31 Dec. 31 Dec. 31 Dec. 31
YR 4 YR 4 YR 5 YR 6 YR 6
Accounts receivable 24,004 -24,004
Inventory 48,000 -48,000
Plant assets -90,000 3,000 6,000 6,000 -75,000
Bonds payable 13,466 -1,461 -3,100 -3,354 5,551
Goodwill 55,530 – -8,329 -5,553 41,648
51,000 -22,465 -53,429 -2,907 -27,801
Calculation of consolidated profit attributable to NCI – Year 6
Profit Bondi 8,400
Less: Change to acquisition differential 2,907
5,493
20%
1,099
Calculation of non-controlling interest – Dec. 31, Year 6 (Method 1)

Ordinary shares Bondi 120,000
Undepleted acquisition differential (27,801)
650,399
20%
130,080
NCI, date of acquisition (20% x [543,840 / .80]) 135,960
Bondi’s retained earnings, end of Year 6 558,200
Bondi’s retained earnings, date of acquisition 508,800
Cumulative changes to acquisition differential (78,801)
Adjusted change in Bondi’s retained earnings (a) (29,401)
NCI’s share at 20% (5,880)
(a)
Aaron Co.
Consolidated Financial Statements
December 31, Year 6
Income Statement
Sales (1,261,000 + 1,200,000) 2,461,000
Income – other investments 25,000
2,486,000
Raw materials used (880,000 + 1,005,000) 1,885,000
Change in inventory (-40,000 + 15,000) (25,000)
Depreciation (60,000 + 54,000 – 6,000) 108,000
Interest (37,000 + 26,400 + 3,354) 66,754
Other (227,000 + 91,200) 318,200
Goodwill impairment 5,553
2,358,507
Profit 127,493
Attributable to:
Aaron’s shareholders (= profit under equity method) 126,394
127,493
Statement of Financial Position
Plant assets (net) (720,000 + 540,000 - 75,000) 1,185,000

Other investments 250,666
Goodwill 41,648
Inventory (300,000 + 276,000) 576,000
Cash (120,000 + 84,000) 204,000
2,551,314
Ordinary shares 300,600

Retained earnings 1,295,185
Bonds payable (315,000 + 200,000 – 5,551) 509,449
Current liabilities (180,200 + 135,800) 316,000
2,551,314
(b)
Goodwill impairment loss – fair value enterprise method 5,553
Less: NCI’s share @20% 1,111
Goodwill impairment loss – identifiable net assets method 4,442
NCI – fair value enterprise method 1,099
NCI’s share of goodwill impairment loss 1,111
NCI – identifiable net assets method 2,210
(c)
Goodwill – fair value enterprise method 41,648
Less: NCI’s share @20% 8,330
Goodwill – identifiable net assets method 33,318
NCI’s share of goodwill 8,330

Problem 5-12
Total Rabb NCI
100% 75% 25%
Consideration given for share ownership 152,000 117,000 35,000
Carrying amount of Rabb’s net assets
= Carrying amount of Rabb’s shareholders’ equity
– common shares 50,000
– retained earnings 30,000
80,000 60,000 20,000
Acquisition differential 72,000 57,000 15,000
Allocated:
Inventory (11,000)
Equipment 24,000
Software 15,000
28,000 21,000 7,000
Goodwill 44,000 36,000 8,000
Bal Changes Bal

Jan. 1/Yr3 to Dec.31/Yr5 Yr6 Dec.31/Yr6
Inventory - 11,000 11,000
Equipment 24,000 -12,000 -4,000 8,000
Software 15,000 -4,500 -2,500 8,000
28,000 -5,500 -6,500 16,000
Goodwill – parent 36,000 -19,636 16,364
Goodwill - NCI 8,000 -4,364 3,636
72,000 -5,500 -30,500 36,000
(a)
Calculation of consolidated net income attributable to Foxx’s shareholders – Year 6
Net income Foxx 120,000

Less Dividends from Rabb (.75 x 20,000) 15,000
105,000
Net income Rabb 48,000

Foxx’s share @75% 36,000
141,000
Less: Changes to Acq. Diff.
Identifiable assets [5,500 + 1,000] x 75% - 4,875
Goodwill impairment loss - 19,636
116,489
Calculation of consolidated net income attributable to NCI – Year 6
Net income Rabb 48,000

NCI’s share @25% 12,000
Less: Changes to Acq. Diff.
Identifiable assets [5,500 + 1,000] x 25% - 1,625
Goodwill impairment loss - 4,364
6,011
Foxx Corp.
Year 6 Consolidated Income Statement
Sales (821,000 + 320,000) 1,141,000
Investment income (15,000 – 15,000 + 3,600) 3,600
1,144,600
Cost of sales (480,000 + 200,000) 680,000
Administrative expenses (40,000 + 12,000 + 5,500) 57,500
Miscellaneous expense (116,000 + 31,600 + 1,000 + 19,636 +4,364) 172,600
Income tax (80,000 + 32,000) 112,000
1,022,100
Net income 122,500
Attributable to:
Foxx’s shareholders 116,489

122,500
Calculation of consolidated retained earnings January 1, Year 6

Foxx retained earnings 153,000
Rabb retained earnings 92,000
Rabb retained earnings – acquisition date 30,000
Less: Changes to acq. diff. 5,500
56,500
Foxx’s share 75% 42,375
195,375
Year 6 Consolidated Retained Earnings Statement
Balance January 1 195,375
Net income 116,489
311,864
Less: Dividends 30,000
Balance December 31 281,864
Consolidated Balance Sheet – December 31, Year 6
Cash 10,000
Notes receivable (0 + 40,000 – 40,000) 0
Inventory (66,000 + 44,000) 110,000
Equipment (220,000 + 76,000 + 8,000) 304,000
Land (150,000 + 30,000) 180,000
Software 8,000
Goodwill 20,000
702,000
Bank indebtedness 90,000

Notes payable (40,000 + 0 – 40,000) 0
Non-controlling interest [.25 x (170,000 + 16,000) + 3,636] 50,136
702,000
(b)
Goodwill impairment loss – fair value enterprise method (19,636 + 4,364) 24,000
Less: NCI’s share 4,364
Goodwill impairment loss – identifiable net assets method 19,636
(c)
If Foxx had used the identifiable net assets method rather than the fair value enterprise method,
the debt to equity ratio would have increased because shareholders’ equity would have
decreased due to the decrease in non-controlling interest while debt would remain the same.
Problem 5-13
Cost of 80% investment $3,300,000
Implied value of 100% $4,125,000
Carrying amount of Silver’s net assets = Carrying amount of Silver’s shareholders’ equity
Common shares $2,050,000
2,495,000
Acquisition differential $1,630,000
Allocated:
Inventory (20%) $326,000
Equipment (40%) 652,000 978,000
Balance – goodwill (40%) $652,000
NCI (20% x 4,125,000) 825,000 (a)

July 1 Dec. 31 Dec. 31 Dec. 31 Dec. 31
Year 2 Year 2 Years 3 to 5 Year 6 Year 6
Inventory $326,000 $-326,000
Equipment 652,000 -40,750 $-244,500 $-81,500 $285,250
Goodwill 652,000 -79,000 -29,000 544,000
$1,630,000 $-366,750 $-323,500 $-110,500 $829,250
Calculation of consolidated net income attributable to Pearl’s shareholders – Year 6
Net income Pearl $1,343,000

Less: Dividends from Silver (290,000  80%) (232,000)
1,111,000
Net income Silver $697,000
Less: Changes to acquisition differential (110,500)
586,500
80% 469,200
$1,580,200
Calculation of consolidated retained earnings Jan. 1, Year 6

Retained earnings Pearl – Jan. 1 $3,800,000
Retained earnings Silver – Jan.1 $890,000
Less: Changes to acq. diff. to end of Year 5
(366,750 + 323,500) (690,250)
(245,250)
80% (196,200)
$3,603,800
Calculation of non-controlling interest – Dec. 31, Year 6

Silver – Common shares $2,050,000
3,347,000
4,176,250
20%
$835,250
(a)
Pearl Company
for the Year Ended December 31, Year 6
Sales (4,450,000 + 1,450,000) $5,900,000

Cost of sales (2,590,000 + 490,000 + 81,500) 3,161,500
Miscellaneous expense (365,000 + 79,000) 444,000
Admin expense (89,000 + 19,000 + 29,000) 137,000
Income tax (295,000 + 165,000) 460,000
4,202,500
Net income $1,697,500
Attributable to:
Pearl’s shareholders $1,580,200
$1,697,500
Pearl Company
Consolidated Retained Earnings Statement
Balance Jan. 1 $3,603,800

Net income 1,580,200
5,184,000
Dividends 590,000
Balance Dec. 31 $4,594,000
Pearl Company
December 31, Year 6
Cash (390,000 + 190,000) $580,000

Accounts receivable (290,000 – 84,000) 206,000
Inventory (2,450,000 + 510,000) 2,960,000
Plant and equipment (3,450,000 + 3,590,000 + 652,000 – 69,000) 7,623,000
Accumulated depreciation (840,000 + 400,000 + 366,750 – 69,000) (1,537,750)
Goodwill 544,000
$10,375,250
Liabilities (737,000 + 543,000 – 84,000) $1,196,000

Common shares 3,750,000
$10,375,250
(b)
Goodwill impairment loss – fair value enterprise method $29,000
Less: NCI’s share @ 20% 5,800
Goodwill impairment loss – identifiable net assets method $23,200
NCI – fair value enterprise method $117,300

NCI – identifiable net assets method $123,100
(c)
Goodwill– fair value enterprise method $544,000
Less: NCI’s share @ 20% 108,800
Goodwill – identifiable net assets method $435,200
NCI – fair value enterprise method $835,250

NCI – identifiable net assets method $726,450
(d)
CONSOLIDATED FINANCIAL STATEMENT WORKING PAPER
PEARL
CONSOLIDATED FINANCIAL STATEMENTS
December 31, Year 6
Eliminations
PEARL SILVER Dr. Cr. Consolidated
Income Statements - Year 6
Sales $ 4,450,000 $1,450,00 $5,900,000
Dividend income 232,000 0 2 $ 232,000 0
4,682,000 1,450,000 5,900,000
Cost of sales 2,590,000 490,000 7 81,500 3,161,500
Miscellaneous expenses 365,000 79,000 444,000
Administrative expense 89,000 19,000 7 29,000 137,000
Income tax expense 295,000 165,000 460,000
Total expenses 3,339,000 753,000 4,202,500
Net income $ 1,343,000 $ 697,000 $1,697,500
Attributable to:
Pearl's Shareholders $1,580,200
Non-controlling interest 8 117,300 117,300
$459,800 $ - $1,697,500
Retained Earnings Statements-Year
6
Balance, January 1 $ 3,800,000 $890,000 1 $196,200
4 890,000 $3,603,800
Net income 1,343,000 697,000 459,800 1,580,200
5,143,000 1,587,000 5,184,000
Dividends 590,000 290,000 2 $ 232,000 590,000
1
0 58,000
$1,297,00 $1,546,00
Balance, December 31 $4,553,000 0 0 $ 290,000 $4,594,000

Statement of Financial Position-December 31,
Year 6
$ $
Cash
390,000 190,000 $ 580,000
$
Accounts receivable 0
290,000 8 84,000 206,000
Inventory 2,450,000 510,000 2,960,000
$
Plant and equipment 3,590,000
3,450,000 5 652,000 6 69,000 7,623,000
Accumulated
depreciation (840,000) (400,000) 6 69,000 5 285,250 (1,537,750)
7 81,500
Investment in Silver
Company 3,300,000 0 3 775,950 1 196,200 0
4 3,879,750
Acquisition differential 0 0 4 939,750 5 939,750 0

Goodwill 0 0 5 573,000 7 29,000 544,000
$ $3,890,00
9,040,000 0 $10,375,250

$ $ $
Liabilities
737,000 543,000 8 84,000 1,196,000
Common shares 3,750,000 2,050,000 4 2,050,000 3,750,000
Retained earnings 4,553,000 1,297,000 1,546,000 290,000 4,594,000
1
Non-controlling interest
0 58,000 9 117,300 835,250
3 775,950
$ $3,890,00
9,040,000 0 $10,375,250
$6,747,70 $6,747,70
0 0
JOURNAL ENTRIES
1 Retained earnings 196,200

Investment in Silver 196,200
To adjust retained earnings to equity method at beginning of year
2 Dividend income - Pearl 232,000

Dividends - Silver 232,000
To eliminate dividend revenue from Silver
3 Investment in Silver 775,950

To establish non-controlling interest at beginning of year
4 Retained earnings, Jan 1 - Silver 890,000

Common shares - Silver 2,050,000
Investment in Silver 3,879,750
` To eliminate investment account and set up acquisition differential at beginning of year
5 Equipment 652,000
Accumulated depreciation 285,250
Goodwill 573,000
To allocate the acquisition differential at beginning of year
6 Accumulated depreciation 69,000

PP&E 69,000
To eliminate Bell's accumulated depreciation at date of acquisition
7 Cost of Sales (Equip amortization) 81,500

Admin expense (Goodwill
impairment loss) 29,000
Accumulated depreciation 81,500
Goodwill 29,000
To record changes to acquisition differential for the
year
8 Accounts payable 84,000

Accounts receivable 84,000
To eliminate intercompany receivables
9 Non-controlling interest-P&L 117,300

Non-controlling interest-SFP 117,300
To record NCI's share of income for the year
10 Non-controlling interest-SFP 58,000

Dividends – Silver 58,000
To record NCI's share of dividends paid .

$
Total of debits and credits 6,747,700 $ 6,747,700
Note
s
a Consolidated retained earnings, beginning of Year 6
$
(= Pearl's retained earnings, beginning of Year 6 under equity method) 3,603,800
Pearl's retained earnings, beginning of Year 6 under cost method 3,800,000
$
Difference between cost and equity method, beginning of Year 6 (196,200)
$
b NCI, end of Year 6 835,250
Less: NCI's share of consolidated net income for Year 6 (117,300)
Add: NCI's share of Silver's dividends for Year 6 (20% x 290,000) 58,000
$
NCI, beginning of Year 6 775,950
Problem 5-14
Implied value of 100% investment 340,000
Carrying amount of Bach’s net assets = Carrying amount of Bach’s shareholders’ equity
230,000
Inventory (50,000 – 20,000) 30,000
Land (45,000 – 25,000) 20,000
Equipment (78,000 – 60,000) 18,000
Misc. intangibles (42,000 – 0) 42,000 110,000
Goodwill 0
Non-controlling interest (20% x 340,000) 68,000 (a)
Changes to Acquisition Differential Schedule

Jan. 1 Dec. 31 Dec. 31 Dec. 31
Year 3 Years 3, 4, and 5 Year 6 Year 6
Inventory 30,000 -30,000
Land 20,000 20,000
Equipment 18,000 -3,600 -1,200 13,200
Misc. intangibles 42,000 -6,300 -2,100 33,600
110,000 -39,900 -3,300 66,800
Calculation of consolidated net income attributable to Albeniz’s shareholders – Year 6
Net income Albeniz 29,700

Less: Dividends from Bach (8,000  80%) 6,400
23,300
Net income Bach 17,500
Less: Changes to acq. diff. 3,300
14,200
80% 11,360
34,660
Calculation of consolidated retained earnings Dec. 31, Year 6

Retained earnings Albeniz 170,000
Retained earnings Bach 163,500
Less: Changes to acq. diff. (39,900 + 3,300) 43,200
Adjusted increase since acquisition 90,300 (b)
80% 72,240
242,240

Bach – Common shares 200,000
363,500
430,300
20%
86,060
NCI, date of acquisition (a) 68,000
Adjusted change in Bach’s retained earnings (b) 90,300
NCI’s share at 20% 18,060
(a) Albeniz Company

Sales (600,000 + 400,000) 1,000,000
Interest income 6,700
1,006,700
Cost of goods sold (334,000 + 225,000) 559,000
Distribution expense (20,000 + 70,000 + 1,200 + 2,100) 93,300
Selling and admin. (207,000 + 74,000) 281,000
Financing expense (1,700 + 6,000) 7,700
Income taxes (20,700 + 7,500) 28,200
969,200
Net income 37,500
Attributable to:
Albeniz’s shareholders 34,660

37,500
(b)
Albeniz Company
December 31, Year 6
Cash (40,000 + 21,000) 61,000

Inventories (56,000 + 45,000) 101,000
Land (20,000 + 60,000 + 20,000) 100,000
Plant and equipment (200,000 + 700,000 - 240,000 + 18,000) 678,000
Accumulated deprec. (80,000 + 350,000 – 240,000 + 4,800) (194,800)
Miscellaneous intangibles 33,600
954,800

Advances payable (0 + 100,000 – 100,000) 0
954,800
Problem 5-15
Cost of 80% investment $4,320,000

Implied value of 100% investment $5,400,000
Carrying amount of Partridge’s net assets
= Carrying amount of Partridge’s shareholders’ equity
Ordinary shares $2,021,000
4,641,000
Acquisition differential $759,000
Allocated: FV - CA
Inventory $220,000
Patents 520,000
Bonds payable (320,000) 420,000
Changes to Acq. Diff. Schedule

Jan. 2 Dec. 31 Dec. 31 Dec. 31
Year 4 Years 4 & 5 Year 6 Year 6
Inventory $220,000 $-220,000
Patents 520,000 -104,000 $-52,000 $364,000
Bonds payable -320,000 64,000 32,000 (224,000)
Goodwill 339,000 -31,000 -18,000 290,000
$759,000 $-291,000 $-38,000 $430,000
Brady Ltd.
Sales (10,100,000 + 5,100,000) $15,200,000
Cost of goods purchased (6,950,000 + 2,910,000) 9,860,000
Change in inventory (72,000 + 120,000) 192,000
Depreciation expense (920,000 + 402,000) 1,322,000
Patent amortization (120,000 + 52,000) 172,000
Interest expense (490,000 + 310,000 – 32,000) 768,000
Other expense (700,000 + 870,000) 1,570,000
Goodwill impairment loss 18,000
Income tax (620,000 + 160,000) 780,000
14,682,000
Profit $518,000
Attributable to:
Brady’s shareholders = profit under equity method $484,000
$518,000
Calculation of non-controlling interest – Dec. 31, Year 6
Partridge – Ordinary shares $2,021,000

5,300,000
5,730,000
20%
$1,146,000
Brady Ltd.
Consolidated Statement of Financial Position
December 31, Year 6
Plant and equipment (8,200,000 + 5,200,000) $13,400,000
Patents (720,000 + 364,000) 1,084,000
Goodwill 290,000
Inventory (4,800,000 + 2,000,000) 6,800,000
Accounts receivable (1,100,000 + 1,400,000) 2,500,000
Cash (420,000 + 620,000) 1,040,000
$25,114,000
Ordinary shares $5,100,000

Retained earnings (= retained earnings under equity method) 6,382,000
Non-controlling interest 1,146,000
Bonds payable (4,100,000 + 3,100,000 + 224,000) 7,424,000
Accounts payable (3,522,000 + 1,540,000) 5,062,000
$25,114,000
(b)
Only retained earnings and investment in Partridge would be different.
The investment in Partridge would be $4,320,000, which is the original acquisition cost of the
investment. This represents a decrease of $264,000 ($4,584,000 – $4,320,000) from the
balance under the equity method.
Retained earnings under the cost method would also be decreased by $264,000. It would
change from $6,382,000 under the equity method to $6,118,000 ($6,382,000 - $264,000) under
the cost method.
(c)
(in 000s) Equity Cost Consolidation
Current assets $6,320 $6,320 $10,340
Current liabilities $3,522 $3,522 $5,062
Current ratio 1.79 1.79 2.04
Total debt $7,622 $7,622 $12,486

Total equity $11,482 $11,218 $12,628
Debt-to-equity ratio 0.66 0.68 0.99
Net income $484 $436* $518

Total shareholders’ equity $11,482 $11,218 $12,628
Return on equity 4.2% 3.9% 4.1%
* $484 – equity method income of $136 + dividend income of $110 x 80% = $436
(d)
 The consolidation method shows the highest liquidity because it had the highest current
ratio.
 The consolidation method shows the highest risk of insolvency because it had the
highest debt-to-equity ratio.
 The equity method reported the highest profitability because it had the highest return on
equity
(e)
CONSOLIDATED FINANCIAL STATEMENT WORKING PAPER
BRADY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, YEAR 6
Eliminations
PARTRIDG Consolidate
BRADY E Dr. Cr. d
Income Statements - Year 6
Sales $ $ $
10,100,000 5,100,000 15,200,000
Equity method
income 136,000 1 136,000 0
10,236,000 5,100,000 15,200,000
Cost of goods
purchased 6,950,000 2,910,000 9,860,000
Change in inventory 72,000 120,000 192,000
Depreciation
expense 920,000 402,000 1,322,000
Patent amortization
expense 0 120,000 5 52,000 172,000
Interest expense 5
490,000 310,000 32,000 768,000
Other expenses 700,000 870,000 1,570,000
Goodwill impairment
loss 0 0 5 18,000 18,000
Income taxes 620,000 160,000 780,000
Total expenses 9,752,000 4,892,000 14,682,000
$ $ $
Net income 484,000 208,000 518,000
Attributable to:
Brady's $
Shareholders 484,000
Non-controlling
interest 6 34,000 34,000
$ $ $
Total 240,000 32,000 518,000

Retained Earnings Statements - Year 6
$ $
Balance, January 1 5,898,000 3,181,000 3 3,181,000 5,898,000
Abov
Net income 484,000 208,000 e 240,000 32,000 484,000
6,382,000 3,389,000 6,382,000
1
Dividends 0 110,000 88,000 0
7
22,000
Balance, December $ $ Total $ $ $
31 6,382,000 3,279,000 3,421,000 142,000 6,382,000

Statement of Financial Position - December 31,
Year 6

Plant and equipment $ $ $
(net) 8,200,000 5,200,000 13,400,000
5
Patents (net) 720000
0 4 416,000 52,000 1,084,000
Goodwill 5
0 0 4 308,000 18,000 290,000
Investment in
Partridge (equity 1
method) 4,584,000 0 2 1,134,000 48,000 0
3
5,670,000
Acquisition 4
differential 0 0 3 468,000 468,000 0

Inventory 4,800,000 2,000,000 6,800,000
Accounts receivable 1,100,000 1,400,000 2,500,000
Cash 420,000 620,000 1,040,000
$ $ $
19,104,000 9,940,000 25,114,000

$ $ $
Ordinary shares
5,100,000 2,021,000 3 2,021,000 5,100,000
Abov
Retained earnings
6,382,000 3,279,000 e 3,421,000 142,000 6,382,000
Non-controlling 2
interest 0 0 7 22,000 1,134,000 1,146,000
6
34,000
4
Bonds payable
4,100,000 3,100,000 5 32,000 256,000 7,424,000
Accounts payable 3,522,000 1,540,000 5,062,000
$ $ $
19,104,000 9,940,000 25,114,000
$ $7,822,00
7,822,000 0
JOURNAL ENTRIES
1 Investment revenue 136,000

Investment in Partridge 48,000
Retained earnings - Dividends paid (80% x 110,000) 88,000
To adjust investment account to balance at beginning of year
2 Investment in Partridge 1,134,000

Non-controlling interest (note a) 1,134,000
To establish non-controlling interest at beginning of year
3 Retained earnings, Jan 1 - Partridge 3,181,000

Ordinary shares - Partridge 2,021,000
Investment in Partridge 5,670,000
To eliminate investment account and set up acquisition differential at beginning of year
4 Patents 416,000
Goodwill 308,000
Bonds payable 256,000
To allocate the acquisition differential at the beginning of the year
5 Goodwill impairment loss 18,000

Goodwill 18,000
Patent amortization 52,000
Patents 52,000
Bonds payable 32,000
Interest expense 32,000
To record change to acquisition differential
6 Non-controlling interest-P&L 34,000

Non-controlling interest-SFP 34,000
To record NCI's share of income for the year
7 Non-controlling interest-SFP 22,000

Retained earnings - Dividends paid 22,000
To record NCI's share of dividends paid .

Total of debits and credits $ 7,822,000 $ 7,822,000
Notes
$1,146,00
a NCI, end of Year 6 0
Less: NCI's share of consolidated net income for Year 6 -34,000
Add: NCI's share of Partridges’ dividends for Year 6 (20% x 110,000) 22,000
NCI, beginning of Year 6 $1,134,000

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Problem 5-1

(iv) Large’s profit $360,000

(v) NCI on income statement (103,100 x 30%) $30,930

(ii) Investment in Small under cost method $770,000

Inventory (150,000 + 80,000) 230,000

Equipment, net (326,000 + 160,000 + 10,000) 496,000

Gros’s retained earnings 270,000

Non-controlling interest on balance sheet (Method 1)

Non-controlling interest on balance sheet (Method 2)

Cost of goods purchased (500,000 + 450,000) 950,000

Change in inventory (20,000 + 12,000) 32,000

Amortization expense (35,000 + 20,000 + 2,000) 57,000

Non-controlling interest on income statement

Dividends paid 30,000

Year 2 15%  (30,000 – 79,000) (7,350)

Invest. account – equity Dec. 31, Year 3 628,150

Cost of 80% Interest in Lee 70,000

Bal Changes Bal

* all pertaining to Grant’s 80% ownership

Calculation of consolidated retained earnings – Dec 31, Year 7

Retained earnings – Lee 65,000

Less: Changes to acq. diff.

[(11,000 + 2,000) x 80% + 4,000] (14,400)

Calculation of Year 7 net income attributable to Grant’s Shareholders

Net income Grant 230,000

Net income Lee 23,000

Grant’s % interest 80%

Less: Grant’s share of changes to acq. diff.

(2,000 x 80% + 4,000) 5,600

(b) Grant Corporation

Consolidated Income Statement

Sales (900,000 + 360,000) 1,260,000

Cost of goods sold (340,000 + 240,000) 580,000

Gross margin 680,000

Distribution expense (30,000 + 25,000 + 2,000) 57,000

Other expenses (180,000 + 56,000 + 4,000) 240,000

Income taxes (120,000 + 16,000) 136,000

Net income 247,000

Grant’s shareholders 242,800

Non-controlling interest [20% x (23,000 – 2,000)] 4,200

Consolidated Balance Sheet – December 31, Year 6

Cash (5,000 + 18,000) 23,000

Accounts receivable (185,000 + 82,000 – 30,000) 237,000

Inventory (310,000 + 100,000) 410,000

Equipment (230,000 + 205,000) 435,000

Patent (0 + 2,000 + 2,000) 4,000

Accounts payable (190,000 + 195,000 – 30,000) 355,000

Other accrued liabilities (60,000 + 50,000) 110,000

Income taxes payable (80,000 + 72,000) 152,000

Retained earnings 313,600

Non-controlling interest (Note 1) 18,400

Non-controlling interest (Method 1)

Lee’s shareholders’ equity 90,000

Undepleted acquisition differential on identifiable net assets 2,000

NCI’s share @20% 18,400

Non-controlling interest (Method 2)

NCI, date of acquisition (7 x 2,000 shares) 14,000

Change in Lee’s retained earnings (a) 35,000

Changes to acq. diff. on identifiable net assets 13,000

NCI’s share at 20% 4,400

Non-controlling interest – Dec. 31, Year 6 18,400

Investment in Fazli = acquisition cost 914,000

Balance Changes to Balance

(b) Calculation of consolidated net income attributable to Big’s shareholders – Year 6