80% Onwed Subsidiary

Problem 1: Assume that on January 1, 20x4, Pascal Company acquires 80% of the common stock
of Sax Company for P372,000. At that time, the fair value of the 20% non-controlling interest
is estimated to be P93,000. On that the following assets and liabilities of Sax Company had book
values that were different from their respective market values:
S Co S Co
Book value Fair value Diff
Inventory 24,000.00 30,000.00 6,000.00
Land 48,000.00 55,200.00 7,200.00
Equipment 180,000.00 276,000.00 96,000.00
Accumulated depn (96,000.00) (96,000.00)
Buildings 360,000.00 336,000.00 (24,000.00)
Accumulated depn (192,000.00) (192,000.00)
Bonds payable (4 years) 120,000.00 115,200.00 (4,800.00)

All assets and liabilities had book values approximately equal to respective fair values.
On January 1, 20x4, the equipment and buildings had a remaining life of 8 and 4 years,
respectively. Inventory is sold in 20x4 and FIFO inventory costing is used. Goodwill, if any,
is reduced by a P3,750 impairment loss during 20x4 based on the fair value basis (Full GW)
meaning the management has determined that the goodwill arising in the acquisition of
Sax Company relates proportionately to the controlling and non-controlling interests,
as does the impairment.
Trial balances for the companies for the year ended December 31, 20x4 are as follows:
Debits Pascal Co Sax Co Pascal Co Sax Co
Cash 232,800.00 90,000.00 232,800.00
Accounts receivable 90,000.00 60,000.00 90,000.00
Inventory 120,000.00 90,000.00 120,000.00
Land 210,000.00 48,000.00 210,000.00
Equipment 240,000.00 180,000.00 240,000.00
Buildings 720,000.00 540,000.00 720,000.00
Investment in Sax Company 372,000.00 - 377,640.00
Cost of good sold 204,000.00 138,000.00 204,000.00
Discount on bonds payable - - -
Depreciation expense 60,000.00 24,000.00 60,000.00
Interest expense
Other expenses 48,000.00 18,000.00 48,000.00
Goodwill impairment loss - - -
Dividends paid 72,000.00 36,000.00 72,000.00
Totals 2,368,800.00 1,224,000.00 2,374,440.00

Credits
Accum Dep'n - Equip 135,000.00 96,000.00 135,000.00
Accum Dep'n - Bldg 405,000.00 288,000.00 405,000.00
Accounts payable 120,000.00 120,000.00 120,000.00
Bonds payable 240,000.00 120,000.00 240,000.00
Common stock, P10 par 600,000.00 240,000.00 600,000.00
Retained earnings 360,000.00 120,000.00 360,000.00
Sales 480,000.00 240,000.00 480,000.00
Dividend income 28,800.00 - 34,440.00 (Investment Income)
Totals 2,368,800.00 1,224,000.00

From the trial balance presented above the following summary for 20x4 results of
operations are as follows:
Pascal Co Sax Co Pascal Co Sax Co
Sales 480,000.00 240,000.00 480,000.00
Less: Cost of goods sold (204,000.00) (138,000.00) (204,000.00)
Gross profit 276,000.00 102,000.00 276,000.00
Less: Depreciation expense (60,000.00) (24,000.00) (60,000.00)
Other expense (48,000.00) (18,000.00) (48,000.00)
Net income (own operations) 168,000.00 60,000.00 168,000.00
Add: Dividend income 28,800.00 - 34,440.00 (Investment income)
Net income 196,800.00 60,000.00 202,440.00

The trail balance for the companies for the year ended December 31, 20x5 are as
follows:
Debits Pascal Co Sax Co Pascal Co Sax Co
Cash 265,200.00 102,000.00 265,200.00
Accounts receivable 180,000.00 96,000.00 180,000.00
Inventory 216,000.00 108,000.00 216,000.00
Land 210,000.00 48,000.00 210,000.00
Equipment 240,000.00 180,000.00 240,000.00
Buildings 720,000.00 540,000.00 720,000.00
Investment in Sax Company 372,000.00 - 405,480.00
Cost of good sold 216,000.00 192,000.00 216,000.00
Discount on bonds payable - - -
Depreciation expense 60,000.00 24,000.00 60,000.00
Interest expense
Other expenses 72,000.00 54,000.00 72,000.00
Dividends paid 72,000.00 48,000.00 72,000.00
Totals 2,623,200.00 1,392,000.00 2,656,680.00

Credits
Accum Dep'n - Equip 150,000.00 102,000.00 150,000.00
Accum Dep'n - Bldg 450,000.00 306,000.00 450,000.00
Accounts payable 120,000.00 120,000.00 120,000.00
Bonds payable 240,000.00 120,000.00 240,000.00
Common stock, P10 par 600,000.00 240,000.00 600,000.00
Retained earnings 484,800.00 144,000.00 490,440.00
Sales 540,000.00 360,000.00 540,000.00
Dividend income 38,400.00 - 66,240.00 Investment income
Totals 2,623,200.00 1,392,000.00 2,656,680.00

Further, the following information available for Pascal and Sax Company based
on the above balance for the year 20x5
Pascal Co Sax Co Pascal Co Sax Co
Sales 540,000.00 360,000.00 540,000.00
Less: Cost of goods sold (216,000.00) (192,000.00) (216,000.00)
Gross profit 324,000.00 168,000.00 324,000.00
Less: Depreciation expense (60,000.00) (24,000.00) (60,000.00)
Other expense (72,000.00) (54,000.00) (72,000.00)
Net income (own operations) 192,000.00 90,000.00 192,000.00
Add: Dividend income 38,400.00 - 66,240.00 Investment income
Net income 230,400.00 90,000.00 258,240.00

Dividends paid 72,000.00 48,000.00

Required: Using cost model

1. Prepare journal entry to record the investment in the books of the acquirer
2. Prepare schedule of determination and allocation of excess
(Investment Income)

(Investment income)
Investment income

Investment income
 Entries in the books of P Company
Investment in S Co 372,000.00
Cash 372,000.00
To record the cost of investment

Cash 28,800.00
Dividend income 28,800.00
To record dividends received from S

Dividends paid (RE) 72,000.00

Cash 72,000.00
To record dividends paid by P

Entries in the books of S Company

Dividends paid (RE) 36,000.00
Cash 36,000.00
To record dividends paid by S

Determination and allocation of excess 100% 80% 20%

Price paid (consideration transferred) 465,000.00 372,000.00 93,000.00
Less: Book value of SHE
Common stock - S Co 240,000.00 192,000.00 48,000.00
Retained earnings - S Co 120,000.00 96,000.00 24,000.00
Total 360,000.00 288,000.00 72,000.00
Excess of cost over BV 105,000.00 84,000.00 21,000.00
Less: Adjustments to FV
Inventory 6,000.00 4,800.00 1,200.00
Land 7,200.00 5,760.00 1,440.00
Equipment 96,000.00 76,800.00 19,200.00
Buildings (24,000.00) (19,200.00) (4,800.00)
Bonds payable (4 years) 4,800.00 3,840.00 960.00
Total 90,000.00 72,000.00 18,000.00
Goodwill 15,000.00 12,000.00 3,000.00

Excess Amortization Schedule:

Account Allocation Dr(CUseful life (yrs) Annual excess amortizations
Inventory 6,000.00 1.00 6,000.00
Land 7,200.00 indefinite -
Equipment 96,000.00 8.00 12,000.00
Buildings (24,000.00) 4.00 (6,000.00)
Bonds payable 4,800.00 4.00 1,200.00
Goodwill 15,000.00 indefinite - 3,750.00
13,200.00
Working paper entries:

First Year of the Acuisition Date Full GW Partial GW

(S) Common stock - S Co 240,000.00 240,000.00
(S) Retained earnings - S Co 120,000.00 120,000.00
(S) Investment in S Co 288,000.00 288,000.00
(S) NCI 72,000.00 72,000.00

(A) Inventory 6,000.00 6,000.00

(A) Land 7,200.00 7,200.00
(A) Equipment 96,000.00 96,000.00
(A) Bonds payable 4,800.00 4,800.00
(A) Goodwill 15,000.00 12,000.00
(A) Buildings 24,000.00 24,000.00
(A) Investment in S Co 84,000.00 84,000.00
(A) NCI 21,000.00 18,000.00

(I) Dividend income 28,800.00 28,800.00

(I) NCI 7,200.00 7,200.00
(I) Dividends paid (RE) - S 36,000.00 36,000.00

(E') Cost of goods sold 6,000.00 6,000.00

(E') Dep'n - equip 12,000.00 12,000.00
(E') AD - Building 6,000.00 6,000.00
(E') Interest expense 1,200.00 1,200.00
(E') Impairment loss - GW 3,750.00 3,000.00
(E') Inventory 6,000.00 6,000.00
(E') AD - Equipment 12,000.00 12,000.00
(E') Dep'n - Bldg 6,000.00 6,000.00
(E') Bonds Pay (or Disc) 1,200.00 1,200.00
(E') Goodwill 3,750.00 3,000.00

(NCI) NCI Share in Net Income - S 8,610.00

(NCI) NCI 8,610.00

Second Year After the Acquisition Date

Entries in the books of P Company
Cash 38,400.00
Dividend income 38,400.00

Entries in the books of S Company

Dividends paid (RE) 48,000.00
Cash 48,000.00

Working paper entries:

(C') Investment in S Co 19,200.00
(C') Retained earnings, P co beginning 19,200.00

(S) Common stock - S Co 240,000.00

(S) Retained earnings - S Co 144,000.00
(S) Investment in S Co 307,200.00
(S) NCI 76,800.00
(A) Inventory 6,000.00
(A) Land 7,200.00
(A) Equipment 96,000.00
(A) Bonds payable 4,800.00
(A) Goodwill 15,000.00
(A) Buildings 24,000.00
(A) Investment in S Co 84,000.00
(A) NCI 21,000.00

(I) Dividend income 38,400.00

(I) NCI 9,600.00
(I) Dividends paid (RE) - S 48,000.00

(E') Retained Earnings P Co, beg 13,560.00

(E') NCI 3,390.00
(E') Dep'n - equip 12,000.00
(E') AD - Building 12,000.00
(E') Interest expense 1,200.00
(E') Inventory 6,000.00
(E') AD - Equipment 24,000.00
(E') Dep'n - Bldg 6,000.00
(E') Bonds Pay (or Disc) 2,400.00
(E') Goodwill 3,750.00

(E') Cost of goods sold 6,000.00 RE

(E') Dep'n - equip 12,000.00 RE
(E') AD - Building 6,000.00
(E') Interest expense 1,200.00 RE
(E') Impairment loss - GW 3,750.00 RE
(E') Inventory 6,000.00
(E') AD - Equipment 12,000.00
(E') Dep'n - Bldg RE 6,000.00
(E') Bonds Pay (or Disc) 1,200.00
(E') Goodwill 3,750.00
(prior year)
Amortization RE, 20x4 Dr (Cr)
Inventory 6,000.00
Equipment 12,000.00
Buildings (6,000.00)
Bonds payable 1,200.00
Goodwill 3,750.00
Net debit 16,950.00
Parent share (80%) 13,560.00
NCI (20%) 3,390.00

(E') Dep'n - equip 12,000.00

(E') AD - Building 6,000.00
(E') Interest expense 1,200.00
(E') AD - Equipment 12,000.00
(E') Dep'n - Bldg 6,000.00
(E') Bonds Pay (or Disc) 1,200.00

(current year)
 Investment in S Co
Cost 372,000.00
Entry S (288,000.00)
Entry A (84,000.00)
-

impairmen 3,000.00 partial GW

 Investment in S Co
Cost 372,000.00
Entry C 19,200.00
Entry S (307,200.00)
Entry A (84,000.00)
-
Worksheet (80% Owned) Full Goodwill
P Co S Co Dr Cr
Income Statement
Sales (480,000.00) (240,000.00)
Dividend income (28,800.00) - (I) 28,800.00
Total (508,800.00) (240,000.00)

Cost of goods sold 204,000.00 138,000.00 (E') 6,000.00

Depreciation expense 60,000.00 24,000.00 (E') 12,000.00 (E') 6,000.00
Other expense 48,000.00 18,000.00
Interest expense (E') 1,200.00
Impairment loss (E') 3,750.00
Total 312,000.00 180,000.00

Net income (196,800.00) (60,000.00)

Consolidated NI
NCI - Sub NI
Controlling interest NI

Statement of Retained Earnings

Retained earnings, 1/1 (360,000.00) (120,000.00) (S) 120,000.00
Net income (above) (196,800.00) (60,000.00)
Dividends paid 72,000.00 36,000.00 (I) 36,000.00
Retained earnings, 12/31 (484,800.00) (144,000.00)

Balance Sheet
Cash 232,800.00 90,000.00
Accounts receivable 90,000.00 60,000.00
Inventory 120,000.00 90,000.00 (A) 6,000.00 (E') 6,000.00
Land 210,000.00 48,000.00 (A) 7,200.00
Equipment 240,000.00 180,000.00 (A) 96,000.00
AD - Equipment (135,000.00) (96,000.00) (E') 12,000.00
Buildings 720,000.00 540,000.00 (A) 24,000.00
AD - Bldg (405,000.00) (288,000.00) (E') 6,000.00
Goodwill (A) 15,000.00 (E') 3,750.00
Investment in Sax Company 372,000.00 (S) 288,000.00
(A) 84,000.00
Total 1,444,800.00 624,000.00

Accounts payable (120,000.00) (120,000.00)

Bonds payable (240,000.00) (120,000.00) (A) 4,800.00 (E') 1,200.00
Common stock (600,000.00) (240,000.00) (S) 240,000.00
Retained earnings (above) (484,800.00) (144,000.00)
Non-controlling interest 1/1 (I) 7,200.00 (S) 72,000.00
(A) 21,000.00
Non-controlling interest 12/31
Total (1,444,800.00) (624,000.00) 553,950.00 553,950.00
NCI Consolidated

(720,000.00)
-
(720,000.00)

348,000.00
90,000.00
66,000.00
1,200.00
3,750.00
508,950.00

(211,050.00)

(8,610.00) 8,610.00
(202,440.00)

(360,000.00)
(202,440.00)
72,000.00
(490,440.00)

322,800.00
150,000.00
210,000.00
265,200.00
516,000.00
(243,000.00)
1,236,000.00
(687,000.00)
11,250.00
-

1,781,250.00

(240,000.00)
(356,400.00)
(600,000.00)
(490,440.00)
(85,800.00)
(94,410.00) (94,410.00)
(1,781,250.00)
Selected Consolidated Balances
Year 20x4 (First Year of Acquisition)
P Co S Co
Separate Net Income (196,800.00) (60,000.00)
Adjustments:
Amortization of excess 13,200.00
Impairment loss 3,750.00
Dividend income 28,800.00
Adjusted net income (168,000.00) (43,050.00) (211,050.00)

(34,440.00) (8,610.00)
80% 20%
Adjusted NI - Parent (168,000.00)
Share of Parent NI - S (34,440.00)
Attributable to Parent (202,440.00)

Non-controlling interest, beg (93,000.00) (given)

Add: Share of NCI in Net Income - S (8,610.00)
Less: Share of NCI in Dividends - S 7,200.00
Non-controlling interest, ending (94,410.00)

Retained earnings, beg - P (360,000.00)

Add: Attributable to P (202,440.00)
Less: Dividends paid - P 72,000.00
Retained earnings , end - P (conso) (490,440.00)

Consolidated Stockholders' Equity

Common stock - P (600,000.00)
Retained Earnings - P (490,440.00)
NCI (94,410.00)
Total (1,184,850.00)

Year 20x5 (Second Year of Acquisition)

Cost Equity
Retained Earnings, 1/1 (360,000.00) (360,000.00)
Add: Net income (168,000.00) (168,000.00)
Investment income (48,000.00)
Dividend income (28,800.00)
Less: Excess amortizations
Dividends paid 72,000.00 72,000.00
(484,800.00) (504,000.00) (19,200.00)

Alternative:
Separate Net Income (60,000.00)
Less: Dividends declared and paid - S 36,000.00
Increase in Retained Earnings - S (24,000.00)
x 80%
Adj in Beg RE - (Accrual of earnings of S) (19,200.00)

P Co S Co
Separate Net Income (230,400.00) (90,000.00)
Adjustments:
Amortization of excess 7,200.00
Impairment loss -
Dividend income 38,400.00
Adjusted net income (192,000.00) (82,800.00) (274,800.00)

(66,240.00) (16,560.00)
80% 20%

Adjusted NI - Parent (192,000.00)

Share of Parent NI - S (66,240.00)
Attributable to Parent (258,240.00)

Non-controlling interest, beg (94,410.00)

Add: Share of NCI in Net Income - S (16,560.00)
Less: Share of NCI in Dividends - S 9,600.00 20% of 48,000
Non-controlling interest, ending (101,370.00)

Retained earnings, beg - P (490,440.00)

Add: Attributable to P (258,240.00)
Less: Dividends paid - P 72,000.00
Retained earnings , end - P (conso) (676,680.00)

Consolidated Stockholders' Equity

Common stock - P (600,000.00)
Retained Earnings - P (676,680.00)
NCI (101,370.00)
Total (1,378,050.00)
Consolidated Balances (Full GW) - First Year
P Co S Co Conso
Cash 232,800.00 90,000.00 322,800.00
Accounts receivable 90,000.00 60,000.00 150,000.00
Inventory 120,000.00 90,000.00 210,000.00
Land 210,000.00 55,200.00 265,200.00
Equipment 240,000.00 276,000.00 516,000.00
AD - Equipment (135,000.00) (108,000.00) (243,000.00)
Buildings 720,000.00 516,000.00 1,236,000.00
AD - Bldg (405,000.00) (282,000.00) (687,000.00)
Goodwill 11,250.00
Investment in Sax Compan - -
Total Assets 1,781,250.00

Accounts payable 120,000.00 120,000.00 240,000.00

Bonds payable 240,000.00 116,400.00 356,400.00
Common stock 600,000.00 600,000.00
Retained earnings 490,440.00
Non-controlling interest 94,410.00
Total Liabilities and Equity 1,781,250.00

Consolidated Balances (Full GW) - Second Year

P Co S Co Conso
Cash 265,200.00 102,000.00 367,200.00
Accounts receivable 180,000.00 96,000.00 276,000.00
Inventory 216,000.00 108,000.00 324,000.00
Land 210,000.00 55,200.00 265,200.00
Equipment 240,000.00 276,000.00 516,000.00
AD - Equipment (150,000.00) (126,000.00) (276,000.00)
Buildings 720,000.00 516,000.00 1,236,000.00
AD - Bldg (450,000.00) (294,000.00) (744,000.00)
Goodwill 11,250.00
Investment in Sax Compan - -
Total Assets 1,975,650.00

Accounts payable 120,000.00 120,000.00 240,000.00

Bonds payable 240,000.00 117,600.00 357,600.00
Common stock 600,000.00 - 600,000.00
Retained earnings 676,680.00
Non-controlling interest 101,370.00
Total Liabilities and Equity 1,975,650.00
Worksheet (80% Owned) Full Goodwill
P Co S Co Dr
Income Statement
Sales (540,000.00) (360,000.00)
Dividend income (38,400.00) - (I) 38,400.00
Total (578,400.00) (360,000.00)

Cost of goods sold 216,000.00 192,000.00

Depreciation expense 60,000.00 24,000.00 (E') 12,000.00
Other expense 72,000.00 54,000.00
Interest expense (E') 1,200.00
Impairment loss
Total 348,000.00 270,000.00

Net income (230,400.00) (90,000.00)

Consolidated NI
NCI - Sub NI
Controlling interest NI

Statement of Retained Earnings

Retained earnings, 1/1 (484,800.00) (144,000.00) (S) 144,000.00 (C')
(E') 13,560.00
Net income (above) (230,400.00) (90,000.00)
Dividends paid 72,000.00 48,000.00 (I)
Retained earnings, 12/31 (643,200.00) (186,000.00)

Balance Sheet
Cash 265,200.00 102,000.00
Accounts receivable 180,000.00 96,000.00
Inventory 216,000.00 108,000.00 (A) 6,000.00 (E')
Land 210,000.00 48,000.00 (A) 7,200.00
Equipment 240,000.00 180,000.00 (A) 96,000.00
AD - Equipment (150,000.00) (102,000.00)
(E')
Buildings 720,000.00 540,000.00 (E') 12,000.00 (A)
AD - Bldg (450,000.00) (306,000.00) 6,000.00
Goodwill (A) 15,000.00
Investment in Sax Company 372,000.00 (C') 19,200.00 (S)
(A)
Total 1,603,200.00 666,000.00

Accounts payable (120,000.00) (120,000.00)

Bonds payable (240,000.00) (120,000.00) (A) 4,800.00
Common stock (600,000.00) (240,000.00) (S) 240,000.00
Retained earnings (above) (643,200.00) (186,000.00)
Non-controlling interest 1/1 (I) 9,600.00 (S)
(E') 3,390.00 (A)
Non-controlling interest 12/31
Total (1,603,200.00) (666,000.00) 628,350.00
Cr NCI Consolidated

(900,000.00)
-
(900,000.00)

408,000.00
6,000.00 90,000.00
126,000.00
1,200.00
-
625,200.00

(274,800.00)

(16,560.00) 16,560.00
(258,240.00)

19,200.00 (504,000.00)

(258,240.00)
48,000.00 72,000.00
(690,240.00)

367,200.00
276,000.00
6,000.00 324,000.00
265,200.00
516,000.00
12,000.00 (264,000.00)
24,000.00
24,000.00 1,248,000.00
(750,000.00)
15,000.00
307,200.00 -
84,000.00
1,997,400.00

(240,000.00)
1,200.00 (356,400.00)
(600,000.00)
(690,240.00)
 76,800.00 (88,200.00)
21,000.00
(104,760.00) (104,760.00)
629,400.00 (1,991,400.00)
Equity Method
Entries in the books of P Company
Investment in S Co 372,000.00
Cash 372,000.00
To record cost of investment

Investment in S Co 48,000.00
Investment income 48,000.00
To record share of P in net income of S (P60,000 x 80%)

Cash 28,800.00
Investment in S Co 28,800.00
To record dividends received from S

Investment income 13,560.00

Investment in S Co 13,560.00
To record amortization of excess - 1st year*

Dividends paid (RE) 72,000.00

Cash 72,000.00
To record dividends paid by P

Entries in the books of S Company

Dividends paid (RE) 36,000.00
Cash 36,000.00
To record dividends paid by S

Determination and allocation of excess 100% 80% 20%

Price paid (consideration transferred) 465,000.00 372,000.00 93,000.00
Less: Book value of SHE
Common stock - S Co 240,000.00 192,000.00 48,000.00
Retained earnings - S Co 120,000.00 96,000.00 24,000.00
Total 360,000.00 288,000.00 72,000.00
Excess of cost over BV 105,000.00 84,000.00 21,000.00
Less: Adjustments to FV
Inventory 6,000.00 4,800.00 1,200.00
Land 7,200.00 5,760.00 1,440.00
Equipment 96,000.00 76,800.00 19,200.00
Buildings (24,000.00) (19,200.00) (4,800.00)
Bonds payable (4 years) 4,800.00 3,840.00 960.00
Total 90,000.00 72,000.00 18,000.00
Goodwill 15,000.00 12,000.00 3,000.00

Excess Amortization Schedule:

Account Allocation Dr(CUseful life (yrs) Annual excess amortizations
Inventory 6,000.00 1.00 6,000.00
Land 7,200.00 indefinite -
Equipment 96,000.00 8.00 12,000.00
 Buildings (24,000.00) 4.00 (6,000.00)
Bonds payable 4,800.00 4.00 1,200.00
Goodwill 15,000.00 indefinite - 3,750.00
13,200.00
Working paper entries:

First Year of the Acuisition Date Full GW Partial GW

(S) Common stock - S Co 240,000.00 240,000.00
(S) Retained earnings - S Co 120,000.00 120,000.00
(S) Investment in S Co 288,000.00 288,000.00
(S) NCI 72,000.00 72,000.00

(A) Inventory 6,000.00 6,000.00

(A) Land 7,200.00 7,200.00
(A) Equipment 96,000.00 96,000.00
(A) Bonds payable 4,800.00 4,800.00
(A) Goodwill 15,000.00 12,000.00
(A) Buildings 24,000.00 24,000.00
(A) Investment in S Co 84,000.00 84,000.00
(A) NCI 21,000.00 18,000.00

(I) Investment income 34,440.00

(I) Investment in S Co 34,440.00

(D) Investment in S Co 28,800.00 28,800.00

(D) NCI 7,200.00 7,200.00
(D) Dividends paid (RE) - S 36,000.00 36,000.00

(E') Cost of goods sold 6,000.00 6,000.00

(E') Dep'n - equip 12,000.00 12,000.00
(E') AD - Building 6,000.00 6,000.00
(E') Interest expense 1,200.00 1,200.00
(E') Impairment loss - GW 3,750.00 3,000.00
(E') Inventory 6,000.00 6,000.00
(E') AD - Equipment 12,000.00 12,000.00
(E') Dep'n - Bldg 6,000.00 6,000.00
(E') Bonds Pay (or Disc) 1,200.00 1,200.00
(E') Goodwill 3,750.00 3,000.00

(NCI) NCI Share in Net Income - S 8,610.00

(NCI) NCI 8,610.00

Second Year After the Acquisition Date

Entries in the books of P Company
Investment in S Co 72,000.00
Investment income 72,000.00
 To record share of P in net income of S (P90,000 x 80%)

Cash 38,400.00
Investment in S Co 38,400.00
To record dividends received from S (P48,000 x 80%)

Investment income 5,760.00

Investment in S Co 5,760.00
To record amortization of excess - 2nd year*

Dividends paid (RE) 72,000.00

Cash 72,000.00
To record dividends paid by P

Entries in the books of S Company

Dividends paid (RE) 48,000.00
Cash 48,000.00

Working paper entries:

(S) Common stock - S Co 240,000.00
(S) Retained earnings - S Co 144,000.00
(S) Investment in S Co 307,200.00
(S) NCI 76,800.00

(A) Inventory 6,000.00

(A) Land 7,200.00
(A) Equipment 96,000.00
(A) Bonds payable 4,800.00
(A) Goodwill 15,000.00
(A) Buildings 24,000.00
(A) Investment in S Co 84,000.00
(A) NCI 21,000.00

(I) Investment income 66,240.00

(I) Investment in S Co 66,240.00

(D) Investment in S Co 38,400.00

(D) NCI 9,600.00
(D) Dividends paid (RE) - S 48,000.00

(E') Investment in S Co 13,560.00

(E') NCI 3,390.00
(E') Dep'n - equip 12,000.00
(E') AD - Building 12,000.00
(E') Interest expense 1,200.00
(E') Inventory 6,000.00
(E') AD - Equipment 24,000.00
(E') Dep'n - Bldg 6,000.00
(E') Bonds Pay (or Disc) 2,400.00
(E') Goodwill 3,750.00

(E') Cost of goods sold 6,000.00 RE

(E') Dep'n - equip 12,000.00 RE
(E') AD - Building 6,000.00
(E') Interest expense 1,200.00 RE
(E') Impairment loss - GW 3,750.00 RE
(E') Inventory 6,000.00
(E') AD - Equipment 12,000.00
(E') Dep'n - Bldg RE 6,000.00
(E') Bonds Pay (or Disc) 1,200.00
(E') Goodwill 3,750.00

Amortization RE, 20x4 Dr (Cr)

Inventory 6,000.00
Equipment 12,000.00
Buildings (6,000.00)
Bonds payable 1,200.00
Goodwill 3,750.00
16,950.00
Parent share (80%) 13,560.00
NCI (20%) 3,390.00
*Amortization Inv Income, 20x4 Dr (Cr) Investment in S Co
Inventory 6,000.00 Cost 372,000.00 377,640.00
Equipment 12,000.00 Share of NI - S 48,000.00 (288,000.00) Entry S
Buildings (6,000.00) Dividends - S (28,800.00) (84,000.00) Entry A
Bonds payable 1,200.00 Amortization (13,560.00) (34,440.00) Entry I
Goodwill 3,750.00 Ending Bal 377,640.00 28,800.00 Entry D
16,950.00 -
Parent share (80%) 13,560.00 Investment income
Share of NI - S 48,000.00
Amortization (13,560.00)
34,440.00
impairment 3,000.00 partial GW
*Amortization Inv Income, 20x4 Dr (Cr) Investment in S Co
Equipment 12,000.00 Beg Bal (books) 377,640.00 405,480.00
Buildings (6,000.00) Share of NI - S 72,000.00 (307,200.00) Entry S
Bonds payable 1,200.00 Dividends - S (38,400.00) (84,000.00) Entry A
7,200.00 Amortization (5,760.00) (66,240.00) Entry I
Parent share (80%) 5,760.00 Ending Bal 405,480.00 38,400.00 Entry D

Investment income
Share of NI - S 72,000.00
Amortization (5,760.00)
66,240.00
Selected Consolidated Balances
Year 20x4 (First Year of Acquisition)
P Co S Co
Separate Net Income (202,440.00) (60,000.00)
Adjustments:
Amortization of excess 13,200.00
Impairment loss 3,750.00
Investment income 34,440.00
Adjusted net income (168,000.00) (43,050.00) (211,050.00)

(34,440.00) (8,610.00)
80% 20%
Adjusted NI - Parent (168,000.00)
Share of Parent NI - S (Investment income) (34,440.00)
Attributable to Parent (202,440.00)

Non-controlling interest, beg (93,000.00) (given)

Add: Share of NCI in Net Income - S (8,610.00)
Less: Share of NCI in Dividends - S 7,200.00
Non-controlling interest, ending (94,410.00)

Retained earnings, beg - P (360,000.00)

Add: Attributable to P (202,440.00)
Less: Dividends paid - P 72,000.00
Retained earnings , end - P (conso) (490,440.00)

Consolidated Stockholders' Equity

Common stock - P (600,000.00)
Retained Earnings - P (490,440.00)
NCI (94,410.00)
Total (1,184,850.00)

Year 20x5 (Second Year of Acquisition)

P Co S Co
Separate Net Income (258,240.00) (90,000.00)
Adjustments:
Amortization of excess 7,200.00
Impairment loss -
Investment income 66,240.00
Adjusted net income (192,000.00) (82,800.00) (274,800.00)

(66,240.00) (16,560.00)
80% 20%
Adjusted NI - Parent (192,000.00)
Share of Parent NI - S (66,240.00)
Attributable to Parent (258,240.00)

Non-controlling interest, beg (94,410.00)

Add: Share of NCI in Net Income - S (16,560.00)
Less: Share of NCI in Dividends - S 9,600.00 20% of 48,000
Non-controlling interest, ending (101,370.00)

Retained earnings, beg - P (490,440.00)

Add: Attributable to P (258,240.00)
Less: Dividends paid - P 72,000.00
Retained earnings , end - P (conso) (676,680.00)

Consolidated Stockholders' Equity

Common stock - P (600,000.00)
Retained Earnings - P (676,680.00)
NCI (101,370.00)
Total (1,378,050.00)
Consolidated Balances (Full GW) - First Year
P Co S Co Conso
Cash 232,800.00 90,000.00 322,800.00
Accounts receivable 90,000.00 60,000.00 150,000.00
Inventory 120,000.00 90,000.00 210,000.00
Land 210,000.00 55,200.00 265,200.00
Equipment 240,000.00 276,000.00 516,000.00
AD - Equipment (135,000.00) (108,000.00) (243,000.00)
Buildings 720,000.00 516,000.00 1,236,000.00
AD - Bldg (405,000.00) (282,000.00) (687,000.00)
Goodwill 11,250.00
Investment in Sax Compan - -
Total Assets 1,781,250.00

Accounts payable 120,000.00 120,000.00 240,000.00

Bonds payable 240,000.00 116,400.00 356,400.00
Common stock 600,000.00 600,000.00
Retained earnings 490,440.00
Non-controlling interest 94,410.00
Total Liabilities and Equity 1,781,250.00

Consolidated Balances (Full GW) - Second Year

P Co S Co Conso
Cash 265,200.00 102,000.00 367,200.00
Accounts receivable 180,000.00 96,000.00 276,000.00
Inventory 216,000.00 108,000.00 324,000.00
Land 210,000.00 55,200.00 265,200.00
Equipment 240,000.00 276,000.00 516,000.00
AD - Equipment (150,000.00) (126,000.00) (276,000.00)
Buildings 720,000.00 516,000.00 1,236,000.00
AD - Bldg (450,000.00) (294,000.00) (744,000.00)
Goodwill 11,250.00
Investment in Sax Compan - -
Total Assets 1,975,650.00

Accounts payable 120,000.00 120,000.00 240,000.00

Bonds payable 240,000.00 117,600.00 357,600.00
Common stock 600,000.00 - 600,000.00
Retained earnings 676,680.00
Non-controlling interest 101,370.00
Total Liabilities and Equity 1,975,650.00
 P Co S Co Eliminations
Income statement Debit
Revenues (780,000.00) (360,000.00)
Dividend income (16,000.00) - I 16,000.00
Total (796,000.00) (360,000.00)

Expenses 550,000.00 190,000.00

Depreciation & Amort E1 6,500.00
Total 550,000.00 190,000.00

Net income (246,000.00) (170,000.00)

NCI - Sub NI NCI 32,700.00

Controlling interest NI (to RE)

Statement of Retained Earnings

Retained earnings, 1/1 (704,000.00) (480,000.00) S 480,000.00 C

Net income (above) (246,000.00) (170,000.00)

Dividends paid 90,000.00 20,000.00 I
Retained earnings, 12/31 (860,000.00) (630,000.00)

Balance Sheet
Current assets 605,000.00 280,000.00 P
Investment in S Co 425,000.00 C 123,200.00 S
E2 20,800.00 A
Land 200,000.00 300,000.00 A 50,000.00
Buildings 640,000.00 290,000.00 A 20,000.00 E1/E2
Equipment 380,000.00 160,000.00 A 12,500.00 E1/E2
Royalties A 30,000.00 E1/E2
Goodwill A 15,000.00
Total 2,250,000.00 1,030,000.00

Liabilities (910,000.00) (300,000.00) P 20,000.00

Common stock (480,000.00) (100,000.00) S 100,000.00
Retained earnings, 12/31 (above) (860,000.00) (630,000.00)
NCI E2 5,200.00 S
I 4,000.00 A
NCI
Total (2,250,000.00) (1,030,000.00) 935,900.00
 Consolidated
Credit Balances
(1,140,000.00)
-
(1,140,000.00)

740,000.00
6,500.00
746,500.00

(393,500.00)

32,700.00
(360,800.00)

123,200.00 (827,200.00)

(360,800.00)
20,000.00 90,000.00
(1,098,000.00)

20,000.00 865,000.00
464,000.00 -
105,000.00
550,000.00
12,500.00 937,500.00
12,500.00 540,000.00
7,500.00 22,500.00
15,000.00
2,930,000.00

(1,190,000.00)
(480,000.00)
(1,098,000.00)
116,000.00
22,500.00
32,700.00 (162,000.00)
935,900.00 (2,930,000.00)
Working paper entries: Determination and Allocation of
C Investment in S Co 123,200.00
C Retained earnings, beg P 123,200.00 Price paid
To adjust retained earnings due to undistributed income from
subsidiary from prior year Book value of SHE

S Common stock - S 100,000.00

S Retained earnings - S 480,000.00
S Investment in S Co 464,000.00
S NCI 116,000.00
To eliminate stockholders' equity of subsidiary
Excess of cost over book value
A Building 20,000.00
A Land 50,000.00 Allocation of excess:
A Equipment 12,500.00
A Royalties 30,000.00
A Goodwill 15,000.00
A Investment in S Co 105,000.00
A NCI 22,500.00
To recognize goodwill and allocation fair value of asset accounts

E1 Depreciation exp 5,000.00 Goodwill

E1 Amortization 1,500.00
E1 Building 2,500.00 Amortization of Excess Schedule
E1 Equipment 2,500.00
E1 Royalties 1,500.00
To adjust depreciation and amortization on the basis of fair
values

E2 Investment in S Co 20,800.00
E2 NCI 5,200.00
E2 Building 10,000.00
E2 Equipment 10,000.00
E2 Royalties 6,000.00
To adjust depreciation and amortization from the prior years

I Dividend income 16,000.00

I NCI 4,000.00
I Dividends paid/RE 20,000.00
To eliminate dividend income record by parent company

P Liabilities 20,000.00
P Current Asset 20,000.00
To eliminate intercompany receivable and payable

NCI Share of NCI 32,700.00

NCI NCI 32,700.00
To recognize share of NCI in the net income of the subsidiary
Computation of Unadjusted Income:
Retained earnings - S, 1/1/13 480,000.00 Net income as reported
Retained earnings - S, 1/1/09 300,000.00 Less:
Increase in retained earnings 180,000.00
since acquisition Adjusted net income

Less: Accumulated amortization (26,000.00) Share of NCI

(6,500 x 4 yrs)
Adjusted increase 154,000.00
x Parent's interest x 80%
Undistributed income from S Co 123,200.00
Share of Parent
Adjusted increase 154,000.00
x NCI x 20%
Share of NCI - undistributed income 30,800.00

Computation of Retained Earnings and NCI

Retained earnings - P Co., Beg 704,000.00

Add: Undistributed income 123,200.00
Income attributable to P Co 360,800.00
Less: Dividends paid - P Co. (90,000.00)
Retained earnings - P Co., Ending 1,098,000.00

NCI, Beginning (given) 102,500.00

Add: Undistributed income 30,800.00
Share of NCI in NI - S Co 32,700.00
Less: Share in dividends - S Co (4,000.00)
NCI, Ending 162,000.00
Determination and Allocation of Excess Schedule
100% 80% 20%
Price paid 527,500.00 425,000.00 102,500.00

Book value of SHE

Common stock - S Co 100,000.00 80,000.00 20,000.00

Retained earnings - S Co 300,000.00 240,000.00 60,000.00
Total 400,000.00 320,000.00 80,000.00

Excess of cost over book value 127,500.00 105,000.00 22,500.00

Allocation of excess:
Building 20,000.00 16,000.00 4,000.00
Land 50,000.00 40,000.00 10,000.00
Equipment 12,500.00 10,000.00 2,500.00
Royalties 30,000.00 24,000.00 6,000.00
Total 112,500.00 90,000.00 22,500.00

15,000.00 15,000.00 -

Amortization of Excess Schedule Amount Rem. Life (yrs) Amortization

Building 20,000.00 8.00 2,500.00
Land 50,000.00 - -

Equipment 12,500.00 5.00 2,500.00

Royalties 30,000.00 20.00 1,500.00
Total 6,500.00
 P Co S Co Conso
Net income as reported 246,000.00 170,000.00
Amortization (6,500.00)
Dividend income (16,000.00)
Adjusted net income 230,000.00 163,500.00 393,500.00

Share of NCI
Adjusted NI - S Co 163,500.00
Mult by: interest 20%
Share of NCI 32,700.00

Share of Parent
Adjusted NI - S Co 163,500.00
Mult by: interest 80%
Share of Parent 130,800.00
Add: Adjusted NI - P Co 230,000.00
Net income attributable to parent 360,800.00