Fundamentals of Advanced Accounting 8Th Edition Hoyle Solutions Manual Full Chapter PDF

Fundamentals of Advanced Accounting
8th Edition Hoyle Solutions Manual

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Chapter 06 – Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues
CHAPTER 6
VARIABLE INTEREST ENTITIES, INTRA-ENTITY DEBT,
CONSOLIDATED CASH FLOWS, AND OTHER ISSUES
Chapter Outline
I. Variable interest entities (VIEs)
A. VIEs typically take the form of a trust, partnership, joint venture, or corporation. In most
cases a sponsoring firm creates these entities to engage in a limited and well-defined set of
business activities. For example, a business may create a VIE to finance the acquisition of
a large asset. The VIE purchases the asset using debt and equity financing, and then leases
the asset back to the sponsoring firm. If their activities are strictly limited and the asset is
pledged as collateral, VIEs are often viewed by lenders as less risky than their sponsoring
firms. As a result, such arrangements can allow financing at lower interest rates than would
otherwise be available to the sponsor.
B. Control of VIEs, by design, sometimes does not rest with its equity holders. Instead, control
is exercised through contractual arrangements with the sponsoring firm who becomes the
"primary beneficiary" of the VIE. These contracts can take the form of leases, loans,
participation rights, guarantees, or other residual interests. Through contracting, the primary
beneficiary bears a majority of the risks and receives a majority of the rewards of the entity,
often without owning any voting shares.
C. An entity whose control rests with a primary beneficiary is addressed by FASB ASC subtopic
810-10 Variable Interest Entities. The following characteristics indicate a controlling financial
interest in a variable interest entity.
1. The power to direct the activities that most significantly impact the VIE’s economic
performance
2. The obligation to absorb losses of the VIE that could potentially be significant to the VIE
or the right to receive benefits from the VIE that could potentially be significant to the
VIE.
The primary beneficiary bears the risks and receives the rewards of a variable interest entity
and is considered to have a controlling financial interest.
D. If a reporting entity has a controlling financial interest in a variable interest entity, it should
include the assets, liabilities, and results of the activities of the variable interest entity its
consolidated financial statements.
E. In reporting periods subsequent to when a primary beneficiary gains control over a VIE,
consolidation procedures are similar to that for a voting interest entity. A notable exception
in consolidation procedures occurs in accounting for the allocation of consolidated net
income across the controlling and noncontrolling interests. Because variable, rather than
voting, interests determine profit allocation, the underlying agreements between the primary
beneficiary, the VIE, and other related parties must be carefully reviewed to determine net
income distribution.
II. Intra-entity debt transactions

A. No special difficulty is created when one member of a business combination loans money
to another. The resulting receivable/payable accounts as well as the interest income
expense balances are identical and can be directly offset in the consolidation process.
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B. The acquisition of an affiliate's debt instrument from an outside party does require special
handling so that consolidated financial statements can be produced.
1. Because the acquisition price will usually differ from the carrying amount of the liability,
a gain or loss has been created by an effective retirement which is not recorded within
the individual records of either company.
2. Because of the amortization of any associated discounts and/or premiums, the interest
income reported by the buyer will not equal the interest expense of the debtor.
C. In the year of acquisition, the consolidation process eliminates intra-entity accounts (the
liability, the receivable, interest income, and interest expense) while the gain or loss (which
produced all of the discrepancies because of the initial difference) is recognized.
1. Although several alternatives exist, this textbook assigns all income effects resulting
from the retirement to the parent company, the party ultimately responsible for the
decision to reacquire the debt.
2. Any noncontrolling interest is, therefore, not affected by the adjustments utilized to
consolidate intra-entity debt.
D. After the year of effective retirement, all intra-entity accounts must be eliminated again in
each subsequent consolidation. However, when the parent uses the equity method, the
parent’s Investment in Subsidiary account is adjusted in consolidation rather than a gain or
loss account. If the parent employs an accounting method other than the equity method,
then the parent’s Retained Earnings are adjusted for the prior years’ income net effects of
the effective gain/loss on retirement.
1. The change in retained earnings is needed because a gain or loss was created in a prior
year by the effective retirement of the debt, but only interest income and interest expense
were recognized by the two parties.
2. The adjustment to retained earnings at any point in time is the original gain or loss
adjusted for the subsequent amortization of discounts or premiums.
III. Subsidiary preferred stock

A. Subsidiary preferred shares not owned by the parent are a part of noncontrolling interest.
B. The fair value of any subsidiary preferred shares not acquired by the parent is added to the
consideration transferred along with the fair value of the noncontrolling interest in common
shares to compute the acquisition-date fair value of the subsidiary.
IV. Consolidated statement of cash flows

A. Statement is produced from consolidated balance sheet and income statement and not from
the separate cash flow statements of the component companies.
B. Consolidated net income is the starting point for the cash flow from operating section—
including both the parent and noncontrolling interest share.
C. Intra-entity cash transfers are omitted from this statement because they do not occur with
an outside unrelated party.
D. Dividends paid by the subsidiary to the noncontrolling interest are reported as a financing
activity.
V. Consolidated earnings per share

A. This computation normally follows the pattern described in intermediate accounting
textbooks. For basic EPS, consolidated net income is divided by the weighted-average
number of parent shares outstanding. If convertibles (such as bonds or warrants) exist for
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Chapter 06 – Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues – 14e
the parent shares, their weight must be included in computing diluted EPS but only if
earnings per share is reduced.
1. The subsidiary's diluted earnings per share are computed first to arrive at (1) an earnings
figure and (2) a shares figure.
2. The portion of the shares figure belonging to the parent is computed. That percentage
of the subsidiary's diluted earnings is then added to the parent's net income in order to
complete the earnings per share computation.
VI. Subsidiary stock transactions

A. If the subsidiary issues new shares of stock or reacquires its own shares as treasury stock,
a change is created in the book value underlying the parent's investment account. The
increase or decrease should be reflected by the parent as an adjustment to this balance.
B. The book value of the subsidiary that corresponds to the parent's ownership is measured
before and after the transaction with any alteration recorded directly to the investment
account. The parent's additional paid-in capital (or retained earnings) account is normally
adjusted although the recognition of a gain or loss is an alternate accounting treatment.
C. Treasury stock acquired by the subsidiary may also necessitate a similar adjustment to the
parent's investment account. In addition, any subsidiary treasury stock is eliminated within
the consolidation process.
Answer to Discussion Question: Who Lost this $300,000?

This case is designed to give life to a theoretical accounting issue: If a subsidiary's debt is retired,
should the resulting gain or loss be assigned to the parent or to the subsidiary? The case illustrates
that there is no clear-cut solution. This lack of an absolute answer makes financial accounting both
intriguing and frustrating.
The assignment decision is only necessary in the presence of a noncontrolling interest. Regardless
of the ownership level all intra-entity balances are eliminated on the worksheet with a gain or loss
recognized. Not until the consolidated net income is allocated across the controlling interest and
the noncontrolling interest does the assignment decision have an impact.
We assume that financial and operating decisions are made in the best interest of the business
entity as a whole. This debt would not have been retired unless corporate officials believed that
Penston/Swansan would benefit from the decision. Thus, an argument can be made against any
assignment to either separate party.
Students should choose and justify one method. Discussion often centers on the following:
▪ Parent company officials made the actual choice that created the book loss. Therefore,
assigning the $300,000 to the subsidiary directs the impact of their decision to the wrong party.
In effect, the subsidiary had nothing to do with this transaction (as indicated in the case) so that
its share of consolidated net income should not be affected by the $300,000 loss.
▪ The debt was that of the subsidiary. Because the subsidiary's debt is being retired, all of the
$300,000 should be attributed to that party. Financial records measure the results of
transactions and the retirement simply culminates an earlier transaction made by the subsidiary.
The parent is doing no more than acting as an agent for the subsidiary (as indicated in the case).
If the subsidiary had acquired its own debt, for example, no question as to the assignment would
6-3
have existed. Thus, changing that assignment simply because the parent agreed to be the
acquirer is not justified.
▪ Both parties were involved in the transaction so that some allocation of the loss is required. If,
at the time of repurchase, a discount existed within the subsidiary's accounts, this figure would
have been amortized to interest expense (if the debt had not been retired). Thus, the $300,000
loss was accepted now in place of the later amortization. This reasoning then assigns this
portion of the loss to the subsidiary. Because the parent agreed to pay more than face value,
that remaining portion is assigned to the buyer.
Answers to Questions
1. A variable interest entity (VIE) is a business structure that is designed to accomplish a specific
purpose. A VIE can take the form of a trust, partnership, joint venture, or corporation although
typically it has neither independent management nor employees. The entity is frequently
sponsored by another firm to achieve favorable financing rates.
2. Variable interests are contractual, ownership, or other pecuniary interests in an entity that
change with changes in the entity's net asset value. Variable interests will absorb portions of a
variable interest entity's losses or receive portions of the entity's expected residual returns.
Variable interests typically are accompanied by contractual arrangements that provide decision
making power to the owner of the variable interests. Examples of variable interests include debt
guarantees, lease residual value guarantees, participation rights, and other financial interests.
3. The following characteristics are indicative of an enterprise qualifying as a primary beneficiary

with a controlling financial interest in a VIE.
▪ The power, through voting rights or similar rights, to direct the activities of an entity that most
significantly impact the entity’s economic performance.
▪ The obligation to absorb losses of the VIE that could potentially be significant to the VIE or
the right to receive benefits from the VIE that could potentially be significant to the VIE.
4. Because the bonds were purchased from an outside party, the acquisition price is likely to differ
from the carrying amount of the debt in the subsidiary's records. This difference creates
accounting challenges in handling the intra-entity transaction. From a consolidated perspective,
the debt is retired; a gain or loss is reported with no further interest being recorded. In reality,
each company continues to maintain these bonds on their individual financial records. Also,
because discounts and/or premiums are likely to be present, these account balances as well as
the interest income/expense will change from period to period because of amortization. For
reporting purposes, all individual accounts must be eliminated with the gain or loss being
reported so that the events are shown from the vantage point of the consolidated entity.
5. If the bonds are acquired directly from the affiliate company, all reciprocal accounts will be equal
in amount. The debt and the receivable will be in agreement so that no gain or loss is created.
Interest income and interest expense should also reflect identical amounts. Therefore, the
consolidation process for this type of intra-entity debt requires no more than the offsetting of the
various reciprocal balances.
6. The gain or loss to be reported is the difference between the price paid and the carrying amount
of the debt on the date of acquisition. For consolidation purposes, this gain or loss should be
recognized immediately on the date of acquisition.
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7. Because the bonds are still legally outstanding, they will continue to be found on both sets of
financial records. Thus, each account (Bonds Payable, Investment in Bonds, Interest Expense,
and Interest Income) must be eliminated within the consolidation process. Any gain or loss on
the effective retirement as well as later effects on interest caused by amortization are also
included to arrive at an adjustment to the beginning retained earnings (or the Investment
account if the equity method is used) of the parent company.
8. The original gain is never recognized within the financial records of either company. Thus, within
the consolidation process for the year of acquisition, the gain is directly recorded whereas (for
each subsequent year) it is entered as an adjustment to beginning retained earnings (or the
Investment account if the equity method is used). In addition, because the carrying amount of
the debt and the investment are not in agreement, the interest expense and interest income
balances being recorded by the two companies will differ each year because of the amortization
process. This amortization effectively reduces the difference between the individual retained
earnings balances and the total that is appropriate for the consolidated entity. Consequently, a
smaller change is needed each period to arrive at the balance to be reported. For this reason,
the annual adjustment to beginning retained earnings (or the Investment account if the equity
method is used) gradually decreases over the life of the bond.
9. No set rule exists for assigning the income effects from intra-entity debt transactions although
several different theories exist and include: (1) assignment of the entire amount to the debtor,
(2) assignment of the entire amount to the buyer, and (3) allocation of the gain or loss between
the two parties in some manner. This textbook attributes the entire income effect (the $45,000
gain in this case) to the parent company. Assignment to the parent is justified because that party
is ultimately responsible for the decision to retire the debt from the public market. The answer
to the discussion question included in this chapter analyzes this question in more detail.
10. Subsidiary outstanding preferred shares are part of the noncontrolling interest and are included
in the consolidated financial statements at acquisition-date fair value and subsequently adjusted
for their share of subsidiary income and dividends.
11. The consolidated cash flow statement is developed from consolidated balance sheet and
income statement figures. Thus, the cash flows generated by operating, investing, and financing
activities are identified only after the consolidation of these other statements.
12. The noncontrolling interest share of the subsidiary’s net income is a component of consolidated
net income. Consolidated net income then is adjusted for noncash and other items to arrive at
consolidated cash flows from operations. Any dividends paid by the subsidiary to these outside
owners are listed as a financing activity because an actual cash outflow occurs.
13. An alternative to the normal diluted earnings per share calculation is required whenever the
subsidiary has dilutive convertible securities such as bonds or warrants. In this case, the
potential impact of the conversion of subsidiary shares must be factored into the overall diluted
earnings per share computation.
14. Basic Earnings per Share. The existence of subsidiary convertible securities does not affect
basic EPS. The parent’s basic earnings per share is computed by dividing the parent’s share
of consolidated net income by the weighted average number of parent shares outstanding.
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Diluted Earnings per Share. The subsidiary's diluted earnings per share is computed by
including both convertible items. The portion of the parent's controlled shares to the total shares
used in this calculation is then determined. Only this percentage (of the income figure used in
the subsidiary's computation) is added to the parent's income in arriving at the parent company’s
diluted earnings per share.
15. Several reasons could exist for a subsidiary to issue new shares of stock to outside parties.
First, additional financing is brought into the company by any such sale. Also, stock issuance
may be used to entice new individuals to join the organization. Additional management
personnel, as an example, might be attracted to the company in this manner. The company
could also be forced to sell shares because of government regulation. Many countries require
some degree of local ownership as a prerequisite for operating within that country.
16. Because the new stock was issued at a price above the subsidiary’s assigned consolidation
value, the overall valuation for Metcalf's stock has been increased. Consequently, the
Washburn's investment is increased to reflect this change. To measure the effect, the value of
Washburn's investment is calculated both before and after the new issue. Because the
increment is the result of a stock transaction, an increase is made to additional paid-in capital.
Although the subsidiary's shares (both new and old) are eliminated in the consolidation process,
the increase in the parent's APIC (or gain or loss) carries into the consolidated figures. Also, the
noncontrolling interest percentage of the subsidiary increases.
17. A stock dividend does not alter the assigned consolidated subsidiary value and, thus, creates
no effect on Washburn's investment account or on the consolidated figures. Hence, no entry is
recorded by the parent company in connection with the subsidiary's stock dividend.
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Answers to Problems
1. C
2. B Vintage Company net income ...................................................... $100,000

Less: Prairie Company 15% ownership share ............................ (15,000)
Less: Prairie Company 40% participating rights ........................ (40,000)
Net income attributable to noncontrolling interest .................... $45,000
3. B
4. D
5. A
6. D
7. D Cash flow from operations:

Net income ................................................................. $45,000
Depreciation ............................................................... 10,000
Trademark amortization ............................................ 15,000
Increase in accounts receivable............................... (17,000)
Increase in inventory ................................................. (40,000)
Increase in accounts payable ................................... 12,000 (20,000)
Cash flow from operations ....................................... $25,000
8. C Cash flow from financing activities:

Dividends to parent’s interest .................................. ($12,000)
Dividends to noncontrolling interest (20%  $5,000) (1,000)
Reduction in long-term notes payable .................... (25,000)
Cash flow from financing activities ......................... ($38,000)
9. C
10. C Post-issue subsidiary valuation ($800,000 + $250,000) $1,050,000

Arcola’s new ownership percentage (40,000 ÷ 50,000) 80%
Arcola’s share of post-issue subsidiary valuation $ 840,000
Arcola’s pre-issue equity balance 800,000
Increase to Arcola’s investment account $ 40,000
11. C Dane’s income from own operations ....................... $185,000

Carlton’s income ...................................................... 105,000
Eliminate intra-entity interest income ...................... (19,000)
Eliminate intra-entity interest expense .................... 18,000
Recognize retirement gain on debt ($209,000 – $196,000) 13,000
Consolidated net income .................................... $302,000
6-7
12. B Mattoon’s share of consolidated net income .......... $465,000

Number of Mattoon common shares outstanding .. 100,000
Mattoon’s EPS = ($465,000 ÷ 100,000 shares) ......... $4.65
13. B Aaron net income ..................................................... $430,000

Less intra-entity dividends (initial value method) .. (8,050) $421,950
Zeese reported net income ...................................... 164,000
Gain on extinguishment of debt ($60,200 – $56,000) 4,200
Eliminate interest expense on "retired" debt
($60,200 × 10%) .................................................... 6,020
Eliminate interest income on "retired" debt
($56,000 × 12%) .................................................... (6,720)
Consolidated net income ......................................... $589,450
14. B 30% of $147,000 subsidiary net income; the intra-entity debt effects are
attributed solely to the parent company. 30% x $147,000 = $44,100
15. A For 2021, the adjustment to beginning retained earnings should recognize
the gain on the retirement of the debt, the elimination of the 2020 interest
expense, and the elimination of the 2020 interest income.
Gain on Retirement of Bond:

Original carrying amount .................................................... $10,600,000
2017–2019 amortization ($600,000 ÷ 20 yrs. × 3 yrs.) ....... (90,000)
Carrying amount, January 1, 2021 ..................................... $10,510,000
Percentage of bonds retired ............................................... 40%
Carrying amount of retired bonds ...................................... $ 4,204,000
Cash received ($4,000,000 × 96.6%) ................................... 3,864,000
Gain on retirement of bonds ............................................... $ 340,000
Interest Expense on Intra-Entity Debt—2020
Cash interest expense (9% × $4,000,000) .......................... $360,000
Premium amortization ($30,000 per year total × 40%
retired portion of bonds) ............................................... (12,000)
Interest expense on intra-entity debt ................................. $348,000
Interest Income on Intra-Entity Debt—2020
Cash interest income (9% × $4,000,000) ............................ $360,000
Discount amortization (.034 × $4,000,000 ÷ 17 years) ....... 8,000
Interest income on intra-entity debt ................................... $368,000
Adjustment to 1/1/21 Retained Earnings
Recognition of 2020 gain on extinguishment of debt (above) ..... $340,000
Elimination of 2020 intra-entity interest expense (above)............ 348,000
Elimination of 2020 intra-entity interest income (above) ............. (368,000)
Increase in retained earnings, 1/1/21 ....................................... $320,000
6-8
16. D Consideration transferred for preferred stock ............................. $ 424,000

Consideration transferred for common stock .............................. 3,960,000
Noncontrolling interest fair value for preferred ........................... 1,696,000
Noncontrolling interest fair value for common ............................ 440,000
Acquisition-date fair value ............................................................. 6,520,000
Acquisition-date identified net asset fair value ........................... (6,000,000)
Goodwill .......................................................................................... $ 520,000
17. B Consideration transferred for preferred stock ............................. $214,000

Consideration transferred for common stock .............................. 1,253,280
Noncontrolling interest fair value for common stock .................. 835,520
Acquisition-date fair value ............................................................. $2,302,800
Acquisition-date book value .......................................................... (2,174,000)
Excess fair over book value ........................................................... $ 128,800
to building .................................................................................. 63,600
to goodwill .................................................................................. $ 65,200
18. B Parent’s reported sales ............................................ $480,000

Subsidiary's reported sales ..................................... 264,000
Less: intra-entity transfers ...................................... (57,600)
Sales to outsiders ............................................... $686,400
Less: increase in receivables ................................... (37,300)
Cash generated by sales .................................... $649,100
19. B Subsidiary’s unamortized fair value prior to new share issue

(12,000 × $49) ....................................................... $588,000
Parent's ownership ................................................... 100%
Unamortized subsidiary fair value ......................... $588,000
Subsidiary unamortized fair value after issuing new

shares (above value plus 3,000 shares at $50 each) $738,000
Parent's ownership 12,000 ÷ 15,000 shares) .......... 80%
Unamortized subsidiary fair value after stock issue $590,400
Investment in Veritable increases by $2,400 ($590,400 less $588,000).
20. A Because the parent acquired 80 percent of the new shares, its proportional
ownership remains the same. Because the amount the parent pays will
necessarily equal 80 percent of the increase in the subsidiary's book value,
no separate adjustment by the parent is required.
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21. C Adjusted acquisition-date sub. fair value at 1/1/21

Consideration transferred ........................................................ $592,000
Noncontrolling interest acquisition-date fair value ................ 148,000
Increase in Stamford book value .............................................. 80,000
Stock issue proceeds ................................................................ 150,000
Subsidiary valuation basis 1/1/21 .................................................. 970,000
New parent ownership (32,000 shs. ÷ 50,000 shs.) ...................... 64%
Parent’s post-stock issue ownership balance .............................. $620,800
Parent's investment account ($592,000 + [80% × 80,000]) .......... 656,000
Required adjustment —decrease ............................................ $(35,200)
22. D Adjusted acquisition-date fair value ($820,000 – $192,000) ........ $628,000

New parent ownership (32,000 shs. ÷ 32,000 shs.) ...................... 100%
Fair value equivalency of parent's ownership ........................ $628,000
Parent's investment account ($592,000 + [80% × 80,000]) .......... 656,000
Required adjustment—decrease .............................................. $ (28,000)
23. (10 minutes) (Qualifications of a VIE and consolidation requirements)

Apparel Media is a variable interest entity (VIE). The equity holders (the two
outside investors) lack
▪ The power, through voting rights or similar rights, to direct the activities
of a legal entity that most significantly impact the entity’s economic
performance.
▪ The obligation to absorb the expected losses of the VIE.
▪ The right to receive the expected residual returns of the legal entity.
Consolidation of a VIE is required if a firm has a variable interest that gives the
firm a controlling financial interest in the VIE evidenced by
▪ The power to direct the activities of a VIE that most significantly impact
the VIE’s economic performance
▪ The obligation to absorb losses of the VIE that could potentially be
significant to the VIE or the right to receive benefits from the VIE that
could potentially be significant to the VIE.
Because (1) Paige has the right to receive the 95% of the revenues generated by
the VIE, and (2) Paige’s losses are not limited by contract, Paige should
consolidate Apparel Media.
24. (30 minutes) (VIE Qualifications for Consolidation)
a. The purpose of consolidated financial statements is to present the financial

position and results of operations of a group of businesses as if they were a
single entity. They are designed to provide information useful for making
business and economic decisions—especially assessing amounts, timing,
6-10
and uncertainty of prospective cash flows. Consolidated statements also

provide more complete information about the resources, obligations, risks,
and opportunities of an enterprise than separate statements.
b. An entity qualifies as a VIE and is subject to consolidation if either of the

following conditions exist.
1. The total equity at risk is not sufficient to permit the entity to finance its
activities without additional subordinated financial support from other
parties.
2. The equity investors in the VIE lack any one of the following three
characteristics of a controlling financial interest.
• The power, through voting rights or similar rights, to direct the
activities of a legal entity that most significantly impact the entity’s
economic performance.
• The obligation to absorb the expected losses of the VIE.
• The right to receive the expected residual returns of the legal entity.
Consolidation of a variable interest entity is required if a firm has a variable

interest that gives the firm
▪ The power, through voting rights or similar rights, to direct the activities
of an entity that most significantly impact the entity’s economic
performance.
▪ The obligation to absorb a majority of the entity's expected losses if they
occur and/or the right to receive a majority of the entity's expected
residual returns if they occur
c. Risks of the construction project that has TecPC has effectively shifted to
the owners of the VIE:
At the end of the 1st five-year lease term, if the parent opts to sell the facility,
and the proceeds are insufficient to repay the VIE investors, TecPC may be
required to pay up to 85% of the project's cost--a potential 15% risk.
Risks that remain with TecPC

▪ Guarantees of return to VIE investors at market rate, if facility does not
perform as expected TecPC is still obligated to pay market rates.
▪ If lease is not renewed, TecPC must either purchase the facility or sell it
on behalf of the VIE with a guarantee of Investors' (debt and equity)
balances representing a risk of decline in market value of asset
▪ Debt guarantees
6-11
24. (continued)
d. TecPC possesses the following characteristics of a primary beneficiary:
▪ Direct decision-making ability (end of five-year lease term).
▪ The obligation to absorb the expected losses of the VIE.
▪ The right to receive the expected residual returns of the legal entity.
25. (15 minutes) (Consolidation of variable interest entity.)

a. Implied valuation and excess allocation for Valery:
Noncontrolling interest fair value $60,000
Consideration transferred by Petra 20,000
Total Valery fair value 80,000
Fair value of Valery’s net identifiable assets 105,000
Excess net asset value fair value (bargain purchase) $25,000
Petra recognizes the $25,000 excess net asset fair value as a bargain purchase and
records all of Valery’s assets and liabilities at their individual fair values.
Cash $ 20,000
Marketing software 165,000
Computer equipment 40,000
Long-term debt (120,000)
Noncontrolling interest (60,000)
Gain on bargain purchase (25,000)
b. Implied valuation and excess allocation for Valery

Noncontrolling interest fair value $60,000
Consideration transferred by Petra 20,000
Total Valery fair value 80,000
Fair value of Valery’s net identifiable assets 55,000
Goodwill $25,000
When the fair value of a VIE (that is a business) is greater than assessed
asset values, all identifiable assets and liabilities are reported at fair values
(unless a previously held interest) and the difference is treated as goodwill.
Cash $ 20,000
Marketing software 115,000
Computer equipment 40,000
Goodwill (excess business fair value) 25,000
Long-term debt (120,000)
Noncontrolling interest (60,000)
6-12
26. (40 minutes) (Acquisition-date consolidation worksheet for a parent and a

variable interest entity)
Access Net Consolidated

IT Connect Consolidation Entries NCI Balances
Cash 61,000 41,000 102,000
Investment in NetConnect 1,000,000 S 65,600
A 934,400
Capitalized software 981,000 156,000 1,137,000
Computer equipment 1,066,000 56,000 1,122,000
Communications
equipment 916,000 336,000 1,252,000
Research and
development asset A1,960,000 1,960,000
Patent 191,000 191,000
Goodwill A 376,000 376,000
Total assets 4,024,000 780,000 6,140,000
Long-term debt (941,000) (616,000) (1,557,000)

Common stock-Access IT (2,660,000) (2,660,000)
Common stock-
NetConnect (41,000) S 41,000
Retained earnings (423,000) (123,000) S 123,000 (423,000)
Noncontrolling interest S 98,400
A 1,401,600 (1,500,000) (1,500,000)
Total liabilities and equity (4,024,000) (780,000) 2,500,000 2,500,000 (6,140,000)
Consideration transferred $1,000,000

Noncontrolling interest fair value 1,500,000
Acquisition-date fair value $2,500,000
Book value (164,000)
Excess fair over book value $2,336,000
Research and development asset 1,960,000
Goodwill $ 376,000
6-13
27. (35 minutes) (Consolidation of a primary beneficiary and variable interest entity one
year after control is obtained)
Pikes and Venti Companies

Consolidation Worksheet
Year Ended December 31, 2021
Pikes Venti Consolidation Entries NCI Consolidated

Revenues (792,000) (216,000) (1,008,000)
Management fee (54,000) -0- (F) 54,000 -0-
Cost of good sold 621,000 89,000 710,000
Other operating expenses 76,000 64,000 (F) 54,000 86,000
Interest income (21,000) -0- (IE) 21,000 -0-
Interest expense -0- 39,000 (IE) 21,000 18,000
Net Income (170,000) (24,000)
Consolidated net income (194,000)
to noncontrolling interest (24,000) 24,000
to Pikes (170,000)
Retained earnings 1/1 (1,380,000) (40,000) (S) 40,000 (1,380,000)

Net income (170,000) (24,000) (170,000)
Dividends declared 75,000 -0- 75,000
Retained earnings 12/31 (1,475,000) (64,000) (1,475,000)
Current assets 360,000 73,000 433,000

Loan receivable from Venti 300,000 -0- (P) 300,000 -0-
Equipment (net) 895,000 527,000 1,422,000
Trademark -0- 125,000 (A) 20,000 145,000
Total assets 1,555,000 725,000 2,000,000
Current liabilities (30,000) (92,000) (122,000)

Loan payable to Pikes -0- (300,000) (P) 300,000 -0-
Other long-term debt -0- (254,000) (254,000)
Common stock (50,000) (15,000) (S) 15,000 (50,000)
(S) 55,000
Noncontrolling interest -0- -0- (A) 20,000 (75,000) (99,000)
Retained earnings 12/31 (1,475,000) (64,000) (1,475,000)
Total liabilities and equity (1,555,000) (725,000) 450,000 450,000 (2,000,000)
Fair value of Venti on January 1, 2021 (date Pikes obtains control) ................ $75,000
Venti book value—January 1, 2021 ($15,000 common stock + $40,000 RE) ..... 55,000
Excess fair over book value ............................................................................ 20,000
To trademark (indefinite life) ......................................................................... 20,000
-0-
6-14
28. (25 Minutes) (Consolidation entry for three consecutive years to report effects
of intra-entity bond acquisition. Straight-line method used. Parent uses equity
method)
a. Carrying Amount of Bonds Payable, January 1, 2019
Carrying amount, January 1, 2017 ........................................ $1,050,000

Amortization—2017–2018 ($5,000 per year
[$50,000 premium ÷ 10 years] for two years) .................. 10,000
Carrying amount of bonds payable, January 1, 2019 .......... $1,040,000
Carrying amount of 40% of bonds payable
(intra-entity portion), January 1, 2019 ............................. $416,000
Gain on Retirement of Bonds, January 1, 2019

Purchase price ($400,000 × 96%) .......................................... $384,000
Carrying amount of liability (computed above) ................... 416,000
Gain on retirement of bonds ................................................. $ 32,000
Carrying Amount of Bonds Payable, December 31, 2019

Carrying amount, January 1, 2019 (computed above) ........ $1,040,000
Amortization for 2019.............................................................. 5,000
Carrying amount of bonds payable, December 31, 2019 ..... $1,035,000
Carrying amount 40% bonds payable (intra-entity portion),
December 31, 2019 ............................................................ $414,000
Carrying Amount of Investment in Bonds, December 31, 2019

Investment carrying amount, Jan. 1, 2019 (purchase price) $384,000
Amortization for 2019 ($16,000 discount ÷ 8-yr. rem. life) .. 2,000
Carrying amount of investment, December 31, 2019 .......... $386,000
Intra-entity Interest Balances for 2019

Interest expense:
Cash payment ($400,000 × 9%) ........................................ $36,000
Amortization of premium for 2019 ($5,000 per year
× 40% intra-entity portion) .......................................... 2,000
Intra-entity interest expense ............................................ $34,000
Interest income:
Cash collection ($400,000 × 9%) ...................................... $36,000
Amortization of discount for 2019 (above) ..................... 2,000
Intra-entity interest income .............................................. $38,000
6-15
28. (continued)
CONSOLIDATION ENTRY B (2019)

Bonds Payable .......................................................... 400,000
Premium on Bonds Payable ..................................... 14,000
Interest Income .......................................................... 38,000
Investment in Bonds.............................................. 386,000
Interest Expense ................................................... 34,000
Gain on Retirement of Bonds .............................. 32,000
(To eliminate accounts stemming from intra-entity bonds [balances
computed above] and to recognize gain on the effective retirement of this
debt.)
b. In 2020, because straight-line amortization is used, the interest accounts

remain unchanged at $38,000 and $34,000. However, the premium
associated with the bond payable as well as the discount on the
investment are affected by the $2,000 per year amortization. In addition,
the gain now has to be removed from the Investment in Hamilton account.
Concurrently, the two interest balances recorded by the individual
companies in 2020 are removed from the Investment in Hamilton because
they occurred after the intra-entity retirement. Gain of $32,000 plus
$34,000 expense removal less $38,000 income elimination yields a
$28,000 credit to the investment account.
CONSOLIDATION ENTRY *B (2020)
Bonds Payable .............................................................. 400,000

Premium on Bonds Payable (net of $2,000 amortization) 12,000
Interest Income .............................................................. 38,000
Investment in Bonds (net of $2,000 amortization) ...... 388,000
Interest Expense ....................................................... 34,000
Investment in Hamilton ............................................. 28,000
(To remove intra-entity bond accounts that remain on the individual
records of both companies. Both debt and bond investment balances
have been adjusted for amortizations. Credit to Investment in Hamilton
brings the totals reported by the individual companies [interest income
and expense] to the balance of the original gain.)
c. As with part b, new premium and discount balances must be determined

and then removed. The adjustment made to the Investment in Hamilton
takes into account that another year of interest expense ($34,000) and
income ($38,000) have been incorporated into the investment account
through application of the equity method.
6-16
28. (continued)
CONSOLIDATION ENTRY *B (2021)
Bonds Payable .................................................... 400,000

Premium on Bonds Payable ............................... 10,000
Interest Income .................................................... 38,000
Investment in Bonds ...................................... 390,000
Interest Expense ............................................ 34,000
Investment in Hamilton .................................. 24,000
(To remove intra-entity bond accounts that remain on the individual
records of both companies. Both debt and bond investment balances
have been adjusted for amortizations. Credit to Investment in Hamilton
brings the totals reported by the individual companies to the balance of
the original gain.)
29. (12 Minutes) (Determine consolidated income statement accounts after

acquisition of intra-entity bonds.)
▪ Interest Expense To Be Eliminated = $84,000 × 11% = $9,240

▪ Interest Income To Be Eliminated = $108,000 × 8% = $8,640
▪ Loss To Be Recognized = $108,000 – $84,000 = $24,000
CONSOLIDATED TOTALS
▪ Revenues and Interest Income = $1,051,360 (add the two book values and
eliminate interest income on intra-entity bond)
▪ Operating and Interest Expense = $751,760 (add the two book values and
eliminate interest expense on intra-entity bond)
▪ Other Gains and Losses = $152,000 (add the two book values)
▪ Loss on Retirement of Debt = $24,000 (computed above)
▪ Net Income = $427,600 (consolidated revenues, interest income, and
gains less consolidated operating and interest expense and losses)
6-17
30. (30 Minutes) (Consolidation entry for two years to report effects of intra-
entity bond acquisition. Effective rate method applied.)
a. Loss on Repurchase of Bond

Cost of acquisition ......................................... $201,000
Carrying amount ($760,000 × 1/5) ................. 152,000
Loss on repurchase ....................................... $ 49,000
Interest Balances for 2019

Interest income:
$201,000 × 7% ............................................... $14,070
Interest expense:
$152,000 (carrying amount [above]) × 12%. $18,240
Investment in Bonds Balance, December 31, 2019

Original cost, 1/1/19 ........................................ $201,000
Amortization of premium:
Cash interest ($180,000 × 9%) ................. $16,200
Effective interest income (above) ........... 14,070 2,130
Investment in Bonds, 12/31/19 ....................... $198,870
Bonds Payable Balance, December 31, 2019

Carrying amount, 1/1/19 (above) .................. $152,000
Amortization of discount:
Cash interest ($180,000 × 9%) ................. $16,200
Effective interest expense (above) .......... 18,240 2,040
Bonds payable, 12/31/19 ................................ $154,040
Entry B—12/31/19
Bonds Payable ............................................... 154,040
Interest Income .............................................. 14,070
Loss on Retirement of Debt .......................... 49,000
Investment in Bonds ................................ 198,870
Interest Expense ....................................... 18,240
(To eliminate intra-entity debt holdings and recognize loss on
retirement.)
b. Interest Balances for 2020 followed by 2021

Interest income: $198,870 (Investment in Bonds
balance for the year) × 7% (rounded)....................... $13,921
Interest expense: $154,040 (liability balance

for the year) × 12% (rounded) ................................... $18,485
6-18
30. (continued)

Carrying amount, January 1, 2020 (part a) ............. $198,870
Cash interest ($180,000 × 9%) ............................ $16,200
Effective interest income (above) ...................... 13,921 2,279
Investment in Bonds balance, December 31, 2020 . $196,591

Carrying amount, January 1, 2020 (part a) ............. $154,040
Cash interest ($180,000 × 9%) ............................ $16,200
Effective interest expense (above) .................... 18,485 2,285
Bonds payable balance, December 31, 2020 .......... $156,325
Interest Balances for 2021

Interest income: $196,591 (Investment in Bonds.... $13,761
balance for the year [above]) × 7% (rounded)
Interest expense: $156,325 (liability balance

for the year [above]) × 12% ................................ $18,759

Carrying amount, January 1, 2021 (above) ............. $196,591
Cash interest ($180,000 × 9%) ............................ $16,200
Effective interest income (above) ...................... 13,761 2,439
Investment in Bonds balance, December 31, 2021 . $194,152

Carrying amount, January 1, 2021 (above) ............. $156,325
Cash interest ($180,000 × 9%) ............................ $16,200
Effective interest expense (above) .................... 18,759 2,559
Bonds payable balance, December 31, 2021 .......... $158,884
6-19
30. (continued)
Adjustment Needed to Investment in Zack for Bond Retirement Loss:
Loss on retirement of debt (part a) ............................................ $49,000

Amounts recognized in previous years:
Interest income: 2019 $(14,070)
2020 (13,921) $(27,991)
Interest expense: 2019 $18,240

2020 18,485 36,725 8,734
Adjustment needed to Investment
in Zack to arrive at consolidated total .................................. $40,266
Entry *B—12/31/21
Bonds Payable .......................................................... 158,884

Interest Income ......................................................... 13,761
Investment in Zack ................................................... 40,266
Investment in Bonds ........................................... 194,152
Interest Expense ................................................. 18,759
(To eliminate intra-entity bond holdings and adjust the Investment in Zack
for the unrecognized loss on retirement. Amounts computed above.)
Many of the above amounts can also be determined using amortization tables as
shown below.
Investment in Bonds Amortization Table:
Interest Carrying
Cash Revenue Amortization Amount
201,000
2019 16,200 14,070 2,130 198,870
2020 16,200 13,921 2,279 196,591
2021 16,200 13,761 2,439 194,152
Intra-Entity Portion of Bonds Payable Amortization Table:
Interest Carrying
Cash Expense Amortization Amount
152,000
2019 16,200 18,240 (2,040) 154,040
2020 16,200 18,485 (2,285) 156,325
2021 16,200 18,759 (2,559) 158,884
6-20
31. (35 Minutes) (Consolidation procedures and balances related to intra-entity

bonds. Both straight-line and effective interest rate methods are used.)
a. Acquisition price of bonds ............................................................... $283,550

Carrying amount of bonds payable (see Schedule 1)
($443,498 × 50%) .......................................................................... (221,749)
Loss on retirement ............................................................................ $ 61,801
SCHEDULE 1—Carrying Amount of Bonds Payable
Beg. Year Effective

Carrying Interest Cash Year-End
Date Amount (12% Rate) Interest Amortization Carrying Amount
2018 $435,765 $52,292 $50,000 $2,292 $438,056
2019 $438,056 $52,567 $50,000 $2,567 $440,623
2020 $440,623 $52,875 $50,000 $2,875 $443,498
b. Investment in Southport Bonds

Purchase price—12/31/20 ......................................... $283,550
Cash interest ($250,000 × 10%) ............................... $25,000
Effective interest income ($283,550 × 8%) .............. 22,684
Amortization ........................................................ 2,316
Investment in Southport bonds, 12/31/21 ............... $281,234
Bonds Payable
Carrying amount—12/31/20 (computed above) ...... $443,498
Cash interest ($500,000 × 10%) ............................... $50,000
Effective interest expense ($443,498 × 12%) .......... 53,220
Amortization ........................................................ 3,220
Bonds payable, 12/31/21 .......................................... $446,718
Although not required in the problem, the consolidation entry as of 12/31/21 is

as follows. The reduction in retained earnings represents the loss only; no intra-
entity interest was recognized in the previous year because the purchase was
made on December 31.
Entry *B (2021)
Bonds Payable ($446,718 × 50%) ............................ 223,359
Interest Income ......................................................... 22,684
Retained Earnings, 1/1/21 ........................................ 61,801
Interest Expense ($53,220 × 50%) ...................... 26,610
Investment in Southport Bonds ......................... 281,234
6-21
31. (continued)
c. Loss on Retirement of Bond

Because Southport uses the straight-line method of amortization, the loss on
retirement must be computed again.
Original issue price—1/1/18 ......................................................... $435,765
Discount amortization (2018–2020) ([$64,237 ÷ 13] × 3 years) .. 14,824
Carrying amount 12/31/20 ........................................................... $450,589
Intra-entity portion of bonds payable (50%) .............................. $225,294
Purchase price ............................................................................. 283,550
Loss on retirement ...................................................................... $ 58,256
Investment in Southport Bonds

Purchase price—12/31/20 ........................................................... $283,550
Premium amortization (2021) ($33,550 ÷ 10) ............................. (3,355)
Carrying amount 12/31/21 ...................................................... $280,195
Interest Income
Cash interest ($250,000 × 10%) .................................................. $25,000
Premium amortization (above) ................................................... (3,355)
Intra-entity interest income—2021 ........................................ $21,645
Bonds Payable
Original issue price 1/1/18 ........................................................... $435,765
Discount amortization (2018–2021) [($64,237 ÷ 13) × 4 years] . 19,765
Carrying amount 12/31/21 ...................................................... $455,530
Opus ownership ..................................................................... 50%
Intra-entity portion—12/31/21 .......................................... $227,765
Interest Expense
Cash interest ($250,000 × 10%) .................................................. $25,000
Discount amortization ([$64,237 ÷ 13] × 1/2) ............................. 2,471
Intra-entity interest expense—2021 ...................................... $27,471
The reduction in retained earnings represents the loss only; no intra-entity

interest was recognized in the previous year because the purchase was made
on December 31.
Entry *B (2021)
Bonds Payable .......................................................... 227,765
Interest Income ......................................................... 21,645
Retained Earnings, 1/1/21 ....................................... 58,256
Interest Expense ................................................ 27,471
Investment in Southport Bonds ......................... 280,195
6-22
32. (8 Minutes) (Determine goodwill for an acquisition in which subsidiary has both
common stock and preferred stock)
Consideration transferred for common stock $1,600,000
Consideration transferred for preferred stock 630,000
Noncontrolling interest in common stock 400,000
Noncontrolling interest in preferred stock 270,000
Hepner’s acquisition-date fair value $2,900,000
Book value of Hepner 2,500,000
Goodwill $ 400,000
33. (30 Minutes) (Consolidation entries with subsidiary cumulative preferred stock.)
a. The preferred shares are entitled to the specified cumulative dividend. Thus, the
noncontrolling interest's share of the subsidiary's income equals $160,000 or 8
percent of the preferred stock's par value.
b. Acquisition-Date Fair Value Allocation and Amortization

Consideration transferred ........................................................... $14,040,000
Noncontrolling interest fair value (preferred shares) ................ 2,000,000
Acquisition-date fair value of Smith ........................................... 16,040,000
Book value ................................................................................... (16,000,000)
Franchises .................................................................................... $ 40,000
Period of amortization ................................................................. 40 years
Annual amortization .................................................................... $1,000
Investment in Smith Account, December 31, 2021

Consideration transferred, January 1, 2021 .............................. $14,040,000
Equity accrual (income remaining for common stock
after preferred stock dividend) ............................................. 290,000
Dividends collected ($360,000 total less $160,000
paid to preferred shareholders) ............................................ (200,000)
Amortization for 2021 (above) .................................................... (1,000)
Investment in Smith account, December 31, 2021..................... $14,129,000
c. Consolidation Entries
Entry S and A combined
Preferred Stock (Smith) ........................................... 2,000,000
Common Stock (Smith) ............................................ 4,000,000
Retained Earnings, 1/1/21 (Smith) ........................... 10,000,000
Franchises ................................................................. 40,000
Investment in Smith ........................................ 14,040,000
Noncontrolling Interest in Smith, Inc ............ 2,000,000
(To eliminate subsidiary stockholders’ equity, record excess fair values, and
record outside ownership of subsidiary's preferred stock at fair value)
6-23
33. c. (continued)
Entry I Equity Income of Subsidiary .............................. 289,000

Investment in Smith ....................................... 289,000
(To eliminate equity accrual made in connection with common stock
[$290,000] along with excess amortization recorded by parent.)
Entry D Investment in Smith ............................................ 200,000

Dividends Declared ........................................ 200,000
(To remove intra-entity dividend declarations made on common stock [see
computation above].)
Entry E Amortization Expense ......................................... 1,000

Franchises ...................................................... 1,000
(To recognize amortization of franchises for current year [see computation
above].)
34. (30 Minutes) (Prepare consolidation entries for an acquisition where subsidiary
has outstanding preferred stock)
Consideration transferred for common stock $ 7,368,000

Consideration transferred for preferred stock 3,100,000
Noncontrolling interest in common stock 4,912,000
Acquisition-date fair value for Young $15,380,000
Young’s book value 15,000,000
Excess fair over book value 380,000
to building (5-year life) $200,000
to equipment (10-year life) (100,000) 100,000
to brand name (20-year life) $ 280,000
CONSOLIDATION ENTRIES
Entries S and A combined
Preferred Stock (Young) .......................................... 1,000,000
Common Stock (Young) ........................................... 4,000,000
Retained Earnings (Young) ...................................... 10,000,000
Brand Name ............................................................... 280,000
Building .................................................................... 200,000
Equipment ............................................................ 100,000
Investment in Young's preferred stock (100%) . 3,100,000
Investment in Young's common stock (60%) ... 7,368,000
Noncontrolling Interest ....................................... 4,912,000
(To eliminate subsidiary stockholders’ equity, record excess acquisition-date

fair values, and record outside ownership of subsidiary's preferred stock at
acquisition-date fair value)
6-24
34. (continued)
Entry I1
Dividend Income ....................................................... 80,000
Dividends Declared ............................................. 80,000
(To offset intra-entity preferred stock dividends recognized as income by
parent—$1,000,000 par value × 8% dividend rate.)
Entry I2
Dividend Income ....................................................... 192,000
(To eliminate intra-entity dividends [60% of $320,000] on common stock.
Because the $320,000 in dividends remaining after Entry I1 equals exactly 8
percent of the common stock par value, the participation factor does not
affect the distribution.)
Entry E
Amortization Expense .............................................. 44,000
Equipment ................................................................. 10,000
Building ................................................................ 40,000
Brand Name ......................................................... 14,000
(To record current year amortization of specific accounts
recognized within acquisition price of preferred stock.)
6-25
35. (15 Minutes) (The effect that various events have on a consolidated statement of
cash flows.)
▪ Sale of building. The $44,000 in cash received from the sale is listed as a
cash inflow within the company's investing activities. If the company is using
the direct method in presenting cash flows from operating activities, the
$12,000 gain is not presented. However, if the indirect method is used, the
gain (a positive) must be eliminated from net income by a subtraction.
▪ Intra-entity inventory transfers. Because these transactions do not occur
with any parties outside of the business combination, they are not reflected
in the consolidated statement of cash flows.
▪ Dividend paid by the subsidiary. The $27,000 payment to the parent is
eliminated in consolidated statements and is not a cash outflow from the
consolidated entity. The remaining $3,000 payment to the noncontrolling
interest is reported as a cash outflow from a financing activity.
▪ Amortization of intangible asset. This $16,000 noncash expense appears in
the consolidated income statement. If the combined companies are using the
direct method to present cash flows from operating activities, this expense
not presented. If the indirect method is used, the expense must be removed
by adding it back to consolidated net income.
▪ Decrease in accounts payable. Cash payments have reduced this liability
balance during the period. If the direct method is used to present cash flows
from operating activities, the change is added to cost of goods sold as one
step in deriving the cash paid during the period for inventory (an outflow). If
the indirect method is applied, the decrease is subtracted from net income in
arriving at the net cash generated from operating activities during the period.
6-26
36. (20 Minutes) (Determine cash flows from operations for a consolidated entity.)
DIRECT METHOD
Cash revenues (add book values, eliminate intra-entity transfers,
and add decrease in accounts receivable) ................................... $648,000
Cash inventory purchases (add book values, eliminate
intra-entity transfers, defer intra-entity gains, add increase in
inventory, and add decrease in accounts payable) ...................... (370,000)
Depreciation and amortization (omit as noncash expenses) ............ -0-
Other expenses (add book values) ..................................................... (40,000)
Gain on sale of equipment (omit because this is an investing activity) -0-
Equity in earnings of Knight (intra-entity so not included) .............. -0-
Net cash flow from operating activities ................................... $238,000
INDIRECT METHOD
Consolidated net income (computed below) ..................................... $216,000
Adjustments:
Depreciation and amortization ................................................. 61,000
Gain on sale of equipment ....................................................... (30,000)
Increase in inventory ................................................................ (11,000)
Decrease in accounts receivable ............................................. 8,000
Decrease in accounts payable ................................................. (6,000)
Net cash flow from operating activities ............................. $238,000
Consolidated Net Income = $206,200 + 9,800 = $216,000 or computation below:

Revenues (add book values and subtract intra-entity transfers) $640,000
Cost of goods sold (add book values, less intra-entity
transfers adjusted for deferral and subsequent
recognition of intra-entity gain) ............................................... (353,000)
Depreciation and amortization (add book values plus
amortization from excess fair value allocations) ................... (61,000)
Other expenses (add book value) ................................................. (40,000)
Gain on sale of equipment ............................................................. 30,000
Consolidated net income .......................................................... $216,000
6-27
37. (30 Minutes) (Compute basic and diluted earnings per share for a parent and its
100 percent owned subsidiary, both with convertible bonds.)
Basic EPS—Porter Company:

Porter's reported net income ................................... $150,000
Street's reported net income ................................... 130,000
Amortization expense .............................................. (10,000)
Consolidated net income (all to Porter) ............. $270,000
Porter shares outstanding .................................. 60,000
Basic earnings per share ($270,000 ÷ 60,000) ........ $4.50
Diluted EPS—Street Company

Street earnings after amortization ........................... $120,000
Shares outstanding .................................................. 30,000
Basic earnings per share (120,000 ÷ 30,000) .......... $4.00
Street's earnings assuming conversion of its bonds
($120,000 + $24,000 interest saved net of tax) .. $144,000
Street's shares assuming conversion of its bonds
(30,000 + 10,000) .................................................. 40,000
Diluted earnings per share (144,000 ÷ 40,000) ....... $3.60
Because diluted earnings per share is less than basic earnings per share, the
convertible bonds are dilutive and should be included.
Porter’s share of Street’s diluted earnings:
Total shares assuming Street bond conversion .... 40,000
Shares owned by Porter ........................................... 30,000
Porter's ownership percentage (30,000 ÷ 40,000) .. 75%
Street's earnings for diluted EPS (above) .............. $144,000
Porter's ownership percentage ................................ 75%
Earnings attributed to Porter company .................. $108,000
Porter’s earnings and shares for diluted EPS:

Porter's separate net income .................................. $150,000
Street’s income applicable to Porter (above) .......... 108,000
Interest saved (net of tax) on assumed
conversion of Porter's bonds ............................. 32,000
Diluted earnings to Porter......................................... $290,000
Porter shares outstanding ....................................... 60,000

Additional shares from assumed bond conversion 8,000
Diluted shares ........................................................... 68,000
Consolidated income statement EPS amounts for Porter Company:

Basic earnings per share (above) ............................ $4.50
Diluted earnings per share ($290,000 ÷ 68,000) ..... $4.26
6-28
38. (15 Minutes) (Compute diluted EPS. Subsidiary has stock warrants outstanding)
Figures For Sonston's Diluted EPS

Net Income .................................................................... $200,000
Shares outstanding ....................................................... 40,000
Assumed conversion of stock warrants ...................... 10,000
Repurchase of treasury stock with proceeds of stock
Warrants (10,000 × $10 = $100,000 ÷ $20) .................... (5,000) 5,000
Shares for diluted earnings per share computation .... 45,000
Shares controlled by Primus: 40,000 + (20% of 5,000) = 41,000

Percentage of total held by Primus: 41,000 ÷ 45,000 = 91% (rounded)
Income to be included in parent’s diluted EPS = $200,000 × 91% = $182,000
Parent’s Diluted Earnings Per Share:

Net income – Primus ..................................................... $600,000
Net income included from Sonston .............................. 182,000
Earnings for diluted EPS .......................................... $782,000
Outstanding shares of Primus ................................ 100,000
PARENT’S DILUTED EARNINGS PER SHARE = $782,000 ÷ 100,000 = $7.82
39. (15 Minutes) (Compute diluted EPS. Subsidiary has convertible bonds.)
Figures for Echo's diluted EPS:

Net income ....................................................................................... $290,000
Interest (net of tax) saved from assumed conversion ................... 63,200
Earnings for diluted earnings per share ......................................... $353,200
Shares outstanding 80,000

Assumed conversion of bonds 20,000
Subsidiary shares for parent’s share of diluted earnings 100,000
Shares controlled by Bravo = 80,000 ÷ 100,000 = 80%

Income to be included in parent’s diluted EPS = $353,200 × 80% = $282,560
Earnings for parent’s diluted earnings per share:

Net income— Bravo .............................................................. $480,000
Dividends to Bravo 's preferred stock ................................. (15,000)
Net Income included from Echo (above) ............................. 282,560
Earnings for diluted EPS.................................................. $747,560
PARENT’S DILUTED EARNINGS PER SHARE = $747,560 ÷ 80,000 = $9.35 (rounded)
6-29
40. (35 Minutes) (Compute basic and diluted earnings per share for parent company.
Subsidiary has stock warrants and convertible bonds.)
Basic EPS—Parent Company (Burks):

Reported net income (separate)—Burks ..................... $150,000
Foreman net income: 80% × ($120,000 – $40,000 amort.) 64,000
Preferred stock dividends (8,000 × $4) ......................... (32,000)
Burks’ earnings applicable to basic EPS ..................... $182,000
Burks' outstanding shares ...................................... 65,000
Basic earnings per share ($182,000 ÷ 65,000) ............. $ 2.80
Diluted EPS—Parent Company (Burks)*

Subsidiary income for Burks’ EPS:
Net income after amortization ($120,000 – 40,000) ...... $80,000
Shares outstanding ....................................................... 40,000

Assumed conversion of warrants ................................ 20,000
Assumed acquisition of treasury stock with
proceeds of conversion [(20,000 × $15) ÷ $20] ...... (15,000)
Shares applicable to diluted EPS ............................ 45,000
Shares controlled by parent:

(40,000 × 80%) ............................................................ 32,000
Income used in diluted EPS computation .............. $80,000
Portion owned by parent (32,000 ÷ 45,000) ............ 71.11%
Subsidiary income applicable to parent—diluted EPS $56,889
Earnings applicable to Burks’ diluted EPS:

Reported net income (separate)—Burks ...................... $150,000
Burks’ share of Foreman income (above) ................... 56,889
Because of assumed conversion, preferred stock
dividends would not be paid ................................... -0-
Earnings applicable to diluted EPS .............................. $206,889
Burks' outstanding shares ............................................ 65,000

Assumed conversion of preferred stock (8,000 × 4) ... 32,000
Shares applicable to diluted EPS ................................. 97,000
Diluted earnings per share ($206,889 ÷ 97,000)(rounded) = $ 2.13
*Foreman’s convertible bonds are antidilutive and thus excluded from the diluted
EPS calculations.
6-30
40. (continued)
Alternative derivation of Burks’ diluted EPS:
Consolidated net income

[$150,000 + ($120,000 - $40,000)] .................................................. $(230,000)
Subsidiary net income ............................................ $(120,000)
Excess fair value amortization ................................... 40,000
Income applicable to diluted EPS .......................... $ (80,000)
Noncontrolling interest share (13,000 ÷ 45,000) .... 28.89% (23,111)
Parent's net income applicable to diluted EPS ........................... $(206,889)
Shares for diluted EPS .................................................................. 97,000
Diluted EPS ($206,889 ÷ 97,000 shares) ....................................... $ 2.13
41. (8 Minutes) (Effect of subsidiary stock issuance to public at a price above

reported value per share)
Equity method investment prior to Ricardo share issue $490,000

Parent's ownership percentage ..................................... 100%
Fair value ownership equivalency ................................. $490,000
Adjusted subsidiary fair value after new share issue
(above value plus 10,000 shares at $15.75 each) ... $647,500
Parent's ownership (40,000 ÷ 50,000 shares) .............. 80%
New ownership adjusted fair value ............................... $518,000
Investment in Ricardo should be increased by $28,000 ($518,000 less $490,000)
42. (20 Minutes) (Effects of two different stock issuances by subsidiary.)
a. Prior to the issuance of the new shares, Albuquerque owns an 80% interest in
Marmon (16,000 shares out of 20,000 shares). The adjusted acquisition-date fair
value is $840,000 ($600,000 + $150,000 + $90,000). After the stock issue, the
adjusted acquisition-date fair value of the subsidiary will increase by $235,000
(the price of the stock) to $1,075,000. Albuquerque' ownership, however, will
only be 64% (16,000 ÷ 25,000). The investment’s equity method balance before
stock issue is $672,000 (600,000 + [$90,000 × 80%]). The book value underlying
Albuquerque' investment is now $688,000 (64% of $1,075,000) so that a $16,000
increase is recorded by the parent.
Investment in Marmon ............................................. 16,000
Additional Paid-In Capital ................................... 16,000
6-31
42. (continued)
b. Albuquerque's adjusted acquisition-date fair value is $840,000 (see above) prior

to the issuance of the new shares. The 4,000 additional shares increase
subsidiary's total value by $132,000 (the price of the stock) to $972,000.
Albuquerque' ownership decreases to 2/3 (16,000 shares out of a total of 24,000)
for a fair value equivalency of $648,000. Reducing the $672,000 (see a.) to
$648,000 requires a $24,000 decrease to the parent’s APIC.
Additional Paid-In Capital ........................................ 24,000
Investment in Marmon ........................................ 24,000
43. (55 Minutes) (Prepare consolidation entries following a subsidiary stock issue to
outside parties.)
Initially, Aronsen owns 18,000 shares (or 90%) of Siedel's outstanding shares
(the total number of shares can be determined by dividing the subsidiary's
common stock account by the $10 per share par value). After issuing 4,000
additional shares, the parent must prepare an adjustment to reflect the
change in its share of the subsidiary’s unamortized acquisition-date fair
value. Because that entry has not been recorded, it is included on the
consolidation worksheet as Entry C1 (labeled in this manner as a correction).
Other consolidation procedures follow as described in previous chapters.
Excess Acquisition-Date Fair Value Allocation and Amortization

Fair value (consideration transferred plus NCI fair value) .......... $649,000
Acquisition-date book value ........................................................... (480,000)
Fair value in excess of book value ................................................ $169,000
Allocated to land based on fair value ............................................ 89,000
Allocated to copyrights based on fair value ................................. $ 80,000
Life of copyrights ........................................................................... 16 yrs
Annual amortization ....................................................................... $ 5,000
Adjustment for Stock Transaction

Adjusted acquisition-date fair value of subsidiary
on new issue date ($649,000 + $90,000 + $152,000) ............... $891,000
Adjusted parent ownership (18,000 shares ÷ 24,000 shares) ..... 75%
Parent’s post-issue equity method value at 1/1/21 ................ $668,250
Equity method balance before new subsidiary stock issue
Consideration transferred .......................................... 584,100
Increase in book value (90% × $100,000) .................. 90,000
Copyright amortization ($5,000 × 2 years × 90%) ..... (9,000) 665,100
Required increase (Entry C1) ........................................................ $ 3,150
6-32
43. (continued)
Consolidation worksheet entries:
Entry *C
Investment in Siedel ................................................. 81,000
Retained Earnings, 1/1/21 (Aronsen) ................. 81,000
(To convert 1/1/21 balance to full accrual [$100,000 less
two year’s amortization expense $5,000 × 2] × 90%)
Entry C1
Investment in Siedel ................................................. 3,150
Additional Paid-In Capital (Aronsen) ................. 3,150
(To record adjustment for subsidiary stock
transaction; computation shown above.)
Entry S
Common Stock (Siedel) ........................................... 240,000
Additional Paid-In Capital (Siedel) .......................... 112,000
Retained Earnings, 1/1/21 (Siedel) .......................... 380,000
Investment in Siedel (75%) ................................. 549,000
Noncontrolling Interest in Siedel, 1/1/21 (25%).. 183,000
(To eliminate subsidiary stockholders' equity accounts
against Investment account and to recognize noncontrolling
interest. Stockholders’equity balances have been adjusted
for increase in book value during 2019–2021 and the issuance
by the subsidiary of 4,000 shares of stock on 1/1/21.)
Entry A
Land .......................................................................... 89,000
Copyrights ................................................................. 70,000
Investment in Siedel (75%) .................................. 119,250
Noncontrolling Interest (25%) ............................ 39,750
(To recognize acquisition price allocated to land and
copyrights. Copyrights balance has been reduced for
2019–2021 amortization to arrive at 1/1/21 balance.
NCI now reflects 25% of the unamortized 1/1/21 balance.)
Entry I
Dividend Income ....................................................... 15,000
(To eliminate intra-entity dividends recorded by
parent as income [75% × $20,000].)
Entry E
Copyrights ............................................................ 5,000
(To recognize current year amortization.)
6-33
44. (50 Minutes) (Prepare consolidation worksheet for business combination. Intra-
entity bond acquisition is made during the current year.)
Acquisition-date fair-value allocation and amortization:
Equipment $30,000 10-year life $3,000 annual amortization

Trademarks $40,000 20-year life $2,000 annual amortization
As indicated in the problem, the parent is applying the partial equity method.
Hence an Entry *C must be recorded on the worksheet to convert the recorded
figures (amortization is needed for the three years prior to 2021) to equity
balances:
Amortization expense ($5,000 × 3 years) = ............ $15,000 (Entry *C)
Deferred gross profit in ending inventory (downstream):

Ending balance ......................................................... $10,000
Markup ($20,000 ÷ $100,000) .................................... 20%
Intra-entity gross profit to be eliminated ................ $ 2,000 (Entry G)
Loss on extinguishment of bonds:

Carrying amount at date of repurchase ....................... $282,000
Percentage repurchased ............................................... 50%
Equivalent carrying amount .......................................... $141,000
Amount paid ................................................................... 145,500
Loss on extinguishment of bonds ................................ $ 4,500 (Entry B)
Amortization during 2021 changed the carrying amount of the bond payable
from $282,000 to $288,000 (found in the balance sheet) and the investment from
$145,500 to $147,000. This amortization also affects interest income and
expense accounts.
Entry A reflects remaining values after three years of amortizations.
6-34
44.(continued) Pavin and Stabler

Consolidation Worksheet
Year Ending December 31, 2021
Consolidation Entries Consolidated
Accounts Pavin Stabler Debit Credit Totals
Revenues ............................................... (740,000) (505,000) (TI)100,000 (1,145,000)
Cost of goods sold ................................ 455,000 240,000 (G) 2,000 (TI) 100,000 597,000
Expenses................................................ 125,000 158,500 (E) 5,000 288,500
Interest expense—bonds .................... 36,000 -0- (B) 18,000 18,000
Interest income—bond investment ..... -0- (16,500) (B) 16,500 -0-
Loss on extinguishment of bonds ...... -0- -0- (B) 4,500 4,500
Equity in income of Stabler .................. (123,000) -0- (I) 123,000 -0-
Net income .......................................... (247,000) (123,000) (237,000)
Retained earnings, 1/1/21 ..................... (345,000) (*C) 15,000 (330,000)

Retained earnings, 1/1/21 ..................... (361,000) (S) 361,000 -0-
Net income (above) ............................... (247,000) (123,000) (237,000)
Dividends declared ............................... 155,000 61,000 (D) 61,000 155,000
Retained earnings, 12/31/21 ................. (437,000) (423,000) (412,000)
Cash and receivables ........................... 217,000 35,000 (P) 33,000 219,000

Inventory ................................................ 175,000 87,000 (G) 2,000 260,000
Investment in Stabler ............................ 613,000 -0- (D) 61,000 (*C) 15,000
(S) 481,000
(A) 55,000 -0-
(I) 123,000
Investment in Pavin bonds................... -0- 147,000 (B) 147,000 -0-
Land, buildings, and equipment (net) . 245,000 541,000 (A) 21,000 (E) 3,000 804,000
Trademarks ............................................ -0- -0- (A) 34,000 (E) 2,000 32,000
Total assets ........................................ 1,250,000 810,000 1,315,000
Accounts payable ................................. (225,000) (167,000) (P) 33,000 (359,000)

Bonds payable ....................................... (300,000) (100,000) (B) 150,000 (250,000)
Discount on bonds ................................ 12,000 -0- (B) 6,000 6,000
Common stock ...................................... (300,000) (120,000) (S) 120,000 (300,000)
Retained earnings (above) ................... (437,000) (423,000) (412,000)
6-35
Total liabilities and stockholders’ equity (1,250,000) (810,000) 1,046,000 1,046,000 (1,315,000)
6-36
45. (45 Minutes) (Prepare consolidation entries after intra-entity bond acquisition.)
a. Allocation of Acquisition-date Excess Fair Value

Consideration transferred $312,000
Noncontrolling interest fair value 208,000
Acquisition-date fair value $520,000
Book value acquired 300,000
Fair value in excess of book value $220,000 Annual Excess
Excess allocated to patents based Life Amortizations
on fair value 90,000 12 years $7,500
Customer list $130,000 10 years 13,000
Total $20,500
CONSOLIDATION ENTRIES
Entry *TL
Investment in Herman .............................................. 7,000
Land .................................................................... 7,000
(To eliminate intra-entity gain created by previous intra-entity transfer.
Investment is adjusted here because transfer was downstream and equity
method has been applied by parent. Thus, retained earnings have already
been corrected.)
Entry *G
Retained Earnings 1/1/21 (Herman) ........................ 8,000
Cost of Goods Sold ............................................. 8,000
(To remove intra-entity inventory gross profit from prior year recognize the
profit in the current year. Amount is computed as shown below.)
Intra-entity profit—2020 ........................................... $25,000

Transfer price—2020 ................................................ $125,000
Markup ($25,000 ÷ $125,000) .................................... 20%
Recognized gain from 1/1/21 inventory
($40,000 × 20%) .................................................... $8,000
Entry S
Common Stock (Herman) ......................................... 100,000
Retained Earnings, 1/1/21 (Herman)
(adjusted for Entry *G) ........................................ 292,000
Investment in Herman (60%) ......................... 235,200
Noncontrolling Interest in Herman (40%) .... 156,800
(To eliminate Herman's stockholders' equity accounts and to record
beginning of year balance for noncontrolling interest.)
6-37
45. a. (continued)
Entry A
Patents .................................................................... 75,000
Customer List ............................................................ 104,000
Investment in Herman ......................................... 107,400
Noncontrolling Interest ....................................... 71,600
(To recognize unamortized balances as of 1/1/21 of amounts allocated within
original acquisition price. Allocations have been reduced by two years of
amortizations.)
Entry I
Equity income of Herman ......................................... 5,064
Investment in Herman .................................... 5,064
(To eliminate intra-entity equity income accrual)
Herman’s income ............................................................ $25,000
Excess amortizations ..................................................... (20,500)
2020 intra-entity inventory gross profit ......................... 8,000
2021 intra-entity inventory gross profit (see Entry G) . (7,500)
Accrual-based income .................................................... $5,000
Fred’s ownership percentage ........................................ 60%
Fred’s share of Herman’s net income ........................... $3,000
Intra-entity interest income ............................................ (1,873)
Intra-entity interest expense .......................................... 1,283
Gain on effective retirement of parent’s bonds ............ _2,654*
Equity in earnings of Herman ........................................ $5,064
* $21,386 bond liability – $18,732 repurchase price (amounts given in problem)
Entry D
Investment in Herman .............................................. 2,400
(To eliminate intra-entity dividend declaration.)
Entry E
Patents .................................................................. 7,500
Customer List ....................................................... 13,000
(To recognize current year amortization expense.)
Entry P
Accounts Payable ..................................................... 60,000
Accounts Receivable .......................................... 60,000
(To remove intra-entity debt created by inventory transfers.)
6-38
45. a. (continued)
Entry B
Bonds Payable .......................................................... 20,000
Premium on Bonds Payable .................................... 1,069
Interest Income ......................................................... 1,873
Investment in Parent Bonds ............................... 19,005
Gain on Retirement of Bonds .............................. 2,654
(To eliminate effect created by bond acquisition and recognize the related
retirement gain [$21,386 – $18,732]. Amounts are calculated below.)
Carrying Cash Year-End

Amount Effective Interest Excess Carrying
(given) Interest (8%) Amortizations Amount
Investment $18,732 $1,873 (10%) $1,600 $273 $19,005
Liability 21,386 1,283 (6%) 1,600 317 21,069
Entry Tl
Sales .......................................................................... 120,000
Cost of Goods Sold (or purchases) ................... 120,000
(To eliminate intra-entity transfers made during current year.)
Entry G
Cost of Goods Sold .................................................. 7,500
Inventory ............................................................... 7,500
(To defer intra-entity profits in ending inventory as calculated below):
Intra-entity profit ....................................................................... $ 30,000
Transfer price 2021 ................................................................... $120,000
Markup ($30,000 ÷ $120,000) .................................................... 25%
Intra-entity gross profit in ending inventory ($30,000 × 25%) $7,500
b. Herman's reported net income for 2021 .................................. $25,000

Excess fair value amortization ................................................. (20,500)
2020 intra-entity gross profit recognized in 2021 (Entry *G) . 8,000
2021 deferred intra-entity gross profit (Entry G) .................... (7,500)
Herman's realized net income for 2021 .................................... $5,000
Noncontrolling interest ownership .......................................... 40%
Net income attributable to noncontrolling interest ................. $2,000
Noncontrolling interest, 1/1/21 (Entries S and A) ................... $228,400

NCI’s share of Herman's net income (above) ......................... 2,000
NCI’s share of Herman's dividends ($4,000 × 40%) ................ (1,600)
Noncontrolling interest, 12/31/21 .............................................. $228,800
6-39
45. (continued)
c. The balances in the individual records as of December 31, 2022 pertaining to
the Intra-entity bonds are as follows:
Beginning
Carrying Cash Year-End
Amount Effective Interest Excess Carrying
(see part a.) Interest (8%) Amortizations Amount
Investment $19,005 $1,901 (10%) $1,600 $301 $19,306
Liability 21,069 1,264 (6%) 1,600 336 20,733
The adjustment to recognize the original gain by the parent can be computed as
follows:
Original gain on retirement (see part a) ....................... $2,654

Interest income recorded on investment in 2021
(see part a) ................................................................ $1,873
Interest expense recorded on liability in 2021
(see part a) ............................................................... 1,283 590
Required increase as of January 1, 2022 ..................... $2,064
Entry *B (as of December 31, 2022)

Bonds Payable ........................................................... 20,000
Premium on Bonds Payable .................................... 733
Interest Income ......................................................... 1,901
Investment in Herman ......................................... 2,064
Investment in Fred’s bonds ................................ 19,306
(To remove accounts pertaining to intra-entity bonds. "Investment in
Herman" is adjusted here rather than retained earnings because equity
method is used and the gain is attributed to the parent.)
6-40
46. (50 Minutes) (Prepare consolidation entries for intra-entity preferred stock and
bonds. Determine specified account balances. Preferred stock is a debt
instrument.)
a. Consideration transferred for common stock .................. $552,800

Consideration transferred for preferred stock ................. 65,000
Noncontrolling interest in common stock ........................ 138,200
Noncontrolling interest in preferred stock ....................... 34,000
Lisa’s acquisition-date fair value....................................... $790,000
Book value of Lisa .............................................................. 750,000
Excess assigned to franchises .......................................... $ 40,000
CONSOLIDATION ENTRIES 1/1/20
Entry S and A combined:
Preferred Stock (Lisa) .............................................. 100,000
Common Stock (Lisa) ............................................... 200,000
Retained Earnings, 1/1/20 (Lisa) .............................. 450,000
Franchises ................................................................. 40,000
Investment in Lisa-Common Stock ............... 552,800
Investment in Lisa-Preferred Stock ............... 65,000
Noncontrolling Interest in Lisa, Inc ............... 172,200
(To eliminate subsidiary stockholders’ equity, record excess acquisition-date

fair values, and record outside ownership of subsidiary's preferred and
common stock at acquisition-date fair values.)
b. Acquisition price of bonds, 1/2/20 .......................... $53,310

Carrying amount of ½ bonds payable acquired) .... (44,175)
Loss on extinguishment of debt ........................ $9,135
Interest income—Mona ($53,310 × 8%) ................... (rounded) $4,265
Interest expense—Lisa ($44,175 × 14%) ................. (rounded) $6,185
Investment in bonds of Lisa (carrying amount):
Carrying amount—date of acquisition, 1/2/20 .. $53,310
Cash interest ($50,000 × 10%) ............................ $5,000
Effective interest (above) .................................... 4,265 735
Investment in Bonds of Lisa
(carrying amount as of 12/31/20) .................. $52,575
6-41
46. b. (continued)
Bonds payable (carrying amount)
Carrying amount—date of acquisition, 1/2/20 .. $44,175
Cash interest ($50,000 × 10%) ............................ $5,000
Effective interest (above) .................................... 6,185 1,185
Bonds payable (carrying amount as of 12/31/20)
$45,360
CONSOLIDATION ENTRY B—December 31, 2020

(all figures computed above)
Bonds Payable .......................................................... 50,000
Interest Income (or other revenues) ....................... 4,265
Loss on Retirement of Bonds .................................. 9,135
Discount on Bonds Payable ($50,000 – $45,360) 4,640
Interest Expense .................................................. 6,185
Investment in Bonds of Lisa .............................. 52,575
c. December 31, 2020 book values based on historical cost figures:

Cost of fixed assets .................................................. $100,000
Depreciation expense ($40,000 book value over
a 10-year life) ....................................................... 4,000
Accumulated depreciation (including current
expense) ............................................................... 64,000
December 31, 2020 book values based on transfer price:

Cost of fixed assets .................................................. $120,000
Depreciation expense (10-year life) ........................ 12,000
Accumulated depreciation ....................................... 12,000
Gain on transfer of fixed assets
($120,000 – $40,000) book value ........................ 80,000
CONSOLIDATION ENTRY TA—December 31, 2020
Gain on Transfer of Fixed Assets (to remove) ....... 80,000

Accumulated Depreciation ($64,000 – $12,000) . 52,000
Depreciation Expense ($12,000 – $4,000) ......... 8,000
Fixed Assets ($120,000 – $100,000) ................... 20,000
6-42
46. (continued)
d. Original allocation to franchises (given) ...................... $40,000

Amortization at $1,000/year (2020–2021) ................ (2,000)
Consolidated franchises—12/31/21 ........................ $38,000
Fixed assets (book values):

Mona, Inc. .................................................................. $1,100,000
Lisa Co. .................................................................... 800,000
Reduction necessitated by intra-entity sale
($120,000 transfer price reduced to $100,000
original cost) (see part c) .................................... (20,000)
Consolidated fixed assets—12/31/21 ...................... $1,880,000
Accumulated depreciation (book values):

Mona, Inc .................................................................... $300,000
Lisa Co. .................................................................... 200,000
Increase needed to eliminate intra-entity
sale ($60,000 accumulated depreciation at time
of transfer less excess depreciation expense
[$12,000 - $4,000] for 2020 and 2021) ...................... 44,000
Consolidated Acc. Depr.—12/31/21.......................... $544,000
Expenses (book values):

Mona, Inc............................................................... $220,000
Lisa Co. ................................................................ 120,000
Recognition of amortization on franchises ............ 1,000
Elimination of interest expense on intercom-
pany debt ($45,360 [see part b] × 14%) (rounded) (6,350)
Elimination of excess depreciation from
intra-entity transfer of fixed assets
($12,000– $4,000) ................................................. (8,000)
Consolidated expenses ........................................... $326,650
6-43
47. (35 Minutes) (Prepare statement of cash flows for a business combination.)
(Note: before working this problem, students may wish to review the statement
of cash flows in an intermediate accounting textbook.)
BOLERO COMPANY AND CONSOLIDATED SUBSIDIARY RIVERA

Consolidated Statement of Cash Flows
Year Ending December 31, 2021
CASH FROM OPERATING ACTIVTIES

Consolidated net income .......................................... $250,000
Adjustment from accrual to cash:
Depreciation and amortization ........................... 120,000
Gain on sale of building ...................................... (30,000)
Decrease in accounts receivable ....................... 20,000
Increase in inventory .......................................... (150,000)
Decrease in accounts payable ........................... (50,000)
Net cash flow from operating activities .................. $160,000
CASH FLOWS FROM INVESTING ACTIVITIES

Sale of building ......................................................... $70,000
Purchase of equipment (given) ................................ (205,000)
Net cash flow from investing activities .............. (135,000)
CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid .......................................................... $(112,000)
Issuance of bonds .................................................... 110,000
Issuance of common stock ...................................... 67,000
Net cash flow from financing activities ............. 65,000
Net increase in cash during 2021 ................................. 90,000
Cash, January 1, 2021 ................................................... 90,000
Cash, December 31, 2021 .............................................. $180,000
The above statement uses the indirect method for computing cash flows from
operations.
6-44
47. (continued)
Development of Cash Flow Balances via Direct Method
OPERATING ACTIVITIES
Cash collected from customers (consolidated revenues
plus the decrease in accounts receivable) ................................... $1,050,000
Cash Purchases (consolidated COGS plus
increase in inventory plus
decrease in accounts payable) ...................................................... (850,000)
Interest expense (the consolidated balance) ..................................... (40,000)
Cash flows from operating activities .................................................. $ 160,000
INVESTING ACTIVITIES
Sale of building ($40,000 book value sold at a $30,000 gain)............ $ 70,000
Purchase of equipment (given in problem) ........................................ (205,000)
Cash flows from investing activities ................................................... $(135,000)
FINANCING ACTIVITIES
Dividends paid by parent (the consolidated balance) ...................... $(110,000)
Dividends paid by subsidiary (amount paid to
noncontrolling interest—20%) ....................................................... (2,000)
Issuance of bonds ............................................................................... 110,000
Issuance of common stock by the parent (increase in
common stock and additional paid-in capital) ............................. 67,000
Cash flows from financing activities ................................................... $ 65,000
6-45
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know your name, too."
Gwen smiled. "Oh, but you don't, for I'm not Miss Elliott at all. That is
my aunt's name. I am Gwendolin Whitridge. My friends call me
Gwen."
The man shivered as if struck by a sudden chill, and backed away
from her, but almost immediately he came nearer than before, and
stood gazing at her with the intent look she had noticed at the stile.
His eyes travelled from the curling tendrils of dark hair about her
smooth brow to the tender blue eyes and sweet mouth, then down
from the softly firm chin and round white throat to the graceful,
slender figure. "I beg your pardon," he said presently, pulling himself
up with an effort. "I didn't know. Yes, it is a lovely spot. I hope you will
enjoy your summer here." He raised his hat and walked on, leaving
the girl half amazed, half amused.
"Rather queer manners," she said to herself. "Yet he speaks like a
gentleman, and would be rather nice looking if he had not such a
serious face. I never saw such sad eyes, but they did change when I
told him my name. I wonder why." However, she did not mention the
little episode to her aunt who joined her a moment later.
"Let us walk up to the top of the ridge," Miss Elliott proposed. "We
can see the White Mountains from there, and the sunset is glorious."
"There is an eastern sunset, too," said Gwen, looking toward the
ocean, where purple, gold and rose were reflected in the water, and
where wonderful opalescent clouds floated overhead. "It is a rare
place that gives two sunset skies at once," she went on.
"It is like two rings at the circus," returned Miss Elliott. "You want to
watch them both at the same time."
"Don't mention such artificial things as circuses when we have this. I
want to forget spangles and clowns and sawdust."
"You'll forget soon enough. In a week the outside world will be of no
account whatever, I promise you, for, to tell you the truth, we
discovered last year that this island is the home of a wizard who gets
you in his power, so that once in his clutches, you are bound to come
back and while you are here to forget every other place."
"That's lovely," returned Gwen. "I wonder just where he lives."
"He has a cave which I will show you. He also frequents a cathedral
in Sheldon woods, and one of his haunts is a pinnacle where he sits
on moonlight nights and works his spells."
"Perfect!" cried Gwen. "I like him more and more, and I shall be
willing to hug my chains if he binds me fast. Must we go in?" For
Miss Elliott was turning her steps toward Cap'n Ben's.
"Mustn't we?"
"To sit in that stuffy room with a kerosene lamp? Do wait till it's too
dark to see."
"You must go to bed early, for we have had a long journey, and I
want to see some color in those pale cheeks."
"I'll go early. The earlier the better, but not before dark."
"And you needn't get up early in the morning."
"But I shall want to."
"You have no kindergartners waiting for you."
"No, but I have so many wonderful things."
"Which you will have all summer to enjoy."
"I am eager to make the acquaintance of the wizard, and I am sure
he gets up very early, if he goes to bed at all. Very well, I'll go in.
Good-night, Mr. Williams," she called to a tall figure lurking in the
shadow of the big barn.
CHAPTER III
A HELPER
Although Miss Elliott fretted over the delay and was impatient to get
into her cottage it was not ready until after the middle of June, and
then it was a matter of hard work to make it habitable, for there were
a thousand and one things to be done, for which no adequate help
could be hired and which had to wait the convenience of some
volunteer service. Fortunately aunt and niece were comfortably
housed at Cap'n Ben's, and could bend all their energies to the
business of getting their own dwelling in order. There were frequent
trips to Portland shops for such odds and ends as had not been sent
with the household goods, and there were many demands upon Ira
Baldwin's stock of nails, tacks and such like things, so that his wares
fell short of supplying the demand, and many times Miss Elliott was
in despair at being unable to get the simple things she required.
She came in one day and threw herself into a rocking-chair, tired out
by her struggles with the impossible. "Hereafter I am going to be a
fool," she announced. "Fools get so much more done for them than
smart people. There is that silly widow who has Hilltop; she can't do
a blessed thing for herself, and is always appealing to this one and
that in the most languishing way; the consequence is people are so
sorry for her helplessness that they drop everything and run when
she gets into difficulties. As for me, I might tramp the island over, and
no one would budge to 'accommodate' me. I am sick of being
'accommodated.' I want to get hold of some one who wants to work
for reasonable wages, and can honestly earn them."
"Poor auntie!" said Gwen sympathetically. "You're all tired out, and I
don't wonder. What is the special grievance this time, or are you only
growling on general principles?"
"I wanted some one to put up the window shades, and I have
traipsed the place over. Each person I questioned told me he
couldn't do it but maybe so-and-so would accommodate me, till
finally I got desperate, went to the cottage and put up some of the
shades myself. It was the most nerve-racking work to make them fit,
for a sixteenth of an inch more or less makes such a difference.
There are times," she added after a pause, "when I could almost
declare profanity to be a necessity."
Gwen laughed. "Now, Aunt Cam, I know you have reached the limit
of human endurance, and I shall appoint myself a committee of one
to seek out a man-of-all-work."
"I wish you luck," returned Miss Elliott, resting her head against the
back of the chair. "The trouble is," she went on after a moment, "that
these blessed people spend their lives in waiting and they cannot
understand why we should not be willing to do it, too. They wait for
the weather, the winds, the tide. They wait for their fish, for nearly
everything, and they are so in the habit of it that it bewilders them
when they are hurried. They cannot comprehend a society which
does not wait for anything."
"Shouldn't you like to see Manny Green, for instance, during the six
o'clock rush hour in New York? Do you suppose he would
understand the word hustle then?" said Gwen. "However, Aunt Cam,
I am sure that there are great many who are not loafers. Look at
Thad Eaton, and Miss Phosie, too. They work steadily from morning
till night. Miss Phosie is such a dear. She certainly is a contrast to
Miss Phenie."
"Yes," returned Miss Elliott, "the very way they cut their pies gives a
clue to their characters. Miss Phenie always helps herself to the
largest piece, Miss Phosie invariably takes the smallest. That tells
the whole story."
"You have it in a nutshell," replied Gwen. "Now you stay here and
rest, Aunt Cam, while I go on my voyage of discovery."
"Where are you going?"
"Not far."
"Whom shall you attack first?"
"That's tellings. I have an idea. If my quest fails I'll acknowledge my
faith misplaced, and myself beaten, though I'm 'hop-sin',' as Asa
Bates says. Lie down and rest. You have done enough for one day."
She picked up her hat and went out. Miss Elliott watched the erect
figure pass the window, and turn toward the sea. "What's she going
that way for?" soliloquized Miss Elliott. "Perhaps she thinks she can
conjure up the wizard." But she ceased to speculate in a few minutes
and dropped off into the sleep which follows great weariness.
Meanwhile Gwen went on toward the garden, following the foot path
to where it dropped between the ridges, and entered a wooded way
bordered by wild-rose bushes. These were not yet in bloom, but the
hillside was white with daisies, and in the sheltered hollow where
Cap'n Ben's apple trees struggled to resist the keen winds, a few
faint pink blossoms were visible.
"Over the shoulders and slopes of the dunes

I saw the white daisies go down to the sea,"
murmured Gwen. "And it will be just as lovely when the roses come.
They are budding now." In a few moments she emerged from the
rose path into the open. Beyond the rocky ledges a little beach was
visible at low tide. When the tide was up it was nearly covered, but
now the pebbly sands were outlined by swathes of wet brown kelp.
Mounting a rock Gwen stood looking out upon the waters of the
small harbor, and presently made out the identity of a boat which
was headed for the point near which she stood. "I thought I'd get
here in time," she said to herself. She waited till the boat was
beached and the man in it had stepped out, shouldering his oars,
and turning toward the path by which she had come. Then she left
her big rock and went to meet him. "I've been waiting for you, Mr.
Williams," she said cheerily.
"For me," he said, pausing.
"Yes. I want your advice, and maybe your help. Can you put up
window shades?"
He looked at her with a half-puzzled expression. "I have done it at
Cap'n Ben's," he told her.
"Good!" cried Gwen. "I thought you weren't deficient in mechanical
genius. We are at our wits' ends, or rather, I should say, we at Wits'
End are at our wits' end. That isn't so idiotic a sentence as it sounds.
You know we have named our cottage Wits' End, for my aunt was
distracted to know where to stow her goods, and we continue to be
at our wits' end to know how to get anything done in this perfectly
fascinating, entirely maddening place. Poor Aunt Cam has worn
herself out trying to get some one to put up shades. We could send
to Portland for a man, but by the time we had paid his fare both
ways, had paid for his time, his labor and his board, it would amount
to more than the shades are worth. Now, I appeal to you, a maiden
in distress. What do you advise us to do?"
"I'll put them up for you," returned he abruptly.
"Oh, Mr. Williams, how good of you. I'll confess that is what I hoped
you would do. I have felt from the first that we should be friends. You
have always looked at me as if you were rather interested in the new
arrival, and haven't stalked by me with that defiant look some of your
neighbors wear. That's why I thought I'd hunt you up and pour out
my troubles to you."
"I'm glad you did," he returned. "Shall we go now?"
"To put up the shades? Can you?"
"If you have the screws and things. I can go."
"What fun to go back and tell Aunt Cam the work is all done. Have
you been in our cottage? Don't you think it is perfectly charming?"
"It is a very nice little place. Will your parents be here, too?" he
asked after a pause during which he strode by her side with eyes
downcast.
"Oh, no. I have no parents."
A smothered exclamation caused her to turn to look at the man. His
lips were compressed, his head bent.
"Oh, never mind," said Gwen, gently. "You didn't know of course.
There are only Aunt Cam and myself left. I never had any brothers
and sisters except one tiny baby brother who died before I was born.
I always lived with my grandparents even during my mother's
lifetime. Now they are all gone."
The man was silent for a little, then he asked in a queer strained
voice, "How long since?"
"I was about six when my mother died. Grandfather did not live long
after. Grandmother died about five years ago. Aunt Cam was a
teacher in China, in one of the medical missions, but she came back
after mother died. I don't know very much about my father's people.
Grandmother seldom mentioned them or him. I don't remember him,
for he died when I was a baby. I am a kindergarten teacher, but I
wasn't well last year, and Aunt Cam insisted upon my giving up a
month earlier to come up here to recruit, so I shall have a long rest.
Now, Mr. Williams, you have my history." She looked at him
expectantly as if inviting a like confidence.
"A man's life here can't be called exactly monotonous," he said after
a pause, "for there is always incident enough if one cares for the
quality of it, but there isn't much to make history of. I have lived at
Cap'n Ben's for about twenty years, have fished every day when it
was fit, have eaten, drunk, slept, read when I had a chance, and that
is about all there is."
Gwen was silent, then she shot him a glance. "And before Cap'n
Ben's?" she said.
A hot flush mounted to the man's face. "Before that there is nothing
worth relating," he said. And Gwen felt herself properly rebuked for
her curiosity. Why should she pry into a stranger's secrets? Yet she
felt a sense of disappointment.
They presently came to the cottage perched upon the crags, yet
clinging close to the rocks, showing long sloping lines, and simplicity
of design. "When its newness wears off," said Gwen, "it will look just
as we want it to. Come in, Mr. Williams, and I will get the shades. I
can help you, if you want me to, but I am afraid I should never be
able to put them up alone. I can't manage a saw, and some of the
rollers are too long."
Her companion nodded. He was chary of speech, Gwen knew, but
he took hold of the work as one having a personal interest in it, and
before very long all the windows were furnished with shades.
Gwen surveyed them with a pleased look. "I don't know how to thank
you, Mr. Williams," she said. "I am afraid I was very audacious to
descend upon you as I did, but I was desperate. Shall I?" She
fumbled at the little side bag she wore. "I believe the charge—some
of them charge—"
Mr. Williams put up his hand peremptorily. "Stop!" he said. "I have
done this only—"
"To accommodate me," exclaimed Gwen despairingly, then with a
sudden smile, "Please don't say that. I am so tired of hearing it. Any
other word, please."
"I have done this because it was a pleasure," he said gravely
smiling. "And I will call it even if you will promise me one thing."
"And that is—"
"Whenever you get into difficulties that you will come to me, just as
you did to-day, and ask me to help you. If I can do it I will."
Gwen seized his hand. "I told myself you were good and kind the
very first time I saw you. Thank you so much. You make it all seem
very easy when we know there is one friend we can depend upon. I
am afraid I shall bother you a great deal," she continued. "You may
be sorry you exacted such conditions."
He shook his head. "No, I know what I am saying, and I am quite
willing to repeat the terms of our contract."
"Very well, then it's a bargain," Gwen answered.
That night, for the first time since their arrival, Luther Williams sat at
the table with Gwen and her aunt, and the girl felt sure he had made
the concession to emphasize his offer of friendship which she felt
was sealed since he had elected to break bread with them.
It was after supper that Manny Green came around. He had been
long casting sheep's eyes at Ora, but was not encouraged by Cap'n
Ben nor his daughters. Manny was a tall, good-looking lad, but
shiftless and uncertain. He had been brought up by a childless aunt
who had lavished her best upon him, and had made such sacrifices
as caused righteous indignation among the good woman's friends.
"He's a handsome boy, that Manny Green," remarked Miss Elliott as
she watched the slim-waisted Ora walk off with her admirer.
Miss Zerviah Hackett, who had dropped in for her usual evening
chat, gave a snort. "Handsome is as handsome does," she said.
"He's not worth shucks, Miss Elliott. He goes lobstering when he
feels like it, and when he don't he stays to home. When he wants to
go off sky-larkin' he borrows money from his aunt."
"I'm afraid that's so," put in Miss Phosie, "and I wish he'd stay away
from Ora."
"But they're so young it can't mean anything," remarked Gwen.
"Mean anything! Why! she's sixteen," said Miss Zerviah, "and lots of
girls get married at that age."
"Oh, why do their mothers let them?" cried Gwen.
"'Cause they done the same thing themselves," Miss Zerviah
informed her; "and it's all right when the young man's a sober,
industrious fellow, but Manny's lazy. There's no use in trying to get
around it."
"I'm afraid he is," said Miss Phosie wofully.
"His father was lost at sea," Miss Zerviah went on, "and he was
Almira Green's only brother, so she thinks she can't deny Emmanuel
anything."
"Oh, that's his name, is it?" said Gwen. "I wondered what it could
be."
"He always gets Manny," returned Miss Zerviah. "As I was saying,
he's lazy, and moreover, I maintain that the man that's willin' to
borrow from a woman, even if she is a near relation, is pretty poor
shucks, generally speaking. Nine times out of ten she never gets it
back. It does seem to me that a woman who's been a-scrimpin'
herself all her life as Almira's done, and hasn't allowed herself any
pleasures, has a right to her little savin's when she gits to where
there's no youth left her to make up for the goings without. I'd like to
know who's to look out for her when she's past lookin' out for herself.
Yet she'll up and give over and over again to ease Manny's way for
him, and to allow him to go off sky-larkin'. If she'd done a little more
sky-larkin' herself he wouldn't have a chance to git what's her due
and not his. I'm just put out about Almira."
"I hear she's going to take boarders, after all," said Miss Phenie.
"So she is, and that's what I'm fussing about. She determined she'd
take a rest this summer, but I went to her house to-day and there she
was whitewashin' and paperin', same as usual. 'What are you up to,
Almira Green?' s'I. 'Gettin' ready for my boarders,' s'she. 'Boarders,'
s'I. 'I thought you wasn't going to take 'em.' 'They wrote and wanted
to come,' s'she, 'and somehow I don't seem to be able to get along
without.' I was that put out I walked off without a word, for I know just
as true as I'm settin' here, that Manny's been borrowin' again. He
can fling around his money pretty free when it comes out of her
pocket-book."
Miss Phosie looked distressed. She knew that Ora would reap the
benefit of Almira's hard earnings. The girl was very young, very fond
of pleasure, of the foolish little trinkets and baubles which Manny
bestowed upon her. She was, moreover, a vain little person, who
followed the example of her elder, rather than her younger, aunt, and
was given to considering herself first, though she really had more
heart than Miss Phenie. "I wish Ora wouldn't run with him,"
murmured Miss Phosie as Gwen passed from the room.
"Now, there, Phosie, what's the use of croaking?" said her sister.
"Ora's young, and young things like a good time. Like as not she'll
take up with somebody else before she thinks of getting married."
Then to change the subject she remarked: "What do you think,
Zerviah? Mr. Williams was up to Miss Elliott's cawtage this afternoon
putting up window shades."
"I want to know!" ejaculated Zerviah, this information driving all other
gossip out of her head. "I never knew him to take up with the
summer people before. Did you, Phenie?"
"No, I can't say that I did, but he certainly has taken a shine to Miss
Whitridge."
Miss Zerviah chuckled. This was a new item to stow away among
her stores of information. "Mr. Williams is always real pleasant," she
said. "I never knew anybody to say a word against him, but I can't
say I ever knew him to be more'n polite to the new people, or, as a
matter of fact, to anybody here on this island. He's been here going
on to twenty year, Phenie, and I'll venture to say you don't know
much more about him than when he came. He ain't a Maine man, I'll
warrant." There was a little eagerness in her manner as she turned
her eyes questioningly upon Miss Phenie.
"Well, he ain't communicative," returned Miss Phenie, "but he does
talk about his childhood sometimes, and about what his father and
mother used to say and do. Yes, he does talk a little, but he's a
reserved man, Zerviah. He's not much of a talker at the best, though
he's a great reader."
"And he's kind-hearted as he can be," interposed Miss Phosie. "He
never lets me bring a stick of wood, nor a drop of water when he's
'round, and when father was laid up with rheumatiz last winter there
wasn't nothin' he wasn't willin' to do. There's no kinder-hearted man
in the State of Maine than him, and he's always that quiet in his
speech. I never heard him use a profane word, not but what he can
get mad when there's occasion, but he's too much of a gentleman to
use an oath."
"That's just it," remarked Miss Zerviah, a little spitefully and with
suggestive accent, "he's too much of a gentleman."
"Now, Zerviah," protested Miss Phosie, "how can you say so?"
"Say what? That he's too much of a gentleman. You said so, didn't
you?"
"Not in the way you did. I said he was too much of a gentleman to
swear, but you meant different."
Miss Zerviah laughed. "Have it your own way," she said, rising to go.
"I must be getting up along."
"Don't be in a hurry," said Miss Phosie politely.
But Miss Zerviah had gleaned all that she could, and so, picking up
her milk bucket she went out. She passed by Ora and Manny
walking slowly. Further on she met Luther Williams, who answered
her "Good evening" with a slight bow, but who did not stop, although
Zerviah slackened her pace. She stood still altogether when he had
passed and looked after him as he took the path to the shore. "Now,
ain't that like him?" she murmured. "I don't believe there's another
man on the island that would go wandering off among the rawks
after night. He's queer, there ain't a doubt of it." And she turned her
face toward her own low brown house under the hill where she lived
with her father old Cap'n Dave Hackett, now too feeble for a
fisherman's life, but once a fearless battler with wind and waves.
Gwen, too, was out in the soft June night. She could not be content
to remain in the stuffy house, and had followed Miss Zerviah's way
as far as the road. One could feel perfectly safe anywhere on the
island, she well knew, and she therefore wandered on till she had
reached the lower path leading along the cove. There was still light
in the sky which was reflected in the water, turning it to silver. The
cove was quiet enough but along the reefs outside the water was
beginning to dash noisily. Lights twinkled from several yachts which
had put into harbor, and were rocking, amid a small company of
dories, at anchor. A big fishing schooner, however, lay darkly silent,
her crew ashore making merry.
Gwen paced slowly along, her thoughts on many things. She met
few persons. A boy on a wheel sped swiftly by. Two lovers, lost to
everything but themselves, wandered ahead hand in hand. The dark
figure of a man, looking off across the water, was silhouetted against
the faint primrose of the sky where an opening in the bordering pines
gave a glimpse of the further side. Presently Gwen noticed the
approaching figure of some one who stepped firmly and with the
swing of a city-bred person, rather than of one used to country roads
and unsteady decks.
Seeing her he drew up suddenly, and doffed his cap. "I beg pardon,"
he said, "but can you tell me the way to one Captain Ben Tibbett's?"
Gwen looked up with a smile. "All roads lead to Rome, Mr. Hilary,"
she answered. "Keep straight on and you'll get there."
He bent down to observe her more closely, for the dim twilight
stealing over land and sea shadowed still more duskily the pathway
already dimmed by the overhanging trees.
HE BENT DOWN TO OBSERVE HER MORE CLOSELY.
"Miss Whitridge!" he exclaimed. "I am glad to see you, but what on

earth are you doing 'way up here in Maine?"
"I might ask you the same question, for I am wondering how you
discovered this fairest island in Casco Bay. I have a perfectly
legitimate right to all it offers, for my aunt and I have arrived at the
distinction of being cottagers, while you, I suppose, are a mere ship
that passes in the night, and are just stopping over at the Grange for
a few days."
"You are wrong, quite wrong. I have as good a right here as you. My
sister has also become a householder, and I am here to see her
through the dangers and difficulties of a first season on the island.
She has rented a cottage over yonder," he nodded in the direction
from which he had come, "and I am out on a forage for milk. We
haven't had supper yet and my sister pines for a cup of tea, but
cannot drink it 'dry so,' as they say down in Georgia. Were you going
to walk back, and may I walk with you? I shall get lost, I am certain,
unless you pilot me."
"I was going as far as the open, but as it is so little further I can as
well shorten my walk that much, and it is getting dark."
"Aren't you a little scared to be coming along this dim path by night?"
"Why should I be? There is nothing in the world to be afraid of. I
could walk the length and breadth of the island at midnight, and be
perfectly safe. That is one of the joys of being here, this feeling of
absolute security." She turned about, and the two bent their steps to
where Cap'n Ben's house showed whitely in the distance.
CHAPTER IV
A TEMPEST AND A TEAPOT
Kenneth Hilary was not an old friend, nor indeed was he more than a
chance acquaintance, since he and Gwen had met but twice, once at
a tea and again in a railway station when a like destination threw
them together for an hour as travelling companions, and it is doubtful
if their paths would have crossed again if chance had not cast them
both upon Fielding's Island.
"Kenneth Hilary is here," Gwen told her aunt the next morning after
the casual meeting.
"And who is he?"
"Oh, don't you know? He is Madge McAllister's friend. I met him at
her tea last winter, and afterward we happened to take the same
train from Washington. He was going to Annapolis, and I was going
to Baltimore. Now I am sure you remember."
"Yes, I believe I do. What is he doing here?"
"Helping his sister get settled, at least that is what he was doing last
evening. She is the wife of a naval officer and is here for the summer
with her two little children. I fancy she is not rolling in wealth, though
comfortably off maybe."
"And he?"
"Not wealthy either. In fact I believe he's a writer or a journalist, or
perhaps it's an artist. Anyhow he spoke of doing some work up here,
so I fancy he has time on his hands as he mentioned remaining the
entire summer."
"Perhaps he is here for his health."
"You wouldn't say so if you could see him. He looks like a college
athlete, and I cannot fancy him ill."
"Where did you run across him?"
"On the cove road. I was taking a walk and he was coming here for
some milk. He asked me the way without knowing who I was. When
we recognized each other we came back together."
Miss Elliott was thoughtful for a moment, then she smiled. "I
suppose," she remarked, "that it would not be prudent to warn you
not to fall in love with him. You know there is the possible millionaire
who is to redeem the family fortunes."
"I am afraid this is an impossible place to meet him," returned Gwen.
"Millionaires don't come to little isolated islands. They go where their
splendor can shine like the sun at noon. You should have taken me
to Newport or Bar Harbor, Aunt Cam, if you expected great things of
me."
"Then there could have been no Wits' End."
"Oh, I am satisfied. I'd rather have Wits' End than all the millionaires
going. It was you who began it, you know. I'm not sighing for point
lace and diamonds at present whatever I may do later on. Just now
my cravings are much better filled here than they could be anywhere
else, so please don't mourn on my account because of unreachable
glories. Let's talk about something else. To-day we come to our own.
Think of it! We shall eat supper in that adorable cottage with our
eyes turned toward the sea. We can have all the fresh air we want.
We can sit out on the rocks all day if we like, and can go to bed with
the noise of the waves in our ears."
But neither Gwen nor her aunt had bargained upon such an uproar
of waters as they listened to that first night at Wits' End, for the wind
blew up from the southeast, bringing a storm with it, and before
morning the breakers were thundering against the rocks, fairly
shaking the little cottage to its foundations. For three days the storm
lasted, to the delight of the girl who revelled in the fierce tumult. At
the end of the third day Gwen looked forth from the back door. "It's
clearing," she said, "and I am going out to look at the surf. You'll
come, too, Aunt Cam."
"Presently," promised Miss Elliott. "I must get up these draperies
first."
"How can you stop when there are such wonders out of doors?"
"I'll come directly," was all that Miss Elliott vouchsafed, and in short
skirt, high rubber boots and golf-cape Gwen went forth. Rolling
masses of smoke-colored clouds scudded across the sky. Below it
plunged and bellowed the gray sea, which reared itself monstrously
and flung its huge breakers against the unyielding rocks in a long
line of surf. All along the coast jagged pinnacles and deep chasms
received the hissing waves, in their furious onrush, only to fling them
back in masses of spray. Where the crags were highest, the chasms
deepest, or the far spreading reefs offered most resistance, there
was a perfect welter of tossing, seething, bubbling spray which was
formed into wonderful balls and was flung aloft by the unseen spirits
of the deep. Close in shore a small boat had drifted. At each swell of
the surging tide it was taken up and hurled against the rocks until, bit
by bit, it was battered to pieces. A few sea-gulls poised themselves
above the turbulent ocean, their snowy breasts scarcely discernible
in the toss of hurtling waves. Flecks of white blown far in by the
mighty gale appeared like strange pale blossoms dotting the fresh
green grass which fringed the path along the bluff.
The wind was still blustering through the sombre pines that stood
huddled together where the pasture ended, but there were breaks in
the flying clouds, and along the west a faint yellow band of light was
beginning to shine. As it grew wider and wider it touched the purply-
gray rocks with amber; creeping out to sea it turned the leaden
masses of water to green, and further on found out the white
cottages and red roofs on a distant island. At last it struck with a
golden radiance the sails of a far-off vessel, making it appear like a
magic ship bound for a land of happy fancy.
The ground, sodden with moisture, oozed water at every step Gwen
took, and the tufts of meadow grass were surrounded by small pools.
The girl paused first at one point, then another, each outlook
fascinating her. At the most rugged point where a giant stairway led
down to a fierce turbulence of whirling breakers, she stood
transfixed. It seemed strange within sight and sound of that howling
sea to see little wild strawberries spotting the hummocks and to hear
a song-sparrow's blithe notes above the noise of the pounding
waves.
"Isn't it wonderful?" said a voice by her side.
She turned her head slightly to see Kenneth Hilary clad in oil skins
and booted for wet weather. "It is beyond words," returned the girl. "I
did not dream of seeing anything so marvellous."
"I have been out all day," said Kenneth. "I managed to make two
sketches, and I am going to make another when I find just the right
spot."
"Isn't it just here?"
"A little further along I think. I am so divided between this ocean side
of the island with all its tremendous uproar, and that wonderful sky
over the cove that I am torn asunder. How have you been faring?
Does your cottage stand bad weather?"
"We have been having a lovely quiet time getting odds and ends
finished up, and the cottage stood the storm wonderfully. There was
only one tiny leak. How did you all get along?"
"I was nearly drenched in the early hours of the first morning, but I
think there was no real damage done. We put basins under the
leaks. I moved my bed and let the old roof drip. I shall hunt up a man
to get the roof in order at once."
"I hope he may do it before the next storm," returned Gwen. "Our
nearest neighbors have been telling us they did not get much
satisfaction." She smiled at the recollection.
"Why? How was it?" asked Kenneth.
"Miss Gray went off in a state of indignation to hunt up Thad Eaton. I
can imagine the tone of voice in which she said: 'Mr. Eaton, my roof
leaks.'"
"What did he say?"
"He said—" Gwen's eyes grew merry. "He said, 'Is that so, Miss
Gray? So does mine.'"
Kenneth laughed. "I take the lesson to heart. I'll get a bundle of
shingles and some paint before the next storm on the principle if you
want a thing done, do it yourself. Here's the place." He set down his
color-box and prepared to begin his sketch. Gwen watched him for a
few minutes, then she moved off to join Miss Elliott whom she saw
coming toward them. "When you get through," she said over her
shoulder, "come to Wits' End and have a cup of tea."
The young man looked up brightly. "Thanks, I'll do it," he responded,
then turned his attention to his sketch.
Gwen advanced to meet her aunt. "Isn't it the most gloriously awe-
inspiring thing you ever saw?" she cried. "We thought it was superb
from our upper windows, but you get more variety by walking along
the bluff. I suppose I'd better go for the mail; we haven't had any for
two days."
"I'll go with you," said Miss Elliott. "I want some things at the store if
they are to be had."
They turned from the wild commotion of the ocean to the quieter side
of the island. Down by the harbor there was little noise save the
distant booming of the sea. The vessels which had put in from the
storm lay gently rocking at each swell of the tide. From the low white
house at the top of the hill Cap'n Ben came out in his sou'wester. He
stood for a moment looking westward, then went down toward the
long flight of steps which led to the wharf. Along the road, which
extended like a backbone from one end of the island to the other,
figures appeared at irregular intervals, going in the direction of the
little store nestling under the hill by the harbor. As Gwen and her
aunt passed by Almira Green's they saw her come to the door and
hold out her hand to make sure the rain was over. Then she
gathered her skirts closely about her, and picked her way down the
narrow garden path to shake the moisture from the heads of some
crimson peonies, and to tuck up a bit of vine torn from its trellis by
the gale. The western horizon showed clearly now, the wind died
down and the sun shone out brilliantly. The storm was over, though
all night long, the dwellers along the bluff, when half awake, heard
the booming of the sea.
"You are the first to break bread with us," said Gwen to Kenneth
Hilary as she handed him a cup of tea. "How do you like our
cottage? We are so proud of it that it is a perfect joy to show it off.
Don't you think we have a fine fireplace?"
The young man looked around the room. "It is charming, perfectly
charming," he said. "Who planned it?"
"We did it all ourselves, Aunt Cam and I."
"You have reason to be proud. I congratulate you upon having the
artistic sense to keep to simple lines. They're mighty good ones, too.
This is a jolly room, just enough in it for cosiness."
"Aunt Cam has one room full of her ponderous furniture, her books
and family relics, but we tried to choose judiciously in furnishing the
rest of the house. Auntie said she was tired of paying storage, and
we cannot keep up much of an establishment in the city. She hated
to part with her heirlooms and it was a problem to know what to do
with them till it suddenly occurred to us to build a cottage here, call it
our home and spill over into it such things as we could not use in the
city. So you see the result. We think our household gods are as safe
here as they would be in a storage warehouse, and between times
there is no storage to pay. We do not have to wear ourselves out in
trying to decide where we shall spend our summers in order to
escape the heat, and we think we are very sensible people to have
come to such a conclusion as we did."
"You were sensible. I wouldn't mind a shack here myself, for I never
saw a spot more to my liking. But, alas, an impecunious artist can't
indulge in any such dreams till he has made his ten-strike. I was glad
enough to accept Nell's suggestion that I chip in with her this
summer and come up here, for it gives me the chance to get at the
kind of work I have been longing to do, and to work out some
illustrations I have on hand. They are rather jolly to slash away at
when one can sit in the cool and do them, though ordinarily I can't
stand much of that sort of thing."
"I am afraid you are an impatient sort of somebody," remarked
Gwen.
"Yes, I am afraid I am. I hate to be hedged about by conditions, and I
hate to do things I don't like to do."
"Who doesn't?" returned Gwen. "But we have to. It's part of our
development. I don't think anyone has the right to please only
himself."
"Oh no, of course not, and we don't get the chance to, even granting
we had the right. But I don't see the use of deliberately choosing
unpleasant things to do."
Gwen was thoughtful for a moment. "I think many persons do
deliberately choose unpleasant things for the sake of those they
love. Isn't that what the joy of sacrifice means?"
"I suppose so. Perhaps I might do it for such a reason. I could, I
know, but not when there seems no necessity for it."
"Aren't you ambitious enough to do it for your own sake?"
"That depends upon what you call ambition. I'd rather be happy than
famous. In fact I've spent so much time in trying to find out how to be
happy, that I haven't had much leisure to try to be famous."
Gwen shook her head. "There's something wrong with your
philosophy. You mustn't try so hard to be happy. You should go on
the principle that you will be happy if you do your duty."
"Who knows his duty? I never did have any patience with the people
who say: 'Be sure you're right, then go ahead.' The going ahead is
easy enough; it's the being sure you're right that bothers you, and
even then I've discovered that selfish people are quite as happy, if
not happier than unselfish ones."
"Dear me!" sighed Gwen, "you're a terrible iconoclast. I always have
been taught just the opposite."
"Well, but look around you. Aren't the self-complacent, self-satisfied
people the ones who flourish like a green bay tree? They get more
out of life than the self-sacrificers who in the long run are seldom
given credit for the things they do, but are often censured for not
doing more."
Gwen put her hands over her ears. "Oh dear, oh dear, if you keep on
I shall have no theories left. If you are thinking of the material side of
life, no doubt there is some truth in what you say, but if you have
spiritual aspirations you will never step up through any such beliefs. I
can see the force of your argument. There are Miss Phenie and Miss
Phosie Tibbett, for example. Miss Phosie is continually doing for
others, and I can't remember that Miss Phenie ever did anything for
Miss Phosie or anyone else, except things she is obliged to do, but I
have heard her call Miss Phosie selfish because she did not do
more, because she didn't do certain things that Miss Phenie would
no more do than she would fly, and yet I am sure, of the two, that
Miss Phosie has spiritual delights of which her sister never dreams."
"The way to the land of spiritual delight is very hard for some. I find it
rather an interesting study to watch the lives of others, and try to
discover what really goes to make up their actual pleasures. These
good island people whose influences have been so different from
ours I'd like to get at their point of view."
"I think human nature is about the same the world over, though I
admit the difference in points of view."
"Tell me some more of your observations of the 'Tibbett girls' as I
hear them called. How did you happen to discover so much?"
"It was very easy. Miss Phenie sits at the head of the table and
serves the dessert. Miss Phosie pours the tea and coffee, which is a
harder job. Miss Phenie always helps herself to the largest supply of
cream, the choicest berries, the best piece of anything that comes
her way. She complacently accepts any service that Miss Phosie
offers yet never tries to return it. I will give you an instance: She was
crocheting a little affair to throw over her head when she goes out of
doors—she takes plenty of time to do such things—and I heard her
say to her sister, 'You ought to have one of these, Phosie.' 'I'd like it if
I had time to make it,' said Miss Phosie. I saw Miss Phenie begin a
second one, and thought of course it was for her sister, but, bless
you, no. She thought she'd like a dark as well as a light one. I could
have shaken her."
Kenneth nodded. "I know the kind. I have in mind such another who
is possessed of a sort of mental indolence which makes her
intolerant of anything but absolute ease. She detests the effort that is
necessary in order to extract comfort from moderate means. She is
so self-indulgent that anything short of luxury she fiercely declares
she detests. She could no more understand the joy of sacrifice as
you call it than she could understand the language of another world."
"It is the language of another world," declared Gwen; "the spiritual
world."
Kenneth nodded. "Yes, hers is a very material one, I am sorry to say.
The material things are the only ones she values. I think that is why I
value them so little, and why my ambitions do not run in the direction
of money-getting. I would rather find the happiness that comes along
the way of common things, than to work for the mere sake of piling
up gain. Work, when it can be at the thing one most loves, is the
greatest joy in the world."
Gwen looked at him a little surprised. "I believe I misunderstood you.
I thought you were—"
"Lazy?" He laughed. "I don't believe I am that, but I have been called
selfish because I would not become a mere calculating machine.
The thing I most love, for which I have the most ability is painting,
and I am making a desperate try at success in that direction. Some
day I may arrive. Meanwhile I am not starving my best self, though I
do not fare sumptuously every day."
"I understand," returned Gwen. "I am glad you told me."
"Thank you. I thought you would understand. But what a serious talk
we are having. Such a day as this has been arouses us out of
conventionalities, and we have to be honest in the face of the
stupendous forces of nature. I saw your friend Luther Williams out
looking after his nets. I fancy they must be badly damaged by the
storm."
"He certainly is a good friend. You should have seen the beautiful
fish he brought us the day we came into the cottage, a gleaming,
shimmering salmon, all iridescent and silvery pink. It was just out of
the water. They don't often catch them here, but this happened to get
in the net by accident, I suppose, and Mr. Williams brought it to us.
Then he came yesterday and to-day to bring us fresh water, fearing
we could not get out to the Gray's well. Our rain-water hogshead is
full to overflowing, and we have caught a lot beside."
"I noticed various buckets and pans sitting around under the eaves
of your porch."
"Yes, we dragged out all the things we could think of, and set them in
a row so we wouldn't lose a drop. I never knew how precious water
could be till I came up here. Next year we shall have our own well,
and will see that the water 'convenes' into the house as Asa Bates
says."
"Why not 'convene' since it is for convenience?"
"Why not, indeed?"
At this juncture Miss Camilla came in. "You are missing the sunset,"
she said; "it is gorgeous. Come around to the back porch."
Kenneth grabbed his color-box and rushed out. In a few minutes he
was splashing on the paint in furious haste that he might catch the
fast changing tints.
"It must be fine at the cove," he said, standing off to view the effect of
what he had done. "I think I shall have to go down there. Thanks for
the tea, Miss Whitridge, and more for the talk over the tea-cups. May
I come again?"
"Certainly," replied Gwen, "and if we are not at home I give you leave
to sit on our porch."
"Thanks. I'll remember that," and picking up his hat he hurried away
cove-ward.
"Well," said Miss Elliott as Gwen watched him out of sight.
"Well—what?"
"What do you think of him?"
"I find him more interesting than I supposed. He is in a transition
state, I imagine, feeling around for his proper element. His family
oppose his artistic aims, I judge, and want him to go into a business
life for which he is not fitted. I am only reading between the lines
when I say his mother is a luxurious, indolent, ease-loving woman
who would rather he sacrificed himself for the sake of money-getting,
than have him happy in the life he loves. He did not say so, but one
can read a whole life's experience from a few generalities. I am sorry
for him, though he seems light-hearted, and—"
"Take care, Gwen. Take care."
"Oh, I'll take care. I have no fancy for living in a studio furnished only
with unsold pictures, and I certainly don't intend to waste my
energies in building up the fortunes of a struggling artist. But you
wouldn't deny me a summer's companionship with an interesting
young man. He will come in very handy for sailing and rowing
purposes, not to mention dancing."
"Nevertheless, I repeat, take care," said her aunt.
CHAPTER V
THE SINGING WAVES
"He has arrived," said Gwen, coming in with her hands full of wild
roses a few days later.
"He? Who?" asked her aunt.
"The millionaire, or at least the half of one, for they say he is worth
not less than half a million."
"I never heard of him," returned Miss Elliott. "What's his name?"
"He is one Cephas Mitchell, age a little over thirty I should judge;
height five feet nine, or thereabouts; complexion, uncertain; eyes,
pale greenish blue; hair, mouse-color; weight, I don't believe I can
give that, but it must be less than yours, for he is very skinny-looking.
He hails from Boston, and is a steel something-or-other, we'll say a
steel magnate."
"Your details appear to be very exact. Where did you meet him?"
"Down at the post-office. He is a guest of the ladies Gray. He was
with Miss Henrietta. I think he is a relative. It was while he was
buying fishing-tackle or something, that I received my information."
"I wonder what he is doing up here."
"He came with his mother, who is also a guest of the Grays. That
makes seven women in the house, including the servants."
"Well, were you impressed by the young man?"
"Wait till you see him and then judge for yourself." Gwen put her
head to one side as she viewed the arrangement of her roses in a
bowl. "Aren't they lovely, Aunt Cam? I got them just over the fence
as I came along. There are two letters for you and a couple of
papers."
"Did you ask about the mackerel?" said Miss Elliott, picking up her
letters.
"Yes, and that's all the good it did. I was informed that our mackerel
was wrapped up, all ready to deliver, when some one came along
who wanted it, and, being on the spot, secured it, so we are minus
our mackerel as there are no more. Ira told me the tale as if it would
console me to know that it had come so far in reaching us as to be
wrapped up."
"Oh dear," sighed Miss Elliott, "then we must either eat canned
something, or try to get a lobster."
"If I could catch sight of Mr. Williams as he comes from the pound I'd
be sure to get some kind of fish," said Gwen. "I believe I'll go hunt
him up. I may not be too late." She picked up her hat and went out
again. The breeze, which always blew up freshly by ten o'clock, no
matter how warm the early morning hours, had begun to stir among
the tree-tops; the grass was vividly green upon the hummocks; in the
woods the birds were calling to each other. A tame crow sat upon a
neighboring roof, making such human noises as led Gwen to think
some one was calling her. She went down hill to the little hollow
where the cove curved in toward the marsh, then up she climbed to
penetrate a pine grove and come out again upon the spot where
Luther Williams moored his dory. She had not miscalculated for,
looking up, she saw him ahead trundling his barrow of fish. She ran
after him calling as she went, and directly he turned, dropped the
handles of his barrow and waited till she came up.
"Any fish for sale, Mr. Williams?" sang out Gwen.
"Well, not at retail," he returned, "but you're welcome to your pick."
"Couldn't do that," answered Gwen, turning over, with a hesitating
finger, the contents of the wheelbarrow.
"Then you can't have any," said Mr. Williams with a smile, essaying
to pick up the handles again.
"That is unkind," returned Gwen. "Would you condemn us to a dinner
of canned soup and potted ham when here are these beautiful fish
just out of the water? Some one bore off the mackerel we ordered,
and we are minus our chief dinner dish unless you'll let us depend
upon you."
"You can depend upon me. Come, we'll make a bargain. If you will
go out in my dory with me this afternoon when I haul my nets you
shall have the finest fish in this wheelbarrow."
"Oh, I'd love to do that; it would be the nicest possible excursion,"
responded Gwen enthusiastically, "but it seems to me I shall be
getting the best of it all around."
"No, I am willing to pay for your company, and consider it is a small
price."
"Thanks," Gwen laughed. "When shall I be ready?"
"About three."
"And where shall I meet you? Right off there where your dory is?"
"Yes, if you will." He selected a fine mackerel strung it on a bit of
grass, and handed it to her. "Do you care for tinkers?" he asked.
"Tinkers? I don't know of any but those you read about who go
around the country mending tins."
"That's not the kind," replied Mr. Williams. "They are these little
fellows." He held out a tiny mackerel in his hand. "Some persons like
them better than the large ones."
"Oh, those. I never ate any, but I'd like to."
"You shall have some to-morrow for breakfast. We'll get them this
afternoon."
"You are adding more and more inducements," returned Gwen.
"Indeed, Mr. Williams, I don't know what I should do without you.
There is scarcely a day but you smooth out some difficulty for me."
The man paused before starting off with his load. An inscrutable look
was on his face. "Sometimes," he said slowly, "Heaven gives us
opportunities we thought we had lost." After which speech he moved
on, leaving Gwen to walk slowly home, pondering upon the
mystifying remark.

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Fundamentals of Advanced Accounting

8th Edition Hoyle Solutions Manual

II. Intra-entity debt transactions

III. Subsidiary preferred stock

IV. Consolidated statement of cash flows

V. Consolidated earnings per share

VI. Subsidiary stock transactions

Answer to Discussion Question: Who Lost this $300,000?

3. The following characteristics are indicative of an enterprise qualifying as a primary beneficiary

2. B Vintage Company net income ...................................................... $100,000

7. D Cash flow from operations:

8. C Cash flow from financing activities:

10. C Post-issue subsidiary valuation ($800,000 + $250,000) $1,050,000

11. C Dane’s income from own operations ....................... $185,000

12. B Mattoon’s share of consolidated net income .......... $465,000

13. B Aaron net income ..................................................... $430,000

Gain on Retirement of Bond:

16. D Consideration transferred for preferred stock ............................. $ 424,000

17. B Consideration transferred for preferred stock ............................. $214,000

18. B Parent’s reported sales ............................................ $480,000

19. B Subsidiary’s unamortized fair value prior to new share issue

Subsidiary unamortized fair value after issuing new

Investment in Veritable increases by $2,400 ($590,400 less $588,000).

21. C Adjusted acquisition-date sub. fair value at 1/1/21

22. D Adjusted acquisition-date fair value ($820,000 – $192,000) ........ $628,000

23. (10 minutes) (Qualifications of a VIE and consolidation requirements)

24. (30 minutes) (VIE Qualifications for Consolidation)

a. The purpose of consolidated financial statements is to present the financial

and uncertainty of prospective cash flows. Consolidated statements also

b. An entity qualifies as a VIE and is subject to consolidation if either of the

Consolidation of a variable interest entity is required if a firm has a variable

Risks that remain with TecPC

25. (15 minutes) (Consolidation of variable interest entity.)

b. Implied valuation and excess allocation for Valery

26. (40 minutes) (Acquisition-date consolidation worksheet for a parent and a

Access Net Consolidated

Long-term debt (941,000) (616,000) (1,557,000)

Consideration transferred $1,000,000

Pikes and Venti Companies

Pikes Venti Consolidation Entries NCI Consolidated

Retained earnings 1/1 (1,380,000) (40,000) (S) 40,000 (1,380,000)

Current assets 360,000 73,000 433,000

Current liabilities (30,000) (92,000) (122,000)

a. Carrying Amount of Bonds Payable, January 1, 2019

Carrying amount, January 1, 2017 ........................................ $1,050,000

Gain on Retirement of Bonds, January 1, 2019

Carrying Amount of Bonds Payable, December 31, 2019

Carrying Amount of Investment in Bonds, December 31, 2019

Intra-entity Interest Balances for 2019

CONSOLIDATION ENTRY B (2019)

b. In 2020, because straight-line amortization is used, the interest accounts

CONSOLIDATION ENTRY *B (2020)

Bonds Payable .............................................................. 400,000

c. As with part b, new premium and discount balances must be determined

CONSOLIDATION ENTRY *B (2021)

Bonds Payable .................................................... 400,000

29. (12 Minutes) (Determine consolidated income statement accounts after

▪ Interest Expense To Be Eliminated = $84,000 × 11% = $9,240

a. Loss on Repurchase of Bond

Interest Balances for 2019

Investment in Bonds Balance, December 31, 2019

Bonds Payable Balance, December 31, 2019

b. Interest Balances for 2020 followed by 2021