Consolidated Financial Statements A.

Types of Business Combinations--a business combination occurs when the operations of two or more companies are brought under common control by exchanging cash, stock, debt, or some combination of the three as consideration 1. Asset Acquisition--an asset acquisition is a business combination where the acquiring company acquires all of the net assets of the acquired company and the acquired company ceases to exist as a separate legal entity a. Merger--a merger is an asset acquisition where an existing company acquires all the net assets of one or more other companies b. Consolidation--a consolidation is an asset acquisition where a newly formed company acquires all of the net assets of two or more other companies 2. Stock Acquisition--a stock acquisition is a business combination where the acquiring company acquires a controlling interest in the voting stock of the acquired company and the acquired company continues to exist as a separate legal entity Date of Acquisition 1. Accounting a. Asset Acquisition--the acquiring company records the identifiable net assets of the acquired company at fair market value with any difference between the amount paid for the acquired company and the fair market value of the identifiable nets assets of the acquired company recognized as goodwill b. Stock Acquisition 1) Parent Company--the parent company records an investment in common stock equal to the amount paid for the subsidiary company 2) Worksheet--a worksheet is prepared to consolidate the balance sheets of the parent company and the subsidiary company a) Investment Elimination--an entry is prepared to eliminate the investment in common stock against the percentage of the owners' equity of the subsidiary company that is owned by the parent company I) Net Asset Adjustment--the identifiable net assets of the subsidiary are adjusted for any difference between their fair market value and their book value multiplied by the percentage of the subsidiary company that is owned by the parent company with any remaining difference between the amount paid for the subsidiary company and the book value of the identifiable net assets of the subsidiary company multiplied by the percentage of the subsidiary company that is owned by 1

B.

2.

the parent company recognized as goodwill Minority Interest--an entry is prepared to reclassify the percentage of the owners' equity of the subsidiary that is not owned by the parent company as a separate element of owners' equity called noncontrolling interest or minority interest I) Net Asset Adjustment--the identifiable net assets of the subsidiary are adjusted for any difference between their fair market value and their book value multiplied by the percentage of the subsidiary company that is not owned by the parent company with any remaining difference between the fair market value of the minority interest (the amount paid for the subsidiary company by the parent company divided by the percentage of the subsidiary company that is owned by the parent company multiplied by the percentage of the subsidiary company that is not owned by the parent company) and the book value of the identifiable net assets of the subsidiary company multiplied by the percentage of the subsidiary company that is not owned by the parent company recognized as goodwill A) Purchase Premium--if the parent company pays a premium to the stockholders of the subsidiary to entice them to sell, the fair market value of the minority interest should be determined by looking to the fair market value of the stock or some other measure Illustrations--all of the illustrations will use the following balance sheets for Company P and Company S as a common starting point b) Company P 70,000 85,000 45,000 315,000 60,000 575,000 75,000 350,000 55,000 _95,000 575,000 Company S _ 25,000 75,000 30,000 80,000 40,000 250,000 50,000 100,000 35,000 _65,000 250,000

Cash Receivables Inventory Plant and Equipment Land Liabilities Common Stock Paid-in Capital Retained Earnings

2

a.

Company P acquired 100% of Company S in a merger by issuing 4,000 shares of common stock with a par value of $35 and a market value of $50; the market values of the identifiable net assets of Company S are equal to their book values Net Asset Adjustment = 4,000 x 50 – (250,000 – 50,000) = 0 Company P's Books: Cash Receivables Inventory Plant and Equipment Land Liabilities Common Stock (4,000 x 35) Paid-in Capital (4,000 x 15) 25,000 75,000 30,000 80,000 40,000 50,000 140,000 60,000

b.

Company P acquired 100% of Company S in a stock acquisition by issuing 4,000 shares of common stock with a par value of $35 and a market value of $50; the market values of the identifiable net assets of Company S are equal to their book values Net Asset Adjustment = 4,000 x 50 – (250,000 – 50,000) = 0 Company P's Books: Investment in Company S Common Stock (4,000 x 35) Paid-in Capital (4,000 x 15) Eliminations: Common Stock--S (100% x 100,000) Paid-in Capital--S (100% x 35,000) Retained Earnings--S (100% x 65,000) Investment in Company S 200,000 140,000 60,000

100,000 35,000 65,000 200,000

3

000 4 .000 395.000 490.000 490.000 50.000 _ _ 200.000 160.000 _65.000 Cash Receivables Inventory Investment in S Plant and Equipment Land Liabilities Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings Company P Company S (1) 200.Date of Acquisition 100% Investment At Book Value Company P 70.000 775.000 _ 825.000 100.000 75.000 250.000 (1) 100.000 35.000 _ 200.000 80.000 95.000 200.000 45.000 65.000 115.000 Company S 25.000 95.000 250.000 85.000 _ Eliminations _ _ _Debit __ Credit _ Consolidated 95.000 315.000 (1) (1) 35.000 200.000 40.000 825.000 125.000 30.000 60.000 75.000 100.000 _ _ 775.000 75.000 115.

000 28.000 48.000 160.000) Minority Interest 160.200 shares of common stock with a par value of $35 and a market value of $50.000) Investment in Company S Common Stock--S (20% x 100.200 x 50 / 80% .000 112. Company P acquired 80% of Company S in a stock acquisition by issuing 3.000) Paid-in Capital--S (20% x 35.000 5 .000 13. the market values of the identifiable net assets of Company S are equal to their book values Net Asset Adjustment = 3.200 x 35) Paid-in Capital (3.000 20.000 80.000) = 0 Company P's Books: Investment in Company S Common Stock (3.000 – 50.000 52.000) Retained Earnings--S (20% x 65.(250.200 x 15) Eliminations: Common Stock--S (80% x 100.000 40.c.000) Retained Earnings--S (80% x 65.000 7.000) Paid-in Capital--S (80% x 35.

000 200.000 80.000 100.Date of Acquisition 80% Investment At Book Value Company P 70.000 735.000 75.000 _ Eliminations _ _ _Debit __ Credit _ Consolidated 95.000 825.000 103.000 50.000 _ _ 160.000 395.000 (1) (2) 52.000 75.000 _ 200.000 65.000 85.000 160.000 250.000 103.000 30.000 462.000 (1) (2) 28.000 160.000 _ 825.000 315.000 100.000 7.000 462.000 (1) (2) 80.000 35.000 (2) 40.000 _ 250.000 Cash Receivables Inventory Investment in S Plant and Equipment Land Liabilities Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings Company P Company S (1) 160.000 75.000 13.000 _ _ 735.000 40.000 125.000 6 .000 40.000 45.000 Company S 25.000 60.000 95.000 20.000 95.

000 168.000 Goodwill Company P's Books: Investment in Company S Common Stock (4.000 30. Company P acquired 100% of Company S in a stock acquisition by issuing 4. Company P acquired 100% of Company S in a merger by issuing 4.800 shares of common stock with a par value of $35 and a market value of $50.000 35.800 x 50 – (250.000 240.000) Goodwill Investment in Company S 240.000 72.800 x 15) 25.000) Retained Earnings--S (100% x 65.d.000 50.000 Goodwill Company P's Books: Cash Receivables Inventory Plant and Equipment Land Goodwill Liabilities Common Stock (4.000 40.800 x 50 – (250.800 x 35) Paid-in Capital (4.000 72.800 x 15) Eliminations: Common Stock--S (100% x 100.000) = 40. the market values of the identifiable net assets of Company S are equal to their book values Net Asset Adjustment = 4.000 168.000 80. the market values of the identifiable net assets of Company S are equal to their book values Net Asset Adjustment = 4.800 x 35) Paid-in Capital (4.000) Paid-in Capital--S (100% x 35.800 shares of common stock with a par value of $35 and a market value of $50.000 40.000) = 40.000 100.000 – 50.000 65.000 – 50.000 40.000 7 .000 e.000 75.

000 30.000 45.000 40.000 250.000 8 .000 240.000 (1) (1) 35.000 127.000 250.Date of Acquisition 100% Investment Above Book Value Company P 70.000 395.000 95.000 315.000 85.000 80.000 65.000 Company S 25.000 95.000 127.000 (1) 40.000 _ _ 815.000_ 40.000 Liabilities Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings Company P Company S 75.000 50.000 75.000 518.000 Cash Receivables Inventory Investment in S Plant and Equipment Land Goodwill (1) 240.000 60.000 75.000 (1) 100.000 518.000 35.000 100.000 _ 240.000 240.000 _ 240.000 _ Eliminations _ _ _Debit __ Credit _ Consolidated 95.000 160.000 _65.000 _ 865.000 815.000 40.000 100.000 865.000 125.

800 x 50 – (250.000 50.000 Goodwill Company P's Books: Cash Receivables Inventory Plant and Equipment Land Goodwill Liabilities Common Stock (4.000 168.000 Goodwill Company P's Books: Investment in Company S Common Stock (4.800 x 35) Paid-in Capital (4.f.000) Plant and Equipment (105.000 72.000 9 .000) = 40.000 15.000) 15. Company P acquired 100% of Company S in a merger by issuing 4.800 x 15) 240.000 40.000 72. Company P acquired 100% of Company S in a stock acquisition by issuing 4.800 x 15) 25.000 – 80.000 (25.000 – 50.000 – 50.000 g. the market values of the identifiable net assets of Company S are equal to their book values except for plant and equipment which has a fair market value of $105.000 – 80.000 105.000 (25.000 75.000 Net Asset Adjustment = 4.000 Net Asset Adjustment = 4.800 shares of common stock with a par value of $35 and a market value of $50.000) Plant and Equipment (105.000 30.800 x 35) Paid-in Capital (4.000 168.000) = 40.800 shares of common stock with a par value of $35 and a market value of $50. the market values of the identifiable net assets of Company S are equal to their book values except for plant and equipment which has a fair market value of $105.000) 15.800 x 50 – (250.

000 240.000 65.000 10 .000) Retained Earnings--S (100% x 65.Eliminations: Common Stock--S (100% x 100.000 35.000) Plant and Equipment Goodwill Investment in Company S 100.000 25.000) Paid-in Capital--S (100% x 35.000 15.

000 (1) (1) 35.000 35.000 100.Date of Acquisition 100% Investment Above Book Value Company P 70.000 (1) 15.000 11 .000 80.000 30.000 250.000 _ 865.000 45.000 Liabilities Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings Company P Company S 75.000 95.000 75.000 240.000 127.000 420.000 Cash Receivables Inventory Investment in S Plant and Equipment Land Goodwill (1) 240.000 _ 240.000 (1) 100.000 _ 240.000 15.000 40.000 250.000 _65.000 315.000 Company S 25.000 518.000 518.000 95.000 _ Eliminations _ _ _Debit __ Credit _ Consolidated 95.000 815.000 60.000 50.000_ 40.000 100.000 75.000 160.000 127.000 _ _ 815.000 865.000 65.000 (1) 25.000 240.000 85.000 125.

000) Goodwill (80% x 40.000 7.000) Goodwill (20% x 40.000) Paid-in Capital--S (20% x 35. the market values of the identifiable net assets of Company S are equal to their book values Net Asset Adjustment = 3.000 20.000) Retained Earnings--S (80% x 65.840 x 35) Paid-in Capital (3.(250.000 – 50.000 28.000) = 40.000 13.000 48.000) Retained Earnings--S (20% x 65.000) Investment in Company S Common Stock--S (20% x 100.000 Goodwill Company P's Books: Investment in Company S Common Stock (3.h.840 x 15) Eliminations: Common Stock--S (80% x 100. Company P acquired 80% of Company S in a stock acquisition by issuing 3.000 12 .000) Minority Interest 192.000 192.000 8.000 134.000 32.600 80.840 x 50 / 80% .840 shares of common stock with a par value of $35 and a market value of $50.000 52.400 57.000) Paid-in Capital--S (80% x 35.

000 767.000 13.000 240.000 7.000 20.000 112.000 65.000 192.000 40.000 48.000 40.000 95.600 Company S 25.000 8.000 75.000 95.000 13 .000 (1) (2) 52.400 Cash Receivables Inventory Investment in S Plant and Equipment Land Goodwill (1) 192.000 60.000 (2) 48.Date of Acquisition 80% Investment Above Book Value Company P 70.000 484.000 _ 240.000 112.000 80.000 _ Eliminations _ _ _Debit __ Credit _ Consolidated 95.000 50.000 40.000 395.000 _ 865.000 865.000 (1) (2) 80.000 85.000 45.000 160.000 (1) (2) 28.000 484.000 _ 250.000 30.000 (1) (2) 250.000 _ _ 767.000 125.000 Liabilities Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings Company P Company S 75.000 100.000 _ _ 192.000 32.000 75.600 35.400 100.000 315.

000 12.000 – 50.000 14 .000) Minority Interest 192.000 134.000) Retained Earnings--S (80% x 65. the market values of the identifiable net assets of Company S are equal to their book values except for plant and equipment which has a fair market value of $105.000) Paid-in Capital--S (20% x 35.000 52.000) Goodwill (20% x 15.000) = 40.000 192.000) Paid-in Capital--S (80% x 35.000 Net Asset Adjustment = 3.i.000 20.000 20.000) Plant and Equipment (20% x 25.400 57.840 x 50 / 80% .000) Retained Earnings--S (20% x 65.000 Goodwill Company P's Books: Investment in Company S Common Stock (3.000 28.000 – 80.000 (25.000 7.000 13.000) Investment in Company S Common Stock--S (20% x 100.000) Plant and Equipment (80% x 25.000) 15.000 3.(250.840 x 15) Eliminations: Common Stock--S (80% x 100.000) Goodwill (80% x 15.840 x 35) Paid-in Capital (3.840 shares of common stock with a par value of $35 and a market value of $50. Company P acquired 80% of Company S in a stock acquisition by issuing 3.000 5.000 48.000) Plant and Equipment (105.600 80.

000 48.000 80.000 _ 240.000 484.000 30.000 5.000 240.000 _ Eliminations _ _ _Debit __ Credit _ Consolidated 95.000 40.000 (1) (2) 80.000 15 .000 95.000 192.000 45.000 13.000 3.Date of Acquisition 80% Investment Above Book Value Company P 70.000 (1) (2) 250.000 65.000 (1) (2) 52.400 Cash Receivables Inventory Investment in S Plant and Equipment Land Goodwill (1) 192.000 125.000 (1) (2) 20.000 40.000 7.000 20.000 95.000 112.000 15.000 100.000 _ 192.000 315.000 _ 250.000 160.000 50.000 865.600 Company S 25.000 484.000 Liabilities Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings Company P Company S 75.400 100.000 420.000 75.000 60.600 35.000 _ _ 767.000 (1) (2) 28.000 _ 865.000 (2) 48.000 85.000 12.000 112.000 75.000 767.

Special Considerations a.3. Company P paid $10. the market values of the identifiable net assets of Company S are equal to their book values Net Asset Adjustment = 3.000 shares of common stock with a par value of $35 and a market value of $50. in addition to the acquisition cost of the acquired company.000 b.800 shares of common stock with a par value of $35 and a market value of $50.000) Extraordinary Gain = 10. consulting.800 x 50 – (250. and finder’s fees) are expensed II) Stock Issue Costs--registration and issue costs of equity securities issued in a business combination reduce the fair market value of the securities issued b) Indirect Costs--costs that are paid to individuals within the acquiring company (such as management salaries. Negative Goodwill 1) Accounting--if the fair market value of the identifiable net assets of the acquired company exceeds the amount paid for the acquired company. etc.000 to a law firm to negotiate the acquisition. Company P allocated $5. are treated in one of the following ways I) Negotiation Costs--costs of negotiating the business combination (such as accounting.000) = (10. Nonacquisition Costs--costs incurred that are not part of the acquisition cost of the acquired company 1) Accounting a) Direct Costs--costs that are paid to individuals outside the acquiring company.000 of managerial salaries to the cost of the acquisition 16 . Company P acquired 100% of Company S by issuing 3.000 – 50. Company P paid $3. salaries of accountants and lawyers employed by the acquiring company. the excess is reported as an extraordinary gain 2) Illustration--the illustration will use the balance sheets for Company P and Company S at the date of acquisition as a starting point.) are expensed 2) Illustration--Company P acquired 100% of Company S in a stock acquisition by issuing 4. legal.000 to register and issue the shares of common stock.

000 10. Worksheet--a worksheet is prepared to consolidate the income statements. Parent Company 1) Subsidiary Income--the parent company increases the investment in common stock by the percentage of the subsidiary company that is owned by the parent company multiplied by the net income of the subsidiary company a) Net Asset Adjustment--the net income of the subsidiary company is adjusted for amortization of any net asset adjustment at the date of acquisition that has not previously been amortized 2) Subsidiary Dividend--the parent company decreases the investment in common stock by the percentage of the subsidiary company that is owned by the parent company multiplied by the dividends declared of the subsidiary company b.000 60.000 5.000 3.000 x 50) Common Stock (4.000 x 15) Expense Cash Paid-in Capital Cash Expense Cash C.Company P’s Books: Investment in Company S (4.000 10.000 5.000 140. and balance sheets of the parent company and the subsidiary company 1) Eliminations a) Equity Method Elimination--an entry is prepared to eliminate the subsidiary income and the intercompany dividend declaration with the difference taken as an adjustment to the investment in common stock b) Investment Elimination--an entry is prepared to eliminate the investment in common stock at the beginning of the year against the percentage of the owners' equity of the subsidiary company at the beginning of the year that is owned by the parent company 17 .000 3. Accounting--there are no accounting problems for the asset acquisition form of business combination since there is only one set of accounting records for the combining companies a.000 Subsequent Periods 1.000 x 35) Paid-in Capital (4. retained earnings statements. 200.

2) 3) Net Asset Adjustment--any net asset adjustment at the date of acquisition that has not previously been amortized is recognized c) Minority Interest--an entry is prepared to reclassify the percentage of the owners' equity of the subsidiary company at the beginning of the year that is not owned by the parent company as a separate element of owners' equity called minority interest I) Net Asset Adjustment--any net asset adjustment at the date of acquisition that has not previously been amortized is recognized d) Net Asset Adjustment Amortization--an entry is prepared to amortize any net asset adjustment at the date of acquisition that has not previously been amortized e) Minority Interest in Net Income--an entry is prepared to reclassify the percentage of the net income and the dividends declared of the subsidiary company that is not owned by the parent company as the change in minority interest during the year I) Net Asset Adjustment--the net income of the subsidiary company is adjusted for amortization of any net asset adjustment at the date of acquisition that has not previously been amortized Consolidated Net Income--consolidated net income is equal to the net income of the parent company plus the net income of the subsidiary company a) Net Asset Adjustment--the net income of the subsidiary company is adjusted for amortization of any net asset adjustment at the date of acquisition that has not previously been amortized Income Allocation--when the parent company owns less than 100% of the subsidiary company. the consolidated net income must be allocated to the two stockholder groups a) Controlling Interest in Net Income--the controlling interest in net income is equal to the net income of the parent company plus the percentage of the net income of the subsidiary company that is owned by the parent company I) Net Asset Adjustment--the net income of the subsidiary company is adjusted for amortization of any net asset adjustment at the date of acquisition that has not previously been amortized b) Minority Interest in Net Income--the minority interest in net income is equal to the percentage of the net income of the subsidiary company that is not owned by the parent company I) Net Asset Adjustment--the net income of the subsidiary company is adjusted for amortization of any net asset I) 18 .

000.25.000 4.000) Investment in Company S Eliminations: Subsidiary Income Dividends Declared--S Investment in Company S 4. at the date of acquisition as a common starting point a.000 .2. adjustment at the date of acquisition that has not previously been amortized 4) Reconciliation--the ending balances of the investment in common stock account and the minority interest can be reconciled with the ending owners’ equity of the subsidiary company a) Investment in Common Stock--the investment in common stock account is equal to the owners’ equity of the subsidiary company multiplied by the percentage of the subsidiary company that is owned by the parent company I) Net Asset Adjustment--the owners’ equity of the subsidiary company is adjusted for any net asset adjustment at the date of acquisition that has not been previously amortized b) Minority Interest--the minority interest is equal to the owners’ equity of the subsidiary company multiplied by the percentage of the subsidiary company that is not owned by the parent company I) Net Asset Adjustment--the owners’ equity of the subsidiary company is adjusted for any net asset adjustment at the date of acquisition that has not been previously amortized Illustrations--both of the illustrations will use illustration i.200 19 . During year 1 Company S reported earnings of $15.000 (80% x (15.800 10.000 and declared dividends of $6. the plant and equipment has an estimated useful life of 10 years Company P's Books: Investment in Company S 10.800 4.800 5.000 Cash (80% x 6.000 / 10)) Subsidiary Income 10.

000) Paid-in Capital--S (80% x 35.000) Minority Interest Consolidated Net Income: Company P Net Income Company S Net Income Net Asset Adjustment Amortization Consolidated Net Income 80.000) Goodwill (80% x 15.000) Retained Earnings--S (20% x 65.500 2.000 52.500 2.000 20.Common Stock--S (80% x 100.200 1.000) Plant and Equipment (80% x 25.000 7.000 5.000 2.000) Minority Interest Expense Plant and Equipment Minority Interest in Net Income (20% x 12.000 ( 2.500) Dividends Declared--S (20% x 6.000 15.000 192.000) Investment in Company S Common Stock--S (20% x 100.000 12.000 48.000 28.500 20 .500 1.000 20.000) Goodwill (20% x 15.500) 72.000 3.000 13.000) Plant and Equipment (20% x 25.000) Retained Earnings--S (80% x 65.300 60.000) Paid-in Capital--S (20% x 35.

500 Company S 15.000 2.Income Allocation: Net Income Net Asset Adjustment Amortization Adjusted Net Income Subsidiary Income (80% x 12.200 ← 37.500) Controlling Interest in Net Income Minority Interest in Net Income (20% x 12.000 10.000 70.000 – 2.000 197.000 22.500) Minority Interest (20% x 246.000 209.500 ← ↓ 21 .000 60.000 ( 2.500) Reconciliation: Common Stock Paid-in Capital Retained Earnings Owners’ Equity Net Asset Adjustment: Plant and Equipment (25.500 15.300 Company P 60.000 74.500) Goodwill Adjusted Owners’ Equity Investment in S (80% x 246.500 246.500 ↓ 49.000 35.500) 12.500) Company S 100.

800 167.500 72.300 22 .000 85.000 60.000 _ Eliminations _ _ _Debit __ Credit _ _ (4) (1) (5) _ _ 2.000 90.000 40.000 45.200 330.000 917.000 12.000 80.800 1.000 1.000 220.000 80.000 _60.000 255.000 (1) (5) _ 4.000 (1) 5.000 270.000 77.000 7.000 112.000 3.000 80.000 (2) (3) (2) (3) 20.000 _ _ 65.600 35.000 60.000 _ _ _70.000 270.000 330.000 _ 199.000 807.500 _70.000 (2) (3) 28.000 107.000 15.000 30.000 45.000 10.300 Liabilities Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings--Brought Forward 90.000 147.300 151.000 35.000 49.000 197.000 40.000 15.000 _ _ _70.600 120.000 _ _ _74.000 807.000 95.000 6.400 484.000 _ _ _ _ _ _ _ _ Consolidated 550.000 255.700 (3) (5) 48.First Subsequent Period Company P Income Statement: Sales Cost of Goods Sold Gross Margin Expenses Consolidated Net Income Subsidiary Income Minority Interest in Net Income Net Income--Carried Forward Retained Earnings Statement: Retained Earnings 1/1: Company P Company S Net Income--Brought Forward Dividends Declared: Company P Company S Retained Earnings 12/31--Carried Forward Balance Sheet: Cash Receivables Inventory Investment in S Plant and Equipment Land Goodwill 450.000 _ _ _ _ _ 80.000 _70.000 120.000 80.000 10.000 _25.000 120.000 2.000 120.000 95.300 484.500 _ 2.000 (4) 2.000 _74.000 13.000 165.000 165.000 15.000 55.000 40.500 2.000 917.500 437.400 100.000 112.000 120.000 5.800 87.000 (2) (3) _ 52.200 (2) 192.500 15.000 _15.000 180.000 6.000 _ _ _15.000 (2) (3) 80.500 100.000 20.000 Company S 100.000 61.000 270.200 6.

400 7.000) Retained Earnings--S (20% x 74.000 6.000) Plant and Equipment (20% x 22.2.000 Cash (80% x 8.000) Paid-in Capital--S (80% x 35.000 (80% x (20.b.400 6.000 12.500 2.000 / 10)) Subsidiary Income 14.000 28.600 80.000) Minority Interest Expense Plant and Equipment 6.000 7.000) Investment in Company S Common Stock--S (20% x 100.000 197.500) Goodwill (20% x 15.500)) Goodwill (80% x 15.000 . During year 2 Company S reported earnings of $20.000 59.400 14.200 18.000 49.000 .000) Retained Earnings--S (80% x 74.800 4.500 23 .200 20.500 3.000 Company P's Books: Investment in Company S 14.000) Plant and Equipment (80% x (25.000 14.000) Paid-in Capital--S (20% x 35.000) Investment in Company S Eliminations: Subsidiary Income Dividends Declared--S Investment in Company S Common Stock--S (80% x 100.25.000 and declared dividends of $8.300 2.

Minority Interest in Net Income (20% x 17.800 ← 35.000 14.000) Minority Interest Consolidated Net Income: Company P Net Income Company S Net Income Net Asset Adjustment Amortization Consolidated Net Income Income Allocation: Net Income Net Asset Adjustment Amortization Adjusted Net Income Subsidiary Income (80% x 12.500) 87.000 ( 2.500) Dividends Declared--S (20% x 8.500) Goodwill Adjusted Owners’ Equity Investment in S (80% x 256.000 3.000 256.000 221.000 204.500 Company P 70.000 70.500) Controlling Interest in Net Income Minority Interest in Net Income (20% x 12.500 1.600 1.000 84.000) Minority Interest (20% x 256.000 86.500 Company S 20.000 35.000 ( 2.000 20.000 15.900 70.000) 3.000 ↓ 51.500) Reconciliation: Common Stock Paid-in Capital Retained Earnings Owners’ Equity Net Asset Adjustment: Plant and Equipment (25.300 24 .000 20.500) 17.500 ← ↓ Company S 100.000 – 2 x 2.

000 120.000 275.000 _ _ _86.Second Subsequent Period Company P Income Statement: Sales Cost of Goods Sold Gross Margin Expenses Consolidated Net Income Subsidiary Income Minority Interest in Net Income Net Income--Carried Forward Retained Earnings Statement: Retained Earnings 1/1: Company P Company S Net Income--Brought Forward Dividends Declared: Company P Company S Retained Earnings 12/31--Carried Forward Balance Sheet: Cash Receivables Inventory Investment in S Plant and Equipment Land Goodwill 500.800 20.000 100.000 (2) (3) _ 59.500 _ 3.000 64.000 51.000 288.000 280.000 63.200 14.000 _ _ _84.000 _ _ 74.000 830.200 171.000 70.000 38.000 106.000 7.000 280.000 112.000 14.000 60.000 202.000 _ _ _84.500 450.300 1.000 (1) (5) _ 6.000 266.000 20.200 25 .000 140.000 40.000 _ 207.000 59.500 8.400 484.000 _ _ _ _ _ 94.000 204.300 (3) (5) 49.600 35.600 (2) 197.500 20.000 _86.400 100.500 (2) (3) 80.500 (1) 7.500 12.500 2.000 _77.000 Company S 140.000 4.500 _84.000 352.000 37.000 81.000 31.000 266.000 8.000 140.500 14.000 830.200 (4) 2.200 484.000 3.000 _ _ _ _ _ _ _ _ Consolidated 640.600 8.000 204.000 20.000 (2) (3) 28.000 15.600 140.000 _ Eliminations _ _ _Debit __ Credit _ _ (4) (1) (5) _ _ 2.000 120.900 Liabilities Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings--Brought Forward 93.000 940.400 1.000 940.000 _20.000 94.000 155.500 87.000 204.000 94.000 90.000 (2) (3) (2) (3) 18.000 140.000 112.000 94.200 152.000 _43.200 90.000 225.000 60.000 _ _ _20.000 64.000 98.800 340.000 75.000 _84.000 3.

D. Intercompany Transactions 1. Accounting 1) Parent Company--in computing subsidiary income the following adjustments are made a) Upstream Sales--the net income of the subsidiary company is increased for the gross profit from any intercompany sales of inventory from the subsidiary company to the parent company that had not been realized by a sale to outsiders at the end of last year and is decreased for the gross profit from any intercompany sales of inventory from the subsidiary company to the parent company that has not been realized by a sale to outsiders at the end of this year b) Downstream Sales--the subsidiary income is increased for the gross profit from any intercompany sales of inventory from the parent company to the subsidiary company that had not been realized by a sale to outsiders at the end of last year and is decreased for the gross profit from any intercompany sales of inventory from the parent company to the subsidiary company that has not been realized by a sale to outsiders at the end of this year 2) Worksheet a) Eliminations--in addition to the five basic elimination entries for subsequent periods. Intercompany Sales of Inventory a. the following elimination entries are necessary to adjust for the intercompany sales of inventory I) Current Year Sales--sales and cost of goods sold are decreased for any intercompany sales of inventory made during the year II) Ending Inventory Adjustment--ending inventory is decreased and cost of goods sold is increased to remove the gross profit from any intercompany sales of inventory that have not been realized by a sale to outsiders at the end of this year III) Beginning Inventory Adjustment--cost of goods sold is decreased to remove the gross profit from any intercompany sales of inventory that have not been realized by a sale to outsiders at the end of last year A) Upstream Sales--the beginning retained earnings of the subsidiary is decreased 1) Investment Elimination--the entries to eliminate the investment in common stock at the beginning of the year and to reclassify the minority interest at the beginning of the year use the corrected beginning retained earnings of the subsidiary B) Downstream Sales--the beginning investment in 26 .

common stock is increased 1) Investment Elimination--the entry to eliminate the investment in common stock at the beginning of the year uses the corrected beginning investment in common stock b) Consolidated Net Income--consolidated net income is equal to the net income of the parent company plus the net income of the subsidiary company I) Net Asset Adjustment--the net income of the subsidiary company is adjusted for amortization of any net asset adjustment at the date of acquisition that has not previously been amortized II) Inventory Adjustment--consolidated net income is increased for the gross profit from any intercompany sales of inventory that had not been realized by a sale to outsiders at the end of last year and is decreased for the gross profit from any intercompany sales of inventory that has not been realized by a sale to outsiders at the end of this year c) Income Allocation--when the parent company owns less than 100% of the subsidiary company. the consolidated net income must be allocated to the two stockholder groups I) Controlling Interest in Net Income--the controlling interest in net income is equal to the net income of the parent company plus the percentage of the net income of the subsidiary company that is owned by the parent company A) Net Asset Adjustment--the net income of the subsidiary company is adjusted for amortization of any net asset adjustment at the date of acquisition that has not previously been amortized B) Inventory Adjustment--the net income of the selling company is increased for the gross profit from any intercompany sales of inventory that had not been realized by a sale to outsiders at the end of last year and is decreased for the gross profit from any intercompany sales of inventory that has not been realized by a sale to outsiders at the end of this year 27 .

Minority Interest in Net Income--the minority interest in net income is equal to the percentage of the net income of the subsidiary company that is not owned by the parent company A) Net Asset Adjustment--the net income of the subsidiary company is adjusted for amortization of any net asset adjustment at the date of acquisition that has not previously been amortized B) Inventory Adjustment--the net income of the selling company is increased for the gross profit from any intercompany sales of inventory that had not been realized by a sale to outsiders at the end of last year and is decreased for the gross profit from any intercompany sales of inventory that has not been realized by a sale to outsiders at the end of this year d) Reconciliation--the ending balances of the investment in common stock account and the minority interest can be reconciled with the ending owners’ equity of the subsidiary company I) Investment in Common Stock--the investment in common stock account is equal to the owners’ equity of the subsidiary company multiplied by the percentage of the subsidiary company that is owned by the parent company A) Net Asset Adjustment--the owners’ equity of the subsidiary company is adjusted for any net asset adjustment at the date of acquisition that has not been previously amortized B) Inventory Adjustment--the owners’ equity of the subsidiary company is decreased for the gross profit from any intercompany sales of inventory from the subsidiary company to the parent company that has not been realized by a sale to outsiders at the end of this year II) Minority Interest--the minority interest is equal to the owners’ equity of the subsidiary company multiplied by the percentage of the subsidiary company that is not owned by the parent company A) Net Asset Adjustment--the owners’ equity of the subsidiary company is adjusted for any net asset adjustment at the date of acquisition that has not been previously amortized B) Inventory Adjustment--the owners’ equity of the subsidiary company is decreased for the gross profit from any intercompany sales of inventory from the subsidiary company to the parent company that has not been realized by a sale to outsiders II) 28 .

000 28.000) Goodwill (80% x 15.000 .800 4.000 52.000 20.000 20.360 4.800 4.360 (80% x (15.b.000) Plant and Equipment (80% x 25.000 Company P's Books: Investment in Company S 9.000) Investment in Company S 4.000 / 10 – 40% x 2. at the end of this year Illustrations--all of the illustrations will use the illustrations for subsequent periods as a common starting point 1) During year 1 Company S made sales of $20.000) Subsidiary Income Dividends Declared--S Investment in Company S Common Stock--S (80% x 100.000 800 800 9.000 to Company P at a gross profit rate of 40%.000 29 .560 80.800 20.000) Paid-in Capital--S (80% x 35.360 Cash (80% x 6.000) Retained Earnings--S (80% x 65.000 192.000)) Subsidiary Income 9.25.000) Investment in Company S Eliminations: Sales Cost of Goods Sold Cost of Goods Sold Inventory (40% x 2. the ending inventory of Company P contains goods purchased from Company S at a cost of $2.000 12.

500 2.700) 20.340 Company S 15.140 60.000) Minority Interest Consolidated Net Income: Company P Net Income Company S Net Income Ending Inventory Adjustment Net Asset Adjustment Amortization Consolidated Net Income Income Allocation: Net Income Ending Inventory Adjustment Net Asset Adjustment Amortization Adjusted Net Income Subsidiary Income (80% x 11.000 ( 800) ( 2.360 2.500 2.000 ( 800) ( 2.000) Plant and Equipment (20% x 25.340 1.000 7.000 48.000) Retained Earnings--S (20% x 65.000 2.000 5.000 9.700) Controlling Interest in Net Income Minority Interest in Net Income (20% x 11.360 69.Common Stock--S (20% x 100.000) Goodwill (20% x 15.000 3.700 Company P 60.000 60.000 15.500 – 800)) Dividends Declared--S (20% x 6.700 ← ↓ 30 .000) Paid-in Capital--S (20% x 35.200 1.000) Minority Interest Expense Plant and Equipment Minority Interest in Net Income (20% x (12.500) 71.500) 11.000 13.

700 ↓ 49.140 31 .000 35.000 ( 800) 22.700) Company S 100.500) Goodwill Adjusted Owners’ Equity Investment in S (80% x 245.000 – 2.Reconciliation: Common Stock Paid-in Capital Retained Earnings Owners’ Equity Ending Inventory Adjustment Net Asset Adjustment: Plant and Equipment (25.700) Minority Interest (20% x 245.000 74.500 15.500 245.560 ← 37.000 209.000 196.

800 167.000 80.000 13.200 26.000 _ 20.200 (2) 800 (3) 4.000 (3) (7) _ 4.000 180.400 100.000 _69.000 3.360 _ _ _69.000 270.000 49.000 55.000 119.700 _ 2.140 484.000 _60.000 (6) 2.000 60.000 (5) (7) (4) (5) (4) (5) 80.000 _ 199.800 219.000 _ 20.340 35.000 Consolidated 530.800 1.000 _69.600 119.360 45.000 270.000 270.000 85.000 35.000 12.800 2.First Subsequent Period Upstream Sales of Inventory Company P 450.000 _ _ _ 100.000 196.000 _ Eliminations _ _ _Debit __ Credit _ (1) (2) (6) (3) (7) _ 20.000 _ _ _74.360 77.000 80.000 (4) (5) (4) (5) 806.360 916.360 45.000 112.360 107.340 _69.560 330.000 65.000 5.000 _ _ _15.800 87.000 7.000 (4) (5) _ 52.000 89.000 _ _15.000 100.000 20.000 61.500 32 .000 30.000 275.600 26.000 _ _ 6.360 164.000 _25.560 (4) 192.000 20.360 Income Statement: Sales Cost of Goods Sold Gross Margin Expenses Consolidated Net Income Subsidiary Income Minority Interest in Net Income Net Income--Carried Forward Retained Earnings Statement: Retained Earnings 1/1: Company P Company S Net Income--Brought Forward Dividends Declared: Company P Company S Retained Earnings 12/31--Carried Forward Balance Sheet: Cash Receivables Inventory Investment in S Plant and Equipment Land Goodwill 95.500 151.000 310.000 15.500 437.500 71.000 95.000 _74.000 120.000 9.500 100.360 90.400 Liabilities Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings--Brought Forward 484.000 28.360 2.000 800 20.000 1.000 20.000 20.200 147.000 35.360 806.000 275.000 916.000 112.000 _ 20.140 15.300 9.500 23.360 164.360 35.860 48.000 60.000 (1) _ _ _ 20.000 40.000 100.000 119.000 _ 119.000 40.000 40.360 Company S 100.

2.000 Company P's Books: Investment in Company S 13.560 Cash (80% x 8.560 6.000) Investment in Company S 6.000) Subsidiary Income Dividends Declared--S Investment in Company S Common Stock--S (80% x 100.400 800 800 25.000 .560 33 .2) During year 2 Company S made sales of $25.000) Cost of Goods Sold Sales Cost of Goods Sold Cost of Goods Sold Inventory (45% x 3.800)) Plant and Equipment (80% x (25.000 .000)) Subsidiary Income 13.560 (80% x (20.000 .000 1.000 196.000) Investment in Company S Eliminations: Retained Earnings--S (40% x 2.45% x 3.400 7.000 to Company P at a gross profit rate of 45%.000) Retained Earnings--S (80% x (74.560 18.000 .350 1.500)) Goodwill (80% x 15.000 58.000 12.160 80.400 6.25.000 / 10 + 40% x 2.000 28. the ending inventory of Company P contains goods purchased from Company S at a cost of $3.000) Paid-in Capital--S (80% x 35.350 13.000 25.

640 4.390 1.000 20.600 1.790 70.950 ← ↓ 70.500 2.950) 20.Common Stock--S (20% x 100.000 7.560 3.1.500) 86.500 + 800 .000 13.500 3.000) Minority Interest Expense Plant and Equipment Minority Interest in Net Income (20% x (17.560 83.350) ( 2.500) 16.350)) Dividends Declared--S (20% x 8.500 3.000) Paid-in Capital--S (20% x 35.000 800 ( 1.350) ( 2.950) Controlling Interest in Net Income Minority Interest in Net Income (20% x 16.140 2.390 34 .500) Goodwill (20% x 15.000 14.000) Retained Earnings--S (20% x 73.000 800 ( 1.000) Minority Interest Consolidated Net Income: Company P Net Income Company S Net Income Beginning Inventory Adjustment Ending Inventory Adjustment Net Asset Adjustment Amortization Consolidated Net Income Income Allocation: Net Income Beginning Inventory Adjustment Ending Inventory Adjustment Net Asset Adjustment Amortization Adjusted Net Income Subsidiary Income (80% x 16.200) Plant and Equipment (20% x 22.000 Company S 20.000 49.950 Company P 70.

000 86.930 35 .650) Company S 100.500) Goodwill Adjusted Owners’ Equity Investment in S (80% x 254.500 – 2.000 254.350) 20.650) Minority Interest (20% x 254.Reconciliation: Common Stock Paid-in Capital Retained Earnings Owners’ Equity Ending Inventory Adjustment Net Asset Adjustment: Plant and Equipment (22.650 ↓ 50.000 35.720 ← 35.000 221.000 15.000 203.000 ( 1.

000 59.000 _ Eliminations _ _ _Debit __ Credit _ (2) (3) _ (7) (4) (8) _ 25.920 106.000 _43.800 (4) (8) _ _ _ 138.000 4.560 202.360 _ 25.800 _ 25.000 938.000 _20.560 Company S 140.350 2.000 112.300 138.200 90.800 _83.000 70.000 77.000 25.000 1.920 64.920 138.850 36 .000 484.000 96.800 6.000 327.720 340.200 171.350 _ 26.600 138.500 86.560 14.300 112.000 100.800 Consolidated 615.800 (1) (2) _ _ _ 800 25.000 37.000 94.000 275.000 _ _ _86.570 (6) (8) 49.400 1.550 287.000 60.000 _86.600 33.800 25.390 45.000 38.000 828.000 _ _ (1) (5) (6) _ 800 58.400 100.000 _ 207.Second Subsequent Period Upstream Sales of Inventory Company P 500.800 292.000 _ _ _20.600 33.000 40.000 155.920 938.000 50.000 31.790 15.560 (7) 2.560 _ _ _83.160 (5) 196.800 119.000 20.450 200.920 75.560 3.640 45.920 64.950 _ 3.140 1.930 484.000 (5) (6) (5) (6) 80.500 450.800 119.000 81.500 12.500 (3) 1.000 _ _ _ 119.400 Liabilities Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings--Brought Forward 93.500 28.000 8.000 28.000 60.920 35.000 _ _ 225.350 (4) 7.000 20.560 Income Statement: Sales Cost of Goods Sold Gross Margin Expenses Consolidated Net Income Subsidiary Income Minority Interest in Net Income Net Income--Carried Forward Retained Earnings Statement: Retained Earnings 1/1: Company P Company S Net Income--Brought Forward Dividends Declared: Company P Company S Retained Earnings 12/31--Carried Forward Balance Sheet: Cash Receivables Inventory Investment in S Plant and Equipment Land Goodwill 119.850 152.800 292.650 (5) (6) (5) (6) 18.000 203.000 _ _ 63.560 202.800 _ 25.000 _83.000 13.000 280.000 7.390 _83.850 13.000 119.360 74.000 12.000 280.000 90.920 828.

200 4.000 800 800 9.000) Investment in Company S Eliminations: Sales Cost of Goods Sold Cost of Goods Sold Inventory (40% x 2.000 37 . the ending inventory of Company S contains goods purchased from Company P at a cost of $2.000) Retained Earnings--S (80% x 65.000 Company P's Books: Investment in Company S 9.000 28.400 80.800 4.000 / 10) 40% x 2.000 12.000) Investment in Company S 4.000 192.000) Plant and Equipment (80% x 25.000 20.000 to Company S at a gross profit rate of 40%.200 (80% x (15.000) Paid-in Capital--S (80% x 35.800 20.000 .3) During year 1 Company P made sales of $20.000) Subsidiary Income 9.000) Subsidiary Income Dividends Declared--S Investment in Company S Common Stock--S (80% x 100.000 20.000 52.200 Cash (80% x 6.800 4.25.000) Goodwill (80% x 15.

500 2.500) Adjusted Net Income 59.200 Minority Interest in Net Income (20% x 12.000 5.000 13.500 Subsidiary Income 10.000 7.000 3.000) Goodwill (20% x 15.000 Ending Inventory Adjustment ( 800) Net Asset Adjustment Amortization ( 2.500) Dividends Declared--S (20% x 6.500 1.000) Minority Interest Consolidated Net Income: Company P Net Income Company S Net Income Ending Inventory Adjustment Net Asset Adjustment Amortization Consolidated Net Income Income Allocation: 20.Common Stock--S (20% x 100.000 ← ↓ (80% x 12.500) 2.000 40.000) Minority Interest Expense Plant and Equipment Minority Interest in Net Income (20% x 12.500) Controlling Interest in Net Income 69.200 12.200 1.300 60.500 2.000) Paid-in Capital--S (20% x 35.000) Plant and Equipment (20% x 25.000 ( 800) ( 2.500) 71.000 15.000) Retained Earnings--S (20% x 65.500 38 .000 2.700 Company P Company S Net Income 60.000 15.

000 209.500) Company S 100.500 ← ↓ 49.000 197.000 22.500) Goodwill Adjusted Owners’ Equity Investment in S (80% x 246.000 – 2.500 246.500 15.2000 37.000 74.300 39 .500) Minority Interest (20% x 246.Reconciliation: Common Stock Paid-in Capital Retained Earnings Owners’ Equity Net Asset Adjustment: Plant and Equipment (25.000 35.

000 _ 20.000 270.400 330.200 45.000 85.000 15.400 (4) 192.000 180.000 112.000 270.000 _25.000 13.700 48.000 _ _ 6.First Subsequent Period Downstream Sales of Inventory Company P 450.300 484.000 55.000 _ _ _15.200 164.000 3.000 1.000 (5) (7) (4) (5) (4) (5) 80.400 100.000 (6) 2.800 2.000 35.000 275.500 _69.800 1.000 7.000 40.500 40 .200 _ _ 69.200 Income Statement: Sales Cost of Goods Sold Gross Margin Expenses Consolidated Net Income Subsidiary Income Minority Interest in Net Income Net Income--Carried Forward Retained Earnings Statement: Retained Earnings 1/1: Company P Company S Net Income--Brought Forward Dividends Declared: Company P Company S Retained Earnings 12/31--Carried Forward Balance Sheet: Cash Receivables Inventory Investment in S Plant and Equipment Land Goodwill 95.000 _ Eliminations _ _ _Debit __ Credit _ (1) (2) (6) (3) (7) _ 20.000 _ 119.000 800 20.000 275.000 _ 20.000 119.200 35.000 270.000 _ _15.000 _ 199.200 26.000 _ 20.000 (1) _ _ _ 20.000 196.500 35.000 80.000 9.800 219.000 30.500 71.000 112.200 2.000 (4) (5) _ 52.000 20.000 Consolidated 530.200 (2) 800 (3) 4.200 45.000 89.500 23.000 12.600 26.200 Company S 100.000 61.200 77.300 9.000 (4) (5) (4) (5) 806.000 20.200 107.000 40.000 100.300 15.000 60.000 _ _ _ 100.200 164.800 167.000 80.000 5.200 806.800 87.000 916.000 65.400 Liabilities Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings--Brought Forward 484.000 60.500 100.200 916.000 _69.000 95.000 _74.000 100.200 90.000 20.500 437.700 _ 2.000 120.000 49.000 40.000 _69.500 151.000 28.600 119.000 35.000 _ _ _74.000 (3) (7) _ 4.200 147.000 20.000 119.000 310.000 _60.

400 6.000 / 10) + 40% x 2. the ending inventory of Company S contains goods purchased from Company P at a cost of $3.000 .000) Investment in Company S 6.4) During year 2 Company P made sales of $25.400 800 800 25.000) Plant and Equipment (80% x (25.350 13.45% x 3.000) Subsidiary Income Dividends Declared--S Investment in Company S Common Stock--S (80% x 100.000 .450 6.000 25.000) Investment in Company S Eliminations: Investment in Company S (40% x 2.350 1.000 59.500)) Goodwill (80% x 15.200 18.000 12.000 197.050 80.200 41 .000 to Company S at a gross profit rate of 45%.000) Subsidiary Income 13.000) Retained Earnings--S (80% x 74.000 1.000 Company P's Books: Investment in Company S 13.450 (80% x (20.000) Cost of Goods Sold Sales Cost of Goods Sold Cost of Goods Sold Inventory (45% x 3.000) Paid-in Capital--S (80% x 35.450 Cash (80% x 8.000 28.2.400 7.25.000 .

800 2.800 4.500 3.500) Adjusted Net Income 69.600 1.350) ( 2.000) Paid-in Capital--S (20% x 35.500 3.350) Net Asset Adjustment Amortization ( 2.500) Goodwill (20% x 15.Common Stock--S (20% x 100.000 800 ( 1.000) Retained Earnings--S (20% x 74.450 17.000) Minority Interest Consolidated Net Income: Company P Net Income Company S Net Income Beginning Inventory Adjustment Ending Inventory Adjustment Net Asset Adjustment Amortization Consolidated Net Income Income Allocation: 20.900 70.000 41.000 ← ↓ (80% x 17.000 14.500 2.500) Dividends Declared--S (20% x 8.000 20.950 Company P Company S Net Income 70.500) Controlling Interest in Net Income 83.500) 86.000 20.000 7.000) Plant and Equipment (20% x 22.500 42 .500 Subsidiary Income 14.500 1.450 Minority Interest in Net Income (20% x 17.000) Minority Interest Expense Plant and Equipment Minority Interest in Net Income (20% x 17.500) 3.000 Beginning Inventory Adjustment 800 Ending Inventory Adjustment ( 1.

000 204.500 – 2.000) Company S 100.Reconciliation: Common Stock Paid-in Capital Retained Earnings Owners’ Equity Net Asset Adjustment: Plant and Equipment (22.000 35.000 ↓ 51.000 15.200 43 .000 86.500) Goodwill Adjusted Owners’ Equity Investment in S (80% x 256.000 221.000 20.800 ← 35.000 256.000) Minority Interest (20% x 256.

000 60.450 Company S 140.000 112.000 38.000 38.850 44 .800 (4) (8) _ 138.000 8.800 119.000 _ _ _ _ _ 119.000 20.450 202.000 _20.800 293.500 12.200 _83.000 155.450 200.900 Liabilities Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings--Brought Forward 93.450 3.000 1.800 Consolidated 615.200 _ 25.450 Income Statement: Sales Cost of Goods Sold Gross Margin Expenses Consolidated Net Income Subsidiary Income Minority Interest in Net Income Net Income--Carried Forward Retained Earnings Statement: Retained Earnings 1/1: Company P Company S Net Income--Brought Forward Dividends Declared: Company P Company S Retained Earnings 12/31--Carried Forward Balance Sheet: Cash Receivables Inventory Investment in S Plant and Equipment Land Goodwill 119.650 828.800 119.000 3.000 112.000 59.500 450.000 203.650 _86.800 _ 25.500 45.850 152.500 86.000 31.000 4.200 90.650 (1) 90.000 828.450 _ _ _83.650 75.450 202.000 70.000 _ _ _86.650 138.000 100.800 _83.400 100.500 _83.050 (5) 197.300 (3) 1.000 280.200 (7) 2.000 280.000 60.650 64.800 (1) (2) _ _ _ 800 25.000 20.350 (4) 7.000 (5) (6) (5) (6) 800 18.600 33.350 _ 26.450 340.000 40.000 _ Eliminations _ _ _Debit __ Credit _ (2) (3) _ (7) (4) (8) _ 25.400 1.550 287.200 484.600 35.650 64.000 25.000 119.000 81.800 _ 25.000 138.950 _ 3.000 _43.500 28.000 _ _ 74.000 94.650 106.650 938.600 138.000 327.Second Subsequent Period Downstream Sales of Inventory Company P 500.400 484.000 7.200 171.100 (5) (6) 80.000 _ _ _20.000 3.000 _ _ 63.000 51.800 45.`00 33.100 (6) (8) 49.850 13.000 96.350 2.200 14.000 77.000 _ 208.000 _ _ 225.800 25.000 275.300 1.000 938.000 (5) (6) _ 59.800 6.000 (5) (6) 28.800 293.000 13.

Accounting 1) Parent Company--in computing subsidiary income the following adjustments are made a) Upstream Sales--the net income of the subsidiary company is decreased/increased for any gain/loss from the intercompany sale of fixed assets from the subsidiary company to the parent company during the current year and is increased/decreased. Intercompany Sales of Fixed Assets a. for any gain/loss divided by the useful life of the fixed asset until the fixed asset is either fully depreciated or sold b) Downstream Sales--the subsidiary income is decreased/increased for any gain/loss from the intercompany sale of fixed assets from the parent company to the subsidiary company during the current year and is increased/decreased. if the fixed asset is depreciable. the following elimination entries are necessary to adjust for the intercompany sale of fixed assets I) Gain/Loss Adjustment--any gain/loss on the intercompany sale of fixed assets during the current year is eliminated A) Upstream Sale--for years after the year of sale the beginning retained earnings of the subsidiary is decreased/increased for the gain/loss less the depreciation adjustments for the prior years until the fixed asset is either fully depreciated or sold 1) Investment Elimination--the entries to eliminate the investment in common stock at the beginning of the year and to reclassify the minority interest at the beginning of the year use the corrected beginning retained earnings of the subsidiary B) Downstream Sales-. for any gain/loss divided by the useful life of the fixed asset until the fixed asset is either fully depreciated or sold 2) Worksheet a) Eliminations--in addition to the five basic elimination entries for subsequent periods.for years after the year of sale the beginning investment in common stock is decreased/increased for the gain/loss less the depreciation adjustments for the prior years until the fixed asset is either fully depreciated or sold 1) Investment Elimination--the entry to eliminate the investment in common stock at the beginning of the year uses the corrected beginning investment in common stock II) Depreciation Adjustment--depreciation expense is 45 .2. if the fixed asset is depreciable.

if the fixed asset is depreciable. for any gain/loss divided by the useful life of the fixed asset until the fixed asset is either fully depreciated or sold II) Minority Interest in Net Income--the minority interest in net income is equal to the percentage of the net income of the subsidiary company that is not owned by the parent company A) Net Asset Adjustment--the net income of the 46 . if the fixed is depreciable.adjusted. if the fixed asset is depreciable. for the gain/loss divided by the useful life of the fixed asset until the fixed asset is either fully depreciated or sold III) Fixed Asset Adjustment--the fixed asset is adjusted for the gain/loss less the depreciation adjustments for the current year and the prior years until the fixed asset is either fully depreciated or sold b) Consolidated Net Income--consolidated net income is equal to the net income of the parent company plus the net income of the subsidiary company I) Net Asset Adjustment--the net income of the subsidiary company is adjusted for amortization of any net asset adjustment at the date of acquisition that has not previously been amortized II) Fixed Asset Adjustment--consolidated net income is decreased/increased for any gain/loss from the intercompany sale of fixed assets during the current year and is increased/decreased. the consolidated net income must be allocated to the two stockholder groups I) Controlling Interest in Net Income--the controlling interest in net income is equal to the net income of the parent company plus the percentage of the net income of the subsidiary company that is owned by the parent company A) Net Asset Adjustment--the net income of the subsidiary company is adjusted for amortization of any net asset adjustment at the date of acquisition that has not previously been amortized B) Fixed Asset Adjustment--the net income of the selling company is decreased/increased for any gain/loss from the intercompany sale of fixed assets during the current year and is increased/decreased. for any gain/loss divided by the useful life of the fixed asset until the fixed asset is either fully depreciated or sold c) Income Allocation--when the parent company owns less than 100% of the subsidiary company.

if the fixed asset is depreciable. at the acquisition date as a common starting point 1) During year 1 Company S sold plant and equipment with a book value of $30. subsidiary company is adjusted for amortization of any net asset adjustment at the date of acquisition that has not previously been amortized B) Fixed Asset Adjustment--the net income of the selling company is decreased/increased for any gain/loss from the intercompany sale of fixed assets during the current year and is increased/decreased. for any gain/loss divided by the useful life of the fixed asset until the fixed asset is either fully depreciated or sold d) Reconciliation--the ending balances of the investment in common stock account and the minority interest can be reconciled with the ending owners’ equity of the subsidiary company I) Investment in Common Stock--the investment in common stock account is equal to the owners’ equity of the subsidiary company multiplied by the percentage of the subsidiary company that is owned by the parent company A) Net Asset Adjustment--the owners’ equity of the subsidiary company is adjusted for any net asset adjustment at the date of acquisition that has not been previously amortized B) Fixed Asset Adjustment--the owners’ equity of the subsidiary company is decreased/increased for any gain/loss from any intercompany sale of fixed assets from the subsidiary company to the parent company less the depreciation adjustments that have been recognized by the end of this year II) Minority Interest--the minority interest is equal to the owners’ equity of the subsidiary company multiplied by the percentage of the subsidiary company that is not owned by the parent company A) Net Asset Adjustment--the owners’ equity of the subsidiary company is adjusted for any net asset adjustment at the date of acquisition that has not been previously amortized B) Fixed Asset Adjustment--the owners’ equity of the subsidiary company is decreased/increased for any gain/loss from any intercompany sale of fixed assets from the subsidiary company to the parent company less the depreciation adjustments that have been recognized by the end of this year Illustrations--all of the illustrations will use illustration i.000 to Company P for $34. the plant and 47 .500.b.

000) Goodwill (80% x 15.000) Plant and Equipment (20% x 25.000 11.000 52.000 5.500 .equipment has an estimated useful life of 3 years Company P's Books: Investment in Company S 11.30.000 48.000 7.000) Retained Earnings--S (80% x 65.000) Paid-in Capital--S (20% x 35.000) Paid-in Capital--S (80% x 35.000) Investment in Company S Eliminations: Gain on Sale of Fixed Assets Depreciation Expense Plant and Equipment (4.000 20.500 / 3)) Subsidiary Income Cash (80% x 6.500 1.000) Goodwill (20% x 15.500 .000) Investment in Company S Common Stock--S (20% x 100.800 11.000 2.000 12.800 6.200 4.200 (80% x (19.500 2.500 3.1.000) Minority Interest Expense Plant and Equipment 4.000) Plant and Equipment (80% x 25.000) + 4.500) Subsidiary Income Dividends Declared--S Investment in Company S Common Stock--S (80% x 100.000 192.000 3.500 .800 4.000 13.000 / 10 – (34.000 28.000) Retained Earnings--S (20% x 65.200 4.000 20.400 80.500 48 .25.

500) Net Asset Adjustment: Plant and Equipment (25.500) 14.000) 22.000 78.000 11.500) 1.500 + 1.500 ( 2.000) 2.000) Minority Interest (20% x 248.000) Reconciliation: Common Stock Paid-in Capital Retained Earnings Owners’ Equity Net Gain Adjustment (4.200 2.600 60.800 1.000 35.500 248.200 1.Minority Interest in Net Income (20% x (17.000 .500) 74.000 198.800 Company S 100.500) Goodwill Adjusted Owners’ Equity Investment in S (80% x 248.000 ↓ 49.500 ( 4.500 ( 3.000 19.000) Minority Interest Consolidated Net Income: Company P Net Income Company S Net Income Gain Adjustment Depreciation Expense Adjustment Net Asset Adjustment Amortization Consolidated Net Income Income Allocation: Net Income Gain Adjustment Depreciation Expense Adjustment Net Asset Adjustment Amortization Adjusted Net Income Subsidiary Income (80% x 14.000 – 2.000 Company S 19.400 ← 37.500 15.600 49 .500 ( 2.000) Controlling Interest in Net Income Minority Interest in Net Income (20% x 14.200 71.4.500 – 1.500) Dividends Declared--S (20% x 6.000 Company P 60.000 ← ↓ 60.500) 1.500 ( 4.500 213.

000 180.000 5.200 7.800 1.000 (5) 2.000 4.800 151.500 _ 203.500 61.500 100.000 12.500 2.800 50 .000 220.600 121.000 3.500 _ Eliminations _ _ _Debit __ Credit _ Consolidated 550.000 808.000 1.400 Liabilities Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings--Brought Forward 90.200 Income Statement: Sales Cost of Goods Sold Gross Margin Expenses Consolidated Net Income Gain on Sale of Fixed Assets Subsidiary Income Minority Interest in Net Income Net Income--Carried Forward Retained Earnings Statement: Retained Earnings 1/1: Company P Company S Net Income--Brought Forward Dividends Declared: Company P Company S Retained Earnings 12/31--Carried Forward Balance Sheet: Cash Receivables Inventory Investment in S Plant and Equipment Land Goodwill (5) (1) (2) (6) _ 2.600 35.500 _ _ _19.000 15.500 1.000 90.000 49.000 40.000 95.000 _ _ _78.000 _60.200 112.000 86.000 918.000 13.000 55.500 (3) (4) 28.000 60.000 198.000 _ 2.500 261.000 _71.000 11.000 7.000 15.800 _71.000 (3) (4) 80.200 Company S 100.000 274.200 _ _ _71.500 _ _ 95.000 40.500 34.600 434.400 100.000 112.000 35.200 45.200 _78.400 (3) 192.000 121.000 _ 1.200 166.First Subsequent Period Upstream Sales of Fixed Assets Company P 450.200 77.000 330.000 7.000 74.000 (1) 1.000 85.500 6.000 (2) (6) _ 121.000 _19.000 484.000 86.500 1.000 (2) 6.000 _25.600 484.500 84.200 121.200 166.500 4.000 270.200 918.200 808.500 274.500 80.800 87.000 112.000 _ _ 65.500 _71.000 21.000 40.000 120.000 (3) (4) _ 52.000 (1) 3.000 60.200 2.000 (3) (4) (3) (4) 20.000 _ _ _ _ _ 86.500 4.500 _ 1.900 (4) (6) 48.000 146.000 261.400 330.300 167.200 45.500 11.800 21.000 20.

400 3.000 15.000 198.100 4.000 .000 49.2 x 1.200 6.3.000 1.000 12.000 7.000) Retained Earnings--S (20% x 75.800 80.500) Depreciation Expense Plant and Equipment (4.000 28.500)) Goodwill (80% x 15.000) Paid-in Capital--S (20% x 35.500 .500 .000) Retained Earnings--S (80% x (78.500 3.2.25.000) Minority Interest 6.400 20.500 / 3)) Subsidiary Income 15.500 .000 60.500 1.200 Cash (80% x 8.000) Investment in Company S Common Stock--S (20% x 100.400 6.600 51 .2) During year 2 no other intercompany sales of fixed assets took place Company P's Books: Investment in Company S 15.400 18.000 .000) Investment in Company S Eliminations: Retained Earnings--S (4.500) Plant and Equipment (20% x 22.000) Paid-in Capital--S (80% x 35.1.200 (80% x (20.000)) Plant and Equipment (80% x (25.500) Subsidiary Income Dividends Declared--S Investment in Company S Common Stock--S (80% x 100.000 / 10 + 4.500 15.400 8.500) Goodwill (20% x 15.

500 225.000 90.200 71.000 Company P 70.500) 20.000 ← ↓ Company S 100.500 2.000 1.000 35.500 – 2.000) Controlling Interest in Net Income Minority Interest in Net Income (20% x 19.500) Net Asset Adjustment: Plant and Equipment (22.000 20.000 1.500)) Dividends Declared--S (20% x 8.000) Minority Interest Consolidated Net Income: Company P Net Income Company S Net Income Depreciation Expense Adjustment Net Asset Adjustment Amortization Consolidated Net Income Income Allocation: Net Income Depreciation Expense Adjustment Net Asset Adjustment Amortization Adjusted Net Income Subsidiary Income (80% x 19.500) 19.000 ↓ 51.500 ( 2.500) 89.000) Minority Interest (20% x 259.200 70.500 + 1.000 70.500 3.500) Goodwill Adjusted Owners’ Equity Investment in S (80% x 259.800 1.Expense Plant and Equipment Minority Interest in Net Income (20% x (17.200 ← 35.000 207.500 – 2 x 1.000) Reconciliation: Common Stock Paid-in Capital Retained Earnings Owners’ Equity Net Gain Adjustment (4.800 52 .500 ( 1.800 Company S 20.000 15.000 15.000 259.000) 2.500 ( 2.600 2.200 3.

200 Income Statement: Sales Cost of Goods Sold Gross Margin Expenses Consolidated Net Income Subsidiary Income Minority Interest in Net Income Net Income--Carried Forward Retained Earnings Statement: Retained Earnings 1/1: Company P Company S Net Income--Brought Forward Dividends Declared: Company P Company S Retained Earnings 12/31--Carried Forward Balance Sheet: Cash Receivables Inventory Investment in S Plant and Equipment Land Goodwill 121.400 75.400 (1) 1.800 484.000 60.500 (1) _ _ 1.200 206.000 3.000 _ _ _ _ _ 100.000 49.500 8.700 171.000 225.500 _ 211.200 Company S 140.400 64.200 53 .600 2.400 110.600 142.500 _85.000 15.000 (4) (6) 484.000 60.200 (3) (4) (3) (4) 18.000 100.000 121.500 _ 1.600 9.200 3.000 275.000 284.200 206.000 448.000 272.000 20.500 9.000 40.500 1.800 (3) 198.000 98.000 _ _ _20.400 832.500 12.400 Liabilities Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings--Brought Forward 93.Second Subsequent Period Upstream Sales of Fixed Assets Company P 500.000 90.200 152.000 60.000 112.000 _ _ _90.500 (3) (4) 80.000 943.500 2.000 142.000 89.000 155.500 59.500 (2) 8.500 284.200 78.000 199.400 15.000 37.000 _ _ _20.000 38.000 51.000 _ 3.000 _77.500 Consolidated 640.400 64.400 943.400 142.500 272.000 207.000 (2) (6) _ 142.100 21.000 832.000 7.000 20.000 15.200 _ _ _85.800 _85.500 (5) 2.500 (3) (4) 28.400 _90.500 100.200 _ 1.600 35.000 _43.500 35.000 63.500 1.000 112.500 100.500 _85.500 81.200 (1) (3) (4) _ 3.400 1.500 6.200 340.000 70.000 4.800 21.000 288.500 15.200 90.000 98.000 _ Eliminations _ _ _Debit __ Credit _ _ (5) (2) (6) _ _ 2.000 352.400 100.

800 4.000 52.000 4.30.000 7.000) Investment in Company S Eliminations: Gain on Sale of Fixed Assets Depreciation Expense Plant and Equipment (4.000 3.000 28.000) Minority Interest 4.1.000 7.000 Cash (80% x 6.000 to Company S for $34.000) Retained Earnings--S (20% x 65.500.500 / 3) Subsidiary Income 7.000 192.800 4.500 3.500 .000 .000) Paid-in Capital--S (20% x 35.000 20.000 (80% x (15.000) Goodwill (20% x 15.000 48.000 / 10) – (34.000) Plant and Equipment (20% x 25.000 54 .000 20.500) Subsidiary Income Dividends Declared--S Investment in Company S Common Stock--S (80% x 100.000) Retained Earnings--S (80% x 65.500 .000) Goodwill (80% x 15.200 80.000 13.25.000) Plant and Equipment (80% x 25.000) + 4.500 1.000) Investment in Company S Common Stock--S (20% x 100.000 12.000 5. the plant and equipment has an estimated useful life of 3 years Company P's Books: Investment in Company S 7.000) Paid-in Capital--S (80% x 35.3) During year 1 Company P sold plant and equipment with a book value of $30.800 2.

500 61.500) Minority Interest (20% x 246.000 74.500) Reconciliation: Common Stock Paid-in Capital Retained Earnings Owners’ Equity Net Asset Adjustment: Plant and Equipment (25.500) 2.500) 1.500) 12.000 71.500 2.500) Goodwill Adjusted Owners’ Equity Investment in S (80% x 246.500 ↓ 49.500) Dividends Declared--S (20% x 6.000 35.300 55 .300 64.Expense Plant and Equipment Minority Interest in Net Income (20% x 12.000 ( 4.500 1.000 22.200 1.500) 74.500 10.000 Company P 64.500 15.500 ( 4.200 ← 37.500 2.500) Controlling Interest in Net Income Minority Interest in Net Income (20% x 12.500 246.500 Company S 15.500 2.500) 1.500 ← ↓ Company S 100.000 ( 2.000 – 2.500 ( 2.500 15.000 209.000) Minority Interest Consolidated Net Income: Company P Net Income Company S Net Income Gain Adjustment Depreciation Expense Adjustment Net Asset Adjustment Amortization Consolidated Net Income Income Allocation: Net Income Gain Adjustment Depreciation Expense Adjustment Net Asset Adjustment Amortization Adjusted Net Income Subsidiary Income (80% x 12.000 197.

000 55.600 121.800 1.200 (3) 192.000 (3) (4) (3) (4) 20.000 (1) 3.000 180.500 7.000 7.000 2.500 _ 1.500 (1) 1.000 80.000 (2) 2.500 808.500 918.500 _71.000 4.500 _ _ 95.500 166.000 121.000 85.300 484.500 (2) (6) _ 121.000 49.000 40.000 3.000 220.000 15.500 100.500 166.300 434.500 1.000 194.500 121.000 13.500 256.000 330.000 80.500 256.000 35.500 _71.000 _60.500 45.500 _ 199.500 _74.000 270.800 56 .200 7.300 167.000 20.000 270.000 12.500 2.000 _ _ 65.000 40.400 100.000 _ 2.500 16.500 7.800 151.000 _ 1.000 5.500 Company S 100.000 120.000 (3) (4) _ 52.000 _ _ _ _ _ 81.000 81.600 35.000 808.000 1.000 90.000 6.000 15.000 (5) 2.400 Liabilities Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings--Brought Forward 90.200 330.500 112.000 60.500 45.500 81.700 (4) (6) 48.500 82.000 270.000 _71.500 7.000 _ Eliminations _ _ _Debit __ Credit _ Consolidated 550.000 _ _ _15.First Subsequent Period Downstream Sales of Fixed Assets Company P 450.000 112.500 4.500 Income Statement: Sales Cost of Goods Sold Gross Margin Expenses Consolidated Net Income Gain on Sale of Fixed Assets Subsidiary Income Minority Interest in Net Income Net Income--Carried Forward Retained Earnings Statement: Retained Earnings 1/1: Company P Company S Net Income--Brought Forward Dividends Declared: Company P Company S Retained Earnings 12/31--Carried Forward Balance Sheet: Cash Receivables Inventory Investment in S Plant and Equipment Land Goodwill (5) (1) (2) (6) _ 2.000 _15.000 _ _ _74.500 1.300 87.000 40.000 16.000 _ _ 71.000 112.000 60.000 (3) (4) 28.000 146.000 _25.000 918.500 4.000 30.000 61.000 74.500 95.500 (3) (4) 80.000 484.

000) Retained Earnings--S (80% x 74.200 20.000 14.000) Investment in Company S Common Stock--S (20% x 100.000) Paid-in Capital--S (20% x 35.400 3.000 .500) Subsidiary Income Dividends Declared--S Investment in Company S Common Stock--S (80% x 100.000 .400 6.000 1.500 Cash (80% x 8.000) Retained Earnings--S (20% x 74.500 1.000 197.500)) Goodwill (80% x 15.100 80.300 57 .1.000 59.500 .500 (80% x (20.000) Paid-in Capital--S (80% x 35.25.4) During year 2 no other intercompany sales of fixed assets took place Company P's Books: Investment in Company S 15.500 / 3) Subsidiary Income 15.2.500 15.500 3.000 12.2 x 1.500 .200 18.500) Depreciation Expense Plant and Equipment (4.000) Minority Interest 6.500 6.000) Plant and Equipment (20% x 22.000 7.500) Goodwill (20% x 15.800 4.000 28.000 / 10) + 4.000) Plant and Equipment (80% x (25.400 9.000) Investment in Company S Eliminations: Investment in Company S (4.000 49.

000 20.500 1.500) 89.500 ( 2.800 ← 35.000 1.500) Goodwill Adjusted Owners’ Equity Investment in S (80% x 256.000 ↓ 51.500 – 2.500) Controlling Interest in Net Income Minority Interest in Net Income (20% x 17.000 20.Expense Plant and Equipment Minority Interest in Net Income (20% x 17.600 1.500) Dividends Declared--S (20% x 8.000) Minority Interest (20% x 256.500 3.000 85.000) 2.500 14.000 ( 2.200 58 .000 35.500) Reconciliation: Common Stock Paid-in Capital Retained Earnings Owners’ Equity Net Asset Adjustment: Plant and Equipment (22.500 ← ↓ Company S 100.000 256.000 15.000 221.500 Company S 20.500 2.000 1.900 70.500 71.000 Company P 70.000 204.500 3.000 86.000) Minority Interest Consolidated Net Income: Company P Net Income Company S Net Income Depreciation Expense Adjustment Net Asset Adjustment Amortization Consolidated Net Income Income Allocation: Net Income Depreciation Expense Adjustment Net Asset Adjustment Amortization Adjusted Net Income Subsidiary Income (80% x 17.500) 17.

700 90.600 143.200 59 .000 64.500 _ 1.200 484.000 38.000 225.000 110.000 833.500 2.000 63.500 (5) 2.000 51.500 _ 1.000 143.500 _20.000 31.000 70.500 _ _ _85.000 _ 3.000 7.500 (2) (6) _ 6.500 _ 210.000 _ _ 143.300 340.000 90.400 100.500 207.500 95.500 15.000 35.300 1.000 833.000 943.000 484.500 Company S 140.000 _ _ _ 95.000 _86.500 3.000 _43.500 _85.000 81.000 155.500 271.000 20.000 112.200 14.000 203.000 280.900 448.000 352.000 28.700 171.000 94.500 74.000 79.000 15.Second Subsequent Period Downstream Sales of Fixed Assets Company P 500.400 Liabilities Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings--Brought Forward 93.000 60.000 _ _ _86.000 40.200 152.300 (4) (6) 49.000 3.000 280.000 40.500 121.000 143.000 _ _ _20.000 (3) (4) (3) (4) 80.000 4.000 59.000 _77.500 271.500 1.000 89.000 943.000 (1) (3) (4) (3) (4) 3.000 288.500 207.000 98.500 Income Statement: Sales Cost of Goods Sold Gross Margin Expenses Consolidated Net Income Subsidiary Income Minority Interest in Net Income Net Income--Carried Forward Retained Earnings Statement: Retained Earnings 1/1: Company P Company S Net Income--Brought Forward Dividends Declared: Company P Company S Retained Earnings 12/31--Carried Forward Balance Sheet: Cash Receivables Inventory Investment in S Plant and Equipment Land Goodwill 121.000 15.000 60.000 199.500 100.000 _ Eliminations _ _ _Debit __ Credit _ _ (5) (2) (6) _ _ 2.000 64.000 _85.800 21.000 _ _ 8.500 (2) 9.000 95.500 _85.100 (3) 197.200 (1) 1.500 Consolidated 640.600 9.500 12.500 21.000 275.000 18.500 (1) _ _ 1.400 1.000 20.500 1.600 9.000 (3) (4) _ 59.000 112.

for years after the year of early extinguishment of debt the beginning investment in common stock is increased/decreased for the gain/loss less the interest income/interest expense adjustments for the prior years until the 60 . the following elimination entries are necessary to adjust for the intercompany bondholdings I) Gain/Loss Adjustment--any gain/loss on the early extinguishment of debt is recognized A) Upstream Sale--for years after the year of early extinguishment of debt the beginning retained earnings of the subsidiary is increased/decreased for the gain/loss less the interest income/interest expense adjustments for the prior years until the bonds either mature or are retired 1) Investment Elimination--the entries to eliminate the investment in common stock at the beginning of the year and to reclassify the minority interest at the beginning of the year use the corrected beginning retained earnings of the subsidiary B) Downstream Sales-.3. Accounting 1) Parent Company--in computing subsidiary income the following adjustments are made a) Upstream Sales--the net income of the subsidiary company is increased/decreased for any gain/loss on the early extinguishment of debt (the difference between the amount the parent company paid to acquire the bonds of the subsidiary company and the carrying value of the bonds of the subsidiary company that were acquired by the parent company) and is decreased/increased for the interest income/interest expense on the intercompany bondholdings until the bonds either mature or are retired b) Downstream Sales--the subsidiary income is increased/decreased for any gain/loss on the early extinguishment of debt (the difference between the amount the subsidiary company paid to acquire the bonds of the parent company and the carrying value of the bonds of the parent company that were acquired by the subsidiary company) and is decreased/increased for the interest income/interest expense on the intercompany bondholdings until the bonds either mature or are retired 2) Worksheet a) Eliminations--in addition to the five basic elimination entries for subsequent periods. Intercompany Bondholdings a.

the consolidated net income must be allocated to the two stockholder groups I) Controlling Interest in Net Income--the controlling interest in net income is equal to the net income of the parent company plus the percentage of the net income of the subsidiary company that is owned by the parent company A) Net Asset Adjustment--the net income of the subsidiary company is adjusted for amortization of any net asset adjustment at the date of acquisition that has not previously been amortized B) Bond Adjustment--the net income of the issuing company is increased/decreased for any gain/loss on the early extinguishment of debt during the current year and is decreased/increased for the interest income/interest expense on the intercompany bondholdings until the bonds either mature or are retired II) Minority Interest in Net Income--the minority interest in net income is equal to the percentage of the net income of the subsidiary company that is not owned by the parent company A) Net Asset Adjustment--the net income of the subsidiary company is adjusted for amortization of 61 .bonds either mature or are retired 1) Investment Elimination--the entry to eliminate the investment in common stock at the beginning of the year uses the corrected beginning investment in common stock II) Interest Adjustment--the intercompany interest income/interest expense are eliminated III) Intercompany Debt Adjustment--the intercompany receivable/payable are eliminated b) Consolidated Net Income--consolidated net income is equal to the net income of the parent company plus the net income of the subsidiary company I) Net Asset Adjustment--the net income of the subsidiary company is adjusted for amortization of any net asset adjustment at the date of acquisition that has not previously been amortized II) Bond Adjustment--consolidated net income is increased/decreased for any gain/loss on the early extinguishment of debt during the current year and is decreased/increased for the interest income/interest expense on the intercompany bondholdings until the bonds either mature or are retired c) Income Allocation--when the parent company owns less than 100% of the subsidiary company.

any net asset adjustment at the date of acquisition that has not previously been amortized B) Bond Adjustment--the net income of the issuing company is increased/decreased for any gain/loss on the early extinguishment of debt during the current year and is decreased/increased for the interest income/interest expense on the intercompany bondholdings until the bonds either mature or are retired d) Reconciliation--the ending balances of the investment in common stock account and the minority interest can be reconciled with the ending owners’ equity of the subsidiary company I) Investment in Common Stock--the investment in common stock account is equal to the owners’ equity of the subsidiary company multiplied by the percentage of the subsidiary company that is owned by the parent company A) Net Asset Adjustment--the owners’ equity of the subsidiary company is adjusted for any net asset adjustment at the date of acquisition that has not been previously amortized B) Bond Adjustment--the owners’ equity of the subsidiary company is increased/decreased for any gain/loss on the early extinguishment of debt on intercompany bondholdings on which the subsidiary was the issuing company less the interest income/interest expense adjustments that have been recognized by the end of this year II) Minority Interest--the minority interest is equal to the owners’ equity of the subsidiary company multiplied by the percentage of the subsidiary company that is not owned by the parent company A) Net Asset Adjustment--the owners’ equity of the subsidiary company is adjusted for any net asset adjustment at the date of acquisition that has not been previously amortized B) Bond Adjustment--the owners’ equity of the subsidiary company is increased/decreased for any gain/loss on the early extinguishment of debt on intercompany bondholdings on which the subsidiary was the issuing company less the interest income/interest expense adjustments that have been recognized by the end of this year Illustrations--all of the illustrations will use illustration i. at the acquisition date as a common starting point 1) On January 1 of year 1 Company P purchased 40% of the 8% bonds of Company S for $20.b.400 when the bonds of Company S had a par 62 .

value of $50.800 4.000) / 4) Investment in Bonds (20.500 .400)) Subsidiary Income 7.800 2.000 .000 .000 and a carrying value of $52.100) Interest Expense (40% x (8% x 50.500 (8% x 20.000) Retained Earnings--S (80% x 65.20.000.500)) Gain on Retirement (20.1.000) Plant and Equipment (80% x 25.2.640 80. the bonds mature on December 31 of year 4 Company P's Books: Investment in Company S 7.000) Paid-in Capital--S (80% x 35.000) Investment in Company S 4.000) Goodwill (80% x 15.000 63 .000)) Subsidiary Income Dividends Declared--S Investment in Company S Common Stock--S (80% x 100.400 400 4.400 .440 (80% x (11.000 192.000 .500 + 1.000) Premium on Bonds Payable 600 (40% x (2.440 20.800 Eliminations: Bonds Payable 20.440 Cash (80% x 6.000) Investment in Company S 7.000 28.400 .000 12.000 20.400 .000 52.40% x (50.000 / 10 + 400 .000 / 4)) Interest Income 1.000 (40% x 50.000 + 2.25.300 1.(20.

500 7.500 ( 400) ( 1.000 3.500) 1.860 64 .000) Minority Interest Consolidated Net Income: Company P Net Income Company S Net Income Gain Adjustment Interest Income Adjustment Interest Expense Adjustment Net Asset Adjustment Amortization Consolidated Net Income Income Allocation: Net Income Gain Adjustment Interest Income Adjustment Interest Expense Adjustment Net Asset Adjustment Amortization Adjusted Net Income Subsidiary Income (80% x 9.500) 70.000 7.300) Company P 61.500 ( 400) ( 1.000) Retained Earnings--S (20% x 65.940 Company S 11.500 + 1.Common Stock--S (20% x 100.500 11.400 ( 2.000 + 400 .440 68.500) 9.1.200 660 61.300 ← ↓ 1.000 48.000) Minority Interest Expense Plant and Equipment 20.400)) Dividends Declared--S (20% x 6.860 (20% x (9.500) 1.500 Minority Interest in Net Income 1.500 2.000 5.300) Controlling Interest in Net Income Minority Interest in Net Income (20% x 9.400 ( 2.800 61.000) Paid-in Capital--S (20% x 35.500 1.000 13.000) Plant and Equipment (20% x 25.000) Goodwill (20% x 15.000 2.

500 + 1.000 194.300) Minority Interest (20% x 243.300) Company S 100.000 70.000 35.500 15.500 243.660 65 .400) Net Asset Adjustment: Plant and Equipment (25.000 – 2.640 ← 37.Reconciliation: Common Stock Paid-in Capital Retained Earnings Owners’ Equity Net Gain Adjustment (400 – 1.500 205.500 300 22.300 ↓ 48.500) Goodwill Adjusted Owners’ Equity Investment in S (80% x 243.

300 78.000 60.000 40.500 270.300 (2) (6) _ 4.000 7.000 _60.000 13.800 _11.500 30.800 1.940 805.600 118.500 7.000 _ 217.000 20.400 _ 400 70.500 7.000 484.860 13.440 15.440 1.000 112.000 _68.000 80.500 (1) (1) Accounts Payable Bonds Payable Premium on Bonds Payable Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings--Brought Forward 90.000 40.000 85.000 20.400 1.500 _ _ _11.000 (3) (4) (3) (4) 20.800 95.660 484.500 1.500 66 .000 12.940 (5) _ (1) (2) _ (6) _ 2.500 _ _ 11.400 100.940 45.000 270.000 1.860 _68.000 120.000 _ _ 118.800 _ 1.000 (5) 2.500 2.000 65.000 _ _ _70.800 273.000 600 437.940 163.940 59.000 40.000 87.000 1.800 _ 1.500 76.500 _ Eliminations _ _ _Debit __ Credit _ Consolidated 550.940 Company S 100.000 118.440 _ _ 68.300 (2) 2.440 _ 11.000 805.800 (1) _ _ 95.000 898.940 _70.000 147.300 273.000 330.800 1.000 5.940 898.000 900 (4) (6) 48.500 72.000 (1) 20.600 35.First Subsequent Period Upstream Bondholdings Company P Income Statement: Sales Cost of Goods Sold Gross Margin Expenses Interest Expense Interest Income Subsidiary Income Gain on Retirement of Debt Consolidated Net Income Minority Interest in Net Income Net Income--Carried Forward Retained Earnings Statement: Retained Earnings 1/1: Company P Company S Net Income--Brought Forward Dividends Declared: Company P Company S Retained Earnings 12/31--Carried Forward Balance Sheet: Cash Receivables Inventory Investment in Bonds Investment in S Plant and Equipment Land Goodwill 450.000 13.000 (3) (4) 28.300 194.000 50.000 _ _ 60.000 3.000 13.000 60.000 35.940 45.400 270.500 (3) (4) _ 52.900 (3) (4) 80.000 30.640 (3) 192.500 103.000 167.300 _ 1.400 400 1.640 330.500 _ 2.100 70.000 _25.300 (1) 1.900 7.000 _ _ 118.000 55.000 90.000 20.000 78.200 7.500 _ _ _ 78.000 180.500 _ 2.000 _68.000 15.500 11.000 220.000 112.940 163.000 __3.500 100.940 6.940 _ _ _68.000 660 48.940 89.

640 18.300 .400 6.2) During year 2 no other purchases of intercompany bonds took place Company P's Books: Investment in Company S 11.000) Investment in Company S Eliminations: Bonds Payable Premium on Bonds Payable (40% x (1.400 4.500 20.120 6.000 .2.000 / 10 – 1.640 67 .500 + 300)) Plant and Equipment (80% x (25.000 194.000) Paid-in Capital--S (80% x 35.25.000 400 1.120 Cash (80% x 8.500 + 1.720 80.500 .000 12.500 + 1.500)) Interest Income Investment in Bonds (20.000) Retained Earnings--S (80% x (70.120 (80% x (16.400)) Subsidiary Income 11.000 28.000) Investment in Company S 6.400) Subsidiary Income Dividends Declared--S Investment in Company S Common Stock--S (80% x 100.100) Interest Expense Retained Earnings--S (400 .500)) Goodwill (80% x 15.000 56.500 .1.400 20.200 1.400 300 11.

500 16.600 1.500 11.1.500 3.400)) Dividends Declared--S (20% x 8.000) Paid-in Capital--S (20% x 35.900) 20.500) 13.400 Company P 71.500) Goodwill (20% x 15.400 ( 2.500 ( 1.780 68 .900 ← ↓ 71.500 2.800) Plant and Equipment (20% x 22.400 ( 2.Common Stock--S (20% x 100.000 7.160 4.500 Company S 16.120 82.000) Retained Earnings--S (20% x 70.660 2.000) Minority Interest Consolidated Net Income: Company P Net Income Company S Net Income Interest Income Adjustment Interest Expense Adjustment Net Asset Adjustment Amortization Consolidated Net Income Income Allocation: Net Income Interest Income Adjustment Interest Expense Adjustment Net Asset Adjustment Amortization Adjusted Net Income Subsidiary Income (80% x 13.500 ( 1.780 1.500 + 1.500) 85.000 14.900) Controlling Interest in Net Income Minority Interest in Net Income (20% x 13.180 71.000 .500 2.000) Minority Interest Expense Plant and Equipment Minority Interest in Net Income (20% x (14.000 48.620 2.500) 1.500) 1.

360 ← 35.000 15.000 199.000 249.200) Minority Interest (20% x 249.200) Company S 100.Reconciliation: Common Stock Paid-in Capital Retained Earnings Owners’ Equity Net Gain Adjustment (400 – 2 x 1.840 69 .000 200 20.000 79.500) Goodwill Adjusted Owners’ Equity Investment in S (80% x 249.500 – 2.200 ↓ 49.500 + 2 x 1.400) Net Asset Adjustment: Plant and Equipment (22.000 35.000 214.

000 40.700 281.200 (2) 4.560 64.000 108.000 _ _ 137.000 _ _ 70.000 112.600 35.700 281.000 275.780 _82.500 _ _ _ 88.000 31.780 17.000 400 450.000 1.100 85.940 _82.600 9.640 14.000 225.000 _ 222.500 12.600 (3) (4) 80.000 171.180 49.900 88.700 _16.000 200.400 _ _ 118.000 37.000 88.000 (1) 20.000 81.000 288.500 87.560 89.400 _ 1.060 15.000 484.000 923.000 _43.000 100.600 9.000 827.200 199.500 11.900 Consolidated 640.000 30.560 827.400 1.620 Company S 140.000 7.700 (2) (6) _ 6.400 1.000 90.000 _ _ 137.500 20.400 280.560 923.000 352.000 (3) (4) (3) (4) 18.000 155.000 60.000 112.620 201.560 58.000 _ 3.000 60.000 15.000 (3) (4) 28.Second Subsequent Period Upstream Bondholdings Company P Income Statement: Sales Cost of Goods Sold Gross Margin Expenses Interest Expense Consolidated Net Income Interest Income Subsidiary Income Minority Interest in Net Income Net Income--Carried Forward Retained Earnings Statement: Retained Earnings 1/1: Company P Company S Net Income--Brought Forward Dividends Declared: Company P Company S Retained Earnings 12/31--Carried Forward Balance Sheet: Cash Receivables Inventory Investment in Bonds Investment in S Plant and Equipment Land Goodwill 500.000 20.120 2.600 137.500 16.000 (1) (1) Accounts Payable Bonds Payable Premium on Bonds Payable Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings--Brought Forward 93.400 1.000 20.500 2.560 64.840 484.620 (1) 1.000 280.000 3.500 1.720 (3) 194.000 137.000 90.560 _79.400 100.000 38.000 70 .560 8.360 340.500 _ _ _16.000 20.000 50.000 600 (4) (6) 48.620 201.120 _ _ _82.000 1.160 17.000 63.700 (1) _ 300 1.500 87.640 (5) 2.500 _82.660 1.400 _ 2.500 _ 2.000 (3) (4) _ 56.000 _77.500 11.000 _ _ _79.940 70.000 4.000 98.500 _ Eliminations _ _ _Debit __ Credit _ _ (5) _ (1) (2) (6) _ _ 2.700 118.500 _ 2.000 70.

000 28.400 .800 6.000) Investment in Company S 11.500)) Gain on Retirement (20.000 .000 12.000 192.400) Subsidiary Income 11.400 . the bonds mature on December 31 of year Company P’s Books: Investment in Company S 11.3) On January 1 of year 1 Company S purchased 40% of the 8% bonds of Company P for $20.000 / 4)) Interest Income 1.500 20.400 when the bonds of Company P had a par value of $50.40% x (50.400 400 4.25.000 (40% x 50.500 Cash (80% x 6.(20.000 71 .500 (80% x (16.1.000 .000) Retained Earnings--S (80% x 65.2.000) / 4) Investment in Bonds (20.500 + 1.000 and a carrying value of $52.000) Plant and Equipment (80% x 25.000) Investment in Company S 4.000) Premium on Bonds Payable 600 (40% x (2.000 / 10) + 400 .700 80.300 1.000 + 2.000 20.400 .000 .000) Goodwill (80% x 15.100) Interest Expense (40% x (8% x 50.20.800 Eliminations: Bonds Payable 20.500 .000) Paid-in Capital--S (80% x 35.000)) Subsidiary Income Dividends Declared--S Investment in Company S Common Stock--S (80% x 100.000 52.000.800 4.500 (8% x 20.

000) Minority Interest Consolidated Net Income: Company P Net Income Company S Net Income Gain Adjustment Interest Income Adjustment Interest Expense Adjustment Net Asset Adjustment Amortization Consolidated Net Income Income Allocation: Net Income Gain Adjustment Interest Income Adjustment Interest Expense Adjustment Net Asset Adjustment Amortization Adjusted Net Income Subsidiary Income (80% x 14.000 1.000) Paid-in Capital--S (20% x 35.000 3.000 2.200 1.500 2.000) Dividends Declared--S (20% x 6.500) 70.500 ( 400) ( 1.000) Retained Earnings--S (20% x 65.860 Company S 16.500 ( 2.800 Company P 56.500) 1.500) 1.800 1.000) 20.800 11.200 68.000) Controlling Interest in Net Income Minority Interest in Net Income (20% x 14.000 48.600 56.000) Plant and Equipment (20% x 25.400 56.000 ← ↓ 72 .000 5.500 2.Common Stock--S (20% x 100.500 16.400 ( 2.000 13.500) 14.500 ( 400) ( 1.000 7.000) Goodwill (20% x 15.000) Minority Interest Expense Plant and Equipment Minority Interest in Net Income (20% x 14.

Reconciliation: Common Stock Paid-in Capital Retained Earnings Owners’ Equity Net Asset Adjustment: Plant and Equipment (25,000 – 2,500) Goodwill Adjusted Owners’ Equity Investment in S (80% x 248,000) Minority Interest (20% x 248,000) Company S 100,000 35,000 75,500 210,500 22,500 15,000 198,400 ← 37,500 248,000 ↓ 49,600

73

First Subsequent Period Downstream Bondholdings Company P Income Statement: Sales Cost of Goods Sold Gross Margin Expenses Interest Expense Interest Income Subsidiary Income Gain on Retirement of Debt Consolidated Net Income Minority Interest in Net Income Net Income--Carried Forward Retained Earnings Statement: Retained Earnings 1/1: Company P Company S Net Income--Brought Forward Dividends Declared: Company P Company S Retained Earnings 12/31--Carried Forward Balance Sheet: Cash Receivables Inventory Investment in Bonds Investment in S Plant and Equipment Land Goodwill 450,000 270,000 180,000 120,000 60,000 _ 3,500 56,500 11,500 _ _ 68,000 _ _ _68,000 Company S 100,000 _60,000 40,000 _25,000 15,000 __ 15,000 1,500 _ _ 16,500 _ _ _16,500 _ Eliminations _ _ _Debit __ Credit _ Consolidated 550,000 330,000 220,000 147,500 72,500 _ 2,100 70,400 _ 400 70,800 _ 2,800 _68,000

(5) _ (1) (2) _ (6) _

2,500 2,500 _ 2,500 1,500 11,500 _ 15,500 2,800 18,300

(1)

1,400 1,400 400 1,800 _ 1,800

(1) _ _

95,000 65,000 _68,000 163,000 45,000 _ _ 118,000 74,300 87,000 55,000 198,700 330,000 60,000 805,000 85,000 40,000 (3) (4) 270,000 59,500 (1) (1) 20,000 600 (4) (6) 484,400 100,000 112,600 35,000 118,000 805,000 _75,500 270,000 (3) (4) 28,000 7,000 83,300 278,900 7,800 278,900 (3) (4) 80,000 20,000 48,000 1,600 38,500 50,000 1,500 12,000 3,000 40,000 _ 221,500 (3) (4) 20,000 5,000 6,000 _ _ _75,500 9,700 80,000 35,000 20,300 _ _ _ 83,300 (2) (6) _ 4,800 1,200 7,800 _16,500 81,500 (3) (4) _ 52,000 13,000 18,300 83,300 _ 1,800 1,800

95,000 _68,000 163,000 45,000 _ _ 118,000 84,000 167,000 90,000 (1) 20,300 (2) 6,700 (3) 192,000 (5) 2,500 437,500 100,000 15,000 893,500 98,000 30,000 900 49,600 484,400

Accounts Payable Bonds Payable Premium on Bonds Payable Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings--Brought Forward

112,600 118,000 893,500

74

4)

During year 2 no other purchases of intercompany bonds took place Company P's Books: Investment in Company S 15,100 (80% x (21,500 - 20,000 / 10) – 1,500 + 1,400) Subsidiary Income Cash (80% x 8,000) Investment in Company S Eliminations: Bonds Payable Premium on Bonds Payable (40% x (1,500 - 500)) Interest Income Investment in Bonds (20,300 - 100) Interest Expense Investment in Company S (400 - 1,500 + 1,400) Subsidiary Income Dividends Declared--S Investment in Company S Common Stock--S (80% x 100,000) Paid-in Capital--S (80% x 35,000) Retained Earnings--S (80% x 75,500) Plant and Equipment (80% x (25,000 - 2,500)) Goodwill (80% x 15,000) Investment in Company S 6,400 6,400 20,000 400 1,500 20,200 1,400 300 15,100 6,400 8,700 80,000 28,000 60,400 18,000 12,000 198,400 15,100

75

500) Adjusted Net Income 66.100 4.500 21.000) Dividends Declared--S (20% x 8.000 15.000 7.000) Paid-in Capital--S (20% x 35.800 76 .600 2.000) Controlling Interest in Net Income 81.500) 1.400 ( 2.600 2.500) Interest Expense Adjustment 1.500 Interest Income Adjustment ( 1.400 Net Asset Adjustment Amortization ( 2.500) 85.200 ← ↓ (80% x 19.500 2.000 49.000) Minority Interest Expense Plant and Equipment Minority Interest in Net Income (20% x 19.000 Subsidiary Income 15.400 19.800 1.000) Retained Earnings--S (20% x 75.400 Company P Company S Net Income 66.500) Plant and Equipment (20% x 22.200 66.500 3.500 21.500) Goodwill (20% x 15.000) Minority Interest Consolidated Net Income: Company P Net Income Company S Net Income Interest Income Adjustment Interest Expense Adjustment Net Asset Adjustment Amortization Consolidated Net Income Income Allocation: 20.600 Minority Interest in Net Income (20% x 19.500 3.500 ( 1.Common Stock--S (20% x 100.000) 3.

000 35.000 259.000 ↓ 51.000 89.000 15.000 20.Reconciliation: Common Stock Paid-in Capital Retained Earnings Owners’ Equity Net Asset Adjustment: Plant and Equipment (22.000 224.000 207.000) Company S 100.500) Goodwill Adjusted Owners’ Equity Investment in S (80% x 259.000) Minority Interest (20% x 259.800 77 .500 – 2.200 ← 35.

000 40.000 225.100 _ _ _81.000 90.000 10.000 (3) (4) _ 60.400 15.000 60.000 830.000 _ _ 135.500 450.500 _ Eliminations _ _ _Debit __ Credit _ _ (5) _ (1) (2) (6) _ _ 2.500 1.000 _81.100 (3) (4) 18.000 7.000 288.600 35.000 15.400 _21.900 98.000 60.000 38.000 100.800 484.500 _81.200 _ _ _ 98.500 15.600 83.000 _43.500 2.900 Consolidated 640.000 917.600 (1) 1.000 400 (4) (6) 484.500 66.400 1.500 87.400 171.100 85.000 49.000 207.400 1.400 30.400 102.100 22.400 _ 3.400 _ _ 118.500 97.000 12.000 (1) (1) 20.000 (3) (4) 280.000 352.000 200.000 3.000 (3) (4) 28.000 1.000 275.000 135.000 _ 20.400 _ 1.800 _81.000 20.000 98.000 4.400 1.000 (1) 20.Second Subsequent Period Downstream Bondholdings Company P Income Statement: Sales Cost of Goods Sold Gross Margin Expenses Interest Expense Consolidated Net Income Interest Income Subsidiary Income Minority Interest in Net Income Net Income--Carried Forward Retained Earnings Statement: Retained Earnings 1/1: Company P Company S Net Income--Brought Forward Dividends Declared: Company P Company S Retained Earnings 12/31--Carried Forward Balance Sheet: Cash Receivables Inventory Investment in Bonds Investment in S Plant and Equipment Land Goodwill 500.600 Company S 140.400 118.200 (1) 300 (2) 8.600 199.000 _89.600 90.000 1.000 155.100 3.400 (5) 2.600 64.000 280.400 _ 1.600 917.000 112.500 _ _ _21.300 (3) (4) 80.000 _77.500 _ 2.000 37.600 72.800 22.000 20.000 600 51.000 98.600 64.500 _ 2.600 135.400 50.600 9.600 2.000 _ _ 135.600 199.400 340.000 70.300 9.000 63.500 15.400 100.500 8.700 (3) 198.400 291.200 46.000 75.800 81.000 _ _ _89.000 20.400 78 .000 _ 3.600 830.000 56.400 (2) (6) _ 6.400 Accounts Payable Bonds Payable Premium on Bonds Payable Minority Interest Common Stock Company P Company S Paid-in Capital Company P Company S Retained Earnings--Brought Forward 112.500 _ 230.400 291.