Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries CHAPTER CONSOLIDATION OF LESS-THAN-WHOLLY OWNED SUBSIDIARIES ANSWERS TO QUESTIONS Q5-1 The noncontrolling interest is reported as a separate item in the stockholders’ equity section of the balance sheet Past practice often presented the noncontrolling interest between long-term liabilities and stockholders’ equity Q5-2 The consolidated balance sheet always includes 100 percent of the subsidiary’s assets and liabilities When the parent holds less than 100 percent ownership of the subsidiary, the noncontrolling interest’s claim on those net assets must be reported Q5-3 The income statement portion of the consolidation workpaper is expanded to include a line for income assigned to the noncontrolling interest This amount is deducted from consolidated net income in computing income to the controlling interest The balance sheet portion of the workpaper also is expanded to include the claim of the noncontrolling shareholders on the net assets of the subsidiary Q5-4 The balance assigned to the noncontrolling interest is based on the fair value of the noncontrolling interest at the date of acquisition Q5-5 Consolidated retained earnings includes only amounts attributable to the shareholders of the parent company Thus, none of the retained earnings is assigned to the noncontrolling interest Q5-6 One hundred percent of the fair value of the subsidiary’s assets is included Q5-7 The amount of goodwill at the date of acquisition is determined by deducting the fair value of the net assets of the acquired company from the sum of the fair value of the consideration given by the acquiring company and the fair value of the noncontrolling interest The resulting goodwill must be apportioned between the controlling and noncontrolling interest Under normal circumstances, goodwill apportioned to the noncontrolling interest will equal the excess of the fair value of the noncontrolling interest over its proportionate share of the fair value of the net assets of the acquired company Q5-8 Income assigned to the noncontrolling interest normally is a proportionate share of the net income of the subsidiary Q5-9 Income assigned to noncontrolling shareholders is reported as a deduction from consolidated net income in arriving at income assigned to the parent company shareholders Q5-10 Dividends paid to noncontrolling shareholders are eliminated in preparing the consolidated statement of retained earnings Only dividends paid to the parent company shareholders are reported as dividends distributed to shareholders 5-1 Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries Q5-11 When the parent owns all the shares of a subsidiary (and the subsidiary has no other publicly traded securities outstanding), it is free to decide whether it wishes to publish separate statements for the subsidiary In some cases creditors, regulatory boards, or other interested parties may insist that such statements be produced If the parent does not own all the shares of the subsidiary, the subsidiary normally would be expected to publish separate financial statements for distribution to the noncontrolling shareholders In general, the consolidated statements are published for use by parent company shareholders and are likely to be of little use to shareholders of the subsidiary Q5-12 Other comprehensive income elements reported by the subsidiary must be included in other comprehensive income in the consolidated financial statement If the subsidiary is not wholly owned, income assigned to the noncontrolling interest will include a proportionate share of the subsidiary’s other comprehensive income Q5-13 The parent’s portion of the subsidiary’s other comprehensive income is included in comprehensive income attributable to the controlling interest Q5-14 Prior to FASB 141R, the differential was computed as the difference between the fair value of the consideration given in acquiring ownership of the subsidiary and the parent’s portion of the book value of the subsidiary’s net assets Q5-15 Prior to FASB 141R, goodwill was reported as the difference between the fair value of the consideration given in acquiring ownership of the subsidiary and the parent’s portion of the fair value of the subsidiary’s net assets Q5-16 Prior to FASB 141R, consolidated net income was computed by deducting income to noncontrolling interest from consolidated revenues less expenses Q5-17* The only effect of a negative balance in retained earnings is the need for a credit to subsidiary retained earnings, rather than a debit to retained earnings, when the stockholders’ equity accounts of the subsidiary and the investment account of the parent are eliminated Q5-18* In the period in which the land is sold, the gain or loss recorded by the subsidiary must be adjusted by the amount of the differential assigned to the land When the differential is assigned in the workpaper eliminating entries at the end of the period, a debit will be made to the gain or loss on sale of land that came to the workpaper from the subsidiary’s books Q5-19A When the cost method is used, income reported by the parent and the resulting balance in the investment account not reflect undistributed earnings of the subsidiary following the date of acquisition Because these account balances are different under the cost and equity methods, a different set of eliminating entries must be used The major change in eliminating entries when the cost method is adopted is that a portion of the subsidiary retained earnings is carried forward to the consolidated total The carryforward is needed because the parent’s retained earnings does not include its portion of undistributed subsidiary earnings following the acquisition, and therefore is less than consolidated retained earnings 5-2 Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries SOLUTIONS TO CASES C5-1 Consolidation Workpaper Preparation a If the parent company is using the equity method, the elimination of the income recognized by the parent from the subsidiary generally should not be equal to a proportionate share of the subsidiary’s dividends If the parent has recognized only dividend income from the subsidiary, it is using the cost method b It should be possible to tell if the preparer has included the parent's share of the subsidiary's reported income in computing consolidated net income It is not possible to tell from looking at the workpaper alone whether or not all the adjustments that should have been made for amortization of the differential or to eliminate unrealized profits have been properly treated in computing the consolidated net income c If the parent paid more than its proportionate share of the fair value of the subsidiary’s net assets, the eliminating entries relating to that subsidiary should show amounts assigned to individual asset accounts for fair value adjustments and to goodwill when the investment account balance is eliminated and any noncontrolling interest is established in the workpaper It should be relatively easy to determine if this has occurred by examining the consolidation workpaper d If the preparer has made a separate entry in the workpaper to eliminate the change in the parent’s investment account during the period, the easiest way to ascertain the parent’s subsidiary ownership percentage is to determine the percentage share of the subsidiary’s dividends eliminated in that entry Another approach might be to divide the total amount of the parent’s subsidiary investment account eliminated in the workpaper by the sum of the total parent’s investment account eliminated and the total amount of the noncontrolling interest established in the workpaper through eliminating entries However, this approach assumes that the fair value of the consideration given by the parent when acquiring its subsidiary interest and the fair value of the noncontrolling interest on that date were proportional, which is usually, by not always, the case 5-3 Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries C5-2 Consolidated Income Presentation MEMO TO: Treasurer Standard Company FROM: RE: , Accounting Staff Allocation of Consolidated Income to Parent and Noncontrolling Shareholders FASB 160 specifies that consolidated net income reflects the income of the entire consolidated entity and that consolidated net income must be allocated between the controlling and noncontrolling interests Earnings per share reported in the consolidated income statement is based on the income allocated to the controlling interest only Consolidated net income increased by $34,000 from 20X4 to 20X5, an increase of 52 percent However, consolidated net income allocated to the controlling interest increased by $24,100 from 20X4 to 20X5, an increase of only 38 percent The increase in the controlling interest’s share of consolidated net income did not keep pace with the increase in sales because nearly all of the sales increase was experienced by Jewel, which has a very low profit margin In addition the parent receives only 55 percent of the increased profits of the subsidiary Consolidated net income for the two years is computed and allocated as follows: 20X4 $160,000 (a) (94,000)(c) $ 66,000 (2,700)(e) $ 63,300 Consolidated revenues Operating costs Consolidated net income Income to noncontrolling shareholders Income to controlling shareholders (a) (b) (c) (d) (e) (f) $100,000 + $60,000 $120,000 + $280,000 ($100,000 x 40) + ($60,000 x 90) ($120,000 x 40) + ($280,000 x 90) ($60,000 x 10 x 45) ($280,000 x 10 x 45) Primary citations: FASB 160 Secondary source: ARB 51 5-4 20X5 $400,000 (b) (300,000)(d) $100,000 (12,600) (f) $ 87,400 Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries C5-3 Pro Rata Consolidation MEMO To: Financial Vice-President Rose Corporation From: Re: , Senior Accountant Pro Rata Consolidation of Joint Venture This memo is in response to your request for additional information on the desirability of using pro rata consolidation rather than equity method reporting for Rose Corporation’s investment in its joint venture with Krome Company The equity method is used by most companies in reporting their investments in corporate joint ventures [APB Opinion, Par 16] While APB 18 provides guidance for joint ventures that have issued common stock, it does not provide guidance for ownership of noncorporate entities Interpretation No to APB 18 suggests that the equity method would be appropriate for unincorporated entities as well [APB 18, Int #2] Assuming the joint venture with Krome Company is unincorporated, Rose owns an undivided interest in each asset held by the joint venture and is liable for its share of each of its liabilities and, under certain circumstances, the entire amount In this case, it can be argued pro rata consolidation provides a more accurate picture of Rose’s assets and liabilities, although not all agree with this assertion Pro rata consolidation is generally considered not acceptable in this country, although it is a widely used industry practice in a few industries such as oil and gas exploration and production If the joint venture is incorporated, Rose does not have a direct claim on the assets of the joint venture and Rose’s liability is sheltered by the joint venture’s corporate structure In this case, continued use of the equity method appears to be appropriate Primary citations: APB 18 APB 18, INT #2 5-5 Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries C5-4 Elimination Procedures a The eliminating entries are recorded only in the consolidation workpaper and therefore not change the balances recorded on the company's books Each time consolidated statements are prepared the balances reported on the company's books serve as the starting point Thus, all the necessary eliminating entries must be entered in the consolidation workpaper each time consolidated statements are prepared b For acquisitions prior to the application of FASB 141R, the balance assigned to the noncontrolling shareholders at the beginning of the period is based on the book value of the net assets of the subsidiary at that date and is recorded in the workpaper in the entry to eliminate the beginning stockholders' equity balances of the subsidiary and the beginning investment account balance of the parent For acquisitions after the effective date of FASB 141R, the noncontrolling interest at a point in time is equal to its fair value on the date of combination, adjusted to date for a proportionate share of the undistributed earnings of the subsidiary and the noncontrolling interest’s share of any write-off of differential Another approach to determining the noncontrolling interest at a point in time is to add the remaining differential at that time to the subsidiary’s common stockholders’ equity and multiply the result by the noncontrolling interest’s proportionate ownership interest in the subsidiary c In the consolidation workpaper the ending balance assigned to noncontrolling interest is derived by crediting noncontrolling interest for the starting balance, as indicated in the preceding question, and then adding income assigned to the noncontrolling interest in the consolidated income statement and deducting a pro rata portion of subsidiary dividends declared during the period d All the stockholders' equity account balances of the subsidiary must be eliminated each time consolidated financial statements are prepared Intercompany receivables and payables, if any, must also be eliminated e The "investment in subsidiary" and "income from subsidiary" accounts must be eliminated each time consolidated financial statements are prepared Intercompany receivables and payables, if any, must also be eliminated 5-6 Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries C5-5 Changing Accounting Standards: Monsanto Company a Monsanto reported the income to noncontrolling (minority) shareholders of consolidated subsidiaries as an expense in the continuing operations portion of its 2007 income statement b Monsanto reported the noncontrolling interest in consolidated subsidiaries in other liabilities in its consolidated balance sheet c In 2007, Monsanto’s treatment of its noncontrolling interest in its consolidated financial statements, although theoretically objectionable, was considered acceptable The noncontrolling (minority) interest did not fit the definition of a liability, and its share of income did not fit the definition of an expense Nevertheless, prior to 2008 no authoritative pronouncement prohibited the treatment exhibited by Monsanto With the issuance of FASB 160, however, Monsanto’s 2007 treatment became unacceptable The noncontrolling interest is now required to be treated as an equity item, with the income attributed to the noncontrolling interest treated as an allocation of consolidated net income d Monsanto provided customer financing through a lender that was a special purpose entity Monsanto had no ownership interest in the special purpose entity but did consolidate it because Monsanto effectively originated, guaranteed, and serviced the loans Monsanto had a 9-percent ownership interest in one variable interest entity and a 49-percent ownership interest in another Neither entity was consolidated because Monsanto was not the primary beneficiary of either entity 5-7 Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries SOLUTIONS TO EXERCISES E5-1 Multiple-Choice Questions on Consolidation Process d d b d [AICPA Adapted] E5-2 Multiple-Choice Questions on Consolidation [AICPA Adapted] b c a $650,000 = $500,000 + $200,000 - $50,000 c $95,000 = ($956,000 / 80) - $1,000,000 - $100,000 c $251,000 = 20[($956,000 + $239,000) + ($190,000 - $5,000 - $125,000)] 5-8 Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries E5-3 Eliminating Entries with Differential a Eliminating entries: E(1) Common Stock – Amber Company Retained Earnings Differential Investment in Amber Company Stock Noncontrolling Interest 20,000 37,000 25,000 Computation of differential Fair value of the consideration given by Game Corp Fair value of noncontrolling interest Total fair value Book value of Amber’s net assets ($85,000 - $28,000) Differential E(2) Inventory Buildings and Equipment (net) Differential $5,000 = $25,000 - $20,000 $20,000 = $70,000 - $50,000 b 49,200 32,800 $49,200 32,800 $82,000 (57,000) $25,000 5,000 20,000 25,000 Journal entries used to record transactions, adjust account balances, and close income and revenue accounts at the end of the period are recorded in the company's books and change the reported balances On the other hand, eliminating entries are entered only in the consolidation workpaper to facilitate the preparation of consolidated financial statements As a result, they not change the balances recorded in the company's accounts and must be reentered each time a consolidation workpaper is prepared 5-9 Chapter 05 - Consolidation of Less-Than-Wholly Owned Subsidiaries E5-4 Computation of Consolidated Balances a Inventory $140,000 b Land $ 60,000 c $550,000 Buildings and Equipment d Fair value of consideration given by Ford Fair value of noncontrolling interest Total fair value Book value of Slim’s net assets Fair value increment for: Inventory Land Buildings and equipment (net) Fair value of identifiable net assets Goodwill $450,000 20,000 (10,000) 70,000 $470,000 117,500 $587,500 (530,000) $ 57,500 e Investment in Slim Corporation: None would be reported; the balance in the investment account is eliminated f Noncontrolling Interest ($587,500 x 20) 5-10 $117,500 P5-42 (continued) Power Corp Best Co Accum Depreciation 170,000 50,000 Accounts Payable Wages Payable Notes Payable Common Stock Power Corporation Best Company Retained Earnings, from above Noncontrolling Interest 51,000 14,000 150,000 15,000 6,000 50,000 Credits 761,500 Item 200,000 176,500 Eliminations Debit Credit (4) 1,500 (5) 1,500 Consolidated 223,000 66,000 20,000 200,000 200,000 60,000 (3) 60,000 64,000 87,500 20,000 173,000 181,000 (2) 4,000 (3) 27,000 181,000 31,000 913,000 245,000 5-111 5-112 P5-42 (continued) c Power Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X9 Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Goodwill Total Assets $100,500 99,000 121,000 75,000 $515,000 (223,000) Accounts Payable Wages Payable Notes Payable Stockholders’ Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity Total Liabilities and Stockholders' Equity 292,000 2,500 $690,000 $ 66,000 20,000 200,000 $200,000 173,000 $373,000 31,000 404,000 $690,000 Power Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X9 Sales Cost of Goods Sold Wage Expense Depreciation Expense Interest Expense Other Expenses Total Expenses $490,000 $259,000 55,000 36,500 16,000 39,000 (405,500) $ 84,500 (9,000) $ 75,500 Income to Noncontrolling Interest Consolidated Net Income Power Corporation and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X9 Retained Earnings, January 1, 20X9 Consolidated Net Income $127,500 75,500 $203,000 (30,000) Dividends Declared, 20X9 5-113 Retained Earnings, December 31, 20X9 $173,000 5-114 P5-43A Cost-Method Workpaper with Differential Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary 10,000 E(2) Common Stock — Star Company Retained Earnings, January Differential Investment in Star Company Stock Eliminate investment balance at date of acquisition: $20,000 = $220,000 - $150,000 - $50,000 150,000 50,000 20,000 E(3) Goodwill Differential Assign differential at date of acquisition 20,000 E(4) Goodwill Impairment Loss Goodwill Record impairment of goodwill 12,000 5-115 10,000 220,000 20,000 12,000 5-116 P5-43A (continued) Light Corporation and Star Company Consolidated Workpaper December 31, 20X5 Light Corp Star Co 300,000 10,000 310,000 210,000 25,000 150,000 23,000 (258,000) 52,000 25,000 (130,000) 20,000 230,000 52,000 282,000 (20,000) 50,000 20,000 70,000 (10,000) (2) 50,000 22,000 262,000 60,000 72,000 Cash Accounts Receivable Inventory Buildings and Equipment Investment in Star Company Stock Differential Goodwill Debits 37,000 50,000 70,000 300,000 20,000 30,000 60,000 240,000 677,000 350,000 Accum Depreciation Accounts Payable Taxes Payable Common Stock Light Corporation Star Company Retained Earnings, from above Credits 105,000 40,000 70,000 65,000 20,000 55,000 Item Sales Dividend Income Credits Cost of Goods Sold Depreciation Expense Goodwill Impairment Loss Other Expenses Debits Income, carry forward Ret Earnings, Jan Income, from above Dividends Declared Ret Earnings, Dec 31, carry forward 150,000 85,000 20,000 220,000 200,000 262,000 677,000 Eliminations Debit Credit 450,000 (1) 10,000 450,000 295,000 45,000 12,000 48,000 (400,000) 50,000 (4) 12,000 22,000 (1) 10,000 230,000 50,000 280,000 (20,000) 10,000 260,000 57,000 80,000 130,000 540,000 (2) 20,000 (3) 20,000 (2)220,000 (3) 20,000 (4) 12,000 8,000 815,000 170,000 60,000 125,000 150,000 (2)150,000 60,000 350,000 72,000 262,000 5-117 Consolidated 200,000 10,000 262,000 260,000 815,000 P5-44A Cost-Method Consolidation in Subsequent Period Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary E(2) Common Stock — Star Company Retained Earnings, January Differential Investment in Star Company Stock Eliminate investment balance at date of acquisition: $62,000 = $50,000 + $12,000 (goodwill impairment) $8,000 = $20,000 - $12,000 E(3) Goodwill Differential Assign differential at beginning of year 5-118 20,000 150,000 62,000 8,000 8,000 20,000 220,000 8,000 P5-44A (continued) Light Corporation and Star Company Consolidated Workpaper December 31, 20X6 Light Corp Star Co Sales Dividend Income Credits Cost of Goods Sold Depreciation Expense Other Expenses Debits Income, carry forward 350,000 20,000 370,000 270,000 25,000 21,000 (316,000) 54,000 200,000 200,000 135,000 20,000 10,000 (165,000) 35,000 Ret Earnings, Jan Income, from above 262,000 54,000 316,000 (20,000) 60,000 35,000 95,000 (20,000) (2) 62,000 20,000 296,000 75,000 82,000 Cash Accounts Receivable Inventory Buildings and Equipment Investment in Star Company Stock Differential Goodwill Debits 46,000 55,000 75,000 300,000 30,000 40,000 65,000 240,000 696,000 375,000 Accum Depreciation Accounts Payable Taxes Payable Common Stock Light Corporation Star Company Retained Earnings, from above Credits 130,000 20,000 50,000 85,000 30,000 35,000 Item Dividends Declared Ret Earnings, Dec 31, carry forward 220,000 200,000 296,000 696,000 Eliminations Debit Credit 550,000 (1) 20,000 550,000 405,000 45,000 31,000 (481,000) 69,000 20,000 (1) 20,000 260,000 69,000 329,000 (20,000) 20,000 309,000 76,000 95,000 140,000 540,000 (2) (3) 8,000 8,000 (2)220,000 (3) 8,000 8,000 859,000 215,000 50,000 85,000 150,000 (2)150,000 75,000 375,000 82,000 248,000 5-119 Consolidated 200,000 20,000 248,000 309,000 859,000 5-120 P5-45A Cost-Method Consolidation of Majority-Owned Subsidiary Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary 16,000 E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $12,000 = $60,000 x 20 12,000 E(3) Common Stock — Rapid Delivery Retained Earnings, January Investment in Rapid Delivery Stock Noncontrolling Interest Eliminate investment balance at date of acquisition 5-121 50,000 100,000 16,000 4,000 8,000 120,000 30,000 P5-45A (continued) Samuelson Company and Rapid Delivery Corporation Consolidation Workpaper December 31, 20X6 Samuelson Company Rapid Delivery 700,000 16,000 716,000 500,000 25,000 45,000 30,000 (600,000) 400,000 400,000 250,000 15,000 35,000 40,000 (340,000) 116,000 60,000 Dividends Declared 290,000 116,000 406,000 (50,000) Ret Earnings, Dec 31, carry forward Item Sales Dividend Income Credits Cost of Goods Sold Depreciation Expense Wage Expenses Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret Earnings, Jan Income, from above Cash and Receivables Inventory Land Buildings and Equipment Investment in Rapid Delivery Stock Debits Accum Depreciation Accounts Payable Notes Payable Common Stock Samuelson Company Rapid Delivery Retained Earnings, from above Noncontrolling Interest Credits Eliminations Debit Credit Consolidated 1,100,000 (1) 16,000 1,100,000 750,000 40,000 80,000 70,000 (940,000) 160,000 (2) 12,000 28,000 (12,000) 148,000 100,000 60,000 160,000 (20,000) (3)100,000 28,000 290,000 148,000 438,000 356,000 140,000 128,000 141,000 240,000 80,000 500,000 80,000 100,000 20,000 150,000 120,000 1,081,000 350,000 155,000 70,000 200,000 75,000 35,000 50,000 300,000 356,000 1,081,000 (1) 16,000 (2) 4,000 20,000 (50,000) 388,000 221,000 340,000 100,000 650,000 (3)120,000 1,311,000 230,000 105,000 250,000 300,000 50,000 (3) 50,000 140,000 128,000 20,000 388,000 178,000 (2) 8,000 (3) 30,000 178,000 38,000 1,311,000 350,000 5-122 P5-45A (continued) Samuelson Company and Subsidiary Consolidated Balance Sheet December 31, 20X6 Cash and Receivables Inventory Land Buildings and Equipment Less: Accumulated Depreciation Total Assets $650,000 (230,000) Accounts Payable Notes Payable Stockholders’ Equity: Controlling Interest: Common Stock Retained Earnings, Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity Total Liabilities and Stockholders' Equity $ 221,000 340,000 100,000 420,000 $1,081,000 $ 105,000 250,000 $300,000 388,000 $688,000 38,000 726,000 $1,081,000 Samuelson Company and Subsidiary Consolidated Income Statement Year Ended December 31, 20X6 Sales Cost of Goods Sold Depreciation Expense Wage Expense Other Expenses Total Expenses Consolidated Net Income Income to Noncontrolling Interest Income to Controlling Interest $750,000 40,000 80,000 70,000 $1,100,000 (940,000) $ 160,000 (12,000) $ 148,000 Samuelson Company and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X6 Retained Earnings, January 1, 20X6 Income to Controlling Interest, 20X6 $ 290,000 148,000 $ 438,000 (50,000) $ 388,000 Dividends Declared, 20X6 Retained Earnings, December 31, 20X6 5-123 P5-46A Comprehensive Cost-Method Consolidation Problem a Journal entry recorded by Master Corporation: Cash Dividend Income b 8,000 8,000 Eliminating entries: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary 8,000 E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest $5,000 = [$30,000 – ($50,000 / 10 years)] x 20 5,000 E(3) Common Stock — Stanley Wood Products Retained Earnings, January Differential Investment in Stanley Wood Products Stock Noncontrolling Interest Eliminate investment balance at date of acquisition 160,000 40,000 Retained Earnings, January Noncontrolling Interest Assign undistributed prior earnings of subsidiary to noncontrolling interest: ($90,000 - $50,000) x 20 E(5) Buildings and Equipment Differential Assign differential at date of acquisition 50,000 E(6) Retained Earnings, January Noncontrolling Interest Accumulated Depreciation Enter differential amortization of prior years: ($50,000 / 10) x years 16,000 4,000 Depreciation Expense Accumulated Depreciation Amortize differential E(8) Accounts Payable Cash and Receivables Eliminate intercorporate receivable/payable 8,000 5,000 10,000 5-124 2,000 3,000 100,000 50,000 50,000 E(4) E(7) 8,000 8,000 50,000 20,000 5,000 10,000 P5-46A (continued) Master Corporation and Stanley Wood Products Company Consolidation Workpaper December 31, 20X5 c Master Corp Stanley Wood 200,000 8,000 208,000 120,000 25,000 15,000 (160,000) 100,000 48,000 30,000 Ret Earnings, Jan 298,000 90,000 Income, from above Dividends Declared 48,000 346,000 (30,000) 30,000 120,000 (10,000) Ret Earnings, Dec 31, carry forward 316,000 110,000 81,000 260,000 80,000 500,000 65,000 90,000 80,000 150,000 Item Sales Dividend Income Credits Cost of Goods Sold Depreciation Expense Inventory Losses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Cash and Receivables Inventory Land Buildings and Equipment Investment in Stanley Wood Products Stock Differential Debits 100,000 50,000 15,000 5,000 (70,000) 160,000 Eliminations Debit Credit (1) 8,000 (7) 5,000 (2) 5,000 18,000 (3) 50,000 Accum Depreciation 205,000 105,000 Accounts Payable Notes Payable Common Stock Master Corporation Stanley Wood Retained Earnings, from above Noncontrolling Interest 60,000 200,000 20,000 50,000 (8) 10,000 100,000 (3)100,000 Credits 110,000 1,081,000 385,000 5-125 (5,000) 60,000 8,000 2,000 (6) 92,000 4,000 306,000 314,000 60,000 374,000 (30,000) 10,000 344,000 (8) 10,000 136,000 350,000 160,000 700,000 (5) 50,000 385,000 316,000 300,000 170,000 45,000 20,000 (235,000) 65,000 (1) (2) 1,081,000 300,000 300,000 (3) 50,000 (4) 8,000 (6) 16,000 18,000 92,000 Consolidated (3)160,000 (5) 50,000 (6) 20,000 (7) 5,000 1,346,000 335,000 70,000 250,000 300,000 10,000 (2) 3,000 (3) 40,000 (4) 8,000 306,000 344,000 47,000 1,346,000 ... receivable/payable 5-11 8,900 900 270,000 30,000 20,000 8,900 Solutions Manual – Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e - 12 Chapter 05 - Consolidation of Less-Than-Wholly... subsidiary Q5-12 Other comprehensive income elements reported by the subsidiary must be included in other comprehensive income in the consolidated financial statement If the subsidiary is not wholly owned,... eliminated Q5-18* In the period in which the land is sold, the gain or loss recorded by the subsidiary must be adjusted by the amount of the differential assigned to the land When the differential is