Question
1. Madison Corporation reports the following table in the footnotes to its 2016 annual report (dollars in millions, except per share amounts, and shares in
1. Madison Corporation reports the following table in the footnotes to its 2016 annual report (dollars in millions, except per share amounts, and shares in thousands):
Years ended Dec. 31, | 2016 | 2015 | 2014 |
Noncontrolling Interest |
|
|
|
Balance at beginning of year | $49,400 | $44,690 | $39,850 |
Net income attributable to noncontrolling interest | 8,180 | 7,450 | 6,210 |
Other comprehensive income (loss) | 940 | (530) | 820 |
Total comprehensive income | 9,120 | 6,920 | 7,030 |
Distributions and other | (2,460) | (2,210) | (2,190) |
Balance at end of year | $56,060 | $49,400 | $44,690 |
a. Describe where the noncontrolling ending balance, 2016, should be reported in the financial statement(s) Madison Corporation.
b. Prepare the journal entry to recognize the 2016 Net Income attributable to noncontrolling interest.
c. Is the journal entry in b recorded in the books of the parent or subsidiary? How is this amount determined?
2.Fields Company purchased a 70% interest in Mullen Company five years ago with no AAP (i.e., purchased at book value). Each reports the following income statement for the current year:
Income Statement | ||
| Fields | Mullen |
Sales | $7,800,000 | $1,250,000 |
Cost of goods sold | (5,900,000) | (675,000) |
Gross Profit | 1,900,000 | 575,000 |
Income (loss) from subsidiary | 206,500 |
|
Operating expenses | (1,650,000) | (280,000) |
Net income | $ 456,500 | $ 295,000 |
a. Compute the income (loss) from subsidiary of $206,500 reported by the Fields Company. b. Prepare the consolidated income statement for the current year.
3.On January 1, 2016, Fuller Company acquired a 80% interest in Wilson Company for a purchase price that was $240,000 over the book value of the Wilsons Stockholders Equity on the acquisition date. Fuller uses the equity method to account for its investment in Wilson. Fuller assigned the acquisition-date AAP as follows:
AAP Items | Initial Fair Value | Useful Life (years) |
PPE, net | $150,000 | 20 |
Patent | 90,000 | 15 |
| $240,000 |
|
Wilson sells inventory to Fuller (upstream) which includes that inventory in products that it, ultimately, sells to customers outside of the controlled group. You have compiled the following data for the years ending 2018 and 2019:
| 2018 | 2019 |
Transfer price for inventory sale | $70,000 | $94,500 |
Cost of goods sold | (45,000) | (64,500) |
Gross profit | $25,000 | $30,000 |
% inventory remaining | 20% | 30% |
Gross profit deferred | $ 5,000 | $ 9,000 |
|
|
|
EOY Receivable/Payable | $29,500 | $32,000 |
The inventory not remaining at the end of the year has been sold outside of the controlled group.
The parent and the subsidiary report the following financial statements at December 31, 2019:
Income Statement | ||
| Fuller | Wilson |
Sales | $4,160,000 | $401,600 |
Cost of goods sold | (3,098,100) | (232,700) |
Gross Profit | 1,061,900 | 168,900 |
Income (loss) from subsidiary | 49,200 |
|
Operating expenses | (711,200) | (89,900) |
Net income | $ 399,900 | $ 79,000 |
|
|
|
Statement of Retained Earnings | ||
| Fuller | Wilson |
BOY Retained Earnings | $2,696,120 | $404,400 |
Net income | 399,900 | 79,000 |
Dividends | (74,500) | (8,900) |
EOY Retained Earnings | $3,021,520 | $474,500 |
|
|
|
Balance Sheet | ||
| Fuller | Wilson |
Assets: |
|
|
Cash | $ 309,420 | $ 84,700 |
Accounts receivable | 433,600 | 113,200 |
Inventory | 641,900 | 142,100 |
Equity Investment | 774,400 |
|
PPE, net | 4,063,200 | 800,500 |
| $6,222,520 | $1,140,500 |
|
|
|
Liabilities and Stockholders Equity: |
|
|
Current Liabilities | $ 505,900 | $ 99,500 |
Long-term Liabilities | 703,500 | 250,000 |
Common Stock | 402,000 | 75,300 |
APIC | 1,589,600 | 241,200 |
Retained Earnings | 3,021,520 | 474,500 |
| $6,222,520 | $1,140,500 |
a. Compute the EOY noncontrolling interest equity balance b. Prepare the consolidation journal entries.
4.Assume that a Parent company owns 80% of its Subsidiary. The Parent company uses the equity method to account for its Investment in Subsidiary. On January 1, 2015, the Parent company issued to an unaffiliated company $3,000,000 (face) 10 year, 10% bonds payable for a $213,000 premium. The bonds pay interest on December 31 of each year. On January 1, 2018, the Subsidiary acquired 30% of the bonds for $1,151,000. Both companies use straight-line amortization. In preparing the consolidated financial statements for the year ended December 31, 2019, what consolidating entry adjustment is necessary for the beginning-of-year Investment in Subsidiary account balance?
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