Attached is problem 6-43 for Fred, Inc. and Herman Corp. I need help understanding how entry S (to eliminate Herman's stockholder equity accounts and record beginning year balance for non-controlling interest) is calculated. Also, entry B (to eliminate intra-entity balances created by acquisition of bond.) If you could please show me the steps to calculate both answers. Thanks so much.

Student Name: Class: Problem 06-43 FRED, INC. AND HERMAN CORPORATION - Allocation of Acquisition-date Excess Fair Value Consideration transferred Noncontrolling interest fair value Acquisition-date fair value Book value acquired Fair value in excess of book value Excess cost allocated to accounts based on fair value: Patents 90,000 Customer list $130,000 Total Correct! $312,000 208,000 $520,000 300,000 $220,000 Life (years) 12 10 Correct! Annual Excess Amortizations $7,500 13,000 $20,500 Correct! a. Consolidation entries *TL Investment in Herman Land 7,000 - Correct! 7,000 Correct! (To eliminate unrealized gain created by previous intra-entity transfer) *G Correct! Retained earnings, 1/1/13 Cost of goods sold 8,000 - Correct! 8,000 (To remove unrealized inventory gain from prior year so it can be realized in current year) S Correct! Common stock (Herman) Retained earnings, 1/1/13 (Herman) Investment in Herman Noncontrolling interest in Herman 100,000 - Correct! - (To eliminate Herman's stockholders' equity accounts and record beginning year balance for noncontrolling interest) A Correct! Patents Customer list Investment in Herman Noncontrolling interest 75,000 104,000 107,400 71,600 - Correct! (To recognize unamortized balances as of 1/1/13 of amounts allocated within original acquisition price) Equity income of Herman Investment in Herman (To eliminate intra-entity equity income accrual) Investment in Herman Dividends paid 2,400 - Correct! 2,400 (To eliminate intra-entity dividend payments) E Correct! Amortization expense Patents Customer list 20,500 - Correct! 7,500 13,000 (To record current year amortization expense) P Correct! Accounts payable Accounts receivable 60,000 60,000 - Correct! 120,000 - Correct! (To remove intra-entity debt created by inventory transfers) Bonds payable Premium on bonds payable Interest income Investment in parent bonds Interest expense Gain on retirement of bond (To eliminate intra-entity balances created by acquisition of bond and to recognize the related retirement gain) TI Correct! Sales Cost of goods sold (or purchases) 120,000 (To eliminate intra-entity transfers made during current year) G Correct! Cost of goods sold Inventory 7,500 - Correct! 7,500 (To defer intra-entity profits until 2013. b. Calculations Herman's reported income for 2013 Excess fair value amortization 2012 unrealized gain recognized in 2013 2013 unrealized gain Herman's realized income for 2013 Noncontrolling interest ownership Noncontrolling interest's share of subsidiary's income $25,000 (20,500) 8,000 (7,500) $5,000 40% $2,000 Correct! Noncontrolling interest, 1/1/13 Noncontrolling interest's share of Herman's income Noncontrolling interest's share of Herman's dividends Noncontrolling interest, 12/31/13 c. Consolidation worksheet adjustments - intra-entity bonds Original gain on retirement Interest income recorded on investment 2013 Interest expense recorded on liability in 2013 Required increase as of January 1, 2014 Bonds payable Premium on bonds payable Interest income Investment in Herman Investment in Fred's bonds Interest expense (To remove accounts pertaining to intra-entity bonds. "Investment in Herman" is adjusted here rather than retained earnings because equity method is used) Given P06-43: Herman Corporation common stock purchased by Fred, Inc. Cash paid for stock purchase Book value of Herman's assets and liabilities Fair value of noncontrolling interest Herman patents (12-year remaining life) were undervalued by Herman customer list acquisition-date fair value Life of customer list in years 60% $312,000 $300,000 $208,000 $90,000 $130,000 10 Intra-entity inventory transfers: Year 2011 2012 2013 Original Cost to Herman $80,000 100,000 90,000 Transfer Ending Price Balance at to Fred Transfer Price $100,000 $20,000 125,000 40,000 120,000 30,000 2013 inventory transfers not paid for by Fred at year end Book value of land sold by Fred to Herman Sale price of land sold by Fred to Herman Face value of Fred's bonds purchased by Herman Cash interest rate of bonds purchased by Herman Fred's book value of bond liability at repurchase date Effective yield of bonds Herman's bond acquisition price based on effective rate of 10% Herman's reported accounts for 2013: Net income Beginning retained earnings Dividends paid Common stock 50% $15,000 $22,000 $20,000 8% $21,386 6% $18,732 $25,000 $300,000 $4,000 $100,000 Student Name: Class: Problem 06-46 AUSTIN, INC. AND RIO GRANDE CORPORATION Basic earnings per share - Austin, Inc. Consolidated net income to parent Austin's preferred dividends Earnings applicable to basic EPS Austin's outstanding common shares Basic earnings per share Diluted earnings per share - Austin, Inc. Rio Grande net income after amortization Interest saved assuming conversion of bonds (net of taxes) Income applicable to diluted earnings per share Shares outstanding Assumed conversion of warrants Assumed acquisition of treasury stock using proceeds of warrant conversion Assumed conversion of bonds Subsidiary shares applicable to diluted earnings per share Shares controlled by parent Portion owned by parent Austin's income and shared for diluted EPS calculation Shares used in diluted earnings per share computation Shares controlled by parent Portion owned by parent Income applicable to parent - diluted EPS Austin's income and shared for diluted EPS calculation Austin's separate income Income of Rio Grande to parent Preferred stock dividends Earnings applicable to diluted EPS Austin's outstanding common shares Assumed conversion of preferred stock Shares applicable to diluted earnings per share Diluted earnings per share Given P06-46: Income Statements Revenues Cost of goods sold Operating expenses Equity in earnings of Rio Grande Individual company net income Consolidated net income Austin Rio Grande Consolidated $(700,000) $(500,000) $(1,200,000) 400,000 300,000 700,000 100,000 70,000 195,000 (84,000) $(284,000) $(130,000) $(305,000) Noncontrolling interest in Rio Grande's income Net income attributable to Austin Annual excess fair over book value amortization resulting from acquisition. Austin common stock - number of shares Austin preferred stock - number of shares Annual dividend paid to preferred stockholders Rio Grande common stock - number of shares Rio Grande stock warrants outstanding Cost to convert warrant to share of stock Number of warrants held by Austin Price of Rio Grande common stock Interest expense for Rio Grande convertible bonds Number of shares of common stock that can be exchanged for by convertible bonds (21,000) $(284,000) $25,000 50,000 10,000 $40,000 30,000 5,000 $10 50% $20 $22,000 10,000