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Consolidation worksheet for gain on constructive retirement of subsidiarys debt with no AAPCost method Assume that a Parent company acquires a 75% interest in its

Consolidation worksheet for gain on constructive retirement of subsidiarys debt with no AAPCost method Assume that a Parent company acquires a 75% interest in its Subsidiary on January 1, 2015. On the date of acquisition, the fair value of the 75 percent controlling interest was $600,000 and the fair value of the 25 percent noncontrolling interest was $200,000. On January 1, 2015, the book value of net assets equaled $800,000 and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e., there was no AAP or Goodwill). On January 1, 2015, the retained earnings of the subsidiary was $150,000.

On December 31, 2016, the Subsidiary company issued $750,000 (face) 6 percent, five-year bonds to an unaffiliated company for $765,000. The bonds pay interest annually on December 31, and the bond premium is amortized using the straight line method. This results in annual bond-payable premium amortization equal to $3,000 per year. The following schedule provides the bond-amortization schedule from the initial issuance date.

Year Cash Payment Amortization of Premium Interest Expense Carrying Amount
Dec. 31, 2016 $765,000
Dec. 31, 2017 $45,000 $3,000 $42,000 762,000
Dec. 31, 2018 45,000 3,000 42,000 759,000
Dec. 31, 2019 45,000 3,000 42,000 756,000
Dec. 31, 2020 45,000 3,000 42,000 753,000
Dec. 31, 2021 45,000 3,000 42,000 750,000

On December 31, 2018, the Parent paid $735,000 to purchase all of the outstanding Subsidiary company bonds. The bond discount is amortized using the straight-line method, which results in annual bond-investment discount amortization equal to $5,000 per year. The following schedule provides the bond-amortization schedule for the Parents bond investment.

Year Cash Payment Amortization of Discount Interest Income Carrying Amount
Dec. 31, 2018 $735,000
Dec. 31, 2019 $45,000 $5,000 $50,000 740,000
Dec. 31, 2020 45,000 5,000 50,000 745,000
Dec. 31, 2021 45,000 5,000 50,000 750,000

The parent uses the cost method of pre-consolidation investment bookkeeping. The Parent and the Subsidiary report the following financial statements for the year ended December 31, 2019:

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Provide the consolidation entries and prepare a consolidation worksheet for the year ended December 31, 2019.

Round answers to the nearest whole number.

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Use negative signs with your answers in the Consolidated column for: Cost of goods sold, all expenses (inc. Total expenses), Income attributable to NCI and Dividends.

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Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales $6,500,000 $800,000 Assets Cost of goods sold (4,500,000) (450,000) Cash Gross profit 2,000,000 350,000 Accounts receivable Operating and other expenses (1,500,000) (200,000) Inventories Bond interest income 50,000 PPE, net Bond interest expense (42,000) Equity investment Total expenses (1,450,000) (242,000) Investment in bond, net Income from subsidiary 30,000 Net income $580,000 $108,000 Liabilities and stockholders' equity Statement of retained earnings Accounts payable BOY retained earnings $760,000 $276,000 Other current liabilities Net income 580,000 108,000 Bond payable (net) Dividends (200,000) (40,000) Other long-term liabilities Ending retained earnings $1,140,000 $344,000 Common stock APIC Retained earnings $700,000 $300,000 800,000 500,000 1,000,000 800,000 3,000,000 1,250,000 600,000 740,000 $6,840,000 $2,850,000 $800,000 900,000 1,400,000 600,000 2,000,000 1,140,000 6,840,000 $250,000 400,000 756,000 450,000 150,000 500,000 344,000 2,850,000 Credit > Debit 221,090 x 0 27,000 x 9,073 x 221,090 X 0 0 0 30,000 X 6,073 X Consolidation Journal Description [ADJ Investment in Subsidiary BOY Retained earnings-Parent [C] Income from subsidiary Income attributable to NCI Dividends-Subsidiary Noncontrolling Interest [E] Common Stock (Subsidiary) APIC (Subsidiary) BOY Retained earnings-Parent Investment in Subsidiary Noncontrolling interest [lbond] Bond payable, net Interest income Investment in bonds, net Interest expense Investment in Subsidiary 0 223,500 x 787,500 x 337,500 X 0 x 0 1,213,650 X 0 134,850 x 1,163,965 x 88,414 X 0 1,105,672 X 59,267 x 0 87,440 X Consolidation Worksheet Parent Subsidiary Debit Credit Consolidated $ 10,950 x (7,905,000) X 3,045,000 (1,995,000) X $6,500,000 $800,000 (4,500,000) (450,000) 2,000,000 350,000 (1,500,000) (200,000) 50000 (42,000) (1,450,000) (242,000) 30,000 580,000 108,000 [lbond] 88,414 X 0 59,267 x [ibond] 0 (1,995,000) X [C] 27,000 x 0 [C] 9,073 x Income Statement Sales Cost of goods sold Gross profit Operating and other expenses Bond interest income Bond interest expense Total expenses Income from Subsidiary Consolidated Net Income Income attributable to NCI Income attributable to control Int Retained Earnings Statement Beg. Ret. Earnings Income attributable to control Int Dividends Declared Ending Retained Earnings Balance Sheet Cash Accounts receivable Inventories Property, Plant & Equipment, net Investment in Subsidiary 105,000 X (9,073) X 1,040,927 X $580,000 $108,000 $ [E] 337,500 X 221,090 X [AD]] $ $760,000 580,000 (200,000) $1,140,000 $276,000 108,000 (40,000) $344,000 5,250,001 x 1,040,927 x (277,500) X 6,013,428 x 30,000 x [C] $ $700,000 800,000 1,000,000 3,000,000 600,000 $300,000 500,000 800,000 1,250,000 1,912,500 x 2,662,500 X 2,990,198 x 12,095,250 X [AD] 221,090 X 1,213,650 X [E] 87,440 x [lbond] 1,105,672 x [lbond] 740.000 $ 19,660,448 x 1,842,000 X 2,400,000 X 1,163,965 x 0 Investment in Bond (net) Total Assets Accounts Payable Other current liabilities Bond Payable (net) Other long-term liabilities Common Stock APIC Retained Earnings Noncontrolling Interest $6,840,000 $2,850,000 $800,000 $250,000 900,000 400,000 756,000 [lbond] 1,400,000 450,000 600,000 150,000 [E] 2,000,000 500,000 [E] 1,140,000 344,000 223,500 x 787,500 x 2,344,597 x 1,579,500 x 5,340,000 X 6,013,428 x 140,923 x 6,073 X 134,850 x 2,858,042 x [C] [E] Total Liabilities and Equity $6,840,000 $2,850,000 $ 2,858,042 x $ $ 19,660,448 x Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales $6,500,000 $800,000 Assets Cost of goods sold (4,500,000) (450,000) Cash Gross profit 2,000,000 350,000 Accounts receivable Operating and other expenses (1,500,000) (200,000) Inventories Bond interest income 50,000 PPE, net Bond interest expense (42,000) Equity investment Total expenses (1,450,000) (242,000) Investment in bond, net Income from subsidiary 30,000 Net income $580,000 $108,000 Liabilities and stockholders' equity Statement of retained earnings Accounts payable BOY retained earnings $760,000 $276,000 Other current liabilities Net income 580,000 108,000 Bond payable (net) Dividends (200,000) (40,000) Other long-term liabilities Ending retained earnings $1,140,000 $344,000 Common stock APIC Retained earnings $700,000 $300,000 800,000 500,000 1,000,000 800,000 3,000,000 1,250,000 600,000 740,000 $6,840,000 $2,850,000 $800,000 900,000 1,400,000 600,000 2,000,000 1,140,000 6,840,000 $250,000 400,000 756,000 450,000 150,000 500,000 344,000 2,850,000 Credit > Debit 221,090 x 0 27,000 x 9,073 x 221,090 X 0 0 0 30,000 X 6,073 X Consolidation Journal Description [ADJ Investment in Subsidiary BOY Retained earnings-Parent [C] Income from subsidiary Income attributable to NCI Dividends-Subsidiary Noncontrolling Interest [E] Common Stock (Subsidiary) APIC (Subsidiary) BOY Retained earnings-Parent Investment in Subsidiary Noncontrolling interest [lbond] Bond payable, net Interest income Investment in bonds, net Interest expense Investment in Subsidiary 0 223,500 x 787,500 x 337,500 X 0 x 0 1,213,650 X 0 134,850 x 1,163,965 x 88,414 X 0 1,105,672 X 59,267 x 0 87,440 X Consolidation Worksheet Parent Subsidiary Debit Credit Consolidated $ 10,950 x (7,905,000) X 3,045,000 (1,995,000) X $6,500,000 $800,000 (4,500,000) (450,000) 2,000,000 350,000 (1,500,000) (200,000) 50000 (42,000) (1,450,000) (242,000) 30,000 580,000 108,000 [lbond] 88,414 X 0 59,267 x [ibond] 0 (1,995,000) X [C] 27,000 x 0 [C] 9,073 x Income Statement Sales Cost of goods sold Gross profit Operating and other expenses Bond interest income Bond interest expense Total expenses Income from Subsidiary Consolidated Net Income Income attributable to NCI Income attributable to control Int Retained Earnings Statement Beg. Ret. Earnings Income attributable to control Int Dividends Declared Ending Retained Earnings Balance Sheet Cash Accounts receivable Inventories Property, Plant & Equipment, net Investment in Subsidiary 105,000 X (9,073) X 1,040,927 X $580,000 $108,000 $ [E] 337,500 X 221,090 X [AD]] $ $760,000 580,000 (200,000) $1,140,000 $276,000 108,000 (40,000) $344,000 5,250,001 x 1,040,927 x (277,500) X 6,013,428 x 30,000 x [C] $ $700,000 800,000 1,000,000 3,000,000 600,000 $300,000 500,000 800,000 1,250,000 1,912,500 x 2,662,500 X 2,990,198 x 12,095,250 X [AD] 221,090 X 1,213,650 X [E] 87,440 x [lbond] 1,105,672 x [lbond] 740.000 $ 19,660,448 x 1,842,000 X 2,400,000 X 1,163,965 x 0 Investment in Bond (net) Total Assets Accounts Payable Other current liabilities Bond Payable (net) Other long-term liabilities Common Stock APIC Retained Earnings Noncontrolling Interest $6,840,000 $2,850,000 $800,000 $250,000 900,000 400,000 756,000 [lbond] 1,400,000 450,000 600,000 150,000 [E] 2,000,000 500,000 [E] 1,140,000 344,000 223,500 x 787,500 x 2,344,597 x 1,579,500 x 5,340,000 X 6,013,428 x 140,923 x 6,073 X 134,850 x 2,858,042 x [C] [E] Total Liabilities and Equity $6,840,000 $2,850,000 $ 2,858,042 x $ $ 19,660,448 x

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