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Consolidation worksheet for gain on constructive retirement of subsidiary's debt with no AAPCost method Assume that a Parent company acquires a 75 percent interest in

Consolidation worksheet for gain on constructive retirement of subsidiary's debt with no AAPCost method Assume that a Parent company acquires a 75 percent interest in its Subsidiary on January 1, 2018. On the date of acquisition, the fair value of the 75 percent controlling interest was $480,000 and the fair value of the 25 percent noncontrolling interest was $160,000. On January 1, 2018, the book value of net assets equaled $640,000 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, 2018, the retained earnings of the subsidiary was $120,000.

On December 31, 2019, the Subsidiary company issued $600,000 (face) 6 percent, five-year bonds to an unaffiliated company for $612,000. 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 $2,400 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, 2019 $612,000
Dec. 31, 2020 $36,000 $2,400 $33,600 609,600
Dec. 31, 2021 36,000 2,400 33,600 607,200
Dec. 31, 2022 36,000 2,400 33,600 604,800
Dec. 31, 2023 36,000 2,400 33,600 602,400
Dec. 31, 2024 36,000 2,400 33,600 600,000

On December 31, 2021, the Parent paid $588,000 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 $4,000 per year. The following schedule provides the bond-amortization schedule for the Parent's bond investment.

Year Cash Payment Amortization of Discount Interest Income Carrying Amount
Dec. 31, 2021 $588,000
Dec. 31, 2022 $36,000 $4,000 $40,000 592,000
Dec. 31, 2023 36,000 4,000 40,000 596,000
Dec. 31, 2024 36,000 4,000 40,000 600,000

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, 2022:

Parent Subsidiary Parent Subsidiary
Income statement Balance sheet
Sales $5,200,000 $640,000 Assets
Cost of goods sold (3,600,000) (360,000) Cash $560,000 $240,000
Gross profit 1,600,000 280,000 Accounts receivable 640,000 400,000
Operating and other expenses (1,200,000) (160,000) Inventories 800,000 640,000
Bond interest income 40,000 - PPE, net 2,400,000 1,000,000
Bond interest expense - (33,600) Equity investment 480,000 -
Total expenses (1,160,000) (193,600) Investment in bond, net 592,000 -
Income from subsidiary 24,000 - $5,472,000 $2,280,000
Net income $464,000 $86,400 Liabilities and stockholders' equity
Statement of retained earnings Accounts payable $640,000 $200,000
BOY retained earnings $608,000 $220,800 Other current liabilities 720,000 320,000
Net income 464,000 86,400 Bond payable (net) - 604,800
Dividends (160,000) (32,000) Other long-term liabilities 1,120,000 360,000
Ending retained earnings $912,000 $275,200 Common stock 480,000 120,000
APIC 1,600,000 400,000
Retained earnings 912,000 275,200
5,472,000 2,280,000

Round answers to the nearest whole number.

Consolidation Journal
Description Debit Credit
[ADJ]

AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary

Answer

Answer

AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary

Answer

Answer

[C] Income from subsidiary

Answer

Answer

AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary

Answer

Answer

AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary

Answer

Answer

Noncontrolling Interest

Answer

Answer

[E] Common Stock (Subsidiary)

Answer

Answer

APIC (Subsidiary)

Answer

Answer

AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary

Answer

Answer

AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary

Answer

Answer

Noncontrolling interest

Answer

Answer

[Ibond] Bond payable, net

Answer

Answer

AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary

Answer

Answer

AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary

Answer

Answer

Interest expense

Answer

Answer

Investment in Subsidiary

Answer

Answer

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.

Consolidation Worksheet
Parent Subsidiary Debit Credit Consolidated
Income Statement
Sales $5,200,000 $640,000

Answer

Cost of goods sold (3,600,000) (360,000)

Answer

Gross profit 1,600,000 280,000

Answer

Operating and other expenses (1,200,000) (160,000)

Answer

Bond interest income 40,000 - [Ibond]

Answer

Answer

Bond interest expense - (33,600)

Answer

[Ibond]

Answer

Total expenses (1,160,000) (193,600)

Answer

Income from Subsidiary 24,000 - [C]

Answer

Answer

Consolidated Net Income 464,000 86,400

Answer

Income attributable to NCI - - [C]

Answer

Answer

Income attributable to Control Int $464,000 $86,400

Answer

Retained Earnings Statement
Beg. Ret. Earnings $608,000 $220,800 [E]

Answer

Answer

[ADJ]

Answer

Income attributable to Control Int 464,000 86,400

Answer

Dividends Declared (160,000) (32,000)

Answer

[C]

Answer

Ending Retained Earnings $912,000 $275,200

Answer

Balance Sheet
Cash $560,000 $240,000

Answer

Accounts receivable 640,000 400,000

Answer

Inventories 800,000 640,000

Answer

Property, Plant & Equipment, net 2,400,000 1,000,000

Answer

Investment in Subsidiary 480,000 - [ADJ]

Answer

Answer

[E]

Answer

Answer

[Ibond]
Investment in Bond (net) 592,000 -

Answer

[Ibond]

Answer

Total Assets $5,472,000 $2,280,000

Answer

Accounts Payable $640,000 $200,000

Answer

Other current liabilities 720,000 320,000

Answer

Bond Payable (net) 604,800 [Ibond]

Answer

Answer

Other long-term liabilities 1,120,000 360,000

Answer

Common Stock 480,000 120,000 [E]

Answer

Answer

APIC 1,600,000 400,000 [E]

Answer

Answer

Retained Earnings 912,000 275,200

Answer

Noncontrolling Interest

Answer

[C]

Answer

Mark 1.00 out of 1.00

Answer

[E]
Total Liabilities and Equity $5,472,000 $2,280,000

Answer

Answer

Answer

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