Question
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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