I have a question pertaining to Question 3, which states: "On the 2017 consolidated income statement, the noncontrolling interest in net income of Starfruit is"

I have attached the solution manual, but I am stuck on how the net income was calculated for both equity in net income and NCI in Net Income;I would also like to know identifiable intangibles amortization and goodwill impairment loss were calculated.

CHAPTER 5 SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS MULTIPLE CHOICE QUESTIONS 1. b Calculation of goodwill: Acquisition cost Fair value of noncontrolling interest Total fair value Book value Plant and equipment revaluation Identifiable intangibles Fair value of identifiable net assets Goodwill $ 91,700,000 6,300,000 98,000,000 $ 13,000,000 (25,000,000) 40,000,000 28,000,000 $ 70,000,000 Allocation of goodwill between controlling and noncontrolling interest: Total goodwill Pomegranate's goodwill: $91,700,000 - (90% x $28,000,000) Goodwill to noncontrolling interest $ 70,000,000 66,500,000 $ 3,500,000 Goodwill is allocated 95% to the controlling interest and 5% to the noncontrolling interest. (R) Identifiable intangibles Goodwill Plant and equipment Investment in Starfruit (1) Noncontrolling interest in Starfruit (2) 40,000,000 70,000,000 25,000,000 80,000,000 5,000,000 (1) [90% x ($40,000,000 - $25,000,000)] + $66,500,000 (2) [10% x ($40,000,000 - $25,000,000)] + $3,500,000 2. c (R) Identifiable intangibles Goodwill Plant and equipment Investment in Starfruit (1) Noncontrolling interest in Starfruit (2) 24,000,000 68,000,000 20,000,000 68,200,000 3,800,000 (1) [90% x ($24,000,000 - $20,000,000)] + (95% x $68,000,000) (2) [10% x ($24,000,000 - $20,000,000)] + (5% x $68,000,000) Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-1 3. b Starfruit net income Revaluation write-offs: Plant and equipment depreciation Identifiable intangibles amortization Goodwill impairment loss 4. Equity in Net Income $ 6,750,000 NCI in Net Income $ 750,000 2,250,000 (7,200,000) (475,000) $ 1,325,000 250,000 (800,000) (25,000) $ 175,000 c 10% x ($13,000,000 + $40,000,000 - $25,000,000) = $2,800,000 5. c Noncontrolling interest in net income = $750,000 + $250,000 - $800,000 = Noncontrolling interest in OCI = 10% x $100,000 = Noncontrolling interest in comprehensive income 6. $ 200,000 10,000 $ 210,000 d (E) Stockholders' equity Investment in Starfruit Noncontrolling interest in Starfruit 13,000,000 11,700,000 1,300,000 (R) Identifiable intangibles Plant and equipment Investment in Starfruit (1) Noncontrolling interest in Starfruit (2) 40,000,000 25,000,000 14,300,000 700,000 (1) Investment in Starfruit balance on Pomegranate's books is $26,000,000 (= $20,000,000 cost + $6,000,000 gain on acquisition). Elimination of the investment in (R) is the remainder of the investment balance, after elimination (E). (2) The credit to noncontrolling interest in (R) brings the noncontrolling interest to fair value, after elimination (E). 7. a There is no goodwill when the acquisition is a bargain purchase. 8. d 9. b 10. a Cambridge Business Publishers, 2016 5-2 Advanced Accounting, 3rd Edition EXERCISES E5.1 Date of Acquisition Consolidation Eliminating Entries a. Calculation of goodwill: Acquisition cost Fair value of noncontrolling interest Total fair value Book value of Saylor Revaluations: Land IPR&D Goodwill $ 12,000,000 2,600,000 14,600,000 $ 3,000,000 200,000 1,500,000 4,700,000 $ 9,900,000 Allocation of goodwill between controlling and noncontrolling interest: Total goodwill Pennant's goodwill: $12,000,000 - (80% x $4,700,000) Goodwill to noncontrolling interest $ 9,900,000 8,240,000 $ 1,660,000 b. Working paper eliminating entries, date of acquisition: (E) Stockholders' equity - Saylor Investment in Saylor (80%) Noncontrolling interest in Saylor (20%) 3,000,000 2,400,000 600,000 (R) Land IPR&D Goodwill Investment in Saylor (1) Noncontrolling interest in Saylor (2) 200,000 1,500,000 9,900,000 9,600,000 2,000,000 (1) [80% x ($200,000 + $1,500,000)] + $8,240,000 = $9,600,000 (2) [20% x ($200,000 + $1,500,000)] + $1,660,000 = $2,000,000 Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-3 E5.2 Equity in Net Income and Noncontrolling Interest in Net Income To allocate the goodwill impairment, we need to know the original allocations of goodwill: Calculation of goodwill: Acquisition cost Fair value of noncontrolling interest Total fair value Book value of Sun City Revaluation: Identifiable intangibles Goodwill $ 35,200,000 9,800,000 45,000,000 $ 3,000,000 5,000,000 8,000,000 $ 37,000,000 Allocation of goodwill between controlling and noncontrolling interest: Total goodwill Palm's goodwill: $35,200,000 - (70% x $8,000,000) Goodwill to noncontrolling interest $ 37,000,000 29,600,000 $ 7,400,000 Goodwill is allocated in an 80:20 ratio. 2017 equity in net income and noncontrolling interest in net income: Sun City's reported net income Revaluation write-offs: Identifiable intangibles $5,000,000/5 Goodwill impairment loss Cambridge Business Publishers, 2016 5-4 Total $ 8,000,000 (1,000,000) (2,000,000) $ 5,000,000 Noncontrolling Equity in NI Interest in NI $ 5,600,000 $ 2,400,000 (700,000) (1,600,000) $ 3,300,000 (300,000) (400,000) $ 1,700,000 Advanced Accounting, 3rd Edition E5.3 Consolidation Eliminating Entries, Date of Acquisition and Two Years Later a. Calculation of goodwill: Acquisition cost Fair value of noncontrolling interest Total fair value Book value of Stardust Revaluations: Plant and equipment Identifiable intangibles Goodwill $ 51,100,000 2,900,000 54,000,000 $ 2,000,000 (6,000,000) 8,000,000 4,000,000 $ 50,000,000 Allocation of goodwill between controlling and noncontrolling interest: Total goodwill Plaza's goodwill: $51,100,000 - (90% x $4,000,000) Goodwill to noncontrolling interest $ 50,000,000 47,500,000 $ 2,500,000 Goodwill is allocated in a 95:5 ratio. b. Working paper eliminating entries, date of acquisition: (E) Capital stock Retained earnings Accumulated OCI Investment in Stardust (90%) Noncontrolling interest in Stardust (10%) 300,000 1,650,000 50,000 1,800,000 200,000 (R) Identifiable intangibles Goodwill Plant and equipment Investment in Stardust (1) Noncontrolling interest in Stardust (2) 8,000,000 50,000,000 6,000,000 49,300,000 2,700,000 (1) [90% x ($8,000,000 - $6,000,000)] + $47,500,000 = $49,300,000 (2) [10% x ($8,000,000 - $6,000,000)] + $2,500,000 = $2,700,000 Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-5 c. 2018 equity in net income and noncontrolling interest in net income: Stardust's reported net income Revaluation write-offs: Plant and equipment $6,000,000/10 Identifiable intangibles $8,000,000/4 Goodwill impairment loss 95:5 Total $ 4,000,000 Equity Noncontrolling in NI Interest in NI $ 3,600,000 $ 400,000 600,000 (2,000,000) (200,000) $ 2,400,000 540,000 (1,800,000) (190,000) $ 2,150,000 60,000 (200,000) (10,000) $ 250,000 Working paper eliminating entries, two years later: (C) Equity in NI Equity in OCL Investment in Stardust (E) Capital stock Retained earnings, beg. (1) Accumulated OCI, beg. (2) Investment in Stardust (90%) Noncontrolling interest in Stardust (10%) 2,150,000 9,000 2,141,000 300,000 4,450,000 75,000 4,342,500 482,500 (1) $1,650,000 + $2,800,000 = $4,450,000 (2) $50,000 + $25,000 = $75,000 (R) Identifiable intangibles Goodwill Plant and equipment Investment in Stardust (3) Noncontrolling interest in Stardust (4) 6,000,000 50,000,000 5,400,000 48,040,000 2,560,000 (3) [90% x ($6,000,000 - $5,400,000)] + $47,500,000 = $48,040,000 (4) [10% x ($6,000,000 - $5,400,000)] + $2,500,000 = $2,560,000 (O) Operating expenses Plant and equipment Identifiable intangibles Goodwill (N) Noncontrolling interest in NI Noncontrolling interest in OCL Noncontrolling interest Cambridge Business Publishers, 2016 5-6 1,600,000 600,000 2,000,000 200,000 250,000 1,000 249,000 Advanced Accounting, 3rd Edition E5.4 Date of Acquisition Consolidation Eliminating Entries, Bargain Purchase a. Acquisition cost Fair value of noncontrolling interest Total Book value of Sparrow Revaluations: Land Other plant assets, net Equity method investments Long-term debt Fair value of identifiable net assets Gain on acquisition $ 22,000,000 4,000,000 26,000,000 $ 25,000,000 (800,000) 2,000,000 1,500,000 (700,000) 27,000,000 $ (1,000,000) Peregrine's acquisition entry: Investment in Sparrow Merger expenses Cash Gain on acquisition 23,000,000 3,000,000 25,000,000 1,000,000 b. Working paper eliminating entries, date of acquisition: (E) Capital stock Retained earnings Accumulated other comprehensive income Treasury stock Investment in Sparrow (80%) Noncontrolling interest in Sparrow (20%) (R) Other plant assets, net Equity method investments Noncontrolling interest in Sparrow (1) Land Long-term debt Investment in Sparrow (2) 4,000,000 20,000,000 1,500,000 500,000 20,000,000 5,000,000 2,000,000 1,500,000 1,000,000 800,000 700,000 3,000,000 (1) $5,000,000 - $4,000,000 = $1,000,000 adjustment needed to bring the NCI balance to its fair value at the date of acquisition. (2) $23,000,000 - $20,000,000 = $3,000,000 to eliminate the remainder of the investment balance. Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-7 E5.5 Consolidation Eliminating Entries at End of First Year (see related E4.3) a. Calculation of goodwill is as follows: Acquisition cost ($10,000,000 + $300,000) Fair value of noncontrolling interest Total Book value of Saddlestone Revaluation: Identifiable intangibles Goodwill $ 10,300,000 6,500,000 16,800,000 $ 7,200,000 2,000,000 9,200,000 $ 7,600,000 Allocation of goodwill between controlling and noncontrolling interest: Total goodwill Peak's goodwill: $10,300,000 - (60% x $9,200,000) Goodwill to noncontrolling interest $ 7,600,000 4,780,000 $ 2,820,000 b. 2016 equity in net income and noncontrolling interest in net income: Saddlestone's reported net income Revaluation write-off: Identifiable intangibles $2,000,000/5 Total $ 3,000,000 Equity in NI $ 1,800,000 Noncontrolling interest in NI $ 1,200,000 (400,000) $ 2,600,000 (240,000) $ 1,560,000 (160,000) $ 1,040,000 c. Consolidation working paper eliminating entries for 2016: (C) Equity in net income of Saddlestone Dividends - Saddlestone Investment in Saddlestone (E) Stockholders' equitySaddlestone, 1/1 Investment in Saddlestone Noncontrolling interest in Saddlestone (R) Identifiable intangibles Goodwill Investment in Saddlestone (1) Noncontrolling interest in Saddlestone (2) 1,560,000 600,000 960,000 7,200,000 4,320,000 2,880,000 2,000,000 7,600,000 5,980,000 3,620,000 (1) (60% x $2,000,000) + $4,780,000 (2) (40% x $2,000,000) + $2,820,000 Cambridge Business Publishers, 2016 5-8 Advanced Accounting, 3rd Edition (O) Amortization expense Identifiable intangibles 400,000 400,000 (N) Noncontrolling interest in income of Saddlestone Dividends - Saddlestone Noncontrolling interest in Saddlestone E5.6 1,040,000 400,000 640,000 Consolidation Eliminations Several Years After Acquisition a. Paramount's acquisition cost Fair value of noncontrolling interest Total Book value, date of acquisition Revaluations: Accounts receivable Inventory Equipment Patents Deferred tax liabilities Goodwill $ 2,910,000 790,000 3,700,000 $1,500,000 (100,000) (125,000) (400,000) 200,000 (75,000) 1,000,000 $ 2,700,000 Paramount's share of goodwill = $2,910,000 - (75% x $1,000,000) = $2,160,000 (80%) Noncontrolling interest's share of goodwill = $540,000 (20%) b. January 2012 balance Change in Sun's retained earnings, 2012-2017: ($1,800,000 - $800,000), divided 75:25 Write-off of Sun's identifiable net asset revaluations, 2012-2017: ($100,000 + $125,000 + $240,000 - $200,000 + $60,000), divided 75:25 Goodwill impairment, 2012-2017: ($2,700,000 - $2,000,000), divided 80:20 Balance, end of 2017 Solutions Manual, Chapter 5 Investment $ 2,910,000 Noncontrolling interest $ 790,000 750,000 250,000 243,750 81,250 (560,000) $ 3,343,750 $ (140,000) 981,250 Cambridge Business Publishers, 2016 5-9 c. (E) Stockholders' equity-Sun Investment in Sun Noncontrolling interest in Sun 2,500,000 1,875,000 625,000 (R) Goodwill Equipment, net (1) Deferred tax liabilities Investment in Sun (2) Noncontrolling interest in Sun (3) 2,000,000 160,000 15,000 1,468,750 356,250 (1) $400,000 - [(6/10) x $400,000] (2) (80% x $2,000,000) - (75% x $175,000) (3) (20% x $2,000,000) - (25% x $175,000) E5.7 Consolidation Eliminating Entries Several Years After Acquisition a. Acquisition cost Fair value of noncontrolling interest Total Book value, date of acquisition Revaluations: Plant and equipment Favorable lease agreements Gaming licenses Deferred tax liabilities Goodwill $ 41,450 13,550 55,000 $ 4,000 (15,000) 5,000 7,000 (3,000) Palomar's share of goodwill = $41,450 - (65% x -$2,000) = $42,750 Noncontrolling interest's share of goodwill = $14,250 (25%) (2,000) $ 57,000 (75%) b. Date of acquisition cost Change in Sahara's retained earnings, 2013-2016: ($12,000 - $1,500) x 65% Revaluation write-offs, identifiable net assets, 2013-2016: + Plant and equipment [4 x ($15,000/20)] x 65% - Favorable leases $5,000 x 65% - Gaming licenses [4 x ($7,000/7)] x 65% + Deferred tax reversals $2,200 x 65% Goodwill impairment losses, 2013-2016 $3,600 x 75% Balance, January 1, 2017 + Equity in NI for 2017 [($2,550 + $15,000/20 - $7,000/7 + $300) x 65%] - ($1,000 x 75%) - Dividends (65% x $200) Investment balance, December 31, 2017 Cambridge Business Publishers, 2016 5-10 Investment $ 41,450 6,825 1,950 (3,250) (2,600) 1,430 (2,700) 43,105 940 (130) $ 43,915 Advanced Accounting, 3rd Edition c. (C) Equity in NI Dividends Investment in Sahara 940 130 810 (E) Capital stock RE, January 1 Investment in Sahara Noncontrolling interest 2,500 12,000 9,425 5,075 (R) Gaming licenses Goodwill Plant and equipment Deferred tax liabilities Investment in Sahara (1) Noncontrolling interest (2) 3,000 53,400 12,000 800 33,680 9,920 (1) [65% x ($3,000 - $12,000 - $800)] + (75% x $53,400) = $33,680 (2) [35% x ($3,000 - $12,000 - $800)] + (25% x $53,400) = $9,920 (O) Plant and equipment Deferred tax liabilities Goodwill impairment loss Amortization expense Depreciation expense Tax expense Goodwill Gaming licenses 750 300 1,000 1,000 750 300 1,000 1,000 (N) Noncontrolling interest in NI (3) Dividends Noncontrolling interest 660 70 590 (3) [($2,550 + $15,000/20 - $7,000/7 + $300) x 35%] - ($1,000 x 25%) = $660 Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-11 E5.8 Consolidation Working Paper, Date of Acquisition (see related E3.9) a. Calculation of goodwill: Acquisition cost Fair value of noncontrolling interest Total fair value Book value of Sylvan Goodwill $ 43,000,000 4,250,000 47,250,000 17,000,000 $ 30,250,000 Allocation of goodwill between controlling and noncontrolling interest: Total goodwill Princecraft's goodwill: $43,000,000 - (90% x $17,000,000) Goodwill to noncontrolling interest $ 30,250,000 27,700,000 $ 2,550,000 b. Consolidation Working Paper Accounts Taken From Books (in thousands) Cash Princecraft Dr (Cr) $ Eliminations Sylvan Dr (Cr) Dr Cr Consolidated Balances Dr (Cr) 17,000 $ 2,000 $ 19,000 Other current assets 20,000 8,000 28,000 Property and equipment, net 70,000 15,000 85,000 Investment in Sylvan 43,000 -- 15,300 (E) 27,700 (R) Goodwill -- -- Total liabilities (30,000) (8,000) Common stock (15,000) (5,000) Additional paid-in capital (45,000) (10,000) Retained earnings (60,000) (2,000) -- (R) 30,250 (38,000) (E) 5,000 (15,000) (E) 10,000 (45,000) (E) (60,000) 2,000 Noncontrolling interest 1,700 (E) ______ Total 30,250 $ 0 ______ $ 0 ______ $ 47,250 2,550 (R) $47,250 (4,250) $ 0 Note: Princecraft's balance sheet above reflects the following acquisition entry (in thousands): Investment in Sylvan Cash Cambridge Business Publishers, 2016 5-12 43,000 43,000 Advanced Accounting, 3rd Edition c. Consolidated Balance Sheet, Date of Acquisition (in thousands) Assets Cash Other current assets Property and equipment, net Goodwill Total assets Liabilities and stockholders' equity Total liabilities Stockholders' equity Princecraft's stockholders' equity: Common stock Additional paid-in capital Retained earnings Total Princecraft's stockholders' equity Noncontrolling interest Total stockholders' equity Total liabilities and stockholders' equity E5.9 $ 19,000 28,000 85,000 30,250 $ 162,250 $ 38,000 15,000 45,000 60,000 120,000 4,250 124,250 $ 162,250 Consolidation Eliminating Entries, Date of Acquisition: U.S. GAAP and IFRS (in thousands) a. Plummer's acquisition entry: Investment in Softek Merger expenses Cash Common stock, par value Additional paid-in capital 25,000 500 500 4,000 21,000 Calculation of goodwill: Acquisition cost Fair value of noncontrolling interest Total fair value Book value of Softek Revaluations: Plant assets Trademarks Customer lists Long-term debt Goodwill Solutions Manual, Chapter 5 $ 25,000 2,500 27,500 $ 12,000 (3,000) 1,500 1,000 (100) 11,400 $ 16,100 Cambridge Business Publishers, 2016 5-13 Allocation of goodwill between controlling and noncontrolling interest: Total goodwill Plummer's goodwill: $25,000 - (90% x $11,400) Goodwill to noncontrolling interest $ $ 16,100 14,740 1,360 Consolidation eliminating entries: (E) Common stock Additional paid-in capital Retained earnings Accumulated OCI Treasury stock Investment in Softek Noncontrolling interest in Softek 200 8,000 5,000 800 400 10,800 1,200 (R) Trademarks Customer lists Goodwill Plant assets, net Long-term debt Investment in Softek (1) Noncontrolling interest in Softek (2) 1,500 1,000 16,100 3,000 100 14,200 1,300 (1) [90% x ($1,500 + $1,000 - $3,000 - $100)] + $14,740 = $14,200 (2) [10% x ($1,500 + $1,000 - $3,000 - $100)] + $1,360 = $1,300 b. Consolidation eliminating entries: (E) Common stock Additional paid-in capital Retained earnings Accumulated OCI Treasury stock Investment in Softek Noncontrolling interest in Softek Cambridge Business Publishers, 2016 5-14 200 8,000 5,000 800 400 10,800 1,200 Advanced Accounting, 3rd Edition (R) Trademarks Customer lists Goodwill Noncontrolling interest in Softek (3) Plant assets, net Long-term debt Investment in Softek 1,500 1,000 14,740 60 3,000 100 14,200 (3) 10% x ($1,500 + $1,000 - $3,000 - $100) = $(60) Note: The IFRS alternative valuation method attributes no goodwill to the noncontrolling interest. The noncontrolling interest balance at the date of acquisition is 10% x the fair value of Softek's identifiable net assets, or 10% x $11,400 = $1,140. E5.10 Consolidation at Date of Acquisition, IFRS and U.S. GAAP (in millions) a. Calculation of goodwill: Acquisition cost Less 49% fair value of identifiable net assets Goodwill 49% x 5 39.00 (2.45) 36.55 Noncontrolling interest = 51% x 5 = 2.55 b. (E) Stockholders' equity Investment in Compador Noncontrolling interest (R) Current assets Current liabilities and provisions Goodwill Noncurrent assets Investment in Compador 5.00 2.45 2.55 0.10 0.10 36.55 0.20 36.55 Note: There is no revaluation adjustment to the noncontrolling interest in (R) because the total fair value of the identifiable net assets equals book value. Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-15 c. Calculation of goodwill: Acquisition cost Fair value of noncontrolling interest Total fair value Book value Net revaluations of identifiable net assets Fair value of identifiable net assets Goodwill 39.00 38.00 77.00 5.00 -5.00 72.00 Goodwill to the controlling interest = 39.00 - (49% x 5.00) = 36.55 (equal to the amount reported using the IFRS alternative). Noncontrolling interests = fair value at date of acquisition = 38. d. (E) Stockholders' equity Investment in Compador Noncontrolling interest 5.00 2.45 2.55 (R) Current assets Current liabilities and provisions Goodwill Noncurrent assets Investment in Compador Noncontrolling interest 0.10 0.10 72.00 0.20 36.55 35.45 E5.11 Consolidation Eliminating Entries, One Year After Acquisition, IFRS a. Calculation of goodwill: Acquisition cost Share of fair value of identifiable net assets: ( 7,000,000 x 45%) Goodwill 65,000,000 3,150,000 61,850,000 Noncontrolling interests = 55% x 7,000,000 = 3,850,000. Cambridge Business Publishers, 2016 5-16 Advanced Accounting, 3rd Edition b. (C) Equity in NI of E-Minus Investment in E-Minus 1,800,000 1,800,000 45% x 4,000,000 = 1,800,000. (E) Stockholders' equity Investment in E-Minus Noncontrolling interest (R) Goodwill Investment in E-Minus 7,000,000 3,150,000 3,850,000 61,850,000 61,850,000 Eliminating entry (O) is not required since goodwill is not impaired. (N) Noncontrolling interest in NI Noncontrolling interest 2,200,000 2,200,000 4,000,000 x 55% = 2,200,000. E5.12 Consolidation at Acquisition Date, IFRS (in millions) a. Calculation of goodwill: Acquisition cost Fair value of noncontrolling interest Total fair value of Sotelma Fair value of identifiable net assets: Book value Revaluations: License Customer bases Deferred tax Total fair value of identifiable net assets Goodwill 278 208 486 35 24 2 (3) 58 428 Goodwill to controlling interests = 278 - (51% x 58) = 248 Goodwill to noncontrolling interests = 428 - 248 = 180 Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-17 b. Maroc Telecom paid a premium to purchase a controlling interest in Sotelma. Maroc's acquisition cost of 278 implies a full price of 278/.51 = 545, and a noncontrolling interest value of 545 x 49% = 267. However, the fair value of the noncontrolling interest is only 208. c. (E) Stockholders' equity-Sotelma Investment in Sotelma Noncontrolling interest 35 18 17 (R) License Customer bases Goodwill Deferred tax Investment in Sotelma Noncontrolling interest 24 2 428 3 260 191 260 = (51% x 23) + 248; 191 = (49% x 23) + 180. d. Noncontrolling interest = 49% x 58 = 28 E5.13 Consolidated Balance Sheet, Date of Acquisition: U.S. GAAP and IFRS a. Calculation of goodwill: Acquisition cost $3,000,000 + (200,000 x $80) Fair value of noncontrolling interest Total fair value Book value of Powerline Revaluations: Current assets Plant and equipment Brand names Goodwill $ 19,000,000 1,800,000 20,800,000 $ 4,500,000 (500,000) (6,000,000) 3,000,000 1,000,000 $ 19,800,000 Allocation of goodwill between controlling and noncontrolling interest: Total goodwill Microsoft's goodwill: $19,000,000 - (90% x $1,000,000) Goodwill to noncontrolling interest Cambridge Business Publishers, 2016 5-18 $ 19,800,000 18,100,000 $ 1,700,000 Advanced Accounting, 3rd Edition b. Consolidation Working Paper Accounts Taken From Books (in thousands) Microsoft Dr (Cr) Current assets Eliminations Powerline Dr (Cr) Dr Cr $ 7,000 $ 2,000 500 (R) Plant and equipment, net 35,000 7,000 6,000 (R) Investment in Powerline 19,000 Consolidated Balances Dr (Cr) $ 8,500 36,000 4,050 (E) 14,950 (R) -- Brand names -- (R) 3,000 3,000 Goodwill -- (R) 19,800 19,800 Current liabilities (5,000) (1,500) (6,500) (20,000) (3,000) (23,000) Common stock, par value (5,000) (100) Additional paid-in capital (19,600) Retained earnings (11,000) Long-term liabilities Accumulated other comprehensive (income) loss 100 (5,000) (1,450) (E) 1,450 (19,600) (3,000) (400) (E) (E) 3,000 (11,000) 50 50 (E) -- -- 450 (E) ________ _______ $ $ Noncontrolling interest Total 0 0 ______ $ 27,350 (400) 1,350 (R) $ 27,350 (1,800) $ 0 Note 1: Microsoft's balance sheet above reflects the following acquisition entry (in thousands): Investment in Powerline 19,000 Cash 3,000 Common stock 2,000 Additional paid-in capital 14,000 Note 2: The $14,950,000 credit to investment in entry (R) = [90% (-$500,000 $6,000,000 + $3,000,000)] + $18,100,000 (goodwill). The $1,350,000 credit to noncontrolling interest in entry (R) = [10% ($500,000 - $6,000,000 + $3,000,000)] + $1,700,000 (goodwill). Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-19 c. Calculation of goodwill: Acquisition cost 90% x fair value of identifiable net assets Goodwill 90% x $1,000,000 $ 19,000,000 900,000 $ 18,100,000 Consolidation Working Paper Accounts Taken From Books (in thousands) Microsoft Dr (Cr) Current assets Eliminations Powerline Dr (Cr) Dr Cr $ 7,000 $ 2,000 500 (R) Plant and equipment, net 35,000 7,000 6,000 (R) Investment in Powerline 19,000 Consolidated Balances Dr (Cr) $ 8,500 36,000 4,050 (E) 14,950 (R) -- Brand names -- (R) 3,000 3,000 Goodwill -- (R) 18,100 18,100 Current liabilities (5,000) (1,500) (6,500) (20,000) (3,000) (23,000) Common stock, par value (5,000) (100) Additional paid-in capital (19,600) Retained earnings (11,000) Long-term liabilities Accumulated other comprehensive (income) loss Noncontrolling interest Total 0 (5,000) (E) 1,450 (19,600) (3,000) (E) 3,000 (11,000) 50 -$ 100 (1,450) (400) (E) -$ 0 50 (E) (R) 350 $ 26,000 (400) 450 (E) (100) $ 26,000 $ 0 Note: The IFRS alternative valuation method attributes no goodwill to the noncontrolling interest. At the date of acquisition, the noncontrolling interest is valued at 10% of the fair value of Powerline's identifiable net assets, or 10% x $1,000,000 = $100,000. Cambridge Business Publishers, 2016 5-20 Advanced Accounting, 3rd Edition E5.14 Consolidated Cash Flow from Operations Consolidated net income + Consolidated depreciation expense + Amortization of previously unrecognized identifiable intangibles - Amortization of premium on LT debt - 40% of undistributed equity method income (40% x $1,700,000) + Decrease in noncash current operating assets - Decrease in current operating liabilities Cash flow from operating activities $ 20,000,000 3,000,000 1,400,000 (80,000) (680,000) 2,800,000 (2,100,000) $ 24,340,000 E5.15 Consolidated Cash Flow from Operations a. Parent's reported income Subsidiary's reported income Less revaluation write-offs: Depreciation Amortization Goodwill impairment loss Consolidated net income $ 1,000,000 240,000 Consolidated net income + Consolidated depreciation expense (1) + Consolidated amortization expense (2) + Goodwill impairment loss - Undistributed equity investment income (3) Cash flow from operating activities $ 1,182,000 216,000 65,000 40,000 (25,000) $ 1,478,000 (3,000) (15,000) (40,000) $ 1,182,000 b. (1) $175,000 + $38,000 + $3,000 (2) $50,000 + $15,000 (3) $60,000 - $35,000 Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-21 PROBLEMS P5.1 Consolidation Working Paper, Date of Acquisition (in millions) a. Calculation of goodwill: Acquisition cost Fair value of noncontrolling interest Total fair value Book value of Bagota Revaluations: Property, plant and equipment Patents and trademarks Customer-related intangibles Long-term liabilities Goodwill $ 1,200 _375 1,575 $ 500 (200) 45 30 25 _ 400 $ 1,175 Allocation of goodwill between controlling and noncontrolling interest: Total goodwill Hershey's goodwill: $1,200 - (75% x $400) Goodwill to noncontrolling interest $ 1,175 900 $ 275 b. Consolidation Working Paper Accounts Taken From Books Eliminations (in millions) Current assets PP&E, net Investment in Bagota Patents and trademarks Customer-related intangs Goodwill Current liabilities Long-term liabilities Common stock, par value Additional paid-in capital Retained earnings Treasury stock Accumulated OCL Noncontrolling interest Total liabilities and equity Cambridge Business Publishers, 2016 5-22 Hershey Dr (Cr) $ 1,500 1,600 1,200 Bagota Dr (Cr) $ 325 600 -- 1,300 -- 75 (1,600) (1,900) (300) (1,950) (3,900) 4,000 50 ______ $ 0 (100) (400) (10) (200) (300) -10 ______ $ 0 Dr Cr 200 (R) 375 (E) 825 (R) Consolidated Balances Dr (Cr) $ 1,825 2,000 -1,420 30 1,175 (1,700) (2,275) (300) (1,950) (3,900) 4,000 50 (R) 45 (R) 30 (R) 1,175 (R) (E) (E) (E) 25 10 200 300 ______ $ 1,785 10 (E) 125 (E) 250 (R) $ 1,785 $ (375) 0 Advanced Accounting, 3rd Edition c. Consolidated Balance Sheet, July 1, 2016 Assets Current assets Property, plant and equipment, net Goodwill Identifiable intangibles Total assets Liabilities and stockholders' equity Current liabilities Long-term liabilities Total liabilities Stockholders' equity Hershey's stockholders' equity: Common stock Additional paid-in capital Retained earnings Treasury stock Accumulated other comprehensive loss Total Hershey stockholders' equity Noncontrolling interest Total stockholders' equity Total liabilities and stockholders' equity P5.2 $ $ $ 1,825 2,000 1,175 1,450 6,450 1,700 2,275 3,975 300 1,950 3,900 (4,000) (50) 2,100 375 2,475 $ 6,450 Consolidated Balance Sheet Working Paper, Date of Acquisition, Bargain Purchase (see related P3.4) (in millions) a. Acquisition cost Fair value of noncontrolling interest Total Book value of Saxon Revaluations: Inventory Long-term investments Land Buildings and equipment, net Long-term debt Fair value of identifiable net assets Gain on acquisition Solutions Manual, Chapter 5 $ 1,000 200 $ 1,200 $ 1,295 100 (50) 245 300 110 2,000 $ (800) Cambridge Business Publishers, 2016 5-23 Paxon's acquisition entry: Investment in Saxon Cash Gain on acquisition 1,800 1,000 800 b. Consolidation Working Paper Accounts Taken From Books Paxon Dr (Cr) Cash and receivables Eliminations Saxon Dr (Cr) $ 1,860 900 Cr $ 720 1,700 Dr Consolidated Balances Dr (Cr) Inventory Long-term investments -- Investment in Saxon $ 2,580 (R) 100 300 2,700 50 (R) 1,800 250 1,036 (E) 764 (R) Land -- 650 175 (R) 245 1,070 3,400 600 (R) 300 4,300 Accumulated depreciation (1,000) -- (1,000) Current liabilities (1,500) (1,000) (2,500) Long-term debt Buildings and equipment (2,000) (400) (R) 110 (2,290) Common stock, par value (500) (100) (E) 100 (500) Additional paid-in capital (1,200) (350) (E) 350 (1,200) Retained earnings (3,210) (845) (E) 845 (3,210) -- (R) 59 Noncontrolling interest Total Note: -$ 0 $ 0 $ 2,109 259 (E) $ 2,109 (200) $ 0 In journal entry form, the eliminating entries are: (E) Common stock, par value Additional paid-in capital Retained earnings Investment in Saxon Noncontrolling interest Cambridge Business Publishers, 2016 5-24 100 350 845 1,036 259 Advanced Accounting, 3rd Edition (R) Inventory Land Buildings and equipment Long-term debt Noncontrolling interest Long-term investments Investment in Saxon 100 245 300 110 59 50 764 The adjustment to noncontrolling interest brings its balance to fair value at the acquisition date. The adjustment to the investment eliminates the remaining balance. c. Consolidated Balance Sheet, January 1, 2016 Assets Cash and receivables Inventory Current assets Long-term investments Land Buildings and equipment, net of $1,000 accumulated depreciation Total assets Liabilities and stockholders' equity Current liabilities Long-term debt Total liabilities Stockholders' equity Paxon stockholders' equity: Common stock Additional paid-in capital Retained earnings Total Paxon stockholders' equity Noncontrolling interest Total stockholders' equity Total liabilities and stockholders' equity Solutions Manual, Chapter 5 $ $ $ 2,580 2,700 5,280 250 1,070 3,300 9,900 2,500 2,290 4,790 500 1,200 3,210 4,910 200 5,110 $ 9,900 Cambridge Business Publishers, 2016 5-25 P5.3 Consolidation Eliminating Entries, Date of Acquisition (in thousands) a. Investment in Summer Merger expenses Cash Earnings contingency liability 8,800 300 8,300 800 b. Consolidation working paper eliminating entries: (E) Common stock Retained earnings Investment in Summer Noncontrolling interest 500 3,000 2,625 875 (R) In-process research and development Goodwill (1) Noncurrent liabilities Cash and receivables Inventories Plant assets, net Intangibles Lawsuit liability Investment in Summer (2) Noncontrolling interest (3) (1) Calculation of goodwill: Acquisition cost Fair value of noncontrolling interest Total fair value Book value of Summer Revaluations: Cash and receivables Inventories Plant assets, net Intangibles Noncurrent liabilities IPR&D Lawsuit liability Goodwill 1,500 9,300 100 200 500 1,000 1,000 400 6,175 1,625 $ 8,800 2,500 11,300 $ 3,500 (200) (500) (1,000) (1,000) 100 1,500 (400) 2,000 $ 9,300 Allocation of goodwill between controlling and noncontrolling interest: Total goodwill $ 9,300 Placer's goodwill: $8,800 - (75% x $2,000) 7,300 Goodwill to noncontrolling interest $ 2,000 (2) [75% x ($100 + $1,500 - $200 - $500 - $1,000 - $1,000 - $400)] + $7,300 = $6,175 (3) [25% x ($100 + $1,500 - $200 - $500 - $1,000 - $1,000 - $400)] + $2,000 = $1,625 Cambridge Business Publishers, 2016 5-26 Advanced Accounting, 3rd Edition P5.4 Consolidated Working Paper One Year After Acquisition, Bargain Purchase (see related P4.4) (in millions) a. Calculation of gain on acquisition: Acquisition cost Fair value of noncontrolling interest $ 1,620 180 1,800 Book value ($100 + $350 + $845) Revaluations: Inventory Long-term investments Land Buildings and equipment Long-term debt (discount) Gain on acquisition $ 1,295 100 (50) 245 300 110 2,000 $ (200) b. Equity in NI Total Saxon's reported net income for 2016 ($10,000 + $10 - $8,000 - $40 - $25 - $1,600 = $345) Revaluation write-offs: Inventory Long-term investments (adjustment to gain on sale) Buildings and equipment ($300/20) Long-term debt ($110/5) Solutions Manual, Chapter 5 $ 345 $ 310.5 Noncontrolling interest in NI $ 34.5 (100) (90) (10) 50 (15) (22) $ 258 45 (13.5) (19.8) $ 232.2 5 (1.5) (2.2) $ 25.8 Cambridge Business Publishers, 2016 5-27 c. Consolidation Working Paper, December 31, 2016 Trial Balances Taken From Books Paxon Dr (Cr) Cash and receivables $ 3,270 Inventory Saxon Dr (Cr) $ 940 -- Investment in Saxon Dr Consolidated Balances Dr (Cr) Cr 800 2,260 Long-term investments Eliminations -- 1,962.2 $ 4,070 (R) 100 (O-2) 100 (O-1) 50 50 (R) 142.2 -- 3,200 -- (C) 1,165.5 (E) -- 654.5 Land 650 300 (R) 245 Buildings and equipment, net 3,600 1,150 (R) 300 (R) 1,195 15 (O- 5,035 3) Current liabilities (2,020) (1,200) Long-term debt (5,000) (450) (3,220) (R) 110 22 (O- (5,362) 4) Common stock (500) (100) (E) 100 Additional paid-in capital (1,200) (350) (E) 350 (1,200) Retained earnings, Jan. 1 (2,610) (845) (E) 845 (2,610) Noncontrolling interest -- (500) (30,000) Equity in net income of Saxon (232.2) Gain on sale of securities (N) (C) 10 Sales revenue (R) 90 100 (E) 15.8 500 129.5 50.5 Dividends -- (N) (195.8) 500 (10,000) -- -- (40,000) (C) 232.2 -- (10) 50 (O- (60) 2) Cost of goods sold 26,000 8,000 Depreciation expense 300 Interest expense 34,100 40 (O-3) 15 355 250 Other operating expenses 25 (O-4) 22 297 2,770 1,600 -- Noncontrolling interest in NI (O-1) 100 -- $ $ 0 4,370 (N) 25.8 $ 2,495 ______ $ 2,495 25.8 $ 0 0 Cambridge Business Publishers, 2016 5-28 Advanced Accounting, 3rd Edition P5.5 Consolidated Working Paper Two Years After Acquisition, Bargain Purchase (see related P5.4) (all amounts in millions) a. Equity in NI $ 180 Total Saxon's reported net income for 2017 ($12,000 - $9,500 - $60 - $40 - $2,200 = $200) Revaluation write-offs: Buildings and equipment ($300/20) Long-term debt ($110/5) $ 200 Noncontrolling interest in NI $ 20 (15) (13.5) (22) (19.8) $ 163 $ 146.7 (1.5) (2.2) $ 16.3 Note: Inventory (FIFO) and long-term investment revaluations were realized through sale in 2016. b. Consolidation Working Paper, December 31, 2017 Trial Balances Taken From Books Paxson Dr (Cr) Cash and receivables Inventory Investment in Saxon $ 3,000 Eliminations Saxon Dr (Cr) $ Dr Consolidated Balances Dr (Cr) Cr 850 2,500 950 2,063.9 $ -- 3,450 101.7 (C) 1,386 (E) 576.2 Land Buildings and equipment, net 650 250 (R) (R) 285 5,905 1,440 (2,500) (6,000) (800) (R) 88 Common stock (500) (100) (E) 100 Additional paid-in capital (1,200) (350) (E) 350 Retained earnings, Jan. 1 (3,022.2) (1,090) (E) 1,145 (1,000) Long-term debt 1,090 -- -- -- (R) 245 Current liabilities Noncontrolling interest 3,850 15 (O-1) 7,615 (3,500) 22 (O-2) (6,734) (500) (1,200) (3,022.2) 154 (E) 41.8 (R) 11.3 (N) (207.1) continued Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-29 b. table continued Consolidation Working Paper, December 31, 2017 Trial Balances Taken From Books Paxson Dr (Cr) Dividends Eliminations Saxon Dr (Cr) 500 Dr Consolidated Balances Dr (Cr) Cr (35,000) Equity in net income of Saxon (146.7) Cost of goods sold 45 (C) 5 Sales revenue 50 (N) 500 (12,000) -- (47,000) (C) 146.7 -- 30,000 9,500 Depreciation expense 450 60 (O-1) 15 525 Interest expense 300 40 (O-2) 22 362 Other operating expenses 3,000 Noncontrolling interest in NI P5.6 2,200 -$ 0 39,500 -$ 0 5,200 (N) 16.3 $ ______ 2,358 16.3 $ 2,358 $ 0 Consolidation Working Paper, Second Year Following Acquisition (in millions) a. Calculation of 2015 equity in net loss and noncontrolling interest in net loss: Equity in NL Total Emerald Safari Resort reported loss ($2,200 + $300 + $200 - $1,800 - $1,000) = $(100) Noncontrolling interest in NL $ (100) $ (70) $ (30) ( 10) (7) (3) $ (110) $ (77) $ (33) Revaluation write-offs: Identifiable intangibles Cambridge Business Publishers, 2016 5-30 Advanced Accounting, 3rd Edition b. Consolidation Working Paper, December 31, 2015 Trial Balances Taken From Books Dr (Cr) Harrah's Entertainment Current assets $ 1,400 Land, buildings, riverboats and equipment, net Emerald Safari Resort $ Dr Consolidated Balances Dr (Cr) Cr 200 17,844.7 Intangible assets Eliminations 2,500 $ 2,419 20,263.7 398.3 Current liabilities -- 60 10 (O) (C) 80.5 436.8 (E) 42 Investment in Emerald 800 1,600 (R) 3,350 (R) -- (1,500) (300) (1,800) (14,000) (2,600) (16,600) Capital stock (5,520) (324) (E) 324 Retained earnings, Jan. 1 (900) (300) (E) 300 Long-term liabilities Noncontrolling interest -- (E) (R) 3.5 5 187.2 (C) 1.5 100 (N) 34.5 (900) 18 Dividends -- (5,520) (N) (170.7) 100 Casino revenues (6,600) (2,200) (8,800) Food and beverage revenues (1,400) (300) (1,700) Rooms revenues (1,000) (200) (1,200) Equity in net loss of Emerald 77 Direct casino, food and beverage, rooms expenses 7,200 1,800 9,000 General and administrative expenses 1,400 1,000 2,400 Impairment losses -- -- Noncontrolling interest in net loss -- -- _____ 33 0 $ 809 $ 809 $ Solutions Manual, Chapter 5 0 -- $ 77 (O) (C) -- 10 10 (N) (33) $ 0 Cambridge Business Publishers, 2016 5-31 P5.7 Equity Method and Eliminating Entries Three Years After Acquisition (see related P4.2) a. Calculation of equity in net income and noncontrolling interest in net income for 2016: Total Sunset Coast's reported net income for 2016 Revaluation write-offs: Plant assets ($1,000,000)/10 Identifiable intangibles $3,600,000/20 (1) Equity in NI Noncontrolling interest in NI $ 200,000 $ 180,000 $ 20,000 100,000 (180,000) $ 120,000 10,000 (18,000) $ 12,000 90,000 (162,000) $ 108,000 (1) $3,600,000 = $3,150,000 + $350,000 - ($1,400,000 - $500,000 - $1,000,000) b. Calculation of investment balance at December 31, 2016: Investment in Sunset Coast, January 1, 2014 90% x Sunset Coast's reported income, 2014-2016 90% x Sunset Coast's reported dividends, 2014-2016 (50% of reported income) Revaluation write-offs, 2014-2016: Plant assets [($1,000,000)/10] x 3 x 90% Identifiable intangibles ($3,600,000/20) x 3 x 90% Investment in Sunset Coast, December 31, 2016 $3,150,000 765,000 (382,500) 270,000 (486,000) $3,316,500 Note: Under LIFO and increasing inventory, the revalued inventory is assumed to still be on hand. c. Calculation of noncontrolling interest balance at December 31, 2016: Fair value of noncontrolling interest, January 1, 2014 10% x Sunset Coast's reported income, 2014-2016 10% x Sunset Coast's reported dividends, 2014-2016 (50% of reported income) Revaluation write-offs, 2014-2016: Plant assets ($1,000,000/10) x 3 x 10% Identifiable intangibles ($3,600,000/20) x 3 x 10% Noncontrolling interest in Sunset Coast, December 31, 2016 Cambridge Business Publishers, 2016 5-32 $ 350,000 85,000 (42,500) 30,000 (54,000) $ 368,500 Advanced Accounting, 3rd Edition d. Consolidation working paper eliminating entries for 2016: (C) Equity in net income of Sunset Coast Dividends-Sunset Coast (0.5 x $200,000 x 90%) Investment in Sunset Coast (E) Stockholders' equitySunset Coast, 1/1 Investment in Sunset Coast Noncontrolling interest in Sunset Coast 108,000 90,000 18,000 1,725,000 1,552,500 172,500 Sunset Coast's stockholders' equity, January 1, 2016 = $1,400,000 + (1 - 0.5)($850,000 - $200,000) = $1,725,000. (R) Identifiable intangibles 3,240,000 Inventory 500,000 Plant assets, net 800,000 Investment in Sunset Coast 1,746,000 Noncontrolling interest in Sunset Coast 194,000 Revaluations at January 1, 2016 = original revaluations less write-offs for 2014 and 2015. (O) Plant assets, net Amortization expense Depreciation expense Identifiable intangibles (N) Noncontrolling interest in NI of Sunset Coast Dividends - Sunset Coast (0.5 x $200,000 x 10%) Noncontrolling interest in Sunset Coast Solutions Manual, Chapter 5 100,000 180,000 100,000 180,000 12,000 10,000 2,000 Cambridge Business Publishers, 2016 5-33 P5.8 Consolidation Working Paper After Several Years (in thousands) a. Calculation of goodwill: Acquisition cost Fair value of noncontrolling interest Total fair value Book value of Regional Bottling Previously unreported franchise rights Goodwill $ 72,000 13,000 85,000 $ 25,000 5,000 30,000 $ 55,000 Allocation of goodwill between controlling and noncontrolling interest: Total goodwill Consolidated Bottling's goodwill: $72,000 - (75% x $30,000) (90%) Goodwill to noncontrolling interest (10%) $ 55,000 49,500 $ 5,500 b. Calculation of equity in net loss and noncontrolling interest in net loss for 2017: Total Regional Bottling's reported net income for 2017 (1) Revaluation write-offs: Franchise rights impairment Goodwill impairment (90:10 ratio) Equity in NL $ 3,000 $ (2,500) (6,000) $ (5,500) (1,875) (5,400) $ (5,025) 2,250 Noncontrolling interest in NL $ 750 (625) __(600) $ (475) (1) $3,000 = $300,000 - ($175,000 + $114,000 + $8,000) c. Calculation of investment balance at December 31, 2017: Investment in Regional Bottling, January 1, 2008 75% x Regional's reported comprehensive income less dividends, 2008-2016 (2) 75% x franchise rights write-offs, 2008-2016 Investment in Regional Bottling, January 1, 2017 Equity in net loss, 2017 Equity in OCL, 2017 Investment in Regional Bottling, December 31, 2017 $ 72,000 4,350 (750) 75,600 (5,025) (15) $ 70,560 (2) Change in book value 2008-2016 of $5,800 (= $30,800 - $25,000) is attributed to accumulated comprehensive income less dividends, since the stock accounts did not change; $30,800 = $1,000 + $12,000 + $18,100 - $100 - $200. Cambridge Business Publishers, 2016 5-34 Advanced Accounting, 3rd Edition d. Consolidation Working Paper, December 31, 2017 Trial Balances Taken From Books Eliminations Consolidated Bottling Dr (Cr) Current assets Regional Bottling Dr (Cr) Dr Cr Consolidated Balances Dr (Cr) $ 160,000 $ 30,000 $ 190,000 Property, plant & equipment, net 248,000 233,780 481,780 Franchise rights, net 466,400 -- (R) 4,000 70,560 -- (C) 5,040 2,500 Investment in Regional Bottling (O) 467,900 23,100 (E) -52,500 (R) 6,000 Goodwill -- -- (R) 55,000 (O) 49,000 Current liabilities (120,000) (20,000) (140,000) Long-term debt (700,000) (210,000) (910,000) Common stock (12,000) (1,000) (E) 1,000 (12,000) Additional paid-in capital (100,000) (12,000) (E) 12,000 (100,000) Retained earnings, Jan. 1 (50,500) (18,100) (E) 18,100 Accumulated other comprehensive loss, Jan. 1 13,000 Treasury stock 30,000 Noncontrolling interest (50,500) 100 13,000 200 -- 100 (E) 200 (E) 30,000 -- (N) 480 7,700 (E) (13,720) 6,500 (R) Dividends Net sales 2,000 -- (1,200,000) (300,000) Equity in net loss of Regional Bottling 2,000 (1,500,000) 5,025 5,025 Equity in OCL of Regional Bottling -- (C) -15 (C) 15 Cost of sales 760,000 175,000 Selling, delivery and administrative expenses 400,000 -- 114,000 Impairment losses 500 -- Interest expense 28,000 (1,000) 514,000 (O) 8,500 9,000 8,000 Other comprehensive (income) loss 935,000 20 Noncontrolling interest in NL --- -- (980) 475 (N) -- Noncontrolling interest in OCL 36,000 $ Solutions Manual, Chapter 5 0 $ 0 _____ $104,120 (475) 5 (N) (5) $104,120 $ Cambridge Business Publishers, 2016 5-35 0 Cambridge Business Publishers, 2016 5-36 Advanced Accounting, 3rd Edition e. Consolidated Statement of Income and Comprehensive Income Year Ended December 31, 2017 Net sales $ 1,500,000 Cost of sales (935,000) Gross profit 565,000 Selling, delivery and administrative expenses (514,000) Impairment losses (9,000) Interest expense (36,000) Consolidated net income 6,000 Plus: Net loss attributable to noncontrolling interest _ __475 Net income attributable to Consolidated Bottling $ 6,475 Consolidated net income Plus: Other comprehensive income Comprehensive income Plus: Comprehensive loss attributable to noncontrolling interest (1) Comprehensive income attributable to Consolidated Bottling $ 6,000 980 6,980 $ 480 7,460 (1) $475 + $5 = $480 Consolidated Balance Sheet, December 31, 2017 Assets Current assets Property, plant and equipment, net Franchise rights, net Goodwill Total assets Liabilities and stockholders' equity Current liabilities Long-term liabilities Total liabilities Stockholders' equity Consolidated Bottling stockholders' equity: Common stock Additional paid-in capital Retained earnings (2) Treasury stock Accumulated other comprehensive loss (3) Total Consolidated Bottling stockholders' equity Noncontrolling interest Total stockholders' equity Total liabilities and stockholders' equity $ 190,000 481,780 467,900 49,000 $ 1,188,680 $ 140,000 910,000 1,050,000 12,000 100,000 54,975 (30,000) (12,015) 124,960 13,720 138,680 $ 1,188,680 (2) $50,500 + $6,475 - $2,000 = $54,975 (3) $13,000 - $980 - $5 = $12,015 Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-37 P5.9 Consolidated Statement of Cash Flows (in thousands) Sunny Valley Resort and Subsidiary Consolidated Statement of Cash Flows For the year 2017 Cash from operating activities Consolidated net income ($400,000 + $24,000) (1) Add (subtract) items not affecting cash: Depreciation expense Goodwill impairment loss Loss on retirement of plant assets (2) Changes in current assets and liabilities: Increase in other current assets Decrease in current liabilities Net cash from operating activities Cash from investing activities Acquisition of plant assets (3) Cash from financing activities Increase in noncurrent liabilities Dividends paid to controlling stockholders Dividends paid to noncontrolling stockholders Net decrease in cash Plus cash balance, January 1 Cash balance, December 31 $ 424,000 $ 350,000 30,000 50,000 (400,000) (268,000) 430,000 (668,000) 186,000 (300,000) 100,000 (70,000) (16,000) 14,000 (100,000) 700,000 $ 600,000 (1) Noncontrolling interest in net income = $120,000 x 20% (2) $1,600,000 + $350,000 - $1,500,000 = $450,000 accumulated depreciation on plant assets scrapped; $500,000 - $450,000 = $50,000 loss on retirement of plant assets. (3) X = cost of plant assets acquired; $4,200,000 + X - $500,000 = $4,000,000; X = $300,000. Cambridge Business Publishers, 2016 5-38 Advanced Accounting, 3rd Edition P5.10 Consolidated Statement of Cash Flows (in millions) Prime Casinos and Saratoga International Hotels Consolidated Statement of Cash Flows For the Year ended December 31, 2017 Cash from operating activities: Consolidated net income Add (subtract) items not affecting cash from operations: Depreciation expense Goodwill impairment loss Loss on sale of plant assets Changes in current assets and liabilities: Increase in other current assets Increase in current liabilities Net cash from operating activities Cash from investing activities: Sale of plant assets (1) Acquisition of plant assets Cash from financing activities: Increase in long-term liabilities Issuance of capital stock Dividends paid to majority stockholders Dividends paid to noncontrolling interest (2) Net increase in cash Plus cash balance, January 1, 2017 Cash balance, December 31, 2017 $ 612 $ 250 25 10 (100) 250 15 (675) 150 200 (435) (2) 285 150 1,047 (660) (87) 300 200 $ 500 (1) Cost of plant assets sold = $2,500 + $675 - $3,100 = $75 Accumulated depreciation on plant assets sold = $800 + $250 - $1,000 = $50 Cash received from sale of plant assets = $75 - $50 - $10 = $15 (2) $150 + $12 - $160 = $2 Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-39 P5.11 Consolidation Two Years After Acquisition, IFRS (in millions) a. Calculation of goodwill is as follows: Acquisition cost Book value of Monaco Revaluations: Inventory Property, plant and equipment Identifiable intangibles Fair value of identifiable net assets 4,000 1,000 (100) 400 300 1,600 x 80% Goodwill 1,280 2,720 b. Calculation of equity in net income and noncontrolling interest in net income for 2016: Monaco's reported net income for 2016 (1) Revaluation write-offs: Property, plant and equipment 400/10 Identifiable intangibles 300/3 Goodwill Total 600 Equity in NI 480 (40) (100) (200) 260 (32) (80) (200) 168 Noncontrolling interest in NI 120 _ (8) (20) _-92 (1) 600 = 3,500 - (2,500 + 400) Cambridge Business Publishers, 2016 5-40 Advanced Accounting, 3rd Edition c. Consolidation Working Paper, December 31, 2016 Trial Balances Taken From Books Rendezvous Dr (Cr) Current assets 500 Property, plant and equipment, net Monaco Dr (Cr) 3,000 Investment in Monaco Eliminations 4,316 Dr Cr 900 2,000 Consolidated Balances Dr (Cr) 1,400 (R) 360 -- 40 (O) 5,320 128 (C) 1,120 (E) -- 3,068 (R) Identifiable intangibles -- 200 (R) 200 100 (O) 300 Goodwill -- -- (R) 2,620 200 (O) 2,420 Liabilities (4,648) (1,150) Capital stock (1,500) (800) (E) 800 (1,500) Retained earnings, Jan. 1 (1,000) (600) (E) 600 (1,000) Noncontrolling interest -- (5,798) -- 280 (E) 112 (R) 82 (N) Dividends -- 50 (474) 40 (C) 10 (N) Sales revenue (5,000) Equity in NI of Monaco (3,500) (168) Cost of sales 4,200 Goodwill impairment loss -- -- (8,500) (C) 168 -- 2,500 6,700 -- 200 200 400 (O) 40 840 100 - Solutions Manual, Chapter 5 (O) (O) Noncontrolling interest in NI -- 300 Administrative and other operating expenses 0 - 0 (N) 92 5,180 ____ 5,180 92 Cambridge Business Publishers, 2016 5-41 0 P5.12 Consolidation Several Years After Acquisition, IFRS (in thousands) a. Calculation of goodwill is as follows: Acquisition cost Book value of Hearty Revaluations: Plant and equipment Identifiable intangibles Long-term debt Fair value of identifiable net assets 150,000 70,000 x (50,000) 40,000 2,000 62,000 75% 46,500 103,500 Goodwill b. Calculation of equity in net income and noncontrolling interest in net income for 2017: Hearty's reported net income for 2017 (1) Total 15,000 Equity Noncontrolling in NI interest in NI 11,250 3,750 Revaluation write-offs: Property, plant and equipment (50,000/10) Goodwill 3,750 1,250 (4,000) (3,000) (1,000) (750) (750) 15,250 Identifiable intangibles (40,000/10) 5,000 11,250 - 4,000 (1) 15,000 = 140,000 - (80,000 + 45,000) Cambridge Business Publishers, 2016 5-42 Advanced Accounting, 3rd Edition c. Consolidation Working Paper, December 31, 2017 Trial Balances Taken From Books Lily Dr (Cr) Current assets Eliminations Hearty Dr (Cr) 35,000 202,000 Cr 20,000 226,500 Property, plant and equipment, net Dr Consolidated Balances Dr (Cr) 55,000 (O) 5,000 30,000 403,500 (R) Investment in Hearty 176,750 -- 11,250 (C) 69,000 -- (E) 96,500 (R) Identifiable intangibles 100,000 10,000 (R) 24,000 4,000 130,000 750 (O) 100,250 (O) Goodwill -- Current liabilities -- (R) 101,000 (30,000) (25,000) (55,000) (350,000) (100,000) (450,000) Capital stock (80,000) (54,000) (E) 54,000 (80,000) Retained earnings, Jan. 1 (60,000) (38,000) (E) 38,000 (60,000) (R) 1,500 Long-term debt Noncontrolling interest -- -- 23,000 (E) (25,500) 4,000 (N) Sales revenue (400,000) (140,000) Equity in net income of Hearty (11,250) -- Cost of goods sold 250,000 (540,000) 80,000 Goodwill impairment loss -- Other operating expenses (C) 11,250 330,000 -- (O) 750 45,000 143,000 -- (O) 750 4,000 5,000 187,000 (O) Noncontrolling interest in NI - Solutions Manual, Chapter 5 0 - 0 (N) 4,000 243,500 ______ 243,500 4,000 Cambridge Business Publishers, 2016 5-43 0 Cambridge Business Publishers, 2016 5-44 Advanced Accounting, 3rd Edition P5.13 Consolidation Two Years After Acquisition (in thousands) a. Calculation of 2017 equity in net income and noncontrolling interest in net income: Equity in NI Total Silver Nugget's reported NI for 2017 ($100,000 - $80,000 - $14,000 = $6,000) Revaluation write-off: Identifiable intangibles ($20,000/5) Noncontrolling interest in NI $ 6,000 $ 4,800 (4,000) $ 2,000 $ 1,200 (3,200) $ 1,600 (800) $ 400 b. Consolidation Working Paper, December 31, 2017 Trial Balances Taken From Books Mirror Resorts Dr (Cr) Current assets $ 35,000 Eliminations Silver Nugget Dr (Cr) $ Dr Consolidated Balances Dr (Cr) Cr 5,000 Plant and equipment, net 216,600 350,000 51,050 40,000 140,000 Intangibles $ 356,600 (R) 16,000 4,000 413,050 (O) Investment in Silver Nugget 86,440 -- 440 (C) 17,200 (E) -68,800 (R) Goodwill (1) Current liabilities (R) 68,000 68,000 (50,000) (20,000) (70,000) Long-term debt (600,000) (150,000) (750,000) Common stock (500) (100) (E) 100 (500) Additional paid-in capital (6,000) (5,500) (E) 5,500 (6,000) Retained earnings, Jan. 1 (25,000) (17,700) (E) 17,700 (25,000) (1,000) 200 AOCI, Jan. 1 Treasury stock 4,000 200 (E) 1,600 1,600 (1,000) 4,000 (E) Noncontrolling interest 4,300 (E) 15,200 (R) 110 (N) Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-45 (19,610) continued Cambridge Business Publishers, 2016 5-46 Advanced Accounting, 3rd Edition b. table continued Consolidation Working Paper, December 31, 2017 Trial Balances Taken From Books Mirror Resorts Dr (Cr) Dividends Eliminations Silver Nugget Dr (Cr) 2,000 Dr Consolidated Balances Dr (Cr) Cr 1,500 1,200 (C) 2,000 300 (N) Sales revenue (800,000) Equity in net income of Silver Nugget (100,000) (1,600) Equity in OCI of Silver Nugget -- (900,000) Cost of goods sold 650,000 140,000 14,000 -- 40 -- 80,000 Operating expenses 1,600 (C) (40) (C) 730,000 (O) 4,000 Other comprehensive income 100 Noncontrolling interest in NI -- -- (N) 400 Noncontrolling interest in OCI -- -- (N) 10 158,000 $ 0 (50) $ 0 50 $ 113,350 400 ________ $ 113,350 10 $ (1) Original goodwill = $80,000 + $18,000 - $10,000 - $20,000 = $68,000 Goodwill allocated to Mirror Resorts = $80,000 - [80% x ($10,000 + $20,000)] = $56,000 P5.14 Consolidation Working Paper One Year After Acquisition (in thousands) a. Calculation of goodwill: Acquisition cost Fair value of noncontrolling interest Total fair value Book value of Shawnee Revaluations: Plant and equipment Licenses and certificates Goodwill Solutions Manual, Chapter 5 $ 25,400 11,600 37,000 $ 2,000 (5,000) 8,000 5,000 $ 32,000 Cambridge Business Publishers, 2016 5-47 0 Allocation of goodwill between controlling and noncontrolling interest: Total goodwill Pine Mountain's goodwill: $25,400 - (60% x $5,000) = Goodwill to noncontrolling interest $ $ 32,000 22,400 9,600 Goodwill is allocated in a 70:30 ratio. b. Calculation of 2016 equity in net income and noncontrolling interest in net income: Equity in NI Total Shawnee's reported NI for 2016 ($4,000 - $2,100 = $1,900) Revaluation write-offs: Plant and equipment ($5,000/10) Licenses and certificates ($8,000/4) Goodwill impairment loss (70:30 ratio) Noncontrolling interest in NI $ 1,900 $ 1,140 $ 760 500 (2,000) (150) $ 250 300 (1,200) (105) $ 135 200 (800) (45) $ 115 c. Consolidation Working Paper Accounts Taken From Books Pine Mountain Dr (Cr) Current assets Plant and equipment, net Eliminations Shawnee Peak Dr (Cr) $ 5,000 12,000 Cr $ 1,000 70,000 Dr Consolidated Balances Dr (Cr) $ (O) 500 5,000 6,000 77,500 (R) AFS investments Investment in Shawnee 2,000 800 25,538 2,800 -- 138 (C) 1,200 (E) -24,200 (R) Licenses and certificates -- -- (R) 8,000 2,000 6,000 150 (O) 31,850 (O) Goodwill Liabilities Capital stock Retained earnings, Jan. 1 AOCI, January 1 Cambridge Business Publishers, 2016 5-48 -(82,577) (100) (13,700) (15) -- (R) 32,000 (9,895) (92,472) (9) (E) 9 (100) (1,985) (E) 1,985 (13,700) (6) (E) 6 (15) Advanced Accounting, 3rd Edition continnued Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-49 c. table continued Consolidation Working Paper Accounts Taken From Books Pine Mountain Dr (Cr) Eliminations Shawnee Peak Dr (Cr) Dr Cr Noncontrolling interest Consolidated Balances Dr (Cr) 800 (E) 10,800 (R) (11,717) 117 (N) Revenues (28,000) Equity in net income (4,000) (32,000) (135) Operating expenses (C) 135 -- (3) Equity in OCI --- (C) 3 -- (O) 1,650 25,750 22,000 2,100 Unrealized gains (OCI) (8) (5) Noncontrolling interest in income -- -- (N) 115 Noncontrolling interest in OCI -- -- (N) 2 Total $ 0 $ 0 (13) $ 44,405 115 ______ $ 44,405 2 $ d. Consolidated Statement of Income and Comprehensive Income Year Ended December 31, 2016 Revenues Operating expenses Consolidated net income Net income attributable to noncontrolling interest Net income attributable to Pine Mountain $ 32,000 (25,750) 6,250 (115) 6,135 Consolidated net income Other comprehensive income: Unrealized gains on AFS securities Comprehensive income Comprehensive income attributable to noncontrolling interest (1) Comprehensive income attributable to Pine Mountain 6,250 13 6,263 (117) $ 6,146 (1) $115 + $2 = $117 Cambridge Business Publishers, 2016 5-50 Advanced Accounting, 3rd Edition 0 Consolidated Balance Sheet, December 31, 2016 Assets Current assets Plant and equipment, net AFS investments Licenses and certificates Goodwill Total assets Liabilities and stockholders' equity Liabilities Stockholders' equity Pine Mountain stockholders' equity: Capital stock Retained earnings (2) Accumulated other comprehensive income (3) Pine Mountain stockholders' equity Noncontrolling interest Total stockholders' equity Total liabilities and stockholders' equity $ 6,000 77,500 2,800 6,000 31,850 $ 124,150 $ 92,472 100 19,835 26 19,961 11,717 31,678 $ 124,150 (2) $13,700 + $6,135 = $19,835 (3) $15 + $13 - $2 = $26 P5.15 Noncontrolling Interest in Comprehensive Income a. Vodafone's 45 percent noncontrolling interest in net income is $12,050, implying that Verizon Wireless' total net income (adjusted for revaluation write-offs) was $26,778 (= $12,050/.45). Since consolidated income is $23,547, Verizon's separate results are a loss of $3,231 (= $23,547 - $26,778). b. Verizon Wireless must have reported an other comprehensive loss for 2013. But the other comprehensive income attributed to Verizon Communications includes its own other comprehensive income plus its share of Verizon Wireless' other comprehensive loss. Verizon Communications reported a net gain in other comprehensive income, more than offsetting its share in Verizon Wireless' loss. Solutions Manual, Chapter 5 Cambridge Business Publishers, 2016 5-51 c. We can estimate the total separate other comprehensive gain/loss of each of the two entities as follows: Verizon Wireless' total other comprehensive loss ($15/.45) Verizon Communications' share of Verizon Wireless' other comprehensive loss ($33 - $15) Total other comprehensive income attributable to Verizon Communications Remove Verizon Communications' share of Verizon Wireless' other comprehensive loss Verizon Communications' separate other comprehensive income $(33) (18) 123 18 $141 Conclusion: Verizon Wireless' other comprehensive loss = $33 Verizon Communications other comprehensive income = $141 d. (N) Noncontrolling interest in income of Verizon Wireless Noncontrolling interest in other comprehensive loss of Verizon Wireless Dividends - Verizon Wireless Noncontrolling interest in Verizon Wireless Cambridge Business Publishers, 2016 5-52 12,050 15 7,831 4,204 Advanced Accounting, 3rd Edition