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    "answer_date_js": "2024-06-21T08:04:31-04:00",
    "answer_date": "2024-06-21 08:04:31",
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    "question_id": "3416945",
    "url": "\/study-help\/questions\/may-i-ask-for-an-explanation-or-interpretation-behind-this-3416945",
    "question_creation_date_js": "2024-06-21T08:04:31-04:00",
    "question_creation_date": "Jun 21, 2024 08:04 AM",
    "meta_title": "[Solved] May I ask for an explanation or interpret | SolutionInn",
    "meta_description": "Answer of - May I ask for an explanation or interpretation behind this solution? The problem: 80%%-Owned-Subsidiary: Cost Model - | SolutionInn",
    "meta_keywords": "explanation,interpretation,solution,problem,80%%-owned-subsidiary,cost,model,-,consolidated,financial,statements,downstream",
    "question_title_h1": "May I ask for an explanation or interpretation behind this solution? The problem: 80%%-Owned-Subsidiary: Cost Model - Consolidated Financial Statements, Downstream and Upstream of Property,",
    "question_title": "May I ask for an explanation or interpretation behind this solution? The",
    "question_title_for_js_snippet": "May I ask for an explanation or interpretation behind this solution  The problem  80   Owned Subsidiary  Cost Model   Consolidated Financial Statements, Downstream and Upstream of Property, Unrealized Gain and Realized Gain on Sale(Full Goodwill or Fair Value Basis) On January 1, 20x4, P Company acquires 80  of the common stock of S Company for P372,000  At that time, the fair value of the 20  non controlling interest is estimated to be P93,000, On that the following assets and liabilities of S Company had book values that were different from their respective market values  S Co  Book value S Co Fair value Inventory      P24,000 30,000 Land      48,000 55,200 Equipment                780 000 180,000 Accumulated depreciation equipment ( 96,000) Buildings         360 000 144,000 Accumulated depreciation buildings     (192,000) Bonds payable (4 years)   120,000 115,200 All other assets and liabilities had book values approximately equal to their respective fair values  On January 1, 20x4, the equipment and buildings had a remaining life of 8 and 4 years, respectively  Inventory is sold in 20x4 and FIFO inventory costing is used  Goodwill, if any, is reduced by a P3,750 impairment loss during 20x4 based on the fair value basis (or full goodwill), meaning the management has determined that the goodwill arising in the acquisition of Son Company relates proportionately to the controlling and non controlling interests, as does the impairment  There were no intercompany sales prior to 20x4, information resulting from intercompany sales of equipment, ending inventory and gross profit rates are summarized below  Downstream Sale  Year Sale of P to S Intercompany merchandise Intercompany in 12 31 Inv of S Co  Profit 2004 150,000 60  of sale 20  2005 120,000 80  of sale 25  Upstream Sale  Year Sale of P to S Intercompany merchandise Intercompany in 12 31 Inv of S Co  Profit 2004 60,000 50  of sale 40  2005 75,000 40  of sale 20 On December 31, 20x4, Intercompany accounts receivable and payable arising from intercompany sale was fully settled  Trial balancesfor the companies for the year ended December 31, 20x4 are as follows  Debits P Co  S Co Cash     P232,80OP 90,000 Accounts receivable    90,000 60,000 Inventory        120 000 90,000 Land     210,000 48,000 Equipment     240,000 180,000 Buildings       720,000 540,000 Investment in S Company 372,000  Cost of goods sold         204,000 138,000 Discount on bonds payable   Depreciation expense  60,000 24,000 Interest expense Other expenses      48,000 18,000 Goodwill impairment loss Dividends paid           72,000 36,000 Totals     P2,368,800 P1,224,000 Credits Accumulated depreciation   equipment P 135,000P 96,000 Accumulated depreciation   buildings  405,000 288,000 Accounts payable      105,000 88,800 Bonds payable     240,000 120,000 Common stock, P10 par     600,000 240,000 Retained earnings     360,000 120,000 Sales     480,000 240,000 Gain on sale of equipment 15,000 31,200 Dividend income 28,800  Totals       P2 368,800 P1,224,000For the trial balance presented above, the ff  Information available for Porter and Salem Company for the year 20x4 Porter Co  Salem Co  Sales 480,000 240,000 Less  COGS 204,000 138,000 Gross Profit 276,000 102,000 Less  Dep  Exp 60,000 24,000 Other Exp  48 000 18 000 Net income from its own separate operation 168,000 60,000 Add  Dividend Income 28,800 NET INCOME 196,800 60 000 Dividends Paid 60 000 36 000The trial balances for the companies for the year ended December 31, 20x5are as follows  Debits P Co  S Co  Cash           P 265,200 P 102,000 Accounts receivable 180,000 96,000 Inventory      216,000 108,000 Land            210,000 48,000 Equipment     240 000 180,000 Buildings              720,000 540,000 Investment in S Company    372, Cost of goods sold     216,000 192,000 Discount on bonds payable Depreciation expense   60 000 24,000 Interest expense     Other expenses           72,000 54,000 Goodwill impairment loss   Dividends paid           72,000 48,000 Totals      P2 623,200 P1,392,000 Credits Accumulated depreciation   equipment  P  150,000 P 102,000 Accumulated depreciation   buildings    450,000 306,000 Accounts payable    105,000 88,800 Bonds payable     240,000 120,000 Common stock, P10 par   600,000 240,000 Retained earnings   499,800 175,200 Sales     540,000 360,000 Wwwww Dividend income     38 400  Totals     P2,623,200 P1,392,000Further the ff  Information available for Porter and Salem Company based on the above trial balance for the year 20x5 Sales 540,000 360,000 Less  COGS 216,000 192,000 Gross Profit 324,000 168,000 Less  Dep  Exp 60,000 24,000 Other Exp  72,000 54 000 Net income from its own separate operation 192,000 90,000 Add  Dividend Income 38 400 NET INCOME 230 400 90,000 Dividends Paid 72,000 48,000 No goodwill impairment loss for 20x5  Requirement  1  Prepare JE to record investment in the book of acquirer company  2  Prepare a schedule for determination and allocated excess  3  Prepare the working paper eliminating entries for 20x4 and 20x5 for purposes of preparing consolidated balance sheet  4  Prepare a consolidated workpaper on Decemeber 31, 20x4 and December 31, 20x5  5  Determine the following items for January 1, 20x4  a) Consolidated Retained Earnings b ) Non Controlling Interest c) Consolidates Stockholder's Equity 6  Determine the following items for December 31, 20x4 and December 31, 20x5  a) Controlling Interest in Consolidated Net income b) Non controlling Interest in Consolidated Net income () Consolidated Net income d) Consolidates Retained Earnings e) Non Controlling Interest f ) Consolidates Stockholder's EquitySchedule of Determination and Allocation of Excess Date of Acquisition   January 1, 20x4 Fair Value of Subsidiary (80) Consideration transferred (80 ) 372,000 Fair Value of NCI (20 ) 93,000 Fair Value of Subsidiary (100 ) 465,000 Less  Book value of stockholders equity of Son Common Stock (240,000 x 100 ) 240,000 Retained Earnings (120,000 x 100) 120,000 360,000 Allocated Excess 105,000 Less  over under valuation of assets and liabilities  Increase in inventory (6,000 x 100 ) 6,000 Increase in land (7,200 x 100 ) 7,200 Increase in Equipment (96,000 x 100 ) 96,000 Decrease in buildings (24,000 x 100 ) (24,000) Decrease in bonds payable (4,800 x 100) 4,800 90,000 Positive Excess Full Goodwill (excess of costs over fair value) 15,000Depreciation and amortization adjustments Annual Current Year Account Adjustments to be amortized Over Under Life Amount (20x4) 20x5 Inventory 6,000 1 6,000 6,000 Subject to annual amortization Equipment (net) 96,000 8 12,000 12,000 12,000 Buildings (net) (24,000) 4 (6,000) (6,000) (6,000) Bonds payable 4,800 4 1,200 1,200 1,200 13,200 13,200 7,200 20x4  First Year after Acquisition Parent company Cost Model Entry January 1, 20x4  1 ) Investment in S Company 372,000 Cash 372,000 Acquisition of $ Company January 1, 20x4   December 31, 20x4 2 ) Cash 28,800 Dividend income (36,000 x 80 ) 28,800 Record Dividends from Son CompanyOn the books of Son Company, the 36,000 dividend paid was recorded as follows  Dividends Paid 36,000 Cash 36,000 Dividends Paid by Son Company Consolidation Working Paper   First Year after Acquisition E1 Common Stock   $ Company 240,000 Retained Earnings   $ Company 120,000 Investment in $ Company 288,000 Non Controlling Interest (360,000 x 20  ) 72,000 To eliminate intercompany investment and equity accounts of subsidiary on date of acquisition  and to establish non controlling interest on date of acquisition E2 Inventory 6,000 Accumulated Depreciation   Equipment 96,000 Accumulated Depreciation   Buildings 192,000 Land 7,200 Discount on bonds payable 4,800 Goodwill 15,000 Buildings 216,000 Non controlling interests (90,000 x 20 )    15,000, full  21,000 12,000, partial goodwill  Investment in Son Company 84,000E3 Cost of Goods sold 6,000 Depreciation Expense 6,000 Accumulated Depreciation   Buildings 6,000 Interest Expense 1,200 Goodwill Impairment loss 3,750 Inventory 6,000 Accumulated Depreciation   equipment 12,000 Discount on bonds payable 1,200 Goodwill 3,750 To provide for 20x4 impairment loss and depreciation and amortization on differences between acquisition date fair value and book value ofS's indentifiable assets and liabilities as follows  Depreciation  Cost of Goods Amortization  Amortization Sold Interest Expense Inventory Sold 6,000 Equipment 12,000 Buildings (6,000) Bonds Payable 1,200 Totals 6,000 6,000 1,200 E4 Dividend Income   P Company 28,000 Non Controlling Interest (36,000 x 2096) 7,200 Dividends Paid  $ Company 36,000 To eliminate intercompany dividends and non  controlling interest share dividendsES Sales 150,000 Cost of Goods Sold 150,000 To eliminate Downstream Sales E6 Sales 60,000 Cost of Goods Sold 60,000 To eliminate Upstream Sales E7 Cost of Goods Sold ( Ending inventory   Income Statement) 18,000 Inventory 18,000 To defer the downstream sales   unrealized profit in ending inventory until it is sold to outsiders E8 Cost of Goods Sold ( Ending inventory   Income Statement) 12,000 Inventory 12,000 To defer the Upstream sales   unrealized profit in ending inventory until it is sold to outsiders E9 Non controlling interest in Net Income of subsidiary 6,210 Non Controlling Interest 6,210 To establish non controlling interest in subsidiary's adjusted net income for 20x4 as follows Net Income of Subsidiary 60,000 Unrealized profit in ending inventory of P Company (upstream Sales) (12,000) S company's realized net income from separate operations 48,000 less  amortization allocated excess 13,200 34,800 Multiplied by non controlling interest   0 20 Non controlling interest in Net Income partial goodwill 6,960 Less  Non controlling interest on impairment loss on full goodwill (3750x2096) 750 Non controlling interest in Net Income full goodwill 6,210Worksheet for Consolidated Financial Statements, December 31, 20x4  Cost Model  Full  goodwill 80   Owned Subsidiary December 31, 20x4 (First Year after Acquisition) Income Statement P Company S Company Dr  Cr  Consolidated (5) 150,000 Sales 480,000 240,000 510,000 (6) 60,000 Dividend Income 28,800 (4) 28,800 Total Revenue 508,800 240,000 510,000 (5) 150,000 168,000 (3) 6,000 (6) 60,000 Cost of Goods Sold 204,000 138,000 (7) 18,000 (8) 12,000 Depreciation Expense 60,000 24,000 (3) 6,000 90,000 Interest Expense (3) 1,200 1,200 Other Expenses 48,000 18,000 66,000 Goodwill Impairment Loss (3) 3,750 3,750 Total Cost and Expenses 312,000 180,000 328,950 Net Income 196,800 60,000 181,050 NCI in Net Income   Subsidiary (9) 6,210 (6,210) Net Income to Retained Earnings 196,800 60,000 174,840Statement of Retained Earnings Retained Earnings   1 1 20x4 P Company 360,000 360,000 S Company 120,000 (1) 120,000 Net Income 196,800 60,000 174,840 Total 556,800 180,000 534,840 Dividends Paid P Company 72,000 72,000 S Company 36,000 (4) 36,000 Retained Earnings   12 31 484,800 144,000 462,840Balance Sheet Cash 232,800 90,000 322,800 Accounts Receivable 90,000 60,000 150,000 (3) 6,000 Inventory 120,000 90,000 (2) 6,000 (7) 18,000 180,000 (8) 12,000 Land 210,000 48,000 (2) 7,200 265,200 Equipment 240,000 180,000 420,000 Buildings 720,000 540,000 (2) 216,000 1,044,000 Discount on Bonds Payable (2) 4,800 (3) 1,200 3,600 Goodwill (2) 15,000 3) 3,750 11,250 9  200, 100 Investment in $ company 372,000 Total 1,984,800 1,008,000 2,396,850 Accumulated depreciation   equipment 135,000 96,000 (2) 96,000 (3) 12,000 147,000 Accumulated depreciation   buildings 405,000 288,000 (7) 6,000 495,000 Accounts Payable 120,000 120,000 240,000 Bonds Paybale 240,000 120,000 360,000 Common Stock, P 10 par 600,000 600,000 Common Stock, P 10 par 240,000 (1) 240,000 Retained Earnings 484,800 144,000 462,840 Non Controlling Interest (4) 7,200 92,010 Total 1,984,800 1,008,000 986,160 986,160 2 396,85020x5  Second Year after Acquisition Perfect Co  Son Co Sales 540,000 360,000 Less  Cost of Goods Sold 216,000 192,000 Gross Profit 324,000 168,000 Less  Depreciation Expense (60,000) 24,000 Other Expense (72,000) 54,000 Net Income from its own separate operations 192,000 90,000 Add  Dividend Income 38,400 Net Income 23,400 90,000 Dividends Paid 72,000 48,00020x5  Second Year after Acquisition Parent company Cost Model Entry January 1, 20 5   December 31, 20x5 Cash 38,400 Dividend income (48,000 x 8096) 38,400 Record Dividends from Son Company On the books of Son Company, the 48,000 dividend paid was recorded as follows  Dividends Paid 48,000 Cash 48,000 Dividends Paid by Son Company Consolidation Work Paper   Second Year after Acquisition Retained Earnings  $ company, 1 1 20x5 144,000 Retained Earnings   $ company, 1 1 20x4 (120,000) Increase in Retained Earnings 24,000 Multiplied by controlling interest   0 80 Retroactive Adjustment 19,200E1 Investment in $ Company 19,200 Retained Earnings   P Company 19,200 To provide entry to convert from the cost method to the equity method or the entry to establish reciprocity at the beginning of the year 1 1 20x5 E2 Common Stock   $ Company 240,000 Retained Earnings  $ Company 1 1 20x5 144,000 Investment in $ Company (384,000 x 809 ) 307,200 Non Controlling Interest (384,000x 20  ) 76,800 To eliminate intercompany investment and equity accounts of subsidiary on date of acquisition  and to establish non controlling interest on 1 1 20x5E3 Inventory 6,000 Accumulated Depreciation   Equipment 96,000 Accumulated Depreciation   Buildings 192,000 Land 7,200 Discount on bonds payable 4,800 Goodwill 15,000 Buildings 216,000 Non controlling interests (90,000 x 20  )    15,000,full 12,000, partial 21,000 goodwill  Investment in Son Company 84,000 To allocate excess of cost over book value of identifiable assets acquired, with remainder to goodwill  and to establish non controlling interest on 1 1 20x5 E4 Retained Earnings   P Company, 1 1 20x5 (16,950x80 6) 13,560 Non Controlling interests (16,950 x 20 ) 3,390 Depreciation Expense 6,000 Accumulated Depreciation buildings 12,000 Interest Expense 1,200 Inventory 6,000 Accumulated depreciation   equipment 24,000 Discount on Bonds Payable 2,800 Goodwill 3,750Depreciatio Cost of n  Amortization   Goods Sold Amortization Interest Expense Inventory Sold 6,000 Equipment 12,000 12,000 Buildings (6,000) (6,000) Bonds Payable 1,200 1,200 Impairment Loss 3,750 Totals 16,950 6,000 1,200 Mutiplied by CI   0 80 To Retained Earnings 13,560 ES Dividend Income   P Company 38,400 Non Controlling Interest (48,000 x 20 ) 9,600 Dividends Paid  $ Company 48,000 To eliminate intercompany dividends and non controlling interest share dividends E6 Sales 120,000 Cost of Goods Sold 120,000 To eliminate intercompany Downstream SalesE7 Sales 75,000 Cost of Goods Sold 75,000 To eliminate intercompany Upstream Sales EB Beginning Retained Earnings   P Company 18,000 Cost of Goods Sold ( Ending Inventory   Income Statement) 18,000 To realized profit in downstream beginning inventory deferred in the prior period E9 Beginning Retained Earnings   P Company 9,600 Non Controlling Interest (12,000x20  ) 2,400 Cost of Goods Sold ( Ending Inventory   Income Statement) 12,000 To realized profit in upstream beginning inventory deferred in the prior period E10 Cost of Goods Sold ( Ending inventory   Income Statement) 24,000 Inventory 24,000 To defer the downstream sales   unrealized profit in ending inventory until it is sold to outsiders E11 Cost of Goods Sold ( Ending inventory   Income Statement) 6,000 Inventory 6,000E12 Non controlling interest in Net Income of subsidiary 17,760 Non Controlling Interest 17,760 To establish non controlling interest in subsidiary's adjusted net income for 20x5 as follows  Net Income of Subsidiary 90,000 Realized profit in beginning inventory of P Company   20x5(upstream Sales) 12,000 Unrealized profit in ending inventory of P Company 20x5(upstream Sales) (6,000) Son company's realized net income 96,000 less  amortization allocated excess (7,200) 88,800 Multiplied by non controlling interest   0 20 Non controlling interest in Net Income partial goodwill 17,760 Less  Non controlling interest on impairment loss on full goodwill Non controlling interest in Net Income full goodwill 17,760Worksheet for Consolidated Financial Statements, December 31, 20x5  Cost Model (Full goodwill  809 Owned Subsidiary December 31, 20x5 (Second Year after Acquisition) Income Statement P Company Auedwoos Dr  Cr  Consolidated (6) 120,000 Sales 540,000 360,000 705,000 (7) 75,000 Dividend Income 38,400 (5) 38,400 Total Revenue 578,400 360,000 705,000 (6) 120,000 213,000 (10) 24,000 (7) 90,000 Cost of Goods Sold 216,000 192,000 (11) 6,000 (8) 21,600 (9) 14,400 Depreciation Expense 60,000 24,000 (4) 6,000 90,000 Interest Expense   (4) 1,200 1,200 Other Expenses 72,000 54,000 126,000 Goodwill Impairment Loss Total Cost and Expenses 348,000 270,000 430,200 Net Income 230,400 90,000 274,800 NCI in Net Income   Subsidiary (12) 17,760 (17 760) Net Income to Retained Earnings 230,400 90,000 257,040Statement of Retained Earnings Retained Earnings   1 1 19  15,300 P Company 484,800 int in nan (4) 19,200 462,840 Auedwog s 144,000 (5) 144,000 Net Income 230,400 90,000 257,040 Total 715,200 234,000 719,880 Dividends Paid P Company 72,000 72,000 S Company 48,000 (5) 48,000 Retained Earnings   12 31 643,200 186,000 647,880Balance Sheet Cash 265,200 102,000 367,200 Accounts Receivable 180,000 96,000 276,000 (4) 6,000 Inventory 216,000 108,000 (6) 6,000 (10) 24,000 294,000 (11) 6,000 Land 210,000 48,000 (3) 7,200 265,200 Equipment 240,000 180,000 420,000 Buildings 720,000 540,000 (3) 216,000 1,044,000 Discount on Bonds Payable (3) 4,800 (4) 2,400 2,400 Goodwill (3) 15,000 4) 3,750 11,250 21 307, 200 Investment in $ company 372,000 (1) 19,200 int nanna Total 2,203,200 1,074,000 2 680,050 Accumulated depreciation   equipment 150,000 102,000 (3) 96,000 (4) 24,000 180,000 Accumulated depreciation   buildings 450,000 306,000 (4) 12,000 552,000 Accounts Payable 120,000 120,000 240,000 Bonds Paybale 240,000 120,000 360,000 Common Stock, P 10 par 600,000 600,000 Common Stock, P 10 par 240,000 (2) 240,000 Retained Earnings 643,200 186,000 647,880 Non Controlling Interest (4) 10,600 (8) 9,600 100,170 Total 2,203,200 1,074,000 1,081,110 1,081,110 2,680,0505  January 1, 20x4 A  Consolidated Retained Earnings Retained earnings   Parent Company, 1 1 20x4 (date of acquisition) 360,000 00 B  Non Controlling Interest Non controlling interest (partial goodwill), 1 1 20x4 Common Stock   Subsidiary Company 240,000 Retained Earnings   Subsidiary Company 120,000 Stockholders equity   Subsidiary Company 360,000 Adjustments to reflect fair value   undervaluation of assets and liabilities 90,000 Fair Value of stockholders equity of subsidiary, 1 1 20x4 450,000 Multiplied by non controling interests   0 20 Non Controlling Interests ( partial ) 90,000 Add  Non controlling interests on full goodwill 1 1 20x4  ( 12,500 full goodwill   10,000 partial)  3,000 Non Controlling Interests (full goodwill) 93,000 C  Consolidated Shareholders Equity Stockholders Equity Common Stock, P10 par 600,000 Retained Earnings 360,000 Parent's Stockholders Equity 960,000 Non Controlling Interests, 1 1 20x4 93,000 Consolidated Shareholders Equity 1 1 20x4 1,053,0006  December 31, 20x4 A  Controlling Interests in Consolidated Net Income P Company's Net Income from own separate operations 168000 Unrealized profit in ending inventory of $ Company (Downstream sales) (18,000) Porter Company's realized net income from separate operations 150000 S Company's Net Income from own operations 60,000 Unrealized profit in ending inventory of $ Company (Upstream sales) (12,000) Salem Company's realized net income from separate operations 48,000 Total 198,000 Less  Non  Controlling interest in Net Income 6,210 Amortization of allocated excess 13,200 Goodwill Impairment (impairment under full goodwill approach) 3,750 23,160 Controlling Interests in Consolidated Net Income 174,840 B  Non Controlling Interests in Consolidated Net Income S Company's Net Incomeof Subsidiary from its own operations 60,000 Unrealized profit in ending inventory of P Company (Upstream sales) (12,000) $ Company's realized net income from separate operations 48,000 Less  Amortization of allocated excess (13,200) 34,800 Multiplied by non controling interests   0 20 Non Controlling Interests in Consolidated Net Income   partial 6,960 less  Non controlling interests on impairment loss on full goodwill ( 3750x 20   or 3750 3000) 750 Non Controlling Interests in Consolidated Net Income 6,210C  Consolidated Net Income Controlling Interests in Consolidated Net Income 174,840 Non Controlling Interests in Consolidated Net Income 6,210 Consolidated Net Income 181,050 D  Consolidated Retained Earnings Retained Earnings   Parent Company, 1 1 20x4 (date of acquisition) 360,000 Add  Controlling Interests in Consolidated Net Income, 20x4 174,840 Total 534,840 less  Dividends Paid   Parent Company , 20x4 72,000 Consolidated Retained Earnings, 12 31 20x4 462,840E  Non Controlling Interests Common Stock  $ Company, 12 31 20x4 240,000 Retained Earnings  $ Company, 12 31 20x4 Retained Earnings   $ Company, 1 1 20x4 120,000 Add  Net Income of subsidiary for 20x4 60,000 Total 180,000 less  Dividends paid   20x4 (36,000) 144,000 Stockholders equity  $ company, 12 31 20x4 384,000 Adjustments to reflect fair value   undervaluation of assets and liabilities, date of acquisition, 1 1 20x4 90,000 Less  Amortization of allocated excess (13,200) Fair Value of stockholders equity of subsidiary, 12 31 20x4 460,800 less  Unrealized profit in ending inventory of P Company (Upstream sales) (12,000) Realized Stockhoders equity of subsidiary, 12 31 20x4 448,800 Multiplied by non controling interests $  0 20 Non Controlling Interests   partial goodwill 89,760 Add  Non controlling interests on full goodwill, net of impairment loss  ( 15,000 full 12,000 partial 3,000) 750  2,250 Non Controlling Interests 92,010 F  Consolidated Shareholders Equity Stockholders Equity Common Stock, P10 par 600,000 Retained Earnings 462,840 Parent's Stockholders Equity 1,062,840 Non Controlling Interests, 1 1 20x4 92,010 Consolidated Shareholders' Equity 1 1 20x4 1,154,840December 31, 20x5 A  Controlling Interests in Consolidated Net Income P Company's Net Income from own separate operations 192,000 Realized profit in beginning inventory of $ Company (Downstream sales) 18,000 Unrealized profit in ending inventory of $ Company (Downstream sales) (24,000) F Company's realized net income from separate operations 186,000 S Company's Net Income from own operations 90,000 Realized profit in beginning inventory of P Company (Upstream sales) 12,000 Unrealized profit in ending inventory of P Company (Upstream sales) (6,000) $ Company's realized net income from separate operations 96,000 Total 282,000 Less  Non  Controlling interest in Net Income 17,760 Amortization of allocated excess 7,200 24 960 Controlling Interests in Consolidated Net Income 257,040 B  Non Controlling Interests in Consolidated Net Income S Company's Net Incomeof Subsidiary from its own operations 90,000 Realized profit in beginning inventory of P Company (Upstream sales) 12,000 Unrealized profit in ending inventory of P Company (Upstream sales) (6 000) S Company's realized net income from separate operations 96,000 Less  Amortization of allocated excess 7,200) 88,800 Multiplied by non controling interests   0 20 Non Controlling Interests in Consolidated Net Income   partial goodwill 17,760 less  Non controlling interests on impairment loss on full goodwill Non Controlling Interests in Consolidated Net Income 17,760C  Consolidated Net Income Controlling Interests in Consolidated Net Income 257,040 Non Controlling Interests in Consolidated Net Income 17,760 Consolidated Net Income 274,800 D  Consolidated Retained Earnings Retained Earnings   Parent Company, 1 1 20 5 (cost model) 484,800 less  Unrealized profit in ending inventory of $ company (downstream sales) 20x4 (18,000) Adjusted Retained Earnings   Parent 1 1 20 5 (cost model) 466,800 Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity Retained Earnings   subsidiary, 1 1 20 5 144,000 less  Retained Earnings   subsidiary, 1 1 20x4 (120,000) Increase in Retained Earnings since date of acquisition 24,000 less  Amortization allocated 20x4 13,200 Unrealized profit in ending inventory of P company (Upstream sales) 20x4 12,000 (1,200) Multiplied by Controlling interests   (960) less  goodwill impairment loss (full  goodwill), (3750x80  ) 3,000 (3 960 Consolidated Retained Earnings , 1 1 20x5 462,840 Add  Controlling Interest in consolidated net income 257,040 Total 719,880 Less  Dividends Paid   Parent Company 20x5 (72,000) Consolidated Retained Earnings , 12 31 20x5 647 880E  Non Controlling Interests Common Stock   $ Company, 12 31 20x5 240,000 Retained Earnings   $ Company, 12 31 20x5 Retained Earnings  $ Company, 1 1 20x5 144,000 Add  Net Income of subsidiary for 20x5 90,000 Total 234,000 less  Dividends paid   20x5 (48,000) 186,000 Stockholders equity  $ company, 12 31 20x5 426,000 Adjustments to reflect fair value   undervaluation of assets and liabilities, date of acquisition, 1 1 20x4 90,000 Less  Amortization of allocated excess 20x4 13,200 20x5 7,200 (20,400) Fair Value of stockholders equity of subsidiary, 12 31 20x5 495,600 less  Unrealized profit in ending inventory of P Company (Upstream sales), 20x5 (6,000) Realized Stockhoders equity of subsidiary, 12 31 20x5 489,600 Multiplied by non controling interests   Non Controlling Interests   partial goodwill 97,920 Add  Non controlling interests on full goodwill, net of impairment loss  ( 15,000 full 12,000 partial 3,000) 750  2,250 Non Controlling Interests 100,170F  Consolidated Shareholders Equity Stockholders Equity Common Stock, P10 par 600,000 Retained Earnings 647 660 Parent's Stockholders Equity 1,247,880 Non Controlling Interests, 1 1 20x4 100,170 Consolidated Shareholders Equity 1 1 20x5 1,348,050",
    "question_description": "<img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c3b4614d_45166756c3b36c2c.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c3b98d0a_45166756c3b8322a.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c3be94a7_45166756c3bd9e2e.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c3c410da_45266756c3c31907.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c3c931c8_45266756c3c81ab0.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c3cd8799_45266756c3cc8c98.jpg\" alt=\"image text in transcribed\"><img 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src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4147771_45766756c4133654.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c418d543_45766756c417f6b3.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c41dab17_45766756c41c3f20.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c422cb9d_45866756c421b9ed.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c426bf6e_45866756c425f0b3.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c42aae1d_45866756c429a8cc.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4319b71_45966756c4309e11.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c437203b_45966756c435dfd2.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c43b7023_45966756c43a5209.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4401d31_45966756c43e85d0.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c444e606_46066756c442e5a2.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c44c44f0_46066756c44b33f3.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c451bdcb_46166756c450649e.jpg\" alt=\"image text in transcribed\"> <p><\/p><p>May I ask for an explanation or interpretation behind this solution?<\/p><p><\/p><p>The problem:<\/p><figure><div><div><div><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c456060c_46166756c4550735.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c45b60a1_46166756c45a876a.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4608281_46166756c45ea6fc.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c46520a0_46266756c463f53c.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c469ca55_46266756c468bbce.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c46f2030_46266756c46e2557.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c474ef27_46366756c473db33.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4799b42_46366756c478cf26.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c47e6c0f_46366756c47d5bae.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c483cdf5_46466756c4828261.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c488eda3_46466756c487ec27.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c48ca192_46466756c48b9b8f.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4920b8f_46566756c490d03a.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c496f5bb_46566756c49596a4.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c49bea50_46566756c49ac483.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4a06c8b_46566756c49ee4c5.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4a67766_46666756c4a3d406.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4ac5148_46666756c4aaedcd.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4b0e208_46766756c4b01ff7.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4b5ce68_46766756c4b4ce7d.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4ba7c0d_46766756c4b976f2.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4c0516b_46766756c4be5007.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4c50090_46866756c4c3cf21.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4c9b906_46866756c4c807ac.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4ce58fa_46866756c4cd24be.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4d35585_46966756c4d246ca.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4d8b180_46966756c4d74d24.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4dd9f7c_46966756c4dbf08b.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4e3b852_47066756c4e1ea50.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4e89cb5_47066756c4e70c7b.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4ed0e40_47066756c4ebc795.jpg\" alt=\"image text in transcribed\"><img src=\"https:\/\/s3.amazonaws.com\/si.experts.images\/answers\/2024\/06\/66756c4f15605_47166756c4f076d7.jpg\" alt=\"image text in transcribed\"><\/div><\/div><\/div><\/figure> 80%%-Owned-Subsidiary: Cost Model - Consolidated Financial Statements, Downstream and Upstream of Property, Unrealized Gain and Realized Gain on Sale(Full Goodwill or Fair Value Basis) On January 1, 20x4, P Company acquires 80% of the common stock of S Company for P372,000. At that time, the fair value of the 20% non-controlling interest is estimated to be P93,000, On that the following assets and liabilities of S Company had book values that were different from their respective market values: S Co. Book value S Co.Fair value Inventory . . .P24,000 30,000 Land . . .48,000 55,200 Equipment . . . . . . - :780 000 180,000 Accumulated depreciation equipment ( 96,000) Buildings . . . . 360 000 144,000 Accumulated depreciation-buildings . . (192,000) Bonds payable (4 years) . 120,000 115,200 All other assets and liabilities had book values approximately equal to their respective fair values. On January 1, 20x4, the equipment and buildings had a remaining life of 8 and 4 years, respectively. Inventory is sold in 20x4 and FIFO inventory costing is used. Goodwill, if any, is reduced by a P3,750 impairment loss during 20x4 based on the fair value basis (or full-goodwill), meaning the management has determined that the goodwill arising in the acquisition of Son Company relates proportionately to the controlling and non-controlling interests, as does the impairment. There were no intercompany sales prior to 20x4, information resulting from intercompany sales of equipment, ending inventory and gross profit rates are summarized below: Downstream Sale: Year Sale of P to S Intercompany merchandise Intercompany in 12\/31 Inv of S Co. Profit 2004 150,000 60% of sale 20% 2005 120,000 80% of sale 25% Upstream Sale: Year Sale of P to S Intercompany merchandise Intercompany in 12\/31 Inv of S Co. Profit 2004 60,000 50% of sale 40% 2005 75,000 40% of sale 20%On December 31, 20x4, Intercompany accounts receivable and payable arising from intercompany sale was fully settled. Trial balancesfor the companies for the year ended December 31, 20x4 are as follows: Debits P Co. S Co Cash . . P232,80OP 90,000 Accounts receivable . .90,000 60,000 Inventory . . .. 120 000 90,000 Land . . 210,000 48,000 Equipment . . 240,000 180,000 Buildings . . . 720,000 540,000 Investment in S Company 372,000 -Cost of goods sold . . . . 204,000 138,000 Discount on bonds payable . Depreciation expense .60,000 24,000 Interest expense Other expenses . . .48,000 18,000 Goodwill impairment loss Dividends paid . . . . . 72,000 36,000 Totals . . P2,368,800 P1,224,000 Credits Accumulated depreciation - equipment P 135,000P 96,000 Accumulated depreciation - buildings :405,000 288,000 Accounts payable . . .105,000 88,800 Bonds payable . . 240,000 120,000 Common stock, P10 par . . 600,000 240,000 Retained earnings . . 360,000 120,000 Sales . . 480,000 240,000 Gain on sale of equipment 15,000 31,200 Dividend income 28,800 -Totals . .. -P2.368,800 P1,224,000For the trial balance presented above, the ff. Information available for Porter and Salem Company for the year 20x4 Porter Co. Salem Co. Sales 480,000 240,000 Less: COGS 204,000 138,000 Gross Profit 276,000 102,000 Less: Dep. Exp 60,000 24,000 Other Exp. 48.000 18.000 Net income from its own separate operation 168,000 60,000 Add: Dividend Income 28,800 NET INCOME 196,800 60.000 Dividends Paid 60.000 36.000The trial balances for the companies for the year ended December 31, 20x5are as follows: Debits P Co. S Co. Cash . . . . . P 265,200 P 102,000 Accounts receivable 180,000 96,000 Inventory . . .216,000 108,000 Land . . . . . .210,000 48,000 Equipment . . 240.000 180,000 Buildings . . . . . .. 720,000 540,000 Investment in S Company . .372, Cost of goods sold . . 216,000 192,000 Discount on bonds payable Depreciation expense . 60.000 24,000 Interest expense . . Other expenses . . . . . 72,000 54,000 Goodwill impairment loss . Dividends paid . . - . . 72,000 48,000 Totals . . -P2.623,200 P1,392,000 Credits Accumulated depreciation - equipment .P. 150,000 P 102,000 Accumulated depreciation - buildings . .450,000 306,000 Accounts payable . .105,000 88,800 Bonds payable . . 240,000 120,000 Common stock, P10 par . 600,000 240,000 Retained earnings . 499,800 175,200 Sales . . 540,000 360,000 Wwwww Dividend income . . 38.400 -Totals . . P2,623,200 P1,392,000Further the ff. Information available for Porter and Salem Company based on the above trial balance for the year 20x5 Sales 540,000 360,000 Less: COGS 216,000 192,000 Gross Profit 324,000 168,000 Less: Dep. Exp 60,000 24,000 Other Exp. 72,000 54.000 Net income from its own separate operation 192,000 90,000 Add: Dividend Income 38.400 NET INCOME 230.400 90,000 Dividends Paid 72,000 48,000 No goodwill impairment loss for 20x5. Requirement: 1. Prepare JE to record investment in the book of acquirer company. 2. Prepare a schedule for determination and allocated excess. 3. Prepare the working paper eliminating entries for 20x4 and 20x5 for purposes of preparing consolidated balance sheet. 4. Prepare a consolidated workpaper on Decemeber 31, 20x4 and December 31, 20x5. 5. Determine the following items for January 1, 20x4: a) Consolidated Retained Earnings b ) Non-Controlling Interest c) Consolidates Stockholder's Equity 6. Determine the following items for December 31, 20x4 and December 31, 20x5. a) Controlling Interest in Consolidated Net income b) Non-controlling Interest in Consolidated Net income () Consolidated Net income d) Consolidates Retained Earnings e) Non-Controlling Interest f ) Consolidates Stockholder's EquitySchedule of Determination and Allocation of Excess Date of Acquisition - January 1, 20x4 Fair Value of Subsidiary (80) Consideration transferred (80%) 372,000 Fair Value of NCI (20%) 93,000 Fair Value of Subsidiary (100%) 465,000 Less: Book value of stockholders equity of Son Common Stock (240,000 x 100%) 240,000 Retained Earnings (120,000 x 100) 120,000 360,000 Allocated Excess 105,000 Less: over\/under valuation of assets and liabilities: Increase in inventory (6,000 x 100%) 6,000 Increase in land (7,200 x 100%) 7,200 Increase in Equipment (96,000 x 100%) 96,000 Decrease in buildings (24,000 x 100%) (24,000) Decrease in bonds payable (4,800 x 100) 4,800 90,000 Positive Excess:Full-Goodwill (excess of costs over fair value) 15,000Depreciation and amortization adjustments Annual Current Year Account Adjustments to be amortized Over\/Under Life Amount (20x4) 20x5 Inventory 6,000 1 6,000 6,000 Subject to annual amortization Equipment (net) 96,000 8 12,000 12,000 12,000 Buildings (net) (24,000) 4 (6,000) (6,000) (6,000) Bonds payable 4,800 4 1,200 1,200 1,200 13,200 13,200 7,200 20x4: First Year after Acquisition Parent company Cost Model Entry January 1, 20x4: 1.) Investment in S Company 372,000 Cash 372,000 Acquisition of $ Company January 1, 20x4 - December 31, 20x4 2.) Cash 28,800 Dividend income (36,000 x 80%) 28,800 Record Dividends from Son CompanyOn the books of Son Company, the 36,000 dividend paid was recorded as follows: Dividends Paid 36,000 Cash 36,000 Dividends Paid by Son Company Consolidation Working Paper - First Year after Acquisition E1 Common Stock - $ Company 240,000 Retained Earnings - $ Company 120,000 Investment in $ Company 288,000 Non-Controlling Interest (360,000 x 20%%) 72,000 To eliminate intercompany investment and equity accounts of subsidiary on date of acquisition; and to establish non-controlling interest on date of acquisition E2 Inventory 6,000 Accumulated Depreciation - Equipment 96,000 Accumulated Depreciation - Buildings 192,000 Land 7,200 Discount on bonds payable 4,800 Goodwill 15,000 Buildings 216,000 Non-controlling interests (90,000 x 20%) + [15,000, full- 21,000 12,000, partial goodwill] Investment in Son Company 84,000E3 Cost of Goods sold 6,000 Depreciation Expense 6,000 Accumulated Depreciation - Buildings 6,000 Interest Expense 1,200 Goodwill Impairment loss 3,750 Inventory 6,000 Accumulated Depreciation - equipment 12,000 Discount on bonds payable 1,200 Goodwill 3,750 To provide for 20x4 impairment loss and depreciation and amortization on differences between acquisition date fair value and book value ofS's indentifiable assets and liabilities as follows: Depreciation\/ Cost of Goods Amortization- Amortization Sold Interest Expense Inventory Sold 6,000 Equipment 12,000 Buildings (6,000) Bonds Payable 1,200 Totals 6,000 6,000 1,200 E4 Dividend Income - P Company 28,000 Non-Controlling Interest (36,000 x 2096) 7,200 Dividends Paid -$ Company 36,000 To eliminate intercompany dividends and non- controlling interest share dividendsES Sales 150,000 Cost of Goods Sold 150,000 To eliminate Downstream Sales E6 Sales 60,000 Cost of Goods Sold 60,000 To eliminate Upstream Sales E7 Cost of Goods Sold ( Ending inventory - Income Statement) 18,000 Inventory 18,000 To defer the downstream sales - unrealized profit in ending inventory until it is sold to outsiders E8 Cost of Goods Sold ( Ending inventory - Income Statement) 12,000 Inventory 12,000 To defer the Upstream sales - unrealized profit in ending inventory until it is sold to outsiders E9 Non-controlling interest in Net Income of subsidiary 6,210 Non-Controlling Interest 6,210 To establish non-controlling interest in subsidiary's adjusted net income for 20x4 as follows:Net Income of Subsidiary 60,000 Unrealized profit in ending inventory of P Company (upstream Sales) (12,000) S company's realized net income from separate operations 48,000 less: amortization allocated excess 13,200 34,800 Multiplied by non controlling interest % 0.20 Non-controlling interest in Net Income-partial goodwill 6,960 Less: Non-controlling interest on impairment loss on full-goodwill (3750x2096) 750 Non-controlling interest in Net Income-full goodwill 6,210Worksheet for Consolidated Financial Statements, December 31, 20x4. Cost Model [Full- goodwill 80%%-Owned Subsidiary December 31, 20x4 (First Year after Acquisition) Income Statement P Company S Company Dr. Cr. Consolidated (5) 150,000 Sales 480,000 240,000 510,000 (6) 60,000 Dividend Income 28,800 (4) 28,800 Total Revenue 508,800 240,000 510,000 (5) 150,000 168,000 (3) 6,000 (6) 60,000 Cost of Goods Sold 204,000 138,000 (7) 18,000 (8) 12,000 Depreciation Expense 60,000 24,000 (3) 6,000 90,000 Interest Expense (3) 1,200 1,200 Other Expenses 48,000 18,000 66,000 Goodwill Impairment Loss (3) 3,750 3,750 Total Cost and Expenses 312,000 180,000 328,950 Net Income 196,800 60,000 181,050 NCI in Net Income - Subsidiary (9) 6,210 (6,210) Net Income to Retained Earnings 196,800 60,000 174,840Statement of Retained Earnings Retained Earnings - 1\/1\/20x4 P Company 360,000 360,000 S Company 120,000 (1) 120,000 Net Income 196,800 60,000 174,840 Total 556,800 180,000 534,840 Dividends Paid P Company 72,000 72,000 S Company 36,000 (4) 36,000 Retained Earnings - 12\/31 484,800 144,000 462,840Balance Sheet Cash 232,800 90,000 322,800 Accounts Receivable 90,000 60,000 150,000 (3) 6,000 Inventory 120,000 90,000 (2) 6,000 (7) 18,000 180,000 (8) 12,000 Land 210,000 48,000 (2) 7,200 265,200 Equipment 240,000 180,000 420,000 Buildings 720,000 540,000 (2) 216,000 1,044,000 Discount on Bonds Payable (2) 4,800 (3) 1,200 3,600 Goodwill (2) 15,000 3) 3,750 11,250 9\/ 200, 100 Investment in $ company 372,000 Total 1,984,800 1,008,000 2,396,850 Accumulated depreciation - equipment 135,000 96,000 (2) 96,000 (3) 12,000 147,000 Accumulated depreciation - buildings 405,000 288,000 (7) 6,000 495,000 Accounts Payable 120,000 120,000 240,000 Bonds Paybale 240,000 120,000 360,000 Common Stock, P 10 par 600,000 600,000 Common Stock, P 10 par 240,000 (1) 240,000 Retained Earnings 484,800 144,000 462,840 Non-Controlling Interest (4) 7,200 92,010 Total 1,984,800 1,008,000 986,160 986,160 2.396,85020x5: Second Year after Acquisition Perfect Co. Son Co Sales 540,000 360,000 Less: Cost of Goods Sold 216,000 192,000 Gross Profit 324,000 168,000 Less: Depreciation Expense (60,000) 24,000 Other Expense (72,000) 54,000 Net Income from its own separate operations 192,000 90,000 Add: Dividend Income 38,400 Net Income 23,400 90,000 Dividends Paid 72,000 48,00020x5: Second Year after Acquisition Parent company Cost Model Entry January 1, 20*5 - December 31, 20x5 Cash 38,400 Dividend income (48,000 x 8096) 38,400 Record Dividends from Son Company On the books of Son Company, the 48,000 dividend paid was recorded as follows: Dividends Paid 48,000 Cash 48,000 Dividends Paid by Son Company Consolidation Work Paper - Second Year after Acquisition Retained Earnings -$ company, 1\/1\/20x5 144,000 Retained Earnings - $ company, 1\/1\/20x4 (120,000) Increase in Retained Earnings 24,000 Multiplied by controlling interest % 0.80 Retroactive Adjustment 19,200E1 Investment in $ Company 19,200 Retained Earnings - P Company 19,200 To provide entry to convert from the cost method to the equity method or the entry to establish reciprocity at the beginning of the year 1\/1\/20x5 E2 Common Stock - $ Company 240,000 Retained Earnings -$ Company 1\/1\/20x5 144,000 Investment in $ Company (384,000 x 809%) 307,200 Non-Controlling Interest (384,000x 20%%) 76,800 To eliminate intercompany investment and equity accounts of subsidiary on date of acquisition; and to establish non-controlling interest on 1\/1\/20x5E3 Inventory 6,000 Accumulated Depreciation - Equipment 96,000 Accumulated Depreciation - Buildings 192,000 Land 7,200 Discount on bonds payable 4,800 Goodwill 15,000 Buildings 216,000 Non-controlling interests (90,000 x 20%%) + [15,000,full-12,000, partial 21,000 goodwill] Investment in Son Company 84,000 To allocate excess of cost over book value of identifiable assets acquired, with remainder to goodwill; and to establish non-controlling interest on 1\/1\/20x5 E4 Retained Earnings - P Company, 1\/1\/20x5 (16,950x80%6) 13,560 Non Controlling interests (16,950 x 20%) 3,390 Depreciation Expense 6,000 Accumulated Depreciation-buildings 12,000 Interest Expense 1,200 Inventory 6,000 Accumulated depreciation - equipment 24,000 Discount on Bonds Payable 2,800 Goodwill 3,750Depreciatio Cost of n\/ Amortization - Goods Sold Amortization Interest Expense Inventory Sold 6,000 Equipment 12,000 12,000 Buildings (6,000) (6,000) Bonds Payable 1,200 1,200 Impairment Loss 3,750 Totals 16,950 6,000 1,200 Mutiplied by CI % 0.80 To Retained Earnings 13,560 ES Dividend Income - P Company 38,400 Non-Controlling Interest (48,000 x 20%) 9,600 Dividends Paid -$ Company 48,000 To eliminate intercompany dividends and non-controlling interest share dividends E6 Sales 120,000 Cost of Goods Sold 120,000 To eliminate intercompany Downstream SalesE7 Sales 75,000 Cost of Goods Sold 75,000 To eliminate intercompany Upstream Sales EB Beginning Retained Earnings - P Company 18,000 Cost of Goods Sold ( Ending Inventory - Income Statement) 18,000 To realized profit in downstream beginning inventory deferred in the prior period E9 Beginning Retained Earnings - P Company 9,600 Non-Controlling Interest (12,000x20%%) 2,400 Cost of Goods Sold ( Ending Inventory - Income Statement) 12,000 To realized profit in upstream beginning inventory deferred in the prior period E10 Cost of Goods Sold ( Ending inventory - Income Statement) 24,000 Inventory 24,000 To defer the downstream sales - unrealized profit in ending inventory until it is sold to outsiders E11 Cost of Goods Sold ( Ending inventory - Income Statement) 6,000 Inventory 6,000E12 Non-controlling interest in Net Income of subsidiary 17,760 Non-Controlling Interest 17,760 To establish non-controlling interest in subsidiary's adjusted net income for 20x5 as follows: Net Income of Subsidiary 90,000 Realized profit in beginning inventory of P Company - 20x5(upstream Sales) 12,000 Unrealized profit in ending inventory of P Company-20x5(upstream Sales) (6,000) Son company's realized net income 96,000 less: amortization allocated excess (7,200) 88,800 Multiplied by non controlling interest % 0.20 Non-controlling interest in Net Income-partial goodwill 17,760 Less: Non-controlling interest on impairment loss on full-goodwill Non-controlling interest in Net Income-full goodwill 17,760Worksheet for Consolidated Financial Statements, December 31, 20x5. Cost Model (Full-goodwill] 809-Owned Subsidiary December 31, 20x5 (Second Year after Acquisition) Income Statement P Company Auedwoos Dr. Cr. Consolidated (6) 120,000 Sales 540,000 360,000 705,000 (7) 75,000 Dividend Income 38,400 (5) 38,400 Total Revenue 578,400 360,000 705,000 (6) 120,000 213,000 (10) 24,000 (7) 90,000 Cost of Goods Sold 216,000 192,000 (11) 6,000 (8) 21,600 (9) 14,400 Depreciation Expense 60,000 24,000 (4) 6,000 90,000 Interest Expense - (4) 1,200 1,200 Other Expenses 72,000 54,000 126,000 Goodwill Impairment Loss Total Cost and Expenses 348,000 270,000 430,200 Net Income 230,400 90,000 274,800 NCI in Net Income - Subsidiary (12) 17,760 (17 760) Net Income to Retained Earnings 230,400 90,000 257,040Statement of Retained Earnings Retained Earnings - 1\/1 19\/ 15,300 P Company 484,800 int in nan (4) 19,200 462,840 Auedwog s 144,000 (5) 144,000 Net Income 230,400 90,000 257,040 Total 715,200 234,000 719,880 Dividends Paid P Company 72,000 72,000 S Company 48,000 (5) 48,000 Retained Earnings - 12\/31 643,200 186,000 647,880Balance Sheet Cash 265,200 102,000 367,200 Accounts Receivable 180,000 96,000 276,000 (4) 6,000 Inventory 216,000 108,000 (6) 6,000 (10) 24,000 294,000 (11) 6,000 Land 210,000 48,000 (3) 7,200 265,200 Equipment 240,000 180,000 420,000 Buildings 720,000 540,000 (3) 216,000 1,044,000 Discount on Bonds Payable (3) 4,800 (4) 2,400 2,400 Goodwill (3) 15,000 4) 3,750 11,250 21 307, 200 Investment in $ company 372,000 (1) 19,200 int nanna Total 2,203,200 1,074,000 2.680,050 Accumulated depreciation - equipment 150,000 102,000 (3) 96,000 (4) 24,000 180,000 Accumulated depreciation - buildings 450,000 306,000 (4) 12,000 552,000 Accounts Payable 120,000 120,000 240,000 Bonds Paybale 240,000 120,000 360,000 Common Stock, P 10 par 600,000 600,000 Common Stock, P 10 par 240,000 (2) 240,000 Retained Earnings 643,200 186,000 647,880 Non-Controlling Interest (4) 10,600 (8) 9,600 100,170 Total 2,203,200 1,074,000 1,081,110 1,081,110 2,680,0505. January 1, 20x4 A. Consolidated Retained Earnings Retained earnings - Parent Company, 1\/1\/20x4 (date of acquisition) 360,000.00 B. Non-Controlling Interest Non-controlling interest (partial-goodwill), 1\/1\/20x4 Common Stock - Subsidiary Company 240,000 Retained Earnings - Subsidiary Company 120,000 Stockholders equity - Subsidiary Company 360,000 Adjustments to reflect fair value - undervaluation of assets and liabilities 90,000 Fair Value of stockholders equity of subsidiary, 1\/1\/20x4 450,000 Multiplied by non-controling interests % 0.20 Non-Controlling Interests ( partial ) 90,000 Add: Non-controlling interests on full-goodwill 1\/1\/20x4 [( 12,500 full-goodwill - 10,000 partial)] 3,000 Non-Controlling Interests (full-goodwill) 93,000 C. Consolidated Shareholders Equity Stockholders Equity Common Stock, P10 par 600,000 Retained Earnings 360,000 Parent's Stockholders Equity 960,000 Non-Controlling Interests, 1\/1\/20x4 93,000 Consolidated Shareholders Equity 1\/1\/20x4 1,053,0006. December 31, 20x4 A. Controlling Interests in Consolidated Net Income P Company's Net Income from own\/separate operations 168000 Unrealized profit in ending inventory of $ Company (Downstream sales) (18,000) Porter Company's realized net income from separate operations 150000 S Company's Net Income from own operations 60,000 Unrealized profit in ending inventory of $ Company (Upstream sales) (12,000) Salem Company's realized net income from separate operations 48,000 Total 198,000 Less: Non- Controlling interest in Net Income 6,210 Amortization of allocated excess 13,200 Goodwill Impairment (impairment under full goodwill approach) 3,750 23,160 Controlling Interests in Consolidated Net Income 174,840 B. Non-Controlling Interests in Consolidated Net Income S Company's Net Incomeof Subsidiary from its own operations 60,000 Unrealized profit in ending inventory of P Company (Upstream sales) (12,000) $ Company's realized net income from separate operations 48,000 Less: Amortization of allocated excess (13,200) 34,800 Multiplied by non-controling interests % 0.20 Non-Controlling Interests in Consolidated Net Income - partial 6,960 less: Non-controlling interests on impairment loss on full-goodwill ( 3750x 20%% or 3750-3000) 750 Non-Controlling Interests in Consolidated Net Income 6,210C. Consolidated Net Income Controlling Interests in Consolidated Net Income 174,840 Non-Controlling Interests in Consolidated Net Income 6,210 Consolidated Net Income 181,050 D. Consolidated Retained Earnings Retained Earnings - Parent Company, 1\/1\/20x4 (date of acquisition) 360,000 Add: Controlling Interests in Consolidated Net Income, 20x4 174,840 Total 534,840 less: Dividends Paid - Parent Company , 20x4 72,000 Consolidated Retained Earnings, 12\/31\/20x4 462,840E. Non-Controlling Interests Common Stock -$ Company, 12\/31\/20x4 240,000 Retained Earnings -$ Company, 12\/31\/20x4 Retained Earnings - $ Company, 1\/1\/20x4 120,000 Add: Net Income of subsidiary for 20x4 60,000 Total 180,000 less: Dividends paid - 20x4 (36,000) 144,000 Stockholders equity -$ company, 12\/31\/20x4 384,000 Adjustments to reflect fair value - undervaluation of assets and liabilities, date of acquisition, 1\/1\/20x4 90,000 Less: Amortization of allocated excess (13,200) Fair Value of stockholders equity of subsidiary, 12\/31\/20x4 460,800 less: Unrealized profit in ending inventory of P Company (Upstream sales) (12,000) Realized Stockhoders equity of subsidiary, 12\/31\/20x4 448,800 Multiplied by non-controling interests $% 0.20 Non-Controlling Interests - partial goodwill 89,760 Add: Non-controlling interests on full-goodwill, net of impairment loss [( 15,000 full-12,000 partial=3,000)-750] 2,250 Non-Controlling Interests 92,010 F. Consolidated Shareholders Equity Stockholders Equity Common Stock, P10 par 600,000 Retained Earnings 462,840 Parent's Stockholders Equity 1,062,840 Non-Controlling Interests, 1\/1\/20x4 92,010 Consolidated Shareholders' Equity 1\/1\/20x4 1,154,840December 31, 20x5 A. Controlling Interests in Consolidated Net Income P Company's Net Income from own\/separate operations 192,000 Realized profit in beginning inventory of $ Company (Downstream sales) 18,000 Unrealized profit in ending inventory of $ Company (Downstream sales) (24,000) F Company's realized net income from separate operations 186,000 S Company's Net Income from own operations 90,000 Realized profit in beginning inventory of P Company (Upstream sales) 12,000 Unrealized profit in ending inventory of P Company (Upstream sales) (6,000) $ Company's realized net income from separate operations 96,000 Total 282,000 Less: Non- Controlling interest in Net Income 17,760 Amortization of allocated excess 7,200 24.960 Controlling Interests in Consolidated Net Income 257,040 B. Non-Controlling Interests in Consolidated Net Income S Company's Net Incomeof Subsidiary from its own operations 90,000 Realized profit in beginning inventory of P Company (Upstream sales) 12,000 Unrealized profit in ending inventory of P Company (Upstream sales) (6.000) S Company's realized net income from separate operations 96,000 Less: Amortization of allocated excess 7,200) 88,800 Multiplied by non-controling interests % 0.20 Non-Controlling Interests in Consolidated Net Income - partial goodwill 17,760 less: Non-controlling interests on impairment loss on full-goodwill Non-Controlling Interests in Consolidated Net Income 17,760C. Consolidated Net Income Controlling Interests in Consolidated Net Income 257,040 Non-Controlling Interests in Consolidated Net Income 17,760 Consolidated Net Income 274,800 D. Consolidated Retained Earnings Retained Earnings - Parent Company, 1\/1\/20*5 (cost model) 484,800 less: Unrealized profit in ending inventory of $ company (downstream sales)-20x4 (18,000) Adjusted Retained Earnings - Parent 1\/1\/20*5 (cost model) 466,800 Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity Retained Earnings - subsidiary, 1\/1\/20*5 144,000 less: Retained Earnings - subsidiary, 1\/1\/20x4 (120,000) Increase in Retained Earnings since date of acquisition 24,000 less: Amortization allocated-20x4 13,200 Unrealized profit in ending inventory of P company (Upstream sales)-20x4 12,000 (1,200) Multiplied by Controlling interests % (960) less: goodwill impairment loss (full- goodwill), (3750x80%%) 3,000 (3.960 Consolidated Retained Earnings , 1\/1\/20x5 462,840 Add: Controlling Interest in consolidated net income 257,040 Total 719,880 Less: Dividends Paid - Parent Company 20x5 (72,000) Consolidated Retained Earnings , 12\/31\/20x5 647.880E. Non-Controlling Interests Common Stock - $ Company, 12\/31\/20x5 240,000 Retained Earnings - $ Company, 12\/31\/20x5 Retained Earnings -$ Company, 1\/1\/20x5 144,000 Add: Net Income of subsidiary for 20x5 90,000 Total 234,000 less: Dividends paid - 20x5 (48,000) 186,000 Stockholders equity -$ company, 12\/31\/20x5 426,000 Adjustments to reflect fair value - undervaluation of assets and liabilities, date of acquisition, 1\/1\/20x4 90,000 Less: Amortization of allocated excess 20x4 13,200 20x5 7,200 (20,400) Fair Value of stockholders equity of subsidiary, 12\/31\/20x5 495,600 less: Unrealized profit in ending inventory of P Company (Upstream sales), 20x5 (6,000) Realized Stockhoders equity of subsidiary, 12\/31\/20x5 489,600 Multiplied by non-controling interests % Non-Controlling Interests - partial goodwill 97,920 Add: Non-controlling interests on full-goodwill, net of impairment loss [( 15,000 full-12,000 partial=3,000)-750] 2,250 Non-Controlling Interests 100,170F. Consolidated Shareholders Equity Stockholders Equity Common Stock, P10 par 600,000 Retained Earnings 647.660 Parent's Stockholders Equity 1,247,880 Non-Controlling Interests, 1\/1\/20x4 100,170 Consolidated Shareholders Equity 1\/1\/20x5 1,348,050",
    "transcribed_text": "",
    "related_book": {
        "title": "Cornerstones of Financial and Managerial Accounting",
        "isbn": "9780538751292, 324787359, 538751290, 978-0324787351",
        "edition": "1st Edition",
        "authors": "Rich Jones, Mowen, Hansen, Heitger",
        "cover_image": "https:\/\/dsd5zvtm8ll6.cloudfront.net\/si.question.images\/book_images\/145.jpg",
        "uri": "\/textbooks\/cornerstones-of-financial-and-managerial-accounting-1st-edition-145",
        "see_more_uri": ""
    },
    "free_related_book": {
        "isbn": "141958099X",
        "uri": "\/textbooks\/workers-compensation-coverage-1st-edition-978-1419580994-222806",
        "name": "Workers Compensation Coverage",
        "edition": "1st Edition"
    },
    "question_posted": "2024-06-21 08:04:31",
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