NOTE: USE $2,500 AS ENDING INTRA-COMPANY INVENTORY
IN THE BOOK IN CHAPTER 5, THERE IS A COMPREHENSIVE EXAMPLE FOR A CONSOLIDATED FINANCIAL STATEMENTS FOR A DOWNSTREAM SALE LESSON 5-2/5-3
Part 1: Take these parent and consolidated entries (word file attached to this dropbox) and post them to the year 2 trial balances for Alpha, Blue & Consolidated in attached Excel spreadsheet.
PART 2: Assume the following year 3 activity:
Alpha Blue
Revenues $500,000 $300,000
COGS $275,000 $115,000
Expenses $50,000 $60,000
Dividends $0 $25,000
Intracompany activity:
- Blue sold the remaining inventory from year 2.
- Alpha sold inventory of $25,000 to Blue. The inventory initially cost Alpha $20,000.
- Blue still owes Alpha $3,500 in payables.
Step 1: Calculate your new retained earnings numbers for both Alpha and Blue.
Step 2: Adjust your trial balance to equal through cash so that your debits = credits
Step 3: Make your Alpha parent entries for year 3
Step 4: Make your year 3 consolidated entries
Step 5: Post all entries to excel, creating year 3 Alpha, Blue & consolidated financial statements.
B 122% View Zoom Add Page Pages Text Shape Insert Table Chart Media Comment Collaborate E Format Document Section Background On January 1, 2020, Alpha Company acquired an 80% interest in Blue Company. Alpha issued 25,000 shares of its $2 par value common stock, which had a fair market value of $10 per share on that date. The financial information for both companies immediately prior to the investment is presented below: Headers & Footers Alpha Book Blue Book Blue Fair Hide on first page of section Match previous section Cash $75,000 $50,000 $50,000 Page Numbering Accts. Rec $110,000 $65,000 $65,000 Format Inventory $85,000 $40,000 $40,000 1, 2, 3 Numbering Continue from previous section PPE $300,000 $150,000 $200,000 (5 year life) Intangibles $0 $0 $15,000 (15 year life) ) Start at: 1 Total Assets $570,000 $305,000 $370,000 Accts Pay $150,000 $50,000 $50,000 Create a new section Sections allow you to start a new header and footer, page numbering, or page background. Notes Pay $200,000 $150,000 $150,000 Total Liab $350,000 $200,000 $200,000 Com. Stk 80,000 40,000 APIC 40,000 10,000 Ret. Eam 100,000 55,000 Total Eq $220,000 105,000 1. Calculate the amount of goodwill recognized by Alpha on this purchase. Then, prepare the acquisition entry made by Alpha for this purchase. Company 100% Alpha 80% NCI 20% Fair Value $312,500 250,000 62,500 FVNA $170,000 $136,000 $34.000 Goodwill $142,500 $114,000 $28,500 Company goodwill: $142,500 (100%) Parent goodwill: $114,000 (80%) 5 B 122% E Zoom Add Page T Text View Insert Table Chart Shape Media Comment Collaborate E Format Document Section Pages Background NCI goodwill: $28,500 (20%) 2. Alpha uses the equity method to account for its investment in Blue internally. During the year, operations information is as follows: Headers & Footers Alpha $250,000 Blue $100,000 Hide on first page of section Match previous section Revenues COGS $80,000 40,000 Page Numbering Operating Expenses $45,000 $20,000 Format Net Income $125,000 $40,000 1, 2, 3 Numbering Continue from previous section Dividends Paid $0 $5,000 Start at: 1 Included in the numbers above are the following intra-entity sales: Alpha sold inventory costing $10,000 to Blue for $15,000. Blue sold $6,000 (to outside parties) of the inventory, and still has the remaining $9,000 on its balance sheet. Assume that Blue still owes Alpha $2,000 for the purchase as of the end of the year. Create a new section Sections allow you to start a new header and footer, page numbering, or page background. ALPHA-PARENT COMPANY ENTRIES: : Acquisition Entry (Entry A) Entry to recognize their share of Blue's income Entry to for their share of dividends Entry for excess cost allocation PARENT ENTRY A: INITIAL ACQUISITION: Investment 250,000 Common stock 50,000 APIC 200,000 PARENT ENTRY #1: RECORD SHARE OF BLUE'S INCOME: Investment 32,000 ($40,000 * 80%) Investment Income 32,000 ($40,000 * 80%) 5 B 122% Zoom Add Page T Text Shape View Insert Table Chart Media Comment Collaborate E Format Document Section Pages PARENT ENTRY #2: RECORD SHARE OF DIVIDENDS: Background Cash Investment 4,000 $5,000 * 80%) 4,000 PARENT ENTRY #3: RECORD THE EXCESS COST EXPENSE: Excess Life Annual PPT $50,000 5 yrs $10,000 Headers & Footers Hide on first page of section Match previous section Alpha owns $8,000 (80%) Intangibles $15,000 15 yrs $1,000 $800(80%) Page Numbering Format Total $11,000 $8,800 Investment Income Investment 8,800 (parent's share) 8,800 1, 2, 3 Numbering Continue from previous section Start at: 1 PARENT ENTRY #4: DEFER GROSS PROFIT FROM INTRA-COMPANY SALES IN ENDING INVENTORY: Step #1: Calculate the gross profit % of the sale GP % = $5,000 (GP)/$15,000 (sales price) = 33.33% Create a new section Sections allow you to start a new header and footer, page numbering, or page background. 3 Step #2: Multiply GP% * Ending Inventory 33.33% 9,000 (Ending Inventory) = $3,000 (this is the gross profit that we have to eliminate) 3,000 Investment Income Investment 3,000 CONSOLIDATING ENTRIES: Eliminate Blue Equity Adjust accounts to fair market value Eliminate parent company entries: o Income O Dividends o Excess cost CONSOLIDATING ENTRY #1: ELIMINATE BLUE EQUITY: 5 Common Stock APIC 40,000 10,000 122% E Zoom Add Page Pages 1 Insert T Text Shape View Table Chart Media Comment Collaborate E Format Document Section Retained Earnings 55,000 Investment 84,000 NCI 21,000 CONSOLIDATING ENTRY#2: ADJUST ACCOUNTS TO FAIR VALUE: Background PPE Intangibles Goodwill Investment NCI 50,000 15,000 142,500 Headers & Footers Hide on first page of section Match previous section 166,000 (207,500 * 80%) 41,500 (207,500 * 20%) Page Numbering Format CONSOLIDATING ENTRY #3: ELIMINATE PARENT INCOME ENTRY: : 32,000 Investment Income Investment 1, 2, 3 Numbering Continue from previous section 32,000 Start at: 1 CONSOLIDATING ENTRY #4: ELIMINATE PARENT DIVIDEND ENTRY: 4,000 Investment Dividends 4,000 Create a new section Sections allow you to start a new header and footer, page numbering, or page background. CONSOLIDATING ENTRY #5: ELIMINATE PARENT EXCESS COST ENTRY: #: Investment 8,800 Investment Income 8,800 CONSOLIDATING ENTRY #6: ELIMINATE INTRACOMPANY SALES: Sales Revenue COGS 15,000 15,000 Alpha, as a stand alone company made a $15,000 sale to Blue, a separate stand alone company. This is considered a sale to Alpha and a purchase by Blue. When we consolidate (making Alpha and Blue into effectively 1 company) this is now viewed as a transfer from one "division" to another "division". This is where we eliminate the intra- company sales number. CONSOLIDATING ENTRY #7: ELIMINATE INTRACOMPANY PAYABLES/RECEIVABLES 122% E Zoom Add Page 1 T Insert Table Chart Text Shape Media Media Comment View Collaborate E Format Document Section Pages CONSOLIDATING ENTRY #7: ELIMINATE INTRACOMPANY PAYABLES/RECEIVABLES Background Headers & Footers Hide on first page of section Match previous section Page Numbering Format Accounts Payable 2,000 (make the payable go away) Accounts Receivable 2,000 (make the receivable go away) 1, 2, 3 Numbering Continue from previous section CONSOLIDATING ENTRY #8: DEFER INTRA-ENTITY GROSS PROFIT IN ENDING INVENTORY 3,000 Start at: 1 COGS Inventory 3,000 CONSOLIDATING ENTRY #9: ELIMINATE PARENT INCOME DEFERRAL ENTRY: Create a new section Sections allow you to start a new header and footer, page numbering, or page background. Investment 3,000 Investment Income 3,000 CONSOLIDATING ENTRY #10: AMORTIZE THE EXCESS COST 5 Operating Expenses 11,000 PPE 10,000 Intangible Assets 1,000 PREPARE THE CONSOLIDATED FINANCIAL STATEMENTS (NOTE: FINANCIAL STATEMENTS INCLUDED IN EXCEL). T B 122% View Zoom Add Page Pages Insert Table Chart Text Shape Media Comment Collaborate E Format Document Section YEAR 2 OPERATIONS: Background Alpha $300,000 Blue $175,000 Revenues: COGS: $110,000 $60,000 Headers & Footers Hide on first page of section Match previous section Expenses $50,000 $40,000 Dividends: $0 $20,000 Page Numbering Intracompany activity: Format Blue sold the remaining $6,000 of inventory from year 1. Blue paid off the $2,000 that it owed Alpha from year 1. Alpha made sales totaling $10,000 to Blue. The inventory cost Alpha $6,000. Blue has sold $8,000 of the inventory and has $2,000 remaining. Blue still owes Alpha $1,000 on this purchase as of the end of the year. 1, 2, 3 Numbering Continue from previous section Start at: 1 5 PARENT ENTRY #1: RECORD SHARE OF BLUE'S INCOME: Investment 60,000 ($75,000 - 80%) ) Investment income 60,000 Create a new section Sections allow you to start a new header and footer, page numbering, or page background. PARENT ENTRY #2: RECORD SHARE OF BLUE'S DIVIDENDS: 2: 6 16,000 ($20,000 * 80%) Cash Investment 16,000 PARENT ENTRY #3: RECORD SHARE OF EXCESS COST: Investment Income Investment 8,800 (same as year 1) 8,800 PARENT ENTRY #4: DEFER GROSS PROFIT IN ENDING INVENTORY: GP% = $4,000/$10,000 = 40% Ending Inventory: $2,000 $2,000 - 40% SBOO T 122% Zoom Add Page 1 Insert Table View Chart Text Shape Media Comment Collaborate E Format Document Section Pages Background Investment Income 800 Investment 800 PARENT ENTRY #5: WE RECOGNIZE THE GROSS PROFIT ON THE INTRACOMPANY SALE FROM YEAR #1: Headers & Footers Investment 3,000 Investment Income Hide on first page of section Match previous section 3,000 Just reverse the year 1 deferral entry Page Numbering CONSOLIDATING: Format CONSOLIDATING ENTRY #1: ELIMINATE BLUE'S EQUITY ACCOUNTS 1, 2, 3 Numbering Continue from previous section Start at: 1 Common Stock APIC Ret. Earnings Investment NCI 40,000 10,000 90,000 112,000 28,000 6 CONSOLIDATING ENTRY #2: ADJUST ACCOUNTS TO FAIR VALUE 2: Create a new section Sections allow you to start a new header and footer, page numbering, or page background. PPE Intangibles Goodwill Investment NCI 40,000 (50,000 excess - 10,000 expensed in year 1) 14,000 (15,000 excess - 1,000 expensed in year 1) ) 142,500 157,200 39,300 CONSOLIDATING ENTRY #3: ELIMINATE PARENT INCOME ENTRY: Investment Income Investment 60,000 60,000 CONSOLIDATING ENTRY #4: ELIMINATE PARENT DIVIDEND ENTRY: #: : Investment Dividends 16,000 16,000 CONSOLIDATING ENTRY #5: ELIMINATE THE PARENT EXCESS COST ENTRY: Investment 8,800 Investment Income 8,800 122% View Zoom Add Page Pages 1 Insert T Text Table Chart Shape Media Comment Collaborate E Format Document Section Background CONSOLIDATING ENTRY #6: ELIMINATE INTRACOMPANY SALES: 6: Revenue COGS 10,000 10,000 Headers & Footers Hide on first page of section Match previous section CONSOLIDATING ENTRY #7: ELIMINATE INTRACOMPANAY PAYABLES & RECEIVABLES: Accounts Payable 1,000 Accounts Receivable 1,000 Page Numbering Format CONSOLIDATING ENTRY #8: DEFER INTRAENTITY GROSS PROFIT IN ENDING INVENTORY 800 COGS Inventory 1, 2, 3 Numbering Continue from previous section 800 Start at: 1 CONSOLIDATING ENTRY #9: ELIMINATE THE PARENT GROSS PROFIT DEFERRAL ENTRY Investment 800 Investment Income 800 Create a new section Sections allow you to start a new header and footer, page numbering, or page background. CONSOLIDATING ENTRY #10: AMORTIZE THE EXCESS COST : Operating Expenses 11,000 PPE 10,000 Intangibles 1,000 CONSOLIDATING ENTRY#11: RECOGNIZE THE GROSS PROFIT FROM INVENTORY SOLD IN YEAR 1 Investment 3,000 COGS 3,000 We sold the inventory that was left over at the end of year 1 during year 2. So, we have to recognize the gross profit from the sale for consolidated purposes. CONSOLIDATING ENTRY #12: ELIMINATE ALPHA'S RECOGNITION OF THE GROSS PROFIT (REVERSE PARENT ENTRY #5) Investment Income 3,000 Investment 3,000 10 172% + Zoom Add Page T Insert Table Chart Text Shape Media Media Comment View Collaborate E Format Document Section Pages Part 1: Take these parent and consolidated entries and post them to the year 2 trial balances for Alpha, Blue & Consolidated in Excel spreadsheet. Background PART 2: Assume the following year 3 activity: Headers & Footers Hide on first page of section Match previous section Alpha $500,000 Blue $300,000 Revenues Page Numbering COGS $275,000 $115,000 Format 1, 2, 3 Numbering Continue from previous section Start at: 1 Expenses $50,000 $60,000 Dividends $0 $25,000 Intracompany activity: Create a new section Sections allow you to start a new header and footer, page numbering of page background. . Blue sold the remaining inventory from year 2. Alpha sold inventory of $25,000 to Blue. The inventory initially cost Alpha $20,000. Blue still owes Alpha $3,500 in payables. Step 1: Step 2: Step 3: Step 4: Step 5: Calculate your new retained earnings numbers for both Alpha and Blue. Adjust your trial balance to equal through cash so that your debits = credits Make your Alpha parent entries for year 3 Make your year 3 consolidated entries Post all entries to excel, creating year 3 Alpha, Blue & consolidated financial statements. 10 124% View Zoom Add Page Pages Text Shape Insert Table Chart Media Comment Collaborate E Format Document Section Background Headers & Footers Hide on first page of section Match previous section Alpha acquires $10,000 (10,000 items @ $1 per unit) of items from an outside entity. Page Numbering Format Inventory Cash 10,000 10,000 1, 2, 3 Numbering Continue from previous section Alpha then turns around sells these 10,000 items to Blue for $1.50 per item (for a total of $15,000. Start at: 1 Cash 15,000 Sales Revenue 15,000 Create a new section Sections allow you to start a new header and footer, page numbering, or page background. COGS Inventory 10,000 10,000 Blue, when they purchase the items: Inventory Cash 15,000 15,000 Essentially, every Inventory item is overstated on Blue's books by $0.50. If Blue has sold 6,000 items to outside entities. 10 T e H 118% % View Zoom + L TRIAL BALANCES Year 1 ce Collaborate Insert Table Chart Text Shape Media Comment Format Organize Add Category TRIAL BALANCES YEAR 2 Sheet2 Sheet Sheet Name TRIAL BALANCES YEAR 2 Consolidating Credit Consolidated Totals Debit Credit Debit Alpha Debit Credit 360,000.00 110,000.00 310,200.00 85,000.00 300,000.00 Blue Debit Credit 140.000.00 65,000.00 Background 112,000.00 40,000.00 150,000.00 Duplicate Sheet Delete Sheet Cash Accounts Receivable Investment Inventory PPE (Net] Intangibles Goodwill Accounts Payable Notes Payable Common Stock Additional Paid in Capital Retained Earnings NCI Dividends Revenues Investment Income COGS Expenses 150,000.00 200,000.00 130,000.00 240,000.00 245,200.00 50,000.00 150,000.00 40,000.00 10,000.00 90,000.00 40,000.00 10,000.00 90,000.00 28,000.00 20,000.00 175,000.00 300,000.00 60,000.00 110,000.00 50,000.00 1,325,200.00 1,325,200.00 60,000.00 40,000.00 515,000.00 515,000.00 140,000.00 140,000.00 B 122% View Zoom Add Page Pages Text Shape Insert Table Chart Media Comment Collaborate E Format Document Section Background On January 1, 2020, Alpha Company acquired an 80% interest in Blue Company. Alpha issued 25,000 shares of its $2 par value common stock, which had a fair market value of $10 per share on that date. The financial information for both companies immediately prior to the investment is presented below: Headers & Footers Alpha Book Blue Book Blue Fair Hide on first page of section Match previous section Cash $75,000 $50,000 $50,000 Page Numbering Accts. Rec $110,000 $65,000 $65,000 Format Inventory $85,000 $40,000 $40,000 1, 2, 3 Numbering Continue from previous section PPE $300,000 $150,000 $200,000 (5 year life) Intangibles $0 $0 $15,000 (15 year life) ) Start at: 1 Total Assets $570,000 $305,000 $370,000 Accts Pay $150,000 $50,000 $50,000 Create a new section Sections allow you to start a new header and footer, page numbering, or page background. Notes Pay $200,000 $150,000 $150,000 Total Liab $350,000 $200,000 $200,000 Com. Stk 80,000 40,000 APIC 40,000 10,000 Ret. Eam 100,000 55,000 Total Eq $220,000 105,000 1. Calculate the amount of goodwill recognized by Alpha on this purchase. Then, prepare the acquisition entry made by Alpha for this purchase. Company 100% Alpha 80% NCI 20% Fair Value $312,500 250,000 62,500 FVNA $170,000 $136,000 $34.000 Goodwill $142,500 $114,000 $28,500 Company goodwill: $142,500 (100%) Parent goodwill: $114,000 (80%) 5 B 122% E Zoom Add Page T Text View Insert Table Chart Shape Media Comment Collaborate E Format Document Section Pages Background NCI goodwill: $28,500 (20%) 2. Alpha uses the equity method to account for its investment in Blue internally. During the year, operations information is as follows: Headers & Footers Alpha $250,000 Blue $100,000 Hide on first page of section Match previous section Revenues COGS $80,000 40,000 Page Numbering Operating Expenses $45,000 $20,000 Format Net Income $125,000 $40,000 1, 2, 3 Numbering Continue from previous section Dividends Paid $0 $5,000 Start at: 1 Included in the numbers above are the following intra-entity sales: Alpha sold inventory costing $10,000 to Blue for $15,000. Blue sold $6,000 (to outside parties) of the inventory, and still has the remaining $9,000 on its balance sheet. Assume that Blue still owes Alpha $2,000 for the purchase as of the end of the year. Create a new section Sections allow you to start a new header and footer, page numbering, or page background. ALPHA-PARENT COMPANY ENTRIES: : Acquisition Entry (Entry A) Entry to recognize their share of Blue's income Entry to for their share of dividends Entry for excess cost allocation PARENT ENTRY A: INITIAL ACQUISITION: Investment 250,000 Common stock 50,000 APIC 200,000 PARENT ENTRY #1: RECORD SHARE OF BLUE'S INCOME: Investment 32,000 ($40,000 * 80%) Investment Income 32,000 ($40,000 * 80%) 5 B 122% Zoom Add Page T Text Shape View Insert Table Chart Media Comment Collaborate E Format Document Section Pages PARENT ENTRY #2: RECORD SHARE OF DIVIDENDS: Background Cash Investment 4,000 $5,000 * 80%) 4,000 PARENT ENTRY #3: RECORD THE EXCESS COST EXPENSE: Excess Life Annual PPT $50,000 5 yrs $10,000 Headers & Footers Hide on first page of section Match previous section Alpha owns $8,000 (80%) Intangibles $15,000 15 yrs $1,000 $800(80%) Page Numbering Format Total $11,000 $8,800 Investment Income Investment 8,800 (parent's share) 8,800 1, 2, 3 Numbering Continue from previous section Start at: 1 PARENT ENTRY #4: DEFER GROSS PROFIT FROM INTRA-COMPANY SALES IN ENDING INVENTORY: Step #1: Calculate the gross profit % of the sale GP % = $5,000 (GP)/$15,000 (sales price) = 33.33% Create a new section Sections allow you to start a new header and footer, page numbering, or page background. 3 Step #2: Multiply GP% * Ending Inventory 33.33% 9,000 (Ending Inventory) = $3,000 (this is the gross profit that we have to eliminate) 3,000 Investment Income Investment 3,000 CONSOLIDATING ENTRIES: Eliminate Blue Equity Adjust accounts to fair market value Eliminate parent company entries: o Income O Dividends o Excess cost CONSOLIDATING ENTRY #1: ELIMINATE BLUE EQUITY: 5 Common Stock APIC 40,000 10,000 122% E Zoom Add Page Pages 1 Insert T Text Shape View Table Chart Media Comment Collaborate E Format Document Section Retained Earnings 55,000 Investment 84,000 NCI 21,000 CONSOLIDATING ENTRY#2: ADJUST ACCOUNTS TO FAIR VALUE: Background PPE Intangibles Goodwill Investment NCI 50,000 15,000 142,500 Headers & Footers Hide on first page of section Match previous section 166,000 (207,500 * 80%) 41,500 (207,500 * 20%) Page Numbering Format CONSOLIDATING ENTRY #3: ELIMINATE PARENT INCOME ENTRY: : 32,000 Investment Income Investment 1, 2, 3 Numbering Continue from previous section 32,000 Start at: 1 CONSOLIDATING ENTRY #4: ELIMINATE PARENT DIVIDEND ENTRY: 4,000 Investment Dividends 4,000 Create a new section Sections allow you to start a new header and footer, page numbering, or page background. CONSOLIDATING ENTRY #5: ELIMINATE PARENT EXCESS COST ENTRY: #: Investment 8,800 Investment Income 8,800 CONSOLIDATING ENTRY #6: ELIMINATE INTRACOMPANY SALES: Sales Revenue COGS 15,000 15,000 Alpha, as a stand alone company made a $15,000 sale to Blue, a separate stand alone company. This is considered a sale to Alpha and a purchase by Blue. When we consolidate (making Alpha and Blue into effectively 1 company) this is now viewed as a transfer from one "division" to another "division". This is where we eliminate the intra- company sales number. CONSOLIDATING ENTRY #7: ELIMINATE INTRACOMPANY PAYABLES/RECEIVABLES 122% E Zoom Add Page 1 T Insert Table Chart Text Shape Media Media Comment View Collaborate E Format Document Section Pages CONSOLIDATING ENTRY #7: ELIMINATE INTRACOMPANY PAYABLES/RECEIVABLES Background Headers & Footers Hide on first page of section Match previous section Page Numbering Format Accounts Payable 2,000 (make the payable go away) Accounts Receivable 2,000 (make the receivable go away) 1, 2, 3 Numbering Continue from previous section CONSOLIDATING ENTRY #8: DEFER INTRA-ENTITY GROSS PROFIT IN ENDING INVENTORY 3,000 Start at: 1 COGS Inventory 3,000 CONSOLIDATING ENTRY #9: ELIMINATE PARENT INCOME DEFERRAL ENTRY: Create a new section Sections allow you to start a new header and footer, page numbering, or page background. Investment 3,000 Investment Income 3,000 CONSOLIDATING ENTRY #10: AMORTIZE THE EXCESS COST 5 Operating Expenses 11,000 PPE 10,000 Intangible Assets 1,000 PREPARE THE CONSOLIDATED FINANCIAL STATEMENTS (NOTE: FINANCIAL STATEMENTS INCLUDED IN EXCEL). T B 122% View Zoom Add Page Pages Insert Table Chart Text Shape Media Comment Collaborate E Format Document Section YEAR 2 OPERATIONS: Background Alpha $300,000 Blue $175,000 Revenues: COGS: $110,000 $60,000 Headers & Footers Hide on first page of section Match previous section Expenses $50,000 $40,000 Dividends: $0 $20,000 Page Numbering Intracompany activity: Format Blue sold the remaining $6,000 of inventory from year 1. Blue paid off the $2,000 that it owed Alpha from year 1. Alpha made sales totaling $10,000 to Blue. The inventory cost Alpha $6,000. Blue has sold $8,000 of the inventory and has $2,000 remaining. Blue still owes Alpha $1,000 on this purchase as of the end of the year. 1, 2, 3 Numbering Continue from previous section Start at: 1 5 PARENT ENTRY #1: RECORD SHARE OF BLUE'S INCOME: Investment 60,000 ($75,000 - 80%) ) Investment income 60,000 Create a new section Sections allow you to start a new header and footer, page numbering, or page background. PARENT ENTRY #2: RECORD SHARE OF BLUE'S DIVIDENDS: 2: 6 16,000 ($20,000 * 80%) Cash Investment 16,000 PARENT ENTRY #3: RECORD SHARE OF EXCESS COST: Investment Income Investment 8,800 (same as year 1) 8,800 PARENT ENTRY #4: DEFER GROSS PROFIT IN ENDING INVENTORY: GP% = $4,000/$10,000 = 40% Ending Inventory: $2,000 $2,000 - 40% SBOO T 122% Zoom Add Page 1 Insert Table View Chart Text Shape Media Comment Collaborate E Format Document Section Pages Background Investment Income 800 Investment 800 PARENT ENTRY #5: WE RECOGNIZE THE GROSS PROFIT ON THE INTRACOMPANY SALE FROM YEAR #1: Headers & Footers Investment 3,000 Investment Income Hide on first page of section Match previous section 3,000 Just reverse the year 1 deferral entry Page Numbering CONSOLIDATING: Format CONSOLIDATING ENTRY #1: ELIMINATE BLUE'S EQUITY ACCOUNTS 1, 2, 3 Numbering Continue from previous section Start at: 1 Common Stock APIC Ret. Earnings Investment NCI 40,000 10,000 90,000 112,000 28,000 6 CONSOLIDATING ENTRY #2: ADJUST ACCOUNTS TO FAIR VALUE 2: Create a new section Sections allow you to start a new header and footer, page numbering, or page background. PPE Intangibles Goodwill Investment NCI 40,000 (50,000 excess - 10,000 expensed in year 1) 14,000 (15,000 excess - 1,000 expensed in year 1) ) 142,500 157,200 39,300 CONSOLIDATING ENTRY #3: ELIMINATE PARENT INCOME ENTRY: Investment Income Investment 60,000 60,000 CONSOLIDATING ENTRY #4: ELIMINATE PARENT DIVIDEND ENTRY: #: : Investment Dividends 16,000 16,000 CONSOLIDATING ENTRY #5: ELIMINATE THE PARENT EXCESS COST ENTRY: Investment 8,800 Investment Income 8,800 122% View Zoom Add Page Pages 1 Insert T Text Table Chart Shape Media Comment Collaborate E Format Document Section Background CONSOLIDATING ENTRY #6: ELIMINATE INTRACOMPANY SALES: 6: Revenue COGS 10,000 10,000 Headers & Footers Hide on first page of section Match previous section CONSOLIDATING ENTRY #7: ELIMINATE INTRACOMPANAY PAYABLES & RECEIVABLES: Accounts Payable 1,000 Accounts Receivable 1,000 Page Numbering Format CONSOLIDATING ENTRY #8: DEFER INTRAENTITY GROSS PROFIT IN ENDING INVENTORY 800 COGS Inventory 1, 2, 3 Numbering Continue from previous section 800 Start at: 1 CONSOLIDATING ENTRY #9: ELIMINATE THE PARENT GROSS PROFIT DEFERRAL ENTRY Investment 800 Investment Income 800 Create a new section Sections allow you to start a new header and footer, page numbering, or page background. CONSOLIDATING ENTRY #10: AMORTIZE THE EXCESS COST : Operating Expenses 11,000 PPE 10,000 Intangibles 1,000 CONSOLIDATING ENTRY#11: RECOGNIZE THE GROSS PROFIT FROM INVENTORY SOLD IN YEAR 1 Investment 3,000 COGS 3,000 We sold the inventory that was left over at the end of year 1 during year 2. So, we have to recognize the gross profit from the sale for consolidated purposes. CONSOLIDATING ENTRY #12: ELIMINATE ALPHA'S RECOGNITION OF THE GROSS PROFIT (REVERSE PARENT ENTRY #5) Investment Income 3,000 Investment 3,000 10 172% + Zoom Add Page T Insert Table Chart Text Shape Media Media Comment View Collaborate E Format Document Section Pages Part 1: Take these parent and consolidated entries and post them to the year 2 trial balances for Alpha, Blue & Consolidated in Excel spreadsheet. Background PART 2: Assume the following year 3 activity: Headers & Footers Hide on first page of section Match previous section Alpha $500,000 Blue $300,000 Revenues Page Numbering COGS $275,000 $115,000 Format 1, 2, 3 Numbering Continue from previous section Start at: 1 Expenses $50,000 $60,000 Dividends $0 $25,000 Intracompany activity: Create a new section Sections allow you to start a new header and footer, page numbering of page background. . Blue sold the remaining inventory from year 2. Alpha sold inventory of $25,000 to Blue. The inventory initially cost Alpha $20,000. Blue still owes Alpha $3,500 in payables. Step 1: Step 2: Step 3: Step 4: Step 5: Calculate your new retained earnings numbers for both Alpha and Blue. Adjust your trial balance to equal through cash so that your debits = credits Make your Alpha parent entries for year 3 Make your year 3 consolidated entries Post all entries to excel, creating year 3 Alpha, Blue & consolidated financial statements. 10 124% View Zoom Add Page Pages Text Shape Insert Table Chart Media Comment Collaborate E Format Document Section Background Headers & Footers Hide on first page of section Match previous section Alpha acquires $10,000 (10,000 items @ $1 per unit) of items from an outside entity. Page Numbering Format Inventory Cash 10,000 10,000 1, 2, 3 Numbering Continue from previous section Alpha then turns around sells these 10,000 items to Blue for $1.50 per item (for a total of $15,000. Start at: 1 Cash 15,000 Sales Revenue 15,000 Create a new section Sections allow you to start a new header and footer, page numbering, or page background. COGS Inventory 10,000 10,000 Blue, when they purchase the items: Inventory Cash 15,000 15,000 Essentially, every Inventory item is overstated on Blue's books by $0.50. If Blue has sold 6,000 items to outside entities. 10 T e H 118% % View Zoom + L TRIAL BALANCES Year 1 ce Collaborate Insert Table Chart Text Shape Media Comment Format Organize Add Category TRIAL BALANCES YEAR 2 Sheet2 Sheet Sheet Name TRIAL BALANCES YEAR 2 Consolidating Credit Consolidated Totals Debit Credit Debit Alpha Debit Credit 360,000.00 110,000.00 310,200.00 85,000.00 300,000.00 Blue Debit Credit 140.000.00 65,000.00 Background 112,000.00 40,000.00 150,000.00 Duplicate Sheet Delete Sheet Cash Accounts Receivable Investment Inventory PPE (Net] Intangibles Goodwill Accounts Payable Notes Payable Common Stock Additional Paid in Capital Retained Earnings NCI Dividends Revenues Investment Income COGS Expenses 150,000.00 200,000.00 130,000.00 240,000.00 245,200.00 50,000.00 150,000.00 40,000.00 10,000.00 90,000.00 40,000.00 10,000.00 90,000.00 28,000.00 20,000.00 175,000.00 300,000.00 60,000.00 110,000.00 50,000.00 1,325,200.00 1,325,200.00 60,000.00 40,000.00 515,000.00 515,000.00 140,000.00 140,000.00
