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Parent Corporation acquired a 70 percent interest in Subsidiary Corporation's outstanding voting common stock on January 1, 2011, for $735,000 cash. The stockholders' equity of Subsidiary on this date consisted of $750,000 capital stock and $150,000 retained earnings. The difference between the fair value of Subsidiary and the underlying equity acquired in Subsidiary was assigned $7,500 to Subsidiary's undervalued inventory, $21,000 to undervalued buildings, $31,500 to undervalued equipment, and remainder assigned to goodwill. The undervalued inventory items were Sold during 2011, and the undervalued buildings and equipment had remaining useful lives of seven years and three years, respectively. Depreciation is straight line. At December 31, 2011, Subsidiary's accounts payable include $10,000 owed to Parent. This $10,000 account payable is due on January 15, 2012. Parent sold equipment to outsiders with a book value of $15,000 for $25,000 on June 1, 2011. This is not an intercompany sale transaction. Separate financial statements for Parent and Subsidiary for 2011 are shown on the consolidated worksheet tab (in thousands): REQUIRED: Prepare consolidation workpapers for Parent Corporation and Subsidiary for the year ended 12/31/2011. (Use the accompanying excel Worksheet for your solution). Parent Corporation and Subsidiary Consolidated Workpapers For the Year ended December 31, 2011 Adjustments & Eliminations Sub (70%) Debit Credit Parent Consolidated Balance Income Statement: Sales Revenues Income from Sol Gain on Sale of Equipment 700,000 0 0 800,000 55,300 10,000 (300,000) (155,000) (160,000) COGS (400,000) (60,000) (140,000) 0 O 1,500,000 55,300 10,000 (700,000) [c] (215,000) [d & el (300,000) 350,300 0 [f] 350.300 0 250.300 100.000 300,000 250.300 (200,000) 350.300 150,000 100,000 (50,000) 200.000 450,000 [b] 350,300 (250,000) (a&f] 550.200 60,000 70,000 0 90,000 . Depreciation Expense Other Expenses Consolidated Net Income Non-Controlling Share of N...) Controlling Share of Net Income Retained Earnings Stmt: Retained Earnings - 1/1 Net Income: Dividend Retained Earnings Dec 31st Balance Sheet: Cash Accounts Receivable Dividends Receivable Inventories Other Current Assets Land Buildings (Net) Equipment Net) Investment in Sol Goodwill Unamortized Excess Total Assets: Accounts Payable Dividends Payable Other Liabilities Capital Stock $ 10 par Retained Earnings Non-Controlling Int. @Jan. 1st Non-Controlling earnings Jan-Dec Total Liabilities+SE 96,000 100,000 14,000 150,000 70,000 50,000 140,000 570,000 755,300 100,000 30,000 100,000 460,000 330,000 0 0 O 0 0 0 0 156,000 170,000 [el (76,000) [h] 250,000 100,000 150,000 600,000 [c&d] 900,000 (c& el 755,300 [a&b] 0 (C) 0b&c] 3,005,300 285,000 el 30,000 [h] 145,000 1,750,000 [b] 595,300 [b] 0 [f] 2,805, 300 1,945, 300 200,000 100,000 50,000 1,000,000 595,300 1,150,000 85,000 20,000 95,000 750,000 200,000 0 90,000 0 0 0 1,945,300 1,150,000 90,000 90,000 Journal Entries for Worksheet: al Income from Sub 0 Dividends 0 Investment in Sub 0 To eliminate income and dividends from Sub and return the investment account to its beginning of the period balance b) Capital Stock (Sub) 0 Retained Earnings Sub (@January 1st) 0 Unamortized Excess 0 Investment in Sub 0 Noncontrolling interest @January 1st 0 To eliminate reciprocal equity and investment balances & establish beginning non-controlling interest c) Cost of Sales inventory items) Buildings - net Equipment - net Goodwill Un amortized Excess To allocate theun-amortized excess to accounts 0 0 0 0 0 0 d) Depreciation Expense Buildings (Net) To record depreciation on excess Building FV over BV 0 0 el Depreciation Expense Equipment (Net) To record depreciation on excess Equipment FV over BV 0 f) Non-controlling Interest Share(of Sub's Income) 0 Dividends (Sub) Non-Controlling Interest To enter non controlling interest share of subsidiary's 2011 income and dividends 0 0 0 al Accounts Payable Accounts Receivable To eliminate inter-company payables and receivables 0 90,000 (200,000*7)-50,000 h) Dividends Payable Dividends Receivable To eliminate inter-company payables and receivables (dividends) 90,000 Parent Corporation acquired a 70 percent interest in Subsidiary Corporation's outstanding voting common stock on January 1, 2011, for $735,000 cash. The stockholders' equity of Subsidiary on this date consisted of $750,000 capital stock and $150,000 retained earnings. The difference between the fair value of Subsidiary and the underlying equity acquired in Subsidiary was assigned $7,500 to Subsidiary's undervalued inventory, $21,000 to undervalued buildings, $31,500 to undervalued equipment, and remainder assigned to goodwill. The undervalued inventory items were Sold during 2011, and the undervalued buildings and equipment had remaining useful lives of seven years and three years, respectively. Depreciation is straight line. At December 31, 2011, Subsidiary's accounts payable include $10,000 owed to Parent. This $10,000 account payable is due on January 15, 2012. Parent sold equipment to outsiders with a book value of $15,000 for $25,000 on June 1, 2011. This is not an intercompany sale transaction. Separate financial statements for Parent and Subsidiary for 2011 are shown on the consolidated worksheet tab (in thousands): REQUIRED: Prepare consolidation workpapers for Parent Corporation and Subsidiary for the year ended 12/31/2011. (Use the accompanying excel Worksheet for your solution). Parent Corporation and Subsidiary Consolidated Workpapers For the Year ended December 31, 2011 Adjustments & Eliminations Sub (70%) Debit Credit Parent Consolidated Balance Income Statement: Sales Revenues Income from Sol Gain on Sale of Equipment 700,000 0 0 800,000 55,300 10,000 (300,000) (155,000) (160,000) COGS (400,000) (60,000) (140,000) 0 O 1,500,000 55,300 10,000 (700,000) [c] (215,000) [d & el (300,000) 350,300 0 [f] 350.300 0 250.300 100.000 300,000 250.300 (200,000) 350.300 150,000 100,000 (50,000) 200.000 450,000 [b] 350,300 (250,000) (a&f] 550.200 60,000 70,000 0 90,000 . Depreciation Expense Other Expenses Consolidated Net Income Non-Controlling Share of N...) Controlling Share of Net Income Retained Earnings Stmt: Retained Earnings - 1/1 Net Income: Dividend Retained Earnings Dec 31st Balance Sheet: Cash Accounts Receivable Dividends Receivable Inventories Other Current Assets Land Buildings (Net) Equipment Net) Investment in Sol Goodwill Unamortized Excess Total Assets: Accounts Payable Dividends Payable Other Liabilities Capital Stock $ 10 par Retained Earnings Non-Controlling Int. @Jan. 1st Non-Controlling earnings Jan-Dec Total Liabilities+SE 96,000 100,000 14,000 150,000 70,000 50,000 140,000 570,000 755,300 100,000 30,000 100,000 460,000 330,000 0 0 O 0 0 0 0 156,000 170,000 [el (76,000) [h] 250,000 100,000 150,000 600,000 [c&d] 900,000 (c& el 755,300 [a&b] 0 (C) 0b&c] 3,005,300 285,000 el 30,000 [h] 145,000 1,750,000 [b] 595,300 [b] 0 [f] 2,805, 300 1,945, 300 200,000 100,000 50,000 1,000,000 595,300 1,150,000 85,000 20,000 95,000 750,000 200,000 0 90,000 0 0 0 1,945,300 1,150,000 90,000 90,000 Journal Entries for Worksheet: al Income from Sub 0 Dividends 0 Investment in Sub 0 To eliminate income and dividends from Sub and return the investment account to its beginning of the period balance b) Capital Stock (Sub) 0 Retained Earnings Sub (@January 1st) 0 Unamortized Excess 0 Investment in Sub 0 Noncontrolling interest @January 1st 0 To eliminate reciprocal equity and investment balances & establish beginning non-controlling interest c) Cost of Sales inventory items) Buildings - net Equipment - net Goodwill Un amortized Excess To allocate theun-amortized excess to accounts 0 0 0 0 0 0 d) Depreciation Expense Buildings (Net) To record depreciation on excess Building FV over BV 0 0 el Depreciation Expense Equipment (Net) To record depreciation on excess Equipment FV over BV 0 f) Non-controlling Interest Share(of Sub's Income) 0 Dividends (Sub) Non-Controlling Interest To enter non controlling interest share of subsidiary's 2011 income and dividends 0 0 0 al Accounts Payable Accounts Receivable To eliminate inter-company payables and receivables 0 90,000 (200,000*7)-50,000 h) Dividends Payable Dividends Receivable To eliminate inter-company payables and receivables (dividends) 90,000
