06 Fischer10e SM Ch06 Final

----------------------- Page 1-----------------------
CHAPTER 6
UNDERSTANDING THE ISSUES
1. (a) Investing activitiesPurchase of S Company ($800,000 $50,000) .........

...........
$(750
,000)
(b) Investing activitiesPurchase of S Company ($500,000 $50,000) .........
...........
$(450
,000)
Noncash financing activitiesIssuance of notes payable ..............
.......................
300,000
(c) Investing activitiesCash acquired in purchase of S Company ...........
.................
$
50,000
Noncash financing activitiesIssuance of stock.......................
.............................
800,000
2. Any amortizations of the $200,000 excess of cost over book value will need
to be included in cash
operating activities as an adjustment to income. The means of purchasing S
Company will not have
an effect on the consolidated statement of cash flows in subsequent years.
3. Determination and Distribution of Excess Schedule, Investment in Company S
Determination and Distribution of Excess Schedule
Compa
ny
Parent
NCI
lied
Price
Value
Value
(80%)
(20%)
Imp
Fair
000
Fair value of subsidiary .....................

$640,000
$160,000
$800,
Less book value of interest acquired:

000
Total equity .................................

$600,000
$600,000
600,
Interest acquired ........................

80%
20%
Book value ........................................
$480,000
$120,000
Excess of fair value over book
value ...........................................
$160,000
$ 40,000
00
$200,0
Adjustment of identifiable accounts:

Worksheet
t
Key
Amortization
Life
Adjustmen
per Year
Goodwill ............................................
$200,000
debit D3
(a) Investing activitiesPurchase of S Company ($640,000 $50,000) .........

...........
$(590
,000)
Noncash financing activitiesNoncontrolling interest ................

...........................
160,000
(b) Investing activitiesPurchase of S Company ($400,000 $50,000) .........
...........
$(350
,000)
Noncash financing activitiesIssuance of notes payable ..............
.......................
240,000
...........................
160,000
(c) Investing activitiesCash acquired in purchase of S Company ...........
.................
$
50,000
Noncash financing activitiesIssuance of stock.......................
.............................
640,000
...........................
160,000
4. (a) Consolidated basic EPS = ($200,000 + $60,000) 100,000 shares = $2.60

(b) Consolidated basic EPS = [$200,000 + (80% $60,000)] 100,000 shares =
$2.48
5. (a) Consolidated DEPS = [$200,000 + (40,000 $1.43)] 100,000 shares = $2.5

7
Subsidiary DEPS = $60,000 (40,000 + 2,000) = $1.43
(b) Consolidated DEPS = [$200,000 + (40,000 $1.50)] (100,000 + 2,000) = $
2.55
Subsidiary DEPS = $60,000 40,000 shares = $1.50
(c) Consolidated DEPS = [$200,000 + (40,000 $1.50)] (100,000 + 2,000) = $
2.55
Subsidiary DEPS = $60,000 40,000 shares = $1.50
6. (a) Consolidated net income = ($100,000 + $40,000) 70% = $98,000

Distribution to NCI = ($40,000 20%) 70% = $5,600
Distribution to controlling interest = [$100,000 + ($40,000 80%)] 7
0% = $92,400
319
----------------------- Page 2-----------------------
(b) Consolidated net income = [($100,000 + $40,000) 70%] ($40,000 70% 80%
20%
30%) = $96,656
Distribution to NCI = ($40,000 20%) 70% = $5,600
Distribution to controlling interest = {[$100,000 + ($40,000 80%)]
70%} ($40,000 70%
80% 20% 30%) = $91,056
7. (a) Taxes would not be paid on this intercompany profit. Taxes are based
on consolidated income
after the elimination of the profit.
(b) Taxes will have been paid on this intercompany profit. The taxes paid
become a deferred tax
asset (DTA) and are amortized over the period of depreciat
ion. The following adjustment is
needed in the period of sale:
Deferred Tax Asset ($50,000 30%) .................

15,000
Provision for Income Tax .................................
15,000
At each period-end, the DTA would be converted to a tax expense as

follows:
Provision for Income Tax ($15,000 5) .............

3,000
Deferred Tax Asset ..........................................
3,000
320
----------------------- Page 3-----------------------
Ch. 6Exercises
EXERCISES
EXERCISE 6
-1
Determination and Distribution of Excess Schedule, Investment in Rocket Company

Company
Parent
NCI
Implied
Price
Value
Fair Value
(80%)
(20%)

0
$500,000
$125,000
$625,00

Common stock ............................
$200,00
Retained earnings .......................
300,0
0
00
Total equity ............................
$500,000
$500,000
Interest acquired .........................

80%
$500,00
20%
Book value ........................................

$400,000
$100,000
value............................................
$100,000
$ 25,000
$125,00

Worksheet
Key
Goodwill ($625,000 fair

$500,000 book value) ..................
$125,000
debit D
321
Amortization
Life
Adjustment
per Year
----------------------- Page 4-----------------------
Ch. 6Exercises
Exercise 6-1, Conc

luded
Batton Company and Subsidiary Rocket Com

pany
Consolidated Statement of Cash
Flows
For Year Ended December 31, 2
0X3
Cash flows from operating activities:

Consolidated net income ($145,000 + $10,000 NCI share) .......
$155
,000
Adjustments to reconcile net income to net cash:
............
Depreciation expense* .............................................

$120,000
Increase in inventory ($220,000 + $140,000 $454,000) ....
(94,000)
Increase in current liabilities [$284,000
($160,000 + $110,000)] .........................................
14,000
............
Total adjustments ...........................................

................
40,000
....
,000
Net cash provided by operating activities ...................

$195
Cash flows from investing activities:
Payment for purchase of Rocket Company,

net of cash acquired ..............................................
...............
(48
0,000)
Cash flows from financing activities:

....
Sale of stock (5,000 shares $60) ........................................

$300,000
...
Dividend payments to controlling interests ..............................

(10,000)
Dividend payments to NCI ($5,000 20%) ................................
(1,000)
.......
89,000
Net cash used in financing activities .............................

2
Net increase in cash ...........................................................

.............
$
4,000
Cash at beginning of year ......................................................
..........
3
00,000
Cash at year-end ...............................................................
..............
$30
4,000
*20X3 depreciation is equal to the difference between the sum of the December 31
, 20X2, net
plant asset balances [$800,000 (parent) and $550,000 (subsidiary), or $1,350,0
00] and the
December 31, 20X3, consolidated net plant assets of $1,230,000.
Schedule of noncash investing activity:
Batton Company purchased 80% of the capital stock of Rocket Company for $500,000
. In conjunction with the acquisition, liabilities were assumed and a noncontrolling int
erest created as
follows:
Adjusted value of assets acquired ($710,000 book

value + $125,000 excess) ................................................
..........
$835,000
Cash paid ......................................................................

...................
500,000
Balance ........................................................................
....................
$335,000
Liabilities assumed ............................................................

...............
$210,000
Noncontrolling interest** ......................................................

............
$125,000
**This is the NCI at the beginning of the year (date of acquisition). Current-ye
ar charges to the
total NCI are included in the consolidated net income and the dividends paid.
322
----------------------- Page 5-----------------------
Ch. 6Exercises
EXERCISE
6-2
Determination and Distribution of Excess Schedule, Investment in Panda Corporati

on
Company
Parent
NCI
Impli
ed
Price
Value
Fair Va
lue
(80%)

,250
$245,000*
(20%)
$306
$ 61,250

Common stock ($10 par) .............
$150
,000
50,000
,000
Total equity ............................

$200,000
$200,000
80%
$200
20%
Book value ........................................

$160,000
$ 40,000
,250
value............................................
$ 85,000
$ 21,250
$106
Worksheet
t
Amortization
Key
Adjustmen
per Year
Life
Equipment .........................................
20,000
debit D1
$5,000
$
4
Goodwill ............................................
86,250
debit D2
Total ............................................
$106,250
*(5,000 shares $18) + $155,000
323
----------------------- Page 6-----------------------
Ch. 6Exercises
Exercise 6-2 Conc

luded
Duckworth Corporation and Subsidiary Panda Corp

oration
Flows
For Year Ended December 31,
20X3

Consolidated net income ..................................................
..........
$
103,200
Depreciation ($92,000 + $28,000 + $5,000 of
equipment excess) ..............................................
$
125,000
..............
Decrease in inventory .............................................

5,800
.............
Increase in current liabilities ...................................

..............
5,000
................
135,800
Net cash provided by operating activities ......................................
..
$
239,000

Cash payment for purchase of Panda Corporation,
net of cash acquired ..............................................
...............
$(125,000)
Purchase of production equipment ...............................................
...
(76,000)
Net cash used in investing activities ..........................................
......
$(
201,000)

Decrease in long-term debt ...............................................
.........
(10,000)
Dividends paid:
By Duckworth Corporation .................................
$(30,000)
By Panda, to NCI ...............................................

(3,000)
(33,000)
Net cash used in financing activities ..........................................
......
(43,000)
Net decrease in cash ...........................................................

............
$
(5,000)
..........
100,000
Cash at year-end ...............................................................
..............
$
95,000
Company P acquired 80% of the common stock of Company S in exchange for $245,000
. In
conjunction with the acquisition, liabilities were assumed and a noncontrolling
interest was
created as follows:
Adjusted value of assets acquired ($270,000

.....
book value + $106,250 excess) ............................................

$376,250
Cash payment ...................................................................

...............
155,000
Balance ........................................................................
....................
$221,250
Common stock issued ............................................................

..........
$
90,000

...............
$
70,000
Noncontrolling interest (see D&D schedule) ....................................

$
61,250
324
----------------------- Page 7-----------------------
Ch. 6Exercises
EXERCISE 6-3
(1)
None, goodwill is not amortized.
(2) The cash from shares sold to the NCI shareholders, $90,000 (1,000 shares $
90), would
appear as cash flow in the financing activities section. The 1,000 shares
purchased by the
parent would not appear in the cash flow statement.
(3)
The bonds were held by parties outside the consolidated company. They are
now retired by
the consolidated company. The $102,000 would appear as a cash outflow in
the financing
activities section of the cash flow statement.
(4) This is a transaction within the consolidated company, and it would have n
o impact on the
consolidated statement of cash flows.
EXERCISE 6-4
Maria Company:
Provision for Income Tax .................................................

..........
21,000
...........
Income Tax Payable .................................................

21,000
30% $70,000 = $21,000.
Tuft Company:
Optional entry to record tax effect of subsidiary tax:

Subsidiary Investment Income .............................................
16,800
......
.....
Investment in Maria Company ........................................

16,800
80% $21,000 tax.
Provision for Income Tax .................................................

..........
33,000
...........
Income Tax Payable .................................................

31,720
Deferred Tax Liability .............................................

..............
1,280
Internally generated income ....................................................

................................
$110,000
Tax at 30% .....................................................................
.........................................
$
33,000
Less DTL on goodwill [0.30 ($64,000/15)] .......................................
....................
(1,280)
Tax currently payable ..........................................................
....................................
$
31,720
325
----------------------- Page 8-----------------------
Ch. 6Exercises
EXERCISE 6-5
Deko Company and Subsidiary Farwell Compa

ny
Consolidated Income Stateme
nt
For Year Ended December 31, 20X
9
Sales (less $50,000 intercompany sales) ........................................

..................
$ 370,000
Cost of goods sold ($290,000 $50,000 intercompany sales $8,000

beginning inventory profit + $2,400 ending inventory profit) .............
...........
(234,400)
Expenses ($60,000 + $9,375 patent amortization from D&D $1,000
depreciation adjustment) .................................................
.............................
(68,375)
Income before taxes ............................................................
..............................
$
67,225
Provision for income tax (see schedule) ........................................
....................
(20,730)
Consolidated net income ........................................................
...........................
$
46,495
Distributed to noncontrolling interest .........................................
.........................
309
Distributed to controlling interest ............................................
............................
$
46,186

Company
Parent
NCI
Price
Value
(80%)
(20%)
Implied
Fair Value

$850,000
$212,500
$1,062,500

Total equity ............................
$968,750
$968,750
80%
20%
Book value ........................................
$775,000
$193,750
968,750
value............................................
$ 75,000
$ 18,750
93,750

Worksheet
Amortization
Adjustment
Key
Life
per Year
Patent ................................................
93,750
debit D1
10
$
$9,375
Consolidated
Deko
Dr.
Farwell
Cr.
Income
Sales .........................
,000)
(IS)$50,000
$(370,
$(300,000)
Cost of goods sold ....

90,000
$(120
200,000
(IS)
(EI)
234,40
2,400
Gain on machine .......

(F1)
0
5,000
$50,000
(BI)
8,000
(5,000)
Expenses ..................
20,000
0
59,000
40,000
Amortization of patent
(A1)
9,375
(F2)
1,00
Income before tax .....

$(10,000)
(67,22
9,375
Tax provision .............
(65,000)
$
20,730
Net income ................
$
(46,495)
To NCI .......................
309
To controlling ............
$
46,186
326
----------------------- Page 9-----------------------
Ch. 6Exercises
Exercise 6-5 Co
ncluded
Tax provision:
Consolidated income before tax .....................................
$67,225
Add nondeductible patent amortization on NCI ..............
1,875
Taxable income ..........................................................
$69,100
....
Tax at 30% ..............................................................

$20,730
.......
Subsidiary Farwell Company Income Dis

tribution
Ending inventory .........................

Internally generated income ......
$2,400
$10,000
Patent amortization .....................

Beginning inventory ...................
000
9,375
8,
Adjusted income........................
$ 6,22
5
Tax provision (see schedule) ....
(2,4
Net income ................................
$ 3,79
5
NCI share (see schedule) .........
309
Controlling share .......................
$ 3,48
Subsidiary tax schedule:

Controlling
NCI
Total
(1) Total adjusted income ...................................
$4,980
$
1,245
$6,225*
(2) NCI share of asset adjustments ....................
1,875
1,875
(3) Taxable income ............................................
$4,980
$
3,120
$8,100
(4) Tax (30% of taxable income) ........................

$1,494
$
936
$2,430
(5) Net of tax share of income (line 1 line 4) ...
$3,486
$
309
$3,795
*From subsidiarys IDS
Parent Deko Company Income Distr

ibution
Machine gain ...............................

Internally generated income ......
Gain realized .............................
$5,000
$ 65,000
1,00
Adjusted income........................
Tax provision ($61,000 30%)

Net of tax ...................................
Share of sub income (net of tax)
$ 61,000
(18,300)
$ 42,700
3,48
6
Controlling share .......................
$ 46,186
327
----------------------- Page 10-----------------------
Ch. 6Exercises
EXERCISE 6-6
Dunker Company and Subsidiary Fennig Compan

y
Consolidated Income Statemen
t
For Year Ended December 31, 20X
9
Sales (less $50,000 intercompany sales) ........................................

..................
$
370,000
Cost of goods sold ($290,000 $50,000 intercompany sales $8,000
beginning inventory profit + $2,400 ending inventory profit) .............
...........
(234,400)
Expenses ($60,000 + $9,375 patent amortization from D&D $1,000
depreciation adjustment) .................................................
.............................
(68,375)
Income before taxes ............................................................
..............................
$
67,225
Provision for income tax (see schedule) ........................................
....................
(20,939)
Consolidated net income ........................................................
...........................
$
46,286
Distributed to noncontrolling interest .........................................

.........................
309
Distributed to controlling interest ............................................
............................
$
45,977

Company
Parent
NCI
Price
Value
(80%)
(20%)
Implied
Fair Value

$850,000
$212,500
$1,062,500

Total equity ............................
$968,750
$968,750
968,750

80%
20%
Book value ........................................
$775,000
$193,750
value............................................
$ 75,000
$ 18,750
93,750

Worksheet
Amortization
Adjustment
Key
Life
per Year
Patent ................................................
3,750
debit D1
10
$9
$9,375
Consolidated
Dunker
Fennig
Dr.
Cr.
Income
Sales .........................
,000)
(IS)$50,000
$(370,
$(300,000)
Cost of goods sold ....

90,000
(EI)
234,40
Gain on machine .......
(F1)
0
200,000
(IS)
2,400
$50,000
(BI)
8,000
(5,000)
5,000
Expenses ..................
20,000
59,000
Amortization of patent
(A1)
9,375
$(120
40,000
(F2)
1,000
9,375
Income before tax .....

$(10,000)
(67,22
(65,000)
$
Tax provision .............

20,939
Net income ................
$
(46,286)
To NCI .......................
309
To controlling ............
$
45,977
328
----------------------- Page 11-----------------------
Ch. 6Exercises
Exercise 6-6, C
oncluded
Tax provision:
$67,225
Add nondeductible patent amortization on NCI ..............
1,875
....
Taxable income ..........................................................

$69,100
......
First tax at 30% ........................................................

$20,730
Second tax (from controlling IDS) ..................................
209
.....
Total tax provision .....................................................

$20,939
Subsidiary Fennig Company Income Dist

ribution
Ending inventory .........................

Internally generated income ........
Patent amortization .....................
Beginning inventory .....................
00
$2,400
$10,000
9,375
8,0
Adjusted income..........................
$ 6,225
Tax provision (see schedule) ......
(2,430
)
Net income ..................................
$ 3,795
NCI share (see schedule) ...........

309
Controlling share .........................
$ 3,486

Controlling
NCI
Total
$4,980
$
1,245
$6,225*
1,875
1,875
(3) Taxable income ............................................
$4,980
$
3,120
$8,100
(4) Tax (30% of taxable income) ........................
$1,494
$
936
$2,430
$3,486
$
$3,795
309
Parent Dunker Company Income Distr

ibution
Machine gain ...............................

$ 65,000
Gain realized ...............................
$5,000
1,00
Adjusted income..........................
Tax provision ($61,000 30%) ...
$ 61,000
(18,300)
Net of tax adjusted income ..........
42,700
Share of sub income

(net of first tax) ......................
3,48
6
Second tax (0.2 0.3 $3,486) ..
Controlling interest ......................
329
(209)
$ 45,977
----------------------- Page 12-----------------------
Ch. 6Exercises
EXER
CISE 6-7
Adjustment to January 1, 20X7, retained earnings:
Machine depreciation:
Retained EarningsCooper (1 yrs. $5,000 60%) .......
4,500
Retained EarningsVarga (1 yrs. $5,000 40%) .........
3,000
Accumulated DepreciationEquipment ............................
7,500
Machine sale:
.....
Retained EarningsCooper ...........................................

2,400
......
Retained EarningsVarga ............................................

1,600
Equipment .....................................................
....................
4,000
Tax:
Deferred Tax Asset ...............................................
...............
2,651*
Retained EarningsCooper ........................................

.....
2,171*
Retained EarningsVarga..........................................
......
480*
*Increase in Deferred Tax Assets:

Total
Controlling
NCI
Gain on machine (net) ($4,000 30%) .....................................

$1,200
$
720
$480
Secondary tax ($4,000 70% 60% 30% 20%)** .............
101
101
Equipment depreciation ($4,500 parent share 30%) ..............
1,350
1,350 .........................................................
........................
Total ............................................................
.........................
$2,651
$2
,171$480
**100% 80% dividend exclusion
Adjustments to income:
Sales ...................................................................
.......................
15,000
Cost of Goods Sold ...............................................
...............
15,000
Cost of Goods Sold ......................................................

..............
600
Inventory ........................................................
......................
600
Depreciation ExpenseMachine ..............................................

5,000
Accumulated DepreciationMachine ..................................
5,000
Accumulated DepreciationMachine ........................................

1,000
Depreciation ExpenseMachine .......................................
..
1,000
Tax:
Deferred Tax Asset** ....................................................
.............
755
Provision for Tax ................................................
..................
755
**Increase in Deferred Tax Assets:

Total
Controlling
NCI
Machine gain realized (30% $1,000) ..................................

$(180)
$(300)
$(120)
Secondary tax ($1,000 70% 60% 30% 20%) .............
(25)
(25)
..........
Inventory (30% $600) ................................................

180
180
Machine depreciation (30% $5,000 60%
parent share) ....................................................

....................
900
900
Total .........................................................
.........................
$ 755
$ 875
$(120)
330
----------------------- Page 13-----------------------
Ch. 6Problems
PROBLEMS
PROBLEM 6
-1
Determination and Distribution of Excess Schedule, Investment in Marcus Company

Company
Parent
NCI
Price
Value
(80%)
(20%)
Implied
Fair Valu
e

00
$640,000
$160,000
$800,0

000
Total equity ............................

$650,000
$650,000
80%
650,
20%
Book value ........................................

$520,000
$130,000
00
value............................................
$120,000
$ 30,000
$150,0

Worksheet
Key
Amortization
Life
Equipment .........................................
25,000
debit D1
5
$5,000
Goodwill ............................................
125,000
debit D2
Total ............................................
$150,000
331
----------------------- Page 14-----------------------
Adjustment
per Year
Ch. 6Problems
Problem 6-1, Concluded
Luis Company and Subsidiary Marcus Company

Consolidated Statement of Cash Flows
For Year Ended December 31, 20X2

Consolidated net income ($262,000 + $15,000) ........................
$
277,000
Depreciation expense ($1,282,000 $1,081,000) ...............
$
201,000
Increase in inventory ...............................................
.............
(40,000)
......
Increase in accounts receivable .....................................

(100,000)
.......
Increase in accounts payable ........................................

83,000
Equity income from Charles Corporation in excess
of dividends* ....................................................
..................
(14,500)
..............
..
Total adjustments .............................................

129,500
Net cash provided by operating activities ...........................

$
406,500

Purchase of building .....................................................
..............
$(300,000)
Purchase of equipment ....................................................
..........
(50,000)
Investment in Charles ....................................................

............
(230,000)
.....
Net cash used in investing activities ...............................

(580,000)

Proceeds of bond sale ....................................................
...........
$
300,000
Dividend payments to controlling interests ...............................
(100,000)
..
Dividend payments to NCI ($15,000 20%) ..............................

(3,000)
Net cash provided by financing activities ...........................
197,000
..

.............
$
23,500
..........
16,000
Cash at year-end ...............................................................
..............
$
39,500
*Equity income from the investment in Charles provides funds only to the extent
of dividends
received. The excess equity income must be deducted from consolidated net inco
me in determining funds provided by net income.
30% of reported Charles income (30% $80,000) ........................

$24,000
Less amortization of excess {[$230,000
.....
($700,000 30%)]/10 years} ................................................

2,000
Equity income ................................................................

.................
$22,000
Less dividends received (30% $25,000) .....................................
7,500
Noncash income ...............................................................

..............
$14,500
332
----------------------- Page 15-----------------------
Ch. 6Problems
PROBLEM 6
-2
Determination and Distribution of Excess Schedule, Investment in Rush Company

Company
Parent
NCI
Price
Value
ue
(90%)
(10%)
Implie
Fair Val

000
$495,000
$ 55,000
$550,

Common stock ($10 par) .............
$150,
000
300
,000
00
Total equity ............................

$450,000
$450,000
90%
Book value ........................................
$450,0
10%
$405,000
$ 45,000

value............................................
$ 90,000
$ 10,000
00
$100,0

Worksheet
Key
Amortization
Adjustment
per Year
Life
Equipment .........................................
20,000
debit D1
$4,000
$
5
Goodwill ............................................
80,000
debit D2
Total ............................................
$100,000
333
----------------------- Page 16-----------------------
Ch. 6Problems
Problem 6-2, Concl

uded
Billing Enterprises and Subsidiary Rush Co
rporation
Flows
For Year Ended December 31,
20X1

Consolidated net income ..................................................
..........
$
92,300
Depreciation expense (includes amortization
of excess on equipment) .....................................
$
72,400*
...........
......
Decrease in accounts receivable ...................................

54,000
.......
Decrease in accounts payable ......................................

(17,000)
................
09,400

1
Net cash provided by operating activities .........................

$20
....
1,700

Payment for purchase of Rush Corporation, $95,000 cash net
of $60,000 cash acquired ..........................................
...........
(35,000)
Sale of bonds ($500,000 increase $400,0000
issued to Rush) ...................................................
.................
$
100,000
Dividends paid to noncontrolling shareholders ..........................
(1,000)
Decrease in long-term liabilities ........................................
.........
(160,000)
(61,000)
Net increase in cash .....................................................

..............
$1
05,700
Cash at beginning of year ................................................
..........
82,000
Cash at year-end .........................................................
...............
$1
87,700
*$870,000 Billing + $460,000 Rush + $20,000 adjustment for excess less current b
alance of
$1,277,600 = $72,400 depreciation.
Billing Enterprises acquired 90% of the capital stock of Rush Corporation for
$495,000. In conjunction with the acquisition, liabilities were assumed and a noncontrolling
interest created as
follows:
Adjusted value of assets acquired ($615,000

.....
book value + $100,000 excess) ............................................

$715,000
Cash paid ......................................................................

...................
95,000
Balance ........................................................................
....................
$620,000
Bonds issued ...................................................................

................
$400,000

...............
$
165,000
Noncontrolling interest (see D&D schedule) ....................................

$
55,000
334
----------------------- Page 17-----------------------
Ch. 6Problems
PROBLEM 6-3
Bush, Inc. and Subsidiary Dorr Corporati

on
Consolidated Statement of Cash Flows

Consolidated net income ...................................................
.........
$
234,000

........
Gain on sale of equipment ...........................................

$
(6,000)
..........
Depreciation expense ................................................

82,000
Increase in allowance for marketable securities ..................
(11,000)
Decrease in accounts receivable .....................................
22,000
....
Increase in inventory ...............................................

.............
(70,000)
.......
Increase in accounts payable ........................................

121,000
......
Increase in deferred income tax .....................................

12,000
..............
Total adjustments .............................................

150,000
Net cash provided by operating activities ...........................

$
384,000
..

Purchase of equipment .....................................................
.........
$(127,000)
Sale of equipment .........................................................
.............
40,000
Net cash used in investing activities ...............................
(87,000)
.....

Sale of treasury stock ....................................................
.............
$
44,000
Dividend payments to controlling interests ................................
(58,000)
Dividend payments to NCI ..................................................

.......
(15,000)
Payment on long-term note payable .........................................
(150,000)
.
.....
Net cash used in financing activities ...............................

(179,000)

.............
$
118,000

..........
195,000
Cash at year-end ...............................................................
..............
$
313,000
Schedule of noncash investing and financing activities:
Bush, Inc., issued 10,000 shares of its common stock for land with a fair val
ue of $215,000 on
January 20, 20X6.
335
----------------------- Page 18-----------------------
Ch. 6Problems
Bush, Inc. and

Subsidiary Dorr Corporation
Worksheet for Analysis of Ca
sh Flows: Indirect Method
For Year
Ended December 31, 20X6
Account Change
Explanations
D
ebit
Credit
Debit
Credit
Balance
Marketable Equity Securities ...........

0
..........
.........
Allowance, Lower Cost or Market ....
11,000
..........
.........
..........
0
(9)
11,000
0
Accounts Receivable (net) ..............

..........
22,000
(10)
22,000
..........
0
Inventory .........................................
70,000
..........
(12)
.........
0
Land ................................................
215,000
..........
(2)
.........
0
Plant and Equipment .......................
65,000
..........
)
62,000
(5)
70,000
215,000
127,000 (6
0
Accumulated Depreciation ..............

54,000 (6)
)
82,000
Goodwill (net) ..................................

..........
0
.........
Current Portion, Long-Term Debt ....

..........
0
.........
28,000 (11
..........
..........
Accounts Payable and Accrued

Liabilities ..................................
..........
121,000
(13)
121,000
0
Note Payable, Long-Term ...............
150,000
..........
.........
Deferred Income Taxes ...................
..........
12,000
(8)
12,000
(14)
..........
150,000
0
..........
0
NCI ..................................................
..........
18,000 (7)
1)
33,000
0
15,000 (
Common Stock ($10 par) ................

..........
100,000
(2)
100,000
..........
0
Paid-In Capital in Excess of Par ......

..........
123,000
(2)
115,000
..........
(3)
..........
..........
8,000
..........
0
Retained Earnings ...........................

143,000 (4)
1)
201,000
(3)
58,000 (
0
36,000
36,000
..........
0
Treasury Stock (at cost) ..................

.........
511,000
629,000
792,000
674,000
Net Change in Cash ........................

118,000
0
0
118,000
Cash from Operations:

Net Income ......................................
..........
..........
(1)
.........
Gain on Equipment .........................
..........
..........
(6)
6,000
Increase in Deferred Tax .................
..........
..........
.........
234,000
..........
(8)
12,000
Decrease in AllowanceShort-Term
Marketable Securities ..................
..........
..........
(9)
11,000
Decrease in Accounts Receivable ...
..........
..........
.........
Depreciation Expense .....................
..........
(10)
22,000
..........
..........
.........
(11)
Increase in Inventory .......................

..........
..........
(12)
70,000
Increase in Accounts Payable .........
..........
..........
.........
..........
82,000
..........
(13)
..........
87,000
121,000
471,000
Net Cash from Operations ..............

..........
..........
.........
384,000
Cash from Investing:

Purchase Equipment .......................
..........
..........
(5)
127,000
..........
Sale of Equipment ...........................

..........
..........
(6)
.........
Net Cash from Investing ..................

..........
..........
(87,000)
40,000
..........
Cash from Financing:

Sale of Treasury Stock ....................
..........
..........
.........
Pay Dividend ...................................
..........
..........
(4)
58,000
(3)
Subsidiary Dividend ........................
44,000
..........
..........
(7)
..........
15,000
..........
Payment on Long-Term Note Payable

..........
..........
(14)
150,000
..........
..........
..........
223,000
..........
Net Cash from Financing ................

..........
..........
179,000
..........
Net Cash Provided ..........................

..........
..........
118,000
..........
Schedule of noncash investing and financing activities:
Item
Explanation
Amount
Stock for land ..................................

(2)
215,000
336
----------------------- Page 19-----------------------
Ch. 6Problems
PROBLEM 6-4
Subsidiary calculations:
$56,000
BEPS
$4,000 preferred dividends
=
= $4.33
12,000
$52,000 + $4,000 preferred dividends

DEPS
=
= $4.12
12,000 + 1,600a
aPreferred stock is dilutive, $4,000 1,600 = $2.50
Shares = 800 preferred shares 2 shares of common
Consolidated calculations:
b
$55,000
$4.33)
+
$500 preferred dividends
(9,600
BEPS =
20,000
$55,000
$500 + $41,568
=
20,000
= $4.80
b 12,000 Sunny shares 80% interest
c
$55,000
$500 preferred dividends + (10,560
$4.12
Sunny DEPS)
DEPS =
20,000 +
245d
$55,000
$500 + $43,507
20,000 + 245
= $4.84
c9,600 common stock shares + 60% of 1,600 common shares assumed issued on
conver-
sion of convertible preferred stock
d
Total Shares
Quarter
Acquired
Shares
Share
Dilutive
Outstanding
Adjustment
no
no
3
000 13 = 2,769
yes
3,000
231
$36,
4
000 16 = 2,250
yes
3,000
750
$36,
981
Average (for fou
r quarters) =
245
33
7
----------------------- Page 20-----------------------
Ch. 6Problems
PROBLEM 6-5

Company
Parent
NCI
Implied
Price
Value
Fair Value
(80%)
(20%)

$240,000
$ 60,000
$300,000

Common stock ($2 par) ...............
$ 20,0
00
Paid-in capital in excess of par ...
50,0
00
100,00
0
Total equity ............................
$170,000
$170,000
$170,000

80%
20%
Book value ........................................
$136,000
$ 34,000
value............................................
$104,000
$ 26,000
$130,000

Worksheet
Key
Amortization
Life
Adjustment
per Year
Equipment .........................................
20,000
debit D1
8
$2,500
Goodwill ............................................
110,000
debit D2
Total ............................................
$130,000
Eliminations
Consolidated
and
Morgan
Income
Delta
Statement
Adjustments
Sales .....................................
0)$(600,000)(IS)
1,550,000)
Less cost of goods sold ........
375,000 (IS)
$(1,000,00
$(
$50,000
800,000
(50,000)
(BI)
(1,425)
(EI)
2,430
1,126,005
Gross profit ...........................
$
(423
,995)
Expenses ..............................
185,000 (F2)
(A)
,500
80,000
(8,000)
2,500
259
Income before tax .................

$
(164
(114
(109
,495)
Less provision for tax ...........
49,498
Consolidated net income ......
,997)
Less NCI ...............................
(5,083)
Controlling interest ................
,914)
Tax provision:
$164,495
Add, amortization applicable to NCI, 20% $2,500 ......
500
...
Taxable income ...........................................................

$164,995
Tax provision at 30% .....................................................

$
49,498
3
38
----------------------- Page 21-----------------------
Ch. 6Proble
ms
Problem 6-5 C
oncluded
Eliminations and Adjustments:
(IS)
Eliminate intercompany sales.
(BI)
Adjustment for beginning inventory profit:
Sold by Morgan (0.25 $2,500)
Sold by Delta (0.40 $2,000)
625
800
Total
$1,425
(EI)
Adjustment for ending inventory profit:

Sold by Morgan (0.25 $3,000)
750
Sold by Delta (0.40 $4,200)
1,680
Total
$2,430
(F2)
.
Reduce depreciation for profit on machine sale, $40,000 5 = $8,000
(A)
Amortize $2,500 excess.
Subsidiary Morgan Company Income Dis

tribution
Profit in ending inventory ......

(EI)
Internally generated income ...
0,000
Depreciation adjustment .......
(A)
750
$4
2,500
Profit, beginning inventory .....
(BI)
625
Adjusted income ....................
$3
7,375
Tax provision (see schedule)
11,362
Net income .............................
$2
6,013
NCI share of income
(see schedule) ..................
5,083

Controlling
NCI
Total
$29,900
$7,475
$37,375*
500
500
(3) Taxable income ............................................
$29,900
$7,975
$37,875
(4) Tax ................................................................
$
8,970
$2,392
$11,362
$20,930
$26,013
$5,083
Parent Delta Corporation Income

Distribution
Profit in ending inventory ......

(EI)
Internally generated income ...
000
Profit, beginning inventory .....
$1,680
$120,
(BI)
800
Gain realized through use
of machine ........................
(F2)
8,000
Adjusted income ....................
$127,
120
Tax provision (30%) ...............
38,136
Net income .............................
$ 8
8,984
Share of sub net-of-tax income
(see schedule) ..................
20,930
Controlling interest .................
914
$109,
339
----------------------- Page 22-----------------------
Ch. 6Problems
PROBLEM
6-6

Compan
y
Parent
NCI
ied
Price
Value
alue
(80%)
Impl
Fair V

7,500
$270,000
(20%)
$33
$ 67,500

00,000
Total equity ............................

$300,000
$300,000
80%
20%
Book value ........................................

$240,000
$ 60,000
37,500
value............................................
$ 30,000
$
7,500

Worksheet
nt
Amortization
Key
Life
Goodwill ............................................
$37,500
debit D
340
----------------------- Page 23-----------------------
Ch. 6Problems
Problem 6-6, Continued
Pepper Company and Subsidiary Salty Company

Worksheet for Consolidated Financial Statements
Adjustme
per Year
Eliminat
ions
Controlling
Consolidated
Consolidated
Trial Balance
and Adjustme
nts
Income
Balance
Retained
Pep
per
Salty
Cr.
Earnings
Dr.
Statement
Sheet
NCI
Inventory, December 31 .........................

100,000
50,000
(EI)
4,000
.........
..........
146,000
..........
..........
Other Current Assets .............................

198,000
200,000
..........
.........
..........
398,000
..........
..........
Investment in Salty Company ................

302,000
..........
(CY2)
40,000
.........
..........
..........
..........
EL)
..........
..........
240,000
..........
(D)
..........
..........
30,000
.........
..........
.........
..........
8,000(CY1)
..........
..........
..........
..........
..........
Land .......................................................
240,000
100,000
..........
(F1)
10,000
.........
..........
..........
330,000
Buildings and Equipment .......................
300,000
200,000
..........
.........
..........
500,000
..........
..........
Accumulated Depreciation .....................

(80,000)
(60,000)
..........
.........
..........
(140,000)
..........
..........
Goodwill .................................................
..........
..........
..........
..........
(D)
.........
37,500
37,500
..........
Current Liabilities ...................................

(150,000)
(50,000)
..........
.........
..........
(200,000)
..........
..........
Long-Term Liabilities ..............................

(200,000)
(100,000)
..........
.........
..........
(300,000)
..........
..........
Common StockPepper .......................

(100,000)
..........
..........
.........
..........
(100,000)
..........
..........
Paid-In Capital in Excess of ParPepper

(180,000)
..........
..........
.........
..........
(180,000)
..........
..........
Retained EarningsPepper ..................

(320,000)
..........
..........
.........
(320,000)
..........
..........
..........
Common StockSalty ...........................

.........
(50,000)(EL)
..........
.........
........
..........
40,000
(10,000)
Paid-In Capital in Excess of ParSalty

.........
(100,000)(EL)
..........
.........
........
..........
80,000
(20,000)
Retained EarningsSalty ......................

.........
(150,000)(EL)
7,500
.........
........
..........
120,000(NCI)
(37,500)
..
.
..
.
..
Sales ......................................................
(500,000)
(300,000)(IS)
50,000
..........
(750,000) ..........
..........
..........
Cost of Goods Sold ................................
300,000
180,000 (EI)
50,000
434,000
..........
..........
Operating Expenses ...............................
100,000
80,000
..........
180,000
..........
..........
Subsidiary Income ..................................
4,000 (IS)
..........
..........
..........
(40,000)
..........
..........
..........
(CY1)
.........
..........
40,000
..........
Gain on Sale of Land .............................

..........
(10,000)(F1)
..........
.........
..........
..........
10,000
..........
Dividends DeclaredPepper .................

30,000
..........
..........
.........
30,000
..........
..........
..........
Dividends DeclaredSalty ....................

.........
10,000
)
8,000
.........
..........
..........
..........
Consolidated Income Before Tax ...........

..........
..........
..........
(136,000)
..........
..........
.
(CY2
2,000
..........
..........
Provision for Income Taxes, 30% ...........

..........
..........
(T)
..........
40,800
..........
..........
40,800
..........
Income Taxes Payable ...........................

..........
..........
(DTL)
(T)
40,800
.........
..........
(40,200)
600
..........
DTL ........................................................
..........
..........
..........
TL)
600
.........
..........
..........
(600)
0
0
430,900
..........
.........
..........
(D
430,900
..........
Consolidated Net Income ........................................................

.......................................................................
(95,200)
..........
..........
..........
To NCI (see distribution schedule) .........................................
....................................................................
5,600
(5,600)
..........
..........
To Controlling Interest (see distribution schedule) ........................
..............................................................
89,600
(89,600)
..........
..........
Total NCI ......................................................................

................................................................................
.......................
(71,100) .
..........
(71,100)
Retained EarningsControlling Interest, December 31, 20X1 ........................
................................................................................
.........
(379,600)
(379,600)
Totals .....................................................................
................................................................................
.....................................................................
0
341
----------------------- Page 24-----------------------
Ch. 6Problems
Problem 6-6, Co
ncluded
Subsidiary Salty Company Income Dis

tribution
Gain on sale of land ..............

(F1) $10,000
Adjusted income .........................
$50,000
$40,000
Tax provision (30%) ....................
12,00
0
Net income ..................................
$28,000
NCI share ....................................
NCI ..............................................
$ 5,60
20%
Parent Pepper Company Income Distr

ibution
Profit, ending inventory .........

(EI)
Adjusted income .........................
$4,000
$100,000
$ 96,000
Tax at 30% ..................................

(28,8
80% Salty net income
of $28,000 .............................
22,40
0
$ 89,600
(CY1)
tment account.
Eliminate the current-year subsidiary income against the inves
(CY2)
Eliminate parents share of subsidiarys dividends.
(EL)
Eliminate 80% of the Salty Company equity balances at the beg
inning of the year
against the investment account.
(D)/(NCI) Allocate the $30,000 excess of cost and $7,500 NCI adjustment over bo
ok value to
goodwill.
(IS)
Eliminate intercompany sales of $50,000.
(EI)
Eliminate the $4,000 of gross profit in the ending inventory.
(F1)
nd account.
Eliminate the $10,000 gain on the sale of land against the la
(T)
Record 30% provision for income tax
(DTL)
Goodwill amortization for tax is $30,000 15 years = $2,000.

Tax deferral, 30% = $600
342
----------------------- Page 25-----------------------
Ch.
6Problems
P
ROBLEM 6-7

Company
Parent
Implied
Price
Fair Value
(80%)

1,112,500
$890,000
NCI
Value
(20%)
$
$222,500

800,000
Total equity ............................

$800,000
$800,000

80%
Book value ........................................
$640,000
20%
$160,000

$
value............................................
312,500
$250,000
$ 62,500

Worksheet
Amortization
Ad
justment
per Year
Key
Buildings ...........................................
Life
$200,000
debit D1
20
$10,000
Goodwill ............................................
112,500
debit D2
Total ............................................
$312,500
Account Adjustments
Annual
to Be Amortized
Amount
Key
Current
Year
Prior
Life
Total
Years
Buildings ...............................
$10,000
$10,000
30,000
20
$20,000
$20,000
(A1)
Total amortizations ..........
$10,000
$10,000
30,000
Intercompany Inventory Pro

fit Deferral
Parent
Parent
b
Parent
Sub
Su
Sub
Amount
Percent
Profit
Profit
Amount
Percen
Beginning ..............................
50%
$20,000
0%
$40,000
Ending ...................................
50
15,000
0
30,000
343
----------------------- Page 26-----------------------
Ch. 6Problems
Problem 6-7,
Continued
Subsidiary Stark Company Income Di

stribution
Amortizations ................................
,000
$10,000
$ 60
Realized gain ..............................

8,000
Adjusted income .........................
$ 58
,000
Tax provision ...............................
(18,0
Net income ..................................
$ 40
,000
NCI share (see schedule) ...........
7,520
Controlling share of .....................
$ 32
,480

Controlling
NCI
Total
$46,400
$
11,600
$58,000
2,000
2,000
(3) Taxable income ............................................
$46,400
$
13,600
$60,000
(4) Tax ................................................................
$13,920
$
4,080
$18,000
$32,480
$
$40,000
7,520
Parent Pillar Company Income D

istribution
Ending inventory profit ..................

Internally generated net
income ...................................
$15,000
$100,
000
Beginning inventory profit ...........
20,000
Adjusted income .........................
$105,
000
Tax provision ...............................
(31,5
Net income ..................................
$ 73
,500
Controlling share of
subsidiary ..............................
32,480
980
344
----------------------- Page 27-----------------------
$105,
Ch. 6Pro
blems
Problem 6-7, Continued
Pillar Company and Subsidiary Stark Company

Eliminations
Controlling
Consolidated
Consolidated
Tri
al Balance
and Adjustments
Retained
Income
Balance
Pillar
Cr.
Stark
Statement
Sheet
Dr.
NCI
Earnings
Cash .......................................................
08,600
380,000
..........
..........
.........
..........
588,600
..........
Accounts Receivable ..............................

30,000
150,000
..........
8,000
.........
..........
272,000
(IA)
..........
Inventory ................................................
20,000
80,000
..........
15,000
.........
..........
185,000
(EI)
..........
Investment in Stark ................................

1,098,000 .......
..........
(CY1)
48,000
..........
..........
..........
....
..........
800,000
.........
..........
..........
..........
......
(EL)
..........
....
..........
250,000
.........
..........
..........
..........
......
(D)
..........
Plant and Equipment ..............................

6
00,000
900,000 (D1)
200,000 (F1)
40,000
.........
..........
..........
1,660,000
0,000)
(300,000)
..........
30,000
.........
..........
..........
(35
(A1)
..........
......
....
..........
..........
(F1)
.........
..........
16,000
..........
....
..........
..........
(F2)
.........
(656,000)
..........
..........
(D2)
.........
112,500
112,500
..........
..........
......
Goodwill
....
..........
8,000
..........
......
Liabilities ................................................
5,000)
(150,000)(IA)
8,000
..........
.........
..........
(347,000)
Deferred Tax Liability .............................
(3,600)
..........
..........
1,800
.........
..........
(5,400)
Common StockStark ...........................
..
(300,000)(EL)
..........
.........
..........
..........
(20
..........
(DTL)
..........
........
240,000
(60,000) ..........
Retained Earnings, January 1, 20X3

..
Stark ...............................................
........
(700,000)(EL)
560,000(NCI)
62,500
.........
..........
..........
..........
......
....
..........
..........
(A1)
.........
..........
....
..........
..........
(F2)
.........
..........
4,000
..........
..........
......
4,800
(193,700) ..........
Common StockPillar ...........................

000)
..........
..........
..........
.........
..........
(500,000)
(500,
..........
Retained Earnings, January 1, 20X3

Pillar ................................................
000)
..........
(A1)
16,000
..........
.........
..........
..........
(950,
..........
......
....
..........
..........
(BI)
.........
..........
20,000
..........
....
..........
..........
(F1)
.........
..........
19,200
..........
..........
......
345
----------------------- Page 28-----------------------
Ch. 6Problems
Pillar Company and Subsidiary Stark Company

(894,800)

Concluded
Eliminations
Controlling
Consolidated
Consolid
ated
Trial B
alance
and Adjustments
Retained
Income
Balan
ce
Stark
Statement
Pillar
Cr.
Dr.
NCI
Earnings
She
et
Sales ......................................................
0)
(550,000)(IS)
70,000
.
(1,280,000) ......
..........
........
(800,00
.........
..

0
320,000
..........
(IS)
0,000
.........
..........
..........
........
430,00
7
..
...........................................................
..........
(EI)
15,000 (BI)
0,000
675,000
..........
..........
........
Depreciation Expense ............................
00
50,000 (A1)
10,000
.
.........
..........
..........
........
...........................................................
..........
..........
(F2)
8,000
112,000
..........
..........
........
Other Expenses .....................................
0
120,000
..........
.
330,000
..........
..........
........
..........
2
..
60,0
.........
..
..........
..
210,00
.........
..
.
........
..........
.........
..........
..........
..........
..........
.........
..

00)
..........
(CY1)
48,000
.
.........
..........
..........
........
(48,0
.........
..
Totals ..................................................
0
..........
.
.........
..........
..........
........
0
.........
..
Consolidated Income Before Tax .................................................

..
..........
.........
.
(163,000) ..........
..........
..
........
Consolidated Tax Provision .....................................................
......
(T)
49,500
.........
.
49,500
..........
..........
..
........
Income Tax Payable .............................................................
.........
(DTL)
1,800 (T)
4
9,500
.........
..........
..........
(47,700)
.......
..........
.........
.
(113,500)
..........
..........
..
........
To NCI (see distribution schedule) ..........................................
...
..........
.........
.
7,520
(7,520) ..........
..
........
To Controlling Interest (see distribution schedule) ......................
..........
.........
.
105,980
..........
(105,980)
..
........
Total NCI ......................................................................
..................
..........
.........
.
(261,220) ..........
(261,220
Retained EarningsControlling Interest, December 31, 20X3 ......
..........
.........
(1,000,780)
.
(1,000,780)
Totals................................................................
...................
1,402,800
1,402,800
0
(CY1)
Current-year subsidiary income.

(EI)
Defer endi
ng inventory profit.
(EL)
Eliminate controlling interest in Sub equity.

(F1)
t profit at beginning of year.
Fixed asse
(D)/(NCI) Distribute excess and adjust NCI per D&D schedule.

(F2)
t profit realized.
Fixed asse
(A)
Amortize excess.
(T)
Subsidiary
share of tax from IDS plus parent share

(IS)
Eliminate intercompany sales during current period.

of tax fro
m IDS.
(IA)
Eliminate intercompany unpaid trade accounts.

(DTL)
mortization for tax, [(80% $112,500)/15
(BI)
Goodwill a
Defer beginning inventory profit.

30% tax ra
te].
346
----------------------- Page 29-----------------------
Ch. 6Proble
ms
PROBL
EM 6-8
(1)
Comp
any
Parent
NCI
Price
Value
Im
plied
Fair
Value
(80%)
Fair value of subsidiary ..............

$562,500 $450,000
(20%)
$112,500

Common stock ......................
10,000
Paid-in capital in excess of par

190,000
Retained earnings .................
170,000
Total equity ......................
$370,000 $370,000
$370,000
Interest acquired ...................
80%
20%
Book value .................................

$296,000
$ 74,000
value ......................................
$192,500 $154,000
$ 38,500

Worksheet
Amortiza
tion
Adjust
ment
Year
Key
Life
Buildings ....................................
$100,000
debit D1
$5,000
Equipment..................................
50,000
debit D2
10,000
per
20
Goodwill .....................................
42,500
debit D3
Total ......................................
$192,500
(2) Worksheet and Support Schedules
Account Adjustments
Current
Annual
to Be Amortized
Year
Amount
Key
Prior
Life
Total
Years
Buildings ........................
5,000
$
5,000 $
20
5,00
0
$10,000 ..........................
Equipment......................
10,000
(A1)
5
10,000 20,000
10,000
(A2)
Total amortizations ....
$15,000
$15,000
$15,000
$30,000
Intercompany Inventory Profit

Deferral
Parent
Parent
Sub
Parent
Sub
Sub
Amount
Percent
Profit
Profit
Beginning .......................
0%
$3,600
Ending ...........................
0
4,800
Amount
Percent
$12,000
30%
16,000
30
347
----------------------- Page 30-----------------------
Ch. 6Problems
Problem 6-8
Continued
Subsidiary Sonar Company Income Dis

tribution
Ending inventory profit ................

$ 42,000
$ 4
,800
Amortizations ..............................
Beginning inventory profit ............
3,600
,000
15
Adjusted income ..........................

$ 25,800
Tax provision ...............................
(11,5
Net income ...................................
$ 14,280
NCI share (see schedule) ............
1,896
Controlling share ..........................
$ 12,384

Controlling
Total
NCI
(1) Total adjusted income .............................

$20,640
$5,160
$25,800
(2) NCI share of asset adjustments ..............
3,000
3,000
(3) Taxable income ......................................
$20,640
$8,160
$28,800
(4) Tax ..........................................................
$
8,256
$3,264
$11,520
(5) Net of tax share of income
(line 1 line 4) ........................................
$12,384
$1,896
$14,280
Parent Penstar Company Income Dis

tribution

$205,000
Realized gain ...............................
8,000
Adjusted income ..........................

$213,000
Tax provision ...............................
(85,2
Net income ...................................
$127,800
subsidiary (net of tax) .............
12,384
Controlling interest .......................
$140,184
348
----------------------- Page 31-----------------------
Ch. 6Problems
Problem 6-8 Continued
Penstar Company and Subsidiary Sonar Company

s
rolling
Elimination
Cont
Consolidated
Consolidated
Trial Balance
and Adjustments
Ret
Income
ained
Balance
Penst
ar
Sonar
Cr.
nings
Dr.
Statement
Sheet
NCI
Ear
Cash .......................................................
94,107
54,000
..........
..........
.........
..........
..........
148,107
150,600
90,000
)
6,000
.........
..........
234,600
..........
..........
(IA
Inventory ................................................
105,000
90,000
..........
)
4,800
.........
..........
..........
190,200
(EI
Land .......................................................
100,000
150,000
..........
..........
.........
..........
..........
250,000
Investment in Sonar ...............................
517,200
..........
33,600
.........
..........
..........
..........
..........
(CY1)
.
.........
..........
..........
..........
.........
..........
.........
..........
(CY2)
.........
..........
8,000
..........
..........
337,600
.........
..........
..........
..........
..........
154,000
.........
..........
..........
..........
.
(EL)
.
(D)
Buildings ................................................
800,000
250,000 (D1)
100,000
..........
.........
..........
..........
1,150,000
(250,000)
(70,000)
10,000
.........
..........
(330,000)
Equipment ..............................................
210,000
120,000 (D2)
40,000
.........
..........
340,000
..........
..........
50,000 (F1)
..........
(A1)

(115,000)
(90,000)
20,000
.........
..........
..........
..........
..........
(A2)
.
.........
..........
..........
(F1)
.........
..........
..........
8,000
..........
.
.........
..........
(F2)
.........
(209,000)
..........
..........
8,000
..........
Goodwill .................................................
.........
..........
(D3)
42,500
..........
.........
..........
..........
42,500
Accounts Payable ..................................
(70,000)
(40,000)(IA)
..........
.........
..........
(104,000)
6,000
..........
Bonds Payable .......................................

.........
(100,000)
..........
.........
..........
(100,000)
..........
..........

(907)
..........
907
.........
..........
(1,814)
..........
..........
Common StockSonar .........................

.......
(10,000)(EL)
..........
.........
....
..........
Paid-In Capital in Excess of ParSonar
.......
(190,000)(EL)
..........
.........
...
..........
Retained EarningsSonar ....................
.......
(222,000)(EL)
38,500
.........
..........
..........
(DTL)
...
8,000
(2,000)
......
...
152,000
(38,000)
.......
...
177,600(NCI)
..........
.
.........
..........
..........
(BI)
.........
..........
..........
720
..........
.
.........
..........
..........
..........
(A1A3)
.........
..........
3,000
..........
.
.........
..........
..........
.........
..........
.....
..........
(79,180)
Common StockPenstar .......................

(100,000)
..........
..........
.........
..........
(100,000)
..........
..........
Paid-In Capital in Excess of ParPenstar

(600,000)
..........
..........
.........
..........
(600,000)
..........
..........
Retained EarningsPenstar ..................

(622,400)
..........
(A1A3)
..........
.........
........
..........
12,000
..........
.....
..
.
.........
..........
..........
(BI)
.........
..........
..........
2,880
..........
.
.........
..........
(575,520)
..........
(F1)
.........
..........
32,000
..........
349
----------------------- Page 32-----------------------
Ch. 6Problems
Problem 6-8 Concluded


Concluded
Eliminations
Controlling
Consolidated
Co
nsolidated
Trial
Balance
and Adjustments
Retained
Income
Balance
Penstar
Sonar
Statement
Dr.
NCI
Cr.
Earnings
Sheet
Sales ......................................................
000)
(350,000)(IS)
30,000
......
(1,210,000) ......
..........
..........
000
220,000
..........
30,000
.........
..........
..........
(890,
....
480,
(IS)
..........
.........
..........
3,600
..........
(EI)
671,200
..........
Depreciation ExpenseBuildings ..........

00
10,000 (A1)
....
45,000
..........
..........
4,800 (BI)
..........
30,0
......
5,000
Depreciation ExpenseEquipment .......

00
10,000 (A2)
10,000
....
.........
..........
..........
..........
25,0
......
..........
.........
..........
8,000
..........
37,000
..........
..........
(F2)
..........
Other Expenses .....................................

000
60,000
..........
......
210,000
..........
..........
Interest Expense ....................................
.
8,000
..........
......
8,000
..........
..........
,600)
..........
(CY1)
33,600
......
.........
..........
..........
Dividends DeclaredSonar ...................
10,000
..........
8,000
.........
2,000
..........
Dividends DeclaredPenstar ................
00
..........
..........
....
.........
..........
..........
150,
....
..........
.........
....
..........
(33
....
..........
..........
(CY2)
..........
20,0
......
20,000
Totals ..................................................
0
0
..........
......
.........
..........
..........
..........
....

..
..........
....
......
(238,800) ..........
..........
..........
......
(T)
96,720
....
......
96,720
..........
..........
..........
.........
(DTL)
907
(T)
96,720
.........
..........
..........
(95,813)
.......
..........
....
......
(142,080)
..........
..........
..........
To NCI (see distribution schedule) .............................................
....
..........
....
......
1,896
(1,896) ..........
..........
To Controlling Interest (see distribution schedule) .........................
..........
....
......
140,184
..........
(140,184)
..........
Total NCI ......................................................................

..................
..........
....
......
(119,076) ..........
(119,076)
....
......
(695,704)
(695,704)

..........
Totals ..................................................................
....................
791,727
791,727
0
(CY1)

(BI)
Defer
(EI)
Defer
beginning inventory profit.

(CY2)
Current-year dividend.
ending inventory profit.

(EL)

(F1)
asset profit at beginning of year.
Fixed

(F2)
asset profit realized.
Fixed
(A)
Amortize excess.
(T)
Taxati
on as consolidated firm.
(IS)

(DTL)
ll amortization for tax, $42,500/15 = $2,833.
(IA)
Goodwi

$2,833
80% 40% tax = $907.
350
----------------------- Page 33-----------------------
Ch. 6Probl
ems
PROB
LEM 6-9
(1)

Com
pany
Parent
NCI
mplied
Price
Value
Value
(80%)
(20%)
I
Fair

$450,000
562,500
$
$112,500

Common stock .......................
10,000
190,000
Retained earnings ..................
170,000
370,000
Total equity .........................

$370,000
$370,000
Interest acquired .....................
80%
Book value .................................
$296,000
20%
$ 74,000

value .......................................
192,500
$154,000
$ 38,500

Worksheet
Amortiz
ation
tment
Year
Key
Adjus
per
Life
Buildings ....................................
$100,000
debit D1
$
5,000
20
Equipment..................................
50,000
debit D2
10,000
Goodwill .....................................
42,500
debit D3
Total ......................................
$192,500
(2)
Annual
to Be Amortized
Year
Amount
Key
Account Adjustments
Current
Buildings ........................
5,000
$
$15,000 ..........................
Prior
Life
Total
Years
5,000
20
$10,000
(A1)
Equipment......................
10,000
5
20,000 30,000
10,000
(A2)
$15,000
$15,000
$30,000
$45,000

Deferral
Parent
Parent
Parent
Sub
Sub
Sub
Amount
Percent
Profit
Profit
Beginning .......................
0%
$
$4,800
Ending ...........................
6,000
3,000
40
Amount
Percent
$16,000
10,000
351
----------------------- Page 34-----------------------
Ch. 6Problems
30%
15,000
30
Problem 6-9 C
ontinued
Subsidiary Sonar Company Income Dis

tribution
00
Amortizations ..............................
$ 72,000
3,000

4,800
,000
Equipment gain ...........................

Realized gain ...............................
5,000
Adjusted income ..........................

$ 38,800
Tax provision (see schedule) .......
(16,7
Net income ...................................
$ 22,080
3,456
$ 18,264
$15,0
25
Controlling
NCI
Total
$31,040
$
7,760
$38,800
3,000
3,000
(3) Taxable income ......................................
$31,040
$10,760
$41,800
(4) Tax ..........................................................
$12,416
$
4,304
$16,720
(5) Net of tax share of income
(line 1 line 4) ........................................
$18,264
$3,456
$22,080
Parent Penstar Company Income Dis

tribution
Ending inventory profit ...................

$159,000
$6,000
Realized gain ...............................

8,000
Adjusted income ..........................

$161,000
Tax provision (40%) .....................
(64,4
Net income ...................................
$ 96,600
subsidiary (net of tax) .............
18,624
Controlling interest .......................
$115,224
352
----------------------- Page 35-----------------------
Ch.
6Problems

Consolidated
Consolidated
Eliminations
Controlling
Tr
ial Balance
and Adjustments
Retained
Income
Balance
Penstar
Sonar
Cr.
Statement
Dr.
NCI
Earnings
Sheet
Cash .......................................................
95,814
80,000
..........
..........
.........
..........
.
175,814
.........

150,600
100,000
..........
18,000
.........
..........
.
232,600
(IA)
.........
Inventory ................................................
115,000
120,000
..........
9,000
.........
..........
.
226,000
(EI)
.........
Land .......................................................
100,000
150,000
..........
..........
.........
..........
.
250,000
.........
Investment in Sonar ...............................

54,000
..........
..........
57,600
.........
..........
.
..........
5
(CY1)
.........
.....
.....
..........
.
..........
(CY2)
.........
.....
..........
..........
.........
..........
350,400
.........
..........
.....
..........
154,000
8,000
.........
..........
..........
.....
(EL)
.........
..........
..........
.....
(D)
.........
..........
Buildings ................................................
00,000
250,000 (D1)
100,000
..........
.........
..........
.
1,250,000
9
.........

90,000)
(80,000)
..........
15,000
.........
..........
.
(385,000)
(2
(A1)
.........
Equipment ..............................................
210,000
120,000 (D2)
50,000 (F1)
65,000
.........
..........
.
315,000
40,000)
(100,000)
..........
30,000
.........
..........
.
..........
.........
(1
(A2)
.........
.....
.....
..........
.
..........
(F1)
.........
.....
..........
.
..........
16,000
..........
.........
..........
.....
(F2)
.........
(241,000)
13,000
..........
.........
Goodwill .................................................
.....
..........
(D3)
42,500
..........
.........
..........
.
42,500
.....
.........

(50,000)
(40,000)(IA)
18,000
..........
.........
..........
.
(72,000)
.........
Bonds Payable .......................................

.....
(100,000)
..........
..........
.........
..........
.
(100,000)
.........

(1,814)
..........
..........
907
.........
..........
.
(2,721)
(DTL)
.........
Common StockSonar .........................

...
(10,000)(EL)
..........
.........
..........
Paid-In Capital in Excess of ParSonar
...
(190,000)(EL)
..........
.........
..........
.....
.......
8,000
(2,000) ..........
.......
152,000
(38,000)
..........
Retained EarningsSonar ....................

...
(238,000)(EL)
190,400(NCI)
38,500
.........
..........
..........
.......
..........
.....
.....
..........
.
..........
(BI)
.........
960
..........
.........
..........
.....
.....
..........
..........
(A1A2)
.........
..........
6,000
..........
..........
.....
.....
..........
..........
..........
(79,140)
.........
..........
..........
Common StockPenstar .......................
,000)
..........
..........
..........
.........
..........
(100,000)
(100
..........
Paid-In Capital in Excess of Par

Penstar ...........................................
,000)
..........
..........
..........
.........
..........
(600,000)
(600
..........
Retained EarningsPenstar ..................

,000)
..........
(A1A2)
24,000
..........
.........
..........
..........
(747
..........
.....
.....
..........
.
..........
.....
..........
60)
..........
(BI)
.........
3,840
..........
.........
..........
.....
(F1)
.........
24,000
..........
..........
353
----------------------- Page 36-----------------------
Ch. 6Problems
(695,1

Concluded
Eliminations
Controlling
Consolidated
Consolidated
Trial Bal
ance
and Adjustments
Retained
Income
Sonar
Statement
Penstar
Cr.
Dr.
NCI
Balance
Earnings
Sales ......................................................
(400,000)(IS)
100,000
(1,250,000) ......
..........
...
250,000
..........
(IS)
0
.........
..........
..........
...
Sheet
(950,000)
..........
.......
550,000
100,00
.......
..........
800
...
..........
704,200
(EI)
..........
Depreciation ExpenseBuildings .........

10,000 (A1)
55,000
..........
.
9,000 (BI)
..........
5,000
..........
4,
.......
40,000
..........
.........
25,000
10,000 (A2)
.........
..........
10,000
..........
..........
.........
.
..........
(F2)
..........
..........
..........
13,0
.......
Other Expenses .....................................

75,000
..........
251,000
..........
..........
...
176,000
..........
.......

8,000
..........
8,000
..........
..........
...
..........
..........
.......
Gain on Sale of Fixed Asset ...................

(25,000)(F1)
25,000
.........
..........
..........
...
..........
..........
.......

)
..........
(CY1)
57,600
.........
..........
..........
...
(57,600
..........
.......
00
...
..........
32,000
Dividends DeclaredSonar ...................

10,000
..........
(CY2)
0
.........
2,000
..........
.
Dividends DeclaredPenstar ................
..........
..........
.........
..........
.
20,000
Totals ..................................................
0
..........
.........
..........
..........
..........
8,00
.........
20,000
..........
.........
0
..........
.......
...
..
..........
..........
(199,800) ..........
..........
.......
...
......
(T)
81,120
..........
81,120
..........
..........
.......
...
.........
(DTL)
907
(T)
81,1
20
.........
..........
..........
(
80,213)
.......
..........
(118,680)
..........
..........
..........
.......
...
..........
..........
3,456
(3,456) ..........
.......
...
...
To Controlling Interest (see distribution schedule) ......................

..........
..........
115,224
..........
(115,224)
.......
...
Total NCI ......................................................................
..................
..........
..........
(120,596) ..........
(1
20,596)
..........
(790,384)
..........
(7
90,384
Totals ..................................................................
....................
945,327
945,32
7
0
(CY1)

(BI)
Defer beginni
(EI)
Defer ending
ng inventory profit.
(CY2)
inventory profit.
(EL)

(F1)
rofit at beginning of year.
Fixed asset p

(F2)
rofit realized.
Fixed asset p
(A)
Amortize excess.
(T)
onsolidated firm.
Taxation as c
(IS)

(DTL)
Goodwill amor
tization for tax, $42,500/15 = $2,833
(IA)

$2,833 80% 40
% tax = $907.
354
----------------------- Page 37-----------------------
C
h. 6Problems
P
ROBLEM 6-10

Company
Parent
Implied
Fair Value
Price
(70%)

$500,000
$350,000
NCI
Value
(30%)
$150,000

422,000
Total equity ............................

$422,000

70%
Book value ........................................
$422,000
30%
$295,400
$126,600

value............................................
$ 78,000
$ 54,600
$ 23,400

Worksheet
Amortization
A
djustment
per Year
Key
Life
Goodwill ............................................
$78,000
debit D
Intercompany Inventory Pro

fit Deferral
Parent
Parent
Sub
Parent
Sub
Sub
Amount
Percent
ent
Profit
Amount
Perc
Profit
Beginning ..............................
0%
0%
$4,000
Ending ...................................
0
0
8,000
$10,000
20,000
Subsidiary Sunfish Company Income

Distribution

$ 80,000
Beginning inventory profit ...........
4,000
Adjusted income .........................

$ 76,000
Tax provision (30%) ....................
(22,8
Net income ..................................
$ 53,200
NCI share ....................................
15,960
Controlling share .........................
$ 37,240
355
----------------------- Page 38-----------------------
$8,000
Ch. 6Problems
Parent Pike Company Income Distributi

on
Inte
rnally generated income ........
$100,000
Real
ized gain ..............................
4,000
Adju
sted income .........................
$104,000
Tax
provision (30%) ....................
(31,2
Net
income ..................................
$ 72,800
Cont
rolling share of
subsidiary (net of first tax) .....
37,240
Seco
nd tax on subsidiary
income ...................................
(2,2
Cont
rolling interest ......................
$107,806
DTA/DTL adjustments:
To beginning retained earnings:
Parent
Sub
Subsidiary transactions:
Beginning inventory ............................................
$
4,000
$
2,800
$
1,200
Remaining fixed asset profit ...............................
Total ...................................................................
$
4,000
$
2,800
$
1,200
First tax ..............................................................
$
1,200
$
840
$
360
Second tax [20% 30% ($2,800 $840)] ......
$
118
$
118
Parent transactions:
$

12,000
$12,000
Total ...................................................................
$12,000
12,000
First tax ..............................................................
3,600
3,600
Increase (Decrease) in retained earnings and DTA .
$
4,918
$
4,558
360
To current year:
$
(4,000) $
(2,800)
$(1,200)
Ending inventory ................................................
8,000
5,600
2,400
Fixed asset sale .................................................
Realized fixed asset ...........................................
Total ...................................................................
$
4,000
$
2,800
$
1,200
First tax ..............................................................
$
1,200
$
840
$
360
Second tax [20% 30% ($2,800 $840)] ......
$
118
$
118
$
Fixed asset sale .................................................

(4,000)
Total ...................................................................
$
(4,000)
First tax ..............................................................
$
(1,200) $
(1,200)
Increase (Decrease) in DTA ....................................
$
118
$
(242)
$
360
356
----------------------- Page 39-----------------------
Ch. 6Problems
Pike Company and Subsidiary Sunfish Company

Eliminations
Controlling
Consolidated
Consolidated
Trial Balance
and Adjustments
Retained
Income
Balance
Pike
Sunfish
Cr.
Dr.
Statement
NCI
Earnings
Sheet

317,576
295,000
..........
..........
.........
..........
.....
612,576
.....
Inventory ................................................
110,000
85,000
..........
8,000
.........
..........
.....
187,000
(EI)
.....
Land .......................................................
150,000
90,000
..........
..........
.........
..........
.....
240,000
.....
Investment in Sunfish .............................

387,800
..........
..........
39,200
.........
..........
.....
..........
(CY1)
.....
....
......
..........
..........
.....
(CY2)
.........
..........
21,000
..........
.....
....
......
..........
315,000
.....
.........
..........
..........
..........
(EL)
..........
(D)
.....
....
......
..........
54,600
.....
.........
..........
..........
Buildings ................................................
200,000
200,000
..........
..........
.........
..........
.....
400,000
100,000)
(50,000)
..........
.........
.....
(150,000)
.....
.....
(
..........
..........
.....
Equipment ..............................................
120,000
80,000
..........
12,000
.........
..........
.....
188,000
(F1)
.....

(35,000)
(20,000)
..........
.........
.....
..........
..........
..........
......
..........
..........
.....
....
..........
..........
.....
.........
..........
.....
....
......
..........
(F2)
.........
(51,000)
4,000
..........
Goodwill
......
..........
(D)
..........
.........
.....
78,000
78,000
..........
..........
.....
.....
....
.....

120,000)
(80,000)
..........
..........
.........
..........
.....
(200,000)
.....
Current Tax Liability ...............................

(31,260)
(24,000)
..........
..........
.........
..........
.....
(55,260)
.....
Bond Payable .........................................

(200,000)
(100,000)
..........
..........
.........
..........
.....
(300,000)
.....
Discount (Premium) ...............................

......
..........
..........
..........
.........
..........
.....
..........
...............................................................
......
..........
..........
....
.....
....
..........
.....
.........
..........
..........
.....

(2,268)
..........
(T1)
4,918
..........
.........
..........
.....
..........
.....
....
......
..........
..........
.....
(T2)
.........
2,767
Common StockSunfish .......................

....
(10,000)(EL)
..........
.........
..........
Paid-In Capital in Excess of ParSunfish
....
(190,000)(EL)
..........
.........
..........
Retained EarningsSunfish ..................
....
(250,000)(EL)
23,400
.........
...
..........
118
..........
.....
......
7,000
(3,000)
..........
......
133,000
(57,000)
..........
......
175,000(NCI)
..........
.......
....
......
..........
360
.....
(BI)
.........
..........
1,200 (T1)
..........
.....
....
......
..........
..........
.........
..........
..........
(97,560)
Common StockPike ............................

0,000)
..........
..........
.........
...
(100,000)
..........
..........
Paid-In Capital in Excess of ParPike ..

00,000)
..........
..........
.........
...
(200,000)
..........
..........
Retained EarningsPike .......................

50,000)
..........
..........
.........
...
..........
..........
..........
..........
(10
.......
(2
.......
(4
.......
....
......
.....
..........
(BI
4,558
.........
..........
2,800 (T1)
..........
.....
....
......
..........
(F1)
12,000
..........
.........
..........
39,758)
..........
(4
357
----------------------- Page 40-----------------------
Ch. 6Problems
Pike Company and Subsidiary Sunfish Company

Concluded
Eliminations
Controlling
Consolidated
Co
nsolidated
Trial
Balance
and Adjustments
Retained
Income
Balance
Pike
Sunfish
Statement
Sheet
Dr.
NCI
Cr.
Earnings
Sales ......................................................
000)
(370,000)(IS)
60,000
......
(900,000)
..........
..........
..........
000
220,000
..........
60,000
.........
..........
..........
(590,
....
340,
(IS)
..........
.........
..........
(EI)
4,000
504,000
..........
..........
8,000 (BI)
..........
Depreciation ExpenseBuilding ............

00
8,000
..........
....
.........
..........
..........
00
12,000
..........
....
..... 23,800
..........
..........
15,0
......
..........
20,0
......
..........
.........
..........
4,000
..........
28,000
..........
..........
Other Expenses .....................................

000
50,000
..........
......
165,000
..........
..........
.
..........
..........
......
.........
..........
..........
.
..........
......
.........
..........
..........
..........
Provision for Tax ....................................

,352
24,000
..........
118
56,234
..........
..........
,200)
..........
(CY1)
39,200
......
.........
..........
..........
Dividends DeclaredSunfish.................
30,000
..........
21,000
.........
9,000
..........
(F2)
..........
115,
....
..........
.........
....
..........
.........
....
..........
32
(T2)
..........
(39
....
..........
..........
(CY2)
..........
Dividends DeclaredPike .....................

00
..........
..........
....
.........
..........
..........
60,0
......
60,000
Totals ..................................................
0
546,236
546,236
.........
..........
..........
..........

.......................................................................
(123,766) ..........
..........
..........
....................................................................
15,960
(15,960) ..........
..........
To Controlling Interest (see distribution schedule) ............................
.............................................................
107,806
..........
(107,806)
..........
Total NCI ......................................................................
................................................................................
.......................
(164,520) ..........
(164,520)
................................................................................
.........
(487,563)*
(487,563)
Totals ......................................................................
................................................................................
....................................................................
0
*Adjusted for rounding.
(CY1)

(F1)
asset profit at beginning of year.
Fixed
(CY2)
(F2)
Fixed
asset profit realized.

(EL)

(T1)
ed tax asset (liability) applicable to beginning
Deferr

retain
ed earnings.
(IS)

(T2)
ed tax asset (liability) applicable to current
(BI)
Deferr
Defer beginning inventory profit.

year.
(EI)
Defer ending inventory profit.
358
----------------------- Page 41-----------------------
Ch. 6Probl
ems
PROBL
EM 6-11
(1)

Com
pany
Parent
NCI
I
mplied
Price
Value
Fair
Value
(80%)
(20%)

$562,500 $450,000
$112,500

Common stock ......................
10,000

190,000
Retained earnings .................
170,000
Total equity ......................
$370,000 $370,000
$370,000
Interest acquired ...................
80%
Book value .................................
$296,000
20%
$ 74,000

value ......................................
$192,500 $154,000
$ 38,500

Worksheet
Amortiz
ation
tment
Year
Key
Buildings ....................................
$100,000
debit D1
5,000
Equipment..................................
50,000
debit D2
10,000
Goodwill .....................................
Adjus
per
Life
20
42,500
debit D3
Total ......................................
$192,500
(2)
Account Adjustments
Current
Annual
to Be Amortized
Year
Years
Life
Total
Buildings ........................
5,000
$
5,000 $
20
Amount
Key
$
00
Prior
5,0
$10,000 ..........................
Equipment......................
10,000
(A1)
5
10,000 20,000
10,000
(A2)
$15,000
$15,000
$15,000
$30,000

Deferral
Parent
Parent
Parent
Sub
Sub
Sub
Amount
Percent
Profit
Profit
Amount
Percent
Beginning .......................
0%
$3,600
$12,000
Ending ...........................
0
4,800
30%
16,000
30
359
----------------------- Page 42-----------------------
Ch. 6Problems
Problem 6-11 Co
ntinued
Subsidiary Stock Company Income Dis

tribution
Amortizations ..............................
$ 42,000
,800

3,600
Adjusted income ..........................

$ 25,800
$15,00

(11,5
Net income ...................................
$ 14,280
1,896
$ 12,384

Controlling
Total
NCI

$20,640
$5,160
$25,800
3,000
3,000
(3) Taxable income ......................................
$20,640
$8,160
$28,800
(4) Tax ..........................................................
$
8,256
$3,264
$11,520
(5) Net income ..............................................
$12,384
$1,896
$14,280
Parent Penske Company Income Dist

ribution
Realized gain ..............................
$205,000
,000
Adjusted income .........................
$213,000
Tax provision (40%) ....................

(85,2
Net income ..................................
$127,800
12,
384
Second tax on subsidiary
income ...................................
(991)
360
----------------------- Page 43-----------------------
$139,193
Ch. 6Problems
Parent
Sub
$
3,600
$
2,880
$ 720
Amortizations (80%) ...........................................

12,000
12,000
Total ...................................................................
$15,600
$14,880
$ 720
First tax ..............................................................
$
6,240
$
5,952
$ 288
Second tax [20% 40% ($14,880 $5,952)] .
714
$
714
$

32,000
Total ...................................................................
$32,000
First tax ..............................................................
12,800
12,800
Total retained earnings adjustments ........................
$19,754
$19,466
$ 288
To current year:

$
(3,600) $
(2,880)
$(720)
4,800
3,840
960
Fixed asset sale .................................................
Amortizations (80%) ...........................................

12,000
12,000
Total ...................................................................
$13,200
$12,960
$ 240
First tax ..............................................................
$
5,280
$
5,184
$ 96
Second tax [20% 40% ($12,960 $5,184)] .
622
$
622
$
Fixed asset sale .................................................

(8,000)
Total ...................................................................
$
(8,000)
First tax ..............................................................
$
(3,200) $
(3,200)
Total adjustment to provision ...................................
$
2,702
$
2,606
$ 96
361
----------------------- Page 44-----------------------
Ch. 6Problems
Penske Company and Subsidiary Stock Company

Eliminations
Controlling
Consolidated
Consolidated
Tr
ial Balance
and Adjustments
Retained
Income
Balance
Penske
Stock
Cr.
Statement
Dr.
NCI
Earnings
Sheet
Cash .......................................................
92,400
53,200
..........
..........
.........
..........
145,600
..........

50,600
90,000
..........
6,000
.........
..........
234,600
1
(IA)
..........
Inventory ................................................
05,000
90,000
..........
4,800
.........
..........
190,200
1
(EI)
..........
Land .......................................................
00,000
120,000
..........
..........
.........
..........
1
..........
220,000
Investment in Stock ................................
03,120
..........
..........
20,160
.........
..........
5
(CY1)
..........
......
....
..........
..........
(CY2)
.........
....
..........
336,960
....
.........
..........
154,000
.........
8,000
..........
..........
..........
..........
......
(EL)
..........
..........
..........
......
(D)
..........
Buildings ................................................
00,000
250,000 (D1)
100,000
..........
.........
..........
1,150,000
50,000)
(70,000)
..........
10,000
.........
..........
(330,000)
8
..........
(2
(A1)
..........
Equipment ..............................................
2
10,000
120,000 (D2)
50,000 (F1)
40,000
.........
..........
..........
340,000
Accumulated Depreciation ..................... .......... (115,000)
(90,000)
..........
(A2)
20,000
.........
..........
..........
......
....
..........
..........
....
..........
..........
(F1)
.........
8,000
..........
..........
......
.........
(209,000)
(F2)
8,000
..........
Goodwill .................................................
....
30,000 (D3)
42,500
..........
.........
..........
72,500
(70,000)
(40,000)(IA)
6,000
..........
.........
..........
..........
......
..........
..........
(104,000)
(82,640)
(16,800)
..........
..........
.........
..........
(99,440)
..........
Bonds Payable .......................................

....
(100,000)
..........
..........
.........
..........
(100,000)
......
..........

(4,250)
..........
(T1)
19,754
..........
.........
..........
..........
......
....
..........
..........
(T2)
.........
18,206
2,702
..........
Common StockStock ..........................

..
(10,000)(EL)
..........
.........
Paid-In Capital in Excess of ParStock
..
(190,000)(EL)
..........
.........
..........
........
8,000
(2,000) ..........
........
152,000
(38,000)
..........
Retained EarningsStock .....................

.. .............. (221,200)(EL)
176,960(NCI)
38,500
.........
..........
....
..........
288
(BI)
.........
........
..........
......
(T1)
..........
720
..........
......
....
..........
..........
(A1A2)
.........
....
..........
..........
3,000
..........
..........
......
.........
Common StockPenske .......................

,000)
..........
..........
.........
(100,000)
..........
(79,308)
..........
(100
..........
..........
..........
Paid-In Capital in Excess of Par

Penske ............................................
(600
,000)
..........
..........
.........
(600,000)
..........
..........
..........
Retained EarningsPenske ..................

,683)
..........
(A1A2)
12,000
.........
.........
..........
(617
.
..........
......
....
..........
19,466
(BI)
.........
2,880 (T1)
..........
..........
......
....
..........
9)
..........
(F1)
.........
32,000
..........
362
----------------------- Page 45-----------------------
Ch. 6Problems

Concluded
(590,26
Eliminations
Controlling
Consolidated
Consolidated
Trial Ba
lance
and Adjustments
Retained
Income
Stock
Statement
Penske
Cr.
Dr.
NCI
Balance
Earnings
Sales ......................................................
)
(350,000)(IS)
30,000
(1,210,000) ......
..........
220,000
..........
(IS)
000
.........
..........
..........
Sheet
(890,000
..........
480,000
30,
..........
600
..........
671,200
(EI)
4,800 (BI)
..........
..........

10,000 (A1)
45,000
..........
10,000 (A2)
.........
..........
5,000
..........
10,000
..........
3,
30,000
..........
25,000
..........
..........
(F2)
..........
8,
Other Expenses .....................................

60,000
..........
210,000
..........
..........
150,000
..........
000
..........
37,000
..........
..........

8,000
..........
8,000
..........
..........
..........
..........
..........
..........
.........
..........
..........
..........
..........
Provision for Income Tax .......................

16,800
..........
(T2)
702
97,711
..........
..........
83,613
2,

0)
..........
(CY1)
20,160
.........
..........
..........
(20,16
..........
Dividends DeclaredStock ...................

10,000
..........
(CY2)
0
.........
2,000
..........
Dividends DeclaredPenske.................
..........
..........
.........
..........
..........
8,00
20,000
..........
20,000
Totals ..................................................
0
702,476
6
.........
..........
..........
0
702,47

.......................................................................
(141,089)
..........
..........
....................................................................
1,896
(1,896) ..........
To Controlling Interest (see distribution schedule) ............................
.............................................................
139,193
..........
(139,193)
Total NCI ......................................................................
................................................................................
.......................
(119,204) ..........
(1
19,204)
................................................................................
.........
(709,462)
(709
,462)
Totals ......................................................................
................................................................................
....................................................................
0
(CY1)

(BI)
Defer beginn
(EI)
Defer ending
ing inventory profit.

(CY2)
inventory profit.
(EL)

(F1)
profit at beginning of year.
Fixed asset

(F2)
profit realized.
Fixed asset
(A)
Amortize excess.
(T1)
Deferred tax
asset (liability) applicable to beginning

(IS)

retained ear
nings.
(IA)

(T2)
asset (liability) applicable to current
Deferred tax
year.
363
----------------------- Page 46-----------------------
Ch. 6Problems
PROBL
EM 6-12
(1)

Com
pany
Parent
NCI
I
mplied
Price
Value
Fair
Value
(80%)

$450,000
562,500
(20%)
$
$112,500
Less book value interest acquired:

Common stock .......................
10,000
190,000
Retained earnings ..................
170,000
370,000
Total equity .........................

$370,000
$370,000
Interest acquired ........................
80%
Book value .................................
$296,000
20%
$ 74,000

192,500
value .......................................
$154,000
$ 38,500

Worksheet
Amortiz
ation
tment
Year
Key
Life
Adjus
per
Buildings ....................................
$100,000
debit D1
5,000
20
Equipment..................................
50,000
debit D2
10,000
Goodwill .....................................
42,500
debit D3
Total ......................................
$192,500
(2)
Annual
Account Adjustments
Current
to Be Amortized
Year
Amount
Key
Prior
Buildings ........................
5,000
$
Life
Total
Years
5,000
$15,000 ..........................
Equipment......................
10,000
20
$10,000
(A1)
5
20,000 30,000
10,000
(A2)
$15,000

$15,000
$30,000
$45,000

Deferral
Parent
Parent
Parent
Sub
Sub
Sub
Amount
Percent
Profit
Profit
0%
Beginning .......................
$
$4,800
40
Ending ...........................
6,000
3,000
Amount
Percent
$16,000
10,000
30%
15,000
30
364
----------------------- Page 47-----------------------
Ch. 6Problems
Problem 6-12 Co
ntinued
Subsidiary Stock Company Income Dis

tribution
Amortizations ..............................
$ 72,000
$15,00
,000

4,800
000
Equipment gain ...........................

Realized gain ...............................
5,000
25,
Adjusted income ..........................

$ 38,800
(16,7
Net income ...................................
$ 22,080
3,456
$ 18,624

Controlling
NCI
Total
$31,040
$
7,760
$38,800
3,000
3,000
(3) Taxable income ......................................
$31,040
$
10,760
$41,800
(4) Tax ..........................................................
$12,416
4,304
$16,720
(5) Net income (line 1 line 4) .....................
$18,624
$
3,456
$22,080
Parent Penske Company Income Distr

ibution

Realized gain ..............................
$6,000
$159,000
,000
Adjusted income .........................
$161,000
Tax provision (40%) ....................

(64,4
Net income ..................................
$ 96,60
0
18,
624
Second tax on subsidiary
income ...................................
(1,4
$113,734
365
----------------------- Page 48-----------------------
Ch. 6Problems
Parent
Sub
$
4,800
$
3,840
$ 960
Amortizations (80%) ...........................................

24,000
24,000
Total ...................................................................
$28,800
$27,840
$ 960
First tax ..............................................................
$11,520
$11,136
$ 384
Second tax [20% 40% ($27,840 $11,136)]
1,336
$
1,336
$

24,000
Total ...................................................................
$24,000
First tax ..............................................................
9,600
9,600
Total RE adjustments ...............................................
$22,456
$22,072
$ 384
To current year:
$
(4,800) $
(3,840)
$ (960)
3,000
2,400
600
Fixed asset sale .................................................
25,000
20,000
5,000
(5,000)
(4,000)
$(1,000)
Amortizations (80%) ...........................................
12,000
12,000
Total ...................................................................
$30,200
$26,560
$
3,640
First tax ..............................................................
$12,080
$10,624
$
1,456
Second tax [20% 40% ($26,560 $10,624)]
1,275
$
1,275
$

6,000
Fixed asset sale .................................................

(8,000)
Total ...................................................................
$
(2,000)
First tax ..............................................................
$
(800)
$
(800)
Total adjustment to provision ...................................

$12,555
$11,099
$1,456
366
----------------------- Page 49-----------------------
Ch.
6Problems

Eliminations
Controlling
Consolidated
Consolidated
Tr
ial Balance
and Adjustments
Retained
Income
Balance
Penske
Stock
Cr.
Statement
Sheet
Dr.
NCI
Earnings
Cash .......................................................
91,760
78,400
..........
..........
.........
..........
.
170,160
.........

150,600
100,000
..........
18,000
.........
..........
.
232,600
(IA)
.........
Inventory ................................................
115,000
120,000
..........
9,000
.........
..........
.
226,000
(EI)
.........
Land .......................................................
100,000
120,000
..........
..........
.........
..........
.
220,000
.........
Investment in Stock ................................

29,680
..........
..........
34,560
.........
..........
.
..........
5
(CY1)
.........
.....
.....
..........
.
..........
(CY2)
.........
.....
..........
..........
.........
..........
349,120
.........
..........
.....
..........
154,000
8,000
.........
..........
..........
.....
(EL)
.........
..........
..........
.....
(D)
.........
..........
Buildings ................................................
00,000
250,000 (D1)
100,000
..........
.........
..........
.
1,250,000
90,000)
(80,000)
..........
15,000
.........
..........
.
(385,000)
Equipment ..............................................
210,000
120,000 (D2)
50,000 (F1)
65,000
.........
..........
.
315,000
40,000)
(100,000)
..........
30,000
.........
..........
.
..........
9
.........
(2
(A1)
.........
.........
(1
(A2)
.........
.....
.....
..........
.
..........
(F1)
.........
.....
..........
.
..........
16,000
..........
.........
..........
.....
(F2)
.........
(241,000)
13,000
..........
.........
Goodwill .................................................
.....
30,000 (D3)
42,500
..........
.........
..........
.
72,500
.....
.........

(50,000)
(40,000)(IA)
18,000
..........
.........
..........
.
(72,000)
.........

(64,240)
(28,800)
..........
..........
.........
..........
.
(93,040)
.........
Bonds Payable .......................................

.....
(100,000)
..........
..........
.........
..........
.
(100,000)
.....
.........

(6,375)
..........
(T1)
22,456
..........
.........
..........
.
.........
.....
.....
..........
.
..........
(T2)
.........
28,636
Common StockStock ..........................

...
(10,000)(EL)
..........
.........
..........
Paid-In Capital in Excess of ParStock
...
(190,000)(EL)
..........
.........
..........
12,555
..........
.........
.......
8,000
(2,000) ..........
.......
152,000
(38,000)
..........
Retained EarningsStock .....................

...
(236,400)(EL)
189,120(NCI)
38,500
.........
..........
..........
..........
.....
.....
(T1)
.........
..........
384
(BI)
.........
..........
960
..........
.......
.....
.....
..........
..........
(A1A2)
.........
..........
6,000
..........
..........
.....
.....
..........
..........
..........
(79,204)
.........
..........
..........
Common StockPenske .......................
,000)
..........
..........
.........
(100,000)
..........
..........
(100
Paid-In Capital in Excess of ParPenske

,000)
..........
..........
.........
(600,000)
..........
..........
..........
(600
..........
Retained EarningsPenske ..................

,230)
..........
(A1A2)
24,000
..........
.........
..........
..........
(739
..........
.....
.....
..........
22,072
(BI)
.........
..........
.....
..........
62)
..........
3,840 (T1)
..........
.........
.....
(F1)
.........
24,000
..........
(709,4
..........
367
----------------------- Page 50-----------------------
Ch. 6Problems
Pen
ske Company and Subsidiary Stock Company
Wor
ksheet for Consolidated Financial Statements
Concluded
Eliminations
Controlling
Consolidated
lidated
e
ncome
and Adjustments
Retained
Stock
tement
Dr.
NCI
Earnings
Conso
Trial Balanc
I
Balance
Penske
Cr.
Sheet
Sta
Sales ......................................................
(950,000)
(400,000)(IS)
100,000
..........
(1,250,000) ......
..........
..........
250,000
..........
(IS)
.........
..........
..........
..........
704,200
(EI)
..........
9,000 (BI)
..........
550,000
100,000
..........
..........
4,800
..........

10,000 (A1)
5,000
55,000
..........
..........
..........
..........

10,000 (A2)
10,000
.........
..........
..........
..........
..........
..........
32,000
..........
..........
(F2)
..........
Other Expenses .....................................

75,000
..........
251,000
..........
..........
40,000
25,000
..........
13,000
..........
176,000
..........
..........
..........
8,000
8,000
..........
..........
..........
..........
..........
Gain on Sale of Fixed Asset ...................

(25,000)(F1)
25,000
.........
..........
..........
..........
..........
..........
Provision for Income Taxes ....................

28,800
..........
(T2)
82,610
..........
..........
66,365
12,555
..........

..........
(CY1)
34,560
.........
..........
..........
(34,560)
..........
..........
Dividends DeclaredStock ...................

10,000
..........
(CY2)
.........
2,000
..........
..........
8,000
..........
Dividends DeclaredPenske.................
..........
..........
.........
..........
20,000
..........
..........
20,000
Totals ..................................................
0
0
873,991
873,991
.......
..........
..........
..........
..

.......................................................................
(117,190)
..........
..........
..........
...................................................................
3,456
(3,456) ..........
..........
To Controlling Interest (see distribution schedule) .........................
.............................................................
113,734
..........
(113,734)
..........
NCI ............................................................................
................................................................................
.......................... (120,660) ..........
(120,660)
................................................................................
.........
(803,196)
(803,196)
Totals ......................................................................
................................................................................
....................................................................
0

(BI)
ntory profit.
Defer beginning inve
(EI)
Defer ending invento
ry profit.
(CY1)

(F1)
Fixed asset profit a
(F2)
Fixed asset profit r
t beginning of year.
(CY2)
ealized.
(EL)

(T1)
Deferred tax asset (
liability) applicable to beginning

retained earnings.
(A)
Amortize excess.
(T2)
Deferred tax asset (
liability) applicable to current

(IS)
(IA)

year.
368

06 Fischer10e SM Ch06 Final

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----------------------- Page 1-----------------------

UNDERSTANDING THE ISSUES

1. (a) Investing activitiesPurchase of S Company ($800,000 $50,000) .........

3. Determination and Distribution of Excess Schedule, Investment in Company S

Determination and Distribution of Excess Schedule

Fair value of subsidiary .....................

Less book value of interest acquired:

Total equity .................................

Interest acquired ........................

Adjustment of identifiable accounts:

(a) Investing activitiesPurchase of S Company ($640,000 $50,000) .........

Noncash financing activitiesNoncontrolling interest ................

4. (a) Consolidated basic EPS = ($200,000 + $60,000) 100,000 shares = $2.60

5. (a) Consolidated DEPS = [$200,000 + (40,000 $1.43)] 100,000 shares = $2.5

6. (a) Consolidated net income = ($100,000 + $40,000) 70% = $98,000

Deferred Tax Asset ($50,000 30%) .................

At each period-end, the DTA would be converted to a tax expense as

Provision for Income Tax ($15,000 5) .............

Determination and Distribution of Excess Schedule, Investment in Rocket Company

Fair value of subsidiary .....................

Less book value of interest acquired:

Retained earnings .......................

Interest acquired .........................

Book value ........................................

Adjustment of identifiable accounts:

Goodwill ($625,000 fair

----------------------- Page 4-----------------------

Exercise 6-1, Conc

Batton Company and Subsidiary Rocket Com

Cash flows from operating activities:

Depreciation expense* .............................................

Total adjustments ...........................................

Net cash provided by operating activities ...................

Cash flows from investing activities:

Payment for purchase of Rocket Company,

Cash flows from financing activities:

Sale of stock (5,000 shares $60) ........................................

Dividend payments to controlling interests ..............................

Net cash used in financing activities .............................

Net increase in cash ...........................................................

Schedule of noncash investing activity:

Adjusted value of assets acquired ($710,000 book

Cash paid ......................................................................

Liabilities assumed ............................................................

Noncontrolling interest** ......................................................

Determination and Distribution of Excess Schedule, Investment in Panda Corporati

Fair value of subsidiary .....................

Less book value of interest acquired:

Total equity ............................

Book value ........................................

Adjustment of identifiable accounts:

*(5,000 shares $18) + $155,000

Exercise 6-2 Conc

Duckworth Corporation and Subsidiary Panda Corp

Cash flows from operating activities:

Decrease in inventory .............................................

Increase in current liabilities ...................................

Cash flows from investing activities:

Cash flows from financing activities:

By Panda, to NCI ...............................................

Net decrease in cash ...........................................................

Schedule of noncash investing activity:

Adjusted value of assets acquired ($270,000

book value + $106,250 excess) ............................................