Advanced Accounting Consolidated Financial Statements After Acquisition

Advanced Accounting
Chapter 4
Consolidated Financial
Statements After Acquisition
1
Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.
Learning Objectives
• Describe the accounting treatment required under
current GAAP for varying levels of influence or control
by investors.
• Prepare journal entries on the parent’s books to account
for an investment using the cost method, the partial
equity method, and the complete equity method.
• Understand the use of the workpaper in preparing
consolidated financial statements.
• Prepare a schedule for the computation and allocation of
the difference between implied and book values.
2
Learning Objectives
• Prepare the workpaper eliminating entries for the year of
acquisition (and subsequent years) for the cost and equity methods.
• Describe how to account for interim acquisitions of subsidiary
stock at the end of the first year.
• Explain how the consolidated statement of cash flows differs from
a single firm’s statement of cash flows.
• Understand how the reporting of an acquisition on the consolidated
statement of cash flows differs when stock is issued instead of cash
payment.
• Describe some of the differences between U.S. GAAP and IFRS in
accounting for equity investments.
3
Investments in Stock
• Investments in voting stock may be consolidated, or separately
reported at
– cost,
– fair value, or
– carrying value of equity.
• The method of reporting adopted depends on a number of factors
including
– size of investment
– extent to which the investor exercises control over activities of
the investee
– marketability of the securities.
4
Accounting for Investments by the Cost, Partial
Equity, and Complete Equity Methods
Ownership
Ownership Percentages
Percentages
0 --------------20% ------------ 50% -------------- 100%

No significant Significant Effective control
influence influence (no
control)
Investment Investment Investment recorded

valued using the measured under using cost method or
“cost” method equity method equity method
but with (investment
adjustments to eliminated in
fair value. consolidation)
LO 1 Varying levels of ownership are accounted for differently.

5
• When a company owns a sufficient amount of another
company’s stock to have significant influence (usually at
least 20%), but not enough to effectively control the other
company (less than 50% in most cases), the equity method is
required.
• Under FASB ASC paragraph 825-10-25-2, these equity
investments may alternatively be carried at fair value under
an irrevocable election to do so.
• Once the investor is deemed to have effective control over the
other company (with or without a majority of stock
ownership), consolidated statements are required.
6
• The parent company must account for its investment
income from the subsidiary in its own books by one of
the methods used for accounting for investments.
• Consolidated financial statements will be identical,
regardless of method used.
• However, if the parent issues parent-only financial
statements, the complete equity method should be used
for investees over which the parent has either
significant influence or effective control.

7
Accounting for Investments by the Cost
Method
E4-1: Percy Company purchased 80% of the outstanding voting shares
of Song Company at the beginning of 2014 for $387,000. At the time of
purchase, Song Company’s total stockholders’ equity amounted to
$475,000. Income and dividend distributions for Song Company from
2014 through 2016 are as follows:
2014 2015 2016
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
Dividend distribution 25,000 50,000 35,000
Required: Prepare journal entries for Percy Company from the date of
purchase through 2016 to account for its investment in Song Company
under each of the following assumptions:
LO 2 Journal entries for Parent using cost method.

8
Method
E4-1: A. Percy Company uses the cost method to record its
investment.
2014 2015 2016
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
2014 Investment in Song 387,000

Cash 387,000
Cash 20,000
Dividend income (.8 x $25,000) 20,000

9
Method
E4-1: A. Percy Company uses the cost method to record its
investment.
2014 2015 2016
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
2015 Cash 40,000
Dividend income (.8 x $50,000) 40,000
2016 Cash 28,000

Investment in Song (.8 x $35,000) 28,000
(liquidating dividend)

10
Accounting for Investments by Partial
Equity
E4-1: B. Percy Company uses the partial equity method to record its
investment.
2014 2015 2016
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
Cash 387,000
Investment in Song 50,800

Equity income (.8 x $63,500) 50,800
Cash 20,000
LO 2 Journal entries for Parent using partial equity method.
11
Equity
investment.
2014 2015 2016
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
Equity income (.8 x $52,500) 42,000
Cash 40,000

12
Equity
investment.
2014 2015 2016
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
2016 Equity loss (.8 x $55,000) 44,000
Cash 28,000

13
Accounting for Investments by Complete
Equity
E4-1: C. Percy Company uses the complete equity method to record
its investment. The difference between book value of equity acquired
and the value implied by the purchase price was attributed solely to an
excess of market over book values of depreciable assets, with a
remaining life of 10 years.
2014 2015 2016
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
The complete equity method is usually required to report common stock
investments in the 20% to 50% range, assuming the investor has the
ability to exercise significant influence and does not have effective
control over the investee.
LO 2 Journal entries for Parent using complete equity method.

14
Equity
its investment.
2014 2015 2016
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
Cash 387,000

Equity income (.8 x $63,500) 50,800
Cash 20,000
15
Equity
its investment.
A journal entry is required to adjust for depreciation related to the
excess of market over book values of depreciable assets.
Cost of investment $387,000

Book value acquired ($475,000 x 80%) 380,000
Difference between Cost and Book value $ 7,000
2014 Equity income ($7,000 / 10 yrs.) 700

Investment in Song 700

16
Equity
its investment.
2014 2015 2016
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
Equity income (.8 x $52,500) 42,000
Cash 40,000
Equity income ($7,000 / 10 yrs.) 700

17
Equity
its investment.
2014 2015 2016
Net income (loss) $ 63,500 $ 52,500 $ (55,000)
2016 Equity Loss (.8 x $55,000) 44,000
Cash 28,000
Equity income ($7,000 / 10) 700

18
Consolidated Statements After
Acquisition
• On the date of acquisition, the only relevant financial
statement is the consolidated balance sheet.
• After acquisition, a complete set of consolidated
financial statements must be prepared for the affiliated
group:
– Income Statement,
– Retained Earnings Statement,
– Balance Sheet, and
– Statement of Cash Flows.
LO 3 Use of workpapers.
19
Acquisition
Year of Acquisition—Cost Method
• P4-8: On January 1, 2012, Parker Company purchased 95%
of the outstanding common stock of Sid Company for
$160,000. At that time, Sid’s stockholders’ equity consisted
of common stock, $120,000; other contributed capital,
$10,000; and retained earnings, $23,000.
• Required: Prepare a consolidated statements workpaper on

A. Dec. 31, 2012.
B. Dec. 31, 2013.
LO 3 Use of workpapers.
20
Acquisition
P4-8: Begin the consolidating process by preparing a Computation and
Allocation Schedule, as follows: 95% 5% 100%
Parent NCI Total
Share Share Value
Purchase price and implied value $ 160,000 $ 8,421 $ 168,421
Less: Book value of equity acquired:

Common stock 114,000 6,000 120,000
Other contributed capital 9,500 500 10,000
Retained earings 21,850 1,150 23,000
Total book value 145,350 7,650 153,000
Difference between implied and book value 14,650 771 15,421

Record new goodwill (14,650) (771) (15,421)
Balance $ - $ - $ -
Difference between implied and book values is established

only at the date of acquisition.
LO 4 Preparing Computation and Allocation (CAD) Schedule.
21
Acquisition
Parker Sid
P4-8: A. 2012 Year of Acquisition Cash $ 62,000 $ 30,000
Accounts receivable 32,000 29,000
On December 31, 2012, the Inventory 30,000 16,000
Investment in Sid 160,000 -
two companies’ trial balances Plant and equipment 105,000 82,000
were as follows at right: Land 29,000 34,000
Dividends declared 20,000 20,000
Required A. Prepare a Cost of goods sold 130,000 40,000
Operating expenses 20,000 14,000
consolidated statements Total debits $ 588,000 $ 265,000
workpaper on December 31,
Accounts payable $ 19,000 $ 12,000
2012. Other liabilities 10,000 20,000
Common stock 180,000 120,000
Other contributed capital 60,000 10,000
Retained earnings 40,000 23,000
Sales 260,000 80,000
Dividend income 19,000 -
Total credits $ 588,000 $ 265,000
LO 5 Workpapers eliminating entries.

22
Acquisition
P4-8: A. 2012 Year of Acquisition
Eliminations Consolidated
Income Statement Parker Sid Debit Credit NCI Balances
Sales $ 260,000 $ 80,000 $ 340,000
Dividend income 19,000 19,000 -
Total revenue 279,000 80,000 340,000
Cost of goods sold 130,000 40,000 170,000
Other expenses 20,000 14,000 34,000
Total cost and expense 150,000 54,000 204,000
Net income 129,000 26,000 136,000
Noncontrolling interest 1,300 (1,300)
Net income $ 129,000 $ 26,000 $ 19,000 $ - $ 1,300 $ 134,700
Retained Earnings Statement

Retained earnings, 1/1/12 40,000 23,000 23,000 40,000
Net income 129,000 26,000 19,000 1,300 134,700
Dividends declared (20,000) (20,000) 19,000 (1,000) (20,000)
Retained earnings, 12/31/12 $ 149,000 $ 29,000 $ 42,000 $ 19,000 $ 300 $ 154,700

23
Acquisition
Balance Sheet Parker Sid Debit Credit NCI Balances
Cash $ 62,000 $ 30,000 $ 92,000
Accounts receivable 32,000 29,000 61,000
Inventory 30,000 16,000 46,000
Investment in Sid 160,000 - 160,000 -
Difference (cost & book) 15,421 15,421 -
Plant and equipment 105,000 82,000 187,000
Land 29,000 34,000 63,000
Goodwill 15,421 15,421
Total assets $ 418,000 $ 191,000 $ 464,421
Accounts payable $ 19,000 $ 12,000 $ 31,000

Other liabilities 10,000 20,000 30,000
Common stock 180,000 120,000 120,000 180,000
Other contributed capital 60,000 10,000 10,000 60,000
Retained earnings 149,000 29,000 42,000 19,000 300 154,700
Noncontrolling interest 1/1 8,421 8,421 -
Noncontrolling interest 12/31 $ 8,721 8,721
Total liabilities & equity $ 418,000 $ 191,000 $ 202,842 $ 202,842 $ 464,421
24
Acquisition
Workpaper Observations
1. Each section of the workpaper represents one of three
consolidated financial statements.
2. Elimination of the investment account.
Common stock 120,000

Other contributed capital 10,000
Retained earnings, 1/1 23,000
Difference between Implied and Book 15,421
Noncontrolling interest in equity 8,421
Investment in Sid 160,000

25
Acquisition
Workpaper Observations (continued)
3. Allocation of the difference between implied and book value:
Goodwill 15,421
Difference between Implied and Book Value 15,421
4. Elimination of intercompany dividends
Dividend income 19,000

Dividends declared – Sid Company 19,000

26
Acquisition
5. Noncontrolling interest in consolidated net income:
Internally generated income of Sid Company $26,000

Noncontrolling percentage owned 5%
Noncontrolling interest in income $ 1,300

27
Acquisition
6. Consolidated retained earnings:
Parker Company’s retained earnings, 1/1 $ 40,000

+ Parker’s income 129,000
- Dividends from Sid Company - 19,000
+ Parker’s percentage of Sid income (95%) 24,700
- Parker’s dividends declared - 20,000
Parker Company’s retained earnings, 12/31 $154,700

28
Acquisition
7. Total eliminations for all three sections are in balance.
8. To calculate the noncontrolling interest in net assets or equity
at year-end, compute the following:
NCI at Acquisition Date $ 8,421

+ NCI share of Sid income ($26,000 x 5%) 1,300
- NCI share of Sid dividends ($20,000 x 5%) -1,000
Noncontrolling Interest in Equity $ 8,721

29
Acquisition
Parker Sid
After Year of Cash $ 67,000 $ 16,000
Acquisition – Cost Accounts receivable 56,000 32,000
Inventory 38,000 48,500
Method Investment in Sid 160,000 -
Plant and equipment 124,000 80,000
P4-8: B. 2013 Land 29,000 34,000
On December 31, 2013, the Cost of goods sold 155,000 52,000
two companies’ trial balances Operating expenses 30,000 18,000
Total debits $ 679,000 $ 300,500
were as follows at right:
Accounts payable $ 16,000 $ 7,000
Required B. Prepare a Other liabilities 15,000 14,500
consolidated statements Common stock 180,000 120,000
workpaper on December 31, Retained earnings 149,000 29,000
2013. Sales 240,000 120,000
Dividend income 19,000 -
Total credits $ 679,000 $ 300,500
LO 5 Workpapers eliminating entries after acquisition (cost method).

30
Acquisition
P4-8: B. 2013 After Year of Acquisition
Sales $ 240,000 $ 120,000 $ 360,000
Dividend income 19,000 19,000 -
Total revenue 259,000 120,000 360,000
Other expenses 30,000 18,000 48,000
Net income 74,000 50,000 105,000
Net income $ 74,000 $ 50,000 $ 19,000 $ - $ 2,500 $ 102,500

Retained earnings, 1/1/13 149,000 29,000 29,000 5,700 154,700
Net income 74,000 50,000 19,000 2,500 102,500
Retained earnings, 12/31/13 $ 203,000 $ 59,000 $ 48,000 $ 24,700 $ 1,500 $ 237,200

31
Acquisition
P4-8: B. 2013 After Year of Acquisition Eliminations Consolidated
Cash $ 67,000 $ 16,000 $ 83,000
Inventory 38,000 48,500 86,500
Investment in Sid 160,000 - 5,700 165,700 -
Land 29,000 34,000 63,000
Goodwill 15,421 15,421
Total assets $ 474,000 $ 210,500 $ 539,921

Common stock 180,000 120,000 120,000 180,000
Retained earnings 203,000 59,000 48,000 24,700 1,500 237,200
Noncontrolling interest 1/1 8,721 8,721
32
Acquisition
1. Before elimination of the investment account, a workpaper entry is
made to the investment account and Parker Company’s beginning
retained earnings to recognize Parker’s share of the cumulative
undistributed income or loss of Sid Company from the date of
acquisition to the beginning of the current year as follows:
Investment in Sid Company 5,700

Retained earnings, 1/1 5,700
($29,000 – $23,000 ) X .95 = $5,700 Entry to establish
Reciprocity

33
Acquisition
• The following workpaper entries are also made:
1) Eliminate investment in Sid Company.
2) Eliminate intercompany dividends.
3) Allocate difference between cost and book value.
4) All (100%) of Sid’s revenues, expenses, assets, and
liabilities are included in the consolidated totals.
The noncontrolling interest’s share of income and
net assets are shown as separate line items.

34
Recording Investments – Equity
Method
Investment Carried at Equity—Year of Acquisition
P4-12: On January 1, 2012, Parker Company purchased 90% of the
outstanding common stock of Sid Company for $180,000. At that
time, Sid’s stockholders’ equity consisted of common stock,
$120,000; other contributed capital, $20,000; and retained earnings,
$25,000. Assume that any difference between book value of equity
and the value implied by the purchase price is attributable to land.
• Required: Prepare a consolidated statements workpaper on

A. Dec. 31, 2012.
B. Dec. 31, 2013.
LO 5 Workpaper eliminating entries (equity method).
35
Method
P4-12: Begin the consolidating process by preparing a Computation and
Allocation Schedule, as follows: 90% 10% 100%
Parent NCI Total
Share Share Value

Common stock 108,000 12,000 120,000
Other contributed capital 18,000 2,000 20,000
Total book value 148,500 16,500 165,000
Difference between implied and book value 31,500 3,500 35,000

Allocated to land (31,500) (3,500) (35,000)
Balance $ - $ - $ -
Difference between implied and book values is

established only at the date of acquisition.
36
Method
P4-12: A. 2010 Year of Parker Sid
Acquisition Cash $ 65,000 $ 35,000
Inventory 25,000 15,000
On December 31, 2012, the Investment in Sid 184,500 -
two companies’ trial balances Plant and equipment 110,000 85,000
Land 48,500 45,000
were as follows: Dividends declared 20,000 15,000
Cost of goods sold 150,000 60,000
Required A. Prepare a Operating expenses 35,000 15,000
consolidated statements Total debits $ 678,000 $ 300,000
workpaper on December 31, Accounts payable $ 20,000 $ 15,000

2012. Other liabilities 15,000 25,000
Common stock 200,000 120,000
Sales 300,000 95,000
Equity in subsidiary income 18,000 -
Total credits $ 678,000 $ 300,000

37
Method
Sales $ 300,000 $ 95,000 $ 395,000
Equity in subsidiary income 18,000 18,000 -
Total revenue 318,000 95,000 395,000
Other expenses 35,000 15,000 50,000
Net income 133,000 20,000 135,000
Net income $ 133,000 $ 20,000 $ 18,000 $ - $ 2,000 $ 133,000

Net income 133,000 20,000 18,000 2,000 133,000
Retained earnings, 12/31/12 $ 168,000 $ 30,000 $ 43,000 $ 13,500 $ 500 $ 168,000

38
Method
Cash $ 65,000 $ 35,000 $ 100,000
Inventory 25,000 15,000 40,000
180,000
Land 48,500 45,000 35,000 128,500
Total assets $ 473,000 $ 210,000 $ 533,500

Common stock 200,000 120,000 120,000 200,000
Retained earnings 168,000 30,000 43,000 13,500 500 168,000

39
Method
• The following workpaper entries were made:
To eliminate the account “equity in subsidiary
income” and intercompany dividends.
To eliminate the investment account against
subsidiary equity.
To distribute the difference between implied and
book value of equity acquired.

40
Method
Parker Sid
Investment Carried at Cash $ 70,000 $ 20,000
Equity—After Year of Inventory 40,000 30,000
Acquisition Investment in Sid 193,500 -
Plant and equipment 125,000 90,000
Land 48,500 45,000
P4-12: B. 2013
Cost of goods sold 160,000 65,000
On December 31, 2013, the Operating expenses 35,000 20,000
two companies’ trial balances Total debits $ 752,000 $ 320,000
were as follows at right: Accounts payable $ 16,500 $ 16,000

Other liabilities 15,000 24,000
Required B. Prepare a
Common stock 200,000 120,000
consolidated statements Other contributed capital 70,000 20,000
workpaper on December 31,
Sales 260,000 110,000
2013. Equity in subsidiary income 22,500 -
Total credits $ 752,000 $ 320,000

41
Method
P4-12: B. 2013 After Year of Acquisition
Sales $ 260,000 $ 110,000 $ 370,000
Total revenue 282,500 110,000 370,000
Other expenses 35,000 20,000 55,000
Net income 87,500 25,000 90,000
Net income $ 87,500 $ 25,000 $ 22,500 $ - $ 2,500 $ 87,500

Net income 87,500 25,000 22,500 2,500 87,500
Retained earnings, 12/31/13 $ 235,500 $ 40,000 $ 52,500 $ 13,500 $ 1,000 $ 235,500

42
Method
P4-12: B. 2013 After Year of Eliminations Consolidated
Acquisition
Cash $ 70,000 $ 20,000 $ 90,000
Inventory 40,000 30,000 70,000
184,500
Land 48,500 45,000 35,000 128,500
Total assets $ 537,000 $ 220,000 $ 598,500

Common stock 200,000 120,000 120,000 200,000
43
Interim Acquisitions of Subsidiary
Stock
•FASB requires that the consolidated financial statements
include the subsidiary’s revenues, expenses, gains, and
losses only from the date of acquisition (FASB ASC
paragraph 810-10-45-4).
•To accomplish this, the subsidiary usually closes the

books on the date of acquisition
–i.e. preacquisition income is closed to retained
earnings.
LO 6 Interim acquisitions of subsidiary stock.

44
Stock
Equity Method— Pillow Satin
Interim Purchase Cash $ 390,600 $ 179,200
Treasury stock at cost 32,000
Investment in Satin 510,000 -
P4-15: Plant and equipment 1,334,000 562,000
Cost of goods sold 1,261,000 584,000
Pillow Company purchased
Operating expenses 484,000 242,000
90% of the common stock of Dividends declared - 60,000
Satin Company on May 1, Total debits $ 3,979,600 $ 1,659,200
2011, for a cash payment of Accounts and notes payable $ 270,240 $ 124,000
$474,000. December 31, 2011, Dividends payable - 60,000
Common stock 1,000,000 200,000
trial balances for Pillow and Other contributed capital 364,000 90,000
Satin were: Retained earnings 315,360 209,200
Sales 1,940,000 976,000
Equity in subsidiary income 90,000 -
Total credits $ 3,979,600 $ 1,659,200

45
Stock
P4-15:
• Satin Company declared a $60,000 cash dividend on
December 20, 2011, payable on January 10, 2012, to
stockholders of record on December 31, 2011. Pillow
Company recognized the dividend on its declaration date.
Any difference between book value and the value implied by
the purchase price relates to subsidiary land, included in
property and equipment. Income is earned evenly throughout
the year.
• Required: Prepare a consolidated statements workpaper at
December 31, 2011.
46
Stock
P4-15: Computation and Allocation of Difference between Cost and Book
Value Acquired: 90% 10% 100%
Parent NCI Total
Share Share Value

Common stock 180,000 20,000 200,000
Other contributed capital 81,000 9,000 90,000
Treasury stock (28,800) (3,200) (32,000)
Subsidiary income 1/1 to 5/1 45,000 5,000 50,000
Total book value 465,480 51,720 517,200
Difference between implied and book value 8,520 947 9,467

Allocated to land (8,520) (947) (9,467)
Balance $ - $ - $ -

47
Stock
P4-15: Workpaper – Interim Basis, Partial Equity Method
Income Statement Pillow Satin Debit Credit NCI Balances
Sales $ 1,940,000 $ 976,000 $ 2,916,000
Total revenue 2,030,000 976,000 2,916,000
Cost of goods sold 1,261,000 584,000 1,845,000
Other expenses 484,000 242,000 726,000
Total cost and expense 1,745,000 826,000 2,571,000
Net income 285,000 150,000 345,000
Net income purchased 45,000 (45,000)
Net income $ 285,000 $ 150,000 $ 135,000 $ - $ 15,000 $ 285,000

Retained earnings, 1/1 315,360 209,200 209,200 315,360
Net income 285,000 150,000 135,000 15,000 285,000
Dividends declared - (60,000) 54,000 (6,000) -
Retained earnings, 12/31 $ 600,360 $ 299,200 $ 344,200 $ 54,000 $ 9,000 $ 600,360
48
Stock
P4-15: Workpaper – Interim Basis, Partial Equity Method
Balance Sheet Pillow Satin Debit Credit NCI Balances
Current assets $ 390,600 $ 179,200 54,000 $ 515,800
Investment in Satin 510,000 474,000 -
36,000
Plant and equipment 1,334,000 562,000 9,467 1,905,467
Total assets $ 2,234,600 $ 741,200 $ 2,421,267
Accounts and notes payable $ 270,240 $ 124,000 $ 394,240

Dividends payable 60,000 54,000 6,000
Common stock 1,000,000 200,000 200,000 1,000,000
Treasury stock (32,000) 32,000 -
Total liabilities & equity $ 2,234,600 $ 741,200 $ 707,134 $ 707,134 $ 2,421,267
49

Advanced Accounting Consolidated Financial Statements After Acquisition

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Advanced Accounting Consolidated Financial Statements After Acquisition

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Advanced Accounting

0 --------------20% ------------ 50% -------------- 100%

Investment Investment Investment recorded

LO 1 Varying levels of ownership are accounted for differently.

LO 1 Varying levels of ownership are accounted for differently.

LO 2 Journal entries for Parent using cost method.

2014 Investment in Song 387,000

LO 2 Journal entries for Parent using cost method.

2016 Cash 28,000

LO 2 Journal entries for Parent using cost method.

Investment in Song 50,800

LO 2 Journal entries for Parent using partial equity method.

LO 2 Journal entries for Parent using partial equity method.

LO 2 Journal entries for Parent using complete equity method.

Investment in Song 50,800

Cost of investment $387,000

2014 Equity income ($7,000 / 10 yrs.) 700

LO 2 Journal entries for Parent using complete equity method.

Equity income ($7,000 / 10 yrs.) 700

Equity income ($7,000 / 10) 700

• Required: Prepare a consolidated statements workpaper on

Less: Book value of equity acquired:

Difference between implied and book value 14,650 771 15,421

Difference between implied and book values is established

LO 5 Workpapers eliminating entries.

Retained Earnings Statement

LO 5 Workpapers eliminating entries.

Accounts payable $ 19,000 $ 12,000 $ 31,000

Common stock 120,000

LO 5 Workpapers eliminating entries.

4. Elimination of intercompany dividends

Dividend income 19,000

LO 5 Workpapers eliminating entries.

Internally generated income of Sid Company $26,000

LO 5 Workpapers eliminating entries.

Parker Company’s retained earnings, 1/1 $ 40,000

LO 5 Workpapers eliminating entries.

NCI at Acquisition Date $ 8,421

LO 5 Workpapers eliminating entries.

LO 5 Workpapers eliminating entries after acquisition (cost method).

Retained Earnings Statement

LO 5 Workpapers eliminating entries after acquisition (cost method).

Accounts payable $ 16,000 $ 7,000 $ 23,000

Investment in Sid Company 5,700

LO 5 Workpapers eliminating entries after acquisition (cost method).

LO 5 Workpapers eliminating entries after acquisition (cost method).

• Required: Prepare a consolidated statements workpaper on

Less: Book value of equity acquired:

Difference between implied and book value 31,500 3,500 35,000

Difference between implied and book values is

workpaper on December 31, Accounts payable $ 20,000 $ 15,000

LO 5 Workpaper eliminating entries (equity method).

Retained Earnings Statement

LO 5 Workpaper eliminating entries (equity method).

Accounts payable $ 20,000 $ 15,000 $ 35,000

LO 5 Workpaper eliminating entries (equity method).

LO 5 Workpaper eliminating entries (equity method).

were as follows at right: Accounts payable $ 16,500 $ 16,000

LO 5 Workpaper eliminating entries (equity method).

Retained Earnings Statement

LO 5 Workpaper eliminating entries (equity method).

Accounts payable $ 16,500 $ 16,000 $ 32,500

•To accomplish this, the subsidiary usually closes the