Test bank Advanced Accounting 10e by Beams Chapter 04

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(1)To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 4 Test Bank CONSOLIDATION TECHNIQUES AND PROCEDURES Multiple Choice Questions LO1 1. Which of the following will be debited account when the equity method is used? a. b. c. d. LO1 2. Investee net losses. Investee net profits. Investee declaration of dividends. Depreciation of excess purchase investee equipment. to cost the Investment attributable to A parent company uses the equity method to account for its wholly-owned subsidiary. The company correctly uses this method and has fully reflected all items of subsidiary gain, loss, income, deductions, and dividends. If the parent company is preparing the consolidation working papers, which of the following will be a correct working paper procedure for the Investment account? a. A debit for a subsidiary loss and a credit for dividends received. b. A credit for subsidiary income and a debit for dividends received. c. A debit for subsidiary dividends received and a credit for a subsidiary loss. d. A credit for a subsidiary loss and a credit for dividends received. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-1

(2) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 3. A parent corporation owns 55% of the outstanding voting common stock of one domestic subsidiary, but does not control the subsidiary because it is in bankruptcy. Which of the following statements is correct? a. The parent corporation must still prepare consolidated financial statements for the economic entity. b. The parent corporation must stop using the equity method of accounting for the subsidiary and start using the cost method. c. The parent company may continue to use the equity method but the subsidiary cannot be consolidated. d. The parent company would suspend the operation of the Investment account until notified by the bankruptcy court that the subsidiary has emerged from bankruptcy. LO1 Use the following information to answer questions 4 through 9. On January 1, 2005, Finch Corporation purchased 75% of the common stock of Grass Co. Separate balance sheet data for the companies at the combination date are given below: Cash Accounts Receivable Inventory Land Plant assets Accum. Depreciation Investment in Lapp Total assets Accounts payable Capital stock Retained earnings Total liabilities & equities $ ( $ $ $ Finch 24,000 144,000 132,000 68,000 700,000 240,000 ) 392,000 1,230,000 ( Grass 206,000 26,000 38,000 32,000 300,000 60,000 ) $ 542,000 $ 142,000 300,000 100,000 542,000 $ 206,000 800,000 224,000 1,230,000 $ At the date of combination, the book values of Grass’s net assets were equal to the fair value except for Grass’s inventory, which had a fair value of $60,000. Determine below what the consolidated balance would be for each of the requested accounts. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-2

(3) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 4. What amount of Inventory will be reported? a. b. c. d. 5. What amount of Goodwill will be reported? a. b. c. d. 6. $ 69,333. $100,000. $130,666. $150,000. What is the amount of consolidated Retained Earnings? a. b. c. d. 9. $206,000. $261,000. $302,500. $348,000. What is the reported amount for the minority interest? a. b. c. d. 8. $10,500. $20,000. $42,000. $75,500. What amount of total liabilities will be reported? a. b. c. d. 7. $170,000. $169,000. $186,500. $192,000. $224,000. $299,000. $324,000. $346,666. What is the amount of total assets? a. b. c. d. $1,244,500. $1,380,000. $1,472,000. $1,762,000. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-3

(4) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO2 10. Bird Corporation has several subsidiaries that are included in its consolidated financial statements and several other investments in corporations that are not consolidated. In its year-end trial balance, the following intercompany balances appear. Ostrich Corporation is the unconsolidated company; the rest are consolidated. Due from Pheasant Corporation Due from Turkey Corporation Cash advance to Skylark Company Cash advance to Starling Current receivable from Ostrich $ 25,000 5,000 8,000 15,000 10,000 What amount should Bird report as intercompany receivables on its consolidated balance sheet? a. b. c. d. LO3 11. $0. $10,000. $30,000. $63,000. The majority of errors in consolidated statements a. result because the Investment in Subsidiary account on the parent’s books and the subsidiary equity accounts on the subsidiary’s books are reciprocal. b. have conceptual problems from the minority interest representation of the equity investment in consolidated net assets by stockholders outside the affiliation structure. c. involve the amortization of book/market differences. d. appear when the consolidated balance sheet does not balance. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-4

(5) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO3 12. At the beginning of 2005, Starling Inc. acquired an 80% interest in Orchard Corporation when the book values of identifiable net assets equaled their fair values. On December 26, 2005, Orchard declared dividends of $50,000, and the dividends were unpaid at year-end. Starling had not recorded the dividend receivable at December 31. A consolidated working paper entry is necessary to a. enter $50,000 dividends receivable in the consolidated balance sheet. b. enter $40,000 dividends receivable in the consolidated balance sheet. c. reduce the dividends payable account by $40,000 in the consolidated balance sheet. d. eliminate the dividend payable account from the consolidated balance sheet. LO3 13. A parent company uses the equity method to account for its wholly-owned subsidiary, but has applied it incorrectly. In each of the past four full years, the company adjusted the Investment account when it received dividends from the subsidiary but did not adjust the account for any of the subsidiary’s profits. The subsidiary had four years of profits and paid yearly dividends in amounts that were less than reported net incomes. Which one of the following statements is correct if the parent company discovered its mistake at the end of the fourth year, and is now preparing consolidation working papers? a. The parent company's Retained Earnings will be increased by the cumulative total of four years of subsidiary profits. b. The parent company's Retained Earnings will be increased by the cumulative total of the first three years of subsidiary profit, and the Subsidiary Income account will be increased by the profit for the current year. c. The parent company's Subsidiary Income account will be increased by the cumulative total of four years of subsidiary profits. d. A prior period adjustment must be recorded for the cumulative effect of four years of accounting errors. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-5

(6) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO4 14. Pigeon Corporation acquired a 60% interest in Home Company on January 1, 2005, for $70,000 cash when Home had Capital Stock of $60,000 and Retained Earnings of $40,000. All excess purchase cost was attributable to equipment with a 10-year (straight-line) life. Home suffered a $10,000 net loss in 2005 and paid no dividends. At year-end 2005, Home owed Pigeon $12,000 on account. Pigeon’s separate income for 2005 was $150,000. Consolidated net income for 2005 was a. b. c. d. LO4 15. $135,800. $136,800. $143,000. $144,000. On consolidated working papers, a subsidiary’s income has a. to be reduced from beginning retained earnings. b. to be completely eliminated. c. to have an allocation between the noncontrolling interest share and the parent’s share (which is eliminated). d. only an entry in the parent company's general ledger. LO4 16. Which one of the following will increase consolidated retained earnings? a. An increase in the value of goodwill subsequent to the parent's date of acquisition. b. The amortization of a $10,000 excess in the fair value of a note payable over its recorded book value. c. The depreciation of a $10,000 excess in the fair value of equipment over its recorded book value. d. The sale of inventory by a subsidiary that had a $10,000 excess in fair value over recorded book value on the parent's date of acquisition. LO5 17. In contrast with single entity organizations, consolidated financial statements include which of the following in the calculation of cash flows from operating activities under the direct method? a. b. c. d. The change in the balance sheet of the investee account. Noncontrolling interest dividends. Noncontrolling interest income expense. Cash dividends from equity investees. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-6

(7) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO5 18. In contrast with single entity organizations, consolidated financial statements include which of the following in the calculation of cash flows from operating activities under the indirect method? a. b. c. d. LO5 19. In contrast with single entity organizations, in preparing consolidated financial statements which of the following is a subtraction in the calculation of cash flows from operating activities under the indirect method? a. b. c. d. LO6 20. new The change in the balance sheet of the investee account. Noncontrolling interest dividends. Noncontrolling interest income expense. Cash dividends from equity investees. The change in the balance sheet of the investee account. Noncontrolling interest dividends. Noncontrolling interest income expense. Undistributed income of equity investees. Which of the following would be used if the trial balance approach is followed? a. b. c. d. Post-closing trial balances. Adjusted trial balances. Unadjusted trial balances. All of the above are used equally. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-7

(8) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 Exercise 1 Parrot Corporation acquired 80% of Hollow Co. on January 1, 2005 for $24,000 cash when Hollow’s stockholders’ equity consisted of $10,000 of Common Stock and $3,000 of Retained Earnings. The difference between the price paid by Parrot and the underlying equity acquired in Hollow was allocated solely to a patent amortized over 10 years. The separate company statements for Parrot and Hollow appear in the first two columns of the partially completed consolidation working papers. Required: Complete the consolidation working papers for Parrot and Hollow for the year 2005. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-8

(9) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Parrot Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Parrot Hollow Debit Credit INCOME STATEMENT Sales 20,000 $ Income of Hollow $15,000 3,680 ( ( Cost of Sales Other Expenses Net income Retained Earnings 1/1 Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash Accounts Receivable-net NonCntl. ( $ Inventories 9,200) ( 2,300) ( 4,700) 4,000) 12,180 6,300 11,000 3,000 12,180 6,300 3,000) ( 2,000) 20,180 $ 7,300 2,000 1,900 12,000 5,500 14,000 8,000 27,000 42,000 60,000 43,000 Patent Land Equipment and Buildings-net Investment in Hollow Co. TOTAL ASSETS LIAB. & EQUITY Accounts payable Capital Stock Retained Earnings 1/1 Noncontrol. Interest 26,080 $ 141,080 $100,400 90,900 83,100 30,000 10,000 20,180 7,300 12/31 Noncontrol. Interest TOTAL LIAB. & EQUITY $ 141,080 $100,400 ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-9 Consolidated

(10) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO2 Exercise 2 Cuckoo Company acquired all the voting stock of Perch Corporation on January 1, 2004 for $70,000 when Perch had Capital Stock of $50,000 and Retained Earnings of $8,000. The excess of cost over book value was allocated $3,000 to inventories that were sold in 2004, $4,000 to equipment with a 4-year remaining useful life under the straight-line method, and the remainder to goodwill. Financial statements for Cuckoo and Perch at the end of the fiscal year ended December 31, 2005 (two years after acquisition), appear in the first two columns of the partially completed consolidation working papers. Cuckoo has accounted for its investment in Slim using an incomplete equity method of accounting. Required: Complete the Subsidiary. consolidation working papers for Cuckoo Company ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-10 and

(11) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Cuckoo Company and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Cuckoo Perch Debit Credit INCOME STATEMENT Sales $ 206,000 Income from Perch 12,000 $ 60,000 Cost of Sales (150,000) ( 30,000) Other expenses ( 38,000) ( 18,000) Net income Cuckoo Retained Earnings 1/1 Perch Retained Earnings Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Other current assets 30,000 12,000 24,000 10,000 $ 30,000 ( 20,000) ( $ 34,000 $ 12,000 4,000) $ 18,000 14,000 7,000 Inventories 21,000 15,000 Land Equipment and Buildings-net Investment in Perch Corp. 11,000 6,000 64,000 55,000 TOTAL ASSETS LIAB. & EQUITY Liabilities Capital Stock Retained Earnings TOTAL LIAB. & EQUITY NonCntl 80,000 $ 190,000 $ 83,000 56,000 15,000 100,000 50,000 34,000 18,000 190,000 83,000 ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-11 Consolidated

(12) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO2 Exercise 3 Owl Corporation acquired 90% of the voting stock of Hunt Corporation on January 1, 2004 for $7,000 when Hunt had Capital Stock of $5,000 and Retained Earnings of $1,500. The excess of cost over book value was allocated $150 to inventories that were sold in 2004, $200 to undervalued land, $400 to undervalued equipment with a remaining useful life of 5 years under the straight-line method, and the remainder to goodwill. Financial statements for Owl and Hunt Corporations at the end of the fiscal year ended December 31, 2005 appear in the first two columns of the partially completed consolidation working papers. Owl has accounted for its investment in Hunt using the equity method of accounting. Owl Corporation owed Hunt Corporation $100 on open account at the end of the year. Dividends receivable in the amount of $450 payable from Hunt to Owl is included in Owl’s net receivables. Required: Complete the consolidation working papers for Owl Corporation and Subsidiary. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-12

(13) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Owl Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Owl Hunt Debit Credit INCOME STATEMENT Sales $ 10,000 Income from Hunt $ 6,500 1,270 Cost of Sales Depreciation expense ( 4,000) ( 3,300) ( 1,000) ( 1,000) Other expenses ( 1,800) ( 700) Net income Retained Earnings 1/1 Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash ( $ 4,470 1,500 2,510 2,000 4,470 1,500 2,000) ( 1,000) 4,980 $ 2,500 1,440 1,900 Receivables-net 1,550 600 Inventories 1,500 1,200 Land Equipment and Buildings-net Investment in Hunt Corporation TOTAL ASSETS $ LIAB. & EQUITY Accounts payable Dividends payable 1,000 600 7,500 5,700 7,590 20,580 $10,000 3,000 2,000 1,000 500 11,600 5,000 4,980 20,580 2,500 $10,000 Capital Stock Retained Earnings LIAB. & EQUITY NonCntl $ ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-13 Consolidated

(14) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO3 Exercise 4 Koel Corporation acquired all the voting stock of Rain Company for $500,000 on January 1, 2005 when Rain had Capital Stock of $300,000 and Retained Earnings of $150,000. Rain’s assets and liabilities were fairly valued except for the plant assets. The entire cost-book differential is allocated to plant assets and is fully depreciated on a straight-line basis over a 10-year period. During 2005, Koel borrowed $25,000 on a short-term non-interestbearing note from Rain, and on December 31, 2005, Koel mailed a check to Rain to settle the note. Rain deposited the check on January 5, 2006, but receipt of payment of the note was not reflected in Rain’s December 31, 2005 balance sheet. Required: Complete the consolidation working papers. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-14

(15) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Koel Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Koel Rain Debit Credit INCOME STATEMENT Sales $ 500,000 Income from Rain 135,000 $400,000 Cost of Sales (350,000) (200,000) Other expenses (100,000) (60,000) Net income 185,000 Koel Retained Earnings 1/1 Rain Retained Earnings Add: Net income Less: Dividends Retained Earnings 12/31 150,000 $ 185,000 $140,000 (70,000) $ 485,000 $220,000 25,000 210,000 300,000 200,000 425,000 565,000 $ Capital Stock Retained Earnings TOTAL EQUITIES 140,000 300,000 BALANCE SHEET Note Receivable from Koel Other current assets Plant assetsnet Investment in Rain Company TOTAL ASSETS EQUITIES Liabilities NonCntl $ 975,000 $750,000 290,000 230,000 200,000 300,000 485,000 220,000 975,000 $750,000 ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-15 Balance Sheet

(16) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO4 Exercise 5 Owl Corporation acquired 90% of Barn Corporation on January 1, 2005 for $72,000 cash when Barn’s stockholders’ equity consisted of $30,000 of Common Stock and $30,000 of Retained Earnings. The difference between the price paid by Owl and the underlying equity acquired in Barn was allocated to a plant asset with a remaining 10year straight-line life that was overvalued by $5,000. The remainder was attributable to goodwill. The separate company statements for Owl and Barn appear in the first two columns of the partially completed consolidation working papers. Required: Complete the consolidation working papers for Owl and Barn for the year 2005. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-16

(17) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Owl Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Owl Barn Debit Credit INCOME STATEMENT Sales $ 60,000 Income of Barn 3,510 Cost of Sales Depreciation Expense Other Expenses Net income Retained Earnings 1/1 Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash Accounts Receivable-net $22,000 ( 13,000) ( 9,500) ( 2,000) ( 3,000) ( 23,000) ( 6,100) 25,510 3,400 25,000 30,000 25,510 3,400 ( 15,000) ( 3,000) 35,510 $30,400 26,520 7,000 22,000 10,000 Inventories 20,000 14,000 Land Equipment and Buildings-net Investment in Barn Corporation TOTAL ASSETS $ LIAB. & EQUITY Accounts payable Capital Stock Retained Earnings Noncontrolling Interest $ TOTAL LIAB. & EQUITY 27,000 42,000 70,000 38,000 72,810 238,330 $111,000 32,820 50,600 170,000 30,000 35,510 30,400 238,330 $111,000 $ ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-17 Min Int Consolidated

(18) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO4 Exercise 6 Lorikeet Company has the following information collected in order to do make a cash flow statement and uses the direct format for Cash Flow from Operations. The annual report year end is December 31, 2005. Noncontrolling Interest Dividends Dividends Received from Equity Investees Cash Paid to Employees Cash Paid for Other Operating Activities Cash Paid for Interest Expense Cash Proceeds from the Sale of Equipment Cash Paid to Suppliers Cash Received from Customers $20,000 17,000 37,000 34,000 22,300 70,000 192,700 412,600 Required: 1. Prepare the Cash Flow for Operations part of the cash flow statement for Lorikeet. LO4 Exercise 7 Bronzewing Company has the following information collected in order to do make a cash flow statement and uses the indirect format for Cash Flow from Operations. The annual report year end is December 31, 2005. Noncontrolling Interest Dividends Undistributed Income of Equity Investees Depreciation Expense Consolidated Net Income Increase in Accounts Payable Amortization of Patent Decrease in Accounts Receivable Increase in Inventories Gain on sale of equipment Noncontrolling Interest Expense $17,000 7,500 65,000 175,000 15,000 13,000 48,000 27,500 45,000 17,000 Required: 1. Prepare the Cash Flow for Operations part of the cash flow statement for Bronzewing. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-18

(19) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO6 Exercise 8 Swift Corporation paid $88,500 for a 70% interest in Cave Corporation on January 1, 2005, when Cave’s Capital Stock was $70,000 and its Retained Earnings $30,000. The fair values of Cave's identifiable assets and liabilities were the same as the recorded book values on the acquisition date. Trial balances at the end of the year on December 31, 2005 are given below: Cash Accounts Receivable Inventory Investment in Cave Cost of Goods Sold Operating Expenses Dividends $ $ Liabilities Capital stock, $10 par value Additional Paid-in Capital Retained Earnings Sales Revenue Dividend Income $ $ Swift Inc. 4,500 $ 25,000 100,000 88,500 60,000 22,000 15,000 315,000 $ 47,000 $ 100,000 10,000 31,000 120,000 7,000 315,000 $ Cave Inc. 20,000 30,000 80,000 40,000 37,000 10,000 217,000 27,000 70,000 30,000 90,000 217,000 During 2005, Swift made only two journal entries with respect to its investment in Cave. On January 1, 2005, it debited the Investment in Cave account for $88,500 and on November 1, 2005, it credited Dividend Income for $7,000. Required: 1. Prepare a consolidated income statement and a statement of retained earnings for Swift and Subsidiary for the year ended December 31, 2005. 2. Prepare a consolidated balance sheet for Swift and Subsidiary as of December 31, 2005. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-19

(20) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO6 Exercise 9 Emu Corporation paid $77,000 for a 60% interest in Chick Inc. on January 1, 2005, when Chick’s Capital Stock was $80,000 and its Retained Earnings $20,000. The fair values of Chick's identifiable assets and liabilities were the same as the recorded book values on the acquisition date. Trial balances at the end of the year on December 31, 2005 are given below: Cash Accounts Receivable Inventory Investment in Cave Cost of Goods Sold Operating Expenses Dividends $ $ Liabilities Capital stock, $10 par value Additional Paid-in Capital Retained Earnings Sales Revenue Dividend Income $ $ Emu Inc. 4,500 $ 25,000 100,000 77,000 71,500 22,000 15,000 315,000 $ Chick Inc. 20,000 30,000 70,000 47,000 $ 100,000 11,000 31,000 120,000 6,000 315,000 $ 27,000 80,000 50,000 37,000 10,000 217,000 20,000 90,000 217,000 During 2005, Emu made only two journal entries with respect to its investment in Chick. On January 1, 2005, it debited the Investment in Chick account for $77,000 and on November 1, 2005, it credited Dividend Income for $6,000. Required: 1. Prepare a consolidated income statement and a statement of retained earnings for Emu and Subsidiary for the year ended December 31, 2005. 2. Prepare a consolidated balance sheet for Emu and Subsidiary as of December 31, 2005. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-20

(21) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTIONS Multiple Choice Questions 1 b 2 d 3 c 4 c Parent’s inventory of $132,000 plus subsidiary’s book value of inventory of $38,000 plus 75% of the excess of the fair value over the book value = $132,000+$38,000+(75%)x($22,000) = $186,500 5 d Purchase price minus 75% of Grass’s underlying book value - $16,500 of excess cost over book value allocated to inventory (see 9) = $392,000 – (75%)x(400,000) - $16,500 = $75,500 6 d Just add the liability amounts together 7 b (25%)x($400,000) = $100,000 8 a The parent’s Retained Earnings is the amount of consolidated Retained Earnings 9 c Cash Accounts Receivable Inventory $132,000+$38,000+$16,500= Land Plant assets-net Goodwill Total assets 10 b 11 d 12 c 13 b $230,000 170,000 186,500 100,000 700,000 75,500 $1,472,000 Intercompany receivables and payables from unconsolidated subsidiaries would not be eliminated. ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-21

(22) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 14 c 15 c 16 b 17 d 18 c 19 d 20 b Pigeon’s separate income Less: 60% of Home’s $10,000 loss = Less: Equipment depreciation $10,000/ 10 years = Consolidated net income $ 150,000 ( 6,000 ) ( $ 1,000 ) 143,000 ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-22

(23) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 1 Parrot Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Parrot Hollow Debit Credit INCOME STATEMENT Sales 20,000 $ Cost of Sales Other Expenses $ 35,000 $ 15,000 3,680 Income of Hollow a ( 9,200) ( 4,700) ( 2,300) ( 4,000) c $ 3,680 ( $ Inventories 12,180 6,300 11,000 3,000 12,180 6,300 3,000) ( b ( 7,660) $1,260 ( 1,260) 11,000 3,000 12,180 a $ 1,600 ( 400) 3,000 $ 20,180 20,180 $ 7,300 2,000 1,900 12,000 5,500 17,500 14,000 8,000 22,000 $ b TOTAL ASSETS $ LIB. & EQUITY Accounts payable Capital Stock Retained Earnings 1/1 Noncontrol. Interest 12/31 Noncontrol. Interest TOTAL LIAB. & EQUITY $ 13,900) $ 12,180 2,000) Patent Land Equipment and Buildings-net Investment in Hollow Co. ( 1,360 Minority Income Net income Retained Earnings 1/1 Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash Accounts Receivable-net Consolidated NonCntl. 27,000 42,000 60,000 43,000 13,600 c 3,900 12,240 1,360 69,000 103,000 a b 26,080 2,080 24,000 141,080 $100,400 $227,640 90,900 83,100 $174,000 30,000 10,000 20,180 7,300 b 30,000 10,000 20,180 b 2,600 2,600 3,460 141,080 $100,400 ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-23 3,460 $227,640

(24) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 2 Cuckoo Company and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations INCOME STATEMENT Sales Income from Perch Cuckoo Perch $ 206,000 $60,000 12,000 Cost of Sales (150,000) ( 38,000) ( 18,000) Net income Cuckoo Retained Earnings 1/1 Perch Retained Earnings Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash 30,000 12,000 24,000 10,000 30,000 ( 20,000) $ Debit Credit $266,000 a b $ 1,000 11,000 d 1,000 ( 30,000) Other expenses $ Balance Sheet ( 180,000) ( 29,000 a 4,000 c 10,000 20,000 $12,000 ( 57,000) 29,000 4,000) b $( 4,000) ( 20,000) 34,000 $18,000 $ 29,000 14,000 7,000 21,000 Inventories 21,000 15,000 36,000 Land Equipment and Buildings-net Investment in Perch Corporation 11,000 6,000 17,000 64,000 55,000 Capital Stock Retained Earnings TOTAL LIAB. & EQUITY 3,000 c 5,000 80,000 Goodwill TOTAL ASSETS LIAB. & EQUITY Liabilities c $ $ d a b c 1,000 5,000 7,000 68,000 121,000 5,000 190,000 $83,000 $200,000 56,000 15,000 71,000 100,000 50,000 34,000 18,000 29,000 190,000 $83,000 $200,000 c 50,000 100,000 ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-24

(25) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 3 INCOME STATEMENT Sales $ Income from Hunt Owl Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Owl Hunt Debit Credit Balance Sheet 10,000 $16,500 $6,500 1,270 a $1,270 Cost of Sales Depreciation expense ( 4,000) ( 3,300) ( 1,000) ( 1,000) Other expenses ( 1,800) ( 700) c 4,470 1,500 Retained Earnings Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash 2,510 2,000 4,470 2,500 ( $ 2,000) ( $ 2,500 1,440 1,900 Receivables-net 1,550 600 Inventories Goodwill 1,500 1,200 Land Equipment and Buildings-net Investment in Hunt Corporation TOTAL ASSETS 1,000 $ ( 2,080) ( 2,500) $(150) ( 150) 4,470 b 2,510 2,000 4,470 1,000) 4,980 7,300) 80 Minority income Net income ( a $ 900 (100) ( 2,000) $4,980 $3,340 d e 100 450 1,600 b 400 2,700 400 600 b 200 1,800 7,500 5,700 b 320 8,490 21,480 $10,000 3,000 1,000 2,000 500 d e 100 450 11,600 5,000 b 5,000 5,880 3,500 c a b 13,440 80 1,270 7,220 $ 23,280 LIAB. & EQUITY Accounts payable Dividends payable Capital Stock Retained earnings Noncntl. interest 1/1 Noncntl. interest 12/31 LIAB. & EQUITY $ 11,600 4,980 b 700 700 850 $ 21,480 4,900 1,050 $10,000 ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-25 750 $ 23,280

(26) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 4 Koel Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Koel Rain Debit Credit INCOME STATEMENT Sales Income from Rain $ 500,000 $400,000 135,000 (350,000) (200,000) Other expenses (100,000) ( 60,000) 185,000 140,000 Koel Retained Earnings 1/1 Rain Retained Earnings Add: Net income Less: Dividends Retained Earnings 12/31 $135,000 (550,000) d 5,000 (165,000) 185,000 300,000 300,000 150,000 $ 185,000 c 150,000 $140,000 185,000 ( 70,000) $ BALANCE SHEET Note Receivable from Koel Other current assets Plant assetsnet Investment in Rain Company TOTAL ASSETS $900,000 b Cost of Sales Net income Balance Sheet 485,000 b $220,000 $485,000 25,000 210,000 200,000 300,000 a c 25,000 50,000 a 25,000 d 5,000 b c 65,000 500,000 $535,000 425,000 670,000 565,000 $ $70,000 975,000 $750,000 $1,205,000 290,000 230,000 520,000 Capital Stock Retained Earnings 200,000 300,000 485,000 220,000 485,000 TOTAL LIAB & EQUITY $ 975,000 $750,000 $1,205,000 LIAB & EQUITY Liabilities c 300,000 200,000 ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-26

(27) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 5 Owl Corporation and Subsidiary Consolidated Balance Sheet Working Papers at December 31, 2005 Eliminations Min Owl Barn Int Debit Credit INCOME STATEMENT Sales $ 60,000 Income from Barn $ 22,000 3,510 Cost of Sales Depreciation Expense Other Expenses $ 82,000 a ( 13,000) ( 9,500) ( 2,000) ( 3,000) ( 23,000) ( 6,100) $ 3,510 d $ 450 Minority Income Net income Retained Earnings 1/1 Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash Accounts Receivable-net $ 340 ( $ Inventories 25,510 3,400 25,000 30,000 25,510 3,400 15,000) ( ( 22,500) ( 4,550) ( 29,100) ( 340) 25,510 b 30,000 25,000 25,510 3,000) a 2,700 $( 300) ( 15,000) 35,510 $30,400 $ 35,510 26,520 7,000 33,520 22,000 10,000 32,000 20,000 14,000 34,000 Goodwill b Land Equipment and Buildings-net Investment in Barn Corporation Consolidated 27,000 42,000 70,000 38,000 22,500 22,500 69,000 c 450 b b 4,500 72,000 a 810 103,950 72,810 TOTAL ASSETS EQUITIES Accounts payable Capital Stock Retained Earnings 1/1 Minority Interest 12/31 Minority Interest $ TOTAL EQUITIES $ 238,330 $111,000 294,970 32,820 50,600 83,420 170,000 30,000 170,000 35,510 30,400 35,510 b 6,000 6,000 6,040 238,330 $111,000 ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-27 6,040 $294,970

(28) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Preliminary computations Investment cost on January 1, 19X4 Less: Book value acquired = (90%)x($60,000) = Excess cost over book value acquired = $ $ Excess allocated to: Overvalued equipment ($5,000) x (90%)= Remainder to goodwill Excess cost over book value $( Income from Barn Corporation: Equity in Barn’s net income (90%)x(3,400)= Depreciation “savings” on equipment $4,500/10 yrs = Income from Barn Investment in Barn account: Initial investment cost Plus: Income from Barn Less: Dividends (3,000)x(90%)= Investment in Barn at December 31 $ 4,500) 22,500 18,000 $ 3,060 $ 450 1,260 $ ( $ Exercise 6 Lorikeet Company and Subsidiary Consolidated Cash Flows for the Year Ended December 31,2005 Cash Flows from Operating Activities Cash Received from Customers Dividends Received from Equity Investees Less Cash Paid to Suppliers Cash Paid to Employees Cash Paid for Other Operating Activities Cash Paid for Interest Expense Net cash flows from operating activities 72,000 54,000 18,000 72,000 3,510 2,700) 72,810 Statement of $412,600 17,000 $192,700 37,000 34,000 22,300 ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-28 (286,000) $143,600

(29) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 7 Bronzewing Company and Subsidiary Consolidated Cash Flows for the Year Ended December 31,2005 Statement Cash Flows from Operating Activities Consolidated Net Income Adjustments to reconcile net income to cash Noncontrolling Interest Expense Undistributed Income of Equity Investees Depreciation Expense Increase in Accounts Payable Amortization of Patent Decrease in Accounts Receivable Increase in Inventories Gain on sale of equipment Net cash flows from operating activities of $175,000 ( ( ( $17,000 7,500 ) 65,000 15,000 13,000 48,000 27,500 ) 45,000 ) 78,000 253,000 Exercise 8 Requirement 1 Swift and Subsidiary Corporation Consolidated Income Statement for the year ended December 31, 2005 Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Minority Interest Income Total Expenses and Minority Income Consolidated Net Income Retained Earnings, January 1, 2005 Dividends Retained Earnings, December 31, 2005 $ $ 210,000 100,000 110,000 59,000 3,900 $ ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-29 62,900 47,100 31,000 ( 15,000) 63,100

(30) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Requirement 2 Swift and Subsidiary Corporation Consolidated Balance Sheet December 31, 2005 Assets Cash Accounts Receivable Inventory Goodwill Total Assets Equities Liabilities Capital Stock Additional Paid-in Capital Retained Earnings Minority Interest Total Liabilities and Equities $ $ $ $ 24,500 55,000 180,000 18,500 278,000 74,000 100,000 10,000 63,100 30,900 278,000 Minority Interest Calculation: $30,000 Beginning equity + $3,900 Net income - $3,000 Dividends = $30,900 Exercise 9 Requirement 1 Emu and Subsidiary Corporation Consolidated Income Statement for the year ended December 31, 2005 Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Minority Interest Income Total Expenses and Minority Income Consolidated Net Income Retained Earnings, January 1, 2005 Dividends Retained Earnings, December 31, 2005 $ 210,000 121,500 88,500 $ 59,000 1,200 $ 60,200 28,300 31,000 ( 15,000) 44,300 ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-30

(31) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Requirement 2 Emu and Subsidiary Corporation Consolidated Balance Sheet December 31, 2005 Assets Cash Accounts Receivable Inventory Goodwill Total Assets Equities Liabilities Capital Stock Additional Paid-in Capital Retained Earnings Minority Interest Total Liabilities and Equities $ $ $ $ 24,500 55,000 170,000 17,000 266,500 74,000 100,000 11,000 44,300 37,200 266,500 Minority Interest Calculation: $40,000 Beginning equity + $1,200 Net income - $4,000 Dividends = $37,200 ©2009 Pearson Education, Inc. publishing as Prentice Hall 4-31

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