400 - 812 IntercoTransSubsInvBondsPs 56B

Dr. M.D.
Chase
Advanced Accounting 812-56B
Long Beach State University

Interco Trans: Merchandise/Bonds/PS
Page 1
I. COMPREHENSIVE CONSOLIDATIONS EXAMPLE: INTERCO TRANSACTIONS/BONDS/PS (AICPA ADAPTED)

The December 31, 20x8 trial balances of the Maxi Corporation and its two subsidiaries appears at the top of Page 2.
Additional information available includes the following:
A. The investment in Mini Corporation stock by the maxi corporation is composed of the following items:
4/1/x7
12/31/x7
12/31/x7
7/1/x8
12/31/8
12/31/8
12/31/x8
Cost of 5,000 shares of Mini stock.............

$
20% of dividends declared in December, 20x7....
20% of the 20x7 net income of Mini.............
Cost of 15,000 shares of Mini stock............
80% of dividends declared in December Year 8...
80% of the 20x8 net income of Mini ............
Total investment in Mini Corporation.......
$
71,400
9,000
12,000
226,200
24,000
32,000
308,600
B. Mini had a retained earnings balance of $92,000 at January 1, 20x7, and had income of $15,000 for the first three months of 20x7 and
$20,000 for the first six months of 20x8.
C. Maxi Corporation acquired 250 shares of fully participating Median preferred stock for $7,000, and 14,000 shares of Median common
stock for $196,000 on January 2, 20x8. Median Corporation had a net income of $20,000 in 20x8 and did not declare any dividends.
D. Median Corporation's inventory includes $22,400 of merchandise acquired from Mini subsequent to July, 20x8, for which no payment has
been made. Mini marked up the merchandise 40% on cost.
E. Maxi Corporation acquired in the open market 25, $1,000, 6% bonds of the Mini Corporation for $21,400 on January 5, 20x5. The Mini
bonds mature December 31, 20Y0. Interest is paid each June 30 and December 31. Straight-line amortization is allowed on the basis of
materiality.
F. The three corporations are all in the same industry and their operations are homogeneous. Maxi Corporation exercises control over the
boards of directors of both Mini Corporation and Median Corporation, and has installed principle officers in both.
REQUIRED:
(A) Prepare a worksheet for the preparation of consolidated financial statements as of December 31, 20x8, for Maxi Corporation and its
subsidiaries. Consolidated retained earnings should be allocated to Maxi corporation, and minority interest should be shown separately.
The consolidation is to be accounted for as a purchase. All supporting computations should be in good form and labeled appropriately.
(B) Present the journal entries for all intercompany adjustments and eliminations keyed to the worksheet.
Dr. M.D. Chase


Page 2
MAXI CORPORATION AND SUBSIDIARIES

Trial Balances
December 31, 20x8
Maxi
Mini
Corporation
Corporation
Cash...........................
$ 100,000
87,000
Accounts receivable............
158,200
210,000
Inventories....................
290,000
90,000
Advance to Mini Corporation....
17,000
Dividends receivable...........
24,000
Property, plant and equipment..
777,600
325,000
Accumulated depreciation.......
[180,000]
[55,000]
Investment in Mini Corp:
6% Bonds...................
23,800
Common stock...............
308,600
Investment in Median Corp:
Preferred stock............
7,400
Common stock...............
207,200
Notes payable..................
[45,000]
[14,000]
Accounts payable...............
[170,000]
[96,000]
Bonds payable..................
[285,000]
[150,000]
Discount on bonds payable......
8,000
Dividends payable..............
[22,000]
[30,000]
Preferred stock ($20 par)......
[400,000]
Common stock ($10 par).........
[600,000]
[250,000]
Retained earnings..............
[154,600]
[107,000]
Sales..........................
[1,050,000] [500,000]
Other Revenue..................
[2,100]
Subsidiary income:
Common stock (Mini)........
[32,000]
Preferred stock (Median)...
[400]
Common stock (Median)......
[11,200]
Cost of goods sold.............
650,000
300,000
Other expenses.................
358,500
160,000
Dividends declared.............
22,000
30,000
Balance....................
0
0
=========
=========
Median
Corporation
95,000
105,000
115,000
470,000
[160,000]
[44,000]
[86,000]
[125,000]
[50,000]
[200,000]
[100,000]
[650,000]
400,000
230,000
0
=========
Dr. M.D. Chase


Page 3
REQUIREMENT A: Present the consolidated working paper:
Cash
A/R
Inventory
Adv to Mini
Div Rec
PP&E
A/D PP&E
Inv In Mini:
Bonds
C/S
Inv In Median:
P/S
C/S
Maxi
Trial
Balance
100,000
158,200
290,000
17,000
24,000
777,600
(180,000)
Mini
Trial
Balance
87,000
210,000
90,000
Median
Trial
Balance
95,000
105,000
115,000
325,000
(55,000)
470,000
(160,000)
23,800
308,600
7,400
207,200
Notes Pay
A/P
(45,000)
(170,000)
(14,000)
(96,000)
(44,000)
(86,000)
Bonds Pay
Disc B/P
Div Pay
Maxi PS
Maxi CS
Maxi RE
Mini CS (80%)
Mini RE (80%)
Median PS (10%)
Median CS (70%)
Median RE PS (10%)
Median RE CS (70%)
(285,000)
8,000
(22,000)
(400,000)
(600,000)
(154,600)
(150,000)
(125,000)
Sales
Other Rev
Equity In Mini NI
Equity in NI Median
PS
Equity in NI Median
CS
Cost of Sales
Other Exp
Div Decl. MAXI
Div Decl. MINI
Purchased NI
Balances
Adjustments/Eliminations
Dr
Cr
F
H
M
17,000
22,400
25,000
24,000
(32,000)
E
B
B
L
L
L
J
L
G
N
O
A
3,000
200,000
85,600
5,000
140,000
2,000
20,000
56,000
22,400
600
1,500
32,000
(400)
400
K
I
11,200
6,400
(30,000)
(250,000)
(107,000)
(50,000)
(200,000)
(100,000)
(1,050,000)
(2,100)
(11,200)
650,000
358,500
22,000
(500,000)
300,000
160,000
(650,000)
400,000
230,000
30,000
Consolidated Net Income

To Mini (See Schedule A)
To Median (See Schedule B)
Balance To Controlling Interest
MI Mini
MI Median
Consolidated RE EOY
12,000
686,500
H
I
F
p
(22,400)
(6,400)
(17,000)
(24,000)
M
N
A
B
E
E
(23,200)
(600)
(8,000)
(285,600)
(3,000)
(12,000)
L
K
K
L
(7,000)
(400)
(11,200)
(196,000)
Consolidated
Net Income
MI
Mini
MI
Median
Consol
RE
Consol
BS
282,000
450,800
488,600
0
0
1,572,600
(395,000)
0
0
0
0
0
(103,000)
(312,600)
(1,440)
(360)
(20,000)
(50,000)
(21,760)
(153,040)
(535,000)
8,000
(28,000)
(400,000)
(600,000)
(45,000)
(60,000)
(18,000)
(24,000)
(2,177,600)
0
0
0
G
O
(22,400)
(1,500)
(24,000)
(686,500)
0
1,334,000
747,000
12,000
(84,600)
6,600
8,400
69,600
0
22,000
6,000
(6,600)
(72,360)
(8,400)
(155,400)
(69,600)
(200,640)
(72,360)
(155,400)
(200,640)
0
Dr. M.D. Chase

Schedule A:
Less:Intercompany profit in ending inventory...
Intercompany interest expense............._
Income available to minority interest:
Minority Interest percentage
minority interest share of net income........

Page 4
(
(
$
$
6,400)
600)
33,000
_ 20%
6,600
Schedule B:
Median Corporation net income....................................
Less: share on net income allocable to participating preferred stock..(50/250*20,000)
Minority Interest share of internally generated income...............................
Minority Interest percentage.........................................................
Minority Interest share of net income from investment in common stock................
Add: Minority Interest share of net income allocable to participating preferred stock:
(90%*50/250*20,000).....................................................
Total Minority Interest share of net income...........................................
Schedule C:
Maxi Corporation net income...................
Add: Maxi share of Median preferred stock:
(10% of 50/250*$20,000)...............
Equity in earnings of mini...............
Equity in earnings of median allocable to
common stock:$20,000(200/250)(.7)....
20,000
_4,000
16,000
_ 30%
4,800
_3,600
8,400
43,600
400
14,400
11,200
69,600
20% held for the entire year) 20% of $33,000.........

$
60% less purchased net income 60% of $33,000-$20,000= $
$
6,600
7,800
14,400
REQUIREMENT B: Present Journal entries for consolidated eliminations and adjustments keyed to the worksheet.
A) eliminate those items that effected the investment account in the current year:
Subsidiary net income (40,000*.8)..................32,400
Dividends (30,000*.8)........................
24,000
Investment in Mini Corporation................
8,000
B) Allocate the pro rata share of stockholders equity to the investments
Mini common stock (250,000*.8).....................
200,000
Retained earnings-Mini (107,000*.8)...............
85,600
Investment in Mini............................
285,600
account:
C) Allocate the excess of cost over purchased book value:

Not applicable in this problem as cost=BV in all cases; when applicable
debit assets and credit the investment account in accordance with the
investment analysis.
D) Amortize the purchase differential:
Same as above.
E) Eliminate purchased net income from 4/1x7 purchase:
Maxi retained earnings ............................ 3,000
3,000
.
E2) Eliminate purchased net income from 7/1/x8 purchase:
NOTE THAT THE DEBIT IS TO RETAINED EARNINGS AS THIS

ENTRY ELIMINATES PURCHASED NET INCOME FROM A PRIOR
YEAR
Dr. M.D. Chase


Page 5
Purchased net income............................... 12,000

12,000
NOTE THE ENTRY FOR PURCHASED NET INCOME IN THE CURRENT YEAR.
F) Eliminate intercompany payables and receivables:
Accounts Payable .................................. 17,000
Advance to Mini...............................
17,000
G) Eliminate intercompany sales of merchandise:
Sales...............................................
22,400
Cost of Goods sold.............................
22,400
H) Eliminate intercompany receivables on sales of merchandise:
Accounts payable..................................... 22,400
Accounts receivable............................
22,400
I) Eliminate intercompany profit on sale of merchandise:
($22,400=140%X; therefore X=$16,000 and markup=$6,400)
Cost of goods sold.................................. 6,400
Inventory (end of year)........................
6,400
J) apportion median retained earnings due to participating preferred stock:
Median RE allocable to common stock.................. 20,000
Median RE allocable to preferred stock........
20,000
K) Eliminate those items that effected the investment account in the current yr:
Subsidiary net income common stock................... 11,200
Subsidiary net income allocable to PS................
400
Investment in Median common stock..............
11,200
Investment in Median preferred stock...........
400
L) Allocate the pro rata share of stockholders equity to the investment account:
Median preferred stock...............................
5,000
Median common stock .................................
140,000
Median retained earnings/common stock...... . 56,000
Median retained earnings/preferred stock .. . 2,000
Investment in Median preferred stock...........
7,000
Investment in Median common stock .............
196,000
M) Eliminate the intercompany bond: (upstream)
Bonds payable..................................
25,000
Investment in bonds.......................
Retained earnings Maxi....................
Retained earnings Mini....................
23,200
1,440
360
N) Eliminate current year amortization of bond discount:

Other revenue........................................
600
Investment in bond .................................
600
O) Eliminate intercompany interest revenues and expenses:

Other revenue (25,000*.06).......................
1,500
Other expenses ................................
1,500
P) Eliminate intercompany dividends payable/receivable:
Dividends payable (30,000*.08)................
24,000
Dividends receivable..............................
24,000
NOTE THAT IN THE CASE OF AN

UPTSTREAM SALE THAT PRIOR YEAR
RETAINED EARNINGS MUST BE
ALLOCATED BETWEEN PARENT AND
SUBSIDIARY IN ORDER TO INSURE
THAT THE MINORITY INTEREST GETS
IS SHARE OF PRIOR YEAR
AMORTIZATION. THIS IS
ILLUSTRATED IN (M) ABOVE.
HOWEVER, THE CURRENT YEAR
AMORTIZATION GOES ENTIRELY TO
REVENUE IN THE CURRENT YEAR, AS
ILLUSTRATED IN (N) ABOVE. STUDY
THIS DIFFERENCE.

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Dr. M.D.

Long Beach State University

I. COMPREHENSIVE CONSOLIDATIONS EXAMPLE: INTERCO TRANSACTIONS/BONDS/PS (AICPA ADAPTED)

Cost of 5,000 shares of Mini stock.............

Dr. M.D. Chase

Long Beach State University

MAXI CORPORATION AND SUBSIDIARIES

Dr. M.D. Chase

Long Beach State University

REQUIREMENT A: Present the consolidated working paper:

Consolidated Net Income

Dr. M.D. Chase

Long Beach State University

20% held for the entire year) 20% of $33,000.........

C) Allocate the excess of cost over purchased book value:

NOTE THAT THE DEBIT IS TO RETAINED EARNINGS AS THIS

Dr. M.D. Chase

Long Beach State University

Purchased net income............................... 12,000

N) Eliminate current year amortization of bond discount:

O) Eliminate intercompany interest revenues and expenses:

NOTE THAT IN THE CASE OF AN

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