Solution Manual Advanced Accounting 11E by Beams 03 Solution Manual Advanced Accounting 11E by Beams 03

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Solution Manual Advanced Accounting 11E by Beams 03

chapter
Akuntansi Keuangan (Institut Pertanian Bogor)
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CHAPTER 3
AN INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS

Answers to Questions
1 A corporation becomes a subsidiary when another corporation either directly or indirectly acquires a
controlling financial interest (generally over 50 percent) of its outstanding voting stock.
2 Amounts assigned to identifiable assets and liabilities in excess of recorded amounts on the books of the
subsidiary are not recorded separately by the parent. Instead, the parent records the fair value/purchase
price of the interest acquired in an investment account. The assignment to identifiable asset and liability
accounts is made through working paper entries when the parent and subsidiary financial statements are
consolidated.
3 The land would be shown in the consolidated balance sheet at $100,000, its fair value, assuming that the
purchase price of the subsidiary is greater than the book value of the subsidiary’s net assets. If the parent
had acquired an 80 percent interest and the implied fair value of the subsidiary was greater than the book
value of the subsidiary’s net assets, the land would still appear in the consolidated balance sheet at
$100,000. Under GAAP, the noncontrolling interest is also reported based on fair values at the acquisition
date.
4 Parent company—a corporation that owns a controlling interest in the outstanding voting stock of another
corporation (its subsidiary).
Subsidiary company—a corporation that is controlled by a parent that owns a controlling interest in its
outstanding voting stock, either directly or indirectly.
Affiliates—companies that are controlled by a single management team through parent-subsidiary
relationships. (Although the term affiliate is a synonym for subsidiary, the parent is included in the total
affiliation structure.) In many annual reports, the term includes all investments accounted for by the equity
method.
Associates—companies that are controlled through parent-subsidiary relationships or whose operations can
be significantly influenced through equity investments of 20 percent to 50 percent.
5 A noncontrolling interest is the equity interest in a subsidiary that is owned by stockholders outside of the
affiliation structure. In other words, it is the equity interest in a subsidiary (recorded at fair value) that is
not held by the parent or subsidiaries of the parent.
6 Under GAAP, a subsidiary will not be consolidated if control does not rest with the majority owner, such
as in the case of a subsidiary in reorganization or bankruptcy, or when the subsidiary operates under severe
foreign exchange restrictions or other governmentally imposed uncertainties.
7 Consolidated financial statements are intended primarily for the stockholders and creditors of the parent,
according to GAAP.
8 The amount of capital stock that appears in a consolidated balance sheet is the total par or stated value of
the outstanding capital stock of the parent.
9 Goodwill from consolidation may appear in the general ledger of the surviving entity in a merger or
consolidation accounted for as an acquisition. But goodwill from consolidation would not appear in the
general ledger of a parent or its subsidiary. Goodwill is entered in consolidation working papers when the
reciprocal investment and equity amounts are eliminated. Working paper entries affect consolidated
financial statements, but they are not entered in any general ledger.
©2011 Pearson Education, Inc. publishing as Prentice Hall

3-1

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3-2 An Introduction to Consolidated Financial Statements
10 The parent’s investment in subsidiary does not appear in a consolidated balance sheet if the subsidiary is
consolidated. It would appear in the parent’s separate balance sheet under the heading “investments” or
“other assets.” Investments in unconsolidated subsidiaries are shown in consolidated balance sheets as
investments or other assets. They are accounted for under the equity method if the parent can exercise
significant influence over the subsidiary; otherwise, they are accounted for by the fair value / cost method.
11 Parent’s books: Reciprocal accounts on subsidiary’s books:

Investment in subsidiary Capital stock and retained earnings
Sales Purchases
Accounts receivable Accounts payable
Interest income Interest expense
Dividends receivable Dividends payable
Advance to subsidiary Advance from parent
12 Reciprocal accounts are eliminated in the process of preparing consolidated financial statements in order to
show the financial position and results of operations of the total economic entity that is under the control of
a single management team. Sales by a parent to a subsidiary are internal transactions from the viewpoint of
the economic entity and the same is true of interest income and interest expense and rent income and rent
expense arising from intercompany transactions. Similarly, receivables from and payables to affiliates do
not represent assets and liabilities of the economic entity for which consolidated financial statements are
prepared.
13 The stockholders’ equity of a parent under the equity method is the same as the consolidated stockholders’
equity of a parent and its subsidiaries provided that the noncontrolling interest, if any, is reported outside of
the consolidated stockholders’ equity. If noncontrolling interest is included in consolidated stockholders’
equity, it represents the sole difference between the parent’s stockholders’ equity under the equity method
and consolidated stockholders’ equity.
14 No. The amounts that appear in the parent’s statement of retained earnings under the equity method and the
amounts that appear in the consolidated statement of retained earnings are identical, assuming that the
noncontrolling interest is included as a separate component of stockholders’ equity.
15 Income attributable to noncontrolling interest is not an expense, but rather it is an allocation of the total
income to the consolidated entity between controlling and noncontrolling stockholders. From the viewpoint
of the controlling interest (the stockholders of the parent), income attributable to noncontrolling interest
has the same effect on consolidated net income as an expense. This is because consolidated net income is
income to all stockholders. Alternatively, you can view total consolidated net income as being allocated to
the controlling and noncontrolling interests.
16 The computation of noncontrolling interest is comparable to the computation of retained earnings. It is

computed:
Noncontrolling interest beginning of the period XX

Add: Income attributable to noncontrolling interest XX
Deduct: Noncontrolling interest dividends –XX
Deduct: Noncontrolling interest of amortization of
excess of fair value over book value
Add: Noncontrolling interest of amortization of
excess of book value over fair value
Noncontrolling interest end of the period
17 It is acceptable to consolidate the annual financial statements of a parent and a subsidiary with different
fiscal periods, provided that the dates of closing are not more than three months apart. Any significant
developments that occur in the intervening three-month period should be disclosed in notes to the financial

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Chapter 3 3-3
statements. In the situation described, it is acceptable to consolidate the financial statements of the
subsidiary with an October 31 closing date with the financial statements of the parent with a December 31
closing date.
18 The acquisition of shares from noncontrolling stockholders is not a business combination. It must be
accounted for as a treasury stock transaction if the acquirer is the controlling interest. It is not possible, by
definition, to acquire a controlling interest from noncontrolling stockholders.
SOLUTIONS TO EXERCISES
Solution E3-1 Solution E3-2
1 b 1 d
2 c 2 b
3 d 3 d
4 d 4 d
5 a 5 a
6 b
7 c
Solution E3-3 [AICPA adapted]
1 c Advance to Hill $75,000 + receivable from Ward $200,000 = $275,000
2 a Zero, goodwill has an indeterminate life and is not amortized.
3 a Pow accounts for Sap using the equity method, therefore,

consolidated retained earnings is equal to Pow’s retained earnings, or
$2,480,000.
4 d Zero, all intercompany receivables and payables are eliminated.
Solution E3-4 (in thousands)
1 Implied fair value of San ($1,800 / 90%) $2,000

Less: Book value of San (1,800)
Excess fair value over book value $ 200
Equipment undervalued 60
Goodwill at January 1, 2011 $ 140
Goodwill at December 31, 2011 = Goodwill from consolidation $ 140
Since goodwill is not amortized
2 Consolidated net income
Pin’s reported net income $980

Less: Correction to income from San for
depreciation on excess allocated
to equipment [($60,000/3 years)x 90%] (18)
Controlling share of consolidated net income $962
Noncontrolling share of consolidated net income

[$200,000 - $20,000 depreciation] x 10% $ 18
Controlling share of consolidated net income 962
Consolidated net income $980

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Chapter 3 3-5
1 $1,200, the dividends of Pan
2 $660, equal to $600 dividends payable of Pan plus $60 (30% of $200)
dividends payable to noncontrolling interests of Sad.
Preliminary computation
Cost of Sli stock (Fair value) $2,500
Fair value of Sli’s identifiable net assets 2,000
Goodwill $ 500
1 Journal entry to record push down values
Inventories 40
Land 100
Buildings — net 300
Equipment — net 160
Goodwill 500
Retained earnings 420
Note payable 20
Push-down capital 1,500
2 Sli Corporation
Balance Sheet
January 1, 2011
(in thousands)
Assets
Cash $ 140
Accounts receivable 160
Inventories 200
Land 400
Buildings — net 1,000
Equipment — net 600
Goodwill 500
Total assets $3,000
Liabilities
Accounts payable $ 200
Note payable 300
Total liabilities 500
Stockholders’ equity
Capital stock $1,000
Push-down capital 1,500
Total stockholders’ equity 2,500
Total liabilities and stockholders’ equity $3,000

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Solution E3-7
1 Pas Corporation and Subsidiary

Consolidated Income Statement
for the year 2012
(in thousands)
Sales ($2,000 + $800) $2,800
Less: Cost of sales ($1,200 + $400) (1,600)
Gross profit 1,200

Less: Depreciation expense ($100 + $80) (180)
Other expenses ($398 + $180) (578)
Consolidated net income 442

Less: Noncontrolling interest share ($140  30%) (42)
Controlling interest share of cnsolidated net income $ 400
2 Pas Corporation and Subsidiary

for the year 2012
(in thousands)
Sales ($2,000 + $800) $2,800
Less: Cost of sales ($1,200 + $400) (1,600)
Gross profit 1,200

Less: Depreciation expense ($100 + $80 - $12) (168)
Other expenses ($398 + $180) (578)

Less: Noncontrolling interest share
[($140  30%)+ ($12 depreciation x 30%)] (45.6)
Controlling interest share of consolidated net income $ 408.4
Supporting computations
Depreciation of excess allocated to overvalued equipment:

$60/5 years = $12

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Chapter 3 3-7
1 Capital stock
The capital stock appearing in the consolidated balance sheet at

December 31, 2011 is $3,600, the capital stock of Pob,the parent
company.
2 Goodwill at December 31, 2011
Investment cost at January 2, 2011 (80% interest) $1,400

Implied total fair value of Sof ($1,400 / 80%) $1,750
Book value of Sof(100%) (1,200)
Excess is considered goodwill since no other fair value
information is given. $ 550
3 Consolidated retained earnings at December 31, 2011
Pob’s retained earnings January 2 (equal to

beginning consolidated retained earnings $1,600
Add: Net income of Pob (equal to controlling share of
consolidated net income) 600
Less: Dividends declared by Pob (360)
Consolidated retained earnings December 31 $1,840
4 Noncontrolling interest at December 31, 2011
Capital stock and retained earnings of Sof on

January 2 $1,200
Add: Sof’s net income 180
Less: Dividends declared by Sof (100)
Sof’s stockholders’ equity December 31 1,280
Noncontrolling interest percentage 20%
Noncontrolling interest at book value $ 256
Add: 20% Goodwill 110
Noncontrolling interest December 31 $ 366
5 Dividends payable at December 31, 2011
Dividends payable to stockholders of Pob $ 180

Dividends payable to noncontrolling stockholders ($50  20%)
10
Dividends payable to stockholders outside the
Consolidated entity $ 190

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Pas Corporation and Subsidiary

Partial Balance Sheet
at December 31, 2011
Stockholders’ equity:
Capital stock, $10 par $600
Additional paid-in capital 100
Equity of controlling stockholders 830
Noncontrolling interest 82
Total stockholders’ equity $912
Computation of consolidated retained earnings:
Pas’s December 31, 2010 retained earnings $ 70
Add: Pas’s reported income for 2011 110
Less: Pas’s dividends (50)
Consolidated retained earnings December 31, 2011 $130
Computation of noncontrolling interest at December 31, 2011

Sal’s December 31, 2010 stockholders’ equity $400
Income less dividends for 2011 ($40 - $30) 10
Sal’s December 31, 2011 stockholders’ equity 410
Noncontrolling interest December 31, 2011 $ 82

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Chapter 3 3-9
Solution E3-10
Pek Corporation and Subsidiary

for the year ended December 31, 2013
(in thousands)
Sales $4,200
Cost of goods sold 2,200
Gross profit 2,000
Deduct: Operating expenses 1,110
Deduct: Noncontrolling interest share 29
Controlling interest share $ 861
Investment cost January 1, 2011 (90% interest) $ 1,620

Implied total fair value of Slo ($1,620 / 90%) $ 1,800
Slo’s Book value acquired (100%) (1,400)
Excess of fair value over book value $ 400
Excess allocated to:

Inventories (sold in 2011) $ 60
Equipment (4 years remaining useful life) 40
Goodwill 300
Excess of fair value over book value $ 400
Operating expenses:
Combined operating expenses of Pek and Slo $1,100
Add: Depreciation on excess allocated to equipment
($40/4 years) 10
Consolidated operating expenses $1,110

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SOLUTIONS TO PROBLEMS
Solution P3-1
1 Pen Corporation and Subsidiary

Consolidated Balance Sheet
(in thousands)
Assets
Cash ($64 + $36) $ 100
Accounts receivable ($90 + $68 - $10) 148
Inventories ($286 + $112) 398
Equipment — net ($760 + $350) 1,110
Total assets $1,756
Liabilities and Stockholders’ Equity

Liabilities:
Accounts payable ($80 + $66 - $10) $ 136
Common stock, $10 par 920
Noncontrolling interest ($300 + $200)  20% 100
2 Consolidated net income for 2012
Pen’s separate income $340

Add: Income from Sut 180
Noncontrolling interest share (20% x $180,000) $ 36
Controlling interest share (80%) $484

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Chapter 3 3-11
Solution P3-2 (in thousands)
1 Schedule to allocate fair value/book value differential
Cost of investment in Set $350

Implied fair value of Set ($350 / 70%) $500
Book value of Set (220)
Excess fair value over book value $280
Excess allocated:
Fair Value Book Value Allocation
Inventories ($100 - $60) $ 40
Land ($120 - $100) 20
Buildings — net ($180 - $140) 40
Equipment — net ($60 - $80) (20)
Other liabilities ($80 - $100) 20
Allocated to identifiable net assets 100
Goodwill for the remainder 180
Excess fair value over book value $280
2 Par Corporation and Subsidiary

at January 1, 2011
Assets
Current assets:
Cash ($70 + $40) $110
Receivables — net ($160 + $60) 220
Inventories ($140 + $60 + $40) 240 $ 570
Property, plant and equipment:

Land ($200 + $100 + $20) $320
Buildings — net ($220 + $140 + $40) 400
Equipment — net ($160 + $80 - $20) 220 940
Goodwill (from consolidation) 180
Total assets $1,690
Liabilities and Stockholders’ Equity

Liabilities:
Accounts payable ($180 + $160) $ 340
Other liabilities ($20 + $100 - $20) 100 $ 440
Capital stock $1,000
Equity of controlling stockholders 1,100
Noncontrolling interest * 150 1,250
* 70% of implied fair value of $500 = $150.

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Cost of investment in Sof January 1, 2011 $5,400

Implied fair value of Sof ($5,400 / 80%) $6,750
Book value of Sof 5,000
Excess of fair value over book value $1,750
Schedule to Allocate Fair Value — Book Value Differential
Fair Value
- Book Value Allocation
Current assets $1,000 $1,000
Equipment 2,000 2,000
Bargain purchase * (1,250)

Excess fair value over book value $1,750
* After recognizing acquired assets and liabilities at fair values, we are

left with a negative excess of $1,250. Under GAAP, this difference is recorded
as a gain in the consolidated income statement in the year of acquisition. The
gain is attributable entirely to the controlling interest, and is recorded on
the parent’s books by a debit to the Investment account and a credit to a Gain
from bargain Purchase account. An alternative calculation of this amount takes
the difference between the fair values of the net assets ($8,000) and their
fair value implied by the acquisition price ($6,750), which equals $1,250.
Noncontrolling interest of $130 (fair value) plus $520 (fair value of Pam’s
investment) equals total fair value of $650. Therefore, Pam’s interest is 80%
($520 / $650), and noncontrolling interest is 20% ($130 / $650).
Total fair value $ 650

Book value of Sap (520)
Excess fair value over book value $ 130
Excess allocated to
Fair Value - Book Value

Plant assets — net $420 - $400 $ 20
Goodwill 110
Total $ 130

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Chapter 3 3-13
Solution P3-5
Pal Corporation and Subsidiary

(in thousands)
Assets
Current assets $ 680
Plant assets 1,660
Goodwill 400
$2,740
Equities
Liabilities $1,320
Capital stock 600
$2,740
Sor’s net income ($800 - $600 - $100) $ 100
Less: Excess allocated to inventories that were sold in 2011 (40)
Less: Depreciation on excess allocated to plant
assets ($80 /4 years) (20)
Income from Sor $ 40
Plant assets ($1,000 + $600 + $80 - $20) $1,660
Pal’s retained earnings:

Beginning retained earnings $ 680
Add: Operating income 200
Add: Income from Sor 40
Deduct: Dividends (100)
Retained earnings December 31, 2011 $ 820

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Solution P3-6
Per Corporation and Subsidiary

Consolidated Balance Sheet Working Papers
(in thousands)
Per Sim Adjustments and Consolidated
per books per books Eliminations Balance Sheet
Cash $ 84 $ 40 $ 124
Receivables — net 100 260 b 18 342
Inventories 700 100 800
Land 300 400 700
Equipment — net 1,200 200 1,400
Investment in Sim 918 a 918
Goodwill a 200 200
Total assets $3,302 $1,000 $3,566
Accounts payable $ 820 $ 160 $ 980
Dividends payable 120 20 b 18 122
Capital stock 2,000 600 a 600 2,000
Retained earnings 362 220 a 220 362
Noncontrolling interest a 102 102
Total equities $3,302 $1,000 $3,566
a To eliminate reciprocal investment and equity accounts, record goodwill ($200), and
enter noncontrolling interest [($820 equity + $200 goodwill)  10%)].
b To eliminate reciprocal dividends receivable (included in receivables — net) and
dividends payable amounts ($20 dividends  90%).

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Chapter 3 3-15
Preliminary computations
Cost of 80% investment January 3, 2011 $560
Implied total fair value of Sle ($560 / 80%) $700
Book value of Sle (500)
Excess fair value over book value on January 3 = Goodwill $200
1 Noncontrolling interest share of income:

Sle’s net income $100  20% noncontrolling interest $ 20
2 Current assets:
Combined current assets ($408 + $150) $558
Less: Dividends receivable ($20  80%) (16)
Current assets $542
3 Income from Sle: None Investment income is eliminated in consolidation.
4 Capital stock: $1,000 Capital stock of the parent, Por Corporation.
5 Investment in Sle: None The investment account is eliminated.
6 Excess of fair value over book value $200
7 Controlling share of consolidated net income: Equals Por’s

net income, or:
Consolidated sales $1,200
Less: Consolidated cost of goods sold (740)
Less: Consolidated expenses (160)
Consolidated net income $ 300
Less: Noncontrolling interest share (20)
Controlling share $ 280
8 Consolidated retained earnings December 31, 2011: $404 Equals Por’s

beginning retained earnings.
9 Consolidated retained earnings December 31, 2012

Equal to Por’s ending retained earnings:
Beginning retained earnings $404
Add: Controlling share of consolidated net income 280
Less: Por’s dividends for 2012 (120)
Ending retained earnings $564
10 Noncontrolling interest December 31, 2012

Sle’s capital stock and retained earnings $600
Add: Net income 100
Less: Dividends (50)
Sle’s equity December 31, 2012 at fair value 650
Noncontrolling interest December 31, 2012 using book value $130
Add: Noncontrolling interest share of Goodwill 40
Noncontrolling interest December 31, 2012 at fair value $170

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Solution P3-8 [AICPA adapted]
Preliminary computations Saw Sun

Investment cost:
Saw (1,000 shares  80%)  $140 112,000
Sun (3,000 shares  70%)  $80 168,000
Implied total fair values:
Saw ($112,000 / 80%) 140,000
Sun ($168,000 / 70%) 240,000
Book value
Saw 140,000
Sun 240,000
Excess fair value over book value at acquisition 0 0
1 a. Journal entries to account for investments
January 1, 2011 — Acquisition of investments

Investment in Saw (80%) 112,000
Cash 112,000
To record acquisition of 800 shares of
Saw common stock at $140 per share.
Investment in Sun (70%) 168,000
Cash 168,000
To record acquisition of 2,100 shares of
Sun common stock at $80 per share.
b. During 2011 — Dividends from subsidiaries
Cash 25,600
To record dividends received from Saw ($32,000  80%).
Cash 12,600
To record dividends received from Sun ($18,000  70%).
c. December 31, 2011 — Share of income or loss
Income from Saw 57,600
To record investment income from Saw ($72,000  80%).
Loss from Sun 16,800
To record investment loss from Sun ($24,000  70%).

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Chapter 3 3-17
Solution P3-8 (continued)
2 Noncontrolling interest December 31, 2011 *

Saw Sun
Common stock $100,000 $120,000
Capital in excess of par 40,000
Retained earnings 80,000 38,000
Equity December 31 180,000 198,000
Noncontrolling interest percentage 20% 30%
Noncontrolling interest December 31 $36,000 $59,400
* Fair value equals book value.
3 Consolidated retained earnings December 31, 2011
Consolidated retained earnings is reported at $609,200, equal to the

retained earnings of Pod Corporation, the parent, at December 31, 2011.
4 Investment balance December 31, 2011:

Saw Sun
Investment cost January 1 $112,000 $168,000
Add (deduct): Income (loss) 57,600 (16,800)
Deduct: Dividends received (25,600) (12,600)
Investment balances December 31 $144,000 $138,600
Check: Investment balances should be equal to the underlying book value
Saw $180,000  80% = $144,000
Sun $198,000  70% = $138,600
After consolidation, the Investment balances are $0.

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Solution P3-9
Preliminary computations (in thousands)

Cost of 90% investment January 1, 2011 $7,200
Implied total fair value of Son ($7,200 / 90%) $8,000
Book value of Son (5,400)
Excess fair value over book value on January 1 $2,600
Allocation to equipment $1,600
Remainder is Goodwill $1,000
Additional annual depreciation on equipment ($1,600 / 8 years) $ 200
Pan Corporation and Subsidiary

(in thousands)
90% Adjustments and Consolidated

Pan Son Eliminations Balance Sheet
Cash $ 600 $ 400 $ 1,000
Receivables — net 1,200 800 2,000
Dividends receivable 180 b 180
Inventory 1,400 1,200 2,600
Land 1,200 1,400 2,600
Buildings — net 4,000 2,000 6,000
Equipment — net 3,000 1,600 a 1,400 6,000
Investment in Son 7,560 a 7,560
Goodwill a 1,000 1,000
Total assets $19,140 $7,400 $21,200
Accounts payable $ 600 $1,200 $ 1,800
Dividends payable 1,000 200 b 180 1,020
Capital stock 14,000 4,000 a 4,000 14,000
Retained earnings 3,540 2,000 a 2,000 3,540
Noncontrolling interest a 840 840
Total equities $19,140 $7,400 $21,200
a To eliminate reciprocal investment and equity accounts, enter unamortized excess

allocated to equipment, record goodwill, and enter noncontrolling interest (at fair
value).
b To eliminate reciprocal dividends receivable and dividends payable amounts.

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Chapter 3 3-19
Solution P3-10
1 Purchase price of investment in Sun (in thousands)
Underlying book value of investment in Sun:

Equity of Sun January 1, 2011 $440
Add: Excess investment fair value over book value:
Goodwill at December 31, 2015 120
Fair value of Sun January 1, 2011 $560
Purchase price of 80% investment at fair value($560 x 80%) $448
2 Sun’s stockholders’ equity on December 31, 2015 (in thousands)
20% noncontrolling interest at fair value $124

20% goodwill (24)
20% noncontrolling interest’s equity at book value $100
Total equity = Noncontrolling interest’s equity $100 / 20% = $500
3 Pan’s investment in Sun account balance at December 31, 2015

(in thousands)
Underlying book value in Sun December 31, 2015
($500  80%) $400
Add: 80% of Goodwill December 31, 2015
(20% is attributable to the noncontrolling interest) 96
Investment in Sun December 31, 2015 $496
Alternative solution:
Investment cost January 1, 2011 $448
Add: 80% of Sun’s increase since acquisition
($500 - $440)  80% 48
Investment in Sun December 31, 2015 $496
4 Pan’s capital stock and retained earnings December 31, 2015

(in thousands)
Capital stock $800
Retained earnings $ 60
Amounts are equal to capital stock and retained earnings shown in the
consolidated balance sheet.

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Solution P3-11

Cost of 70% investment in Stu $1,400
Implied fair of Stu($1,400 / 70%) $2,000
Book value of Stu (100%) 1,600
Excess $ 400
Excess allocated:
Inventories $ 40
Plant assets 160
Goodwill 200
Excess $ 400
Investment balance at January 1, 2011 $1,400

Share of Stu’s retained earnings increase ($120  70%) 84
Less: Amortization
70% of excess allocated to inventories (sold in 2011) (28)
70% of excess allocated to plant assets ($160 /8 years) (14)
Investment balance at December 31, 2011 $1,442
Noncontrolling interest at December 31

30% of Stu’s book value at December 31 ($1,720 x 30%) $516
30% of Goodwill 60
30% Unamortized excess for plant assets
30% x ($160 - $20 amortization) 42
Noncontrolling at December 31 (fair value) $618
Pop Corporation and Subsidiary

(in thousands)
70% Adjustments and Consolidated
Pop Stu Eliminations Balance Sheet
Cash $ 120 $ 40 $ 160
Accounts receivable — net 880 400 1,280
Accounts receivable — Pop 20 b 20
Dividends receivable 14 c 14
Inventories 1,000 640 1,640
Land 200 300 500
Plant assets — net 1,400 700 a 140 2,240
Investment in Stu 1,442 a 1,442
Goodwill a 200 200
Assets $5,056 $2,100 $6,020
Accounts payable $ 600 $ 160 $ 760

Account payable to Stu 20 b 20
Dividends payable 80 20 c 14 86
Long-term debt 1,200 200 1,400
Capital stock 2,000 1,000 a 1,000 2,000
Retained earnings 1,156 720 a 720 1,156
Noncontrolling interest
($2,060,000  30%) a 618 618
Equities $5,056 $2,100 $6,020

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Chapter 3 3-21
Solution P3-12

80% Investment in Sam at cost January 1, 2011 $ 1,520
Implied total fair value of Sam ($1,520 / 80%) $ 1,900
Sam book value 1,800
Excess fair value over book value recorded as goodwill $ 100
Sam Sam 80% of

Dividends Net Income Net Income
2011 $ 80 $160 $128
2012 100 200 160
2013 120 240 192
$300 $600 $480
1 Sam’s dividends for 2012 ($80 / 80%) $ 100
2 Sam’s net income for 2012 ($160 / 80%) $ 200
3 Goodwill — December 31, 2012 $ 100
4 Noncontrolling interest share of income — 2013

Sam’s income for 2013
($96 dividends received/80%)  2 $ 240
Noncontrolling interest share $ 48
5 Noncontrolling interest December 31, 2013

Equity of Sam January 1, 2011 $1,800
Add: Income for 2011, 2012 and 2013 600
Deduct: Dividends for 2011, 2012 and 2013 (300)
Equity book value of Sam December 31, 2013 2,100
Goodwill 100
Equity fair value of Sam December 31, 2013 $2,200
Noncontrolling interest December 31, 2013 $ 440
6 Controlling share of consolidated net income for 2013

Pen’s separate income $ 560
Add: Income from Sam 192
Controlling share of consolidated net income $ 752
Pen’s net income $560

Sam’s net income 240
Less: Noncontrolling interest share ($240 x 20%) 48
Controlling interest share $752

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AN INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS

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3-2 An Introduction to Consolidated Financial Statements

11 Parent’s books: Reciprocal accounts on subsidiary’s books:

16 The computation of noncontrolling interest is comparable to the computation of retained earnings. It is

Noncontrolling interest beginning of the period XX

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Solution E3-1 Solution E3-2

Solution E3-3 [AICPA adapted]

1 c Advance to Hill $75,000 + receivable from Ward $200,000 = $275,000

2 a Zero, goodwill has an indeterminate life and is not amortized.

3 a Pow accounts for Sap using the equity method, therefore,

4 d Zero, all intercompany receivables and payables are eliminated.

Solution E3-4 (in thousands)

1 Implied fair value of San ($1,800 / 90%) $2,000

2 Consolidated net income

Pin’s reported net income $980

Noncontrolling share of consolidated net income

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3-4 An Introduction to Consolidated Financial Statements

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1 $1,200, the dividends of Pan

Solution E3-6 (in thousands)

1 Journal entry to record push down values

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3-6 An Introduction to Consolidated Financial Statements

1 Pas Corporation and Subsidiary

Gross profit 1,200

Consolidated net income 442

2 Pas Corporation and Subsidiary

Gross profit 1,200

Consolidated net income 454

Depreciation of excess allocated to overvalued equipment:

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The capital stock appearing in the consolidated balance sheet at

2 Goodwill at December 31, 2011

Investment cost at January 2, 2011 (80% interest) $1,400

3 Consolidated retained earnings at December 31, 2011

Pob’s retained earnings January 2 (equal to

4 Noncontrolling interest at December 31, 2011

Capital stock and retained earnings of Sof on

5 Dividends payable at December 31, 2011

Dividends payable to stockholders of Pob $ 180

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3-8 An Introduction to Consolidated Financial Statements

Solution E3-9 (in thousands)

Pas Corporation and Subsidiary

Computation of noncontrolling interest at December 31, 2011

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