1 On January 1, 2011, Price Company purchased an 80% interest in the common stock of Stahl Company for $1,040,000, which was $60,000 greater than the book value of equity acquired. The difference between implied and book value relates to the subsidiary’s land.
The following information is from the consolidated retained earnings section of the consolidated statements workpaper for the year ended December 31, 2011:
1/01/11 retained earnings $300,000 $1,400,000
Net income 220,000 680,000
Dividends declared (80,000) (140,000)
12/31/11 retained earnings $440,000 $1,940,000
Stahl’s stockholders’ equity includes only common stock and retained earnings.
A. Prepare the workpaper eliminating entries for a consolidated statements workpaper on December 31, 2011. Price uses the cost method.
B. Compute the total noncontrolling interest to be reported on the consolidated balance sheet on December 31, 2011.
4-2 On October 1, 2011, Packer Company purchased 90% of the common stock of Shipley Company for $290,000. Additional information for both companies for 2011 follows:
Common stock $300,000 $90,000
Other contributed capital 120,000 40,000
Retained Earnings, 1/1 240,000 50,000
Net Income 260,000 160,000
Dividends declared (10/31) 40,000 8,000
Any difference between implied and book value relates to Shipley’s land. Packer uses the cost method to record its investment in Shipley. Shipley Company’s income was earned evenly throughout the year.
A. Prepare the workpaper entries that would be made on a consolidated statements workpaper on December 31, 2011. Use the full year reporting alternative.
B. Calculate the controlling interest in consolidated net income for 2011.
5-1 Phillips Company purchased a 90% interest in Standards Corporation for $2,340,000 on January 1, 2010. Standards Corporation had $1,650,000 of common stock and $1,050,000 of retained earnings on that date.
The following values were determined for Standards Corporation on the date of purchase:
Book Value Fair Value
Inventory $240,000 $300,000
Land 2,400,000 2,700,000
Equipment 1,620,000 1,800,000
A. Prepare a computation and allocation schedule for the difference between the implied and book value in the consolidated statements workpaper.
B. Prepare the January 1, 2010, workpaper entries to eliminate the investment account and allocate the difference between implied and book value.
5-2 Pullman Corporation acquired a 90% interest in Sleeper Company for $6,500,000 on January 1 2010. At that time Sleeper Company had common stock of $4,500,000 and retained earnings of $1,800,000. The balance sheet information available for Sleeper Company on January 1, 2010, showed the following:
Book Value Fair Value
Inventory (FIFO) $1,300,000 $1,500,000
Equipment (net) 1,500,000 1,900,000
Land 3,000,000 3,000,000
The equipment had a remaining useful life of ten years. Sleeper Company reported $240,000 of net income in 2010 and declared $60,000 of dividends during the year.
Prepare the workpaper entries assuming the cost method is used, to eliminate dividends, eliminate the investment account, and to allocate and depreciate the difference between implied and book value for 2010.
7-1 Parker Company, a computer manufacturer, owns 90% of the outstanding stock of Santo Company. On January 1, 2011, Parker sold computers to Santo for $500,000. The computers, which are inventory to Parker, had a cost to Parker of $350,000. Santo Company estimated that the computers had a useful life of six years from the date of purchase.
Santo Company reported net income of $310,000, and Parker Company reported net income of $870,000 from its independent operations (including sales to affiliates) for the year ended December 31, 2011.
A. Prepare in general journal form the workpaper entries necessary because of the intercompany sales in the consolidated statements workpaper for both 2011 and 2012.
B. Calculate controlling interest in consolidated net income for 2011.
7-2 On January 1, 2008, Penny Company purchased a 90% interest in Stein Company for $800,000, the same as the book value on that date. On January 1, 2011, Stein sold new equipment to Penny for $16,000. The equipment cost $11,000 and had a five year estimated life as of January 1, 2011.
During 2012, Penny sold merchandise to Stein at 20% above cost in the amount (selling price) of $126,000. At the end of the year, Stein had one-third of this merchandise in its ending inventory. At the beginning of 2012, Stein had $48,000 of inventory purchased in 2011 from Penny
A. Prepare all workpaper entries necessary to eliminate the effects of the intercompany sales on the consolidated financial statements for 2012.
B. Calculate the amount of noncontrolling interest to be deducted from consolidated net income in the consolidated income statement for 2012. Stein Company reported $40,000 of net income in 2012.
7-3 Pringle Company owns 104,000 of the 130,000 shares outstanding of Seely Corporation. Seely Corporation sold equipment to Pringle Company on January 1, 2011 for $740,000. The equipment was originally purchased by Seely Corporation on January 1, 2010 for $1,280,000 and at that time its estimated depreciable life was 8 years. The equipment is estimated to have a remaining useful life of four years on January 1, 2011. Both companies use the straight-line method to depreciate equipment. In 2012 Pringle Company reported net income from its independent operations of $3,270,000, and Seely Corporation reported net income of $820,000 and declared dividends of $60,000. Pringle Company uses the cost method to record the investment in Seely Company.
A. Prepare, in general journal form, the workpaper entries relating to the intercompany sale of equipment that are necessary in the December 31, 2012 consolidated financial statements workpapers.
B. Calculate the amount of noncontrolling interest to be deducted from consolidated net income in the consolidated income statement for 2012.
C. Calculate controlling interest in consolidated net income for 2012.
8-1 Piper Company purchased Snead Company common stock through open-market purchases as follows:
Date Shares Cost
1/1/09 1,500 $ 50,000
1/1/10 3,300 $ 90,000
1/1/11 6,600 $250,000
Snead Company had 12,000 shares of $20 par value common stock outstanding during the entire period. Snead had the following retained earnings balances on the relevant dates:
January 1, 2009 $ 90,000
January 1, 2010 30,000
January 1, 2011 150,000
December 31, 2011 300,000
Snead Company declared no dividends in 2009 or 2010 but did declare $60,000 of dividends in 2011. Any difference between cost and book value is assigned to subsidiary land. Piper uses the equity method to account for its investment in Snead.
A. Prepare the journal entries Piper Company will make during 2010 and 2011 to account for its investment in Snead Company.
B. Prepare workpaper eliminating entries necessary to prepare a consolidated statements workpaper on December 31, 2011.
8-2 On January 1, 2008, Patel Company acquired 90% of the common stock of Seng Company for $650,000. At that time, Seng had common stock ($5 par) of $500,000 and retained earnings of $200,000.
On January 1, 2010, Seng issued 20,000 shares of its unissued common stock, with a market value of $7 per share, to noncontrolling stockholders. Seng’s retained earnings balance on this date was $300,000. Any difference between cost and book value relates to Seng’s land. No dividends were declared in 2010.
A. Prepare the entry on Patel’s books to record the effect of the issuance assuming the cost method.
B. Prepare the elimination entries for the preparation of a consolidated statements workpaper on December 31, 2010 assuming the cost method.