Advanced Financial Accounting
Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 5, Problem 5.12E

a

To determine

Introduction: The consolidation procedure used in the second year and the subsequent year is similar to that of the first. The equity method is used to evaluate the investment in the subsidiary. In order to determine consolidation entries, the change in the parent’s investment in the second or subsequent year is determined. Any differential arising is recognized and all the intercompany transactions are eliminated.

The Computation of fair value of patents held by S

a

Expert Solution
Check Mark

Answer to Problem 5.12E

Value of patients held by S $15,000

Explanation of Solution

Computation of increase in fair value of patients

    $
    Fair value of consideration given by P277,500
    Fair value of non-controlling interest185,000
    Total fair value462,500
    Less: book value of S stock:
    Common stock$250,000
    Retained earnings$150,000
    Book value of S stock(400,000)
    Excess of fair value over book value62,500
    Increase in value of land
    ($30,000$22,500)
    (7,500)
    Increase in value of equipment
    ($360,000$320,000)
    (40,000)
    Increase in fair value$15,000

b

To determine

Introduction: The consolidation procedure used in the second year and the subsequent year is similar to that of the first. The equity method is used to evaluate the investment in the subsidiary. In order to determine consolidation entries, the change in the parent’s investment in the second or subsequent year is determined. Any differential arising is recognized and all the intercompany transactions are eliminated.

The consolidation entries needed at January 1, 20X7.

b

Expert Solution
Check Mark

Explanation of Solution

Elimination entries

    ParticularsDebit $Credit $
    Investment in S corporation277,500
    Cash277,500
    (Initial investment in S Corporation recorded)
    Common stock250,000
    Retained earnings150,000
    Investment in S Corporation240,000
    Non-controlling in net assets of S corporation160,000
    (Elimination of investment in S corporation by reversal)
    Land7,500
    Equipment40,000
    Patient15,000
    Investment in S Corporation37,500
    Non-controlling interest in Net assets of S25,000
    (Excess differential reclassified)
  1. Initial investment in S corporation recorded $277,500
  2. Elimination of investment in S corporation
  3. Controlling interest on income from S recognized $240,000=$400,000×.60

    Non-controlling interest in Net assets of S corporation $160,000=$400,000×.40

  4. Excess value differential reclassification
  5.   Land:$7,500=($30,000-$22,500)

      Buildings:$40,000=($360,000$320,000)

    Computation of value of patients:

      Book value of S Corporation on January
      $185,000×10040
      $462,500
      Less: book value of S corporation in the beginning ($400,000)
      Increase in book value$62,500
      Less: Decrease in value of assets:

      Land:($30,000-$22,500)
      $7,500

      Buildings:($360,000$320,000)
      $40,000
      ($47,500)
      Value attributed to patients$15,000

      P’s share of amortized value of patient :$3,200=($32,000/8years)×.80

  6. Elimination of investment in S Corporation
  7.   Income from S: $32,000 = $40,000×.80

      Non-controlling interest in net income of S: $8,000 = $40,000×.20

      Investment in S corporation: $192,000 =($120,000 + 80,000+ $40,000)×.80

      Non-controlling interest in net assets of S: $48,000 =($120,000 + 80,000+ $40,000)×.20

  8. Amortization of differential in buildings
  9.   Depreciationof building: $4,000 =$32,0008years

      Credited to Income from S corporation: $3,200 = $4,000×.80

      Non-controlling interest in net income of S: $800 = $4,000×.20

  10. Excess differential reclassification
  11.   Goodwill: $5,500 = $37,500$32,000

      Credited to investment in S : $26,800 = ($37,500 - $4,000)×.80

      Non-controlling interest net assets of S : $6,700 = ($37,500 - $4,000)×.20

c

To determine

Introduction: The consolidation procedure used in the second year and the subsequent year is similar to that of the first. The equity method is used to evaluate the investment in the subsidiary. In order to determine consolidation entries, the change in the parent’s investment in the second or subsequent year is determined. Any differential arising is recognized and all the intercompany transactions are eliminated.

The computation of balance reported by purchase of its investment in S at December 31, 20X8

c

Expert Solution
Check Mark

Answer to Problem 5.12E

Balance reported at December 31, 20X8 $293,700

Explanation of Solution

Computation of investment account balance at December 31, 20X8

    $
    Fair value of consideration 277,500
    Undisclosed income since acquisition
    ($100,000$60,000)×.60
    24,000
    Amortization of differential assigned:

    Equipment($40,000/8years)×.60×2years
    ($6,000)

    Patients($15,000/10years)×.60×2years
    ($1,800)
    Accounts balance at December 31, 20X8$293,700

d

To determine

Introduction: The consolidation procedure used in the second year and the subsequent year is similar to that of the first. The equity method is used to evaluate the investment in the subsidiary. In order to determine consolidation entries, the change in the parent’s investment in the second or subsequent year is determined. Any differential arising is recognized and all the intercompany transactions are eliminated.

The consolidation entries needed at December 31, 20X9

d

Expert Solution
Check Mark

Explanation of Solution

Elimination entries

    ParticularsDebit $Credit $
    Investment in S corporation18,000
    Income from S Corporation18,000
    (Controlling interest in income of S for 20X7 recorded)
    Cash6,000
    Investment in S Corporation6,000
    (Receipt of share of dividends from S Corporation)
    Income from S Corp3,900
    Investment in S Corp3,900
    (Amortization of excess acquisition price recognized)
  1. Income from subsidiary S recognized $18,000=$30,000×.60
  2. Share of dividends from Subsidiary S recognized $6,000=$0,000×.60
  3. Excess value differential reclassification
  4.   Amountcredited to income from S:$3,900=$6,500×.60

e

To determine

Introduction: The consolidation procedure used in the second year and the subsequent year is similar to that of the first. The equity method is used to evaluate the investment in the subsidiary. In order to determine consolidation entries, the change in the parent’s investment in the second or subsequent year is determined. Any differential arising is recognized and all the intercompany transactions are eliminated.

The consolidation entries needed at December 31, 20X9

e

Expert Solution
Check Mark

Explanation of Solution

Elimination entries

    ParticularsDebit $Credit $
    Common stock250,000
    Retained earnings190,000
    Income from S Corp18,000
    Non-controlling interest in net income of S12,000
    Dividends declared10,000
    Investment in S Corp276,000
    Non-controlling interest in Net assets of S184,000
    (Investment in S eliminated by reversal)
    Amortization expenses1,500
    Depreciation expenses5,000
    Income from S Corp3,900
    Non-controlling interest in S 2,600
    (Excess value amortization and reclassification)
    Land7,500
    Equipment40,000
    Patient10,500
    Accumulated depreciation15,000
    Investment in S25,800
    Non-controlling interest in Net assets of S17,200
    (Excess value of depreciable assets reclassification)
  1. Elimination of investment in S corporation
  2. Controlling interest on income from S recognized RetainedEarnings:$190,000=$150,000+$20,000+$20,000

      IncomefromSCorp:$18,000=$30,000×.60

      Non-controllinginterestinnetincomeSCorp:$12,000=$30,000×.40

      InvestmentinSCorp:$276,000=($250,000+$190,000+$30,000$10,000)×.60

      InvestmentinSCorp:$184,000=($250,000+$190,000+$30,000$10,000)×.40

  3. Depreciation and amortization expenses recognised
  4.   Depreciationexpense: $5,000 =$30,0006years

      Amortization:$1,500=$15,000/10years

      Amountcredited to income from S:$3,900=$6,500×.60

      Non-controlling interest in net income of S:$2,600=$6,500×.40

  5. Excess value differential reclassification
  6.   Land:$7,500=($30,000-$22,500)

      Buildings:$40,000=($360,000$320,000)

      Patients:$10,500=[$15,000($15,000/10year)×3years]

      Credited to investment in S : $26,800 = ($37,500 - $4,000)×.80

      Non-controlling interest net assets of S : $6,700 = ($37,500 - $4,000)×.20

      InvestmentinSCorp:$25,800=($58,000$15,000)×.60

      Non-controllinginterestinnetassetsofSCorp:$17,200=($58,000-$15,000)×.40

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Advanced Financial Accounting

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