jawaban chap 6.doc

8/16/2019 jawaban chap 6.doc

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CHAPTER 6

INTERCORPORATE TRANSFERS: NONCURRENT ASSETS

ANSWERS TO QUESTIONS

Q6-1 Profits on intercorporate sales generally are considered to be realized when the affiliate thathas purchased the item sells it to a nonaffiliate. For depreciable or amortizable items that are used bythe affiliate in its operations, profits are considered to be realized as the purchaser depreciates or amortizes the asset.

Q6-2 An upstream sale occurs when a subsidiary sells an item to the parent company. If the assetis not resold before the end of the period, the parent is the company holding the asset and any

unrealized profits are recorded on the books of the subsidiary.

Q6-3 (a) nrealized profit on an intercorporate sale generally is included in the reported netincome of the seller.

(b) All unrealized profit on current!period intercorporate sales must be e"cluded from consolidatednet income until realized through resale to a nonaffiliate.

Q6-4 Profits on intercompany sales are included in consolidated net income in the period inwhich the items are sold to a nonaffiliate. If there are unrealized profits on the books of one of thecompanies at the start of the period and the item is sold to a nonaffiliate during the current period,

the intercompany profit is included in the computation of consolidated net income for the current period.

Q6-5 #he profits continue to be unrealized in this case and therefore must be eliminated from both the beginning and ending asset and retained earnings balances when consolidated statementsare prepared. #here should be no income statement effect for the current period.

Q6-6 A downstream sale is a sale from the parent to one of its subsidiaries. If the asset is notresold before the end of the period, the subsidiary is the company holding the asset at year!end andany unrealized profits are recorded on the books of the parent company.

Q6-7 #he entire balance of unrealized profits is eliminated in all cases. $hile the direction of thesale will affect the allocation of unrealized profits between companies, it does not change the totalamount of profit eliminated.

McGraw-Hill/Irwin© The McGraw-Hill Companies, Inc., 2002


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Q6-8 %onsolidated net income is reduced by the amount of unrealized profits assigned to theshareholders of the parent company. $hen a downstream sale occurs, all the profit is on the parent&s books and consolidated net income is reduced by the full amount of any unrealized profit. 'n theother hand, when an upstream sale occurs all the intercorporate profit is recorded on the books of thesubsidiary and the amount of income assigned to both the parent company shareholders and the

noncontrolling shareholders is reduced by a proportionate amount of any unrealized profit.

Q6-9 #he amount of intercorporate profit realized in the current period from prior years& sales tothe parent is added to the reported net income of the subsidiary in computing income assigned to thenoncontrolling interest.

Q6-10 Income assigned to noncontrolling interest for the current period will be less than a proportionate share of the reported net income of the subsidiary. In determining the amount of income to be assigned to the noncontrolling interest in the consolidated income statement, the netincome reported by the subsidiary must be adusted to e"clude any unrealized gain recorded duringthe period on the sale of depreciable assets to the parent. 'n the other hand, if an unrealized loss had

been recorded, the basis used in assigning income to the noncontrolling interest would be greater than the reported net income of the subsidiary. uch adustments must be made to assure that theincome assigned to noncontrolling interest is based on the contribution of the subsidiary toconsolidated net income rather than the amount the subsidiary may ha*e reported as net income.

Q6-11 All other factors being e+ual, the income assigned to noncontrolling interest will be larger if the sale occurs at the start of the current period. ome part of the gain will be considered realized inthe current period as the parent depreciates the asset if the sale occurs before year!end. one of thegain will be considered realized in the period of transfer if the sale occurs at year!end.

Q6-12 As in all other cases, income from the subsidiary recorded on the parent&s books must beeliminated in preparing the consolidated income statement and an appropriate amount of subsidiarynet income must be assigned to the noncontrolling interest if the parent owns less than - percentof the subsidiary&s stock. #he gain recorded on the parent&s books also must be eliminated.

Q6-13 /epreciation e"pense recorded by the subsidiary is o*erstated from the *iewpoint of theconsolidated entity when the subsidiary pays the parent more than book *alue for the asset at thestart of the period. As a result, an eliminating entry is needed to reduce depreciation e"pense andaccumulated depreciation by the amount of e"cess depreciation recorded during 012.



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Q6-14 Following an intercorporate sale of a depreciable asset, the eliminating entries should adustthe balance in the asset account to reflect the original purchase price to the first owner andaccumulated depreciation should be adusted to reflect the balance that would be reported if the assetwere still held by the first owner. In the case of an intercorporate sale of an intangible asset, only theunamortized balance normally is reported and an eliminating entry is needed to adust the carrying

*alue to that which would be reported if the asset were still held by the first owner.

Q6-15 Profit on an intercorporate sale of land is considered realized at the time the purchaser sellsthe land to a nonaffiliate. Profit on e+uipment normally is considered realized as the asset is used anddepreciated on the books of the purchaser. 3+uipment typically is considered to be used up in the production process and therefore is charged to e"pense o*er its remaining economic life, while landis not.

Q6-16 A portion of the profit is considered realized each period as the asset is depreciated by the purchaser. #hus, the net amount considered unrealized decreases each period and a smaller debit to beginning retained earnings is needed.

Q6-17A #he balance in the in*estment account will depend on which method the parent uses toaccount for its in*estment in the subsidiary. If the parent uses (a) the cost method or (b) the basice+uity method, no adustments are made on the parent company&s books for unrealized intercompany profits and the balance in the in*estment account will be the same as if there were no unrealized profits. If the parent uses (c) the fully!adusted e+uity method, the balance in the in*estment accountwill be reduced by the full amount of the unrealized profit when the profit is on the parent&s booksand by a proportionate share of the unrealized profit when it is on the subsidiary&s books.



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SOLUTIONS TO CASES

C6-1 His!"i#$% C!s &!'(%

A change to replacement cost accounting could potentially simplify the elimination process when

there ha*e been intercorporate transfers. If assets are transferred between affiliates at fair *alue, the balance sheet amount reported by the purchaser should reflect replacement cost on the date of transfer and no adustment would be needed if consolidation were to occur at that time. In the periods that follow, the adustment for the change in replacement cost from the beginning of the period to the end of the period on the books of the purchaser should be the same as if there had beenno intercompany transfer and no eliminating entries are needed.

In preparing the consolidated income statement for the period of transfer, any gain or loss recorded by the seller on the intercorporate sale must be eliminated. #he e"act nature of the adustment willdepend on whether the change in replacement cost each period is considered to be a realized or anunrealized gain. If the change in replacement cost each period is considered realized, the gain or loss

recorded on the intercorporate sale will need to be treated as an adustment to the gain or loss on thechange in replacement cost in the period of transfer. o special adustment will be needed in theyears that follow. If the change in replacement cost is considered unrealized, the gain or lossrecorded at the time of transfer will be treated as an adustment to the unrealized gain or loss on thechange in replacement cost each time consolidated statements are prepared.



5/93

C6-2 I)*$# !+ ,( E%i)i$i! P"!#(ss

a. $hile items purchased from an affiliate may be physically segregated or marked, some aspectof the recordkeeping system typically is used to keep track of such items. A uni+ue series of accounts, in*entory numbers, purchase order numbers, or other records may be used to identify

items ac+uired from affiliates. In a *ery simple setting the *ouchers on intercompany purchases may be kept in a special folder and checked at year!end to see if those items are still on hand. 4oreformal procedures generally are needed when intercompany transfers are +uite fre+uent or theaccounting system does not generate documents that can be readily used for tracking intercorporatesales.

b. $hen unrealized profits are not eliminated, consolidated net income and one or more asset balances will be incorrectly stated. If the number of transactions between the companies is relati*elyconstant o*er time, there may be little effect on the amount of income reported in any year. 'n theother hand, if the le*el of purchases *aries substantially from year to year, failure to eliminate

unrealized profits can significantly affect the amount of reported net income and the amount reportedin *arious asset categories. #here also is danger of intentional manipulation of intercompanytransfers to attain a desired le*el of income when profits are not eliminated.

c. If the amount of unrealized profit at the end of a gi*en year is greater than the amount at thestart of the year, consolidated net income will decrease when the appropriate eliminating entries aremade. 5owe*er, when the re*erse is true, consolidated net income will increase as a result of entering the eliminating entries in the consolidated workpaper. #hus, the effect depends on whether the le*el of unrealized profit has increased or decreased during the period.



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C6-3 N!#!"!%%i. I("(s

a. $hen there are no unrealized profits on the subsidiary&s books, a pro rata portion of the reportednet income of the subsidiary is assigned to the noncontrolling interest.

b. $hen there are no unrealized profits on the subsidiary&s books, a pro rata portion of the book *alue of the net assets of the subsidiary is reported in the consolidated balance sheet asnoncontrolling interest.

c. #he effect of unrealized profits depends on which company has recorded the profits. #hoserecorded on the books of the parent do not affect the income assigned to the noncontrolling interest.$hen subsidiary net income includes unrealized profits, the income assigned to noncontrollinginterest is reduced by its portion of the unrealized profit in the period of the intercorporate sale.

(-) 'n a sale of land, the profit remains unrealized until the land is sold to a nonaffiliate. $hen theland is resold, the profit is added to the reported net income of the subsidiary in computing incomeassigned to noncontrolling interest.

(0) 'n an intercorporate sale of a depreciable asset, a portion of the profit will be consideredrealized each period as the purchaser depreciates the asset. #hus, in the period of the intercorporatesale, the adustment to subsidiary net income for unrealized profits is based on the gain or loss lessany portion considered realized before the end of the period. 3ach period thereafter, a portion of the profit or loss is considered realized and treated as an adustment to subsidiary income in determiningthe income assigned to noncontrolling interest.

d. oncontrolling shareholders generally will not gain a great deal of useful information from theconsolidated statements. #heir primary focus must continue to be on the income and net assets of thesubsidiary in which they hold direct ownership. In the e*ent there are a number of transactions withthe parent or other affiliates, the success of the operations of the entire economic entity may pro*ideinformation useful to the noncontrolling shareholders. /ebt guarantees or other assurances by the parent may also lead to an e"amination of the parent company and consolidated statements.



7/93

C6-4 I("#!)*$/ S$%( !+ S("i#(s

a. $hen preparing consolidated financial statements, chwartz&s re*enue from the sale of ser*icesto /iamond and /iamond&s e"penses associated with the ser*ices ac+uired from chwartz must beeliminated. #he e"penses related to the anitorial and maintenance acti*ities that will be reported in

the consolidated income statement will be the actual salary and associated costs incurred bychwartz to pro*ide the ser*ices to /iamond. #he eliminations ha*e no effect on consolidated netincome because re*enues and e"penses of e+ual amount are eliminated in the preparation of theconsolidated financial statements.

b. Intercompany profits from the sale of ser*ices to an affiliate normally are considered realized atthe time the ser*ices are pro*ided. 6ealization of intercompany profits on ser*ices normally isconsidered to occur as the ser*ices are consumed, and ser*ices such as maintenance and repair ser*ices normally are considered to be consumed by the purchasing affiliate at the time recei*ed.

C6-5 I("#!)*$/ P"!+is

Answers can be found in the companies& -!7 filings with the 3% and in their annual reports.

a. %entury #elephone 3nterprises, Inc. (www.centurytel.com), and its subsidiaries bill one another for ser*ices and materials pro*ided in such amounts as to pro*ide a reasonable return on in*estment.$hen preparing consolidated financial statements, the company eliminates intercompany profits ontransactions with unregulated subsidiaries, but profits on transactions with regulated subsidiaries arenot eliminated, as permitted by FAS S$()( N! 71. #his statement is applicable because phonecompanies are regulated as public utilities.

b. 8erizon (www.*erizon.com) eliminates all intercompany profits. It no longer applies the pro*isions of FAS 71.

c. ew 9ork :ife (www.newyorklife.com) indicates in its annual report the amount of income ande"penses for ew 9ork :ife, ew 9ork :ife Insurance and Annuity %orporation, and theconsolidated amounts. $hile the intercompany eliminations implied by the differences in theconsolidated amounts from the sum of those of the indi*idual companies are small, and are zero insome cases, there are some intercompany transactions that are eliminated.

d. All of 5arley;s intercompany transactions are eliminated e"cept some occurring between the4otorcycles and Financial er*ices segments. ome interest and fees recognized as income byFinancial er*ices and e"pense by 4otorcycles are not eliminated. #his leads to higher financeincome and higher e"penses, but net income is unaffected.



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SOLUTIONS TO EERCISES

E6-1 &%i*%(-C,!i#( Q(si!s ! I("#!)*$/ T"$s+("s

AICPA A'$*('

-. c

0. d

2. b

=,

Adustment for e"cess depreciation charged by croll as a result of increase incarrying *alue of e+uipment due to gain

on intercompany sale (>-0, ? < years) (2,) /epreciation for consolidated statements >=, in preparing the consolidatedstatements.

2B,, the amount it paid. Cold %ompany hadthe e+uipment recorded at >-, will raise the e+uipment balance back to its original cost from the *iewpoint of the consolidated entity.



9/93

E6-2 (continued)

=. b 6eported net income of Cold %ompany >-=, Intercompany profit realized in 01D (=,) (-,)

6ealized net income of Cold %ompany >2=, Proportion of stock held bynoncontrolling interest " .-


10/93

E6-4 E%i)i$i! E"i(s +!" (*"(#i$%( Ass( T"$s+(": ($"-E' S$%(

a. 3liminating entry, /ecember 2-, 01D

3(-) #ruck =,

Cain on ale of #ruck -, Accumulated /epreciation -=,

b. 3liminating entry, /ecember 2-, 01@G

3(-) #ruck =, 6etained 3arnings, Hanuary - -, /epreciation 3"pense -, Accumulated /epreciation -


11/93

E6-6 T"$s+(" !+ (*"(#i$%( Ass( $ ($"-E'

a. 3liminating entry, /ecember 2-, 01=

3(-) #ruck B,

Cain on ale of #ruck 2, Accumulated /epreciation -0,

b. 3liminating entry, /ecember 2-, 01DG

3(-) #ruck B, 6etained 3arnings, Hanuary - 2, /epreciation 3"pense =, Accumulated /epreciation --=,

Accumulated depreciation adustmentG 6e+uired (>2, ? - years) " = yearsJ >-=, 6ecorded (>0-, ? D years) " - yearJ (2=,) 6e+uired increase >--=,

E6-7 T"$s+(" !+ (*"(#i$%( Ass( $ (.ii. !+ ($"

a. 3liminating entry, /ecember 2-, 01=

3(-) #ruck ==, Cain on ale of #ruck 2=, /epreciation 3"pense =, Accumulated /epreciation E=,

Accumulated depreciation adustmentG 6e+uired (>2, ? - years) " < yearsJ >-0, 6eported (>02, ? - years) " = yearsJ >-=,



12/93

6eported (>0


13/93

E6-8 S$%( !+ Ei*)( ! Ssi'i$"/ i C""( P("i!'

a. Hournal entry to record saleG

%ash EE, L >-E, K (>-=, ? -= years) " E years

b. Hournal entry to record purchaseG

3+uipment E-=, ? -= years) (-,) Adustment to depreciation e"pense > 0,

Adustment to accumulated depreciationMcGraw-Hill/Irwin

© The McGraw-Hill Companies, Inc., 2002


14/93

Amount re+uired (>-, " B years) >B, Amount reported by :ance (>-0, " - year) (-0,) 6e+uired adustment >@E,



15/93

E6-8 (continued)

d. 3liminating entry at Hanuary -, 01E, to eliminate intercompany sale of e+uipment and preparea consolidated balance sheet onlyG

3+uipment DD, 6etained 3arnings -0, Accumulated /epreciation @E, 3liminate unrealized profit on e+uipment.

E6-9 U*s"($) S$%( !+ Ei*)( i P"i!" P("i!'

a. %onsolidated net income for 01EG

'perating income reported by aywatch >-, et income reported by #ubberware >2, ? -0 years) 0,= 6ealized net income of #ubberware >


16/93

E6-9 (continued)

c. 3liminating entry, /ecember 2-, 01EG

3(-) uildings and 3+uipment 2,

6etained 3arnings 0, oncontrolling Interest =, /epreciation 3"pense 0,= Accumulated /epreciation =0,= 3liminate unrealized profit on building.

Adustment to buildings and e+uipment

Amount paid by #ubberware to ac+uire building >2, Amount paid by aywatch on intercompany sale (0@,) Adustment to buildings and e+uipment > 2,

Adustment to retained earnings, Hanuary -, 01E

nrealized gain recorded Hanuary -, 01D >2, Amount realized following intercompany sale (>0,= " 0) (=,) nrealized gain, Hanuary -, 01E >0=, Proportion of ownership held by aywatch " .E 6e+uired adustment >0,

Adustment to oncontrolling interest, Hanuary -, 01E

nrealized gain at Hanuary -, 01E >0=, Proportion of ownership held by noncontrolling interest " .0 6e+uired adustment > =,

Adustment to depreciation e"pense

/epreciation e"pense recorded by aywatch Industries (>0@, ? -0 years) >00,= /epreciation e"pense recorded by #ubberware %orporation (>2, ? -= years) (0,) Adustment to depreciation e"pense > 0,=

Adustment to accumulated depreciation

Amount re+uired (>0, " D years) >-0, Amount reported by aywatch (>00,= " 2 years) (D@,=) 6e+uired adustment > =0,=



17/93

E6-10 E%i)i$i! E"i(s +!" &i'/($" (*"(#i$%( Ass( T"$s+("

a. 3liminating entry, /ecember 2-, 012G

3(-) 3+uipment 0,

Cain on ale of 3+uipment -,= /epreciation 3"pense -,= Accumulated /epreciation --,

Purchase price paid by subsidiary >0E, Purchase price paid by parent >2, :essG Accumulated /epreciation (>=, " 0 -?0 years) (-0,=) ook *alue at time of sale (-@,=) Cain on sale of e+uipment >-,=

Accumulated depreciation adustmentG 6e+uired (>2, ? D years) " 2 yearsJ >-=, 6ecorded (>0E, ? 2 -?0 years) " -?0 yearJ (--,

b. 3liminating entry, /ecember 2-, 01<

3(-) 3+uipment 0, 6etained 3arnings, Hanuary - B, /epreciation 3"pense 2, Accumulated /epreciation E,

nrealized gain, Huly -, 012 >-,= 6ealized in 012 (-,=) nrealized balance, Hanuary -, 01< > B,

Accumulated depreciation adustmentG6e+uired (>2, ? D years) " < yearsJ >0,

6ecorded (>0E, ? 2 -?0 years) " - -?0 yearsJ (-0,) 6e+uired increase > E,



18/93

E6-11 C!s!%i'$(' N( I#!)( C!)*$i!

a. /ownstream sale of landG

%onsolidated net income for 01D,) (-=,) %onsolidated net income >--,

%onsolidated net income for 01=G

8erry %orporation income (e"cluding in*estment income from pawn %orporation) >--, pawn %orporation net income -=, :essG Income assigned to noncontrolling interest (.0= " >---, pawn %orporation net income -=, :essG Income assigned to noncontrolling interest (.0= " >-


19/93

E6-12 E%i)i$i! E"i(s +!" I("#!)*$/ T"$s+("s

a. 'perating income of peedy /eli*ery > D=, et income of Acme 6eal 3state %ompany -=,

:essG nrealized profit on land sale >0=, Income assigned to noncontrolling interest (>0=,) " .0J 2, (0E,)

%onsolidated net income > @@,

b. Hournal entries recorded by peedy /eli*eryG

(-) In*estment in Acme 6eal 3state tock 20, Income from ubsidiary 20, 6ecord e+uity!method incomeG >0=,) " .0

3(2) %ommon tockMMAcme 6eal 3state %ompany 2, 6etained 3arnings, Hanuary - -, In*estment in Acme 6eal 3state tock 20, oncontrolling Interest E, 3liminate beginning in*estment balance.

3(


20/93

3liminate courier ser*ices performed by peedy /eli*ery er*ice.



21/93

E6-13 S$%( !+ i%'i. ! P$"( i P"i!" P("i!'

a. #urner will recorded annual depreciation e"pense of >0=, (>2, ? -0 years).

b. plit would ha*e recorded annual depreciation e"pense of >0, (>D, Proportion of ownership held by noncontrolling interest " .2 6e+uired adustment >-E,

Adustment to depreciation e"pense

/epreciation e"pense recorded by #urner %ompany (>2, ? -0 years) >0=, /epreciation e"pense recorded by plit %ompany (>


22/93

Amount re+uired (>0, " B years) >-E, Amount reported by #urner (>0=, " - year) (0=,) 6e+uired adustment >-==,



23/93

E6-13 (continued)

d. Income assigned to noncontrolling interest for 01BG

et income reported by plit %ompany >D, ? -0 years) =, 6ealized net income for 01B > DB,

E6-14 I("#!)*$/ S$%( $ $ L!ss

a. %onsolidated net income for 01E will be greater than Parent %ompany&s income fromoperations plus its proportionate share of unway&s reported net income. #he eliminating entriesat /ecember 2-, 01E, will result in an increase of >-E, to consolidated net income.

b. As a result of purchasing the e+uipment at less than Parent&s book *alue, depreciation e"pensereported by unway will be >0, (>-D, ? E years) below the amount that would ha*e beenrecorded by Parent. #hus, depreciation e"pense must be increased by >0, when eliminatingentries are prepared at /ecember 2-, 01B. ecause the loss was recorded on Parent&s books in01E, consolidated net income will be decreased by the full amount of the >0, increase indepreciation e"pense.



24/93

E6-15 E%i)i$i. E"i(s F!%%!;i. I("#!)*$/ S$%( $ $ L!ss

a. 3liminating entry, /ecember 2-, 01@G

3(1) uildings and 3+uipment -=D,

:oss on ale of uilding 2D, Accumulated /epreciation -0, 3liminate unrealized loss on building.

b. %onsolidated net income for 01@G

'perating income reported by rown >-0=, et income reported by #ransom >-=, Add loss on sale of building 2D, 6ealized net income of #ransom >=-,

Proportion of ownership held by rown " .@ 2=,@ %onsolidated net income >-D,@

c. 3liminating entry, /ecember 2-, 01EG

3(1) uildings and 3+uipment -=D, /epreciation 3"pense 2, ? -= years) >0, /epreciation e"pense recorded by rown %orporation (>---D, " - year) (-D,) 6e+uired adustment >-0


25/93

E6-15 (continued)

Adustment to retained earnings, Hanuary -, 01E

nrealized loss recorded, /ecember 2-, 01@ >2D, Proportion of ownership held by rown " .@ 6e+uired adustment >0=,0

Adustment to oncontrolling interest, Hanuary -, 01E

nrealized loss recorded, /ecember 2-, 01@ >2D, Proportion of ownership held by noncontrolling interest " .2 6e+uired adustment >-,E

d. %onsolidated net income for 01EG

'perating income reported by rown >-=, et income reported by #ransom >


26/93

E6-16 &%i*%( T"$s+("s !+ Ass(

a. >--=,

ulli*an %orporation net income >-0, :oss on sale of land (>--2,) -=, 6ealized net income of ulli*an %orporation >-2=, Proportion of stock held by wanson " .E -E,

7older %ompany net income > D, Cain on sale of land (>-E, ! >-2,) (=,) 6ealized net income of 7older %ompany > -,

Proportion of stock held by wanson " .@ @,

%layton %orporation net income > E, Cain on sale of land (>0-E,) (D,) 6ealized net income of %layton %orporation > 0, Proportion of stock held by wanson " .B -E, %onsolidated net income >0E2,

Alternate %omputationG

wanson %orporation operating income >-=, ulli*an %orporation net income -0, 7older %ompany net income D, %layton %orporation net income E, %ombined income >(-=,) nrealized gain recorded by 7older %ompany =, nrealized gain recorded by %layton %orp. D, (B=,) 6ealized income a*ailable to all shareholders >2-=,

Income assigned to noncontrolling interestG ulli*an %orp. (>-0, L >-=,) " .0 >0@,

7older %ompany (>D, ! >=,) " .2 2,%layton %orp. (>E, ! >D,) " .- 0, (20,)

%onsolidated net income >0E2,

d. 3liminating entryG

3(-) Cain on ale of :and --, :oss on ale of :and -=, :and B=,



27/93

3liminate gains and loss on land transferG >--, K >=, L >D, >B=, K >--, ! >-=,



28/93

E6-17 E%i)i$i! E"/ i P("i!' !+ T"$s+("

a. >2, K >0@D, L >02, ? (>D, ? 2 years)

c. 3(1) #rucks 0-02, " - year)



29/93

E6-18 E%i)i$i! E"/ C!)*$i!

a. 3liminating entry, /ecember 2-, 01DG

3(-) 3+uipment B,

Cain on ale of 3+uipment D, /epreciation 3"pense D, Accumulated /epreciation -D, 6ealized in 01D (D,) nrealized profit, Hanuary -, 01@ >=0-, /epreciation recorded (>2D, ? -) " 0J (@0,) 6e+uired increase >-2E,



30/93

E6-19 Usi. ,( E%i)i$i. E"/ ! ((")i( A##! $%$#(s

a. Pastel owns B percent (>B,B,-,=) of the stock of omber %orporation.

b. #he subsidiary was the owner. #he sale was from the subsidiary to the parent, as e*idenced by

the debit to noncontrolling interest in the eliminating entry.

c. Intercompany transfer priceG

Amount paid by omber %orporation >-0, Increase to buildings and e+uipment

in eliminating entry (=2,=) Amount paid by Pastel to omber for e+uipment > DD,=

d. Income assigned to noncontrolling interest for 01BG

et income reported by omber >0=, Amount of gain realized in 01B (>-,= ? @ years) -,= 6ealized net income for 01B >0D,= Proportion of ownership held by noncontrolling interest " .- Income assigned to noncontrolling interest > 0,D=

e. #otal depreciation e"pense of >00,= (>-=, L >B, ! >-,=) will be reported by theconsolidated entity for 01B.

f. 3liminating entries at /ecember 2-, 01BG

3(-) Income from ubsidiary 00,= /i*idends /eclared =,00,= K >0=, " .B >=,D, " .B

3(0) Income to oncontrolling Interest 0,D= /i*idends /eclared D oncontrolling Interest 0,= Assign income to noncontrolling interest. >0,D= K (>0=, L >-,=) " .- >D K >D, " .-

3(2) %ommon tockMMomber %orporation 2, 6etained 3arnings, Hanuary - 0, In*estment in omber %orporation tock


31/93



32/93


33/93

E6-21A F%%/ A'


34/93

3+uipment


35/93

E6-21A (continued)

3(D) Accumulated /epreciation E, /epreciation 3"pense E, Adust depreciation for realization of

intercompany gain.

b. %ost!method ournal entry recorded by ewtime ProductsG

(-) %ash -2, /i*idend Income -2, 6ecord di*idend income from #8 ales

%ompany.

%ost!method eliminating entries, /ecember 2-, 010@,2 K (>@, L >E,) " .2=

3(2) %ommon tockMM#8 ales %ompany 2, 6etained 3arnings, Hanuary - -, In*estment in #8 ales %ompany tock 0D, oncontrolling Interest -


36/93

sale of e+uipment.

3(@) Accumulated /epreciation E, /epreciation 3"pense E, Adust depreciation for realization of

intercompany gain.



37/93

SOLUTIONS TO PROLE&S

P6-22 C!)*$i! !+ C!s!%i'$(' N( I#!)(

a. eparate operating income of Petime %orporation >2-B, nrealized profit of sale of land (@,) 6ealized income for 01< >-0, Proportion of stock held by Petime " .B >-,E Amortization of differential (>B, ? -) (B) %ontribution to 01< consolidated net income B,B %onsolidated net income >2-B,

Proportion of stock held by Petime " .B >-@,- Amortization of differential (B) %ontribution to 01< consolidated income -D,0 nrealized profit on sale of land (@,) %onsolidated net income >@. In the upstream case the unrealized profit (>@,) isapportioned to both maority (>D,2) and noncontrolling (>@) shareholders. In thedownstream case, it is apportioned entirely to the maority shareholders (>@,).

P6-23 Ssi'i$"/ N( I#!)(

a. #oll %orporation reported net income of >B, for 010,) K >-@,= 1 ! >0, K >@, 1 K >@, L >0, 1 K >B,

b. %onsolidated net income for 01< is >0E2,, computed as followsG

:ander %orporation operating income >022=, ook *alue of net assets

.@= " (>-=, L >0@,)J (2-=,) /ifferential > 2=, umber of years amortized N - (2,=) Income to noncontrolling interest (-@,=)



38/93

nrealized profit on building (0,) %onsolidated net income >0E2,

P6-24 C!s!%i'$(' N( I#!)(

a. 'perating income of Forest %orporation > E2, Part %ompany net income 2, >--2, nrealized profit on sale of land (E,) 6eported net income of Part %ompany >2,

nrealized profit on sale of land (E,) 6ealized income for 01< >00,

Proportion of stock held by noncontrollingInterest " .2

Income to noncontrolling interest (D,D) Amortization of differentialG

Purchase price >22


39/93

P6-25 T"$s+(" !+ Ass( +"!) O( Ssi'i$"/ ! A!,("

ugle %ook Products %onsolidated %orporation %orporation 3ntity

/epreciation e"pense > !!! > 2, > 0,

Fi"ed assetsMM$arehouse !!!


40/93

> D@, Proportion of stock held by noncontrolling interest " . 0D,E



41/93

P6-27 &%i*%(-C,!i#( Q(si!s

-. d

0. c

2. d

=D, ! >=,

3(0) 3+uipment --, 6etained 3arnings, Hanuary - 0=, Accumulated /epreciation -2, /epreciation 3"pense =, 3liminate unrealized profit on e+uipmentG >--, K >2=, ! >00=, K >2, ! >=, >-2, K (>2=, " D) ! (>


42/93

ubsidence 4ining&s realized net income >-=, :ess unrealized loss on intercompany sale of land (D,) ubsidence 4ining&s 01@ net income > B,



43/93


44/93

P6-30 P"(*$"$i! !+ C!s!%i'$(' $%$#( S,((

a. %onsolidated balance sheet workpaperG

:ofton %ompany and #emple %orporation

%onsolidated alance heet $orkpaper /ecember 2-, 01D

:ofton #emple 3liminations %onsol! Item %ompany %orp. /ebit %redit idated

%ash and Accounts 6ecei*able --, 0, -0-,In*entory E,


45/93

P6-30 (continued)

3liminating entriesG

3(-) %ommon tockMM#emple %orporation 0,

6etained 3arnings =, In*estment in #emple %orporation tock -=, oncontrolling Interest -, 3liminate in*estment account balance.

3(0) :and -, 6etained 3arnings D, oncontrolling Interest 00-,

6ealized in 01= and 01D (>2, " 0 years) (D,) nrealized balance, /ecember 2-, 01D >-=,

b. %onsolidated balance sheetG

:ofton %ompany and ubsidiary %onsolidated alance heet

/ecember 2-, 01D

%ash and Accounts 6ecei*able >-0-, In*entory -0, :and 0=, uildings and 3+uipment >@B, :essG Accumulated /epreciation (0


46/93

%ommon tock >-, 6etained 3arnings 2


47/93

P6-31 C!s!%i'$i! W!"=*$*(" ;i, I("#!)*$/ T"$s+("s

a. 3liminating entriesG

3(-) Income from ubsidiary -B,=

/i*idends /eclared 2,0= In*estment in lank %orp. tock -D,0= 3liminate income from subsidiaryG >-B,= K >2, " .D= >2,0= K >=, " .D=

3(0) Income to oncontrolling Interest D,0D= /i*idends /eclared -,@= oncontrolling Interest D,0D= K (>2, ! >-2,0 L >-,-) " .2=

>-,@= K >=, " .2=

3(2) %ommon tockMMlank %orporation D, 6etained 3arnings, Hanuary - E=, In*estment in lank %orp. tock BE=, K >--, ! (>2, ! >=,) >B--,= ! >-D,0= >=,@=K (>--, L >D, ! >0=,) " .2=

3(


48/93

P6-31 (continued)

b. 4ist %ompany and lank %orporation %onsolidation $orkpaper /ecember 2-, 01<

4ist lank 3liminations %onsol! Item %ompany %orp. /ebit %redit idated

ales and er*ice 6e*enue 0ED,= -0E,= (


49/93

6etained 3arnings, from abo*e 00=, --, -=-,BD= 2,- 0-2,-2= oncontrolling Interest (0) DE2,2B-,%ost of Coods old >02=,/epreciation 3"pense 2B,B'ther 3"penses DB,@#otal 3"penses 2


50/93

>02E,-2=/i*idends Paid in 01< (0=,)6etained 3arnings, /ecember 2-, 01< >0-2,-2=



51/93

P6-32 C!s!%i'$i! W!"=*$*(" i ($" !+ I("#!)*$/ T"$s+("

a. 3liminating entries, /ecember 2-, 01DG

3(-) Income from ubsidiary 20,

/i*idends /eclared E, K >


52/93

6e+uired balance (>=, " D years) >2, alance recorded (>@, " - year) (@,) 6e+uired increase >02,

3(E) Accounts Payable @,

Accounts 6ecei*able @, 3liminate intercorporaterecei*able?payable.



53/93

P6-32 (continued)

b. Prime %ompany and :ane %ompany %onsolidation $orkpaper /ecember 2-, 01D

Prime :ane 3liminations %onsol! Item %ompany %ompany /ebit %redit idated

ales 0


54/93

6etained 3arnings, from abo*e


55/93

P6-32 (continued)

c. Prime %ompany and ubsidiary %onsolidated alance heet /ecember 2-, 01D

%ash and 6ecei*ables > -D==,:essG Accumulated /epreciation (0@2,) 2E0,Coodwill -=,#otal Assets >-,2E,

Accounts Payable > @2,onds Payable 0=,

oncontrolling Interest -,2E,

Prime %ompany and ubsidiary %onsolidated Income tatement 9ear 3nded /ecember 2-, 01D

ales > 2D,%ost of Coods old >0,/epreciation and Amortization 3"pense 2E,Coodwill Impairment :oss 0=,'ther 3"penses 0,#otal 3"penses 0E2, > @@,Income to oncontrolling Interest (E,)%onsolidated et Income > DB,

Prime %ompany and ubsidiary %onsolidated 6etained 3arnings tatement 9ear 3nded /ecember 2-, 01D

6etained 3arnings, Hanuary -, 01D > 22,01D et Income DB, > 2BB,/i*idends Paid in 01D (2,)6etained 3arnings, /ecember 2-, 01D > 2DB,



56/93



57/93

P6-33 I("#!"*!"$( S$%(s i P"i!" ($"s

a. 3liminating entries, /ecember 2-, 01EG

3(-) Income from ubsidiary 0-,

/i*idends /eclared E, In*estment in kate %ompany tock -2, 3liminate income from subsidiary.

3(0) Income to oncontrolling Interest D, /i*idends /eclared 0, oncontrolling Interest D,= " - year)



58/93

3(@) 6etained 3arnings, Hanuary - -,


59/93

P6-33 (continued)

b.Pond %orporation and kate %ompany%onsolidation $orkpaper

/ecember 2-, 01E

Pond kate 3liminations %onsol! Item %orp. %o. /ebit %redit idated

ales


60/93

onds -2


61/93

P6-33 (continued)

Pond kate 3liminations %onsol! Item %orp. %o. /ebit %redit idated

Accum. /epreciation -E=, B


62/93

P6-34 I("#!"*!"$( S$%( !+ L$' $' (*"(#i$%( Ass(

a. namortized purchase differential, Hanuary -, 01=G

Purchase price >-=-, 6etained earnings at ac+uisition E=, ook *alue of net assets at ac+uisition >-E=, Proportion of ownership ac+uired " .@ et book *alue ac+uired (-0B,=) Purchase differential at ac+uisition > 0=, Amortization of differentialG uildings and e+uipment (>0=, " .@) ? - yearsJ " 0 years (2,=) %opyright

(>@,= ? = years) " 0 years (2,)

namortized purchase differential > -E,=

b. 6econciliation between book *alue and in*estment balance at /ecember 2-, 01=G

nderlying book *alue of 4orris %ompany stockG %ommon stock outstanding >-, 6etained earnings, Hanuary -, 01= -, et income for 01= 2, /i*idends paid in 01= ( =,) et book *alue >00=, Proportion of ownership held by %hampion " .@ et book *alue of ownership held by %hampion >-=@,= namortized purchase differentialG uildings and e+uipment (>-@,= " @?- years) -0,0= %opyright (>@,= " 0?= years) 2, In*estment in 4orris %ompany stock >-@0,@=

c. 3liminating entriesG

3(-) Income from ubsidiary -@,@= /i*idends /eclared 2,= In*estment in 4orris %ompany tock --@,@= K (>2, " .@) ! >-,@= ! >-,= >2,= K >=, " .@

3(0) Income to oncontrolling Interest D,


63/93

Assign income to noncontrolling interestG >D,2, ! >B,D L >-,0) " .2 >-,= K >=, " .2



64/93

P6-34 (continued)

3(2) %ommon stockMM4orris %ompany -, 6etained 3arnings, Hanuary - -, /ifferential -E,=

In*estment in 4orris %ompany tock -=E,= oncontrolling Interest D, 3liminate beginning in*estment balance.

3(-,0 " - year)



65/93

P6-34 (continued)

d.%hampion %orporation and 4orris %ompany%onsolidation $orkpaper

/ecember 2-, 01=

%hampion 4orris 3liminations %onsol! Item %orp. %o. /ebit %redit idated

ales


66/93

/ifferential (2) -E,= (


67/93

P6-34 (continued)

%hampion 4orris 3liminations %onsol! Item %orp. %o. /ebit %redit idated

Accum. /epreciation uildings and 3+uip. -0, D, (0, AddG Coodwill 0


68/93

P6-35 (continued)

c. 3liminating entries, /ecember 2-, 01@G

3(-) Income from ubsidiary 2D,

/i*idends /eclared 0E, In*estment in :ane %ompany tock E, 3liminate income from subsidiary.

3(0) Income to oncontrolling Interest B, /i*idends /eclared @, oncontrolling Interest 0, Assign income to noncontrolling interestG >B, K >020, K >0E, >-, L >-=, " @ years) >2=,

alance recorded (>@, " 0 years) (-0-,

3(@) Accounts Payable


69/93

3liminate intercorporaterecei*able?payable.



70/93

P6-35 (continued)

d. Prime %ompany and :ane %ompany %onsolidation $orkpaper

/ecember 2-, 01@

Prime :ane 3liminations %onsol!Item %ompany %ompany /ebit %redit idated

ales 0=, -=,


71/93

6etained 3arnings, from abo*e


72/93


73/93

P6-37 &%i*%(-C,!i#( Q(si!s>>C!)*$i! !+ ?$"i!s A##!

$%$#(s

-. c Income to noncontrolling interestG (>E,) " .-0,E

0. b namortized identifiable intangible assetsG >2, ! (>2, ? - years) " 2 yearsJ K >0-,

2. b uildings and e+uipment (net), 7endel 4anufacturing >2, uildings and e+uipment (net), #rendy Products 0, nrealized gain on transfer of e+uipment (>-, ! >0,) (E,) %onsolidated balance >-E,

=. a eparate operating income of 7endel 4anufacturing > @=, et income of #rendy Products --=, :essG Amortization of differential (>2, ? - years) (2,) nrealized gain on transfer of e+uipment during period (>-, ! >0,) (E,) Income assigned to noncontrolling

interest (-0,E) %onsolidated net income > B-,0



74/93


75/93

P6-38 I("#!)*$/ S$%( !+ Ei*)( i P"i!" P("i!' $ $ L!ss

a. 3liminating entriesG

3(-) Income from ubsidiary ==,@ K (>D, ! >2,) " .-

3(2) %ommon stockMMlock %orporation =,

6etained 3arnings, Hanuary - -=, In*estment in lock %orporation tock -E, oncontrolling Interest 0, 3liminate beginning in*estment balance.

3(B, ? - years) >B, /epreciation based on intercompany sale price (>@0, Intercompany sale price (0B, ! >D,) " 0 yearsJ (D,) :oss not yet realized for consolidated statement purposes >-E, Foster&s proportionate share " .B Adustment to retained earnings >-D,0



76/93

P6-38 (continued)

Adustment to noncontrolling interest

:oss not yet realized for consolidated

statement purposes >-E, Proportion of ownership held by noncontrolling interest " .- Adustment to noncontrolling interest > -,E

Adustment to accumulated depreciation

Accumulated depreciation based on original cost (>B, ? - years) " = yearsJ >


77/93

P6-38 (continued)

b.Foster %ompany and lock %orporation%onsolidation $orkpaper

/ecember 2-, 01B

Foster lock 3liminations %onsol! Item %o. %orp. /ebit %redit idated

ales DE, 2E=, -,D=,'ther Income 0D, -=,


78/93

P6-38 (continued)

Foster lock 3liminations %onsol! Item %o. %orp. /ebit %redit idated

Accum. /epreciation -==, @=, (


79/93

P6-39 C!)*"(,(si( P"!%(): I("#!"*!"$( T"$s+("s

a. %omputation of differential as of Hanuary -, 01EG

'riginal differential at /ecember 2-, 01- >--0,=

:essG Portion written off for sale of in*entory (00,=) 6emaining differential, Hanuary -, 01E > B,

b. 8erification of balance in In*estment in chmid tock accountG

chmid retained earnings, Hanuary -, 01E >-,BE=, %ost of goods sold (=0=,) /epreciation and amortization (EE,)

'ther e"penses (00@,) 'ther income (loss) (2=,) --, chmid di*idends, 01E (0,) chmid retained earnings, /ecember 2-, 01E >-,-,, Additional paid!in capital -,2=, 6etained earnings, /ecember 2-, 01E -,2,E


80/93


81/93

P6-39 (continued)

d.6ossman %orporation and chmid /istributors, Inc.%onsolidation $orkpaper

/ecember 2-, 01E

3liminations %onsol! Item 6ossman chmid /ebit %redit idated

ales


82/93

P6-39 (continued)

3liminations %onsol! Item 6ossman chmid /ebit %redit idated

%ash =,@ 2E, EE,@%urrent 6ecei*ables --,E EB,


83/93

P6-40A F%%/ A' -=-, > ==,In*entory 0


84/93

P6-40A (continued)

c. 3liminating entries, /ecember 2-, 01@G

3(-) Income from ubsidiary 2E,

/i*idends /eclared 0E, In*estment in :ane %ompany tock -, 3liminate income from subsidiary.

3(0) Income to oncontrolling Interest B, /i*idends /eclared @, oncontrolling Interest 0, Assign income to noncontrolling interestG >B, K >020, K >0E, >-, L >-=, " @ years) >2=,

alance recorded (>@, " 0 years) (-0-,

3(@) Accounts Payable


85/93

3liminate intercorporaterecei*able?payable.



86/93

P6-40A (continued)

d. Prime %ompany and :ane %ompany %onsolidation $orkpaper /ecember 2-, 01@


ales 0=, -=,


87/93

oncontrolling Interest (=) 0, (0) 0, (2)


88/93

P6-41A C!s &(,!'

a. Hournal entry recorded by Prime %ompanyG

%ash 0E,

/i*idend Income 0E, 6ecord di*idend from :ane %ompany.

b. 3liminating entries, /ecember 2-, 01@G

3(-) /i*idend Income 0E, /i*idends /eclared 0E, 3liminate di*idend income from subsidiary.

3(0) Income to oncontrolling Interest B,

/i*idends /eclared @, oncontrolling Interest 0, Assign income to noncontrolling interestG >B, K >2, K (>-, L >=,) " .0

3(-=,) " .0

3(=) Coodwill -=, 6etained 3arnings, Hanuary - 0=, /ifferential


89/93

P6-41A (continued)

3(D) 6etained 3arnings, Hanuary - E, oncontrolling Interest 0, :and -,

3liminate unrealized profit on land.

3(@) uildings and 3+uipment =, 6etained 3arnings, Hanuary - -E, /epreciation and Amortization 3"pense 0, Accumulated /epreciation 0-, 3liminate unrealized profit on e+uipment.

3(E) Accounts Payable


90/93

P6-41A (continued)

c. Prime %ompany and :ane %ompany %onsolidation $orkpaper /ecember 2-, 01@


ales 0=, -=,


91/93

6etained 3arnings, from abo*e 2D-, -=, -=D, 2@, 2B0, oncontrolling Interest (D) 0, (0) 0, (2) 2, (


92/93


93/93

jawaban chap 6.doc

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