90.2K

Verified Solution

Link Copied!

Consolidation worksheet for gain on constructive retirement of subsidiarys debt with no AAPCost method Assume that a Parent company acquires a 75% interest in its Subsidiary on January 1, 2015. On the date of acquisition, the fair value of the 75 percent controlling interest was $600,000 and the fair value of the 25 percent noncontrolling interest was $200,000. On January 1, 2015, the book value of net assets equaled $800,000 and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e., there was no AAP or Goodwill). On January 1, 2015, the retained earnings of the subsidiary was $150,000.

On December 31, 2016, the Subsidiary company issued $750,000 (face) 6 percent, five-year bonds to an unaffiliated company for $765,000. The bonds pay interest annually on December 31, and the bond premium is amortized using the straight line method. This results in annual bond-payable premium amortization equal to $3,000 per year. The following schedule provides the bond-amortization schedule from the initial issuance date.

Year	Cash Payment	Amortization of Premium	Interest Expense	Carrying Amount
Dec. 31, 2016				$765,000
Dec. 31, 2017	$45,000	$3,000	$42,000	762,000
Dec. 31, 2018	45,000	3,000	42,000	759,000
Dec. 31, 2019	45,000	3,000	42,000	756,000
Dec. 31, 2020	45,000	3,000	42,000	753,000
Dec. 31, 2021	45,000	3,000	42,000	750,000

On December 31, 2018, the Parent paid $735,000 to purchase all of the outstanding Subsidiary company bonds. The bond discount is amortized using the straight-line method, which results in annual bond-investment discount amortization equal to $5,000 per year. The following schedule provides the bond-amortization schedule for the Parents bond investment.

Year	Cash Payment	Amortization of Discount	Interest Income	Carrying Amount
Dec. 31, 2018				$735,000
Dec. 31, 2019	$45,000	$5,000	$50,000	740,000
Dec. 31, 2020	45,000	5,000	50,000	745,000
Dec. 31, 2021	45,000	5,000	50,000	750,000

The parent uses the cost method of pre-consolidation investment bookkeeping. The Parent and the Subsidiary report the following financial statements for the year ended December 31, 2019:

				Parent		Subsidiary								Parent		Subsidiary
Income statement									Balance sheet
Sales				$6,500,000		$800,000			Assets
Cost of goods sold				(4,500,000)		(450,000)			Cash					$700,000		$300,000
Gross profit				2,000,000		350,000			Accounts receivable					800,000		500,000
Operating and other expenses				(1,500,000)		(200,000)			Inventories					1,000,000		800,000
Bond interest income				50,000		-			PPE, net					3,000,000		1,250,000
Bond interest expense				-		(42,000)			Equity investment					600,000		-
Total expenses				(1,450,000)		(242,000)			Investment in bond, net					740,000		-
Income from subsidiary				30,000		-								$6,840,000		$2,850,000
Net income				$580,000		$108,000			Liabilities and stockholders' equity
Statement of retained earnings									Accounts payable					$800,000		$250,000
BOY retained earnings				$760,000		$276,000			Other current liabilities					900,000		400,000
Net income				580,000		108,000			Bond payable (net)					-		756,000
Dividends				(200,000)		(40,000)			Other long-term liabilities					1,400,000		450,000
Ending retained earnings				$1,140,000		$344,000			Common stock					600,000		150,000
									APIC					2,000,000		500,000
									Retained earnings					1,140,000		344,000
														6,840,000		2,850,000

Provide the consolidation entries and prepare a consolidation worksheet for the year ended December 31, 2019.

Round answers to the nearest whole number.

Use negative signs with your answers in the Consolidated column for: Cost of goods sold, all expenses (inc. Total expenses), Income attributable to NCI and Dividends.

Credit Debit 221,090 X 0 221.090 X 27.000 x 9.073 x > 0 30,000 x 6.073 x 0 E Consolidation Journal Description [ADJ] Investment in Subsidiary BOY Retained earnings-Parent [C] Income from subsidiary Income attributable to NCI Dividends-Subsidiary Noncontrolling Interest [E] [ Common Stock (Subsidiary) APIC (Subsidiary) BOY Retained earnings-Parent Investment in Subsidiary Noncontrolling interest [lbond] Bond payable, net Interest income Investment in bonds, net Interest expense Investment in Subsidiary 223.500 X 787.500 X 337.500 X . 1.213.650 x 134.850 X 1,163.965 88,414 X . 0 1,105,672 X 59,267 x 87,440 x Consolidation Worksheet Subsidiary Debit Credit Consolidated S $800,000 (450,000) 350,000 (200,000) 10.950 x (7,905,000) X 3,045,000 X (1.995,000) X [lbond] 88.414 X 59.267 x [lbond] 0 (42.000) (242.000) (1.995,000) X [C] 27.000 x 0 108,000 [C] 9.073 X Parent Income Statement Sales $6,500,000 Cost of goods sold (4.500.000) Gross profit 2,000,000 Operating and other expenses (1.500.000) Bond interest income 50000 Bond Interest expense Total expenses (1,450.000) Income from Subsidiary 30,000 Consolidated Net Income 580,000 Income attributable to NCI Income attributable to control Int $580,000 Retained Earnings Statement Beg. Ret. Earnings $760,000 Income attributable to Control Int 580.000 Dividends Declared (200,000) Ending Retained Earnings $1,140,000 Balance Sheet Cash $700,000 Accounts receivable 800.000 Inventories 1,000,000 Property. Plant & Equipment, net 3,000,000 Investment in Subsidiary 600,000 105.000 x (9,073) X 1,040.927 x $108,000 S [E] 337,500 X 221.090 X [AD]] $ 5.250,001 % $276.000 108,000 (40,000) $344.000 30.000 X [C] 1,040,927 x (277.500) X 6,013,428 x s $300,000 500,000 800,000 1.250.000 1.912.500 X 2.662.500 X 2.990.198 X 12.095.250 X [ADD] 221,090 X 1.213.650 X [E] 87,440 x [lbond] 1.105.672 x [lbond] S 19,660,448 x 1,842.000 x 2.400.000 x Investment in Bond (net) Total Assets Accounts Payable Other current liabilities Bond Payable (net) Other long-term liabilities Common Stock APIC 740.000 $6,840,000 $2,850,000 $800,000 $250.000 900.000 400,000 756,000 lbond] 1,400,000 450.000 600.000 150,000 [E] 2,000,000 500,000 [E] 1,163,965 x 223.500 X 787.500 X 2.344.597 x 1,579,500 X 5.340.000 X 1.140.000 344.000 Retained Earnings Noncontrolling Interest 6,013,428 x 140.923 x 6.073 x 134.850 % $ 2.858,042 x $ 2.858.042 % [C] [E] Total Liabilities and Equity $6,840,000 $2.850.000 S 19,660,448 X Credit Debit 221,090 X 0 221.090 X 27.000 x 9.073 x > 0 30,000 x 6.073 x 0 E Consolidation Journal Description [ADJ] Investment in Subsidiary BOY Retained earnings-Parent [C] Income from subsidiary Income attributable to NCI Dividends-Subsidiary Noncontrolling Interest [E] [ Common Stock (Subsidiary) APIC (Subsidiary) BOY Retained earnings-Parent Investment in Subsidiary Noncontrolling interest [lbond] Bond payable, net Interest income Investment in bonds, net Interest expense Investment in Subsidiary 223.500 X 787.500 X 337.500 X . 1.213.650 x 134.850 X 1,163.965 88,414 X . 0 1,105,672 X 59,267 x 87,440 x Consolidation Worksheet Subsidiary Debit Credit Consolidated S $800,000 (450,000) 350,000 (200,000) 10.950 x (7,905,000) X 3,045,000 X (1.995,000) X [lbond] 88.414 X 59.267 x [lbond] 0 (42.000) (242.000) (1.995,000) X [C] 27.000 x 0 108,000 [C] 9.073 X Parent Income Statement Sales $6,500,000 Cost of goods sold (4.500.000) Gross profit 2,000,000 Operating and other expenses (1.500.000) Bond interest income 50000 Bond Interest expense Total expenses (1,450.000) Income from Subsidiary 30,000 Consolidated Net Income 580,000 Income attributable to NCI Income attributable to control Int $580,000 Retained Earnings Statement Beg. Ret. Earnings $760,000 Income attributable to Control Int 580.000 Dividends Declared (200,000) Ending Retained Earnings $1,140,000 Balance Sheet Cash $700,000 Accounts receivable 800.000 Inventories 1,000,000 Property. Plant & Equipment, net 3,000,000 Investment in Subsidiary 600,000 105.000 x (9,073) X 1,040.927 x $108,000 S [E] 337,500 X 221.090 X [AD]] $ 5.250,001 % $276.000 108,000 (40,000) $344.000 30.000 X [C] 1,040,927 x (277.500) X 6,013,428 x s $300,000 500,000 800,000 1.250.000 1.912.500 X 2.662.500 X 2.990.198 X 12.095.250 X [ADD] 221,090 X 1.213.650 X [E] 87,440 x [lbond] 1.105.672 x [lbond] S 19,660,448 x 1,842.000 x 2.400.000 x Investment in Bond (net) Total Assets Accounts Payable Other current liabilities Bond Payable (net) Other long-term liabilities Common Stock APIC 740.000 $6,840,000 $2,850,000 $800,000 $250.000 900.000 400,000 756,000 lbond] 1,400,000 450.000 600.000 150,000 [E] 2,000,000 500,000 [E] 1,163,965 x 223.500 X 787.500 X 2.344.597 x 1,579,500 X 5.340.000 X 1.140.000 344.000 Retained Earnings Noncontrolling Interest 6,013,428 x 140.923 x 6.073 x 134.850 % $ 2.858,042 x $ 2.858.042 % [C] [E] Total Liabilities and Equity $6,840,000 $2.850.000 S 19,660,448 X

Answer & Explanation Solved by verified expert

See Answer