Chapter 07 XLSol

7/27/2019 Chapter 07 XLSol

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Student Name: Instructor

Class: McGraw-Hill/Irwin

Problem 07-25

Calculation of deferred gains in beginning and ending inventory:

Beginning unrealized gain (Wilson)January 1, 2011 Inventory Balance

Transfer price 60,000$Markup 25%Cost 48,000$ Correct!Unrealized gain 12,000$ Correct!

Ending unrealized gain (Wilson)December 31, 2011 Inventory Balance

Transfer price 90,000$Markup 25%Cost 72,000$ Correct!Unrealized gain 18,000$ Correct!

a. Consolidation entries

*G

Correct! 12,000(To recognizeincome on intercompany inventory transfers madek in previous year

but not resold until current year.)

*C

Correct! 11,200(To convert investment account from partial equity method to equity method.)

S1

Correct!

240,000

60,000(To eliminate Cuddy's stockholders' equity against the corresponding investment balance

and to recognize noncontrolling interest on common stock.)

S2

Correct!

621,600266,400

(To eliminate Wilson's stockholders' equity against corresponding investment balance

and to recognize noncontrolling interest.)

A

Correct!

10,000151,20064,800

(To allocate excess payment made in connection with purchase of Wilson.

I1

Correct! 56,000(To eliminate intercompany income accrued by both House and Wilson during

the year.)

I2

Correct! 91,000(To eliminate intercompany income accrued by House during the year.)

D1

Correct! 40,000(To eliminate effects of intercompany dividend payments.)

Income of Wilson Company 91,000Investment in Wilson Company

Investment in Cuddy Company 40,000

Dividends Paid

EquipmentInvestment in Wilson CompanyNoncontrolling interest in Wilson Company

Income of Cuddy Company 56,000Investment in Cuddy Company

Buildings 54,000Franchise Contracts 32,000Goodwill 140,000

Common stock (Wilson) 310,000Retained earnings, 1/1/11 (Wilosn) 578,000Investment in Wilson CompanyNoncontrolling interest in Wilson

Common stock (Cuddy) 150,000Retained earnings, 1/1/11 (Cuddy) 150,000Investment in Cuddy Company

Noncontrolling interest in Cuddy Common Stk.

Retained Earnings, 1/1/11 (Wilson) 12,000Cost of Goods Sold

Retained earnings, 1/1/11 (House) 11,200Investment in Wilson Company


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Problem 07-25

D2

Correct! 67,200(To eliminate effects of intercompany dividend payments.)

ECorrect!

4,0003,000

(To record 2011 amortization on excess payment made in connection with acquisition

of Wildon Company.

TI

Correct! 200,000(To eliminate intercompany inventory sales for the current year.)

G

Correct! 18,000(To defer unrealized gain in ending inventory.)

Noncontrolling Interest in Net Income of Cuddy's

Reported net income 70,000$Outside ownership 20%Noncontrolling interest in Cuddy income - common ######

Correct!

Noncontrolling Interest in Net Income of Wilson

Reported operational incomeEquity income of CuddyExcess amortizationRecognition of 2010 gainDeferral of 2011 unrealized gain

Realized incomeOutside ownershipNoncontrolling interest in net income of Wilson

Non-

House Wilson Cuddy controlling Consolid

Accounts Corporation Company Company Debit Credit Interest Tota

Sales and other revenue (900,000) (700,000) (300,000) (1,700

[TI] 200,000

Cost of goods sold 551,000 300,000 140,000 [G] 18,000 [*G] 12,000 797[TI] 200,000

Operating expenses 219,000 270,000 90,000 [E] 2,000 581

Income of Wilson Company (91,000) - - [I2] 91,000

Income of Cuddy Company (28,000) (28,000) - [I1] 56,000

Net Income (249,000) (158,000) (70,000)

Consolidated net income (322

Noncontrolling interest in (45,000) 45

Wilson net income

Noncontrolling interest in (14,000) 14

Cuddy net income

To House Corporation (263

HOUSE CORPORATION AND CONSOLIDATED SUBSIDIARIES

Consolidation Worksheet

December 31, 2011

Consolidation Entries

12,000$(18,000)$

150,00030%

45,000$Correct!

Cost of Goods Sold 18,000Inventory

130,00028,000$(2,000)

Franchise ContractsBuildings

Sales and Other Revenues 200,000Cost of Goods Sold

Investment in Wilson Company 67,200Dividends Paid (Wilson)

Operating Expenses 2,000Equipment 5,000


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Problem 07-25

Retained earnings, 1/1/11

--House Corporation (820,000) [*C] 11,200

--Wilson Company (590,000) [*G] 12,000

[S2] 578,000--Cuddy Company (150,000) [S1] 150,000

Net Income (249,000) (158,000) (70,000)

Dividends paid

--House Corporation 100,000

--Wilson Company 96,000 [D2] 67,200 28

--Cuddy Company 50,000 [D1] 40,000 10

Retained earnings, 12/31/07 (969,000) (652,000) (170,000)

Cash and receivables 220,000 334,000 67,000

Inventory 390,200 320,000 103,000 [G] 18,000

Investment in Wildon Company 807,800 [D2] 67,200 [*C] 11,200

[S2] 621,600

[I2] 91,000

[A] 151,200

Investment in Cuddy Company 128,000 128,000 [D1] 40,000 [S1] 240,000

[I1] 56,000

Buildings 385,000 320,000 144,000 [A] 54,000 [E] 3,000

Equipment 310,000 130,000 88,000 [E] 5,000 [A] 10,000

Land 180,000 300,000 16,000

Goodwill [A] 140,000

Franchise Contracts [A] 32,000 [E] 4,000

Total assets 2,421,000 1,532,000 418,000

Liabilities (632,000) (570,000) (98,000)

Noncontrolling interest in Cuddy [S1] 60,000 (60,

Noncontrolling interest in Wilson [S2] 266,400

[A] 64,800 (331,

Noncontrolling interest in 411

subsidiary companies

Common stock (820,000) (310,000) (150,000) [S1] 150,000

[S2] 310,000

Retained earnings (969,000) (652,000) (170,000)

Total liabilities and equity (2,421,000) (1,532,000) (418,000)

Parentheses indicate a credit balance.


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Given P07-25:

House Corporation purchased ownership 70%in Wilson Company

Acquisition date fair value allocation schedule:

Consideration transferred for 70% interest in Wilson 707,000$Fair value of the 30% noncontrollong interest 303,000Wilson business fair value 1,010,000$Wilson book value 790,000Excess fair value over book value 220,000$Assignments to adjust Wilson't assets to fair value:

To buildings (20-year life) 60,000$To equipment (4-year life) (20,000)To franchises (10-year life) 40,000 80,000$To goodwill (indefinite life) 140,000$

Wilson net income during 2009 and 2010 160,000$Wilson paid dividends during 2009 and 2010 50,000House regularly acquired inventory from 25%

Wilson at cost plus markup

Intercompany Retained IntercompanyYear Purchases Inventory - End of Year 2009 120,000$ 40,000$2010 150,000 60,000

House and Wilson acquire outstanding stock of Cuddy Company 80%Total price of Cuddy shares 240,000$Share House and Wilson paid of purchase price 50%

Additional inventory acquired from Wilson in 2007 200,000$Merchandise still held at year's end 45%


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Given P07-25:

House Wilson CuddyCorporation Company Company12/31/2011 12/31/2011 12/31/2011

Sales and other revenues (900,000)$ (700,000)$ (300,000)$

Cost of goods sold 551,000 300,000 140,000Operating expenses 219,000 270,000 90,000Income of Wilson Company (91,000) - -Income of Cuddy Company (28,000) (28,000) -Net income (249,000)$ (158,000)$ (70,000)$

Retained earnings, 1/1/11 (820,000)$ (590,000)$ (150,000)$Net income (249,000) (158,000) (70,000)Dividends paid 100,000 96,000 50,000

Retained earnings, 12/31/11 (969,000)$ (652,000)$ (170,000)$

Cash and receivables 220,000$ 334,000$ 67,000$Inventory 390,200 320,000 103,000Investment in Wilson Company 807,800 - -Investment in Cuddy Company 128,000 128,000 -Buildings 385,000 320,000 144,000Equipment 310,000 130,000 88,000Land 180,000 300,000 16,000

Total assets 2,421,000$ 1,532,000$ 418,000$Liabilities (632,000)$ (570,000)$ (98,000)$

Common stock (820,000) (310,000) (150,000)Retained earnings, 12/31/11 (969,000) (652,000) (170,000)

Total liabilities and equity (2,421,000)$ (1,532,000)$ (418,000)$


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Problem 07-27

TRAVERS COMPANY AND CONSOLIDATED SUBSIDIARIES

Acquisition -Date Allocation and Amortization

Consideration transferred for Stookey 344,000$Noncontrolling interest fair value 86,000

Stookey business fair value 430,000$

Stookey book value (380,000)

Customer list 50,000$

Life in years 10

Annual amortization 5,000$ Correct!

Consideration transferred for Yarrow 720,000$

Noncontrolling interest fair value 80,000

Yarrow business fair value 800,000$

Yarrow book value (740,000)

Copyright 60,000$

Life in years 15

Annual amortization 4,000$ Correct!

Consolidation entries

*G

Correct! 7,68(To giver effect to unrealized gain from 2009.)

*C1

Correct! 85,85(To recognize equity income accruing from Yarrow's investment in Stookey during 2009.)

*C2

Correct! 217,67(To recognize equity income accruing from Travers' investment in Yarrow during 2009.)

S1

Correct!

393,8598,46

(To eliminate stockholders' equity accounts of subsidiary against corresponding balance

in investment account and to recognize noncontrolling interest ownership.)

S2

Correct!

887,2798,58

(To eliminate stockholders' equity accounts of subsidiary Yarrow against corresponding balance

in investment account and to recognize noncontrolling interest ownership.)

A1

Correct! 36,00Noncontrolling Interest in Stookey 9,00

(To recognize January 1, 2010 unamortized portion of acquisition price assigned to Stookey's

customer list.)

A2

Correct! 50,40Noncontrolling Interest in Yarrow 5,60

(To recognize January 1, 2010 unamortized portion of acquisition price assigned to copyright

E

Correct! 5,00Copyright 4 00

Operating Expense 9,000Customer list

Customer List 45,000Investment in Stookey

Copyright 56,000Investment in Yarrow

Common stock (Yarrow) 300,000Retained earnings, 1/1/10 (Yarrow) 685,856Investment in YarrowNoncontrolling interest in Yarrow

Common stock (Stookey) 200,000Retained earnings, 1/1/10 (Stookey) 292,320Investment in StookeyNoncontrolling interest in Stookey

Investment in Stookey 85,856Retained Earnings, 1/1/10 (Yarrow)

Investment in Yarrow 217,670

Retained Earnings, 1/1/10 (Travers)

Retained Earnings, 1/1/10 (Stookey) 7,680Cost of Goods Sold


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Class: McGraw-Hill/Ir

Problem 07-27

TI

Correct!

(To eliminate intercompany inventory transfers made during 2010.)

G

Correct!

(To defer unrealized gain in ending inventory.)

Noncontrolling Interest in Stookey's Net Income

2010 Reported net income

Customer list amortization

Realization of 2009 deferred income

Deferral of 2010 unrealized gain

Realized income - 2010

Outside ownership

Noncontrolling interest in Stookey's net income

Noncontrolling Interest in Net Income of Yarrow

2010 Reported net income

Copyright

Accrual of Stookey's income

Realized income - 2010

Outside ownership

Noncontrolling interest in Yarrow's net income

Travers Yarrow Stookey

Accounts Company Company Company Debit Credit

Sales and other revenues (900,000) (600,000) (500,000) [TI] 100,000

Cost of goods sold 480,000 320,000 260,000 [G] 9,600 [*G] 7,68

[TI] 100,00

Operating expenses 100,000 80,000 140,000 [E] 9,000

Separate company net income (320,000) (200,000) (100,000)

Consolidated net income

Noncontrolling interest in - - -

Yarrow's net income

Noncontrolling interest in - - -

Stookey's net income

Net income

Retained earnings, 1/1/10

--Travers Company (700,000) [*C2] 217,67

--Yarrow Company (600,000) [S2] 685,856 [*C1] 85,85

--Stookey Company (300,000) [*G] 7,680

[S1] 292,320

Net Income (320,000) (200,000) (100,000)

Dividends paid 128,000

Retained earnings, 12/31/10 (892,000) (800,000) (400,000)

Current assets 444,000 380,000 280,000 [G] 9,60

Investment in Yarrow Company 720,000 [*C2] 217,670 [S2] 887,27

[A2] 50,40

I t t i St k C 344 000 [*C1] 85 856 [S1] 393 85

TRAVERS COMPANY AND CONSOLIDATED SUBSIDIARIES

Consolidation WorksheetDecember 31, 2010

Consolidation Entries

(4,000)

74,464

270,464

10%

27,046$

Correct!

(9,600)

93,080$

20%

18,616$

Correct!

200,000$

Cost of Goods Sold 9,60Inventory

100,000$

(5,000)

7,680

Sales 100,00Cost of Goods Sold


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Problem 07-27

b. Determine income taxes to be paid by Travers and Yarrow on a consolidated tax return for the year 2010.

Travers' reported income 320,000$

Yarrow's reported income 200,000

Dividend income -Intercompany gains -

Amortization expense (9,000)

Taxable income 511,000$

Tax rate 45%

Income tax payable 229,950$ Correct!

c. Determine income taxes to be paid by Stookey on a separate tax return for the year 2007.

Stookey's reported income 100,000$

Tax rate 45%

Income tax payable 45,000$ Correct!

d. Based on parts (b) and (c), what journal entry would be made by this combination to record 2007 income taxes?

2010 Unrealized gain taxed in 2010 9,600$

2009 Unrealized gain taxed previously in 2009 (7,680)

Increase in taxable income 1,920$

Tax rate 45%

Deterred income tax asset 864$

Correct!

Income tax expense:

Travers and Yarrow-payable 229,950$

Stookey-payable 45,000

Total taxes to be paid-2010 274,950$

Prepayment (864)

Income tax expense 2010 274,086$

Correct!Account Debit Credit

Income Tax Expense-Current 274,086

Deferred Income Tax-Asset 864

Income Tax Payable 274,950


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Given P07-27:

Travers Company purchased ownership 90%in Yarrow Company

Acquisition cost paid by Travers 720,000$Assessed fair value of noncontrolling interest 180,000$

Excess purchase price attributed to customerlist to be amortized over years 15$ years

Yarrow Company purchased ownership 80%in Stookey Company

Acquisition cost paid by Yarrow 344,000$Assessed fair value of noncontrolling interest 86,000$Excess purchase price attributed to copyright

with a remaining life of: 10$ yearsPortion of operational earnings Travers pays as cash dividends 40%Reported income totals for 2009

Travers Company 300,000$Yarrow Company 160,000Stookey Company 120,000

Inventory transferred to Yarrow since takeover:2009 80,0002010 $100,000

Portion of inventory carried into succeeding year 20%

Effective tax rate for all companies 45%

Travers Yarrow StookeyCompany Company Company

12/31/2010 12/31/2010 12/31/2010Sales (900,000)$ (600,000)$ (500,000)$Cost of goods sold 480,000 320,000 260,000Operating expenses 100,000 80,000 140,000

Net income (320,000)$ (200,000)$ (100,000)$

Retained earnings, 1/1/10 (700,000)$ (600,000)$ (300,000)$Net income (320,000) (200,000) (100,000)Dividends paid 128,000 - -

Retained earnings, 12/31/10 (892,000)$ (800,000)$ (400,000)$

Current assets 444,000$ 380,000$ 280,000$Investment in Yarrow Company 720,000 - -Investment in Stookey Company - 344,000 -Land, buildings, and equipment (net) 949,000 836,000 520,000Total assets 2,113,000$ 1,560,000$ 800,000$

Liabilities (721,000) (460,000) (200,000)Common stock (500,000) (300,000) (200,000)

Retained earnings, 12/31/10 (892,000) (800,000) (400,000)Total liabilities and equities (2,113,000)$ (1,560,000)$ (800,000)$

Chapter 07 XLSol

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