7.
FASB ASC 323-10-15 requires the use of the equity method of accounting for an investor whose investment in voting stock gives it the ability to exercise significant influence over operating and financial policies of an investee. Section 15-6 states that “Ability to exercise significant influence over operating and financial policies of an investee may be indicated in several ways, including the following: Representation on the board of directors, Participation in policy-making processes, Material intra-entity transactions, change of managerial personnel, Technological dependency, and Extent of ownership by an investor in relation to the concentration of other shareholdings (but substantial or majority ownership of the voting stock of an investee by another investor does not necessarily preclude the ability to exercise significant influence by the investor)” (emphasis added). It is clear, in this case, that the investee is critically dependent upon the technology licensed to it by the investor. The investor should, therefore, account for its investment using the equity method.
8.
Even though the investor owns 30% of the investee, it should not use the equity method as it cannot exert significant influence over the investee. Further, since the investee is not a public company (all of the remaining stock is privately held), the investor should use the cost method to account for this investment as the fair value method presumes a publicly traded stock with sufficient liquidity to reasonably determine a fair value.
9.
a. The losses did not affect Enron’s income statement. Since the investees were insolvent, Enron’s Equity Investment was reduced to zero (it had not made any loans or other advances to the investee companies). As a result, Enron discontinued reporting for these Equity Investments using the equity method and, therefore, did not recognize its proportionate share of investee losses. b. “… only after its share of that net income equals the share of net losses not recognized during the period the equity method was suspended” means that the investee has recouped all of the losses that have been reported. Since the investor ceases to account for its Equity Investment using the equity method once the balance reaches zero (assuming that it has not guaranteed the debts of the investee company), this generally implies that the investee’s Stockholders’ Equity is below zero (i.e., a deficit). The investor resumes its accounting for the Equity investment using the equity method once the investee’s Stockholders’ Equity is positive. It is at that point when the investee company has recouped all of its prior losses (assuming that the investee company has not raised additional equity capital).
Solutions Manual, Chapter 1
©Cambridge Business Publishers, 2020 1-3
10.
FASB ASC 323 provides the following list of required disclosures for equity method investments: a. (1) the name of each investee and percentage of ownership of common stock, (2) the accounting policies of the investor with respect to investments in common stock, and (3) the difference, if any, between the amount at which an investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference. b. For those investments in common stock for which a quoted market price is available, the aggregate value of each identified investment based on the quoted market price usually should be disclosed. This disclosure is not required for investments in common stock of subsidiaries. c. When investments in common stock of corporate joint ventures or other investments accounted for under the equity method are, in the aggregate, material in relation to the financial position or results of operations of an investor, it may be necessary for summarized information as to assets, liabilities, and results of operations of the investees to be presented in the notes or in separate statements, either individually or in groups, as appropriate. d. Conversion of outstanding convertible securities, exercise of outstanding options and warrants and other contingent issuances of an investee may have a significant effect on an investor's share of reported earnings or losses. Accordingly, material effects of possible conversions, exercises or contingent issuances should be disclosed in notes to the financial statements of an investor.
11.
Answer: d The fact that the investor has a 20% voting interest, representation on the investee’s board of directors, participates in the investee’s policy making process and has material business transactions with the investee all suggest that the investor has “significant influence” over the investee. In the case of significant influence, the investor must use the equity method of accounting for the investee. Under the equity method, the investee recognizes as income a proportionate share of the net income recognized by the investee.
©Cambridge Business Publishers, 2020 1-4
Advanced Accounting, 4th Edition
12.
Answer: b The indicators of significant influence include: investor representation on the board of directors of the investee, investor participation in policy making processes of the investee, the extent of ownership of investee voting shares by the investor in relation to the concentration of other shareholdings, material intercompany transactions between the investor and the investee, interchange of managerial personnel between the investor and the investee, and technological dependency of the investee on the investor. Indications that an investor does not have significant influence includes the investor surrendering significant rights in the investee, a concentrated group of owners of the investee who do not consider the views of the investor and a lack of representation on the investee’s board of directors.
13.
Answer: a Application of the equity method of investment accounting results in an increase in the investment account for positive net income (i.e., a decrease of net losses) and a decrease in the investment account for dividends. The company paying dividends decreases retained earnings for dividends. A company applying the fair value method or the cost-based approach will recognize as income dividends received.
14.
Answer: b When an investor can exert significant influence over an investee, the investor must use the equity method for the Equity Investment. Under the equity method, the investee recognizes as income a proportionate share of the net income recognized by the investee. In addition, if the investor paid an amount different from a proportionate share of the book value of the investee and/or if the fair values of the individual investee net assets differ from their book values, then the investor might also have to adjust equity income for the amortization of the excess. In this case, the proportionate share of the investee book value (i.e., $2,000,000 x 30%) equals the amount paid for the 30% interest (i.e., $600,000), and all individual net assets had appraised fair values that equaled their reported book values. Thus, the Equity Investment carrying value at December 31, 2019 is determined as follows: Initial Equity Investment balance at 12/31/2018 2018 share of investee net income (30% x $120,000) 2018 share of investee dividends (30% x $50,000) 2019 share of investee net income (30% x $120,000) 2019 share of investee dividends (30% x $50,000) Equity Investment balance at 12/31/2019
Solutions Manual, Chapter 1
$ 600,000 36,000 (15,000) 36,000 (15,000) $ 642,000
©Cambridge Business Publishers, 2020 1-5
15.
Answer: c The fair value method is used for reporting noncontrolling investments in equity securities that (1) do not convey to the holder of the securities “significant influence” over the investee and (2) have a readily determinable fair value. Under the fair value method, the investment is reported by the investor at the fair value of the investment on the reporting date. (Assuming the investment is not considered impaired. There is no evidence of impairment in the present problem.) Thus, at December 31, 2019, the investment is reported at $288,000 (i.e., $16 x 18,000 shares on December 31, 2019). (The following is not addressed in the problem. We are providing this discussion for completeness. Noncontrolling investments in equity securities that do not have a readily determinable fair value and also do not convey to the holder of the securities “significant influence” over the investee are reported in the balance sheet at the original cost of the investment.)
16.
Answer: b The equity method is used for reporting noncontrolling investments in equity securities that convey to the holder of the securities “significant influence” over the investee. Under the equity method, the investment is reported by the investor at the original cost of the investment and then is adjusted for the investor’s ownership percentage of all of the items that change the stockholders’ equity of the investee. (Most textbook problems in intermediate accounting and advanced accounting assume that the only changes to the stockholders’ equity of the subsidiary are net income and dividends.) In addition, any unrecorded net assets implicit in the investment are amortized. In this case, the AAP is zero because the fair value of the consideration equals the book value of the proportionate share of the investee’s net assets, and fair values of the individual identifiable net assets approximate book values. The December 31, 2019 balance is determined as follows: Beginning Investment ($12 x 18,000 shares) Plus: p% x NI (20% x $50,000) Less: p% x Dividends (20% x $15,000) Ending Investment
©Cambridge Business Publishers, 2020 1-6
$ 216,000 10,000 (3,000) $ 223,000
Advanced Accounting, 4th Edition
17.
Answer: b A cost-based approach is used for reporting noncontrolling investments in equity securities that (1) do not convey to the holder of the securities “significant influence” over the investee and (2) do not have a readily determinable fair value. Under the costbased approach, the investment is reported by the investor at the original cost of the investment. (Assuming the investment is not considered impaired. There is no evidence of impairment in the present problem.) Thus, at December 31, 2019, the investment is reported at $352,000 (i.e., $11 x 32,000 shares purchased on January 1, 2019.). (The following is not addressed in the problem. We are providing this discussion for completeness. Noncontrolling investments in equity securities are reported in the balance sheet at fair value if they have a readily determinable fair value and also do not convey to the holder of the securities “significant influence” over the investee. The change in fair value is reported in net income.)
18.
Answer: c The equity method is used for reporting noncontrolling investments in equity securities that convey to the holder of the securities “significant influence” over the investee. Under the equity method, the investment is reported by the investor at the original cost of the investment and then is adjusted for the investor’s ownership percentage of all of the items that change the stockholders’ equity of the investee. (Most textbook problems in intermediate accounting and advanced accounting assume that the only changes to the stockholders’ equity of the subsidiary are net income and dividends.) In addition, any acquisition premium implicit in the investment is amortized if the asset net assets causing the premium are amortizable (e.g., property and equipment). In this case, the 24% AAP is equal to $88,000 ($352,000 fair value of consideration paid for 24% [see answer to #17] less 24% x book value of net assets (i.e., $264,000 = 24% x $1,100,000). The only depreciable asset in the 24% AAP is the customer list, which has $21,600 of AAP assigned to it (i.e., 24% x $90,000). This results in 24% AAP amortization of $4,320 per year (i.e., $21,600/5). The December 31, 2019 equity-method investment balance is determined as follows: Beginning Investment ($11 x 32,000 shares) Plus: p% x NI (24% x $120,000) Less: p% x Dividends (24% x $40,000) Less: p% AAP amortization Ending Investment
Solutions Manual, Chapter 1
$ 352,000 28,800 (9,600) (4,320) $ 366,880
©Cambridge Business Publishers, 2020 1-7
19.
Correct: b When an investor company has significant influence over an investee company, the investor must use the equity method. Under the equity method, the investor will recognize as part of its net income a proportionate share of the net income of the investor. The income recognized by the investor must be reduced for a proportionate share of the gross profit for intercompany transactions that occurred during the current period, but that will not be part of a transaction with an unaffiliated party until a future period. In this case, at the end of the period, the investee is still holding $20,000 of inventory it purchased from the investor. Given that the gross profit percentage is 40%, this means $8,000 of the inventory balance is intercompany profits. The investor must defer its proportionate share of this amount, so $2,400 will be deducted from the equity method income recognized by the investor. This means equity method income is equal to $9,600 (i.e., (30% x $40,000) - $2,400 = $9,600).
20.
Correct: a When an investor company has significant influence over an investee company, the investor must use the equity method. Under the equity method, the investor will recognize as part of its net income a proportionate share of the net income of the investor. The income recognized by the investor must be reduced for a proportionate share of the gross profit for intercompany transactions that occurred during the current period, but that will not be part of a transaction with an unaffiliated party until a future period. In addition, income of the current period will be increased by any gross profit from prior period intercompany transactions that are realized in the current period via transactions with unaffiliated parties. In this case, at the end of the period, the investee is still holding $40,000 of inventory it purchased from the investor. Given that the gross profit percentage is 25%, this means $10,000 of the ending inventory balance is intercompany profits. In addition, at the beginning of the period, the investee held $30,000 of inventory it purchased from the investor. Given that the gross profit percentage is 25%, this means $7,500 of the beginning inventory balance is intercompany profits. The investor must defer its proportionate share of the ending profits in inventory and recognize in the current year its proportionate share of the beginning profits in inventory; thus, $3,000 (i.e., 30% x $10,000) will be deducted from the equity method income recognized by the investor and $2,250 (i.e., 30% x $7,500) will be added to the equity method income recognized by the investor. This means equity method income is equal to $17,250 (i.e., (30% x $60,000) - $3,000 + $2,250 = $17,250).
©Cambridge Business Publishers, 2020 1-8
Advanced Accounting, 4th Edition
21.
Correct: b When an investor company has significant influence over an investee company, the investor must use the equity method. Under the equity method, the investor will recognize as part of its net income a proportionate share of the net income of the investor. The income recognized by the investor must be reduced for a proportionate share of the gross profit for intercompany transactions that occurred during the current period, but that will not be part of a transaction with an unaffiliated party until a future period. In addition, income of the current period will be increased by any gross profit from prior period intercompany transactions that are realized in the current period via transactions with unaffiliated parties. The investment account will be reduced by the dividends received from the investee. The investment account at December 31, 2019 is computed as follows:
+ + + -
22.
Beginning balance at January 1, 2018 30% x NI of Investee during 2018 (30% x $50,000) 30% of 2018 profit deferred to 2019 (30% x (25% x $30,000)) 2018 dividends received (30% x $10,000) 30% x NI of Investee during 2019 (30% x $60,000) 30% of 2019 profit deferred to 2020 (30% x (25% x $40,000)) 30% of profit from 2018 recognized in 2019 (30% x (25% x $30,000)) 2019 dividends received (30% x $15,000) Ending balance at December 31, 2019
$525,000 15,000 (2,250) (3,000) 18,000 (3,000) 2,250 (4,500) $547,500
Answer: d When an investor company has significant influence over and investee, it must use the equity method of accounting. When the investor ceases to have significant influence, it must determine if the investee company’s common stock has a readily determinable fair value. If it does not have a readily determinable fair value, the investor must use a costbased approach to account for the remaining Equity Investment. If it does have a readily determinable fair value, the investor must use the fair value method to account for the remaining Equity Investment. In this case, the investee has a readily determinable fair value, so the investment must be carried at its current fair value. Based on the information, the best proxy for the current fair value of the remaining 10% investment is the selling price of the 10% interest sold to an unaffiliated party.
Solutions Manual, Chapter 1
©Cambridge Business Publishers, 2020 1-9
23.
a. The investor reports equity income equal to its proportionate share of the net income of the investee company: $400,000 x 30% = $120,000. b. The balance of the Equity Investment account at the end of the year is $560,000 ($500,000 + $120,000 - $60,000). c. The fair value of the investee company is not reflected in the financial statements of the investor company. Under the equity method, the Equity Investment account is reported after adjusting for equity income and dividends. Changes in the fair value of the investee company do not affect this reported amount (unless the fair value declines below the carrying amount of the Equity Investment and the decline is deemed to be other than temporary). The fair value should be disclosed in the notes to the financial statements.
24.
FASB ASC 323-10-35-18 requires equity method investors to “record its proportionate share of the investee’s equity adjustments for other comprehensive income … as increases or decreases to the investment account with corresponding adjustments in equity.” Thus, the investee’s net income will affect the equity method income recognized as part of the investor’s net income, and the investee’s portion of other comprehensive income (OCI) items will directly affect the investor’s OCI items (i.e., not net income). Both the net income and OCI components (i.e., total comprehensive income) will affect the Equity Investment account. a. $600,000 x 40% = $240,000 b. $750,000 + (40% x $700,000) – $80,000 = $950,000
25.
a. Equity investment
120,000 Cash
120,000
(to record the purchase of the Equity Investment)
b. Equity investment
20,000 Equity income
20,000
(to record equity income)
c. Cash
12,000 Equity investment
12,000
(to record receipt of the cash dividend)
©Cambridge Business Publishers, 2020 1-10
Advanced Accounting, 4th Edition
39.
c. [C]
[E]
[A]
[D]
[Icogs]
Income (loss) from subsidiary Dividends Equity investment
80,400
Common stock (S) - @BOY APIC (S) - @BOY Retained earnings (S) @BOY Equity investment - @BOY
60,000 84,000 486,000
PPE, net @ BOY Customer List @ BOY Royalty Agreement @ BOY Goodwill Equity Investment - @BOY
102,000 147,000 105,000 120,000
Operating expenses PPE, net @ BOY Customer list @ BOY Royalty agreement @ BOY
42,000
Equity investment Cost of goods sold
14,400
[Isales] Sales
18,000 62,400
630,000
474,000
6,000 21,000 15,000
14,400 81,600
Cost of goods sold [Icogs]
[Ipay]
81,600
Cost of goods sold Inventory
24,000
Accounts payable Accounts receivable
32,400
Solutions Manual, Chapter 4
24,000
32,400
©Cambridge Business Publishers, 2020 4-17
39.
d. Elimination Entries
Income Statement:
Parent
Subsidiary
Dr
Sales
5,160,000
939,600
[Isales]
81,600
Cost of goods sold
(3,600,000)
(564,000)
[Icogs]
24,000
Gross profit
Cr
Consolidated 6,018,000
14,400
[Icogs]
81,600
[Isales]
(4,092,000)
1,560,000
375,600
1,926,000
Income (loss) from Sub
80,400
0
[C]
80,400
0
Operating expenses
(996,000)
(243,600)
[D]
42,000
(1,281,600)
Net income
644,400
132,000
644,400
Statement of RE: BOY retained earnings
2,619,600
486,000
Net income
644,400
132,000
[E]
486,000
2,619,600
Dividends
(144,000)
(18,000)
EOY retained earnings
3,120,000
600,000
3,120,000
756,000
300,000
1,056,000
644,400 18,000
[C]
(144,000)
Balance Sheet: Assets Cash Accounts receivable
672,000
228,000
32,400
[Ipay]
867,600
Inventory
1,020,000
276,000
24,000
[Icogs]
1,272,000
PPE, net
4,800,000
516,000
[A]
102,000
6,000
[D]
5,412,000
Customer list
[A]
147,000
21,000
[D]
126,000
Royalty agreement
[A]
105,000
15,000
[D]
Goodwill
[A]
120,000
Equity investment
1,152,000
0
[Icogs]
14,400
90,000 120,000
62,400
[C]
630,000
[E]
474,000
[A]
0
8,400,000
1,320,000
8,943,600
360,000
110,400
Other current liabilities
480,000
152,400
632,400
Long-term liabilities
3,000,000
313,200
3,313,200
Common stock
816,000
60,000
[E]
60,000
816,000
APIC
624,000
84,000
[E]
84,000
624,000
3,120,000
600,000
8,400,000
1,320,000
Liabilities & SE Accounts payable
Retained earnings
©Cambridge Business Publishers, 2020 4-18
[Ipay]
32,400
438,000
3,120,000 1,378,800
1,378,800
8,943,600
Advanced Accounting, 4th Edition
40. a.
b.
Income (loss) from subsidiary Subsidiary net income Recognition of prior year deferral of gross profit Deferral of current year gross profit Depreciation of [A] asset Income (loss) from subsidiary
216,000 21,600 (36,000) (42,000) 159,600
Equity Investment BOY subsidiary retained earnings BOY subsidiary common stock BOY subsidiary APIC BOY Unamortized AAP BOY deferred profit Income (loss) from subsidiary Dividends Equity investment
180,000 120,000 156,000 126,000 * (21,600) 159,600 (36,000) 684,000
*BOY AAP assets:
dep/amort
Patent @ BOY
210,000
BOY AAP assets
210,000
Solutions Manual, Chapter 4
-2x
42,000 42,000
=
126,000 126,000
©Cambridge Business Publishers, 2020 4-19
40.
c. [C]
[E]
[A]
Income (loss) from subsidiary Dividends Equity investment
159,600
Common stock (S) - @BOY APIC (S) - @BOY Retained earnings (S) @BOY Equity investment - @BOY
120,000 156,000 180,000
Patent @ BOY
36,000 123,600
456,000
126,000 Equity Investment - @BOY
[D]
[Icogs]
[Isales]
126,000
Operating expenses Patent @ BOY
42,000
Equity Investment @BOY Cost of goods sold
21,600
Sales
120,000
42,000
21,600
Cost of goods sold [Icogs]
[Ipay]
120,000
Cost of goods sold Inventory
36,000
Accounts payable Accounts receivable
48,000
©Cambridge Business Publishers, 2020 4-20
36,000
48,000
Advanced Accounting, 4th Edition
40.
d.
Elimination Entries Income Statement:
Parent
Sales
9,840,000
1,800,000
[Isales]
120,000
Cost of goods sold
(6,840,000)
(1,104,000)
[Icogs]
36,000
Gross profit
Subsidiary
Dr
Cr
Consolidated 11,520,000
21,600
[Icogs]
120,000
[Isales]
(7,838,400)
3,000,000
696,000
Income (loss) from Sub
159,600
0
[C]
159,600
3,681,600 0
Operating expenses
(1,719,600)
(480,000)
[D]
42,000
(2,241,600)
Net income
1,440,000
216,000
BOY retained earnings
2,280,000
180,000
Net income
1,440,000
216,000
Dividends
(600,000)
(36,000)
EOY retained earnings
3,120,000
360,000
1,440,000
Statement of RE: [E]
180,000
2,280,000 1,440,000 36,000
[C]
(600,000) 3,120,000
Balance Sheet: Assets Cash
660,000
360,000
Accounts receivable
1,320,000
228,000
48,000
[Ipay]
1,500,000
Inventory
1,500,000
420,000
36,000
[Icogs]
1,884,000
Building, net
4,800,000
912,000
684,000
0
Patent Equity investment
1,020,000
5,712,000 [A] [Icogs]
126,000 21,600
42,000
[D]
84,000
123,600
[C]
0
456,000
[E]
126,000
[A]
8,964,000
1,920,000
10,200,000
732,000
252,000
Other current liabilities
912,000
312,000
1,224,000
Long-term liabilities
2,400,000
720,000
3,120,000
600,000
120,000
[E]
120,000
600,000
APIC
1,200,000
156,000
[E]
156,000
1,200,000
Retained earnings
3,120,000
360,000
8,964,000
1,920,000
Liabilities & SE Accounts payable
Common stock
Solutions Manual, Chapter 4
[Ipay]
48,000
936,000
3,120,000 1,009,200
1,009,200
10,200,000
©Cambridge Business Publishers, 2020 4-21
41. a.
Income (loss) from subsidiary Subsidiary net income Recognition of prior year deferral of gross profit Deferral of current year gross profit Depreciation of [A] asset Income (loss) from subsidiary
b. Equity Investment BOY subsidiary retained earnings BOY subsidiary common stock BOY subsidiary APIC BOY Unamortized AAP BOY deferred profit Income (loss) from subsidiary Dividends Equity investment *BOY AAP assets:
532,000 70,000 112,000 392,000 * (32,200) 79,800 (42,000) 1,111,600
dep/amort
Patent @ BOY
420,000
Goodwill
140,000
BOY AAP assets
560,000
©Cambridge Business Publishers, 2020 4-22
140,000 32,200 (50,400) (42,000) 79,800
-4x
42,000 42,000
=
252,000
=
140,000 392,000
Advanced Accounting, 4th Edition
41.
c. [C]
[E]
[A]
Income (loss) from subsidiary Dividends Equity investment
79,800 42,000 37,800
Common stock (S) - @BOY 70,000 APIC (S) - @BOY 112,000 Retained earnings (S) @BOY 532,000 Equity investment - @BOY Patent @ BOY Goodwill
252,000 140,000 Equity investment - @BOY
[D]
[Icogs]
392,000
Operating expenses Patent @ BOY
42,000
Equity investment @BOY Cost of goods sold
32,200
[Isales] Sales
42,000
32,200 175,000
Cost of goods sold [Icogs]
[Ipay]
175,000
Cost of goods sold Inventory
50,400
Accounts payable Accounts receivable
70,000
Solutions Manual, Chapter 4
714,000
50,400
70,000
©Cambridge Business Publishers, 2020 4-23
41.
d. Elimination Entries
Income Statement:
Parent
Subsidiary
Sales
5,600,000
1,050,000
[Isales]
175,000
Cost of goods sold
(4,200,000)
(630,000)
[Icogs]
50,400
Gross profit
1,400,000
Dr
Cr
Consolidated 6,475,000
32,200
[Icogs]
175,000
[Isales]
420,000
(4,673,200) 1,801,800
Income (loss) from Sub
79,800
0
[C]
79,800
0
Operating expenses
(980,000)
(280,000)
[D]
42,000
(1,302,000)
Net income
499,800
140,000
2,874,200
532,000
Net income
499,800
140,000
Dividends
(168,000)
(42,000)
EOY retained earnings
3,206,000
630,000
1,008,000
280,000
896,000
210,000
70,000
[Ipay]
1,036,000
Inventory
1,358,000
322,000
50,400
[Icogs]
1,629,600
Building, net
5,040,000
588,000
499,800
Statement of RE: BOY retained earnings
[E]
532,000
2,874,200 499,800 42,000
[C]
(168,000) 3,206,000
Balance Sheet: Assets Cash Accounts receivable
1,288,000
5,628,000
Patent
[A]
252,000
Goodwill
[A]
140,000
[Icogs]
32,200
Equity investment
1,111,600
9,413,600
0
42,000
[D]
210,000 140,000
37,800
[C]
714,000
[E]
392,000
[A]
1,400,000
0
9,931,600
Liabilities & SE: Accounts payable
383,600
98,000
Other current liabilities
504,000
140,000
644,000
Long-term liabilities
3,360,000
350,000
3,710,000
Common stock
1,120,000
70,000
[E]
70,000
[E]
112,000
APIC Retained earnings
840,000
112,000
3,206,000
630,000
9,413,600
1,400,000
©Cambridge Business Publishers, 2020 4-24
[Ipay]
70,000
411,600
1,120,000 840,000 3,206,000
1,555,400
1,555,400
9,931,600
Advanced Accounting, 4th Edition
42. a.
Income (loss) from subsidiary Subsidiary net income Recognition of prior year deferral of gross profit Deferral of current year gross profit Depreciation of [A] asset Income (loss) from subsidiary
b. Equity Investment BOY subsidiary retained earnings BOY subsidiary common stock BOY subsidiary APIC BOY Unamortized AAP BOY deferred profit Income (loss) from subsidiary Dividends Equity investment *BOY AAP assets:
460,000 72,000 96,000 281,600 * (14,400) 83,200 (20,000) 958,400
dep/amort
PPE, net
128,000
-4x
8,000
=
96,000
Customer list
64,000
-4x
6,400
=
38,400
Royalty agreement
152,000
-4x
15,200
=
91,200
Goodwill
56,000
=
56,000
BOY AAP assets
400,000
Solutions Manual, Chapter 4
120,000 14,400 (21,600) (29,600) 83,200
29,600
281,600
©Cambridge Business Publishers, 2020 4-25
42.
c. [C]
[E]
[A]
Income (loss) from subsidiary Dividends Equity investment
83,200
Common stock (S) - @BOY APIC (S) - @BOY Retained earnings (S) @BOY Equity investment - @BOY
72,000 96,000 460,000
PPE, net Customer list Royalty agreement Goodwill
96,000 38,400 91,200 56,000
20,000 63,200
628,000
Equity investment - @BOY [D]
Operating expenses
281,600 29,600
PPE, net Customer list Royalty agreement [Icogs]
Equity investment @BOY Cost of goods sold
[Isales] Sales
8,000 6,400 15,200 14,400 14,400 76,800
Cost of goods sold [Icogs]
Cost of goods sold
76,800 21,600
Inventory [Ipay]
Accounts payable
30,400 Accounts receivable
©Cambridge Business Publishers, 2020 4-26
21,600
30,400
Advanced Accounting, 4th Edition
42.
d. Elimination Entries
Income Statement:
Parent
Subsidiary
Sales
5,280,000
1,040,000
[Isales]
76,800
Cost of goods sold
(3,760,000)
(640,000)
[Icogs]
21,600
Gross profit
1,520,000
Dr
Cr
Consolidated 6,243,200
14,400
[Icogs]
76,800
[Isales]
400,000
(4,330,400) 1,912,800
Income (loss) from Sub
83,200
0
[C]
83,200
0
Operating expenses
(987,200)
(280,000)
[D]
29,600
(1,296,800)
Net income
616,000
120,000
1,544,000
460,000
Net income
616,000
120,000
Dividends
(160,000)
(20,000)
EOY retained earnings
2,000,000
560,000
Cash
200,000
288,000
Accounts receivable
709,600
248,000
30,400
[Ipay]
927,200
Inventory
772,000
344,000
21,600
[Icogs]
1,094,400
PPE, net
2,560,000
560,000
8,000
[D]
3,208,000
616,000
Statement of RE: BOY retained earnings
[E]
460,000
1,544,000 616,000 20,000
[C]
(160,000) 2,000,000
Balance Sheet: Assets 488,000
[A]
96,000
Customer list
[A]
38,400
6,400
[D]
32,000
Royalty agreement
[A]
91,200
15,200
[D]
76,000
Goodwill
[A]
56,000
Equity investment
958,400
0
[Icogs]
14,400
56,000 63,200
[C]
628,000
[E]
281,600
[A]
0
5,200,000
1,440,000
5,881,600
Accounts payable
400,000
128,000
Other current liabilities
544,000
208,000
752,000
Long-term liabilities
1,600,000
376,000
1,976,000
Common stock
240,000
72,000
[E]
72,000
240,000
APIC
416,000
96,000
[E]
96,000
416,000
2,000,000
560,000
5,200,000
1,440,000
Liabilities & SE:
Retained earnings
Solutions Manual, Chapter 4
[Ipay]
30,400
497,600
2,000,000 1,165,600
1,165,600
5,881,600
©Cambridge Business Publishers, 2020 4-27
43.
a. Year ended December 31, 2017 2018 2016
100% AAP Amortization - Dr (CR) Property, plant and equipment (PPE), net Customer List Royalty Agreement
14,000 8,750 7,000 29,750
Goodwill Net amortization
100% Unamortized AAP - Dr (CR) Property, plant and equipment (PPE), net Customer List Royalty Agreement Goodwill Net unamortized
Jan. 1 2016
2016
140,000 70,000 56,000 84,000 350,000
126,000 61,250 49,000 84,000 320,250
14,000 8,750 7,000 29,750
2019
14,000 8,750 7,000 29,750
14,000 8,750 7,000 29,750
December 31, 2017 2018
2019
112,000 52,500 42,000 84,000 290,500
98,000 43,750 35,000 84,000 260,750
84,000 35,000 28,000 84,000 231,000
b. BOY [ADJ] for consolidation at December 31, 2019
Change in RE(S) thru BOY Cumulative AAP amort thru BOY BOY Upstream IIP ADJ Amount
147,000 (89,250) (7,350) 50,400
©Cambridge Business Publishers, 2017 4-28
Advanced Accounting by Halsey & Hopkins, 3rd Edition
43.
c. [ADJ]
BOY Equity Investment BOY Retained Earnings (P)
50,400
Income (loss) from subsidiary Dividends
10,500
BOY Common stock (S) BOY APIC (S) BOY Retained earnings (S) Equity investment
35,000 38,500 283,500
PPE, net Customer list Royalty Agreement Goodwill Equity Investment
98,000 43,750 35,000 84,000
Operating expenses PPE, net Customer List Royalty Agreement
29,750
[Icogs] Equity Investment Cost of goods sold
7,350
[Isales] Sales
42,000
[C]
[E]
[A]
[D]
50,400
10,500
357,000
260,750
14,000 8,750 7,000
7,350
Cost of goods sold
42,000
[Icogs] Cost of goods sold Inventory
5,600
[Ipay]
19,600
Accounts payable Accounts receivable
5,600
19,600
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
4-29
43.
c.
continued Consolidation Entries
Income Statement
Parent
Subsidiary
Sales
3,045,000
560,000
[Isales]
42,000
Dr
Cost of goods sold
(2,135,000)
(336,000)
[Icogs]
5,600
Cr
Consolidated 3,563,000
7,350
[Icogs]
42,000
[Isales]
(2,427,250)
Gross profit
910,000
224,000
1,135,750
Operating expenses
(581,000)
(140,000)
Income (loss) from Sub
10,500
Net income
339,500
84,000
1,400,000
283,500
Net income
339,500
84,000
Dividends
(87,500)
(10,500)
Ending retained earnings
1,652,000
357,000
1,747,900
Cash
455,000
175,000
630,000
Accounts receivable
392,000
126,000
19,600
[Ipay]
498,400
Inventory
595,000
175,000
5,600
[Icogs]
764,400
Equity investment
560,000
0
[D]
29,750
(750,750)
[C]
10,500
0 385,000
RE statement: BOY retained earnings
[E]
283,500
50,400
[ADJ]
1,450,400 385,000
10,500
[C]
(87,500)
Balance sheet: Assets
PPE, net
294,000
50,400
357,000
[E]
[Icogs]
7,350
260,750
[A]
[A]
98,000
14,000
[D]
3,178,000
Customer List
[A]
43,750
8,750
[D]
35,000
Royalty Agreement
[A]
35,000
7,000
[D]
28,000
Goodwill
[A]
84,000
Total assets
2,800,000
[ADJ]
84,000
4,802,000
770,000
5,217,800
Accounts payable
245,000
70,000
Other current liabilities
280,000
87,500
367,500
Long-term liabilities
1,750,000
182,000
1,932,000
490,000
35,000
[E]
35,000
[E]
38,500
Liabilities and SE
Common stock APIC
385,000
38,500
Retained earnings
1,652,000
357,000
Total liabilities and equity
4,802,000
770,000
[Ipay]
19,600
295,400
490,000 385,000 1,747,900
782,950
782,950
5,217,800
©Cambridge Business Publishers, 2017 4-30
Advanced Accounting by Halsey & Hopkins, 3rd Edition
44.
a. 100% AAP Amortization - Dr (CR) Property, plant and equipment (PPE), net Customer List Patent Net amortization
100% Unamortized AAP - Dr (CR) Property, plant and equipment (PPE), net Customer List Patent Net unamortized
Jan. 1 2015 48,000 30,000 72,000 150,000
2015 4,800 3,750 6,000 14,550
Year Ended December 31 2016 2017 2018 4,800 4,800 4,800 3,750 3,750 3,750 6,000 6,000 6,000 14,550 14,550 14,550
2019 4,800 3,750 6,000 14,550
2015 43,200 26,250 66,000 135,450
December 31, 2016 2017 2018 38,400 33,600 28,800 22,500 18,750 15,000 60,000 54,000 48,000 120,900 106,350 91,800
2019 24,000 11,250 42,000 77,250
b. BOY [ADJ] for consolidation at December 31, 2019 Change in RE(S) thru BOY 120,000 Cumulative AAP amort thru BOY (58,200) BOY Upstream IIP (7,200) ADJ Amount 54,600
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
4-31
44.
c. [ADJ]
[C]
[E]
[A]
BOY Equity Investment BOY Retained Earnings (P)
54,600
Income (loss) from subsidiary Dividends
30,000
BOY Common stock (S) BOY APIC (S) BOY Retained earnings (S) Equity investment
60,000 75,000 855,000
PPE, net Customer List Patent
28,800 15,000 48,000
54,600
30,000
990,000
Equity Investment [D]
[Icogs]
[Isales]
91,800
Operating expenses PPE, net Customer List Patent
14,550
Equity Investment Cost of goods sold
7,200
Sales
60,000
4,800 3,750 6,000
7,200
Cost of goods sold [Icogs]
[Ipay]
60,000
Cost of goods sold Inventory
8,400
Accounts payable Accounts receivable
23,400
8,400
23,400
©Cambridge Business Publishers, 2017 4-32
Advanced Accounting by Halsey & Hopkins, 3rd Edition
44.
c. continued Consolidation Entries
Income Statement
Parent
Subsidiary
Sales
5,760,000
780,000
[Isales]
60,000
Cost of goods sold
(4,020,000)
(480,000)
[Icogs]
8,400
Gross profit
1,740,000
300,000
Operating expenses
(1,080,000)
(210,000)
Income (loss) from Sub
30,000
Net income
690,000
90,000
2,880,000
855,000
Dr
Cr
Consolidated 6,480,000
7,200
[Icogs]
60,000
[Isales]
(4,441,200) 2,038,800
[D]
14,550
(1,304,550)
[C]
30,000
0 734,250
RE statement: BOY retained earnings
[E]
855,000
54,600
[ADJ]
2,934,600
30,000
[C]
(150,000)
Net income
690,000
90,000
Dividends
(150,000)
(30,000)
734,250
Ending retained earnings
3,420,000
915,000
3,518,850
Cash
420,000
240,000
660,000
Accounts receivable
720,000
180,000
23,400
[Ipay]
876,600
Inventory
1,080,000
360,000
8,400
[Icogs]
1,431,600
Equity investment
1,020,000
0
Balance sheet: Assets
PPE, net
480,000
54,600
990,000
[E]
[Icogs]
7,200
91,800
[A]
[A]
28,800
4,800
[D]
3,504,000
Customer List
[A]
15,000
3,750
[D]
11,250
Patent
[A]
48,000
6,000
[D]
42,000
Total assets
3,000,000
[ADJ]
6,240,000
1,260,000
6,525,450
Accounts payable
420,000
90,000
Other current liabilities
540,000
120,000
660,000
Long-term liabilities
900,000
-
900,000
Common stock
360,000
60,000
[E]
60,000
360,000
APIC
600,000
75,000
[E]
75,000
600,000
Retained earnings
3,420,000
915,000
Total liabilities and equity
6,240,000
1,260,000
Liabilities and SE [Ipay]
23,400
486,600
3,518,850 1,279,950
1,279,950
6,525,450
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
4-33
45. a. Year Ended December 31 2017 2018 2019
100% AAP Amortization - Dr (CR) Accounts Receivable PPE, net Licenses Patent Net amortization
100% Unamortized AAP - Dr (CR) Accounts Receivable Property, plant and equipment (PPE), net Licenses Patent Goodwill Net unamortized
15,000 13,500 11,250 9,000 48,750
Jan. 1 2017
13,500 11,250 9,000 33,750
December 31, 2017 2018
13,500 11,250 9,000 33,750
2019
15,000
-
-
-
135,000 90,000 45,000 90,000 375,000
121,500 78,750 36,000 90,000 326,250
108,000 67,500 27,000 90,000 292,500
94,500 56,250 18,000 90,000 258,750
b. BOY [ADJ] for consolidation at December 31, 2019 Change in RE(S) thru BOY 157,500 Cumulative AAP amort thru BOY (82,500) BOY Upstream IIP (7,500) ADJ Amount 67,500
©Cambridge Business Publishers, 2017 4-34
Advanced Accounting by Halsey & Hopkins, 3rd Edition
45.
c. [ADJ]
[C]
[E]
[A]
BOY Equity Investment BOY Retained Earnings (P)
67,500
Income (loss) from subsidiary Dividends
11,250
BOY Common stock (S) BOY APIC (S) BOY Retained earnings (S) Equity investment
37,500 41,250 303,750
PPE, net Licenses Patent Goodwill
108,000 67,500 27,000 90,000
67,500
11,250
382,500
Equity Investment
[D]
[Icogs]
292,500
Operating expenses PPE, net Licenses Patent
33,750
Equity Investment Cost of goods sold
7,500
[Isales] Sales
13,500 11,250 9,000
7,500 30,000
Cost of goods sold [Icogs]
[Ipay]
30,000
Cost of goods sold Inventory
5,625
Accounts payable Accounts receivable
21,000
5,625
21,000
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
4-35
45.
c. continued Consolidation Entries
Income Statement
Parent
Subsidiary
Sales
3,262,500
600,000
[Isales]
30,000
Cost of goods sold
(2,287,500)
(360,000)
[Icogs]
5,625
Gross profit
975,000
240,000
Operating expenses
(622,500)
(150,000)
Dr
Cr
Consolidated 3,832,500
7,500
[Icogs]
30,000
[Isales]
(2,615,625) 1,216,875
[D]
33,750
(806,250)
[C]
11,250
0
Income (loss) from Sub.
11,250
Net income
363,750
90,000
1,500,000
303,750
Net income
363,750
90,000
Dividends
(93,750)
(11,250)
Ending retained earnings
1,770,000
382,500
1,884,375
Cash
487,500
187,500
675,000
Accounts receivable
420,000
135,000
21,000
[Ipay]
534,000
Inventory
637,500
187,500
5,625
[Icogs]
819,375
Equity investment
600,000
0
410,625
RE statement: BOY retained earnings
[E]
303,750
67,500
[ADJ]
1,567,500 410,625
11,250
[C]
(93,750)
Balance sheet: Assets
PPE, net
315,000
67,500
382,500
[E]
[Icogs]
7,500
292,500
[A]
[A]
108,000
13,500
[D]
3,409,500
Licenses
[A]
67,500
11,250
[D]
56,250
Patent
[A]
27,000
9,000
[D]
18,000
Goodwill
[A]
90,000
Total assets
3,000,000
[ADJ]
5,145,000
825,000
262,500
75,000
90,000 5,602,125
Liabilities and SE Accounts payable
[Ipay]
21,000
316,500
Other current liabilities
300,000
93,750
393,750
Long-term liabilities
1,875,000
195,000
2,070,000
Common stock
525,000
37,500
[E]
37,500
525,000
APIC
412,500
41,250
[E]
41,250
412,500
EOY Retained earnings
1,770,000
382,500
Total liabilities and equity
5,145,000
825,000
1,884,375 851,625
851,625
5,602,125
©Cambridge Business Publishers, 2017 4-36
Advanced Accounting by Halsey & Hopkins, 3rd Edition
46. a. Income (loss) from subsidiary Subsidiary net income Depreciation of [A] asset Income (loss) from subsidiary
$63,000 (18,000)* $45,000
b. Equity Investment EOY subsidiary retained earnings EOY subsidiary common stock EOY subsidiary APIC EOY Unamortized AAP Unconfirmed gain on intercompany sale @ EOY Equity investment
225,000 27,000 45,000 216,000 * (36,000) 477,000
*EOY Unamortized AAP:
dep/amort
Patent @ BOY
180,000
Goodwill
90,000
EOY AAP assets
270,000
-3x
18,000 18,000
=
126,000
=
90,000 216,000
c. [C]
[E]
[A]
Income (loss) from subsidiary Dividends Equity Investment
45,000
Common stock (S) - @BOY APIC (S) - @BOY Retained earnings (S) @BOY Equity Investment - @BOY
27,000 45,000 177,300
Patent @ BOY Goodwill
15,300 29,700
249,300 144,000 90,000
Equity Investment - @BOY [D] [Igain]
234,000
Operating Expenses Patent @ BOY
18,000
Equity Investment @BOY Land
36,000
18,000 36,000
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
4-37
46.
d. Elimination Entries
Income Statement:
Parent
Subsidiary
Dr
Cr
Consolidated
Sales
2,700,000
342,000
3,042,000
Cost of goods sold
(1,890,000)
(198,000)
(2,088,000)
Gross profit
810,000
144,000
954,000
Income (loss) from Sub
45,000
0
[C]
45,000
0
Operating expenses
(513,000)
(81,000)
[D]
18,000
(612,000)
Net income
342,000
63,000
648,000
177,300
342,000
Statement of RE: BOY retained earnings
[E]
177,300
648,000
Net income
342,000
63,000
Dividends
(90,000)
(15,300)
342,000
EOY retained earnings
900,000
225,000
900,000
Cash
234,000
108,000
342,000
Accounts receivable
342,000
72,000
414,000
Inventory
522,000
135,000
PPE, net
1,800,000
193,500
15,300
[C]
(90,000)
Balance Sheet: Assets
657,000
Patent
[A]
144,000
Goodwill
[A]
90,000
[Igain]
36,000
Equity investment
477,000
0
36,000
[Igain]
1,957,500
18,000
[D]
126,000 90,000
29,700
[C]
249,300
[E]
234,000
[A]
0
3,375,000
508,500
3,586,500
Accounts payable
201,600
45,000
246,600
Other current liabilities
248,400
54,000
302,400
Long-term liabilities
1,350,000
112,500
1,462,500
Common stock
360,000
27,000
[E]
27,000
360,000
APIC
315,000
45,000
[E]
45,000
315,000
Retained earnings
900,000
225,000
3,375,000
508,500
Liabilities & SE
900,000 582,300
582,300
3,586,500
©Cambridge Business Publishers, 2017 4-38
Advanced Accounting by Halsey & Hopkins, 3rd Edition
47. a. Income (loss) from subsidiary Subsidiary net income Depreciation of [A] assets Income (loss) from subsidiary
148,200 (59,800)* 88,400
b. Equity Investment EOY subsidiary retained earnings EOY subsidiary common stock EOY subsidiary APIC EOY Unamortized AAP Unconfirmed gain on intercompany sale @ EOY Equity investment *EOY Unamortized AAP:
650,000 65,000 156,000 358,800 * (65,000) 1,164,800
dep/amort
Royalty agreement @ BOY
468,000
-4x
46,800
=
280,800
Customer list
130,000
-4x
13,000
=
78,000
EOY AAP assets
598,000
59,800
358,800
c. [C]
[E]
[A]
[D]
[Igain]
Income (loss) from subsidiary Dividends Equity investment
88,400
Common stock (S) - @BOY APIC (S) - @BOY Retained earnings (S) @BOY Equity investment - @BOY
65,000 156,000 520,000
Royalty agreement @ BOY Customer list Equity investment - @BOY
327,600 91,000
Operating expenses Royalty agreement Customer list
59,800
Equity investment @BOY Land
65,000
18,200 70,200
741,000
418,600
46,800 13,000
65,000
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
4-39
47.
d.
Elimination Entries Income Statement:
Parent
Subsidiary
Sales
5,980,000
1,053,000
7,033,000
Cost of goods sold
(4,186,000)
(631,800)
(4,817,800)
Gross profit
1,794,000
421,200
2,215,200
Income (loss) from Sub Operating expenses Net income
Dr
Cr
Consolidated
88,400
0
[C]
88,400
0
(1,136,200)
(273,000)
[D]
59,800
(1,469,000)
746,200
148,200
746,200
Statement of RE: BOY retained earnings
2,600,000
520,000
Net income
746,200
148,200
[E]
520,000
2,600,000
Dividends
(221,000)
(18,200)
EOY retained earnings
3,125,200
650,000
3,125,200
Cash
520,000
338,000
858,000
Accounts receivable
715,000
252,200
967,200
Inventory
988,000
338,000
1,326,000
PPE, net
5,712,200
631,800
746,200 18,200
[C]
(221,000)
Balance Sheet: Assets
Royalty Agreement Customer List Equity investment
1,164,800
0
65,000
[Igain]
6,279,000
[A]
327,600
46,800
[D]
280,800
[A]
91,000
13,000
[D]
78,000
[Igain]
65,000
70,200
[C]
0
741,000
[E]
418,600
[A]
9,100,000
1,560,000
9,789,000
447,200
124,800
572,000
Other current liabilities
574,600
213,200
787,800
Long-term liabilities
3,250,000
351,000
3,601,000
Common stock
977,600
65,000
[E]
65,000
977,600
APIC
725,400
156,000
[E]
156,000
725,400
3,125,200
650,000
9,100,000
1,560,000
Liabilities & SE Accounts payable
Retained earnings
3,125,200 1,372,800
1,372,800
9,789,000
©Cambridge Business Publishers, 2017 4-40
Advanced Accounting by Halsey & Hopkins, 3rd Edition
48.
a. Income (loss) from subsidiary Subsidiary net income Depreciation of [A] asset Income (loss) from subsidiary
$252,000 (19,200)* $232,800
b. Equity Investment EOY subsidiary retained earnings EOY subsidiary common stock EOY subsidiary APIC EOY Unamortized AAP Unconfirmed gain on intercompany sale @ EOY Equity investment *EOY Unamortized AAP:
$1,120,000 120,000 144,000 235,200 * (32,000) $1,587,200
dep/amort
Patent
192,000
Goodwill
120,000
BOY AAP assets
312,000
-4x
19,200 19,200
=
115,200
=
120,000 235,200
c. [C]
Income (loss) from subsidiary
232,800
Dividends Equity Investment [E]
[A]
32,000 200,800
Common stock (S) - @BOY APIC (S) - @BOY Retained earnings (S) @BOY Equity Investment - @BOY
120,000 144,000 900,000
Patent Goodwill
134,400 120,000
1,164,000
Equity Investment - @BOY [D]
254,400
Operating expenses Patent
19,200
[Igain] Equity Investment @BOY Land
32,000
19,200
32,000
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
4-41
48.
d. Elimination Entries
Income Statement:
Parent
Subsidiary
Dr
Cr
Consolidated
Sales
4,880,000
1,720,000
6,600,000
Cost of goods sold
(3,440,000)
(1,000,000)
(4,440,000)
Gross profit
1,440,000
720,000
2,160,000
Income (loss) from Sub
232,800
0
[C]
232,800
0
Operating expenses
(912,000)
(468,000)
[D]
19,200
(1,399,200)
Net income
760,800
252,000
1,495,200
900,000
760,800
Statement of RE: BOY retained earnings
[E]
900,000
1,495,200
Net income
760,800
252,000
Dividends
(176,000)
(32,000)
760,800
EOY retained earnings
2,080,000
1,120,000
2,080,000
Cash
288,000
440,000
728,000
Accounts receivable
454,400
497,600
952,000
Inventory
720,000
536,000
PPE, net
2,550,400
926,400
32,000
[C]
(176,000)
Balance Sheet: Assets
1,256,000
Patent
[A]
134,400
Goodwill
[A]
120,000
[Igain]
32,000
Equity investment
1,587,200
0
32,000
[Igain]
3,444,800
19,200
[D]
115,200 120,000
200,800
[C]
1,164,000
[E]
254,400
[A]
0
5,600,000
2,400,000
6,616,000
Accounts payable
352,000
168,000
520,000
Other current liabilities
440,000
288,000
728,000
Long-term liabilities
1,360,000
560,000
1,920,000
Common stock
784,000
120,000
[E]
120,000
784,000
APIC
584,000
144,000
[E]
144,000
584,000
2,080,000
1,120,000
5,600,000
2,400,000
Liabilities & SE
Retained earnings
2,080,000 1,702,400
1,702,400
6,616,000
©Cambridge Business Publishers, 2017 4-42
Advanced Accounting by Halsey & Hopkins, 3rd Edition
49.
a. Income (loss) from subsidiary Subsidiary net income Depreciation of [A] asset Income (loss) from subsidiary
$280,000 (17,500)* $262,500
b. Equity Investment EOY subsidiary retained earnings EOY subsidiary common stock EOY subsidiary APIC EOY Unamortized AAP Unconfirmed gain on intercompany sale @ EOY Equity investment *EOY Unamortized AAP:
$840,000 140,000 304,500 171,500 * (56,000) $1,400,000
dep/amort
Customer list
126,000
-5x
12,600
=
63,000
Patent
49,000
-5x
4,900
=
24,500
Goodwill
84,000
=
84,000
EOY AAP assets
259,000
17,500
171,500
c. [C]
[E]
[A]
Income (loss) from subsidiary Dividends Equity investment
262,500
Common stock (S) - @BOY APIC (S) - @BOY Retained earnings (S) @BOY Equity investment - @BOY
140,000 304,500 597,800
Customer list Patent Goodwill
75,600 29,400 84,000
37,800 224,700
1,042,300
Equity investment - @BOY [D]
Operating expenses Customer list Patent
[Igain] Equity investment @BOY Land
189,000 17,500 12,600 4,900 56,000 56,000
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
4-43
49.
d. Elimination Entries
Income Statement:
Parent
Subsidiary
Dr
Cr
Consolidated
Sales
4,900,000
2,100,000
7,000,000
Cost of goods sold
(3,220,000)
(1,260,000)
(4,480,000)
Gross profit
1,680,000
840,000
2,520,000
Income (loss) from Sub
262,500
0
[C]
262,500
0
Operating expenses
(1,260,000)
(560,000)
[D]
17,500
(1,837,500)
682,500
280,000
2,030,000
597,800
Net income
682,500
Statement of RE: BOY retained earnings
[E]
597,800
2,030,000
Net income
682,500
280,000
Dividends
(189,000)
(37,800)
682,500
EOY retained earnings
2,523,500
840,000
2,523,500
Cash
298,900
322,000
620,900
Accounts receivable
569,800
273,000
842,800
37,800
[C]
(189,000)
Balance Sheet: Assets
Inventory
699,300
483,000
PPE, net
3,122,000
1,372,000
1,182,300 56,000
[Igain]
4,438,000
Customer List
[A]
75,600
12,600
[D]
63,000
Patent
[A]
29,400
4,900
[D]
24,500
[A]
84,000
[Igain]
56,000
224,700
[C]
1,042,300
[E]
189,000
[A]
Goodwill Equity investment
1,400,000
0
84,000 0
6,090,000
2,450,000
7,255,500
Accounts payable
407,400
178,500
585,900
Other current liabilities
513,100
357,000
870,100
Long-term liabilities
Liabilities & SE
1,750,000
630,000
Common stock
215,600
140,000
[E]
140,000
215,600
APIC
680,400
304,500
[E]
304,500
680,400
2,523,500
840,000
6,090,000
2,450,000
Retained earnings
2,380,000
2,523,500 1,567,300
1,567,300
7,255,500
©Cambridge Business Publishers, 2017 4-44
Advanced Accounting by Halsey & Hopkins, 3rd Edition
50.
a. Subsidiary Cash Accumulated depreciation
72,000 33,600
Equipment Gain on sale of Equipment (to record the sale of equipment)
84,000 21,600
Parent Equipment
72,000
Cash (to record the purchase of equipment)
72,000
[Igain] Gain on sale of Equipment 21,600 Equipment 12,000 Accumulated depreciation (to adjust Gain, Equipment, and Accumulated Depreciation on the date of the intercompany transfer of equipment – given that the transaction occurred at the beginning of the year, usage of the equipment for the year must be reflected in a separate entry) [Idep]
Accumulated depreciation Depreciation expense (to eliminate the excess depreciation expense recorded by the parent, and to adjust accumulated depreciation from the BOY amount to the EOY amount). The excess depreciation is $3,600 ($72,000 / 6 = $12,000 vs. $84,000 / 10 = $8,400).
33,600
3,600 3,600
b. The excess depreciation is $3,600 ($72,000 / 6 = $12,000 vs. $84,000 / 10 = $8,400). Through the BOY, one year have passed, so, at the beginning of the current year, the deferred gain is $18,000 ($21,600 - $3,600). c. Income (loss) from subsidiary Subsidiary net income AAP Depreciation Deferred gain on intercompany sale Income (loss) from subsidiary
84,000 (13,200)* 3,600 74,400
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
4-45
50.
d. Equity Investment EOY subsidiary retained earnings EOY subsidiary common stock EOY subsidiary APIC EOY Unamortized AAP Deferred gain on intercompany sale Equity investment *EOY Unamortized AAP:
240,000 68,400 90,000 156,000 * (14,400) 540,000 dep/amort
Customer List
132,000
Goodwill
90,000
EOY AAP assets
222,000
-5x
13,200 13,200
=
66,000
=
90,000 156,000
e. [C]
[E]
[A]
Income (loss) from subsidiary Dividends Equity Investment
74,400
Common stock (S) - @BOY APIC (S) - @BOY Retained earnings (S) @BOY Equity investment - @BOY
68,400 90,000 168,000
Customer list Goodwill
79,200 90,000
12,000 62,400
326,400
Equity investment - @BOY [D] [Igain]
[Idep]
169,200
Operating expenses Customer list
13,200
Equity investment - @BOY Equipment Accumulated depreciation
18,000 12,000
Accumulated Depreciation Depreciation Expense
3,600
13,200
30,000 3,600
©Cambridge Business Publishers, 2017 4-46
Advanced Accounting by Halsey & Hopkins, 3rd Edition
50.
f. Elimination Entries
Income Statement:
Parent
Subsidiary
Dr
Cr
Consolidated
Sales
4,800,000
720,000
5,520,000
Cost of goods sold
(3,480,000)
(420,000)
(3,900,000)
Gross profit
1,320,000
300,000
1,620,000
74,400
0
[C]
74,400
(1,094,400)
(216,000)
[D]
13,200
300,000
84,000
Income (loss) from Sub Operating expenses Net income
0 3,600
[Idep]
(1,320,000) 300,000
Statement of RE: BOY retained earnings
2,268,000
168,000
Net income
300,000
84,000
[E]
168,000
2,268,000
Dividends
(168,000)
(12,000)
EOY retained earnings
2,400,000
240,000
2,400,000
Cash
330,000
192,000
522,000
Accounts receivable
420,000
258,000
678,000
Inventory
780,000
330,000
1,110,000
PPE, net
3,030,000
618,000
300,000 12,000
[C]
(168,000)
Balance Sheet: Assets
[Igain]
12,000
[Idep]
3,600
Customer List
[A]
79,200
Goodwill
[A]
90,000
[Igain]
18,000
Equity investment
540,000
5,100,000
0
30,000
[Igain]
3,633,600
13,200
[D]
66,000 90,000
62,400
[C]
326,400
[E]
169,200
[A]
0
1,398,000
6,099,600
Liabilities & SE Accounts payable
390,000
99,600
489,600
Other current liabilities
480,000
120,000
600,000
Long-term liabilities
900,000
780,000
1,680,000
Common stock
330,000
68,400
[E]
68,400
[E]
90,000
APIC Retained earnings
600,000
90,000
2,400,000
240,000
5,100,000
1,398,000
330,000 600,000 2,400,000
616,800
616,800
6,099,600
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
4-47
51.
a. Subsidiary Cash Accumulated depreciation Equipment
200,000 230,400 384,000
Gain on sale of Equipment (to record the sale of equipment)
46,400
Parent Equipment
200,000
Cash (to record the purchase of equipment) [Igain]
[Idep]
200,000
Gain on sale of Equipment 46,400 Equipment 184,000 Accumulated depreciation (to adjust Gain, Equipment, and Accumulated Depreciation on the date of the intercompany transfer of equipment – given that the transaction occurred at the beginning of the year, usage of the equipment for the year must be reflected in a separate entry) Accumulated depreciation Depreciation expense (to eliminate the excess depreciation expense recorded by the parent, and to adjust accumulated depreciation from the BOY amount to the EOY amount). The excess depreciation is $11,600 ($200,000 / 4 = $50,000 vs. $384,000 / 10 = $38,400).
230,400
11,600 11,600
b. The excess depreciation is $11,600 ($200,000 / 4 = $50,000 vs. $384,000 / 10 = $38,400). Through the BOY, three years have passed, so the deferred gain is now $11,600 ($46,400 – 3 x $11,600). c. Income (loss) from subsidiary Subsidiary net income AAP Depreciation Deferred gain on intercompany sale Income (loss) from subsidiary
$100,800 (44,000)* 11,600 $ 68,400
©Cambridge Business Publishers, 2017 4-48
Advanced Accounting by Halsey & Hopkins, 3rd Edition
51.
d. Equity Investment EOY subsidiary retained earnings EOY subsidiary common stock EOY subsidiary APIC EOY Unamortized AAP Deferred gain on intercompany sale Equity investment *EOY Unamortized AAP:
$400,000 88,000 268,000 44,000 * 0 $800,000 dep/amort
Royalty Agreement
168,000
-6x
24,000
=
24,000
Customer List
140,000
-6x
20,000
=
20,000
EOY AAP assets
308,000
44,000
44,000
e. [C]
[E]
[A]
[D]
[Igain]
Income (loss) from subsidiary Dividends Equity investment
68,400
Common stock (S) - @BOY APIC (S) - @BOY Retained earnings (S) @BOY Equity investment - @BOY
88,000 268,000 312,800
Royalty agreement Customer list Equity investment - @BOY
48,000 40,000
Operating expenses Royalty agreement Customer list
44,000
Equity investment @ BOY
11,600
Equipment
184,000
13,600 54,800
668,800
88,000
24,000 20,000
Accumulated depreciation [Idep]
Accumulated depreciation Depreciation expense
195,600 11,600 11,600
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
4-49
51.
f. Elimination Entries
Income Statement:
Parent
Subsidiary
Dr
Cr
Consolidated
Sales
2,640,000
704,000
3,344,000
Cost of goods sold
(1,920,000)
(420,800)
(2,340,800)
Gross profit
720,000
283,200
1,003,200
Income (loss) from Sub
68,400
0
[C]
68,400
Operating expenses
(408,400)
(182,400)
[D]
44,000
Net income
380,000
100,800
1,460,000
312,800
0 11,600
[Idep]
(623,200) 380,000
Statement of RE: BOY retained earnings
[E]
312,800
1,460,000
Net income
380,000
100,800
Dividends
(80,000)
(13,600)
380,000
EOY retained earnings
1,760,000
400,000
1,760,000
Cash
224,800
194,400
419,200
Accounts receivable
472,800
300,800
773,600
Inventory
702,400
384,800
PPE, net
2,600,000
720,000
13,600
[C]
(80,000)
Balance Sheet: Assets
Royalty Agreement Customer List Equity investment
800,000
0
1,087,200 [Igain]
184,000
195,600
[Igain]
3,320,000
[Idep]
11,600
[A]
48,000
24,000
[D]
24,000
[A]
40,000
20,000
[D]
20,000
[Igain]
11,600
54,800
[C]
0
668,800
[E]
88,000
[A]
4,800,000
1,600,000
5,644,000
Accounts payable
272,800
120,000
392,800
Other current liabilities
321,600
160,000
481,600
Long-term liabilities
1,200,000
564,000
148,000
88,000
[E]
88,000
148,000
APIC
1,097,600
268,000
[E]
268,000
1,097,600
Retained earnings
1,760,000
400,000
4,800,000
1,600,000
Liabilities & SE
Common stock
1,764,000
1,760,000 1,076,400
1,076,400
5,644,000
©Cambridge Business Publishers, 2017 4-50
Advanced Accounting by Halsey & Hopkins, 3rd Edition
52.
a. Parent Cash Accumulated depreciation Equipment Gain on sale of Equipment
160,000 92,500 185,000 67,500
(to record the sale of equipment)
Subsidiary Equipment
160,000
Cash (to record the purchase of equipment) [Igain]
[Idep]
160,000
Gain on sale of Equipment 67,500 Equipment 25,000 Accumulated depreciation (to adjust Gain, Equipment, and Accumulated Depreciation on the date of the intercompany transfer of equipment – given that the transaction occurred at the beginning of the year, usage of the equipment for the year must be reflected in a separate entry) Accumulated depreciation 13,500 Depreciation expense (to eliminate the excess depreciation expense recorded by the subsidiary, and to adjust accumulated depreciation from the BOY amount to the EOY amount). The excess depreciation is $13,500 ($160,000 / 5= $32,000 vs. $185,000 / 10 = $18,500).
92,500
13,500
b. The excess depreciation is $13,500 ($160,000 / 5= $32,000 vs. $185,000 / 10 = $18,500) . Through the BOY, one year has passed, so the deferred gain is now $54,000 ($67,500 – [1 x $13,500]). c. Income (loss) from subsidiary Subsidiary net income AAP Depreciation Deferred gain on intercompany sale Income (loss) from subsidiary
$320,000 (54,000)* 13,500 $279,500
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
4-51
52.
d. Equity Investment EOY subsidiary retained earnings EOY subsidiary common stock EOY subsidiary APIC EOY Unamortized AAP Deferred gain on intercompany sale Equity investment *EOY Unamortized AAP:
$1,000,000 200,000 556,500 284,000 * (40,500) $2,000,000
amort
Patent
240,000
-4x
24,000
=
144,000
Customer List
150,000
-4x
30,000
=
30,000
Goodwill
110,000
=
110,000
EOY AAP assets
500,000
54,000
284,000
e. [C]
[E]
[A]
Income (loss) from subsidiary Dividends Equity investment
279,500
Common stock (S) - @BOY APIC (S) - @BOY Retained earnings (S) @BOY Equity investment - @BOY
200,000 556,500 730,000
Patent Customer list Goodwill
168,000
50,000 229,500
1,486,500
60,000 110,000 Equity investment - @BOY
[D]
Operating expenses Patent Customer list
338,000 54,000 24,000 30,000
[Igain] Equity investment @ BOY Equipment Accumulated depreciation
54,000 25,000
[Idep] Accumulated depreciation Depreciation expense
13,500
79,000
13,500
©Cambridge Business Publishers, 2017 4-52
Advanced Accounting by Halsey & Hopkins, 3rd Edition
52.
f. Elimination Entries
Income Statement:
Parent
Subsidiary
Dr
Cr
Consolidated
Sales
6,920,000
2,500,000
9,420,000
Cost of goods sold
(4,422,000)
(1,520,000)
(5,942,000)
Gross profit
2,498,000
980,000
3,478,000
Income (loss) from Sub
279,500
0
[C]
279,500
Operating expenses
(1,777,500)
(660,000)
[D]
54,000
Net income
1,000,000
320,000
BOY retained earnings
3,290,000
730,000
Net income
1,000,000
320,000
Dividends
(290,000)
(50,000)
EOY retained earnings
4,000,000
1,000,000
4,000,000
Cash
160,000
408,000
568,000
Accounts receivable
500,000
605,000
1,105,000
0 13,500
[Idep]
(2,478,000) 1,000,000
Statement of RE: [E]
730,000
3,290,000 1,000,000 50,000
[C]
(290,000)
Balance Sheet: Assets
Inventory
840,000
865,000
PPE, net
5,000,000
2,622,000
1,705,000 [Igain]
25,000
[Idep]
13,500
Patent
[A]
Customer List Goodwill Equity investment
2,000,000
0
79,000
[Igain]
7,581,500
168,000
24,000
[D]
144,000
[A]
60,000
30,000
[D]
[A]
110,000
[Igain]
54,000
30,000 110,000
229,500
[C]
1,486,500
[E]
338,000
[A]
0
8,500,000
4,500,000
11,243,500
186,000
357,500
543,500
Liabilities & SE Accounts payable Other current liabilities
570,000
586,000
1,156,000
Long-term liabilities
2,500,000
1,800,000
4,300,000
Common stock
493,000
200,000
[E]
200,000
493,000
APIC
751,000
556,500
[E]
556,500
751,000
4,000,000
1,000,000
8,500,000
4,500,000
Retained earnings
4,000,000 2,250,500
2,250,500
11,243,500
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
4-53
53.
a. Parent Cash Accumulated depreciation Equipment Gain on sale of Equipment (to record the sale of equipment)
63,000 22,500 75,000 10,500
Subsidiary Equipment
63,000
Cash (to record the purchase of equipment)
[Igain]
[Idep]
63,000
Gain on sale of Equipment 10,500 Equipment 12,000 Accumulated depreciation (to adjust Gain, Equipment, and Accumulated Depreciation on the date of the intercompany transfer of equipment – given that the transaction occurred at the beginning of the year, usage of the equipment for the year must be reflected in a separate entry) Accumulated depreciation Depreciation expense (to eliminate the excess depreciation expense recorded by the subsidiary, and to adjust accumulated depreciation from the BOY amount to the EOY amount). The excess depreciation is $1,500 ($63,000 / 7 = $9,000 vs. $75,000 / 10 = $7,500).
22,500
1,500 1,500
b. The Excess depreciation is $1,500 ($63,000 / 7 = $9,000 vs. $75,000 / 10 = $7,500). Through the BOY, three years have passed, so the deferred gain is now $6,000 ($10,500 – 3 x $1,500). c. Income (loss) from subsidiary Subsidiary net income Deferred gain on intercompany sale AAP Depreciation Income (loss) from subsidiary
$323,500 1,500 (22,500) * $300,000
©Cambridge Business Publishers, 2017 4-54
Advanced Accounting by Halsey & Hopkins, 3rd Edition
53.
d. Equity Investment EOY subsidiary retained earnings EOY subsidiary common stock EOY subsidiary APIC EOY Unamortized AAP Deferred gain on intercompany sale Equity investment *EOY Unamortized AAP:
$898,000 370,000 461,500 75,000 * (4,500) $1,800,000
amort
License agreement
250,000
EOY AAP assets
250,000
-7x
25,000
=
75,000
= 25,000
75,000
e. [C]
[E]
[A]
Income (loss) from subsidiary Dividends Equity investment
300,000
Common stock (S) - @BOY APIC (S) - @BOY Retained earnings (S) @BOY Equity investment - @BOY
370,000 461,500 634,500
License agreement
100,000
60,000 240,000
1,466,000
Equity investment - @BOY [D]
Operating expenses
100,000 25,000
License agreement
25,000
[Igain] Equity investment - @BOY Equipment Accumulated depreciation
6,000 12,000
[Idep] Accumulated depreciation Depreciation expense
1,500
18,000
1,500
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
4-55
53.
f.
Elimination Entries Income Statement:
Parent
Subsidiary
Dr
Sales
5,000,000
3,000,000
8,000,000
Cost of goods sold
(3,500,000)
(1,800,000)
(5,300,000)
Gross profit
1,500,000
1,200,000
2,700,000
Income (loss) from Sub
300,000
0
[C]
300,000
Operating expenses
(1,100,000)
(876,500)
[D]
25,000
700,000
323,500
Net income
Cr
Consolidated
0 1,500
[Idep]
(2,000,000) 700,000
Statement of RE: BOY retained earnings
2,090,000
634,500
Net income
700,000
323,500
[E]
634,500
2,090,000
Dividends
(240,000)
(60,000)
EOY retained earnings
2,550,000
898,000
2,550,000
Cash
340,000
350,000
690,000
Accounts receivable
744,000
460,000
1,204,000
Inventory
900,000
690,000
1,590,000
PPE, net
4,716,000
2,000,000
700,000 60,000
[C]
(240,000)
Balance Sheet: Assets
License agreement Equity investment
1,800,000
0
[Igain]
12,000
18,000
[Igain]
6,711,500
[Idep]
1,500
[A] [Igain]
100,000
25,000
[D]
75,000
6,000
240,000
[C]
0
1,466,000
[E]
100,000
[A]
8,500,000
3,500,000
10,270,500
660,000
224,000
884,000
Other current liabilities
730,000
590,000
1,320,000
Long-term liabilities
2,500,000
956,500
3,456,500
410,000
370,000
[E]
370,000
410,000
APIC
1,650,000
461,500
[E]
461,500
1,650,000
Retained earnings
2,550,000
898,000
8,500,000
3,500,000
Liabilities & SE Accounts payable
Common stock
2,550,000 1,910,500
1,910,500
10,270,500
©Cambridge Business Publishers, 2017 4-56
Advanced Accounting by Halsey & Hopkins, 3rd Edition
54.
a. Parent Cash Accumulated depreciation
89,100 14,400
Equipment Gain on sale of Equipment (to record the sale of equipment)
86,400 17,100
Subsidiary Equipment
89,100
Cash (to record the purchase of equipment)
[Igain]
[Idep]
89,100
Gain on sale of Equipment 17,100 Equipment Accumulated depreciation (to adjust Gain, Equipment, and Accumulated Depreciation on the date of the intercompany transfer of equipment – given that the transaction occurred at the beginning of the year, usage of the equipment for the year must be reflected in a separate entry) PPE, net
2,700 14,400
1,710
Depreciation expense (to eliminate the excess depreciation expense recorded by the subsidiary, and to adjust accumulated depreciation from the BOY amount to the EOY amount). The excess depreciation is $1,710 ($86,400 / 12 = $7,200 vs. $89,100 / 10 = $8,910).
1,710
b. The Excess depreciation is $1,710 ($86,400 / 12 = $7,200 vs. $89,100 / 10 = $8,910) . Through the BOY, two years have passed, so the deferred gain is now $13,680 ($17,100 – 2 x $1,710). c. Income (loss) from subsidiary (“as if” Equity Method) Subsidiary net income Deferred gain on intercompany sale AAP Depreciation Income (loss) from subsidiary
$67,500 1,710 (13,500)* $55,710
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
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54.
d. Equity Investment (“as if” Equity Method) Common Stock (S) @ EOY Retained Earnings @ EOY Add: Unamortized AAP @ EOY Deduct: Unconfirmed gain @ EOY EOY Investment ("as if" equity method) *EOY Unamortized AAP:
$270,000 261,000 130,500* (11,970) $649,530
amort
PPE, net
45,000
-5x
4,500
=
22,500
Patent
72,000
-5x
9,000
=
27,000
Goodwill
81,000
=
81,000
EOY AAP assets
207,000
13,500
130,500
e. Computation of BOY [ADJ] for 2019 consolidation Change in RE(S) thru BOY Cumulative AAP amort thru BOY BOY Downstream Unconf Asset ADJ Amount [ADJ] [C] [E]
[A]
126,000 (63,000) (13,680) 49,320
BOY Equity Investment BOY Retained Earnings (P)
49,320
Income (loss) from subsidiary Dividends
31,500
BOY Common stock (S) BOY Retained earnings (S) Equity investment
270,000 225,000
PPE, net Patent Goodwill
27,000 36,000 81,000
49,320 31,500
495,000
Equity Investment [D]
[Igain] [Idep]
144,000
Depec. & amort. Expense PPE, net Patent
13,500
Equity Investment PPE, net
13,680
PPE, net
1,710
4,500 9,000 13,680
Depreciation expense
1,710
©Cambridge Business Publishers, 2017 4-58
Advanced Accounting by Halsey & Hopkins, 3rd Edition
54.
f. Consolidation Entries
Income Statement
Parent
Subsidiary
Sales
900,000
414,000
1,314,000
Cost of goods sold
(495,000)
(252,000)
(747,000)
Gross profit
405,000
162,000
567,000
Deprec. & amort. expense
(27,000)
(18,000)
Operating expenses
(270,000)
(72,000)
(342,000)
Interest expense
(13,500)
(4,500)
(18,000)
Total Expenses
(310,500)
(94,500)
(416,790)
Income (loss) from Sub
31,500
Net income
126,000
67,500
495,000
225,000
Dr
[D]
[C]
13,500
Cr
1,710
Consolidated
[Idep]
(56,790)
31,500 150,210
RE statement: BOY retained earnings
[E]
225,000
49,320
[ADJ]
544,320
31,500
[C]
(103,500)
Net income
126,000
67,500
Dividends
(103,500)
(31,500)
150,210
Ending retained earnings
517,500
261,000
591,030
Cash
81,000
54,000
135,000
Accounts receivable
108,000
81,000
189,000
Inventory
252,000
126,000
378,000
Equity investment
576,000
PPE, net
306,000
Balance sheet: Assets
Other assets
117,000
216,000
[ADJ]
49,320
495,000
[Igain]
13,680
144,000
[A]
[A]
27,000
4,500
[D]
[Idep]
1,710
13,680
[Igain]
198,000
0 532,530 315,000
Patent
[A]
36,000
Goodwill
[A]
81,000
Total assets
[E]
9,000
[D]
27,000 81,000
1,440,000
675,000
1,657,530
Accounts payable
225,000
48,600
273,600
Accrued liabilities
22,500
41,400
63,900
Notes payable
135,000
54,000
189,000
Common stock
540,000
270,000
Retained earnings
517,500
261,000
1,440,000
675,000
Liabilities and SE
Total liabilities and equity
[E]
270,000
540,000 591,030
748,710
748,710
1,657,530
©Cambridge Business Publishers, 2017 Solutions Manual, Chapter 4
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55.
a. Subsidiary Cash Accumulated depreciation Equipment Gain on sale of Equipment (to record the sale of equipment)
79,200 16,000 80,000 15,200
Parent Equipment
79,200
Cash (to record the purchase of equipment) [Igain]
[Idep]
79,200
Gain on sale of Equipment 15,200 Equipment 800 Accumulated depreciation (to adjust Gain, Equipment, and Accumulated Depreciation on the date of the intercompany transfer of equipment – given that the transaction occurred at the beginning of the year, usage of the equipment for the year must be reflected in a separate entry) PPE, net
16,000
1,900
Depreciation expense (to eliminate the excess depreciation expense recorded by the parent, and to adjust accumulated depreciation from the BOY amount to the EOY amount). The excess depreciation is $1,900 ($80,000 / 10 = $8,000 vs. $79,200 / 8 = $9,900).
1,900
b. The excess depreciation is $1,900 ($80,000 / 10 = $8,000 vs. $79,200 / 8 = $9,900). Through the BOY, three years have passed, so the deferred gain is now $11,400 ($15,200 – [2 x $1,900]). c. Income (loss) from subsidiary (“as if” Equity Method) Subsidiary net income Deferred gain on intercompany sale AAP Depreciation Income (loss) from subsidiary
$76,000 1,900 (20,800)* $57,100
©Cambridge Business Publishers, 2017 4-60
Advanced Accounting by Halsey & Hopkins, 3rd Edition
55.
d. Equity Investment (“as if” Equity Method) Common Stock (S) @ EOY APIC(S) @ EOY Retained Earnings(S) @ EOY Add: Unamortized AAP @ EOY Deduct: Unconfirmed gain @ EOY EOY Investment ("as if" equity method) *EOY Unamortized AAP:
$48,000 192,000 248,000 136,000* (9,500) $614,500
amort
PPE, net
51,200
-4x
6,400
=
25,600
Licenses
72,000
-4x
14,400
=
14,400
Goodwill
96,000
EOY AAP assets
219,200
96,000 20,800
136,000
e. Computation of BOY [ADJ] for 2019 consolidation Change in RE(S) thru BOY Cumulative AAP amort thru BOY BOY Downstream Unconf Asset ADJ Amount
$147,200 (62,400) (11,400) $73,400
f. [ADJ] [C] [E]
[A]
BOY Equity Investment BOY Retained Earnings (P)
73,400
Income (loss) from subsidiary Dividends
28,000
BOY Common stock (S) BOY APIC (S) BOY Retained earnings (S) Equity investment
48,000 192,000 200,000
PPE Licenses Goodwill
32,000 28,800 96,000
73,400 28,000
440,000
Equity Investment [D]
[Igain] [Idep]
156,,800
Depec. & amort. expense PPE Licenses
20,800
Equity Investment PPE, net
11,400
PPE, net
1,900
6,400 14,400 11,400
Depreciation expense
1,900 ©Cambridge Business Publishers, 2020
Solutions Manual, Chapter 4
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55.
f. continued Consolidation Entries
Income Statement
Parent
Subsidiary
Sales
960,000
400,000
1,360,000
Cost of goods sold
(560,000)
(240,000)
(800,000)
Gross profit
400,000
160,000
560,000
Deprec. & amort. exp.
(24,000)
(16,000)
Operating expenses
(240,000)
(64,000)
(304,000)
Interest expense
(12,000)
(4,000)
(16,000)
Total Expenses
(276,000)
(84,000)
(378,900)
Income (loss) from Sub
28,000
Net income
152,000
76,000
440,000
200,000
Dr
[D]
[C]
20,800
Cr
1,900
Consolidated
[Idep]
(58,900)
28,000 181,100
RE statement: BOY retained earnings
[E]
200,000
73,400
[ADJ]
513,400
28,000
[C]
(92,000)
Net income
152,000
76,000
Dividends
(92,000)
(28,000)
181,100
Ending retained earnings
500,000
248,000
602,500
Cash
80,000
40,000
120,000
Accounts receivable
88,000
80,000
168,000
Inventory
240,000
120,000
360,000
Equity investment
512,000
PPE, net
400,000
Balance sheet: Assets
Other assets
80,000
Licenses
192,000
73,400
440,000
[E]
[Igain]
11,400
156,800
[A]
[A]
32,000
6,400
[D]
[Idep]
1,900
11,400
[Igain]
148,000 20,000
Goodwill Total assets
[ADJ]
0 608,100 228,000
[A]
28,800
[A]
96,000
14,400
[D]
34,400 96,000
1,400,000
600,000
1,614,500
Accounts payable
200,000
24,000
224,000
Accrued liabilities
100,000
36,000
136,000
Notes payable
120,000
52,000
172,000
Common stock
200,000
48,000
[E]
48,000
200,000
APIC
280,000
192,000
[E]
192,000
280,000
EOY Retained earnings
500,000
248,000
Total liabilities and equity
1,400,000
600,000
Liabilities and SE
602,500 732,300
732,300
1,614,500
©Cambridge Business Publishers, 2017 4-62
Advanced Accounting by Halsey & Hopkins, 3rd Edition
56.
a. Parent Cash Accumulated depreciation Equipment Gain on sale of Equipment (to record the sale of equipment)
97,500 37,500 112,500 22,500
Subsidiary Equipment
97,500
Cash (to record the purchase of equipment)
[Igain]
[Idep]
97,500
Gain on sale of Equipment Equipment Accumulated depreciation (to adjust Gain, Equipment, and Accumulated Depreciation on the date of the intercompany transfer of equipment – given that the transaction occurred at the beginning of the year, usage of the equipment for the year must be reflected in a separate entry)
22,500 15,000
PPE, net
3,750
37,500
Depreciation expense (to eliminate the excess depreciation expense recorded by the subsidiary, and to adjust accumulated depreciation from the BOY amount to the EOY amount). The excess depreciation is $3,750 ($112,500 / 9 = $12,500 vs. $97,500 / 6 = $16,250).
3,750
b. The excess depreciation is $3,750 ($112,500 / 9 = $12,500 vs. $97,500 / 6 = $16,250). Through the BOY, one year has passed, so the deferred gain is now $18,750 ($22,500 – [1 x $3,750]). c. Income (loss) from subsidiary (“as if” Equity Method) Subsidiary net income Deferred gain on intercompany sale AAP Depreciation Income (loss) from subsidiary
$123,000 3,750 (22,500)* $104,250
©Cambridge Business Publishers, 2020 Solutions Manual, Chapter 4
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56.
d. Equity Investment (“as if” Equity Method) Common Stock (S) @ EOY $ 450,000 Retained Earnings(S) @ EOY 445,500 Add: Unamortized AAP @ EOY 238,500* Deduct:: Unconfirmed gain @ EOY (15,000) EOY Investment ("as if" equity method) $ 1,119,000 *EOY Unamortized AAP: PPE, net Patent Note Payable Goodwill EOY AAP assets
e.
f.
67,500 90,000 13,500 135,000 306,000
-3x -3x -3x
amort 6,750 11,250 4500
= = =
47,250 56,250 0 135,000 238,500
22,500
Computation of BOY [ADJ] for 2019 consolidation Change in RE(S) thru BOY Cumulative AAP amort thru BOY BOY Downstream IIP BOY Upstream IIP BOY Downstream Unconf Asset BOY Upstream IIP Unconf Asset ADJ Amount [ADJ] [C] [E]
[A]
171,000 (45,000) (18,750) 107,250
BOY Equity Investment BOY Retained Earnings (P)
107,250
Income (loss) from subsidiary Dividends
52,500
BOY Common stock (S) BOY Retained earnings (S) Equity investment
450,000 375,000
PPE Patent Goodwill Note payable
54,000 67,500 135,000 4,500
107,250 52,500
825,000
Equity Investment [D]
[Igain]
261,000
Depec. & amort. expense Interest expense PPE Patent Notes payable
18,000 4,500
Equity Investment
18,750
6,750 11,250 4,500
PPE, net [Idep]
PPE, net
18,750 3,750
Depreciation expense
3,750
©Cambridge Business Publishers, 2017 4-64
Advanced Accounting by Halsey & Hopkins, 3rd Edition