UNIT 4 POST PROBLEM 2 Following are trial balances of Conglomerate and Sub Company as of December 31, 2010. Conglomerate Sub Cash $1,440,000 $ 120,000 Inventories 60,

UNIT 4 POST PROBLEM 2

Following are trial balances of Conglomerate and Sub Company as of

December 31, 2010.

Conglomerate Sub

Cash $1,440,000 $ 120,000

Inventories 60,000 40,000

Investment in S 560,000

Building 400,000 280,000

Equipment 120,000 180,000

Accounts Payable (180,000) (120,000)

Common Stock (1,800,000) (100,000)

Additional Paid in Capital (250,000) (300,000)

Retained Earnings (120,000) (60,000)

Sales (1,100,000) (300,000)

Cost of Goods Sold 700,000 200,000

Operating Expenses 170,000 60,000

Other information:

Conglomerate purchased 90% of Sub Company on December 31, 2009 for $560,000. The totals above are for one year after the purchase.

Differences between identifiable net assets of Sub Company on December 31, 2009 (the date of purchase) were:

Fair Value Book Value Difference

Building 300,000 280,000 20,000 (20 year life)

Equipment 200,000 180,000 20,000 (10 year life)

Goodwill created on the date of purchase was $122,222.

On December 31, 2010 Sub Company paid $10,000 in dividends.

Requirements:

No entries have been made on either C or S’s books for dividends paid in 2010 and recording the sub’s net income on C’s books using the equity method. You must post entries to the appropriate accounts for the payment of the dividends in C’s and S’s accounts and recording the sub’s net income on C’s books using the equity method. This will change some of the balances above. . (Show entries in general journal and/or T Account format.)

Prepare consolidated financial statements for the year ending December 31, 2010, using a consolidation worksheet showing the eliminations, if any. Prepare a consolidated balance sheet, income statement and statement of retained earnings.

Attachment 1

Attachment 2

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UNIT 4 POST PROBLEM 2
Following are trial balances of Conglomerate and Sub Company as of
December 31, 2010.
Conglomerate
Sub
Cash
$1,440,000
$ 120,000
Inventories
60,000
40,000
Investment in S
560,000
Building
400,000
280,000
Equipment
120,000
180,000
Accounts Payable
(180,000)
(120,000)
Common Stock
(1,800,000)
(100,000)
Additional Paid in Capital
(250,000)
(300,000)
Retained Earnings
(120,000)
(60,000)
Sales
(1,100,000)
(300,000)
Cost of Goods Sold
700,000
200,000
Operating Expenses
170,000
60,000
Other information:
Conglomerate purchased 90% of Sub Company on
December 31, 2009
for $560,000.
The totals above are for one year after the purchase.
Differences between identifiable net assets of Sub Company on December 31, 2009 (the
date of purchase) were:
Fair Value
Book Value
Difference
Building
300,000
280,000
20,000
(20 year life)
Equipment
200,000
180,000
20,000
(10 year life)
Goodwill created on the date of purchase was $122,222.
On December 31, 2010 Sub Company paid $10,000 in dividends.
Requirements:
No entries have been made on either C or S’s books for dividends paid in 2010
and recording the sub’s net income on C’s books using the equity method.
You
must post entries to the appropriate accounts for the payment of the dividends in C’s and
S’s accounts and recording the sub’s net income on C’s books using the equity method.
This will change some of the balances above.
.
(Show entries in general journal and/or
T Account format.)
Prepare consolidated financial statements for the year ending
December 31, 2010
,
using a consolidation worksheet showing the eliminations, if any
.
Prepare a
consolidated balance sheet, income statement and statement of retained
earnings.

ATTACHMENT PREVIEW

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TEMPLATE FOR UNIT 4 POST PROBLEM 2
Compute Goodwil as of date of purchase December 31, 2009
Computation of Goodwill
Computation of Sub Net Income
Common Stock
100,000
Applicable to Parent
Paid in capital
300,000
As of December 31, 2010
Retained Earnings 12/31/2009
60,000
Sub Sales
Market value excess – building
20,000
Sub Cost of Goods
Market value excess – equipment
20,000
Sub Op Expense
Net Assets at market value
500,000
90%
10%
90%
Net Assets at market purchased by
450,000 50,000
36,000
Conglomerate
Cash paid by Conglomerate for 90%
560,000
Conglomerate Goodwil (90%)
90%
110,000 12,222
Analysis of excess amortization for first year
Total Goodwil (100%)
100%
122,222
Fair Value
Book Value
Difference
Amortize
Net
Life
Building
300,000
280,000
20,000
1,000
20 year
Equipment
200,000
180,000
20,000
2,000
10 year
Analysis of excess amortization for first year ending December 31, 2010
3,000
Fair Value
Book Value
ifferenc
Amortize
Net
Life
2,700 Excess Amortization
Building
300,000
280,000 20,000
20 year
Equipment
200,000
180,000 20,000
10 year
90%
Excess Amortization
Investment in S
Cash
560,000
XXXXXX
560,000
1,440,000
584,300
1,449,000
Equity in
Subsidiary Earnings
33,300
Payment of Dividends By Subsidiary
Cash
Dividend to Parent
120,000
10,000
9,000
110,000
Dividend to NCI
1,000
JOURNAL ENTRIES
Debit
Credit
12/31/2009 – On Conglomerate Books
Investment in Sub Company
Cash
To record 90% interest in Sub Company
12/31/2010 – On Conglomerate Books
Investment in Sub Company
Eqity in sub Earnings
To record 90% interest in sub income
Cash
Investment in Sub Company
To record cash dividend paid from 90% owned subsidiary to Parent.
Equity In sub earnings
Investment in Sub earnings
To record 90% of fair value amortizations of sub net assets.
Consolidation Entry S
Common Stock
Additional paid in capial
Retained Earnings, 12/31/2009
Dividend to NCI
Investment in Sub Company @ 90% interest
NCI Investment in Sub @ 10% interest
To eliminate beginning stockholder’s equity accounts of the subsidiary along with book value portion of investment.
Consolidation Entry A
Building
Equipment
Goodwil
Investment in Sub Company
NCI investment in Sub Company
To recognize unamortized excess fair value as of Dec 31, 2010 and to al ocate the unamortized fair value to the
non control ing interest.
Goodwil is attributable proportionately to control ing and noncontrol ing interests.
Consolidation Entry I
Equity in income of Sub
Investment in Sub Company
To eliminate the impact of intercompany income accrued by Conglomerate.
Consolidation Entry D
Investment in Sub
Dividends Paid
To eliminate the impact of intercompany dividend payments made by the subsidiary to parent and NCI.
Consolidation Entry E
Amortization Expense
Building
Equipment
To recognize excess amortization of fair value adjustments are individual y recorded during the current period.
Conglomerate and Sub Company
Consolidated Worksheet
For the year ended Dec. 31, 2010
Accounts
Conglomerate
Sub
Debit
Credit
INCOME STATEMENT
Sales
$1,100,000
$300,000
Cost of Goods Sold
700,000
200,000
Operating Expenses
170,000
60,000
Amortization Expense
0
0
E
Equity in Income of Sub
33,300
0
I
Separate Company Net Income
$263,300
$40,000
Consolidated Net Income
Non Controlling interest in Sub Income
Net Income to Controlling Interest
STATEMENT OF RETAINED EARNINGS
Retained Earnings, 12/31//2009
$120,000
$60,000
S
Net Income
263,300
40,000
Dividends Paid
0
10,000
D
Retained Earnings, 12/31/2010
$383,300
$90,000
BALANCE SHEET
ASSETS
Cash
$1,449,000
$110,000
Inventories
60,000
40,000
Investment in Sub Company
584,300
D
S
A
I
Building
400,000
280,000
A
E
Equipment
120,000
180,000
A
E
Goodwil
0
A
Total Assets
$2,613,300
$610,000
LIABILITIES AND SHAREHOLDER’S EQUITY
Liabilities
Accounts Payable
$180,000
$120,000
SHAREHOLDER’S EQUITY
NCI in Sub Company
S
A
Common Stock
1,800,000
100,000
S
Additional Paid in Capital
250,000
300,000
S
Retained Earnings, 12/31/2009
383,300
90,000
Total Liabilities and Shareholder’s E
$2,613,300
$610,000
Analysis of Non Controlling interest
Analysis of Non Controlling Interest
Beginning Sub net assets at book
in Subsidiary Net Income
(100,000 + 300,000 + 60,000) x 10%
Building excess 20,000 x 10%
Subsidiary net income
Equipment excess 20,000 x 10%
Excess amortization
Goodwill 122,222 x 10%
Sub dividends 10,000 x 10%
10%
Excess amortization 3,000 x 10%
Non Controlling Interest in
Sub net income 40,000 x 10%
subsidiary net income
3,700
64,922
Non
Controlling
Interest
Consolidated
Totals

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