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 Markup Cost Unrealized gain Ending unrealized gain (Wilson) December 31, 2011 Inventory Balance Transfer price Markup Cost Unrealized gain $ $ $ 90,000 25% 72,000 18,000 $ $ $ 60,000 25% 48,000 12,000

Correct! Correct!

Correct! Correct!

a. Consolidation entries *G
Correct!

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

12,000 12,000

(To recognize income on intra-entity inventory transfers made in previous year but not resold until current year.)

*C
Correct!

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

11,200 11,200

(To convert investment account from partial equity method to equity method.)

S1
Correct!

Common stock (Cuddy) Retained earnings, 1/1/11 (Cuddy) Investment in Cuddy Company Noncontrolling interest in Cuddy Common Stk.

150,000 150,000 240,000 60,000

(To eliminate Cuddy's stockholders' equity against the corresponding investment balance and to recognize noncontrolling interest on common stock.)

S2
Correct!

Common stock (Wilson) Retained earnings, 1/1/11 (Wilson) Investment in Wilson Company Noncontrolling interest in Wilson

310,000 578,000 621,600 266,400

(To eliminate Wilson's stockholders' equity against corresponding investment balance and to recognize noncontrolling interest.)

A
Correct!

Buildings Franchise Contracts Goodwill Equipment Investment in Wilson Noncontrolling interest in Wilson

54,000 32,000 140,000 10,000 151,200 64,800

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

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 07-25

I1
Correct!

Income of Cuddy Company Investment in Cuddy Company

56,000 56,000

(To eliminate intra-entity income accrued by both House and Wilson during the year.)

I2
Correct!

Income of Wilson Investment in Wilson

91,000 91,000

(To eliminate intra-entity income accrued by House during the year.)

D1
Correct!

Investment in Cuddy Dividends Paid

40,000 40,000

(To eliminate effects of intra-entity dividend payments.)

D2
Correct!

Investment in Wilson Dividends Paid (Wilson)

67,200 67,200

(To eliminate effects of intra-entity dividend payments.)

E
Correct!

Operating Expenses Equipment Franchise Contracts Buildings

2,000 5,000 4,000 3,000

(To record 2011 amortization on excess payment made in connection with acquisition of Wilson Company.

TI
Correct!

Sales and Other Revenues Cost of Goods Sold

200,000 200,000

(To eliminate intra-entity inventory sales for the current year.)

G
Correct!

Cost of Goods Sold Inventory

18,000 18,000

(To defer unrealized gain in ending inventory.)

Noncontrolling Interest in Net Income of Cuddy's Reported net income Outside ownership Noncontrolling interest in Cuddy income - common Noncontrolling Interest in Net Income of Wilson Reported operational income Equity income of Cuddy Excess amortization Recognition of 2010 gain Deferral of 2011 unrealized gain Realized income Outside ownership Noncontrolling interest in net income of Wilson $ 70,000 $ 20% 14,000
Correct!

$ $

130,000 28,000 (2,000) 12,000 (18,000) 150,000 30% 45,000

Correct!

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 07-25

HOUSE CORPORATION AND CONSOLIDATED SUBSIDIARIES Consolidation Worksheet December 31, 2011 NonHouse Accounts Sales and other revenue Cost of goods sold Operating expenses Income of Wilson Company Income of Cuddy Company Net Income Consolidated net income Noncontrolling interest in Wilson net income Noncontrolling interest in Cuddy net income To House Corporation Retained earnings, 1/1/11 --House Corporation --Wilson Company --Cuddy Company Net Income Dividends paid --House Corporation --Wilson Company --Cuddy Company Retained earnings, 12/31/11 Cash and receivables Inventory Investment in Wilson Company (969,000) 220,000 390,200 807,800 (652,000) 334,000 320,000 100,000 96,000 50,000 (170,000) 67,000 103,000 [D2] 67,200 [G] [*C] [S2] [I2] [A] Investment in Cuddy Company Buildings Equipment Land Goodwill Franchise Contracts Total assets Liabilities Noncontrolling interest in Cuddy Noncontrolling interest in Wilson Noncontrolling interest in subsidiary companies Common stock Retained earnings Total liabilities and equity Parentheses indicate a credit balance. (820,000) (969,000) (2,421,000) (310,000) (652,000) (1,532,000) (150,000) [S1] [S2] (170,000) (418,000) 1,916,400 Correct! 1,916,400 Correct! 150,000 310,000 (971,800) (3,503,200) Correct! Correct! (820,000) Correct! 2,421,000 (632,000) 1,532,000 (570,000) 418,000 (98,000) [S1] [S2] [A] 60,000 266,400 64,800 (331,200) 411,400 (411,400) Correct! (60,000) 128,000 385,000 310,000 180,000 128,000 320,000 130,000 300,000 144,000 88,000 16,000 [A] [A] 140,000 32,000 [E] 4,000 [D1] [A] [E] 40,000 54,000 5,000 [S1] [I1] [E] [A] 18,000 11,200 621,600 91,000 151,200 240,000 56,000 3,000 10,000 900,000 523,000 496,000 140,000 28,000 3,503,200 (1,300,000) Correct! Correct! Correct! Correct! Correct! Correct! Correct! Correct! Correct! [D2] [D1] 67,200 40,000 28,800 10,000 100,000 (971,800) 621,000 795,200 Correct! Correct! Correct! Correct! Correct! Correct! Correct! (249,000) (158,000) (820,000) (590,000) [*C] [*G] [S2] (150,000) [S1] (70,000) 11,200 12,000 578,000 150,000 (263,000) Correct! Correct! (808,800) Correct! Correct! (263,000) Correct! (14,000) 14,000 Correct! (45,000) Corporation (900,000) 551,000 219,000 (91,000) (28,000) (249,000) Wilson Company (700,000) 300,000 270,000 (28,000) (158,000) Cuddy Company (300,000) [TI] 140,000 90,000 (70,000) (322,000) 45,000 Correct! Correct! [G] [E] [I2] [I1] 200,000 18,000 2,000 91,000 56,000 [*G] [TI] 12,000 200,000 581,000 Correct! Correct! Correct! 797,000 Correct! Consolidation Entries Debit Credit controlling Interest Consolidated Totals (1,700,000) Correct!

Given P07-25: House Corporation purchased ownership in Wilson Company Acquisition date fair value allocation schedule: Consideration transferred for 70% interest in Wilson Fair value of the 30% noncontrollong interest Wilson business fair value Wilson book value Excess fair value over book value Assignments to adjust Wilson's assets to fair value: To buildings (20-year life) To equipment (4-year life) To franchises (10-year life) To goodwill (indefinite life) House regularly acquired inventory from Wilson at cost plus markup Intercompany Purchases $ 120,000 150,000 $ 707,000 303,000 $ 1,010,000 790,000 $ 220,000 $ 60,000 (20,000) 40,000 $ $ 70%

80,000 140,000

25% Retained Intercompany Inventory - End of Year $ 40,000 60,000 80% 240,000 50% 200,000 45%

Year 2009 2010

House and Wilson acquire outstanding stock of Cuddy Company Total price of Cuddy shares Share House and Wilson paid of purchase price Additional inventory acquired from Wilson in 2011 Merchandise still held at year's end

$ $

Given P07-25: House Wilson Cuddy Corporation Company Company 12/31/2011 12/31/2011 12/31/2011 $ (900,000) $ (700,000) $ (300,000) 551,000 300,000 140,000 219,000 270,000 90,000 (91,000) (28,000) (28,000) $ (249,000) $ (158,000) $ (70,000) $ (820,000) $ (249,000) 100,000 (969,000) $ $ (590,000) $ (158,000) 96,000 (652,000) $ $ (150,000) (70,000) 50,000 (170,000) 67,000 103,000 144,000 88,000 16,000 418,000 (98,000) (150,000) (170,000) (418,000)

Sales and other revenues Cost of goods sold Operating expenses Income of Wilson Company Income of Cuddy Company Net income Retained earnings, 1/1/11 Net income Dividends paid Retained earnings, 12/31/11 Cash and receivables Inventory Investment in Wilson Company Investment in Cuddy Company Buildings Equipment Land Total assets Liabilities Common stock Retained earnings, 12/31/11 Total liabilities and equity

$ $

220,000 390,200 807,800 128,000 385,000 310,000 180,000 $ 2,421,000 $ (632,000) (820,000) (969,000) $ (2,421,000)

334,000 320,000 128,000 320,000 130,000 300,000 $ 1,532,000 $ (570,000) (310,000) (652,000) $ (1,532,000)

$ $

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 07-27 TRAVERS COMPANY AND CONSOLIDATED SUBSIDIARIES Acquisition -Date Allocation and Amortization Consideration transferred for Stookey Noncontrolling interest fair value Stookey business fair value Stookey book value Customer list Life in years Annual amortization Consideration transferred for Yarrow Noncontrolling interest fair value Yarrow business fair value Yarrow book value Copyright Life in years Annual amortization $ 344,000 86,000 $ 430,000 (380,000) $ 50,000 10 $ 5,000 Correct! $ 720,000 80,000 $ 800,000 (740,000) $ 60,000 15 $ 4,000 Correct!

Consolidation entries *G
Correct!

Retained Earnings, 1/1/11 (Stookey) Cost of Goods Sold

7,680 7,680

(To give effect to unrealized gain from 2010.)

*C1
Correct!

Investment in Stookey Retained Earnings, 1/1/11 (Yarrow)

85,856 85,856

(To recognize equity income accruing from Yarrow's investment in Stookey during 2010.)

*C2
Correct!

Investment in Yarrow Retained Earnings, 1/1/11 (Travers)

217,670 217,670

(To recognize equity income accruing from Travers' investment in Yarrow during 2010.)

S1
Correct!

Common stock (Stookey) Retained earnings, 1/1/11 (Stookey) Investment in Stookey Noncontrolling interest in Stookey

200,000 292,320 393,856 98,464

(To eliminate stockholders' equity accounts of subsidiary against corresponding balance in investment account and to recognize noncontrolling interest ownership.)

S2
Correct!

Common stock (Yarrow) Retained earnings, 1/1/11 (Yarrow) Investment in Yarrow Noncontrolling interest in Yarrow

300,000 685,856 887,270 98,586

(To eliminate stockholders' equity accounts of subsidiary Yarrow against corresponding balance in investment account and to recognize noncontrolling interest ownership.)

A1
Correct!

Customer List Investment in Stookey Noncontrolling Interest in Stookey

45,000 36,000 9,000

(To recognize January 1, 2011 unamortized portion of acquisition price assigned to Stookey's customer list.)

A2
Correct!

Copyright Investment in Yarrow Noncontrolling Interest in Yarrow

56,000 50,400 5,600

(To recognize January 1, 2011 unamortized portion of acquisition price assigned to copyright

E
Correct!

Operating Expense Customer list Copyright

9,000 5,000 4,000

(To recognize amortization expense for 2011.)

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 07-27

TI
Correct!

Sales Cost of Goods Sold

100,000 100,000

(To eliminate intra-entity inventory transfers made during 2011.)

G
Correct!

Cost of Goods Sold Inventory

9,600 9,600

(To defer unrealized gain in ending inventory.)

Noncontrolling Interest in Stookey's Net Income 2011 Reported net income Customer list amortization Realization of 2010 deferred income Deferral of 2011 unrealized gain Realized income - 2011 Outside ownership Noncontrolling interest in Stookey's net income

$ $

100,000 (5,000) 7,680 (9,600) 93,080 20% 18,616

Correct!

Noncontrolling Interest in Net Income of Yarrow 2011 Reported net income Copyright amortization Accrual of Stookey's income Realized income - 2011 Outside ownership Noncontrolling interest in Yarrow's net income

$ $

200,000 (4,000) 74,464 270,464 10% 27,046

Correct!

TRAVERS COMPANY AND CONSOLIDATED SUBSIDIARIES Consolidation Worksheet December 31, 2011 NonTravers Accounts Sales and other revenues Cost of goods sold Operating expenses Separate company net income Consolidated net income Noncontrolling interest in Yarrow's net income Noncontrolling interest in Stookey's net income To controlling interest Retained earnings, 1/1/11 --Travers Company --Yarrow Company --Stookey Company Net Income Dividends paid Retained earnings, 12/31/11 Current assets Investment in Yarrow Company Investment in Stookey Company Land, buildings, & equipment (net) Customer list Copyright Total assets Liabilities Common stock Retained earnings, 12/31/11 Noncontrolling interest in Stookey, 1/1/11 Noncontrolling interest in Yarrow, 1/1/11 Noncontrolling interest in subsidiaries Total liabilities and equity (2,113,000) (1,560,000) (800,000) 2,008,982 2,008,982 (3,491,400) Correct! (257,312) (257,312) Correct! 2,113,000 (721,000) (500,000) (892,000) 1,560,000 (460,000) (300,000) (800,000) 800,000 (200,000) (200,000) [S1] [S2] (400,000) 200,000 300,000 [S1] [A1] [S2] [A2] 98,464 9,000 98,586 5,600 (104,186) (107,464) (1,353,088) Correct! 949,000 (320,000) 128,000 (892,000) 444,000 720,000 344,000 836,000 520,000 [A1] [A2] 45,000 56,000 [E] [E] 5,000 4,000 (800,000) 380,000 (400,000) 280,000 [*C2] [*C1] 217,670 85,856 [G] [S2] [A2] [S1] [A1] 9,600 887,270 50,400 393,856 36,000 2,305,000 40,000 52,000 3,491,400 (1,381,000) (500,000) Correct! Correct! Correct! Correct! Correct! Correct! Correct! (200,000) (700,000) (600,000) [S2] (300,000) [*G] [S1] (100,000) 685,856 7,680 292,320 (563,418) 128,000 (1,353,088) 1,094,400 0 Correct! Correct! Correct! Correct! Correct! [*C2] [*C1] 217,670 85,856 (917,670) Correct! Correct! Correct! (563,418) Correct! (18,616) 18,616 Correct! (27,046) Company (900,000) 480,000 100,000 (320,000) Yarrow Company (600,000) 320,000 80,000 (200,000) Stookey Company (500,000) [TI] 260,000 140,000 (100,000) (609,080) 27,046 Correct! Correct! [G] [E] Consolidation Entries Debit 100,000 9,600 9,000 [*G] [TI] 7,680 100,000 329,000 Correct! Credit controlling Interest Consolidated Balances (1,900,000) 961,920 Correct! Correct!

Student Name: Instructor Class: McGraw-Hill/Irwin 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 Yarrow's reported income Dividend income intra-entity gains Amortization expense Taxable income Tax rate Income tax payable $ 320,000 200,000 (9,000) 511,000 45% 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 Tax rate Income tax payable $ $ 100,000 45% 45,000

Correct!

d. Based on parts (b) and (c), what journal entry would be made by this combination to record 2007 income taxes? 2011 Unrealized gain taxed in 2011 2010 Unrealized gain taxed previously in 2010 Increase in taxable income Tax rate Deterred income tax asset Income tax expense: Travers and Yarrow-payable Stookey-payable Total taxes to be paid-2011 Prepayment Income tax expense 2011 Account Income Tax Expense-Current Deferred Income Tax-Asset Income Tax Payable Debit 274,086 864 Credit $ $ $ 9,600 (7,680) 1,920 45% 864
Correct!

$ $ $

229,950 45,000 274,950 (864) 274,086

Correct!

274,950

Correct!

Given P07-27: Travers Company purchased ownership in Yarrow Company Acquisition cost paid by Travers Assessed fair value of noncontrolling interest Excess purchase price attributed to customer list to be amortized over years Yarrow Company purchased ownership in Stookey Company Acquisition cost paid by Yarrow Assessed fair value of noncontrolling interest Excess purchase price attributed to copyright with a remaining life of: Portion of operational earnings Travers pays as cash dividends Reported income totals for 2011 Travers Company Yarrow Company Stookey Company Inventory transferred to Yarrow since takeover: 2010 2011 Portion of inventory carried into succeeding year Effective tax rate for all companies 90% $ $ $ 720,000 80,000 15 years 80% 344,000 86,000 10 years 40% 300,000 160,000 120,000 80,000 $100,000 20% 45%

$ $ $

Sales Cost of goods sold Operating expenses Net income Retained earnings, 1/1/11 Net income Dividends paid Retained earnings, 12/31/11 Current assets Investment in Yarrow Company Investment in Stookey Company Land, buildings, and equipment (net) Total assets Liabilities Common stock Retained earnings, 12/31/11 Total liabilities and equities

Travers Yarrow Stookey Company Company Company 12/31/2011 12/31/2011 12/31/2011 $ (900,000) $ (600,000) $ (500,000) 480,000 320,000 260,000 100,000 80,000 140,000 $ (320,000) $ (200,000) $ (100,000) $ (700,000) $ (320,000) 128,000 (892,000) $ 444,000 720,000 949,000 2,113,000 $ (600,000) $ (300,000) (200,000) (100,000) (800,000) $ (400,000) 380,000 344,000 836,000 1,560,000 $ 280,000 520,000 800,000 (200,000) (200,000) (400,000) (800,000)

$ $

(721,000) (460,000) (500,000) (300,000) (892,000) (800,000) $ (2,113,000) $ (1,560,000) $