Chapter 04 IMSM

Chapter Outline
CHAPTER 4
CONSOLIDATED FINANCIAL STATEMENTS
AND OUTSIDE OWNERSHIP
I.
Outside ownership may be present within any business combination

A. Complete ownership of a subsidiary is not a prerequisite for consolidationonly
enough voting shares need be owned so that the acquiring company has the ability
to control the decision-making process of the acquired company
B. Any ownership retained in a subsidiary corporation by a party unrelated to the
acquiring company is termed a noncontrolling interest
II.
Valuation of subsidiary assets and liabilities poses a problem when a noncontrolling

interest is present follows the acquisition method (Economic Unit Concept) SFAS 141R
and SFAS 160
1. The accounting emphasis is placed on the entire entity that results from the
business combination as measured by the sum of the acquisition-date fair
values of the controlling and noncontrolling interests.
2. Valuation of subsidiary accounts is based on the acquisition-date fair value of
the company (frequently determined by the consideration transferred and the
fair value of the noncontrolling interest); specific subsidiary assets and liabilities
are consolidated at their fair values
3. The noncontrolling interest balance is reported as a component of stockholders'
equity
III.
Consolidations involving a noncontrolling interestsubsequent to the date of

acquisition
A. According to the parent company concept, all noncontrolling interest amounts are
calculated in reference to the book value of the subsidiary company
B. Only four noncontrolling interest figures are determined for reporting purposes
1. Beginning of year balance
2. Interest in subsidiarys current income
3. Dividends paid during the period
4. End of year balance
C. Noncontrolling interest balances are accumulated in a separate column in the
consolidation worksheet
1. The beginning of year figure is recorded on the worksheet as a component of
Entries S and A
2. The noncontrolling interest's share of the subsidiary's income is established by a
columnar entry that simultaneously reports the balance in both the consolidated
income statement and the noncontrolling interest column
3. Dividends paid to these outside owners are reflected by extending the
subsidiary's Dividends Paid balance (after eliminating intercompany transfers)
into the noncontrolling interest column as a reduction
McGraw-Hill/Irwin
Hoyle, Schaefer, Doupnik, Advanced Accounting, 9/e
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4. The end of year noncontrolling interest total is the summation of the three items
above and is reported (in this book) between consolidated liabilities and
stockholders' equity
IV.
Step acquisitions
A. An acquiring company may make several different purchases of a subsidiary's stock
in order to gain control
B. Upon attaining control, all of the parents previous investments in the subsidiary are
adjusted to fair value and a gain or loss recognized as appropriate
C. Upon attaining control, the valuation basis for the subsidiary is established at its
total fair value (the sum of the fair values of the controlling and noncontrolling
interests)
Vl.
Sales of subsidiary stock

A. The proper book value must be established within the parent's Investment account
so that the sales transaction can be correctly recorded
B. The investment balance is adjusted as if the equity method had been applied during
the entire period of ownership
C. If only a portion of the shares are being sold, the book value of the investment
account must be reduced based on either a FIFO or a weighted-average cost flow
assumption
D. If the parent maintains control, any difference between the proceeds of the sale and
the equity-adjusted book value of the share sold is recognized as an adjustment to
additional paid-in capital.
E. If the parent loses control with the sale of the subsidiary shares, the difference
between the proceeds of the sale and the equity-adjusted book value of the share
sold is recognized as a gain or loss.
F. Any interest retained by the parent company should be accounted for by either
consolidation, the equity method, or the fair value method depending on the
influence remaining after the sale.
Learning Objectives
Upon completion of Chapter Four, "Consolidated Financial Statements and Outside
Ownership," students should be able to fulfill each of the following learning objectives:
1.
Realize that complete ownership is not a prerequisite for the formation of a business
combination.
2.
Understand the meaning of the term "noncontrolling interest.
3.
Explain the rationale underlying the acquisition method for accounting for the
noncontrolling interest.
4.
Identify appropriate balance sheet placements for the components of the noncontrolling
interest in consolidated financial statements.
5.
Identify and calculate the four noncontrolling interest figures that must be included within
the consolidation process and be able to enter each balance on a consolidation
worksheet.
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6.
Carry out a consolidation when a step acquisition has taken place.
7.
Record the sale of a subsidiary (or a portion of its shares) when the parent has been
applying either the Initial value method, the equity method, or the partial equity method.
8.
Select an appropriate method by which to account for any shares remaining after the
sale of a portion of an investment in a subsidiary company.
Answers to Questions
1.
"Noncontrolling interest" refers to an equity interest that is held in a member of a

business combination by an unrelated (outside) party.
2.
a. Acquisition method = $220,000 (fair value)

b. Purchase method = $208,000 (all of the book value plus 80 percent of the $60,000
difference between fair value and book value)
3.
A control premium is the portion of an acquisition price (above currently traded market
values) paid by a parent company to induce shareholders to sell a sufficient number of
shares to obtain control. The extra payment typically becomes part of the goodwill
acquired in the acquisition attributable to the parent company.
4.
In practice, noncontrolling interest figures will appear in various locations within

consolidated financial statements. The end of year balance can be found in the liability
section, in the stockholders' equity section, or between these two. The noncontrolling
interest's share of net income can be shown as a reduction on either the income
statement or the statement of retained earnings. Based on current practice, this
textbook reports the ending balance between consolidated liabilities and stockholders'
equity with the income allocation shown as a reduction on the income statement.
5.
The ending noncontrolling interest can be determined on a consolidation worksheet by

adding the components found in the noncontrolling interest column: the beginning
balance plus allocation of current year net income less dividends paid to these outside
owners. The ending balance can also be determined (at this point in the exploration of
consolidated financial statements) by multiplying the outside ownership percentage by
the subsidiary's ending book value. In subsequent chapters, this calculation must be
altered because of various adjustments made within the consolidation process.
6.
Allsports should remove the pre-acquisition revenues and expenses from the
consolidated totals. These amounts have been earned (incurred) prior to ownership by
Allsports and therefore should not be reported as earnings for the current parent
company owners.
7.
In previous years, Tree has appropriately utilized the market-value method in

accounting for its investment in Limb. Now, following a second acquisition,
consolidation has become applicable. These two methods are not considered to be
comparable. Therefore, at the point in time that Tree begins to produce consolidated
statements, all previous financial reports must be restated as if the equity method had
been applied since the date of the first acquisition. This handling presents the reader of
the financial statements with figures that are more comparable from year to year.
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8.
When a company sells a portion of an investment, a gain or loss is recognized based

on the difference between the proceeds received and the book value of the investment
(on the portion sold). The correct book value is determined based upon the consistent
application of the equity method. Thus, if either the Initial value method or the partial
equity method has been used, Duke must first restate the account to the equity method
before recording the sales transaction. This same method is also applied to the
operations of the current period occurring prior to the time of sale.
9.
Unless control is surrendered, the acquisition method views the sale of subsidiary's
stock as a treasury stock transaction. Thus, no gain or loss can be recognized.
10.
The accounting method choice for the remaining shares depends upon the current
relationship between the two firms. If Duke retains control, consolidation is still required.
However, if the parent now can only significantly influence the decision-making
process, the equity method is applied. A third possibility is Duke may have lost the
power to exercise even significant influence. The market-value method then is
appropriate.
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Answers to Problems
1. D The acquisition method consolidates assets at fair value at acquisition
date regardless of the parents percentage ownership.
2. D In consolidating the subsidiary's figures, all intercompany balances must
be eliminated in their entirety for external reporting purposes. Even though
the subsidiary is less than fully owned, the parent nonetheless controls it.
3. C An asset acquired in a business combination is initially valued at 100%
acquisition-date fair value and subsequently amortized its useful life.
Patent fair value at January 1, 2009................................................
Amortization for 2 years (10 year life).............................................
Patent reported amount December 31, 2010..................................
4. A Plaster building.................................................................................
Turner building acquisition-date fair value
$300,000
Amortization for 3 years (10-year life)
(90,000)
Consolidated buildings ...................................................................
$45,000
(9,000)
$36,000
$510,000
210,000
$720,000
-ORPlaster building................................................................................. $510,000

Turner building 12/31/11
$182,000
Excess acquisition-date fair value allocation
40,000
Excess amortization for 3 years (10-year life)
(12,000) 210,000
Consolidated buildings ................................................................... $720,000
5. C Hygille expense................................................................................. $621,000
Nuyt expenses...................................................................................
714,000
Excess fair value amortization (70,000 10 yrs)...........................
7,000
Consolidated expenses.................................................................... $1,342,000
6. B Combined revenues......................................................................... $1,100,000
Combined expenses......................................................................... (700,000)
Excess acquisition-date fair value amortization...........................
(15,000)
Consolidated net income................................................................. $385,000
Less: noncontrolling interest ($85,000 40%)..............................
(34,000)
Consolidated net income to controlling interest........................... $351,000
7. C
8. B
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9. A Amie, Inc. Fair value at January 1, 2007:

30% previously owned fair value (30,000 shares $5) .................
60% new shares acquired (60,000 shares $6)............................
10% NCI fair value (10,000 shares $5).........................................
Acquisition-date fair value...............................................................
Net assets' fair value........................................................................
Goodwill ............................................................................................
$150,000
360,000
50,000
$560,000
500,000
$60,000
11. A Fair value of noncontrolling interest on April 1.............................

30% of net income for 9 months ( year $240,000 30%)........
Noncontrolling interest December 31.............................................
$165,000
54,000
$219,000
10. C
12. B Combined revenues.......................................................................... $1,300,000

Combined expenses......................................................................... (800,000)
Trademark amortization...................................................................
(6,000)
Patented technology amortization..................................................
(8,000)
Consolidated net income................................................................. $486,000
13. C Subsidiary income ($100,000 $14,000 excess amortizations). .
Noncontrolling interest percentage................................................
Noncontrolling interest in subsidiary income...............................
$86,000
40%
$34,400
Fair value of noncontrolling interest at acquisition date.............

40% change in Scott book value since acquisition.......................
Excess fair value amortization ($14,000 40%)............................
40% current year income..................................................................
Noncontrolling interest at end of year............................................
$180,000
52,000
(5,600)
34,400
$260,800
14. A Michael trademark balance..............................................................

Scott trademark balance..................................................................
Excess fair value...............................................................................
Two years amortization (10-year life).............................................
Consolidated trademarks.................................................................
$260,000
200,000
60,000
(12,000)
$508,000
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15. A Acquisition-date fair value ($60,000 80%)...................................

Strand's book value .........................................................................
Fair value in excess of book value .................................................
$75,000
(50,000)
$25,000
Excess assigned to inventory (60%) .................................$15,000

Excess assigned to goodwill (40%) ..................................$10,000
Park current assets...........................................................................
Strand current assets.......................................................................
Excess inventory fair value..............................................................
Consolidated current assets............................................................
$70,000
20,000
15,000
$105,000
16. D Park noncurrent assets....................................................................

Strand noncurrent assets.................................................................
Excess fair value to goodwill...........................................................
Consolidated noncurrent assets.....................................................
$90,000
40,000
10,000
$140,000
17. B Add the two book values and include 10% (the $6,000 current portion) of
the loan taken out by Park to acquire Strand.
18. B Add the two book values and include 90% (the $54,000 noncurrent portion)
of the loan taken out by Polk to acquire Strand.
19. C Park stockholders' equity................................................................
Noncontrolling interest at fair value (20% $75,000)...................
Total stockholders' equity...............................................................
20.
$80,000
15,000
$95,000
(15 minutes) (Compute consolidated income and noncontrolling interests)

2009
Harrison income.............................................................. $220,000
Starr income.....................................................................
70,000
Excess fair value amortization.......................................
(8,000)
Consolidated net income............................................... $282,000
2010
$260,000
90,000
(8,000)
$342,000
Starr fair value................................................................................... $1,200,000

Fair value of consideration transferred.......................................... 1,125,000
Noncontrolling interest fair value....................................................
$75,000
Noncontrolling interest fair value January 1, 2009 (above)...........
2009 income to NCI ([$70,000 $8,000] 10%).................................
2009 dividends to NCI ......................................................................
Noncontrolling interest reported value December 31, 2009.........
2010 income to NCI ([$90,000 $8,000] 10%).................................
2010 dividends to NCI ......................................................................
Noncontrolling interest reported value December 31, 2010
McGraw-Hill/Irwin
$75,000
6,200
(3,000)
78,200
8,200
(3,000)
$83,400

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21. (40 minutes) (Several valuation and income determination questions for a
business combination involving a noncontrolling interest.)
a. Business combinations are recorded generally at the fair value of the
consideration transferred by the acquiring firm plus the acquisition-date fair
value of the noncontrolling interest.
Pattersons consideration transferred ($31.25 80,000 shares)......... $2,500,000
Noncontrolling interest fair value ($30.00 20,000 shares)................. $600,000
Sorianos total fair value 1/1/09............................................................. $3,100,000
b. Each identifiable asset acquired and liability assumed in a business
combination should initially be reported at its acquisition-date fair value.
c. In periods subsequent to acquisition, the subsidiarys assets and liabilities are
reported at their acquisition-date fair values adjusted for amortization and
depreciation. Except for certain financial items, they are not continually
adjusted for changing fair values.
d. Sorianos total fair value 1/1/09............................................................. $3,100,000
Sorianos net assets book value.......................................................... 1,290,000
Excess acquisition-date fair value over book value........................... $1,810,000
Adjustments from book to fair values..................................................
Buildings and equipment...................................... (250,000)
Trademarks............................................................
200,000
Patented technology............................................. 1,060,000
Unpatented technology.........................................
600,000
1,610,000
Goodwill
............................................................................................ $ 200,000
e. Combined revenues............................................................................... $4,400,000
Combined expenses............................................................................... (2,350,000)
Building and equipment excess depreciation.....................................
50,000
Trademark excess amortization...........................................................
(20,000)
Patented technology amortization........................................................
(265,000)
Unpatented technology amortization...................................................
(200,000)
Consolidated net income....................................................................... $1,615,000
To noncontrolling interest:
Sorianos revenues........................................................................... $1,400,000
Sorianos expenses.......................................................................... (600,000)
Total excess amortization expenses (above)................................ (435,000)
Sorianos adjusted net income........................................................ $365,000
Noncontrolling interest percentage ownership.............................
20%
Noncontrolling interest share of consolidated net income.........
$73,000
To controlling interest:
Consolidated net income................................................................. $1,615,000
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Solutions Manual
Noncontrolling interest share of consolidated net income.........

(73,000)
Controlling interest share of consolidated net income................ $1,542,000
-ORPattersons revenues........................................................................ $3,000,000
Pattersons expenses....................................................................... 1,750,000
Pattersons separate net income.................................................... $1,250,000
Pattersons share of Sorianos adjusted net income
(80% $365,000).....................................................................
292,000
Controlling interest share of consolidated net income................ $1,542,000
f. Fair value of noncontrolling interest January 1, 2009........................ $600,000
2009 income............................................................................................
73,000
Dividends (20% $30,000).....................................................................
(6,000)
Noncontrolling interest December 31, 2009........................................ $ 667,000
g. If Sorianos acquisition-date total fair value was $2,250,000, then a bargain
purchase has occurred.
Sorianos total fair value 1/1/09............................................................. $2,250,000
Collective fair values of Sorianos net assets..................................... $2,300,000
Bargain purchase...................................................................................
$50,000
The acquisition method requires that the subsidiary assets acquired and
liabilities assumed be recognized at their acquisition date fair values
regardless of the assessed fair value. Therefore, none of Sorianos identifiable
assets and liabilities would change as a result of the assessed fair value.
When a bargain purchase occurs, however, no goodwill is recognized.
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22. (20 Minutes) (Determine consolidated income balances, includes a mid-year

acquisition)
a.
Acquisition-date total fair value ..........................

Book value of net assets......................................
Fair value in excess of book value .....................
Excess fair value assigned to
Patent ............................................................
Land
............................................................
Buildings.........................................................
Goodwill...........................................................
Total
............................................................
$594,000
(400,000)
$194,000
Annual Excess
Life Amortizations
140,000 5 years
$28,000
10,000
30,000 10 years
3,000
14,000
-0$31,000
Consolidated figures following January 1 acquisition date:

Combined revenues .............................................................................. $1,500,000
Combined expenses............................................................................... (1,031,000)
Consolidated net income.......................................................................
469,000
NCI in Sawyers income ([200,000 31,000] 30%)..........................
(50,700)
Controlling interest in consolidated net income ............................... $418,300
b. Consolidated figures following April 1 acquisition date:
Combined revenues (1).......................................................................... $1,350,000
Combined expenses (2)......................................................................... (923,250)
Consolidated net income ...................................................................... $426,750
Noncontrolling interest in subsidiary income (3)................................
(38,025)
Controlling interest in consolidated net income ............................... $388,725
(1) $900,000 Parker revenues plus $450,000 of post-acquisition Sawyer revenues
(2) $600,000 Parker expenses plus $300,000 of post-acquisition Sawyer expenses
plus $23,250 amortization expenses for 9 months
(3) ($200,000 31,000) adjusted subsidiary income 30% year
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Solutions Manual
23.
(15 minutes) Consolidated figures with noncontrolling interest

Fair value of company (given)
Book value
Fair value in excess of book value
to machine ($50,000 $10,000)
to process trade secret
$60,000
(10,000)
50,000
40,000 10 = $4,000 per year
$10,000 4 = 2,500 per year
$6,500 per year
Consolidated figures:
Noncontrolling interest in subsidiary income

= 40% ($50,000 revenues less $26,500 expenses) = $9,400
End-of-year noncontrolling interest:

Beginning balance (40% $60,000)
Income allocation
Dividend reduction (40% $5,000)
End-of-year noncontrolling interest
24.
$24,000
9,400
(2,000)
$31,400
Machine (net) = $45,000 ($9,000 book value plus $40,000 excess

allocation less $4,000 excess depreciation for one year).
Process trade secret (net) = $10,000 $2,500 = $7,500
(20 Minutes) (Determine consolidated balances for a step acquisition).

a. Amsterdam fair value implied by price paid by Morey
$560,000 70% =
$800,000
b. Revaluation gain
1/1 equity investment in Amsterdam (book value)
25% income for 1st 6 months
Investment book value at 6/30
Fair value of investment
Gain on revaluation to fair value
$178,000
8,750
186,750
200,000
$13,250
c. Goodwill at 12/31
Fair value of Amsterdam at 6/30
Book value at 6/30 (700,000 + [70,000 2])
Excess fair value
Allocation to goodwill (no impairment)
$800,000
735,000
$65,000
$65,000
d. Noncontrolling interest
5% fair value balance at 6/30
5% Income from 6/30 to 12/31
5% dividends
Noncontrolling interest 12/31
$40,000
1,750
(1,000)
$40,750
25. (30 Minutes) (Reporting the sale of a portion of an investment in a subsidiary.)

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a. The 1,000 shares sold are reported using the equity method for the
January 1, 2011 until October 1, 2011 period. This stock represents 10
percent of the outstanding shares of Santana. An accrual of $9,000 is
recorded by Girardi (10% $120,000 year) reduced by $1,500 in
amortization expense as computed below. Therefore, an "Equity Income
from Sold Shares of Santana" in the amount of $7,500 will appear in the
2011 consolidated income statement. The consolidation will now
include all of Santana's accounts with the 40% noncontrolling interest
recognized.
Santana fair value 1/1/09 ............................................ $1,100,000
Santana book value .................................................... (1,030,000)
Patent ...........................................................................
$70,000
Life of patent ...............................................................
5 years
Annual amortization ...................................................
$14,000
9-months amortization for the 1,000 shares sold:
Annual amortization ...................................................
Time period involved .................................................
Amortization for nine months ...................................
Shares sold1,000 out of 7,000 ...............................
Amortization relating to sold shares ........................
$14,000
year
$10,500
1/7
$1,500
b. As long as control is maintained, the acquisition method considers

transactions in the stock of a subsidiary, whether purchases or sales,
as transactions in the equity of the consolidated entity.
Investment Book Value 10/1/11
1/1/11 balance (givenequity method) .................... $1,085,000
Recognition of 1/1/1110/1/11 period:
Income accrual ($120,000 70% ) .................
63,000
Dividends ($40,000 70% ) ............................
(21,000)
Amortization ($14,000 ) ..................................
(10,500)
Correct investment book value10/1/11.................. $1,116,500
Computation of Income EffectSales Transaction
10/1/11 book value (above) ....................................... $1,116,500
Portion of investment sold (1,000/7,000 shares) ....
1/7
Book value of investment sold .................................
$159,500
Proceeds .....................................................................
191,000
Credit to Girardis additional paid-in capital ...........
$ 31,500
c. Because Girardi continues to hold 6,000 shares of Santana, control is
still maintained and consolidated financial statements would be
appropriate with a noncontrolling interest of 40 percent.
26.
(35 Minutes) (Consolidation entries and the effect of different investment

methods)
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Solutions Manual
a. From the original fair value allocation, $30,000 is assigned based on the
fair value of the patent. With a 5-year life, excess amortization will be
$6,000 per year.
Because the equity method is in use, no Entry *C is required.
Entry S
Common Stock (Bandmor) ............................. 300,000
Retained Earnings, 1/1/11(Bandmor) ............ 268,000
Investment in Bandmor (70%) ...................
397,600
Noncontrolling Interest in Bandmor, 1/1/11
170,400
(To eliminate stockholders' equity accounts of subsidiary and
recognize outside ownership. Retained earnings figure includes 2009
and 2010 income and dividends.)
Entry A
Patent ................................................................ 18,000
Goodwill ........................................................... 190,000
Investment in Bandmor .............................
145,600
Noncontrolling Interest in Bandmor (30%)
62,400
(To recognize unamortized portions of acquisition-date fair value
allocations. Patent has undergone two years amortization)
Entry I
Equity in Subsidiary Earnings ........................ 72,800
72,800
(To eliminate intercompany income balance. Equity accrual of
$72,800 [70% ($110,000 6,000 amortization)] has been recorded)
Entry D
Investment in Bandmor ................................... 42,000
Dividends Paid ...........................................
42,000
(To eliminate current intercompany dividend transfers70% of
$60,000)
Entry E
Amortization Expense......................................
Patent...........................................................
(To recognize amortization for current year)
6,000
Entry P
Accounts Payable ............................................ 22,000
Accounts Receivable .................................
(To eliminate intercompany payable/receivable balance)
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6,000
22,000

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26. (continued)
b. If the initial value method had been applied, the parent would have
recorded only the dividends received as income rather than an equity
accrual. Therefore, Entry *C is needed to adjust the parent's beginning
retained earnings for 2011 to the equity method. During 2009 and 2010,
the subsidiary earned a total net income of $171,000 but paid dividends
of only $83,000. The parent's share of the difference is $61,600 (70% of
$88,000 [$171,000 - $83,000]). In addition, the parents 70% share of
excess amortization expense for two years must also be included
($8,400 = 2 years $6,000 per year 70%). The net amount to be
recognized is $53,200 ($61,600 - $8,400).
ENTRY *C
Investment in Bandmor ...................................
Retained Earnings, 1/1/11 .........................
53,200
53,200
c. If the partial equity method had been applied, only the excess
amortization expenses for the previous two years would have been
omitted from the parent's retained earnings. As shown above, that
figure is $8,400 (2 years $6,000 per year 70%).
ENTRY *C
Retained Earnings, 1/1/11 ...............................
8,400
8,400
d. Noncontrolling interest in Bandmor's income2011

[($110,000 6,000) 30%] ..............................
$31,200
Noncontrolling interest fair value January 1, 2009

$210,000
Adjustments to original basis:
2009 Net Income to NCI.......................................
$20,700
Dividends paid ...........................................
(11,700)
9,000
2010 Net income to NCI ......................................
Dividends paid ...........................................
$27,000
(13,200)
2011 Net income to NCI.......................................

Dividends paid ...........................................
Noncontrolling interest in Bandmor 12/31/11.....
$31,200
(18,000)
13,800
13,200
$246,000
OR
Worksheet adjustment S......................................................
Worksheet adjustment A......................................................
2009 income to noncontrolling interest ............................
2009 dividends to noncontrolling interest ........................
Noncontrolling interest in Bandmor 12/31/11....................
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$170,400
$62,400
31,200
(18,000)
$246,000

Solutions Manual
27.
(45 Minutes) (Asks about several consolidated balances and consolidation

process. Includes the different accounting methods to record investment.)
a. Schedule 1Fair Value Allocation and Excess Amortizations
Consideration transferred by Miller .........
Noncontrolling interest fair value.............
Taylors fair value.......................................
Taylors book value....................................
Fair value in excess of book value .........
Excess fair value assigned to buildings
$664,000
166,000
$830,000
(600,000)
230,000
Annual Excess
Life Amortizations
80,000
20 years
$4,000
Goodwill ...................................................... $150,000 indefinite
Total.......................................................
-0$4,000
b. $150,000 (see schedule 1 above)

c. Entry (S)
Common Stock (Taylor) .......................................
Additional Paid-in Capital (Taylor) ......................
Retained Earnings (Taylor) ..................................
Investment in Taylor Company (80%) ...........
Noncontrolling interest in Taylor (20%) ........
Entry (A)
Buildings ................................................................
Goodwill .................................................................
Investment in Taylor Company (80%) ...........
Noncontrolling interest in Taylor (20%) ........
d. (1) Equity Method
Income accrual (80%) ......................................
Excess amortization expense ........................
Investment income .....................................
300,000
90,000
210,000
480,000
120,000
80,000
150,000
184,000
46,000
$56,000
(3,200)
$52,800
(2) Partial Equity Method

Income accrual (80%) ......................................
$56,000
(3) Initial Value Method

Dividends received (80%) ...............................
$8,000
e. Equity Method
Initial fair value paid..............................................
Income accrual 20092011 ($260,000 80%) .....
Dividends 20092011 ($45,000 80%) ................
Excess Amortizations 20092011 ($3,200 3) . .
Investment in Taylor12/31/11 ......................
$664,000
208,000
(36,000)
(9,600)
$826,400
27. (continued)
McGraw-Hill/Irwin

4-15
Partial Equity Method

Investment in Taylor12/31/11 = $836,000 (initial value paid plus
income accrual of $208,000 less dividends of $36,000 [no excess
amortizations])
Initial Value Method
Investment in Taylor12/31/11 = $664,000 (original value paid)
f. Using the acquisition method, the allocation will be the total difference
($80,000) between the buildings' book value and fair value. Based on a
20 year life, annual excess amortization is $4,000.
Miller book valuebuildings ............................... $800,000
Taylor book valuebuildings .............................
300,000
Allocation ...............................................................
80,000
Excess Amortizations for 20092010 ($4,000 2)
(8,000)
Consolidated buildings account ............. $1,172,000
g. Acquisition-date fair value allocated to goodwill
(see schedule 1 above) ................................... $150,000
h. If the parent has been applying the equity method, the stockholders'
equity accounts on its books will already represent consolidated totals.
The common stock and additional paid-in capital figures to be reported
are the parent balances only. As to retained earnings, the equity method
will properly record all subsidiary income and amortization so that the
parent balance is also a reflection of the consolidated total.
McGraw-Hill/Irwin
4-16

Solutions Manual
28.
(20 Minutes) (A variety of consolidated balances-midyear acquisition)

Book value of Reckers, 1/1
(stockholders' equity accounts) ...............
Increase in book value:
Net Income (revenues less cost of
goods sold and expenses) .................. $120,000
Dividends ............................................
(20,000)
Change during year ................................... $100,000
Change during first six months of year
Book value of Reckers, 7/1 (acquisition date)
$1,400,000
50,000
$1,450,000
Consideration transferred by Kaplan ............ $1,360,000

Noncontrolling interest fair value ..................
300,000
Reckers fair value (given)............................... $1,630,000
Book value of Reckers.................................... (1,450,000)
Fair value in excess of book value................. $180,000
Annual Excess
Excess fair value assigned
Life Amortizations
Trademarks ...................................................
150,000 5 years $30,000
Goodwill ........................................................
$60,000 indefinite
-0Total
............................................................
$30,000
CONSOLIDATION TOTALS:
Sales (1)
$1,050,000
Cost of goods sold (2)
540,000
Operating expenses (3)
265,000
Net Income
Noncontrolling Interest in sub. Income (4)
$245,000
$9,000
(1)
$800,000 Kaplan revenues plus $250,000 (post-acquisition subsidiary

revenue)
(2)
$400,000 Kaplan COGS plus $140,000 (post-acquisition subsidiary

COGS)
(3)
$200,000 Kaplan operating expenses plus $50,000 (post-acquisition

subsidiary operating expenses) plus year excess amortization of $15,000
(4)
20% of post-acquisition subsidiary income less excess fair value

amortization [20% (120,000 30,000) year] = $9,000
Retained Earnings, 1/1 = $1,400,000 (the parents balance because the

subsidiary was acquired during the current year)
Trademark = $935,000 (add the two book values and the excess fair
value allocation after taking one-half year excess amortization)
Goodwill = $60,000 (the original allocation)
McGraw-Hill/Irwin

4-17
29.
(25 Minutes) (A variety of consolidated questions and balances)

a. Nascent applies the initial value method because the original price of
$414,000 is still in the Investment in Sea-Breeze account. In addition, the
Investment Income account is equal to 60 percent of the dividends paid
by the subsidiary during the year.
b. Consideration transferred in acquisition.
Noncontrolling interest fair value.............
Sea-Breeze fair value 1/1/09 ......................
Sea-Breeze book value 1/1/09
Excess fair value over book value
$414,000
276,000
$690,000
550,000
$140,000
Excess fair assignments:

Buildings................................................ 60,000
Equipment.............................................. (20,000)
Patent...................................................... 100,000
Total ......................................................
-0-
Annual Excess
Life Amortizations
6 years
$10,000
4 years
(5,000)
10 years
10,000
$15,000
c. If the equity method had been applied, the Investment Income account
would show the basic equity accrual less amortization: 60% of (the
subsidiary's income of $90,000 less $15,000 excess fair value
amortization) = $45,000.
d. The initial value method recognizes neither the increase in the
subsidiary's book value nor the excess amortization expenses for prior
years. At the acquisition date, the subsidiarys book value was
$550,000 as indicated by the assets less liabilities. At the beginning of
the current year, the book value of the subsidiary is $780,000 as
indicated by beginning stockholders' equity balances.
Increase in book value during prior years
($780,000 $550,000)............................................................
Less excess amortization ..........................................................
Net increase in book value.........................................................
Ownership ...................................................................................
Increase required in parent's retained earnings, 1/1/12 .........
Parent's retained earnings, 1/1/12 as reported .......................
Parents share of consolidated retained earnings, 1/1/12......
e. Consolidated net income and allocation
Revenues (add book values)
Expenses (add book values and excess amortization)
Consolidated net Income
Noncontrolling interest in consolidated net income
($90,000 15,000) 40%
Controlling interest in consolidated net income
$230,000
(45,000)
$185,000
60%
$111,000
700,000
$811,000
$900,000
(635,000)
$265,000
30,000
$235,000
29. (continued)
McGraw-Hill/Irwin
4-18

Solutions Manual
f. Consolidated buildings, 1/1/09 (subsidiary):

Book value..............................................................................
Acquisition-date fair-value allocation .................................
Consolidation figure .............................................................
$300,000
60,000
$360,000
g. Consolidated buildings, 12/31/12:

Parent's book value ..............................................................
Subsidiary's book value .......................................................
Original allocation .................................................................
Amortization ($10,000 4 years) .........................................
Consolidated balance ...........................................................
$700,000
200,000
60,000
(40,000)
$920,000
McGraw-Hill/Irwin

4-19
30. Acquisition Method Consolidated Balances

December 31, 2010
Revenues
Cost of goods sold
Depreciation expense
Amortization expense
Interest expense
Equity in Steele Income
Separate company
net income
Consolidated net income
NCI in Steele Income
Controlling interest in CNI
Pierson
(1,843,000)
1,100,000
125,000
275,000
27,500
(121,500)
Steele
(675,000)
322,000
120,000
11,000
7,000
(437,000)
(215,000)
Retained Earnings 1/1

Net Income
Dividends paid
(2,625,000)
(437,000)
350,000
(2,712,000)
(395,000)
(215,000)
25,000
(585,000)
1,204,000
1,854,000
430,000
Current Assets
Investment in Steele
Customer base
Buildings and Equipment
Copyrights
Goodwill
Total Assets
Accounts Payable
Notes Payable
NCI in Steele
Common Stock
Additional Paid-In Capital
Total Liab. and SE
Adjustments
& Eliminations
(E) 80,000
(I)121,500
Consolidated
(2,518,000)
1,422,000
245,000
366,000
34,500
-0-
(13,500)
(S)395,000
(D) 22,500
2,500
(450,500)
(13,500)
(437,000)
(2,625,000)
(437,000)
350,000
(2,712,000)
1,634,000
(D) 22,500
(A)720,000
(S)769,500
(A)985,500
(I) 121,500
(E) 80,000
-0-
-0931,000
950,000
-0863,000
107,000
4,939,000
1,400,000
640,000
1,794,000
1,057,000
375,000
5,500,000
(485,000)
(542,000)
(200,000)
(155,000)
(685,000)
(697,000)
(A)375,000
(S) 85,500
(A)109,500
(900,000)
(300,000)
(2,712,000)
(4,939,000)
(400,000)
(60,000)
(585,000)
(1,400,000)
(195,000)
(206,000)
(S)400,000
(S) 60,000
Fair value of Steele Company (1,710,000 90%)

Carrying amount acquired
Excess fair value
to customer base
to goodwill
McGraw-Hill/Irwin
4-20
NCI
(206,000)
(900,000)
(300,000)
(2,712,000)
(5,500,000)
$1,900,000
725,000
1,175,000
800,000
$375,000

Solutions Manual
30. (Continued)
Fair value at acquisition date

Relative fair values of identifiable net assets
90% and 10% of $1,525,000 (acquisition date
recorded fair value plus customer base)
Goodwill
Controlling
Noncontrolling
Interest
$1,710,000
1,372,500
$337,500
Interest
$190,000
152,500
$37,500
b. If the fair value of the noncontrolling interest was $152,500, both goodwill and
the noncontrolling interest balance would be reduced equally by $37,500 as
follows:
Fair value of Steele Company (1,710,000 + 152,500)
Carrying amount acquired
Excess fair value
to customer base
to goodwill
$1,862,500
725,000
1,137,500
800,000
$337,500
Noncontrolling interest balance beginning of year

Noncontrolling interest in consolidated net income
Dividends paid to noncontrolling interest
Noncontrolling interest end of year
$(157,500)
(13,500)
2,500
$168,500

90% and 10% of $1,525,000 (acquisition date
recorded fair value plus customer base)
Goodwill
McGraw-Hill/Irwin
Controlling
Noncontrolling
Interest
$1,710,000
1,372,500
$337,500
Interest
$152,500
152,500
-0-

4-21
31.
(60 Minutes) (Consolidation worksheet and income statement with parent

using initial value method. Also consolidated balances with a control
premium paid by parent.)
a.
Fair Value Allocation and Amortization

Consideration transferred by Krause.............
Noncontrolling interest fair value...................
Leahy total fair value 1/1/09............................
Leahy book value 1/1/09.................................
Fair value in excess of book value ................
$504,000
126,000
$630,000
(380,000)
$250,000
Annual Excess
Life Amortizations
Excess price allocated to undervalued

Building.................................................. 45,000 5 years
Trademark ............................................ 60,000 10 years
Goodwill....................................................... $145,000
$9,000
6,000
$15,000
Explanation of Consolidation Entries Found on Worksheet

Entry *C: Convert the parents 1/1/10 retained earnings balance from the
cash basis to the accrual basis.
Entry S: Eliminates stockholders' equity accounts of subsidiary while
recognizing noncontrolling interest balance (20%) as of the beginning of
the current year.
Entry A: Recognizes acquisition-date fair value allocations less 1 year
amortization for building and trademark and increases beginning
balance of the noncontrolling interest for its share.
Entry I: Eliminates Intercompany dividend payments recorded as income
by parent.
Entry E: Recognizes amortization expense for current year.
Columnar EntryRecognizes noncontrolling interest's share of
subsidiary's net income ($90,000 15,000) 20%).
McGraw-Hill/Irwin
4-22

Solutions Manual
31. a. (continued)
Accounts
KRAUSE CORPORATION AND LEAHY, INC.

Consolidation Worksheet
For Year Ending December 31, 2010
Sales
Cost of goods sold
Operating expenses
Dividend income
Separate company net income
NCI in Leahy's income
Krauses interest in consolidated income
Retained earnings, 1/1
Net income (above)
Dividends paid
Current assets
Investment in Leahy
Buildings and equipment (net)
Trademarks
Goodwill
Total assets
Liabilities
Common stock
Retained earnings, 12/31 (above)
NCI in Leahy, 1/1
NCI in Leahy, 12/31
Total liabilities and equities
Krause
Corporation
(584,000)
194,000
246,000
(16,000)
(160,000)
Leahy
Inc.
(250,000)
95,000
65,000
______
(90,000)
Consolidation Entries
Debit
Credit
Noncontrolling Consolidated
Interest
Totals
(834,000)
289,000
326,000
-0-
(E) 15,000
(I) 16,000
(15,000)
(700,000)
(160,000)
70,000
(790,000)
(350,000)
(90,000)
20,000
(420,000)
296,000
504,000
191,000
680,000
100,000
0
1,580,000
390,000
144,000
0
725,000
(470,000)
(320,000)
(790,000)
(205,000)
(100,000)
(420,000)
(S)350,000 (*C) 44,000

(I)
16,000
McGraw-Hill/Irwin
(744,000)
(204,000)
70,000
(878,000)
487,000
-0-
(*C) 44,000 (S)360,000

(A)188,000
(A) 36,000 (E) 9,000
(A) 54,000 (E) 6,000
(A)145,000
1,097,000
292,000
145,000
2,021,000
(675,000)
(320,000)
(878,000)
(S)100,000
(S) 90,000
(A) 47,000
(1,580,000)
4,000
219,000
15,000
(204,000)
(725,000)

4-23
(137,000)
148,000
(148,000)
(2,021,000)
31. (continued)
b.
KRAUSE CORPORATION AND LEAHY, INC.

Consolidated Income Statement
Sales
Cost of goods sold
Operating expenses
Total expenses
$834,000
$289,000
326,000
615,000
$219,000
To 20% noncontrolling interest

To controlling interest
Consolidated Net income
$15,000
$204,000
$219,000
c. Consideration transferred by Krause for 80% of Leahy

Noncontrolling interest fair value ($4.85 20,000 shares)
Leahy fair value
Fair value of Leahys underlying net assets
Goodwill
$504,000
97,000
$601,000
485,000
$116,000
If the noncontrolling interest fair value was $4.85 per share at the acquisition
date, then goodwill declines to $116,000 and the noncontrolling interest total
would also decline from $149,000 to 120,000). Worksheet entries (S) and (A)
assuming a $4.85 noncontrolling interest acquisition-date fair value:
(S)
(A)
Common stock-Leahy
Retained earnings- Leahy 1/1
Investment in Leahy
Noncontrolling interest
100,000
350,000
Buildings and equipment (net)

Trademarks
Investment in Leahy
36,000
54,000
360,000
90,000
72,000
18,000
Goodwill
Investment in Leahy
116,000
116,000

80% and 20% of $485,000 (acquisition date
fair value of net identifiable assets)
Goodwill
McGraw-Hill/Irwin
4-24
Controlling
Noncontrolling
Interest
$504,000
388,000
$116,000
Interest
$97,000
97,000
-0-

Solutions Manual
32.
(40 Minutes) (Determine consolidated balances.)

Acquisition-date subsidiary fair value (given)....
$850,000
Book value of subsidiary (given) ........................
(600,000)
Fair value in excess of book value .....................
$250,000
Allocations to specific accounts based on difference
between fair value and book value
Land ..................................................................
$165,000
Buildings and equipment ...............................
(25,000)
Copyright ..........................................................
100,000
Notes payable ..................................................
10,000
250,000
Total........................................................
-0Annual excess amortizations:
Buildings and equipment [$(25,000) 10 years]
Copyright ($100,000 20 years)
Notes payable ($10,000 8 years)
Total
$(2,500)
5,000
1,250
$3,750
Consolidated Totals:
Revenues = $1,900,000 (add the two book values)
Cost of goods sold = $1,085,000 (add the two book values)
Depreciation expense = $267,500 (add the two book values less $2,500
excess adjustment)
Amortization expense = $10,000 (add the two book values plus $5,000
excess adjustment)
Interest expense = $50,250 (add the two book values plus $1,250 excess
adjustment)
Equity in income of Sam = -0- (eliminated so that the individual revenues

and expenses of the subsidiary can be included in the consolidated
figures)
Net income = $487,250 (revenues less expenses)
Retained earnings, 1/1 = $1,265,000 (parent company balance; subsidiary's

operations prior to acquisition do not affect consolidated figures)
Noncontrolling interest in income of subsidiary = $26,250 ($135,000

reported income of the subsidiary less $3,750 amortization expense
multiplied by 20 percent outside ownership)
Dividends paid = $260,000 (parent company balance; subsidiary's

payments to parent are intercompany, payments to outside owners
decrease noncontrolling interest balance)
McGraw-Hill/Irwin

4-25
32. (continued)
Retained earnings, 12/31 = $1,466,000 (consolidated balance on 1/1/09 plus

consolidated net income less noncontrolling interest in subsidiary's
income less consolidated dividends)
Current assets = $1,493,000 (add the two book values)
Investment in Sam = -0- (eliminated so that the individual assets and

liabilities of the subsidiary can be included in the consolidated figures)
Land = $517,000 (add the book values plus the $165,000 excess allocation)
Buildings and equipment (net) = $1,119,500 (add the book values less the
$25,000 allocation [asset was overvalued] plus the excess amortization)
Copyright = $190,000 (book value + $100,000 excess allocation less

amortization for the year)
Total assets = $3,319,500
Accounts payable = $339,000 (add book values)
Notes payable = $581,250 (add the book values less $10,000 excess
allocation plus amortization)
Noncontrolling interest in subsidiary = $183,250 (20% of fair value as of

1/1/09 [$170,000] plus noncontrolling interest in income of subsidiary
[$26,250] less dividends paid to outside owners [$13,000])
Common stock = $300,000 (parent company balance)
Additional paid-in capital = 450,000 (parent company balance)
Retained earnings, 12/31 = $1,466,000 (computed above)
Total liabilities and equities = $3,319,500
McGraw-Hill/Irwin
4-26

Solutions Manual
32. (continued) Acquisition Method

Accounts
Father
Revenues.........................................
(1,360,000)
Cost of goods sold..........................
700,000
Depreciation expense.....................
260,000
Amortization expense.....................
-0Interest expense.............................
44,000
Equity in income of Sam .............
(105,000)
Separate company net income......
(461,000)
Consolidated net income...............
Noncontrolling interest in Sam's income
Controlling interest in CNI .............
Retained earnings 1/1 ....................
(1,265,000)
Net income (above) ........................
(461,000)
Dividends paid ..........................
260,000
Retained earnings 12/31 ..........
(1,466,000)
Current assets ................................
965,000
Investment in Sam .........................
733,000
Land ................................................
Buildings and equipment (net)......
Copyright ............................
Total assets ..............................
Accounts payable ..........................
Notes payable .................................
NCI in Sam 1/1.................................
NCI in Sam 12/31
....................................................
Common stock ...............................
Additional paid-in capital...............
Retained earnings 12/31 (above)
Total liab. and stockholders' equity
292,000
877,000
-02,867,000
(191,000)
(460,000)
(300,000)
(450,000)
(1,466,000)
(2,867,000)
McGraw-Hill/Irwin
Sam
(540,000)
385,000
10,000
5,000
5,000
-0(135,000)
Debit
Credit
(E)
Interest
Totals
(1,900,000)
1,085,000
267,500
10,000
50,250
-0-
2,500
(E) 5,000
(E) 1,250
(I) 105,000
(26,250)
(440,000)
(135,000)
65,000
(510,000)
528,000
60,000
265,000
95,000
948,000
(148,000)
(130,000)
(100,000)
(60,000)
(510,000)
(948,000)
(S) 440,000
(D) 52,000
13,000
(D) 52,000 (S) 480,000

(I) 105,000
(A) 200,000
(A) 165,000
(E) 2,500 (A) 25,000
(A) 100,000 (E) 5,000
(A) 10,000 (E) 1,250

(S) 120,000
(A) 50,000
(S) 100,000
(S) 60,000

4-27
(487,250)
26,250
(461,000)
(1,265,000)
(461,000)
260,000
(1,466,000)
1,493,000
-0517,000
1,119,500
190,000
3,319,500
(339,000)
(581,250)
(170,000)
(183,250)
(183,250)
(300,000)
(450,000)
(1,466,000)
(3,319,500)
33.
(55 Minutes) (Consolidated worksheet)
a.
Consideration transferred by Adams

Noncontrolling interest fair value
Acquisition-date total fair value
Book value of Barstow (CS + RE 12/31/09)
$603,000
67,000
$670,000
(460,000)
$210,000
Annual Excess
Land
Buildings
Equipment
Patents
Notes payable
Goodwill
Total
b.
Life Amortizations
10 years
($2,000)
5 years
8,000
10 years
5,000
5 years
4,000
$30,000
(20,000)
40,000
50,000
20,000
120,000
$90,000 indefinite
-0$15,000
Because investment income is exactly 90 percent of Barstow's reported

earnings, Adams apparently is applying the partial equity method.
Explanation of Consolidation Entries Found on Worksheet
Entry *CConverts Adams's financial records from the partial equity
method to the equity method by recognizing amortization for 2010. Total
expense was $15,000 but only 90 percent (or $13,500) applied to the parent.
Entry SEliminates subsidiary's stockholders' equity while recording
noncontrolling interest balance as of January 1, 2011.
Entry ARecords unamortized allocation balances as of January 1, 2011.
The acquisition method attributes 10 percent of these amounts to the noncontrolling interest.
Entry IEliminates intercompany income accrual for 2011.
Entry DEliminates intercompany dividend transfers.
Entry ERecords amortization expense for current year.
Columnar EntryRecognizes noncontrolling interest's share of Barstow's
net income as follows:
Noncontrolling Interest in Barstow's Income (Columnar Entry)
Barstow reported income ................................................................
Excess amortization expenses 2011..............................................
Adjusted income of Barstow .....................................................
Noncontrolling interest ownership ................................................
Noncontrolling interest in Barstow's income ..........................
McGraw-Hill/Irwin
4-28
$120,000
(15,000)
$105,000
10%
$10,500

Solutions Manual
33. b. (continued)
Revenues
Cost of goods sold
Depreciation expense
Amortization expense
Interest expense
Investment income
Income to noncontrolling interest
Income to controlling interest
ADAMS CORPORATION AND BARSTOW, INC.

Consolidation Worksheet-Acquisition Method
Adams Corp.
(940,000)
480,000
100,000
40,000
(108,000)
(428,000)
Barstow Inc.
(280,000)
90,000
55,000
15,000
Interest
(E) 6,000
(E) 5,000
(E) 4,000
(I) 108,000
(10,500)
(1,367,000)
(340,000)
Net income
Dividends paid
(428,000)
110,000
(1,685,000)
(120,000)
70,000
(390,000)
Current assets
Investment in Barstow
610,000
702,000
250,000
Land
Buildings
Equipment
Patents
Goodwill
Total assets
380,000
490,000
873,000
150,000
250,000
150,000
3,055,000
800,000
(860,000)
(510,000)
(1,685,000)
(230,000)
(180,000)
(390,000)
(C*) 13,500
(S) 340,000
(A)
(E)
(A)
(A)
(A)
30,000
2,000
32,000
45,000
90,000
(A) 16,000
(S) 180,000
McGraw-Hill/Irwin
7,000
Totals
(1,220,000)
570,000
161,000
5,000
59,000
-0(425,000)
10,500
(414,500)
560,000
724,000
1,047,000
40,000
90,000
3,321,000
(A) 18,000
(E) 8,000
(E) 5,000
(E)
(800,000)

4-29
(414,500)
110,000
(1,658,000)
860,000
-0-
(*C) 13,500
(S) 468,000
(A) 175,500
(I) 108,000
4,000
(S) 52,000
(A) 19,500
(3,055,000)
Consolidated
(1,353,500)
(D) 63,000
(D) 63,000
Total liabilities and stockholders' equity
Noncontrolling
Credit
(120,000)
Notes payable
Common stock
Debit
(1,078,000)
(510,000)
(1,658,000)
(71,500)
(75,000)
(75,000)
(3,321,000)
34. (25 minutes) (Consolidated balances after a mid-year acquisition)

a. Investment account balance indicates the initial value method.
Consideration transferred .........................
Noncontrolling interest fair value ............
Duncan acquisition-date fair value ..........
Book value of Duncan (below)..................
Fair value in excess of book value ..........
Excess assigned
based on fair value:
Equipment.........................................
Goodwill ...........................................
Total .......................................................
Amortization for 9 months ...................
$526,000
300,000
826,000
(765,000)
$61,000
Annual Excess
Life Amortizations
(30,000) 5 years
$(6,000)
$91,000 indefinite
-0$(6,000)
$(4,500)
Acquisition-Date Subsidiary Book Value

Book value of Duncan, 1/1/09 (CS + 1/1 RE) ............
$740,000
Increase in book value-net income (dividends
were paid after acquisition) ................................. $100,000
Time prior to purchase (3 months) ...........................
25,000
Book value of Duncan, 4/1/09 (acquisition date) ....
$765,000
Consolidated Income Statement:
Revenues (1)
Cost of goods sold (2)
Operating expenses (3)
Noncontrolling interest in CNI (4)
$825,000
$405,000
214,500
619,500
205,500
28,200
$177,300
(1) $900,000 combined revenues less $75,000 (preacquisition subsidiary

revenue)
(2) $440,000 combined COGS less $35,000 (preacquisition subsidiary
COGS)
(3) $234,000 combined operating expenses less $15,000 (preacquisition
subsidiary operating expenses) less nine month excess overvalued
equipment depreciation reduction of $4,500
(4) 40% of post-acquisition subsidiary income less excess amortization
b.
Goodwill = $91,000 (original allocation)

Equipment = $774,500 (add the two book values less $30,000
reduction to fair value plus $4,500 nine months excess
amortization)
Common Stock = $630,000 (parent company balance only)
Buildings = $1,124,000 (add the two book values)
Dividends Paid = $80,000 (parent company balance only)
McGraw-Hill/Irwin
4-30

Solutions Manual
35. (40 minutes) Determine consolidated balance for a mid-year acquisition.

a.
Consideration transferred by Truman ........... $720,000

Noncontrolling interest fair value ..................
290,000
Atlantas acquisition-date total fair value...... $1,010,000
Book value of Atlanta......................................
(840,000)
Fair value in excess of book value................. $170,000
Annual Excess
Excess fair value assigned
Life Amortizations
Patent ..........................................................
100,000 5 years $20,000
Goodwill ........................................................
$70,000 indefinite
-0Total
............................................................
$20,000
b.
Fair values at acquisition date
70% and 30% of $940,000 (acquisition date
book value plus patent = net asset fair value)
Goodwill
c.
Controlling
Noncontrolling
Interest
$720,000
Initial value at acquisition date

Trumans share of Atlantas income for half year
([$120,000 20,000 amortization year] 70%)
Dividends 2009 ($80,000 year 70%)
Investment account balance 12/31/09
McGraw-Hill/Irwin
658,000
$62,000
Interest
$290,000
282,000
$8,000
$720,000
35,000
(28,000)
$727,000

4-31
35. (continued)
d. Consolidated Worksheet
Truman
Atlanta
Revenues
(670,000)
(400,000)
Operating Expenses
Income of subsidiary
NCI in Atlanta's income
402,000
(35,000)
(303,000)
280,000

Net income (above)
Dividends paid
(823,000)
(303,000)
145,000
(500,000)
(120,000)
80,000
(981,000)
(540,000)
Current assets
Investment in Atlanta
481,000
727,000
390,000
Land
Buildings
388,000
701,000
200,000
630,000
Liabilities
Common stock
Additional paid-in capital
Noncontrolling interest, 7/1
Noncontrolling interest, 12/31
Total liabilities and
stockholders' equity
McGraw-Hill/Irwin
4-32
(S)200,00
0
(E)
10,000
(I) 35,000
NCI
(870,000)
(S)140,000
552,000
0
(15,000)
(S)
500,000
(D) 28,000
2,297,000
1,220,000
(816,000)
(360,000)
(300,000)
(20,000)
(540,000)
(1,220,000)
12,000
145,000
(981,000)
871,000
0
(S)588,000
(I) 35,000
(A)132,000
588,000
1,331,000
(E) 10,000
90,000
70,000
2,950,000
(1,176,000)
(S)
300,000
(S) 20,000
(95,000)
(405,000)
(981,000)
(A) 38,000
(S)252,000
(2,297,000)
(318,000)
15,000
(303,000)
(823,000)
(303,000)
(S) 40,000
(D) 28,000
(A)
100,000
(A)
70,000
(95,000)
(405,000)
(981,000)
Cons.
(120,000)
Patent
Goodwill
Total assets
Adjustments &
Eliminations
1,263,000
1,263,000
(290,000)
293,000
(293,000)
(2,950,000)

Solutions Manual
36. (60 minutes) (Consolidated statements for a step acquisition)

a.
Fair value of Sysinger 1/1/10 (given)

Book value of Sysinger 1/1/10 (CS + APIC + RE)
To customer contract (4 year life)
To goodwill
b.
Equity in earnings of Sysinger

2010 income (150,000 95%)
Amortization (100,000 95%)
Equity in earnings of Sysinger
$1,750,000
1,300,000
450,000
400,000
$50,000
$142,500
(95,000)
$47,500
Revaluation of 15% block to fair value

Consideration transferred
2009 Income (100,000 15%)
2009 dividends (30,000 15%)
Book value at 1/1/10
195,000
Fair value at 1/1/10
Gain on revaluation
$184,500
15,000
(4,500)
262,500
$67,500
Investment account balance 12/31/10

Fair value at 1/1/10 (15% block)
Consideration transferred 1/1/10 (80% block)
Equity earnings 2010
2010 income (95% 150,000)
Customer contract amortization
Dividends 2010 (40,000 95%)
Investment in Sysinger 12/31/10
McGraw-Hill/Irwin
$262,500
1,400,000
142,500
(95,000)
47,500
(38,000)
$1,672,000

4-33
36. (Continued) c.
Accounts
Revenues
Operating expenses
Equity earnings of Sysinger
Gain on revaluation
NCI in Sysingers income
Allans share of CNI
Allan and Sysinger

Allan
Sysinger
Company
Company
Debit
Credit
Interest
Totals
(931,000)
(380,000)
(1,311,000)
615,000
230,000
(E)100,000
945,000
(47,500)
-0(I) 47,500
-0(67,500)
-0(67,500)
(431,000)
(150,000)
(433,500)
(2,500)
2,500
(431,000)

Net income
Dividends paid
Retained earnings 12/31
(965,000)
(431,000)
140,000
(1,256,000)
(600,000)
(150,000)
40,000
(710,000)
Current assets
Investment in Sysinger
288,000
1,672,000
540,000
-0-
826,000
850,000
-0-
590,000
370,000
-0-01,500,000
Property, plant, and equipment

Patented technology
Customer contract
Goodwill
Total assets
3,636,000
Liabilities
Common stock
Retained earnings 12/31
NCI in Sysinger, 1/1
(1,300,000)
(900,000)
(180,000)
(1,256,000)
-0-
(90,000)
(500,000)
(200,000)
(710,000)
-0-
NCI in Sysinger, 12/31

Total liab. and stockholders' equity
-0(3,636,000)
-0(1,500,000)
McGraw-Hill/Irwin
4-34
(S) 600,000
(D)
(D) 38,000
(A) 400,000
(A) 50,000
38,000
2,000
(965,000)
(431,000)
140,000
(1,256,000)
828,000
-0-
(S)1,235,000
(I) 47,500
(A) 427,500
1,416,000
1,220,000
300,000
50,000
3,814,000
(E) 100,000
(1,390,000)
(900,000)
(180,000))
(1,256,000)
(S) 500,000
(S) 200,000
(S) 65,000
(A) 22,500
1,935,500

Solutions Manual
1,935,500
(87,500)
(88,000)
(88,000)
(3,814,000)
37. (60 minutes) (Step acquisitioncontrol previously acquired.)

a. According to the acquisition method, the valuation basis for a subsidiary is
established on the date control is obtained, in this case January 1, 2009.
Subsequent acquisitions are valued consistent with this initial value after
adjusting the investment for subsidiary income and other changes.
Because subsequent acquisitions are considered as transactions in the parents
own equity, no gains or losses are recorded. Differences in cash paid and the
underlying value are recorded as adjustments to APIC.
Fair value of Keane Company 1/1/09 ($573,000 60%)
Keane income 2009
Excess fair value amortization for copyright
Keane dividends 2009
Initial fair value adjusted to 1/1/10
Percent acquired in step acquisition
Value assigned to 30% acquisition
Cash paid for the 30% acquisition
Credit to APIC from 30% step acquisition
$955,000
150,000
(20,000)*
(80,000)
$1,005,000
30%
301,500
300,000
$1,500
*Fair value of Keane Company 1/1/09 ($573,000 60%)

Book value of Keane Company 1/1/09 (given)
To copyright (6 year life)
To goodwill
$955,000
810,000
145,000
120,000
$25,000
Entry to record 30% additional investment in Keane:

1/1/10
Investment in Keane
Cash
APIC from step acquisition
301,500
300,000
1,500
b. Investment in Keane Company 1/1/09

2009 Equity earnings [60% (150,000 20,000)]
2009 Dividends received (60% $80,000)
Additional acquisition of 30% interest
2010 Equity earnings [90% (180,000 20,000)]
2010 Dividends received (90% $60,000)
Investment in Keane Company 12/31/10
McGraw-Hill/Irwin
$573,000
78,000
(48,000)
301,500
144,000
(54,000)
$994,500

4-35
37. (continued) part c.
BRETZ, INC. AND KEANE COMPANY

Year Ending December 31, 2010
Accounts
Revenues
Operating expenses
Equity in Keanes income
NCI in Keanes income
Bretzs share of CNI
Bretz, Inc.
(402,000)
200,000
(144,000)
(346,000)

Net income (above)
Dividends paid
(797,000)
(346,000)
143,000
(1,000,000)
Current assets
Investment in Keane Company
Trademarks
Copyrights
Equipment (net)
Goodwill
Total assets
Liabilities
Common stock
APIC-step acquisition
Retained earnings,12/31
Non-controlling interest 12/31
Total liabilities and equities
McGraw-Hill/Irwin
4-36
Keane Co.
(300,000)
120,000
Consolidation Entries Noncontrolling Consolidated

Debit
Credit
Interest
Totals
(702,000)
(E) 20,000
340,000
(I) 144,000
(180,000
(16,000)
224,000
994,500
(500,000)
(180,000)
60,000
(620,000)
(S) 500,000
(D) 54,000
6,000
190,000
106,000
210,000
380,000
600,000
300,000
110,000
1,914,500
1,200,000
(D)54,000
(S) 792,000
(A) 112,500
(I) 144,000
(A)100,000
(E) 20,000
(1,914,500)
(200,000)
(300,000)
(80,000)
706,000
590,000
490,000
25,000
2,225,000
(653,000)
(400,000)
(60,000)
(1,500)
(1,000,000)
(S)300,000
(S) 80,000
(620,000)
(1,200,000)
1,223,000
(797,000)
(346,000)
143,000
(1,000,000)
414,000
0
(A) 25,000
(453,000)
(400,000)
(60,000)
(1,500)
(1,000,000)
(362,000)
16,000
(346,000)
(A) 12,500
(S) 88,000
1,223,000

Solutions Manual
(100,500)
110,500
(110,500)
(2,225,000)
38.
(30 Minutes) (Determine consolidated balances when parent uses equity

method. Includes sale of a portion of the investment)
Purchase Price Allocation and Excess Amortizations
Purchase price ........................................... $250,000
Book value acquired
($230,000 70%) ................................... 161,000
Price in excess of book value .................. $89,000
Annual Excess
Allocation based on fair value...................
Life Amortizations
Land
($10,000 70%)
$7,000
Equipment ($68,000 70%)
47,600
14 yrs.
$3,400
Liabilities ($20,000 70%)
14,000
10 yrs.
1,400
68,600
Goodwill ...................................................... $20,400 indefinite
-0Total ............................................................
$4,800
The parent uses the equity method: Investment income of $44,200 =
$49,000 (70% $70,000) less $4,800 amortization expense.
Revenues
Operating expenses
Investment income
Noncontrolling
int(E)erest in
Creedmoor income
Net income
Retained earnings,
1/1/09
Net income
Dividends paid
Retained earnings,
12/31/09
Current assets
Investment in
Creedmoor
Bon Air
(694,800)
630,000
(44,200)
Creedmo
or
(250,000)
180,000
-0-
(109,000)
(70,000)
(760,000)
(109,000)
68,000
(260,000)
(70,000)
10,000
(801,000)
(320,000)
(801,000)
72,000
120,000
192,000
321,800
-0-
Adjustments &
Eliminations
NCI
(944,800)
814,800
-0-
(E) 4,800
(I) 44,200
(21,000)
(S)260,000
(D) 7,000
(D) 7,000
3,000
(760,000)
(109,000)
68,000
-0298,000
489,000
239,200
20,400
1,238,600
241,000
289,000
165,200
-01,089,000
50,000
200,000
40,000
-0410,000
(A) 7,000
(A)37,400
(A)20,400
3,400
Liabilities
Common stock
Additional paid-in
capital
1/1/09
(180,000)
(50,000)
(50,000)
(40,000)
(A) 9,800
(S) 40,000
(E) 1,400
(221,600)
(50,000)
-0-
McGraw-Hill/Irwin
21,000
(109,000)
(S)210,000
(I) 44,200
(A)74,600
Land
Buildings (net)
Equipment (net)
Goodwill
Total assets
(58,000)
Consolidated
(58,000)
(S)90,000
(90,000)
108,000
(108,000)

4-37
12/31/09
Retained earnings,
12/31/09
Total liabilities and
equities
McGraw-Hill/Irwin
4-38
(801,000)
(1,089,00
0)
(320,000)
(410,000)
(801,000)
430,600
430,600
(1,238,600)

Solutions Manual
39.
(50 Minutes) (A variety of questions and consolidated balances for

combination where parent applies equity method)
a. Equity accrual (60% $70,000) ................................................
Excess amortizations (below) ..................................................
Equity income (parent uses equity method) .....................
$42,000
(5,600)
$36,400
Purchase Price Allocation and Excess Amortizations

Purchase price ...........................................
Book value acquired (60% of
$470,000 [assets minus liabilities]) ....
Price in excess of book value ..................
Excess price assigned to specific............
accounts based on fair value....................
Equipment (overvalued)
([$30,000] 60%) ..................................
Buildings ($155,000 60%) .................
Bonds payable ($20,000 60%)...........
Goodwill ......................................................
Total .......................................................
$400,000
282,000
$118,000
Life
(18,000)
93,000
12,000
$31,000
Annual Excess
Amortizations
10 yrs.
15 yrs.
10 yrs.
indefinite
$(1,800)
6,200
1,200
-0$5,600
b. No adjustment to the parent's retained earnings is needed because the

company is applying the equity method.
c. $5,600see a.
d. $28,00040% of $70,000 reported income figure
e.
Watson Corporation
Consolidated Income Statement
For the Year Ended December 31, 2009
Revenues
Operating expenses
Combined entity net income
Noncontrolling interest in Houston income
f.
Allocations (see a)
Equipment
Buildings
Bonds payable
Goodwill
(18,000)
93,000
12,000
31,000
McGraw-Hill/Irwin
$920,000
695,600
224,400
28,000
$196,400
Remaining
Excess Amortizations Allocations
for 4 years
12/31/09
(7,200)
(10,800)
24,800
68,200
4,800
7,200
-031,000

4-39
39.
(continued)
g. Noncontrolling interest, 1/1/08 (40% of book value of $630,000) $252,000
Noncontrolling interest in subsidiary's income (see e) ............
28,000
Noncontrolling interest in subsidiary's dividends..................... (16,000)
(40% $40,000)
Noncontrolling interest in subsidiary, 12/31/09 ......................... $264,000
h.
Watson Corporation
Consolidated Balance Sheet
December 31, 2009
Current assets
Equipment (net)
Buildings (net)
Goodwill
Total assets
$475,000 Current liabilities

909,200
1,001,200
31,000
$2,416,400
Bonds Payable
Common stock
Retained earnings
Total liabilities and equity
$560,000
462,800
264,000
310,000
819,600
$2,416,400
40.
(40 Minutes) (Determine consolidated balances, parent has applied the
cost
method)
Acquisition price ............................................. $1,400,000
Book value acquired (see Schedule 1)
($1,120,000 80%) .........................................
896,000
Cost in excess of book value ......................... $504,000
Annual Excess
Excess cost allocated to buildings based
Life Amortizations
on fair value ($80,000 80%) ......................... 64,000 10 years
$6,400
Unpatented technology ($550,000 80%) .... 440,000 10 years
44,000
Total
............................................................
$ -0$50,400
Schedule 1Book Value of Morning (January 1, 2006)
Book value, January 1, 2009
(stockholders' equity accounts) ...............
2008 Increase in book value ...........................
2007 Increase in book value ...........................
2006 Increase in book value .........................
Book value, January 1, 2006 ..........................
$1,500,000
$200,000
100,000
80,000
380,000
$1,120,000
Revenues = $1,384,000 (add the two book values)

Expenses = $550,400 (add the two book values and then include $50,400
excess amortization expenses for the year as computed above)
Noncontrolling interest in subsidiary's net income = $80,000 (20% of
subsidiary's reported income of $400,000)
40. (continued)
McGraw-Hill/Irwin
4-40

Solutions Manual
Net Income = $753,600 (consolidated revenues less both consolidated

expenses and the noncontrolling interest's share of net income)
Retained earnings, 1/1/09 = $1,952,800 (the cost method is in use because
the original purchase price is still in the Investment account. Thus, the
$380,000 increase in book value for the three previous years [income of
$680,000 less dividends paid of $300,000] multiplied by the 80 percent
ownership gives an equity accrual of $304,000. Excess amortization for
these same three years totals $151,200 ($50,400 3). Therefore, the
parent's retained earnings must be increased by the net amount
[$152,800 or $304,000 $151,200])
Dividends paid = $380,000 (the parent company balance only)
Retained earnings, 12/31/09 = $2,326,400 (beginning balance plus net
income less dividends paid)
Cash = $500,000 (add book values)
Receivables = $1,000,000 (add book values after removing $100,000
intercompany balance)
Inventory = $900,000 (add book values)
Investment in Morning = -0- (balance is removed so that subsidiary's assets
and liabilities can be included in the consolidated figures)
Land = $1,300,000 (add book values)
Buildings = $1,038,400 (add book values plus $64,000 allocation less four
years of $6,400 annual excess amortization)
Unpatented technology = $264,000 ($440,000 original allocation less four
years of $44,000 annual amortization)
Total assets = $5,002,400
Liabilities = $720,000 (add book values after removing $100,000
intercompany balance)
Noncontrolling Interest in subsidiary, 12/31/09 = $356,000 (20% of
subsidiary's beginning book value [$1,500,000] plus interest in
subsidiary income [$80,000 as computed above] less 20% of
subsidiary's dividends [$120,000])
Common stock = $1,000,000 (parent company balance)
Additional paid-in capital = $600,000 (parent company balance)
Retained earnings, 12/31/09 = $2,326,400 (computed above)
Total liabilities and equities = $5,002,400
McGraw-Hill/Irwin

4-41
40. (continued)
Consolidated figures can also be determined through a worksheet as follows:
Entry *C
Investment in Morning ..........................................
Retained Earnings, 1/1/09 Good ....................
152,800
152,800
(To recognize Good's share of Morning's increase in book value during the
2006-2008 period as well as the amortization expense for that same period.
Because the original $1,400,000 is still the balance in the investment in
Morning account, the parent is applying the cost method. Thus, 80% of
Morning's $380,000 increase in book value [$304,000] must be accrued.
Excess amortizations of $151,200 [$50,400 per year for these three years] is
also recorded leaving a net adjustment of $152,800.)
Entry S
Common Stock (Morning) ....................................
460,000
Additional Paid-in Capital (Morning) ..................
40,000
Retained Earnings, 1/1/09 (Morning) .................. 1,000,000
Investment in Morning (80%) ..........................
Noncontrolling Interest in Morning (20%) .....
1,200,000
300,000
(To eliminate subsidiary's stockholders' equity accounts while recording the

January 1, 2009 balance of the noncontrolling interest.)
Entry A
Buildings.................................................................
Unpatented technology ........................................
Investment in Morning ....................................
44,800
308,000
352,800
(To recognize unamortized amounts paid in connection with acquisition of

Morning. Original allocations have undergone three previous years of excess
amortizations.)
Entry I
Dividend Income ...................................................
Dividends Paid .................................................
96,000
96,000
(To eliminate intercompany income accounts.)
Entry E
Operating Expenses .............................................
Buildings ..........................................................
Unpatented technology...................................
50,400
6,400
44,000
(To recognize amortization expenses for current year.)
Entry P
Liabilities ...............................................................
Receivables ......................................................
100,000
100,000
(To eliminate intercompany debt.)
McGraw-Hill/Irwin
4-42

Solutions Manual
40. (continued)
Accounts
Revenues
Operating Expenses
Dividend Income
NCI in Morning's income (20% 400,000)
Net Income
Good
Morning
Net income (above)
Dividends paid
GOOD AND MORNING

Good
(884,000)
400,000
(96,000)
-0(580,000)
(1,800,000)
(580,000)
380,000
(2,000,000)
Cash
Receivables
Inventory
Investment in Morning
300,000
700,000
400,000
1,400,000
Land
Buildings
Unpatented Technology
Total assets
Liabilities
Common stock
Retained earnings, 12/31 (above)
NCI in Morning, 1/1
NCI in Morning, 12/31
Total liabilities and stockholders' equity
Morning
(500,000)
100,000 (E)
-0- (I)
-0(400,000)
Debit
Credit
Interest
Totals
50,400
96,000
(*C) 152,800
(1,000,000) (S)1,000,000
(400,000)
120,000
(I)
96,000
(1,280,000)
(80,000)
24,000
(1,384,000)
550,400
-080,000
(753,600)
(1,952,800)
-0(753,600)
380,000
(2,326,400)
500,000
1,000,000
900,000
700,000
300,000
-03,800,000
200,000
400,000
(P) 100,000
500,000
-0- (*C) 152,800 (S)1,200,000
(A) 352,800
600,000
700,000 (A) 44,800 (E)
6,400
-0- (A) 308,000 (E) 44,000
2,400,000
(200,000)
(1,000,000)
(600,000)
(2,000,000)
-0-0(3,800,000)
(620,000) (P) 100,000

(460,000) (S) 460,000
(40,000) (S) 40,000
(1,280,000)
-0(S) 300,000
-0(2,400,000)
(720,000)
(1,000,000)
(600,000)
(2,326,400)
McGraw-Hill/Irwin

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-01,300,000
1,038,400
264,000
5,002,400
(300,000 )
(356,000)
(356,000)
(5,002,400)
Accounting Theory Research Case: Noncontrolling Interest

In deliberations prior to the issuance of SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements, the FASB consider three alternatives for displaying
the noncontrolling interest in the consolidated statement of financial position.
What were these three alternatives?
1. As a liability
2. As equity
3. In the mezzanine area between liabilities and owners equity
What criteria did the FASB use to evaluate the desirability of each alternative?
The FASB evaluated whether the classifications conformed to current definitions of
financial statement elements (assets, liabilities, or equity) as articulated in FASB
Concept Statement No. 6.
In what specific ways did FASB Concept Statement 6 affect the FASBs evaluation of
these alternatives?
From SFAS 160 paragraphs 32-34
If it required that the noncontrolling interest be reported in the mezzanine, the
Board would have had to create a new elementnoncontrolling interest in
subsidiariesspecifically for consolidated financial statements. The Board
concluded that no compelling reason exists to create a new element
specifically for consolidated financial statements to report the interests in a
subsidiary held by owners other than the parent. The Board believes that
using the existing elements of financial statements along with appropriate
labeling and disclosure provides financial information in the consolidated
financial statements that is representationally faithful, understandable, and
relevant to the entitys owners, creditors, and other resource providers.
The Board concluded that a noncontrolling interest in a subsidiary does not
meet the definition of a liability in the Boards conceptual framework.
Paragraph 35 of Concepts Statement 6 defines liabilities as probable future
sacrifices of economic benefits arising from present obligations of a particular
entity to transfer assets or provide services to other entities in the future as a
result of past transactions or events
The Board concluded that a noncontrolling interest represents the residual
interest in the net assets of a subsidiary within the consolidated group held by
owners other than the parent. The noncontrolling interest, therefore, meets
the definition of equity in Concepts Statement 6. Paragraph 49 of Concepts
Statement 6 defines equity (or net assets) as the residual interest in the
assets of an entity that remains after deducting its liabilities.
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Solutions Manual
Research and Communication Case

Memorandum
To: CFO, Allied Telecom Corporation
Re: Surefire Cell Corporation Noncontrolling Interest Valuation
You are correct in observing that the newly created 10 percent noncontrolling
interest in your recent acquisition, Surefire Cell, must be valued for presentation
in your consolidated financial statements. The acquisition-date fair value is the
required valuation basis for the noncontrolling interestusually provided by
market trading data. However, because the 10 percent shares do not appear to
be actively traded, a valuation alternative will need to be selected
According to SFAS 157, Fair Value Measurements, three main techniques are
available for the noncontrolling interest valuation: the market approach, the
income approach, and the cost approach.
The market approach involves obtaining fair values for similar assets or
businesses that are comparable to Surefire Cell. This valuation technique is
appropriate when such comparable firms with observable market values are
available.
The income approach values a firm by discounting the best available measures
of future benefits, typically cash flows or earnings. Often the income approach
requires both supportable assumptions and a sufficient number of inputs to
create an accurate forecasting model.
The cost approach looks to the replacement cost of the firms net assets (in
current condition) to value the firm. This approach requires ready market prices
for the firms assets and does not rely on estimates of future cash flows or
earnings. As such it is often the least accurate valuation method.
McGraw-Hill/Irwin

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Chapter 04 IMSM

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Chapter Outline

Outside ownership may be present within any business combination

Valuation of subsidiary assets and liabilities poses a problem when a noncontrolling

Consolidations involving a noncontrolling interestsubsequent to the date of

The McGraw-Hill Companies, Inc., 2009

Sales of subsidiary stock

Understand the meaning of the term "noncontrolling interest.

The McGraw-Hill Companies, Inc., 2009

Carry out a consolidation when a step acquisition has taken place.

"Noncontrolling interest" refers to an equity interest that is held in a member of a

a. Acquisition method = $220,000 (fair value)

In practice, noncontrolling interest figures will appear in various locations within

The ending noncontrolling interest can be determined on a consolidation worksheet by

In previous years, Tree has appropriately utilized the market-value method in

The McGraw-Hill Companies, Inc., 2009

When a company sells a portion of an investment, a gain or loss is recognized based

The McGraw-Hill Companies, Inc., 2009

-ORPlaster building................................................................................. $510,000

The McGraw-Hill Companies, Inc., 2009

9. A Amie, Inc. Fair value at January 1, 2007:

11. A Fair value of noncontrolling interest on April 1.............................

12. B Combined revenues.......................................................................... $1,300,000

Fair value of noncontrolling interest at acquisition date.............

14. A Michael trademark balance..............................................................

The McGraw-Hill Companies, Inc., 2009

15. A Acquisition-date fair value ($60,000 80%)...................................

Excess assigned to inventory (60%) .................................$15,000

16. D Park noncurrent assets....................................................................

(15 minutes) (Compute consolidated income and noncontrolling interests)

Starr fair value................................................................................... $1,200,000

The McGraw-Hill Companies, Inc., 2009

The McGraw-Hill Companies, Inc., 2009

Noncontrolling interest share of consolidated net income.........

The McGraw-Hill Companies, Inc., 2009

22. (20 Minutes) (Determine consolidated income balances, includes a mid-year

Acquisition-date total fair value ..........................

Consolidated figures following January 1 acquisition date:

The McGraw-Hill Companies, Inc., 2009

(15 minutes) Consolidated figures with noncontrolling interest

Noncontrolling interest in subsidiary income

End-of-year noncontrolling interest:

Machine (net) = $45,000 ($9,000 book value plus $40,000 excess

Process trade secret (net) = $10,000 $2,500 = $7,500

(20 Minutes) (Determine consolidated balances for a step acquisition).

25. (30 Minutes) (Reporting the sale of a portion of an investment in a subsidiary.)

The McGraw-Hill Companies, Inc., 2009

b. As long as control is maintained, the acquisition method considers

(35 Minutes) (Consolidation entries and the effect of different investment

The McGraw-Hill Companies, Inc., 2009

The McGraw-Hill Companies, Inc., 2009

d. Noncontrolling interest in Bandmor's income2011

Noncontrolling interest fair value January 1, 2009

2011 Net income to NCI.......................................

The McGraw-Hill Companies, Inc., 2009

(45 Minutes) (Asks about several consolidated balances and consolidation

b. $150,000 (see schedule 1 above)

(2) Partial Equity Method

(3) Initial Value Method

The McGraw-Hill Companies, Inc., 2009

Partial Equity Method

The McGraw-Hill Companies, Inc., 2009

(20 Minutes) (A variety of consolidated balances-midyear acquisition)

Consideration transferred by Kaplan ............ $1,360,000

Cost of goods sold (2)