Chapter 3

Consolidations Subsequent to the Date of Acquisition

Chapter Outline
I. Consolidation the Effects Created by the Passage of Time
A. The present chapter examines the consolidation procedures that must be followed in
subsequent periods wheneer separate incorporation of the subsidiary is maintained.
!. Purchase combinations will continue to require a different set of procedures than a
pooling of interests because of allocations and amorti"ation.
C. A wor#sheet and consolidation entries continue to proide structure for the rendering of a
single set of financial statements for the combined entity.
$. %hen a time factor is included in the consolidation process& additional complications are
encountered.
'. The parent must select and apply an accounting method to coer the
relationship between the two companies. The inestment balance recorded by
the parent aries oer time as a result of the method chosen& as does the income
consequently recogni"ed.
(. The parent)s inestment balance is eliminated on the wor#sheet so that the
subsidiary)s actual assets and liabilities can be consolidated.
*. Additionally& the income figure accrued by the parent is excluded each period so
that the subsidiary)s reenues and expenses can be included can be included
when creating an income statement for the combined entity.
II. Inestment Accounting by the Acquiring Company
A. Consolidation of a subsidiary becomes necessary for external reporting wheneer
control exists+ but& for internal record,#eeping& the parent has a choice of three
alternaties for monitoring the actiities of its subsidiaries-
'. the cost method&
(. the equity method& or
*. the partial equity method.
!. $epending on the method applied& the acquiring company will record earnings
from its ownership of the acquired company& and this total must be eliminated on
the consolidated wor#sheet.
C. .nder each one of these methods& the balance in the Investment account will also
ary& and must be remoed in producing consolidated financial statements.
Advanced Accounting Updated 6/e
32
III. /ubsequent Consolidations Inestment 0ecorded by the Equity 1ethod
A. 2or a purchase combination consolidated after the acquisition date& certain 3elimination4
procedures are required to aoid double,counting of items related to the combination.
and if the acquiring company has applied the equity method& the following process is
appropriate.
'. 2or example& if the Investment in Subsidiary account remains on the consolidated
balance sheet& it would imply that the Parent has an inestment interest in itself5
This simply would not ma#e sense.
(. These 3elimination4 entries are posted 6789 to the consolidated wor#sheet& and
do not impact the general ledger accounts of either the parent company or the
subsidiary company.
*. Prior to posting any of the 3elimination4 entries to the consolidation wor#sheet&
the Parent must remember to update its own records for the equity method
ad:ustments to the inestment account.
;. If the acquisition is made during the current fiscal period& the parent ad:usts its
Investment account to reflect the subsidiary)s income and diidend receipts as
well as any amorti"ation expense relating to the purchase price allocations and
goodwill.
!. %or#sheet entries are used to establish consolidated figures for reporting purposes.
'. Consolidation Entry S 3eliminates4 the subsidiary)s stoc#holders) equity accounts
<as of the purchase date or the beginning of the period when this is a period other
than the period of acquisition= from the consolidated balance sheet.
Consolidation Entry S
Common /toc# </ubsidiary= >>>>>>>>>... ??
Additional Paid,In Capital </ubsidiary= >>>>>. ??
0etained Earnings& '@'@A? </ubsidiary= >>>>> ??
Inestment in /ubsidiary >>>>>>>>> ??
(. Consolidation Entry A effectiely recogni"es the unamorti"ed portion of the fair
mar#et alue ad:ustments associated with the subsidiary)s assets <as determined
at the acquisition date= and other intangible assets& and recogni"es the goodwill&
as of the beginning of the period <or the acquisition date if this is the period of
acquisition=.
Consolidation Entry A
8and <if underalued on the /ub)s boo#s=>>>>... ??
!uildings <if underalued on the /ub)s boo#s=>>>. ??
Boodwill >>>>>>>>>>>>>>>>>>. ??
Equipment <if oeralued on the /ub)s boo#s=>>. ??
Inestment in /ubsidiary >>>>>>>>> ??
*. Consolidation Entry I eliminates the Equity in Subsidiary Income balance
accrued by the parent.
Consolidation Entry I
Advanced Accounting Updated 6/e
33
Equity in /ubsidiary Earnings >>>>>>>>>. ??
Inestment in /ubsidiary >>>>>>>>> ??
;. Consolidation Entry D remoes intercompany diidend payments.
Consolidation Entry D
Inestment in /ubsidiary >>>>>>>>>>>. ??
$iidends Paid >>>>>>>>>>>>>. ??
C. Consolidation Entry E records the current consolidated amorti"ation expense on
the purchase price allocations. <0emember that the fair mar#et alue difference
associated with 8and is 7EDE0 amorti"ed.=
Consolidation Entry E
Expenses >>>>>>>>>.>>>>>>>>.. ??
Equipment >>>>>>>>>>>>>>>>>.. ??
!uildings >>>>>>>>>>>>>>>> ??
Intangibles >>>>>>>>>>>>>>>>. ??
E. Consolidation Entry P eliminates any intercompany payable@receiable balances.
Consolidation Entry P
8iabilities >>>>>>>>>>>>> ??
Current Assets >>>>>>>>>>>>>. ??
C. If the purchase was made during a preious period& most of the consolidation entries
described preiously remain applicable regardless of the time that has elapsed since the
combination was formed.
'. The amount of the subsidiary)s stoc#holders) equity to be remoed in
Consolidation Entry S will differ each period to reflect the balance as of the
beginning of the current period.
(. The allocations established by Consolidation Entry A will also change with each
subsequent consolidation& and only the unamorti"ed balances remaining as of the
beginning of the current period are recogni"ed in this entry.
ID. /ubsequent Consolidations Inestment 0ecorded on 6ther than the Equity 1ethod
A. 2or a purchase combination where the parent has applied an accounting method other
than the equity method& the consolidation procedures preiously described is modified.
!. The parent)s use of the cost method is considered simpler than other methods.
'. The parent company recogni"es diidends receied as dividend income& rather
than as a reduction of the inestment account& and therefore& does not change the
Investment in Subsidiary account.
(. If the parent applies the cost method& the intercompany income eliminated in
Consolidation Entry I will consist only of the diidends transferred from the
subsidiary.
Study Guide Chapter 3
34
*. 7o separate Consolidation Entry D is needed <the intercompany diidends are
eliminated in Entry I=.
;. In periods after the period of acquisition& the cost method recogni"es neither
Equity in Subsidiary Income nor Amortization Expense.
C. !oth Equity in Subsidiary Income <for all years prior to the current period= and
accumulated amorti"ation must be added directly to the consolidation wor#sheet.
Consolidation Entry *C is used for this purpose& as it conerts all prior amounts
into equity method balances.
C. The partial equity method is similar to the equity method with one important difference
the partial equity method does not ad:ust the subsidiary)s reported income for any
amorti"ation associated with the acquisition.
'. If the parent uses the partial equity method& the intercompany income to be
remoed in Consolidation Entry I is the equity accrual only+ no amorti"ation
expense is included.
(. Intercompany diidends are eliminated through Consolidation Entry D.
*. $uring any time period after the year of purchase& the partial equity method does
not recogni"e amorti"ation expense& so that Consolidation Entry *C conerts the
appropriate account balances to the equity method by recogni"ing the expense
that relates to all of the past years.
D. Boodwill Impairment F /2A/ 7o. ';(
A. %hen is goodwill impairedG
'. Boodwill is considered impaired when the fair alue of its related reporting unit
falls below its carrying alue. Boodwill should not be amorti"ed& but should be
tested for impairment at the reporting unit leel <operating segment or lower
identifiable leel=.
(. Boodwill should be tested for impairment at least annually.
*. Interim impairment testing may be necessary in the presence of negatie
indicators such as an aderse change in the business climate or mar#et& legal
factors& regulatory action& an introduction of competition& or a loss of #ey
personnel.
!. How is goodwill tested for impairmentG
'. All acquired goodwill should be assigned to reporting units. It would not be
unusual for the total amount of acquired goodwill to be diided among a number
of reporting units. Boodwill may be assigned to reporting units of the acquiring
entity that are expected to benefit from the synergies of the combination een
though other assets or liabilities of the acquired entity may not be assigned to that
reporting unit.
(. Boodwill is tested for impairment a two,step approach.
a. The first step simply compares the fair alue of a reporting unit to its
carrying amount. If the fair alue of the reporting unit exceeds its
carrying amount& goodwill is not considered impaired and no further
analysis is necessary.
b. The second step is a comparison of goodwill to its carrying amount. If
the fair alue of a reporting unit is less than its carrying alue& goodwill
Advanced Accounting Updated 6/e
35
is considered impaired and a loss is recogni"ed. The loss is equal to the
amount by which goodwill eceeds its fair !alue.
*. The fair alue of goodwill should be calculated in the same manner that goodwill
is calculated in a business combination. An entity should allocate the fair alue of
the reporting unit to all of the assets and liabilities of that unit <including any
unrecogni"ed intangible assets=& as if the reporting unit had been acquired in a
business combination and the fair alue of the reporting unit was the purchase
price. The excess 3purchase price4 oer the amounts assigned to assets and
liabilities is the fair alue of goodwill. This allocation is performed only for
purposes of testing goodwill for impairment and does not require entities to
record the 3step,up4 in net assets or any unrecogni"ed intangible assets.
C. How is the impairment recogni"ed in financial statementsG
'. The aggregate amount of goodwill impairment losses should be presented as a
separate line item in the operating section of the income statement unless a
goodwill impairment loss is associated with a discontinued operation.
(. A goodwill impairment loss associated with a discontinued operation should be
included <on a net,of,tax basis= within the results of discontinued operations.
DI. Purchase Price Contingent Consideration
A. In a purchase& the final price paid by the acquiring company may ultimately depend on
some future eent such as the earnings of the subsidiary or the mar#et alue of any
common stoc# issued.
!. If additional assets must be coneyed by the parent at a later date& the original purchase
price is recalculated.
C. %hen additional assets are coneyed& Boodwill is increased in the consolidated financial
statements or& if a bargain purchase has occurred& reductions in alue are decreased or
remoed.
$. If additional stoc# is issued at a later date& the new shares are recorded at fair mar#et
alue but preiously issued shares are ad:usted to the same alue.
DII. /ubsequent Consolidations Pooling of Interests
A. In consolidating a pooling of interests subsequent to the formation of the business
combination& many wor#sheet procedures are identical to those used in a purchase
combination.
!. The acquired company)s stoc#holders) equity must still be remoed on the wor#sheet
along with arious reciprocal balances- intercompany income& diidends& and
receiable@payable accounts. Howeer& some differences do exist.
C. /ince all asset& liability& reenue& and expense accounts are consolidated at boo# alue
neither Consolidation Entry A nor Consolidation Entry E are needed+ no allocations or
amorti"ation are recorded.
DIII. Push,$own Accounting
Study Guide Chapter 3
36
A. A subsidiary acquired in a purchase may record any allocation directly into its own
financial records rather than through the use of a wor#sheet& and subsequent amorti"ation
expense could also be recorded by the subsidiary.
!. Push,down accounting reports the assets and liabilities of the subsidiary at the amount the
new owner paid& and it also assists the new owner in ealuating the profitability that the
subsidiary is adding to the business combination.
C. Push,down accounting can also ma#e the consolidation process easier since allocations
and amorti"ation need not be included as wor#sheet entries.
$. The /EC currently requires the use of push,down accounting for the separate financial
statements of any subsidiary where no substantial outside ownership exists of the
company)s common stoc#& preferred stoc#& and publicly held debt.
E. The 2A/! has been studying push,down accounting and may issue more specific
pronouncements concerning its application.
Advanced Accounting Updated 6/e
37
"ultiple Choice #uestions
$tems % through & are based on the following information.
6n Ianuary '& (AA(& Par#way Corporation purchases all of the outstanding common stoc# of /haw
Company for J;;A&AAA cash. 6n that date& /haw)s net assets had a boo# alue of J(KE&AAA. Equipment
with an L,year life was underalued by J;A&AAA in /haw)s financial records. Boodwill resulting from this
combination equals J'A;&AAA. /haw reported net income of JCA&AAA in (AA( and JEC&AAA in (AA*.
$iidends of JC&AAA were declared and paid in each of those two years.
/elected account balances as of $ecember *'& (AA; for the two companies are as follows-
'ar(way Shaw
0eenues CAA&AAA J (LC&AAA J
Expenses *CA&AAA (AA&AAA
Equipment <net= (CA&AAA '(A&AAA
0etained Earnings& '@'@A; *AA&AAA 'C'&AAA
$iidends Paid CA&AAA 'A&AAA
'. 2or each of the three methods discussed in the chapter& what should be the Investment in Shaw
Company account balance in the records of Par#way Corporation at $ecember *'& (AA;G
Partial
Equity Equity Cost
1ethod 1ethod 1ethod
A. JCM*&LAA JE;A&AAA J(KE&AAA
!. JEAC&AAA JE(A&AAA J;;A&AAA
C. JE(A&AAA JE(A&AAA J;;A&AAA
$. JE'A&AAA JE(A&AAA J(KE&AAA
E. JEAC&AAA JE;A&AAA J;;A&AAA
(. %hat is consolidated net income for (AA; if the parent company uses the partial equity methodG
A. J(*A&AAA
!. J(CA&AAA
C. J((A&AAA
$. J(*C&AAA
E. J((C&AAA
*. %hat is consolidated retained earnins at Ianuary '& (AA; if the parent company uses the equity
methodG
A. J(LC&AAA
!. J(KA&AAA
C. J(KC&AAA
$. J*AA&AAA
Study Guide Chapter 3
38
E. J*KC&AAA
;. %hat is consolidated retained earnins at Ianuary '& (AA; if the parent company uses the partial
equity methodG
A. J(LC&AAA
!. J(KA&AAA
C. J(KC&AAA
$. J*AA&AAA
E. J*KC&AAA
C. %hat is consolidated retained earnins at Ianuary '& (AA; if the parent company uses the cost
methodG
A. J(LC&AAA
!. J(KA&AAA
C. J(KC&AAA
$. J*AA&AAA
E. J*KC&AAA
E. %hat is the total of (AA; consolidated expensesG
A. JCCA&AAA
!. JC*C&AAA
C. JCCC&AAA
$. JC;A&AAA
E. JC;C&AAA
M. %hat is the $ecember *'& (AA; consolidated balance for EquipmentG
A. J*MA&AAA
!. J;AA&AAA
C. J;AC&AAA
$. J;'A&AAA
E. J*KC&AAA
L. According to /2A/ ';'& for purposes of testing goodwill for impairment& the appropriate leel of
testing is at the
A. Consolidated entity leel
!. Parent company leel
C. 6perating unit leel
$. /ubsidiary company leel
E. 0eporting unit leel
Advanced Accounting Updated 6/e
39
K. Powell Company buys all of the outstanding common shares of /outh !ay Company on Ianuary
'& (AA( for J'&CAA&AAA cash. This price resulted in goodwill of J*AA&AAA. !ecause the subsidiary
earned especially high profits oer the next two years& Powell was required to pay /outh !ay)s
preious owners an additional J;CA&AAA cash on Ianuary '& (AA;. How should Powell report this
additional paymentG
A. A retroactie ad:ustment is made record the J;CA&AAA as additional goodwill& as if the
payment had been made on Ianuary '& (AA;.
!. The J;CA&AAA is expensed in (AA;.
C. The extra J;CA&AAA payment is applied as a reduction of consolidated retained earnings.
$. The additional J;CA&AAA payment is reported as an increase in consolidated retained
earnings at Ianuary '& (AA;.
E. The J;CA&AAA payment is applied as a decrease in consolidated stoc#holders) equity.
'A. Breenberg Company purchases Andrews Company on Ianuary '& (AA( by issuing (A&AAA shares of JC
par alue common stoc# haing a JEA per share mar#et price. The business combination resulted in
J;CA&AAA of goodwill. Breenberg agrees to guarantee the alue of the stoc# issued to the former
owners of Andrews. Breenberg agrees to issue additional shares if the price of the stoc# drops during
a two,year period. /ubsequently& the mar#et price of the Breenberg stoc# drops from JEA to JCA per
share. 6n Ianuary '& (AA;& Breenberg was required to issue an additional ;&AAA shares of its stoc# to
the former shareholders of Andrews. How should Breenberg report the issuance of the additional
;&AAA sharesG
A. All of the subsidiary)s asset and liability accounts must be realued based on their fair
mar#et alues at Ianuary '& (AA;.
!. The fair mar#et alue of the new shares will increase the Boodwill balance.
C. The new shares are recorded at the earlier mar#et alue and then a retroactie ad:ustment
is made for the difference.
$. The recorded alue of the earlier shares is reduced to the current mar#et alue while the
new shares are also recorded at this same mar#et alue.
E. A retroactie ad:ustment is made to record the J(AA&AAA mar#et alue of the new shares
as if they were issued at Ianuary '& (AA(.
)rief *ssay #uestions
'. 6n Ianuary '& (AA(& Patric# Company purchases 'AA percent of the outstanding common shares
of /portswear Inc. for J'&CAA&AAA. 6n that date& Patric# reported retained earnings of J'CA&AAA
while /portswear reported an JLA&AAA balance. Patric# reported net income of JMC&AAA in (AAA
and JKA&AAA in (AA*& and paid J(C&AAA in diidends each year. /portswear reported net income
of JCA&AAA in (AA( and JEC&AAA in (AA*& and paid JC&AAA in diidends each year. Annual
amorti"ation of JM&AAA results from the combination. If Patric# applies the equity method&
calculate the Investment in Sportswear Inc! account balance on $ecember *'& (AA*. How would
your answer differ if Patric# uses the partial equity methodG
(. %hat is the /EC)s rationale for requiring the use of push,down accounting for the separate
financial statements of any subsidiary where no substantial outside ownership exists of the
company)s common stoc#& preferred stoc#& and publicly held debt.
Study Guide Chapter 3
4
'roblems
'. 6n Ianuary '& (AA(& Biant Inc. purchased all of the outstanding common shares of Tiny Co. for
J*&EAA&AAA cash. 6n that date& Tiny)s equity accounts had the following balances- Common
Stoc" JCAA&AAA+ Additional Paid#In Capital J'&LAA&AAA+ and $etained Earnins
JMAA&AAA. All of Tiny)s assets were fairly stated except for equipment haing a boo# alue of
J'LA&AAA and a fair mar#et alue of J(MA&AAA& and a building haing a boo# alue of JEAA&AAA
and a fair mar#et alue of JLAA&AAA. The equipment is estimated to hae a remaining useful life
of fie years& and the building has a ten,year remaining useful life. Tiny also had a copyright
with a fair mar#et alue of J*'A&AAA and an expected useful life of C years on '@'@A(.
$uring (AA(& Tiny reported net income of J'&*(C&AAA and paid diidends of JLCA&AAA.
$uring (AA* Tiny reported net income of JKAA&AAA and paid diidends of J'&'AA&AAA.
Required:
A. Analy"e the purchase price by preparing an Allocation o% Purchase Price and an
Amortization Schedule.
!. Assume that Biant uses the equity method to account for its inestment in Tiny. Prepare all
entries to be made on the boo#s of Biant for (AA( regarding its inestment in Tiny.
C. Prepare the consolidation wor#sheet entries for the year ended $ecember *'& (AA( assuming
Biant uses the equity method of accounting.
(. 0equired-
Assuming that Biant Inc. uses the equity method to account for its inestment in Tiny Co.&
prepare the consolidation wor#sheet entries for the year ended $ecember *'& (AA*.
*. Required:
Assuming that Biant Inc. uses the partial equity method to account for its inestment in Tiny Co.&
prepare the consolidation wor#sheet entries for the year ended $ecember *'& (AA(.
;. Required:
Assuming that Biant Inc. uses the cost method to account for its inestment in Tiny Co.& prepare
the consolidation wor#sheet entries for the year ended $ecember *'& (AA(.
Advanced Accounting Updated 6/e
4!
Solutions to "ultiple Choice #uestions
'. ) Allocation of Purchase Price at Ianuary '& (AA(-
Purchase price J ;;A&AAA
!oo# alue of /haw < (KE&AAA=
Excess of cost oer boo# alue ';;&AAA
Allocation to Equipment based on fair mar#et alue < ;A&AAA=
Boodwill J 'A;&AAA
Annual amorti"ation expense-
Equipment <J;A&AAA N L years= J C&AAA
Total J C&AAA
*quity method+
Inestment in /haw Company initial cost J ;;A&AAA
Income accrual (AA( CA&AAA
Amorti"ation (AA( < C&AAA=
$iidends receied (AA( < C&AAA=
Income accrual (AA* EC&AAA
Amorti"ation (AA* < C&AAA=
$iidends receied (AA* < C&AAA=
Income accrual (AA; LC&AAA
Amorti"ation (AA; < C&AAA=
$iidends receied (AA; < 'A&AAA=
Inestment in /haw Company '(@*'@A; J EAC&AAA
'artial equity method+
Inestment in /haw Company initial cost J ;;A&AAA
Income accrual (AA( CA&AAA
$iidends receied (AA( < C&AAA=
Income accrual (AA* EC&AAA
$iidends receied (AA* < C&AAA=
Income accrual (AA; LC&AAA
$iidends receied (AA; < 'A&AAA=
Inestment in /haw Company '(@*'@A; J E(A&AAA
Cost method+
Inestment in /haw Company '(@*'@A; J ;;A&AAA
(. A Consolidated net income-
0eenues <add boo# alues= J MLC&AAA
Expenses <add boo# alues and include amorti"ation= < CCC&AAA=
Consolidated net income J (*A&AAA
*. D If Par#way Corporation uses the equity method& its retained earnings balance at Ianuary
'& (AA; will reflect the consolidated total. Thus& Par#way)s balance of J*AA&AAA also
represents consolidated retained earnings.
Study Guide Chapter 3
42
;. ) If Par#way Corporation uses the partial equity method& its retained earnings balance at
Ianuary '& (AA; will be correct except for the omission of amorti"ation.
Par#way Corporation)s retained earnings at '@'@A; J *AA&AAA
Amorti"ation for (AA(,(AA* <JC&AAA x ( years= < 'A&AAA=
Consolidated retained earnings at '@'@A; J (KA&AAA
C. * Par#way Corporation)s retained earnings at '@'@A; J *AA&AAA
Additional equity accrual (AA( <JCA&AAA F JC&AAA= ;C&AAA
Additional equity accrual (AA* <JEC&AAA F JC&AAA= EA&AAA
Amorti"ation for (AA(,(AA* <JC&AAA x ( years= < 'A&AAA=
Consolidated retained earnings at '@'@A' J *KC&AAA
E. C !oo# alue of Par#way Corporation)s (AA; expenses J *CA&AAA
!oo# alue of /haw Company)s (AA; expenses (AA&AAA
Amorti"ation for (AA; C&AAA
Consolidated expenses for (AA; J CCC&AAA
M. * !oo# alue of Par#way Corporation)s Equipment J (CA&AAA
!oo# alue of /haw Company)s Equipment '(A&AAA
Allocation to Equipment based on fair mar#et alue ;A&AAA
Amorti"ation for (AA(,(AA; <JC&AAA x * years= < 'C&AAA=
Consolidated Equipment at '(@*'@A; J *KC&AAA
L. *
K. A This question inoles contingent consideration based on the subsidiary)s future earnings.
If a subsequent payment is made because of a specified amount of income is earned&
consolidated goodwill is increased.
'A. D
Answers to )rief *ssay #uestions
'. If Patric# Company uses the equity method& the Investment in Sportswear Inc! account balance on
$ecember *'& (AA* is calculated to be J'&CK'&AAA.
Initial cost at Ianuary '& (AA( J '&CAA&AAA
/portswear net income (AA( CA&AAA
/portswear net income (AA* EC&AAA
$iidends paid by /portswear <JC&AAA x (= < 'A&AAA=
Amorti"ation (AAA,(AA* <JM&AAA x (= < ';&AAA=
Inestment in /portswear Inc. at $ecember *'& (AA* J '&CK'&AAA
If Patric# Company uses the partial equity method& the Investment in Sportswear Inc! account
balance on $ecember *'& (AA* is calculated to be J'&EAC&AAA.
Initial cost at Ianuary '& (AA( J '&CAA&AAA
Advanced Accounting Updated 6/e
43
/portswear net income (AA( CA&AAA
/portswear net income (AA* EC&AAA
$iidends paid by /portswear <JC&AAA x (= < 'A&AAA=
Inestment in /portswear Inc. at $ecember *'& (AA* J '&EAC&AAA
(. The /EC)s rationale for requiring push,down accounting is based on the notion that when the
form of ownership is within the control of the parent company& the accounting basis should be the
same whether the entity continues to exist or is merged into the parent)s operations.
Consequently& the /EC beliees that a change in ownership :ustifies a new basis of accounting for
the subsidiary)s assets and liabilities.
Solutions to 'roblems
'. A. Biant Inc.
Allocation of Purchase Price
Ianuary '& (AA(
Amortization
BiantOs Cost *&EAA&AAA J
Portion of TinyOs !oo# Dalue
Purchased by Biant 'AAP *&AAA&AAA *&AAA&AAA
$ifference to be allocated EAA&AAA
Equipment 'AAP KA&AAA KA&AAA N C Q 'L&AAA
!uildings 'AAP (AA&AAA (AA&AAA N 'A Q (A&AAA
Copyright *'A&AAA N C Q E(&AAA
Total , J 'AA&AAA
<This analysis of purchase price is independent of the method that the parent will use to
account for its inestment+ that is& the results are the same for all methods.=
!. Entries on the boo#s of Biant Inc.-
Date Accounts Debit Credit
1/1/02 Investment in Tiny 3,600,000
Cash 3,600,000
to record inve"t#ent in $iny
12/31/02 Investment in Tiny 1,325,000
Equity in Tiny Income 1,325,000
to record Giant%" "hare o& $iny%" 'nco#e
12/31/02 Cash 850,000
Investment in Tiny 850,000
to record receipt o& dividend" &ro# $iny
12/31/02 Equity in Tiny Income 100,000
Investment in Tiny 100,000
to reocrd a#orti(ation e)pen"e
Study Guide Chapter 3
44
C. Consolidation wor#sheet entries for the year ended $ecember *'& (AA( <,int use the
mnemonic deice SAIDE=-
Date Accounts Debit Credit
12/31/02 ENTRY S
Common toc! " Tiny 500,000
#ai$"In Ca%ita& " Tiny 1,800,000
'etaine$ Earnin(s " 1/1/02 )00,000
Investment in Tiny 3,000,000
12/31/02 ENTRY A
Equi%ment *0,000
+ui&$in( 200,000
Co%yri(ht 310,000
Investment in Tiny 600,000
12/31/02 ENTRY I
Equity in Tiny Income 1,325,000
Investment in Tiny 1,325,000
12/31/02 ENTRY D
Investment in Tiny 850,000
,ivi$en$s 850,000
12/31/02 ENTRY E
Amortization E-%ense 100,000
Equi%ment 18,000
+ui&$in( 20,000
Co%yri(ht 62,000
Advanced Accounting Updated 6/e
45
(. Consolidation wor#sheet entries for the year ended $ecember *'& (AA* using the equity
method-
Date Accounts Debit Credit
12/31/03 ENTRY S
Common toc! " Tiny 500,000
#ai$"In Ca%ita& " Tiny 1,800,000
'etaine$ Earnin(s " 1/1/03 1,1)5,000
Investment in Tiny 2,.)5,000
12/31/03 ENTRY A
Equi%ment )2,000
+ui&$in( 180,000
Co%yri(ht 2.8,000
Investment in Tiny 500,000
12/31/03 ENTRY I
Equity in Tiny Income *00,000
Investment in Tiny *00,000
12/31/03 ENTRY D
Investment in Tiny 1,100,000
,ivi$en$s 1,100,000
12/31/03 ENTRY E
Amortization E-%ense 100,000
Equi%ment 18,000
+ui&$in( 20,000
Co%yri(ht 62,000
Study Guide Chapter 3
46
*. Consolidation wor#sheet entries for the year ended $ecember *'& (AA( using the partial equity
method-
Date Accounts Debit Credit
12/31/02 ENTRY *C
'etaine$ Earnin(s 850,000
Investment in Tiny 850,000
to ad*u"t the +a,ance" to -hat they -ou,d have
+een i& Giant had u"ed the e.uity #ethod/
12/31/02 ENTRY S
Common toc! " Tiny 500,000
#ai$"In Ca%ita& " Tiny 1,800,000
'etaine$ Earnin(s " 1/1/02 )00,000
Investment in Tiny 3,000,000
12/31/02 ENTRY A
Equi%ment *0,000
+ui&$in( 200,000
Co%yri(ht 310,000
Investment in Tiny 600,000
12/31/02 ENTRY I
Equity in Tiny Income 1,325,000
Investment in Tiny 1,325,000
12/31/02 ENTRY D
Investment in Tiny 850,000
,ivi$en$s 850,000
12/31/02 ENTRY E
Amortization E-%ense 100,000
Equi%ment 18,000
+ui&$in( 20,000
Co%yri(ht 62,000
Advanced Accounting Updated 6/e
47
;. Consolidation wor#sheet entries for the year ended $ecember *'& (AA( using the cost method-
Date Accounts Debit Credit
12/31/02 ENTRY S
Common toc! " Tiny 500,000
#ai$"In Ca%ita& " Tiny 1,800,000
'etaine$ Earnin(s " 1/1/02 )00,000
Investment in Tiny 3,000,000
12/31/02 ENTRY A
Equi%ment *0,000
+ui&$in( 200,000
Co%yri(ht 310,000
Investment in Tiny 600,000
12/31/02 ENTRY I
,ivi$en$ Income 850,000
,ivi$en$s 850,000
12/31/02 ENTRY D
0ot app,ica+,e in the Co"t 1ethod
12/31/02 ENTRY E
Amortization E-%ense 100,000
Equi%ment 18,000
+ui&$in( 20,000
Co%yri(ht 62,000
Study Guide Chapter 3
48