Problem
CONSOLIDATION WORKSHEET PROBLEM Colke
Prepare the co
esponding consolidating worksheets based on the following facts.
Companies involved: Parent and Sub.
Date of acquisition: Jan. 1, 20X3
Date of the worksheets you must prepare: December 31, 20X4
" 20X5
" 20X6
Percentage of common shares of S owned by P 80%
Price paid by P $ 1,800,000
At the time of acquisition these were some values concerning S:
Common stock $ 300,000
Aditional paid-in capital $ 300,000
Retained earnings $ 198,000
Years FMV-BV
Inventories <1 $ 240,000
Other cu
ent assets <1 $ 90,000
Plant & equipment, remaining life: 8 $ 600,000
Land $ 420,000
Long term liabilities; remaining life: 10 $ 90,000
Intangibles amortization: 10
Intercompany transactions:
20X3 20X4 20X5 20X6
Upstream inventory sales - $ 45,000 $ 38,250 $ 40,928
% in ending inventory - 8.00% 9.60% 11.52%
Gross profit rate on sales - 40.00% 48.00% 57.60%
Upstream building sale, Dec. 31
Sold for $ 600,000
Book value at time of sale $ 216,000
Remaining life: 10
% of S bonds purchased by P, Jan. 1 30%
Price paid $ 272,768
BV at that date $ 278,415
Remaining life: 5
Maturity value of acquired bonds $ 270,000
Required:
1. Complete the worksheets for 20X4-6.
Author:
Excess of FMV of Sub's assets and liabilities over their BV when Parent acquired Sub.
Author:
When P acquired S, the fair value (i.e., present value) of these liabilities was less than their book value.
Wksheets
CONSOLIDATION WORKSHEET PROBLEM
CONSOLIDATION WORKING PAPERS XXXXXXXXXXYEAR ENDED DECEMBER 31, 20X3 Colke
Parent Subsidiary Adjusts. and Elims. Cons.
Income Statement
Sales 6,000,000 3,000,000 9,000,000 Reconciliation: Investment to S's Equity BONDS
Income from S 291,115 291,115 - - Issuer's Facts: Acquirer's Facts:
Cost of goods sold (4,200,000) (1,710,000) 240,000 (6,150,000) Investment, 12/31 20X3 1,941,529 Acquired Jan. 20X5
Operating expenses (900,000) (450,000) 175,200 (1,525,200) Removal of unamortized differential: % acquired 30%
Interest Expense (60,906) (60,906) Initial Amortiz. Face value 900,000 Face value 270,000
Non-contr. interest income 72,779 (72,779) Inventories (192,000) 192,000 - Stated Rate 7.25% Stated Rate 7.25%
Net income 1,191,115 779,094 1,191,115 Other cu
ent assets (72,000) 72,000 - Effective Rate 6.50% Effective Rate 7.00%
Plant & equipment (480,000) 60,000 (420,000) Interest Pmts. 65,250 Interest Pmts. 19,575
Retained Earnings Land (336,000) - (336,000) Bonds Life 10 Bonds Life 5
Retained earnings--P, 1/1/X3 2,100,000 2,100,000 L. T. liabilities (72,000) 7,200 (64,800)
Retained earnings--S, 1/1/X3 198,000 198,000 Intangibles (9,600) 960 (8,640) At issuance: At bond purchase:
Net income 1,191,115 779,094 1,191,115 Unamortized differential (829,440) PV of Principal $479,453 PV of Principal $192,506
Dividends (285,868) (186,982) 186,982 (285,868) 1,112,089 PV of Interest $469,071 PV of Interest $80,261
Retained earnings--12/31/X3 3,005,247 790,111 3,005,247 Bond price $948,525 Bond price $272,768
S's stockholders' equity 1,390,111
Balance Sheet P's ownership interest 80% 1,112,089
Cash 240,000 134,289 374,289 Difference - Issuing Company
Accounts receivable 600,000 322,295 922,295 6.50%
Inventories 720,000 295,437 1,015,437 Date Payment Interest Exp. Ca
ying Value
Other cu
ent assets 2,163,718 268,579 2,432,297 Reconciliation: Non-contr. Interest to S's Equity: 1/1/20X0 $948,525
Investment in S 1,941,529 1,941,529 - 12/31/X0 65,250 61,654 944,929
Plant and equipment--net 1,500,000 1,020,599 525,000 3,045,599 S's stockholders' equity X Non-contr. interest percentage 278,022 12/31/X1 65,250 61,420 941,099 Purchasing Company
Land 100,000 644,589 420,000 1,164,589 Unrealized intercompany balances in RE-S - 12/31/X2 65,250 61,171 937,021 7.00%
Intangibles 10,800 10,800 12/31/X3 65,250 60,906 932,677 Date Collections Interest Rev. Ca
ying Value
Total assets 7,265,247 2,685,788 8,965,306 Non-contr. interest balance at year end 485,382 12/31/X4 65,250 60,624 928,051 1/1/X5 $272,768
Unamortized differential (207,360) 12/31/X5 65,250 60,323 923,124 12/31/X5 19,575 19,094 272,286
Excess 278,022 278,022 12/31/X6 65,250 60,003 917,877 12/31/X6 19,575 19,060 271,771
Accounts payable 600,000 330,000 930,000 Difference - 12/31/X7 65,250 59,662 912,289 12/31/X7 19,575 19,024 271,220
Notes Payable 60,000 33,000 81,000 12,000 12/31/X8 65,250 59,299 906,338 12/31/X8 19,575 18,985 270,631
Bonds Payable, 10% 932,677 932,677 12/31/X9 65,250 58,912 900,000 12/31/X9 19,575 18,944 270,000
Capital stock 3,000,000 300,000 300,000 3,000,000
Additional paid in capital 600,000 300,000 300,000 600,000
Retained earnings 3,005,247 790,111 3,005,247
Non-contr. interest, 12/31/X3 485,382 485,382
Total liabilities and equity 7,265,247 2,685,788 2,613,894 2,613,894 8,965,306
Proofs of balance - - - -
CONSOLIDATION WORKING PAPERS XXXXXXXXXXYEAR ENDED DECEMBER 31, 20X4 Colke
Parent Subsidiary Adjusts. and Elims. Cons.
Income Statement
Sales 6,300,000 2,550,000
Income from S 432,989
Cost of goods sold (4,410,000) (1,479,000)
Operating expenses (945,000) (382,500)
Interest Expense (60,624)
Gain on building sale 384,000
Non-contr. interest income
Net income 1,377,989 1,011,876
Retained Earnings
Retained earnings--P, 1/1/X4 3,005,247
Retained earnings--S, 1/1/X4 790,111
Net income 1,377,989 1,011,876
Dividends (330,717) (242,850)
Retaind earnings--12/31/X4 4,052,519 1,559,137
Balance Sheet
Cash 472,500 168,384
Accounts receivable 630,000 404,123
Inventories 693,000 370,446
Other cu
ent assets 2,769,781 336,769
Investment in S 2,180,238
Plant and equipment--net 1,500,000 1,279,721
Land 100,000 808,245
Intangibles
Total assets 8,345,519 3,367,688
Accounts payable 630,000 255,000
Notes Payable 63,000 25,500
Bonds Payable, 10% 928,051
Capital stock 3,000,000 300,000
Additional paid in capital 600,000 300,000
Retained earnings 4,052,519 1,559,137
Non-contr. interest, 12/31/X4
Total liabilities and equity 8,345,519 3,367,688
Proofs of balance - - - -
CONSOLIDATION WORKING PAPERS XXXXXXXXXXYEAR ENDED DECEMBER 31, 20X5 Colke
Parent Subsidiary Adjusts. and Elims. Cons.
Income Statement
Sales 6,450,000 2,850,000
Income from S 487,764
Cost of goods sold (4,450,500) (1,710,000)
Operating expenses (967,500) (427,500)
Interest Income 19,094
(Gain) loss on Bonds
Interest Expense (60,323)
Non-contr. interest income
Net income 1,538,858 652,177
Retained Earnings
Retained earnings--P, 1/1/X5 4,052,519
Retained earnings--S, 1/1/X5 1,559,137
Net income 1,538,858 652,177
Dividends (369,326) (156,522)
Retaind earnings--12/31/X5 5,222,051 2,054,791
Balance Sheet
Cash 161,250 194,571
Accounts receivable 645,000 466,970
Inventories 709,500 428,056
Other cu
ent assets 3,600,731 389,142
Investment in S 2,542,784
Plant and equipment--net 1,500,000 1,478,738
Land 100,000 933,940
Investment in Sub's Bonds 272,286
Intangibles
Total assets 9,531,551 3,891,415
Accounts payable 645,000 285,000
Notes Payable 64,500 28,500
Bonds Payable, 10% 923,124
Capital stock 3,000,000 300,000
Additional paid in capital 600,000 300,000
Retained earnings 5,222,051 2,054,791
Non-contr. interest, 12/31/X5
Total liabilities and equity 9,531,551 3,891,415
Proofs of balance - - - -
CONSOLIDATION WORKING PAPERS XXXXXXXXXXYEAR ENDED DECEMBER 31, 20X6 Colke
Parent Subsidiary Adjusts. and Elims. Cons.
Income Statement
Sales 6,000,000 2,880,000
Income from S 535,028
Cost of goods sold (4,170,000) (1,670,400)
Operating expenses (960,000) (432,000)
Interest Income 19,060
Interest Expense (60,003)
Non-contr. interest income
Net income 1,424,088 717,597
Retained Earnings
Retained earnings--P, 1/1/X6 5,222,051
Retained earnings--S, 1/1/X6 2,054,791
Net income 1,424,088 717,597
Dividends (341,781) (172,223)
Retaind earnings--12/31/X6 6,304,357 2,600,165
Balance Sheet
Cash 150,000 221,742
Accounts receivable 600,000 532,181
Inventories 660,000 487,833
Other cu
ent assets 4,342,553 443,484
Investment in S 2,940,033
Plant and equipment--net 1,500,000 1,685,240
Land 100,000 1,064,362
Investment in Sub's Bonds 271,771
Intangibles
Total assets 10,564,357 4,434,842
Accounts payable 600,000 288,000
Notes Payable 60,000 28,800
Bonds Payable, 10% 917,877
Capital stock 3,000,000 300,000
Additional paid in capital 600,000 300,000
Retained earnings 6,304,357 2,600,165
Non-contr. interest, 12/31/X6
Total liabilities and equity 10,564,357 4,434,842
Proofs of balance - - (0) -
-
Credit a gain, debit a loss
Final Project Tips:
1. in this project Goodwill is called "intangibles" and amortized over a period of time ( if
this amount is 240,000 over 10 years, at 12/31/x3 worksheet intangible will be (240,000
-24, XXXXXXXXXX,000, x4 intangible will be 192,000 and so forth)
2. Project : focus on the worksheet for XXXXXXXXXXthis has intercompany sales, use 20x3 as
an example. (once you do x4, you can make progress on x5 & x6 - you can leave the
ond for last)
3. To start the project - you should do some preliminary calculations: figure out 100%
value of the subsidiary, allocation of FV-BV schedule this out for the 20x3-6, then
calculate the controlling % of these items and non-controlling %
4. Bonds affect 20x5 and 20x6 - calculations need to be done
5. Basic worksheet adjustments:
Steps needed to be done on the worksheets:
1. remove income from Sub
2. remove the sub capital and
e
3. remove dividend payable
ecieviable
4. intercompany sales - i.e.
Gross Profit in ending inventory
this is for the worksheet
onds are a special intercompany item
5. amortization of differences FV-BV