CONSOLIDATION WORKSHEET PROBLEM (SEE ATTACHMENT)

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Problem

CONSOLIDATION WORKSHEET PROBLEM
Prepare the corresponding 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 75%
Price paid by P $ 5,700,000
At the time of acquisition these were some values concerning S:
Common stock $ 950,000
Aditional paid-in capital $ 950,000
Retained earnings $ 627,000
Years FMV-BV
Oscar J. Holzmann: Oscar J. Holzmann: Excess of FMV of Sub's assets and liabilities over their BV when Parent acquired Sub.
Inventories <1 $ 760,000
Other current assets <1 $ 285,000
Plant & equipment, remaining life: 8 $ 1,900,000
Land $ 1,330,000
Long term liabilities; remaining life: 5 $ 285,000
Oscar J. Holzmann: Oscar J. Holzmann: When P acquired S, the fair value (i.e., present value) of these liabilities was less than their book value.

Oscar J. Holzmann: Oscar J. Holzmann: Excess of FMV of Sub's assets and liabilities over their BV when Parent acquired Sub. 		Intangibles amortization: 6
Intercompany transactions:
20X3 20X4 20X5 20X6
Upstream inventory sales - $ 142,500 $ 121,125 $ 129,604
% in ending inventory - 7.50% 9.00% 10.80%
Gross profit rate on sales - 37.50% 45.00% 54.00%
Upstream building sale, Dec. 31
Sold for $ 1,900,000
Book value at time of sale $ 760,000
Remaining life: 10
% of S bonds purchased by P, Jan. 1 55%
Price paid $ 1,551,104
BV at that date $ 1,534,930
Remaining life: 5
Maturity value of acquired bonds $ 1,567,500
Required:
1. Complete the worksheets for 20X4-6.
2. Show how the Controlling and Non-controlling shares of Income from S were arrived at in X5 and X6.
3. In separate schedules for year ends X5 and X6, reconcile the Investment account with S's stockholders' equity.
4. In separate schedules for year ends X5 and X6, reconcile the ending Noncontrolling Interest with S's stockholders'equity.

Wksheets

CONSOLIDATION WORKSHEET PROBLEM
CONSOLIDATION WORKING PAPERS -- YEAR ENDED DECEMBER 31, 20X3
Parent Subsidiary Adjusts. and Elims. Cons.
Income Statement
Sales 19,000,000 9,500,000 28,500,000 Reconciliation: Investment to S's Equity BONDS
Income from S 791,123 791,123 - - Issuer's Facts: Acquirer's Facts:
Cost of goods sold (13,300,000) (5,415,000) 760,000 (19,475,000) Investment, 12/31 20X3 5,607,683 Acquired Jan. 20X5
Operating expenses (2,850,000) (1,425,000) 665,000 (4,940,000) Removal of unamortized differential: % acquired 55%
Interest Expense (180,170) (180,170) Initial Amortiz. Face value 2,850,000 Face value 1,567,500
Non-contr. interest income 263,708 (263,708) Inventories (570,000) 570,000 - Stated Rate 6.00% Stated Rate 6.00%
Net income 3,641,123 2,479,830 3,641,123 Other current assets (213,750) 213,750 - Effective Rate 6.50% Effective Rate 6.25%
Plant & equipment (1,425,000) 178,125 (1,246,875) Interest Pmts. 171,000 Interest Pmts. 94,050
Retained Earnings Land (997,500) - (997,500) Bonds Life 10 Bonds Life 5
Retained earnings--P, 1/1/X3 6,650,000 6,650,000 L. T. liabilities (213,750) 42,750 (171,000)
Retained earnings--S, 1/1/X3 627,000 627,000 Intangibles (384,750) 64,125 (320,625) At issuance: At bond purchase:
Net income 3,641,123 2,479,830 3,641,123 Unamortized differential (2,736,000) PV of Principal $1,518,269 PV of Principal $1,157,612
Dividends (1,729,533) (1,177,919) 1,177,919 (1,729,533) 2,871,683 PV of Interest $1,229,290 PV of Interest $393,493
Retained earnings--12/31/X3 8,561,589 1,928,911 8,561,589 Bond price $2,747,559 Bond price $1,551,104
S's stockholders' equity 3,828,911
Balance Sheet P's ownership interest 75% 2,871,683
Cash 760,000 387,971 1,147,971 Difference - Issuing Company
Accounts receivable 1,900,000 931,131 2,831,131 6.50%
Inventories 2,280,000 853,537 3,133,537 Date Payment Interest Exp. Carrying Value
Other current assets 6,653,906 775,943 7,429,849 Reconciliation: Non-contr. Interest to S's Equity: 1/1/20X0 $2,747,559
Investment in S 5,607,683 5,607,683 - 12/31/X0 171,000 178,591 2,755,151
Plant and equipment--net 4,750,000 2,948,582 1,662,500 9,361,082 S's stockholders' equity X Non-contr. interest percentage 957,228 12/31/X1 171,000 179,085 2,763,235 Purchasing Company
Land 100,000 1,862,262 1,330,000 3,292,262 Unrealized intercompany balances in RE-S - 12/31/X2 171,000 179,610 2,771,846 6.25%
Intangibles 427,500 427,500 12/31/X3 171,000 180,170 2,781,016 Date Collections Interest Rev. Carrying Value
Total assets 22,051,589 7,759,426 27,623,333 Non-contr. interest balance at year end 1,869,228 12/31/X4 171,000 180,766 2,790,782 1/1/X5 $1,551,104
Unamortized differential (912,000) 12/31/X5 171,000 181,401 2,801,182 12/31/X5 94,050 96,944 1,553,998
Excess 957,228 957,228 12/31/X6 171,000 182,077 2,812,259 12/31/X6 94,050 97,125 1,557,073
Accounts payable 1,900,000 1,045,000 2,945,000 Difference - 12/31/X7 171,000 182,797 2,824,056 12/31/X7 94,050 97,317 1,560,340
Notes Payable 190,000 104,500 228,000 66,500 12/31/X8 171,000 183,564 2,836,620 12/31/X8 94,050 97,521 1,563,812
Bonds Payable, 10% 2,781,016 2,781,016 12/31/X9 171,000 184,380 2,850,000 12/31/X9 94,050 97,738 1,567,500
Capital stock 9,500,000 950,000 950,000 9,500,000
Additional paid in capital 1,900,000 950,000 950,000 1,900,000
Retained earnings 8,561,589 1,928,911 8,561,589
Non-contr. interest, 12/31/X3 1,869,228 1,869,228
Total liabilities and equity 22,051,589 7,759,426 8,654,830 8,654,830 27,623,333
Proofs of balance - - - -
CONSOLIDATION WORKING PAPERS -- YEAR ENDED DECEMBER 31, 20X4 -
Parent Subsidiary Adjusts. and Elims. Cons.
Income Statement
Sales 19,950,000 8,075,000
Income from S 1,211,607
Cost of goods sold (13,965,000) (4,683,500)
Operating expenses (2,992,500) (1,211,250)
Interest Expense (180,766)
Gain on building sale 1,140,000
Non-contr. interest income
Net income 4,204,107 3,139,484
Retained Earnings
Retained earnings--P, 1/1/X4 8,561,589
Retained earnings--S, 1/1/X4 1,928,911
Net income 4,204,107 3,139,484
Dividends (1,996,951) (1,491,255)
Retaind earnings--12/31/X4 10,768,746 3,577,140
Balance Sheet
Cash 1,496,250 457,809
Accounts receivable 1,995,000 1,098,741
Inventories 2,194,500 1,007,179
Other current assets 8,126,647 915,617
Investment in S 5,700,849
Plant and equipment--net 4,750,000 3,479,345
Land 100,000 2,197,481
Intangibles
Total assets 24,363,246 9,156,171
Accounts payable 1,995,000 807,500
Notes Payable 199,500 80,750
Bonds Payable, 10% 2,790,782
Capital stock 9,500,000 950,000
Additional paid in capital 1,900,000 950,000
Retained earnings 10,768,746 3,577,140
Non-contr. interest, 12/31/X4
Total liabilities and equity 24,363,246 9,156,171
Proofs of balance - - - -
CONSOLIDATION WORKING PAPERS -- YEAR ENDED DECEMBER 31, 20X5 -
Parent Subsidiary Adjusts. and Elims. Cons.
Income Statement
Sales 20,425,000 9,025,000
Income from S 1,345,952
Cost of goods sold (14,093,250) (5,415,000)
Operating expenses (3,063,750) (1,353,750)
Interest Income 96,944
(Gain) loss on Bonds
Oscar J. Holzmann: Credit a gain, debit a loss
Interest Expense (181,401)
Non-contr. interest income
Net income 4,710,896 2,074,849
Retained Earnings
Retained earnings--P, 1/1/X5 10,768,746
Retained earnings--S, 1/1/X5 3,577,140
Net income 4,710,896 2,074,849
Dividends (2,237,676) (985,553)
Retaind earnings--12/31/X5 13,241,966 4,666,436
Balance Sheet
Cash 510,625 518,018
Accounts receivable 2,042,500 1,243,244
Inventories 2,246,750 1,139,640
Other current assets 9,377,206 1,036,037
Investment in S 6,307,636
Plant and equipment--net 4,750,000 3,936,940
Land 100,000 2,486,488
Investment in Sub's Bonds 1,553,998
Intangibles
Total assets 26,888,716 10,360,368
Accounts payable 2,042,500 902,500
Notes Payable 204,250 90,250
Bonds Payable, 10% 2,801,182
Capital stock 9,500,000 950,000
Additional paid in capital 1,900,000 950,000
Retained earnings 13,241,966 4,666,436
Non-contr. interest, 12/31/X5
Total liabilities and equity 26,888,716 10,360,368
Proofs of balance - - - -
CONSOLIDATION WORKING PAPERS -- YEAR ENDED DECEMBER 31, 20X6 -
Parent Subsidiary Adjusts. and Elims. Cons.
Income Statement
Sales 19,000,000 9,120,000
Income from S 1,511,016
Cost of goods sold (13,205,000) (5,289,600)
Operating expenses (3,040,000) (1,368,000)
Interest Income 97,125
Interest Expense (182,077)
Non-contr. interest income
Net income 4,363,141 2,280,323
Retained Earnings
Retained earnings--P, 1/1/X6 13,241,966
Retained earnings--S, 1/1/X6 4,666,436
Net income 4,363,141 2,280,323
Dividends (2,072,492) (1,083,153)
Retaind earnings--12/31/X6 15,532,615 5,863,605
Balance Sheet
Cash 475,000 578,953
Accounts receivable 1,900,000 1,389,488
Inventories 2,090,000 1,273,697
Other current assets 11,144,255 1,157,906
Investment in S 7,006,287
Plant and equipment--net 4,750,000 4,400,045
Land 100,000 2,778,975
Investment in Sub's Bonds 1,557,073
Intangibles
Total assets 29,022,615 11,579,065
Accounts payable 1,900,000 912,000
Notes Payable 190,000 91,200
Bonds Payable, 10% 2,812,259
Capital stock 9,500,000 950,000
Additional paid in capital 1,900,000 950,000
Retained earnings 15,532,615 5,863,605
Non-contr. interest, 12/31/X6
Total liabilities and equity 29,022,615 11,579,065
Proofs of balance - - - -
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