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ACCT4211 Chapter 5 Homework (Fall 2018)

ACCT411-01 Chapter5 Homework (Fall 2026)

P4-32 (revised): Assume that Primary issued bonds for $530,000 and used the proceeds to purchase 80% of Secondary Company’s outstanding voting common stock on January 2, 20Χ8 . On that date, the fair value of the noncontrolling interest was $120,000. Primary then uses the (fully adjusted) equity method to account for its investment in Secondary for internal reporting purposes.

Fair values of Secondary’s assets and liabilities are available in the textbook.

Required : The amount of goodwill at acquisition =

Show work for the calculation of GW!

Additional information for Secondary as of January 2, 20Χ8 : ( I added the following information.)

(1) Buildings and equipment have 10 years of remaining useful life and are to be depreciated using the straight-line method with no residual value.

(2) Patent has 5 years of remaining useful life and is to be amortized using the straight-line method with no residual value.

(3) Bonds payable is due in 5 years. Premiums or discounts are amortized using the straight-line method.

At the end of 20Χ8 , Primary determines that the goodwill resulted from the acquisition of Secondary is impaired and should be written down by $8,000. Goodwill and its impairment are to be allocated proportionately to the controlling and noncontrolling interests.

The 20Χ9 ( i.e. the 2nd year post acquisition) financial statements (in thousands) of Primary and Secondary are presented below.

	Primary	Secondary
Income Statement (20Χ9)
Sales	390	240
Cost of goods sold	273	144
Depreciation expense	55	45
Interest expense	36	6
Investment income from Secondary	?
Net Income	?	45
Statement of Retained Earnings
Balance, 1/1/Χ9	136	170
Net income	?	45
Dividends	20	40
Balance, 12/31/Χ9	?	175
Balance Sheet
Assets:
Cash and A/R (net)	230	124
Receivable from Secondary	6
Inventory	88	97
Investment in Secondary	?
Land	55	50
Buildings & Equipment ( net)	439	360
Total Assets	?	631
	Primary	Secondary
Liab. & SE:
Accounts payable	40	20
Payable to Primary		6
Bonds payable	720	100
Common stock	400	330
Retained earnings	?	175
Total Liab. & SE	?	631

You may find the following schedule and the worksheet on page 5 helpful in answering some of the questions. However, both are optional.

Note : We do not need to know how much net income Secondary reported or how much dividends it paid in 20X8 because consolidation starts fresh each year.

( %)

S’s SE accounts

UNDV

NCI

R/E

Diff

INV

Land

B&E

Pat

B/P

1/1/Χ9

S’s NI

Amor of UNDV

S’s dividends

12/31/Χ9

Show work!!

Required: Determine the dollar amount for the following items.

a. On Primary’s 20Χ9 INTERNAL financial statements:

For the following two questions, you can use the above analysis schedule (optional) to show your work.

1. Investment income from Secondary =

Show work or explain:

2. Investment in Secondary =

Show work or explain:

Note : To receive full credit for the following questions, you must provide your answers and show your work by either (1) completing the worksheet with consolidation entries or (2) providing calculations or explanations. Do not use a combination of these two approaches. Please indicate where your work can be found, such as “Worksheet,” “Parent’s; 100% of S’s eliminated,” or “Eliminated.” If you choose to complete the worksheet, you only need to write “Worksheet” once.

b. On the Primary and Secondary 20Χ9 CONSOLIDATED income statement:

1. Cost of goods sold =

Show work or explain:

2. Depreciation expense =

Show work or explain:

3. Amortization expense =

Show work or explain:

4. Interest Expense =

Show work or explain:

5. Investment income from Secondary =

Show work or explain:

6. Consolidated net income =

Show work or explain:

7. Consolidated net income attributable to NCI =

Show work or explain:

8. Consolidated net income attributable to CI =

Show work or explain:

c. On the Primary and Secondary 20Χ9 CONSOLIDATED statement of retained earnings:

1. Dividends =

Show work or explain:

2. Retained earnings as of 12/31/X9 =

Show work or explain:

d. On the Primary and Secondary 20Χ9 CONSOLIDATED balance sheet:

1. Receivable from Secondary =

Show work or explain:

2. Inventory =

Show work or explain:

3. Investment in Secondary =

Show work or explain:

4. Land =

Show work or explain:

5. Buildings and equipment (net) =

Show work or explain:

6. Patent =

Show work or explain:

7. Goodwill =

Show work or explain:

8. Payable to Primary =

Show work or explain:

9. Bonds payable =

Show work or explain:

10. Common stock =

Show work or explain:

11. NCI in net assets of Secondary =

Show work or explain:

Consolidation Worksheet as of December 31, 20Χ9

(in thousands)

	P	S	Consolidation Entries	Consolidated
			Debit		Credit
Income Statement (20X9)
Sales	390	240
Cost of goods sold	273	144
Depreciation expense	55	45
Amortization expense	─	─
Interest expense	36	6
IVST inc. from Secondary		─
Net Income		45
To NCI
To CI
Statement of R/E
Balance, 1/1/Χ9	136	170
Net income		45
Dividends	20	40
Balance, 12/31/ Χ9		175
Balance Sheet
Assets:
Cash and A/R	230	124
Receivable from Secondary	6	─
Inventory	88	97
Investment in Secondary		─


Land	55	50
Buildings and Eqp. (net)	439	360
Patent	─	─
Goodwill	─	─
Total Assets		631				1,567
Liab. & SE:
Accounts payable	40	20
Payable to Primary	─	6
Bonds payable	720	100
Common stock	400	330
Retained earnings		175
NCI in NA of Secondary


Total Liab. & SE		631				1,567
Proof of debit and credit postings:		=

Consolidation entries: (Six entries if you use my approach; four entries if you use the textbook’s approach)