Transcript
On January 1, 2012, Perry Company purchased 80% of Selby Company for $990,000. At that time Selby had capital stock outstanding of $350,000 and retained earnings of $375,000.
The fair value of Selby Company’s assets and liabilities is equal to their book value except for the following:
One-half of the inventory was sold in 2012, the remainder was sold in 2013. At the end of 2012, Perry Company had in its ending inventory $60,000 of merchandise it had purchased from Selby Company during the year. Selby Company sold the merchandise at 25% above cost. During 2013, Perry Company sold merchandise to Selby Company for $310,000 at a markup of 20% of the selling price. At December 31, 2013, Selby still had merchandise that it purchased from Perry Company for $82,000 in its inventory. Financial data for 2013 are presented here:
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Required:
A. Prepare the consolidated statements work-paper for the year ended December 31, 2013?
B. Calculate consolidated retained earnings on December 31, 2013, using the analytical or t-account approach?
SOLUTION
PERRY COMPANY AND SUBSIDIARY
Consolidated Statements Work-paper
Part A For the Year Ended December 31, 2013
Perry Selby
Eliminations Non-controlling Consolidated
Company Company
Debit
Credit Interest Balances
Income Statement
Sales $1,400,000 $800,000 (2) $310,000
$1,890,000
Dividend Income 20,000 (5) 20,000
Total Revenue 1,420,000 800,000
1,890,000
Cost of Goods Sold:
Inventory, 1/1 230,000 145,000 (7) 25,000 (4) 12,000
388,000
Purchases 900,000 380,000
(2) 310,000
970,000
Cost of Available for Sale 1,130,000 525,000
1,358,000
Inventory, 12/31 450,000 200,000 (3) 16,400
633,600
Cost of Goods Sold 680,000 325,000
724,400
Other Expense 250,000 195,000 (8) 15,000
460,000
Total Cost and Expense 930,000 520,000
1,184,400
Net/Consolidated Income 490,000 280,000
705,600
Noncontrolling Interest In Consolidated Income
50,400 * (50,400)
Net Income to Retained Earnings $490,000 $280,000 $386,400 $322,000 $50,400 $655,200
Retained Earnings Statement
1/1 Retained Earnings:
Perry Company $1,500,000
(4) $9,600 (1) $84,000
$1,542,400
(7) 20,000
(8) 12,000
Selby Company
480,000 (6) 480,000
Net Income from above 490,000 280,000
386,400
322,000 50,400 655,200
Dividends Declared
Perry Company (50,000)
(50,000)
Selby Company
(25,000)
(5) 20,000 (5,000)
12/31/ Retained Earnings to Balance Sheet $1,940,000 $735,000 $908,000 $426,000 $45,400 $2,147,600
* Non-controlling interest in income = .2 ($280,000 + $12,000 – $25,000 – $15,000) = $50,400
Perry Selby
Eliminations Non-controlling Consolidated
Company Company
Debit
Credit Interest Balances
Balance Sheet
Cash $ 95,000 $ 70,000
$ 165,000
Accounts Receivable 302,000 90,000
392,000
Inventory 450,000 200,000
(3) 16,400
633,600
Investment in Selby Comp. 990,000
(1) 84,000 (6) 1,074,000
Difference between Implied & Book Value
(6) 512,500 (7) 512,500
Plant and Equipment 850,000 585,000 (7) 150,000 (8) 30,000
1,555,000
Goodwill
(7) 312,500
312,500
Other Assets 390,000 230,000
620,000
Total Assets $3,077,000 $1,175,000
$3,678,100
Accounts Payable $ 75,000 $ 30,000
$ 105,000
Other Liabilities 102,000 60,000
162,000
Common stock:
Perry Company 960,000
960,000
Selby Company
350,000 (6) 350,000
Retained Earnings from above 1,940,000 735,000
908,000
426,000 45,400 2,147,600
1/1 Non-controlling Interest in Net Assets (4) 2,400 (6) 268,500 258,100
(7) 5,000
12/31 Non-controlling Interest in Net Assets
(8) 3,000
$303,500 303,500
Total Liabilities and Equity $3,077,000 $1,175,000 $2,327,400 $2,327,400
$3,678,100
Explanations of work-paper entries
Computation and Allocation of Difference Schedule
Parent Non- Entire
Share Controlling Value
Share
Purchase price and implied value $990,000 247,500 1,237,500 *
Less: Book value of equity acquired 580,000 145,000 725,000
Difference between implied and book value 410,000 102,500 512,500
Inventory ($210,000 - $ 160,000) (40,000) (10,000) (50,000)
Equipment ($780,000 - $ 630,000) (120,000) (30,000) (150,000)
Balance 250,000 62,500 312,500
Goodwill (250,000) (62,500) (312,500)
Balance -0- -0- -0-
*$990,000/.80
(1) Investment in Selby Company (0.80 ($480,000 – $375,000)) 84,000
Beginning Retained Earnings - Perry Co. 84,000
To establish reciprocity/convert to equity as of 1/1/13
(2) Sales 310,000
Purchases (Cost of Goods Sold) 310,000
To eliminate intercompany sales
(3) Ending Inventory - Income Statement (CoGS) 16,400
Ending Inventory (Balance Sheet) 16,400
To eliminate unrealized intercompany profit in ending inventory ($82,000 .2)
(4) Beginning Retained Earnings - Perry Co. ($12,000 .80) 9,600
Non-controlling Interest ($12,000 .20) 2,400
Beginning Inventory (Income Statement) 12,000
To recognize intercompany profit in beginning inventory realized during the year
($60,000 – ($60,000/1.25)) = $12,000
(5) Dividend Income ($25,000 .80) 20,000
Dividends Declared 20,000
To eliminate intercompany dividends
(6) Beginning Retained Earnings - Selby Co. 480,000
Common Stock - Selby Co. 350,000
Difference between Implied and Book Value 512,500
Investment in Selby Co. ($990,000 + $84,000) 1,074,000
Non-controlling Interest [$247,500 +.2 x ($480,000 – $375,000)] 268,500
(7) Equipment 150,000
Beginning Inventory (Income Statement) 25,000
Beginning Retained Earnings - Perry Co. 20,000
Non-controlling Interest 5,000
Goodwill 312,500
Difference between Implied and Book value 512,500
(8) Other Expenses (Depreciation) ($150,000/10) 15,000
Beginning Retained Earnings - Perry Co. 12,000
Non-controlling Interest 3,000
Equipment 30,000
Part B
Perry Company's Retained Earnings on 12/31/13 $1,940,000
Amount of Perry Company Retained Earnings that have not been realized in transactions with third parties (16,400)
Perry Company's Retained Earnings that have been realized in transactions with third parties 1,923,600
Increase in retained earnings of Selby Company from date of acquisition to 12/31/13 ($735,000 – $375,000) 360,000
Less: Cumulative effect of adjustments to date relating to amortization of the difference between implied and book value
($50,000 + $30,000) (80,000)
Less: Unrealized profit on sales to Perry in 2013 that has not been realized by sales to third parties 0
Increase in retained earnings of Selby Company since acquisition that has been realized in transactions with third parties 280,000
Perry Company's share (.80 $280,000) 80% 224,000
Consolidated Retained Earnings as of 12/31/13 $2,147,600
Consolidated Retained Earnings
Perry 's Share of unrealized profit on
Perry 's Retained Earnings on 12/31/13 $1,940,000
downstream sales to Selby
(in Selby's ending inventory),
Increase in Selby’s Retained Earnings
.2($82,000) 16,400 since acquisition ($735,000 - $375,000) = $360,000
Less: cumulative amortization of difference
between implied and book value 80,000
Adjusted Increase $280,000
Perry’s share thereof .80 224,000
Consolidated Retained Earnings $2,147,600
