CHAPTER 8 INTERCOMPANY INDEBTEDNESS

Transcription

1 CHAPTER 8 INTERCOMPANY INDEBTEDNESS ANSWERS TO QUESTIONS Q8-1 A gain or loss on bond retirement is reported by the consolidated entity whenever (a) one of the companies purchases its own bonds from a nonaffiliate at an amount other than book value, or (b) a company within the consolidated entity purchases the bonds of an affiliate from a nonaffiliate at an amount other than book value. Q8-2 A constructive retirement occurs when the bonds of a company included in the consolidated entity are purchased by another company included within the consolidated entity. Although the debtor still considers the bonds as outstanding, and the investor views the bonds as an investment, they are constructively retired for consolidation purposes. If bonds are actually retired, the debtor purchases its own bonds from a nonaffiliate and they are no longer outstanding. Q8-3 When bonds sold to an affiliate at par value are not eliminated, bonds payable and bond investment are misstated in the balance sheet accounts and interest income and interest expense are misstated in the income statement accounts. There is also a premium or discount account to be eliminated when the bonds are not issued at par value. Unless interest is paid at year-end, there is likely to be some amount of interest receivable and interest payable to be eliminated as well. Q8-4 Both the bond investment and interest income reported by the purchaser will be improperly included. Interest expense, bonds payable, and any premium or discount recorded on the books of the debtor also will be improperly included. In addition, the constructive gain or loss on bond retirement will be omitted if no eliminating entries are recorded in connection with the purchase. Q8-5 If the focus is placed on the legal entity, only bonds actually reacquired by the debtor will be treated as retired. This treatment can lead to incorrect reports for the consolidated entity in two dimensions. If a company were to repurchase bonds from an affiliate, any retirement gain or loss reported by the debtor is not a gain or loss to the economic entity and must be eliminated in preparing consolidated statements. Moreover, although a purchase of debt of any of the other companies in the consolidated entity will not be recognized as a retirement by the debtor, when emphasis is placed on the economic entity the purchase must serve as a basis for recognition of a bond retirement for the consolidated entity. Q8-6 The difference in treatment is due to the effect of the transactions on the consolidated entity. In the case of land sold to another affiliate, a gain has been recorded that is not a gain from the viewpoint of the consolidated entity. Thus, it must be eliminated in the consolidation process. On the other hand, in a bond repurchase the buyer simply records an investment in bonds and the debtor makes no special entries because of the purchase by an affiliate. Neither company records the effect of the transaction on the economic entity. Thus, in the consolidation process an entry must be made to show the gain on bond retirement that has occurred from the viewpoint of the economic entity. 8-1

2 Q8-7 When there has been a direct sale to an affiliate, the interest income recorded by the purchaser should equal the interest expense recorded by the seller and the two items should have no net effect on reported income. The eliminating entries do not change consolidated net income in this case, but they will result in a more appropriate statement of the relevant income and expense categories in the consolidated income statement. Q8-8 Whenever a loss on bond retirement has been reported in a prior period, the affiliate that purchased the bonds paid more than the book value of the debt shown by the debtor. As a result, each period the interest income recorded by the buyer will be less than the interest expense reported by the debtor. When the two income statement accounts are eliminated in the consolidation process, the effect will be to increase consolidated net income. Because the full amount of the loss was recognized for consolidated purposes in the year in which the bonds were purchased by the affiliate, the effect of the elimination process in each of the periods that follow should be to increase consolidated income. Q8-9 The difference between the carrying value of the debt on the debtor's books and the carrying value of the investment on the purchaser's books indicates the amount of unrecognized gain or loss at the end of the period. To determine the amount of the gain or loss on retirement at the start of the period, the difference between interest income recorded by the purchaser on the bond that has been purchased and interest expense recorded by the debtor during the period is added to the difference between carrying values at the end of the period. Q8-10 Interest income and interest expense must be eliminated and a loss on bond retirement established in the elimination process. Consolidated net income will decrease by the amount of the loss. Because the loss is attributed to the subsidiary, income assigned to the controlling and noncontrolling interests will decrease in proportion to their share of common stock held. Q8-11 A constructive gain will be included in the consolidated income statement in this case and both consolidated net income and income to the controlling interest will increase by the full amount of the gain. Q8-12 A direct placement of subsidiary bonds with the parent should have no effect on consolidated income or on income assigned to the noncontrolling shareholders. Q8-13 When subsidiary bonds are purchased from a nonaffiliate by the parent and there is a constructive gain or loss for consolidated purposes, the gain or loss is assigned to the subsidiary and included in computing income to the noncontrolling shareholders. Q8-14 Interest income recorded by the subsidiary and interest expense recorded by the parent should be equal in the direct placement case. When the subsidiary purchases parent company bonds from a nonaffiliate, interest income and interest expense will not be the same unless the bonds are purchased from the nonaffiliate at an amount equal to the liability reported by the parent. Q8-15 A gain on constructive bond retirement recorded in a prior period means the bonds were purchased for less than book value and the interest income recorded by the subsidiary each period will be greater than the interest expense recorded by the parent. Consolidated net income for the current period will decrease by the difference between interest income and interest expense as these amounts are eliminated in preparing the consolidated statements. Income to the noncontrolling interest will be unaffected since the constructive gain is assigned to parent company. 8-2

3 Q8-16 A constructive loss recorded on the subsidiary's bonds in a prior period means the interest income recorded by the parent is less than the interest expense recorded by the subsidiary in each of the following periods. Consolidated net income will increase when interest income and expense are eliminated. Income assigned to the noncontrolling interest will be based on the reported net income of the subsidiary plus the difference between interest income and interest expense each period following the retirement. As a result, the amount assigned will be greater than if the bond had not been constructively retired. Q8-17 On the date the parent sells the bonds to a nonaffiliate they are issued for the first time from a consolidated perspective. While the parent will record a gain or loss on sale of the bonds on its books, none is recognized from a consolidated viewpoint. The difference between the sale price received by the parent and par value is a premium or discount. Each period there will be a need to establish the correct amount for the premium or discount account and to adjust interest expense recorded by the subsidiary to bring the reported amounts into conformity with the sale price to the nonaffiliate. Q8-18 The retirement gain or loss reported by the subsidiary when it repurchases the bonds held by the parent must be eliminated in the consolidation process. From the viewpoint of the consolidated entity the bonds were retired at the point they were purchased by the parent and a gain or loss should have been recognized at that point. 8-3

4 SOLUTIONS TO CASES C8-1 Recognition of Retirement Gains and Losses a. When Flood purchases the bonds it establishes an investment account on its books and Bradley establishes a bond liability and discount account on its books. No entry is made by Century. When Century purchases the bonds, Century records an investment and Flood removes the balance in the investment account and records a gain on the sale. Bradley makes no entry. When Bradley retires the issue, Bradley removes its liability and unamortized discount and records a loss on bond retirement. Century removes the bond investment account and records a loss on the sale of bonds. Flood makes no entry. b. A constructive loss on bond retirement is reported by the consolidated entity at the time Century purchases the bonds from Flood. The exact amount of the loss cannot be ascertained without knowing the maturity date of the bonds, the date of initial sale, and the date of purchase by Century. c. The initial sale of bonds by Bradley is treated as a normal transaction with no need for an adjustment to income assigned to the noncontrolling shareholders. Income assigned to noncontrolling shareholders will be reduced by a proportionate share of the loss reported in the consolidated income statement in the period in which Century purchases the bonds from Flood. In the years before the bonds are retired by Bradley, income assigned to the noncontrolling interest (assuming no differential) will be greater than a pro rata portion of the reported net income of Bradley. In the period in which the bonds are retired by Bradley, reported net income of Bradley must be adjusted to remove its loss on bond retirement before assigning income to the noncontrolling interest. No adjustment is made in the years following the repurchase by Bradley. 8-4

5 C8-2 Borrowing by Variable Interest Entities MEMO To: President Hydro Corporation From: Re: Consolidation of Joint Venture, Accounting Staff Hydro Corporation and Rich Corner Bank established a joint venture which borrowed $30,000,000 and built a new production facility. That facility is now leased to Hydro on a 10-year operating lease. Hydro currently reports the annual lease payment as an operating expense and in the notes to its financial statements must report a contingent liability for its guarantee of the debt of the joint venture. I have been asked to review the current financial reporting standards and determine whether Hydro s current reporting is appropriate. The circumstances surrounding the creation of the joint venture and the lease arrangement with Hydro appear to point to the need for Hydro to consolidate the joint venture with its own operations. Although Rich Corner Bank holds 100 percent of the equity of the joint venture, it has contributed less than 1 percent of the total assets of the joint venture ($200,000 of equity versus $30,000,000 of total borrowings). Under normal circumstances, less than a 10 percent investment in the entity s total assets is considered insufficient to permit the entity to finance its activities. [FIN 46R, Par 9; ASC ] In this situation, Hydro has guaranteed the $30,000,000 borrowed by the joint venture and has guaranteed a 20 percent annual return on the equity investment of Rich Corner Bank. These conditions will result in Hydro Corporation absorbing any losses incurred by the joint venture and establish Hydro Corporation as the primary beneficiary of the entity. The FASB requires consolidation by the entity that will absorb a majority of the entity s expected losses if they occur. [FIN 46R, Par. 14; ASC ] Consolidation of the joint venture will result in including the production facility among Hydro s assets and the debt as part of its long-term liabilities. The claim on the net assets of the joint venture held by Rich Corner Bank will be reported as part of noncontrolling interest. Hydro s consolidated income statement will not include the lease payment as an operating expense, but will include depreciation expense on the production facility and interest expense for the interest payment made on the borrowing of the joint venture. Primary citation: FASB INT. 46 (ASC 810) 8-5

6 Case 8-3 Subsidiary Bond Holdings MEMO To: From: Re: Financial Vice-President Farflung Corporation, Accounting Staff Investment in Bonds Issued by Subsidiary The consolidated financial statements of Farflung Corporation should include both Micro Company and Eagle Corporation. The purpose of the consolidated statements is to present the financial position and results of operations for a parent and one or more subsidiaries as if the individual entities actually were a single company or entity. [ARB 51, Par. 1; ASC ] When one subsidiary purchases the bonds of another, the investment reported by the purchasing affiliate and the liability reported by the debtor must be eliminated and a gain or loss reported on the difference between the purchase price and the carrying value of the debt at the time of purchase. In preparing Farflung s consolidated statements at December 31, 20X4, the following eliminating entry should have been included in the worksheet: Bonds Payable 400,000 Loss on Bond Retirement 24,000 Investment in Micro Company Bonds 424,000 The $24,000 loss should have been included in the consolidated income statement, leading to a reduction of $15,600 ($24,000 x 0.65) in income assigned to the controlling interest and a reduction of $8,400 ($24,000 x 0.35) in income assigned to noncontrolling shareholders. This error should be corrected by restating the financial statements of the consolidated entity for 20X4. While omission of the eliminating entry resulted in incorrect financial statements for the consolidated entity, it should have no impact on the financial statements of the individual subsidiaries. Assuming (1) the bonds had 15 years remaining until maturity when purchased by Eagle and pay 8 percent interest annually, (2) straight-line amortization of the premium paid by Eagle is appropriate, and (3) the consolidated financial statements as of December 31, 20X4, are corrected, the eliminating entry at December 31, 20X5, is: Bonds Payable 400,000 Interest Income 30,400(a) Investment in Micro Company 15,600 Noncontrolling Interest 8,400 Investment in Micro Company Bonds Interest Expense 422,400(b) 32,000(c) (a) ($400,000 x 0.08) - ($24,000/15 years) (b) $424,000 - ($24,000/15 years) (c) $400,000 x 0.08 Primary citation: ARB 51, Par. 6; ASC

7 C8-4 Interest Income and Expense a. Snerd apparently paid more than par value for the bonds and is amortizing the premium against interest income over the life of the bonds. Thus, the cash received is greater than the amount of interest income recorded. b. With the information given, the following appears to be true: (1) When purchasing the bonds, Snerd apparently paid less than the current carrying amount of the bonds on the subsidiary s books because a constructive gain on bond retirement is included in the 20X3 consolidated income statement. Since Snerd paid par value for the bonds, they must have been sold at a premium by the subsidiary. (2) Because the bonds were sold at a premium, interest expense recorded by the subsidiary will be less than the annual interest payment made to the parent. (3) Interest income recorded each period by Snerd will exceed interest expense recorded by the subsidiary. When the two balances are eliminated, the effect will be to reduce income to both the controlling and noncontrolling shareholders. C8-5 Intercompany Debt Answers to this case can be found in the SEC Form 10-K filed by Hershey Foods and its annual report. a. When intercompany loans are made between affiliates in different countries, the problem of changing currency exchange rates may arise, especially if any of the loans are denominated in a currency that rapidly changes in value against the dollar. Hershey Foods and many other companies in the same situation hedge their intercompany receivables/payables through foreign currency forward contracts and swaps. b. Hershey's intercompany receivables/payables appear to come primarily from intercompany purchases and sales of goods. 8-7

8 SOLUTIONS TO EXERCISES E8-1 Bond Sale from Parent to Subsidiary a. Journal entries recorded by Humbolt Corporation: January 1, 20X2 Investment in Lamar Corporation Bonds 156,000 Cash 156,000 July 1, 20X2 Cash 4,500 Interest Income 4,200 Investment in Lamar Corporation Bonds 300 December 31, 20X2 Interest Receivable 4,500 Interest Income 4,200 Investment in Lamar Corporation Bonds 300 b. Journal entries recorded by Lamar Corporation: January 1, 20X2 Cash 156,000 Bonds Payable 150,000 Bond Premium 6,000 July 1, 20X2 Interest Expense 4,200 Bond Premium 300 Cash 4,500 December 31, 20X2 Interest Expense 4,200 Bond Premium 300 Interest Payable 4,500 c. Eliminating entries, December 31, 20X2: Bonds payable 150,000 Premium on Bonds Payable 5,400 Interest income 8,400 Investment in Lamar Corporation Bonds 155,400 Interest expense 8,400 Eliminate intercorporate bond holdings. Interest payable 4,500 Interest receivable 4,500 Eliminate intercompany receivable/payable. 8-8

9 E8-2 Computation of Transfer Price a. $105,000 = $100,000 par value + ($250 x 20 periods) premium b. $103,500 = $105,000 - ($250 x 6 periods) c. Eliminating entries: Bonds Payable 100,000 Bond Premium 3,500 Interest Income 11,500 Investment in Nettle Corporation Bonds 103,500 Interest Expense 11,500 Interest Payable 6,000 Interest Receivable 6,000 E8-3 Bond Sale at Discount a. $16,800 = [($600,000 x 0.08) + ($12,000 / 5 years)] x 1/3 b. Journal entries recorded by Wood Corporation: January 1, 20X4 Cash 16,000 Interest Receivable 16,000 July 1, 20X4 Cash 16,000 Investment in Carter Company Bonds 800 Interest Income 16,800 $800 = ($400,000 - $392,000)/(5 x 2) December 31, 20X4 Interest Receivable 16,000 Investment in Carter Company Bonds 800 Interest Income 16,800 c. Eliminating entries, December 31, 20X4: Bonds Payable 400,000 Interest Income 33,600 Investment in Carter Company Bonds 395,200 Bond Discount 4,800 Interest Expense 33,600 $33,600 = $16,000 + $16,000 + $800 + $800 $395,200 = $392,000 + ($800 x 4) $4,800 = $8,000 - ($800 x 4) Interest Payable 16,000 Interest Receivable 16,

10 E8-4 Evaluation of Intercorporate Bond Holdings a. The bonds were originally sold at a discount. Stellar purchased the bonds at par value and a constructive loss was reported. b. The annual interest payment received by Stellar will be less than the interest expense recorded by the subsidiary. When bonds are sold at a discount, the issue price of the bonds is adjusted downward because the annual interest payment is less than is needed to issue the bonds at par value. c. In 20X6, consolidated net income was decreased as a result of the loss on constructive retirement of bonds. Each period following the purchase, the amount of interest expense recorded by the subsidiary will exceed the interest income recorded by the parent. When these two amounts are eliminated, consolidated net income will be increased. Thus, consolidated net income for 20X7 will be increased. E8-5 Multiple-Choice Questions 1. a A constructive gain of $100,000 is included in consolidated net income for the period ended March 31, 20X8, and consolidated retained earnings at March 31, 20X8. Because the bonds of the parent are constructively retired, there is no effect on the amounts assigned to the noncontrolling interest. [AICPA Adapted] 2. a The loss on bond retirement will result in a reduction in consolidated retained earnings. [AICPA Adapted] 3. b $4,700 = ($50,000 x 0.10) - ($3,000 / 10 years) 4. a $4,000 = ($50,000 x 0.10) - ($8,000 / 8 years) 5. c $5,600 loss = $58,000 purchase price - [$53,000 - ($3,000 / 10 years) x 2 years] 6. c Operating income of Kruse Corporation $40,000 Net income of Gary's Ice Cream Parlors 20,000 $60,000 Less: Loss on bond retirement (5,600) Recognition during 20X6 ($4,700 - $4,000) 700 Consolidated net income $55,

11 E8-6 Multiple-Choice Questions 1. a $14,000 = [($300,000 x 0.09) - ($60,000 / 10 years)] x ($200,000 / $300,000) 2. c $12,000 = [$120,000 - ($20,000 / 10 years) x 2 years] - $104, b Net income of Solar Corporation $30,000 Unrecognized portion of gain on bond retirement ($12,000 - $1,500) 10,500 $40,500 Proportion of stock held by noncontrolling interest x.20 Income to noncontrolling interest $ 8,100 E8-7 Constructive Retirement at End of Year a. Eliminating entries, December 31, 20X5: Bonds Payable 400,000 Premium on Bonds Payable 9,000 Investment in Able Company Bonds 397,000 Gain on Bond Retirement 12,000 $9,000 = [($400,000 x 1.03) - $400,000] x 15/20 $12,000 = $9,000 + $400,000 - $397,000 Interest Payable 18,000 Interest Receivable 18,000 b. Eliminating entries, December 31, 20X6: Bonds Payable 400,000 Premium on Bonds Payable 8,400 Interest Income 36,200 Investment in Able Company Bonds 397,200 Interest Expense 35,400 Investment in Able Co. 7,200 NCI in NA of Able Co. 4,800 $8,400 = $9,000 - [$9,000 / (15 x 2)] x 2 $36,200 = $36,000 + [$3,000 / (15 x 2)] x 2 $397,200 = $397,000 + ($100 x 2) $35,400 = $36,000 - ($300 x 2) $7,200 = $12,000 x 0.60 $4,800 = $12,000 x 0.40 Interest Payable 18,000 Interest Receivable 18,

12 E8-8 Constructive Retirement at Beginning of Year a. Eliminating entries, December 31, 20X5: Bonds Payable 400,000 Premium on Bonds Payable 9,000 Interest Income 36,200 Investment in Able Company Bonds 397,000 Interest Expense 35,400 Gain on Bond Retirement 12,800 $9,000 = [($400,000 x 1.03) - $400,000] x 15/20 $36,200 = $36,000 +[($400,000 - $396,800)/(16 x 2)] x 2 $397,000 = $396,800 + ($100 x 2) $35,400 = $36,000 - ($300 x 2) $12,800 = [($400,000 x 1.03) - $400,000] x 16/20 + ($400,000 - $396,800) Interest Payable 18,000 Interest Receivable 18,000 b. Eliminating entries, December 31, 20X6: Bonds Payable 400,000 Premium on Bonds Payable 8,400 Interest Income 36,200 Investment in Able Company Bonds 397,200 Interest Expense 35,400 Investment in Able Co. 7,200 NCI in NA of Able Co. 4,800 Interest Payable 18,000 Interest Receivable 18,

13 E8-9 Retirement of Bonds Sold at a Discount Elimination of bond investment at December 31, 20X8: Bonds Payable 300,000 Interest Income 21,240 Loss on Constructive Bond Retirement 2,730 Investment in Farley Corporation Bonds 297,120 Interest Expense 21,450 Discount on Bonds Payable 5,400 Eliminate intercorporate bond holdings: $21,240 = $21,000 + [($300,000 - $296,880) / 13 years] $2,730 = $296,880 - $294,150 (computed below) $297,120 = $296,880 + [($300,000 - $296,880) / 13 years] $21,450 = $21,000 + ($9,000 / 20 years) $5,400 = ($9,000 / 20 years) x 12 years Computation of book value of liability at constructive retirement Sale price of bonds ($300,000 x 0.97) $291,000 Amortization of discount [($300,000 - $291,0000) / 20 years] x 7 years 3,150 Book value of liability at January 1, 20X8 $294,150 E8-10 Loss on Constructive Retirement Eliminating entries, December 31, 20X8: Bonds Payable 100,000 Interest Income 8,000 Loss on Bond Retirement 12,000 Investment in Apple Corporation Bonds 106,000 Discount on Bonds Payable 3,000 Interest Expense 11,000 Interest Payable 5,000 Interest Receivable 5,

14 E8-11 Determining the Amount of Retirement Gain or Loss a. Par value of bonds outstanding $200,000 Annual interest rate x.12 Interest payment $ 24,000 Amortization of bond premium ($15,000 x 2 bonds) / 5 years (6,000) Interest charge for full year $ 18,000 Less: Interest on bond purchased by Online Enterprises [($18,000 x 1/2) x (4 months / 12 months)] (3,000) Interest expense included in consolidated income statement $ 15,000 b. Sale price of bonds, January 1, 20X1 $115,000 Amortization of premium [($15,000 / 5) x 2 2/3 years] (8,000) Book value at time of purchase $107,000 Purchase price (100,000) Gain on bond retirement $ 7,000 c. Eliminating entries, December 31, 20X3: Bonds Payable 100,000 Bond Premium 6,000 Interest Income 4,000 Investment in Downlink Bonds 100,000 Interest Expense 3,000 Gain on Bond Retirement 7,000 Interest Payable 6,000 Interest Receivable 6,

15 E8-12 Evaluation of Bond Retirement a. No gain or loss will be reported by Bundle. b. A gain of $13,000 will be reported: Book value of liability reported by Bundle: Par value of bonds outstanding $200,000 Unamortized premium $8,000 - [($8,000 / 10 years) x 3.5 years] 5,200 Book value of debt $205,200 Amount paid by Parent (192,200) Gain on bond retirement $ 13,000 c. Consolidated net income for 20X6 will increase by $12,000: Gain on bond retirement $ 13,000 Adjustment for excess of interest income over interest expense: Interest income $(11,600) Interest expense 10,600 (1,000) Increase in consolidated net income $ 12,000 d. Eliminating entries, December 31, 20X6: Bonds Payable 200,000 Premium on Bonds Payable 4,800 Interest Income 11,600 Investment in Bundle Company Bonds 192,800 Interest Expense 10,600 Gain on Bond Retirement 13,000 Eliminate intercorporate bond holdings: $4,800 = ($8,000 / 10 years) x 6 years $11,600 = [$22,000 + ($7,800 / 6.5 years)] / 2 $192,800 = $192,200 + [($7,800 / 6.5 years) / 2] $10,600 = ($22,000 - $800) / 2 Interest Payable 11,000 Interest Receivable 11,000 Eliminate intercompany receivable/payable. 8-15

16 E8-12 (continued) e. Eliminating entries, December 31, 20X7: Bonds Payable 200,000 Premium on Bonds Payable 4,000 Interest Income 23,200 Investment in Bundle Company Bonds 194,000 Interest Expense 21,200 Investment in Bundle Co. 8,400 NCI in NA of Bundle Co. 3,600 Eliminate intercorporate bond holdings: $4,000 = ($8,000 / 10 years) x 5 years $23,200 = $22,000 + ($7,800 / 6.5 years) $194,000 = $192,800 + ($7,800 / 6.5 years) $21,200 = $22,000 - ($8,000 / 10 years) $8,400 = ($13,000 - $1,000) x 0.70 $3,600 = ($13,000 - $1,000) x 0.30 Interest Payable 11,000 Interest Receivable 11,000 Eliminate intercompany receivable/payable. f. Income assigned to noncontrolling interest in 20X7 is $14,400: Net income reported by Bundle $ 50,000 Adjustment for excess of interest income over interest expense: Interest income $(23,200) Interest expense 21,200 (2,000) Realized net income $ 48,000 Proportion of ownership held x.30 Income assigned to noncontrolling interest $ 14,

17 E8-13 Elimination of Intercorporate Bond Holdings a. Eliminating entries, December 31, 20X8: Bonds Payable 100,000 Premium on Bonds Payable 3,000 Interest Income 11,300 Constructive Loss on Bond Retirement 1,400 Investment in Stang Corporation Bonds 104,200 Interest Expense 11,500 Eliminate intercorporate bond holdings: $3,000 = $5,000 - ($500 x 4 years) $11,300 = $12,000 - ($4,900 / 7 years) $1,400 = $104,900 - ($105,000 - $1,500) $104,200 = $104,900 - ($4,900 / 7 years) $11,500 = $12,000 - ($5,000 / 10 years) Interest Payable 6,000 Interest Receivable 6,000 Eliminate intercompany receivable/payable. b. Income assigned to noncontrolling interest in 20X8 is $6,580: Net income reported by Stang Corporation $ 20,000 Constructive loss on bond retirement (1,400) Adjustment for excess of interest expense over interest income: Interest expense $11,500 Interest income (11,300) 200 Realized net income $ 18,800 Proportion of ownership held x 0.35 Income assigned to noncontrolling interest $ 6,580 c. Eliminating entries, December 31, 20X9: Bonds Payable 100,000 Premium on Bonds Payable 2,500 Interest Income 11,300 Investment in Stang Corp. 780 NCI in NA of Stang Corp. 420 Investment in Stang Corporation Bonds 103,500 Interest Expense 11,500 Eliminate intercorporate bond holdings: $2,500 = $3,000 - $500 $11,300 = $12,000 - ($4,900 / 7 years) $780 = ($1,400 - $200) x 0.65 $420 = ($1,400 - $200) x 0.35 $103,500 = $104,200 - $700 $11,500 = $12,000 - ($5,000 / 10 years) Interest Payable 6,000 Interest Receivable 6,000 Eliminate intercompany receivable/payable. 8-17

18 SOLUTIONS TO PROBLEMS P8-14 Consolidation Worksheet with Sale of Bonds to Subsidiary a. Entries recorded by Porter on its investment in Temple: Cash 6,000 Investment in Temple Corporation 6,000 Record dividends from Temple: $10,000 x 0.60 Investment in Temple Corporation 18,000 Income from Subsidiary 18,000 Record equity-method income: $30,000 x 0.60 b. Entry recorded by Porter on its bonds payable: Interest Expense 6,000 Bond Premium 400 Cash 6,400 Record interest payment: $400 = ($82,000 - $80,000) / 5 years c. Entry recorded by Temple on bond investment: Cash 6,400 Interest Income 6,000 Investment in Porter Company Bonds

19 P8-14 (continued) d. Book Value Calculations: NCI + Porter Co. = Common + Retained 40% 60% Stock Earnings Original book value 60,000 90, ,000 50,000 + Net Income 12,000 18,000 30,000 - Dividends (4,000) (6,000) (10,000) Ending book value 68, , ,000 70,000 Basic elimination entry Common stock 100,000 Retained earnings 50,000 Income from Temple Co. 18,000 NCI in NI of Temple Co. 12,000 Dividends declared 10,000 Investment in Temple Co. 102,000 NCI in NA of Temple Co. 68,000 Eliminate intercorporate bond holdings Bonds Payable 80,000 Bond Premium 1,200 Interest Income 6,000 Investment in Temple Co.'s Bonds 81,200 Interest Expense 6,

20 P8-14 (continued) e. Porter Temple Elimination Entries Co. Co. DR CR Consolidated Income Statement Sales 200, , ,000 Interest Income 6,000 6,000 Less: COGS (99,800) (61,000) (160,800) Less: Depreciation Expense (25,000) (15,000) (40,000) Less: Interest Expenses (6,000) (14,000) 6,000 (14,000) Income from Temple Co. 18,000 18,000 0 Consolidated Net Income 87,200 30,000 24,000 6,000 99,200 NCI in Net Income 12,000 (12,000) Controlling Interest in Net Income 87,200 30,000 36,000 6,000 87,200 Statement of Retained Earnings Beginning Balance 230,000 50,000 50, ,000 Net Income 87,200 30,000 36,000 6,000 87,200 Less: Dividends Declared (40,000) (10,000) 10,000 (40,000) Ending Balance 277,200 70,000 86,000 16, ,200 Balance Sheet Cash and Accounts Receivable 80,200 40, ,200 Inventory 120,000 65, ,000 Buildings & Equipment 500, , ,000 Less: Accumulated Depreciation (175,000) (75,000) (250,000) Investment in Porter Co.Bonds 81,200 81,200 Investment in Temple Co. 102, ,000 0 Total Assets 627, , , ,200 Accounts Payable 68,800 41, ,000 Bonds Payable 80, ,000 80, ,000 Bond Premium 1,200 1,200 Common Stock 200, , , ,000 Retained Earnings 277,200 70,000 86,000 16, ,200 NCI in NA of Temple Co. 68,000 68,000 Total Liabilities & Equity 627, , ,200 84, ,

21 P8-15 Consolidation Worksheet with Sale of Bonds to Parent a. Entries recorded by Mega Corporation on its investment in Tarp Company: Cash 18,000 Investment in Tarp Company Stock 18,000 Record dividends from Temple: $20,000 x 0.90 Investment in Tarp Company Stock 22,500 Income from Subsidiary 22,500 Record equity-method income: $25,000 x 0.90 b. Entry recorded by Mega Corporation on its investment in Tarp Company bonds: Cash 6,000 Interest Income 5,200 Investment in Tarp Company Bonds 800 Record interest payment: $800 = ($104,000 - $100,000) / 5 years c. Entry recorded by Tarp Company on its bonds payable: d. Book Value Calculations: Interest Expense 5,200 Bond Premium 800 Cash 6,000 Mega Corp. 90% NCI 10% + = Common Stock + Retained Earnings Original book value 13, ,000 80,000 50,000 + Net Income 2,500 22,500 25,000 - Dividends (2,000) (18,000) (20,000) Ending book value 13, ,500 80,000 55,000 Basic elimination entry Common stock 80,000 Retained earnings 50,000 Income from Tarp Co. 22,500 NCI in NI of Tarp Co. 2,500 Dividends declared 20,000 Investment in Tarp Co. 121,500 NCI in NA of Tarp Co. 13,500 Eliminate intercorporate bond holdings Bonds Payable 100,000 Bond Premium 1,600 Interest Income 5,200 Investment in Tarp Co.'s Bonds 101,600 Interest Expense 5,

22 P8-15 (continued) e. Mega Tarp Elimination Entries Corp. Co. DR CR Consolidated Income Statement Sales 140, , ,000 Interest Income 5,200 5,200 Less: COGS (86,000) (79,800) (165,800) Less: Depreciation Expense (20,000) (15,000) (35,000) Less: Interest Expenses (16,000) (5,200) 5,200 (16,000) Income from Tarp Co. 22,500 22,500 0 Consolidated Net Income 45,700 25,000 27,700 5,200 48,200 NCI in Net Income 2,500 (2,500) Controlling Interest in Net Income 45,700 25,000 30,200 5,200 45,700 Statement of Retained Earnings Beginning Balance 242,000 50,000 50, ,000 Net Income 45,700 25,000 30,200 5,200 45,700 Less: Dividends Declared (30,000) (20,000) 20,000 (30,000) Ending Balance 257,700 55,000 80,200 25, ,700 Balance Sheet Cash and Accounts Receivable 22,000 36,600 58,600 Inventory 165,000 75, ,000 Buildings & Equipment 400, , ,000 Less: Accumulated Depreciation (140,000) (80,000) (220,000) Investment in Tarp Co.Bonds 101, ,600 Investment in Tarp Co. 121, ,500 0 Total Assets 670, , , ,600 Current Payables 92,400 35, ,400 Bonds Payable 200, , , ,000 Bond Premium 1,600 1,600 Common Stock 120,000 80,000 80, ,000 Retained Earnings 257,700 55,000 80,200 25, ,700 NCI in NA of Tarp Co. 13,500 13,500 Total Liabilities & Equity 670, , ,800 38, ,

23 P8-16 Direct Sale of Bonds to Parent a. Journal entries recorded by Fern Corporation: January 1, 20X3 Cash 2,000 Interest Receivable 2,000 Receive interest on bond investment. July 1, 20X3 Cash 2,000 Investment in Vincent Company Bonds 250 Interest Income 2,250 Record receipt of bond interest: $250 = $5,000 / (10 years x 2) December 31, 20X3 Cash 7,000 Investment in Vincent Company Stock 7,000 Record dividends for Vincent: $7,000 = $10,000 x 0.70 Interest Receivable (Current Receivables) 2,000 Investment in Vincent Company Bonds 250 Interest Income 2,250 Accrue interest income at year-end. Investment in Vincent Company Stock 21,000 Income from Subsidiary 21,000 Record equity-method income: $21,000 = $30,000 x 0.70 Income from Vincent Co. 2,800 Investment in Vincent Company Stock 2,800 Record amortization of differential: $2,800 = ($56,000 / 14 years) x 0.70 b. Journal entries recorded by Vincent Company: January 1, 20X3 Interest Payable 4,000 Cash 4,000 Record interest payment: $4,000 = $100,000 x (.08 / 2) July 1, 20X3 Interest Expense 4,500 Discount on Bonds Payable 500 Cash 4,000 Semiannual payment of interest: $500 = $10,000 / 20 semiannual payments December 31, 20X3 Interest Expense 4,500 Discount on Bonds Payable 500 Interest Payable (Current Liabilities) 4,000 Accrue interest expense at year-end. 8-23

24 P8-16 (continued) c. Book Value Calculations: NCI Fern Corp. + = Common Retained + 30% 70% Stock Earnings Original book value 45, ,000 50, ,000 + Net Income 9,000 21,000 30,000 - Dividends (3,000) (7,000) (10,000) Ending book value 51, ,000 50, ,000 Basic elimination entry Common stock 50,000 Retained earnings 100,000 Income from Vincent Co. 21,000 NCI in NI of Vincent Co. 9,000 Dividends declared 10,000 Investment in Vincent Co. 119,000 NCI in NA of Vincent Co. 51,000 Excess Value (Differential) Calculations: NCI 30% + Fern Corp. 70% = Buildings and Equipment + Acc. Depr. Beg. balance 14,400 33,600 56,000 (8,000) Changes (1,200) (2,800) (4,000) Ending balance 13,200 30,800 56,000 (12,000) Amortized excess value reclassification entry: Depreciation expense 4,000 Income from Vincent Co. 2,800 NCI in NI of Vincent Co. 1,200 Excess value (differential) reclassification entry: Buildings and Equipment 56,000 Accumulated Depreciation 12,000 Investment in Vincent Co. 30,800 NCI in NA of Vincent Co. 13,200 Remove gain on land: Investment in Vincent Co. 5,600 NCI in NA of Vincent Co. 2,400 Land 8,000 Eliminate intercorporate bond holdings Bonds Payable 50,000 Interest Income 4,500 Investment in Vincent Bonds 46,500 Interest Expense 4,500 Discount on BP 3,500 Interest Payable 2,000 Interest Receivable 2,

25 P8-16 (continued) d. Fern Vincent Elimination Entries Corp. Co. DR CR Consolidated Income Statement Sales 300, , ,000 Interest income 4,500 4,500 0 Less: Other Expenses (198,500) (161,000) 4,000 (363,500) Less: Interest Expense (27,000) (9,000) 4,500 (31,500) Income from Vincent Co. 18,200 21,000 2,800 0 Consolidated Net Income 97,200 30,000 29,500 7, ,000 NCI in Net Income 9,000 1,200 (7,800) Controlling Interest in Net Income 97,200 30,000 38,500 8,500 97,200 Statement of Retained Earnings Beginning Balance 238, , , ,800 Net Income 97,200 30,000 38,500 8,500 97,200 Less: Dividends Declared (60,000) (10,000) 10,000 (60,000) Ending Balance 276, , ,500 18, ,000 Balance Sheet Cash & Current Receivables 30,300 46,000 2,000 74,300 Inventory 170,000 70, ,000 Land, Buildings, & Equipment (net) 320, ,000 56,000 12, ,000 8,000 Investment in Vincent Co. Stock 144,200 5, , ,800 Investment in Vincent Co. Bonds 46,500 46,500 0 Total Assets 711, ,000 61, , ,300 Current Liabilities 35,000 33,000 2,000 66,000 Bonds Payable 300, ,000 50, ,000 Discount on Bonds Payable (7,000) 3,500 (3,500) Common Stock 100,000 50,000 50, ,000 Retained Earnings 276, , ,500 18, ,000 NCI in NA of Vincent Co. 2,400 51,000 61,800 13,200 Total Liabilities & Equity 711, , ,900 86, ,

26 P8-17 Information Provided in Eliminating Entry a. Rupp Corporation is the parent company. In the eliminating entry, noncontrolling interest is credited with a portion of the constructive gain on bond retirement. b. Rupp holds 75 percent ownership of Gross [$4,200 / ($4,200 + $1,400)]. c. Amount paid to acquire bonds: Investment in Gross bonds, December 31, 20X7 $198,200 Amortization of discount following purchase [($200,000 - $198,200) / 3 years] x 2.5 years (1,500) Purchase price paid by Rupp $196,700 d. A gain of $7,700 was reported: Book value of liability reported by Gross: Par value of bonds outstanding $200,000 Unamortized premium $8,000 - [($8,000 / 10 years) x 4.5 years] 4,400 Book value of debt $204,400 Purchase price paid by Rupp (196,700) Gain on bond retirement $ 7,700 e. Consolidated net income for 20X7 after adjustment for bond retirement: Amount reported without adjustment $ 70,000 Adjustment for excess of interest income over interest expense: Interest income $(18,600) Income expense 17,200 (1,400) Consolidated net income $ 68,600 f. Income assigned to the noncontrolling interest will decrease by $350 ($1,400 x 0.25) as a result of the eliminating entry. g. Eliminating entry prepared at December 31, 20X8: Bonds Payable 200,000 Premium on Bonds Payable 1,600 Interest Income 18,600 Investment in Gross Corporation Bonds 198,800 Interest Expense 17,200 Investment in Gross Corp. 3,150 NCI in NA of Gross Corp. 1,050 Eliminate intercompany bond holdings: $1,600 = ($2,400 / 3 years) x 2 years $18,600 = ($200,000 x 0.09) + ($1,800 / 3 years) $198,800 = $198,200 + ($1,800 / 3 years) $17,200 = ($200,000 x 0.09) - ($2,400 / 3 years) $3,150 = [$7,700 - ($1,400 x 2.5 years)] x 0.75 $1,050 = [$7,700 - ($1,400 x 2.5 years)] x

27 P8-18 Prior Retirement of Bonds a. Amount paid by Amazing Corporation for bonds: Reported balance, December 31, 20X6 $102,400 Amortization of premium during 20X6 ($2,400 / 6 years) 400 Purchase price $102,800 b. Interest Expense 9,500 Discount on Bonds Payable 500 Cash 9,000 Annual payment of interest: $9,500 = [$9,000 + ($3,000 / 6 years)] c. Cash 9,000 Investment in Broadway Company Bonds 400 Interest Income 8,600 Annual receipt of interest: $8,600 = [$9,000 - ($2,400 / 6 years)] d. Bonds Payable 100,000 Loss on Bond Retirement 6,300 Investment in Broadway Company Bonds 102,800 Discount on Bonds Payable 3,500 Eliminate intercorporate bond holdings: $6,300 = $102,800 - [$97,000 -($3,000 / 6 years)] $102,800 = computed above $3,500 = [$3,000 + ($3,000 / 6 years)] e. Consolidated net Income and income to controlling interest for 20X5 and 20X6: 20X5 20X6 Operating income reported by Amazing $120,000 $150,000 Net income reported by Broadway 60,000 80,000 Loss on bond retirement (6,300) Adjustment for excess of interest expense ($9,500) over interest income ($8,600) 900 Consolidated net income $173,700 $230,900 Income to noncontrolling interest: ($60,000 - $6,300) x 0.15 (8,055) ($80,000 + $900) x 0.15 (12,135) Income to controlling interest $165,645 $218,

28 P8-19 Incomplete Data a. Purchase price of bonds: Balance reported in bond investment account in excess of par value, December 31, 20X4 ($109,000 - $100,000) $ 9,000 Amount amortized per year ($9,000 / 6 years) 1,500 Premium at date of purchase $ 10,500 Par value 100,000 Purchase price $110,500 b. Carrying amount of liability on date of purchase: Bond premium, December 31, 20X4 $ 6,000 Amount amortized per year ($6,000 / 6 years) 1,000 Bond premium, January 1, 20X4 $ 7,000 Par value 100,000 Carrying amount of liability, January 1, 20X4 $107,000 c. Income to noncontrolling interest in 20X5: Reported net income of Condor Company $ 30,000 Adjustment for excess of interest expense over interest income recorded in 20X5 500 $ 30,500 Proportion of stock held by noncontrolling interest x 0.30 Income assigned to noncontrolling interest $ 9,150 Excess of interest expense over interest income Interest expense: ($100,000 x 0.12) - ($10,000 / 10) $11,000 Interest income: ($100,000 x 0.12) ($10,500 / 7) (10,500) Excess $

29 P8-20 Balance Sheet Eliminations a. Book Value Calculations: Bath Corp. 80% NCI 20% + = Common Stock + Retained Earnings Original book value 41, , , ,000 + Net Income 15,000 60,000 75,000 - Dividends (2,000) (8,000) (10,000) Ending book value 54, , , ,000 Reversal/Deferred GP Calculations: Total = Bath Corp.'s share + NCI's share Downstream Deferred GP (12,000) (12,000) Upstream Deferred GP (6,000) (4,800) (1,200) Total (18,000) (16,800) (1,200) Basic elimination entry Common stock 100,000 Original amount invested (100%) Retained earnings 105,000 Beginning balance in retained earnings Income from Stang Co. 43,200 Bath s % of NI - Deferred GP + Reversal NCI in NI of Stang Co. 13,800 NCI share of NI - Deferred GP + Reversal Dividends declared 10, % of Stang Co.'s dividends declared Investment in Stang Co. 199,200 Net book value - Deferred GP + Reversal NCI in NA of Stang Co. 52,800 NCI share of BV - Deferred GP + Reversal 8-29

30 P8-20 (continued) 20X4 Downstream Transactions Total = Re-sold + Ending Inventory Sales 100,000 58,000 42,000 COGS 71,429 41,429 30,000 Gross Profit 28,571 16,571 12,000 Gross Profit % 28.57% 20X4 Upstream Transactions Total = Re-sold + Ending Inventory Sales 50,000 24,000 26,000 COGS 38,462 18,462 20,000 Gross Profit 11,538 5,538 6,000 Gross Profit % 23.08% Deferral of this year's unrealized profits on inventory transfers Sales 150,000 Cost of Goods Sold 132,000 Inventory 18,000 Bond and other Debt Elimination Entries: Bonds Payable 100,000 Bond Premium 12,000 Investment in Stang Bonds 101,500 Investment in Stang Stock 8,400 NCI in NA of Stang 2,100 Interest Payable 4,000 Interest Receivable 4,

31 P8-20 (continued) b. Bath Stang Elimination Entries Corp. Co. DR CR Consolidated Balance Sheet Cash and Receivables 122, ,000 4, ,500 Inventory 200, ,000 18, ,000 Buildings & Equipment (net) 320, , ,000 Investment in Stang Co. Bonds 101, ,500 0 Investment in Stang Co. Stock 207, , ,400 Total Assets 951, , ,100 1,254,500 Accounts Payable 40,000 28,000 4,000 64,000 Bonds Payable 400, , , ,000 Premium on Bonds Payable 36,000 12,000 24,000 Common Stock 200, , , ,000 Retained Earnings 311, , , ,600 43,200 13,800 10, , ,000 NCI in NA of Stang Co. 52,800 54,900 2,100 Total Liabilities & Equity 951, , , ,900 1,254,500 c. Bath Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X4 Cash and Receivables $ 242,500 Inventory 332,000 Buildings and Equipment (net) 680,000 Total Assets $1,254,500 Accounts Payable $ 64,000 Bonds Payable $600,000 Bond Premium 24, ,000 Stockholders Equity: Controlling Interest: Common Stock $200,000 Retained Earnings 311,600 Total Controlling interest $511,600 Noncontrolling Interest 54,900 Total Stockholders Equity 566,500 Total Liabilities and Stockholders Equity $1,254,

32 P8-21 Computations Relating to Bond Purchase from Nonaffiliate Note: We accidentally changed the Investment in Bliss Perfume Company Bonds instead of Investment in Bliss Perfume Company Stock when we converted the problem from the modified to the fully adjusted equity method. The following answer is based on the following corrected Investment in Bliss Perfume Company Bonds: $105,600 a. Balance reported, December 31, 20X4 $105,600 Amortization of premium during 20X4: Annual amortization ($5,600 / 7 years) $800 Portion of year held x 0.75 Amortized in 20X4 600 Purchase price of bonds $106,200 b. Carrying value of liability at date of acquisition: Carrying value at year-end $107,000 Premium amortized between date of purchase and December 31, 20X4 ($1,000 x 0.75) 750 Carrying value at acquisition $107,750 Purchase price (106,200) Gain on constructive retirement $ 1,550 c. Eliminating entries, December 31, 20X4: Bonds Payable 100,000 Bond Premium 7,000 Interest Income 6,900 Investment in Bliss Company Bonds 105,600 Interest Expense 6,750 Gain on Bond Retirement 1,550 Elimination of interest income: Interest income at nominal rate ($100,000 x 0.10) $10,000 Annual amortization of premium by Parsons (800) Annual interest income recorded by Parsons $ 9,200 Portion of year held by Parsons x 0.75 Interest income for 20X4 $ 6,900 Elimination of interest expense: Interest expense at nominal rate ($100,000 x 0.10) $10,000 Annual amortization of premium by Bliss ($10,000 / 10 years) (1,000) Annual interest expense recorded by Bliss $ 9,000 Portion of year held by Parsons x 0.75 Interest expense eliminated $ 6,750 Interest Payable 5,000 Interest Receivable 5,

33 P8-22 Computations following Parent's Acquisition of Subsidiary Bonds a. Book value of bonds purchased by Mainstream Corporation: Balance reported, December 31, 20X5 $111,250 Amortization of premium in 20X4 and 20X5 ($11,250 / 3 years) x 2 years 7,500 Balance at date of purchase $118,750 Proportion of bonds purchased by Mainstream x 0.40 Book value of bonds purchased $47,500 Amount paid by Mainstream to purchase bonds: Bond investment, December 31, 20X5 $42,400 Amortization of premium in 20X4 and 20X5 ($2,400 / 3 years) x 2 years 1,600 Purchase price (44,000) Gain on bond retirement $ 3,500 b. Income from Offenberg 560 Investment in Offenberg 560 Recognize 80% share of 1/5 of the constructive gain c. Bonds Payable 40,000 Bond Premium 4,500 Interest Income 3,200 Investment in Offenberg Company Bonds 42,400 Interest Expense 2,500 Investment in Offenberg 2,240 NCI in NA of Offenberg 560 Eliminate intercorporate bond holdings: $4,500 = $11,250 x 0.40 $3,200 = ($40,000 x 0.10) - $800 $2,500 = ($40,000 x 0.10) - ($3,750 x 0.40) $2,240 = ($3,500 - $700) x 0.80 $560 = ($3,500 - $700) x 0.20 d. Consolidated retained earnings $501,

34 P8-23 Consolidation Worksheet Year of Retirement a. Book Value Calculations: NCI 40% + Tyler Manufacturing 60% = Common Stock + Retained Earnings Original book value 60,000 90, ,000 50,000 + Net Income 12,000 18,000 30,000 - Dividends (4,000) (6,000) (10,000) Ending book value 68, , ,000 70,000 Reversal/Deferred GP Calculations: Total = Tyler s share + NCI's share Constructive Gain 7,000 4,200 2,800 Extra Depreciation Total 7,400 4,440 2,960 Basic elimination entry Common stock 100,000 Original amount invested (100%) Retained earnings 50,000 Beginning balance in retained earnings Income from Brown Corp. 22,440 Tyler s % of NI + Retirement Gain + Excess Depr. NCI in NI of Brown Corp. 14,960 NCI share of NI + Retirement Gain + Excess Depr. Dividends declared 10, % of Brown Corp.'s dividends declared Investment in Brown Corp. 106,440 Net book value + Retirement Gain + Excess Depr. NCI in NA of Brown Corp. 70,960 NCI share of BV + Retirement Gain + Excess Depr. Accumulated Equipment Depreciation Lofton Co. 30,000 Actual 4,000 10, ,600 Temple Corp. 40,000 "As If" 19,200 Eliminate the gain on Equipment and correct asset's basis: Investment in Temple Corp. 3,360 NCI in NA of Temple Corp. 2,240 Equipment 10,000 Accumulated Depreciation 15,600 Accumulated Depreciation 400 Depreciation Expense 400 Bond Elimination Entry: Bonds Payable 50,000 Bond Premium 7,000 Investment in Brown Bonds 50,000 Gain on Bond Retirement 7,

35 P8-23 (continued) Brown Elimination Entries Tyler Corp. DR CR Consolidated Income Statement Sales 400, , ,000 Gain on Bond Retirement 7,000 7,000 Less: Interest Expense (20,000) (20,000) (40,000) Less: Operating Expenses (302,200) (150,000) 400 (451,800) Income from Brown Corp. 22,440 22,440 0 Consolidated Net Income 100,240 30,000 22,440 7, ,200 NCI in Net Income 14,960 (14,960) Controlling Interest in Net Income 100,240 30,000 37,400 7, ,240 Statement of Retained Earnings Beginning Balance 146,640 50,000 50, ,640 Net Income 100,240 30,000 37,400 7, ,240 Less: Dividends Declared (40,000) (10,000) 10,000 (40,000) Ending Balance 206,880 70,000 87,400 17, ,880 Balance Sheet Cash 68,000 55, ,000 Accounts Receivable 100,000 75, ,000 Inventory 120, , ,000 Depreciable Assets (net) 360, , , ,800 10,000 Investment in Brown Corp. Bonds 50,000 50,000 0 Investment in Brown Corp. Stock 103,080 3, ,440 0 Total Assets 801, ,000 13, ,040 1,092,800 Accounts Payable 94,200 52, ,200 Bonds Payable 200, ,000 50, ,000 Bond Premium 28,000 7,000 21,000 Common Stock 300, , , ,000 Retained Earnings 206,880 70,000 87,400 17, ,880 NCI in NA of Brown Co. 2,240 70,960 68,720 Total Liab. & Equity 801, , ,640 88,360 1,092,