Consolidation

Question 1

Intercompany Sale of Inventory

Answer 1

Selling Price=$12,000
COG ($8,000)
Profit =$4,000
100% Profit Eliminate
Step1
Dr. A/P 12,000
Cr. A/R 12,000

**Scenario#1 100% Sold
Dr.Sales $12,000 “100%”
Cr.COGS “Plug”$8000(12-4)
Cr.Inventory $4000 “Fake Profit Eliminated”

**Scenario#2 50% Sold
Dr.Sales $12,000 “100%”
Cr. “Plug” COGS(12-2) $10,000
Cr. Inventory $2,000 “false profit eliminate”

Question 2

Intercompany Dividends

2 Types
Cost Type-Dividend are income “ need elimination”
Equity Type-Dividend reduces CV of Investment, not income. No elimination

Answer 2

Dividend Declared Not Paid:
Both Equity & Cost Type need to eliminate entry
Dr. Dividend Payable
Cr. Dividend Receivable

Cost Type only:
Dr. Dividend Income
Cr. Retained Earning
Dr. Dividend Payable
Cr. Dividend Receivable

Question 3

Consolidation Process Steps

Answer 3

1 Eliminate Investment in Subsidiary (Zero Out)

EAGL(I)N
#2 Eliminate 100% of Subsidiary Equity Accounts
(E)AGLIN-Common Stock
-APIC
-Retained Earnings
#3 Set up NCI (Adjust% Net Income & Dividends)
EAGLI(N)
#4 Setup Net Asset & Liability Excess FV over CV & Record Excess Depreciation
E(A)G(L)IN
#5 Record Goodwill & Impairment “EA(G)LIN”
-CV goes down
-Equity Earning goes down
#6 Eliminate Intercompany Transaction

Question 4

EAGLI(N)

Answer 4

Noncontrolling interest Beginning Balance
+ %Share Subsidiary Net Income
- % Share of Dividend Subsidiary
__________________________________
NCI End Balance

Question 5

Cost Method Consolidation

Answer 5

-Investment in Subsidiary “Eliminate” CV=Cost
-Eliminate Dividend Income

NOT Adjust for Cost method:
- Subsidiary Income or loss
-Dividend will not reduce investment
-Do not amortize identifiable assets
*Do not record excess depreciation

Reverse Dividend Income entry
Dr. Dividend Income
Cr.Retained Earning

Question 6

EAGL(I)N Equity Method

Initial CV in Subsidiary = Cost
+% Share of Subsidiary Net Income CV {“go up”}
-% Share Excess Depreciation CV{“go down”}
{{{Above 2, Deduct from Parent Investment “I”}}}
-% Share of Dividend CV{“go down” “Not Income”}
______________________________________________________
**End CV of Subsidiary-Eliminate is not equal to FMV

Answer 6

On Subsequent Dates
-Equity Method-Investment in Sub will change CV
-Cost Method- CV still same cost(no change to CV)

On Subsequent- Consolidate Income statement Sub REGL

-Equity Method:
Parent Income Statement
“Equity Earning” not equal to Dividend

-Cost Method:
*Parent may have dividend income
*No Excess Depreciation

Question 7

Intercompany Sale of Property Plant Equipment

Answer 7

Sale Price 450
-NBV<300>
=Gain 150

NBV at time of sale 500 cost
Accum Depr<200>
= NBV 300

Initial Entry by Parent
Dr.Cash 450
Dr. AD 200 “Reverse accumulation depre”
Cr. Gain 150
Cr. Cost 500

Initial Entry Subsidiary
Dr. PPE 450 (Sale price)
Cr. Cash 450

To Eliminate Sale of PPE
Dr.Gain 150
Dr. PPE 50(Plug)
Cr. Accum Depre 200(reinstate old)

Seller Depreciation
NBV 300
Useful Life 5 Yr=60 Depreciation Expense

Buyer Depreciation
450 / 5 yr= 90 depreciation expense

Need to reverse additional depre expense of 30 (90-60)
To correct depreciation entry
Dr.Depreciation Expense 90 (Buyer)
Cr. Accum Deprec. 90(Buyer)

Dr.Accumulated Depre 30 (to fix real depre expense)
Cr. Depreciation expense 30 (to fix real depre expense)

Question 8

Intercompany Sales of Bond

[CV of bond]=Face (par)- unamortized discount
is CV < PAR

[CV of bond]=Face (par) + unamortized premium
is CV > PAR

*Interest Expense earned by 3rd parties(Bond seller) do not eliminate

Answer 8

Penn 12 YR5
Dr.Invest in bond 900
Dr.Accrued Interest receivable 80
Cr. Cash 980(900+80)

South Dakota
Dr. Interest Expense 80
CR. Interest Payable 80

-Accrued Interest 80 earned by bond seller>outside 3rdparty
-Do not eliminate interest revenue or interest expense

Price Paid 900 < CV Liability 1000
=Gain 100

To Eliminate Bond
Dr. Bonds Payable “CV” 1000
Cr. Gain “Plug” 100
Cr. Invest in Bond 900

Eliminate
Dr.Interest payable 80
Cr. Interest Receivable 80