Important Note To Instructors

Chapter 5 - CONSOLIDATION OF LESS-THAN-WHOLLY-OWNED SUBSIDIARIES ACQUIRED AT
MORE THAN BOOK VALUE
CHAPTER 5
CONSOLIDATION OF LESS-THAN-WHOLLY-OWNED SUBSIDIARIES

ACQUIRED AT MORE THAN BOOK VALUE
IMPORTANT NOTE TO INSTRUCTORS
The 12th edition uses a building block approach to our coverage of consolidation in
chapters 2 through 5. Chapter 2 introduces our coverage of consolidation in the most basic
setting when the subsidiary is either created or purchased at an amount equal to the book value of
the subsidiary’s underlying net assets.
 Chapter 3 explains how the basic consolidation process changes when the parent
company owns less than 100 percent of the subsidiary.
 Chapter 4 shows how the consolidation process differs when the parent company
acquires the subsidiary for an amount greater (or less) than the book value of the
subsidiary’s net assets.
 Finally, Chapter 5 presents the most complex consolidation scenario (where the
parent owns less than 100 percent of the subsidiary’s outstanding voting stock and
the acquisition price is not equal to the book value of the subsidiary’s net assets).
In order to facilitate this new approach, we emphasize that this edition includes
consolidation entries used to facilitate the elimination of the investment in a
subsidiary in two steps: (1) first the book value portion of the investment and
income from the subsidiary are eliminated and (2) then the differential portion of
Copyright © 2019 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior consent of McGraw-Hill
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the investment and income from the subsidiary are eliminated with separate
entries. We believe this approach is more intuitive for students.
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OVERVIEW OF CHAPTER 5
Chapter 5 presents the preparation of consolidated financial statements for less-than-

wholly-owned subsidiaries. When a subsidiary is less than wholly owned, the general approach
to consolidation is the same as discussed in Chapter 4 for wholly owned subsidiaries, but the
consolidation procedures must be modified slightly to recognize the noncontrolling interest.
Also, the computation of consolidated net income and retained earnings must allow for the claim
of the noncontrolling interest.
The noncontrolling shareholders of a subsidiary have a claim on the income and assets of
that subsidiary. In simple cases, the income that accrues to the noncontrolling interest is the
noncontrolling stockholders’ proportionate share of the subsidiary’s net income, and their claim
on assets is equal to their proportionate share of the subsidiary’s net assets.
The chapter also illustrates the consolidation process and resulting financial statements
when other comprehensive income is reported by the subsidiary. It also presents journal entries
recorded by the parent and subsidiary. The subsidiary’s other comprehensive income items
should also be allocated between the controlling and noncontrolling interests.
When the subsidiary reports other comprehensive income, the worksheet can be prepared
in the standard manner, with one modification. The standard three-part consolidation worksheet
can be modified to provide an additional section that includes the other comprehensive income of
the subsidiary and the parent’s share of the subsidiary’s other comprehensive income.
The parent company includes income from the subsidiary in its income statement and
adjusts the balance in the investment account for the investment income recorded and dividends
received when it uses the equity method in accounting for its investment. If the cost method is
used, the parent records dividend income for its portion of dividends received from the
subsidiary and different consolidation entries are needed in preparing the consolidated financial
statements.
Appendix 5A discusses additional considerations including negative retained earnings of
subsidiary at acquisition; other stockholders’ equity accounts; and the subsidiary’s disposal of
differential-related assets.
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LEARNING OBJECTIVES
When students finish studying this chapter, they should be able to:
LO 5-1 Understand and explain how the consolidation process differs when the subsidiary is
less-than-wholly owned and there is a differential.
LO 5-2 Make calculations and prepare consolidation entries for the consolidation of a
partially owned subsidiary when there is a complex positive differential.
LO 5-3 Understand and explain what happens when a parent company ceases to consolidate
a subsidiary.
partially owned subsidiary when there is a complex positive differential and other
comprehensive income.
SYNOPSIS OF CHAPTER 5
Consolidation of Less-Than-Wholly-Owned Subsidiaries Acquired at

More than Book Value
Walmart Acquires a Controlling Interest in Massmart
A Noncontrolling Interest in Conjunction with a Differential

Consolidated Balance Sheet with Majority-Owned Subsidiary
Consolidated Financial Statements with a Majority-Owned Subsidiary

Initial Year of Ownership
Second Year of Ownership
a subsidiary.
Discontinuance of Consolidation
Treatment of Other Comprehensive Income

Modification of the Consolidation Worksheet
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Adjusting Entry Recorded by Subsidiary

Adjusting Entry Recorded by Parent Company
Consolidation Worksheet—Second Year Following Combination
Consolidation Procedures
Consolidation Worksheet—Comprehensive Income in Subsequent Years
Appendix 5A: Additional Consolidations Details

Negative Retained Earnings of Subsidiary at Acquisition
Other Stockholders’ Equity Accounts
Subsidiary’s Disposal of Differential-Related Assets
Inventory
Fixed Assets
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NOTES ON POWERPOINT SLIDES
We have attempted to provide PowerPoint slides that will be useful to a broad set of users. Since
instructors often have different styles and preferences, we have attempted to include slides that
will accommodate different approaches and that can be adapted to classes with different levels of
preparation. For example, some instructors prefer to introduce the material before students have
read the chapter. We have tried to facilitate these types of introductory discussions by including
slides that replicate key points from the chapter. Other instructors expect students to have read
the chapter and attempted homework problems before coming to class. As a result, they may not
find it useful to review all of the topics in the chapter or to include slides that simply review
many of the details they expect students to study before class. However, instructors following
this approach often like to use sample exercises and problems built into the slides that allow
them to have extended discussions or to facilitate group interaction in class.
If instructors elect to spend two class periods on the same subject, they might find a combination
of both styles to be useful by first introducing foundational material before students have read
the chapter and studied the topic, followed by an extended discussion the next class period after
students have read the chapter and attempted homework problems.

We have tried to develop slides that can facilitate a flexible approach to allow instructors to
select the slides that best match their objectives and style for class discussions. This is the reason
we are including over 100 slides for some chapters in the text. We do not expect all instructors to
use all slides, but the slide files should help support different teaching approaches and allow
instructors to select the subset of slides that best matches their specific discussion objectives.
The slides are organized by learning objective. We have included a slide at the beginning of each
learning objective to show where the new material begins. Instructors may or may not want to
use these learning objective slides in class. We provide them primarily as a way of organizing
the material. We also include short multiple choice questions at the end of most learning
objectives. Some instructors find it useful to pause periodically during class to assess students’
level of understanding. For this reason, we include several “practice quiz questions” that can be
used throughout class discussions to engage students, help them focus on key points, or to
facilitate group interaction. Finally, we provide longer exercises and problems that many
instructors find useful in assessing understanding and encouraging group learning.
 Slides 3-4 briefly summarize how consolidation procedures differ when the
subsidiary is less-than-wholly owned.
 Slides 5-12 illustrate an example of the consolidation procedure for a less-than-
wholly-owned subsidiary. Since the investment in the subsidiary is acquired on
the balance sheet date, no income has been earned. Thus, there is no need for a
consolidated income statement or statement of retained earnings. We find that the
preparation of a consolidated balance sheet allows students to understand one
aspect of the differential (the balance sheet side) before getting too deep in the
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income statement effects. We find it useful to provide full-page handouts (or an

Excel Template) for slides 5, 7, and 8 so that students can walk through the
analyses in small groups. We often go through slides 5-11 slowly, pausing to
allow students to work one step at a time before showing them correct answers.
We then have them complete the worksheet (slide 12) while working in a small
group. If we are short on time, we opt to quickly go through this worksheet with
the entire class and save “group time” for the “full-blown” worksheet later in this
set of slides.
 Slides 13-16 include a second illustration of the basic calculations for a less-than-
wholly-owned subsidiary.
 Slides 20-31 walk students through the consolidation process during the first year
following acquisition.
 Slides 32-43 walk students through the consolidation process during the second year
following acquisition.
 Slides 44-56 are a group exercise which allows students to practice the consolidation
process for a less-than-wholly-owned subsidiary at the date of acquisition.
 Slides 57-58 summarize the differences in the consolidation entries that are unique to
the less-than-wholly-owned subsidiary consolidation as a quick reminder for students
and preparation for Group Exercise 2.
 Slides 59-76 return to the previous example to slowly walk students through the
consolidation during the first year of acquisition. This is a critical example for helping
students to understand all of the detail for a positive differential and partial
ownership. We tend to have students work one step ahead of the slides and reveal one
portion of the solution at a time to make sure they stay on track. After working
through all of the foundational steps, we have students complete the consolidation
worksheet in their groups (and sometimes have them turn in their solution as a “group
quiz”). Note that the book value calculations on slide 63 lead directly to the basic
consolidation entry. The bottom row of the excess value calculations on slide 65 leads
to the excess value reclassification entry and the middle row of the excess value
calculations leads to the amortized excess value reclassification entry.
a subsidiary.
 Slides 78-84 explain and illustrate the accounting for situations in which the parent
ceases to consolidate a subsidiary.
 Slides 93-97 explain and briefly illustrate how the consolidation differs when the
subsidiary has other comprehensive income.
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Appendix 5A Additional Consolidations Details

 Slides 99-103 briefly cover the additional considerations: subsidiary valuation,
negative retained earnings, other stockholders’ equity accounts, and the disposal of
differential-related assets.
TEACHING IDEAS
1. Students could be asked to "prove" the amounts provided in their Fortune 100 company's
annual report for noncontrolling interest on the consolidated balance sheet and on the
consolidated income statement. Reconciliation of these amounts is usually possible by
reading the information available in the footnotes. Some students may find that these
amounts cannot be reconciled from the information presented. If that is the case, students
should suggest additional disclosures that would make the calculation of the
noncontrolling interest amounts possible.
2. Each student could be asked to determine the percentage of ownership of the subsidiaries
for a Fortune 100 company. This can be determined by access to Moody's and is
sometimes disclosed in the company's annual report. An indirect method to determine the
extent of the parent company's ownership percentage of the subsidiaries could be used to
determine the magnitude of the noncontrolling interest on the consolidated balance sheet.
Students could be asked the question: Why do most parent companies acquire 100
percent ownership of the subsidiary when 51 percent would grant them economic
control? What are the economic reasons supporting more than a 51 percent ownership
level?
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DESCRIPTIONS OF CASES, EXERCISES, AND PROBLEMS
C5-1 Consolidation Worksheet Preparation

LO 5-2 This case requires a basic understanding of the way in which four of the pieces of
15 min. information included in the consolidation worksheet are developed and used.
M
C5-2 Consolidated Income Presentation
LO 5-2 Students must prepare a memorandum explaining how consolidated net income is
25 min. computed and the procedures used to allocate income to the parent company and
M noncontrolling shareholders. Authoritative reference needs to be included. In
addition, students must prepare an analysis showing the income statement
amounts actually reported for two years.
C5-3 Pro Rata Consolidation

LO 5-1 Students must research the authoritative literature to determine whether the
25 min. company should account for its joint venture investment using the equity method
M or a pro rata consolidation. A memorandum that reports findings and provides the
necessary supporting references is required.
C5-4 Consolidation Procedures

LO 5-1 Five questions are presented in this case. The questions focus on why
15 min. consolidation entries are needed, which balances must be eliminated, and the
M ways in which particular consolidated balances are computed.
C5-5 Changing Accounting Standards: Monsanto Company

LO 5-1 Students have to determine how Monsanto Company reported its subsidiary
25 min. noncontrolling interest in its 2016 consolidated financial statements, and
M comment on the company’s treatment of its subsidiary noncontrolling interest.
They also have to identify various aspects of the company’s special purpose or
variable interest entities.
E5-1 Multiple-Choice Questions on Consolidation Process
LO 5-1, Four multiple-choice questions are used to cover basic issues dealing with the
LO 5-2 preparation of consolidated statements subsequent to the date of combination.
15 min.
E
E5-2 Multiple-Choice Questions on Consolidation [AICPA Adapted]
LO 5-1, Five multiple-choice questions are used to cover additional issues associated with
LO 5-2 the preparation of consolidated statements subsequent to the date of combination.
15 min.
E
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E5-3 Consolidation Entries with Differential

LO 5-2 A basic set of balance sheet consolidation entries must be prepared. Assignment
10 min. of a differential is required.
E
E5-4 Computation of Consolidated Balances

LO 5-2 Students must calculate the appropriate amounts to be included in the
15 min. consolidated balance sheet immediately following the acquisition for six items,
E including goodwill.
E5-5 Balance Sheet Worksheet

LO 5-2 Based on the balance sheets of the two companies immediately after the
15 min. acquisition, students should prepare and complete a consolidated balance sheet
E worksheet.
E5-6 Majority-Owned Subsidiary Acquired at Higher than Book Value
LO 5-2 The consolidation entries, a consolidated balance sheet worksheet, and
30 min. consolidated balance sheet are required. Intercompany receivable/payable
M adjustment is required.
E5-7 Consolidation with Noncontrolling Interest
LO 5-2 Consolidation entries needed to prepare a consolidated balance sheet immediately
15 min. following the business combination are required. Differential is assigned to
E inventory, buildings, and goodwill.
E5-8 Multiple-Choice Questions on Balance Sheet Consolidation

LO 5-2 Given the balance sheets of the parent and subsidiary at the date of acquisition,
20 min. seven multiple-choice questions cover the computation of various consolidated
M balances. The parent holds majority ownership in the subsidiary.
E5-9 Majority Owned Subsidiary with Differential

LO 5-2 Students must prepare the equity method journal entries made during the year by
20 min. the parent and also the consolidation entries necessary to prepare the consolidated
M financial statements given a differential between cost and book values of the
underlying net assets.
E5-10 Differential Assigned to Amortizable Asset

LO 5-1, The investment account balance at the end of the first period of ownership must
LO 5-2 be calculated. Students should also prepare the consolidation entries needed to
20 min. prepare consolidated financial statements at the end of the first year of
E ownership. The differential is assigned to an intangible asset.
E5-11 Consolidation after One Year of Ownership

LO 5-2 Consolidation entries to prepare a consolidated balance sheet worksheet at the
25 min. date of acquisition and to prepare a full set of consolidated statements at the end
M of the first year of ownership are required. The subsidiary is majority-owned and
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the differential is assigned to buildings and equipment and goodwill.

E5-12 Consolidation Following Three Years of Ownership
LO 5-1, Information on subsidiary net income and dividends is presented for a three year
LO 5-2 period. The differential is assigned to land, equipment, and patents. Students have
25 min. to calculate the increase in value of patents. The consolidation entries to prepare
M a consolidated balance sheet at the date of acquisition, the investment account
balance at the end of the second year, equity-method entries recorded by the
parent in the third year, and the consolidation entries needed at the end of the
third year to prepare a three-part consolidation worksheet are also required.
E5-13 Consolidation Worksheet for Majority-Owned Subsidiary

LO 5-2 A consolidation worksheet and consolidated statements are required for a
40 min. majority-owned subsidiary. No differential is involved.
H
E5-14 Consolidation Worksheet for Majority-Owned Subsidiary for Second Year
LO 5-2 Consolidation journal entries and a three-part work paper must be prepared for a
40 min. wholly-owned subsidiary for the second year after acquisition.
M
E5-15 Preparation of Stockholders’ Equity Section with Other Comprehensive
LO 5-4 Income
20 min Subsidiary net income, other comprehensive income, and dividends paid are
M given for two years. Parent company operating income and dividends are also
given. Consolidated net income and comprehensive income must be computed
for each year and the stockholders’ equity section of the consolidated balance
sheet prepared at the end of each year.
E5-16 Consolidation Entries for Subsidiary with Other Comprehensive Income

LO 5-4 Subsidiary net income, comprehensive income, and dividends are given. Equity-
20 min. method entries recorded by the parent and consolidation entries needed to prepare
M a complete set of financial statements at the end of the year are required.
E5-17A Consolidation of Subsidiary with Negative Retained Earnings

Students must prepare the consolidation entry immediate after acquisition of an
15 min. 80% interest in a subsidiary with a negative retained earnings balance.
E
E5-18A Complex Assignment of Differential
Parent company entries under the equity method and the consolidation entries
30 min. involving a differential allocation to several current and long-term assets as well
M as notes payable are required.
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P5-19 Reported Balances

LO 5-1 Students compute the reported balances immediately following the acquisition.
10 min.
E
P5-20 Acquisition Price
LO 5-1 Students must determine the acquisition price given two separate situations.
10 min. Additionally, students are required to determine the amount assigned to the
E noncontrolling interest at the date of acquisition.
P5-21 Multiple-Choice Questions on Applying the Equity Method [AICPA
LO 5-1 Adapted]
15 min. Four multiple-choice questions are included. Primary emphasis is placed on the
M computation of investment income and the appropriate account balances under
equity-method reporting.
P5-22 Amortization of Differential

LO 5-1 Journal entries made by an investor during the year are required assuming the
15 min. equity method of accounting for the investment.
M
P5-23 Computation of Account Balances
LO 5-1 Students must calculate investment income and investment account balances
15 min. assuming (a) the equity method is used and (b) the cost method is used. Goodwill
M is included.
P5-24 Complex Differential

LO 5-1, The amount of investment income and the balance in the investment account is
LO 5-2 required assuming the equity method is used in accounting for the investment.
20 min. Amortization of inventory, buildings and equipment, and patents included.
H
P5-25 Equity Entries with Differential
LO 5-1 The entry to record a purchase using an exchange of common stock and entries
20 min. for two years under equity-method reporting are required. The ending investment
M account balance also must be computed. The differential is assigned to buildings
and equipment and goodwill.
P5-26 Equity Entries with Differential

LO 5-1 Equity-method journal entries must be prepared and the carrying value of the
15 min. investment computed following a purchase of shares. The differential is assigned
M to inventory, buildings and equipment, and goodwill.
P5-27 Additional Ownership Level

LO 5-1 Net income must be calculated and all journal entries made for investments
30 min. involving three entities.
M
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P5-28 Correction of Error

LO 5-1 An investor incorrectly applies the equity method. An entry is necessary to
15 min. correct the accounts involved.
M
P5-29 Majority-Owned Subsidiary Acquired at More than Book Value
LO 5-2 Students must provide the consolidation entries needed to prepare a consolidated
45 min. balance sheet immediately following a business combination in which the
M subsidiary is acquired at an amount greater than book value. A consolidated
balance sheet worksheet and a consolidated balance sheet must also be prepared.
An intercompany receivable/payable is involved.
P5-30 Balance Sheet Consolidation of Majority-Owned Subsidiary
LO 5-2 Students must provide the entry to record the business combination on the books
30 min. of the parent. Consolidation entries, a consolidated balance sheet worksheet, and
M a consolidated balance sheet must also be prepared.
P5-31 Incomplete Data

LO 5-1, Students must interpret and derive amounts and relationships between a parent
LO 5-2 company and its subsidiary, based on incomplete and missing data.
40 min.
M
P5-32 Income and Retained Earnings
LO 5-2 Information on operating income and dividend payments is given for the parent
10 min. and subsidiary. Net income and retained earnings reported by the parent and
E subsidiary, consolidated net income, and consolidated retained earnings must be
computed.
P5-33 Consolidation Worksheet at End of First Year of Ownership

LO 5-2 Trial balance information is given for the parent and majority owned subsidiary
40 min. at the end of the first year of ownership. The differential is assigned to buildings
M and equipment and goodwill. Consolidation entries and completion of a three-
WP part worksheet are required.
P5-34 Consolidation Worksheet at End of Second Year of Ownership

LO 5-2 Trial balance information is given for the parent and majority owned subsidiary
40 min. at the end of the second year of ownership. The differential is assigned to
M buildings and equipment and goodwill. Consolidation entries, a three-part
consolidation worksheet, and a balance sheet, income statement, and retained
earnings statement are required.
P5-35 Comprehensive Problem: Differential Apportionment

LO 5-2 Parent company entries, consolidation entries, and a consolidation worksheet are
50 min. required at the end of the first year of ownership for a majority-held subsidiary.
H The differential is assigned to buildings and equipment and to goodwill.
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P5-36 Comprehensive Problem: Differential Apportionment in Subsequent Period

LO 5-2 Students must prepare equity method journal entries made by the parent during
55 min. second year after acquisition of a partially owned subsidiary involving a
M differential. A three-part consolidation work paper and consolidation entries for
the end of the year are also required.
P5-37 Subsidiary with Other Comprehensive Income in Year of Acquisition

LO 5-4 The subsidiary reports other comprehensive income during the first year of
45 min ownership. Consolidation entries, a three-part consolidation worksheet, and a
H consolidated balance sheet, income statement, and statement of comprehensive
income must be prepared.
P5-38 Subsidiary with Other Comprehensive Income in Year Following

LO 5-4 Acquisition
45 min. The subsidiary reports other comprehensive income in the first and second years
H of ownership. Consolidation entries and a three-part consolidation worksheet
must be prepared at the end of the second year.
P5-39 Comprehensive Problem: Majority-Owned Subsidiary
LO 5-2 Parent company entries, consolidation entries, and a consolidation worksheet are
50 min. required at the end of the fifth year of ownership. Majority ownership is held and
M the differential is assigned to buildings and equipment.
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OTHER RESOURCES
Chapter 5
Exercises No. 1 And 2 Basics Of Consolidation
1. On January 1, 20X9, Parent Corporation acquired 90 percent of Small Corporation’s stock for
$324,000 cash. At that date, the noncontrolling interest had a fair value of $36,000. At that date
Small had $150,000 of stock outstanding and reported retained earnings of $140,000. The fair
values of all of Small's assets approximated their fair values except one of its buildings whose
fair value exceeded its book value by $50,000. The remaining economic life for all Small’s
depreciable assets was ten years on the date of combination. The amount of the differential
assigned to goodwill is not impaired. Small reported net income of $56,000 in 20X9 and
declared no dividends.
Required
a. Give the consolidation entries needed to prepare a consolidated balance sheet immediately
after Parent acquired Small Corporation stock.
b. Give all consolidation entries needed to prepare a full set of consolidated financial statements
for 20X9.
a. Consolidation entries, January 1, 20X9:
Book Value Calculations:

NCI Parent Corp. Common Retained
10% + 90% = Stock + Earnings
Ending Book Value 29,000 261,000 150,000 140,000

Basic consolidation entry:

Common Stock 150,000
Retained Earnings 140,000
Investment in Small Corp. 261,000
NCI in NA of Small Corp. 29,000
Excess Value (Differential) Calculations:

NCI Parent Corp.
10% + 90% = Buildings + Goodwill
Beginning balance 7,000 63,000 50,000 20,000

Excess value (differential) reclassification entry:

Buildings 50,000
Goodwill 20,000
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b. Consolidation entries, December 31, 20X9:

Beginning Book
Value 29,000 261,000 150,000 140,000
+ Net Income 5,600 50,400 56,000


Common Stock 150,000
Income from Small Corp. 50,400
NCI in NI of Small Corp. 5,600
Excess Value (Differential) Calculations:

Parent
NCI Corp. Accumulated
10% + 90% = Buildings + Depreciation + Goodwill
Beginning balance 7,000 63,000 50,000 0 20,000
Changes (500) (4,500) (5,000)
Ending balance 6,500 58,500 50,000 (5,000) 20,000

Amortized excess value reclassification entry:

Depreciation Expense 5,000
Income from Small Corp. 4,500
NCI in NI of Small Corp. 500
Excess value (differential) reclassification entry:

50,00
Buildings 0
20,00
Goodwill 0
Accumulated Depreciation 5,000
58,50
Investment in Small Corp. 0
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2. Parent Corporation acquired 75 percent of Signature Company’s voting stock on January 1,

20X9, at underlying book value. The fair value of the noncontrolling interest was equal to 20
percent of the book value of Signature at that date. Parent uses the fully adjusted equity method
in accounting for its ownership of Signature during 20X9. On December 31, 20X9, the trial
balances of the two companies are as follows:
Parent Corporation Signature Company

Item Debit Credit Debit Credit
Current Assets 125,250 75,000
Depreciable Assets 250,000 180,000
Investment in Signature Co. Stock 71,250
Depreciation Expense 35,000 18,000
Other Expenses 90,000 60,000
Dividends Declared 30,000 12,000
Accumulated Depreciation 75,000 60,000
Current Liabilities 75,000 25,000
Long-Term Debt 50,000 75,000
Common Stock 100,000 50,000
Retained Earnings 135,000 35,000
Sales 150,000 100,000
Income from Subsidiary 16,500
601,500 601,500 345,000 345,000
Required:
a. Give all consolidation entries required as of December 31, 20X9, to prepare consolidated
financial statements.
b. Prepare a three-part consolidation worksheet.
c. Prepare a consolidated balance sheet, income statement, and retained earnings statement for
20X9.
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a)

Beginning Book
Value 21,250 63,750 50,000 35,000
+ Net Income 5,500 16,500 22,000
- Dividends (3,000) (9,000) (12,000)


Common Stock 50,000
Income from Signature Co. 16,500
NCI in NI of Signature Co. 5,500
Dividends declared 12,000
Investment in Signature Co. 71,250
NCI in NA of Signature Co. 23,750
Accumulated depreciation consolidation entry:

Accumulated Depreciation 42,000
Depreciable Assets 42,000
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b)
Consolidation
Entries
Parent Signatur Consolidate
Corp. e Co. DR CR d
Income Statement
Sales 150,000 100,000 250,000
Less: Depreciation Expense (35,000) (18,000) (53,000)
Less: Other Expenses (90,000) (60,000) (150,000)
Income from Signature Co. 16,500 0 16,500 0
Consolidated Net Income 41,500 22,000 16,500 0 47,000
NCI in Net Income 5,500 (5,500)
Controlling Interest in Net
Income 41,500 22,000 22,000 0 41,500

Statement of Retained
Earnings
Beginning Balance 135,000 35,000 35,000 135,000
Net Income 41,500 22,000 22,000 0 41,500
12,00
Less: Dividends Declared (30,000) (12,000) 0 (30,000)
12,00
Ending Balance 146,500 45,000 57,000 0 146,500

Balance Sheet
Current Assets 125,250 75,000 200,250
42,00
Depreciable Assets 250,000 180,000 0 388,000
Less: Accumulated Depreciation (75,000) (60,000) 42,000 (93,000)
71,25
Investment in Signature Co. 71,250 0 0 0
89,25
Total Assets 371,500 195,000 18,000 0 495,250

Current Liabilities 75,000 25,000 100,000
Long-Term Debt 50,000 75,000 125,000
Common Stock 100,000 50,000 50,000 100,000
12,00
Retained Earnings 146,500 45,000 57,000 0 146,500
23,75
NCI in NA of Signature Co. 0 23,750
107,00 35,75
Total Liabilities & Equity 371,500 195,000 0 0 495,250

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c)
Parent Corporation and Subsidiary
Consolidated Balance Sheet
December 31, 20X9
$200,25
Current Assets 0
$388,00
Depreciable Assets 0
Less: Accumulated Depreciation (93,000) 295,000
$495,25
Total Assets 0
$100,00
Current Liabilities 0
Long-Term Debt 125,000
Stockholders' Equity
Controlling Interest
$100,00
Common Stock 0
$246,50
Total Controlling Interest 0
Noncontrolling Interest 23,750
Total Stockholders' Equity 270,250
$495,25
Total Liabilities and Stockholders' Equity 0
Parent Corporation and Subsidiary

Consolidated Income Statement
Year Ended December 31, 20X9
Sales $250,000
Depreciation $53,000
Other Expenses 150,000
Total Expenses (203,000)
Consolidated Net Income $47,000
Income to Noncontrolling Interest (5,500)
Income to Controlling Interest $41,500
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Proud Corporation and Subsidiary

Consolidated Retained Earnings Statement
Year Ended December 31, 20X9
Retained Earnings, January 1, 20X9 $135,000

Income to Controlling Interest, 20X9 41,500
$176,500
Dividends Declared, 20X9 (30,000)
Retained Earnings, December 31, 20X9 $146,500
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Important Note To Instructors

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Important Note To Instructors

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Chapter 5 - CONSOLIDATION OF LESS-THAN-WHOLLY-OWNED SUBSIDIARIES ACQUIRED AT

MORE THAN BOOK VALUE

CONSOLIDATION OF LESS-THAN-WHOLLY-OWNED SUBSIDIARIES

IMPORTANT NOTE TO INSTRUCTORS

Chapter 5 presents the preparation of consolidated financial statements for less-than-

Consolidation of Less-Than-Wholly-Owned Subsidiaries Acquired at

Walmart Acquires a Controlling Interest in Massmart

A Noncontrolling Interest in Conjunction with a Differential

Consolidated Financial Statements with a Majority-Owned Subsidiary

Treatment of Other Comprehensive Income

Adjusting Entry Recorded by Subsidiary

Appendix 5A: Additional Consolidations Details

NOTES ON POWERPOINT SLIDES

income statement effects. We find it useful to provide full-page handouts (or an

Appendix 5A Additional Consolidations Details

DESCRIPTIONS OF CASES, EXERCISES, AND PROBLEMS

C5-1 Consolidation Worksheet Preparation

C5-3 Pro Rata Consolidation

C5-4 Consolidation Procedures

C5-5 Changing Accounting Standards: Monsanto Company

E5-3 Consolidation Entries with Differential

E5-4 Computation of Consolidated Balances

E5-5 Balance Sheet Worksheet

E5-8 Multiple-Choice Questions on Balance Sheet Consolidation

E5-9 Majority Owned Subsidiary with Differential

E5-10 Differential Assigned to Amortizable Asset

E5-11 Consolidation after One Year of Ownership

the differential is assigned to buildings and equipment and goodwill.

E5-13 Consolidation Worksheet for Majority-Owned Subsidiary

E5-16 Consolidation Entries for Subsidiary with Other Comprehensive Income

E5-17A Consolidation of Subsidiary with Negative Retained Earnings

P5-19 Reported Balances

P5-22 Amortization of Differential

P5-24 Complex Differential

P5-26 Equity Entries with Differential

P5-27 Additional Ownership Level

P5-28 Correction of Error

P5-31 Incomplete Data

P5-33 Consolidation Worksheet at End of First Year of Ownership

P5-34 Consolidation Worksheet at End of Second Year of Ownership

P5-35 Comprehensive Problem: Differential Apportionment

P5-36 Comprehensive Problem: Differential Apportionment in Subsequent Period

P5-37 Subsidiary with Other Comprehensive Income in Year of Acquisition

P5-38 Subsidiary with Other Comprehensive Income in Year Following

a. Consolidation entries, January 1, 20X9:

Book Value Calculations:

Basic consolidation entry:

Excess Value (Differential) Calculations:

Excess value (differential) reclassification entry:

b. Consolidation entries, December 31, 20X9:

Book Value Calculations:

Basic consolidation entry:

Excess Value (Differential) Calculations:

Amortized excess value reclassification entry:

Excess value (differential) reclassification entry:

2. Parent Corporation acquired 75 percent of Signature Company’s voting stock on January 1,

Parent Corporation Signature Company

Book Value Calculations:

Basic consolidation entry: