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    Advanced Accounting 2 - Chapter 4 James B. Cantorne Problem 1. T/F

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    James Cantorne
    This document summarizes key concepts and examples from Chapter 4 of an Advanced Accounting textbook. It includes sample consolidation problems involving the calculation of goodwill, non-controlling interests, and consolidated financial statements. Specifically, it provides examples of calculating goodwill and non-controlling interests under different ownership percentages and valuation methods, and building consolidated financial statements by combining parent and subsidiary account balances and eliminating intragroup transactions.

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    Advanced Accounting 2 - Chapter 4 James B. Cantorne Problem 1. T/F

    Uploaded by

    James Cantorne
    148 views7 pages
    This document summarizes key concepts and examples from Chapter 4 of an Advanced Accounting textbook. It includes sample consolidation problems involving the calculation of goodwill, non-controlling interests, and consolidated financial statements. Specifically, it provides examples of calculating goodwill and non-controlling interests under different ownership percentages and valuation methods, and building consolidated financial statements by combining parent and subsidiary account balances and eliminating intragroup transactions.

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    Adv Acc 2 Module 3

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    This document summarizes key concepts and examples from Chapter 4 of an Advanced Accounting textbook. It includes sample consolidation problems involving the calculation of goodwill, non-controlling interests, and consolidated financial statements. Specifically, it provides examples of calculating goodwill and non-controlling interests under different ownership percentages and valuation methods, and building consolidated financial statements by combining parent and subsidiary account balances and eliminating intragroup transactions.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    148 views7 pages

    Advanced Accounting 2 - Chapter 4 James B. Cantorne Problem 1. T/F

    Uploaded by

    James Cantorne
    This document summarizes key concepts and examples from Chapter 4 of an Advanced Accounting textbook. It includes sample consolidation problems involving the calculation of goodwill, non-controlling interests, and consolidated financial statements. Specifically, it provides examples of calculating goodwill and non-controlling interests under different ownership percentages and valuation methods, and building consolidated financial statements by combining parent and subsidiary account balances and eliminating intragroup transactions.

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    © All Rights Reserved
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    of 7

    ADVANCED ACCOUNTING 2 – Chapter 4

    James B. Cantorne
    Problem 1. T/F
    1. False.
    The basis is control
    2. False.
    Entity A will share in the net income of Entity B within consolidation period that is
    November 1 to December 31, 20x1
    3. False.
    Goodwill is not remeasured at FV but adjusted by impairment losses.
    4. True.
    10% x 200
    5. True
    1,000 + (200 – 100) x 90%
    6. False.
    NCI in net assets is presented separately but under equity.
    7. True.
    8. True.
    9. True
    200 + 100
    10. True.
    200 + (100 x 80%)
    Problem 2. Classroom Discussion
    1. Health Co.
    Health Wealth Consolidated
    Cash 100,000 20,000 120,000
    Accounts receivable 120,000 20,000 140,000
    Inventory 400,000 100,000 500,000
    Investment subsidiary 560,000
    Prepaid assets 30,000 10,000 40,000
    Building, net 1,200,000 540,000 1,740,000
    Goodwill 140,000
    Total assets 2,410,000 690,000 2,680,000

    Accounts payable 70,000 90,000 160,000


    Share capital 1,000,000 200,000 1,000,000
    Share premium 350,000 50,000 350,000
    Retained earnings 990,000 230,000 990,000
    NCI in net assets 180,000*
    Total liabilities and equity 2,410,000 540,000 2,680,000
    *Carrying amount of 570,000 plus 120,000 net changes in FV of assets minus accounts payable
    of 90,000 multiply by 30%
    2. Pink Co.
    Analysis of net assets
    Jan 1, 20x1 Dec 31, 20x1 Net change
    Net assets 480,000 568,000
    FV adjustments 120,000 88,000
    Net assets at fair value 600,000 656,000 56,000

    Goodwill computation
    560 – (600 x 90%) = 20,000
    NCI interest in net assets
    10% x 656,000 = 65,600
    Consolidated retained earnings
    1,260,000 + (90% x 56,000) = 1,310,400
    Consolidated profit or loss
    270 + 88 – 32 = 326,000
    NCI profit = 88 x 10% - 32 x 10% = 5,600
    Parent profit = 270 + 88 x 90% - 32 x 90% = 320,400
    Cash 740,000
    A/R 270,000
    Inventory 280,000
    Investment in subsidiary -
    Prepaid assets 18,000
    Building 1,538,000
    Goodwill 20,000
    Total assets 2,866,000

    Accounts payable 140,000


    Share capital 1,000,000
    Share premium 350,000
    Retained earnings 1,310,400
    NCI in net assets 65,600
    Total liab and equity 2,866,000

    Sales 800,000
    CGS (270,000)
    GP 530,000
    Depreciation expense (172,000)
    SE (32,000)
    Net income 326,000

    3. NCI at FV
    560,000 – (90% x 600,000) = 20,000
    65,000 – (10% x 600,000) = 5,000
    20,000 + 5,000 = 25,000
    10% x 656,000 + 5,000 = 70,600
    Cash 740,000
    A/R 270,000
    Inventory 280,000
    Investment in subsidiary -
    Prepaid assets 18,000
    Building 1,538,000
    Goodwill 25,000
    Total assets 2,871,000

    Accounts payable 140,000


    Share capital 1,000,000
    Share premium 350,000
    Retained earnings 1,310,400
    NCI in net assets 70,600
    Total liab and equity 2,866,000

    Sales 800,000
    CGS (270,000)
    GP 530,000
    Depreciation expense (172,000)
    SE (32,000)
    Net income 326,000

    Problem 3. Exercises
    1. Sunny Co.
    Sunny Co. Rainy Co. Consolidated
    Cash 80,000 50,000 130,000
    Inventory 400,000 80,000 480,000
    Investment in subsidiary 300,000 0 0
    Land 600,000 250,000 850,000
    Goodwill 120,000
    Total assets 1,380,000 380,000 1,580,000

    Accounts payable 200,000 80,000 280,000


    Share capital 1,000,000 250,000 1,000,000
    Retained earnings 180,000 50,000 180,000
    NCI in net assets 120,000
    Total liab and equity 1,380,000 380,000 1,580,000
    300,000 – 300,000(0.6) = 120,000 Goodwill
    2. Hammer Co.
    Hammer Folk Consolidated
    Cash 160,000 10,000 170,000
    Accounts receivable 200,000 110,000 310,000
    Inventory 400,000 100,000 500,000
    Investment subsidiary 520,000
    Building, net 1,000,000 400,000 1,400,000
    Goodwill 0 0 40,000
    Total assets 2,280,000 620,000 2,420,000

    Accounts payable 100,000 20,000 120,000


    Share capital 1,000,000 200,000 1,000,000
    Share premium 300,000 100,000 300,000
    Retained earnings 880,000 180,000 880,000
    NCI in net assets 120,000
    Total liabilities and equity 2,420,000
    520,000 – 600,000(0.8) = 40,000 goodwill
    3. Run Co. (NCI at proportionate)
    Jan 1, 20x1 Dec 31, 20x1 Net change
    Net assets 480,000 568,000 88,000
    FV adjustments 120,000 90,000 (30,000)
    Net assets at fair value 600,000 658,000 58,000
    Goodwill = 520,000 – 600,000(0.8) = 40,000
    NCI in net assets = 658,000 x 0.2 = 131,600
    RE = 1,300,000 + 58,000 x 0.8 = 1,346,400
    Profit = 420,000 + 88,000 – 30,000 = 478,000
    Share of Run = 420,000 + 88,000 x 0.8 – 30,000 x 0.8 = 466,400
    Share of Walk = 88,000 x 0.2 – 30,000 x 0.8 = 11,600
    Cash 1,008,000
    A/R 310,000
    Inventory 220,000
    Investment in subsidiary -
    Building 1,290,000
    Goodwill 40,000
    Total assets 2,868,000

    Accounts payable 90,000


    Share capital 1,000,000
    Share premium 300,000
    Retained earnings 1,346,400
    NCI in net assets 131,600
    Total liab and equity 2,868,000

    Sales 1,000,000
    CGS (280,000)
    GP 720,000
    Depreciation expense (110,000)
    SE (132,000)
    Net income 478,000

    4. Run Co (NCI at FV)


    520,000 – 600,000(0.8) = 40,000
    130,000 – 600,000(0.2) = 10,000
    520,000 + 130,000 – 600,000 = 50,000
    658,000 x 0.2 + 10,000 = 141,600
    Cash 1,008,000
    A/R 310,000
    Inventory 220,000
    Investment in subsidiary -
    Building 1,290,000
    Goodwill 50,000
    Total assets 2,878,000

    Accounts payable 90,000


    Share capital 1,000,000
    Share premium 300,000
    Retained earnings 1,346,400
    NCI in net assets 141,600
    Total liab and equity 2,878,000
    Sales 1,000,000
    CGS (280,000)
    GP 720,000
    Depreciation expense (110,000)
    SE (132,000)
    Net income 478,000

    5. Joy Inc. (NCI at proportionate)


    Jan 1, 20x1 Dec 31, 20x1 Net change
    Net assets 290,000 310,000 20,000
    FV adjustments 10,000 40,000 30,000
    Net assets at fair value 300,000 350,000 50,000
    250,000 + (60,000 – 20,000) = 290,000 “profit for the year is deducted to retained earnings at
    subsequent date, to get the retained earnings at acquisition date”
    300,000 – 300,000(0.6) = 120,000 goodwill
    NCI in net assets = 350,000 x 0.4 = 140,000
    RE = 243,000 + 50,000 x 0.6 = 273,000
    Profit = 63,000 + 20,000 + 30,000= 113,000
    Share of Joy = 63,000 + 20,000(0.6) + 30,000(0.6) = 93,000
    Share of Axion = 20,000(0.4) + 30,000(0.4) = 20,000
    Cash 203,000
    Inventory 600,000
    Investment in subsidiary -
    Building 760,000
    Goodwill 120,000
    Total assets 1,683,000

    Accounts payable 270,000


    Share capital 1,000,000
    Retained earnings 273,000
    NCI in net assets 140,000
    Total liab and equity 1,683,000

    Sales 420,000
    CGS (197,000)
    GP 223,000
    Depreciation expense (60,000)
    SE (50,000)
    Net income 113,000

    6. Joy Co. (NCI at FV)


    300,000 – 300,000(0.6) = 120,000
    132,000 – 300,000(0.4) = 12,000
    300,000 + 132,000 – 300,000 = 132,000
    350,000 (0.4) + 12,000 = 152,000
    Cash 203,000
    Inventory 600,000
    Investment in subsidiary -
    Building 760,000
    Goodwill 132,000
    Total assets 1,695,000

    Accounts payable 270,000


    Share capital 1,000,000
    Retained earnings 273,000
    NCI in net assets 152,000
    Total liab and equity 1,695,000

    Sales 420,000
    CGS (197,000)
    GP 223,000
    Depreciation expense (60,000)
    SE (50,000)
    Net income 113,000

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