Chapter 3 :
The Reporting Entity and Consolidation of Less-than-Wholly-Owned Subsidiaries
with No Differential
Types of Business expansion
1- Internal Expansion
Through:
establishment of New Subsidiary
2- External Expansion ( Business Combination )
Through:
a. Statutory Merger
P+S=P
Note : S Company Dissolved
b. Statutory Consolidation
P+S=N
Note : S Company Dissolved
c. Stock Acquisition
P+S=P&S
Accounting for Stock Acquisition:
No Significant
Influence
Significant
Influence
Less Than 20%
Between 20% to 50%
l
More Than 50%
Fair Value Method
Equity Method
Or
Fair Value Option
Equity Method
And
Consolidation
Control
(but cost method is
also okay here)
Overview of the Consolidation Process.
Page 1 of 7
Chapter 3 :
The Reporting Entity and Consolidation of Less-than-Wholly-Owned Subsidiaries
with No Differential
Problem:
On January 1, 20X8, Gregory Corporation acquired 90 percent of Nova Company's voting
stock, at underlying book value. The fair value of the non-controlling interest was equal to
10 percent of the book value of Nova at that date. Gregory uses the equity method in
accounting for its ownership of Nova. On December 31, 20X8, the trial balances of the two
companies are as follows:
Required:
1- Provide all eliminating entries required as of December 31, 20X8, to prepare
consolidated financial statements.
2- Prepare a three-part consolidation worksheet.
Solution Steps:
Page 2 of 7
Chapter 3 :
The Reporting Entity and Consolidation of Less-than-Wholly-Owned Subsidiaries
with No Differential
Income Statement
Statement of Retained Earnings
Balance sheet
Page 3 of 7
Gregory
Co.
Nova
Co.
Elemination Entries
Consolidated
Dr.
Cr.
Chapter 3 :
The Reporting Entity and Consolidation of Less-than-Wholly-Owned Subsidiaries
with No Differential
Less :
Less :
Add :
=
Less :
=
Income Statement
Sales
Other expenses
Depreciation
Income from Nova
Consolidated Net Income
NCI in Net Income
Controlling Interest in Net Income
Gregory
Co.
300,000
-100,000
-30,000
22,500
192,500
Nova
Elemination Entries
Co.
Dr.
Cr.
110,000
-60,000
-25,000
25,000
192,500
25,000
Statement of Retained Earnings
Beginning Balance of R/E
Add : Net Income
Less : Divdends Decleared
Ending Balance of R/E
120,000
192,500
-30,000
282,500
65,000
25,000
-10,000
80,000
Balance sheet
Current assets
Depreciable assets
Less : Accumulated depreciation
Investment in Nova
Total Assets
200,000
300,000
-120,000
139,500
519,500
120,000
225,000
-75,000
270,000
62,000
75,000
100,000
282,500
25,000
90,000
75,000
80,000
519,500
270,000
Current Liabilities
Long Term Debt
Common Stock
Retained Earnings
NCI in NA of Nova
Total Liabilities and Equity
Page 4 of 7
Consolidated
Chapter 3 :
The Reporting Entity and Consolidation of Less-than-Wholly-Owned Subsidiaries
with No Differential
192,500
Nova
Elemination Entries
Co.
Dr.
Cr.
110,000
-60,000
-25,000
22,500
25,000
2,500
25,000
Statement of Retained Earnings
Beginning Balance of R/E
Add : Net Income
Less : Divdends Decleared
Ending Balance of R/E
120,000
192,500
-30,000
282,500
65,000
25,000
-10,000
80,000
Balance sheet
Current assets
Depreciable assets
Less : Accumulated depreciation
Investment in Nova
Total Assets
200,000
300,000
-120,000
139,500
519,500
120,000
225,000
-75,000
270,000
62,000
75,000
100,000
282,500
25,000
90,000
75,000
80,000
Less :
Less :
Add :
=
Less :
=
Income Statement
Sales
Other expenses
Depreciation
Income from Nova
Consolidated Net Income
NCI in Net Income
Controlling Interest in Net Income
Current Liabilities
Long Term Debt
Common Stock
Retained Earnings
NCI in NA of Nova
Total Liabilities and Equity
Gregory
Co.
300,000
-100,000
-30,000
22,500
192,500
65000
10000
139500
75000
15,500
519,500
270,000
165000
Page 5 of 7
165000
Consolidated
Chapter 3 :
The Reporting Entity and Consolidation of Less-than-Wholly-Owned Subsidiaries
with No Differential
192,500
Nova
Elemination Entries
Consolidated
Co.
Dr.
Cr.
110,000
410,000
-60,000
-160,000
-25,000
-55,000
22,500
0
25,000
195,000
2,500
-2500
25,000
192,500
Statement of Retained Earnings
Beginning Balance of R/E
Add : Net Income
Less : Divdends Decleared
Ending Balance of R/E
120,000
192,500
-30,000
282,500
65,000
25,000
-10,000
80,000
Balance sheet
Current assets
Depreciable assets
Less : Accumulated depreciation
Investment in Nova
Total Assets
200,000
300,000
-120,000
139,500
519,500
120,000
225,000
-75,000
270,000
62,000
75,000
100,000
282,500
25,000
90,000
75,000
80,000
Less :
Less :
Add :
=
Less :
=
Income Statement
Sales
Other expenses
Depreciation
Income from Nova
Consolidated Net Income
NCI in Net Income
Controlling Interest in Net Income
Current Liabilities
Long Term Debt
Common Stock
Retained Earnings
NCI in NA of Nova
Total Liabilities and Equity
Gregory
Co.
300,000
-100,000
-30,000
22,500
192,500
65000
10000
139500
75000
15,500
519,500
270,000
165000
Page 6 of 7
165000
120000
192500
-30000
282,500
320,000
525,000
-195,000
0
650,000
87,000
165,000
100,000
282,500
15500
650,000
Chapter 3 :
The Reporting Entity and Consolidation of Less-than-Wholly-Owned Subsidiaries
with No Differential
Multiple Choices:
1- On January 1, 20X8, Zeta Company acquired 85 percent of Theta Company's
common stock for $100,000 cash. The fair value of the noncontrolling interest was
determined to be 15 percent of the book value of Theta at that date. What portion of
the retained earnings reported in the consolidated balance sheet prepared
immediately after the business combination is assigned to the noncontrolling
interest?
a.
b.
c.
d.
None
15 %
100%
Cannot be determined
2- On January 3, 20X9, Redding Company acquired 80 percent of Frazer
Corporation's common stock for $344,000 in cash. At the acquisition date, the book
values and fair values of Frazer's assets and liabilities were equal, and the fair
value of the noncontrolling interest was equal to 20 percent of the total book value
of Frazer. The stockholders' equity accounts of the two companies at the acquisition
date are:
Noncontrolling interest was assigned income of $11,000 in Redding's consolidated
income statement for 20X9.
Based on the preceding information, what amount will be assigned to the
noncontrolling interest on January 3, 20X9, in the consolidated balance sheet?
a.
b.
c.
d.
Page 7 of 7
$86,000
$44,000
$68,800
$50,000