江西财经大学高级财务会计国际学院题库chapter-09

AdvancedAccounting,11e(Beams/Anthony/Bettinghaus/Smith)

Chapter9IndirectandMutualHoldings

MultipleChoiceQuestions

1)PalletCorporationowns80%ofAdeltCorporationandAdeltowns60%ofBajoInc.Whichofthefollowingiscorrect?

A)Bajoshouldnotbeconsolidatedbecausenoncontrollinginterestshold52%.

B)Bajoshouldbeconsolidatedbecausethe60%ofBajostockisheldintheaffiliatestructure.

C)Pallethas8%indirectownershipofBajo.

D)Pallethas80%indirectownershipofBajo.

Answer:B

Objective:LO1

Difficulty:Moderate

2)PageCorporationacquireda60%interestinAceCorporationataprice$40,000inexcessofbookvalueandfairvalueonJanuary1,2010.Onthesamedate,Aceacquireda70%interestinBaderCorporationataprice$30,000inexcessofbookvalueandfairvalue.TheexcesspurchasecostpaidbyPageandAcewasattributedtogoodwill.Separatenetincomes(excludinginvestmentincome)forthethreeaffiliatesfor2010areasfollows:Page,$500,000,Ace,$300,000,andBader,$400,000.

Page'scontrollinginterestshareofconsolidatednetincomefor2010is

A)$808,000.

B)$848,000.

C)$920,000.

D)$960,000.

Answer:B

Objective:LO1

Difficulty:Moderate

Usethefollowinginformationtoanswerthequestion(s)below.

PaintCorporationowns82%ofAchilleCorporationandAchilleCorporationowns80%ofBadrackCorporation.Forthecurrentyear,theseparatenetincomes(excludinginvestmentincome)ofPaint,Achille,andBadrackare$120,000,$100,000,and$50,000,respectively.Thecostofeachinvestmentwasequaltothebookvalueoftheinvestment,whichwasalsoequaltothefairvalue.

3)NoncontrollinginterestshareforBadrackis

A)$9,000.

B)$10,000.

C)$20,000.

D)$40,000.

Answer:B

Explanation:B)(0.20×$50,000=$10,000)

Objective:LO1

Difficulty:Moderate

4)NoncontrollinginterestshareforAchilleis

A)$18,000.

B)$25,200.

C)$36,200.

D)$72,000.

Answer:B

Explanation:B)[$100,000+(0.80)×($50,000)]×18%=$25,200

Objective:LO1

Difficulty:Moderate

5)ControllinginterestshareofconsolidatednetincomeforPaintCorporationandSubsidiariesis:

A)$234,800.

B)$244,800.

C)$260,000.

D)$270,000.

Answer:A

Explanation:A)

PaintAchilleBadrack

Separateincomes $120,000 $100,000 $50,000

Allocate80%ofBadracktoAchille _______ 40,000 (40,000)

Subtotal 120,000 140,000 10,000

Allocate82%ofAchilletoPaint 114,800 (114,800)

Controllinginterestshareofcons.netincome $234,800 _______ _______

Noncontrollinginterestshare $25,200$10,000

Objective:LO1

Difficulty:Moderate

6)PabariCorporationownsan80%interestinAldersCorporationandAldersownsa60%interestinBabaoCorporation.Bothinterestswereacquiredatacostequaltobookvalueequaltofairvalue.During2010,AlderssellslandtoBabaoataprofitof$12,000.BabaostillholdsthelandatDecember31,2010.Netincome(loss)ofthethreecompanies(excludinginvestmentincome)for2010are:

PabariCorporation $180,000

AldersCorporation 72,000

BabaoCorporation (30,000)

Controllinginterestshareofconsolidatednetincomeandnoncontrollinginterestshare,respectively,for2010are

A)$211,200and($1,200).

B)$211,200and($3,600).

C)$213,600and($1,200).

D)$213,600and($3,600).

Answer:D

Explanation:D)

Noncont.interestshare:$8,400Profit+($12,000)Loss

PabariAldersBabao

Separateincomes $180,000 $72,000 $(30,000)

Less:Unrealizedprofitonland _______ (12,000) _______

Subtotal $180,000 $60,000 (30,000)

AllocateBabao'snetlossto

Alders($30,000)×60% _______ (18,000)18,000

Subtotal 180,000 42,000 (12,000)

Allocate80%ofAlders

incometoPabari 33,600 (33,600)

Controllinginterestshareofconsolidated

netincome $213,600 _______ _______

Noncontrollinginterestshare $8,400$12,000

Objective:LO1

Difficulty:Moderate

7)PabloCorporationacquired60%ofAbagiaCorporationonJanuary1,2010,atacostof$20,000inexcessofbookvalue.Also,onJuly1,2010,Pabloacquired60%ofBabinCorporationatbookvalue.OnJanuary1,2011,Abagiaacquireda20%interestinBabinatacostof$10,000inexcessofbookvalue.TheexcesspurchasecostspaidbyPabloandAbagiawereattributedtogoodwill.

OnJuly1,2011,Pablosoldlandwithabookvalueof$20,000toAbagiafor$40,000.The$20,000unrealizedgainisincludedinPablo'sseparateincome.Separatenetincomesfortheaffiliatedcompanies(excludinginvestmentincome)for2011are:

Pablo $250,000

Abagia 70,000

Babin 100,000

Controllinginterestshareofconsolidatednetincomefor2011is

A)$304,000.

B)$324,000.

C)$344,000.

D)$364,000.

Answer:C

Explanation:C)

PabloAbagiaBabin

Separateincomes $250,000 $70,000 $100,000

Less:Unrealizedprofitonland (20,000) ________ ________

Separaterealizedincomes $230,000 $70,000 $100,000

AllocateBabin'sincome:

60%toPablo 60,000 (60,000)

20%toAbagia ________ 20,000(20,000)

Subtotal 290,000 90,000 20,000

AllocateAbagia'snetincome

60%toPablo 54,000 (54,000)

Controllinginterestshare

ofconsolidatednetincome $344,000 ________ ________

Noncontrollinginterestshare $36,000$20,000

Objective:LO1

Difficulty:Moderate

8)PagliaCorporationowns80%ofAburnCorporationandhasseparatenetincomeof$200,000for2010.AburnCorporationhasseparatenetincomeof$100,000andowns70%oftheoutstandingstockofBadleyCorporation.BadleyCorporationhasseparatenetincomeof$80,000.(Separatenetincomesexcludeinvestmentincome.)Thecostofeachinvestmentwasequaltobookvalueandfairvalue.Thecontrollinginterestshareofconsolidatednetincomefor2010is

A)$324,800.

B)$328,800.

C)$344,800.

D)$344,800.

Answer:A

Explanation:A)

PagliaAburnBadley

Separateincomes $200,000 $100,000 $80,000

AllocateBadley'sincome:

70%toAburn _______ 56,000(56,000)

Subtotal $200,000 $156,000 $24,000

AllocateAburn'sincome:

80%toPaglia 124,800(124,800) _______

Controllinginterestshare

ofconsolidatednetincome $324,800

Noncontrollinginterestshare $31,200$24,000

Objective:LO1

Difficulty:Moderate

Usethefollowinginformationtoanswerthequestion(s)below.

PaceCorporationowns70%ofAbazaCorporationand60%ofBabonCorporation.AbazaCorporationowns20%ofBabonCorporation.Pace'sinvestmentinAbazawasconsummatedinonetransactionatapurchaseprice$20,000inexcessofthebookvalue.Pace'spurchaseofBabonwasmadeinonetransactionataprice$30,000abovebookvalue.Abaza'sinvestmentinBabonwascompletedinonetransactionatapurchaseprice$10,000inexcessofthebookvalue.Thepurchasepricedifferentialforallthreeinvestmentswasattributabletogoodwill.(Therewerenofairvalue/bookvaluedifferencesinassetsandliabilitiesforeachinvestment.)Pace'sseparatenetincomeforthecurrentyearis$100,000.Abaza'sseparatenetincomeis$190,000,whichincludesa$10,000unrealizedlossonthesaleoflandtoPace.Babon'sseparatenetincomeis$150,000.Separatenetincomesexcludeinvestmentincome.

9)Thecontrollinginterestshareofconsolidatednetincomeforthecurrentyearis

A)$341,000.

B)$348,400.

C)$351,000.

D)$355,000.

Answer:C

Explanation:C)

PaceAbazaBabon

Separateincomes $100,000 $190,000 $150,000

Plus:Unrealizedlosson

landsaletoPace ________ 10,000 ________

Separaterealizedincomes $100,000 $200,000 $150,000

AllocateBabon'sincome:

60%toPace 90,000 (90,000)

20%toAbaza ________ 30,000(30,000)

Subtotal 190,000 230,000 30,000

AllocateAbaza'snetincome

toPace$230,000×70% 161,000 (161,000)

Controllinginterestshare

ofconsolidatednetincome $351,000 ________ ________

Noncontrollinginterestshare $69,000$30,000

Objective:LO1

Difficulty:Moderate

10)Theamountofnoncontrollinginterestshareforthecurrentyearis

A)$69,000.

B)$85,000.

C)$95,000.

D)$99,000.

Answer:D

Explanation:D)($69,000+30,000=$99,000)

Objective:LO1

Difficulty:Moderate

Usethefollowinginformationtoanswerthequestion(s)below.

PahmCorporationowns80%oftheoutstandingvotingcommonstockofAbussiCorporation,whichwaspurchasedfor$60,000overAbussi'sbookvalue.Theexcesspurchasepricewasattributabletogoodwill.AbussiCorporationowns60%oftheoutstandingcommonstockofBadockCorporation,whichwaspurchasedatbookvalue.TheseparatenetincomesofPahm,Abussi,andBadock(excludinginvestmentincome)fortheyearare$200,000,$240,000,and$260,000,respectively.Therewerenofairvalue/bookvaluedifferencesintheassetsandliabilitiesofPahm,AbussiandBadock.

11)Controllinginterestshareofconsolidatednetincomeforthecurrentyearis

A)$504,800.

B)$516,800.

C)$545,200.

D)$557,200.

Answer:B

Explanation:B)($200,000+(80%)×[$240,000+(60%)×(260,000)]=$516,800)

Objective:LO1

Difficulty:Moderate

12)TheamountofincomeforthecurrentyearassignedtothenoncontrollingshareholdersofBadockCorporationis

A)$100,000.

B)$104,000.

C)$120,000.

D)$140,000.

Answer:B

Explanation:B)(40%×$260,000=$104,000)

Objective:LO1

Difficulty:Moderate

13)TheamountofincomeforthecurrentyearassignedtothenoncontrollingshareholdersofAbussiCorporationis

A)$48,000.

B)$53,200.

C)$74,000.

D)$79,200.

Answer:D

Explanation:D)(20%×$240,000)+(20%×$156,000)=$79,200

PahmAbussiBadock

Separateincomes $200,000 $240,000 $260,000

AllocateBadock'sincome:

60%toAbussi ________ 156,000(156,000)

Subtotal $200,000 $396,000 $104,000

AllocateAbussi'snetincometo

Pahm$396,000×80% 316,800 (316,800)

Controllinginterestshare

ofconsolidatednetincome $516,800 ________ ________

Noncontrollinginterestshare $79,200$104,000

Objective:LO1

Difficulty:Moderate

14)ThenetincomereportedforPahmCorporationforthecurrentyearis

A)$504,800.

B)$516,800.

C)$545,200.

D)$557,200.

Answer:B

Explanation:B)Pahm'snetincomeisthesameasthecontrollinginterestshareofconsolidatednetincome.

Objective:LO2

Difficulty:Moderate

Usethefollowinginformationtoanswerthequestion(s)below.

PaivaCorporationowns80%ofAckroydCorporation'soutstandingcommonstockandAckroydowns80%oftheoutstandingcommonstockofBaileyCorporation.BaileyCorporationowns10%oftheoutstandingcommonstockofAckroydCorporation.Thecostoftheinvestmentswasequaltobookvalueandtherewerenotfairvalue/bookvaluedifferencesfortheinvestments.TheseparatenetincomesforthethreeaffiliatedcompaniesfortheyearendedDecember31,2011(excludinginvestmentincome)areasfollows:PaivaCorporation,$100,000,AckroydCorporation,$50,000,andBaileyCorporation,$30,000.Usetheconventionalapproach.

Symbolsused:

P=IncomeofPaivaonaconsolidatedbasis

A=IncomeofAckroydonaconsolidatedbasis

B=IncomeofBaileyonaconsolidatedbasis

15)Theequation,inasetofsimultaneousequations,thatcomputesPaivaCorporationincomeonaconsolidatedbasisis

A)P=$50,000+0.8B.

B)P=$30,000+0.2A.

C)P=$100,000+0.2A.

D)P=$100,000+0.8A.

Answer:D

Objective:LO1

Difficulty:Moderate

16)Ackroyd'snoncontrollinginterestsharefor2011is

A)$7,609.

B)$8,044.

C)$15,652.

D)$23,696.

Answer:B

Explanation:B)

P=$100,000+0.8A

A=$50,000+0.8B

B=$30,000+0.1A

A=$50,000+0.8×($30,000+0.1A)

A=$50,000+$24,000+0.08A

0.92A=$74,000

A=$80,435(rounded)

Noncontrollinginterestshare

Ackroyd:$80,435×10%outsideinterest $8,044

Objective:LO2

Difficulty:Moderate

17)Bailey'snoncontrollinginterestsharefor2011is

A)$7,609.

B)$8,044.

C)$15,652.

D)$23,696.

Answer:A

Explanation:A)(20%×$38,044)

Objective:LO2

Difficulty:Moderate

18)Whenmutually-heldstockinvolvessubsidiariesholdingthestockofeachother,the________methodisnotused.

A)equity

B)cost

C)conventional

D)treasurystock

Answer:D

Objective:LO2

Difficulty:Moderate

19)RaymondCompanyowns90%ofRachelCompany.RachelCompanyowns10%ofRaymondCompany.Thetreasurystockmethodisused.OnthebooksofRachelCompany,wemaintaintheInvestmentinRaymondusingthe________method.TheendingbalanceinInvestmentinRaymondis________stockholders'equityintheconsolidatedbalancesheet.

A)equity;deductedfrom

B)cost;deductedfrom

C)treasurystock;deductedfrom

D)conventional;addedto

Answer:B

Objective:LO2

Difficulty:Moderate

20)OnJanuary1,2012,PaulineCompanyacquired90%ofStephenCompanyatacostof$90,000.OnJanuary1,2012,StephenCompanyacquired10%ofPaulineCompanyatacostof$10,000.

OnJanuary1,2012,thefollowingdataisavailable:

StephenCompanyPaulineCompany

CommonStock $50,000 CommonStock $50,000

RetainedEarnings $50,000 RetainedEarnings $50,000

Assetsfairvalue $100,000 Assetsfairvalue $100,000

Assetsbookvalue $100,000 Assetsbookvalue $100,000

Liabilities $0 Liabilities $0

AtDecember31,2012,thefollowingdataisavailable:

January1,2012December31,2012

OnPaulineBooks:

InvestmentinStephen $90,000 $105,000

OnStephenBooks:

InvestmentinPauline $10,000 $10,000

Assumingthetreasurystockmethodisused,whateliminationentryisneededfortheInvestmentinPaulineatDecember31,2012?

A)

Retainedearnings

5,000

Commonstock

5,000

InvestmentinPauline

10,000

B)

InvestmentinStephen

10,000

InvestmentinPauline

10,000

C)

IncomefromPauline

10,000

InvestmentinPauline

10,000

D)

Treasurystock

10,000

InvestmentinPauline

10,000

Answer:D

Objective:LO2

Difficulty:Moderate

Exercises

1)PaiceCorporationowns80%ofthevotingcommonstockofAccardiCorporation.Paiceowns60%ofthevotingcommonstockofBadgerCorporation.Accardiowns20%ofthevotingcommonstockofBadger.Therearenocost/bookvalue/fairvaluedifferentialstoconsider.Theseparatenetincomes(excludinginvestmentincome)oftheseaffiliatedcompaniesfor2011are:

Paice $300,000

Accardi 160,000

Badger 120,000

Required:

CalculatecontrollinginterestshareofconsolidatednetincomeandnoncontrollinginterestsharesforPaiceCorporationandSubsidiariesfor2011.

Answer:

PaiceCorporationandSubsidiaries

IncomeAllocationSchedule

Fortheyear2011

PaiceAccardiBadger

Separateearnings $300,000 $160,000 $120,000

AllocateBadger'sincome:

60%toPaice 72,000 (72,000)

20%toAccardi ________ 24,000(24,000)

Subtotal $372,000 $184,000 $24,000

AllocateAccardi'sincome:

80%toPaice 147,200 (147,200)

Controllinginterestshare

ofconsolidatednetincome $519,200 ________ ________

Noncontrollinginterestshare $36,800$24,000

Objective:LO1

Difficulty:Moderate

2)PaciniCorporationownsan80%interestinAbdooCorporation,acquiredonJanuary1,2010for$700,000whenAbdoo'sstockholders'equityconsistedof$600,000ofCapitalStockand$200,000ofRetainedEarnings.

AbdooCorporationacquireda60%interestinBachCorporationonJuly1,2010for$180,000whenBachhadCapitalStockof$200,000andRetainedEarningsof$50,000.OnJanuary1,2011,Abdooacquireda70%interestinCaboCorporationfor$270,000whenCabohadCapitalStockof$250,000andRetainedEarningsof$100,000.

Nochangeinoutstandingstockofanyoftheaffiliatedcompanieshasoccurredsincetheinvestmentsweremade.Allcost-bookvaluedifferentialsaregoodwill.Therearenofairvalue/bookvaluedifferentials.Thestockholders'equitysectionoftheseparatebalancesheetsofAbdoo,Bach,andCaboatDecember31,2011areasfollows:

AbdooBachCabo

CapitalStock $600,000 $200,000 $250,000

RetainedEarnings 280,000140,000130,000

Totalstockholders'equity $880,000$340,000$380,000

Required:

1.ComputetheamountatwhichgoodwillshouldbeshownintheconsolidatedbalancesheetofPaciniCorporationandSubsidiariesatDecember31,2011.

2.PaciniandAbdoohaveappliedtheequitymethodcorrectly.DeterminethebalancesofthethreeinvestmentaccountsatDecember31,2011.

Answer:

Requirement1

Pacini'sinvestmentinAbdoo:

Impliedfairvalue($700,000/0.8) $875,000

Totalstockholders'equity 800,000

Goodwill $75,000

Abdoo'sinvestmentinBach:

Impliedfairvalue($180,000/0.6) $300,000

Totalstockholders'equity 250,000

Goodwill $50,000

Abdoo'sinvestmentinCabo:

Impliedfairvalue($270,000/0.7) $385,714

Totalstockholders'equity 350,000

Goodwill $35,714

TotalGoodwill($35,714+$75,000+$50,000) $160,714

Requirement2

PaciniAbdoo'sbooks

Equity Equity Equity

inAbdooinBachinCabo

Investmentcost $700,000 180,000 $270,000

Investors'shareofequity

sinceacquisition:

Abdoo:($80,000×80%) 64,000

Bach:($90,000×60%) 54,000

Cabo:($30,000×70%) 21,000

Investmentaccountbalance $764,000234,000$291,000

Objective:LO1

Difficulty:Moderate

3)PaikCorporationowns80%ofAcdolCorporationand60%ofBenCorporation.AcdolCorporationowns10%ofBenCorporation.Allsubsidiaryinvestmentswereacquiredatbookvalue.Therearenofairvalue/bookvaluedifferentialsassociatedwitheachinvestment.Separatenetincomes(excludinginvestmentincome)oftheaffiliatedcompaniesfor2011are:

Paik: $600,000whichincludes$60,000unrealizedlossesoninventoryitemssoldtoBen

Acdol: $360,000

Ben: $340,000whichincludes$100,000unrealizedprofitonlandsoldtoAcdol

Required:

DeterminecontrollinginterestshareofconsolidatednetincomeandnoncontrollinginterestsharesforPaikCorporationandSubsidiariesfor2011.

Answer:

PaikAcdolBen

Separateincomes $600,000 $360,000 $340,000

Plus:Unrealizedlosson

inventorysalestoBen 60,000

Less:Unrealizedprofits

onlandsoldtoAcdol ________ ________ (100,000)

Separaterealizedincomes 660,000 360,000 240,000

AllocateBen:

60%toPaik 144,000 (144,000)

10%toAcdol ________ 24,000(24,000)

Subtotal $804,000 $384,000 $72,000

AllocateAcdol:

80%toPaik 307,200(307,200) ________

Controllinginterestshare

ofconsolidatednetincome $1,111,200

Noncontrollinginterestshare $76,800$72,000

Objective:LO1

Difficulty:Moderate

4)PackerCorporationowns100%ofAbelCorporation,AbelCorporationowns95%ofBaconCorporationandBaconCorporationowns80%ofCabCorporation.Theseparatenetincomes(excludinginvestmentincome)ofPacker,Abel,Bacon,andCabare$300,000,$100,000,$200,000,and$300,000,respectively.Alloftheinvestmentsweremadeattimeswhentheinvestee'sbookvalueswereequaltotheirfairvalues.Therewerenocost/bookvaluedifferentialsforeachinvestment.

Required:

DeterminethecontrollinginterestshareofconsolidatednetincomeandnoncontrollinginterestsharesforPackerCorporationandSubsidiariesforthecurrentyear.

Answer: PackerAbelBaconCab

Separateincomes $300,000 $100,000 $200,000 $300,000

AllocateCab'sincome:

80%toBacon ________ ________ 240,000(240,000)

Subtotal 300,000 100,000 440,000 60,000

AllocateBacon'sincome:

95%toAbel ________ 418,000(418,000)

Subtotal 300,000 518,000 22,000 60,000

AllocateAbel'sincome:

100%toPacker 518,000 (518,000)

Controllinginterest

shareofconsolidated

netincome $818,000 ________ ________ ________

Noncontrollinginterest

share $0$22,000$60,000

Objective:LO1

Difficulty:Moderate

5)OnJanuary1,2011PakiInc.bought75%interestinAdamCorporation.Atthetimeofpurchase,Adamowned80%ofBairdCompany.Inallacquisitions,thebookvalueequalsthefairvalue,whichequalstheacquisitioncost.Separateearnings(loss)(excludinginvestmentincome)forthethreeaffiliatesfor2011areasfollows:

Separate

Earnings(Loss)Dividends

PakiCompany $400,000 $150,000

AdamInc (50,000) 90,000

BairdCompany 100,000 35,000

Required:

ComputecontrollinginterestshareofconsolidatednetincomeandnoncontrollinginterestsharesforPakiandaffiliatesfor2011.

Answer:

PakiAdamBaird

Separateincomes $400,000 $(50,000) $100,000

AllocateBaird80% ________ 80,000(80,000)

Subtotal $400,000 $30,000 $20,000

AllocateAdam75% 22,500(22,500)

Controllinginterestshare

ofconsolidatednet

income $422,500

Noncontrollinginterestshare $7,500$20,000

NoncontrollinginterestshareinBaird $20,000

NoncontrollinginterestshareinAdam 7,500

Noncontrollinginterestshares $27,500

Objective:LO1

Difficulty:Moderate

6)PacoCorporationowns90%ofAberCorporation,AberCorporationowns85%ofBackCorporation,andBackCorporationowns5%ofAberCorporation.Theseparatenetincomes(excludinginvestmentincome)ofPaco,Aber,andBackare$100,000,$40,000,and$55,000,respectively.Assumetheinvestmentswereacquiredatacostequaltothebookvalueofeachinvestment,whichalsoequalsthefairvalue.

Required:

1.CalculaterevisednetincomesforPaco,Aber,andBackbyusingtheconventionalmethod.

2.Determinethecontrollinginterestshareofconsolidatednetincomeandthenoncontrollinginterestshares.

Answer:

Requirement1

Paco$181,541

Aber$90,601

Back$59,530

Requirement2

Controllinginterestshareofconsolidatednetincome= $181,541

Noncontrollinginterestshare(inAber)$90,601×5%= $4,530

Noncontrollinginterestshare(inBack)$59,530×15%=$8,929

Totalconsolidatednetincome $195,000

Check:Totalseparateincome=$100,000+$40,000+$55,000=$195,000

Equations:

P=IncomeofPacoonaconsolidatedbasis

A=IncomeofAberonaconsolidatedbasis

B=IncomeofBackonaconsolidatedbasis

P=$100,000+0.90A

A=$40,000+0.85B

B=$55,000+0.05A

A=$40,000+(0.85)×($55,000+0.05A)

A=$40,000+$46,750+0.0425A

A=$90,601

B=$55,000+(0.05)×($90,601)

B=$59,530

P=$100,000+(0.9)×($90,601)

P=$100,000+$81,541

P=$181,541

Objective:LO2

Difficulty:Moderate

7)PaineCorporationowns90%ofAchanCorporation,AchanCorporationowns85%ofBadgeCorporation,andBadgeCorporationowns5%ofAchanCorporation.Theseparatenetincomes(excludinginvestmentincome)ofPaine,Achan,andBadgeare$400,000,$160,000,and$220,000,respectively.Assumetheinvestmentswereacquiredatacostequaltothebookvalueofeachinvestment,whichalsoequalsthefairvalue.

Required:

1.CalculaterevisednetincomesforPaine,Achan,andBadgebyusingtheconventionalmethod.

2.Determinethecontrollinginterestshareofconsolidatednetincomeandthenoncontrollinginterestshares.

Answer:

Equations:

P=IncomeofPaineonaconsolidatedbasis

A=IncomeofAchanonaconsolidatedbasis

B=IncomeofBadgeonaconsolidatedbasis

P=$400,000+0.90A

A=$160,000+0.85B

B=$220,000+0.05A

A=$160,000+0.85×($220,000+0.05A)

A=$160,000+$187,000+0.0425A

0.9575A=$347,000

A=$362,402

B=$220,000+0.05($362,402)=$238,120

P=$400,000+0.9($362,402)=$726,162

Requirement1

Paine $726,162

Achan $362,402

Badge $238,120

Requirement2

Controllinginterestshareinconsolidatednetincome $726,162

Noncontrollinginterestshare(fromAchan)($362,402×5%) 18,120

Noncontrollinginterestshare(fromBadge)($238,120×15%) 35,718

Totalconsolidatednetincome $780,000

Check:Totalseparateincome=$400,000+$160,000+$220,000=$780,000

Objective:LO2

Difficulty:Moderate

8)Separateearningsandinvestmentpercentagesforthreeaffiliatesfor2011areasfollows:

Separate PercentageInterest PercentageInterest

EarningsinAcresinBain

PalaceCompany $450,000 80%

AcresInc 200,000 70%

BainCorporation 160,000 10%

Assumetheinvestmentswereacquiredatacostequaltothebookvalueofeachinvestment,whichalsoequalsthefairvalue.Separateearningsdonotincludeinvestmentincome.

Required:

1.CalculaterevisednetincomesforPalace,Acres,andBainbyusingtheconventionalmethod.

2.Determinethecontrollinginterestshareofconsolidatednetincomeandthenoncontrollinginterestshares.

Answer:

Requirement1

Equations:

P=IncomeofPalaceonaconsolidatedbasis

A=IncomeofAcresonaconsolidatedbasis

B=IncomeofBainonaconsolidatedbasis

P=$450,000+0.8A

A=$200,000+0.7B

B=$160,000+0.1A

Computations:

A=$200,000+0.7($160,000+0.1A)

A=$200,000+$112,000+0.07A

0.93A=$312,000

A=$335,484

P=$450,000+0.8×($335,484)

P=$450,000+$268,387

P=$718,387

B=$160,000+0.1($335,484)

B=$193,548

Palace=$718,387

Acres=$335,484

Bain=$193,548

Requirement2

Controllinginterestshareofconsolidatednetincome $718,387

Noncontrollinginterestshare(inAcres)(10%×$335,484) 33,548

Noncontrollinginterestshare(inBain)(30%×$193,548) 58,064

Totalconsolidatednetincome $809,999

Check:

Totalseparatenetincome($450,000+$200,000+$160,000) $810,000

Objective:LO2

Difficulty:Moderate

9)PadhyCorporationowns80%ofAbramsCorporation,AbramsCorporationowns60%ofBacudCorporation,andBacudCorporationowns10%ofAbramsCorporation.Theseparatenetincomes(excludinginvestmentincome)ofPadhy,Abrams,andBacudare$300,000,$100,000,and$80,000,respectively.Assumetheinvestmentswereacquiredatacostequaltothebookvalueofeachinvestment,whichalsoequalsthefairvalue.

Required:

CalculatethecontrollinginterestshareofconsolidatednetincomeandthenoncontrollinginterestsharesforPadhyCorporationanditssubsidiaries.Usetheconventionalmethodforyoursolution.

Answer:

Requirement1

Equations:

P=IncomeofPadhyonaconsolidatedbasis

A=IncomeofAbramsonaconsolidatedbasis

B=IncomeofBacudonaconsolidatedbasis

P=$300,000+0.8A

A=$100,000+0.6B

B=$80,000+0.1A

Computations:

A=$100,000+0.6($80,000+0.1A)

A=$100,000+$48,000+0.06A

0.94A=$148,000

A=$157,447

B=$80,000+0.1($157,447)=$95,745

P=$300,000+0.8($157,447)=$425,958

Padhy$425,958

Abrams$157,447

Bacud$95,745

Requirement2

Controllinginterestshareofconsolidatednetincome $425,958

Noncontrollinginterestshare(forAbrams)(10%×$157,447) 15,745

Noncontrollinginterestshare(forBacud)(40%×$95,745) 38,298

Totalconsolidatednetincome $480,001

Check:

Totalseparatenetincome($300,000+$100,000+$80,000) $480,000

Objective:LO2

Difficulty:Moderate

10)OnJanuary1,2011,WrobelCompanyacquireda90percentinterestinSallyCompanyfor$270,000.OnJanuary1,2011,Sally'stotalstockholders'equitywas$300,000.ThefairvalueandbookvalueofSally'sindividualassetsandliabilitieswereequal.

OnJanuary2,2011,SallyCompanyacquireda10percentinterestinWrobelCompanyfor$70,000.OnJanuary2,2011,Wrobel'stotalstockholders'equitywas$700,000.ThefairvalueandbookvalueofWrobel'sindividualassetsandliabilitieswereequal.

FortheyearendingDecember31,2011,thefollowingdataisavailable:

NetincomeDividends

WrobelCompany $50,000 $0

SallyCompany $30,000 $0

ThetreasurystockmethodisusedtoaccountforthemutualstockholdingsbetweenWrobelandSal