Chapter 09 Indirect and Mutual Holdings
Chapter 09 Indirect and Mutual Holdings
LO1
2.
$808,000.
$848,000.
$920,000.
$960,000.
LO1
3.
LO1
4.
LO1
5.
LO1
6.
$9,000.
$10,000.
$20,000.
$40,000.
$18,000.
$25,200.
$36,200.
$72,000.
$234,000.
$244,800.
$260,000.
$270,000.
$180,000
72,000
(30,000)
LO1
7.
$250,000
70,000
100,000
$304,000.
$324,000.
$344,000.
$364,000.
LO1
10.
$324,800.
$328,800.
$344,800.
$344,800.
Use the following information for Questions 11, 12, and 13.
Pace Corporation owns 70% of Abaza Corporation and 60% of Babon
Corporation. Abaza Corporation owns 20% of Babon Corporation. Paces
investment in Abaza was consummated in one transaction at a purchase
price $20,000 in excess of the book value. Paces purchase of Babon
was made in one transaction at a price $30,000 above book value.
Abazas investment in Babon was completed in one transaction at a
purchase price $10,000 in excess of the book value. The purchase
price differential for all three investments was attributable to
goodwill. Paces separate income for the current year is $100,000.
Abazas separate income is $190,000, which includes a $10,000
unrealized loss on the sale of land to Pace. Babons separate income
is $150,000.
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11.
The amount of consolidated net income for Pace Corporation and
Abaza for the current year is
LO1
12.
LO1
13.
a.
b.
c.
d.
$341,000.
$348,400.
$351,000.
$355,000.
$69,000.
$85,000.
$95,000.
$99,000.
$50,000.
$52,000.
$58,000.
$60,000.
2009 Pearson Education, Inc. publishing as Prentice Hall
9-4
LO1
15.
LO1
16.
LO1
17.
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18.
a.
b.
c.
d.
$504,800.
$516,200.
$545,200.
$557,200.
$100,000.
$104,000.
$120,000.
$140,000.
$48,000.
$53,200.
$74,000.
$79,200.
$142,800.
$154,800.
$183,200.
$195,200.
$504,800.
$516,800.
$545,200.
$557,200.
2009 Pearson Education, Inc. publishing as Prentice Hall
9-5
LO2
19.
LO2
20.
Notations for
P = Income of
A = Income of
B = Income of
question 19 are:
Paiva on a consolidated basis
Ackroyd on a consolidated basis
Bailey on a consolidated basis
P
P
P
P
=
=
=
=
$50,000 + .8B.
$30,000 + .2A.
$100,000 + .2A.
$100,000 + .8A.
Ackroyds noncontrolling
income for 2005 is
a.
b.
c.
d.
interest
in
the
total
consolidated
$ 7,609.
$ 8,044.
$15,652.
$23,696.
LO1
Exercise 1
Paice Corporation owns 80% of the voting common stock of Accardi
Corporation and 60% of the voting common stock of Badger Corporation.
Accardi owns 20% of the voting common stock of Badger. There are no
cost-book differentials to consider. The separate incomes of these
affiliated companies for 2005 are:
Paice
Accardi
Badger
$300,000
160,000
120,000
Required:
Calculate
consolidated
Subsidiaries for 2005.
net
income
for
Paice
Corporation
and
LO1
Exercise 2
Pacini Corporation owns an 80% interest in Abdoo Corporation,
acquired on January 1, 2004 for $700,000 when Abdoos stockholders
equity consisted of $600,000 of Capital Stock and $200,000 of
Retained Earnings.
Abdoo Corporation acquired a 60% interest in Bach Corporation on July
1, 2004 for $180,000 when Bach had Capital Stock of $200,000 and
Retained Earnings of $50,000. On January 1, 2005, Abdoo acquired a
70% interest in Cabo Corporation for $270,000 when Cabo had Capital
Stock of $250,000 and Retained Earnings of $100,000.
No change in outstanding stock of any of the affiliated companies has
occurred since the investments were made. All cost-book differentials
are goodwill. The stockholders equity section of the separate
balance sheets of Abdoo, Bach, and Cabo at December 31, 2005 are as
follows:
Capital Stock
Retained Earnings
Total stockholders equity
$
$
Abdoo
600,000
280,000
880,000
$
$
Bach
200,000
140,000
340,000
$
$
Cabo
250,000
130,000
380,000
Required:
1. Compute the amount at which goodwill should be shown in the
consolidated
balance
sheet
of
Pacini
Corporation
and
Subsidiaries at December 31, 2005.
2. Pacini and Abdoo have applied
Determine the balances of the
December 31, 2005.
LO1
Exercise 3
Paik Corporation owns 80% of Acdol Corporation and 60% of
Corporation.
Acdol Corporation owns 10% of Ben Corporation.
subsidiary investments were acquired at book value equal to
value. Separate incomes (excluding investment income) of
affiliated companies for 2005 are:
Paik:
Ben
All
fair
the
Acdol: $360,000
Ben:
Required:
Determine consolidated net income and noncontrolling interest expense
for Paik Corporation and Subsidiaries for 2005.
LO1
Exercise 4
Packer Corporation owns 100% of Abel Corporation, Abel Corporation
owns 95% of Bacon Corporation and Bacon Corporation owns 80% of Cab
Corporation. The separate incomes of Packer, Abel, Bacon, and Cab are
$300,000, $100,000, $200,000, and $300,000, respectively. All of the
investments were made at times when the investees book values were
equal to their fair values.
Required:
Determine the consolidated net income and noncontrolling interest
expense for Packer Corporation and Subsidiaries for the current year.
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Exercise 5
On January 1, 2005 Paki Inc. bought 75% interest in Adam Corporation.
At the time of purchase, Adam owned 80% of Baird Company and 10% of
Castle Corporation.
In all acquisitions the book value equals the
fair value. Separate earnings for the three affiliates for 2005 are
as follows:
Paki Company
Adam Inc
Baird Company
Castle Company
Separate
Earnings
$400,000
(50,000 )
100,000
225,000
Dividends
$150,000
90,000
35,000
80,000
Required:
Compute consolidated net income and noncontrolling interest expense
for Paki for 2005.
LO2
Exercise 6
Paco Corporation owns 90% of Aber Corporation, Aber Corporation owns
85% of Back Corporation, and Back Corporation owns 5% of Aber
Corporation. The separate incomes (excluding investment income), of
Paco,
Aber,
and
Back
are
$100,000,
$40,000,
and
$55,000,
respectively.
Required:
Calculate revised net incomes for Paco, Aber, and Back by including
the correct amount of investment income for each company. Use the
conventional method for your solution.
LO2
Exercise 7
Paine Corporation owns 90% of Achan Corporation, Achan Corporation
owns 85% of Badge Corporation, and Badge Corporation owns 5% of Achan
Corporation. The separate incomes (excluding investment income), of
Paine, Achan, and Badge are $400,000, $160,000, and $220,000,
respectively.
Required:
Calculate the consolidated net income for Paine Corporation and its
subsidiaries, Achan, and Badge. Use the treasury stock method for
your solution.
LO2
Exercise 8
Separate earnings and investment percentages for the three affiliates
for 2005 are as follows:
Separate
Earnings
Palace Company
Acres Inc
Bain Corporation
450,000
200,000
160,000
Percentage
Interest in
Acres
80%
10%
Percentage
Interest
in Bain
70%
Required:
Compute consolidated net income for Palace for 2005.
LO2
Exercise 9
Padhy Corporation owns 80% of Abrams Corporation, Abrams Corporation
owns 60% of Bacud Corporation, and Bacud Corporation owns 10% of
Padhy Corporation. The separate incomes (excluding investment
income), of Padhy, Abrams, and Bacud are $300,000, $100,000, and
$80,000, respectively.
Required:
Calculate the consolidated net income for Padhy Corporation and its
subsidiaries, Abrams and Bacud. Use the conventional method for your
solution.
LO2
Exercise 10
Padua Corporation owns 80% of Able Corporation, Able Corporation owns
60% of Baden Corporation, and Baden Corporation owns 10% of Padua
Corporation. The separate incomes (excluding investment income), of
Padua, Able, and Baden are $300,000, $100,000, and $80,000,
respectively.
Required:
Calculate the consolidated net income for Padua Corporation and its
subsidiaries, Able and Baden. Use the treasury stock method for your
solution.
SOLUTIONS
Multiple Choice Questions
1
Separate incomes
$
Allocate 70% of Bader to Ace
Allocate 60% of Ace to Page
Pages net income
Page
500,000
348,000
848,000
Noncontrolling interest
expense
Ace
300,000
280,000
(
348,000 )
280,000 )
232,000
120,000
Bader
400,000
10,000
25,200
10,000
25,200
36,200
270,000
36,200 )
234,800
Separate incomes
$
Less: Unrealized profit on
land
Subtotal
$
Allocate Babaos net loss to
Alders ($30,000) x 60%
Allocate 80% of Alders
income to Pabari
Consolidated net income
$
Pabari
180,000
180,000
(
$
12,000 )
60,000
18,000 )
33,600 )
33,600
213,600
Noncontrolling interest
expense
Alders
72,000
$(
Babao
30,000 )
$(
30,000 )
18,000
8,400
$(
(12,000 )
Abagia
70,000
Babin
100,000
20,000 )
230,000
$
70,000
100,000
20,000
(
(
60,000 )
20,000 )
20,000
Separate incomes
$
Less: Unrealized profit on
land
(
Separate realized incomes
$
Allocate Babins income:
60% to Pablo
20% to Abagia
Allocate Abagias net income
$90,000 x 60%
Pablo
250,000
60,000
54,000
54,000 )
36,000
344,000
10
Separate incomes
Allocate Badleys income:
70% to Aburn
Subtotal
Allocate Aburns income:
80% to Paglia
Consolidated net income
Paglia
200,000
Aburn
100,000
$
$
200,000
56,000
156,000
(
$
56,000 )
24,000
124,800
324,800
124,800 )
$
24,000
Noncontrolling interest
expense
11
32,200
Badley
80,000
Separate incomes
Plus: Unrealized loss on
land sale to Pace
Separate realized incomes
Allocate Babons income:
60% to Pace
20% to Abaza
Subtotal
Allocate Abazas net income
to Pace $230,000 x 70%
Pace
100,000
Abaza
190,000
Babon
150,000
100,000
10,000
200,000
150,000
90,000
30,000
230,000
190,000
161,000
(
(
90,000 )
30,000 )
30,000
30,000
161,000 )
351,000
Noncontrolling interest
expense
69,000
12
13
14
15
16
17
Separate incomes
Allocate Badocks income:
60% to Abussi
Subtotal
Allocate Abussis net income
to Pahm $396,000 x 80%
Pahm
200,000
Abussi
240,000
Badock
260,000
200,000
156,000
396,000
(
$
156,000 )
104,000
316,800
316,800 )
79 ,200
104,000
516,800
Noncontrolling interest
expense
18
19
20
is
the
same
as
the
8,044
P = $100,000 + .8A
A = $50,000 + .8B
B = $30,000 + .1P
Computations:
A = $50,000 + .8 x ($30,000 + .1A)
A = $50,000 + $24,000 + .08S
A = $80,435 (rounded)
Noncontrolling interest expense
Ackroyd: $80,435 x 10% outside interest
LO1
Exercise 1
Paice Corporation and Subsidiaries
Income Allocation Schedule
For the year 2005
Separate earnings
Allocate Badgers income:
60% to Paice
20% to Accardi
Subtotal
Allocate Accardis income:
80% to Paice
Consolidated net income
Paice
300,000
Accardi
160,000
$
(
(
$
72,000 )
24,000 )
24,000
24,000
72,000
$
372,000
24,000
184,000
147,200 )
147,200
519,200
Noncontrolling interest
expense
36,800
Badger
120,000
LO1
Exercise 2
Requirement 1:
Pacinis investment in Abdoo:
Goodwill at acquisition $700,000 cost
($800,000 x 80%) book value
$
60,000
30,000
Investment cost
Investors share of equity
since acquisition:
Abdoo: ($80,000 x 80%)
Bach: ($90,000 x 60%)
Cabo: ($30,000 x 70%)
Investment account balance
Pacini
Equity
in
Abdoo
700,000
25,000
115,000
Abdoos books
Equity
Equity
in Bach
in Cabo
$
64,000
$
764,000
180,000
270,000
21,000
291,000
54,000
$
234,000
LO1
Exercise 3
Separate incomes
Plus: Unrealized loss on
inventory sales to Ben
Less: Unrealized profits
on land sold to Acdol
Separate realized incomes
Allocate Ben:
60% to Paik
10% to Acdol
Subtotal
Allocate Acdol to Paik
Consolidated net income
Paik
600,000
Acdol
360,000
Ben
340,000
60,000
(
660,000
360,000
100,000 )
240,000
144,000
(
24,000
(
384,000
$
307,200 )
144,000 )
24,000 )
72,000
804,000
307,200
$ 1,111,200
Noncontrolling interest
expense
$
(
$
76,800
72,000
LO1
Exercise 4
Separate incomes
Allocate Cabs income:
80% to Bacon
Subtotal
Allocate Bacons income:
95% to Abel
Subtotal
Allocate Abels income:
100 to Packer
Consolidated net income
Noncontrolling interest
Packer
$300,000
Abel
$100,000
Bacon
$200,000
240,000
418,000
518,000
Cab
$300,000
(240,000)
$440,000
(418,000)
518,000
(518,000)
$818,000
$0
$22,000
$60,000
LO1
Exercise 5
Castle is not consolidated because the ownership percentage is less
than 20% and no evidence of control is given
Separate incomes
Allocate Baird 80%
Subtotal
Allocate Adam
Consolidated net
income
Paki
400,000
400,000
22,500
$
(
Adam
(50,000 )
80,000
30,000
22,500 )
422,500
$
7,500
Minority income
$
$
Baird
100,000
(80,000 )
20,000
20,000
$
$
20,000
7,500
27,500
LO2
Exercise 6
Equations:
P = Income of Paco on a consolidated basis
A = Income of Aber on a consolidated basis
B = Income of Back on a consolidated basis
P = $100,000 + .90A
A = $ 40,000 + .85B
B = $ 55,000 + .05A
Computations:
A = $40,000 + (.85)x($55,000 + .05A)
A = $40,000 + $46,750 + .0425A
A = $90,601
B = $55,000 + (.05)x($90,601)
B = $59,530
P = $100,000 + (.9)x($90,601)
P = $100,000 + $81,541
P = $181,541
LO2
Exercise 7
Equations:
P = Income of Paine on a consolidated basis
A = Income of Achan on a consolidated basis
A = $160,000 + (.85) x ($220,000)
A = $160,000 + $187,000
A = $347,000
P = $400,000 + (90/95) x ($347,000)
P = $400,000 + $328,737
P = $728,737
LO2
Exercise 8
Equations:
P = Income of Palace on a consolidated basis
A = Income of Acres on a consolidated basis
B = Income of Bain on a consolidated basis
P = $450,000 + .8A
A = $200,000 + .7B
B = $160,000 + .1A
Computations:
A
A
A
P
P
P
=
=
=
=
=
=
$200,000
$200,000
$335,484
$450,000
$450,000
$718,387
+ (.7)x($160,000 + .1A)
+ $112,000 + .07A
+ (.8)x($335,484)
+ $268,387
LO2
Exercise 9
Equations:
P = Income of Padhy on a consolidated basis
A = Income of Abrams on a consolidated basis
B = Income of Bacud on a consolidated basis
P = $300,000 + .8A
A = $100,000 + .6B
B = $ 80,000 + .1P
Computations:
P
P
P
P
P
=
=
=
=
=
$300,000
$300,000
$300,000
$380,000
$439,496
+
+
+
+
(.8)x($100,000 + .6B)
$80,000 + .48B
$80,000 + (.48)x($80,000 + .1P)
$38,400 + .048P
LO2
Exercise 10
Equations:
P = Income of Padua on a consolidated basis
A = Income of Able on a consolidated basis
A = $100,000 + (.6) x ($80,000)
A = $100,000 + $48,000
A = $148,000
P = $300,000 + (.8) x ($148,000)]
P = $300,000 + $118,400
P = $418,400