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Student Name: Class: Problem 07-25 Calculation of deferred gains in beginning and ending inventory: Beginning unrealized gain (Wilson) January 1, 2011 Inventory Balance Transfer price Markup Cost Unrealized gain Ending unrealized gain (Wilson) December 31, 2011 Inventory Balance Transfer price Markup Cost Unrealized gain a. Consolidation entries Retained Earnings, 1/1/11 (Wilson) Cost of Goods Sold (To recognize income on intra-entity inventory transfers made in previous year but not resold until current year.) Retained earnings, 1/1/11 (House) Investment in Wilson Company (To convert investment account from partial equity method to equity method.) Common stock (Cuddy) Retained earnings, 1/1/11 (Cuddy) Investment in Cuddy Company Noncontrolling interest in Cuddy Common Stk. (To eliminate Cuddy's stockholders' equity against the corresponding investment balance and to recognize noncontrolling interest on common stock.) Common stock (Wilson) Retained earnings, 1/1/11 (Wilson) Investment in Wilson Company Noncontrolling interest in Wilson (To eliminate Wilson's stockholders' equity against corresponding investment balance and to recognize noncontrolling interest.) Buildings Franchise Contracts Goodwill Equipment Investment in Wilson Noncontrolling interest in Wilson (To allocate excess payment made in connection with purchase of Wilson. Student Name: Class: Problem 07-25 Income of Cuddy Company Investment in Cuddy Company (To eliminate intra-entity income accrued by both House and Wilson during the year.) Income of Wilson Investment in Wilson (To eliminate intra-entity income accrued by House during the year.) Investment in Cuddy Dividends Paid (To eliminate effects of intra-entity dividend payments.) Investment in Wilson Dividends Paid (Wilson) (To eliminate effects of intra-entity dividend payments.) Operating Expenses Equipment Franchise Contracts Buildings (To record 2011 amortization on excess payment made in connection with acquisition of Wilson Company. Sales and Other Revenues Cost of Goods Sold (To eliminate intra-entity inventory sales for the current year.) Cost of Goods Sold Inventory (To defer unrealized gain in ending inventory.) Noncontrolling Interest in Net Income of Cuddy's Reported net income Outside ownership Noncontrolling interest in Cuddy income - common Noncontrolling Interest in Net Income of Wilson Reported operational income Equity income of Cuddy Excess amortization Recognition of 2010 gain Deferral of 2011 unrealized gain Realized income Outside ownership Noncontrolling interest in net income of Wilson Student Name: Class: Problem 07-25 HOUSE CORPORATION AND CONSOLIDATED SUBSIDIARIES Consolidation Worksheet December 31, 2011 NonHouse Accounts Sales and other revenue Wilson Cuddy Corporation Company Consolidation Entries Company Debit (900,000) (700,000) (300,000) Cost of goods sold 551,000 300,000 140,000 Operating expenses 219,000 270,000 90,000 Income of Wilson Company (91,000) - - Income of Cuddy Company (28,000) (28,000) (249,000) (158,000) Net Income (70,000) Consolidated net income Noncontrolling interest in Wilson net income Noncontrolling interest in Cuddy net income To House Corporation Retained earnings, 1/1/11 --House Corporation (820,000) --Wilson Company (590,000) --Cuddy Company Net Income (150,000) (249,000) (158,000) (70,000) Dividends paid --House Corporation 100,000 --Wilson Company 96,000 --Cuddy Company Retained earnings, 12/31/11 50,000 (969,000) (652,000) (170,000) Cash and receivables 220,000 334,000 67,000 Inventory 390,200 320,000 103,000 Investment in Wilson Company 807,800 Investment in Cuddy Company 128,000 128,000 Buildings 385,000 320,000 144,000 Equipment 310,000 130,000 88,000 Land 180,000 300,000 16,000 2,421,000 1,532,000 418,000 (632,000) (570,000) (98,000) (820,000) (310,000) (150,000) (969,000) (652,000) (170,000) (2,421,000) (1,532,000) (418,000) Goodwill Franchise Contracts Total assets Liabilities Noncontrolling interest in Cuddy Noncontrolling interest in Wilson Noncontrolling interest in subsidiary companies Common stock Retained earnings Total liabilities and equity Parentheses indicate a credit balance. controlling Credit Consolidated Interest Totals Given P07-25: House Corporation purchased ownership in Wilson Company 70% Acquisition date fair value allocation schedule: Consideration transferred for 70% interest in Wilson Fair value of the 30% noncontrollong interest Wilson business fair value Wilson book value Excess fair value over book value Assignments to adjust Wilson's assets to fair value: To buildings (20-year life) To equipment (4-year life) To franchises (10-year life) To goodwill (indefinite life) $ 707,000 303,000 $ 1,010,000 790,000 $ 220,000 $ 60,000 (20,000) 40,000 $ $ House regularly acquired inventory from Wilson at cost plus markup Year 2011 2012 80,000 140,000 25% Intercompany Purchases $ 120,000 150,000 House and Wilson acquire outstanding stock of Cuddy Company Total price of Cuddy shares Share House and Wilson paid of purchase price Additional inventory acquired from Wilson in 2013 Merchandise still held at year's end Retained Intercompany Inventory - End of Year $ 40,000 60,000 $ $ 80% 240,000 50% 200,000 45% Given P07-25: Sales and other revenues Cost of goods sold Operating expenses Income of Wilson Company Income of Cuddy Company Net income Retained earnings, 1/1/13 Net income Dividends paid Retained earnings, 12/31/13 Cash and receivables Inventory Investment in Wilson Company Investment in Cuddy Company Buildings Equipment Land Total assets Liabilities Common stock Retained earnings, 12/31/11 Total liabilities and equity House Wilson Cuddy Corporation Company Company 12/31/2013 12/31/2013 12/31/2013 $ (900,000) $ (700,000) $ (300,000) 551,000 300,000 140,000 219,000 270,000 90,000 (91,000) (28,000) (28,000) $ (249,000) $ (158,000) $ (70,000) $ $ (820,000) $ (249,000) 100,000 (969,000) $ $ $ 220,000 390,200 807,800 128,000 385,000 310,000 180,000 $ 2,421,000 $ (632,000) (820,000) (969,000) $ (2,421,000) (590,000) $ (158,000) 96,000 (652,000) $ 334,000 320,000 128,000 320,000 130,000 300,000 $ 1,532,000 $ (570,000) (310,000) (652,000) $ (1,532,000) $ $ $ $ (150,000) (70,000) 50,000 (170,000) 67,000 103,000 144,000 88,000 16,000 418,000 (98,000) (150,000) (170,000) (418,000)