Solution to Exercises E5-3 Consolidation entries with Differential a Equity Method Entries on Private Corp.'s Books: 49,200 Investment in Secret Co. Cash 49,200 Record the initial investment in Secret Co. Book Value Calculations: NCI 40% Book value at acquisition 22,800 Private Corp. 60% Common Stock Retained Earnings 34,200 20,000 37,000 6/10/X8 Goodwill = 0 Identifiable Excess = 15,000 $49,200 Initial investment in Secret Corp. 60% Book value = 34,200 Basic consolidation entry Common Stock Retained Earnings Investment in Secret Co. NCI in NA of Secret Co. 20,000 37,000 34,200 22,800 Excess Value (Differential) Calculations: NCI 40% Beginning balances 10,000 + Private Corp. 60% 15,000 = Inventory 5,000 Buildings & Equipment 20,000 Excess Value (Differential) Reclassification Entry: Inventory 5,000 Buildings & Equipment 20,000 1 Investment in Secret Co. NCI in NA of Secret Co. 15,000 10,000 E5-3 (continued) Investment in Secret Co. Acquisition Price 49,200 34,200 15,000 Basic Excess Reclass. 0 b. Journal entries used to record transactions, adjust account balances, and close income and revenue accounts at the end of the period are recorded in the company's books and change the reported balances. On the other hand, consolidating entries are entered only in the consolidation worksheet to facilitate the preparation of consolidated financial statements. As a result, they do not change the balances recorded in the company's accounts and must be reentered each time a consolidation worksheet is prepared