Please see the attached problem. An example solution has also been attached. Please also reference the "Final Project Tips" for helpful information.
Problem CONSOLIDATION WORKSHEET PROBLEMColker Prepare the corresponding consolidating worksheets based on the following facts. Companies involved: Parent and Sub. Date of acquisition:Jan. 1,20X3 Date of the worksheets you must prepare: December 31,20X4 "20X5 "20X6 Percentage of common shares of S owned by P80% Price paid by P$ 1,800,000 At the time of acquisition these were some values concerning S: Common stock$ 300,000 Aditional paid-in capital$ 300,000 Retained earnings$ 198,000 YearsFMV-BV Inventories<1 $="" 240,000="" other="" current="" assets=""><1$ 90,000 plant & equipment, remaining life:8$ 600,000 land$ 420,000 long term liabilities; remaining life:10$ 90,000 intangibles amortization:10 intercompany transactions: 20x320x420x520x6 upstream inventory sales-$ 45,000$ 38,250$ 40,928 % in ending inventory-8.00%9.60%11.52% gross profit rate on sales-40.00%48.00%57.60% upstream building sale, dec. 31 sold for$ 600,000 book value at time of sale$ 216,000 remaining life:10 % of s bonds purchased by p, jan. 130% price paid$ 272,768 bv at that date$ 278,415 remaining life:5 maturity value of acquired bonds$ 270,000 required: 1. complete the worksheets for 20x4-6. author: excess of fmv of sub's assets and liabilities over their bv when parent acquired sub. author: when p acquired s, the fair value (i.e., present value) of these liabilities was less than their book value. wksheets consolidation worksheet problem consolidation working papers -- year ended december 31,20x3colker parentsubsidiaryadjusts. and elims.cons. income statement sales6,000,0003,000,0009,000,000reconciliation: investment to s's equitybonds income from s291,115291,115--issuer's facts:acquirer's facts: cost of goods sold(4,200,000)(1,710,000)240,000(6,150,000)investment, 12/3120x31,941,529acquired jan.20x5 operating expenses(900,000)(450,000)175,200(1,525,200)removal of unamortized differential:% acquired30% interest expense(60,906)(60,906)initialamortiz.face value900,000face value270,000 non-contr. interest income72,779(72,779)inventories(192,000)192,000-stated rate7.25%stated rate7.25% net income1,191,115779,0941,191,115other current assets(72,000)72,000-effective rate6.50%effective rate7.00% plant & equipment(480,000)60,000(420,000)interest pmts.65,250interest pmts.19,575 retained earningsland(336,000)-(336,000)bonds life10bonds life5 retained earnings--p, 1/1/x32,100,0002,100,000l. t. liabilities(72,000)7,200(64,800) retained earnings--s, 1/1/x3198,000198,000intangibles(9,600)960(8,640)at issuance:at bond purchase: net income1,191,115779,0941,191,115unamortized differential(829,440)pv of principal$479,453pv of principal$192,506 dividends(285,868)(186,982)186,982(285,868)1,112,089pv of interest$469,071pv of interest$80,261 retained earnings--12/31/x33,005,247790,1113,005,247bond price$948,525bond price$272,768 s's stockholders' equity1,390,111 balance sheetp's ownership interest80%1,112,089 cash240,000134,289374,289difference-issuing company accounts receivable600,000322,295922,2956.50% inventories720,000295,4371,015,437datepaymentinterest exp.carrying value other current assets2,163,718268,5792,432,297reconciliation: non-contr. interest to s's equity:1/1/20x0$948,525 investment in s1,941,5291,941,529-12/31/x065,25061,654944,929 plant and equipment--net1,500,0001,020,599525,0003,045,599s's stockholders' equity x non-contr. interest percentage278,02212/31/x165,25061,420941,099purchasing company land100,000644,589420,0001,164,589unrealized intercompany balances in re-s-12/31/x265,25061,171937,0217.00% intangibles10,80010,80012/31/x365,25060,906932,677datecollectionsinterest rev.carrying value total assets7,265,2472,685,7888,965,306non-contr. interest balance at year end485,38212/31/x465,25060,624928,0511/1/x5$272,768 unamortized differential(207,360)12/31/x565,25060,323923,12412/31/x519,57519,094272,286 excess278,022278,02212/31/x665,25060,003917,87712/31/x619,57519,060271,771 accounts payable600,000330,000930,000difference-12/31/x765,25059,662912,28912/31/x719,57519,024271,220 notes payable60,00033,00081,00012,00012/31/x865,25059,299906,33812/31/x819,57518,985270,631 bonds payable, 10%932,677932,67712/31/x965,25058,912900,00012/31/x919,57518,944270,000 capital stock3,000,000300,000300,0003,000,000 additional paid in capital600,000300,000300,000600,000 retained earnings3,005,247790,1113,005,247 non-contr. interest, 12/31/x3485,382485,382 total liabilities and equity7,265,2472,685,7882,613,8942,613,8948,965,306 proofs of balance---- consolidation working papers -- year ended december 31,20x4colker parentsubsidiaryadjusts. and elims.cons. income statement sales6,300,0002,550,000 income from s432,989 cost of goods sold(4,410,000)(1,479,000) operating expenses(945,000)(382,500) interest expense(60,624) gain on building sale384,000 non-contr. interest income net income1,377,9891,011,876 retained earnings retained earnings--p, 1/1/x43,005,247 retained earnings--s, 1/1/x4790,111 net income1,377,9891,011,876 dividends(330,717)(242,850) retaind earnings--12/31/x44,052,5191,559,137 balance sheet cash472,500168,384 accounts receivable630,000404,123 inventories693,000370,446 other current assets2,769,781336,769 investment in s2,180,238 plant and equipment--net1,500,0001,279,721 land100,000808,245 intangibles total assets8,345,5193,367,688 accounts payable630,000255,000 notes payable63,00025,500 bonds payable, 10%928,051 capital stock3,000,000300,000 additional paid in capital600,000300,000 retained earnings4,052,5191,559,137 non-contr. interest, 12/31/x4 total liabilities and equity8,345,5193,367,688 proofs of balance---- consolidation working papers -- year ended december 31,20x5colker parentsubsidiaryadjusts. and elims.cons. income statement sales6,450,0002,850,000 income from s487,764 cost of goods sold(4,450,500)(1,710,000) operating expenses(967,500)(427,500) interest income19,094 (gain) loss on bonds interest expense(60,323) non-contr. interest income net income1,538,858652,177 retained earnings retained earnings--p, 1/1/x54,052,519 retained earnings--s, 1/1/x51,559,137 net income1,538,858652,177 dividends(369,326)(156,522) retaind earnings--12/31/x55,222,0512,054,791 balance sheet cash161,250194,571 accounts receivable645,000466,970 inventories709,500428,056 other current assets3,600,731389,142 investment in s2,542,784 plant and equipment--net1,500,0001,478,738 land100,000933,940 investment in sub's bonds272,286 intangibles total assets9,531,5513,891,415 accounts payable645,000285,000 notes payable64,50028,500 bonds payable, 10%923,124 capital stock3,000,000300,000 additional paid in capital600,000300,000 retained earnings5,222,0512,054,791 non-contr. interest, 12/31/x5 total liabilities and equity9,531,5513,891,415 proofs of balance---- consolidation working papers -- year ended december 31,20x6colker parentsubsidiaryadjusts. and elims.cons. income statement sales6,000,0002,880,000 income from s535,028 cost of goods sold(4,170,000)(1,670,400) operating expenses(960,000)(432,000) interest income19,060 interest expense(60,003) non-contr. interest income net income1,424,088717,597 retained earnings retained earnings--p, 1/1/x65,222,051 retained earnings--s, 1/1/x62,054,791 net income1,424,088717,597 dividends(341,781)(172,223) retaind earnings--12/31/x66,304,3572,600,165 balance sheet cash150,000221,742 accounts receivable600,000532,181 inventories660,000487,833 other current assets4,342,553443,484 investment in s2,940,033 plant and equipment--net1,500,0001,685,240 land100,0001,064,362 investment in sub's bonds271,771 intangibles total assets10,564,3574,434,842 accounts payable600,000288,000 notes payable60,00028,800 bonds payable, 10%917,877 capital stock3,000,000300,000 additional paid in capital600,000300,000 retained earnings6,304,3572,600,165 non-contr. interest, 12/31/x6 total liabilities and equity10,564,3574,434,842 proofs of balance--(0)- - credit a gain, debit a loss final project tips: 1. in this project goodwill is called "intangibles" and amortized over a period of time ( if this amount is 240,000 over 10 years, at 12/31/x3 worksheet intangible will be (240,000 -24,000) 216,000, x4 intangible will be 192,000 and so forth) 2. project : focus on the worksheet for 2004 - this has intercompany sales, use 20x3 as an example. (once you do x4, you can make progress on x5 & x6 - you can leave the bond for last) 3. to start the project - you should do some preliminary calculations: figure out 100% value of the subsidiary, allocation of fv-bv schedule this out for the 20x3-6, then calculate the controlling % of these items and non-controlling % 4. bonds affect 20x5 and 20x6 - calculations need to be done 5. basic worksheet adjustments: steps needed to be done on the worksheets: 1. remove income from sub 2. remove the sub capital and r/e 3. remove dividend payable/recieviable 4. intercompany sales - i.e. gross profit in ending inventory this is for the worksheet bonds are a special intercompany item 5. amortization of differences fv-bv $="" 90,000="" plant="" &="" equipment,="" remaining="" life:="" 8="" $="" 600,000="" land="" $="" 420,000="" long="" term="" liabilities;="" remaining="" life:="" 10="" $="" 90,000="" intangibles="" amortization:="" 10="" intercompany="" transactions:="" 20x3="" 20x4="" 20x5="" 20x6="" upstream="" inventory="" sales="" -="" $="" 45,000="" $="" 38,250="" $="" 40,928="" %="" in="" ending="" inventory="" -="" 8.00%="" 9.60%="" 11.52%="" gross="" profit="" rate="" on="" sales="" -="" 40.00%="" 48.00%="" 57.60%="" upstream="" building="" sale,="" dec.="" 31="" sold="" for="" $="" 600,000="" book="" value="" at="" time="" of="" sale="" $="" 216,000="" remaining="" life:="" 10="" %="" of="" s="" bonds="" purchased="" by="" p,="" jan.="" 1="" 30%="" price="" paid="" $="" 272,768="" bv="" at="" that="" date="" $="" 278,415="" remaining="" life:="" 5="" maturity="" value="" of="" acquired="" bonds="" $="" 270,000="" required:="" 1.="" complete="" the="" worksheets="" for="" 20x4-6.="" author:="" excess="" of="" fmv="" of="" sub's="" assets="" and="" liabilities="" over="" their="" bv="" when="" parent="" acquired="" sub.="" author:="" when="" p="" acquired="" s,="" the="" fair="" value="" (i.e.,="" present="" value)="" of="" these="" liabilities="" was="" less="" than="" their="" book="" value.="" wksheets="" consolidation="" worksheet="" problem="" consolidation="" working="" papers="" --="" year="" ended="" december="" 31,="" 20x3="" colker="" parent="" subsidiary="" adjusts.="" and="" elims.="" cons.="" income="" statement="" sales="" 6,000,000="" 3,000,000="" 9,000,000="" reconciliation:="" investment="" to="" s's="" equity="" bonds="" income="" from="" s="" 291,115="" 291,115="" -="" -="" issuer's="" facts:="" acquirer's="" facts:="" cost="" of="" goods="" sold="" (4,200,000)="" (1,710,000)="" 240,000="" (6,150,000)="" investment,="" 12/31="" 20x3="" 1,941,529="" acquired="" jan.="" 20x5="" operating="" expenses="" (900,000)="" (450,000)="" 175,200="" (1,525,200)="" removal="" of="" unamortized="" differential:="" %="" acquired="" 30%="" interest="" expense="" (60,906)="" (60,906)="" initial="" amortiz.="" face="" value="" 900,000="" face="" value="" 270,000="" non-contr.="" interest="" income="" 72,779="" (72,779)="" inventories="" (192,000)="" 192,000="" -="" stated="" rate="" 7.25%="" stated="" rate="" 7.25%="" net="" income="" 1,191,115="" 779,094="" 1,191,115="" other="" current="" assets="" (72,000)="" 72,000="" -="" effective="" rate="" 6.50%="" effective="" rate="" 7.00%="" plant="" &="" equipment="" (480,000)="" 60,000="" (420,000)="" interest="" pmts.="" 65,250="" interest="" pmts.="" 19,575="" retained="" earnings="" land="" (336,000)="" -="" (336,000)="" bonds="" life="" 10="" bonds="" life="" 5="" retained="" earnings--p,="" 1/1/x3="" 2,100,000="" 2,100,000="" l.="" t.="" liabilities="" (72,000)="" 7,200="" (64,800)="" retained="" earnings--s,="" 1/1/x3="" 198,000="" 198,000="" intangibles="" (9,600)="" 960="" (8,640)="" at="" issuance:="" at="" bond="" purchase:="" net="" income="" 1,191,115="" 779,094="" 1,191,115="" unamortized="" differential="" (829,440)="" pv="" of="" principal="" $479,453="" pv="" of="" principal="" $192,506="" dividends="" (285,868)="" (186,982)="" 186,982="" (285,868)="" 1,112,089="" pv="" of="" interest="" $469,071="" pv="" of="" interest="" $80,261="" retained="" earnings--12/31/x3="" 3,005,247="" 790,111="" 3,005,247="" bond="" price="" $948,525="" bond="" price="" $272,768="" s's="" stockholders'="" equity="" 1,390,111="" balance="" sheet="" p's="" ownership="" interest="" 80%="" 1,112,089="" cash="" 240,000="" 134,289="" 374,289="" difference="" -="" issuing="" company="" accounts="" receivable="" 600,000="" 322,295="" 922,295="" 6.50%="" inventories="" 720,000="" 295,437="" 1,015,437="" date="" payment="" interest="" exp.="" carrying="" value="" other="" current="" assets="" 2,163,718="" 268,579="" 2,432,297="" reconciliation:="" non-contr.="" interest="" to="" s's="" equity:="" 1/1/20x0="" $948,525="" investment="" in="" s="" 1,941,529="" 1,941,529="" -="" 12/31/x0="" 65,250="" 61,654="" 944,929="" plant="" and="" equipment--net="" 1,500,000="" 1,020,599="" 525,000="" 3,045,599="" s's="" stockholders'="" equity="" x="" non-contr.="" interest="" percentage="" 278,022="" 12/31/x1="" 65,250="" 61,420="" 941,099="" purchasing="" company="" land="" 100,000="" 644,589="" 420,000="" 1,164,589="" unrealized="" intercompany="" balances="" in="" re-s="" -="" 12/31/x2="" 65,250="" 61,171="" 937,021="" 7.00%="" intangibles="" 10,800="" 10,800="" 12/31/x3="" 65,250="" 60,906="" 932,677="" date="" collections="" interest="" rev.="" carrying="" value="" total="" assets="" 7,265,247="" 2,685,788="" 8,965,306="" non-contr.="" interest="" balance="" at="" year="" end="" 485,382="" 12/31/x4="" 65,250="" 60,624="" 928,051="" 1/1/x5="" $272,768="" unamortized="" differential="" (207,360)="" 12/31/x5="" 65,250="" 60,323="" 923,124="" 12/31/x5="" 19,575="" 19,094="" 272,286="" excess="" 278,022="" 278,022="" 12/31/x6="" 65,250="" 60,003="" 917,877="" 12/31/x6="" 19,575="" 19,060="" 271,771="" accounts="" payable="" 600,000="" 330,000="" 930,000="" difference="" -="" 12/31/x7="" 65,250="" 59,662="" 912,289="" 12/31/x7="" 19,575="" 19,024="" 271,220="" notes="" payable="" 60,000="" 33,000="" 81,000="" 12,000="" 12/31/x8="" 65,250="" 59,299="" 906,338="" 12/31/x8="" 19,575="" 18,985="" 270,631="" bonds="" payable,="" 10%="" 932,677="" 932,677="" 12/31/x9="" 65,250="" 58,912="" 900,000="" 12/31/x9="" 19,575="" 18,944="" 270,000="" capital="" stock="" 3,000,000="" 300,000="" 300,000="" 3,000,000="" additional="" paid="" in="" capital="" 600,000="" 300,000="" 300,000="" 600,000="" retained="" earnings="" 3,005,247="" 790,111="" 3,005,247="" non-contr.="" interest,="" 12/31/x3="" 485,382="" 485,382="" total="" liabilities="" and="" equity="" 7,265,247="" 2,685,788="" 2,613,894="" 2,613,894="" 8,965,306="" proofs="" of="" balance="" -="" -="" -="" -="" consolidation="" working="" papers="" --="" year="" ended="" december="" 31,="" 20x4="" colker="" parent="" subsidiary="" adjusts.="" and="" elims.="" cons.="" income="" statement="" sales="" 6,300,000="" 2,550,000="" income="" from="" s="" 432,989="" cost="" of="" goods="" sold="" (4,410,000)="" (1,479,000)="" operating="" expenses="" (945,000)="" (382,500)="" interest="" expense="" (60,624)="" gain="" on="" building="" sale="" 384,000="" non-contr.="" interest="" income="" net="" income="" 1,377,989="" 1,011,876="" retained="" earnings="" retained="" earnings--p,="" 1/1/x4="" 3,005,247="" retained="" earnings--s,="" 1/1/x4="" 790,111="" net="" income="" 1,377,989="" 1,011,876="" dividends="" (330,717)="" (242,850)="" retaind="" earnings--12/31/x4="" 4,052,519="" 1,559,137="" balance="" sheet="" cash="" 472,500="" 168,384="" accounts="" receivable="" 630,000="" 404,123="" inventories="" 693,000="" 370,446="" other="" current="" assets="" 2,769,781="" 336,769="" investment="" in="" s="" 2,180,238="" plant="" and="" equipment--net="" 1,500,000="" 1,279,721="" land="" 100,000="" 808,245="" intangibles="" total="" assets="" 8,345,519="" 3,367,688="" accounts="" payable="" 630,000="" 255,000="" notes="" payable="" 63,000="" 25,500="" bonds="" payable,="" 10%="" 928,051="" capital="" stock="" 3,000,000="" 300,000="" additional="" paid="" in="" capital="" 600,000="" 300,000="" retained="" earnings="" 4,052,519="" 1,559,137="" non-contr.="" interest,="" 12/31/x4="" total="" liabilities="" and="" equity="" 8,345,519="" 3,367,688="" proofs="" of="" balance="" -="" -="" -="" -="" consolidation="" working="" papers="" --="" year="" ended="" december="" 31,="" 20x5="" colker="" parent="" subsidiary="" adjusts.="" and="" elims.="" cons.="" income="" statement="" sales="" 6,450,000="" 2,850,000="" income="" from="" s="" 487,764="" cost="" of="" goods="" sold="" (4,450,500)="" (1,710,000)="" operating="" expenses="" (967,500)="" (427,500)="" interest="" income="" 19,094="" (gain)="" loss="" on="" bonds="" interest="" expense="" (60,323)="" non-contr.="" interest="" income="" net="" income="" 1,538,858="" 652,177="" retained="" earnings="" retained="" earnings--p,="" 1/1/x5="" 4,052,519="" retained="" earnings--s,="" 1/1/x5="" 1,559,137="" net="" income="" 1,538,858="" 652,177="" dividends="" (369,326)="" (156,522)="" retaind="" earnings--12/31/x5="" 5,222,051="" 2,054,791="" balance="" sheet="" cash="" 161,250="" 194,571="" accounts="" receivable="" 645,000="" 466,970="" inventories="" 709,500="" 428,056="" other="" current="" assets="" 3,600,731="" 389,142="" investment="" in="" s="" 2,542,784="" plant="" and="" equipment--net="" 1,500,000="" 1,478,738="" land="" 100,000="" 933,940="" investment="" in="" sub's="" bonds="" 272,286="" intangibles="" total="" assets="" 9,531,551="" 3,891,415="" accounts="" payable="" 645,000="" 285,000="" notes="" payable="" 64,500="" 28,500="" bonds="" payable,="" 10%="" 923,124="" capital="" stock="" 3,000,000="" 300,000="" additional="" paid="" in="" capital="" 600,000="" 300,000="" retained="" earnings="" 5,222,051="" 2,054,791="" non-contr.="" interest,="" 12/31/x5="" total="" liabilities="" and="" equity="" 9,531,551="" 3,891,415="" proofs="" of="" balance="" -="" -="" -="" -="" consolidation="" working="" papers="" --="" year="" ended="" december="" 31,="" 20x6="" colker="" parent="" subsidiary="" adjusts.="" and="" elims.="" cons.="" income="" statement="" sales="" 6,000,000="" 2,880,000="" income="" from="" s="" 535,028="" cost="" of="" goods="" sold="" (4,170,000)="" (1,670,400)="" operating="" expenses="" (960,000)="" (432,000)="" interest="" income="" 19,060="" interest="" expense="" (60,003)="" non-contr.="" interest="" income="" net="" income="" 1,424,088="" 717,597="" retained="" earnings="" retained="" earnings--p,="" 1/1/x6="" 5,222,051="" retained="" earnings--s,="" 1/1/x6="" 2,054,791="" net="" income="" 1,424,088="" 717,597="" dividends="" (341,781)="" (172,223)="" retaind="" earnings--12/31/x6="" 6,304,357="" 2,600,165="" balance="" sheet="" cash="" 150,000="" 221,742="" accounts="" receivable="" 600,000="" 532,181="" inventories="" 660,000="" 487,833="" other="" current="" assets="" 4,342,553="" 443,484="" investment="" in="" s="" 2,940,033="" plant="" and="" equipment--net="" 1,500,000="" 1,685,240="" land="" 100,000="" 1,064,362="" investment="" in="" sub's="" bonds="" 271,771="" intangibles="" total="" assets="" 10,564,357="" 4,434,842="" accounts="" payable="" 600,000="" 288,000="" notes="" payable="" 60,000="" 28,800="" bonds="" payable,="" 10%="" 917,877="" capital="" stock="" 3,000,000="" 300,000="" additional="" paid="" in="" capital="" 600,000="" 300,000="" retained="" earnings="" 6,304,357="" 2,600,165="" non-contr.="" interest,="" 12/31/x6="" total="" liabilities="" and="" equity="" 10,564,357="" 4,434,842="" proofs="" of="" balance="" -="" -="" (0)="" -="" -="" credit="" a="" gain,="" debit="" a="" loss="" final="" project="" tips:="" 1.="" in="" this="" project="" goodwill="" is="" called="" "intangibles"="" and="" amortized="" over="" a="" period="" of="" time="" (="" if="" this="" amount="" is="" 240,000="" over="" 10="" years,="" at="" 12/31/x3="" worksheet="" intangible="" will="" be="" (240,000="" -24,000)="" 216,000,="" x4="" intangible="" will="" be="" 192,000="" and="" so="" forth)="" 2.="" project="" :="" focus="" on="" the="" worksheet="" for="" 2004="" -="" this="" has="" intercompany="" sales,="" use="" 20x3="" as="" an="" example.="" (once="" you="" do="" x4,="" you="" can="" make="" progress="" on="" x5="" &="" x6="" -="" you="" can="" leave="" the="" bond="" for="" last)="" 3.="" to="" start="" the="" project="" -="" you="" should="" do="" some="" preliminary="" calculations:="" figure="" out="" 100%="" value="" of="" the="" subsidiary,="" allocation="" of="" fv-bv="" schedule="" this="" out="" for="" the="" 20x3-6,="" then="" calculate="" the="" controlling="" %="" of="" these="" items="" and="" non-controlling="" %="" 4.="" bonds="" affect="" 20x5="" and="" 20x6="" -="" calculations="" need="" to="" be="" done="" 5.="" basic="" worksheet="" adjustments:="" steps="" needed="" to="" be="" done="" on="" the="" worksheets:="" 1.="" remove="" income="" from="" sub="" 2.="" remove="" the="" sub="" capital="" and="" r/e="" 3.="" remove="" dividend="" payable/recieviable="" 4.="" intercompany="" sales="" -="" i.e.="" gross="" profit="" in="" ending="" inventory="" this="" is="" for="" the="" worksheet="" bonds="" are="" a="" special="" intercompany="" item="" 5.="" amortization="" of="" differences="">