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Problem 05-32 A. How Was The Balance in The Equity Earnings of Sander Account Determined?

The balance in the Equity Earnings of Sander account was determined based on Sander's reported 2011 income, an adjustment for excess patent fair value amortization, and recognition of deferred and realized gross profit from intra-entity inventory transfers between Plymouth and Sander. The consolidated income was allocated to the controlling and noncontrolling interests.

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55 views4 pages

Problem 05-32 A. How Was The Balance in The Equity Earnings of Sander Account Determined?

The balance in the Equity Earnings of Sander account was determined based on Sander's reported 2011 income, an adjustment for excess patent fair value amortization, and recognition of deferred and realized gross profit from intra-entity inventory transfers between Plymouth and Sander. The consolidated income was allocated to the controlling and noncontrolling interests.

Uploaded by

mj_navarro14
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Student Name:

Class:
Problem 05-32
a. How was the balance in the Equity Earnings of Sander account determined?
2011 income reported by Sander
Excess patent fair value amortization
Deferred gross profit for 12/31/11 intra-entity inventory
Recognized gross profit for 1/11/11 intra-entity inventory
Sander's income adjusted
To controlling interest
To noncontrolling interest

PLYMOUTH COMPANY AND SUBSIDIARY


Consolidation Worksheet
December 31, 2011

Accounts

Plymouth
(1,740,000)
820,000

Sander
(950,000)
500,000

104,000
220,000
20,000
(124,000)
(700,000)

85,000
120,000
15,000
(230,000)

Retained earnings, 1/1

(2,800,000)

(345,000)

Net Income
Dividends paid
Retained earnings, 12/31

(700,000)
200,000
(3,300,000)

(230,000)
25,000
(550,000)

Cash
Accounts receivable
Inventory
Investment in Sander

535,000
575,000
990,000
1,420,000

115,000
215,000
800,000

Buildings and equipment


Patents
Goodwill
Total assets

1,025,000
950,000

863,000
107,000

5,495,000

2,100,000

(450,000)
(545,000)

(200,000)
(450,000)

(900,000)
(300,000)
(3,300,000)

(800,000)
(100,000)
(550,000)

Revenues
Cost of goods sold
Depreciation expense
Amortization expense
Interest expense
Equity earnings - Sander
Separate company income
Consolidated income to noncontrolling
interest
Consolidated income to controlling
interest

Accounts payable
Notes payable
Noncontrolling interest in Sander 1/1
Noncontrolling interest in Sander 12/31
Common stock
Additional paid-in capital
Retained earnings 12/31

Adjustments and
Eliminations
Debit
Credit

Noncontrolling
Interest

Consolidated
Totals

Student Name:
Class:
Problem 05-32
Total liabilities and equity
Parentheses indicate a credit balance.

(5,495,000)

(2,100,000)

Given Data P05-32:


Sander Company outstanding stock purchased
by Plymouth Corp on 1/1/11
Cash paid for Sander stock
Sander's book value at time of purchase
Sander's business fair value at time of purchase
Undervaluation of Sander's patent account at time of purchase
Remaining life of patents (years)

80%
$
$
$
$

1,200,000
925,000
1,500,000
350,000
5

Intercompany inventory sales for past three years:

Year
2011
2012
2013

Intra-Entity
Ending Inv.
Intra-Entity
Transfer
Sales
Price
$
125,000 $
80,000
220,000
125,000
300,000
160,000

Gross Profit
Rate on
Intra-Entity
Inventory
Transfers
25%
28%
25%

Separate financial statements as of December 31, 2013

Revenues
Cost of goods sold
Operating expenses
Amortization expense
Interest expense
Equity in earnings of Sander
Net income

Plymouth
Sander
12/31/2013
12/31/2013
$ (1,740,000) $
(950,000)
820,000
500,000
104,000
85,000
220,000
120,000
20,000
15,000
(124,000)
$
(700,000) $
(230,000)

Retained earnings, 1/1/11


Net income
Dividends paid
Retained earnings, 12/31/11

$ (2,800,000) $
(700,000)
200,000
$ (3,300,000) $

Cash
Accounts receivable
Inventories
Investment in Sander
Buildings and equipment
Patents
Total assets

Accounts payable
Notes payable
Common stock
Additional paid-in capital

(345,000)
(230,000)
25,000
(550,000)

535,000 $
575,000
990,000
1,420,000
1,025,000
950,000
5,495,000 $

115,000
215,000
800,000
863,000
107,000
2,100,000

(450,000) $
(545,000)
(900,000)
(300,000)

(200,000)
(450,000)
(800,000)
(100,000)

Retained earnings 12/31/11


Total liabilities and stockholders' equity

(3,300,000)
(550,000)
$ (5,495,000) $ (2,100,000)

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